02 Jul BUSN 6550, Use the horizontal model (accounting equation) and write the journal entry

Question Description

BUSN 6550

Individual Assignment #1

1. Bishop has an account payable of $7,700 due to Jasper, Inc., one of its suppliers. The amount was due to be paid on October 15, 2017. Bishop only had enough cash on hand then to pay $1,700 of the amount due, so Bishop’s treasurer called Jasper’s treasurer and agreed to sign a note payable for the balance. The note was dated October 15, 2017, had an interest rate of 8% per annum, and was payable with interest on December 31, 2017.

Use the horizontal model (accounting equation) and write the journal entry, to show the effect of:

a. The October 15, 2017 payment of $1,700 and the creation of a note payable for the balance

owed.

b. The October 31, 2017 accrual of interest expense for the month of October.

c. The December 31, 2017 payment of the note and all of the interest due. Interest for

November and December had not been accrued.

2. On January 10, 2017, Simpson paid $2,100 rent for a storage facility for the period from

January 10 through May 31. The rent charge is $450 per month.

Use the horizontal model (accounting equation) and write the journal entry, to show the effect of:

a. The January 10, 2017 rent payment assuming that the disbursement was recorded as an

expense.

b. The January 31, 2017 adjustment recorded to show the appropriate amount of expense in the

income statement of Simpson for the month of January.

c. Show an alternative way of recording the disbursement of $2,100 on January 10, 2017.

d. Record the adjustment that would be appropriate at January 31, 2017 if the disbursement had been recorded as in c.

e. What is the effect of the difference between the two methods of recording these items (and b versus c and d) on the:

1. Income statement for the month of January?

2. Balance sheet at January 31?

Individual Assignment #1 (continued)

3. A bookkeeper prepared the year-end financial statements of Parties, Inc. The income

statement showed net income of $3,900, and the balance sheet showed beginning retained earnings of $39,200. No dividends were declared or paid during the year. The firm’s accountant reviewed the bookkeeper’s work and determined that adjusting entries should be made which would increase revenues by $2,200, and decrease expenses by $900.

a. What will be the amount of net income after the above adjustments are recorded?

b. What was the ending retained earnings balance on the balance sheet prepared by the

bookkeeper?

c. What is the correct ending balance in retained earnings to be reported on the balance sheet

4.

Account balances and supplemental information for the Kelly Corporation as of December 31, 2017, are given below:

Accounts Payable …………………………………

$ 75,900

Accounts Receivable ………………………………

141,600

Accumulated Depreciation–Equipment ………………..

84,000

Bonds Payable ……………………………………

300,000

Cash ……………………………………………

243,900

Common Stock …………………………………….

1,560,000

Deferred Income Tax Liability (noncurrent) ………….

6,900

Dividends Payable ………………………………..

45,000

Equipment ……………………………………….

840,000

Income Taxes Payable ……………………………..

91,500

Inventory ……………………………………….

395,100

Investment in Land ……………………………….

510,000

Investment in Stock of Subsidiary ………………….

492,000

Note Payable …………………………………….

120,000

Notes Receivable …………………………………

150,000

Prepaid Insurance ………………………………..

7,200

Retained Earnings ………………………………..

453,600

Salaries and Wages Payable ………………………..

42,900

(a)

$300,000 of 12% bonds were issued on December 31, 2017, at par.

(b)

40,000 shares of $30 par value common stock were sold for $1,560,000.

(c)

All the equipment was purchased on January 2, 2016. The depreciation rate is 10 percent per year.

(d)

5 percent of accounts receivable are expected to be uncollectible.

Individual Assignment #1 (continued)

(e)

A two-year insurance policy was purchased on May 1, 2017, for $7,200.

(f)

Accrued interest on $150,000 of short-term notes receivable from customers was $5,100 at December 31, 2017.

(g)

$120,000 was borrowed from the bank on a 5-year, 10% note payable dated July 1, 2017. The loan is to be repaid at the end of 5 years. Interest is payable each year on July 1.

Required:

Prepare a properly classified balance sheet in proper form for Kelly Corporation as of December 31, 2017. NOTE: the above items a-g need to be considered and any adjustments need to be made to the balance sheet accounts and any related income statement effects should be adjusted to the retained earnings account.