Giorgi Asatiani

Essentials Exam Problem Example

 Company Issued 250,000 shares of $1 par value common stock at $18 per share.
 Investor invested $22,000 cash and equipment with a value of $9,500 into the business.
 The corporation purchased equipment by paying $1,000 down and signing a note for the remainder of $17,500.
 The corporation purchased supplies on account, $4,500.
 The corporation rented office space paying one month’s rent in advance, $1000.
 The corporation performed services for a customer on account, $2,000.
 The corporation performed services for a customer and immediately collected $800 cash.
 The corporation paid employees’ salaries of $1,200.
 Company received $10,000 cash in advance for services to be performed.
 The Allowance for Uncollectible Accounts are estimated to be 4% of revenue
 Company sold 190 units @ $340 each. The following information is also available:
Beginning inventory 30 units @ $150
Feb 3 purchase 60 units @ $160
June 2 purchase 70 units @ $170
Oct 1 purchase 40 units @ $180
 On January 1, 2005, Block Company issued $100,000 of 10%, 5-year bonds, with semiannual interest payments on July 1
and December 31. The bonds were issued at $92,639, yielding an effective-interest rate of 12%. Block Company uses
straight line method of amortization. Prepare the necessary journal entries to record the issuance of the bonds
 Unearned service revenue earned during the year amounts to $1,500.
 Prepaid rent on hand on December 31 amounts to $800.
 Supplies used during the current year amount to $700.
 Accrued salaries on December 31, amount to $500.
 Prepare the necessary journal entries to record the first interest payment of the bonds
 Compute the amount of depreciation expense that the company will recognize in a year the estimated useful life of the
equipment is 5 years, with an estimated salvage value of $1,000. Company uses straight line method

Based on the transactions above, prepare an adjusted trial balance, Income Statement, Balance Sheet and Cash flow
statement (indirect method)

Solution:

1 Debit Cash 4,500,000

Credit Common Stock 250,000

Additional Paid in Capital 4,250,000
2 Debit Cash 22,000
Equipment 9,500

Credit Common Stock 31,500

3 Debit Equipment 18,500
Giorgi Asatiani

Credit Cash 1,000

N/P 17,500
4 Debit Supplies 4,500

Credit A/P 4,500

5 Debit Prepaid Rent 1,000

Credit Cash 1,000

6 Debit A/R 2,000

Credit Service Revenue 2,000

7 Debit Cash 800

Credit Service Revenue 800

8 Debit Salary Expense 1,200

Credit Cash 1,200

9 Debit Cash 10,000

Credit Unearned Revenue 10,000

10 Debit Uncollectible Expense 112

Credit Allowance 112

11 Debit Inventory 33,200

Credit Cash 33,200

11 Debit Cash 64,600

Credit Sales Revenue 64,600

11 Debit COGS 31,400

Credit Inventory 31,400

12 Debit Cash 92,639
Discout 7,361

Credit Bonds Payable 100,000

13 Debit Unearned Revenue 1,500

Credit Service Revenue 1,500

14 Debit Rent Expense 200

Credit Prepaid Rent 200

15 Debit Supplies Expense 700
Giorgi Asatiani

Credit Supplies 700

16 Debit Salary Expense 500

Credit Salary Payble 500

17 Debit Interest Expense 5,736

Credit Discount 736

Cash 5,000
18 Debit Depreciation Expense 5,400

Credit Accumulated Depreciation 5,400

Trial Balance
Accounts Debit Credit
Cash 4,648,639
Common Stock 281,500
Additional Paid in Capital 4,250,000
Equipment 28,000
N/P 17,500
Supplies 3,800
A/P 4,500
Prepaid Rent 800
Service Revenue 4,300
Salary Expense 1,700
Unearned Revenue 8,500
Uncollectible Expense 112
Allowance 112
Sales Revenue 64,600
COGS 31,400
Inventory 1,800
Discount 6,625
Bonds Payable 100,000
Rent Expense 200
Supplies Expense 700
Salary Payble 500
Interest Expense 5,736
Depreciation Expense 5,400
Accumulated Depreciation 5,400
A/R 2,000
Total 4,736,912 4,736,912
Giorgi Asatiani

Income Statement
Total Revenue 68,900
Service Revenue 4,300
Sales Revenue 64,600
Total Expenses 45,248
Salary Expense 1,700
Uncollectible Expense 112
COGS 31,400
Rent Expense 200
Supplies Expense 700
Interest Expense 5,736
Depreciation Expense 5,400
Net Income 23,652

Balance Sheet
Total Assets 4,679,527
Cash 4,648,639
Equipment 28,000
Accumulated Depreciation (5,400)
Supplies 3,800
Prepaid Rent 800
Inventory 1,800
A/R 2,000
Allowance (112)
Total Liabilities 124,375
N/P - 17,500
A/P - 4,500
Unearned Revenue - 8,500
Bonds Payable - 100,000
Discount (6,625) -
Salary Payble - 500
Total Equity 4,555,152
Common Stock 281,500
Additional Paid in Capital 4,250,000
RE 23,652

Total Liability and Equity 4,679,527

check -
Giorgi Asatiani

Cash Flow
Cash Provided From Operating Activities (Indirect Method) 145,139
Net Income 23,652
Depreciation Expense 5,400
Supplies (3,800)
Prepaid Rent (800)
Inventory (1,800)
A/R (1,888)
N/P 17,500
A/P 4,500
Unearned Revenue 8,500
Bonds Payable 93,375
Salary Payble 500
Cash Provided From Investing Activities (28,000)
Cash Provided From Financing Activities 4,531,500
Cash Balance 4,648,639
- check