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Selected amounts at December 31, 2003 from the Hay and Barnabas Company's information system appear as follows: Cash paid employees for salaries and wages 300,000 Cash collected from sales customers 1,850,000 Bonds payable 500,000 Cash 150,000 Common stock 60,000 Equipment 840,000 Prepaid insurance 30,000 Inventory 250,000 Prepaid rent 140,000 Retained earnings 130,000 Salaries and wages expense 328,000 Sales 2,000,000 You are to complete each of the following tasks
Selected amounts at December 31, 2003 from the Hay and Barnabas Company's information system appear as follows:
Cash paid employees for salaries and wages
300,000
Cash collected from sales customers
1,850,000
Bonds payable
500,000
Cash
150,000
Common stock
60,000
Equipment
840,000
Prepaid insurance
30,000
Inventory
250,000
Prepaid rent
140,000
Retained earnings
130,000
Salaries and wages expense
328,000
Sales
2,000,000
You are to complete each of the following tasks.
Part A
There are five adjustments that need to be made before the financial statements can be prepared at year end. Show the effect of each of the following (a - e) on the accounting equation.
The equipment (purchased on January 1, 2003) has a useful life of 12 years with no salvage value (Straight-line method is used).
Interest accrued on the bonds payable is $20,000 as of December 31, 2003.
Unexpired insurance at December 31, 2003 is $7,000.
The rent payment of $140,000 covered the four months from December 1, 2003 through March 31, 2004.
Salaries and wages of $28,000 were earned but unpaid at December 31, 2003.
Part B
Indicate the proper balance sheet classification of each of the preceding 12 financial statement items on the December 31, 2003 balance sheet. If the account title would not appear on the balance sheet, indicate the financial statement on which it would be found.
Current assets
Property, plant and equipment
Current liabilities
Long-term liabilities
Stockholders' equity
Expert Solution
please see the attached file.
Assets = Liabilities + Owners Equity
a. -70,000 -70,000
b. +20,0000 -20,000
c.-23,000 -23,000
d. -35,000 -35,000
+28,000 -28,000
Explanations -
a. The depreciation would reduce the equipment value ( asset reduced) and the expense would reduce the owners equity. The depreciation amount is 840,000/12=70,000 under straight line method.
b. Interest payable is a liability and the interest expense would reduce the equity
c. The difference between the prepaid insurance and unexpired insurance is the insurance expired which is an expense. The prepaid insurance which is an asset is reduced and the expense reduces equity. The amount is 30,000-7,000=23,000
d. Similarly with rent. One months rent will become expense. Amount is 140,000/4=35,000
e. Unpaid salaries are liability and the expense reduces equity.
2. Cash Paid employees for salaries and wages Profit & Loss - expense
Cash collected from sales customers Current Asset
Bonds payable Long Term Liability
Cash Current Asset
Common Stock Stockholders Equity
Equipment Property, Plant and Equipment
Prepaid Insurance Current Asset
Inventory Current Assets
Prepaid rent Current Asset
Retained earnings Stockholders Equity
Salaries and wages expense Profit and Loss - Expense
Sales Profit and Loss - Revenue
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