ACCT 210 Homework Chapter 5, Fall 2011

SOLUTIONS TO PROBLEMS SET A 20 Minutes, Easy PROBLEM 5.1A PARTY WAGON, INC. a. PARTY WAGON, INC. Income Statement For the Year Ended December 31, 2011 Revenues: Expenses: Insurance expense $ 1,800 Office rent expense 12,000 Supplies expense 1,200 Salary expense 75,000 8,000 7,000 2,000 Travel expense 6,000 3,600 Interest expense 4,400 Net income PARTY WAGON, INC. Statement of Retained Earnings For the Year Ended December 31, 2011 Add: Net Income Less: Dividends Party revenue earned Depreciation expense: van Depreciation expense: equipment & music Repair & maintenance expense Miscellaneous expense Income before taxes Income taxes expense Retained earnings (1/1/11) Retained earnings (12/31/11) SOLUTIONS TO PROBLEMS SET A PROBLEM 5.1A PARTY WAGON, INC. ARTY WAGON, INC. Income Statement ar Ended December 31, 2011 $ 130,000 121,000 $ 9,000 2,000 $ 7,000 ARTY WAGON, INC. ent of Retained Earnings ar Ended December 31, 2011 $ 15,000 7,000 1,000 $ 21,000 PROBLEM 5.1A PARTY WAGON, INC. (continued) a. (cont'd) PARTY WAGON, INC. Balance Sheet December 31, 2011 Assets Cash $ 15,000 Accounts receivable 9,000 Unexpired insurance 4,500 Prepaid rent 2,000 Supplies 500 Van ### 16,000 24,000 Equipment & music 35,000 14,000 21,000 Total Assets $ 76,000 Liabilities Accounts payable $ 7,000 Notes payable 39,000 Salaries payable 1,600 Interest payable 200 400 1,800 Total Liabilities $ 50,000 Stockholders' Equity Capital stock $ 5,000 Retained earnings 21,000 $ 26,000 $ 76,000 Less: Accumulated depreciation: van Less: Accumulated depreciation: equipment & music Income taxes payable Unearned party revenue Total Stockholders' Equity Total Liabilities and Stockholders' Equity PARTY WAG b. PARTY WAGON, INC. General Journal December 31, 2011 (1) Dec. 31 130,000 (2) 31 Income Summary 123,000 (3) 31 Income Summary 7,000 Party Revenue Earned Income Summary To close Party Revenue Earned. Insurance Expense Office Rent Expense Supplies Expense Salaries Expense Depreciati on Expense: Van Depreciati on Expense: Equip. & Music Repair & Maintena nce Expense Travel Expense Miscellan eous Expense Interest Expense Income Taxes Expense To close all expense accounts. Retained Earnings To transfer net income earned in 2011 to the $7,000). (4) 31 Retained Earnings 1,000 Dividends c. Retained Earnings account ($130,000 - $123,000 = To transfer dividends declared in 2011 to the Retained Earnings account. For the year ended December 31, 2011, the company generated net income of $7,000 on $130,00 income as a percentage of sales was approximately 5.4%. Moreover, the $7,000 profit represen stockholders’ equity, which is a fairly strong return on investment. The company’s balance she reports cash and accounts receivable totaling $24,000. It also reports various payables (liabiliti Thus, the company may or may not currently be liquid depending on when the $39,000 note pa balance sheet is due. If this obligation is not due in the near future, then the company appears however, this note is due shortly, the company may experience some cash flow difficulty. PROBLEM 5.1A PARTY WAGON (concluded) PARTY WAGON, INC. General Journal December 31, 2011 130,000 1,800 12,000 1,200 75,000 8,000 7,000 2,000 6,000 3,600 4,400 2,000 7,000 1,000 1, 2011, the company generated net income of $7,000 on $130,000 sales. Thus, net was approximately 5.4%. Moreover, the $7,000 profit represented a 30.4% return on fairly strong return on investment. The company’s balance sheet at December 31, 2011, vable totaling $24,000. It also reports various payables (liabilities) totaling $48,200. not currently be liquid depending on when the $39,000 note payable reported in the gation is not due in the near future, then the company appears to be solvent. If, , the company may experience some cash flow difficulty.