Question

XYZ Company began operations in May, 2022 by selling common stock to owners in exchange for $90,000 cash. During 2022, ABC Company entered into the following transactions: 1. On May 23, ABC Company purchased inventory for $50,000 cash. 2. On June 1, ABC Company purchased a three-year insurance policy for $32,400 cash. 3. On July 1, ABC Company received $49,000 cash from a customer for services to be performed over the next 8 months. 4. On August 1, ABC Company purchased equipment costing $60,000 by paying $20,000 in cash and agreeing to pay the remainder within six months. The equipment was given a 10-year life and a $4,200 residual value. 5. On August 18, ABC Company sold one-half of the inventory that was purchased on May 23 to a customer for $44,000 cash. Calculate the amount of total assets that ABC Company would report in its December 31, 2022 balance sheet after all the above transactions are recorded and all necessary adjusting entries are made and posted.

Answer 1

Answer:

ABC Company
Balance Sheet (Partial)
As of December 31,2022
Assets
Cash		$80,600
Inventory		$25,000
Prepaid insurance		$26,100
Equipment	$60,000
Less:Accumulated depreciation	($2,325)	$57,675
Total Assets		$189,375

Calculations:

i. Adjustments:

1. Insurance expense (June 1 to Dec.31) = $32,400 x (7 months/36 months) = $6,300
2. Service revenue from Unearned (July 1 to Dec 31) = 49,000 x (6 months/ 8 months) = $36,750
3. Depreciation expense (Aug.1 to Dec.31) = [(60,000-4,200)/10] x 5/12 = 5,580 x 5/12 = 2,325

ii. T-Accounts:

Cash			Common stock
$90,000	$50,000			$90,000
$49,000	$32,400
$44,000	$20,000		Unearned revenue
	$102,400		$36,750	$49,000
Bal. $80,600
			Accounts payable
Inventory				$40,000
$50,000	$25,000
Bal. $25,000			Sales revenue
				$44,000
Prepaid insurance				$36,750
$32,400	$6,300
Bal. $26,100			Cost of goods sold
			$25,000
Equipment
$60,000			Insurance Expense
Bal.$60,000			$6,300
Accumulated Depreciation			Depreciation Expense
$2,325			$2,325
Bal. $2,325