Question

On October 1, 2018 - ABC sold 1,000 shares of stock (100%) of ABC Co. for $3,500,000. The $3,500,000 was paid directly to ABC in exchange for ABC common stock. The par value of the stock was $1,500/share. ABC Company purchased equipment for $300,000; paying $120,000 cash and financing (through a long-term note) the remaining portion. The interest rate is 5% payable on January 1" of each subsequent year. ABC Company prepaid a year's (12months) worth of insurance. Insurance pre-payment was $96,000. ABC had the following transactions after 10/1/2018: Sold and delivered services for $920,000. $120.000 in cash was paid immediately and the remaining were provided trade credit (not credit card). Terms are 3/10, Net 45. 50% of the customers paid within the discount time frame and the remaining cash did not come in until 2019 Sold and delivered services for $350,000 on credit card with a 3% discount. ABC was given $80,000 in cash for future services. 10% of the services were delivered by year end; and the remaining services will be provided to the client in 2019. ABC paid $25,000 for advertising, ABC paid $20,000 for supplies. Cash was paid for both Paid $80,000 in cash for salaries for 2018. The end of the year was in the middle of the week and the total unpaid salary expense for 2018 was $5,000. This $5,000 will not be paid until first week of 2019. Sold more services for $50,000 in cash. We had to give $10,000 back as a return due to unsatisfactory work of an employee. At year-end, the amount of supplies on-hand was $3,000 The equipment depreciated by $10,000 by year-end. We estimate 1% of credit trade-sales to be uncollectible. The tax rate is 20%. Round all numbers to the nearest dollar. ABC declared and paid a dividend of $3,000. Prepare JEs: a Balance Sheet and Income Statement in good form for the year-ended 12/31/2018
show calculations (excel)

Answer 1

Number	Particulars	Debit	Credit
1	Cash	$ 35,00,000
	Common stock		$ 35,00,000
	(Common stock issued for cash)
2	Equipment	$    3,00,000
	Cash		$    1,20,000
	Note payable		$    1,80,000
	(Purchase of equipment partly for cash and partly by using note)
3	Prepaid insurance	$        96,000
	Cash		$        96,000
	(12 months insurance paid accounted as prepaid)
4	Cash	$    1,20,000
	Accounts receivable	$    8,00,000
	Service revenue		$    9,20,000
	(Services provide partly for cash and partly on account)
5	Cash	$    3,88,000
	Cash discount	$        12,000
	Accounts receivable		$    4,00,000
	(Received from the customer within the discount period)
6	Cash	$    3,39,500
	Cash discount	$        10,500
	Service revenue		$    3,50,000
	(Services provide using credit card- assumed cash received on credit card sales)
7	Cash	$        80,000
	Unearned revenue		$        80,000
	(Cash received for future services)
8	Unearned revenue (80000*10%)	$          8,000
	Service revenue		$          8,000
	(Services provided)
9	Advertising expenses	$        25,000
	Cash		$        25,000
	(Advertising expenses paid)
10	Supplies	$        20,000
	Cash		$        20,000
	(Supplies purchased for cash)
11	Salaries expense	$        85,000
	Cash		$        80,000
	Salaries payable		$          5,000
	(Salaries expense booked and paid partly)
12	Cash	$        50,000
	Service revenue		$        50,000
	(Services provided for cash)
13	Service revenue	$        10,000
	Cash		$        10,000
	(Cash return for unsatisfactory services)
14	Supplies expense	$        17,000
	Supplies		$        17,000
	(Supplies consumed)
15	Depreciation	$        10,000
	Accmulated depreciation - Equipment		$        10,000
	(Depreciation provided on equipment)
16	Bad debts (400000*1%)	$          4,000
	Provision for doubtful debts		$          4,000
	(Provision made for doubtful debts)
17	Dividend	$          3,000
	Cash		$          3,000
	(Dividend paid)
18	Insurance expense	$        24,000
	Prepaid insurance		$        24,000
	(Insurance expense booked for 3 months)

Income statement of ABC Co.
Service revenue	$        13,18,000
Less: Cash discounts	$            (22,500)
	$        12,95,500
Expenses
Salaries	$              85,000
Insurance expense	$              24,000
Bad debts	$                4,000
Deprecition	$              10,000
Supplies expense	$              17,000
Advertising expense	$              25,000
Total expense	$          1,65,000
Net Income	$        11,30,500
Tax @ 20% (1130500*20%)	$          2,26,100
Profot after tax	$          9,04,400
Dividend paid	$                3,000
Transferred to balance sheet	$          9,01,400

Balance sheet of ABC Co.
Common stock	$        35,00,000	Equipment	$        3,00,000
Retained earnings	$          9,01,400	Less:Accumulated Depreciation	$         (10,000)	$          2,90,000
Note payable	$          1,80,000	Supplies		$                3,000
Salaries payable	$                5,000	Prepaid insurance		$              72,000
Unearned revenue	$              72,000	Cash		$        41,23,500
Income tax payable	$          2,26,100	Accounts receivable	$        4,00,000
		Less:Provosion for doubtful dents	$            (4,000)	$          3,96,000
Total	$        48,84,500			$        48,84,500