Question

Year 1 Transactions for Adomain Date January 1 Purchased a patent for $32,000 in cash March 15 Paid $18.500 in cash for long-term assets April 1 Prepaid $36,000 for rent for the next 12 months and recorded the transaction as an asset. April 1 Issued 1000 common shares to investors for $60,000 April 1 Sold inventory on account for $120,000. The cost of the inventory was $16,000. Also, paid a sales commission on this sale of $10,000. April 5 Paid $13,400 in cash for costs related to research and development of new products, May 1 Received $24,000 in cash in advance for services. The services will be provided over the course of 6 months beginning on Dec 1 of this year May 1 Received the cash to settle $65.000 of the receivables recorded on April 1 June 30 Paid last year's income tax liability July 31 Purchased Inventory for $15,000. Paid 3,000 in cash and recorded an Accounts Payable for the remaining balance July 31 Received $20.000 in cash relating to the Accounts Receivable in transaction 5 ISept 3D Purchased supplies for $7.000 in cash. T lOctober 1 The accountant recorded an adjustment to correct the entry made in 12a (so that the accounts will reflect what should have been recorded). October 1 Purchased marketable securities for $6,000 in cash, October 1 Borrowed $20,000 from a local bank and signed a year note payable promising to pay 10 Interest per year (interest is due and recorded on Dec 31 I Dec 1 Employee salaries earned amounted to $34.000. The company paid $4.000 on Dec 1 and the remainder will be paid on Jan 1. Year 2 Dec 31 Income Tax for Year 1 is $5,500 $3,500 is paid this year and the remainder will be paid on June 30 of Year Dec 31 Record the appropriate adjusting entry related to transaction 3. Dec 31 Record the appropriate adjusting entry related to transaction 7 Dec 31 $2000 of supplies are still on hand on Dec 31. Record the appropriate adjusting entry to reflect the supplies used during the year. (Refer to transaction 12.) Record the appropriate adjusting entry related to the note payable described in transaction 14 (assuming interest will be paid in Year 2).

Answer 1

						Transaction analysis
	Assets									=	Liabilities						+	Equity
Transaction number	Cash	Marketable securities	Accounts receivable	Inventory	Prepaid asset	Supplies	PP&E (net)	Intangible assets	Other long-term assets		Accounts payable	Notes payable	Unearned revenue	Income tax payable	Salaries payable	Interest payable		Common stock	Retained earnings	Income statement account
Beg. Bal.	80000	6700	20000	25000	0	0	34700	10500	15000		45000	28500	50000	4300	0	0		45000	19100
1	-32000							32000
2	-18500								18500
3	-36000				36000
4	60000																	60000
5			120000																120000	Sales revenue
				-16000															-16000	Cost of goods sold
	-10000																		-10000	Sales commissions
6	-13400																		-13400	R&D expense
7	24000												24000
8	65000		-65000
9	-4300													-4300
10	-3000			15000							12000
11	20000		-20000
12a.	-7000		7000
12b.			-7000			7000
13	-6000	6000
14	20000											20000
15	-4000														30000				-34000	Salaries expense
16	-3500													2000					-5500	Income tax expense
17					-27000														-27000	Rent expense
					(36000/12)*9
18													-4000						4000	Sales revenue
													(24000/6)*1
19						-5000													-5000	Supplies expense
						(7000-2000)
20																500			-500	Interest expense
Totals	131300	12700	55000	24000	9000	2000	34700	42500	33500		57000	48500	70000	2000	30000	500	0	105000	31700