Question

I must take these transactions and post them to their respected T-Accounts and then to the general ledger and need some help:

1. Cayman Corporation Narrative Cayman Corporation was formed on January 1, 2020 when Cayman issued 10,000 shares of its $0.50 par common stock for $250,000 cash.

2. On the date of formation, Cayman paid $70,000 cash for 4,000 units of inventory and $5,000 cash for office supplies.

3. Also, on January 1, Cayman purchased equipment for $100,000 by signing a 5-year, 5%, note payable. Interest accrues annually and the first payment is due on December 31, 2020. Each annual loan payment will consist of $20,000 principal plus the accrued interest. Keep in mind you don’t necessarily have to have all of your transactions in chronological order.

4. At this point, I suggest either recording the loan payment (principal + interest expense) or at least write yourself a reminder to record the loan payment as one of the last transactions. Don’t forget that the principal and interest belong in separate areas on the statement of cash flows. You might want to record the principal payment as a separate journal entry from interest.

5. Cayman uses the straight-line method to depreciate office equipment assuming a 10-year life and no residual value.

6. Later in the year, Cayman purchased an additional 4,000 units of inventory on account at a cost of $75,000. Before year end, Cayman Corporation paid 75% of this amount.

7. Sales for 2020 consisted of 5,500 units sold on account for $75 each. (When recording sales revenue, don’t forget to also record cost of goods sold.) Cayman uses the FIFO method to account for inventory and cost of goods sold.

8. Before year end, Cayman collected 80% of the accounts receivable.

9. Cayman expects it will not collect 1% of the receivables that are still outstanding as of December 31, 2020. Cayman uses the allowance method to account for potential uncollectible accounts. No specific accounts were actually written off in 2020.

10. Cayman employs three people. The total payroll for 2020 was $50,000, of which Cayman still owes $3,000 at year end. Don’t worry about payroll taxes for this problem.

11. In November, Cayman purchased land for $80,000 cash.

12. During 2020, Cayman paid building rent of $30,000 and used $4,500 worth of office supplies.

13. In December one of the initial investors sold stock back to Cayman Corporation. Cayman paid $20,000 for the treasury stock.

14. Cayman Corporation declared and paid a $10,000 cash dividend to stockholders. You can use the dividends accounts or you can take the dividends directly out of retained earnings. If you take the dividends directly out of retained earnings, then you don’t need a closing entry for dividends.

15. The income tax rate for 2020 is 20%. Assume the income tax for the year has all been paid. To calculate income tax, multiply net income before tax by the tax rate. Don’t forget to record an actual journal entry for the income tax expense. Just to be absolutely clear:

1. Calculate income before income tax expense

2. Calculate income tax expense

3. Income before income tax – tax = net income

4. Prepare the journal entry for income tax expense

Prepare closing journal entries for the temporary accounts.

Check figures: Cash: $193,940 Total Assets: $492,990 Retained Earnings: $161,240 Operating CF: $73,940

Answer 1

Solution-1	Income before income tax expense
		In $
		Amount
a)	Sale (5500*75)	412500
b)	Cost of inventory sold (Note-1)	-98125
c)	Repair and maintenance (Office supplies)	-4500
d)	Interest expense on 5% note on equipment purchased	-5000
e)	Depreciation on Equipment (100000/10)	-10000
f)	Bad debts (Note-2)	-825
g)	Salary to employees	-50000
h)	Building rent	-30000
	Profit before Income tax	214050
Note-1	Assuming FIFO method of inventory issue and valuation then following transaction has been recorded
	Per Unit of inventories purchased on the date of formation	17.5
	Per unit of additional inventory purchased	18.75
	Value of inventory sold
	First 4000 of units	70000
	Last 1500 of units	28125
	Value of inventory sold	98125
Note-2	Bad Debts
	Receivables	412500
	Less : receivable collected	-330000
	Balance receivables	82500
	Bad debts (1%*82500)	825
Solution-2	income tax expense	42810
Solution-3	Net income (Income before income tax-income tax expense)	171240
Solution-4	Journal entry for income tax expense
	Provision for Income tax expense	42810
	To Profit and loss account		42810
Solution-5	Closing entries for temporary accounts
1)	Cash	250000
	To Common stock		5000
	To Security premium		245000
2)	Inventories	70000
	Office supplies	5000
	To cash		75000
3)	Equipment	100000
	To 5% Note payable		100000
4)	Interest on 5% Note payable	5000
	To Interest accrued		5000
5)	Profit and loss account	5000
	To Interest on 5% Note payable		5000
6)	Interest accrued	5000
	To cash		5000
7)	5% Note payable (20000-5000)	15000
	To cash		15000
8)	Depreciation on equipment	10000
	To Profit and loss account		10000
9)	Inventories	75000
	To Sundry Creditors		75000
10)	Sundry Creditors	56250
	To Cash		56250
11)	Sundry Debtors	412500
	To Sale		412500
12)	Sale	412500
	To Profit and loss		412500
13)	Cost of good sold account	98125
	To inventories		98125
14)	Profit and loss account	98125
	To Cost of inventory		98125
15)	Cash	330000
	To sundry Debtors		330000
15)	Bad debts	825
	To sundry debtors		825
16)	Profit and loss account	825
	To Bad debts		825
17)	Salary to employee	50000
	To cash		47000
	To salary payable to employees		3000
18)
	Profit and loss account	50000
	To salary to employees		50000
19)
	Land	80000
	To cash		80000
20)
	Building rent	30000
	To cash		30000
20)	Profit and loss account	30000
	To Building rent		30000
21)	Profit and loss account	4500
	To Office supplies		4500
22)	Dividend	10000
	To Dividend declared account		10000
23)	Dividend declared account	10000
	To cash		10000
24)	Retain earning account	10000
	To Dividend account		10000