Accounting Major Project Discussion

Major Project – Sarah Enterprises Incorporated
The Sarah Enterprises Inc. had the following balance sheet as of December 31, 20×2. The transactions for the first three months of 20×3 are also presented along with other information about specific accounts.Sarah Enterprises IncorporatedBalance SheetDecember 31, 20×2ASSETSLIABILITIESCash$ 37,000Accounts Payable$ 30,000Marketable Securities10,000Wages Payable9,000Accounts Receivable63,000Taxes Payable6,000Uncollectible Accounts-2,000Short-Term Note Payable15,000Inventory74,000Interest Payable625Supplies6,000Unearned Revenue14,000Prepaid Insurance9,000Total Current Assets$197,000Total Current Liabilities$ 74,625Land$105,625Long-Term Notes Payable$ 30,000Equipment217,000Bonds Payable100,000Accumulated Depreciation-97,000Mortgage Payable320,000Building490,000Total Long-Term Liabilities$450,000Accumulated Depreciation-110,000Intangible Assets72,000STOCKHOLDER EQUITYTotal Long-Term Assets$677,625Capital Stock$100,000Paid in Capital140,000Retained Earnings110,000Total Stockholders Equity$350,000Total Assets$874,625Total Liabilities & Equity$874,625Additional InformationAccounts ReceivableThe following table indicates the historical breakout of accounts receivableDaysCurrent30 to 6060 to 90Over 90Percent of Balance50%30%15%5%Percent Collectible95%90%80%60%The company uses the gross method of recording all sales on accounts.Marketable SecuritiesThe interest rate earned on marketable securities is 6.0%.InventoryIn 20×2, the company had used the gross method to record inventory purchases on account. As of January 1, 20×3, the company is using the net method to record inventory purchases on account.Prepaid InsuranceA three-year insurance policy in the amount of $10,800 was purchased on July 1, 20×2.EquipmentEquipment is depreciated at an average amount of $4,000 per month.BuildingThe current building was purchased on January 1, ten years ago and has an expected 40-year life at which time its salvage value will be $50,000.Intangible AssetsIntangible assets were initially valued at $90,000 and are being depreciated over 30 years at $3,000 per year.Short-Term Notes PayableThe one-year short-term note payable is due on March 1, 20×3. The interest rate is 5.0% which is payable at maturity.Long-Term Notes PayableThe long-term notes payable are due in ten years. The interest rate on the notes is 6.0%.Bonds PayableThe bonds payable mature in twenty years. The interest rate on the bonds is 5.0%.Mortgage PayableThe following amortization schedule can be used for the January, 20×3 mortgage payment on the 4.0%, 30- year mortgage.MonthPayment
InterestPrincipalBalanceJanuary$3,500$2,063$1,437$320,000$318,563February$3,500$2,063$1,437$317,126March$3,500$2,063$1,437$315,689Capital StockThe capital stock is common stock at $10 par value with 50,000 shares authorized, and 10,000 shares issued and outstanding.Journal Entries(1) Jan 1 Equipment with a historical cost of $10,000 and an accumulated depreciation of $3,000 was sold for $8,000 cash.(2) Jan 2 Equipment with a historical cost of $20,000 and an accumulated depreciation of $18,000 was disposed of with an additional disposal cost of $2,300.(3) Jan 2 The company borrowed $40,000 on a short-term 90 day, 5.0% note payable.(4) Jan 3 The company paid $24,000 in advance for the 12 month rental of a warehouse.(5) Jan 5 Sarah Enterprises Board of Directors declared a dividend of $1.50 per share payable on February 10, 20×3 to all shareholders of record on January 20, 20×3.(6) Jan 6 The amount in wages payable and taxes payable was paid in full.(7) Jan 8 The company paid a total of $20,000 on accounts payable and was able to take advantage of $1,500 in purchase discounts for early payment. The original inventory purchase was recorded at the full amount (gross method).(8) Jan 15 Cash sales for two weeks equaled $28,000. The cost of inventory sold equaled $16,000.(9) Jan 20 Supplies in the amount of $6,500 were purchased for cash.(10) Jan 21 A customer who owed $15,000 on an account receivable, agreed to sign a 60-day note receivable with an interest rate of 5.0%. The interest earned on the note will be paid at the maturity date of the note receivable.(11) Jan 29 The balance of $8,500 in accounts payable was paid.(12) Jan 30 The company purchased $55,000 of inventory on account with the terms 2/10, net 30. The company has decided to switch to the net method for all inventory purchases on account beginning in 20×3.(13) Jan 31 Cash sales for two weeks equaled $30,000. The cost of inventory sold equaled $17,000.(14) Jan 31 Sales on account for the month of January totaled $66,000 with the terms 2/10, net 30. The cost of inventory sold equaled $31,000.(15) Jan 31 The unearned revenue represented the rental of special equipment that was used by another company on weekends. $3,000 of the revenue was earned in January.(16) Jan 31 Collected cash of $50,000 from the accounts receivable, plus there was a total sales discount of $2,000 for the payment of receivables within the ten day discount period.(17) Jan 31 Salary expenses in the amount of $15,000 and tax expenses in the amount of $9,000 were paid.(18) Jan 31 The company paid a repair bill of $3,000 was paid.(19) Jan 31 A bill in the amount of $4,500 for advertising expenses incurred during the month of January was received.(20) Jan 31 The monthly payment for January of the mortgage payable was made.(21) Feb 1 The company made a new issue of 5,000 shares of $10.00 par value common stock for cash. The market price of the stock was $30 per share.(22) Feb 2 A petty cash fund in the amount of $600 was established.(23) Feb 3 The company bought back 1,000 shares of its own common stock for $30 per share and reports the purchase as treasury stock.(24) Feb 8 The purchase of inventory on account on Jan 30th which was reported at the net amount was paid in full.(25) Feb 10 The dividend declared on January 5th was paid.(26) Feb 15 Cash sales for two weeks equaled $23,000. The cost of inventory sold equaled $11,500.(27) Feb 20 The company purchases $21,000 of inventory on account with the terms 2/10, net 30. The net method was used to record the purchase.(28) Feb 27 The company paid an advertising bill for $6,500 which included the February advertising expense of $2,000 plus the balance due from January.(29) Feb 28 Cash sales for two weeks equaled $30,000. The cost of inventory sold equaled $16,000.(30) Feb 28 The monthly payment for February of the mortgage payable was made.(31) Feb 28 The company collected cash of $58,800 from the accounts receivable, plus there was a total sales discount of $1,200 for the payment of receivables within the ten day discount period.(32) Feb 28 Salary expenses in the amount of $15,000 and tax expenses in the amount of $8,000 were paid.(33) Feb 28 The company paid another repair bill of $3,100.(34) Feb 28 Sales on account for the month of February totaled $65,000 with the terms 2/10, net 30. The cost of inventory sold equaled $32,500.(35) Mar 1 The short-term note payable of $15,000 that was due on March 1st plus all appropriate interest was paid.(36) Mar 3 The amount of the petty cash fund was increased by $400.(37) Mar 10 Supplies in the amount of $2,900 were purchased for cash.(38) Mar 15 Cash sales for two weeks equaled $28,000. The cost of inventory sold equaled $15,600.(39) Mar 20 The company reissued 300 shares of its own treasury stock for $45 per share.(40) Mar 21 The note receivable from January 21st had been paid in full plus interest.(41) Mar 25 The company purchased $53,000 of inventory on account using the net method with the terms 2/10, net 30.(42) Mar 28 The purchase of inventory on account on February 20th was paid in full.(43) Mar 29 The petty cash fund had $350 in cash and receipts in total amounts for the following expense categories: entertainment-$150, travel- $165, miscellaneous-$100, postage $120, and supplies $80. The petty cash fund was replenished.(44) Mar 30 Cash sales for two weeks equaled $22,000. The cost of inventory sold equaled $10,500.(45) Mar 30 The unearned revenue represented the rental of special equipment that was used by another company on weekends. $11,000 of the revenue was earned in March.(46) Mar 31 Sales on account for the month of March totaled $75,000 with the terms 2/10, net 30. The cost of inventory sold equaled $39,000.(47) Mar 31 Salary expenses in the amount of $16,000 and tax expenses in the amount of $7,000 were paid.(48) Mar 31 Collected cash of $80,000 from the accounts receivable, plus there was a total sales discount of $1,600 for the payment of receivables within the ten day discount period.(49) Mar 31 A warehouse building was acquired for $270,000. Closing costs on the acquisition equaled $8,500, and there were costs of $12,900 to get the building into an operational condition to be used by the company. The company paid $70,000 in cash as a down payment with the balance due being added to the mortgage payable account.(50) Mar 31 The utility bill of $6,000 for the quarter was paid.(51) Mar 31 The company repaid the 90 day note payable from January 2nd in full plus interest.(52) Mar 31 The equipment depreciation entry for the three months of 20×3 was completed.(53) Mar 31 The depreciation entry for the building for the months of January, February, and March was entered.(54) Mar 31 The amortization of intangible assets for the three months of 20×3 was completed.(55) Mar 31 The bad debt expense based on 1.0% of credit sales for the quarter was recorded.(56) Mar 31 Salary expenses incurred during the month of March but not yet paid equaled $9,500(57) Mar 31 Tax expenses incurred during the month of March but not yet paid equaled $2,900.(58) Mar 31 A physical inventory of supplies indicated a total amount of $3,000 of supplies still on hand. A journal entry was completed for the supplies used during the quarter.(59) Mar 31 A customer sent an advance payment of $20,000 for the use of special equipment in April and May.(60) Mar 31 The amount of rent expense for the warehouse for the first three months of 20×3 was recognized.(61) Mar 31 The company provided services to a customer in the amount of $4,000 during March but a bill has not been sent.(62) Mar 31 The amount of insurance expense for the first three months of 20×3 was recognized.(63) Mar 31 The amount of interest earned on marketable securities for the three months of 20×3 was recognized.(64) Mar 31 The amount of interest expense for the total long-term notes payable for the first three months of 20×3 was recognized.(65) Mar 31 The amount of interest expense for the bonds payable for the three months of 20×3 was recognized.(66) Mar 31 The monthly payment for March of the mortgage payable was made.Required1. Complete journal entries for each of the transactions. The numbers in the journal entries can be rounded to the nearest dollar.2. Develop a trial balance for Sarah Enterprises as of March 31, 20×3.3. Develop a single income statement representing January through March in good form for Sarah Enterprises for the first three months of 20×3. Ignore Federal Income Tax.3. Develop a single statement of retained earnings in good form as of March 31, 20×3 for Sarah Enterprises.4. Develop a balance sheet in good form as of March 31, 20×3 for Sarah Enterprises.