Pastina Company sells various types of pasta to grocery chains as private label

Question

Pastina Company sells various types of pasta to grocery chains as private label brands. The company's fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2018, appears below.

   

Information necessary to prepare the year-end adjusting entries appears below.

Depreciation on the office equipment for the year is $11,750.

Employee salaries and wages are paid twice a month, on the 22nd for salaries and wages earned from the 1st through the 15th, and on the 7th of the following month for salaries and wages earned from the 16th through the end of the month. Salaries and wages earned from December 16 through December 31, 2018, were $1,650.

On October 1, 2018, Pastina borrowed $71,400 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.

On March 1, 2018, the company lent a supplier $29,400 and a note was signed requiring principal and interest at 8% to be paid on February 28, 2019.

On April 1, 2018, the company paid an insurance company $6,200 for a two-year fire insurance policy. The entire $6,200 was debited to insurance expense.

$980 of supplies remained on hand at December 31, 2018.

A customer paid Pastina $1,920 in December for 1,600 pounds of spaghetti to be delivered in January 2019. Pastina credited sales revenue.

On December 1, 2018, $2,700 rent was paid to the owner of the building. The payment represented rent for December 2018 and January 2019, at $1,350 per month.

For requirement 4, Assume that no common stock was issued during the year and that $3,600 in cash dividends were paid to shareholders during the year.

4. Prepare the income statement, statement of shareholders' equity and classified balance sheet for the year ended December 31, 2018.

Account Title Debits Credits Cash 45,650 Accounts receivable 58,000 Supplies 1,850 Inventory 77,000 Note receivable 29,400 Interest receivable 0 Prepaid rent 2,700 Prepaid insurance 0 Office equipment 94,000 Accumulated depreciation—office equipment 35,250 Accounts payable 37,000 Salaries and wages payable 0 Note payable 71,400 Interest payable 0 Deferred revenue 0 Common stock 60,000 Retained earnings 23,000 Sales revenue 233,000 Interest revenue 0 Cost of goods sold 104,850 Salaries and wages expense 20,100 Rent expense 14,850 Depreciation expense 0 Interest expense 0 Supplies expense 1,350 Insurance expense 6,200 Advertising expense 3,700 Totals 459,650 459,650

Explanation / Answer

Income statement

for the period ended December 31 2018

**1920 sales revenue is a unearned revenue since delievery will be made in 2019

**Interest payable on note oct 1 :Interest = 71400*.12*3/12=2142               [1oct - 31 dec]

Interest receivable on march 1 :Interest= 29400*.08*10/12=1960                    [1mar -31dec]

**supplies used = 1850 unadjusted -980 ending inventory = 870

**Insurance expired for the period = [6200*1/2 ] =3100 per year * 9/12 =2325                [1april -31 dec ]

2).

Statement of stockholders equity

for the period ended 31 dec 2018

Balance sheet

As on December 31 2018

Income statement

for the period ended December 31 2018

sales   [233000-1920] 231080 Cost of goods sold (104,850) Gross margin 126230 less:Operating expense Salaries and wages expense   [20100+1650] 21750 Rent expense   [14850+1350] 16200 Depreciation expense 11750 Supplies expense   [1350+870] 2220 Insurance expense 2325 Advertising expense 3700 Total operating expense (57945) Operating Income 68285 other Income /(expense) Interest revenue 1960 INterest expense (2142) (182) Net Income 68103

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