ABC Company began operations in June, 2007 by selling common stock to owners in
ID: 2364724 • Letter: A
Question
ABC Company began operations in June, 2007 by selling common stock to owners in exchange for $70,000 cash. During 2007, ABC Company entered into the following transactions: 1. On June 23, ABC Company purchased inventory for $40,000 cash 2. On July 1, ABC Company purchased supplies for $18,000 cash 3. On August 1, ABC Company received $40,000 cash from a customer for services to be performed over the next 20 months 4. On September 1, ABC Company sold one-half of the inventory purchased on June 23 to a customer for $35,000 cash 5. A physical count revealed that supplies costing $5,000 were still on hand at December 31 Calculate the amount of net income that ABC Company would report in its 2007 income statement after all the above transactions are recorded and all necessary adjusting entries are made at December 31, 2007. Do not use decimals in your answer.Explanation / Answer
Journal Entries recorded during the year.
Apr 23 Inventory Dr 40,000
Cash 40,000
May 1 PrepaidInsurance Dr 18,000
Cash 18,000
June1 Cash Dr 45,000
Unearned revenue 45,000
Aug 1 Cash Dr 35,000
Sales revenue 35,000
Cost of goods sold Dr 20,000
Inventory 20,000
Adjusting Entries on Dec 31,07
Dec 31 , 07
1. Insurance expense Dr 4,000
Prepaid insurance 4,000
( 18,000 * 8/ 36)
2. Unearned revenue Dr 17,500
Service revenue 17,500
(45,000* 7/18)
ABC company
Income statement
For the year ended Dec 31, 07
SalesRevenue 35,000
ServiceRevenue 17,500
Totalrevenue 52,500
- cost of goodssold 20,000
GrossMargin 32,500
-Insuranceexpenses 4,000
Netincome 28,500
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