Prepare a income statement and balance sheet Assuming AG is in the second year o
ID: 2563095 • Letter: P
Question
Prepare a income statement and balance sheet
Assuming AG is in the second year of operations in 2016, AG had beginning balance sheet account balances of: Cash $1,000,000; A/R $100,000; Allowance for doubtful accounts $10,000 (credit balance); Common stock $400,000; APIC $600,000; and retained earnings of $90,000. Assume all other accounts have zero balances. AG purchased inventory on credit throughout the year: On 2/1 - 10,000 units at $10/unit; On 6/1 - 10,000 units at $20/unit; On 12/1- 20,000 units at $15/unit. AG uses LIFO perpetual method and incorporates lower of cost or market in determining ending inventory. Assume the Market Value of ending inventory is $65,000. AG made the following sales on credit: On 2/25, AG sold 6,000 units for $60/unit. On 8/20, AG sold 12,000 units for $75/unit. On 12/15, AG sold 18,000 units for $90/unit. On 12/20 AG received a deposit of $100,000 for 1,000 units of inventory that will be delivered in January of 2017. AG collected $390,000 in cash for the first sale in 2016 and for last year's sales (2015). The amount not collected from these sales (beginning balance and February sales) has an uncollectible rate of 50%. In December 2016, AG collected 2,020,000 from the later in the year sales. Any amount not collected is estimated to be 1% uncollectible. On January 2, AG issued 5-year bonds for $515,000 cash. The bonds have a face value of $500,000, stated rate of 10% and market rate of 9%. Interest is paid every January 1, AG uses the straight-line method of amortization. On April 1, 2016 AG purchased equipment for $300,000, paying $100,000 in cash and financing the rest through a long-term note that charges 10% interest until paid. Also in April-AG purchased $25,000 of supplies with cash.Explanation / Answer
Balance Sheet As on 01/01/2016 Liabilities Amount Assets Amount Common Stock 4,00,000 Cash 10,00,000 APIC 6,00,000 A/R 1,00,000 Retained Earning 90,000 Allow. for Bad Debts (10,000) 10,90,000 10,90,000 Inventory Transaction Units Inventory 1-Feb-16 Purchased 10000 10 1,00,000 10,000 25-Feb-16 Sales -6000 60 (3,60,000) 4,000 1-Jun-16 Purchased 10000 20 2,00,000 14,000 20-Aug-16 Sales -12000 75 (9,00,000) 2,000 1-Dec-16 Purchased 20000 15 3,00,000 22,000 15-Dec-16 Sales -18000 90 (16,20,000) 4,000 Net realisable value or cost price whichever is lower, However assumed company is not using this policy A/R Sales Till Feb 2016 After Feb 2016 Total 2015 A/R 1,00,000 25,20,000 26,20,000 25/02/2016 Sales 3,60,000 3,60,000 Total A/R 4,60,000 25,20,000 29,80,000 Collected 3,90,000 20,20,000 24,10,000 Balance 70,000 5,00,000 5,70,000 Bad debts 35,000 5,000 40,000 Balance A/R 35,000 4,95,000 5,30,000 Bond Carrying Value Face Value 5,00,000 Issue Price 5,15,000 Preimum (15,000) 1/5 Value (3,000) Carrying Value on 31/12 5,12,000 Equipment purchase Equipment Cost 3,00,000 Cash Paid 1,00,000 10% Long term note 2,00,000 Interest Payable 15,000 Total Value of the Note 2,15,000 Cash Balance Opening Balance 10,00,000 Collections 24,10,000 bond Issued 5,15,000 Less: Supplies (25,000) Payment for equipment (1,00,000) Closing Cash Balance 38,00,000 Profit & Loss Account for the year 2016 Amount Amount Purchases 6,00,000 Sales 28,80,000 Supplies 25,000 Prov for Bad Debts 30,000 Amortisation income 3,000 Interest 15,000 Closing Stock 50,000 Net Income 22,63,000 29,33,000 29,33,000 Assumed no taxes Balance Sheet As on 31/12/2016 Liabilities Amount Assets Amount Common Stock 4,00,000 Equipment 3,00,000 APIC 6,00,000 Inventory 50,000 Retained Earning 23,53,000 Cash 38,00,000 10% Long Term Note 2,15,000 A/R 5,70,000 5 year Bond 5,12,000 Allow. for Bad Debts (40,000) Accounts Payable 6,00,000 46,80,000 46,80,000 Assumed no depreciation