1.

During the year, ASC paid the following to its workers (in cash):

Administrative Salaries to CEO, accountant, etc.. $2,000

Salaries to retail workers $4,000

Please give the journal entry to describe this transaction.

SG & A / Period expense $6,000

Cash $6,000
2. During the year, ASC sold 50 Air Abbotts to Dr. Mike McCarthy for $1,500/Air
Abbott in CASH. Give the journal entry to describe this transaction.

Cash (50*1500) $75,000

Sales revenue $75,000
COGS (50*150) $7,500
Inventory- Air Abbotts $7,500

3. During the year, ASC sold 80 Air Smunts for $2,000/Air Smunt in CASH. Give
the journal entry to describe this transaction.

Cash (80*2000) $160,000

Sales revenue $160,000
COGS (80*160) $12,800
Inventory- Air Abbotts $12,800

4. During the year, ASC paid CASH the following bills:

Utilities for office building $5,000
Rent for building $2,000
Give the journal entry to describe this transaction.

SG & A / Period expense $7,000

Cash $7,000

5. Dr. Paul Fischer pays $20,000 of his account balance. Give the journal entry to
describe this transaction.

Cash $20,000
Account receivable $20,000
6. Abbott Shoe Company pays $30,000 cash to its shoe vendor. Give the journal
entry to describe this transaction.

Account payable $30,000

Cash $30,000

7. On 12/15/2018, Abbott Shoe Corporation pays a CASH DIVIDEND (AS IN

PAID IN CASH/DISTRIBUTED IN CASH) of $250,000. The cash dividends are
paid to Lawrence Abbott for $125,000, Don Majkowsky for $62,500 and Brett
Favreau for $62,500. Please give the journal entry to describe this transaction.

Dividends payable $250,000

Cash $250,000

8. Give any adjusting journal entries needed on 12/31/18.

Depreciation expense $2,400

Accumulated depreciation $2,400
Interest expense $1.000
Cash $1,000

9. Please prepare the CLOSING journal entry for 12/31/18.

Sales $235,000
COGS $20,300
SG & A expense $16,400
Retained earnings $198,300

10. Based upon 1-9 above, PREPARE AN INCOME STATEMENT for 2018.

SALES $235,000
COGS ($20,300)
Gross Margin $214,700
Period Costs/SG&A ($16,400)
Net Income $198,300

11. Based on the above, prepare a BALANCE SHEET for 2018.

Assets
Current Assets:
Cash $337,000
Account receivable $20,000
Inventory $6,400
Total current assets $363,400
Equipment $12,000
 Less: ACC.Depri $4,800
Total Assets $370,600

Liabilities and Stockholder’s equity

Current Liabilities:
Accounts payable $29,000
Loans payable $20,000
Total liabilities $49,000
Stockholder’s equity
Contributed capital $200,000
Retained Earnings $121,600
Total liabilities & stockholder’s equity $370,600

12.Put your 2017 Balance Sheet next to your 2018 balance sheet. Answer the following
questions:

Balance sheet of 2017

Assets
Current Assets
Cash $376,000
Accounts receivable $40,000
Inventory $26,700
Total current assets $442,700
Property, plant & equipment
Equipment – Cash register $12,000
Less: Accumulated depreciation $2,400 $9,600
Total assets $452,300

Liabilities & Stockholder’s Equity

Current liability
Accounts payable $59,000
Total current assets $59,000
Long-term liabilities
Loans payable $20,000
Total liabilities $20,000
Stockholder’s equity
Contributed capital $200,000
Retained earnings $173,300
Total stockholder’s equity $373,300
Total liabilities & stockholder’s equity $452,300
Balance sheet of 2018
Assets
Current Assets:
Cash $337,000
Account receivable $20,000
Inventory $6,400
Total current assets $363,400
Equipment $12,000
Less: Accumulated Depriciation $4,800
Total Assets $370,600

Liabilities and Stockholder’s equity

Current Liabilities:
Accounts payable $29,000
Loans payable $20,000
Total liabilities $49,000
Stockholder’s equity
Contributed capital $200,000
Retained Earnings $121,600
Total liabilities & stockholder’s equity $370,600

a. What is your 12/31/2017 retained earnings balance in comparison to your 12/31/2018

retained earnings balance?

Retained earning’s balance of 2017 was $173,300 and in 2017 it has decreased to
$121,600.

b. Is it possible to determine whether Abbott Shoe is ‘going in reverse’ or ‘going

forward’ based upon an analysis of your retained earnings section?

Abbott shoe is going in reverse direction upon analysis of retained earning’s section, by
paying huge amount of dividends, which leads to reduction on stockholder’s claim on
equity.

c. Under WHAT circumstances could a financial statement user determine if a company

was going forward or reverse based upon an analysis of the retained earnings section of
the balance sheet?

13. Put your 2017 income statement next to your 2018 income statement. Answer the
following questions:

Income statement of 2017

Sales (50,000 + 160,000) $210,000
Less: Cost of goods sold (7500 + 12,800) $20,300
 Gross Margin $189,700
Less: SG & A $16,400
Net income $173,300

Income statement of 2018

SALES $235,000
COGS ($20,300)
Gross Margin $214,700
Period Costs/SG&A ($16,400)
Net Income $198,300