Learning Module 3 Journal Entries

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1 Learning Module 3 Journal Entries

2 The Accounting Equation Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Recording journal entries is the step before posting to the T-accounts. Debits are left side entries. Credits are right side entries. For example, if a company issues $50,000 in common stock, the journal entry would be as follows: 1 Cash 50,000 Common Stock 50,000 To record issuance of common stock

3 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

4 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

5 Hot Dogs, Inc. Issue Stock (1) Record journal entry 1 Cash 9,000 Common Stock 9,000 To record issuance of 90 shares of stock for $100 each

6 Hot Dogs, Inc. Issue Stock (1) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 1 9,000 Common Stock 9,000 1

7 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

8 Hot Dogs, Inc. Borrow Money (2) Record journal entry 2 Cash 10,000 Note Payable 10,000 To record money borrowed from bank

9 Hot Dogs, Inc. Borrow Money (2) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 1 9, ,000 Note Payable 10,000 2

10 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

11 Hot Dogs, Inc. Purchase Cart (3) Record journal entry 3 Cart 10,000 Cash 10,000 To record purchase of cart

12 Hot Dogs, Inc. Purchase Cart (3) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 1 9,000 10, ,000 Cart 3 10,000

13 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

14 Hot Dogs, Inc. Buy Hot Dogs & Buns (4) Record journal entry 4 Inventory 3,000 Cash 3,000 To record purchase of 15,000 hot dogs and buns for $0.20 each

15 Hot Dogs, Inc. Buy Hot Dogs & Buns (4) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 1 9,000 10, ,000 3,000 4 Inventory 4 3,000

16 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

17 Hot Dogs, Inc. Sell Hot Dogs (5+6) Record journal entries 5 Cash 28,000 Sales 28,000 To record sale of 14,000 hot dogs for $2 each 6 Cost of Goods Sold 2,800 Inventory 2,800 To record cost of 14,000 hot dogs and buns for $0.20 each

18 Hot Dogs, Inc. Sell Hot Dogs (5+6) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 1 9,000 10, ,000 3, ,000 Inventory 4 3,000 2,800 6 Sales 28,000 5 Cost of Goods Sold 6 2,800

19 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

20 Hot Dogs, Inc. Pay Expenses (7) Record journal entry 7 Wage Expense 7,200 Office Expense 3,600 Interest Expense 800 Cash 11,600 To record payment of expenses

21 Hot Dogs, Inc. Pay Expenses (7) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 1 9,000 10, ,000 3, ,000 11,600 7 Wage Expense 7 7,200 Office Expense 7 3,600 Interest Expense 7 800

22 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

23 Hot Dogs, Inc. Issue Stock (8) Record journal entry 8 Cash 6,000 Common Stock 6,000 To record issuance of 20 shares of stock for $300 each

24 Hot Dogs, Inc. Issue Stock (8) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 1 9,000 10, ,000 3, ,000 11, ,000 Common Stock 9, ,000 8

25 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

26 Hot Dogs, Inc. Wages Owed (9) Record journal entry 9 Wage Expense 100 Wages Payable 100 To record wages owed

27 Hot Dogs, Inc. Wages Owed (9) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Wages Payable Wage Expense 7 7,

28 Hot Dogs, Inc. Income Statement How much is gross profit? Sales $ 28,000 Cost of Goods Sold 2,800 Gross Profit 25,200

29 Hot Dogs, Inc. Income Statement How much is operating income? Sales $ 28,000 Cost of Goods Sold 2,800 Gross Profit 25,200 Operating Expenses Wage Expense $ 7,300 Office Expense 3,600 Total Operating Expenses 10,900 Operating Income 14,300

30 Hot Dogs, Inc. Income Statement How much is income before taxes? Sales $ 28,000 Cost of Goods Sold 2,800 Gross Profit 25,200 Operating Expenses Wage Expense $ 7,300 Office Expense 3,600 Total Operating Expenses 10,900 Operating Income 14,300 Other Revenue & (Expenses) Interest Expense (800) Income before Taxes 13,500

31 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

32 Hot Dogs, Inc. Taxes Owed (10) Record journal entry 10 Tax Expense 4,050 Taxes Payable 4,050 To record taxes owed = $13,500 x 30%

33 Hot Dogs, Inc. Taxes Owed (10) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Taxes Payable 4, Tax Expense 10 4,050

34 Hot Dogs, Inc. Income Statement How much is net income? Sales $ 28,000 Cost of Goods Sold 2,800 Gross Profit 25,200 Operating Expenses Wage Expense $ 7,300 Office Expense 3,600 Total Operating Expenses 10,900 Operating Income 14,300 Other Revenue & (Expenses) Interest Expense (800) Income before Taxes 13,500 Tax Expense 4,050 Net Income $ 9,450

35 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

36 Hot Dogs, Inc. Income Statement How much is earnings per share? Weighted Shares Fraction Average Shares Outstanding of Year Outstanding Jan 1 90 x 9/12 = Sep x 3/12 = $ 9,450 EPS = = $

37 Hot Dogs, Inc. Income Statement For the Year Ended December 31, 2015 Sales $ 28,000 Cost of Goods Sold 2,800 Gross Profit 25,200 Operating Expenses Wage Expense $ 7,300 Office Expense 3,600 Total Operating Expenses 10,900 Operating Income 14,300 Other Revenue & (Expenses) Interest Expense (800) Income before Taxes 13,500 Tax Expense 4,050 Net Income $ 9,450 Earnings per share $ 99.47

38 Hot Dogs, Inc. Close Books for Year (11) Record journal entry All temporary accounts (revenue and expenses) are closed out to retained earnings at the end of each period. Only assets, liabilities, and owner s equity are permanent accounts. 11 Sales 28,000 Cost of Goods Sold 2,800 Wage Expense 7,300 Office Expense 3,600 Interest Expense 800 Tax Expense 4,050 Retained Earnings 9,450 To close books for the year

39 Hot Dogs, Inc. Close Books for Year (11) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cost of Goods Sold Sales 2,800 2, ,000 28,000 Wage Expense 7,300 7, Retained Earnings 9, Office Expense 3,600 3, Interest Expense Tax Expense 4,050 4,050 11

40 Hot Dogs, Inc. Statement of Owners' Equity For the Year Ended December 31, 2015 Common Retained Stock Earnings Total Beginning Balance, December 31, 2014 $ - $ - $ - Common Stock Issued 15,000 15,000 Net Income 9,450 9,450 Less: Dividends Declared - - Ending Balance, December 31, 2015 $ 15,000 $ 9,450 $ 24,450

41 Hot Dogs, Inc. Balance Sheet December 31, 2015 Assets Liabilities & Owners' Equity Liabilities Current Assets Current Liabilities Cash $ 28,400 Wages Payable $ 100 Inventory 200 Taxes Payable 4,050 Total Current Assets 28,600 Total Current Liabilities 4,150 Long-Term Debt Fixed Assets Note Payable $ 10,000 Cart $ 10,000 Total Liabilities 14,150 Net Fixed Assets 10,000 Owners' Equity Common Stock $ 15,000 Other Assets Retained Earnings 9,450 None $ - Total Owners' Equity 24,450 Total Assets $ 38,600 Total Liabilities & Owners' Equity $ 38,600

42 Hot Dogs, Inc. January 1, 2015 We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year. How did we do? Are we rich yet? Was it a good investment?

43 Homework Complete the BBBB, Inc. problem on page 50 record journal entries (including closing entry after you generate the income statement), post them to T-accounts, and generate financial statements Complete the Fluff, Inc. problem on page 57 record journal entries (including closing entry after you generate the income statement), post them to T-accounts, and generate financial statements

44 BBBB, Inc. Purchased Biffs (1) Purchased 15,000 biffs at $8 each. Paid $100,000 cash and will pay $20,000 next year. Record journal entry 1 Inventory 120,000 Cash 100,000 Accounts Payable 20,000 To record purchase of 15,000 biffs for $8 each

45 BBBB, Inc. Purchased Biffs (1) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash BB 151, ,000 1 Inventory BB 8, ,000 Accounts Payable - BB 20,000 1

46 BBBB, Inc. Sold Biffs (2+3) Sold 11,000 biffs at $20 each. Record journal entry 2 Cash 220,000 Sales 220,000 To record sale of 11,000 biffs for $20 each 3 Cost of Goods Sold 88,000 Inventory 88,000 To record cost of 11,000 biffs for $8 each

47 BBBB, Inc. Sold Biffs (2+3) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash BB 151, , ,000 Sales 220,000 2 Inventory BB 8,000 88, ,000 Cost of Goods Sold 3 88,000

48 BBBB, Inc. Paid for Land plus Interest (4) Paid the $28,000 note on the land plus $2,000 interest. Record journal entry 4 Note Payable - Land 28,000 Interest Expense 2,000 Cash 30,000 To record payment on the land plus interest

49 BBBB, Inc. Paid for Land plus Interest (4) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash BB 151, , ,000 30,000 4 Note Payable - Land 4 28,000 28,000 BB Interest Expense 4 2,000

50 BBBB, Inc. Paid Rent (5) Paid rent of $12,000. Record journal entry 5 Rent Expense 12,000 Cash 12,000 To record payment of rent

51 BBBB, Inc. Paid Rent (5) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash BB 151, , ,000 30, ,000 5 Rent Expense 5 12,000

52 BBBB, Inc. Paid Salaries (6) Paid salaries of $36,000. Record journal entry 6 Salary Expense 36,000 Cash 36,000 To record payment of salaries

53 BBBB, Inc. Paid Salaries (6) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash BB 151, , ,000 30, , ,000 6 Salary Expense 6 36,000

54 BBBB, Inc. Issued Stock (7) Issued 100 shares of common stock for $10,000 on June 1 st. Record journal entry 7 Cash 10,000 Common Stock 10,000 To record issuance of 100 shares of stock

55 BBBB, Inc. Issued Stock (7) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash BB 151, , ,000 30, ,000 12, ,000 6 Common Stock 5,000 BB 10,000 7

56 BBBB, Inc. Purchased Truck (8) On December 31, bought a truck for $40,000 cash. Record journal entry 8 Truck 40,000 Cash 40,000 To record purchase of truck

57 BBBB, Inc. Purchased Truck (8) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash BB 151, , ,000 30, ,000 12, , ,000 8 Truck BB ,000

58 BBBB, Inc. Paid Bank Note plus Interest (9) On December 31, paid $50,000 on the note payable to bank and $10,000 interest. Record journal entry 9 Note Payable - Bank 50,000 Interest Expense 10,000 Cash 60,000 To record payment on note plus interest

59 BBBB, Inc. Paid Bank Note plus Interest (9) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash BB 151, , ,000 30, ,000 12, , ,000 8 Note Payable - Bank 60, , ,000 BB Interest Expense 4 2, ,000

60 BBBB, Inc. Paid 2015 Taxes (10) Paid 2015 taxes. Record journal entry 10 Taxes Payable 18,600 Cash 18,600 To record payment of prior year taxes

61 BBBB, Inc. Paid 2015 Taxes (10) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash BB 151, , ,000 30, ,000 12, , , ,000 9 Taxes Payable 18, ,600 18,600 BB

62 BBBB, Inc. Income Statement How much is income before taxes? Sales $ 220,000 Cost of Goods Sold 88,000 Gross Profit 132,000 Operating Expenses Salary Expense $ 36,000 Rent Expense 12,000 Total Operating Expenses 48,000 Operating Income 84,000 Other Revenue & (Expenses) Interest Expense (12,000) Income before Taxes 72,000

63 BBBB, Inc. Taxes Owed (11) Tax rate is 30% and 2016 taxes will be paid in Record journal entry 11 Tax Expense 21,600 Taxes Payable 21,600 To record taxes owed = $72,000 x 30%

64 BBBB, Inc. Taxes Owed (11) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Taxes Payable 10 18,600 18,600 BB 21, Tax Expense 11 21,600

65 BBBB, Inc. Income Statement How much is net income? Sales $ 220,000 Cost of Goods Sold 88,000 Gross Profit 132,000 Operating Expenses Salary Expense $ 36,000 Rent Expense 12,000 Total Operating Expenses 48,000 Operating Income 84,000 Other Revenue & (Expenses) Interest Expense (12,000) Income before Taxes 72,000 Tax Expense 21,600 Net Income $ 50,400

66 BBBB, Inc. Income Statement How much is earnings per share? Remember there were 100 shares outstanding at the end of last year. Weighted Shares Fraction Average Shares Outstanding of Year Outstanding Jan x 5/12 = Jun x 7/12 = $ 50,400 EPS = = $

67 BBBB, Inc. Income Statement For the Year Ended December 31, 2016 Sales $ 220,000 Cost of Goods Sold 88,000 Gross Profit 132,000 Operating Expenses Salary Expense $ 36,000 Rent Expense 12,000 Total Operating Expenses 48,000 Operating Income 84,000 Other Revenue & (Expenses) Interest Expense (12,000) Income before Taxes 72,000 Tax Expense 21,600 Net Income $ 50,400 Earnings per share $

68 BBBB, Inc. Close Books for Year (12) Remember you need to close revenue and expense accounts out to retained earnings. Record journal entry 12 Sales 220,000 Cost of Goods Sold 88,000 Interest Expense 12,000 Rent Expense 12,000 Salary Expense 36,000 Tax Expense 21,600 Retained Earnings 50,400 To close books for the year

69 BBBB, Inc. Close Books for Year (12) Post to T-accounts Balance Sheet Income Statement = Assets Liabilities Owners' Equity Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Retained Earnings 43,400 BB 50, Cost of Goods Sold Sales 88,000 88, , ,000 Interest Expense 12,000 12, Rent Expense 12,000 12, Salary Expense 36,000 36, Tax Expense 21,600 21,600 12

70 BBBB, Inc. Statement of Owners' Equity For the Year Ended December 31, 2016 Common Common Retained Shares Stock Earnings Total Beginning Balance, December 31, $ 5,000 $ 43,400 $ 48,400 Common Stock Issued ,000 10,000 Net Income 50,400 50,400 Less: Dividends Declared - - Ending Balance, December 31, $ 15,000 $ 93,800 $ 108,800

71 BBBB, Inc. Balance Sheet December 31, 2016 Assets Liabilities & Owners' Equity Liabilities Current Assets Current Liabilities Cash $ 84,400 Accounts Payable $ 20,000 Inventory 40,000 Taxes Payable 21,600 Total Current Assets 124,400 Total Current Liabilities 41,600 Long-Term Debt Fixed Assets Note Payable - Bank $ 50,000 Land $ 30,000 Total Liabilities 91,600 Truck 40,000 Owners' Equity Net Fixed Assets 70,000 Common Stock $ 15,000 Retained Earnings 93,800 Other Assets Total Owners' Equity 108,800 Security Deposit $ 6,000 Total Assets $ 200,400 Total Liabilities & Owners' Equity $ 200,400

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