Question

ABC Incorporated started its business on Jan 1^st 2012, issuing 100,000 shares for $2 each. Par value of each share was $0.10.

The following is the relevant information for the year ending 2012

On Jan 1^st, 2012, the company purchased a two-year fire insurance policy for $10,000 and paid it with cash.

In 2012, the company purchased office supplies worth $20,000 cash. All these supplies are used up in 2012.

Purchased equipment for $50,000 using a short-term loan on Apr 1^st 2012.The depreciation on equipment for the year 2012 was $5,000

The company invested $20,000 in a note receivable and usually receives the 10% interest on its notes receivable annually on June 1st.

Purchased inventory on credit, $70,000.

On March 20^th, 2012, the company sold toys for $90,000. The company received 50% cash and the rest remained on account. The cost of these toys sold was $50,000

On June 30^th, 2012, the company made a payment of $20,000 on its short term loan.

On November 1^st, 2012, the company rented out a portion of its premises to a tenant for rent of $1,000 per month. By December 31^st, 2012, only one month’s rent had been recovered, which was paid on November 1^st, 2012

Issued 10,000 additional shares at $10 each. Par value of each share is $0.10.

On February 15th, 2012 the company received an advance of $70,000 for some technical services it provided to some companies. By the year end, the company had provided only 80% of the services it had contracted to provide.

The company’s franchisees usually pay a 10% (as a % of their sales) royalty fee to the company. During the year 2012, the franchisees sold toys worth $100,000. The fees will be paid in 2013.

The company loaned $30,000 to franchisees on November 1^st 2012 at 6 percent interest per year with interest to be paid on March 31^st and September 30^th every year.

By December 31^st, 2012, the company had accrued outstanding wages worth $40,000 and outstanding utilities bills worth $30,000.

Declared dividends for $10,000 for 2012. Will be paid in 2013.

Required:

Write the worksheet entries for the year 2012 based on the information provided. Create an income statement, statement of stockholders’ equity and balance sheet. Trial balance is optional.

Answer 1