Chapter 9, Problem 9.1CACR

(a)

To determine

Accounting Cycle: The accounting cycle refers to the entire process of recording the accounting transactions of an organization and then processing them. The accounting cycle starts when a transaction takes places and it ends at the time when these transactions are recorded in the financial statements of the company.

To Prepare: the journal entries and adjusting entries for the transactions.

Explanation of Solution

Prepare the journal entries journal entries and adjusting entries for the transactions.

Date		Account Titles and Explanation	Post Ref.	Debit ($)	Credit ($)
2017
December	1	Equipment                                               (1)		16,800
		Cash			16,800
		(To record the purchase of equipment)
December	2	Depreciation Expense		825
		Accumulated Depreciation-Equipment			825
		(To record the depreciation for the equipment sold )
December	2	Cash		3,500
		Accumulated Depreciation-Equipment   (2)		2,625
		Equipment			5,000
		Gain on Disposal of Plant Assets            (3)			1,125
		(To record the sale of equipment)
December	15	Accounts Receivable		5,000
		Sales Revenue			5,000
		(To record sales revenue earned)
December	15	Cost of Goods Sold		3,500
		Inventory			3,500
		(To record the cost of goods sold)
December	23	Salaries and Wages Expense		6,600
		Cash			6,600
		(To record salaries and wages expense paid in cash)
December	31	Bad Debt Expense                                  (4)		3,500
		Allowance for Doubtful Accounts			3,500
		(To record the bad debt expense)
December	31	Interest Receivable		600
		Interest Revenue                                 (5)			600
		(To record the interest revenue earned)
December	31	Insurance Expense                                  (6)		2,400
		Prepaid Insurance			2,400
		(To record the insurance expense paid))
December	31	Depreciation Expense                             (7)		4,000
		Accumulated Depreciation-Building			4,000
		(To record the depreciation for the building )
December	31	Depreciation Expense                             (8)		9,900
		Accumulated Depreciation-Equipment			9,900
		(To record the depreciation for the equipment)
December	31	Depreciation Expense                             (9)		250
		Accumulated Depreciation-Equipment			250
		(To record the depreciation for the equipment )
December	31	Amortization Expense                           (10)		1,000
		Patent			1,000
		(To record the amortization expense for patent )
December	31	Salaries and Wages Expense		2,200
		Salaries and Wages Payable			2,200
		(To record the adjusting entry for salaries and wages expense )
December	31	Interest Expense                                   (11)		4,600
		Interest Payable			4,600
		(To record the adjusting entry for interest expense )
December	31	Income Tax Expense		15,000
		Income Taxes Payable			15,000
		(To record the adjusting entry for income tax expense.)

Table (1)

Working Notes:

Calculate the total amount of equipment.

$\begin{array}{c}\text{Equipment = Purchase cost + Sales tax }\\ =\$16,000+\$800\\ =\$16,800\end{array}$ (1)

Calculate the amount of accumulated depreciation for equipment sold on December 2, 2017.

$\begin{array}{c}\text{Total}\text{Accumulated depreciation }=\left[\begin{array}{l}\left(\begin{array}{l}\text{Beginning}\text{balance}\text{of}\\ \text{Accumulated}\text{Depreciation}\end{array}\right)\\ \text{+Current year depreciation}\end{array}\right]\\ =\$1,800+\$825\\ =\$2,625\end{array}$ (2)

Calculate the amount of gain / (loss) on disposal of equipment.

$\begin{array}{c}\text{Gain/loss on disposal of asset = Sale}\text{proceeds}-\text{Book}\text{value}\\ \text{=Cash}\text{received}-\left(\begin{array}{l}\text{Equiment – }\\ \text{Accumulated Depreciation }\end{array}\right)\\ \text{= \$3,500}-\left(\text{\$5,000– \$2,625}\left(2\right)\right)\\ =\$3,500-\$2,375\\ \text{= \$1,125}\end{array}$ (3)

Calculate the bad debt expense.

The allowance for doubtful accounts has already a balance of $500 and, the estimated uncollectible accounts receivable for the year end is $4,000.

Therefore, the bad debt expense for the year end would be adjusted to $\text{\$3,500}\left(\text{\$4,000– \$500}\right)$ (4)

Calculate the amount of interest revenue.

$\begin{array}{c}\text{Interest revenue = }\left(\begin{array}{l}\text{Note receivable balance}\times \text{Interest rate}\\ \times \text{Periods from April to Decemeber}\end{array}\right)\\ =\$10,000\times 8\%\times \frac{9}{12}\\ =\$600\end{array}$ (5)

Calculate the amount of insurance expense.

$\begin{array}{c}\text{Insurance expense = }\left(\begin{array}{l}\text{Insurance }\\ \text{paid}\text{in}\text{advance}\end{array}\right)\times \frac{\text{4}\text{months}\left(\text{September-}\text{December}\right)}{6\text{months}}\\ =\$3,600\times \frac{\text{4}}{6}\\ =\$2,400\end{array}$ (6)

Calculate the depreciation expense for building.

$\begin{array}{c}\text{Depreciation expense= }\left[\frac{\left(\begin{array}{l}\text{Cost}\text{of}\text{buildings}\\ -\text{Salvage value}\end{array}\right)}{\text{Estimated life}}\right]\\ =\left(\frac{\$150,000-30,000}{30}\right)\\ =\$4,000\end{array}$ (7)

Calculate the amount of Depreciation expense on equipment.

$\begin{array}{c}\begin{array}{l}\text{Depreciation}\\ \text{ expense}\left(\text{Equipment}\right)\end{array}\}=\left[\frac{\begin{array}{l}\left(\begin{array}{l}\text{Balance of equipment}-\text{Original cost}\\ \text{ of equipment sold on July 1}\end{array}\right)\\ -\left(\text{Balance of equipment After sales }\times \text{Salvage value}\right)\end{array}}{\text{Estimated life}}\right]\\ =\frac{\left(\$60,000-\$5,000\right)-\left(\text{\$55,000}\times 10\%\right)}{5\text{years}}\\ =\frac{\$55,000-\$5,500}{5}\\ =\$9,900\end{array}$ (8)

Calculate the amount of Depreciation expense of equipment.

$\begin{array}{c}\begin{array}{l}\text{Depreciation expense}\\ \text{ of equipment purchased }\\ \end{array}\}\text{= }\left[\frac{\left(\begin{array}{l}\text{Purchased of equipment }\\ -\text{Salvage value}\end{array}\right)}{\text{Estimated life}}\times \frac{1\text{month}}{12}\right]\\ =\left[\left(\frac{\$16,800-\$1,800}{5\text{years}}\right)\times \frac{1}{12}\right]\\ =\$250\end{array}$ (9)

Calculate the amortization expense for patent purchased on January 1, 2017.

$\begin{array}{c}\text{Amortization expense= }\left[\frac{\text{Cost}\text{of}\text{the}\text{patent}}{\text{Estimated}\text{useful life}}\times \frac{\text{Number}\text{of}\text{months}\text{used}}{12}\right]\\ =\frac{\$9,000}{9\text{years}}\times \frac{12\text{months}\left(\text{January1-December31}\right)}{12}\\ =\$1,000\end{array}$ (10)

Calculate the amount of interest expense.

$\begin{array}{c}\text{Interest expense = }\left[\begin{array}{l}\left(\begin{array}{l}\text{Balance of notes payable due in 2018 }\\ \text{+Balance of notes payable due}\text{in}\text{2023}\end{array}\right)\\ \times \text{Interest rate}\end{array}\right]\\ \text{=}\left(\text{\$11,000 +}\text{}\text{\$35,000}\right)\times 10\%\\ =\$4,600\end{array}$ (11)

Explanation:

December 1: Record the purchase of equipment for cash

• Equipment is an asset and is increased by $16,800 due to purchase of equipment. Therefore, Equipment account is debited with $16,800.
• Cash is an asset and is decreased by $16,800 due to the amount paid on purchase of equipment. Therefore, Cash account is credited with $16,800.

December 2:  Record Depreciation expense for the equipment sold.

• Depreciation expense is an expense, and it decreases the stockholder’s equity by $825. Therefore, Depreciation expense – Equipment is debited with $825.
• Accumulated depreciation is a contra asset with a normal credit balance. It is increased by $825 that decreases the value of assets by $825. Therefore, the Accumulated depreciation-Equipment account is credited with $825.

December 2: Sale of equipment

• Cash is an asset and increased by $3,500 due to sale of equipment. Therefore, Cash account is debited with $3,500.
• Accumulated depreciation-Equipment is a contra asset with a normal credit balance. Its decreased value increases the value of the asset by $2,625. Therefore, Accumulated depreciation-Equipment account is debited with $2,625.
• Equipment is an asset and decreased due to sale of equipment by $5,000. Therefore, Equipment account is credited with $5,000.
• Gain on disposal of Plant assets increases the revenue and thus the stockholders’ equity is increased by $1,125. Therefore, the Gain on disposal of plant assets account is credited with $1,125.

December 15:  Record Sale of inventory on account

• Accounts Receivable is an asset and is increased by $5,000 due to the amount earned on sale of inventory. Therefore, Accounts Receivable account is debited with $5,000.
• Sales Revenue increases the revenue and thus the stockholders’ equity is increased by $5,000. Therefore, the Sales Revenue account is credited with $5,000.

December 15: Record cost of goods sold

• Cost of Goods Sold is a component of stockholders’ equity and it is increased that decreases the stockholders’ equity by $3,500. Therefore, Cost of Goods Sold account is debited with $3,500.
• Inventory is an asset and is decreased by $3,500 due to the sale of inventories. Therefore, Inventory account is credited with $3,500.

December 23: Record the salaries and wages expense paid in cash

• Salaries and Wages expense is an expense, and it decreases the stockholder’s equity by $6,600. Therefore, Salaries and Wages Expense is debited with $6,600.
• Cash is an asset and is decreased by $6,600 due to the amount paid for salaries and wages expense. Therefore, Cash account is credited with $6,600.

December 31:Record adjusting entry for bad debt expense.

• Bad debt expense is an expense, and it decreases the stockholder’s equity by $3,500. Therefore, Bad debt expense is debited with $3,500.
• Allowance for Doubtful Accounts is a contra asset with a normal credit balance. It is increased by $3,500 that decreases the value of assets by $3,500. Therefore, the Allowance for Doubtful Accounts account is credited with $3,500.

December 31: Record the adjusting entry for interest revenue accrued on notes receivable.

• Interest Receivable is an asset and is increased by $600 due to the interest earned on notes receivable. Therefore, Interest Receivable account is debited with $600.
• Interest Revenue increases the revenue and thus the stockholders’ equity is increased by $600. Therefore, the Interest Revenue account is credited with $600.

December 31: Record the adjusting entry for Insurance expense incurred.

• Insurance Expense is an expense, and it decreases the stockholder’s equity by $2,400. Therefore, Insurance Expense is debited with $2,400.
• Prepaid Insurance is an asset and is decreased by $2,400 due to the insurance amount that is incurred, is transferred to insurance expense. Therefore, Prepaid Insurance account is credited with $2,400.

December 31:  Record Depreciation expense for building.

• Depreciation expense is an expense, and it decreases the stockholder’s equity by $4,000. Therefore, Depreciation expense – Building is debited with $4,000.
• Accumulated depreciation is a contra asset with a normal credit balance. It is increased by $4,000 that decreases the value of assets by $4,000. Therefore, the Accumulated depreciation-Building account is credited with $4,000.

December 31:  Record Depreciation expense for equipment purchased in the previous year.

• Depreciation expense is an expense, and it decreases the stockholder’s equity by $9,900. Therefore, Depreciation expense – Equipment is debited with $9,900.
• Accumulated depreciation is a contra asset with a normal credit balance. It is increased by $9,900 that decreases the value of assets by $9,900. Therefore, the Accumulated depreciation-Equipment account is credited with $9,900.

December 31:  Record Depreciation expense for equipment purchased on December 2, 2017.

• Depreciation expense is an expense, and it decreases the stockholder’s equity by $9,900. Therefore, Depreciation expense – Equipment is debited with $250.
• Accumulated depreciation is a contra asset with a normal credit balance. It is increased by $250 that decreases the value of assets by $250. Therefore, the Accumulated depreciation-Equipment account is credited with $250.

December 31: Record the adjusting entry for amortization expense for patents

• Amortization expense is an expense, and it decreases the stockholder’s equity by $1,000. Therefore, Amortization Expense is debited with $1,000.
• Patents is an intangible asset and is decreased by $1,000 due to amortization. Therefore, Patents account is credited with $1,000.

December 31: Record the adjusting entry for salaries and wages expense

• Salaries and Wages expense is an expense, and it decreases the stockholder’s equity by $2,200. Therefore, Salaries and Wages Expense is debited with $2,200.
• Salaries and Wages Payable is a liability and is increased by $2,200 due to salaries and wages expense accrued. Therefore, Salaries and Wages Payable account is credited with $2,200.

December 31: Record the adjusting entry for interest expense on notes payable

• Interest expense is an expense, and it decreases the stockholder’s equity by $4,600. Therefore, Interest Expense is debited with $4,600.
• Interest Payable is a liability and is increased by $4,600 due to interest expense accrued. Therefore, Interest Payable account is credited with $4,600.

December 31: Record the adjusting entry for income tax expense

• Income Tax expense is an expense, and it decreases the stockholder’s equity by $15,000. Therefore, Income Tax Expense is debited with $15,000.
• Income Tax Payable is a liability and is increased by $15,000 due to income tax expense accrued. Therefore, Interest Payable account is credited with $15,000.

(b)

To determine

To prepare: an adjusted trial balance at December 31, 2017.

Explanation of Solution

Prepare an adjusted trial balance at December 31, 2017.

M Corporation
Adjusted Trial Balance
December 31, 2017
Accounts	Debit ($)	Credit ($)
Cash	2,100	-
Accounts Receivable	41,800	-
Notes Receivable	10,000	-
Interest Receivable	600
Inventory	32,700
Prepaid Insurance	1,200	-
Land	20,000	-
Buildings	150,000	-
Equipment	71,800	-
Patent	8,000
Allowance for Doubtful Accounts	-	4,000
Accumulated Depreciation-Buildings	-	54,000
Accumulated Depreciation-Equipment	-	32,350
Accounts Payable	-	27,300
Salaries and Wages Payable	-	2,200
Notes Payable (due April 30, 2018)	-	11,000
Interest Payable	-	4,600
Notes Payable (due in 2023)	-	35,000
Income Taxes Payable	-	15,000
Common Stock	-	50,000
Retained Earnings	-	63,600
Dividends	12,000	-
Sales Revenue	-	905,000
Interest Revenue	-	600
Gain on Disposal of Plant Assets	-	1,125
Bad Debt Expense	3,500	-
Cost of Goods Sold	633,500	-
Depreciation Expense	14,975	-
Insurance Expense	2,400	-
Interest Expense	4,600	-
Other Operating Expenses	61,800	-
Amortization Expense	1,000	-
Salaries and Wages Expense	118,800	-
Income Taxes Expense	15,000	-
Total	1,205,775	1,205,775

Table (2)

Working notes:

Post the above journal entries and adjusting entries in part (a) into the T-accounts to determine the balances of the respective accounts.

Cash is an asset with a normal debit balance.

Cash Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1, 2017	Balance	22,000		December2, 2017	Equipment	22,000
December 2	Equipment	3,500		December 23	Salaries and Wages Expense	6,600
				December 31,2017	Closing Balance	2,100
December 31,2017	Total	25,500		December 31,2017	Total	25,500
January 1, 2018	Beginning Balance	2,100

Table (3)

Accounts Receivable is an asset with a normal debit balance.

Accounts Receivable Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1, 2017	Balance	36,800		December 31,2017	Closing balance	41,800
December 15	Sales Revenue	5,000
December 31,2017	Total	41,800		December 31,2017	Total	41,800
January 1, 2018	Beginning Balance	41,800

Table (4)

Equipment is an asset with a normal debit balance.

Equipment Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1, 2017	Balance	60,000		December 2	Cash	3,500
December 2	Cash	16,800		December 2	Accumulated Depreciation	2,625
December 2	Gain on Disposal	1,125
				December 31,2017	Closing balance	71,800
December 31,2017	Total	77,925		December 31,2017	Total	77,925
January 1, 2018	Beginning Balance	71,800

Table (5)

Depreciation Expense is a component of stockholders’ equity account with a normal debit balance.

Depreciation Expense Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 2	Accumulated Depreciation-Equipment	825		December 31	Closing Balance	14,975
December 31	Accumulated Depreciation-Buildings	4,000
December 31	Accumulated Depreciation-Equipment	9,900
December 31	Accumulated Depreciation-Equipment	250
December 31,2017	Total	14,975		December 31,2017	Total	14,975

Table (6)

Gain on Disposal of Plant Assets is a component of stockholders’ equity account with a normal credit balance.

Gain on Disposal Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 2	Closing Balance	1,125		December 1	Balance	1,125
December 31,2017	Total	1,125		December 31,2017	Total	1,125

Table (7)

Sales Revenue is a component of stockholders’ equity account with a normal credit balance.

Sales Revenue Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 2	Closing Balance	905,000		December 1	Balance	900,000
				December 15	Accounts Receivable	5,000
December 31,2017	Total	905,000		December 31,2017	Total	905,000

Table (8)

Cost of Goods Sold is a component of stockholders’ equity account with a normal debit balance.

Cost of Goods Sold Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1	Balance	630,000		December 31	Ending Balance	633,500
December 15	Inventory	3,500
December 31,2017	Total	633,500		December 31,2017	Total	633,500

Table (9)

Inventory is an asset account with a normal debit balance.

Inventory Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1	Balance	36,200		December 15	Cost of Goods Sold	3,500
				December 31	Ending Balance	32,700
December 31,2017	Total	36,200		December 31,2017	Total	36,200
January 1,2018	Balance	32,700

Table (10)

Salaries and Wages Expense is a component of stockholders’ equity account with a normal debit balance.

Salaries and Wages Expense Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1	Balance	110,000		December 31	Ending Balance	118,800
December 23	Cash	6,600
December 31	Salaries and Wages payable	2,200
December 31,2017	Total	118,800		December 31,2017	Total	118,800

Table (11)

Bad Debt Expense is a component of stockholders’ equity account with a normal debit balance.

Bad Debt Expense Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1	Balance	0		December 31	Ending Balance	3,500
December 31	Allowance for Doubtful Debts	3,500
December 31,2017	Total	3,500		December 31,2017	Total	3,500

Table (12)

Allowance for Doubtful Accounts is a contra-asset account with a normal credit balance.

Allowance for Doubtful Accounts
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1	Ending Balance	4,000		December 31	Balance	500
				December 31	Bad Debt Expense	3,500
December 31,2017	Total	4,000		December 31,2017	Total	4,000
				January 1,2018	Balance	4,000

Table (13)

Interest Revenue is a component of stockholders’ equity account with a normal credit balance.

Interest Revenue Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31	Ending Balance	600		December 1	Balance	0
				December 31	Interest Receivable	600
December 31,2017	Total	600		December 31,2017	Total	600

Table (14)

Interest Receivable is an asset account with a normal debit balance.

Interest Receivable Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31	Balance	0		December 31	Ending Balance	600
December 31	Interest Revenue	600
December 31,2017	Total	600		December 31,2017	Total	600
January 1,2018	Balance	600

Table (15)

Insurance Expense is a component of stockholders’ equity account with a normal debit balance.

Insurance Expense Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1	Balance	0		December 31	Ending Balance	2,400
December 31	Prepaid Insurance	2,400
December 31,2017	Total	2,400		December 31,2017	Total	2,400

Table (16)

Prepaid Insurance is an asset account with a normal debit balance.

Prepaid Insurance Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31	Balance	3,600		December 31	Insurance Expense	2,400
				December 31	Ending Balance	1,200
December 31,2017	Total	3,600		December 31,2017	Total	3,600
January 1,2018	Balance	1,200

Table (17)

Amortization Expense is a component of stockholders’ equity account with a normal debit balance.

Amortization Expense Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1	Balance	0		December 31	Ending Balance	1,000
December 31	Patents	1,000
December 31,2017	Total	1,000		December 31,2017	Total	1,000

Table (18)

Patents is an intangible asset account with a normal debit balance.

Patents Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31	Balance	9,000		December 31	Amortization Expense	1,000
				December 31	Ending Balance	8,000
December 31,2017	Total	9,000		December 31,2017	Total	9,000
January 1,2018	Balance	8,000

Table (19)

Salary and Wages Payable is a liability account with a normal credit balance.

Salary and Wages Payable Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31	Ending Balance	2,200		December 1	Balance	0
				December 31	Salary and Wages Expense	2,200
December 31,2017	Total	2,200		December 31,2017	Total	2,200
				January 1, 2018	Balance	2,200

Table (20)

Interest Expense is a component of stockholders’ equity account with a normal debit balance.

Interest Expense Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1	Balance	0		December 31	Ending Balance	4,600
December 31	Interest Payable	4,600
December 31,2017	Total	4,600		December 31,2017	Total	4,600

Table (21)

Interest Payable is a liability account with a normal credit balance.

Interest Payable Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31	Ending Balance	4,600		December 1	Balance	0
				December 31	Interest Expense	4,600
December 31,2017	Total	4,600		December 31,2017	Total	4,600
				January 1, 2018	Balance	4,600

Table (22)

Income Tax Expense is a component of stockholders’ equity account with a normal debit balance.

Income Tax Expense Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 1	Balance	0		December 31	Ending Balance	15,000
December 31	Income Tax Payable	15,000
December 31,2017	Total	15,000		December 31,2017	Total	15,000

Table (23)

Income Tax Payable is a liability account with a normal credit balance.

Income Tax Payable Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31	Ending Balance	15,000		December 1	Balance	0
				December 31	Income Tax Expense	15,000
December 31,2017	Total	15,000		December 31,2017	Total	15,000
				January 1, 2018	Balance	15,000

Table (24)

Accumulated Depreciation-Equipment is a contra asset account with a normal credit balance.

Accumulated Depreciation-Equipment Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 2, 2017	Equipment	2,625		December 1, 2017	Balance	24,000
December 31, 2017	Ending Balance	32,350		December 31, 2017	Depreciation expense	825
				December 31, 2017	Depreciation expense	9,900
				December 31, 2017	Depreciation expense	250
December 31,2017	Total	34,975		December 31,2017	Total	34,975
				January 1, 2018	Balance	32,350

Table (25)

Accumulated Depreciation-Building is a contra asset account with a normal credit balance.

Accumulated Depreciation-Building Account
Date	Details	Debit ($)		Date	Details	Credit ($)
December 31, 2017	Ending Balance	54,000		December 1, 2017	Balance	50,000
				December 31, 2017	Depreciation expense	4,000
December 31,2017	Total	54,000		December 31,2017	Total	54,000
				January 1, 2018	Balance	54,000

Table (26)

(c)

To determine

To prepare: the income statement of M Corporation for the year ended December 31, 2017.

Explanation of Solution

Prepare the income statement of M Corporation for the year ended December 31, 2017.

M Corporation
Income Statement
For the year ended December 31, 2017
Details	Amount ($)	Amount ($)
Revenue
Sales Revenue	–	905,000
Less: Cost of Goods Sold		633,500
Gross Profit		271,500
Less: Operating Expenses
Salaries and Wages Expense	118,800
Other Operating Expense	61,800
Depreciation Expense	14,975
Bad Debt Expense	3,500
Insurance Expense	2,400
Amortization Expense	1,000
Total Operating Expenses		(202,475)
Income from operations		69,025
Add: Other revenues and gains
Gain on Disposal of Plant Assets	1,125
Interest Revenue	600	1,725
Less: Other expenses and losses
Interest Expense		(4,600)
Income before income taxes		66,150
Less: Income Tax Expense		(15,000)
Net Income		51,150

Table (27)

(d)

To determine

To Prepare: a Balance Sheet of M Corporation for the year ending December 31, 2017.

Explanation of Solution

Prepare a Balance Sheet of M Corporation for the year ending December 31, 2017.

M Corporation
Balance Sheet
December 31, 2017
Assets	Amount ($)	Amount ($)	Amount ($)
Current Assets
Cash			2,100
Accounts Receivable		41,800
Less: Allowance for Doubtful Accounts		4,000	37,800
Notes Receivable			10,000
Interest Receivable			600
Inventory			32,700
Prepaid Insurance			1,200
Total Current Assets			84,400
Property, Plant, and Equipment
Land		20,000
Building	150,000
Less: Accumulated Depreciation	(54,000)	96,000
Equipment	71,800
Less: Accumulated Depreciation	(32,350)	39,450
Total Property, Plant, and Equipment			155,450
Intangible Assets
Patents			8,000
Total Assets			247,850
Liabilities		Amount ($)	Amount ($)
Current Liabilities
Notes Payable (due April 30, 2018)		11,000
Accounts Payable		27,300
Income Taxes Payable		15,000
Interest Payable		4,600
Salaries and Wages Payable		2,200
Total Current Liabilities			60,100
Long-term Liabilities
Notes Payable (due in 2023)			35,000
Total Liabilities			95,100
Stockholders’ Equity
Common Stock		50,000
Retained Earnings		102,750
Total Stockholders’ Equity			152,750
Total Liabilities and Stockholders’ Equity			247,850

Table (28)

Working notes:

Determine the ending balance of retained earnings from Retained Earnings Statement.

M Corporation
Retained Earnings statement
For the year ended December 31, 2017
Details	Amount ($)
Beginning Balance of Retained Earnings	63,600
Add: Net Income for the year	51,150
Total Retained Earnings	114,750
Less: Dividends	(12,000)
Ending balance of Retained Earnings	102,750

Table (29)