Posted: February 26th, 2022
This will be your final month of preparing financial statements for Webworks.
This will be your final month of preparing financial statements for Webworks. This month, the statement of cash flows will be added. To simplify the construction of that statement, fewer transactions than usual are included.
Webworks
Income Statement
as of April 30
Revenue
$
23,200
Cost of Goods Sold
12,707
Gross Profit
10,493
Deprec. and Amort. Expense
392
Other Expenses and Losses
9,045
Investment Income (Loss)
200
Earnings Before Interest & Tax
1,256
Interest Expense
15
Earnings Before Tax
1,241
Tax Expense
372
Net Income
$
869
Webworks
Statement of Retained Earnings
as of April 30
Retained Earnings, April 1
$
19,601
Net Income
869
Dividends
(500)
Retained Earnings, April 30
$
19,970
Webworks
Balance Sheet
April 30
Assets
Liabilities
Current
Current
Cash
$
11,905
Accounts Payable
$
3,080
Accounts Receivable
2,050
Salaries Payable
100
Less Allowance for Doubtful Accounts
(205)
Interest Payable
45
Net Accounts Receivable
1,845
Total Current Liabilities
3,225
Merchandise Inventory
3,362
Supplies Inventory
65
Noncurrent
Total Current Assets
17,177
Note Payable
3,000
Property, Plant, and Equipment
Owners’ Equity
Equipment
10,500
Capital Stock
4,000
Less Accumulated Depreciation
(1,313)
Retained Earnings
19,970
Furniture
1,000
Other Accumulated Comprehensive
Less Accumulated Depreciation
(119)
Income:
Total Property, Plant, and Equipment
10,068
Unrealized Gain on Available for Sale Securities
700
Total Owners’ Equity
24,670
Other Noncurrent Assets
Available for Sale Securities
2,450
Licensing Agreement, Net
1,200
Total Assets
$
30,895
Total Liabilities & Owners’ Equity
$
30,895
The following events occur in May.
Required:
a. Webworks starts and completes twelve more sites and bills clients for $9,000.
b. Webworks purchases supplies worth $140 on account.
c. At the beginning of March, Webworks had twenty-two keyboards costing $121 each and twenty-eight flash drives costing $25 each. Webworks uses periodic FIFO to cost its inventory.
d. On account, Webworks purchases eighty-three keyboards for $122 each and ninety flash drives for $26 each.
e. Webworks sells 98 keyboards for $14,700 and 100 of the flash drives for $3,000 cash.
f. Webworks collects $9,000 in accounts receivable.
g. Webworks pays its $500 rent.
h. Webworks pays off $14,000 of its accounts payable.
i. Webworks sells all of its debt investment in QRS for $2,450 per share.
j. Webworks pays Juan $750 for his work during the first three weeks of May.
k. Webworks pays off its salaries payable from April.
l. Webworks pays the owners (Leon Jackson and Nancy Po) a salary of $4,000 each.
m. Webworks’s note payable permits early payment with no penalty. Leon Jackson and Nancy Po decide to use some of their excess cash and pay off the note and interest payable. The note was paid at the beginning of May, so no interest accrued during May.
n. Webworks pays taxes of $740 in cash.
Required:
A. Prepare journal entries for the previous events.
B. Post the journal entries to T-accounts.
C. Prepare an unadjusted trial balance for Webworks for May.
D. Prepare adjusting entries for the following, and post them to your T-accounts.
o. Webworks owes Juan Marcon (an employee) $200 for his work during the last week of May.
p. Webworks receives an electric bill for $450. Webworks will pay the bill in June.
q. Webworks determines that it has $70 worth of supplies remaining at the end of May.
r. Webworks is continuing to accrue bad debts at 10 percent of accounts receivable.
s. Webworks continues to depreciate its equipment over four years and its furniture over five years, using the straight-line method.
t. The license agreement should be amortized over its one-year life.
u. Record cost of goods sold.
E. Prepare an adjusted trial balance.
F. Prepare financial statements, including the statement of cash flows, for May. Prepare the operating section using the indirect method.
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