# Preperation-of-Accounts-Income-statement-v2 by ClassOf1

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```									              Sub: Accounts                                                        Topic: Preperation of Accounts

Question:

Preparation of Income statement and Balance Sheet.

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Financial Data for 2008

1. Sales for the year, all on account, were \$221,632.

2. Cash collected from customers on account, \$219,514

3. Purchases of merchandise were \$132,500, of which \$12,425 had not been paid by the
end of the year

4. Operating expenses of the current year, paid in cash, were \$57,394. In addition, \$1,575
of such expenses were incurred but not paid by the end of the year.

5. Rent paid in cash during the year was \$7,800, of which \$6,000 related to 2008, and the
remainder to 2009. This payment is not included in #4 above.

6. Accounts receivable of \$1,950 was written off as uncollectible.

7. Beginning accounts payable were paid.

8. A cash dividend of \$2,500 was paid to the shareholders during the year.

9. Prepaid rent at 12/31/07 was for January and February of 2008.

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Sub: Accounts                                                        Topic: Preperation of Accounts

10. As a result of the physical inventory, it was determined that inventory on hand at
12/31/08 was \$27,500.

11. Based on an aging of the accounts receivable, it was determined that the allowance for
bad debts at 12/31/08 should be \$1,100.

12. Depreciation expense for the year is \$2,700 (classified as an operating expense).

13. The note payable bears simple interest at 8% annually. Interest for 2008 is due January
3, 2009.

14. Income tax expense is 20% of net income before taxes. These taxes are payable March
15, 2009.

Solution:

Item             Effects on the Income Accounts and Balance Sheet Accounts

1      Whole amount Debit Accounts receivable & Credit sales :
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