Assignment 3 - ( Note part II is a continuation of part I. Appropriate balances will carry forward)

Part I

Wayne retired a few years ago and found he had too much time on his hand. So he took up a hobby of importing and selling a new design of downhill skis. The skis were great and became very popular. So on January 1, 2000 Wayne incorporated his business “Wayne Great Skis Ltd.” He invested his life savings of $500,000 in return for common shares. He also took out a bank loan for $500,000 on July 1, 2000. The principle was repayable as lump sum in five years, however 10% interest was payable annually on July 1. During the year, the company had the following transactions:

  1. Purchase equipment for $200,000 cash. The equipment is expected to last for 10 years. Wayne thought that he would use the straight-line method and amortize the equipment at a depreciation expense of $20,000/ yr.
  2. On March 31 the company moved out of Wayne’s garage and began to rent a store. The company pays $5000 rent in advance for each quarter on March 31, June 30, September 30, and December 31.
  3. Employees earned wages of $60,000 for the year, of that, $4000 was owed at year end.
  4. $800,000 was the total of all sales for the year. All of the sales were on account.
  5. Accounts still receivable at year end totaled $65,000.
  6. The company purchased $400,000 of inventory on account in during the year.
  7. An inventory count at year end showed a total of $45,000 of inventory remaining
  8. The company incurred $75,000 of other administration expenses which were paid in cash.
  9. Wayne considered buying a building for $50,000 instead of renting.
  10. There was $80,000 owing to suppliers at year end.
  11. The company declared a $10,000 dividend on December 1, 2000.

It is now December 31, 2000:

a)Prepare the appropriate journal entries to reflect all the transactions which took place during the year.

b)Prepare the adjusting entries needed.

c)Summarize the transactions into T accounts.

d)From the T account balances create the income statement, statement of retained earnings and balance sheet.

e)Record the closing entries for the year.

Part II

Realizing that more capital was needed; Wayne approached his buddies Kevin and Jari about investing on January 1, 2001. Kevin thought it was a great opportunity and thought the company had great potential, so he invested $200,000 in return for common shares. Jari was a little hesitant but since Wayne had assisted so much in the past, he agreed to lend a note payable worth $50,000. With $25,000 payable on June 1, 2001 and $25,000 payable on December 31,2001. During the year the company had the following transactions:

1.Sales totaled $1,000,000. 75% were on account.

2. During the year $650,000 was collected on accounts receivable from customers.

3. $600,000 of inventory was purchased on account.

4. Ending accounts payable to customers totaled $30,000

5. A piece of land was purchased for $200,000 cash in downtown Saskatoon. Wayne plans to build a super ski store and mini ski hill on the property in the 2002.

6. The inventory that was sold during the year originally cost $625,000.

7. Administration expenses increased to a total of $80,000 for the year and were paid in cash.

8. Employees were paid $80,000 cash during the year and another $10,000 of wage expense was still owing to them at year end.

a) Prepare the appropriate journal entries to reflect all the transactions which took place during the year.

b) Prepare the adjusting entries needed.

c) Summarize the transactions into T accounts.

d) From the T account balances create the income statement, statement of retained earnings and balance sheet.

e) Record the closing entries for the year.