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ACCT 438 Homework 1

1. The following transactions occurred during March 2016 for the Wainwright Corporation. The
company owns and operates a wholesale warehouse.

1. Issued 28,000 shares of common stock in exchange for $280,000 in cash.


2. Purchased equipment at a cost of $36,000. $9,000 cash was paid and a note payable was signed for
the balance owed.
3. Purchased inventory on account at a cost of $86,000. The company uses the perpetual inventory
system.
4. Credit sales for the month totaled $110,000. The cost of the goods sold was $66,000.
5. Paid $4,000 in rent on the warehouse building for the month of March.
6. Paid $5,800 to an insurance company for fire and liability insurance for a one-year period beginning
April 1, 2016.
7. Paid $66,000 on account for the merchandise purchased in 3.
8. Collected $49,500 from customers on account.
9. Recorded depreciation expense of $900 for the month on the equipment.

Required:
Analyze each transaction and show the effect of each on the accounting equation for a corporation, and
make related journal entries.

2. The following incorrect income statement was prepared by the accountant of the Axel
Corporation:

AXEL CORPORATION
Income Statement
For the Year Ended December 31, 2016
Revenues and gains:
Sales $ 720,000
Interest and dividends 45,000
Gain on sale of investments 92,000

Total revenues and gains 857,000


Expenses and losses:
Cost of goods sold $ 390,000
Selling expenses 72,000
Administrative expenses 92,000
Interest 39,000
Restructuring costs 68,000
Income taxes 78,400

Total expenses and losses 739,400

Net Income $ 117,600

Earnings per share $ 1.18


Required:
Prepare a multiple-step income statement for 2016 applying generally accepted accounting principles.
The income tax rate is 40%. (Amounts to be deducted should be indicated with a minus
sign. Round EPS answers to 2 decimal places.)

3. The following is a December 31, 2016, post-closing trial balance for the Jackson Corporation.

Account Title Debits Credits


Cash 59,000
Accounts receivable 53,000
Inventories 94,000
Prepaid rent 35,000
Marketable securities (short term) 29,000
Machinery 240,000
Accumulated depreciation—
30,000
machinery
Patent (net of amortization) 98,000
Accounts payable 17,500
Wages payable 13,500
Taxes payable 51,000
Bonds payable (due in 10 years) 260,000
Common stock 170,000
Retained earnings 66,000

Totals 608,000 608,000

Required:
Prepare a classified balance sheet for Jackson Corporation at December 31, 2016. (Amounts to be
deducted should be indicated by a minus sign.)