Learning Module 3
Journal Entries
The Accounting Equation
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
Recording journal entries is the step before posting to the T-accounts. Debits are left side entries. Credits are right side entries. For example, if a company issues $50,000 in common stock, the journal entry would be as follows:
1 Cash 50,000
Common Stock 50,000
To record issuance of common stock
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of
Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate.
During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Issue Stock (1)
Record journal entry
1 Cash 9,000
Common Stock 9,000
To record issuance of 90 shares of stock for $100 each
Hot Dogs, Inc. – Issue Stock (1)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
1 9,000 Cash
9,000
1
Common Stock
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Borrow Money (2)
Record journal entry
2 Cash 10,000
Note Payable 10,000
To record money borrowed from bank
Hot Dogs, Inc. – Borrow Money (2)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
1 9,000 2 10,000
Cash
10,000
2
Note Payable
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Purchase Cart (3)
Record journal entry
3 Cart 10,000
Cash 10,000
To record purchase of cart
Hot Dogs, Inc. – Purchase Cart (3)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
1 9,000 10,000 3 2 10,000
Cash
3 10,000 Cart
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Buy Hot Dogs & Buns (4)
Record journal entry
4 Inventory 3,000
Cash 3,000
To record purchase of 15,000 hot dogs and buns for $0.20 each
Hot Dogs, Inc. – Buy Hot Dogs & Buns (4)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
1 9,000 10,000 3 2 10,000 3,000 4
Cash
4 3,000
Inventory
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Sell Hot Dogs (5+6)
Record journal entries
5 Cash 28,000
Sales 28,000
To record sale of 14,000 hot dogs for $2 each
6 Cost of Goods Sold 2,800
Inventory 2,800
To record cost of 14,000 hot dogs and buns for $0.20 each
Hot Dogs, Inc. – Sell Hot Dogs (5+6)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
1 9,000 10,000 3 2 10,000 3,000 4 5 28,000
Cash
4 3,000 2,800 6 Inventory
28,000
5
Sales
6 2,800
Cost of Goods Sold
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Pay Expenses (7)
Record journal entry
7 Wage Expense 7,200
Office Expense 3,600
Interest Expense 800
Cash 11,600
To record payment of expenses
Hot Dogs, Inc. – Pay Expenses (7)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
1 9,000 10,000 3 2 10,000 3,000 4 5 28,000 11,600 7
Cash 7 7,200
Wage Expense
7 3,600
Office Expense
7 800
Interest Expense
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Issue Stock (8)
Record journal entry
8 Cash 6,000
Common Stock 6,000
To record issuance of 20 shares of stock for $300 each
Hot Dogs, Inc. – Issue Stock (8)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
1 9,000 10,000 3 2 10,000 3,000 4 5 28,000 11,600 7 8 6,000
Cash
9,000
1
6,000
8
Common Stock
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Wages Owed (9)
Record journal entry
9 Wage Expense 100
Wages Payable 100
To record wages owed
Hot Dogs, Inc. – Wages Owed (9)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
100 9 Wages Payable
7 7,200 9 100
Wage Expense
Hot Dogs, Inc. – Income Statement
How much is gross profit?
Sales $ 28,000
Cost of Goods Sold 2,800
Gross Profit 25,200
Hot Dogs, Inc. – Income Statement
How much is operating income?
Sales $ 28,000
Cost of Goods Sold 2,800
Gross Profit 25,200
Operating Expenses
Wage Expense $ 7,300
Office Expense 3,600
Total Operating Expenses 10,900
Operating Income 14,300
Hot Dogs, Inc. – Income Statement
How much is income before taxes?
Sales $ 28,000
Cost of Goods Sold 2,800
Gross Profit 25,200
Operating Expenses
Wage Expense $ 7,300
Office Expense 3,600
Total Operating Expenses 10,900
Operating Income 14,300
Other Revenue & (Expenses)
Interest Expense (800)
Income before Taxes 13,500
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Taxes Owed (10)
Record journal entry
10 Tax Expense 4,050
Taxes Payable 4,050
To record taxes owed = $13,500 x 30%
Hot Dogs, Inc. – Taxes Owed (10)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
4,050 10 Taxes Payable
10 4,050
Tax Expense
Hot Dogs, Inc. – Income Statement
How much is net income?
Sales $ 28,000
Cost of Goods Sold 2,800
Gross Profit 25,200
Operating Expenses
Wage Expense $ 7,300
Office Expense 3,600
Total Operating Expenses 10,900
Operating Income 14,300
Other Revenue & (Expenses)
Interest Expense (800)
Income before Taxes 13,500
Tax Expense 4,050
Net Income $ 9,450
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of
Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate.
During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Income Statement
How much is earnings per share?
Weighted Shares Fraction Average Shares Outstanding of Year Outstanding
Jan 1 90 x 9/12 = 67.50
Sep 30 110 x 3/12 = 27.50
95
9,450
$
EPS = 95 = $ 99.47
Sales $ 28,000
Cost of Goods Sold 2,800
Gross Profit 25,200
Operating Expenses
Wage Expense $ 7,300
Office Expense 3,600
Total Operating Expenses 10,900
Operating Income 14,300
Other Revenue & (Expenses)
Interest Expense (800)
Income before Taxes 13,500
Tax Expense 4,050
Net Income $ 9,450
Earnings per share $ 99.47
Hot Dogs, Inc.
Income Statement
For the Year Ended December 31, 2015
Hot Dogs, Inc. – Close Books for Year (11)
Record journal entry
All temporary accounts (revenue and expenses) are closed out to retained earnings at the end of each period. Only assets, liabilities, and owner’s equity are permanent accounts.
11 Sales 28,000
Cost of Goods Sold 2,800
Wage Expense 7,300
Office Expense 3,600
Interest Expense 800
Tax Expense 4,050
Retained Earnings 9,450
To close books for the year
Hot Dogs, Inc. – Close Books for Year (11)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
2,800
2,800 11 Cost of Goods Sold
3,600
3,600 11 Office Expense
7,300
7,300 11 Wage Expense
800
800 11 Interest Expense
4,050
4,050 11 Tax Expense
9,450 11 Retained Earnings
11 28,000 28,000 Sales
Common Retained
Stock Earnings Total
Beginning Balance, December 31, 2014 $ - $ - $ -
Common Stock Issued 15,000 15,000
Net Income 9,450 9,450
Less: Dividends Declared - - Ending Balance, December 31, 2015 $ 15,000 $ 9,450 $ 24,450
Hot Dogs, Inc.
Statement of Owners' Equity
For the Year Ended December 31, 2015
Assets Liabilities & Owners' Equity Liabilities
Current Assets Current Liabilities
Cash $ 28,400 Wages Payable $ 100
Inventory 200 Taxes Payable 4,050
Total Current Assets 28,600 Total Current Liabilities 4,150
Long-Term Debt
Fixed Assets Note Payable $ 10,000
Cart $ 10,000 Total Liabilities 14,150
Net Fixed Assets 10,000 Owners' Equity
Common Stock $ 15,000
Other Assets Retained Earnings 9,450
None $ - Total Owners' Equity 24,450
Total Assets $ 38,600 Total Liabilities & Owners' Equity $ 38,600
Hot Dogs, Inc.
Balance Sheet December 31, 2015
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in the class invested $100 each in our venture. Everyone got one share of stock for that $100 investment. Assume there are 90 of us. We elected a Board of Directors, a COO and started to do business. First, we borrowed $10,000 from the bank and bought a new cart for that amount. The loan carries an 8% interest rate. During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On September 30, we sold 20 more shares for $300 each. At the end of the year, we owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Homework
Complete the BBBB, Inc. problem on page 50 – record journal entries (including closing entry after you generate the income statement), post them to T-accounts, and generate financial statements
Complete the Fluff, Inc. problem on page 57 – record journal entries (including closing entry after you generate the income statement), post them to T-accounts, and generate financial statements
BBBB, Inc. – Purchased Biffs (1)
Purchased 15,000 biffs at $8 each. Paid $100,000 cash and will pay $20,000 next year.
Record journal entry
1 Inventory 120,000
Cash 100,000
Accounts Payable 20,000
To record purchase of 15,000 biffs for $8 each
BBBB, Inc. – Purchased Biffs (1)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
BB 151,000 100,000 1 Cash
BB 8,000 1 120,000
Inventory
- BB
20,000
1
Accounts Payable
BBBB, Inc. – Sold Biffs (2+3)
Sold 11,000 biffs at $20 each.
Record journal entry
2 Cash 220,000
Sales 220,000
To record sale of 11,000 biffs for $20 each
3 Cost of Goods Sold 88,000
Inventory 88,000
To record cost of 11,000 biffs for $8 each
BBBB, Inc. – Sold Biffs (2+3)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
BB 151,000 100,000 1 2 220,000
Cash
BB 8,000 88,000 3 1 120,000
Inventory
220,000 2 Sales
3 88,000
Cost of Goods Sold
BBBB, Inc. – Paid for Land plus Interest (4)
Paid the $28,000 note on the land plus $2,000 interest.
Record journal entry
4 Note Payable - Land 28,000
Interest Expense 2,000
Cash 30,000
To record payment on the land plus interest
BBBB, Inc. – Paid for Land plus Interest (4)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
4 28,000 28,000 BB Note Payable - Land BB 151,000 100,000 1
2 220,000 30,000 4 Cash
4 2,000
Interest Expense
BBBB, Inc. – Paid Rent (5)
Paid rent of $12,000.
Record journal entry
5 Rent Expense 12,000
Cash 12,000
To record payment of rent
BBBB, Inc. – Paid Rent (5)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
BB 151,000 100,000 1 2 220,000 30,000 4
12,000
5
Cash
5 12,000
Rent Expense
BBBB, Inc. – Paid Salaries (6)
Paid salaries of $36,000.
Record journal entry
6 Salary Expense 36,000
Cash 36,000
To record payment of salaries
BBBB, Inc. – Paid Salaries (6)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
BB 151,000 100,000 1 2 220,000 30,000 4
12,000
5
36,000
6
Cash
6 36,000
Salary Expense
BBBB, Inc. – Issued Stock (7)
Issued 100 shares of common stock for $10,000 on June 1st. Record journal entry
7 Cash 10,000
Common Stock 10,000
To record issuance of 100 shares of stock
BBBB, Inc. – Issued Stock (7)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
BB 151,000 100,000 1 2 220,000 30,000 4 7 10,000 12,000 5
36,000
6
Cash
5,000 BB
10,000
7
Common Stock
BBBB, Inc. – Purchased Truck (8)
On December 31, bought a truck for $40,000 cash.
Record journal entry
8 Truck 40,000
Cash 40,000
To record purchase of truck
BBBB, Inc. – Purchased Truck (8)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
BB 151,000 100,000 1 2 220,000 30,000 4 7 10,000 12,000 5
36,000
6
40,000
8
Cash
BB - 8 40,000
Truck
BBBB, Inc. – Paid Bank Note plus Interest (9)
On December 31, paid $50,000 on the note payable to bank and $10,000 interest.
Record journal entry
9 Note Payable - Bank 50,000
Interest Expense 10,000
Cash 60,000
To record payment on note plus interest
BBBB, Inc. – Paid Bank Note plus Interest (9)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
BB 151,000 100,000 1 2 220,000 30,000 4 7 10,000 12,000 5
36,000
6
40,000
8
60,000
9
Cash
9 50,000 100,000 BB Note Payable - Bank
4 2,000 9 10,000
Interest Expense
BBBB, Inc. – Paid 2015 Taxes (10)
Paid 2015 taxes.
Record journal entry
10 Taxes Payable 18,600
Cash 18,600
To record payment of prior year taxes
BBBB, Inc. – Paid 2015 Taxes (10)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
BB 151,000 100,000 1 2 220,000 30,000 4 7 10,000 12,000 5
36,000
6
40,000
8
60,000
9
18,600
10
Cash
10 18,600 18,600 BB Taxes Payable
BBBB, Inc. – Income Statement
How much is income before taxes?
Sales $ 220,000
Cost of Goods Sold 88,000
Gross Profit 132,000
Operating Expenses
Salary Expense $ 36,000
Rent Expense 12,000
Total Operating Expenses 48,000
Operating Income 84,000
Other Revenue & (Expenses)
Interest Expense (12,000)
Income before Taxes 72,000
BBBB, Inc. – Taxes Owed (11)
Tax rate is 30% and 2016 taxes will be paid in 2017.
Record journal entry
11 Tax Expense 21,600
Taxes Payable 21,600
To record taxes owed = $72,000 x 30%
BBBB, Inc. – Taxes Owed (11)
Post to T-accounts
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Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
10 18,600 18,600 BB 21,600
11
Taxes Payable
11 21,600
Tax Expense
BBBB, Inc. – Income Statement
How much is net income?
Sales $ 220,000
Cost of Goods Sold 88,000
Gross Profit 132,000
Operating Expenses
Salary Expense $ 36,000
Rent Expense 12,000
Total Operating Expenses 48,000
Operating Income 84,000
Other Revenue & (Expenses)
Interest Expense (12,000)
Income before Taxes 72,000
Tax Expense 21,600
Net Income $ 50,400
BBBB, Inc. – Income Statement
How much is earnings per share?
Remember there were 100 shares outstanding at the end of last year.
Weighted Shares Fraction Average Shares Outstanding of Year Outstanding
Jan 1 100 x 5/12 = 41.67
Jun 1 200 x 7/12 = 116.67
158.33
50,400
$
158.33
EPS = = $ 318.32
Sales $ 220,000
Cost of Goods Sold 88,000
Gross Profit 132,000
Operating Expenses
Salary Expense $ 36,000
Rent Expense 12,000
Total Operating Expenses 48,000
Operating Income 84,000
Other Revenue & (Expenses)
Interest Expense (12,000)
Income before Taxes 72,000
Tax Expense 21,600
Net Income $ 50,400
Earnings per share $ 318.32
BBBB, Inc.
Income Statement
For the Year Ended December 31, 2016
BBBB, Inc. – Close Books for Year (12)
Remember you need to close revenue and expense accounts out to retained earnings.
Record journal entry
12 Sales 220,000
Cost of Goods Sold 88,000
Interest Expense 12,000
Rent Expense 12,000
Salary Expense 36,000
Tax Expense 21,600
Retained Earnings 50,400
To close books for the year
BBBB, Inc. – Close Books for Year (12)
Post to T-accounts
= + + -
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Balance Sheet Income Statement
Assets Liabilities Owners' Equity Revenue Expenses
43,400
BB
50,400
12
Retained Earnings
12 220,000 220,000
Sales 88,000 88,000 12 Cost of Goods Sold
12,000
12,000 12 Interest Expense
12,000
12,000 12 Rent Expense
36,000
36,000 12 Salary Expense
21,600
21,600 12 Tax Expense
Common Common Retained
Shares Stock Earnings Total
Beginning Balance, December 31, 2015 100 $ 5,000 $ 43,400 $ 48,400
Common Stock Issued 100 10,000 10,000
Net Income 50,400 50,400
Less: Dividends Declared - -
Ending Balance, December 31, 2016 200 $ 15,000 $ 93,800 $ 108,800 BBBB, Inc.
Statement of Owners' Equity
For the Year Ended December 31, 2016
Assets Liabilities & Owners' Equity Liabilities
Current Assets Current Liabilities
Cash $ 84,400 Accounts Payable $ 20,000
Inventory 40,000 Taxes Payable 21,600
Total Current Assets 124,400 Total Current Liabilities 41,600
Long-Term Debt
Fixed Assets Note Payable - Bank $ 50,000
Land $ 30,000 Total Liabilities 91,600
Truck 40,000 Owners' Equity
Net Fixed Assets 70,000 Common Stock $ 15,000
Retained Earnings 93,800
Other Assets Total Owners' Equity 108,800
Security Deposit $ 6,000
Total Assets $ 200,400 Total Liabilities & Owners' Equity $ 200,400
BBBB, Inc.
Balance Sheet December 31, 2016
