Q12E Santo Design was founded by Thom... [FREE SOLUTION]

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Chapter 3: Q12E (page 134)

Santo Design was founded by Thomas Grant in January 2011. Presented below is the adjusted trial balance as of December 31, 2017.
SANTO DESIGN
ADJUSTED TRIAL BALANCE
DECEMBER 31, 2017

Dr.
Cr.
Cash
$ 11,350
Accounts Receivable
21,500
Supplies
5,000
Prepaid Insurance
2,500
Equipment
60,000
Accumulated Depreciation鈥擡quipment
$ 35,000
Accounts Payable
5,000
Interest Payable
150
Notes Payable
5,000
Unearned Service Revenue
5,600
Salaries and Wages Payable
1,300
Common Stock
10,000
Retained Earnings
3,500
Service Revenue
61,500
Salaries and Wages Expense
11,300
Insurance Expense
850
Interest Expense
150
Depreciation Expense
7,000
Supplies Expense
3,400
Rent Expense
4,000
$127,050
$127,050
Instructions
a. Prepare an income statement and a statement of retained earnings for the year ending December 31, 2017, and an unclassified balance sheet at December 31.
b. Answer the following questions.
1.If the note has been outstanding for 6 months, what is the annual interest rate on that note?
2.If the company paid $17,500 in salaries in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?

Short Answer

Expert verified

Net income is $34,800, and ending retained earnings equals $38,300
(1) Interest rate is 6%

(2) Salaries and wages payableare $7,500.

Step by step solution

Meaning of Income Statement

The income statement, also known as a profit and loss statement, may be a record made by the management of a company that records the company's income, expenses, and net gain or loss for a specific period. One of the four key financial statements that businesses distribute is the income statement: the others are the balance sheet, owner's equity statement, and cash flow statement.

(a) Preparing Income statement

SANTO DESIGN Income Statement For the year ended December 31, 2017
Revenues
Service revenue	$61,500
Expense
Salaries and wages expense $11,300
Depreciation expense 7,000
Rent expense 4,000
Supplies expense 3,400
Insurance expense 850
Interest expense 150
Total expenses	26,700
Net Income	$34,800

SANTO DESIGN Retained Earning Statement For the year ended December 31, 2017
Retained earnings, January 1	$3,500
Add: Net income	34,800
Retained earnings, December 31	$38,300

SANTO DESIGN Balance sheet December 31, 2017
Assets
Cash	$11,350
Accounts receivables	21,500
Supplies	5,000
Prepaid insurance	2,500
Equipment $60,000
Less: Accumulated depreciation-equipment35,000	25,000
Total assets	$65,350

Liabilities and stockholders鈥� equity
Liabilities
Notes payable $5,000
Accounts payable 5,000
Interest payable 150
Unearned service revenues 5,600
Salaries and wages payable 1,300
Total liabilities	$17,050
Stockholder鈥檚 equity
Common stock $10,000
Retained earnings 38,300	48,300
Total liabilities and stockholder鈥檚 equity	$65,350

(b) Explaination on interest rate and salaries and wages payable balance

Interest is calculated at $25 per month ($150 divided by six months), or 0.5 percent of the principal balance, and is due by December 31, 2020. The annual interest rate is 6 percent (0.5 percent X 12).
Salaries and wages for current year equals $11,300, out which $1,300 are outstanding, which means $10,000 ($11,300-$1,300) is paid by the company. The total payment is $17,500, out of which $10,000 belongs to the current year, hence it means $7,500 ($17,500-$10,000), indicates the salaries and wages payable as on December 31,2016.

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Sep. 1	Kawabata begins practice as a dentist and invests \(20,000 cash
2	Purchases dental equipment on account from Green Jacket Co. for \)17,280
4	Pays rent for office space, \(680 for the month.
4	Employs a receptionist, Michael Bradley
5	Purchases dental supplies for cash, \)942
8	Receives cash of \(1,690 from patients for services performed
10	Pays miscellaneous office expenses, \)430.
14	Bills patients \(5,820 for services performed.
18	Pays Green Jacket Co. on account, \)3,600.
19	Withdraws \(3,000 cash from the business for personal use.
20	Receives \)980 from patients on account
25	Bills patients \(2,110 for services performed
30	Pays the following expenses in cash: salaries and wages \)1,800; miscellaneous office expenses \(85.
30	Dental supplies used during September, \)330.

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Short Answer

Step by step solution

Meaning of Income Statement

(a) Preparing Income statement

(b) Explaination on interest rate and salaries and wages payable balance

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SANTO DESIGN ADJUSTED TRIAL BALANCE DECEMBER 31, 2017
	Dr.	Cr.
Cash	\( 11,350
Accounts Receivable	21,500
Supplies	5,000
Prepaid Insurance	2,500
Equipment	60,000
Accumulated Depreciation鈥擡quipment		\) 35,000
Accounts Payable		5,000
Interest Payable		150
Notes Payable		5,000
Unearned Service Revenue		5,600
Salaries and Wages Payable		1,300
Common Stock		10,000
Retained Earnings		3,500
Service Revenue		61,500
Salaries and Wages Expense	11,300
Insurance Expense	850
Interest Expense	150
Depreciation Expense	7,000
Supplies Expense	3,400
Rent Expense	4,000
	\(127,050	\)127,050