(Solved Homework): FIND THE NET INCOME…


Part A MK Enterprises, Inc. started business on January, 1, Year 1 and keeps its books on the cash basis of accounting. The trial balance of the company at December 31, Year 1 is as follows: Selling expenses DEBIT CREDIT Cash $5,000 Common stock $10,000 Sales 40,000 Cost of sales 20,000 Payroll expense 8,000 Selling expenses 3,000 Administrative expenses 5,000 Small tools expense 5,000 Income tax expense (estimated tax payments) 4,000 (debit) Other information about MK’s operations: 1. Customers owe the company $20,000 on unpaid invoices at the end of the year. 2. The company has goods with a cost of $12,000 in its warehouse at year end. The company owes its supplier for all of these goods, plus they owe another $2,000 on a prior shipment that was sold during the year. 3. The amount the company shows as small tools is for the principal manufacturing asset of the company. The company depreciates its fixed assets on a straight line basis with a five year asset life. Fixed assets are assumed to be purchased at the beginning of the year. 4. Included in administrative expenses is a payment on the company’s one year general liability insurance policy for $2,400. The policy was purchased and effective on July 1, Year 1. 5. When reconciling the bank accounts for the year, the company discovered that it had received a $500 bad check from a customer. The check was re-deposited and paid in January of Year 2. 6. The company estimates that 1.5% of its sales will eventually be uncollectible. 7. The company pays its employees on a weekly basis 7 days after the end of the pay period. The last paycheck date for the year was on December 31st. The weekly payroll of the company is $1,300. 8. The company’s tax rate is 25%. There were no non-taxable transactions made by the company.

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Trial balance
Dr Cr
Cash $5,000
Common stock $10,000
Sales $40,000
Cost of sales $20,000
Payroll expenses 8000
Selling Expenses 3000
Adminsitartive expenses 5000
Small Tool expenses 5000
Income tax expense 4000
Total $50,000 $50,000
Trans. Accounts Title Dr Cr
1 Accounts Receivable $20,000
Sales $20,000
2 Inventory 12000
Cost of sales 2000
Accounts payable 14000
3 Depreciation expense 1000
Acc Dep 1000
4 Prepaid Insurance 1200
Adminsitrative expenses 1200
5 Accounts receivable 500
Cash 500
6 Bad debt expenses 900
Allowance for Doubtful debts 900
7 Salaries expenses 1300
Salaries payable 300
Income statement
Sales 60000
Less: cost of sales (20000+2000) 22000
Gross profit 38000
Less: operating expenses
Selling Expenses 3000
Adminsitartive expenses (5000-1200) 3800
Depreciation expense 1000
Bad debt expenses 900
Salaries expenses 1300
Total operating expenses 10000
Operating Income 28000
Income Tax expense (28000*.25) 7000
ans Net income 21000

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