ABC Corp.

, whose fiscal year ends on December 31, engaged in the following transactions
for FY 2024:
1. On January 1, it issued 1,000 common shares for $80,000. The par value of each
common share was $1.
2. On February 1, it hired an employee who will be paid every 6 months. The
employee’s annual wage is $10,000. On the same day, it prepaid $2,000 cash for 12-
month employee insurance.
3. On March 31, it lent $15,000 to an affiliate at the annual interest rate of 5%. The
principal is due in three years, and the interest is to be paid annually.
4. On May 18, it purchased $7,500 worth of inventory in cash.
5. On June 2, it sold $1,000 worth of products for $4,200 on account.
6. On July 31, it sold $4,000 worth of products for a $20,000 note. The note is due in
one year with 4% annual interest to be paid semi-annually.
7. On August 1, it paid the employee his/her wage.
8. On August 15, it received the outstanding balance from (5) in cash.

Additional Information:
 Assume that the beginning balances of all balance sheet accounts are zero.

Required:
1. Record any required journal entries for the above transactions for ABC Corp.
2. Construct an income statement for FY 2024 and a balance sheet as of Dec. 31, 2024.

Transaction #1 Debit Credit

Cash 80,000
Common Stock 1,000
Additional Paid-in Capital 79,000

Transaction #2
Prepaid Insurance 2,000
Cash 2,000

Transaction #3
Notes Receivable 15,000
Cash 15,000

Transaction #4
Inventory 7,500
Cash 7,500

Transaction #5
A/R 4,200
COGS 1,000
Revenue 4,200
Inventory 1,000
 Transaction #6
Notes Receivable 20,000
COGS 4,000
Revenue 20,000
Inventory 4,000

Transaction #7
Wages Expense 5,000
Cash 5,000

Transaction #8
Cash 4,200
A/R 4,200

Adjusting Entry #1
Wages Expense 4,167
Wages Payable 4,167

Adjusting Entry #2
Insurance Expense 1,833
Prepaid Insurance 1,833

Adjusting Entry #3
Interest Receivable 563
Interest Revenue 563

Adjusting Entry #4
Interest Receivable 333
Interest Revenue 333

Adjusting Entry #1: Wage Expense = ($10,000/12 months) x 5 months = $4,167

Adjusting Entry #2: Insurance Expense = ($2,000/12 months) x 11 months = $1,833
Adjusting Entry #3: Interest Revenue = ($15,000 x 5%)/12 months x 9 months = $563
Adjusting Entry #4: Interest Revenue = ($20,000 x 4%)/12 months x 5 months = $333

Income Statement for 12 months ending on December 31, 2024

Revenue 24,200
COGS 5,000
Gross Profit 19,200

Operating Expenses:
Wage Expense 9,167
Insurance Expense 1,833
Total Operating Expenses 11,000

Non-operating revenues:
Interest Revenue 896
Net Income 9,096

Balance Sheet as of December 31, 2024

Current Assets
Cash 54,700
Inventory 2,500
Interest Receivable 896
Prepaid Insurance 167

Non-current Assets:
Notes Receivable 35,000

Total Assets 93,263

Liabilities:
Wages Payable 4,167

Total Liabilities 4,167

Stockholders’ Equity:
Common Stock 1,000
Additional Paid-in Capital 79,000
Retained Earnings 9,096

Total Liabilities + SE 93,263

ABC Corp., whose fiscal year ends on December 31, engaged in the following transactions
for FY 2024:
1. On January 1, it borrowed $230,000 from a bank. The loan is due in three years, and
the 4% annual interest is to be paid on December 31 of each year.
2. On February 1, it paid $12,000 in cash to rent a warehouse for the next 2 years.
3. On March 1, it decided to use an A/C to keep the warehouse cool. The electricity bill
is fixed at $400 per month and will be paid at the end of February next year.
4. On April 30, it purchased a $5,000 equipment with a note with 3% annual interest
rate. The note is due in one year along with the interest.
5. On May 2, it purchased 50 units of inventory, of which 20 units were on account.
6. On May 23, it sold 10 units on account.
7. On May 25, 2 units from (6) were returned.
8. On May 30, 5 units were from (6) were paid for in cash.
9. On June 15, 1 unit from (8) was returned for cash.
10. On June 30, the remaining balance from (6) was settled in cash.
11. On October 11, it receives a cash payment to deliver 8 units early next year.
12. On December 31, it paid the interest from (1).

Additional Information:
 Assume that the beginning balances of all balance sheet accounts are zero.
 The unit selling price was $600, and the unit cost was $70.
 Credit sales are made with 2/10 n/30 terms.
 Depreciation expense for the equipment purchased in (4) for FY 2024 was $500.

Required:
1. Record any required journal entries for the above transactions for ABC Corp.
2. Construct an income statement for FY 2024 and a balance sheet as of Dec. 31, 2024.

Transaction #1 Debit Credit

Cash 230,000
Notes Payable 230,000

Transaction #2
Prepaid Rent 12,000
Cash 12,000

Transaction #3
No journal entries required

Transaction #4
PP&E 5,000
Note Payable 5,000

Transaction #5
Inventory 3,500
Accounts Payable 1,400
Cash 2,100

Transaction #6
A/R 6,000
COGS 700
Revenue 6,000
Inventory 700

Transaction #7
Inventory 140
Sales Return 1,200
COGS 140
A/R 1,200

Transaction #8
Cash 2,940
Sales Discount 60
A/R 3,000

Transaction #9
Inventory 70
Sales Return 600
COGS 70
Cash 600

Cash 12
Sales Discount 12

Transaction #10
Cash 1,800
A/R 1,800

Transaction #11
Cash 4,800
Deferred Revenue 4,800

Transaction #12
Interest Expense 9,200
Cash 9,200

Adjusting Entry #1
Depreciation Expense 500
Accumulated Depreciation 500

Adjusting Entry #2
Rent Expense 5,500
 Prepaid Rent 5,500

Adjusting Entry #3
Utilities Expense 4,000
Utilities Payable 4,000

Adjusting Entry #4
Interest Expense 100
Interest Payable 100
Transaction #12: Interest Expense = $230,000 x 4% = $9,200
Adjusting Entry #2: Rent Expense = ($12,000 / 24 months) x 11 months = $5,500
Adjusting Entry #4: Interest Expense = ($5,000 x 3%) / 12 months x 8 months = $100

Income Statement for 12 months ending on December 31, 2024

Revenue 6,000
Less: Sales Discount 48
Less: Sales Returns 1,800
Net Sales 4,152

COGS 490
Gross Profit 3,662

Operating Expenses:
Depreciation Expense 500
Rent Expense 5,500
Utilities Expense 4,000
Total Operating Expenses 10,000

Non-operating expenses:
Interest Expense 9,300

Net Income -15,638

Balance Sheet as of December 31, 2024

Current Assets
Cash 215,652
Inventory 3,010
Prepaid Rent 6,500

Noncurrent Assets
Net PP&E 4,500

Total Assets 229,662

Current Liabilities:
Accounts Payable 1,400
Deferred Revenue 4,800
Interest Payable 100
Utilities Payable 4,000

Noncurrent Liabilities:
Notes Payable 235,000

Total Liabilities 245,300

Retained Earnings -15,638

Total Liabilities + SE 229,662

Below is ABC Corp.’s A/R schedule for FY 2024 that ended on December 31:

A/R Schedule for FY 2024

Date Type Debit Credit
Beg. Balance 0
January 19, 2024 Sales 22,000
January 27, 2024 Return 11,000
February 11, 2024 Sales 57,000
April 20, 2024 Collection 15,000
May 17, 2024 Sales 34,000
October 8, 2024 Collection 30,000
December 24, 2024 Sales 75,000

Additional Information:
 Collections are applied to the oldest A/R first.
 The beginning balance of Allowance for Bad Debts was $0.

Required:
1. Estimate and record Bad Debt Expense for FY 2024 if this company estimates that
1% of credit sales, net of returns, are uncollectible.
2. Estimate and record Bad Debt Expense for FY 2024 if this company uses the
following aging percentages:
≤ 6 months ≤ 9 months > 9 months
2% 3% 4%

Net Credit Sales during FY 2024:

22,000 – 11,000 + 57,000 + 34,000 + 75,000 = $177,000
Bad Debt Expense = $184,000 * 1% = $1,770

Debit Credit
Bad Debt Expense 1,770
Allowance for Bad Debts 1,770

A/R ≤ 6 months = $75,000

A/R ≤ 9 months = $34,000
A/R > 9 months = 22,000 + 57,000 – 11,000 – 15,000 – 30,000 = $23,000

Age A/R % Uncollectible Total

≤ 6 months 75,000 2% 1,500
≤ 9 months 34,000 3% 1,020
> 9 months 23,000 4% 920
Total 132,000 3,440
 Debit Credit
Bad Debt Expense 3,440
Allowance for Bad Debts 3,440
Below is ABC Corp.’s A/R schedule for FY 2024 that ended on December 31:

A/R Schedule for FY 2024

Date Type Debit Credit
Beg. Balance 29,000
March 11, 2024 Sales 17,000
April 14, 2024 Return for FY 2023 12,000
May 2, 2024 Return for Mar. 11 6,000
May 20, 2024 Collection 3,000
July 9, 2024 Sales 34,000
August 18, 2024 Sales 26,500
September 23, 2024 Collection 18,000
November 6, 2024 Sales 4,000

Additional Information:
 Collections are applied to the oldest A/R first.
 The beginning balance of Allowance for Bad Debts was $800.
 In FY 2024, there was a write-off of $300 for A/R from FY 2023.

Required:
3. Estimate and record Bad Debt Expense for FY 2024 if this company estimates that
2% of credit sales, net of returns, are uncollectible.
4. Estimate and record Bad Debt Expense for FY 2024 if this company uses the
following aging percentages:
≤ 3 months ≤ 6 months > 6 months
0.5% 1% 4%

Net Credit Sales during FY 2024:

17,000 – 6,000 + 34,000 + 26,500 + 4,000 = $75,500
Bad Debt Expense = $75,500 * 2% = $1,510

Debit Credit
Bad Debt Expense 1,510
Allowance for Bad Debts 1,510

A/R ≤ 3 months = $4,000

A/R ≤ 6 months = 34,000 + 26,500 = $60,500
A/R > 6 months = 29,000 + 17,000 – 12,000 – 6,000 – 3,000 – 18,000 – 300 = $6,700

Age A/R % Uncollectible Total

≤ 3 months 4,000 0.5% 20
≤ 6 months 60,500 1% 605
> 6 months 6,700 4% 268
Total 71,200 893
 Debit Credit
Bad Debt Expense 393
Allowance for Bad Debts 393
Below is XYZ Corp.’s inventory schedule for FY 2024 that ended on December 31:

Date Type Units Unit Selling Price Unit Cost

Beginning Balance 0
February 10, 2024 Purchase 25 30
April 11, 2024 Purchase 30 32
April 29, 2024 Sales 40 51
May 30, 2024 Sales 10 50
June 26, 2024 Purchase 60 34
July 9, 2024 Purchase 50 35
October 3, 2024 Sales 55 54

Required:
1. Calculate Cost of Goods Sold for FY 2024 if this company adopted FIFO, LIFO, and
average cost method under both periodic and perpetual inventory system.

FIFO Periodic
Units Sold Unit Cost COGS
25 30 750
30 32 960
50 34 1,700
105 3,410

LIFO Periodic
Units Sold Unit Cost COGS
50 35 1,750
55 34 1,870
105 3,620

Average Cost = [(25 * 30) + (30 * 32) + (60 * 34) + (50 * 35)] / (25 + 30 + 60 +50) =
$33.33
Average Cost Periodic
Units Sold Unit Cost COGS
105 33.33 3,500

FIFO Perpetual
Date Units Sold Unit Cost COGS
April 29, 2024 25 30 750
15 32 480
May 30, 2024 10 32 320
October 3, 2024 5 32 160
50 34 1,700
Total 105 3,410
 LIFO Perpetual
Date Units Sold Unit Cost COGS
April 29, 2024 30 32 960
10 30 300
May 30, 2024 10 30 300
October 3, 2024 50 35 1,750
5 34 170
Total 105 3,480

Average Cost (as of Apr. 29) = [(25 * 30) + (30 * 32)] / (25 + 30) = $31.09
Units left = 55 – 40 = 15

Average Cost (as of May 30) = (15*31.09) / 15 = $31.09

Units left = 15 – 10 = 5

Average Cost (as of Oct. 3) = [(31.09 *5) + (60*34) + (50*35)] / (5 + 60 + 50) =

$34.31

Average Cost Perpetual

Date Units Sold Unit Cost COGS
April 29, 2024 40 31.09 1,244
May 30, 2024 10 31.09 311
October 3, 2024 55 34.31 1,887
Total 105 3,442
Below is XYZ Corp.’s inventory schedule for FY 2024 that ended on December 31:

Date Type Units Unit Selling Price Unit Cost

Beginning Balance 120 25
January 7, 2024 Sales 50 100
March 2, 2024 Purchase 60 30
April 6, 2024 Sales 100 120
April 22, 2024 Purchase 90 35
June 3, 2024 Sales 80 110
August 11, 2024 Sales 30 115
September 11, 2024 Purchase 110 40

Required:
2. Calculate Cost of Goods Sold for FY 2024 if this company adopted FIFO, LIFO, and
average cost method under both periodic and perpetual inventory system.

FIFO Periodic
Units Sold Unit Cost COGS
120 25 3,000
60 30 1,800
80 35 2,800
260 7,600

LIFO Periodic
Units Sold Unit Cost COGS
110 40 4,400
90 35 3,150
60 30 1,800
260 9,350

Average Cost = [(120 * 25) + (60 * 30) + (90 * 35) + (110 * 40)] / (120 + 60 + 90
+110) = $32.5
Average Cost Periodic
Units Sold Unit Cost COGS
260 32.5 8,450

FIFO Perpetual
Date Units Sold Unit Cost COGS
January 7, 2024 50 25 1,250
April 6, 2024 70 25 1,750
30 30 900
June 3, 2024 30 30 900
50 35 1,750
August 11, 2024 30 35 1,050
Total 260 7,600

LIFO Perpetual
 Date Units Sold Unit Cost COGS
January 7, 2024 50 25 1,250
April 6, 2024 60 30 1,800
40 25 1,000
June 3, 2024 80 35 2,800
August 11, 2024 10 35 350
20 25 500
Total 260 7,700

Average Cost (as of Jan. 7) = (120 * 25) / 120 = $25

Units left = 120 – 50 = 70

Average Cost (as of Apr. 6) = [(70*25) + (60*30)] / (70 + 60) = $27.3

Units left = 70 + 60 – 100 = 30

Average Cost (as of Jun. 3) = [(30 *27.3) + (90*35)] / (30 + 90) = $33.075
Units left = 30 + 90 – 80 = 40

Average Cost (as of Aug. 11) = $33.08

Average Cost Perpetual

Date Units Sold Unit Cost COGS
January 7, 2024 50 25 1,250
April 6, 2024 100 27.3 2,730
June 3, 2024 80 33.075 2,646
August 11, 2024 30 33.075 992
Total 260 7,618
Below is a table showing the historical unit cost and unit market value of Inventory by
product:
Product Unit Cost Units Unit Market Value
ABC 50 68 51
DEF 32 26 30
PQR 68 25 68
RST 55 61 52
XYZ 21 87 29

Required:

1. Record any required journal entries applying the Lower of Cost or Market method.

Product Unit Cost Units Total Cost Unit Market Lower of Cost or
Value Market
ABC 50 68 50*68 = 3,400 51 50*68 = 3,400
DEF 32 26 32*26 = 832 30 30*26 = 780
PQR 68 25 68*25 = 1,700 68 68*25 = 1,700
RST 55 61 55*61 = 3,355 52 52*61 = 3,172
XYZ 21 87 21*87 = 1,827 29 21*87 = 1,827
Total 11,114 10,879

Debit Credit
COGS 235
Inventory 235