BUS103: Introduction to Financial Accounting

This problem has carried through several chapters, building in difficulty. Hopefully, it has allowed students to continuously practice skills and knowledge learned in previous chapters.

In Chapter 16 "In a Set of Financial Statements, What Information Is Conveyed about Shareholders' Equity?", you prepared Webworks statements for April. They are included here as a starting point for May. This will be your final month of preparing financial statements for Webworks. This month, the statement of cash flows will be added. To simply the problem, fewer transactions than usual are included.

Here are Webworks financial statements as of April 30.

a. Webworks starts and completes twelve more Web sites and bills clients for $9,000.

b. Webworks purchases supplies worth $140 on account.

c. At the beginning of May, Webworks had twenty-two keyboards costing $121 each and twenty-eight flash drives costing $25 each. Webworks uses periodic FIFO to cost its inventory.

d. On account, Webworks purchases eighty-three keyboards for $122 each and ninety flash drives for $26 each.

e. Webworks sells 98 keyboards for $14,700 and 100 of the flash drives for $3,000 cash.

f. Webworks collects $9,000 in accounts receivable.

g. Webworks pays its $500 rent.

h. Webworks pays off $14,000 of its accounts payable.

i. Webworks sells all of its shares of QRS stock for $14 per share.

j. Webworks pays Juan $750 for his work during the first three weeks of May.

k. Webworks pays off its salaries payable from April.

l. Webworks pays Leon and Nancy a salary of $4,000 each.

m. Webworks' note payable permits early payment with no penalty. Leon and Nancy decide to use some of their excess cash and pay off the note and interest payable. The note was paid at the beginning of May, so no interest accrued during May.

n. Webworks pays taxes of $740 in cash.

Required:

A. Prepare journal entries for the above events.

B. Post the journal entries to T-accounts.

C. Prepare an unadjusted trial balance for Webworks for May.

D. Prepare adjusting entries for the following and post them to your T-accounts.

o. Webworks owes Juan $200 for his work during the last week of May.

p. Webworks receives an electric bill for $450. Webworks will pay the bill in June.

q. Webworks determines that it has $70 worth of supplies remaining at the end of May.

r. Webworks is continuing to accrue bad debts at 10 percent of accounts receivable.

s. Webworks continues to depreciate its equipment over five years and its furniture over five years, using the straight-line method.

t. The license agreement should be amortized over its one-year life.

u. Record cost of goods sold.

E. Prepare an adjusted trial balance.

F. Prepare financial statements, including the statement of cash flows, for May. Prepare the operating section using the indirect method.