Assignment

 

Dare Corporation

Dare Corporation was formed on January 1, 2014 when Dare issued no-par common stock for

$150,000 cash. On the date of formation, Dare paid $25,000 cash for equipment, $70,000 for

1,000 units of inventory (unit cost, $70), and $5,000 for office supplies. Also on January 1, Dare

acquired land by signing a 10-year, 12%, $100,000 note payable. The principle is not due for 10

years, but interest is payable annually on January 1, with the first interest payment due January

1, 2015. (You will need to record accrued interest for one year by debiting Interest Expense and

crediting Interest Payable.)

Dare purchased an additional 2,000 units of inventory on account at a cost of $130,000 (unit

cost, $65). Before year end, Dare paid $110,000 of this amount. Dare uses the FIFO method to

account for inventory and cost of goods sold.

Sales for 2014 consisted of 2,500 units sold on account for $120 each. (When recording sales

revenue, donât forget to also record cost of goods sold.) Before year end, Dare collected 80% of

the sales revenue. Of the remainder, Dare expects to collect three-fourths. Dare uses the

allowance method to account for potential uncollectible accounts. No specific accounts were

actually written off in 2014.

Dare employs three people. The total payroll for 2014 was $60,000, of which Dare still owes

$2,000 at year end. During 2014, Dare paid building rent of $12,000 and used $3,500 of office

supplies.

Dare uses the straight-line method to depreciate office equipment assuming a five year life and

no residual value.

Income taxes for 2014 are $11,000, of which $8,000 has been paid as of the end of the year.

In November, one of the initial investors wished to cash in his stock, so Dare paid $6,000 for

treasury stock. Late in the year, Dare declared and paid a $10,000 cash dividend to

stockholders.

Required:

1. Prepare journal entries to record the transactions and other events described or implied

above. There are approximately 20 journal entries, depending on whether or not you

combine or separate certain entries.

2. Post all journal entries to the ledger (T-accounts). The T-accounts are attached. You will

not necessarily need every T-account.

3. Prepare the income statement for 2014.

4. Prepare the statement of retained earnings for 2014 (beginning retained earnings is zero).

5. Prepare the balance sheet as of December 31, 2014.

6. Prepare a statement of cash flows for 2014. You may use either the direct method or the

indirect method for presenting cash flows from operating activities. Check Figures:

Income Statement:

Gross profit, $132,500

Total operating expenses, $118,500 (7 items)

Statement of Retained Earnings:

Retained earnings, December 31, 2014, $4,000 (includes net income, $14,000)

Balance Sheet:

Cash, $86,000

Total assets, $285,000 (6 asset accounts and 2 contra asset accounts)

Total liabilities, $137,000 (5 accounts)

Total stockholderâs equity, $148,000 (3 accounts)

Statement of Cash Flows:

Net cash used in operating activities, $23,000

Net cash used in investing activities, $25,000

Net cash provided by financing activities, $134,000