Question

The following transactions apply to Walnut Enterprises for Year 1, its first year of operations:

Received $41,000 cash from the issue of a short-term note with a 6 percent interest rate and a one-year maturity. The note was made on April 1, Year 1.

Received $116,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 7 percent.

Paid $71,000 cash for other operating expenses during the year.

Paid the sales tax due on $96,000 of the service revenue for the year. Sales tax on the balance of the revenue is not due until Year 2.

Recognized the accrued interest at December 31, Year 1.



The following transactions apply to Walnut Enterprises for Year 2:



Paid the balance of the sales tax due for Year 1.

Received $141,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 7 percent.

Repaid the principal of the note and applicable interest on April 1, Year 2.

Paid $84,000 of other operating expenses during the year.

Paid the sales tax due on $116,000 of the service revenue. The sales tax on the balance of the revenue is not due until Year 3.

f-1. Record the Year 2 transactions in general journal form.
f-2. Post the Year 2 transactions to T-accounts.
f-3. Prepare an income statement for Year 2.
f-4. Prepare a statement of changes in stockholders’ equity for Year 2.
f-5. Prepare a balance sheet for Year 2.
f-6. Prepare a statement of cash flows for Year 2.
f-7. Prepare closing entries for Year 2.
f-8. Post the Year 2 closing entries to T-accounts.
f-9. Prepare a post-closing trial balance for Year 2.

Answer 1

The firm's accounting profit for last year is calculated by subtracting total expenses from sales revenue, resulting in $50,000.

To calculate a firm's accounting profit, we subtract the firm's total expenses from its total revenues. Based on the data provided, the firm had total expenses of $950,000 ($600,000 on labor, $150,000 on capital, and $200,000 on materials) and sales revenue of $1 million last year.

The firm's accounting profit is calculated as follows:

Sales Revenue: $1,000,000

- Total Expenses: $950,000

= Accounting Profit: $50,000

Therefore, the firm's accounting profit for last year was $50,000.