During January 2014, the following transactions occurred. (Morgan Company uses the perpetual inventory system.)
1. Morgan paid $250 interest on the note payable on January 1, 2014. The note is due December 31, 2015.
2. Morgan purchased $261,100 of inventory on account.
3. Morgan sold for $440,000 cash, inventory which cost $265,000. Morgan also collected $28,600 in sales taxes.
4. Morgan paid $230,000 in accounts payable.
5. Morgan paid $17,000 in sales taxes to the state.
6. Paid other operating expenses of $30,000.
7. On January 31, 2014, the payroll for the month consists of salaries and wages of $60,000. All salaries and wages are subject to 7.65% FICA taxes. A total of $8,900 federal income taxes are withheld. The salaries and wages are paid on February 1.
Adjustment data:
1. Interest expense of $250 has been incurred on the notes payable.
2. The insurance for the year 2014 was prepaid on December 31, 2013.
3. The equipment was acquired on December 31, 2013, and will be depreciated on a straight-line basis over 5 years with a $2,000 salvage value.
4. Employer"s payroll taxes include 7.65% FICA taxes, a 5.4% state unemployment tax, and an 0.8% federal unemployment tax.
Instructions
(You may need to set up T-accounts to determine ending balances.)
(a) Prepare journal entries for the transactions listed above and the adjusting entries.
(b) Prepare an adjusted trial balance at January 31, 2014.
(c) Prepare an income statement, an owner"s equity statement for the month ending January 31, 2014, and a classified balance sheet as of January 31, 2014.