Response to the following problem:
Unifying Concepts: First Steps in the Accounting Cycle The following balances were taken from the general ledger of Holland Company on January 1, 2009:
Debits Credits
Cash $14,500
Short-Term Investments 9,000
Accounts Receivable 17,500
Inventory 22,000
Land 30,000
Buildings 70,000
Equipment 15,000
Notes Payable $15,500
Accounts Payable 19,500
Salaries and Wages Payable 7,500
Mortgage Payable 32500
Capital Stock (7,000 shares outstanding) 70,000
Retained Earnings 33,000
During 2009, the company completed the following transactions:
a. Purchased inventory for $95,000 on credit.
b. Issued an additional $40,000 of capital stock (4,000 shares) for cash.
c. Paid property taxes of $5,200 for the year 2009.
d. Paid advertising and other selling expenses of $6,500.
e. Paid utilities expense of $4,800 for 2009.
f. Paid the salaries and wages owed for 2008. Paid additional salaries and wages of $23,000 during 2009.
g. Sold merchandise costing $111,000 for $167,000. Of total sales, $38,000 were cash sales and $129,000 were credit sales.
h. Paid off notes of $15,500 plus interest of $1,200.
i. On November 1, 2009, received a loan of $15,000 from the bank.
j. On December 30, 2009, made annual mortgage payment of $3,300 and paid interest of $700.
k. Collected receivables for the year of $132,000.
l. Paid off accounts payable of $110,500.
m. Received dividends and interest of $1,100 on short-term investments during 2009. (Record as Miscellaneous Revenue.)
n. Purchased additional short-term investments of $12,000 during 2009. (Note: Short-term investments are current assets.)
o. Paid 2009 corporate income taxes of $6,300.
p. Paid cash dividends of $6,100.
Required:
1. Journalize the 2009 transactions. (Omit explanations.)
2. Set up T-accounts with the proper account balances at January 1, 2009, and post the journal entries to the T-accounts.
3. Determine the account balances, and prepare a trial balance at December 31, 2009.
4. Prepare an income statement and a balance sheet. (Remember that the dividends account and all revenue and expense accounts are temporary retained earnings accounts.)
5. Interpretive Question: Why are revenue and expense accounts used at all?