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Comprehensive Problem Use Extreme Edge's 2013 balance sheet from Exhibit 2-1 C as the starting point for this problem. Assume Extreme Edge had the following transactions in 2014 (amounts in thousands, except par value): 1. Issued 10 shares of S1 par value common stock for a total of $80 in cash. 2. Used cash of $100 to purchase equipment. 3. Purchased $718 of inventory on credit from suppliers. 4. Recorded $1,200 of credit sales. 5. Matched $660 cost of goods sold to the sales in transaction 4 above. 6. Collected cash from customers on accounts receivable totaling $1,210. 7. Paid cash of $733 to settle accounts payable (A/P). 8. Incurred (but did not pay) $345 of operating expenses (Hint: this would be recorded as a credit to accrued liabilities). 9. Paid cash of $357 to pay for accrued liabilities. 10. Paid $10 interest in cash, stemming from the note payable. 11. Depreciated equipment $120. 12. Amortized the customer database $5. 13. Paid $24 in cash to the government for income taxes. 14. Declared and paid $6 cash to shareholders as a dividend on their investment (Hint: this would be recorded as a debit to retained earnings). Required: Do the following for 2014: a. Record the transactions in the general journal. b. Post the entries to the ledger. (Hint: Don't forget to post the ending 2013 balances as your first entry for all balance sheet accounts) c. Construct a trial balance. d. Present the financial statements in good form. Close the temporary accounts. e. General Journal (S in thousands) Trans. 1 Debit 80 Credit Accounts Cash (asset) Common stock (shareholders equity) Additional paid in capital shareholders' equity) 10 70 22 3 5 6 8 10 11 12 13 14 Ledger Account Cash Trans. Assets Debit Beg. Credit 1 Balance $30 db. 1 10 db $80 Account Accounts receivable Trans. Debit Credit Balance Account Inventory Trans. Debit Credit Balance Account Equipment Trans. Debit Credit Balance Trans. Debit Account Accum depreciation Credit Balance Trans. Debit Account Customer database Credit Balance Trans. Debit Account Accum amortization Credit Balance Liabilities Trans. Debit Credit Balance Account Accounts payable Trans. Debit Credit Balance Account Accrued liabilities Trans. Debit Credit Balance Account Notes payable Account Common stock Shareholders' Equity Trans. Debit Credit Beg. 1 $10 Balance $40 cr. 50 cr. Debit Credit Account Add. paid in capital Trans. Beg. Balance $360 r. 430 cr. $70 Account Retained earnings Debit Credit Trans. Beg. Balance $18 cr. Account Sales revenues Revenues Trans. Debit Credit Balance Account COGS Expenses Trans. Debit Credit Balance Account Operating expense Trans. Debit Credit Balance Account Depreciation exp. Trans. Debit Credit Balance Account Amortization exp. Trans. Debit Credit Balance Account Interest expense Trans. Debit Credit Balance Account Income tax expense Trans. Debit Credit Balance Trial Balance Debit Credit Accounts Cash Accounts receivable Inventory Equipment Accumulated depreciation Customer database Accumulated amortization Accounts payable Accrued liabilities Notes payable Common stock Additional paid in capital Retained earnings Sales revenues Cost of goods sold Depreciation expense Amortization expense Operating expenses Interest expense Income tax expense Total Financial Statements Extreme Edge, Inc. Income Statement For the Year Ended December 31, 2014 Sales revenue Less: Cost of goods sold Gross profit Operating expenses: Depreciation expense Amortization expense Other operating expenses Income from operations Interest (financing) expense Pretax income Income tax expense (40%) Net income Earnings per share (EPS) Extreme Edge, Inc. Statement of Shareholders' Equity For the Year Ended December 31, 2014 Beginning contributed capital Capital contributed in 2014 Capital withdrawn in 2014 Ending contributed capital Beginning retained earnings Net income in 2014 Dividends declared in 2014 Ending retained earnings Total shareholders' equity Extreme Edge, Inc. Balance Sheet December 31, 2014 Assets: Cash Accounts receivable, net Inventory Total Current Assets Property, plant and equipment: Equipment Less: accumulated depreciation Equipment, net Intangible assets: Customer database Less: accumulated amortization Customer database, net Total Assets Liabilities: Accounts payable Accrued liabilities Total Current Liabilities Long-term Liabilities: Notes payable Total Liabilities Shareholders' Equity (SE): Common stock (C/S). Si par Additional paid-in-capital C/S Total Contributed Capital Retained earnings Total Shareholders' Equity Total Liabilities and S/E Statement of Cash Flows For the Year Ended December 31, 2014 Cash Dows from operating activities: Net Income Depreciation expense, equipment Amortization expense, database Change in accounts receivable Change in inventory Change in accounts payable Change in accrued liabilities Net cash provided by operating activities Cash flows from investing activities: Purchase of equipment Net cash used for investment activities Cash flows from financing activities: Issue (repay) notes payable Issue common stock Pay cash dividend Net cash provided by financing activities Net change in cash Cash, beginning of the year Net change in cash Cash, end of the year Trans. 17 Closing Journal Entries General Journal Accounts Sales revenues Retained earnings Debit Credit 18 Retained earnings Cost of goods sold Operating expenses Depreciation expense Amortization expense Interest expense 28 Income tax expense Comprehensive Problem Use Extreme Edge's 2013 balance sheet from Exhibit 2-1 C as the starting point for this problem. Assume Extreme Edge had the following transactions in 2014 (amounts in thousands, except par value): 1. Issued 10 shares of S1 par value common stock for a total of $80 in cash. 2. Used cash of $100 to purchase equipment. 3. Purchased $718 of inventory on credit from suppliers. 4. Recorded $1,200 of credit sales. 5. Matched $660 cost of goods sold to the sales in transaction 4 above. 6. Collected cash from customers on accounts receivable totaling $1,210. 7. Paid cash of $733 to settle accounts payable (A/P). 8. Incurred (but did not pay) $345 of operating expenses (Hint: this would be recorded as a credit to accrued liabilities). 9. Paid cash of $357 to pay for accrued liabilities. 10. Paid $10 interest in cash, stemming from the note payable. 11. Depreciated equipment $120. 12. Amortized the customer database $5. 13. Paid $24 in cash to the government for income taxes. 14. Declared and paid $6 cash to shareholders as a dividend on their investment (Hint: this would be recorded as a debit to retained earnings). Required: Do the following for 2014: a. Record the transactions in the general journal. b. Post the entries to the ledger. (Hint: Don't forget to post the ending 2013 balances as your first entry for all balance sheet accounts) c. Construct a trial balance. d. Present the financial statements in good form. Close the temporary accounts. e. General Journal (S in thousands) Trans. 1 Debit 80 Credit Accounts Cash (asset) Common stock (shareholders equity) Additional paid in capital shareholders' equity) 10 70 22 3 5 6 8 10 11 12 13 14 Ledger Account Cash Trans. Assets Debit Beg. Credit 1 Balance $30 db. 1 10 db $80 Account Accounts receivable Trans. Debit Credit Balance Account Inventory Trans. Debit Credit Balance Account Equipment Trans. Debit Credit Balance Trans. Debit Account Accum depreciation Credit Balance Trans. Debit Account Customer database Credit Balance Trans. Debit Account Accum amortization Credit Balance Liabilities Trans. Debit Credit Balance Account Accounts payable Trans. Debit Credit Balance Account Accrued liabilities Trans. Debit Credit Balance Account Notes payable Account Common stock Shareholders' Equity Trans. Debit Credit Beg. 1 $10 Balance $40 cr. 50 cr. Debit Credit Account Add. paid in capital Trans. Beg. Balance $360 r. 430 cr. $70 Account Retained earnings Debit Credit Trans. Beg. Balance $18 cr. Account Sales revenues Revenues Trans. Debit Credit Balance Account COGS Expenses Trans. Debit Credit Balance Account Operating expense Trans. Debit Credit Balance Account Depreciation exp. Trans. Debit Credit Balance Account Amortization exp. Trans. Debit Credit Balance Account Interest expense Trans. Debit Credit Balance Account Income tax expense Trans. Debit Credit Balance Trial Balance Debit Credit Accounts Cash Accounts receivable Inventory Equipment Accumulated depreciation Customer database Accumulated amortization Accounts payable Accrued liabilities Notes payable Common stock Additional paid in capital Retained earnings Sales revenues Cost of goods sold Depreciation expense Amortization expense Operating expenses Interest expense Income tax expense Total Financial Statements Extreme Edge, Inc. Income Statement For the Year Ended December 31, 2014 Sales revenue Less: Cost of goods sold Gross profit Operating expenses: Depreciation expense Amortization expense Other operating expenses Income from operations Interest (financing) expense Pretax income Income tax expense (40%) Net income Earnings per share (EPS) Extreme Edge, Inc. Statement of Shareholders' Equity For the Year Ended December 31, 2014 Beginning contributed capital Capital contributed in 2014 Capital withdrawn in 2014 Ending contributed capital Beginning retained earnings Net income in 2014 Dividends declared in 2014 Ending retained earnings Total shareholders' equity Extreme Edge, Inc. Balance Sheet December 31, 2014 Assets: Cash Accounts receivable, net Inventory Total Current Assets Property, plant and equipment: Equipment Less: accumulated depreciation Equipment, net Intangible assets: Customer database Less: accumulated amortization Customer database, net Total Assets Liabilities: Accounts payable Accrued liabilities Total Current Liabilities Long-term Liabilities: Notes payable Total Liabilities Shareholders' Equity (SE): Common stock (C/S). Si par Additional paid-in-capital C/S Total Contributed Capital Retained earnings Total Shareholders' Equity Total Liabilities and S/E Statement of Cash Flows For the Year Ended December 31, 2014 Cash Dows from operating activities: Net Income Depreciation expense, equipment Amortization expense, database Change in accounts receivable Change in inventory Change in accounts payable Change in accrued liabilities Net cash provided by operating activities Cash flows from investing activities: Purchase of equipment Net cash used for investment activities Cash flows from financing activities: Issue (repay) notes payable Issue common stock Pay cash dividend Net cash provided by financing activities Net change in cash Cash, beginning of the year Net change in cash Cash, end of the year Trans. 17 Closing Journal Entries General Journal Accounts Sales revenues Retained earnings Debit Credit 18 Retained earnings Cost of goods sold Operating expenses Depreciation expense Amortization expense Interest expense 28 Income tax expense

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