Reference no: EM132595299

Joan's Sewing Service Inc. was started on January 1, 20x1 by Joan Silversmith.

The following transactions or events took place during 20x1:

a. The company sold stock for $50,000 cash on January 1.

b. It borrowed $24,000 from the local bank on January 1, 2015. The loan was due on March 31, 20x2 and carried an 8 percent annual interest rate, with principal and interest due at maturity.

c. The company purchased a commercial sewing machine to be used for the business on January 1, 20x1. The sewing machine cost $20,000 and has an estimated four-year life with no salvage value. The company uses straight-line depreciation.

d. Joan's Sewing Service provided $40,000 of services on account in 20x1, of which $30,000 was collected during the year.

e. On December 15, 20x1, the company accepted a deposit of $10,000 to sew gowns for a wedding to be held in June of 20x2.

f. Several potential customers indicated their intent to hire Joan's to sew wedding gowns for upcoming weddings. The total estimated business was $20,000.

g. Operating expenses of $20,000 were incurred during 20x1. $5,000 remained unpaid at year end.

h. On January 1, 20x1, the company purchased a 24-month insurance policy for $3,600.

i. Cost of materials purchased for use in products sold was $22,000, of which $5,000 remained unused at year end.

Required: Answer the following questions: Show computations where needed.

Question a. How much revenue will the company recognize in the 20x1 income statement?

Question b. How much total interest expense should be recognized in 20x1?

Question c. What will be the balance in cost of goods sold on the 20x1 income statement?

Question d. How much insurance expense will the company recognize on its 20x1 income statement?

Question e. What will be the operating expenses reported on the 20x1 income statement?

Question f. Prepare the adjusting entry for depreciation made at 12/31/20x1.

Question g. What will be the book value of the sewing machine on December 31, 20x1?

Question h. Prepare the adjusting entry for interest on the loan on December 31, 20x1.

Question i. What will be the total amount paid related to the loan on March 31, 20x2?

Question j. What will be the balance in retained earnings at December 31, 20x1? Will this balance be a debit or credit balance?