Hawkeye Corporation’s balance sheet at December 31, 2016, is presented below

S.No
1

During 2017, the following transactions occurred.

1. On January 1, 2017, Hawkeye issued 1,200 shares of $40 par, 7% preferred stock for $49,20 4
2. On January 1, 2017, Hawkeye also issued 900 shares of the $10 par value common stock for $21,000.
4. On April 1, 2017, Hawkeye collected fees of $36,000 in advance for services to be performed from April 1, 2017, to Marc
5. Hawkeye collected $276,000 from customers on account. 5
6. Hawkeye bought $35,100 of supplies on account.
7. Hawkeye paid $32,200 on accounts payable.
8. Hawkeye reacquired 400 shares of its common stock on June 1, 2017, for $28 per share. 6
9. Paid other operating expenses of $188,200.
10. On December 31, 2017, Hawkeye declared the annual preferred stock dividend and a $1.20 per share dividend on the
11. An account receivable of $1,700 which originated in 2016 is written off as uncollectible. A 7

1. A count of supplies indicates that $5,900 of supplies remain unused at year-end.

2. Recorded revenue from item 4 above. 8
3. The allowance for doubtful accounts should have a balance of $3,500 at year end.
4. Depreciation is recorded on the building on a straight-line basis based on a 30-year life and a salvage value of $10,000.
5. The income tax rate is 30%. (Hint: Prepare the income statement up to income before taxe 9

(a) Prepare journal entries for the transactions listed above and adjusting entries.
(b) Prepare an adjusted trial balance at December 31, 2017. 10
(c) Prepare an income statement and a retained earnings statement for the year ending December 31, 20

11

12

S.No
1
 2

3
142000
10000
132000
4400 4

5
 Answer A
Journal Entries
Accounts Title Debit Credit
Cash $ 49,200
Preferred Stock $ 48,000
Additional paid in capital-Preferred Stock $ 1,200

Cash $ 21,000
Common Stock $ 9,000
Additional paid in capital-Common Stock $ 12,000

Accounts Receivable $ 320,000

Service Revenue $ 320,000

Cash $ 36,000
Unearned Service Revenue $ 36,000
ed from April 1, 2017, to March 31, 2018.
Cash $ 276,000
Accounts Receivable $ 276,000

Supplies $ 35,100
Accounts Payable $ 35,100
20 per share dividend on the outstanding common stock, all payable on January 15, 2018.
Accounts Payable $ 32,200
Cash $ 32,200

Treasury Stock $ 11,200

Cash $ 11,200
d a salvage value of $10,000.
Operating expenses $ 188,200
Cash $ 188,200

Retained Earnings $ 3,360

Preferred stock dividend payable $ 3,360

Retained Earnings $ 10,200

Common Stock dividend payable $ 10,200

Allowance for doubtful accounts $ 1,700

Accounts Receivable $ 1,700

Adjusting entries
Accounts Title Debit Credit
Supplies expense $ 33,600
Supplies $ 33,600
($ 4,400 add $ 35,100 less $ 5,900)

Unearned Service Revenue $ 27,000

Service Revenue $ 27,000
($ 36,000/12 months * 9 months)

Bad debts expense $ 3,700

Allowance for doubtful accounts $ 3,700
($ 1,700 less $ 1,500 add $ 3,500)

Depreciation expense $ 4,400

Accumulated Depreciation-Buildings $ 4,400
($ 142,000 less $ 10,000)/30 years

Income tax expense $ 35,130

Income tax payable $ 35,130
(30 % * $ 117,100)
(1,200 shares * $ 40 each)
($ 49,200 less $ 48,000)

(900 shares * $ 10 each)

($ 21,000 less $ 9,000)

Answer B
ADJUSTED TRIAL BALANCE
Accounts Title
Cash
Accounts Receivable
less: allowance for doubtful accounts
Supplies
Land
Buildings
Accumulated Depreciation-Buildings
Accounts Payable
Common Stock
Retained Earnings
Preferred Stock
Additional paid in capital-Preferred Stock
(400 shares * $ 28 each) Additional paid in capital-Common Stock
Service Revenue
Unearned Service Revenue
Treasury Stock
Operating expenses
Preferred stock dividend payable
(7 % of 1,200 shares * $ 40 each) Common Stock dividend payable
Supplies expense
Bad debts expense
(8,500 shares * $ 1.20 per share) Depreciation expense
Income tax expense
Income tax payable
 $ 8,500

Answer C
INCOME STATEMENT
Service Revenue

Operating expenses $ 188,200

Supplies expense $ 33,600
Bad debts expense $ 3,700
Depreciation expense $ 4,400
Income before taxes
less: taxes @ 30 %
Debit Credit Net Income
$ 175,200
$ 87,800 RETAINED EARNINGS STATEMENT
$ -3,500 Beginning Balance
$ 5,900 Preferred stock dividend
$ 40,000 Common Stock dividend
$ 142,000 add: Net Income
$ -26,400 Ending Balance
$ 28,500
$ 89,000
$ 113,840 BALANCE SHEET
$ 48,000 Assets
$ 1,200 Cash $ 175,200
$ 12,000 Accounts Receivable $ 87,800
$ 347,000 less: allowance for doubtful accounts $ -3,500
$ 9,000 Supplies $ 5,900
$ 11,200 Land $ 40,000
$ 188,200 Buildings $ 142,000
$ 3,360 Accumulated Depreciation-Buildings $ -26,400
$ 10,200
$ 33,600
$ 3,700
$ 4,400
$ 35,130
$ 35,130
$ 697,230 $ 697,230
$ 421,000
$ 347,000

$ 229,900
$ 117,100
$ 35,130
$ 81,970

$ 127,400
$ -3,360
$ -10,200
$ 81,970
$ 195,810

Liabilities & Shareholders' Equity

Common Stock $ 89,000
Additional paid in capital-Common Stock $ 12,000
Preferred Stock $ 48,000
Additional paid in capital-Preferred Stock $ 1,200
Retained Earnings $ 195,810
less: treasury stock $ 11,200
Shareholders' Equity $ 334,810
Accounts Payable $ 28,500
Income tax payable $ 35,130
Preferred stock dividend payable $ 3,360
Common Stock dividend payable $ 10,200
Unearned Service Revenue $ 9,000

$ 421,000