OUNDATIONS OF FINANCIAL ACCOUNTING PROJECT

FOUNDATIONS OF FINANCIAL ACCOUNTING

PROJECT

FALL SEMESTER, 2008

SECTION 7FR



Process the financial accounting for the Rose Company for 2007 and complete the following:

a) Multiple-step income statement for 2007.

b) Statement of retained income for 2007.

c) Classified balance sheet as of December 31, 2007.

d) Statement of cash flows for 2007, using the indirect method.



Please submit the four financial statements, the analysis of transactions and any supporting computations.

Rose Company
Balance Sheet
December 31, 2006

Assets:
Current assets:
Cash $ 36,874.85
Accounts receivable 67,771.18
Merchandise inventory 226,782.27
Notes Receivable 12,000.00
Total current assets 343,428.30
Equipment net of accumulated depreciation 242,874.51
Total assets $ 586,302.81

Liabilities and Stockholders Equity:
Current liabilities:
Accounts payable on inventory $ 38,784.78
Accrued wages payable 12,754.74
Sales tax payable 12,854.23
Dividends payable 5,000.00
Deferred rent revenue 3,500.00
Total current liabilities 72,893.75
Stockholders equity:
Paid-in capital 10,000.00
Retained income 503,409.06
Total stockholders equity 513,409.06
Total liabilities and stockholders equity $ 586,302.81



The following transactions occurred during 2007:

1)Total sales: $1,451,778.85, including $128,874.96 for cash. The remaining amount was on credit. The company charged $72,874.98 in sales tax in addition to the sales amounts, including $7,747.91 in cash.

2)Total inventory purchases (all on credit): $688,234.74

3)Total payments on accounts payable on inventory: $672,736.58

4)Total collections received from customers on account: $1,375,472.74

5)The deferred rent revenue covered the period January 1, 2007, through July 31, 2007. On August 1, 2007, the tenant paid for one additional year at rate $685 per month.

6)The note receivable bears interest at 9% annually. On April 1, 2007, the debtor paid the interest earned by Rose since January 1, 2007, and paid 25% of the principal.

7)Total wages paid during 2007: $251,874.25

8)Paid $50,000.00 to the federal and state governments for income taxes.

9)Operating expenses for the year, paid in cash: $289,541.68

10)Bought new equipment on September 1, 2007 for $75,850.00. The company will use straight-line depreciation for a seven-year life. The company paid 20% down for the equipment, financing the balance with an 11% bank loan. The bank loan requires quarterly interest payments. The first principal payment is scheduled for September 1, 2008

11)Total sales tax paid to the government: $74,247.64

12)The dividends declared in December, 2006, were paid in January, 2007. The company declared dividends of $5,500.00 in December, 2007, to be paid in January, 2008.


The following adjustments are indicated as of December 31, 2007:

31) Physical merchandise inventory on hand: $259,330.00

32) Recorded depreciation. The equipment on hand at December 31, 2006, is will be depreciated $25,100.00 for 2007 by the straight-line method. This is in addition to depreciation on the new equipment in Item 10 above.

33) Unpaid wages: $5,931.84

34) Rental income accrual

35) Interest income accrual

36) Interest expense accrual, including the payment on December 1, 2007

37) The combined federal and state income tax rate is 27.5%.