Case Study Chemalite Inc

Question #1

Record each transaction in general journal format for the six month period ended June 30, 2003. Make sure that you document any assumptions made.

Entry No. Accounts Title Amount Debited Amount Credited

1 Cash

Patent

Shareholder’s Equity $375,000

$125,000

$500,000

2 Incorporation Expenses

Cash $7,500

$7,500

3 Property, Plant and Equipment

Cash $62,500

$62,500

4 Inventory

Cash $75,000

$75,000

*Incorporations Expenses are legal fees, charters cost and printing expenses.

Question #2

Prepare a general ledger using the T accounts format discussed in class based on the journal entries for the six month period ended June 30, 2003.

Cash (A)

1 $375,000

2 $7,500

3 $62,500

4 $75,000

$230,000

Patent (A)

1 $125,000

$125,000

Incorporation Expense

2 $7,500

$7,500

PP & E (A)

3 $62,500

$62,500

Inventory (A)

4 $75,000

$75,000

Shareholder’s Equity (SE)

1 $500,000

$500,000

Question #3

Prepare a Balance Sheet, Income Statement and Statement of Cash Flows for the six month

period ended June 30, 2003.

Chemalite, Inc.

Balance Sheet from January 1, 2003 to June 30, 2003

Assets

Current Assets

Cash $230,000

Inventory $75,000

Total current assets $305,000

Fixed Assets

Equipment $62,500

Patent $125,000

Total fixed assets $187,500

Total assets $492,500

Liabilities and Shareholders Equity

Liabilities

Current Liabilities

Total Current Liabilities $0

Long-term liabilities

Total liabilities $0

Shareholders' Equity

Common Stock $500,000

Retained Earnings ($7,500)

Total shareholders' equity $492,500

Total liabilities and shareholders' equity $492,500

Chemalite, Inc.

Income Statement from January 1, 2003 to June 30, 2003

Sales $0

Cost of Sales $0

Gross Profit $0

Depreciation Expenses $0

Operating Expense ($7,500)

Net Income ($7,500)

Chemalite, Inc.

Cash Flows Statement from January 1, 2003 to June 30, 2003

Cash flows from Operating Activities

Cash payments for purchases ($75,000)

Cash payments for operating expenses ($7,500)

Total cash payments ($82,500)

Net cash provided by operating activities ($82,500)

Cash flows from Investing

Purchase of equipment ($62,500)

Total Cash flows from investing ($62,500)

Cash flows from Financing

Sale of stock $375,000

Total cash flow from financing $375,000

Cash Summary

Cash on January 1, 2003 $375,000

Net Change in Cash ($145,000)

Cash on June 30, 2003 $230,000

Question #4

Repeat steps 1 through 3 for the six month period ended December 31, 2003.

• Record each transaction in general journal format for the six month period ended December 31, 2003.

Entry No. Accounts Title Amount Debited Amount Credited

1 Research & Development

Cash $23,750

$23,750

2 Cash

A/R

...