Playoffs Inc. sells inventory

ACCOUNTING

Playoffs Inc. sells inventory and provides services (basketball lessons). The following balance sheet is for Playoffs Inc. for the fiscal year 2019 ending December 31, 2019:

Playoffs Inc.
Balance Sheet
As of December 31, 2019

Cash $200 Accounts Payable $85
Accounts Receivable 100 Interest Payable 15
Inventory 300 Bonds Payable 300
Total Current Assets $600 Total Liabilities $400

PP&E, Gross $600 Common Stock $400
Accumulated Depreciation (200) Retained Earnings 200
PP&E, Net $400 Total Stockholders’ Equity $600

Total Assets $1,000 Total Liabilities & S/H Equity $1,000

The following transactions occurred in 2020:

On 1/1/20, Playoffs Inc. issued stock for $250.

On 1/1/20, Playoffs Inc. paid $10 to cover office rent for the period 1/1/20-12/31/20.

On 2/15/20, Playoffs Inc. purchased $600 of inventory (60% of the purchase was paid in cash).

On 7/1/20, Playoffs Inc. sold inventory for $500 (the cost of the inventory sold is $250); all the sales were on credit.

On 8/1/20, the Bucks signed up for lessons from Playoffs Inc.; the monthly fee for lessons is $400. Playoffs Inc. received $2,400 in cash (in advance from the Bucks) for these lessons.

On 8/1/20, Playoffs Inc. paid $36 of interest on the bonds and bought back $100 of the bonds (Bonds Payable listed in the Balance Sheet) with no resulting gain or loss on this repurchase.

On 12/31/20, the following transactions should be recorded before preparing the annual financial statements:
A. Annual interest rate on the bonds is 12% (make sure the annual interest expense matches the bonds outstanding during the year, otherwise make an adjustment).
B. The manager of Playoffs Inc. did not receive his annual salary of $80.
C. $100 of depreciation on PP&E needs to be recorded.
D. Playoffs Inc. provided lessons to the Lakers during November 2020. A bill for $500 was sent but the payment has not been received yet.
E. Playoffs Inc. declared $50 cash dividends on 12/31/20 to be paid in cash on 1/10/21.
F. Playoffs Inc. used the office space during the year (related to transaction 2.).
G. Playoffs Inc. provided 5 months of services (lessons) to the Bucks before the year-end (related to transaction 5.).

REQUIRED:

Record Playoffs Inc.’s journal entries (for transactions 1 through 7G.)

Post Playoffs Inc.’s beginning balances and journal entries for 2020 to T-accounts

Prepare Playoffs Inc.’s Income Statement for the year ended December 31, 2020

Prepare Playoffs Inc.’s Balance Sheet as of December 31, 2

REQUIREMENT 1: RECORD JOURNAL ENTRIES

Date Account Debit Credit

REQUIREMENT 1: RECORD JOURNAL ENTRIES (Continued)

Date Account Debit Credit

POST BEGINNING BALANCES AND JOURNAL ENTRIES TO T-ACCOUNTS

POST BEGINNING BALANCES AND JOURNAL ENTRIES TO T-ACCOUNTS (Continued)
PREPARE INCOME STATEMENT

PREPARE BALANCE SHEET

Sample Answer

Transaction 1:

Debit Accounts Receivable $250
Credit Common Stock $250

This transaction records the issuance of stock for $250.

Transaction 2:

Debit Rent Expense $10
Credit Cash $10

This transaction records the payment of office rent for the year.

Transaction 3:

Debit Inventory $360
Credit Cash $216
Credit Accounts Payable $144

Full Answer Section

This transaction records the purchase of inventory for $600, with 60% paid in cash and the remaining 40% on account.

Transaction 4:

Debit Accounts Receivable $500
Credit Sales $500

This transaction records the sale of inventory for $500.

Transaction 5:

Debit Cash $2,400
Credit Unearned Revenue $2,400

This transaction records the receipt of $2,400 in cash from the Bucks for lessons that will be provided in the future.

Transaction 6:

Debit Interest Expense $36
Credit Cash $36

This transaction records the payment of interest on the bonds.

Transaction 7:

Debit Bonds Payable $100
Credit Cash $100

This transaction records the repurchase of bonds for $100.

Transaction 8:

Debit Depreciation Expense $100
Credit Accumulated Depreciation $100

This transaction records the depreciation of PP&E for the year.

Transaction 9:

Debit Salary Expense $80
Credit Accrued Salaries Payable $80

This transaction records the accrued salary expense for the year.

Transaction 10:

Debit Accounts Receivable $500
Credit Service Revenue $500

This transaction records the billing of the Lakers for $500 for lessons that were provided in November 2020.

Transaction 11:

Debit Dividends Payable $50
Credit Cash $50

This transaction records the declaration of dividends to be paid in cash on January 10, 2021.

Transaction 12:

Debit Rent Expense $10
Credit Accrued Rent Expense $10

This transaction records the accrued rent expense for the year.

Transaction 13:

Debit Unearned Revenue $1,200
Credit Service Revenue $1,200

This transaction records the recognition of service revenue for the 5 months of lessons that were provided to the Bucks before the end of the year.

Here are the T-accounts for the transactions of Playoffs Inc. for the year 2020:

Cash
10 | 216 | 36 | 500 | 10 | 1200 | 50
-- | -- | -- | -- | -- | -- | --
3,420

Accounts Receivable
250 | 500
-- | --
750

Inventory
300 | 360
-- | --
660

Prepaid Rent
10
-- | 10
--
10

Equipment
600 | 100
-- | --
500

Accumulated Depreciation
200 | 100
-- | --
300

Accounts Payable
85 | 144
-- | --
229

Bonds Payable
300 | 100
-- | --
200

Common Stock
400 | 250
-- | --
650

Retained Earnings
200 | 80 | 50
-- | --
230

Service Revenue
500 | 1200
-- | --
1700

Salary Expense
80
-- | 80
--
80

Interest Expense
36
-

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Playoffs Inc. sells inventory

Date Account Debit Credit

Date Account Debit Credit

Sample Answer

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