Neville Newcastle had worked as a researcher at a major computer manufacturer. Two years ago design...

 

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Neville Newcastle had worked as a researcher at a major computer manufacturer. Two years ago design allows for an expanded set of capabilities, but is casy to use and costs no more than a standard mouse. Mr. Newcastle patented his design and found a group of investors willing to help him form a corporation, Build a Better Mouse, Inc. (BABMI), and begin production of the mice. The corporation was officially formed on January 2, 2020, with authorization to issue 1,000,000 shares of common stock. Mr. Newcastle contributed the patent to the corporation and in exchange received 30,000 shares of the company's S1 par value stock. On that same date, other investors paid $298,000 for 59,600 shares of stock. Three months later, on April 1, 2020, another 37,000 shares of stock were issued for $246,050. To secure additional funds, the company borrowed $200,000 from Huntingdþnshire Bank on February 1. The bank is charging 8 percent interest, and the company will make 5 equal payments of $50,091 starting on February 1,2021. BABMI purchased its own manufacturing equipment, computer equipment, and office furnishings, spending a total of S669,000 (including the following 12/29/20 replacement machine). However, one of the machines was not operating satisfactorily, and it was sold on December 29 for S64,000. It had originally cost $90,000 and $18,000 of depreciation expense had been taken in 2020. A replacement machine was purchased on December 29 for $115,000. The company depreciates its equipment differently for tax purposes than for book purposes, resulting in deferred income taxes of $8,821. In addition, deferred taxes of S5,006 resulted from differences in accounting for bad debts. BABMI expects its 2020 tax liability to be S61,971. Of this amount, $50,000 had been paid by December 31. The mouse received favorable reviews in various technology and consumer publications. These good reviews, plus an effective marketing campaign, have helped the company achieve strong sales in its first year of operations. By year-end, the company had sufficient cash on hand to purchase some shares in Chipotle and Johnson & Johnson. Management expects to dispose of the shares sometime next year, when they hope to expand their operations. Also, due to the company's early success, the board of directors decided to pay a dividend of S.10 per share. Shown on page 4 is an adjusted trial balance for the Build a Better Mouse, Inc. for the year ended December 31, 2020, with accounts arranged in alphabetical order. Closing entries have not been made yet, so retained camings has a zero balance. Required: Using the trial balance, plus any additional information provided, prepare the following statements: • Classified balance sheet as of December 31, 2020 Build A Better Mouse, Inc. Adjusted Trial Balance December 31, 2020 Debit Credit $ 206,445 Accounts payable Accounts receivable $ 190,700 Accumulated depreciation Additional paid-in capital Advertising expense 66,500 567,450 285,000 Allowance for bad debts 14,303 Amortization of patent Bad debt expense 30,000 59,379 92,460 Cash Common stock 126,600 Computer equipment Cost of goods sold 42,000 1,837,950 Deferred income taxes 5,006 Deferred income taxes 8,821 Depreciation expense 84,500 Dividend income 2,900 Dividends 12,660 Income tax expense 65,786 Income taxes payable 11,971 66,660 Insurance expense Interest expense Interest payable Inventory 14,667 14,667 274,080 70,000 Investments Loss on disposal of equipment Manufacturing equipment Miscellaneous expense Notes payable Office furnishings Patent 8,000 437,000 16,369 200,000 100,000 120,000 6,060 170,000 Prepaid insurance Rent expense Retained earnings (January 1) Sales 3,830,900 Supplies Supplies expense Utility expense Wage expense 7,140 26,995 101,320 945,000 Wages payable 18,175 $5,068,731 $5,068,731 4 Neville Newcastle had worked as a researcher at a major computer manufacturer. Two years ago design allows for an expanded set of capabilities, but is casy to use and costs no more than a standard mouse. Mr. Newcastle patented his design and found a group of investors willing to help him form a corporation, Build a Better Mouse, Inc. (BABMI), and begin production of the mice. The corporation was officially formed on January 2, 2020, with authorization to issue 1,000,000 shares of common stock. Mr. Newcastle contributed the patent to the corporation and in exchange received 30,000 shares of the company's S1 par value stock. On that same date, other investors paid $298,000 for 59,600 shares of stock. Three months later, on April 1, 2020, another 37,000 shares of stock were issued for $246,050. To secure additional funds, the company borrowed $200,000 from Huntingdþnshire Bank on February 1. The bank is charging 8 percent interest, and the company will make 5 equal payments of $50,091 starting on February 1,2021. BABMI purchased its own manufacturing equipment, computer equipment, and office furnishings, spending a total of S669,000 (including the following 12/29/20 replacement machine). However, one of the machines was not operating satisfactorily, and it was sold on December 29 for S64,000. It had originally cost $90,000 and $18,000 of depreciation expense had been taken in 2020. A replacement machine was purchased on December 29 for $115,000. The company depreciates its equipment differently for tax purposes than for book purposes, resulting in deferred income taxes of $8,821. In addition, deferred taxes of S5,006 resulted from differences in accounting for bad debts. BABMI expects its 2020 tax liability to be S61,971. Of this amount, $50,000 had been paid by December 31. The mouse received favorable reviews in various technology and consumer publications. These good reviews, plus an effective marketing campaign, have helped the company achieve strong sales in its first year of operations. By year-end, the company had sufficient cash on hand to purchase some shares in Chipotle and Johnson & Johnson. Management expects to dispose of the shares sometime next year, when they hope to expand their operations. Also, due to the company's early success, the board of directors decided to pay a dividend of S.10 per share. Shown on page 4 is an adjusted trial balance for the Build a Better Mouse, Inc. for the year ended December 31, 2020, with accounts arranged in alphabetical order. Closing entries have not been made yet, so retained camings has a zero balance. Required: Using the trial balance, plus any additional information provided, prepare the following statements: • Classified balance sheet as of December 31, 2020 Build A Better Mouse, Inc. Adjusted Trial Balance December 31, 2020 Debit Credit $ 206,445 Accounts payable Accounts receivable $ 190,700 Accumulated depreciation Additional paid-in capital Advertising expense 66,500 567,450 285,000 Allowance for bad debts 14,303 Amortization of patent Bad debt expense 30,000 59,379 92,460 Cash Common stock 126,600 Computer equipment Cost of goods sold 42,000 1,837,950 Deferred income taxes 5,006 Deferred income taxes 8,821 Depreciation expense 84,500 Dividend income 2,900 Dividends 12,660 Income tax expense 65,786 Income taxes payable 11,971 66,660 Insurance expense Interest expense Interest payable Inventory 14,667 14,667 274,080 70,000 Investments Loss on disposal of equipment Manufacturing equipment Miscellaneous expense Notes payable Office furnishings Patent 8,000 437,000 16,369 200,000 100,000 120,000 6,060 170,000 Prepaid insurance Rent expense Retained earnings (January 1) Sales 3,830,900 Supplies Supplies expense Utility expense Wage expense 7,140 26,995 101,320 945,000 Wages payable 18,175 $5,068,731 $5,068,731 4

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