Accounting - Playoffs Inc. sells inventory and provides services

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:

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

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

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

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

5. 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.

6. 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.

7. 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:

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

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

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

4. Prepare Playoffs Inc.’s Balance Sheet as of December 31, 2020.

REQUIREMENT 1: RECORD JOURNAL ENTRIES

#             Date      Account               Debit     Credit

REQUIREMENT 1: RECORD JOURNAL ENTRIES (Continued)

#             Date      Account               Debit     Credit

REQUIREMENT 2: POST BEGINNING BALANCES AND JOURNAL ENTRIES TO T-ACCOUNTS

REQUIREMENT 2: POST BEGINNING BALANCES AND JOURNAL ENTRIES TO T-ACCOUNTS (Continued)

REQUIREMENT 3: PREPARE INCOME STATEMENT

REQUIREMENT 4: PREPARE BALANCE SHEET