1. Prepare Balance Sheet as of March 31,1993 and Income
statement for the year then ended from the adjusted balances.
Dottie Digs, Inc. (B) DD-Case 1 Dottie inherits $25,000 from an uncle. She decides to start a women's clothing business. Dottie forins an Illinois Corporation (C) with the name Dottie Digs, Inc. (â€œDD”). She purchases 5,000 shares of common stock, par value of $10 per share, for $50,000 using her inheritance and savings. She persuades her father and the owner-manager of a local business to serve with her as the three directors without compensation. The board elects Dottie as President at an annual salary of $45,000. DD rents space in a strip mall for 5% of net sales plus $1,250 per month for utilities. During the first year ended March 31, 1993, Dottie keeps all financial records herself. Her CPA provided help as needed. During the year, DD borrowed $50,000 at 10% from Dottie's father. Sales were better than she expected, but Dottie is unhappy that the bank account, which started with her $50,000 investment, is now depleted to $5,590. She assumes that the loss for the first year equals the decrease in cash of $44,410. The general ledger accounts that follow are in balance, but Dottie does not know how to prepare financial statements or how to interpret them. Only cash receipts and disbursements have been posted to reflect the March 31, 1993 balances. These data are given in DD-1 Exhibit I The following items are to be recorded by journal entries: Unpaid invoices for merchandise purchases Sales on account, not yet collected Ending inventory, lower of cost or market Estimated year's wear on Prop, Plant, & Equip Insurance premiums paid that relate to next year Corp income tax liability for year ended 3-31.93 Accrued expenses: Payroll taxes due but not paid Rent due but unpaid Sales salaries since last payroll $103,978 36,805 193,490 6,700 6,500 4,500 1,975 4,975 5,000 DD-1 Exhibit I Â· Cash Receipts and Disbursements balances as of March 31, 1993 Debit Credit $15,043 5,590 $50,000 10,725 31,850 45,000 2,805 2,825 13,982 6,200 Advertising Cash Common Stock Equip Purchase Contract Payable -ST 9% Equip Purchase Contract Payable – LT 9% Executive compensation Income tax expense Income tax withheld from payroll Insurance expense Interest expense Merchandise purchases Note Payable — Father 10% Other expenses Payroll taxes Professional fees Property, Plant, and Equipment Rent Sales Sales Salaries Supplies Utilities 469,088 50,000 5,450 6,725 5,000 54,600 26,137 585,445 50,250 9,975 15,000