Interim Reporting The Howard Corporation presented the following trial balance for the quarter ended March 31, 2007:
|
Debit |
Credit |
|
|
Cash |
$9,800 |
|
|
Accounts receivable |
13,000 |
|
|
Inventory (1/1/07) |
10,000 |
|
|
Prepaid insurance |
9,600 |
|
|
Land |
16,000 |
|
|
Buildings and equipment |
108,000 |
|
|
Accumulated depreciation |
$36,000 |
|
|
Accounts payable |
28,200 |
|
|
Common stock, $1 par |
13,200 |
|
|
Additional paid in capital |
24,800 |
|
|
Retained earnings (1/1/07) |
44,900 |
|
|
Sales (net) |
100,000 |
|
|
Purchases (net) |
59,000 |
|
|
Selling expenses |
12,000 |
|
|
General and administrative expenses |
9,700 |
|
|
Totals |
$247,100 |
$247,100 |
Additional information:
1. The company uses control accounts for selling expenses and for general and administrative expenses.
2. The company makes formal adjusting entries at year end and enters the amounts in the appropriate accounts at that time.
3. The company uses a periodic inventory system. It uses the gross profit method to determine interim inventory. Historical gross profit has averaged 43% of net sales.
4. On January 1, 2007, the company purchased a 4 year insurance policy for $9,600.
5. No common stock has been issued or retired in 2007.
6. The buildings and equipment have an estimated life of 15 years with no residual value. The company uses straight line depreciation; it records one fourth of the depreciation as a selling expense and the remainder as a general and administrative expense.
7. The company expects its annual effective income tax rate to be 30%; income taxes will be paid at the beginning of the next year.
Required
On the basis of the preceding information, prepare the Howard Corporation income statement for the first quarter of 2007 and a March 31, 2007 balance sheet. A worksheet is not required, but you should be prepared to substantiate any adjustments you make to the preceding accounts.