Shown below is a tentative income statement after the first year of operations.

 

    • This homework is to be done individually.

 

    • Word-process solutions within this template. Copy and paste tables from Excel as needed.

 

    • Show all steps used in arriving at the final answers. Incomplete solutions not accepted

 

 

 

 

 

Problem 1

 

Shown below is a tentative income statement after the first year of operations.

 

 

 

 

Income Statement

 

 

December 31

 

 

Rental revenue

 

 

$89,900

 

 

Expenses

 

 

Salaries and wages expense

 

 

$22,000

 

 

Maintenance expense

 

 

8,000

 

 

Rent expense

 

 

9,200

 

 

Utilities expense

 

 

5,200

 

 

Other expenses

 

 

2,000

 

 

Total expenses

 

 

$46,400

 

 

Income

 

 

$43,500

 

 

 

 

Suppose there are additional transactions shown below, that were not recorded or paid.

 

(a)    The Unearned Rental Revenue account includes $6,300 of revenue to be earned in the next year.

 

(b)   There were additional wages for the last five days of the year amounting to $650.

 

(c)    Maintenance expense excludes $2,300 representing the cost of maintenance supplies during the year

 

(d)   The company estimated additional utilities for the last month amounting to $550.

 

(e)   Depreciation on equipment amounted to $16,000 for the year.

 

(f)     There is interest on a $10,000, one-year, 6 percent note payable dated November 1st of the year. The interest is payable on the maturity date of the note.

 

(g)    The income tax expense is $3,900 and payment of the income tax will be made the following year.

 

 

 

Find an adjusting entry for each transaction. If none is required, explain why. Prepare a corrected income statement for the year, including earnings per share. Assume that 5,000 shares of stock are outstanding all year. Compute the net profit margin based on the corrected information.
Problem 2

 

The adjusted trial balance of a company at the end of the accounting year, December 31, showed the following.

 

 

 

 

Account Titles

 

 

Debit

 

 

Credit

 

 

Cash

 

 

$16,000

 

 

Machinery

 

 

72,000

 

 

Accumulated depreciation

 

 

$12,800

 

 

Accounts payable

 

 

5,600

 

 

Capital Stock

 

 

16,000

 

 

Retained earnings

 

 

47,200

 

 

Service revenue

 

 

32,000

 

 

Interest expense

 

 

3,200

 

 

Operating expenses

 

 

13,600

 

 

Depreciation expense

 

 

8,800

 

 

Totals

 

 

$113,600

 

 

$113,600

 

 

Prepare all the required closing entries for the company at December 31. Calculate the year ending balance in retained earnings.
Problem 3

 

Suppose a company prepares the following unadjusted trial balance as of December 31.

 

 

 

 

Account Titles

 

 

Debit

 

 

Credit

 

 

Cash

 

 

$19,600

 

 

Accounts receivable

 

 

7,000

 

 

Supplies

 

 

1,300

 

 

Prepaid insurance

 

 

900

 

 

Equipment

 

 

27,000

 

 

Accumulated depreciation

 

 

$12,000

 

 

Other assets

 

 

5,100

 

 

Accounts payable

 

 

2,500

 

 

Wages payable

 

 

Income taxes payable

 

 

Note payable

 

 

5,000

 

 

Contributed Capital (3,000 shares outstanding all year)

 

 

16,000

 

 

Retained earnings

 

 

10,300

 

 

Service revenue

 

 

48,000

 

 

Other expenses

 

 

32,900

 

 

Income tax expenses

 

 

Totals

 

 

$93,800

 

 

$93,800

 

 

 

 

 

 

The following data has not been recorded at December 31.

 

(a)    Depreciation expense for the year, $3,000.

 

(b)   Wages earned by employees but not yet paid amount to $2,100.

 

(c)    The supplies count on December 31 reflected $800 remaining supplies on hand to be used the following year.

 

(d)   Insurance expired during the year, $450.

 

(e)   Income tax expense was $3,150.

 

 

 

Record the adjusting entries. Prepare an income statement with earnings per share assuming there are 3,000 shares. Prepare a classified balance sheet for the year. For the income statement and balance sheet, include the effects of the preceding five data items.

 

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