Garden Wizards provides gardening services to both commercial and residential customers. The company performs adjusting entries on a monthly basis, whereas closing entries are prepared annually at December 31. An adjusted trial balance dated December 31, 2011, follows. PROBLEM 5.2B Preparing Financial Statements and Closing Entries of a Profitable Company The Accounting Cycle: Reporting Financial Results GARDEN WIZARDS ADJUSTED TRIAL BALANCE DECEMBER 31, 2011 Debits Credits Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,800 Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,300 Unexpired insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,700 Prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 Trucks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000 Accumulated depreciation: trucks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,000 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000 Accumulated depreciation: equipment . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200 Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000 Salaries payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700 Unearned service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300 Service revenue earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,000 Insurance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800 Office rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000 Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,600 Salary expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000 Depreciation expense: trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 Depreciation expense: equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 Repair and maintenance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,300 Fuel expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200 Miscellaneous expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,700 Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,800 Income taxes expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 $367,100 $367,100 Instructions a. Prepare an income statement and statement of retained earnings for the year ended December 31, 2011. Also prepare the company’s balance sheet dated December 31, 2011. b. Prepare the necessary year-end closing entries. c. Prepare an after-closing trial balance.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Garden Wizards provides gardening services to both commercial and residential customers. The
company performs
annually at December 31. An adjusted
PROBLEM 5.2B
Preparing Financial
Statements and
Closing Entries of a
Profitable Company
The Accounting Cycle: Reporting Financial Results
GARDEN WIZARDS
ADJUSTED TRIAL BALANCE
DECEMBER 31, 2011
Debits Credits
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,800
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,300
Unexpired insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,700
Prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400
Trucks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000
Accumulated
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000
Accumulated depreciation: equipment . . . . . . . . . . . . . . . . . . . . . . . . . 14,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000
Salaries payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700
Unearned service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300
Service revenue earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,000
Insurance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800
Office rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000
Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,600
Salary expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000
Depreciation expense: trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000
Depreciation expense: equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Repair and maintenance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,300
Fuel expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200
Miscellaneous expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,700
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,800
Income taxes expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
$367,100 $367,100
Instructions
a. Prepare an income statement and statement of retained earnings for the year ended December
31, 2011. Also prepare the company’s
b. Prepare the necessary year-end closing entries.
c. Prepare an after-closing trial balance.
d. Using the financial statements prepared in part a, briefly evaluate the company’s profitability
and liquidity.
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