Martin Accounting Services, Inc. fills temporary accounting positions for local businesses in Billings MT. Some businesses pay in advance for services; others are billed after services have been performed. Advanced payments are credited to an account entitled Unearned Fees. Adjusting entries are performed on a monthly basis. An unadjusted trial balance dated December 31, 2020, follows: Martin Accounting Services Unadjusted Trial Balance December 31, 2020 Cash 27,020 Accounts receivable 59,200 Unexpired insurance 900 Prepaid rent 3,000 Office supplies 600 Equipment 60,000 Accumulated Depr.: equipment 29,500 Accounts payable 4,180 Notes payable 12,000 Interest payable 320 Unearned fees 6,000 Income taxes payable 4,000 Unearned revenue 20,000 Retained earnings 49,000 Common stock 25,000 Dividends 3,000 Fees earned 75,000 Travel expense 5,000 Insurance expense 2,980 Rent expense 9,900 Office supplies expense 780 Utilities expense 4,800 Depreciation expense equipment 5,500 Salaries expense 30,000 Interest expense 320 Income taxes expense 12,000 Totals 225,000 225,000 Other Information: 1. Accrued but unrecorded fees earned as of December 31, 2020, amount to $1,500. 2. Records show that $2,500 of cash receipts originally recorded as unearned fees had been earned as of December 31. 3. The company purchased a six-month insurance policy on September 1, 2020, for $1,800. 4. On December 1, 2020, the company paid its rent through February 28, 2021. 5. Office supplies on hand at December 31 amount to $400. 6. All equipment was purchased when the business first formed. The estimated life of the equipment at that time was 10 years (or 120 months). 7. On August 1, 2020, the company borrowed $12,000 by signing a six-month, 8 percent note payable. The entire note, plus six months' accrued interest, is due on February 1, 2021. 8. Accrued but unrecorded salaries at December 31 amount to $2,700. 9. Estimated income taxes expense for the entire year totals $15,000. Taxes are due in the first quarter of 2021. Required: A. For each of the above numbered paragraphs, prepare the necessary adjusting entry. B. Update the balances in the appropriate accounts affected by the adjusting journal entries and prepare an Adjusted Trial Balance. (posting to actual general ledger accounts is not required) C. Prepare an income statement and statement of retained earnings for the year ended December 31, 2020, and balance sheet as of December 31 2020. D. Prepare closing entries. E. Prepare a post-closing trial balance as of December 31, 2020.
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.
Martin Accounting Services, Inc. fills temporary accounting positions for local businesses in Billings MT. Some businesses pay in advance for services; others are billed after services have been performed. Advanced payments are credited to an account entitled Unearned Fees.
Martin Accounting Services
Unadjusted Trial Balance
December 31, 2020
Cash 27,020
Accounts receivable 59,200
Unexpired insurance 900
Prepaid rent 3,000
Office supplies 600
Equipment 60,000
Accumulated Depr.: equipment 29,500
Accounts payable 4,180
Notes payable 12,000
Interest payable 320
Unearned fees 6,000
Income taxes payable 4,000
Unearned revenue 20,000
Common stock 25,000
Dividends 3,000
Fees earned 75,000
Travel expense 5,000
Insurance expense 2,980
Rent expense 9,900
Office supplies expense 780
Utilities expense 4,800
Depreciation expense equipment 5,500
Salaries expense 30,000
Interest expense 320
Income taxes expense 12,000
Totals 225,000 225,000
Other Information:
1. Accrued but unrecorded fees earned as of December 31, 2020, amount to $1,500.
2. Records show that $2,500 of cash receipts originally recorded as unearned fees had been earned as of December 31.
3. The company purchased a six-month insurance policy on September 1, 2020, for $1,800.
4. On December 1, 2020, the company paid its rent through February 28, 2021.
5. Office supplies on hand at December 31 amount to $400.
6. All equipment was purchased when the business first formed. The estimated life of the equipment at that time was 10 years (or 120 months).
7. On August 1, 2020, the company borrowed $12,000 by signing a six-month, 8 percent note payable. The entire note, plus six months' accrued interest, is due on February 1, 2021.
8. Accrued but unrecorded salaries at December 31 amount to $2,700.
9. Estimated income taxes expense for the entire year totals $15,000. Taxes are due in the first quarter of 2021.
Required:
A. For each of the above numbered paragraphs, prepare the necessary adjusting entry.
B. Update the balances in the appropriate accounts affected by the adjusting
C. Prepare an income statement and statement of retained earnings for the year ended December 31, 2020, and
D. Prepare closing entries.
E. Prepare a post-closing trial balance as of December 31, 2020.
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