PART II: WORK OUT Problem.1 Key Insurance Agency was organized on October 1, 2015. Assume that the accounts are closed and financial statements prepared each month. The company occupies rented omce space but owns office equipment estimated to have a useful life of 10 years from date of acquisition, October 1. The trial balance for Key Insurance Agency at December 31 is shown below. Cash $22,565 Accounts Receivables 7.050 Office Equipment 9,600 Accumulated Depreciation: Office Equipment 160 Accounts Payable 2,260 Income Taxes Payable 4,965 Capital Stock 20.000 Retained Earnings 7,450 Dividends 2,500 Commissions Earned 31,080 Advertising Expense 2,400 Salaries Expense 18,000 Rent Expense 3.800 Totals S65,915 $65,915 Instructions: a. Prepare the adjusting entry to record depreciation of the office equipment for the month of December, using the straight line method of computing depreciation expense. h Compute Taxable income for December - assume this is the same as "Income before income taxes." Using a corporate income tax rate of 40%, prepare the adjusting entry to accrue Kev Insurance Agency's income taxes for the month of December 31, 2015 c. Prepare an adjusted trial balance at December 31, 2015. d. Prepare an income statement and a statement of retained earnings for the month ended December 31. 2015, and a balance sheet in report form at December 31, 2015.
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.
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