PROBLEM 3–7 (LO1,2,3,4,5,6) Comprehensive Accounting Cycle Review Problem The unadjusted trial balance of Packer Corporation showed the following balances at the end of its first 12-month fiscal year ended August 31, 2015: Balance Debits Credits Cash $12,000 Accounts Receivable 3,600 Prepaid Insurance -0- Supplies 2,500 Land 15,000 Building 60,000 Furniture 3,000 Equipment 20,000 Accumulated Depreciation – Building $-0- Accumulated Depreciation – Equipment -0- Accumulated Depreciation – Furniture -0- Accounts Payable 4,400 Salaries Payable -0- Interest Payable -0- Unearned Commissions Revenue 1,200 Unearned Subscriptions Revenue 800 Bank Loan 47,600 Share Capital 52,100 Retained Earnings -0- Income Summary -0- Commissions Earned 37,900 Subscriptions Revenue 32,700 Advertising Expense 4,300 Depreciation Expense – Building -0- Depreciation Expense – Equipment -0- Depreciation Expense – Furniture -0- Insurance Expense 1,800 Interest Expense 2,365 Salaries Expense 33,475 Supplies Expense 15,800 Utilities Expense 2,860 Totals $176,700 $176,700 At the end of August, the following additional information is available: The company's insurance coverage is provided by a single comprehensive 12-month policy that began on March 1, 2015. Supplies on hand total $2,850. The building has an estimated useful life of 50 years. The furniture has an estimated useful life of ten years. The equipment has an estimated useful life of 20 years. Interest of $208 on the bank loan for the month of August will be paid on September 1, when the regular $350 payment is made. A review of the unadjusted balance in the unearned commissions revenue account indicates the unearned balance should be $450. A review of the unadjusted balance in the subscription revenue account reveals that $2,000 has not been earned. Salaries that have been earned by employees in August but are not due to be paid to them until the next payday (in September) amount to $325. Required: Set up necessary general ledger T-accounts and record their unadjusted balances. Create and assign account numbers that you deem appropriate. Prepare the adjusting entries. Descriptions are not needed. Post the adjusting entries to the general ledger T-accounts and calculate balances. Prepare an adjusted trial balance at August 31, 2015. Prepare an income statement and balance sheet. Prepare and post the closing entries. Prepare a post-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.
PROBLEM 3–7 (LO1,2,3,4,5,6) Comprehensive Accounting Cycle Review Problem
The unadjusted
| Balance | ||
| Debits | Credits | |
| Cash | $12,000 | |
| 3,600 | ||
| Prepaid Insurance | -0- | |
| Supplies | 2,500 | |
| Land | 15,000 | |
| Building | 60,000 | |
| Furniture | 3,000 | |
| Equipment | 20,000 | |
| $-0- | ||
| Accumulated Depreciation – Equipment | -0- | |
| Accumulated Depreciation – Furniture | -0- | |
| Accounts Payable | 4,400 | |
| Salaries Payable | -0- | |
| Interest Payable | -0- | |
| Unearned Commissions Revenue | 1,200 | |
| Unearned Subscriptions Revenue | 800 | |
| Bank Loan | 47,600 | |
| Share Capital | 52,100 | |
| -0- | ||
| Income Summary | -0- | |
| Commissions Earned | 37,900 | |
| Subscriptions Revenue | 32,700 | |
| Advertising Expense | 4,300 | |
| Depreciation Expense – Building | -0- | |
| Depreciation Expense – Equipment | -0- | |
| Depreciation Expense – Furniture | -0- | |
| Insurance Expense | 1,800 | |
| Interest Expense | 2,365 | |
| Salaries Expense | 33,475 | |
| Supplies Expense | 15,800 | |
| Utilities Expense | 2,860 | |
|
Totals |
$176,700 |
$176,700 |
At the end of August, the following additional information is available:
- The company's insurance coverage is provided by a single comprehensive 12-month policy that began on March 1, 2015.
- Supplies on hand total $2,850.
- The building has an estimated useful life of 50 years.
- The furniture has an estimated useful life of ten years.
- The equipment has an estimated useful life of 20 years.
- Interest of $208 on the bank loan for the month of August will be paid on September 1, when the regular $350 payment is made.
- A review of the unadjusted balance in the unearned commissions revenue account indicates the unearned balance should be $450.
- A review of the unadjusted balance in the subscription revenue account reveals that $2,000 has not been earned.
- Salaries that have been earned by employees in August but are not due to be paid to them until the next payday (in September) amount to $325.
Required:
- Set up necessary general ledger T-accounts and record their unadjusted balances. Create and assign account numbers that you deem appropriate.
- Prepare the
adjusting entries . Descriptions are not needed. - Post the adjusting entries to the general ledger T-accounts and calculate balances.
- Prepare an adjusted trial balance at August 31, 2015.
- Prepare an income statement and balance sheet.
- Prepare and
post the closing entries. - Prepare a post-closing trial balance.
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