PROBLEM 5.2A Preparing Financial Statements and Closing Entries of a Profitable Company Lawn Pride, Inc., provides lawn-mowing 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. LAWN PRIDE, INC. ADJUSTED TRIAL BALANCE DECEMBER 31, 2011 Debits Credits Cash $ 58,525 Accounts receivable. 4,800 Unexpired insurance 8,000 Prepaid rent. 3,000 Supplies. 1,075 Trucks. 150,000 Accumulated depreciation: trucks $120,000 Mowing equipment Accumulated depreciation: mowing equipment. 20,000 12,000 Accounts payable 1,500 Notes payable. 50,000 Salaries payable 900 Interest payable.. 150 Income taxes payable. 1,050 Uneamed mowing revenue... 900 Capital stock. Retained eamings Dividends... 20,000 30,000 5,000 Mowing revenue earned 170,000 Insurance expense. Office rent expense.. Supplies expense .. 2,400 36,000 5,200 Salary expense.. Depreciation expense: trucks Depreciation expense: mowing equipment . Repair and maintenance expense... Fuel expense... Miscellaneous expense.. Interest expense....... Income taxes expense 60,000 30,000 4,000 3,000 1,500 ....... 5,000 ....... ....... 3,000 ....... ........... 6,000 $406,500 $406,500 Instructions . 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. . Prepare an after-closing trial balance. d. Using the financial statements prepared in part a, briefly evaluate the company's profitability and liquidity.
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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