The Accounting Cycle Begin with the following account balances for University Street Parking Garage (assume all accounts have normal balances) at December 31, 2019: Accounts payable $16,700 Accounts receivable 39,200 Accumulated depreciation (equipment) 36,800 Cash 6,700 Common stock (20,000 shares) 100,000 Depreciation expense (equipment) 12,300 Dividends 6,300 Equipment 269,500 Income taxes expense 2,700 Income taxes payable 1,100 Interest expense 16,500 Interest payable 0 Interest income 4,100 Inventory 4,900 Investments 35,000 Notes payable (due May 2, 2025) 160,000 Prepaid rent (4 months) 36,400 Rent expense 94,400 Retained earnings, 12/31/2018 43,000 Service revenue, parking 224,600 Service revenue, repair 208,100 Supplies expense 36,900 Wages expense 233,600 Wages payable 0 Required: 1. For the following transactions, provide the necessary adjusting entries and update the account balances to appropriately reflect these adjusting entries: a. University Street Parking rents space that requires a rental payment of $9,100 per month. University Street Parking has prepaid rent through March 31, 2020. b. At December 31, 2019, University Street Parking owes employees wages of $12,500. c. University Street Parking should have total depreciation expense on equipment for 2019 of $14,300. d. The note payable of $160,000 has an interest rate of 6.75%. University Street Parking has paid interes
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The Accounting Cycle
Begin with the following account balances for University Street Parking Garage (assume all accounts have normal balances) at December 31, 2019:
| Accounts payable | $16,700 |
| 39,200 | |
| 36,800 | |
| Cash | 6,700 |
| Common stock (20,000 shares) | 100,000 |
| Depreciation expense (equipment) | 12,300 |
| Dividends | 6,300 |
| Equipment | 269,500 |
| Income taxes expense | 2,700 |
| Income taxes payable | 1,100 |
| Interest expense | 16,500 |
| Interest payable | 0 |
| Interest income | 4,100 |
| Inventory | 4,900 |
| Investments | 35,000 |
| Notes payable (due May 2, 2025) | 160,000 |
| Prepaid rent (4 months) | 36,400 |
| Rent expense | 94,400 |
| 43,000 | |
| Service revenue, parking | 224,600 |
| Service revenue, repair | 208,100 |
| Supplies expense | 36,900 |
| Wages expense | 233,600 |
| Wages payable | 0 |
Required:
1. For the following transactions, provide the necessary
a. University Street Parking rents space that requires a rental payment of $9,100 per month. University Street Parking has prepaid rent through March 31, 2020.
b. At December 31, 2019, University Street Parking owes employees wages of $12,500.
c. University Street Parking should have total depreciation expense on equipment for 2019 of $14,300.
d. The note payable of $160,000 has an interest rate of 6.75%. University Street Parking has paid interest through October 31, 2019.
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