The following trial balance was extracted from the books of Columbus Ltd at December 31, the end of the company’s financial year. The company is owned by John Columbus and is in the business of buying and farming supplies. Trial Balance as at December 31, 2018 The following additional information is available at December 31, 2018: Insurance of $450,000 was paid on May 1, 2018 for the 10-months to February 2019. The furniture and fixtures have an estimated useful life of 10 years and is being depreciated on the straight-line method down to a residual value of $100,000. The computer equipment was acquired on March 1, 2018 and is being depreciated over 10 years on the double-declining method of depreciation, down to a residue of $60,000. Wages earned by employees NOT yet paid amounted to 15,000 at December 31, 2018. A physical count of inventory at December 31, reveals $180,000 worth of inventory on hand. At December 31, $140,000 of the previously unearned sales revenue had been earned. The aging of the Accounts Receivable schedule at December 31 indicated that the estimated uncollectible on account receivable should be $45,000. REQUIRED: Prepare the necessary adjusting journal entries on December 31. [Narrations are not required] Prepare Columbus Ltd multiple-step income statement for the year ended December 31, 2018. Prepare Columbus Ltd statement of owner’s equity for the year ended December 31, 2018.
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 following
Trial Balance as at December 31, 2018
The following additional information is available at December 31, 2018:
- Insurance of $450,000 was paid on May 1, 2018 for the 10-months to February 2019.
- The furniture and fixtures have an estimated useful life of 10 years and is being
depreciated on the straight-line method down to a residual value of $100,000. - The computer equipment was acquired on March 1, 2018 and is being depreciated over 10 years on the double-declining method of depreciation, down to a residue of $60,000.
- Wages earned by employees NOT yet paid amounted to 15,000 at December 31, 2018.
- A physical count of inventory at December 31, reveals $180,000 worth of inventory on hand.
- At December 31, $140,000 of the previously unearned sales revenue had been earned.
- The aging of the
Accounts Receivable schedule at December 31 indicated that the estimated uncollectible on account receivable should be $45,000.
REQUIRED:
- Prepare the necessary
adjusting journal entries on December 31. [Narrations are not required] - Prepare Columbus Ltd multiple-step income statement for the year ended December 31, 2018.
- Prepare Columbus Ltd statement of owner’s equity for the year ended December 31, 2018.
- Prepare Columbus Ltd classified
balance sheet at December 31, 2018. - Prepare the closing entries
- Prepare the post-closing trial balance
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