The following unadjusted trial balance was extracted from the books of Householder’s Choice Company at December 31, 2015 the end of the company’s financial year which commences in January each year. Householder’s Choice is owned by Carmen Carr and trades in the buying and selling of household consumable goods. Householder’s Choice Company Trial Balance as at December 31, 2015 A/C Name DR $ CR $ Cash 750,000 Accounts Receivable 2,400,000 Allowance for Bad Debts 140,000 Merchandise Inventory 450,400 Store Supplies 188,800 Prepaid Insurance 140,000 Office Furniture 800,000 Accumulated Depreciation –Office Furniture 160,000 Computer Equipment 260,000 Accumulated Depreciation –Computer Equipment 166,400 Accounts Payable 1,700,000 Interest Payable Wages Payable Notes Payable, Long Term 440,000 Unearned Sales Revenue 160,000 Carmen Carr, Capital 2,340,000 Carmen Carr, Withdrawal 200,000 Sales Revenue Earned 2,523,000 Cost of Goods Sold 1,800,400 Wages Expense 450,000 Insurance Expense Utilities Expense 140,800 Depreciation Expense –Office Furniture Depreciation Expense –Computer Equipment Store Supplies Expense Bad Debt Expense Interest Expense 49,000 Total 7,629,400 7,629,400 The following additional information was made available at December 31, 2015 a) Store supplies on hand at December 31, 2015 amounted to $80,000. b) Insurance of $140,000 was paid on January 1, 2015 for fourteen (14) months to February 29, 2016. c) The office furniture has an estimated life of ten (10) years and is being depreciated on the straight-line method of depreciation, down to a residual value of $0. d) The computer equipment is being depreciated over five (5) years on the double-declining method of depreciation, down to a residue of $20 e) Wages earned by the company’s employees and not paid at December 31, 2015 amounted to $25,000. f) Accrued interest expense amounted to $11,000 at December 31, 2015 g) A physical count of inventory at December 31, 2015, reveals $380,000 worth of inventory on hand. h) At December 31, 2015, $139,840 of the previously unearned sales revenue had been earned. i) The aging of the accounts receivable schedule at December 31, 2015 indicated that the estimated uncollectible on accounts receivable is $180,000. Required: Prepare the necessary adjusting entries on December 31, 2015. Prepare Householder’s Choice multiple-step income statement for the year ended December 31,2015. Prepare Carmen’s statement of owner’s equity for the year ended December 31, 2015. Prepare the company’s classified balance sheet at December 31, 2015.
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 unadjusted
Householder’s Choice Company
Trial Balance as at December 31, 2015
A/C Name DR $ CR $
|
Cash |
750,000 |
|
|
|
2,400,000 |
|
|
Allowance for |
|
140,000 |
|
Merchandise Inventory |
450,400 |
|
|
Store Supplies |
188,800 |
|
|
Prepaid Insurance |
140,000 |
|
|
Office Furniture |
800,000 |
|
|
|
|
160,000 |
|
Computer Equipment |
260,000 |
|
|
Accumulated Depreciation –Computer Equipment |
|
166,400 |
|
Accounts Payable |
|
1,700,000 |
|
Interest Payable |
|
|
|
Wages Payable |
|
|
|
Notes Payable, Long Term |
|
440,000 |
|
Unearned Sales Revenue |
|
160,000 |
|
Carmen Carr, Capital |
|
2,340,000 |
|
Carmen Carr, Withdrawal |
200,000 |
|
|
Sales Revenue Earned |
|
2,523,000 |
|
Cost of Goods Sold |
1,800,400 |
|
|
Wages Expense |
450,000 |
|
|
Insurance Expense |
|
|
|
Utilities Expense |
140,800 |
|
|
Depreciation Expense –Office Furniture |
|
|
|
Depreciation Expense –Computer Equipment |
|
|
|
Store Supplies Expense |
|
|
|
Bad Debt Expense |
|
|
|
Interest Expense |
49,000 |
|
|
Total |
7,629,400 |
7,629,400 |
The following additional information was made available at December 31, 2015
a) Store supplies on hand at December 31, 2015 amounted to $80,000.
b) Insurance of $140,000 was paid on January 1, 2015 for fourteen (14) months to February 29, 2016.
c) The office furniture has an estimated life of ten (10) years and is being depreciated on the straight-line method of depreciation, down to a residual value of $0.
d) The computer equipment is being depreciated over five (5) years on the double-declining method of depreciation, down to a residue of $20
e) Wages earned by the company’s employees and not paid at December 31, 2015 amounted to $25,000.
f) Accrued interest expense amounted to $11,000 at December 31, 2015
g) A physical count of inventory at December 31, 2015, reveals $380,000 worth of inventory on hand.
h) At December 31, 2015, $139,840 of the previously unearned sales revenue had been earned.
i) The aging of the accounts receivable schedule at December 31, 2015 indicated that the estimated uncollectible on accounts receivable is $180,000.
Required:
- Prepare the necessary
adjusting entries on December 31, 2015. - Prepare Householder’s Choice multiple-step income statement for the year ended December 31,2015.
- Prepare Carmen’s statement of owner’s equity for the year ended December 31, 2015.
- Prepare the company’s classified
balance sheet at December 31, 2015.
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