The Pan Man Limited provides music lessons to student musicians. Some students pay in advance for lessons; others are billed after lessons have been provided. Advance payments are credited to an account entitled Unearned Lesson Revenue. Adjusting entries are performed on a monthly basis. An unadjusted trial balance dated December 31, 2021, follows. (Bear in mind that adjusting entries have already been made for the first 11 months of 2021, but not for December.) The Pan Man Limited Unadjusted Trial Balance December 31, 2021 Cash.... $ 15,800 Accounts receivable 2,100 Unexpired insurance. Prepaid rent.. 3,200 6,000 Sheet music supplies Music equipment.... Accumulated depreciation: munic equipment. Accounts payable.. Notes payable... Dividends payable Interest payable Income taxes payable. 450 180,000 $ 72,000 3,500 5,000 1,000 25 ... 3,400 Unearned lesson revenue. 1,100 .... .... Capital stock.... 20,000 Retained eamings. 56,600 Dividends.. 1,000 Lesson revenue earned 154,375 Advertising expense 7,400 Insurance expense 4,400 Rent expense. 16,500 Sheet music supplies expense. 780 Utlities expense.. Depreciation expense: music equipment Salaries expense...... . Interest expense.......... 5,000 33,000 27,500 25 Income taxes expense 13,845 $317,000 $317,000 Other Data 1. Accrued but unrecorded lesson revenue earned as of December 31, 2021, amounts to $3,200. 2. Records show that $800 of cash receipts originally recorded as unearned lesson revenue had been earned as of December 31. 3. The company purchased a 12-month insurance policy on August 1, 2021, for $4,800. 4. On October 1, 2021, the company paid $9,000 for rent through March 31, 2022. 5. Sheet music supplies on hand at December 31 amount to $200. All music equipment was purchased when the business was first formed. Its estimated life at that time was five years (or 60 months). 7. On November 1, 2021, the company borrowed S5,000 by signing a three-month, 6 percent note payable. The entire note, plus three months' accrued interest, is due on February 1, 2022. 8. Accrued but unrecorded salaries at December 31 amount to $3,500. 9. Estimated income taxes expense for the entire year totals $22,000. Taxes are due in the first quarter of 2022. 6. Instructions a. For each of the numbered paragraphs above, prepare the necessary adjusting entry (including an explanation). b. Determine that amount at which each of the following accounts will be reported in the company's 2021 income statement: 1. Lesson Revenue Earned 2. Advertising Expense 3. Insurance Expense 4. Rent Expense 5. Sheet Music Supplies Expense 6. Utilities Expense 7. Depreciation Expense: Music Equipment 8. Interest Expense 9. Salaries Expense 10. Income Taxes Expense
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.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
