Zac Company has following information related to its financial statements in 2020: Journal Entries 1-3: 1. Inventory 100,000 Profit/Loss 100,000 Tax Expense (100,000*.25) 25,000 Tax Liability 25,000 2. Tax Expense (19,000*.25) 4,750 Tax Liability 4,750 3. Depreciation 30,000 Factory 30,000 Tax Liability (5,000*.25) 1,250 Tax Expense 1,250 Instructions: Assume the books have not been closed for 2020. Prepare journal entries showing the adjustments that are required, assuming the income tax rate is 25% for every year. (4) A collection of $5,600 on account from a customer received on December 31, 2020, was not recorded until January 2, 2021. (5) At the beginning of 2018, the company purchased a vehicle at a cost of $50,000. Its useful life was estimated to be 8 years with the salvage value of $4,125. The machine has been depreciated by the double-declining balance method. Its book value on January 1, 2020, was $28,125. On January 1, 2021, the company changed to the straight-line method. (6) At December 31, 2020, an analysis of payroll information shows accrued salaries of $12,200. The salaries and wages payable account had a balance of $16,000 at December 31, 2020, which was unchanged from its balance at December 31, 2019.
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.
Zac Company has following information related to its financial statements in 2020:
1. Inventory 100,000
Tax Expense (100,000*.25) 25,000
Tax Liability 25,000
2. Tax Expense (19,000*.25) 4,750
Tax Liability 4,750
3. Depreciation 30,000
Factory 30,000
Tax Liability (5,000*.25) 1,250
Tax Expense 1,250
Instructions:
Assume the books have not been closed for 2020. Prepare journal entries showing the adjustments that are required, assuming the income tax rate is 25% for every year.
(4) A collection of $5,600 on account from a customer received on December 31, 2020, was not recorded until January 2, 2021.
(5) At the beginning of 2018, the company purchased a vehicle at a cost of $50,000. Its useful life was estimated to be 8 years with the salvage value of $4,125. The machine has been
(6) At December 31, 2020, an analysis of payroll information shows accrued salaries of $12,200. The salaries and wages payable account had a balance of $16,000 at December 31, 2020, which was unchanged from its balance at December 31, 2019.
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