Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 3, Problem 12E

Worksheet, Including Inventory Surian Motors Company prepared a trial balance on the following partially completed worksheet for the year ended December 31, 2019:

Chapter 3, Problem 12E, Worksheet, Including Inventory Surian Motors Company prepared a trial balance on the following

Additional information: (a) The equipment is being depreciated on a straight-line basis over a 10-year life, with no residual value; (b) salaries accrued but nor recorded total $500; (c) on January 1, 2019, the company had paid 3 years’ rent in advance at $100 per month; (d) bad debts are expected to be 1% of total sales; (e) interest of $400 has accrued on the note payable; and (f) the income tax rate is 40% on current income and will be paid in the first quarter of 2020.

Required:

  1. 1. Complete the worksheet.
  2. 2. Prepare financial statements for 2019.
  3. 3. Prepare closing entries in the general journal.

1.

Expert Solution
Check Mark
To determine

Prepare the worksheet for the year ended December 31, 2019.

Explanation of Solution

Worksheet: A worksheet is a tool that is used while preparing a financial statement. It is a type of form, having multiple columns and it is used in the adjustment process.

Prepare the worksheet for the year ended December 31, 2019:

Intermediate Accounting: Reporting And Analysis, Chapter 3, Problem 12E

Table (1)

2.

Expert Solution
Check Mark
To determine

Prepare the financial statements of Company S for the year ended December 31, 2019.

Explanation of Solution

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare income statement of Company S for the year ended December 31, 2019:

Company S
Income statement
For the Year Ended December 31, 2019
ParticularsAmount($)Amount($)
Sales revenue45,000 
Less: Cost of goods sold(21,000)
Gross profit 24,000
Less: Operating expenses:  
Salaries expense7,600 
Utilities expense3,300 
Advertising expense4,400 
Depreciation expense3,000 
Rent expense1,200 
Bad debt expense450 
Total operating expense(19,950)
Income from operations4,050
Other items:
Interest expense(400)
Income before income taxes 3,650
Less: Income tax expense (1,460)
Net income $2,190
   
Earnings per share (1,000 shares) $2.19

Table (2)

Working notes 1: Calculate the amount of salaries expense.

Salaries expense= Salaries expense + Accrued salary=$7,100+$500=$7,600

Working note 2: Calculate the amount of rent expense.

Rent expense = (Rent for 1 month×Period from January 1 to December 31)= ($100×12)=$1,200

Working note 3: Calculate the amount of depreciation expense.

Depreciation expense =( Cost of office equipmentLife of asset)=( $30,00010)=$3,000

Working note 4: Calculate the amount of income tax expense.

Income tax=( Income before incom tax expense×Income tax rate)=$3,650×40%=$1,460

Working note 5: Calculate the amount of bad debt expense.

Bad debt expense = 1% of total sales=$45,000×1%=$450

Working note 6: Calculate earnings per share.

Earnings per share=Net income Number of Common stock oustanding=$2,1901,000=$2.19

Statement of Retained Earnings: Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.

Prepare statement of retained earnings of Company S for the year ended December 31, 2019:

Company S
Statement of Retained Earnings
For the Year Ended December 31, 2019
ParticularsAmount ($)Amount ($)
Retained earnings, January 1, 201910,200 
Add: Net income2,190 
Subtotal 12,390
Less: Dividends (1,000)
Retained earnings at December  31, 2019 $11,390

Table (3)

Balance Sheet:  Balance Sheet is one of the financial statements which summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Prepare the balance sheet of Company S for the year ended December 31, 2019:

Company S
Balance Sheet
As on December 31, 2019
Assets
Current assets:Amount ($)Amount ($)
Cash 2,500
Accounts receivable4,000 
Less: Allowance for doubt accounts(750)3,250
Inventory 8,200
Prepaid rent 2,400
Total current assets  
Property, plant and equipment:  
Equipment30,000 
Less: Accumulated depreciation(15,000) 
Net property, plant and equipment 15,000
Total assets $31,350
Liabilities and Equity
Liabilities:
Current liabilities:  
Accounts payable3,700 
Notes payable5,000 
Salaries payable500 
Interest payable400 
Income taxes payable1,460 
Total liabilities11,060
Shareholders’ Equity
Contributed Capital:  
Common stock8,900 
Retained earnings11,390 
Total shareholders’ equity20,290
Total liabilities and shareholders’ equity $31,350

Table (4)

3.

Expert Solution
Check Mark
To determine

Prepare the closing entries for the year ended December 31, 2019 in the general journal.

Explanation of Solution

Prepare the closing entries:

DateAccounts title and explanationPost Ref.DebitCredit
($)($)
December 31, 2019Sales Revenue 45,000 
    Income Summary  45,000
 (To close the revenue accounts)   
 
December 31, 2019Income Summary 42,810 
    Cost of Goods Sold  21,000
     Salaries Expense  7,600
     Utilities Expense  3,300
     Advertising Expense  4,400
     Depreciation Expense  3,000
     Rent Expense  1,200
     Bad Debt Expense  450
     Interest Expense  400
     Income Tax Expense  1,460
 (To close the expense accounts)   
 
December 31, 2019Income Summary 2,190 
    Retained Earnings  2,190
 (To close the income summary account)   
 
December 31, 2019Retained Earnings 1,000 
    Dividends  1,000
 (To close the dividends account)   

Table (5)

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Chapter 3 Solutions

Intermediate Accounting: Reporting And Analysis

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