Chapter 3, Problem 6PSA

1.

To determine

Introduction:

The income statement contains revenues and expense items and is prepared to determine the net income.

Statement of retained earnings is a part of total stockholders’ equity. This report shows the changes in the retained earnings during the year due to dividend declaration and net operating income or loss.

The balance sheet houses all the assets and liabilities starting with the most liquid to non-liquid assets and liabilities. The asset total must tally with the total of liabilities and equity.

To Prepare:

The income statement, statement of retained earnings and the balance sheet for the year ended December 31, 2019, of TC company.

Explanation of Solution

The income statement is prepared as follows:

TC Income Statement For the Year Ended December 31, 2019
Particular	Amount	Amount
Revenue:
Professional fees earned	$97,000
Rent income	$14,000
Interest income	$2,100
Dividend income	$2,000
Total revenue		115,100
Expenses:
Depreciation expenses − Building	$11,000
Depreciation expense − Equipment	$6,000
Interest expense	$5,100
Wages Expenses	$32,000
Insurance Expenses	$10,000
Rent Expenses	$13,400
Supplies Expenses	$7,400
Postage Expenses	$4,200
Property Taxes Expense	$5,000
Repairs Expense	$8,900
Telephone Expenses	$3,200
Utilities Expense	$4,600
Total expenses		$110,800
Net Income		$4,300

The retained earnings statement is prepared as follows:

TC Statement of Retained Earnings For the Year Ended December 31, 2019
Particular		Amount
Balance, January 1		$121,400
Add: net income		$4,300
Less: dividends paid		($13,000)
Balance, December 31		$112,700

The balance sheet is prepared as follows:

TC Balance Sheet As of December 31, 2019
Particular	Amount	Amount
Assets:
Current Assets:
Cash		$5,000
Short-term Investments		$23,000
Supplies		$8,100
Prepaid Insurance		$7,000
Total Current Assets		$43,100
Non-current Assets:
Land		$55,000
Building	$150,000
Less: Accumulated Depreciation	$50,000
Building, Net		$100,000
Equipment	$40,000
Less: Accumulated Depreciation	$20,000
Equipment, Net		$20,000
Total Non-current Assets		$175,000
Total Assets		$218,100
Liabilities and Equity:
Current Liabilities:
Accounts Payable		$16,500
Interest Payable		$2,500
Rent Payable		$3,500
Wages Payable		$2,500
Property Taxes Payable		$900
Unearned Professional Fees		$7,500
Long-term Notes Payable - Current Portion		$7,000
Total Current Liabilities		$40,400
Non-current Liabilities
Long-term Notes Payable		$60,000
Total Non-current Liabilities		$60,000
Total Liabilities		$100,400
Equity:
Common Stock		$5,000
Retained Earnings		$112,700
Total Equity		$117,700
Total Liabilities & Equity		$218,100

2.

To determine

Introduction:

As the revenue and expense accounts should not have the ending balances, they should be transferred to the temporary account called income summary to determine the net results. Finally, the net result is transferred to retained earnings. If there is profit, the retained earnings go up and if there is a loss, then the retained earnings go down.

To Prepare:

Closing entries as of December 31, 2019 for TC Company.

Explanation of Solution

Journal
Date	Account Titles & Explanations	Account No.	Debit	Credit
2019
31-Dec	Professional fees earned	401	$97,000
	Rent earned	406	$14,000
	Dividends earned	407	$2,000
	Interest earned	409	$2,100
	Income summary			$115,100
	(To close the revenue accounts)
31-Dec	Income summary		$110,800
	Depreciation expense-Building	606		$11,000
	Depreciation expense-Equipment	612		$6,000
	Wages expenses	623		$32,000
	Interest expense	633		$5,100
	Insurance expense	637		$10,000
	Rent expense	640		$13,400
	Supplies expense	652		$7,400
	Postage expense	682		$4,200
	Property taxes expense	683		$5,000
	Repairs Expense	684		$8,900
	Telephone expense	688		$3,200
	Utilities expense	690		$4,600
	(To close the expense accounts)
31-Dec	Income summary		$4,300
	Retained earnings	318		$4,300
	(To close the income summary account)
31-Dec	Retained earnings	318	$13,000
	Dividends	319		$13,000
	(To close the dividends paid)