Chapter 3, Problem 71BPSB

Problem 3-71B Preparing a Worksheet (Appendix 3A)

Flint Inc. operates a cable television System. At December 31, 2019, the following unadjusted account balances were available:

The following data are available for adjusting entries:

1. At year end, $1,500 Of office supplies remain unused.
2. Annual depreciation on the building is $20,000.
3. Annual depreciation on the equipment is $150,000
4. The interest rate on the note is 8%. Four months' interest is unpaid and unrecorded at December 31, 2019.
5. At December 31, 2019, services of $94,000 have performed but are unbilled and unrecorded.
6. Utility bills of $2,800 are unpaid and unrecorded at December 31, 2019.
7. Income taxes of $49,633 were unpaid and unrecorded at year end.

    

Required:

1. Prepare a worksheet for Flint.
2. Prepare an income statement, a retained earnings statement, and a classified balance sheet for Flint.
3. Prepare the closing entries.

To determine

To prepare: Worksheet of the company A.

Introduction:.Worksheet is a statement that represents the unadjusted balances of ledgers, adjustment entries and the balances after such adjustments. Adjusted balances are the final balances that are presented in the financial statements of a company.

Explanation of Solution

Preparation of worksheet for the period ending 31^st December, 2019:

Account Title	UnadjustedTrial balance		Adjustments		AdjustedTrial balance
	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Cash	2,000				2,000
Accounts receivable	89,000		94,000		183,000
Supplies	5,000			3,500	1,500
Land	37,000				37,000
Building	209,000				209,000
Accumulated depreciation-building		40,000		20,000		60,000
Equipment	794,000				794,000
Accumulated depreciation-equipment		262,000		150,000		412,000
Other assets	19,700				19,700
Accounts payable		29,500				29,500
Interest payable				6,667		6,667
Income tax payable				49,633		49,633
Utilities payable				2,800		2,800
Notes payable		250,000				250,000
Common stock		300,000				300,000
Retained earnings		14,700				14,700
Dividends	28,000				28,000
Service revenue		985,000		94,000		1,079,000
Royalties expense	398,000				398,000
Property taxes expense	10,500				10,500
Wages expense	196,000				196,000
Utilities expense	34,000		2,800		36,800
Miscellaneous expense	44,000				44,000
Interest expense	15,000		6,667		21,667
Income tax expense			49,633		49,633
Supplies expense			3,500		3,500
Depreciation expense-building			20,000		20,000
Depreciation expense-equipment			150,000		150,000
Total	1,881,200	1,881,200	326,600	326,600	2,204,300	2,204,300

Table (1)

Working Note:

Computation of interest payable:

$\begin{array}{c}\text{Interest}\text{payable}=\text{Note}\text{payable}\times \text{Interest}\text{rate}\times \text{Period}\\ =\text{\$250,000}\times 8\text{\%}\times \frac{4}{12}\\ =\$6,666.67\end{array}$

To determine

To prepare: Income statement, statement of retained earnings and balance sheet.

Introduction: Income statement, statement of retained earnings and balance sheet are financial statements. These statements are prepared for reporting purposes.

Explanation of Solution

Preparation of income statement for the Year ending31^st December, 2019:

CompanyA
Income Statement,For the Year ending on 31stDecember, 2019
	Amount ($)	Amount ($)
Revenues:
Service revenue	1,079,000
Total Revenue		1,079,000
Expenses:
Royalties expense	398,000
Property taxes expense	10,500
Wages Expense	196,000
Utilities Expense	36,800
Miscellaneous expense	44,000
Interest Expense	21,667
Supplies expense	3,500
Depreciation expense-building	20,000
Depreciation expense-equipment	150,000
Income tax expense	49,633
Total Expenses		930,100
Net Income		148,900

Table (2)

Preparation of balance sheet as on 31^stDecember, 2019:

Company A
Balance Sheet as on 31stDecember 2019
	Amount ($)	Amount($)
Liabilities and Owners Equity
Current Liabilities
Accounts Payable	29,500
Interest Payable	6,667
Income tax payable	49,633
Utilities payable	2,800
Total Current Liabilities		88,600
Non-Current Liabilities
Note Payable (due in 2023)	250,000
Total Non-Current Liabilities		250,000
Total Liabilities
Common Stock	300,000
Retained Earnings	135,600	435,600
Total Liabilities and Owner’s Equity		774,200
Current Assets
Cash	2,000
Accounts Receivable	183,000
Supplies	1,500
Other Assets	19,700
Total Current Assets		206,200
Property, Plant and Equipment
Land	37,000
Building	209,000
Less: accumulated depreciation-building	$\left(60,000\right)$
Equipment	794,000
Less: accumulated depreciation-equipment	$\left(412,000\right)$
Total Property, Plant and Equipment		568,000
Total Assets		774,200

Table (3)

Preparation of statement of retained earnings as on 31^stDecember, 2019:

Company A
Statement of Retained Earning
	Amount($)	Amount($)
Owner’s Equity opening balance	14,700
Add: Capital introduced by owner	0
Add: Net income	148,900
Total:		163,600
Less: Withdrawals		0
Less: Dividends		$\left(28,000\right)$
Closing Balance		135,600

Table (4)

To determine

To record: closing journal entries.

Introduction: Closing entries are posted to close all the temporary accounts of the accounting books. Closing entries zeros the balances of income statement items, drawings, and dividends.

Explanation of Solution

Recording closing entry for expense accounts:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Income summary		930,100
	Royalties expense			398.000
	Property taxes expense			10,500
	Wages expense			196,000
	Utilities expense			36,800
	Miscellaneous expense			44,000
	Interest expense			21,667
	Income tax expense			49,633
	Supplies expense			3,500
	Depreciation-building expense			20,000
	Depreciation-equipment expense			150,000
	(to record closing of expense accounts)

Table (5)

• Since income summary is a temporary income account and temporary income is decreased. Hence, income summary account is debited.
• Since royalties expense is an expense and expense is decreased. Hence, royalties expense account is credited.
• Since property taxes expense is an expense and expense is decreased. Hence, property taxes expense account is credited.
• Since wages expense is an expense and expense is decreased. Hence, wages expense account is credited.
• Since utilities expense is an expense and expense is decreased. Hence, utilities expense account is credited.
• Since miscellaneous expense is an expense and expense is decreased. Hence, miscellaneous expense account is credited.
• Since interest expense is an expense and expense is decreased. Hence, interest expense account is credited.
• Since income tax expense is an expense and expense is decreased. Hence, income tax expense account is credited.
• Since supplies expense is an expense and expense is decreased. Hence, supplies expense account is credited.
• Since depreceiation expense is an expense and expense is decreased. Hence, depreceiation -building expense account is credited.
• Since depreceiation expense is an expense and expense is decreased. Hence, depreceiation −equipment expense account is credited.

Recording closing entry for revenue accounts:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Service revenue		1,079,000
	Income summary			1,079,000
	(to record closing of revenue account)

Table (6)

• Since service revenue is an income and income is decreased. Hence, service revenue account is debited.
• Since income summary is a temporary income account and temporary income is increased. Hence, income summary account is credited.

Recording transfer of income summary account:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Income summary		148,900
	Retained earnings			148,900
	(to record closing entry)

Table (7)

• Since income summary is a temporary income account and temporary income is decreased. Hence, income summary account is debited.
• Since retained earnings is a reserve and reserve is increased. Hence, retained earnings account is credited.

Transfering drawings and dividends to retained earnings:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Retained earnings		28,000
	Dividend			28,000
	(to record closing entry)

Table (8)

• Since retained earnings is a reserve and reserve is decreased. Hence, retained earnings account is debited.
• Since dividends is expense and expense is decreased. Hence, dividends account is credited.