Chapter 4, Problem 4.38BP

1.

To determine

T-Account: T-Account is a form of ledger account in which the debit entries are shown at the left side of the account and credit entries are shown at the right side of the account.

Worksheet: A worksheet is a spreadsheet used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Adjusting Entries: Adjusting entries are passed at the end of the accounting period to maintain the accounts on accrual basis. These entries are passed in order to adjust the amounts of incomes and expenses in the accounting period in which they are actually earned and incurred respectively.

Adjusted Trial Balance: An adjusted trial balance refers to the final trial balance resulting after posting the adjusting entries at the end of the period.

Balance Sheet: A Balance Sheet is a statement showing the position of the assets, liabilities and the owner’s equity at the end of the financial year.

Income Statement: Income Statement is a financial statement that is prepared by all the companies by enumerating all the expenses and revenues to calculate the resulting difference of Net Profit or Net Loss.

Retained Earnings Statement: Retained Earnings Statement is the statement showing the balance of retained earnings left at the end of the period after including the net profit for the period and distributing the dividend to the shareholders.

Closing entries: Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts such as retained earnings. It is passed at the end of the accounting period, to transfer the final balance.

Post-Closing Trial Balance: After passing all the journal entries and the closing entries of the permanent accounts and then further posting them to each of the respective accounts, a post-closing trial balance is prepared which consists of a list of all the permanent accounts. A post-closing trial balance serves as an evidence to prove that the balance of the permanent accounts is equal.

Current Ratio: Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1

Formula:

$\text{Current ratio}=\frac{\text{Current assets}}{\text{Current}\text{liabilities}}$

To Open: T-accounts using the balances in the unadjusted trial balance.

2.

To determine

To Complete: The worksheet for the year ended December 31, 2018.

3.

To determine

To prepare: Adjusting entries.

4.

To determine

To prepare: An adjusted trail balance.

5.

To determine

To prepare: Company’s income statement for the year ended December 31, 2018.

6.

To determine

To Prepare: The closing entries for Company at December 31, 2018.

7.

To determine

To Prepare: A post-closing trial balance.

8.

To determine

To calculate: The Company’s current ratio at December 31, 2018.