
Concept Introduction:
An Income statement:
An income statement can be defined as the statement explaining the company’s financial performance over a specific accounting period. The income or revenues are recorded on the income statement along with the expenses incurred for the period.
Statement of owner’s equity:
A statement of owner’s equity represents the changes in the capital of the owner of the business including the additions in form of net income and subtractions in the form of withdrawals.
Classified
A balance sheets represents the financial position of a business in terms of its assets, liabilities and owner’s equity.
Post-
A post-trial balance after adjusting entries can be defined as the trial balance prepared after incorporating all the adjusting entries for the year.
Rate of Return on total assets can be defined as the ratio that measures a company’s earnings before interest and taxes (EBIT) against its total net assets or average total assets.
Rate of Return on total assets can be calculated as –
Now, the average total assets are calculated as –
Debt-ratio:
Debt-ratio is the solvency ratio that measures a firm’s total liabilities as a percentage of its total assets. Debt ratio shows, a company’s ability to pay off it liabilities with its assets.
Debt – ratio is calculated as under –
The current ratio can be defined as the ratio of total current assets to total current liabilities. A current ratio is a measures that a company’s ability to pay short-term and long-term obligations.
A current ratio is calculated as under –
Requirement 1
To prepare:
1. Income statement
2. Statement of Owner’s equity
3. Classified balance sheet

Answer to Problem 4APSA
Solution:
1. Income statement –
Tybalt Construction | ||
Income Statement | ||
For the year Ended December, 2017 | ||
Revenues | ||
Professional fees earned | 97,000 | |
Rent earned | 14,000 | |
Dividends earned | 2,000 | |
Interest Earned | 2,100 | |
Total Revenues | 1,15,100 | |
Less: Expenses | ||
11,000 | ||
Depreciation expense - Equipment | 6,000 | |
Wages Expense | 32,000 | |
Interest Expense | 5,100 | |
Insurance Expense | 10,000 | |
Rent Expense | 13,400 | |
Supplies Expense | 7,400 | |
Postage Expense | 4,200 | |
Property taxes Expense | 5,000 | |
Repairs Expense | 8,900 | |
Telephone Expense | 3,200 | |
Utilities expense | 4,600 | |
Total Expenses | 1,10,800 | |
Net Income | 4,300 |
2. Statement of Owner’s Equity –
Tybalt Construction | |
Statement of Owner's Equity | |
For the year Ended December, 2017 | |
Tybalt Capital, Beginning | 1,26,400 |
Add: Net Income | 4,300 |
Less: Tybalt, Withdrawals | 13,000 |
Tybalt Capital, Ending | 1,17,700 |
3. Classified Balance Sheet –
Tybalt Construction | |||
Balance Sheet | |||
For the year Ended December, 2017 | |||
Current Assets | Current Liabilities | ||
Cash | 5,000 | Accounts Payable | 16,500 |
Short-term Investments | 23,000 | Interest Payable | 2,500 |
Supplies | 8,100 | Rent Payable | 3,500 |
Prepaid Insurance | 7,000 | Wages Payable | 2,500 |
Property Taxes Payable | 900 | ||
Total current assets | 43,100 | Unearned professional fess | 7,500 |
Current portion of Long-term notes payable | 7,000 | ||
Total current liabilities | 40,400 | ||
Long-term assets | |||
Equipment | 40,000 | Long-term liabilities and Owner's Equity | |
Less: |
20,000 | Long-term Liabilities | |
20,000 | Long-term notes payable | 60,000 | |
Building | 150,000 | ||
Less: Accumulated Depreciation | 50,000 | Owner's Equity | 117,700 |
100,000 | |||
Land | 55,000 | ||
Total Long-term assets | 175,000 | Total long-term liabilities and Owner's equity | 177,700 |
Total Assets | 218,100 | Total liabilities and Owner's equity | 218,100 |
Explanation of Solution
The income statement, statement of Owner’s equity and balance sheet are prepared as under –
1. Income Statement –
Given,
• Professional fees earned = $ 97,000
• Rent earned = $ 14,000
• Dividends earned = $ 2,000
• Interest Earned = $ 2,100
• Depreciation expense – Building = $ 11,000
• Depreciation expense – Equipment = $ 6,000
• Wages Expense = $ 32,000
• Interest Expense = $ 5,100
• Insurance Expense = $ 10,000
• Rent Expense = $ 13,400
• Supplies Expense = $ 7,400
• Postage Expense = $ 4,200
• Property taxes Expense = $ 5,000
• Repairs Expense = $ 8,900
• Telephone Expense = $ 3,200
• Utilities expense = $ 4,600
Now, the total revenues will be calculated -
Total expenses –
Net income will be calculated as –
Thus, the income statement has been prepared.
2. Statement of Owner’s equity –
Given,
• Tybalt Capital, Beginning = $ 126,400
• Net Income = $ 4,300
• Tybalt, Withdrawals = $ 13,000
Thus, the statements of owner’s equity has been prepared.
3. Classified Balance Sheet –
For Assets Section –
Given,
• Cash = $ 5,000
• Short-term Investments = $ 23,000
• Supplies = $ 8,100
• Prepaid Insurance = $ 7,000
• Equipment = $ 40,000
• Accumulated Depreciation – Equipment = $ 20,000
• Building = $ 150,000
• Accumulated Depreciation – Building = $ 50,000
• Land = $ 55,000
For Liabilities and Owner’s Equity Section –
• Accounts Payable = $ 16,500
• Interest Payable = $ 2,500
• Rent Payable = $ 3,500
• Wages Payable = $ 2,500
• Property Taxes Payable = $ 900
• Unearned professional fess = $ 7,500
• Current portion of Long-term notes payable = $ 7,000
• Long-term notes payable = $ 60,000 (i.e. $ 67,000 - $ 7,000)
• Owner's Equity = $ 117,700
Thus, the classified balance sheet has been prepared.
Thus, the income statement, the statement of owner’s equity and the classified balance sheet has been prepared.
Requirement 2
To prepare:
Necessary Closing entries at December 31, 2017

Answer to Problem 4APSA
Solution:
Date | Accounts Titles and Descriptions | Debit | Credit |
Dec-31 a. | Professional fees earned | 97000 | |
Rent earned | 14000 | ||
Dividends earned | 2000 | ||
Interest Earned | 2100 | ||
Income Summary | 115100 | ||
(Being the revenues transferred to Income summary) | |||
Dec-31 b. | Income Summary | 110800 | |
Depreciation expense - Building | 11000 | ||
Depreciation expense - Equipment | 6000 | ||
Wages Expense | 32000 | ||
Interest Expense | 5100 | ||
Insurance Expense | 10000 | ||
Rent Expense | 13400 | ||
Supplies Expense | 7400 | ||
Postage Expense | 4200 | ||
Property taxes Expense | 5000 | ||
Repairs Expense | 8900 | ||
Telephone Expense | 3200 | ||
Utilities expense | 4600 | ||
(Being all expenses transferred to Income summary) | |||
Dec-31 c. | Income Summary | 4300 | |
Tybalt, Capital | 4300 | ||
(To close the income summary) | |||
Dec-31 d. | Tybalt, Capital | 13,000 | |
Tybalt, Withdrawals | 13,000 | ||
(To close withdrawals account) |
Explanation of Solution
The above
All the entries are made on December 31, 2017.
a. In this entry, all the revenues are transferred to income summary account, thus, the revenues are debited and income summary is credited.
b. In this entry, all the expenses are transferred to income summary, thus, the, expenses are credited and income summary is debited.
c. In this entry, the net income is transferred to the capital account of Tybalt.
d. In this entry, the drawings account of Tybalt has been closed by transferring it to to capital account of Tybalt.
Thus, the necessary closing entries have been recorded.
Requirement 3
To compute:
a. Return on total assets
b. Debt ratio
c. Profit Margin ratio
d. Current Ratio

Answer to Problem 4APSA
Solution:
The answers are –
a. Return on total assets = 0.021
b. Debt ratio = 0.460
c. Profit Margin ratio = 0.0374
d. Current Ratio = 1.067
Explanation of Solution
The above answers are calculated as under –
a. Return on Total assets –
Given,
• Net Income = $ 4,300
• Beginning total assets = $ 200,000
• Ending total assets = $ 218,100
b. Debt Ratio –
Given information –
• Total Liabilities = $ 100,400 (i.e. $ 33,400 + $ 67,000)
• Total assets = $ 218,100
Debt – ratio is –
c. Net profit Ratio –
Given,
• Net Income = $ 4,300
• Total revenues = $ 115,100
d. Current Ratio –
Given,
• Total current assets = $ 43,100
• Total current liabilities = $ 40,400
Thus, all the required ratios have been calculated.
Want to see more full solutions like this?
Chapter 4 Solutions
Loose Leaf for Fundamental Accounting Principles
- Please give me answer general accounting questionarrow_forwardrespond to ceasar Companies make adjusting entries to ensure that their financial statements accurately reflect the true financial position and performance during a specific accounting period. These entries are necessary to account for revenues earned and expenses incurred that may not yet have been recorded in the books. Adjusting entries are typically made at the end of an accounting period, during the preparation of financial statements, as part of the accounting cycle. This step is crucial in aligning the company’s books with the accrual basis of accounting, where revenues and expenses are recognized when they are earned or incurred, rather than when cash is received or paid. By making these adjustments, companies can provide accurate and reliable financial information to stakeholders.arrow_forwardAccording to the accrual method of accounting, businesses make adjusting entries to ensure that their financial statements are correctly depicting their financial situation and performance. No matter when cash transactions take place, adjusting entries are required to record revenues when they are generated and expenses when they are incurred (Weygandt et al., 2022). In order to guarantee that financial statements present an accurate and impartial picture of their company's financial health, these entries help in bringing financial records into compliance with the revenue recognition and matching standards. In order to account for things like accumulated revenues, accrued expenses, depreciation, and prepaid expenses, adjusting entries are usually made at the conclusion of an accounting period prior to the preparation of financial statements (Kieso et al., 2020). By implementing these changes, businesses avoid making false representations in their financial reports, which enables…arrow_forward
- Required information Skip to question [The following information applies to the questions displayed below.]Brianna's Boutique has the following transactions related to its top-selling Gucci purse for the month of October. Brianna's Boutique uses a periodic inventory system. Date Transactions Units Unit Cost Total Cost October 1 Beginning inventory 6 $830 $4,980 October 4 Sale 4 October 10 Purchase 5 840 4,200 October 13 Sale 3 October 20 Purchase 4 850 3,400 October 28 Sale 7 October 30 Purchase 6 860 5,160 $17,740 2. Using FIFO, calculate ending inventory and cost of goods sold at October 31.arrow_forwardWhy do companies make adjusting entries? When are adjusting entries made and at what point in the accounting process?arrow_forwardcorrect solution i needarrow_forward
- Prepare the journal entries to account for the defined benefit pension plan in the books of Flagstaff Ltd for the year ended December 31 2020 and the pension table for the following pic.arrow_forwardAdditional information(a) All contributions received by the plan were paid by Flagstaff Ltd.(b) The interest rate used to measure the present value of the defined benefitobligation was 9% at 31 December 2019 and 31 December 2020.(c) The asset ceiling was nil at 31 December 2019 and 31 December 2020. Calculate the actuarial gain or loss for the defined benefit obligation for 2020 Calculate the return on plan assets, excluding any amount recognized in net interest for2020arrow_forwardAdditional information(a) All contributions received by the plan were paid by Flagstaff Ltd.(b) The interest rate used to measure the present value of the defined benefitobligation was 9% at 31 December 2019 and 31 December 2020.(c) The asset ceiling was nil at 31 December 2019 and 31 December 2020. Questiona) Determine the surplus or deficit of Flagstaff Ltd.’s defined benefit plan at 31 December2020 and determine the net defined benefit asset or liability that should be recognized by FlagstaffLtd at 31 December 2020 b) Calculate the net interest for 2020arrow_forward
- Rentokil Limited issued a 10-year bond on January 1 2011. It pays interest on January1. The below amortization schedule and interest schedule reflects this. Its year end isDecember 31. a) Indicate whether the bonds were issued at a premium or a discount and explainhow you came to your decision and Compute the stated interest rate and the effective interest rate c) Prepare the journal entries for the following years:I. 2011, 2012 & 2018arrow_forwardOff-set the losses for the appropriate years using the rules as applied in Trinidad and Tobago and those in Jamaica: XYZ Company Limited in year of assessment 2015 makes net income of $8,000,000 and its PYL was $9,000,000. XZY registered in December 2014 for GCT/VAT and declared that its estimated income for the year of assessment 2015 as $2,999,000.arrow_forwardTimberline Services Company, a division of a major energy company, provides various services to the operators in the Rocky Mountain oil fields. For the most recent year, the company reported sales of $22,500,000, net operating income of $7,500,000, and average operating assets of $40,000,000. What is the margin for Timberline Services Company? Accountingarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





