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Completing the Accounting Cycle
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Classified balance sheet
The following accounts appear in an adjusted trial balance of Kangaroo Consulting. Indicate whether each account would be reported in the (A) current asset; (B) property, plant, and equipment; (C) current liability; (D) long-term liability; or (E) stockholders' equity section of the December 31, 2018, balance sheet of Kangaroo Consulting.
1. Accounts Payable
2. Accounts Receivable
3. Accumulated Depreciation-Building
4. Cash
5. Common Stock
6. Note Payable (due in ten years)
7. Supplies
8. Wages Payable
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The adjusted trial balance is an internal document and is not a financial statement which is prepared in order to match the balances of the general ledger. It is made before the preparation of financial statements by which each entry can be posted in proper statement.
The balance sheet is a statement of assets, liabilities and stockholders' equity of a company at a particular point of time.
1.Accounts payables are short term payments which the firm owes to its creditors. It includes those payments made by the firm within one year.
Therefore, it would be reported into the current liability section of the balance sheet.
2.Accounts Receivables are short-term receipts, which the firm has to receive from its debtors.
Therefore, it would be reported into current asset section of the balance sheet.
3.Accumulated depreciation on building is that amount of a building's cost that has been allocated to depreciation expense since the building was used for business purposes. It is deducted from the total amount of building and building is an asset of the company, which is recorded under property, plant and equipment.
Therefore, accumulated depreciation on building would be reported into the 'property, plant and equipment' section of the balance sheet.
4.Cash is the most liquid of all assets. It is used to purchase goods and services or to eliminate obligations.
Therefore, cash is a current asset, which will be reported into current asset section of the balance sheet.
5.Common stock refers to the security that represents ownership in a corporation. It is a part of equity capital of the firm which can never be redeemed and is lost if the firm fails in future.
Therefore, it would be reported into stockholder's equity section of balance sheet.
6.Notes payable (due in 10 years)
Notes payable refers to the general ledger account in which the firm records the face amount of the promissory notes that it has issued.If the amount due within one year then it would be recorded under current liability section of balance sheet and if the amount not due within one year or it is more than one year then it would be recorded under long-term liability section of balance sheet.
Therefore, Notes payable (due in 10 years) would be reported into long-term liability section of balance sheet.
7.
Supplies refer to the cost of consumables used within a short span of time. Unused supplies are recorded into balance sheet under current assets while used supplies are recorded into income statement as expense. Since in the question there is no option of income statement.
Therefore, the supplies would be the unused supplies, which would be reported into the current asset section of balance sheet.
8.
Wages payable refers to a current liability account which records the amount of wages that are owed to employees for the work, which was performed by them in prior periods.
Therefore, wages payable, which would be reported under current liability section of balance sheet.
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Financial statements from the end-of-period spreadsheet
Taser Consulting is a consulting firm owned and operated by Annamarie Phipps. The following end-of-period spreadsheet was prepared for the year ended October 31, 2018:
Based on the preceding spreadsheet, prepare an income statement, retained earnings statement, and balance sheet for Taser Consulting.
Based on the preceding spreadsheet, prepare an income statement, retained earnings statement, and balance sheet for Taser Consulting. Free
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Unadjusted trial balance
It is not a complete accurate trial balance. This trial balance is made to determine whether any error is there in the posting of debit and credit balances in the ledger. It only ensures that the debit side of the trial balance and the credit side is equal. It does not ensures the accuracy of trial balance for all other errors.
The income statement includes all the income and expenses that incur in period. By analyzing the trial balance given in the problem the income and expenses are recognized. Income Statement of T Consulting as on October 31, 2018 is prepared as shown below.
Retained Earnings Statement of Taser Consulting as on October 31, 2018 is prepared as it is shown below.
Balance sheet is prepared by taking the balances from the adjusted trial balance. In the present case the balances are given in the spreadsheet and the retained earning balance is taken from the statement of retained earnings. The Balance sheet of Triton Consulting as on October 30, 2018 is recorded as follows.
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What is the difference between a current liability and a long-term liability?
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A current liability is one that will be due within one year or less and that are expected to be paid out of current assets (accounts payable, notes payable). Long-term liabilities are liabilities that will not be due for a long time, usually over a year.
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Team Activity
In teams, select two public companies of different industries that interest you. Obtain each company's most recent annual report on Form 10-K. The Form 10-K is a company's annually required filing with the Securities and Exchange Commission (SEC). It includes the company's financial statements and accompanying notes. The Form 10-K can be obtained either (A) from the investor relations section of the company's Web site or (B) by using the company search feature of the SEC's EDGAR database service found at www.sec.gov/edgar/searchedgar/ companysearch.html.
Find the balance sheet for each of the two companies you have selected. Compare the balance sheets of the two companies as follows:
1. What is each company's fiscal year?
2. Which balance sheet accounts do the two companies have in common?
3. Which balance sheet accounts stand out as different between the two companies? Why do these differences exist?
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Retained earnings statement
Blake Knudson owns and operates Grab Bag Delivery Services. On January 1, 2018, Retained Earnings had a balance of $918,000. During the year, no additional common stock was issued, and $15,000 of dividends were paid. For the year ended December 31, 2018, Grab Bag Delivery reported a net loss of $43,500. Prepare a retained earnings statement for the year ended December 31, 2018.
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Sears: Current ratio
Sears Holdings Corporation is one of the largest mall-based retailers in the United States. The following year-end data were taken from a recent Sears balance sheet (in millions):
A. Compute the working capital and the current ratio as of December 31, Year 1 and Year 2. (Round to two decimal places.)
B. What conclusions concerning the company's ability to meet its short-term obligations can you draw from part (A)?
A. Compute the working capital and the current ratio as of December 31, Year 1 and Year 2. (Round to two decimal places.)
B. What conclusions concerning the company's ability to meet its short-term obligations can you draw from part (A)? Essay
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The unadjusted trial balance of PS Music as of July 31, 2018, along with the adjustment data for the two months ended July 31, 2018, are shown in Chapter 3. Based upon the adjustment data, the following adjusted trial balance was prepared:
Instructions
1. (Optional) Using the data from Chapter 3, prepare an end-of-period spreadsheet.
2. Prepare an income statement, a retained earnings statement, and a balance sheet.
3. Journalize and post the closing entries. The retained earnings account is #33 and the income summary account is #34 in the ledger of PS Music. Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry.
4. Prepare a post-closing trial balance.
Instructions
1. (Optional) Using the data from Chapter 3, prepare an end-of-period spreadsheet.
2. Prepare an income statement, a retained earnings statement, and a balance sheet.
3. Journalize and post the closing entries. The retained earnings account is #33 and the income summary account is #34 in the ledger of PS Music. Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry.
4. Prepare a post-closing trial balance. Essay
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Continuing Company Analysis-Amazon: Working capital and current ratio
Amazon.com, Inc. is the largest Internet retailer in the United States. Best Buy, Inc. is a leading retailer of technology and media products in the United States. Amazon and Best Buy compete in similar markets; however, Best Buy sells through both traditional retail stores and the Internet, while Amazon sells only through the Internet. The current assets and current liabilities from recent balance sheets for both companies are provided as follows (in millions):
A. Compute the working capital for each company.
B. Which company has the largest working capital?
C. Is working capital a good measure of relative liquidity in comparing the two companies? Explain.
D. Compute the current ratio for both companies. (Round to one decimal place.)
E. Which company has the larger relative liquidity based on the current ratio?
A. Compute the working capital for each company.
B. Which company has the largest working capital?
C. Is working capital a good measure of relative liquidity in comparing the two companies? Explain.
D. Compute the current ratio for both companies. (Round to one decimal place.)
E. Which company has the larger relative liquidity based on the current ratio? Essay
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Under Armour: Current ratio
The following year-end data were taken from recent balance sheets of Under Armour, Inc. (in millions):
A. Compute the working capital and the current ratio as of December 31, Year 2 and Year 1. (Round to one decimal place.)
B. What conclusions concerning the company's ability to meet its short-term obligations can you draw from part (A)?
A. Compute the working capital and the current ratio as of December 31, Year 2 and Year 1. (Round to one decimal place.)
B. What conclusions concerning the company's ability to meet its short-term obligations can you draw from part (A)? Essay
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Describe the nature of the assets that compose the following sections of a balance sheet: (a) current assets and (b) property, plant, and equipment.
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Financial statements and closing entries
Last Chance Company offers legal consulting advice to prison inmates. Last Chance prepared the end-of-period spreadsheet that follows at June 30, 2018, the end of the fiscal year.
Instructions
1. Prepare an income statement for the year ended June 30.
2. Prepare a retained earnings statement for the year ended June 30.
3. Prepare a balance sheet as of June 30.
4. On the basis of the end-of-period spreadsheet, journalize the closing entries.
5. Prepare a post-closing trial balance.
Instructions
1. Prepare an income statement for the year ended June 30.
2. Prepare a retained earnings statement for the year ended June 30.
3. Prepare a balance sheet as of June 30.
4. On the basis of the end-of-period spreadsheet, journalize the closing entries.
5. Prepare a post-closing trial balance. Essay
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Financial statements and closing entries
Foxy Investigative Services is an investigative services firm that is owned and operated by Shirley Vickers. On November 30, 2018, the end of the fiscal year, the accountant for Foxy Investigative Services prepared an end-of-period spreadsheet, a part of which follows:
Instructions
1. Prepare an income statement, a retained earnings statement, and a balance sheet.
2. Journalize the entries that were required to close the accounts at November 30.
3. If Retained Earnings had instead decreased $46,000 after the closing entries were posted, and the dividends remained the same, what would have been the amount of net income or net loss?
Instructions
1. Prepare an income statement, a retained earnings statement, and a balance sheet.
2. Journalize the entries that were required to close the accounts at November 30.
3. If Retained Earnings had instead decreased $46,000 after the closing entries were posted, and the dividends remained the same, what would have been the amount of net income or net loss? Essay
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Financial statements and closing entries
The Gorman Group is a financial planning services firm owned and operated by Nicole Gonnan. As of October 31, 2018, the end of the fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet, part of which follows:
Instructions
1. Prepare an income statement, a retained earnings statement, and a balance sheet.
2. Journalize the entries that were required to close the accounts at October 31.
3. If the balance of Retained Earnings had instead increased $115,000 after the closing entries were posted, and the dividends remained the same, what would have been the amount of net income or net loss?
Instructions
1. Prepare an income statement, a retained earnings statement, and a balance sheet.
2. Journalize the entries that were required to close the accounts at October 31.
3. If the balance of Retained Earnings had instead increased $115,000 after the closing entries were posted, and the dividends remained the same, what would have been the amount of net income or net loss? Essay
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Financial statements and closing entries
Lamp Light Company maintains and repairs warning lights, such as those found on radio towers and lighthouses. Lamp Light prepared the following end-of-period spreadsheet at December 31, 2018, the end of the fiscal year:
Instructions
1. Prepare an income statement for the year ended December 31.
2. Prepare a retained earnings statement for the year ended December 31.
3. Prepare a balance sheet as of December 31.
4. Based upon the end-of-period spreadsheet, journalize the closing entries.
5. Prepare a post-closing trial balance.
Instructions
1. Prepare an income statement for the year ended December 31.
2. Prepare a retained earnings statement for the year ended December 31.
3. Prepare a balance sheet as of December 31.
4. Based upon the end-of-period spreadsheet, journalize the closing entries.
5. Prepare a post-closing trial balance. Essay
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Flow of accounts into financial statements
The balances for the accounts that follow appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet. Indicate whether each account would flow into the income statement, retained earnings statement, or balance sheet.
1. Accumulated Depreciation-Building
2. Cash
3. Fees Earned
4. Insurance Expense
5. Prepaid Rent
6. Supplies
7. Dividends
8. Wages Expense
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Kelly Pitney began her consulting business, Kelly Consulting, on April 1, 2018. The accounting cycle for Kelly Consulting for April, including financial statements, was illustrated in this chapter. During May, Kelly Consulting entered into the following transactions:
Instructions
1. The chart of accounts for Kelly Consulting is shown in Exhibit 9, and the post-closing trial balance as of April 30, 2018, is shown in Exhibit 17. For each account in the post-closing trial balance, enter the balance in the appropriate Balance column of a four-column account. Date the balances May 1, 2018, and place a check mark in the Posting Reference column. Journalize each of the May transactions in a two-column journal starting on Page 5 of the journal and using Kelly Consulting's chart of accounts. (Do not insert the account numbers in the journal at this time.)
2. Post the journal to a ledger of four-column accounts.
3. Prepare an unadjusted trial balance.
4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6).
(A) Insurance expired during May is $275.
(B) Supplies on hand on May 31 are $715.
(C) Depreciation of office equipment for May is $330.
(D) Accrued receptionist salary on May 31 is $325.
(E) Rent expired during May is $1,600.
(F) Unearned fees on May 31 are $3,210.
5. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet.
6. Journalize and post the adjusting entries. Record the adjusting entries on Page 7 of the journal.
7. Prepare an adjusted trial balance.
8. Prepare an income statement, a retained earnings statement, and a balance sheet.
9. Prepare and post the closing entries. Record the closing entries on Page 8 of the journal. (Income Summary is account #34 in the chart of accounts.) Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry.
10. Prepare a post-closing trial balance.
Instructions
1. The chart of accounts for Kelly Consulting is shown in Exhibit 9, and the post-closing trial balance as of April 30, 2018, is shown in Exhibit 17. For each account in the post-closing trial balance, enter the balance in the appropriate Balance column of a four-column account. Date the balances May 1, 2018, and place a check mark in the Posting Reference column. Journalize each of the May transactions in a two-column journal starting on Page 5 of the journal and using Kelly Consulting's chart of accounts. (Do not insert the account numbers in the journal at this time.)
2. Post the journal to a ledger of four-column accounts.
3. Prepare an unadjusted trial balance.
4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6).
(A) Insurance expired during May is $275.
(B) Supplies on hand on May 31 are $715.
(C) Depreciation of office equipment for May is $330.
(D) Accrued receptionist salary on May 31 is $325.
(E) Rent expired during May is $1,600.
(F) Unearned fees on May 31 are $3,210.
5. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet.
6. Journalize and post the adjusting entries. Record the adjusting entries on Page 7 of the journal.
7. Prepare an adjusted trial balance.
8. Prepare an income statement, a retained earnings statement, and a balance sheet.
9. Prepare and post the closing entries. Record the closing entries on Page 8 of the journal. (Income Summary is account #34 in the chart of accounts.) Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry.
10. Prepare a post-closing trial balance. Essay
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Flow of accounts into financial statements
The balances for the accounts that follow appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet. Indicate whether each account would flow into the income statement, retained earnings statement, or balance sheet.
1. Accounts Payable
2. Accounts Receivable
3. Cash
4. Dividends
5. Fees Earned
6. Supplies
7. Unearned Rent
8. Utilities Expense
9. Wages Expense
10. Wages Payable
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Classifying accounts
Balances for each of the following accounts appear in an adjusted trial balance. Identify each as (A) asset, (B) liability, (C) revenue, or (D) expense.
1. Accounts Receivable
2. Equipment
3. Fees Earned
4. Insurance Expense
5. Prepaid Advertising
6. Prepaid Rent
7. Rent Revenue
8. Salary Expense
9. Salary Payable
10. Supplies
11. Supplies Expense
12. Unearned Rent
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Ethics in Action
New Wave Images is a graphics design firm that prepares its financial statements using a calendar year. Manny Kinn, the company treasurer and vice president of finance, has prepared a classified balance sheet as of December 31. In January, this balance sheet will be submitted along with an application for a loan from First Peoples Community Bank. An excerpt from the balance sheet follows:
The accounts receivable balance includes a $56,000 loan to Tom Morrow, the company president. Tom borrowed the money from New Wave 18 months earlier for a down payment on a new home. Tom has orally assured Manny that he will pay off the loan within the next year. Because Tom is the company president, Manny treats the amount due as a trade account receivable. In addition, Manny knows that the bank will consider a large balance in trade accounts receivable more favorably than a large personal loan to a single individual. Manny reported the $56,000 in the same manner on the preceding year's balance sheet.
1. Is Manny behaving ethically by reporting the loan to Tom as a trade account receivable? Why?
2. Who will be affected by Manny's decision?
The accounts receivable balance includes a $56,000 loan to Tom Morrow, the company president. Tom borrowed the money from New Wave 18 months earlier for a down payment on a new home. Tom has orally assured Manny that he will pay off the loan within the next year. Because Tom is the company president, Manny treats the amount due as a trade account receivable. In addition, Manny knows that the bank will consider a large balance in trade accounts receivable more favorably than a large personal loan to a single individual. Manny reported the $56,000 in the same manner on the preceding year's balance sheet.
1. Is Manny behaving ethically by reporting the loan to Tom as a trade account receivable? Why?
2. Who will be affected by Manny's decision? Essay
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