Fundamentals of Financial Accounting: Unit 3 Assignment

Fundamentals of Financial Accounting
Unit 3 Assignment (Chapter 4)

M4-12 Reporting an Income Statement
The Sky Blue Corporation has the following adjusted trial balance at December.
Debit Credit
Cash 1,230
Accounts Receivable 2,000
Prepaid Insurance 2,300
Notes Receivable 3,000
Equipment 12,000
Accumulated Depreciation 2,600
Accounts Payable 1,600
Accrued Liabilities Payable 3,820
Wages Payable 1,000
Income Taxes Payable 2,900
Unearned Rent Revenue 600
Contributed Capital 2,400
Retained Earnings 1,000
Dividends Declared 300
Sales Revenue 42,030
Rent Revenue 300
Wages Expense 21,600
Depreciation Expense 1,300
Utilities Expense 1,220
Insurance Expense 1,400
Rent Expense 9,000
Income Tax Expense 2,900
Total $58,250 $58,250
Prepare an income statement for the year ended December 31, 2009. How much net income did the Sky Blue Corporation generate during 2009?

M4-15 Recording Closing Journal Entries
Refer to the adjusted trial balance in M4-12. Prepare closing journal entries on December 31, 2009.

E4-13 Reporting an Adjusted Income Statement
Dyer, Inc. completed its first year of operations on December 31, 2010. Because this is the end of he annual accounting period, the company bookkeeper prepared the following preliminary income statement.
Income Statement, 2010
Rental Revenue 114,000
Expenses:
Salaries and Wages Expense 28,500
Maintenance Expense 12,000
Rent Expense 9,000
Utilities Expense 4,000
Gas and Oil Expense 3,000
Other Expenses 1,000
Total Expenses 57,500
Income $56,500

You are an independent CPA hired by the company to audit the firm's accounting systems and financial statements. In your audit, you developed additional data as follows:
a. Wages for the last three days of December amounting to $310 were not recorded or paid.
b. The $400 telephone bill for December 2010 has not been recorded or paid.
c. Depreciation on rental autos, amounting to $23,000 for 2010, was not recorded.
d. Interest of $500 was not recorded on the note payable by Dyer, Inc.
e. The Rental Revenue account includes $4,000 of revenue to be earned in January 2011.
f. Maintenance supplies costing $600 were used during 2010, but this has not yet been recorded.
g. The income tax expense for 2010 is $7,000, but it won't actually be paid until 2011.

Required:
1. What adjusting journal entry for each item (a) through (g) should be recorded at December 31, 2010? If none is required, explain why.
2. Prepare, in proper form, an adjusted income statement for 2010.
3. Did the adjustments have a significant overall effect on the company's net income?
PA4-5 Comprehensive Review Problem: From Recording Transactions (Including Adjusting Journal Entries) to Preparing Financial Statements and Closing Journal Entries (Chapters 2, 3, and 4)
The Glenn Feltham and Gary Entwistle began operations of their physical therapy clinic called Northland Physical Therapy on January 1, 2005. The trial balance on January 1, 2009, was as follows (the amounts are rounded to thousands of dollars to simplify):
Account Titles Debit Credit
Cash 7
Accounts receivable 3
Supplies 3
Equipment 6
Accumulated depreciation (equipment) 1
Other assets 6
Accounts payable 5
Notes payable -
Wages payable -
Interest payable -
Income taxes payable -
Unearned revenue -
Dividends payable -
Contributed capital 15
Retained earnings 4
Dividends declared -
Service revenue -
Depreciation expense -
Income tax expense -
Interest expense -
Supplies and other operating expenses -
Totals $25 $25

Transactions during 2009 (summarized in thousands of dollars) follow:
a. Borrowed $22 cash on July 1, 2009, signing a short-term note payable.
b. Purchased equipment for $25 cash on July 1, 2009.
c. Issued additional shares of stock for $5.
d. Earned revenues for 2009, $55, including $8 on credit and $47 received in cash.
e. Recognized operating expenses for 2009, $30, including $5 on credit and $25 in cash.
f. Purchased other assets, $3 cash.
g. Collected accounts receivable, $9.
h. Paid accounts payable, $10.
i. Purchased on account supplies for future use, $7.
j. Received a $3 deposit from a hospital for a contract to start January 5, 2010.
k. Declared and paid a cash dividend, $4.

Data for adjusting journal entries:
m. Supplies of $3 were counted on December 31, 2009.
n. Depreciation for 2009, $4.
o. Accrued interest on notes payable of $1.
p. Wages earned since the December 27 payroll not yet paid, $3.
q. Income tax for 2009 was $4, and will be paid in 2010.

Required:
1. Set up T-accounts for the accounts on the trial balance and enter beginning balances.
2. Record journal entries for transactions a through l and post them to the T-accounts.
3. Prepare an unadjusted trial balance.
4. Record and post the adjusting journal entries m through q.
5. Prepare an adjusted trial balance.
6. Prepare an income statement, statement of retained earnings, and balance sheet.
7. Prepare and post the closing journal entries.
8. Prepare a post-closing trial balance.
9. How much net income did the physical therapy clinic generate during 2009? Is the business financed primarily by debt or equity?

PB4-4 Identifying and Preparing Adjusting Journal Entries
Learn to Play, Inc. is a one-person company that provides private piano lessons. Its unadjusted trial balance at December 31, 2010, follows along with information about selected accounts.
Account Names Debit Credit Further Information:
Cash 23,800 As reported on December 31 bank statement
Supplies 300 Based on count, only $200 of supplies still exist
Unearned Revenue 1,500 Of this amount, $500 was received for December lessons and $1,000 for January lessons.
Wages Payable - The employee was paid $500 for 10 days of work through December 28. She has not yet been paid for work on December 29, and 30.
Income Tax Payable - The company has paid last year's income taxes but not this year's taxes.
Interest Payable - The company has not been paid the $100 of interest owed on its note payable for the current period.
Note Payable 12,000 This one-year note was taken out this year on December 1.
Contributed Capital 1,000 This amount was contributed to the company in prior years.
Retained Earnings 3,000 This is the balance reported at the end of last year.
Lesson Revenue 25,500 Most customers pay cash for lessons each time they are provided, but some customers paid in advance.
Wages Expense 18,100 The company's employee worked through December 30, but did not work on December 31.
Supplies Expense 800 This is the cost of supplies used through November 30.
Interest Expense - The company has not paid the $100 of interest owed on its note payable for the current period.
Income Tax Expense - The company has an average tax rate of 30 percent.
Totals $43,000 $43,000

Required:
1. Calculate the (preliminary) unadjusted net income for the year ended December 31, 2010.
2. Name the five pairs of balance sheet and income statement accounts that require adjustment.
3. Calculate the desired balances for each account listed in the unadjusted trial balance.
4. Prepare the adjusted net income that the company should report for the year ended December 31, 2010. By how much did the adjustments in requirement (4) cause net income to increase or decrease?
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