Fundamentals of Financial Accounting: Comprehensive Problem: PA4-5 Glenn Feltham and Gary Entwistle

Fundamentals of Financial Accounting
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, 2006, was as follows (the amounts are rounded to thousands of dollars to simplify):
chapter 4 Adjustments, Financial Statements, and the Quality of Financial Reporting
Account No. Account Titles Debit Credit
01 Cash 7
02 Accounts receivable 3
03 Supplies 3
04 Equipment 6
05 Accumulated depreciation (equipment) 1
06 Other assets 6
11 accounts payable 5
12 Notes payable
13 Wages payable
14 Interest payable
15 Income taxes payable
16 Unearned revenue
17 Dividends payable
21 Contributed capital 15
31 Retained earnings 4
32 Dividends declared
35 Service revenue
40 Depreciation expense
41 Income tax expense
42 Interest expense
43 Supplies and other operating expenses ___ ___
Totals 25 25

Transactions during 2006 (summarized in thousands of dollars) follow:
a. Borrowed $22 cash on July 1, 2006, signing a short-term note payable.
b. Purchased equipment for $20 cash on July 1, 2006.
c. Issued additional shares of stock for $5.
d. Earned revenues for 2006, $55, including $8 on credit and $47 received in cash.
e. Recognized operating expenses for 2006, $30, including $5 on credit and $25 in cash.
f. Purchased other assets, $3 cash.
g. Collected accounts receivable, $9.
h. Paid accounts payable, $7.
i. Purchased on account supplies for future use, $8.
j. Received a $3 deposit from a hospital for a contract to start January 5, 2007.
k. Declared a dividend, $4.
l. Paid the $4 dividend in cash.
Data for adjusting journal entries:
m. Supplies of $4 were counted on December 31, 2006.
n. Depreciation for 2006, $5.
o. Accrued interest on notes payable of $1.
p. Wages earned since the December 27 payroll not yet paid, $2.
q. Income tax for 2006 was $4, and will be paid in 2007.

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 2006? Is the business financed primarily by debt or equity?
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