Concept explainers
1.
Introduction:
The income statement contains revenues and expense items and is prepared to determine the net income.
Statement of retained earnings is a part of total
The balance sheet houses all the assets and liabilities starting with the most liquid to non-liquid assets and liabilities. The asset total must tally with the total of liabilities and equity.
To Prepare:
The income statement, statement of retained earnings and the balance sheet for the year ended December 31, 2019, of TC company.
1.
Explanation of Solution
The income statement is prepared as follows:
TC Income Statement For the Year Ended December 31, 2019 | ||
Particular | Amount | Amount |
Revenue: | ||
Professional fees earned | $97,000 | |
Rent income | $14,000 | |
Interest income | $2,100 | |
Dividend income | $2,000 | |
Total revenue | 115,100 | |
Expenses: | ||
$11,000 | ||
Depreciation expense − Equipment | $6,000 | |
Interest expense | $5,100 | |
Wages Expenses | $32,000 | |
Insurance Expenses | $10,000 | |
Rent Expenses | $13,400 | |
Supplies Expenses | $7,400 | |
Postage Expenses | $4,200 | |
Property Taxes Expense | $5,000 | |
Repairs Expense | $8,900 | |
Telephone Expenses | $3,200 | |
Utilities Expense | $4,600 | |
Total expenses | $110,800 | |
Net Income | $4,300 |
The retained earnings statement is prepared as follows:
TC Statement of Retained Earnings For the Year Ended December 31, 2019 | ||
Particular | Amount | |
Balance, January 1 | $121,400 | |
Add: net income | $4,300 | |
Less: dividends paid | ($13,000) | |
Balance, December 31 | $112,700 |
The balance sheet is prepared as follows:
TC Balance Sheet As of December 31, 2019 | ||
Particular | Amount | Amount |
Assets: | ||
Current Assets: | ||
Cash | $5,000 | |
Short-term Investments | $23,000 | |
Supplies | $8,100 | |
Prepaid Insurance | $7,000 | |
Total Current Assets | $43,100 | |
Non-current Assets: | ||
Land | $55,000 | |
Building | $150,000 | |
Less: | $50,000 | |
Building, Net | $100,000 | |
Equipment | $40,000 | |
Less: Accumulated Depreciation | $20,000 | |
Equipment, Net | $20,000 | |
Total Non-current Assets | $175,000 | |
Total Assets | $218,100 | |
Liabilities and Equity: | ||
Current Liabilities: | ||
Accounts Payable | $16,500 | |
Interest Payable | $2,500 | |
Rent Payable | $3,500 | |
Wages Payable | $2,500 | |
Property Taxes Payable | $900 | |
Unearned Professional Fees | $7,500 | |
Long-term Notes Payable - Current Portion | $7,000 | |
Total Current Liabilities | $40,400 | |
Non-current Liabilities | ||
Long-term Notes Payable | $60,000 | |
Total Non-current Liabilities | $60,000 | |
Total Liabilities | $100,400 | |
Equity: | ||
Common Stock | $5,000 | |
Retained Earnings | $112,700 | |
Total Equity | $117,700 | |
Total Liabilities & Equity | $218,100 |
2.
Introduction:
As the revenue and expense accounts should not have the ending balances, they should be transferred to the temporary account called income summary to determine the net results. Finally, the net result is transferred to retained earnings. If there is profit, the retained earnings go up and if there is a loss, then the retained earnings go down.
To Prepare:
Closing entries as of December 31, 2019 for TC Company.
2.
Explanation of Solution
Journal | ||||
Date | Account Titles & Explanations | Account No. | Debit | Credit |
2019 | ||||
31-Dec | Professional fees earned | 401 | $97,000 | |
Rent earned | 406 | $14,000 | ||
Dividends earned | 407 | $2,000 | ||
Interest earned | 409 | $2,100 | ||
Income summary | $115,100 | |||
(To close the revenue accounts) | ||||
31-Dec | Income summary | $110,800 | ||
Depreciation expense-Building | 606 | $11,000 | ||
Depreciation expense-Equipment | 612 | $6,000 | ||
Wages expenses | 623 | $32,000 | ||
Interest expense | 633 | $5,100 | ||
Insurance expense | 637 | $10,000 | ||
Rent expense | 640 | $13,400 | ||
Supplies expense | 652 | $7,400 | ||
Postage expense | 682 | $4,200 | ||
Property taxes expense | 683 | $5,000 | ||
Repairs Expense | 684 | $8,900 | ||
Telephone expense | 688 | $3,200 | ||
Utilities expense | 690 | $4,600 | ||
(To close the expense accounts) | ||||
31-Dec | Income summary | $4,300 | ||
Retained earnings | 318 | $4,300 | ||
(To close the income summary account) | ||||
31-Dec | Retained earnings | 318 | $13,000 | |
Dividends | 319 | $13,000 | ||
(To close the dividends paid) |
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Chapter 3 Solutions
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