Chapter 4: Q2RQ (page 216)
What does the income statement report?
Income statement report revenues, expenses of the entity for the period, and calculates net income or net loss for the period.
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Grant Film Productions wishes to expand and has borrowed \(100,000. As a condition for making this loan, the bank requires that the business maintain a current ratio of at least 1.50. Business has been good but not great. Expansion costs have brought the current ratio down to 1.40 on December 15. Rita Grant, owner of the business, is considering what might happen if she reports a current ratio of 1.40 to the bank. One course of action for Grant is to record in December \)10,000 of revenue that the business will earn in January of next year. The contract for this job has been signed. Requirements 1. Journalize the revenue transaction, and indicate how recording this revenue in December would affect the current ratio. 2. Discuss whether it is ethical to record the revenue transaction in December. Identify the accounting principle relevant to this situation, and give the reasons underlying your conclusion.
For each account listed, identify whether the account would appear on the post-closing trial balance. Indicate either yes or no.
17. Service Revenue
For each account listed, identify whether the account would appear in either the income statement section or the balance sheet section of the worksheet. Assuming normal balances, identify if the account would be recorded in the debit (DR) or credit (CR)
The unadjusted trial balance of Farish Investment Advisers at December 31, 2018, follows: Adjustment data at December 31, 2018: a. Unearned Revenue earned during the year, \(800. b. Office Supplies on hand, \)4,500. c. Depreciation for the year, \(4,500. d. Accrued Salaries Expense, \)5,000. e. Accrued Service Revenue, \(6,500. Requirements 1. Prepare a worksheet for Farish Investment Advisers at December 31, 2018. 2. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in account format. 3. Prepare closing entries. Account Title Office Supplies Cash Debit Credit Accounts Receivable Equipment Accumulated Depreciation—Equipment Accounts Payable Salaries Payable Unearned Revenue Common Stock Notes Payable (long-term) Dividends Service Revenue Insurance Expense Salaries Expense Supplies Expense Interest Expense Rent Expense Balance \) 30,000 \( 198,000 \) 198,000 5,500 $ 9,000 13,000 27,000 21,000 93,000 Retained Earnings 29,500 29,000 2,500 40,000 5,500 5,000 51,000 7,000 28,000 Depreciation Expense—Equipment Total FARISH INVESTMENT ADVISERS Unadjusted Trial Balance December 31, 2018
For each account listed, identify the category in which it would appear on a classified balance sheet.
4. Office Supplies
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