Chapter 4: Q4RQ (page 216)
What does the balance sheet report?
Balance sheet reports the assets, liabilities and stockholders’ equity as at the end of the accounting period.
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Kathy Wintz formed a lawn service business as a summer job. To start the corporationon May 1, 2018, she deposited \(1,000 in a new bank account in the name of the business. The \)1,000 consisted of a \(600 loan from Bank One to her company, Wintz Lawn Service, and \)400 of her own money. The company issued \(400 of common stock to Wintz. Wintz rented lawn equipment, purchased supplies, and hired other students to mow and trim customers’ lawns.
At the end of each month, Wintz mailed bills to the customers. On August 31, she was ready to dissolve the corporation and return to college. Because she was so busy, she kept few records other than the checkbook and a list of receivables from customers.
At August 31, the business’s checkbook shows a balance of \)2,000, and customers still owe \(750. During the summer, the business collected \)5,500 from customers. The business checkbook lists payments for supplies totaling \(400, and it still has gasoline, weed trimmer cord, and other supplies that cost a total of \)50.
The business paid employees \(1,800 and still owes them \)300 for the final week of the summer. Wintz rented some equipment from Ludwig’s Machine Shop. On May 1, the business signed a six-month rental agreement on mowers and paid \(600 for the full rental period in advance. Ludwig’s will refund the unused portion of the prepayment if the equipment is returned in good shape. In order to get the refund, Wintz has kept the mowers in excellent condition. In fact, the business had to pay \)300 to repair a mower.To transport employees and equipment to jobs, Wintz used a trailer that the business bought for \(300. The business estimates that the summer’s work used up one-third of the trailer’s service potential. The business checkbook lists a payment of \)500 for cash dividends paid during the summer. The business paid the loan back during August. (For simplicity, ignore any interest expense associated with the loan.)
Requirements
1. As a team, prepare the income statement and the statement of retained earnings of Wintz Lawn Service for the four months May 1 through August 31, 2018.
2. Prepare the classified balance sheet (report form) of Wintz Lawn Service at August 31, 2018.
3. Was Wintz’s summer work successful? Give your team’s reason for your answer.
Why are financial statements prepared in a specific order? What is that order?
For each account listed, identify whether the account would be included on a post-closing trial balance. Signify either Yes (Y) or No (N). a. Office Supplies b. Interest Expense c. Retained Earnings d. Dividends e. Service Revenue f. Accumulated Depreciation—Furniture g. Rent Expense h. Unearned Revenue i. Accounts Payable
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)
column.
10. Cash
This problem continues the Canyon Canoe Company situation from Chapter 3.
Requirements
1. Complete the worksheet at December 31, 2018 (optional). Use the unadjusted trial balance from Chapter 2 and the adjusting entries from Chapter 3.
2. Prepare an income statement for the two months ended December 31, 2018. Use the worksheet prepared in Requirement 1 or the adjusted trial balance from Chapter 3.
3. Prepare a statement of retained earnings for the two months ended December 31, 2018.
4. Prepare a classified balance sheet (report form) at December 31, 2018. Assume the note payable is long-term.
5. Journalize and post the closing entries at December 31, 2018. Open T-accounts for Income Summary and Retained earnings. Determine the ending balance for each account. Denote each closing amount as Clos.and each account balance as Balance.
6. Prepare a post-closing trial balance at December 31, 2018.
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