Chapter 4: Q5RQ (page 216)
Why are financial statements prepared in a specific order? What is that order?
The balances of financial statement in sequence is transferred to another statement, which makes it mandatory. The sequence is income statement, statement of retained earnings and balance sheet.
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For each account listed, identify the category in which it would appear on a classified balance sheet.
7. Accumulated Depreciation—Furniture
What does the statement of retained earnings show?
On December 1, Bob Waldo began an auto repair shop, Waldo’s Quality Automotive. The following transactions occurred during December: Dec. 1 Waldo contributed \(70,000 cash to the business in exchange for shares of common stock. 1 Purchased \)12,000 of equipment paying cash. 1 Paid \(1,750 for a five-month insurance policy starting on December 1. 9 Paid \)20,000 cash to purchase land to be used in operations. 10 Purchased office supplies on account, \(2,800. 19 Borrowed \)15,000 from the bank for business use. Waldo signed a note payable to the bank in the name of the corporation. The note is due in five years. 22 Paid \(1,300 for advertising expenses. 26 Paid \)900 on account. 28 The business received a bill for utilities to be paid in January, \(280. 31 Revenues earned during the month included \)16,000 cash and \(3,600 on account. 31 Paid employees’ salaries \)3,800 and building rent \(1,200. Record as a compound entry. 31 The business received \)1,440 for auto screening services to be performed next month. 31 Paid cash dividends of \(5,500 to stockholders. The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid Insurance; Land; Equipment; Accumulated Depreciation—Equipment; Accounts Payable; Utilities Payable; Interest Payable; Unearned Revenue; Notes Payable; Common Stock; Retained Earnings; Dividends; Income Summary; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense; Advertising Expense; Supplies Expense; Insurance Expense; Interest Expense; and Depreciation Expense—Equipment. Adjustment data: a. Office Supplies used during the month, \)1,800. b. Depreciation for the month, \(200. c. One month insurance has expired. d. Accrued Interest Expense, \)75. Requirements 1. Prepare the journal entries, and post to the T-accounts. 2. Prepare an unadjusted trial balance. 3. Complete the worksheet for the month ended December 31, 2018 (optional). 4. Prepare the adjusting entries, and post to the T-accounts. 5. Prepare an adjusted trial balance.6. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in report form. 7. Prepare the closing entries, and post to the T-accounts. 8. Prepare a post-closing trial balance.
E4-20 Preparing financial statements from the completed worksheet Use your answer from Exercise E4-19 to prepare Data Solution’s financial statements. Requirements 1. Complete the income statement for the month ended November 30, 2018. 2. Complete the statement of retained earnings for the month ended November 30, 2018. Assume beginning Retained Earnings was $0. 3. Complete the classified balance sheet as of November 30, 2018. Use the report form.
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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