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Chapter 4: Q18E (page 222)

The adjusted trial balance of Melanie O鈥橫allie Dance Studio Company follows:MELANIE O'MALLIE DANCE STUDIO COMPANY Trial Balance August 31, 2018 Account Title Prepaid Rent Cash Debit Credit Office Supplies Equipment Accumulated Depreciation鈥擡quipment Accounts Payable Salaries Payable Unearned Revenue Notes Payable (long-term) Dividends Common Stock Retained Earnings Service Revenue Salaries Expense Rent Expense Depreciation Expense鈥擡quipment Supplies Expense Utilities Expense Balance \( 16,000 \) 76,100 \( 76,100 100 \) 5,700 4,800 49,000 5,400 18,100 5,000 18,000 19,000 1,100 1,100 3,600 1,800 1,500 500 400 1,100 Requirements 1. Prepare the classified balance sheet of Melanie O鈥橫allie Dance Studio Company at August 31, 2018. Use the report form. You must compute the ending balance of Retained Earnings. 2. Compute O鈥橫allie鈥檚 current ratio at August 31, 2018. One year ago, the current ratio was 1.76. Indicate whether O鈥橫allie鈥檚 ability to pay current debts has improved, deteriorated, or remained the same.

Short Answer

Expert verified

(1) Balance Sheet is shown as follows:

MELANIE O'MALLIE DANCE STUDIO COMPANY

Balance Sheet

August 31, 2018

Assets

Current Assets:

Cash

$16,000

Office Supplies

1,800

Prepaid Rent

1,500

Total Current Assets

$19,300

Property, Plant, and Equipment:

Equipment

$49,000

Less: Accumulated Depreciation- Equipment

(5,700)

43,300

Total Property, Plant, and Equipment:

43,300

Total Assets

$62,600

Liabilities

Current Liabilities:

Accounts Payable

$4,800

Salaries Payable

100

Unearned Revenue

5,000

Total Current Liabilities:

$9,900

Long term Liabilities

Notes Payable

5,400

Total Long-term Liabilities

5,400

Total Liabilities

$15,300

Stockholders鈥� Equity

Common Stock

18,000

Retained Earnings

29,300

Total Stockholders鈥� Equity

47,300

Total Liabilities and Stockholders鈥� Equity

$62,600

(2) Current ratio has improved, as it gets increased from 1.76 times to 1.95 times.

Step by step solution

01

Calculation of Net Income

Net income is calculated as follows

NetIncome=ServiceRevenue-SalariesExpense-RentExpense-DepreciationExpense-SuppliesExpense-UtilitiesExpense=$18,100-$3,600-$1,100-$400-$500-$1,100=$11,400

02

Calculation of Ending Balance of Retained Earnings

Statement of retained earnings is shown as follows:

MELANIE O'MALLIE DANCE STUDIO COMPANY

Statement of Retained Earnings

Year Ended August 31, 2018

Retained Earnings, Beginning Balance

$19,000

Net income for the year

11,400

30,400

Dividends

(1,100)

Retained Earnings, Ending Balance

$29,300

03

Calculation of Current Ratio

Current ratio is calculated as follows:

CurrentRatio=CurrentAssetsCurrentLiabilities=$19,300$9,900=1.95

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Most popular questions from this chapter

This comprehensive problem is a continuation of Comprehensive Problem 1. Murphy Delivery Service has completed closing entries and the accounting cycle for 2018. The business is now ready to record January 2019 transactions. Jan. 3 Collected \(200 cash from customer on account. 5 Purchased office supplies on account, \)1,000. 12 Performed delivery services for a customer and received \(3,000 cash. 15 Paid employee salary, including the amount owed on December 31, \)4,100. 18 Performed delivery services on account, \(1,350. 20 Paid \)300 on account. 24 Purchased fuel for the truck, paying \(200 cash. 27 Completed the remaining work due for Unearned Revenue. 28 Paid office rent, \)2,200, for the month of January. 30 Collected \(3,000 in advance for delivery service to be performed later. 31 Cash dividends of \)1,500 were paid to stockholders. Requirements 1. Record each January transaction in the journal. Explanations are not required. 2. Post the transactions in the T-accounts. Don鈥檛 forget to use the December 31, 2018, ending balances as appropriate. 3. Prepare an unadjusted trial balance as of January 31, 2019. 4. Prepare a worksheet as of January 31, 2019 (optional). 5. Journalize the adjusting entries using the following adjustment data and also by reviewing the journal entries prepared in Requirement 1. Post adjusting entries to the T-accounts. CHAPTER 4 246 chapter 4 Adjustment data: a. Office Supplies on hand, \(600. b. Accrued Service Revenue, \)1,800. c. Accrued Salaries Expense, $500. d. Prepaid Insurance for the month has expired. e. Depreciation was recorded on the truck for the month. 6. Prepare an adjusted trial balance as of January 31, 2019. 7. Prepare Murphy Delivery Service鈥檚 income statement and statement of retained earnings for the month ended January 31, 2019, and the classified balance sheet on that date. On the income statement, list expenses in decreasing order by amount鈥攖hat is, the largest expense first, the smallest expense last. 8. Calculate the following ratios as of January 31, 2019, for Murphy Delivery Service: return on assets, debt ratio, and current ratio.

What are reversing entries? Are they required by GAAP?

For each account listed, identify whether the account is a temporary account (T) or a permanent account (P). a. Rent Expense b. Prepaid Rent c. Equipment d. Common Stock e. Salaries Payable f. Dividends g. Service Revenue h. Supplies Expense i. Office Supplies.

On December 1, Bob Waldo began an auto repair shop, Waldo鈥檚 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 \(3,600 on account. 31 Paid employees鈥� salaries \)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 \(5,500 to stockholders. The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid Insurance; Land; Equipment; Accumulated Depreciation鈥擡quipment; Accounts Payable; Utilities Payable; Interest Payable; Unearned Revenue; Notes Payable; Common Stock; Retained Earnings; Dividends; Income Summary; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense; Advertising Expense; Supplies Expense; Insurance Expense; Interest Expense; and Depreciation Expense鈥擡quipment. Adjustment data: a. Office Supplies used during the month, \)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.

A partial worksheet for Aaron Adjusters is presented below. Solve for the missing information. J K L M 33 34 35 \( 61,400 (g) (d) \) 22,400 (b) (e) (a) (f) Debit Credit Debit Credit Income Statement Balance Sheet Net (c) Total $ 61,400.
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