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Chapter 4: Q36PSB (page 237)

The adjusted trial balance of Bradley Irrigation System at December 31, 2018, follows: BRADLEY IRRIGATION SYSTEM Adjusted Trial Balance December 31, 2018 Account Title Office Supplies Cash Debit Credit Accounts Receivable Prepaid Insurance Building Accumulated Depreciation鈥擝uilding Equipment Accumulated Depreciation鈥擡quipment Accounts Payable Interest Payable Salaries Payable Unearned Revenue Notes Payable (long-term) Common Stock Dividends Retained Earnings Service Revenue Insurance Expense Salaries Expense Supplies Expense Balance \( 12,000 \) 202,100 \( 202,100 21,000 \) 25,300 57,300 40,700 3,500 2,000 1,800 13,000 51,000 28,300 4,700 6,800 21,000 3,200 56,000 32,000 1,200 16,200 1,400 2,000 1,200 2,600 Interest Expense Depreciation Expense鈥擝uilding Depreciation Expense鈥擡quipment Total Requirements 1. Prepare the company鈥檚 income statement for the year ended December 31, 2018. 2. Prepare the company鈥檚 statement of retained earnings for the year ended December 31, 2018. 3. Prepare the company鈥檚 classified balance sheet in report form at December 31, 2018. 4. Journalize the closing entries for Bradley Irrigation System. 5. Compute the company鈥檚 current ratio at December 31, 2018. At December 31, 2017, the current ratio was 1.7. Did the company鈥檚 ability to pay current debts improve or deteriorate, or did it remain the same?

Short Answer

Expert verified

(1) In income statement, net income is $31,400.

(2) In statement of retained earnings, ending balance is $60,200.

(3) In balance sheet, total assets and total liabilities & stockholders鈥� equity equals $142,200.

(4) Closing entries are mentioned in Step 4.

(5) Current ratio is 2. The ability to repay current liabilities has improved, as current ratio is higher in current year.

Step by step solution

01

Step-by-Step-SolutionStep 1: Income Statement

(1) Income statement is shown as follows:

BRADLEY IRRIGATION SYSTEM
Income Statement
Year Ended December 31, 2018

Revenues

Service Revenue

$56,000

Expenses

Insurance Expense

$1,200

Salaries Expense

16,200

Supplies Expense

1,400

Interest Expense

2,000

Depreciation Expense鈥擝uilding

1,200

Depreciation Expense鈥擡quipment

2,600

Total Expenses

24,600

Net Income

$31,400

02

Statement of Retained Earnings

(2) Statement of retained earnings is shown as follows:

BRADLEY IRRIGATION SYSTEM
Statement of Retained Earnings
Year Ended December 31, 2018

Retained Earnings, Beginning Balance

$32,000

Net Income for the year

31,400

63,400

Dividends

(3,200)

Retained Earnings, November 30, 2018

$60,200

03

Classified Balance Sheet

(3) Balance Sheet is shown as follows:

BRADLEY IRRIGATION SYSTEM
Balance Sheet
December 31, 2018
Assets

Current Assets:

Cash

$12,000

Accounts Receivable

51,000

Office Supplies

28,300

Prepaid Insurance

4,700

Total Current Assets

$96,000

Property, Plant, and Equipment:

Building

$57,300

Less: Accumulated Depreciation- Building

(25,300)

32,000

Equipment

21,000

Less: Accumulated Depreciation- Equipment

(6,800)

14,200

Total Property, Plant, and Equipment:

46,200

Total Assets



$142,200

Liabilities

Current Liabilities:


Accounts Payable

40,700

Interest Payable

2,000

Salaries Payable

3,500

Unearned revenue

1,800

Total Current Liabilities:

$48,000

Long-term Liabilities

Notes Payable

21,000

Total Liabilities



69,000

Stockholders鈥� Equity

Common Stock


13,000

Retained Earnings



60,200

Total Stockholders鈥� Equity



73,200

Total Liabilities and Stockholders鈥� Equity



$142,200

04

Closing entries for the period

(4) Closing entries are as follows:

Date

Accounts and Explanation

Debit

Credit

Dec. 31

Service Revenue

$56,000

Income Summary

$56,000

To close revenue.

Dec. 31

Income Summary

$24,600

Insurance Expense

$1,200

Salaries Expense

$16,200

Supplies Expense

$1,400

Interest Expense

$2,000

Depreciation Expense鈥擡quipment

$1,200

Depreciation Expense鈥擝uilding

$2,600

To close expenses.

Dec. 31

Income Summary

$31,400

Retained Earnings

$31,400

To close Income Summary

Dec. 31

Retained Earnings

$21,000

Dividends

$21,000

To close Dividends

05

Calculation of Current Ratio

(5) Current ratio is calculated as follows:

CurrentRatio=CurrentAssetsCurrentLiabilities=$96,000$48,000=2

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Most popular questions from this chapter

On December 1, Curt Wilson began an auto repair shop, Wilson鈥檚 Quality Automotive. The following transactions occurred during December: Dec. 1 Wilson contributed \(63,000 cash to the business in exchange for shares of common stock. 1 Purchased \)14,400 of equipment paying cash. 1 Paid \(3,600 for a twelve-month insurance policy starting on December 1. 9 Paid \)15,000 cash to purchase land to be used in operations. 10 Purchased office supplies on account, \(2,200. 19 Borrowed \)24,000 from the bank for business use. Wilson signed a notes payable to the bank in the name of the corporation. The note is due in five years. 22 Paid \(2,000 for advertising expenses. 26 Paid \)1,000 on account. 28 The business received a bill for utilities to be paid in January, \(260. 31 Revenues earned during the month included \)18,500 cash and \(3,800 on account. 31 Paid employees鈥� salaries \)3,900 and building rent \(800. Record as a compound entry. 31 The business received \)1,380 for auto screening services to be performed next month. 31 Paid cash dividends of \(5,000 to stockholders. The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid Insurance; Land; Equipment; Accumulated Depreciation鈥擡quipment; Accounts Payable; Utilities Payable; Interest Payable; Unearned Revenue; Notes Payable; Common Stock; Retained Earnings; Dividends; Income Summary; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense; Advertising Expense; Supplies Expense; Insurance Expense; Interest Expense; and Depreciation Expense鈥擡quipment. Adjustment data: a. Office Supplies used during the month, \)600. b. Depreciation for the month, \(240. c. One month insurance has expired. d. Accrued Interest Expense, \)120. 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.

What types of accounts are listed on the post-closing trial balance?

The following balances appear on the books of Sarah Simmons Enterprises: Retained Earnings, \(29,600; Dividends, \)10,500; Income Summary, \(0; Service Revenue, \)24,500; Salaries Expense, \(6,200; Rent Expense, \)3,500; and Advertising Expense, $2,000. All accounts have normal balances. Requirements 1. Open a T-account for each account, and insert its adjusted balance as given (denote as Adj. Bal.) at December 31. 2. Post the closing entries to the accounts, denoting posted amounts as Clos. 3. Compute the ending balance of Retained Earnings.

Refer to the Practice Set data provided in Chapters 2 and 3 for Crystal Clear Cleaning.

Requirements

1. Prepare a worksheet (optional) at November 30, 2018. Use the unadjusted trial balance from Chapter 2 and the adjusting entries from Chapter 3.

2. Prepare an income statement and statement of retained earnings for the month ended November 30, 2018. Also prepare a classified balance sheet at November 30, 2018, using the report format. Assume the Notes Payable is long-term. Use the worksheet prepared in Requirement 1 or the adjusted trial balance from Chapter 3.

3. Prepare closing entries at November 30, 2018, and post to the accounts. Open T-accounts for Income Summary and Retained earnings. Determine the ending balance in each account. Denote each closing amount as Clos. and each account balance as Balance.

4. Prepare a post-closing trial balance at November 30, 2018.

End of the Line Montana Refrigeration has these account balances at December 31, 2018: Notes Payable, long-term \( 9,200 Accounts Payable \) 3,600 Prepaid Rent 2,500 Accounts Receivable 6,600 Salaries Payable 2,600 Cash 3,500 Service Revenue 15,600 Depreciation Expense鈥擡quip. 400 Office Supplies 1,300 Equipment 24,000 Accumulated Depreciation鈥擡quip. 4,000 Common Stock 6,000 Advertising Expense 900 Rent Expense 1,800 Requirements 1. Calculate End of the Line Montana Refrigeration鈥檚 current ratio. 2. How much in current assets does End of the Line Montana Refrigeration have for every dollar of current liabilities that it owes?
See all solutions

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