Brokeback Towing Company is at the end of its accounting year, December 31, 2015. The followingdata that must be considered were developed from the company’s records and related documents:a. On July 1, 2015, a two-year insurance premium on equipment in the amount of $600 was paidand debited in full to Prepaid Insurance on that date. Coverage began on July 1.b. At the end of 2015, the unadjusted balance in the Supplies account was $1,000. A physicalcount of supplies on December 31, 2015, indicated supplies costing $300 were still on hand.c. On December 31, 2015, YY’s Garage completed repairs on one of Brokeback’s trucks at acost of $800. The amount is not yet recorded. It will be paid during January 2016.d. On December 31, 2015, the company completed a contract for an out-of-state company for$7,950 payable by the customer within 30 days. No cash has been collected and no journalentry has been made for this transaction.e. On July 1, 2015, the company purchased a new hauling van. Depreciation for July–December2015, estimated to total $2,750, has not been recorded.f. As of December 31, the company owes interest of $500 on a bank loan taken out on October 1, 2015. Theinterest will be paid when the loan is repaid on September 30, 2016. No interest has been recorded yet.g. Assume the income after the preceding adjustments but before income taxes was $30,000.The company’s federal income tax rate is 30%. Compute and record income tax expense.Required:1. Give the adjusting journal entry required for each item at December 31, 2015.2. If adjustments were not made each period, the financial results could be materially misstated.Determine the amount by which Brokeback’s net income would have been understated, oroverstated, had the adjustments in requirement 1 not been made
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Brokeback Towing Company is at the end of its accounting year, December 31, 2015. The following
data that must be considered were developed from the company’s records and related documents:
a. On July 1, 2015, a two-year insurance premium on equipment in the amount of $600 was paid
and debited in full to Prepaid Insurance on that date. Coverage began on July 1.
b. At the end of 2015, the unadjusted balance in the Supplies account was $1,000. A physical
count of supplies on December 31, 2015, indicated supplies costing $300 were still on hand.
c. On December 31, 2015, YY’s Garage completed repairs on one of Brokeback’s trucks at a
cost of $800. The amount is not yet recorded. It will be paid during January 2016.
d. On December 31, 2015, the company completed a contract for an out-of-state company for
$7,950 payable by the customer within 30 days. No cash has been collected and no
entry
e. On July 1, 2015, the company purchased a new hauling van.
2015, estimated to total $2,750, has not been recorded.
f. As of December 31, the company owes interest of $500 on a bank loan taken out on October 1, 2015. The
interest will be paid when the loan is repaid on September 30, 2016. No interest has been recorded yet.
g. Assume the income after the preceding adjustments but before income taxes was $30,000.
The company’s federal income tax rate is 30%. Compute and record income tax expense.
Required:
1. Give the
2. If adjustments were not made each period, the financial results could be materially misstated.
Determine the amount by which Brokeback’s net income would have been understated, or
overstated, had the adjustments in requirement 1 not been made
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