Mr. and Mrs. Patel, local golf stars, opened the Patel Chip‐Shot Driving Range Company on March 1, 2020. They invested $25,000 cash and received common stock in exchange for their investment. A caddy shack was constructed for cash at a cost of $8,000, and $800 was spent on golf balls and golf clubs. The Patels leased five acres of land at a cost of $1,000 per month and paid the first month's rent. During the first month, advertising costs totaled $750, of which $150 was unpaid at March 31, and $400 was paid to members of the high‐school golf team for retrieving golf balls. All revenues from customers were deposited in the company's bank account. On March 15, the Patels received a dividend of $1,000. A $100 utility bill was received on March 31 but was not paid. On March 31, the balance in the company's bank account was $18,900. The Patels thought they had a pretty good first month of operations. But, their estimates of profitability ranged from a loss of $6,100 to a net income of $2,450. a. How could the Patels have concluded that the business operated at a loss of $6,100? Was this a valid basis on which to determine net income? b. How could the Patels have concluded that the business operated at a net income of $2,450? (Hint: Prepare a balance sheet at March 31.) Was this a valid basis on which to determine net income? c. Determine the actual net income for March. d. What was the revenue recognized in March? (Need to show all computation)
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Mr. and Mrs. Patel, local golf stars, opened the Patel Chip‐Shot Driving Range Company on March 1, 2020. They invested $25,000 cash and received common stock in exchange for their investment. A caddy shack was constructed for cash at a cost of $8,000, and $800 was spent on golf balls and golf clubs. The Patels leased five acres of land at a cost of $1,000 per month and paid the first month's rent. During the first month, advertising costs totaled $750, of which $150 was unpaid at March 31, and $400 was paid to members of the high‐school golf team for retrieving golf balls. All revenues from customers were deposited in the company's bank account. On March 15, the Patels received a dividend of $1,000. A $100 utility bill was received on March 31 but was not paid. On March 31, the balance in the company's bank account was $18,900.
The Patels thought they had a pretty good first month of operations. But, their estimates of profitability ranged from a loss of $6,100 to a net income of $2,450.
a. How could the Patels have concluded that the business operated at a loss of $6,100? Was this a valid basis on which to determine net income?
b. How could the Patels have concluded that the business operated at a net income of $2,450? (Hint: Prepare a balance sheet at March 31.) Was this a valid basis on which to determine net income?
c. Determine the actual net income for March.
d. What was the revenue recognized in March?
(Need to show all computation)
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