On December 31, 2021, Alan and Company prepared an income statement and balance sheet but failed to take into account four adjusting journal entries. The income statement, prepared on this incorrect basis, reported income before income tax of $32,000. The balance sheet (before the effect of income taxes) reflected total assets, $94,000; total liabilities, $42,000; and stockholders' equity, $52,000. The data for the four adjusting journal entries follow: a. Amortization of $8,400 for the year on software was not recorded. b. Salaries and Wages amounting to $17,400 for the last three days of December 2021 were not paid and not recorded (the next payroll will be on January 10, 2022). c. Rent revenue of $5,400 was collected on December 1, 2021, for office space for the three-month period December 1, 2021, to February 28, 2022. The $5,400 was credited in full to Deferred Revenue when collected. d. Income taxes were not recorded and not paid. The income tax rate for the company is 25%. Required: Complete the following table to show the effects of the four adjusting journal entries. (Negative amounts should be indicated by a minus sign.) Items Net Income Total Assets Total Liabilities Stockholders' Equity $ Amounts reported 32,000 $ 52,000 a. Effect of amortization b. Effect of salaries and wages c. Effect of rent revenue Adjusted balances 8,000 28,000 d. Effect of income tax Correct amounts $ 94,000 $ 85,600 42,000 57,600
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.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
