The general ledger of the Karlin Company, a consulting company, at January 1, 2021, contained the following account balances: Account Title Debits Credits Cash 29,300 Accounts receivable 17,000 Equipment 29,000 Accumulated depreciation 8,700 Salaries payable 9,500 Common stock 48,000 Retained earnings 9,100 Total 75,300 75,300 The following is a summary of the transactions for the year: Service revenue, $130,000, of which $39,000 was on account and the balance was received in cash. Collected on accounts receivable, $26,200. Issued shares of common stock in exchange for $15,000 in cash. Paid salaries, $47,500 (of which $9,500 was for salaries payable at the end of the prior year). Paid miscellaneous expense for various items, $25,600. Purchased equipment for $17,500 in cash. Paid $3,150 in cash dividends to shareholders. Accrued salaries at year-end amounted to $950. Depreciation for the year on the equipment is $2,900. Required: 2., 5, & 8. Prepare the summary, adjusting and closing entries for each of the transactions listed. 3. Post the transactions, adjusting and closing entries into the appropriate t-accounts. 4. Prepare an unadjusted trial balance. 6. Prepare an adjusted trial balance. 7-a. Prepare an income statement for 2021. 7-b. Prepare a balance sheet as of December 31, 2021. 9. Prepare a post-closing trial balance.
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.
The general ledger of the Karlin Company, a consulting company, at January 1, 2021, contained the following account balances:
| Account Title | Debits | Credits | ||
| Cash | 29,300 | |||
| 17,000 | ||||
| Equipment | 29,000 | |||
| 8,700 | ||||
| Salaries payable | 9,500 | |||
| Common stock | 48,000 | |||
| 9,100 | ||||
| Total | 75,300 | 75,300 | ||
The following is a summary of the transactions for the year:
- Service revenue, $130,000, of which $39,000 was on account and the balance was received in cash.
- Collected on accounts receivable, $26,200.
- Issued shares of common stock in exchange for $15,000 in cash.
- Paid salaries, $47,500 (of which $9,500 was for salaries payable at the end of the prior year).
- Paid miscellaneous expense for various items, $25,600.
- Purchased equipment for $17,500 in cash.
- Paid $3,150 in cash dividends to shareholders.
- Accrued salaries at year-end amounted to $950.
- Depreciation for the year on the equipment is $2,900.
Required:
2., 5, & 8. Prepare the summary, adjusting and closing entries for each of the transactions listed.
3.
4. Prepare an unadjusted
6. Prepare an adjusted trial balance.
7-a. Prepare an income statement for 2021.
7-b. Prepare a balance sheet as of December 31, 2021.
9. Prepare a post-closing trial balance.
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