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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Financial Statements Turtle Company has prepared the following adjusted Trial balance for the year ended December 31, 2019:

Chapter 3, Problem 10E, Financial Statements Turtle Company has prepared the following adjusted Trial balance for the year Required:

For 2019, prepare in proper form: (1) an income statement, (2) a retained earnings statement, (3) an ending balance sheet, and (4) closing entries.

To determine

Prepare (1) income statement, (2) a retained earnings statement, (3) an ending balance sheet, and (4) closing entries.

Explanation

Financial statements: Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making. The financial statements are balance sheet, income statement, statement of retained earnings, and the cash flow statement.

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Statement of Retained Earnings:

This is a financial statement that determines the amount of earnings kept by the business as retained earnings at the end of the financial year. This statement shows the retained earnings held by the business at the beginning and at the end of the financial year, amount of net income earned during the year and the amount of dividend declared to the shareholder for the year.

Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Closing entries: The journal entries prepared to close the temporary accounts to Retained Earnings account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Prepare financial statements and closing entries of Company T for 2019 as follows:

(1) Income statement:

Company T
Income statement
For the year ended December 31, 2019
ParticularsAmount ($)Amount ($)
Sales revenue 7,900
Less: Cost of goods sold (4,300)
    Gross profit 3,600
Less: Operating expense  
      Selling expense1,800 
      Administrative expense600(2,400)
    Income before income tax 1,200
Less: Income tax expense (1) (360)
Net income (A) 840
Number of shares (B) 400 shares
Earnings per share (AB) 2.10

Table (1)

Working note (1):

Calculate the value of income tax expense.

Income tax expense = Income before income tax × Income tax rate=$1,200×30100=$360

(2) Retained earnings statement:

Company T
Statement of retained earnings
For the year end December 31, 2019
ParticularsAmount ($)
Retained earnings on January 1, 20192,500
Add: Net income840
 3,340
Less: Dividend for 2019(200)
Retained earnings on December 31, 20193,140

Table (2)

(3) Ending balance sheet:

Company V
Balance sheet
As at December 31, 2019
AssetsAmount ($) Amount ($)
Current assets:
Cash1,700
Accounts receivable2,100
Inventory1,800
Total current assets5

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