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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 Mackenzie Inc. uses a perpetual inventory system and has prepared the following adjusted trial balance on December 31, 2019:

Chapter 3, Problem 8P, Financial Statements Mackenzie Inc. uses a perpetual inventory system and has prepared the following

Required:

Prepare in proper form for 2019 the company’s: (1) income statement, (2) retained earnings statement, (3) ending balance sheet, and (4) closing entries in its general journal.

To determine

Prepare the following:

1) Income statement

2) Retained earnings statement

3) Ending balance sheet and

4) Closing entries in its general journal

Explanation

Financial statements: Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making.

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.

1) Prepare an income statement for the year ended December 31, 2019.

Incorporation M
Income statement
For the Year Ended December 31, 2019
ParticularsAmount($)Amount($)
Sales revenue$30,900 
Less: Cost of goods sold($15,040) 
Gross profit $15,860
Less: Operating expenses:  
Selling expenses($4,800) 
Administrative expenses($3,000) 
Total operating expense ($7,800)
Other Items:  
Rent revenue$1,440 
Interest expense($750)$690
Income before income taxes $8,750
Less: Income tax expense ($2,625)
Net income (A) $6,125
 Number of shares (B) 1,500 Shares
Earnings per share (AB) $4.08

Table (1)

2) Prepare a statement of retained earnings for the year ended December 31, 2019.

Incorporation M
Statement of Retained Earnings
For the Year Ended December 31, 2019
ParticularsAmount ($)Amount ($)
Retained earnings, January 1, 2019$6,770 
Add: Net income$6,125 
Subtotal $12,895
Less: Dividends ($1,200)
Retained earnings at December  31, 2019 $11,695

Table (2)

3) Prepare an ending balance sheet as of December 31, 2019.

Incorporation M
Balance Sheet
As at December 31, 2019
Assets
Current assets:Amount ($)Amount ($)
Cash $2,000
Accounts receivable$2,700 
Less: Allowance for doubtful accounts($250)$2,450
Inventory $6,500
Prepaid insurance $800
Total current assets (a) $11,750
Property, plant and equipment:  
Land$5,200
Building and equipment$31,000 
Less: Accumulated depreciation($15,000)$16,000
Net property, plant and equipment (b) $21,200
Total assets

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