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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Financial statements and closing entries

Lamp Light Company maintains and repairs warning lights, such as those found on radio towers and lighthouses. Lamp Light Company prepared the following end-of-period spreadsheet at December 31, 2016, the end of the fiscal year:

Chapter 4, Problem 4.1APR, Financial statements and closing entries Lamp Light Company maintains and repairs warning lights,

Instructions

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

2. Prepare a statement of owner's equity for the year ended December 31. No additional investments were made during the year.

3. Prepare a balance sheet as of December 31.

4. Based upon the end-of-period spreadsheet, journalize the closing entries.

5. Prepare a post-closing trial balance.

(1)

To determine

Financial statement

A financial statement is the complete record of financial transactions that take place in a company at a particular point of time. It provides important financial information like assets, liabilities, revenues and expenses of the company to its internal and external users. It helps them to know the exact financial position of the company. There are four basic financial statements; they are:

  • Balance Sheet
  • Income statement
  • Owners’ equity statement
  • Statement of cash flows

Closing entries:

Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts. It is passed at the end of the accounting period, to transfer the final balance.

Post-Closing Trial Balance:

After passing all the journal entries and the closing entries of the permanent accounts and then further posting them to each of the respective accounts, a post-closing trial balance is prepared which consists of a list of all the permanent accounts. A post-closing trial balance serves as an evidence to prove that the balance of the permanent accounts is equal.

To Prepare: An income statement for the year ended December 31, 2016.

Explanation

An income statement for the year ended December 31, 2016 is as follows:

Company L
Income Statement
For the year ended December 31, 2016
Particulars Amount ($) Amount ($)
Revenues:    
    Fees Earned 375,000
    Rent revenue 1,300 376,300
Expenses:    
     Salaries Wages Expense 168,000  
     Advertising Expense 21,700

(2)

To determine

To Prepare: The statement of owners’ equity for the year ended December 31, 2016.

(3)

To determine

To Prepare: The balance sheet of Company L at December 31, 2016.

(4)

To determine

To Journalize: The closing entries for L Company.

(5)

To determine

To prepare: A post–closing trial balance of Company L for the month ended December 31, 2016.

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