1. For Computing Retained Earnings , we first prepare Balance Sheet with items in the trial balance given in the question. The balance is of course, retained earnings. It is prepared as follows:
Equties and Liabilities | Assets | ||
Current Liabilities | Non- current assets | ||
Wages Payable | 5820 | Land | 490000 |
Accounts Payable | 77095 | Barns and Sheds | 78300 |
Property Taxes Payable | 9135 | Citrus trees | 76650 |
Total Current Liabilities | 92050 | Fences and gates | 33570 |
Irrigation System | 20125 | ||
Notes Payable | 330000 | Farm Machinery | 42970 |
Total Liabilities (A) | 422050 | Total Non current Assets ( C) | 741615 |
Equity | Current Assets | ||
Capital Stock | 290000 | Accounts Receivable | 22365 |
Retained Earnings (ie Balancing Figure) | 189420 | Cash | 16710 |
Total equity (B) | 479420 | Live stock | 120780 |
Total Current Assets (D) | 159855 | ||
Total (A+B) | 901470 | Total Assets (C + D) | 901470 |
2. Since the barn was destroyed and has out of insurance cover, its a total loss. Hence, to reflect this in books , we have to pass following journal entry:
Retained Earnings a/c Dr | 14000 | |
To Barn and Sheds a/c | 14000 |
So, Overall Equity and Assets will be balanced.
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