Question

Exercise 5.3

Wilderness Guide Services, Inc., performs adjusting entries every month, but closes its accounts only at year-end. The company's year-end adjusted trial balance dated December 31, current year, is as follows.

1 company appear to be liquid? Defend your answer. Has the company been profitable in the past? Explain. e December 31, current year. c. L05-1, L05-2, L05-6 EXERCISE 5.3 Financial Statement Preparation Wilderness Guide Services, Inc., performs adiusting entries every month, but closes its accounts only at year-end. The company's vear-end le company's year-end adjusted trial balance dated December 31, current year, is as follows. $ 12.200 31,000 7.900 2.400 70,000 WILDERNESS GUIDE SERVICES, INC. ADJUSTED TRIAL BALANCE DECEMBER 31, CURRENT YEAR Cash................ Accounts receivable... Camping supplies Unexpired insurance policies ........... Equipment ..... Accumulated depreciation: equipment.... Notes payable (due 4/1/next year)..... Accounts payable ..... Capital stock. ...... Retained earnings.............. ... Dividends ......................... Guide revenue earned........................ Salary expense .................... Camping supply expense ........... Insurance expense. Depreciation expense: equipment..... Interest expense.... $ 60,000 18,000 9,500 25,000 15,000 1,000 102,000 87,500 1,200 9,600 5,000 1.700 $229,500 $229,500 a. Prepare an income statement and statement of retained earnings for the year ended December 31, current year. Also prepare the company's balance sheet dated December 31, current year, (Hint: Unprofitable companies have no income taxes expense.) b. Does the company appear to be liquid? Defend your answer. c. Has the company been profitable in the past? Explain.

a. Prepare an income statement and statement of retained earnings for the year ended December 31, current year. Also prepare the company's balance sheet dated December 31, current year.

b. Does the company appear to be liquid? Defend your answer.

c. Has the company been profitable in the past? Explain.

Answer 1

Wilderness Guide Services Inc. State,ment of Income For the Current Year December 31 Revenues : Guide revenue earned 102000 Expenses : Salary expense Camping supply expense Insurance expense Depreciation expense: equipment Interest expense Net Loss 87500 1200 9600 5000 1700 105000 -3000 Statement of Retained Earnings For the Current Year December 31 Beginning Balance Add:Net Income 15000 -3000 12000 1000 11000 Less:Dividends Ending Balance

Amounts in $ Amounts in $ Balance sheet As at December 31 Assets Current Assets Cash Accounts Receivable Camping Supplies Unexpired Insurance Policies Amounts in $ Amounts in $ Liabilities Current Liabilities 12200 Notes Payable 31000 Accounts Payable 7900 2400 53500 18000 9500 27500 Non Current Assets Equipment Less: Accumulated depreciatio Total Assets 70000 -60000 Shareholders Equity Common Stock 10000 Retained Earnings 63500 Total Liabilities & Equity 25000 11000 36000 63500 b. Does the company appear to be liquid? Yes c. Has the company been profitable in the past? Yes The company appears to be liquid. Cash and accounts receivable comprise 68% of the company's total assets. These highly liquid assets total $43,200, in comparison to $27,500 in liabilities coming due in the near future. However, given that its equipment is nearly fully depreciated, it may have to invest in new equipment shortly.