Question

Please explain your answer. Thank you.

Learning Objectives 1, 3, 6 P4-30A Preparing financial statements including a classified balance sheet in report form, preparing closing entries, and using the current ratio to evaluate a company The adjusted trial balance of Boston Irrigation System at December 31, 2018, follows: 2. Ending Retained Earnings $68,200

Answer 1

BOSTON IRRIGATION SYSTEM

Income statement

December 31,2018

Service Revenue		74,500
Expenses:
Insurance expenses	1,100
Salaries expenses	16,400
Supplies expenses	1,100
Interest expense	2,200
Depreciation expense- equipment	2,500
Depreciation expense- Building	1,800
Total expenses		25,100
Net income		49,400

BOSTON IRRIGATION SYSTEM

STATEMENT OF RETAINED EARNINGS

DEC 31,2018

Retained earnings openings balance	21,000
Add: Net Income	49,400
	70,400
Less: Dividend	2,200
Retained earnings closing balance	68,200

BOSTON IRRIGATION SYSTEM

BALANCE SHEET

DECEMBER 31, 2018

Assets		Amount	Equity and liabilities
Current assets:			Current liability
Cash		11,800	Accounts Payable	32,100
Account Receivables		46,000	Interest payable	2,200
Office supplies		29,500	Salaries payable	2,600
Prepaid insurance		6,300	Unearned revenue	2,100
Total current Asstes		93,600	Total current liability	39,000
Non current Assets			Non current liabilities
Building	63,000		Notes payable( Long term)	32,700
Less: Accumulated depreciation	25,000	38,000	Stockholders equity
Equipment	28,000		Common stock	12,000
Less: Accumulated depreciation	7,700	20,300	Retained earnings	68,200
			Total stockholders equity	80,200
Total Assets		151,900		151,900

Closing journal entries

Service Revenue	74,500
Income Summary		74,500
Income Summary	25,100
Insurance expenses		1,100
Salaries expenses		16,400
Supplies expenses		1,100
Interest expense		2,200
Depreciation expense- Equipment		2,500
Depreciation expense- building		1,800
Income Summary	49,400
Retained earnings		49,400
Retained earnings	2,200
Dividend		2,200

5. Current Ratio = current Assets/ Current Liabilities

93,600/39,000=2.4 :1

Companies ability to pay current debt has been improved