Question

ADJUSTING & CLOSING PROCESS XYZ Company began operations in 2019 and entered into the following transactions during the year: May 1: Sold common stock to owners for $200,000 cash. June 1: Purchased equipment for $75,000 cash. The equipment was assigned a life of eight years and a residual value of $3,000. July 10: Purchased inventory costing $40,000 on account. August 1: Purchased a 3-year insurance policy for $36,000 cash. September 1: Received $12,000 cash from a customer for services to be performed over the next ten months. October 1: Lent a customer $24,000 on a 9-month, 10% note receivable. October 12: Sold the inventory purchased on July 10 for $80,000. The customer paid on October 12 and agreed to pay the other within 90 days. of the bill November 9: Received a partial payment of $15,000 from the customer who purchased the inventory on October 12. December 31: Salaries earned by employees during the year that have been paid totaled $15,000. Salaries eamed by employees during the year that have not yet been paid totaled $7,000. December 31: Recorded all necessary adjusting entries. (1) Calculate the following financial statement amounts: iii. iv. V. net income for 2019 total assets at December 31, 2019 total current assets at December 31, 2019 total liabilities at December 31, 2019 total equity at December 31, 2019 (2) Write the necessary closing entries at December 31, 2019

Answer 1

Answer: (1)

Calculation of the Financial Statement amounts:

(i) Net Income for 2019 : $25350

(ii) Total Assets at December 31, 2019: $ 232350

(iii) Total Current assets at December 31,2019: $126600

(iv) Total Liabilities at December 31,2019: $232350

(v) Total Equity at December 31,2019: $225350

Working Notes:

a) For calculation of Net Income:

Particulars	Amount ($)	Particulars	Amount ($)
Purchase of Inventory	40000	Sales	80000
Depreciation on Equipment*	5250	Other Income	12000
Salaries : $15000 Add:Outstanding Salary:$7000	22000	Interest on Loan*	600
NET INCOME	25350
	92600		92600

* Calculation of Depreciation and Interest on Loan:

Depreciation:

Equipment value = $75000, Residual Value = $3000, Life of assets = 8 years

Date of purchase =  June 1, Hence from June 1 till 31st December its 7 months

Formula Used:

Equipmentualue - residualvalue Lifeof years

Hence:

75000 -3000、

which results in $ 5250

Interest On Loan:

Lent on Oct 1, therefore till December 31,2019 its 3 months

= $ 600

24000 + 10 +3. 12*100

(b) For Assets and Liabilities:

Liabilities	Amount($)	Particulars	Amount ($)
Equity capital: $200000		Fixed Assets:
Add: Net Income: $ 25350	225350	Equipment: $75000
Current Liabilities:		Less: Depreciation: $5250	69750
Outstanding Salaries	7000	Long Term Investments	36000
		Current Assets, Loans & Advances
		Cash (12000+40000+15000)	67000
		Debtors	25000
		Stock	10000
		Lend to Customer: $24000 Add: Interest : $600	24600
Total	232350	Total	232350

2. Closing Entries at Dec 31, 2019:

S.no	Particulars	Debit ($)	Credit($)
1)	Closing Stock A/c Dr to Purchase A/c	10000	10000
2)	Customer A/c Dr to Interest received on Loan	600	600
3)	Customer A/c Dr To Sales A/c	25000	25000
4)	Salary A/c Dr To Outstanding salary A/c	7000	7000
5)	Profit & Loss A/c Dr To Capital A/c	25350	25350