Question

Financial Statements and Closing Entries

Last Chance Company offers legal consulting advice to prison inmates. Last Chance Company prepared the end-of-period spreadsheet that follows at June 30, 2019, the end of the fiscal year:

	Last Chance Company
	End-of-Period Spreadsheet
	For the Year Ended June 30, 2019
	Unadjusted						Adjusted
	Trial Balance		Adjustments				Trial Balance
Account Title	Dr.	Cr.		Dr.		Cr.	Dr.	Cr.
Cash	5,100						5,100
Accounts Receivable	22,750		(a)	3,750			26,500
Prepaid Insurance	3,600				(b)	1,300	2,300
Supplies	2,025				(c)	1,500	525
Land	80,000						80,000
Building	340,000						340,000
Accum. Depr.—Building		190,000			(d)	3,000		193,000
Equipment	140,000						140,000
Accum. Depr.—Equipment		54,450			(e)	4,550		59,000
Accounts Payable		9,750						9,750
Salaries & Wages Payable					(f)	1,900		1,900
Unearned Rent		4,500	(g)	3,000				1,500
Tami Garrigan, Capital		361,300						361,300
Tami Garrigan, Drawing	20,000						20,000
Fees Earned		280,000			(a)	3,750		283,750
Rent Revenue					(g)	3,000		3,000
Salaries & Wages Expense	145,100		(f)	1,900			147,000
Advertising Expense	86,800						86,800
Utilities Expense	30,000						30,000
Travel Expense	18,750						18,750
Depr. Exp.—Equipment			(e)	4,550			4,550
Depr. Exp.—Building			(d)	3,000			3,000
Supplies Expense			(c)	1,500			1,500
Insurance Expense			(b)	1,300			1,300
Misc. Expense	5,875						5,875
	900,000	900,000		19,000		19,000	913,200	913,200

Required:

1. Prepare an income statement for the year ended June 30.

Last Chance Company
Income Statement
For the Year Ended June 30, 2019
Revenues:
Total revenues		$
Expenses:
	$
Net loss		$

Feedback

The income statement is prepared directly from the information that would be transferred to the income statement columns of the worksheet. Expenses are typically listed in order of size and miscellaneous expense is listed last, regardless of its amount.

2. Prepare a statement of owner's equity for the year ended June 30. No additional investments were made during the year.

Last Chance Company
Statement of Owner's Equity
For the Year Ended June 30, 2019
Tami Garrigan, capital, July 1, 2018		$
	$
		$

Feedback

The statement of owner's equity shows changes in the owner's capital account such that: Ending Capital = Beginning Capital + Investments ± Net Income (Loss) - Withdrawals.

3. Prepare a balance sheet as of June 30.

Last Chance Company
Balance Sheet
June 30, 2019
Assets
Current assets:
		$
Total current assets			$
Property, plant, and equipment:
		$
	$
	$
Total property, plant, and equipment
Total assets			$
Liabilities
Current liabilities:
		$
Total liabilities			$
Owner's Equity
Total liabilities and owner's equity			$

Feedback

The balance sheet includes all accounts that would be transferred to the balance sheet columns of the worksheet, except for the capital and drawing balances. The ending capital in the balance sheet must be the same amount as that calculated in the statement of owner's equity. Make sure that the accounting equation remains in balance for this financial statement.

4. On the basis of the end-of-period spreadsheet, journalize the closing entries. For a compound transaction, if a box does not require an entry, leave it blank.

June. 30
June. 30

Feedback

In preparing closing entries, recall that (1) Difference in revenue and expense account balances are transferred to the owner’s capital account; and (2) The balance of the owner’s drawing account is transferred to the owner’s capital account.

5. Prepare a post-closing trial balance. If a box does not require an entry, leave it blank.

Last Chance Company
Post-Closing Trial Balance
June 30, 2019
	Debit Balances	Credit Balances

Answer 1

1.

Income Statement
Revenue
Fees Earned	$      283,750
Rent Revenue	$          3,000
Total Revenue		$     286,750
Expenses
Salaries & Wages Expense	$      147,000
Advertising Expense	$        86,800
Utilities Expense	$        30,000
Travel Expense	$        18,750
Depr. Exp.—Equipment	$          4,550
Depr. Exp.—Building	$          3,000
Supplies Expense	$          1,500
Insurance Expense	$          1,300
Misc. Expense	$          5,875
Total Expenses		$     298,775
Net Income / (Loss)		$      (12,025)

2.

Statement of Owner's Equity
Beginning Balance, Capital	$      361,300
Add : Net Income	$      (12,025)
	$      349,275
Less : Drawings	$        20,000
Ending Balance, Capital	$     329,275

3.

Balance Sheet
Assets
Current Assets
Cash	$          5,100
Accounts Receivable	$        26,500
Prepaid Insurance	$          2,300
Supplies	$             525
Total Current Assets		$        34,425
Property Plant and Equipment
Land	$        80,000
Building	$      340,000
Accum. Depr.—Building	$    (193,000)
Equipment	$      140,000
Accum. Depr.—Equipment	$      (59,000)
Total Property Plant and Equipment		$     308,000
Total Assets		$     342,425
Liabilities & Owner's Equity
Current Liabilities
Accounts Payable	$          9,750
Salaries & Wages Payable	$          1,900
Unearned Rent	$          1,500
Total Current Liabilities		$        13,150
Owner's Equity
Tami Garrigan, Capital	$      329,275
Total Owner's Equity		$     329,275
Total Liabilities & Owner's Equity		$     342,425

4.

Account Titles	Debit	Credit
Fees Earned	$      283,750
Rent Revenue	$          3,000
Tami Garrigan, Capital		$      286,750
Tami Garrigan, Capital	$      298,775
Salaries & Wages Expense		$      147,000
Advertising Expense		$        86,800
Utilities Expense		$        30,000
Travel Expense		$        18,750
Depr. Exp.—Equipment		$          4,550
Depr. Exp.—Building		$          3,000
Supplies Expense		$          1,500
Insurance Expense		$          1,300
Misc. Expense		$          5,875
Tami Garrigan, Capital	$        20,000
Tami Garrigan, Drawing		$        20,000

5.

Post Closing Trial
Account Title	Dr.	Cr.
Cash	$          5,100
Accounts Receivable	$        26,500
Prepaid Insurance	$          2,300
Supplies	$             525
Land	$        80,000
Building	$      340,000
Accum. Depr.—Building		$      193,000
Equipment	$      140,000
Accum. Depr.—Equipment		$        59,000
Accounts Payable		$          9,750
Salaries & Wages Payable		$          1,900
Unearned Rent		$          1,500
Tami Garrigan, Capital		$      329,275
Total	$     594,425	$     594,425

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