Question

Pastina Company sells various types of pasta to grocery chains as private label brands. The company's reporting year-end is December 31. The unadjusted trial balance as of December 31, 2021, appears below. Credits Debits 33,800 41,800 2,400 61,800 21,800 1,800 7,800 87,200 32,700 32,800 © 51,800 Account Title Cash Accounts receivable Supplies Inventory Notes receivable Interest receivable Prepaid rent Prepaid insurance Office equipment Accumulated depreciation Accounts payable Salaries payable Notes payable Interest payable Deferred sales revenue Common stock Retained earnings Dividends Sales revenue Interest revenue Cost of goods sold Salaries expense Rent expense Depreciation expense Interest expense Supplies expense Insurance expense Advertising expense Totals 2,900 72,600 33,000 5,800 155,000 79,000 19,800 11,900 @ 2,000 0 3,900 380,800 380,800 Information necessary to prepare the year-end adjusting entries appears below.

1. Depreciation on the office equipment for the year is $10,900.
2. Employee salaries are paid twice a month, on the 22nd for salaries earned from the 1st through the 15th, and on the 7th of the following month for salaries earned from the 16th through the end of the month. Salaries earned from December 16 through December 31, 2021, were $1,200.
3. On October 1, 2021, Pastina borrowed $51,800 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.
4. On March 1, 2021, the company lent a supplier $21,800 and a note was signed requiring principal and interest at 8% to be paid on February 28, 2022.
5. On April 1, 2021, the company paid an insurance company $7,800 for a one-year fire insurance policy. The entire $7,800 was debited to prepaid insurance.
6. $740 of supplies remained on hand at December 31, 2021.
7. A customer paid Pastina $2,900 in December for 1,200 pounds of spaghetti to be delivered in January 2022. Pastina credited deferred sales revenue.
8. On December 1, 2021, $1,800 rent was paid to the owner of the building. The payment represented rent for December 2021 and January 2022 at $900 per month. The entire amount was debited to prepaid rent.

Prepare an income statement and a statement of shareholders’ equity for the year ended December 31, 2021, and a classified balance sheet as of December 31, 2021. Assume that no common stock was issued during the year and that $5,800 in cash dividends were paid to shareholders during the year.

Answer 1

Pastina Company
Adjustment Journal Entries as at Dec 2021
Date	Particulars	Debit	Credit
31-12-21	Depreciation	10900
	Accumulated Depreciation		10900
31-12-21	Salaries	1200
	Salary Payable		1200
01-10-21	Interest Expense	1554
	Interest Payable		1554
31-12-21	Interest Receivable	1453
	To Interest Revenue		1453
31-12-21	Insurance	5850
	Prepaid Insurance		5850
31-12-21	Rent	900
	Prepaid Rent		900

Pastina Company
Income Statement as at December 2021
Particulars		$	$
Sales Revenue			155000
Interest Revenue			1453
Total Income(a)			156453
Cost of sales		79000
Salary expenses	19800
Add Salary payable	1200	21000
Rent Expense	11900
Add Dec Rent	900	12800
Depreciation		10900
Interest Expenses		1554
Supplies expense		2000
Insurance expense		5850
Advertising Expenses		3900
Total Expenses(b)			137004
Net Profit(a-b)			19449

Statement of Shareholders Equity as at Dec 2021

Common Stock		72600
Retained Earnings	33000
Add Current year profit	19449
Less Dividends	5800	46649
Shareholders Equity		119249