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I need help with this scenario please:

Directions:

After the success of the company's first two months, K. Wilson continues to operate Business Solutions. The December 31, adjusted trial balance of Business Solutions follows:

Account Title Credit $ 8,000 7,500 3,000 172,000 Office supplies Trucks $ 36,000 Accounts payable Interest payable Long-term notes payable K Wilson, Capital K. Wilson, Withdrawals 2,000 4,000 53,000 175,000 20,000 30,000 Depreciation expense Trucks Salaries expense Office supplies expense Repairs expense-Trucks 61,000 8,000 2,000 $410,000 $410,000

  1. Prepare an income statement for the month ended December 31.
  2. Prepare a statement of owner's equity for the month ended December 31. (Note: The company just began operations on January 1)
  3. Prepare a balance sheet as of December 31.
  4. Record and post the necessary closing entries for Business Solutions. Then prepare a post-closing trial balance as of December 31.
  5. Based on your knowledge of GAAP, evaluate the financial statements you have prepared. How do you think the business is doing in its first year of operations? Would you invest in this business? Why or Why not?

Business Solutions

Income Statement

For Year Ended December 31

Business Solutions

Statement of Owner’s Equity

For Year Ended December 31

Business Solutions

Balance Sheet

For Year Ended December 31



Closing Entries:

Date

Account

Debit

Credit

Business Solutions

Post Closing Trial Balance

December 31
business   accounting   
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Answer #1

Hi

Let me know in case any issue and query:

Naming convention is not available, can be slightly different: Solution: 1) Income Statement Trucking fees earned Less: Expenses: Depreciation Expense Trucks Salaries Expense Office supplies expense Repair expense Trucks Total Expenses Net Income 130000 $23,500 $61,000 8,000 $12,000 104500 25,500 2) Statement of Owners Equi K. Wilson, Capital, Beginning Add: 175000 $ 25,500 200500 20000 180500 Net Income During the period Less: K. Wilson, withdrawals K. Wilson, Capital, Ending

3) Balance Sheet Assets: Cash Accounts Receivable Office supplies Trucks Less: Accumulated depreciation Trucks Land Total Assets Liabilities: Accounts Payable Interest Payable Long term notes payable Total Liabilities Owners Equity: K. Wilson, Capital, ending Total Liabilities and Owner Equity $ 8,000 $ 17,500 $3,000 172000 -36000 136000 $ 85,000 249500 $ 12,000 $ 4,000 $ 53,000 $ 69,000 180500 249500

4) Closing - Journal entries Date Account title and explaination Trucking fees earned Income Summary To close revenue account) Debit Credit Dec.31 130000 130000 Dec.31 Income Summary 104500 Depreciation Expense Trucks Salaries Expense Office supplies expense Repair expense Trucks To close expense account) 23500 61000 8000 12000 Dec.31Income Summary (130000-104500) 25500 K. Wilson, Capital To close the income summary account to capital account) 25500 Dec.31 K. Wilson, Capital 20000 K. Wilson, Withdrawals 20000 To close the withdrawal account to capital account)

5) Post Closing Trail balance Debit 8000 17500 3000 172000 Credit Cash Accounts Receivable Office supplies Trucks Accumulated Depreciation Trucks Land Accounts Payable Interest Payable Long term notes payable K. Wilson, Capital Total 36000 85000 12000 4000 53000 180500 285500 (175000+25500-20000 285500 6) Analysis: Business is doing very well even in the first year Reasons: a) b) Net Margin ratio is (25500/130000)- Debt in the balance sheet is significantly lower than Capital 19.6% we should partially invest in the company, although it is the first year. As margins are good and debt-equity ratio is lower. But the investment can be fully invested after reviewing the performance of business in the coming periods. Yes

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