Preparing Financial Statements and Closing Entries of a Profitable Company
Lawn Pride, Inc., provides lawn-mowing services to both commercial and residential customers. The company performs adjusting entries on a monthly basis, whereas closing entries are prepared annually at December 31. An adjusted trial balance dated December 31,2011, follows.
LAWN PRIDE, INC. ADJUSTED TRIAL BALANCE DECEMBER 31,2011 | ||
| Debits | Credits |
Cash | $ 58,525 |
|
Accounts receivable | 4,800 |
|
Unexpired insurance | 8,000 |
|
Prepaid rent | 3,000 |
|
Supplies | 1,075 |
|
Trucks | 150,000 |
|
Accumulated depreciation: trucks |
| $120,000 |
Mowing equipment | 20,000 |
|
Accumulated depreciation: mowing equipment |
| 12,000 |
Accounts payable |
| 1,500 |
Notes payable |
| 50,000 |
Salaries payable |
| 900 |
Interest payable |
| 150 |
Income taxes payable |
| 1,050 |
Unearned mowing revenue |
| 900 |
Capital stock |
| 20,000 |
Retained earnings |
| 30,000 |
Dividends | 5,000 |
|
Mowing revenue earned |
| 170,000 |
Insurance expense | 2,400 |
|
Office rent expense | 36,000 |
|
Supplies expense | 5,200 |
|
Salary expense | 60,000 |
|
Depreciation expense: trucks | 30,000 |
|
Depreciation expense: mowing equipment | 4,000 |
|
Repair and maintenance expense | 3,000 |
|
Fuel expense | 1,500 |
|
Miscellaneous expense | 5,000 |
|
Interest expense | 3,000 |
|
Income taxes expense | 6,000 |
|
| $406,500 | $406,500 |
Instructions
a. Prepare an income statement and statement of retained earnings for the year ended December 31,2011. Also prepare the company's balance sheet dated December 31,2011.
b. Prepare the necessary year-end closing entries.
c. Prepare an after-closing trial balance.
d. Using the financial statements prepared in part a, briefly evaluate the company's profitability and liquidity.
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