Question

Problem 4-2A Preparing a work sheet, adjusting and closing entries, and financial statements LO C3, P1, P2

The following unadjusted trial balance is for ACE CONSTRUCTION CO. as of the end of its 2017 fiscal year. The June 30, 2016, credit balance of the owner’s capital account was $52,300, and the owner invested $24,000 cash in the company during the 2017 fiscal year.

ACE CONSTRUCTION CO. Unadjusted Trial Balance June 30, 2017
No.	Account Title	Debit				Credit
101	Cash	$	16,000
126	Supplies		8,000
128	Prepaid insurance		6,500
167	Equipment		132,760
168	Accumulated depreciation—Equipment					$	27,500
201	Accounts payable						6,000
203	Interest payable						0
208	Rent payable						0
210	Wages payable						0
213	Property taxes payable						0
251	Long-term notes payable						24,000
301	V. Ace, Capital						76,300
302	V. Ace, Withdrawals		30,500
401	Construction fees earned						133,000
612	Depreciation expense—Equipment		0
623	Wages expense		48,000
633	Interest expense		2,640
637	Insurance expense		0
640	Rent expense		12,000
652	Supplies expense		0
683	Property taxes expense		4,800
684	Repairs expense		2,600
690	Utilities expense		3,000
	Totals	$	266,800			$	266,800

Adjustments:
  

1. The supplies available at the end of fiscal year 2017 had a cost of $2,880.
2. The cost of expired insurance for the fiscal year is $4,095.
3. Annual depreciation on equipment is $8,000.
4. The June utilities expense of $600 is not included in the unadjusted trial balance because the bill arrived after the trial balance was prepared. The $600 amount owed needs to be recorded.
5. The company’s employees have earned $1,200 of accrued wages at fiscal year-end.
6. The rent expense incurred and not yet paid or recorded at fiscal year-end is $100.
7. Additional property taxes of $600 have been assessed for this fiscal year but have not been paid or recorded in the accounts.
8. The long-term note payable bears interest at 12% per year. The unadjusted Interest Expense account equals the amount paid for the first 11 months of the 2017 fiscal year. The $240 accrued interest for June has not yet been paid or recorded. (The company is required to make a $5,500 payment toward the note payable during the 2018 fiscal year.)

Required:
1. Prepare a 10-column work sheet for fiscal year 2017, starting with the unadjusted trial balance and including adjustments based on the additional facts.
2a. Prepare the adjusting entries. (all dated June 30, 2017).
2b. Prepare the closing entries. (all dated June 30, 2017):
3a. Prepare the income statement for the year ended June 30.
3b. Prepare the statement of owner's equity for the year ended June 30.
3c. Prepare the classified balance sheet at June 30, 2017.

Answer 1

10-column work sheet for fiscal year 2017

Account code	Account	Trial balance	Adjusting entries	Adjusted trial balance	Income statement	Balance sheet
Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
101	Cash	16,000				16,000				16000
126	Supplies	8,000			5120	2,880				2880
128	Prepaid insurance	6,500			4095	2,405				2405
167	Equipment	1,32,760				1,32,760				132760
168	Accumulated depreciation—Equipment		27,500		8000		35,500				35500
201	Accounts payable		6,000		600		6,600				6600
203	Interest payable		0		240		240				240
208	Rent payable		0		100		100				100
210	Wages payable		0		1200		1,200				1200
213	Property taxes payable		0		600		600				600
251	Long-term notes payable		24,000				24,000				24000
301	V. Ace, Capital		76,300				76,300				76300
302	V. Ace, Withdrawals	30,500				30,500				30500
401	Construction fees earned		1,33,000				1,33,000		133000
612	Depreciation expense—Equipment	0		8000		8,000		8,000
623	Wages expense	48,000		1200		49,200		49,200
633	Interest expense	2,640		240		2,880		2,880
637	Insurance expense	0		4095		4,095		4,095
640	Rent expense	12,000		100		12,100		12,100
652	Supplies expense	0		5120		5,120		5,120
683	Property taxes expense	4,800		600		5,400		5,400
684	Repairs expense	2,600				2,600		2,600
690	Utilities expense	3,000		600		3,600		3,600
	Totals	2,66,800	2,66,800	19,955	19,955	2,77,540	2,77,540	92,995	1,33,000	1,84,545	1,44,540
						Net Income	40,005			40,005
								1,33,000	1,33,000	1,84,545	1,84,545

Part 2a and 2b Adjustment and closing entries

Part 3a Income Statement

Particulars	Amount ($)
Revenue
Construction fees earned	133000
Total (A)	133000
Expenses
Depreciation expense—Equipment	8,000
Wages expense	49,200
Interest expense	2,880
Insurance expense	4,095
Rent expense	12,100
Supplies expense	5,120
Property taxes expense	5,400
Repairs expense	2,600
Utilities expense	3,600
Totals (B)	92,995
Profit (A-B)	40,005

Part 3b statement of owner's equity

Particulars	Amount ($)
Opening Balance	52,300
Addition during the Year	24,000
Withdrwals during the Year	(30,500)
Profit Earned	40,005
Closing Balance	85,805

Part 3c Balance Sheet as on 30 June 2017

Particulars	Amount ($)
NON CURRENT ASSETS
Property, plant and equipment and Investment Property	97260
TOTAL NON CURRENT ASSETS	97260
CURRENT ASSETS
Inventories	2880
Other current assets	2405
Cash and cash equivalents	16000
TOTAL CURRENT ASSETS	21285
TOTAL ASSETS	118545
SHAREHOLDERS' EQUITY
Capital	85805
TOTAL SHAREHOLDERS’ EQUITY	85805
NON CURRENT LIABILITIES
Interest-bearing loans and long term borrowings	18500
TOTAL NON CURRENT LIABILITIES	18500
CURRENT LIABILITIES
Trade payables	6600
Other liabilities	7640
TOTAL CURRENT LIABILITIES	14240
TOTAL LIABILITIES	32740
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES	118545