Question

Economics, Inc. has started its operation in late 2016. At the beginning it was generating revenue from sales commission and after it expanded its operation by providing management services. By the end of 2017 the company has hired you as independent consultant to help with comprising final balance sheet and income statement.

Required:

1. Provide ALL adjustments by the end of 2017.
2. Fill in the worksheet.
3. Prepare closing entries, income statement, statement of retained earnings, and balance sheet for 2017.

The following information has been presented to you by the end of the year:

1. On November 01, 2017 the company paid USD 600 insurance fee for 1 year. At that time the company debited Prepaid rent account.
2. The beginning balance of office tools on December 01, 2017 were equaled to USD 720. All purchases of office tools were debited on account Expenses on office tools. The ending balance of office tools by the end of year was USD 319.
3. In January 01, 2017 the company purchased a building. The company has accrued depreciation only for first months of USD 150. The non-accrued balance of depreciation for 2017 is USD 1,650.
4. On January 01, 2017 the company also purchased an equipment for USD 5,400. The depreciation also was not recognized for 11 months of USD 495.
5. On September 2017 the company has signed contract with client for 6 month period. The client has paid this amount on September 30, 2017.
6. On November 21 the company obtained a loan from local bank of USD 3,000. The term is 3 years and interest rate 36.5%. Interest is paid every three months and accrued on 365 –daily basis.
7. On December 20 the company hired a new accountant. She worked for 20 days at rate of USD 30 per day. The salary for December will be paid in January 5, 2018.
8. In December the company also hired a new employee. His salary is comprised form sales commissions. By the end of the year he did not sell anything.
9. On December 31 the company declared dividends of USD 900.

Answer 1

CLOSING ENTRIES

S no Particulars / Explanation Debit $ Credit $

1.    Rent a/c. Dr. 100

Prepaid rent a/c. Cr. 100

(rent for nov-dec 2017 recognised as expense)

(rent for nov-dec being current year expense are debited to rent 600 X 2/12 = USD100

2. Office tools Dr. 319  

Expense on office tools Cr. 319

(expense wrongly charged now capitalised)

3. Depreciation Dr. 1,650

Provision for depreciation on building 1,650

(depreciation provided)

4. Depreciation Dr. 495

Provision for depreciation on equipment 495

(depreciation provided)

5. no amount mentioned and no mention of treatment done. If taken to revenue the same needs to be reversed to the extent of 50% (jan-mar period)

Revenue a/c. Dr. XX

Income received in advance (liability) Cr. XX

6. interest on loan Dr. 123

Acrrued interest on loan 123

(interest due on loan @36.5% for 41 days (10 days of nov plus 31 days of dec))

7. Salary a/c. Dr. 600

Outstanding salary Cr. 600

(salary for 20 days @30 per day paid on Jan 5 provided for)

8. Dividend a/c. Dr. 900

Dividend payable 900

(dividend declared)

Statement of profit and loss a/c. 900

Dividend a/c Cr 900

BALANCE SHEET AND PROFIT AND LOSS ACCOUNT - DATA INSUFFICIENT - Pl provide additional data.