Question

The following unadjusted trial balance is taken from the ledger of Tim’s Top Business Services on 30 June 2019.

Account	Debit			Credit
Cash at bank Accounts receivable Prepaid insurance Equipment Accumulated depreciation – equipment Accounts payable Tim Wang, Capital Tim Wang, Drawings Service revenue Wages expense Electricity expense Sundry expense		$48 000 74 000 24 000 130 000 50 000 130 000 54 000   26 000			$60 000 64 000 72 000 340 000
		$536 000			$536 000

Additional information is also available on 30 June 2019:

• Accrued wages, $20 000.
• Expired insurance, $14 000.
• Depreciation on equipment, $50 000.

Required:

1. Provide adjusting and closing journal entries in the general journal; (10 Marks)

2. Prepare an Income Statement for the year ended 30 June 2019;

3. Prepare a Statement of Changes in Equity for the year ended 30 June 2019; (4 Marks)

4. Prepare a Balance Sheet as at 30 June 2019. (8 Marks)

Answer 1

Requirement 1:

ADJUSTING ENTRIES
Date	Account Titles and Explanation	Debit	Credit
June 30, 2019	Wages expense	$ 20,000
	Wages payable		$ 20,000
	[To record accrued wages]
June 30, 2019	Insurance expense	$ 14,000
	Prepaid insurance		$ 14,000
	[To record insurance expense]
June 30, 2019	Depreciation expense	$ 50,000
	Accumulated depreciation		$ 50,000
	[To record accumulated depreciation]

CLOSING ENTRIES
Date	Account Titles and Explanation	Debit	Credit
June 30, 2019	Service revenue	$ 340,000
	Income summary		$ 340,000
	[To close revenue accounts]
June 30, 2019	Income summary account	$ 294,000
	Wages expense		$ 150,000
	Electricity expense		$ 54,000
	Sundry expense		$ 26,000
	Insurance expense		$ 14,000
	Depreciation expense		$ 50,000
	[To close expenses accounts]
June 30, 2019	Income summary [340,000 - 294,000]	$ 46,000
	Tim Wang, Capital		$ 46,000
	[To close income summary account]
June 30, 2019	Tim Wang, Capital	$ 50,000
	Tim Wang, Drawings		$ 50,000
	[To close Tim Wang Drawings]

Calculations:

Adjusted trial balance
Account	Debit	Credit
Cash at bank	$ 48,000
Accounts Receivable	$ 74,000
Prepaid Insurance	$ 10,000
Equipment	$ 130,000
Accumulated depreciation-equipement		$ 110,000
Accounts payable		$ 64,000
Wages payable		$ 20,000
Tim Wang, Capital		$ 72,000
Tim Wnag, Drawings	$ 50,000
Service revenue		$ 340,000
Wages expense	$ 150,000
Electricity expense	$ 54,000
Sundry expense	$ 26,000
Insurance expense	$ 14,000
Depreciation expense	$ 50,000
Total	$ 606,000	$ 606,000

Requirement 2:

Income statement
For the year ended 30 June 2019
Revenues:
Service revenue		$ 340,000
Expenses:
Wages expense	$ 150,000
Electricity expense	$ 54,000
Sundry expense	$ 26,000
Insurance expense	$ 14,000
Depreciation expense	$ 50,000
Total expenses		$ 294,000
Net income		$ 46,000

Requirement 3:

Statement of changes in equity
For the year ended 30 June 2019
Tim Wang, Capital	$ 72,000
Add: Net income	$ 46,000
Less: Drawings	$ 50,000
Total equity		$ 68,000

Requirement 4:

Balance sheet
At June 30, 2019
Assets			Liabilities
Current assets:			Current liabilities:
Cash at bank	$ 48,000		Accounts payable	$ 64,000
Accounts Receivable	$ 74,000		Wages payable	$ 20,000
Prepaid Insurance	$ 10,000		Total liabilities		$ 84,000
Total current assets		$ 132,000
Property, plant and equipment:			Tim Wang, Equity
Equipment	$ 130,000		Equity		$ 68,000
Less: Accumulated depreciation-equipment	$ 110,000
Total property, plant and equipment		$ 20,000
Total Assets		$ 152,000	Total liabilities and stockholders' equity		$ 152,000