Closing Entries of a Proftable Company 104 losing Enties of en Unprofitable Company ta Aiter-Closing Tiial Balance 05 Profitabilty and Liquidity Measures 108 ‘Chapter S The Accounting Cycle: Reporting Financial Resuits BRIEF EXERCISE 5.5 The following account halances were taken from Cal Tour Corporation's yearend adjusted trial balance (assume these are the company’s only temporary accounts) Olidends $600 Sorvice revenue 19,800 Supplies excense 525 ent expanse 3,669 Depreciation expanse: equiament 11200 Solaries expanse 12700 Income taxes expense 615 Prepare the company's necessary closing entries, BRIEF EXERCISE 5.6 The following account balances were taken fom Jashobson Consulting's year-end adjusted tial balance (assume these are the company’s only temporary accounts) Consulting oes earned $26,000 Interest revenue 300) Insurance expense 1.200 en! expanse 10,800 Depreciation expense: aioe equipmont ; 5,600 Salaries expense 18.400 Dividends “400 Prepare the company’s nevessary closing entries BRIEF EXERCISE 6.7 {ndicato whether each of the following accounts appears in the debit column or in the credit coluenn of an afterclosing wal balance, Use the symbols D for debit col ‘umn, € for etedit coluran, aad N if the account does nor appear in an after-cfosing trial balance, Income Summary (of a profitable company) Depreciation Expense: Orfice Equipment Income Taxes Payabie Unexpired Insurance Dividends Retained Earnings Dividends Payable fa. Unearned Service Revenue , Accumulated Depreciation: Office Equipment & Land . Consulting Fees Earned @. Share Capital £ z he BRIEF EXERCISE 5.8 Dog Daze Limited has provided the following information from its most current Financial statements: Tota revenue Total expensos Total current assats ‘otal current fabitias “otal shareholders’ aquily. 1 January 2013, “etal sharenolders' aquiy, 31 Dacember 2013 ‘8. Compute the company’s profit percentage in 2013, 1b. Compute the company’s return on equity in 2013, ‘¢. Compute the company’s current ratio at 31 December 2013.228 Fiera Satemant Preparation oe t08 Fnac Statement Proparaton 108 Chapter 5 The Accounting Cycle: Regortng Financial Results| EXERCISE 5.2 Tutors for Rent Limited performs adjusting entries every month, but closes its ‘accounts only at year-end, The company’s year-end adjusted trial balance dated 31 December 2013, was: eek ed ed Eonar ‘cach § 91,100 ‘Accounts receivable 4500 Supplies ‘200 Equipment 42,000 ‘Accumulated depreciation: equipment 8 5000 Accounts payable 1500 Income taxes payable 3.800, ‘Share capital... -..-. 25,000 Retained earings 45,000, Divdenas 2.000 “Tutoring raverue earned 95,000 Salary axpense ‘Supply expense ‘Adverosing expense Depreciation expense: equipment Income tex0s expense a. Prepare an income statement and statement of changes in equity for the year ended 31 December 2013. Also prepare the company’s statement of financial position dated 31 December 2013 Does the company appear to be liquid? Defend your answer, Has the company been profitable in the past? Explai EXERCISE 5.3 Wilderness Guide Services Limited performs adjusting entries every month, but closes its accounts only at year-end The company’s yearend adjusted irial balance dated. 31 December 2013, follows WILDERNESS GUIDE SERVICES. eens erence 4 cash $ 12,200 4 Accaunts rivals 31,000 | Camping suppis. ‘ 7.900 | Unexpired insurance policies 2.400 Equipment : 70,000 Accumulated depreciation: equipment $ 40,000 Notes payable (due 1/4/t4) 18.000, Accounts peyabee 9.500 ‘Share capil 7 25,000 Fizined aarnings oon 15,000 Dividends - 4,000 Guide reverie eaimed 102,000 Salary expense 87.500 Camping supply axponce. 1,200 Insurance expense ‘ 9.800 | Depreciation expense: equipment... 5,000 4 Interest expense. 1.700 4 $9500 SIO ‘a, Prepare an income statement and statement of changes in equity for the year ended 31 December 2013, Also prepare the company’s statement of financial position dated ‘31 December 2013. (Hint: Unprofitable companies have no income taxes expense.) bb. Does the company appear to be liquid? Defend your answer, +ias the company been profitable in the past? Explain,chapter The Accounting Cyete: Reporting Financial Resuts EXERCISE 5.4 Refer to the adjusted tral balance of Tutors for Rent Limited, illustrated in Exercise 5.2 10 respond tothe following items: ‘a. Prepare all necessary closing entries at 31 December 2013. 1b, Prepare an after-closing trial balance dated 31 December 2013, Compare the Retained Earnings balance reported in the after-closing trial balance prepared in part b to the balance reposted in the adjusted wal balance. Explain why the two balances ae different, (Include in your explanation why the balance reported in the after-cosing trial balance has increased or decreased subsequent to the closing process.) EXERCISE 5.5 trated in Exercise 5. a, Prepare all necessary closing entries at 31 December 2013, bb. Prepare an after-closing trial balance dated 31 December 2013 Compare the Retained Eamings balance reported inthe after-closing triat balance prepared in part b to she balance reported in the adjusted tial balance. Explain why the two balances ce different, (Include in your explanation why the balance reported in the after-closing tril ‘balance has increased or decreased subsequent to the closing process.) fer to the adjusted tril balance of Wildemess Guide Services Limited, illus- to respond tothe following items: EXERCISE 5.6 The following information was taken directly from the footnotes fo the finan- cial statements of Cathay Pacific: 1. "Passenger and cargo sales are recognized as revenue wien the transportation service is provided.” 2. “The value of unflown passenger and cargo sales is recorded as unearned transportation revenue.” 3, “Replacement spares and labor costs for maintenance and averbaul of aircraft are charged to the profit and Joss on consumption and as incurred respectively 4, “Fined assets are stated at cost less accumulated depreciation and impairment, Depreciation of fixed assets is calculated using the straight-line method to write down cost over anticipated useful lives to estimated residual value...” fa, Discuss what is meant by each of the above footnote items b. As noted, Cathay Pacific uses an Unearned Transportation Revenue account to record ‘unflown passenger and cargo sales. Assuae that you purchased a US$S00 ticket from Cathay Pacific as for a flight three months in advance. Prepare the journal entries made by Cathay Pacific ta record (1) your purchase of the US8S00 air ticket and (2) the use of the ai eke by yourself when you use the ticket after three month. Discuss how the matching principle relates 1o Cathay Pacific's treatment of labor costs, EXERCISE 5.7. Gerces Peychological Services Limited closes its temporary accounts once exch year on 31 December, The company recently issued the following income statement as part of its ‘annnal repost Cee een eat Income Statement Cetera Revenue: Counseling reverve $228,000 Expenses: ‘Advertsing expense 8 1.800 Saari expense ‘94.000 Otfcs eupeties expense 1200 Unites expense ‘350 Malpractice insurance axanse 6.000 Offce ent expanse. 24,000 Continuing education expence 2.650 Depreciation expense: fntures 4500, Miscellaneous exoense 6.000, Income taxes expense 29400 _170.400 Proftfor the year catement of changes in equity indicates thats $6,000 cash dividend was declared and paid during 2013. fa, Prepare the necessary closing entries on 31 December 2013, D. If the firm's Retained Earnings account hed a $92,000 balance on 1 January 2013, at what amount should Retained Eamings be reposted in the Finn's statement of financial position dated 31 December 2013? 228 Preparing Closing Entries and ‘an After-Closing Trial Balance 102, Log 05, Preparing Closing Entries anc ‘an After Closing Trial Balance 02, Log 05 Adequate Disclosure 03 CGloging Entree of @ Profitable Company 102, toachapters The Accourting Oye: Reporing Financial Resuls bb From the adjasied trial halance prepared in part a, prepare an income statement and statement ‘of changes in equity for the year ended 31 December 2013. Also prepare the company's statement of nancial postion dated 31 December 2013, ce. Prepare the necessary year-end closing entries, 4. Prepare an after-losing tial balance, fe. Compute the company’s average monthly insurance expense for January and 2013. £. Compute the company’s average monthly rent expense for January through September of 2013, g. Ifthe company purchased all ofits office equipment when it first incorporated, for how long, bas it been in business asst 31 December 20137 eaary of Problem 5.6A Brushstroke Art Studio Limited provides quality instruction to aspiring artists. ‘The business adjusts its accounts monthly, lat performs closing entries annually on 31 December. ‘This isthe suudio’s unadjusted tial balance dated 34 December 2013, Se eat ued Peed pees ey Debits Crosite cash 8 22,380 (Glient foes receivable 71,250 Suppies 6.000 Prepaié studio rent 2.500 Studo equipment 96,000 ‘Acoumulates doprediatin:stuslo equipment $ 52,000 ‘Accounts payable 6420 Note payabie 24.000 Interest payatie 480 Unearned clont fees 8,000, Income taxes payable 5,000 Shere capital 50,000 Retarnes earrings 20,000 Gient oes earnec 82,310 Supplies expense Salary expense Interest expense, ‘Studio rent expense tities exoense Depreciation expensa’stuco equipmont Income taxos expence SBR Other Data 1. Supplies on hand at 31 December 2013, total $1,000. 2. ‘The studio pays rent quarterly (every three months), The last payment was made 1 November 2013, The next payment will be made early in February 2014, 3. Studio equipment is being depreciated over 120 months (10 years) Short Comprehensive Problem Including Both Adjusting and Coosing Entries Ut, 02, t03, Los, 106Short Comprehensive Problem Including Adusting Entries Closing Entries, are Worksheet Preparation 0a Evaluating Prottabilty and Liquidity 08 Chapter 5 The Accounting Cycle: Reporting Financial Results 4. On 1 October 2013, the studio borrowed $24,000 by signing a 12-month, 12 percent note payable, The entire amount, plus interes, is due on 30 September 2014, 5. At 31 December 2013, $3,000 of previously unearned client fees had been earned. 6 Accrued, but unrecorded and uncollected client fees earned total $690 at 31 December 2013. 7. Accrued, but unrecorded and unpaid salary expense totals $750 at 31 December 2013. 8. Accrued income taxes expense for the entire year ending 31 December 2013, total $7,000. ‘The full amount is due early in 2014. Instructions a. Prepare the necessary adjusting joumal entries on 31 December 2013, Prepare also an adjusted rial balance dated 31 December 2013, From the adjusted tal balance prepared in pasta, prepare an income statement and statement ‘of changes in equity for the year ended 31 December 2013. Also prepare the company’s statement of financial position dated 31 December 2013, Prepare the necessary year-end closing entries, @. Prepare an after-losing trial balance. Has the studio's monthly rent remained the same throughout the year? IF not, hs it gone up oF down? Explain Problem 5.7A Refer to the Demonstration Problem illustrated in the previous chapter on pages 165-168. Prepare a 10-column worksheet for Intemet Consulting Service Limited dated 31 December 2013. At the bottom of your worksheet, prepare a brief explanation Keyed to exch adjusting entry. Problem 5.8A A recent annual report issued by Capcom Co. Ltd. revealed the following date End Beginning ofveer ‘of Yeat Current asses ¥76.8bllion _¥78.0bilion Current taities ¥31.9billon ¥29.3billon Equty ¥68.7 billion ¥66.0bilion The company’s income statement reported total annual revenne of ¥94.! billion and profit for he year of ¥3.0 billion, Instructions a, Evaluate Capcom's proftabl for the year b, Evaluate Capeom’s liquidity by computing its worki beginning of the year and atthe end of the year. Does Capcom appear to be beth profitable and liquid? Explai by computing its profit percentage and its return on equity pital and its current ratio at the Supplemental Topi, “The Worksheet”