Question

Chapter Four Exercise #2: Create Financial Statements from Adjusted Trial Balance
THAO COMPANY
Worksheet For the Year Ended December 31, 2020
Adjusted Account Trial Balance
No. Account Titles
101 Cash 5,300 (Dr.)
112 Accounts Receivable 10,800 (Dr.)
126 Supplies 1,500 (Dr.)
130 Prepaid Insurance 2,000 (Dr.)
157 Equipment 27,000 (Dr.)
158 Accumulated Depreciation—Equipment 5,600 (Cr.)
200 Notes Payable 15,000 (Cr.)
201 Accounts Payable 6,100 (Cr.)
212 Salaries and Wages Payable 2,400 (Cr.)
230 Interest Payable 600 (Cr.)
301 Owner’s Capital 13,000 (Cr.)
306 Owner’s Drawings 7,000 (Dr.)
400 Service Revenue 61,000 (Cr.)
610 Advertising Expense 8,400 (Dr.)
631 Supplies Expense 4,000 (Dr.)
711 Depreciation Expense 5,600 (Dr.)
722 Insurance Expense 3,500 (Dr.)
726 Salaries and Wages Expense 28,000 (Dr.)
905 Interest Expense 600 (Dr.)
Totals 103,700 (Dr.) 103,700 (Cr.)
Instructions
(a) Prepare an income statement, owner’s equity statement, and a classified balance sheet.
(Note: $5,000 of the notes payable become due in 2021) D. Thao did not make any additional investments in the business during the year.
(b) Prepare the closing entries.

Answer 1

a)

THAO COMPANY
Income Statement
For the year ended December 31, 2020
Revenues
Service revenue		$   61,000
Less: Expenses
Advertising expense	$     8,400
Supplies expense	$     4,000
Depreciation expense	$     5,600
Insurance expense	$     3,500
Salaries and wages expense	$   28,000
Interest expense	$        600
Total expenses		$   50,100
Net income		$   10,900

THAO COMPANY
Statement of Change in Equity
For the year ended December 31, 2020
Owner’s Capital, Beginning	$   13,000
Add: net income	$   10,900
Less: Drawings	$   (7,000)
Owner’s Capital, Ending	$   16,900

THAO COMPANY
Balance Sheet
As at December 31, 2020
Assets
Current assets
Cash	$     5,300
Accounts receivable	$   10,800
Supplies	$     1,500
Prepaid insurance	$     2,000
Current assets		$   19,600
Property, Plant and Equipment
Equipment	$   27,000
Less: Accumulated depreciation, Equipment	$   (5,600)	$   21,400
Total assets		$   41,000
Liabilities and owners equity
Current liabilities
Accounts payable	$     6,100
Notes payable	$   15,000
Salaries and wages payable	$     2,400
Interest payable	$        600
Total current liabilities		$   24,100
Owners Equity		$   16,900
Total liabilities and owners equity		$   41,000

b)

Account title	Debit	Credit
Service revenue	$   61,000
Income summary		$   61,000
(To close revenue accounts)
Income summary	$   50,100
Advertising expense		$     8,400
Supplies expense		$     4,000
Depreciation expense		$     5,600
Insurance expense		$     3,500
Salaries and wages expense		$   28,000
Interest expense		$        600
(To close expenses)
Income summary ($61,000-$50,100)	$   10,900
Owner’s Capital		$   10,900
(To close income summary)
Owner’s Capital	$     7,000
Owner’s Drawings		$     7,000
(To close drawings)

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