Question

Green Lawns, Inc., performs adjusting entries every month, but closes its accounts only at year- end. The following is the company's year-end adjusted trial balance dated December 31, current LO5-1, LO5-2, LO5-6 EXERCISE 5.2 year. Financial Statement Preparation Supplemental Topic, "The Worksheet."

GREEN LAWNS, INC. ADJUSTED TRIAL BALANCE DECEMBER 31, CURRENT YEAR Cash $218,640 Accounts receivable Supplies Equipment Accumulated depreciation: equipment Accounts payable.. Income taxes payable 10,800 720 28,800 $12,000 3,600 8,400 Capital stock 60,000 Retained earnings 108,000 Dividends 4,800 Lawn care revenue earned 230,400 Salary expense Supply expense. Advertising expense.. Depreciation expense: equipment 124,800 2,880 720 2,400 Income taxes expense 27,840 $ 422.400 $422,400 Prepare an income statement and statement of retained earnings for the year ended December 31, current year. Also prepare the company's balance sheet dated December 31, current year. Does the company appear to be liquid? Defend your answer. Has the company been profitable in the past? Explain. a. b. с.

Answer 1

a.

i. Income statement:

GREEN LAWNS, INC.
Income statement
For the year ended Dec 31, current year
Revenues:
Lawn care revenue earned		$230,400
Expenses:
Salary expense	$124,800
Supply expense	$2,880
Advertising expense	$720
Depreciation expense-equipment	$2,400
Income tax expense	$27,840
Total expenses		$158,640
Net income		$71,760

ii. Statement of retained earnings:

GREEN LAWNS, INC.
Statement of retained earnings
For the year ended Dec 31, current year
Retained earnings, Beginning		$108,000
Add: Net income		$71,760
Balance		$179,760
(Less): Dividends		($4,800)
Retained earnings, Ending		$174,960

iii.Balance Sheet:

GREEN LAWNS, INC.
Balance sheet
For the year ended Dec 31, current year
Assets		Liabilities and stockholder's equity
Current assets:		Current liabilities:
Cash	$218,640	Accounts payable	3600
Accounts payable	$10,800	Income tax payable	$8,400
Supplies	$720	Total liabilities	$12,000
Total current assets	$230,160
Property,plant, and equipment:		Stockholder's Equity:
Equipment	$28,800	Capital stock	$60,000
(Less): Accumulated depreciation-equipment	($12,000)	Retained earnings	$174,960
Property,plant, and equipment-net	$16,800	Total stockholder's equity	$234,960
Total assets	$246,960	Total liabilities and stockholder's equity	$246,960

b. Company appear to be more liquid as Current ratio is more than two and quick ratio is more than one. This company can meet is obligations very easily.

Answer 2

Financial statements:

These are the basic elements of financial reporting. These are the set of books that a company maintains in order to record its financial transactions. The financial statements when complete at the end of the period include the below-mentioned elements.

Statement of Income

Balance Sheet

Statement showing changes in equity of the shareholders.

Cash Flow Statement

Balance Sheet

It can be defined as a statement that provides the summary of the Assets, Liabilities and the Owner’s equity in an organization on a particular date.  It contains all the closing balances of all the accounts that will be represented on the assets and liabilities side.

Income Statement

It is a part of the books of a company and is a most important element as it shows the performance of a company. It shows the net profit by subtracting all the expenses from the income that incurred during the fiscal year. The basic equation of calculating net income can be shown using the following equation.

Statement of Stockholder’s equity:

Owner’s Equity is also known by the name of Shareholder’s Equity. It is also one of theparts of Balance sheet other than assets and liabilities. It is the Capital contributedby the owner of his business. The statement of changes in shareholder’s equity shows any changes in the balance of the equity contribution of the owner’s due to retained earnings and dividend payments.

Adjusted Trial Balance:

It is prepared after posting of adjusting journal entries to ledgers. It is the last step just before the preparation of the financial statement by the company.

a.

Prepare an income statement, statement of retained earnings for the year ended December 31, and balance sheet as on December 31 as follows. Prepare an income statement using MS-Excel as follows:

Hence; income statement is prepared s shown above using formulae in excel.

The result of the above excel is as follows:

Hence; income statement of GL Inc. for the year ended December 31 is prepared as shown above with net income of

Prepare a statement of retained earnings for the year ending December 31 of GL Inc. as follows. Prepare a statement of retained earnings using MS-Excel as follows:

Hence; statement of retained earnings is prepared as shown above using formulae in excel.

The result of the above excel is as follows:

Hence; statement of retained earnings of GL Inc. is prepared as shown above for the year ending December 31 and retained earnings as on December 31 is

Prepare Balance sheet using formulae in excel as on December 31 of GL Inc. as follows:

Hence; balance sheet is prepared as shown above using formulae in excel.

The result of the above excel is as follows:

b.

Liquidity of GL Inc. can be determined by the current ratio of the company. Current Ratio is a liquidity ratio which measures a firm’s capability to meet its short term obligation is a current ratio. It helps the investor to compare the liquidity of different companies and provides company liquidity over time. A company’s ability to fund its current operation can be measured by using current ratio

Calculate the Current ratio of GL Inc. using the equation as follows:

Current ratio of the GL Inc. is very high which indicates that company is highly liquid. It can pay its current liabilities 19.18 times from its current assets. Hence; GL Inc. is highly liquid.

c.

GL Inc. has an opening balance of retained earnings as on January is of $108,000 in the adjusted trial balance of the company. Retained earnings indicate an income of company remain after all the expenses and distributing dividends.

Hence; it can be concluded that the company must have been profitable in the past.