Question

Eric Shehan is a student working on an internship at Mahon Ltd. On December 31, 2020, the company had its year end. Eric’s boss brought him the following information:

Accounts Payable		$217,000		Wages Expense		$359,000
Cash		115,000		Notes Receivable		200,000
Notes Payable		251,000		Rent Expense		33,000
Inventory		307,000		Dividends Declared		178,000
Common Shares		349,000		Supplies		11,000
Sales Revenue		3,432,000		Insurance Expense		16,000
Retained Earnings (at January 1, 2020)		1,076,000		Equipment		1,671,000
Cost of Goods Sold		2,031,000		Accumulated Depreciation, Equipment		161,000
Utilities Expense		85,000		Miscellaneous Expense		33,000
Interest Revenue		9,000		Unearned Revenue		28,000
Accounts Receivable		423,000		Advertising Expense		53,000
Interest Expense		8,000

These account amounts are correct, but Eric’s boss advised him that the information did not reflect the following information:

1.		Accrued interest of $5,000 on the notes receivable.
2.		Employees earned $80,000 in bonuses based on achieving sales targets. These are payable on January 10, 2021.
3.		Accrued interest on the note payable amounting to $5,000 is due in January 2021.
4.		As of December 31, 2020, the supplies still on hand had a cost of $6,000.
5.		The insurance expense includes $3,000 in premiums related to coverage for 2021.
6.		Depreciation for 2020 is $167,000 on the equipment.
7.		The company’s board declared additional dividends of $251,000, which are payable to shareholders on January 15, 2021.

• Determine the amounts that would appear in an adjusted trial balance for Mahon Ltd. as at December 31, 2020.

• Prepare a statement of income for the year ended December 31, 2020.

• Calculate the amount of retained earnings as at December 31, 2020.

• Prepare a classified statement of financial position as at December 31, 2020. (Note: The note receivable and note payable are due in 2021.) (List Current Assets in order of liquidity.)

Answer 1

Eric Shehan Adjusting Enteries Trans. Particulars 1 Interest Receivable Interest Revenue Debit in $ Credit in $ 5000 5000 2 80000 Wages Expense Wages Payable 80000 3 5000 Interest Expense Interest Payable 5000 4 5000 Supplies Expense Supplies 11000 - 6000 5000 5 3000 Prepaid Insurance Insurance Expense 3000 Worksheet For the period ending 31.12.2020 Unadjusted Adjustments Adjusted Particulars Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Cash 115000 115000 Note Receivable 200000 200000 Interest Receivable 5000 5000 Accounts Receivable 423000 423000 Inventory 307000 307000 Supplies 11000 5000 6000 Prepaid Insurance 3000 3000 Equipment 1671000 1671000 Accum.Depre. - Equip. 161000 167000 328000 Accounts Payable 217000 217000 Wages Payable 80000 80000 Unearned Revenue 28000 28000 Interest Payable 5000 5000 Dividends Payable 251000 251000 Note Payable 251000 251000 Common Shares 349000 349000 Retained Earnings 1076000 1076000 Dividends Declared 178000 251000 429000 Sales Revenue 3432000 3432000 Cost of goods sold 2031000 2031000 Wages Expense 359000 80000 439000 Supplies Expense 5000 5000 Insurance Expense 16000 3000 13000 Depreciation Expense 167000 167000 Rent Expense 33000 33000 Miscellaneous Expense 33000 33000 Advertising Expense 53000 53000 Utilities Expense 85000 85000 Interest Expense 8000 5000 13000 Interest Revenue 9000 5000 14000 5523000 5523000 516000 516000 6031000 6031000 6 167000 Depreciation Expense Accum.Depre. - Equip. 167000 7 251000 Dividends Dividends Payable 251000 Totals 0

3432000 -2031000 1401000 Statement of Income For the period ending 31.12.2020 Sales Revenue Cost of goods sold Gross Profit Operating Expense: Wages Expense 439000 Supplies Expense 5000 Insurance Expense 13000 Depreciation Expense 167000 Rent Expense 33000 Miscellaneous Expense 33000 Advertising Expense 53000 Utilities Expense 85000 Operating Income Other Income and Expenses: Interest Expense - 13000 Interest Revenue 14000 Net Income 828000 573000 1000 574000 Statement of Retained Earnings For the period ending 31.12.2020 Beginning Balance 1076000 Net Income 574000 1650000 Dividends Declared -429000 Ending Balance 1221000

Amounts in $ Amounts in $ Balance sheet As at 31.12.2020 Assets Current Assets Cash Note Receivable Interest Receivable Accounts Receivable Inventory Supplies Prepaid Insurance Amounts in $ Amounts in $ Liabilities Current Liabilities 115000 Accounts Payable 200000 Wages Payable 5000 Unearned Revenue 423000 Interest Payable 307000 Dividends Payable 6000 Note Payable 3000 1059000 217000 80000 28000 5000 251000 251000 832000 1671000 Non Current Assets Equipment Accum.Depre. - Equip Total Assets Shareholders Equity Common stock 349000 1343000 Retained Earnings 1221000 2402000 Total Liabilities & Shareholders Eq. -328000 1570000 2402000