Required information Problem 2-4 (Algo) Accounting cycle; adjusting entries through post-closing trial balance [LO2-4, 2-6, 2-7,...
Required information
Problem 2-4 (Algo) Accounting cycle; adjusting entries through post-closing trial balance [LO2-4, 2-6, 2-7, 2-8]
[The following information applies to the questions displayed below.]
Pastina Company sells various types of pasta to grocery chains as
private label brands. The company's reporting year-end is December
31. The unadjusted trial balance as of December 31, 2021, appears
below.
| Account Title | Debits | Credits | ||
| Cash | 34,100 | |||
| Accounts receivable | 42,000 | |||
| Supplies | 2,500 | |||
| Inventory | 62,000 | |||
| Notes receivable | 22,000 | |||
| Interest receivable | 0 | |||
| Prepaid rent | 1,900 | |||
| Prepaid insurance | 8,000 | |||
| Office equipment | 88,000 | |||
| Accumulated depreciation | 33,000 | |||
| Accounts payable | 33,000 | |||
| Salaries payable | 0 | |||
| Notes payable | 52,000 | |||
| Interest payable | 0 | |||
| Deferred sales revenue | 3,000 | |||
| Common stock | 74,000 | |||
| Retained earnings | 33,500 | |||
| Dividends | 6,000 | |||
| Sales revenue | 156,000 | |||
| Interest revenue | 0 | |||
| Cost of goods sold | 80,000 | |||
| Salaries expense | 19,900 | |||
| Rent expense | 12,000 | |||
| Depreciation expense | 0 | |||
| Interest expense | 0 | |||
| Supplies expense | 2,100 | |||
| Insurance expense | 0 | |||
| Advertising expense | 4,000 | |||
| Totals | 384,500 | 384,500 | ||
Information necessary to prepare the year-end adjusting entries appears below.
- Depreciation on the office equipment for the year is $11,000.
- Employee salaries are paid twice a month, on the 22nd for salaries earned from the 1st through the 15th, and on the 7th of the following month for salaries earned from the 16th through the end of the month. Salaries earned from December 16 through December 31, 2021, were $1,250.
- On October 1, 2021, Pastina borrowed $52,000 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.
- On March 1, 2021, the company lent a supplier $22,000 and a note was signed requiring principal and interest at 8% to be paid on February 28, 2022.
- On April 1, 2021, the company paid an insurance company $8,000 for a one-year fire insurance policy. The entire $8,000 was debited to prepaid insurance.
- $770 of supplies remained on hand at December 31, 2021.
- A customer paid Pastina $3,000 in December for 1,250 pounds of spaghetti to be delivered in January 2022. Pastina credited deferred sales revenue.
- On December 1, 2021, $1,900 rent was paid to the owner of the building. The payment represented rent for December 2021 and January 2022 at $950 per month. The entire amount was debited to prepaid rent.
Problem 2-4 (Algo) Part 4
4. Prepare an income statement and a statement of shareholders’ equity for the year ended December 31, 2021, and a classified balance sheet as of December 31, 2021. Assume that no common stock was issued during the year and that $6,000 in cash dividends were paid to shareholders during the year.
Homework Answers
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| Pastina | ||
| Working for Adjusting Entry | Amount $ | Note |
| Note payable | 52,000.00 | A |
| Interest rate | 12% | B |
| Annual Interest amount | 6,240.00 | C=A*B |
| Monthly Interest | 520.00 | D=C/12 |
| Interest from Oct to Dec (3 months) | 1,560.00 | E=D*3 |
| Note receivable | 22,000.00 | F |
| Interest rate | 8% | G |
| Annual Interest amount | 1,760.00 | H=F*G |
| Monthly Interest | 146.67 | I=H/12 |
| Interest from March to Dec (10 months) | 1,466.67 | J=I*10 |
| Prepaid Insurance | 8,000.00 | K |
| For the period (months) | 12.00 | L |
| Monthly Insurance | 666.67 | M=K/L |
| Insurance from Apr to Dec (9 months) | 6,000.00 | N=M*9 |
| Supplies Expense | ||
| Supplies - Opening Balance | 2,500.00 | |
| Less: Supplies - Closing Balance | 770.00 | |
| Supplies Expense | 1,730.00 | O |
| Prepaid Rent | 1,900.00 | P |
| Rent for December | 950.00 | Q |
| Adjusting Entries | ||
| Account | Debit $ | Credit $ |
| Depreciation Expense | 11,000.00 | |
| Accumulated Depreciation- Equipment | 11,000.00 | |
| Salaries Expense | 1,250.00 | |
| Salaries Payable | 1,250.00 | |
| Interest Expense | 1,560.00 | |
| Interest Payable | 1,560.00 | |
| Interest Receivable | 1,466.67 | |
| Interest Revenue | 1,466.67 | |
| Insurance Expense | 6,000.00 | |
| Prepaid Insurance | 6,000.00 | |
| Supplies Expense | 1,730.00 | |
| Supplies | 1,730.00 | |
| Rent Expense | 950.00 | |
| Prepaid Rent | 950.00 |
| Income Statement | ||
| Particulars | Amount $ | Amount $ |
| Sales Revenue | 156,000.00 | |
| Less: returns and allowances | - | |
| Net Sales | 156,000.00 | |
| Cost of goods sold | 80,000.00 | |
| Gross Profit | 76,000.00 | |
| Salaries Expense | 21,150.00 | |
| Rent Expense | 12,950.00 | |
| Depreciation Expense | 11,000.00 | |
| Supplies Expense | 3,830.00 | |
| Insurance Expense | 6,000.00 | |
| Advertising Expense | 4,000.00 | |
| Operating Expense | 58,930.00 | |
| Operating Income | 17,070.00 | |
| Interest Income | 1,466.67 | |
| Interest expense | (1,560.00) | |
| Other expense and income | (93.33) | |
| Net Income | 16,976.67 |
| Statement of shareholder's equity | Common Stock | Retained Earnings | Total |
| Balance at January 1, 2021 | 74,000.00 | 33,500.00 | 107,500.00 |
| Net Income for the year | - | 16,976.67 | 16,976.67 |
| Dividend | - | 6,000.00 | 6,000.00 |
| Balance at December 31, 2021 | 74,000.00 | 44,476.67 | 118,476.67 |
| Balance Sheet | Amount $ | Amount $ |
| Current Assets | ||
| Cash | 34,100.00 | |
| Accounts Receivable | 42,000.00 | |
| Inventory | 62,000.00 | |
| Supplies | 770.00 | |
| Notes Receivable | 22,000.00 | |
| Interest Receivable | 1,466.67 | |
| Prepaid Rent | 950.00 | |
| Prepaid Insurance | 2,000.00 | |
| Total Current Assets | 165,286.67 | |
| Non Current Assets | ||
| Office Equipment |
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