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Chapter 4: Q25E (page 227)

Mark’s Bowling Alley’s adjusted trial balance as of December 31, 2018, is presented below:


Requirements

1. Prepare the closing entries for Mark’s Bowling Alley.

2. Prepare a post-closing trial balance.

3. Compute the current ratio for Mark’s Bowling Alley

Short Answer

Expert verified

(1) Closing entries are mentioned in Step 1.

(2) Post closing trial balance is mentioned in Step 4.

(3) Current ratio equals to 2.40.

Step by step solution

01

Closing entries for the period

(1) Closing entries are as follows:

Date

Accounts and Explanation

Debit

Credit

Dec. 31

Service Revenue

$85,000

Income Summary

$85,000

To close revenue.

Dec. 31

Income Summary

$77,625

Insurance Expense

$26,000

Salaries Expense

$28,000

Supplies Expense

$1,300

Utilities Expense

$15,000

Depreciation Expense—Equipment

$7,000

Depreciation Expense—Building

$325

To close expenses.

Dec. 31

Income Summary

$7,375

Retained Earnings

$7,375

To close Income Summary

Dec. 31

Retained Earnings

$31,000

Dividends

$31,000

To close Dividends

02

Calculation of net income

Net income is calculated as follows:

NetIncome=TotalRevenues-TotalExpenses=$85,000-$77,625=$7,375

03

Calculation of ending balance of retained earnings

Ending balance of retained earnings is calculated as follows:

EndingBalance=BeginningBalance+NetIncome-Dividends=$114,250+$7,375-$31,000=$90,625

04

Post-Closing trial balance

(2) Post-closing trial balance is shown as follows:

MARK'S BOWLING ALLEY

Post-Closing Trial Balance

December 31, 2018

Balance

Account Title

Debit

Credit

Cash

$20,000

Accounts Receivable

2,900

Prepaid Insurance

2,700

Office Supplies

1,150

Land

20,000

Building

145,000

Accumulated Depreciation—Building

$7,000

Equipment

43,000

Accumulated Depreciation—Equipment

20,000

Accounts Payable

4,800

Utilities Payable

625

Salaries Payable

3,800

Unearned Revenue

1,900

Common Stock

106,000

Retained Earnings

90,625

Total

$234,750

$234,750

05

Calculation of current ratio

(3) Current ratio is calculated as follows:

CurrentRatio=Cash+AccountsReceivable+PrepaidInsurance+OfficeSuppliesAccountsPayable+UtilitiesPayable+SalariesPayable+UnearnedRevenue=$20,000+$2,900+$2,700+$1,150$4,800+$625+$3,800+$1,900=2.40

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Most popular questions from this chapter

The adjusted trial balance of Stone Sign Company follows: Account Title Prepaid Rent Cash Debit Credit Office Supplies Equipment Accumulated Depreciation—Equipment Accounts Payable Salaries Payable Unearned Revenue Notes Payable (long-term) Common Stock Dividends Service Revenue Salaries Expense Rent Expense Depreciation Expense—Equipment Supplies Expense Balance \( 15,400 \) 85,500 \( 85,500 100 \) 7,000 3,800 4,300 4,200 800 48,800 17,300 1,400 3,700 1,500 1,400 60,000 300 400 Utilities Expense 600 Total STONE SIGN COMPANY Adjusted Trial Balance January 31, 2018 Requirements 1. Assume Stone Sign Company has a January 31 year-end. Journalize Stone’s closing entries at January 31. 2. How much net income or net loss did Stone Sign Company earn for the year ended January 31? How can you tell?

Cynthia Elmer, CPA, had the following partial worksheet:

Requirements

1. Complete the worksheet.

2. Prepare the closing entries for Cynthia Elmer, CPA.

Benson Auto Repair had the following account balances after adjustments. Assume all accounts had normal balances.

Cash \( 4,000 Common Stock \) 20,000

Accounts Receivable 3,200 Retained Earnings, January 1 15,700

Prepaid Rent 1,900 Dividends 2,100

Office Supplies 3,000 Service Revenue 1,600

Equipment 34,800 Depreciation Expense—Equipment 300

Accumulated Depreciation—Equipment 1,600 Salaries Expense 800

Accounts Payable 5,400 Rent Expense 500

Notes Payable (long-term) 7,000 Utilities Expense 600

Supplies Expense 100

14. Prepare the closing entries for Benson at December 31.

15. What is the balance of Retained Earnings after closing entries have been recorded? (Use a T-account to determine the balance.)

On December 1, Curt Wilson began an auto repair shop, Wilson’s Quality Automotive. The following transactions occurred during December: Dec. 1 Wilson contributed \(63,000 cash to the business in exchange for shares of common stock. 1 Purchased \)14,400 of equipment paying cash. 1 Paid \(3,600 for a twelve-month insurance policy starting on December 1. 9 Paid \)15,000 cash to purchase land to be used in operations. 10 Purchased office supplies on account, \(2,200. 19 Borrowed \)24,000 from the bank for business use. Wilson signed a notes payable to the bank in the name of the corporation. The note is due in five years. 22 Paid \(2,000 for advertising expenses. 26 Paid \)1,000 on account. 28 The business received a bill for utilities to be paid in January, \(260. 31 Revenues earned during the month included \)18,500 cash and \(3,800 on account. 31 Paid employees’ salaries \)3,900 and building rent \(800. Record as a compound entry. 31 The business received \)1,380 for auto screening services to be performed next month. 31 Paid cash dividends of \(5,000 to stockholders. The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid Insurance; Land; Equipment; Accumulated Depreciation—Equipment; Accounts Payable; Utilities Payable; Interest Payable; Unearned Revenue; Notes Payable; Common Stock; Retained Earnings; Dividends; Income Summary; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense; Advertising Expense; Supplies Expense; Insurance Expense; Interest Expense; and Depreciation Expense—Equipment. Adjustment data: a. Office Supplies used during the month, \)600. b. Depreciation for the month, \(240. c. One month insurance has expired. d. Accrued Interest Expense, \)120. Requirements 1. Prepare the journal entries, and post to the T-accounts. 2. Prepare an unadjusted trial balance. 3. Complete the worksheet for the month ended December 31, 2018 (optional). 4. Prepare the adjusting entries, and post to the T-accounts. 5. Prepare an adjusted trial balance. 6. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in report form. 7. Prepare the closing entries, and post to the T-accounts. 8. Prepare a post-closing trial balance.

The adjusted trial balance of Bradley Irrigation System at December 31, 2018, follows: BRADLEY IRRIGATION SYSTEM Adjusted Trial Balance December 31, 2018 Account Title Office Supplies Cash Debit Credit Accounts Receivable Prepaid Insurance Building Accumulated Depreciation—Building Equipment Accumulated Depreciation—Equipment Accounts Payable Interest Payable Salaries Payable Unearned Revenue Notes Payable (long-term) Common Stock Dividends Retained Earnings Service Revenue Insurance Expense Salaries Expense Supplies Expense Balance \( 12,000 \) 202,100 \( 202,100 21,000 \) 25,300 57,300 40,700 3,500 2,000 1,800 13,000 51,000 28,300 4,700 6,800 21,000 3,200 56,000 32,000 1,200 16,200 1,400 2,000 1,200 2,600 Interest Expense Depreciation Expense—Building Depreciation Expense—Equipment Total Requirements 1. Prepare the company’s income statement for the year ended December 31, 2018. 2. Prepare the company’s statement of retained earnings for the year ended December 31, 2018. 3. Prepare the company’s classified balance sheet in report form at December 31, 2018. 4. Journalize the closing entries for Bradley Irrigation System. 5. Compute the company’s current ratio at December 31, 2018. At December 31, 2017, the current ratio was 1.7. Did the company’s ability to pay current debts improve or deteriorate, or did it remain the same?
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