Page 192 - Accounting Principles (A Business Perspective)

4. Completing the accounting cycle

Debits Credits
Cash $ 85,400
Accounts Receivable 81,600
Supplies on Hand 4,000
Prepaid Rent 12,240
Prepaid Advertising 2,880
Prepaid Insurance 4,400
Office Equipment 7,600
Accumulated Depreciation—Office Equipment $ 2,760
Office Furniture 29,200
Accumulated Depreciation—Office Furniture 8,280
Accounts Payable 25,200
Notes Payable (due 2011) 4,000
Capital Stock 100,000
Retained Earnings, 2010 January 1 22,400
Dividends 45,520
Service Revenue 250,000
Salaries Expense 98,800
Utilities Expense 20,000
Miscellaneous Expense 24,000
$ 412,640 $ 412,640

Supplies on hand at 2010 December 31, are USD 1,000.
Rent expense for 2010 is USD 10,000.
Advertising expense for 2010 is USD 2,304.
Insurance expense for 2010 is USD 2,400.
Depreciation expense is office equipment, USD 912, and office furniture, USD 3,000.

Accrued interest on notes payable is USD 150.
Accrued salaries are USD 4,200.
a. Prepare a 12-column work sheet for the year ended 2010 December 31. You need not include account numbers
or explanations of adjustments.
b. Prepare an income statement.
c. Prepare a statement of retained earnings.
d. Prepare a classified balance sheet.
e. Prepare adjusting and closing entries.

Beyond the numbers—Critical thinking
Business decision case A Heather and Dan Holt met while both were employed in the interior trim and
upholstery department of an auto manufacturer. After their marriage, they decided to earn some extra income by
doing small jobs involving canvas, vinyl, and upholstered products. Their work was considered excellent, and at the
urging of their customers, they decided to go into business for themselves, operating out of the basement of the

house they owned. To do this, they invested USD 120,000 cash in their business. They spent USD 10,500 for a
sewing machine (expected life, 10 years) and USD 12,000 for other miscellaneous tools and equipment (expected
life, 5 years). They undertook only custom work, with the customers purchasing the required materials, to avoid
stocking any inventory other than supplies. Generally, they required an advance deposit on all jobs.

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