Ex. 5.8 a. 60,000
240,000 300,000
To close revenue accounts to income summary.
412,500
b. 450,000$
y
p
c.
Consulting Revenue – Individual Clients……………..
Income Summar
y
…………………………………………
…
Consulting Revenue – Corporate Clients……………..
Income Summar
y
…………………………………
…
No, the dollar amounts are not the same in the adjusting and closing entries. The
Insurance Ex
p
ense……………………………………
…
To close Insurance Expense (5 months) to Income
Summary.
Retained Earnings, (January 1, 2015)………………
To close dividends to retained earnings.
Ex. 5.10 a. Net Income ($12,750) ÷ Total Revenue ($51,000) 25%
d. Current Assets ($32,000) ÷ Current Liabilities ($8,000) 4-to-1
Com
p
utations:
Total revenue………………………………… 51,000$
Significance: All companies must consume resources (incur
costs) in order to generate revenue. The net income
percentage is a measure of management’s ability to control
these costs and use resources efficiently to generate revenue.
Based on the above measures, this company appears to be
profitable and potentially liquid.
Significance: Current assets often convert to cash in the near
future, whereas current liabilities often consume cash in the
near future. Thus, working capital is a measure of a
com
p
an
y
‘s short-term li
q
uidit
y
.
Significance: The current ratio is simply working capital
expressed as a proportion. Thus, it is also a measure of short-
term liquidity.
Ex. 5.11 a. Net Income ($3,040) ÷ Total Revenue ($152,000) 2%
Significance: All companies must consume resources (incur
costs) in order to generate revenue. The net income percentage
is a measure of management’s ability to control these costs and
use resources efficiently to generate revenue.
Ex. 5.12 a. (1)
Lift Ticket Revenue, $210,000 ($850,000 $640,000)
Ex. 5.14
a. U NE NE NE
e. NE NE NE NEFailed to disclose a pending
lawsuit in the notes
accompanying the financial
statements.
Retained
Earnings
Error
Recorded a dividend as an
expense in the income
statement.
Net Income
Total
Assets Total
Liabilities
Ex. 5.15 a.
The company uses straight-line depreciation as discussed in the Summary of
Significant Accounting Policies section of the notes accompanying the financial
statements.
a.
130
,
000$
Part
y
revenue earne
d
SOLUTIONS TO PROBLEMS SET
A
PARTY WAGON, INC
.
For the Year Ended December 31, 201
5
Income Statement
20 Minutes, Easy PROBLEM 5.1
A
PARTY WAGON, INC
.
Revenues:
,
Asset
s
$ 15
,
000
9
,
000
,
,
,
,
,
,
,
,
,
,
,
,
,
,
,
,
,
PROBLEM 5.1
A
PARTY WAGON, INC. (continued
)
Accounts receivabl
e
PARTY WAGON, INC.
December 31, 201
5
Balance Shee
t
Cash
a. (cont’d)
,
b.
Office Rent Ex
p
ense 12
,
000
,
,
,
,
,
,
,
,
,
31 7
,
000
Retained Earnin
g
s7
,
000
,
g
,
c. For the year ended December 31, 2015, the company generated net income of $7,000 on
(
3
)
To transfer net income earned in 2015 to the
g
$7,000
)
.
(
)
To close all ex
p
ense accounts.
Income Summar
y
Retained Earnin
g
s account
(
$130,000 – $123,000 =
PROBLEM
5
.
1A
PARTY WAGON, INC
.
December 31, 201
5
(1)
General Journal
PARTY WA
GO
N
(
concluded
)
,
y
(
)
a.
340
,
000$
,
For the Year Ended December 31, 2015
Statement of Retained Earnings
AFFORDABLE LAWN CARE, INC.
Mowin
g
revenue earned
PROBLEM 5.2
A
AFFORDABLE LAWN CARE, INC
.
Revenues:
AFFORDABLE LAWN CARE, INC
.
For the Year Ended December 31, 201
5
Income Statement
,