Accounting 231 Midterm Study Problems Year 1 Rental Car Comp

Accounting 231mid Term Study Problemyear 1jhj Rental Car Company Was S

Analyze the financial transactions and statements for the Rental Car Company across two years, including journal entries, T-accounts, trial balances, income statements, statements of retained earnings, balance sheets, and closing entries.

Paper For Above instruction

Understanding the comprehensive accounting cycle is essential for accurately reflecting a company's financial position. This paper will explore the detailed accounting processes for the Rental Car Company across two fiscal years, emphasizing journal entries, ledger posting, trial balances, financial statements, and closing procedures. The analysis provides insight into how proper accounting practices illustrate the company's financial health and operational efficiency.

Introduction

The process of bookkeeping and financial reporting is fundamental to any business, including the Rental Car Company. Throughout two years, the company engaged in various transactions that require systematic recording to ensure accuracy in financial statements. This paper examines each step, starting from journal entries, advancing through ledger posting, trial balance preparation, and culminating in the preparation of key financial statements and closing entries. The discussion demonstrates the importance of disciplined accounting for decision-making and stakeholder confidence.

Year 1 Transactions and Journal Entries

In Year 1, the Rental Car Company initiated its operations with significant initial investments and acquisitions. The owners invested $200,000, which is recorded as a common cash infusion. The subsequent purchases of supplies and automobiles involve journal entries for purchasing supplies on account and auto assets with initial payments and notes payable. Revenue recognition occurs through cash received from rentals, while expenses such as salaries and rental costs are recorded accordingly. Payments on notes and dividends are also journalized, with adjustments for accrued wages at year-end.

Specifically, the initial investment is recorded as:

Debit: Cash $200,000

Credit: Owner's Equity $200,000

The purchase of supplies and autos are recognized as:

Debit: Supplies $15,000

Credit: Accounts Payable $15,000


Debit: Vehicles (Autos) $400,000


Credit: Cash $100,000


Credit: Notes Payable $300,000

Revenue received in cash and expenses paid are recorded as:

Debit: Cash $400

Credit: Rental Revenue $400


Debit: Salary Expense $150


Credit: Cash $150


Debit: Rental Expense $25


Credit: Cash $25

Payments on note principal and interest are journalized as:

Debit: Notes Payable $30,000

Debit: Interest Expense $10


Credit: Cash $40,000

Dividends paid are recorded as:

Debit: Dividends $10

Credit: Cash $10

At year-end, accrued wages are recognized:

Debit: Wages Expense $15

Credit: Wages Payable $15

Year 1 Ledger and Trial Balance

Postings from journal entries to T-accounts involve recording each transaction in respective asset, liability, equity, revenue, and expense accounts. The ledger balances are then compiled into a trial balance to verify the equality of debits and credits, ensuring the books are balanced before preparing financial statements.

Year 1 Financial Statements

The income statement summarizes revenues and expenses to determine net income. The statement of retained earnings adjusts prior retained earnings for net income and dividends declared. The balance sheet presents a snapshot of assets, liabilities, and equity at year's end.

Year 2 Transactions and Accounting Procedures

Similar procedures are carried out in Year 2, with adjustments for new purchases, revenues, and expenses, along with depreciation recognition of autos. The transactions include purchasing supplies, recording depreciation, collecting receivables, paying expenses, and dividend distributions. Year-end balance adjustments such as accrued wages are made to accurately reflect liabilities.

Initial balances from Year 1 are carried forward into the T-accounts, and transactions are again journalized and posted to maintain accurate ledger accounts.

Year 2 Financial Data and Reporting

The prepared trial balance for Year 2 incorporates Year 1 balances plus Year 2 transactions. Subsequent income statement, statement of retained earnings, and balance sheet provide comprehensive financial information, illustrating the company's performance and position.

Closing Entries

The closing process involves transferring temporary account balances (revenues, expenses, dividends) to retained earnings to prepare the accounts for the next fiscal period. These entries ensure that revenues and expenses are zeroed out, and the company's net income or loss is reflected in retained earnings.

Summary and Significance

The detailed walkthrough illustrates the importance of meticulous record-keeping and adherence to accounting principles. Proper documentation, ledger management, and financial statement preparation enable stakeholders to assess the company's profitability, liquidity, and general financial health. Accounting integrity thus underpins sound management and strategic decision-making in the Rental Car Company.

References

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  • Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2020). Financial Statement Analysis. McGraw-Hill Education.

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