Assignment: The Trial Balance For Domenico Inc. As Of Decemb

Assignmentthe Trial Balance For Domenico Inc As Of December 31 2014

The trial balance for Domenico, Inc. as of December 31, 2014, provides the foundational financial data necessary to prepare the company's financial statements. Several adjustments are required, including recognizing expired prepaid insurance, accounting for restructuring liabilities, adjusting for noncontrolling interest, and calculating income taxes. The task involves preparing a properly formatted balance sheet and income statement reflecting these adjustments and adhering to generally accepted accounting principles (GAAP).

Paper For Above instruction

Introduction

Financial statements are essential tools for conveying a company's financial position and performance to stakeholders. Accurate preparation relies on proper recording, adjustments, and classification of financial data. This paper demonstrates the process of preparing the balance sheet as of December 31, 2014, and the income statement for Domenico, Inc., incorporating all relevant adjustments based on the trial balance provided.

Overview of the Trial Balance and Adjustments Needed

The trial balance totals include various assets, liabilities, equity accounts, revenues, and expenses. Notably, the balance sheet features significant accounts like cash, accounts receivable, inventory, plant and equipment, notes payable, and shareholders' equity components. To accurately reflect the financial position, adjustments such as recognizing expired prepaid insurance of $6,000, accounting for restructuring liabilities, and addressing unrecorded income tax provisions are necessary.

Adjustments for Prepaid Insurance

The prepaid insurance account shows a balance of $36,000. Since the accountant failed to record the expiration of $6,000, an adjustment reducing prepaid insurance and recognizing insurance expense is essential. This adjustment impacts net income and retained earnings.

Restructuring Liability and Non-Current Liabilities

The restructuring liability amounting to $100,000 is 60% current, indicating that $60,000 should be classified as a current liability, with the remaining $40,000 classified as non-current. The classification affects current ratio calculations and liquidity analysis.

Notes Payable and Long-Term Debt

Notes payable amount to $900,000, due in 2018, should be classified as long-term liabilities. Adjustments ensure proper reporting and compliance with accounting standards on debt classification.

Income Tax Expense and Deferred Taxes

No provision has been made for income taxes; thus, an estimated tax expense at 30% of income from continuing operations must be computed. Since taxable income may differ from book income owing to temporary differences, any deferred tax effects should be considered. However, based on available data, a straightforward estimate suffices.

Noncontrolling Interest

The noncontrolling interest in net assets is reported at $31,600, affecting the consolidation of financials. Income attributable to noncontrolling interests is $12,500, which will be used in calculating net income attributable to controlling interest.

Preparation of Income Statement

The income statement begins with sales revenue of $1,557,360 and deducts cost of goods sold ($853,427), selling expenses ($143,945), administrative expenses, and interest expense. Income tax expense at 30% of pre-tax income is then deducted to arrive at net income. Loss on discontinued operations and restructuring expenses are also incorporated into the calculation.

Calculation of Net Income

Calculating income from continuing operations involves subtracting operating expenses from gross profit. Income tax expense is then applied at 30%. The net effect of discontinued operations, specifically the $14,300 loss, is included after tax. The final net income figure is distributed between controlling and noncontrolling interests accordingly.

Preparation of Balance Sheet

The balance sheet presents assets, liabilities, and equity as of December 31, 2014. Assets include cash, accounts receivable, inventory, investments, goodwill, and property, plant, and equipment (net of accumulated depreciation). Liabilities encompass current liabilities like accounts payable, accrued payables, deferred revenue, restructuring liability, and long-term liabilities including notes payable. Shareholders’ equity comprises common stock, additional paid-in capital, retained earnings, treasury stock, and preferred stock. Adjusted balances reflect the corrections for prepaid insurance and liability classifications.

Concluding Remarks

The process highlights the importance of comprehensive adjustments and classifications in financial reporting. Accurate statements require integrating all relevant data, applying accounting principles, and providing clear disclosures. The theoretical preparation offers a useful example for similar corporate financial statement preparations based on trial balances and supplementary information.

References

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