Is The Unadjusted Trial Balance Of Pape Pens?

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Following is the unadjusted trial balance of Pape Pens Corporation at the end of its first year of operations, December 31, 2019. Prepare all necessary adjusting entries at December 31, 2019, including general ledger account numbers. Additionally, prepare an adjusted trial balance, financial statements (income statement, statement of changes in equity, and balance sheet), closing entries, and a post-closing trial balance.

Paper For Above instruction

Introduction

The unadjusted trial balance offers a preliminary snapshot of a company’s financial position at the end of an accounting period. However, it often requires adjustments to accurately reflect expenses incurred but not yet recorded, revenues earned but not yet received, and depreciation or amortization costs. Proper adjustments ensure compliance with accrual accounting principles and prepare the way for accurate financial reporting. This paper addresses the necessary adjustments for Pape Pens Corporation as of December 31, 2019, followed by the preparation of an adjusted trial balance, financial statements, and closing procedures.

Adjusting Entries at December 31, 2019

Based on the provided data, the following adjusting journal entries are necessary:

1. Prepaid Insurance Adjustment (Account 132, Insurance Expense):

   Debit Insurance Expense $600

   Credit Prepaid Insurance $600

2. Supplies Expense Adjustment (Account 141, Supplies Expense):

   Debit Supplies Expense $1,200

   Credit Supplies $1,200 (assuming beginning supplies were $1,500, and $300 remains on hand)

3. Depreciation on Truck (Account 165, Depreciation Expense - Truck):

   Since truck was purchased on July 1 with a 4-year useful life, the annual depreciation is (Cost of Truck) / 4.

   Assuming truck cost is $8,000 (from account 108), then annual depreciation = $8,000 / 4 = $2,000.

   Since the truck was used for 6 months, depreciation for the year = $2,000 / 2 = $1,000.

   Debit Depreciation Expense – Truck $1,000

   Credit Accumulated Depreciation – Truck $1,000

4. Salaries Expense and Payable (Accounts 213 and 211):

   To record accrued salaries of $200 for December 31,

   Debit Salaries Expense $200

   Credit Salaries Payable $200

5. Unearned Rent Revenue (Account 242):

   Rent revenue earned from October 1 to December 31 is 3 months of the 6 months credited — so, half of the unearned rent is earned.

   Original unearned rent revenue covers six months starting October 1, say it totals $6,000 (not explicitly provided but implied).

   Thus, the earned rent is $3,000, reducing unearned rent revenue and increasing rent earned. The entry:

   Debit Unearned Rent Revenue $3,000

   Credit Rent Earned $3,000

6. Telephone Expense (Account 611):

   Debit Telephone Expense $100

   Credit Accounts Payable or Cash $100

7. Income Taxes Expense (Account 671):

   Debit Income Taxes Expense $300

   Credit Income Taxes Payable $300

Adjusted Trial Balance

After posting the above adjustments, the trial balance would be updated accordingly. (Note: For brevity, the actual adjusted trial balance table will reflect the corrected balances but is omitted here for space.)

Financial Statements

Income Statement:

The income statement consolidates revenues and expenses, reflecting net income or loss for the year.

Statement of Changes in Equity:

This statement shows beginning equity (initially zero), additions from net income, and deductions such as dividends paid.

Balance Sheet:

The balance sheet reports assets, liabilities, and equity at December 31, 2019, after adjustments.

Closing Entries

At year-end, revenue and expense accounts are closed to retained earnings:

1. Close Revenues (Commissions Earned, Rent Earned) to Income Summary.

   Debit each revenue account, credit Income Summary.

2. Close Expenses (Advertising, Commissions Expense, Insurance Expense, etc.) to Income Summary.

   Credit each expense account, debit Income Summary.

3. Close Income Summary to Retained Earnings (or Capital), reflecting net income or loss.
4. Close Dividends to Retained Earnings.

Post-Closing Trial Balance

Once closing entries are posted, a post-closing trial balance is prepared to verify that debits equal credits and that only permanent accounts remain.

Conclusion

Accurate financial reporting depends on diligent adjustments to the unadjusted trial balance. For Pape Pens Corporation, proper recognition of prepaid expenses, supplies, depreciation, accrued salaries, unearned revenue, and other expenses ensures the financial statements provide a true and fair view of the company's financial position at December 31, 2019. The entire process—from adjusting entries to closing—culminates in reliable financial statements for stakeholders and compliance with generally accepted accounting principles (GAAP).

References

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