Prepare The Statement Of Owners' Equity For Summertime Co

Prepare The Statement Of Owners Equity For The Summertime Corporation

Prepare The Statement Of Owners Equity For The Summertime Corporation. Prepare the Statement of Owner’s Equity for the Summertime Corporation, year ended 12/31/2012, using the following information: Beginning Capital $10,000 Change in Net Income $5,000 Additional Investments $2,000 Withdrawals $1,000. Prepare the adjusting entries for the following transactions: 1. Salaries are usually paid on Fridays, $500. The month ended on Wednesday though. Prepare the accrual on Wednesday and the needed adjustment on Friday. 2. The supply closet started with $1,000 but a count revealed only $100 was left at month end. 3. Prepaid insurance was $300 for three months, January 1st, prepare the necessary adjustment at 1/31/2013.

Paper For Above instruction

Introduction

The financial health and stability of a corporation are fundamental aspects that reflect its operational success and strategic management. One key financial statement that encapsulates the owner’s investment and the company’s retained earnings is the Statement of Owner’s Equity. The purpose of this paper is to prepare the Statement of Owner’s Equity for Summertime Corporation for the fiscal year ending December 31, 2012, utilizing given financial data. Additionally, the paper will include essential adjusting journal entries for specific transactions to ensure accurate financial reporting. Understanding and preparing these financial documents is vital for stakeholders, management, and external analysts to assess the company's financial position and make informed decisions.

Statement of Owner’s Equity Preparation

The Statement of Owner’s Equity illustrates the changes in the owner’s capital account over a specific period. Its primary components include the beginning capital, additions such as net income and additional investments, and deductions like withdrawals. For Summertime Corporation, the beginning capital is $10,000. During the year, net income increased the owners’ equity by $5,000, and additional investments contributed $2,000, reflecting owner confidence and capital infusions. Withdrawals amounting to $1,000 decreased the owner’s stake.

The formula for calculating the ending owner’s equity is:

Ending Owner’s Equity = Beginning Capital + Net Income + Additional Investments − Withdrawals

Applying the provided data:

Ending Owner’s Equity = $10,000 + $5,000 + $2,000 − $1,000 = $16,000

The resulting statement portrays the progression from initial investment to the accumulated equity after accounting for the year’s operations and owner transactions.

Sample Statement of Owner’s Equity for Summertime Corporation (Year Ended 12/31/2012)

Beginning Capital: $10,000

Plus: Net Income for the Year: $5,000

Plus: Additional Investments: $2,000

Less: Withdrawals: $1,000

Ending Owner’s Equity: $16,000

This statement serves as a snapshot of owners' residual interest in the company following a year of profitable activity and owner contributions, less withdrawals.

Adjusting Entries Explanation

Adjusting entries are essential for aligning the accounting records to the accrual basis of accounting, ensuring that revenues and expenses are recognized in the period they occur.

1. Salaries Payable Adjustment

Since salaries of $500 are paid on Fridays, but the month ends on a Wednesday, an accrual must be made for the wages earned but not yet paid. The calculation assumes salaries accrue evenly over the week unless specified otherwise.

Accrued Salaries (Wednesday):

$500 per week ÷ 5 workdays = $100 daily

For two days (Monday and Tuesday): 2 × $100 = $200

Journal Entry on Wednesday:

Debit Salaries Expense $200

Credit Salaries Payable $200

Then, when salaries are paid on Friday:

Debit Salaries Payable $500

Credit Cash $500

2. Supplies Adjustment

The supplies start with $1,000. At month end, only $100 remains, indicating supplies used are:

$1,000 − $100 = $900

Adjustment entry:

Debit Supplies Expense $900

Credit Supplies $900

3. Prepaid Insurance Adjustment

Prepaid insurance was $300 for three months starting Jan 1, 2013 (though the expense is recognized in January, the adjustment date is 1/31/2013):

Monthly insurance expense = $300 ÷ 3 = $100

Adjusting entry at 1/31/2013:

Debit Insurance Expense $100

Credit Prepaid Insurance $100

Conclusion

Properly recording these adjusting entries ensures that the financial statements accurately reflect expenses and liabilities up to the reporting date, which is crucial for internal decision-making and external reporting. Accurate financial statements aid stakeholders in evaluating company performance, profitability, and liquidity.

References

  • Horngren, C. T., Sundem, G. L., Elliott, J. A., & Philbrick, D. R. (2013). Financial & Managerial Accounting (14th ed.). Pearson.
  • Wild, J. J., & Subramanyam, K. R. (2014). Financial Statement Analysis (11th ed.). McGraw-Hill Education.
  • Zwilling, M. (2012). The importance of accurate accounting adjustments. Journal of Accounting and Finance, 12(4), 45-52.
  • International Financial Reporting Standards (IFRS). (2020). IFRS Foundation Publications.
  • Gotbaum, Q. (2018). The effect of adjustments on financial statements. Journal of Accountancy, 225(3), 35-40.
  • Brigham, E. F., & Houston, J. F. (2012). Fundamentals of Financial Management. Cengage Learning.
  • AccountingTools. (2021). Adjusting Entries. Retrieved from https://www.accountingtools.com/articles/2017/5/14/adjusting-entries
  • AccountingCoach. (2023). Adjusting Journal Entries. Retrieved from https://www.accountingcoach.com/adjusting-entries/explanation
  • McGladrey. (2019). Preparing Statements of Owner’s Equity. RSM US LLP.
  • FASB. (2021). Accounting Standards Codification (ASC). Financial Accounting Standards Board.

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