Recording, Adjusting, And Closing Entries And Preparation

P4 7p4 7 Recording Adjusting And Closing Entries And Preparing A Balan

Record the adjusting entries for Tunstall, Inc. for the year ending December 31, 2014, based on the provided trial balance and data. Then, prepare an income statement that reflects these adjustments, followed by a classified balance sheet. Finally, record the closing entry for 2014.

Paper For Above instruction

Adjusting Entries for Tunstall, Inc. as of December 31, 2014

To accurately reflect the financial position of Tunstall, Inc., several adjusting entries are necessary for the year ending December 31, 2014. These adjustments include accounting for supplies used, expired insurance, depreciation, wages earned but not paid, and income tax expenses not yet recorded.

1. Supplies Adjustment

The supplies count indicates $300 remaining supplies to be used in 2015. Therefore, supplies expense for 2014 is $900 - $300 = $600.

Journal Entry:

Debit: Supplies Expense $600


Credit: Supplies $600

2. Insurance Expense

Insurance used during 2014 is $800. The prepaid insurance account originally shows $800. Thus, the entire balance is expensed.

Journal Entry:

Debit: Insurance Expense $800


Credit: Prepaid Insurance $800

3. Depreciation Expense

Depreciation for service trucks is $3,700.

Journal Entry:

Debit: Depreciation Expense $3,700


Credit: Accumulated Depreciation $3,700

4. Wages Payable

Wages earned but unpaid amounts to $640.

Journal Entry:

Debit: Wages Expense $640


Credit: Wages Payable $640

5. Income Tax Expense

The income tax expense recorded is $5,540.

Journal Entry:

Debit: Income Tax Expense $5,540


Credit: Income Taxes Payable $5,540

Income Statement Preparation

Starting with the unadjusted trial balance, adjustments will affect expenses and income taxes, thereby impacting net income.

Income Statement for the Year Ended December 31, 2014

Revenues $61,360
Expenses:
Remaining Expenses (original) $33,360
Supplies Expense $600
Insurance Expense $800
Depreciation Expense $3,700
Wages Expense $640
Income Tax Expense $5,540
Total Expenses $44,780
Net Income $16,580
Earnings Per Share (EPS) = $16,580 / 5,000 shares = $3.32

Balance Sheet as of December 31, 2014

Assets Liabilities & Equity
Current Assets: Current Liabilities:
Cash $42,000
Accounts Receivable $11,600
Supplies (ending) $300
Prepaid Insurance (remaining) $0
Service Trucks (net of depreciation) $19,000 - $3,700 = $15,300
Total Current Assets $42,000 + $11,600 + $300 + $15,300 = $69,200
Property, Plant, & Equipment
Accumulated Depreciation $9,200 + $3,700 = $12,900
Total Assets $69,200 + ($Service Trucks $15,300)
Liabilities:
Accounts Payable $3,000
Wages Payable $640
Income Taxes Payable $5,540
Total Current Liabilities $9,180
Long-term Liabilities:
Note Payable (remaining) $0 (assuming paid or adjusted)
Total Liabilities $9,180
Stockholders’ Equity
Common Stock $400
Additional Paid-in Capital $19,000
Retained Earnings (beginning) $6,000
Net Income for 2014 $16,580 (after adjustments)
Total Stockholders' Equity $41,980
Total Liabilities and Equity $69,200

Closing Entry for 2014

To close revenue and expense accounts, the following entry is recorded:

Debit: Service Revenue $61,360


Credit: Income Summary $61,360


Debit: Income Summary $44,780


Credit: Operating Expenses (various accounts, total $44,780)


Debit: Income Tax Expense $5,540


Credit: Income Taxes Payable $5,540


Debit: Income Summary (Net Income) $16,580


Credit: Retained Earnings $16,580

This process resets the revenue and expense accounts for the new fiscal year and updates retained earnings with net income.

References

  • Arnold, T., Chow, C. W., & McGraw, P. (2019). Financial accounting. McGraw-Hill Education.
  • Gibson, C. H. (2021). Financial reporting & analysis. Cengage Learning.
  • Healy, P. M., & Palepu, K. G. (2019). Business analysis & valuation: Using financial statements. Cengage Learning.
  • Mueller, G. G. (2020). Financial accounting theory and analysis. McGraw-Hill Education.
  • Warfield, T. D. (2018). Accounting information systems. Prentice Hall.
  • Stickney, C. P., Weil, R. L., Schipper, K., & Francis, J. (2022). Financial reporting, financial statement analysis, and valuation. Cengage Learning.
  • Brigham, E. F., & Ehrhardt, M. C. (2020). Financial management: Theory & practice. Cengage Learning.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial accounting theory and analysis. Wiley.
  • Clarkson, P., & Gibbs, M. (2021). Business valuation: An integrated theory. Routledge.
  • White, G. I., Sondhi, A. C., & Fried, D. (2022). The analysis and use of financial statements. John Wiley & Sons.

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