Reen Lawns Inc Performs Adjusting Entries Every Month

Reen Lawns Inc Performs Adjusting Entries Every Month But Close

Reen Lawns, Inc., performs adjusting entries every month, but closes its accounts only at year-end. The company’s year-end adjusted trial balance dated December 31, 2015, was provided, along with various instructions for preparing financial statements, closing entries, and calculating financial ratios. The assignment involves preparing an income statement, statement of retained earnings, balance sheet, closing entries, an after-closing trial balance, and computing key financial ratios based on provided data. Additionally, it requires preparing adjusting entries for a separate trial balance and analyzing specific account balances and dividend payments, with a focus on understanding accounting procedures as they relate to this company's financial reporting for 2015.

Paper For Above instruction

The financial reporting process at Reen Lawns Inc. encompasses a range of meticulous steps reflecting sound accounting principles. The first step involves constructing an income statement for the year ended December 31, 2015, based on the adjusted trial balance data. The income statement summarizes revenues and expenses, resulting in net income or loss, and provides insight into the company's profitability for the period. Using the provided data, the revenue (Lawn care revenue earned) amounts to $192,000, with expenses including salaries ($104,000), supply expenses ($2,400), advertising expenses ($600), depreciation expenses ($2,000), and income taxes expense ($23,600), totaling approximately $132,600. The net income can then be calculated as revenue minus total expenses.

Next, the statement of retained earnings is prepared to reconcile retained earnings at the beginning and end of the period, incorporating net income from the income statement and deducting dividends paid, which total $4,000. Beginning retained earnings plus net income, minus dividends, equal the ending retained earnings, which should match the amount provided ($90,000). The balance sheet then summarizes the company's assets, liabilities, and equity as of December 31, 2015, including current assets such as cash ($182,200), accounts receivable ($9,000), supplies ($600), equipment ($24,000), along with accumulated depreciation ($10,000). Liabilities include accounts payable ($3,000) and income taxes payable ($7,000). The equity section encompasses capital stock ($50,000) and retained earnings ($90,000). Proper classification and totaling of these components ensure accurate reporting.

Regarding liquidity, an analysis of current assets ($182,200 + $9,000 + $600) versus current liabilities ($3,000 + $7,000) reveals whether the company is liquid. Given assets exceed liabilities significantly, Reen Lawns appears to be liquid. Profitability assessment involves examining net income, which confirms that the company has been profitable in 2015.

The assignment further extends to preparing all necessary closing entries as of December 31, 2015. This includes closing revenue accounts to income summary, closing expense accounts to income summary, transferring net income to retained earnings, and closing dividends to retained earnings. The process ensures that temporary accounts are reset for the new accounting period, and that net income is incorporated into retained earnings. After posting these entries, an after-closing trial balance confirms the accuracy of the closing process, listing permanent accounts and their balances.

A supplementary task involves analyzing Cat Fancy, Inc.’s financial performance. Calculations include computing the net income percentage (net income divided by total revenue), return on equity (net income divided by average equity), and the current ratio (current assets divided by current liabilities). These ratios gauge profitability, efficiency, and liquidity, respectively, providing insights into the company's financial health for 2015.

Another important element concerns Terrific Temps, which performs monthly adjusting entries for unearned fees, accrued expenses, and other adjustments based on an unadjusted trial balance. The assignment requires preparing specific adjusting journal entries for each scenario, such as recording earned fees that were previously unearned, recognizing insurance and rent expenses, depreciation, accrued interest, salaries, and income taxes. These entries ensure the financial statements reflect the actual economic activity of December 2015. Furthermore, clarifications are requested regarding the reporting of certain account balances, including service fees earned, travel expenses, insurance expenses, and whether dividends declared during the year have been paid.

In conclusion, this extensive accounting exercise emphasizes the importance of accurate record-keeping, thorough adjusting and closing procedures, and ratio analysis to assess financial performance and liquidity. Proper application of these principles ensures that Reen Lawns Inc. and related entities produce reliable financial statements, essential for decision-making by stakeholders and compliance with accounting standards.

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