P4-2A The adjusted trial balance columns of the worksheet for Porter Company are as follows.
PORTER COMPANY
Worksheet
For the Year Ended December 31, 2008
Adjusted
Account Trial Balance
No. Account Titles Dr. Cr.
101 Cash 18,800
112 Accounts Receivable 16,200
126 Supplies 2,300
Prepare worksheet, financial
statements, and adjusting and
closing entries.
$57,800
Total assets $48,730
Complete worksheet; prepare
financial statements, closing
entries, and post-closing trial
balance.
Instructions
(a) Complete the worksheet by extending the balances to the financial statement columns.
(b) Prepare an income statement, a retained earnings statement, and a classified balance sheet.
$10,000 of the notes payable become due in 2009. No additional issuance of common stock
occurred during 2008.
(c) Prepare the closing entries. Use J14 for the journal page.
(d) Post the closing entries. Use the three-column form of account. Income Summary is account
No. 350.
(e) Prepare a post-closing trial balance.
Complete the worksheet
To complete the worksheet for Porter Company, follow these steps:
(a) Extend the balances to the financial statement columns:
- Move the balances from the adjusted trial balance column to the appropriate financial statement columns (Income Statement, Retained Earnings, and Balance Sheet).
- Determine the net income by subtracting total expenses from total revenues.
- Transfer the net income to the Retained Earnings column.
- Calculate the ending balances by adding the net income (or subtracting net loss) to the beginning balances.
For example:
Income Statement:
Revenue: [List all revenue accounts and their amounts]
- Expenses: [List all expense accounts and their amounts]
Net Income/Loss: $X
Retained Earnings:
Beginning Balance: $X
+ Net Income (or - Net Loss): $X
- Dividends (if any): $X
Ending Balance: $X
Balance Sheet:
Assets: [List all asset accounts and their amounts]
Liabilities: [List all liability accounts and their amounts]
Equity: [List all equity accounts and their amounts]
Total Assets: $X
Total Liabilities and Equity: $X
(b) Prepare the income statement, retained earnings statement, and classified balance sheet:
- Use the information from the financial statement columns on the completed worksheet to prepare the three required financial statements.
- The Income Statement shows the company's revenues, expenses, and net income or loss.
- The Retained Earnings Statement shows the changes in retained earnings, including net income or loss and any dividends issued.
- The Classified Balance Sheet shows the company's assets, liabilities, and equity, classified into specific categories.
(c) Prepare the closing entries:
- Closing entries are made to transfer the temporary account balances (revenues and expenses) to the Retained Earnings account.
- Debit each revenue account for its balance and credit the Income Summary account for the same amount.
- Credit each expense account for its balance and debit the Income Summary account for the same amount.
- Debit or credit the Income Summary account for the net income or loss, and credit or debit the Retained Earnings account accordingly.
- If dividends were issued, debit the Retained Earnings account and credit the Dividends account.
(d) Post the closing entries:
- Use the three-column form of an account to post the closing entries to the respective accounts.
- Debit or credit each account for the amount specified in the closing entries.
(e) Prepare a post-closing trial balance:
- After the closing entries have been posted, prepare a trial balance using the ending balances of the permanent accounts (assets, liabilities, and equity accounts).
- Temporary accounts (revenues, expenses, and dividends) should have a zero balance since they were closed.
By following these steps, you will be able to complete the worksheet, prepare financial statements, closing entries, and post-closing trial balance for Porter Company.