The list of accounts below and the unadjusted balances of these accounts were taken
from the ledger of the Manville Corporation at the end of their accounting period,
March 31, 20X2:
Cash $ 3,995
Accounts Receivable 13,240
Allowance for Doubtful Accounts 120
Inventory—April 1, 20X1 22,800
Prepaid Insurance 360
Supplies on Hand 520
Equipment 15,000
Accumulated Depreciation—Equipment 4,500
Accounts Payable 11,870
Taxes Payable 390
Capital Stock 25,000
Retained Earnings 11,920
Dividends 9,000
Sales 89,490
Sales Returns and Allowances 920
Sales Discounts 1,330
Purchases 56,320
Purchase Returns and Allowances 490
Purchase Discounts 1,125
Transportation-In 880
Sales Salaries 11,800
Rent Expense 3,600
Advertising Expense 2,700
Utilities Expense 1,880
Maintenance Expense 560
Additional data:
a. Merchandise inventory at March 31, 20X2, was $23,300.
b. The Allowance for Doubtful Accounts should be increased by $600.
c. Prepaid insurance represents a three-year policy purchased April 1, 20X1.
d. Supplies on hand were estimated to be $170 on March 31, 20X2.
e. The cost of the equipment is being depreciated over a 15-year estimated life using
the straight-line method. Salvage value should be ignored.
f. Unpaid sales salaries on March 31, 20X2, amounted to $200.
REQUIRED: 1. Prepare a work sheet. (Adjusted trial balance columns may be omitted.)
2. Prepare an income statement. 3. Prepare a statement of retained earnings. 4. Prepare a
balance sheet. 5. Prepare the closing entries.
To prepare the work sheet, income statement, statement of retained earnings, balance sheet, and closing entries, you need to follow a series of steps. Here's a step-by-step guide on how to complete each requirement:
1. Prepare a work sheet:
A work sheet is a tool used by accountants to organize and summarize the trial balance, adjustments, and other necessary information. Here's how you can prepare a work sheet based on the given information:
a. Copy the account names (from Cash to Maintenance Expense) into the trial balance columns, leaving some space for adjustments and calculations.
b. Enter the unadjusted balances for each account in the appropriate trial balance column.
c. Add the adjustments for each account based on the additional data provided.
- For example, increase the Allowance for Doubtful Accounts by $600, adjust the Prepaid Insurance based on the remaining months, estimate the Supplies on Hand, etc.
d. Calculate the adjusted balances by adding the unadjusted balance and adjustment for each account.
e. Extend the adjusted balances to the adjusted trial balance columns and calculate the total.
f. Prepare the financial statements by transferring the balances from the adjusted trial balance to the respective income statement and balance sheet columns.
2. Prepare an income statement:
The income statement shows the revenues, expenses, and net income or loss of a company over a specific period. To prepare the income statement:
a. Transfer the revenue accounts (Sales, Sales Returns and Allowances, Sales Discounts) to the income statement columns.
b. Transfer the expense accounts (Sales Salaries, Rent Expense, Advertising Expense, Utilities Expense, Maintenance Expense) to the income statement columns.
c. Calculate the subtotal for Total Revenue by adding the revenue accounts.
d. Calculate the subtotal for Total Expenses by adding the expense accounts.
e. Calculate the Net Income or Net Loss by subtracting Total Expenses from Total Revenue.
3. Prepare a statement of retained earnings:
The statement of retained earnings shows the changes in a company's retained earnings from the beginning to the end of a period. To prepare the statement of retained earnings:
a. Start with the beginning balance of Retained Earnings.
b. Add the Net Income or subtract Net Loss (from the income statement) to the beginning balance.
c. Subtract dividends (Dividends) to calculate the ending balance of Retained Earnings.
4. Prepare a balance sheet:
The balance sheet shows the financial position of a company at a specific point in time. To prepare the balance sheet:
a. Transfer the accounts from the asset section (Cash, Accounts Receivable, Inventory, Prepaid Insurance, Supplies on Hand, and Equipment) to the balance sheet columns.
b. Transfer the accounts from the liability section (Accounts Payable, Taxes Payable) and equity section (Capital Stock, Retained Earnings) to the balance sheet columns.
c. Calculate the subtotal for Total Assets by adding the asset accounts.
d. Calculate the subtotal for Total Liabilities and Equity by adding the liability and equity accounts.
5. Prepare the closing entries:
Closing entries are made to transfer the balances of temporary accounts (revenue, expense, and dividend accounts) to the retained earnings account. To prepare the closing entries:
a. Close revenue accounts (Sales, Sales Returns and Allowances, Sales Discounts) to the Income Summary account.
b. Close expense accounts (Sales Salaries, Rent Expense, Advertising Expense, Utilities Expense, Maintenance Expense) to the Income Summary account.
c. Close the Income Summary account to Retained Earnings.
d. Close the Dividends account to Retained Earnings.
Note: It's important to refer to the specific format and structure required by your accounting standards or instructor for each financial statement or entry.
Following these steps will allow you to complete the requirements of preparing the work sheet, income statement, statement of retained earnings, balance sheet, and closing entries for the Manville Corporation.