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Copy of Chap004 1.doc
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Copy of Chap004 1.doc-Chapter 04 - Adjustments, Fi...
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Copy_of_Chap004_1.doc-Chapter 04 - Adjustments, Financial Statements,
Page 28
Chapter 04 - Adjustments, Financial Statements, and the Quality of Earnings
E4–18.
Req. 1
(a)
Insurance expense (+E,
SE)
.....................................
4
Prepaid insurance (
A)
......................................
4
(b)
Wages expense (+E,
SE)
...........................................
5
Wages payable (+L)
..........................................
5
(c)
Depreciation expense (+E,
SE)
..................................
8
Accumulated depreciation (+XA,
A)
................
8
(d)
Income tax expense (+E,
SE)
....................................
9
Income tax payable (+L)
...................................
9
Req. 2
RED RIVER COMPANY
Trial Balance
December 31, 2011
(in thousands of dollars)
Unadjusted
Adjustments
Adjusted
Account Titles
Debit
Credit
Debit
Credit
Debit
Credit
Cash
35
35
Accounts receivable
9
9
Prepaid insurance
6
a
4
2
Machinery
80
80
Accumulated depreciation
c
8
8
Accounts payable
9
9
Wages payable
b
5
5
Income taxes payable
d
9
9
Contributed capital
73
73
Retained earnings
4
4
Revenues (not detailed)
84
84
Expenses (not detailed)
32
a
4
c
8
b
5
d
9
58
Totals
166
166
26
26
188
188
4-28
Page 29
Chapter 04 - Adjustments, Financial Statements, and the Quality of Earnings
E4–19.
RED RIVER COMPANY
Income Statement
For the Year Ended December 31, 2011
(in thousands of dollars)
Revenues (not detailed)
$84
Expenses ($32 + $4 + $8 + $5)
49
Pretax income
35
Income tax expense
9
Net income
$26
EPS ($26,000 ÷ 4,000 shares)
$6.50
RED RIVER COMPANY
Statement of Stockholders' Equity
For the Year Ended December 31, 2011
(in thousands of dollars)
Contributed
Capital
Retained
Earnings
Total
Stockholders'
Equity
Beginning balances, 1/1/2011
$
0
$
0
$
0
Stock issuance
73
73
Net income
26
26
Dividends declared
(4) *
(4)
Ending balances, 12/31/2011
$
73
$
22
$ 95
*
The amount of dividends declared can be inferred because the unadjusted trial
balance amount for retained earnings is a negative $4.
Since this is the first year of
operations, we can assume the entire amount is due to a dividend declaration.
RED RIVER COMPANY
Balance Sheet
At December 31, 2011
(in thousands of dollars)
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$ 35
Accounts payable
$
9
Accounts receivable
9
Wages payable
5
Prepaid insurance ($6 - $4)
2
Income taxes payable
9
Total current assets
46
Total current liabilities
23
Machinery
80
Stockholders' Equity:
Accumulated depreciation
(8)
Contributed capital
73
Retained earnings
22
Total assets
$118
Total liabilities and
stockholders' equity
$118
4-29
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