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Financial Statements, Adjusting, Closing, Post-closing

Also see attached file for assignment P4-3B - Happy Trails Resort.

HAPPY TRAILS RESORT
Trial Balance
August 31, 2007

Debit Credit
Cash 24,600
Prepaid Insurance 5,400
Supplies 4,300
Land 40,000
Cottages 132,000
Furniture 36,000
Accounts Payable $ 6,500
Unearned Rent Revenue 6,800
Mortgage Payable 120,000
Common Stock 100,000
Dividends 5,000
Rent Revenue 80,000
Salaries Expense 53,000
Utilities Expense 9,400
Repair Expense 3,600
$313,300 $313,300

Other data:
1. Insurance expires at the rate of $450 per month.
2. An inventory count on August 31 shows $1,200 of supplies on hand.
3. Annual depreciation is $4,800 on cottages and $4,000 on furniture.
4. Unearned rent of $5,000 was earned prior to August 31.
5. Salaries of $600 were unpaid at August 31.
6. Rentals of $1,200 were due from tenants at August 31. (Use Accounts Receivable.)
7. The mortgage interest rate is 7% per year. (The mortgage was taken out August 1.)

Instructions
(a) Journalize the adjusting entries on August 31 for the 3-month period June 1-August 31.
(b) Prepare a ledger using T accounts. Enter the trial balance amounts and post the adjusting entries.
(c) Prepare an adjusted trial balance on August 31.
(d) Prepare an income statement and a retained earnings statement for the 3 months ended August 31 and a classified balance sheet as of August 31.
(e) Identify which accounts should be closed on August 31.

Attachments

Solution Preview

The attached MS Excel document shows how this problem is completed. This is an explanation to further help make the information understandable.

The end of the year accounting cycle which includes adjusting entries is the first step. I have included some notes about how the calculations are made concerning Prepaid Insurance and Supplies. In the case of each of these the important to remember is to find the amount expired or used up. Prepaid Insurance expires which means that as each ends a portion of the prepaid becomes an expense. Supplies are used up therefore Beginning Supplies minus Supplies on hand end of period = amount used up. Cottages and Furniture are assets which lose their value which ...

Solution Summary

This solution is comprised of several steps to complete the accounting cycle. These steps include how to complete the following:
journalize adjusting entries.
prepare a ledger using T accounts and post adjusting entries.
prepare an adjusted trial balance.
prepare an income statement, retained earnings statement, and classified balance sheet.
identify which accounts should be closed.

The problem shown here is taken from Financial Accounting and Accounting Principles, Wiley Publishing, however, the detail step-by-step explanation of these topics provides students with a clear understanding of the concepts.

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