Scenario: One year ago, Allan Thorpe founded Alcazar Sales Company, and the business has prospered. Allan comes to you for advice. He wishes to know how much net income the
Scenario: One year ago, Allan Thorpe founded Alcazar Sales Company, and the business has prospered. Allan comes to you for advice. He wishes to know how much net income the business earned during the past year. The accounting records consist of the T-accounts in the ledger, which were prepared by an accountant who has resigned from the company. The accounts at December 31, are as follows: Cash Accounts receivable Dec 31 Bal 5,800 Dec 31 Bal 12,300 Prepaid rent Supplies 2-Jan 2,800 2-Jan 2,600 Equipment Accumulated depreciation- equipment 2-Jan 52,000 Accounts payable Salary payable Dec 31 Bal 18,500 Unearned service revenue Allan Thorpe, capital Dec 31 Bal 4,100 2-Jan 40,000 Allan Thorpe, drawing Service revenue Dec 31 Bal 50,000 Dec 31 Bal 80,700 Salary expense Depreciation expense Dec 31 Bal 17,000 Advertising expense Utilities expense Dec 31 Bal 800 Supplies expense Rent expense Apply Your Knowledge Allan indicates that, at year-end, customers owe him $1,000 accrued service revenue, which he expects to collect early next year. These revenues have not been recorded. During the year, he collected $4,100 service revenue in advance from customers, but the business has earned only $800 of that amount. During the year he has incurred $2,400 of advertising expense, but he has not yet paid for it. In addition, he has used up $2,100 of the supplies. Allan determines that depreciation on equipment was $7,000 for the year. At December 31, he owes his employee $1,200 accrued salary. The rent paid in advance on Jan 2 for $2,800 relates to the period January 2019 through to February 2020. The owner made no capital investments during the year. Allan expresses concern that drawing during the year might have exceeded the business’s net income. To get a loan to expand the business, Allan must show the bank that the business’s owner’s equity has grown from its original $40,000 balance. You and Allan agree that you will meet again in one week. Requirement: Prepare the journal entries for the transactions that were not previously recorded, prepare and update the T-accounts and determine the ending balance on all accounts used by the company. Prepare the adjusted trial balance for the company. Prepare the 2019 company’s financial statements for presentation to the bank and to address the first issue concerning Allan. Has the owner’s equity grown from its original $40,000 balance.? Can Mr. Thorpe expect to get the loan? Give your reason(s).
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