Institute of Business Management
Financial Accounting
Assignment One
Deadline to submit is February 21, 2021
Question No. 1
Weaklink, Inc., a service company, performs adjusting entries monthly, but prepares closing entries
annually on December 31. The company recently hired John Notsogood as its new accountant. John’s
first assignment was to prepare an income statement, a statement of retained earnings, and a balance
sheet using an adjusted trial balance given to him by his predecessor, dated December 31, 2019.
WEAKLINK, INC.
Income Statement
for the Year Ended December 31, 2019
Revenue:
Service revenue earned.......................................................... $150,000
Unearned revenue.................................................................. 2,000
Accounts receivable............................................................... 10,000
Total revenue......................................................................... $162,000
Expenses:
Insurance expense.................................................................. $ 2,100
Office rent expense................................................................ 16,000
Supplies and expense............................................................. 1,000
Dividends............................................................................... 2,000
Salary expense....................................................................... 80,000
Accumulated depreciation; auto............................................ 15,000
Accumulated depreciation; equipment.................................. 12,000
Repair & maintenance expense.............................................. 1,800
Travel expense....................................................................... 7,000
Miscellaneous expense........................................................... 2,200
Interest expense...................................................................... 3,000 142,100
Income before income taxes.............................................................. $ 19,900
Income taxes payable......................................................................... 500
Net income......................................................................................... $ 19,400
WEAKLINK, INC.
Statement of Retained Earnings
for the Year Ended December 31, 2019
Retained earnings (per adjusted trial balance)......................................................... $20,000
Add: Income............................................................................................................ 19,400
Less: Income taxes expense.................................................................................... 3,000
Retained earnings (12/31/02).................................................................................. $36,400
Page 1 of 4
WEAKLINK, INC.
Balance Sheet
December 31, 2019
Assets
Cash.................................................................................................... $13,600
Supplies.............................................................................................. 600
Auto.................................................................................................... $35,000
Less: Depreciation expense; auto....................................................... 6,000 29,000
Equipment and music......................................................................... $42,000
Less: Depreciation expense; equipment............................................. 5,000 37,000
Total assets......................................................................................... $80,200
Liabilities & Stockholders’ Equity
Liabilities:
Accounts payable................................................................... $ 3,000
Notes payable......................................................................... 35,000
Salaries payable..................................................................... 800
Prepaid rent............................................................................ 1,000
Unexpired insurance.............................................................. 2,000
Total liabilities....................................................................... $41,800
Stockholders’ Equity:
Capital stock........................................................................... 2,000
Retained earnings................................................................... 36,400
Total stockholders’ equity...................................................... $38,400
Total liabilities and stockholders’ equity........................................... $80,200
Instructions
a. Prepare a corrected set of financial statements dated December 31, 2019. (You may assume
that all of the figures in the company’s adjusted trial balance were reported correctly except for
Notes Payable, which is some other amount other than $35,000.)
b. Prepare the necessary year-end closing entries.
Question No. 2
Medical Wonders, Inc., provides medical advice over the Internet. In recent years the company has
experienced severe financial difficulty. Its accountant prepares adjusting entries on a monthly basis,
and closing entries on an annual basis, at December 31. An adjusted trial balance dated December
31,2002, follows.
MEDICAL WONDERS, INC.
Adjusted Trial Balance
December 31, 2002
Debits Credits
Cash.................................................................................................... $ 300
Accounts receivable........................................................................... 150
Unexpired insurance.......................................................................... 1,500
Prepaid rent........................................................................................ 2,000
Supplies.............................................................................................. 400
Furniture and fixtures......................................................................... 9,000
Accumulated depreciation; furniture and fixtures............................. $ 6,000
Accounts payable............................................................................... 7,000
Notes payable..................................................................................... 21,550
Salaries payable................................................................................. 1,800
Interest payable.................................................................................. 200
Unearned client revenue.................................................................... 400
Capital stock....................................................................................... 5,000
Retained earning................................................................................ 1,000
Client revenue earned........................................................................ 54,000
Insurance expense.............................................................................. 5,000
Office rent expense............................................................................ 10,000
Supplies expense................................................................................ 400
Salary expense................................................................................... 50,000
Depreciation expense; furniture and fixtures..................................... 1,000
Office and telephone expense............................................................ 3,200
Internet service expense..................................................................... 5,000
Legal expense..................................................................................... 2,000
Interest expense.................................................................................. 3,000
Miscellaneous expense....................................................................... 4,000 ______
$96,950 $96,950
Page 3 of 4
Instructions
a. Prepare an income statement and statement of related earnings for the year ended December 31,
2002. Also prepare the company’s balance sheet dated December 31, 2002. (Hint: The
company incurred no income taxes expense in 2002.)
b. Prepare the necessary year-end closing entries.
c. Prepare an after-closing trial balance.
