Problem: Tutors for Rent, Inc., performs adjusting entries every month, but closes its accounts only at yearend.
The company's year-end adjusted trial balance dated December 31, 2002, was:
EXERCISE:
Accounting Terminology
EXERCISE
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,100
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Accumulated depreciation: equipment . . . . . . . . . . . . . . . . . . . . . . . $ 5,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Tutoring revenue earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,000
Salary expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,000
Supply expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Depreciation expense: equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Income taxes expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,600
176,000 $176,000
$TUTORS FOR RENT, INC.
Q1. Prepare an income statement and statement of retained earnings for the year ended December 31, 2002. Also prepare the company's balance sheet dated December 31, 2002.
Q2. Does the company appear to be liquid? Defend your answer.
Q3. Has the company been profitable in the past? Explain.