Recording Adjusting and Closing Entries and Preparing a Statement of Earnings, Including Earnings per Share, and a Statement of Financial Position
Mitakis Inc., a small service repair company, keeps its records without the help of an accountant. After much effort, an outside accountant prepared the following unadjusted trial balance as at the end of the company's fiscal year, December 31, 2015:
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Account Titles
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Debit
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Credit
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Cash
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$19,600
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|
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Trade receivable
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7,000
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|
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Supplies inventory
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1,300
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Prepaid insurance
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900
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Equipment (five-year life, no residual value)
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27,000
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Accumulated depreciation, equipment
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$12,000
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Other assets
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5,100
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Trade Payables
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2,500
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Note payable (two years; 7% each December 31)
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5,000
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Contributed capital (4,000 shares)
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16,000
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Retained earnings
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10,300
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Service revenue
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48,000
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Other expenses, excluding income tax
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32,900
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|
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Totals
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$93,800
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$93,800
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Data not yet recorded at December 31, 2015, include the following:
1. Depreciation expense for 2015, $3,000.
2. Insurance expired during 2015, $450.
3. Wages earned by employees not yet paid on December 31, 2015, $1,100.
4. Supplies inventory on December 31, 2015, reflecting $600 remaining on hand.
5. Income tax expense, $2,950.
Required:
1. Prepare the adjusting entries at December 31, 2015.
2. Show the effects (direction and amount) of the adjusting entries on net earnings and cash.
3. Prepare a statement of earnings for 2015 and a statement of financial position at December 31, 2015. Include the effects of transactions (a) through (e).
4. Compute the net earnings for the year, assuming that you did not make an adjustment to the balance of the supplies inventory account. Does this error cause a material change to net earnings? Explain.
5. Prepare the closing entries at December 31, 2015.