One year ago, Kirkland Thompson founded Thompson Commercial Sales Company, and the business has done very well. Thompson comes to you for advice. He wishes to know how much net income the business earned during the past year. The accounting records consists of the T-accounts in the ledger, which were prepared by an accountant who has moved. The accounts at December 31, 2015 follow:
Additional information:
Thompson indicates that, at year-end, customers owe the business $1,000 accrued service revenue, which the business expect to collect early next year. These revenues have not been recorded. During the year, the business collected 4,100 service revenue in advance from customers, but the business has earned on $800 of that amount. During the year Thompson Commercial has incurred $2,400 of advertising expense, but the business has not yet paid for it. In addition, the business has used up $2,100 of the office supplies. Thompson determines that depreciation on equipment was $7,000 for the year. At December 31, 2015, the business owes its employees $1,200 accrued salary.
To get a loan to expand the business, Thompson must show the bank that the business' stockholders' equity has grown from its original $10,500 balance. You and Thompson agree that you will meet again in one week.
In order to assist Thompson, prepare a report of your assessment of Thompson Commercial Sales Company business that you will present to Kirkland Thompson.
Use the additional information provided at year-end to record the adjusting entries and post them into the ledger accounts to calculate the new year-end balances.
Use the updated general ledger balances to prepare the following financial statements [in proper order]:
Income Statement
Statement of Retained Earnings
Balance sheet
Use the information on the financial statements to answer the following questions:
- Was Thompson Commercial Sales Company profitable in 2015?
- Has the stockholders' equity grown?
- Can Thompson expect to get the loan? Give your reasons for your response. [Hint: Calculating some appropriate liquidity ratios, such as current ratio, cash ratio, acid-test ratio, etc. may help.]
If Kirkland Thompson establishes another branch of the business in Panama City, Panama, what accounting standards will the company use to record the accounting activities and prepare the financial statements