GG Company was formed on January 1, 2021. On December 31, Gil Goodman, the owner, prepared a balance sheet:

Goodman, Capital is equal to the amount Gil originally invested in the company when he started it on January 1, 2021.

5. Gil paid $1,200 for a one-year insurance policy on December 31. He did not include it in the balance sheet because the insurance is for 2022 and not 2021.

6. Gil knows that a balance sheet needs to balance but on his first attempt he had $108,000 of assets and $83,000 of liabilities and owner?s equity. He reasoned that the difference was the amount of profit the company earned this year and added that to the balance sheet as part of owner?s equity.

Instructions

a. Identify any corrections that should be made to the balance sheet, and explain why by referring to the appropriate accounting concept, assumption, or principle.

b. Prepare a corrected balance sheet for GG Company at December 31. (Hint: To get the balance sheet to balance, adjust owner?s equity.)

Taking It Further

Assume that Gil did not make any withdrawals from the company in 2021, nor any investments other than his initial investment of $25,000. What was the actual profi t for the year?

Transcribed Image Text:

GG COMPANY Balance Sheet December 31, 2021 Assets Liabilities and Owner's Equity Accounts payable Boat loan payable G. Goodman, capital Profit for 2021 $ 45,000 Cash Accounts receivable $ 15,000 20,000 25,000 Supplies Boat 18,000 $108,000 25,000 $108,000