1 ACCTG 1A Extra Credit Assignment The Extra Credit Assignment will encompass a mini-practice set illustrating numerous aspects of the accounting cycle for a small, boutique service company. Using the facts provided on the following pages, you are required to: (1) (5 points) Prepare transaction entries and create a preliminary trial balance (2) (5 points) Prepare adjusting entries, and create an adjusted trial balance; (3) (5 points) Using the adjusted trial balance, prepare an income statement, statement of retained earnings, and balance sheet; (4) (5 points) Prepare closing entries and a final trial balance; (5) (5 points) Prepare working capital and liquidity financial ratios and assess the financial condition of the business from a short-term creditors perspective. 2 EXTRA CREDIT ASSIGMENT Wag-a-Tail Inc., is a regional company that provides day care and exercise opportunities for pets. The companys accountants make adjusting entries monthly, and they make all closing entries annually. The company started its business on January 1, 2021. While the company prides itself on having no long-term liabilities or debt, the company is considering obtaining a loan from a bank to expand into a second location. Prior to approaching the bank, management needs to generate its year-end financial statements and evaluate whether obtaining the additional debt for expansion is the right decision. The following trial balance dated December 31, 2020 was provided by the company: Wag-a-Tail, Inc. Trial Balance December 31, 2020 Account DR CR Cash $ 175,650 Accounts Receivable 5,800 Pet Supplies 13,500 Office Supplies 1,250 Prepaid Insurance 1,000 Equipment 42,000 Accumulated Depreciation - Equipment $ 7,700 Accounts Payable 12,000 Unearned Pet Service Revenue 4,150 Income Taxes Payable Capital Stock 50,000 Retained Earnings Pet Day Care Revenue 344,500 Rent Expense 8,250 Salary Expense 137,500 Office Supply Expense 450 Pet Supply Expense 8,000 Marketing Expense 7,350 Insurance Expense 12,000 Utilities Expense 3,400 Depreciation Expense - Equipment 2,200 Income Tax Expense 418,350 418,350 Other information pertaining to the companys activity and trial balance is provided as follows: 3 1. December 2020 Transactions prepare journal entries for the following transactions that have not yet been recorded in December 31, 2020 general ledger and create a preliminary December 31, 2020 trial balance. 1. On December 1, 2020, the company purchased a building with a cost of $90,000. The purchase price was paid for using $45,000 of cash at December 1, 2020, with the balance due to the seller on January 15, 2021 based on a non-interest-bearing note payable. 2. On December 5, 2020, the company paid $2,250 for invoices that were already recorded as part of its accounts payable. 3. On December 18, 2020, the company purchased additional office supplies totaling $500 on account. 4. On December 20, 2020, the company received cash totaling $1,800 for outstanding receivables that were due to the company. 5. On December 31, 2020, the company paid $5,000 in dividends to its owners. 2. Year End Adjustments prepare journal entries for the following period-end adjustments and create an adjusted December 31, 2020 trial balance. 1. On January 1, 2020, the company paid cash for its 2020 annual insurance policy (12 months, January through December) in advance. The payment was equal to $12,000. Record the companys insurance expense for December 31, 2020. 2. Record the companys depreciation expense related to the companys new building, purchased on December 1, 2020. The building has a useful life of 30 years, and is depreciated equally each month. 3. The company provided services to pet owners equal to $2,150. These owners prepaid for these services in January 2020 during a special grand opening promotion. 4. The company incurred salary expense of $12,500 for the month, paid on January 2, 2021. 5. Income taxes are accrued at a combined tax rate of 28%. Income tax payments are due early in 2021. Prepare the adjusting entry to account for income tax expense that accrued for the year 2021.