Question
Hope Company operates as a sole trader. Below is a trial balance extracted from her books as at 31 December 2020 Debit Credit _ .
Hope Company operates as a sole trader. Below is a trial balance extracted from her books as at 31 December 2020
| Debit | Credit |
| _ . | |
Sales revenue |
| 685,000 |
Inventory (as at 1 January 2020) | 105,800 |
|
Purchases | 625,200 |
|
Non-current assets at cost: |
|
|
Equipment | 100,000 |
|
Motor vehicle | 80,000 |
|
Accumulated depreciation: |
|
|
Equipment |
| 10,000 |
Motor vehicle |
| 10,000 |
Insurance | 14,700 |
|
Rent | 30,000 |
|
Heating and lighting | 10,000 |
|
Salaries and wages | 30,000 |
|
Motor expenses | 15,300 |
|
Miscellaneous expenses | 28,000 |
|
Receivables | 110,000 |
|
Allowance for receivables |
| 14,000 |
Payables |
| 101,000 |
Cash | 81,000 |
|
Bank loan |
| 100,000 |
Capital |
| 310,000 |
Total | 1,230,000 | 1,230,000 |
Additional information is provided for use in preparing the companys adjustments:
- The value of closing inventory is 102,500.
- On November 1, Hope Company borrowed 100,000, at 6% annual interest, from the National Bank. Hope Company has 120 days before the first payment is required.
- Hope has paid her rent until 31 March 2021. Her annual rent is 24,000.
- Office equipment has a useful life of ten years and a residual value of 0. It is to be depreciated on a straight-line basis.
- The motor vehicle with a useful life of ten years and an estimated residual value of 30,000 is to be depreciated on a straight-line basis at a rate of 10%.
- Hope finds that receivables of 10,000 need to be written off as irrecoverable.
- The allowance for receivables is to be set at ten per cent of the remaining outstanding receivables as at 31 December 2020.
- The heating bill will arrive on 5 January and about 1,000 is expected to relate to the period until 31 December.
Required:
- Prepare Hopes income statement for the year ended December 31, 2020.
- Prepare Hopes balance sheet as at December 31, 2020.
How do the adjusting entries differ from other journal entries?? Explain why adjusting entries are needed.
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