Party Wagon, Inc., provides musical entertainment at weddings, dances, and various other functions. The company performs adjusting entries monthly, but prepares closing entries annually on December 31. The company recently hired Jack Armstrong as its new accountant. Jacks first assignment was to prepare an income statement, a statement of retained earnings, and a balance sheet using an adjusted trial balance given to him by his predecessor, dated December 31, current year.

From the adjusted trial balance, Jack prepared the following set of financial statements.

Instructions:

a.) Prepare a corrected set of financial statements dated December 31, current year. (You may assume that all of the figures in the companys adjusted trial balance were reported correctly except for Interest Payable of $240, which was mistakenly omitted in the financial statements prepared by Jack.)

b.) Prepare the necessary year-end closing entries.

c.) Using the financial statements prepared in part a, briefly evaluate the companys profitability and liquidity. (No transactions affected the capital stock account during the year.)

PARTY WAGON, INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, CURRENT YEAR $156,000 2,160 10.800 $168,960 $2,160 14,400 1,440 1,200 90,000 19,200 Revenue: Party revenue earned. Unearned party revenue Accounts receivable.. Total revenue . . . . ... Expenses: Insurance expense... Office rent expense.. Supplies expense.... Dividends.......... Salary expense..... Accumulated depreciation: van Accumulated depreciation: equipment and music Repair and maintenance expense Travel expense...... Miscellaneous expense Interest expense.... Income before income taxes Income taxes payable.. Net income......... 16,800 2,400 7,200 4,320 5,280 164,400 $4,560 480 $4,080 PARTY WAGON, INC. STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, CURRENT YEAR $18,000 Retained earnings (per adjusted trial balance) Add: Income................... Less: Income taxes expense ....... Retained earnings Dec. 31, current year 4,080 2,400 $19,680 PARTY WAGON, INC. BALANCE SHEET DECEMBER 31, CURRENT YEAR Assets Cash... $18,000 600 Supplies ........... Van ................ $48,000 9,600 38,400 Less: Depreciation expense: van Equipment and music.. $42,000 8,400 33,600 $90,600 Less: Depreciation expense: music and equipment Total assets. Liabilities & Stockholders' Equity Liabilities: Accounts payable... Notes payable ...... Salaries payable.... Prepaid rent..... Unexpired insurance. Total liabilities ....... Stockholders' Equity: Capital stock. ...... Retained earnings... Total stockholders' equity Total liabilities and stockholders' equity $ 8,400 46,800 1,920 2,400 5,400 $64,920 6,000 19,680 $25,680 $90,600