Reflect (5 points)

Answer the questions about the final three steps in the accounting cycle.

1. Why does an accountant need to make income statement? (1 point)

2. How does a statement of owner's equity depend on an income statement? (1 point)

3. How does a balance sheet depend on a statement of owner's equity? (1 point)

4. Why is closing entries an important part of the accounting cycle? (1 point)

5. What is listed in the post-closing trial balance? (1 point)

Analyze (10 points)

Analyze a scenario involving the preparation of income statements, owner's statement of equity, and balance sheets.

1. You are an accountant at a small publishing company. You are reviewing an income statement that has been prepared by one of your peers. The income statement you receive is as follows.Income Statement

For the Year Ending December 31

RevenuesBooks sold$120,000ExpensesSalaries$90,000Advertising25,000Interest5,000105,000Net income$15,000

a. What error was made in this income statement? (2 points)

b. How should this error be corrected? Show how you would correct the error in the income statement. (2 points)

2. One of your peers is working on the owner's statement of equity. He tells you that the owner ended the year with $25,000 in equity, after withdrawing $10,000.

a. Based on this information, how much did the owner invest in the business over the course of the year? (2 points)

3. The following balance sheet has been prepared, and when you look at it you again see an error.Balance Sheet

December 31

AssetsCash$50,000

Accounts receivable20,000

Equipment$250,000

Total assets$320,000

LiabilitiesAccounts payable$60,000

Salaries payable25,000

Interest payable30,000

Notes payable110,000

Unearned revenue20,000

Total liabilities$245,000

Owner's equityTotal owner's equity$25,000

Total liabilities and equity$320,000

a. What error was made when preparing this balance sheet? (2 points)

b. What should be done to correct this error? (2 points)

Synthesize (25 points)

Make an unadjusted trial balance, make a worksheet to reflect adjustments made to a trial balance, and prepare three types of financial statements for a business's accounts.

Remember that you should use spreadsheet and/or accounting software to maintain accounting records and perform the steps of the accounting cycle. For these questions, try using spreadsheet software to create the data, manipulate formulas, and format your data. One helpful formula is =SUM(X:X), used to display a sum for a range of cells in a spreadsheet. You enter the first cell in the range (e.g. B2) and then the last cell in the range (e.g. B7) where the Xs are. Either copy and paste your spreadsheet data into this document or include the spreadsheet document itself when completing the assignment.

• 1. As the head accountant of a small business, you are preparing to complete the entire accounting cycle for your business's quarterly books. You have already prepared the following chart of accounts:AssetsCash: $27,500
• Accounts receivable: $3,500
• Equipment: $6,000
• Accumulated depreciation: $0
• LiabilitiesAccounts payable: $3,000
• EquityEquity: $19,000
• RevenueRevenue: $27,000
• ExpensesDepreciation: $0
• Rent: $4,500
• Supplies: $2,500
• Utilities: $1,000
• Wages: $4,000

a. Begin by preparing an unadjusted trial balance for these accounts. (5 points)

b. After a trial balance has been prepared, you learn that you will need to make an adjustment after depreciation of the equipment was calculated at $200. Make ten-column worksheet that reflects this adjustment. (5 points)

c. Now, use this information to make an income statement, statement of owner's equity, and balance sheet. Start with the income statement. (5 points)

d. Use the income statement you have prepared to make statement of owner's equity. (5 points)

e. Use the statement of owner's equity you have prepared to make a balance sheet. (5 points)