Trial question:

The Reed Company has a fiscal year on December 31 and its financial statements are prepared on an annual basis. However, the accounting records are damaged accidentally. For the fiscal year ended on December 31, 2020, only the unadjusted trial balance and the statement of financial position on December 31 are currently available.

Please try to restore other parts of the accounting records using the currently available information. The change in Accounts Receivables totally comes from providing service to customers.

1. Based the information given above, prepare adjusting entries for the Reed Company on December 31, 2020. You may omit descriptions for the journal entries.

2. Based on the information given above, prepare the income statement for Reed Company on December 31, 2020.

3. Based on the information given above, prepare the closing entries for the Reed Company on December 31, 2020. You may omit descriptions for the journal entries.

4. Originally, the insurance expense was mistakenly omitted and thus the expenses were greatly understated and the income was much higher than the current number. The error was identified and corrected using an correcting entry by the accountant. However, when the president of Reed Company prefers the original income and requires the accountant to remove the adjusting for insurance.

a. Who are the stakeholders in this situation?

b. Which accounting principles might be violated in this situation? Explain the effects on financial statements of the requirement by the president.

Accounts Payable Accounts Receivable Accumulated Depreciation-Equip. Cash Depreciation Expense Dividends Equipment Insurance Expense Prepaid Insurance Prepaid Rent Retained Earnings Rent Expense Salaries and Wages Expense Salaries and Wages Payable Service Revenue Share Capital-Ordinary Supplies Supplies Expense Unearned Service Revenue Unadjusted Trial Balance 7,000 1,540 9,100 42,000 0 7,700 52,500 0 12,460 10,500 36,540 0 26,600 0 67,200 21,000 2,240 1,400 16,100 Reed Company Statement of Financial Position December 31, 2020 $ 52,500 (11.900) $ 40,600 1,050 7,000 490 2,240 42,000 Assets Property, plant, and equipment Equipment. Less: Accumulated depreciation-equipment. Current assets Prepaid insurance Prepaid Rent.. Supplies Accounts receivable Cash...... Total assets Equity and Liabilities Equity Share capital-ordinary. Retained earnings. Current liabilities Accounts payable Unearned Service Revenue. Salaries and Wages payable. Total equity and liabilities 52,780 $93,380 $21,000 49,980 $70,980 7,000 10,500 4,900 22,400 $93,380