Question
White Ltd has adjusted trial balance as follows on 30 June 2020. Debit Credit Cash 1,280,000 Service fee revenue 81,000 Account receivable 650,000 Prepaid insurance
White Ltd has adjusted trial balance as follows on 30 June 2020.
| Debit | Credit |
Cash | 1,280,000 |
|
Service fee revenue |
| 81,000 |
Account receivable | 650,000 |
|
Prepaid insurance expense | 55,000 |
|
Equipment | 980,000 |
|
Accumulated depreciation-Equipment |
| 305,000 |
Salaries expense | 753,000 |
|
Depreciation expense | 21,000 |
|
Accounts payable |
| 281,000 |
Loan |
| 730,000 |
Capital |
| 400,000 |
Drawings | 15,000 |
|
Retained earnings |
| 310,000 |
Rent expense | 23,000 |
|
Sales |
| 7,021,000 |
Rent revenue |
| 6,000 |
Cost of goods sold | 4,100,000 |
|
Prepaid rent expense | 71,000 |
|
Inventory | 430,000 |
|
Accrued service fee revenue | 11,000 |
|
Insurance expense | 25,000 |
|
Interest expense | 50,000 |
|
Commission expense | 670,000 |
|
| 9,134,000 | 9,134,000 |
Required:
(a) Prepare the closing entries. (6 marks)
(b) Calculate debt-to-equity ratio and interest coverage ratio, and comment on the solvency of the company. (6 marks)
(c) Prepare reversing entries, assuming prepaid expenses are originally record as expenses. (3 marks)
Debt-to-equity ratio = Total liabilities/Total shareholders equity
Interest coverage ratio = Earnings before interest and tax (EBIT)/Net interest expense
*Please upload the solution as soon as you can finish it. Thanks for your help
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