Zolar Moving Co. has been in operation for over 30 years providing moving services for local households and businesses, and is the oldest independent moving company in Ithaca, NY. It is now December 31, 2020, the end of the annual accounting period. Assume that the company has not done well financially during the year, although revenue has been fairly good. The two stockholders manage the company, but they have not given much attention to recordkeeping. In view of a serious cash shortage, they have applied to your bank for a $30,000 loan. You requested a complete set of financial statements. The following 2020 annual financial statements were prepared by a clerk and then were given to your bank. ZOLAR MOVING CO. Balance Sheet At December 31, 2020 Assets Cash Receivables Supplies Equipment Prepaid insurance Remaining assets Total assets Liabilities Accounts payable Stockholders' Equity Common stock (10,000 shares outstanding) Retained earnings Total liabilities and stockholders' equity $ 2,000 3,000 4,000 40,000 6,000 27,000 $ 82,000 $ 9,000 30,000 43,000 $ 82,000 ZOLAR MOVING CO. Income Statement For the Period Ended December 31, 2020 Transportation revenue $ 85,000 Expenses: Salaries expense 17,000 Supplies expense 12,000 Other expenses 18,000 Total expenses 47,000 Net income $ 38,000 After briefly reviewing the statements and looking into the situation," you requested that the statements be redone (with some expert help) to "incorporate depreciation, accruals, inventory counts, income taxes, and so on." As a result of a review of the records and supporting documents, the following additional information was developed: a. The Supplies of $4,000 shown on the balance sheet has not been adjusted for supplies used during 2020. A count of the supplies on hand on December 31, 2020, showed $1,800 worth of supplies remaining. b. The insurance premium paid in 2020 was for years 2020 and 2021. The total insurance premium was debited in full to Prepaid Insurance when paid 2020 and no adjustment has been made. c. The equipment cost $40,000 when purchased January 1, 2020. It has an estimated annual depreciation of $8,000. No depreciation has been recorded for 2020. d. Unpaid (and unrecorded) salaries at December 31, 2020, amounted to $3,200. e. At December 31, 2020, transportation revenue collected in advance amounted to $7,000. This amount was credited in full to Transportation Revenue when the cash was collected earlier during 2020. f. The income tax rate is 25 percent. Required: 1. Record the six adjusting entries required on December 31, 2020, based on the preceding additional information. 2. Recast the preceding statements after taking into account the adjusting entries. 3. What is the impact of the omission of the adjusting entries? 4. For both the unadjusted and adjusted balances, calculate these ratios for the company. There were 10,000 shares outstanding all year. Assume the correct amount of total assets at the beginning of the year was $46,400. (a) earnings per share. (b) total asset turnover
