Chapter 5 Homework Overview:
1. 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.
Jack’s 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.
PARTY WAGON, INC.
Income Statement
For the Year Ended December 31, Current Year
Revenue:
Party revenue earned $ 156,000
Unearned party revenue 2,160
Accounts receivable 10,800
Total revenue $ 168,960
Expenses:
Insurance expense $ 2,160
Office rent expense 14,400
Supplies expense 1,440
Dividends 1,200
Salary expense 90,000
Accumulated depreciation: van 19,200
Accumulated depreciation: equipment & music 16,800
Repair & maintenance expense 2,400
Travel expense 7,200
Miscellaneous expense 4,320
Interest expense 5,280 164,400
Income before income taxes $ 4,560
Income taxes payable 480
Net income $ 4,080
PARTY WAGON, INC.
Statement of Retained Earnings
For the Year Ended December 31, Current Year
Retained earnings (per adjusted trial balance) $ 18,000
Add: Income 4,080
Less: Income taxes expense 2,400
Retained earnings Dec. 31, current year $ 19,680
, PARTY WAGON, INC.
Income Statement
For the Year Ended December 31, Current Year
Asset
Cash $ 18,000
Supplies 600
Van $ 48,000
Less: Depreciation expense: van 9,600 38,400
Equipment & music $42,000
Less: Depreciation expense: music & equipment 8,400 33,600
Total assets $ 90,600
Liabilities & Stockholder’s Equity
Liabilities: $ 8,400
Accounts payable 46,800
Notes payable 1,920
Salaries payable 2,400
Unexpired insurance 5,400
Total liabilities $ 64,920
Stockholders’ equity:
Capital stock 6,000
Retained earnings 19,680
Total stockholders’ equity $ 25,680
Total liabilities & stockholders’ equity $ 90,600
Required:
a. Prepare a corrected set of financial statements dated December 31, current year. (You may
assume that all of the figures in the company’s 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 company’s profitability
and liquidity. (No transactions affected the capital stock account during the year.)
1. 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.
Jack’s 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.
PARTY WAGON, INC.
Income Statement
For the Year Ended December 31, Current Year
Revenue:
Party revenue earned $ 156,000
Unearned party revenue 2,160
Accounts receivable 10,800
Total revenue $ 168,960
Expenses:
Insurance expense $ 2,160
Office rent expense 14,400
Supplies expense 1,440
Dividends 1,200
Salary expense 90,000
Accumulated depreciation: van 19,200
Accumulated depreciation: equipment & music 16,800
Repair & maintenance expense 2,400
Travel expense 7,200
Miscellaneous expense 4,320
Interest expense 5,280 164,400
Income before income taxes $ 4,560
Income taxes payable 480
Net income $ 4,080
PARTY WAGON, INC.
Statement of Retained Earnings
For the Year Ended December 31, Current Year
Retained earnings (per adjusted trial balance) $ 18,000
Add: Income 4,080
Less: Income taxes expense 2,400
Retained earnings Dec. 31, current year $ 19,680
, PARTY WAGON, INC.
Income Statement
For the Year Ended December 31, Current Year
Asset
Cash $ 18,000
Supplies 600
Van $ 48,000
Less: Depreciation expense: van 9,600 38,400
Equipment & music $42,000
Less: Depreciation expense: music & equipment 8,400 33,600
Total assets $ 90,600
Liabilities & Stockholder’s Equity
Liabilities: $ 8,400
Accounts payable 46,800
Notes payable 1,920
Salaries payable 2,400
Unexpired insurance 5,400
Total liabilities $ 64,920
Stockholders’ equity:
Capital stock 6,000
Retained earnings 19,680
Total stockholders’ equity $ 25,680
Total liabilities & stockholders’ equity $ 90,600
Required:
a. Prepare a corrected set of financial statements dated December 31, current year. (You may
assume that all of the figures in the company’s 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 company’s profitability
and liquidity. (No transactions affected the capital stock account during the year.)
