Lesson 3 – Preparation of Financial Statements

Activity 1: From Adjusted Trial Balance to Preparation of Financial Statements

Below is the Adjusted Trial Balance of Magnificent Landscaping Service
As of April 30, 2018

Magnificent Landscaping Service

Adjusted Trial Balance
April 30, 2018

Account Title Debit Credit

Cash 2,950,000
Accounts receivable 575,000
Office supplies 40,000
Prepaid Insurance 240,000
Equipment 2,500,000
Accumulated depreciation – Equipment 35,000
Accounts payable 28,000
Salaries payable 420,000
Unearned Lawn Mowing Revenue 100,000
Common stock 5,000,000
Dividends 1,000,000
Lawn Mowing Revenue 2,350,000
Gas expense 53,000
Advertising expense 35,000
Depreciation expense – Equipment 35,000
Supplies expense 85,000
Salaries expense 420,000
Totals 7,933,000 7,933,000
Required:
Prepare the following: A) Income Statement
Maleficent Landscaping Service
Income Statement
April 30, 2018

Revenues and Gains

Lawn Mowing Revenue 2,350,000
Total revenues and gains 2,350,000

Expenses and Losses

Gas Expense 53,000
Advertising expense 35000
Depreciation expense-Equipment 35,000
Supplies expense 85000
Salaries expense 420,000
Total expenses and losses 628,000
Net Income 1,722,000

B) Statement of Retained Earnings

Maleficent Landscaping Service
Statement of Retained Earnings
April 30, 2018

Beginning Retained Earnings (Jan 1)

Net Income 1,722,000
1,722,000
Dividends 1,000,000
Ending Retained Earnings (Jan 31) 722,000
C) Statement of Financial Position
Maleficent Landscaping Service
Statement of Financial Position
April 30, 2018

Assets
Current Assets
Cash 2,950,000
Accounts Receivable 575,000
Office Supplies 40,000
Prepaid Insurance 240,000
Total Current Assets 3,805,000
Noncurrent Assets
Equipment 2,500,000
Accumulated Depreciation-Equipment -35000 2,465,000
Total Noncurrent Assets 2,465,000
Total Assets 6,270,000
Liabilities
Current Liabilities
Accounts Payable 28,000
Salaries Payable 420,000
Unearned Lawn Mowing Revenue 100,000
Total Liabilities 548,000
Stockholders' Equity
Common Stock 5,000,000
Ending Retained Earnings 722,000
Total Stockholder's Equity 5,722,000
Total Liabilities and Stockholders' Equity 6,270,000

Activity 2: The following is the adjusted trial balance data for Emma’s Alterations as
of December 31, 2019.
A. Use the data provided to compute net sales for 2019. = 276,647
B. Compute the gross margin for 2019. = 186, 314
C. Compute the gross profit margin ratio. = 67.35%

D. Prepare a simple income statement for the year ended December 31, 2019.
 Emma's Alterations
Income Statement
Year Ended December 31, 2019

Revenues and Gains

Sales 276,647.00

Interest Revenue 100,976.00

Rent Revenue 65,500.00

Total revenues and gains 443,123.00

Expenses and Losses

Cost of goods sold 90,333.00

Sale salaries expense 26,750.00

Office supplies expense 4,903.00

Interest Expense 3,570.00

Rent Expense 10,400.00

Depreciation expense-office equipment 8,560.00

Insurance expense 3,421.00

Advertising expense 11,878.00

Total expenses and losses 159,815.00

Net income 283,308.00

E. Prepare a multi-step income statement for the year ended December 31, 2019.
 Emma's Alterations
Income Statement
Year Ended December 31, 2019

Sales 276,647.00
Cost of goods sold (90,333.00)
Gross Profit 186,314.00

Operating expenses
Selling expenses

Sale salaries expense 26,750.00

Advertising expense 11,878.00 38,628.00

Administrative expenses

Office supplies expense 4,903.00

Rent expense 10,400.00

Depreciation expense-office
equipment 8,560.00

Insurance expense 3,421.00 27,284.00

Total operating expenses 65,912.00

Operating income 120,402.00

Non-Operating or other

Interest revenues 100,976.00

Rent revenues 65,500.00

Interest expense (3,570.00)
Total non-operating 162,906.00

Net Income 283,308.00

Activity 3:  The following is the adjusted trial balance data for Elm Connections
as of December 31, 2019.

A. Use the data provided to compute net sales for 2019. = 393,491.00
B. Compute the gross margin for 2019. = 212,861.00
C. Compute the gross profit margin ratio = 54.10%

D. Prepare a simple income statement for the year ended December 31, 2019.
 Elm Connections
Income Statement
Year Ended December 31, 2019

Revenues and Gains

Sales 393,491.00

Interest Revenue 94,568.00

Rent Revenue 90,000.00

Total revenues and gains 578,059.00

Expenses and Losses

Cost of goods sold 180,630.00

Sale salaries expense 25,180.00

Office supplies expense 5,942.00

Interest Expense 3,566.00

Rent Expense 15,485.00

Depreciation expense-office
equipment 9,000.00

Insurance expense 9,324.00

Advertising expense 19,193.00

Total expenses and losses 268,320.00

Net income 309,739.00

E. Prepare a multi-step income statement for the year ended December 31,
2019.
 Elms Connections
Income Statement
Year Ended December 31, 2019

Sales 393,491.00
Cost of goods sold (180,630.00)
Gross Profit 212,861.00

Operating expenses
Selling expenses

Sale salaries expense 25,180.00

Advertising expense 19,193.00 44,373.00

Administrative expenses

Office supplies expense 5,942.00

Rent expense 15,485.00

Depreciation expense-office equipment 9,000.00

Insurance expense 9,324.00 39,751.00

Total operating expenses 84,124.00

Operating income 128,737.00

Non-Operating or other

Interest revenues 94,568.00

Rent revenues 90,000.00

Interest expense (3,566.00)
Total non-operating 181,002.00

Net Income 309,739.00

Activity 4: Following is the adjusted trial balance data for Garage Parts Unlimited
as of December 31, 2019.
A. Use the data provided to compute net sales for 2019. = 610,501
B. Compute the gross margin or 2019. = 402,485
C. Compute the gross profit margin ratio = 65.93 %

D. Prepare a simple income statement for the year ended December 31, 2019.
 Garage Parts Unlimited
Income Statement
Year Ended December 31, 2019

Revenues and Gains

Sales 610,501.00

Interest Revenue 216,745.00

Rent Revenue 101,600.00

Total revenues and gains 928,846.00

Expenses and Losses

Cost of goods sold 208,016.00

Sale salaries expense 29,878.00

Office supplies expense 5,942.00

Interest Expense 9,560.00

Rent Expense 19,191.00

Depreciation expense-office equipment 8,657.00

Insurance expense 10,234.00

Advertising expense 22,389.00

Total expenses and losses 313,867.00

Net income 614,979.00

E. Prepare a multi-step income statement for the year ended December 31,
2019.
 Garage Parts Unlimited
Income Statement
Year Ended December 31, 2019

Sales 610,501.00
Cost of goods sold (208,016.00)
Gross Profit 402,485.00

Operating expenses
Selling expenses

Sale salaries expense 29,878.00

Advertising expense 22,389.00 52,267.00

Administrative expenses

Office supplies expense 5,942.00

Rent expense 19,191.00

Depreciation expense-office
equipment 8,657.00

Insurance expense 10,234.00 44,024.00

Total operating expenses 96,291.00

Operating income 306,194.00

Non-Operating or other

Interest revenues 216,745.00

Rent revenues 101,600.00

Interest expense (9,560.00)
Total non-operating 308,785.00

Net Income 614,979.00