Compare the balances on January 4, 2019 with Requirement 2 balances on January 4, 2019.
After all the journal entries are made, the balances are
the same
regardless of whether or not reversing
entries are made.
10.
The adjusted trial balance of Debbie O’Donnel Dance Studio Company follows:
Requirement 1.
Prepare the classifieid balance sheet
of Debbie O’Donnell Dance Studio Company at
August 31, 2018. Use the report form. You must
compute the ending balance of Retained Earnings.
Every balance sheet is prepared in a similar manner.
Begin by preparing the asset section of
Debbie O'Donnell Dance Studio Company's classified
balance sheet. Remember that current assets are those
that will be converted to cash, sold, or used up during
the next 12 months, or within the business's operating
cycle if the cycle is longer than a year. Cash, Accounts
Receivable, Office Supplies, and Prepaid Expenses
are examples of current assets. Long-term assets are
all the assets that will not be converted to cash or used
up within the business's operating cycle or one year,
whichever is greater. Long-term assets are typically
made up of three categories:
long-term investments
,
property, plant, and equipment
, and
intangible assets
.
Go ahead and select the labels of the asset portion of
the classified balance sheet.
The
balance sheet lists liabilities in the order in which
they must be paid. The two liability categories
reported on the balance sheet are current liabilities
and
long-term liabilities.
Current liabilities must be paid either with cash or
with goods and services within one year, or within
the entity's operating cycle if the cycle is longer than
a year. Accounts Payable, Notes Payable due within
one year, Salaries Payable, Interest Payable, and
Unearned Revenue are all current liabilities. Any
portion of a long-term liability that is due within the
next year is also reported as a current liability.
Current liabilities are listed in the order that they are
due. Long-term liabilities are all liabilities that do not
need to be paid within one year or within the entity's
operating cycle, whichever is longer. Many Notes
Payable are long-term, such as a mortgage on a
building.
Go ahead and select the labels,
accounts, and subtotals to report on the liabilities and stockholders'
equity
section of Debbie O'Donnell Dance Studio Company's classified balance sheet.
The retained earnings balance at August 31, 2018 has not been provided, but we can compute it by using
our knowledge of the Statement of Retained Earnings. In this case we need to compute the net income
using the information provided in the adjusted trial balance (
total revenues - total expenses
). Compute the
ending retained earnings amount below.
Net Income = 16,700 – 5,000 – 2,000 – 300 – 600 – 1400 = 7,400
Requirement 2.
Compute O’Donnell’s current ratio at August 31, 2018. One year ago, the current ratio was
1.24. Indicate whether O’Donnell’s ability to pay current debts has improved, deteriorated, or remained the
same.
