Statement of retained earnings

PROJECT GOAL The goal of this graded project is to create the following financial statements for J & L Accounting, Inc.:

¦ Balance sheet

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¦ Income statement

¦ Statement of retained earnings

B Post-closing trial balance

The financial statements must be created in one Microsoft

Word document (.doc or .docx file). Alternatively, an Excel

workbook may be used (.xls or .xlsx file). The Word or Excel

file will be uploaded for grading.

INSTRUCTIONS Read the following instructions thoroughly before beginning your work. This will help you to become familiar with what is involved in the project. Some students start on the project

right away, thinking they’ll save time. Those students tend to

get stuck and spend more time working through the project than is necessary. The material you need to know in order

to complete the project has been covered in the textbook and the assigned exercises and problems. If you understand the

chapters and completed the assigned homework problems,

you should have no problem with the project.

The project is to be done by hand with a pencil and paper. Use the blank forms provided. At the end of the project, you 11 be given instructions for creating and uploading the financial statements in a Word or Excel file for grading.

 

 

Note: The formatting of financial statements is important.

They follow Generally Accepted Accounting Principles (GAAP), which creates a uniformity of financial statements for analyz¬

ing. This allows for an easier comparison, as all businesses

follow GAAP. Therefore, the financial statements should be

created exactly the same way shown or referenced in the text¬

book. Failure to do so will result in a loss of points.

The project references “debits equaling credits.” This is a

fundamental principle of accounting that mustn’t be violated.

Doing so is not acceptable under any circumstance. Debits not

equaling credits allows for “cooking of the books,” which is presenting false information. It also allows for embezzlement,

which is theft by management or employees. If debits don’t equal credits, the cause may be a lack of understanding of

accounting principles, such as those presented in the text¬

book and assigned homework problems, or a lack of focus

and concentration when making journal entries, posting to

ledger accounts, or completing math. Remember—instructors

are available to help you with material you may be struggling with. Mistakes of the lack-of-focus variety are best corrected

by going back over the work until the error is found.

The accounting equation must balance on the balance sheet.

This is another fundamental principle of accounting that can’t be violated and if so is completely unacceptable. When

the equation doesn’t balance and the numbers are “fudged,”

this is easily detectable by someone who knows accounting. If

your debits equal your credits and you understand which

general ledger accounts belong on which financial state¬

ments, then the accounting equation should balance. It’s

really all about understanding the concepts and applying that understanding.

The following financial statements are provided from the prior accounting period for J & L Accounting, Inc.:

a) Post-closing trial balance

b) Balance sheet

c) Income statement

d) Statement of retained earnings

Financial Accounting

 

 

J & L Accounting, Inc. Post-Closing Trial Balance

December 31, 2014

BALANCE

ACCOUNT TITLE DEBIT CREDIT

Cash, Business Checking 20,500.00

Accounts Receivable

Prepaid Rent

Vehicles 48,000.00

Accumulated Depreciation, Vehicles 12,000.00

Equipment

Accumulated Depreciation, Equipment

Accounts Payable

Common Stock

3,600.00

600.00

38,000.00

Retained Earnings zl,buu.ou

Dividends

Service Revenue

Advertising Expense

Rent Expense

Office Supplies Expense

Telephone Expense

Utilities Expense

Depreciation Expense

TOTALS 72,100.00 72,100.00

Lesson 2

 

 

J & L Accounting, Inc. Balance Sheet

As of December 31, 2014

ASSETS

Cash, Business Checking 20,500.00 Accounts Receivable 0.00

Prepaid Rent 0.00 Vehicles 48,000.00 Less: Accumulated Depreciation, Vehicles 12,000.00 36,000,00 Equipment 3,600.00 Less: Accumulated Depreciation, Equipment 600.00 3,000.00

TOTAL ASSETS 59,500.00

LIABILITIES Accounts Payable 0.00

TOTAL LIABILITIES 0.00

STOCKHOLDERS’ EQUITY

Common Stock 38,000.00 Retained Earnings 21,500.00

TOTAL STOCKHOLDERS’ EQUITY 59,500.00

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 59,500.00

Financial Accounting

 

 

J & L Accounting, Inc. Income Statement

For the Month Ending December 31, 2014

REVENUES

Service Revenue

EXPENSES

Advertising Expense

Rent Expense

Office Supplies Expense

Telephone Expense

Utilities Expense

Depredation Expense

TOTAL EXPENSES

NET INCOME

2,300.00

1,000.00

300.00

750.00

3,200.00

1,100.00

10,275.00

8,650.00

1,625,00

Lesson 2

 

 

3 & L Accounting, Inc. Statement of Retained Earnings

For the Month Ending December 31, 2014

Retained Earnings, December 1, 2014 19,875,00

Add: Net Income 1,625.00

Subtotal 21,500.00

Less: Dividends QiQQ.

Retained Earnings, December 31, 2014 21,500.00

 

 

l)Using the following blank forms (make as many copies

as necessary), set up the general ledger accounts for the

general ledger and insert the beginning balances for the accounts from the post-closing trial balance. The balances

from the post-closing trial balance become the beginning

balances of the accounts for the next account period.

DATE ITEM POST REF. DEBIT CREDIT

BALANCE

DEBIT CREDIT

Lesson 2

 

 

DATE ITEM POST REF. DEBIT

BALANCE

CREDIT DEBIT CREDIT

Financial Accounting

 

 

2) Journalize the following transactions in the general jour¬ nal using the following blank form (make as many copies

as needed). When making journal entries, each individ¬

ual journal entry’s debits should equal its credits. (The amount for a journal entry can be incorrect or the entry

can be incorrect. However, the debits still have to equal

the credits even though the entry is incorrect. If the jour¬

nal entry is incorrect, it can be corrected later when

making adjusting/correcting journal entries. For exam¬

ple, if the amount is supposed to be $1,100, and for some reason the amount of $1,010 is recorded, this is

acceptable—although incorrect, it can be corrected later.)

The total of the debits must always equal the total of the

credits for each journal entry—always. This is a funda¬

mental GAAP that cannot be violated.

a. On January 1, 2015, a payment in cash for $12,000

is made for prepaying rent for the entire year 2015.

b. On Januaiy 4, 2015, accounting services are

performed and payment is received in cash for

the amount of $1,900.

c. On January 9, 2015, a payment in cash for

advertising is made in the amount of $850.

d. On January 10, 2015, office supplies are purchased

in the amount of $75 with cash.

e. On January 14, 2015, accounting services are

performed and payment is received in cash for

the amount of $2,725.

f. On January 20, 2015, the telephone bill for the amount of $660 is received and paid with cash.

g. On Januaiy 20, 2015, the utilities bill for $2,925 is received. The bill won’t be paid until it is due on

February 15, 2015.

h. On Januaiy 27, 2015, accounting services are

performed on account in the amount of $3,750.

i. On Januaiy 28, 2015, a payment in cash for $1,500 is made for a bill from an advertising agency.

Lesson 2

 

 

DATE ACCOUNTS POST REF. Dr. Cr.

Financial Accounting

 

 

3) Post the general journal entries from the journal to the corresponding general ledger accounts, paying particular

attention to the posting being made (debit or credit). Use the Post Ref. column to ensure that each line item of the

journal entries is posted correctly to each general ledger

account. Posting from the journal to the general ledger is

nothing more than rearranging the information. If the

debits equal the credits for a particular journal entry and the information is posted correctly, the total of the debits should equal the total of the credits in the general ledger.

4) Calculate the balances in the general ledger accounts.

(Use an Excel spreadsheet or a printing calculator, and

run the numbers several times for accuracy. Often, deb¬

its won’t equal credits on the trial balance because a

hand-held calculator is used and the math is done only

once. Using a hand-held calculator can introduce errors.

This is why an Excel spreadsheet is recommended. However,

if a hand-held calculator is all that’s available to you, be

sure to do the math enough times that you know the cal¬

culations are accurate.) To calculate the balances in the

ledger accounts, you’ll need to do the following:

1) Add the debits.

2) Add the credits.

3) Subtract the larger amount from the other, or,

alternatively, keep the running balance of the

amount in the account and whether it’s a debit

or credit on the ledger.

5) Create an unadjusted trial balance from the balances in the general ledger accounts. (Once again, be very careful

when doing the math. When calculating the totals of the debit and credit columns, they should be equal. If not,

do not continue until the debits equal the credits. An

error has been made and must be found and corrected

from the previous steps.) See page 129 of the text for an example of an unadjusted trial balance. Use the following

blank form.

Lesson 2

 

 

ACCOUNT DEBIT CREDIT

Financiai Accounting

 

 

6) Journalize the following adjusting journal entries in the general journal, being sure that the debits equal

the credits:

a. Calculate and make the adjustment for the amount

of pre-paid rent that has been used.

b. Make an adjusting journal entry in the amount

of $1,000 for depreciation of the vehicles.

c. Make an adjusting journal entry in the amount

of $100 for depreciation of the equipment.

7) Post the adjusting journal entries to the respective gen¬ eral ledger accounts, again being sure that the postings

are to the correct debit or credit side and that the Post Ref. column is used.

8) Calculate the new balances in the general ledger accounts.

Create an adjusted trial balance from the balances in the general ledger accounts using the same blank form

provided in step 5 when you created the unadjusted trial balance. See Exhibit 3-3 on page 114 in your textbook for an example of an adjusted trial balance. Make sure

the math is correct and that the debit column is equal to the credit column. If not, don’t continue until the error

has been found.

9) Create the income statement for J & L Accounting, Inc.

using the information from the adjusted trial balance. Use the following blank form to create the income statement.

Its format should be the same as the format used for the statement provided at the beginning of the project for the

prior accounting period.

Lesson 2

 

 

Financial Accounting

 

 

10) Create the closing journal entries in the general journal to close the revenue, expense, and dividend accounts to

the retained earnings account, paying attention to debits

equaling credits.

11) Post the closing journal entries to the respective general

ledger accounts.

12) Calculate the balances in the general ledger accounts.

13) Create a post-closing trial balance from the balances

in the general ledger accounts using the same blank

form that was provided in step 5 when you created the unadjusted trial balance. The post-closing trial balance

should be in the same format as the post-closing trial

balance provided at the beginning of the project for the prior accounting period. Make sure the math is correct

and that the debit column is equal to the credit column. If not, don’t continue until the error has been found.

14) Create the balance sheet for J & L Accounting, Inc. using the information from the post-closing trial balance. If the

debits equal the credits from the previous work and the closing entries were made properly, then the accounting

equation should balance on the balance sheet. If the assets

don’t equal the liabilities plus stockholders’ equity, an error has been made that needs to be corrected. The bal¬

ance of the accounting equation is another fundamental

GAAP principle that can’t be violated. Use the following

form to create the balance sheet. Its format should be

the same as the format of the statement provided at the

beginning of the project for the prior accounting period.

Lesson 2

 

 

Financial Accounting

 

 

15) Create the statement of retained earnings for J & L Accounting, Inc. using the ending balance from the

statement of retained earnings from the prior period

and the net income from the income statement for the

January accounting period. (No dividends were paid out

during the month of January.) Follow the same format

from the statement of retained earnings at the beginning

of the graded project for the prior accounting period using the blank form on the following page.

Lesson 2

 

 

Financial Accounting

 

 

Having created the balance sheet, the income statement,

the statement of retained earnings, and the post-closing trial

balance on the blank forms that were provided, the financial statements must now to be typed up in a Microsoft Word

document and saved as a .doc or .docx file. Microsoft Excel

can also be used (saving the file with the extension .xls or

.xlsx). Each financial statement should be on its own page

(or worksheet). The name of the file should include your stu¬ dent ID number and the graded project exam number, such

as “21512345_061579.docx” as an example.

Insert tables in the Word document if you feel you need them to format the financial statements. Alternatively, space and

tab in Word to get the formatting of the statements set up correctly. Formatting is important. Also, keep in mind that

points will be deducted for incorrect capitalization, spelling,

underlining and double underlining, as well as for improper headings, dates, indentations, and columns.

Create all of the financial statements in one file. Submission of more than one file will result in the project being returned as ungraded. Submission of only one file is important for

tracking and grading purposes.

Images or scanned images of the financial statements pasted

into a Word document will also result in the project being returned as ungraded. This prevents the ability to “mark up”

the file, and financial statements that are handwritten are

generally considered unprofessional.

Only the financial statements are required. Submitted journals,

ledgers, or unadjusted/adjusted trial balances will not be evaluated.

PLAGIARISM

Plagiarism is taking any part of a published piece of work and using it as your own.

Plagiarism is unacceptable at Penn Foster College. This is a reminder of the expectation to which all Penn Foster College students are held. Per your Student Handbook, students are

expected to conduct themselves with the highest academic and ethical standards. Failure to do so results in disciplinary action.

Lesson 2

 

 

GRADING CRITERIA

The grading criteria for the project are as follows:

The formatting of the four financial statements is worth 10

points each for a total of 40 points (4 X 10 = 40).

An out-of-balance accounting equation on the balance sheet

will result in a loss of 10 points for the formatting of the balance

sheet even though other formatting issues may be correct.

Debits not equaling credits on the post-closing trial balance will result in a loss of 10 points for formatting of the post-closing

trial balance even though other formatting issues may be

correct.

Also, not having made closing journal entries as reflected on

the post-closing trial balance will result in a loss of 10 points for formatting of the post-closing trial balance even though other formatting issues may be correct.

Calculations on the financial statements are based on 18

balances from the general ledger accounts. One is for the

beginning retained earnings balance on the statement of

retained earnings, and one is for the correct ending retained

earnings balance on the statement of retained earnings. This

amounts to a total of 20 figures (18 + 1 + 1 = 20). Each is worth 3 points for a total of 60 points (20 x 3 = 60).

Thus, the formatting of the financial statements (worth 40 points total) plus the figures used for the financial statements (worth 60 points total) provide 100 points for the project.

Formatting 40 points

Figures 60 points

Total Points 100 points

If a project receives a failing grade (less than 70 points), the project will have to be reworked and resubmitted for final grading. The highest grade that can be obtained on a retake

is a 70, which is passing.

Financial Accounting

 

 

SUBMITTING YOUR PROJECT Once you’ve completed the project and your one file is ready

to be submitted, follow the instructions below. Be sure to

check your work, and be sure to upload the correct file. Once

the file is uploaded, it will be graded “as is” and can’t be

resubmitted.

You can submit your graded project online.

Save a final version of your project. Be sure to include your

name, student number, and exam number in the header or

the footer of your saved document. The graded project number

is 061579.

1. Go to www.pennfoster.edu and log in.

2. Go to Student Portal.

3. Click on Take Exam next to the lesson you’re

working on.

4. Enter your email address in the box provided. (Note: This

information is required for online submission.)

5. Attach your file as follows:

a. Click on the Browse box.

b. Locate the file you wish to attach.

c. Double-click on the file.

d. Click on Upload File.

6. Click on Submit Files.

Be sure to keep a backup copy of your completed assignment.

Good luck with the project!

Lesson 2

 

 

NOTES

Financial Accounting

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