Reference no: EM132468126

On December 31, 2017, Waters Company prepared an income statement and balance sheet, but failed to take into account three adjustments. The balance sheet showed total assets $150,000, total liabilities $70,000, and stockholders' equity $80,000. The incorrect income statement showed net income of $70,000.

The data for the three adjustments were:

1. Salaries and wages amounting to $10,000 for the last 2 days in December were not paid and not recorded. The next payroll will be in January.

2. Rent payments of $8,000 was received for two months in advance on December 1. The entire amount was recorded as Unearned Rent Revenue when received.

3. Depreciation expense for 2017 is $9,000.

Instructions

Question 1: Complete the following table to correct the financial statement amounts shown (indicate deductions with parentheses).

ITEM                        NET INCOME       TOTAL ASSETS         TOTAL LIABILITIES          STOCKHOLDER'S

EQUITY

Incorrect balances        $70,000                   $150,000                   $70,000                      $80,000

Effects of:

Salaries and wages

Rent Revenue

Depreciation

Correct Balances

Companies prepare balance sheets in order to know their fi nancial position at a specific point in time. This enables them to make a comparison to their position at previous points in time and gives them a basis for planning for the future. In order to evaluate your financial position, you can prepare personal balance sheet. Assume that you have compiled the following information regarding your fi nances. (Hint: Some of the items might not be used in your personal balance sheet.)

Amount owed on student loan balance (long-term)        $ 5,000

Balance in checking account                                        1,200

Certificate of deposit (6-month)                                   3,000

Annual earnings from part-time job                               11,300

Automobile                                                                 7,000

Balance on automobile loan (current portion)                    1,500

Balance on automobile loan (long-term portion)                 4,000

Home computer                                                             800

Amount owed to you by younger brother                          300

Balance in money market account                                 1,800

Annual tuition                                                            6,400

Video and stereo equipment                                         1,250

Balance owed on credit card (current portion)                   150

Balance owed on credit card (long-term portion)             1,650

Instructions

Question 1: Make a personal balance sheet using the format you have learned for a classified balance sheet for a company. For the equity account, use M. Y. Own, Capital.