Question

example problem: accounting cycle (journalizing adjusting entries)yo yo companydecember 1, 20xxassets:cashaccounts receivable (a/r)suppliesprepaid renttotal assets$ 2,0008,2001,2006,000$ 17,400liabilities:accounts payableunearned revenuecapital stockretained earningstotal liabilities and s/e$ 2,7004,2008,4002,100$ 17,400step three: journalizing december transactions (general journal)assets:december 2, 20xx, yo yo company purchased a truck for $7,000 cashdr: truckcr: cash$ 7,000$ 7,000revenues:december 7, 20xx, yo yo company earned $2,000 for services performed for ace landscaping company on december 7, 20xx. yo yo completed the performance obligationsdr: cashcr: service revenue$ 2,000$ 2,000december 8, 20xx, yo yo company billed anns diner for services rendered which amounted to $750. yo yo completed its performance obligationsdr: accounts receivablecr: service revenue$ 750$ 750expenses:december 10, 20xx, yo yo paid $950 rent to lisa low rent house company for the month of decemberdr: rent expensecr: cash$ 950$ 950december 16, 20xx, yo yo purchased advertising space on account for the last two weeks of december costing $650 from the daily newsdr: advertising expensecr: accounts payable$ 650$ 650dividends:december 20, 20xx, yo yo declared a dividend of $750 to be paid in january of the next yeardr: dividendscr: dividends payable$ 750$ 750collecting ar:december 31, 20xx, yo yo collected $500 of the $750 owed to them by anns dinerdr: cashcr: accounts receivable$ 500$ 500step four: prepare financial statements(a)yo yo companyincome statementfor the month ended 12-31-20xxrevenues: service revenue$ 2,750less: expenses:$ ______net income $ ________(b)yo yo companystatement of retained earningsfor the month ended 12-31-20xxbalance 12-1-20xx$ ____add: ____$ ________deduct: ________$ ____balance 12-31-20xx $ ________(c)yo yo companybalance sheetdecember 31, 20xxassets:current assetscash$ 2,300____$ ________________$ ____total current assets $ ________long term________$ ____________$ ________total assets$ ____liabilities:current liabilities____$ ________________$ ____total current liabilities$ ________stockholders equity:________$ ____________$ ________total liabilities and s/e$ ______• why is the above balance sheet called a classified balance sheet?

Explanation:

Step1: Calculate total expenses

First, sum all expense amounts from the journal entries:
$\$450 + \$800 + \$460 = \$1710$

Step2: Complete Income Statement

Net Income = Service Revenue - Total Expenses
$\$2750 - \$1710 = \$1040$

Step3: Complete Retained Earnings Statement

Assume beginning retained earnings (12-1-20XX) is $\$0$ (no prior balance given).
Add: Net Income = $\$1040$
Deduct: Dividends = $\$750$
Ending Retained Earnings = $\$0 + \$1040 - \$750 = \$290$

Step4: Calculate Accounts Receivable

Remaining receivable from Aunt's Diner: $\$750 - \$500 = \$250$
Total Current Assets = Cash + Accounts Receivable
$\$2300 + \$250 = \$2550$
Total Assets = Total Current Assets (no long-term assets given) = $\$2550$

Step5: Calculate Current Liabilities

Sum unearned revenue and dividends payable:
$\$2000 + \$750 = \$2750$
Total Liabilities = $\$2750$
Total Stockholders' Equity = Common Stock + Retained Earnings
$\$1000 + \$290 = \$1290$
Verify: Total Liabilities + Equity = $\$2750 + \$1290 = \$4040$ (matches total assets)

Step6: Answer classified balance sheet question

Classified balance sheets group accounts into categories (current/long-term) for clarity.

Answer:

(a) Income Statement

Yo Yo Company
Income Statement
For The Month Ended 12-31-20XX
Revenues: Service Revenue $\$2,750$
Less: Expenses $\$1,710$
Net Income $\$1,040$

(b) Statement of Retained Earnings

Yo Yo Company
Statement of Retained Earnings
For The Month Ended 12-31-20XX
Balance 12-1-20XX $\$0$
ADD: Net Income $\$1,040$
DEDUCT: Dividends $\$750$
Balance 12-31-20XX $\$290$

(c) Balance Sheet

Yo Yo Company
Balance Sheet
December 31, 20XX
Assets:
Current Assets
CASH $\$2,300$
Accounts Receivable $\$250$
Total Current Assets $\$2,550$
Long Term: $\$0$
Total Assets $\$2,550$

Liabilities:
Current Liabilities
Unearned Revenue $\$2,000$
Dividends Payable $\$750$
Total Current Liabilities $\$2,750$

Stockholders Equity:
Common Stock $\$1,000$
Retained Earnings $\$290$
Total Stockholders' Equity $\$1,290$
Total Liabilities and S/E $\$4,040$

Classified Balance Sheet Explanation:

It is called a classified balance sheet because it organizes assets and liabilities into distinct, meaningful categories (current and long-term), which makes it easier to analyze the company's short-term liquidity and long-term financial position.