Question Requirement:
Use the information adjusted trial balance to prepare Sierra Company's classified balance sheet as of December 31. SIERRA COMPANY Balance Sheet December 31:
Answer:
SIERRA COMPANY Balance Sheet December 31:
Current Assets:
Cash $35,000
Prepaid insurance 2,000 $37,000
Long-Term Assets:
Notes receivable (due in 5 years) 7,000
Buildings 95,000
Accumulated depreciation 27,000 68,000 $75,000
Total Assets $112,000
Current Liabilities:
Accounts payable 10,000
Long-term Liabilities:
Notes payable (due in 3 years) 10,500 $20,500
H. Sierra, Capital $33,000
H. Sierra, Withdrawals 8,500 24,500
Retained Earnings 67,000 $91,500
Total Liabilities + Equity $112,000
Explanation:
a) Sierra Company's Income Statement:
Consulting revenue $84,500
Wages expense -5,000
Depreciation expense–Buildings -9,500
Insurance expense -3,000
Net Income $67,000
b) Here, the Net Income is equal to the Retained Earnings, which is carried forward.
c) To prepare a balance sheet, which contains permanent accounts, the temporary accounts or periodic accounts must be eliminated in the Income Statement summary. The resulting figure is then carried forward to the balance sheet. Permanent accounts are the accounts that are carried forward to the next accounting period. They are stated in the balance sheet according to their various assets, liabilities, and equity classifications.
