ACC 207 P4-7

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ACC 207 P4-7. Arash Foroudi Becky Truax Julio Perez Ken Chen Michael English. Question.

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### ACC 207 P4-7

Arash Foroudi

Becky Truax

Julio Perez

Ken Chen

Michael English

Question

Wagonblatt Company is completing the information processing cycle at its fiscal year end, December 31,2006. Following are the correct balances at December 31, 2006, for the accounts both before and after the adjusting entries for 2006.

Requirement #1Compare the amounts in the columns before and after the adjusting entries to reconstruct the adjusting entries made in 2006. Provide an explanation of each.

Requirement #2Compute the amount of income assumed that it is based on the amounts (a) before adjusting entries and (b) after adjusting entries. Which income amount is correct? Explain why.

46,000 - 41,700 = 4,300

46,400 - 55,100 = (8700)

Expenses are significantly understated before the adjusting entries, therefore the amount of income computed after the adjusting entries is more accurate.

Requirement #3Compute earnings per share, assuming that 3,000 shares of stock are outstanding all year.

Earnings per share = Income/Average number of shares of common stock outstanding

-8,700/3,000 = -2.9

Requirement #4Compute the net profit margin. What does this suggest to you about the company?

Net profit margin = net income/ net sales

-8700/46,400=-18.8%

Requirement #5Record the closing entry at December 31, 2006.

Service revenue(-R) . . . . . . . . . . . 46,400

Salary expense(-E) . . . . . . . . . . . . . 41,700

Depreciation expense(-E) . . . . . . . . . .8,500

Insurance expense(-E) . . . . . . . . . . . . . 200

Income tax expense(-E) . . . . . . . . . . .4,700

Retained Earnings(-SE) . . . . . . . . . .(8,700)

Requirement #6

Wagonblatt Company

Post Closing Trial Balance

December 31 2006

(Dollars)

Debit Credit

Cash 9,000

Accounts receivable 400

Prepaid insurance 400

Equipment 120,200

Accumulated Depreciation on Equipment 40,000

Income taxes payable 4,700

Contributes capital 80,000

Retained earnings January 1, 2006 5,300

Service Revenue 0

Salary expense 0

Depreciation expense 0

Insurance expense 0

Income tax expense 0

130,000130,000