Question

Green Valley Company prepared the following trial balance at the end of its first year of operations ending December 31. To simplify the case, the amounts given are in thousands of dollars.
Account Titles Debit Credit
Cash 13
Accounts receivable 10
Prepaid insurance 5
Machinery 72
Accumulated depreciation
Accounts payable 6
Wages payable
Income taxes payable
Common stock (4,000 shares) 7
Additional paid-in capital 52
Retained earnings 4
Revenues (not detailed) 59
Expenses (not detailed) 20
Totals 124 124

Other data not yet recorded at December 31 include:

Insurance expired during current year, $2.
Wages payable, $4.
Depreciation expense for the current year, $6.
Income tax expense, $7.

Required:

Using the adjusted balances, give the closing entry for the current year.

Answer 1

Answer:

a. Insurance expired in the current year, this will necessitate us recognizing an expense of $2 not previously recognized and also a liability of $2 that is already due for payment

b. Wages Payable indicates we are indebted to staff by $4, thus creating a liability; and and a $4 expense that should impact on our operations for current year

c. Depreciation of $6 hasn't been recognized. We need to adjust the value of our Asset downwards with the depreciated value and also recognize that $6 as impacting on business results in current year as an expense

d. Income tax of $7 becomes a liability because it hasn't yet been paid. And we need to position it as a deduction off any profit we may make in the current year.

Explanation:

Adjusted Trial Balance

All in 'thousands

Cash (Dr.) $13

Accounts receivable (Dr.) $10

Prepaid insurance (Dr.) $5

Machinery (Dr.) $72

Accumulated depreciation  (Cr.) $6

Accounts payable (Cr.) $6

Accrued Insurance (Cr.) $2

Wages payable  (Cr.) $4

Income taxes payable  (Cr) $7

Common stock (4,000 shares) Cr $7

Additional paid-in capital (Cr.) $52

Retained earnings (Dr.) $4

Income Tax (Dr.)  $7

Revenues (Cr.) $59

Expenses (Dr.) $20 + $2 + $4 + $6 = $32

Total Debits = $143

Total Credits = $143