Question

Required information

Answer 1

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.