Affordable Lawn Care, Inc., provides lawn mowing services to both commercial and residential customers. The company performs adjusting entries on a monthly basis, whereas closing entries are prepared annually at December 31. An adjusted trial balance dated December, current year follows Affordable Lawn Care, Inc.
Adjusted Trial Balance
December 31, current year
Debit Credits
Cash…………………………………………… $117,050
Accounts receivable……………………………. 9,600
Unexpired insurance…………………………. 16,000
Prepaid rent………………………………………. . 6,000
Supplies………………………………………….. 2,150
Trucks…………………………………………… 300,000
Accumulated depreciation: truck $240,000
Mowing equipment………………………. 40,000
Accumulated depreciation: mowing equipment 24,000
Accounts payables……………………………. 3,000
Notes payables………………………… 100,000
Salaries payables…… 1,800
Interest payables………………… 300
Income taxes payables 2,100
Unearned mowing revenue…… 1,800
Capital Stock 40,000
Retained earnings…… 60,000
Dividends……………………… 10,000
Mowing revenue earned……………… 340,000
Insurance expense………………. 4,800
Office rent expense………………….. 72,000
Supplies expense…………………….. 10,400
Salary expense………………………….. 120,000
Depreciation expense: truck……….. 60,000
Depreciation expense: mowing equipment 8,000
Repair and maintenance expense………. 6,000
Fuel expense………………………………… 3,000
Miscellaneous expense………………… 10,000
Interest expense……………………………. 6,000
Income taxes expense……………….. 12,000
$813,000 $813,000
1. Prepare an income statement and statement of retained earnings for the year ended December 31, current year. Also prepare the company’s balance sheet dated December 31, current year
2. Prepare the necessary year end closing entries
3. Prepare an after closing trial balance
4. Using the financial statement prepared in part a, briefly evaluate the company’s profitability and liquidity

Affordable Lawn Care, Inc.

1. Income Statement for the year ended December 31,

Mowing revenue earned                                               $340,000

Insurance expense                                        $4,800

Office rent expense                                      72,000

Supplies expense                                          10,400

Salary expense                                            120,000

Depreciation expense: truck                       60,000

Depreciation expense: mowing equipment 8,000

Repair and maintenance expense                6,000

Fuel expense                                                  3,000

Miscellaneous expense                                10,000

Total operating expenses                                             $294,200

Operating income                                                            $45,800

Interest expense                                                                  6,000

Income before taxes                                                       $39,800

Income taxes expense                                                      12,000

Income after taxes                                                          $27,800

Statement of Retained Earnings for the year ended December 31,

Retained earnings                              $60,000

Income after taxes                                27,800

Dividends                                              10,000

Retained earnings, December 31     $77,800

Balance Sheet as of December 31

Assets

Current Assets:

Cash                                                                $117,050

Accounts receivable                                           9,600

Unexpired insurance                                         16,000

Prepaid rent                                                        6,000

Supplies                                                               2,150

Total current assets                                     $150,800

Long-term assets:

Trucks                                             300,000

Accumulated depreciation: truck  240,000   60,000

Mowing equipment                          40,000

Accumulated depreciation:mowing 24,000   16,000

Total long-term assets                                  $76,000

Total assets                                                 $226,800

Liabilities + Equity

Liabilities:

Accounts payables                                          $3,000

Notes payables                                              100,000

Salaries payables                                               1,800

Interest payables                                                  300

Income taxes payables                                      2,100

Unearned mowing revenue                              1,800

Total liabilities                                             $109,000

Equity:

Capital Stock                               $40,000

Retained earnings                         77,800

Total Equity                                   117,800 $117,800

Total liabilities and equity                       $226,800

2. Closing Journal Entries:

                                                                          Debit          Credits

Cash                                                                $117,050

Accounts receivable                                           9,600

Unexpired insurance                                         16,000

Prepaid rent                                                        6,000

Supplies                                                               2,150

Trucks                                                             300,000

Accumulated depreciation: truck                                   $240,000

Mowing equipment                                         40,000

Accumulated depreciation: mowing equipment               24,000

Accounts payables                                                                3,000

Notes payables                                                                  100,000

Salaries payables                                                                    1,800

Interest payables                                                                      300

Income taxes payables                                                          2,100

Unearned mowing revenue                                                  1,800

Capital Stock                                                                       40,000

Retained earnings                                                              77,800

To close the permanent accounts to the current financial period.

3. After Closing Trial Balance as of January 1:

                                                                          Debit          Credits

Cash                                                                $117,050

Accounts receivable                                           9,600

Unexpired insurance                                         16,000

Prepaid rent                                                        6,000

Supplies                                                               2,150

Trucks                                                             300,000

Accumulated depreciation: truck                                   $240,000

Mowing equipment                                         40,000

Accumulated depreciation: mowing equipment               24,000

Accounts payables                                                                3,000

Notes payables                                                                  100,000

Salaries payables                                                                    1,800

Interest payables                                                                      300

Income taxes payables                                                          2,100

Unearned mowing revenue                                                  1,800

Capital Stock                                                                       40,000

Retained earnings                                                              77,800

Totals                                                       $490,800     $490,800

4. Evaluation of company's profitability and liquidity:

Profitability:

Net Income Margin = 8.18%

Operating margin = 13.47%

These two ratios show that more than 5% of the company's revenue was spent on interest and taxes.

Liquidity:

Current Ratio = 1.38

Quick Ratio = 1.07

The company is liquid and can meet its current maturing liabilities with its current assets.  The quick ratio is based on Cash only given the nature of the business.

Explanation:

a) Data and Calculations:

Affordable Lawn Care, Inc.

Adjusted Trial Balance

December 31, current year

                                                                          Debit          Credits

Cash                                                                $117,050

Accounts receivable                                           9,600

Unexpired insurance                                         16,000

Prepaid rent                                                        6,000

Supplies                                                               2,150

Trucks                                                             300,000

Accumulated depreciation: truck                                   $240,000

Mowing equipment                                         40,000

Accumulated depreciation: mowing equipment               24,000

Accounts payables                                                                3,000

Notes payables                                                                  100,000

Salaries payables                                                                    1,800

Interest payables                                                                      300

Income taxes payables                                                          2,100

Unearned mowing revenue                                                  1,800

Capital Stock                                                                       40,000

Retained earnings                                                              60,000

Dividends                                                        10,000

Mowing revenue earned                                                 340,000

Insurance expense                                          4,800

Office rent expense                                      72,000

Supplies expense                                          10,400

Salary expense                                            120,000

Depreciation expense: truck                       60,000

Depreciation expense: mowing equipment 8,000

Repair and maintenance expense                6,000

Fuel expense                                                  3,000

Miscellaneous expense                                10,000

Interest expense                                             6,000

Income taxes expense                                  12,000

Totals                                                         $813,000       $813,000

b) Profitability and Liquidity Ratios:

Profitability:

Net Profit Margin = Net Income/Revenue * 100 = 27,800/340,000 * 100 = 8.18%

Operating Profit Margin = Operating Income/Revenue * 100  = 45,800/340,000 * 100 = 13.47%

Liquidity Ratios:

Current ratio = Current Assets/Current Liabilities = 150,800/109,000 = 1.38

Quick Ratio = Cash/Current Liabilities = 117,050/109,000 = 1.07

they work in some type of way

answertaxable income;