Party Wagon, Inc., provides musical entertainment at weddings, dances, and various other functions. The company performs adjusting entries monthly, but prepares closing entries annually on December 31. The company recently hired Jack Armstrong as its new accountant. Jack’s first assignment was to prepare an income statement, a statement of retained earnings, and a balance sheet using an adjusted trial balance given to him by his predecessor, dated December 31, 2015. From the adjusted trial balance, Jack prepared the following set of financial statements:

Instructions

a. Prepare a corrected set of financial statements dated December 31, 2015. (You may assume that all of the figures in the company’s adjusted trial balance were reported correctly except for Interest Payable of $200, which was mistakenly omitted in the financial statements prepared by Jack.)

b. Prepare the necessary year-end closing entries.

c. Using the financial statements prepared in part a, briefly evaluate the company’s profitability and liquidity.

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PARTY WAGON, INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2015 Revenue: $130,000 Party revenue earned Unearned party revenue. 1,800 9,000 Accounts receivable . $140,800 Total revenue. . Expenses: Insurance expense . 1,800 Office rent expense. 12,000 Supplies expense. Dividends .. Salary expense. Accumulated depreciation: van 1,200 1,000 75,000 16,000 Accumulated depreciation: equipment and music.. 14,000 Repair and maintenance expense Travel expense 2,000 6,000 Miscellaneous expense 3,600 Interest expense... 4,400 137,000 $ 3,800 Income before income taxes Income taxes payable Net income... 400 $ 3,400 PARTY WAGON, INC. STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2015 Retained earnings (per adjusted trial balance). Add: Income..... Less: Income taxes expense . Retained earnings Dec. 31, 2015. $15,000 3,400 2,000 $16,400