Comprehensive Problem

Use Redlands 2015 balance sheet from Exhibit 2-1 as the starting point for this problem. Assume that Redlands had the following transactions in 2016:

Borrowed $80 in cash from a bank at the beginning of 2016.

Received $50 cash from the 2015 consulting engagement.

Paid $30 cash for the 2015 operating expenses.

Earned $60 in consulting revenue for 2016collected one-half of the revenue in cash.

Incurred $35 of operating expenses in 2016paid $20 of the operating expenses in cash.

Recorded 2016 depreciation expense of $15 on the equipment purchased in 2015.

Paid $8 of interest for the $80 cash borrowed at the beginning of 2016.

Required: Complete the following tables for 2016:

Record the transactions in the general journal.

Post the entries to the ledger (note that the 2016 beginning balances in each account have already been entered for you, where appropriate).

Construct a trial balance.

Present the financial statements in good form.

Close the temporary accounts.

General Journal

Trans.	Accounts	Debit	Credit
1.	Cash	80
	Note payable		80
2.
3.
4.
5.
6.
7.

General Journal - Closing Entries

Date	Accounts	Debit	Credit
8
9

Ledgers

Assets

Account	Trans.	Debit	Credit	Balance
Cash				$30 db.

Account	Trans.	Debit	Credit	Balance
Accounts receivable				$50 db.

Account	Trans.	Debit	Credit	Balance
Equipment				$60 db.

Account	Trans.	Debit	Credit	Balance
Accum depreciation				$15 cr.

Liabilities

Account	Trans.	Debit	Credit	Balance
Accounts payable				$ 30 cr.

Account	Trans.	Debit	Credit	Balance
Note payable

Shareholders Equity

Account	Trans.	Debit	Credit	Balance
Common stock				$90 cr.

Account	Trans.	Debit	Credit	Balance
Retained earnings				$5 cr.

Revenues

Account	Trans.	Debit	Credit	Balance
Consulting revenues

Expenses

Account	Trans.	Debit	Credit	Balance
Operating expense

Account	Trans.	Debit	Credit	Balance
Depreciation exp.

Account	Trans.	Debit	Credit	Balance
Interest exp.

Trial Balance

December 31, 2016

Accounts	Debit	Credit
Cash
Accounts receivable
Equipment
Accumulated depreciation
Accounts payable
Note payable
Common stock
Retained earnings (before close)
Sales revenues
Depreciation expense
Operating expenses
Interest expense
Total

Redlands, Inc.

Income Statement

For the Year Ended December 31, 2016

Sales revenue
Operating expenses
Depreciation expense
Interest expense
Net income

Redlands, Inc.

Statement of Shareholders Equity

For the Year Ended December 31, 2016

Beginning contributed capital
Capital contributed in 2015
Ending contributed capital
Beginning retained earnings
Net income in 2015
Ending retained earnings
Total shareholders' equity

Redlands, Inc.

Balance Sheet

December 31, 2016

Assets
Cash
Accounts receivable
Equipment
Less: accumulated depreciation
Total Assets
Liabilities
Accounts payable
Note payable
Total Liabilities
Shareholders' Equity (S/E)
Common stock
Retained earnings
Total Shareholders' Equity
Total Liabilities and S/E

Redlands, Inc.

Statement of Cash Flows

For the Year Ended December 31, 2016

Cash flows from operating activities:
Net Income
Depreciation expense, equipment
Change in accounts receivable
Change in accounts payable
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of equipment
Net cash used for investment activities
Cash flows from financing activities:
Issue note payable
Net cash provided by financing activities
Net change in cash
Cash, beginning of the year
Net change in cash
Cash, end of the year