Using Financial Reports: Inferring Adjusting and Closing Entries and Answering
Analytical Questions
Waddell Company was organized on January 1, 2011. At the end of the first year of operations,
December 31, 2011, the bookkeeper prepared the following trial balances (amounts in thousands of dollars):

Required:
1. Based on inspection of the two trial balances, give the 2011 adjusting entries developed by the bookkeeper (provide brief explanations).
2. Based on these data, give the 2011 closing entry with a brief explanation.
3. Answer the following questions (show computations):
a. How many shares of stock were outstanding at year-end?
b. What was the amount of interest expense included in total expenses?
c. What was the balance of Retained Earnings on December 31, 2011 after closing the books?
d. What was the average income tax rate?
e. How would the two accounts Rent Receivable and Unearned Rent Revenue be reported on the balance sheet?
f. Explain why cash increased by $40,000 during the year even though net income was comparatively very low.
g. What was the amount of earnings per share for 2011?
h. What was the average selling price of the shares?
i. When was the insurance premium paid and over what period of time did the coverage extend?
j. What was the net profit margin for theyear?

UNADJUSTED ADJUSTED TRIAL TRIAL ADJUSTMENTS BALANCE BALANCE Credit Credit Credit Account Titles Debit Debit Debit Cash 40 40 Accounts Receivable 17 17 Prepaid Insurance Rent Receivable Property. Plant, and Equipment Accumulated Depreciation 46 46 11 Other Assets 6. Accounts Payable 27 27 Wages Payable 3 Income Taxes Payable Unearned Rent Revenue Note Payable (10% interest, dated January 1, 2011) 20 20 Contributed Capital (1,000 shares) 30 30 Retained Earnings Revenues (total) 98 103 Expenses (total including interest) Income Tax Expense 83 Totals 182 182 203 203