Financial Accounting Assignment 2

Program: MBA
Course Title: Financial and Managerial Accounting
Group Assignment 2
Prepared by:
S.No. Name ID No
1. Kirubel Aynalem MBA/0477/15
2. Netsanet Mulualem MBA/0475/15
3. Tigist Atnafu MBAR/2269/15
4. Tizita Asrat MMBA/0049/15
5. Menen Tesega MBAR/2268/15
6. Alemat Mezgebo MBA/0639/15
7. Freselam Samuel MBA/0440/15
8. Sisay Kebede MBA 2265/15
Submitted to: Abiy G (asst.prof)

January, 2023
Addis Ababa, Ethiopia
Assignment two: Key Insurance Agency was organized on October 1, 2020. Assume that the accounts
are closed and financial statements prepared each month. The company occupies rented office space
but owns office equipment estimated to have a useful life of 10 years from date of acquisition, October
1. The trial balance for Key Insurance Agency at December 31 is shown below.
KEY INSURANCE AGENCY

Work sheet
For the month of December 31, 2020
Adjusted Trial
Description Trial Balance Adjustment
Balance
Debit Credit Debit Credit Debit Credit
Cash 22,565 22,565
Accounts Receivables 7050 7,050
Office Equipment 9,600 9,600
Accumulated Depreciation as of Office Equip. 160 800 960
Accounts Payable 2,260 2,260
Income Taxes Payable As of December 4,965 2,432 7,397
Capital Stock 20,000 20,000
Retained Earnings 7,450 7,450
Dividends 2,500 2,500
Commissions Earned 31,080 31,080
Depreciation Expense for Office Equip. 800 800
Advertising Expense 2,400 2,400
Salaries Expense 18,000 18,000
Rent Expense 3,800 3,800
Income Tax Expense 2,432 2,432
Totals 65,915 65,915 3,232 3,232 69,147 69,147
A. Prepare the adjusting entry to record depreciation of the office equipment for the
month of December, using the straight line method of computing depreciation expense.
Depreciation= {Cost - Salvage}/ {Useful life}
Depreciation= 9600-0/10years=960
Journal Entry
Fixed asset Office Equipment 960 = 9600/10/12………………………………960.00
Accumulated Depreciation: Office Equipment…………………………………160.00
Accumulated Depreciation: Office Equipment………………………………….800.00
Adjusting entry
Accumulated Depreciation: Office Equipment………………………….…….800.00
Depreciation Expense …………………………………..………………………800.00
Fixed Asset Net book Value = Total Fixed asset - Accumulated Depreciation
Total Fixed asset 9,600.00
Accumulated Depreciation Office Equipment 960.00
Net Book Value 8,640.00
B. Compute Taxable income for December – assume this is the same as “Income before
income taxes.” Using a corporate income tax rate of 40%, prepare the adjusting entry to
accrue Key Insurance Agency’s income taxes for the month of December 31, 2020.
Commissions Earned 31,080
Depreciation Expense for Office Equipment 800
Advertising Expense 2,400
Salaries Expense 18,000
Rent Expense 3,800
Total operational Expense 25,000

Income before tax 6,080
Income tax =6080*40%, rate of 2,432
C. Prepare an adjusted trial balance at December 31, 2020.
Adjusting entry
Income tax payable for the month December 31, 2020…………………….2432
Income tax Expense…………………………………………….2432
D. Prepare an income statement and a statement of retained earnings for the month ended
December 31, 2020, and a balance sheet in report form at December 31, 2020.
Income statement
For the month of December 31, 2020.
Commissions Earned 31,080
Depreciation Expense for Office Equipment 800
Advertising Expense 2,400
Salaries Expense 18,000
Rent Expense 3,800
Total Operational expense 25,000
Income before Tax 6,080
Income tax 2432 = 6080x40% rate of 2,432

Net Income after Tax 3,648
Retained Earnings = Beginning Retained Earnings + Profit/Loss - Dividends
Beginning Retained Earnings 7,450.00
Add: Company's income statement shows as of December 3,648.00
Less: Dividends 2,500.00
Retained Earnings 8,598.00
Statement of retained earnings
For the month of End December 31, 2020
Beginning Retained Earnings 7,450.00
Add: Company's income statement shows as of December 3,648.00
Less: Dividends 2,500.00
Retained Earnings as of December 2020 8,598.00
Financial statement Position or Balance Sheet
For the month of End December 31, 2020

Asset Liability & Equity Liabilities
Cash 22,565 Accounts Payable 2,260
Accounts Receivable 7,050 Income Tax Payable 7,397

Office Equipment 8,640
Stockholders" Equity
Capital Stock 20,000
Retained Earnings 8,598
Total 38,255 Total 38,255

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Program: MBA

Course Title: Financial and Managerial Accounting

Submitted to: Abiy G (asst.prof)

Addis Ababa, Ethiopia

KEY INSURANCE AGENCY

Depreciation= {Cost - Salvage}/ {Useful life}

Fixed asset Office Equipment 960 = 9600/10/12………………………………960.00

Accumulated Depreciation: Office Equipment…………………………………160.00

Accumulated Depreciation: Office Equipment………………………………….800.00

Accumulated Depreciation: Office Equipment………………………….…….800.00

Depreciation Expense …………………………………..………………………800.00

Total Fixed asset 9,600.00

Accumulated Depreciation Office Equipment 960.00

Net Book Value 8,640.00

Commissions Earned 31,080

Depreciation Expense for Office Equipment 800

Advertising Expense 2,400

Salaries Expense 18,000

Rent Expense 3,800

Total operational Expense 25,000

Income tax =6080*40%, rate of 2,432

C. Prepare an adjusted trial balance at December 31, 2020.

Income tax payable for the month December 31, 2020…………………….2432

Income tax Expense…………………………………………….2432

KEY INSURANCE AGENCY

For the month of December 31, 2020.

Commissions Earned 31,080

Depreciation Expense for Office Equipment 800

Advertising Expense 2,400

Salaries Expense 18,000

Rent Expense 3,800

Total Operational expense 25,000

Income before Tax 6,080

Income tax 2432 = 6080x40% rate of 2,432

Retained Earnings = Beginning Retained Earnings + Profit/Loss - Dividends

Beginning Retained Earnings 7,450.00

Add: Company's income statement shows as of December 3,648.00

Less: Dividends 2,500.00

Retained Earnings 8,598.00

KEY INSURANCE AGENCY

Statement of retained earnings

For the month of End December 31, 2020

Beginning Retained Earnings 7,450.00

Add: Company's income statement shows as of December 3,648.00

Less: Dividends 2,500.00

Retained Earnings as of December 2020 8,598.00

KEY INSURANCE AGENCY

Financial statement Position or Balance Sheet

For the month of End December 31, 2020

Cash 22,565 Accounts Payable 2,260

Accounts Receivable 7,050 Income Tax Payable 7,397

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