CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 13-1LESSON 13-1

Work Sheet for a Corporation

CENTURY 21 ACCOUNTING © Thomson/South-Western

Corporation Financial StatementsCorporation Financial Statements

Corporations prepare 3 important financial statements at the end of each fiscal period: Income statement Statement of stockholders’ equity Balance Sheet

The first step to preparing the financial statements is to prepare a worksheet.

CENTURY 21 ACCOUNTING © Thomson/South-Western

Corporation WorksheetCorporation Worksheet

Corporations prepare 3 important financial statements at the end of each fiscal period: Income statement Statement of stockholders’ equity Balance Sheet

CENTURY 21 ACCOUNTING © Thomson/South-Western

4

LESSON 6-1

Work sheetWork sheet A columnar accounting form used to summarize

the general ledger information needed to prepare financial statements is called a work sheet.

Accountants use a work sheet for 4 reasons: To summarize general ledger account balances to prove

that debits equal credits To plan needed changes to general ledger accounts to

bring account balances up to date To separate general ledger account balances according

to the financial statements to be prepared To calculate the amount of net income or net loss for a

fiscal period

CENTURY 21 ACCOUNTING © Thomson/South-Western

Preparing a Trial Balance WorksheetPreparing a Trial Balance Worksheet

5

LESSON 13-1

1. Write the general ledger account titles.

2. Write the general ledger debit account balances. Write the general ledger credit account balances.

3. Rule a single line across the two Trial Balance columns.

4. Add both the Trial Balance Debit and Credit columns.

5. Write each column’s total below the single line.

6. Rule double lines across both Trial Balance columns.

CENTURY 21 ACCOUNTING © Thomson/South-Western

6

LESSON 6-2

Planning Adjusting Entries on a Work Planning Adjusting Entries on a Work SheetSheet

In order to give accurate information on financial statement, some general ledger accounts must be brought up to date at the end of a fiscal period.

Adjustments are made in the adjustments column of the worksheet.

Examples of accounts that might need to be adjusted at the end of a fiscal period: Prepaid Insurance Supplies Depreciation Organization Expense

CENTURY 21 ACCOUNTING © Thomson/South-Western

7

LESSON 13-1

ORGANIZATION EXPENSE ORGANIZATION EXPENSE ADJUSTMENTADJUSTMENT page 371

• Corporate organization costs are intangible assets• A common accounting practice is to write off intangible

assets over a period of years (patents, copyrights, organizational costs)

• Recognizing a portion of an expense in each of several years is called amortization

CENTURY 21 ACCOUNTING © Thomson/South-Western

8

LESSON 13-1

ORGANIZATION EXPENSE ORGANIZATION EXPENSE ADJUSTMENTADJUSTMENT

1. Increase the expense. 2. Decrease the asset.11

22

page 371

• Lamplight incurred total organization costs of $2,400. LampLight spreads the costs over 5 years. Thus 1/5 of this amount, $480, is amortized in each of the first 5 years

• Organization Expense is debited for $480. Organization Costs is credited for $480.

CENTURY 21 ACCOUNTING © Thomson/South-Western

9

LESSON 13-1

FEDERAL INCOME TAX FEDERAL INCOME TAX EXPENSE ADJUSTMENTEXPENSE ADJUSTMENT

1. Increase the expense. 2. Increase the liability.

1122

page 371

At the beginning of the year, Lamplight estimated its federal income tax for the year to be $32,000.

LampLight paid the estimated tax to the federal government in four equal quarterly installments if $8,000 each

As of December 31, LampLight calculated its actual federal income tax to determine whether is owes additional income tax.

An adjustment Is planned on the worksheet for the additional amount owed.

CENTURY 21 ACCOUNTING © Thomson/South-Western

10

LESSON 13-1

CALCULATING FEDERAL CALCULATING FEDERAL INCOME TAX EXPENSEINCOME TAX EXPENSE page 372

Calculating Net Income before Federal Income Tax

Income Statement Credit Column Total

Income Statement Debit Column Total

before Federal Income Tax

=Net Income before

Federal Income Tax–

$883,782.75 $752,647.48 = $131,135.27–

• Complete the work sheet’s Adjustments columns except for the federal income tax expense adjustment. Do not total the Adjustments columns at this time

• Extend all amounts, except Federal Income Tax Expense, to the work sheet’s Income Statement columns

• Determine the worksheet’s Income Statement column totals using a calculator. Do not record the column totals on the worksheet.

• Calculate the difference between the two totals. The difference is the net income before federal income tax.

CENTURY 21 ACCOUNTING © Thomson/South-Western

11

LESSON 13-1

CALCULATING FEDERAL CALCULATING FEDERAL INCOME TAX EXPENSEINCOME TAX EXPENSE page 372

Calculating Federal Income Tax AmountNet Income before Taxes

Tax Rate =Federal Income

Tax Amount

$ 50,000.00 15% = $ 7,500.00Plus 25,000.00 25% = 6,250.00Plus 25,000.00 34% = 8,500.00Plus 31,135.27 39% = 12,142.76

$131,135.27 $ 34,392.76 Calculate the amount of federal income tax using a tax rate

table furnished by the IRS 15% of net income before taxes, zero to $50,000 25% of net income before taxes, $50,000 to $75,000 34% of net income before taxes, $75,000 to $100,000 39% of net income before taxes, $100,000 to $335,000 34% of net income before taxes over $335,000

CENTURY 21 ACCOUNTING © Thomson/South-Western

12

LESSON 13-1

CALCULATING FEDERAL CALCULATING FEDERAL INCOME TAX EXPENSEINCOME TAX EXPENSE page 372

Calculating Accrued Federal Income Tax Expense

Total Federal Income Tax

Expense

Estimated Federal Income Tax Already Paid

=Accrued Federal

Income Tax Expense

–

$34,392.76 $32,000.00 = $2,392.76–

Calculate the amount of accrued federal income tax expense

Record the federal income tax expense adjustment on the worksheet

CENTURY 21 ACCOUNTING © Thomson/South-Western

13

LESSON 13-1

CORPORATE WORK SHEETCORPORATE WORK SHEET page 374

CENTURY 21 ACCOUNTING © Thomson/South-Western

14

LESSON 13-1

CORPORATE WORK SHEETCORPORATE WORK SHEET page 375

Extend the new balance of Federal Income Tax Payable to the Balance Sheet Credit column

Extend the new balance of Federal Income Tax Expense to the Income Statement debit column

Total the worksheet’s adjustments, Income Statement, & Balance Sheet columns

CENTURY 21 ACCOUNTING © Thomson/South-Western

15

LESSON 13-1

TERM REVIEWTERM REVIEW

amortization

page 376