Wells Technical Institute Financial Statements: Income Statement, Statement of Owner's Equity, and Balance Sheet

Wells Technical Institute Financial Statements: Income Statement, Statement of Owner's Equity, and Balance Sheet

Wells Technical Institute (WTI), a school owned by Tristana Wells, provides training to individuals who pay tuition directly to the school. WTI also offers training to groups in off-site locations. WTI initially records prepaid expenses and unearned revenues in balance sheet accounts. Its unadjusted trial balance as of December 31 follows, along with descriptions of items a through h that require adjusting entries on December 31.

Additional Information Items

• An analysis of WTI's insurance policies shows that $3,732 of coverage has expired.
• An inventory count shows that teaching supplies costing $3,235 are available at year-end.
• Annual depreciation on the equipment is $14,929.
• Annual depreciation on the professional library is $7,464.
• On September 1, WTI agreed to do five training courses for a client for $2,900 each. Two courses will start immediately and finish before the end of the year. Three courses will not begin until next year. The client paid $14,500 cash in advance for all five training courses on September 1, and WTI credited Unearned Revenue.
• On October 15, WTI agreed to teach a four-month class (beginning immediately) for an executive with payment due at the end of the class. At December 31, $11,100 of the tuition revenue has been earned by WTI.
• WTI's two employees are paid weekly. As of the end of the year, two days' salaries have accrued at the rate of $100 per day for each employee.
• The balance in the Prepaid Rent account represents rent for December.

WELLS TECHNICAL INSTITUTE Unadjusted Trial Balance December 31

| Account | Debit | Credit | |---|---|---| | Cash | $27,094 | | | Accounts receivable | $0 | | | Teaching supplies | $10,420 | | | Prepaid insurance | $15,632 | | | Prepaid rent | $2,085 | | | Professional library | $31,262 | | | Accumulated depreciation—Professional library | | $9,380 | | Equipment | $98,000 | | | Accumulated depreciation—Equipment | | $16,675 | | Accounts payable | | $26,000 | | Salaries payable | | $0 | | Unearned revenue | | $14,500 | | T. Wells, Capital | | $99,818 | | T. Wells, Withdrawals | $41,684 | | | Tuition revenue | | $106,293 | | Training revenue | | $39,599 | | Depreciation expense—Professional library | $0 | | | Depreciation expense—Equipment | $0 | | | Salaries expense | $50,022 | | | Insurance expense | $0 | | | Rent expense | $22,935 | | | Teaching supplies expense | $0 | | | Advertising expense | $7,295 | | | Utilities expense | $5,836 | | | Totals | $312,265 | $312,265 |

3-a. Prepare Wells Technical Institute's income statement for the year.

Income Statement:

Revenue:

• Tuition revenue: $106,293
• Training revenue: $39,599
• Total Revenue: $145,892

Expenses:

• Depreciation expense—Professional library: $7,464
• Depreciation expense—Equipment: $14,929
• Salaries expense: $50,022
• Insurance expense: $3,732
• Rent expense: $22,935
• Teaching supplies expense: $3,235
• Advertising expense: $7,295
• Utilities expense: $5,836
• Total Expenses: $108,481

Net Income:

• Total Revenue - Total Expenses = $145,892 - $108,481 = $37,411

Therefore, Wells Technical Institute's income statement for the year shows a net income of $37,411.

3-b. Prepare Wells Technical Institute's statement of owner's equity for the year.

Statement of Owner's Equity:

• Beginning balance of T. Wells, Capital account: $99,818

• No owner investments in the current year

• Net Income: $37,411

• Withdrawals: $41,684

Change in Owner's Equity:

• Beginning balance + Net Income - Withdrawals = $99,818 + $37,411 - $41,684 = $95,545

Therefore, Wells Technical Institute's statement of owner's equity for the year shows a change in owner's equity of $95,545.

3-c. Prepare Wells Technical Institute's balance sheet as of December 31.

Balance Sheet:

Assets:

• Cash: $27,094
• Accounts receivable: $0
• Teaching supplies: $3,235
• Prepaid insurance: $11,900
• Prepaid rent: $2,085
• Professional library: $31,262
• Accumulated depreciation—Professional library: $9,380
• Equipment: $98,000
• Accumulated depreciation—Equipment: $16,675
• Total Assets: $159,898

Liabilities:

• Accounts payable: $26,000
• Salaries payable: $200 (2 days' salaries at $100 per day)
• Unearned revenue: $0 (all unearned revenue has been earned)
• Total Liabilities: $26,200

Owner's Equity:

• T. Wells, Capital: $95,545
• Total Owner's Equity: $95,545

Total Liabilities and Owner's Equity: $159,898

Therefore, Wells Technical Institute's balance sheet as of December 31 shows total assets of $159,898 and total liabilities and owner's equity of $159,898.