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Financial statement of Glion Hotel Inc.

Consider the books of accounts of Glion Hotel Inc. and conduct a financial analysis of the transactions made during the year.

Answer

Financial statement

Books of Accounts

STEP 1: TRANSACTIONS

Glion Hotel Inc. started on January 1st, 20x0. The business uses calendar year as its fiscal year.

Below are the transactions occurred during the first year of its operation:

1. January 1st, 20x0: Glion Hotel issued 200,000 shares of common stocks at $2.52 per share.

2. January 1st, 20x0: Glion Hotel borrowed $30,000 from Bank of Ames at annual interest rate of 4.5%. According to the note, Glion Motel will have to pay back the money in three years

(i.e. pay interest annually on December, 31st and pay the total amount borrowed at the end of the third year.).

3. January 1st, 20x0: Glion Hotel bought $420,000 worth of furniture by cash. Using straight-line depreciation method, all furniture will be fully depreciated in 18 years.

4. During the year, Glion Hotel had room sales of $142,000

5. On December 31st, 20x0, Glion Hotel paid $3,750 by cash for landscaping services performed for the hotel during the year.

6. During the year, total labor cost was $32,700. Assuming  Glion Hotel pays its employees once a year on December 31st.

7. During the year, other operating cost was $38,000. Assuming Glion Hotel pays its bills once a year on December 31st.

8. Glion Hotel is built on a parcel of leased land and the annual lease charge is $13,000. On

January 1st, 20x0, to get a bargain price, Glion Hotel paid the landlord the sum of $65,000

for the lease charge of 20x0, 20x1, 20x2, 20x3, and 20x4.

9. On December 30th, 20x0, Glion Hotel received a deposit of $6,300 from Travel Agency for the reservations of 25 rooms from March 1st, 20x1 through March 20th, 20x1.

10. On December 31st, 20x0, Glion Hotel distributed dividends of 3 cents per share (Muda, 2017).

STEP 2 : JOURNAL ENTRIES

  • Transaction 1

$2.52 per share * 200,000 shares issued = received $504,000 cash 

January 1st 20x0

Cash $504,000

Common stock$504,000

  • Transaction 2

January 1st 20x0

Cash$30,000

Bank loan$30,000


  • Transaction 3

January 1st 20x0

Furniture$420,000

Cash$420,000


  • Transaction 4

December 31sr 20x0

Cash$142,000

Revenue – (room sales)$142,000


  • Transaction 5

December 31st 20x0

Maintenance & landscaping expenses$3,750

Cash$3,750


  • Transaction 6

December 31st 20x0

Wage expense$32,700

Cash$32,700


  • Transaction 7

December 31st 20x0

Operating expenses$38,000

Cash$38,000


  • Transaction 8

January 1st 20x0

Prepaid lease$65,000

Cash$65,000


December 31st 20x0

Lease expense$13,000

Prepaid lease$13,000


  • Transaction 9

December 30th 20x0

Cash$6,300

Unearned revenues$6,300


  • Transaction 10

3 cents per share on 200,000 shares means $6,000 

December 31st

Dividends$6,000

Cash$6,000


  • Transaction 11 (interest expense from transaction 2)

December 31st 20x0

Interest expense$1,350

Cash$1,350


  • Transaction 12 (depreciation from transaction 3)

December 31st 20x0

Depreciation expense- furniture$23,333.33

Accumulated depreciation- furniture$23,333.33

(Prentice, Bills, & Peters, 2018)

TRANSACTION 3: LEDGER/ T-ACCOUNTS

Cash
DebitCredit
Jan-01 $    504,000 Jan-01 $       420,000 
Jan-01 $      30,000 Jan-01 $         65,000 
Dec-30 $        6,300 Dec-31 $           3,750 
Dec-31 $    142,000 Dec-31 $         32,700 


Dec-31 $         38,000 


Dec-31 $           1,350 


Dec-31 $           6,000 
balance $    115,500 




prepaid lease
DebitCredit
Jan-01 $      65,000 Dec-31 $         13,000 
balance $      52,000 






Furniture
DebitCredit
Jan-01 $    420,000 

balance $    420,000 





accumulated depreciation- furniture
DebitCredit


Dec-31 $    23,333.33 


balance $    23,333.33 




bank loan
DebitCredit


Jan-01 $         30,000 


balance $         30,000 




common stock
DebitCredit


Jan-01 $       504,000 


balance $       504,000 




Revenue
DebitCredit


Jan-01 $       142,000 


balance $       142,000 




maintenance and landscaping expenses
DebitCredit
Dec-31 $        3,750 

balance $        3,750 





wage expense
DebitCredit
Dec-31 $      32,700 

balance $      32,700 





operating expenses
DebitCredit
Dec-31 $      38,000 

balance $      38,000 





lease expenses
DebitCredit
Dec-31 $      13,000 

balance $      13,000 





interest expense
DebitCredit
Dec-31 $        1,350 

balance $        1,350 





depreciation expense- furniture
DebitCredit
Dec-31 $23,333.33 

balance $23,333.33 





unearned revenue
DebitCredit


Jan-01 $           6,300 


balance $           6,300 




Dividends
DebitCredit
Dec-31 $        6,000 

balance $        6,000 


STEP 4: TRIAL BALANCE

For preparing the trial balance, the debit and credit balances are taken on the respective side of the trial balance. These balances at the end of the trial balance match, if the trial balance and the previous accounts have been prepared with accuracy. The important things to keep in mind are putting the balances in the correct side of the statement (Easton, & Sommers, 2018). The assets and expenses are usually put on the debit balance side, while the liabilities, equity and revenues take the credit side of the statement. For Glion Hotel Inc. the trial balance is as follows (Tassadaq, & Malik, 2015).

GLION HOTEL INC.
Trial Balance
December 31, 20x0
ACCOUNTDEBITCREDIT
cash $      115,500 
pre-paid lease $         52,000 
furniture $      420,000 
accumulated depreciation furniture
 $   23,333.33 
bank loan
 $         30,000 
common stock
 $      504,000 
revenue
 $      142,000 
maintenance expense $           3,750 
wage expense $         32,700 
operating expense $         38,000 
lease expense $         13,000 
interest expense $           1,350 
depreciation expense- furniture $   23,333.33 
unearned revenue
 $           6,300 
dividends $           6,000 
total $ 705,633.33  $ 705,633.33 


The debit and credit balance of the trial balance is matching which shows that the ledger accounts have been prepared with all accuracy (Robinson , et al. 2015).

STEP 5: INCOME STATEMENT

INCOME STATEMENT
GLION HOTEL INC.
For the period January 1st 20x0 to December 31st 20x0
revenue
room revenue $ 142,000.00 


expenses
maintenance & landscaping expenses $     3,750.00 
operating expenses $   38,000.00 
wage expenses $   32,700.00 
lease expenses $   13,000.00 
interest expenses $     1,350.00 
depreciation expenses $   23,333.33 


earning before tax $   29,866.67 


Income tax (35%) $   10,453.33 


net income $   19,413.34 


Through the income tax of $10,453.33, the cash account shall get reduced to $105,046.67 (Öztürk, & Serçemeli,2016).

STEP 6: STATEMENT OF RETAINED EARNINGS

STATEMENT OF RETAINED EARNINGS
 GLION HOTEL INC.
for the year ending December 31, 20x0
balance on January 1 $               -   
net income $ 19,413.34 
(dividends) $   6,000.00 
balance on December 31st $ 13,413.34 


STEP 7: BALANCE SHEET

BALANCE SHEET
GLION HOTEL INC.
For the year ending December 31st 20x0
assets 
cash $  105,046.67 
pre-paid lease $    52,000.00 
furniture $  396,666.67 
($420,000-$23,333.33)
total assets $  553,713.34 
liabilities & owner's equity
liabilities 
bank loan $    30,000.00 
unearned revenues $       6,300.00 


owner's equity
common stock $  504,000.00 
retained earnings $    13,413.34 
total liabilities and owner's equity $  553,713.34 


The balance sheet has followed the accounting equation of:

ASSETS= LIABILITIES + OWNER’S EQUITY

 (Crowther, 2018).

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