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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
| |||||||||||||||||||||||||||||||||||||||||||
prepaid lease | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Jan-01 | $ 65,000 | Dec-31 | $ 13,000 | ||||||||||||||||||||||||||||||||||||||||
balance | $ 52,000 | ||||||||||||||||||||||||||||||||||||||||||
Furniture | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Jan-01 | $ 420,000 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 420,000 | ||||||||||||||||||||||||||||||||||||||||||
accumulated depreciation- furniture | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Dec-31 | $ 23,333.33 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 23,333.33 | ||||||||||||||||||||||||||||||||||||||||||
bank loan | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Jan-01 | $ 30,000 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 30,000 | ||||||||||||||||||||||||||||||||||||||||||
common stock | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Jan-01 | $ 504,000 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 504,000 | ||||||||||||||||||||||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Jan-01 | $ 142,000 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 142,000 | ||||||||||||||||||||||||||||||||||||||||||
maintenance and landscaping expenses | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Dec-31 | $ 3,750 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 3,750 | ||||||||||||||||||||||||||||||||||||||||||
wage expense | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Dec-31 | $ 32,700 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 32,700 | ||||||||||||||||||||||||||||||||||||||||||
operating expenses | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Dec-31 | $ 38,000 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 38,000 | ||||||||||||||||||||||||||||||||||||||||||
lease expenses | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Dec-31 | $ 13,000 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 13,000 | ||||||||||||||||||||||||||||||||||||||||||
interest expense | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Dec-31 | $ 1,350 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 1,350 | ||||||||||||||||||||||||||||||||||||||||||
depreciation expense- furniture | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Dec-31 | $23,333.33 | ||||||||||||||||||||||||||||||||||||||||||
balance | $23,333.33 | ||||||||||||||||||||||||||||||||||||||||||
unearned revenue | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
Jan-01 | $ 6,300 | ||||||||||||||||||||||||||||||||||||||||||
balance | $ 6,300 | ||||||||||||||||||||||||||||||||||||||||||
Dividends | |||||||||||||||||||||||||||||||||||||||||||
Debit | Credit | ||||||||||||||||||||||||||||||||||||||||||
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 | ||
ACCOUNT | DEBIT | CREDIT |
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).
