Concept explainers
1.
Journalize the transactions.
1.
Explanation of Solution
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.
Record the journal entry:
Date | Account titles and Explanation | Debit | Credit |
January 5 | Accounts Receivable/Person C | $500 | |
Allowance for Doubtful Accounts | $500 | ||
(Reinstated accounts receivable written off in the previous period) | |||
January 5 | Cash | $500 | |
Accounts Receivable/Person C | $500 | ||
(Collection on account) | |||
January 14 | Computer System | $3,000 | |
Notes Payable | $3,000 | ||
(Issued 3-month, 6% note to Computer Systems for a new computer system Z) | |||
February 15 | Notes Receivable | $2,500 | |
Sales | $2,500 | ||
(Accepted 6-month, 7% note from Carol Reynolds for merchandise) | |||
March 11 | Cash | $5,000 | |
Morgan Hartley, Capital | $5,000 | ||
(Owner made additional investment) | |||
April 1 | $15 | ||
| $15 | ||
(Depreciation to date on discarded cash register) | |||
April 1 | Accumulated Depreciation—Store Equipment | $495 | |
Loss on Discarded Store Equipment | $180 | ||
Store Equipment | $675 | ||
(Discarded cash register at a $180 loss) | |||
April 12 | Cash | $5,000 | |
Notes Payable | $5,000 | ||
(Issued note to Dean Bank for a 75-day loan at 10% interest) | |||
April 14 |
Interest Expense ( | $45 | |
Notes Payable (old) | $3,000 | ||
Notes Payable (new) | $2,500 | ||
Cash | $545 | ||
(Paid interest and part of principal on old note and issued a new note carrying 8% interest for 30 days) | |||
May 1 | Allowance for Doubtful Accounts | $1,200 | |
Accounts Receivable/Brenda Husband | $1,200 | ||
(Wrote off uncollectible account) | |||
May 14 |
Interest Expense ( | $16.67 | |
Notes Payable | $2,500 | ||
Cash | $2,516.67 | ||
(Paid note at maturity to Computer systems Z) | |||
May 25 | Repairs Expense | $7,500 | |
Cash | $7,500 | ||
(Maintenance on van) | |||
June 1 | Notes Receivable | $1,700 | |
Accounts Receivable/Person H | $1,700 | ||
(Received 120-day, 8% note to settle account) | |||
June 20 | Accounts Receivable/Brenda Husband | $1,200 | |
Allowance for Doubtful Accounts | $1,200 | ||
(Reinstated account receivable) | |||
June 20 | Cash | $1,200 | |
Accounts Receivable/Brenda Husband | $1,200 | ||
(Collection on account) | |||
June 22 | Addition | $30,000 | |
Cash | $30,000 | ||
(Added an addition to the building) | |||
June 26 | Notes Payable | $5,000 | |
Interest Expense | $104.17 | ||
Cash | $5,104.17 | ||
(Paid note to Dean Bank with interest at maturity) | |||
July 1 | Cash ( | $1,692.97 | |
Interest Expense | $7.03 | ||
Notes Receivable | $1,700 | ||
(Discounted Person H’s note receivable at 12% at Bank M) | |||
July 8 | Accounts Receivable/Person K | $4,250 | |
Sales | $4,250 | ||
(Sale on account) | |||
July 10 | Purchases | $15,000 | |
Accounts Payable/Distributing D | $15,000 | ||
(Purchased merchandise on account, terms 3/20, n/30) | |||
July 18 | Cash | $4,165 | |
Sales Discounts | $85 | ||
Accounts Receivable/Person K | $4,250 | ||
(Payment received on account with 2% discount taken) | |||
July 30 | Accounts Payable/Distributing D | $15,000 | |
Purchases Discounts | $450 | ||
Cash | $14,550 | ||
( Paid account payable taking 3% discount) | |||
August 1 | Accumulated Depreciation—Van | $500 | |
Cash | $500 | ||
(Replaced exhaust system on van) | |||
August 15 | Cash | $2,577.50 | |
Collection Expense | $10 | ||
Interest Revenue ( | $87.50 | ||
Notes Receivable | $2,500 | ||
(Received payment of note with interest less collection fee) | |||
August 22 | Allowance for Doubtful Accounts | $750 | |
Accounts Receivable/Person S | $750 | ||
(Wrote off uncollectible account) | |||
September 1 | Automobile (new) | $40,000 | |
Accumulated Depreciation—Automobile | $19,000 | ||
Automobile (old) | $23,000 | ||
Cash | $34,500 | ||
Gain on Trade-in | $1,500 | ||
( Purchased new car worth $40,000 for $34,500 cash plus old car) | |||
September 9 | Notes Receivable | $2,000 | |
Accounts Receivable/Person T | $2,000 | ||
(Received 60-day, 7.5% note to settle account) | |||
September 15 | Purchases | $3,500 | |
Accounts Payable/Dennis Designs | $3,500 | ||
(Purchased merchandise on account, terms n/30) | |||
September 29 |
Accounts Receivable/Person H ( | $1,795.33 | |
Cash | $1,795.33 | ||
(Paid Marshall Bank for dishonored note plus $50 fee) | |||
October 15 | Accounts Payable/Dennis Designs | $3,500 | |
Notes Payable | $3,500 | ||
(Issued 90-day, 8% note to settle account) | |||
October 20 | Cash | $9,625 | |
Discount on Notes Payable ( | $375 | ||
Notes Payable | $10,000 | ||
(Issued 180-day, non-interest-bearing note to Person O Savings Association discounted at 7.5%) | |||
October 31 | Cash | $125 | |
Sales | $125 | ||
(Cash sale) | |||
November 1 | Notes Receivable | $500 | |
Accounts Receivable/Person L | $500 | ||
(Received 30-day, 5% note to settle account) | |||
November 8 | Accounts Receivable/Person T | $2,025 | |
Interest Revenue | $25 | ||
Notes Receivable | $2,000 | ||
(Note receivable dishonored, transferred to account receivable) | |||
November 30 | Cash | $1,823.16 | |
Interest Revenue ( | $27.83 | ||
Accounts Receivable/Person H | $1,795.33 | ||
(Collected dishonored note with interest for 62 days at 9%) | |||
December 1 | Cash | $2.08 | |
Notes Receivable (new note) | $500 | ||
Notes Receivable (old note) | $500 | ||
Interest Revenue | $2.08 | ||
(Received new 45-day, 8% note plus interest on original note) | |||
December 14 | Landscaping | $2,000 | |
Cash | $2,000 | ||
(Landscaped lot) | |||
December 31 | Cash | $100 | |
Accumulated Depreciation—Fixtures | $300 | ||
Loss on Sale of Fixtures | $100 | ||
Fixtures | $500 | ||
(Sold fixtures at a $100 loss) | |||
Table (1)
Note: July 1’s discount:
Ascertain the estimated ending inventory:
Company TM | ||
Estimated Ending Inventory | ||
June 30 | ||
Particulars | Cost | Retail |
Inventory, start of period | $92,250 | $120,000 |
Net purchases during period | $70,000 | $95,000 |
Goods available for sale | $161,250 | $215,000 |
Less net sales for period | $125,000 | |
Inventory, end of period, at retail | $90,000 | |
Ratio of cost-to-retail prices of goods available for sale | 75% | |
Inventory, end of period, at estimated cost (75% of $90,000) | $67,500 |
Table (2)
2.
Prepare the
2.
Explanation of Solution
Adjustment entries:
Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.
Record the adjusting entries:
Date | Account titles and Explanation | Debit | Credit | |
December 31 | Accrued Interest Receivable | $3.33 | ||
Interest Revenue | $3.33 | |||
(Person N note receivable, reversible entry) | ||||
| ||||
December 31 | Interest Expense ( | $59.89 | ||
Accrued Interest Payable | $59.89 | |||
(Person D note payable, reversible entry) | ||||
December 31 | Interest Expense ( | $150 | ||
Discount on Notes Payable | $150 | |||
(Person O note payable, not reversible entry) | ||||
December 31 | Depreciation Expense—Computer System | $1,500 | ||
Accumulated Depreciation—Computer System | $1,500 | |||
(Take full-year depreciation, in service before 15th. | ||||
December 31 | Depreciation Expense—Automobile | $2625 | ||
Accumulated Depreciation—Automobile | $2625 | |||
December 31 | Depreciation Expense—Addition | $700 | ||
Accumulated Depreciation—Addition | $700 | |||
(Take 6 months depreciation, in service After 15th) | ||||
December 31 |
Depreciation Expense—Landscaping ( | $55.56 | ||
Accumulated Depreciation—Landscaping | $55.56 | |||
(Take 1 month of depreciation) | ||||
December 31 |
Patent Amortization | $2,500 | ||
Patent | $2,500 | |||
December 31 |
Bad Debt Expense | $1,093 | ||
Allowance for Doubtful Accounts | $1,093 | |||
December 31 | Income Summary | $91,250 | ||
Merchandise Inventory | $91,250 | |||
December 31 | Merchandise Inventory | $102,000 | ||
Income Summary | $102,000 | |||
December 31 |
Loss on Write-Down of Inventory ( | $1,500 | ||
Merchandise Inventory | $1,500 | |||
Table (3)
3 (a)
Prepare the partial income statement by showing the allocation of net income.
3 (a)
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement. In partnership, the division is often recorded in the lower portion of the income statement.
Partial income statement is prepared as follows:
Company TM | |||
Income Statement (Partial) | |||
For Year Ended December 31 | |||
Net income | $84,000 | ||
Allocation of net income: | Partner J | Partner M | Total |
Salary allowances | $20,000 | $15,000 | $35,000 |
Interest allowances | $6,000 | $4,000 | $10,000 |
Remaining income | $23,400 | $15,600 | $39,000 |
Allocation of net income | $49,400 | $34,600 | $84,000 |
Table (4)
3 (b)
Prepare statement of partners’ equity.
3 (b)
Explanation of Solution
Statement of partners’ equity is prepared as follows:
Company T | |||
Statement of Partners’ Equity | |||
For Year Ended December 31 | |||
Partner J | Partner M | Total | |
Capital, January 1, 20-1 | $60,000 | $40,000 | $100,000 |
Additional investments during the year | $5,000 | 5,000 | |
$ 60,000 | $45,000 | $105,000 | |
Net income for the year | 49,400 | $34,600 | $84,000 |
$109,400 | $79,600 | $189,000 | |
Withdrawals (salaries and interest) | ($26,000) | ($19,000) | ($45,000) |
Capital, December 31 | $83,400 | $60,600 | $144,000 |
Table (5)
4 (a)
Prepare closing entries to close income summary to the capital account.
4 (a)
Explanation of Solution
Record the closing entries:
Date | Account titles and Explanation | Debit | Credit |
December 31 | Income Summary | $84,000 | |
Person J, Capital | $49,400 | ||
Person M, Capital | $34,600 | ||
Table (6)
4 (b)
Prepare closing entries to close drawing accounts to the capital account.
4 (b)
Explanation of Solution
Record the journal entries:
Date | Account titles and Explanation | Debit | Credit |
December 31 | Person J, Capital | $26,000 | |
Person J, Drawing | $26,000 | ||
December 31 | Person M, Capital | $19,000 | |
Person M, Drawing | $19,000 |
Table (7)
5.
Record the reversing entries
5.
Explanation of Solution
Prepare the journal entry:
Date | Account titles and Explanation | Debit | Credit |
January 1 | Interest Revenue | $3.33 | |
Accrued Interest Receivable | $3.33 | ||
January 1 | Accrued Interest Payable | $59.89 | |
Interest Expense | $59.89 |
Table (8)
6.
Journalize the transactions.
6.
Explanation of Solution
Record the journal entry:
Date | Account titles and Explanation | Debit | Credit |
January 13 |
Interest Expense ( | $70 | |
Notes Payable | $3,500 | ||
Cash | $3,570 | ||
(Paid note to Dennis Designs at maturity adjustment reversed, no need to split to accrual account) | |||
January 15 | Cash | $505 | |
Interest Revenue ( | $5 | ||
Notes Receivable | $500 | ||
(Received payment on note from Person L, adjustment reversed, no need to split to accrual account) | |||
April 18 | Notes Payable | $10,000 | |
Interest Expense ( | $225 | ||
Discount on Notes Payable | $225 | ||
Cash | $10,000 | ||
(Paid discounted note at maturity to Person O Savings Association discount; prior period discount adjusted but not reversible so only record discount for this period) |
Table (9)
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