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)
Want to see more full solutions like this?
Chapter 19 Solutions
CENGAGENOWV2 FOR HEINTZ/PARRY'S COLLEGE
- Bertram and Ernest share profits and losses equally after salary and interest allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings of $3,000 per month are not used in determining the average capital balances. Total net income for 2014 is $240,000. January 1 capital balances Yearly drawings ($3,000 a month) Permanent withdrawals of capital: June 3 May 2 Additional investments of capital: July 3 October 2 Bertram $200,000 (36,000) (24,000) 80,000 Ernest $240,000 (36,000) (30,000) 100,000 If the average capital balances for Bertram and Ernest are $200,000 and $240,000, what will the total partnership profit allocations be for Bertram and Ernest in 2014? OA. $120,000 and…arrow_forwardBertram and Ernest share profits and losses equally after salary and interest allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings of $3,000 per month are not used in determining the average capital balances. Total net income for 2014 is $240,000. Bertram Ernest January 1 capital balances $200,000 $240,000 Yearly drawings ($3,000 a month) (36,000) (36,000) Permanent withdrawals of capital: June 3…arrow_forwardBertram and Ernest share profits and losses equally after salary and interest allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings of $3,000 per month are not used in determining the average capital balances. Total net income for 2014 is $240,000. Bertram Ernest January 1 capital balances $200,000 $240,000 Yearly drawings ($3,000 a month) (36,000) (36,000) Permanent withdrawals of capital: June 3…arrow_forward
- Lori and Peter enter into a partnership and decide to share profits and losses as follows: 1 The first allocation is a salary allowance with Lori receiving $16,000 and Peter receiving $18,000. 2 The second allocation is 15% of the partners capital balances at year end. On December 31, 2019 the capital balances for Lori and Peter are $90,000 and $20,000, respectively. 3. Any remaining profit or loss is allocated equally. For the year ending December 31, 2019, the partnership reported net Income of $55,000 What is Lori's share of the net income? A) $29,500 B) $20,250 C) $31,750 D) $23,250arrow_forwardOn June 1, 2020, Jill Bow and Aisha Adams formed a partnership to open a gluten-free commercial bakery, contributing $288,000 cash and $376,000 of equipment, respectively. The partnership also assumed responsibility for a $48,000 note payable associated with the equipment. The partners agreed to share profits as follows: Bow is to receive an annual salary allowance of $158,000, both are to receive an annual interest allowance of 10% of their original capital Investments, and any remaining profit or loss is to be shared 40/60 (to Bow and Adams, respectively). On November 20, 2020, Adams withdrew cash of $108,000. At year-end, May 31, 2021, the Income Summary account had a credit balance of $460,000. On June 1, 2021, Peter Williams Invested $128,000 and was admitted to the partnership for a 20% Interest in equity. Required: 1. Prepare Journal entries for the following dates. A. June 1, 2020 B. November 20, 2020 Record the withdrawal by partner. C. June 1, 2021 Record the admission of…arrow_forwardBlake and Matthew are partners who agree that Blake will receive a $100,000 salary allowance and that any remaining income or loss will be shared equally. If Matthew’s capital account is credited for $2,000 as his share of the net income, how much net income did the partnership earn?arrow_forward
- Mohan and Preti are conducting a business as partners selling hot chocolate drinks to early rising students. Their partnership agreement provides that they share profits 70% (Mohan) / 30% (Preti) after their salaries and any interest payable on capital account. Losses are also shared on the same basis. The partnership agreement provides that both partners are entitled to receive an annual salary of $50,000 and Preti is entitled to interest of $60,000 per annum because she contributed $1 million at the start of the business to the partnership capital account. During the 2021 tax year Mohan received wages of $75,000 from his job as a gardener. Preti received $65,000 in unfranked dividends on her shares in Apple. Both of these transactions were unrelated to the partnership. At the end of the 2021 tax year, their partnership business shows the following transactions: Income from their partnership business: $920,000 General Expenses in running the partnership business $360,000 Salaries…arrow_forwardA Lululime fashion business partnership has agreed that half of the annual profit be distributed in proportion to each partner's investment in the partnership, and that the other half be distributed in proportion to the total number of hours that each partner worked in the business during the year. In 2020 the profit of the company was $82,780. How the company should allocated this profit to its three investors if the amounts invested by Howe, Denver, and Laura are $68,000, $27,000, and $43,000, and their hours of work for the year were 420, 1170, and 1230, respectively?arrow_forwardStolton and Bright are partners in a business they started two years ago. The partnership agreement states that Stolton should receive a salary allowance of $15,000 and that Bright should receive a $20,000 salary allowance. Any remaining income or loss is to be shared equally. Determine each partner’s share of the current year’s net income of $52,000.arrow_forward
- Hay, Straw and Clover formed the HSC Partnership, agreeing to share profits and losses equally. Clover will manage the business for which he will receive a guaranteed payment of $30,000 per year. Cash receipts and disbursements for the year were as follows: Net income from operations (before guaranteed payment) $ 90,000 Guaranteed payment to Clover 30,000 What amount of income will each partner report on their personal return?arrow_forwardOn February 1, 2020, Tessa Williams and Audrey Xie formed a partnership in Ontario. Williams contributed $89,000 cash and Xie contributed land valued at $129,000 and a small building valued at $189,000. Also, the partnership assumed responsibility for Xie’s $139,000 long-term note payable associated with the land and building. The partners agreed to share profit or loss as follows: Williams is to receive an annual salary allowance of $99,000, both are to receive an annual interest allowance of 12% of their original capital investments, and any remaining profit or loss is to be shared equally. On November 20, 2020, Williams withdrew cash of $69,000 and Xie withdrew $54,000. After the adjusting entries and the closing entries to the revenue and expense accounts, the Income Summary account had a credit balance of $169,000.Required:1. Present general journal entries to record the initial capital investments of the partners, their cash withdrawals, and the December 31 closing of the Income…arrow_forwardSally and Andy are partners in Just Hats, LLC. Andy works in the business for an agreed salary draw of $4,000 per month. Sally has invested $200,000 in the business and Andy invested $100,000. THe net income of the business is $168,000 for the year. Income is distributed based on the investment of each partner after allocation for salary. How much net income is allocated to Sally?arrow_forward
- College Accounting, Chapters 1-27 (New in Account...AccountingISBN:9781305666160Author:James A. Heintz, Robert W. ParryPublisher:Cengage Learning