Concept explainers
Problem 2-62B Comprehensive Problem
Mulberry Services sells electronic data processing services to firms too Email to own their own computing equipment. Mulberry had the following amounts and amount balances as of January 1, 2019:
During 2019, the following transactions occurred (the events described below are aggregations of many individual events):
- During 2019, Mulberry sold $690,000 of computing services, all on credit.
- Mulberry collected $570,000 from the credit sales in Transaction a and an additional $129,000 from the
accounts receivable outstanding at the beginning of the year. - Mulberry paid the interest payable of $8,000.
- A Wages of $379,000 were paid in cash.
- Repairs and maintenance of $9,000 were incurred and paid.
- The prepaid rent at the beginning of the year was used in 2019. In addition, $28,000 of computer rental costs were incurred and paid. There is no prepaid rent or rent payable at year-end.
- Mulberry purchased computer paper for $13,000 cash in late December. None of the paper was used by year-end.
- Advertising expense of $26,000 was incurred and paid.
- Income tax of $10,300 was incurred and paid in 2019.
- Interest of $5,000 was paid on the long-term loan.
(Continued)
Required:
- Establish a T-account for the accounts listed above and enter the beginning balances. Use a chart of accounts to order the T-accounts.
- Analyze each transaction; Journalize as appropriate. (Note: Ignore the date because these events are aggregations of individual events.)
Post your journal entries to the T-accounts. Add additional T-accounts when needed.- Use the ending balances in the T-accounts to prepare a
trial balance .
T-Accounts:
T-accounts as its name derived from shape of the account, is representation of business transaction in their respective account. It helps in organizing and analyzing the transaction according to their similar nature of account.
Requirement 1
Prepare:
Prepare ledger accounts and enter the beginning balances.
Answer to Problem 62APSA
Cash
Bal. $16,300 | |
Accounts Receivable
Bal. $384,000 | |
Accounts Payable
Bal. $11,900 | |
Interest Payable
Bal. $11,200 | |
Rent Payable
Bal. $10,000 | |
Insurance Payable
Bal. $1,000 | |
Notes Payable
Bal. $100,000 | |
Common Stock
Bal. $165,000 | |
Retained Earnings
Bal. $101,200 | |
Explanation of Solution
Nature | Accounts Name | Normal Balance | Debit | Credit |
Asset | Cash | Debit | Increase | Decrease |
Accounts Receivable | Debit | Increase | Decrease | |
Liabilities | Accounts Payable | Credit | Decrease | Increase |
Interest Payable | Credit | Decrease | Increase | |
Rent Payable | Credit | Decrease | Increase | |
Insurance Payable | Credit | Decrease | Increase | |
Notes Payable | Credit | Decrease | Increase | |
Equity | Common Stock | Credit | Decrease | Increase |
Retained Earnings | Credit | Decrease | Increase |
Journal Entries:
Journal entries are medium of recording business transactions. A business enterprise must record all the business transaction to evaluate net income or loss and analyze the financial performance of a company during a specified accounting period.
Requirement 2
To Prepare:
Prepare journal entries for the transaction during 2019.
Answer to Problem 62APSA
Events | Accounts and Explanation | Debit | Credit |
a. | Accounts Receivable | $994,000 | |
Service Revenue | $994,000 | ||
b. | Cash | 384,000 | |
Accounts Receivable | 384,000 | ||
c. | Cash | 983,000 | |
Accounts Receivable | 983,000 | ||
d. | Rent Payable | 10,000 | |
Rent Expense | 48,000 | ||
Cash | 58,000 | ||
e. | Insurance Payable | 1,000 | |
Insurance Expense | 4,000 | ||
Cash | 5,000 | ||
f. | Utilities Expense | 56,000 | |
Cash | 56,000 | ||
g. | Salaries Expense | 702,000 | |
Cash | 702,000 | ||
h. | Interest Payable | 11,200 | |
Interest Expense | 11,000 | ||
Cash | 22,200 | ||
i. | Income Tax Expense | 19,700 | |
Cash | 19,700 |
Explanation of Solution
Accounting Equation | |||||
Asset = Liabilities +Stockholders’ Equity | |||||
a. | Increase (Accounts Receivable) | Increase (Service revenue) | |||
b. | Increase (Cash) | ||||
Decrease (Accounts Receivable) | |||||
c. | Increase (Cash) | ||||
Decrease (Accounts Receivable) | |||||
d. | Decrease (Cash) | Decrease (Rent Payable) | Decrease (Rent Expense) | ||
e. | Decrease (Cash) | Decrease (Insurance Payable) | Decrease (Insurance Expense) | ||
f. | Decrease (Cash) | Decrease (Utilities Expense) | |||
g. | Decrease (Cash) | Decrease (Salaries Expense) | |||
h. | Decrease (Cash) | Decrease (Interest Payable) | Decrease (Interest Expense) | ||
i. | Decrease (Cash) | Decrease (Income Tax Expense) |
Introduction:
T-accounts as its name derived from shape of the account, is representation of business transaction in their respective account. It helps in organizing and analyzing the transaction according to their similar nature of account.
Requirement 3
Prepare:
Posting the journal entries to T-accounts.
Answer to Problem 62APSA
Accounts | Balance |
Cash | $520,400 |
Accounts Receivable | 11,000 |
Accounts Payable | 11,900 |
Interest Payable | 0 |
Rent Payable | 0 |
Insurance Payable | 0 |
Notes Payable | 100,000 |
Common Stock | 165,000 |
Retained Earnings | 101,200 |
Service Revenue | 994,000 |
Rent Expense | 48,000 |
Insurance Expense | 4,000 |
Utilities Expense | 56,000 |
Salaries Expense | 702,000 |
Interest Expense | 11,000 |
Income Tax Expense | 19,700 |
Explanation of Solution
Cash
Bal. $16,300 (b) 384,000 (c) 983,000 | (d) $58,000 (e) 5,000 (f) 56,000 (g) 702,000 (h) 22,200 (i) 19,700 |
Bal. 520,400 |
Accounts Receivable
Bal. $384,000 (a) 994,000 | (b) $384,000 (c) 983,000 |
Bal. 11,000 |
Accounts Payable
Bal. $11,900 | |
Bal. 11,900 |
Interest Payable
(h) 11,200 | Bal. $11,200 |
Bal. 0 |
Rent Payable
(d) 10,000 | Bal. $10,000 |
Bal. 0 |
Insurance Payable
(e)1,000 | Bal. $1,000 |
Bal. 0 |
Notes Payable
Bal. $100,000 | |
Bal. 100,000 |
Common Stock
Bal. $165,000 | |
Bal. 165,000 |
Retained Earnings
Bal. $101,200 | |
Bal. 101,200 |
Service Revenue
Bal. $0 (a) 994,000 | |
Bal. 994,000 |
Rent Expense
Bal. $0 (d) 48,000 | |
Bal. 48,000 |
Insurance Expense
Bal. $0 (e)4,000 | |
Bal. 4,000 |
Utilities Expense
Bal. $0 (f) 56,000 | |
Bal. 56,000 |
Salaries Expense
Bal. $0 (g) 702,000 | |
Bal. 702,000 |
Interest Expense
Bal. $0 (h)11,000 | |
Bal. 11,000 |
Income Taxes Expense
Bal. $0 (i) 19,700 | |
Bal. 19,700 |
Trial Balance:
A financial statement which integrates all the balance of ledger accounts is termed as a trial balance. The total balance of debit and credit in trial balance should be equal at end of an accounting period.
Requirement 4
Prepare:
Prepare the trial balance as of December 31, 2019.
Answer to Problem 62APSA
The total balance of the trial balance for the year ending December 31, 2019 is $1,372,100.
Explanation of Solution
Western Sound StudiosTrial Balance December 31, 2019 | |||
Accounts | Debit | Credit | |
Cash | $520,400 | ||
Accounts Receivable | 11,000 | ||
Accounts Payable | $11,900 | ||
Notes Payable | 100,000 | ||
Common Stock | 165,000 | ||
Retained Earnings | 101,200 | ||
Service Revenue | 994,000 | ||
Rent Expense | 48,000 | ||
Insurance Expense | 4,000 | ||
Utilities Expense | 56,000 | ||
Salaries Expense | 702,000 | ||
Interest Expense | 11,000 | ||
Income Tax Expense | 19,700 | ||
Total | $1,372,100 | $1,372,100 |
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Chapter 2 Solutions
Bundle: Cornerstones Of Financial Accounting, Loose-leaf Version, 4th + Lms Integrated Cengagenowv2, 1 Term Printed Access Card
- Problem 2-62B Comprehensive Problem Mulberry Services sells electronic data processing services to firms too Email to own their own computing equipment. Mulberry had the following amounts and amount balances as of January 1, 2019: During 2019, the following transactions occurred (the events described below are aggregations of many individual events): During 2019, Mulberry sold $690,000 of computing services, all on credit. Mulberry collected $570,000 from the credit sales in Transaction a and an additional $129,000 from the accounts receivable outstanding at the beginning of the year. Mulberry paid the interest payable of $8,000. A Wages of $379,000 were paid in cash. Repairs and maintenance of $9,000 were incurred and paid. The prepaid rent at the beginning of the year was used in 2019. In addition, $28,000 of computer rental costs were incurred and paid. There is no prepaid rent or rent payable at year-end. Mulberry purchased computer paper for $13,000 cash in late December. None of the paper was used by year-end. Advertising expense of $26,000 was incurred and paid. Income tax of $10,300 was incurred and paid in 2019. Interest of $5,000 was paid on the long-term loan. (Continued) Required: 1. Establish a ledger for the accounts listed above and enter the beginning balances. Use a chart of accounts to order the ledger accounts. 2. Analyze each transaction, Journalize as appropriate. (Note: Ignore the date because these events are aggregations of individual events.) 3. Post your journal entries to T-accounts, Add additional T-accounts when needed. 4. Use the ending balances in the T-accounts to prepare a trial balancearrow_forwardExercise 2-38 Events and Transactions The following economic events related to K the bill need not be paid until March 1, 2019. On February, 15, Kqualify and does not qualify. indicate whether each of the above events would qualify as a transaction and be recognized and recorded in the accounting system on the date indicated. 2. CONCEPTUAL CONNECTION For any events that did not qualify as a transaction to be recognized and recorded, explain why it does not qualify.arrow_forwardExercise 3-40 Revenue and Expense Recognition Electronic Repair Company repaired a high-definition television for Sarah Merrifield in December 2019. Sarah paid $80 at the time of the repair and agreed to pay Electronic Repair $80 each month for 5 months beginning on January 15, 2020. Electronic Repair used $120 of supplies, which were purchased in November 2020, to repair the television. Assume that Electronic Repair uses accrual-basis accounting. Required: In what month or months should revenue from this service be recorded by Electronic Repaid? In what month or months should the expense related to the repair of the television be recorded by Electronic Repair? CONCEPTUAL CONNECTION Describe the accounting principles used to answer the above questions.arrow_forward
- Exercise 3-44 Revenue Expense and Recognition Carrico Advertising Inc. performs advertising services for several Fortune 500 companies. The following information describes Carricos activities during 2019. At the beginning of 2019, customers owed Carrico $45,800 for advertising services formed during 2018. During 2019, Carrico performed an additional $695,100 of advertising services on account. Carrico collected $708,700 cash from customers during 2019. At the beginning of 2019, Carrico had $13,350 of supplies on hand for which it owed suppliers SS, 150. During 2019, Carrico purchased an additional $14,600 of supplies on account. Carrico also paid $19,300 cash owed to suppliers for goods previously purchased on credit. Carrico had of supplies on hand at the end of 2019. Carricos 2019 operating and interest were $437 and $133,400, respectively. Required: Calculate Carricos 2019 income before taxes. Calculate the ending balance of receivable, the supplies used, and the ending balance of accounts payable. CONCEPTUAL CONNECTION Explain the underlying principles behind why the three accounts computed in Requirement 2 exist.arrow_forwardProblem 2-56A Analyzing Transactions Luis Madero, after working for several years with a large public accounting firm decided to open his own accounting service. The business is operated as a corporation under the name Madero Accounting Services. The following captions and amounts summarize Maderos balance sheet at July 31, 2019. The following events occurred during August 2019. Issued common stock to Ms. Garriz in exchange for $15,000 cash. Paid $850 for first months rent on office space. Purchased supplies of $2,250 on credit. Borrowed $8,000 from the bank. Paid $1,080 on account for supplies purchased earlier on credit. Paid secretarys salary for August of $2,150. Performed amounting services for clients who paid cash upon completion of the service in the total amount of $4,700. Used $3,180 of the supplies on hand. Perfumed accounting services for clients on credit in the total amount of $1,920. Purchased $500 in supplies for cash. Collected $1,290 cash from clients for whom services were performed on credit. Paid $1,000 dividend to stockholders. Required: Record the effects of the transactions listed above on the accounting equation. Use the format given in the problem, starting with the totals at July 31, 20l9. Prepare the trial balance at August 31, 2019.arrow_forwardExercise 3-47 Revenue Adjustments Sentry Transport Inc. of Atlanta provides in-town parcel delivery services in addition to a full range of passenger services. Sentry engaged in the following activities during the current year: Sentry received $5,000 cash in advance from Richs Department Store for an estimated 250 deliveries during December 2019 and January and February of 2020. The entire amount was recorded as unearned revenue when received. During December 2019, 110 deliveries were made for Richs. Sentry operates several small buses that take commuters from suburban communities to the central downtown area of Atlanta. The commuters purchase, in advance, tickets for 50 one-way rides. Each So-ride ticket costs S500. At the time of purchase, Sentry credits the cash received to unearned revenue. At year end, Sentry determines that 10,160 one-way rides have been taken. Sentry operates buses that provide transportation for the clients of a social agency in Atlanta. Sentry bills the agency quarterly at the end of January, April, July, and October for the that quarter. The contract price is S7,500 per quarter. Sentry follows the practice of recognizing revenue from this contract in the in which the service is On December 23, Delta Airlines chartered a bus to transport its marketing group to a meeting at a resort in southern Georgia. The meeting will be held during the last week in January 2020, and Delta agrees to pay for the entire trip on the day the bus departs. At year end, none Of these arrangements have been recorded by Sentry. Required: Prepare adjusting entries at December 31 for these four activities. CONCEPTUAL CONNECTION What would be the effect on revenue if the adjusting entries were not made?arrow_forward
- Exercise 2-52 Accounting Cycle Rosenthal Decorating Inc. is a commercial painting and decorating contractor that began operations in January 2019. The following transactions occurred during the year: On January 15, Rosenthal sold shares Of its common stock to William Hensley for $10,000 On January 24, Rosenthal purchased S720 of painting supplies from Westwood Builders' Supply Company on account. On February 20, Rosenthal paid S720 cash to Westwood Builders' Supply Company for the painting supplies purchased on January 24. On April 25, Rosenthal billed Bultman Condominiums $12,500 for painting and decorating services performed in April. On May 12, Rosenthal received $12,500 from Bultman Condominiums for the painting and decorating work billed in April. On June 5, Rosenthal sent Arlington Builders a $9,500 bill for a painting job completed on that day. On June 24, Rosenthal paid wages for work performed during the preceding week in the amount of $6,700. Required: Prepare a journal entry for each of the transactions. Post the transactions to T-accounts. Prepare a trial balance at June 30, 2019.arrow_forwardProblem 2-593 Journalizing Transactions Monilast Chemicals engaged in the following transactions during December 2019: Dec 2 Paid rent on office furniture, $1,200. 3 Borrowed $25,030 on a 9-month, 3% note. 7 Provided services on credit. $42,600. 10 Purchased supplies on credit, $2,850. 13 Collected accounts receivable, $20,150. 19 Issued common stock, $50000. 22 Paid employee wages for December. $13,825. 23 Paid accounts payable, $1,280. 25 Provided services for cash, $13,500. 30 Paid utility bills for December, $1,975. Required: Prepare a journal entry for each transaction.arrow_forwardProblem 3-70B Comprehensive Problem: Reviewing the Accounting Cycle Wilburton Riding Stables provides stables, care for animals, and grounds for riding and showing horses. The account balances at the beginning of 2019 were: During 2019, the following transactions occurred: Wilburton provided animal care services, all on credit, for $210,300. Wilburton rented stables to customers for $20,500 cash. Wilburton rented its grounds to individual riders, groups, and show organizations for $41,800 cash. There remains $15,600 of accounts receivable to be collected at December 31, 2019. Feed in the amount of $62,900 was purchased on credit and debited to the supplies Straw was purchased for $7,400 cash and debited to the supplies account. Wages payable at the beginning of 2019 were paid early in 2019. Wages were earned and paid during 2019 in the amount of $12,000. The income taxes payable at the beginning of 2019 were paid early in 2019. Payments of $73,000 were made to creditors for supplies previously purchased on credit. One years interest at 9% was paid on the note payable on July 1, 2019. During 2019, Jon Wilburton, a principal stockholder, purchased a horse for his Wife, Jennifer, to ride. The horse cost $7,000, and Wilburton used his personal credit to purchase it. The horse is stabled at the Wilburton home rather than at the riding stables. Property taxes were paid on the land and buildings in the amount of S17,000. Dividends were declared and paid in the amount Of The following data are available for adjusting entries: • Supplies (feed and straw) in the amount of $30,400 remained at year end. • Annual depreciation on the buildings is $6,000. • Annual depreciation on the equipment is • Wages of $4,000 were unrecorded and unpaid at year end. • Interest for 6 months at 9% per year on the note is unpaid and unrecorded at year end. • Income taxes of $16,500 were unpaid and unrecorded at year end. Required: Post the 2019 beginning balances to T-accounts. Prepare journal entries for Transactions a through k and post the journal entries to T-accounts, adding any new T-accounts you need. Prepare the adjustments and post the adjustments to the T-accounts, adding any new T-accounts you need. Prepare an income statement. Prepare a retained earnings statement. Prepare a classified balance sheet. Prepare closing entries. CONCEPTUAL CONNECTION Did you include Transaction i among Wilburtons 2019 journal entries? Why or why not?arrow_forward
- Problem 3-70B Comprehensive Problem: Reviewing the Accounting Cycle Wilburton Riding Stables provides stables, care for animals, and grounds for riding and showing horses. The account balances at the beginning of 2019 were: During 2019, the following transactions occurred: Wilburton provided animal care services, all on credit, for $210,300. Wilburton rented stables to customers for $20,500 cash. Wilburton rented its grounds to individual riders, groups, and show organizations for $41,800 cash. There remains $15,600 of accounts receivable to be collected at December 31, 2019. Feed in the amount of $62,900 was purchased on credit and debited to the supplies Straw was purchased for $7,400 cash and debited to the supplies account. Wages payable at the beginning of 2019 were paid early in 2019. Wages were earned and paid during 2019 in the amount of $12,000. The income taxes payable at the beginning of 2019 were paid early in 2019. Payments of $73,000 were made to creditors for supplies previously purchased on credit. One years interest at 9% was paid on the note payable on July 1, 2019. During 2019, Jon Wilburton, a principal stockholder, purchased a horse for his Wife, Jennifer, to ride. The horse cost $7,000, and Wilburton used his personal credit to purchase it. The horse is stabled at the Wilburton home rather than at the riding stables. Property taxes were paid on the land and buildings in the amount of S17,000. Dividends were declared and paid in the amount Of The following data are available for adjusting entries: • Supplies (feed and straw) in the amount of $30,400 remained at year end. • Annual depreciation on the buildings is $6,000. • Annual depreciation on the equipment is • Wages of $4,000 were unrecorded and unpaid at year end. • Interest for 6 months at 9% per year on the note is unpaid and unrecorded at year end. • Income taxes of $16,500 were unpaid and unrecorded at year end. Required: Post the 2019 beginning balances to T-accounts. Prepare journal entries for Transactions a through j and post the journal entries to T-accounts, adding any new T-accounts you need. Prepare the adjustments and post the adjustments to the T-accounts, adding any new T-accounts you need. Prepare an income statement. Prepare a retained earnings statement. Prepare a classified balance sheet Prepare closing entries. CONCEPTUAL CONNECTION Did you include Transaction g among Tarkingtons 2019 journal entries? Why or why not?arrow_forwardBrief Exercise 2-30 Transaction Analysis Galle Inc. entered into the following transactions during January. Borrowed $50,000 from First Street Bank by signing a new payable. Purchased $25,000 of equipment for cash. (Continued) Paid $500 to landlord for rent for January. Performed services for customers on account, $10,000. Collected $31000 from customers for services performed in Transaction d. Paid salaries of $2,500 for the current month. Required: Show the effect of each transaction using the following model.arrow_forwardProblem 3-71B Preparing a Worksheet (Appendix 3A) Flint Inc. operates a cable television System. At December 31, 2019, the following unadjusted account balances were available: The following data are available for adjusting entries: At year end, $1,500 Of office supplies remain unused. Annual depreciation on the building is $20,000. Annual depreciation on the equipment is $150,000 The interest rate on the note is 8%. Four months' interest is unpaid and unrecorded at December 31, 2019. At December 31, 2019, services of $94,000 have performed but are unbilled and unrecorded. Utility bills of $2,800 are unpaid and unrecorded at December 31, 2019. Income taxes of $49,633 were unpaid and unrecorded at year end.  Required: Prepare a worksheet for Flint. Prepare an income statement, a retained earnings statement, and a classified balance sheet for Flint. Prepare the closing entries.arrow_forward
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