Chapter 3, Problem 12AP

a.

To determine

Prepare the general ledger account with June 1 beginning balances.

Explanation of Solution

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a) The title of the account

b) The left or debit side

c) The right or credit side

Prepare the T-account with June 1 beginning balance:

b.

To determine

Prepare the trial balance as of June 30.

Explanation of Solution

Trial balance:

Trial balance is the summary of accounts, and their debit and credit balances at a given time.  It is usually prepared at end of the accounting period.  Debit balances are listed in left   column and credit balances are listed in right column.  The totals of debit and credit column should be equal.  Trial balance is useful in the preparation of the financial statements.

Prepare the trial balance as of June 30.

M Dance studio
Trial Balance
As of June 30
Accounts	Debit ($)	Credit ($)
Cash	5,860
Accounts receivable (1)	10,180
Piano	5,000
Notes payable		5,080
Common stock		7,870
Dividends	900
Instruction fees earned		7,500
Retained earnings		2,000
Performance revenue		2,100
Advertising expense	350
Rent expense	1,765
Utilities expense	465
Interest expense	30
Total	24,550	24,550

Table (1)

Working note:

Calculate the amount of accounts receivable:

Amount of accounts receivable in balance sheet is $8,000

Amount collected from students is $5,320

Amount billed for instructional fess is $7,500

$\begin{array}{c}\text{Accounts receivable}=\$8,000+\$7,500-\$5,320\\ =\$10,180\end{array}$

Thus, the amount of accounts receivable is $10,180.

c.

To determine

Prepare the income statement for the month ended June.

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.

Prepare an income statement for the month of June.

M Dance studio Income statement For the month ended  June
Particulars	Amount ($)	Amount ($)
Revenues:
Instructional fee earned	7,500
Performance revenue	2,100
Total revenue		9,600
Less: Expenses
Advertising expense	350
Rent expense	1,765
Utilities expense	465
Interest expense	30
Total Expenses		(2,610)
Net Income		6,990

Table (2)

d.

To determine

Prepare a statement of stockholders’ equity for the month June.

Explanation of Solution

Statement of stockholders’ equity: The statement which reports the changes in stock, paid-in capital, retained earnings, and treasury stock, during the year is referred to as statement of stockholders’ equity.

Prepare a statement of stockholders’ equity for the month of June.

M Dance studio
Statement of Stockholders’ Equity
For the month of June
	Common Stock	Retained Earnings	Total
Balance, June 1	$7,870	$2,000	$9,870
Add: Net Income		$6,990	$6,990
Less: Dividends		$(900)	$(900)
Balance, June 30	$7,870	$8,090	$15,960

Table (3)

e.

To determine

Prepare the balance sheet as of June 30.

Explanation of Solution

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Prepare a balance sheet as of January 31.

M Dance studio
Balance Sheet
As of June 30
Particulars	Amount ($)	Amount ($)
ASSETS
Current Assets:
Cash	5,860
Account receivable	10,180
Total Current Assets		16,040
Piano		5,000
Total Assets		21,040
LIABILITIES
Notes payable	5,080
Total liabilities		5,080
Stockholders’ equity
Common stock	7,870
Retained earnings	8,090
Total Stockholders’ Equity		15,960
Total Liabilities and Stockholders’ Equity		21,040

Table (4)

f.

To determine

Prepare the closing entries to close the accounts using the retained earnings account and compute the balance in the retained earnings account.

Explanation of Solution

Closing entries: The journal entries prepared to close the temporary accounts to Retained Earnings account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Prepare the closing entry for revenue accounts.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
June 30	Instructional fee earned (E–)		7,500
	Performance revenue(E–)		2,100
	Retained earnings (E+)			9,600
	(To record the closing for revenue accounts)

Table (5)

In this closing entry, service revenue account and interest income is closed by transferring the amount of instructional fee earned and performance revenue to the retained earnings account in order to bring the revenue account balance to zero. Hence, debit the instructional fee earned and performance revenue account and credit retained earnings account.

Prepare the closing entry for expenses account.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
June 30	Retained earnings (E–)		2,610
	Rent Expense (E+)			1,765
	Advertising Expense (E+)			350
	Utilities Expense (E+)			465
	Interest Expenses (E+)			30
	(To record the closing entry for the expense accounts)

Table (6)

In this closing entry, all the expenses account is closed by transferring the amount of expenses to the retained earnings in order to bring the expenses account balance to zero. Hence, debit the retained earnings account and credit all expenses account.

Prepare the closing entry for dividend account.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
December 31	Retained Earnings (E–)		900
	Dividends (E+)			900
	(To close the dividends account)

Table (7)

In this closing entry, dividend account is closed by transferring the amount of dividend to the retained earnings in order to bring the expense account balance to zero. Hence, debit the retained earnings and credit dividends account.

g.

To determine

Prepare the post-closing trial balance for the year ended 30^th June.

Explanation of Solution

Post-closing trial balance:

The post-closing trial balance is a summary of all ledger accounts, and it shows the debit and the credit balances after the closing entries are journalized and posted.  The post-closing trial balance contains only permanent (balance sheet) accounts, and the debit and the credit balances of permanent accounts should agree.

Prepare the post-closing trial balance of Incorporation B.

M Dance Studio
Post-Closing Trial Balance
For the year ended June 30
Accounts	Debit ($)	Credit ($)
Cash	5,860
Accounts receivable	10,180
Piano	5,000
Notes payable		5,080
Common stock		7,870
Retained earnings		8,090
Total	21,040	21,040

Table (8)

Conclusion

The debit column and credit column of the post-closing trial balance are agreed, both having balance of $21,040.