Fundamental Financial Accounting Concepts, 9th Edition
Fundamental Financial Accounting Concepts, 9th Edition
9th Edition
ISBN: 9780078025907
Author: Thomas P Edmonds, Christopher Edmonds, Frances M McNair, Philip R Olds
Publisher: McGraw-Hill Education
Question
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Chapter 3, Problem 1CP

a.

To determine

Record the above transactions in general journal form.

a.

Expert Solution
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Explanation of Solution

Journal entry:

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 events in general journal format.

EventAccount title and ExplanationPost ref.

Debit

 (in $)

Credit (in $)
1.Salaries payable1,200
Cash1,200
(To record the salaries paid)
2.Notes payable2,000
Cash2,000
(To record the payment made to Small business government agency)
3.Cash11,000
Accounts receivable21,000
Security Service revenue32,000
(To record the security service revenue earned by cash and on account)
4.Prepaid rent3,000
Cash3,000
(To record the payment of rent)
5.Supplies 700
Accounts payable 700
(To record the supplies purchased on account)
6. Salaries Expense 9,000
Cash 9,000
(To record salaries expense)
7.Other Operating Expenses 4,200
Accounts payable 4,200
(To record operating expenses on account)
8.Cash1,200
Unearned revenue1,200
(To record the unearned service revenue)
9.Cash19,000
Accounts receivable19,000
(To record the cash collected from accounts receivable)
 
10.Accounts payable5,950
Cash5,950
(To record the payment made to creditors on account)
11.Advertising Expense 1,800
Cash 1,800
(To record the advertising expense)
12.Dividends4,650
Cash4,650
(To record the dividends paid)
13.No entry is required for the market value of the land.
14. Supplies Expense (1)645
Supplies 645
(To record the supplies)
15.Rent Expense (2)2,800
Prepaid Rent2,800
(To adjust the prepaid rent)
16.Unearned revenue (3)500
Service revenue500
(To record the service revenue earned)
17. Salaries Expense 1,000
Salaries payable 1,000
(To record salaries expense)

Table (1)

Working note:

Calculate the Supplies used during the year.

Supplies used during the year=(Supplies at the beginning of the year+Supplies purchasedSupplies at the end of the year)=$65+$700$120=$645 (1)

Calculate the amount of prepaid rent expired during the year.

Prepaid rent expired during the year ={Prepaid rent paid in Year 2×Number of months rent expiredTotal number of months rent prepaid}+{Prepaid rent paid in Year 3×Number of months rent expiredTotal number of months rent prepaid}{$2,400×4months (January to April)12months}+{$3,000×8months (May to December)12months}=$800+$2,000=$2,800 (2)

Calculate the amount of unearned revenue earned during the year.

Unearned revenue earned in Year 3 =(Uneraned revenuecollected in Year 2 and earned in Year 3)+(Unearned revenue earned and collected in Year 3×Number of months revenue earnedTotal number of months revenue unearned)($200)+($1,200×3months12months)=$200+$300=$500 (3)

b.

To determine

Post the transactions to T-accounts and determine the account balances.

b.

Expert Solution
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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

Post the events to T-accounts as follows:

Cash
Balance8,9001.1,200
3.11,0002.2,000
8.1,2004.3,000
9.19,0006.9,000
10.5,950
11.1,800
12.4,650
Balance            12,500
Accounts Receivable
Balance1,5009.19,000
3.21,000
Balance                3,500
Supplies
Balance6514.645
5.700
Balance                   120
Prepaid Rent
Balance80015.2,800
4.3,000
Balance                1,000
Land
Balance4,000
Accounts Payable
10.5,950Balance1,050
5.700
7.4,200
Balance                  0
Unearned Revenue
16.500Balance200
8.1,200
Balance              900
Salaries Payable
1.1,200Balance1,200
17.1,000
Balance           1,000
Notes Payable
2.2,000Balance2,000
Balance                  0
Common Stock
Balance8,000
Retained Earnings
Balance2,815
Dividends
12.4,650
Balance                4,650
Security Service Revenue
3.32,000
16.500
Balance         32,500
Advertising Expense
11.1,800
Balance                1,800
Other Operating Expense
7.4,200
Balance                4,200
Rent Expense
15.2,800
Balance                2,800
Salaries Expense
6.9,000
17.1,000
Balance              10,000
Supplies Expense
14.645
Balance                   645

c.

To determine

Prepare a trial balance.

c.

Expert Solution
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Explanation of Solution

Trial balance:

A trial balance is the summary of all the ledger accounts. The trial balance is prepared to check the total balance of the debit column with the total of the balance of the credit column, which must be equal. The trial balance is usually prepared to check accuracy of ledger accounts balances before the preparation of financial statements.

Prepare a trial balance for 2013 as follows:

Incorporation P
Trial Balance
December 31, 2013
ParticularsDebit $Credit $
Cash12,500
Accounts receivable3,500
Supplies120
Prepaid rent1,000
Land4,000
Unearned revenue900
Salaries payable1,000
Common stock8,000
Retained earnings2,815
Dividends4,650
Security Service revenue32,500
Advertising expense1,800
Other Operating expenses4,200
Rent expenses2,800
Supplies expense645
Salaries expenses10,000
Total$45,215$45,215

Table (2)

d.

To determine

Prepare an income statement, statement of changes in stockholder’s equity, balance sheet, and statement of cash flows for 2013.

d.

Expert Solution
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Explanation of Solution

Financial statement:

Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making. The financial statements reports, and shows the financial status of the business. The financial statements include the balance sheet, income statement, statement of retained earnings, and the cash flow statement.

Four general-purpose financial statements:

The four general-purpose financial statements that business enterprises use are:

1. Income statement:

Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

2. Statement of changes in Stockholder’s equity:

This statement reports the beginning stockholders’ equity and all the changes, which led to ending stockholders’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning stockholders’ equity to arrive at the result, ending stockholders’ equity.

3. Balance Sheet:

Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

4. Statement of cash flows:

Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period.

Prepare the income statement, statement of changes in stockholder’s equity, balance sheet, and statement of cash flows for 2013 as follows:

Incorporation P

Financial Statements

For the Year Ended December 31, 2013

Income Statement
DetailsAmount ($)Amount ($)
Revenues: 
Service revenue 32,500
Less: Expenses 
Advertising  Expense1,800 
Other Operating  Expense4,200 
Rent Expense2,800 
Supplies Expense645 
Salaries Expense10,000 
Total Expenses (19,445)
Net Income $13,055
Statement of changes in Stockholders’ Equity
Beginning common stock8,000 
Add: Stock issued0 
Ending common stock 8,000
Beginning retained earnings2,815 
Add: Net income13,055 
Less: Dividends(4,650) 
Ending retained earnings 11,220
Total Stockholders’ Equity $19,220
Incorporation P
Balance Sheet
As of December 31, 2013
Assets:  
Cash12,500 
Accounts Receivable3,500 
Supplies120 
Land4,000 
Prepaid rent1,000 
Total Assets 21,120
   
Liabilities:  
Salaries Payable1,000 
Unearned revenue900 
Total Liabilities 1,900
   
Stockholders’ Equity:  
Common stock8,000 
Retained earnings11,220 
Total Stockholders’ Equity 19,220
Total Liabilities and Owners’ Equity $21,120
Statement of Cash Flows
Particulars 
Cash Flow From Operating Activities: 
Received cash from customers31,200
Paid cash for expenses(20,950)
Net Cash Flow from Operating Activities 10,250
 
Net Cash Flow From Investing Activities 0
 
Net Cash Flow From Financing Activities: 
Cash payments on loan(2,000)
Cash payments for dividends(4,650)
Net Cash Flow from Financing Activities (6,650)
 
Net increase in Cash 3,600
Add: Beginning Cash Balance 8,900
Ending Cash Balance $12,500

Table (3)

Working Notes:

Calculate the cash received from customers.

Cash sales11,000
Cash received from unearned income1,200
Collection of accounts receivable19,000
Total cash from customers$31,200

Table (4)

Calculate the cash paid for expenses.

Payment of prepaid rent3,000
Payment of salaries10,200
Payment of accounts payable5,950
Payment of advertising1,800
Total cash payment for expenses$20,950

Table (5)

e.

To determine

Prepare the closing entries and post to the T-accounts.

e.

Expert Solution
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Explanation of Solution

Closing entries:

Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts. It is passed at the end of the accounting period, to transfer the final balance.

Prepare the closing entries and post to the T-accounts as follows:

DateAccounts title and ExplanationPost Ref.

Debit

($)

Credit

($)

December 31Security Service revenue 32,500 
 Retained earnings  32,500
 (To close the balance of revenue account)   
December 31Retained earnings 19,445 
 Other Operating expense  4,200
 Advertising expense  1,800
 Rent Expense  2,800
 Salaries Expense  10,000
 Supplies Expense  645
 (To close the balances of expense accounts)   
     
December 31Retained earnings 4,650 
 Dividends  4,650
 (To close the dividend account to retained earnings account)   

Table (6)

  • Fees earned are the revenue account. Since the amount of revenue is closed, and transferred to retained earnings account, they are debited.
  • Operating Expense, Rent Expense, Salaries Expense, and Supplies expense are the expense accounts. Since the amounts of expenses are closed to retained earnings account, they are credited.
  • Closing entries are also passed in order to close the excess of expenses over the revenues, and the dividend account.

Post the closing entries to T-accounts as follows:

Cash
Bal.12,500
Accounts Receivable
Bal.3,500
Supplies
Bal.120
Prepaid Rent
Bal.1,000
Land
Bal.4,000
Accounts Payable
Bal.0
Unearned Revenue
Bal.900
Salaries Payable
Bal.1,000
Common Stock
Bal.8,000
Retained Earnings
cl.19,445Bal.2,815
cl.4,650cl.32,500
Bal.11,220
Dividends
Bal.4,650Cl.4,650
Bal.0
Security Service Revenue
cl.32,500Bal.32,500
Bal.0
Advertising Expense
Bal.1,800cl.1,800
Bal.0
Other Operating Expense
Bal.4,200cl.4,200
Bal.0
Rent Expenses
Bal.2,800cl.2,800
Bal.0
Salaries Expense
Bal.10,000cl.10,000
Bal.0
Supplies Expense
Bal.645cl.645
Bal.0

f.

To determine

Prepare a post-closing trial balance.

f.

Expert Solution
Check Mark

Explanation of Solution

Post-Closing Trial Balance:

After passing all the journal entries and the closing entries of the permanent accounts and then further posting them to each of the respective accounts, a post-closing trial balance is prepared which consists of a list of all the permanent accounts. A post-closing trial balance serves as an evidence to prove that the balance of the permanent accounts is equal.

Prepare a trial balance for 2013as follows:

Incorporation P
Post – Closing Trial Balance
December 31, 2013
ParticularsDebit ($)Credit ($)
Cash12,500 
Accounts Receivable3,500 
Supplies120 
Prepaid Rent1,000 
Land4,000 
Unearned Revenue 900
Salaries Payable 1,000
Common Stock 8,000
Retained Earnings 11,220
Total$21,120$21,120

Table (7)

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Chapter 3 Solutions

Fundamental Financial Accounting Concepts, 9th Edition

Ch. 3 - Prob. 11QCh. 3 - Prob. 12QCh. 3 - Prob. 13QCh. 3 - Prob. 14QCh. 3 - Prob. 15QCh. 3 - Prob. 16QCh. 3 - Prob. 17QCh. 3 - Prob. 18QCh. 3 - Prob. 19QCh. 3 - Prob. 20QCh. 3 - Prob. 21QCh. 3 - Prob. 22QCh. 3 - Prob. 1AECh. 3 - Prob. 2AECh. 3 - Prob. 3AECh. 3 - Prob. 4AECh. 3 - Prob. 5AECh. 3 - Prob. 6AECh. 3 - Prob. 7AECh. 3 - Prob. 8AECh. 3 - Prob. 9AECh. 3 - Prob. 10AECh. 3 - Prob. 11AECh. 3 - Prob. 12AECh. 3 - Prob. 13AECh. 3 - Prob. 14AECh. 3 - Prob. 15AECh. 3 - Prob. 16AECh. 3 - Prob. 17AECh. 3 - Prob. 18AECh. 3 - Prob. 19AECh. 3 - Prob. 20AECh. 3 - Prob. 21AECh. 3 - Prob. 22AECh. 3 - Prob. 23AECh. 3 - Prob. 24AECh. 3 - Prob. 25APCh. 3 - Prob. 26APCh. 3 - Prob. 27APCh. 3 - Prob. 28APCh. 3 - Prob. 29APCh. 3 - Prob. 30APCh. 3 - Prob. 31APCh. 3 - Prob. 32APCh. 3 - Prob. 33APCh. 3 - Prob. 34APCh. 3 - Prob. 35APCh. 3 - Prob. 36APCh. 3 - Prob. 1BECh. 3 - Prob. 2BECh. 3 - Prob. 3BECh. 3 - Prob. 4BECh. 3 - Prob. 5BECh. 3 - Prob. 6BECh. 3 - Prob. 7BECh. 3 - Prob. 8BECh. 3 - Prob. 9BECh. 3 - Prob. 10BECh. 3 - Prob. 11BECh. 3 - Prob. 12BECh. 3 - Prob. 13BECh. 3 - Prob. 14BECh. 3 - Prob. 15BECh. 3 - Prob. 16BECh. 3 - Prob. 17BECh. 3 - Prob. 18BECh. 3 - Prob. 19BECh. 3 - Prob. 20BECh. 3 - Prob. 21BECh. 3 - Prob. 22BECh. 3 - Prob. 23BECh. 3 - Prob. 24BECh. 3 - Prob. 25BPCh. 3 - Prob. 26BPCh. 3 - Prob. 27BPCh. 3 - Prob. 28BPCh. 3 - Prob. 29BPCh. 3 - Prob. 30BPCh. 3 - Prob. 31BPCh. 3 - Prob. 32BPCh. 3 - Prob. 33BPCh. 3 - Prob. 34BPCh. 3 - Prob. 35BPCh. 3 - Prob. 36BPCh. 3 - Prob. 1ATCCh. 3 - Prob. 3ATCCh. 3 - Prob. 4ATCCh. 3 - Prob. 5ATCCh. 3 - Prob. 6ATCCh. 3 - Prob. 7ATCCh. 3 - Prob. 9ATCCh. 3 - Prob. 10ATCCh. 3 - Prob. 1CP
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