Concept explainers
a..
To prepare:
a..
Answer to Problem 2GLP
Solution:
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec. 31 | 7,500 | |||
Tuition Fees Earned | 7,500 | |||
(Being training fees earned but not received yet)) |
Explanation of Solution
- Accounts receivable is an asset. Since, the revenue is earned, the asset has increased. So, debit account receivable account.
- Tuition fees earned is revenue. Since, revenue increases equity, tuition fee account is debited.
Working Notes:
Calculation of total tuition fees earned:
g.
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec. 31 | Salaries Expenses | 400 | ||
Salaries payable | 400 | |||
(Being salary accrued but not paid) |
- Salaries expense is an expense. Since, expense decrease equity, salaries expense is debited.
- Salaries payable is a liability. Since, salary expense has occurred but not paid yet, it increases liability. Hence credit salaries payable account
Working Notes:
Calculation of accrued salary:
h.
Date | Particulars | Post ref | Debit($) | Credit($) |
Dec. 31 | Rent Expenses | 3,000 | ||
Prepaid Rent | 3,000 | |||
(Being prepaid rent has been used.) |
- Rent expense is an expense. Since, expense decrease equity. Hence, salaries expense is debited.
- Prepaid rent is an asset. Since, amount paid in advance, increases asset. That’s why prepaid rent account is debited.
Prepare income statement:
W.T.I. Company | ||
Income Statement | ||
For year ended on December 31, 2017 | ||
Particulars | Amount($) | Amount($) |
Revenue: | ||
Service Revenue | 176,400 | |
Total Revenue | 176,400 | |
Expenses: | ||
Insurance Expense | 2,400 | |
Salaries Expense | 50,400 | |
Teaching Supplies Expense | 5,200 | |
Rent expenses | 36,000 | |
Advertising Expense | 6,000 | |
Utility Expense | 6,400 | |
7,200 | ||
Depreciation Expense-Equipment | 13,200 | |
Total Expense | 126,800 | |
Net income | 49,600 |
Working Notes:
Calculation of service revenue:
Net income of W.T.I. Company is $49,600.
Prepare
W.T.I. Company | ||
Retained Earnings Statement | ||
For year ended on December 31, 2017 | ||
Particulars | Amount($) | |
Opening balance | 80,000 | |
Net income | 49,600 | |
Dividends | (50,000) | |
Retained earnings | 79,600 |
Therefore, Retained earnings of W.T.I. Company are $79,600.
Prepare balance sheet:
W.T.I. Company | ||
Balance sheet | ||
As on December 31, 2017 | ||
Particulars | Amount($) | |
Assets | ||
Cash | 34,000 | |
Account Receivable | 7,500 | |
Teaching Supplies | 2,800 | |
Prepaid Insurance | 9,600 | |
Prepaid rent | 0 | |
Equipment | 80,000 | |
Less: Accumulated depreciation | (28,200) | 51,800 |
Professional Library | 35,000 | |
Less: Accumulated Depreciation | (17,200) | 17,800 |
Total Assets | 123,500 | |
Liabilities and | ||
Liabilities | ||
Accounts Payable | 26,000 | |
Salaries Payable | 400 | |
Unearned training Fees | 7,500 | |
Stockholder’s Equity | ||
Common Stock | 10,000 | |
Retained earnings | 79,600 | |
Total stockholders’ equity | 89,600 | |
Total Liabilities and Stockholder’s equity | 123,500 |
Balance sheet of W.T.I. Company as on December 31, 2017 stood for $123,500.
Effects of adjusting entries on net income:
a.
Insurance expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.
b.
Teaching supplies expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.
c.
Depreciation expense-Equipment is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.
d.
Depreciation expense-Professional Library is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.
e.
Training fees earned is an income. Since, it is credited; it increases the income of the firm.
f.
Tuition fees earned is an income. Since, it is credited; it increases the income of the firm.
g.
Salaries expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.
h.
Rent expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.
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Chapter 3 Solutions
FINANCIAL ACCOUNTING FUNDAMENTALS
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