Chapter 3, Problem 3.1APCP

1

To determine

To record: The journal entries for given transactions from July 1 to December 31.

Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

The journal entries for given transactions of Company G are as follows:

Date	Account Title and Explanation	PostRef.	Debit($)	Credit($)
2015	Cash		10,000
July 1	Common stock			10,000
	(To record the issuance of common stock in cash to Company S)
2015	Cash		10,000
July, 2	Common stock			10,000
	(To record the issuance of common stock in cash to Company T)
2015	Prepaid insurance		4,800
July 1	Cash			4,800
	(To record the purchase of one year insurance policy in cash)
2015	Legal fees expense		1,500
July, 2	Cash			1,500
	(To record the payment of legal fees)
2015	Supplies (office)		1,800
July, 4	Accounts payable			1,800
	(To record purchase of office supplies on account)
2015	Advertising expense		300
July, 7	Cash			300
	(To record payment of advertising expense)
2015	Equipment (Bikes)		12,000
July, 7	Cash			12,000
	(To record the purchase of mountain bike)
2015	Cash		2,000
July, 15	Service revenue (Clinic)			2,000
	( To record the cash received for service revenue)
2015	Cash		2,300
July, 22	Service revenue (Clinic)			2,300
	( To record the cash received for service revenue)
2015	Advertising expense		700
July, 22	Cash			700
	(To record the payment of advertising expense in cash)
2015	Cash		4,000
July, 30	Deferred revenue			4,000
	(To record advance cash received from customer)
2015	Cash		30,000
August, 1	Notes payable			30,000
	(To record loan received from city council)
2015	Equipment (Kayaks)		28,000
August, 4	Cash			28,000
	(To record the purchase of equipment in cash)
2015	Cash		3,000
August, 10	Deferred revenue		4,000
	Service revenue			7,000
	(To record the cash received from service revenue and recognized service revenue)
2015	Cash		10,500
August, 17	Service revenue			10,500
	(To record cash received from service revenue)
2015	Accounts payable		1,800
August, 24	Cash			1,800
	( To record payment of cash to creditors)
2015	Prepaid rent		2,400
September 1	Cash			2,400
	(To record the payment of one year advance rent)
2015	Cash		13,200
September 21	Service revenue (Clinic)			13,200
	(To record the cash received from customer)
2015	Cash		17,900
October 17	Service revenue (Clinic)			17,900
	(To record the cash received from customer)
2015	Miscellaneous expense		1,200
December 8	Cash			1,200
	(To record the payment of miscellaneous expense)
2015	Supplies (Racing)		2,800
December 12	Accounts payable			2,800
	(To record purchase of supplies on account)
2015	Cash		20,000
December 15	Service revenue (Racing)			20,000
	(To record cash received from service revenue)
2015	Salaries expense		2,000
December 16	Cash			2,000
	(To record the supplies expense incurred)
2015	Dividend		4,000
December 31	Cash			4,000
	(To record the payment of cash dividends)

Table (1)

2

To determine

To record: The adjusting journal entries on December 31.

Explanation of Solution

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.

The adjusting journal entries for given transactions of Company G are as follows:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
2015	Depreciation expense		8,000
December 31	Accumulated depreciation			8,000
	(To record depreciation expense incurred at the end of the accounting year)
2015	Insurance expense		2,400
December 31	Prepaid insurance			2,400
	(To record the insurance expense incurred at the end of the accounting period)
2015	Rent expense		800
December 31	Prepaid rent			800
	(To record the rent expense incurred at the end of the accounting year)
2015	Supplies expense (Office)		1,500
December 31	Supplies			1,500
	(To record supplies expense incurred at the end of the accounting year)
2015	Interest expense		750
December 31	Interest payable			750
	(To record interest expense incurred at the end of the accounting year)
2015	Supplies expense (Racing)		2,600
December 31	Supplies			2,600
	(To record supplies expense incurred at the end of the accounting year)
2015	Income tax expense		14,000
December 31	Income tax payable			14,000
	(To record the income tax expense incurred at the end of the accounting year)

Table (2)

3

To determine

To post: The Transactions to T-accounts of Company G.

Explanation of Solution

T-account:

T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded.

This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:

1. (a) The title of the account
2. (b) The left or debit side
3. (c) The right or credit side

T-accounts for above transactions are as follows:

Cash
10,000	4,800
10,000	1,500
2,000	300
2,300	12,000
4,000	700
30,000	28,000
3,000	1,800
10,500	2,400
13,200	1,200
17,900	2,000
20,000	4,000
64,200

Prepaid Insurance
4,800	2,400
2,400

Supplies (Racing)
2,800	2,600
200

Prepaid Rent
2,400	800
1,600

Supplies (Office)
1,800	1,500
300

Equipment (Bikes)
12,000
12,000

Equipment (Kayaks)
28,000
28,000

Accumulated  Depreciation
	8,000
	8,000

Accounts Payable
1800	1,800
	2,800
	2,800

Deferred Revenue
4,000	4,000
	0

Interest Payable
	750
	750

Income Tax Payable
	14,000
	14,000

Notes Payable
	30,000
	30,000

Common Stock
	10,000
	10,000
	20,000

Dividends
4,000
4,000

Service Revenue (Clinic)
	2,000
	2,300
	7,000
	10,500
	13,200
	17,900
	52,900

Service Revenue (Racing)
	20,000
	20,000

Legal Fees Expense
1,500
1,500

Advertising Expense
300
700
1,000

Rent Expense
800
800

Salaries Expense
2,000
2,000

Depreciation Expense
8,000
8,000

Insurance Expense
2,400
2,400

Supplies Expense (Office)
1,500
1,500

Supplies Expense (Racing)
2,600
2,600

Interest Expense
750
750

Income Tax Expense
14,000
14,000

Miscellaneous Expense
1,200
1,200

4

To determine

To prepare: The adjusted trial balance of Company G.

Explanation of Solution

Adjusted trial balance:

Adjusted trial balance is a summary of all the ledger accounts, and it contains the balances of all the accounts after the adjustment entries are journalized, and posted.

Adjusted trial balance of Company G is as follows:

Company G
Adjusted Trial Balance
December 31, 2015
Accounts	Debit ($)	Credit ($)
Cash	64,200
Prepaid Insurance	2,400
Prepaid Rent	1,600
Supplies (Office)	300
Supplies (Racing)	200
Equipment (Bikes)	12,000
Equipment (Kayaks)	28,000
Accumulated Depreciation		$8,000
Accounts Payable		2,800
Income Tax Payable		14,000
Interest Payable		750
Notes Payable		30,000
Common Stock		20,000
Dividends	4,000
Service Revenue (Clinic)		52,900
Service Revenue (Racing)		20,000
Advertising Expense	1,000
Depreciation Expense	8,000
Income Tax Expense	14,000
Insurance Expense	2,400
Interest Expense	750
Legal Fees Expense	1,500
Miscellaneous Expense	1,200
Rent Expense	800
Salaries Expense	2,000
Supplies Expense (Office)	1,500
Supplies Expense (Racing)	2,600
Totals	148,450	148,450

Table (3)

5

To determine

To prepare: The income statement and classified balance sheet of Company G.

Explanation of Solution

Income statement:

This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.

Statement of stockholders’ equity:

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

Classified balance sheet:

This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

Income statement:

Income statement of Company G is as follows:

Company G
Income Statement
For the year ended December 31, 2015
	($)	($)
Revenues:
Service revenue (clinic)	52,900
Service revenue (racing)	20,000
Total revenues		72,900
Expenses:
Advertising expense	1,000
Depreciation expense	8,000
Income tax expense	14,000
Insurance expense	2,400
Interest expense	750
Legal fees expense	1,500
Miscellaneous expense	1,200
Rent expense	800
Salaries expense	2,000
Supplies expense (office)	1,500
Supplies expense (racing)	2,600
Total expenses		35,750
Net income		37,150

Table (4)

Therefore, the net income of Company G is $37,150.

Statement of stockholder’s equity:

The statement of stockholder’s equity of Company G for the year ended December 31, 2015 is as follows:

Company G
Statement of Stockholders’ Equity
For the period ended December 31, 2015
	Common stock ($)	Retained earnings ($)	Total stockholders' equity ($)
Balance at July 1	$0	$0	$0
Issuance of common stock	20,000		20,000
Add: Net income for 2018		37,150	37,150
Less: Dividends		-4,000	-4,000
Balance at December 31	$20,000	$33,150	$53,150

Table (5)

Therefore, the total stockholder’s equity of Company G for the year ended December 31, 2015 is $53,150.

Classified balance sheet:

Classified balance sheet of Company G is as follows:

Figure (1)

Therefore, the total assets of Company G are $100,700, and the total liabilities and stockholders’ equity are $100,700.

6

To determine

To record: The necessary closing entries of Company G.

Explanation of Solution

Closing entries:

Closing entries are those journal entries, which are passed to transfer the final balances of temporary accounts, (all revenues account, all expenses account and dividend) to the retained earnings. Closing entries produce a zero balance in each temporary account.

Closing entries of Company G is as follows:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
2015	Service revenue (Clinic)		52,900
December 31	Service revenue (Racing)		20,000
	Retained earnings			72,900
	(To close all revenue account)
2015	Retained earnings		37,750
December 31	Advertising expense			1,000
	Depreciation expense			8,000
	Income tax expense			14,000
	Insurance expense			2,400
	Interest expense			750
	Legal fees expense			1,500
	Miscellaneous expense			1,200
	Rent expense			800
	Salaries expense			2,000
	Supplies expense (office)			1,500
	Supplies expense (Racing)			2,600
	(To close all the expenses account)
2015	Retained earnings		4,000
December 31	Dividends			4,000
	(To close the dividends account)

Table (6)

7

To determine

To post: The closing entries to the T-accounts.

Explanation of Solution

Service Revenue (Clinic)
	2,000
	2,300
	7,000
	10,500
	13,200
52,900	17,900
	0

Service Revenue (Racing)
20,000	20,000
	0

Legal Fees Expense
1,500	1,500
0

Advertising Expense
300
700	1,000
0

Rent Expense
800	800
0

Salaries Expense
2,000	2,000
0

Depreciation Expense
8,000	8,000
0

Insurance Expense
2,400	2,400
0

Supplies Expense (Office)
1,500	1,500
0

Supplies Expense (Racing)
2,600	2,600
0

Interest Expense
750	0
750

Income Tax Expense
14,000	14,000
0

Miscellaneous Expense
1,200	1,200
0

Dividends
4,000	4,000
0

Retained Earnings
35,750	72,900
4,000
	33,150

8

To determine

To prepare: A post-closing trial balance of Company G.

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.

Post-closing trial balance of Company G is as follows:

Company G
Post-closing Trial Balance
For the year ended December 31, 2015
Accounts	Debit ($)	Credit ($)
Cash	$64,200
Prepaid Insurance	2,400
Prepaid Rent	1,600
Supplies (Office)	300
Supplies (Racing)	200
Equipment (Bikes)	12,000
Equipment (Kayaks)	28,000
Accumulated Depreciation		$8,000
Accounts Payable		2,800
Income Tax Payable		14,000
Interest Payable		750
Notes Payable		30,000
Common Stock		20,000
Retained Earnings		33,150
Total	$108,700	$108,700

Table (7)

Therefore, the total of debit, and credit columns of post-closing trial balance is $108,700 and agree.