Concept explainers
Requirement – 1
To record: The
Requirement – 1
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.
Journal entries for given transactions are as follows:
Date | Account Title and Explanation | Debit($) | Credit($) |
2018 | Prepaid rent | 6,000 | |
January 2 | Cash | 6,000 | |
(To record advance rent received for one year) | |||
2018 | Supplies | 3,500 | |
January 9 | Accounts payable | 3,500 | |
(To record purchase of additional supplied) | |||
2018 | 25,500 | ||
January 13 | Service revenue | 25,500 | |
(To record service provided on account) | |||
2018 | Cash | 3,700 | |
January 17 | Deferred revenue | 3,700 | |
(To record cash received from customer for future service) | |||
2018 | Salaries expense | 11,500 | |
January 20 | Cash | 11,500 | |
(To record incurred of salaries expense) | |||
2018 | Cash | 24,100 | |
January 22 | Accounts receivable | 24,100 | |
(To record cash received from customer) | |||
2018 | Accounts payable | 4,000 | |
January 29 | Cash | 4,000 | |
(To record cash paid to suppliers) |
Table (1)
Requirement – 2 (a)
To record: The adjusting entry for prepaid rent.
Requirement – 2 (a)
Answer to Problem 3.21E
Adjusting entry for prepaid rent is as follows:
Date | Accounts title and explanation | Post Ref. | Debit ($) | Credit ($) |
January 31, 2018 | Rent expense | 500 | ||
Prepaid rent | 500 | |||
(To record the rent expense incurred at the end of the accounting year) |
Table (2)
Explanation of Solution
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.
Following is the rules of debit and credit of above transaction:
- Rent expense is an expense, and it decreased the value of
stockholder’s equity. Therefore, it is debited. - Prepaid rent is an asset account. There is a decrease in assets, therefore it is credited.
Requirement – 2 (b)
To record: The adjusting entry for supplies expense.
Requirement – 2 (b)
Answer to Problem 3.21E
Adjusting entry for supplies expense is as follows:
Date | Accounts title and explanation | Post Ref. | Debit ($) | Credit ($) |
January 31, 2018 | Supplies expense (1) | 3,800 | ||
Supplies | 3,800 | |||
(To record the supplies expense incurred at the end of the accounting year) |
Table (3)
Explanation of Solution
Explanation:
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.
Following is the rules of debit and credit of above transaction:
- Supplies expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
- Supplies are an asset account. There is a decrease in assets, therefore it is credited.
Working note:
Calculate the value of supplies expense at end of the October month
Requirement – 2 (c)
To record: The adjusting entry for service revenue recognized at the end of the accounting year.
Requirement – 2 (c)
Answer to Problem 3.21E
Adjusting entry for service revenue is as follows:
Date | Accounts title and explanation | Post Ref. | Debit ($) | Credit ($) |
January 31, 2018 | Deferred revenue | 3,200 | ||
Service revenue | 3,200 | |||
(To record the service revenue recognized at the end of the accounting year) |
Table (4)
Explanation of Solution
Explanation:
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.
Following is the rules of debit and credit of above transaction:
- Deferred revenue is a liability account. There is a decrease in liability, therefore it is debited.
- Service revenue is revenue, and it increased the value of stockholder’s equity. Therefore, it is credited
Requirement – 2 (d)
To record: The adjusting entry for salaries expense.
Requirement – 2 (d)
Answer to Problem 3.21E
Adjusting entry for salaries expense is as follows:
Date | Accounts title and explanation | Post Ref. | Debit ($) | Credit ($) |
January 31, 2018 | Salaries expense | 5,800 | ||
Salaries payable | 5,800 | |||
(To record the salaries expense incurred at the end of the accounting year) |
Table (5)
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.
Following is the rules of debit and credit of above transaction:
- Salaries expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
- Salaries payable is a liability account. There is a decrease in liability, therefore it is credited.
Requirement – 3
To prepare: The adjusted
Requirement – 3
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.
The adjusted trial balance of Company D is as follows:
Company D | ||
Adjusted Trial Balance | ||
January 31, 2018 | ||
Accounts (Refer working note (2) ) | Debit | Credit |
Cash | $30,100 | |
Accounts Receivable | 6,600 | |
Supplies | 2,800 | |
Prepaid Rent | 5,500 | |
Land | 50,000 | |
Accounts Payable | $2,700 | |
Deferred Revenue | 500 | |
Salaries Payable | 5,800 | |
Common Stock | 65,000 | |
13,900 | ||
Service Revenue | 28,700 | |
Salaries Expense | 17,300 | |
Rent Expense | 500 | |
Supplies Expense | 3,800 | |
Totals | $116,600 | $116,600 |
Table (6)
Working note:
Calculate the ending balance of all accounts:
Accounts | Beginning balance +Adjustment | Ending balance | ||
Cash | = |
| = | 30,100 |
Accounts Receivable | = |
| = | 6,600 |
Supplies | = |
| = | 2,800 |
Prepaid Rent | = |
| = | 5,500 |
Land | = |
| = | 50,000 |
Accounts Payable | = |
| = | 2,700 |
Deferred Revenue | = |
| = | 500 |
Salaries Payable | = |
| = | 5,800 |
Common Stock | = |
| = | 65,000 |
Retained Earnings | = |
| = | 13,900 |
Service Revenue | = |
| = | 28,700 |
Salaries Expense | = |
| = | 17,300 |
Rent Expense | = |
| = | 500 |
Supplies Expense | = |
| = | 3,800 |
(2)
Thus, the total of debit, and credit columns of an adjusted trial balance is $116,600 and agreed.
Requirement – 4
To prepare: The income statement of Company D for the year ended January 31, 2018.
Requirement – 4
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.
The income statement of Company D for the year ended January 31, 2018 is as follows:
Company D | ||
Income statement | ||
For the year ended January 31, 2018 | ||
$ | $ | |
Service revenue (A) | 28,700 | |
Expenses: | ||
Salaries expense | 17,300 | |
Rent expense | 500 | |
Supplies expense | 3,800 | |
Total expense (B) | 21,600 | |
Net income | 7,100 |
Table (7)
Therefore, the net income of Company D is $7,100.
Requirement – 5
To prepare: The classified balance sheet of Company D at January 31, 2018.
Requirement – 5
Explanation of Solution
Classified balance sheet:
This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.
The classified balance sheet of Company D at January 31, 2018 is as follows:
Figure (1)
Therefore, the total assets of Company D are $95,000, and the total liabilities and stockholders’ equity are $95,000.
Requirement – 6
To record: The closing entries of Company D.
Requirement – 6
Answer to Problem 3.21E
The closing entries of Company D are as follows:
Date | Account Title and Explanation | Debit($) | Credit($) |
2018 | Service revenue | 28,700 | |
January 31 | Retained earnings | 28,700 | |
(To close revenue account) | |||
2018 | Retained earnings | 21,600 | |
January 31 | Salaries expense | 17,300 | |
Rent expense | 500 | ||
Supplies expense | 3,800 | ||
(To close all expense account) |
Table (7)
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 income summary account. Closing entries produce a zero balance in each temporary account.
Closing entry for revenue account:
In this closing entry, the service revenue account is closed by transferring the amount of service revenue to the retained earnings in order to bring the revenue accounts balance to zero.
Closing entry for expenses account:
In this closing entry, salaries expense, rent expense, and supplies expense are closed by transferring the amount of all expenses to the retained earnings in order to bring all the expense accounts balance to zero.
Requirement – 7 (a)
the amount of profit reported for the month of January.
Requirement – 7 (a)
Explanation of Solution
Net income:
Net income is the excess amount of revenue which is arises after deducting all the expenses of a company. In simply, it is the difference between total revenue and total expenses of the company.
The amount of reported profit is $7,100 (Refer Requirement – 4).
Requirement – 7 (b)
To calculate: The ratio of current assets to current liabilities at the end of January.
Requirement – 7 (b)
Explanation of Solution
A part of
Current ratio of the Company D is as follows:
Here,
Current assets is $45,000
Current liabilities is $9,000
Requirement – 7 (c)
To indicate: Whether Company D appears good or bad in financial condition.
Requirement – 7 (c)
Explanation of Solution
Financial condition of Company D is good, because profit is greater than zero and current assets is greater than its current liability. So, the company can earn revenue from its customer and able to pay obligation.
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Chapter 3 Solutions
FIN. ACC. (LL) BARUCH EDITION W/ CONNECT
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- The transactions completed by PS Music during June 2019 were described at the end of Chapter 1. The following transactions were completed during July, the second month of the businesss operations: July 1.Peyton Smith made an additional investment in PS Music by depositing 5,000 in PS Musics checking account. 1.Instead of continuing to share office space with a local real estate agency, Peyton decided to rent office space near a local music store. Paid rent for July, 1,750. 1.Paid a premium of 2,700 for a comprehensive insurance policy covering liability, theft, and fire. The policy covers a one-year period. 2.Received 1,000 cash from customers on account. 3.On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for 80 hours per month for a monthly fee of 3,600. Any additional hours beyond 80 will be billed to KXMD at 40 per hour. In accordance with the contract, Peyton received 7,200 from KXMD as an advance payment for the first two months. 3.Paid 250 to creditors on account. 4.Paid an attorney 900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.) 5.Purchased office equipment on account from Office Mart, 7,500. 8.Paid for a newspaper advertisement, 200. 11.Received 1,000 for serving as a disc jockey for a party. 13.Paid 700 to a local audio electronics store for rental of digital recording equipment. 14.Paid wages of 1,200 to receptionist and part-time assistant. Enter the following transactions on Page 2 of the two-column journal: 16.Received 2,000 for serving as a disc jockey for a wedding reception. 18.Purchased supplies on account, 850. July 21. Paid 620 to Upload Music for use of its current music demos in making various music sets. 22.Paid 800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July. 23.Served as disc jockey for a party for 2,500. Received 750, with the remainder due August 4, 2019. 27.Paid electric bill, 915. 28.Paid wages of 1,200 to receptionist and part-time assistant. 29.Paid miscellaneous expenses, 540. 30.Served as a disc jockey for a charity ball for 1,500. Received 500, with the remainder due on August 9, 2019. 31.Received 3,000 for serving as a disc jockey for a party. 31.Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists music during July. 31.Withdrew 1,250 cash from PS Music for personal use. PS Musics chart of accounts and the balance of accounts as of July 1, 2019 (all normal balances), are as follows: Instructions 1. Enter the July 1, 2019, account balances in the appropriate balance column of a four-column account. Write Balance in the Item column and place a check mark () in the Posting Reference column. (Hint: Verify the equality of the debit and credit balances in the ledger before proceeding with the next instruction.) 2. Analyze and journalize each transaction in a two-column journal beginning on Page 1, omitting journal entry explanations. 3. Post the journal to the ledger, extending the account balance to the appropriate balance column after each posting. 4. Prepare an unadjusted trial balance as of July 31, 2019.arrow_forwardThe transactions completed by PS Music during June 2019 were described at the end of Chapter 1. The following transactions were completed during July, the second month of the business's operations: July 1. Peyton Smith made an additional investment in PS Music by depositing 5,000 in PS Music's checking account. 1. Instead of continuing to share office space with a local real estate agency, Peyton decided to rent office space near a local music: store. Paid rent for July, 1,750. 1. Paid a premium of 2,700 for a comprehensive insurance policy covering liability, theft, and fire. The policy covers a one-year period. 2. Received 1,000 cash from customers on account. 3. On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for SO hours per month for a monthly fee of 3,600. Any additional hours beyond SO will be billed to KXMD at 40 per hour. In accordance with the contract, Peyton received 7,200 from KXMD as an advance payment for the first two months. 3. Paid 250 to creditors on account. 4. Paid an attorney 900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.) 5. Purchased office equipment on account from Office Mart, 7,500. 8. Paid for a newspaper advertisement, 200. 11. Received 1,000 for serving as a disc jockey for a party. 13. Paid 700 to a local audio electronics store for rental of digital recording equipment. 11. Paid wages of 1,200 to receptionist and part-time assistant. Enter the following transactions on Page 2 of the two-column journal: 16. Received 2,000 for serving as a disc jockey for a wedding reception. 18. Purchased supplies on account, 850. July 21. Paid 620 to Upload Music for use of its current music demos in making various music sets. 22. Paid 800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July. 23. Served as disc jockey for a party for 2,500. Received 750, with the remainder due August 4, 2019. 27. Paid electric bill, 915. 28. Paid wages of 1,200 to receptionist and part-time assistant. 29. Paid miscellaneous expenses, 540. 30. Served as a disc jockey for a charity ball for 1,500. Received 500, with the remainder due on August 9, 2019. 31. Received 3,000 for serving as a disc jockey for a party. 31. Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists' music during July. 31. Withdrew l,250 cash from PS Music for personal use. PS Music's chart of accounts and the balance of accounts as of July 1, 2019 (all normal balances), are as follows: 11 Cash 3,920 12 Accounts receivable 1,000 14 Supplies 170 15 Prepaid insurance 17 Office Equipment 21 Accounts payable 250 23 Unearned Revenue 31 Peyton smith, Drawing 4,000 32 Fees Earned 500 41 Wages Expense 6,200 50 Office Rent Expense 400 51 Equipment Rent Expense 800 52 Utilities Expense 675 53 Supplies Expense 300 54 music Expense 1,590 55 Advertising Expense 500 56 Supplies Expense 180 59 Miscellaneous Expense 415 Instructions 1.Enter the July 1, 2019, account balances in the appropriate balance column of a four-column account. Write Balance in the Item column and place a check mark () in the Posting Reference column. (Hint: Verify the equality of the debit and credit balances in the ledger before proceeding with the next instruction.) 2.Analyze and journalize each transaction in a two-column journal beginning on Page 1, omitting journal entry explanations. 3.Post the journal to the ledger, extending the account balance to the appropriate balance column after each posting. 4.Prepare an unadjusted trial balance as of July 31, 2019.arrow_forwardReview the following transactions, and prepare any necessary journal entries. A. On July 16, Arrow Corp. purchases 200 computers (Equipment) at $500 per computer from a supplier, on credit. Terms of the purchase are 4/10, n/50 from the invoice date of July 16. B. On August 10, Hondo Inc. receives advance cash payment from a client for legal services in the amount of $9,000. Hondo had yet to provide legal services as of August 10. C. On September 22, Jack Pies sells thirty pies for $25 cash per pie. The sales tax rate is 8%. D. On November 8, More Supplies paid a portion of their noncurrent note in the amount of $3,250 cash.arrow_forward
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