Concept explainers
1. and 2.
To Post: The unadjusted balances and the
1. and 2.
Explanation of Solution
T-account:
An account is referred to as a 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:
- The title of the account
- The left or debit side
- The right or credit side
Post the unadjusted balances and the adjusting entries into T-accounts.
Cash account:
Cash | |||
22,000 | |||
Balance | 22,000 |
Accounts Receivable | |||
15,000 | |||
Balance | 15,000 |
Supplies account:
Supplies | |||
27,000 | |||
22,000 | |||
Balance | 5,000 |
Prepaid Insurance account:
Prepaid Insurance | |||
24,000 | |||
20,000 | |||
Balance | 4,000 |
Equipment account:
Equipment | |||
95,000 | |||
Balance | 95,000 |
Accumulated
Accumulated Depreciation | |||
37,000 | |||
10,000 | |||
Balance | 47,000 |
Accounts Payable account:
Accounts Payable | |||
12,000 | |||
Balance | 12,000 |
Salaries Payable account:
Salaries Payable | |||
0 | |||
4,000 | |||
Balance | 4,000 |
Interest Payable account:
Interest Payable | |||
0 | |||
1,050 | |||
Balance | 1,050 |
Utilities Payable account:
Utilities Payable | |||
0 | |||
2,200 | |||
Balance | 2,200 |
Notes Payable account:
Notes Payable | |||
35,000 | |||
Balance | 35,000 |
Common Stock account:
Common Stock | |||
35,000 | |||
0 | |||
Balance | 35,000 |
Retained Earnings | |||
10,000 | |||
Balance | 10,000 |
Dividends account:
Dividends | |||
3,000 | |||
Balance | 3,000 |
Service Revenue account:
Service Revenue | |||
227,000 | |||
Balance | 227,000 |
Salaries Expense account:
Salaries Expense | |||
158,000 | |||
4,000 | |||
Balance | 162,000 |
Interest Expense account:
Interest Expense | |||
0 | |||
1,050 | |||
Balance | 1,050 |
Insurance Expense account:
Insurance Expense | |||
0 | |||
20,000 | |||
Balance | 20,000 |
Supplies Expense account:
Supplies Expense | |||
0 | |||
22,000 | |||
Balance | 22,000 |
Utilities Expense account:
Utilities Expense | |||
12,000 | |||
2,200 | |||
Balance | 14,200 |
Depreciation Expense account:
Depreciation Expense | |||
0 | |||
10,000 | |||
Balance | 10,000 |
3.
To Prepare: An adjusted
3.
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 an adjusted trail balance for the year ending December 31, 2018:
J Auto Company Adjusted Trial Balance For the Year Ending December 31, 2018 | ||
Accounts | Debit ($) | Credit ($) |
Cash | 22,000 | |
Accounts Receivable | 15,000 | |
Supplies | 5,000 | |
Prepaid Insurance | 4,000 | |
Equipment | 95,000 | |
Accumulated Depreciation | 47,000 | |
Accounts Payable | 12,000 | |
Salaries Payable | 4,000 | |
Interest Payable | 1,050 | |
Utilities Payable | 2,200 | |
Notes Payable | 35,000 | |
Common Stock | 35,000 | |
Retained Earnings | 10,000 | |
Dividends | 3,000 | |
Service Revenue | 227,000 | |
Salaries Expense | 162,000 | |
Interest Expense | 1,050 | |
Insurance Expense | 20,000 | |
Supplies Expense | 22,000 | |
Utilities Expense | 14,200 | |
Depreciation Expense | 10,000 | |
Total | $373,250 | $373,250 |
Table (1)
4.
To Prepare: An income statement, statement of shareholders’ equity, and a classified balance sheet for the year ended December 31, 2018.
4.
Explanation of Solution
Income statement:
This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time. It is prepared to find out the net income of an organization.
Prepare an income statement for the year ended December 31, 2018:
J Auto Company Income statement For the Year Ending December 31, 2018 | ||
Details | Amount ($) | Amount ($) |
Revenues: | ||
Service revenue | 227,000 | |
Less: Expenses | ||
Salaries Expense | 162,000 | |
Interest Expense | 1,050 | |
Insurance Expense | 20,000 | |
Supplies Expense | 22,000 | |
Utilities Expense | 14,200 | |
Depreciation Expenses | 10,000 | |
Total Expenses | (229,250) | |
Net Income (Loss) | $ (2,250) |
Table (2)
Statement of
Stockholders’ equity statement shows the changes made in the stockholders’ equity account and in the total stockholders’ equity during the accounting period. It is otherwise known as statements of shareholder’s investment.
Prepare statement of stockholders’ equity the year ended December 31, 2018.
J Auto Company Statement of Stockholders’ Equity For the Year Ended December 31, 2018 | |||
Particulars | Common Stock | Retained Earnings | Total Stockholders’ Equity |
Beginning balance | $35,000 | $10,000 | $45,000 |
Issuance of common stock | $0 | $0 | |
Add: Net income (Loss) | $(2,250) | $(2,250) | |
Less: Dividends | $(3,000) | $(3,000) | |
Ending balance | $35,000 | $4,750 | $39,750 |
Table (3)
Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and claims of 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 the balance sheet as of December 31, 2018.
J Auto Company Balance Sheet As of December 31, 2018 | |||
Assets | Amount | Liabilities and Stockholders’ Equity | Amount |
Assets: | Liabilities: | ||
Cash | $22,000 | Accounts payable | $12,000 |
Accounts receivable | $15,000 | Salaries payable | $4,000 |
Supplies | $5,000 | Interest payable | 1,050 |
Prepaid insurance | $4,000 | Utilities payable | 2,200 |
Total current assets | $46,000 | Total current liabilities | $19,250 |
Equipment | $95,000 | Notes payable | $35,000 |
Accumulated depreciation | $(47,000) | Total liabilities | $54,250 |
Stockholders’ Equity: | |||
Common stock | $35,000 | ||
Retained earnings | $4,750 | ||
Total Stockholders’ Equity | $39,750 | ||
Total assets | $94,000 | Total liabilities and stockholders’ equity | $94,000 |
Table (4)
5.
To Record: The closing entries.
5.
Explanation of Solution
Closing Entries:
Closing entries are those journal entries which are passed to transfer the balances of temporary accounts to the permanent accounts. These are passed at the end of the period, to transfer the final balance.
Prepare
The following is the closing entry for revenue accounts:
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31, 2018 | Service Revenues | 227,000 | ||
Retained Earnings | 227,000 | |||
(To close the revenues account) |
Table (5)
- Revenue is decreased. Therefore, debit revenue account.
- Retained earnings are a component of Stockholders’ Equity, and it is increased. Therefore, credit retained earnings account.
The following is the closing entry for the expenses account:
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
December 31, 2018 | Retained Earnings | 229,250 | ||
Salaries expense | 162,000 | |||
Interest expense | 1,050 | |||
Insurance expense | 20,000 | |||
Supplies expense | 22,000 | |||
Utilities expense | 14,200 | |||
Depreciation expense | 10,000 | |||
(To close the expenses account) |
Table (6)
- Retained Earnings is a component of Stockholders’ Equity, and it is decreased. Therefore, debit retained earnings account.
- Expenses are decreased. Therefore, credit expenses account.
6.
To Post: The closing entries to the accounts.
6.
Explanation of Solution
Retained Earnings account:
Retained Earnings | |||
10,000 | |||
229,250 | 227,000 | ||
3,000 | |||
Balance | 4,750 |
Dividends account:
Dividends Expense | |||
3,000 | |||
3,000 | |||
Balance | 0 |
Service Revenue account:
Service Revenue | |||
227,000 | |||
227,000 | |||
Balance | 0 |
Salaries Expense account:
Salaries Expense | |||
158,000 | |||
4,000 | 162,000 | ||
Balance | 0 |
Interest Expense account:
Interest Expense | |||
0 | |||
1,050 | 1,050 | ||
Balance | 0 |
Insurance Expense account:
Insurance Expense | |||
0 | |||
20,000 | 20,000 | ||
Balance | 0 |
Supplies Expense account:
Salaries Expense | |||
0 | |||
22,000 | 22,000 | ||
Balance | 0 |
Utilities Expense account:
Utilities Expense | |||
12,000 | |||
2,200 | 14,200 | ||
Balance | 0 |
Depreciation Expense account:
Depreciation Expense | |||
0 | |||
10,000 | 10,000 | ||
Balance | 0 |
7.
To Prepare: A post-closing trial balance.
7.
Explanation of Solution
Post-closing trial balance: It is a trial balance that is prepared after the closing entries are recorded. It includes only the balance sheet accounts as the income statement accounts are closed to the income summary.
Prepare a post-closing trial balance.
J Auto Company Post-Closing Trial Balance For the Year Ended December 31, 2018 | ||
Accounts |
Debit ($) |
Credit ($) |
Cash | 22,000 | |
Accounts receivable | 15,000 | |
Supplies | 5,000 | |
Prepaid insurance | 4,000 | |
Equipment | 95,000 | |
Accumulated depreciation | 47,000 | |
Accounts payable | 12,000 | |
Salaries payable | 4,000 | |
Interest payable | 1,050 | |
Utilities payable | 2,200 | |
Notes payable | 35,000 | |
Common stock | 35,000 | |
Retained earnings | 4,750 | |
Total | $141,000 | $141,000 |
Table (7)
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Chapter 3 Solutions
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