Chapter 3, Problem 3BPSB

To determine

Concept introduction:

In accounting, journal entry refers to the posting of transaction into journal items. Such entry
comprises of either debit or credit transaction. The transaction posted in the journal entry can be rechecked because the debit side of the journal must be equivalent to the credit side of the journal.
A T-account is a graphical representation of a general ledger account. Debit entries are shown on the left side of T-account and Credit entries are shown on right side of T-account.

Requirement 1:

To prepare:

We have to prepare unadjusted T-accounts from the unadjusted trial balance given in the question.

Explanation of Solution

Explanation:

T account :

Cash account
Bal.	60,000

Accounts receivable
Bal.	0

Teaching supplies
Bal.	70,000

Prepaid rent
Bal.	3,800

Prepaid Insurance
Bal.	19,000

Professional library
Bal.	12,000

Accumulated depreciation- Professional library
		Bal.	2,500

Equipment
Bal.	40,000

Accumulated depreciation- Equipment
		Bal.	20,000

Accounts payable
		Bal.	11,200

Salary payable
		Bal.	0

Unearned training fee
		Bal.	28,600

C.Alonzo, capital
		Bal.	71,500
C.Alonzo, withdrawals
Bal.	20,000

Tuition fee earned
		Bal.	129,200

Training fee earned
		Bal.	68,000

Depreciation expenses- equipment
Bal.	0

Depreciation expenses- professional library
Bal.	0

Salaries expenses
Bal.	44,200

Insurance expenses
Bal.	0

Rent expenses
Bal.	29,600

Teaching supplies expenses
Bal.	0

Advertising expenses
Bal.	19,000

Utilities expenses
Bal.	13,400

Requirement 2:

To determine

To determine:

We have to record the adjustment entry for various transactions from “a to h” affecting company.

Answer to Problem 3BPSB

Solution:

Date	Journal titles	Debit($)	Credit($)
a.dec.31	Insurance expenses	9,500
	Prepaid insurance		9,500
	( to record insurance expenses)
b.dec 31	Teaching supplies expenses	50,000
	Teaching supplies		50,000
	( to record Teaching supply expense)
c. dec.31	Depreciation on equipment	5,000
	Accumulated depreciation-equipment		5,000
	( to record depreciation on equipment)
d. dec 31	Depreciation on professional library	2,400
	Accumulated depreciation-professional library		2,400
	( to record depreciation on professional library)
e. Dec 31	Unearned training fees	28,600
	Training fee earned		28,600
	(to record unearned training fee earned)
f.dec.31	Account receivable	5,750
	Tuition fee earned		5,750
	(to record tuition fee earned)
g. dec.31	Salary expenses	450
	Salary payable		450
	( to accrue salary expenses)
h. dec.31	Rent expenses	3,800
	Prepaid rent		3,800
	( to accrue rent expenses)

Explanation of Solution

Explanation:

1. In this case, the period of Insurance policies has been expired and insurance expenses will be booked so, insurance expenses will be debited and prepaid insurance will be credited by $9,500.
2. In this case, the balance of teaching supplies is $70,000 in unadjusted trial balance and in adjustment the actual balance is $20,000. The teaching supplies expenses will be calculated as below:
Teaching supply expenses = $\text{Unadjusted balance- actual balance }$

Teaching supply expenses = $\text{\$70,000 - \$20,000 }=\text{ \$50,000 }$

3. When depreciation is to be recorded then depreciation on equipment will be debited with the respective account and accumulated depreciation account will be credited by $5,000.
4. Depreciation on professional library will be debited by $2,400 and accumulated depreciation account will be credited by $2,400 and will be shown in credit side in balance sheet.
5. The client paid 2 month fee in advance on 1^st Nov. As on Dec 31, two months has been passed so, we have to book the revenue and unearned account will be debited. The amount to be booked as income as below:
Training fee earned = $\text{ fee per month \&*\#x00A0;no}\text{. of months till dec 31}$

Training fee earned = $\text{ \$14,300*2 }=\text{ \$28,600}$

6. WTI has agreed to provide 4 month classes started on Oct 15 to an individual and fee is payable at the 4 months. Till Dec 31, the revenue has been accrued but the fee is not paid. We have to book revenue as per below details:
Accrued tuition fee = $\text{ fee per month \&*\#x00A0;no}\text{. of months till dec 31}$

Accrued tuition fee = $\text{ \$2,300 \&*\#x00A0;2}\text{.5 months }=\text{ \$5,750}$

7. In this adjustment entry expenditures on salaries account will be debited and salaries payable account will be credited with their respective amount.

Calculation of salary expenses:

Particulars	Amount($)
Salary expense for 1 day per employee	100
Salary expense for 1 employees for 3 days (150*1 employee*3 days)	450

8. In this case, the balance in unadjusted account rent expense account $3,800 represents to rent expenses so rent expenses will be debited and prepaid rent account will be credited.

Requirement 3:

To determine

To prepare:

We have to prepare the T accounts after adjustments and prepare a updated trial balance.

Answer to Problem 3BPSB

Solution:

T account :

Cash account
Bal.	60,000
Adjusted balance	60,000

Accounts receivable
Bal.	0
f.	5,750
Adjusted balance	5,750

Teaching supplies
Bal.	70,000	b.	50,000
Adjusted balance	20,000

Prepaid rent
Bal.	3,800	h.	3,800
Adjusted balance	0

Prepaid Insurance
Bal.	19,000	a.	9,500
Adjusted balance	9,500

Professional library
Bal.	12,000
Adjusted balance	12,000

Accumulated depreciation- Professional library
		Bal.	2,500
		d.	2,400
		Adjusted balance	4,900

Equipment
Bal.	40,000
Adjusted balance	40,000

Accumulated depreciation- Equipment
		Bal.	20,000
		c.	5,000
		Adjusted balance	25,000

Accounts payable
		Bal.	11,200
		Adjusted balance	11,200

Salary payable
		Bal.	0
		g.	450
		Adjusted balance	450

Unearned training fee
e.	28,600	Bal.	28,600
		Adjusted balance	0

C.Alonzo, capital
		Bal.	71,500
		Adjusted balance	71,500
C.Alonzo, withdrawals
Bal.	20,000
Adjusted balance	20,000

Tuition fee earned
		Bal.	129,200
		f.	5,750
		Adjusted balance	134,950

Training fee earned
		Bal.	68,000
		e.	28,600
		Adjusted balance	96,600

Depreciation expenses- equipment
Bal.	0
c.	5,000
Adjusted balance	5,000

Depreciation expenses- professional library
Bal.	0
d.	2,400
Adjusted balance	2,400

Salaries expenses
Bal.	44,200
g.	450
Adjusted balance	44,650

Insurance expenses
Bal.	0
a.	9,500
Adjusted balance	9,500

Rent expenses
Bal.	29,600
h.	3,800
Adjusted balance	33,400

Teaching supplies expenses
Bal.	0
b.	50,000
Adjusted balance	50,000

Advertising expenses
Bal.	19,000
Adjusted balance	19,000

Utilities expenses
Bal.	13,400
Adjusted balance	13,400

Adjusted trial balance- December 31, 2015

Particulars	Debit	Credit
Cash	60,000
Accounts receivable	5,750
Teaching supplies	20,000
Prepaid insurance	9,500
Prepaid rent	0
Professional library	12,000
Accumulated depreciation- professional library		4,900
Equipment	40,000
Accumulated depreciation- equipment		25,000
Accounts payable		11,200
Salary payable		450
Unearned training fee		0
C.Alonzo, Capital		71,500
C. Alonzo, Withdrawal	20,000
Tuition fee earned		134,950
Training fee earned		96,600
Depreciation expense- professional library	2,400
Depreciation expense- equipment	5,000
Salaries expenses	44,650
Insurance expenses	9,500
Rent expenses	33,400
Teaching supplies expenses	50,000
Advertising expenses	19,000
Utilities expenses	13,400
Total	344,600	344,600

Explanation of Solution

Explanation:

1. Cash account- the balance of cash is given in unadjusted trial balance and there is no adjustment related to cash. Thus the balance of cash will be $60,000.
2. Accounts receivable − accrued revenue has been adjusted $5,750 and adjusted balance of accounts receivable will be $5,750.
3. The adjusted closing balance in teaching supplies after supplies expenses will be $20,000.
4. Prepaid Insurance: the balance of prepaid insurance after adjustment is $9,500.
5. Prepaid rent: the entire prepaid rent expenses $3,800 have been booked as an expense and adjusted balance in prepaid rent expenses is NIL.
6. The balance in Professional library will remain same as there is no adjustment.
7. Accumulated depreciation: depreciation on professional library has been charged $2,400 and the adjusted closing balance is $4,900.
8. The balance in equipment will remain same as there is no adjustment.
9. Accumulated depreciation on equipment has been charged $5,000 and the adjusted closing balance is $25,000.
10. Accounts payable- the balance of accounts payable is $11,200 and there is no adjustment.
11. Salaries payable- adjustment of $450 is recorded therefore its balance will be $450.
12. Unearned training fee: The adjustment of $28,600 has been made and the adjusted balance is NIL.
13. C.Alonzo, Capital: There is no adjustment and balance will remain same.
14. C.Alonzo, Withdrawal: There is no adjustment and balance will remain same.
15. Tuition fee earned: accrued revenue has been adjusted $5,750 and adjusted balance of tuition fee earned will be $134,950.
16. Training fee earned: accrued revenue has been adjusted $28,600 and adjusted balance of tuition fee earned will be $96,600.
17. Accumulated depreciation on professional library has been charged $2,400 and the adjusted closing balance is $2,400.
18. Depreciation on equipment has been charged $5,000 and the adjusted closing balance is $5,000.
19. Salaries expenses- adjustment of $450 is recorded therefore its balance will be $44,650.
20. Insurance expenses- adjustment of $9,500 is recorded therefore its balance will be $9,500.
21. Rent expenses- adjustment of $3,800 is recorded therefore its balance will be $33,400.
22. Teaching supplies expenses- adjustment of $50,000 is recorded therefore its balance will be $50,000.
23. Advertising expenses-there is no adjustment and balance will remain same.
24. Utilities expenses- there is no adjustment and balance will remain same.

Requirement 4:

To determine

To prepare:

We have to prepare Income statement, Statement of Owners Equity and balance sheet as of December 31, 2015 after all adjustments.

Answer to Problem 3BPSB

Solution:

Income statement for December 31, 2015

Particulars
Tuition fee earned	134,950
Training fee earned	96,600
Total revenue		231,550
Expenses
Depreciation expense- professional library	2,400
Depreciation expense- equipment	5,000
Salaries expenses	44,650
Insurance expenses	9,500
Rent expenses	33,400
Teaching supplies expenses	50,000
Advertising expenses	19,000
Utilities expenses	13,400
Total expenses		177,350
Net income		54,200

Statement of Owner’s equity for year ended December 31, 2015

C.Alonzo Capital	71,500
Add: Net income	54,200
Less: Withdrawal	20,000
C.Alonzo capital as on December 31,2015	105,700

Balance sheet as on December 31, 2015

Assets
Cash		60,000
Accounts receivable		5,750
Teaching supplies		20,000
Prepaid insurance		9,500
Prepaid rent		0
Professional library	12,000
Accumulated depreciation- professional library	4,900	7,100
Equipment	40,000
Accumulated depreciation- equipment	25,000	15,000
Total assets		117,350
Liabilities
Accounts payable		11,200
Salary payable		450
Unearned training fee		0
Total liabilities		11,650
Equity
C.Alonzo capital		105,700
Total liability and equity		117,350

Explanation of Solution

Explanation:

1. Income statement: Total revenue is $231,550 and total expenses are $177,350 and the net income is $54,200 calculated as below:
Net income = $\text{Total revenue - total expenses}$

Net income = $\text{231,550-177,350 }=\text{ \$54,200}$

2. Statement of Owners equity shows the total owner’s funds invested in the company. The net fund invested by owner is $105,700.
Owner’s equity = $\text{Opening balance }+\text{ net income - owner withdrawal}$

Owner’s equity = $71,500+54,200-50,000=\$105,700$

3. Balance sheet represents the financial position of a company on a particular date.
The accounting equation of balance sheet is as below:
$\text{Total assets }=\text{ total equity }+\text{ total liabilities}$

$\begin{array}{l}\text{\$117,350 }=\text{ \$105,700 }+\text{ \$11,650}\\ \text{\$117,350}=\text{ \$117,350}\end{array}$