Chapter 3, Problem 3PSB

1.

To determine

To prepare: T-account with balances of unadjusted trial balance.

Explanation of Solution

Cash Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	60,000	Balance c/f	60,000
	60,000		60,000

The ending balance is $60,000.

Accounts Receivable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	0
	0		0

The ending balance is $0.

Teaching Supplies Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	70,000	Balance c/f	70,000
	70,000		70,000

The ending balance is $70,000.

Prepaid Insurance Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	19,000	Balance c/f	19,000
	19,000		19,000

The ending balance is $19,000.

Prepaid Rent Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	3,800	Balance c/f	3,800
	3,800		3,800

The ending balance is $3,800.

Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	12,000	Balance c/f	12,000
	12,000		12,000

The ending balance is $12,000.

Accumulated Depreciation-Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	2,500	Balance b/f	2,500
	2,500		2,500

The ending balance is $2,500.

Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	40,000	Balance c/f	40,000
	40,000		40,000

The ending balance is $40,000.

Accumulated Depreciation-Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	20,000	Balance b/f	20,000
	20,000		20,000

The ending balance is $20,000.

Accounts Payable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	11,200	Balance b/f	11,200
	11,200		11,200

The ending balance is $11,200.

Salaries Payable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	0	Balance b/f	0
	0		0

The ending balance is $0.

Unearned Training Fees Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	28,600	Balance b/f	28,600
	28,600		28,600

The ending balance is $28,600.

Common Stock Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	11,000	Balance b/f	11,000
	11,000		11,000

The ending balance is $11,000.

Retained Earnings Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	60,500	Balance b/f	60,500
	60,500		60,500

The ending balance is $60,500.

Dividends Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	20,000	Balance c/f	20,000
	20,000		20,000

The ending balance is $20,000.

Tuition Fees Earned Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	129,200	Balance b/f	129,200
	129,200		129,200

The ending balance is $129,200.

Training Fees Earned Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	68,000	Balance b/f	68,000
	68,000		68,000

The ending balance is $68,000.

Depreciation expense-Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	0
	0		0

The ending balance is $0.

Depreciation expense-Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	0
	0		0

The ending balance is $0.

Salaries Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	44,200	Balance c/f	44,200
	44,200		44,200

The ending balance is $44,200.

Insurance Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	0
	0		0

Rent Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	29,600	Balance c/f	29,600
	29,600		29,600

The ending balance is $33,000.

Teaching Supplies Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	0
	0		0

The ending balance is $0.

Advertising Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	19,000	Balance c/f	19,000
	19,000		19,000

The ending balance is $19,000.

Utilities Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	13,400	Balance c/f	13,400
	13,400		13,400

The ending balance is $13,400.

2.

To determine

To prepare: Adjusting entries.

Explanation of Solution

a.

Date	Particulars	Post ref	Debit ($)	Credit ($)
Dec 31	Insurance Expenses		9,500
	Prepaid Insurance			9,500
	(Being insurance coverage worth $9,500 has expired.)

3.

To determine

To prepare: Ledger account and trial balance.

Explanation of Solution

To update T-accounts for the adjusting entries.

Cash Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	60,000	Balance c/f	60,000
	60,000		60,000

The ending balance is $60,000.

Accounts Receivable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	5,750
Tuition fees earned	5,750
	5,750		5,750

The ending balance is $5,750.

Teaching Supplies Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	70,000	Teaching supplies expense	50,000
		Balance c/f	20,000
	70,000		70,000

The ending balance is $70,000.

Prepaid Insurance Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	9,500	Insurance expense	9,500
		Balance c/f	9,500
	19,000		19,000

The ending balance is $9,500.

Prepaid Rent Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	3,800	Rent expense	3,800
		Balance c/f	0
	3,800		3,800

The ending balance is $0.

Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	12,000	Balance c/f	12,000
	12,000		12,000

The ending balance is $12,000.

Accumulated Depreciation-Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	4,900	Balance b/f	2,500
		Depreciation	2,400
	4,900		4,900

The ending balance is $4,900.

Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	40,000	Balance c/f	40,000
	40,000		40,000

The ending balance is $40,000.

Accumulated Depreciation-Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	25,000	Balance b/f	20,000
		Depreciation	5,000
	25,000		25,000

The ending balance is $25,000.

Accounts Payable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	11,200	Balance b/f	11,200
	11,200		11,200

The ending balance is $11,200.

Salaries Payable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	450	Balance b/f	0
		Salaries expense	450
	450		450

The ending balance is $450.

Unearned Training Fees Account
Particulars	Debit ($)	Particulars	Credit ($)
Training fees earned	28,600	Balance b/f	28,600
Balance c/f	0
	28,600		28,600

The ending balance is $0.

Common Stock Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	11,000	Balance b/f	11,000
	11,000		11,000

The ending balance is $11,000.

Retained Earnings Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	60,500	Balance b/f	60,500
	60,500		60,500

The ending balance is $60,500.

Dividends Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	20,000	Balance c/f	20,000
	20,000		20,000

The ending balance is $20,000.

Tuition Fees Earned Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	134,950	Balance b/f	129,200
		Accounts receivable	5,750
	134,950		134,950

The ending balance is $134,950.

Training Fees Earned Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	96,600	Balance b/f	68,000
		Unearned training fees	28,600
	96,600		96,600

The ending balance is $96,600.

Depreciation Expense-Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	2,400
Accumulated Depreciation-Professional Library Account	2,400
	2,400		2,400

The ending balance is $2,400.

Depreciation expense-Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	5,000
Accumulated Depreciation	5,000		0
	5,000		5,000

The ending balance is $5,000.

Salaries Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	44,200	Balance c/f	44,650
Salaries payable	450
	44,650		44,650

The ending balance is $44,650.

Insurance Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	9,500
Prepaid insurance	9,500
	9,500		9,500

The ending balance is $9,500.

Rent Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	29,600	Balance c/f	33,400
Prepaid rent	3,800
	33,400		33,400

The ending balance is $33,400.

Teaching Supplies Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	50,000
Teaching supplies	50,000
	50,000		50,000

The ending balance is $50,000.

Advertising Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	19,000	Balance c/f	19,000
	19,000		19,000

The ending balance is $19,000.

Utilities Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	13,400	Balance c/f	13,400
	13,400		13,400

The ending balance is $13,400.

Prepare adjusted trial balance.

A Institute
Adjusted Trial Balance
For the year ended on December 31, 2017
Particulars	Debit ($)	Credit ($)
Cash	60,000
Account 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
Salaries payable		450
Unearned training fees		0
Common stock		11,000
Retained earning		60,500
Dividends	20,000
Tuition Fees Earned		134,950
Training fees earned		96,600
Depreciation expense-Professional Library	2,400
Depreciation expense-Equipment	5,000
Salaries Expense	44,650
Insurance Expense	9,500
Rent expense	33,400
Teaching supplies expense	50,000
Advertising expense	19,000
Utilities expense	13,400
Totals	344,600	344,600

Conclusion

4.

To determine

To prepare: Income statement and statement of retained earnings and balance sheet.

Explanation of Solution

A Institute
Income Statement
For year ended December 31, 2017
Particulars	Amount ($)	Amount ($)
Revenue:
Service Revenue	231,550
Total Revenue		231,550
Expenses:
Insurance Expense	9,500
Salaries Expense	44,650
Teaching Supplies Expense	50,000
Rent expenses	33,400
Advertising Expense	19,000
Utility Expense	13,400
Depreciation Expense-Professional Library	2,400
Depreciation Expense-Equipment	5,000
Total Expense		177,350
Net income		54,200

Net income of A Institute is $54,200.

Working note:

$\begin{array}{c}\text{Service}\text{Revenue}=\text{Training Fees Earned}+\text{Tuition}\text{Fees}\text{Earned}\\ =\text{\$96,600+\$134,950}\\ =\text{\$231,550}\end{array}$

Prepare Retained Earnings Statement:

A Institute
Retained Earnings Statement
As on December 31, 2017
Particulars	Amount ($)
Opening balance	60,500
Net income	54,200
Dividends	(20,000)
Retained earnings	94,700

Therefore, Retained earnings of A.I are $94,700.

Prepare balance sheet:

A Institute
Balance Sheet
As on December 31, 2017
Particulars		Amount ($)
Assets
Cash		60,000
Account Receivable		5,750
Teaching Supplies		20,000
Prepaid Insurance		9,500
Prepaid rent		0
Professional Library	12,000
Less: Accumulated Depreciation	(4,900)	7,100
Equipment	40,000
Less: Accumulated depreciation	(25,000)	15,000
Total Assets		117,350
Liabilities and Stockholder’s Equity
Liabilities
Accounts Payable		11,200
Salaries Payable		450
Unearned training Fees		0
Stockholder’s Equity
Common Stock	11,000
Retained earnings	94,700
Total stockholders’ equity		105,700
Total Liabilities and Stockholder’s equity		117,350

Balance sheet total is $117,350.