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

The ending balance is $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.)

• Insurance expense is an expense. Since, expense decreases equity. Hence, insurance expense account is debited.

• Prepaid insurance is an asset. Since, some time has elapsed, it uses up some of insurance, which reduces assets. Hence, credit prepaid insurance.

b.

Date	Particulars	Post ref	Debit ($)	Credit ($)
Dec 31	Teaching Supplies Expenses		50,000
	Teaching Supplies			50,000
	(Being Teaching supplies got exhausted during the period.)

• Teaching supplies expense is an expense. Since, expense decreases equity, teaching supplies expense is debited.

• Teaching supplies is an asset. Since, teaching supplies is used up, it decreases asset. Hence, debit teaching supplies account.

Working Notes:

Calculation of teaching supplies used:

$\begin{array}{c}\text{Teaching}\text{supplies}\text{used}=\left(\begin{array}{l}\text{Balance}\text{in}\text{unadjusted}\text{trial}\text{balace}\\ -\text{Closing}\text{teaching}\text{supplies}\end{array}\right)\\ =\text{\$70,000}-\$20,000\\ =\$50,000\end{array}$

c.

Date	Particulars	Post ref	Debit ($)	Credit ($)
Dec 31	Depreciation Expense		5,000
	Accumulated Depreciation-Equipment			5,000
	(Being depreciation expense transfer to accumulated depreciation account.)

• Depreciation expense is an expense account. Since, depreciation decreases equity, depreciation expense account is debited.

• Accumulated depreciation is a contra asset. Contra asset account normally has credit balance. Hence, credit accumulated depreciation account.

d.

Date	Particulars	Post ref	Debit ($)	Credit ($)
Dec 31	Depreciation Expense		2,400
	Accumulated Depreciation-Professional library			2,400
	(Being Depreciation expense transfer to accumulated depreciation.)

• Depreciation expense is a expense. Since, depreciation decreases equity, depreciation expense account is debited.

• Accumulated depreciation is a contra asset. Contra asset account normally has credit balance. Hence, credit accumulated depreciation account.

e.

Date	Particulars	Post ref	Debit ($)	Credit ($)
Dec 31	Unearned Training Fees		28,600
	Training Fees Earned			28,600
	(Being services provided for 2 months for which advance payment, we received.)

• Unearned training fees are a liability. Since, revenue received in advance is used up for two month, it decreases liability. So, debit unearned training fees account.

• Training Fees Earned is revenue. Since, revenue is earned and received, asset is increased. So, credit training fees earned account.

Working note:

Calculation of total training fees earned:

$\begin{array}{c}\text{Total}\text{training}\text{fees}\text{earned}=\left(\begin{array}{l}\text{Number}\text{of}\text{month}\text{training}\text{provided}\\ \times \text{Fees}\text{for}\text{one}\text{month}\end{array}\right)\\ =2\times \text{\$14,300}\\ =\$28,600\end{array}$

f.

Date	Particulars	Post ref	Debit ($)	Credit ($)
Dec 31	Accounts Receivable		5,750
	Tuition Fees Earned			5,750
	(Being training fees earned but not received yet))

• Accounts receivable is an asset. Since, the revenue is earned, the asset has increased. So, debit account receivable account.

• Tuition fees earned is revenue. Since, revenue increases equity, tuition fee account is credited.

Working Notes:

Calculation of total tuition fees earned:

$\begin{array}{c}\text{Total}\text{tuition}\text{fees}\text{earned}=\left(\begin{array}{l}\text{Number}\text{of}\text{month}\text{training}\text{provided}\\ \times \text{Fees}\text{for}\text{one}\text{month}\end{array}\right)\\ =2.5\times \text{\$2,300}\\ =\$5,750\end{array}$

g.

Date	Particulars	Post ref	Debit ($)	Credit ($)
Dec 31	Salaries Expenses		450
	Salaries Payable			450
	(being salary accrued but not paid)

• Salaries expense is an expense. Since, expense decrease equity, salaries expense is debited.

• Salaries payable is a liability. Since, salary expense has occurred but not paid yet, it increases liability. Hence, credit salaries payable account.

Working Notes:

Calculation of accrued salary:

$\begin{array}{c}\text{Accrued}\text{salary}=\text{Daily}\text{salary}\times \text{Number}\text{of}\text{days}\text{salary}\text{not}\text{paid}\text{for}\\ \text{=}\text{\$150}\times 3\\ =\$450\end{array}$

h.

Date	Particulars	Post ref	Debit ($)	Credit ($)
Dec 31	Rent Expenses		3,800
	Prepaid Rent			3,800
	(Being prepaid rent has been used.)

• Rent expense is an expense. Since, expense decrease equity. Hence, salaries expense is debited.

• Prepaid rent is an asset. Since, amount paid in advance is used up, asset is decreased. Hence, prepaid rent account is debited.

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 b/f	2,500
Balance c/f	4,900	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 b/f	20,000
Balance c/f	25,000	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 b/f	129,200
Balance c/f	134,950	Accounts receivable	5,750
	134,950		134,950

The ending balance is $134,950.

Training Fees Earned Account
Particulars	Debit ($)	Particulars	Credit ($)
		Balance b/f	68,000
Balance c/f	96,600	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
Accumulated Depreciation-Professional Library Account	2,400	Balance c/f	2,400
	2,400		2,400

The ending balance is $2,400.

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

The ending balance is $5,000.

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

The ending balance is $44,650.

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

The ending balance is $9,500.

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

The ending balance is $33,400.

Teaching Supplies Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0
Teaching supplies	50,000	Balance c/f	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
As on December 31, 2015
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

Hence, the total of adjusted trial balance is $344,600.

4.

To determine

To prepare:

Income statement, statement of retained earnings and balance sheet.

Explanation of Solution

Prepare income statement as follow:

A Institute
Income Statement
For Year Ended December 31, 2015
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

Hence, the net income is $54,200.

Working note:

$\begin{array}{c}\text{Service}\text{revenue}=\text{Training fees earned}+\text{Tuition}\text{fees}\text{earned}\\ =\$96,600+\$134,950\\ =\$231,550\end{array}$

Prepare statement of retained earnings statement:

A Institute
Statement of Retained Earnings
For the Year Ended on December 31, 2015
Particulars	Amount ($)
Opening balance of retained earnings	60,500
Net income	54,200
	114,700
Dividends	(20,000)
Ending balance of retained earnings	94,700

Therefore, retained earnings are $94,700.

Prepare balance sheet:

A Institute
Balance Sheet
As on December 31, 2015
Particulars	Amount ($)	Amount ($)
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

Hence, the total of balance sheet is $117,350.