Concept explainers
Income Statement:
It is a financial statement which shows the
It is a financial statement which shows the amount of profit retained by the company for their future unforeseen events.
Balance sheet:
It shows the financial position of an enterprise. It consists of assets, liabilities and
1.
Difference between adjusted and unadjusted
Explanation of Solution
Account Title and Explanation | Unadjusted Trial Balance | Adjustments | Adjusted Trial Balance | |||
Debit($) | Credit($) | Debit($) | Credit($) | Debit($) | Credit($) | |
Cash | 45,000 | 45,000 | ||||
Accounts receivable | 60,000 | 6,660(a) | 66,660 | |||
Office supplies | 40,000 | 23,000(c) | 17,000 | |||
Prepaid insurance | 8,200 | 4,600(d) | 3,600 | |||
Office equipment | 120,000 | 120,000 | ||||
Accumulated | 20,000 | 10,000(e) | 30,000 | |||
Accounts payable | 26,000 | 6,000(f) | 32,000 | |||
Interest payable | 0 | 2,150(g) | 2,150 | |||
Salaries payable | 0 | 16,000(h) | 16,000 | |||
Unearned consulting fees | 40,000 | 12,200 (b) | 27,800 | |||
Long-term notes payable | 75,000 | 75,000 | ||||
Common stock | 4,000 | 4,000 | ||||
Retained earnings | 76,200 | 76,200 | ||||
Dividends | 20,000 | 20,000 | ||||
Consulting fees earned | 234,600 | 18,860(a),(b) | 253,460 | |||
Depreciation expense- office equipment | 0 | 10,000 (e) | 10,000 | |||
Salaries expense | 112,000 | 16,000 (h) | 128,000 | |||
Interest expense | 8,600 | 2,150(g) | 10,750 | |||
Insurance expense | 0 | 4,600(d) | 4,600 | |||
Rent expense | 20,000 | 20,000 | ||||
Office supplies expense | 0 | 23,000 (c) | 23,000 | |||
Advertising expense | 42,000 | 6,000(f) | 48,000 | |||
Totals | 475,800 | 475,800 | 80,610 | 80,610 | 516,610 | 516,610 |
(a)
- Accounts receivable is an asset. Since, the revenue is earned but not received yet, the asset has increased. So, debit account receivable account by $6,660.
- Consulting fees earned are an income. Since, the revenue is earned, income has increased. So, credit consulting fees earned by $6,660.
(b)
- Unearned consulting fees are a liability. Since, services are provided, liability has decreased. So, debit unearned consulting fees by $12,200.
- Consulting fees earned are an income. Since, the revenue is earned, income has increased. So, credit consulting fees earned by $12,200.
(c)
- Office supplies expense is an expense. Since, expense reduces equity, debit office supplies expense account by $23,000.
- Office supplies are an asset. Since, the supplies worth of $23,000 is used, asset has decreased. So, debit office supplies account.
(d)
- Insurance expense is an expense. Since, expense reduces equity, debit insurance expense account by $4,600.
- Prepaid insurance is an asset. Since, the insurance worth of $4,600 is used up, asset has reduced. So, credit prepaid insurance by $4,600.
(e)
- Depreciation expense is an expense. Since, expense reduces equity, debit depreciation expense by $10,000.
- Accumulated Depreciation is a contra asset account. Contra-asset accounts have a normal credit balance. Hence, credit Accumulation Depreciation account by $10,000.
(f)
- Advertising expense is an expense. Since, expense reduces equity, debit advertising expense account by $6,000.
- Accounts payable is a liability. Since, expense is incurred but not paid yet, liability has increased. So, credit accounts payable by $6,000.
(g)
- Interest expense is an expense. Since, expense reduces equity, debit interest expense account by $2,150.
- Interest payable is a liability. Since, expense is incurred but not paid yet, liability has increased. So, credit interest payable by $2,150.
(h)
- Salaries expense is an expense. Since, expense reduces equity, debit salaries expense account by $16,000.
- Salaries payable is a liability. Since, expense is incurred but not paid yet, liability has increased. So, credit salaries payable by $16,000.
2.
(a)
To prepare: Income statement and statement of retained earnings.
2.
(a)
Explanation of Solution
Income Statement
Y.C. Company | ||
Income Statement | ||
For the year ended December 31, 2017 | ||
Particulars | Amount ($) | Amount ($) |
Revenue: | ||
Service Revenue | 253,460 | |
Total Revenue | 253,460 | |
Expenses: | ||
Insurance Expense | 4,600 | |
Salaries Expense | 128,000 | |
Office Supplies Expense | 23,000 | |
Rent Expenses | 20,000 | |
Interest Expense | 10,750 | |
Advertising Expense | 48,000 | |
Depreciation Expense-Office Equipment | 10,000 | |
Total Expense | 244,350 | |
Net Income | 9,110 |
Net income of Y.C. Company is $9,110.
Retained Earnings Statement
Y.C. Company | |
Retained Earnings Statement | |
As on December 31, 2017 | |
Particulars | Amount ($) |
Opening balance | 76,200 |
Net income | 9,110 |
Dividends | (20,000) |
Retained earnings | 65,310 |
Therefore, retained earnings of Y.C. Company are $65,310.
b.
To prepare: Balance sheet.
b.
Explanation of Solution
Balance Sheet
Y.C. Company | ||
Balance Sheet | ||
As on December 31, 2017 | ||
Particulars |
| Amount ($) |
Assets | ||
Cash | 45,000 | |
Office Supplies | 17,000 | |
Account Receivables | 66,660 | |
Prepaid Insurance | 3,600 | |
Office Equipment | 120,000 | |
Less: Accumulated depreciation | (30,000) | 90,000 |
Total Assets |
| 222,260 |
Liabilities and Stockholder’s Equity | ||
Liabilities | ||
Accounts payable | 32,000 | |
Interest payable | 2,150 | |
Salaries Payable | 16,000 | |
Unearned consulting fees | 27,800 | |
Long-term notes payable | 75,000 | |
Stockholder’s Equity | ||
Common Stock | 4,000 | |
Retained earnings | 65,310 | |
Total stockholders’ equity |
| 69,310 |
Total Liabilities and Stockholder’s equity |
| 222,260 |
Thus, balance sheet total is $222,260.
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