Chapter 3, Problem 6AP

2.

To determine

Prepare the journal entries to record the each of the transactions and events for Corporation SS.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Prepare the journal entries.

Date	Account titles and Explanation	Post Ref.	Debit ($)	Credit ($)
April  1	Cash	101	30,000
	Buildings	173	20,000
	Common stock	307		50,000
	(To record the common stock in exchange for cash and building)
April  2	Rent expense	640	1,800
	Cash	101		1,800
	(To record  the rent expense)
April  3	Office supplies	124	1,000
	Cash	101		1,000
	(To record the office supplies)
April  10	Prepaid insurance	128	2,400
	Cash	101		2,400
	(To record the prepaid insurance)
April  14	Salaries expense	622	1,600
	Cash	101		1,600
	(To record the salaries expense)
April  24	Cash	101	8,000
	Commission earned	401		8,000
	(To record the commission earned)
April  28	Salaries expense	622	1,600
	Cash	101		1,600
	(To record the salaries expense)
April  29	Repairs expense	684	350
	Cash	101		350
	(To record the repairs expense)
April  30	Telephone expense	688	750
	Cash	101		750
	(To record the telephone expense)
April  30	Dividends	319	1,500
	Cash	101		1,500
	(To record the payment of dividends)

Table (1)

3.

To determine

Prepare the unadjusted trial balance as on April 30, 2017.

Explanation of Solution

Unadjusted trial balance:

The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.

Prepare the unadjusted trial balance as on April 30, 2017.

Corporation AT
Unadjusted trial balance
For the year ended April 30, 2017
Particulars	Debit($)	Credit ($)
Cash	27,000
Accounts receivable	0
Office supplies	1,000
Prepaid insurance	2,400
Building	20,000
Accumulated depreciation, Computer		0
Salaries payable		0
Common stock		50,000
Retained earnings		0
Dividends	1,500
Commission earned		8,000
Depreciation expense, Computer	0
Salaries expense	3,200
Insurance expense	0
Rent expense	1,800
Office supplies expense	0
Repairs expense	350
Telephone expense	750
Totals	58,000	58,000

Table (2)

4.

To determine

Prepare the adjusting entries as on 31^st April 2017.

Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Prepare the adjusting entries as on 31^st April 2017.

Date	Account titles and Explanation	Post Ref.	Debit ($)	Credit ($)
April  30	Insurance expense $\left(\frac{2}{3}\times \frac{\$2,400}{12}\right)$	637	133
	Prepaid insurance	128		133
	(To record  the adjusting entry for insurance expense)
April  30	Office supplies expense $\left(\$1,000-\$600\right)$	650	875
	Office supplies	124		875
	(To record the adjusting entry for office supplies expense)
April  30	Depreciation expense-Equipment	606	500
	Accumulated depreciation-Equipment	174		500
	(To record the adjusting entry for depreciation expense, Buildings)
April  30	Salaries expense	622	420
	Salaries payable	209		420
	(To record the adjusting entry for salaries expense)
April  30	Accounts receivable	106	1,750
	Storage fees earned	401		1,750
	(To record the adjusting entry for storage fees earned)

Table (3)

5.

To determine

Prepare the adjusted trial balance as of 31^st April 2017.

Explanation of Solution

Adjusted trial balance:

Adjusted trial balance is a summary of all the ledger accounts, and it contains the balances of all the accounts after the adjustment entries are journalized, and posted.

Prepare the adjusted trial balance as of 31^st April 2017.

Corporation AT
Adjusted trial balance
For the year ended April 31, 2017
Particulars	Debit($)	Credit ($)
Cash	27,000
Accounts receivable	1,750
Office supplies	600
Prepaid insurance	2,267
Building	20,000
Accumulated depreciation, Building		500
Salaries payable		420
Common stock		50,000
Retained earnings		0
Dividends	1,500
Commission earned		9,750
Depreciation expense, Building	500
Salaries expense	3,620
Insurance expense	133
Rent expense	1,800
Office supplies expense	400
Repairs expense	350
Telephone expense	750
Totals	192,550	192,550

Table (4)

Income statement:

Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

Prepare the income statement for the year ended 31^st April 2017.

Corporation AT
Income statement
For the three months ended April 31, 2017
Particulars	Amount ($)	Amount ($)
Revenues
Storage fee earned	10,950
Total revenue		10,950
Expenses
Depreciation expense, Buildings	1,500
Salaries expense	2,100
Insurance expense	400
Rent expense	2,000
Office supplies expense	875
Repairs expense	950
Telephone expense	400
Total Expenses		8,225
Net income		2,725

Table (5)

Statement of Retained Earnings:

Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.

Prepare the statement of retained earnings for the year ended 31^st April 2017.

Corporation AT
Statement of Retained Earnings
For the three months ended 31st April 2017
Particulars	Amount ($)	Amount ($)
Retained earnings, Beginning	0
Add: Net income	2,197
Subtotal	2,197
Less: Dividends	1,500
Retained earnings, Ending		697

Table (6)

Balance sheet:

This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and 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 on 31^st April 2017.

Corporation AT
Balance Sheet
As an April 31, 2017
Particulars	Amount($)	Amount($)
ASSETS
Current Assets:
Cash	27,000
Accounts receivable	1,750
Office Supplies	600
Prepaid insurance	2,267
Total Current Assets		31,617
Computer equipment	20,000
Less: Accumulated depreciation, Buildings	500	19,500
Total assets		51,117
LIABILITIES
Current Liabilities:
Salaries payable	420
Total current liabilities		420
Long-liabilities:		0
Total liabilities		420
Stockholders’ equity
Paid-in capital
Common stock	50,000
Retained earnings	697
Total Stockholders’ Equity		50,697
Total liabilities and Stockholders’ Equity		51,117

Table (7)

6.

To determine

Record and post the necessary closing entries as of 30th April 2017.

Explanation of Solution

Closing entries: The journal entries prepared to close the temporary accounts to Retained Earnings account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Prepare the closing entry for revenue accounts.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
April 30	Commission earned	405	9,750
	Income summary	901		9,750
	(To close the revenues account)

Table (8)

In this closing entry, revenue accounts are closed by transferring the amount of revenue accounts to the income summary account in order to bring the revenue account balance to zero. Hence, debit the revenue accounts and credit income summary account.

Prepare the closing entry for expenses account.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
April 31	Income summary	901	7,553
	Depreciation expense-Equipment	612		500
	Salaries expense	622		3,620
	Insurance expense	637		133
	Rent expense	640		1,800
	Office supplies expense	650		400
	Repairs expense	684		350
	Telephone expense	688		750
	(To close the expenses account)

Table (9)

In this closing entry, expenses account is closed by transferring the amount of expenses to the income summary in order to bring the expenses account balance to zero. Hence, debit the income summary account and credit all expenses account.

Prepare closing entry for income summary account.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
April 31	Income Summary	901	2,197
	Retained Earnings	308		2,197
	(To close the income summary account)

Table (10)

Closing entry of income summary account:

In this closing entry, income summary account is closed by transferring the amount of income summary (profit) to the retained earnings in order to bring the income summary account balance to zero. Hence, debit the income summary account and credit retained earnings account.

Prepare closing entry for dividend account.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
April 31	Retained Earnings	318	1,500
	Dividends	319		1,500
	(To close the dividends account)

Table (11)

In this closing entry, dividend account is closed by transferring the amount of dividend to the retained earnings in order to bring the dividend account balance to zero. Hence, debit the retained earnings account and credit dividend account.

7.

To determine

Prepare the post-closing trial balance as on 31^st April 2017.

Explanation of Solution

Post-closing trial balance:

The post-closing trial balance is a summary of all ledger accounts, and it shows the debit and the credit balances after the closing entries are journalized and posted.  The post-closing trial balance contains only permanent (balance sheet) accounts, and the debit and the credit balances of permanent accounts should agree.

Prepare the post-closing trial balance as on 30th April 2017.

Corporation SS
Adjusted trial balance
For the year ended April 30, 2017
Particulars	Debit($)	Credit ($)
Cash	27,000
Accounts receivable	1,750
Office supplies	600
Prepaid insurance	2,267
Computer equipment	20,000
Accumulated depreciation, Computer Equipment		500
Salaries payable		420
Common stock		50,000
Retained earnings		697
Totals	51,617	51,617

Table (11)

1, 2, 4, and 6

To determine

Post the transactions to the general ledger.

Explanation of Solution

Post the transactions to the general ledger.