Chapter 3, Problem 7PA

1. and 2.

To determine

Prepare the T-accounts.

Explanation of Solution

T-account:

An account is referred to as a T-account, because the alignment of the components of the account resembles the capital letter ‘T’. An account consists of the three main components which are as follows:

• The title of the account
• The left or debit side
• The right or credit side

Post the unadjusted balances and the adjusting entries into T-accounts.

Cash account:

Cash
	10,300
Balance	10,300

Accounts Receivable account:

Accounts Receivable
	9,500
Balance	9,500

Supplies account:

Supplies
	2,000
			1,300
Balance	700

Interest receivable account:

Interest receivable account
	0
	800
Balance	800

Prepaid rent account:

Prepaid rent
	7,200
			5,400
Balance	1,800

Land account:

Land
	78,000
Balance	78,000

Notes receivable account:

Notes receivable
	20,000
Balance	20,000

Accounts Payable account:

Accounts Payable
			7,700
		Balance	7,700

Salaries Payable account:

Salaries Payable
			0
			2,100
		Balance	2,100

Utilities Payable account:

Utilities Payable
			0
			200
		Balance	200

Deferred revenue account:

Deferred revenue
			5,300
	3,300
		Balance	2,000

Common Stock account:

Common Stock
			79,000
			0
		Balance	79,000

Retained Earnings account:

Retained Earnings
			19,700
		Balance	19,700

Service Revenue account:

Service Revenue
			0
			42,200
			3,300
		Balance	45,500

Interest Revenue account:

Interest Revenue
			0
			800
		Balance	800

Salaries Expense account:

Salaries Expense
	24,500
	2,100
Balance	26,600

Utilities Expense account:

Utilities Expense
	2,400
	200
Balance	2,600

Rent Expense account:

Rent Expense
	0
	5,400
Balance	5,400

Supplies Expense account:

Supplies Expense
	0
	1,300
Balance	1,300

3.

To determine

Prepare an adjusted trial balance.

Explanation of Solution

Trial balance:

Trial balance is a summary of all the ledger accounts balances presented in a tabular form with two column, debit and credit. It checks the mathematical accuracy of the ledger postings and helps preparing the final accounts.

Prepare an adjusted trail balance for the year ending December 31, 2021:

CT Music Academy Adjusted Trial Balance For the Year Ending December 31, 2021
Accounts	Debit ($)	Credit ($)
Cash	10,300
Accounts Receivable	9,500
Interest receivable	800
Supplies	700
Prepaid Rent	1,800
Land	78,000
Notes Receivable	20,000
Accounts Payable		7,700
Salaries Payable		2,100
Deferred revenue		2,000
Utilities Payable		200
Common Stock		79,000
Retained Earnings		19,700
Interest Revenue		800
Service Revenue		45,500
Salaries  Expense	26,600
Rent Expense	5,400
Supplies Expense	1,300
Utilities Expense	2,600
Total	157,000	157,000

Table (1)

4.

To determine

Prepare an income statement, statement of shareholders’ equity, and a classified balance sheet for the year ended December 31, 2021.

Explanation of Solution

Income statement:

The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare an income statement for the year ended December 31, 2021:

CT Music Academy Income statement For the Year Ending December 31, 2021
Details	Amount ($)	Amount ($)
Revenues:
Service Revenue	45,500
Interest Revenue	800
Total Revenue		46,300
Less: Expenses
Salaries  Expense	26,600
Rent Expense	5,400
Supplies Expense	1,300
Utilities Expense	2,600
Total Expenses		(35,900)
Net Income		$10,400

Table (2)

Statement of Stockholders’ Equity:

Stockholders’ equity statement shows the changes made in the stockholders’ equity account and in the total stockholders’ equity during the accounting period. It is otherwise known as statements of shareholder’s investment.

Prepare statement of stockholders’ equity the year ended December 31, 2021.

CT Music Academy Statement of Stockholders’ Equity For the Year Ended December 31, 2021
Particulars	Common Stock	Retained Earnings	Total Stockholders’ Equity
Beginning balance	$79,000	$19,700	$64,000
Issuance of common stock	$0	$0	$0
Less: Net income for 2021	$0	$10,400	$0
Less: Dividends	$0	$0	$0
Ending balance	$79,000	$30,100	$109,100

Table (3)

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and claims of 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 of December 31, 2021.

Table (4)

5.

To determine

Prepare the closing entries.

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 account.

Date	Accounts title and explanation	Debit ($)	Credit ($)
December 31, 2021	Service Revenues	45,500
	Interest Revenue	800
	Retained Earnings		46,300
	(To close the revenues account)

Table (5)

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

Prepare the closing entry for expense account:

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
December 31, 2021	Retained Earnings		35,900
	Salaries expense			26,600
	Rent expense			5,400
	Supplies expense			1,300
	Utilities expense			2,600
	(To close the expenses account)

Table (6)

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

6.

To determine

Prepare the T-Accounts to post the closing entries.

Explanation of Solution

Retained Earnings account:

Retained Earnings
			19,700
	35,900		46,300
		Balance	30,100

Service Revenue account:

Service Revenue
			42,200
	42,200
		Balance	0

Interest Revenue account:

Interest Revenue
			800
	800
		Balance	0

Salaries Expense account:

Salaries Expense
	24,500
	2,100		26,600
Balance	0

Rent Expense account:

Rent Expense
	0
	5,400		5,400
Balance	0

Supplies Expense account:

Salaries Expense
	0
	1,300		1,300
Balance	0

Utilities Expense account:

Utilities Expense
	2,400
	200		2,600
Balance	0

7.

To determine

Prepare the post-closing trial balance.

Explanation of Solution

Post-closing trial balance: It is a trial balance that is prepared after the closing entries are recorded. It includes only the balance sheet accounts as the income statement accounts are closed to the income summary.

Prepare a post-closing trial balance.

CT Music Academy Post-Closing Trial Balance For the Year Ended December 31, 2021
Accounts	Debit ($)	Credit ($)
Cash	10,300
Accounts receivable	9,500
Interest receivable	800
Supplies	700
Prepaid rent	1,800
Land	78,000
Notes receivable	20,000
Accounts payable		7,700
Salaries payable		2,100
Deferred revenue		2,000
Utilities payable		200
Common stock		79,000
Retained earnings		30,100
Total	$121,100	$121,100

Table (7)