Chapter 3, Problem 7PB

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
	76,000
Balance	76,000

Accounts Receivable account:

Accounts Receivable
	15,000
Balance	15,000

Supplies account:

Supplies
	27,000
			22,000
Balance	5,000

Prepaid insurance account:

Prepaid insurance
	24,000
			20,000
Balance	4,000

Equipment account:

Equipment
	95,000
Balance	95,000

Accumulated depreciation account:

Accumulated depreciation
			37,000
			10,000
		Balance	47,000

Accounts Payable account:

Accounts Payable
			12,000
		Balance	12,000

Salaries Payable account:

Salaries Payable
			0
			4,000
		Balance	4,000

Interest Payable account:

Interest Payable
			0
			1,000
		Balance	1,000

Notes Payable account:

Notes Payable
			35,000
		Balance	35,000

Deferred revenue account:

Deferred revenue
	15,000		60,000
		Balance	45,000

Common Stock account:

Common Stock
			35,000
		Balance	35,000

Retained Earnings account:

Retained Earnings
			10,000
		Balance	10,000

Dividends account:

Dividends
	3,000
Balance	3,000

Service Revenue account:

Service Revenue
			227,000
			15,000
		Balance	242,000

Insurance Expense account:

Insurance Expense
	0
	20,000
Balance	20,000

Depreciation Expense account:

Depreciation Expense
	0
	10,000
Balance	10,000

Salaries Expense account:

Salaries Expense
	164,000
	4,000
Balance	168,000

Utilities Expense account:

Utilities Expense
	12,000
	0
Balance	12,000

Interest Expense account:

Interest Expense
	0
	1,000
Balance	1,000

Supplies Expense account:

Supplies Expense
	0
	22,000
Balance	22,000

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 trial balance for the year ending December 31, 2021:

Company JA
Adjusted Trial Balance
For the Year Ending December 31, 2021
Accounts	Debit ($)	Credit ($)
Cash	76,000
Accounts Receivable	15,000
Supplies	5,000
Prepaid Insurance	4,000
Equipment	95,000
Accumulated Depreciation		47,000
Accounts Payable		12,000
Salaries Payable		4,000
Deferred Revenue		45,000
Interest Payable		1,000
Notes Payable		35,000
Common Stock		35,000
Retained Earnings		10,000
Dividends	3,000
Service Revenue		242,000
Salaries Expense	168,000
Depreciation Expense	10,000
Insurance Expense	20,000
Supplies Expense	22,000
Utilities Expense	12,000
Interest Expense	1,000
Total	$431,000	$431,000

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:

Company JA
Income statement
For the Year Ending December 31, 2021
Details	Amount ($)	Amount ($)
Revenues:
Service Revenue	242,000
Total Revenue		242,000
Less: Expenses
Salaries expense	168,000
Depreciation expense	10,000
Insurance expense	20,000
Supplies expense	22,000
Utilities expense	12,000
Interest expense	1,000
Total Expenses		(233,000)
Net Income		$9,000

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.

Company JA
Statement of Stockholders’ Equity
For the Year Ended December 31, 2021
Particulars	Common Stock	Retained Earnings	Total Stockholders’ Equity
Beginning balance	$35,000	$10,000	$45,000
Issuance of common stock	$0	$0	$0
Less: Net income for 2021	$0	$9,000	$9,000
Less: Dividends	$0	($3,000)	($3,000)
Ending balance	$35,000	$16,000	$51,000

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	242,000
	Retained Earnings		242,000
	(To close the revenues account)

Table (5)

In this closing entry, service revenue account is closed by transferring the amount of service revenue to the retained earnings account in order to bring the revenue account balance to zero. Hence, debit the service 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		233,000
	Salaries expense			168,000
	Depreciation expense			10,000
	Insurance expense			20,000
	Supplies expense			22,000
	Utilities expense			12,000
	Interest expense			1,000
	(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.

Prepare the closing entry for dividend account:

Date	Accounts title and explanation	Debit ($)	Credit ($)
December 31, 2021	Retained Earnings	3,000
	Dividends		3,000
	(To close the dividends account)

Table (7)

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

6.

To determine

Prepare the T-Accounts to post the closing entries.

Explanation of Solution

Retained Earnings account:

Retained Earnings
			10,000
	233,000		242,000
	3,000
		Balance	16,000

Service Revenue account:

Service Revenue
			242,000
	242,000
		Balance	0

Dividends account:

Dividends
	3,000
			3,000
Balance	0

Salaries Expense account:

Salaries Expense
	164,000
	4,000		168,000
Balance	0

Depreciation expense account:

Depreciation expense
	0
	10,000		10,000
Balance	0

Insurance Expense account:

Insurance Expense
	0
	20,000		20,000
Balance	0

Supplies Expense account:

Supplies Expense
	0
	22,000		22,000
Balance	0

Utilities Expense account:

Utilities Expense
	12,000
			12,000
Balance	0

Interest Expense account:

Interest Expense
	0
	1,000		1,000
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.

Company JA
Post-Closing Trial Balance
For the Year Ended December 31, 2021
Accounts	Debit ($)	Credit ($)
Cash	76,000
Accounts Receivable	15,000
Supplies	5,000
Prepaid Insurance	4,000
Equipment	95,000
Accumulated Depreciation		47,000
Accounts Payable		12,000
Salaries Payable		4,000
Deferred Revenue		45,000
Interest Payable		1,000
Notes Payable		35,000
Common Stock		35,000
Retained Earnings		16,000
Total	$195,000	$195,000

Table (8)