Chapter 3, Problem 9PB

1.

To determine

Prepare T-accounts and enter the beginning balance from the trial balance.

Explanation of Solution

T-account:

The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.

The T-accounts of given item in trial balance are as follows:

Cash
Jan. 1	$41,500
Bal.	$41,500

Land
Jan. 1	$110,800
Bal.	$110,800

Retained earnings
		Jan. 1	$32,700
		Bal.	$32,700
Accounts receivables
Jan. 1	$25,700
Bal.	$25,700

Accounts payable
		Jan.1	$15,300
		Bal.	$15,300

Notes payable
		Jan. 1	$30,000
		Bal.	$30,000

Common stock
		Jan. 1	$100,000
		Bal.	$100,000

Table (1)

2.

To determine

Record the journal entries for given transactions.

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

The journal entries for given transactions of Company J are as follows:

Date	Account Title and Explanation	Debit($)	Credit($)
January 12, 2021	Accounts receivable	62,400
	Service revenue		62,400
	(To record the recognized service revenue on account )
February 25,2021	Cash	75,300
	Service revenue		75,300
	(To record cash collection from customer)
April 30, 2021	Cash	30,000
	Common stock		30,000
	(To record the cash received from issuance of common stock)
June 16, 2021	Supplies	12,100
	Accounts payable		12,100
	(To record the purchase of supplies on account)
July 7, 2021	Accounts payable	11,300
	Cash		11,300
	(To record the payment of  cash on account)
September 30, 2021	Salary expense	64,200
	Cash		10,000
	(To record payment of salaries for work in the current period)
December 30,2021	Dividends	2,900
	Cash		2,900
	(To record the payment of dividends)

Table (2)

3.

To determine

Post the transactions to T-accounts.

Explanation of Solution

T-accounts of above transactions are as follows:

Cash
Jan.1	$41,500	July.7	$11,300
Feb.25	$75,300	Sep.30	$64,200
Mar.19	$45,700	Nov.22	$22,500
Apr.30	$30,000	Dec.30	$2,900
Total	$192,500	Total	100,900
Bal.	$91,600

Land
Jan.1	$110,800
Bal.	$110,800

Retained earnings
		Jan.1	$32,700
		Bal.	$32,700

Salaries expenses
Jan.1	$0
Bal.	$64,200

Accounts receivable
Jan. 1	$25,700
Jan. 12	$62,400	Mar.19	$45,700
Bal.	$42,400
Accounts payable
		Jan.1	$15,300
Jul. 7	$11,300	Jun.16	$12,100
		Bal.	$16,100

Notes payable
		Jan. 1	$30,000
		Bal.	$30,000

Dividends
Jan.1	$0
Dec.30	$2,900
Bal.	$2,900

Advertising expense
Jan. 1	$0
Nov.22	$22,500
Bal.	$22,500

Supplies
Jan.1	$0
Jun.16	$12,100
Bal.	$12,100

Salaries payable
		Jan. 1	$0
		Dec.31	$1,500

Common stock
		Jan. 1	$100,000
		Apr.30	$30,000
		Bal.	$130,000
Service revenue
		Jan.1	$0
		Jan.12	$62,400
		Feb.25	$75,300
		Bal.	137,700

Table (3)

4.

To determine

Prepare the unadjusted trial balance of Company J.

Explanation of Solution

Company J
Unadjusted Trial Balance
December 31, 2021
Accounts	Debit Amount($)	Credit Amount($)
Cash	91,600
Accounts Receivable	42,400
Supplies	12,100
Land	110,800
Accounts payable		16,100
Salaries payable		0
Interest  payable		0
Notes payable		30,000
Common stock		130,000
Retained earnings		32,700
Dividends	2,900
Service revenue		137,700
Salaries expense	64,200
Advertising  expense	22,500
Interest expense	0
Supplies expense	0
Totals	$346,500	$346,500

Table (4)

Therefore, the total of debit, and credit columns of unadjusted trial balance is $346,500.

5.

To determine

Record the given adjusting entries of Company J.

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Adjusting entries of Company P are as follows:

Depreciation expense:

Date	Accounts title and explanation	Debit ($)	Credit ($)
December 31, 2021	Interest Expense	2,500
	Interest payable		2,500
	(To record the amount of accrue interest on notes payable)

Table (5)

Following is the rule of debit and credit of above transaction:

• Interest expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
• Interest payable is a liability. There is a increase in the value of liability. Therefore it is credited.

Office supplies expense:

Date	Accounts title and explanation	Debit ($)	Credit ($)
December 31, 2021	Supplies expense	9,800
	Supplies (1)		9,800
	(To record the supplies expense incurred at the end of the accounting year)

Table (6)

Following is the rule of debit and credit of above transaction:

• Supplies expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
• Supplies are an asset account. There is a decrease in assets, therefore it is credited.

Deferred revenue:

Date	Accounts title and explanation	Debit ($)	Credit ($)
December 31, 2021	Salaries expense	1,500
	Salaries payable		1,500
	(To record the salary payable for the current period)

Table (7)

Following is the rules of debit and credit of above transaction:

• Salaries expense is an expense. There is a decrease in the value of stockholder’s equity. Therefore, it is debited.
• Salaries payable is a liability. There is an increase in the value of liability. Therefore it is credited

Working note:

Calculate the supplies used during the year:

$\begin{array}{c}\text{Supplies}\text{used}\text{during}\text{the}\text{year}\}\text{=}\left\{\text{Opening}\text{balance+purchase-Closing}\text{balance}\right\}\\ \text{=\$0+\$12,100-\$2,300}\\ \text{=\$9,800}\end{array}$ (1)

6.

To determine

Post the adjusting entries to appropriate T-accounts.

Explanation of Solution

Cash
Jan.1	$41,500	July.7	$11,300
Feb.25	$75,300	Sep.30	$64,200
Mar.19	$45,700	Nov.22	$22,500
Apr.30	$30,000	Dec.30	$2,900
Total	$192,500	Total	100,900
Bal.	$91,600

Land
Jan.1	$110,800
Bal.	$110,800

Interest payable
		Jan.1	$0
		Dec.31	$2,500
		Bal.	$2,500

Retained earnings
		Jan.1	$32,700
		Bal.	$32,700

Salaries Expense
Jan.1	$0
Sep.30	$64,200
Dec.30	$1,500
Bal.	$65,700

Supplies Expense
Jan.1	$0
Dec.31	$9,800
Bal.	$9,800

Accounts payable
		Jan.1	$15,300
Jul. 7	$11,300	Jun.16	$12,100
		Bal.	$16,100

Notes payable
		Jan. 1	$30,000
		Bal.	$30,000

Dividends
Jan.1	$0
Dec.30	$2,900
Bal.	$2,900

Advertising expense
Jan. 1	$0
Nov.22	$22,500
Bal.	$22,500

Supplies
Jan.1	$0
Jun.16	$12,100	Dec.31	$9,800
Bal.	$2,300

Common stock
		Jan. 1	$100,000
		Apr.30	$30,000
		Bal.	$130,000
Service revenue
		Jan.1	$0
		Jan.12	$62,400
		Feb.25	$75,300
		Bal.	$137,700

Interest expense
Jan.1	$0
Dec.30	$2,500
Bal.	$2,500

Table (8)

7.

To determine

Prepare the adjusted trial balance of Company J.

Explanation of Solution

Adjusted trial balance:

Adjusted trial balance is that statement which contains complete list of accounts with their adjusted balances, after all relevant adjustments have been made. This statement is prepared at the end of every financial period.

Adjusted trial balance of Company J is as follows:

Company J
Adjusted Trial Balance
December 31, 2021
Accounts	Debit Amount($)	Credit Amount($)
Cash	91,600
Accounts Receivable	42,400
Supplies	12,100
Land	110,800
Accounts payable		16,100
Salaries payable		1,500
Interest  payable		2,200
Notes payable		30,000
Common stock		130,000
Retained earnings		32,700
Dividends	2,900
Service revenue		137,700
Salaries expense	64,200
Advertising  expense	22,500
Interest expense	2,500
Supplies expense	9,800
Totals	$350,500	$350,500

Table (9)

Therefore, the total of debit, and credit columns of adjusted trial balance is $350,500.

8.

To determine

Prepare an income statement for 2021 and classified balance sheet as on December 31, 2021.

Explanation of Solution

Income statement of Company J is as follows:

Company J
Income statement
For the year ended December 31, 2021
Particulars	Amount in $	Amount in $
Service revenue (A)		137,700
Expenses:
Salaries expense	65,700
Utilities expense	22,500
Depreciation expense	2,500
Supplies expense	9,800
Total expense (B)		100,500
Net income $\left(\text{A}-\text{B}\right)$		37,200

Table (10)

Therefore, the net income of Company J is $37,200.

Classified balance sheet of Company J is as follows:

Figure (1)

Therefore, the total assets of Company P are $247,100, and the total liabilities and stockholders’ equity are $247,100.

Working note:

Calculation of ending balance retained earnings

$\begin{array}{c}\text{Retained earnings = }\left(\begin{array}{l}\text{Beginning retained earnings + }\\ \text{Net income }-\text{Dividends}\end{array}\right)\\ =\$32,700+\$37,200-\$2,900\\ =\$67,00\end{array}$ (2)

9.

To determine

Record the necessary closing entries of Company J.

Explanation of Solution

Closing entries of Company J is as follows:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31, 2021	Service revenue		137,700
	Retained earnings			137,700
	(To close all revenue account)
December 31, 2021	Retained earnings		100,500
	Salaries expense			65,700
	Advertising  expense			22,500
	Interest expense			2,500
	Supplies expense			9,800
	(To close all the expenses account)
December 31,2021	Retained earnings		2,900
	Dividends			2,900
	(To close the dividends account)

Table (11)

10.

To determine

Post the closing entries to the T-accounts.

Explanation of Solution

Post the closing entries to the T-accounts.

Cash
Jan.1	$41,500	July.7	$11,300
Feb.25	$75,300	Sep.30	$64,200
Mar.19	$45,700	Nov.22	$22,500
Apr.30	$30,000	Dec.30	$2,900
Total	$192,500	Total	100,900
Bal.	$91,600

Land
Jan.1	$110,800
Bal.	$110,800

Interest payable
		Jan.1	$0
		Dec.31	$2,500
		Bal.	$2,500

Retained earnings
		Jan.1	$32,700
Dec.31	100,500	Dec.31	137,700
Dec.31	2,900
		Bal.	$32,700

Salaries Expense
Jan.1	$0
Sep.30	$64,200
Dec.30	$1,500
Bal.	$65,700

Supplies Expense
Jan.1	$0
Dec.31	$9,800	Dec.31	$9,800
Bal.	$0

Accounts receivable
Jan.1	$25,700
Jan.12	$62,400	Mar.19	$45,700
Bal.	42,400

Accounts payable
		Jan.1	$15,300
Jul.7	$11,300	Jun.16	$12,100
		Bal.	$16,100
Notes payable
		Jan. 1	$30,000
		Bal.	$30,000

Dividends
Jan.1	$0
Dec.30	$2,900	Dec.31	$2,900
Bal.	$2,900

Advertising expense
Jan. 1	$0
Nov.22	$22,500	Dec.31	$22,500
Bal.	$0

Supplies
Jan.1	$0
Jun.16	$12,100
		Bal.	$9,800
Total	$2,300

Salaries payable
		Jan. 1	$0
		Dec.31	$1,500

Common stock
		Jan. 1	$100,000
		Apr.30	$30,000
		Bal.	$130,000
Service revenue
		Jan.1	$0
		Jan.12	$62,400
Dec.31	137,700	Feb.25	$75,300
		Bal.	$0

Interest expense
Jan.1	$0
Dec.30	$2,500	Dec.31	$2,500
Bal.	$0

Table (12)

11.

To determine

Prepare a post-closing trial balance of Company J.

Explanation of Solution

Post-closing trial balance of Company J is as follows:

Company J
Adjusted Trial Balance
December 31, 2021
Accounts	Debit Amount($)	Credit Amount($)
Cash	91,600
Accounts Receivable	42,400
Supplies	2,300
Land	110,800
Account payable		16,000
Salaries payable		1,500
Interest  payable		2,500
Notes payable		30,000
Common stock		130,000
Retained earnings		67,000
Total	$247,100	$247,100

Table (13)

Therefore, the total of debit, and credit columns of post-closing trial balance is $247,100.