Chapter 4, Problem 2BPSB

To determine

Accounting work sheet:

An accounting worksheet is an statement used to help book keeper to complete accounting cycle and preparation of year end reports.

Preparation of necessary work sheetstarting with the unadjusted trial balance and including adjustments based on the additional facts.

Explanation of Solution

Company PDAccounting Work SheetFor year ended April,30.
		Unadjusted Trial balance		Adjustments		AdjustedTrial balance		Income Statement		Balance sheet & Statement of owner's equity
No.	Account Title	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
101	Cash	7,000				7,000				7,000
126	Supplies	16,000			8,100	7,900				7,900
128	Prepaid Insurance	12,600			10,600	2,000				2,000
167	Equipment	2,00,000				2,00,000				2,00,000
168	Accumulated depreciation - equipment		14,000		7,000		21,000				21,000
201	Accounts payable		6,800		800		7,600				7,600
203	Interest payable		0		300		300				300
208	Rent payable		0		3,000		3,000				3,000
210	Wages payable		0		2,000		2,000				2,000
213	Property tax payable		0		550		550				550
251	Long-term notes payable		30,000				30,000				30,000
301	J. Bonn capital		86,900				86,900				86,900
302	J. Bonn withdrawal	12,000				12,000				12,000
401	Demolition fees earned		187,000				187,000		187,000
612	Depreciation expense − equipment	0		7,000		7,000		7,000
623	Wages expenses	41,400		2,000		43,400			43,400
633	Interest expense	3,300		300		3,600			3,600
637	Insurance expense	0		10,600		10,600			10,600
640	Rent expense	13,200		3,000		16,200			16,200
652	Supplies expense	0		8,100		8,100			8,100
683	Property tax expense	9,700		550		10,250			10,250
684	Repairs expense	4,700		0		4,700			4,700
690	Utilities expense	4,800		800		5,600			5,600

To determine

Journal Entries:

A journal entry is the record of the transaction entered into journal. Journal entries records all the financial details of the business and reflects which accounts are affected through the transactions.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

The necessary adjusting journal entries and closing entries forCompany PD for the year ended April 30.

Explanation of Solution

Recording of supplies expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	Supplies expense		8,100
	Supplies account			8,100
	(to record the expense of supplies)

• Since, supplies is an expense and expense is increased. Hence, supplies expense account is debited.
• Since, supplies accountis an assetand asset is decreased. Hence, supplies account is credited.

Recording of insurance expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	Insurance expense		10,600
	Prepaid insurance			10,600
	(to record payment of wages)

• Since, insurance is an expense and expense is increased. Hence, insurance expense account is debited.
• Since, prepaid insurance is an asset and asset is decreased. Hence, prepaid insurance account is credited.

Recording of depreciation expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	Depreciation expense-equipment		7,000
	Accumulated depreciation−equipment			7,000
	(to record depreciation expense)

• Since, depreciation is an expense and expense is increased. Hence, depreciation expense account is debited.
• Since, accumulated depreciation is a liability and liability is increased. Hence, accumulated depreciation account is credited.

Purchase of supplies:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	Utilities expense		800
	Accounts payable			800
	(to record purchase of supplies)

• Since, utilities is an expense, and expense is increased. Hence, utilities expense account is debited.
• Since, accounts payable is a liability and liability is increased. Hence, accounts payable account is credited.

Recording of wages expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	Wages expense		2,000
	Wages payable			2,000
	(recording of wages expense)

• Since, wages is an expense and expense is increased. Hence, wages expense account is debited.
• Since, wages payable is a liability and liability is increased. Hence, wages payable account is credited.

Recording of property tax expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	Property tax expense		550
	Property tax payable			550
	(recording of property tax expense)

• Since, property tax is an expense and expense is increased. Hence, property tax expense account is debited.
• Since, property tax payable is a liability and liability is increased. Hence, property tax payable account is credited.

Recording of interest expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	Interest expense		300
	Interest payable			300
	(recording of interest expense)

• Since, interest is an expense and expense is increased. Hence, interest expense account is debited.
• Since, interest payable is a liability and liability is increased. Hence, interest payable account is credited.

The necessary closing journal entries for the Company PD for the year ended April 30.

Transfer of fees earned to income statement:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	Demolition fees earned		187,000
	Income statement			187,000
	(recording of transfer of fees earned to income statement)

Adjustment of expenses against income earned:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	Income statement		109,450
	Depreciation expense-Equipment			7,000
	Wages expense			43,400
	Insurance expense			10,600
	Rent expense			16,200
	Supplies expense			8,100
	Repairs expense			4,700
	Utilities expense			5,600
	Interest expense			3,600
	Property tax expense			10,250
	(adjustment of expenses against income earned)

Income earned is transferred to capital account:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	Income statement		77,550
	J. bonn, capital			77,550
	(transferring of income earned to capital account)

Reduction of capital account:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
April-30	J. bonn, capital		12,000
	J. bonn, withdrawal			12,000
	(recording of withdrawal of capital)

To determine

Income Statement:

An income statement is one of the financial statement of the company which shows the company's profit and loss for a particular period of time.

Statement of Owner'sEquity:

A statement of owner's equity reflects changes in capital balance of a business over a reporting period.

Balance Sheet:

The financial statement in which the worth of assets, liabilities and equity of a company or an entity is shown in a classified form is a balance sheet.

Theincome statement, statement of owner's equity and the balance sheet for Company PD as on year ended April, 30.

Explanation of Solution

The income statement ofCompany PD for the year ended April, 30 shows the income of $77,550.

Company PDIncome Statement,For the year ended, April 30
	Debit($)	Credit($)
Revenues:
Demolition fees earned	187,000
Total Revenue		187,000
Expenses:
Depreciation expense-Equipment	7,000
Wages expense	43,400
Insurance expense	10,600
Rent expense	16,200
Supplies expense	8,100
Repairs expense	4,700
Utilities expense	5,600
Interest expense	3,600
Property tax expense	10,250
Total Expense		109,450
Net Income		77,550

The statement of owner's equity for Company PD shows the closing balance of $152,450.

Company PD
Statement of Owner's Equity
	Amount($)	Amount($)
Owner's Equity opening balance	46,900
Add: Capital introduced by owner	40,000
Add: Net income	77,550
Total:		164,450
Less: Withdrawals		(12,000)
Closing Balance		152,450

The balance sheet of Company PD shows a total of $195,900.

Company PD
Balance Sheet as at April, 30
	Amount ($)	Amount ($)
Liabilities and Owners Equity
Accounts payable	7,600
Wages payable	2,000
Rent payable	3,000
Interest Payable	300
Property tax payable	550
Long-term notes payable	30,000
Total Liabilities		43,450
Owners Equity		152,450
Total Liabilities and Owners Equity		195,900
Current Assets, Loans & Advances
Cash	7,000
Supplies	7,900
Prepaid Insurance	2,000
Total Current Assets, Loans & Advances		16,900
Property, Plant and Equipment
Equipment	179,000
Total Property, Plant and Equipment		179,000
Total Assets		195,900