FINANCIAL ACCOUNTING (LOOSELEAF)
FINANCIAL ACCOUNTING (LOOSELEAF)
10th Edition
ISBN: 9781260481358
Author: Libby
Publisher: MCG
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 4, Problem 2COMP

1, 2, 3 and 6.

To determine

Prepare T-accounts for the accounts on the trial balance and enter beginning balances.

1, 2, 3 and 6.

Expert Solution
Check Mark

Explanation of Solution

T-account: T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded. This account is referred to as the 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:

(a)The title of the account

(b)The left or debit side

(c)The right or credit side

Prepare T-account (amounts in thousands).

Cash (A) account
Beginning Balance$5b$18
a20e28
c5f3
d56h11
g8  
j3k10
 Ending Balance$27  
Accounts Receivable (A) account
Beginning Balance$4  
d14g$8
Ending Balance$10  
Supplies (A) account
Beginning Balance$2  
i10l$8
Ending Balance$4  
Small Tools (A) account
Beginning Balance$6  
f3  
Ending Balance$8
Equipment (A) account
Beginning Balance$0  
b18  
    
Ending Balance$18
Accumulated Depreciation (XA) account
  Beginning Balance$0
  m2
  Ending Balance$2
Other Assets (A) account
Beginning Balance$9  
Ending Balance$9  
Accounts Payable (L) account
h11Beginning Balance$7
  e7
  i10
  Ending Balance$13
Notes Payable (L) account
  Beginning Balance$0
  a20
  Ending Balance$20
Dividends Payable (L) account
  Beginning Balance$0
k-210k-110
  Ending Balance$0
Wages Payable (L) account
  Beginning Balance$0
  o3
  Ending Balance$3
Interest Payable (L) account
  Beginning Balance$0
  n1
  Ending Balance$1
Income Taxes Payable (L) account
  Beginning Balance$0
  p4
  Ending Balance$4
Unearned Revenue (L) account
  Beginning Balance$0
  j3
  Ending Balance$3
Common Stock (SE) account
  Beginning Balance$6
  C1
  Ending Balance$7
Additional Paid-in Capital account
  Beginning Balance$9
  c4
  Ending Balance$13
Retained Earnings (SE) account
  Beginning Balance$$4
k$10  
  Closing entry16
  Ending Balance10
Service Revenue (R) account
  Beginning Balance$0
Closing entry$70d70
  Ending Balance$0
Depreciation expense (E) account
Beginning Balance$0  
m2Closing entry$2
Ending Balance$0  
Income Tax Expense (E) account
Beginning Balance$0  
p4Closing entry$4
Ending Balance$0  
Interest Expense (E) account
Balance$0  
n1Closing entry$1
Ending Balance$0  
Wages Expense (E) account
Beginning Balance $0  
e27  
o3Closing entry30
Ending Balance$0  
Miscellaneous Expenses (E) account
Beginning Balance $0  
e8  
l9Closing entry17
Ending Balance$0  

2.

To determine

Record journal entries for transactions (a) to (k).

2.

Expert Solution
Check Mark

Explanation of Solution

Journal entries for the transactions (a) to (k) are as follows:

DateAccount Titles and ExplanationDebit ($)Credit ($)
a)Cash (+A)20,000 
 Notes Payable (+L) 20,000
 (Record cash borrowed on note)  
  
b)Equipment (+A)18,000 
 Cash (–A) 18,000
 (Record purchase of equipment)  
  
c)Cash (+A)5,000 
 Common Stock (+SE) 1,000
 Additional Paid-in Capital (+SE) 4,000
 (Record common stock issued for cash)  
  
d)Cash (+A)56,000 
 Accounts Receivable (+A)14,000 
 Service Revenue (+R, +SE) 70,000
 (Record service revenue earned during the year 2020)  
  
e)Wages expenses (–E, –SE)27,000 
 Miscellaneous Expenses (–E, –SE)8,000 
 Accounts Payable (+L) 7,000
 Cash (–A) 28,000
 Record expenses incurred and paid)  
  
f)Small Tools (+A)3,000 
 Cash (–A) 3,000
 (Record purchase of assets)  
  
g)Cash (+A)8,000 
 Accounts Receivable (–A) 8,000
 (Record cash collected on account)  
  
h)Accounts Payable (–L)11,000 
 Cash (–A) 11,000
 (Record cash paid to creditors)  
  
i)Supplies (+A)10,000 
 Accounts Payable (+L) 10,000
 (Record supplies purchased on account)  
  
j)Cash (+A)3,000 
 Unearned Revenue (+L) 3,000
 (Record receipt of unearned revenue)  
  
k-1)Retained Earnings (–SE)10,000 
 Dividends Payable (+L) 10,000
 (Record dividends declared)  
    
k-2)Dividends Payable (–L)10,000 
 Cash (–A) 10,000
 (Record payment of declared dividends)  

Table (1)

3.

To determine

Record adjusting journal entries (l) to (p).

3.

Expert Solution
Check Mark

Explanation of Solution

Prepare adjusting journal entries (l) to (p).

DateAccount Titles and ExplanationDebit ($)Credit ($)
    l.Miscellaneous Expenses (+E, –SE) 9,000 
 Supplies(–A) ($12,000$4,000) 8,000
 Small Tools (–A) ($9,000$8,000) 1,000
 (Record consumption of supplies and small tools)  
  
   m.Depreciation Expense (+E, –SE)2,000 
 Accumulated Depreciation (+XA, –A) 2,000
 (Record adjusting entry for depreciation expense)  
  
    n.Interest Expense (+E, –SE) ($20,000×10100×612)1,000 
 Interest Payable(+L) 1,000
 (Record the adjusting entry for interest expense)  
  
o.Wages Expense (+E, –SE)3,000 
 Wages Payable (+L) 3,000
 (Record the adjusting entry for wages expenses)  
  
p.Income Tax Expense (+E, –SE) 4,000 
 Income Tax Payable(+L) 4,000
 (Record the adjusting entry for income tax expense)  

Table (2)

4.

To determine

Prepare an income statement, statement of stockholders’ equity, and balance sheet.

4.

Expert Solution
Check Mark

Explanation of Solution

Prepare an income statement for the year ended December 31, 2020.

Incorporation FR
Income statement
For the Year Ended December 31, 2020
ParticularsAmount ($)
Operating Revenues: 
 Service revenue$70,000
Operating Expenses: 
 Depreciation expense2,000
 Wages expense30,000
 Miscellaneous expenses17,000
Total operating expenses49,000
Operating income21,000
Other item: 
 Interest expense1,000
Pretax income20,000
 Income tax expense4,000
Net income16,000
  
Earnings per share ($16,00070,000shares)$0.23

Table (3)

Prepare a statement of stockholders’ equity.

Incorporation FR
Statement of stockholders’ equity
For the Year Ended December 31, 2020
ParticularsCommon StockAdditional Paid-in CapitalRetained EarningsTotal Stockholders' Equity
Balance, January 1, 2020$6,000$9,000 $4,000$19,000
   Additional stock issuance1,0004,000 5,000
   Net income  16,00016,000
   Dividends declared(10,000)(10,000)
Balance, December 31, 2020$7,000$13,000$10,000$30,000

Table (4)

Prepare a balance sheet for the year December 31, 2020.

Incorporation FR
Balance Sheet
At December 31, 2020
AssetsAmount ($)Liabilities and Stockholders’ EquityAmount ($)
Current Assets: Current Liabilities: 
Cash27,000Accounts payable  13,000
Accounts receivable10,000Notes payable20,000
Supplies 4,000Interest payable1,000
Small tools8,000Wages payable 3,000
 Total current assets49,000Income taxes payable4,000
  Unearned revenue3,000
Equipment18,000 Total current liabilities44,000
Less: Accumulated depreciation(2,000)Stockholders' Equity: 
 Net book value16,000 Common stock7,000
   Additional paid-in capital13,000
Other noncurrent assets9,000 Retained earnings10,000
   Total stockholders' equity30,000
Total assets74,000Total liabilities and stockholders' equity74,000

Table (5)

5.

To determine

Identify the type of transaction for (a) to (k) for the statement of cash flows and the direction and the amount of the effect.

5.

Expert Solution
Check Mark

Explanation of Solution

Identify the type of transaction for (a) to (k) for the statement of cash flows and the direction and the amount of the effect.

TransactionType of Effect on Cash FlowsDirection and Amount of Effect
a.F+20,000
b.I–18,000
c.F+5,000
d.O+56,000
e.O–28,000
f.O –3,000
g.O+8,000
h.O–11,000
i.NENE
j.O+3,000
k-1.NENE
k-2.F–10,000

Table (6)

Statement of cash flow: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities. Operating activities include cash inflows and outflows from business operations. Investing activities includes cash inflows and cash outflows from purchase and sale of land or equipment, or investments. Financing activities includes cash inflows and outflows from issuance of common stock and debt, payment of debt and dividends.

Cash flows from investing activities:

The following amounts are to be adjusted from net income to calculate the cash flows from the operating activities:

  • Deduct increase in current assets.
  • Deduct decrease in current liabilities.
  • Add decrease in current assets.
  • Add the increase in current liability.
  • Add depreciation expense.
  • Add loss on sale of plant assets.
  • Less gain on sale of plant assets.

Cash flows from investing activities:

  • Deduct the amount of cash used to purchase any fixed assets from cash flows from investing activities to calculate the net cash provided or used for investing activities.
  • Add the amount of cash received from the sale of any fixed assets to cash flows from investing activities to calculate the net cash provided or used from investing activities.

Cash flows from financing activities:

  • Add the amount of cash received from any source of finance like amount from stockholders, debenture holders, or from any fixed liability to the cash flows from financing activities to calculate the net cash used or provided by the financing activities.
  • Deduct the payment of dividend and interest from the cash flows from financing activities to calculate the net cash used or provided by the financing activities.
  • Deduct the amount of cash paid to purchase the treasury stocks from the cash flows from financing activities to calculate the net cash used or provided by the financing activities.

6.

To determine

Prepare the closing entry for Incorporation FR on December 31, 2020.

6.

Expert Solution
Check Mark

Explanation of Solution

Prepare closing entries for Incorporation FR on December 31, 2020.

DateAccount Title and ExplanationDebit ($)Credit ($)
December 31, 2020Service Revenue(–R)70,000 
Retained Earnings(+SE) 16,000
Depreciation Expense(–E) 2,000
Interest Expense (–E)  1,000
Income Tax Expense(–E) 4,000
Wages Expense(–E) 30,000
Miscellaneous expenses (–E) 4,000
 (Record the closing entries)  

Table (7)

For closing of temporary accounts, the balances of revenues, expenses, and dividend accounts will be transferred to retained earnings in order to bring zero balance for expenses and revenues accounts.

7.

To determine

Ascertain the current ratio, total asset turnover and net profit margin and explain the results to suggest about the Company FR.

7.

Expert Solution
Check Mark

Explanation of Solution

a.

Calculate current ratio.

Current ratio=Current assetsCurrent liabilities=$49,000$44,000=1.11:1

The current ratio of Incorporation FR suggests that its current assets are sufficient to pay current liabilities.

b.

Calculate total asset turnover.

Total asset turnover = Sales Average total assets=$70,000($26,000+$74,000)÷2=$70,000$50,000=1.40

The total asset turnover ratio of Incorporation FR suggests that the total asset turnover ratio has generated $1.40 for every dollar of assets.

c.

Calculate net profit margin.

Net profit margin = Net income Sales=$16,000$70,000=0.23 or 23%

The net profit margin of Incorporation FR suggests that the net profit margin earns $0.23 for every dollar in sales that it generates.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 4 Solutions

FINANCIAL ACCOUNTING (LOOSELEAF)

Ch. 4 - 11. Explain why the income statement accounts are...Ch. 4 - 12. What is a post-closing trial balance? Is it a...Ch. 4 - 1. Which of the following accounts would not...Ch. 4 - 2. Which account is least likely to appear in an...Ch. 4 - On October 1, 2020, the $12,000 premium on a...Ch. 4 - On June 1, 2019, Oakcrest Company signed a...Ch. 4 - 5. Failure to make an adjusting entry to recognize...Ch. 4 - 6. An adjusted trial balance Shows the ending...Ch. 4 - 7. JJ Company owns a building. Which of the...Ch. 4 - 8. At the beginning of the current year. Donna...Ch. 4 - 9. According to GAAP, what ratio must be reported...Ch. 4 - 10. If a company is successful in acquiring...Ch. 4 - Preparing a Trial Balance Hagadorn Company has the...Ch. 4 - Matching Definitions with Terms Match each...Ch. 4 - Matching Definitions with Terms Match each...Ch. 4 - In each of the following transactions (a) through...Ch. 4 - For each of the transactions in M4-4, indicate the...Ch. 4 - In each of the following transactions (a) through...Ch. 4 - For each of the transactions in M4-6, indicate the...Ch. 4 - Prob. 8MECh. 4 - Prob. 9MECh. 4 - Prob. 10MECh. 4 - Indicate how the adjustments below affect the...Ch. 4 - Prob. 12MECh. 4 - Refer to the adjusted trial balance for Catena’s...Ch. 4 - Prob. 1ECh. 4 - Identifying Adjusting Entries from Unadjusted...Ch. 4 - Prob. 3ECh. 4 - Prob. 4ECh. 4 - A+T Williamson Company is making adjusting entries...Ch. 4 - Gauge Construction Company is making adjusting...Ch. 4 - Refer to E4-3 and E4-5. Required: For each of the...Ch. 4 - Trotman’s Variety Store is completing the...Ch. 4 - Johnson’s Boat Yard, Inc., repairs, stores, and...Ch. 4 - Refer to E4-8. Required: For each of the...Ch. 4 - Refer to E4-9. Required: For each of the...Ch. 4 - Recording Transactions Including Adjusting and...Ch. 4 - Gordon Company started operations on January 1 of...Ch. 4 - Note 1: On April 1 of the current year, Warren...Ch. 4 - Campbell Soup Company is a manufacturer and...Ch. 4 - Quinlan-Cohen, Inc., publishers of movie and song...Ch. 4 - On December 31, Fawzi Company prepared an income...Ch. 4 - Recording the Effects of Adjusting Entries and...Ch. 4 - Prob. 19ECh. 4 - Green Valley Company prepared the following trial...Ch. 4 - Prob. 21ECh. 4 - Refer to E4-20. Required: What are the purposes...Ch. 4 - Prob. 1PCh. 4 - All of the current year’s entries for Zimmerman...Ch. 4 - S. Miller Towing Company provides hauling and...Ch. 4 - Refer to the information regarding Zimmerman...Ch. 4 - Refer to the information regarding S. Miller...Ch. 4 - Ramirez Company is completing the information...Ch. 4 - Prob. 7PCh. 4 - Prob. 1APCh. 4 - Hannah Company’s annual accounting year ends on...Ch. 4 - Prob. 3APCh. 4 - Refer to the information regarding Hannah Company...Ch. 4 - Refer to the information regarding Bill’s Catering...Ch. 4 - Prob. 6APCh. 4 - Prob. 7APCh. 4 - Adjusting Accounts at Year-End (the Accounting...Ch. 4 - Prob. 1COMPCh. 4 - Prob. 2COMPCh. 4 - Refer to the financial statements of American...Ch. 4 - Refer to the financial statements of Express, Inc....Ch. 4 - Prob. 3CPCh. 4 - Prob. 4CPCh. 4 - Prob. 5CPCh. 4 - Prob. 6CPCh. 4 - Prob. 7CPCh. 4 - Prob. 8CPCh. 4 - You are the regional sales manager for Lauren...
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
The ACCOUNTING EQUATION For BEGINNERS; Author: Accounting Stuff;https://www.youtube.com/watch?v=56xscQ4viWE;License: Standard Youtube License