Accounting
Accounting
27th Edition
ISBN: 9781337272094
Author: WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher: Cengage Learning,
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Textbook Question
Chapter 4, Problem 4.3APR

T accounts, adjusting entries, financial statements, and closing entries; optional end-of-period spreadsheet

The unadjusted trial balance of Epicenter Laundry at June 30, 2019, the end of the fiscal year, follows:

Epicenter Laundry

Unadjusted Trial Balance

June 30,2019

  Debit Balances Credit Balances
Cash 11,000  
Laundry Supplies 21,500  
Prepaid Insurance 9,600  
Laundry Equipment 232,600  
Accumulated Depreciation   125,400
Accounts Payable   11,800
Sophie Perez, Capital   105,600
Sophie Perez, Drawing 10,000  
Laundry Revenue   232,200
Wages Expense 125,200  
Rent Expense 40,000  
Utilities Expense 19,700  
Miscellaneous Expense 5,400  
  475,000 475,000

The data needed to determine year-end adjustments are as follows:

a.    Laundry supplies on hand at June 30 are $3,600.

b.    Insurance premiums expired during the year are $5,700.

c.    Depreciation of laundry equipment during the year is $6,500.

d.    Wages accrued but not paid at June 30 are $1,100.

Instructions

1.    For each account listed in the unadjusted trial balance, enter the balance in a T account. Identify the balance as "June 30 Bal." In addition, add T accounts for Wages Payable, Depreciation Expense, Laundry Supplies Expense, and Insurance Expense.

2.    (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. Add the accounts listed in part (1) as needed.

3.    Journalize and post the adjusting entries. Identify the adjustments as "Adj." and the new balances as "Adj. Bal."

4.    Prepare an adjusted trial balance.

5.    Prepare an income statement, a statement of owner's equity (no additional investments were made during the year), and a balance sheet.

6.    Journalize and post the closing entries. Identify the closing entries as "Clos."

7.    Prepare a post-closing trial balance.

1, 3, and 6:

Expert Solution
Check Mark
To determine

Journal:

Journal is the book of original entry. Journal consists of the day-to-day financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.

T-Accounts:

T-accounts are referred as T-account because its format represents the letter “T”. The T-accounts consists of the following:

Ø The title of accounts.

Ø The debit side (Dr) and,

Ø The credit side (Cr).

Adjusted trial balance:

The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.

Adjusting entries:

An adjusting entry is prepared when the trial balance is not up-to-date, and complete, and they are usually prepared at the end of the accounting period. This adjusting entry is essential for preparing the financial statements of the business.

Spreadsheet:

A spreadsheet is a worksheet. It is used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Statement of owners’ equity:

This statement reports the beginning owner’s equity and all the changes, which led to ending owners’ equity. Additional capital, net income from income statement is added to and drawing is deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.

Income statement:

An income statement is one of the financial statements which shows the revenues, and expenses of the company. The income statement is prepared to ascertain the net income/loss of the company, by deducting the expenses from the revenues.

Netincome = Total revenues – Total expenses

Balance sheet:

A balance sheet is a financial statement consists of the assets, liabilities, and the stockholder’s equity of the company. The balance of the assets account must be equal to that of the liabilities and the stockholder’s equity account.

Closing entries:

Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts. It is passed at the end of the accounting period, to transfer the final balance.

Post-Closing Trial Balance:

After passing all the journal entries and the closing entries of the permanent accounts and then further posting them to each of the respective accounts, a post-closing trial balance is prepared which consists of a list of all the permanent accounts. A post-closing trial balance serves as an evidence to prove that the balance of the permanent accounts is equal.

To prepare: The T-accounts.

Explanation of Solution

Record the transactions directly in their respective T-accounts, and determine their balances.

Cash
June 30 Balance 11,000
Laundry Supplies
June 30 Balance 21,500 June 30 Adjusted 17,900
June 30 Adjusted balance 3,600
Prepaid Insurance
June 30 Balance 9,600 June 30 Adjusted 5,700
Adjusted balance 3,900
Laundry Equipment
June 30 Balance 232,600
Accumulated Depreciation
June 30 Balance 125,400
June 30 Adjusted 6,500
June 30 Adjusted balance 131,900
Accounts Payable
June 30 Balance 11,800
Wages Payable
June 30 Adjusted 1,100
SP, Capital
June 30 Closing 10,000 June 30 Balance 105,600
June 30 Closing 10,700
June 30 Balance 106,300
SP, Drawing
June 30 Balance 10,000 June 30 Closing 10,000
Laundry Revenue
June 30 Closing 232,200 June 30 Balance 232,200
Wages Expense
June 30 Balance 125,200 June 30 Closing 126,300
June 30 Adjusted 1,100
June 30 Adjusted balance 126,300
Rent Expense  
June 30 Balance 40,000 June 30 Closing 40,000  
 
Utilities Expense  
June 30 Balance 19,700 June 30 Closing 19,700  
 
Depreciation Expense  
June 30 Adjusted 6,500 June 30 Closing 6,500  
 
Laundry Supplies Expense  
June 30 Adjusted 17,900 June 30 Closing 17,900  
 
Insurance Expense  
June 30 Adjusted 5,700 June 30 Closing 5,700  
 
Miscellaneous Expense  
June 30 Balance 5,400 June 30 Closing 5,400  

2.

Expert Solution
Check Mark
To determine

To enter: The unadjusted trial balance on an end-of-period spreadsheet, and complete the spreadsheet.

Explanation of Solution

The unadjusted trial balance on an end-of-period spreadsheet is prepared as follows:

Accounting, Chapter 4, Problem 4.3APR

Table (1)

Conclusion

Hence, the unadjusted trial balance on an end-of-period spreadsheet is prepared and completed.

3.

Expert Solution
Check Mark
To determine

To Journalize and post: The adjusting entries.

Explanation of Solution

The adjusting entries are journalized as follows:

Date Description Debit ($) Credit ($)
2019   Wages expense 1,100  
June 30     Wages payable   1,100
    (To record the wages accrued)    

Table (2)

Explanation:

  • Wages expense is an expense account, and it is increased. Hence, debit the wages expense account by $1,100.
  • Wages payable is a liability account, and it is increased. Hence, credit the wages payable account by $1,100.
Date Description Debit ($) Credit ($)
2019   Depreciation expense 6,500  
June 30     Accumulated depreciation   6,500
    (To record the equipment depreciation)    

Table (3)

Explanation:

  • Depreciation expense is an expense account, and it is increased. Hence, debit the wages expense account by $6,500.
  • Accumulated depreciation is a contra asset account, and it is increased. Hence, credit the accumulated depreciation account by $6,500.
Date Description Debit ($) Credit ($)
2019   Laundry supplies expense 17,900  
June 30     Laundry supplies ($21,500$3,600)     17,900
    (To record the equipment depreciation)    

Table (4)

Explanation:

  • Laundry supplies expense is an expense account, and it is increased. Hence, debit the laundry supplies expense account by $17,900.
  • Laundry supplies are the asset account, and it is increased. Hence, credit the laundry supplies account by $17,900.
Date Description Debit ($) Credit ($)
2019   Insurance expense 5,700  
August 31     Prepaid insurance    5,700
    (To record the equipment depreciation)    

Table (5)

Explanation:

  • Insurance expense is an expense account, and it is increased. Hence, debit the insurance expense account by $5,700.
  • Prepaid insurance is an asset account, and it is decreased. Hence, credit the prepaid insurance account by $5,700.

4.

Expert Solution
Check Mark
To determine

To prepare: An unadjusted trial balance for Laundry E, as of June 30, 2019.

Explanation of Solution

Prepare an unadjusted trial balance for Laundry E, as of June 30, 2019.

Laundry E
Unadjusted Trial Balance
June 30, 2019
Accounts Debit Balances Credit Balances
Cash 11,000
Laundry Supplies 3,600
Prepaid Insurance 3,900
Laundry Equipment 232,600
Accumulated depreciation 131,900
Accounts payable 11,800
Wages Payable 1,100
SP, Capital 105,600
SP, Drawing 10,000
Laundry revenue 232,200
Wages expense 126,300
Rent expense 40,000
Utilities Expense 19,700
Depreciation Expense 17,900
Laundry supplies expense 6,500
Insurance Expense 5,700
Miscellaneous Expense 5,400
482,600 482,600

Table (6)

Conclusion
The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $482,600.

5.

Expert Solution
Check Mark
To determine
The net income or net loss of Laundry E for the month of June.

Explanation of Solution

The net income of Laundry E for the month of June is $10,700.

E Laundry
Income Statement
For the year ended June 30, 2019
Particulars Amount ($) Amount ($)
Revenue:    
    Laundry revenue   $248,000
Expenses:    
     Wages Expense $126,300  
     Rent Expense 40,000  
     Utilities Expense 19,700  
     Depreciation Expense 17,900  
     Laundry supplies Expense 6,500  
     Insurance Expense 5,700  
     Miscellaneous Expense 5,400  
    Total Expenses   221,500
Net Income $10,700

Table (7)

Conclusion

Hence, the net income of Laundry E for the year ended June 30, 2019 is $10,700.

6.

Expert Solution
Check Mark
To determine

To Journalize: The closing entries for E Laundry.

Explanation of Solution

Closing entry for revenue and expense accounts:

Date Accounts title and Explanation Post Ref.

Debit

($)

Credit

($)

June 30, 2019 Laundry Revenue   232,200  
       Wages Expense     126,300
       Rent Expense     40,000
       Utilities Expense     19,700
       Depreciation Expense     17,900
       Laundry supplies Expense     6,500
       Insurance Expense     5,700
       Miscellaneous Expense     5,400
       SP, Capital     10,700
  (To close the revenues and expenses account. Then  the balance amount are  transferred to owners’ capital account)      
 
June 30 SP’s Capital   10,000  
  SP’ Drawing     10,000
  (To Close the capital and drawings account)      

Table (10)

Explanation:

  • Laundry revenue is revenue account. Since the amount of revenue is closed, and transferred to SP’s capital account. Here, E Laundry earned an income of $232,200. Therefore, it is debited.
  • Wages Expense, Rent Expense, Insurance Expense, Utilities Expense, Laundry Supplies Expense, Depreciation Expense, SP Capital, and Miscellaneous Expense are expense accounts. Since the amount of expenses are closed to Income Summary account. Therefore, it is credited.
  • Owner’s capital is a component of owner’s equity. Thus, owners ‘equity is debited since the capital is decreased on owners’ drawings.
  • Owner’s drawings are a component of owner’s equity. It is credited because the balance of owners’ drawing account is transferred to owners ‘capital account

7.

Expert Solution
Check Mark
To determine

To prepare: The post–closing trial balance of E Laundry for the month ended June 30, 2019.

Explanation of Solution

Prepare a post–closing trial balance of E Laundry for the month ended June 30, 2019 as follows:

Laundry E

Post-closing Trial Balance

June 30, 2019

Particulars Debit $ Credit $
Cash 11,000  
Laundry Supplies 3,600  
Prepaid insurance 3,900  
Laundry Equipment 232,600  
Accumulated depreciation  131,900
Accounts payable 11,800
Wages payable   1,100
BD’s Capital   106,300
Total 251,100 251,100

Table (11)

Conclusion

The debit column and credit column of the post–closing trial balance are agreed, both having balance of $251,100.

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Chapter 4 Solutions

Accounting

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