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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Ledger accounts, adjusting entries, financial statements, and closing entries; optional spreadsheet

The unadjusted trial balance of Lakota Freight Co. at March 31, 2016, the end of the year, follows:

Chapter 4, Problem 4.4APR, Ledger accounts, adjusting entries, financial statements, and closing entries; optional spreadsheet

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

  1. a. Supplies on hand at March 31 are $7,500.
  2. b. Insurance premiums expired during year are $1,800.
  3. c. Depreciation of equipment during year is $8,350.
  4. d. Depreciation of trucks during year is $6,200.
  5. e. Wages accrued but not paid at March 31 are $600.

Instructions

  1. 1. For each account listed in the trial balance, enter the balance in the appropriate Balance column of a four-column account and place a check mark (✓) in the Posting Reference column.
  2. 2. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. Add the accounts listed in part (3) as needed.
  3. 3. Journalize and post the adjusting entries, inserting balances in the accounts affected. Record the adjusting entries on Page 26 of the journal. The following additional accounts from Lakota Freight Co.’s chart of accounts should be used: Wages Payable, 22; Supplies Expense, 52; Depreciation Expense—Equipment, 55; Depreciation Expense—Trucks, 56; Insurance Expense, 57.
  4. 4. Prepare an adjusted trial balance.
  5. 5. Prepare an income statement, a statement of owner's equity (no additional investments were made during the year) and a balance sheet.
  6. 6. Journalize and post the closing entries. Record the closing entries on Page 27 of the journal. (Income Summary is account #33 in the chart of accounts.) Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry.
  7. 7. Prepare a post-closing trial balance.

1, 3, and 6:

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:

  • The title of accounts.
  • The debit side (Dr) and,
  • 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

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

Account:         Cash                                                              Account no. 11
Date Item Post. Ref

Debit

 ($)

Credit ($) Balance
Debit ($) Credit ($)
2016
March 1
  • Balance
✓   12,000
Account:   Supplies                                                            Account no. 13
Date Item Post. Ref

Debit

 ($)

Credit ($) Balance
Debit ($) Credit ($)
2016
March 31
  • Balance
✓   30,000
31 Adjusting 26 22,500 7,500
Account:    Prepaid Insurance                                                  Account no. 14
Date Item Post. Ref

Debit

 ($)

Credit ($) Balance
Debit ($) Credit ($)
2016
March 31
  • Balance
✓   3,600
31 Adjusting 26 1,800 1,800
Account:    Equipment                                                             Account no. 16
Date Item Post. Ref

Debit

 ($)

Credit ($) Balance
Debit ($) Credit ($)
2016
March 31
  • Balance
✓   110,000
Account:  Accumulated Depreciation-Equipment        Account no. 17
Date Item Post. Ref

Debit

 ($)

Credit ($) Balance
Debit ($) Credit ($)
2016
March 31
  • Balance
✓   25,000
31 Adjusting 26 8,350 33,350
Account:    Trucks                                                                    Account no. 18
Date Item Post. Ref

Debit

 ($)

Credit ($) Balance
Debit ($) Credit ($)
2016
March 31
  • Balance
✓   60,000
Account:  Accumulated Depreciation- Truck                      Account no. 19
Date Item Post. Ref

Debit

 ($)

Credit ($) Balance
Debit ($) Credit ($)
2016
March 31
  • Balance
✓   15,000
31 Adjusting 26 6,200 21,200
Account:     Accounts Payable                                                      Account no. 21
Date Item Post. Ref

Debit

 ($)

Credit ($) Balance
Debit ($) Credit ($)
2016
March 31
  • Balance
✓   4,000
Account:     Wages Payable                                                        Account no. 22
Date Item Post. Ref

Debit

 ($)

Credit ($) Balance
Debit ($) Credit ($)
2016
March 31 Adjusting 26 600 600
Account:          KT, Capital                                                         Account no. 31
Date Item Post. Ref

Debit

 ($)

Credit ($) Balance
Debit ($) Credit ($)
2016
March 31 Balance
  • ✓ 1
96,000
31 Closing 27 51,150 147,150
31 Closing 27 15,000 132,150
Account:         KT, Drawing                                                              Account no...

2.

To determine

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

3.

To determine

To Journalize and post: The adjusting entries.

4.

To determine

To prepare: An adjusted trial balance for Company L, as of March 31, 2016.

5.

To determine

The net income or net loss of Company L for the month of March.

6.

To determine

To Journalize: The closing entries for Company L.

7.

To determine

To prepare: The post–closing trial balance of Company L for the month ended March 31, 2016.

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