Concept explainers
1.
Record the
1.
Answer to Problem 4.7P
Record the adjusting entries:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
a. | Supplies expense (+E, -SE) | 600 | ||
Supplies (-A) | 600 | |||
(To record supplies expenses) | ||||
b. | Insurance expense (+E, -SE) | 800 | ||
Prepaid insurance (-A) | 800 | |||
(To record insurance expense) | ||||
c. | 3,700 | |||
3,700 | ||||
(To record the accumulated depreciation) | ||||
d. | Wages expense (+E, -SE) | 640 | ||
Wages payable (+L) | 640 | |||
(To record wages payable) | ||||
e. | Income tax expense (+E,-SE) | 5,540 | ||
Income tax payable (+L) | 5,540 | |||
(To record accrued income tax expense) |
Table (1)
Explanation of Solution
Adjusting entries:
Adjusting entries are the
(a)
- Supplies expense is an expense account which is a component of
stockholders equity. There is an increase in the expense which decreases the stock holders’ equity. Hence, debit supplies expense with $600. - Supplies are asset. There is a decrease in the asset. Hence, credit asset with $600.
(b)
- Insurance expense is an expense account which is a component of stockholders equity. There is an increase in the expense which decreases the stock holders’ equity. Hence, debit insurance expense with $800.
- Prepaid insurance is an asset. There is a decrease in the asset. Hence, credit asset with $800.
(c)
- Depreciation expense is an expense account which is a component of stockholders’ equity. There is an increase in expense account which decreases the stockholders’ equity. Hence, debit depreciation expense with $3,700.
- Accumulated depreciation is a contra-asset. There is a decrease in the asset. Hence, credit accumulated depreciation with $3,700.
(d)
- Wages expense is an expense account which is a component of stockholders equity. There is an increase in the expense which decreases the stock holders’ equity. Hence, debit wages expense with $640.
- Wages payable is a liability. There is an increase in the liability. Hence, credit wages payable with $640
(e)
- Income tax expense is an expense account which is a component of stock holders’ equity. There is an increase in the expense account which decreases the stockholders’ equity. Hence, debit interest expense with $5,540.
- Income tax payable is a liability. There is an increase in the liability. Hence, credit, interest payable with $5,540.
2.
Prepare an income statement and a classified balance sheet.
2.
Explanation of Solution
Income statement:
The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare an income statement:
Incorporation T | ||
Income Statement | ||
For the current year ended December 31 | ||
Particulars | Amount ($) | Amount ($) |
Operating Revenue: | ||
Service revenue | $61,360 | |
Operating Expenses: | ||
Supplies expense | 600 | |
Insurance expense | 800 | |
Depreciation expense | 3,700 | |
Wages expense | 640 | |
Remaining expenses | 33,360 | |
Total expenses | 39,100 | |
Operating Income | 22,260 | |
Income tax expense | 5,540 | |
Net Income | $16,720 | |
Earnings per share (1) | $3.34 |
Table (2)
Working notes:
Calculation of Earnings per share:
The net income for the Incorporation T is $16,720.
Classified balance sheet:
This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.
Prepare a classified balance sheet:
Incorporation T | |||
Balance Sheet | |||
At December 31 of the Current Year | |||
Assets | Amount ($) | Liabilities and Stockholders’ Equity | Amount ($) |
Current Assets: | Current Liabilities: | ||
Cash | $42,000 | Accounts payable | 3,000 |
11,600 | Wages payable | 640 | |
Supplies | 300 | Income taxes payable | 5,540 |
Total current assets | 53,900 | Total current liabilities | 9,180 |
Service trucks | 19,000 | Note payable, long term | 17,000 |
Accumulated depreciation | (12,900) | Total liabilities | 26,180 |
Other assets | 8,300 | Stockholders' Equity | |
Common stock | 400 | ||
Additional paid-in capital | 19,000 | ||
22,720 | |||
Total stockholders' equity | 42,120 | ||
Total assets | $68,300 | Total liabilities and stockholders' equity | $68,300 |
Table (3)
Working notes:
Calculation of retained earnings:
The balance sheet agreed with $68,300 by assets and liabilities.
3.
Record the closing entry at December 31 of the current year.
3.
Explanation of Solution
Closing entries:
Closing entries are those journal entries, which are passed to transfer the final balances of temporary accounts, (all revenues account, all expenses account and dividend) to the retained earnings account. Closing entries produce a zero balance in each temporary account.
Prepare closing entries at December 31 of the current year:
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Sales revenue(-R) | 61,360 | ||
Retained earnings(+SE) | 16,720 | ||
Supplies expense(-E) | 600 | ||
Insurance expense(-E) | 800 | ||
Depreciation expense(-E) | 3,700 | ||
Wages expense (-E) | 640 | ||
Remaining expense (-E) | 33,360 | ||
Income tax expense(-E) | 5,540 | ||
(To record the closing entries) |
Table (4)
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.
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Chapter 4 Solutions
FIN.ACCTG.: ACC 101: CUSTOM TEXT+CONNEC
- After all revenue and expenses have been closed at the end of the fiscal period ended December 31, Income Summary has a debit of 45,550 and a credit of 36,520. On the same date, D. Mau, Drawing has a debit balance of 12,000 and D. Mau, Capital had a beginning credit balance of 63,410. a. Journalize the entries to close the remaining temporary accounts. b. What is the new balance of D. Mau, Capital after closing the remaining temporary accounts? Show your calculations.arrow_forwardOn July 1, K. Resser opened Ressers Business Services. Ressers accountant listed the following chart of accounts: The following transactions were completed during July: a. Resser deposited 25,000 in a bank account in the name of the business. b. Bought tables and chairs for cash, 725, Ck. No. 1200. c. Paid the rent for the current month, 1,750, Ck. No. 1201. d. Bought computers and copy machines from Ferber Equipment, 15,700, paying 4,000 in cash and placing the balance on account, Ck. No. 1202. e. Bought supplies on account from Wigginss Distributors, 535. f. Sold services for cash, 1,742. g. Bought insurance for one year, 1,375, Ck. No. 1203. h. Paid on account to Ferber Equipment, 700, Ck. No. 1204. i. Received and paid the electric bill, 438, Ck. No. 1205. j. Paid on account to Wigginss Distributors, 315, Ck. No. 1206. k. Sold services to customers for cash for the second half of the month, 820. l. Received and paid the bill for the business license, 75, Ck. No. 1207. m. Paid wages to an employee, 1,200, Ck. No. 1208. n. Resser withdrew cash for personal use, 700, Ck. No. 1209. Required 1. Record the owners name in the Capital and Drawing T accounts. 2. Correctly place the plus and minus signs for each T account and label the debit and credit sides of the accounts. 3. Record the transactions in the T accounts. Write the letter of each entry to identify the transaction. 4. Foot the T accounts and show the balances. 5. Prepare a trial balance as of July 31, 20--. 6. Prepare an income statement for July 31, 20--. 7. Prepare a statement of owners equity for July 31, 20--. 8. Prepare a balance sheet as of July 31, 20--. LO 1, 2, 3, 4, 5, 6arrow_forwardOn January 24, 20Y8, Niche Consulting collected $5,700 it had hilled its clients for services rendered on December 31, 20Y7. How would you record the January 24 transaction, using the accrual basis? A. Increase Cash, $5,700; decrease Fees Earned, $5,700 B. Increase Accounts Receivable, $5,700; increase Fees Earned, $5,700 C. Increase Cash, $5,700; decrease Accounts Receivable, $5,700 D. Increase Cash, $5,700; increase Fees Earned, $5,700arrow_forward
- The trial balance of Jillson Company as of December 31, the end of its current fiscal year, is as follows: Here are the data for the adjustments. ab. Merchandise Inventory at December 31, 54,845.00. c. Store supplies inventory (on hand), 488.50. d. Insurance expired, 680. e. Salaries accrued, 692. f. Depreciation of store equipment, 3,760. Required Complete the work sheet after entering the account names and balances onto the work sheet.arrow_forwardIn March, T. Carter established Carter Delivery Service. The account headings are presented below. Transactions completed during the month of March follow. a. Carter deposited 25,000 in a bank account in the name of the business. b. Bought a used truck from Degroot Motors for 15,140, paying 5,140 in cash and placing the remainder on account. c. Bought equipment on account from Flemming Company, 3,450. d. Paid the rent for the month, 1,000, Ck. No. 3001 (Rent Expense). e. Sold services for cash for the first half of the month, 6,927 (Service Income). f. Bought supplies for cash, 301, Ck. No. 3002. g. Bought insurance for the truck for the year, 1,200, Ck. No. 3003. h. Received and paid the bill for utilities, 349, Ck. No. 3004 (Utilities Expense). i. Received a bill for gas and oil for the truck, 218 (Gas and Oil Expense). j. Sold services on account, 3,603 (Service Income). k. Sold services for cash for the remainder of the month, 4,612 (Service Income). l. Paid wages to the employees, 3,958, Ck. Nos. 30053007 (Wages Expense). m. Carter withdrew cash for personal use, 1,250, Ck. No. 3008. Required 1. In the equation, write the owners name above the terms Capital and Drawing. 2. Record the transactions and the balance after each transaction. Identify the account affected when the transaction involves revenues or expenses. 3. Write the account totals from the left side of the equals sign and add them. Write the account totals from the right side of the equals sign and add them. If the two totals are not equal, check the addition and subtraction. If you still cannot find the error, re-analyze each transaction.arrow_forwardEFFECTS OF TRANSACTIONS (BALANCE SHEET ACCOUNTS) Jon Wallace started a business. During the first month (March 20--), the following transactions occurred. Show the effect of each transaction on the accounting equation: Assets= Liabilities + Owners Equity. After each transaction, show the new account totals. (a) Invested cash in the business, 30,000. (b) Bought office equipment on account, 4,500. (c) Bought office equipment for cash, 1,600. (d) Paid cash on account to supplier in transaction (b), 2,000. EFFECTS OF TRANSACTIONS (REVENUE, EXPENSE, WITHDRAWALS) This exercise is an extension of Exercise 2-3B. Lets assume Jon Wallace completed the following additional transactions during March. Show the effect of each transaction on the basic elements of the expanded accounting equation: Assets = Liabilities + Owners Equity (Capital Drawing + Revenues Expenses). After transaction (k), report the totals for each element. Demonstrate that the accounting equation has remained in balance. (e) Performed services and received cash, 3,000. (f) Paid rent for March, 1,000. (g) Paid March phone bill, 68. (h) Jon Wallace withdrew cash for personal use, 800. (i) Performed services for clients on account, 900. (j) Paid wages to part-time employee, 500. (k) Received cash for services performed on account in transaction (i), 500.arrow_forward
- The trial balance of Hadden Company as of December 31, the end of its current fiscal year, is as follows: Here are the data for the adjustments. ab.Merchandise Inventory at December 31, 64,742.80. c.Store supplies inventory (on hand), 420.20. d.Insurance expired, 738. e.Salaries accrued, 684.50. f.Depreciation of store equipment, 3,620. Required Complete the work sheet after entering the account names and balances onto the work sheet.arrow_forwardEffects of transactions on Accounting equation On Time Delivery Service had the following selected transactions during November: 1. Received cash from issuance of common stock, $75,000. 2. Paid rent for November, $5000. 3. Paid advertising expense, $3,000. 4. Received cash for providing delivery services, $34,500. 5. Borrowed $10,000 from Second National Bank to finance its operations. 6. Purchased a delivery van for cash, $25,000. 7. Paid interest on note from Second National Bank, $75. 8. Paid salaries and wages for November, $10,000. 9. Paid dividends, $2,000. Indicate the effect of each transaction on the accounting equation by listing the numbers identifying the transactions, (1) through (9), in a vertical column, and inserting at the right of each number the appropriate letter from he following list: a. Increase in an asset, decrease in another asset. h. Increase in an asset, increase in a liability. c. Increase in an asset, increase in stockholders’ equity. d. Decrease in an asset, decrease in a liability. e. Decrease in an asset, decrease in stockholders equity.arrow_forwardThe Detection of Errors in a Trial Balance and Preparation of a Corrected Trial Balance Malcolm Inc. was incorporated on January 1 with the issuance of capital stock in return for $90,000 of cash contributed by the owners. The only other transaction entered into prior to beginning operations was the issuance of a $75,300 note payable in exchange for building and equipment. The following trial balance was prepared at the end of the first month by the bookkeeper for Malcolm Inc.: Required Identify the two errors in the trial balance. Ignore depreciation expense and interest expense. Prepare a corrected trial balance.arrow_forward
- On March 1 of this year, B. Gervais established Gervais Catering Service. The account headings are presented below. Transactions completed during the month follow. a. Gervais deposited 25,000 in a bank account in the name of the business. b. Bought a truck from Kelly Motors for 26,329, paying 8,000 in cash and placing the balance on account, Ck. No. 500. c. Bought catering equipment on account from Luigis Equipment, 3,795. d. Paid the rent for the month, 1,255, Ck. No. 501 (Rent Expense). e. Bought insurance for the truck for one year, 400, Ck. No. 502. f. Sold catering services for cash for the first half of the month, 3,012 (Catering Income). g. Bought supplies for cash, 185, Ck. No. 503. h. Sold catering services on account, 4,307 (Catering Income). i. Received and paid the heating bill, 248, Ck. No. 504 (Utilities Expense). j. Received a bill from GC Gas and Lube for gas and oil for the truck, 128 (Gas and Oil Expense). k. Sold catering services for cash for the remainder of the month, 2,649 (Catering Income). l. Gervais withdrew cash for personal use, 1,550, Ck. No. 505. m. Paid the salary of the assistant, 1,150, Ck. No. 506 (Salary Expense). Required 1. In the equation, write the owners name above the terms Capital and Drawing. 2. Record the transactions and the balance after each transaction. Identify the account affected when the transaction involves revenues or expenses. 3. Write the account totals from the left side of the equals sign and add them. Write the account totals from the right side of the equals sign and add them. If the two totals are not equal, check the addition and subtraction. If you still cannot find the error, re-analyze each transaction.arrow_forwardDiscuss how each of the following transactions will affect assets, liabilities, and stockholders equity, and prove the companys accounts will still be in balance. A. A company purchased $450 worth of office supplies on credit. B. The company parking lot was plowed after a blizzard. A check for $75 was given to the plow truck operator. C. $250 was paid on account. D. A customer paid $350 on account. E. Provided services for a customer, $500. The customer asked to be billed.arrow_forwardTunstall, Inc., a small service company, keeps its records without the help of an accountant. After much effort, an outside accountant prepared the following unadjusted trial balance as of the end of the annual accounting period on December 31: Tunstall, Inc.Unadjusted Trial Balancefor the Year Ended December 31 Debit Credit Cash 46,800 Accounts receivable 11,700 Supplies 550 Prepaid insurance 630 Service trucks 16,300 Accumulated depreciation 8,400 Other assets 9,860 Accounts payable 2,220 Wages payable Income taxes payable Notes payable, long-term 15,000 Common stock (4,100 shares outstanding) 1,936 Additional paid-in capital 17,424 Retained earnings 4,600 Service revenue 85,680 Wages expense 16,200 Remaining expenses(not detailed; excludes income…arrow_forward
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