Concept explainers
The
Data for month-end adjustments are as follows:
- Expired or used-up insurance, $480.
Depreciation expense on equipment, $850.- Depreciation expense on repair equipment, $120.
- Wages accrued or earned since the last payday, $525 (owed and to be paid on the next payday).
- Supplies used, $70.
Required
- Complete a work sheet for the month. (Skip this step if using CLGL.)
- Journalize the
adjusting entries . - If using CLGL prepare an adjusted trial balance.
- Prepare an income statement, a statement of owner’s equity, and a balance sheet. Assume that no additional investments were made during July.
*If you are using CLGL, use the year 2020 when recording transactions and preparing reports.
1.
Indicate the given adjustments and complete the worksheet for G Time for the month ended July 31, 20--.
Explanation of Solution
Worksheet: Worksheet is an accounting tool that help accountants to record adjustments and up-date balances required to prepare financial statements. Worksheet is a central place where trial balance, adjustments, adjusted trial balance, income statement, and balance sheet are presented.
Indicate the given adjustments and complete the worksheet for G Time for the month ended July 31, 20--.
Table (1)
2.
Prepare adjusting journal entries for G Time.
Explanation of Solution
Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and owners’ or stockholders’ equity) to maintain the records according to accrual basis principle and matching concept.
Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
- Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Prepare adjusting journal entries for G Time.
Adjusting entry for the prepaid insurance:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
20-- | ||||||
July | 31 | Insurance Expense | 480 | |||
Prepaid Insurance | 480 | |||||
(Record part of prepaid insurance expired) |
Table (2)
Description:
- Insurance Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Prepaid Insurance is an asset account. Since amount of insurance is expired, asset account decreased, and a decrease in asset is credited.
Adjusting entry for the depreciation expense, equipment:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
20-- | ||||||
July | 31 | Depreciation Expense, Equipment | 850 | |||
Accumulated Depreciation, Equipment | 850 | |||||
(Record depreciation expense) |
Table (3)
Description:
- Depreciation Expense, Equipment is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Accumulated Depreciation, Equipment is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.
Adjusting entry for the depreciation expense, repair equipment:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
20-- | ||||||
July | 31 | Depreciation Expense, Repair Equipment | 120 | |||
Accumulated Depreciation, Repair Equipment | 120 | |||||
(Record depreciation expense) |
Table (4)
Description:
- Depreciation Expense, Repair Equipment is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Accumulated Depreciation, Repair Equipment is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.
Adjusting entry for the wages expense:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
20-- | ||||||
July | 31 | Wages Expense | 525 | |||
Wages Payable | 525 | |||||
(Record accrued wages expenses) |
Table (5)
Description:
- Wages Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Wages Payable is a liability account. Since amount of payables has increased, liability decreased, and an increase in liability is credited.
Adjusting entry for the supplies expense:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
20-- | ||||||
July | 31 | Supplies Expense | 70 | |||
Supplies | 70 | |||||
(Record part of supplies consumed) |
Table (6)
Description:
- Supplies Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Supplies is an asset account. Since amount of supplies is used, asset account decreased, and a decrease in asset is credited.
3.
Prepare an adjusted trial balance for G Time at July 31, 20--.
Explanation of Solution
Adjusted trial balance: Adjusted trial balance is a summary of all the ledger accounts, and it contains the balances of all the accounts after the adjustment entries are journalized, and posted.
Prepare an adjusted trial balance for G Time at July 31, 20--.
G Time | |||
Adjusted Trial Balance | |||
July 31, 20-- | |||
Particulars | AccountNo. | Debit $ | Credit $ |
Cash | $14,721.00 | ||
Supplies | 187.00 | ||
Prepaid Insurance | 815.00 | ||
Equipment | 17,642.00 | ||
Accumulated Depreciation, Equipment | $3,137.00 | ||
Repair Equipment | 1,265.00 | ||
Accumulated Depreciation, Repair Equipment | 1,000.00 | ||
Accounts payable | 942.00 | ||
Wages payable | 525.00 | ||
BR, Capital | 23,871.00 | ||
BR, Drawing | 2,000.00 | ||
Game Fees | 7,954.00 | ||
Concession Fees | 3,752.00 | ||
Depreciation Expense, Equipment | 850.00 | ||
Depreciation Expense, Repair Equipment | 120.00 | ||
Wages Expense | 1,593.00 | ||
Rent Expense | 980.00 | ||
Supplies Expense | 70.00 | ||
Insurance Expense | 480.00 | ||
Utilities Expense | 246.00 | ||
Repair Expense | 180.00 | ||
Miscellaneous Expense | 32.00 | ||
$41,181.00 | $41,181.00 |
Table (7)
The debit column and credit column of the adjusted trial balance are agreed, both having the balance of $41,181.
4.
Prepare income statement, statement of owners’ equity, and balance sheet for G Time.
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 of G Time for the month ended July 31, 20--.
G Time | ||
Income Statement | ||
For the Month Ended July 31, 20-- | ||
Revenues: | ||
Game Fees | $7,954 | |
Concession Fees | 3,752 | |
Total Revenue | $11,706 | |
Expenses: | ||
Wages Expense | $1,593 | |
Rent Expense | 980 | |
Depreciation Expense, Equipment | 850 | |
Depreciation Expense, Repair Equipment | 120 | |
Supplies Expense | 70 | |
Insurance Expense | 480 | |
Utilities Expense | 246 | |
Repair Expense | 180 | |
Miscellaneous Expense | 32 | |
Total expenses | 4,551 | |
Net income | $7,155 |
Table (8)
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 drawings is deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.
Prepare a statement of owners’ equity for G Time for the month ended July 31, 20--.
G Time | ||
Statement of Owners’ Equity | ||
For the Month Ended July 31, 20-- | ||
BR, Capital, July 1, 20-- | $23,871 | |
Investments during July | $0 | |
Net income for July | 7,155 | |
7,155 | ||
Less: Withdrawals for July | 2,000 | |
Increase in capital | 5,155 | |
BR, Capital, July 31, 20-- | $29,026 |
Table (9)
Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and owners (owners’ equity) over those resources. The resources of the company are assets which include money contributed by owners and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and owners’ equity.
Prepare the balance sheet for G Time as at July 31, 20--.
G Time | ||
Balance Sheet | ||
July 31, 20-- | ||
Assets | ||
Cash | $14,721 | |
Supplies | 187 | |
Prepaid Insurance | 815 | |
Equipment | $17,642 | |
Less: Accumulated Depreciation | 3,317 | 14,505 |
Repair Equipment | $1,265 | |
Less: Accumulated Depreciation | 1,000 | 265 |
Total Assets | $30,493 | |
Liabilities | ||
Accounts Payable | $942 | |
Wages Payable | 525 | |
Total Liabilities | $1,467 | |
Owners’ Equity | ||
BR, Capital | 29,026 | |
Total Liabilities and Owners’ Equity | $30,493 |
Table (10)
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