Chapter 4, Problem 4PB

The trial balance for Harris Pitch and Putt on June 30 is as follows:

Data for month-end adjustments are as follows:

1. a. Expired or used-up insurance, $380.
2. b. Depreciation expense on equipment, $1,950.
3. c. Depreciation expense on repair equipment, $1,650.
4. d. Wages accrued or earned since the last payday, $585 (owed and to be paid on the next payday).
5. e. Supplies remaining at end of month, $120.

Required

1. 1. Complete a work sheet for the month. (Skip this step if using CLGL.)
2. 2. Journalize the adjusting entries.
3. 3. If using CLGL, prepare an adjusted trial balance.
4. 4. Prepare an income statement, a statement of owner’s equity, and a balance sheet. Assume that no additional investments were made during June.

*If you are using CLGL, use the year 2020 when recording transactions.

To determine

Indicate the given adjustments and complete the worksheet for Company HPP for the month ended June 30, 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 Company HPP for the month ended June 30, 20--.

 Table (1)

To determine

Prepare adjusting journal entries for Company HPP.

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 Company HPP.

Adjusting entry for the prepaid insurance:

Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
June	30	Insurance Expense			380
			Prepaid Insurance			380
		(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--
June	30	Depreciation Expense, Equipment			1,950
			Accumulated Depreciation, Equipment			1,950
		(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--
June	30	Depreciation Expense, Repair Equipment			1,650
			Accumulated Depreciation, Repair Equipment			1,650
		(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--
June	30	Wages Expense			585
			Wages Payable			585
		(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--
June	30	Supplies Expense			126
			Supplies			126
		(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.

To determine

Prepare an adjusted trial balance for Company HPP at June 30, 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 Company HPP at June 30, 20--.

Company HPP
Adjusted Trial Balance
June 30, 20--
Particulars	AccountNo.	Debit $	Credit $
Cash		$5,532.00
Supplies		120.00
Prepaid Insurance		904.00
Equipment		21,687.00
Accumulated Depreciation, Equipment			$3,428.00
Repair Equipment		5,289.00
Accumulated Depreciation, Repair Equipment			2,935.00
Accounts payable			860.00
Wages payable			585.00
WH, Capital			23,110.00
WH, Drawing		2,565.00
Game Fees			11,487.00
Concession Fees			3,763.00
Depreciation Expense, Equipment		1,950.00
Depreciation Expense, Repair Equipment		1,650.00
Wages Expense		3,748.00
Rent Expense		1,350.00
Supplies Expense		126.00
Insurance Expense		380.00
Utilities Expense		457.00
Repair Expense		171.00
Miscellaneous Expense		239.00
		$46,168.00	$46,168.00

Table (7)

Conclusion

The debit column and credit column of the adjusted trial balance are agreed, both having the balance of $46,168.

To determine

Prepare income statement, statement of owners’ equity, and balance sheet for Company HPP.

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 Company HPP for the month ended June 30, 20--.

Company HPP
Income Statement
For the Month Ended June 30, 20--
Revenue:
Golf Fees	$11,487
Concession Fees	3,763
Total Revenue		$15,250
Expenses:
Wages Expense	$3,748
Rent Expense	1,350
Depreciation Expense, Equipment	1,950
Depreciation Expense, Repair Equipment	1,650
Supplies Expense	126
Insurance Expense	380
Utilities Expense	457
Repair Expense	171
Miscellaneous Expense	239
Total expenses		10,071
Net income		$5,179

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 Company HPP for the month ended June 30, 20--.

Company HPP
Statement of Owners’ Equity
For the Month Ended June 30, 20--
WH, Capital, June 1, 20--		$23,110
Investment during June	$0
Net income for June	5,179
	5,179
Less: Withdrawals for June	2,565
Increase in capital		2,614
WH, Capital, June 30, 20--		$25,724

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 Company HPP as at June 30, 20--.

Company HPP
Balance Sheet
June 30, 20--
Assets
Cash		$5,532
Supplies		120
Prepaid Insurance		904
Equipment	$21,687
Less: Accumulated Depreciation	3,428	14,505
Repair Equipment	$5,289
Less: Accumulated Depreciation	2,935	2,354
Total Assets		$27,169
Liabilities
Accounts Payable	$860
Wages Payable	585
Total Liabilities		$1,445
Owners’ Equity
WH, Capital		25,724
Total Liabilities and Owners’ Equity		$27,169

Table (10)