Concept explainers
(a)
Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.
The following are the rules of debit and credit:
- 1. Increase in assets and expenses accounts are debited. Decrease in liabilities and
stockholders’ equity accounts are debited. - 2. Increase in liabilities, revenues, and stockholders’ equity accounts are credited. Decreases in all asset accounts are credited.
To Record: The journal entries in books of Company DD using perpetual inventory system during December.
(a)
Explanation of Solution
Prepare the journal entries for Company DD during December:
Date | Account Title and Description | Post Ref. |
Debit ($) |
Credit ($) |
December06 | Salaries and wages payable | 1,000 | ||
Salaries and wages expense | 600 | |||
Cash | 1,600 | |||
(To record accrued and current salaries and wages expenses) | ||||
December08 | Cash | 6,300 | ||
| 6,300 | |||
(To record payment received from customers) | ||||
December10 | Cash | 6,300 | ||
Sales revenue | 6,300 | |||
(To record cash sales) | ||||
Cost of goods sold | 4,100 | |||
Inventory | 4,100 | |||
(To record cost of goods sold) | ||||
December13 | Inventory | 9,000 | ||
Accounts payable | 9,000 | |||
(To record purchase on account) | ||||
December15 | Supplies | 2,000 | ||
Cash | 2,000 | |||
(To record purchase of supplies) | ||||
December18 | Accounts receivable | 12,000 | ||
Sales revenue | 12,000 | |||
(To record sales on account) | ||||
Cost of goods sold | 8,000 | |||
Inventory | 8,000 | |||
(To record cost of goods sold) | ||||
December20 | Salaries and wages expense | 1,800 | ||
Cash | 1,800 | |||
(To record salaries and wages expense) | ||||
December23 | Accounts payable | 9,000 | ||
Inventory | 180 (1) | |||
Cash | 8,820 (2) | |||
(To record settlement of accounts payable net of discounts) | ||||
December27 | Cash | 11,640 (4) | ||
Sales discounts | 360 (3) | |||
Accounts receivable | 12,000 | |||
(To record settlement of accounts receivable net of discounts) |
Table (1)
Working Notes:
Calculate the amount of purchase discount.
Accounts payable = $9,000
Discount percentage = 2%
Calculate the amount of cash paid.
Accounts payable = $9,000
Purchase discount = $180 (1)
Calculate the amount of sales discount.
Accounts receivable = $12,000
Discount percentage = 3%
Calculate the amount of cash received.
Net accounts receivable = $12,000
Sales discount = $360 (3)
(c)
To Record: The adjusting entries of Company DD on December 31, 2017.
(c)
Explanation of Solution
Journalize the adjusting entries.
1.
The following is the adjusting entry for the accrued salaries during the year:
Date | Accounts title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31 | Salaries and Wages Expense | 800 | ||
Salaries and Wages Payable | 800 | |||
(To adjust for accrued salaries and wages expense) |
Table (2)
Description:
- Salaries and wages expense is an expense and it is increased by $800. Therefore, debit salaries and wages expense account with $800.
- Salaries and wages payable is a liability and it is increased by $800. Therefore, credit salaries and wages payable account with $800.
2.
The following is the adjusting entry for the
Date | Accounts title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31 | Depreciation Expense | 200 | ||
Accumulated Depreciation - Equipment | 200 | |||
(To record the amount of depreciation for the year) |
Table (3)
Description:
- Depreciation expense is an expense and it is increased by $200. Therefore, debit depreciation expense account with $200.
- Accumulated Depreciation-Equipment is a contra asset account and reduces the value of an asset (Equipment). Therefore credit accumulated depreciation-equipment account with $200.
3.
The following is the adjusting entry for the supplies during the year:
Date | Accounts title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31 | Supplies Expense | 1,700 (5) | ||
Supplies Payable | 1,700 | |||
(To adjust for supplies expense) |
Table (4)
Description:
- Supplies expense is an expense and it is increased by $1,700. Therefore, debit supplies expense account with $1,700.
- Supplies payable is a liability and it is increased by $1,700. Therefore, credit supplies payable account with $1,700.
Working Note:
Calculate the amount of supplies expense.
Beginning balance = $1,200
Purchase = $2,000 (Refer Table 1)
Ending balance = $1,500
4.
The following is the adjusting entry for the accrued income tax for the year:
Date | Accounts title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31 | Income Tax Expense | 200 | ||
Income Tax Payable | 200 | |||
(To record the amount of accrued income tax for the year) |
Table (5)
Description:
- Income tax expense is an expense and it is increased by $200. Therefore, debit income tax expense account with $200.
- Income tax payable is a liability and it is increased by $200. Therefore, credit income tax payable account with $200.
(b) and (c)
T Accounts: T- accounts are prepared for all the business transactions. First, journal entries are passed and then transferred to the respective ledger accounts where they are recorded, and summarized in either side of the ‘T’ format. It is divided into two parts by a vertical line, that is, the left side and the right side. The left side of the T-account is known as the debit side, and the right side of the T-account is known as the credit side. The account name appears on the top of the T-account.
To Post: The above journal entries and adjusting entries to T-accounts of Company DD.
(b) and (c)
Explanation of Solution
The following are the T-accounts.
Cash Account:
Cash Account | |||||
Date | Particulars | Debit ($) | Date | Particulars | Credit ($) |
December 01 | Beginning balance | 7,200 | December 06 | Salaries and wages | 1,600 |
December 08 | Accounts receivable | 1,900 | December 15 | Supplies | 2,000 |
December 10 | Sales revenue | 6,300 | December 20 | Salaries and wages | 1,800 |
December 27 | Accounts receivable | 11,640 | December 23 | Accounts payable | 8,820 |
December 31 | Ending Balance | 12,820 | |||
Total | 27,040 | Total | 27,040 |
Table (6)
Accounts Receivable Account:
Accounts Receivable Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
December 01 | Beginning Balance | 4,600 | December 08 | Cash | 1,900 |
December 18 | Sales Revenue | 12,000 | December 27 | Sales discounts | 360 |
December 27 | Cash | 11,640 | |||
December 31 | Ending Balance | 2,700 | |||
Total | 16,600 | Total | 16,600 |
Table (7)
Inventory Account:
Inventory Account | |||||
Date | Particulars | Debit ($) | Date | Particulars | Credit ($) |
December 1 | Beginning balance | 12,000 | December 10 | Cost of goods sold | 4,100 |
December 13 | Accounts payable | 9,000 | December 18 | Cost of goods sold | 8,000 |
December 23 | Accounts payable | 180 | |||
December 31 | Ending Balance | 8,720 | |||
Total | 21,000 | Total | 21,000 |
Table (8)
Supplies Account:
Supplies Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
December 01 | Beginning balance | 1,200 | December 31 | Adjustment | 1,700 |
December 15 | Cash | 2,000 | December 31 | Ending Balance | 1,500 |
Total | 3,200 | Total | 3,200 |
Table (9)
Equipment Account:
Equipment Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
December 01 | Beginning balance | 22,000 | December 31 | Ending Balance | 22,000 |
Total | 22,000 | Total | 22,000 |
Table (10)
Accumulated Depreciation - Equipment Account:
Accumulated Depreciation - Equipment Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
December 31 | Ending Balance | 2,400 | December 01 | Beginning balance | 2,200 |
December 31 | Adjustment | 200 | |||
Total | 2,400 | Total | 2,400 |
Table (11)
Accounts Payable Account:
Accounts Payable Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
December 23 | Cash and inventory | 9,000 | December 01 | Beginning balance | 4,500 |
December 31 | Ending Balance | 4,500 | December 13 | Inventory | 9,000 |
Total | 13,500 | Total | 13,500 |
Table (12)
Salaries and Wages Payable Account:
Salaries and Wages Payable Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
December 06 | Cash | 1,000 | December 01 | Beginning balance | 1,000 |
December 31 | Ending Balance | 800 | December 31 | Adjustment | 800 |
Total | 1,800 | Total | 1,800 |
Table (13)
Common Stock Account:
Common Stock Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars | Credit ($) |
December 31 | Ending Balance | 15,000 | December 01 | Beginning balance | 15,000 |
Total | 15,000 | Total | 15,000 |
Table (14)
Retained Earnings Account | |||||
Date | Particulars | Debit ($) | Date | Particulars | Credit ($) |
December 31 | Ending Balance | 24,300 | December 01 | Beginning balance | 24,300 |
Total | 24,300 | Total | 24,300 |
Table (15)
Sales Revenue Account:
Sales Revenue Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
December 31 | Ending Balance | 18,300 | December 10 | Accounts receivable | 6,300 |
December 18 | Accounts receivable | 12,000 | |||
Total | 18,300 | Total | 18,300 |
Table (16)
Sales Discount Account:
Sales Discount Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
December 27 | Accounts receivable | 360 | December 31 | Ending Balance | 360 |
Total | 360 | Total | 360 |
Table (17)
Cost of Goods Sold Account:
Cost of Goods Sold Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
December 10 | Inventory | 4,100 | December 31 | Ending Balance | 12,100 |
December 18 | Inventory | 8,000 | |||
Total | 12,100 | Total | 12,100 |
Table (18)
Depreciation Expense Account:
Depreciation Expense Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
December 31 | Adjustment | 200 | December 31 | Ending Balance | 200 |
Total | 200 | Total | 200 |
Table (19)
Salaries and Wages Expense Account:
Salaries and Wages Expense Account | |||||
Date | Particulars | Debit ($) | Date | Particulars | Credit ($) |
December 06 | Cash | 600 | December 31 | Ending Balance | 3,200 |
December 20 | Cash | 1,800 | |||
December 31 | Adjustment | 800 | |||
Total | 3,200 | Total | 3,200 |
Table (20)
Supplies Expense Account:
Supplies Expense Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
December 31 | Adjustment | 1,700 | December 31 | Ending Balance | 1,700 |
Total | 1,700 | Total | 1,700 |
Table (21)
Income Tax Expense Account:
Income Tax Expense Account | |||||
Date | Particulars |
Debit ($) | Date | Particulars |
Credit ($) |
December31 | Adjustment | 200 | December31 | Ending Balance | 200 |
Total | 200 | Total | 200 |
Table (22)
Income Tax Payable Account:
Income Tax Payable Account | |||||
Date | Particulars | Debit ($) | Date | Particulars | Credit ($) |
December 31 | Ending Balance | 200 | December 31 | Adjustment | 200 |
Total | 200 | Total | 200 |
Table (23)
(d)
To determine: Prepare trial balance for Company DD as on December 31, 2017.
(d)
Answer to Problem 5.1CACR
The following is the adjusted trial balance of Company DD as on December 31, 2017.
Company DD | ||
Adjusted Trial Balance | ||
At December 31, 2017 | ||
Account Title | Balance ($) | |
Debit | Credit | |
Cash | 12,820 | |
Accounts Receivable | 2,700 | |
Inventory | 8,720 | |
Supplies | 1,500 | |
Equipment | 22,000 | |
Accumulated Depreciation - Equipment | 2,400 | |
Accounts Payable | 4,500 | |
Salaries and Wages Payable | 800 | |
Income Tax Payable | 200 | |
Common Stock | 15,000 | |
Retained Earnings | 24,300 | |
Sales Revenue | 18,300 | |
Sales Discounts | 360 | |
Cost of Goods Sold | 12,100 | |
Depreciation Expense | 200 | |
Salaries and Wages Expense | 3,200 | |
Supplies Expense | 1,700 | |
Income Tax Expense | 200 | |
Total | 65,500 | 65,500 |
Table (24)
Explanation of Solution
The trial balance as shown in Table (24) is prepared after placing the journal entries and adjusting entries to the ledger account. It will show the ending balance of all the accounts. Here, the total debit balance is matched with the credit balance.
Therefore, the total debit balance and credit balance of Company DD is $65,500.
(e)
To Prepare: The income statement, retained earnings statement, and classified
(e)
Answer to Problem 5.1CACR
Prepare the income statement of Company DD.
Company DD | ||
Income Statement | ||
For the Year Ended December 31, 2017 | ||
Particulars | Amount($) | Amount($) |
Sales revenue | 18,300 | |
Less: Sales Discounts | (360) | |
Net sales | 17,940 | |
Less: Cost of goods sold | (12,100) | |
Gross profit | 5,840 | |
Less: Operating expenses: | ||
Salaries and wages expenses | 3,200 | |
Depreciation expenses | 200 | |
Supplies expense | 1,700 | |
Total operating expenses | (5,100) | |
Income before income taxes | 740 | |
Less: Income tax expense | (200) | |
Net income | 540 |
Table (25)
Prepare a retained earnings statement of Company DD for the year ended December 31, 2017.
Company DD | |
Retained Earnings Statement | |
For the Year Ended December 31, 2017 | |
Details | Amount ($) |
Beginning Balance of Retained earnings | 24,300 |
Add: Net Income for the year | 540 |
Total Retained Earnings | 24,840 |
Less: Dividends | 0 |
Ending balance of Retained Earnings | 24,840 |
Table (26)
Prepare the classified balance sheet of Company DD for the year ended December 31, 2017.
Company DD | ||
Balance Sheet | ||
As of December 31, 2017 | ||
Assets | Amount ($) |
Amount ($) |
Current assets: | ||
Cash | 12,820 | |
Accounts receivable | 2,700 | |
Inventory | 8,720 | |
Supplies | 1,500 | |
Total current assets | 25,740 | |
Plant assets: | ||
Equipment | 22,000 | |
Less: Accumulated depreciation | -2,400 | 19,600 |
Total assets | 45,340 | |
Liabilities and Stockholders’ equity | ||
Current liabilities: | ||
Accounts payable | 4,500 | |
Salaries and wages payable | 800 | |
Income tax payable | 200 | |
Total current liabilities | 5,500 | |
Long-term liabilities | - | |
Total liabilities | 5,500 | |
Stockholders’ Equity: | ||
Common stock | 15,000 | |
Retained earnings | 24,840 | |
Total stockholders’ equity | 39,840 | |
Total liabilities and stockholders’ equity | 45,340 |
Table (27)
Explanation of Solution
Income statement: This is a financial statement that shows the net income earned or net loss suffered by a company through reporting all the revenues earned and expenses incurred by the company over a specific period of time. An income statement is also known as an operations statement, an earnings statement, a revenue statement, or a profit and loss statement. The net income is the excess of revenue over expenses.
Retained Earnings Statement is one of the financial statement, which shows the amount of the net income retained by a company at a particular point of time for reinvestment and used to pay its debts and obligations. It shows the amount of earnings that is not paid as dividends to the shareholders.
Classified Balance Sheet: This is a financial statement where the assets, liabilities, and stockholders’ equity are organized and reported as different groups, and sub-groups on the basis of the nature of the classification made of a company at a particular point of time. It reveals the financial health of a company. Thus, this statement is also called as the Statement of Financial Position. It helps the users to know about the creditworthiness of a company as to whether the company has enough assets to pay off its liabilities.
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Chapter 5 Solutions
Financial Acct Print Ll W/ Wp
- The following transactions were completed by Hammond Auto Supply during January, which is the first month of this fiscal year. Terms of sale are 2/10, n/30. The balances of the accounts as of January 1 have been recorded in the general ledger in your Working Papers or in CengageNow. Hammond Auto Supply does not track cash sales by customer. Jan. 2Issued Ck. No. 6981 to JSS Management Company for monthly rent, 775. 2J. Hammond, the owner, invested an additional 3,500 in the business. 4Bought merchandise on account from Valencia and Company, invoice no. A691, 2,930; terms 2/10, n/30; dated January 2. 4Received check from Vega Appliance for 980 in payment of 1,000 invoice less discount. 4Sold merchandise on account to L. Paul, invoice no. 6483, 850. 6Received check from Petty, Inc., 637, in payment of 650 invoice less discount. 7Issued Ck. No. 6982, 588, to Fischer and Son, in payment of invoice no. C1272 for 600 less discount. 7Bought supplies on account from Doyle Office Supply, invoice no. 1906B, 108; terms net 30 days. 7Sold merchandise on account to Ellison and Clay, invoice no. 6484, 787. 9Issued credit memo no. 43 to L. Paul, 54, for merchandise returned. 11Cash sales for January 1 through January 10, 4,863.20. 11Issued Ck. No. 6983, 2,871.40, to Valencia and Company, in payment of 2,930 invoice less discount. 14Sold merchandise on account to Vega Appliance, invoice no. 6485, 2,050. Jan. 18Bought merchandise on account from Costa Products, invoice no. 7281D, 4,854; terms 2/10, n/60; dated January 16; FOB shipping point, freight prepaid and added to the invoice, 147 (total 5,001). 21Issued Ck. No. 6984, 194, to M. Miller for miscellaneous expenses not recorded previously. 21Cash sales for January 11 through January 20, 4,591. 23Issued Ck. No. 6985 to Forbes Freight, 96, for freight charges on merchandise purchased on January 4. 23Received credit memo no. 163, 376, from Costa Products for merchandise returned. 29Sold merchandise on account to Bruce Supply, invoice no. 6486, 1,835. 31Cash sales for January 21 through January 31, 4,428. 31Issued Ck. No. 6986, 53, to M. Miller for miscellaneous expenses not recorded previously. 31Recorded payroll entry from the payroll register: total salaries, 6,200; employees federal income tax withheld, 872; FICA Social Security tax withheld, 384.40, FICA Medicare tax withheld, 89.90. 31Recorded the payroll taxes: Social Security tax, 384.40, FICA Medicare tax, 89.90; state unemployment tax, 334.80; federal unemployment tax, 37.20. 31Issued Ck. No. 6987, 4,853.70, for salaries for the month. 31J. Hammond, the owner, withdrew 1,000 for personal use, Ck. No. 6988. Required 1. Record the transactions in the general journal for January. If you are using Working Papers, start with page 1 in the journal. Assume the periodic inventory method is used. The chart of accounts is as follows: 2. Post daily all entries involving customer accounts to the accounts receivable ledger. 3. Post daily all entries involving creditor accounts to the accounts payable ledger. 4. Post daily the general journal entries to the general ledger. Write the owners name in the Capital and Drawing accounts. 5. Prepare a trial balance. 6. Prepare a schedule of accounts receivable and a schedule of accounts payable. Do the totals equal the balances of the related controlling accounts?arrow_forwardAnalyzing the Accounts The controller for Summit Sales Inc. provides the following information on transactions that occurred during the year: a. Purchased supplies on credit, $18,600 b. Paid $14,800 cash toward the purchase in Transaction a c. Provided services to customers on credit1 $46,925 d. Collected $39,650 cash from accounts receivable e. Recorded depreciation expense, $8,175 f. Employee salaries accrued, $15,650 g. Paid $15,650 cash to employees for salaries earned h. Accrued interest expense on long-term debt, $1,950 i. Paid a total of $25,000 on long-term debt, which includes $1.950 interest from Transaction h j. Paid $2,220 cash for l years insurance coverage in advance k. Recognized insurance expense, $1,340, that was paid in a previous period l. Sold equipment with a book value of $7,500 for $7,500 cash m. Declared cash dividend, $12,000 n. Paid cash dividend declared in Transaction m o. Purchased new equipment for $28,300 cash. p. Issued common stock for $60,000 cash q. Used $10,700 of supplies to produce revenues Summit Sales uses the indirect method to prepare its statement of cash flows. Required: 1. Construct a table similar to the one shown at the top of the next page. Analyze each transaction and indicate its effect on the fundamental accounting equation. If the transaction increases a financial statement element, write the amount of the increase preceded by a plus sign (+) in the appropriate column. If the transaction decreases a financial statement element, write the amount of the decrease preceded by a minus sign (-) in the appropriate column. 2. Indicate whether each transaction results in a cash inflow or a cash outflow in the Effect on Cash Flows column. If the transaction has no effect on cash flow, then indicate this by placing none in the Effect on Cash Flows column. 3. For each transaction that affected cash flows, indicate whether the cash flow would be classified as a cash flow from operating activities, cash flow from investing activities, or cash flow from financing activities. If there is no effect on cash flows, indicate this as a non-cash activity.arrow_forwardPost the following July transactions to T-accounts for Accounts Receivable, Sales Revenue, and Cash, indicating the ending balance. Assume no beginning balances in these accounts. A. on first day of the month, sold products to customers for cash, $13,660 B. on fifth day of month, sold products to customers on account, $22,100 C. on tenth day of month, collected cash from customer accounts, $18,500arrow_forward
- Adjusting Entries Kretz Corporation prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for March 2016: Kretz Corporation takes out a 90-day, 8%, $15,000 note on March 1, 2016, with interest and principal to be paid at maturity. The asset account Office Supplies on Hand has a balance of $1,280 on March 1, 2016. During March, Kretz adds $750 to the account for purchases during the period. A count of the supplies on hand at the end of March indicates a balance of $1,370. The company purchased office equipment last year for $62,600. The equipment has an estimated useful life of six years and an estimated salvage value of $5,000. The companys plant operates seven days per week with a daily payroll of $950. Wage earners are paid every Sunday. The last day of the month is Thursday, March 31. The company rented an idle warehouse to a neighboring business on February 1, 2016, at a rate of $2,500 per month. On this date, Kretz Corporation credited Rent Collected in Advance for six months rent received in advance. On March 1, 2016, Kretz Corporation credited a liability account, Customer Deposits, for $4,800. This sum represents an amount that a customer paid in advance and that Kretz will earn evenly over a four-month period. Based on its income for the month, Kretz Corporation estimates that federal income taxes for March amount to $3,900. Required For each of the preceding situations, prepare in general journal form the appropriate adjusting entry to be recorded on March 31, 2016.arrow_forwardOn January 1, Incredible Infants sold goods to Babies Inc. for $1,540, terms 30 days, and received payment on January 18. Which journal would the company use to record this transaction on the 18th? A. sales journal B. purchases journal C. cash receipts journal D. cash disbursements journal E. general journalarrow_forwardThe transactions completed by AM Express Company during March 2016, the first month of the fiscal year, were as follows: Instructions 1. Enter the following account balances in the general ledger as of March 1: 2. Journalize the transactions for March 2016, using the following journals similar to those illustrated in this chapter: single-column revenue journal (p. 35), cash receipts journal (p. 31), purchases journal (p. 37, with columns for Accounts Payable, Maintenance Supplies, Office Supplies, and Other Accounts), cash payments journal (p. 34), and two-column general journal (p. 1). Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made. 3. Post the appropriate individual entries to the general ledger. 4. Total each of the columns of the special journals, and post the appropriate totals to the general ledger; insert the account balances. 5. Prepare a trial balance.arrow_forward
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