Chapter 5, Problem 5SP

Requirement 1:

To determine

To prepare:

We have to prepare journal entries to record from Jan to Mar month transactions and have to post the entries in ledger accounts.

Answer to Problem 5SP

Solution:

Date	Journal titles	Debit($)	Credit($)
Jan,4	Wages payable	500
	Wages expenses	125
	Cash		625
	(To record wages expenses and wages payable)
Jan,5	Cash	25,000
	S. Rey Capital		25,000
	(To record additional capital invested)
Jan,7	Merchandise Inventory	5,800
	Accounts payable		5,800
	(To record purchases from Kanas Corp − 1/10, n/30)
Jan,9	Cash	2,668
	Gomez Co.		2,668
	( To record cash receipt from customer- Gomez co)
Jan,11	Unearned computer service revenue	1,500
	Alex engineering co.	5,500
	Computer service revenue		7,000
	( To record service revenue)
Jan,13	Liu corporation	5,200
	Sales		5,200
	(To record sale of merchandise inventory)
Jan,13	Cost of goods sold	3,560
	Merchandise inventory		3,560
	(To record COGS)
Jan,15	Merchandise inventory	600
	Cash		600
	(To record freight expenses)
Jan,16	Cash	4,000
	Computer service revenue		4,000
	( To record computer service revenue)
Jan,17	Accounts payable	5,800
	Cash		5,742
	Merchandise inventory		58
	( To record payment to accounts payable)
Jan,20	Sales return and allowances	500
	Liu corporation		500
	(To record sales return)
Jan,22	Cash	4,653
	Sales discount	47
	Liu corporation		4,700
	(To record cash receipt from customer)
Jan,24	Accounts payable	496
	Merchandise inventory		496
	(To record purchase return of defective material)
Jan,26	Merchandise inventory	9,000
	Accounts payable		9,000
	(To record credit purchase -1/10, n/30)
Jan,26	KC Inc.	5,800
	Sales		5,800
	(To record credit sales)
Jan,26	COGS	4,640
	Merchandise inventory		4,640
	(To record COGS)
Jan,31	Wages expenses	1,250
	Cash		1,250
	(Wages expenses recorded- 125* 10 days)
Feb,1	Prepaid rent	2,475
	Cash		2,475
	(To record prepaid rent for 3 months)
Feb,3	Accounts payable	8,504
	Cash		8,414
	Merchandise inventory		90
	( To record payment to accounts payable)
Feb,5	Advertising expenses	600
	Cash		600
	(to record advertisement expenses)
Feb,11	Cash	5,500
	Alex engineering co.		5,500
	( To record cash receipt)
Feb,15	S.Rey withdrawal	4,800
	Cash		4,800
	(To record withdrawal)
Feb,23	Delta & co.	3,220
	Sales		3,220
	(To record credit sales)
Feb,23	COGS	2,660
	Merchandise inventory		2,660
	(To record COGS)
Feb,26	Wages expenses	1,000
	Cash		1,000
	(Wages expenses recorded- 125* 8 days)
Feb, 27	Mileage expenses	192
	Cash		192
	(To record mileage exp − 600 miles* 0.32)
Mar,8	Computer supplies	2,730
	Accounts payable		2,730
	( To record supplies purchased)
Mar,9	Cash	3,220
	Delta & Co.		3,220
	( cash received from customer)
Mar,11	Repair expenses- computer	960
	Cash		960
	(To record repair expenses)
Mar, 16	Cash	5,260
	Computer service revenue		5,260
	(To record sales)
Mar,19	Accounts payable	3,830
	Cash		3,830
	( To record payment to accounts payable)
Mar,24	Easy leasing	9,047
	Computer service revenue		9,047
	(To record credit sales)
Mar,25	Wildcat Services	2,800
	Sales		2,800
	(To record credit sales)
Mar,25	COGS	2,002
	Merchandise inventory		2,002
	(To record COGS)
Mar,30	IFM Company	2,220
	Sales		2,220
	(To record credit sales)
Mar,30	COGS	1,048
	Merchandise inventory		1,048
	(To record COGS)
Mar, 31	Mileage expenses	128
	Cash		128
	(To record mileage expenses − 400 miles* 0.32)

Explanation of Solution

Explanation:

We have prepared all journal entries from Jan to March transaction and recorded in general journal.

Requirement-2:

To determine

To determine:

We have to post all the journal entries in ledger accounts passed in requirement-1.

Answer to Problem 5SP

Solution:

Cash
Bal.	48,372	Jan,4	625
Jan,5	25,000	Jan,15	600
Jan,9	2,668	Jan,17	5,742
Jan,16	4,000	Jan,31	1,250
Jan,22	4,653	Feb,1	2,475
Feb,11	5,500	Feb,3	8,414
Mar,9	3,220	Feb,5	600
Mar,16	5,260	Feb,15	4,800
		Feb,26	1,000
		Feb,27	192
		Mar,11	960
		Mar,19	3,830
		Mar,31	128
Balance Mar, 31	68,057

Accounts receivable- Alex engineering co
Bal.	0	Feb,11	5,500
Jan,11	5,500
Balance Mar, 31	0

Accounts receivable- Wildcat services
Bal.	0
Mar,25	2,800
Balance Mar, 31	2,800

Accounts receivable − Easy leasing
Bal.	0
Mar,24	9,047
Balance Mar, 31	9,047

Accounts receivable − IFM Co.
Bal.	3,000
Mar,30	2,220
Balance Mar, 31	5,220

Accounts receivable − Liu Corp.
Bal.	0	Jan,20	500
Jan,13	5,200	Jan,22	4,700
Balance Mar, 31	0

Accounts receivable − Gomez co.
Bal.	2,668	Jan,9	2,668
Balance Mar, 31	0

Accounts receivable − Delta co
Bal.	0	Mar,9	3,220
Feb,23	3,220
Balance Mar, 31	0

Accounts receivable − KC Inc
Bal.	0
Jan,26	5,800
Balance Mar, 31	5,800

Accounts receivable − Dreams Inc.
Bal.	0
Balance Mar, 31	0

Merchandise inventory
Bal.	0	Jan,13	3,560
Jan, 7	5,800	Jan,17	58
Jan,15	600	Jan,24	496
Jan,26	9,000	Jan,26	4,640
		Feb,3	90
		Feb,23	2,660
		Mar,25	2,002
		Mar,30	1,048
Balance Mar, 31	846

Computer supplies
Bal.	580
Mar,8	2,730
Balance Mar, 31	3,310

Prepaid Insurance
Bal.	1,665
Balance Mar, 31	1,665

Prepaid rent
Bal.	825
Feb,1	2,475
Balance Mar, 31	3,300

Office equipment
Bal.	8,000
Balance Mar, 31	8,000

Accumulated depreciation- office equipment
		Bal.	400
		Balance Mar, 31	400

Computer equipment
Bal.	20,000
Balance Mar, 31	20,000

Accumulated depreciation- Computer equipment
		Bal.	1,250
		Balance Mar, 31	1,250

Accounts payable
Jan,17	5,800	Bal.	1,100
Jan,24	496	Jan,7	5,800
Feb,3	8,504	Jan,26	9,000
Mar,19	3,830	Mar,8	2,730
		Balance Mar, 31	0

Wages payable
Jan,4	500	Bal.	500
		Balance Mar, 31	0

Unearned Computer service revenue
Jan,11	1,500	Bal.	1,500
		Balance Mar, 31	0

S.Rey Capital
		Bal.	80,360
		Jan,5	25,000
		Balance Mar, 31	105,360

S.Rey Withdrawal
Bal.	0
Feb,15	4,800
Balance Mar, 31	4,800

Computer service revenue
		Bal.	0
		Jan,11	7,000
		Jan,16	4,000
		Mar,16	5,260
		Mar,24	9,047
		Balance Mar, 31	25,307

Sales
		Bal.	0
		Jan,13	5,200
		Jan,26	5,800
		Feb,23	3,220
		Mar,25	2,800
		Mar,30	2,220
		Balance Mar, 31	19,240

Sales returns and allowance
Bal.	0
Jan,20	500
Balance Mar, 31	500

Sales discounts
Bal.	0
Jan,22	47
Balance Mar, 31	47

Cost of goods sold
Bal.	0
Jan,13	3,560
Jan,26	4,640
Feb,23	2,660
Mar,25	2,002
Mar,30	1,048
Balance Mar, 31	13,910

Depreciation expense- Office equipment
Bal.	0
Balance Mar, 31	0

Depreciation expense- Computer equipment
Bal.	0
Balance Mar, 31	0

Wages expense
Bal.	0
Jan,4	125
Jan,31	1,250
Feb,26	1,000
Balance Mar, 31	2,375

Insurance expense
Bal.	0
Balance Mar, 31	0

Rent expense
Bal.	0
Balance Mar, 31	0

Computer supplies expense
Bal.	0
Balance Mar, 31	0

Advertising expense
Bal.	0
Feb,5	600
Balance Mar, 31	600

Mileage expenses
Bal.	0
Feb,27	192
Mar,31	128
Balance Mar, 31	320

Miscellaneous expenses
Bal.	0
Balance Mar, 31	0

Repair expenses − computer
Bal.	0
Mar,11	960
Balance Mar, 31	960

Explanation of Solution

Explanation:

All ledger accounts has been prepared mentioning opening balance and all entries has been posted to respective ledger accounts.

Requirement-3:

To determine

To prepare:

We have to prepare unadjusted trial balance as on March 31 and have to pass adjustment entries in worksheet and thereafter have to prepare adjusted trial balance

Answer to Problem 5SP

Solution:

Adjusted trial balance- March 31, 2016

	Unadjusted		Adjustments		Adjusted
Particulars	Debit	Credit	Debit	Credit	Debit	Credit
Cash	68,057				68,057
Alex engineering co	0				0
Wildcat services	2,800				2,800
Easy leasing	9,047				9,047
IFM Co.	5,220				5,220
Liu Corp.	0				0
Gomez Co.	0				0
Delta Co.	0				0
KC Inc.	5,800				5,800
Dreams Inc.	0				0
Merchandise inventory	846			(g ) 142	704
Computer supplies	3,310			1,305	2,005
Prepaid insurance	1,665			555	1,110
Prepaid rent	3,300			(d ) 2,475	825
Office equipment	8,000				8,000
Accumulated depreciation- Office equipment		400		(f ) 400		800
Computer Equipment	20,000				20,000
Accumulated depreciation- Computer equipment		1,250		(e ) 1,250		2,500
Accounts payable		0				0
Wages payable		0		(c ) 875		875
Unearned computer service revenue		0				0
S.Rey, Capital		105,360				105,360
S.Rey, Withdrawal	4,800				4,800
Computer service revenue		25,307				25,307
Sales		19,240				19,240
Sales return and allowances	500				500
Sales discounts	47				47
COGS	13,910		(g ) 142		14,052
Depreciation expense- office equipment	0		(f ) 400		400
Depreciation expense- Computer equipment	0		(e ) 1,250		1,250
Wages expenses	2,375		(c ) 875		3,250
Insurance expenses	0		555		555
Rent expenses	0		(d) 2,475		2,475
Computer supplies expenses	0		1,305		1,305
Advertising expenses	600				600
Mileage expenses	320				320
Miscellaneous expenses	0				0
Repair expenses- computer	960				960
Total	151,557	151,557	7,002	7,002	154,082	154,082

Explanation of Solution

Explanation:

The journal entry for adjustment entries are as below:

Date	Journal titles	Debit($)	Credit($)
a.Mar.31	Computer supplies expenses	1,305
	Computer supplies		1,305
	( to record computer supplies expenses)
b.Mar 31	Insurance expenses	555
	Prepaid insurance		555
	( to record insurance expenses) (2,220 * 3months/12)
c. Mar31	Wages expenses	875
	Wages payable		875
	( to accrue wages expenses)(125* 7 days)
d. Mar 31	Rent expenses	2,475
	Prepaid rent		2,475
	(to record rent expenses)
e. Mar.31	Depreciation on computer equipment	1,250
	Accumulated depreciation-computer equipment		1,250
	( to record depreciation on computer equipment)
f. Mar 31	Depreciation on office equipment	400
	Accumulated depreciation-office equipment		400
	( to record depreciation on office equipment)
g. Mar,31	COGS	142
	Merchandise inventory		142
	(To record adjustment of Physical counting)(846-704)

Requirement 4:

To determine

To prepare:

We have to prepare Income statement after all adjustments and adjusted trial balance for the period ended March 31, 2016.

Answer to Problem 5SP

Solution:

Income statement for March 31, 2016

Particulars
Computer service revenue	25,307
Sales	19,240
Less: Sales discount	47
Less: Sales return and allowance	500
Total revenue		44,000
Expenses
COGS	14,052
Depreciation expense- office equipment	400
Depreciation expense- Computer equipment	1,250
Wages expenses	3,250
Insurance expenses	555
Rent expenses	2,475
Computer supplies expenses	1,305
Advertising expenses	600
Mileage expenses	320
Miscellaneous expenses	0
Repair expenses- computer	960
Total expenses		25,167
Net income		18,833

Explanation of Solution

Explanation:

1. Income statement: Total revenue is $44,000 and total expenses are $25,167 and the net income is $18,833 calculated as below:

Sales return and allowance and sales discount have been from sales revenue.

Requirement-5:

To determine

To prepare:

We have to prepare Statement of Owner’s equity after all adjustments and adjusted trial balance for the period ended March 31, 2016.

Answer to Problem 5SP

Solution:

Statement of Owner’s equity for year ended March 31, 2016

S.Rey Capital	105,360
Add: Net income	18,833
Less: Withdrawal (net balance)	4,800
S.Rey capital as on March 31,2016	119,393

Explanation of Solution

Explanation:

Statement of Owners equity shows the total owner’s funds invested in the company. The net fund invested by owner is $119,393.

Requirement-6:

To determine

To prepare:

We have to prepare balance sheet after Statement of Owner’s equity, income statement and after all adjustments and adjusted trial balance for the period ended March 31, 2016.

Balance sheet as on March 31, 2016

Assets		Amount
Cash		68,057
Alex engineering co		0
Wildcat services		2,800
Easy leasing		9,047
IFM Co.		5,220
Liu Corp.		0
Gomez Co.		0
Delta Co.		0
KC Inc.		5,800
Dreams Inc.		0
Merchandise inventory		704
Computer supplies		2,005
Prepaid insurance		1,110
Prepaid rent		825
Office equipment	8,000
Less: Accumulated depreciation- Office equipment	800	7,200
Computer Equipment	20,000
Less: Accumulated depreciation- Computer equipment	2,500	17,500
Total assets		120,268
Liabilities
Accounts payable		0
Wages payable		875
Unearned computer service revenue		0
Total liabilities
Equity
S.Rey, capital		119,393
Total liability and equity		120,268

Explanation of Solution

Explanation:

Balance sheet represents the financial position of a company on a particular date. Here, total debit side is equal to total of credit side.

Calculation of S.Rey equity:

S.Rey Capital	105,360
Add: Net income	18,833
Less: Withdrawal (net balance)	4,800
S.Rey capital as on March 31,2016	119,393