Concept explainers
a.
To calculate: Reconciled ending balance of cash.
a.
Explanation of Solution
Given,
Cash balance as per bank is $15,100.
Deposit in transit is $2,450.
Outstanding checks are $1,800.
Formula to calculate ending balance of cash,
Substitute $15,100 for cash balance as per bank, $2,450 for deposit in transit and $1,800 for outstanding checks.
Thus, ending balance of cash is $15,750.
b.
To calculate: Correct ending balance of the allowance for doubtful accounts.
b.
Explanation of Solution
Given,
Required balance is $700.
Balance in Trial is $828.
Formula to calculate allowance for doubtful accounts,
Substitute $679 for bad debt, $700 for required balance and $ 828 for balance in trial.
Thus, adjustment to correct ending balance of allowance for doubtful accounts is $551.
c.
To calculate:
c.
Explanation of Solution
Given,
Original cost of truck is $32,000.
Salvage value of truck is $8,000.
Useful life of truck is 4 years.
Formula to calculate depreciation for truck,
Substitute $32,000 for original cost, $8,000 for salvage value and 4 for number of years.
Thus, depreciation for truck is $6000.
d.
To calculate: Depreciation expenses for the two items of equipment used during year 2017.
d.
Explanation of Solution
Calculated values,
Depreciation on Sprayer is $3,000 (working notes).
Depreciation on Injector is $3,100 (working notes).
Formula to calculate the depreciation on two items of equipment,
Substitute $3,000 for depreciation on Sprayer and $3,100 for depreciation on Injector.
Thus, depreciation for equipments is $6100.
Working notes:
Given,
Original cost of Sprayer is $27,000.
Expected salvage value of Sprayer is $3,000.
Useful life of Sprayer is 8 years.
Calculation of depreciation on Sprayer,
Depreciation on Sprayer is $3,000.
Given,
Original cost of Injector is $18,000.
Expected salvage value of Injector is $2,500.
Useful life of Injector is 5years.
Calculation of depreciation on Injector,
Depreciation on Injector is $3,100.
e.
To calculate: The adjusted 2017 ending balance of examination service revenue and unearned service revenue account.
e.
Explanation of Solution
Calculate unearned service revenue.
Given,
Total service revenue received is $3,840 in August 2017.
Calculated value,
Revenue earned for 2016 is $1,600 (working note).
Formula to calculate unearned service revenue,
Substitute $3,840 for total revenue received and $1,600 for revenue earned for 2016.
Calculate balance of examination service revenue.
Given,
Total service revenue for the year 2017 is $60,000.
Unearned service revenue for 2016 is $2,240
Formula to calculate examination service revenue,
Substitute $60,000 for total service revenue and $2,240 for unearned service revenue for 2016.
Thus, the unearned service revenue is $2,240 and balance of examination service revenue is $57,760.
Working notes:
Calculate service revenue for the period August to December.
Given,
Total revenue received is $3,840 on August 2017.
Company began providing the service from August.
Therefore the time period of providing the service is 5 months. (August to December)
Calculation of service revenue for the period August to December,
f.
To calculate: The adjusted 2017 ending balance of the warranty expenses and the estimated warranty liability account.
f.
Explanation of Solution
Calculate balance of warranty expense.
Given,
The examination service revenue for 2017 is $57.760.
Cost of providing warranty service is 2.5%
Formula to calculate warranty expenses,
Substitute $57,576 for examination service revenue for 2017 and 2.5% for cost of providing warranty service.
Calculate estimated warranty liability.
Given,
Estimated warranty liability in
Adjusted warranty liability is $1,444.
Formula to calculate estimated warranty liability,
Substitute $1,400 for warranty liability in trial and $ 1,444 for adjusted warranty liability.
Thus, ending balance of warranty expenses is $1,444 and estimated warranty liability is $2,844 .
g.
To calculate: Ending balance of Interest expense and interest payable account.
g.
Explanation of Solution
Note was signed on 31st December 2017. Interest on note is payable annually on 31st December 2017. So, no entry of interest expense this year.
h.
To prepare: Adjusted trial balance
h.
Explanation of Solution
Adjusted Trial balance
Particulars | Amount ($) | Particulars | Amount ($) |
Cash | 15,750 | Allowance for doubtful accounts | 700 |
Accounts receivable | 3,193 | Accumulated depreciation truck | 6,000 |
Inventory | 11,700 | Accumulated depreciation on equipments | 18,300 |
Truck | 32,000 | Accounts Payable | 5,000 |
Omitted checks | 637 | Warranty liability | 2,844 |
Equipment | 45,000 | Outstanding checks | 1,800 |
Deposit in Transit | 2,450 | Unearned service revenue | 2,240 |
Dividend | 10,000 | Interest payable | 0 |
Cost of goods sold | 46,300 | Long term notes payable | 15,000 |
Depreciation on Truck | 6,000 | Common stock | 10,000 |
Depreciation on equipment | 6,100 | 49,700 | |
Wages | 35,000 | Service revenue | 57,760 |
Interest expense | 0 | Interest revenue | 924 |
Rent | 9,000 | Sales | 71,026 |
Bad Debt | 679 | ||
Miscellaneous | 1,226 | ||
Repairs | 8,000 | ||
Utilities | 6,800 | ||
Bank charges | 15 | ||
Warranty | 1,444 | ||
Total | 241,294 | Total | 241,294 |
Table (1)
i.
To prepare: Journal
i.
Explanation of Solution
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Dec 31,2017 | Cash | 1,852 | ||
Interest earned | 52 | |||
Outstanding checks | 1,800 | |||
(To record changes in cash) |
Table (2)
- Cash is an asset account. Since company has earned interest and there is one outstanding checks. So balance of cash will increase. Hence it is debited.
- Interest earned is a revenue account. Since its balance is increasing, so it is credited.
- Outstanding checks are liability of company. Since its balance is increasing it is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Dec 31,2017 | Deposit in transit | 2,450 | ||
Bank charges | 15 | |||
Cash | 2,465 | |||
(To record changes in cash) |
Table (3)
- Deposit in transit is an asset account. Since its balance is increasing, it is debited.
- Bank charges are expense account. Since its balance is increasing, it is debited.
- Cash is an asset account. Since companies cash has reduced because of bank charges and deposit in transit, cash account is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Dec 31,2017 | Allowance for doubtful account | 128 | ||
Bad debt | 679 | |||
Accounts Receivable | 807 | |||
(To record bad debt and allowance) |
Table (4)
- Allowance for doubtful account is a provision account. Since its balance is increasing, it is debited.
- Bad debt is a loss account. Since its balance is increasing, it is debited.
- Accounts receivable is an asset account. Since companies accounts receivable are reducing because of bad debt, accounts receivable is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Dec 31,2017 | Depreciation on truck | 6,000 | ||
Accumulated depreciation on truck | 6,000 | |||
(To record depreciation on truck) |
Table (5)
- Depreciation on truck is an expense account. Since its balance is increasing, it is debited.
- Accumulated depreciation on truck is a liability account. Since, its balance is increasing, it is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Dec 31,2017 | Depreciation on equipments | 6,100 | ||
Accumulated depreciation on equipments | 6,100 | |||
(To record depreciation on equipments) |
Table (6)
- Depreciation on equipments is an expense account. Since its balance is increasing, it is debited.
- Accumulated depreciation on equipments is a liability account. Since, its balance is increasing, it is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Dec 31,2017 | Service revenue | 2,240 | ||
Unearned service revenue | 2,240 | |||
(To record unearned service revenue) |
Table (7)
- Service revenue is a revenue account. Since its balance is decreasing, it is debited.
- Unearned service revenue is a liability account. Since, its balance is increasing, it is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
Dec 31,2017 | Warranty expense | 1,444 | ||
Estimated warranty liability | 1,444 | |||
(To record estimated warranty liability) |
Table (8)
- Warranty expense is an expense account. Since its balance is increasing, it is debited.
- Estimated warranty liability is a liability account. Since, its balance is increasing, it is credited.
j.
To prepare: Income statement, retained earnings statement and balance sheet.
j.
Explanation of Solution
Income statement
B Company | ||
Income Statement | ||
For the year ended December 31,2017 | ||
Particulars | Amount ($) | |
Revenues and Gains | ||
Sales revenue | 71,026 | |
Interest Revenue | 924 | |
Service revenue | 57,760 | |
Total revenue | 129,710 | |
Expenses and Losses | ||
Cost of goods sold | 46,300 | |
Rent | 9,000 | |
Depreciation on Truck | 6,000 | |
Depreciation on equipments | 6,100 | |
Wages | 35,000 | |
Bad debt | 679 | |
Bank charges | 15 | |
Utilities | 6,800 | |
Repair | 8,000 | |
Miscellaneous | 1,226 | |
Warranty | 1,444 | |
Total expenses and losses | 120,564 | |
Net Income | 9,146 |
Table (9)
Retained earnings statement
B CompanyStatement of Retained earningsFor the year ended December 31,2017 | ||
Particulars | Amount ($) | |
Retained earnings at the beginning of period | 49,700 | |
Add: Net income | 9,146 | |
Less: Dividend paid | 10,000, | |
Retained earnings at the end | 48,846 |
Table (10)
Balance sheet
B Company | ||
Balance Sheet | ||
December 31,2017 | ||
Assets | Amount($) | Amount($) |
Current Assets: | ||
Cash | 15,750 | |
Accounts Receivable | 3,193 | |
Inventory | 11,700 | |
Deposit in transit | 2,450 | |
Omitted checks | 637 | |
Total Current Assets | 43,730 | |
Property, plant and equipment | ||
Equipment: | 45,000 | |
Less: Accumulated depreciation | 18,300 | 26,700 |
Truck | 32,000 | |
Less: Accumulated depreciation | 6,000 | 26,000 |
Total Assets | 86,430 | |
Liabilities and Owners' Equity | ||
Current liabilities: | ||
Warranty liability | 2,844 | |
Accounts payable | 5,000 | |
Outstanding checks | 1,800 | |
Unearned service revenue | 2,240 | |
Allowance for doubtful debts | 700 | |
Total current liabilities | 12,584 | |
Long-term liabilities: | ||
Long term notes | 15,000 | |
Total Liabilities | 27,584 | |
Owners' equity: | ||
Common stock | 10,000 | |
Retained earnings | 48,846 | |
Total Liabilities and Owners' Equity | 86,430 |
Table (11)
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Chapter 9 Solutions
FINANCIAL ACCOUNTING FUNDAMENTALS W/ CO
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In accordance with the contract, Peyton received 7,200 from KXMD as an advance payment for the first two months. 3.Paid 250 to creditors on account. 4.Paid an attorney 900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.) 5.Purchased office equipment on account from Office Mart, 7,500. 8.Paid for a newspaper advertisement, 200. 11.Received 1,000 for serving as a disc jockey for a party. 13.Paid 700 to a local audio electronics store for rental of digital recording equipment. 14.Paid wages of 1,200 to receptionist and part-time assistant. Enter the following transactions on Page 2 of the two-column journal: 16.Received 2,000 for serving as a disc jockey for a wedding reception. 18.Purchased supplies on account, 850. July 21. Paid 620 to Upload Music for use of its current music demos in making various music sets. 22.Paid 800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July. 23.Served as disc jockey for a party for 2,500. Received 750, with the remainder due August 4, 2019. 27.Paid electric bill, 915. 28.Paid wages of 1,200 to receptionist and part-time assistant. 29.Paid miscellaneous expenses, 540. 30.Served as a disc jockey for a charity ball for 1,500. Received 500, with the remainder due on August 9, 2019. 31.Received 3,000 for serving as a disc jockey for a party. 31.Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists music during July. 31.Withdrew 1,250 cash from PS Music for personal use. PS Musics chart of accounts and the balance of accounts as of July 1, 2019 (all normal balances), are as follows: Instructions 1. Enter the July 1, 2019, account balances in the appropriate balance column of a four-column account. Write Balance in the Item column and place a check mark () in the Posting Reference column. (Hint: Verify the equality of the debit and credit balances in the ledger before proceeding with the next instruction.) 2. Analyze and journalize each transaction in a two-column journal beginning on Page 1, omitting journal entry explanations. 3. Post the journal to the ledger, extending the account balance to the appropriate balance column after each posting. 4. Prepare an unadjusted trial balance as of July 31, 2019.arrow_forwardThe transactions completed by PS Music during June 2019 were described at the end of Chapter 1. The following transactions were completed during July, the second month of the business's operations: July 1. Peyton Smith made an additional investment in PS Music by depositing 5,000 in PS Music's checking account. 1. Instead of continuing to share office space with a local real estate agency, Peyton decided to rent office space near a local music: store. Paid rent for July, 1,750. 1. Paid a premium of 2,700 for a comprehensive insurance policy covering liability, theft, and fire. The policy covers a one-year period. 2. Received 1,000 cash from customers on account. 3. On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for SO hours per month for a monthly fee of 3,600. Any additional hours beyond SO will be billed to KXMD at 40 per hour. In accordance with the contract, Peyton received 7,200 from KXMD as an advance payment for the first two months. 3. Paid 250 to creditors on account. 4. Paid an attorney 900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.) 5. Purchased office equipment on account from Office Mart, 7,500. 8. Paid for a newspaper advertisement, 200. 11. Received 1,000 for serving as a disc jockey for a party. 13. Paid 700 to a local audio electronics store for rental of digital recording equipment. 11. Paid wages of 1,200 to receptionist and part-time assistant. Enter the following transactions on Page 2 of the two-column journal: 16. Received 2,000 for serving as a disc jockey for a wedding reception. 18. Purchased supplies on account, 850. July 21. Paid 620 to Upload Music for use of its current music demos in making various music sets. 22. Paid 800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July. 23. Served as disc jockey for a party for 2,500. Received 750, with the remainder due August 4, 2019. 27. Paid electric bill, 915. 28. Paid wages of 1,200 to receptionist and part-time assistant. 29. Paid miscellaneous expenses, 540. 30. Served as a disc jockey for a charity ball for 1,500. Received 500, with the remainder due on August 9, 2019. 31. Received 3,000 for serving as a disc jockey for a party. 31. Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists' music during July. 31. Withdrew l,250 cash from PS Music for personal use. PS Music's chart of accounts and the balance of accounts as of July 1, 2019 (all normal balances), are as follows: 11 Cash 3,920 12 Accounts receivable 1,000 14 Supplies 170 15 Prepaid insurance 17 Office Equipment 21 Accounts payable 250 23 Unearned Revenue 31 Peyton smith, Drawing 4,000 32 Fees Earned 500 41 Wages Expense 6,200 50 Office Rent Expense 400 51 Equipment Rent Expense 800 52 Utilities Expense 675 53 Supplies Expense 300 54 music Expense 1,590 55 Advertising Expense 500 56 Supplies Expense 180 59 Miscellaneous Expense 415 Instructions 1.Enter the July 1, 2019, account balances in the appropriate balance column of a four-column account. Write Balance in the Item column and place a check mark () in the Posting Reference column. (Hint: Verify the equality of the debit and credit balances in the ledger before proceeding with the next instruction.) 2.Analyze and journalize each transaction in a two-column journal beginning on Page 1, omitting journal entry explanations. 3.Post the journal to the ledger, extending the account balance to the appropriate balance column after each posting. 4.Prepare an unadjusted trial balance as of July 31, 2019.arrow_forwardCornerstone Exercise 4-18 Adjusting Entry from Bank Reconciliation A customer of Mutare paid for merchandise originally purchased on account with a check that has been erroneously entered into Mutares cash account for $570 (it actually has been issued and paid for $750). Required: Record the appropriate journal entry to correct the error.arrow_forward
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