3.12: Solutions
- Page ID
- 30388
Discussion Questions
- The sequence of financial transactions that occurs continuously during an accounting time period is called the operating cycle. Operations begin with some cash on hand. The cash is used to purchase supplies and pay expenses while revenue is being generated. When revenue is earned, cash is collected, beginning the cycle over again. While some transactions are being completed, others are only beginning.
- No, the operating cycle does not have to be complete before income can be measured. Revenue can be recorded as earned when the product is sold or the service performed regardless of whether cash is collected. To measure income, expenses must be matched to revenues or the relevant time period. This usually can be done whether or not the operating cycle is complete.
- Accrual accounting matches expenses to revenues for a particular time period. The accrual method is the basis on which accounts are adjusted to reach this objective. Under this method, expenses are matched to the revenues during the period that the revenues are generated. The revenue recognition assumption helps determine when revenues are earned, thus allowing expenses to be matched to these revenues. Revenues are not generally matched to expenses by convention. The rationale is that revenues are recognised before expenses; therefore expenses should be matched to revenues.
- Under the going concern concept, it is assumed that operating cycles that are incomplete at the end of financial periods will be completed during the (assumed) unlimited life of the entity. Since accountants must prepare financial statements even though operating cycles are incomplete, accrual accounting techniques are employed to more accurately measure economic activity during a given time period.
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- The cost of goods that are transferred to customers (such as items sold); these expenses can be matched to revenue generated relatively easily.
- The cost of assets only partially consumed during the time period like trucks and equipment; these expenses are as easily matched with revenue.
- Some expenses incurred during the accounting period are not easily identified with revenue generated, such as salaries of administrative staff. These are matched to the period in which they are incurred, rather than to related revenue.
- Adjusting entries are changes made at the end of an operating cycle to more accurately reflect economic activity during the period. For instance, depreciation is calculated on plant and equipment assets and charged to the income statement.
- At the end of the accounting period, an accountant must determine the amount of future benefits (assets like Prepaid Insurance) that belong on the balance sheet and how much should be recorded in the income statement (as Insurance Expense, in this example). The appropriate amounts must be transferred by means of adjusting entries.
- Plant and equipment accounts and are handled differently than other asset accounts. The expired portion of the cost of such an asset is estimated based on its useful life and recorded as depreciation expense. This requires no cash outlay, despite being an expense. Plant and equipment asset accounts themselves are not reduced by the depreciation expense; rather, a contra asset account is set up in order to show a reduced balance on the balance sheet.
- A contra account is used to reduce the value of a related balance sheet item. For instance, the account Accumulated Depreciation-Equipment is credited by the amount of depreciation expense recorded each year. The balance in this account is netted against the related account (Equipment, in this example) so that the asset is shown at carrying amount on the balance sheet.
- At the end of the accounting period, the amount of the liability that belongs on the balance sheet must be determined. The account balance is adjusted through the use of an adjusting entry to the related revenue account (Repair Revenue, in this example).
- Accruals are assets and liabilities that increase during an accounting period but are not recognised in the normal course of recording financial transactions. They are recorded through the use of accrual adjusting entries at the end of the accounting period. Examples of accounts that accrue are:
Examples of Income
Statement Account
Related Balance
Sheet Account
Revenues: Interest Earned Interest Receivable Rent Earned Unearned Rent Revenue Expenses: Interest Expense Interest Payable Rent Expense Prepaid Rent Insurance Expense Prepaid Insurance Salaries Expense Salaries Payable Related balance sheet accounts are eventually reduced when cash is received or paid, as applicable.
- An adjusted trial balance is prepared after posting the adjusting entries in order to establish the equality of debits and credits, and before preparing the financial statements.
- The adjusted trial balance conveniently summarises the general ledger accounts in order of their appearance in the financial statements. This facilitates preparation of the financial statements.
- The eight steps in the accounting cycle are:
- Transactions are analysed and recorded in the general journal.
- The journal entries are posted to general ledger accounts.
- An unadjusted trial balance is prepared to ensure debits equal credits.
- The account balances are analysed, and adjusting entries are prepared and posted.
- An adjusted trial balance is prepared to prove the equality of debits and credits.
- The adjusted trial balance is used to prepare financial statements.
- Closing entries are journalized and posted.
- A post-closing trial balance is prepared to ensure closing entries have been appropriately recorded and to ensure equality of debits and credits.
- The first two steps in the accounting cycle occur continuously throughout the accounting period:
- Transactions are analysed and recorded in the general journal.
- The journal entries are posted to general ledger accounts.
- The next six steps in the accounting cycle occur only at the end of the accounting period:
- An unadjusted trial balance is prepared to ensure debits equal credits.
- The account balances are analysed, and adjusting entries are prepared and posted.
- An adjusted trial balance is prepared to prove the equality of debits and credits.
- The adjusted trial balance is used to prepare financial statements.
- Closing entries are journalized and posted.
- A post-closing trial balance is prepared to ensure closing entries have been appropriately recorded and to ensure equality of debits and credits.
These steps differ from the others because they don't deal with individual transactions but address account balances. The adjusted balances are used to prepare financial statements.
- Revenues must be accrued during the current accounting period if they have been earned and even if they have not yet been satisfied with cash during in the current accounting period. An account receivable is an example. Expenses must be accrued during the current accounting period if they relate to the revenue recognised during the current period or the current time period itself (for example, salaries) even if they have not yet been paid in cash. An account payable is an example. Cash outlays are recorded as prepaid expenses if cash is paid in advance of expense recognition. Prepaid Insurance is an example. For each such asset and liability, the accountant must determine at the end of the accounting period the appropriate balance that should be recorded on the balance sheet. These accounts are adjusted as appropriate through adjusting entries.
- The need for regular financial information requires that revenue and expense accounts of a business be accumulated for usually no more than one year by convention, and that financial statements be prepared for that period. Using a consistent time period allows revenue and expenses for one period to be compared to a preceding period. A one-year cycle reduces effects of seasonal variations in business activity, for instance, but also allows for business performance to be evaluated by owners and creditors regularly and predictably.
- Temporary accounts include all revenues and expense categories that are reduced to zero at the end of the fiscal year when they are closed to the Retained Earnings account. Permanent accounts have a continuing balance from one fiscal year to the next: these include all balance sheet accounts.
- An income summary account is an account used only at year-end to accumulate all revenue and expense balances, and to reduce their general ledger accounts to zero at the end of the fiscal year. This account summarises the Net Income (or Net Loss) for the period. It is closed to the Retained Earnings account at year-end.
- A post-closing trial balance is a listing of balance sheet accounts and their balances after all temporary accounts have been closed. It proves the equality of general ledger debit and credit balances before the next accounting period commences.
Exercises
EXERCISE 3–1
a. and c.
Graham Corporation General Ledger |
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ASSETS | = | LIABILITIES | + | EQUITY | |||
Interest Receivable | Interest Payable | Interest Earned | |||||
(a) 110 | (c) 90 | (a) 110 | |||||
Prepaid Insurance | Salaries Payable | Rent Earned | |||||
1,800 |
(d) 450 | (e) 500 | |||||
(b) 1,200 | |||||||
Bal. 600 | Unearned Rent | Insurance Expense | |||||
700 | (b) 1,200 | ||||||
(e) 500 | |||||||
Bal. 200 | Interest Expense | ||||||
(c) 90 | |||||||
Salaries Expense | |||||||
(d) 450 |
b.
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Interest Receivable | 110 | |||
Interest Earned | 110 | |||
(a) | ||||
Insurance Expense | 1,200 | |||
Prepaid Insurance | 1,200 | |||
(b) | ||||
Interest Expense | 90 | |||
Interest Payable | 90 | |||
(c) | ||||
Salaries Expense | 450 | |||
Salaries Payable | 450 | |||
(d) | ||||
Unearned Rent | 500 | |||
Rent Earned | 500 | |||
(e) |
d.
Revenues | |
Interest Earned |
$110 |
Rent Earned |
500 |
Expenses | |
Insurance Expense |
$1,200 |
Interest Expense |
90 |
Salaries Expense |
450 |
EXERCISE 3–2
- The adjustments column is as follows:
Lauer Corporation Trial Balance Adjustments Adjusted Trial Balance Dr. Cr. Dr. Cr. Dr. Cr. Cash $4,000 $4,000 Accounts Receivable 5,000 5,000 Prepaid Insurance 3,600 (a) $300 3,300 Prepaid Rent 1,000 (b) 500 500 Truck 6,000 6,000 Accumulated Depreciation – Truck (c) 1,500 $1,500 Accounts Payable $7,000 (d) 400 7,400 Salaries Payable (e) 1,000 1,000 Unearned Rent 1,200 (f) $600 600 Share Capital 2,700 2,700 Revenue 25,000 25,000 Rent Earned (f) 600 600 Advertising Expense 700 700 Commissions Expense 2,000 2,000 Depreciation Expense (c) 1,500 1,500 Insurance Expense (a) 300 300 Interest Expense 100 (d) 400 500 Rent Expense 5,500 (b) 500 6,000 Salaries Expense 8,000 (e) 1,000 9,000 Totals
$35,900
$35,900
$4,300
$4,300
$38,800
$38,800
- The general journal is as follows:
General Journal Date Account/Explanation F Debit Credit Insurance Expense 300 Prepaid Insurance 300 (a) To record expiry of prepaid insurance. Rent Expense 500 Prepaid Rent 500 (b) To record expiry of prepaid rent. Depreciation Expense 1,500 Accumulated Depreciation – Truck 1,500 (c) To record truck depreciation. Interest Expense 400 Accounts Payable 400 (d) To accrue interest. Salaries Expense 1,000 Salaries Payable 1,000 (e) To accrue unpaid salaries. Unearned Rent 600 Rent Earned 600 (f) To record expiry of unearned rent.
EXERCISE 3–3
- The general journal is as follows:
General Journal Date Account/Explanation F Debit Credit Rent Expense 200 Prepaid Rent 200 (a) To adjust prepaid rent account to the proper balance. Office Supplies Expense 400 Unused Office Supplies 400 (b) To record the ending balance of supplies on hand. Income Taxes Expense 5,000 Income Taxes Payable 5,000 (c) To record income taxes for the period. Unearned Commissions 1,000 Commissions Earned 1,000 (d) To record the proper balance in the Unearned Commissions account. Salaries Expense 300 Salaries Payable 300 (e) To accrue salaries for the period. - Assets would be overstated by $600 [(a): 200 + (b): 400].
Liabilities would be understated by $4,300 [(c): 5,000 − (d): 1,000 + (e): 300].
Revenue would be understated by $1,000 (d).
Expenses would be understated by $5,900 [(a): 200 + (b): 400 + (c): 5,000 + (e): 300].
Equity would be overstated by $4,900 [(a):200 + (b):400 + (c):5,000 − (d):1,000 + (e):300].
EXERCISE 3–4
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Dec. 31 | Advertising Expense | 500 | ||
Prepaid Advertising | 500 | |||
To record the expired portion of advertising for the period. | ||||
31 | Supplies Expense | 400 | ||
Unused Supplies | 400 | |||
To record the remaining amount of supplies on hand. | ||||
31 | Depreciation Expense – Equipment | 250 | ||
Accumulated Depreciation – Equipment | 250 | |||
To record the depreciation for the period. | ||||
31 | Maintenance Expense | 200 | ||
Telephone Expense | 100 | |||
Utilities Expense | 400 | |||
Commissions Expense | 800 | |||
Accounts Payable | 1,500 | |||
To record expenses incurred but not yet paid for the period. | ||||
31 | Salaries Expense | 700 | ||
Salaries Payable | 700 | |||
To record salaries accrued for the period. | ||||
31 | Unearned Subscriptions | 5,000 | ||
Subscription Revenue | 5,000 | |||
To record subscriptions earned for the period. |
EXERCISE 3–5
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Dec. 31 | Depreciation Expense – Truck | 1,200 | ||
Accumulated Depreciation – Truck | 1,200 | |||
To record additional truck depreciation for the year ($2,500 − 1,300) ($10,000/4 years = $2,500/year). |
EXERCISE 3–6
Interest expense for the year should be $12,000 × 10% = $1,200. The needed adjusting entry is:
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Dec. 31 | Interest Expense | 100 | ||
Interest Payable | 100 | |||
To record interest accrued at December 31 ($1,200 − 1,100). |
EXERCISE 3–7
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Insurance Expense | 600 | |||
Prepaid Insurance | 600 | |||
(a) To record expiry of 6 months insurance. | ||||
Supplies Expense | 200 | |||
Unused Supplies | 200 | |||
(b) To adjust supplies on hand to physical count. | ||||
Telephone Expense | 50 | |||
Accounts Payable | 50 | |||
(c) To record account payable at year end. |
EXERCISE 3–8
-
General Journal Date Account/Explanation F Debit Credit Accounts receivable Dr Revenue Cr -
General Journal Date Account/Explanation F Debit Credit Cash Dr Unearned revenue Cr -
General Journal Date Account/Explanation F Debit Credit Unearned revenue Dr Revenue Cr -
General Journal Date Account/Explanation F Debit Credit Repairs expense Dr Accounts payable Cr -
General Journal Date Account/Explanation F Debit Credit Prepaid repairs expense Dr Cash Cr -
General Journal Date Account/Explanation F Debit Credit Repairs expense Dr Prepaid repairs expense Cr -
General Journal Date Account/Explanation F Debit Credit Salaries expense Dr Accrued salaries payable Cr -
General Journal Date Account/Explanation F Debit Credit Depreciation expense Dr Accumulated depreciation, equipment Cr
EXERCISE 3–9
- Last pay date was Monday, March 28, 2016, for work done until Friday, March 25, 2016.
Number of remaining business days from last pay date to March 31, 2016 is 4 days.
Total payroll per day: 65 employees×$80 day=$5,200 per day
Total accrued salaries to March 31, 2016: $5,200 per day×4 days=$20,800
Total payroll per week: $5,200×5 working days per week=$26,000 per week
-
General Journal Date Account/Explanation F Debit Credit Mar 31, 2016 Salaries expense 20,800 Accrued salaries payable 20,800 -
General Journal Date Account/Explanation F Debit Credit Apr 4, 2016 Salaries expense* 5,200 Accrued salaries payable 20,800 Cash 26,000 * 5 days per week−4 days accrued=1 day not yet expensed×$5,200 per day=$5,200
EXERCISE 3–10
- Adjusting entry for $70,000 of revenue earned but not yet billed to the customer.
General Journal Date Account/Explanation F Debit Credit Accounts receivable 70,000 Revenue 70,000 - Adjusting entry for $4,500 of salaries from the last pay date of October 14.
General Journal Date Account/Explanation F Debit Credit Salaries expense 4,500 Accrued salaries payable 4,500 - Adjusting entry for $40,000 of cash received from a customer for revenue not yet earned.
General Journal Date Account/Explanation F Debit Credit Cash 40,000 Unearned revenue 40,000 - Adjusting entry for $500 of utilities for October, but not yet paid.
General Journal Date Account/Explanation F Debit Credit Utilities expense 500 Accounts payable 500 - Adjusting entry for $1,300 of cash paid to a supplier for advertising not yet published.
General Journal Date Account/Explanation F Debit Credit Prepaid advertising expenses 1,300 Cash 1,300 - Adjusting entry for October depreciation expense for equipment.
General Journal Date Account/Explanation F Debit Credit Depreciation expense 1,000 Accumulated depreciation, equipment 1,000
Self-Check Trail balance accounts:
Quertin Quick Fix Ltd. Trial Balance At October 31, 2016 |
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Unadjusted Trial Balance | Adjustments | Adjusted Trial Balance | ||||
Debit | Credit | Debit | Credit | Debit | Credit | |
Accounts payable | $225,000 | $500 | $225,500 | |||
Accounts receivable | $325,000 | $70,000 | $395,000 | |||
Accrued salaries payable | 5,000 | 4,500 | 9,500 | |||
Accumulated depreciation, | ||||||
equipment | 1,500 | 1,000 | 2,500 | |||
Advertising expense | 1,500 | 1,500 | ||||
Cash | 80,000 | 40,000 | 1,300 | 118,700 | ||
Depreciation expense | 800 | 1,000 | 1,800 | |||
Equipment | 150,000 | 150,000 | ||||
Land | 150,000 | 150,000 | ||||
Maintenance service expenses | 1,000 | 1,000 | ||||
Notes payable | 210,000 | 210,000 | ||||
Office supplies | 5,000 | 5,000 | ||||
Prepaid expenses | 15,000 | 1,300 | 16,300 | |||
Rent expense | 14,000 | 14,000 | ||||
Retained earnings | 37,800 | 37,800 | ||||
Salaries expense | 45,000 | 4,500 | 49,500 | |||
Service revenue | 300,000 | 70,000 | 370,000 | |||
Share capital | 10,000 | 10,000 | ||||
Unearned service revenue | 10,000 | 40,000 | 50,000 | |||
Utilities expense | 12,000 | 500 | 12,500 | |||
$799,300 | $799,300 | $117,300 | $117,300 | $915,300 | $915,300 |
EXERCISE 3–11
Bernard Inc. Adjusted Trial Balance December 31, 2015 |
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Debits | Credits | |
Prepaid advertising | $1,000 | |
Supplies | 750 | |
Equipment | 21,750 | |
Accumulated depreciation – equipment | $1,500 | |
Accounts payable | 13,250 | |
Salaries payable | 700 | |
Unearned subscriptions | 10,000 | |
Share capital | 8,000 | |
Subscription revenue | 5,000 | |
Advertising expense | 500 | |
Commissions expense | 800 | |
Depreciation expense – equipment | 250 | |
Maintenance expense | 200 | |
Salaries expense | 10,200 | |
Supplies expense | 2,500 | |
Telephone expense | 100 | |
Utilities expense | 400 | |
Totals |
$38,450 |
$38,450 |
EXERCISE 3–12
- Close revenue accounts to income summary account.
General Journal Date Account/Explanation F Debit Credit Services revenue 276,000 Income summary 276,000 - Close expense accounts to income summary account.
General Journal Date Account/Explanation F Debit Credit Income summary 110,780 Salaries expense 41,700 Insurance expense 3,700 Interest expense 150 Shop supplies expense 750 Advertising expense 4,050 Depreciation expense 2,380 Repairs expenses
7,800 Rent expense 22,500 Income tax expense 4,500 Utilities expense 23,250 - Close the income summary account to retained earnings.
General Journal Date Account/Explanation F Debit Credit Income summary 165,220 Retained earnings 165,220 - Close dividends to retained earnings.
General Journal Date Account/Explanation F Debit Credit Retained earnings 5,000 Cash dividends 5,000
EXERCISE 3–13
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Dec. 31 | Commissions Earned | 20,000 | ||
Subscriptions Revenue | 17,630 | |||
Income Summary | 37,630 | |||
To close revenue accounts to income summary. | ||||
31 | Income Summary | 58,400 | ||
Depreciation Expense – Machinery | 900 | |||
Depreciation Expense – Warehouse | 1,200 | |||
Insurance Expense | 1,800 | |||
Interest Expense | 2,365 | |||
Salaries Expense | 33,475 | |||
Supplies Expense | 15,800 | |||
Utilities Expense | 2,860 | |||
To close expense accounts to income summary. | ||||
31 | Retained Earnings | 20,770 | ||
Income Summary | 20,770 | |||
To close net loss in income summary to retained earnings. | ||||
31 | Retained Earnings | 14,000 | ||
Dividends | 14,000 | |||
To close dividends to retained earnings. |
Willis Inc. Post-Closing Trial Balance December 31, 2015 |
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Debits | Credits | |
Accounts payable | $4,400 | |
Accounts receivable | $3,600 | |
Accumulated depreciation – machinery | $2,800 | |
Accumulated depreciation – warehouse | 8,000 | |
Bank loan | 47,600 | |
Cash | 12,000 | |
Interest payable | 1,200 | |
Land | 15,000 | |
Machinery | 20,000 | |
Retained earnings* | 1,230 | |
Salaries payable | 1,970 | |
Share capital | 52,100 | |
Supplies | 2,500 | |
Unearned fees | 800 | |
Warehouse | 67,000 | |
Totals |
$120,100 |
$120,100 |
*calculated as $36,000 adjusted retained earnings balance +$37,630 total revenues closed to retained earnings −$58,400 total expenses closed to retained earnings −$14,000 dividends closed to retained earnings.
Problems
PROBLEM 3–1
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Rent Expense | 300 | |||
Prepaid Rent | 300 | |||
(a) To record rent expense at year end. | ||||
Wages Expense | 200 | |||
Wages Payable | 200 | |||
(b) To record accrued wages at year-end. | ||||
Income Taxes Expense | 1,000 | |||
Income Taxes Payable | 1,000 | |||
(c) To record income taxes. | ||||
Unearned Commissions Revenue | 1,000 | |||
Commissions Earned | 1,000 | |||
(d) To record commissions earned at year-end. | ||||
Other Unearned Revenue | 5,000 | |||
Revenue | 5,000 | |||
(e) To adjust unearned revenue to actual at year end. | ||||
Prepaid Advertising | 1,500 | |||
Advertising Expense | 1,500 | |||
(f) To correct advertising expense and record prepaid advertising at year-end. | ||||
Depreciation Expense – Equipment | 500 | |||
Accumulated Depreciation – Equipment | 500 | |||
(g) To record depreciation expense. | ||||
Unused Supplies | 225 | |||
Supplies Expense | 225 | |||
(h) To correct supplies expense and adjust for unused supplies. | ||||
Truck Expense | 500 | |||
Accounts Payable | 500 | |||
(i) To record accounts payable at year-end. |
PROBLEM 3–2
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Unused Supplies | 100 | |||
Supplies Expense | 100 | |||
(a) | ||||
Telephone Expense | 75 | |||
Accounts Payable | 75 | |||
(b) | ||||
Wages Expense | 125 | |||
Wages Payable | 125 | |||
(c) | ||||
Depreciation Expense – Equipment | 100 | |||
Accumulated Depreciation – Equipment | 100 | |||
(d) | ||||
Rent Expense | 500 | |||
Prepaid Rent | 500 | |||
(e) | ||||
Unearned Advertising Revenue | 500 | |||
Other Revenue | 500 | |||
(f) | ||||
Prepaid Insurance* | 525 | |||
Insurance Expense | 525 | |||
(g) |
*$900/12 months = $75/month; 5 months have been used (August 1 to December 31 = 5 months); therefore 7 months × $75/month = $525 remains unused.
PROBLEM 3–3
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Interest Receivable | 250 | |||
Interest Earned | 250 | |||
(a) | ||||
Insurance Expense | 200 | |||
Prepaid Insurance | 200 | |||
(b) | ||||
Supplies Expense | 200 | |||
Unused Supplies | 200 | |||
(c) | ||||
Interest Expense | 25 | |||
Interest Payable | 25 | |||
(d) | ||||
Subscription Revenue | 7,500 | |||
Unearned Subscription Revenue | 7,500 | |||
(e) ($9,000 × 5/6 mos. = $7,500) | ||||
Salaries Expense | 300 | |||
Salaries Payable | 300 | |||
(f) | ||||
Prepaid Rent | 300 | |||
Rent Expense | 300 | |||
(g) | ||||
Truck Operation Expense | 400 | |||
Accounts Payable | 400 | |||
(h) |
PROBLEM 3–4
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Depreciation Expense – Truck | 150 | |||
Accumulated Depreciation – Truck | 150 | |||
(a) ($6,000 × 6/48 mos. = $750 − 600 = $150) | ||||
(b) No Entry Required | ||||
Unused Supplies | 300 | |||
Supplies Expense | 300 | |||
(c) | ||||
Rent Expense | 400 | |||
Prepaid Rent | 400 | |||
(d) | ||||
Wages Expense | 250 | |||
Wages Payable | 250 | |||
(e) | ||||
Interest Expense | 200 | |||
Interest Payable | 200 | |||
(f) ($8,000 × 10% = $800 − 600 = $200) | ||||
Utilities Expense | 150 | |||
Utilities Payable | 150 | |||
(g) | ||||
Insurance Expense | 500 | |||
Prepaid Insurance | 500 | |||
(h) ($1,200 × 1/12 mos. = $100 prepaid; $600 − 100 = $500) | ||||
Unearned Rent Revenue | 600 | |||
Rent Earned | 600 | |||
(i) | ||||
Commissions Earned | 2,000 | |||
Other Unearned Revenue | 2,000 | |||
(j) |
PROBLEM 3–5
1., 3., 4., and 6.
Roth Contractors Corporation | |||||||||
Cash | 101 | Accounts Payable | 210 | Share Capital | 320 | Repair Revenue | 450 | Rent Expense | 654 |
(a) 5,000 | (b) 1,200 | (c) 10,000 | (a) 5,000 | (r) 2,000 | (f) 4,500 | ||||
(g) 800 | (e) 1,800 | (d) 1,000 | (g) 800 | (p) 400 | |||||
(i) 2,000 | (h) 3,450 | (n) 100 | (j) 6,500 | ||||||
(m) 2,000 | (l) 3,225 | Bal. 11,100 | (m) 2,000 | Supplies Expense | 668 | ||||
Bal 125 | (d) 1,000 | (q) 350 | |||||||
Bal. 11,800 | Bal. 650 | ||||||||
Account Receivable | 110 | Wages Payable | 237 | ||||||
(f) 4,500 | (i) 2,000 | (s) 1,500 | |||||||
(j) 6,500 | Advertising Expense | 610 | Telephone Expense | 669 | |||||
Bal 9,000 | Unearned Revenue | 249 | (h) 350 | (h) 75 | |||||
(r) 2,000 | (l) 200 | ||||||||
Bal. 550 | |||||||||
Truck Operation Expense | 670 | ||||||||
Prepaid | (h) 425 | ||||||||
Prepaid Insurance | 161 | Depreciation Expense – Truck | 624 | (l) 375 | |||||
(e) 1,800 | (o) 150 | (t) 208 | Bal. 800 | ||||||
Bal 1,650 | |||||||||
Prepaid Rent | 162 | Insurance Expense | 631 | Utilities Expense | 676 | ||||
(b) 1,200 | (p) 400 | (o) 150 | (n) 100 | ||||||
Bal 800 | |||||||||
Supplies | 173 | Interest Expense | 632 | Wages Expense | 677 | ||||
(q) 350 | (h) 100 | (h) 2,500 | |||||||
(l) 150 | (l) 2,500 | ||||||||
Bal. 250 | (s) 1,500 | ||||||||
Truck | 184 | Accum. Dep'n Truck | 194 | Bal. 6,500 | |||||
(c) 10,000 | (t) 208 |
2.
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Cash | 5,000 | |||
Share Capital | 5,000 | |||
(a) | ||||
Prepaid Rent | 1,200 | |||
Cash | 1,200 | |||
(b) | ||||
Truck | 10,000 | |||
Accounts Payable | 10,000 | |||
(c) | ||||
Supplies Expense | 1,000 | |||
Accounts Payable | 1,000 | |||
(d) | ||||
Prepaid Insurance | 1,800 | |||
Cash | 1,800 | |||
(e) | ||||
Accounts Receivable | 4,500 | |||
Repair Revenue | 4,500 | |||
(f) | ||||
Cash | 800 | |||
Repair Revenue | 800 | |||
(g) | ||||
Advertising Expense | 350 | |||
Interest Expense | 100 | |||
Telephone Expense | 75 | |||
Truck Operation Expense | 425 | |||
Wages Expense | 2,500 | |||
Cash | 3,450 | |||
(h) | ||||
Cash | 2,000 | |||
Accounts Receivable | 2,000 | |||
(i) | ||||
Accounts Receivable | 6,500 | |||
Repair Revenue | 6,500 | |||
(j) | ||||
Advertising Expense | 200 | |||
Interest Expense | 150 | |||
Truck Operation Expense | 375 | |||
Wages Expense | 2,500 | |||
Cash | 3,225 | |||
(l) | ||||
Cash | 2,000 | |||
Repair Revenue | 2,000 | |||
(m) | ||||
Utilities Expense | 100 | |||
Accounts Payable | 100 | |||
(n) |
5.
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Insurance Expense | 150 | |||
Prepaid Insurance | 150 | |||
(o) | ||||
Rent Expense | 400 | |||
Prepaid Rent | 400 | |||
(p) | ||||
Supplies | 350 | |||
Supplies Expense | 350 | |||
(q) | ||||
Repair Revenue | 2,000 | |||
Unearned Revenue | 2,000 | |||
(r) | ||||
Wages Expense | 1,500 | |||
Wages Payable | 1,500 | |||
(s) | ||||
Depreciation Expense – Truck | 208 | |||
Accumulated Depreciation – Truck | 208 | |||
(t) $10,000/48 mos. = $208 per month* |
*Recall that depreciation is always rounded to the nearest whole dollar because it is not 'exact'; depreciation is based on estimated useful life and estimated residual value.
7.
Roth Contractors Corporation Adjusted Trial Balance December 31, 2015 |
||
Account Balances | ||
Debit | Credit | |
Cash | $125 | |
Accounts Receivable | 9,000 | |
Prepaid Insurance | 1,650 | |
Prepaid Rent | 800 | |
Supplies | 350 | |
Truck | 10,000 | |
Accumulated Depreciation – Truck | $208 | |
Accounts Payable | 11,100 | |
Wages Payable | 1,500 | |
Unearned Revenue | 2,000 | |
Share Capital | 5,000 | |
Repair Revenue | 11,800 | |
Advertising Expense | 550 | |
Depreciation Expense – Truck | 208 | |
Insurance Expense | 150 | |
Interest Expense | 250 | |
Rent Expense | 400 | |
Supplies Expense | 650 | |
Telephone Expense | 75 | |
Truck Expense | 800 | |
Utilities Expense | 100 | |
Wages Expense | 6,500 | |
Totals |
$31,608 |
$31,608 |
PROBLEM 3–6
- The general journal is as follows:
General Journal Date Account/Explanation F Debit Credit Dec. 31 Repair Revenue 11,800 Income Summary 11,800 To close revenue account to income summary. 31 Income Summary 9,683 Advertising Expense 550 Depreciation Expense – Truck 208 Insurance Expense 150 Interest Expense
250 Rent Expense 400 Supplies Expense 650 Telephone Expense 75 Truck Expense 800 Utilities Expense 100 Wages Expense 6,500 To close expense accounts to income summary. 31 Income Summary 2,117 Retained Earnings 2,117 To close net income in income summary to retained earnings. - The post-closing trial balance is as follows:
Roth Contractors Corporation
Post-Closing Trial Balance
December 31, 2015
Debits Credits Cash $125 Accounts receivable 9,000 Prepaid insurance 1,650 Prepaid rent 800 Supplies 350 Truck 10,000 Accumulated depreciation – truck $208 Accounts payable 11,100 Wages payable 1,500 Unearned revenue 2,000 Share capital 5,000 Retained earnings 2,117 Totals $21,925 $21,925
PROBLEM 3–7
1., 3., 6., and 8.
Packer Corporation | ||||||||||||
Cash | 101 | Furniture | 182 | |||||||||
12,000 | 3,000 | Accounts Payable | 210 | Share Capital | 320 | Commissions Earned | 410 |
Insurance Expense |
631 | |||
4,400 | 52,100 | 37,900 | 1,800 | (a) 900 | ||||||||
Equipment | 183 | (g) 750 | Bal.900 | |||||||||
Accounts Receivable | 110 | 20,000 | (j) 38,650 | Bal. 38,650 | (k) 900 | |||||||
3,600 | Interest Payable | 222 | Retained Earnings | 340 | Bal. 0 | Bal.0 | ||||||
(f) 208 | (l) 6,967 | |||||||||||
Prepaid Insurance | 161 | Accumulated Depreciation – Building | 191 | Subscription Revenue | 480 | Interest Expense | 632 | |||||
(a) 900 | (c) 1,200 | SalariesPayable | 226 | Income Summary | 360 | (h) 2,000 | 32,700 | 2,365 | ||||
(i) 325 | (k) 62,383 | (j) 69,350 | Bal. 30,700 | (f) 208 | ||||||||
(l) 6,967 | (j) 30,700 | Bal. 2,573 | ||||||||||
Supplies | 173 | Bal 0 | (k) 2,573 | |||||||||
2,500 | Accumulated Depreciation – Furniture | 192 | Unearned Commissions Revenue | 242 | Bal. 0 | Bal.0 | ||||||
(b) 350 | (d) 300 | (g) 750 | 1,200 | |||||||||
Bal. 2,850 | Bal.450 | Advertising Expense | 610 | |||||||||
4,300 | (k) 4,300 | Salaries Expense | 656 | |||||||||
Land | 180 | Bal. 0 | 33,475 | |||||||||
15,000 | Accumulated Depreciation – Equipment | 193 | Unearned Subscriptions Revenue | 250 | (i) 325 | |||||||
(e) 1,000 | 800 | Bal. 33,800 | ||||||||||
Building | 181 | (h) 2,000 | Depreciation Expense– Building | 621 | (k) 33,800 | |||||||
60,000 | Bal. 2,800 | (c) 1,200 | (k) 1,200 | Bal. 0 | ||||||||
Bal. 0 | ||||||||||||
Bank Loan Long Term | 271 | Supplies Expense | 668 | |||||||||
47,600 | Depreciation Expense– Furniture | 622 | 15,800 | (b) 350 | ||||||||
(d) 300 | (k) 300 | Bal. 15,450 | ||||||||||
Bal. 0 | (k) 15,450 | |||||||||||
Bal. 0 | ||||||||||||
Depreciation Expense Equipment | 623 | |||||||||||
(e) 1,000 | (k) 1,000 | Utilities Expense | 676 | |||||||||
Bal. 0 | 2,860 | (k) 2,860 | ||||||||||
Bal. 0 |
2. Adjusting entries:
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Aug. 31 | Prepaid Insurance | 900 | ||
Insurance Expense | 900 | |||
(a) ($1,800 × 6/12 mos. = $900) | ||||
31 | Supplies | 350 | ||
Supplies Expense | 350 | |||
(b) | ||||
31 | Depreciation Expense – Building | 1,200 | ||
Accumulated Depreciation – Building | 1,200 | |||
(c) ($60,000 × 12/600 mos. = $1,200) | ||||
31 | Depreciation Expense – Furniture | 300 | ||
Accumulated Depreciation – Furniture | 300 | |||
(d) ($3,000 × 12/120 mos. = $300) | ||||
31 | Depreciation Expense – Equipment | 1,000 | ||
Accumulated Depreciation – Equipment | 1,000 | |||
(e) ($20,000 × 12/240 mos. = $1,000) | ||||
31 | Interest Expense | 208 | ||
Interest Payable | 208 | |||
(f) | ||||
31 | Unearned Commissions Revenue | 750 | ||
Commissions Earned | 750 | |||
(g) | ||||
31 | Subscription Revenue | 2,000 | ||
Unearned Subscriptions Revenue | 2,000 | |||
(h) | ||||
31 | Salaries Expense | 325 | ||
Salaries Payable | 325 | |||
(i) |
4. The adjusted trial balance is as follows:
Packer Corporation Adjusted Trial Balance August 31, 2015 |
||
Account Balances | ||
Debit | Credit | |
Cash | $12,000 | |
Accounts Receivable | 3,600 | |
Prepaid Insurance | 900 | |
Supplies | 2,850 | |
Land | 15,000 | |
Building | 60,000 | |
Furniture | 3,000 | |
Equipment | 20,000 | |
Accumulated Depreciation – Building | $1,200 | |
Accumulated Depreciation – Furniture | 300 | |
Accumulated Depreciation – Equipment | 1,000 | |
Accounts Payable | 4,400 | |
Interest Payable | 208 | |
Salaries Payable | 325 | |
Unearned Commissions Revenue | 450 | |
Unearned Subscriptions Revenue | 2,800 | |
Bank Loan- Long Term | 47,600 | |
Share Capital | 52,100 | |
Commissions Earned | 38,650 | |
Subscription Revenue | 30,700 | |
Advertising Expense | 4,300 | |
Depreciation Expense – Building | 1,200 | |
Depreciation Expense – Furniture | 300 | |
Depreciation Expense – Equipment | 1,000 | |
Insurance Expense | 900 | |
Interest Expense | 2,573 | |
Salaries Expense | 33,800 | |
Supplies Expense | 15,450 | |
Utilities Expense | 2,860 | |
$179,733 | $179,733 |
5. The income statement, statement of changes in equity, and balance sheet are as follows:
Packer Corporation Income Statement For the Year Ended August 31, 2015 |
||
Revenue |
||
Commissions |
$38,650 | |
Subscriptions |
30,700 | |
Total Revenue |
$69,350 | |
Expenses |
||
Advertising |
4,300 | |
Depreciation – Building |
1,200 | |
Depreciation – Furniture |
300 | |
Depreciation – Equipment |
1,000 | |
Insurance |
900 | |
Interest |
2,573 | |
Salaries |
33,800 | |
Supplies |
15,450 | |
Utilities |
2,860 | |
Total Expenses |
62,383 | |
Net Income | $6,967 |
Packer Corporation Statement of Changes in Equity For the Year Ended August 31, 2015 |
|||
Share Capital | Retained Earnings | Total Equity | |
Opening Balance | $-0- | $-0- | $-0- |
Shares Issued | 52,100 | -0- | 52,100 |
Net Income | -0- | 6,967 | 6,967 |
Ending Balance | $52,100 | $6,967 | $59,067 |
Packer Corporation Balance Sheet At August 31, 2015 |
||
Assets | ||
Cash | $12,000 | |
Accounts Receivable | 3,600 | |
Prepaid Insurance | 900 | |
Supplies | 2,850 | |
Land | 15,000 | |
Buildings | $60,000 | |
Less: Accum. Depreciation | 1,200 | 58,800 |
Furniture | $3,000 | |
Less: Accum. Depreciation | 300 | 2,700 |
Equipment | $20,000 | |
Less: Accum. Depreciation | 1,000 | 19,000 |
Total Assets |
$114,850 |
|
Liabilities | ||
Accounts Payable | $4,400 | |
Interest Payable | 208 | |
Salaries Payable | 325 | |
Unearned Commissions Revenue | 450 | |
Unearned Subscriptions | 2,800 | |
Bank Loan – Long-Term | 47,600 | |
Total Liabilities |
55,783 |
|
Equity | ||
Share Capital | $52,100 | |
Retained Earnings | 6,967 | |
Total Equity |
59,067 |
|
Total Liabilities and Equity |
$114,850 |
6. Closing entries:
General Journal | ||||
Date | Account/Explanation | F | Debit | Credit |
Aug. 31 | Commissions Earned | 38,650 | ||
Subscription Revenue | 30,700 | |||
Income Summary | 69,350 | |||
(j) | ||||
31 | Income Summary | 62,383 | ||
Advertising Expense | 4,300 | |||
Depreciation Expense – Building | 1,200 | |||
Depreciation Expense – Furniture | 300 | |||
Depreciation Expense – Equipment | 1,000 | |||
Insurance Expense | 900 | |||
Interest Expense | 2,573 | |||
Salaries Expense | 33,800 | |||
Supplies Expense | 15,450 | |||
Utilities Expense | 2,860 | |||
(k) | ||||
31 | Income Summary | 6,967 | ||
Retained Earnings | 6,967 | |||
(l) |
Note: The closing entries were posted into the T-accounts as (j), (k), and (l).
7. The post-closing trial balance:
Packer Corporation Post-Closing Trial Balance August 31, 2015 |
||
Account Balances | ||
Debit | Credit | |
Cash | $12,000 | |
Accounts Receivable | 3,600 | |
Prepaid Insurance | 900 | |
Unused Supplies | 2,850 | |
Land | 15,000 | |
Building | 60,000 | |
Furniture | 3,000 | |
Equipment | 20,000 | |
Accumulated Depreciation – Building | $1,200 | |
Accumulated Depreciation – Furniture | 300 | |
Accumulated Depreciation – Equipment | 1,000 | |
Accounts Payable | 4,400 | |
Interest Payable | 208 | |
Salaries Payable | 325 | |
Unearned Commissions Revenue | 450 | |
Unearned Subscriptions Revenue | 2,800 | |
Bank Loan – Long-Term | 47,600 | |
Share Capital | 52,100 | |
Retained Earnings | 6,967 | |
$117,350 | $117,350 |
PROBLEM 3–8
-
-
General Journal Date Account/Explanation F Debit Credit Jun 30 Accounts receivable 45,000 Service revenue 45,000 -
General Journal Date Account/Explanation F Debit Credit Jun 30 Advertising expense 500 Prepaid advertising expense 500 -
General Journal Date Account/Explanation F Debit Credit Jun 30 Shop supplies expense 300 Shop supplies 300 ($1,500−$1,200) -
General Journal Date Account/Explanation F Debit Credit Jun 30 Depreciation expense 79 Accumulated depreciation, equipment 79 ($10,000−$500)÷120 months -
General Journal Date Account/Explanation F Debit Credit Jun 30 Unearned service revenue 5,000 Service revenue 5,000 -
General Journal Date Account/Explanation F Debit Credit Jun 30 Salaries expense 5,800 Accrued salaries payable 5,800 -
General Journal Date Account/Explanation F Debit Credit Jun 30 Utilities expense 3,500 Accounts payable 3,500 -
General Journal Date Account/Explanation F Debit Credit Jun 30 Cash 7,800 Accounts receivable 7,800 -
General Journal Date Account/Explanation F Debit Credit Jun 30 Depreciation expense 107 Accumulated depreciation, building 107 ($74,000−$10,000)÷600 months -
General Journal Date Account/Explanation F Debit Credit Jun 30 Prepaid rent expense 5,000 Rent expense 5,000 -
General Journal Date Account/Explanation F Debit Credit Jun 30 Interest expense 100 Interest payable 100 ($20,000×6%×1÷12) -
General Journal Date Account/Explanation F Debit Credit Jun 30 Income tax expense 3,000 Income taxes payable 3,000 -
General Journal Date Account/Explanation F Debit Credit Jun 30 Accounts receivable 9,000 Service revenue 9,000 -
General Journal Date Account/Explanation F Debit Credit Jun 30 Insurance expense 75 Prepaid insurance 75 ($1,800×1÷24) -
General Journal Date Account/Explanation F Debit Credit Jun 30 Insurance expense 2,400 Prepaid insurance 2,400 ($4,500−$1,800)=$2,700−$300
-
-
Quertin Quick Fix Ltd.
Trial Balance
At October 31, 2016
Unadjusted Trial Balance Adjustments Adjusted Trial Balance Debit Credit Debit Credit Debit Credit Cash $50,400 $7800 $58,200 Accounts receivable 25,000 45,000 7,800 71,200 9,000 Shop supplies 1,500 300 1,200 Prepaid insurance expense 4,500 75 2,025 2,400 Prepaid advertising expense 2,000 500 1,500 Prepaid rent expense – 5,000 5,000 Building 74,000 74,000 Accumulated depreciation, building – 107 107 Equipment 10,000 10,000 Accumulated depreciation, equipment $2,000 79 2,079 Accounts payable 12,000 3,500 15,500 Accrued salaries payable – 5,800 5,800 Interest payable – 100 100 Income taxes payable – 3,000 3,000 Notes payable 20,000 20,000 Unearned service revenue 30,000 5,000 25,000 Share capital 1,000 1,000 Retained earnings 40,400 40,400 Service revenue 125,000 45,000 184,000 5,000 9,000 Salaries expense 22,000 5,800 27,800 Insurance expense – 75 2,475 2,400 Interest expense – 100 100 Shop supplies expense 200 300 500 Advertising expense 2,200 500 2,700 Depreciation expense 1,400 79 1,586 107 Maintenance service expenses 5,200 5,200 Rent expense 20,000 5,000 15,000 Income tax expense – 3,000 3,000 Utilities expense 12,000 3,500 15,500 $230,400 $230,400 $87,661 $87,661 $296,986 $296,986
PROBLEM 3–9
Smith and Smith Co. Income Statement For the Month Ended June 30, 2016 |
||
Revenues | ||
Service revenue | $184,000 | |
Expenses | ||
Salaries expense | $27,800 | |
Insurance expense | 2,475 | |
Interest expense | 100 | |
Shop supplies expense | 500 | |
Advertising expense | 2,700 | |
Depreciation expense | 1,586 | |
Maintenance service expense | 5,200 | |
Rent expense | 15,000 | |
Income tax expense | 3,000 | |
Utilities expense | 15,500 | 73,861 |
Net loss | $110,139 |
Smith and Smith Co. Statement of Changes in Equity For the Month Ended June 30, 2016 |
|||
Share Capital | Retained Earnings | Total Equity | |
Opening balance, June 1, 2016 | $1,000 | $40,400 | $41,400 |
Net income | 110,139 | 110,139 | |
Ending balance | $1,000 | $150,539 | $151,539 |
Smith and Smith Co. Balance Sheet At June 30, 2016 |
|||||
Assets | Liabilities | ||||
Cash | $58,200 | Accounts payable | $15,500 | ||
Accounts receivable | 71,200 | Accrued salaries | 5,800 | ||
Shop supplies | 1,200 | Interest payable | 100 | ||
Prepaid insurance expense | 2,025 | Income taxes payable | 3,000 | ||
Prepaid advertising expense | 1,500 | Note payable | 20,000 | ||
Repaid rent expense | 5,000 | Unearned consulting fees | 25,000 | ||
Building | 74,000 |
Total liabilities |
$69,400 |
||
Accumulated depreciation, building | (107) | 73,893 | |||
Equipment | 10,000 | Equity | |||
Accumulated depreciation, equipment | (2,079) | 7,921 | Share capital | $1,000 | |
Retained earnings | 150,539 | ||||
Total equity |
|||||
Total liabilities and equity | 151,539 | ||||
Total assets | $220,939 | $220,939 |
PROBLEM 3–10
-
- Close revenue accounts to income summary account.
General Journal Date Account/Explanation F Debit Credit Jun 30 Services revenue 184,000 Income summary 184,000 - Close expense accounts to income summary account.
General Journal Date Account/Explanation F Debit Credit Jun 30 Income summary 73,861 Salaries expense 27,800 Insurance expense 2,475 Interest expense 100 Shop supplies expense 500 Advertising expense 2,700 Depreciation expense 1,586 Maintenance service expenses 5,200 Rent expense 15,000 Income tax expense 3,000 Utilities expense 15,500 - Close the income summary account to retained earnings.
General Journal Date Account/Explanation F Debit Credit Jun 30 Income summary 110,139 Retained earnings 110,139 - Close dividends to retained earnings: No entry required.
- Close revenue accounts to income summary account.
-
Smith and Smith Co.
Trial Balance
At June 30, 2016
Post-Closing Trial Balance
Debit Credit Cash $58,200 Accounts receivable 71,200 Shop supplies 1,200 Prepaid insurance expense 2,025 Prepaid advertising expense 1,500 Prepaid rent expense 5,000 Building 74,000 Accumulated depreciation, building $107 Equipment 10,000 Accumulated depreciation, equipment 2,079 Accounts payable 15,500 Accrued salaries payable 5,800 Interest payable 100 Income taxes payable 3,000 Notes payable 20,000 Unearned service revenue 25,000 Share capital 1,000 Retained earnings 150,539 $223,125 $223,125