Concept explainers
1.
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and
To prepare: T accounts according to the balance method.
1.
Explanation of Solution
The T-accounts are prepared as follows:
Cash | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Account receivables | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Office Supplies | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Prepaid insurance | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Buildings | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Salaries payable | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Common stock | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Dividends | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Storage fees earned | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Depreciation expense - buildings | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Salaries expense | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Insurance expense | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Rent expense | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Office supplies expense | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Repair expense | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Telephone expense | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
Income summary | ||||
Date | Explanation | Debit ($) | Credit ($) | Balance ($) |
2.
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.
To prepare: The journal entries and ledger account for the transactions given.
2.
Explanation of Solution
The journal entries are prepared as follows:
Date | Particulars | Debit ($) | Credit ($) |
1-Jul | Cash | 30,000 | |
Building | 150,000 | ||
Capital | 180,000 | ||
(To record cash and building invested into the business) | |||
2-Jul | Rent expense | 2,000 | |
Cash | 2,000 | ||
(To record rent expense paid.) | |||
5-Jul | Office Supplies | 2,400 | |
Cash | 2,400 | ||
(To record purchase of office supplies) | |||
10-Jul | Prepaid Insurance | 7,200 | |
Cash | 7,200 | ||
(To record one-year insurance premium paid) | |||
14-Jul | Salary expense | 1,000 | |
Cash | 1,000 | ||
(To record Salaries expense paid) | |||
24-Jul | Cash | 9,800 | |
Storage fees earned | 9,800 | ||
(To record cash received for service provided) | |||
28-Jul | Salary expense | 1,000 | |
Cash | 1,000 | ||
(To record salaries expense paid) | |||
29-Jul | Repair expense | 950 | |
Cash | 950 | ||
(To record repair expense paid) | |||
30-Jul | Telephone expenses | 400 | |
Cash | 400 | ||
(To record Telephone expense paid) | |||
31-Jul | dividend | 2,000 | |
Cash | 2,000 | ||
(To record dividend paid) |
Ledger accounts:
Cash Account No:101 | ||||
Date | Explanation | Debit | Credit | Balance |
1-Jul | $30,000 | $30,000 | ||
2-Jul | $2,000 | $28,000 | ||
5-Jul | $2,400 | $25,600 | ||
10-Jul | $7,200 | $18,400 | ||
14-Jul | $1,000 | $17,400 | ||
24-Jul | $9,800 | $27,200 | ||
28-Jul | $1,000 | $26,200 | ||
29-Jul | $950 | $25,250 | ||
30-Jul | $400 | $24,850 | ||
31-Jul | $2,000 | $22,850 |
After entering all the entries, the balance of the cash account as of 31 July is computed as $22,850.
b) Office supplies
Office Supplies Account No: 124 | ||||
Date | Explanation | Debit | Credit | Balance |
5-Jul | $2,400 | $2,400 |
After entering all the entries, the balance of the office supplies accounts as of 31 July is computed as $2,400.
c) Prepaid Insurance
Prepaid Insurance Account No: 128 | ||||
Date | Debit | Credit | Balance | |
10-Jul | $7,200 | $7,200 |
After entering all the entries, the balance of the prepaid insurance account as of 31 July is computed as $7,200.
D
Building Account No: 173 | ||||
Date | Debit | Credit | Balance | |
1-Jul | $150,000 | $150,000 |
After entering all the entries, the balance of the building account as of 31 July is computed as $150,000.
E
Common stock Account No: 301 | ||||
Date | Debit | Credit | Balance | |
1-Jul | $180,000 | $180,000 |
After entering all the entries, the balance of the common stock account as of 31 July is computed as $180,000.
F
Dividends
Dividends Account No: 319 | ||||
Date | Debit | Credit | Balance | |
31-Jul | $2,000 | $2,000 |
After entering all the entries, the balance of the dividend account as of 31 July is computed as $2,000.
G
Storage fees earned
Storage fees earned Account No: 40 | ||||
Date | Debit | Credit | Balance | |
24-Jul | $9,800 | $9,800 |
After entering all the entries, the balance of the storage fees earned account as of 31 July is computed as $9,800.
H
Salaries Expense
Salaries expense Account No: 622 | ||||
Date | Debit | Credit | Balance | |
14-Jul | $1,000 | $1,000 | ||
28-Jul | $1,000 | $2,000 |
After entering all the entries, the balance of salaries accounts as of 31 July is computed as $2,000.
I
Rent Expense
Rent Expense Account No: 640 | ||||
Date | Debit | Credit | Balance | |
2-Jul | $2,000 | $2,000 |
After entering all the entries, the balance of the rent expense account as of 31 July is computed as $2,000.
J
Repair Expense
Repair Expense Account No: 684 | ||||
Date | Debit | Credit | Balance | |
29-Jul | $950 | $950 |
After entering all the entries, the balance of the repair expense account as of 31 July is computed as $950.
K
Telephone Expense
Telephone Expense Account No: 688 | ||||
Date | Debit | Credit | Balance | |
30-Jul | $400 | $400 |
After entering all the entries, the balance of the telephone expense account as of 31 July is computed as $400.
3.
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.
To prepare:The unadjusted
3.
Explanation of Solution
The unadjusted trial balance is prepared as follows:
Company S | ||||
Unadjusted trial balance | ||||
31-Jul | ||||
Particulars | Debit ($) | Credit($) | ||
Cash | 22,850 | |||
Accounts receivable | 0 | |||
Office supplies | 2,400 | |||
Prepaid Insurance | 7,200 | |||
Buildings | 150,000 | |||
Accumulated | 0 | |||
Salaries payable | 0 | |||
Company S Capital | 180,000 | |||
Dividends | 2,000 | |||
Storage fees earned | 9,800 | |||
Depreciation expense-Buildings | 0 | |||
Salaries expense | 2,000 | |||
Insurance expense | 0 | |||
Rent expense | 2,000 | |||
Office supplies expense | 0 | |||
Rent expense | 950 | |||
Telephone expense | 400 | |||
Total | 189,800 | 189,800 |
Therefore, the total amount of unadjusted trail balance is $189,800.
4.
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.
To prepare: The journal entries and ledger accounts for
4.
Explanation of Solution
Date | Particulars | Debit ($) | Credit ($) |
31-Jul | Insurance expense | 400 | |
Prepaid insurance | 400 | ||
(To record expiration of prepaid insurance) | |||
31-Jul | Office supplies expense | 875 | |
Office Supplies | 875 | ||
(To record cost of supplies used) | |||
31-Jul | Depreciation expense | 1,500 | |
Accumulated depreciation | 1,500 | ||
(To record depreciation of computer equipment) | |||
31-Jul | Salaries expense | 100 | |
Salaries payable | 100 | ||
(To record accrued salaries but not paid) | |||
31-Jul | Accounts receivable | 1,150 | |
Storage fees earned | 1,150 | ||
(To record accrued commission but not received) |
The ledger accounts are prepared as follows:
Insurance expense Account No: 637 | ||||
Date | Explanation | Debit | Credit | Balance |
31-Jul | $400 | $400 |
Prepaid Insurance Account No: 128 | ||||
Date | Debit | Credit | Balance | |
10-Jul | $7,200 | $7,200 | ||
31-Jul | $400 | $6,800 |
Office supplies expense Account No: 650 | ||||
Date | Explanation | Debit | Credit | Balance |
31-Jul | $875 | $875 |
Office Supplies Account No: 124 | ||||
Date | Explanation | Debit | Credit | Balance |
5-Jul | $2,400 | $2,400 | ||
31-Jul | $875 | $1,525 |
Depreciation expense - buildings Account No: 506 | ||||
Date | Explanation | Debit | Credit | Balance |
31-Jul | $1,500 | $1,500 |
Accumulated depreciation - buildings Account No: 174 | ||||
Date | Explanation | Debit | Credit | Balance |
31-Jul | $1,500 | $1,500 |
Salaries expense Account No: 622 | ||||
Date | Debit | Credit | Balance | |
14-Jul | $1,000 | $1,000 | ||
28-Jul | $1,000 | $2,000 | ||
31-Jul | $100 | $2,100 |
Salary payable Account No: 209 | ||||
Date | Debit | Credit | Balance | |
31-Jul | $100 | $100 |
Account receivable Account No: 106 | ||||
Date | Debit | Credit | Balance | |
31-Jul | $1,150 | $1,150 |
Storage fees earned Account No: 401 | ||||
Date | Debit | Credit | Balance | |
24-Jul | $9,800 | $9,800 | ||
31-Jul | $1,150 | $10,950 |
5.
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.
To prepare: The adjusted trial balance, the income statement, statement of retained earnings and the balance sheet.
5.
Explanation of Solution
An adjusted trial balance is prepared as follows:
Company S | ||||
Adjusted trial balance | ||||
31-Jul | ||||
Particulars | Debit ($) | Credit($) | ||
Cash | 22,850 | |||
Accounts receivable | 1,150 | |||
Office supplies | 1,525 | |||
Prepaid Insurance | 6,800 | |||
Buildings | 150,000 | |||
Accumulated depreciation-Buildings | 1,500 | |||
Salaries payable | 100 | |||
Company S Capital | 180,000 | |||
Dividends | 2,000 | |||
Storage fees earned | 10,950 | |||
Depreciation expense-Buildings | 1,500 | |||
Salaries expense | 2,100 | |||
Insurance expense | 400 | |||
Rent expense | 2,000 | |||
Office supplies expense | 875 | |||
Rent expense | 950 | |||
Telephone expense | 400 | |||
Total | 192,550 | 192,550 |
Therefore, the total amount of the trial balance is $192,550.
The income statement is prepared as follows:
Company S | ||||
Income statement | ||||
For the year ended July 31 | ||||
Particulars | Amount($) | Amount($) | ||
Revenues: Storage fees earned | 10,950 | |||
Less: expenses | ||||
Depreciation expense-Buildings | 1,500 | |||
Salaries expense | 2,100 | |||
Insurance expense | 400 | |||
Rent expense | 2,000 | |||
Office supplies expense | 875 | |||
Repair expense | 950 | |||
Telephone expense | 400 | |||
Total expense | 8,225 | |||
Net Income | 2,725 |
Therefore, the net income is $2,725.
The statement of retained earnings is prepared as follow:
Company S Statement of retained earnings For the year ended July 31 | ||||
Particulars | Amount ($) | |||
Opening balance | 0 | |||
Add: net income | 2,725 | |||
Less: dividends | (2,000) | |||
Ending balance | 725 |
Company S | ||||
Balance Sheet | ||||
31-Jul | ||||
Assets | Amount($) | |||
Cash | 22,850 | |||
Accounts receivable | 1,150 | |||
Office supplies | 1,525 | |||
Prepaid insurance | 6,800 | |||
Buildings | 150,000 | |||
Accumulated depreciation - Buildings | -1,500 | 148,500 | ||
Total assets | 180,825 | |||
Liabilities | ||||
Salaries payable | 100 | |||
Equity | ||||
Company S capital | 180,000 | |||
Retained earnings | 725 | |||
Total Liabilities and Equity | 180,825 |
Therefore, the balance sheet total is $180,825.
6.
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.
To prepare: The closing journal entries. Also, prepare ledger accounts for them.
6.
Explanation of Solution
Closing entries for are prepared as follows:
Date | Particulars | Debit ($) | Credit ($) |
31-Jul | Storage fees earned | 10,950 | |
Income summary | 10,950 | ||
(To close revenue account) | |||
31-Jul | Income summary | 8,225 | |
Depreciation expense | 1,500 | ||
Salaries expense | 2,100 | ||
Office supplies expense | 875 | ||
Insurance expense | 400 | ||
Rent expense | 2,000 | ||
Telephone expense | 400 | ||
(To close expense account) | |||
31-Jul | Income summary | 2,725 | |
Retained earnings | 2,725 | ||
(To close income summary) | |||
31-Jul | Retained earnings | 2,000 | |
Dividends | 2,000 | ||
To close dividends account) |
The ledger accounts are prepared as follows:
Income summary Account No: 901 | ||||
Date | Debit | Credit | Balance | |
31-Jul | $10,950 | $10,950 | ||
31-Jul | $8,225 | $2,725 | ||
31-Jul | $2,725 | 0 |
Dividends Account No: 319 | ||||
Date | Debit | Credit | Balance | |
31-Jul | $2,000 | $2,000 | ||
31-Jul | $2,000 | 0 |
Retained earnings Account No: 318 | ||||
Date | Debit | Credit | Balance | |
31-Jul | $2,725 | $2,725 | ||
31-Jul | $2,000 | $725 |
7.
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.
To prepare: Post-closing trial-balance.
7.
Explanation of Solution
Post-closing trial balance is prepared as follows:
Company S | ||||
Post-closing trial balance | ||||
31-Jul | ||||
Particulars | Debit ($) | Credit($) | ||
Cash | 22,850 | |||
Accounts receivable | 1,150 | |||
Office supplies | 1,525 | |||
Prepaid Insurance | 6,800 | |||
Computer equipment | 150,000 | |||
Accumulated depreciation-Buildings | 1,500 | |||
Salaries payable | 100 | |||
Company S Capital | 180,000 | |||
Retained earnings | 725 | |||
Total | 182,325 | 182,325 |
Therefore, the post-closing trial balance amount is $182,325.
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Chapter 3 Solutions
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