Fundamental Financial Accounting Concepts
Fundamental Financial Accounting Concepts
10th Edition
ISBN: 9781259918186
Author: Thomas P Edmonds, Christopher Edmonds, Frances M McNair, Philip R Olds
Publisher: McGraw-Hill Education
Question
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Chapter 3, Problem 22AE

a.

To determine

Record the journal entries for the given transactions.

a.

Expert Solution
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Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, and expenses.

Record the journal entries for the given transactions as follows:

1. Provided $185,000 of service on account

Date Account Titles Debit ($) Credit ($)
  Accounts Receivable 185,000  
  Service Revenue   185,000
  (To record the service performed on account)    

Table (1)

  • Accounts receivable is an asset account, and it increases the value of asset by $185,000. Hence, debit the accounts receivable account for $185,000.
  • Service revenue is a component of stockholder’s equity, and it increases the value of stockholder’s equity by $185,000. Hence, credit the service revenue account for $185,000.

2. Incurred $45,800 of operating expense on account

Date Account Titles Debit ($) Credit ($)
  Operating Expenses 45,800  
  Accounts Payable   45,800
  (To record operating expense incurred on account)    

Table (2)

  • Operating expense is a component of stockholder’s equity, and it decreases the value of stockholder’s equity by $45,800. Hence, debit the operating expense account for $45,800.
  • Accounts payable is a liability account, and it increases the value of liability by $45,800. Hence, credit the liability account by $45,800.

3. Collected $140,000 of accounts receivable

Date Account Titles Debit ($) Credit ($)
  Cash 140,000  
  Accounts Receivable   140,000
  (To record cash received from credit customer)    

Table (3)

  • Cash is an asset account, and it increases the value of asset by $140,000. Hence, debit the cash account for $140,000.
  • Accounts receivable is an asset account, and it decreases the value of asset by $140,000. Hence, credit the accounts receivable account for $140,000.

4. Paid $120,000 cash for salaries expense

Date Account Titles Debit ($) Credit ($)
  Salaries Expense 120,000  
  Cash   120,000
  (To record salaries expense paid in cash)    

Table (4)

  • Salaries expense is a component of stockholder’s equity, and it decreases the value of stockholder’s equity by $120,000. Hence, debit the salaries expense account for $120,000.
  • Cash is an asset account, and it decreases the value of assets account by $120,000. Hence, credit the cash account for $120,000.

5. Paid $31,400 cash as a partial payment on accounts payable

Date Account Titles Debit ($) Credit ($)
  Accounts Payable 31,400  
  Cash   31,400
  (To record cash paid to creditors)    

Table (5)

  • Accounts payable is a liability account, and it decreases the value of liability by $31,400. Hence, debit the accounts payable account by $31,400.
  • Cash is an asset account, and it decreases the value of assets account by $31,400. Hence, credit the cash account for $31,400.

6. Paid a $10,000 cash dividend to stockholders

Date Account Titles Debit ($) Credit ($)
  Dividends 10,000  
  Cash   10,000
  (To record dividends paid to stockholders)    

Table (6)

  • Dividends are a component of stockholder’s equity, and it decreases the value of stockholder’s equity by $10,000. Hence, debit the dividend account for $10,000.
  • Cash is an asset account, and it decreases the value of assets account by $10,000. Hence, credit the cash account for $10,000.

b.

To determine

Open T-account and record the given transactions in the T-account.

b.

Expert Solution
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Explanation of Solution

T-account:

T-account refers to an individual account, where the increase or decrease in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded.

This account is referred as T-account, because the alignment of the components of the account resembles the capital letter ‘T’. An account consists of the three main components which are as follows:

  1. (a) The title of the account
  2. (b) The left or debit side
  3. (c) The right or credit side

Open T-account and record the given transactions in the T-account as follows:

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  1

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  2

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  3

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  4

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  5

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  6

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  7

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  8

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  9

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  10

c.

To determine

Show the given transaction in the horizontal statements model.

c.

Expert Solution
Check Mark

Explanation of Solution

Show the given transaction in the horizontal statements model as follows:

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  11

Table (7)

d.

To determine

Record and post the closing entries to T-account.

d.

Expert Solution
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Explanation of Solution

Closing entries:

Closing entries are those journal entries, which are passed to transfer the final balances of temporary accounts, (all revenues account, all expenses account and dividend) to retained earnings. Closing entries produce a zero balance in each temporary account.

Record and post the closing entries to T-account as follows:

Closing journal entries:

Date Account Titles Debit ($) Credit ($)
  Service Revenue 185,000
  Retained Earnings 185,000
  (To close the revenue account)
  Retained Earnings 165,800
  Operating Expenses 45,800
  Salaries Expense 120,000
  (To close all the expense account)
  Retained Earnings 10,000
  Dividends 10,000
  (To close dividends account)

Table (8)

Closing entry for revenue account:

In this closing entry, the service revenue account is closed by transferring the amount of service revenue to retained earnings in order to bring the revenue account balance to zero. Hence, debit the service revenue account for $185,000, and credit the retained account for $185,000.

Closing entry for expenses account:

In this closing entry, operating and salaries expense accounts are closed by transferring the amount of operating and salaries expense to the retained earnings in order to bring the expense account balance to zero. Hence, debit the retained earnings for $165,800 and credit supplies account for $165,800.

Closing entry for dividends account:

In this closing entry, the dividends account is closed by transferring the amount of dividends to retained earnings in order to bring the dividends account balance to zero. Hence, debit the retained earnings for $10,000 and credit dividends account for $10,000.

T-account:

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  12

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  13

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  14

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  15

Fundamental Financial Accounting Concepts, Chapter 3, Problem 22AE , additional homework tip  16

e.

To determine

Ascertain the amount of change in retained earnings and also explain the reason for changes in the amount of retained earnings.

e.

Expert Solution
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Explanation of Solution

Retained earnings:

Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth.

Ascertain the amount of change in retained earnings and also explain the reason for changes in the amount of retained earnings as follows:

The amount of change in the retained earnings is $9,200. Dividend decreases the retained earnings because dividend is a temporary account and dividend account is closed by transferring the amount of dividend to retained earnings. Hence, the dividend account reduces the value of retained earnings, but does not decrease the value net income.

Calculate the amount of change in retained earnings

The amount of change in retained earnings }= Retained earnings Dividends=($19,200$10,000)=$9,200

Therefore, the amount of change in the retained earnings is $9,200.

f.

To determine

Prepare post-closing trial balance of Company O.

f.

Expert Solution
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Explanation of Solution

Post-closing trial balance:

The post-closing trial balance is a summary of all ledger accounts, and it shows the debit and the credit balances after the closing entries are journalized and posted. The post-closing trial balance contains only permanent (balance sheet) accounts, and the debit and the credit balances of permanent accounts should agree.

Prepare post-closing trial balance of Company O as follows:

Company O
Post-Closing Trial Balance
Accounts Debit ($) Credit ($)
Cash 20,600
Accounts Receivable 70,000 22,800
Accounts Payable 24,000
Common Stock 43,800
Retained Earnings 22,450
Total 90,600 90,600

Table (9)

Therefore, the total of debit, and credit columns of post-closing trial balance is $90,600 and agree.

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Chapter 3 Solutions

Fundamental Financial Accounting Concepts

Ch. 3 - Prob. 11QCh. 3 - Prob. 12QCh. 3 - Prob. 13QCh. 3 - Prob. 14QCh. 3 - Prob. 15QCh. 3 - Prob. 16QCh. 3 - Prob. 17QCh. 3 - Prob. 18QCh. 3 - Prob. 19QCh. 3 - Prob. 20QCh. 3 - Prob. 21QCh. 3 - Prob. 22QCh. 3 - Prob. 1AECh. 3 - Prob. 2AECh. 3 - Prob. 3AECh. 3 - Prob. 4AECh. 3 - Prob. 5AECh. 3 - Prob. 6AECh. 3 - Prob. 7AECh. 3 - Prob. 8AECh. 3 - Prob. 9AECh. 3 - Prob. 10AECh. 3 - Prob. 11AECh. 3 - Prob. 12AECh. 3 - Prob. 13AECh. 3 - Prob. 14AECh. 3 - Prob. 15AECh. 3 - Prob. 16AECh. 3 - Prob. 17AECh. 3 - Prob. 18AECh. 3 - Prob. 19AECh. 3 - Prob. 20AECh. 3 - Prob. 21AECh. 3 - Prob. 22AECh. 3 - Prob. 23AECh. 3 - Prob. 24AECh. 3 - Prob. 25APCh. 3 - Prob. 26APCh. 3 - Prob. 27APCh. 3 - Prob. 28APCh. 3 - Prob. 29APCh. 3 - Prob. 30APCh. 3 - Prob. 31APCh. 3 - Prob. 32APCh. 3 - Prob. 33APCh. 3 - Prob. 34APCh. 3 - Prob. 35APCh. 3 - Prob. 36APCh. 3 - Prob. 1BECh. 3 - Prob. 2BECh. 3 - Prob. 3BECh. 3 - Prob. 4BECh. 3 - Prob. 5BECh. 3 - Prob. 6BECh. 3 - Prob. 7BECh. 3 - Prob. 8BECh. 3 - Prob. 9BECh. 3 - Prob. 10BECh. 3 - Prob. 11BECh. 3 - Prob. 12BECh. 3 - Prob. 13BECh. 3 - Prob. 14BECh. 3 - Prob. 15BECh. 3 - Prob. 16BECh. 3 - Prob. 17BECh. 3 - Prob. 18BECh. 3 - Prob. 19BECh. 3 - Prob. 20BECh. 3 - Prob. 21BECh. 3 - Prob. 22BECh. 3 - Prob. 23BECh. 3 - Prob. 24BECh. 3 - Prob. 25BPCh. 3 - Prob. 26BPCh. 3 - Prob. 27BPCh. 3 - Prob. 28BPCh. 3 - Prob. 29BPCh. 3 - Prob. 30BPCh. 3 - Prob. 31BPCh. 3 - Prob. 32BPCh. 3 - Prob. 33BPCh. 3 - Prob. 34BPCh. 3 - Prob. 35BPCh. 3 - Prob. 36BPCh. 3 - Prob. 1ATCCh. 3 - Prob. 3ATCCh. 3 - Prob. 4ATCCh. 3 - Prob. 5ATCCh. 3 - Prob. 6ATCCh. 3 - Prob. 7ATCCh. 3 - Prob. 9ATCCh. 3 - Prob. 10ATCCh. 3 - Prob. 1CP
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