Financial Accounting
Financial Accounting
3rd Edition
ISBN: 9780078025549
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
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Chapter 3, Problem 3.1APCP

1

To determine

To record: The journal entries for given transactions from July 1 to December 31.

1

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, expenses.

The journal entries for given transactions of Company G are as follows:

Date Account Title and Explanation PostRef. Debit($) Credit($)
2015 Cash   10,000  
July 1 Common stock     10,000
  (To record the issuance of common stock in cash to Company S)      
2015 Cash   10,000  
July, 2 Common stock     10,000
  (To record the issuance of common stock in cash to Company T)      
2015 Prepaid insurance   4,800  
July 1 Cash     4,800
  (To record the purchase of one year insurance policy in cash)      
2015 Legal fees expense   1,500  
July, 2 Cash     1,500
  (To record the payment of legal fees)      
2015 Supplies (office)   1,800  
July, 4 Accounts payable     1,800
  (To record purchase of office supplies on account)      
2015 Advertising expense   300  
July, 7 Cash     300
  (To record payment of advertising expense)      
2015 Equipment (Bikes)   12,000  
July, 7 Cash     12,000
  (To record the purchase of mountain bike)      
2015 Cash   2,000  
July, 15 Service revenue (Clinic)     2,000
  ( To record the cash received for service revenue)      
2015 Cash   2,300  
July, 22 Service revenue (Clinic)     2,300
  ( To record the cash received for service revenue)      
2015 Advertising expense   700  
July, 22 Cash     700
  (To record the payment of advertising expense in cash)      
2015 Cash   4,000  
July, 30 Deferred revenue     4,000
  (To record advance cash received from customer)      
2015 Cash   30,000  
August, 1 Notes payable     30,000
  (To record loan received from city council)      
2015 Equipment (Kayaks)   28,000  
August, 4 Cash     28,000
  (To record the purchase of equipment in cash)      
2015 Cash   3,000  
August, 10 Deferred revenue   4,000  
  Service revenue     7,000
  (To record the cash received from service revenue and recognized service revenue)      
2015 Cash   10,500  
August, 17 Service revenue     10,500
  (To record cash received from service revenue)      
2015 Accounts payable   1,800  
August, 24 Cash     1,800
  ( To record payment of cash to creditors)      
2015 Prepaid rent   2,400  
September 1 Cash     2,400
  (To record the payment of one year advance rent)      
2015 Cash   13,200  
September 21 Service revenue (Clinic)     13,200
  (To record the cash received from customer)      
2015 Cash   17,900  
October 17 Service revenue (Clinic)     17,900
  (To record the cash received from customer)      
2015 Miscellaneous expense   1,200  
December 8 Cash     1,200
  (To record the payment of miscellaneous expense)      
2015 Supplies (Racing)   2,800  
December 12 Accounts payable  

 

 

2,800
  (To record purchase of supplies on account)      
2015 Cash   20,000  
December 15 Service revenue (Racing)     20,000
  (To record cash received from service revenue)      
2015 Salaries expense   2,000  
December 16 Cash     2,000
  (To record the supplies expense incurred)      
2015 Dividend   4,000  
December 31 Cash     4,000
  (To record the payment of cash dividends)      

Table (1)

2

To determine

To record: The adjusting journal entries on December 31.

2

Expert Solution
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Explanation of Solution

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.

The adjusting journal entries for given transactions of Company G are as follows:

Date Account Title and Explanation Post Ref. Debit($) Credit($)
2015 Depreciation expense   8,000  
December 31 Accumulated depreciation     8,000
  (To record depreciation expense incurred at the end of the accounting year)      
2015 Insurance expense   2,400  
December 31 Prepaid insurance     2,400
  (To record the insurance expense incurred at the end of the accounting period)      
2015 Rent expense   800  
December 31 Prepaid rent     800
  (To record the rent expense incurred at the end of the accounting year)      
2015 Supplies expense (Office)   1,500  
December 31 Supplies     1,500
  (To record supplies expense incurred at the end of the accounting year)      
2015 Interest expense   750  
December 31 Interest payable     750
  (To record interest expense incurred at the end of the accounting year)      
2015 Supplies expense (Racing)   2,600  
December 31 Supplies     2,600
  (To record supplies expense incurred at the end of the accounting year)      
2015 Income tax expense   14,000  
December 31 Income tax payable     14,000
  (To record the income tax expense incurred at the end of the accounting year)      

Table (2)

3

To determine

To post: The Transactions to T-accounts of Company G.

3

Expert Solution
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Explanation of Solution

T-account:

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

This account is referred to as the 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

T-accounts for above transactions are as follows:

Cash
10,000 4,800
10,000 1,500
2,000 300
2,300 12,000
4,000 700
30,000 28,000
3,000 1,800
10,500 2,400
13,200 1,200
17,900 2,000
20,000 4,000
64,200
Prepaid Insurance
4,800 2,400
2,400
Supplies (Racing)
2,800 2,600
200
Prepaid Rent
2,400 800
1,600
Supplies (Office)
1,800 1,500
300
Equipment (Bikes)
12,000  
12,000
Equipment (Kayaks)
28,000  
28,000
Accumulated  Depreciation
  8,000
  8,000
Accounts Payable
1800 1,800
2,800
  2,800
Deferred Revenue
4,000 4,000
  0
Interest Payable
  750
  750
Income Tax Payable
  14,000
  14,000
Notes Payable
  30,000
  30,000
Common Stock
  10,000
10,000
  20,000
Dividends
4,000  
4,000
Service Revenue (Clinic)
  2,000
2,300
7,000
10,500
13,200
17,900
  52,900
Service Revenue (Racing)
  20,000
  20,000
Legal Fees Expense
1,500  
1,500
Advertising Expense
300  
700
1,000
Rent Expense
800  
800
Salaries Expense
2,000  
2,000
Depreciation Expense
8,000  
8,000
Insurance Expense
2,400  
2,400
Supplies Expense (Office)
1,500  
1,500
Supplies Expense (Racing)
2,600  
2,600
Interest Expense
750  
750
Income Tax Expense
14,000  
14,000
Miscellaneous Expense
1,200  
1,200

4

To determine

To prepare: The adjusted trial balance of Company G.

4

Expert Solution
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Explanation of Solution

Adjusted trial balance:

Adjusted trial balance is a summary of all the ledger accounts, and it contains the balances of all the accounts after the adjustment entries are journalized, and posted.

Adjusted trial balance of Company G is as follows:

Company G
Adjusted Trial Balance
December 31, 2015
Accounts Debit ($) Credit ($)
Cash 64,200
Prepaid Insurance 2,400
Prepaid Rent 1,600
Supplies (Office) 300
Supplies (Racing) 200
Equipment (Bikes) 12,000
Equipment (Kayaks) 28,000
Accumulated Depreciation $8,000
Accounts Payable 2,800
Income Tax Payable 14,000
Interest Payable 750
Notes Payable 30,000
Common Stock 20,000
Dividends 4,000
Service Revenue (Clinic) 52,900
Service Revenue (Racing) 20,000
Advertising Expense 1,000
Depreciation Expense 8,000
Income Tax Expense 14,000
Insurance Expense 2,400
Interest Expense 750
Legal Fees Expense 1,500
Miscellaneous Expense 1,200
Rent Expense 800
Salaries Expense 2,000
Supplies Expense (Office) 1,500
Supplies Expense (Racing) 2,600
Totals 148,450 148,450

Table (3)

5

To determine

To prepare: The income statement and classified balance sheet of Company G.

5

Expert Solution
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Explanation of Solution

Income statement:

This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.

Statement of stockholders’ equity:

This statement reports the beginning stockholder’s equity and all the changes, which led to ending stockholder’s’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning stockholder’s equity to arrive at the result of closing balance of stockholders’ equity.

Classified balance sheet:

This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

Income statement:

Income statement of Company G is as follows:

Company G
Income Statement
For the year ended December 31, 2015
  ($) ($)
Revenues:    
Service revenue (clinic) 52,900  
Service revenue (racing) 20,000  
Total revenues   72,900
Expenses:    
Advertising expense 1,000  
Depreciation expense 8,000  
Income tax expense 14,000  
Insurance expense 2,400  
Interest expense 750  
Legal fees expense 1,500  
Miscellaneous expense 1,200  
Rent expense 800  
Salaries expense 2,000  
Supplies expense (office) 1,500  
Supplies expense (racing) 2,600  
Total expenses   35,750
Net income   37,150

Table (4)

Therefore, the net income of Company G is $37,150.

Statement of stockholder’s equity:

The statement of stockholder’s equity of Company G for the year ended December 31, 2015 is as follows:

Company G
Statement of Stockholders’ Equity
For the period ended December 31, 2015
 Common stock ($)  Retained earnings ($)  Total stockholders' equity ($)
Balance at July 1 $0 $0 $0
Issuance of common stock 20,000 20,000
Add: Net income for 2018 37,150 37,150
Less: Dividends -4,000 -4,000
Balance at December 31 $20,000 $33,150 $53,150

Table (5)

Therefore, the total stockholder’s equity of Company G for the year ended December 31, 2015 is $53,150.

Classified balance sheet:

Classified balance sheet of Company G is as follows:

Financial Accounting, Chapter 3, Problem 3.1APCP

Figure (1)

Therefore, the total assets of Company G are $100,700, and the total liabilities and stockholders’ equity are $100,700.

6

To determine

To record: The necessary closing entries of Company G.

6

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 the retained earnings. Closing entries produce a zero balance in each temporary account.

Closing entries of Company G is as follows:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

2015 Service revenue (Clinic) 52,900
December 31 Service revenue (Racing) 20,000
Retained earnings 72,900
(To close all revenue account)
2015 Retained earnings 37,750
December 31 Advertising expense 1,000
Depreciation expense 8,000
Income tax expense 14,000
Insurance expense 2,400
Interest expense 750
Legal fees expense 1,500
Miscellaneous expense 1,200
Rent expense 800
Salaries expense 2,000
Supplies expense (office) 1,500
Supplies expense (Racing) 2,600
(To close all the expenses account)
2015 Retained earnings 4,000
December 31 Dividends 4,000
(To close the dividends account)

Table (6)

7

To determine

To post: The closing entries to the T-accounts.

7

Expert Solution
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Explanation of Solution

Service Revenue (Clinic)
  2,000
  2,300
  7,000
  10,500
  13,200
52,900 17,900
  0
Service Revenue (Racing)
20,000 20,000
  0
Legal Fees Expense
1,500 1,500
0
Advertising Expense
300  
700 1,000
0
Rent Expense
800 800
0
Salaries Expense
2,000 2,000
0
Depreciation Expense
8,000 8,000
0
Insurance Expense
2,400 2,400
0
Supplies Expense (Office)
1,500 1,500
0
Supplies Expense (Racing)
2,600 2,600
0
Interest Expense
750 0
750
Income Tax Expense
14,000 14,000
0
Miscellaneous Expense
1,200 1,200
0
Dividends
4,000 4,000
0
Retained Earnings
35,750 72,900
4,000
  33,150

8

To determine

To prepare: A post-closing trial balance of Company G.

8

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.

Post-closing trial balance of Company G is as follows:

Company G
Post-closing Trial Balance
For the year ended December 31, 2015
Accounts Debit ($) Credit ($)
Cash $64,200
Prepaid Insurance 2,400
Prepaid Rent 1,600
Supplies (Office) 300
Supplies (Racing) 200
Equipment (Bikes) 12,000
Equipment (Kayaks) 28,000
Accumulated Depreciation $8,000
Accounts Payable 2,800
Income Tax Payable 14,000
Interest Payable 750
Notes Payable 30,000
Common Stock 20,000
Retained Earnings 33,150
Total $108,700 $108,700

Table (7)

Therefore, the total of debit, and credit columns of post-closing trial balance is $108,700 and agree.

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Chapter 3 Solutions

Financial Accounting

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