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 3.7AP

1. and 2.

To determine

To Post: The unadjusted balances and the adjusting entries into T-accounts.

1. and 2.

Expert Solution
Check Mark

Explanation of Solution

T-account:

An account is referred to as a 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:

  • The title of the account
  • The left or debit side
  • The right or credit side

Post the unadjusted balances and the adjusting entries into T-accounts.

Cash account:

Cash
10,300
 Balance 10,300

Accounts Receivable account:

Accounts Receivable
9,500
 Balance 9,500

Supplies account:

Supplies
2,000
1,300
 Balance 700

Prepaid rent account:

Prepaid rent
7,200
5,400
 Balance 1,800

Equipment account:

Equipment
90,000
 Balance 90,000

Accumulated Depreciation account:

Accumulated Depreciation
12,000
6,000
 Balance 18,000

Accounts Payable account:

Accounts Payable
7,700
 Balance 7,700

Salaries Payable account:

Salaries Payable
0
2,100
 Balance 2,100

Interest Payable account:

Interest Payable
0
800
 Balance 800

Utilities Payable account:

Utilities Payable
0
200
 Balance 200

Notes Payable account:

Notes Payable
20,000
 Balance 20,000

Common Stock account:

Common Stock
45,000
0
 Balance 45,000

Retained Earnings account:

Retained Earnings
19,000
 Balance 19,000

Service Revenue account:

Service Revenue
42,200
 Balance 42,200

Salaries Expense account:

Salaries Expense
24,500
2,100
 Balance 26,600

Interest Expense account:

Interest Expense
0
800
 Balance 800

Rent Expense account:

Rent Expense
0
5,400
 Balance 5,400

Supplies Expense account:

Supplies Expense
0
1,300
 Balance 1,300

Utilities Expense account:

Utilities Expense
2,400
200
 Balance 2,600

Depreciation Expense account:

Depreciation Expense
0
6,000
 Balance 6,000

3.

To determine

To Prepare: An adjusted trial balance.

3.

Expert Solution
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Explanation of Solution

Trial balance:

A trial balance is the summary of all the ledger accounts. The trial balance is prepared to check the total balance of the debit column with the total of the balance of the credit column, which must be equal. The trial balance is usually prepared to check accuracy of ledger accounts balances before the preparation of financial statements.

Prepare an adjusted trail balance for the year ending December 31, 2015:

CT Music Academy

Adjusted Trial Balance

For the Year Ending December 31, 2015

Accounts Debit ($) Credit ($)
Cash 10,300
Accounts Receivable 9,500
Supplies 700
Prepaid Rent 1,800
Equipment 90,000
Accumulated Depreciation 18,000
Accounts Payable 7,700
Salaries Payable 2,100
Interest Payable 800
Utilities Payable 200
Notes Payable 20,000
Common Stock 45,000
Retained Earnings 19,000
Service Revenue 42,200
Salaries  Expense 26,600
Interest Expense 800
Rent Expense 5,400
Supplies Expense 1,300
Utilities Expense 2,600
Depreciation Expense 6,000
Total 155,000 155,000

Table (1)

4.

To determine

To Prepare: An income statement, statement of shareholders’ equity, and a classified balance sheet for the year ended December 31, 2015.

4.

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. It is prepared to find out the net income of an organization.

Prepare an income statement for the year ended December 31, 2015:

CT Music Academy

Income statement

For the Year Ending December 31, 2015

Details Amount ($) Amount ($)
Revenues:
Service revenue 42,200
Less: Expenses
    Salaries  Expense 26,600
    Interest  Expense 800
    Rent Expense 5,400
    Supplies Expense 1,300
    Utilities Expense 2,600
    Depreciation Expenses 6,000
Total Expenses (42,700)
Net Income (Loss) $(500)

Table (2)

Statement of Stockholders’ Equity:

Stockholders’ equity statement shows the changes made in the stockholders’ equity account and in the total stockholders’ equity during the accounting period. It is otherwise known as statements of shareholder’s investment.

Prepare statement of stockholders’ equity the year ended December 31, 2015.

CT Music Academy

Statement of Stockholders’ Equity

For the Year Ended December 31, 2015

Particulars Common Stock Retained Earnings Total Stockholders’ Equity
Beginning balance $45,000 $19,000 $64,000
Issuance of common stock $0   $0
Less: Net income   $(500) $(500)
Less: Dividends $(0) $(0)
Ending balance $45,000 $18,500 $63,500

Table (3)

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and claims of stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Prepare the balance sheet as of December 31, 2015.

CT Music Academy

Balance Sheet

As of December 31, 2015

Assets Amount Liabilities and Stockholders’ Equity Amount
Assets: Liabilities:
Cash $10,300 Accounts payable $7,700
Accounts receivable $9,500 Salaries payable $2,100
Supplies $700 Interest payable 800
Prepaid rent $1,800 Utilities payable 200
Total current assets $22,300 Total current liabilities $10,800
Equipment $90,000 Notes payable $20,000
Accumulated depreciation $(18,000) Total liabilities $30,800
  Stockholders’ Equity:  
    Common stock $45,000
    Retained earnings $18,500
  Total Stockholders’ Equity $63,500
Total assets $94,300 Total liabilities and stockholders’ equity $94,300

Table (4)

5.

To determine

To Record: The closing entries.

5.

Expert Solution
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Explanation of Solution

Closing Entries:

Closing entries are those journal entries which are passed to transfer the balances of temporary accounts to the permanent accounts. These are passed at the end of the period, to transfer the final balance.

Prepare journal entry to record closing entries at December 31, 2015.

The following is the closing entry for revenue accounts:

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

December 31, 2015 Service Revenues 42,200
Retained Earnings 42,200
(To close the revenues account)

Table (5)

  • Revenue is decreased. Therefore, debit revenue account.
  • Retained earnings are a component of Stockholders’ Equity, and it is increased. Therefore, credit retained earnings account.

The following is the closing entry for the expenses account:

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

December 31, 2015 Retained Earnings 42,700
Salaries expense 26,600
Interest expense 800
Rent expense 5,400
Supplies expense 1,300
Utilities expense 2,600
Depreciation expense 6,000
(To close the expenses account)

Table (6)

  • Retained Earnings is a component of Stockholders’ Equity, and it is decreased. Therefore, debit retained earnings account.
  • Expenses are decreased. Therefore, credit expenses account.

6.

To determine

To Post: The closing entries to the accounts.

6.

Expert Solution
Check Mark

Explanation of Solution

Post closing entries to the account.

Retained Earnings account:

Retained Earnings
19,000
42,700 42,200
 Balance 18,500

Service Revenue account:

Service Revenue
42,200
42,200
 Balance 0

Salaries Expense account:

Salaries Expense
24,500
2,100 26,600
 Balance 0

Interest Expense account:

Interest Expense
0
800 800
 Balance 0

Rent Expense account:

Rent Expense
0
5,400 5,400
 Balance 0

Supplies Expense account:

Salaries Expense
0
1,300 1,300
 Balance 0

Utilities Expense account:

Utilities Expense
2,400
200 2,600
 Balance 0

Depreciation Expense account:

Depreciation Expense
0
6,000 6,000
 Balance 0

7.

To determine

To Prepare: A post-closing trial balance.

7.

Expert Solution
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Explanation of Solution

Post-closing trial balance: It is a trial balance that is prepared after the closing entries are recorded. It includes only the balance sheet accounts as the income statement accounts are closed to the income summary.

Prepare a post-closing trial balance.

CT Music Academy

Post-Closing Trial Balance

For the Year Ended December 31, 2015

Accounts

Debit

($)

Credit

($)

Cash 10,300
Accounts receivable 9,500
Supplies 700
Prepaid rent 1,800
Equipment 90,000
Accumulated depreciation 18,000
Accounts payable 7,700
Salaries payable 2,100
Interest payable 800
Utilities payable 200
Notes payable 20,000
Common stock 45,000
Retained earnings 18,500
Total $112,300 $112,300

Table (7)

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Chapter 3 Solutions

Financial Accounting

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