Financial Accounting
Financial Accounting
3rd Edition
ISBN: 9780078025549
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
Question
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Chapter 3, Problem 3.8BP

1

To determine

To prepare: The T-accounts and enter the beginning balance from the trial balance.

1

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

The T-accounts of given item in trial balance are as follows:

Cash
Jan. 1 $4,500
Bal. $4,500
Equipment
Jan. 1 $36,000
Bal. $36,000
Common stock
    Jan. 1 $23,000
    Bal. $23,000
Utilities payable
    Jan. 1 $7,000
    Bal. $7,000
Accounts receivables
Jan. 1 $9,500    
Bal. $9,500    
Supplies
Jan. 1 $4,000
Bal. $4,000
Accounts payable
Jan. 1 $6,000
Bal. $6,000
Accumulated Depreciation
Jan. 1 $8,000
Bal. $8,000
Retained earnings
Jan. 1 $9,500
Bal. $9,500

2

To determine

To record: The journal entries for given transactions.

2

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 P are as follows:

Date Account Title and Explanation Debit($) Credit($)
2015 Accounts receivable 65,000  
January 24 Cash 20,000  
  Service revenue   85,000
  (To record the recognized service revenue on account and cash)    
 
2015 Cash 53,000  
March, 13 Accounts receivable   53,000
  (To record cash collection from customer)    
 
2015 Cash 11,000  
May, 6 Common stock   11,000
  (To record the cash received from issuance of common stock)    
 
2015 Salaries expense 33,000  
June 30 Cash   33,000
  (To record the payment of salaries expense)    
 
2015 Utilities payable 7,000  
September 15 Utilities expense 6,000  
  Cash   13,000
  (To record the payment of  current and post utilities expense)    
 
2015 Cash 10,000  
November 24 Unearned revenue   10,000
  (To record advance cash received from customer)    
 
2015 Dividends 3,000  
December 30 Cash   3,000
  (To record the payment of dividends)    

Table (1)

3

To determine

To post: The transactions to T-accounts.

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 of above transactions are as follows:

Cash
Jan. 1 $4,500 Jun. 30 $33,000
Jan. 24 $20,000 Sep. 15 $13,000
Mar. 23 $53,000 Dec. 30 $3,000
May 6 $11,000
Nov. 24 $10,000
Total $98,500 Total $49,000
Bal. $49,500
Common stock
    Jan. 1 $23,000
    May, 6 $11,000
    Bal. $34,000
Dividends
Jan. 1     $0    
Dec. 30 $3,000    
Bal. $3,000    
Accounts receivables
Jan. 1 $9,500    
Jan. 24 $65,000 Jun. 30 $53,000
Total $74,500 Total $53,000
Bal. $21,500    
Accumulated Depreciation
Jan. 1 $5,000
Bal. $5,000
Supplies
Jan. 1 $3,500
Bal. $3,500
Utilities payable
Sep. 15 $7,000 Jan. 1 $7,000
Bal. $0
Retained earnings
Jan. 1 $9,500
Bal. $9,500
Utilities expense
Jan. 1 $0
Sep. 15 $6,000
Bal. $6,000
Service revenue
Jan. 1 $0
Jan. 24 $85,000
Bal. $60,000
Deferred revenue
    Jan. 1 $0
    Jan. 24 $10,000
    Bal. $100,000
Salaries expense
Jan. 1 $0    
Jun. 30 $33,000    
Bal. $33,000    

4

To determine

To prepare: The unadjusted trial balance of Company P.

4

Expert Solution
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Explanation of Solution

Unadjusted trial balance:

The unadjusted trial balance is the summary of all the ledger accounts before making adjusting journal entries at the end of the period.

Company P
Unadjusted Trial Balance
December 31, 2015
Accounts Debit Credit
Cash 49,500
Accounts Receivable 21,500
Supplies 3,500
Equipment 36,000
Accumulated depreciation 8,000
Accounts payable 6,000
Utilities payable 0
Deferred revenue 10,000
Common stock 34,000
Retained earnings 9,500
Dividends 3,000
Service revenue 85,000
Salaries expense 33,000
Utilities expense 6,000
Depreciation expense 0
Supplies expense 0
Totals $152,500 $152,500

Table (2)

Therefore, the total of debit, and credit columns of unadjusted trial balance is $152,500 and agree.

5

To determine

To record: The given adjusting entries of Company P.

5

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.

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.

Adjusting entries of Company P are as follows:

Depreciation expense:

Date Accounts title and explanation Post Ref. Debit ($) Credit ($)
December 31, 2015 Depreciation Expense 8,000
Accumulated Depreciation 8,000
(To record the amount of depreciation for the year)

Table (4)

Following is the rule of debit and credit of above transaction:

  • Depreciation expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
  • Accumulated depreciation is a contra-asset account. There is a decrease in assets, therefore it is credited.

Office supplies expense:

Date Accounts title and explanation Post Ref. Debit ($) Credit ($)
December 31, 2015 Supplies expense 4,400
Supplies 2,400
(To record the supplies expense incurred at the end of the accounting year)

Table (5)

Following is the rule of debit and credit of above transaction:

  • Supplies expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
  • Supplies are an asset account. There is a decrease in assets, therefore it is credited.

Unearned revenue:

Date Accounts title and explanation Post Ref. Debit ($) Credit ($)
December 31, 2015 Unearned revenue 7,000
Service revenue 7,000
(To record the service revenue recognized at the end of the accounting year)

Table (4)

Following is the rules of debit and credit of above transaction:

  • Unearned revenue is a liability account. There is a decrease in liability, therefore it is debited.
  • Service revenue is revenue, and it increased the value of stockholder’s equity. Therefore, it is credited

6

To determine

To post: The adjusting entries to appropriate T-accounts.

6

Expert Solution
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Explanation of Solution

Depreciation expense
Jan. 1 $0
Dec. 31 $8,000
Bal. $8,000
Accumulated Depreciation
Jan. 1 $8,000
Dec. 31 $8,000
Bal. $16,000
Supplies
Jan. 1 $3,500 Dec. 31 $2,400
Bal. $1,100
Supplies expense
Jan. 1     $0
Dec. 31 $2,400
Bal. $2,400
Service revenue
Jan. 1 $0
Jan. 24 $85,000
Dec. 31 $7,000
Bal. $92,000
Deferred revenue
Jan. 1 $0
Dec. 31 $7,000 Jan. 24 $10,000
Bal. $3,000

7

To determine

To prepare: The adjusted trial balance of Company P.

7

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 P is as follows:

Company P
Adjusted Trial Balance
December 31, 2015
Accounts Debit Credit
Cash 49,500
Accounts Receivable 21,500
Supplies 3,500
Equipment 36,000
Accumulated depreciation 16,000
Accounts payable 6,000
Utilities payable 0
Deferred revenue 3,000
Common stock 34,000
Retained earnings 9,500
Dividends 3,000
Service revenue 92,000
Salaries expense 33,000
Utilities expense 6,000
Depreciation expense 8,000
Supplies expense 2,400
Totals $160,500 $160,500

Table (6)

Therefore, the total of debit, and credit columns of adjusted trial balance is $160,500 and agree.

8

To determine

To prepare: An income statement for 2015 and classified balance sheet as on December 31, 2015.

8

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.

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 P is as follows:

Company P
 Income statement
 For the year ended December 31, 2015
 $  $
 Service revenue (A) 92,000
 Expenses:
 Salaries expense 33,000
 Utilities expense 6,000
 Depreciation expense 2,400
 Supplies expense 8,000
 Total expense (B) 49,400
 Net income (AB) 42,600

Table (7)

Therefore, the net income of Company P is $42,600.

Classified balance sheet:

Classified balance sheet of Company P is as follows:

Financial Accounting, Chapter 3, Problem 3.8BP

Figure (1)

Therefore, the total assets of Company P are $92,100, and the total liabilities and stockholders’ equity are $92,100.

Working note:

Calculation of ending balance retained earnings

Retained earnings = (Beginning retained earnings + Net income Dividends)=$9,500+$42,600$3,000=$49,100

9

To determine

To record: The necessary closing entries of Company P.

9

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 P is as follows:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

2015 Service revenue 92,000
December 31 Retained earnings 92,000
(To close all revenue account)
2015 Retained earnings 49,400
December 31 Salaries expense 33,000
Utilities expense 6,000
Depreciation expense 8,000
Supplies expense 2,400
(To close all the expenses account)
2015 Retained earnings 3,000
December 31 Dividends 3,000
(To close the dividends account)

Table (8)

10

To determine

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

10

Expert Solution
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Explanation of Solution

Service revenue
Jan. 1 $0
Jan. 24 $85,000
Dec. 31 $92,000 Dec. 31 $7,000
Bal. $0
Supplies expense
Jan. 1     $0
Dec. 31 $2,400 Dec. 31 $2,400
Bal. $0
Depreciation expense
Jan. 1 $0
Dec. 31 $8,000 Dec. 31 $8,000
Bal. $0
Utilities expense
Jan. 1 $0    
Sep. 15 $6,000 Dec. 31 $6,000
Bal. $0    
Salaries expense
Jan. 1 $0    
Jun. 30 $33,000 Dec. 31 $33,000
Bal. $0    
Retained earnings
Dec. 31 $49,400 Jan. 1 $9,500
Dec. 31 $3,000 Dec. 31 $92,00
Bal. $49,100

11

To determine

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

11

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 P is as follows:

Company P
Adjusted Trial Balance
December 31, 2015
Accounts Debit Credit
Cash 49,500
Accounts Receivable 21,500
Supplies 3,500
Equipment 36,000
Accumulated depreciation 16,000
Accounts payable 6,000
Utilities payable 0
Deferred revenue 3,000
Common stock 34,000
Retained earnings 49,100
Total $108,100 $108,100

Table (9)

Therefore, the total of debit, and credit columns of post-closing trial balance is $108,100 and agree.

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Chapter 3 Solutions

Financial Accounting

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