Chapter 3, Problem 3AP

1.

To determine

Set up T-accounts for the general ledger accounts with the unadjusted balances.

Explanation of Solution

T-account: The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.

Cash
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$34,000

Table (1)

Accounts Receivable
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0

Table (2)

Teaching Supplies
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$8,000

Table (3)

Prepaid Insurance
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$12,000

Table (4)

Prepaid Rent
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$3,000

Table (5)

Professional Library
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$35,000

Table (6)

Accumulated Depreciation-Professional Library
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$10,000

Table (7)

Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$80,000

Table (8)

Accumulated Depreciation-Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$15,000

Table (9)

Accounts Payable
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$26,000

Table (10)

Salaries Payable
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$0

Table (11)

Unearned Training Fees
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$12,500

Table (12)

Common Stock
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$10,000

Table (13)

Retained Earnings
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$80,000

Table (14)

Dividends
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$50,000

Table (15)

Tuition Fees Earned
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$123,900

Table (16)

Training Fees Earned
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$40,000

Table (17)

Depreciation Expense-Professional Library
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0

Table (18)

Depreciation Expense-Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0

Table (19)

Salaries Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$50,000

Table (20)

Insurance Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0

Table (21)

Rent Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$33,000

Table (22)

Teaching Supplies Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0

Table (23)

Advertising Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$6,000

Table (24)

Utilities Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$6,400

Table (25)

2.

To determine

Journalize the adjusting entries.

Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

a.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Insurance Expense		2,400
		Prepaid Insurance			2,400
		(To record expired insurance coverage)

Table (26)

b.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Teaching Supplies Expense		5,200
		Teaching Supplies			5,200
		(To record used teaching supplies)

Table (27)

c.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Depreciation Expense–Equipment		13,200
		Accumulated Depreciation–Equipment			13,200
		(To record depreciation expense on equipment)

Table (28)

d.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Depreciation Expense–Professional Library		7,200
		Accumulated Depreciation–          Professional Library			7,200
		(To record depreciation expense on professional library)

Table (29)

e.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Unearned Training Fees		5,000
		Training Fees Earned			5,000
		(To record portion of advance training fees received $2,500 per month for 2 months)

Table (30)

f.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Accounts Receivable		7,500
		Tuition Fees Earned			7,500
		(To record accrued tuition fee earned)

Table (31)

g.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Salaries Expense		400
		Salaries Payable			400
		(To record accrued salaries)

Table (32)

h.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Rent Expense		3,000
		Prepaid Rent			3,000
		(To record rent paid)

Table (33)

Post these adjusting entries into respective accounts prepared in requirement 1.

Insurance Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	0
December 31	Prepaid insurance	2,400
December 31	Balance	$2,400

Table (34)

Prepaid Insurance
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	12,000		December 31	Insurance expense	2,400
December 31	Balance	$9,600

Table (35)

Teaching Supplies Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0
December 31	Teaching supplies	5,200
December 31	Balance	$5,200

Table (36)

Teaching Supplies
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$8,000		December 31	Teaching supplies expense	5,200
December 31	Balance	$2,800

Table (37)

Depreciation Expense-Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0
December 31	Accumulated depreciation-equipment	13,200
December 31	Balance	$13,200

Table (38)

Accumulated Depreciation-Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$15,000
				December 31	Depreciation expense-equipment	13,200
				December 31	Balance	$28,200

Table (39)

Depreciation Expense-Professional Library
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0
December 31	Accumulated depreciation-Professional library	7,200
December 31	Balance	$7,200

Table (40)

Accumulated Depreciation-Professional Library
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$10,000
				December 31	Depreciation expense-professional library	7,200
				December 31	Balance	$17,200

Table (41)

Unearned Training Fees
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
December 31	Training fees earned	5,000		December 31	Balance	$12,500
				December 31	Balance	$7,500

Table (42)

Training Fees Earned
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$40,000
				December 31	Unearned training fees earned	5,000
				December 31	Balance	$45,000

Table (43)

Accounts Receivable
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0
December 31	Tuition fees earned	7,500
December 31	Balance	$7,500

Table (44)

Tuition Fees Earned
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$123,900
				December 31	Accounts receivable	7,500
				December 31	Balance	$131,400

Table (45)

Salaries Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$50,000
December 31	Salaries payable	400
December 31	Balance	$50,400

Table (46)

Salaries Payable
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$0
				December 31	Salaries expense	400
				December 31	Balance	$400

Table (47)

Rent Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$33,000
December 31	Prepaid rent	3,000
December 31	Balance	$36,000

Table (48)

Prepaid Rent
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$3,000		December 31	Rent expense	3,000
December 31	Balance	$0

Table (49)

3.

To determine

Prepare an adjusted trial balance of WT Institute as of December 31, 2015.

Explanation of Solution

Adjusted trial balance:

Adjusted trial balance is that statement which contains complete list of accounts with their adjusted balances, after all relevant adjustments have been made. This statement is prepared at the end of every financial period.

WT Institute
Adjusted Trial Balance
December 31, 2015
Account Titles	Debit ($)	Credit ($)
Cash	34,000
Accounts receivable	7,500
Teaching supplies	2,800
Prepaid insurance	9,600
Prepaid rent	0
Professional library	35,000
Accumulated depreciation-Professional library		17,200
Equipment	80,000
Accumulated depreciation-Equipment		28,200
Accounts payable		26,000
Salaries payable		400
Unearned training fees		7,500
Common stock		10,000
Retained earnings		80,000
Dividends	50,000
Tuition fees earned		131,400
Training fees earned		45,000
Depreciation expense–Professional library	7,200
Depreciation expense–Equipment	13,200
Salaries expense	50,400
Insurance expense	2,400
Rent expense	36,000
Teaching supplies expense	5,200
Advertising expense	6,000
Utilities expense	6,400
Total	$345,700	$345,700

Table (50)

4.

To determine

Prepare income statement, retained earnings and balance sheet of WT Institute for the year ended December 31, 2015.

Explanation of Solution

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

WT Institute
Income Statement
For the Year Ended December 31, 2015
Revenues
Tuition fees earned	$131,400
Training fees earned	45,000
Total revenues		$176,400
Expenses
Depreciation expense–Professional library	7,200
Depreciation expense–Equipment	13,200
Salaries expense	50,400
Insurance expense	2,400
Rent expense	36,000
Teaching supplies expense	5,200
Advertising expense	6,000
Utilities expense	6,400
Total expenses		126,800
Net income		$49,600

Table (51)

Retained earnings: Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.

Statement of retained earnings for WT Institute for the year ended December 31, 2015.

WT Institute
Statement of Retained Earnings
Year Ended December 31, 2015
Retained earnings, December 31, 2014	$80,000
Add: Net income for the year	49,600
	129,600
Less: Dividends	(50,000)
Retained earnings, December 31, 2015	$79,600

Table (52)

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and 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.

Note: Refer to income statement for value and computation of net income.

WT Institute
Balance Sheet
December 31, 2015
Assets
Cash		$34,000
Accounts receivable		7,500
Teaching supplies		2,800
Prepaid insurance		9,600
Professional library	$35,000
Accumulated depreciation-Professional library	(17,200)	17,800
Equipment	80,000
Accumulated depreciation-Equipment	(28,200)	51,800
Total assets		$123,500
Liabilities
Accounts payable	$26,000
Salaries payable	400
Unearned training fees	7,500
Total liabilities		33,900
Equity
Common stock	10,000
Retained earnings	79,600	89,600
Total liabilities and equity		$123,500

Table (53)

Note: Refer to statement of retained earnings for value and computation of retained earnings value.