Principles of Financial Accounting.
Principles of Financial Accounting.
22nd Edition
ISBN: 9780077632892
Author: John J. Wild
Publisher: McGraw Hill
bartleby

Concept explainers

Question
Book Icon
Chapter 3, Problem 3SP

1.

To determine

Prepare the journal entries to record the each of the transactions and events for Solution B.

1.

Expert Solution
Check Mark

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Prepare the journal entries.

DateAccount titles and ExplanationPost Ref.Debit ($)Credit ($)
December  2Advertising expense6551,025
Cash1011,025
(To record the advertising expense)
December  3Repairs and expense-Computer684500
Cash101500
(To record  the repairs and expenses)
December  4Cash1013,950
Accounts receivable1063,950
(To record the accounts receivable)
December  10Wages expense623750
Cash101750
(To record the wages expense)
December  14Cash1011,500
Unearned computer service revenue

236

1,500
(To record the unearned service revenue)
December  15Cash1011,100
Accounts payable2011,100
(To record the accounts payable)
December  20Cash1015,625
Computer service revenue4035,625
(To record the computer service revenue)
December  28Cash1013,000
Accounts receivable1063,000
(To record the travel expense)
December  29Mileage expense676192
Cash101192
(To record the mileage expense)
December  31Dividends3191,500
Cash1,500
(To record the payment of dividends)

Table (1)

2.

To determine

Prepare the adjusting entries as on 31st December 2015.

2.

Expert Solution
Check Mark

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.

Prepare the adjusting entries as on 31st December 2015.

DateAccount titles and ExplanationPost Ref.Debit ($)Credit ($)
December  31Computer supplies expense6523,065
Computer1263,065
(To record the adjusting entry for supplies used)
December  31Insurance expense ($2,200×14)637555
Prepaid insurance128555
(To record  the adjusting entry for insurance expense)
December  31Wages expense623500
Wages payable210500
(To record the adjusting entry for wages expense)
December  31Depreciation expense-Computer ($5,0004)6131,250
Accumulated depreciation-Computer1681,250
(To record the adjusting entry for depreciation expense, Computer)
December  31Depreciation expense-Office equipment ($1,6004)612400
Accumulated depreciation-Office equipment164400
(To record the adjusting entry for depreciation expense, Office equipment)
December  31Rent expense ($3,300×34)6402,475
Prepaid rent1312,475
(To record the adjusting entry for rent expense)

Table (2)

3.

To determine

Prepare the adjusted trial balance as of 31st December 2015.

3.

Expert Solution
Check Mark

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.

Prepare the adjusted trial balance as of 31st December 2015.

Solution B
Adjusted trial balance
For the year ended December 31, 2015
ParticularsDebit($)Credit ($)
Cash48,372 
Accounts receivable5,668 
Computer supplies580 
Prepaid insurance1,665 
Prepaid rent825 
Office equipment8,000 
Accumulated depreciation, Office 400
Computer equipment20,000 
Accumulated depreciation, Computer 1,250
Accounts payable 1,100
Wages payable 500
Unearned computer service revenue 1,500
Common stock 73,000
Retained earnings 0
Dividends7,100 
Computer services revenue 31,284
Depreciation expense, Office400 
Depreciation expense, Equipment1,250 
Wages expense3,875 
Insurance expense555 
Rent expense2,475 
Computer supplies expense3,065 
Advertising expense2,753 
Mileage expense896 
Miscellaneous expense250 
Repairs expense, computer1,305 
Totals$109,034$109,034

Table (3)

4.

To determine

Prepare the income statement for the three months ended 31st December 2015.

4.

Expert Solution
Check Mark

Explanation of Solution

Income statement:

Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

Prepare the income statement for the year ended 31st December 2015.

Solution B
Income statement
For the three months ended December 31, 2015
ParticularsAmount ($)Amount ($)
Revenues  
Computer service revenue31,284 
Total revenue 31,284
Expenses  
Depreciation expense, Office400 
Depreciation expense, Computer1,250 
Wages expense3,875 
Insurance expense555 
Rent expense2,475 
Computer Supplies expense3,065 
Advertising expense2,753 
Property taxes expense4,825 
Mileage expense896 
Repairs expense, Computer1,305 
Total Expenses16,824
Net income $14,460

Table (4)

5.

To determine

Prepare the statement of retained earnings for the three months ended 31st December 2015.

5.

Expert Solution
Check Mark

Explanation of Solution

Statement of Retained Earnings:

Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.

Prepare the statement of retained earnings for the year ended 31st December 2015.

Solution B
Statement of Retained Earnings
For the three months ended 31st December 2015
ParticularsAmount ($)Amount ($)
Retained earnings, Beginning0 
Add: Net income14,460 
Subtotal14,460 
Less: Dividends7,100 
Retained earnings, Ending $7,360

Table (5)

6.

To determine

Prepare the balance sheet as on 31st December 2015.

6.

Expert Solution
Check Mark

Explanation of Solution

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.

Prepare the balance sheet as on 31st December 2015.

Solution B
Balance Sheet
As an December 31, 2015
ParticularsAmount($)Amount($)
ASSETS
Current Assets:
Cash48,372
Accounts receivable5,668
Computer Supplies580
Prepaid rent825
Prepaid insurance1,665
Total Current Assets57,110
Office Equipment8,000
Less: Accumulated depreciation, Equipment4007,600
Computer equipment20,000
Accumulated depreciation, Computer equipment1,25018,750
Total assets$83,460
LIABILITIES
Current Liabilities:
Accounts payable1,100
Wages payable500
Unearned Computer service revenue1,500
Total current liabilities3,100
Long-liabilities:0
Total liabilities3,100
Stockholders’ equity
Paid-in capital
Common stock73,000
Retained earnings7,360
Total Stockholders’ Equity80,360
Total liabilities and Stockholders’ Equity$83,460

Table (6)

7.

To determine

Record and post the necessary closing entries as of 31st December 2015.

7.

Expert Solution
Check Mark

Explanation of Solution

Closing entries: The journal entries prepared to close the temporary accounts to Retained Earnings account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Prepare the closing entry for revenue accounts.

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

December 31Computer services revenue40331,284
Income summary90131,284
(To close the revenues account)

Table (7)

In this closing entry, revenue accounts are closed by transferring the amount of revenue accounts to the income summary account in order to bring the revenue account balance to zero. Hence, debit the revenue accounts and credit income summary account.

Prepare the closing entry for expenses account.

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

December 31Income summary90116,824
Depreciation expense-Office equipment612400
Depreciation expense- Computer Equipment6131,250
Wages expense6233,875
Insurance expense637555
Rent expense6402,475
Computer Supplies expense6523,065
Advertising expense6552,753
Mileage expense676896
Miscellaneous expense677250
Repairs expense6841,305
(To close the expenses account)

Table (8)

In this closing entry, expenses account is closed by transferring the amount of expenses to the income summary in order to bring the expenses account balance to zero. Hence, debit the income summary account and credit all expenses account.

Prepare closing entry for income summary account.

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

December 31Income Summary90114,460
Retained Earnings30814,460
(To close the income summary account)

Table (9)

Closing entry of income summary account:

In this closing entry, income summary account is closed by transferring the amount of income summary (profit) to the retained earnings in order to bring the income summary account balance to zero. Hence, debit the income summary account and credit retained earnings account.

Prepare closing entry for dividend account.


Date
Accounts title and explanationPost Ref.

Debit

($)

Credit

($)

December 31Retained Earnings3187,100 
 Dividends  7,100
 (To close the dividends account)   

Table (10)

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

8.

To determine

Prepare the post-closing trial balance as on 31st December 2015.

8.

Expert Solution
Check Mark

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 the post-closing trial balance as on 31st December 2015.

Solution B
Adjusted trial balance
For the year ended December 31, 2015
ParticularsDebit($)Credit ($)
Cash48,372 
Accounts receivable5,668 
Computer supplies580 
Prepaid insurance1,665 
Prepaid rent825 
Office equipment8,000 
Accumulated depreciation, Office 400
Computer equipment20,000 
Accumulated depreciation, Computer 1,250
Accounts payable 1,100
Wages payable 500
Unearned computer service revenue 1,500
Common stock 73,000
Retained earnings 7,360
Totals$85,110$85,110

Table (11)

1, 2 and 7

To determine

Post the transactions to the general ledger.

1, 2 and 7

Expert Solution
Check Mark

Explanation of Solution

Post the transactions to the general ledger.

Principles of Financial Accounting., Chapter 3, Problem 3SP , additional homework tip  1

Principles of Financial Accounting., Chapter 3, Problem 3SP , additional homework tip  2

Principles of Financial Accounting., Chapter 3, Problem 3SP , additional homework tip  3

Principles of Financial Accounting., Chapter 3, Problem 3SP , additional homework tip  4

Principles of Financial Accounting., Chapter 3, Problem 3SP , additional homework tip  5

Principles of Financial Accounting., Chapter 3, Problem 3SP , additional homework tip  6

Principles of Financial Accounting., Chapter 3, Problem 3SP , additional homework tip  7

Principles of Financial Accounting., Chapter 3, Problem 3SP , additional homework tip  8

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 3 Solutions

Principles of Financial Accounting.

Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education