Financial Accounting
Financial Accounting
17th Edition
ISBN: 9781259692390
Author: Jan Williams, Susan Haka, Mark S Bettner, Joseph V Carcello
Publisher: McGraw-Hill Education
Question
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Chapter 3, Problem 4PA

a.

To determine

Analyze the effects that each of the given transactions will have on the following six components of the company’s financial statements for the month of June.

a.

Expert Solution
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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.

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.

Analyze the effects that each of the given transactions will have on the following six components of the company’s financial statements for the month of June as follows:

Financial Accounting, Chapter 3, Problem 4PA

Figure (1)

b.

To determine

Prepare journal entries for each transaction.

b.

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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 journal entries for each transaction as follows:

DateAccount title and ExplanationPost ref.

Debit

 (in $)

Credit (in $)
June 1 Cash60,000
Capital stock60,000
(To record the issue of the capital stock)
June 2Aircraft220,000
     Cash40,000
     Notes Payable  180,000
(To record the purchase of aircraft)
June 4Rent expense 2,500
     Cash2,500
(To record the payment made for June rent)
June 15Accounts receivable8,320
     Aerial photography revenue8,320
(To record the services provided on account)
June 15Salaries expense5,880
     Cash5,880
(To record the salary expense paid)
June 18Maintenance expense1,890
     Cash1,890
(To record the maintenance expense paid)
June 25Cash4,910
Accounts receivable4,910
(To record the cash collected from accounts receivable)
June 30Accounts receivable16,450
     Aerial photography revenue16,450
(To record the services provided on account)
June 30Salaries expense6,000
     Cash6,000
(To record the salary expense paid)
June 30Fuel expense2,510
     Accounts payable2,510
(To record the bill received for fuel used during June)
June 30Dividends2,000
     Dividends Payable2,000
(To record the payment due for the cash dividend declared)

Table (1)

c.

To determine

Post each transaction to the appropriate ledger accounts.

c.

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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.

Post each transaction to the appropriate ledger accounts as follows:

Cash
DateDebitCreditBalance
Current Year   
June 1            60,000             60,000
  2              40,000           20,000
  4              2,500           17,500
  15               5,880           11,620
  18              1,890             9,730
  25               4,910            14,640
  30               6,000             8,640

Table (2)

Accounts Receivable
DateDebitCreditBalance
Current Year    
June15 8,320 8,320
 25   4,9103,410
 30 16,450 1,9860

Table (3)

Aircraft
DateDebitCreditBalance
Current Year    
June2 220,000 220,000

Table (4)

Notes Payable
DateDebitCreditBalance
Current Year    
June2  180,000180,000

Table (5)

Accounts Payable
DateDebitCreditBalance
Current Year    
June30  2,5102,510

Table (6)

Dividends Payable
DateDebitCreditBalance
Current Year    
June30  2,0002,000

Table (7)

Capital Stock
DateDebitCreditBalance
Current Year    
June1  60,00060,000

Table (8)

Dividends
DateDebitCreditBalance
Current Year    
June30 2,000 2,000

Table (9)

Aerial Photography Revenue
DateDebitCreditBalance
Current Year    
June15  8,3208,320
 30  16,45024,770

Table (10)

Maintenance Expense
DateDebitCreditBalance
Current Year    
June18 1,890 1,890

Table (11)

Fuel Expense
DateDebitCreditBalance
Current Year    
June30 2,510 2,510

Table (12)

Salaries Expense
DateDebitCreditBalance
Current Year    
June15 5,880 5,880
 30 6,000 11,880

Table (13)

Rent Expense
DateDebitCreditBalance
Current Year    
June4 2,500 2,500

Table (14)

d.

To determine

Prepare a trial balance dated June 30, current year.

d.

Expert Solution
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Explanation of Solution

Trial balance:

Trial balance is a summary of all the ledger accounts balances presented in a tabular form with two column, debit and credit. It checks the mathematical accuracy of the ledger postings and helps preparing the final accounts.

Prepare a trial balance dated June 31, current year as follows:

Company A
Trial Balance
June  30, Current Year
  Cash$8,640 
  Accounts receivable19,860 
  Aircraft220,000 
  Notes payable $180,000
  Accounts payable 2,510
  Dividends payable 2,000
  Capital stock 60,000
  Retained earnings 0
  Dividends2,000 
  Aerial photography revenue 24,770
  Maintenance expense1,890 
  Fuel expense2,510 
  Salaries expense11,880 
  Rent expense2,500 
  $269,280$269,280

Table (15)

e.

To determine

Compute total assets, total liabilities, and owners’ equity and explain whether these are the figures that the company will report in its June 30 balance sheet.

e.

Expert Solution
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Explanation of Solution

Assets:

These are the resources owned and controlled by business and used to produce benefits for the company. Assets are classified on the balance sheet as current assets, non-current assets, property, plant, and equipment, and intangible assets.

Liabilities:

The claims creditors have over assets or resources of a company are referred to as liabilities. These are the debt obligations owed by company to creditors. Liabilities are classified on the balance sheet as current liabilities and long-term liabilities.

Owners’ equity:

Owner’s equity refers to the right the owner possesses over the resources of the business. Revenues and the expenses are the components of the owner’s equity.

Net income:

The bottom line of income statement which is the result of excess of earnings from operations (revenues) over the costs incurred for earning revenues (expenses) is referred to as net income.

Compute total assets, total liabilities, and owners’ equity as follows:

Total Assets:  
  Cash$8,640 
  Accounts receivable19,860  
  Aircraft220,000 
 Total assets $248,500
   
 Total Liabilities:  
  Notes payable$180,000  
  Accounts payable2,510 
  Dividends payable2,000  
Total liabilities  $184,510
   
 Total Owners' Equity:   
  Total assets − Total liabilities ($248,500$184,510)    $63,990

Table (16)

Explain whether these are the figures that the company will report in its June 30 balance sheet as follows:

No, these are not the figures that the company will report in its June 30 balance sheet. Adjustments will be made to the trial balance figures at the end, before preparing the financial statements of the company. The figures, after the adjustments are made, will be the figures that the company will report in its June 30 balance sheet.

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