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 4PB

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 March.

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 March as follows:

Financial Accounting, Chapter 3, Problem 4PB

Figure (1)

b.

To determine

Prepare journal entries for each transaction.

b.

Expert Solution
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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 $)
March 2 Cash80,000
Capital stock80,000
(To record the issue of the capital stock)
March 4Truck45,000
     Cash15,000
     Notes Payable  30,000
(To record the purchase of truck)
March 5Rent expense 2,500
     Cash2,500
(To record the payment made for March rent)
March 9Accounts receivable11,300
     Service revenue11,300
(To record the services provided on account)
March 15Salaries expense7,100
     Cash7,100
(To record the salary expense paid)
March 19Maintenance expense900
     Cash900
(To record the maintenance expense paid)
March 20Cash3,800
Accounts receivable3,800
(To record the cash collected from accounts receivable)
March 28Accounts receivable14,400
     Service revenue14,400
(To record the services provided on account)
March 30Salaries expense7,500
     Cash7,500
(To record the salary expense paid)
March 30Fuel expense830
     Accounts payable830
(To record the bill received for fuel used during March)
March 30Dividends1,200
     Dividends Payable1,200
(To record the payment due for the cash dividend declared)

Table (1)

c.

To determine

Post each transaction to the appropriate ledger accounts.

c.

Expert Solution
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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    
March2 80,000 80,000
 4   15,00065,000
 5  2,50062,500
 15  7,10055,400
 19  90054,500
 20  3,800 58,300
 30   7,50050,800

Table (2)

Accounts Receivable
DateDebitCreditBalance
Current Year    
March9 11,300 11,300
 20  3,8007,500
 28 14,400 21,900

Table (3)

Truck
DateDebitCreditBalance
Current Year    
March4 45,000 45,000

Table (4)

Notes Payable
DateDebitCreditBalance
Current Year    
March4  30,00030,000

Table (5)

Accounts Payable
DateDebitCreditBalance
Current Year    
March30  830830

Table (6)

Dividends Payable
DateDebitCreditBalance
Current Year    
March30  1,2001,200

Table (7)

Capital Stock
DateDebitCreditBalance
Current Year    
March2  80,00080,000

Table (8)

Dividends
DateDebitCreditBalance
Current Year    
March30 1,200 1,200

Table (9)

Service Revenue
DateDebitCreditBalance
Current Year    
March9  11,30011,300
 28  14,40025,700

Table (10)

Maintenance Expense
DateDebitCreditBalance
Current Year    
March19 900 900

Table (11)

Fuel Expense
DateDebitCreditBalance
Current Year    
March30 830 830

Table (12)

Salaries Expense
DateDebitCreditBalance
Current Year    
March15 7,100 7,100
 30 7,500 14,600

Table (13)

Rent Expense
DateDebitCreditBalance
Current Year    
March5 2,500 2,500

Table (14)

d.

To determine

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

Deliveries T
Trial Balance
March  31, Current Year
  Cash$50,800 
  Accounts receivable21,900 
  Truck45,000 
  Notes payable $30,000
  Accounts payable 830
  Dividends payable 1,200
  Capital stock 80,000
  Retained earnings 0
  Dividends1,200 
  Service revenue 25,700
  Maintenance expense900 
  Fuel expense830 
  Salaries expense14,600 
  Rent expense2,500 
  $137,730$137,730

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 March 31 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$50,800 
  Accounts receivable21,900 
  Trucks45,000 
 Total assets $117,700
   
 Total Liabilities:  
  Notes payable$30,000 
  Accounts payable830 
  Dividends payable1,200 
Total liabilities $32,030
   
 Total Owners' Equity:  
  Total assets − Total liabilities ($117,700$32,030)   $85,670

Table (16)

Explain whether these are the figures that the company will report in its March 31 balance sheet as follows:

No, these are not the figures that the company will report in its March 31 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 March 31 balance sheet.

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