FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
5th Edition
ISBN: 9781266401879
Author: SPICELAND
Publisher: MCG
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Chapter 3, Problem 7PB

1. and 2.

To determine

Prepare the T-accounts.

1. and 2.

Expert Solution
Check Mark

Explanation of Solution

T-account: An account is referred to as a 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:

  • The title of the account
  • The left or debit side
  • The right or credit side

Post the unadjusted balances and the adjusting entries into T-accounts.

Cash account:

Cash
76,000
 Balance76,000

Accounts Receivable account:

Accounts Receivable
15,000
 Balance15,000

Supplies account:

Supplies
27,000
22,000
 Balance5,000

Prepaid insurance account:

Prepaid insurance
24,000
20,000
 Balance4,000

Equipment account:

Equipment
95,000
 Balance95,000

Accumulated depreciation account:

Accumulated depreciation
37,000
10,000
 Balance47,000

Accounts Payable account:

Accounts Payable
12,000
 Balance12,000

Salaries Payable account:

Salaries Payable
0
4,000
 Balance4,000

Interest Payable account:

Interest Payable
0
1,000
 Balance1,000

Notes Payable account:

Notes Payable
35,000
 Balance35,000

Deferred revenue account:

Deferred revenue
15,00060,000
 Balance45,000

Common Stock account:

Common Stock
35,000
 Balance35,000

Retained Earnings account:

Retained Earnings
10,000
 Balance10,000

Dividends account:

Dividends
3,000
 Balance3,000

Service Revenue account:

Service Revenue
227,000
15,000
 Balance242,000

Insurance Expense account:

Insurance Expense
0
20,000
 Balance20,000

Depreciation Expense account:

Depreciation Expense
0
10,000
 Balance10,000

Salaries Expense account:

Salaries Expense
164,000
4,000
 Balance168,000

Utilities Expense account:

Utilities Expense
12,000
0
 Balance12,000

Interest Expense account:

Interest Expense
0
1,000
 Balance1,000

Supplies Expense account:

Supplies Expense
0
22,000
 Balance22,000

3.

To determine

Prepare an adjusted trial balance.

3.

Expert Solution
Check Mark

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 an adjusted trial balance for the year ending December 31, 2021:

Company JA
Adjusted Trial Balance
For the Year Ending December 31, 2021
AccountsDebit ($)Credit ($)
Cash76,000 
Accounts Receivable15,000 
Supplies5,000 
Prepaid Insurance4,000 
Equipment95,000 
Accumulated Depreciation 47,000
Accounts Payable 12,000
Salaries Payable 4,000
Deferred Revenue 45,000
Interest Payable 1,000
Notes Payable 35,000
Common Stock 35,000
Retained Earnings 10,000
Dividends3,000 
Service Revenue 242,000
Salaries Expense168,000 
Depreciation Expense10,000 
Insurance Expense20,000 
Supplies Expense22,000
Utilities Expense12,000
Interest Expense1,000
Total$431,000$431,000

Table (1)

4.

To determine

Prepare an income statement, statement of shareholders’ equity, and a classified balance sheet for the year ended December 31, 2021.

4.

Expert Solution
Check Mark

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.

Prepare an income statement for the year ended December 31, 2021:

Company JA
Income statement
For the Year Ending December 31, 2021
DetailsAmount ($)Amount ($)
Revenues: 
Service Revenue242,000 
Total Revenue 242,000
Less: Expenses 
Salaries expense168,000 
Depreciation expense10,000 
Insurance expense20,000 
Supplies expense22,000 
Utilities expense12,000 
Interest expense1,000 
Total Expenses (233,000)
Net Income $9,000

Table (2)

Statement of Stockholders’ Equity: Stockholders’ equity statement shows the changes made in the stockholders’ equity account and in the total stockholders’ equity during the accounting period. It is otherwise known as statements of shareholder’s investment.

Prepare statement of stockholders’ equity the year ended December 31, 2021.

Company JA
Statement of Stockholders’ Equity
For the Year Ended December 31, 2021
ParticularsCommon StockRetained EarningsTotal Stockholders’ Equity
Beginning balance$35,000$10,000$45,000
Issuance of common stock$0$0$0
Less: Net income for 2021$0$9,000$9,000
Less: Dividends$0($3,000)($3,000)
Ending balance$35,000$16,000$51,000

Table (3)

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and claims of 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 of December 31, 2021.

FINANCIAL ACCOUNTING, Chapter 3, Problem 7PB

Table (4)

5.

To determine

Prepare the closing entries.

5.

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 account.

DateAccounts title and explanationDebit ($)

Credit

($)

December 31, 2021Service Revenues242,000 
Retained Earnings 242,000
 (To close the revenues account)  

Table (5)

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

Prepare the closing entry for expense account:

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

December 31, 2021Retained Earnings 233,000 
Salaries expense  168,000
Depreciation expense  10,000
Insurance expense  20,000
Supplies expense  22,000
 Utilities expense  12,000
 Interest expense  1,000
 (To close the expenses account)   

Table (6)

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

Prepare the closing entry for dividend account:

DateAccounts title and explanationDebit ($)

Credit

($)

December 31, 2021Retained Earnings3,000 
Dividends 3,000
 (To close the dividends account)  

Table (7)

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

6.

To determine

Prepare the T-Accounts to post the closing entries.

6.

Expert Solution
Check Mark

Explanation of Solution

Retained Earnings account:

Retained Earnings
10,000
233,000242,000
3,000
 Balance16,000

Service Revenue account:

Service Revenue
242,000
242,000
 Balance0

Dividends account:

Dividends
3,000
3,000
 Balance0

Salaries Expense account:

Salaries Expense
164,000
4,000168,000
 Balance0

Depreciation expense account:

Depreciation expense
0
10,00010,000
 Balance0

Insurance Expense account:

Insurance Expense
0
20,00020,000
 Balance0

Supplies Expense account:

Supplies Expense
0
22,00022,000
 Balance0

Utilities Expense account:

Utilities Expense
12,000
12,000
 Balance0

Interest Expense account:

Interest Expense
0
1,0001,000
 Balance0

7.

To determine

Prepare the post-closing trial balance.

7.

Expert Solution
Check Mark

Explanation of Solution

Post-closing trial balance: It is a trial balance that is prepared after the closing entries are recorded. It includes only the balance sheet accounts as the income statement accounts are closed to the income summary.=

Prepare a post-closing trial balance.

Company JA
Post-Closing Trial Balance
For the Year Ended December 31, 2021
Accounts

Debit

($)

Credit

($)

Cash76,000 
Accounts Receivable15,000 
Supplies5,000 
Prepaid Insurance4,000 
Equipment95,000 
Accumulated Depreciation 47,000
Accounts Payable 12,000
Salaries Payable 4,000
Deferred Revenue 45,000
Interest Payable 1,000
Notes Payable 35,000
Common Stock 35,000
Retained Earnings 16,000
Total$195,000$195,000

Table (8)

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Chapter 3 Solutions

FINANCIAL ACCOUNTING

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