Financial Accounting
Financial Accounting
5th Edition
ISBN: 9781259914898
Author: SPICELAND
Publisher: MCG
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Chapter 3, Problem 8PB

Requirement – 1

To determine

Prepare the T-accounts and enter the beginning balance from the trial balance.

Requirement – 1

Expert Solution
Check Mark

Explanation of Solution

T-account:

T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded.

This account is referred to as the 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:

  1. (a) The title of the account
  2. (b) The left or debit side
  3. (c) The right or credit side

Prepare the T-accounts and enter the beginning balance from the trial balance.

Financial Accounting, Chapter 3, Problem 8PB , additional homework tip  1

Financial Accounting, Chapter 3, Problem 8PB , additional homework tip  2

Requirement – 2

To determine

Record the journal entries for given transactions.

Requirement – 2

Expert Solution
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Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Record the journal entries for given transactions.

DateAccount Title and ExplanationDebit($)Credit($)
2021Accounts receivable65,000 
January 24Cash20,000 
 Service revenue 85,000
 (To record the recognized service revenue on account and cash)  
 
2021Cash53,000 
March, 13Accounts receivable 53,000
 (To record cash collection from customer)  
 
2021Cash11,000 
May, 6Common stock 11,000
 (To record the cash received from issuance of common stock)  
 
2021Salaries expense33,000 
June 30Cash 33,000
 (To record the payment of salaries expense)  
 
2021Utilities payable7,000 
September 15Cash 7,000
 (To record the payment of  current and post utilities expense)  
 
2021Cash10,000 
November 24Deferred revenue 10,000
 (To record advance cash received from customer)  
 
2021Dividends3,000 
December 30Cash 3,000
 (To record the payment of dividends)  

Table (1)

Requirement – 3

To determine

Post the transactions to T-accounts.

Requirement – 3

Expert Solution
Check Mark

Explanation of Solution

T-account:

T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded.

This account is referred to as the 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:

  1. (a) The title of the account
  2. (b) The left or debit side
  3. (c) The right or credit side

T-accounts of above transactions are as follows:

Financial Accounting, Chapter 3, Problem 8PB , additional homework tip  3

Financial Accounting, Chapter 3, Problem 8PB , additional homework tip  4

Financial Accounting, Chapter 3, Problem 8PB , additional homework tip  5

Requirement – 4

To determine

Prepare an unadjusted trial balance of Company P.

Requirement – 4

Expert Solution
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Explanation of Solution

Unadjusted trial balance:

The unadjusted trial balance is the summary of all the ledger accounts before making adjusting journal entries at the end of the period.

Company P
Unadjusted Trial Balance
December 31, 2021
AccountsDebit ($)Credit ($)
Cash49,500
Accounts Receivable21,500
Supplies3,500
Equipment36,000
Accumulated depreciation8,000
Accounts payable6,000
Utilities payable0
Deferred revenue10,000
Common stock34,000
Retained earnings9,500
Dividends3,000
Service revenue85,000
Salaries expense33,000
Utilities expense6,000
Depreciation expense0
Supplies expense0
Totals$152,500$152,500

Table (2)

Therefore, the total of debit, and credit columns of unadjusted trial balance is $152,500 and agree.

Requirement – 5

To determine

Record the given adjusting entries of Company P.

Requirement – 5

Expert Solution
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Explanation of Solution

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Adjusting entries of Company P are as follows:

Depreciation expense:

DateAccounts title and explanationPost Ref.Debit ($)Credit ($)
December 31, 2021Depreciation Expense 8,000 
 Accumulated Depreciation  8,000
 (To record the amount of depreciation for the year)   

Table (3)

Following is the rule of debit and credit of above transaction:

  • Depreciation expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
  • Accumulated depreciation is a contra-asset account. There is a decrease in assets, therefore it is credited.

Office supplies expense:

DateAccounts title and explanationPost Ref.Debit ($)Credit ($)
December 31, 2021Supplies expense ($3,500$1,100) 2,400 
 Supplies  2,400
 (To record the supplies expense incurred at the end of the accounting year)   

Table (4)

Following is the rule of debit and credit of above transaction:

  • Supplies expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
  • Supplies are an asset account. There is a decrease in assets, therefore it is credited.

Deferred revenue:

DateAccounts title and explanationPost Ref.Debit ($)Credit ($)
December 31, 2021Deferred revenue 7,000 
 Service revenue  7,000
 (To record the service revenue recognized at the end of the accounting year)   

Table (5)

Following is the rules of debit and credit of above transaction:

  • Deferred revenue is a liability account. There is a decrease in liability, therefore it is debited.
  • Service revenue is revenue, and it increased the value of stockholder’s equity. Therefore, it is credited

Utilities expense:

DateAccounts title and explanationPost Ref.Debit ($)Credit ($)
December 31, 2021Utilities expense 6,000 
 Utilities payable  6,000
 (To record the utilities expense)   

Table (6)

Following is the rules of debit and credit of above transaction:

  • Utilities expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
  • Utilities payable is a liability account. There is an increase in liability, therefore it is credited.

Requirement – 6

To determine

Post the adjusting entries to appropriate T-accounts.

Requirement – 6

Expert Solution
Check Mark

Explanation of Solution

Post the adjusting entries to appropriate T-accounts.

Financial Accounting, Chapter 3, Problem 8PB , additional homework tip  6

Financial Accounting, Chapter 3, Problem 8PB , additional homework tip  7

Requirement – 7

To determine

Prepare the adjusted trial balance of Company P.

Requirement – 7

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 of Company P.

Company P
Adjusted Trial Balance
December 31, 2021
AccountsDebit ($)Credit ($)
Cash55,500
Accounts Receivable21,500
Supplies1,100
Equipment36,000
Accumulated depreciation16,000
Accounts payable6,000
Utilities payable6,000
Deferred revenue3,000
Common stock34,000
Retained earnings9,500
Dividends3,000
Service revenue92,000
Salaries expense33,000
Utilities expense6,000
Depreciation expense8,000
Supplies expense2,400
Totals166,500166,500

Table (6)

Therefore, the total of debit, and credit columns of adjusted trial balance is $166,500 and agree.

Requirement – 8

To determine

Prepare an income statement for 2021 and classified balance sheet as on December 31, 2021.

Requirement – 8

Expert Solution
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Explanation of Solution

Income statement:

This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.

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

Company P
 Income statement
 For the year ended December 31, 2021
ParticularsAmount ($)Amount ($)
 Service revenue (A)92,000
 Expenses:
 Salaries expense33,000
 Utilities expense6,000
 Depreciation expense2,400
 Supplies expense8,000
 Total expense (B)49,400
 Net income (AB)42,600

Table (7)

Therefore, the net income of Company P is $42,600.

Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections, and sub-sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.

Prepare a classified balance sheet as of 31st December 2021:

Financial Accounting, Chapter 3, Problem 8PB , additional homework tip  8

Figure (1)

Therefore, the total assets of Company P are $98,100, and the total liabilities and stockholders’ equity are $98,100.

Working note:

Calculation of ending balance retained earnings:

Retained earnings = (Beginning retained earnings + Net income Dividends)=$9,500+$42,600$3,000=$49,100

Requirement – 9

To determine

Record the necessary closing entries of Company P.

Requirement – 9

Expert Solution
Check Mark

Explanation of Solution

Closing entries:

Closing entries are those journal entries, which are passed to transfer the final balances of temporary accounts, (all revenues account, all expenses account and dividend) to the retained earnings. Closing entries produce a zero balance in each temporary account.

Closing entries of Company P is as follows:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

2021Service revenue 92,000 
December 31Retained earnings  92,000
 (To close all revenue account)   
 
2021Retained earnings 49,400 
December 31Salaries expense  33,000
 Utilities expense  6,000
 Depreciation expense  8,000
 Supplies expense  2,400
 (To close all the expenses account)   
 
2021Retained earnings 3,000 
December 31Dividends  3,000
 (To close the dividends account)   

Table (8)

Requirement – 10

To determine

Post the closing entries to the T-accounts.

Requirement – 10

Expert Solution
Check Mark

Explanation of Solution

Post the closing entries to the T-accounts.

Financial Accounting, Chapter 3, Problem 8PB , additional homework tip  9

Financial Accounting, Chapter 3, Problem 8PB , additional homework tip  10

Requirement – 11

To determine

Prepare a post-closing trial balance of Company P.

Requirement – 11

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.

Post-closing trial balance of Company P is as follows:

Company P
Adjusted Trial Balance
December 31, 2021
AccountsDebit ($)Credit ($)
Cash55,500
Accounts Receivable21,500
Supplies1,100
Equipment36,000
Accumulated depreciation16,000
Accounts payable6,000
Utilities payable6,000
Deferred revenue3,000
Common stock34,000
Retained earnings49,100
Total114,100114,100

Table (9)

Therefore, the total of debit, and credit columns of post-closing trial balance is $114,100 and agree.

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Chapter 3 Solutions

Financial Accounting

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