INTRO TO FIN ACCT (LL W/ ACCESS-1 SMSTR
INTRO TO FIN ACCT (LL W/ ACCESS-1 SMSTR
10th Edition
ISBN: 9781264038947
Author: Libby
Publisher: MCG
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Chapter 4, Problem 1COMP

1, 2, 3 and 6.

To determine

Prepare T-accounts for the accounts on the trial balance and enter beginning balances.

1, 2, 3 and 6.

Expert Solution
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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:

(a)The title of the account

(b)The left or debit side

(c)The right or credit side

Prepare the T-account (amounts in thousands).

Cash (A) account
Beginning Balance$6b$13
a15e94
c163g15
d4i26
f34k25
 Ending Balance$49  
Accounts Receivable (A) account
Beginning Balance$5  
c52f$34
Ending Balance$23  
Supplies (A) account
Beginning Balance$13  
h27l$22
Ending Balance$18  
Equipment (A) account
Beginning Balance$78  
    
Ending Balance$78
Land (A) account
Beginning Balance$0  
b13  
Ending Balance$13
Accumulated Depreciation (XA) account
  Beginning Balance$8
  m10
  Ending Balance$18
Other Noncurrent Assets (A) account
Beginning Balance$7  
g15  
Ending Balance$22  
Accounts Payable (L) account
  Beginning Balance$0
  e20
  h27
  Ending Balance$21
Income Taxes Payable (L) account
  Beginning Balance$0
  p11
  Ending Balance$11
Dividends Payable (L) account
  Beginning Balance$0
k-225k-125
  Ending Balance$0
Wages Payable (L) account
  Beginning Balance$0
  o16
  Ending Balance$16
Interest Payable (L) account
  Beginning Balance$0
  n1
  Ending Balance$1
LT Notes payable  (L) account
  Beginning Balance$0
  a15
  Ending Balance$15
Common Stock (SE) account
  Beginning Balance$4
  d2
  Ending Balance$6
Additional Paid-in Capital (SE) account
  Beginning Balance$80
  d2
  Ending Balance$82
Retained Earnings (SE) account
  Beginning Balance$17
k$25  
  Closing entry41
  Ending Balance$33
Service Revenue (R) account
  Balance$0
Closing entry$215c215
  Ending Balance$0
Depreciation Expense (E) account
Balance$0  
m10Closing entry$10
Ending Balance$0  
Income Tax Expense ( E) account
Balance$0  
p11Closing entry$11
Ending Balance$0  
Interest Expense ( E) account
Balance$0  
n1Closing entry$1
Ending Balance$0  
Supplies Expense ( E) account
Balance $0  
l22Closing entry$22
Ending Balance$0  
Wages Expense (E) account
Balance $0  
e89  
o16Closing entry$105
Ending Balance$0  
Miscellaneous Expense (E) account
Balance $0  
e25Closing entry$25
Ending Balance$0  

2.

To determine

Record the journal entries for transactions (a) to (k).

2.

Expert Solution
Check Mark

Explanation of Solution

Journal entries for the transactions (a) to (k) are as follows:

DateAccount Titles and ExplanationDebit ($)Credit ($)
a)Cash (+A)15,000 
 Notes Payable (Short-term) (+L) 15,000
 (Record cash borrowed on note)  
  
b)Land (+A)13,000 
 Cash (–A) 13,000
 (Record purchase of land)  
  
c)Cash (+A)163,000 
 Accounts Receivable (+A)52,000 
 Service Revenue (+R, +SE) 215,000
 (Record service revenue earned during the year 2020)  
  
d)Cash (+A)4,000 
 Common Stock (+SE) 2,000
 Additional paid-in capital (+SE) 2,000
 (Record common stock issued for cash and additional paid in capital)  
  
e)Wages Expenses ((+E, –SE )89,000 
 Miscellaneous Expenses (+E, –SE)25,000 
 Accounts Payable (+L) 20,000
 Cash (–A) 94,000
 (Record expenses incurred and paid)  
  
f)Cash (+A)34,000 
 Accounts Receivable (–A) 34,000
 (Record cash collected on account)  
  
g)Other Noncurrent Assets (+A)15,000 
 Cash (–A) 15,000
 (Record purchase of other assets)  
  
h)Supplies (+A)27,000 
 Accounts Payable  (+L) 27,000
 (Record supplies purchased on account)  
  
i)Accounts Payable (–L)26,000 
 Cash (–A) 26,000
 (Record cash paid to creditors)  
  
j)No entry required because revenue is not earned in 2020.
  
k-1)Retained Earnings (–SE)25,000 
 Dividends Payable (+L) 25,000
 (Record dividends declared)  
    
k-2)Dividends Payable (–L)25,000 
 Cash (–A) 25,000
 (Record payment of dividends declared)  

Table (1)

3.

To determine

Record adjusting journal entries (l) to (p).

3.

Expert Solution
Check Mark

Explanation of Solution

Prepare adjusting journal entries (l) to (p).

DateAccount Title and ExplanationDebit ($)Credit ($)
    l.Supplies Expense (+E, –SE) ($40,000$18,000)22,000 
 Supplies (–A) 22,000
 (Record the consumption of supplies)  
  
   m.Depreciation Expense (+E, –SE)10,000 
 Accumulated Depreciation – (+XA, –A) 10,000
 (Record adjusting entry for depreciation expense)  
  
    n.Interest Expense (+E, –SE) ($15,000×8100×1012)1,000 
 Interest Payable(+L) 1,000
 (Record the adjusting entry for interest expense)  
  
o.Wages Expense (+E, –SE)16,000 
 Wages Payable (+L) 16,000
 (Record the adjusting entry for wages expenses)  
  
p.Income Tax Expense(+E, –SE) 11,000 
 Income Tax Payable(+L) 11,000
 (Record the adjusting entry for income tax expense)  

Table (2)

4.

To determine

Prepare an income statement, statement of stockholders’ equity, and balance sheet.

4.

Expert Solution
Check Mark

Explanation of Solution

Prepare an income statement for the year ended December 31, 2020.

Incorporation H&H
Income statement
For the year ended December 31, 2020
ParticularsAmount ($)
Operating Revenues: 
Service revenue$215,000
Operating Expenses: 
 Depreciation expense10,000
 Supplies expense22,000
 Wages expense105,000
 Miscellaneous expenses25,000
Total operating expenses162,000
Operating income53,000
Other item 
 Interest expense1,000
Pretax income52,000
Income tax expense11,000
Net income$41,000
  
Earnings per share ($41,00012,000shares)$3.42

Table (3)

Prepare a statement of Stockholders’ equity.

Incorporation H&H
Statement of Stockholders’ Equity
For the Year Ended December 31, 2020
ParticularsCommon StockAdditional Paid-in CapitalRetained earningsTotal Stockholders' Equity
Balance, January 1, 2020$4,000$80,000 $17,000$101,000
   Additional stock issuance2,0002,000 4,000
   Net income  41,00041,000
   Dividends declared(25,000)(25,000)
Balance, December 31, 2020$6,000$82,000$33,000$121,000

Table (4)

Prepare a balance sheet for the year December 31, 2020.

Incorporation H&H
Balance Sheet
At December 31, 2020
AssetsAmount ($)Liabilities and Stockholders’ EquityAmount ($)
Current Assets: Current Liabilities: 
Cash 49,000Accounts payable  21,000
Accounts receivable23,000Interest payable1,000
Supplies 18,000Wages payable 16,000
 Total current assets90,000Income taxes payable11,000
Land13,000 Total current liabilities49,000
Equipment78,000Notes payable15,000
Less: Accumulated depreciation(18,000) Total liabilities64,000
 Net book value60,000Stockholders' Equity: 
Other noncurrent assets22,000 Common stock6,000
   Additional paid-in capital82,000
   Retained earnings33,000
   Total stockholders' equity1,21,000
Total assets185,000Total liabilities and stockholders' equity185,000

Table (5)

5.

To determine

Identify the type of transaction for (a) to (k) for the statement of cash flows and the direction and the amount of the effect.

5.

Expert Solution
Check Mark

Explanation of Solution

Identify the type of transaction for (a) to (k) for the statement of cash flows and the direction and the amount of the effect.

TransactionType of Effect on Cash FlowsDirection and Amount of Effect
a.F+15,000
b.I-13,000
c.O+163,000
d.F+4,000
e.O-94,000
f.O+34,000
g.I-15,000
h.NENE
i.O-26,000
j.NENE
k-1.NENE
k-2.F–25,000

Table (6)

Statement of cash flow: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities. Operating activities include cash inflows and outflows from business operations. Investing activities includes cash inflows and cash outflows from purchase and sale of land or equipment, or investments. Financing activities includes cash inflows and outflows from issuance of common stock and debt, payment of debt and dividends.

Cash flows from investing activities:

The following amounts are to be adjusted from net income to calculate the cash flows from the operating activities:

  • Deduct increase in current assets.
  • Deduct decrease in current liabilities.
  • Add decrease in current assets.
  • Add the increase in current liability.
  • Add depreciation expense.
  • Add loss on sale of plant assets.
  • Less gain on sale of plant assets.

Cash flows from investing activities:

  • Deduct the amount of cash used to purchase any fixed assets from cash flows from investing activities to calculate the net cash provided or used for investing activities.
  • Add the amount of cash received from the sale of any fixed assets to cash flows from investing activities to calculate the net cash provided or used from investing activities.

Cash flows from financing activities:

  • Add the amount of cash received from any source of finance like amount from stockholders, debenture holders, or from any fixed liability to the cash flows from financing activities to calculate the net cash used or provided by the financing activities.
  • Deduct the payment of dividend and interest from the cash flows from financing activities to calculate the net cash used or provided by the financing activities.
  • Deduct the amount of cash paid to purchase the treasury stocks from the cash flows from financing activities to calculate the net cash used or provided by the financing activities.

6.

To determine

Prepare the closing entry for Incorporation H&H on December 31, 2020.

6.

Expert Solution
Check Mark

Explanation of Solution

Prepare closing entries for Incorporation H&H on December 31, 2020.

DateAccount Title and ExplanationDebit ($)Credit ($)
December 31, 2017Service revenue(-R)215,000 
Retained earnings(+SE) 41,000
Depreciation expense(-E) 10,000
Interest expense (-E)  1,000
Supplies expense(-E) 22,000
Income tax expense(-E) 11,000
Wages expense(-E) 105,000
Miscellaneous expense(-E) 25,000
 (Record the closing entry)  

Table (7)

For closing of temporary accounts, the balances of revenues, expenses, and dividend accounts will be transferred to retained earnings in order to bring zero balance for expenses and revenues accounts.

7.

To determine

Ascertain current ratio, total asset turnover, and net profit margin and provide suggestions for Incorporation H&H.

7.

Expert Solution
Check Mark

Explanation of Solution

(a).

Calculate current ratio.

Current ratio=Current assetsCurrent liabilities=$90,000$49,000=1.84:1

The current ratio of Incorporation H&H suggests that its current assets are sufficient to pay current liabilities.

(b).

Calculate total asset turnover.

Total asset turnover = Sales Average total assets=$215,000($101,000+$185,000)÷2=$215,000$143,000=1.50

The total asset turnover of Incorporation H&H suggests that its total asset turnover ratio has generated $1.50 for every dollar of assets.

(c).

Calculate net profit margin.

Net profit margin = Net income Sales=$41,000$215,000=0.191

The net profit margin of Incorporation H&H suggests that its net profit margin earns $0.191 for every dollar in sales that it generates.

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Chapter 4 Solutions

INTRO TO FIN ACCT (LL W/ ACCESS-1 SMSTR

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