Chapter 4, Problem 1CP

The unadjusted trial balance of PS Music as of July 31, 2018, along with the adjustment data for the two months ended July 31, 2018, are shown in Chapter 3. Based upon the adjustment data, the following adjusted trial balance was prepared:

PS Music Adjusted Trial Balance July 31, 2018
	Account No.	Debit Balances	Credit Balances
Cash.................................................	11	9,945
Accounts Receivable...................................	12	4,150
Supplies..............................................	14	275
Prepaid Insurance.....................................	15	2,475
Office Equipment.....................................	17	7,500
Accumulated Depreciation—Office Equipment..........	18		50
Accounts Payable.....................................	21		8,350
Wages Payable........................................	22		140
Unearned Revenue....................................	23		3,600
Common Stock.......................................	31		9,000
Dividends............................................	33	1,750
Fees Earned...........................................	41		21,200
Music Expense........................................	54	3,610
Wages Expense.......................................	50	2,940
Office Rent Expense...................................	51	2,550
Advertising Expense...................................	55	1,500
Equipment Rent Expense..............................	52	1,375
Utilities Expense......................................	53	1,215
Supplies Expense......................................	56	925
Insurance Expense....................................	57	225
Depreciation Expense.................................	58	50
Miscellaneous Expense................................	59	1,855
		42,340	42,340

Instructions

1. (Optional) Using the data from Chapter 3, prepare an end-of-period spreadsheet.

2. Prepare an income statement, a retained earnings statement, and a balance sheet.

3. Journalize and post the closing entries. The retained earnings account is #33 and the income summary account is #34 in the ledger of PS Music. Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry.

4. Prepare a post-dosing trial balance.

To determine

Spreadsheet:

A spreadsheet is a worksheet. It is used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Income statement:

An income statement is one of the financial statements which shows the revenues, and expenses of the company. The income statement is prepared to ascertain the net income/loss of the company, by deducting the expenses from the revenues.

$\boxed{\text{Net}\text{income = Total revenues – Total expenses}}$

Statement of retained earnings: This statement reports the beginning retained earnings and all the changes which led to ending retained earnings. Net income from income statement is added to and dividends are deducted from beginning retained earnings to arrive at the end result, ending retained earnings.

Balance sheet:

A balance sheet is a financial statement consists of the assets, liabilities, and the stockholder’s equity of the company. The balance of the assets account must be equal to that of the liabilities and the stockholder’s equity account.

T-Accounts:

T-accounts are referred as T-account because its format represents the letter “T”. The T-accounts consists of the following:

• The title of accounts.
• The debit side (Dr) and,
• The credit side (Cr).

Closing entries:

Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts. It is passed at the end of the accounting period, to transfer the final balance.

Post-Closing Trial Balance:

After passing all the journal entries and the closing entries of the permanent accounts and then further posting them to each of the respective accounts, a post-closing trial balance is prepared which consists of a list of all the permanent accounts. A post-closing trial balance serves as an evidence to prove that the balance of the permanent accounts is equal.

To prepare: An end-of-period spreadsheet.

Explanation of Solution

An end-of-period spreadsheet is prepared as follows:

Figure (1)

Conclusion

Hence, the end-of-period spreadsheet is prepared and completed.

To determine

To Prepare: An income statement for the year ended July 31, 2018.

Explanation of Solution

An income statement for the year ended July 31, 2018 is as follows:

PS Music
Income Statement
For July 31, 2018
Particulars	Amount ($)	Amount ($)
Revenues:
Fees Earned		21,200
Expenses:
Music Expense	3,610
Wages Expense	2,940
Office Rent Expense	2,550
Advertising Expense	1,500
Equipment  Rent Expense	1,375
Utilities Expense	1,215
Supplies Expense	925
Insurance Expense	225
Depreciation Expense	50
Miscellaneous Expense	1,855
Total Expenses		16,245
Net Income		$4,955

Table (1)

Conclusion

Hence, the net income of PS Music for the year ended July 31, 2018 is $4,955.

To determine

To Prepare: The statement of owners’ equity for the year ended July 31, 2018.

Explanation of Solution

The statement of retained earnings for the year ended July 31, 2018 is as follows:

PS Music
Statement of Retained earnings
For the Year Ended July 31, 2018
Particulars	Amount ($)	Amount ($)
Retained earnings, June 1, 2018		0
Add: Net income	4,955
Less: Dividends	(1,750)
Change in retained earnings		3,205
Retained earnings, July 31, 2018		$3,205

Table (2)

Conclusion

Hence, owners’ equity for the year ended July 31, 2018 is $3,205.

To determine

To Prepare: The balance sheet of PS Music at July 31, 2018.

Explanation of Solution

The balance sheet of PS Music at July 31, 2018 is prepared as follows:

PS Music
Balance Sheet
At July 31, 2018
Assets
Current Assets:	$	$
Cash	9,945
Accounts Receivable	4,150
Supplies	275
Prepaid Insurance	2,475
Total Current Assets		16,845
Property, plant and equipment:
Office Equipment	7,500
Less: Accumulated Depreciation	50
Total Plant Assets		7,450
Total Assets		$24,295
Liabilities
Current Liabilities:
Accounts Payable	8,350
Salaries Payable	140
Unearned Rent	3,600	12,090
Total Liabilities
Stock holders’ Equity
Common Stock	9,000
Retained Earnings	3,205
Total Stock holders’ Equity		12,205
Total Liabilities and Stock holders’ Equity		$24,295

Table (3)

It is one of the financial statements, which shows the assets, liabilities, and stockholders’ equity of a company at a particular point of time. It reveals the financial health of a company. Thus, this statement is also called as the Statement of Financial Position. It helps the users to know about the creditworthiness of a company as to whether the company has enough assets to pay off its liabilities.

Conclusion

Therefore, the total assets and total liabilities plus owners’ equity of PS Music at July 31, 2018 is $24,295.

To determine

To Journalize: The closing entries for PS Music.

Explanation of Solution

Closing entry for revenue and expense accounts:

Date	Accounts title and Explanation	Post Ref.	Debit ($)	Credit ($)
July 31, 2018	Fees Earned	41	21,200
	Income Summary	34		21,200
	(To record the closure of revenues account )
July 31	Income Summary	34	16,245
	Wages Expense	50		2,940
	Office Rent Expense	51		2,550
	Equipment  Rent Expense	52		1,375
	Utilities Expense	53		1,215
	Music Expense	54		3,610
	Advertising Expense	55		1,500
	Supplies Expense	56		925
	Insurance Expense	57		225
	Depreciation Expense	58		50
	Miscellaneous Expense	59		1,855
	(To close the revenues and expenses account. Then  the balance amount are  transferred to income summary account)
July 31	Income Summary	34	4,955
	Retained earnings	32		4,955
	(To record the closure of net income from income summary to retained earnings)
	Retained earnings	32	1,750
	Dividends	33		1,750
	(To record the closure of dividend to retained earnings)

Table (4)

Fees earned account has a normal credit balance of $21,200 in total, now to close this account, the fees earned account must be debited with $21,200 and, income summary account must be credited with $21,200.

• In this closing entry, the fees earned account balance is being transferred to the income summary account, to bring the revenues account balance to zero.
• Thereby, the income summary account balance gets increased by $21,200 and, the revenue account balance gets decreased by $21,200.

All expenses accounts have a normal debit balance, the total of expenses are $16,245 have to be closed by transferring these account balances to the income summary account. All expenses account must be credited, and the income summary account must be debited with $ 16,245.

• In this closing entry, all the expenses account balances are transferred to the income summary account, to bring the expenses account balances to zero.
• Thereby, both the income summary account, and the expenses account balances get decreased by $16,245.

Determined amount balance of income summary is $4,955, which has to be closed by debiting the income summary account with $4,955, and crediting the retained earnings account with $4,955.

• In this closing entry, the income summary account balance is being transferred to the retained earnings account, to bring the income summary account balance to zero.
• Thereby, the income summary account gets decreased, and the retained earnings account balance gets increased by $4,955.

Dividends account has a normal debit balance of $1,750, now to close this account, retained earnings account must be debited with $1,750 and, dividend account must be credited with $1,750.

• In this closing entry, the dividend account balance is being transferred to the retained earnings account, to bring the dividend account balance to zero.
• Thereby, the retained earnings account balance gets increased by $1,750 and, the dividend account balance gets decreased by $1,750

To determine

To post: The closing entries of PS Music accounts in the appropriate balance column of a four-column account.

Explanation of Solution

Account:         Cash                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			3,920
	1		1	5,000		8,920
	1		1		1,750	7,170
	1		1		2,700	4,470
	2		1	1,000		5,470
	3		1	7,200		12,670
	3		1		250	12,420
	4		1		900	11,520
	8		1		200	11,320
	11		1	1,000		12,320
	13		1		700	11,620
	14		1		1,200	10,420
	16		2	2,000		12,420
	21		2		620	11,800
	22		2		800	11,000
	23		2	750		11,750
	27		2		915	10,835
	28		2		1,200	9,635
	29		2		540	9,095
	30		2	500		9,595
	31		2	3,000		12,595
	31		2		1,400	11,195
	31		2		1,250	9,945

Table (5)

Account:    Accounts Receivable                                             Account no. 12
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			1,000
	2		1		1,000
	23		2	1,750		1,750
	30		2	1,000		2,750
	31	Adjusting	3	1,400		4,150

Table (6)

Account:   Supplies                                                            Account no. 14
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			170
	18		2	850		1,020
	31	Adjusting	3		745	275

Table (7)

Account:    Prepaid Insurance                                             Account no. 15
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1		1	2,700		2,700
	31	Adjusting	3		225	2,475

Table (8)

Account:    Office equipment                                             Account no. 17
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	5		1	7,500		7,500

Table (9)

Account:  Accumulated Depreciation-Office equipment        Account no. 18
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	31	Adjusting	3		50		50

Table (10)

Account:     Accounts Payable                                                      Account no. 21
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓				250
	3		1	250
	5		1		7,500		7,500
	18		2		850		8,350

Table (11)

Account:     Wages Payable                                                        Account no. 22
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	31	Adjusting	3		140		140

Table (12)

Account:   Unearned Revenue                                                       Account no. 23
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	3		1		7,200		7,200
	31	Adjusting	3	3,600			3,600

Table (13)

Account:          Common  Stock                                                     Account no. 31
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1		✓ 1				5,000
	1	Balance	1		4,000		9,000

Table (14)

Account:          Retained earnings                                                     Account no. 32
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance
	31	Closing	4		4,955		4,955
	31	Closing	4	1,750			3,205

Table (15)

Account:         Dividends                                                                Account no. 33
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			500
	31		2	1,250		1,750
	31	Closing	4		1,750

Table (16)

Account:         Income Summary                                                        Account no. 34
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	31	Closing	4		21,200		21,200
	31	Closing	4	16,245			4,955
	31	Closing	4	4,955

Table (17)

Account:          Fees earned                                                         Account no. 41
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓				6,200
	11		1		1,000		7,200
	16		2		2,000		9,200
	23		2		2,500		11,700
	30		2		1,500		13,200
	31		2		3,000		16,200
	31	Adjusting	3		1,400		17,600
	31	Adjusting	3		3,600		21,200
	31	Closing	4	21,200

Table (18)

Account:  Wages expense                                                           Account no. 50
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			400
	14		1	1,200		1,600
	27		2	1,200		2,800
	31	Adjusting	3	140		2,940
	31	Closing	4		2,940

Table (19)

Account:   Office Rent expense                                                          Account no. 51
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			800
	1		1	1,750		2,550
	31	Closing	4		2,550

Table (20)

Account:   Equipment rent expense                                                   Account no. 52
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			675
	31		1	700		1,375
	31	Closing	4		1,375

Table (21)

Account:   Utilities expense                                                     Account no. 53
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			300
	27		2	915		1,215
	31	Closing	4		1,215

Table (22)

Account:   Music expense                                                     Account no. 54
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			1,590
	21		2	620		2,210
	31		2	1,400		3,610
	31	Closing	4		3,610

Table (23)

Account:   Advertising expense                                                     Account no. 55
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			500
	8		1	200		700
	22		2	800		1,500
	31	Closing	4		1,500

Table (24)

Account:   Supplies expense                                                     Account no. 56
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			180
	22	Adjusting	2	745		925
	31	Closing	4		925

Table (25)

Account:   Insurance expense                                                     Account no. 57
Date		Item	Post. Ref		Debit  ($)	Credit ($)	Balance
							Debit ($)	Credit ($)
2018
July	31	Adjusting		3	225		225
	31	Closing		4		225

Table (26)

Account:   Depreciation expense                                                     Account no. 58
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	31	Adjusting	3	50		50
	31	Closing	4		50

Table (27)

Account:   Miscellaneous expense                                                   Account no. 59
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
July	1	Balance	✓			415
	4		1	900		1,315
	29		2	540		1,855
	31	Closing	4		1,855

Table (28)

To determine

To prepare: A post–closing trial balance of PS Music for July 31, 2018.

Explanation of Solution

Prepare a post–closing trial balance of PS Music for July 31, 2018 as follows:

PS Music Post-closing Trial Balance July, 31, 2018
Particulars	Account No	Debit $	Credit $
Cash	11	9,945
Accounts receivable	12	4,150
Supplies	14	275
Prepaid insurance	15	2,475
Office Equipment	17	7,500
Accumulated depreciation  – Office Equipment	18		50
Accounts payable	21		8,350
Wages payable	22		140
Unearned revenue	23		3,600
Common Stock	31		9,000
Retained earnings	32		3,205
Total		24,345	24,345

Table (29)

Conclusion

The debit column and credit column of the post–closing trial balance are agreed, both having balance of $24,345.