Fundamental Accounting Principles -Hardcover
Fundamental Accounting Principles -Hardcover
22nd Edition
ISBN: 9780077862275
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 4, Problem 2APSA

REQUIREMENT 1

To determine

TO CALCULATE

We need to calculate the 10 column worksheet for the fiscal year 2015.

SOLUTIONS

    CONSTRUCTION COMPANY
    10 COLOUMN WORKSHEET
    As on 31st December, 2015
    PARTICULARSUNADJUSTED TRIAL BALANCEADJUSTMENTSADJUSTED TRAIL BALANCEINCOME STATEMENTOWNERS EQUITY BALANCE SHEET
    DEBIT ($)CREDIT($)DEBIT ($)CREDIT($)DEBIT ($)CREDIT ($)DEBIT ($)CREDIT ($)DEBIT($)CREDIT ($)
    Cash
    18500
     
     
     
    18500
     
     
     
    18500
     
    Prepaid Insurance
    7200
     
     
    3800
    3400
     
     
     
    3400
     
    Office supplies
    9900
     
     
    6600
    3300
     
     
     
    3300
     
    Equipments
    132,000
     
     
     
    132000
     
     
     
    132000
     
    Accumulated Depreciation -Equipment
     
    26,250
     
    8400
     
    34,650
     
     
     
    34650
    Account payable
     
    6800
     
     
     
    6800
     
     
     
    6800
    Notes Payable
     
     
     
    5000
     
    5000
     
     
     
    5000
    Interest payable
     
    0
     
    250
     
    250
     
     
     
    250
    Rent payable
     
    0
     
    500
     
    500
     
     
     
    500
    Utilities Payable
     
    0
     
    650
     
    650
     
     
     
    650
    Wages payable
     
    0
     
    1800
     
    1800
     
     
     
    1800
    Property tax payable
     
    0
     
    1000
     
    1000
     
     
     
    1000
    Long Terms Note payable
     
    25,000
    5000
     
     
    20,000
     
     
     
    20000
    V. Ace capital
     
    88660
     
     
     
    88660
     
     
     
    88660
    V. ace withdrawals
    33,000
     
     
     
    33000
     
     
     
    33000
     
    Construction Fees earned
     
    132100
     
     
     
    132100
     
    132100
     
     
    Depreciation Expenses
    0
     
    8400
     
    8400
     
    8400
     
     
     
    Wages Expenses
    46860
     
    1800
     
    48660
     
    48660
     
     
     
    Supplies Expenses
    0
     
    6600
     
    6600
     
    6600
     
     
     
    Interest Expenses
    2750
     
    250
     
    3000
     
    3000
     
     
     
    Insurance Expenses
    0
     
    3800
     
    3800
     
    3800
     
     
     
    Property tax expenses
    7800
     
    1000
     
    8800
     
    8800
     
     
     
    Rent Expenses
    12000
     
    500
     
    12500
     
    12500
     
     
     
    Repairs Expenses
    2910
     
     
     
    2910
     
    2910
     
     
     
    Utilities Expenses
    5890
     
    650
     
    6540
     
    6540
     
     
     
    TOTAL2788102788102800028000291410291410101210132100190200159310
    Net Income
     
     
     
     
     
     
    30890 
     
    30890
    TOTAL
     
     
     
     
     
     
    132100132100190200190200

EXPLANATION

A 10 Column worksheet starts with Unadjusted Trail balance in which we have to do the adjustments.

  1. Given in the sum closing supplies $3300 will be reflect as Supplies in balance sheet and difference $6600 will be charged as expenses.

  2.   Closing supplies = $3,300Suppiles Utilized = Opening Supplies + Purchases - Closing SuppliesSupplies Utilized = $9900 + 0 - $3300Supplies Utilized = $6600
  3. The insurance expired will be charged to expenses and remaining unexpired insurance will be shown as Prepaid Insurance in the balance sheet.

  4.   Closing Prepaid Insurance = Opening Prepaid - UtilisedClosing prepaid Insurance = $7200 - $3800Closing prepaid Insurance = $3400
  5. Annual Depreciation will be charged to expenses and added to Accumulated depreciation account. Hence Annual Depreciation of $8400 is debited as Depreciation expense and also credited to Accumulated depreciation account.
  6. Utilities expenses of $650 is recorded as Expenses and the Utilities payable account as a liabilities is also created of $650.
  7. Accrued wages of $1800 were debited as an Expenses and Wages payable were credited at the same amount showing as liabilities payable.
  8. Outstanding rent expenses were also recorded as expenses and debited and simultaneously a rent payable account is created as a liability.
  9. Another liability of Property tax has not been paid but must be recorded in books as per accrual basis and hence debited as an expense and simultaneously liabilities credit under property tax payable account.
  10. Accrued expenses for 1 month must be recorded as per accrual basis of accounting and hence $250 must be recorded as an expenses.
  11. Also Notes payable of $5000 is to be shown as current liabilities because payable is due in less than 1year so we have to debit the Long term loan payable and credit the short term loan payable to reduce the long term loan payable and create a new short term loan payable.

REQUIREMENT 1

Expert Solution
Check Mark

Answer to Problem 2APSA

SOLUTIONS

    CONSTRUCTION COMPANY
    10 COLOUMN WORKSHEET
    As on 31st December, 2015
    PARTICULARSUNADJUSTED TRIAL BALANCEADJUSTMENTSADJUSTED TRAIL BALANCEINCOME STATEMENTOWNERS EQUITY BALANCE SHEET
    DEBIT ($)CREDIT($)DEBIT ($)CREDIT($)DEBIT ($)CREDIT ($)DEBIT ($)CREDIT ($)DEBIT($)CREDIT ($)
    Cash
    18500
     
     
     
    18500
     
     
     
    18500
     
    Prepaid Insurance
    7200
     
     
    3800
    3400
     
     
     
    3400
     
    Office supplies
    9900
     
     
    6600
    3300
     
     
     
    3300
     
    Equipments
    132,000
     
     
     
    132000
     
     
     
    132000
     
    Accumulated Depreciation -Equipment
     
    26,250
     
    8400
     
    34,650
     
     
     
    34650
    Account payable
     
    6800
     
     
     
    6800
     
     
     
    6800
    Notes Payable
     
     
     
    5000
     
    5000
     
     
     
    5000
    Interest payable
     
    0
     
    250
     
    250
     
     
     
    250
    Rent payable
     
    0
     
    500
     
    500
     
     
     
    500
    Utilities Payable
     
    0
     
    650
     
    650
     
     
     
    650
    Wages payable
     
    0
     
    1800
     
    1800
     
     
     
    1800
    Property tax payable
     
    0
     
    1000
     
    1000
     
     
     
    1000
    Long Terms Note payable
     
    25,000
    5000
     
     
    20,000
     
     
     
    20000
    V. Ace capital
     
    88660
     
     
     
    88660
     
     
     
    88660
    V. ace withdrawals
    33,000
     
     
     
    33000
     
     
     
    33000
     
    Construction Fees earned
     
    132100
     
     
     
    132100
     
    132100
     
     
    Depreciation Expenses
    0
     
    8400
     
    8400
     
    8400
     
     
     
    Wages Expenses
    46860
     
    1800
     
    48660
     
    48660
     
     
     
    Supplies Expenses
    0
     
    6600
     
    6600
     
    6600
     
     
     
    Interest Expenses
    2750
     
    250
     
    3000
     
    3000
     
     
     
    Insurance Expenses
    0
     
    3800
     
    3800
     
    3800
     
     
     
    Property tax expenses
    7800
     
    1000
     
    8800
     
    8800
     
     
     
    Rent Expenses
    12000
     
    500
     
    12500
     
    12500
     
     
     
    Repairs Expenses
    2910
     
     
     
    2910
     
    2910
     
     
     
    Utilities Expenses
    5890
     
    650
     
    6540
     
    6540
     
     
     
    TOTAL2788102788102800028000291410291410101210132100190200159310
    Net Income
     
     
     
     
     
     
    30890 
     
    30890
    TOTAL
     
     
     
     
     
     
    132100132100190200190200

Explanation of Solution

A 10 Column worksheet starts with Unadjusted Trail balance in which we have to do the adjustments.

  1. Given in the sum closing supplies $3300 will be reflect as Supplies in balance sheet and difference $6600 will be charged as expenses.

  2.   Closing supplies = $3,300Suppiles Utilized = Opening Supplies + Purchases - Closing SuppliesSupplies Utilized = $9900 + 0 - $3300Supplies Utilized = $6600
  3. The insurance expired will be charged to expenses and remaining unexpired insurance will be shown as Prepaid Insurance in the balance sheet.

  4.   Closing Prepaid Insurance = Opening Prepaid - UtilisedClosing prepaid Insurance = $7200 - $3800Closing prepaid Insurance = $3400
  5. Annual Depreciation will be charged to expenses and added to Accumulated depreciation account. Hence Annual Depreciation of $8400 is debited as Depreciation expense and also credited to Accumulated depreciation account.
  6. Utilities expenses of $650 is recorded as Expenses and the Utilities payable account as a liabilities is also created of $650.
  7. Accrued wages of $1800 were debited as an Expenses and Wages payable were credited at the same amount showing as liabilities payable.
  8. Outstanding rent expenses were also recorded as expenses and debited and simultaneously a rent payable account is created as a liability.
  9. Another liability of Property tax has not been paid but must be recorded in books as per accrual basis and hence debited as an expense and simultaneously liabilities credit under property tax payable account.
  10. Accrued expenses for 1 month must be recorded as per accrual basis of accounting and hence $250 must be recorded as an expenses.
  11. Also Notes payable of $5000 is to be shown as current liabilities because payable is due in less than 1year so we have to debit the Long term loan payable and credit the short term loan payable to reduce the long term loan payable and create a new short term loan payable.

Conclusion




Hence we have analyze both the scenario and discovered that both will have effect on the 10 column worksheet and error A cannot be identified on the face of financial statement but error B can

REQUIREMENT 2

To determine

TO CALCULATE

We need to calculate the adjustment entries during the period and pass the respective journal entries for each entry.

SOULTION

    ADJUSTING ENTRIES IN THE BOOKS OF ACE CONSTRUCTION COMPANY
    FOR THE YEAR ENDED 31st DECEMBER, 2015
    No.PARTICULARSDEBIT ($)CREDIT ($)
    a.
    Supplies Expenses
    6,600
     
     
    Office supplies
     
    6,600
     
    (Being supplies Expenses incurred recorded)
     
     
     
     
     
     
    b.
    Insurance Expenses
    3,800
     
     
    Prepaid Insurance
     
    3,800
     
    (Being Insurance Expenses expired recorded)
     
     
     
     
    8,400
     
    c.
    Depreciation Expenses
     
    8,400
     
    Accumulated Depreciation
     
     
     
    (Being Depreciation Expenses recorded)
     
     
     
     
     
     
    d.
    Utilities Expenses
    650
     
     
    Utilities Payable
     
    650
     
    (Being Utilities Expenses recorded)
     
     
     
     
     
     
    e.
    Wages Expenses
    1800
     
     
    Wages Payable
     
    1800
     
    (Being Wages Expenses Incurred Recorded)
     
     
     
     
     
     
    f.
    Rent Expenses
    500
     
     
    Rent payable
     
    500
     
    (Being Rent Expenses Incurred recorded)
     
     
     
     
     
     
    g.
    Property Tax Expenses
    1000
     
     
    Property Tax Payable
     
    1000

    (Being Property Tax expenses Recorded)
     
     
     
     
     
     
    h.
    Interest Expenses
    250
     
     
    Interest Payable
     
    250
     
    (Being Interest Expenses Recognized)
     
     
     
     
     
     

    Long term Notes Payable
    5000
     
     
    Current Notes Payable
     
    5000
     
    (Being 5000 Notes payable recorded as current liabilities and deducted from long term notes)
     
     
     
     
     

REQUIREMENT 2

Expert Solution
Check Mark

Explanation of Solution

  1. Given in the sum closing supplies $3300 will be reflect as Supplies in balance sheet and difference $6600 will be charged as expenses.

  2.   Closing supplies = $3,300Suppiles Utilized = Opening Supplies + Purchases - Closing SuppliesSupplies Utilized = $9900 + 0 - $3300Supplies Utilized = $6600
  3. The insurance expired will be charged to expenses and remaining unexpired insurance will be shown as Prepaid Insurance in the balance sheet.

  4.   Closing Prepaid Insurance = Opening Prepaid - UtilisedClosing prepaid Insurance = $7200 - $3800Closing prepaid Insurance = $3400
  5. Annual Depreciation will be charged to expenses and added to Accumulated depreciation account. Hence Annual Depreciation of $8400 is debited as Depreciation expense and also credited to Accumulated depreciation account.
  6. Utilities expenses of $650 is recorded as Expenses and the Utilities payable account as a liabilities is also created of $650.
  7. Accrued wages of $1800 were debited as an Expenses and Wages payable were credited at the same amount showing as liabilities payable.
  8. Outstanding rent expenses were also recorded as expenses and debited and simultaneously a rent payable account is created as a liability.
  9. Another liability of Property tax has not been paid but must be recorded in books as per accrual basis and hence debited as an expense and simultaneously liabilities credit under property tax payable account.
  10. Accrued expenses for 1 month must be recorded as per accrual basis of accounting and hence $250 must be recorded as an expenses.
  11. Also Notes payable of $5000 is to be shown as current liabilities because payable is due in less than 1year so we have to debit the Long term loan payable and credit the short term loan payable to reduce the long term loan payable and create a new short term loan payable.

TO PREPARE

To determine

We need to prepare the closing entries to be made for the year ended 2015.

TO PREPARE

Expert Solution
Check Mark

Answer to Problem 2APSA

SOLUTION

    CLOSING ENTRIES IN THE BOOKS OF ACE CONSTRUCTION COMPANY
    FOR THE YEAR ENDED 31st DECEMBER, 2015
    No.PARTICULARSDEBIT ($)CREDIT ($)
    1
    REVENUE
     
     
     
    Construction Fee Earned
    132,100
     
     
    Income Summary
     
    132,100
     
     
     
     
    2
    EXPENSES
     
     
     
    Income Summary
    101,210
     
     
    Depreciation Expenses
     
    8,400
     
    Wages Expenses
     
    48,660
     
    Insurance Expenses
     
    3,800
     
    Interest Expenses
     
    3,000
     
    Property tax expenses
     
    8,800
     
    Repairs Expenses
     
    2,910
     
    Utilities Expenses
     
    6,540
     
    Rent expenses
     
    12,500
     
    Supplies expenses
     
    6,600
     
     
     
     
    3
    NET INCOME FOR THE YEAR TRANSFER TO CAPITAL
     
     
     
    Income Summary
    30,890
     
     
    V Ace Capital
     
    30,890
     
     
     
     
    4
    REDUCTION IN OWNERS CAPITAL DUE TO DRAWING
     
     
     
    V Ace Capital
    33,000
     
     
    V Ace Withdrawals
     
    33,000

Explanation of Solution

  1. The first journal entries represent the Income that is made during the year. We transfer the income to a notional account we create named as Income summary account in which we transfer the Income and Expenses and any excess or deficit is adjusted with the capital Account.
  2. Since revenue is a credit item so we debit the revenue and credit the income summary account. In this way we have transfer the revenue to Income summary account.
  3. In the second entry we transfer all the expenses to income summary account by debiting the Income summary and crediting all the expenses during the year.
  4. In the 3rd entry we find out the surplus in income summary account after the debit and credit od revenue and expenses and transfer the surplus to capital account. The surplus calculated as shown below:-

  5.   Surplus Revenue in income summary account,Surplus = Revenue - ExpensesSurplus = $132,100 - $101,210Surplus = $30,890
  6. In this we have simply reduced the partners’ capital account by the amount of withdrawals they made during the year.

REQUIREMENT 3A

To determine

TO PREPARE We need to prepare the Income statement account and closing balance of owner’s equity of Ace Construction Company for the fiscal year 2015.

REQUIREMENT 3A

Expert Solution
Check Mark

Answer to Problem 2APSA

SOLUTION

    ACE CONSTRUCTION COMAPANY

    Income Statement Account

    For the year ended 31 December, 2015

    REVENUES

    Construction Fee Earned

    132,100

    EXPENSES

    Depreciation Expenses

    8,400

    Wages Expenses

    48,660

    Insurance Expenses

    3,800

    Interest Expenses

    3,000

    Property tax expenses

    8,800

    Repairs Expenses

    2,910

    Utilities Expenses

    6,540

    Rent expenses

    12,500

    Supplies expenses

    6,600

    TOTAL EXPENSES

    101,210

    NET INCOME

    30,890

    ACE CONSTRUCTION COMPANY

    Statement of Owners Equity

    For the year ended 31 December, 2015

    V ACE, Capital as on, 31 December, 2014

    88,660

    Add: Net Income

    30,890

    119,550

    Less: Withdrawals

    33000

    V ACE, Capital as on, 31 December, 2015

    86,550

Explanation of Solution

1. An income statement account is the Net income during the period. It can be calculated as follows:

  Net Income = Revenue - ExpensesNet Income = Revenue - (Depreciation Expenses+Wages Expenses+Insurance Expenses+Interest Expenses                                       +Property tax expenses+Repairs Expenses+Utilities Expenses+Rent expenses                                        +Supplies expensesNet Income = $132100 - $(8400+48660+3800+3000+8800+2910+6540+12500+6600)Net Income = $132,100 - $101,210Net Income = $30,890

2. A closing balance of owners’ equity can be calculated as shown below:-

  Closing balance of owner equity = Opening balance + Net Income - WithdrawalsClosing balance of owner equity = $88660+$30890$33000Closing balance of owner equity = $86550

REQUIREMENT 3A

To determine

TO CALCULATE We need to calculate the Classified Balance sheet for the fiscal year 2015 of Ace Construction Company.

REQUIREMENT 3A

Expert Solution
Check Mark

Answer to Problem 2APSA

SOLUTION

    ACE CONSTRUCTION COMPANY
    Classified Balance sheet
    As on December 31, 2015
    ASSETSAMOUNT ($)LIABILITY & EQUITYAMOUNT ($)
    I. CURRENT ASSETS
     
    I. CURRENT LIABILITIES
     
    Cash
    $18,500.00
    Account payable
    $6,800.00
    Prepaid Insurance
    $3,400.00
    Notes Payable
    $5,000.00
    Office supplies
    $3,300.00
    Interest payable
    $250.00
    Total Current Assets=
    $25,200.00
    Rent payable
    $500.00
     
     
    Utilities Payable
    $650.00
    II. NON CURRENT ASSET
     
    Wages payable
    $1,800.00
    Equipment $132,000
     
    Property tax payable
    $1,000.00
    Less: Accumulated Depreciation $34,650
    $97,350.00
    Total Current Liabilities=
    $16,000.00
     
     
    II. NON CURRENT LIABILITIES
     
     
     
    Long Terms Note payable
    $20,000.00
     
     
    TOTAL LIABILITIES =
    $36,000.00
     
     
    III. STOCKHOLDERS EQUITY
     
     
     
    Owners Capital
    $86,550.00
    TOTAL ASSET=
    $122,550.00
    TOTAL EQUITY AND LIABILITIES=
    $122,550.00

Explanation of Solution

A Classified balance sheet consists of 2 parts in Assets and Owners Equity&liabilities which is shown as Current and Non Current Items.

FOR ASSETS SIDE WE HAVE,

  I. Current Asset = Cash + Prepaid + Office Supplies    Current Asset = $18500 +$3400 +$3300   Current Asset = $25200II. Non Current Asset = Equipment - Accumulated Depreciation      Non Current Asset = $132000 - $34650     Non Current Asset = $97350III. Total Asset = Current Asset + Non Current Asset      Total Asset = $25200 + $97350      Total Asset = $122550

FOR LIABILITIES SIDE WE HAVE,

  I. Current Liabilities = Account payable+Notes payable+Interest payable+Rent payable+utilities payable                                  +wages payable+property tax payable   Current Liabilities = $(6800+5000+250+500+650+1800+1000)   Current Liabilities = $16000II. Non Current Liabilities = Long term Notes payable    Non current Liabilities = $20000III. Total Liabilities = Current Liabilities + Non current Liabilities      Total Liabilities = $16000 + $20000      Total Liabilities = $36000IV. Total Equity and Laibilities = Total liabilities + Owners capital      Total Equity and Liabilities = $36000 + $86550      Total Equity and Liabilities =$122500

REQUIREMENT 4

To determine

TO CALCULATE We need to analyze the effect of this error on the 10 column worksheet and then describe wether this error will be discovered on balance sheet or not.

REQUIREMENT 4

Expert Solution
Check Mark

Answer to Problem 2APSA

SOLUTION

  1. Will have effect on 10 column worksheet and this error cannot be discovered in the balance sheet.
  2. Will have effect on 10 column worksheet and this error can be discovered in balance sheet.

Explanation of Solution

A) In this scenario, there was a difference of 3,300 supplies expense that where not charged. Hence the supplies were overvalued and expenses were undervalued. This Error would not likely to be discovered only with the worksheet. As the overvalue and undervalue will automatically balance the work book and the error cannot be discovered on the financial statement. In financial statement Supplies will be overvalued by 3,300 and Ace capital will be overvalued by 3,300.

B) In this scenario Cash balance will be undervalued. As the cash was credited incorrectly by $18,500. This effect can be seen in workbook as the cash balance will be lower by $18,500. So the workbook will not match. This error can be discovered in the workbook itself.

Conclusion




Hence we have analyze both the scenario and discovered that both will have effect on the 10 column worksheet and error A cannot be identified on the face of financial statement but error B can

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Chapter 4 Solutions

Fundamental Accounting Principles -Hardcover

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