Financial Accounting, 8th Edition
Financial Accounting, 8th Edition
8th Edition
ISBN: 9780078025556
Author: Robert Libby, Patricia Libby, Daniel Short
Publisher: McGraw-Hill Education
Question
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Chapter 4, Problem 7AP

1.

To determine

Record the adjusting entries.

1.

Expert Solution
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Answer to Problem 7AP

Record the adjusting entries:

Date

Account Title and ExplanationDebit ($)Credit ($)
(a)Depreciation expense (+E, -SE)3,000 
  Accumulated depreciation (+xA, -A) 3,000
  (To record the accumulated depreciation)  
  
(b)Insurance expense (+E, -SE) 450 
  Prepaid insurance (-A) 450
  (To record insurance expense)  
  
(c)Wages expense (+E, -SE) 2,100 
  Wages payable (+L) 2,100
  (To record wages payable)  
  
 (d)Supplies expense (+E, -SE) ($1,300$800)500 
  Supplies (-A) 500
  (To record supplies expenses)  
  
 (e)Income tax expense (+E,-SE) 3,150 
  Income tax payable (+L) 3,150
  (To record  accrued income tax expense)  

Table (1)

Explanation of Solution

Adjusting entries:

Adjusting entries are the journal entries which are recorded at the end of the accounting period to correct or adjust the revenue and expense accounts, to concede with the accrual principle of accounting.

(a)

  • Depreciation expense is an expense account which is a component of stockholders’ equity. There is an increase in expense account which decreases the stockholders’ equity. Hence, debit depreciation expense with $3,000.
  • Accumulated depreciation is a contra-asset. There is a decrease in the asset. Hence, credit accumulated depreciation with $3,000.

(b)

  • Insurance expense is an expense account which is a component of stockholders equity. There is an increase in the expense which decreases the stock holders’ equity. Hence, debit insurance expense with $450.
  • Prepaid insurance is an asset. There is a decrease in the asset. Hence, credit asset with $450.

(c)

  • Wages expense is an expense account which is a component of stockholders equity. There is an increase in the expense which decreases the stock holders’ equity. Hence, debit wages expense with $2,100.
  • Wages payable is a liability. There is an increase in the liability. Hence, credit wages payable with $2,100.

(d)

  • Supplies expense is an expense account which is a component of stockholders equity. There is an increase in the expense which decreases the stock holders’ equity. Hence, debit supplies expense with $500.
  • Supplies are asset. There is a decrease in the asset. Hence, credit asset with $500.

(e)

  • Income tax expense is an expense account which is a component of stock holders’ equity. There is an increase in the expense account which decreases the stockholders’ equity. Hence, debit interest expense with $3,150.
  • Income tax payable is a liability. There is an increase in the liability. Hence, credit, interest payable with $3,150.

2.

To determine

Prepare an income statement and a classified balance sheet.

2.

Expert Solution
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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:

Incorporation S
Income Statement
For the year ended December 31, 2014
ParticularsAmount ($)Amount ($)
Operating Revenue:  
     Service revenue48,000 
Less: Operating Expenses:  
     Supplies expense 500 
     Insurance expense450 
     Depreciation expense3,000 
     Wages expense2,100 
     Remaining expenses 32,900 
Total expenses38,950 
Operating Income9,050 
Less:  Income tax expense3,150 
Net Income $5,900
Earnings per share  ($5,9003,000shares)     $1.97

Table (2)

The net income for the Incorporation S is $5,900.

Classified balance sheet:

This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

Prepare a classified balance sheet:

Incorporation S
Balance Sheet
At December 31, 2014
AssetsAmount ($)Liabilities and Stockholders’ EquityAmount ($)
Current Assets:Current Liabilities:
Cash19,600Accounts payable2,500
Accounts receivable7,000Wages payable2,100
Supplies 800Income taxes payable3,150
Prepaid insurance450
Total current assets27,850Total current liabilities7,750
Equipment27,000Note payable, long term5,000
Accumulated depreciation      (15,000)     Total liabilities12,750
Other assets 5,100Stockholders' Equity
Common stock300
Additional paid-in capital15,700
Retained earnings (2)16,200
Total stockholders' equity32,200
Total assets$44,950Total liabilities and stockholders' equity$44,950

Table (3)

Working notes:

Calculation of retained earnings:

Retained earnings = Unadjusted balance + Net income= $10,300+$5,900=$16,200 (2)

The balance sheet agreed with $44,950 by assets and liabilities.

3.

To determine

Record the closing entry at December 31, 2014.

3.

Expert Solution
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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 account. Closing entries produce a zero balance in each temporary account.

Prepare closing entries at December 31, 2014:

DateAccount Title and ExplanationDebit ($)Credit ($)
 Sales revenue(-R)48,000 
Retained earnings(+SE)  5,900
Supplies expense(-E) 500
Insurance expense(-E) 450
Depreciation expense(-E) 3,000
Wages expense (-E) 2,100
Remaining expense (-E) 32,900
Income tax expense(-E) 3,150
 (To record the closing entries)  

Table (4)

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.

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Chapter 4 Solutions

Financial Accounting, 8th Edition

Ch. 4 - Explain why the income statement accounts are...Ch. 4 - Prob. 12QCh. 4 - Which of the following accounts would not appear...Ch. 4 - Which account is least likely to appear in an...Ch. 4 - Prob. 3MCQCh. 4 - Prob. 4MCQCh. 4 - Prob. 5MCQCh. 4 - An adjusted trial balance a. Shows the ending...Ch. 4 - JJ Company owns a building. Which of the following...Ch. 4 - Prob. 8MCQCh. 4 - Prob. 9MCQCh. 4 - If a company is successful in acquiring several...Ch. 4 - Prob. 1MECh. 4 - Matching Definitions with Terms Match each...Ch. 4 - Matching Definitions with Terms Match each...Ch. 4 - Prob. 4MECh. 4 - Prob. 5MECh. 4 - Prob. 6MECh. 4 - Prob. 7MECh. 4 - Prob. 8MECh. 4 - Prob. 9MECh. 4 - Prob. 10MECh. 4 - Prob. 11MECh. 4 - Prob. 12MECh. 4 - Prob. 1ECh. 4 - Prob. 2ECh. 4 - Prob. 3ECh. 4 - Prob. 4ECh. 4 - Prob. 5ECh. 4 - Prob. 6ECh. 4 - Prob. 7ECh. 4 - Prob. 8ECh. 4 - Prob. 9ECh. 4 - Recording Transactions Including Adjusting and...Ch. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Inferring Transactions Deere Company is the...Ch. 4 - Analyzing the Effects of Errors on Financial...Ch. 4 - Prob. 15ECh. 4 - Prob. 16ECh. 4 - Prob. 17ECh. 4 - Prob. 18ECh. 4 - Prob. 19ECh. 4 - Prob. 20ECh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7PCh. 4 - Prob. 1APCh. 4 - Prob. 2APCh. 4 - Prob. 3APCh. 4 - Prob. 4APCh. 4 - Prob. 5APCh. 4 - Prob. 6APCh. 4 - Prob. 7APCh. 4 - Prob. 1COMPCh. 4 - Prob. 2COMPCh. 4 - Prob. 1CPCh. 4 - Prob. 2CPCh. 4 - Prob. 3CPCh. 4 - Prob. 4CPCh. 4 - Prob. 5CPCh. 4 - Prob. 6CPCh. 4 - Prob. 7CPCh. 4 - Prob. 8CPCh. 4 - Prob. 9CPCh. 4 - Prob. 1CC
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