Connect Online Access for Financial Accounting
Connect Online Access for Financial Accounting
18th Edition
ISBN: 9781260706260
Author: Author
Publisher: Mcgraw-hill Higher Education (us)
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Chapter 4, Problem 7BP

a.

To determine

Prepare the adjusting entry as at December 31, Year 1.

a.

Expert Solution
Check Mark

Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Prepare the adjusting entries:

DateAccount titles and ExplanationDebit ($)Credit ($)
December 31Accounts receivable1,500 
Studio revenue earned 1,500
(To record the accrued studio revenue earned)  
   
December 31Unearned Retainer fees2,500 
Client fees earned 2,500
(To record  the collection of advance)  
   
December 31Office supplies expense ($205$110)95 
Office supplies 95
(To record  the insurance expense)  
   
December 31Depreciation expense: Office Equipment (1)750 
Accumulated depreciation: Office Equipment 750
(To record the depreciation expense)  
   
December 31Rent expense (2)300 
Prepaid rent 300
(To record the rent expense)  
   
December 31Insurance expense (3)90 
 Unexpired insurance 90
 (To record the insurance expense)  
    
December 31Salaries expense1,900 
 Salaries payable 1,900
 (To record the salaries expense)  
    
December 31Interest expense (4)60 
 Interest payable 60
 (To record the interest expense)  
   
December 31Income taxes expense ($7,500$6,900)600 
 Income taxes payable 600
 (To record the income tax expense)  

Table (1)

1. To record the accrued revenue earned:

  • Accounts receivable is an asset account and it is increased. Therefore, debit accounts receivable with $1,500.
  • Client fees earned is a revenue account and it increases the stockholders’ equity account. Therefore, credit client fees earned with $1,500.

2. To record the collections made in advance:

  • Unearned retainer fees are a liability account and it is decreased. Therefore, debit unearned retained fees with $2,500.
  • Client fees earned is a revenue account and it increases the stockholders’ equity account. Therefore, credit client fees earned with $2,500.

3. To record the office supplies expense:

  • Office supplies expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit office supplies expense with $95.
  • Office supplies are an asset account and it is decreased. Therefore, credit office supplies with $95.

4. To record the depreciation expense, Office Equipment:

  • Depreciation expense is an expense account and it decreases the stockholders’ equity account. Therefore, debit depreciation expense with $750.
  • Accumulated depreciation is a contra-account and it decreases the value of asset. Therefore, credit accumulated depreciation with $750.

Working note:

Calculate the amount of depreciation expense:

Depreciation expense=Cost of the recording equipmentNumber of months depreciated=$54,00072Months=$750 (1)

5. To record the rent expense:

  • Rent expense is an expense account and it decreases the stockholders’ equity. Therefore, debit rent expenses with $300.
  • Prepaid rent is an asset account and it is decreased. Therefore, credit prepaid rent with $300.

Working note:

Calculate the amount of rent expense:

Rent expense=Prepaid rentNumber of months paid=$1,8006Months(October to March)=$300 (2)

6. To record the insurance expense:

  • Insurance expense is an expense account and it decreases the stockholders’ equity. Therefore, debit insurance expenses with $90.
  • Unexpired insurance is an asset account and it is decreased. Therefore, credit unexpired insurance with $90.

Working note:

Calculate the amount of insurance expense:

Insurance expense=Policy amountNumber of months =$1,08012Months=$90 (3)

7. To record the salaries expense:

  • Salaries expense is an expense account and it decreases the stockholders’ equity. Therefore, debit salaries expenses with $1,900.
  • Salaries payable is a liability account and it is increased. Therefore, credit salaries payable with $1,900.

8. To record the interest expense:

  • Interest expense is an expense account and it decreases the stockholders’ equity. Therefore, debit interest expenses with $60.
  • Interest payable is a liability account and it is increased. Therefore, credit interest payable with $60.

Working note:

Calculate the amount of interest expense:

Interest expense=Note payable amount×Interest rate×Number of monthsMonths in a year=$9,000×8%×1(December)12=$60 (4)

9. To record the income tax expense:

  • Income tax expense is an expense account and it decreases the stockholders’ equity. Therefore, debit income tax expenses with $600.
  • Income tax payable is a liability account and it is increased. Therefore, credit salaries payable with $600.

b.

To determine

Prepare the adjusted trial balance dated December 31, Year 1.

b.

Expert Solution
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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 dated December 31, Year 1:

Agency SI
Adjusted trial balance
For the year ended December 31, Year 1
ParticularsDebit ($)Credit($)
 Cash$40,585 
 Accounts receivable$3,500 
 Office supplies$110 
 Prepaid rent$900 
 Unexpired insurance$180 
 Office Equipment$54,000 
 Accumulated depreciation: Office equipment $36,000
 Accounts payable $1,400
 Interest payable $420
 Income taxes payable $2,350
 Note payable $9,000
 Unearned retainer fees $1,000
 Salaries payable $1,900
 Capital stock $30,000
 Retained earnings $8,000
 Dividends$1,000 
 Client fees earned $64,000
 Office supplies expense$700 
 Depreciation expense: Office equipment$9,000 
 Rent expense$6,075 
 Insurance expense$1,100 
 Salaries expense$29,000 
 Interest expense$420 
 Income tax expense$7,500 
 Totals$154,070$154,070

Table (2)

c.

To determine

Compute the net income for the year ended December 31, Year 1.

c.

Expert Solution
Check Mark

Explanation of Solution

Agency SI
Income Statement
For the Year Ended December 31, Year 1
ParticularsAmount ($)Amount ($)
Revenue
 Client fees earned$64,000
 Total Revenue $64,000
 Expenses:  
 Office supplies expense$700 
 Depreciation expense: office equipment$9,000 
 Rent expense$6,075 
 Insurance expense$1,100 
 Salaries expense$29,000 
 Interest expense$420 
 Income taxes expense$7,500 
 Total Expenses $53,795
 Net Income $10,205

Table (3)

Thus, the net income for the year ended December 31, Year 1 is $10,205.

d.

To determine

Identify the company’s average monthly rent expense in January through September for Year 1.

d.

Expert Solution
Check Mark

Explanation of Solution

Calculate the average monthly rent expense from January through September for Year 1.

ParticularsAmount ($)
 Rent expense for 12 months ended December 31, Year 1$6,075
 Less: Rent expense in October through December  ($300×3months)$900
 Rent expense for January through September$5,175
 Average monthly rent expense for January to September  ($5,1759months)$575

Table (4)

Thus the average monthly rent expense from January through September is $575 for year 1.

e.

To determine

Identify the average company’s monthly insurance expense in January and February of Year 1.

e.

Expert Solution
Check Mark

Explanation of Solution

Calculate the average monthly insurance expense for January to July:

ParticularsAmount ($)
 Insurance expense for 12 months ended $1,100
 Less: Insurance expense from March through December ($90×10months)$900
 Insurance expense for January through February$200
 Average monthly insurance expense for January to February ($2002Months)$100

Table (5)

Thus, the average monthly insurance expense from January through February is $100 for Year 1.

e.

To determine

Determine the life of the office equipment from the beginning of company’s operation.

e.

Expert Solution
Check Mark

Explanation of Solution

Determine the life of the office equipment from the beginning of company’s operation.

ParticularsAmount ($)
 Accumulated depreciation per trial balance$35,250
 Add: December depreciation expense (adjusting entry 4)$750
Accumulated depreciation at December 31, Year 1$36,000
Age of equipment at December 31, Year 1($36,000$750Per month)48 months

Table (6)

Thus, the age of the equipment is 48months or 4 years.

f.

To determine

Indicate the effect of the adjusting entry on the income statement and balance sheet.

f.

Expert Solution
Check Mark

Explanation of Solution

Indicate the effect of the adjusting entry on the income statement and balance sheet.

Connect Online Access for Financial Accounting, Chapter 4, Problem 7BP

Table (7)

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.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Note:

“I” represents Increase

“D” represents Decrease

“NE” represents No effect

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Chapter 4 Solutions

Connect Online Access for Financial Accounting

Ch. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 10DQCh. 4 - Prob. 11DQCh. 4 - 12. How is deferred revenue reported in the...Ch. 4 - 13. How do accrued but unpaid expenses affect the...Ch. 4 - 14. How does accrued but uncollected revenue...Ch. 4 - Prob. 15DQCh. 4 - Prob. 1BECh. 4 - BRIEF EXERCISE 4.2 Prepaid Expenses and Unearned...Ch. 4 - Prob. 3BECh. 4 - BRIEF EXERCISE 4.4 Accounting for Depreciation On...Ch. 4 - Prob. 5BECh. 4 - BRIEF EXERCISE 4.6 Unearned Revenue Jasper’s...Ch. 4 - Prob. 7BECh. 4 - Prob. 8BECh. 4 - BRIEF EXERCISE 4.9 Accruing Unpaid Income...Ch. 4 - Prob. 10BECh. 4 - EXERCISE 4.1 Accounting Terminology Listed as...Ch. 4 - Prob. 2ECh. 4 - EXERCISE 4.3 Preparing Adjusting Entries to...Ch. 4 - EXERCISE 4.4 Preparing Adjusting Entries to...Ch. 4 - EXERCISE 4.5 Preparing Adjusting Entries to Accrue...Ch. 4 - EXERCISE 4.6 Deferred Revenue When Delta Airlines...Ch. 4 - EXERCISE 4.7 Preparing Various Adjusting...Ch. 4 - Prob. 8ECh. 4 - Prob. 9ECh. 4 - EXERCISE 4.10 Adjusting Entries and the Balance...Ch. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Prob. 13ECh. 4 - EXERCISE 4.14 Accounting Principles For each of...Ch. 4 - EXERCISE 4.15 Using the Financial Statements of...Ch. 4 - PROBLEM 4.1A Preparing Adjusting Entries Florida...Ch. 4 - PROBLEM 4.2A Preparing and Analyzing the Effects...Ch. 4 - Prob. 3APCh. 4 - PROBLEM 4.4A Preparing Adjusting Entries from a...Ch. 4 - Prob. 5APCh. 4 - Prob. 6APCh. 4 - Prob. 7APCh. 4 - Prob. 8APCh. 4 - Prob. 1BPCh. 4 - Prob. 2BPCh. 4 - Prob. 3BPCh. 4 - Prob. 4BPCh. 4 - Prob. 5BPCh. 4 - Prob. 6BPCh. 4 - Prob. 7BPCh. 4 - Prob. 8BPCh. 4 - CASE 4.1 Should This Be Adjusted? Property...Ch. 4 - Prob. 2CTCCh. 4 - Prob. 3CTCCh. 4 - Prob. 4CTC
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