Financial Accounting
Financial Accounting
10th Edition
ISBN: 9781260481563
Author: Libby, Robert
Publisher: MCGRAW-HILL HIGHER EDUCATION
Question
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Chapter 4, Problem 7P

1.

To determine

Journal the adjusting entries for Incorporation T.

1.

Expert Solution
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Explanation of Solution

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.

Journal the adjusting entries for Incorporation T.

Transaction for adjustment (a):

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
December31Supplies Expense (+E, –SE) 600 
   Supplies (–A)  600
  (Record part of supplies used)   

Table (1)

Working Notes:

Calculation of supplies expense.

Supplies expense=(Supplies at the beginning of the period+Supplies purchased during the periodSupplies on the hand at the end of the period)=$900+$0$300=$600

Transaction for adjustment (b):

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
December31Insurance Expense (+E, –SE) 800 
   Prepaid Insurance (–A)  800
  (Record part of prepaid insurance expired)   

Table (2)

Transaction for adjustment (c):

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
December31Depreciation Expense (+E, –SE) 3,700 
   Accumulated Depreciation (+XA, –A)  3,700
  (Record depreciation expense)   

Table (3)

Transaction for adjustment (d):

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
December31Wages Expense (+E, –SE) 640 
   Wages Payable (+L)  640
  (Record accrued expense)   

Table (4)

Transaction for adjustment (e):

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
December31Income Tax Expense (+E, –SE) 5,540 
   Income Tax Payable (+L)  5,540
  (Record accrued expense)   

Table (5)

2.

To determine

Prepare an income statement and a classified balance sheet for the current year for Incorporation T.

2.

Expert Solution
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Explanation of Solution

Prepare an income statement for the current year ended December 31 for Incorporation T.

Incorporation T
Income Statement
For the Current Year Ended December 31
ParticularsAmount ($)Amount ($)
Operating Revenue:  
 Service revenue $61,360
Operating Expenses:  
 Supplies expense 600 
 Insurance expense800 
 Depreciation expense3,700 
 Wages expense16,840 
 Remaining expenses 17,160 
Total expenses 39,100
Operating Income 22,260 
     Income tax expense 5,540 
Net Income $16,720
   
Earnings per share      $3.34

Table (6)

Working Notes:

Calculate earnings per share.

Earningspershare = Netincome Average number of shares of stock outstanding during the period =$16,7205,000shares=$3.34

Prepare a classified balance sheet for the current year for Incorporation T.

Incorporation T
Balance Sheet
At December 31 of the Current Year
AssetsAmount ($)Liabilities and Stockholders’ EquityAmount ($)
Current Assets: Current Liabilities: 
Cash$42,000Accounts payable  3,000
Accounts receivable11,600Wages payable640
Supplies 300Income taxes payable5,540
Total current assets53,900Total current liabilities9,180
Service trucks19,000Note payable, long term17,000
Accumulated depreciation      (12,900)Total liabilities26,180
Other assets 8,300Stockholders' Equity 
  Common stock400
  Additional paid-in capital19,000
  Retained earnings22,720
  Total stockholders' equity42,120
Total assets$68,300Total liabilities and stockholders' equity$68,300

Table (7)

Working Notes:

Calculate retained earnings.

Retained earnings = Unadjusted balance + Net income= $6,000+$16,720=$22,270

3.

To determine

Prepare the closing entry for Incorporation T for the current year, by using the adjusted balances.

3.

Expert Solution
Check Mark

Explanation of Solution

Prepare the closing entry for Incorporation T for the current year, by using the adjusted balances.

DateAccount Title and ExplanationPost. Ref.Debit ($)Credit ($)
  Service Revenue (–R) 61,360 
   Supplies Expense (–E)   600
   Depreciation Expense (–E)  3,700
   Insurance Expense (–E)  800
   Wages Expense (–E)  16,840
   Remaining Expenses (–E)  17,160
   Income Tax Expense (–E)  1,155
   Retained earnings (+SE)  16,720
  (Record closing of revenues and expenses)   

Table (8)

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Chapter 4 Solutions

Financial Accounting

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