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 7P

1.

To determine

Record the adjusting entries.

1.

Expert Solution
Check Mark

Answer to Problem 7P

Record the adjusting entries:

Date

Account Title and ExplanationDebit ($)Credit ($)
a.Supplies expense (+E, -SE) ($900$300)600 
  Supplies (-A) 600
  (To record supplies expenses)  
  
b.Insurance expense (+E, -SE) 800 
  Prepaid insurance (-A) 800
  (To record insurance expense)  
  
c.Depreciation expense (+E, -SE)3,700 
  Accumulated depreciation (+xA, -A) 3,700
  (To record the accumulated depreciation)  
  
 d.Wages expense (+E, -SE) 640 
  Wages payable (+L) 640
  (To record wages payable)  
  
 e.Income tax expense (+E,-SE) 5,540 
  Income tax payable (+L) 5,540
  (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)

  • 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 $600.
  • Supplies are asset. There is a decrease in the asset. Hence, credit asset with $600.

(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 $800.
  • Prepaid insurance is an asset. There is a decrease in the asset. Hence, credit asset with $800.

(c)

  • 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 $3,700.
  • Accumulated depreciation is a contra-asset. There is a decrease in the asset. Hence, credit accumulated depreciation with $3,700.

(d)

  • 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 $640.
  • Wages payable is a liability. There is an increase in the liability. Hence, credit wages payable with $640

(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 $5,540.
  • Income tax payable is a liability. There is an increase in the liability. Hence, credit, interest payable with $5,540.

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 T
Income Statement
For December 31, 2014
ParticularsAmount ($)Amount ($)
Operating Revenue:  
     Service revenue$61,360 
Operating Expenses:  
     Supplies expense 600 
     Insurance expense800 
     Depreciation expense3,700 
     Wages expense640 
     Remaining expenses 33,360 
Total expenses 39,100
Operating Income22,260 
     Income tax expense5,540 
Net Income $16,720
Earnings per share  ($16,7205,000shares)     $3.34

Table (2)

The net income for the Incorporation T is $16,720.

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 T
Balance Sheet
At December 31, 2014
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 earnings (1)22,720
Total stockholders' equity42,120
Total assets$68,300Total liabilities and stockholders' equity$68,300

Table (3)

Working notes:

Calculation of retained earnings:

Retained earnings = Unadjusted balance + Net income= $6,000+$16,720=$22,270 (1)

The balance sheet agreed with $68,300 by assets and liabilities.

3.

To determine

Record the closing entry at December 31, 2014.

3.

Expert Solution
Check Mark

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)61,360 
Retained earnings(+SE)  16,720
Supplies expense(-E) 600
Insurance expense(-E) 800
Depreciation expense(-E) 3,700
Wages expense (-E) 640
Remaining expense (-E) 33,360
Income tax expense(-E) 5,540
 (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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