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 5, Problem 5AP

a.

To determine

Prepare the adjusting journal entries of Incorporation S as on December 31, current year and prepare an adjusted trial balance dated December 31, current year.

a.

Expert Solution
Check Mark

Answer to Problem 5AP

Prepare the adjusting journal entries of Incorporation S as on December 31:

Incorporation S
General Journal (Adjusting)
December, 31 Current Year
DateAccounts title and ExplanationPost Ref.

Debit

($)

Credit

($)

 December 311.Accounts Receivable 1,800
Consulting Services Revenue 1,800
(To record the revenue accrued at the end of December)
 December 312.Unearned Consulting Services Revenue 3,000
Consulting Services Revenue 3,000
(To record the conversion of unearned revenue into earned revenue in December)
 December 313.Office Supplies Expense (1) 114
Office Supplies 114
(To record the offices supplies used for December)
 December 314.Depreciation Expense of Office Equipment (2) 900
 Accumulated Depreciation of Office Equipment 900
(To record the depreciation expense incurred for December)
 December 315.Rent Expense (3) 360
Prepaid Rent 360
(To record the rent expense for December)
 December 316.Insurance Expense (4) 108
Unexpired Insurance 108
(To record the portion of insurance policies expired in December)
 December 317.Salaries Expense 2,280
Salaries Payable 2,280
(To record the accrued but unpaid salaries in December)
 December 318.Interest Expense (5) 72
Interest Payable 72
(To record the interest expense accrued in December)
 December 319.Income Taxes Expense (6) 720
Income Taxes Payable 720
(To record the income taxes expense accrued in December)

Table (1)

Prepare an adjusted trial balance as on December 31, current year:

Incorporation S
Adjusted Trial Balance
December 31, Current Year
Cash51,402
Accounts receivable4,200
Office supplies132
Prepaid rent1,080
Unexpired insurance216
Office equipment64,800
Accumulated depreciation of office equipment43,200
Accounts payable1,680
Notes payable (Due 3/1/Next Year)10,800
Income taxes payable2,820
Unearned consulting services revenue1,200
Salaries payable2,280
Interest payable504
Capital stock36,000
Retaining earnings9,600
Dividends1,200
Consulting services revenue76,800
Office supplies expense840
Depreciation expense: office equipment 10,800
Rent expense4,590
Insurance expense1,320
Salaries expense34,800
Interest expense504
Income taxes expense9,000
Totals184,884184,884

Table (2)

Explanation of Solution

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Trial balance:

Trial balance is a summary of all the asset, liability, and equity accounts and their balances.

Working notes:

Compute the amount of Office Supplies Expense:

Office Supplies Expense=[Office supplies in trial balanceOffice supplies on hand at December31]=$246$132=$114 (1)

Compute the amount of depreciation Expense:

Office Supplies Expense=Equipment72 months=$64,80072 months=$900 (2)

Compute the amount of rent Expense:

Rent Expense=Prepaidrent4 months=$1,4404 months=$360 (3)

Compute the amount of Insurance Expense:

Insurance Expense=Unexpired insurance12 months×4Months=$32412 months×4Months=$108 (4)

Compute the amount of interest Expense:

Interest Expense=Amount borrowed12 months×Interest rate=$10,80012 months×8100=$72 (5)

Compute the amount of income taxes Expense:

Income taxes Expense=Income taxIncome tax expense=$9,000$8,280=$720 (6)

b.

To determine

Prepare the financial statements of Incorporation S as on December 31, current year.

b.

Expert Solution
Check Mark

Answer to Problem 5AP

  • Prepare the income statement of Incorporation S as on December 31, current year as follows:
Incorporation S
Income Statement
For the Year Ended December 31, Current Year
Particulars$$
Revenues:
Consulting services revenue $76,800
Less: Expenses:
Office supplies expense840
Depreciation expense: office equipment10,800
Rent expense4,590
Insurance expense1,320
Salaries expense34,800
Interest expense504 52,854
Income before taxes23,946
Less: Income taxes expense9,000
Net income $14,946

Table (3)

  • Prepare the statement of retained earnings of Incorporation S as on December 31, current year as follows:
Incorporation S
Statement of retained earnings
For the Year Ended December 31, Current Year
Particulars$
Retained earnings as on January 1, Current Year9,600
Add: Net Income14,946
Less: Dividends1,200
Retained earnings as on December 31, Current Year23,346

Table (2)

  • Prepare the Balance Sheet of Incorporation S as on December 31, current year as follows:
Incorporation S
Balance Sheet
December 31, Current Year
Assets$$
Cash51,402
Accounts receivable4,200
Office Supplies132
Prepaid rent1,080
Unexpired insurance216
Office Equipment64,800
Less: Accumulated depreciation of equipment & music43,20021,600
Total Assets78,630
Liabilities
Accounts payable1,680
Notes payable10,800
Income taxes payable2,820
Unearned service revenue1,200
Salaries payable2,280
Interest payable504
Total Liabilities$19,284
Stockholders' Equity
Capital stock36,000
Retained earnings23,346
Total Stockholders' Equity$56,346
Total Liabilities and Stockholders' Equity$78,630

Table (3)

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.

Statement of retained earnings:

This statement reports the beginning retained earnings and all the changes which led to ending retained earnings. Net income from income statement is added to and dividends are deducted from beginning retained earnings to arrive at the end result, ending retained earnings.

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.

c.

To determine

Prepare the year-end closing entries of Incorporation S.

c.

Expert Solution
Check Mark

Answer to Problem 5AP

Prepare the year-end closing entries of Incorporation S as follows:

DateAccounts title and ExplanationPost Ref.

Debit

($)

Credit

($)

December31Service Revenue Earned76,800
 Income Summary76,800
(To record the closure of revenues account )
December31Income Summary61,854
 Office Supply Expense840
 Depreciation Expense: Office Equipment10,800
 Rent Expense4,590
 Insurance Expense1,320
 Salaries Expense34,800
 Interest Expense504
 Income Taxes Expense9,000
(To record the closure of expense account to income summary)
December31Income Summary14,946
 Retained earnings14,946
(To record the closure of net income from income summary to retained earnings)
December31Retained earnings1,200
 Dividends1,200
(To record the closure of dividend to retained earnings)

Table (4)

Explanation of Solution

  • Revenue Earned are the revenue account. Since the amount of revenue is closed, and transferred to retained earnings account, they are debited.
  • Office supply Expense, Depreciation Expense, Rent expenses, Salaries Expense, Insurance Expense, Interest Expense, Income and Taxes Expense are the expense accounts. Since the amounts of expenses are closed to retained earnings account, they are credited.
  • Income Summary is a clearing account or temporary account used to close revenues and expenses to Retained Earnings account. Since Income Summary account has a credit balance, it is transferred to Retained Earnings account by debiting it. Therefore, debit Income Summary account with $14,946.
  • Since Retained Earnings account’s amount has increased due to closing of Income Summary account to Retained Earnings account, stockholders’ equity amount has increased. Therefore, credit Retained Earnings account with $14,946.
  • Closing entries are also passed in order to close the excess of expenses over the revenues, and the dividend account.

d.

To determine

Prepare an after-closing trial balance of Incorporation S.

d.

Expert Solution
Check Mark

Answer to Problem 5AP

Prepare an after-closing trial balance of Incorporation S as follows:

Incorporation S
After-Closing Trial Balance
December 31, Current Year
Particulars$$
Cash51,402
Accounts receivable4,200
Office supplies132
Prepaid rent1,080
Unexpired insurance216
Office equipment64,800
Accumulated depreciation of office equipment43,200
Accounts payable1,680
Notes payable10,800
Income taxes payable2,820
Unearned consulting services revenue1,200
Salaries payable2,280
Interest payable504
Capital stock36,000
Retained earnings23,346
Totals121,830121,830

Table (5)

Explanation of Solution

Post-Closing Trial Balance:

After passing all the journal entries and the closing entries of the permanent accounts and then further posting them to each of the respective accounts, a post-closing trial balance is prepared which consists of a list of all the permanent accounts. A post-closing trial balance serves as an evidence to prove that the balance of the permanent accounts is equal.

e.

To determine

Compute the company’s average monthly insurance expense for the month January and February of current year.

e.

Expert Solution
Check Mark

Explanation of Solution

Compute the company’s average monthly insurance expense for the month January and February of current year as follows:

Insurance expense for themonth January and February}=Total expense2=2402=$120 Per Months

Working notes:

Particulars$
Insurance expense incurred in Current Year ($1,212+$108)1,320
Less: Total insurance expense for March through December ($108×10)1,080
Total expense incurred in January and February$240

Table (6)

f.

To determine

Compute the company’s average monthly rent expense from January to September of current year.

f.

Expert Solution
Check Mark

Explanation of Solution

Compute the company’s average monthly rent expense from January to September of current year as follows:

Rent expense per month}=Total rent expense9 months=3,5109=$390 Per Months

Working notes:

Particulars$
Rent expense incurred in Current Year ($4,230+$360)4,590
Less: Total rent expense from October to September ($360×3)1,080
 Total expense incurred from January to September3,510

Table (7)

g.

To determine

State how long has the business been in operation, if the company purchased all of its office equipment when it first incorporated.

g.

Expert Solution
Check Mark

Explanation of Solution

Compute the total months that the company has been in operation as follows:

Total monthin operation}=Accumulated depreciationDepreciation expenses=43,200900=$48 Months

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Chapter 5 Solutions

Connect Online Access for Financial Accounting

Ch. 5 - Prob. 3DQCh. 5 - Prob. 4DQCh. 5 - 5. What type of accounts are referred to as...Ch. 5 - Prob. 6DQCh. 5 - Prob. 7DQCh. 5 - Which accounts appear in a company’s after-closing...Ch. 5 - Prob. 9DQCh. 5 - Prob. 10DQCh. 5 - Prob. 11DQCh. 5 - Prob. 12DQCh. 5 - Prob. 13DQCh. 5 - Prob. 14DQCh. 5 - Prob. 15DQCh. 5 - BRIEF EXERCISE 5.1 Balancing the Accounting...Ch. 5 - BRIEF EXERCISE 5.2 Income Statement and Balance...Ch. 5 - BRIEF EXERCISE 5.3 Classifying Balance Sheet...Ch. 5 - BRIEF EXERCISE 5.4 Identifying and Closing...Ch. 5 - BRIEF EXERCISE 5.5 Closing Entries of a Profitable...Ch. 5 - Prob. 6BECh. 5 - Prob. 7BECh. 5 - Prob. 8BECh. 5 - Prob. 9BECh. 5 - Prob. 10BECh. 5 - EXERCISE 5.1 Accounting Terminology Listed as...Ch. 5 - EXERCISE 5.2 Financial Statement Preparation Green...Ch. 5 - EXERCISE 5.3 Financial Statement...Ch. 5 - EXERCISE 5.4 Preparing Closing Entries and an...Ch. 5 - EXERCISE 5.5 Preparing Closing Entries and an...Ch. 5 - Prob. 6ECh. 5 - EXERCISE 5.7 Closing Entries of a Profitable...Ch. 5 - EXERCISE 5.8 Closing Entries of an Unprofitable...Ch. 5 - Prob. 9ECh. 5 - Prob. 10ECh. 5 - Prob. 11ECh. 5 - Prob. 12ECh. 5 - Prob. 13ECh. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - PROBLEM 5.1A Correcting Classification...Ch. 5 - Prob. 2APCh. 5 - Prob. 3APCh. 5 - Prob. 4APCh. 5 - Prob. 5APCh. 5 - Prob. 6APCh. 5 - Prob. 7APCh. 5 - Prob. 8APCh. 5 - PROBLEM 5.1B Correcting Classification...Ch. 5 - PROBLEM 5.2B Preparing Financial Statements and...Ch. 5 - Prob. 3BPCh. 5 - PROBLEM 5.4B Interim Financial Statements Howard...Ch. 5 - Prob. 5BPCh. 5 - Prob. 6BPCh. 5 - Prob. 7BPCh. 5 - Prob. 8BPCh. 5 - Prob. 1CTCCh. 5 - Prob. 3CTCCh. 5 - Prob. 4CTCCh. 5 - Prob. 1CP
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