Gen Combo Loose Leaf Financial Accounting; Connect Access Card
Gen Combo Loose Leaf Financial Accounting; Connect Access Card
18th Edition
ISBN: 9781264094295
Author: williams
Publisher: MCG
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Chapter 5, Problem 5BP

a.

To determine

Prepare the adjusting journal entries of Incorporation N 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 5BP

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

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

Debit

($)

Credit

($)

 December 311.Accounts Receivable25,000
Consulting Services Revenue25,000
(To record the revenue accrued at the end of December)
 December 312.Unearned Consulting Services Revenue 15,000
Consulting Services Revenue15,000
(To record the conversion of unearned revenue into earned revenue in December)
 December 313.Office Supplies Expense (1) 500
Office Supplies  500
(To record the offices supplies used for December)
 December 314.Depreciation Expense of Office Equipment (2) 1,000
 Accumulated Depreciation of Office Equipment1,000
(To record the depreciation expense incurred for December)
 December 315.Rent Expense (3)1,200
Prepaid Rent1,200
(To record the rent expense for December)
 December 316.Insurance Expense (4)250
Unexpired Insurance250
(To record the portion of insurance policies expired in December)
 December 317.Salaries Expense 12,000
Salaries Payable12,000
(To record the accrued but unpaid salaries in December)
 December 318.Interest Expense (5) 200
Interest Payable200
(To record the interest expense accrued in December)
 December 319.Income Taxes Expense (6) 5,000
Income Taxes Payable5,000
(To record the income taxes expense accrued in December)

Table (1)

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

 Incorporation N
Adjusted Trial Balance
December 31, Current Year
Cash276,500
Accounts receivable115,000
Office supplies300
Prepaid rent2,400
Unexpired insurance1,250
Office equipment72,000
Accumulated depreciation of office equipment25,000
Accounts payable4,000
Notes payable60,000
Interest payable800
Income taxes payable14,000
Dividends payable3,000
Unearned consulting services revenue7,000
Salaries payable12,000
Capital stock200,000
Retaining earnings40,000
Dividends3,000
Consulting services revenue540,000
Office supplies expense5,000
Depreciation expense: office equipment 12,000
Rent expense15,900
Insurance expense2,450
Salaries expense342,000
Utilities expense4,800
Interest expense3,200
Income taxes expense50,000
Totals905,800905,800

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]=$800$300=$500 (1)

Compute the amount of depreciation Expense:

Office Supplies Expense=Equipment72 months=$72,00072 months=$1,000 (2)

Compute the amount of rent Expense:

Rent Expense=Prepaidrent3 months=$3,6003 months=$1,200 (3)

Compute the amount of insurance Expense:

Insurance Expense=Unexpired insurance12 months×4Months=$1,5006 months×4Months=$250 (4)

Compute the amount of interest Expense:

Interest Expense=Amount borrowed12 months×Interest rate=$60,00012 months×4100=$200 (5)

Compute the amount of income taxes Expense:

Income taxes Expense=Income taxIncome tax expense=$50,000$45,000=$5,000 (6)

b.

To determine

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

b.

Expert Solution
Check Mark

Answer to Problem 5BP

  • Prepare the income statement of  Incorporation N as on December 31, current year as follows:
 Incorporation N
Income Statement
For the Year Ended December 31, Current Year
Particulars$$
Revenues:
Consulting services revenue $540,000
Less: Expenses:
Office supplies expense5,000
Depreciation expense: office equipment12,000
Rent expense15,900
Insurance expense2,450
Salaries expense342,000
Utilities expense4,800
Interest expense3,200385,350
Income before taxes154,650
Less: Income taxes expense50,000
Net income $104,650

Table (3)

  • Prepare the statement of retained earnings of  Incorporation N as on December 31, current year as follows:
 Incorporation N
Statement of retained earnings
For the Year Ended December 31, Current Year
Particulars$
Retained earnings as on January 1, Current Year40,000
Add: Net Income104,650
Less: Dividends3,000
Retained earnings as on December 31, Current Year141,650

Table (2)

  • Prepare the Balance Sheet of  Incorporation N as on December 31, current year as follows:
 Incorporation N
Balance Sheet
December 31, Current Year
Assets$$
Cash276,500
Accounts receivable115,000
Office Supplies300
Prepaid rent2,400
Unexpired insurance1,250
Office Equipment72,000
Less: Accumulated depreciation of equipment & music25,00047,000
Total Assets442,450
Liabilities
Accounts payable4,000
Notes payable60,000
Income taxes payable14,000
Dividends payable3,000
Unearned service revenue7,000
Salaries payable12,000
Interest payable800
Total Liabilities$100,800
Stockholders' Equity
Capital stock200,000
Retained earnings141,650
Total Stockholders' Equity$341,650
Total Liabilities and Stockholders' Equity442,450

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 N.

c.

Expert Solution
Check Mark

Answer to Problem 5BP

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

DateAccounts title and ExplanationPost Ref.

Debit

($)

Credit

($)

December31Service Revenue Earned540,000
 Income Summary540,000
(To record the closure of revenues account )
December31Income Summary435,350
 Office Supply Expense5,000
 Depreciation Expense: Office Equipment12,000
 Rent Expense15,900
 Insurance Expense2,450
 Salaries Expense342,000
Utilities Expense4,800
 Interest Expense3,200
 Income Taxes Expense50,000
(To record the closure of expense account to income summary)
December31Income Summary104,650
 Retained earnings104,650
(To record the closure of net income from income summary to retained earnings)
December31Retained earnings3,000
 Dividends3,000
(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 $104,650.
  • 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 $104,650.
  • 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 N.

d.

Expert Solution
Check Mark

Answer to Problem 5BP

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

 Incorporation N
After-Closing Trial Balance
December 31, Current Year
Particulars$$
Cash276,500
Accounts receivable115,000
Office supplies300
Prepaid rent2,400
Unexpired insurance1,250
Office equipment72,000
Accumulated depreciation of office equipment25,000
Accounts payable4,000
Notes payable60,000
Income taxes payable14,000
Unearned consulting services revenue7,000
Dividend Payable3,000
Salaries payable12,000
Interest payable800
Capital stock200,000
Retained earnings141,650
Totals467,450467,450

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 from January to November of current year.

e.

Expert Solution
Check Mark

Explanation of Solution

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

Insurance expense for themonth January to November}=Total expense11=2,20011=$200 Per Months

Working notes:

Particulars$
Insurance expense incurred in Current Year ($2,200+$250)2,450
Less: Total insurance expense for December250
Total expense incurred in January and February$2,200

Table (6)

f.

To determine

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

f.

Expert Solution
Check Mark

Explanation of Solution

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

Rent expense per month}=Total rent expense5 months=7,5005=$1,500 Per Months

Working notes:

Particulars$
Rent expense incurred in Current Year ($14,700+$1,200)15,900
Less: Total rent expense from June to December ($1,200×7)8,400
 Total expense incurred from January to May7,500

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=25,0001,000=$25 Months

h.

To determine

State the amount of interest expense accrued on the given note for the current year.

h.

Expert Solution
Check Mark

Explanation of Solution

Interest expense per month}=Total Interest3 months=2,4003=$800 Per Months

Working notes:

Particulars$
Interest expense incurred in Current Year3,200
Less: Total interest expense in September through December800
Total interest on prior note in January through March 2,400

Table (8)

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Chapter 5 Solutions

Gen Combo Loose Leaf Financial Accounting; Connect Access Card

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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