Financial & Managerial Accounting
Financial & Managerial Accounting
18th Edition
ISBN: 9781260006520
Author: williams
Publisher: MCG
Question
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Chapter 5, Problem 6AP

a.

To determine

Prepare the adjusting journal entries of Incorporation B 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 6AP

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

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

Debit

($)

Credit

($)

 December 311.Supplies Expense (1)5,000
Supplies5,000
(To record the supplies used for December)
 December 312.Studio Rent Expense (2)1,250
Prepaid studio Rent1,250
(To record the rent expense for December)
 December 313.Depreciation Expense of studio Equipment (3)800
 Accumulated Depreciation of studio Equipment800
(To record the depreciation expense incurred for December)
 December 314.Interest Expense (4)240
Interest Payable 240
(To record the interest expense accrued in December)
 December 315.Unearned Client fees 3,000
Client fees earned 3,000
(To record the conversion of unearned revenue into earned revenue in December)
 December 316.Client fees Receivable690
Client fees earned690
(To record the revenue accrued at the end of December)
 December 317.Salaries Expense750
Salaries Payable750
(To record the accrued but unpaid salaries in December)
 December 318.Income Taxes Expense (5)2,000
Income Taxes Payable 2,000 
(To record the income taxes expense accrued in December)

Table (1)

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

Incorporation B
Adjusted Trial Balance
December 31, Current Year
Cash22,380
Client fees receivable71,940
Supplies1,000
Prepaid studio rent1,250
Studio equipment96,000
Accumulated depreciation: studio equipment52,800
Accounts payable6,420
Salaries payable750
Notes payable24,000
Interest payable720
Unearned client fees5,000
Income taxes payable7,000
Capital stock50,000
Retained earnings20,000
Client fees earned86,000
Supply expense9,000
Salary expense18,000
Interest expense720
Studio rent expense12,500
Utilities expense3,300
Depreciation expense: studio equipment9,600
Income taxes expense7,000
Totals252,690252,690

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]=$6,000$1,000=$5,000 (1)

Compute the amount of rent Expense:

Rent Expense=Prepaid rent2 months=$1,4402 months=$1,250 (2)

Compute the amount of depreciation Expense:

Depreciation Expense=Studio Equipment120 months=$96,000120 months=$800 (3)

Compute the amount of interest Expense:

Interest Expense=Amount borrowed12 months×Interest rate=$24,00012 months×12100=$240 (4)

Compute the amount of income taxes Expense:

Income taxes Expense=Income taxIncome tax expense=$7,000$5,000=$2,000 (5)

b.

To determine

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

b.

Expert Solution
Check Mark

Answer to Problem 6AP

  • Prepare the income statement of Incorporation B as on December 31, current year as follows:
Incorporation B
Income Statement
For the Year Ended December 31, Current Year
Particulars$$
Revenues:
Client fees earned $86,000
Less: Expenses:
Supplies expense9,000
Salaries expense18,000
Studio Rent expense12,500
Utilities expense3,300
Depreciation expense: studio equipment9,600
Interest expense72053,120
Income before taxes32,880
Less: Income taxes expense7,000
Net income $25,880

Table (3)

  • Prepare the statement of retained earnings of Incorporation B as on December 31, current year as follows:
Incorporation B
Statement of retained earnings
For the Year Ended December 31, Current Year
Particulars$
Retained earnings as on January 1, Current Year20,000
Add: Net Income25,880
Retained earnings as on December 31, Current Year45,880

Table (4)

  • Prepare the Balance Sheet of Incorporation B as on December 31, current year as follows:
Incorporation B
Balance Sheet
December 31, Current Year
Assets$$
Cash22,380
Client fees receivable71,940
Supplies1,000
Prepaid studio rent1,250
Studio Equipment96,000
Less: Accumulated depreciation of Studio Equipment52,80043,200
Total Assets139,770
Liabilities
Accounts payable6,420
Salaries payable750
Notes payable24,000
Interest payable720
Unearned client fees5,000
Income taxes payable7,00043,890
Total Liabilities
Stockholders' Equity
Capital stock50,000
Retained earnings45,88095,880
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity139,770

Table (5)

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 B.

c.

Expert Solution
Check Mark

Answer to Problem 6AP

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

DateAccounts title and ExplanationPost Ref.

Debit

($)

Credit

($)

December 31Client fees earned86,000
 Income Summary86,000
(To record the closure of revenues account )
December 31Income Summary60,120
Supply Expense9,000
Salaries Expense18,000
Interest Expense720
Studio Rent Expense12,500
Utilities Expense3,300
Depreciation Expense: Office Equipment9,600
Income Taxes Expense7,000
(To record the closure of expense account to income summary)
December 31Income Summary25,880
 Retained earnings25,880
(To record the closure of net income from income summary to retained earnings)

Table (6)

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 $25,880.
  • 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 $25,880.

d.

To determine

Prepare an after-closing trial balance of Incorporation B.

d.

Expert Solution
Check Mark

Answer to Problem 6AP

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

Incorporation B
After-Closing Trial Balance
December 31, Current Year
Particulars$$
Cash22,380
Client fees receivable71,940
Supplies1,000
Prepaid studio rent1,250
Studio equipment96,000
Less: Accumulated depreciation: studio equip.52,800
Accounts payable6,420
Salaries payable750
Notes payable24,000
Interest payable720
Unearned client fees5,000
Income taxes payable7,000
Capital stock50,000
Retained earnings45,880
Totals192,570192,570

Table (7)

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

State whether the studio’s monthly rent remained the same throughout the year, and explain whether it has gone up or down.

e.

Expert Solution
Check Mark

Explanation of Solution

The rent expense of studio has been increased by $250 per month.

Working notes:

Compute the company’s total rent expense:

Particulars$
Studio Rent expense as per unadjusted  trail balance11,250
Less: Rent expense incurred in November (2)1,250
Total rent expense incurred from January to October10,000

Table (8) (6)

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

Rent expense per month}=Total rent expense10 months=10,000(6)10=$1,000 Per Months

Compute the Increase in month rent expenses as follows:

Particulars$
Rent expense per month1,000
Rent expense incurred in November1,250
Increase in month rent expenses250

Table (9)

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Chapter 5 Solutions

Financial & Managerial 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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