FINANCIAL ACCOUNTING (LOOSELEAF)
FINANCIAL ACCOUNTING (LOOSELEAF)
18th Edition
ISBN: 9781260706239
Author: williams
Publisher: MCG
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 5, Problem 6BP

a.

To determine

Prepare the adjusting journal entries of Incorporation T 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 6BP

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

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

Debit

($)

Credit

($)

 December 311.Depreciation Expense of office equipment (1)250
 Accumulated Depreciation of office equipment250
(To record the depreciation expense incurred in December)
 December 312.Unearned Agency fees2,500
Agency fees earned2,500
(To record the conversion of unearned revenue into earned revenue in December)
 December 313.Salaries Expense1,360
Salaries Payable1,360
(To record the accrued but unpaid salaries in December)
 December 314.Rent Expense (2)600
Prepaid Rent600
(To record the rent expense for December)
 December 315.Fees Receivable3,000
Agency fees earned3,000
(To record the revenue accrued at the end of December)
 December 316.Office Supplies Expense (3)370
Office Supplies370
(To record the supplies used for December)
 December 317.Insurance Expense (4)125
Unexpired Insurance125
(To record the portion of insurance policies expired in December)
 December 318.Interest Expense (5)45
Interest Payable45
(To record the interest expense accrued in December)
 December 319.Income Taxes Expense (6)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 T
Adjusted Trial Balance
December 31, Current Year
Cash14,950
Fees receivable38,300
Prepaid rent600
Unexpired insurance policies250
Office supplies530
Office equipment15,000
Accumulated depreciation: office equipment12,250
Accounts payable1,500
Notes payable (Due 3/1/Next Year)6,000
Income taxes payable3,900
Unearned agency fees5,500
Salaries payable1,360
Interest payable45
Capital stock20,000
Retained earnings10,800
Dividends800
Agency fees earned52,000
Telephone expense 480
Office supply expense 1,500
Depreciation expense: office equipment 3,000
Rent expense 6,700
Insurance expense 1,300
Salaries expense 26,000
Income taxes expense 3,900
Interest expense 45
Totals113,355113,355

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 depreciation Expense:

Depreciation Expense=Office Equipment60 months=$15,00060 months=$250 (1)

Compute the amount of rent Expense:

Rent Expense=Prepaid rent3 months=$1,8003 months=$600 (2)

Compute the amount of Office Supplies Expense:

Office Supplies Expense=[Office supplies in trial balanceOffice supplies on hand at December31]=$900$530=$370 (3)

Compute the amount of Insurance Expense:

Insurance Expense=Unexpired insurance6 months=$7506 months=$125 (4)

Compute the amount of interest Expense:

Interest Expense=Amount borrowed12 months×Interest rate=$6,00012 months×9100=$45 (5)

Compute the amount of income taxes Expense:

Income taxes Expense=Income taxIncome tax expense=$3,900$3,200=$700 (5)

b.

To determine

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

b.

Expert Solution
Check Mark

Answer to Problem 6BP

  • Prepare the income statement of Incorporation T as on December 31, current year as follows:
Incorporation T
Income Statement
For the Year Ended December 31, Current Year
Particulars$$
Revenues:
Agency fees earned $52,000
Less: Expenses:
Telephone expense $480
Office supply expense 1,500
Depreciation expense: office equipment 3,000
Rent expense 6,700
Insurance expense 1,300
Salaries expense 26,000
Interest expense 45 39,025
Income before taxes 12,975
Income taxes expense3,900
Net income $9,075

Table (3)

  • Prepare the statement of retained earnings of Incorporation T as on December 31, current year as follows:
Incorporation T
Statement of retained earnings
For the Year Ended December 31, Current Year
Particulars$
Retained earnings as on January 1, Current Year10,800
Add: Net Income9,075
Retained earnings as on December 31, Current Year19,075

Table (4)

  • Prepare the Balance Sheet of Incorporation T as on December 31, current year as follows:
Incorporation T
Balance Sheet
December 31, Current Year
Assets$$
Cash14,950
Fees receivable38,300
Prepaid rent600
Unexpired insurance policies250
Office supplies530
Office equipment15,000
Less: Accumulated depreciation of office equipment12,2502,750
Total Assets57,380
Liabilities
Accounts payable $1,500
Note payable (Due 3/1/Next Year) 6,000
Income taxes payable 3,900
Unearned agency fees 5,500
Salaries payable 1,360
Interest payable45
Total Liabilities18,305
Stockholders' Equity
Capital stock20,000
Retained earnings19,07539,075
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity57,380

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 T.

c.

Expert Solution
Check Mark

Answer to Problem 6BP

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

DateAccounts title and ExplanationPost Ref.

Debit

($)

Credit

($)

December 31Agency fees earned52,000
 Income Summary52,000
(To record the closure of revenues account )
December 31Income Summary42,925
Telephone Expense480
Office Supply Expense1,500
Depreciation Expense: Office Equipment 3,000
Rent Expense 6,700
Insurance Expense 1,300
Salaries Expense 26,000
Interest Expense 45
Income Taxes Expense 3,900
(To record the closure of expense account to income summary)
December 31Income Summary9,075
 Retained earnings9,075
(To record the closure of net income from income summary to retained earnings)
December31Retained earnings800
 Dividends800
(To record the closure of dividend 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 $9,075.
  • 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 $9,075.
  • 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 T.

d.

Expert Solution
Check Mark

Answer to Problem 6BP

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

Incorporation T
After-Closing Trial Balance
December 31, Current Year
Particulars$$
Cash $14,950
Fees receivable 38,300
Prepaid rent 600
Unexpired insurance policies 250
Office supplies 530
Office equipment 15,000
Accumulated depreciation: office equipment $12,250
Accounts payable 1,500
Note payable (Due 3/1/Next Year) 6,000
Income taxes payable 3,900
Unearned agency payable 5,500
Salaries payable 1,360
Interest payable 45
Capital stock 20,000
Retained earnings 19,075
Totals $69,630$69,630

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

e.

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=$12,25025=$49 Months

f.

To determine

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

f.

Expert Solution
Check Mark

Explanation of Solution

The rent expense of agency has been increased by $50 per month.

Working notes:

Compute the company’s total rent expense:

Particulars$
Rent expense as per unadjusted  trail balance6,700
Less: Rent expense incurred in November and December ($600(2)×2)1,200
Total rent expense incurred from January to October5,500

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=5,500(6)10=$550 Per Months

Compute the Increase in month rent expenses as follows:

Particulars$
Rent expense per month600
Rent expense incurred in November550
Increase in month rent expenses50

Table (9)

g.

To determine

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

g.

Expert Solution
Check Mark

Explanation of Solution

The insurance expense of agency has been increased by $25 per month.

Working notes:

Compute the company’s total insurance expense:

Particulars$
Insurance expense as per unadjusted  trail balance1,300
Less: Insurance expense incurred from September to December ($125(4)×4)500
Total Insurance expense incurred from January to August800

Table (10) (7)

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

Insurance expense per month}=Total Insurance expense8 months=800(7)8=$100 Per Months

Compute the Increase in month Insurance expenses as follows:

Particulars$
Insurance expense per month125
Insurance expense incurred in September100
Increase in month Insurance expenses25

Table (11)

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 5 Solutions

FINANCIAL ACCOUNTING (LOOSELEAF)

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
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
The accounting cycle; Author: Alanis Business academy;https://www.youtube.com/watch?v=XTspj8CtzPk;License: Standard YouTube License, CC-BY