Financial Accounting
Financial Accounting
5th Edition
ISBN: 9781259914898
Author: SPICELAND
Publisher: MCG
Question
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Chapter 7, Problem 21E

1.

To determine

Record each transaction of Company TNT.

1.

Expert Solution
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Explanation of Solution

Journal: Journal is the book of original entry. Journal consists of the day-to-day financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.

Record the journal entries of Company TNT:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

January 1Equipment19,500
Cash19,500
(To record the purchase of equipment for cash)
January 4Accounts Payable9,500
Cash9,500
(To record the payment made for accounts payable)
January 8Inventory82,900
Accounts Payable82,900
(To record the purchase of additional inventories on account)
January 15Cash22,000
Accounts receivable22,000
(To record the cash receipt on accounts receivable)
January 19Salary expenses29,800
Cash29,800
(To record the cash payment made on salaries)
January 28Utilities expenses16,500
      Cash16,500
(To record the cash payment made on utilities)
January 30Accounts receivable220,000
    Sales revenue220,000
(To record the sale of inventory on account)
January 30Cost of goods sold115,000
      Inventory115,000
(To record the cost of inventory sold)

Table (1)

2.

To determine

Record the adjusting entries on January 31.

2.

Expert Solution
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Explanation of Solution

Adjusting entries: Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.

Record the adjusting entries on January 31, 2021.

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

(a)Depreciation expense (1)300
January 31      Accumulated depreciation300
(To record the depreciation expenses incurred on the equipment)
(b)Bad debts expenses (3)5,900
January 31Allowance for uncollectible accounts5,900
(To record the adjustment in uncollectible accounts)
(c)Interest receivable (4)50
January 31Interest revenue50
(To record the accrued interest revenue )
(d)Salaries expense32,600
January 31Salaries Payable32,600
(To record the unpaid salaries expense)
(e)Income tax Expense9,000
January 31      Income tax Payable9,000
(To record the accrued income taxes)

Table (2)

Working notes:

Determine the depreciation expenses:

Depreciation expenses = [Cost of equipmentResidualvalue]Estimated service life=$19,500$1,5005 years×112=$300

(1)

Determine the amount of remaining uncollectible accounts:

Uncollectible accounts Remaining =[Accounts receivableAccount receivable on January15+ Sale on accountsUncollectible accounts]=[$25,000$22,000+$220,000$3,000]=$220,000

(2)

Determine the amount of uncollectible accounts:

Uncollectible accounts =[50% on uncollectible accounts + 3% on remaining uncollectible accountsAllowance for uncollectible accounts]=[$3000×50100+$220,000(2)×3100]$2,200=$1,500 + $6,600$2,200=$5,900

(3)

Determine the amount of interest revenue:

Interest revenue for January=[5% on Note receivable ×112]=[$12,000×5100×112]=$50

(4)

3.

To determine

Prepare an adjusted trial balance as of January 31, 2021.

3.

Expert Solution
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Explanation of Solution

Adjusted trial balance: Adjusted trial balance is a summary of all the ledger accounts, and it contains the balances of all the accounts after the adjustment entries are journalized, and posted.

An adjusted trial balance of Company TNT as of January 31, 2021 is prepared as follows:

Company TNT
Adjusted Trial Balance
January 31, 2021
AccountsDebit ($)Credit ($)
Cash (5)5,400
Accounts Receivable (6)223,000
Interest Receivable  (4)50
Inventory (7)4,200
Notes Receivable12,000
Land155,000
Equipment19,500
Allowance for Uncollectible Accounts (9)8,100
Accumulated Depreciation300
Accounts Payable (8)88,200
Salaries Payable32,600
Income Tax Payable9,000
Common Stock220,000
Retained Earnings50,000
Sales Revenue220,000
Interest Revenue50
Cost of Goods Sold115,000
Salaries Expense (10)62,400
Utilities Expense16,500
Bad Debt Expense5,900
Depreciation Expense300
Income Tax Expense9,000
Totals$628,250$628,250

Table (3)

Working note:

Determine the amount of cash:

Cash = [Beginning balance + Cash receivedon 15Cash payments made on 1st,4th, 19th and 28th of January]=$58,700+$22,000$19,500$9,50029,80016,500=5,400

(5)

Determine the amount of accounts receivable:

Accountsreceivable =[Beginning balance + cash on receivable on 15th + Sales on accounts]=[$25,000$22,000+$220,000]=$223,000

(6)

Determine the amount of inventory:

Inventory =[Beginning balance +Purchase of inventories on accountsale of inventories]=[$36,300+$82,900115,000]=$4,200

(7)

Determine the amount of accounts Payable:

AccountsPayable =[Beginning balance +Accounts payable duePayments made]=[$14,800 + $82,900$9,500]=$88,200

(8)

Determine the amount of uncollectible accounts:

Uncollectible accounts =[Allowance for uncollectibleaccounts + adjsuting entry]=$2,200+$5,900=$8,100

(9)

Determine the amount of salaries expense:

Salaries expenses =[Beginning balance + Unpaid salaries]=[$29,800+$32,600]=$62,400

(10)

Conclusion

The debit column and credit column of the adjusted trial balance are agreed, both having balance of $628,250.

4.

To determine

Prepare a multiple-step income statement for the period ended January 31, 2021.

4.

Expert Solution
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Explanation of Solution

Multi-step income statement: The income statement represented in multi-steps with several subtotals, to report the income from principal operations, and separate the other expenses and revenues which affect net income, is referred to as multi-step income statement.

A multiple-step income statement for the period ended January 31, 2021 is prepared as follows:

Company TNT
Income Statement (Multiple-Step)
For the year ended January 31, 2021
ParticularsAmountAmount
Sales revenue$220,000
Cost of goods sold$115,000
Gross profit$105,000
Less: Salaries expense$62,400
Utilities expense$16,500
Bad debt expense$5,900
Depreciation expenses$300
Total operating expenses$85,100
Operating income$19,900
Add: Interest revenue$50
Income before taxes$19,950
Less: Income tax expense$9,000
Net income$10,950

Table (4)

Therefore, a multiple-step income statement shows a net income of $10,950.

5.

To determine

Prepare a classified balance sheet as of January 31, 2021.

5.

Expert Solution
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Explanation of Solution

Classified balance sheet: This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

A classified balance sheet as of January 31, 2021 is prepared as follows:

Company TNT
Classified Balance Sheet
January 31, 2021
AssetsLiabilities
Cash$5,400Accounts payable$88,200
Accounts receivable223,000Salaries payable$32,600
Less: Allowance8,100$214,900Income tax payable$9,000
Interest receivable$50Total liabilities$129,800
Inventory$4,200
Total current assets$224,550
 Notes receivable$12,000 
Land$155,000Stockholders’ Equity
 Equipment$19,500 Common stock$220,000
 Less: Accumulated depreciation($300) $19,200 Retained earnings (11)$60,950
Total stockholders’ equity$280,950
Total assets$410,750Total liabilities and stockholders’ equity$410,750

Table (5)

Working note:

Determine the amount of retained earnings.

Retained earnings= (Beginning balance)+(Net income earned during the year)=$50,000+$10,950=$60,950

(11)

6.

To determine

Record the closing entries.

6.

Expert Solution
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Explanation of Solution

Closing entries: Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts. It is passed at the end of the accounting period, to transfer the ending balance of temporary accounts in order to make it zero.

Closing entry for revenue and expense accounts:

DateAccounts title and Explanation

Debit

($)

Credit

($)

January 31, 2021Service Revenue220,000
Interest revenue50
Retained earnings220,050
(To close the revenues  account)
Retained earnings209,100
Cost of goods sold115,000
Salaries expenses62,400
Utilities expenses16,500
Bad debt expense5,900
Depreciation expense300
Income tax expense9,000
(To close the expenses account)

Table (6)

7.

(a)

To determine

Calculate Company TNT’s return on assets ratio for the month of January.

7.

(a)

Expert Solution
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Explanation of Solution

Rate of return on total assets: Rate of return on the total assets is the ratio of the net income, and interest expense to the average total assets. The rate of return on total assets measures the efficiency of the business. It measures how efficiently the business is using its total assets in generating the income.

The rate of return on the total assets is calculated as follows:

Rate of return on assets=Net income Average total assets

Determine the return on assets ratio:

The return on assets ratio is determined as follows:

Rate of return on assets=Net income Average total assets (12)=$10,950$347,775=3.1%

Working note:

Determine the amount of average total assets:

Average total assets =Beginning inventory+Ending inventory2=$284,800+$410,7502= $347,775

(12)

Conclusion

The return on asset ratio of Company TNT is 3.1%, which is more profitable than other companies in the same industries for the month of January.

7.

(b)

To determine

Calculate the profit margin ratio for the month of January.

7.

(b)

Expert Solution
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Explanation of Solution

Profit margin ratio: This ratio gauges the operating profitability of a company by quantifying the net income earned from business operations after all expenses are paid. This ratio is also called as return on sales percentage. The following is the formula to calculate the ratio:

Profit margin ratio=Net incomeNet sales×100

The profit margin ratio is determined as follows:

Profit margin ratio=NetincomeNetsales×100=$10,950$220,000×100=5%

Conclusion

The profit margin ratio of Company TNT is 5%, which is more profitable in converting sales to profit than other companies in the same industries for the month of January.

7.

(c)

To determine

Calculate the asset turnover ratio for the month of January.

7.

(c)

Expert Solution
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Explanation of Solution

Asset turnover: It is a ratio that measures the productive capacity of the fixed assets to generate the sales revenue for the company. Thus, it shows the relationship between the net sales and the average total fixed assets. The following is the formula to calculate the ratio:

Asset turnover =Net salesAverage total assets

The asset turnover ratio is determined as follows:

Asset turnover =Net salesAverage total assets (12)=$220,000$437,775=0.63 times

Conclusion

Therefore the asset turnover ratio is 0.63 times. When compared to other companies in the same industries, the asset turnover ratio of Company TNT is more and it helps to produce more revenue.

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Chapter 7 Solutions

Financial Accounting

Ch. 7 - Prob. 11SSQCh. 7 - Prob. 12SSQCh. 7 - Prob. 13SSQCh. 7 - Prob. 14SSQCh. 7 - Prob. 15SSQCh. 7 - Prob. 1AECh. 7 - Applying Excel #7-2 (LO 7-6) A company purchased...Ch. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - Prob. 3RQCh. 7 - Prob. 4RQCh. 7 - Prob. 5RQCh. 7 - Prob. 6RQCh. 7 - Prob. 7RQCh. 7 - Prob. 8RQCh. 7 - Prob. 9RQCh. 7 - Prob. 10RQCh. 7 - Prob. 11RQCh. 7 - Prob. 12RQCh. 7 - Prob. 13RQCh. 7 - Prob. 14RQCh. 7 - Prob. 15RQCh. 7 - Prob. 16RQCh. 7 - Prob. 17RQCh. 7 - Prob. 18RQCh. 7 - Prob. 19RQCh. 7 - Prob. 20RQCh. 7 - Prob. 21RQCh. 7 - Prob. 22RQCh. 7 - Prob. 23RQCh. 7 - Prob. 24RQCh. 7 - Prob. 25RQCh. 7 - Prob. 26RQCh. 7 - Prob. 27RQCh. 7 - Prob. 28RQCh. 7 - Prob. 1BECh. 7 - Prob. 2BECh. 7 - Prob. 3BECh. 7 - Prob. 4BECh. 7 - Prob. 5BECh. 7 - Prob. 6BECh. 7 - Prob. 7BECh. 7 - Prob. 8BECh. 7 - Calculate partial-year depreciation (LO7-4) BE7-9...Ch. 7 - Prob. 10BECh. 7 - Prob. 11BECh. 7 - Prob. 12BECh. 7 - Prob. 13BECh. 7 - Prob. 14BECh. 7 - Prob. 15BECh. 7 - Prob. 16BECh. 7 - BE7-12 China Inn and Midwest Chicken exchanged...Ch. 7 - Prob. 18BECh. 7 - Prob. 19BECh. 7 - Prob. 20BECh. 7 - Prob. 1ECh. 7 - E7-2 Orion Flour Mills purchased a new machine and...Ch. 7 - Prob. 3ECh. 7 - Prob. 4ECh. 7 - Prob. 5ECh. 7 - Prob. 6ECh. 7 - E7-7 Satellite Systems modified its model Z2...Ch. 7 - Prob. 8ECh. 7 - Prob. 9ECh. 7 - Prob. 10ECh. 7 - E7–11 Speedy Delivery Company purchases a delivery...Ch. 7 - Determine straight-line depreciation for partial...Ch. 7 - Determine straight-line depreciation for partial...Ch. 7 - Prob. 14ECh. 7 - Prob. 15ECh. 7 - Prob. 16ECh. 7 - E7-17 Abbott Landscaping purchased a tractor at a...Ch. 7 - Prob. 18ECh. 7 - Prob. 19ECh. 7 - Prob. 20ECh. 7 - Prob. 21ECh. 7 - Prob. 1PACh. 7 - Prob. 2PACh. 7 - P7-3A Fresh Cut Corporation purchased all the...Ch. 7 - Prob. 4PACh. 7 - Prob. 5PACh. 7 - Prob. 6PACh. 7 - Compute depreciation, amortization, and book value...Ch. 7 - Prob. 8PACh. 7 - Prob. 9PACh. 7 - Prob. 10PACh. 7 - Prob. 1PBCh. 7 - Prob. 2PBCh. 7 - Prob. 3PBCh. 7 - Prob. 4PBCh. 7 - Prob. 5PBCh. 7 - Prob. 6PBCh. 7 - Prob. 7PBCh. 7 - Prob. 8PBCh. 7 - Prob. 9PBCh. 7 - Prob. 10PBCh. 7 - Prob. 1APCh. 7 - American Eagle Outfitters, Inc. AP7-2 Financial...Ch. 7 - Prob. 3APCh. 7 - Prob. 4APCh. 7 - Prob. 5APCh. 7 - Prob. 7APCh. 7 - Prob. 8AP
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