(a)
To journalize: The transactions of Company R for the month of December
(a)
Explanation of Solution
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Prepare journal entries of Company R for the month of December.
Date | Account Titles and Description | Post Ref. | Debit ($) | Credit ($) | |
2017 | |||||
December | 7 | Cash | 3,600 | ||
Accounts Receivable | 3,600 | ||||
(To record cash collected from customers) | |||||
December | 12 | Inventory | 12,000 | ||
Accounts Payable | 12,000 | ||||
(To record merchandise purchased on account) | |||||
December | 17 | Accounts Receivable | 16,000 | ||
Sales Revenue | 16,000 | ||||
(To record sales on account) | |||||
December | 17 | Cost of Goods Sold | 10,000 | ||
Inventory | 10,000 | ||||
(To record cost of sales) | |||||
December | 19 | Salaries and Wages Expense | 2,200 | ||
Cash | 2,200 | ||||
(To record payment of salaries) | |||||
December | 22 | Accounts Payable | 12,000 | ||
Cash | 11,880 | ||||
Inventory | 120 | ||||
(To record payment to Company G, less discount) | |||||
December | 26 | Cash | 15,680 | ||
Sales Discounts | 320 | ||||
Accounts Receivable | 16,000 | ||||
(To record amount received from customer) | |||||
December | 31 | Cash | 2,700 | ||
Accounts Receivable | 2,700 | ||||
(To record amount received from customer) |
Table (1)
Working Notes:
Compute purchases discount amount (December 22 entry).
Compute sales discount amount (December 26 entry).
(b)
To post: The December 1 balances and the entries prepared in part (a)
(b)
Explanation of Solution
T-account: The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.
Cash | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 18,200 | 19 | Salaries and Wages Expense | 2,200 | |
7 | Accounts Receivable | 3,600 | 22 | Accounts Payable | 11,880 | |
26 | Accounts Receivable | 15,680 | ||||
31 | Accounts Receivable | 2,700 | ||||
31 | Total | 40,180 | 31 | Total | 14,080 | |
31 | Ending Balance | $26,100 |
Table (2)
Notes Receivable | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 2,000 | ||||
31 | Total | 2,000 | 31 | Total | 0 | |
31 | Ending Balance | $2,000 |
Table (3)
Accounts Receivable | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 7,500 | 7 | Cash | 3,600 | |
17 | Sales Revenue | 16,000 | 26 | Cash | 15,680 | |
26 | Sales Discounts | 320 | ||||
31 | Cash | 2,700 | ||||
31 | Total | 23,500 | 31 | Total | 22,300 | |
31 | Ending Balance | $1,200 |
Table (4)
Inventory | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 16,000 | 17 | Cost of Goods Sold | 10,000 | |
12 | Accounts Payable | 12,000 | 22 | Accounts Payable | 120 | |
31 | Total | 28,000 | 31 | Total | 10,120 | |
31 | Ending Balance | $17,880 |
Table (5)
Prepaid Insurance | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 1,600 | ||||
31 | Total | 1,600 | 31 | Total | $0 | |
31 | Ending Balance | $1,600 |
Table (6)
Equipment | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 28,000 | ||||
31 | Total | 28,000 | 31 | Total | 0 | |
31 | Ending Balance | $28,000 |
Table (7)
| ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 3,000 | ||||
31 | Total | 0 | 31 | Total | 3,000 | |
31 | Ending Balance | $3,000 |
Table (8)
Accounts Payable | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
22 | Cash | 11,880 | 1 | Beginning balance | 6,100 | |
22 | Inventory | 120 | 12 | Inventory | 12,000 | |
31 | Total | 12,000 | 31 | Total | 18,100 | |
31 | Ending Balance | $6,100 |
Table (9)
Common Stock | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 50,000 | ||||
31 | Total | 0 | 31 | Total | 50,000 | |
31 | Ending Balance | $50,000 |
Table (10)
| ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 14,200 | ||||
31 | Total | 0 | 31 | Total | 14,200 | |
31 | Ending Balance | $14,200 |
Table (11)
Sales Revenue | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
17 | Accounts Receivable | 16,000 | ||||
31 | Total | 0 | 31 | Total | 16,000 | |
31 | Ending Balance | $16,000 |
Table (12)
Sales Discount | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
26 | Accounts Receivable | 320 | ||||
31 | Total | 320 | 31 | Total | 0 | |
31 | Ending Balance | $320 |
Table (13)
Cost of Goods Sold | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
26 | Inventory | 10,000 | ||||
31 | Total | 10,000 | 31 | Total | 0 | |
31 | Ending Balance | $10,000 |
Table (14)
Salaries and Wages Expense | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
19 | Cash | 2,200 | ||||
31 | Total | 2,200 | 31 | Total | 0 | |
31 | Ending Balance | $2,200 |
Table (15)
(c)
To prepare: Bank reconciliation of Company R as at December 31, 2017
(c)
Answer to Problem 7CCCP
Explanation of Solution
Bank reconciliation: Bank statement is prepared by bank. The company maintains its own records from its perspective. This is why the cash balance per bank and cash balance per books seldom agree. Bank reconciliation is the statement prepared by company to remove the differences and disagreement between cash balance per bank and cash balance per books.
Prepare bank reconciliation of Company R as at December 31, 2017.
Company R | |
Bank Reconciliation | |
December 31, 2017 | |
Cash balance as per bank statement | $25,930 |
Add: Deposit in transit | 2,700 |
28,630 | |
Less: Outstanding checks | 1,210 |
Adjusted cash balance per bank | $27,420 |
Cash balance as per books | 26,100 |
Add: Note receivable collected by bank | 2,000 |
28,100 | |
Less: NSF check | 680 |
Adjusted cash balance per books | $27,420 |
Table (16)
(d)
To journalize: The
(d)
Explanation of Solution
Prepare journal entries of Company R as at December 31, 2017.
Date | Account Titles and Description | Post Ref. | Debit ($) | Credit ($) | |
2017 | |||||
December | 31 | Cash | 2,000 | ||
Notes Receivable | 2,000 | ||||
(To record note collected by bank) | |||||
December | 31 | Accounts Receivable | 680 | ||
Cash | 680 | ||||
(To record NSF check as an accounts receivable) | |||||
December | 31 |
| 200 | ||
Accumulated Depreciation–Equipment | 200 | ||||
(To record insurance expense being paid from prepaid insurance) | |||||
December | 31 | Insurance Expense | 400 | ||
Prepaid Insurance | 400 | ||||
(To record insurance expense being paid from prepaid insurance) | |||||
December | 31 | Income Tax Expense | 425 | ||
Income Tax Payable | 425 | ||||
(To record accrued income tax expense) |
Table (17)
(e)
To post: The adjusting entries prepared in part (d)
(e)
Explanation of Solution
Post the journal entries of Company R.
Cash | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
31 | Balance before adjusting | 26,100 | 31 | Accounts Receivable | 680 | |
31 | Notes Receivable | 2,000 | ||||
31 | Total | 28,100 | 31 | Total | 680 | |
31 | Ending Balance | $27,420 |
Table (18)
Notes Receivable | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Balance before adjusting | 2,000 | 31 | Cash | 2,000 | |
31 | Total | 2,000 | 31 | Total | 2,000 | |
31 | Ending Balance | $0 |
Table (19)
Accounts Receivable | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Balance before adjusting | 1,200 | ||||
31 | Cash | 680 | ||||
31 | Total | 1,880 | 31 | Total | $0 | |
31 | Ending Balance | $1,880 |
Table (20)
Insurance Expense | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
31 | Prepaid Insurance | 400 | ||||
31 | Total | 400 | 31 | Total | 0 | |
31 | Ending Balance | $400 |
Table (21)
Depreciation Expense | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
31 | Accumulated Depreciation– Equipment | 200 | ||||
31 | Total | 200 | 31 | Total | 0 | |
31 | Ending Balance | $200 |
Table (22)
Prepaid Insurance | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 1,600 | 31 | Insurance Expense | 400 | |
31 | Total | 1,600 | 31 | Total | 400 | |
31 | Ending Balance | $1,200 |
Table (23)
Accumulated Depreciation–Equipment | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
1 | Beginning balance | 3,000 | ||||
Depreciation Expense | 200 | |||||
31 | Total | 0 | 31 | Total | 3,200 | |
31 | Ending Balance | $3,200 |
Table (24)
Income Tax Expense | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
31 | Income tax payable | 425 | ||||
31 | Total | 425 | 31 | Total | 0 | |
31 | Ending Balance | $425 |
Table (25)
Income Tax Payable | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
2017 | 2017 | |||||
December | December | |||||
31 | Income tax expense | 425 | ||||
31 | Total | 0 | 31 | Total | 425 | |
31 | Ending Balance | $425 |
Table (26)
(f)
To prepare: Adjusted
(f)
Explanation of Solution
Adjusted trial balance: The trial balance which reflects the adjusting entries and incorporates the effect of all adjustments in the ledger accounts, is referred to as adjusted trial balance.
Prepare adjusted trial balance of Company R as at December 31, 2017.
Company R | ||
Adjusted Trial Balance | ||
December 31, 2017 | ||
Debit ($) | Credit ($) | |
Cash | $27,420 | |
Accounts Receivable | 1,880 | |
Inventory | 17,880 | |
Prepaid Insurance | 1,200 | |
Equipment | 28,000 | |
Accumulated Depreciation–Equipment | $3,200 | |
Accounts Payable | 6,100 | |
Income Tax Payable | 425 | |
Common Stock | 50,000 | |
Retained Earnings | 14,200 | |
Sales Revenue | 16,000 | |
Sales Discounts | 320 | |
Cost of Goods Sold | 10,000 | |
Depreciation Expense | 200 | |
Salaries and Wages Expense | 2,200 | |
Insurance Expense | 400 | |
Income Tax Expense | 425 | |
Total | $89,925 | $89,925 |
Table (27)
(g)
To prepare: Income statement and classified balance sheet of Company R
(g)
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.
Prepare income statement of Company R for the month ended December 31, 2017.
Company R | ||
Income Statement | ||
For the Month Ended December 31, 2017 | ||
Sales revenue | $16,000 | |
Less: Sales discounts | 320 | |
Net sales | 15,680 | |
Cost of goods sold | 10,000 | |
Gross profit | 5,680 | |
Operating expenses: | ||
Salaries and wages expense | $2,200 | |
Insurance expense | 400 | |
Depreciation expense | 200 | 2,800 |
2,880 | ||
Income tax expense | 425 | |
Net income | $2,455 |
Table (28)
Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.
Prepare classified balance sheet of Company R as on December 31, 2017.
Company R | ||
Balance Sheet | ||
December 31, 2017 | ||
Assets | ||
Current assets: | ||
Cash | $27,420 | |
Accounts receivable | 1,880 | |
Inventory | 17,880 | |
Prepaid insurance | 1,200 | |
Total current assets | $48,380 | |
Property, plant, and equipment: | ||
Equipment | 28,000 | |
Less: Accumulated depreciation–Equipment | 3,200 | 24,800 |
Total assets | $73,180 | |
Liabilities and Stockholders' Equity | ||
Current liabilities: | ||
Accounts payable | 6,100 | |
Income tax payable | 425 | |
Total liabilities | 6,525 | |
Stockholders' equity: | ||
Common stock | 50,000 | |
Retained earnings | 14,200 | |
Net income | 2,455 | |
Total owners’ equity | 66,655 | |
Total liabilities and stockholders’ equity | $73,180 |
Table (29)
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Chapter 7 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
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