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
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter C, Problem 8P

a. 1

To determine

Prepare the journal entries in the accounts of Corporation S, if it is organized as a Sole proprietorship.

a. 1

Expert Solution
Check Mark

Explanation of Solution

Sole proprietorship: The form of business entity which is owned and managed by an individual is referred to as sole proprietorship.

Prepare journal entries:

DateAccount titles and explanationDebit ($)Credit ($)
November 9 Cash15,000
     Person S, Capital15,000
 (To record additional investment by owner)
 November 15Person S, Drawing1,500
     Cash1,500
 (To record withdrawal from business)
 November 30Person S, Drawing1,500
     Cash1,500
 (To record withdrawal from business)
 November 30Person S, Drawing1,000
     Cash1,000
 (To record withdrawal from business)

Table (1)

November 9:

  • Cash is an asset and it is increased. Therefore, debit cash account by $15,000.
  • Person S, Capital is a component of owners’ equity and it is increased. Therefore, credit the Person S, Capital account by $15,000.

November 15:

  • Person S, Drawing is a component of owners’ equity and it is decreased. Therefore, debit the Person S, Drawings account by $ 1,500.
  • Cash is an asset and it is decreased. Therefore, credit cash account by $1,500.

November 30:

  • Person S, Drawing is a component of owners’ equity and it is decreased. Therefore, debit the Person S, Drawings account by $ 1,500.
  • Cash is an asset and it is decreased. Therefore, credit cash account by $1,500.

November 30:

  • Person S, Drawing is a component of owners’ equity and it is decreased. Therefore, debit the Person S, Drawings account by $ 1,000.
  • Cash is an asset and it is decreased. Therefore, credit cash account by $1,000.

a. 2

To determine

Prepare the closing entries in the accounts of Corporation S, if it is organized as a Sole proprietorship.

a. 2

Expert Solution
Check Mark

Explanation of Solution

Sole proprietorship: The form of business entity which is owned and managed by an individual is referred to as sole proprietorship.

Prepare closing entries:

DateAccount titles and explanationDebit ($)Credit ($)
November 30 Person S, Capital4,000
     Person S, Drawing4,000
 (To close the owner's Drawing account)
 November 30 Income Summary5,000
     Person S, Capital5,000
 (To close the Income Summary account to the owners’ capital account)

Table (2)

November 30:

  • Person S, Capital is a component of stockholders’ equity and it is decreased. Therefore, debit the Person S, Capital account by $4,000.
  • Person S, Drawing is a component of owners’ equity and it is increased. Therefore, credit the Person S, Drawings account by $ 4,000.

November 30:

  • Income summary is a component of stockholders’ equity and it is decreased. Therefore, debit income summary account by $5,000.
  • Person S, Capital is a component of owners’ equity and it is increased. Therefore, credit Person S, Capital account by $5,000.

b. 1

To determine

Prepare the journal entries in the accounts of Corporation S, if it is organized as a Corporation.

b. 1

Expert Solution
Check Mark

Explanation of Solution

Corporation: The form of business entity ,which is incorporated by state law into a separate legal entity, owned by stockholders, and managed by board of directors elected by stockholders, is referred to as corporation.

Prepare journal entries:

DateAccount titles and explanationDebit ($)Credit ($)
November 9Cash15,000
     Capital Stock15,000
( To record additional investment by owner)
 November 15Salaries Expense1,500
     Cash1,500
 (To record salary of Person S)
 November 20Dividends1,000
     Dividends Payable1,000
 (To record declaration of a dividend payable on November 30)
November 30Salaries Expense1,500
     Cash1,500
( To record salary of Person S)
 November 30Dividends Payable1,000
     Cash1,000
 (To record the payment of the dividend declared on November 30)

Table (3)

November 9:

  • Cash is an asset and it is increased. Therefore, debit cash account by $15,000.
  • Capital stock is a component of stockholders’ equity and it is increased. Therefore, credit capital stock account by $15,000.

November 15:

  • Salaries Expense is a component of stockholders’ equity and it is decreased. Therefore, debit salaries expense account by $1,500.
  • Cash is an asset and it is decreased. Therefore, credit cash account by $1,500.

November 20:

  • Dividends are a component of stockholders’ equity and it is decreased. Therefore, debit dividends account by $1,000.
  • Dividends payable is a liability and it is increased. Therefore, credit dividends payable account by $ 1,000.

November 30:

  • Salaries Expense is a component of stockholders’ equity and it is decreased. Therefore, debit salaries expense account by $1,500.
  • Cash is an asset and it is decreased. Therefore, credit cash account by $1,500.

November 30:

  • Dividends payable is a liability and it is decreased. Therefore, debit dividends payable $1,000.
  • Cash is an asset and it is decreased. Therefore, credit cash account by $1,000.

b. 2

To determine

Prepare the entry to record the accrued income tax expense and then prepare closing entries in the accounts of Corporation S, if it is organized as a Corporation.

b. 2

Expert Solution
Check Mark

Explanation of Solution

Corporation: The form of business entity ,which is incorporated by state law into a separate legal entity, owned by stockholders, and managed by board of directors elected by stockholders, is referred to as corporation.

Prepare closing entries:

DateAccount titles and explanationDebit ($)Credit ($)
 November 30Income Tax Expense600
     Income Tax Payable600
 (To accrue income taxes expense for November)
 November 30Income Summary600
     Income Tax Expense (1)600
(To close the Income Tax Expense account into the income summary account)
 November 30Income Summary1,400
     Retained Earnings1,400
 (To close the Income Summary account)
 November 30Retained Earnings1,000
     Dividends1,000
 (To close the Dividends account)

Table (4)

November 30:

  • Income tax expense is a component of stockholders’ equity and it is decreased. Therefore, debit income tax expense account by $600.
  • Income tax payable is a liability and it is increased. Therefore, credit income tax payable account by $600.

November 30:

  • Income summary is a component of stockholders’ equity and it is decreased. Therefore, debit income summary account by $600.
  • Income tax expense is a component of stockholders’ equity and it is increased. Therefore, credit income tax expense account by $600.

November 30:

  • Income summary is a component of stockholders’ equity and it is decreased. Therefore, debit income summary account by $1,400.
  • Retained earnings are a component of stockholders’ equity and it is increased. Therefore, credit retained earnings account by $1,400.

November 30:

  • Retained earnings are a component of stockholders’ equity and it is decreased. Therefore, debit retained earnings account by $1,000.
  • Dividends payable is a liability and it is increased. Therefore, credit dividends payable $1,000.

Working note:

Calculate the amount of accrued income tax expense:

Accreud Incometaxexpense}=Profitbeforeincometax×Incometaxrate=$2,000×30%=$600

(1)

c.

To determine

Explain the causes of the differences in net income between organization as Sole Proprietorship and as a Corporation.

c.

Expert Solution
Check Mark

Explanation of Solution

Net income: The bottom line of income statement which is the result of excess of earnings from operations (revenues) over the costs incurred for earning revenues (expenses) is referred to as net income.

Corporation: The form of business entity ,which is incorporated by state law into a separate legal entity, owned by stockholders, and managed by board of directors elected by stockholders, is referred to as corporation.

Sole proprietorship: The form of business entity which is owned and managed by an individual is referred to as sole proprietorship.

The net income between the organization as Sole Proprietorship and Corporation S as a Corporation differs because of two reasons. Those reasons are given below:

  • Corporation S is subject to payment of income taxes (expense) which is not included in the accounts of the Sole Proprietorship.
  • Payment of Services to Person S is considered to be salaries expense if the business is organized as a Corporation. And if, the business is organized as a Sole Proprietorship, then the payments are withdrawn by the owner.

d.

To determine

Describe the effects of the business operations on Person’s individual income tax return.

d.

Expert Solution
Check Mark

Explanation of Solution

The effect of the business operations on Person’s individual income tax return, if the business is organized as a Sole Proprietorship is stated below:

Person S must pay taxes on the net income of the Sole Proprietorship ($5,000) through the individual income tax return.

The effect of the business operations on Person’s individual income tax return, if the business is organized as a Corporation is stated below:

Person S must pay taxes on the dividend received ($1,000), and the salaries received ($3,000) of the Corporation through the individual tax return.

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!
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 EQUATION For BEGINNERS; Author: Accounting Stuff;https://www.youtube.com/watch?v=56xscQ4viWE;License: Standard Youtube License