Chapter 11, Problem 1CP

1.

To determine

Prepare worksheet for A Spa as of August.

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.

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.

Worksheet: A worksheet is a spreadsheet used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Prepare worksheet for A Spa.

Table (1)

2.

To determine

Journalize the adjusting entries in the general journal

Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

General journal: This is a journal used to record infrequent transactions like adjusting entries, closing entries, accounting errors, sale of assets, or bad debts expense.

Journalize the adjusting entries.

 

Table (2)

Description:

1. (a) Merchandise Inventory is an asset (current) account and it is increased. Therefore, debit the merchandise inventory. Income summary is a temporary account and it is closed. Therefore, credit the income summary.
2. (b) Office supplies expense is an expense account and it is increased. Therefore, debit the Office supplies expense. Office supplies are a liability account and it is increased. Therefore, credit the Office supplies.
3. (c) Spa supplies expense is revenue account and it is increased. Therefore, debit the Spa supplies expense. Spa supplies (on hand) are an asset (current) account and it is decreased. Therefore, credit the Spa supplies (on hand).
4. (d) Insurance expense is an expense (operating) account and it is increased. Therefore, debit the insurance expense. Prepaid insurance is an asset (current) account and it is decreased. Therefore, credit the prepaid insurance.
5. (e) Depreciation expense (on office equipment) is an expense account and it is increased. Therefore, debit the depreciation expense. Accumulated depreciation (on office equipment)   is a contra asset account and it is decreased. Therefore, credit the accumulated depreciation.
6. (f) Depreciation expense (on spa equipment) is an expense account and it is increased. Therefore, debit the depreciation expense. Accumulated depreciation (on spa equipment)   is a contra asset account and it is decreased. Therefore, credit the accumulated depreciation.

3.

To determine

Post the adjusting entries to the general ledger.

Explanation of Solution

Posting of transaction: The process of transferring the journalized transactions into the accounts of the ledger is known as posting of transaction.

Post the adjusting entries to the general ledger:

General ledger
Account: Cash							Account No: 111
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				36,489.12
Account: Accounts receivable							Account No: 113
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				6,253.79
Account: Office supplies							Account No: 114
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				248
		Adjusting	J16		173	75
Account: Spa supplies							Account No: 115
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				740
		Adjusting	J16		395	345
Account: Merchandise inventory							Account No: 116
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Adjusting	J16	13,110		13,110
Account: Prepaid insurance							Account No: 117
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				800
		Adjusting	J16		281.67	518.33
Account: Office equipment							Account No: 124
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				1,570
Account: Accumulated depreciation, Office equipment							Account No: 125
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance					10
		Adjusting	J11		20		30
Account: Spa equipment							Account No: 128
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				18,083
Account: Accumulated depreciation, Spa equipment							Account No: 129
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance					64.88
		Adjusting	J16		129.76		194.64
Account: Accounts payable							Account No: 211
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance					15,513

Account: Wages payable							Account No: 212
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31
Account: sales tax payable							Account No: 215
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance					2,001.1
Account: Mr. A.V, capital							Account No: 311
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance					50,219.62
Account: Mr. A.V, Drawing							Account No: 312
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				4,500
Account: Income summary							Account No: 313
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Adjusting	J16		13,110		13,110
Account: Income from services							Account No: 411
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance					25,398
Account: Merchandise sales							Account No: 412
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance					22,489.65
Account: Sales discount							Account No: 413
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				17.46
Account: Sales returns and allowances							Account No: 414
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				88
Account: Purchase							Account No: 511
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				24,101
Account: Purchase discount							Account No: 512
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance					82
Account: Purchase returns and allowances							Account No: 513
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance					123

Account: Freight in							Account No: 515
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				992
Account: Wages expense							Account No: 611
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				16,250
Account: Rent expense							Account No: 612
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				3,300
Account: Office supplies expense							Account No: 613
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Adjusting	J16	173		173
Account: Spa supplies expense							Account No: 614
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Adjusting	J16	395		395
Account: Laundry expense							Account No: 615
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				179
Account: Advertising expense							Account No: 616
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				455
Account: Utilities expense							Account No: 617
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				963
Account: Insurance expense							Account No: 618
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Adjusting	J16	281.67		281.67
Account: Depreciation expense, Office equipment							Account No: 619
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Adjusting	J16	20		20
Account: Depreciation expense, Spa equipment							Account No: 620
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Adjusting	J16	129.67		129.67
Account: Promotional expense							Account No: 630
Date		Item	Post ref	Debit	Credit	Balance
20___				($)	($)	Debit ($)	Credit($)
Aug.	31	Balance				371.9

Table (3)

4.

To determine

Prepare a trail balance for 31^st August.

Explanation of Solution

Trial balance: Trial balance is a summary of all the ledger accounts balances presented in a tabular form with two column, debit and credit. It checks the mathematical accuracy of the ledger postings and helps preparing the final accounts.

Prepare a trial balance.

A Spa
Trail balance (Adjusted)
August 31, 20__
Account name	Debit ($)	Credit($)
Cash	36,489.12
Accounts receivable	6,253.79
Office supplies	75
Spa supplies	345
Merchandise inventory	13,110
Prepaid insurance	518.33
Office equipment	1,570
Accumulated depreciation, office equipment		30
Spa equipment	18,083
Accumulated depreciation, spa equipment		194.64
Accounts payable		15,513
Sales tax payable		2,001.12
Mr. A.V, capital		50,219.62
Mr. A.V, drawings	5,000
Income summary		13,110
Income from services		25,398
Merchandise sales		22,489.65
Sales discounts	17.46
Sales returns and allowances	88
Purchases	24,101
Purchases discounts		82
Purchases returns and allowances		123
Freight in	992
Wages expense	16,250
Rent expense	3,300
Office supplies expense	173
Spa supplies expense	395
Laundry expense	179
Advertising expense	455
Utilities expense	963
Insurance expense	281.67
Depreciation expense, office equipment	20
Depreciation expense, spa equipment	129.76
Miscellaneous expense	371.9
Total	129,161.03	129,161.03

Table (4)