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Concept explainers
1 and 2
Prepare the T- account and enter the transaction into their respective accounts for calculating the ending balance.
1 and 2
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Explanation of Solution
T-account:
T-account is the form of the ledger account, where the
The components of the T-account are as follows:
a) The title of the account
b) The left or debit side
c) The right or credit side
Prepare the T-accounts:
Cash account:
Cash account | |||
Beginning balance | $6,400 | (g) | $2,300 |
(a) | $19,000 | (i) | $16,500 |
(b) | $600 | (j) | $2,200 |
(c) | $850 | (k) | $960 |
(d) | $7,200 | ||
Ending balance | $12,090 |
Accounts receivable account | |||
Beginning balance | $32,000 | (d) | $7,200 |
Ending balance | $24,800 |
Supplies account:
Supplies account | |||
Beginning balance | $1,500 | ||
(k) | $960 | ||
Ending balance | $2,460 |
Equipment account:
Equipment account | |||
Beginning balance | $9,500 | ||
(h) | $920 | ||
Ending balance | $10,420 |
Land account:
Land account | |||
Beginning balance | $7,400 | ||
Ending balance | $7,400 |
Building account:
Building account | |||
Beginning balance | $25,300 | ||
Ending balance | $25,300 |
Accounts payable account:
Accounts payable account | |||
Beginning balance | $9,600 | ||
(g) | $2,300 | (e) | $400 |
Ending balance | $7,700 |
Unearned revenue account:
Unearned revenue account | |||
Beginning balance | $3,840 | ||
(b) | $600 | ||
Ending balance | $4,440 |
Long-term note payable account:
Long-term note payable account | |||
Beginning balance | $48,500 | ||
Ending balance | $48,500 |
Common stock account:
Common stock account | |||
Beginning balance | $1,600 | ||
(h) | $100 | ||
Ending balance | $1,700 |
Additional paid-in capital account:
Additional paid-in capital account | |||
Beginning balance | $7,000 | ||
(h) | $820 | ||
Ending balance | $7,820 |
Retained earnings account | |||
Beginning balance | $11,560 | ||
(j) | $2,200 | ||
Ending balance | $9,360 |
Rebuilding fees revenue account:
Rebuilding fees revenue account | |||
Beginning balance | 0 | ||
(a) | $19,000 | ||
Ending balance | $19,00 |
Rent revenue account:
Rent revenue account | |||
Beginning balance | 0 | ||
(c) | $850 | ||
Ending balance | $850 |
Wages expense account:
Wages expense account | |||
Beginning balance | 0 | ||
(i) | $16,500 | ||
Ending balance | $16,500 |
Utilities expense account:
Utilities expense account | |||
Beginning balance | 0 | ||
(e) | $400 | ||
Ending balance | $400 |
Thus, the t-accounts are prepared and the ending balances are calculated.
3.
Determine the amount for the given equations at the end of the January.
3.
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Answer to Problem 10E
For the equation
For the equation
Explanation of Solution
Accrual basis of accounting:
Accrual basis of accounting refers to recognizing the financial transactions during the period in which the event occurs, even if the cash is not exchanged.
Working note:
Calculate the revenues:
Calculate the expenses:
Calculate the net income:
Particulars | Amount($) | Amount ($) |
Revenues | (1)19,850 | |
Less: Expenses | (2)16,900 | |
Net income | $2,950 |
Table (1)
Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:
Calculate the amount for the accounting equation:
Assets | = | Liabilities | + | |
$12,090 | $7,700 | $1,700 | ||
$24,800 | $4,440 | $7,820 | ||
$2,460 | $48,500 | $9,360 | ||
$10,420 | $2,950 | |||
$7,400 | ||||
$25,300 | ||||
$82,470 | = | $60,640 | + | $21,830 |
Table (2)
4.
Calculate the net income under cash basis of accounting and explain the reason in which manner the net income differ from accrual basis of accounting.
4.
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Answer to Problem 10E
Net income of Company SPR under cash basis of accounting is $7,890.
Explanation of Solution
Cash basis of accounting:
Cash basis of accounting refers to the recognition of financial transactions only when the cash is received or paid.
Calculate the net income under cash basis accounting:
Particulars | Amount($) | Amount ($) |
Cash receipts | (3) 27,650 | |
Less: Cash payments | (4) 19,760 | |
Net income | $7,890 |
Table (3)
Calculate the cash receipts:
Calculate the cash payments:
- According to the cash basis of accounting, the net income is higher than the accrual basis of accounting.
- The recording of the expenses and revenues differ from the accrual basis of accounting.
- Hence, the net income is different for the accrual basis of accounting and cash basis of accounting.
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Chapter 3 Solutions
FINANCIAL ACCOUNTING (LOOSELEAF)
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