
Concept explainers
1 and 2
Prepare a 10 column worksheet for the given account balances, and prepare the
1 and 2

Explanation of Solution
Worksheet:
A spreadsheet is a worksheet. It is 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 10 column worksheet for the given account balances, and trial balance as follows:
Figure (1)
Adjusting entry:
Date | Account Title & Explanation | Debit ($) | Credit($) |
December 31, 2016 | 1,700 | ||
1,100 | |||
Accumulated depreciation - Equipment | 600 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
December 31, 2016 | 240 | ||
Allowance for doubtful accounts | 240 | ||
(To record the bad debts expense estimated at the end of the accounting year) | |||
December 31, 2016 | Interest expense | 580 | |
Interest payable | 580 | ||
(To record the interest expense incurred at the end of the accounting year) | |||
December 31, 2016 | Insurance expense | 175 | |
Prepaid insurance | 175 | ||
(To record the insurance expense incurred at the end of the accounting year) | |||
December 31, 2016 | Salaries expense | 370 | |
Salaries payable | 370 | ||
(To record the salaries expense accrued at the end of the accounting year) | |||
December 31, 2016 | Unearned rent | 800 | |
Rent revenue | 800 | ||
(To record the rent revenue recognized) | |||
December 31, 2016 | Office supplies expense | 230 | |
Office supplies | 230 | ||
(To record the supplies used during the year) | |||
December 31, 2016 | Income tax expense (1) | 3,309 | |
Income tax payable | 3,309 | ||
(To record the income tax expense incurred at the end of the accounting year) |
Table (1)
Working note (1):
Calculate the value of income tax expense.
3.
Prepare income statement,
3.

Explanation of Solution
Financial statements: Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making. The financial statements are balance sheet, income statement, statement of retained earnings, and the cash flow statement.
Prepare income statement, retained earnings, and balance sheet of Company V as follows:
Company V | ||
Income statement | ||
For the year ended December 31, 2016 | ||
Particulars | Amount($) | Amount ($) |
Service revenue | 49,355 | |
Less: Cost of goods sold | (27,185) | |
Gross profit | 22,170 | |
Less: Operating expense | ||
Salaries expense | 4,450 | |
Utilities expense | 2,000 | |
Office supplies expense | 540 | |
Delivery expense | 1,275 | |
Depreciation expense | 1,700 | |
Bad debt expense | 240 | |
Insurance expense | 175 | |
Other expense | 980 | |
Total operating expense | 11,360 | |
Income from operations | 10,810 | |
Other items: | ||
Rent revenue | 800 | |
Interest expense | (580) | 220 |
Income before income taxes | 11,030 | |
Income tax expense | (3,309) | |
Net income (A) | 14,339 | |
Number of shares (B) | 2,000 shares | |
Earnings per share | $3.86 |
Table (2)
Company V | |
Statement of retained earnings | |
For the year end December 31, 2016 | |
Particulars | Amount ($) |
Retained earnings on January 1, 2016 | 18,075 |
Add: Net income | 7,721 |
25,796 | |
Less: Dividend for 2016 | (1,300) |
Retained earnings on December 31, 2016 | 24,496 |
Table (3)
Company V | ||
Balance sheet | ||
As at December 31, 2016 | ||
Assets | Amount ($) | Amount ($) |
Current assets: | ||
Cash | 1,900 | |
Accounts receivable | 4,700 | |
Less: Allowance for doubtful accounts | (300) | 4,400 |
Inventory | 8,700 | |
Prepaid insurance | 425 | |
Office supplies | 230 | |
Total current assets (C) | 15,655 | |
Property, plant and equipment: | ||
Land | 4,100 | |
Buildings | 38,000 | |
Less: Accumulated depreciation | (12,600) | 25,400 |
Equipment | 10,700 | |
Less: Accumulated depreciation | (3,700) | 7,000 |
Total property, plant and equipment (D) | 36,500 | |
Total assets | 52,155 | |
Liabilities | ||
Current liabilities: | ||
Accounts payable | 4,300 | |
Notes payable (due March 1, 2017) | 1,400 | |
Interest payable | 580 | |
Salaries payable | 370 | |
Unearned rent | 400 | |
Income tax payable | 3,309 | |
Total current liabilities | 10,359 | |
Long-term liabilities: | ||
Mortgage payable (due January 1, 2018) | 7,300 | |
Total liabilities | 17,659 | |
Shareholders' equity | ||
Contributed capital: | ||
Common stock | 10,000 | |
Retained earnings | 24,496 | 34,496 |
Total shareholder's equity | 52,155 |
Table (4)
4.
Prepare closing entries of Company V for the current year.
4.

Explanation of Solution
Closing entries: The journal entries prepared to close the temporary accounts to Retained Earnings account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.
Prepare closing entries of Company V for the current year as follows:
Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
December 31, 2016 | Sales revenue | 49,355 | |
Rent revenue | 800 | ||
Income summary | 50,155 | ||
(To close the sales revenue and rent revenue account) | |||
December 31, 2016 | Income summary | 42,434 | |
Cost of goods sold | 27,185 | ||
Salaries expense | 4,450 | ||
Utilities expense | 2,000 | ||
Office supplies expense | 540 | ||
Delivery expense | 1,275 | ||
Other expense | 980 | ||
Depreciation expense | 1,700 | ||
Bad debt expense | 240 | ||
Interest expense | 580 | ||
Insurance expense | 175 | ||
Income tax expense | 3,309 | ||
(To close all expenses account) | |||
December 31, 2016 | Income summary | 7,721 | |
Retained earnings (2) | 7,721 | ||
(To close the income summary account) | |||
December 31, 2016 | Retained Earnings | 1,300 | |
Dividends | 1,300 | ||
(To close the dividends account.) |
Table (5)
Closing entry for revenue account:
In this closing entry, the sales revenue and rent revenue account is closed by transferring the amount of revenue to the income summary account in order to bring the revenue accounts balance to zero. Hence, debit all revenue account for $50,155, and credit the income summary account for $50,155.
Closing entry for expenses account:
In this closing entry, cost of goods sold, operating expense, and income tax expense are closed by transferring the amount of all expenses to the income summary account in order to bring all the expense accounts balance to zero. Hence, debit the income summary account for $42,434, and credit all the expenses account for $42,434.
Closing entry for income summary account:
In this closing entry, the income summary account is closed by transferring the amount of net income to the retained earnings account in order to bring the income summary balance to zero. Hence, debit the income summary account for $7,721, and credit the retained earnings for $7,721.
Closing entry for dividends account:
The dividends are paid to the shareholders out of the retained earnings. Thus, retained earnings are debited since the earnings are decreased on payment of dividend. Dividends are a component of shareholders’ equity account. It is credited because dividends are transferred to retained earnings account.
Working note (2):
Calculate the value of retained earnings.
Want to see more full solutions like this?
Chapter 3 Solutions
Intermediate Accounting: Reporting and Analysis (Looseleaf)
- A trial balance will balance even if A. a journal entry to record the purchase of equipment for cash of $52100 is not posted. B. a $13100 cash dividend is debited to dividends for $13100 and credited to cash for $1310. C. a $510 collection on accounts receivable is credited to accounts receivable for $510 without a corresponding debit. D. a purchase of supplies for $595 on account is debited to supplies for $595 and credited to accounts payable for $559.arrow_forwardEquipment costing $15200 is purchased by paying $3800 cash and signing a note payable for the remainder. The journal entry to record this transaction should include a credit to Notes Payable. credit to Notes Receivable. credit to Equipment. debit to Cash.arrow_forwardAt December 1, 2025, a company's Accounts Receivable balance was $20160. During December, the company had credit sales of $54000 and collected accounts receivable of $43200. At December 31, 2025, the Accounts Receivable balance is A. $30960 debit. B. $30960 credit. C. $74160 debit. D. $20160 debit.arrow_forward
- Whispering Winds Corp.'s trial balance at the end of its first month of operations reported the following accounts and amounts with normal balances: Cash $14720 Prepaid insurance 460 Accounts receivable 2300 Accounts payable 1840 Notes payable 2760 Common stock 4600 Dividends 460 Revenues 20240 Expenses 11500 Total credits on Whispering Winds Corp's trial balance are A. $28980. B. $30360. C. $29900. D. $29440arrow_forwardSwifty Corporation's trial balance reported the following normal balances at the end of its first year: Cash $14440 Prepaid insurance 530 Accounts receivable 2660 Accounts payable 2130 Notes payable 3190 Common stock 4100 Dividends 530 Revenues 22040 Expenses 13300 What amount did Swifty Corporation's trial balance show as total credits? A. $31460 B. $32520 C. $30930 D. $31990arrow_forwardMonty Inc., a major retailer of high-end office furniture, operates several stores and is a publicly traded company. The company is currently preparing its statement of cash flows. The comparative statement of financial position and income statement for Monty as at May 31, 2020, are as The following is additional information about transactions during the year ended May 31, 2020 for Monty Inc., which follows IFRS. Plant assets costing $69,000 were purchased by paying $47,000 in cash and issuing 5,000 common shares. In order to supplement its cash, Monty issued 4,000 additional common shares. Cash dividends of $35,000 were declered and paid at the end of the fiscal year. create direct method cash flow statement, show your workarrow_forward
- Following is additional information about transactiona during the year ended May 31, 2020 for Monty Inc., which follows IFRS. Plant assets costing $69,000 were purchased by paying $47,000 in cash and issuing 5,000 common shares. In order to supplement iRs cash, Monty Issued 4,000 additional common shares. Cash dividends of $35,000 were declared and paid at the end of the fiscal year. PRepare a direct Method Cash FLow using the format.arrow_forwardmake a trail balancearrow_forwardOn July 31, 2025, the general ledger of Cullumber Legal Services Inc. showed the following balances: Cash $4,960, Accounts Receivable $1,860, Supplies $620, Equipment $6,200, Accounts Payable $5,080, Common Stock $4,340, and Retained Earnings $4,220. During August, the following transactions occurred. Aug. 3 5 Collected $1,490 of accounts receivable due from customers. Received $1,610 cash for issuing common stock to new investors. 6 Paid $3,350 cash on accounts payable. 7 Performed legal services of $8,060, of which $3,720 was collected in cash and the remainder was due on account. 2 2 2 2 2 12 Purchased additional equipment for $1,490, paying $500 in cash and the balance on account. 14 Paid salaries $4,340, rent $1,120, and advertising expenses $340 for the month of August. 18 20 24 26 27 Collected the balance for the services performed on August 7. Paid cash dividend of $620 to stockholders. Billed a client $1,240 for legal services performed. Received $2,480 from Laurentian Bank;…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
