Chapter 3, Problem 13E

1.

To determine

Journalize the given transactions.

Explanation of Solution

Journalize the given transactions:

Date	Account Title and Explanation	Debit ($)	Credit ($)
a	Cash (+A)	$9,500
	Consulting fees revenue (+R) (+SE)		$9,500
	(To record the fees earned)
b	Cash (+A)	$1,200
	Common stock (+SE)		$10
	Additional paid-in capital (+SE)		$1,190
	(To record the purchase of building)
c	Office equipment (+A)	$640
	Cash (-A)		$160
	Short-term notes payable (+L)		$480
	(To record the purchase of equipment on account)
d	Cash (+A)	$890
	Unearned revenue (+L)		$890
	(To record the unearned revenue)
e	Supplies (+A)	$470
	Accounts payable (-L)		$470
	(To record the purchase of supplies on account)
f	Utilities expense (+E) (-SE)	$1,800
	Cash (-A)		$1,800
	(To record the utilities expense)
g	Accounts receivable (+A)	$1,620
	Consulting fees revenue (+R) (+SE)		$1,620
	(To record the fees earned)
h	Cash (+A)	$2,980
	Accounts receivable (-A)		$2,980
	(To record the cash receivable from customer)
i	Salaries expense (+E) (-SE)	$6,210
	Cash (-A)		$5,300
	Salaries payable (+L)		$910
	(To record the payment of cash for accounts payable)
j	Short term investments (+A)	$1,230
	Prepaid expenses (+A)	$800
	Cash (-A)		$2,030
	(To record the cash receivable from customer)
k	Cash (+A)	$10
	Interest revenue (+R) (-SE)		$10
	(To record the interest revenue)

Table (1)

2

To determine

Prepare the T- account and enter the transaction into their respective accounts for calculating the ending balance.

Explanation of Solution

Prepare the T-accounts:

Figure (1)

Figure (2)

Figure (3)

Figure (4)

Thus, the T-accounts are prepared and the ending balances are calculated.

3.

To determine

Ascertain the amount for the given equations at the end of the January.

Explanation of Solution

For the equation$\text{Revenues}-\text{Expenses}=\text{Net income}$:

$\begin{array}{c}\text{Revenue}-\text{Expenses}=\text{Net income}\\ \text{\$11,130}-\$8,010=\$3,120\end{array}$

For the equation$\text{Assets}=\text{Liabilities}+\text{Stockholders' equity}$:

$\begin{array}{c}\text{Assets}=\text{Liabilities}+\text{Stockholders' equity}\\ \$18,870=\$5,930+\$12,940\end{array}$

Working note (1):

Calculate the revenues:

$\begin{array}{c}\text{Revenues}=\text{Consulting fees revenue}+\text{Interest revenue}\\ =\$11,120+\$10\\ =\$11,130\end{array}$

Working note (2):

Calculate the expenses:

$\begin{array}{c}\text{Expenses}=\text{Salaries expenses}+\text{Utilities expenses}\\ =\$6,210+\$1,800\\ =\$8,010\end{array}$

Working note (3):

Calculate the net income:

Particulars	Amount($)	Amount ($)
Revenues	(1) 11,130
Less: Expenses	(2) 8,010
Net income		$3,120

Table (2)

4.

To determine

Calculate the net income under cash basis of accounting and explain the reason in which manner the net income differs from accrual basis of accounting.

Explanation of Solution

Calculate the net income under cash basis accounting:

Particulars	Amount ($)	Amount ($)
Cash receipts	(4) 14,580
Less: Cash payments	(5) 9,290
Net income		$5,290

Table (3)

Net income of Incorporation C under cash basis of accounting is $5,290.

Working note (4):

Calculate the cash receipts:

$\begin{array}{c}\text{Cash receipts}=\left(\text{Consulting fees revenue}\right)+\left(\text{Common stock issued}\right)\\ +\left(\text{Consulting fees revenue}\right)+\left(\text{Accounts receivable}\right)+\left(\text{Interest revenue}\right)\\ =\$9,500+\$1,200+\$890+\$2,980+\$10\\ =\$14,580\end{array}$

Working note (5):

Calculate the cash payments:

$\begin{array}{c}\text{Cash payments}=\left(\text{Short-term notes payable}\right)+\left(\text{Utilities expenses}\right)+\\ \left(\text{Salaries expenses}\right)+\left(\text{Purchase of short-term invenstment}\right)\\ =\$160+\$1,800+\$5,300+\$2,030\\ =\$19,760\end{array}$

• According to the cash basis of accounting, the net income is $5,290 which 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.