Chapter 3, Problem 2GLP

a..

To determine

To prepare: Adjusting entries.

Answer to Problem 2GLP

Solution:

Date	Particulars	Post ref	Debit($)	Credit($)
Dec. 31	Accounts Receivable		7,500
	Tuition Fees Earned			7,500
	(Being training fees earned but not received yet))

Explanation of Solution

• Accounts receivable is an asset. Since, the revenue is earned, the asset has increased. So, debit account receivable account.
• Tuition fees earned is revenue. Since, revenue increases equity, tuition fee account is debited.

Working Notes:

Calculation of total tuition fees earned:

  $\begin{array}{c}\text{Total}\text{Tuition}\text{Fees}\text{Earned}=\left(\begin{array}{l}\text{Number}\text{of}\text{Month}\text{Training}\text{Provided}\\ \times \text{Fees}\text{for}\text{One}\text{Month}\end{array}\right)\\ =2.5\times \text{\$3,000}\\ =\$7,500\end{array}$

g.

Date	Particulars	Post ref	Debit($)	Credit($)
Dec. 31	Salaries Expenses		400
	Salaries payable			400
	(Being salary accrued but not paid)

• Salaries expense is an expense. Since, expense decrease equity, salaries expense is debited.
• Salaries payable is a liability. Since, salary expense has occurred but not paid yet, it increases liability. Hence credit salaries payable account

Working Notes:

Calculation of accrued salary:

  $\begin{array}{c}\text{Accrued}\text{salary}=\text{Daily}\text{salary}\times \text{Number}\text{of}\text{days}\text{salary}\text{not}\text{paid}\text{for}\\ \text{=}\text{\$200}\times 2\\ =\$400\end{array}$

h.

Date	Particulars	Post ref	Debit($)	Credit($)
Dec. 31	Rent Expenses		3,000
	Prepaid Rent			3,000
	(Being prepaid rent has been used.)

• Rent expense is an expense. Since, expense decrease equity. Hence, salaries expense is debited.
• Prepaid rent is an asset. Since, amount paid in advance, increases asset. That’s why prepaid rent account is debited.

Prepare income statement:

W.T.I. Company
Income Statement
For year ended on December 31, 2017
Particulars	Amount($)	Amount($)
Revenue:
Service Revenue	176,400
Total Revenue		176,400
Expenses:
Insurance Expense	2,400
Salaries Expense	50,400
Teaching Supplies Expense	5,200
Rent expenses	36,000
Advertising Expense	6,000
Utility Expense	6,400
Depreciation Expense-Professional Library	7,200
Depreciation Expense-Equipment	13,200
Total Expense		126,800
Net income		49,600

Working Notes:

Calculation of service revenue:

  $\begin{array}{c}\text{Service}\text{revenue}=\text{Training fees earned}+\text{Training}\text{fees}\text{earned}\\ \text{=}\text{\$(45,000+131,400)}\\ \text{=\$176,400}\end{array}$

Net income of W.T.I. Company is $49,600.

Prepare Retained Earnings Statement:

W.T.I. Company
Retained Earnings Statement
For year ended on December 31, 2017
Particulars	Amount($)
Opening balance	80,000
Net income	49,600
Dividends	(50,000)
Retained earnings	79,600

Therefore, Retained earnings of W.T.I. Company are $79,600.

Prepare balance sheet:

W.T.I. Company
Balance sheet
As on December 31, 2017
Particulars		Amount($)
Assets
Cash		34,000
Account Receivable		7,500
Teaching Supplies		2,800
Prepaid Insurance		9,600
Prepaid rent		0
Equipment	80,000
Less: Accumulated depreciation	(28,200)	51,800
Professional Library	35,000
Less: Accumulated Depreciation	(17,200)	17,800
Total Assets		123,500
Liabilities and Stockholder’s Equity
Liabilities
Accounts Payable		26,000
Salaries Payable		400
Unearned training Fees		7,500
Stockholder’s Equity
Common Stock	10,000
Retained earnings	79,600
Total stockholders’ equity		89,600
Total Liabilities and Stockholder’s equity		123,500

Balance sheet of W.T.I. Company as on December 31, 2017 stood for $123,500.

Effects of adjusting entries on net income:

a.

Insurance expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.

b.

Teaching supplies expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.

c.

Depreciation expense-Equipment is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.

d.

Depreciation expense-Professional Library is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.

e.

Training fees earned is an income. Since, it is credited; it increases the income of the firm.

f.

Tuition fees earned is an income. Since, it is credited; it increases the income of the firm.

g.

Salaries expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.

h.

Rent expense is an expense. Since, it is debited. It decreased the income of the firm because it increases an expense that is deducted from income.