Chapter 3, Problem 2GLP

To determine

Adjusting Entries:

The journal entries framed to realize the revenues and expense for the specified accounting period are called adjusting entries.

Income Statement:

The statement which shows the revenues earned and expenses incurred during a particular year is called Income statement.

Statement of Owner’s Equity:

The statement which shows changes in the owners’ equity due to net income or loss and owners’ withdrawal during the accounting period is called statement of owner’s equity.

Balance Sheet:

A financial statement which shows the financial position of a company during specified accounting period is called a balance sheet.

To determine:

Prepare adjusting entries, adjusted trial balance, and financial statements based on the given assignment.

Answer to Problem 2GLP

Solution:

Date	Accounts	Debit	Credit
Dec. 31 a.	Insurance Expense	$2,400
	Prepaid Insurance		$2,400
Dec. 31 b.	Teaching Supplies Expense	$5,200
	Teaching Supplies		$5,200
Dec. 31 c.	Depreciation Expense – Equipment	$13,200
	Accumulated Depreciation – Equipment		$13,200
Dec. 31 d.	Depreciation Expense – Professional Library	$7,200
	Accumulated Depreciation – Professional Library		$7,200
Dec. 31 e.	Unearned Training Fees	$5,000
	Training Fees Earned		$5,000
Dec. 31 f.	Accounts Receivable	$7,500
	Tuition Fees Earned		$7,500
Dec. 31 g.	Salaries Expense	$400
	Salaries Payable		$400
Dec. 31 h.	Rent Expense	$3,000
	Prepaid Rent		$3,000

Financial Statements

WELLS TECHNICAL INSTITUTE Income Statement December 31, 2017
Revenues:
Tuition Fees Earned	$131,400
Training Fees Earned	$45,000
Total Revenue		$176,400
Expenses:
Salaries Expense	$50,400
Insurance Expense	$2,400
Rent Expense	$36,000
Teaching Supplies Expense	$5,200
Advertising Expense	$6,000
Utilities Expense	$6,400
Depreciation Expense – Professional Library	$7,200
Depreciation Expense – Equipment	$13,200
Total Expense		$126,800
Net Income		$49,600

WELLS TECHNICAL INSTITUTE Statement of Owner’s Equity December 31, 2017
T. Wells, Unadjusted Balance	$90,000
Net income for the month	$49,600
Subtotal	$139,600
Owner’s withdrawal	(50,000)
T. Wells, Adjusted Balance	$89,600

WELLS TECHNICAL INSTITUTE Balance Sheet December 31, 2017
Assets
Current Asset:
Cash	$34,000
Accounts Receivable	$7,500
Teaching Supplies	$2,800
Prepaid Insurance	$9,600
Prepaid Rent	$0
Total Current Assets		$53,900
Plant, Property and Equipment
Professional Library	$35,000
Accumulated Depreciation – Professional Library	$17,200	$17,800
Equipment	$80,000
Accumulated Depreciation – Equipment	$28,200	$51,800
Total Plant, Property and Equipment		$69,600
Total Assets		$123,500
Liabilities
Current Liabilities
Accounts Payable	$26,000
Salaries Payable	$400
Unearned Training Fees	$7,500
Total Liabilities		$33,900
Owner’s Equity
T. Wells, Capital		$89,600
Total Liabilities and Owner’s Equity		$123,500

Adjustment	Impact on net income
a.	The expiration of insurance coverage is insurance expense incurred which will decrease the net income for the period.
b.	Teaching supplies expense is an expense which reduces the net income of the company.
c.	Annual Depreciation on equipment will reduce the value of the equipment and decrease the net income by the same amount.
d.	Depreciation expense on professional library is an expense which decreases the net income.
e.	The training fees earned decreases the balance of Unearned Training Fees and increase the revenue of the company and consequently increases the net income for the period.
f.	Accrued Tuition fees increases the accounts receivable balance and net income of the company.
g.	Accrued salaries expense decreases the net income and increases the liability “ Salaries Payable”.
h.	The rent expense debited by crediting the prepaid rent increases the expenses of the company and at the same time decreases the net income for the period.

Explanation of Solution

Explanation:

Cash
Unadj. Bal.	$34,000

Accounts Receivable
Unadj. Bal.	$0
f.	$7,500
Bal.	$7,500

Teaching Supplies
Unadj. Bal.	$8,000	b.	$5,200
Bal.	$2,800

Prepaid Insurance
Unadj. Bal.	$12,000	a.	$2,400
Bal.	$9,600

Prepaid Rent
Unadj. Bal.	$3,000	h.	$3,000
Bal.	$0

Professional Library
Bal.	$35,000

Accumulated Depreciation – Professional Library
		Unadj. Bal.	$10,000
		d.	$7,200
		Bal.	$17,200

Equipment
Bal.	$80,000

Accumulated Depreciation – Equipment
		Unadj. Bal.	$15,000
		c.	$13,200
		Bal.	$28,200

Accounts Payable
		Bal.	$26,000

Salaries Payable
		Unadjusted Bal.	$0
		g.	$400
		Bal.	$400

Unearned Training Fees
e.	$5,000	Unadj. Bal.	$12,500
		Bal.	$7,500

T. Wells, Capital
		Bal.	$90,000

T. Wells, Withdrawals
		Bal.	$50,000

Tuition Fees Earned
		Unadj. Bal.	$123,900
		f.	$7,500
		Bal.	$131,400

Training Fees Earned
		Unadj. Bal.	$40,000
		e.	$5,000
		Bal.	$45,000

Depreciation Expense – Professional Library
Unadjusted Bal.	$0
d.	$7,200
Bal.	$7,200

Depreciation Expense – Equipment
Unadjusted Bal.	$0
c.	$13,200
Bal.	$13,200

Salaries Expense
Unadj. Bal.	$50,000
g.	$400
Bal.	$50,400

Insurance Expense
Unadjusted Bal.	$0
a.	$2,400
Bal.	$2,400

Rent Expense
Unadj. Bal.	$33,000
h.	$3,000
Bal.	$36,000

Teaching Supplies Expense
Unadjusted Bal.	$0
b.	$5,200
Bal.	$5,200

Advertising Expense
Bal.	$6,000

Utilities Expense
Bal.	$6,400

WELLS TECHNICAL INSTITUTE Adjusted Trial Balance December 31, 2017
Cash	$34,000
Accounts Receivable	$7,500
Teaching Supplies	$2,800
Prepaid Insurance	$9,600
Prepaid Rent	$0
Professional Library	$35,000
Accumulated Depreciation – Professional Library		$17,200
Equipment	$80,000
Accumulated Depreciation – Equipment		$28,200
Accounts Payable		$26,000
Salaries Payable		$400
Unearned Training Fees		$7,500
T. Wells, Capital		$90,000
T. Wells, Withdrawals	$50,000
Tuition Fees Earned		$131,400
Training Fees Earned		$45,000
Depreciation Expense – Professional Library	$7,200
Depreciation Expense – Equipment	$13,200
Salaries Expense	$50,400
Insurance Expense	$2,400
Rent Expense	$36,000
Teaching Supplies Expense	$5,200
Advertising Expense	$6,000
Utilities Expense	$6,400
Totals	$345,700	$345,700

Conclusion

Conclusion:

Wells Technical Institute’s net income for the year ended December 31, 2017 is $49,600 and the total assets, liabilities and owners’ equity is $123,500.