Financial accounting
Financial accounting
3rd Edition
ISBN: 9780077506902
Author: David J Spieceland Wayne Thomas Don Herrmann
Publisher: Mcgraw-Hill
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Chapter 3, Problem 3.20E

1

To determine

To record: The journal entries for the given transaction occurred during the year.

1

Expert Solution
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Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

The journal entries for given transactions of Company R are as follows:

Date Account Title and Explanation Post Ref. Debit($) Credit($)
2015 Cash   20,000  
February 15 Common stock     20,000
  (To record the common stock issued)      
 
2015 Cash   35,000  
May, 20 Account receivable   30,000  
  Service revenue     65,000
  (To record the service revenue provided to customer on account and in cash)      
 
2015 Salaries expense   23,000  
August 31 Cash     23,000
  (To record the cash received from issuance of common stock)      
 
2015 Prepaid rent   12,000  
October 1 Cash     12,000
  (To record payment of one-year advance rent)      
 
2015 Supplies   22,000  
November 17 Accounts payable     22,000
  (To record the purchase of supplies on account)      
 
2015 Dividends   2,000  
December 30 Cash     2,000
  (To record the payment of dividend to stockholder)      

Table (1)

2

To determine

To record: The adjusting entry for prepaid insurance.

2

Expert Solution
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Explanation of Solution

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Adjusting entries of Company R are as follows:

Date Account Title and Explanation Post Ref. Debit($) Credit($)
2015 Salaries expense   4,000  
December 31 Salaries payable     4,000
  (To record salaries expense incurred at the end of accounting year)      
2015 Rent expense   3,000  
December 31 Prepaid rent     3,000
  (To record the rent expense incurred at the end of the accounting period)      
2015 Supplies expense   25,000  
December 31 Supplies     25,000
  (To record supplies expense incurred at the end of the accounting year)      
2015 Unearned revenue   5,000  
December 31 Service revenue     5,000
  (To record service revenue recognized at the end of the accounting year)      

Table (2)

3

To determine

To prepare: The adjusted trial balance of Company R.

3

Expert Solution
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Explanation of Solution

Adjusted trial balance:

Adjusted trial balance is a summary of all the ledger accounts, and it contains the balances of all the accounts after the adjustment entries are journalized, and posted.

Adjusted trial balance of Company R is as follows:

Company R
Adjusted Trial Balance
December 31, 2015
Accounts Debit ($) Credit ($)
Cash $30,000
Accounts Receivable 30,000
Supplies 5,000
Prepaid Rent 9,000
Land 60,000
Accounts Payable $22,000
Salaries Payable 4,000
Common Stock 70,000
Retained Earnings 25,000
Dividends 2,000
Service Revenue 70,000
Salaries Expense 27,000
Rent Expense 3,000
Supplies Expense 25,000
Total $191,000 $191,000

Table (3)

Therefore, the total of debit, and credit columns of adjusted trial balance is $191,000 and agree.

4

To determine

To prepare: An income statement, stockholder’s equity and classified balance sheet of Company R.

4

Expert Solution
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Explanation of Solution

Income statement:

This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.

Statement of stockholders’ equity:

This statement reports the beginning stockholder’s equity and all the changes, which led to ending stockholder’s’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning stockholder’s equity to arrive at the result of closing balance of stockholders’ equity.

Classified balance sheet:

This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

Income statement:

Income statement of Company R is as follows:

Company R
Income Statement
For the year ended December 31, 2015
  ($) ($)
Revenues:    
Service revenue 70,000 
Total revenues   70,000
Expenses:    
Rent expense 3,000  
Salaries expense 27,000  
Supplies expense 25,000  
Total expenses   55,000
Net income   15,000

Table (4)

Therefore, the net income of Company R is $15,000.

Statement of stockholder’s equity:

The statement of stockholder’s equity of Company R for the year ended December 31, 2015 is as follows:

Company R
Statement of Stockholders’ Equity
For the period ended December 31, 2015
 Common stock ($)  Retained earnings ($)  Total stockholders' equity ($)
Balance at January 1 50,00 $25,000 $75,000
Issuance of common stock 20,000 20,000
Add: Net income for 2018 15,000 15,000
Less: Dividends -2,000 -2,000
Balance at December 31 $70,000 $38,000 $108,000

Table (5)

Therefore, the total stockholder’s equity of Company R for the year ended December 31, 2015 is $108,000.

Classified balance sheet:

Classified balance sheet of Company R is as follows:

Financial accounting, Chapter 3, Problem 3.20E

Figure (1)

Therefore, the total assets of Company R are $134,000, and the total liabilities and stockholders’ equity are $134,000.

5

To determine

To prepare: The closing entries of Company R.

5

Expert Solution
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Explanation of Solution

Closing entries:

Closing entries are those journal entries, which are passed to transfer the final balances of temporary accounts, (all revenues account, all expenses account and dividend) to the retained earnings. Closing entries produce a zero balance in each temporary account.

Closing entries of Company R is as follows:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

2015 Service revenue 70,000
December 31 Retained earnings 70,000
(To close all revenue account)
2015 Retained earnings 55,000
December 31 Salaries expense 27,000
Rent expense 3,000
Supplies expense 25,000
(To close all the expenses account)
2015 Retained earnings 2,000
December 31 Dividends 2,000
(To close the dividends account)

Table (6)

Closing entry for revenue account:

In this closing entry, the service revenue account is closed by transferring the amount of service revenue to the retained earnings in order to bring the revenue accounts balance to zero.

Closing entry for expenses account:

In this closing entry, salaries expense, rent expense, and supplies expense are closed by transferring the amount of all expenses to the retained earnings in order to bring all the expense accounts balance to zero.

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Chapter 3 Solutions

Financial accounting

Ch. 3 - 11.Provide an example of a prepaid expense. The...Ch. 3 - Provide an example of a deferred revenue. The...Ch. 3 - 13.Provide an example of an accrued expense. The...Ch. 3 - Provide an example of an accrued revenue. The...Ch. 3 - Sequoya Printing purchases office supplies for 75...Ch. 3 - Jackson Rental receives its September utility bill...Ch. 3 - 17.Global Printing publishes several types of...Ch. 3 - At the end of May, Robertson Corporation has...Ch. 3 - Prob. 19RQCh. 3 - Prob. 20RQCh. 3 - Prob. 21RQCh. 3 - Prob. 22RQCh. 3 - Prob. 23RQCh. 3 - Prob. 24RQCh. 3 - Describe the debits and credits for the three...Ch. 3 - In its first four years of operations, Chance...Ch. 3 - Prob. 27RQCh. 3 - Prob. 28RQCh. 3 - Determine revenues to be recognized (LO31) Below...Ch. 3 - Prob. 3.2BECh. 3 - Prob. 3.3BECh. 3 - Analyze the impact of transactions on the balance...Ch. 3 - Prob. 3.5BECh. 3 - At the beginning of May, Golden Gopher Company...Ch. 3 - Record the adjusting entry for prepaid rent (LO33)...Ch. 3 - Prob. 3.8BECh. 3 - Prob. 3.9BECh. 3 - Prob. 3.10BECh. 3 - Prob. 3.11BECh. 3 - Prob. 3.12BECh. 3 - Prob. 3.13BECh. 3 - Prob. 3.14BECh. 3 - Prob. 3.15BECh. 3 - Prob. 3.16BECh. 3 - Prob. 3.17BECh. 3 - Prob. 3.18BECh. 3 - Prob. 3.19BECh. 3 - Prob. 3.20BECh. 3 - Consider the following situations: 1.American...Ch. 3 - Consider the following situations: 1.American...Ch. 3 - Refer to the situations discussed in E31....Ch. 3 - Differentiate cash-basis expenses from...Ch. 3 - Prob. 3.5ECh. 3 - Listed below are all the steps in the accounting...Ch. 3 - Prob. 3.7ECh. 3 - Prob. 3.8ECh. 3 - Prob. 3.9ECh. 3 - Prob. 3.10ECh. 3 - Prob. 3.11ECh. 3 - Prob. 3.12ECh. 3 - Prob. 3.13ECh. 3 - Prob. 3.14ECh. 3 - Prob. 3.15ECh. 3 - Prob. 3.16ECh. 3 - Prob. 3.17ECh. 3 - Prob. 3.18ECh. 3 - Prob. 3.19ECh. 3 - Prob. 3.20ECh. 3 - Consider the following transactions. Required: For...Ch. 3 - Prob. 3.2APCh. 3 - Prob. 3.3APCh. 3 - Prob. 3.4APCh. 3 - Prob. 3.5APCh. 3 - The year-end financial statements of Rattlers Tax...Ch. 3 - Prob. 3.7APCh. 3 - Prob. 3.8APCh. 3 - Consider the following transactions. Required: For...Ch. 3 - Prob. 3.2BPCh. 3 - Prob. 3.3BPCh. 3 - Prob. 3.4BPCh. 3 - Prob. 3.5BPCh. 3 - FIGHTING ILLINI Income Statement Service revenue...Ch. 3 - Prob. 3.7BPCh. 3 - Prob. 3.8BPCh. 3 - Prob. 3.1APCPCh. 3 - Prob. 3.2APFACh. 3 - Prob. 3.3APFACh. 3 - Prob. 3.4APCACh. 3 - Prob. 3.5APECh. 3 - Prob. 3.7APWC
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