Financial Accounting
Financial Accounting
4th Edition
ISBN: 9781259307959
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
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Chapter 3, Problem 3.7BP

1. and 2.

To determine

To Post: The unadjusted balances and the adjusting entries into T-accounts.

1. and 2.

Expert Solution
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Explanation of Solution

T-account:

An account is referred to as a T-account, because the alignment of the components of the account resembles the capital letter ‘T’. An account consists of the three main components which are as follows:

  • The title of the account
  • The left or debit side
  • The right or credit side

Post the unadjusted balances and the adjusting entries into T-accounts.

Cash account:

Cash
22,000
 Balance22,000

Accounts Receivable account:

Accounts Receivable
15,000
 Balance15,000

Supplies account:

Supplies
27,000
22,000
 Balance5,000

Prepaid Insurance account:

Prepaid Insurance
24,000
20,000
 Balance4,000

Equipment account:

Equipment
95,000
 Balance95,000

Accumulated Depreciation account:

Accumulated Depreciation
37,000
10,000
 Balance47,000

Accounts Payable account:

Accounts Payable
12,000
 Balance12,000

Salaries Payable account:

Salaries Payable
0
4,000
 Balance4,000

Interest Payable account:

Interest Payable
0
1,050
 Balance1,050

Utilities Payable account:

Utilities Payable
0
2,200
 Balance2,200

Notes Payable account:

Notes Payable
35,000
 Balance35,000

Common Stock account:

Common Stock
35,000
0
 Balance35,000

Retained Earnings account:

Retained Earnings
10,000
 Balance10,000

Dividends account:

Dividends
3,000
 Balance3,000

Service Revenue account:

Service Revenue
227,000
 Balance227,000

Salaries Expense account:

Salaries Expense
158,000
4,000
 Balance162,000

Interest Expense account:

Interest Expense
0
1,050
 Balance1,050

Insurance Expense account:

Insurance Expense
0
20,000
 Balance20,000

Supplies Expense account:

Supplies Expense
0
22,000
 Balance22,000

Utilities Expense account:

Utilities Expense
12,000
2,200
 Balance14,200

Depreciation Expense account:

Depreciation Expense
0
10,000
 Balance10,000

3.

To determine

To Prepare: An adjusted trial balance.

3.

Expert Solution
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Explanation of Solution

Trial balance:

A trial balance is the summary of all the ledger accounts. The trial balance is prepared to check the total balance of the debit column with the total of the balance of the credit column, which must be equal. The trial balance is usually prepared to check accuracy of ledger accounts balances before the preparation of financial statements.

Prepare an adjusted trail balance for the year ending December 31, 2018:

J Auto Company

Adjusted Trial Balance

For the Year Ending December 31, 2018

AccountsDebit ($)Credit ($)
Cash22,000 
Accounts Receivable15,000 
Supplies5,000 
Prepaid Insurance4,000 
Equipment95,000 
Accumulated Depreciation 47,000
Accounts Payable 12,000
Salaries Payable 4,000
Interest Payable 1,050
Utilities Payable 2,200
Notes Payable 35,000
Common Stock 35,000
Retained Earnings 10,000
Dividends3,000 
Service Revenue 227,000
Salaries  Expense162,000 
Interest Expense1,050 
Insurance Expense20,000 
Supplies Expense22,000 
Utilities Expense14,200 
Depreciation Expense10,000 
Total$373,250$373,250

Table (1)

4.

To determine

To Prepare: An income statement, statement of shareholders’ equity, and a classified balance sheet for the year ended December 31, 2018.

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. It is prepared to find out the net income of an organization.

Prepare an income statement for the year ended December 31, 2018:

J Auto Company

Income statement

For the Year Ending December 31, 2018

DetailsAmount ($)Amount ($)
Revenues: 
Service revenue 227,000
Less: Expenses
    Salaries  Expense162,000
    Interest  Expense1,050 
    Insurance Expense20,000 
    Supplies Expense22,000 
    Utilities Expense14,200 
    Depreciation Expenses10,000 
Total Expenses (229,250)
Net Income (Loss) $ (2,250)

Table (2)

Statement of Stockholders’ Equity:

Stockholders’ equity statement shows the changes made in the stockholders’ equity account and in the total stockholders’ equity during the accounting period. It is otherwise known as statements of shareholder’s investment.

Prepare statement of stockholders’ equity the year ended December 31, 2018.

J Auto Company

Statement of Stockholders’ Equity

For the Year Ended December 31, 2018

ParticularsCommon StockRetained EarningsTotal Stockholders’ Equity
Beginning balance$35,000$10,000$45,000
Issuance of common stock$0 $0
Add: Net income (Loss) $(2,250)$(2,250)
Less: Dividends $(3,000)$(3,000)
Ending balance$35,000$4,750$39,750

Table (3)

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and claims of stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Prepare the balance sheet as of December 31, 2018.

J Auto Company

Balance Sheet

As of December 31, 2018

AssetsAmountLiabilities and Stockholders’ EquityAmount
Assets: Liabilities:
Cash $22,000Accounts payable$12,000
Accounts receivable $15,000Salaries payable$4,000
Supplies$5,000Interest payable1,050
Prepaid insurance$4,000Utilities payable2,200
Total current assets$46,000Total current liabilities$19,250
Equipment$95,000Notes payable$35,000
Accumulated depreciation$(47,000)Total liabilities$54,250
 Stockholders’ Equity: 
  Common stock$35,000
  Retained earnings$4,750
 Total Stockholders’ Equity$39,750
Total assets$94,000Total liabilities and stockholders’ equity$94,000

Table (4)

5.

To determine

To Record: The closing entries.

5.

Expert Solution
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Explanation of Solution

Closing Entries:

Closing entries are those journal entries which are passed to transfer the balances of temporary accounts to the permanent accounts. These are passed at the end of the period, to transfer the final balance.

Prepare journal entry to record closing entries at December 31, 2015.

The following is the closing entry for revenue accounts:

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

December 31, 2018Service Revenues  227,000 
Retained Earnings   227,000
 (To close the revenues account)   

Table (5)

  • Revenue is decreased. Therefore, debit revenue account.
  • Retained earnings are a component of Stockholders’ Equity, and it is increased. Therefore, credit retained earnings account.

The following is the closing entry for the expenses account:

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

December 31, 2018Retained Earnings  229,250 
Salaries expense   162,000
Interest expense   1,050
Insurance expense   20,000
Supplies expense   22,000
Utilities expense   14,200
Depreciation expense   10,000
 (To close the expenses account)   

Table (6)

  • Retained Earnings is a component of Stockholders’ Equity, and it is decreased. Therefore, debit retained earnings account.
  • Expenses are decreased. Therefore, credit expenses account.

6.

To determine

To Post: The closing entries to the accounts.

6.

Expert Solution
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Explanation of Solution

Post closing entries to the account.

Retained Earnings account:

Retained Earnings
10,000
229,250 227,000
3,000
 Balance4,750

Dividends account:

Dividends Expense
3,000
3,000
 Balance0

Service Revenue account:

Service Revenue
227,000
227,000
 Balance0

Salaries Expense account:

Salaries Expense
158,000
4,000 162,000
 Balance0

Interest Expense account:

Interest Expense
0
1,050 1,050
 Balance0

Insurance Expense account:

Insurance Expense
0
20,000 20,000
 Balance0

Supplies Expense account:

Salaries Expense
0
22,000 22,000
 Balance0

Utilities Expense account:

Utilities Expense
12,000
2,200 14,200
 Balance0

Depreciation Expense account:

Depreciation Expense
0
10,000 10,000
 Balance0

7.

To determine

To Prepare: A post-closing trial balance.

7.

Expert Solution
Check Mark

Explanation of Solution

Post-closing trial balance: It is a trial balance that is prepared after the closing entries are recorded. It includes only the balance sheet accounts as the income statement accounts are closed to the income summary.

Prepare a post-closing trial balance.

J Auto Company

Post-Closing Trial Balance

For the Year Ended December 31, 2018

Accounts

Debit

($)

Credit

($)

Cash22,000 
Accounts receivable15,000 
Supplies5,000 
Prepaid insurance4,000 
Equipment95,000 
Accumulated depreciation 47,000
Accounts payable 12,000
Salaries payable 4,000
Interest payable 1,050
Utilities payable 2,200
Notes payable 35,000
Common stock 35,000
Retained earnings 4,750
Total$141,000$141,000

Table (7)

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Chapter 3 Solutions

Financial Accounting

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