Chapter 3, Problem 3APSA

To determine

Ledger account A general ledger represent account for company's financial statement with debit and credit account records validated by trial balance.

Computation of necessary T accounts (representing the ledger) with balances from the unadjusted trial balance of Wells Technical Institute.

Explanation of Solution

Cash
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	34,000
Adjusted balance	34,000

Equipment
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	80,000
Adjusted balance	80,000

Accounts Receiveable
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Adjusted balance	0

Accumulated Depreciation-Equipment
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	15,000
		Adjusted balance	15,000

Teaching Supplies
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	8,000
Adjusted balance	8,000

Accounts Payable
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	26,000
		Adjusted balance	26,000

Prepaid Insurance
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	12,000
Adjusted balance	12,000

Salaries Payable
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	0
		Adjusted balance	0

Prepaid Rent
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	3,000
Adjusted balance	3,000		0

Unearned Training Fees
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	12,500
		Adjusted balance	12,500

Professional Library
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	35,000
Adjusted balance	35,000

T Wells, Capital
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	90,000
		Adjusted balance	90,000

Accumulated Depreciation-Professional Library
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	10,000
		Adjusted balance	10,000

T Wells, Withdrawal
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	50,000
Adjusted balance	50,000

Tuition Fees Earned
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	1,23,900
		Adjusted balance	1,23,900

Insurance Expenses
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Adjusted balance	0

Training Fees Earned
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	40,000
		Adjusted balance	40,000

Rent Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	33,000
Adjusted balance	33,000

Depreciation Expense-Professional Library
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Adjusted balance	0

Teacing Supplies Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Adjusted balance	0

Depreciation Expense-Equipment
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Adjusted balance	0

Advertising Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	6,000
Adjusted balance	6,000

Salaries Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	50,000
Adjusted balance	50,000

Utilities Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	6,400
Adjusted balance	6,400

To determine

Journal Entries

A journal entry is the record of the transaction entered into journal. Journal entries record all the financial details of the business and reflects which accounts are affected through the transactions.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

The necessary adjusting journal entries assuming that adjusting entries are made only at year end.

Explanation of Solution

Recording of insurance expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
December-31	Insurance expense		2,400
	Prepaid expense			2,400
	(recording of insurance expense)

• Since, insurance is an expense and expense is increased. Hence, insurance expense account is debited.
• Since, prepaid expense is an asset and asset is decreased. Hence, prepaid expense account is credited.

Recording of supplies expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
December-31	Teaching supplies expense		5,200
	Teaching supplies			5,200
	(to record the expense of teaching supplies)

• Since, teaching supplies is an expense and expense is increased. Hence, teaching supplies expense account is debited.
• Since, teaching supplies account is a liability and liability is increased. Hence, teaching supplies account is credited.

Recording of depreciation expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
December-31	Depreciation expense - equipment		13,200
	Accumulated depreciation − equipment			13,200
	(to record depreciation expense)

• Since, depreciation is an expense and expense is increased. Hence, depreciation expense account is debited.
• Since, accumulated depreciation is a liability and liability is increased. Hence, accumulated depreciation account is credited.

Recording of depreciation expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
December-31	Depreciation expense−professional library		7,200
	Accumulated depreciation−professional library			7,200
	(to record depreciation expense)

• Since, depreciation is an expense and expense is increased. Hence, depreciation expense account is debited.
• Since, accumulated depreciation is a liability and liability is increased. Hence, accumulated depreciation account is credited.

Recording of training fees earned:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
December-31	Unearned training fees		5,000
	Training fees earned			5,000
	(to record the training fees earned)

• Since, unearned training fees is a liability and liability is decreased. Hence, Unearned training fees account is debited.
• Since, training fees earned is an income and income is increased. Hence, training fees earned account is credited.

Recording of fees earned:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
December-31	Accounts receiveable		7,500
	Tuition fees earned			7,500
	(to record the sale of service)

• Since, accounts receiveable is an asset and asset is increased. Hence, accounts receiveable account is debited.
• Since, tuition fees earned is an income and income is increased. Hence, tuition fees earned account is credited.

Recording of salary expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
December-31	Salary expense		400
	Salary payable			400
	(to record the expense of salary)

• Since, salary is an expense and expense is increased. Hence, salary expense account is debited.
• Since, salary payable is a liability and liability is increased. Hence, salary payable account is credited.

Recording of rent expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
December-31	Rent expense		3,000
	Prepaid rent			3,000
	(to record the expense of rent)

• Since, rent is an expense and expense is increased. Hence, rent expense account is debited.
• Since, prepaid rent is an asset and asset is decreased. Hence, prepaid rent account is credited.

To determine

Ledger account:

A ledger is used to post various financial transactions of the business from the journal. Ledger sorts and arrange various transactions in the financial book with debit and credit amount which is validated by trial balance.

Trial balance:

A trial balance is a statement of all debits and credits maintained in a double entry accounting system where total of debits and credits are equal.

The necessary balance in the ledger account for the adjusting entries and an adjusted trial balance.

Explanation of Solution

Salaries Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	50,000
Salaries payable	400
Adjusted balance	50,400

Depreciation Expense-Equipment
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Accumulated depreciation-Equipment	13,200
Adjusted balance	13,200

Teacing Supplies Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Teaching supplies	5,200
Adjusted balance	5,200

Depreciation Expense-Professional Library
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Accumulated depreciation-Professional library	7,200
Adjusted balance	7,200

Rent Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	33,000
Prepaid rent	3,000
Adjusted balance	36,000

Training Fees Earned
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	40,000
		Unearned training fees	5,000
		Adjusted balance	45,000

Insurance Expenses
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Prepaid Insurance	2,400
Adjusted balance	2,400

Tuition Fees Earned
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	123,900
		Accounts receiveable	7,500
		Adjusted balance	131,400

Accumulated Depreciation-Professional Library
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	10,000
		Depreciation expense-Professional library	7,200
		Adjusted balance	17,200

Unearned Training Fees
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	12,500
Training fees earned	5,000
		Adjusted balance	7,500

Prepaid Rent
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	3,000	Rent expense	3,000
Adjusted balance	0		0

Salaries Payable
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	0
		Salaries expense	400
		Adjusted balance	400

Prepaid Insurance
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	12,000	Insurance expense	2,400
Adjusted balance	9,600

Teaching Supplies
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	8,000	Teaching supplies expense	5,200
Adjusted balance	2,800

Accumulated Depreciation-Equipment
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	15,000
		Depreciation expense-Equipment	13,200
		Adjusted balance	28,200

Accounts Receiveable
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Tuition fees earned	7,500
Adjusted balance	7,500

The adjusted trial balance total for Company WTI are $3,45,700.

Company WTI
Adjusted Trial Balance,For the year ended December 31
	Debit($)	Credit($)
Cash	34,000
Accounts receiveable	7,500
Teaching supplies	2,800
Prepaid insurance	9,600
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, withdrawal	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
Total	345,700	345,700

4.

To determine

Income Statement:

A income statement is one of the financial statement of the company and shows the company's profit and loss for a particular period of time.

Statement of Owner'sEquity:

A statement of owner's equity reflects changes in capital balance of a business over a reporting period.

Balance Sheet:

A balance sheet is a statement of financial position of a business which states the assets, liabilities and owner's equity over a particular period of time.

WTI's income statement, statement of owner's equity and balance sheet as of December, 31.

Explanation of Solution

Company WTI
Income Statement For the year ended December 31
	Debit($)	Credit($)
Revenues:
Tuition fees earned	131,400
Training fees earned	45,000
Total Revenue		176,400
Expenses:
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
Total Expense:		126,800
Net Income:		49,600

The statement of owner's equity for Company WTI shows the closing balance of $89,600.

Company WTI
Statement of Owner's Equity
	Amount ($)	Amount($)
Owner's Equity opening balance	90,000
Add: Net income	49,600
Total		139,600
Less: Withdrawals		(50,000)
Closing Balance		89,600

The balance sheet for Company WTI shows a total of $1,23,500.

Wells Technical Institute
Balance Sheet as at December 31
	Amount	Amount
Liabilities and Owners Equity
Accounts payable	$26,000
Salary payable	$400
Unearned training fees	$7,500
Total Liabilities		$33,900
Owners Equity		$89,600
Total Liabilities and Owners Equity		$123,500
Current Assets, Loans & Advances
Cash	$34,000
Accounts receiveable	$7,500
Teaching supplies	$2,800
Prepaid insurance	$9,600
Total Current Assets, Loans & Advances		$53,900
Property, Plant and Equipment
Professional library	$17,800
Equipment	$51,800
Total Property, Plant and Equipment		$69,600
Total Assets		$123,500