Chapter 3, Problem 3APSA

To determine

Concept introduction:

In accounting, journal entry refers to the posting of transaction into journal items. Such entry
comprises of either debit or credit transaction. The transaction posted in the journal entry can be rechecked because the debit side of the journal must be equivalent to the credit side of the journal.

A T-account is a graphical representation of a general ledger account. Debit entries are shown on the left side of T-account and Credit entries are shown on right side of T-account.

Requirement 1:

To prepare:

We have to prepare unadjusted T-accounts from the unadjusted trial balance given in the question.

Explanation of Solution

Explanation:

T account :

Cash account
Bal.	34,000

Accounts receivable
Bal.	0

Teaching supplies
Bal.	8,000

Prepaid rent
Bal.	3,000

Prepaid Insurance
Bal.	12,000

Professional library
Bal.	35,000

Accumulated depreciation- Professional library
		Bal.	10,000

Equipment
Bal.	80,000

Accumulated depreciation- Equipment
		Bal.	15,000

Accounts payable
		Bal.	26,000

Salary payable
		Bal.	0

Unearned training fee
		Bal.	12,500

T.Wells, capital
		Bal.	90,000
T.Wells, withdrawals
Bal.	50,000

Tuition fee earned
		Bal.	123,900

Training fee earned
		Bal.	40,000

Depreciation expenses- equipment
Bal.	0

Depreciation expenses- professional library
Bal.	0

Salaries expenses
Bal.	50,000

Insurance expenses
Bal.	0

Rent expenses
Bal.	33,000

Teaching supplies expenses
Bal.	0

Advertising expenses
Bal.	6,000

Utilities expenses
Bal.	6,400

Requirement 2:

To determine

To determine:

We have to record the adjustment entry for various transactions from “a to h” affecting company.

Answer to Problem 3APSA

Solution:

Date	Journal titles	Debit($)	Credit($)
a.dec.31	Insurance expenses	2,400
	Prepaid insurance		2,400
	( to record insurance expenses)
b.dec 31	Teaching supplies expenses	5,200
	Teaching supplies		5,200
	( to record Teaching supply expense)
c. dec.31	Depreciation on equipment	13,200
	Accumulated depreciation-equipment		13,200
	( to record depreciation on equipment)
d. dec 31	Depreciation on professional library	7,200
	Accumulated depreciation-professional library		7,200
	( to record depreciation on professional library)
e. Dec 31	Unearned training fees	5,000
	Training fee earned		5,000
	(to record unearned training fee earned)
f.dec.31	Account receivable	7,500
	Tuition fee earned		7,500
	(to record tuition fee earned)
g. dec.31	Salary expenses	400
	Salary payable		400
	( to accrue salary expenses)
h. dec.31	Rent expenses	3,000
	Prepaid rent		3,000
	( to accrue rent expenses)

Explanation of Solution

Explanation:

1. In this case, the period of Insurance policies has been expired and insurance expenses will be booked so, insurance expenses will be debited and prepaid insurance will be credited by $2,400.
2. In this case, the balance of teaching supplies is $8,000 in unadjusted trial balance and in adjustment the actual balance is $2,800. The teaching supplies expenses will be calculated as below:
Teaching supply expenses = $\text{Unadjusted balance- actual balance }$

Teaching supply expenses = $\text{\$8,000 - \$2,800 }=\text{ \$5,200 }$

3. When depreciation is to be recorded then depreciation on equipment will be debited with the respective account and accumulated depreciation account will be credited by $13,200.
4. Depreciation on professional library will be debited by $7,200 and accumulated depreciation account will be credited by $7,200 and will be shown in credit side in balance sheet.
5. The client paid 5 month fee in advance on 1^st Nov. As on Dec 31, two months has been passed so, we have to book the revenue and unearned account will be debited. The amount to be booked as income as below:
Training fee earned = $\text{ fee per month \&*\#x00A0;no}\text{. of months till dec 31}$

Training fee earned = $\text{ \$2,500*2 }=\text{ \$5,000}$

6. WTI has agreed to provide 4 month classes started on Oct 15 to an individual and fee is payable at the 4 months. Till Dec 31, the revenue has been accrued but the fee is not paid. We have to book revenue as per below details:
Accrued tuition fee = $\text{ fee per month \&*\#x00A0;no}\text{. of months till dec 31}$

Accrued tuition fee = $\text{ \$3,000 \&*\#x00A0;2}\text{.5 months }=\text{ \$7,500}$

7. In this adjustment entry expenditures on salaries account will be debited and salaries payable account will be credited with their respective amount.

Calculation of salary expenses:

Particulars	Amount($)
Salary expense for 1 day per employee	100
Salary expense for 2 employees for 2 days (100*2 employees*2 days)	400

8. In this case, the balance in unadjusted account rent expense account $3,000 represents to rent expenses so rent expenses will be debited and prepaid rent account will be credited.

Requirement 3:

To determine

To prepare:

We have to prepare the T accounts after adjustments and prepare a updated trial balance.

Answer to Problem 3APSA

Solution:

T account :

Cash account
Bal.	34,000
Adjusted balance	34,000

Accounts receivable
Bal.	0
f.	7,500
Adjusted balance	7,500

Teaching supplies
Bal.	8,000	b.	5,200
Adjusted balance	2,800

Prepaid rent
Bal.	3,000	h.	3,000
Adjusted balance	0

Prepaid Insurance
Bal.	12,000	a.	2,400
Adjusted balance	9,600

Professional library
Bal.	35,000
Adjusted balance	35,000

Accumulated depreciation- Professional library
		Bal.	10,000
		d.	7,200
		Adjusted balance	17,200

Equipment
Bal.	80,000
Adjusted balance	80,000

Accumulated depreciation- Equipment
		Bal.	15,000
		c.	13,200
		Adjusted balance	28,200

Accounts payable
		Bal.	26,000
		Adjusted balance	26,000

Salary payable
		Bal.	0
		g.	400
		Adjusted balance	400

Unearned training fee
e.	5,000	Bal.	12,500
		Adjusted balance	7,500

T.Wells, capital
		Bal.	90,000
		Adjusted balance	90,000
T.Wells, withdrawals
Bal.	50,000
Adjusted balance	50,000

Tuition fee earned
		Bal.	123,900
		f.	7,500
		Adjusted balance	131,400

Training fee earned
		Bal.	40,000
		e.	5,000
		Adjusted balance	45,000

Depreciation expenses- equipment
Bal.	0
c.	13,200
Adjusted balance	13,200

Depreciation expenses- professional library
Bal.	0
d.	7,200
Adjusted balance	7,200

Salaries expenses
Bal.	50,000
g.	400
Adjusted balance	50,400

Insurance expenses
Bal.	0
a.	2,400
Adjusted balance	2,400

Rent expenses
Bal.	33,000
h.	3,000
Adjusted balance	36,000

Teaching supplies expenses
Bal.	0
b.	5,200
Adjusted balance	5,200

Advertising expenses
Bal.	6,000
Adjusted balance	6,000

Utilities expenses
Bal.	6,400
Adjusted balance	6,400

Adjusted trial balance- December 31, 2015

Particulars	Debit	Credit
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
Salary payable		400
Unearned training fee		7,500
T.Wells, Capital		90,000
T.Wells, Withdrawal	50,000
Tuition fee earned		131,400
Training fee earned		45,000
Depreciation expense- professional library	7,200
Depreciation expense- equipment	13,200
Salaries expenses	50,400
Insurance expenses	2,400
Rent expenses	36,000
Teaching supplies expenses	5,200
Advertising expenses	6,000
Utilities expenses	6,400
Total	345,700	345,700

Explanation of Solution

Explanation:

1. Cash account- the balance of cash is given in unadjusted trial balance and there is no adjustment related to cash. Thus the balance of cash will be $34,000.
2. Accounts receivable − accrued revenue has been adjusted $7,500 and adjusted balance of accounts receivable will be $7,500.
3. The adjusted closing balance in teaching supplies after supplies expenses will be $2,800.
4. Prepaid Insurance: the balance of prepaid insurance after adjustment is $9,600.
5. Prepaid rent: the entire prepaid rent expenses $3,000 have been booked as an expense and adjusted balance in prepaid rent expenses is NIL.
6. The balance in Professional library will remain same as there is no adjustment.
7. Accumulated depreciation: depreciation on professional library has been charged $7,200 and the adjusted closing balance is $17,200.
8. The balance in equipment will remain same as there is no adjustment.
9. Accumulated depreciation on equipment has been charged $13,200 and the adjusted closing balance is $28,200.
10. Accounts payable- the balance of accounts payable is $26,000 and there is no adjustment.
11. Salaries payable- adjustment of $400 is recorded therefore its balance will be $400.
12. Unearned training fee: The adjustment of $5,000 has been made and the adjusted balance is $7,500.
13. T.Wells, Capital: There is no adjustment and balance will remain same.
14. T.Wells, Withdrawal: There is no adjustment and balance will remain same.
15. Tuition fee earned: accrued revenue has been adjusted $7,500 and adjusted balance of tuition fee earned will be $131,400.
16. Training fee earned: accrued revenue has been adjusted $5,000 and adjusted balance of tuition fee earned will be $45,000.
17. Accumulated depreciation on professional library has been charged $7,200 and the adjusted closing balance is $7,200.
18. Depreciation on equipment has been charged $13,200 and the adjusted closing balance is $13,200.
19. Salaries expenses- adjustment of $400 is recorded therefore its balance will be $50,400.
20. Insurance expenses- adjustment of $2,400 is recorded therefore its balance will be $2,400.
21. Rent expenses- adjustment of $3,000 is recorded therefore its balance will be $36,000.
22. Teaching supplies expenses- adjustment of $5,200 is recorded therefore its balance will be $5,200.
23. Advertising expenses-there is no adjustment and balance will remain same.
24. Utilities expenses- there is no adjustment and balance will remain same.

Requirement 4:

To determine

To prepare:

We have to prepare Income statement, Statement of Owners Equity and balance sheet as of December 31, 2015 after all adjustments.

Answer to Problem 3APSA

Solution:

Income statement for December 31, 2015

Particulars
Training fee earned	45,000
Tuition fee earned	131,400
Total revenue		176,400
Expenses
Depreciation expenses- equipment	13,200
Depreciation expenses- professional library	7,200
Salaries expenses	50,400
Insurance expenses	2,400
Rent expenses	36,000
Teaching supplies expenses	5,200
Advertising expenses	6,000
Utilities expenses	6,400
Total expenses		126,800
Net income		49,600

Statement of Owner’s equity for year ended December 31, 2015

T.wells Capital	90,000
Add: Net income	49,600
Less: Withdrawal	50,000
T.well capital as on December 31,2015	89,600

Balance sheet as on December 31, 2015

Assets
Cash		34,000
Accounts receivable		7,500
Teaching supplies		2,800
Prepaid insurance		9,600
Prepaid rent		0
Professional library	35,000
Less: Accumulated depreciation- professional library	17,200	17,800
Equipment	80,000
Less: Accumulated depreciation- equipment	28,200	51,800
Total assets		123,500
Liabilities
Accounts payable		26,000
Salary payable		400
Unearned training fee		7,500
Total liabilities		33,900
Equity
T.wells capital		89,600
Total liability and equity		123,500

Explanation of Solution

Explanation:

1. Income statement: Total revenue is $176,400 and total expenses are $126,800 and the net income is $49,600 calculated as below:
Net income = $\text{Total revenue - total expenses}$

Net income = $\text{176,400-126,800 }=\text{ \$49,600}$

2. Statement of Owners equity shows the total owner’s funds invested in the company. The net fund invested by owner is $89,600.
Owner’s equity = $\text{Opening balance }+\text{ net income - owner withdrawal}$

Owner’s equity = $90,000+49600-50,000=\$89,600$

3. Balance sheet represents the financial position of a company on a particular date.
The accounting equation of balance sheet is as below:
$\text{Total assets }=\text{ total equity }+\text{ total liabilities}$

$\begin{array}{l}\text{\$123,500 }=\text{ \$89,600 }+\text{ \$33,900}\\ \text{\$123,500}=\text{ \$123,500}\end{array}$