Chapter 3, Problem 3BP

1.

To determine

Set up T-accounts for the general ledger accounts with the unadjusted balances.

Explanation of Solution

T-account: The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.

Cash
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$60,000

Table (1)

Accounts Receivable
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0

Table (2)

Teaching Supplies
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$70,000

Table (3)

Prepaid Insurance
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$19,000

Table (4)

Prepaid Rent
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$3,800

Table (5)

Professional Library
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$12,000

Table (6)

Accumulated Depreciation-Professional Library
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$2,500

Table (7)

Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$40,000

Table (8)

Accumulated Depreciation-Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$20,000

Table (9)

Accounts Payable
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$11,200

Table (10)

Salaries Payable
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$0

Table (11)

Unearned Training Fees
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$28,600

Table (12)

Common Stock
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$11,000

Table (13)

Retained Earnings
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$60,500

Table (14)

Dividends
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$20,000

Table (15)

Tuition Fees Earned
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$129,200

Table (16)

Training Fees Earned
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$68,000

Table (17)

Depreciation Expense-Professional Library
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0

Table (18)

Depreciation Expense-Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0

Table (19)

Salaries Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$44,200

Table (20)

Insurance Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0

Table (21)

Rent Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$29,600

Table (22)

Teaching Supplies Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0

Table (23)

Advertising Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$19,000

Table (24)

Utilities Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$13,400

Table (25)

2.

To determine

Journalize the adjusting entries.

Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

a.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Insurance Expense		9,500
		Prepaid Insurance			9,500
		(To record expired insurance coverage)

Table (26)

b.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Teaching Supplies Expense		50,000
		Teaching Supplies			50,000
		(To record used teaching supplies)

Table (27)

c.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Depreciation Expense–Equipment		5,000
		Accumulated Depreciation–Equipment			5,000
		(To record depreciation expense on equipment)

Table (28)

d.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Depreciation Expense–Professional Library		2,400
		Accumulated Depreciation–          Professional Library			2,400
		(To record depreciation expense on professional library)

Table (29)

e.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Unearned Training Fees		28,600
		Training Fees Earned			28,600
		(To record portion of advance training fees received $2,500 per month for 2 months)

Table (30)

f.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Accounts Receivable		5,750
		Tuition Fees Earned			5,750
		(To record accrued tuition fee earned)

Table (31)

g.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Salaries Expense		450
		Salaries Payable			450
		(To record accrued salaries)

Table (32)

h.

Date		Account Titles and Explanations	Post Ref.	Debit ($)	Credit ($)
2015
December	31	Rent Expense		3,800
		Prepaid Rent			3,800
		(To record rent paid)

Table (33)

Post these adjusting entries into respective accounts prepared in requirement 1.

Insurance Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	0
December 31	Prepaid insurance	9,500
December 31	Balance	$9,500

Table (34)

Prepaid Insurance
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	19,000		December 31	Insurance expense	9,500
December 31	Balance	$9,500

Table (35)

Teaching Supplies Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0
December 31	Teaching supplies	5,200
December 31	Balance	$5,200

Table (36)

Teaching Supplies
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$70,000		December 31	Teaching supplies expense	50,000
December 31	Balance	$20,000

Table (37)

Depreciation Expense-Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0
December 31	Accumulated depreciation-equipment	5,000
December 31	Balance	$13,200

Table (38)

Accumulated Depreciation-Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$20,000
				December 31	Depreciation expense-equipment	5,000
				December 31	Balance	$25,000

Table (39)

Depreciation Expense-Professional Library
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0
December 31	Accumulated depreciation-Professional library	2,400
December 31	Balance	$2,400

Table (40)

Accumulated Depreciation-Professional Library
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$2,500
				December 31	Depreciation expense-professional library	2,400
				December 31	Balance	$4,900

Table (41)

Unearned Training Fees
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
December 31	Training fees earned	5,000		December 31	Balance	$12,500
				December 31	Balance	$7,500

Table (42)

Training Fees Earned
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$68,000
				December 31	Unearned training fees earned	28,600
				December 31	Balance	$96,600

Table (43)

Accounts Receivable
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$0
December 31	Tuition fees earned	5,750
December 31	Balance	$5,750

Table (44)

Tuition Fees Earned
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$129,200
				December 31	Accounts receivable	5,750
				December 31	Balance	$134,950

Table (45)

Salaries Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$44,200
December 31	Salaries payable	450
December 31	Balance	$44,650

Table (46)

Salaries Payable
Date	Details	Debit ($)		Date	Details	Credit ($)
				2015
				December 31	Balance	$0
				December 31	Salaries expense	450
				December 31	Balance	$450

Table (47)

Rent Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$29,600
December 31	Prepaid rent	3,800
December 31	Balance	$33,400

Table (48)

Prepaid Rent
Date	Details	Debit ($)		Date	Details	Credit ($)
2015
December 31	Balance	$3,800		December 31	Rent expense	3,800
December 31	Balance	$0

Table (49)

3.

To determine

Prepare an adjusted trial balance of A Institute as of December 31, 2015.

Explanation of Solution

Adjusted trial balance:

Adjusted trial balance is that statement which contains complete list of accounts with their adjusted balances, after all relevant adjustments have been made. This statement is prepared at the end of every financial period.

A Institute
Adjusted Trial Balance
December 31, 2015
Account Titles	Debit ($)	Credit ($)
Cash	60,000
Accounts receivable	5,750
Teaching supplies	20,000
Prepaid insurance	9,500
Prepaid rent	0
Professional library	12,000
Accumulated depreciation-Professional library		4,900
Equipment	40,000
Accumulated depreciation-Equipment		25,000
Accounts payable		11,200
Salaries payable		450
Unearned training fees		0
Common stock		11,000
Retained earnings		60,500
Dividends	20,000
Tuition fees earned		134,950
Training fees earned		96,600
Depreciation expense–Professional library	2,400
Depreciation expense–Equipment	5,000
Salaries expense	44,650
Insurance expense	9,500
Rent expense	33,400
Teaching supplies expense	50,000
Advertising expense	19,000
Utilities expense	13,400
Total	$344,600	$344,600

Table (50)

4.

To determine

Prepare income statement, retained earnings and balance sheet of A Institute for the year ended December 31, 2015.

Explanation of Solution

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

A Institute
Income Statement
For the Year Ended December 31, 2015
Revenues
Tuition fees earned	$134,950
Training fees earned	96,600
Total revenues		$231,550
Expenses
Depreciation expense–Professional library	2,400
Depreciation expense–Equipment	5,000
Salaries expense	44,650
Insurance expense	9,500
Rent expense	33,400
Teaching supplies expense	50,000
Advertising expense	19,000
Utilities expense	13,400
Total expenses		177,350
Net income		$54,200

Table (51)

Retained earnings: Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.

Statement of retained earnings for A Institute for the year ended December 31, 2015:

A Institute
Statement of Retained Earnings
Year Ended December 31, 2015
Retained earnings, December 31, 2014	$60,500
Add: Net income for the year	54,200
	114,700
Less: Dividends	(20,000)
Retained earnings, December 31, 2015	$94,700

Table (52)

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and 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.

Note: Refer to income statement for value and computation of net income.

The balance sheet of A Institute as of December 31, 2015:

A Institute
Balance Sheet
December 31, 2015
Assets
Cash		$60,000
Accounts receivable		5,750
Teaching supplies		20,000
Prepaid insurance		9,500
Professional library	$12,000
Accumulated depreciation-Professional library	(4,900)	7,100
Equipment	40,000
Accumulated depreciation-Equipment	(25,000)	15,000
Total assets		$117,350
Liabilities
Accounts payable	$11,200
Salaries payable	450
Unearned training fees	11,650
Total liabilities		11,650
Equity
Common stock	11,000
Retained earnings	94,700	105,700
Total liabilities and equity		$117,350

Table (53)

Note: Refer to statement of retained earnings for value and computation of retained earnings value.