Chapter 3, Problem 3BPSB

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.

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

Explanation of Solution

The various T-accounts are as follows:

Cash
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	60,000
Adjusted balance	60,000

Equipment
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	40,000
Adjusted balance	40,000

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

Accumulated Depreciation-Equipment
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	20,000
		Adjusted balance	20,000

Teaching Supplies
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	70,000
Adjusted balance	70,000

Accounts Payable
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	11,200
		Adjusted balance	11,200

Prepaid Insurance
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	19,000
Adjusted balance	19,000

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

Prepaid Rent
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	3,800
Adjusted balance	3,800

Unearned Training Fees
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	28,600
		Adjusted balance	28,600

Professional Library
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	12,000
Adjusted balance	12,000

C Olonzo, Capital
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	71,500
		Adjusted balance	71,500

Accumulated Depreciation-Professional Library
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	2,500
		Adjusted balance	2,500

C Olonzo, Withdrawal
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	20,000
Adjusted balance	20,000

Tuition Fees Earned
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	129,200
		Adjusted balance	129,200

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

Training Fees Earned
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	68,000
		Adjusted balance	68,000

Rent Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	29,600
Adjusted balance	29,600

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

Teaching 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	19,000
Adjusted balance	19,000

Salaries Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	44,200
Adjusted balance	44,200

Utilities Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	13,400
Adjusted balance	13,400

To determine

Journal Entries:

A journal entry is the record of the transaction entered into journal. Journal entries records 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 for the items, 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		9,500
	Prepaid expense			9,500
	(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		50,000
	Teaching supplies			50,000
	(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, teachingsupplies account is a liabilityand 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		5,000
	Accumulated depreciation-equipment			5,000
	(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		2,400
	Accumulated depreciation−professional library			2,400
	(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		28,600
	Training fees earned			28,600
	(to record the training fees earned)

• Since, unearned training fees is aliability and liability is decreased. Hence, Unearned training fees account is debited.
• Since, training fees earned is an incomeand 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		5,750
	Tuition fees earned			5,750
	(to record the sale of service)

• Since, accounts receiveable is an asset and asset is increased. Hence, accounts receiveable 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		450
	Salary payable			450
	(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 liabilityand 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		3,800
	Prepaid rent			3,800
	(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 assetand 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 when the total of debits and credits are equal, the trial balance is considered to be matched.

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	44,200
Salaries payable	450
Adjusted balance	44,650

Depreciation Expense-Equipment
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Accumulated depreciation-Equipment	5,000
Adjusted balance	5,000

Teaching Supplies Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Teaching supplies	50,000
Adjusted balance	50,000

Depreciation Expense-Professional Library
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Accumulated depreciation-Professional library	2,400
Adjusted balance	2,400

Rent Expense
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	29,600
Prepaid rent	3,800
Adjusted balance	33,400

Training Fees Earned
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	68,000
		Unearned training fees	28,600
		Adjusted balance	96,600

Insurance Expenses
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Prepaid Insurance	9,500
Adjusted balance	9,500

Tuition Fees Earned
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	129,200
		Accounts receiveable	5,750
		Adjusted balance	134,950

Accumulated Depreciation-Professional Library
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	2,500
		Depreciation expense-Professional library	2,400
		Adjusted balance	4,900

Unearned Training Fees
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	28,600
Training fees earned	28,600
		Adjusted balance	0

Prepaid Rent
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	3,800	Rent expense	3,800
Adjusted balance	0

Salaries Payable
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	0
		Salaries expense	450
		Adjusted balance	450

Prepaid Insurance
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	19,000	Insurance expense	9,500
Adjusted balance	9,500

Teaching Supplies
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	70,000	Teaching supplies expense	50,000
Adjusted balance	20,000

Accumulated Depreciation-Equipment
Particulars	Amount ($)	Particulars	Amount ($)
		Unadjusted balance	20,000
		Depreciation expense-Equipment	5,000
		Adjusted balance	25,000

Accounts Receiveable
Particulars	Amount ($)	Particulars	Amount ($)
Unadjusted balance	0
Tuition fees earned	5,750
Adjusted balance	5,750

The adjusted trial balance total for Institute A shows a balance of $3,44,600.

Institute A
Adjusted Trial BalanceFor the year ended December, 31
	Debit($)	Credit($)
Cash	60,000
Accounts receiveable	5,750
Teaching supplies	20,000
Prepaid insurance	9,500
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
C.Alonzo, capital		71,500
C.Alonzo, withdrawal	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

4.

To determine

Income Statement:

An income statement is one of the financial statement of the company which 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:

The financial statement in which the worth of assets, liabilities and equity of a company or an entity is shown in a classified form is a balance sheet.

The income statement, statement of owner's equity and the balance sheet of Institute A as of December, 31.

Explanation of Solution

The income statement of Institute A shows a net income of $54,200.

Institute A Income StatementFor the year ended, December 31
	Debit($)	Credit($)
Revenues:
Tuition fees earned	134,950
Training fees earned	96,600
Total Revenue		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 Expense		177,350
Net Income		54,200

The statement of owner's equity for Institute Ashows the closing balance of $1,05,700.

Institute A
Statement of Owner's Equity
	Amount($)	Amount($)
Owner's Equity opening balance	71,500
Add: Net income	54,200
Total		125,700
Less: Withdrawals		(20,000)
Closing Balance		105,700

The balance sheet for Institute A shows a total of $117,350.

Institute A Balance Sheet(as at December 31)
	Amount($)	Amount($)
Liabilities and Owners Equity
Accounts payable	11,200
Salary payable	450
Unearned training fees	0
Total Liabilities		11,650
Owners Equity		105,700
Total Liabilities and Owners Equity		117,350
Current Assets, Loans & Advances
Cash	60,000
Accounts receiveable	5,750
Teaching supplies	20,000
Prepaid insurance	9,500
Total Current Assets, Loans & Advances		95,250
Property, Plant and Equipment
Professional library	7,100
Equipment	15,000
Total Property, Plant and Equipment		22,100
Total Assets		117,350