Chapter 3, Problem 3PSA

1.

To determine

To prepare:

T-account with balances of unadjusted trial balance.

Explanation of Solution

Cash Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	34,000	Balance c/f	34,000
	34,000		34,000

Table (1)

The ending balance is $34,000.

Accounts Receivable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	0
	0		0

Table (2)

The ending balance is $0.

Teaching Supplies Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	8,000	Balance c/f	8,000
	8,000		8,000

Table (3)

The ending balance is $8,000.

Prepaid Insurance Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	12,000	Balance c/f	12,000
	12,000		12,000

Table (4)

The ending balance is $12,000.

Prepaid Rent Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	3,000	Balance c/f	3,000
	3,000		3,000

Table (5)

The ending balance is $3,000.

Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	35,000	Balance c/f	35,000
	35,000		35,000

Table (6)

The ending balance is $35,000.

Accumulated Depreciation-Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	10,000	Balance b/f	10,000
	10,000		10,000

Table (7)

The ending balance is $10,000.

Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	80,000	Balance c/f	80,000
	80,000		80,000

Table (8)

The ending balance is $80,000.

Accumulated Depreciation-Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	15,000	Balance b/f	15,000
	15,000		15,000

Table (9)

The ending balance is $15,000.

Accounts Payable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	26,000	Balance b/f	26,000
	26,000		26,000

Table (10)

The ending balance is $26,000.

Salaries Payable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	0	Balance b/f	0
	0		0

Table (11)

The ending balance is $0.

Unearned Training Fees Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	12,500	Balance b/f	12,500
	12,500		12,500

Table (12)

The ending balance is $12,500.

Common Stock Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	10,000	Balance b/f	10,000
	10,000		10,000

Table (13)

The ending balance is $10,000.

Retained Earnings Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	80,000	Balance b/f	80,000
	80,000		80,000

Table (14)

The ending balance is $80,000.

Dividends Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	50,000	Balance c/f	50,000
	50,000		50,000

Table (15)

The ending balance is $50,000.

Tuition Fees Earned Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	123,900	Balance b/f	123,900
	123,900		123,900

Table (16)

The ending balance is $123,900.

Training Fees Earned Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	40,000	Balance b/f	40,000
	40,000		40,000

Table (17)

The ending balance is $40,000.

Depreciation expense-Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	0
	0		0

Table (18)

The ending balance is $0.

Depreciation expense-Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	0
	0		0

Table (19)

The ending balance is $0.

Salaries Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	50,000	Balance c/f	50,000
	50,000		50,000

Table (20)

The ending balance is $50,000.

Insurance Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	0
	0		0

Table (21)

The ending balance is $0.

Rent Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	33,000	Balance c/f	33,000
	33,000		33,000

Table (22)

The ending balance is $33,000.

Teaching Supplies Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0	Balance c/f	0
	0		0

Table (23)

The ending balance is $0.

Advertising Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	6,000	Balance c/f	6,000
	6,000		6,000

Table (24)

The ending balance is $6,000.

Utilities Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	6,400	Balance c/f	6,4 00
	6,400		6,400

Table (25)

The ending balance is $6,400.

2.

To determine

To prepare:

Adjusting entries.

Explanation of Solution

a.

Date	Particulars	Post ref	Debit ($)	Credit ($)
December 31	Insurance Expenses		2,400
	Prepaid Insurance			2,400
	(Being insurance coverage worth $2,400 has expired.)

Table (26)

• Insurance expense is an expense. Since, expense decreases equity. Hence, insurance expense account is debited.

• Prepaid insurance is an asset. Since, some time has elapsed, it uses up some of insurance, which reduces assets. Hence, credit prepaid insurance.

b.

Date	Particulars	Post ref	Debit ($)	Credit ($)
December 31	Teaching Supplies Expenses		5,200
	Teaching Supplies			5,200
	(Being Teaching supplies got exhausted during the period.)

Table (27)

• Teaching supplies expense is an expense. Since, expense decreases equity, teaching supplies expense is debited.

• Teaching Supplies is an asset. Since, teaching supplies is used up, it decreases asset. Hence, debit teaching supplies account.

Working note:

Calculation of teaching supplies used:

$\begin{array}{c}\text{Teaching}\text{Supplies}\text{Used}=\left(\begin{array}{l}\text{Balance}\text{in}\text{Unadjusted}\text{Trial}\text{Balace}\\ -\text{Closing}\text{Teaching}\text{Supplies}\end{array}\right)\\ =\text{\$8,000}-2,800\\ =\$5,200\end{array}$

c.

Date	Particulars	Post ref	Debit ($)	Credit ($)
December 31	Depreciation Expense		13,200
	Accumulated Depreciation-Equipment			13,200
	(Being Depreciation expense transfer to accumulated depreciation.)

Table (28)

• Depreciation expense is an expense. Since, depreciation decreases equity, depreciation expense account is debited.

• Accumulated Depreciation is a Contra asset. Contra asset account normally has credit balance. Hence, credit accumulated depreciation account

d.

Date	Particulars	Post ref	Debit ($)	Credit ($)
December 31	Depreciation Expense		7,200
	Accumulated Depreciation-Professional library			7,200
	(Being depreciation expense transfer to accumulated depreciation.)

Table (29)

• Depreciation expense is an expense. Since, depreciation decreases equity, depreciation expense account is debited.

• Accumulated Depreciation is a Contra asset. Contra asset account normally has credit balance. Hence, credit accumulated depreciation account.

e.

Date	Particulars	Post ref	Debit ($)	Credit ($)
December 31	Unearned Training Fees		5,000
	Training Fees Earned			5,000
	(Being services provided for 2 months for which advance payment, we received.)

Table (30)

• Unearned training fees are a liability. Since, revenue received in advance is used up for two month, it decreases liability. So, debit unearned training fees account.

• Training Fees Earned is revenue. Since, revenue is earned and received, asset is increased. So, credit training fees earned account.

Working note:

Calculation of total training fees earned:

$\begin{array}{c}\text{Total}\text{Training}\text{Fees}\text{Earned}=\left(\begin{array}{l}\text{Number}\text{of}\text{Month}\text{Training}\text{Provided}\\ \times \text{Fees}\text{for}\text{One}\text{Month}\end{array}\right)\\ =2\times \text{\$2,500}\\ =\$5,000\end{array}$

f.

Date	Particulars	Post ref	Debit ($)	Credit ($)
December 31	Accounts Receivable		7,500
	Tuition Fees Earned			7,500
	(Being training fees earned but not received yet))

Table (31)

• Accounts receivable is an asset. Since, the revenue is earned, the asset has increased. So, debit account receivable account.

• Tuition fees earned is revenue. Since, revenue increases equity, tuition fee account is debited.

Working note:

Calculation of total tuition fees earned,

$\begin{array}{c}\text{Total}\text{Tuition}\text{Fees}\text{Earned}=\left(\begin{array}{l}\text{Number}\text{of}\text{Month}\text{Training}\text{Provided}\\ \times \text{Fees}\text{for}\text{One}\text{Month}\end{array}\right)\\ =2.5\times \text{\$3,000}\\ =\$7,500\end{array}$

g.

Date	Particulars	Post ref	Debit ($)	Credit ($)
December 31	Salaries Expenses		400
	Salaries payable			400
	(Being salary accrued but not paid)

Table (32)

• Salaries expense is an expense. Since, expense decrease equity, salaries expense is debited.

• Salaries payable is a liability. Since, salary expense has occurred but not paid yet, it increases liability. Hence credit salaries payable account

Working note:

Calculation of accrued salary,

$\begin{array}{c}\text{Accrued}\text{salary}=\text{Daily}\text{salary}\times \text{Number}\text{of}\text{days}\text{salary}\text{not}\text{paid}\text{for}\\ \text{=}\text{\$200}\times 2\\ =\$400\end{array}$

h.

Date	Particulars	Post ref	Debit ($)	Credit ($)
December 31	Rent Expenses		3,000
	Prepaid Rent			3,000
	(Being prepaid rent has been used.)

Table (33)

• Rent expense is an expense. Since, expense decrease equity. Hence, salaries expense is debited.

• Prepaid rent is an asset. Since, amount paid in advance, increases asset. That’s why prepaid rent account is debited.

3.

To determine

To prepare:

Ledger account for the adjusting entries and an adjusted trial balance.

Explanation of Solution

Update T-accounts for the adjusting entries.

Cash Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	34,000	Balance c/f	34,000
	34,000		34,000

Table (34)

The ending balance is $34,000.

Accounts Receivable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0
Training Fees Earned	7,500	Balance c/f	7,500
	7,500		7,500

Table (35)

The ending balance is $7,500.

Teaching Supplies Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	8,000	Teaching Supplies Expense	5,200
		Balance c/f	2,800
	8,000		8,000

Table (36)

The ending balance is $2,800.

Prepaid Insurance Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	12,000	Insurance expense	2,400
		Balance c/f	9,600
	12,000		12,000

Table (37)

The ending balance is $9,600.

Prepaid Rent Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	3,000	Rent Expense	3,000
	3,000		3,000

Table (38)

The ending balance is $3,000.

Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	35,000	Balance c/f	35,000
	35,000		35,000

Table (38)

The ending balance is $35,000.

Accumulated Depreciation-Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
		Balance b/f	10,000
Balance c/f	17,200	Depreciation	7,200
	17,200		17,200

Table (39)

The ending balance is $17,200.

Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	80,000	Balance c/f	80,000
	80,000		80,000

Table (40)

The ending balance is $80,000.

Accumulated Depreciation-Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
		Balance b/f	15,000
Balance c/f	28,200	Depreciation	13,200
	28,200		28,200

Table (41)

The ending balance is $28,200.

Accounts Payable Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	26,000	Balance b/f	26,000
	26,000		26,000

Table (42)

The ending balance is $26,000.

Salaries Payable Account
Particulars	Debit ($)	Particulars	Credit ($)
		Balance b/f	0
Balance c/f	400	Salaries Expense	400
	400		400

Table (43)

The ending balance is $400.

Unearned Training Fees Account
Particulars	Debit ($)	Particulars	Credit ($)
Training Fees Earned	5,000	Balance b/f	12,500
Balance c/f	7,500
	17,500		17,500

Table (44)

The ending balance is $7,500.

Common Stock Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	10,000	Balance b/f	10,000
	10,000		10,000

Table (45)

The ending balance is $10,000.

Retained Earnings Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance c/f	80,000	Balance b/f	80,000
	80,000		80,000

Table (46)

The ending balance is $80,000.

Dividends Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	50,000	Balance c/f	50,000
	50,000		50,000

Table (47)

The ending balance is $50,000.

Tuition Fees Earned Account
Particulars	Debit ($)	Particulars	Credit ($)
		Balance b/f	123,900
Balance c/f	131,400	Accounts Receivable	7,500
	131,400		131,400

Table (48)

The ending balance is $131,400.

Training Fees Earned Account
Particulars	Debit ($)	Particulars	Credit ($)
		Balance b/f	40,000
Balance c/f	45,000	Unearned training Fees	5,000
	45,000		45,000

Table (49)

The ending balance is $45,000.

Depreciation expense-Professional Library Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0
Accumulated Depreciation-Professional Library	7,200	Balance c/f	7,200
	7,200		7,200

Table (50)

The ending balance is $7,200.

Depreciation expense-Equipment Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0
Accumulated Depreciation-Equipment	13,200	Balance c/f	13,200
	13,200		13,200

Table (51)

The ending balance is $13,200.

Salaries Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	50,000
Salaries payable	400	Balance c/f	50,400
	50,400		50,400

Table (52)

The ending balance is $50,400.

Insurance Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0
Prepaid Insurance	2,400	Balance c/f	2,400
	2,400		2,400

Table (53)

The ending balance is $2,400.

Rent Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	33,000
Prepaid Rent	3,000	Balance c/f	36,000
	36,000		36,000

Table (54)

The ending balance is $36,000.

Teaching Supplies Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	0
Teaching Supplies Expense	5,200	Balance c/f	5,200
	5,200		5,200

Table (55)

The ending balance is $5,200.

Advertising Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	6,000	Balance c/f	6,000
	6,000		6,000

Table (56)

The ending balance is $6,000.

Utilities Expense Account
Particulars	Debit ($)	Particulars	Credit ($)
Balance b/f	6,400	Balance c/f	6,400
	6,400		6,400

Table (57)

The ending balance is $6,400.

Prepare adjusted trial balance as follow:

W T Institute
Adjusted Trial Balance
For the Year Ended on December 31, 2015
Particulars	Debit ($)	Credit ($)
Cash	34,000
Account 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
Salaries payable		400
Unearned training fees		7,500
Common stock		10,000
Retained earning		80,000
Dividends	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
Totals	345,700	345,700

Table (58)

4.

To determine

To prepare:

Income statement, statement of retained earnings and balance sheet.

Explanation of Solution

W T Institute
Income Statement
For Year Ended on December 31, 2015
Particulars	Amount ($)	Amount ($)
Revenue:
Service Revenue	176,400
Total Revenue		176,400
Expenses:
Insurance Expense	2,400
Salaries Expense	50,400
Teaching Supplies Expense	5,200
Rent expenses	36,000
Advertising Expense	6,000
Utility Expense	6,400
Depreciation Expense-Professional Library	7,200
Depreciation Expense-Equipment	13,200
Total Expense		126,800
Net income		49,600

Table (59)

Net income of W T Institute is $49,600.

Working note:

Calculation of service revenue,

$\begin{array}{c}\text{Service}\text{revenue}=\text{Training fees earned}+\text{Training}\text{fees}\text{earned}\\ =\text{\$45,000+\$131,400}\\ =\text{\$176,400}\end{array}$

Prepare Retained Earnings Statement:

W T Institute
Statement of Retained Earnings
For year ended on December 31, 2015
Particulars	Amount ($)
Opening balance of retained earnings	80,000
Net income	49,600
	129,600
Dividends	(50,000)
Ending balance of retained earnings	79,600

Table (60)

Therefore, retained earnings of W T Institute are $79,600.

Prepare balance sheet:

W T Institute
Balance sheet
As on December 31, 2015
Particulars	Amount ($)	Amount ($)
Assets
Cash		34,000
Account Receivable		7,500
Teaching Supplies		2,800
Prepaid Insurance		9,600
Prepaid rent		0
Equipment	80,000
Less: Accumulated depreciation	(28,200)	51,800
Professional Library	35,000
Less: Accumulated Depreciation	(17,200)	17,800
Total Assets		123,500
Liabilities and Stockholder’s Equity
Liabilities
Accounts Payable		26,000
Salaries Payable		400
Unearned training Fees		7,500
Stockholder’s Equity
Common Stock	10,000
Retained earnings	79,600
Total stockholders’ equity		89,600
Total Liabilities and Stockholder’s equity		123,500

Table (61)

Balance sheet total is $123,500.