Chapter 3, Problem 3SP

Requirement 1:

To determine

To prepare:

We have to prepare journal entries to record December month transactions and have to post the entries in ledger accounts.

Answer to Problem 3SP

Solution:

Solution:

Date	Journal titles	Debit($)	Credit($)
dec.2	Advertising expense	1,025
	Cash		1,025
	( to record advertisment expenses- cash payment made)
dec 3	Computer repair expenses	500
	Cash		500
	( to record cash payment made for computer expenses)
dec.4	Cash	3,950
	Accounts receivable		3,950
	( to record cash receipt from Alex)
dec 10	Wages expense	750
	Cash		750
	( to record wages paid in cash for six days)
Dec 14	Cash	1,500
	Unearned service revenue		1,500
	(to record advance receipt from alex)
dec.15	Computer supplies	1,100
	Accounts payable		1,100
	(to record expenses of computer supplies purchased)
dec.20	Accounts receivable	5,625
	Computer service revenue		5,625
	( Due amount from Liu corporation recorded)
dec.20	Cash	5,625
	Accounts receivable		5,625
	( Cash received from Liu corporation)
dec.28	Cash	3,000
	Accounts receivable		3,000
	( Cash received from Gomez co.)
Dec 29	Mileage expenses	192
	Cash		192
	(To reimburse S.rey for automobile expenses)
Dec 31	Dividends	1,500
	Cash		1,500
	(Cash dividend paid recorded)

Cash
Bal.	38,264	Dec,2	1,025
Dec,4	3,950	Dec, 3	500
Dec, 14	1,500	Dec, 10	750
Dec, 20	5,625	Dec, 29	192
Dec, 20	3,000	Dec, 29	1,500
Balance Dec, 31	48,372

Accounts receivable
Bal.	12,618	Dec,4	3,950
Dec, 20	5,625	Dec, 20	5,625
Balance Dec, 31	5,668	Dec, 20	3,000

Computer supplies
Bal.	2,545
Dec, 15	1,100
Balance Dec, 31	3,645

Prepaid Insurance
Bal.	2,220
Balance Dec, 31	2,220

Prepaid rent
Bal.	3,300
Balance Dec, 31	3,300

Office equipment
Bal.	8,000
Balance Dec, 31	8,000

Accumulated depreciation- office equipment
		Bal.	0
		Balance Dec, 31	0

Computer equipment
Bal.	20,000
Balance Dec, 31	20,000

Accumulated depreciation- Computer equipment
		Bal.	0
		Balance Dec, 31	0

Accounts payable
		Bal.	0
		Dec, 15	1,100
		Balance Dec, 31	1,100

Wages payable
		Bal.	0
		Balance Dec, 31	0

Unearned Computer service revenue
		Bal.	0
		Dec, 14	1,500
		Balance Dec, 31	1,500

S.Rey Capital
		Bal.	73,000
		Balance Dec, 31	73,000

S.Rey Withdrawal
Bal.	5,600
Dec, 29	1,500
Balance Dec, 31	7,100

Computer service revenue
		Bal.	25,659
		Dec, 20	5,625
		Balance Dec, 31	31,284

Depreciation expense- Office equipment
Bal.	0
Balance Dec, 31	0

Depreciation expense- Computer equipment
Bal.	0
Balance Dec, 31	0

Wages expense
Bal.	2,625
Dec, 10	750
Balance Dec, 31	3,375

Insurance expense
Bal.	0
Balance Dec, 31	0

Rent expense
Bal.	0
Balance Dec, 31	0

Computer supplies expense
Bal.	0
Balance Dec, 31	0

Advertising expense
Bal.	1,728
Dec 2	1,025
Balance Dec, 31	2,753

Mileage expenses
Bal.	704
Dec, 29	192
Balance Dec, 31	896

Miscellaneous expenses
Bal.	250
Balance Dec, 31	250

Repair expenses − computer
Bal.	805
Dec ,3	500
Balance Dec, 31	1,305

Explanation of Solution

Explanation:

Dec, 2 − We paid to Hillside mall $1,025 for advertisement expenses. In this case, advertisement expenses will be debited and cash account will be credited.

Dec, 3 − In this case, computer repair expenses will be debited and cash account will be debited by $500.

Dec, 4 − In case of receipt from customers, Cash account will be debited and accounts receivable account will be credited

Dec, 10 − The wages has been calculated as below: 125 per day*6 days = $750

Dec, 14 − there will be no entry for bidding. For advance paid for projects cash account will be debited and unearned service revenue will be credited by $1,500.

Dec, 15 − In case of credit supplies, computer supplies will be debited and trade payable account will be credited by $1,100.

Dec, 16 − There will be no entry for reminders sent for the payment.

Dec, 20- In this case, firstly computer service revenue will be credited and cash account will be debited on realization basis.

Dec22-26 − There is no entry for weekly off holidays.

Dec, 28 − In case of receipt from customers, Cash account will be debited and accounts receivable account will be credited. In this case, cash will be debited by $3,000.

Dec, 29 − The reimbursement amount will be calculated as below: 600miles * 0.32 miles = $192.

Dec, 31 − In case of withdrawal, $1,500 withdrawal account will be debited and cash account will be credited by $1,500.

Requirement-2:

To determine

To prepare:

We have to prepare adjustment journal entries at year end “a to f ” and have to post journal entries to ledger accounts.

Answer to Problem 3SP

Solution:

Date	Journal titles	Debit($)	Credit($)
a.dec.31	Computer supplies expenses	3,065
	Computer supplies		3,065
	( to record computer supplies expenses)
b.dec 31	Insurance expenses	555
	Prepaid insurance		555
	( to record insurance expenses)
c. dec31	Wages expenses	500
	Wages payable		500
	( to accrue wages expenses)
d. dec.31	Depreciation on computer equipment	1,250
	Accumulated depreciation-computer equipment		1,250
	( to record depreciation on computer equipment)
e. dec 31	Depreciation on office equipment	400
	Accumulated depreciation-office equipment		400
	( to record depreciation on office equipment)
f. Dec 31	Rent expenses	2,475
	Prepaid rent		2,475
	(to record rent expenses)

Cash
Bal.	38,264	Dec,2	1,025
Dec,4	3,950	Dec, 3	500
Dec, 14	1,500	Dec, 10	750
Dec, 20	5,625	Dec, 29	192
Dec, 20	3,000	Dec, 29	1,500
Balance Dec, 31	48,372

Accounts receivable
Bal.	12,618	Dec,4	3,950
Dec, 20	5,625	Dec, 20	5,625
Balance Dec, 31	5,668	Dec, 20	3,000

Computer supplies
Bal.	2,545	a.	3,065
Dec, 15	1,100
Balance Dec, 31	580

Prepaid Insurance
Bal.	2,220	b.	555
Balance Dec, 31	1,665

Prepaid rent
Bal.	3,300	f.	2,475
Balance Dec, 31	825

Office equipment
Bal.	8,000
Balance Dec, 31	8,000

Accumulated depreciation- office equipment
		Bal.	0
		e.	400
		Balance Dec, 31	400

Computer equipment
Bal.	20,000
Balance Dec, 31	20,000

Accumulated depreciation- Computer equipment
		Bal.	0
		d.	1,250
		Balance Dec, 31	1,250

Accounts payable
		Bal.	0
		Dec, 15	1,100
		Balance Dec, 31	1,100

Wages payable
		Bal.	0
		c.	500
		Balance Dec, 31	500

Unearned Computer service revenue
		Bal.	0
		Dec, 14	1,500
		Balance Dec, 31	1,500

S.Rey Capital
		Bal.	73,000
		Balance Dec, 31	73,000

S.Rey Withdrawal
Bal.	5,600
Dec, 29	1,500
Balance Dec, 31	7,100

Computer service revenue
		Bal.	25,659
		Dec, 20	5,625
		Balance Dec, 31	31,284

Depreciation expense- Office equipment
Bal.	0
e.	400
Balance Dec, 31	400

Depreciation expense- Computer equipment
Bal.	0
d.	1,250
Balance Dec, 31	1,250

Wages expense
Bal.	2,625
Dec, 10	750
c.	500
Balance Dec, 31	3,875

Insurance expense
Bal.	0
b.	555
Balance Dec, 31	555

Rent expense
Bal.	0
f.	2,475
Balance Dec, 31	2,475

Computer supplies expense
Bal.	0
a.	3,065
Balance Dec, 31	3,065

Advertising expense
Bal.	1,728
Dec 2	1,025
Balance Dec, 31	2,753

Mileage expenses
Bal.	704
Dec, 29	192
Balance Dec, 31	896

Miscellaneous expenses
Bal.	250
Balance Dec, 31	250

Repair expenses − computer
Bal.	805
Dec ,3	500
Balance Dec, 31	1,305

Explanation of Solution

Explanation:

1. In this case, the balance of computer supplies is $3,645 in unadjusted trial balance and in adjustment the actual balance is $580. The computer supplies expenses will be calculated as below:
Computer supply expenses = $\text{Unadjusted balance- actual balance }$

Computer supply expenses = $\text{\$3,645 - \$580 }=\text{ \$3,065}$

2. In this case, the period of Insurance policies of 3 months has been expired and insurance expenses will be booked so, insurance expenses will be debited and prepaid insurance will be credited by $555 as per below details:
Insurance expenses = $\text{ fee per month \&*\#x00A0;no}\text{. of months till dec 31/ 12}$

Insurance expenses = $\text{ \$2,220*3/12 }=\text{ \$555}$

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

Calculation of salary expenses:

Particulars	Amount($)
wages expense for 1 day per employee	125
Wages expense for 1 employees for 4 days (125*1 employee*4 days)	500

4. When depreciation is to be recorded then depreciation on computer equipment will be debited with the respective account and accumulated depreciation account will be credited. The depreciation will be calculated as below:

Depreciation on computer equipment =

$\begin{array}{l}\underset{\_}{\text{ total purchase cost}}\underset{\_}{-\text{ salvage value}}\text{ \&*\#x00A0;No}\text{. of month}\\ \text{No}\text{. of years useful life \&*\#x00A0;12}\end{array}$

Depreciation on computer equipment = $\begin{array}{l}\underset{\_}{\text{(20000}}\underset{\_}{-\text{0}}\text{) }\underset{\_}{\text{*3 months}}\\ \text{ (4 years\&*\#x00A0;12)}\end{array}$

Depreciation on computer equipment =$1,250

1. When depreciation is to be recorded then depreciation on office equipment will be debited with the respective account and accumulated depreciation account will be credited. The depreciation will be calculated as below:

Depreciation on office equipment =

$\begin{array}{l}\underset{\_}{\text{ total purchase cost}}\underset{\_}{-\text{ salvage value}}\text{ \&*\#x00A0;No}\text{. of month}\\ \text{No}\text{. of years useful life \&*\#x00A0;12}\end{array}$

Depreciation on office equipment = $\begin{array}{l}\underset{\_}{\text{(8,000}}\underset{\_}{-\text{0}}\text{) }\underset{\_}{\text{*3 months}}\\ \text{ (5 years\&*\#x00A0;12)}\end{array}$

Depreciation on office equipment =$400

5. In this case, rent expenses will be debited and prepaid rent account will be credited. The rent expenses will be calculated as below:
Rent expenses = $\text{ total prepaid \&*\#x00A0;no}\text{. of months till dec / 4 months}$

Rent expenses = $\text{ \$3,300*3/4}=\text{ \$2,475}$

Requirement 3:

To determine

To prepare:

We have to prepare the updated trial balance after all adjustments as on December 31.

Answer to Problem 3SP

Solution:

Adjusted trial balance- December 31, 2015

Particulars	Debit	Credit
Cash	48,372
Accounts receivable	5,668
Computer supplies	580
Prepaid insurance	1,665
Prepaid rent	825
Office equipment	8,000
Accumulated depreciation- Office equipment		400
Computer Equipment	20,000
Accumulated depreciation- Computer equipment		1,250
Accounts payable		1,100
Wages payable		500
Unearned computer service revenue		1,500
S.Rey, Capital		73,000
S.Rey, Withdrawal	7,100
Computer service revenue		31,284
Depreciation expense- office equipment	400
Depreciation expense- Computer equipment	1,250
Wages expenses	3,875
Insurance expenses	555
Rent expenses	2,475
Computer supplies expenses	3,065
Advertising expenses	2,753
Mileage expenses	896
Miscellaneous expenses	250
Repair expenses- computer	1,305
Total	109,034	109,034

Explanation of Solution

Explanation:

1. Cash account- the balance of cash is given in unadjusted trial balance and all adjustment related to cash account has shown in above accounts. Thus the adjusted balance of cash will be $48,372.
2. Accounts receivable − accrued revenue ** cash receipts has been adjusted and adjusted balance of accounts receivable will be $5,668 after all adjustments.
3. The adjusted closing balance in computer supplies after supplies expenses will be $580.
4. Prepaid Insurance: the balance of prepaid insurance after adjustment is $1,665.
5. Prepaid rent: the prepaid rent for 3 months has booked as an expenses and adjusted balance in prepaid rent expenses is $825.
6. The balance in Office equipment will remain same as there is no adjustment.
7. Accumulated depreciation: depreciation on office equipment has been charged $400 and the adjusted closing balance is $400.
8. The balance in computer equipment will remain same as there is no adjustment.
9. Accumulated depreciation on computer equipment has been charged $1,250 and the adjusted closing balance is $1,250.
10. Accounts payable- the balance of accounts payable is $1,100 after adjustment.
11. Wages payable- adjustment of $500 is recorded therefore its balance will be $500.
12. Unearned computer service revenue: The adjustment of $1,500 has been made and the adjusted balance is 1,500.
13. S.rey, Capital: There is no adjustment and balance will remain same.
14. S.Rey, Withdrawal: There dividend paid of $1,500 has been adjusted in withdrawal account and the balance after adjustment is $7,100.
15. Computer service revenue: accrued revenue has been adjusted $5,625 and adjusted balance will be $31,284.
16. Accumulated depreciation on Office equipment has been charged $400 and the adjusted closing balance is $400.
17. Depreciation on computer equipment has been charged $1,250 and the adjusted closing balance is $1,250.
18. Wages expenses- adjustment of $750 and $500 is recorded therefore its balance will be $3,875.
19. Insurance expenses- adjustment of $555 is recorded therefore its balance will be $555.
20. Rent expenses- adjustment of $2,475 is recorded therefore its balance will be $2,475.
21. Computer supplies expenses- adjustment of $3,065 is recorded therefore its balance will be $3,065.
22. Advertising expenses-The balance after adjustment is $2,753.
23. Mileage expenses-The balance after adjustment is $896.
24. Miscellaneous expenses- there is no adjustment and balance will remain same.
25. Repair expenses computer-The balance after adjustment is $1,305.

Requirement 4:

To determine

To prepare:

We have to prepare Income statement after all adjustments and adjusted trial balance for the period ended December 31, 2015.

Answer to Problem 3SP

Solution:

Income statement for December 31, 2015

Particulars
Computer service revenue	31,284
Total revenue		31,284
Expenses
Depreciation expense- office equipment	400
Depreciation expense- Computer equipment	1,250
Wages expenses	3,875
Insurance expenses	555
Rent expenses	2,475
Computer supplies expenses	3,065
Advertising expenses	2,753
Mileage expenses	896
Miscellaneous expenses	250
Repair expenses- computer	1,305
Total expenses		16,824
Net income		14,460

Explanation of Solution

Explanation:

1. Income statement: Total revenue is $31,284 and total expenses are $16,824 and the net income is $14,460 calculated as below:
Net income = $\text{Total revenue - total expenses}$

Net income = $\text{31,284-16,824 }=\text{ \$14,460}$

Requirement-5:

To determine

To prepare:

We have to prepare Statement of Owner’s equity after all adjustments and adjusted trial balance for the period ended December 31, 2015.

Answer to Problem 3SP

Solution:

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

S.Rey Capital	73,000
Add: Net income	14,460
Less: Withdrawal (net balance)	7,100
S.Rey capital as on December 31,2015	80,360

Explanation of Solution

Explanation:

Statement of Owners equity shows the total owner’s funds invested in the company. The net fund invested by owner is $80,360. Owner’s equity = $\text{Opening balance }+\text{ net income - owner withdrawal}$

Owner’s equity = $73,000+14,460-7,100=\$80,360$

S.Rey Withdrawal
Bal.	5,600
Dec, 29	1,500
Balance Dec, 31	7,100

Requirement-6:

To determine

To prepare:

We have to prepare balance sheet after Statement of Owner’s equity, income statement and after all adjustments and adjusted trial balance for the period ended December 31, 2015.

Balance sheet as on December 31, 2015

Assets
Cash		48,372
Accounts receivable		5,668
Computer supplies		580
Prepaid insurance		1,665
Prepaid rent		825
Office equipment	8,000
Less: Accumulated depreciation- Office equipment	400	7,600
Computer Equipment	20,000
Less: Accumulated depreciation- Computer equipment	1,250	18,750
Total assets		83,460
Liabilities
Accounts payable		1,100
Wages payable		500
Unearned computer service revenue		1,500
Total liabilities		3,100
Equity
S.Rey, capital		80,360
Total liability and equity		83,460

Explanation of Solution

Explanation:

Balance sheet represents the financial position of a company on a particular date.

The accounting equation of balance sheet is as below:

$\text{Total assets }=\text{ total equity }+\text{ total liabilities}$

$\begin{array}{l}\text{\$83,460 }=\text{ \$80,360 }+\text{ \$3,100}\\ \text{\$83,460}=\text{ \$83,460}\end{array}$

Calculation of S.Rey equity:

S.Rey Capital	73,000
Add: Net income	14,460
Less: Withdrawal (net balance)	7,100
S.Rey capital as on December 31,2015	80,360