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Concept explainers
1.
To indicate: The effects of the
1.
![Check Mark](/static/check-mark.png)
Explanation of Solution
The accounting equation implies the relationship between the assets, liabilities, and the
The effects of the accounting equation for the August and September events using a table are indicated as follows:
Date | Assets | = | Liabilities | + | Stockholders’ Equity | |||
August 31 | Cash | 1,500 | = | Unearned Revenue | 1,500 | NE | ||
September 11 | Cash | 3,800 | = | NE | Service Revenue (+R) | 3,800 | ||
September 13 | Supplies | 200 | = | Accounts Payable | 200 | NE | ||
September 15 | Cash | -1,500 | = | NE | Salaries & Wages Expense (+E) | -1,500 | ||
September 25 | Cash | 7,200 | = | NE | Service Revenue (+R) | 7,200 | ||
September 26 | 210 | = | NE | Service Revenue (+R) | 210 | |||
September 27 | Prepaid Advertising | 300 | = | NE | NE | |||
Cash | -300 | |||||||
September 29 | Cash | 210 | = | NE | NE | |||
Accounts Receivable | -210 | |||||||
September 30 | NE | = | Accounts Payable | 300 | Utilities Expense (+E) | -300 |
Table (1)
2.
To prepare:
2.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Journal:
Journal is the book of original entry. Journal consists of the day today financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.
Journal entries for August and September events are prepared as follows:
Date |
Account Title and Explanation | Debit ($) | Credit ($) | |
August 31 | Cash (A+) | 1,500 | ||
Unearned Revenue (L+) | 1,500 | |||
(To record the cash received for the service yet to provide) | ||||
September 11 | Cash (A+) | 3,800 | ||
Service Revenue (R+, SE+) | 3,800 | |||
(To record the cash received from the rental service) | ||||
September 13 | Supplies (A+) | 200 | ||
Accounts Payable (L+) | 200 | |||
(To record the supplies purchased on accounts) | ||||
September 15 | Salaries and Wages Expense (E+, SE–) | 1,500 | ||
Cash (A–) | 1,500 | |||
(To record the payment of wages expenses to employees) | ||||
September 25 | Cash (A+) | 7,200 | ||
Service Revenue (R+, SE+) | 7,200 | |||
(To record cash received for the service provided) | ||||
September 26 | Accounts Receivable (A+) | 210 | ||
Service Revenue (R+, SE+) | 210 | |||
(To record the service provide on account) | ||||
September 27 | Prepaid Advertising (A+) | 300 | ||
Cash (A–) | 300 | |||
(To record the cash paid in advance for the advertisement expenses) | ||||
September 29 | Cash (A+) | 210 | ||
Accounts Receivable (A–) | 210 | |||
(To record the cash received for the service provided on account) | ||||
September 30 | Utilities Expense(E+, SE–) | 300 | ||
Accounts Payable (L+) | 300 | |||
(To record the utilities expenses incurred which are to be paid later) |
Table (2)
3.
To calculate: The preliminary net income for September and also describe whether Company L is profitable based on its net income.
3.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.
The preliminary net income of the company is determined as follows:
Particulars | Amount ($) | Amount ($) |
Revenues: | ||
Service Revenue
|
$11,210 | |
Total Revenues | 11,210 | |
Less: Expenses: | ||
Utilities Expense | 300 | |
Salaries and Wages Expense | 1,500 | |
Total Expenses | 1,800 | |
Net Income | $9,410 |
Table (3)
Based on the preliminary net income of $9,410, it is clear that Company L is profitable since it has higher net income than zero.
4.
To identify: AnyTwo adjustments thatCompany L will be required to make, before it prepare a final income statement for September.
4.
![Check Mark](/static/check-mark.png)
Explanation of Solution
An adjusting entry is prepared when the
Adjustments thatCompany L will be required to make, before it can prepare a final income statement for September are identified as follows:
- The supplies used in September are not yet recorded.
- The wages and salaries expenses incurred in the month of September, which are not yet recorded.
- The cash earned for the service yet to provide are to be reported in September.
- The revenue earned from the Rental service is not yet recorded.
- The income taxes on the net income of the company for the month of September are not yet recorded.
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Chapter 3 Solutions
Fundamentals Of Financial Accounting
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