
Concept explainers
Income Statement:
It is a financial statement which shows the
It is a financial statement which shows the amount of profit retained by the company for their future unforeseen events.
It shows the financial position of an enterprise. It consists of assets, liabilities and
1.
Difference between adjusted and unadjusted

Explanation of Solution
Account Title and Explanation | Unadjusted Trial Balance | Adjustments | Adjusted Trial Balance | |||
Debit($) | Credit($) | Debit($) | Credit($) | Debit($) | Credit($) | |
Cash | 45,000 | 45,000 | ||||
60,000 | 6,660(a) | 66,660 | ||||
Office supplies | 40,000 | 23,000(c) | 17,000 | |||
Prepaid insurance | 8,200 | 4,600(d) | 3,600 | |||
Office equipment | 120,000 | 120,000 | ||||
20,000 | 10,000(e) | 30,000 | ||||
Accounts payable | 26,000 | 6,000(f) | 32,000 | |||
Interest payable | 0 | 2,150(g) | 2,150 | |||
Salaries payable | 0 | 16,000(h) | 16,000 | |||
Unearned consulting fees | 40,000 | 12,200 (b) | 27,800 | |||
Long-term notes payable | 75,000 | 75,000 | ||||
Common stock | 4,000 | 4,000 | ||||
Retained earnings | 76,200 | 76,200 | ||||
Dividends | 20,000 | 20,000 | ||||
Consulting fees earned | 234,600 | 18,860(a),(b) | 253,460 | |||
Depreciation expense- office equipment | 0 | 10,000 (e) | 10,000 | |||
Salaries expense | 112,000 | 16,000 (h) | 128,000 | |||
Interest expense | 8,600 | 2,150(g) | 10,750 | |||
Insurance expense | 0 | 4,600(d) | 4,600 | |||
Rent expense | 20,000 | 20,000 | ||||
Office supplies expense | 0 | 23,000 (c) | 23,000 | |||
Advertising expense | 42,000 | 6,000(f) | 48,000 | |||
Totals | 475,800 | 475,800 | 80,610 | 80,610 | 516,610 | 516,610 |
(a)
- Accounts receivable is an asset. Since, the revenue is earned but not received yet, the asset has increased. So, debit account receivable account by $6,660.
- Consulting fees earned are an income. Since, the revenue is earned, income has increased. So, credit consulting fees earned by $6,660.
(b)
- Unearned consulting fees are a liability. Since, services are provided, liability has decreased. So, debit unearned consulting fees by $12,200.
- Consulting fees earned are an income. Since, the revenue is earned, income has increased. So, credit consulting fees earned by $12,200.
(c)
- Office supplies expense is an expense. Since, expense reduces equity, debit office supplies expense account by $23,000.
- Office supplies are an asset. Since, the supplies worth of $23,000 is used, asset has decreased. So, debit office supplies account.
(d)
- Insurance expense is an expense. Since, expense reduces equity, debit insurance expense account by $4,600.
- Prepaid insurance is an asset. Since, the insurance worth of $4,600 is used up, asset has reduced. So, credit prepaid insurance by $4,600.
(e)
- Depreciation expense is an expense. Since, expense reduces equity, debit depreciation expense by $10,000.
- Accumulated Depreciation is a contra asset account. Contra-asset accounts have a normal credit balance. Hence, credit Accumulation Depreciation account by $10,000.
(f)
- Advertising expense is an expense. Since, expense reduces equity, debit advertising expense account by $6,000.
- Accounts payable is a liability. Since, expense is incurred but not paid yet, liability has increased. So, credit accounts payable by $6,000.
(g)
- Interest expense is an expense. Since, expense reduces equity, debit interest expense account by $2,150.
- Interest payable is a liability. Since, expense is incurred but not paid yet, liability has increased. So, credit interest payable by $2,150.
(h)
- Salaries expense is an expense. Since, expense reduces equity, debit salaries expense account by $16,000.
- Salaries payable is a liability. Since, expense is incurred but not paid yet, liability has increased. So, credit salaries payable by $16,000.
2.
(a)
To prepare: Income statement and statement of retained earnings.
2.
(a)

Explanation of Solution
Income Statement
Y.C. Company | ||
Income Statement | ||
For the year ended December 31, 2017 | ||
Particulars | Amount ($) | Amount ($) |
Revenue: | ||
Service Revenue | 253,460 | |
Total Revenue | 253,460 | |
Expenses: | ||
Insurance Expense | 4,600 | |
Salaries Expense | 128,000 | |
Office Supplies Expense | 23,000 | |
Rent Expenses | 20,000 | |
Interest Expense | 10,750 | |
Advertising Expense | 48,000 | |
| 10,000 | |
Total Expense | 244,350 | |
Net Income | 9,110 |
Net income of Y.C. Company is $9,110.
Retained Earnings Statement
Y.C. Company | |
Retained Earnings Statement | |
As on December 31, 2017 | |
Particulars | Amount ($) |
Opening balance | 76,200 |
Net income | 9,110 |
Dividends | (20,000) |
Retained earnings | 65,310 |
Therefore, retained earnings of Y.C. Company are $65,310.
b.
To prepare: Balance sheet.
b.

Explanation of Solution
Balance Sheet
Y.C. Company | ||
Balance Sheet | ||
As on December 31, 2017 | ||
Particulars |
| Amount ($) |
Assets | ||
Cash | 45,000 | |
Office Supplies | 17,000 | |
Account Receivables | 66,660 | |
Prepaid Insurance | 3,600 | |
Office Equipment | 120,000 | |
Less: Accumulated depreciation | (30,000) | 90,000 |
Total Assets |
| 222,260 |
Liabilities and Stockholder’s Equity | ||
Liabilities | ||
Accounts payable | 32,000 | |
Interest payable | 2,150 | |
Salaries Payable | 16,000 | |
Unearned consulting fees | 27,800 | |
Long-term notes payable | 75,000 | |
Stockholder’s Equity | ||
Common Stock | 4,000 | |
Retained earnings | 65,310 | |
Total stockholders’ equity |
| 69,310 |
Total Liabilities and Stockholder’s equity |
| 222,260 |
Thus, balance sheet total is $222,260.
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