Chapter 3, Problem 5PSB

1.

To determine

Financial statement analysis:

The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: T accounts according to the balance method.

Explanation of Solution

The T-accounts are prepared as follows:

Cash
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Account receivables
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Office Supplies
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Prepaid insurance
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Buildings
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Accumulated depreciation - buildings
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Salaries payable
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Common stock
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Retained earnings
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Dividends
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Storage fees earned
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Depreciation expense - buildings
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Salaries expense
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Insurance expense
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Rent expense
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Office supplies expense
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Repair expense
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Telephone expense
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

Income summary
Date	Explanation	Debit ($)	Credit ($)	Balance ($)

2.

To determine

Financial statement analysis:

The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: The journal entries and ledger account for the transactions given.

Explanation of Solution

The journal entries are prepared as follows:

Date	Particulars	Debit ($)	Credit ($)
1-Jul	Cash	30,000
	Building	150,000
	Capital		180,000
	(To record cash and building invested into the business)
2-Jul	Rent expense	2,000
	Cash		2,000
	(To record rent expense paid.)
5-Jul	Office Supplies	2,400
	Cash		2,400
	(To record purchase of office supplies)
10-Jul	Prepaid Insurance	7,200
	Cash		7,200
	(To record one-year insurance premium paid)
14-Jul	Salary expense	1,000
	Cash		1,000
	(To record Salaries expense paid)
24-Jul	Cash	9,800
	Storage fees earned		9,800
	(To record cash received for service provided)
28-Jul	Salary expense	1,000
	Cash		1,000
	(To record salaries expense paid)
29-Jul	Repair expense	950
	Cash		950
	(To record repair expense paid)
30-Jul	Telephone expenses	400
	Cash		400
	(To record Telephone expense paid)
31-Jul	dividend	2,000
	Cash		2,000
	(To record dividend paid)

Ledger accounts:

Cash   Account No:101
Date	Explanation	Debit	Credit	Balance
1-Jul		$30,000		$30,000
2-Jul			$2,000	$28,000
5-Jul			$2,400	$25,600
10-Jul			$7,200	$18,400
14-Jul			$1,000	$17,400
24-Jul		$9,800		$27,200
28-Jul			$1,000	$26,200
29-Jul			$950	$25,250
30-Jul			$400	$24,850
31-Jul			$2,000	$22,850

After entering all the entries, the balance of the cash account as of 31 July is computed as $22,850.

b) Office supplies

Office Supplies     Account No: 124
Date	Explanation	Debit	Credit	Balance
5-Jul		$2,400		$2,400

After entering all the entries, the balance of the office supplies accounts as of 31 July is computed as $2,400.

c) Prepaid Insurance

Prepaid Insurance   Account No: 128
Date		Debit	Credit	Balance
10-Jul		$7,200		$7,200

After entering all the entries, the balance of the prepaid insurance account as of 31 July is computed as $7,200.

D

Building   Account No: 173
Date		Debit	Credit	Balance
1-Jul		$150,000		$150,000

After entering all the entries, the balance of the building account as of 31 July is computed as $150,000.

E

Common stock   Account No: 301
Date		Debit	Credit	Balance
1-Jul			$180,000	$180,000

After entering all the entries, the balance of the common stock account as of 31 July is computed as $180,000.

F

Dividends

Dividends   Account No: 319
Date		Debit	Credit	Balance
31-Jul		$2,000		$2,000

After entering all the entries, the balance of the dividend account as of 31 July is computed as $2,000.

G

Storage fees earned

Storage fees earned   Account No: 40
Date		Debit	Credit	Balance
24-Jul			$9,800	$9,800

After entering all the entries, the balance of the storage fees earned account as of 31 July is computed as $9,800.

H

Salaries Expense

Salaries expense   Account No: 622
Date		Debit	Credit	Balance
14-Jul		$1,000		$1,000
28-Jul		$1,000		$2,000

After entering all the entries, the balance of salaries accounts as of 31 July is computed as $2,000.

I

Rent Expense

Rent Expense   Account No: 640
Date		Debit	Credit	Balance
2-Jul		$2,000		$2,000

After entering all the entries, the balance of the rent expense account as of 31 July is computed as $2,000.

J

Repair Expense

Repair Expense   Account No: 684
Date		Debit	Credit	Balance
29-Jul		$950		$950

After entering all the entries, the balance of the repair expense account as of 31 July is computed as $950.

K

Telephone Expense

Telephone Expense   Account No: 688
Date		Debit	Credit	Balance
30-Jul		$400		$400

After entering all the entries, the balance of the telephone expense account as of 31 July is computed as $400.

3.

To determine

Financial statement analysis:

The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare:The unadjusted trial balance as of July 31.

Explanation of Solution

The unadjusted trial balance is prepared as follows:

Company S
Unadjusted trial balance
31-Jul
Particulars	Debit ($)	Credit($)
Cash	22,850
Accounts receivable	0
Office supplies	2,400
Prepaid Insurance	7,200
Buildings	150,000
Accumulated depreciation-Buildings		0
Salaries payable		0
Company S Capital		180,000
Dividends	2,000
Storage fees earned		9,800
Depreciation expense-Buildings	0
Salaries expense	2,000
Insurance expense	0
Rent expense	2,000
Office supplies expense	0
Rent expense	950
Telephone expense	400
Total	189,800	189,800

Therefore, the total amount of unadjusted trail balance is $189,800.

4.

To determine

Financial statement analysis:

The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: The journal entries and ledger accounts for adjusting entries.

Explanation of Solution

Date	Particulars	Debit ($)	Credit ($)
31-Jul	Insurance expense	400
	Prepaid insurance		400
	(To record expiration of prepaid insurance)
31-Jul	Office supplies expense	875
	Office Supplies		875
	(To record cost of supplies used)
31-Jul	Depreciation expense	1,500
	Accumulated depreciation		1,500
	(To record depreciation of computer equipment)
31-Jul	Salaries expense	100
	Salaries payable		100
	(To record accrued salaries but not paid)
31-Jul	Accounts receivable	1,150
	Storage fees earned		1,150
	(To record accrued commission but not received)

The ledger accounts are prepared as follows:

Insurance expense   Account No: 637
Date	Explanation	Debit	Credit	Balance
31-Jul		$400		$400

Prepaid Insurance   Account No: 128
Date		Debit	Credit	Balance
10-Jul		$7,200		$7,200
31-Jul			$400	$6,800

Office supplies expense   Account No: 650
Date	Explanation	Debit	Credit	Balance
31-Jul		$875		$875

Office Supplies   Account No: 124
Date	Explanation	Debit	Credit	Balance
5-Jul		$2,400		$2,400
31-Jul			$875	$1,525

Depreciation expense - buildings   Account No: 506
Date	Explanation	Debit	Credit	Balance
31-Jul		$1,500		$1,500

Accumulated depreciation - buildings   Account No: 174
Date	Explanation	Debit	Credit	Balance
31-Jul			$1,500	$1,500

Salaries expense   Account No: 622
Date		Debit	Credit	Balance
14-Jul		$1,000		$1,000
28-Jul		$1,000		$2,000
31-Jul		$100		$2,100

Salary payable   Account No: 209
Date		Debit	Credit	Balance
31-Jul			$100	$100

Account receivable   Account No: 106
Date		Debit	Credit	Balance
31-Jul		$1,150		$1,150

Storage fees earned   Account No: 401
Date		Debit	Credit	Balance
24-Jul			$9,800	$9,800
31-Jul			$1,150	$10,950

5.

To determine

Financial statement analysis:

The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: The adjusted trial balance, the income statement, statement of retained earnings and the balance sheet.

Explanation of Solution

An adjusted trial balance is prepared as follows:

Company S
Adjusted trial balance
31-Jul
Particulars	Debit ($)	Credit($)
Cash	22,850
Accounts receivable	1,150
Office supplies	1,525
Prepaid Insurance	6,800
Buildings	150,000
Accumulated depreciation-Buildings		1,500
Salaries payable		100
Company S Capital		180,000
Dividends	2,000
Storage fees earned		10,950
Depreciation expense-Buildings	1,500
Salaries expense	2,100
Insurance expense	400
Rent expense	2,000
Office supplies expense	875
Rent expense	950
Telephone expense	400
Total	192,550	192,550

Therefore, the total amount of the trial balance is $192,550.

The income statement is prepared as follows:

Company S
Income statement
For the year ended July 31
Particulars	Amount($)	Amount($)
Revenues: Storage fees earned		10,950
Less: expenses
Depreciation expense-Buildings	1,500
Salaries expense	2,100
Insurance expense	400
Rent expense	2,000
Office supplies expense	875
Repair expense	950
Telephone expense	400
Total expense		8,225
Net Income		2,725

Therefore, the net income is $2,725.

The statement of retained earnings is prepared as follow:

Company S Statement of retained earnings For the year ended July 31
Particulars	Amount ($)
Opening balance	0
Add: net income	2,725
Less: dividends	(2,000)
Ending balance	725

Company S
Balance Sheet
31-Jul
Assets		Amount($)
Cash		22,850
Accounts receivable		1,150
Office supplies		1,525
Prepaid insurance		6,800
Buildings	150,000
Accumulated depreciation - Buildings	-1,500	148,500
Total assets		180,825
Liabilities
Salaries payable		100
Equity
Company S capital		180,000
Retained earnings		725
Total Liabilities and Equity		180,825

Therefore, the balance sheet total is $180,825.

6.

To determine

Financial statement analysis:

The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: The closing journal entries. Also, prepare ledger accounts for them.

Explanation of Solution

Closing entries for are prepared as follows:

Date	Particulars	Debit ($)	Credit ($)
31-Jul	Storage fees earned	10,950
	Income summary		10,950
	(To close revenue account)
31-Jul	Income summary	8,225
	Depreciation expense		1,500
	Salaries expense		2,100
	Office supplies expense		875
	Insurance expense		400
	Rent expense		2,000
	Telephone expense		400
	(To close expense account)
31-Jul	Income summary	2,725
	Retained earnings		2,725
	(To close income summary)
31-Jul	Retained earnings	2,000
	Dividends		2,000
	To close dividends account)

The ledger accounts are prepared as follows:

Income summary   Account No: 901
Date		Debit	Credit	Balance
31-Jul			$10,950	$10,950
31-Jul		$8,225		$2,725
31-Jul		$2,725		0

Dividends   Account No: 319
Date		Debit	Credit	Balance
31-Jul		$2,000		$2,000
31-Jul			$2,000	0

Retained earnings   Account No: 318
Date		Debit	Credit	Balance
31-Jul			$2,725	$2,725
31-Jul		$2,000		$725

7.

To determine

Financial statement analysis:

The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: Post-closing trial-balance.

Explanation of Solution

Post-closing trial balance is prepared as follows:

Company S
Post-closing trial balance
31-Jul
Particulars	Debit ($)	Credit($)
Cash	22,850
Accounts receivable	1,150
Office supplies	1,525
Prepaid Insurance	6,800
Computer equipment	150,000
Accumulated depreciation-Buildings		1,500
Salaries payable		100
Company S Capital		180,000
Retained earnings		725
Total	182,325	182,325

Therefore, the post-closing trial balance amount is $182,325.