Chapter 3, Problem 6BP

2.

To determine

Prepare the journal entries to record the each of the transactions and events for Corporation SS.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Prepare the journal entries.

Date	Account titles and Explanation	Post Ref.	Debit ($)	Credit ($)
July  1	Cash	101	30,000
	Buildings	173	150,000
	Common stock	307		180,000
	(To record the common stock in exchange for cash and building)
July  2	Rent expense	640	2,000
	Cash	101		2,000
	(To record  the rent expense)
July  5	Office supplies	124	2,400
	Cash	101		2,400
	(To record the office supplies)
July  10	Prepaid insurance	128	7,200
	Cash	101		7,200
	(To record the prepaid insurance)
July  14	Salaries expense	622	1,000
	Cash	101		1,000
	(To record the salaries expense)
July  28	Cash	101	9,800
	Storage fees earned	401		9,800
	(To record the storage fees earned)
July  29	Repairs expense	684	950
	Cash	101		950
	(To record the repairs expense)
July  30	Telephone expense	688	400
	Cash	101		400
	(To record the telephone expense)
July  31	Dividends	319	2,000
	Cash	101		2,000
	(To record the payment of dividends)

Table (1)

3.

To determine

Prepare the unadjusted trial balance as on July 31, 2017.

Explanation of Solution

Unadjusted trial balance:

The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.

Prepare the unadjusted trial balance as on July 31, 2017.

Corporation SS
Unadjusted trial balance
For the year ended July 31, 2017
Particulars	Debit($)	Credit ($)
Cash	22,850
Accounts receivable	0
Office supplies	2,400
Prepaid insurance	7,200
Building	150,000
Accumulated depreciation, Building		0
Salaries payable		0
Common stock		180,000
Retained earnings		0
Dividends	2,000
Storage fee earned		9,800
Depreciation expense, Building	0
Salaries expense	2,000
Insurance expense	0
Rent expense	2,000
Office supplies expense	0
Repairs expense	950
Telephone expense	400
Totals	189,800	189,800

Table (2)

4.

To determine

Prepare the adjusting entries as on 31^st July 2017.

Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Prepare the adjusting entries as on 31^st July 2017.

Date	Account titles and Explanation	Post Ref.	Debit ($)	Credit ($)
July  31	Insurance expense $\left(\frac{2}{3}\times \$7,200\times \frac{1}{2}\right)$	637	400
	Prepaid insurance	128		400
	(To record  the adjusting entry for insurance expense)
July  31	Office supplies expense $\left(\$2,400-\$1,525\right)$	650	875
	Office supplies	124		875
	(To record the adjusting entry for office supplies expense)
July  31	Depreciation expense-Buildings	606	1,500
	Accumulated depreciation-Buildings	174		1,500
	(To record the adjusting entry for depreciation expense, Buildings)
July  31	Salaries expense	622	100
	Salaries payable	209		100
	(To record the adjusting entry for salaries expense)
July  31	Accounts receivable	106	1,150
	Storage fees earned	401		1,150
	(To record the adjusting entry for storage fees earned)

Table (3)

5.

To determine

Prepare the adjusted trial balance as of 31^st July 2017.

Explanation of Solution

Adjusted trial balance:

Adjusted trial balance is a summary of all the ledger accounts, and it contains the balances of all the accounts after the adjustment entries are journalized, and posted.

Prepare the adjusted trial balance as of 31^st July 2017.

Corporation SS
Adjusted trial balance
For the year ended July 31, 2017
Particulars	Debit($)	Credit ($)
Cash	22,850
Accounts receivable	1,150
Office supplies	1,525
Prepaid insurance	6,800
Building	150,000
Accumulated depreciation, Building		1,500
Salaries payable		100
Common stock		180,000
Retained earnings		0
Dividends	2,000
Storage fee earned		10,950
Depreciation expense, Building	1,500
Salaries expense	2,100
Insurance expense	400
Rent expense	2,000
Office supplies expense	875
Repairs expense	950
Telephone expense	400
Totals	192,550	192,550

Table (4)

Income statement:

Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

Prepare the income statement for the year ended 31^st July 2017.

Corporation SS
Income statement
For the three months ended July 31, 2017
Particulars	Amount ($)	Amount ($)
Revenues
Storage fee earned	10,950
Total revenue		10,950
Expenses
Depreciation expense, Buildings	1,500
Salaries expense	2,100
Insurance expense	400
Rent expense	2,000
Office supplies expense	875
Repairs expense	950
Telephone expense	400
Total Expenses		8,225
Net income		2,725

Table (5)

Statement of Retained Earnings:

Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.

Prepare the statement of retained earnings for the year ended 31^st July 2017.

Corporation SS
Statement of Retained Earnings
For the three months ended 31st July 2017
Particulars	Amount ($)	Amount ($)
Retained earnings, Beginning	0
Add: Net income	2,725
Subtotal	2,725
Less: Dividends	2,000
Retained earnings, Ending		725

Table (6)

Balance sheet:

This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Prepare the balance sheet as on 31^st July 2017.

Corporation SS
Balance Sheet
As an July 31, 2017
Particulars	Amount($)	Amount($)
ASSETS
Current Assets:
Cash	22,850
Accounts receivable	1,150
Office Supplies	1,525
Prepaid insurance	6,800
Total Current Assets		32,325
Buildings	150,000
Less: Accumulated depreciation, Buildings	1,500	148,500
Total assets		180,825
LIABILITIES
Current Liabilities:
Salaries payable	100
Total current liabilities		100
Long-liabilities:		0
Total liabilities		100
Stockholders’ equity
Paid-in capital
Common stock	180,000
Retained earnings	725
Total Stockholders’ Equity		180,725
Total liabilities and Stockholders’ Equity		180,825

Table (7)

6.

To determine

Record and post the necessary closing entries as of 31^st July 2017.

Explanation of Solution

Closing entries: The journal entries prepared to close the temporary accounts to Retained Earnings account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Prepare the closing entry for revenue accounts.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
July 31	Storage fees earned	401	10,950
	Income summary	901		10,950
	(To close the revenues account)

Table (8)

In this closing entry, revenue accounts are closed by transferring the amount of revenue accounts to the income summary account in order to bring the revenue account balance to zero. Hence, debit the revenue accounts and credit income summary account.

Prepare the closing entry for expenses account.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
July 31	Income summary	901	8,2250
	Depreciation expense-Buildings	606		1,500
	Salaries expense	622		2,100
	Insurance expense	637		400
	Rent expense	640		2,000
	Office supplies expense	650		875
	Repairs expense	684		950
	Telephone expense	688		400
	(To close the expenses account)

Table (9)

In this closing entry, expenses account is closed by transferring the amount of expenses to the income summary in order to bring the expenses account balance to zero. Hence, debit the income summary account and credit all expenses account.

Prepare closing entry for income summary account.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
July 31	Income Summary	901	2,725
	Retained Earnings	308		2,725
	(To close the income summary account)

Table (10)

Closing entry of income summary account:

In this closing entry, income summary account is closed by transferring the amount of income summary (profit) to the retained earnings in order to bring the income summary account balance to zero. Hence, debit the income summary account and credit retained earnings account.

Prepare closing entry for dividend account.

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
July 31	Retained Earnings	318	2,000
	Dividends			2,000
	(To close the dividends account)

Table (11)

In this closing entry, dividend account is closed by transferring the amount of dividend to the retained earnings in order to bring the dividend account balance to zero. Hence, debit the retained earnings account and credit dividend account.

7.

To determine

Prepare the post-closing trial balance as on 31^st July 2017.

Explanation of Solution

Post-closing trial balance:

The post-closing trial balance is a summary of all ledger accounts, and it shows the debit and the credit balances after the closing entries are journalized and posted.  The post-closing trial balance contains only permanent (balance sheet) accounts, and the debit and the credit balances of permanent accounts should agree.

Prepare the post-closing trial balance as on 31^st July 2017.

Corporation SS
Adjusted trial balance
For the year ended July 31, 2017
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
Common stock		180,000
Retained earnings		725
Totals	182,325	182,325

Table (11)

1, 2, 4, and 6

To determine

Post the transactions to the general ledger.

Explanation of Solution

Post the transactions to the general ledger.