Chapter 3, Problem 71APSA

Problem 3-71 A Preparing a Worksheet (Appendix 3A)

Marsteller Properties Inc. owns apartments that it rents to university students. At December 31,

2019, the following unadjusted account balances were available:

The following information is available for adjusting entries:

1. An analysis of apartment rental contracts indicates that S3,800 of apartment rent is unbilled and unrecorded at year end.
2. A physical count Of supplies reveals that $1,400 of supplies are on hand at December 31 , 2019.
3. Annual depreciation on the buildings is $204,250.
4. An examination of insurance policies indicates that $12,000 Of the prepaid insurance applies to coverage for 2019.
5. Six months' interest at 9% is unrecorded and unpaid on the notes payable.

To determine

To prepare: Worksheet of the company A.

Introduction:.Worksheet is a statement that represents the unadjusted balances of ledgers, adjustment entries and the balances after such adjustments. Adjusted balances are the final balances that are presented in the financial statements of a company.

Explanation of Solution

Preparation of worksheet for the period ending 31^st December, 2019:

Account Title	UnadjustedTrial balance	Adjustments	AdjustedTrial balance
	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Cash	4,600				4,600
Rent receivable	32,500		3,800		36,300
Supplies	4,700			3,300	1,400
Prepaid insurance	60,000			12,000	48,000
Land	274,000				274,000
Building	4,560,000				4,560,000
Accumulated depriciation-building		1,015,000		204,250		1,219,250
Other assets	26,100				26,100
Accounts payable		57,300				57,300
Interest payable				90,000		90,000
Notes payable		2,000,000				2,000,000
Common stock		1,500,000				1,500,000
Retained earnings opening		39,200				39,200
Rent revenue		660,000		3,800		663,800
Repair and maintenance expense	73,200				73,200
Advertising expense	58,700				58,700
Wages expense	84,300				84,300
Utilities expense	3,400				3,400
Interest expense	90,000		90,000		180,000
Supplies expense			3,300		3,300
Depreciation expense			204,250		204,250
Insurance expense			12,000		12,000
Total	5,271,500	5,271,500	313,350	313,350	5,569,550	5,569,550

   Table (1)

To determine

To prepare: Income statement, statement of retained earnings and balance sheet.

Introduction: Income statement, statement of retained earnings and balance sheet are financial statements. These statements are prepared for reporting purposes.

Explanation of Solution

Preparation of income statement for the Year ending 31^st December, 2019:

CompanyA
Income Statement,For the Year ending on 31stDecember, 2019
	Amount ($)	Amount ($)
Revenues:
Rent revenue	663,800
Total Revenue		663,800
Expenses:
Repair and maintenance expense	73,200
Advertising expense	58,700
Wages Expense	84,300
Utilities Expense	3,400
Insurance Expense	12,000
Interest Expense	180,000
Supplies expense	3,300
Depreciation expense	204,250
Total Expenses		619,150
Net Income		44,650

   Table (2)

Preparation of balance sheet as on 31^st December, 2019:

Company A
Balance Sheet as on 31stDecember 2019
	Amount ($)	Amount($)
Liabilities and Owners Equity
Current Liabilities
Accounts Payable	57,300
Interest Payable	90,000
Total Current Liabilities		147,300
Non-Current Liabilities
Note Payable	2,000,000
Total Non-Current Liabilities		2,000,000
Total Liabilities
Common Stock	1,500,000
Retained Earnings	83,850	1,583,850
Total Liabilities and Owner’s Equity		3,731,150
Current Assets
Cash	4,600
Rent Receivable	36,300
Supplies	1,400
Prepaid insurance	48,000
Other Assets	26,100
Total Current Assets		116,400
Property, Plant and Equipment
Land	274,000
Building	4,560,000
Less: accumulated depreciation	$\left(1,219,250\right)$
Total Property, Plant and Equipment		3,614,750
Total Assets		3,731,150

   Table (3)

Preparation of statement of retained earnings as on 31^st December, 2019:

Company A
Statement of Retained Earning
	Amount($)	Amount($)
Owner’s Equity opening balance	39,200
Add: Capital introduced by owner
Add: Net income	44,650
Total:		83,850
Less: Withdrawals
Closing Balance		83,850

   Table (4)

To determine

To record: closing journal entries.

Introduction: Closing entries are posted to close all the temporary accounts of the accounting books. Closing entries zeros the balances of income statement items, drawings, and dividends.

Explanation of Solution

Recording closing entry for expense accounts:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Income summary		619,150
	Repair and maintenance expense			73,200
	Advertising expense			58,700
	Wages expense			84,300
	Utilities expense			3,400
	Insurance expense			12,000
	Interest expense			180,000
	Supplies expense			3,300
	Depreciation expense			204,250
	(to record closing of expense accounts)

   Table (5)

• Since income summary is a temporary income account, temporary income is decreased. Hence, income summary account is debited.
• Since repair and maintenance expense is an expense, expense is decreased. Hence, repair and maintenance expense account is credited.
• Since advertising expense is an expense, expense is decreased. Hence, advertising expense account is credited.
• Since wages expense is an expense, expense is decreased. Hence, wages expense account is credited.
• Since utilities expense is an expense, expense is decreased. Hence, utilities expense account is credited.
• Since insurance expense is an expense, expense is decreased. Hence, insurance expense account is credited.
• Since interest expense is an expense, expense is decreased. Hence, interest expense account is credited.
• Since supplies expense is an expense, expense is decreased. Hence, supplies expense account is credited.
• Since depreceiation expense is an expense, expense is decreased. Hence, depreceiation -building expense account is credited.

Recording closing entry for revenue accounts:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Rent revenue		663,800
	Income summary			663,800
	(to record closing of revenue account)

   Table (6)

• Since rent revenue is an income, income is decreased. Hence, rent revenue account is debited.
• Since income summary is a temporary income account, temporary income is increased. Hence, income summary account is credited.

Recording transfer of income summary account:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Income summary		44,650
	Retained earnings			44,650
	(to record closing entry)

   Table (7)

• Since income summary is a temporary income account, temporary income is decreased. Hence, income summary account is debited.
• Since retained earnings is a reserve, reserve is increased. Hence, retained earnings account is credited.