Concept explainers
Preparing
Bill’s Boards (BB) is an outdoor advertising company founded by William Longfall. William knows very little accounting so he hired a friend to “keep the books.” Unfortunately, William did not review his friend’s work and now it seems his friend has made a mess of the accounting records. William has provided you the following list of unadjusted account balances at BB’s September 30 fiscal year-end. You have reviewed the balances with William and made notes shown in the right column.
Required:
- 1. Use the notes to determine and record the adjusting
journal entries needed on September 30 to (a) fix the premature recording of advertising revenue, (b) update the rent accounts, (c) account for the use of equipment, (d) update deferred revenue, (e) accrue revenue not yet billed, (f ) accrue unpaid wages, (g) correct the supplies accounts, and (h) accrue income taxes for the year. - 2. Post the adjusting journal entries from requirement 1 to T-accounts to determine new adjusted balances, and prepare an adjusted trial balance. (If you are completing this exercise using the general ledger tool in Connect, this requirement will be completed automatically for you.)
- 3. Using the adjusted account balances from requirement 2, prepare an income statement, statement of
retained earnings , and classifiedbalance sheet .
a.
Record the adjusting journal entries needed on September 30.
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.
Record the adjusting journal entries needed on September 30 as follows:
Date | Particulars | Debit ($) | Credit ($) | |
(a) | Service Revenue (+R, +SE) | 1,000 | ||
Accounts Receivable (+A) | 1,000 | |||
(To record the service revenue recognized on account) | ||||
(b) | Rent Expense (+E, –SE) (1) | 500 | ||
Prepaid Rent (–A) | 500 | |||
(To record the interest expense incurred at the end of the accounting year) | ||||
(c) | Depreciation Expense (+E, –SE) | 1,500 | ||
Accumulated Depreciation (+xA, –A) | 1,500 | |||
(To record the depreciation expense incurred at the end of the accounting year) | ||||
(d) | Deferred Revenue (–L) (2) | 500 | ||
Service Revenue (+R, +SE) | 500 | |||
(To record the service revenue recognized at the end of the accounting year) | ||||
(e) | Accounts Receivable (+A) | 2,000 | ||
Service Revenue (+R, +SE) | 2,000 | |||
(To record the service revenue earned on account) | ||||
(f) | Salaries and Wages Expense (+E, –SE) (3) | 2,000 | ||
Salaries and Wages Payable (+L) | 2,000 | |||
(To record the salaries and wages expense incurred at the end of the accounting year) | ||||
(g) | Supplies (+A) | 200 | ||
Supplies Expense (–E, +SE) | 200 | |||
(To record supplies expense incurred at the end of the accounting year) | ||||
(h) | Income Tax Expense (+E, –SE) ( 5) | 2,000 | ||
Income Tax Payable (+L) | 2,000 | |||
(To record the income tax expense incurred at the end of the accounting year) |
Table (1)
Working note 1:
Calculate the value of rent expense.
Working note 2:
Calculate the value of deferred revenue.
Working note 3:
Calculate the value of salaries and wages expense (adjusted).
Working note 4:
Calculate the unadjusted net income.
Working note 5:
Calculate the value of income tax expense:
Note: Supplies costing of $200 on hand on September 30 is considered as the supplies expense incurred at the end of the accounting year.
b.
Post the adjusting journal entries to T-accounts to determine the new adjusted balance and prepare the adjusted trial balance.
Explanation of Solution
Post the adjusting journal entries to T-accounts to determine the new adjusted balance as follows:
Cash (A) | |||
Beg. | 13,000 | ||
13,000 |
Supplies (A) | |||
Beg. | 0 | ||
g. | 200 | ||
200 |
Accounts Payable (L) | |||
2,000 | Beg. | ||
2,000 |
Income Tax Payable (L) | |||
250 | Beg. | ||
2,000 | h. | ||
2,250 |
Service Revenue (R) | |||
a. | 1,000 | 60,700 | Beg. |
500 | d. | ||
2,000 | e. | ||
62,200 |
Rent Expense (E) | |||
Beg. | Beg. 400 | ||
b. | 500 | ||
900 |
Accounts Receivable (A) | |||
Beg. | 1,000 | ||
e. | 2,000 | 1,000 | a. |
2,000 |
Equipment (A) | |||
Beg | 6,000 | ||
6,000 |
Deferred Revenue (L) | |||
1,500 | Beg. | ||
d. | 500 | ||
1,000 |
Common Stock (SE) | |||
1,000 | Beg. | ||
1,000 |
Salaries and Wages Expense (E) | |||
Beg. | 46,000 | ||
f. | 2,000 | ||
48,000 |
Supplies Expense (E) | |||
Beg. | 2,000 | ||
200 | g. | ||
1,800 |
Prepaid Rent (A) | |||
Beg. | 800 | ||
500 | (b) | ||
300 |
Accumulated Depreciation (xA) | |||
0 | Beg. | ||
1,500 | c. | ||
1,500 |
Salaries and Wages Payable (L) | |||
0 | Beg. | ||
2,000 | f. | ||
2,000 |
Retained Earnings (SE) | |||
3,750 | Beg. | ||
3,750 |
Depreciation Expense (E) | |||
Beg. | 0 | ||
c. | 1,500 | ||
1,500 |
Income Tax Expense | |||
Beg. | 0 | ||
h. | 2,000 | ||
2,000 |
Prepare the adjusted trial balance as follows:
Company B | ||
Adjusted Trial Balance | ||
September, 30 | ||
Account Titles | Debit ($) | Credit ($) |
Cash | 13,000 | |
Accounts Receivable | 2,000 | |
Prepaid Rent | 300 | |
Supplies | 200 | |
Equipment | 6,000 | |
Accumulated Depreciation | 1,500 | |
Accounts Payable | 2,000 | |
Deferred Revenue | 1,000 | |
Salaries and Wages Payable | 2,000 | |
Income Tax Payable | 2,250 | |
Common Stock | 1,000 | |
Retained Earnings | 3,750 | |
Service Revenue | 62,200 | |
Salaries and Wages Expense | 48,000 | |
Supplies Expense | 1,800 | |
Depreciation Expense | 1,500 | |
Rent Expense | 900 | |
Income Tax Expense | 2,000 | |
Totals | 75,700 | 75,700 |
Table (2)
c.
Prepare an income statement, statement of retained earnings, and classified balance sheet of company B.
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections, and sub-sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.
Prepare an income statement, statement of retained earnings, and classified balance sheet as follows:
Company B | ||
Income Statement | ||
For the Year Ended September 30 | ||
Particulars | $ | $ |
Service Revenue | 62,200 | |
Less: Expenses | ||
Salaries and Wages Expense | 48,000 | |
Supplies Expense | 1,800 | |
Depreciation Expense | 1,500 | |
Rent Expense | 900 | |
Income Tax Expense | 2,000 | |
Total Expenses | 54,200 | |
Net Income | 8,000 |
Table (3)
Company B | |
Statement of Retained Earnings | |
For the Year Ended September 30 | |
Particulars | $ |
Beginning Balance | 3,750 |
Add: Net Income | 8,000 |
Less: Dividends | - |
Ending Balance | 11,750 |
Table (4)
Figure (1)
Want to see more full solutions like this?
Chapter 4 Solutions
Fundamentals Of Financial Accounting
- Prepare a journal entry on December 23 for the withdrawal of $22,500 by Graeme Schneider for personal use. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.arrow_forwardCurrent Attempt in Progress Before preparing financial statements for the current year, the chief accountant for Sunland Company discovered the following errors in the accounts. 1. 2. 3. 1. Prepare the correcting entries at December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation N The declaration and payment of $48,500 cash dividend was recorded as a debit to Interest Expense $48,500 and a credit to Cash $48,500. No. Date Dec. 31 2. A 10% stock dividend (1,400 shares) was declared on the $12 par value stock when the market price per share was $18. The only entry made was Stock Dividends (Dr.) $16,800 and Dividend Payable (Cr.) $16,800. The shares have not been issued. 3. A 4-for-1 stock split involving the issue of 357,000 shares of $5 par value common stock for 89,250 shares of $20 par value common stock…arrow_forwardNote:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
- Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardCreative Solutions Company, a computer consulting firm, has decided to write off the $15,220 balance of an account owed by a customer, Wil Treadwell. Question Content Area a. Journalize the entry to record the write-off, assuming that the direct write-off method is used. If an amount box does not require an entry, leave it blank. blank Account Debit Credit blank Bad Debt Expense Bad Debt Expense Accounts Receivable-Wil Treadwell Accounts Receivable-Wil Treadwell Feedback Area Feedback Remember that under the direct write-off method, Bad Debt Expense is not recorded until the customer's account is determined to be worthless. Question Content Area b. Journalize the entry to record the write-off, assuming that the allowance method is used. If an amount box does not require an entry, leave it blank. blank Account Debit Credit blank Allowance for Doubtful Accounts Allowance for Doubtful Accountsarrow_forwardQuestion: Gideon method Company uses the allowance of accounting uncollectable accounts. for On May 3, the Gideon Company wrote the $2,000 off account Hopkins. of uncollectable its customer, A. On July 10, Gideon received a check for the full amount of of $2,000 from Hopkins. On July 10, what what are the entry or entries Gideon makes to record the recovery of the bad debt?arrow_forward
- Write off and Recovery Entries Prepare the appropriate journal entries for the following transactions for Warren Co. a. On February 1, the company determined that $6,800 in customer accounts is uncollectible; specifically, $900 for DeadBeat Co. and $5,900 for NoPay Co. Prepare the journal entry to write off those accounts. b. On June 5, the company unexpectedly received a $900 payment on a customer account, Dead Beat Company, that had previously been written off in part a. Prepare the entries necessary to reinstate the account and to record the cash received.arrow_forwardWaffle Shack is a registered vendor, with a number of transactions in July that it has not yet encountered. It needs assistance in recording these transactions in its financial records. In order to assist the business, prepare the general journal entries (with narrations) for the following three transactions (voucher and folio numbers are not required): Transaction 1 As a result of one of the finance staff members being on leave and no one fulfilling the role, the business did not settle one of their outstanding supplier accounts within the settlement period. As a result, the supplier charged them interest for one month on their outstanding balance of R146 000 on 31 July, with the supplier's annual interest charge being 20%. Date Details Debit Credit Transaction 2 The owner of the business took a waffle iron from the business for use in her home on 15 July. The business initially purchased the waffle iron for R7 500. Its market value is now R5 250. Date Details Debit Credit Transaction…arrow_forwardcompany’s accounting records provide the following information concerning certain account balances and changes in the account balances during the current year. Transaction information is missing from each of the below. Prepare the journal entry to record the information for each account. b. Allowance for Doubtful Accounts: Jan. 1 balance, $1,500; Dec. 31 balance, $2,200; adjusting entry increasing allowance on Dec. 31, $4,800. Record write-off uncollectible accounts receivable. c. Inventory of office supplies: Jan. 1 balance, $1,500; Dec. 31 balance, $1,350; office supplies expense for the year, $9,500. Record purchase of office supplies. d. Equipment: Jan. 1 balance, $20,500; Dec. 31 balance, $18,000; equipment costing $8,000 was sold during the year. Record purchase of equipment. e. Accounts Payable: Jan. 1 balance $9,000; Dec. 31 balance, $11,500; purchases on - account for the year, $48,000. Record cash payments. Please dont provide solution in image thnxarrow_forward
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub
- Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:CengagePrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College