Chapter 4, Problem 2APSA

REQUIREMENT 1

To determine

TO CALCULATE

We need to calculate the 10 column worksheet for the fiscal year 2015.

SOLUTIONS

CONSTRUCTION COMPANY
10 COLOUMN WORKSHEET
As on 31st December, 2015
PARTICULARS	UNADJUSTED TRIAL BALANCE	ADJUSTMENTS	ADJUSTED TRAIL BALANCE	INCOME STATEMENT	OWNERS EQUITY BALANCE SHEET
DEBIT ($)	CREDIT($)	DEBIT ($)	CREDIT($)	DEBIT ($)	CREDIT ($)	DEBIT ($)	CREDIT ($)	DEBIT($)	CREDIT ($)
Cash	18500				18500				18500
Prepaid Insurance	7200			3800	3400				3400
Office supplies	9900			6600	3300				3300
Equipments	132,000				132000				132000
Accumulated Depreciation -Equipment		26,250		8400		34,650				34650
Account payable		6800				6800				6800
Notes Payable				5000		5000				5000
Interest payable		0		250		250				250
Rent payable		0		500		500				500
Utilities Payable		0		650		650				650
Wages payable		0		1800		1800				1800
Property tax payable		0		1000		1000				1000
Long Terms Note payable		25,000	5000			20,000				20000
V. Ace capital		88660				88660				88660
V. ace withdrawals	33,000				33000				33000
Construction Fees earned		132100				132100		132100
Depreciation Expenses	0		8400		8400		8400
Wages Expenses	46860		1800		48660		48660
Supplies Expenses	0		6600		6600		6600
Interest Expenses	2750		250		3000		3000
Insurance Expenses	0		3800		3800		3800
Property tax expenses	7800		1000		8800		8800
Rent Expenses	12000		500		12500		12500
Repairs Expenses	2910				2910		2910
Utilities Expenses	5890		650		6540		6540
TOTAL	278810	278810	28000	28000	291410	291410	101210	132100	190200	159310
Net Income							30890			30890
TOTAL							132100	132100	190200	190200

EXPLANATION

A 10 Column worksheet starts with Unadjusted Trail balance in which we have to do the adjustments.

1. Given in the sum closing supplies $3300 will be reflect as Supplies in balance sheet and difference $6600 will be charged as expenses.

  $\begin{array}{l}\text{Closing supplies = \$3,300}\\ \text{Suppiles Utilized = Opening Supplies + Purchases - Closing Supplies}\\ \text{Supplies Utilized = \$9900 + 0 - \$3300}\\ \text{Supplies Utilized = \$6600}\end{array}$
2. The insurance expired will be charged to expenses and remaining unexpired insurance will be shown as Prepaid Insurance in the balance sheet.

  $\begin{array}{l}\text{Closing Prepaid Insurance = Opening Prepaid - Utilised}\\ \text{Closing prepaid Insurance = \$7200 - \$3800}\\ \text{Closing prepaid Insurance = \$3400}\end{array}$
3. Annual Depreciation will be charged to expenses and added to Accumulated depreciation account. Hence Annual Depreciation of $8400 is debited as Depreciation expense and also credited to Accumulated depreciation account.
4. Utilities expenses of $650 is recorded as Expenses and the Utilities payable account as a liabilities is also created of $650.
5. Accrued wages of $1800 were debited as an Expenses and Wages payable were credited at the same amount showing as liabilities payable.
6. Outstanding rent expenses were also recorded as expenses and debited and simultaneously a rent payable account is created as a liability.
7. Another liability of Property tax has not been paid but must be recorded in books as per accrual basis and hence debited as an expense and simultaneously liabilities credit under property tax payable account.
8. Accrued expenses for 1 month must be recorded as per accrual basis of accounting and hence $250 must be recorded as an expenses.

Also Notes payable of $5000 is to be shown as current liabilities because payable is due in less than 1year so we have to debit the Long term loan payable and credit the short term loan payable to reduce the long term loan payable and create a new short term loan payable.

Answer to Problem 2APSA

SOLUTIONS

CONSTRUCTION COMPANY
10 COLOUMN WORKSHEET
As on 31st December, 2015
PARTICULARS	UNADJUSTED TRIAL BALANCE	ADJUSTMENTS	ADJUSTED TRAIL BALANCE	INCOME STATEMENT	OWNERS EQUITY BALANCE SHEET
DEBIT ($)	CREDIT($)	DEBIT ($)	CREDIT($)	DEBIT ($)	CREDIT ($)	DEBIT ($)	CREDIT ($)	DEBIT($)	CREDIT ($)
Cash	18500				18500				18500
Prepaid Insurance	7200			3800	3400				3400
Office supplies	9900			6600	3300				3300
Equipments	132,000				132000				132000
Accumulated Depreciation -Equipment		26,250		8400		34,650				34650
Account payable		6800				6800				6800
Notes Payable				5000		5000				5000
Interest payable		0		250		250				250
Rent payable		0		500		500				500
Utilities Payable		0		650		650				650
Wages payable		0		1800		1800				1800
Property tax payable		0		1000		1000				1000
Long Terms Note payable		25,000	5000			20,000				20000
V. Ace capital		88660				88660				88660
V. ace withdrawals	33,000				33000				33000
Construction Fees earned		132100				132100		132100
Depreciation Expenses	0		8400		8400		8400
Wages Expenses	46860		1800		48660		48660
Supplies Expenses	0		6600		6600		6600
Interest Expenses	2750		250		3000		3000
Insurance Expenses	0		3800		3800		3800
Property tax expenses	7800		1000		8800		8800
Rent Expenses	12000		500		12500		12500
Repairs Expenses	2910				2910		2910
Utilities Expenses	5890		650		6540		6540
TOTAL	278810	278810	28000	28000	291410	291410	101210	132100	190200	159310
Net Income							30890			30890
TOTAL							132100	132100	190200	190200

Explanation of Solution

A 10 Column worksheet starts with Unadjusted Trail balance in which we have to do the adjustments.

1. Given in the sum closing supplies $3300 will be reflect as Supplies in balance sheet and difference $6600 will be charged as expenses.

  $\begin{array}{l}\text{Closing supplies = \$3,300}\\ \text{Suppiles Utilized = Opening Supplies + Purchases - Closing Supplies}\\ \text{Supplies Utilized = \$9900 + 0 - \$3300}\\ \text{Supplies Utilized = \$6600}\end{array}$
2. The insurance expired will be charged to expenses and remaining unexpired insurance will be shown as Prepaid Insurance in the balance sheet.

  $\begin{array}{l}\text{Closing Prepaid Insurance = Opening Prepaid - Utilised}\\ \text{Closing prepaid Insurance = \$7200 - \$3800}\\ \text{Closing prepaid Insurance = \$3400}\end{array}$
3. Annual Depreciation will be charged to expenses and added to Accumulated depreciation account. Hence Annual Depreciation of $8400 is debited as Depreciation expense and also credited to Accumulated depreciation account.
4. Utilities expenses of $650 is recorded as Expenses and the Utilities payable account as a liabilities is also created of $650.
5. Accrued wages of $1800 were debited as an Expenses and Wages payable were credited at the same amount showing as liabilities payable.
6. Outstanding rent expenses were also recorded as expenses and debited and simultaneously a rent payable account is created as a liability.
7. Another liability of Property tax has not been paid but must be recorded in books as per accrual basis and hence debited as an expense and simultaneously liabilities credit under property tax payable account.
8. Accrued expenses for 1 month must be recorded as per accrual basis of accounting and hence $250 must be recorded as an expenses.

Also Notes payable of $5000 is to be shown as current liabilities because payable is due in less than 1year so we have to debit the Long term loan payable and credit the short term loan payable to reduce the long term loan payable and create a new short term loan payable.

Conclusion

Hence we have analyze both the scenario and discovered that both will have effect on the 10 column worksheet and error A cannot be identified on the face of financial statement but error B can

REQUIREMENT 2

To determine

TO CALCULATE

We need to calculate the adjustment entries during the period and pass the respective journal entries for each entry.

SOULTION

ADJUSTING ENTRIES IN THE BOOKS OF ACE CONSTRUCTION COMPANY
FOR THE YEAR ENDED 31st DECEMBER, 2015
No.	PARTICULARS	DEBIT ($)	CREDIT ($)
a.	Supplies Expenses	6,600
	Office supplies		6,600
	(Being supplies Expenses incurred recorded)
b.	Insurance Expenses	3,800
	Prepaid Insurance		3,800
	(Being Insurance Expenses expired recorded)
		8,400
c.	Depreciation Expenses		8,400
	Accumulated Depreciation
	(Being Depreciation Expenses recorded)
d.	Utilities Expenses	650
	Utilities Payable		650
	(Being Utilities Expenses recorded)
e.	Wages Expenses	1800
	Wages Payable		1800
	(Being Wages Expenses Incurred Recorded)
f.	Rent Expenses	500
	Rent payable		500
	(Being Rent Expenses Incurred recorded)
g.	Property Tax Expenses	1000
	Property Tax Payable		1000
	(Being Property Tax expenses Recorded)
h.	Interest Expenses	250
	Interest Payable		250
	(Being Interest Expenses Recognized)
	Long term Notes Payable	5000
	Current Notes Payable		5000
	(Being 5000 Notes payable recorded as current liabilities and deducted from long term notes)

Explanation of Solution

1. Given in the sum closing supplies $3300 will be reflect as Supplies in balance sheet and difference $6600 will be charged as expenses.

  $\begin{array}{l}\text{Closing supplies = \$3,300}\\ \text{Suppiles Utilized = Opening Supplies + Purchases - Closing Supplies}\\ \text{Supplies Utilized = \$9900 + 0 - \$3300}\\ \text{Supplies Utilized = \$6600}\end{array}$
2. The insurance expired will be charged to expenses and remaining unexpired insurance will be shown as Prepaid Insurance in the balance sheet.

  $\begin{array}{l}\text{Closing Prepaid Insurance = Opening Prepaid - Utilised}\\ \text{Closing prepaid Insurance = \$7200 - \$3800}\\ \text{Closing prepaid Insurance = \$3400}\end{array}$
3. Annual Depreciation will be charged to expenses and added to Accumulated depreciation account. Hence Annual Depreciation of $8400 is debited as Depreciation expense and also credited to Accumulated depreciation account.
4. Utilities expenses of $650 is recorded as Expenses and the Utilities payable account as a liabilities is also created of $650.
5. Accrued wages of $1800 were debited as an Expenses and Wages payable were credited at the same amount showing as liabilities payable.
6. Outstanding rent expenses were also recorded as expenses and debited and simultaneously a rent payable account is created as a liability.
7. Another liability of Property tax has not been paid but must be recorded in books as per accrual basis and hence debited as an expense and simultaneously liabilities credit under property tax payable account.
8. Accrued expenses for 1 month must be recorded as per accrual basis of accounting and hence $250 must be recorded as an expenses.

Also Notes payable of $5000 is to be shown as current liabilities because payable is due in less than 1year so we have to debit the Long term loan payable and credit the short term loan payable to reduce the long term loan payable and create a new short term loan payable.

TO PREPARE

To determine

We need to prepare the closing entries to be made for the year ended 2015.

Answer to Problem 2APSA

SOLUTION

CLOSING ENTRIES IN THE BOOKS OF ACE CONSTRUCTION COMPANY
FOR THE YEAR ENDED 31st DECEMBER, 2015
No.	PARTICULARS	DEBIT ($)	CREDIT ($)
1	REVENUE
	Construction Fee Earned	132,100
	Income Summary		132,100
2	EXPENSES
	Income Summary	101,210
	Depreciation Expenses		8,400
	Wages Expenses		48,660
	Insurance Expenses		3,800
	Interest Expenses		3,000
	Property tax expenses		8,800
	Repairs Expenses		2,910
	Utilities Expenses		6,540
	Rent expenses		12,500
	Supplies expenses		6,600
3	NET INCOME FOR THE YEAR TRANSFER TO CAPITAL
	Income Summary	30,890
	V Ace Capital		30,890
4	REDUCTION IN OWNERS CAPITAL DUE TO DRAWING
	V Ace Capital	33,000
	V Ace Withdrawals		33,000

Explanation of Solution

1. The first journal entries represent the Income that is made during the year. We transfer the income to a notional account we create named as Income summary account in which we transfer the Income and Expenses and any excess or deficit is adjusted with the capital Account.
Since revenue is a credit item so we debit the revenue and credit the income summary account. In this way we have transfer the revenue to Income summary account.

2. In the second entry we transfer all the expenses to income summary account by debiting the Income summary and crediting all the expenses during the year.
3. In the 3^rd entry we find out the surplus in income summary account after the debit and credit od revenue and expenses and transfer the surplus to capital account. The surplus calculated as shown below:-

  $\begin{array}{l}\text{Surplus Revenue in income summary account,}\\ \text{Surplus = Revenue - Expenses}\\ \text{Surplus = \$132,100 - \$101,210}\\ \text{Surplus = \$30,890}\end{array}$
4. In this we have simply reduced the partners’ capital account by the amount of withdrawals they made during the year.

REQUIREMENT 3A

To determine

TO PREPARE We need to prepare the Income statement account and closing balance of owner’s equity of Ace Construction Company for the fiscal year 2015.

Answer to Problem 2APSA

SOLUTION

ACE CONSTRUCTION COMAPANY
Income Statement Account
For the year ended 31 December, 2015
REVENUES
Construction Fee Earned		132,100
EXPENSES
Depreciation Expenses	8,400
Wages Expenses	48,660
Insurance Expenses	3,800
Interest Expenses	3,000
Property tax expenses	8,800
Repairs Expenses	2,910
Utilities Expenses	6,540
Rent expenses	12,500
Supplies expenses	6,600
TOTAL EXPENSES		101,210
NET INCOME		30,890
ACE CONSTRUCTION COMPANY
Statement of Owners Equity
For the year ended 31 December, 2015
V ACE, Capital as on, 31 December, 2014			88,660
Add: Net Income			30,890
			119,550
Less: Withdrawals			33000
V ACE, Capital as on, 31 December, 2015			86,550

Explanation of Solution

1. An income statement account is the Net income during the period. It can be calculated as follows:

  $\begin{array}{l}\text{Net Income = Revenue - Expenses}\\ \text{Net Income = Revenue - (}DepreciationExpenses\text{+}WagesExpenses+InsuranceExpenses+InterestExpenses\\ \text{ +}Propertytaxexpenses+RepairsExpenses+UtilitiesExpenses+Rentexpenses\\ \text{ +}Suppliesexpenses\\ \text{Net Income = \$132100 - \$(8400+48660+3800+3000+8800+2910+6540+12500+6600)}\\ \text{Net Income = \$132,100 - \$101,210}\\ \text{Net Income = \$30,890}\end{array}$

2. A closing balance of owners’ equity can be calculated as shown below:-

  $\begin{array}{l}\text{Closing balance of owner equity = Opening balance + Net Income - Withdrawals}\\ \text{Closing balance of owner equity = }\$88660+\$30890-\$33000\\ \text{Closing balance of owner equity = }\$86550\end{array}$

REQUIREMENT 3A

To determine

TO CALCULATE We need to calculate the Classified Balance sheet for the fiscal year 2015 of Ace Construction Company.

Answer to Problem 2APSA

SOLUTION

ACE CONSTRUCTION COMPANY Classified Balance sheet As on December 31, 2015
ASSETS	AMOUNT ($)	LIABILITY & EQUITY	AMOUNT ($)
I. CURRENT ASSETS		I. CURRENT LIABILITIES
Cash	$18,500.00	Account payable	$6,800.00
Prepaid Insurance	$3,400.00	Notes Payable	$5,000.00
Office supplies	$3,300.00	Interest payable	$250.00
Total Current Assets=	$25,200.00	Rent payable	$500.00
		Utilities Payable	$650.00
II. NON CURRENT ASSET		Wages payable	$1,800.00
Equipment $132,000		Property tax payable	$1,000.00
Less: Accumulated Depreciation $34,650	$97,350.00	Total Current Liabilities=	$16,000.00
		II. NON CURRENT LIABILITIES
		Long Terms Note payable	$20,000.00
		TOTAL LIABILITIES =	$36,000.00
		III. STOCKHOLDERS EQUITY
		Owners Capital	$86,550.00
TOTAL ASSET=	$122,550.00	TOTAL EQUITY AND LIABILITIES=	$122,550.00

Explanation of Solution

A Classified balance sheet consists of 2 parts in Assets and Owners Equity&liabilities which is shown as Current and Non Current Items.

FOR ASSETS SIDE WE HAVE,

  $\begin{array}{l}\text{I}\text{. Current Asset = Cash + Prepaid + Office Supplies }\\ \text{ Current Asset = \$18500 +\$3400 +\$3300}\\ \text{ Current Asset = \$25200}\\ \text{II}\text{. Non Current Asset = Equipment - Accumulated Depreciation }\\ \text{ Non Current Asset = \$132000 - \$34650}\\ \text{ Non Current Asset = \$97350}\\ \text{III}\text{. Total Asset = Current Asset + Non Current Asset}\\ \text{ Total Asset = \$25200 + \$97350}\\ \text{ Total Asset = \$122550}\end{array}$

FOR LIABILITIES SIDE WE HAVE,

  $\begin{array}{l}\text{I}\text{. Current Liabilities = Account payable+Notes payable+Interest payable+Rent payable+utilities payable}\\ \text{ +wages payable+property tax payable}\\ \text{ Current Liabilities = \$(6800+5000+250+500+650+1800+1000})\\ \text{ Current Liabilities = \$16000}\\ \text{II}\text{. Non Current Liabilities = Long term Notes payable}\\ \text{ Non current Liabilities = \$20000}\\ \text{III}\text{. Total Liabilities = Current Liabilities + Non current Liabilities}\\ \text{ Total Liabilities = \$16000 + \$20000}\\ \text{ Total Liabilities = \$36000}\\ \text{IV}\text{. Total Equity and Laibilities = Total liabilities + Owners capital}\\ \text{ Total Equity and Liabilities = \$36000 + \$86550}\\ \text{ Total Equity and Liabilities =}\$122500\end{array}$

REQUIREMENT 4

To determine

TO CALCULATE We need to analyze the effect of this error on the 10 column worksheet and then describe wether this error will be discovered on balance sheet or not.

Answer to Problem 2APSA

SOLUTION

1. Will have effect on 10 column worksheet and this error cannot be discovered in the balance sheet.
2. Will have effect on 10 column worksheet and this error can be discovered in balance sheet.

Explanation of Solution

A) In this scenario, there was a difference of 3,300 supplies expense that where not charged. Hence the supplies were overvalued and expenses were undervalued. This Error would not likely to be discovered only with the worksheet. As the overvalue and undervalue will automatically balance the work book and the error cannot be discovered on the financial statement. In financial statement Supplies will be overvalued by 3,300 and Ace capital will be overvalued by 3,300.

B) In this scenario Cash balance will be undervalued. As the cash was credited incorrectly by $18,500. This effect can be seen in workbook as the cash balance will be lower by $18,500. So the workbook will not match. This error can be discovered in the workbook itself.

Conclusion

Hence we have analyze both the scenario and discovered that both will have effect on the 10 column worksheet and error A cannot be identified on the face of financial statement but error B can