Chapter 4, Problem 2BPSB

Requirement 1:

To determine

To determine:

We have to determine 10 column worksheet for fiscal year 2015.

Answer to Problem 2BPSB

Solution:

POWER DEMOLITION COMPANY Work Sheet For Year Ended April 30, 2015
		Unadjusted Trial Balance		Adjustments					Adjusted Trial Balance			Income Statement		Balance Sheet and Statement of Owner’s Equity
No.	Account Title	Dr.	Cr.	Dr.		Cr.		Dr.			Cr.	Dr.	Cr.	Dr.	Cr.
101	Cash	7,000						7,000						7,000
126	Supplies	16,000				(a)	8100	7900						7900
128	Prepaid insurance	12,600				(b)	10,600	2000						2000
167	Equipment	200,000						200,000						200,000
168	Accumulated depreciation— Equipment		14,000			(c)	7,000			21,000					21,000
201	Accounts payable		6800			(d)	800			7600					7600
203	Interest payable					(h)	300			300					300
208	Rent payable					(f)	3000			3000					3000
210	Wages payable					(e)	2,000			2,000					2,000
213	Property taxes payable					(g)	550			550					550
251	Long-term notes payable		30,000							30,000					30,000
301	J. Bon, Capital		86,900							86,900					86,900
302	J.Bonr, Withdrawals	12,000						12,000						12,000
401	Demolition fees earned		187,000							187,000			187,000
612	Depreciation expense— Equipment			(c)	7,000			7,000				7,000
623	Wages expense	41,400		(e)	2,000			43,400				43,400
633	Interest expense	3300		(h)	300			3600				3600
637	Insurance expense			(b)	10,600			10,600				10,600
640	Rent expense	13,200		(f)	3,000			16,200				16,200
652	Supplies expense			(a)	8100			8100				8100
683	Property taxes expense	9700		(g)	550			10,250				10,250
684	Repairs expense	4,700						4,700				4,700
690	Utilities expense	4,800	______	(d)	800		______	5600 7,500		______		5600	______	______	______
	Totals	324,700	324,700		32,350		32,350	338,550		338,350		109,450	187,000	228,900	151,350
	Net Income											77,550	______	______	77,550
	Totals											187,000	187,000	228,900	228,900

Explanation of Solution

Explanation:

1. There is no adjustment related to cash thus the balance of cash in unadjusted trial balance will be reported in balance sheet.
2. the adjustment related to supplies will be added to the balance of supplies in unadjusted trial balance and the final amount will be reported in balance sheet.
3. the adjustment related to prepaid insurance will be added to the balance of prepaid insurance in unadjusted trial balance and the final amount will be reported in balance sheet.
4. The equipment will appear at its original cost .
5. Adjustment related to depreciation will be added to accumulated depreciation balance in unadjusted trial balance and balance will be reported in adjusted trial and balance sheet.
6. The adjustment of $700 will be added to unadjusted balance and the final balance will be reported in adjusted trial and balance sheet.
7. Adjustment of interest payable will be made and shown in balance sheet.
8. Adjustment of rent payable will be made and shown in balance sheet.
9. Adjustment of wages payable will be made and shown in balance sheet.
10. Adjustment of property tax payable will be made and shown in balance sheet.
11. There is no adjustment in notes payable, capital and withdrawal account, thus it will be reported as it is.
12. Adjustment of depreciation expense will be made and shown in income statement.
13. All adjustment related to expenses such as rent expense , supplies expense will be made and final balance will be reported in income statement.

Requirement 2:

To determine

To determine:

We have to determine the adjustment journal entry.

Answer to Problem 2BPSB

Solution:

Sr. no.	Journal titles	Debit($)	Credit($)
a.	Supplies expense	8100
	Supplies		8100
	( to record consumption of supplies)
b.	Insurance Expense	10,600
	Prepaid insurance		10,600
	(to record insurance)
c.	Depreciation- equipment	7000
	Accumulated depreciation- equipment		7000
	( to record depreciation)
d.	Utilities expense	800
	Accounts payable		800
	( to record utilities cost)
e.	Wages expense	2000
	Wages payable		2000
	( to record accrued wages)
f.	Rent expense	3,000
	Rent payable		3,000
	( to record accrued rent)
g.	Property tax expense	550
	Property tax payable		550
	(to record accrued property tax)
h.	Interest expense	300
	Interest payable		300
	(to record accrued interest)
	Closing entries-
April 30,2015
1)	Demolition fee earned	187,000
	Income summary		187,000
	(to close revenue account)
2)	Income summary	109,450
	Depreciation-equipment		7,000
	Wages expense		43,400
	Interest expenses		3600
	Insurance expense		10,600
	Rent expenses		16,200
	Supplies expense		8100
	Property tax expenses		10,250
	Repair expense		4,700
	Utilities expense		5600
	( to close the expense account)
3)	Income summary	77,550
	J. bon capita		77,550
	( to close income summary account)
4)	J. Bon capital	12,000
	J. Bon withdrawal		12,000
	(to close withdrawal account)

Explanation of Solution

Explanation:

1. In this case supplies expense account is debited and supplies account will be credited.
2. In this case insurance expense account will be debited and prepaid insurance account will be credited.
3. when depreciation is to recorded then depreciation account will be debited and accumulated depreciation account will be credited.
4. in this case utilities expense account will be debited and accounts payable account will be credited.
5. In this case wages expense account will be debited and wages payable account will be credited.
6. In this case rent expense account will be debited and rent payable account will be credited.
7. In this case property tax expense account will be debited and property tax payable account will be credited.
8. In this case interest expense account will be debited and interest payable account will be credited.
9. When revenue account is to be closed then revenue earned will be debited and income summary account will be credited.
10. When expense account is to be closed then income summary account will be debited and all expense account will be credited.
11. When income summary account is to be closed then income summary account will be debited and capital account will be credited.

Requirement 3:

To determine

To determine:

We have to determine the income statement and statement of owner equity.

Answer to Problem 2BPSB

Solution:

INCOME STATEMENT FOR YEAR ENDED APRIL 30, 2015
PARTICULARS	AMOUNT($)	AMOUNT($)
Demolition fees earned		187,000
Expenses:
Depreciation expenses-equipment	7,000
Wages expenses	43,400
Interest expense	3600
Insurance expenses	10,600
Rent expenses	16,200
Office supplies expenses	8100
Propertry tax expenses	10,250
Repair expense	4,700
Utilities expenses	5600
Total expenses		109,450
Net income		77,550

STATEMENT OF OWNERS EQUITY FOR YEAR ENDED APRIL 30, 2015
PARTICULARS	AMOUNT($)	AMOUNT($)
opening capital		46,900
Add: net income		77,550
Add: owner investment		40,000
Less: withdrawals		(12,000)
Closing capital on April2015		$152,450

BALANCE SHEET APRIL 30, 2015
PARTICULARS	AMOUNT($)	AMOUNT($)
Assets:
Current asset
Cash	7,000
Office supplies	7900
Prepaid insurance	2,000
Total current asset		16,900
Plant asset
Equipment	200,000
Accumulated depreciation- equipment	21,000	179,000
Total assets		195,900
Liabilities and equity
Current liabilities
Accounts payable	7600
Interest payable	300
Rent payable	3000
Wages payable	2,000
Property taxes payable	550
Long-term notes payable	10,000
Total current liabilities		$23,450
Long term liabilities
Note payable		20,000
Equity
Capital		152,450
Total liabilities and equity		195,900

Explanation of Solution

Explanation:

In income statement net income is calculated by deducting all expenses from revenue. In this case revenue is $187000 and the sum of all expenses is $109,250 and the net income is $77,750.

Statement of owner equity is change in equity due to withdrawal or net profit. Thus in this case net income will be added to opening capital and withdrawal is deducted to arrive at closing capital.

Requirement 4:

To determine

To determine:

We have to determine the effect of error.

Answer to Problem 2BPSB

Solution:

1. This error is not likely to be detected as a result of completing the work sheet. If it is not so, the income statement will overstate net income, and the balance sheet will overstate the cost of the unexpired insurance and total equity.
2. the error will be discovered in the process of drafting the balance sheet because we will realize that repairs expense is not an asset. If it is detected , the financial statements will be unaffected. However, if the repairs expense is erroneously included on the balance sheet, the reported net income will be overstated by $4,700 and owner's equity will be overstated by $4,700.

Explanation of Solution

Explanation:

1. This error is of entering the wrong amount in the correct accounts. The ending balance of the Prepaid Insurance account should be $2000, but the entry reduces that account by $2000. The unadjusted balance was $14,600, the adjusted balance will be $12,600 ($12,600 - $2000), which is $10,600. In addition, the Insurance Expense account balance will be only $2,000

This error is not likely to be detected as a result of completing the work sheet. If it is not, the income statement will overstate net income, and the balance sheet will overstate the cost of the unexpired insurance and total equity.
2. This error inserts a debit in the balance sheet columns instead of the income statement columns this error is not immediately detected, it will cause the work sheet measure of net income to be overstated because the total debits will incorrectly omit the $4,700 expense for repairs.
the error will be discovered in the process of drafting the balance sheet because we will realize that repairs expense is not an asset. If it is detected, the financial statements will be unaffected. However, if the repairs expense is erroneously included on the balance sheet, the reported net income will be overstated by $4,700 and owner's equity will be overstated by $4,700.