Chapter 4, Problem 3GLP

Requirement 1:

To determine

To determine:

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

Answer to Problem 3GLP

Solution:

ACE CONSTRUCTION COMPANY Work Sheet For Year Ended JUNE 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.	Dr.	Cr.
101	Cash	18,500						18,500				18,500
126	Supplies	9900				(a)	6600	3300				3300
128	Prepaid insurance	7200				(b)	3800	3400				3400
167	Equipment	132,000						132,000				132,000
168	Accumulated depreciation— Equipment		26,250			(c)	8,400		34,650				34,650
201	Accounts payable		6800			(d)	650		7450				7450
203	Interest payable					(h)	250		250				250
208	Rent payable					(f)	500		500				500
210	Wages payable					(e)	1800		1800				1800
213	Property taxes payable					(g)	1000		1000				1000
251	Long-term notes payable		25,000						25,000				25,000
301	V.ACE, Capital		88,660						88,660				88660
302	V.ACE, Withdrawals	33,000						33,000				33,000
401	Construction fees earned		132100						132,100		132,100
612	Depreciation expense— Equipment			(c)	8,400			8,400		8,400
623	Wages expense	46,860		(e)	1800			48,660		48,660
633	Interest expense	2750		(h)	250			3000		3000
637	Insurance expense			(b)	3800			3800		3800
640	Rent expense	12,000		(f)	500			12,500		12,500
652	Supplies expense			(a)	6600			6600		6600
683	Property taxes expense	7800		(g)	1000			8800		8800
684	Repairs expense	2910						2910		2,910
690	Utilities expense	5,890	______	(d)	650		______	6540 7,500	______	6540	______	______	______
	Totals	278,810	278,810		23,000		23,000	291,410	291,410	101,210	132100	190,200	159,310
	Net Income									30,890	______	______	30,890
	Totals									132,100	132,100	190,200	190,200

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 3GLP

Solution:

Sr. no.	Journal titles	Debit($)	Credit($)
a.	Supplies expense	6600
	Supplies		6600
	( to record consumption of supplies)
b.	Insurance Expense	3,800
	Prepaid insurance		3,800
	(to record insurance)
c.	Depreciation- equipment	8400
	Accumulated depreciation- equipment		8400
	( to record depreciation)
d.	Utilities expense	650
	Accounts payable		650
	( to record utilities cost)
e.	Wages expense	1800
	Wages payable		1800
	( to record accrued wages)
f.	Rent expense	500
	Rent payable		500
	( to record accrued rent)
g.	Property tax expense	1000
	Property tax payable		1000
	(to record accrued property tax)
h.	Interest expense	250
	Interest payable		250
	(to record accrued interest)
	Closing entries-
June 30,2015
1)	Construction fee earned	132,100
	Income summary		132,100
	(to close revenue account)
2)	Income summary	101,210
	Depreciation-equipment		8,400
	Wages expense		48,660
	Interest expenses		3000
	Insurance expense		3800
	Rent expenses		12,500
	Supplies expense		6600
	Property tax expenses		8800
	Repair expense		2,910
	Utilities expense		6540
	( to close the expense account)
3)	Income summary	30,890
	ACE capita		30,890
	( to close income summary account)
4)	Ace capital	33,000
	Ace withdrawal		33,000
	(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 3GLP

Solution:

INCOME STATEMENT FOR YEAR ENDED JUNE 30, 2015
PARTICULARS	AMOUNT($)	AMOUNT($)
Construction fees earned		132,100
Expenses:
Depreciation expenses-equipment	8,400
Wages expenses	48,660
Interest expense	3000
Insurance expenses	3800
Rent expenses	12,500
Office supplies expenses	6600
Propertry tax expenses	8800
Repair expense	2,910
Utilities expenses	6540
Total expenses		101,210
Net income		$30,890

STATEMENT OF OWNERS EQUITY FOR YEAR ENDED JUNE 30, 2015
PARTICULARS	AMOUNT($)	AMOUNT($)
opening capital		53,660
Add: net income		30,890
Add: owner investment		35,000
Less: withdrawals		(33,000)
Closing capital on June2015		$86,550

BALANCE SHEET JUNE 30, 2015
PARTICULARS	AMOUNT($)	AMOUNT($)
Assets:
Current asset
Cash	18,500
Office supplies	3300
Prepaid insurance	3400
Total current asset		25,200
Plant asset
Equipment	132,000
Accumulated depreciation- equipment	34650	97,350
Total assets		122,550
Liabilities and equity
Current liabilities
Accounts payable	7450
Interest payable	250
Rent payable	500
Wages payable	1800
Property taxes payable	1000
Long-term notes payable	5000
Total current liabilities		16000
Long term liabilities
Note payable		20,000
Equity
Capital		86,550
Total liabilities and equity		122,550

Explanation of Solution

Explanation:

In income statement net income is calculated by deducting all expenses from revenue. In this case revenue is $132,100 and the sum of all expenses is $101,210 and the net income is $30,890.
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 3GLP

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 supplies and total equity.


2. the error will be discovered in the process of drafting the balance sheet. If it is detected , the financial statements will be unaffected. However, if the error is not detected then cash balance will be affected and it will affect the balance sheet.

Explanation of Solution

Explanation:

1. This error is of entering the wrong amount in the correct accounts. The ending balance of the supplies account should be $3300, but the entry reduces that account by $3300. The unadjusted balance was $9900, the adjusted balance will be $3300 ($9900 - $6600). In addition, the supplies Expense account balance will be only $3300

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 supplies and total equity.


2. the error will be discovered in the process of drafting the balance sheet. If it is detected, the financial statements will be unaffected. However, if the cash balance is erroneously included on the balance sheet, the balance sheet will report wrong asset figure.