Chapter 4, Problem 4.3APR

T accounts, adjusting entries, financial statements, and closing entries; optional end-of-period spreadsheet

The unadjusted trial balance of Epicenter Laundry at June 30, 2019, the end of the fiscal year, follows:

Epicenter Laundry Unadjusted Trial Balance June 30,2019
	Debit Balances	Credit Balances
Cash	11,000
Laundry Supplies	21,500
Prepaid Insurance	9,600
Laundry Equipment	232,600
Accumulated Depreciation		125,400
Accounts Payable		11,800
Sophie Perez, Capital		105,600
Sophie Perez, Drawing	10,000
Laundry Revenue		232,200
Wages Expense	125,200
Rent Expense	40,000
Utilities Expense	19,700
Miscellaneous Expense	5,400
	475,000	475,000

The data needed to determine year-end adjustments are as follows:

a.    Laundry supplies on hand at June 30 are $3,600.

b.    Insurance premiums expired during the year are $5,700.

c.    Depreciation of laundry equipment during the year is $6,500.

d.    Wages accrued but not paid at June 30 are $1,100.

Instructions

1.    For each account listed in the unadjusted trial balance, enter the balance in a T account. Identify the balance as "June 30 Bal." In addition, add T accounts for Wages Payable, Depreciation Expense, Laundry Supplies Expense, and Insurance Expense.

2.    (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. Add the accounts listed in part (1) as needed.

3.    Journalize and post the adjusting entries. Identify the adjustments as "Adj." and the new balances as "Adj. Bal."

4.    Prepare an adjusted trial balance.

5.    Prepare an income statement, a statement of owner's equity (no additional investments were made during the year), and a balance sheet.

6.    Journalize and post the closing entries. Identify the closing entries as "Clos."

7.    Prepare a post-closing trial balance.

To determine

Journal:

Journal is the book of original entry. Journal consists of the day-to-day financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.

T-Accounts:

T-accounts are referred as T-account because its format represents the letter “T”. The T-accounts consists of the following:

Ø The title of accounts.

Ø The debit side (Dr) and,

Ø The credit side (Cr).

Adjusted trial balance:

The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.

Adjusting entries:

An adjusting entry is prepared when the trial balance is not up-to-date, and complete, and they are usually prepared at the end of the accounting period. This adjusting entry is essential for preparing the financial statements of the business.

Spreadsheet:

A spreadsheet is a worksheet. It is used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Statement of owners’ equity:

This statement reports the beginning owner’s equity and all the changes, which led to ending owners’ equity. Additional capital, net income from income statement is added to and drawing is deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.

Income statement:

An income statement is one of the financial statements which shows the revenues, and expenses of the company. The income statement is prepared to ascertain the net income/loss of the company, by deducting the expenses from the revenues.

$\boxed{\text{Net}\text{income = Total revenues – Total expenses}}$

Balance sheet:

A balance sheet is a financial statement consists of the assets, liabilities, and the stockholder’s equity of the company. The balance of the assets account must be equal to that of the liabilities and the stockholder’s equity account.

Closing entries:

Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts. It is passed at the end of the accounting period, to transfer the final balance.

Post-Closing Trial Balance:

After passing all the journal entries and the closing entries of the permanent accounts and then further posting them to each of the respective accounts, a post-closing trial balance is prepared which consists of a list of all the permanent accounts. A post-closing trial balance serves as an evidence to prove that the balance of the permanent accounts is equal.

To prepare: The T-accounts.

Explanation of Solution

Record the transactions directly in their respective T-accounts, and determine their balances.

Cash
June 30	Balance			11,000
Laundry Supplies
June 30	Balance			21,500		June 30	Adjusted			17,900
June 30	Adjusted balance			3,600
Prepaid Insurance
June 30	Balance			9,600		June 30	Adjusted			5,700
	Adjusted balance			3,900
Laundry Equipment
June 30	Balance			232,600
Accumulated Depreciation
						June 30	Balance			125,400
						June 30	Adjusted			6,500
						June 30	Adjusted balance			131,900
Accounts Payable
						June 30	Balance			11,800
Wages Payable
						June 30	Adjusted			1,100
SP, Capital
June 30	Closing			10,000		June 30	Balance			105,600
						June 30	Closing			10,700
						June 30	Balance			106,300
SP, Drawing
June 30	Balance			10,000		June 30	Closing			10,000
Laundry Revenue
June 30	Closing			232,200		June 30	Balance			232,200
Wages Expense
June 30	Balance			125,200		June 30	Closing			126,300
June 30	Adjusted			1,100
June 30	Adjusted balance			126,300
Rent Expense
June 30		Balance	40,000		June 30			Closing	40,000
Utilities Expense
June 30		Balance	19,700		June 30			Closing	19,700
Depreciation Expense
June 30		Adjusted	6,500		June 30			Closing	6,500
Laundry Supplies Expense
June 30		Adjusted	17,900		June 30			Closing	17,900
Insurance Expense
June 30		Adjusted	5,700		June 30			Closing	5,700
Miscellaneous Expense
June 30		Balance	5,400		June 30			Closing	5,400

To determine

To enter: The unadjusted trial balance on an end-of-period spreadsheet, and complete the spreadsheet.

Explanation of Solution

The unadjusted trial balance on an end-of-period spreadsheet is prepared as follows:

Table (1)

Conclusion

Hence, the unadjusted trial balance on an end-of-period spreadsheet is prepared and completed.

To determine

To Journalize and post: The adjusting entries.

Explanation of Solution

The adjusting entries are journalized as follows:

Date		Description	Debit ($)	Credit ($)
2019		Wages expense	1,100
June	30	Wages payable		1,100
		(To record the wages accrued)

Table (2)

Explanation:

• Wages expense is an expense account, and it is increased. Hence, debit the wages expense account by $1,100.
• Wages payable is a liability account, and it is increased. Hence, credit the wages payable account by $1,100.

Date		Description	Debit ($)	Credit ($)
2019		Depreciation expense	6,500
June	30	Accumulated depreciation		6,500
		(To record the equipment depreciation)

Table (3)

Explanation:

• Depreciation expense is an expense account, and it is increased. Hence, debit the wages expense account by $6,500.
• Accumulated depreciation is a contra asset account, and it is increased. Hence, credit the accumulated depreciation account by $6,500.

Date		Description	Debit ($)	Credit ($)
2019		Laundry supplies expense	17,900
June	30	Laundry supplies $\left(\text{\$21,500}-\text{\$3,600}\right)$		17,900
		(To record the equipment depreciation)

Table (4)

Explanation:

• Laundry supplies expense is an expense account, and it is increased. Hence, debit the laundry supplies expense account by $17,900.
• Laundry supplies are the asset account, and it is increased. Hence, credit the laundry supplies account by $17,900.

Date		Description	Debit ($)	Credit ($)
2019		Insurance expense	5,700
August	31	Prepaid insurance		5,700
		(To record the equipment depreciation)

Table (5)

Explanation:

• Insurance expense is an expense account, and it is increased. Hence, debit the insurance expense account by $5,700.
• Prepaid insurance is an asset account, and it is decreased. Hence, credit the prepaid insurance account by $5,700.

To determine

To prepare: An unadjusted trial balance for Laundry E, as of June 30, 2019.

Explanation of Solution

Prepare an unadjusted trial balance for Laundry E, as of June 30, 2019.

Laundry E
Unadjusted Trial Balance
June 30, 2019
Accounts	Debit Balances	Credit Balances
Cash	11,000
Laundry Supplies	3,600
Prepaid Insurance	3,900
Laundry Equipment	232,600
Accumulated depreciation		131,900
Accounts payable		11,800
Wages Payable		1,100
SP, Capital		105,600
SP, Drawing	10,000
Laundry revenue		232,200
Wages expense	126,300
Rent expense	40,000
Utilities Expense	19,700
Depreciation Expense	17,900
Laundry supplies expense	6,500
Insurance Expense	5,700
Miscellaneous Expense	5,400
	482,600	482,600

Table (6)

Conclusion

The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $482,600.

To determine

The net income or net loss of Laundry E for the month of June.

Explanation of Solution

The net income of Laundry E for the month of June is $10,700.

E Laundry
Income Statement
For the year ended June 30, 2019
Particulars	Amount ($)	Amount ($)
Revenue:
Laundry revenue		$248,000
Expenses:
Wages Expense	$126,300
Rent Expense	40,000
Utilities Expense	19,700
Depreciation Expense	17,900
Laundry supplies Expense	6,500
Insurance Expense	5,700
Miscellaneous Expense	5,400
Total Expenses		221,500
Net Income		$10,700

Table (7)

Conclusion

Hence, the net income of Laundry E for the year ended June 30, 2019 is $10,700.

To determine

To Journalize: The closing entries for E Laundry.

Explanation of Solution

Closing entry for revenue and expense accounts:

Date	Accounts title and Explanation	Post Ref.	Debit ($)	Credit ($)
June 30, 2019	Laundry Revenue		232,200
	Wages Expense			126,300
	Rent Expense			40,000
	Utilities Expense			19,700
	Depreciation Expense			17,900
	Laundry supplies Expense			6,500
	Insurance Expense			5,700
	Miscellaneous Expense			5,400
	SP, Capital			10,700
	(To close the revenues and expenses account. Then  the balance amount are  transferred to owners’ capital account)
June 30	SP’s Capital		10,000
	SP’ Drawing			10,000
	(To Close the capital and drawings account)

Table (10)

Explanation:

• Laundry revenue is revenue account. Since the amount of revenue is closed, and transferred to SP’s capital account. Here, E Laundry earned an income of $232,200. Therefore, it is debited.
• Wages Expense, Rent Expense, Insurance Expense, Utilities Expense, Laundry Supplies Expense, Depreciation Expense, SP Capital, and Miscellaneous Expense are expense accounts. Since the amount of expenses are closed to Income Summary account. Therefore, it is credited.
• Owner’s capital is a component of owner’s equity. Thus, owners ‘equity is debited since the capital is decreased on owners’ drawings.
• Owner’s drawings are a component of owner’s equity. It is credited because the balance of owners’ drawing account is transferred to owners ‘capital account

To determine

To prepare: The post–closing trial balance of E Laundry for the month ended June 30, 2019.

Explanation of Solution

Prepare a post–closing trial balance of E Laundry for the month ended June 30, 2019 as follows:

Laundry E Post-closing Trial Balance June 30, 2019
Particulars	Debit $	Credit $
Cash	11,000
Laundry Supplies	3,600
Prepaid insurance	3,900
Laundry Equipment	232,600
Accumulated depreciation		131,900
Accounts payable		11,800
Wages payable		1,100
BD’s Capital		106,300
Total	251,100	251,100

Table (11)

Conclusion

The debit column and credit column of the post–closing trial balance are agreed, both having balance of $251,100.