Chapter 4, Problem 4.4APR

Ledger accounts, adjusting entries, financial statements, and closing entries; optional spreadsheet

The unadjusted trial balance of Lakota Freight Co. at March 31, 2016, the end of the year, follows:

Lakota Freight Co. Unadjusted Trial Balance March 31,2016
		Debit Balances	Credit Balances
11	Cash....................................................	12,000
13	Supplies....................................................	30,000
14	Prepaid Insurance...........................................	3,600
16	Equipment..................................................	110,000
17	Accumulated Depreciation—Equipment......................		25,000
18	Trucks......................................................	60,000
19	Accumulated Depreciation—Trucks...........................		15,000
21	Accounts Payable...........................................		4,000
31	Common Stock.............................................		26,000
32	Retained Earnings...........................................		70,000
33	Dividends..................................................	15,000
41	Service Revenue............................................		160,000
51	Wages Expense.............................................	45,000
53	Rent Expense...............................................	10,600
54	Truck Expense...............................................	9,000
59	Miscellaneous Expense......................................	4,800
		300,000	300,000

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

• a. Supplies on hand at March 31 are $7,500.
• b. Insurance premiums expired during year are $1,800.
• c. Depreciation of equipment during year is $8,350.
• d. Depreciation of trucks during year is $6,200.
• e. Wages, accrued but not paid at March 31 are $600.

Instructions

1. 1. 1. For each account listed in the trial balance, enter the balance in the appropriate Balance column of a four-column account and place a check mark (✓) in the Posting Reference column.
   2. 2. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. Add the accounts listed in pan (3) as needed.
   3. 3. Journalize and post the adjusting entries, inserting balances in the accounts affected. Record the adjusting entries on Page 26 of the journal. The following additional accounts from Lakota Freight Co.’s chart of accounts should be used: Wages Payable, 22; Supplies Expense, 52; Depreciation Expense—Equipment, 55; Depreciation Expense— Trucks, 56; Insurance Expense, 57.
   4. 4. Prepare an adjusted trial balance.
   5. 5. Prepare an income statement, a retained earnings statement, and a balance sheet.
   6. 6. Journalize and post the closing entries. Record the closing entries on Page 27 of the journal. (Income Summary is account *34 in the chart of accounts.) Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry.
   7. 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:

• The title of accounts.
• The debit side (Dr) and,
• 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.

Retained Earnings Statement:

It is one of the financial statements, which shows the amount of the net income retained by a company at a particular point of time for reinvestment and pay its debts and obligations. It shows the amount of retained earnings that is not paid as dividends to the shareholders.

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.

Account:         Cash                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓			12,000

Account:   Supplies                                                            Account no. 13
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓			30,000
	31	Adjusting	26		22,500	7,500

Account:    Prepaid Insurance                                                  Account no. 14
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓			3,600
	31	Adjusting	26		1,800	1,800

Account:    Equipment                                                             Account no. 16
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓			110,000

Account:  Accumulated Depreciation-Office equipment        Account no. 17
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓				25,000
	31	Adjusting	26		8,350		33,350

Account:    Trucks                                                                    Account no. 18
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓			60,000

Account:  Accumulated Depreciation- Truck                      Account no. 19
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓				15,000
	31	Adjusting	26		6,200		21,200

Account:     Accounts Payable                                                      Account no. 21
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓				4,000

Account:     Wages Payable                                                        Account no. 22
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Adjusting	26		600		600

Account:          Common Stock                                                         Account no. 31
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓ 1		26,000		26,000

Account:         Retained Earnings                                                       Account no. 32
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓				70,000
	31	Closing	27		51,150		121,150
	31	Closing	27	15,000			106,150

Account:          Dividends                                                         Account no. 33
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓ 1			15,000
	31	Closing	27		15,000

Account:         Income Summary                                                       Account no. 34
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Closing	27		160,000		160,000
	31	Closing	27	108,850			51,150
	31	Closing	27	51,150

Account:          Service revenue                                                         Account no. 41
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓				160,000
	31	Closing	27	160,000

Account:  Wages expense                                                           Account no. 51
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓			45,000
	31	Adjusting	26	600		45,600
	31	Closing	27		45,600

Account:     Supplies Expense                                                        Account no. 52
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Adjusting	26	22,500		22,500
	31	Closing	27		22,500

Account:   Rent expense                                                               Account no. 53
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓			10,600
	31	Closing	27		10,600

Account:   Truck Expense                                                          Account no. 54
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Balance	✓			9,000
	31	Closing	27		9,000

Account:   Depreciation Expense- Equipment                                Account no. 55
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Adjusting	26	8,350		8,350
	31	Closing	27		8,350

Account:   Depreciation Expense- Equipment                                Account no. 55
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Adjusting	26	8,350		8,350
	31	Closing	27		8,350

Account:   Depreciation Expense- Trucks                                         Account no. 56
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2018
March	31	Adjusting	26	6,200		6,200
	31	Closing	27		6,200

Account:   Insurance expense                                                     Account no. 57
Date		Item	Post. Ref		Debit  ($)	Credit ($)	Balance
							Debit ($)		Credit ($)
2018
March	31	Adjusting		26	1,800		1,800
	31	Closing		27		1,800
Account:   Miscellaneous expense                                                   Account no. 59
Date		Item	Post. Ref		Debit  ($)	Credit ($)		Balance
								Debit ($)	Credit ($)
2018
March	31	Balance	✓					4,800
	31	Closing	27			4,800

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	Post Ref.	Debit ($)	Credit ($)
2016		Supplies expense	52	22,500
March	31	Supplies $\left(\text{\$30,000}-\text{\$7,500}\right)$	13		22,500
		(To record the supplies used)

Table (2)

• Supplies expense is an expense account, and it is increased. Hence, debit the supplies expense account by $22,500.
• Supplies are the asset account, and it is increased. Hence, credit the supplies account by $22,500.

Date		Description	Post Ref.	Debit ($)	Credit ($)
2016		Insurance expense	57	1,800
March	31	Prepaid insurance	14		1,800
		(To record the insurance expired)

Table (3)

• Insurance expense is an expense account, and it is increased. Hence, debit the insurance expense account by $1,800.
• Prepaid insurance is an asset account, and it is decreased. Hence, credit the prepaid insurance account by $1,800.

Date		Description	Post Ref.	Debit ($)	Credit ($)
2016		Depreciation expense-Equipment	55	8,350
March	31	Accumulated depreciation- Equipment	17		8,350
		(To record the equipment depreciation)

Table (4)

• Depreciation expense is an expense account, and it is increased. Hence, debit the wages expense account by $8,350.
• Accumulated depreciation is a contra asset account, and it is increased. Hence, credit the accumulated depreciation account by $8,350.

Date		Description	Post Ref.	Debit ($)	Credit ($)
2016		Depreciation expense-Truck	56	6,200
March	31	Accumulated depreciation- Truck	19		6,200
		(To record the truck depreciation)

Table (5)

• Depreciation expense is an expense account, and it is increased. Hence, debit the wages expense account by $6,200.
• Accumulated depreciation is a contra asset account, and it is increased. Hence, credit the accumulated depreciation account by $6,200.

Date		Description	Post Ref.	Debit ($)	Credit ($)
2016		Wages expense	51	600
March	31	Wages payable	22		600
		(To record the wages accrued)

Table (6)

• Wages expense is an expense account, and it is increased. Hence, debit the wages expense account by $600.
• Wages payable is a liability account, and it is increased. Hence, credit the wages payable account by $600.

To determine

To prepare: An adjusted trial balance for Company L, as of March 31, 2016.

Explanation of Solution

Prepare an adjusted trial balance for Company L, as of March 31, 2016.

Company L
Adjusted Trial Balance
March 31, 2016
Accounts	Account Number	Debit Balances	Credit Balances
Cash	11	12,000
Supplies	13	7,500
Prepaid Insurance	14	1,800
Equipment	16	110,000
Accumulated depreciation- Equipment	17		33,350
Trucks	18	60,000
Accumulated depreciation- Trucks	19		21,200
Accounts payable	21		4,000
Wages Payable	22		600
Common stock	31		26,000
Retained earnings	32		70,000
Dividends		15,000
Service revenue	41		160,000
Wages expense	51	45,600
Supplies expense	52	22,500
Rent Expense	53	10,600
Truck Expense	54	9,000
Depreciation Expense- Equipment	55	8,350
Depreciation Expense- Trucks	56	6,200
Insurance Expense	57	1,800
Miscellaneous Expense	59	4,800
		$315,150	$315,150

Table (7)

Conclusion

The debit column and credit column of the adjusted trial balance are agreed, both having balance of $315,150.

To determine

The net income or net loss of Company L for the month of March.

Explanation of Solution

The net income of Company L for the month of March is $51,150.

Company L
Income Statement
For the year ended March 31, 2016
Particulars	Amount ($)	Amount ($)
Revenue:
Service revenue		$160,000
Expenses:
Wages Expense	45,600
Supplies Expense	22,500
Rent Expense	10,600
Truck Expense	9,000
Depreciation Expense-Equipment	8,350
Depreciation Expense-Trucks	6,200
Insurance Expense	1,800
Miscellaneous Expense	4,800
Total Expenses		108,850
Net Income		$51,150

Table (8)

Conclusion

Hence, the net income of Company L for the year ended March 31, 2016 is $51,150.

To determine

To Journalize: The closing entries for Company L.

Explanation of Solution

Closing entry for revenue and expense accounts:

Date	Accounts title and Explanation	Post Ref.	Debit ($)	Credit ($)
March 31, 2016	Service revenue	41	160,000
	Income summary	34		160,000
	(To close the balances of revenue account)
March 31, 2016	Income summary	34	108,850
	Wages expense	51		45,600
	Supplies Expense	52		22,500
	Rent Expense	53		10,600
	Truck Expense	54		9,000
	Depreciation Expense–Equipment	55		8,350
	Depreciation Expense–Trucks	56		6,200
	Insurance Expense	57		1,800
	Miscellaneous Expense	59		4,800
	(To close the balances of expense account)
March 31, 2016	Income summary	34	51,150
	Retained earnings	32		51,150
	(To Close the excess of revenue to expenses)
March 31, 2016	Retained earnings	32	15,000
	Dividends	33		15,000
	(To close the dividend account to retained earnings account)

Table (11)

• Laundry revenue is revenue account. Since the amount of revenue is closed and transferred to Income summary account. Here, Company L earned an income of $160,000. Therefore, it is debited.
• Wages Expense, Rent Expense, Insurance Expense, Supplies Expense, Depreciation Expenses, and Miscellaneous Expense are expense accounts. Since the amount of expenses are closed to Income Summary account. Therefore, it is credited.
• Closing entries are also passed in order to close the excess of revenue over the expenses, and the dividend account.

To determine

To prepare: The post–closing trial balance of Company L for the month ended March 31, 2016.

Explanation of Solution

Prepare a post–closing trial balance of Company L for the month ended March 31, 2016 as follows:

Company L Post-closing Trial Balance March 31, 2016
Particulars	Account Number	Debit $	Credit $
Cash	11	12,000
Supplies	13	7,500
Prepaid insurance	14	1,800
Equipment	16	110,000
Accumulated depreciation- Equipment	17		33,350
Trucks	18	60,000
Accumulated depreciation- Trucks	19		21,200
Accounts payable	21		4,000
Wages payable	22		600
Common stock	31		26,000
Retained earnings			106,150
Total		$191,300	$191,300

Table (12)

Conclusion

The debit column and credit column of the post–closing trial balance are agreed, both having balance of $191,300.