Chapter 4, Problem 4PA

The trial balance for Game Time on July 31 is as follows:

Data for month-end adjustments are as follows:

1. Expired or used-up insurance, $480.
2. Depreciation expense on equipment, $850.
3. Depreciation expense on repair equipment, $120.
4. Wages accrued or earned since the last payday, $525 (owed and to be paid on the next payday).
5. Supplies used, $70.

Required

1. Complete a work sheet for the month. (Skip this step if using CLGL.)
2. Journalize the adjusting entries.
3. If using CLGL prepare an adjusted trial balance.
4. Prepare an income statement, a statement of owner’s equity, and a balance sheet. Assume that no additional investments were made during July.

*If you are using CLGL, use the year 2020 when recording transactions and preparing reports.

To determine

Indicate the given adjustments and complete the worksheet for G Time for the month ended July 31, 20--.

Explanation of Solution

Worksheet: Worksheet is an accounting tool that help accountants to record adjustments and up-date balances required to prepare financial statements. Worksheet is a central place where trial balance, adjustments, adjusted trial balance, income statement, and balance sheet are presented.

Indicate the given adjustments and complete the worksheet for G Time for the month ended July 31, 20--.

Table (1)

To determine

Prepare adjusting journal entries for G Time.

Explanation of Solution

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and owners’ or stockholders’ equity) to maintain the records according to accrual basis principle and matching concept.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare adjusting journal entries for G Time.

Adjusting entry for the prepaid insurance:

Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
July	31	Insurance Expense			480
			Prepaid Insurance			480
		(Record part of prepaid insurance expired)

Table (2)

Description:

• Insurance Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
• Prepaid Insurance is an asset account. Since amount of insurance is expired, asset account decreased, and a decrease in asset is credited.

Adjusting entry for the depreciation expense, equipment:

Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
July	31	Depreciation Expense, Equipment			850
			Accumulated Depreciation, Equipment			850
		(Record depreciation expense)

Table (3)

Description:

• Depreciation Expense, Equipment is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
• Accumulated Depreciation, Equipment is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.

Adjusting entry for the depreciation expense, repair equipment:

Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
July	31	Depreciation Expense, Repair Equipment			120
			Accumulated Depreciation, Repair Equipment			120
		(Record depreciation expense)

Table (4)

Description:

• Depreciation Expense, Repair Equipment is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
• Accumulated Depreciation, Repair Equipment is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.

Adjusting entry for the wages expense:

Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
July	31	Wages Expense			525
			Wages Payable			525
		(Record accrued wages expenses)

Table (5)

Description:

• Wages Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
• Wages Payable is a liability account. Since amount of payables has increased, liability decreased, and an increase in liability is credited.

Adjusting entry for the supplies expense:

Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
July	31	Supplies Expense			70
			Supplies			70
		(Record part of supplies consumed)

Table (6)

Description:

• Supplies Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
• Supplies is an asset account. Since amount of supplies is used, asset account decreased, and a decrease in asset is credited.

To determine

Prepare an adjusted trial balance for G Time at July 31, 20--.

Explanation of Solution

Adjusted trial balance: Adjusted trial balance is a summary of all the ledger accounts, and it contains the balances of all the accounts after the adjustment entries are journalized, and posted.

Prepare an adjusted trial balance for G Time at July 31, 20--.

G Time
Adjusted Trial Balance
July 31, 20--
Particulars	AccountNo.	Debit $	Credit $
Cash		$14,721.00
Supplies		187.00
Prepaid Insurance		815.00
Equipment		17,642.00
Accumulated Depreciation, Equipment			$3,137.00
Repair Equipment		1,265.00
Accumulated Depreciation, Repair Equipment			1,000.00
Accounts payable			942.00
Wages payable			525.00
BR, Capital			23,871.00
BR, Drawing		2,000.00
Game Fees			7,954.00
Concession Fees			3,752.00
Depreciation Expense, Equipment		850.00
Depreciation Expense, Repair Equipment		120.00
Wages Expense		1,593.00
Rent Expense		980.00
Supplies Expense		70.00
Insurance Expense		480.00
Utilities Expense		246.00
Repair Expense		180.00
Miscellaneous Expense		32.00
		$41,181.00	$41,181.00

Table (7)

Conclusion

The debit column and credit column of the adjusted trial balance are agreed, both having the balance of $41,181.

To determine

Prepare income statement, statement of owners’ equity, and balance sheet for G Time.

Explanation of Solution

Income statement: The financial statement which reports revenues and expenses from business operations, and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare an income statement of G Time for the month ended July 31, 20--.

G Time
Income Statement
For the Month Ended July 31, 20--
Revenues:
Game Fees	$7,954
Concession Fees	3,752
Total Revenue		$11,706
Expenses:
Wages Expense	$1,593
Rent Expense	980
Depreciation Expense, Equipment	850
Depreciation Expense, Repair Equipment	120
Supplies Expense	70
Insurance Expense	480
Utilities Expense	246
Repair Expense	180
Miscellaneous Expense	32
Total expenses		4,551
Net income		$7,155

Table (8)

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 drawings is deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.

Prepare a statement of owners’ equity for G Time for the month ended July 31, 20--.

G Time
Statement of Owners’ Equity
For the Month Ended July 31, 20--
BR, Capital, July 1, 20--		$23,871
Investments during July	$0
Net income for July	7,155
	7,155
Less: Withdrawals for July	2,000
Increase in capital		5,155
BR, Capital, July 31, 20--		$29,026

Table (9)

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and owners (owners’ equity) over those resources. The resources of the company are assets which include money contributed by owners and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and owners’ equity.

Prepare the balance sheet for G Time as at July 31, 20--.

G Time
Balance Sheet
July 31, 20--
Assets
Cash		$14,721
Supplies		187
Prepaid Insurance		815
Equipment	$17,642
Less: Accumulated Depreciation	3,317	14,505
Repair Equipment	$1,265
Less: Accumulated Depreciation	1,000	265
Total Assets		$30,493
Liabilities
Accounts Payable	$942
Wages Payable	525
Total Liabilities		$1,467
Owners’ Equity
BR, Capital		29,026
Total Liabilities and Owners’ Equity		$30,493

Table (10)