Chapter 4, Problem 4PA

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

The unadjusted trial balance of Lakota Freight Co. at March 31, 20Y4, the end of the year, follows:

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

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

Instructions

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 part (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 statement of stockholders’ equity, and a balance sheet. During the year ended March 31, 20Y4, additional common stock of $6,000 was issued.
6. 6. Journalize and post the closing entries. Record the closing entries on Page 27 of the journal. 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

Prepare the T-accounts.

Explanation of Solution

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a) The title of the account

b) The left or debit side

c) The right or credit side

Prepare the T-accounts:

Account:         Cash                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y4
March	31	Balance	✓			12,000

Account:   Supplies                                                            Account no. 13
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
March	31	Balance	✓			110,000

Account:  Accumulated Depreciation-Office equipment        Account no. 17
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
March	31	Balance	✓			60,000

Account:  Accumulated Depreciation- Truck                      Account no. 19
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
March	31	Balance	✓				4,000

Account:     Wages Payable                                                        Account no. 22
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y4
March	31	Adjusting	26		600		600

Account:          Common Stock                                                         Account no. 31
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y4
March	31	Balance	✓ 1		26,000		26,000

Account:         Retained Earnings                                                       Account no. 32
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
March	31	Balance	✓				160,000
	31	Closing	27	160,000

Account:  Wages expense                                                           Account no. 51
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
March	31	Balance	✓			10,600
	31	Closing	27		10,600

Account:   Truck Expense                                                          Account no. 54
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
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 ($)		Credit ($)
20Y4
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 ($)	Credit ($)
20Y4
March	31	Balance	✓					4,800
	31	Closing	27			4,800

To determine

Enter the unadjusted trial balance on an end of period spreadsheet and complete the spread sheet.

Explanation of Solution

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.

Prepare the end of period spreadsheet and enter the unadjusted trial balance:

Table (1)

To determine

Prepare the adjusting entries and post it into the T-accounts.

Explanation of Solution

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).

Prepare the adjusting entries:

Date		Account title and explanation	Post. Ref.	Debit ($)	Credit ($)
20Y4		Adjusting Entries
March 31		Supplies Expense	52	22,500
		Supplies	13		22,500
		(To record the supplies expense used)
20Y4		Insurance Expense	57	1,800
March 31		Prepaid Insurance	14		1,800
		(To record the insurance expense)
20Y4		Depreciation Expense-Equipment	55	8,350
March 31		Accumulated Depreciation-Equipment	17		8,350
		(To record the depreciation expense for equipment)
20Y4		Depreciation Expense-Trucks	56	6,200
March 31		Accumulated Depreciation-Trucks	19		6,200
		(To record the depreciation expense for trucks)
20Y4		Wages Expense	51	600
March 31		Wages Payable	22		600
		(To record the wages expense)

Table (2)

To determine

Prepare an adjusted trial balance as of March 31, 20Y4.

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 as of March 31, 20Y4:

Company LF
Adjusted Trial Balance
As of March 31, 20Y4
Account titles	Account No.	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	33	$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
Totals		$315,150	$315,150

Table (3)

To determine

Prepare an income statement, a statement of stockholders, equity and a balance sheet for the year ended March 31, 20Y4.

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 for the year ended March 31, 20Y4:

Company LF
Income Statement
For the Year Ended March 31, 20Y4
Particulars	Amount ($)	Amount ($)
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 (4)

Statement of stockholders’ equity: The statement which reports the changes in stock, paid-in capital, retained earnings, and treasury stock, during the year is referred to as statement of stockholders’ equity.

Prepare a statement of stockholders’ equity for the year ended March 31, 20Y4:

Company LF
Statement of Stockholders’ Equity
For the Year Ended March 31, 20Y4
Particulars	Common stock	Retained earnings	Total
Beginning balances, April 1, 20Y3	$ 20,000	$ 70,000	$ 90,000
Issued common stock	$ 6,000	$ 0	$ 6,000
Net income	$ 0	$ 51,150	$ 51,150
Dividends	$ 0	($ 15,000)	($ 15,000)
Ending balances, March 31, 20Y4	$ 26,000	$ 106,150	$ 132,150

Table (5)

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

Prepare the balance sheet as of March 31, 20Y4:

Company LF
Balance Sheet
As of March 31, 20Y4
Particulars	Amount ($)	Amount ($)	Amount ($)
Assets
Current assets:
Cash		$12,000
Supplies		$7,500
Prepaid insurance		$1,800
Total current assets			$21,300
Property, plant, and equipment:
Equipment	$110,000
Accumulated depreciation-equipment	($33,350)
Book value-equipment		$76,650
Trucks	$60,000
Accumulated depreciation-trucks	($21,200)
Book value-trucks		$38,800
Total property, plant, and equipment			$115,450
Total assets			$136,750
Liabilities
Current liabilities:
Accounts payable		$4,000
Wages payable		$600
Total liabilities			$4,600
Stockholders’ Equity
Common stock		$26,000
Retained earnings		$106,150
Total stockholders’ equity			$132,150
Total liabilities and stockholders’ equity			$136,750

Table (6)

To determine

Prepare the closing entries.

Explanation of Solution

Closing entries: The journal entries prepared to close the temporary accounts to Retained Earnings account are referred to as closing entries. The revenue, expense, and dividends accounts are referred to as temporary accounts because the information and figures in these accounts is held temporarily and consequently transferred to permanent account at the end of accounting year.

Closing entry for revenue, expense accounts and dividend account:

Date	Account title and explanation	Post ref	Debit ($)	Credit ($)
20Y4	Service Revenue	41	160,000
March 31	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
	Retained Earnings	32		51,150
	(To close the revenue account and expense account to retained earnings account)
20Y4	Retained Earnings	32	15,000
March 31	Dividends	33		15,000
	(To close the dividends accounts to retained earnings account)

Table (7)

To determine

Prepare a post-closing trial balance as of March 31, 20Y4.

Explanation of Solution

Post-closing trial balance:

The post-closing trial balance is a summary of all ledger accounts, and it shows the debit and the credit balances after the closing entries are journalized and posted.  The post-closing trial balance contains only permanent (balance sheet) accounts, and the debit and the credit balances of permanent accounts should agree.

Prepare a post-closing trial balance as of March 31, 20Y4:

Company LF
Post-Closing Trial Balance
As of March 31, 20Y4
Account title	Account No.	Debit balance	Credit balance
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		$106,150
Total		$191,300	$191,300

Table (8)