Fundamentals Of Financial Accounting
Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
Question
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Chapter 4, Problem 6COP

1.

To determine

To prepare: The journal entries for the transactions that occurred from January 1 to January 31.

1.

Expert Solution
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Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Prepare the journal entries for the transactions that occurred from January 1 to January 31:

Date

Account Title and Explanation Debit ($) Credit ($)
January 1

Prepaid insurance (A+)

5,700

Cash (A-) 5,700
(To record the cash paid for the insurance expense)
January 2

Prepaid rent

4,200

Cash (A-) 4,200
(To record the payment of prepaid rent)
January 3

Cash (A+)

30,000

Notes payable (L+) 30,000
(To record the note payable)
January 4

Equipment (A+)

24,000

Cash  (A–) 24,000
(To record the purchase of an equipment)
January 5

Cash (A+)

6,000

Common stock (SE+) 6,000
(To record the cash invested in common stock)
January 6

Supplies  (A+)

1,000

Accounts payable (L+) 1,000
(To record the additional purchase of supplies)
January 7

Cash (A+)

600

Accounts receivable (A-) 600
(To record the accounts receivable)

January

8

Accounts payable (L-)

400

Cash (A-) 40
(To record the accounts payable)
January 9

Accounts receivable (A+)

10,400

Service revenue (R+) (SE+) 10,400
(To record the service provided to the customer on account)
January 10

Cash (A+)

7,600

Service revenue (R+) (SE+) 7,600
(To record the cash received for the service performed)
January 16

Salaries and wages expense (E+) (SE-)

2,200

Cash (A-) 2,200
(To record the payment of salaries and wages)
January 20

Cash (A+)

3,500

Unearned revenue (L+) 3,500
(To record the unearned revenue)
January 25

Cash (A+)

4,500

Accounts receivable (A-) 4,500
(To record the collection of cash from customer for service provided before)

Table (1)

2.

To determine

To prepare: the T-Accounts using the beginning balances that are given in the January 1 balance sheet.

2.

Expert Solution
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Explanation of Solution

T-account:

T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholders’ equity, revenue, and expenditure items are recorded.

This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:

  • The title of the account
  • The left or debit side
  • The right or credit side

Prepare the T-Accounts:

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  1

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  2

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  3

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  4

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  5

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  6

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  7

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  8

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  9

Unadjusted trial balance:

Unadjusted trial balance is that statement which contains complete list of accounts with their unadjusted balances. This statement is prepared at the end of every financial period.

Prepare the unadjusted trial balance:

Incorporation FD
Unadjusted trial balance
As on 31st January
Account titles Debit ($) Credit ($)
Cash 26,600
Accounts receivable 6,100
Supplies 1,400
Prepaid insurance 5,700
Prepaid rent 4,200
Equipment 24,000
Accumulated depreciation 0
Accounts payable 1,100
Unearned revenue 3,500
Notes payable 30,000
Salaries and wages payable 0
Interest payable 0
Commonstock 17,000
Retained earnings 600
Service revenue 18,000
Salaries and wages expense 2,200
Supplies expense 0
Depreciation expense 0
Interest expense 0
Total 70,200 70,200

Table (2)

Conclusion

The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $70,200.

3.

To determine

To record: The adjusting journal entries that are needed at 31st January.

3.

Expert Solution
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Explanation of Solution

Adjusting entries:

Adjusting entries are those entries which are made at the end of the accounting period, to record the revenues in the period of which they have been earned and to record the expenses in the period of which have been incurred, as well as to update all the balances of assets and liabilities accounts on the balance sheet, and to ascertain accurate amount of net income (loss) on the income statement to maintain the records according to the accrual basis principle.

Record the adjusting journal entries:

Date

Account Title and Explanation Debit ($) Credit ($)
January 31

a.

Utilities Expense (E+, SE-)

1,200

Accounts payable (L+) 1,200
(To record the adjusting entry for utilities expense))
January 31

b.

Supplies expense (E+) (SE-)

1,150

Supplies (A-) 1,150
(To record the adjusting entry for supplies expense)
January 31

c.

Unearned revenue (L-)

2,100

Service revenue (R+) (SE+) 2,100
(To record the adjusting entry for unearned revenue)
January 31

d.

Interest expense (E+) (SE-)

150

Interest payable (L+) 150
(To record the adjusting entry for interest expense)
January 31

e.

Depreciation Expense (E+) (SE-)

500

Accumulated depreciation- Equipment (xA+) (A-)

500

(To record the adjusting entry for accumulated depreciation)
January 31

f.

Salaries and wages expense (E+) (SE-)

2,200

Salaries and wages payable (L+) 2,200
(To record the adjusting entry for salaries and wages expense)
January 31

g.

Insurance expense (E+) (SE-)

475

Prepaid insurance (A-) 475
(To record the adjusting entry for insurance expense)
January 31

g.

Rent expense (E+) (SE-)

350

Prepaid rent (A-) 350
(To record the adjusting entry for insurance expense)

Table (3)

Working note:

Calculate the amount of supplies expense:

Supplies expense=Unadjusted balanceSupplies in hand=$1,400$250=$1,150

Calculate the amount of unearned revenue:

Unearned revenue=Total amount×60%=$3,500×60%=$2,100

Calculate the amount of interest expense:

Interest expense=Total amount×60%=$30,000×60%×12(Months)=$150

Calculate the amount of depreciation expense:

Accumulate depreciation=Total amount×14×12=$24,000×14×12=$500

Calculate the amount of Insurance expense:

Insurance expense=Total amount×112(Months)=$5,700×112=$475

Calculate the amount of rent expense:

Rent expense=Total amount×112(Months)=$4,200×112=$350

4.

To determine

To prepare: The T-Account from the requirement 3 for the adjusting journal entries.

4.

Expert Solution
Check Mark

Explanation of Solution

T-account:

T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholders’ equity, revenue, and expenditure items are recorded.

This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:

  • The title of the account
  • The left or debit side
  • The right or credit side

Prepare the T-Accounts:

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  10

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  11

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  12

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  13

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  14

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  15

Fundamentals Of Financial Accounting, Chapter 4, Problem 6COP , additional homework tip  16

Adjusted trial balance:

Adjusted trial balance is that statement which contains complete list of accounts with their adjusted balances, after all relevant adjustments have been made. This statement is prepared at the end of every financial period.

Prepare the adjusted trial balance:

Incorporation FD
Adjusted trial balance
As on 31st January
Account titles Debit ($) Credit ($)
Cash 26,600
Accounts receivable 6,100
Supplies 250
Prepaid insurance 3,850
Prepaid rent 5,225
Equipment 24,000
Accumulated depreciation       500
Accounts payable 2,300
Unearned revenue 1,400
Notes payable 2,200
Salaries and wages payable 150
Interest payable 30,000
Commonstock 17,000
Retained earnings 600
Service revenue 20,100
Salaries and wages expense 4,400
Utilities expense 1,200
Supplies expense 1,150
Depreciation expense 500
Insurance expense 475
Rent expense 350
Interest expense 150
Total 74,250 74,250

Table (4)

Conclusion

The debit column and credit column of the adjusted trial balance are agreed, both having balance of $74,250.

5.

To determine

To prepare: The income statement for the month ended 31st January.

5.

Expert Solution
Check Mark

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 the income statement:

Incorporation FD
Income statement
For the month end 31st January
Particulars Amount( $) Amount ($)
Revenue
Service revenue 20,100
Total revenue(A) 20,100
Expense
Salaries and wages 4,400
Utilities 1,200
Supplies 1,150
Depreciation 500
Insurance 475
Rent 350
Interest expense 150
Total expense (B) 8,225
Net income (AB) 11,875

Table (5)

Thus the income statement of Incorporation FD is prepared and it shows the net income of $11,875.

Statement of retained earnings:

This is an equity statement which shows the changes in the stockholders’ equity over a period of time.

Prepare the statement of retained earnings:

Incorporation FD
Statement of Retained earnings
For the month end 31st January
Particulars Amount( $) Amount ($)
Retained earnings, beginning 600
Add: Net income 11,875
Less:Dividends 0
Retained earnings, end 12,475

Table (6)

Hence, the statement of retained earnings is prepared and the ending retained earnings are $12,475.

Classified balance sheet:

This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

Prepare the classified balance sheet:

Incorporation FD
Classified balance sheet
As on 31st January
Particulars Amount($) Amount($)
current asset:
Cash 26,600
Accounts receivable 6,100
Supplies 250
Prepaid rent 3,850
Prepaid insurance 5,225
Total current assets 42,025
Non-current assets
Equipment 24,000
Accumulated depreciation-equipment net 500
Total non-current asset 24,500
Total assets 65,525
Liabilities and stock holders' equity:
Current liabilities:
Accounts payable 2,300
Unearned revenue 1,400
Salaries and wages payable 2,200
Interest payable 150
Total current liabilities 6,050
Non-current liabilities:
Notes payable 30,000
Total non-current liabilities 30,000
Total liabilities 36,050
Stock holders' equity 17,000
Retained earnings 12,475
Total stockholders' equity 29,475
Total liabilities and stock holders' equity 65,525

Table (7)

Conclusion

Hence, the classified balance sheet is prepared and the total assets and total liabilities and stockholders’ equity is $65,525.

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Chapter 4 Solutions

Fundamentals Of Financial Accounting

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