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a.1.
Identify the number of accounting periods where this transaction directly affects Company C’s financial statements.
a.1.
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Explanation of Solution
Financial statement:
Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making. The financial statements reports, and shows the financial status of the business. The financial statements consist of the
Explain the number of accounting periods where this transaction directly affects Company C’s financial statements:
The number of accounting periods where this transaction directly affects Company C’s financial statements are 14years
a.2.
Ascertain the
a.2.
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Explanation of Solution
Ascertain the depreciation expense which is reported on the 2013 and 2014 income statements:
The depreciation expense which is reported on the 2013 and 2014 income statement is $1,000.
a.3.
Ascertain the manner in which the office equipment would be reported on the 2016 balance sheet.
a.3.
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Explanation of Solution
Ascertain the manner in which the office equipment would be reported on the 2016 balance sheet:
Balance sheet at December 31, 2016 | |
Assets | Amount ($) |
Office equipment | $14,000 |
Less: | 3,000 |
Net book (carrying) value | $11,000 |
Table (1)
Working notes:
Calculation of accumulated depreciation:
a.4.
Explain whether Company C has to make an
a.4.
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Explanation of Solution
Yes, The Company C has to make an adjusting entry at the end of each year during the life of the equipment.
Prepare the adjusting entry at the end of each year during the life of the equipment:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
Depreciation expense (+E, -SE) | 1,000 | |||
Accumulated depreciation (+XA, -A) | 1,000 | |||
(To record the accumulated depreciation) |
Table (2)
- Depreciation expense is an expense account which is a component of
stockholders’ equity. There is an increase in expense account which decreases the stockholders’ equity. Hence, debit depreciation expense with $1,000. - Accumulated depreciation is a contra-asset. There is a decrease in the asset. Hence, credit accumulated depreciation with $1,000.
b.1.
Identify the number of accounting periods where this transaction directly affects Company C’s financial statements.
b.1.
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Explanation of Solution
Identify the number of accounting periods where this transaction directly affects Company C’s financial statements:
The number of accounting periods where this transaction directly affects Company C’s financial statements is 2years which is from 2016 to 2017 because four month’s rent revenue have been earned in 2016, and two month’s rent revenue will be earned in 2017.
b.2.
Ascertain the amount of rent revenue on office space of Company C is reported on the 2016 income statements.
b.2.
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Explanation of Solution
Determine the amount of rent revenue on office space of Company C is reported on the 2016 income statements:
The income statement of 2016 should report rent revenue on this office space of Company C is $20,000
b.3.
Explain whether the transaction creates a liability for Company C as of the end of 2016.
b.3.
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Explanation of Solution
Explain whether the transaction creates a liability for Company C as of the end of 2016:
Yes, the transaction creates $10,000
b.4.
Prepare the adjusting entry on December 31, 2017 and to explain.
b.4.
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Explanation of Solution
Prepare the adjusting entry on December 31, 2017 and to explain:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
Unearned rent revenue (-L) | 10,000 | |||
Rent revenue (+R, +SE) | 10,000 | |||
(To record collection of unearned revenue) |
Table (3)
- Unearned revenue is a liability. There is a decrease in the liability. Hence, debit unearned revenue with $10,000.
- Cleaning service revenue is revenue which is a component of stockholders’ equity. There is an increase in the revenue account which increases the stockholders’ equity. Hence, credit cleaning service revenue with $10,000.
Yes, an adjusting entry must be made to increase the rent revenue account and to decrease the liability account.
c.1.
Explain the number of accounting periods where this transaction directly affects Company C’s financial statements.
c.1.
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Explanation of Solution
Explain the number of accounting periods where this transaction directly affects Company C’s financial statements:
The number of accounting periods where this transaction directly affects Company C’s financial statements is 2years where expense incurred in 2016 and the cash payment in 2017.
c.2.
Ascertain the manner in which the Company C affects the income statement and balance sheet of $7,500.
c.2.
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Explanation of Solution
In 2016:
The $7,500 which is reported as wages expense in the income statement.
The $7,500 is reported as liability on the balance sheet.
In 2017:
The $7,500 which is reported as liability on the balance sheet in 2016 is paid on January 5, 2017 and 2017 balance sheet shows reduced cash balance and reduced liability balance.
This transaction will not directly affect the 2017 income statement because the adjusting entry has not been made.
c.3.
Prepare the adjusting entry on December 31, 2016 and to explain.
c.3.
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Explanation of Solution
Prepare the adjusting entry on December 31, 2016 and to explain:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
Wages expense (+E, -SE) | 7,500 | |||
Wages payable (+L) | 7,500 | |||
(To record the payment of wages payable ) |
Table (4)
- Wages expense is an expense account which is a component of stockholders equity. There is an increase in the expense which decreases the stock holders’ equity. Hence, debit wages expense with $7,500.
- Wages payable is a liability. There is an increase in the liability. Hence, credit wages payable with $7,500.
Yes, an adjusting entry must be made to record the $7,500 as an expense in 2016 and to record the liability which is to be paid in 2017.
d.1.
Explain the manner in which service revenue is recorded on this job for 2016.
d.1.
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Explanation of Solution
Yes, Service revenue of $45,000
d.2.
Prepare the adjusting entry on December 31, 2016 and to explain.
d.2.
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Explanation of Solution
Prepare the adjusting entry on December 31, 2016 and to explain:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
45,000 | ||||
Service revenue (+R, +SE) | 45,000 | |||
(To record services provided on account) |
Table (5)
- Accounts receivable is an asset. There is an increase in the asset. Hence, debit asset with $45,000.
- Service revenue is revenue which is a component of stockholders’ equity. There is an increase in the revenue which increases the stockholders’ equity. Hence, credit service revenue with $45,000.
Yes, adjusting entry is necessary to record the revenue earned and to record the accounts receivable
d.3.
Prepare the entry for Company C for collecting the full contract price on the completion date which is on February 15, 2017.
d.3.
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Explanation of Solution
Prepare the entry for Company C for collecting the full contract price on the completion date which is on February 15, 2017:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
Cash (+A) | 60,000 | |||
Accounts receivable (+A) | 45,000 | |||
Service revenue (+R, +SE) | 15,000 | |||
(To record collection of cash) |
Table (6)
- Cash is an asset. There is an increase in the asset. Hence, debit asset with $60,000.
- Accounts receivable is an asset. There is a decrease in the asset. Hence, debit asset with $45,000.
- Service revenue is revenue which is a component of stockholders’ equity. There is an increase in the revenue which increases the stockholders’ equity. Hence, credit service revenue with $15,000.
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Financial Accounting, 8th Edition
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