Chapter 4, Problem 7E

Requirement 1

To determine

To prepare:

10-column work sheet using the given information about company’s adjustments

Answer to Problem 7E

Solution:

The 10-column work sheet using the given information about company’s adjustments −

	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance
Account Title	Debit	Credit	Debit	Credit	Debit	Credit
Cash	16,000				16,000
Accounts Receivables	34,000				34,000
Office Supplies	5,000			(c) 3,000	2,000
Trucks	3,50,000				3,50,000
Accumulated depreciation - Trucks		80,000		(a)40,000		1,20,000
Land	1,60,000				1,60,000
Accounts Payable		24,000				24,000
Interest Payable		5,000		(b)1,000		6,000
Long-term notes payable		1,00,000				1,00,000
S. Dylan, Capital		3,07,000				3,07,000
S. Dylan Withdrawals	34000				34000
Delivery fees earned		2,63,000				2,63,000
Depreciation Expense - Truck	40,000		(a)40,000		80,000
Salaries Expense	1,10,000				1,10,000
Office Supplies expense	15000		(c) 3,000		18,000
Interest Expense	5000		(b) 1,000		6,000
Repairs expense - Trucks	10,000				10,000
Totals	7,79,000	7,79,000	44,000	44,000	8,20,000	8,20,000

The income statement and balance sheet are also prepared as under −

	Adjusted Trial Balance		Income Statement		Balance Sheet
Account Title	Debit	Credit		Credit	Debit	Credit
Cash	16,000				16,000
Accounts Receivables	34,000				34,000
Office Supplies	2,000				2,000
Trucks	3,50,000				3,50,000
Accumulated depreciation − Trucks		1,20,000				1,20,000
Land	1,60,000				1,60,000
Accounts Payable		24,000				24,000
Interest Payable		6,000				6,000
Long-term notes payable		1,00,000				1,00,000
S. Dylan, Capital		3,07,000				3,12,000
S. Dylan Withdrawals	34,000
Delivery fees earned		2,63,000		2,63,000
Depreciation Expense - Truck	80,000		80,000
Salaries Expense	1,10,000		1,10,000
Office Supplies expense	18,000		18,000
Interest Expense	6,000		6,000
Repairs expense - Trucks	10,000		10,000
Totals	8,20,000	8,20,000	2,24,000	2,63,000	5,62,000	5,62,000
Net Income			39,000
Totals	8,20,000	8,20,000	2,63,000	2,63,000	5,62,000	5,62,000

Explanation of Solution

The preparation of 10-Column worksheet can be explained as under −
The given adjustments are −

1. Unrecorded Depreciation = $ 40,000
   
The depreciation will be added to depreciation expense and accumulated depreciation with the amount $ 40,000.

2. Total of accrued interest = $ 6,000
   
The total of accrued interest is $ 6,000. The existing accrued interest is $ 5,000. So, there is a need to add $ 1,000 to accrued interest. Thus, accrued interest will be added with $ 1,000 and interest expense will be increased by $ 1,000.

3. Unused office supplies at the year-end = $ 2,000
   

The office supplies expense will be calculated as under −
Given,

• Beginning Office Supplies = $ 5,000
• Ending Office Supplies = $ 2,000

  $\begin{array}{l}OfficeSuppliesExpense=BeginningOfficeSupplies-EndingOfficeSupplies\hfill \\ OfficeSuppliesExpense=\$5,000-\$2,000\hfill \\ OfficeSuppliesExpense=\$2,000\hfill \end{array}$

Thus, the office supplies expense is debited with $ 3,000 and office supplies are credited with $ 3,000.
Now, all the adjustments are incorporated in the adjusted trial balance. In the new adjusted trial balance −

• The office supplies are $ 2,000
• The accumulated depreciation is $ 120,000 (i.e. $ 80,000 + $ 40,000)
• The interest payable is $ 6,000
• The depreciation expense on truck = $ 40,000
• The interest expense is $ 6,000
• The office supplies expense is $ 3,000

These adjustments are incorporated in the adjusted trial balance and it is prepared.
The income statement is prepared as under −
Given,

• Delivery fees earned = $ 263,000
• Depreciation Expense − Truck = $ 80,000
• Salaries Expense = $ 110,000
• Office Supplies expense = $ 18,000
• Interest Expense = $ 6,000
• Repairs expense − Trucks = $ 10,000

Net Income will be calculated as −
  $\begin{array}{l}NetIncome=Deliveryfeesearned–\left(\begin{array}{l}DepreciationExpense–Truck+SalariesExpense\\ +OfficeSuppliesexpense+InterestExpense\\ +Repairsexpense–Trucks\end{array}\right)\hfill \\ NetIncome=\$263,000–\left(\$80,000+\$110,000+\$18,000+\$6,000+\$10,000\right)\hfill \\ NetIncome=\$263,000-\$224,000\hfill \\ NetIncome=\$39,000\hfill \end{array}$

Thus, the net income has been prepared.
The balance sheet is prepared as under −
Given,

• Cash = $ 16,000
• Accounts Receivables = $ 34,000
• Office Supplies = $ 2,000
• Trucks = $ 350,000
• Accumulated depreciation − Trucks = $ 120,000
• Land = $ 160,000
• Accounts Payable = $ 24,000
• Interest Payable = $ 6,000
• Long-term notes payable = $ 100,000
• S. Dylan, Capital −
Given,
• Beginning S. Dylan, Capital = $ 307,000
• Net Income = $ 39,000
• S. Dylan, Withdrawals = $ 34,000
  $\begin{array}{l}S.Dylan,Capital=BeginningS.Dylan,Capital+NetIncome–Withdrawals\hfill \\ S.Dylan,Capital=\$307,000+\$39,000-\$34,000\hfill \\ S.Dylan,Capital=\$312,000\hfill \end{array}$

  $\begin{array}{l}Totalassets=(Cash+AccountsReceivables+OfficeSupplies+Trucks+Land\hfill \\ Totalassets=\$16,000+\$34,000+\$2,000+\$350,000+\$160,000\hfill \\ Totalassets=\$562,000\hfill \\ \begin{array}{l}TotalLiabilitiesandOwner’sequity=(Accumulateddepreciation–Trucks+AccountsPayable\\ +InterestPayable\\ +Long-termnotespayable+S.Dylan,Capital)\end{array}\hfill \\ TotalLiabilitiesandOwner’sequity=\left(\$120,000+\$24,000+\$6,000+\$100,000+\$312,000\right)\hfill \\ TotalLiabilitiesandOwner’sequity=\$562,000\hfill \end{array}$

Conclusion

Thus, the 10-column work sheet using the given information about company’s adjustments has been prepared.

Requirement 2

To determine

1. To prepare:

The year-end closing entries for the company

2. To determine:

The capital amount to be reported on its year-end balance sheet

Answer to Problem 7E

Solution:

1. The year-end closing entries for the company −

	Accounts Titles and Descriptions	Debit	Credit
a.	Depreciation Expense - Truck	40,000
	Accumulated depreciation - Trucks		40,000
	(To record depreciation on truck)
b.	Interest Expense	1,000
	Interest Payable		1,000
	(To record remaining interest accrued from $ 6000)
c.	Office Supplies expense	3,000
	Office Supplies		3,000
	(To record use of supplies during the year)

2. The capital amount to be reported on its year-end balance sheet = $ 312,000

Explanation of Solution

1. For the closing journal entries −

The above journal entries can be explained as under −
The given adjustments are −

1. Unrecorded Depreciation = $ 40,000
   
The depreciation will be added to depreciation expense and accumulated depreciation with the amount $ 40,000.

2. Total of accrued interest = $ 6,000
   
The total of accrued interest is $ 6,000. The existing accrued interest is $ 5,000. So, there is a need to add $ 1,000 to accrued interest. Thus, accrued interest will be added with $ 1,000 and interest expense will be increased by $ 1,000.

3. Unused office supplies at the year-end = $ 2,000
   

The office supplies expense will be calculated as under −
Given,

• Beginning Office Supplies = $ 5,000
• Ending Office Supplies = $ 2,000

  $\begin{array}{l}OfficeSuppliesExpense=BeginningOfficeSupplies-EndingOfficeSupplies\hfill \\ OfficeSuppliesExpense=\$5,000-\$2,000\hfill \\ OfficeSuppliesExpense=\$2,000\hfill \end{array}$

Thus, the office supplies expense is debited with $ 3,000 and office supplies are credited with $ 3,000.

 b. For the capital amount to be reported on its year-end balance sheet −

S. Dylan, Capital −
Given,

• Beginning S. Dylan, Capital = $ 307,000
• Net Income = $ 39,000
• S. Dylan, Withdrawals = $ 34,000

  $\begin{array}{l}S.Dylan,Capital=BeginningS.Dylan,Capital+NetIncome–Withdrawals\hfill \\ S.Dylan,Capital=\$307,000+\$39,000-\$34,000\hfill \\ S.Dylan,Capital=\$312,000\hfill \end{array}$

The amount of capital to be reported on balance sheet is $ 312,000.

Conclusion

Thus, the year-end closing entries for the company have been prepared and the amount of capital to be reported has been determined.