
1.
Record the
1.

Answer to Problem 7P
Record the adjusting entries:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
a. | Supplies expense (+E, -SE) | 600 | ||
Supplies (-A) | 600 | |||
(To record supplies expenses) | ||||
b. | Insurance expense (+E, -SE) | 800 | ||
Prepaid insurance (-A) | 800 | |||
(To record insurance expense) | ||||
c. | 3,700 | |||
3,700 | ||||
(To record the accumulated depreciation) | ||||
d. | Wages expense (+E, -SE) | 640 | ||
Wages payable (+L) | 640 | |||
(To record wages payable) | ||||
e. | Income tax expense (+E,-SE) | 5,540 | ||
Income tax payable (+L) | 5,540 | |||
(To record accrued income tax expense) |
Table (1)
Explanation of Solution
Adjusting entries:
Adjusting entries are the
(a)
- Supplies 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 supplies expense with $600. - Supplies are asset. There is a decrease in the asset. Hence, credit asset with $600.
(b)
- Insurance 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 insurance expense with $800.
- Prepaid insurance is an asset. There is a decrease in the asset. Hence, credit asset with $800.
(c)
- 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 $3,700.
- Accumulated depreciation is a contra-asset. There is a decrease in the asset. Hence, credit accumulated depreciation with $3,700.
(d)
- 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 $640.
- Wages payable is a liability. There is an increase in the liability. Hence, credit wages payable with $640
(e)
- Income tax expense is an expense account which is a component of stock holders’ equity. There is an increase in the expense account which decreases the stockholders’ equity. Hence, debit interest expense with $5,540.
- Income tax payable is a liability. There is an increase in the liability. Hence, credit, interest payable with $5,540.
2.
Prepare an income statement and a classified
2.

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:
Incorporation T | ||
Income Statement | ||
For December 31, 2014 | ||
Particulars | Amount ($) | Amount ($) |
Operating Revenue: | ||
Service revenue | $61,360 | |
Operating Expenses: | ||
Supplies expense | 600 | |
Insurance expense | 800 | |
Depreciation expense | 3,700 | |
Wages expense | 640 | |
Remaining expenses | 33,360 | |
Total expenses | 39,100 | |
Operating Income | 22,260 | |
Income tax expense | 5,540 | |
Net Income | $16,720 | |
Earnings per share | $3.34 |
Table (2)
The net income for the Incorporation T is $16,720.
Classified balance sheet:
This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.
Prepare a classified balance sheet:
Incorporation T | |||
Balance Sheet | |||
At December 31, 2014 | |||
Assets | Amount ($) | Liabilities and Stockholders’ Equity | Amount ($) |
Current Assets: | Current Liabilities: | ||
Cash | $42,000 | Accounts payable | 3,000 |
Accounts receivable | 11,600 | Wages payable | 640 |
Supplies | 300 | Income taxes payable | 5,540 |
Total current assets | 53,900 | Total current liabilities | 9,180 |
Service trucks | 19,000 | Note payable, long term | 17,000 |
Accumulated depreciation | (12,900) | Total liabilities | 26,180 |
Other assets | 8,300 | Stockholders' Equity | |
Common stock | 400 | ||
Additional paid-in capital | 19,000 | ||
22,720 | |||
Total stockholders' equity | 42,120 | ||
Total assets | $68,300 | Total liabilities and stockholders' equity | $68,300 |
Table (3)
Working notes:
Calculation of retained earnings:
The balance sheet agreed with $68,300 by assets and liabilities.
3.
Record the closing entry at December 31, 2014.
3.

Explanation of Solution
Closing entries:
Closing entries are those journal entries, which are passed to transfer the final balances of temporary accounts, (all revenues account, all expenses account and dividend) to the retained earnings account. Closing entries produce a zero balance in each temporary account.
Prepare closing entries at December 31, 2014:
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Sales revenue(-R) | 61,360 | ||
Retained earnings(+SE) | 16,720 | ||
Supplies expense(-E) | 600 | ||
Insurance expense(-E) | 800 | ||
Depreciation expense(-E) | 3,700 | ||
Wages expense (-E) | 640 | ||
Remaining expense (-E) | 33,360 | ||
Income tax expense(-E) | 5,540 | ||
(To record the closing entries) |
Table (4)
For closing of temporary accounts, the balances of revenues, expenses, and dividend accounts will be transferred to retained earnings in order to bring zero balance for expenses and revenues accounts.
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