Chapter 5, Problem 5SP

To determine

Concept Introduction:

Journal Entries:

Preparing the journal entries is nothing but analyzing the transactions and identification of the accounts that are affected by it , finding it out its nature and at last determine whether it should be debited or credited .

Requirement 1:

To Prepare Prepare journal entries to record each of the January through March transactions

Answer to Problem 5SP

Date	Accounts	Debit	Credit
Jan.
4	Wages Expense	$125
	Wages Payable	500
	Cash		$625
5	Cash	25,000
	S. Rey, Capital		25,000
7	Merchandise Inventory	5,800
	Accounts Payable − Kansas Corp.		5,800
9	Cash	2,668
	Accounts Receivable − Gomez Co.		2,668
11	Accounts Receivable − Alex's Engineering	5,500
	Unearned Computer Service Revenue	1,500
	Computer Service Revenue		7,000
13	Accounts Receivable − Liu Corp.	5,200
	Sales		5,200
	Cost of Goods Sold	3,560
	Merchandise Inventory		3,560
15	Merchandise Inventory	600
	Cash		600
16	Cash	4,000
	Computer Service Revenue		4,000
17	Accounts Payable − Kansas Corp.	5,800
	Cash		5,742
	Merchandise Inventory		58
20	Sales Returns and Allowances	500
	Accounts Receivable − Liu Corp.		500
22	Cash	4,653
	Sales Discounts	47
	Accounts Receivable − Liu Corp.		4,700
24	Accounts Payable − Kansas Corp.	501
	Merchandise Inventory		501
26	Merchandise Inventory	9,000
	Accounts Payable − Kansas Corp.		9,000
26	Accounts Receivable - KC	5,800
	Sales		5,800
	Cost of Goods Sold	4,640
	Merchandise Inventory		4,640
31	Wages Expense	1,250
	Cash		1,250
Feb.
1	Prepaid Rent	2,475
	Cash		2,475
3	Accounts Payable − Kansas Corp.	8,499
	Cash		8,414
	Merchandise Inventory		85
5	Advertising Expense	600
	Cash		600
11	Cash	5,500
	Accounts Receivable − Alex's Engineering		5,500
15	S. Rey, Withdrawals	4,800
	Cash		4,800
23	Accounts Receivable − Delta Co.	3,220
	Sales		3,220
	Cost of Goods Sold	2,660
	Merchandise Inventory		2,660
26	Wages Expense	1,000
	Cash		1,000
27	Mileage Expense	192
	Cash		192
March
8	Computer Supplies	2,730
	Accounts Payable − Harris Office Products		2,730
9	Cash	3,220
	Accounts Receivable − Delta Co.		3,220
11	Repair Expense − Computer	960
	Cash		960
16	Cash	5,260
	Computer Service Revenue		5,260
19	Accounts Payable − Harris Office Products	3,830
	Cash		3,830
24	Accounts Receivable − Easy Leasing	9,047
	Computer Service Revenue		9,047
25	Accounts Receivable − Wildcat Services	2,800
	Sales		2,800
	Cost of Goods Sold	2,002
	Merchandise Inventory		2,002
30	Accounts Receivable − IFM Company	2,220
	Sales		2,220
	Cost of Goods Sold	1,048
	Merchandise Inventory		1,048
31	Mileage Expense	128
	Cash		128

Explanation of Solution

Based on the transactions that took place for January through March the above journal entries are made.

Date
Jan 4th	Due to increase in wages expenses and payable there are debited and decrease in cash is credited
5th	Increase in cash is debited and the increase in capital is credited
7th	Increase in merchandise inventory is debited and the increase in accounts payable is credited
9th	Increase in cash is debited and the decrease in accounts receivable is credited.
11th	Increase in accounts receivable and unearned revenue is debited and the increase in revenue is credited
13th	Increase in accounts receivable is debited and the increase in revenue is credited
	Increase in COGS is debited and the decrease in inventory is credited
15th	Increase in inventory is debited and the decrease in cash is credited
16th	Increase in cash is debited and the increase in revenue is credited
17th	Decrease in accounts payable is debited and decrease in cash and inventory is credited
20th	Increase in sales returns is debited and the increase in accounts payable is credited
22nd	Increase in cash and discount is debited and the decrease in accounts receivable is credited
24th	Decrease in accounts payable is debited and the decrease in inventory is credited
26th	Increase in inventory is debited and the increase in accounts payable is credited
26th	Increase in accounts receivable is debited and the increase in sales is credited
	Increase in COGS is debited and the decrease in inventory is credited
31st	Increase in wages expenses is debited and the decrease in cash is credited
Feb 1st	Increase in prepaid rent is debited and the decrease in cash is credited
3rd	Decrease in accounts payable is debited and the decrease in cash and inventory is credited
5th	Increase in expenses is debited and the decrease in cash is credited
11th	Increase in cash is debited and the decrease in accounts receivable is credited
15th	Increase in withdrawals is debited and the decrease in cash is credited
23rd	Increase in accounts receivable is debited and the increase in sales is credited
	Increase in COGS is debited and the decrease in inventory is credited
26th	Increase in wages expenses is debited and the decrease in cash is credited
27th	Increase mileage expenses is debited and the decrease in cash is credited
March 8th	Increase in supplies is debited and the increase in accounts payable is credited
9th	Increase in cash is debited and the decrease in accounts receivable is credited
11th	Increase in repair expenses is debited and the decrease in cash is credited
16th	Increase in cash is debited and the increase in revenue is credited
19th	Decrease in accounts payable is debited and the decrease in cash is credited
24th	Increase in accounts receivable is debited and the increase in revenue is credited
25th	Increase in accounts receivable is debited and the increase in revenue is credited
	Increase in COGS is debited and the decrease in inventory is credited
30th	Increase in accounts receivable is debited and the increase in revenue is credited
	Increase in COGS is debited and the decrease in inventory is credited
31st	Increase in mileage expenses is debited and the decrease in cash is credited

To determine

Concept Introduction:

General Ledger:

A ledger that generally contains all the accounts for the transactions recorded that is related to the company and helps in preparing the financial reports is known as General ledger.

Requirement 2:

To Post:

Posting of journal entries to the general ledger account.

Answer to Problem 5SP

Cash    Account No. 101
Date	Debit	Credit	Balance
Jan 1.			$48,372
4		$125	48,247
4		500	47,747
5	$25,000		72,747
9	2,668		75,415
15		600	74,815
16	4,000		78,815
17		5,742	73,073
22	4,653		77,726
31		1,250	76,476
Feb. 1		2,475	74,001
3		8,414	65,587
5		600	64,987
11	5,500		70,487
15		4,800	65,687
26		1,000	64,687
27		192	64,495
Mar. 9	3,220		67,715
11		960	66,755
16	5,260		72,015
19		3,830	68,185
31		128	68,057

Alex's Engineering Co. Account No. 106.1
Date	Debit	Credit	Balance
Jan 1.			$0
11	$5,500		5,500
Feb. 11		$5,500	0

Wildcat Services Account No. 106.2
Date	Debit	Credit	Balance
Jan 1.			$0
Mar. 25	$2,800		2,800

Easy Leasing Account No. 106.3
Date	Debit	Credit	Balance
Jan 1.			$0
Mar. 24	$9,047		9,047

IFM Co. Account No. 106.4
Date	Debit	Credit	Balance
Jan 1.			$3,000
Mar. 30	$2,220		5,220

Liu Corp. Account No. 106.5
Date	Debit	Credit	Balance
Jan 1.			$0
13	$5,200		5,200
20		$500	4,700
22		4,700	0

Gomez Co. Account No. 106.6
Date	Debit	Credit	Balance
Jan 1.			$2,668
9		$2,668	0

Delta Co. Account No. 106.7
Date	Debit	Credit	Balance
Jan 1.			$0
Feb. 23	$3,220		3,220
Mar. 9		$3,220	0

KC, Inc. Account No. 106.8
Date	Debit	Credit	Balance
Jan 1.			$0
26	5,800		5,800

Dream, Inc. Account No. 106.9
Date	Debit	Credit	Balance
Jan 1.			$0

Merchandise Inventory Account No. 119
Date	Debit	Credit	Balance
Jan 1.			$0
7	$5,800		5,800
13		$3,560	2,240
15	600		2,840
17		58	2,782
24		501	2,281
26	9,000		11,281
26		4,640	6,641
Feb. 3		85	6,556
23		2,660	3,896
Mar. 25		2,002	1,894
30		1,048	846

Computer Supplies Account No. 126
Date	Debit	Credit	Balance
Jan 1.			$580
Mar. 8	$2,730		3,310

Prepaid Insurance Account No. 128
Date	Debit	Credit	Balance
Jan 1.			$1,665

Prepaid Rent Account No. 131
Date	Debit	Credit	Balance
Jan 1.			$825
Feb. 1	$2,475		3,300

Office Equipment Account No. 163
Date	Debit	Credit	Balance
Jan 1.			$8,000

Accumulated Depreciation − Office Equipment Account No. 164
Date	Debit	Credit	Balance
Jan 1.			$400

Computer Equipment Account No. 167
Date	Debit	Credit	Balance
Jan 1.			$20,000

Accumulated Depreciation − Computer Equipment Account No. 168
Date	Debit	Credit	Balance
Jan 1.			$1,250

Accounts Payable Account No. 201
Date	Debit	Credit	Balance
Jan 1.			$1,100
7		$5,800	6,900
17	$5,800		1,100
24	501		599
26		9,000	9,599
Feb. 3	8,499		1,100
Mar. 8		2,730	3,830
19	3,830		0

Wages Payable Account No. 210
Date	Debit	Credit	Balance
Jan 1.			$500
4	$500		0

Unearned Computer Services Revenue Account No. 236
Date	Debit	Credit	Balance
Jan 1.			$1,500
11	$1,500		0

S. Rey, Capital Account No. 301
Date	Debit	Credit	Balance
Jan 1.			$80,360
5		$25,000	105,360

S. Rey, Withdrawals Account No. 302
Date	Debit	Credit	Balance
Jan 1.			$0
Feb.15	$4,800		4,800

Computer Service Revenue Account No. 403
Date	Debit	Credit	Balance
Jan 1.			$0
11		$5,500	5,500
11		1,500	7,000
16		4,000	11,000
Mar. 16		5,260	16,260
24		9,047	25,307

Sales Account No. 413
Date	Debit	Credit	Balance
Jan 1.			$0
13		$5,200	5,200
26		5,800	11,000
Feb. 23		3,220	14,220
Mar. 25		2,800	17,020
30		2,220	19,240

Sales Returns and Allowances Account No. 414
Date	Debit	Credit	Balance
Jan 1.			$0
20	$500		500

Sales Discounts Account No. 415
Date	Debit	Credit	Balance
Jan 1.			$0
22	$47		47

Cost of Goods Sold Account No. 502
Date	Debit	Credit	Balance
Jan 1.			$0
13	$3,560		3,560
26	4,640		8,200
Feb. 23	2,660		10,860
Mar. 25	2,002		12,862
30	1,048		13,910

Depreciation Expense − Office Equipment Account No. 612
Date	Debit	Credit	Balance
Jan 1.			$0

Depreciation Expense − Computer Equipment Account No. 613
Date	Debit	Credit	Balance
Jan 1.			$0

Wages Expense Account No. 623
Date	Debit	Credit	Balance
Jan 1.			$0
4	125		125
31	1,250		1,375
Feb. 26	1,000		2,375

Insurance Expense Account No. 637
Date	Debit	Credit	Balance
Jan 1.			$0

Rent Expense Account No. 640
Date	Debit	Credit	Balance
Jan 1.			$0

Computer Supplies Expense Account No. 652
Date	Debit	Credit	Balance
Jan 1.			$0

Advertising Expense Account No. 655
Date	Debit	Credit	Balance
Jan 1.			$0
Feb. 5	$600		600

Mileage Expense Account No. 676
Date	Debit	Credit	Balance
Jan 1.			$0
Feb. 27	$192		192
Mar. 31	128		320

Miscellaneous Expense Account No. 677
Date	Debit	Credit	Balance
Jan 1.			$0

Repairs Expense − Computer Account No. 684
Date	Debit	Credit	Balance
Jan 1.			$0
Mar. 11	$960		960

Explanation of Solution

All the amounts from the journal entries are posted to their respective general ledger and their ending balances are found.

To determine

Concept Introduction:

6-Column Worksheet:

10-column worksheet consists of balances of all the accounts prepared during an accounting period columns namely unadjusted trial balance, adjustments, and adjusted trial balance.

Requirement 3:

To Prepare:

Preparation of 6-column worksheet

Answer to Problem 5SP

BUSINESS SOLUTIONS 6-Coumn Work Sheet March 31, 2020
		Unadjusted		Adjustment		Adjusted
No.	Account Title	Debit	Credit	Debit	Credit	Debit	Credit
101	Cash	$68,057				$68,057
106.1	Alex's Engineering Co.	0				0
106.2	Wildcat Services	2,800				2,800
106.3	Easy Leasing	9,047				9,047
106.4	IFM Co.	5,220				5,220
106.5	Liu Corp.	0				0
106.6	Gomez Co.	0				0
106.7	Delta Co.	0				0
106.8	KC, Inc.	5,800				5,800
106.9	Dream, Inc.	0				0
119	Merchandise Inventory	846			$142	704
126	Computer Supplies	3,310			1,305	2,005
128	Prepaid Insurance	1,665			555	1,110
131	Prepaid Rent	3,300			2,475	825
163	Office Equipment	8,000				8,000
164	Accumulated Depreciation − Office Equipment		$400		400		$800
167	Computer Equipment	20,000				20,000
168	Accumulated Depreciation − Computer Equipment		1,250		1,250		2,500
201	Accounts Payable		0				0
210	Wages Payable		0		875		875
236	Unearned Computer Services Revenue		0				0
301	S. Rey, Capital		105,360				105,360
302	S. Rey, Withdrawals	4,800				4,800
403	Computer Services Revenue		25,307				25,307
413	Sales		19,240				19,240
414	Sales Returns and Allowances	500				500
415	Sales Discounts	47				47
502	Cost of Goods Sold	13,910		$142		14,052
612	Depreciation Expense − Office Equipment	0		400		400
613	Depreciation Expense − Computer Equipment	0		1,250		1,250
623	Wages Expense	2,375		875		3,250
637	Insurance Expense	0		555		555
640	Rent Expense	0		2,475		2,475
652	Computer Supplies Expense	0		1,305		1,305
655	Advertising Expense	600				600
676	Mileage Expense	320				320
677	Miscellaneous Expense	0				0
684	Repairs Expense − Computer	960				960
	Total	$151,557	$151,557	$7,002	$7,002	$154,082	$154,082

Explanation of Solution

All the balances of the general ledger are posted in the unadjusted column and then if there is any adjustments related to any of the accounts they are posted in the adjustments column and at last the adjusted column is prepared.

To determine

Concept Introduction:

Single Step Income Statement:

An income statement that requires only one subtraction to arrive the net income is known as Single step income statement.

Multiple Step Income Statement:

An income statement that has to segregate all the revenue and expenses based on their nature like operating, non-operating revenue and expenses part to arrive the net income is known as multiple step income statement.

Requirement 4:

To Prepare:

Prepare Income statement using; (a) Single step format (b) Multiple step format.

Answer to Problem 5SP

1. Single Step Income Statement

BUSINESS SOLUTIONSIncome Statement March 31, 2020
Revenues:
Computer Services Revenue	$25,307
Sales	19,240
Total Revenue		$44,547
Expenses:
Sales Returns and Allowances	500
Sales Discounts	47
Cost of Goods Sold	14,052
Depreciation Expense − Office Equipment	400
Depreciation Expense − Computer Equipment	1,250
Wages Expense	3,250
Insurance Expense	555
Rent Expense	2,475
Computer Supplies Expense	1,305
Advertising Expense	600
Mileage Expense	320
Miscellaneous Expense	0
Repairs Expense − Computer	960
Total Expenses		$25,714
Net Income		$18,833

Multiple Step Income Statement

BUSINESS SOLUTIONSIncome Statement March 31, 2020
Gross Sales (25,307 + 19,240)		$44,547
Less: Sales Returns and Allowances	500
Sales Discount	47	547
Net Sales		44,000
Cost of Goods Sold		14,052
Gross Profit		29,948
Operating Expenses:
Selling Expense;
Wages Expense	3,250
Advertising Expense	600
Mileage Expense	320
Total Selling Expense		4,170
General and Administration Expenses:
Depreciation Expense − Office Equipment	400
Depreciation Expense − Computer Equipment	1,250
Insurance Expense	555
Rent Expense	2,475
Computer Supplies Expense	1,305
Miscellaneous Expense	0
Repairs Expense − Computer	960
Total General and Administration Expenses		6,945
Total Operating Expenses		$11,115
Net Income		$18,833

Explanation of Solution

Single step income statement As per the name we can see that only single subtraction took place, that total expenses is subtracted from the total revenue to arrive the Net income.

Multiple step income statementUnder multiple step income statement, there are many number of subtotals that are subtracted to arrive the net income.

To determine

Concept Introduction:

Statement of Owner's EquityThe statement of owner's equity shows the change of equity balance over a period of time.

Requirement 5

To Prepare:

Prepare a statement of owner's equity for the three months ended March 31, 2020

Answer to Problem 5SP

BUSINESS SOLUTIONSStatement of Owner's Equity March 31, 2020
S. Rey, Capital; Jan. 1, 2019	$80,360
Add: Owner Investment during three month	25,000
Net Income	18,833
Subtotal	124,193
Less: S. Rey, Withdrawals	4,800
S. Rey, Capital; March 31, 2020	$119,393

Explanation of Solution

Here, the beginning capital was $ 80,360 but as there was an investment of $ 25,000 we need to add that and the net income of $ 18,833 and then deduct the withdrawals from that to get the ending balance of capital account.

To determine

Concept Introduction:

Classified Balance sheetA balance sheet that classifies all the assets as current assets, long term investments , Plant , property and equipment etc...and also classifies the liabilities section as current liabilities , long term debt etc.. are known as classified balance sheet.

Requirement 6

To Prepare:

Prepare a classified balance sheet as of March 31, 2020.

Answer to Problem 5SP

BUSINESS SOLUTIONSBalance Sheet March 31, 2020
Assets
Current Assets:
Cash	$68,057
Accounts Receivable	22,867
Merchandise Inventory	704
Computer Supplies	2,005
Prepaid Insurance	1,110
Prepaid Rent	825
Total Current Assets		$95,568
Property, Plant and Equipment
Office Equipment	8,000
Less: Accumulated Depreciation	800	7,200
Computer Equipment	20,000
Less: Accumulated Depreciation	2,500	17,500
Total Property, Plant and Equipment		24,700
Total Assets		$120,268
Liabilities and Owner's Equity
Liabilities
Current Liabilities:
Accounts Payable	0
Wages Payable	875
Unearned Computer Services Revenue	0
Total Current Liabilities		875
Owner's Equity
S. Rey, Capital; March 31, 2020		119,393
Total Liabilities and Owner's Equity		$120,268

Explanation of Solution

Under classified balance sheet we found the subtotal of current assets and property and plant to get the total assets and the current liabilities to find the total liabilities and then the balance sheet got balanced..