Chapter 7, Problem 7CCCP

(a)

To determine

To journalize: The transactions of Company R for the month of December

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare journal entries of Company R for the month of December.

Date		Account Titles and Description	Post Ref.	Debit ($)	Credit ($)
2017
December	7	Cash		3,600
		Accounts Receivable			3,600
		(To record cash collected from customers)
December	12	Inventory		12,000
		Accounts Payable			12,000
		(To record merchandise purchased on account)
December	17	Accounts Receivable		16,000
		Sales Revenue			16,000
		(To record sales on account)
December	17	Cost of Goods Sold		10,000
		Inventory			10,000
		(To record cost of sales)
December	19	Salaries and Wages Expense		2,200
		Cash			2,200
		(To record payment of salaries)
December	22	Accounts Payable		12,000
		Cash			11,880
		Inventory			120
		(To record payment to Company G, less discount)
December	26	Cash		15,680
		Sales Discounts		320
		Accounts Receivable			16,000
		(To record amount received from customer)
December	31	Cash		2,700
		Accounts Receivable			2,700
		(To record amount received from customer)

Table (1)

Working Notes:

Compute purchases discount amount (December 22 entry).

$\begin{array}{c}\text{Discount = Purchases amount × Discount percentage}\\ \text{= \$12,000×1\%}\\ \text{= \$120}\end{array}$

Compute sales discount amount (December 26 entry).

$\begin{array}{c}\text{Discount = Sales amount × Discount percentage}\\ \text{= \$16,000×2\%}\\ \text{= \$320}\end{array}$

(b)

To determine

To post: The December 1 balances and the entries prepared in part (a)

Explanation of Solution

T-account: The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.

Post the journal entries of Company R.

Cash
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
1	Beginning balance	18,200		19	Salaries and Wages Expense	2,200
7	Accounts Receivable	3,600		22	Accounts Payable	11,880
26	Accounts Receivable	15,680
31	Accounts Receivable	2,700
31	Total	40,180		31	Total	14,080
31	Ending Balance	$26,100

Table (2)

Notes Receivable
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
1	Beginning balance	2,000
31	Total	2,000		31	Total	0
31	Ending Balance	$2,000

Table (3)

Accounts Receivable
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
1	Beginning balance	7,500		7	Cash	3,600
17	Sales Revenue	16,000		26	Cash	15,680
				26	Sales Discounts	320
				31	Cash	2,700
31	Total	23,500		31	Total	22,300
31	Ending Balance	$1,200

Table (4)

Inventory
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
1	Beginning balance	16,000		17	Cost of Goods Sold	10,000
12	Accounts Payable	12,000		22	Accounts Payable	120
31	Total	28,000		31	Total	10,120
31	Ending Balance	$17,880

Table (5)

Prepaid Insurance
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
1	Beginning balance	1,600
31	Total	1,600		31	Total	$0
31	Ending Balance	$1,600

Table (6)

Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
1	Beginning balance	28,000
31	Total	28,000		31	Total	0
31	Ending Balance	$28,000

Table (7)

Accumulated Depreciation–Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
				1	Beginning balance	3,000
31	Total	0		31	Total	3,000
				31	Ending Balance	$3,000

Table (8)

Accounts Payable
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
22	Cash	11,880		1	Beginning balance	6,100
22	Inventory	120		12	Inventory	12,000
31	Total	12,000		31	Total	18,100
				31	Ending Balance	$6,100

Table (9)

Common Stock
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
				1	Beginning balance	50,000
31	Total	0		31	Total	50,000
				31	Ending Balance	$50,000

Table (10)

Retained Earnings
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
				1	Beginning balance	14,200
31	Total	0		31	Total	14,200
				31	Ending Balance	$14,200

Table (11)

Sales Revenue
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
				17	Accounts Receivable	16,000
31	Total	0		31	Total	16,000
				31	Ending Balance	$16,000

Table (12)

Sales Discount
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
26	Accounts Receivable	320
31	Total	320		31	Total	0
31	Ending Balance	$320

Table (13)

Cost of Goods Sold
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
26	Inventory	10,000
31	Total	10,000		31	Total	0
31	Ending Balance	$10,000

Table (14)

Salaries and Wages Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
19	Cash	2,200
31	Total	2,200		31	Total	0
31	Ending Balance	$2,200

Table (15)

(c)

To determine

To prepare: Bank reconciliation of Company R as at December 31, 2017

Answer to Problem 7CCCP

The adjusted cash balance per bank, and the adjusted cash balance per books of Company R is $27,420.

Explanation of Solution

Bank reconciliation: Bank statement is prepared by bank. The company maintains its own records from its perspective. This is why the cash balance per bank and cash balance per books seldom agree. Bank reconciliation is the statement prepared by company to remove the differences and disagreement between cash balance per bank and cash balance per books.

Prepare bank reconciliation of Company R as at December 31, 2017.

Company R
Bank Reconciliation
December 31, 2017
Cash balance as per bank statement	$25,930
Add: Deposit in transit	2,700
	28,630
Less: Outstanding checks	1,210
Adjusted cash balance per bank	$27,420
Cash balance as per books	26,100
Add: Note receivable collected by bank	2,000
	28,100
Less: NSF check	680
Adjusted cash balance per books	$27,420

Table (16)

(d)

To determine

To journalize: The adjusting entries of Company R as at December 31, 2017

Explanation of Solution

Prepare journal entries of Company R as at December 31, 2017.

Date		Account Titles and Description	Post Ref.	Debit ($)	Credit ($)
2017
December	31	Cash		2,000
		Notes Receivable			2,000
		(To record note collected  by bank)
December	31	Accounts Receivable		680
		Cash			680
		(To record NSF check as an accounts receivable)
December	31	Depreciation Expense		200
		Accumulated Depreciation–Equipment			200
		(To record insurance expense being paid from prepaid insurance)
December	31	Insurance Expense		400
		Prepaid Insurance			400
		(To record insurance expense being paid from prepaid insurance)
December	31	Income Tax Expense		425
		Income Tax Payable			425
		(To record accrued income tax expense)

Table (17)

(e)

To determine

To post: The adjusting entries prepared in part (d)

Explanation of Solution

Post the journal entries of Company R.

Cash
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
31	Balance before adjusting	26,100		31	Accounts Receivable	680
31	Notes Receivable	2,000
31	Total	28,100		31	Total	680
31	Ending Balance	$27,420

Table (18)

Notes Receivable
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
1	Balance before adjusting	2,000		31	Cash	2,000
31	Total	2,000		31	Total	2,000
31	Ending Balance	$0

Table (19)

Accounts Receivable
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
1	Balance before adjusting	1,200
31	Cash	680
31	Total	1,880		31	Total	$0
31	Ending Balance	$1,880

Table (20)

Insurance Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
31	Prepaid Insurance	400
31	Total	400		31	Total	0
31	Ending Balance	$400

Table (21)

Depreciation Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
31	Accumulated Depreciation– Equipment	200
31	Total	200		31	Total	0
31	Ending Balance	$200

Table (22)

Prepaid Insurance
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
1	Beginning balance	1,600		31	Insurance Expense	400
31	Total	1,600		31	Total	400
31	Ending Balance	$1,200

Table (23)

Accumulated Depreciation–Equipment
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
				1	Beginning balance	3,000
					Depreciation Expense	200
31	Total	0		31	Total	3,200
				31	Ending Balance	$3,200

Table (24)

Income Tax Expense
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
31	Income tax payable	425
31	Total	425		31	Total	0
31	Ending Balance	$425

Table (25)

Income Tax Payable
Date	Details	Debit ($)		Date	Details	Credit ($)
2017				2017
December				December
				31	Income tax expense	425
31	Total	0		31	Total	425
				31	Ending Balance	$425

Table (26)

(f)

To determine

To prepare: Adjusted trial balance of Company R as on December 31, 2017

Explanation of Solution

Adjusted trial balance: The trial balance which reflects the adjusting entries and incorporates the effect of all adjustments in the ledger accounts, is referred to as adjusted trial balance.

Prepare adjusted trial balance of Company R as at December 31, 2017.

Company R
Adjusted Trial Balance
December 31, 2017
	Debit ($)	Credit ($)
Cash	$27,420
Accounts Receivable	1,880
Inventory	17,880
Prepaid Insurance	1,200
Equipment	28,000
Accumulated Depreciation–Equipment		$3,200
Accounts Payable		6,100
Income Tax Payable		425
Common Stock		50,000
Retained Earnings		14,200
Sales Revenue		16,000
Sales Discounts	320
Cost of Goods Sold	10,000
Depreciation Expense	200
Salaries and Wages Expense	2,200
Insurance Expense	400
Income Tax Expense	425
Total	$89,925	$89,925

Table (27)

(g)

To determine

To prepare: Income statement and classified balance sheet of Company R

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 income statement of Company R for the month ended December 31, 2017.

Company R
Income Statement
For the Month Ended December 31, 2017
Sales revenue		$16,000
Less: Sales discounts		320
Net sales		15,680
Cost of goods sold		10,000
Gross profit		5,680
Operating expenses:
Salaries and wages expense	$2,200
Insurance expense	400
Depreciation expense	200	2,800
		2,880
Income tax expense		425
Net income		$2,455

Table (28)

Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.

Prepare classified balance sheet of Company R as on December 31, 2017.

Company R
Balance Sheet
December 31, 2017
Assets
Current assets:
Cash	$27,420
Accounts receivable	1,880
Inventory	17,880
Prepaid insurance	1,200
Total current assets		$48,380
Property, plant, and equipment:
Equipment	28,000
Less: Accumulated depreciation–Equipment	3,200	24,800
Total assets		$73,180
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		6,100
Income tax payable		425
Total liabilities		6,525
Stockholders' equity:
Common stock	50,000
Retained earnings	14,200
Net income	2,455
Total owners’ equity		66,655
Total liabilities and stockholders’ equity		$73,180

Table (29)