Chapter 9, Problem 1CP

1.a.

To determine

Calculate the correct (reconciled) amount of ending balance of cash and the balance of omitted check.

Explanation of Solution

Calculation of Correct Ending Balance of Cash
Particulars	Amount ($)
Balance per bank	15,100
Add: Deposit in transit	2,450
Less: Outstanding checks	(1,800)
Reconciled balance	$15,750

Table (1)

Calculation of Omitted Check
Particulars	Amount ($)
Balance per books	17,000
Add: Interest earned	52
Less: Service charges	(15)
Balance before omitted check	17,037
Less: Reconciled balance	15,750
Omitted check	$1,287

Table (2)

Conclusion

Hence, the correct (reconciled) amount of ending balance of cash and the amount of omitted check is $15,750 and $1,287.

1. b.

To determine

Calculate the adjustment amount for allowance for doubtful accounts.

Explanation of Solution

Calculation of adjustment amount for allowance for doubtful accounts
Particulars	Amount ($)
Unadjusted balance	828
Less: Anticipated write-off	(679)
Revised unadjusted balance	149
Add: Desired ending balance	700
Necessary adjustment	$551

Table (3)

Conclusion

Hence, the adjustment amount for allowance for doubtful accounts is $551.

1.c.

To determine

Calculate the amount of depreciation expense for the truck used during year 2017.

Explanation of Solution

Calculation of depreciation expense for the truck
Particulars	Amount
Cost	$32,000
Less: Salvage value	$(8,000)
Depreciable cost	$24,000
Divide: Useful life in years	$÷$ 4
Annual depreciation for 2017	$6,000

Table (4)

Conclusion

Hence, the amount of depreciation expense for the truck used during year 2017 is $6,000.

1.d.

To determine

Calculate the amount of depreciation expense for two items of equipment used during year 2017.

Explanation of Solution

Calculation of depreciation expense for equipment
Particulars	Equipment S	Equipment I
Cost	$27,000	$18,000
Less: Salvage value	$(3,000)	$(2,500)
Depreciable cost	$24,000	$15,500
Divide: Useful life in years	$÷$ 8	$÷$ 5
Annual depreciation for 2017	$3,000	$3,100

Table (5)

Conclusion

Hence, the amount of depreciation expense for Equipment S and Equipment I used during year 2017 are $3,000 and $3,100 respectively.

1.e.

To determine

Calculate the balance amount of E Services revenue and unearned service revenue accounts.

Explanation of Solution

Step 1: Calculate the amount of total earned during 2017.

$\begin{array}{c}\text{Total earned during 2017}=\left(\begin{array}{l}\text{Revenue per month}\\ \times \text{Months of servcie provided}\end{array}\right)\\ =\frac{\text{\$3,840}}{12}\times 5\\ =\$1,600\end{array}$

Step 2: Calculate the amount of overstatement of revenue.

$\begin{array}{c}\text{Overstatement of revenue}=\left(\begin{array}{l}\text{Total advance received }\\ \text{– Total earned during 2015}\end{array}\right)\\ =\text{\$3,840 – \$1,600}\\ =\text{\$2,240}\end{array}$

Step 3: Calculate the balance amount of E services revenue account.

Calculation of balance amount of E services revenue account
Particulars	Amount
Unadjusted balance	$60,000
Less: Overstatement of revenue	$(2,240)
Adjusted balance	$57,760

Table (6)

Step 4: Calculate the balance amount of unearned services revenue account.

Calculation of balance amount of unearned services revenue account
Particulars	Amount
Unadjusted balance	$0
Add: Overstatement of revenue	$2,240
Adjusted balance	$2,240

Table (7)

Conclusion

Hence, the adjusted balance amount of E Services revenue and unearned service revenue accounts are $57,760 and $2,240 respectively.

1.f.

To determine

Calculate the amount for warranty expense and estimated warranty liability.

Explanation of Solution

$\begin{array}{c}\text{Warranty expense}\left(\text{Estimated}\right)=\left(\begin{array}{l}\text{Adjusted service revenue}\\ \times \text{Warranty percent}\end{array}\right)\\ =\text{\$57,760}\times \text{2}\text{.5\%}\\ =\text{\$1,444}\end{array}$

$\begin{array}{c}\text{Estimated warranty liability}=\left(\begin{array}{l}\text{Unadjusted balance}\left(\text{credit}\right)\\ +\text{Warranty expense}\end{array}\right)\\ =\text{\$1,400}+\text{\$1,444}\\ =\text{\$2,844}\end{array}$

Conclusion

Hence, the amount of warranty expense and estimated warranty liability is $1,444 and $2,844.

1.g.

To determine

Calculate the adjusted amount of interest expense and interest payable.

Explanation of Solution

The annual interest expense on note is $1,200$\left(\$15,000\times 8\%\right)$. The first annual interest is payable on December 31, 2017. Hence, there is no adjusted balance for both interest expense and interest payable on December 31, 2017.

2.

To determine

Complete the six-column table by entering the adjustments for items a through g and then complete the adjusted trail balance.

Explanation of Solution

Table (8)

3

To determine

Prepare journal entry to record the adjustments entered on the six-column table.

Explanation of Solution

Adjustment entry for cash account:

Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
2017		Miscellaneous Expense (E–)				15
December	31
		Accounts Payable (L–)				1,287
			Interest Revenue (E+)				52
			Cash (A–)				1,250
				(To record the adjustment of cash account)

Table (9)

Description:

• Miscellaneous expense is an expense. There is an increase in the expenses, and therefore, it is debited.
• Accounts payable is a liability.  There is a decrease in the liabilities, and therefore, it is debited.
• Interest revenue is a component of equity. There is an increase in the equity, and therefore, it is credited.
• Cash is an asset.  There is a decrease in the assets, and therefore, it is credited.

Adjustment entry for allowance for doubtful account:

Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
2017		Allowance for Doubtful Accounts (A+)				679
December	31
			Accounts Receivable (A–)				679
				(To record wrote-off uncollectible accounts)

Table (10)

Description:

• Allowance for doubtful account is a contra-asset. There is an increase in the assets, and therefore, it is debited.
• Accounts receivable is an asset.  There is a decrease in the assets, and therefore, it is credited.

Adjustment entry for bad debt expense:

Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
2017		Bad Debts Expense (E–)				551
December	31
			Allowance for Doubtful Accounts (A–)				551
				(To record the recognize of bad debts expense)

Table (11)

Description:

• Bad debts expense is an expense. There is an increase in the expenses, and therefore, it is debited.
• Allowance for doubtful account is a contra-asset. There is a decrease in the assets, and therefore, it is credited.

Adjustment entry for depreciation expense – Trucks:

Date		Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
2017		Depreciation Expense- Trucks (E–)		6,000
December	31
		Accumulated Depreciation-  Trucks (A–)			6,000
		(To record the amount of depreciation expense for trucks for the year)

Table (12)

Description:

• Depreciation expense is an expense. There is an increase in the expenses, and therefore it is debited.
• Accumulated Depreciation is a contra-asset account. There is decrease in assets, and therefore it is credited.

Adjustment entry for depreciation expense – Equipment:

Date		Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
2017		Depreciation Expense- Equipment (E–)		6,100
December	31
		Accumulated Depreciation-  Equipment (A–)			6,100
		(To record the amount of depreciation expense for equipment the year)

Table (13)

Description:

• Depreciation expense is an expense. There is an increase in the expenses, and therefore it is debited.
• Accumulated Depreciation is a contra-asset account. There is decrease in assets, and therefore it is credited.

Adjustment entry for unearned services revenue:

Date		Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
2017		E Services Revenue (E–)		2,240
December	31
		Unearned Services Revenue (L+)			2,240
		(To record the adjustment for unearned revenue)

Table (14)

Description:

• E Service revenue is a component of equity account. There is a decrease in equity, and therefore it is debited.
• Unearned service revenue is a liability. There is an increase in liabilities, and therefore it is credited.

Adjustment entry for warranty expense:

Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
2017		Warranty Expense (E–)				1,444
December	31
			Estimated Warranty Payable (L+)				1,444
				(To record the estimated warranty expense)

Table (15)

Description:

• Warranty expense is an expense. There is an increase in the expenses, and therefore, it is debited.
• Estimated warranty payable is a liability.  There is an increase in the liabilities, and therefore, it is credited.

Adjustment entry for accrual interest expense:

There is no interest accrual for 2017. Hence, no adjustment entry is required.

4.

To determine

Prepare a single-step income statement, retained earnings and balance sheet for Corporation B for the year ended December 31, 2017.

Explanation of Solution

Single-step income statement for the year ended December 31, 2017:

Corporation B Income Statement For the Year Ended December 31, 2017
Revenues:
E services revenue	$57,760
Sales	$71,026
Interest revenue	$924
Total revenues		$129,710
Expenses:
Cost of goods sold	$46,300
Depreciation expense- Office equipment	$6,000
Depreciation expense- Equipment	$6,100
Wages expense	$35,000
Interest expense	0
Rent expense	$9,000
Bad debts expense	$551
Miscellaneous expense	$1,241
Repairs expense	$8,000
Utilities expense	$6,800
Warranty expense	$1,444
Total expenses		$120,436
Net Income		$9,274

Table (16)

Statement of retained earnings for Corporation B for the year ended December 31, 2017:

Corporation B Statement of Retained Earnings For the Year Ended December 31, 2017
Retained earnings, December 31, 2016	$49,700
Add: Net income for the year	$9,274
	$58,974
Less: Dividends	(10,000)
Retained earnings, December 31, 2017	$48,974

Table (17)

Classified balance sheet for Corporation B as of December 31, 2017:

Corporation B Balance Sheet As of  December 31, 2017
Assets	Amount ($)	Amount ($)
Current assets:
Cash		15,750
Accounts receivable	3,321
Less: Allowance for doubtful accounts	(700)	2,621
Merchandise inventory		11,700
Total current assets		30,071
Plant assets:
Trucks	32,000
Less: Accumulated depreciation	(6,000)	26,000
Equipment	45,000
Less: Accumulated depreciation	(18,300)	26,700
Total plant assets		52,700
Total assets		$82,771
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		3,713
Estimated warranty payable		2,844
Unearned service revenue		2,240
Total current liabilities		8,797
Long-term liabilities:
Notes payable		15,000
Total liabilities		23,797
STOCKHOLDERS’ EQUITY
Common stock	10,000
Retained earnings	48,974
Total stockholders’ equity		58,974
Total liabilities and stockholders’ equity		$82,771

Table (18)