Problem 4-2B (Continued)
Part 3
POWER DEMOLITION COMPANY
Income Statement
For Year Ended April 30, 2015
Demolition fees earned………………………….……… $187,000
Expenses
Depreciation expense–Equipment................... $ 7,000
Wages expense…………………………………………… 43,400
Interest expense…………………………………………. 3,600
Insurance expense……………………………………… 10,600
POWER DEMOLITION COMPANY
Statement of Owner’s Equity
For Year Ended April 30, 2015
J. Bonn, Capital, April 30, 2014…….……………….. $ 46,900
Add: Investments by owner……………………….. $40,000
Net income………………………………………… 77 ,550
J. Bonn, Capital, April 30, 2015…….……………….. $152 ,450
Problem 4-2B (Continued)
POWER DEMOLITION COMPANY
Balance Sheet
April 30, 2015
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Education.
Assets
Current assets
Cash…………………………………………………………… $ 7,000
Supplies…………………………………………………….. 7,900
Prepaid insurance………………….…………………… 2 ,000
Total current assets………..………………………….. $ 16,900
Plant assets
Liabilities
Current liabilities
Accounts payable………………………………….……. $ 7,600
Interest payable…………………………….……………. 300
Rent payable………………………………..…………….. 3,000
Total current liabilities…………..……………………. $ 23,450
Long-term liabilities
Long-term note payable (less current portion) 20 ,000
Total liabilities…………………………………………..….. 43,450
Equity
Problem 4-2B (Concluded)
Part 4
(a) This error enters the wrong amount in the correct accounts. The
ending balance of the Prepaid Insurance account should be $2,000,
but the entry reduces that account by $2,000. Because its
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Education.
by $8,600 because of the understatement of the expense. In
addition, the balance sheet columns will include the overstated
balance for the Prepaid Insurance account.
This error is not likely to be detected as a result of completing the
the unexpired insurance and total equity by $8,600.
(b) This error inserts a debit in the balance sheet columns instead of the
income statement columns. In the unlikely event that this error is
In all likelihood, the error will be discovered in the process of
drafting the balance sheet because the accountant will realize that
repairs expense is not an asset. If it is detected and corrected, the
Problem 4-3B (15 minutes)
1. Z 6. F 11. A 16. E
Problem 4-4B (75 minutes)
Part 1
ANARA CO.
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Education.
Income Statement
For Year Ended December 31, 2015
Revenues
Professional fees earned…………………………….. $59,600
Total revenues……………………………………………. $66,420
Expenses
Depreciation expense—Building..……………….. 2,000
Depreciation expense—Equipment…..…………. 1,000
Wages expense…………………………………………… 18,500
Postage expense…………………………..……………. 410
Property taxes expense………………….…………… 4,825
Repairs expense…………………………………..…….. 679
ANARA CO.
Statement of Owner’s Equity
For Year Ended December 31, 2015
P. Anara, Capital, December 31, 2014….…………. $ 52,800
Add: Investments by owner..……………………….. $40,000
Net income…………………………..……………… 28 ,890 68 ,890
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Education.
Problem 4-4B (Continued)
ANARA CO.
Balance Sheet
December 31, 2015
Assets
Current assets
Cash $ 7,400
$ 24,200
Plant assets
Equipment $24,000
Accumulated depreciation—Equipment (4 ,000)
Total assets
$164 ,700
Liabilities
Current liabilities
Accounts payable $ 3,500
Interest payable 1,750
Total current liabilities
$ 19,410
Long-term liabilities
Long-term notes payable ($40,000-$8,400)
31 ,600
Total liabilities
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51,010
Equity
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Problem 4-4B (Continued)
Part 2
Closing entries (all dated December 31, 2015)
Instructor note: Entries are shown without an account reference column because no posting is required.
(1) Professional Fees Earned……………..……….. 59,600
Income Summary.…………………………… 66,420
To close the revenue accounts.
(2) Income Summary…………………………………… 37,530
Depreciation Expense—Building.…….. 2,000
Depreciation Expense—Equipment.... 1,000
Postage Expense…………………………….. 410
Property Taxes Expense………………….. 4,825
Repairs Expense.……………………………. 679
Telephone Expense………………..……….. 521
Utilities Expense……………………………... 1,920
P. Anara, Withdrawals……………………… 8,000
To close the withdrawals account.
Part 3
a. Return on assets = $28,890/[($160,000 + $164,700)/2] = 17.8% (or 0.178)
b. Debt ratio = $51,010/$164,700 = 0.31
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Problem 4-5B (90 minutes)
Part 1
SANTO COMPANY
Income Statement
For Year Ended December 31, 2015
Repair fees earned…………..………………….. $54,700
Expenses
Depreciation expense—Equipment........ $ 2,000
Wages expense………………………………….. 26,400
SANTO COMPANY
Statement of Owner’s Equity
For Year Ended December 31, 2015
P. Santo, Capital, December 31, 2014....... $35,650
Add: Net income………………………….……… 18 ,940
Problem 4-5B (Continued)
SANTO COMPANY
Balance Sheet
December 31, 2015
Assets
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Current assets
Cash………………………………………………..… $14,450
Store supplies………………………………….... 5,140
Prepaid insurance……………………………… 1 ,200
Liabilities
Current liabilities
Accounts payable………………………………. $ 1,500
Problem 4-5B (Continued)
Parts 2 and 3
SANTO COMPANY
Work Sheet
For Year Ended December 31, 2015
Adjusted
Trial Balance
Closing Entry Information
Post–Closing
Trial Balance
No. Account Title Dr. Cr. Dr. Cr. Dr. Cr.
101 Cash………………………….. 14,450 14,450
125 Store supplies….….......... 5,140 5,140
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210 Wages payable..…..……... 2,700 2,700
640 Rent expense....…........... 3,600 (2) 3,600
651 Store supplies expense... 1,200 (2) 1,200
690 Utilities expense.….......... 1,960 (2) 1,960
Problem 4-5B (Concluded)
Part 3
Closing entries (all dated December 31, 2015)
Instructor note: Entries are shown without an account reference column because no posting is required.
(2) Income Summary…………..………………………… 35,760
Depreciation Expense, Equipment…..…. 2,000
Wages Expense…………………………………. 26,400
Insurance Expense…………..……………….. 600
Rent Expense…………………..……………….. 3,600
To close the Income Summary account.
(4) P. Santo, Capital………….…………………………… 15,000
P. Santo, Withdrawals…………………..……. 15,000
To close the withdrawals account.
Part 4
(a) If none of the $600 insurance expense had expired, the income
Financial Statement Changes
The income statement would reflect the following:
Net income would be increased by $600 + $2,700 = $3,300. (a) & (b)
The balance sheet would reflect the following:
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