Problem 4-2B (Concluded)
Office Supplies Expense Acct. No. 650
Date Explanation PR Debit Credit Balance
July 31 Adjusting 875 875
31 Closing 875 0
Repairs Expense Acct. No. 684
Date Explanation PR Debit Credit Balance
Telephone Expense Acct. No. 688
Date Explanation PR Debit Credit Balance
July 30 400 400
31 Closing 400 0
Income Summary Acct. No. 901
Date Explanation PR Debit Credit Balance
Fundamental Accounting Principles, 21st Edition
256
Problem 4-3B (90 minutes) Part 1
POWER DEMOLITION COMPANY
Work Sheet
For Year Ended April 30, 2013
Unadjusted
Trial Balance
Adjusted
Trial Balance
Income
Statement
Balance Sheet
and Statement of
Owner’s Equity
No.
Account Title
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
101
Cash ………………………………………………….……
7,000
7,000
7,000
126
Supplies …………………………………………..……….
16,000
(a)
8,100
7,900
7,900
128
Prepaid insurance …………………………..
12,600
(b)
10,600
2,000
2,000
167
Equipment ……………………………………………….
200,000
200,000
200,000
168
Accumulated depreciation—
Equipment …………………………………….……….
14,000
(c)
7,000
21,000
21,000
201
Accounts payable …………………………..
6,800
(d)
800
7,600
7,600
203
Interest payable ……………………………………….
(h)
300
300
300
208
Rent payable …………………………………..……….
(f)
3,000
3,000
3,000
210
Wages payable ……………………………………….
(e)
2,000
2,000
2,000
213
Property taxes payable ………………..……….
(g)
550
550
550
251
Long–term notes payable …………….……….
30,000
30,000
30,000
301
J. Bonn, Capital ……………………………………….
86,900
86,900
86,900
302
J. Bonn, Withdrawals …………………………..
12,000
12,000
12,000
401
Demolition fees earned ………………..……….
187,000
187,000
187,000
612
Depreciation expense—Equip …..……….
(c)
7,000
7,000
7,000
623
Wages expense ……………………………..……….
41,400
(e)
2,000
43,400
43,400
633
Interest expense …………………………….……….
3,300
(h)
300
3,600
3,600
637
Insurance expense ……………………….….
(b)
10,600
10,600
10,600
640
Rent expense ………………………………….……….
13,200
(f)
3,000
16,200
16,200
652
Supplies expense …………………………..
(a)
8,100
8,100
8,100
683
Property taxes expense ……………….……….
9,700
(g)
550
10,250
10,250
684
Repairs expense …………………………………….
4,700
4,700
4,700
690
Utilities expense ……………………………..……….
4,800
______
(d)
800
______
5,600
______
5,600
______
______
______
Totals ………………………………………………..……..
324,700
324,700
32,350
32,350
338,350
338,350
109,450
187,000
228,900
151,350
Net Income ……………………………………………….
77,550
______
______
77,550
Totals ………………………………………………..……..
187,000
187,000
228,900
228,900
Problem 4-3B (Continued)
Part 2 Adjusting entries (all on April 30, 2013)
Instructor note: Entries are shown without an account reference column because no posting is required.
To record expiration of insurance.
(c) Depreciation Expense—Equipment……………. 7,000
Accumulated Depreciation–Equipment .. 7,000
To record depreciation.
(d) Utilities Expense ……………………………………….. 800
Accounts Payable ………………………………. 800
To record accrued utilities costs.
(e) Wages Expense ………………………………………… 2,000
Wages Payable …………………………………… 2,000
To record accrued wages.
Problem 4-3B (Continued)
Closing entries (all on April 30, 2013)
Instructor note: Entries are shown without an account reference column because no posting is required.
(1) Demolition Fees Earned ………………………… 187,000
Income Summary ……………………………. 187,000
To close the revenue account.
To close the expense accounts.
(3) Income Summary ………………………………….. 77,550
J. Bonn, Capital ………………………………. 77,550
To close the Income Summary account.
Problem 4-3B (Continued)
Part 3
POWER DEMOLITION COMPANY
Income Statement
For Year Ended April 30, 2013
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, 2013
J. Bonn, Capital, April 30, 2012 ……………………… $ 46,900
Add: Investments by owner ……………………….. $40,000
Net income ………………………………………… 77,550
117,550
Less: Withdrawals ………………………………………. (12,000)
J. Bonn, Capital, April 30, 2013 ……………………… $152,450
Problem 4-3B (Continued)
POWER DEMOLITION COMPANY
Balance Sheet
April 30, 2013
Assets
Plant assets
Equipment …………………………..……………………… 200,000
Accumulated depreciation–Equipment ………… (21,000) 179,000
Total assets ………………………………………………….. $195,900
Liabilities
Property taxes payable ……………………………….. 550
Current portion of long-term note payable …… 10,000
Total current liabilities ………………………………… $ 23,450
Long-term liabilities
Long-term note payable (less current portion) 20,000
Total liabilities ……………………………………………… 43,450
Equity
Problem 4-3B (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
The adjusted trial balance columns in the work sheet will be equal,
but the error will cause the work sheet’s net income to be overstated
by $8,600 because of the understatement of the expense. In
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
omit the $4,700 expense for repairs.
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 4-4B (90 minutes)
Part 1
SANTO COMPANY
Income Statement
For Year Ended December 31, 2013
Repair fees earned ………………………………. $54,700
Expenses
Depreciation expense—Equipment …….. $ 2,000
Wages expense …………………………………. 26,400
Insurance expense …………………………….. 600
SANTO COMPANY
Statement of Owner’s Equity
For Year Ended December 31, 2013
P. Santo, Capital, December 31, 2012 …… $35,650
Add: Net income …………………………..…….. 18,940
Problem 4-4B (Continued)
SANTO COMPANY
Balance Sheet
December 31, 2013
Assets
Current assets
Cash ………………………………………………….. $14,450
Store supplies ……………………………………. 5,140
Prepaid insurance ……………………………… 1,200
Total current assets …………………………... $20,790
Plant assets
Liabilities
Current liabilities
Accounts payable ………………………………. $ 1,500
Wages payable ………………………………….. 2,700
Total current liabilities ……………………….. 4,200
Equity
Problem 4-4B (Continued)
Parts 2 and 3
SANTO COMPANY
Work Sheet
For Year Ended December 31, 2013
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
128
Prepaid insurance …………..…
1,200
1,200
167
Equipment ………………………..…
31,000
31,000
168
Accumulated deprecia–
tion—Equipment ………………
8,000
8,000
201
Accounts payable ………………
1,500
1,500
210
Wages payable ………………..…
2,700
2,700
301
P. Santo, Capital …………………
35,650
(4)
15,000
(3)
18,940
39,590
302
P. Santo, Withdrawals …….…
15,000
(4)
15,000
401
Repair fees earned ………….…
54,700
(1)
54,700
612
Depreciation expense—
Equipment …………………………
2,000
(2)
2,000
623
Wages expense ……………….…
26,400
(2)
26,400
637
Insurance expense ………….…
600
(2)
600
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
901
Income summary ………………
(2)
35,760
(1)
54,700
______
______
(3)
18,940
______
_____
_____
Totals……………………………………
102,550
102,550
124,400
124,400
51,790
51,790
Problem 4-4B (Concluded)
Part 3
Closing entries (all dated December 31, 2013)
Instructor note: Entries are shown without an account reference column because no posting is required.
(1) Repair Fees Earned ………………………………….. 54,700
Income Summary ………………………………. 54,700
To close the revenue account.
(2) Income Summary …………………………………….. 35,760
To close the expense accounts.
(3) Income Summary …………………………………….. 18,940
P. Santo, Capital………………………………… 18,940
To close the Income Summary account.
Part 4
(a) If none of the $600 insurance expense had expired, the income
statement would not report any insurance expense and net income
would be increased by $600.
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:
Problem 4-5B (75 minutes)
Part 1
ANARA CO.
Income Statement
For Year Ended December 31, 2013
Total revenues ……………………………………………. $66,420
Expenses
Depreciation expense—Building …………………. 2,000
Depreciation expense—Equipment ……………… 1,000
Wages expense ………………………………………….. 18,500
Property taxes expense ………………………………. 4,825
Repairs expense …………………………..…………….. 679
Telephone expense …………………………………….. 521
Utilities expense …………………………………………. 1,920
ANARA CO.
Statement of Owner‘s Equity
For Year Ended December 31, 2013
P. Anara, Capital, December 31, 2012 ……………. $ 52,800
Add: Investments by owner …………………………. $40,000
Net income ………………………………………….. 28,890 68,890
Problem 4-5B (Continued)
ANARA CO.
Balance Sheet
December 31, 2013
Assets
Current assets
Cash …………………………………………………………… $ 7,400
Short-term investments ………………………………. 11,200
Supplies …………………………………………………….. 4,600
Prepaid insurance ………………………………………. 1,000
Total current assets ……………………………………. $ 24,200
Plant assets
Total assets ………………………………………………….. $164,700
Liabilities
Current liabilities
Accounts payable ……………………………………….. $ 3,500
Interest payable ………………………………………….. 1,750
Rent payable ………………………………………………. 400
Wages payable …………………………………………… 1,280
Equity
P. Anara, Capital …………………………..………………. 113,690
Total liabilities and equity …………………………….. $164,700
Problem 4-5B (Continued)
Part 2
Closing entries (all dated December 31, 2013)
Instructor note: Entries are shown without an account reference column because no posting is required.
(1) Professional Fees Earned ……………………… 59,600
Rent Earned …………………………..……………… 4,500
(2) Income Summary ………………………………….. 37,530
Depreciation Expense—Building …….. 2,000
Depreciation Expense—Equipment …. 1,000
Wages Expense………………………………. 18,500
Interest Expense …………………………….. 1,550
Insurance Expense …………………………. 1,525
Rent Expense …………………………………. 3,600
(3) Income Summary ………………………………….. 28,890
P. Anara, Capital …………………………….. 28,890
To close the Income Summary 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
Problem 4-6BA (40 minutes)
Part 1
SOLUTIONS CO.
Work Sheet
For Year Ended December 31, 2013
Unadjusted
Trial Balance
Adjustments
Adjusted
Trial Balance
Dr. Cr.
Dr. Cr.
Dr. Cr.
Cash ………………………………………………
10,000
10,000
Accounts receivable ……………………
(e)
2,450
2,450
Supplies ……………………………………..…
7,600
(b)
4,150
3,450
Machinery…………………………………..…
50,000
50,000
Accumulated depreciation—
Machinery ……………………………………
20,000
(f)
3,800
23,800
Interest payable …………………………..
(c)
800
800
Salaries payable ……………………….…
(a)
400
400
Unearned rental fees ………………..…
7,200
(d)
4,000
3,200
Notes payable ………………………………
30,000
30,000
G. Clay, Capital…………………………..
14,200
14,200
G. Clay, Withdrawals ………………..…
9,500
9,500
Rental fees earned …………………….…
32,450
(d)
(e)
4,000
2,450
38,900
Depreciation expense—
Machinery ………………………………..…
(f)
3,800
3,800
Salaries expense ……………………….…
24,500
(a)
400
24,900
Interest expense ………………………..…
2,250
(c)
800
3,050
Supplies expense ……………………..…
______
______
(b)
4,150
_____
4,150
______
Totals ………………………………………….…
103,850
103,850
15,600
15,600
111,300
111,300