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Serial Problem, SP 3 (Continued)
Part 8
BUSINESS SOLUTIONS
Post-Closing Trial Balance
December 31, 2015
Debit Credit
Cash .................................................................................. $ 48,372
Accounts receivable ....................................................... 5,668
Computer supplies .......................................................... 580
Prepaid insurance ........................................................... 1,665
Prepaid rent ..................................................................... 825
Office equipment ............................................................. 8,000
Serial Problem, SP 3 (Continued)
[Instructor Note: Ledger includes all entries from prior three months. The Working
Papers shorten the solution by showing account balances as of November 30.]
General Ledger
Cash
Acct. No. 101
Date
Explanation
PR
Debit
Credit
Balance
Oct.
1
45,000
45,000
2
3,300
41,700
5
2,220
39,480
8
1,420
38,060
15
4,800
42,860
17
805
42,055
20
1,728
40,327
22
1,400
41,727
31
875
40,852
31
3,600
37,252
Nov.
1
320
36,932
2
4,633
41,565
5
1,125
40,440
18
2,208
42,648
22
250
42,398
28
384
42,014
30
1,750
40,264
30
2,000
38,264
Dec.
2
1,025
37,239
3
500
36,739
4
3,950
40,689
10
750
39,939
14
1,500
41,439
20
5,625
47,064
28
3,000
50,064
29
192
49,872
31
1,500
48,372
Serial Problem, SP 3 (Continued)
Accounts Receivable
Acct. No. 106
Date
Explanation
PR
Debit
Credit
Balance
Oct.
6
4,800
4,800
12
1,400
6,200
15
4,800
1,400
22
1,400
0
28
5,208
5,208
Nov.
8
5,668
10,876
18
2,208
8,668
24
3,950
12,618
Dec.
4
3,950
8,668
28
3,000
5,668
Computer Supplies
Acct. No. 126
Date
Explanation
PR
Debit
Credit
Balance
Oct.
3
1,420
1,420
Nov.
5
1,125
2,545
Dec.
15
1,100
3,645
31
3,065
580
Prepaid Insurance
Acct. No. 128
Date
Explanation
PR
Debit
Credit
Balance
Oct.
5
2,220
2,220
Dec.
31
555
1,665
Prepaid Rent
Acct. No. 131
Date
Explanation
PR
Debit
Credit
Balance
Oct.
2
3,300
3,300
Dec.
31
2,475
825
Office Equipment
Acct. No. 163
Date
Explanation
PR
Debit
Credit
Balance
Oct.
1
8,000
8,000
Accumulated Depreciation—Office Equipment
Acct. No. 164
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
400
400
Serial Problem, SP 3 (Continued)
Computer Equipment
Acct. No. 167
Date
Explanation
PR
Debit
Credit
Balance
Oct.
1
20,000
20,000
Accumulated Depreciation—Computer Equipment
Acct. No. 168
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
1,250
1,250
Accounts Payable
Acct. No. 201
Date
Explanation
PR
Debit
Credit
Balance
Oct.
3
1,420
1,420
8
1,420
0
Dec.
15
1,100
1,100
Wages Payable
Acct. No. 210
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
500
500
Unearned Computer Services Revenue
Acct. No. 236
Date
Explanation
PR
Debit
Credit
Balance
Dec.
14
1,500
1,500
Common Stock
Acct. No. 307
Date
Explanation
PR
Debit
Credit
Balance
Oct.
1
73,000
73,000
Retained Earnings
Acct. No. 318
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
Closing
14,460
14,460
31
Closing
7,100
7,360
Dividends
Acct. No. 319
Date
Explanation
PR
Debit
Credit
Balance
Oct.
31
3,600
3,600
Nov.
30
2,000
5,600
Dec.
31
1,500
7,100
31
Closing
7,100
0
Serial Problem, SP 3 (Continued)
Computer Services Revenue
Acct. No. 403
Date
Explanation
PR
Debit
Credit
Balance
Oct.
6
4,800
4,800
12
1,400
6,200
28
5,208
11,408
Nov.
2
4,633
16,041
8
5,668
21,709
24
3,950
25,659
Dec.
20
5,625
31,284
31
Closing
31,284
0
Depreciation Expense—Office Equipment
Acct. No. 612
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
400
400
31
Closing
400
0
Depreciation Expense—Computer Equipment
Acct. No. 613
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
1,250
1,250
31
Closing
1,250
0
Wages Expense
Acct. No. 623
Date
Explanation
PR
Debit
Credit
Balance
Oct.
31
875
875
Nov.
30
1,750
2,625
Dec.
10
750
3,375
31
500
3,875
31
Closing
3,875
0
Insurance Expense
Acct. No. 637
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
555
555
31
Closing
555
0
Rent Expense
Acct. No. 640
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
2,475
2,475
31
Closing
2,475
0
Serial Problem, SP 3 (Concluded)
Computer Supplies Expense
Acct. No. 652
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
3,065
3,065
31
Closing
3,065
0
Advertising Expense
Acct. No. 655
Date
Explanation
PR
Debit
Credit
Balance
Oct.
20
1,728
1,728
Dec.
2
1,025
2,753
31
Closing
2,753
0
Mileage Expense
Acct. No. 676
Date
Explanation
PR
Debit
Credit
Balance
Nov.
1
320
320
28
384
704
Dec.
29
192
896
31
Closing
896
0
Miscellaneous Expense
Acct. No. 677
Date
Explanation
PR
Debit
Credit
Balance
Nov.
22
250
250
Dec.
31
Closing
250
0
Repairs Expense—Computer
Acct. No. 684
Date
Explanation
PR
Debit
Credit
Balance
Oct.
17
805
805
Dec.
3
500
1,305
31
Closing
1,305
0
Income Summary
Acct. No. 901
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
Closing
31,284
31,284
31
Closing
16,824
14,460
31
Closing
14,460
0
Reporting in Action — BTN 3-1
1. The revenue recognition principle requires that revenue be recorded when
2. Apple provides information on revenue recognition in its Note 1 titled
“Summary of Significant Accounting Policies.” It reports that “The
3. For fiscal year-end September 28, 2013, the profit margin is ($ millions):
4. The revenue items from its income statement must be identified, and those
would be credited to Income Summary as step 1 in the closing entry
5. The total expenses that would be debited to Income Summary as step 2 in
the closing entry process must be computed. Apple’s total expenses for
6. The balance of Income Summary before it is closed as of its fiscal year-
7. Solution depends on the financial statements accessed.
1. Apple
Current year, profit margin = $37,037 / $170,910 = 21.7%
2. Apple and Google have a comparable profit margin in the current year, but
Apple is more successful on the basis of profit margin in the prior year
3. Apple’s current ratios: ($ in millions)
Current year ................................. $73,286 / $43,658 = 1.68
4. In both years, Google has the higher current ratio (4.58 vs 1.68 for the
current year; 4.22 vs. 1.50 in the prior year), suggesting a better ability to
5. Apple’s current ratio increased from 1.50 to 1.68. Google’s current ratio
also increased from 4.22 to 4.58.
6. Google’s current ratio is above (better than) the industry average for both
years, and Apple’s is below (worse than) the industry average for both
Ethics Challenge — BTN 3-3
1. GAAP requires that annual deprecation be accumulated in a contra-
asset account, called Accumulated Depreciation. While property, plant,
2. One strength of Smith’s method would be the ease of preparing the
balance sheet. The property, plant, and equipment balance in the
3. While both approaches would lead to the same total assets on the
Communicating in Practice — BTN 3-4
TO: _____________________
FROM: _____________________
DATE: ______________________
SUBJECT: CLARIFICATIONS—OBJECTIVE OF THE CLOSING PROCESS
[Following is a sample of what the memorandum’s contents might include.]
When we speak of “closing the books” or the closing process we are not
talking about ending or closing the business nor doing anything that reflects
this thinking in the financial statements. Let me use an analogy to explain the
concept of the closing process and then you will see the distinction more
clearly.
Scoreboards are used to temporarily hold information that will allow us to
or scores that were not relevant to either game. You can see that the
scoreboard must be zeroed-out to prepare it for accumulating data to
determine the outcome of the next game.
The revenue and expense accounts temporarily hold the information to
determine if the owner(s) won or lost in the game of business. Each fiscal
period should be viewed as a separate game. After the data in these accounts
[Note: The memorandum need not discuss the income summary account since the assignment
requires explaining the concept, not the procedure.]
1. The Gap’s main brands (stores) are The Gap, Old Navy, and Banana
Republic. It also has Piperlime and Athleta brands.
2. The Gap’s fiscal year-end is January 28, 2012. It appears that The Gap’s
3. Net sales for the year ended January 28, 2012, are $14,549 million.
Teamwork in Action — BTN 3-6
Note that there is no specific solution to this activity. Still, the presentation
of each expert team should reflect the following summary points:
Before Adjusting
Balance Sheet Income Statement
Type Account Account Adjusting Entry
Prepaid expenses Asset overstated Expense understated Dr. Expense
Cr. Asset*
* For depreciation, one would Credit the Accumulated Depreciation contra account.
Some implementation notes: This activity allows all students to be actively
involved in the learning process. Encourage students to take the opportunity
Entrepreneurial Decision — BTN 3-7
1. a. To record the collection of cash from sale of the gift certificate in
advance of delivery of merchandise to the customer:
2. Carrying less inventory would allow the company to save the costs of
keeping and maintaining that added inventory; such as warehousing
3. If the company carries additional inventory, it can potentially sell more
merchandise and increase its profits. This might further fuel increased
sales as additional customers might be attracted to its products. On
Hitting the Road — BTN 3-8
There is no formal solution to this field activity. The instructor may wish to
tally students’ findings to show results across companies as to use of work
sheets, software preferences, and time it takes to prepare finalized annual
financial statements.
Global Decision — BTN 3-9
1. Samsung (KRW in millions)
Current year, profit margin = ₩30,474,764/ ₩228,692,667= 13.3%
2. Apple is slightly more successful on the basis of profit margin in the
current year relative to Google. However, both Apple and Google are
more successful on the basis of profit margin in the current year
