CP4–2 (continued)
Req. 2
a.
Interest Expense (+E, −SE)………………………….
700
Interest Payable (+L)…………………………
700
To accrue interest expense incurred but not paid.
b.
Unearned Revenue (−L) ………………………………………
3,200
Rent Revenue (+R, +SE) …………………………….
3,200
$4,800 ÷ 6 months = $800 per month x 4 months. This entry reduces (debits) the
liability for the amount earned and records the revenue.
c.
Accounts Receivable (+A)…………………………………….
3,300
Service Revenue (+R, +SE) …………………………
3,300
This entry records an asset for the amount due from customers and recognizes the
revenue because it was earned in 2015.
d.
Insurance Expense (+E, −SE)……………………………….
700
Prepaid Insurance (−A) ………………………………
700
$4,200 ÷ 12 months = $350 per month x 2 months of coverage. This entry reduces the
asset (Prepaid Insurance) because part of it has been used and only $3,500 represents
future benefits (an asset) to the company.
e.
Salaries and Wages Expense (+E, −SE) ………………..
1,100
Salaries and Wages Payable (+L) ………………..
1,100
Salaries and Wages Expense is increased (debited) because this expense was incurred
in 2015. A liability (Salaries and Wages Payable) is credited because this amount is
owed to the employees.
f.
1,000
1,000
To record depreciation for the truck for the year (amount is given).
g.
Income Tax Expense (+E, −SE) …………………………….
9,000
Income Tax Payable (+L) ………………………………
9,000
To accrue income tax expense incurred but not paid:
Income before income taxes 30,000
Income tax rate x 30%
Income tax expense $ 9,000
Fundamentals of Financial Accounting, 5/e 4–42
CP4–3
Assets
Liabilities
Stockholders’ Equity
a.
NE
Interest Payable +700
Interest Expense (+E) −700
b.
NE
Unearned
Revenue –3,200
Rent Revenue (+R) +3,200
c.
Accounts
Receivable +3,300
NE
Service Revenue (+R) +3,300
d.
Prepaid Insurance –700
NE
Insurance Expense (+E) –700
e.
NE
Salaries and
Wages
Payable +1,100
Salaries and Wages
Expense (+E) –1,100
f.
Acc. Depn.–Equip.
(+xA) –1,000
NE
Depreciation Expense (+E) –1,000
g.
NE
Income Tax
Payable +9,000
Income Tax Expense (+E) –9,000
CP4–4
Req. 1
GOLF ACADEMY, INC.
Unadjusted Income Statement
For the Year Ended December 31, 2015
Service Revenue
$ 51,500
Salaries and Wages Expense
36,100
Supplies Expense
2,400
Interest Expense
0
Income Tax Expense
0
Total Expenses
38,500
Net Income
$ 13,000
Fundamentals of Financial Accounting, 5/e 4–43
CP4–4 (continued)
Req. 2
The pairs of accounts that require adjustment include:
Adj.
Balance sheet account
Related income statement account
Amount
(1)
Supplies
Supplies Expense
-/+ $ 400
(2)
Unearned Revenue
Service Revenue
-/+ 3,000
(3)
Salaries and Wages Payable
Salaries and Wages Expense
+/+ 200
(4)
Interest Payable
Interest Expense
+/+ 100
(5)
Income Tax Payable
Income Tax Expense
+/+
4,590
Adj.
Explanation
(1)
Adjust to supplies count ($600 – $200 = $400 used up).
(2)
$3,000 was earned so that amount should be moved into Service
Revenue, leaving $500 unearned.
(3)
Owe employees $100/ day for two days of work ($200 = $100 x 2).
(4)
Interest owed on note payable (given).
(5)
Adjusted income before tax x Tax rate = ($54,500 – 36,300 – 2,800 – 100)
x 30% = $4,590.
CP4–4 (continued)
Req. 3
a) Supplies Expense (+E, –SE) 400
Supplies (–A) 400
b) Unearned Revenue (–L) 3,000
Service Revenue (+R, +SE) 3,000
Fundamentals of Financial Accounting, 5/e 4–45
© 2016 by McGraw–Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
ANSWERS TO GROUP A PROBLEMS
PA4–1
Req. 1 STARBOOKS CORPORATION
Adjusted Trial Balance
At September 30, 2015
Account Titles
Debit
Credit
Cash
$ 300
Accounts Receivable
300
Supplies
500
Prepaid Rent
100
Equipment
3,200
Accumulated Depreciation–Equipment
$ 900
Accounts Payable
600
Unearned Revenue
200
Note Payable (short–term)
500
Note Payable (long–term)
200
Common Stock
200
Retained Earnings
1,500
Service Revenue
6,200
Interest Revenue
100
Travel Expense
2,600
Salaries and Wages Expense
2,200
Rent Expense
400
Depreciation Expense
300
Supplies Expense
200
Income Tax Expense
300
Totals
$ 10,400
$ 10,400
PA4–1 (continued)
No. The amount to be reported for retained earnings on the balance sheet would be the
amount reported on the statement of retained earnings. The $1,500 in the adjusted trial
balance does not yet include the net income generated by Starbooks for the year ended
September 30, 2015.
Req. 2
Service Revenue (−R) ……………………………………..
6,200
Interest Revenue (−R) ……………………………………..
100
Travel Expense (−E) ……………………………….
2,600
Salaries and Wages Expense (−E) ……………
2,200
Rent Expenses (−E) ………………………………..
400
Depreciation Expense (−E) ………………………
300
Supplies Expense (−E) …………………………...
200
Income Tax Expense (−E) ……………………….
300
Retained Earnings (+SE) …………………………
300
Req. 3 STARBOOKS CORPORATION
Post–closing Trial Balance
At September 30, 2015
Account Titles
Debit
Credit
Cash
$ 300
Accounts Receivable
300
Supplies
500
Prepaid Rent
100
Equipment
3,200
Accumulated Depreciation–Equipment
$ 900
Accounts Payable
600
Unearned Revenue
200
Note Payable (short–term)
500
Note Payable (long–term)
200
Common Stock
200
Retained Earnings
1,800
Service Revenue
0
Interest Revenue
0
Travel Expense
0
Salaries and Wages Expense
0
Rent Expense
0
Depreciation Expense
0
Supplies Expense
0
Income Tax Expense
0
Totals
$ 4,400
$ 4,400
PA4–2
Req. 1
a.
Insurance Expense (+E, −SE)……………………………….
150
Prepaid Insurance (−A) …………………………..….
150
$600 x 6/24 months of coverage. This entry reduces the asset (Prepaid
Insurance), because part of it has been used and only $450 represents future
benefits (an asset) to the company.
b.
Supplies Expense (+E, −SE)…………………………………
700
Supplies (−A) …………………………………………….
700
The Supplies account is decreased (credited) to record the use of supplies during
the year, because this expense was incurred in 2015, calculated as
Unadjusted balance of $1,000 – Ending balance of $300.
c.
Repairs and Maintenance Expense (+E, −SE)…………
800
Accounts Payable (+L) ………………………………..
800
Repairs and Maintenance Expense is increased (debited) because this expense
was incurred in 2015. A liability (accounts payable) is credited, because this
amount is owed but will not be paid until 2016.
d.
Accounts Receivable (+A)…………………………………….
7,950
Service Revenue (+R, +SE) …………………………
7,950
This entry records an asset for the amount due from customers and recognizes the
revenue, because it was earned in 2015.
e.
Depreciation Expense (+E, −SE) …………………………...
2,750
Accumulated Depreciation–Equipment (+xA, −A)
2,750
To record depreciation on van for six months (amount is given).
f.
Interest Expense (+E, −SE) …………………………………..
500
Interest Payable (+L) …………………………………….
500
To accrue interest expense incurred but not paid (given).
g.
Income Tax Expense (+E, −SE) …………………………….
Income Tax Payable (+L) ………………………………
Income tax expense $ 9,000
PA4–2 (continued)
Req. 2
PA4–3
Transaction
Assets
Liabilities
Stockholders’ Equity
a.
− 150
NE
Insurance Expense (+E) − 150
b.
− 700
NE
Supplies Expense (+E) − 700
c.
NE
+ 800
Repairs & Maintenance Expense (+E) − 800
d.
+ 7,950
NE
Service Revenue (+R) + 7,950
e.
− 2,750
NE
Depreciation Expense (+E) − 2,750
f.
NE
+ 500
Interest Expense (+E) − 500
g.
NE
+ 9,000
Income Tax Expense (+E) − 9,000
PA4–4
Req. 1
VAL’S HAIR EMPORIUM
Unadjusted Income Statement (preliminary)
For the Year Ended December 31, 2015
Service Revenue
$75,800
Salaries and Wages Expense
29,100
Utilities Expense
12,200
Rent Expense
20,000
Supplies Expense
4,800
Income Tax Expense
0
Total Expenses
66,100
Net Income
$9,700
Req. 2
The pairs of accounts that require adjustment include:
Adj.
Balance sheet account
Related income statement account
Amount
(1)
Supplies
Supplies Expense
-/+ $3,000
(2)
Prepaid Rent
Rent Expense
-/+ 4,000
(3)
Accounts Payable
Utilities Expense
+/+ 450
(4)
Salaries and Wages Payable
Salaries and Wages Expense
+/+ 150
(5)
Income Taxes Payable
Income Tax Expense
+/+ 450
Adj.
Explanation
(1)
Based on supplies count ($4,300 – $1,300 = $3,000 used).
(2)
Two months of rent at $2,000/month have been used so $4,000 is expensed.
(3)
Additional $450 for utility services must be added to previously recorded
amount.
(4)
Owe stylists $150 in wages (given).
(5)
Adjusted income before tax x Tax rate =
[($75,800 – 29,250 – 12,650 – 24,000 – 7,800) x 30% = $630.
PA4–4 (continued)
Req. 3
a) Supplies Expense (+E, –SE) 3,000
Supplies (–A) 3,000
b) Rent Expense (+E, –SE) 4,000
Prepaid Rent (–A) 4,000