S4-11 Posting closing entries directly to T-accounts
Learning Objective 3
The following balances appear on the books of Sarah Simmons Enterprises: Retained Earnings, $29,600;
Dividends, $10,500; Income Summary, $0; Service Revenue, $24,500; Salaries Expense, $6,200; Rent
Expense, $3,500; and Advertising Expense, $2,000. All accounts have normal balances.
Requirements
1. Open a T-account for each account, and insert its adjusted balance as given (denote as Adj. Bal.) at
December 31.
2. Post the closing entries to the accounts, denoting posted amounts as Clos.
3. Compute the ending balance of Retained Earnings.
SOLUTION
S4-12 Identifying accounts included on a post-closing trial balance
Learning Objective 4
For each account listed, identify whether the account would be included on a post-closing trial balance.
Signify either Yes (Y) or No (N).
a. Office Supplies
b. Interest Expense
c. Retained Earnings
d. Dividends
e. Service Revenue
f. Accumulated Depreciation—Furniture
g. Rent Expense
h. Unearned Revenue
i. Accounts Payable
SOLUTION
S4-13 Identifying steps in the accounting cycle
Learning Objective 4
Review the steps in the accounting cycle, and answer the following questions:
1. What is the first step?
2. Are any steps optional?
3. Which steps are completed throughout the period?
4. Which steps are completed only at the end of the period?
5. What is the last step in the accounting cycle?
SOLUTION
S4-14 Calculating the current ratio
Learning Objective 6
End of the Line Montana Refrigeration has these account balances at December 31, 2018:
Notes Payable, long-term $ 9,200 Accounts Payable $ 3,600
Prepaid Rent 2,500 Accounts Receivable 6,600
Salaries Payable 2,600 Cash 3,500
Service Revenue 15,600 Depreciation Expense—Equip. 400
Office Supplies 1,300 Equipment 24,000
Accumulated Depreciation—Equip. 4,000 Common Stock 6,000
Advertising Expense 900 Rent Expense 1,800
SOLUTION
S4A-15 Journalizing reversing entries
Learning Objective 7 Appendix 4A
Ocean Breeze Associates accrued $8,500 of Service Revenue at December 31. Ocean Breeze Associates
received $14,500 on January 15, including the accrued revenue recorded on December 31.
Requirements
1. Record the adjusting entry to accrue Service Revenue.
2. Record the reversing entry.
3. Journalize the cash receipt.
SOLUTION
Requirement 1
Exercises
E4-16 Preparing the financial statements
Learning Objective 1
2. Ending Retained Earnings $8,200
The adjusted trial balance for Green Advertising Services is presented below:
Requirements
1. Prepare the income statement for the year ending December 31, 2018.
2. Prepare the statement of retained earnings for the year ending December 31, 2018.
3. Prepare the classified balance sheet as of December 31, 2018. Use the report form.
SOLUTION
E4-17 Classifying balance sheet accounts
Learning Objective 1
For each account listed, identify the category that it would appear on a classified balance sheet.
Use the following categories: Current Assets; Long-term Investments; Property, Plant, and
Equipment; Intangible Assets; Current Liabilities; Long-term Liabilities; and Stockholders’
Equity. If the item does not belong on the classified balance sheet, put an X.
a. Land (used in operations)
b. Accumulated Depreciation—Equipment
c. Common Stock
d. Service Revenue
e. Investment in Starbucks Corporation (to be held long-term)
f. Accounts Receivable
g. Equipment
h. Buildings
i. Notes Payable (due in 10 years)
j. Unearned Revenue
k. Cash
l. Accounts Payable
m. Prepaid Rent
n. Dividends
o. Land (held for investment purposes)
p. Depreciation Expense
SOLUTION
E4-18 Preparing a classified balance sheet and calculating the current ratio
Learning Objectives 1, 6
1. Total Assets $62,600
The adjusted trial balance of Melanie O’Mallie Dance Studio Company follows:
Requirements
1. Prepare the classified balance sheet of Melanie O’Mallie Dance Studio Company at August
31, 2018. Use the report form. You must compute the ending balance of Retained Earnings.
2. Compute O’Mallie’s current ratio at August 31, 2018. One year ago, the current ratio was
1.76. Indicate whether O’Mallie’s ability to pay current debts has improved, deteriorated, or
remained the same.
SOLUTION
Requirement 1
Requirement 2