Chapter 4
Completing the Accounting Cycle
Review Questions
1. What document are financial statements prepared from?
The financial statements are prepared from the adjusted trial balance or worksheet.
2. What does the income statement report
3.What does the statement of retained earnings show?
4. What does the balance sheet report?
The balance sheet reports assets, liabilities, and stockholders’ equity as of the last day of the period.
5. Why are financial statements prepared in a specific order? What is that order?
The financial statements are prepared in a specific order because net income from the income statement is
6.What is a classified balance sheet?
7. Identify two asset categories on the classified balance sheet, and give examples of each category.
8.Identify two asset categories on the classified balance sheet, and give examples of each category.
4-2
9.What does liquidity mean?
10.How could a worksheet help in preparing financial statements?
The worksheet contains columns for the income statement and the balance sheet and calculates net income.
11.If a business had a net loss for the year, where would the net loss be reported on the worksheet
12. What is the closing process?
Closing the books (often referred to as the closing process) consists of journalizing and posting the closing
13. What are temporary accounts? Are temporary accounts closed in the closing process?
14. What are permanent accounts? Are permanent accounts closed in the closing process?
15. How is the Income Summary account used? Is it a temporary or permanent account?
The Income Summary account summarizes the net income (or net loss) for the period by collecting the sum
4-3
16. What are the steps in the closing process?
Step 1: Make the revenue accounts equal zero via the Income Summary account. This closing entry transfers
17.If a business had a net loss for the year, what would be the closing entry to close Income Summary and
transfer the net loss to the Retained Earnings account?
18. What types of accounts are listed on the post-closing trial balance?
19. List the steps of the accounting cycle.
The steps of the accounting cycle are:
20. What is the current ratio, and how is it calculated?
The current ratio measures a company’s ability to pay its current liabilities with its current assets. This ratio
is computed as follows: Current ratio = Total current assets / Total current liabilities.
21A. What are reversing entries? Are they required by GAAP?
Short Exercises
S4-1 Preparing an income statement
Learning Objective 1
Dalton Hair Stylists’s adjusted trial balance follows. Prepare Dalton’s income statement for the year ended
December 31, 2018.
SOLUTIONDALTON HAIR STYLISTS
Income Statement
Year Ended December 31, 2018
S4-2 Preparing a statement of retained earnings
Learning Objective 1
Refer to the data in Short Exercise S4-1. Prepare Dalton’s statement of retained earnings for the year ended
December 31, 2018.
SOLUTION
DALTON HAIR STYLISTS
Statement of Retained Earnings
4-5
S4-3 Preparing a balance sheet (unclassified, account form)
Learning Objective 1
Refer to the data in Short Exercise S4-1. Prepare Dalton’s unclassified balance sheet at December 31, 2018.
Use the account form.
SOLUTION
DALTON HAIR STYLISTS
Balance Sheet
Cash
Accounts Payable
Accounts Receivable
Interest Payable
Office Supplies
Notes Payable
Equipment
Total Liabilities
Less: Acc. Depr.—Equip.
(2,200)
Common Stock
Retained Earnings
Total Assets
Stockholders’ Equity
S4-4 Preparing a balance sheet (classified, report form)
Learning Objective 1
Refer to the data in Short Exercise S4-1. Prepare Dalton’s classified balance sheet at December 31,2018.
Assume the Notes Payable is due on December 1, 2025. Use the report form
SOLUTION
DALTON HAIR STYLISTS
Balance Sheet
December 31, 2018
4-7
S4-5 Classifying balance sheet accounts
Learning Objective 1
For each account listed, identify the category in which it would appear on a classified balance sheet.
a. Office Supplies
b. Interest Payable
c. Retained Earnings
d. Copyrights
e. Land
f. Accumulated Depreciation—Furniture
g. Land (held for long-term investment purposes)
h. Unearned Revenue
i. Notes Payable (due in six years)
SOLUTION
a. current assets
S4-6 Using the worksheet to prepare financial statements
Learning Objective 2
Answer the following questions:
Requirements
1. What type of normal balance does the Retained Earnings account have—debit or credit?
2. Which type of income statement account has the same type of balance as the Retained Earnings account?
3. Which type of income statement account has the opposite type of balance as the Retained Earnings
account?
4. What do we call the difference between total debits and total credits on the income statement section of
the worksheet?
4-8
SOLUTION
1. Credit
S4-7 Determining net income using a worksheet
Learning Objective 2
A partial worksheet for Ramey Law Firm is presented below. Solve for the missing information.
SOLUTION
a. $16,475 ($24,850 – $8,375)
S4-8 Determining net loss using a worksheet
Learning Objective 2
A partial worksheet for Aaron Adjusters is presented below. Solve for the missing information.
SOLUTION
a. $17,100 ($22,400 – $5,300)
4-9
S4-9 Identifying temporary and permanent accounts
Learning Objective 3
For each account listed, identify whether the account is a temporary account (T) or a permanent account
(P).
a. Rent Expense
b. Prepaid Rent
c. Equipment
d. Common Stock
e. Salaries Payable
f. Dividends
g. Service Revenue
h. Supplies Expense
i. Office Supplies
SOLUTION
a. T
b. P
S4-10 Journalizing closing entries
Learning Objective 3
Brett Teddy Enterprises had the following accounts and normal balances listed on its December 31st
adjusted trial balance: Service Revenue, $21,900; Salaries Expense, $6,000; Rent Expense, $4,400;
Advertising Expense, $3,100; and Dividends, $6,900.
Journalize the closing entries for Teddy Enterprises.
4-10
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
21,900
Income Summary
21,900
To close revenue.
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
Requirements 1 and 2
Retained Earnings
Dividends
Service Revenue
10,500
Clos.
Clos. 24,500
0
31
Income Summary
13,500
Salaries Expense
6,000
Rent Expense
4,400
Advertising Expense
3,100
To close expenses.
31
Income Summary
Retained Earnings
8,400
To close Income Summary.
31
Retained Earnings
Dividends
6,900
To close dividends.
S4-11, cont.
Requirements 1 and 2, cont.
Salaries Expense
Rent Expense
Advertising Expense
Adj.Bal.
6,200
Adj.Bal.
3,500
Adj.Bal.
2,000
6,200
Clos.
3,500
Clos.
2,000
Clos.
Bal.
Bal.
Bal.
0
Requirement 3
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
a. Y
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
1. Start with beginning account balances.
4-13
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
Requirement 1
4-14
Requirement 2
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
Date
Accounts and Explanation
Debit
Credit
Requirement 2
Date
Accounts and Explanation
Debit
Credit
Requirement 3
Date
Accounts and Explanation
Debit
Credit
4-15
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
Requirement 1
GREEN ADVERTISING SERVICES
Income Statement
Year Ended December 31, 2018
Requirement 2
GREEN ADVERTISING SERVICES
Statement of Retained Earnings
Year Ended December 31, 2018
4-17
E4-16, cont.
Requirement 3
GREEN ADVERTISING SERVICES
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash
Office Supplies
Total Current Assets
Property, Plant and Equipment:
Land
Building
Less: Accumulated Depreciation—Building
Furniture
Less: Accumulated Depreciation—Furniture
Total Property, Plant, and Equipment
Total Assets
Current Liabilities:
Accounts Payable
Salaries Payable
Unearned Revenue
Total Current Liabilities
Common Stock
Retained Earnings
Total Liabilities and Stockholders’ Equity
4-18
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
a.
Property, Plant, and Equipment
i.
Long-Term Liabilities
b.
Property, Plant, and Equipment
j.
Current Liabilities
c.
k.
Current Assets
d.
X
l.
Current Liabilities
e.
Long-Term Investments
m.
Current Assets
Current Assets
n.
X
g.
Property, Plant, and Equipment
o.
Long-Term Investments
h.
Property, Plant, and Equipment
p.
X
4-19
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
MELANIE O’MALLIE DANCE STUDIO COMPANY
Balance Sheet
August 31, 2018
Current Assets:
Cash
Office Supplies
Prepaid Rent
Total Current Assets
Property, Plant, and Equipment:
Equipment
Less: Accumulated Depreciation—Equipment
Total Property, Plant, and Equipment
Total Assets
Current Liabilities:
Accounts Payable
Salaries Payable
Unearned Revenue
Total Current Liabilities
Long-term Liabilities:
Notes Payable (long-term)
5,400
Total Liabilities
Common Stock
Retained Earnings
Total Liabilities and Stockholders’ Equity
Calculation of Retained Earnings = $19,000 − $1,100 + $18,100 − $3,600 − $1,100 − $400 − $500 −
$1,100 = $29,300
Requirement 2
4-21
E4-19 Preparing a worksheet
Learning Objective 2
The unadjusted trial balance of Data Solution at November 30, 2018, follows:
Additional information at November 30, 2018:
a. Accrued Service Revenue, $800.
b. Depreciation, $350.
c. Accrued Salaries Expense, $650.
d. Prepaid Rent expired, $700.
e. Office Supplies used, $550.
Requirements
1. Complete Data Solution’s worksheet for the month ended November 30, 2018.
2. How much was net income for November?
SOLUTION
Requirement 1
DATA SOLUTION
Worksheet
November 30, 2018
Account Names
Unadjusted Trial
Balance
Adjustments
Adjusted Trial
Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
1,800
1,100
3,100
2,550
2,100
2,750
4,550
E4-19, cont.
Requirement 2
E4-20 Preparing financial statements from the completed worksheet
Learning Objectives 1, 2
2. Ending Retained Earnings $1,650
Use your answer from Exercise E4-19 to prepare Data Solution’s financial statements.
Requirements
1. Complete the income statement for the month ended November 30, 2018.
2. Complete the statement of retained earnings for the month ended November 30, 2018. Assume
beginning Retained Earnings was $0.
3. Complete the classified balance sheet as of November 30, 2018. Use the report form.
SOLUTION
Requirement 1
DATA SOLUTION
Income Statement
Month Ended November 30, 2018
Revenues:
Service Revenue
Expenses:
Salaries Expense
Utilities Expense
Rent Expense
Depreciation Expense—Equipment
Supplies Expense
Total Expenses
Net Income
4-24
E4-20, cont.
Requirement 2
Requirement 2
DATA SOLUTION
Requirement 3
DATA SOLUTION
Balance Sheet
November 30, 2018
Assets
Current Assets:
Cash
$ 4,400
Accounts Receivable
3,900
Prepaid Rent
1,100
Office Supplies
2,550
Total Current Assets
Property, Plant, and Equipment:
Equipment
Less: Accumulated Depreciation—Equipment
Total Property, Plant, and Equipment
Total Assets
Current Liabilities:
Accounts Payable
Salaries Payable
Total Liabilities
Common Stock
Retained Earnings
1,650
Total Liabilities and Stockholders’ Equity
Retained Earnings, November 1, 2018
$ 0
Net income for the month
4,550
Dividends
Retained Earnings, November 30, 2018
$ 1,650
4-25
E4-21 Preparing closing entries from an adjusted trial balance
Learning Objective 3
The adjusted trial balance of Stone Sign Company follows:
Requirements
1. Assume Stone Sign Company has a January 31 year-end. Journalize Stone’s closing entries at
January 31.
2. How much net income or net loss did Stone Sign Company earn for the year ended January 31? How
can you tell?
4-26
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Jan. 31
Service Revenue
17,300
Income Summary
17,300
To close revenue.
Requirement 2
Stone Sign Company earned net income of $10,900 ($17,300 − $6,400) for the year. We know this
Income Summary
Salaries Expense
Rent Expense
Depreciation Expense—Equipment
400
Supplies Expense
300
Utilities Expense
600
To close expenses.
Income Summary
10,900
Retained Earnings
10,900
To close Income Summary.
Retained Earnings
800
Dividends
800
To close dividends.
4-27
E4-22 Preparing closing entries from T-accounts
Learning Objective 3
Selected accounts for Kebby Photography at December 31, 2018, follow:
Requirements
1. Journalize Kebby Photography’s closing entries at December 31, 2018.
2. Determine Kebby Photography’s ending Retained Earnings balance at December 31, 2018.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
37,500
Income Summary
37,500
To close revenue.
Income Summary
44,400
Salaries Expense
33,200
Supplies Expense
Depreciation Expense—Building
Depreciation Expense—Furniture
To close expenses.
Retained Earnings
Income Summary
To close Income Summary.
Retained Earnings
14,000
Dividends
14,000
To close dividends.
4-28
Requirement 2
E4-23 Determining the effects of closing entries on the Retained Earnings account
Learning Objective 3
McGregor Insurance Agency started the year with a beginning Retained Earnings balance of $27,500.
During the year, McGregor Insurance Agency earned $34,000 of Service Revenue and incurred $23,500
of various expenses. Dividends of $12,000 from the business were paid to stockholders. After the
closing entries are recorded and posted, what will be the balance of Retained Earnings?
SOLUTION
Retained Earnings
Clos.
12,000
27,500
10,500*
26,000
Retained Earnings
49,000
Bal.
14,000
28,100
Bal.
4-29
E4-24 Preparing a worksheet and closing entries
Learning Objectives 2, 3
1. Net Income $15,350
Cynthia Elmer, CPA, had the following partial worksheet:
Requirements
1. Complete the worksheet.
2. Prepare the closing entries for Cynthia Elmer, CPA.
4-30
SOLUTION
Requirement 1
CYNTHIA ELMER, CPA
Worksheet
December 31, 2018
Account Names
Unadjusted Trial Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 46,900
$ 46,900
$ 46,900
Accounts Receivable
Office Supplies
b.
c.
Acc. Dep.—Furniture
d.
f.
g.
Retained Earnings
Dividends
e., h.
$ 23,300
Interest Expense
Total
$ 355,300
$ 355,300
$ 16,650
$ 16,650
$ 84,650
$ 266,850
Total
$ 282,200
E4-24, cont.
Requirement 2
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
100,000
Income Summary
100,000
To close revenue.
Income Summary
Rent Expense
23,300
Salaries Expense
32,200
Supplies Expense
Utilities Expense
25,000
Depreciation Expense—Building
Depreciation Expense—Furniture
Interest Expense
To close expenses.
Income Summary
Retained Earnings
15,350
To close Income Summary.
Retained Earnings
Dividends
29,000
To close dividends.
4-32
E4-25 Preparing closing entries from an adjusted trial balance; preparing a post-closing trial
balance; and calculating the current ratio
Learning Objectives 3, 4, 6
Mark’s Bowling Alley’s adjusted trial balance as of December 31, 2018, is presented below:
Requirements
1. Prepare the closing entries for Mark’s Bowling Alley.
2. Prepare a post-closing trial balance.
3. Compute the current ratio for Mark’s Bowling Alley.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
85,000
Income Summary
85,000
To close revenue.
Income Summary
77,625
Insurance Expense
26,000
Salaries Expense
28,000
Supplies Expense
Utilities Expense
15,000
Depreciation Expense—Building
325
Depreciated Expense—Equipment
To close expenses.
Income Summary
Retained Earnings
To close Income Summary.
Retained Earnings
31,000
Dividends
31,000
To close dividends.
4-34
E4-25, cont.
Requirement 2
MARK’S BOWLING ALLEY
Post-Closing Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 20,000
Accounts Receivable
2,900
Requirement 3
Current Ratio = Total current assets / Total current liabilities
Office Supplies
1,150
Prepaid Insurance
2,700
Land
Building
Accumulated Depreciations––Building
Equipment
Accumulated Depreciation––Equipment
Accounts Payable
Utilities Payable
Salaries Payable
Unearned Revenue
Common Stock
Retained Earnings
Total
$ 234,750
4-35
E4-26 Preparing a worksheet, closing entries, and a post-closing trial balance
Learning Objectives 2, 3, 4
1. Net Loss $(12,150)
Houston Veterinary Hospital completed the following worksheet as of December 31, 2018.
Requirements
1. Complete the worksheet for Houston Veterinary Hospital.
2. Prepare the closing entries.
3. Prepare a post-closing trial balance.
SOLUTION
Requirement 1 HOUSTON VETERINARY HOSPITAL
Worksheet
December 31, 2018
Account Names
Unadjusted Trial
Balance
Adjustments
Adjusted Trial
Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 31,200
$ 31,200
$ 31,200
a.
c.
$ 1,900
$ 1,900
e.
d.
1,300
d., f.
$ 37,700
1,075
1,900
4-37
E4-26, cont.
Requirement 2
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
37,700
Income Summary
37,700
To close revenue.
Requirement 3
HOUSTON VETERINARY HOSPITAL
Post-Closing Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 31,200
Accounts Receivable
10,100
Office Supplies
Prepaid Rent
Equipment
27,000
Accumulated Depreciation—Equipment
Accounts Payable
Utilities Payable
310
Salaries Payable
Unearned Revenue
11,700
Common Stock
41,000
Retained Earnings
15,540
Total
$ 74,925
31
Income Summary
49,850
Rent Expense
23,600
Salaries Expense
13,075
Supplies Expense
275
Utilities Expense
11,000
Depreciation Expense—Equipment
To close expenses.
31
Retained Earnings
12,150
Income Summary
12,150
To close Income Summary.
31
Retained Earnings
28,000
Dividends
28,000
To close dividends.
4-38
E4A-27 Journalizing reversing entries
Learning Objective 7 Appendix 4A
Lucas Architects recorded the following adjusting entries as of December 31:
a. Service Revenue accrued, $2,600.
b. Unearned Revenue that has been earned, $1,300.
c. Office Supplies on hand, $530. The balance of the Office Supplies account was $880.
d. Salaries owed to employees, $600.
e. One month of Prepaid Rent has expired, $3,100.
f. Depreciation on equipment, $1,075.
Journalize any necessary reversing entries for Lucas Architects.
SOLUTION
Date
Accounts and Explanation
Debit
Credit
Jan. 1
Service Revenue
2,600
Accounts Receivable
2,600
E4A-28 Journalizing reversing entries
Learning Objective 7 Appendix 4A
Mountain View Services had the following unadjusted balances at December 31, 2018: Salaries Payable,
$0; and Salaries Expense, $1,900. The following transactions have taken place at the end of 2018 and
beginning of 2019:
2018
Dec. 31
Accrued Salaries Expense at December 31, $8,000.
31
Closed the Salaries Expense account.
2019
Jan. 1
Reversed the accrued salaries. (Requirement 3 only)
4
Paid salaries of $8,500. This payment included the Salaries Payable amount, plus $500 for the first
few days of January.
Requirements
1. Open T-accounts for Salaries Payable and Salaries Expense using their unadjusted balances at
December 31, 2018.
1
Salaries Payable
Salaries Expense
4-39
2. Journalize the entries assuming Mountain View Services does not use reversing entries. Do not
record the reversing entry on Jan. 1. Post to the accounts.
3. Open new T-accounts for Salaries Payable and Salaries Expense using their unadjusted balances at
December 31, 2018. Journalize the entries assuming Mountain View Services uses reversing entries.
Don’t forget to record the reversing entry on Jan. 1. Post to the accounts. Compare the balances
on January 4, 2019 with Requirement 2 balances on January 4, 2019.
SOLUTION
Requirement 1
Salaries Payable
Salaries Expense
Requirement 2
Date
Accounts and Explanation
Debit
Credit
2018
Dec. 31
Salaries Expense
8,000
Salaries Payable
8,000
31
Income Summary
9,900
Salaries Expense
9,900
2019
Jan. 4
Salaries Payable
8,000
Salaries Expense
500
Cash
8,500
Requirement 2, cont.
Salaries Payable
Salaries Expense
0
12/31/18
12/31/18
1,900
8,000
12/31/18
12/31/18
8,000
8,000
Bal.
9,900
9,900
12/31/18
0
Bal.
E4A-28, cont.
0
Bal.12/31/18
Bal.12/31/18
Requirement 3
Date
Accounts and Explanation
Debit
Credit
2018
Dec. 31
Salaries Expense
8,000
Salaries Payable
8,000
To adjust accrued salaries.
31
Income Summary
9,900
Salaries Expense
9,900
To close salaries expense.
2019
Jan. 1
Salaries Payable
8,000
Salaries Expense
8,000
To reverse accrued salaries.
Jan. 4
Salaries Expense
8,500
Cash
8,500
To pay salaries.
0
8,000
12/31/18
9,900
0
8,000
After all the journal entries are made, the balances are the same, regardless of whether or not reversing
entries are made.
Problems (Group A)
P4-29A Preparing financial statements including a classified balance sheet in report form,
preparing and posting closing entries, and preparing a post-closing trial balance
Learning Objectives 1, 3, 4
1. Net Loss $(9,500)
The adjusted trial balance of Erickson Real Estate Appraisal at June 30, 2018, follows:
Requirements
1. Prepare the company’s income statement for the year ended June 30, 2018.
2. Prepare the company’s statement of retained earnings for the year ended June 30, 2018.
3. Prepare the company’s classified balance sheet in report form at June 30, 2018.
4. Journalize the closing entries.
5. Open the T-accounts using the balances from the adjusted trial balance, and post the closing entries
to the T-accounts.
4-42
6. Prepare the company’s post-closing trial balance at June 30, 2018
SOLUTION
Requirement 1
ERICKSON REAL ESTATE APPRAISAL
Income Statement
Year Ended June 30, 2018
Requirement 2
ERICKSON REAL ESTATE APPRAISAL
Statement of Retained Earnings
Year Ended June 30, 2018
Retained Earnings, July 1, 2017
$ 39,500
Net loss for the year
Dividends
Retained Earnings, June 30, 2018
$ 2,700
Revenues:
Service Revenue
Expenses:
Salaries Expense
Interest Expense
Depreciation Expense—Building
Insurance Expense
Utilities Expense
Supplies Expense
Total Expenses
Net Loss
P4-29A, cont.
Requirement 3
ERICKSON REAL ESTATE APPRAISAL
Balance Sheet
June 30, 2018
Assets
Current Assets:
Cash
$ 4,600
Accounts Receivable
5,300
Office Supplies
1,500
Prepaid Insurance
1,700
Total Current Assets
$ 13,100
Property, Plant, and Equipment:
Land
Building
Less: Accumulated Depreciation—Building
Total Property, Plant, and Equipment
Total Assets
$ 82,900
Liabilities
Current Liabilities:
Accounts Payable
$ 18,700
Interest Payable
8,500
Salaries Payable
2,400
Unearned Revenue
7,600
Total Current Liabilities
$ 37,200
Long-term Liabilities:
Notes Payable
Total Liabilities
Common Stock
3,000
Retained Earnings
2,700
5,700
Total Liabilities and Stockholders’ Equity
$ 82,900
4-44
P4-29A, cont.
Requirement 4
Date
Accounts and Explanation
Debit
Credit
Jun. 30
Service Revenue
48,100
Income Summary
48,100
To close revenue.
Income Summary
57,600
Insurance Expense
Salaries Expense
33,500
Supplies Expense
Interest Expense
Utilities Expense
Depreciation Expense—Building
To close expenses.
Retained Earnings
Income Summary
To close Income Summary.
Retained Earnings
27,300
Dividends
27,300
To close dividends.
P4-29A, cont.
Requirement 5
Cash
Dividends
Bal.
4,600
Bal.
27,300
27,300
Clos.
0
Bal.
5,300
57,600
48,100
Clos.
9,500
Clos.
0
Bal.
48,100
0
Bal.
Prepaid Insurance
Insurance Expense
Bal.
1,700
Bal.
4,400
4,400
Clos.
Bal.
Bal.
33,500
33,500
Clos.
Bal.
Bal.
300
Clos.
Bal.
82,000
Bal.
0
Accumulated Depreciation––
Building
Interest Expense
25,200
Bal.
Bal.
8,500
8,500
Clos.
25,200
Bal.
Bal.
0
4-46
P4-29A, cont.
Requirement 5, cont.
Accounts Payable
Utilities Expense
18,700
Bal.
Bal.
2,700
2,700
Clos.
18,700
Bal.
Bal.
0
Common Stock
3,000
Bal.
3,000
Bal.
Clos.
39,500
Bal.
2,700
Bal.
8,200
Clos.
8,500
Bal.
Bal.
0
2,400
Bal.
7,600
Bal.
7,600
Bal.
40,000
Bal.
40,000
Bal.
P4-29A, cont.
Requirement 6
ERICKSON REAL ESTATE APPRAISAL
Post-Closing Trial Balance
June 30, 2018
Account Title
Balance
Debit
Credit
Cash
$ 4,600
Accounts Receivable
Office Supplies
Prepaid Insurance
Land
Building
Accumulated Depreciation—Building
Accounts Payable
Interest Payable
Salaries Payable
Unearned Revenue
Notes Payable (long-term)
Common Stock
Retained Earnings
Total
$ 108,100
$ 108,100
4-48
P4-30A Preparing financial statements including a classified balance sheet in report form,
preparing closing entries, and using the current ratio to evaluate a company
Learning Objectives 1, 3, 6
2. Ending Retained Earnings $68,200
The adjusted trial balance of Boston Irrigation System at December 31, 2018, follows:
Requirements
1. Prepare the company’s income statement for the year ended December 31, 2018.
2. Prepare the company’s statement of retained earnings for the year ended December 31, 2018.
3. Prepare the company’s classified balance sheet in report form at December 31, 2018.
4. Journalize the closing entries for Boston Irrigation System.
5. Compute the company’s current ratio at December 31, 2018. At December 31, 2017, the current
ratio was 2.3. Did the company’s ability to pay current debts improve or deteriorate, or did it remain
the same?
SOLUTION
Requirement 1
BOSTON IRRIGATION SYSTEM
Income Statement
Year Ended December 31, 2018
2,500
1,800
1,100
1,100
2,200
Requirement 2
BOSTON IRRIGATION SYSTEM
Statement of Retained Earnings
Year Ended December 31, 2018
Retained Earnings, January 1, 2018
$ 21,000
4-50
P4-30A, cont.
Requirement 3
BOSTON IRRIGATION SYSTEM
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash
$ 11,800
Stockholders’ Equity
Common Stock
12,000
Retained Earnings
68,200
Total Liabilities and Stockholders’ Equity
$ 151,900
46,000
Office Supplies
29,500
Prepaid Insurance
Total Current Assets
Property, Plant, and Equipment:
Building
$ 63,000
Less: Accumulated Depreciation—Building
38,000
Equipment
Less: Accumulated Depreciation—Equipment
20,300
Total Property, Plant, and Equipment
Total Assets
$ 151,900
Current Liabilities:
Accounts Payable
$ 32,100
Interest Payable
Salaries Payable
Unearned Revenue
Total Current Liabilities
Long-term Liabilities:
Notes Payable
Total Liabilities
4-51
P4-30A, cont.
Requirement 4
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
74,500
Income Summary
74,500
To close revenue.
Requirement 5
Current ratio = Total current assets* / Total current liabilities*
P4-31A Preparing a worksheet, financial statements, and closing entries
Learning Objectives 1, 2, 3
2. Total Assets $106,500
The unadjusted trial balance of Farish Investment Advisers at December 31, 2018, follows:
Income Summary
25,100
Insurance Expense
Salaries Expense
16,400
Supplies Expense
Interest Expense
Depreciation Expense—Building
Depreciation Expense—Equipment
To close expenses.
Income Summary
49,400
Retained Earnings
49,400
To close Income Summary.
Retained Earnings
Dividends
To close dividends.
4-52
Adjustment data at December 31, 2018:
a. Unearned Revenue earned during the year, $800.
b. Office Supplies on hand, $4,500.
c. Depreciation for the year, $4,500.
d. Accrued Salaries Expense, $5,000.
e. Accrued Service Revenue, $6,500.
Requirements
1. Prepare a worksheet for Farish Investment Advisers at December 31, 2018.
2. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in
account format.
3. Prepare closing entries.
4-53
SOLUTION
Requirement 1
FARISH INVESTMENT ADVISERS
Worksheet
December 31, 2018
Account Names
Unadjusted Trial
Balance
Adjustments
Adjusted Trial
Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 30,000
$ 30,000
$ 30,000
Accounts Receivable
51,000
e.
$6,500
57,500
57,500
28,000
28,000
28,000
c.
$ 13,500
d.
a.
e.
Dep. Expense—Equip.
4,500
Total
$ 19,300
$ 214,000
$ 214,000
$ 65,000
$ 113,700
Total
$ 149,000
P4-31A, cont.
Requirement 2
FARISH INVESTMENT ADVISERS
Income Statement
Year Ended December 31, 2018
Revenues:
Service Revenue
Expenses:
Insurance Expense
Salaries Expense
Supplies Expense
Rent Expense
Depreciation Expense––Equipment
Total Expenses
Net Income
Statement of Retained Earnings
Net income for the year
Dividends
Retained Earnings, December 31, 2018
4-55
P4-31A, cont.
Requirement 2, cont.
FARISH INVESTMENT ADVISERS
Balance Sheet
December 31, 2018
Assets
Liabilities
Current Assets:
Current Liabilities:
Cash
Accounts Payable
Accounts Receivable
Salaries Payable
Office Supplies
Unearned Revenue
Liabilities
Property, Plant, and Equipment:
Long-Term Liabilities:
Equipment
Notes Payable
Less: Acc. Depr.—Equip.
Total Liabilities
and Equipment
Common Stock
Retained Earnings
Total Assets
Stockholders’ Equity
4-56
P4-31A, cont.
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
100,300
Income Summary
100,300
To close revenue.
P4-32A Completing the accounting cycle from adjusting entries to post-closing trial balance with
an optional worksheet
Learning Objectives 1, 2, 3, 4, 5, 6
5. Net Income $18,890
The unadjusted trial balance of Walton Anvils at December 31, 2018, and the data for the adjustments
follow:
Income Summary
Insurance Expense
Salaries Expense
45,000
Supplies Expense
Interest Expense
Rent Expense
Depreciation Expense—Equipment
To close expenses.
Income Summary
Retained Earnings
35,300
To close Income Summary.
Retained Earnings
Dividends
29,000
To close dividends.
4-57
Adjustment data:
a. Unearned Revenue still unearned at December 31, $1,800.
b. Prepaid Rent still in force at December 31, $2,100.
c. Office Supplies used, $1,500.
d. Depreciation, $390.
e. Accrued Salaries Expense at December 31, $200.
Requirements
1. Open the T-accounts using the balances in the unadjusted trial balance.
2. Complete the worksheet for the year ended December 31, 2018 (optional).
3. Prepare the adjusting entries, and post to the accounts.
4. Prepare an adjusted trial balance.
5. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in
report form.
6. Prepare the closing entries, and post to the accounts.
7. Prepare a post-closing trial balance.
8. Calculate the current ratio for the company.
SOLUTION
Requirements 1, 3, and 6
Cash
Common Stock
Bal.
13,480
24,000
Bal.
Bal.
14,500
4,500
Bal.
4-59
P4-32A, cont.
Requirements 1, 3, and 6, cont.
Income Summary
Clos.
4,810
23,700
Clos.
Clos.
18,890
0
Bal.
Equipment
Salaries Expense
Bal.
23,000
Bal.
2,500
Adj.
200
Bal.
2,700
2,700
Clos.
Bal.
23,000
Bal.
0
1,000
Bal.
390
220
Bal.
220
220
Clos.
Bal.
Bal.
7,100
Bal.
Bal.
Adj.
390
Bal.
390
7,100
Bal.
Bal.
Salaries Payable
Supplies Expense
0
Bal.
Bal.
0
200
Adj.
Adj.
1,500
Bal.
1,500
1,500
Clos.
200
Bal.
Bal.
6,000
Bal.
1,800
Bal.
Service Revenue
1,700
1,500
19,500
4,200
Clos.
23,700
Bal.
200
0
Bal.
P4-32A, cont.
Requirement 2
WALTON ANVILS
Worksheet
December 31, 2018
Account Names
Unadjusted Trial Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 13,480
$ 13,480
$ 13,480
Accounts Receivable
14,500
14,500
14,500
Prepaid Rent
2,320
$ 220
b.
2,100
2,100
Office Supplies
1,700
c.
Accounts Payable
7,100
7,100
Salaries Payable
e.
Unearned Revenue
6,000
a.
$ 4,200
1,800
Retained Earnings
4,500
4,500
Dividends
4,600
4,600
4,600
Service Revenue
$ 23,700
Rent Expense
Dep. Expense—Eq.
Supplies Expense
1,500
18,890
18,890
$ 23,700
$ 57,880
$ 57,880
4-61
P4-32A, cont.
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Unearned Revenue
4,200
Service Revenue
4,200
To adjust revenue earned.
Rent Expense
220
Prepaid Rent
To adjust rent expense
Supplies Expense
1,500
Office Supplies
1,500
To adjust office supplies.
Depreciation Expense—Equipment
390
Accumulated Depreciation—Equipment
To adjust depreciation
Salaries Expense
200
Salaries Payable
To adjust accrued salaries
P4-32A, cont.
Requirement 4
WALTON ANVILS
Adjusted Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 13,480
Accounts Receivable
14,500
Prepaid Rent
2,100
Office Supplies
Equipment
23,000
Accumulated Depreciation—Equipment
Accounts Payable
7,100
Salaries Payable
Unearned Revenue
1,800
Common Stock
24,000
Retained Earnings
4,500
Dividends
4,600
Service Revenue
23,700
Salaries Expense
2,700
Rent Expense
Depreciation Expense—Equipment
Supplies Expense
1,500
Total
$ 62,690
$ 62,690
4-63
P4-32A, cont.
Requirement 5
WALTON ANVILS
Income Statement
Year Ended December 31, 2018
Revenues:
WALTON ANVILS
Statement of Retained Earnings
Year Ended December 31, 2018
Retained Earnings, January 1, 2018
$ 4,500
Net income for the year
18,890
23,390
Dividends
Retained Earnings, December 31, 2018
Service Revenue
Expenses:
Salaries Expense
Supplies Expense
1,500
Depreciation Expense—Equipment
Rent Expense
Total Expenses
Net Income
P4-32A, cont.
Requirement 5, cont.
WALTON ANVILS
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash
$ 13,480
Accounts Receivable
Prepaid Rent
Office Supplies
Total Current Assets
Property, Plant, and Equipment:
Equipment
Less: Accumulated Depreciation—Equipment
Total Property, Plant, and Equipment
Total Assets
Current Liabilities:
Accounts Payable
Salaries Payable
Unearned Revenue
Total Current Liabilities
Total Liabilities
Common Stock
Retained Earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
4-65
P4-32A, cont.
Requirement 6
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
23,700
Income Summary
23,700
To close revenue.
Income Summary
Salaries Expense
Rent Expense
Depreciation Expense—Equipment
Supplies Expense
Income Summary
18,890
Retained Earnings
18,890
To close Income Summary.
Retained Earnings
Dividends
To close dividends.
P4-32A, cont.
Requirement 7
WALTON ANVILS
Post-Closing Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 13,480
Accounts Receivable
14,500
Prepaid Rent
Office Supplies
Equipment
23,000
Accumulated Depreciation—Equipment
Accounts Payable
Salaries Payable
Unearned Revenue
Common Stock
24,000
Retained Earnings
18,790
Total
$ 53,280
$ 53,280
Requirement 8
Current ratio = Total current assets* / Total current liabilities*
P4-33A Completing the accounting cycle from journal entries to post-closing trial balance with an
optional worksheet
Learning Objectives 1, 2, 3, 4, 5
6. Ending Retained Earnings $5,095
On December 1, Bob Waldo began an auto repair shop, Waldo’s Quality Automotive. The following
transactions occurred during December:
Dec. 1
Waldo contributed $70,000 cash to the business in exchange for shares of common stock.
1
Purchased $12,000 of equipment paying cash.
1
Paid $1,750 for a five-month insurance policy starting on December 1.
9
Paid $20,000 cash to purchase land to be used in operations.
10
Purchased office supplies on account, $2,800.
19
Borrowed $15,000 from the bank for business use. Waldo signed a note payable to the bank in the
name of the corporation. The note is due in five years.
22
Paid $1,300 for advertising expenses.
26
Paid $900 on account.
28
The business received a bill for utilities to be paid in January, $280.
31
Revenues earned during the month included $16,000 cash and $3,600 on account.
31
Paid employees’ salaries $3,800 and building rent $1,200. Record as a compound entry.
31
The business received $1,440 for auto screening services to be performed next month.
31
Paid cash dividends of $5,500 to stockholders.
The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid
Insurance; Land; Equipment; Accumulated Depreciation—Equipment; Accounts Payable; Utilities
Payable; Interest Payable; Unearned Revenue; Notes Payable; Common Stock; Retained Earnings;
Dividends; Income Summary; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense;
Advertising Expense; Supplies Expense; Insurance Expense; Interest Expense; and Depreciation
Expense—Equipment.
Adjustment data:
a. Office Supplies used during the month, $1,800.
b. Depreciation for the month, $200.
c. One month insurance has expired.
d. Accrued Interest Expense, $75.
Requirements
1. Prepare the journal entries, and post to the T-accounts.
2. Prepare an unadjusted trial balance.
3. Complete the worksheet for the month ended December 31, 2018 (optional).
4. Prepare the adjusting entries, and post to the T-accounts.
5. Prepare an adjusted trial balance.
4-68
6. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in
report form.
7. Prepare the closing entries, and post to the T-accounts.
8. Prepare a post-closing trial balance.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Dec. 1
Cash
70,000
Common Stock
70,000
Equipment
12,000
Cash
12,000
Prepaid Insurance
Cash
1,750
Land
20,000
Cash
20,000
Office Supplies
Accounts Payable
2,800
Cash
15,000
Notes Payable
15,000
Advertising Expenses
Cash
1,300
Accounts Payable
Cash
Utilities Expense
Utilities Payable
Cash
16,000
Accounts Receivable
Service Revenue
19,600
Salaries Expense
Rent Expense
Cash
5,000
Cash
Unearned Revenue
1,440
Dividends
Cash
5,500
P4-33A, cont.
Requirements 1, 4, and 7
Cash
Dividends
Dec. 1
70,000
12,000
Dec. 1
Dec. 31
5,500
5,500
Clos.
Dec. 19
15,000
1,750
Dec. 1
16,000
20,000
Bal.
0
1,440
1,300
Dec. 22
900
Dec. 26
5,500
Dec. 31
Clos.
10,595
Bal.
55,990
Accounts Receivable
Service Revenue
Dec. 31
3,600
19,600
Dec. 31
Clos.
19,600
Bal.
3,600
0
Bal.
Office Supplies
Salaries Expense
Dec. 10
2,800
Dec. 31
3,800
1,800
Adj.
3,800
Clos.
Bal.
1,000
Bal.
0
Dec. 1
1,750
350
Adj.
Dec. 31
1,200
Clos.
1,400
Bal.
0
Utilities Expense
Dec. 9
20,000
Dec. 28
280
280
Bal.
0
12,000
Dec. 22
1,300
1,300
Clos.
12,000
Bal.
0
4-70
P4-33A, cont.
Requirements 1, 4, and 7, cont.
Accumulated Depreciation—Equipment
Supplies Expense
200
Adj.
Adj.
1,100
1,100
Clos.
200
Bal.
Bal.
0
Interest Payable
Depreciation Expense—Equipment
75
Adj.
Adj.
200
200
Clos.
75
Bal.
Bal.
0
Unearned Revenue
1,440
Dec. 31
1,440
Bal.
15,000
Dec. 19
70,000
70,000
Bal.
0
10,595
5,095
Bal.
2,800
Dec. 10
Adj.
350
Dec. 26
1,900
Bal.
Bal.
0
280
Dec. 28
Adj.
75
P4-33A, cont.
Requirement 2
WALDO’S QUALITY AUTOMOTIVE
Unadjusted Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 55,990
Accounts Receivable
3,600
Office Supplies
2,800
Prepaid Insurance
1,750
Land
Equipment
Accounts Payable
Utilities Payable
Unearned Revenue
1,440
Notes Payable
Common Stock
Dividends
5,500
Service Revenue
Salaries Expense
3,800
Rent Expense
1,200
Utilities Expense
Advertising Expense
1,300
Total
4-72
P4-33A, cont.
Requirement 3
WALDO’S QUALITY AUTOMOTIVE
Worksheet
December 31, 2018
Account Names
Unadjusted Trial Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 55,990
$ 55,990
$ 55,990
Accounts Receivable
3,600
3,600
3,600
Office Supplies
2,800
$ 1,800
a.
1,000
1,000
Prepaid Insurance
1,750
350
c.
1,400
1,400
Land
20,000
20,000
20,000
Equipment
12,000
12,000
12,000
Acc. Dep.—Equip.
Accounts Payable
1,900
Utilities Payable
Interest Payable
Unearned Revenue
Common Stock
70,000
Dividends
5,500
Service Revenue
$ 19,600
Salaries Expense
3,800
3,800
Rent Expense
1,200
Utilities Expense
Advertising Expense
1,300
Supplies Expense
$ 1,800
Insurance Expense
Interest Expense
Dep. Exp.—Equip.
Total
Net Income
10,595
10,595
P4-33A, cont.
Requirement 4
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Supplies Expense
1,800
Office Supplies
1,800
To adjust supplies used.
Depreciation Expense—Equipment
200
Accumulated Depreciation—Equipment
To adjust depreciation expense
Insurance Expense
350
Prepaid Insurance
To adjust insurance. ($1,750 / 5 months)
Interest Expense
Interest Payable
To adjust interest.
4-74
P4-33A, cont.
Requirement 5
WALDO’S QUALITY AUTOMOTIVE
Adjusted Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 55,990
Accounts Receivable
3,600
Office Supplies
1,000
Prepaid Insurance
1,400
Land
20,000
Equipment
12,000
Accumulated Depreciation—Equipment
$ 200
Accounts Payable
1,900
Utilities Payable
280
Interest Payable
Unearned Revenue
1,440
Notes Payable
15,000
Common Stock
70,000
Dividends
5,500
Service Revenue
19,600
Salaries Expense
3,800
Rent Expense
1,200
Utilities Expense
280
Advertising Expense
1,300
Supplies Expense
1,800
Insurance Expense
350
Interest Expense
Depreciation Expense—Equipment
200
Total
P4-33A, cont.
Requirement 6
WALDO’S QUALITY AUTOMOTIVE
Income Statement
Month Ended December 31, 2018
Revenues:
Service Revenue
$ 19,600
Expenses:
Salaries Expense
Advertising Expense
Rent Expense
Supplies Expense
Insurance Expense
Utilities Expense
Depreciation Expense—Equipment
Interest Expense
Total Expenses
Net Income
$ 10,595
WALDO’S QUALITY AUTOMOTIVE
Month Ended December 31, 2018
Retained Earnings, December 1, 2018
Net income for the month
Dividends
Retained Earnings, December 31, 2018
4-76
P4-33A, cont.
Requirement 6, cont.
WALDO’S QUALITY AUTOMOTIVE
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash
$ 55,990
Accounts Receivable
3,600
Office Supplies
1,000
Prepaid Insurance
1,400
Total Current Assets
Property, Plant, and Equipment:
Land
Equipment
$ 12,000
Less: Accumulated Depreciation—Equipment
Total Property, Plant, and Equipment
31,800
Total Assets
Current Liabilities:
Accounts Payable
Utilities Payable
Interest Payable
Unearned Revenue
1,440
Total Current Liabilities
Long-term Liabilities:
Notes Payable
15,000
Total Liabilities
18,695
Common Stock
Retained Earnings
5,095
75,095
Total Liabilities and Stockholders’ Equity
P4-33A, cont.
Requirement 7
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
19,600
Income Summary
19,600
To close revenue.
Income Summary
Salaries Expense
Rent Expense
Utilities Expense
Advertising Expense
Supplies Expense
Insurance Expense
Interest Expense
Depreciation Expense—Equipment
To close expenses.
Income Summary
10,595
Retained Earnings
10,595
To close Income Summary.
Retained Earnings
Dividends
To close dividends.
4-78
P4-33A, cont.
Requirement 8
WALDO’S QUALITY AUTOMOTIVE
Post-Closing Trial Balance
December 31, 2018
Cash
Accounts Receivable
Office Supplies
Prepaid Insurance
Land
Equipment
Accumulated Depreciation—Equipment
Accounts Payable
Utilities Payable
Interest Payable
Unearned Revenue
Notes Payable
Common Stock
Retained Earnings
Total
4-79
P4A-34A Preparing adjusting entries and reversing entries
Learning Objective 7 Appendix 4A
The unadjusted trial balance and adjustment data of Martha’s Motors at December 31, 2018, follow:
Adjustment data at December 31, 2018:
a. Depreciation on equipment, $2,100.
b. Accrued Wages Expense, $1,100.
c. Office Supplies on hand, $500.
d. Prepaid Insurance expired during December, $600.
e. Unearned Revenue earned during December, $4,800.
f. Accrued Service Revenue, $1,300.
2019 transactions:
a. On January 4, Martha’s Motors paid wages of $1,900. Of this, $1,100 related to the accrued wages recorded on
December 31.
b. On January 10, Martha’s Motors received $1,500 for Service Revenue. Of this, $1,300 is related to the accrued
Service Revenue recorded on December 31.
Requirements
1. Journalize adjusting entries.
4-80
2. Journalize reversing entries for the appropriate adjusting entries.
3. Refer to the 2019 data. Journalize the cash payment and the cash receipt that occurred in 2019.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Depreciation Expense—Equipment
2,100
Accumulated Depreciation—Equipment
2,100
To adjust depreciation.
Requirement 2
Date
Accounts and Explanation
Debit
Credit
Jan. 1
Wages Payable
1,100
Wages Expense
1,100
To reverse accrued wages.
Service Revenue
1,300
Accounts Receivable
1,300
To reverse accrued revenue.
Wages Expense
1,100
Wages Payable
1,100
To adjust wages.
Supplies Expense
500
Office Supplies
To adjust office supplies.
Insurance Expense
600
Prepaid Insurance
To adjust insurance
Unearned Revenue
4,800
Service Revenue
4,800
Accounts Receivable
1,300
Service Revenue
1,300
P4A-34A, cont.
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Jan. 4
Wages Expense
1,900
Cash
1,900
Cash
1,500
Service Revenue
1,500
4-82
Problems (Group B)
P4-35B Preparing financial statements including a classified balance sheet in report form, preparing and
posting closing entries, and preparing a post-closing trial balance
Learning Objectives 1, 3, 4
1. Net Loss $(6,600)
The adjusted trial balance of Rocket Real Estate Appraisal at June 30, 2018, follows:
Requirements
1. Prepare the company’s income statement for the year ended June 30, 2018.
2. Prepare the company’s statement of retained earnings for the year ended June 30, 2018.
3. Prepare the company’s classified balance sheet in report form at June 30, 2018.
4-83
4. Journalize the closing entries.
5. Open the T-accounts using the balances from the adjusted trial balance, and post the closing entries to the T-
accounts.
6. Prepare the company’s post-closing trial balance at June 30, 2018.
SOLUTION
Requirement 1
ROCKET REAL ESTATE APPRAISAL
Income Statement
Year Ended June 30, 2018
Requirement 2
ROCKET REAL ESTATE APPRAISAL
Statement of Retained Earnings
Year Ended June 30, 2018
P4-35B, cont.
Requirement 3
ROCKET REAL ESTATE APPRAISAL
Balance Sheet
June 30, 2018
Current Assets:
Cash
Accounts Receivable
Office Supplies
Prepaid Insurance
Total Current Assets
$ 13,800
Property, Plant, and Equipment:
Land
12,800
Building
Less: Accumulated Depreciation—Building
(25,200)
45,800
Total Property, Plant, and Equipment
58,600
Total Assets
$ 72,400
Liabilities
Current Liabilities:
Accounts Payable
$ 18,700
Interest Payable
Salaries Payable
Unearned Revenue
Total Current Liabilities
$ 29,800
Long-Term Liabilities:
Notes Payable
37,000
Total Liabilities
66,800
Common Stock
Retained Earnings
Total Liabilities and Stockholders’ Equity
$ 72,400
4-85
P4-35B, cont.
Requirement 4
Date
Accounts and Explanation
Debit
Credit
Jun. 30
Service Revenue
48,100
Income Summary
48,100
To close revenue.
Requirement 5
Cash
Notes Payable
Bal.
5,000
37,000
Bal.
Bal.
5,000
37,000
Bal.
Common Stock
5,000
Bal.
5,000
Bal.
Bal.
6,600
33,000
Bal.
Clos.
Bal.
600
Bal.
Bal.
Bal.
25,800
Bal.
Bal.
Income Summary
54,700
Insurance Expense
Salaries Expense
32,000
Supplies Expense
Interest Expense
Utilities Expense
Depreciation Expense—Building
To close expenses.
Retained Earnings
Income Summary
To close Income Summary.
Retained Earnings
25,800
Dividends
25,800
To close dividends.
P4-35B, cont.
Requirement 5, cont.
Prepaid Insurance
Income Summary
Bal.
1,700
Clos.
54,700
48,100
Clos.
Bal.
6,600
6,600
Clos.
Bal.
1,700
0
Bal.
Bal.
48,100
Clos.
48,100
Bal.
0
Bal.
Bal.
4,100
4,100
Clos.
Bal.
Bal.
0
Bal.
Bal.
32,000
32,000
Clos.
Bal.
Bal.
0
Accounts Payable
Supplies Expense
18,700
Bal.
Bal.
600
600
Clos.
18,700
Bal.
Bal.
0
Interest Payable
Interest Expense
8,000
Bal.
Bal.
8,000
8,000
Clos.
8,000
Bal.
Bal.
0
2,100
Bal.
Bal.
2,900
2,900
Clos.
2,100
Bal.
Bal.
0
Unearned Revenue
1,000
Bal.
Bal.
7,100
7,100
Clos.
1,000
Bal.
Bal.
0
4-87
P4-35B, cont.
Requirement 6
ROCKET REAL ESTATE APPRAISAL
Post-Closing Trial Balance
June 30, 2018
Account Title
Balance
Debit
Credit
Cash
$ 5,000
Accounts Receivable
5,500
Office Supplies
1,600
Prepaid Insurance
1,700
Land
Building
Accumulated Depreciation—Building
Accounts Payable
Interest Payable
8,000
Salaries Payable
2,100
Unearned Revenue
1,000
Notes Payable
Common Stock
5,000
Retained Earnings
Total
$ 97,600
$ 97,600
P4-36B Preparing financial statements including a classified balance sheet in report form, preparing
closing entries, and using the current ratio to evaluate a company
Learning Objectives 1, 3, 6
2. Ending Retained Earnings $60,200
The adjusted trial balance of Bradley Irrigation System at December 31, 2018, follows:
Requirements
1. Prepare the company’s income statement for the year ended December 31, 2018.
2. Prepare the company’s statement of retained earnings for the year ended December 31, 2018.
3. Prepare the company’s classified balance sheet in report form at December 31, 2018.
4. Journalize the closing entries for Bradley Irrigation System.
4-89
5. Compute the company’s current ratio at December 31, 2018. At December 31, 2017, the current ratio was 1.7.
Did the company’s ability to pay current debts improve or deteriorate, or did it remain the same?
SOLUTION
Requirement 1
BRADLEY IRRIGATION SYSTEM
Income Statement
Year Ended December 31, 2018
Requirement 2
BRADLEY IRRIGATION SYSTEM
Statement of Retained Earnings
Year Ended December 31, 2018
Retained Earnings, January 1, 2018
$ 32,000
Net income for the year
31,400
63,400
Dividends
Retained Earnings, December 31, 2018
$ 60,200
Revenues:
Service Revenue
Expenses:
Insurance Expense
Salaries Expense
Supplies Expense
Interest Expense
Depreciation Expense—Building
Depreciation Expense—Equipment
Total Expenses
Net Income
$ 31,400
P4-36B, cont.
Requirement 3
BRADLEY IRRIGATION SYSTEM
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash
$ 12,000
Accounts Receivable
51,000
Office Supplies
28,300
Prepaid Insurance
4,700
Total Current Assets
Property, Plant, and Equipment:
Building
Less: Accumulated Depreciation—Building
32,000
Equipment
Less: Accumulated Depreciation—Equipment
14,200
Total Property, Plant, and Equipment
Total Assets
Current Liabilities:
Accounts Payable
$ 40,700
Interest Payable
2,000
Salaries Payable
3,500
Unearned Revenue
1,800
Total Current Liabilities
Long-Term Liabilities:
Notes Payable
Total Liabilities
Common Stock
13,000
Retained Earnings
60,200
Total Liabilities and Stockholders’ Equity
4-91
P4-36B, cont.
Requirement 4
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
56,000
Income Summary
56,000
To close revenue.
Requirement 5
Current ratio = Total current assets* / Total current liabilities*
= $96,000 / $48,000 = 2.0
P4-37B Preparing a worksheet, financial statements, and closing entries
Learning Objectives 1, 2, 3
2. Total Assets $92,000
The unadjusted trial balance of Fleming Investment Advisers at December 31, 2018, follows:
Income Summary
24,600
Insurance Expense
Salaries Expense
16,200
Supplies Expense
Interest Expense
Depreciation Expense—Building
Depreciation Expense—Equipment
To close expenses.
Income Summary
31,400
Retained Earnings
31,400
To close Income Summary.
Retained Earnings
Dividends
To close dividends.
4-92
Adjustment data at December 31, 2018:
a. Unearned Revenue earned during the year, $700.
b. Office Supplies on hand, $3,000.
c. Depreciation for the year, $3,000.
d. Accrued Salaries Expense, $4,500.
e. Accrued Service Revenue, $9,000.
Requirements
1. Prepare a worksheet for Fleming Investment Advisers at December 31, 2018.
2. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in account
format.
3. Prepare closing entries.
SOLUTION
Requirement 1
FLEMING INVESTMENT ADVISERS
Worksheet
December 31, 2018
Account Names
Unadjusted Trial
Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 25,000
$ 25,000
$ 25,000
Accounts Receivable
51,000
e.
$ 9,000
60,000
60,000
Office Supplies
7,500
$ 4,500
b.
3,000
3,000
Accum. Dep.—Eq.
3,000
c.
$ 22,000
Accounts Payable
14,000
14,000
Salaries Payable
4,500
d.
4,500
Notes Payable
26,000
26,000
Common Stock
15,000
15,000
Retained Earnings
5,500
Service Revenue
9,000
Insurance Expense
2,500
Supplies Expense
4,500
4,500
4,500
Interest Expense
3,000
3,000
3,000
Total
Total
4-94
P4-37B, cont.
Requirement 2
FLEMING INVESTMENT ADVISERS
Income Statement
Year Ended December 31, 2018
Revenues:
Service Revenue
Expenses:
FLEMING INVESTMENT ADVISERS
Statement of Retained Earnings
Year Ended December 31, 2018
Retained Earnings, January 1, 2018
$ 5,500
Net income for the year
51,200
56,700
Dividends
Retained Earnings, December 31, 2018
Insurance Expense
Salaries Expense
Supplies Expense
Interest Expense
Rent Expense
Depreciation Expense—Equipment
Total Expenses
Net Income
P4-37B, cont.
Requirement 2, cont.
FLEMING INVESTMENTS ADVISERS
Balance Sheet
December 31, 2018
Assets
Liabilities
Current Assets:
Current Liabilities:
Cash
$ 25,000
Accounts Payable
$ 14,000
Accounts Receivable
60,000
Salaries Payable
4,500
Office Supplies
Unearned Revenue
3,800
Total Current Assets
$ 88,000
Total Current Liabilities
$ 22,300
Equipment:
Equipment
26,000
Notes Payable
Less: Acc. Depr.—Eq.
Total Liabilities
and Equipment
Common Stock
Retained Earnings
Total Assets
$ 92,000
Stockholders’ Equity
$ 92,000
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
108,700
Income Summary
108,700
To close revenue.
Income Summary
Insurance Expense
Salaries Expense
37,500
Supplies Expense
Interest Expense
Rent Expense
Depreciation Expense—Equipment
To close expenses.
Income Summary
Retained Earnings
51,200
To close Income Summary.
Retained Earnings
Dividends
28,000
To close dividends.
4-96
P4-38B Completing the accounting cycle from adjusting entries to post-closing trial balance with
an optional worksheet
Learning Objectives 1, 2, 3, 4, 5, 6
5. Net Income $17,380
The unadjusted trial balance of Watson Anvils at December 31, 2018, and the data for the adjustments
follow:
Adjustment data:
a. Unearned Revenue still unearned at December 31, $3,600.
b. Prepaid Rent still in force at December 31, $2,000.
c. Office Supplies used, $600.
d. Depreciation, $400.
e. Accrued Salaries Expense at December 31, $180.
Requirements
1. Open the T-accounts using the balances in the unadjusted trial balance.
2. Complete the worksheet for the year ended December 31, 2018 (optional).
3. Prepare the adjusting entries, and post to the accounts.
4. Prepare an adjusted trial balance.
5. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in
report form.
6. Prepare the closing entries, and post to the accounts.
7. Prepare a post-closing trial balance.
8. Calculate the current ratio for the company.
SOLUTION
Requirements 1, 3, and 6
Common Stock
12,000
Bal.
12,000
Bal.
0
4-98
Requirement 1, 3, and 6, cont.
Accumulated Depreciation—Eq.
11,000
Bal.
Bal.
0
400
Adj.
Adj.
140
Bal.
140
140
Clos.
11,400
Bal.
Bal.
0
Adj.
400
400
7,200
Bal.
Bal.
0
180
Adj.
Adj.
600
Bal.
600
600
180
Bal.
Adj.
3,600
Bal.
P4-38B, cont.
Requirement 2
WATSON ANVILS
Worksheet
December 31, 2018
Account Names
Unadjusted Trial Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 13,560
$ 13,560
$ 13,560
Accounts Receivable
17,000
17,000
17,000
Prepaid Rent
2,140
$ 140
b.
2,000
2,000
Office Supplies
2,800
600
c.
2,200
2,200
Equipment
30,000
30,000
30,000
Acc. Depreciation—Eq.
$ 11,000
400
d.
$ 11,400
$ 11,400
Accounts Payable
Salaries Payable
180
e.
Common Stock
Retained Earnings
17,600
Dividends
4,600
4,600
4,600
Service Revenue
2,000
Salaries Expense
180
2,480
$ 2,480
Rent Expense
140
Deprn Expense—Eq.
400
4-100
P4-38B, cont.
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Unearned Revenue
2,000
Service Revenue
2,000
To adjust revenue earned.
Rent Expense
140
Prepaid Rent
To adjust rent expense
Supplies Expense
600
Office Supplies
To adjust office supplies
Depreciation Expense—Equipment
400
Accumulated Depreciation—Equipment
To adjust depreciation
Salaries Expense
180
Salaries Payable
To adjust accrued salaries
P4-38B, cont.
Requirement 4
WATSON ANVILS
Adjusted Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 13,560
Accounts Receivable
17,000
Prepaid Rent
2,000
Office Supplies
2,200
Equipment
30,000
Accumulated Depreciation—Equipment
Accounts Payable
7,200
Salaries Payable
Unearned Revenue
3,600
Common Stock
12,000
Retained Earnings
17,600
Dividends
4,600
Service Revenue
21,000
Salaries Expense
2,480
Rent Expense
Depreciation Expense—Equipment
Supplies Expense
Total
$ 72,980
$ 72,980
4-102
P4-38B, cont.
Requirement 5
WATSON ANVILS
Income Statement
Year Ended December 31, 2018
Revenues:
Service Revenue
$ 21,000
Expenses:
Salaries Expense
$ 2,480
Supplies Expense
Rent Expense
Depreciation Expense—Equipment
Total Expenses
Net Income
$ 17,380
Retained Earnings, January 1, 2018
$ 17,600
Net income for the year
Dividends
(4,600)
Retained Earnings, December 31, 2018
$ 30,380
P4-38B, cont.
Requirement 5, cont.
WATSON ANVILS
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash
$ 13,560
Accounts Receivable
17,000
Prepaid Rent
Office Supplies
Total Current Assets
Property, Plant, and Equipment:
Equipment
30,000
Less: Accumulated Depreciation—Equipment
Total Property, Plant, and Equipment
18,600
Total Assets
Current Liabilities:
Accounts Payable
Salaries Payable
Unearned Revenue
Total Current Liabilities
Total Liabilities
10,980
Common Stock
12,000
Retained Earnings
30,380
Total Stockholders’ Equity
42,380
Total Liabilities and Stockholders’ Equity
4-104
P4-38B, cont., Requirement 6
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Service Revenue
21,000
Income Summary
21,000
To close revenue.
Requirement 7
WATSON ANVILS
Post-Closing Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 13,560
Accounts Receivable
17,000
Prepaid Rent
Office Supplies
Equipment
30,000
Accumulated Depreciation—Equipment
Accounts Payable
Salaries Payable
180
Unearned Revenue
Common Stock
12,000
Retained Earnings
30,380
Total
$ 64,760
$ 64,760
Requirement 8
Current ratio = Total current assets* / Total current liabilities*
Income Summary
Salaries Expense
2,480
Rent Expense
Depreciation Expense—Equipment
Supplies Expense
Income Summary
17,380
Retained Earnings
17,380
To close Income Summary.
Retained Earnings
Dividends
4,600
To close dividends.
4-105
P4-39B Completing the accounting cycle from journal entries to post-closing trial balance
with an optional worksheet
Learning Objectives 1, 2, 3, 4, 5
6. Ending Retained Earnings $9,080
On December 1, Curt Wilson began an auto repair shop, Wilson’s Quality Automotive. The following
transactions occurred during December:
Dec. 1
Wilson contributed $63,000 cash to the business in exchange for shares of common
stock.
1
Purchased $14,400 of equipment paying cash.
1
Paid $3,600 for a twelve-month insurance policy starting on December 1.
9
Paid $15,000 cash to purchase land to be used in operations.
10
Purchased office supplies on account, $2,200.
19
Borrowed $24,000 from the bank for business use. Wilson signed a notes payable
to the bank in the name of the corporation. The note is due in five years.
22
Paid $2,000 for advertising expenses.
26
Paid $1,000 on account.
28
The business received a bill for utilities to be paid in January, $260.
31
Revenues earned during the month included $18,500 cash and $3,800 on account.
31
Paid employees’ salaries $3,900 and building rent $800. Record as a compound
entry.
31
The business received $1,380 for auto screening services to be performed next
month.
31
Paid cash dividends of $5,000 to stockholders.
The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid
Insurance; Land; Equipment; Accumulated Depreciation—Equipment; Accounts Payable; Utilities
Payable; Interest Payable; Unearned Revenue; Notes Payable; Common Stock; Retained Earnings;
Dividends; Income Summary; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense;
Advertising Expense; Supplies Expense; Insurance Expense; Interest Expense; and Depreciation
Expense—Equipment.
Adjustment data:
a. Office Supplies used during the month, $600.
b. Depreciation for the month, $240.
c. One month insurance has expired.
d. Accrued Interest Expense, $120.
Requirements
1. Prepare the journal entries, and post to the T-accounts.
2. Prepare an unadjusted trial balance.
3. Complete the worksheet for the month ended December 31, 2018 (optional).
4. Prepare the adjusting entries, and post to the T-accounts.
5. Prepare an adjusted trial balance.
6. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in
report form.
7. Prepare the closing entries, and post to the T-accounts.
8. Prepare a post-closing trial balance.
SOLUTION
Requirement 1
Date
Accounts
Debit
Credit
Dec. 1
Cash
63,000
Common Stock
63,000
Equipment
14,400
Cash
14,400
Prepaid Insurance
Cash
Land
15,000
Cash
15,000
Office Supplies
Accounts Payable
Cash
24,000
Notes Payable
24,000
Advertising Expense
Cash
Accounts Payable
Cash
Utilities Expense
260
Utilities Payable
Cash
18,500
Accounts Receivable
Service Revenue
22,300
4-107
P4-39B, cont.
Dec. 31
Salaries Expense
3,900
Rent Expense
800
Cash
4,700
Requirements 1, 4, and 7
Cash
Dividends
Dec. 1
63,000
14,400
Dec. 1
Dec. 31
5,000
Dec. 19
24,000
3,600
Dec. 1
5,000
Clos.
Dec. 31
18,500
15,000
Dec. 9
Bal.
0
Dec. 31
1,380
2,000
Dec. 22
1,000
Dec. 26
Income Summary
4,700
Dec. 31
Clos.
8,220
22,300
Clos.
5,000
Dec. 31
Clos.
14,080
14,080
Bal.
Bal.
61,180
0
Bal.
Dec. 31
3,800
22,300
Dec. 31
22,300
Bal.
0
Bal.
Dec. 10
Dec. 31
600
3,900
Clos.
Bal.
Bal.
0
Dec. 1
Dec. 31
300
800
Clos.
Bal.
Bal.
0
Cash
1,380
Unearned Revenue
1,380
Dividends
5,000
Cash
5,000
P4-39B, cont., Requirements 1, 4, and 7
Land
Utilities Expense
Dec. 9
15,000
Dec. 28
260
260
Clos.
Bal.
Bal.
4-109
P4-39B, cont.
Requirements 1, 4, and 7, cont.
Accounts Payable
Insurance Expense
2,200
Dec. 10
Adj.
300
Dec. 26
1,000
300
Clos.
1,200
Bal.
Bal.
0
120
260
Bal.
Bal.
0
120
Adj.
240
240
Clos.
1,380
Dec. 31
1,380
Bal.
24,000
Bal.
9,080
Bal.
P4-39B, cont.
Requirement 2
WILSON’S QUALITY AUTOMOTIVE
Unadjusted Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 61,180
Accounts Receivable
3,800
Office Supplies
2,200
Prepaid Insurance
3,600
Land
Equipment
Accounts Payable
Utilities Payable
Notes Payable
Common Stock
Dividends
5,000
Service Revenue
Salaries Expense
3,900
Rent Expense
4-111
P4-39B, cont.
Requirement 3
WILSON’S QUALITY AUTOMOTIVE
Worksheet
December 31, 2018
Account Names
Unadjusted Trial Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Debit
Credit
Debit
Credit
Cash
$ 61,180
$ 61,180
$ 61,180
Accounts Receivable
3,800
3,800
3,800
Office Supplies
2,200
$ 600
a.
1,600
1,600
Prepaid Insurance
3,600
300
c.
3,300
3,300
Land
15,000
Equipment
14,400
Interest Payable
Dividends
5,000
5,000
5,000
Utilities Expense
Advertising Expense
2,000
2,000
Supplies Expense
Insurance Expense
Total
Total
P4-39B, cont.
Requirement 4
Date
Accounts
Debit
Credit
Dec.31
Supplies Expense
600
Office Supplies
600
To adjust office supplies used.
Depreciation Expense—Equipment
240
Accumulated Depreciation—Equipment
240
To adjust for depreciation.
Insurance Expense
300
Prepaid Insurance
300
To adjust for insurance expired.
4-113
P4-39B, cont.
Requirement 5
WILSON’S QUALITY AUTOMOTIVE
Adjusted Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 61,180
Accounts Receivable
3,800
Office Supplies
1,600
Prepaid Insurance
3,300
Land
Equipment
Accumulated Depreciation—Equipment
Accounts Payable
1,200
Interest Payable
Unearned Revenue
1,380
Notes Payable
Common Stock
Dividends
5,000
Service Revenue
Salaries Expense
3,900
Rent Expense
Utilities Expense
Advertising Expense
2,000
Supplies Expense
Insurance Expense
Interest Expense
Depreciation Expense—Equipment
P4-39B, cont.
Requirement 6
WILSON’S QUALITY AUTOMOTIVE
Income Statement
Month Ended December 31, 2018
Revenues:
Service Revenue
$ 22,300
Expenses:
Salaries Expense
$ 3,900
Rent Expense
Utilities Expense
Supplies Expense
Insurance Expense
Interest Expense
WILSON’S QUALITY AUTOMOTIVE
Statement of Retained Earnings
Month Ended December 31, 2018
Retained Earnings, December 1, 2018
$ 0
Net income for the month
14,080
Dividends
Retained Earnings, December 31, 2018
4-115
P4-39B, cont.
Requirement 6, cont.
WILSON’S QUALITY AUTOMOTIVE
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash
$ 61,180
Accounts Receivable
3,800
Liabilities
Current Liabilities:
Accounts Payable
$ 1,200
Utilities Payable
260
Interest Payable
120
Unearned Revenue
1,380
Total Current Liabilities
$ 2,960
Long-term Liabilities:
Notes Payable
Total Liabilities
Common Stock
Retained Earnings
9,080
Total Liabilities and Stockholders’ Equity
$ 99,040
Office Supplies
1,600
Prepaid Insurance
3,300
Total Current Assets
$ 69,880
Property, Plant, and Equipment:
Land
Equipment
Less: Accumulated Depreciation—Equipment
(240)
Total Property, Plant, and Equipment
Total Assets
$ 99,040
P4-39B, cont.
Requirement 7
Date
Accounts
Debit
Credit
Dec.31
Service Revenue
22,300
Income Summary
22,300
To close revenue.
Income Summary
Salaries Expense
Rent Expense
Utilities Expense
Advertising Expense
Supplies Expense
Interest Expense
Depreciation Expense—Equipment
Income Summary
14,080
14,080
Retained Earnings
Dividends
To close dividends.
4-117
P4-39B, cont.
Requirement 8
WILSON’S QUALITY AUTOMOTIVE
Post-Closing Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 61,180
Accounts Receivable
3,800
Office Supplies
1,600
Prepaid Insurance
3,300
Land
Equipment
Accumulated Depreciation—Equipment
Accounts Payable
1,200
Utilities Payable
Interest Payable
Unearned Revenue
1,380
Notes Payable
Retained Earnings
4-118
P4A-40B Preparing adjusting entries and reversing entries
Learning Objective 7 Appendix 4A
The unadjusted trial balance and adjustment data of Myla’s Motors at December 31, 2018, follow:
Adjustment data at December 31, 2018:
a. Depreciation on equipment, $1,700.
b. Accrued Wages Expense, $1,300.
c. Office Supplies on hand, $400.
d. Prepaid Insurance expired during December, $250.
e. Unearned Revenue earned during December, $4,200.
f. Accrued Service Revenue, $1,000.
2019 transactions:
a. On January 4, Myla’s Motors paid wages of $1,900. Of this, $1,300 related to the accrued wages
recorded on December 31.
b. On January 10, Myla’s Motors received $1,700 for Service Revenue. Of this, $1,000 related to the
accrued Service Revenue recorded on December 31.
Requirements
1. Journalize adjusting entries.
4-119
2. Journalize reversing entries for the appropriate adjusting entries.
3. Refer to the 2019 data. Journalize the cash payment and the cash receipt that occurred in 2019.
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Depreciation Expense—Equipment
1,700
Accumulated Depreciation—Equipment
1,700
To adjust depreciation.
Requirement 2
Date
Accounts and Explanation
Debit
Credit
Jan. 1
Wages Payable
1,300
Wages Expense
1,300
To reverse accrued wages.
Service Revenue
1,000
Accounts Receivable
1,000
To reverse accrued revenue.
Wages Expense
1,300
Wages Payable
1,300
To adjust accrued wages.
Supplies Expense
600
Office Supplies
To adjust office supplies.
Insurance Expense
250
Prepaid Insurance
To adjust insurance.
Unearned Revenue
4,200
Service Revenue
4,200
Accounts Receivable
1,000
Service Revenue
1,000
4-120
P4A-40B, cont.
Requirement 3
Using Excel
P4-41 Using Excel to prepare financial statements, closing entries, and the post-closing trial
balance
Download an Excel template for this problem online in MyAccountingLab or at
http://www.pearsonhighered.com/Horngren.
Cedar River Corporation started operations on July 1, 2018. On July 31, a trial balance was prepared,
adjusting entries were journalized and posted, and an adjusted trial balance was completed. A worksheet
is to be used to help prepare the financial statements and the post-closing trial balance.
Requirements
1. Use Excel to complete the Income Statement and Balance Sheet columns of the worksheet. Carry
numbers from the adjusted trial balance columns of the worksheet to the income statement and
balance sheet columns using Excel formulas.
a. Use formulas to total the columns.
b. Use a formula to determine the amount of the net income or net loss.
c. Format the cells requiring dollar signs.
d. Boldface the totals.
2. Prepare the income statement, the statement of retained earnings, and a classified balance sheet.
a. Use the Increase Indent button on the Home tab to indent items.
b. Use formulas to sum items.
c. Format the cells requiring dollar signs.
d. Format the cells requiring double underlines.
3. Journalize the closing entries. The account titles are available when you click on the down-arrow.
Indent the account to be credited.
4. Post the closing entries to the T-accounts. Use cell references from the closing entries.
5. Complete the post-closing trial balance using formulas referencing the T-accounts. The account titles
are available when you click the down-arrow.
a. Format the cells requiring dollar signs.
b. Boldface the totals.
c. Format the cells requiring double underlines.
SOLUTION
The student templates for Using Excel are available online in MyAccountingLab in the Multimedia
4-122
Continuing Problem
P4-42 Completing the accounting cycle from adjusted trial balance to post-closing trial balance with
an optional worksheet
This problem continues the Canyon Canoe Company situation from Chapter 3.
Requirements
1. Complete the worksheet at December 31, 2018 (optional). Use the unadjusted trial balance from Chapter
2 and the adjusting entries from Chapter 3.
2. Prepare an income statement for the two months ended December 31, 2018. Use the worksheet prepared
in Requirement 1 or the adjusted trial balance from Chapter 3.
3. Prepare a statement of retained earnings for the two months ended December 31, 2018.
4. Prepare a classified balance sheet (report form) at December 31, 2018. Assume the note payable is long–
term.
5. Journalize and post the closing entries at December 31, 2018. Open T-accounts for Income Summary
and Retained earnings. Determine the ending balance for each account. Denote each closing amount as
Clos. and each account balance as Balance.
6. Prepare a post-closing trial balance at December 31, 2018.
SOLUTION
Requirement 1
CANYON CANOE RENTALS
Worksheet
December 31, 2018
Account Names
Unadjusted Trial
Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 12,125
$ 12,125
$ 12,125
Accounts Receivable
5,750
f.
1,850
7,600
7,600
Office Supplies
1,250
1,085
a.
165
165
Land
Building
Accounts Payable
$ 3,050
3,050
Utilities Payable
Telephone Payable
Unearned Revenue
Notes Payable
7,200
7,200
Common Stock
136,000
Dividends
1,850
f.
Wages Expense
3,300
1,250
4,550
Telephone Expense
500
Supplies Expense
1,085
1,085
Dep. Expense—Building
Interest Expense
Total
4,970
Total
$ 154,340
4-124
P4-42, cont.
Requirement 2
CANYON CANOE COMPANY
Income Statement
Two Months Ended December 31, 2018
Revenues:
Canoe Rental Revenue
$ 14,650
Requirement 3
CANYON CANOE COMPANY
Statement of Retained Earnings
Two Months Ended December 31, 2018
Retained Earnings, November 1, 2018
$ 0
Net income for the two months
Dividends
Retained Earnings, December 31, 2018
Expenses:
$ 2,200
350
Total expenses
Net Income
4-125
P4-42, cont., Requirement 4
CANYON CANOE COMPANY
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash
$ 12,125
Liabilities
Current Liabilities:
Accounts Payable
$ 3,050
Wages Payable
1,250
Utilities Payable
295
Telephone Payable
325
Unearned Revenue
350
Interest Payable
Total Current Liabilities
Long-term Liabilities
Notes Payable
7,200
Total Liabilities
Common Stock
Retained Earnings
4,520
Accounts Receivable
7,600
Office Supplies
165
Prepaid Rent
2,000
Total Current Assets
$ 21,890
Property, Plant, and Equipment:
Land
Building
$ 35,000
Less: Accu. Depr.—Building
Canoes
Less: Accu. Depr.—Canoes
Total Plant Assets
Total Assets
4-126
P4-42, cont.
Requirement 5
Date
Accounts
Debit
Credit
Dec. 31
Canoe Rental Revenue
14,650
Income Summary
14,650
To close revenue.
Income Summary
To close expenses.
Income Summary
Retained Earnings
To close income summary.
Retained Earnings
To close dividends.
P4-42, cont., Requirement 5, cont.
Cash
Accounts Payable
Nov. 1 16,000
1,200 Nov. 2
Nov. 26 1,000
4,800 Nov. 3
Nov. 7 1,400
1,500 Nov. 13
Dec. 19 2,000
750 Nov. 4
Nov. 28 750
50 Nov. 15
500 Dec. 4
Dec. 9 4,500
1,000 Nov. 26
3,050 Balance
Dec. 16 750
100 Nov. 30
3,000 Dec. 1
325 Dec. 18
1,250 Adj.
2,000 Dec. 19
1,250 Balance
1,800 Dec. 31
300 Dec. 31
Balance 12,125
50 Adj.
50 Balance
Nov. 22 3,000
750 Nov. 28
Dec. 18 150
150 Nov. 16
Dec. 15 3,500
295 Dec. 20
295 Balance
Balance 7,600
Office Supplies
Telephone Payable
Nov. 4 750
Dec. 18 175
175 Nov. 20
Dec. 4 500
1,085 Adj.
325 Dec. 20
Balance 165
325 Balance
Prepaid Rent
Unearned Revenue
Dec. 1 3,000
1,000 Adj.
Adj. 400
750 Dec. 16
Balance 2,000
350 Balance
Land
Notes Payable
Dec. 1 85,000
7,200 Dec. 2
Balance 85,000
7,200 Balance
Common Stock
Dec. 1 35,000
16,000 Nov. 1
Balance 35,000
120,000 Dec. 1
136,000 Balance
Accumulated Depreciation—Building
500 Adj.
Nov. 15 50
500 Balance
Nov. 30 100
Dec. 31 300
Balance 450
450 Clos.
4-128
P4-42, cont., Requirement 5, cont.
Canoes
Canoe Rental Revenue
Nov. 3 4,800
1,400 Nov. 7
Dec. 2 7,200
3,000 Nov. 22
Balance 12,000
4,500 Dec. 9
3,500 Dec. 15
Income Summary
Wages Expense
Clos. 9,680
14,650 Clos.
Nov. 13 1,500
Clos. 4,970
Dec. 31 1,800
0 Balance
Adj. 1,250
Balance 4,550
4,550 Clos.
Balance 0
Dec. 20 295
500 Clos.
Balance 445
445 Clos.
Balance 0
Dec. 20 325
Balance 500
350 Clos.
500 Clos.
Balance 0
Balance 1,085
50 Clos.
1,085 Clos.
Balance 0
400 Adj.
200 Adj.
1,850 Adj.
150 Adj.
14,650 Balance
350 Balance
Clos. 14,650
0 Balance
0 Balance
Clos. 450
4,970 Clos.
4,520 Balance
Balance 2,200
2,200 Clos.
Balance 0
P4-42, cont.
Requirement 6
CANYON CANOE COMPANY
Post-Closing Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 12,125
Accounts Receivable
7,600
Office Supplies
165
Prepaid Rent
2,000
Land
85,000
Building
35,000
Accumulated Depreciation—Building
Canoes
12,000
Accumulated Depreciation—Canoes
350
Accounts Payable
3,050
Utilities Payable
295
Telephone Payable
325
Unearned Revenue
350
Wages Payable
1,250
Interest Payable
Notes Payable
7,200
Common Stock
Retained Earnings
4,520
Total
$ 153,890
$ 153,890
4-130
Practice Set
P4-43 Completing the accounting cycle from adjusted trial balance to post-closing trial balance with an optional worksheet
Refer to the Practice Set data provided in Chapters 2 and 3 for Crystal Clear Cleaning.
Requirements
1. Prepare a worksheet (optional) at November 30, 2018. Use the unadjusted trial balance from Chapter 2 and the adjusting entries from
Chapter 3.
2. Prepare an income statement and statement of retained earnings for the month ended November 30, 2018. Also prepare a classified
balance sheet at November 30, 2018, using the report format. Assume the Notes Payable is long-term. Use the worksheet prepared in
Requirement 1 or the adjusted trial balance from Chapter 3.
3. Prepare closing entries at November 30, 2018, and post to the accounts. Open T-accounts for Income Summary and Retained earnings.
Determine the ending balance in each account. Denote each closing amount as Clos. and each account balance as Balance.
4. Prepare a post-closing trial balance at November 30, 2018.
SOLUTION
Requirement 1
CRYSTAL CLEAR CLEANING
Worksheet
November 30, 2018
Account Names
Unadjusted Trial Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 51,650
$ 51,650
$ 51,650
Accounts Receivable
4,000
4,000
4,000
Cleaning Supplies
320
$ 270
a.
50
50
Prepaid Rent
4,000
1,000
d.
3,000
3,000
Prepaid Insurance
e.
4,400
4,400
Equipment
5,400
5,400
Truck
3,000
3,000
3,000
Acc. Dep.
b.
Accounts Payable
$ 1,245
Unearned Revenue
14,375
Interest Payable
c.
Notes Payable
36,000
Common Stock
18,000
Dividends
1,400
1,400
Service Revenue
Salaries Expense
400
Advertising Expense
200
200
Utilities Expense
Supplies Expense
270
270
Depreciation Expense
150
150
Rent Expense
d.
1,000
1,000
Insurance Expense
Interest Expense
c.
59
Total
$ 75,345
$ 2,504
$ 75,554
$ 69,829
3,071
3,071
Total
$ 5,725
$ 72,900
4-132
P4-43, cont.
Requirement 2
CRYSTAL CLEAR CLEANING
Income Statement
Month Ended November 30, 2018
Revenues:
Service Revenue
$ 5,725
CRYSTAL CLEAR CLEANING
Statement of Retained Earnings
Month Ended November 30, 2018
Retained Earnings, November 1, 2018
Net income for the month
Dividends
Retained Earnings November 30, 2018
Expenses:
Salaries Expense
Advertising Expense
Utilities Expense
Supplies Expense
Depreciation Expense
Rent Expense
Insurance Expense
Interest Expense
Total Expenses
Net Income
$ 3,071
P4-43, cont.
Requirement 2, cont.
CRYSTAL CLEAR CLEANING
Balance Sheet
November 30, 2018
Assets
Current Assets:
Cash
$ 51,650
Accounts Receivable
4,000
Cleaning Supplies
50
Prepaid Rent
3,000
Prepaid Insurance
4,400
Total Current Assets
Property, Plant, and Equipment
Equipment
5,400
Truck
3,000
Less: Accumulated Depreciation
Total Property, Plant, and Equipment
Total Assets
Liabilities
Current Liabilities:
Accounts Payable
$ 1,245
Unearned Revenue
14,375
Interest Payable
59
Total Current Liabilities
$ 15,679
Long-term Liabilities:
Notes Payable
Total Liabilities
Common Stock
18,000
Retained Earnings
1,671
Total Liabilities and Stockholders’ Equity
4-134
P4-43, cont.
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Nov. 30
Service Revenue
5,725
Income Summary
5,725
To close revenue.
Income Summary
2,654
Salaries Expense
400
Advertising Expense
200
Utilities Expense
175
Supplies Expense
270
Depreciation Expense
150
Insurance Expense
400
Interest Expense
To close expenses.
Income Summary
3,071
Retained Earnings
3,071
To close Income Summary.
Retained Earnings
1,400
Dividends
1,400
To close dividends.
P4-43, cont., Requirement 3, cont.
Cash
Accounts Payable
Nov. 1 15,000
4,000 Nov. 2
Nov. 25 750
320 Nov. 4
Nov. 10 200
4,800 Nov. 3
1,500 Nov. 5
Nov. 17 400
400 Nov. 15
Nov. 20 36,000
750 Nov. 25
Nov. 21 500
200 Nov. 29
1,400 Nov. 30
15,000 Nov. 16
Accounts Receivable
200 Nov. 10
59 Adj.
500 Nov. 21
59 Balance
Cleaning Supplies
Notes Payable
Nov. 4 320
270 Adj.
36,000 Nov. 20
Balance 50
36,000 Balance
Prepaid Rent
Common Stock
Nov. 2 4,000
1,000 Adj.
18,000 Nov. 1
Balance 3,000
18,000 Balance
Nov. 3 4,800
400 Adj.
3,071 Clos.
Balance 4,400
1,671 Balance
Income Summary
Nov. 5 1,500
5,725 Clos.
Nov. 7 3,900
Nov. 30 1,400
1,400 Clos.
Truck
Balance 0
Nov. 1 3,000
Balance 3,000
Service Revenue
Clos. 5,725
4,700 Nov. 9
Accumulated Depreciation
400 Nov. 17
150 Adj.
625 Adj.
150 Balance
0 Balance
4-136
P4-43, cont.
Requirement 3, cont.
Salaries Expense
Nov. 15 400
400 Clos.
Balance 0
Nov. 29 200
200 Clos.
Balance 0
Nov. 18 175
175 Clos.
Balance 0
270 Clos.
Balance 0
150 Clos.
Balance 0
1,000 Clos.
Balance 0
400 Clos.
Balance 0
59 Clos.
Balance 0
4-137
P4-43, cont.
Requirement 4
CRYSTAL CLEAR CLEANING
Post-Closing Trial Balance
November 30, 2018
Account Title
Balance
Debit
Credit
Cash
$ 51,650
Accounts Receivable
4,000
Cleaning Supplies
Prepaid Rent
3,000
Prepaid Insurance
4,400
Equipment
5,400
Truck
3,000
Accumulated Depreciation
$ 150
Accounts Payable
1,245
Unearned Revenue
Interest Payable
Notes Payable
Common Stock
Total
$ 71,500
$ 71,500
4-138
Comprehensive Problem 1 for Chapters 1-4:
Murphy Delivery Service completed the following transactions during December 2018:
Dec. 1
Murphy Delivery Service began operations by receiving $13,000 cash and a truck with a fair value
of $9,000 from Russ Murphy. The business issued Murphy shares of common stock in exchange
for this contribution.
1
Paid $600 cash for a six-month insurance policy. The policy begins December 1.
4
Paid $750 cash for office supplies.
12
Performed delivery services for a customer and received $2,200 cash.
15
Completed a large delivery job, billed the customer, $3,300, and received a promise to collect the
$3,300 within one week.
18
Paid employee salary, $800.
20
Received $7,000 cash for performing delivery services.
22
Collected $2,200 in advance for delivery service to be performed later.
25
Collected $3,300 cash from customer on account.
27
Purchased fuel for the truck, paying $150 on account. (Credit Accounts Payable)
28
Performed delivery services on account, $1,400.
29
Paid office rent, $1,400, for the month of December.
30
Paid $150 on account.
31
Cash dividends of $2,500 were paid to stockholders.
Requirements
1. Record each transaction in the journal using the following chart of accounts. Explanations are not
required.
Cash
Retained Earnings
Accounts Receivable
Dividends
Office Supplies
Income Summary
Prepaid Insurance
Service Revenue
Truck
Salaries Expense
Accumulated Depreciation—Truck
Depreciation Expense—Truck
Accounts Payable
Insurance Expense
Salaries Payable
Fuel Expense
Unearned Revenue
Rent Expense
Common Stock
Supplies Expense
2. Post the transactions in the T-accounts.
3. Prepare an unadjusted trial balance as of December 31, 2018.
4. Prepare a worksheet as of December 31, 2018 (optional).
5. Journalize the adjusting entries using the following adjustment data and also by reviewing the journal
entries prepared in Requirement 1. Post adjusting entries to the T-accounts.
Adjustment data:
a. Accrued Salaries Expense, $800.
4-139
b. Depreciation was recorded on the truck using the straight-line method. Assume a useful life of five years
and a salvage value of $3,000.
c. Prepaid Insurance for the month has expired.
d. Office Supplies on hand, $450.
e. Unearned Revenue earned during the month, $700.
f. Accrued Service Revenue, $450.
6. Prepare an adjusted trial balance as of December 31, 2018.
7. Prepare Murphy Delivery Service’s income statement and statement of retained earnings for the month
ended December 31, 2018, and the classified balance sheet on that date. On the income statement, list
expenses in decreasing order by amount—that is, the largest expense first, the smallest expense last.
8. Journalize the closing entries, and post to the T-accounts.
9. Prepare a post-closing trial balance as of December 31, 2018.
SOLUTION
Requirement 1
Date
Accounts
Debit
Credit
Dec. 1
Cash
13,000
Truck
9,000
Common Stock
22,000
Prepaid Insurance
600
Office Supplies
750
Cash
2,200
Accounts Receivable
Salaries Expense
800
Cash
Cash
2,200
4-140
Comprehensive Problem 1, cont.
Requirement 1, cont.
Dec. 25
Cash
3,300
Accounts Receivable
3,300
Requirement 2, 5, 8
Cash
Accounts Payable
Dec. 1
13,000
600
Dec. 1
Dec. 30
150
150
Dec. 27
Dec. 12
2,200
750
Dec. 4
Dec. 22
1,400
Dec. 25
3,300
150
2,500
800
Dec. 28
700
2,200
Dec. 22
Bal.
1,850
1,500
Fuel Expense
150
Accounts Payable
Accounts Receivable
1,400
Rent Expense
1,400
Cash
1,400
Accounts Payable
150
Dividends
2,500
4-141
Requirement 2, 5, 8, cont.
Office Supplies
Retained Earnings
Dec. 4
750
300
Adj.
0
Balance
Comprehensive Problem 1
Dec. 1
600
100
Adj.
Dec. 31
2,500
100
Adj.
2,200
700
450
Dec. 18
4-142
Requirement 2, 5, 8, cont.
Insurance Expense
Adj.
100
Bal.
100
100
Clos.
Bal.
0
Supplies Expense
Adj.
300
Bal.
300
300
Clos.
Bal.
0
Requirement 3
MURPHY DELIVERY SERVICE
Unadjusted Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 21,500
Accounts Receivable
1,400
Office Supplies
Prepaid Insurance
Truck
9,000
Unearned Revenue
Common Stock
Dividends
2,500
Service Revenue
Salaries Expense
Fuel Expense
Rent Expense
1,400
Total
$ 38,100
$ 38,100
Dec. 27
150
Bal.
0
Clos.
Bal.
0
4-143
Comprehensive Problem 1, cont.
Requirement 4
MURPHY DELIVERY SERVICE
Worksheet
December 31, 2018
Account Names
Unadjusted Trial
Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 21,500
$ 21,500
$ 21,500
Accounts Receivable
1,400
f.
$ 450
1,850
1,850
Office Supplies
750
$ 300
d.
450
450
Prepaid Insurance
600
100
c.
500
500
Truck
9,000
9,000
9,000
100
b.
Accounts Payable
Salaries Payable
800
a.
$ 2,200
1,500
Common Stock
22,000
2,500
2,500
2,500
Service Revenue
13,900
1,150
e., f.
$ 15,050
Salaries Expense
800
1,600
100
100
Insurance Expense
100
100
Fuel Expense
150
150
150
Rent Expense
1,400
1,400
1,400
300
300
$ 39,450
$ 15,050
$ 35,800
11,400
$ 15,050
$ 15,050
$ 35,800
4-144
Comprehensive Problem 1, cont.
Requirement 5
Date
Accounts
Debit
Credit
a.
Salaries Expense
800
Salaries Payable
800
Depreciation Expense—Truck
100
c.
Insurance Expense
100
e.
Unearned Revenue
700
700
Accounts Receivable
450
4-145
Comprehensive Problem 1, cont.
Requirement 6
MURPHY DELIVERY SERVICE
Adjusted Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 21,500
Accounts Receivable
1,850
Office Supplies
Prepaid Insurance
Truck
9,000
Accumulated Depreciation—Truck
Salaries Payable
Unearned Revenue
1,500
Common Stock
Dividends
2,500
Service Revenue
Salaries Expense
1,600
Depreciation Expense—Truck
Insurance Expense
Fuel Expense
Rent Expense
1,400
Supplies Expense
4-146
Comprehensive Problem 1, cont.
Requirement 7
MURPHY DELIVERY SERVICE
Income Statement
Month Ended December 31, 2018
Revenues:
Service Revenue
$ 15,050
MURPHY DELIVERY SERVICE
Statement of Retained Earnings
Month Ended December 31, 2018
Retained Earnings, December 1, 2018
$ 0
Net income for the month
11,400
11,400
Dividends
Retained Earnings, December 31, 2018
Expenses:
Salaries Expense
Rent Expense
Supplies Expense
Depreciation Expense––Truck
Insurance Expense
Total Expenses
Net Income
4-147
Comprehensive Problem 1, cont.
Requirement 7, cont.
MURPHY DELIVERY SERVICE
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash
$ 21,500
Accounts Receivable
1,850
Office Supplies
Prepaid Insurance
Total Current Assets
Property, Plant, and Equipment:
Truck
9,000
Less: Accumulated Depreciation—Truck
(100)
Total Property, Plant, and Equipment
Total Assets
Current Liabilities:
Salaries Payable
Unearned Revenue
1,500
Total Current Liabilities
Total Liabilities
Common Stock
Retained Earnings
8,900
Total Liabilities and Stockholders’ Equity
4-148
Comprehensive Problem 1, cont.
Requirement 8
Date
Accounts
Debit
Credit
Dec. 31
Service Revenue
15,050
Income Summary
15,050
Requirement 9
MURPHY DELIVERY SERVICE
Post-Closing Trial Balance
December 31, 2018
Account Title
Balance
Debit
Credit
Cash
$ 21,500
Accounts Receivable
1,850
Office Supplies
450
Prepaid Insurance
500
Truck
9,000
Accumulated Depreciation—Truck
Accounts Payable
Salaries Payable
800
Unearned Revenue
1,500
Common Stock
Retained Earnings
8,900
Total
$ 33,300
$ 33,300
Income Summary
Depreciation Expense—Truck
Income Summary
11,400
Retained Earnings
4-149
Comprehensive Problem 2 for Chapters 1-4:
This comprehensive problem is a continuation of Comprehensive Problem 1. Murphy Delivery Service
has completed closing entries and the accounting cycle for 2018. The business is now ready to record
January 2019 transactions.
Jan. 3
Collected $200 cash from customer on account.
5
Purchased office supplies on account, $1,000.
12
Performed delivery services for a customer and received $3,000 cash.
15
Paid employee salary, including the amount owed on December 31, $4,100.
18
Performed delivery services on account, $1,350.
20
Paid $300 on account.
24
Purchased fuel for the truck, paying $200 cash.
27
Completed the remaining work due for Unearned Revenue.
28
Paid office rent, $2,200, for the month of January.
30
Collected $3,000 in advance for delivery service to be performed later.
31
Cash dividends of $1,500 were paid to stockholders.
Requirements
1. Record each January transaction in the journal. Explanations are not required.
2. Post the transactions in the T-accounts. Don’t forget to use the December 31, 2018, ending balances
as appropriate.
3. Prepare an unadjusted trial balance as of January 31, 2019.
4. Prepare a worksheet as of January 31, 2019 (optional).
5. Journalize the adjusting entries using the following adjustment data and also by reviewing the
journal entries prepared in Requirement 1. Post adjusting entries to the T-accounts.
Adjustment data:
a. Office Supplies on hand, $600.
b. Accrued Service Revenue, $1,800.
c. Accrued Salaries Expense, $500.
d. Prepaid Insurance for the month has expired.
e. Depreciation was recorded on the truck for the month.
6. Prepare an adjusted trial balance as of January 31, 2019.
7. Prepare Murphy Delivery Service’s income statement and statement of retained earnings for the
month ended January 31, 2019, and the classified balance sheet on that date. On the income
statement, list expenses in decreasing order by amount—that is, the largest expense first, the smallest
expense last.
8. Calculate the following ratios as of January 31, 2019, for Murphy Delivery Service: return on assets,
debt ratio, and current ratio.
4-150
SOLUTION
Requirement 1
Date
Accounts
Debit
Credit
Jan. 3
Cash
200
Accounts Receivable
200
Office Supplies
Cash
Salaries Expense
Salaries Payable
800
Cash
Accounts Receivable
Service Revenue
Accounts Payable
300
300
Fuel Expense
200
200
Unearned Revenue
Service Revenue
Rent Expense
Cash
Cash
Dividends
4-151
Comprehensive Problem 2, cont.
Requirement 2, 5
500
Bal.
Accounts Receivable
Bal.
1,850
200
Jan. 3
Unearned Revenue
Jan. 18
1,350
Jan. 27
1,500
1,500
Bal.
Adj.
1,800
3,000
Jan. 30
Bal.
4,800
3,000
Bal.
22,000
Bal.
1,000
850
Adj.
Bal.
600
22,000
Bal.
Jan. 31
1,500
100
Adj.
400
Bal.
8,900
Bal.
Accumulated Depreciation—Truck
Service Revenue
100
Bal.
3,000
Jan. 12
100
Adj.
1,350
Jan. 18
200
Bal.
1,500
Jan. 27
1,800
Adj.
7,650
Bal.
21,500
4,100
Jan. 15
Jan. 20
1,000
Jan. 5
200
Jan. 20
3,000
200
Jan. 24
700
Bal.
Jan. 30
3,000
2,200
Jan. 28
1,500
Jan. 31
800
Bal.
4-152
Comprehensive Problem 2, cont.
Requirement 2, 5, cont.
Salaries Expense
Jan. 15
3,300
Adj.
500
Bal.
3,800
Fuel Expense
Jan. 24
200
Bal.
200
Rent Expense
Jan. 28
2,200
Bal.
2,200
850
Bal.
850
100
100
100
100
4-153
Comprehensive Problem 2, cont.
Requirement 3
MURPHY DELIVERY SERVICE
Unadjusted Trial Balance
January 31, 2019
Account Title
Balance
Debit
Credit
Cash
$ 19,400
Accounts Receivable
3,000
Office Supplies
1,450
Prepaid Insurance
Truck
9,000
Accumulated Depreciation—Truck
Accounts Payable
Salaries Payable
Unearned Revenue
3,000
Common Stock
Retained Earnings
8,900
Dividends
1,500
Service Revenue
5,850
Salaries Expense
3,300
Fuel Expense
Rent Expense
2,200
Total
$ 40,550
$ 40,550
4-154
Comprehensive Problem 2, cont., Requirement 4
MURPHY DELIVERY SERVICE
Worksheet
January 31, 2019
Account Names
Unadjusted Trial
Balance
Adjustments
Adjusted Trial Balance
Income Statement
Balance Sheet
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
$ 19,400
$ 19,400
$ 19,400
Accounts Receivable
3,000
b.
1,800
4,800
4,800
Office Supplies
1,450
$ 850
a.
600
600
Prepaid Insurance
500
100
d.
400
400
Truck
9,000
9,000
9,000
Truck
100
e.
Accounts Payable
Salaries Payable
500
c.
Unearned Revenue
3,000
Common Stock
Retained Earnings
8,900
Dividends
1,500
1,500
1,500
Service Revenue
b.
$ 7,650
Salaries Expense
3,300
3,800
$ 3,800
Depreciation Expense—Truck
100
Insurance Expense
d.
100
Fuel Expense
200
200
Rent Expense
2,200
2,200
Supplies Expense
850
Total
$ 3,350
$ 3,350
$ 42,950
$ 7,250
$ 7,650
$ 35,700
$ 35,300
Net Income
Total
$ 7,650
$ 7,650
$ 35,700
$ 35,700
4-155
Comprehensive Problem 2, cont.
Requirement 5
Date
Accounts
Debit
Credit
a.
Supplies Expense
850
Office Supplies
850
Accounts Receivable
Service Revenue
c.
Salary Expense
500
Salary Payable
500
Insurance Expense
100
Prepaid Insurance
100
e.
100
100
4-156
Comprehensive Problem 2, cont.
Requirement 6
MURPHYS DELIVERY SERVICE
Adjusted Trial Balance
January 31, 2019
Account Title
Balance
Debit
Credit
Cash
$ 19,400
Accounts Receivable
4,800
Office Supplies
600
Prepaid Insurance
400
Truck
9,000
Accumulated Depreciation—Truck
Accounts Payable
700
Salaries Payable
500
Unearned Revenue
3,000
Common Stock
Retained Earnings
8,900
Dividends
1,500
Service Revenue
7,650
Salaries Expense
3,800
Depreciation Expense—Truck
100
Insurance Expense
100
Fuel Expense
200
Rent Expense
2,200
Supplies Expense
850
Total
$ 42,950
$ 42,950
4-157
Comprehensive Problem 2, cont.
Requirement 7
MURPHY DELIVERY SERVICE
Income Statement
Month Ended January 31, 2019
Revenues:
Service Revenue
$ 7,650
MURPHY DELIVERY SERVICE
Statement of Retained Earnings
Month Ended January 31, 2019
Retained Earnings, January 1, 2019
8,900
Net income for the month
400
Dividends
Retained Earnings, January 31, 2019
Expenses:
Total Expenses
Comprehensive Problem 2, cont.
Requirement 7, cont.
MURPHY DELIVERY SERVICE
Balance Sheet
January 31, 2019
Assets
Current Assets:
Cash
$ 19,400
Accounts Receivable
4,800
Office Supplies
Prepaid Insurance
Total Current Assets
Property, Plant, and Equipment:
Truck
9,000
Less: Accumulated Depreciation—Truck
Total Property, Plant, and Equipment
Total Assets
Current Liabilities:
Salaries Payable
Unearned Revenue
3,000
Total Current Liabilities
Total Liabilities
Common Stock
Retained Earnings
7,800
Total Liabilities and Stockholders’ Equity
Requirement 8
Return on Assets = Net income / Average total assets*
= $400 / $33,600 = 1.19%
*Average Total Assets = ($33,200 + $34,000) / 2 = $33,600
4-159
Critical Thinking
Tying It All Together Case 4-1
Before you begin this assignment, review the Tying It All Together feature in the chapter. It will also be
helpful if you review Hyatt Hotels Corporation’s 2015 annual report
( https://www.sec.gov/Archives/edgar/data/1468174/000146817416000152/h10-k123115.htm ).
Hyatt Hotels Corporation is headquartered in Chicago and is a leading global hospitality company. The
company develops, owns, and operates hotels, resorts, and vacation ownership properties in 52 different
countries. For the year ended December 31, 2015, Hyatt Hotels reported the following select account
information (in millions):
Revenue
$ 4,328
Selling, general, and administrative expense
4,005
Other Expenses
61
Interest Expense
68
Income Tax Expense
70
Dividends
0
Retained Earnings, December 31, 2014
2,165
Requirements
1. Journalize Hyatt Hotels Corporation’s closing entries at December 31, 2015.
2. Determine Hyatt Hotels Corporation’s ending Retained Earnings balance at December 31, 2015.
3. Review the Hyatt Hotels Corporation’s balance sheet included in the 2015 annual report and find ending
Retained Earnings, December 31, 2015. Does your ending Retained Earnings calculated in Requirement 2
match?
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Dec. 31
Revenue
4,328
Income Summary
4,328
To close revenue.
Income Summary
4,204
Other Expenses
Interest Expense
Income Tax Expense
To close expenses.
Income Summary
Retained Earnings
To close Income Summary.
4-160
Requirement 2
Ending balance of Retained Earnings: $2,289.
Requirement 3
Yes, the calculated ending balance of Retained Earnings from Requirement 2 ($2,289) matches with the
Ethical Issue 4-1
Grant Film Productions wishes to expand and has borrowed $100,000. As a condition for making this
loan, the bank requires that the business maintain a current ratio of at least 1.50.
Business has been good but not great. Expansion costs have brought the current ratio down to 1.40 on
December 15. Rita Grant, owner of the business, is considering what might happen if she reports a
current ratio of 1.40 to the bank. One course of action for Grant is to record in December $10,000 of
revenue that the business will earn in January of next year. The contract for this job has been signed.
Requirements
1. Journalize the revenue transaction, and indicate how recording this revenue in December would
affect the current ratio.
2. Discuss whether it is ethical to record the revenue transaction in December. Identify the accounting
principle relevant to this situation, and give the reasons underlying your conclusion.
SOLUTION
Requirement 1
Requirement 2
Recording this transaction in December violates the revenue recognition principle, which states that
Financial Statement Case 4-1
This case, based on the balance sheet of Target Corporation, will familiarize you with some of the
assets and liabilities of that company. Visit http://www.pearsonhighered.com/Horngren to view a link
to Target Corporation’s Fiscal 2015 Annual Report. Use the Target Corporation balance sheet to answer
the following questions.
Requirements
1. Which balance sheet format does Target use?
2. Name the company’s largest current asset and largest current liability at January 30, 2016.
3. Compute Target’s current ratios at January 30, 2016, and January 31, 2015. Did the current ratio
improve, worsen, or hold steady?
4. Under what category does Target report furniture, fixtures, and equipment?
4-162
5. What was the cost of the company’s property, plant, and equipment at January 30, 2016? What was
the amount of accumulated depreciation? What was the book value of the property, plant, and
equipment?
SOLUTION
Requirement 1
Requirement 3
January 30, 2016
Current ratio = Total current assets / Total current liabilities
= $14,130 million / $12,622 million = 1.12
Requirement 4
Requirement 5
Team Project 4-1
Kathy Wintz formed a lawn service business as a summer job. To start the corporation on May 1, 2018,
she deposited $1,000 in a new bank account in the name of the business. The $1,000 consisted of a $600
loan from Bank One to her company, Wintz Lawn Service, and $400 of her own money. The company
issued $400 of common stock to Wintz. Wintz rented lawn equipment, purchased supplies, and hired
other students to mow and trim customers’ lawns.
At the end of each month, Wintz mailed bills to the customers. On August 31, she was ready to dissolve
the corporation and return to college. Because she was so busy, she kept few records other than the
checkbook and a list of receivables from customers.
At August 31, the business’s checkbook shows a balance of $2,000, and customers still owe $750.
During the summer, the business collected $5,500 from customers. The business checkbook lists
payments for supplies totaling $400, and it still has gasoline, weed trimmer cord, and other supplies that
4-163
cost a total of $50. The business paid employees $1,800 and still owes them $300 for the final week of
the summer.
Wintz rented some equipment from Ludwig’s Machine Shop. On May 1, the business signed a six–
month rental agreement on mowers and paid $600 for the full rental period in advance. Ludwig’s will
refund the unused portion of the prepayment if the equipment is returned in good shape. In order to get
the refund, Wintz has kept the mowers in excellent condition. In fact, the business had to pay $300 to
repair a mower.
To transport employees and equipment to jobs, Wintz used a trailer that the business bought for $300.
The business estimates that the summer’s work used up one–third of the trailer’s service potential. The
business checkbook lists a payment of $500 for cash dividends paid during the summer. The business
paid the loan back during August. (For simplicity, ignore any interest expense associated with the loan.)
Requirements
1. As a team, prepare the income statement and the statement of retained earnings of Wintz Lawn
Service for the four months May 1 through August 31, 2018.
2. Prepare the classified balance sheet (report form) of Wintz Lawn Service at August 31, 2018.
3. Was Wintz’s summer work successful? Give your team’s reason for your answer.
SOLUTION
Requirement 1
WINTZ LAWN SERVICE, INC.
Income Statement
Four Months Ended August 31, 2018
Revenues:
Service Revenue ($5,500 + $750)
$ 6,250
Expenses:
4-164
Team Project 4-1, cont.
Requirement 2
WINTZ LAWN SERVICE, INC.
Statement of Retained Earnings
Four Months Ended August 31, 2018
Retained Earnings, May 1, 2018
$ 0
Requirement 2
WINTZ LAWN SERVICE, INC.
Balance Sheet
August 31, 2018
Assets
Current Assets:
Cash
Accounts Receivable
Total Current Assets
$ 3,000
Property, Plant, and Equipment:
Trailer
Less: Accumulated Depreciation—Trailer
Total Property, Plant, and Equipment
Total Assets
$ 3,200
Current Liabilities:
Wages Payable
Total Current Liabilities
$ 300
Stockholders’ Equity
Common Stock
400
Retained Earnings
2,500
Total Stockholders’ Equity
2,900
Total Liabilities and Stockholders’ Equity
$ 3,200
Team Project 4-1, cont.
Dividends
4-165
Requirement 3