a. (cont’d.)
51,402$
4,200
132
Prepaid rent 1,080
36,000
Retaining earnings 9,600
1,200
Consulting services revenue 76,800
Office supplies expense 840
Depreciation expense: office equipment 10,800
Rent expense 4,590
Insurance expense 1,320
Salaries expense 34,800
Interest expense 504
Income taxes expense 9,000
PROBLEM 5.5A
SILVER LINING, INC. (continued)
SILVER LINING, INC.
Adjusted Trial Balance
Cash
Office supplies
Accounts receivable
December 31, Current Year
Capital stock
Dividends
216
10,800
Interest payable
Accounts payable
Accumulated depreciation: office equipment
Notes payable (Due 3/1/Next Year)
Income taxes payable
Unearned consulting services revenue
Office equipment
Unexpired insurance
b.
76,800$
840$
9,600$
Retained earnings (12/31/Current Year)
Less: Dividends
Add: Net income
Consulting services revenue
SILVER LINING, INC. (continued)
Revenues:
SILVER LINING, INC.
For the Year Ended December 31, Current Year
Income Statement
Expenses:
Office supplies expense
Retained earnings (1/1/Current Year)
Statement of Retained Earnings
For the Year Ended December 31, Current Year
SILVER LINING, INC.
Net Income
Depreciation expense: office equipment
Rent expense
Insurance expense
Income taxes expense
Salaries expense
Interest expense
Income before taxes
b. (cont’d)
Assets
$ 51,402
$ 1,680
10,800
2,820
1,200
2,280
504
$ 19,284
$ 36,000
23,346
$ 59,346
$ 78,630
Interest payable
Stockholders’ Equity
Salaries payable
Total liabilities
Total liabilities and stockholders’ equity
Total stockholders’ equity
Capital stock
Retained earnings
Unearned consulting services revenue
Note payable (Due 3/1/Next Year)
Income taxes payable
PROBLEM 5.5A
SILVER LINING, INC. (continued)
SILVER LINING, INC.
December 31, Current Year
Liabilities
Accounts payable
Balance Sheet
Cash
4,200
132
1,080
216
$ 64,800
43,200 21,600
$ 78,630
Accounts receivable
Office supplies
Office equipment
Prepaid rent
Unexpired insurance
Total assets
Less: Accumulated Depreciation: office equipment
c.
Dec. 31 76,800
Income Summary 76,800
31 61,854
31 14,946
Retained Earnings 14,946
Retained Earnings account ($76,800 – $61,854 =
To transfer net income earned in Current Year to the
Retained Earnings
To close dividends declared in Current Year to
(4)
SILVER LINING, INC.
12/31/Current Year
(1)
General Journal
SILVER LINING, INC. (continued)
Consulting Services Revenue
To close revenue earned.
(2)
Income Summary
(3)
Income Summary
Office Supply Expense 840
Depreciation Expense: Office Equipment 10,800
Rent Expense 4,590
Insurance Expense 1,320
Interest Expense 504
Income Taxes Expense 9,000
To close all expense accounts.
d.
51,402$
4,200
132
1,080
216
64,800
e.
1,320$
Total expense incurred in January and February
Monthly decrease starting in March ($120 – $108)
1,080
Unexpired insurance
After-Closing Trial Balance
Cash
through December (at $108 per month)
Insurance expense incurred in Current Year
Less: Total insurance expense for March
Office equipment
PROBLEM 5.5A
SILVER LINING, INC. (continued)
Prepaid rent
SILVER LINING, INC.
December 31, Current Year
Accounts receivable
Office supplies
Accumulated depreciation: office equipment
Unearned consulting services revenue
Capital stock
Retained earnings
Interest payable
Income taxes payable
Notes payable (Due 3/1/Next Year)
Accounts payable
f.
4,590$
g.
43,200$
PROBLEM 5.5A
SILVER LINING, INC. (concluded)
Rent expense incurred in Current Year
Accum. depreciation: office equip. (12/31/Current Yr.)
Total rent expense for January through September
Less: Total rent expense October through
Monthly rent expense January through September
December (at $360 per month)
Monthly decrease starting in October ($390-$360)
a.
Dec. 31 5,000
Supplies 5,000
31 240
Interest Payable 240
Client Fees Earned 3,000
31 690
Client Fees Earned 690
in December.
To convert unearned revenue to earned revenue
Client Fees Receivable
Unearned Client Fees
(6)
31 750
Salaries Payable 750
Income Taxes Payable 2,000
December.
Income Taxes Expense
To record income taxes expense accrued in
(7)
December.
(8)
To record salary expense accrued at the end of
Salary Expense
Supply Expense
To record supplies used in December.
To record interest expense accrued in December.
Interest Expense
PROBLEM 5.6A
BRUSHSTROKE ART STUDIO, INC.
12/31/Current Year
(1)
General Journal
BRUSHSTROKE ART STUDIO, INC.
70 Minutes, Strong
(5)
(4)
Prepaid Studio Rent 1,250
Accumulated Depreciation: Studio Equipment 800
Studio Rent Expense
(2)
To record depreciation of equipment in December.
(3)
a. (cont’d)
Computations for each of the adjusting journal entries:
1. $6,000 (supplies per trial balance) – $1,000 (at 12/31) = $5,000 used in December.
BRUSHSTROKE ART STUDIO, INC. (continued)
PROBLEM 5.6A
a. (cont’d.)
22,380$
71,940
1,000
1,250
96,000
Supply expense 9,000
Salary expense 18,000
Interest expense 720
Studio rent expense 12,500
Utilities expense 3,300
Depreciation expense: studio equipment 9,600
Income taxes expense 7,000
Prepaid studio rent
Studio equipment
PROBLEM 5.6A
BRUSHSTROKE ART STUDIO, INC. (continued)
Cash
Supplies
Client fees receivable
BRUSHSTROKE ART STUDIO, INC. (continued)
December 31, Current Year
Adjusted Trial Balance
Client fees earned 86,000
Accumulated depreciation: studio equipment
Interest payable
Accounts payable
Notes payable
Salaries payable
Unearned client fees
Capital stock
Retained earnings
b.
86,000$
9,000$
For the Year Ended December 31, Current Year
BRUSHSTROKE ART STUDIO, INC.
Statement of Retained Earnings
Client fees earned
Expenses:
Supply expense
BRUSHSTROKE ART STUDIO, INC. (continued)
Revenues:
BRUSHSTROKE ART STUDIO, INC.
For the Year Ended December 31, Current Year
Income Statement
Income before taxes
Income taxes expense
Net Income
Salary expense
Studio rent expense
Utilities expense
Depreciation expense: studio equipment
Interest expense
b. (cont’d)
Assets
$ 22,380
71,940
1,000
1,250
$ 96,000
Prepaid studio rent
Studio equipment
PROBLEM 5.6A
BRUSHSTROKE ART STUDIO, INC. (continued)
Client fees receivable
Supplies
BRUSHSTROKE ART STUDIO, INC.
December 31, Current Year
Balance Sheet
Cash
52,800 43,200
$ 139,770
750
24,000
720
5,000
7,000
$ 43,890
$ 50,000
45,880
$ 95,880
$ 139,770
Salaries payable
Total assets
Liabilities
Notes payable
Interest payable
Total Stockholders’ Equity
Total liabilities
Stockholders’ Equity
Capital stock
Retained earnings
Income taxes payable
Unearned client fees
c.
Dec. 31 86,000
Income Summary 86,000
31 25,880
Retained Earnings 25,880
To transfer net income earned in Current Year to the
Retained Earnings account ($86,000 – $60,120 =
Note: No dividends were declared in Current Year.
(2)
Income Summary
(3)
Client Fees Earned
To close Client Fees Earned.
BRUSHSTROKE ART STUDIO
12/31/Current Year
(1)
BRUSHSTROKE ART STUDIO, INC. (continued)
General Journal
31 60,120
Supply Expense 9,000
Salary Expense 18,000
Interest Expense 720
Studio Rent Expense 12,500
Depreciation Expense: Studio Equipment 9,600
Income Taxes Expense 7,000
Income Summary
To close all expense accounts.
d.
22,380$
71,940
1,000
1,250
96,000
$ 11,250
$ 10,000
Rent expense per month through October 31, Current Year
Client fees receivable
Supplies
PROBLEM 5.6A
BRUSHSTROKE ART STUDIO, INC. (concluded)
Prepaid studio rent
Studio equipment
BRUSHSTROKE ART STUDIO, INC. (concluded)
December 31, Current Year
After-Closing Trial Balance
Cash
e.
The studio’s rent expense has increased by $250 per month as shown below:
Total rent expense through November 30, Current Yr. (per unadjusted trial
balance……………………………………………………………………………………………
Salaries payable
Interest payable
Accounts payable
Notes payable
Less: Accumulated depreciation: studio equip.
Retained earnings
Unearned client fees
Capital stock
50 Minutes, Strong
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Balance sheet accounts:
Cash 49,100 49,100 49,100
Consulting fees receivable 23,400
(7)
11,000 34,400 34,400
Prepaid office rent 6,300 (1) 2,100 4,200 4,200
Salaries payable (8) 1,700 1,700 1,700
Interest payable (5) 100 100 100
Income statement accounts:
Consulting fees earned 257,180 (6) 2,850 271,030 271,030
(7) 11,000
Salaries expense 88,820
(8)
1,700 90,520 90,520
Telephone expense 2,550 2,550 2,550
Rent expense 22,000
(1)
2,100 24,100 24,100
Income taxes expense 51,000
(9)
5,000 56,000 56,000
Dues and subscriptions expense 560
(2)
Supplies expense 1,600
(3)
Depreciation expense: equip. 6,600
(4)
Trial Balance
Adjustments *
Adjusted Trial Balance
Worksheet
For the Month Ended December 31, Current Year
SERVICE, INC.
PROBLEM 5.7A
INTERNET CONSULTING SERVICE, INC.
Income Statement
Balance Sheet
INTERNET CONSULTING
Prepaid dues and subscriptions 300 (2) 50 250 250
Supplies 600 (3) 150 450 450
Equipment 36,000 36,000 36,000
Accumulated Depr.: Equipment 10,200 (4) 600 10,800 10,800
Notes payable 5,000 5,000 5,000
Income taxes payable 12,000 (9) 5,000 17,000 17,000
Unearned consulting fees 5,950
(6)
2,850 3,100 3,100
Capital stock 30,000 30,000 30,000
Retained earnings 32,700 32,700 32,700
Dividends 60,000 60,000 60,000
15 Minutes, Medium
3.1%
The company was profitable, given its reported net income of $1,233 million. Its net
income percentage reveals that management earned income in excess of 3 cents for
c.
PROBLEM 5.8A
BEST BUY
Net income percentage: Net Income/Total Revenue
$1,233 million/$40,339 million =
a.
Current ratio: Current Assets/Current Liabilities
End of year: $11,729 million/$7,777 million
Beginning of year: $10,485 million/$7,436 million
End of year: $11,729 million – $7,777 million
Return on equity: Net Income/Average Stockholders’ Equity
Beginning of year: $10,485 million – $7,436 million
$1,233 million/$4,490.5 million* =
a.
160,000$
1,800$
17,500$
Retained earnings (12/31/Current Year)
Less: Dividends
Add: Net Income
Revenues:
SOLUTIONS TO PROBLEMS SET B
STRONG KNOT, INC.
For the Year Ended December 31, Current Year
20 Minutes, Easy
STRONG KNOT, INC.
Income Statement
Service revenue earned
Insurance expense
Expenses:
Statement of Retained Earnings
For the Year Ended December 31, Current Year
STRONG KNOT, INC.
Retained earnings (1/1/Current Year)
Supplies expense
Depreciation expense: equipment
Office rent expense
Travel expense
Salary expense
Repair and maintenance expense
Miscellaneous expense
Income before taxes
Income taxes expense
Net income
Interest expense
Assets
15,400$
8,200
3,000
5,200$
33,000
900
400
3,500
43,000$
3,000$
33,300
36,300$
79,300$
Total liabilities and stockholders’ equity
Total stockholders’ equity
Unearned revenue
Retained earnings
Capital stock
Stockholders’ Equity
Total liabilities
Unexpired insurance
PROBLEM 5.1B
STRONG KNOT, INC. (continued)
Accounts receivable
a. (cont’d)
STRONG KNOT, INC.
Balance Sheet
Cash
December 31, Current Year
Notes payable*
Salaries payable
Income taxes payable
Accounts payable
Liabilities
800
900
Equipment
Automobile
Supplies
Prepaid rent
Less: Accumulated depreciation: automobile
Less: Accumulated depreciation: equipment
b.
Dec. 31 160,000
Income Summary 160,000
31 141,200
Insurance Expense 1,800
Office Rent Expense 18,000
Supplies Expense 1,200
Salaries Expense 96,000
31 18,800
Retained Earnings 18,800
To transfer dividends declared in Current Year to
Retained Earnings account.
Retained Earnings
(4)
To transfer net income earned in Current Year to the
c.
For the year ended December 31, Current Year, the company generated net income of
$18,800 on $160,000 sales. Thus, net income as a percentage of sales was 11.75%.
Retained Earnings account ($160,000 – $141,200 =
$18,800).
To close revenue account.
Income Summary
Income Summary
(2)
(3)
Service Revenue Earned
STRONG KNOT, INC.
12/31/Current Year
(1)
General Journal
STRONG KNOT, INC. (concluded)
Depreciation Expense: Equipment 3,000
Repair and Maintenance Expense 1,700
Travel Expense 6,600
Miscellaneous Expense 2,100
Interest Expense 2,800
Income Taxes Expense 4,000
To close all expense accounts.
a.
232,800$
2,160$
33,600
25,200$
Less: Dividends
Add: Net income
Retained earnings (12/31/Current Year)
Retained earnings (1/1/Current Year)
GARDEN WIZARDS
Statement of Retained Earnings
For the Year Ended December 31, Current Year
Expenses:
Office rent expense
Insurance expense
Service revenue earned
GARDEN WIZARDS
Revenues:
GARDEN WIZARDS
For the Year Ended December 31, Current Year
Income Statement
86,400
19,200
Miscellaneous expense
Income before taxes
Income taxes expense
Interest expense
Net income
Supplies expense
Salary expense
Depreciation expense: trucks
Depreciation expense: equipment
Repair & maintenance expense
Fuel expense
Assets
33,360$
5,160
2,640$
45,600
1,080
360
2,040
2,400
54,120$
21,600$
73,560
95,160$
Total stockholders’ equity
Total liabilities
Stockholders’ Equity
Capital stock
Total liabilities and stockholders’ equity
Retained earnings
Unearned service revenue
Income taxes payable
PROBLEM 5.2B
Liabilities
Salaries payable
Notes payable
Accounts payable
Interest payable
Cash
a. (cont’d)
GARDEN WIZARDS (continued)
Accounts receivable
GARDEN WIZARDS
December 31, Current Year
Balance Sheet
10,440
3,840
1,680
Less: Accumulated depreciation: equipment
Equipment
Supplies
Trucks
Less: Accumulated depreciation: trucks
Prepaid rent
Unexpired insurance