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Q4-39PSB

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Horngren'S Financial And Managerial Accounting
Found in: Page 240

Short Answer

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.

Answer

(1) Journal entries and T accounts are mentioned in Step 1.

(2) Under unadjusted trial balance, total debits and credits equals $112,140.

(3) Worksheet is mentioned in Step 3.

(4) Adjusting entries and T accounts are mentioned in Step 4.

(5) Under adjusted trial balance, total debits and credits equals $112,500.

(6) Net income is $14,080, ending balance of retained earnings equals $9,080 and total assets and total liabilities & stockholders’ equity equals $99,040.

(7) Cosing entries are recorded and posted in Step 7.

(8) Under post-closing trial balance, total debits and credits equals $99,280

See the step by step solution

Step by Step Solution

Step-by-Step-Solution  Step 1: Journal entries and T accounts

(1) Journal entries are as follows:

Date

Accounts and Explanation

Debit

Credit

Dec. 1

Cash

$63,000

Common Stock

$63,000

To record cash contribution

Dec. 1

Equipment

$14,400

Cash

$14,400

To record the equipment purchased

Dec. 1

Prepaid Rent

$3,600

Cash

$3,600

To record the rent paid in advance

Dec. 9

Land

$15,000

Cash

$15,000

To record the equipment purchased

Dec. 10

Office Supplies

$2,200

Accounts Payable

$2,200

To record office supplies purchased on account

Dec. 19

Cash

$24,000

Notes Payable

$24,000

To record the amount borrowed by issuing notes

Dec. 22

Advertising Expense

$2,000

Cash

$2,000

To record the payment of Advertising Expense

Dec. 26

Accounts Payable

$1,000

Cash

$1,000

To record cash paid on account

Dec. 28

Utilities Expense

$260

Utilities Payable

$260

To record utilities exense

Dec. 31

Cash

$18,500

Accounts Receivable

$3,800

Service Revenue

$22,300

Dec. 31

Salaries Expense

$3,900

Rent Expense

$800

Cash

$4,700

To record payment of salaries and rent expense

Dec. 31

Cash

$1,380

Unearned Revenue

$1,380

Collected cash for future services.

Dec.31

Dividends

$5,000

Cash

$5,000

To record payment of dividends

T accounts are as follows:

Cash

Dec.1

$63,000

$14,400

Dec.1

Dec.19

$24,000

$3,600

Dec.1

Dec.31

$18,500

$15,000

Dec.9

Dec.31

$1,380

$2,000

Dec.22

$1,000

Dec.26

$3,900

Dec.31

$800

Dec.31

$5,000

Dec.31

Bal.

$61,180

Accounts Receivable

Dec.31

$3,800

Bal.

$3,800

Prepaid Insurance

Dec.1

$3,600

Bal.

$3,600

Equipment

Dec. 1

$14,400

Bal.

$14,400

Land

Dec. 9

$15,000

Bal.

$15,000

Office Supplies

Dec.10

$2,200

Bal.

$2,200

Accounts Payable

Dec.26

$1,000

$2,200

Dec.10

$1,200

Bal.

Notes Payable

$24,000

Dec.19

$24,000

Bal.

Common Stock

$63,000

Dec.1

$3,000

Bal.

Advertising Expense

Dec.22

$2,000

Bal.

$2,000

Utilities Expense

Dec.28

$260

Bal.

$260

Utilities Payable

$260

Dec.28

$260

Bal.

Service Revenue

$22,300

Dec.31

$22,300

Bal.

Salaries Expense

Dec.31

$3,900

Bal.

$3,900

Rent Expense

Dec.31

$800

Bal.

$800

Unearned Revenue

$1,380

Dec.31

$1,380

Bal.

Dividends

Dec.31

$5,000

Bal.

$5,000

Step 2: Unadjusted Trial Balance

(2) Unadjusted trial balance is shown as follows:

Waldo’s Quality Automotive

Unadjusted Trial Balance

December 31, 2018

Account Names

Debit

Credit

Cash

$61,180

Accounts Receivable

3,800

Prepaid Insurance

3,600

Office Supplies

2,200

Equipment

14,400

Land

15,000

Accounts Payable

$1,200

Unearned Revenue

1,380

Utilities Payable

260

Notes Payable

24,000

Common Stock

63,000

Dividends

5,000

Service Revenue

22,300

Salaries Expense

3,900

Rent Expense

800

Advertising Expense

2,000

Utilities Expense

260

Total

$112,140

$112,140

Step 3: Worksheet

(3) Worksheet is shown as follows:

Waldo’s Quality Automotive

Worksheet

December 31, 2018

Unadjusted Trial Balance

Adjustments

Adjusted Trial Balance

Income Statement

Balance Sheet

Account Names

Debit

Credit

Debit

Credit

Debit

Credit

Debit

Credit

Debit

Credit

Cash

$61,180

$61,180

$61,180

Accounts Receivable

3,800

3,800

3,800

Prepaid Insurance

3,600

$300

(c)

3,300

3,300

Office Supplies

2,200

$600

(a)

1,600

1,600

Equipment

14,400

14,400

14,400

Accumulated Depreciation-Equipment

240

(b)

$240

$240

Land

15,000

15,000

15,000

Accounts Payable

$1,200

1,200

1,200

Unearned Revenue

1,380

1,380

1,380

Utilities Payable

260

260

260

Interest Payable

120

(d)

120

120

Notes Payable

24,000

24,000

24,000

Common Stock

63,000

63,000

63,000

Dividends

5,000

5,000

5,000

Service Revenue

22,300

22,300

22,300

Salaries Expense

3,900

3,900

3,900

Rent Expense

800

800

800

Advertising Expense

2,000

2,000

2,000

Utilities Expense

260

260

260

Insurance Expense

(c)

300

300

300

Depreciation Expense-Equipment

(b)

240

240

240

Supplies Expense

(a)

$600

600

600

Interest Expense

(d)

120

120

120

Total

$108,220

$108,220

$1,260

$1,260

$112,500

$112,500

$8,220

$22,300

$104,280

$90,200

Net Income

$14,080

14,080

Total

$22,300

$22,300

$104,280

$104,280

Step 4: Adjusting Entries Recording and Posting

(4) Adjusting entries are as follows:

Date

Accounts and Explanation

Debit

Credit

(a)

Dec. 31

Supplies Expense

$600

Office Supplies

$600

To record supplies expense

(b)

Dec. 31

Depreciation Expense-Equipment

$240

Accumulated Depreciation—Equipment

$240

To record depreciation on equipment

(c)

Dec. 31

Insurance Expense

$300

Prepaid Insurance

$300

To record supplies expense ($3,600/12)

(d)

Dec. 31

Interest Expense

$120

Interest Payable

$120

To record accrued interest expense

Supplies Expense

Adj.

$600

Bal.

$600

Office Supplies

Dec.10

$2,200

$600

Adj.

Bal.

$1,600

Depreciation Expense-Equipment

Adj.

$240

Bal.

$240

Accumulated Depreciation- Equipment

$240

Adj.

$240

Bal.

Prepaid Insurance

Dec.1

$3,600

$300

Adj.

Bal.

$3,300

Insurance Expense

Dec. 31

$300

Bal.

$300

Interest Expense

Adj.

$120

Bal.

$120

Interest payable

$120

Adj.

$120

Bal.

Step 5: Adjusting Trial Balance

(5) Adjusted trial balance is shown as follows:

Waldo’s Quality Automotive

Adjusted Trial Balance

December 31, 2018

Account Names

Debit

Credit

Cash

$61,180

Accounts Receivable

3,800

Prepaid Insurance

3,300

Office Supplies

1,600

Equipment

14,400

Accumulated Depreciation-Equipment

$240

Land

15,000

Accounts Payable

1,200

Unearned Revenue

1,380

Utilities Payable

260

Interest Payable

120

Notes Payable

24,000

Common Stock

63,000

Dividends

5,000

Service Revenue

22,300

Salaries Expense

3,900

Rent Expense

800

Advertising Expense

2,000

Utilities Expense

260

Insurance Expense

300

Depreciation Expense-Equipment

240

Supplies Expense

600

Interest Expense

120

Total

$112,500

$112,500

Step 6: Income statement, Statement of retained earnings, and the classified balance sheet

(6) Income statement is shown as follows:

Waldo’s Quality Automotive

Income Statement

Year Ended December 31, 2018

Revenues

Service Revenue

$22,300

Expenses

Salaries Expense

$3,900

Rent Expense

800

Advertising Expense

2,000

Utilities Expense

260

Insurance Expense

300

Depreciation Expense-Equipment

240

Supplies Expense

600

Interest Expense

120

Total Expenses

8,220

Net Income

$14,080

Statement of retained earnings is shown as follows:

Waldo’s Quality Automotive

Statement of Retained Earnings

Year Ended December 31, 2018

Retained Earnings, Beginning Balance

$0

Net Income for the year

14,080

14,080

Dividends

(5,000)

Retained Earnings, Ending Balance

$9,080

Balance Sheet is shown as follows:

Waldo’s Quality Automotive

Balance Sheet

December 31, 2018

Assets

Current Assets:

Cash

$61,180

Accounts Receivable

3,800

Prepaid Insurance

3,300

Office Supplies

1,600

Total Current Assets

$69,880

Property, Plant, and Equipment:

Land

$15,000

Equipment

$14,400

Less: Accumulated Depreciation- Equipment

(240)

14,160

Total Property, Plant, and Equipment:

29,160

Total Assets

$99,040

Liabilities

Current Liabilities:

Accounts Payable

$1,200

Unearned Revenue

1,380

Utilities Payable

260

Interest Payable

120

Total Current Liabilities:

$2,960

Long term Liabilities

Notes Payable

24,000

Total Liabilities

$26,960

Stockholders’ Equity

Common Stock

63,000

Retained Earnings

9,080

Total Stockholders’ Equity

72,080

Total Liabilities and Stockholders’ Equity

$99,040

Step 7: Closing entries and posting

(7) Closing entries are as follows:

Date

Accounts and Explanation

Debit

Credit

Dec. 31

Service Revenue

$22,300

Income Summary

$22,300

To close revenue.

Dec. 31

Income Summary

$8,220

Salaries Expense

$3,900

Rent Expense

$800

Advertising Expense

$2,000

Utilities Expense

$260

Insurance Expense

$300

Depreciation Expense-Equipment

$240

Supplies Expense

$600

Interest Expense

$120

To close expenses.

Dec. 31

Income Summary

$14,080

Retained Earnings

$14,080

To close Income Summary

Dec. 31

Retained Earnings

$5,000

Dividends

$5,000

To close Dividends

Retained Earnings

Clos.4

$5,000

$0

Adj. Bal.

$14,080

Clos.3

$9,080

Bal.

Income Summary

Clos.2

$8,220

$22,300

Clos.1

$14,080

Bal.

Clos.3

$14,080

$0

Bal.

Dividends

Un. Adj. Bal.

$5,000

$5,000

Clos. 4

Bal.

$0

Service Revenue

Clos.1

$22,300

$22,300

Dec.31

$0

Bal.

Salaries Expense

Dec.31

$3,900

$3,900

Clos. 2

Bal.

$0

Rent Expense

Dec.31

$800

$800

Clos. 2

Bal.

$0

Advertising Expense

Dec. 31

$2,000

$2,000

Clos.2

Bal.

$0

Utilities Expense

Dec. 31

$260

$260

Clos.2

Bal.

$0

Depreciation Expense-Equipment

Dec. 31

$240

$240

Clos.2

Bal.

$0

Supplies Expense

Dec.31

$600

$600

Clos.2

Bal.

$0

Interest Expense

Dec.31

$120

$120

Clos.2

Bal.

$0

Insurance Expense

Dec.31

$300

$300

Clos.2

Bal.

$0

Step 8: Post-closing Trial Balance

(8) Post-closing trial balance is shown as follows:

Waldo’s Quality Automotive

Post Closing Trial Balance

December 31, 2018

Account Names

Debit

Credit

Cash

$61,180

Accounts Receivable

3,800

Prepaid Insurance

3,300

Office Supplies

1,600

Equipment

14,400

Accumulated Depreciation-Equipment

$240

Land

15,000

Accounts Payable

1,200

Unearned Revenue

1,380

Utilities Payable

260

Interest Payable

120

Notes Payable

24,000

Common Stock

63,000

Retained Earnings

9,080

Total

$99,280

$99,280

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