Chapter 4, Problem 4.3COP

1, 3, 5 and 8

To determine

To Prepare: T-accounts for the accounts on the trial balance and enter beginning balances.

Explanation of Solution

T-account:

T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue, and expenditure items are recorded.

This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:

(a)The title of the account

(b)The left or debit side

(c)The right or credit side

Prepare the T-account:

Cash (A) account
Beginning Balance	7
7/1	22
7/3	5	7/2	25
12/6	47	7/4	3
12/8	9	12/7	30
12/10	3	12/9	10
Ending Balance	25

Accounts Receivable (A) account
Beginning Balance		3
12/6		8		12/8		9
Ending Balance		2
Supplies(A) account
Beginning Balance		3
7/5		7
		10
				12/31(12)		7
Ending Balance		3
Equipment (A) account
Beginning Balance	8
7/2	25
Ending Balance	33

Accumulated depreciation -Equipment (xA) account
		Beginning Balance	1
		12/31(13)	4
		Ending Balance	5
Software (A) account
Beginning Balance	5
7/4	3
Ending Balance	8
Accumulated Amortization (xA) account
		Beginning Balance	1
		12/31(11)	1
		Ending Balance	2
Accounts payable (L) account
		Beginning Balance	5
12/9	10	7/5	7
		Ending Balance	2
Notes payable (L) account
		Beginning Balance	0
		7/1	22
		Ending Balance	22
Salaries and wages payable (L) account
		Beginning Balance	0
		12/31(15)	3
		Ending Balance	3

Interest payable (L)
		Beginning Balance	0
		12/31(14)	1
		Ending Balance	1

Income tax payable (L) account
		12/31(16)	4
		Ending Balance	4

Unearned revenue (L) account

		12/10	3
		Ending Balance	3
Common Stock (SE) account
		Beginning Balance	15
		7/3	5
		Ending Balance	20
Retained earnings (SE) account
		Beginning Balance	4
		Closing entry	5
		Ending Balance	9

Service Revenue (R) account
		12/6	55
Closing entry	55
		Ending Balance	0

Depreciation expense (E) account
12/31(13)	4
		Closing entry	4
Ending Balance	0

Amortization Expense ( E) account
Beginning Balance	0
12/31(11)	1
		Closing entry	1
Ending Balance	0
Income Tax Expense ( E) account
12/31(16)	4
		Closing entry	4
Ending Balance	0

Interest Expense ( E) account
12/31(14)	1
		Closing entry	1
Ending Balance	0

Salaries and Wages Expense(E) account
12/7	30
12/31(15)	3	Closing entry	33
Ending Balance	0

Supplies Expense ( E) account
12/31(12)	7
		Closing entry	7
Ending Balance	0

2.

To determine

To record: Journal entries for transactions (1) to (10).

Explanation of Solution

Journal entries for the transactions (1) to (10) as follows:

Date	Account Title and Explanation			Debit ($)	Credit ($)
1)	Cash (+A)			22
			Notes payable (Short-term) (+L)		22
	(To record borrowed cash on note)
2)	Equipment (+A)			25
			Cash (-A)		25
	(To record purchase of equipment)
3)	Cash (+A)			5
		Common Stock (+SE)			5
	(To record issued common stock for cash)
4)	Software (+A)			3
			Cash (-A)		3
	(To record Purchase of additional software)
5)	Supplies (+A)			7
			Accounts payable  (+L)		7
	(To record supplies purchased for future use)
6)	Cash (+A)			47
	Accounts Receivable (+A)			8	55
		Service Revenue (+R, +SE)
	(To record service revenue earned during the year 2015)
7)	Salaries and Wages Expense (+E, -SE)			30
		Cash (-A)			30
	(To record salaries and wages expense incurred during 2015)
8)	Cash (+A)			9
		Accounts Receivable (-A)			9
	(To record cash collected on customer’s account)
9)	Accounts payable (-L)			10
		Cash (-A)			10
	(To record cash paid to creditors)
10)	Cash (+A)			3
		Unearned Revenue (+L)			3
	(To record receiving of customers deposit before doing work)

Table (1)

3.

To determine

To Prepare: An unadjusted trial balance from requirement 2.

Explanation of Solution

Incorporation NPT
Unadjusted Trial Balance
At December 31, 2015
(in thousands)
Account Titles	Debit ($)	Credit ($)
Cash	25
Accounts Receivable	2
Supplies	10
Equipment	33
Accumulated Depreciation–Equipment		1
Software	8
Accumulated Amortization		1
Accounts Payable		2
Notes Payable (short–term)		22
Salaries and Wages Payable
Interest Payable
Income Tax Payable
Unearned revenue		3
Common Stock		20
Retained Earnings		4
Service Revenue		55
Salaries and Wages Expense	30
Supplies Expense
Depreciation Expense
Amortization Expense
Interest Expense
Income Tax Expense
Total	108	108

Table (2)

4.

To determine

To record: Adjusting journal entries (11) to (16)

Explanation of Solution

Prepare adjusting journal entries (11) to (16):

Date	Account Title and Explanation			Debit ($)	Credit ($)
11.	Amortization Expense (+E, -SE)			1
			Accumulated Amortization (+xA, -A)		1
	(To record adjusting entry for amortization expenses)
12.	Supplies expense (+E, -SE) (1)			7
			Supplies(-A)		7
	(To record the use of supplies)
13.	Depreciation expense (+E, -SE)			4
		Accumulated depreciation –Equipment (+xA, -A)			4
	(To record adjusting entry for depreciation expense)
14.	Interest expense (+E, -SE)			1
			Interest payable(+L)		1
	(To record the adjusting entry for interest expense)
15.	Salaries and wages expense (+E, -SE)			3
			Salaries and wages payable (+L)		3
	(To record the adjusting entry for salaries and wages expenses)
16.	Income tax expense(+E, -SE)			4
			Income tax payable(+L)		4
	(To record the adjusting entry for income tax expense)

Table (3)

Working notes:

12. Calculation of supplies expenses:

$\begin{array}{c}\text{Supplies expenses=Beginning supplies+Purchase of supplies}-\text{Ending supplies}\\ \text{=\$3+\$7}-\$3\\ =\$7\end{array}$ (1)

5.

To determine

To Prepare: An adjusted trial balance from requirement 4.

Explanation of Solution

Prepare an adjusted trial balance for Incorporation NPT for December 31, 2015:

Incorporation NPT
Adjusted Trial Balance
At December 31, 2015
(in thousands)
Account Titles	Debit ($)	Credit ($)
Cash	25
Accounts Receivable	2
Supplies	3
Equipment	33
Accumulated Depreciation–Equipment		5
Software	8
Accumulated Amortization		2
Accounts Payable		2
Notes Payable (short–term)		22
Salaries and Wages Payable		3
Interest Payable		1
Income Tax Payable		4
Unearned revenue		3
Common Stock		20
Retained Earnings		4
Service Revenue		55
Salaries and Wages Expense	33
Supplies Expense	7
Depreciation Expense	4
Amortization Expense	1
Interest Expense	1
Income Tax Expense	4
Total	121	121

Table (4)

6.

To determine

To prepare: An income statement, Statement of retained earnings and balance sheet.

Explanation of Solution

Prepare an income statement for the year ended December 31, 2015:

Incorporation NPT
Income Statement
For the year ended December 31, 2015
(in thousands)
Particulars	Amount ($)	Amount ($)
Revenues:
Service revenue	55
Total revenues		55
Less: Expenses
Salaries and wage expense	33
Supplies expense	7
Amortization expense	1
Depreciation expense	4
Interest expense	1
Income tax expense	4
Total expenses		50
Net income		5

(2)

Table (5)

Prepare a statement of retained earnings:

Incorporation NPT
Statement of Retained Earnings
For the year ended December 31, 2015
(in thousands)
Particulars	Amount ($)	Amount ($)
Balance, January 1, 2015	4
Add: Net income	5
		9
Less: Dividends		(0)
Balance, December 31, 2015		9

Table (6)

Prepare a balance sheet for the year December 31, 2015:

Incorporation NPT
Balance Sheet
At December 31, 2015
(in thousands)
Particulars	Amount($)	Amount($)
Assets
Current Assets:
Cash	25
Accounts Receivable	2
Supplies	3
Total current assets		30
Equipment	33
Accumulated Depreciation	(5)
Equipment, net		28
Software	8
Accumulated amortization	(2)	6
Total Assets		64

Liabilities :
Current liabilities :
Accounts Payable	2
Notes payable (short-term)	22
salaries and wages payable	3
Interest payable	1
Income Taxes Payable	4
Unearned revenue	3
Total Current Liabilities		35
Stockholders’ Equity
Common Stock	20
Retained Earnings	9
Total Stockholders’ Equity		29
Total liabilities and stockholders’ equity		64

Table (7)

7.

To determine

To prepare: The closing entryfor Incorporation L&S on December 31, 2015.

Explanation of Solution

Prepare closing entries for Incorporation NPT on December 31, 2015:

Date	Account Title and Explanation	Debit ($)	Credit ($)
December 31, 2015	Sales revenue(-R)	55
	Salaries and wages expense(-E)		33
	Depreciation expense(-E)		4
	Supplies expense(-E)		7
	Amortization expense (-E)		1
	Income tax expense(-E)		4
	Interest expense (-E)		1
	Retained earnings(+SE) (2)		5
	(To record the closing entries for Incorporation NPT)

Table (8)

For closing of temporary accounts, the balances of revenues, expenses, and dividend accounts will be transferred to retained earnings in order to bring zero balance for expenses and revenues accounts.

8.

To determine

To prepare: Post closing trial balance from the requirement 7.

Explanation of Solution

Prepare a Post-closing trial balance for Incorporation NPT for December 31, 2015:

Incorporation NPT
Post-closing Trial Balance
At December 31, 2015
(in thousands)
Account Titles	Debit ($)	Credit ($)
Cash	25
Accounts Receivable	2
Supplies	3
Equipment	33
Accumulated Depreciation–Equipment		5
Software	8
Accumulated Amortization		2
Accounts Payable		2
Notes Payable (short–term)		22
Salaries and Wages Payable		3
Interest Payable		1
Income Taxes Payable		4
Unearned revenue		3
Common Stock		20
Retained Earnings		9
Service Revenue		0
Salaries and Wages Expense	0
Supplies Expense	0
Depreciation Expense	0
Amortization expense	0
Interest Expense	0
Income Tax Expense	0
Total	71	71

Table (9)

9.

To determine

To know: The net income of Incorporation NPT has been generated during 2015 and to determine the net profit margin and to explain the company has been financed primarily by liabilities or stockholders’ equity and to find the current ratio.

Explanation of Solution

The net income of Incorporation NPT for 2015:

Incorporation NPT generated net income in the year 2015 is $5(thousand).

Calculation of net profit margin:

$\begin{array}{c}\text{Net profit margin =}\frac{\text{Net income }}{\text{Total revenues}}\times 100\\ =\frac{\$5}{\$55}\times 100\\ =9.1\%\end{array}$

The net profit margin of Incorporation NPT is 9.1%.

To see whether the Incorporation NPT is financed primarily by liabilities or stockholders’ equity:

The Incorporation NPT is financed primarily by liabilities, where by providing liabilities for $35(thousand) with the total assets and stockholders’ equity providing for $29(thousand).

Calculation of current ratio:

$\begin{array}{c}\text{Current ratio=}\frac{\text{Current assets}}{\text{Current liabilities}}\\ =\frac{\$30}{\$35}\\ =0.86:1\end{array}$

The current ratio is 0.86:1.