Chapter 4, Problem 4.4COP

1.

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:

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)			21
			Notes payable (Short-term) (+L)		21
	(To record borrowed cash on note)
2)	Equipment (+A)			18
			Cash (-A)		18
	(To record purchase of equipment)
3)	Cash (+A)			5
		Common Stock (+SE)			5
	(To record issued common stock for cash)
4)	Equipment (+A)			3
			Cash (-A)		3
	(To record Purchase of additional equipment)
5)	Supplies (+A)			10
			Accounts payable  (+L)		10
	(To record supplies purchased for future use)
6)	Cash (+A)			56
	Accounts Receivable (+A)			9
		Service Revenue (+R, +SE)			65
	(To record service revenue earned during the year 2015)
7)	Salaries and Wages Expense (+E, -SE)			35
		Cash (-A)			35
	(To record salaries and wages expense incurred during 2015)
8)	Cash (+A)			8
		Accounts Receivable (-A)			8
	(To record cash collected on customer’s account)
9)	Accounts payable (-L)			11
		Cash (-A)			11
	(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 L&S
Unadjusted Trial Balance
At December 31, 2015
(in thousands)
Account Titles	Debit ($)	Credit ($)
Cash	31
Accounts Receivable	5
Supplies	12
Equipment	27
Accumulated Depreciation–Equipment		0
Software	12
Accumulated Amortization		3
Accounts Payable		6
Notes Payable (short–term)		21
Salaries and Wages Payable		0
Interest Payable		0
Income Tax Payable		0
Unearned revenue		3
Common Stock		20
Retained Earnings		4
Service Revenue		65
Supplies Expense	0
Salaries and Wages Expense	35
Depreciation Expense	0
Amortization Expense	0
Interest Expense	0
Income Tax Expense	0
Total	122	122

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)			3
			Accumulated Amortization (+xA, -A)		3
	(To record adjusting entry for amortization expenses)
12.	Supplies expense (+E, -SE) (1)			8
			Supplies(-A)		8
	(To record the use of supplies)
13.	Depreciation expense (+E, -SE)			2
		Accumulated depreciation –Equipment (+xA, -A)			2
	(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:

$\begin{array}{c}\text{Supplies expenses=Beginning supplies+Purchase of supplies}-\text{Ending supplies}\\ \text{=\$2+\$10}-\$4\\ =\$8\end{array}$ (1)

5.

To determine

To Prepare: An adjusted trial balance from requirement 4.

Explanation of Solution

Prepare an adjusted trial balance for Incorporation L&S for December 31, 2015:

Incorporation L&S
Adjusted Trial Balance
At December 31, 2015
(in thousands)
Account Titles	Debit ($)	Credit ($)
Cash	31
Accounts Receivable	5
Supplies	4
Equipment	27
Accumulated Depreciation–Equipment		2
Software	12
Accumulated Amortization		6
Accounts Payable		6
Notes Payable (short–term)		21
Salaries and Wages Payable		3
Interest Payable		1
Income Tax Payable		4
Unearned revenue		3
Common Stock		20
Retained Earnings		4
Service Revenue		65
Supplies Expense	8
Salaries and Wages Expense	38
Depreciation Expense	2
Amortization Expense	3
Interest Expense	1
Income Tax Expense	4
Total	135	135

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 L&S
Income Statement
For the year ended December 31, 2015
(in thousands)
Particulars	Amount ($)	Amount ($)
Revenues:
Service revenue	65
Total revenues		65
Less: Expenses
Salaries and wage expense	38
Supplies expense	8
Amortization expense	3
Depreciation expense	2
Interest expense	1
Income tax expense	4
Total expenses		56
Net income		9

(2)

Table (5)

Prepare a statement of retained earnings:

Incorporation L&S
Statement of Retained Earnings
For the year ended December 31, 2015
(in thousands)
Particulars	Amount ($)	Amount ($)
Balance, January 1, 2015	4
Add: Net income	9
		13
Less: Dividends		(0)
Balance, December 31, 2015		13

Table (6)

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

Incorporation L&S
Balance Sheet
At December 31, 2015
(in thousands)
Particulars	Amount($)	Amount($)
Assets
Current Assets:
Cash	31
Accounts Receivable	5
Supplies	4
Total current assets		40
Equipment	27
Accumulated Depreciation	(2)
Equipment, net		25
Software	12
Accumulated amortization	(6)	6
Total Assets		71

Liabilities :
Current liabilities :
Accounts Payable	6
Notes payable (short-term)	21
salaries and wages payable	3
Interest payable	1
Income Taxes Payable	4
Unearned revenue	3
Total Current Liabilities		38
Stockholders’ Equity
Common Stock	20
Retained Earnings	13
Total Stockholders’ Equity		33
Total liabilities and stockholders’ equity		71

Table (7)

7.

To determine

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

Explanation of Solution

Prepare closing entries for Incorporation L&S on December 31, 2015:

Date	Account Title and Explanation	Debit ($)	Credit ($)
December 31, 2015	Sales revenue(-R)	65
	Salaries and wages expense(-E)		38
	Depreciation expense(-E)		2
	Supplies expense(-E)		8
	Amortization expense (-E)		3
	Income tax expense(-E)		4
	Interest expense (-E)		1
	Retained earnings(+SE) (2)		9
	(To record the closing entries for Incorporation L&S)

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 L&S for December 31, 2015:

Incorporation L&S
Post-closing Trial Balance
At December 31, 2015
(in thousands)
Account Titles	Debit ($)	Credit ($)
Cash	31
Accounts Receivable	5
Supplies	4
Equipment	27
Accumulated Depreciation–Equipment		2
Software	12
Accumulated Amortization		6
Accounts Payable		6
Notes Payable (short–term)		21
Salaries and Wages Payable		3
Interest Payable		1
Income Taxes Payable		4
Unearned revenue		3
Common Stock		20
Retained Earnings		13
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	79	79

Table (9)

9.

To determine

To know: The net income of Incorporation L&S has been generated during 2015 and to explain the company has been financed primarily by liabilities or stockholders’ equity.

Explanation of Solution

The net income of Incorporation L&S for 2015:

Incorporation L&S generated net income in the year 2015 is $9(thousand).

To see whether the Incorporation L&S is financed primarily by liabilities or stockholders’ equity:

The Incorporation L&S is financed primarily by liabilities, where by liabilities provide for $38(thousand) with the total assets and stockholders’ equity provide for $33(thousand).