Concept explainers
1, 3, 5 and 8
To Prepare: T-accounts for the accounts on the
1, 3, 5 and 8
Explanation of Solution
T-account:
T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability,
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 |
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 record:
2.
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 Prepare: An unadjusted trial balance from requirement 2.
3.
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 |
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 record: Adjusting journal entries (11) to (16)
4.
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 |
|||||
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:
5.
To Prepare: An adjusted trial balance from requirement 4.
5.
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 prepare: An income statement, Statement of retained earnings and balance sheet.
6.
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 prepare: The closing entryfor Incorporation L&S on December 31, 2015.
7.
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 prepare: Post closing trial balance from the requirement 7.
8.
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 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
9.
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:
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:
The current ratio is 0.86:1.
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Chapter 4 Solutions
Fundamentals of Financial Accounting
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