Chapter 4, Problem 4.4AP

(a)

To determine

Adjusting entries:

An adjusting entry is prepared when the trial balance is not up-to-date, and complete, and they are usually prepared at the end of the accounting period. This adjusting entry is essential for preparing the financial statements of the business

Income statement:

An income statement is one of the financial statements which shows the revenues, and expenses of the company. The income statement is prepared to ascertain the net income/loss of the company, by deducting the expenses from the revenues.

  $\boxed{\text{Net}\text{income = Total revenues – Total expenses}}$

Statement of retained earnings:

This is an equity statement which shows the changes in the stockholders’ equity over a period of time.

Classified balance sheet:

This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

To journalize: The adjusting entries of Company S for the quarter ended September 30.

Explanation of Solution

The adjusting entries of Company S for the quarter ended September 30, 2017 are as follows:

(1)

Date	Accounts title and Description	Debit ($)	Credit ($)
September 30	Accounts receivable                     (1)	600
	Service revenue		600
	(To record the service revenue)

Working notes:

  $\begin{array}{c}\text{Accounts receivable }\text{=}\left[\begin{array}{l}\left(\text{Adjusted amount in trail balance}\right)\text{–}\\ \left(\text{ Unadjusted amount in trail balance}\right)\end{array}\right]\\ \text{=\$ 1,000 – 400}\\ \text{=\$ 600}\end{array}$ (1)

 (2)

Date	Accounts title and Description	Debit ($)	Credit ($)
September 30	Rent expense                               (2)	900
	Prepaid rent		900
	(To record the rent expense)

Working notes:

  $\begin{array}{c}\text{Rent expense }\text{=}\left[\begin{array}{l}\left(\text{Adjusted amount of prepaid rent in trail balance}\right)\text{–}\\ \left(\text{ Unadjusted amount of prepaid rent in trail balance}\right)\end{array}\right]\\ \text{=\$ 1,800 – 900}\\ \text{=\$ 900}\end{array}$ (2)

(3)

Date	Accounts title and Description	Debit ($)	Credit ($)
September 30	Supplies expense                         (3)	1,020
	Supplies		1,020
	(To record the supplies expenses )

Working notes:

  $\begin{array}{c}\text{Supplies expense }\text{=}\left[\begin{array}{l}\left(\text{Adjusted amount of supplies in trail balance}\right)\text{–}\\ \left(\text{ Unadjusted amount of supplies in trail balance}\right)\end{array}\right]\\ \text{=\$ 1,200 – 180}\\ \text{=\$ 1,020}\end{array}$ (3)

(4)

Date	Accounts title and Description	Debit ($)	Credit ($)
September 30	Depreciation expense	350
	Accumulated depreciation –Equipment		350
	(To record the depreciation and the accumulated depreciation)

(5)

Date	Accounts title and Description	Debit ($)	Credit ($)
September 30	Interest expense	50
	Interest payable		50
	(To record the interest expense)

(6)

Date	Accounts title and Description	Debit ($)	Credit ($)
September 30	Unearned service revenue           (4)	200
	service revenue		200
	(To record the service performed for the unearned service)

Working notes:

  $\begin{array}{c}\text{Unearned service revenue }\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Adjusted amount of unearned }\\ \text{servicerevenue }\text{ in trail balance}\end{array}\right)\text{–}\\ \left(\begin{array}{l}\text{ Unadjusted amount of unearned }\\ \text{service revenue }\text{ in trail balance}\end{array}\right)\end{array}\right]\\ \text{=\$ 1,000 – 800}\\ \text{=\$ 200}\end{array}$ (4)

(7)

Date	Accounts title and Description	Debit ($)	Credit ($)
September 30	Salaries and wages expense          (5)	600
	Salaries and wages payable		600
	(To record the accrued salaries and wages)

Working notes:

  $\begin{array}{c}\text{Salaries and wages expense }\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Adjusted amount of salaries and}\\ \text{ wages expense in trail balance}\end{array}\right)\text{–}\\ \left(\begin{array}{l}\text{ Unadjusted amount of salaries and}\\ \text{ wages expense}\text{in trail balance}\end{array}\right)\end{array}\right]\\ \text{=\$ 8,800 – 9,400}\\ \text{=\$ 600}\end{array}$ (5)

(b)

To determine

To prepare: The income statement for the quarter ended September, the retained earnings statement for the quarter ended September, the classified balance sheet of Company S for the quarter ended September 30, 2017.

Explanation of Solution

The income statement of Company S for the quarter ended September, 30 2017 is computed in the table below:

Company S
Income Statement
For the quarter ended September 30, 2017
Particulars	$	$
Revenue:
Service revenue	14,700
Rent revenue	900
Total revenue (A)		15,600
Less:  Expenses
Salaries and wages expenses	9,400
Rent expense	1,800
Supplies expense	1,020
Utilities expense	470
Depreciation expense	350
Interest expense	50
Total Expenses (B)		13,090
Net income		2,510

Table (1)

The retained earnings statement of Company S for the quarter ended September, 2017 is computed in the table below:

Company S
Retained earnings statement
For the quarter ended September 30, 2017
Particulars	$
Retained earnings at July 1, 2017	-
Add: Net income	2,510
	2,510
Less:  Dividend paid	600
Retained earnings at September 30, 2017	1,910

Table (2)

Prepare a classified balance sheet of Company S for the quarter ended September 30, 2017.

Company S
Classified Balance sheet Statement
As  at September 30, 2017
Assets	$	$
Current assets:
Cash	6,700
Accounts receivable	1,000
Supplies	180
Prepaid advertising	900
Total of current assets		8,780
Other assets:
Equipment	15,000
Less: Accumulated depreciation-Equipment	350
Total of other assets		14,650
Total assets		23,430
Liabilities and Stockholders' equity	$	$
Current liabilities:
Notes payable	5,000
Accounts payable	1,070
Unearned rent revenue	800
Salaries and wages payable	600
Interest payable	50
Total current liabilities		7,520
Stockholders' equity:
Common stock	14,000
Retained earnings	1,910
Total stockholders' equity		15,910
Total liabilities and stockholders' equity		23,430

Table (3)

Conclusion

The net income for the quarter ended September, 2017 is $2,510.

The retained earnings for the quarter ended September, 2017 are $1,910.

The classified balance sheet for the month ended July, 31 2017 are agreed, both the assets account and the liabilities account shows a balance of $23,430.

(c)

To determine

To identify: The accounts that should be closed on September 30.

Answer to Problem 4.4AP

The following are the accounts to be closed on September 30:

Sl. no	Accounts to be closed on September 30
1.	Service revenue
2.	Rent revenue
3.	Salaries and wages expenses
4.	Rent expense
5.	Supplies expense
6.	Utilities expense
7.	Depreciation expense
8.	Interest expense
9.	Dividends

Table (4)

Explanation of Solution

All the revenue and expenses account balance are to be closed to bring its balance to zero, by transferring its balance to the retained earnings accounts.

(d)

To determine

To identify: The number of months outstanding.

Answer to Problem 4.4AP

The number of months outstanding is one month.

Explanation of Solution

The interest rate is 12 % per year which means 1% per month. Since the interest payable is $50$\text{(\$50,000}\text{×}\text{1/100)}$ thereby, the number of months outstanding is one month.