Concept explainers
Recording Transactions and Adjustments, Reconciling Items, and Preparing Financial Statements
On January 1, Pulse Recording Studio (PRS) had the following account balances.
The following transactions occurred during January.
- 1. Received $2,500 cash on l/l from customers on account for recording services completed in December.
- 2. Wrote checks on 1/2 totaling $4,000 for amounts owed on account at the end of December.
- 3. Purchased and received supplies on account on 1/3, at a total cost of $200.
- 4. Completed $4,000 of recording sessions on 1/4 that customers had paid for in advance in December.
- 5. Received $5,000 cash on 1/5 from customers for recording sessions started and completed in January.
- 6. Wrote a check on 1/6 for $4,000 for an amount owed on account.
- 7. Converted $1,000 of cash equivalents into cash on 1/7.
- 8. On 1/15, completed EFTs for $1,500 for employees’ salaries and wages for the first half of January.
- 9. Received $3,000 cash on 1/31 from customers for recording sessions to start in February.
Required:
- 1. Prepare journal entries for the January transactions.
- 2. Enter the January 1 balances into T-accounts,
post the journal entries from requirement 1, and calculate January 31 balances. (If you are completing this requirement in Connect, this requirement will be completed for you.) - 3. Use the January 31 balance in Cash from requirement 2 and the following information to prepare a bank reconciliation. PRS’s bank reported a January 31 balance of $6,300.
- 10. The bank deducted $500 for an NSF check from a customer deposited on January 5.
- 11. The check written January 6 has not cleared the bank, but the January 2 payment has cleared.
- 12. The cash received and deposited on January 31 was not processed by the bank until February 1.
- 13. The bank added $5 cash to the account for interest earned in January.
- 14. The bank deducted $5 for service charges.
- 4. Prepare journal entries for items (10)–(14) from the bank reconciliation, if applicable, and post them to the T-accounts. If a
journal entry is not required for one or more of the reconciling items, indicate “no journal entry required.” (If you are using Connect, journal entries will be automatically posted after you enter them.) - 5. Prepare
adjusting journal entries on 1/31, using the following information. - 15.
Depreciation for the month is $200. - 16. Salaries and wages totaling $1,500 have not yet been recorded for January 16–31.
- 17. Prepaid Rent will be fully used up by March 31.
- 18. Supplies on hand at January 31 were $500.
- 19. Received $600 invoice for January electricity charged on account to be paid in February but is not yet recorded.
- 20. Interest on the promissory note of $60 for January has not yet been recorded or paid.
- 21. Income tax of $1,000 on January income has not yet been recorded or paid.
- 6. Post the adjusting journal entries from requirement 5 to the T-accounts and prepare an adjusted
trial balance . (If you are completing this requirement in Connect, it will be completed for you using your previous answers.) - 7. Prepare an income statement for January and a classified
balance sheet at January 31. Report PRS’s cash and cash equivalents as a single line on the balance sheet. - 8. Calculate the
current ratio at January 31 and indicate whether PRS has met its loan covenant that requires a minimum current ratio of 1.2. - 9. Calculate the net profit margin and indicate whether PRS has achieved its objective of 10 percent.
(1)
To prepare: Journal entries for the transactions occurred in January in the books of PR Studio
Explanation of Solution
Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
- Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Prepare journal entry for the transaction occurred on January 1.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 1 | Cash | 2,500 | |||
Accounts Receivable | 2,500 | |||||
(To record cash received for services on account) |
Table (1)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Accounts Receivable is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction occurred on January 2.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 2 | Accounts Payable | 4,000 | |||
Cash | 4,000 | |||||
(To record payment of on account purchases) |
Table (2)
Description:
- Accounts Payable is a liability account. Since the amount to be paid is paid, liability decreased, and a decrease in liability is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction occurred on January 3.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 3 | Supplies | 200 | |||
Accounts Payable | 200 | |||||
(To record purchase of supplies on account) |
Table (3)
Description:
- Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
- Accounts Payable is a liability account. Since the amount to be paid increased, liability increased, and an increase in liability is credited.
Prepare journal entry for the transaction occurred on January 4.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 4 | Unearned Revenue | 4,000 | |||
Service Revenue | 4,000 | |||||
(To record revenue earned, paid for in advance in December) |
Table (4)
Description:
- Unearned Revenue is a liability account. Since the unearned revenue is earned, liability is reduced, and a decrease in liability is debited.
- Service Revenue is a revenue account. Since the unearned revenue has been earned, revenue value increased, and an increase in revenues increases stockholders’ equity. Hence, the account is credited.
Prepare journal entry for the transaction occurred on January 5.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 5 | Cash | 5,000 | |||
Service Revenue | 5,000 | |||||
(To record revenue received for services performed) |
Table (5)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Service Revenue is a revenue account. Since revenues increase equity, equity value is increased. An increase in equity is credited.
Prepare journal entry for the transaction occurred on January 6.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 6 | Accounts Payable | 4,000 | |||
Cash | 4,000 | |||||
(To record payment of on account purchases) |
Table (6)
Description:
- Accounts Payable is a liability account. Since the amount to be paid is paid, liability decreased, and a decrease in liability is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction occurred on January 7.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 7 | Cash | 1,000 | |||
Cash Equivalents | 1,000 | |||||
(To record conversion of cash equivalents into cash) |
Table (7)
Description:
- Cash is an asset account. Since cash equivalents are converted to cash, asset account increased, and an increase in asset is debited.
- Cash Equivalents is an asset account. Since cash equivalent re converted into cash, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction occurred on January 15.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 15 | Salaries and Wages Expense | 1,500 | |||
Cash | 1,500 | |||||
(To record payment of wages and salaries expense) |
Table (8)
Description:
- Salaries and Wages Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction occurred on January 31.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
January | 31 | Cash | 3,000 | |||
Unearned Revenue | 3,000 | |||||
(To record revenue received for future services to be performed) |
Table (9)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Unearned Revenue is a liability account. Since cash received for services to be performed, liability is increased. An increase in liability is credited.
(2)
To open: The T-accounts with balances as on January 1, post the entries recorded in Part (1), and compute the balances as on January 31
Explanation of Solution
T-account: The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.
Open the T-accounts with balances as on January 1, post the entries recorded in Part (1), and compute the balances as on January 31.
Cash | |||
January1 | 3,800 | 4,000 | January 2 |
January 1 | 2,500 | 4,000 | January 6 |
January 5 | 5,000 | 1,500 | January 15 |
January 1 | 1,000 | ||
January 1 | 3,000 | ||
Total | 15,300 | 9,500 | Total |
Balance | $5,800 |
Table (10)
Cash Equivalents | |||
January 1 | 1,500 | 1,000 | January 7 |
Total | 1,500 | 1,000 | Total |
Balance | $500 |
Table (11)
Accounts Receivable | |||
January 1 | 7,000 | 2,500 | January 1 |
Total | 7,000 | 2,500 | Total |
Balance | $4,500 |
Table (12)
Supplies | |||
January 1 | 500 | ||
January 3 | 200 | ||
Balance | $700 |
Table (13)
Prepaid Rent | |||
January 1 | 3,000 | ||
Balance | $3,000 |
Table (14)
Equipment | |||
January 1 | 30,000 | ||
Balance | $30,000 |
Table (15)
Accumulated Depreciation–Equipment | |||
6,000 | January 1 | ||
$6,000 | Balance |
Table (16)
Accounts Payable | |||
January 1 | 4,000 | 8,500 | January 1 |
January 6 | 4,000 | 200 | January 3 |
Total | 8,000 | 8,700 | Total |
$700 | Balance |
Table (17)
Unearned Revenue | |||
January 1 | 4,000 | 4,000 | January 1 |
3,000 | January 31 | ||
Total | 4,000 | 7,000 | Total |
$3,000 | Balance |
Table (18)
Notes Payable | |||
12,000 | January 1 | ||
$12,000 | Balance |
Table (19)
Common Stock | |||
10,000 | January 1 | ||
$10,000 | Balance |
Table (20)
Retained Earnings | |||
10,000 | January 1 | ||
$10,000 | Balance |
Table (21)
Service Revenue | |||
0 | January 1 | ||
4,000 | January 4 | ||
5,000 | January 5 | ||
$9,000 | Balance |
Table (22)
Salaries and Wages Expense | |||
January 1 | 0 | ||
January 15 | 1,500 | ||
Balance | $1,500 |
Table (23)
(3)
To prepare: Bank reconciliation of PR Studio, as at January 31
Explanation of Solution
Bank reconciliation: Bank statement is prepared by bank. The company maintains its own records from its perspective. This is why the cash balance per bank and cash balance per books seldom agree. Bank reconciliation is the statement prepared by company to remove the differences and disagreement between cash balance per bank and cash balance per books.
Prepare bank reconciliation of PR Studio, as at January 31.
PR Studio | ||||
Bank Reconciliation | ||||
January 31 | ||||
Updates to Bank Statement | Updates to Company’s Books | |||
Ending cash balance per bank statement | $6,300 | Ending cash balance per books | $5,800 | |
Additions: | Additions: | |||
Deposits in transit | 3,000 | Interest received | 5 | |
9,300 | 5,805 | |||
Deductions: | Deductions: | |||
Outstanding checks | 4,000 | NSF check | 500 | |
Up-to-date ending cash balance | $5,300 | Bank service charge | 5 | 505 |
Up-to-date ending cash balance | $5,300 |
Table (24)
Description:
- The deposits which are not recorded by the bank are referred to as deposits in transit. Since the deposits in transit are not reflected on the bank statement, the company should add deposits in transit to cash balance per bank, while preparation of bank reconciliation statement.
- Outstanding checks are the checks that are issued by the company, but not yet paid by the bank. When the check is issued for payment, the company deducts the cash balance immediately. But the bank deducts only when the cash is paid for the issued check. So, company deducts the cash balance per bank to remove the differences.
- Interest received is credited by bank to the bank account of which the company is not aware of. So, while preparing bank reconciliation statement, company should add the amount to the cash balance per books.
- While bank reconciliation, the NSF check should be deducted from the cash balance per book. This is because the bank could not collect funds from the customer’s bank due to lack of funds. But being recorded as Accounts Receivable previously, the balance should be deducted from books, to increase the Accounts Receivable account.
- Banks deduct the service charge for the services rendered like lock box rental, or printed checks. But the company is not aware of such deductions. So, company deducts the cash balance per books while bank reconciliation preparation.
(4)
To prepare: Adjusting journal entries for items (10) to (14) that arise due to bank reconciliation, and post the entries into T-accounts
Explanation of Solution
Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
- Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
(10)
Prepare journal entry to record NSF check.
Date | Account Titles and Explanation | Ref. | Debit ($) | Credit ($) | ||
January | 31 | Accounts Receivable | 500 | |||
Cash | 500 | |||||
(To record NSF check) |
Table (25)
Description:
- Accounts Receivable is an asset account. The bank has not collected the amount from the customer due to insufficient funds, which was earlier recorded as a receipt. As the collection could not be made, amount to be received increased. Therefore, increase in asset would be debited.
- Cash is an asset account. The amount is decreased because bank could not collect amount due to insufficient funds in customer’s account, and a decrease in asset is credited.
(11)
Prepare journal entry for the checks written but not cleared by bank.
These are the outstanding checks, which are recorded by the company. So, company does not record it again, but this is an adjustment for bank balance. Hence, no journal entry is required.
(12)
Prepare journal entry for the deposits recorded by company.
These are the checks deposited by company but not recorded by bank, which are recorded by the company. So, company does not record it again, but this is an adjustment for bank balance. Hence, no journal entry is required.
(13)
Prepare journal entry to record interest received.
Date | Account Titles and Explanation | Ref. | Debit ($) | Credit ($) | ||
January | 31 | Cash | 5 | |||
Interest Revenue | 5 | |||||
(To record interest earned) |
Table (26)
Description:
- Cash is an asset account. The amount is increased because credited the interest earned on checking account, and an increase in asset is debited.
- Interest Revenue is a revenue account. Revenuesincrease Equity account and an increase in Equity is credited.
(14)
Prepare journal entry to record bank service charge.
Date | Account Titles and Explanation | Ref. | Debit ($) | Credit ($) | ||
January | 31 | Office Expense | 5 | |||
Cash | 5 | |||||
(To record bank service charge) |
Table (27)
Description:
- Office Expenses is an expense account and the amount is increased because bank has charged service charges. Expenses decrease Equity account and decrease in Equity is debited.
- Cash is an asset account. The amount is decreased because bank service charge is paid, and a decrease in asset is credited.
Prepare T-accounts.
Cash | |||
Balance | $5,800 | ||
January 31 | 5 | 500 | January 31 |
5 | January 31 | ||
Total | 5,805 | 505 | Total |
Balance | $5,300 |
Table (28)
Accounts Receivable | |||
Balance | $4,500 | ||
January 31 | 500 | ||
Balance | $5,000 |
Table (29)
Interest Revenue | |||
0 | January 1 | ||
5 | January 31 | ||
$5 | Balance |
Table (30)
Office Expense | |||
January 1 | 0 | ||
January 31 | 5 | ||
Balance | $5 |
Table (31)
(5)
To journalize: The adjusting entries for the items (19) to (21) as on January 31
Explanation of Solution
Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.
15.
Prepare adjusting entry for the depreciation expense as on January 31.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 31 | Depreciation Expense | 200 | |||
Accumulated Depreciation–Equipment | 200 | |||||
(To record depreciation expense) |
Table (32)
Description:
- Depreciation Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Accumulated Depreciation–Equipment is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.
16.
Prepare adjusting entry for the wages expense as on January 31.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 31 | Salaries and Wages Expense | 1,500 | |||
Salaries and Wages Payable | 1,500 | |||||
(To record accrued expenses) |
Table (33)
Description:
- Salaries and Wages Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Salaries and Wages Payable is a liability account. Since amount of payables has increased, liability decreased, and an increase in liability is credited.
17.
Prepare adjusting entry for the prepaid rent as on January 31.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 31 | Rent Expense | 1,000 | |||
Prepaid Rent | 1,000 | |||||
(To record part of prepaid rent expired) |
Table (34)
Description:
- Rent Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Prepaid Rent is an asset account. Since amount of rent is expired, asset account decreased, and a decrease in asset is credited.
18.
Prepare adjusting entry for the supplies as on January 31.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 31 | Supplies Expense | 200 | |||
Supplies | 100 | |||||
(To record part of supplies consumed) |
Table (35)
Description:
- Supplies Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Supplies is an asset account. Since amount of supplies is used, asset account decreased, and a decrease in asset is credited.
19.
Prepare adjusting entry for the utilities expense as on January 31.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 31 | Utilities Expense | 600 | |||
Accounts Payable | 600 | |||||
(To record accrued expenses) |
Table (36)
Description:
- Utilities Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Accounts Payable is a liability account. Since amount of payables has increased, liability decreased, and an increase in liability is credited.
20.
Prepare adjusting entry for the interest expense as on January 31.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 31 | Interest Expense | 600 | |||
Interest Payable | 600 | |||||
(To record accrued expenses) |
Table (37)
Description:
- Interest Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Interest Payable is a liability account. Since amount of payables has increased, liability decreased, and an increase in liability is credited.
21.
Prepare adjusting entry for the utilities expense as on January 31.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 31 | Income Tax Expense | 600 | |||
Income Tax Payable | 600 | |||||
(To record accrued expenses) |
Table (38)
Description:
- Income Tax Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Income Tax Payable is a liability account. Since amount of payables has increased, liability decreased, and an increase in liability is credited.
(6)
To journalize: Post the adjusted entries into T-accounts, and prepare adjusted trial balance for PR Studio as on January 31
Explanation of Solution
Post the adjusting entries into T-accounts.
Supplies | |||
Balance | 700 | ||
200 | January 31 | ||
Total | 700 | 200 | Total |
Balance | $500 |
Table (39)
Prepaid Rent | |||
Balance | 3,000 | 1,000 | January 31 |
Balance | $2,000 |
Table (40)
Accumulated Depreciation–Equipment | |||
6,000 | Balance | ||
200 | January 31 | ||
$6,200 | Balance |
Table (41)
Interest Payable | |||
60 | January 31 | ||
$60 | Balance |
Table (42)
Income Tax Payable | |||
1,000 | January 31 | ||
$1,000 | Balance |
Table (43)
Salaries and Wages Payable | |||
1,500 | January 31 | ||
$1,500 | Balance |
Table (44)
Accounts Payable | |||
700 | Balance | ||
600 | January 31 | ||
$1,300 | Balance |
Table (45)
Depreciation Expense | |||
January 1 | 0 | ||
January 31 | 200 | ||
Balance | $200 |
Table (46)
Rent Expense | |||
January 1 | 0 | ||
January 31 | 1,000 | ||
Balance | $1,000 |
Table (47)
Supplies Expense | |||
January 1 | 0 | ||
January 31 | 200 | ||
Balance | $200 |
Table (48)
Utilities Expense | |||
January 1 | 0 | ||
January 31 | 600 | ||
Balance | $600 |
Table (49)
Interest Expense | |||
January 1 | 0 | ||
January 31 | 60 | ||
Balance | $60 |
Table (50)
Income Tax Expense | |||
January 1 | 0 | ||
January 31 | 1,000 | ||
Balance | $1,000 |
Table (51)
Salaries and Wages Expense | |||
January 1 | 1,500 | ||
January 31 | 1,500 | ||
Balance | $3,000 |
Table (52)
Adjusted trial balance: It is that statement which shows all the asset, liability, and equity account balances at the year-end, after recording of adjusting entries.
Prepare adjusted trial balance of PR Studio as on January 31.
PR Studio | ||
Adjusted Trial Balance | ||
January 31 | ||
Particulars | Debit $ | Credit $ |
Cash | $5,300 | |
Cash Equivalents | 500 | |
Accounts Receivable | 5,000 | |
Prepaid Rent | 2,000 | |
Supplies | 500 | |
Equipment | 30,000 | |
Accumulated Depreciation - Equipment | 6,200 | |
Accounts Payable | 1,300 | |
Interest Payable | 60 | |
Income Tax Payable | 1,000 | |
Salaries and Wages Payable | 1,500 | |
Unearned Revenue | 3,000 | |
Notes Payable (Long-term) | 12,000 | |
Common Stock | 10,000 | |
Retained Earnings | 5,300 | |
Service Revenue | 9,000 | |
Interest Revenue | 5 | |
Salaries and Wages Expense | 3,000 | |
Rent Expense | 1,000 | |
Income Tax Expense | 1,000 | |
Utilities Expense | 600 | |
Depreciation Expense | 200 | |
Supplies Expense | 200 | |
Interest Expense | 60 | |
Office Expense | 5 | |
Total | $49,365 | $49,365 |
Table (53)
(7)
To prepare: Income statement of PR Studio for the month ended January 31, and classified balance sheet of PR Studio as on January 31
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare income statement for PR Studio for the month ended January 31.
PR Studio | ||
Income Statement | ||
For the Month Ended January 31 | ||
Revenue | ||
Service revenue | $9,000 | |
Interest revenue | 5 | |
Total revenue | $9,005 | |
Expenses | ||
Salaries and wages expense | $3,000 | |
Rent expense | 1,000 | |
Income tax expense | 1,000 | |
Utilities expense | 600 | |
Depreciation expense | 200 | |
Supplies expense | 200 | |
Interest expense | 60 | |
Office expense | 5 | |
Total expenses | 6,065 | |
Net income | $2,940 |
Table (54)
Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.
Prepare classified balance sheet for PR Studio, as at January 31.
PR Studio | ||
Balance Sheet | ||
January 31 | ||
Assets | ||
Current assets | ||
Cash and cash equivalents | $5,800 | |
Accounts receivable | 5,000 | |
Supplies | 500 | |
Prepaid rent | 2,000 | |
Total current assets | $13,300 | |
Property, plant, and equipment | ||
Equipment | 30,000 | |
Less: Accumulated depreciation | 6,200 | 23,800 |
Total assets | $37,100 | |
Liabilities and Stockholders’ Equity | ||
Current liabilities | ||
Accounts payable | $1,300 | |
Interest payable | 60 | |
Income tax payable | 1,000 | |
Salaries and wages payable | 1,500 | |
Unearned revenue | 3,000 | |
Total current liabilities | $6,860 | |
Long-term liabilities | ||
Notes payable | 12,000 | |
Total liabilities | 18,860 | |
Stockholders’ equity | ||
Common stock | 10,000 | |
Retained earnings | 8,240 | |
Total stockholders’ equity | 18,240 | |
Total liabilities and stockholders’ equity | $37,100 |
Table (55)
Working Notes:
Compute retained earnings for the month ended January 31.
Particulars | Amount ($) |
Retained earnings, January 1 | $5,300 |
Add: Net income | 2,940 |
8,240 | |
Less: Dividends | 0 |
Retained earnings, January 31 | $8,240 |
Table (56)
Note: Refer to Table (54) for net income value.
(7)
Explanation of Solution
Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.
Formula of current ratio:
Compute current ratio of PR Studio for the month ended January 31, if current assets are $13,300 and current liabilities are $6,860.
(8)
Explanation of Solution
Net profit margin: This ratio gauges the operating profitability by quantifying the amount of income earned from business operations from the sales generated.
Formula of net profit margin:
Determine the net profit margin for PR Studio for the month ended January 31, if net income is $2,940 and total revenue is $9,005.
Note: Refer to Table (54) for both values.
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Financial Accounting
Financial Accounting (11th Edition)
- The transactions completed by Revere Courier Company during December, the first month of the fiscal year, were as follows: Instructions 1. Enter the following account balances in the general ledger as of December 1: 2. Journalize the transactions for December, using the following journals similar to those illustrated in this chapter: cash receipts journal (p. 31), purchases journal (p. 37, with columns for Accounts Payable, Maintenance Supplies, Office Supplies, and Other Accounts), single-column revenue journal (p. 35), cash payments journal (p. 34), and two-column general journal (p. 1). Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made. 3. Post the appropriate individual entries to the general ledger. 4. Total each of the columns of the special journals and post the appropriate totals to the general ledger; insert the account balances. 5. Prepare a trial balance.arrow_forwardMaddie Inc. has the following transactions for its first month of business. A. What are the individual account balances, and the total balance, in the accounts receivable subsidiary ledger? B. What is the balance in the accounts receivable general ledger (control) account?arrow_forwardCatherines Cookies has a beginning balance in the Accounts Payable control total account of $8,200. In the cash disbursements journal, the Accounts Payable column has total debits of $6,800 for November. The Accounts Payable credit column in the purchases journal reveals a total of $10,500 for the current month. Based on this information, what is the ending balance in the Accounts Payable account in the general ledger?arrow_forward
- Presented below is information related to Ivanhoe Company for its first month of operations. Credit Sales Cash Collections Jan. 7 Austin Co. $12,800 Jan. 17 Austin Co. $7,800 15 Diaz Co. 7,400 24 Diaz Co. 5,000 23 Noble Co. 10,400 29 Noble Co. 10,400 Identify the balances that appear in the accounts receivable subsidiary ledger and the accounts receivable balance that appears in the general ledger at the end of January. Subsidary Ledger General Ledger Austin Co. Diaz Co. Noble Co. Balance of Accounts Receivable $ $ $ $arrow_forwardWeave Company received a bank statement for the month of August. The bank statement showed the following information: Balance 1 August $68,326 Deposits 45,300 Cheques processed (63,222) Service charges (50) Monthly deposit into saving account directly (26,120) Deducted by bank from account (780) Balance, 31st August $49,574 Weave Co’s general ledger account had a balance of $78,304 at the end of August. (i) Deposits shown in the general ledger account but not in the bank amounting to $8,200; (ii) all cheques written by the company were processed by the bank except for those totaling $8,420; (iii) A $2,000 cheque to a supplier correctly recorded by the bank but was incorrectly recorded by the company as $200 credit to cash. Required: 1. Prepare a bank reconciliation statement for the month of August. 2. Prepare the necessary journal entries at the end of August to adjust the general ledger cash account.arrow_forwardIn the process of reconciling its bank statement for April, Donahue Enterprises' accountant compiles the following information: Cash balance per company books on April 30 Deposits in transit at month-end Outstanding checks at month-end Bank charge Note collected by bank on Donahue's behalf A check paid to Donahue during the month by a customer is returned by the bank as NSF The adjusted cash balance per the books on April 30 is: $6,275 $1,300 $ 620 $ 45 $770 $ 480arrow_forward
- The following is information related to Sunland Company for its first month of operations. Credit Sales Cash Collections Jan. 7 15 Austin Co. $11,600 Diaz Co. Jan. 17 Austin Co. $7,500 7,200 24 Diaz Co. 4,500 23 Noble Co. 10,000 29 Noble Co. 10,000 Identify the balances that appear in the accounts receivable subsidiary ledger and the accounts receivable balance that appears in the general ledger at the end of January. Balance of Accounts Receivable $ Austin Co. $ Subsidary Ledger Diaz Co. $ Noble Co. $ General Ledarrow_forwardThe following is information related to Blossom Company for its first month of operations. Jan, 7- 15 23 Credit Sales Austin Co. Diaz Co. Noble Co. $11,800 7,300 11,100 Balance of Accounts Receivable Jan. 17 24 Austin Co. 29 Cash Collections Austin Co. Diaz Co. Noble Co. $7,900 4,900 Identify the balances that appear in the accounts receivable subsidiary ledger and the accounts receivable balance that appears in the general ledger at the end of January. 11.100 Subsidary Ledger Diaz Co, $ Noble Co. General Ledarrow_forwardAt November 30, One Day Cleaners has available the following data concerning its bank checking account: PROBLEM 7A-2 Preparing a Bank Reconcil- 1 At November 30, cash per the bank statement was $37,758; per the accounting records, $42,500. lation 2 The cash receipts of $6,244 on November 30 were deposited on December 1. 3 Included on the bank statement was a credit for $167 interest earned on this checking account during November. 4 Two checks were outstanding at November 30: no. 921 for $964 and no. 925 for $1,085. 5 Enclosed with the bank statement were two debit memoranda for the following items: service charge for November, $14; and a $700 check of customer Tanya Miller, marked "NSF." INSTRUCTIONS a Prepare a bank reconciliation at November 30. b Prepare adjusting entries (in general journal form) based on the bank reconcili- ation.arrow_forward
- In the process of your examination of the financial statements of the Malu-oy Company for the year ended December 31, 20X6, you obtained the following data on its current account. The bank statement on November 30, 20X6 showed a balance of P76,500. Among the bank credits in November was a customer’s note for P25,000 collected for the account of the company which the company recognized in December among its receipts. Included on the bank debits were cost of checkbooks amounting to P300 and a P10,000 check which was charged by the bank in error against Malu-oy Company account. Also in November, you ascertained that there were deposits in transit amounting to P20,000 and outstanding checks totaling P42,500. The bank statement for the month of December showed total credit of P104,000 and total charges of P51,000. The company’s books for December showed total receipts of P183,900, disbursements of P101,800 and a balance of P121,400. Bank debit memos for December were: No. 14334 for service…arrow_forwardDirection: Compute for Deposits in Transits and Outstanding Checks. After which, prepare the bank reconciliation of Astro Merchandising for the month of January.arrow_forwardHenry Inc. is preparing the monthly bank reconciliation of its checking account balance for the month of October.The bank statement indicates the following:Bank Statement balance, beginning of the month: $ 15,640Service charge for October $ 65Interest earned during October $ 80NSF check for goods purchased on account $ 615The company's records indicates the following:Company statement account balance $ 15,526Outstanding checks as of October 31 $ 1,410Deposit in transit as of October 31 $ 750Error in recording a check Issued by Henry Inc. Check was recorded as $660 by the company but correct amount of the check is $6061. Complete the reconciliation by adjusting the bank's end of period balance. List the name of each adjustment, the value on theadjustment (in a separate cell), and then calculated the new adjusted balance. 2. Complete the reconciliation by adjusting the company's end of period balance. List the name of each adjustment, the value onthe adjustment (in a separate cell), and…arrow_forward
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