CHAPTER 4 COMPLETING THE ACCOUNTING CYCLE · how they implement the steps in the accounting cycle. For example, while most companies use computerized accounting systems, some companies

4-1© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1. The end-of-period spreadsheet illustrates the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and into the financial statements. In doing so, the spreadsheet illustrates the impact of the adjustments on the financial statements.

2. a. Current assets are composed of cash and other assets that may reasonably be expectedto be realized in cash or sold or used up, usually within one year or less, through the normaloperations of the business.

b. Property, plant, and equipment is composed of assets that are used in the business and that are of a permanent or relatively fixed nature.

3. Current liabilities are liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets. Liabilities that will not be due for a comparatively long time (usually more than one year) are called non-current liabilities.

4. Revenue, expense, and dividends accounts are generally referred to as temporary accounts.

5. Closing entries are necessary at the end of an accounting period (1) to transfer the balances intemporary accounts to permanent accounts and (2) to prepare the temporary accounts for use inrecording transactions for the next accounting period.

6. Adjusting entries bring the accounts up to date, while closing entries reduce the revenue, expense, and dividends accounts to zero balances for use in recording transactions for the next accounting period.

7. The purpose of the post-closing trial balance is to make sure that the ledger is in balance at thebeginning of the next period.

8. a. The financial statements are the most important output of the accounting cycle.

b. Yes, all companies have an accounting cycle that begins with analyzing and journalizing transactions and ends with a post-closing trial balance. However, companies may differ in how they implement the steps in the accounting cycle. For example, while most companies use computerized accounting systems, some companies may use manual systems.

9. The natural business year is the fiscal year that ends when business activities have reached the lowest point in the annual operating cycle.

10. All the companies listed are general merchandisers whose busiest time of the year is during the holiday season, which extends through most of December. Traditionally, the lowest point of business activity for general merchandisers will be near the end of January and the beginning of February. Thus, these companies have chosen their natural business year for their fiscal year.

CHAPTER 4COMPLETING THE ACCOUNTING CYCLE

DISCUSSION QUESTIONS

CHAPTER 4 Completing the Accounting Cycle


11. The presentation of financial statements started from IAS 1 Accounting Disclosure Policy (1975), IAS 5Information to Be Disclosed in Financial Statements (1976), IAS 13 Presentation of Current Assets andCurrent Liabilities (1979). Subsequently, IAS 1, IAS 5, and IAS 13 were reformatted in 1994 andsuperseded by IAS 1 Presentation of Financial Statements superseded in 1997. In subsequent years,numerous amendments were made to IAS 1, including new disclosure requirements for puttable instruments and obligations arising on liquidation, classification of derivatives as current or non-current, classification of liabilities as current and presentation of comprehensive income.

12. The IFRS Framework describes the basic concepts underlying the preparation and presentation of financialstatements for external users. Its purpose is to provide guidance for developing future IFRSs andresolv-ing accounting issues that are not addressed directly in IFRSs. When developing and applyingaccounting policies, management should follow the framework and use its judgment to provide relevantand reliable information. In making the judgment, management must refer to, and consider theapplicability of the following sources in descending order:

• the requirements and guidance in IASB standards and interpretations dealing with similar and relatedissues; and• the definitions, recognition criteria and measurement concepts for assets, liabilities, income, and expensesin the Framework. [IAS 8.11]Management may also consider the most recent pronouncements of other standard-setting bodies thatuse a similar conceptual framework to develop accounting standards, other accounting literature, and acceptedindustry practices, to the extent that these do not conflict with the sources in paragraph 11. [IAS8.12]

13. In June 2011, the FASB and IASB issued separate amendments to their respective guidance on the presentationof comprehensive income that were convergent in many, but not all respects—Accounting StandardsUpdate No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (the FASB)and Presentation of Items of Other Comprehensive Income (Amendments to IAS 1, the IASB). Both boardsagreed that items of other comprehensive income need to be more prominently presented and decided topermit the option to present the components of comprehensive income in one or two statements.To increase the prominence of items reported in OCI and to facilitate convergence of U.S. GAAP andIFRS, the FASB decided to eliminate the option to present components of other comprehensive income aspart of the statement of changes in equity in this update.

14. Under IFRS, a complete set of financial statements comprises includes:1. a statement of financial position as of the end of the period;2. a statement of comprehensive income for the period;3. a statement of changes in equity for the period;4. a statement of cash flows for the period;5. a statement of financial position as at the beginning of the earliest comparative periodwhen an entity applies an accounting policy retrospectively or makes a retrospectiverestatement of items in its financial statements, or when it reclassifies items in itsfinancial statements; and6. notes, comprising a summary of significant accounting policies and other explanatoryinformation.



Ex. 4–11. Statement of comprehensive income: 5, 8, 92. Retained earnings statement: 43. Statement of financial position: 1, 2, 3, 6, 7, 10

Ex. 4–2a. Asset: 1, 2, 5, 6, 10b. Liability: 9, 12c. Revenue: 3, 7d. Expense: 4, 8, 11

EXERCISES



Ex. 4–3

Fees earned $175,200Expenses:

Salary expense $70,500Supplies expense 6,000Depreciation expense 4,800Miscellaneous expense 7,400

Total expenses 88,700Net profit $ 86,500

Retained earnings, June 1, 2013 $ 80,400Net profit $86,500Less dividends 12,000Increase in retained earnings 74,500Retained earnings, May 31, 2014 $154,900

Non-current assets: Equity: Property, plant, and equipment: Share capital-ordinary $ 10,000

Office equipment $74,000 Retained earnings 154,900 Less accum. depr. 14,800 Total equity $164,900

Total non-current assets $59,200 Current assets: Current liabilities:

Supplies $ 3,600 Accounts payable $ 24,400 Accounts receivable 90,000 Salaries payable 1,500 Cash 38,000 Total liabilities 25,900

Total current assets 131,600 Total equity and liabilities $190,800 Total assets $190,800

For the Year Ended May 31, 2014

HOLISM CONSULTINGStatement of Financial Position

May 31, 2014Assets Equity and Liabilities

HOLISM CONSULTINGStatement of Comprehensive Income

For the Year Ended May 31, 2014

HOLISM CONSULTINGRetained Earnings Statement



Ex. 4–4


Salary expense $32,450Supplies expense 1,800Depreciation expense 750Miscellaneous expense 1,500

Total expenses 36,500Net profit $23,500

Retained earnings, capital, May 1, 2013 $52,200Net profit $23,500Less dividends 2,000Increase in retained earnings 21,500Retained earnings, April 30, 2014 $73,700

Non-current assets: Equity: Property, plant, and equipment: Share capital-ordinary $30,000

Office equipment $30,500 Retained earnings 73,700 Less accum. depr. 5,250 Total equity $103,700

Total non-current assets $25,250 Current assets: Current liabilities:

Supplies $ 1,200 Accounts payable $ 3,300 Accounts receivable 53,500 Salaries payable 450 Cash 27,500 Total liabilities 3,750

Total current assets 82,200 Total equity and libilities $107,450 Total assets $107,450

OLYMPIA CONSULTINGStatement of Financial Position

April 30, 2014Assets Equity and Liabilities

OLYMPIA CONSULTINGStatement of Comprehensive Income

For the Year Ended April 30, 2014

OLYMPIA CONSULTINGRetained Earnings Statement




Ex. 4–5


Salaries expense $265,150Rent expense 36,000Utilities expense 28,500Depreciation expense 7,250Supplies expense 2,200Insurance expense 1,200Miscellaneous expense 7,100


Ex. 4–6

Service revenue $270,900Expenses:

Wages expense $213,100Rent expense 42,000Utilities expense 17,600Depreciation expense 9,000Insurance expense 4,000Supplies expense 3,000Miscellaneous expense 6,000

Total expenses 294,700Net loss $ (23,800)

Statement of Comprehensive IncomeFor the Year Ended February 28, 2014

SHANGHAI MESSENGER SERVICEStatement of Comprehensive Income

For the Year Ended September 30, 2014

VEGGIE HEALTH SERVICES CO.



Ex. 4–7

a.

Revenues $39,304Expenses:

Salaries and employee benefits $15,276Purchased transportation 5,674Fuel 4,151Rentals and landing fees 2,462Maintenance and repairs 1,979Depreciation 1,973Provision for income taxes 813Other expense (income) net 5,524


b. The statement of comprehensive incomes are very similar. The actual statementincludes some additional expense and income classifications. For example,the actual statement reports Income Before Income Taxes and Provision forIncome Taxes separately. In addition, the "Other expense (income) net" in thetext is a summary of several items from the Web site, includingIntercompany charges, Interest expense, and Interest income.

Ex. 4–8

Retained earnings, November 1, 2013 $475,000Net profit $90,000Less dividends 48,000Increase in retained earnings 42,000Retained earnings, October 31, 2014 $517,000

WELL SYSTEMS CO.Retained Earnings Statement

For the Year Ended October 31, 2014

FEDEX CORPORATIONStatement of Comprehensive Income

(in millions)For the Year Ended May 31, 2011



Ex. 4–9

Retained earnings, July 1, 2013 $115,800Net loss $20,900Plus dividends 24,000Decrease in retained earnings 44,900Retained earnings, June 30, 2014 $ 70,900

Ex. 4–10a. Current asset: 1, 3, 5, 6b. Property, plant, and equipment: 2, 4

Ex. 4–11Since current liabilities are usually due within one year, $15,000 ($1,250 × 12 months) would be reported as a current liability on the statement of financial position.The remainder of $360,000 ($375,000 – $15,000) would be reported as a non-current liability on the statement of financial position.

WEIRD SPORTSRetained Earnings Statement

For the Year Ended June 30, 2014



Ex. 4–12

Non-current assets: Equity: Property, plant, and equipment: Share capital—ordinary $100,000

Land $290,000 Retained earnings 509,000Equipment $300,000 Total equity $609,000Less accumulated depreciation 103,300 196,700

Total non-current assets $486,700 Current liabilities:Current assets: Accounts payable $ 18,500

Prepaid rent $ 18,000 Salaries payable 8,500Prepaid insurance 19,200 Unearned fees 9,000Supplies 5,350 Total liabilities 36,000Accounts receivable 78,250 Total equity and liabilities $645,000Cash* 37,500

Total current assets 158,300 Total assets $645,000

*$37,500 = $645,000 – $486,700 – $18,000 – $19,200 – $5,350 – $78,250

LABRADOR WEIGHT LOSS CO.Statement of Financial Position

June 30, 2014Assets Equity and Liabilities



Ex. 4–131. The date of the statement should be "August 31, 2014" and not "For the Year

Ended August 31, 2014."

2. Accounts payable should be a current liability.

3. Land should be classified as property, plant, and equipment.

4. "Accumulated depreciation" should be deducted from the related property, plant, and equipment.

5. An adding error was made in determining the amount of the total property, plant, and equipment.

6. Accounts receivable should be a current asset.7. Net profit should be reported on the statement of comprehensive income

and retained earnings statement.

8. Wages payable should be a current liability.

A corrected statement of financial position would be as follows:



Ex. 4–13 (Concluded)

Non-current assets: Equity: Property, plant, and equipment: Share capital—ordinary $ 75,000

Land $225,000 Retained earnings 512,200Building $400,000 Total equity $587,200Less accumulated depreciation 155,000 245,000Equipment $ 97,000 Current liabilities:Less accumulated depreciation 25,000 72,000 Accounts payable $ 31,300

Total non-current assets 542,000$ Wages payable 6,500Current assets: Total liabilities 37,800

Prepaid insurance $16,600 Total equity and liabilities $625,000Supplies 6,500Accounts receivable 41,400Cash 18,500


LABYRINTH SERVICES CO.Statement of Financial Position

August 31, 2014Assets Equity and Liabilities



Ex. 4–14d. Depreciation Expense—Equipment

g. Fees Earned

j. Supplies Expense

k. Wages Expense

Note: Dividends is closed to Retained Earnings rather than to Income Summary.

Ex. 4–15The income summary account is used to close the revenue and expense accounts, and it aids in detecting and correcting errors. The $1,190,500 represents expenseaccount balances, and the $1,476,300 represents revenue account balances thathave been closed. In this case, the company had net profit of $285,800 ($1,476,300 – $1,190,500).

Ex. 4–16

a. Income Summary 122,650Retained Earnings 122,650

($613,400 – $490,750).

Retained Earnings 55,000Dividends 55,000

b. $901,250 ($833,600 + $122,650 – $55,000)

Ex. 4–17

July 31 Fees Earned 337,900Income Summary 337,900

31 Income Summary 362,000Wages Expense 277,500Rent Expense 54,000Supplies Expense 14,300Miscellaneous Expense 16,200

31 Retained Earnings 24,100Income Summary 24,100

31 Retained Earnings 45,000Dividends 45,000

Closing Entries



Ex. 4–18a. Accounts Payableb. Accumulated Depreciationc. Share capital—ordinaryd. Cashh. Office Equipmentj. Salaries Payablek. Supplies

Ex. 4–19

Debit CreditBalances Balances

Cash 21,350Accounts Receivable 56,700Supplies 7,500Equipment 74,450Accumulated Depreciation—Equipment 12,400Accounts Payable 29,600Salaries Payable 3,200Unearned Rent 11,000Share capital—ordinary 25,000Retained Earnings 78,800

160,000 160,000

Ex. 4–201. h 6. d2. g 7. b3. f 8. a4. c 9. e5. i 10. j

IGLOO TREASURES CO.Post-Closing Trial Balance

January 31, 2014



Ex. 4–21a.

Current assets……………Current liabilitites…………Working capital……………

Current ratio………………

b. Under Armour’s working capital increased by $78,865 ($406,703 – $327,838)during Year 2. The current ratio remained the same at 3.73 in Year 1 and Year 2. A current ratio of 3.73 indicates a strong solvency position. Thus, short-term creditors should not be concerned about receiving payment from Under Armour.

Ex. 4–22a.

Current assets……………Current liabilitites…………Working capital……………

Current ratio………………

b. Starbucks' working capital improved (increased) from Year 1 to Year 2 by $522,500 ($977,300 – $454,800). Starbucks' current ratio also improved(increased) from 1.29 in Year 1 to 1.55 in Year 2. The improved working capitaland current ratio indicate that short-term creditors should not be concernedabout receiving payment from Starbucks.

Appendix Ex. 4–231. i 6. f2. a 7. j3. g 8. e4. d 9. h5. c 10. b

($2,035,800 ÷ $1,581,000)

$ 977,300 $ 454,800

1.55 1.29

December 31

Year 2 Year 1

3.73($555,850 ÷ $149,147)

Year 1Year 2$555,850149,147

$406,703

$2,756,400 $2,035,800

$448,000120,162

1,779,100 1,581,000

($2,756,400 ÷ $1,779,100)

$327,838

3.73($448,000 ÷ $120,162)



Appendix Ex. 4–24

Account Title Debit Credit Debit Credit Cash 12 12 Accounts Receivable 90 (a) 13 103 Supplies 8 (b) 4 4 Prepaid Insurance 12 (c) 10 2 Land 190 190 Equipment 50 50 Accum. Depr.—Equipment 4 (d) 3 7 Accounts Payable 36 36 Wages Payable 0 (e) 1 1 Share Capital—Ordinary 50 50 Retained Earnings 210 210 Dividends 8 8 Fees Earned 200 (a) 13 213 Wages Expense 110 (e) 1 111 Rent Expense 12 12 Insurance Expense 0 (c) 10 10 Utilities Expense 6 6 Supplies Expense 0 (b) 4 4 Depreciation Expense 0 (d) 3 3 Miscellaneous Expense 2 2 Totals 500 500 31 31 517 517

Debit CreditTrial Balance Adjustments Trial Balance

ALERT SECURITY SERVICES CO.End-of-Period Spreadsheet (Work Sheet)

For the Year Ended October 31, 2014Unadjusted Adjusted



Appendix Ex. 4–25

Account Title Debit Credit Debit Credit Cash 12 12 Accounts Receivable 103 103 Supplies 4 4 Prepaid Insurance 2 2 Land 190 190 Equipment 50 50 Accum. Depr.—Equipment 7 7 Accounts Payable 36 36 Wages Payable 1 1 Share Capital—Ordinary 50 50 Retained Earnings 210 210 Dividends 8 8 Fees Earned 213 213 Wages Expense 111 111 Rent Expense 12 12 Insurance Expense 10 10 Utilities Expense 6 6 Supplies Expense 4 4 Depreciation Expense 3 3 Miscellaneous Expense 2 2 Totals 517 517 148 213 369 304 Net profit (loss) 65 65

213 213 369 369

Statement of

Debit CreditTrial Balance Comprehensive Income Financial Position

ALERT SECURITY SERVICES CO.End-of-Period Spreadsheet (Work Sheet)

For the Year Ended October 31, 2014Adjusted Statement of



Appendix Ex. 4–26

Fees earned $213Expenses:

Wages expense $111Rent expense 12Insurance expense 10Utilities expense 6Supplies expense 4Depreciation expense 3Miscellaneous expense 2

Total expenses 148Net profit $ 65

Retained earnings, November 1, 2013 $210Net profit $65Less dividends 8Increase in retained earnings 57Retained earnings, October 31, 2014 $267

Retained Earnings StatementFor the Year Ended October 31, 2014

ALERT SECURITY SERVICES CO.Statement of Comprehensive IncomeFor the Year Ended October 31, 2014

ALERT SECURITY SERVICES CO.



Appendix Ex. 4–26 (Concluded)

Non-current assets: Equity: Property, plant, and equipment: Share capital-ordinary $ 50

Land $190 Retained earnings 267Equipment $50 Total equity $317Less accumulated depreciation 7 43

Total non-current assets $233 Current liabilities:Current assets: Accounts payable $ 36

Prepaid insurance $2 Wages payable 1Supplies 4 Total liabilities 37 Accounts receivable 103 Total equity and liabilities $354Cash 12

Total current assets 121 Total assets $354

ALERT SECURITY SERVICES CO.Statement of Financial Position

October 31, 2014Assets Equity and Liabilities



Appendix Ex. 4–27

2014 Oct. 31 Accounts Receivable 13

Fees Earned 13Accrued fees.

31 Supplies Expense 4Supplies 4

Supplies used ($8 – $4).

31 Insurance Expense 10Prepaid Insurance 10

Insurance expired.

31 Depreciation Expense 3Accumulated Depreciation—Equipment 3

Equipment depreciation.

31 Wages Expense 1Wages Payable 1

Accrued wages.

Appendix Ex. 4–28

2014 Oct. 31 Fees Earned 213

Income Summary 213

31 Income Summary 148Wages Expense 111Rent Expense 12Insurance Expense 10Utilities Expense 6Supplies Expense 4Depreciation Expense 3Miscellaneous Expense 2

31 Income Summary 65Retained Earnings 65

31 Retained Earnings 8Dividends 8

Adjusting Entries

Closing Entries



Prob. 4–1A

1.

Fees earned $368,100Rent revenue 1,000

Total revenues $369,100Expenses:

Salaries and wages expense $164,900Advertising expense 21,700Utilities expense 11,400Repairs expense 8,850Depreciation expense—equipment 4,200Insurance expense 2,500Supplies expense 1,830Depreciation expense—building 1,600Miscellaneous expense 4,320


2.

Retained earnings, August 1, 2013 $128,100Net profit for the year $147,800Less dividends 10,000Increase in retained earnings 137,800Retained earnings, July 31, 2014 $265,900

PROBLEMS

WATCHDOG COMPANYRetained Earnings Statement

For the Year Ended July 31, 2014

WATCHDOG COMPANYStatement of Comprehensive Income

For the Year Ended July 31, 2014



Prob. 4–1A (Continued)

3.

Non-current assets: Equity:Property, plant, and equipment: Share capital-ordinary $ 75,000

Land $ 98,000 Retained earnings 265,900Building $400,000 Total equity $340,900Less accumulated depreciation 206,900 193,100Equipment $101,000 Current liabilities:Less accumulated depreciation 89,300 11,700 Accounts payable $ 15,700

Total non-current assets $ 302,800 Salaries and wages payable 1,800Current assets: Unearned rent 1,100

Prepaid insurance $ 1,700 Total liabilities 18,600 Supplies 900 Total equity and liabilites $359,500Accounts receivable 43,300Cash 10,800


WATCHDOG COMPANYStatement of Financial Position

July 31, 2014Assets Equity and Liabilities



Prob. 4–1A (Concluded)

4. 2014 July 31 Fees Earned 368,100

Rent Revenue 1,000Income Summary 369,100

31 Income Summary 221,300Salaries and Wages Expense 164,900Advertising Expense 21,700Utilities Expense 11,400Repairs Expense 8,850Depreciation Expense—Equipment 4,200Insurance Expense 2,500Supplies Expense 1,830Depreciation Expense—Building 1,600Miscellaneous Expense 4,320

31 Income Summary 147,800Retained Earnings 147,800


5.


Cash 10,800Accounts Receivable 43,300Prepaid Insurance 1,700Supplies 900Land 98,000Building 400,000Accumulated Depreciation—Building 206,900Equipment 101,000Accumulated Depreciation—Equipment 89,300Accounts Payable 15,700Salaries and Wages Payable 1,800Unearned Rent 1,100Share Capital—Ordinary 75,000Retained Earnings 265,900

655,700 655,700

WATCHDOG COMPANYPost-Closing Trial Balance

July 31, 2014

Closing Entries


4-23© 2012 4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Prob. 4–2A

1.

Revenues:Service fees $480,000Rent revenue 25,000


Salaries expense $336,000Rent expense 62,500Supplies expense 12,000Depreciation expense—building 6,000Utilities expense 4,400Repairs expense 3,200Insurance expense 2,800Miscellaneous expense 5,100


Retained earnings, May 1, 2013 $144,300Net profit for the year $73,000Less dividends 10,000Increase in retained earnings 63,000Retained earnings, April 30, 2014 $207,300

IRONSIDE SECURITY SERVICESRetained Earnings Statement


IRONSIDE SECURITY SERVICESStatement of Comprehensive Income





Non-current assets: Equity:Property, plant, and equipment: Share capital-ordinary $ 35,000

Building $240,500 Retained earnings 207,300Less accum. depreciation 55,200 Total equity 242,300$

Total non-current assets $185,300Current assets: Current liabilities:

Prepaid insurance $ 4,800 Accounts payable $ 6,000Supplies 7,500 Salaries payable 1,500Accounts receivable 37,200 Unearned rent 3,000Cash 18,000 Total liabilities 10,500

Total current assets 67,500 Total assets $252,800 Total equity and liabilities $252,800

IRONSIDE SECURITY SERVICESStatement of Financial Position





2. 2014 Apr. 30 Service Fees 480,000


30 Income Summary 432,000Salaries Expense 336,000Rent Expense 62,500Supplies Expense 12,000Depreciation Expense—Building 6,000Utilities Expense 4,400Repairs Expense 3,200Insurance Expense 2,800Miscellaneous Expense 5,100



3. $37,500 ($47,500 – $10,000) net loss. The $47,500 decrease is caused by the $10,000 dividends and a $37,500 net loss.

Closing Entries



Prob. 4–3A 1., 3., and 6.

June 30 Bal. 11,000

June 30 Bal. 21,500 June 30 Adj. 17,90030 Adj. Bal. 3,600

June 30 Bal. 9,600 June 30 Adj. 5,70030 Adj. Bal. 3,900

June 30 Bal. 232,600

June 30 Bal. 125,40030 Adj. 6,50030 Adj. Bal. 131,900

June 30 Bal. 11,800

June 30 Adj. 1,100

June 30 Bal. 40,000

June 30 Clos. 10,000 June 30 Bal. 65,60030 Clos. 10,70030 Bal. 66,300

June 30 Bal. 10,000 June 30 Clos. 10,000

Cash

Laundry Supplies

Prepaid Insurance

Laundry Equipment

Dividends

Accumulated Depreciation

Accounts Payable

Share Capital—Ordinary

Retained Earnings

Wages Payable




June 30 Clos. 221,500 June 30 Clos. 232,200Clos. 10,700

June 30 Clos. 232,200 June 30 Bal. 232,200

June 30 Bal. 125,200 June 30 Clos. 126,30030 Adj. 1,10030 Adj. Bal. 126,300



June 30 Adj. 17,900 June 30 Clos. 17,900




Wages Expense

Rent Expense

Utilities Expense

Income Summary

Laundry Revenue

Laundry Supplies Expense

Depreciation Expense

Insurance Expense

Miscellaneous Expense



Prob. 4–3A (Continued)2. Optional (Appendix)

Account Title Debit Credit Debit Credit Debit Credit Debit CreditCash 11,000 11,000 11,000Laundry Supplies 21,500 (a) 17,900 3,600 3,600Prepaid Insurance 9,600 (b) 5,700 3,900 3,900Laundry Equipment 232,600 232,600 232,600Accum. Depreciation 125,400 (c) 6,500 131,900 131,900Accounts Payable 11,800 11,800 11,800Wages Payable (d) 1,100 1,100 1,100Share Capital—Ordinary 40,000 40,000 40,000Retained Earnings 65,600 65,600 65,600Dividends 10,000 10,000 10,000Laundry Revenue 232,200 232,200 232,200Wages Expense 125,200 (d) 1,100 126,300 126,300Rent Expense 40,000 40,000 40,000Utilities Expense 19,700 19,700 19,700Laundry Supplies Exp. (a) 17,900 17,900 17,900Depreciation Expense (c) 6,500 6,500 6,500Insurance Expense (b) 5,700 5,700 5,700Miscellaneous Expense 5,400 5,400 5,400

475,000 475,000 31,200 31,200 482,600 482,600 221,500 232,200 261,100 250,400Net profit 10,700 10,700

232,200 232,200 261,100 261,100

EPICENTER LAUNDRYEnd-of-Period Spreadsheet (Work Sheet)

For the Year Ended June 30, 2014Statement ofUnadjusted Adjusted

Financial PositionTrial BalanceDebit Credit

Trial BalanceStatement of

Comprehensive IncomeAdjustments




3. 2014 June 30 Laundry Supplies Expense 17,900

Laundry Supplies 17,900Supplies used ($21,500 – $3,600).

30 Insurance Expense 5,700Prepaid Insurance 5,700

Insurance expired.

30 Depreciation Expense 6,500Accumulated Depreciation 6,500


30 Wages Expense 1,100Wages Payable 1,100

Accrued wages.

4.


Cash 11,000Laundry Supplies 3,600Prepaid Insurance 3,900Laundry Equipment 232,600Accumulated Depreciation 131,900Accounts Payable 11,800Wages Payable 1,100Share Capital—Ordinary 40,000Retained Earnings 65,600Dividends 10,000Laundry Revenue 232,200Wages Expense 126,300Rent Expense 40,000Utilities Expense 19,700Laundry Supplies Expense 17,900Depreciation Expense 6,500Insurance Expense 5,700Miscellaneous Expense 5,400

482,600 482,600

EPICENTER LAUNDRYAdjusted Trial Balance

June 30, 2014

Adjusting Entries




5.

Laundry revenue $232,200Expenses:

Wages expense $126,300Rent expense 40,000Utilities expense 19,700Laundry supplies expense 17,900Depreciation expense 6,500Insurance expense 5,700Miscellaneous expense 5,400


Retained earnings, July 1, 2013 $65,600Net profit for the year $10,700Less dividends 10,000Increase in retained earnings 700Retained earnings, June 30, 2014 $66,300

Retained Earnings StatementFor the Year Ended June 30, 2014

EPICENTER LAUNDRYStatement of Comprehensive Income


EPICENTER LAUNDRY




Non-current assets: Equity: Property, plant, and equipment: Share capital—ordinary $40,000

Laundry equipment $232,600 Retained earnings 66,300Less accum. depreciation 131,900 Total equity $106,300


Prepaid insurance $ 3,900 Accounts payable $11,800Laundry supplies 3,600 Wages payable 1,100Cash 11,000 Total liabilities 12,900


EPICENTER LAUNDRYStatement of Financial Position





6. 2014 June 30 Laundry Revenue 232,200

Income Summary 232,200

30 Income Summary 221,500Wages Expense 126,300Rent Expense 40,000Utilities Expense 19,700Laundry Supplies Expense 17,900Depreciation Expense 6,500Insurance Expense 5,700Miscellaneous Expense 5,400



7.


Cash 11,000Laundry Supplies 3,600Prepaid Insurance 3,900Laundry Equipment 232,600Accumulated Depreciation 131,900Accounts Payable 11,800Wages Payable 1,100Share Capital—Ordinary 40,000Retained Earnings 66,300

251,100 251,100

EPICENTER LAUNDRYPost-Closing Trial Balance

June 30, 2014

Closing Entries



Prob. 4–4A1., 3., and 6.

Account No. 11

Post.Item Ref. Debit Credit Debit Credit

2014 Mar. 31 Balance 12,000

Account No. 13


2014 Mar. 31 Balance 30,000

31 Adjusting 26 22,500 7,500

Account No. 14


2014 Mar. 31 Balance 3,600

31 Adjusting 26 1,800 1,800

Account No. 16


2014 Mar. 31 Balance 110,000

Account No. 17


2014 Mar. 31 Balance 25,000

31 Adjusting 26 8,350 33,350

Account No. 18


2014 Mar. 31 Balance 60,000

Account: Equipment

BalanceDate

CashAccount:

Account: Supplies

BalanceDate

DateBalance

BalanceDate

BalanceDate

Account: Prepaid Insurance

Account: Accumulated Depreciation—Equipment

BalanceDate

Account: Trucks




Account No. 19


2014 Mar. 31 Balance 15,000

31 Adjusting 26 6,200 21,200

Account No. 21


2014 Mar. 31 Balance 4,000

Account No. 22


2014 Mar. 31 Adjusting 26 600 600

Account No. 31


2014 Mar. 31 Balance 26,000

Account No. 32


2014 Mar. 31 Balance 70,000

31 Closing 27 51,150 121,15031 Closing 27 15,000 106,150

Account No. 33


2014 Mar. 31 Balance 15,000

31 Closing 27 15,000 — —

BalanceDate

Accumulated Depreciation—TrucksAccount:

Account: Accounts Payable

BalanceDate

DateBalance

BalanceDate

Account: Wages Payable

Account: Share Capital—Ordinary

BalanceDate

Account: Retained Earnings

BalanceDate

Account: Dividends




Account No. 34


2014 Mar. 31 Closing 27 160,000 160,000

31 Closing 27 108,850 51,15031 Closing 27 51,150 — —

Account No. 41


2014 Mar. 31 Balance 160,000

31 Closing 27 160,000 — —

Account No. 51


2014 Mar. 31 Balance 45,000

31 Adjusting 26 600 45,60031 Closing 27 45,600 — —

Account No. 52


2014 Mar. 31 Adjusting 26 22,500 22,500

31 Closing 27 22,500 — —

Account No. 53


2014 Mar. 31 Balance 10,600

31 Closing 27 10,600 — —

BalanceDate

Account: Rent Expense

Account: Wages Expense

BalanceDate

Account: Supplies Expense

DateBalance

Income SummaryAccount:

BalanceDate

Account: Service Revenue

BalanceDate




Account No. 54


2014 Mar. 31 Balance 9,000

31 Closing 27 9,000 — —

Account No. 55


2014 Mar. 31 Adjusting 26 8,350 8,350

31 Closing 27 8,350 — —

Account No. 56


2014 Mar. 31 Adjusting 26 6,200 6,200

31 Closing 27 6,200 — —

Account No. 57


2014 Mar. 31 Adjusting 26 1,800 1,800

31 Closing 27 1,800 — —

Account No. 59


2014 Mar. 31 Balance 4,800

31 Closing 27 4,800 — —

BalanceDate

Account: Miscellaneous Expense

BalanceDate

Truck ExpenseAccount:

Account: Depreciation Expense—Trucks

Account: Depreciation Expense—Equipment

Date

Account: Insurance Expense

DateBalance

Balance

BalanceDate




Account Title Debit Credit Debit Credit Debit Credit Debit CreditCash 12,000 12,000 12,000Supplies 30,000 (a) 22,500 7,500 7,500Prepaid Insurance 3,600 (b) 1,800 1,800 1,800Equipment 110,000 110,000 110,000Accum. Depr.—Equip. 25,000 (c) 8,350 33,350 33,350Trucks 60,000 60,000 60,000Accum. Depr.—Trucks 15,000 (d) 6,200 21,200 21,200Accounts Payable 4,000 4,000 4,000Wages Payable (e) 600 600 600Share Capital—Ordinary 26,000 26,000 26,000Retained Earnings 70,000 70,000 70,000Dividends 15,000 15,000 15,000Service Revenue 160,000 160,000 160,000Wages Expense 45,000 (e) 600 45,600 45,600Supplies Expense (a) 22,500 22,500 22,500Rent Expense 10,600 10,600 10,600Truck Expense 9,000 9,000 9,000Depr. Exp.—Equipment (c) 8,350 8,350 8,350Depr. Exp.—Trucks (d) 6,200 6,200 6,200Insurance Expense (b) 1,800 1,800 1,800Miscellaneous Expense 4,800 4,800 4,800

300,000 300,000 39,450 39,450 315,150 315,150 108,850 160,000 206,300 155,150Net profit 51,150 51,150

160,000 160,000 206,300 206,300

LAKOTA FREIGHT CO.End-of-Period Spreadsheet (Work Sheet)

For the Year Ended March 31, 2014Statement ofUnadjusted Adjusted

Financail PositionTrial BalanceDebit Credit





Prob. 4–4A (Continued)3. Page 26

Post.Ref. Debit Credit

2014 Mar. 31 Supplies Expense 52 22,500

Supplies 13 22,500Supplies used ($30,000 – $7,500).

31 Insurance Expense 57 1,800Prepaid Insurance 14 1,800

Insurance expired.

31 Depreciation Expense—Equipment 55 8,350Accumulated Depr.—Equipment 17 8,350


31 Depreciation Expense—Trucks 56 6,200Accumulated Depr.—Trucks 19 6,200

Truck depreciation.

31 Wages Expense 51 600Wages Payable 22 600

Accrued wages.

DateAdjusting Entries

JOURNAL




4.


Cash 12,000Supplies 7,500Prepaid Insurance 1,800Equipment 110,000Accumulated Depreciation—Equipment 33,350Trucks 60,000Accumulated Depreciation—Trucks 21,200Accounts Payable 4,000Wages Payable 600Share Capital—Ordinary 26,000Retained Earnings 70,000Dividends 15,000Service Revenue 160,000Wages Expense 45,600Supplies Expense 22,500Rent Expense 10,600Truck Expense 9,000Depreciation Expense—Equipment 8,350Depreciation Expense—Trucks 6,200Insurance Expense 1,800Miscellaneous Expense 4,800

315,150 315,150

Adjusted Trial BalanceMarch 31, 2014

LAKOTA FREIGHT CO.




5.


Wages expense $45,600Supplies expense 22,500Rent expense 10,600Truck expense 9,000Depreciation expense—equipment 8,350Depreciation expense—trucks 6,200Insurance expense 1,800Miscellaneous expense 4,800


Retained earnings, April 1, 2013 $ 70,000Net profit for the year $51,150Less dividends 15,000Increase in retained earnings 36,150Retained earnings, March 31, 2014 $106,150

LAKOTA FREIGHT CO.Statement of Comprehensive IncomeFor the Year Ended March 31, 2014

LAKOTA FREIGHT CO.Retained Earnings Statement

For the Year Ended March 31, 2014





Equipment $110,000 Retained earnings 106,150Less accum. depreciation 33,350 $76,650 Total equity $132,150Trucks $ 60,000Less accum. depreciation 21,200 38,800 Current liabilities:

Total non-current assets $115,450 Accounts payable $ 4,000Current assets: Wages payable 600

Prepaid insurance $1,800 Total liabilities 4,600 Supplies 7,500Cash 12,000


LAKOTA FREIGHT CO.Statement of Financial Position

March 31, 2014Assets Equity and Liabilities



Prob. 4–4A (Concluded)6. Page 27


2014 Mar. 31 Service Revenue 41 160,000

Income Summary 34 160,000

31 Income Summary 34 108,850Wages Expense 51 45,600Supplies Expense 52 22,500Rent Expense 53 10,600Truck Expense 54 9,000Depreciation Expense—Equipment 55 8,350Depreciation Expense—Trucks 56 6,200Insurance Expense 57 1,800Miscellaneous Expense 59 4,800

31 Income Summary 34 51,150Retained Earnings 32 51,150

31 Retained Earnings 32 15,000Dividends 33 15,000

7.


Cash 12,000Supplies 7,500Prepaid Insurance 1,800Equipment 110,000Accumulated Depreciation—Equipment 33,350Trucks 60,000Accumulated Depreciation—Trucks 21,200Accounts Payable 4,000Wages Payable 600Share Capital—Ordinary 26,000Retained Earnings 106,150

191,300 191,300

JOURNAL

March 31, 2014

Closing EntriesDate

LAKOTA FREIGHT CO.Post-Closing Trial Balance



Prob. 4–5A1. and 2.

Page 1


2014 July 1 Cash 11 13,500

Accounts Receivable 12 20,800Supplies 14 3,200Office Equipment 18 7,500

Share Capital—Ordinary 31 45,000

1 Prepaid Rent 15 4,800Cash 11 4,800

2 Prepaid Insurance 16 4,500Cash 11 4,500

4 Cash 11 5,500Unearned Fees 23 5,500

5 Office Equipment 18 6,500Accounts Payable 21 6,500

6 Cash 11 15,300Accounts Receivable 12 15,300

10 Miscellaneous Expense 59 400Cash 11 400

12 Accounts Payable 21 5,200Cash 11 5,200

12 Accounts Receivable 12 13,300Fees Earned 41 13,300

14 Salary Expense 51 1,750Cash 11 1,750

Date

JOURNAL



Prob. 4–5A (Continued)Page 2


2014 July 17 Cash 11 9,450

Fees Earned 41 9,450

18 Supplies 14 600Cash 11 600


24 Cash 11 4,000Fees Earned 41 4,000





31 Cash 11 5,200Fees Earned 41 5,200


31 Dividends 33 12,500Cash 11 12,500

Date

JOURNAL



Prob. 4–5A (Continued)2., 6., and 9.

Account No. 11


2014 July 1 1 13,500 13,500

1 1 4,800 8,7002 1 4,500 4,2004 1 5,500 9,7006 1 15,300 25,000

10 1 400 24,60012 1 5,200 19,40014 1 1,750 17,65017 2 9,450 27,10018 2 600 26,50024 2 4,000 30,50026 2 12,000 42,50027 2 1,750 40,75029 2 325 40,42531 2 675 39,75031 2 5,200 44,95031 2 12,500 32,450

Account No. 12


2014 July 1 1 20,800 20,800

6 1 15,300 5,50012 1 13,300 18,80020 2 6,650 25,45026 2 12,000 13,45031 2 3,000 16,450

Account No. 14


2014 July 1 1 3,200 3,200

18 2 600 3,80031 Adjusting 3 2,275 1,525

Account: Supplies

CashAccount:

Account: Accounts Receivable

BalanceDate

DateBalance

BalanceDate




Account No. 15


2014 July 1 1 4,800 4,800

31 Adjusting 3 2,400 2,400

Account No. 16


2014 July 2 1 4,500 4,500

31 Adjusting 3 375 4,125

Account No. 18


2014 July 1 1 7,500 7,500

5 1 6,500 14,000

Account No. 19


2014 July 31 Adjusting 3 750 750

Account No. 21


2014 July 5 1 6,500 6,500

12 1 5,200 1,300

Account No. 22




BalanceDate

Account: Salaries Payable

BalanceDate

Account: Office Equipment

BalanceDate

Account: Accumulated Depreciation

BalanceDate

BalanceDate

DateBalance

Prepaid RentAccount:





Account No. 23


2014 July 4 1 5,500 5,500

31 Adjusting 3 2,750 2,750

Account No. 31


20141 1 45,000 45,000

Account No. 32


2014 July 1 1 — —

31 Adjusting 3 33,475 33,47531 Closing 4 12,500 20,975

Account No. 33


2014 July 31 2 12,500 12,500

31 Closing 4 12,500 — —

Account No. 34


2014 July 31 Closing 4 44,350 44,350

31 Closing 4 10,875 33,47531 Closing 4 33,475 — —

Balance

July

Unearned FeesAccount:


Account: Income Summary

Date

Date


BalanceDate

Balance

BalanceDate

Account: Dividends

Balance

Date




Account No. 41


2014 July 12 1 13,300 13,300

17 2 9,450 22,75020 2 6,650 29,40024 2 4,000 33,40031 2 5,200 38,60031 2 3,000 41,60031 Adjusting 3 2,750 44,35031 Closing 4 44,350 — —

Account No. 51


2014 July 14 1 1,750 1,750

27 2 1,750 3,50031 Adjusting 3 175 3,67531 Closing 4 3,675 — —

Account No. 52


2014 July 31 Adjusting 3 2,400 2,400

31 Closing 4 2,400 — —

Account No. 53


2014 July 31 Adjusting 3 2,275 2,275

31 Closing 4 2,275 — —

DateBalance

Salary ExpenseAccount:

Account: Fees Earned

BalanceDate

BalanceDate


BalanceDate





Account No. 54



31 Closing 4 750 — —

Account No. 55



31 Closing 4 375 — —

Account No. 59


2014 July 10 1 400 400

29 2 325 72531 2 675 1,40031 Closing 4 1,400 — —

Account: Depreciation Expense

BalanceDate


BalanceDate


BalanceDate




3.


Cash 32,450Accounts Receivable 16,450Supplies 3,800Prepaid Rent 4,800Prepaid Insurance 4,500Office Equipment 14,000Accumulated Depreciation 0Accounts Payable 1,300Salaries Payable 0Unearned Fees 5,500Share Capital—Ordinary 45,000Dividends 12,500Fees Earned 41,600Salary Expense 3,500Rent Expense 0Supplies Expense 0Depreciation Expense 0Insurance Expense 0Miscellaneous Expense 1,400

93,400 93,400

Unadjusted Trial BalanceJuly 31, 2014

DIAMOND CONSULTING




Account Title Debit Credit Debit Credit Debit Credit Debit CreditCash 32,450 32,450 32,450Accounts Receivable 16,450 16,450 16,450Supplies 3,800 (b) 2,275 1,525 1,525Prepaid Rent 4,800 (e) 2,400 2,400 2,400Prepaid Insurance 4,500 (a) 375 4,125 4,125Office Equipment 14,000 14,000 14,000Accum. Depreciation (c) 750 750 750Accounts Payable 1,300 1,300 1,300Salaries Payable (d) 175 175 175Unearned Fees 5,500 (f) 2,750 2,750 2,750Share Capital—Ordinary 45,000 45,000 45,000Dividends 12,500 12,500 12,500Fees Earned 41,600 (f) 2,750 44,350 44,350Salary Expense 3,500 (d) 175 3,675 3,675Rent Expense (e) 2,400 2,400 2,400Supplies Expense (b) 2,275 2,275 2,275Depreciation Expense (c) 750 750 750Insurance Expense (a) 375 375 375Miscellaneous Expense 1,400 1,400 1,400

93,400 93,400 8,725 8,725 94,325 94,325 10,875 44,350 83,450 49,975Net profit 33,475 33,475

44,350 44,350 83,450 83,450


Trial Balance Comprehensive IncomeAdjustments

DIAMOND CONSULTINGEnd-of-Period Spreadsheet (Work Sheet)

For the Month Ended July 31, 2014Statement ofUnadjusted Adjusted Statement of




6. Page 3


2014 July 31 Insurance Expense 55 375

Prepaid Insurance 16 375Insurance expired.

31 Supplies Expense 53 2,275Supplies 14 2,275

Supplies used ($3,800 – $1,525).

31 Depreciation Expense 54 750Accumulated Depreciation 19 750


31 Salary Expense 51 175Salaries Payable 22 175

Accrued salaries.

31 Rent Expense 52 2,400Prepaid Rent 15 2,400

Rent expired.

31 Unearned Fees 23 2,750Fees Earned 41 2,750

Unearned fees earned ($5,500 – $2,750).


JOURNAL




7.


Cash 32,450Accounts Receivable 16,450Supplies 1,525Prepaid Rent 2,400Prepaid Insurance 4,125Office Equipment 14,000Accumulated Depreciation 750Accounts Payable 1,300Salaries Payable 175Unearned Fees 2,750Share Capital—Ordinary 45,000Dividends 12,500Fees Earned 44,350Salary Expense 3,675Rent Expense 2,400Supplies Expense 2,275Depreciation Expense 750Insurance Expense 375Miscellaneous Expense 1,400

94,325 94,325

Adjusted Trial BalanceJuly 31, 2014

DIAMOND CONSULTING




8.


Salary expense $3,675Rent expense 2,400Supplies expense 2,275Depreciation expense 750Insurance Expense 375Miscellaneous expense 1,400


Retained earnings, July 1, 2014 $ 0Net profit for month $33,475Less dividends 12,500Increase in retained earnings 20,975Retained earnings, July 31, 2014 $20,975

DIAMOND CONSULTINGRetained Earnings Statement

For the Month Ended July 31, 2014

DIAMOND CONSULTINGStatement of Comprehensive Income

For the Month Ended July 31, 2014




Non-current assets: Equity:Property, plant, and equipment: Share capital—ordinary $45,000

Office equipment $14,000 Retained earnings 20,975Less accum. depreciation 750 Total equity $ 65,975


Prepaid insurance $4,125 Accounts payable $ 1,300Prepaid rent 2,400 Salaries payable 175Supplies 1,525 Unearned fees 2,750Accounts receivable 16,450 Total liabilities 4,225 Cash 32,450


DIAMOND CONSULTINGStatement of Financial Position




Prob. 4–5A (Concluded) 9. Page 4


2014 July 31 Fees Earned 41 44,350


31 Income Summary 34 10,875Salary Expense 51 3,675Rent Expense 52 2,400Supplies Expense 53 2,275Depreciation Expense 54 750Insurance Expense 55 375Miscellaneous Expense 59 1,400



10.


Cash 32,450Accounts Receivable 16,450Supplies 1,525Prepaid Rent 2,400Prepaid Insurance 4,125Office Equipment 14,000Accumulated Depreciation 750Accounts Payable 1,300Salaries Payable 175Unearned Fees 2,750Share Capital—Ordinary 45,000Retained Earnings 20,975

70,950 70,950

JOURNAL

July 31, 2014

Closing EntriesDate

DIAMOND CONSULTINGPost-Closing Trial Balance



Prob. 4–1B

1.

Revenues:Fees earned $283,750Rent revenue 3,000


Salaries and wages expense $147,000Advertising expense 86,800Utilities expense 30,000Travel expense 18,750Depreciation expense—equipment 4,550Depreciation expense—building 3,000Supplies expense 1,500Insurance expense 1,300Miscellaneous expense 5,875

Total expenses 298,775Net loss $ 12,025

2.

Retained earnings, July 1, 2013 $271,300Net loss for the year $12,025Add dividends 20,000Decrease in retained earnings 32,025Retained earnings, June 30, 2014 $239,275

LAST CHANCE COMPANYRetained Earnings Statement


LAST CHANCE COMPANYStatement of Comprehensive Income




Prob. 4–1B (Continued)

3.

Non-current assets: Equity:Property, plant, and equipment: Share capital—ordinary $ 90,000

Land $ 80,000 Retained earnings 239,275Building $340,000 Total equity $ 329,275Less accum. depreciation 193,000 147,000Equipment $140,000 Current liabilities:Less accum. depreciation 59,000 81,000 Accounts payable $ 9,750

Total non-current assets $ 308,000 Salaries and wages payable 1,900Current assets: Unearned rent 1,500

Prepaid insurance $ 2,300 Total liabilities 13,150 Supplies 525Accounts receivable 26,500 Total equity and liabilities $342,425Cash 5,100


LAST CHANCE COMPANYStatement of Financial Position




Prob. 4–1B (Concluded)

4. 2014 June 30 Fees Earned 283,750


30 Income Summary 298,775Salaries and Wages Expense 147,000Advertising Expense 86,800Utilities Expense 30,000Travel Expense 18,750Depreciation Expense—Equipment 4,550Depreciation Expense—Building 3,000Supplies Expense 1,500Insurance Expense 1,300Miscellaneous Expense 5,875

30 Retained Earnings 12,025Income Summary 12,025


5.


Cash 5,100Accounts Receivable 26,500Prepaid Insurance 2,300Supplies 525Land 80,000Building 340,000Accumulated Depreciation—Building 193,000Equipment 140,000Accumulated Depreciation—Equipment 59,000Accounts Payable 9,750Salaries and Wages Payable 1,900Unearned Rent 1,500Share Capital—Ordinary 90,000Retained Earnings 239,275

594,425 594,425

LAST CHANCE COMPANYPost-Closing Trial Balance

June 30, 2014



Prob. 4–2B1.

Revenues:Service fees $468,000Rent revenue 5,000


Salaries expense $291,000Depreciation expense—equipment 17,500Rent expense 15,500Supplies expense 9,000Utilities expense 8,500Depreciation expense—buildings 6,600Repairs expense 3,450Insurance expense 3,000Miscellaneous expense 5,450


Retained earnings, November 1, 2013 $195,000Net profit for the year $113,000Less dividends 20,000Increase in retained earnings 93,000Retained earnings, October 31, 2014 $288,000

THE GORMAN GROUPRetained Earnings Statement

For the Year Ended October 31, 2014

THE GORMAN GROUPStatement of Comprehensive IncomeFor the Year Ended October 31, 2014





Land $ 75,000 Retained earnings 288,000Buildings $250,000 Total equity 313,000$ Less accum. depreciation 117,200 132,800Equipment $240,000 Current liabilities:Less accum. depreciation 151,700 88,300 Accounts payable $ 33,300

Total non-current assets 296,100$ Salaries payable 3,300Current assets: Unearned rent 1,500

Prepaid insurance $ 9,500 Total liabilities 38,100 Supplies 6,350Accounts receivable 28,150 Total equity and liabilities $351,100Cash 11,000


THE GORMAN GROUPStatement of Financial Position

October 31, 2014Assets Equity and Liabilities




2. 2014 Oct. 31 Service Fees 468,000


31 Income Summary 360,000Salaries Expense 291,000Depreciation Expense—Equipment 17,500Rent Expense 15,500Supplies Expense 9,000Utilities Expense 8,500Depreciation Expense—Buildings 6,600Repairs Expense 3,450Insurance Expense 3,000Miscellaneous Expense 5,450



3. $135,000 ($115,000 + $20,000) net profit. The $115,000 increase is caused by the Net profit of $135,000 less the $20,000 dividends.

Closing Entries



Prob. 4–3B 1., 3., and 6.

Aug. 31 Bal. 3,800

Aug. 31 Bal. 9,000 Aug. 31 Adj. 7,00031 Adj. Bal. 2,000

Aug. 31 Bal. 6,000 Aug. 31 Adj. 5,30031 Adj. Bal. 700

Aug. 31 Bal. 180,800

Aug. 31 Bal. 49,20031 Adj. 8,15031 Adj. Bal. 57,350

Aug. 31 Bal. 7,800

Aug. 31 Adj. 2,200

Aug. 31 Bal. 15,000

Aug. 31 Clos. 2,400 Aug. 31 Bal. 80,00031 Clos. 27,35031 Bal. 104,950

Aug. 31 Bal. 2,400 Aug. 31 Clos. 2,400

Cash

Laundry Supplies

Prepaid Insurance

Laundry Equipment

Dividends

Accumulated Depreciation

Accounts Payable

Share Capital—Ordinary

Retained Earnings

Wages Payable




Aug. 31 Clos. 220,650 Aug. 31 Clos. 248,000Clos. 27,350

Aug. 31 Clos. 248,000 Aug. 31 Bal. 248,000

Aug. 31 Bal. 135,800 Aug. 31 Clos. 138,00031 Adj. 2,20031 Adj. Bal. 138,000

Aug. 31 Bal. 43,200 Aug. 31 Clos. 43,200

Aug. 31 Bal. 16,000 Aug. 31 Clos. 16,000

Aug. 31 Adj. 8,150 Aug. 31 Clos. 8,150

Aug. 31 Adj. 7,000 Aug. 31 Clos. 7,000

Aug. 31 Adj. 5,300 Aug. 31 Clos. 5,300

Aug. 31 Bal. 3,000 Aug. 31 Clos. 3,000Miscellaneous Expense

Income Summary

Laundry Revenue

Laundry Supplies Expense

Wages Expense

Rent Expense

Utilities Expense

Depreciation Expense

Insurance Expense



Prob. 4–3B (Continued)2. Optional (Appendix)

Account Title Debit Credit Debit Credit Debit Credit Debit CreditCash 3,800 3,800 3,800Laundry Supplies 9,000 (c) 7,000 2,000 2,000Prepaid Insurance 6,000 (d) 5,300 700 700Laundry Equipment 180,800 180,800 180,800Accum. Depreciation 49,200 (b) 8,150 57,350 57,350Accounts Payable 7,800 7,800 7,800Wages Payable (a) 2,200 2,200 2,200Share Capital—Ordinary 15,000 15,000 15,000Retained Earnings 80,000 80,000 80,000Dividends 2,400 2,400 2,400Laundry Revenue 248,000 248,000 248,000Wages Expense 135,800 (a) 2,200 138,000 138,000Rent Expense 43,200 43,200 43,200Utilities Expense 16,000 16,000 16,000Depreciation Expense (b) 8,150 8,150 8,150Laundry Supplies Exp. (c) 7,000 7,000 7,000Insurance Expense (b) 5,300 5,300 5,300Miscellaneous Expense 3,000 3,000 3,000

400,000 400,000 22,650 22,650 410,350 410,350 220,650 248,000 189,700 162,350Net profit 27,350 27,350

248,000 248,000 189,700 189,700



LA MESA LAUNDRYEnd-of-Period Spreadsheet (Work Sheet)

For the Year Ended August 31, 2014Statement ofUnadjusted Adjusted Statement of




3. 2014 Aug. 31 Wages Expense 2,200

Wages Payable 2,200Accrued wages.

31 Depreciation Expense 8,150Accumulated Depreciation 8,150


31 Laundry Supplies Expense 7,000Laundry Supplies 7,000

Supplies used ($9,000 – $2,000).

31 Insurance Expense 5,300Prepaid Insurance 5,300

Insurance expired.

4.


Cash 3,800Laundry Supplies 2,000Prepaid Insurance 700Laundry Equipment 180,800Accumulated Depreciation 57,350Accounts Payable 7,800Wages Payable 2,200Share Capital—Ordinary 15,000Retained Earnings 80,000Dividends 2,400Laundry Revenue 248,000Wages Expense 138,000Rent Expense 43,200Utilities Expense 16,000Depreciation Expense 8,150Laundry Supplies Expense 7,000Insurance Expense 5,300Miscellaneous Expense 3,000

410,350 410,350

LA MESA LAUNDRYAdjusted Trial Balance

August 31, 2014

Adjusting Entries




5.

Laundry revenue $248,000Expenses:

Wages expense $138,000Rent expense 43,200Utilities expense 16,000Depreciation expense 8,150Laundry supplies expense 7,000Insurance expense 5,300Miscellaneous expense 3,000


Retained earnings, September 1, 2013 $ 80,000Net profit for the year $27,350Less dividends 2,400Increase in retained earnings 24,950Retained earnings, August 31, 2014 $104,950

Retained Earnings StatementFor the Year Ended August 31, 2014

LA MESA LAUNDRYStatement of Comprehensive IncomeFor the Year Ended August 31, 2014

LA MESA LAUNDRY





Laundry equipment $180,800 Retained earnings 104,950Less accum. depreciation 57,350 Total equity 119,950$

Total non-current assets 123,450$ Current assets: Current liabilities:

Prepaid insurance $ 700 Accounts payable $ 7,800Laundry supplies 2,000 Wages payable 2,200Cash 3,800 Total liabilities 10,000


LA MESA LAUNDRYStatement of Financial Position

August 31, 2014Assets Equity and Liabilities




6. 2014 Aug. 31 Laundry Revenue 248,000

Income Summary 248,000

31 Income Summary 220,650Wages Expense 138,000Rent Expense 43,200Utilities Expense 16,000Depreciation Expense 8,150Laundry Supplies Expense 7,000Insurance Expense 5,300Miscellaneous Expense 3,000



7.


Cash 3,800Laundry Supplies 2,000Prepaid Insurance 700Laundry Equipment 180,800Accumulated Depreciation 57,350Accounts Payable 7,800Wages Payable 2,200Share Capital—Ordinary 15,000Retained Earnings 104,950

187,300 187,300

LA MESA LAUNDRYPost-Closing Trial Balance

August 31, 2014

Closing Entries



Prob. 4–4B1., 3., and 6.

Account No. 11


2014 Jan. 31 Balance 13,100

Account No. 13


2014 Jan. 31 Balance 8,000

31 Adjusting 26 5,150 2,850

Account No. 14


2014 Jan. 31 Balance 7,500

31 Adjusting 26 3,150 4,350

Account No. 16


2014 Jan. 31 Balance 113,000

Account No. 17


2014 Jan. 31 Balance 12,000

31 Adjusting 26 5,250 17,250

Account No. 18


2014 Jan. 31 Balance 90,000

Account: Accumulated Depreciation—Equipment

BalanceDate

Account: Trucks

BalanceDate


BalanceDate

Account: Equipment

BalanceDate

BalanceDate

DateBalance

CashAccount:

Account: Supplies




Account No. 19


2014 Jan. 31 Balance 27,100

31 Adjusting 26 4,000 31,100

Account No. 21


2014 Jan. 31 Balance 4,500

Account No. 22


2014 Jan. 31 Adjusting 26 900 900

Account No. 31


2014 Jan. 31 Balance 30,000 30,000

Account No. 32


2014 Jan. 31 Balance 96,400

31 Closing 27 46,150 142,55031 Closing 27 3,000 139,550

Account No. 33


2014 Jan. 31 Balance 3,000

31 Closing 27 3,000 — —

BalanceDate


BalanceDate



BalanceDate

Account: Dividends

BalanceDate

BalanceDate

DateBalance

Accumulated Depreciation—TrucksAccount:





Account No. 34


2014 Jan. 31 Closing 27 155,000 155,000

31 Closing 27 108,850 46,15031 Closing 27 46,150 — —

Account No. 41


2014 Jan. 31 Balance 155,000

31 Closing 27 155,000 — —

Account No. 51


2014 Jan. 31 Balance 72,000

31 Adjusting 26 900 72,90031 Closing 27 72,900 — —

Account No. 52


2014 Jan. 31 Balance 7,600

31 Closing 27 7,600 — —

Account No. 53


2014 Jan. 31 Balance 5,350

31 Closing 27 5,350 — —

Income SummaryAccount:

Account: Service Revenue

BalanceDate

DateBalance

BalanceDate

Account: Wages Expense

BalanceDate


BalanceDate

Account: Truck Expense




Account No. 54


2014 Jan. 31 Adjusting 26 5,250 5,250

31 Closing 27 5,250 — —

Account No. 55


2014 Jan. 31 Adjusting 26 5,150 5,150

31 Closing 27 5,150 — —

Account No. 56


2014 Jan. 31 Adjusting 26 4,000 4,000

31 Closing 27 4,000 — —

Account No. 57


2014 Jan. 31 Adjusting 26 3,150 3,150

31 Closing 27 3,150 — —

Account No. 59


2014 Jan. 31 Balance 5,450

31 Closing 27 5,450 — —



BalanceDate

BalanceDate

Account: Depreciation Expense—Trucks

Account: Depreciation Expense—Equipment

BalanceDate

BalanceDate


BalanceDate




Account Title Debit Credit Debit Credit Debit Credit Debit CreditCash 13,100 13,100 13,100Supplies 8,000 (a) 5,150 2,850 2,850Prepaid Insurance 7,500 (b) 3,150 4,350 4,350Equipment 113,000 113,000 113,000Accum. Depr.—Equipment 12,000 (c) 5,250 17,250 17,250Trucks 90,000 90,000 90,000Accum. Depr.—Trucks 27,100 (d) 4,000 31,100 31,100Accounts Payable 4,500 4,500 4,500Wages Payable (e) 900 900 900Share Capital—Ordinary 30,000 30,000 30,000Retained Earnings 96,400 96,400 96,400Dividends 3,000 3,000 3,000Service Revenue 155,000 155,000 155,000Wages Expense 72,000 (e) 900 72,900 72,900Rent Expense 7,600 7,600 7,600Truck Expense 5,350 5,350 5,350Depr. Exp.—Equipment (c) 5,250 5,250 5,250Supplies Expense (a) 5,150 5,150 5,150Depr. Exp.—Trucks (d) 4,000 4,000 4,000Insurance Expense (b) 3,150 3,150 3,150Miscellaneous Expense 5,450 5,450 5,450

325,000 325,000 18,450 18,450 335,150 335,150 108,850 155,000 226,300 180,150Net profit 46,150 46,150

155,000 155,000 226,300 226,300



RECESSIVE INTERIORSEnd-of-Period Spreadsheet (Work Sheet)

For the Year Ended January 31, 2014Statement ofUnadjusted Adjusted Statement of



Prob. 4–4B (Continued)3. Page 26


2014 Jan. 31 Supplies Expense 55 5,150

Supplies 13 5,150Supplies used ($8,000 – $2,850).

31 Insurance Expense 57 3,150Prepaid Insurance 14 3,150

Insurance expired.

31 Depreciation Expense—Equipment 54 5,250Accumulated Depr.—Equipment 17 5,250


31 Depreciation Expense—Trucks 56 4,000Accumulated Depr.—Trucks 19 4,000

Truck depreciation.

31 Wages Expense 51 900Wages Payable 22 900

Accrued wages.


JOURNAL




4.


Cash 13,100Supplies 2,850Prepaid Insurance 4,350Equipment 113,000Accumulated Depreciation—Equipment 17,250Trucks 90,000Accumulated Depreciation—Trucks 31,100Accounts Payable 4,500Wages Payable 900Share Capital—Ordinary 30,000Retained Earnings 96,400Dividends 3,000Service Revenue 155,000Wages Expense 72,900Rent Expense 7,600Truck Expense 5,350Depreciation Expense—Equipment 5,250Supplies Expense 5,150Depreciation Expense—Trucks 4,000Insurance Expense 3,150Miscellaneous Expense 5,450

335,150 335,150

Adjusted Trial BalanceJanuary 31, 2014

RECESSIVE INTERIORS




5.


Wages expense $72,900Rent expense 7,600Truck expense 5,350Depreciation expense—equipment 5,250Supplies expense 5,150Depreciation expense—trucks 4,000Insurance expense 3,150Miscellaneous expense 5,450


Retained earnings, February 1, 2013 $ 96,400Net profit for the year $46,150Less dividends 3,000Increase in retained earnings 43,150Retained earnings, January 31, 2014 $139,550

RECESSIVE INTERIORSRetained Earnings Statement

For the Year Ended January 31, 2014

RECESSIVE INTERIORSStatement of Comprehensive IncomeFor the Year Ended January 31, 2014





Equipment $113,000 Retained earnings 139,550Less accum. depreciation 17,250 $95,750 Total equity 169,550$ Trucks $ 90,000Less accum. depreciation 31,100 58,900 Current liabilities:

Total non-current assets 154,650$ Accounts payable $ 4,500Current assets: Wages payable 900

Prepaid insurance $ 4,350 Total liabilities 5,400 Supplies 2,850Cash 13,100 Total equity and liabilities $174,950


RECESSIVE INTERIORSStatement of Financial Position

January 31, 2014Assets Equity and Liabilities



Prob. 4–4B (Concluded)6. Page 27


2014 Jan. 31 Service Revenue 41 155,000


31 Income Summary 34 108,850Wages Expense 51 72,900Rent Expense 52 7,600Truck Expense 53 5,350Depreciation Expense—Equipment 54 5,250Supplies Expense 55 5,150Depreciation Expense—Trucks 56 4,000Insurance Expense 57 3,150Miscellaneous Expense 59 5,450



7.


Cash 13,100Supplies 2,850Prepaid Insurance 4,350Equipment 113,000Accumulated Depreciation—Equipment 17,250Trucks 90,000Accumulated Depreciation—Trucks 31,100Accounts Payable 4,500Wages Payable 900Share Capital—Ordinary 30,000Retained Earnings 139,550

223,300 223,300

JOURNAL

January 31, 2014

Closing EntriesDate

RECESSIVE INTERIORSPost-Closing Trial Balance



Prob. 4–5B1. and 2.

Page 1


2014 Apr. 1 Cash 11 20,000

Accounts Receivable 12 14,700Supplies 14 3,300Office Equipment 18 12,000

Share Capital—Ordinary 31 50,000

1 Prepaid Rent 15 6,000Cash 11 6,000

2 Prepaid Insurance 16 4,200Cash 11 4,200

4 Cash 11 9,400Unearned Fees 23 9,400

5 Office Equipment 18 8,000Accounts Payable 21 8,000



12 Accounts Payable 21 6,400Cash 11 6,400



Date

JOURNAL



Prob. 4–5B (Continued)Page 2


2014 Apr. 17 Cash 11 6,600

Fees Earned 41 6,600

18 Supplies 14 725Cash 11 725


24 Cash 11 4,450Fees Earned 41 4,450





30 Cash 11 5,160Fees Earned 41 5,160


30 Dividends 33 18,000Cash 11 18,000

Date

JOURNAL



Prob. 4–5B (Continued)2., 6., and 9.

Account No. 11


2014 Apr. 1 1 20,000 20,000

1 1 6,000 14,0002 1 4,200 9,8004 1 9,400 19,2006 1 11,700 30,900

10 1 350 30,55012 1 6,400 24,15014 1 1,650 22,50017 2 6,600 29,10018 2 725 28,37524 2 4,450 32,82526 2 26,500 59,32527 2 1,650 57,67529 2 540 57,13530 2 760 56,37530 2 5,160 61,53530 2 18,000 43,535

Account No. 12


2014 Apr. 1 1 14,700 14,700

6 1 11,700 3,00012 1 21,900 24,90020 2 16,800 41,70026 2 26,500 15,20030 2 2,590 17,790

Account No. 14


2014 Apr. 1 1 3,300 3,300

18 2 725 4,02530 Adjusting 3 2,800 1,225

BalanceDate


BalanceDate

Account: Supplies

DateBalance

CashAccount:




Account No. 15


2014 Apr. 1 1 6,000 6,000

30 Adjusting 3 2,000 4,000

Account No. 16


2014 Apr. 2 1 4,200 4,200

30 Adjusting 3 350 3,850

Account No. 18


2014 Apr. 1 1 12,000 12,000

5 1 8,000 20,000

Account No. 19


2014 Apr. 30 Adjusting 3 400 400

Account No. 21


2014 Apr. 5 1 8,000 8,000

12 1 6,400 1,600

Account No. 22


2014 Apr. 30 Adjusting 3 275 275


BalanceDate



BalanceDate

DateBalance

BalanceDate

BalanceDate



BalanceDate





Account No. 23


2014 Apr. 4 1 9,400 9,400

30 Adjusting 3 7,050 2,350

Account No. 31


2014 Apr. 1 1 50,000 50,000

Account No. 32


2014 Apr. 1 1 —

30 Closing 4 53,775 53,77530 Closing 4 18,000 35,775

Account No. 33


2014 Apr. 30 2 18,000 18,000

30 Closing 4 18,000 — —

Account No. 34


2014 Apr. 30 Closing 4 64,550 64,550

30 Closing 4 10,775 53,77530 Closing 4 53,775 — —

BalanceDate



BalanceDate

Account: Dividends



BalanceDate

BalanceDate

DateBalance




Account No. 41


2014 Apr. 12 1 21,900 21,900


Account No. 51


2014 Apr. 14 1 1,650 1,650

27 2 1,650 3,30030 Adjusting 3 275 3,57530 Closing 4 3,575 — —

Account No. 52


2014 Apr. 30 Adjusting 3 2,800 2,800

30 Closing 4 2,800 — —

Account No. 53


2014 Apr. 30 Adjusting 3 2,000 2,000

30 Closing 4 2,000 — —


BalanceDate


BalanceDate


BalanceDate

DateBalance





Account No. 54


2014 Apr. 30 Adjusting 3 400 400

30 Closing 4 400 — —

Account No. 55


2014 Apr. 30 Adjusting 3 350 350

30 Closing 4 350 — —

Account No. 59


2014 Apr. 10 1 350 350

29 2 540 89030 2 760 1,65030 Closing 4 1,650 — —


BalanceDate


BalanceDate


BalanceDate




3.


Cash 43,535Accounts Receivable 17,790Supplies 4,025Prepaid Rent 6,000Prepaid Insurance 4,200Office Equipment 20,000Accumulated Depreciation 0Accounts Payable 1,600Salaries Payable 0Unearned Fees 9,400Share Capital—Ordinary 50,000Dividends 18,000Fees Earned 57,500Salary Expense 3,300Supplies Expense 0Rent Expense 0Depreciation Expense 0Insurance Expense 0Miscellaneous Expense 1,650

118,500 118,500

Unadjusted Trial Balance April 30, 2014

ROSEBUD CONSULTING




Account Title Debit Credit Debit Credit Debit Credit Debit CreditCash 43,535 43,535 43,535Accounts Receivable 17,790 17,790 17,790Supplies 4,025 (b) 2,800 1,225 1,225Prepaid Rent 6,000 (e) 2,000 4,000 4,000Prepaid Insurance 4,200 (a) 350 3,850 3,850Office Equipment 20,000 20,000 20,000Accum. Depreciation (c) 400 400 400Accounts Payable 1,600 1,600 1,600Salaries Payable (d) 275 275 275Unearned Fees 9,400 (f) 7,050 2,350 2,350Share Capital—Ordinary 50,000 50,000 50,000Dividends 18,000 18,000 18,000Fees Earned 57,500 (f) 7,050 64,550 64,550Salary Expense 3,300 (d) 275 3,575 3,575Supplies Expense (b) 2,800 2,800 2,800Rent Expense (e) 2,000 2,000 2,000Depreciation Expense (c) 400 400 400Insurance Expense (a) 350 350 350Miscellaneous Expense 1,650 1,650 1,650

118,500 118,500 12,875 12,875 119,175 119,175 10,775 64,550 108,400 54,625Net profit 53,775 53,775

64,550 64,550 108,400 108,400

ROSEBUD CONSULTINGEnd-of-Period Spreadsheet (Work Sheet)

For the Month Ended April 30, 2014Statement ofUnadjusted Adjusted






Prob. 4–5B (Continued)6. Page 3


2014 Apr. 30 Insurance Expense 55 350



Supplies used ($4,025 – $1,225).




Accrued salaries.


Rent expired.


Unearned fees earned ($9,400 – $2,350).


JOURNAL




7.


Cash 43,535Accounts Receivable 17,790Supplies 1,225Prepaid Rent 4,000Prepaid Insurance 3,850Office Equipment 20,000Accumulated Depreciation 400Accounts Payable 1,600Salaries Payable 275Unearned Fees 2,350Share Capital—Ordinary 50,000Dividends 18,000Fees Earned 64,550Salary Expense 3,575Supplies Expense 2,800Rent Expense 2,000Depreciation Expense 400Insurance Expense 350Miscellaneous Expense 1,650

119,175 119,175

Adjusted Trial BalanceApril 30, 2014

ROSEBUD CONSULTING




8.


Salary expense $3,575Supplies expense 2,800Rent expense 2,000Depreciation expense 400Insurance expense 350Miscellaneous expense 1,650


Retained earnings, April 1, 2014 $ 0Net profit for month $53,775Less dividends 18,000Increase in retained earnings 35,775Retained earnings, April 30, 2014 $35,775

ROSEBUD CONSULTINGStatement of Comprehensive IncomeFor the Month Ended April 30, 2014

ROSEBUD CONSULTINGRetained Earnings Statement

For the Month Ended April 30, 2014






Total non-current asset $19,600Current assets: Current liabilities:

Prepaid insurance $ 3,850 Accounts payable $ 1,600Prepaid rent 4,000 Salaries payable 275Supplies 1,225 Unearned fees 2,350Accounts receivable 17,790 Total liabilities 4,225 Cash 43,535

Total current assets 70,400 Total equity and liabilities $90,000Total assets $90,000

ROSEBUD CONSULTINGStatement of Financial Position




Prob. 4–5B (Concluded) 9. Page 4


2014 Apr. 30 Fees Earned 41 64,550


30 Income Summary 34 10,775Salary Expense 51 3,575Supplies Expense 52 2,800Rent Expense 53 2,000Depreciation Expense 54 400Insurance Expense 55 350Miscellaneous Expense 59 1,650



10.


Cash 43,535Accounts Receivable 17,790Supplies 1,225Prepaid Rent 4,000Prepaid Insurance 3,850Office Equipment 20,000Accumulated Depreciation 400Accounts Payable 1,600Salaries Payable 275Unearned Fees 2,350Share Capital—Ordinary 50,000Retained Earnings 35,775

90,400 90,400

JOURNAL

April 30, 2014

Closing EntriesDate

ROSEBUD CONSULTINGPost-Closing Trial Balance



1. Optional (Appendix)

Account Title Debit Credit Debit Credit Debit Credit Debit CreditCash 9,945 9,945 9,945Accounts Receivable 2,750 (a) 1,400 4,150 4,150Supplies 1,020 (b) 745 275 275Prepaid Insurance 2,700 (c) 225 2,475 2,475Office Equipment 7,500 7,500 7,500Accum. Depr.—Off. Equip. (d) 50 50 50Accounts Payable 8,350 8,350 8,350Wages Payable (f) 140 140 140Unearned Revenue 7,200 (e) 3,600 3,600 3,600Share Capital—Ordinary 9,000 9,000 9,000Dividends 1,750 1,750 1,750Fees Earned 16,200 (a) 1,400 21,200 21,200

(e) 3,600Music Expense 3,610 3,610 3,610Wages Expense 2,800 (f) 140 2,940 2,940Office Rent Expense 2,550 2,550 2,550Advertising Expense 1,500 1,500 1,500Equip. Rent Expense 1,375 1,375 1,375Utilities Expense 1,215 1,215 1,215Supplies Expense 180 (b) 745 925 925Insurance Expense (c) 225 225 225Depreciation Expense (d) 50 50 50Miscellaneous Expense 1,855 1,855 1,855

40,750 40,750 6,160 6,160 42,340 42,340 16,245 21,200 26,095 21,140Net profit 4,955 4,955

21,200 21,200 26,095 26,095

CONTINUING PROBLEM



Comprehensive Income

PS MUSICEnd-of-Period Spreadsheet (Work Sheet)

Adjustments

For the Two Months Ended July 31, 2014Statement ofUnadjusted Adjusted



Continuing Problem (Continued)

2.


Music expense $3,610Wages expense 2,940Office rent expense 2,550Advertising expense 1,500Equipment rent expense 1,375Utilities expense 1,215Supplies expense 925Insurance expense 225Depreciation expense 50Miscellaneous expense 1,855


Retained earnings, June 1, 2014 $ 0Net profit for the period $4,955Less dividends 1,750Increase in retained earnings 3,205Retained earnings, July 31, 2014 $3,205

PS MUSICRetained Earnings Statement

For the Two Months Ended July 31, 2014

PS MUSICStatement of Comprehensive Income

For the Two Months Ended July 31, 2014





Office equipment $7,500 Retained earnings 3,205Less accum. depreciation 50 Total equity $12,205

Total non-current assets $ 7,450Current assets: Current liabilities:

Prepaid insurance $2,475 Accounts payable $8,350Supplies 275 Wages payable 140Accounts receivable 4,150 Unearned revenue 3,600Cash 9,945 Total liabilities 12,090


PS MUSICStatement of Financial Position




Continuing Problem (Continued)3. Page 4


2014 July 31 Fees Earned 41 21,200


31 Income Summary 34 16,245Wages Expense 50 2,940Office Rent Expense 51 2,550Equipment Rent Expense 52 1,375Utilities Expense 53 1,215Music Expense 54 3,610Advertising Expense 55 1,500Supplies Expense 56 925Insurance Expense 57 225Depreciation Expense 58 50Miscellaneous Expense 59 1,855



Closing EntriesDate

JOURNAL




Account No. 11


2014 July 1 Balance 3,920

1 1 5,000 8,9201 1 1,750 7,1701 1 2,700 4,4702 1 1,000 5,4703 1 7,200 12,6703 1 250 12,4204 1 900 11,5208 1 200 11,320

11 1 1,000 12,32013 1 700 11,62014 1 1,200 10,42016 2 2,000 12,42021 2 620 11,80022 2 800 11,00023 2 750 11,75027 2 915 10,83528 2 1,200 9,63529 2 540 9,09530 2 500 9,59531 2 3,000 12,59531 2 1,400 11,19531 2 1,250 9,945

Account No. 12



2 1 1,000 — —23 2 1,750 1,75030 2 1,000 2,75031 Adjusting 3 1,400 4,150

CashAccount:


BalanceDate

DateBalance




Account No. 14


2014 July 1 Balance 170

18 2 850 1,02031 Adjusting 3 745 275

Account No. 15


2014 July 1 1 2,700 2,700

31 Adjusting 3 225 2,475

Account No. 17


2014 July 5 1 7,500 7,500

Account No. 18



Account No. 21



3 1 250 — —5 1 7,500 7,500

18 2 850 8,350


BalanceDate

Account: Supplies

BalanceDate


BalanceDate

BalanceDate

Account: Accumulated Depreciation—Office Equipment

BalanceDate





Account No. 22



Account No. 23


2014 July 3 1 7,200 7,200

31 Adjusting 3 3,600 3,600

Account No. 31



1 1 4,000 9,000

Account No. 32


2014 July 1 Balance —

31 Closing 4 4,955 4,95531 Closing 4 1,750 3,205

Account No. 33



31 2 1,250 1,75031 Closing 4 1,750 — —


BalanceDate

DateBalance

Unearned RevenueAccount:


BalanceDate

Account: Dividends

BalanceDate


BalanceDate




Account No. 34


2014 July 31 Closing 4 21,200 21,200

31 Closing 4 16,245 4,95531 Closing 4 4,955 — —

Account No. 41



11 1 1,000 7,20016 2 2,000 9,20023 2 2,500 11,70030 2 1,500 13,20031 2 3,000 16,20031 Adjusting 3 1,400 17,60031 Adjusting 3 3,600 21,20031 Closing 4 21,200 — —

Account No. 50



14 1 1,200 1,60028 2 1,200 2,80031 Adjusting 3 140 2,94031 Closing 4 2,940 — —

Account No. 51



1 1 1,750 2,55031 Closing 4 2,550 — —


BalanceDate

DateBalance

Wages ExpenseAccount:


BalanceDate

Account: Office Rent Expense

BalanceDate




Account No. 52



13 1 700 1,37531 Closing 4 1,375 — —

Account No. 53



27 2 915 1,21531 Closing 4 1,215 — —

Account No. 54



21 2 620 2,21031 2 1,400 3,61031 Closing 4 3,610 — —

Account No. 55



8 1 200 70022 2 800 1,50031 Closing 4 1,500 — —

Account No. 56



31 Adjusting 3 745 92531 Closing 4 925 — —

BalanceDate

Account: Equipment Rent Expense

Account: Music Expense

BalanceDate

Account: Utilities Expense

BalanceDate

BalanceDate

Account: Advertising Expense


BalanceDate




Account No. 57



31 Closing 4 225 — —

Account No. 58



31 Closing 4 50 — —

Account No. 59



4 1 900 1,31529 2 540 1,85531 Closing 4 1,855 — —

BalanceDate


BalanceDate



BalanceDate



Continuing Problem (Concluded)

4.


Cash 9,945Accounts Receivable 4,150Supplies 275Prepaid Insurance 2,475Office Equipment 7,500Accumulated Depreciation—Office Equipment 50Accounts Payable 8,350Wages Payable 140Unearned Revenue 3,600Share Capital—Ordinary 9,000Retained Earnings 3,205

24,345 24,345

July 31, 2014

PS MUSICPost-Closing Trial Balance



1. and 2.Page 5


2014 May 3 Cash 11 4,500

Unearned Fees 23 4,500



13 Accounts Payable 21 640Cash 11 640



Cash 11 750

17 Cash 11 8,360Fees Earned 41 8,360

Date

COMPREHENSIVE PROBLEM 1

JOURNAL



Comp. Prob. 1 (Continued)Page 6


2014 May 20 Supplies 14 735

Accounts Payable 21 735


25 Cash 11 7,900Fees Earned 41 7,900


28 Salary Expense 51 750Cash 11 750



31 Cash 11 3,300Fees Earned 41 3,300


31 Dividends 33 10,500Cash 11 10,500

Date

JOURNAL



Comp. Prob. 1 (Continued)2., 6., and 9.

Account No. 11


2014 May 1 Balance 22,100

3 5 4,500 26,6005 5 2,450 29,0509 5 225 28,825

13 5 640 28,18516 5 750 27,43517 5 8,360 35,79525 6 7,900 43,69527 6 9,520 53,21528 6 750 52,46530 6 260 52,20531 6 810 51,39531 6 3,300 54,69531 6 10,500 44,195

Account No. 12



5 5 2,450 95015 5 9,180 10,13021 6 4,820 14,95027 6 9,520 5,43031 6 2,650 8,080

Account No. 14



20 6 735 2,08531 Adjusting 7 1,370 715

Account: Supplies

CashAccount:


BalanceDate

DateBalance

BalanceDate



Comp. Prob. 1 (Continued)

Account No. 15



31 Adjusting 7 1,600 1,600

Account No. 16



31 Adjusting 7 275 1,225

Account No. 18



Account No. 19


2014 May 1 Balance 330

31 Adjusting 7 330 660

Account No. 21



13 5 640 16020 6 735 895

Account No. 22



16 5 120 —31 Adjusting 7 325 325


BalanceDate


BalanceDate


BalanceDate


BalanceDate

BalanceDate

DateBalance






Account No. 23



3 5 4,500 7,00031 Adjusting 7 3,790 3,210

Account No. 31



Account No. 32



31 Closing 8 33,425 45,72531 Closing 8 10,500 35,225

Account No. 33


2014 May 31 6 10,500 10,500

31 Closing 8 10,500 — —

Account No. 34


2014 May 31 Closing 8 40,000 40,000

31 Closing 8 6,575 33,42531 Closing 8 33,425 — —




Date

DateBalance

BalanceDate

Account: Dividends

Balance


BalanceDate

BalanceDate




Account No. 41


2014 May 15 5 9,180 9,180


Account No. 51


2014 May 16 5 630 630

28 6 750 1,38031 Adjusting 7 325 1,70531 Closing 8 1,705 — —

Account No. 52


2014 May 31 Adjusting 7 1,600 1,600

31 Closing 8 1,600 — —

Account No. 53


2014 May 31 Adjusting 7 1,370 1,370

31 Closing 8 1,370 — —

DateBalance



BalanceDate

BalanceDate


BalanceDate





Account No. 54


2014 May 31 Adjusting 7 330 330

31 Closing 8 330 — —

Account No. 55


2014 May 31 Adjusting 7 275 275

31 Closing 8 275 — —

Account No. 59


2014 May 9 5 225 225

30 6 260 48531 6 810 1,29531 Closing 8 1,295 — —


BalanceDate


BalanceDate


BalanceDate




3.


Cash 44,195Accounts Receivable 8,080Supplies 2,085Prepaid Rent 3,200Prepaid Insurance 1,500Office Equipment 14,500Accumulated Depreciation 330Accounts Payable 895Salaries Payable 0Unearned Fees 7,000Share Capital—Ordinary 30,000Retained Earnings 12,300Dividends 10,500Fees Earned 36,210Salary Expense 1,380Rent Expense 0Supplies Expense 0Depreciation Expense 0Insurance Expense 0Miscellaneous Expense 1,295

86,735 86,735

Unadjusted Trial BalanceMay 31, 2014

KELLY CONSULTING



Comp. Prob. 1 (Continued)5. Optional (Appendix)

Account Title Debit Credit Debit Credit Debit Credit Debit CreditCash 44,195 44,195 44,195Accounts Receivable 8,080 8,080 8,080Supplies 2,085 (b) 1,370 715 715Prepaid Rent 3,200 (e) 1,600 1,600 1,600Prepaid Insurance 1,500 (a) 275 1,225 1,225Office Equipment 14,500 14,500 14,500Accum. Depreciation 330 (c) 330 660 660Accounts Payable 895 895 895Salaries Payable (d) 325 325 325Unearned Fees 7,000 (f) 3,790 3,210 3,210Share Capital—Ordinary 30,000 30,000 30,000Retained Earnings 12,300 12,300 12,300Dividends 10,500 10,500 10,500Fees Earned 36,210 (f) 3,790 40,000 40,000Salary Expense 1,380 (d) 325 1,705 1,705Rent Expense (e) 1,600 1,600 1,600Supplies Expense (b) 1,370 1,370 1,370Depreciation Expense (c) 330 330 330Insurance Expense (a) 275 275 275Miscellaneous Expense 1,295 1,295 1,295

86,735 86,735 7,690 7,690 87,390 87,390 6,575 40,000 80,815 47,390Net profit 33,425 33,425

40,000 40,000 80,815 80,815



KELLY CONSULTINGEnd-of-Period Spreadsheet (Work Sheet)

For the Month Ended May 31, 2014Statement ofUnadjusted Adjusted Statement of



Comp. Prob. 1 (Continued)6. Page 7


2014 May 31 Insurance Expense 55 275



Supplies used ($2,085 – $715).




Accrued salaries.


Rent expired.


Unearned fees ($7,000 – $3,210).


JOURNAL




7.


Cash 44,195Accounts Receivable 8,080Supplies 715Prepaid Rent 1,600Prepaid Insurance 1,225Office Equipment 14,500Accumulated Depreciation 660Accounts Payable 895Salaries Payable 325Unearned Fees 3,210Share Capital—Ordinary 30,000Retained Earnings 12,300Dividends 10,500Fees Earned 40,000Salary Expense 1,705Rent Expense 1,600Supplies Expense 1,370Depreciation Expense 330Insurance Expense 275Miscellaneous Expense 1,295

87,390 87,390

Adjusted Trial BalanceMay 31, 2014

KELLY CONSULTING




8.


Salary expense $1,705Rent expense 1,600Supplies expense 1,370Depreciation expense 330Insurance expense 275Miscellaneous expense 1,295


Retained earnings, May 1, 2014 $12,300Net profit for the month $33,425Less dividends 10,500Increase in retained earnings 22,925Retained earnings, May 31, 2014 $35,225

KELLY CONSULTINGRetained Earnings Statement

For the Month Ended May 31, 2014

KELLY CONSULTINGStatement of Comprehensive Income

For the Month Ended May 31, 2014







Prepaid insurance $ 1225 Accounts payable $ 895Prepaid rent 1,600 Salaries payable 325Supplies 715 Unearned fees 3,210Accounts receivable 8,080 Total liabilities 4,430 Cash 44,195

Total current assets 55,815 Total equity and liabilities $69,655Total assets $69,655

KELLY CONSULTINGStatement of Financial Position

May 31, 2014Assets Equity and Liabilities



Comp. Prob. 1 (Concluded) 9. Page 8


2014 May 31 Fees Earned 41 40,000


31 Income Summary 34 6,575Salary Expense 51 1,705Rent Expense 52 1,600Supplies Expense 53 1,370Depreciation Expense 54 330Insurance Expense 55 275Miscellaneous Expense 59 1,295



10.


Cash 44,195Accounts Receivable 8,080Supplies 715Prepaid Rent 1,600Prepaid Insurance 1,225Office Equipment 14,500Accumulated Depreciation 660Accounts Payable 895Salaries Payable 325Unearned Fees 3,210Share Capital—Ordinary 30,000Retained Earnings 35,225

70,315 70,315

JOURNAL

May 31, 2014

Closing EntriesDate

KELLY CONSULTINGPost-Closing Trial Balance



CP 4–1It is unacceptable to prepare financial statements in such a way that users of the statements would be misled. The July 31, 2014, statement of financial position of Picasso Graphics could be misleading in two ways. First, the account receivable from Becky should be segregated and reported separately from trade (customer) receivables. Such receivables are normally reported as "officer receivables" or "other receivables" and accompanied by a note disclosing the nature of the receivable. Such disclosure is required for what are termed "related-party transactions." Second, given that the receivable has been outstanding since January 2012, it is questionable whether the receivable from Becky should be classified as a current asset. Pablo could justify the classification as "current" if Becky has agreed to a written schedule for repaying within the next year. Alternatively, the receivable could be classified as current if it has been converted to a note receivable with a specific due date within the next year.

In summary, because of the preceding issues, it appears that Pablo is not behaving in a professional manner. Note: It is a criminal offense to submit falseor misleading documents to a bank in applying for a loan.

CASES & PROJECTS



CP 4–21. (a) With the decreasing cost of computers and related software, Main Street

Co. may find it desirable to computerize its financial reporting system. In many cases, the computerization of a manual accounting system reduces the overall cost of the accounting function.

(b) A computerized accounting system would allow for eliminating the end-of-period spreadsheet (work sheet) and, thus, financial statements could be prepared with "a push of a button." However, adjustment data would still need to be recorded at the end of the accounting period before the financialstatements could be prepared.

(c) In designing a computerized financial reporting (accounting) system, it is essential that proper accounting principles, concepts, and procedures be followed. At a minimum, basic controls such as the use of the double-entry accounting system should be included. For example, debits must equal credits for all transactions, and assets must equal liabilities plus owner’s equity. In addition, the system should be designed to detect obvious errors, such as a credit (minus) balance for supplies or prepaid insurance. In other words, to design an adequate financial reporting system, a computer programmer must have a thorough understanding of accounting and the accounting cycle.

Note: Numerous accounting software packages, similar to the CengageLearning General Ledger software package accompanying this text, are available. Therefore, it would probably be better for Main Street Co. to purchase an existing accounting software package rather than trying to design its own.

2. Supplies cannot have a credit balance, since the supplies account is an asset account. A business cannot have a "negative" asset. Thus, the only way that a credit balance could have occurred in Supplies is the result of an error in recording one or more transactions.



CP 4–31. A set of financial statements provides useful information concerning the

economic condition of a company. For example, the statement of financial position describes the financial condition of the company as of a given date and is useful inassessing the company’s financial soundness and liquidity. The statement ofcomprehensive income describes the results of operations for a period and indicatesthe profitability of the company. The retained earnings statement describes thechanges in retained earnings for a period. Each of these statements is useful in evaluating whether to extend credit to the company.

2. The following adjustments might be necessary before an accurate set of financial statements could be prepared:

No supplies expense is shown. The supplies account should be adjusted for the supplies used during the year.

No depreciation expense is shown for the building or equipment accounts. An adjusting entry should be prepared for depreciation expense on each of these assets.

An inquiry should be made as to whether any accrued expenses, such as wages or utilities, exist at the end of the year.

An inquiry should be made as to whether any prepaid expenses, such as rent or insurance, exist at the end of the year.

An inquiry should be made as to whether the owner withdrew any funds from the company during the year. No drawing account is shown in the "Statement of Accounts."

The following items should be relabeled for greater clarity:

Billings Due from Others—Accounts ReceivableAmounts Owed to Others—Accounts PayableInvestment in Business—Share Capital—Ordinary and Retained EarningsOther Expenses—Miscellaneous Expense

Note to Instructors: The preceding items are not intended to include alladjustments that might exist in the Statement of Accounts. The possible adjustments listed include only items that have been covered in Chapters 1–4. For example, uncollectible accounts expense (discussed in a later chapter) is not mentioned.



CP 4–3 (Concluded)3. In general, the decision to extend a loan is based on an assessment of the

profitability and riskiness of the loan. Although the financial statements provide useful data for this purpose, other factors such as the following might also be significant:

The due date and payment terms of the loan.

Security for the loan. For example, whether Joan Whalen is willing to pledge personal assets in support of the loan will affect the riskiness of the loan.

The intended use of the loan. For example, if the loan is to purchase real estate (possibly for a future building site), the real estate could be used as security for the loan.

The projected profitability of the company.

CP 4–4The purpose of this activity is to familiarize students with the information (assets, liabilities, and owner’s equity) that a statement of financial position provides about a company. Consider emphasizing the similarities and differences among differentcompany statements of financial position. For example, while all companies have cash in their statements of financial position, companies in different industries will havedifferent types of assets. Likewise, while all companies have accounts payable in theirstatements of financial position, companies often are financed using different types ofliabilities. At this point in the course, we have not covered corporations. Thus, considerdeferring any discussion of different capital structures until after Chapter 11.

Documents

CHAPTER 4 COMPLETING THE ACCOUNTING CYCLE · how they implement the steps in the accounting cycle. For example, while most companies use computerized accounting systems, some companies