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Chapter 4

Completing the Accounting Cycle

QUESTIONS

1. Closing entries affect temporary accounts re!enues" e#penses" $ith%ra$als" an%income summary. Specifically" closing entries at the en% of an accounting perio%prepare the re!enues &an% gains'" e#penses &an% losses'" an% $ith%ra$als accountsfor the ne#t perio% (y gi!ing them )ero (alances. Closing entries also up%ate the

o$ner*s capital account for the e!ents of the year +ust finishe%. Closing entries %onot affect the asset an% lia(ility accounts &permanent accounts'.

,. &i' Closing entries prepare the temporary accounts-re!enue an% e#pense &an% gainan% loss' accounts an% $ith%ra$als-for the ne#t perio% (y gi!ing them )ero(alances. &ii' Closing entries also up%ate the o$ner*s capital account for the e!entsof the perio% +ust complete%.

. The four/step closing entry process is &i' close the re!enue &an% gain' accounts tothe Income Summary account" &ii' close the e#pense &an% loss' accounts to theIncome Summary account" &iii' close the Income Summary account to the o$ner*scapital account" an% &i!' close the $ith%ra$als account to the o$ner*s capitalaccount.

4. The Income Summary account is use% to summari)e the perio%*s re!enues an%e#penses. As a result" it temporarily has a (alance e0ual to the net income &or netloss' for the perio%. &Instructor note Closing can (e accomplishe% $ithout theIncome Summary account (y closing re!enue an% e#pense accounts %irectly to theo$ner*s capital account.'

. 2es" an error $oul% ha!e occurre% (ecause a post/closing trial (alance shoul% onlyinclu%e permanent accounts" an% 3epreciation E#pense is a temporary account thatshoul% ha!e (een close%. If an e#pense appears on the post/closing trial (alance"the amounts of net income" total assets" an% total e0uity are all in error &o!erstate%'.

. A $or5 sheet can (e use% to collect an% organi)e %ata for preparing &i' a%+ustingentries" &ii' closing entries" an% &iii' financial statements. A $or5 sheet can also (e

use% for what if analysis" for help $ith au%it a%+ustments" an% for preparing interimfinancial statements.

6. The a%+ustments in the A%+ustments columns of a $or5 sheet are i%entifie% (y lettersto lin5 the %e(its $ith the cre%its to ensure that the entries are complete an% in(alance &%e(its 7 cre%its' an% for reference purposes &au%it trail'. The letters canalso (e use% to i%entify the reasons for the entries an% help simplify preparation of the actual a%+usting +ournal entries.

©McGraw-Hill Companies, 2009

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8. A company*s operating cycle is the normal time (et$een paying cash for merchan%ise in!entory or for employee salaries in pro!i%ing customer ser!ices an%the receipt of cash from customers in e#change for those pro%ucts or ser!ices.

9. Assets on a typical classifie% (alance sheet inclu%e current assets an% noncurrentassets-$here noncurrent assets usually inclu%e long/term in!estments" plantassets" an% intangi(le assets. :ia(ilities are typically classifie% as current an%noncurrent. Note that the terms short/term an% long/term are sometimes use% for current an% noncurrent.

1;. Unearne% re!enue is reporte% as a lia(ility-usually a current lia(ility.

11. <lant assets &also calle% property" plant an% e0uipment or long/li!e% assets' aretangi(le long/li!e% assets use% to pro%uce or sell goo%s or ser!ices.

1,.A =e!ersing entries simplify su(se0uent entries for accrue% e#penses an% accrue%re!enues (y eliminating the nee% to recor% the remo!al of the accrue% lia(ility or accrue% recei!a(le $hen the accrual is settle%.

1.A The follo$ing re!ersing entry coul% (e ma%e as of the first %ay of the ne#taccounting perio%" after the post/closing trial (alance is complete% an% financialstatements are prepare%.

Salaries <aya(le................................................................;;

Salaries E#pense................................................... ;;

14. The fi!e categories of noncurrent assets on >est >uy*s (alance sheet are <ropertyan% E0uipment" ?oo%$ill" Tra%enames" :ong/term in!estments" an% Other assets.

1. Circuit City has se!en current lia(ility accounts @erchan%ise paya(le" E#pensespaya(le" Accrue% e#penses an% other current lia(ilities" Accrue% compensation"Accrue% income ta#es" Short/term %e(t" an% Current installments of long/term %e(t.

1. =a%ioShac5 has four current asset accounts Cash an% cash e0ui!alents Accountsan% notes recei!a(le" net In!entories an% Other current assets.

16. The closing entry recor%e% on Septem(er ;" ,;;" to transfer the company*s netincome to its =etaine% Earnings account $oul% li5ely ha!e (een &in millions'

Income Summary...............................................................1"989

=etaine% Earnings................................................ 1"989


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Quic5 Stu%y 4/4 &1; minutes'

Current assetsCash 6";;;Accounts recei!a(le.................................. 18";;;

Office supplies........................................... ,"8;<repai% insurance...................................... ";;Total current assets................................... 1";

Current lia(ilitiesAccounts paya(le...................................... 11";;;Unearne% ser!ices re!enue...................... ";;;Total current lia(ilities............................... 14";;;

Current ratio 7 1"; G 14";;; 7 ,.,4

Quic5 Stu%y 4/ &1; minutes'

Computation of . Fischer" Capital for the 3ec. 1" ,;;9" (alance sheet

. Fischer" Capital &(eginning'.......................... ";;;A%% net income &9;";;; / 1";;;'................. ,9";;;

";;;:ess $ith%ra$als............................................... &18";;;'. Fischer" Capital &en%ing'............................... 46";;;

Quic5 Stu%y 4/ & minutes'

a. I %. >

(. > e. >

c. I f. >

Quic5 Stu%y 4/6 & minutes'

a. 1 %. (. e. 4

c. ,


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Quic5 Stu%y 4/8 &,; minutes'

E3?A=3O CO@<AN2Hor5 Sheet

Una%+uste%Trial >alance A%+ustments

A%+uste%Trial >alance

IncomeStatement >alance Sheet

Account Title 3r. Cr. 3r. Cr. 3r. Cr. 3r. Cr. 3r. Cr.

<repai% =ent.................. 4";;; &a' 8;; ",;; ",;;

Ser!ices =e!enue... ....... ";;;

&(' 9; "9;

"9;

Hages e#pense...... ....... ;";;;

&c' 6; ;"6;

;"6;

Accounts =ecei!a(le...... &(' 9; 9; 9;

Hages <aya(le..... ... ...... &c' 6; 6; 6;

=ent E#pense........ ...... .. &a' 8;; 8;; 8;;



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Quic5 Stu%y 4/9 &1 minutes'

3ec. 1 Ser!ices =e!enue......................................... ,";;;Income Summary.................................. ,";;;

)o close the re*enue account+

1 Income Summary.......................................... ,;";;;Hages E#pense..................................... 1"8;;=ent E#pense......................................... ",;;

)o close the epense accounts+

1 Income Summary.......................................... ";;;<. Simms" Capital................................... ";;;

)o close Income Summar account+

1 <. Simms" Capital.......................................... 1";;

<. Simms" Hith%ra$als ........................ 1";;)o close the withrawals account+

Quic5 Stu%y 4/1; & minutes'

The only account from QS 4/9 that $oul% appear in post/closing trial(alance is <. Simms" Capital.

Quic5 Stu%y 4/11A &1; minutes'

,;;9an. 1 @anagement Fees Earne% ............................ ,4";;;

Accounts =ecei!a(le ........................... ,4";;;)o re*erse accrue re*enue+

1 Cash ................................................................ 6";;

@anagement Fees Earne% ................... 6";;)o recor collection of mana"ement fees+


Funamental !ccountin" #rinciples, $9th %ition$./

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EE=CISES

E#ercise 4/1 & minutes'

Closing entries

&1' Ser!ices =e!enue.........................................4;1 114";Income Summary..................................9;1 114";


&,' Income Summary..........................................9;1 ";3epreciation E#pense...........................; 16";;;Salaries E#pense...................................,, ,";;Insurance E#pense................................6 4"4,;=ent E#pense.........................................4; 9"44;


&' Income Summary..........................................9;1 1"16;=. Cru)" Capital......................................;1 1"16;


&4' =. Cru)" Capital.............................................;1 4"66;=. Cru)" Hith%ra$als.............................;, 4"66;

)o close the withrawals account+

<oste% accounts

=. Cru)" Capital No. ;1 Salaries E#pense No. ,,

3ate <= 3e(it Cre%it >alance 3ate <= 3e(it Cre%it >[email protected] ";;; @ar.1 ,";;

&' 1"16; 11"16; &,' ,";; ;&4' 4"66; 9"4;;

=. Cru)" Hith%ra$als No. ;, Insurance E#pense No. 6

3ate <= 3e(it Cre%it >alance 3ate <= 3e(it Cre%it >[email protected] 4"66; @ar.1 4"4,;

&4' 4"66; ; &,' 4"4,; ;

Ser!ices =e!enue No. 4;1 =ent E#pense No. 4;

3ate <= 3e(it Cre%it >alance 3ate <= 3e(it Cre%it >[email protected] 114"; @ar.1 9"44;&1' 114"; ; &,' 9"44; ;

3epreciation E#pense No. ; Income Summary No. 9;1

3ate <= 3e(it Cre%it >alance 3ate <= 3e(it Cre%it >[email protected] 16";;; &1' 114"; 114";

&,' 16";;; ; &,' "; 1"16;&' 1"16; ;


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E#ercise 4/, &4; minutes'

Santara @ar5eting CompanyHor5 Sheet

A%+uste%Trial >alance Closing Entry Information

<ost/ClosingTrial >alance

No. Account Title 3r. Cr. 3r. Cr. 3r. Cr.

1;1 Cash............................. 11"9;; 11"9;;

1; Accounts recei!a(le........ ,4";;; ,4";;;

1 E0uipment..................... 41";;; 41";;;

14 Accumulate% %epre/ ciation-E0uipment....... 1";; 1";;

19 Franchise....................... ;";;; ;";;;,;1 Accounts paya(le........... 14";;; 14";;;

,;9 Salaries paya(le.............. ",;; ",;;

, Unearne% fees................ ,";; ,";;

;1 T. Santara" Capital............ "6;1 &4 '

14"4;; &1 '

18",99 6;";;

;, T. Santara" Hith%ra$als.... 14"4;; &4

'

14"4;;

4;1 @ar5eting fees earne%...... 8";;; &$ '

8";;;

11 3epreciation e#pense- E0uipment.................... 11";;; &2

'11";;;

,, Salaries e#pense............. ";4 &2 '

";4

4; =ent e#pense................. 1,"1 &2 '

1,"1

66 @iscellaneous e#pense.... 8";1 &2 '

8";1

9;1 Income summary............ &2 '

4"6;1 &$ '

8";;;


Funamental !ccountin" #rinciples, $9th %ition$..

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JJJJJJ JJJJJJ &1 '

18",99

JJJJJJ JJJJJJ JJJJJJ

Totals............................ 18";;1 18";;1 18;"4;; 18;"4;; 1;"9;; 1;"9;;


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E#ercise 4/ &; minutes'

1.

,;;9

3ec. 1 Ser!ices =e!enue.........................................4;4 6",;;

Income Summary..................................9;1 6",;;)o close the re*enue account+

1 Income Summary..........................................9;1 ,8"983epreciation E#pense-E0uipment....1, ,";;;Salaries E#pense...................................,, ,1"86Insurance E#pense................................6 1",=ent E#pense.........................................4; ,"49,Supplies E#pense.................................., 1",,6


1 Income Summary..........................................9;1 8",,

N. Ferrara" Capital.................................;1 8",,)o close Income Summar account+

1 N. Ferrara" Capital.........................................;1 ";;;N. Ferrara" Hith%ra$als........................;, ";;;


,.

FE==A=A CO@<AN2<ost/Closing Trial >alance

3ecem(er 1" ,;;9e(it Creit

Cash................................................................ 18";;;

Supplies.......................................................... 1"9;;

<repai% insurance.......................................... ,";;;

E0uipment....................................................... ,";;;

Accumulate% %epreciationKE0uipment....... ";;

N. Ferrara" CapitalL......................................... ;"4;;

Totals............................................................... "9;; "9;;

L48"18 D 8",, / ";;; 7 ;"4;;


Funamental !ccountin" #rinciples, $9th %ition$90

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E#ercise 4/4 &,; minutes'

=ESOU=CE T=UCBIN? CO@<AN2Income Statement

For 2ear En%e% 3ecem(er 1" ,;;9

Truc5ing fees earne%................................................ 1,1";;;

E#penses

3epreciation e#pense-Truc5s........................... ,;"6,6

Salaries e#pense.................................................. "649

Office supplies e#pense...................................... "

=epairs e#pense-Truc5s.................................... 1;"4;

Total e#penses...................................................... 94"6

Net income................................................................. ,"4

=ESOU=CE T=UCBIN? CO@<AN2Statement of O$ner*s E0uity


. =eso" Capital" 3ecem(er 1" ,;;8....................... 11"9;1

A%% Net income...................................................... ,"4188"4

:ess Hith%ra$als.................................................... &,;";;;'

. =eso" Capital" 3ecem(er 1" ,;;9....................... 18"4


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E#ercise 4/ &,; minutes'

=ESOU=CE T=UCBIN? CO@<AN2>alance Sheet

3ecem(er 1" ,;;9

!ssetsCurrent assets

Cash................................................................ "8;;

Accounts recei!a(le..................................... 16";;

Office supplies............................................... ";;;

Total current assets...................................... ,";;

<lant assets

Truc5s............................................................. 1";;;

Accumulate% %epreciation/Truc5s.............. &,"1' 1,"84

:an%................................................................ 8";;;

Total plant assets.......................................... ,;8"84

Total assets...................................................... ,"14

3ia(ilities

Current lia(ilities

Accounts paya(le.......................................... 9"8;;

Interest paya(le............................................. 4";;;

Total current lia(ilities.................................. 1"8;;

:ong/term notes paya(le................................ ";;;

Total lia(ilities.................................................. "8;;

%uit

. =eso" CapitalL............................................... 18"4

Total lia(ilities an% e0uity............................... ,"14

5 From %ercise 4-4



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E#ercise 4/ &1 minutes'

Note Current assets an% current lia(ility totals are from E#ercise 4/4 or 4/

Current ratio 7 7 7 1.9

Interpretation =esource Truc5ing Company*s current ratio of 1.9 e#cee%sthe in%ustry a!erage of 1.. This implies the company is in a slightly (etter li0ui%ity position than its competitors. @oreo!er" if $e re!ie$ the ma5eupof the current ratio" $e see that current assets consist primarily of cashan% accounts recei!a(le. The e#istence of these more li0ui% assets is apositi!e attri(ute for li0ui%ity purposes.

E#ercise 4/6 &1 minutes'

CurrentAssets

Current:ia(ilities

Current=atio

Case 1 6";;; G ," 7 ,.8

Case , 1;1";8; G 4"1 7 1.6

Case 4,"8 G 41",;4 7 1.;4

Case 4 8,";8 G 9"1 7 1.19

Case 8"444 G 84"8 7 ;.9

!nalsis Company 1 is in the strongest li0ui%ity position. It has a(out,.8 of current assets for each 1 of current lia(ilities. The only potentialconcern is that Company 1 may (e carrying too much in current assets thatcoul% (e (etter spent on more pro%ucti!e assets &note that its remainingcompetitors* current ratios range from 1.6 to ;.9'.


Solutions Manual, Chapter 4 $91

Current assets

Current lia(ilities

,";;

1"8;;

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E#ercise 4/8 &,; minutes'

Instructor note Entries are sho$n $ithout an account reference column (ecause no posting is re0uire%.

&a' Insurance E#pense-Office E0uipment.................. 46;Insurance E#pense-Store E0uipment................... ;9

<repai% Insurance.............................................. 969)o recor epire insurance+

&(' Office Supplies E#pense.......................................... 1"6,9Office Supplies................................................... 1"6,9

)o recor consume supplies+

&c' 3epreciation E#pense-Office E0uipment............. ";;Accumulate% 3epreciation-Office E0uip....... ";;

)o recor epreciation of office euip+

&%' Interest =ecei!a(le.................................................... Interest =e!enue................................................

)o recor accrue interest income+

&e' Office Salaries E#pense............................................ 61Salaries <aya(le................................................ 61

)o recor accrue salaries+

E#ercise 4/9 &1 minutes'

1. C . C 9. > 1. 3

,. 3 . C 1;. C 14. >

. C 6. A 11. C 1. 3

4. A 8. 3 1,. A 1. A



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E#ercise 4/1; &,; minutes'

:inn CompanyHor5 Sheet

A%+uste%Trial >alance Income

Statement

>alance Sheet MStatement of

O$ner*s E0uity

No.

Account 3r. Cr. 3r. Cr. 3r. Cr.

1;1 Cash................................ 8",;; 8",;;

1; Accounts recei!a(le........... "84 "84

1 Truc5s.............................. 41";; 41";;

14 Accumulate% %epreciation- Truc5s.............................. 1"8 1"8

18 :an%................................ ;";;; ;";;;

,;1 Accounts paya(le.............. 19"1; 19"1;

,;9 Salaries paya(le................. 4"6; 4"6;

, Unearne% fees................... "66; "66;

;1 3. :inn Capital................... 9";1, 9";1,

;, 3. :inn" Hith%ra$als........... 1"4 1"4

4;1<lum(ing fees earne%......... 84";;; 84";;;

11 3epreciation e#pense- Truc5s............................

"1 "1

,, Salaries e#pense................ 9"1, 9"1,

4; =ent e#pense.................... 1,"68 1,"68

66 @iscellaneous e#pense...... 8",, JJJJJJ 8",, JJJJJJ JJJJJJJ JJJJJJ

Totals............................... 19"941 19"941 "86 84";;; 11";8 11,"941

Net income....................... 18"1,6 JJJJJJ JJJJJJJ 18"1,6

Totals............................... 84";;; 84";;; 11";8 11";8



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E#ercise 4/11 &, minutes'

1.

Hor5 Sheet

Account Title 3e(it Cre%it

=ent earne%............................................ 9;";;;

Salaries e#pense................................... 9"9;

Insurance e#pense................................ "6;

Office supplies e#pense....................... 1",;

>i5e repair e#pense.............................. ,"69;

3epreciation e#pense->i5es.............. 16"19;

Totals...................................................... 68"84; 9;";;;

Net income............................................. 11"1;

Totals...................................................... 9;";;; 9;";;;

,. Closing entries

&1' =ent Earne%................................................... 9;";;;Income Summary.................................. 9;";;;


&,' Income Summary.......................................... 68"84;

Salaries E#pense................................... 9"9;Insurance E#pense................................ "6;Office Supplies E#pense...................... 1",;>i5e =epair E#pense............................. ,"69;3epreciation E#pense->i5es.............. 16"19;


&' Income Summary.......................................... 11"1;C. ohnson" Capital .............................. 11"1;



Funamental !ccountin" #rinciples, $9th %ition$9/

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E#ercise 4/1, &; minutes' #art $

SANTA?A 3E:IE=2 CO@<AN2Hor5 Sheet


Una%+uste%Trial >alance A%+ustments


IncomeStatement

>alance Sheetan% Statement of O$ner*s E0utiy

Account Title 3r. Cr. 3r. Cr. 3r. Cr. 3r. Cr. 3r. Cr.

Cash...........................................1";;; 1";;; 1";;;

Accounts recei!a(le.......................";;; ";;; ";;;

Office supplies.............................. 4";;; &c' ";; ;; ;;

Truc5s.........................................4;";;; 4;";;; 4;";;;

Accum. 3epreciation-Truc5s.... .. ... 11,";;; &a' 1";;; 1,8";;; 1,8";;;

:an%...........................................1;";;; 1;";;; 1;";;;

Accounts paya(le........... ............ ... ,"; ,"; ,";

Interest paya(le............................. ";;; &('

,";;; 8";;; 8";;;

:ong/term notes paya(le......... .. .. .. . 1;4";;; 1;4";;; 1;4";;;

3. Santaga Capital..... ....... .......... ... . ,6,"66; ,6,"66; ,6,"66;

3. Santaga" Hith%ra$als.. ........ .. .. .. .8";;; 8";;; 8";;;

3eli!ery fees earne%..... .... ... ... ... ... .. ,64"; ,64"; ,64";

3epreciation e#pense-Truc5s.. ... ...48";;; &a' 1";;; 4";;; 4";;;

Salaries e#pense...........................1,8"6; 1,8"6; 1,8"6;

Office supplies e#pense..................14";;; &c' ";; 16";; 16";;

Interest e#pense............................ ";;; &('

,";;; 8";;; 8";;;

=epairs e#pense-Truc5s...............1";;; JJJJJJ JJJJJ JJJJJ 1";;; JJJJJJ 1";;; JJJJJJ JJJJJJ JJJJJJ

Totals..........................................69,"6; 69,"6; ,1";; ,1";; 81;"6; 81;"6; ,4"16; ,64"; 6";; ",;



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Net Income............ ....... ...... ..... .... . 4;"18; JJJJJJ JJJJJJ 4;"18;

Totals.......................................... ,64"; ,64"; 6";; 6";;


Funamental !ccountin" #rinciples, $9th %ition$9.

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E#ercise 4/1A &; minutes'

1. A%+usting entries

Oct. 1 =ent E#pense................................................ ";;=ent <aya(le.......................................... ";;

)o recor accrue rent epense+

1 =ent =ecei!a(le............................................ 1";;=ent Earne%........................................... 1";;

)o recor accrue rent income+

,. Su(se0uent entries $ithout re!ersing

No!. =ent <aya(le................................................. ";;=ent E#pense................................................ ";;

Cash........................................................ ";;

)o recor pament of 2 months7 rent+ 8 Cash............................................................... ,"1;;

=ent =ecei!a(le..................................... 1";;=ent Earne%........................................... 1";;

)o recor collection of 2 months7 rent+

. =e!ersing entries an% su(se0uent entries

No!. 1 =ent <aya(le................................................. ";;=ent E#pense......................................... ";;

)o re*erse accrual of rent epense+

1 =ent Earne%................................................... 1";;=ent =ecei!a(le..................................... 1";;

)o re*erse accrual of rent income+

=ent E#pense................................................ ";;Cash........................................................ ";;

)o recor pament of 2 months7 rent+

8 Cash............................................................... ,"1;;=ent Earne%........................................... ,"1;;

)o recor collection of 2 months7 rent+


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E#ercise 4/14A &1; minutes'

=e!ersing entries are appropriate for accounting a%+ustments &a' an% &e'

Sept. 1 Ser!ice Fees Earne%..................................... 4";;Accounts =ecei!a(le............................ 4";;

)o re*erse accrue re*enues+

1 Salaries <aya(le........................................... ,"6;;Salaries E#pense................................... ,"6;;

)o re*erse accrue salaries+

<=O>:E@ SET A

<ro(lem 4/1A &1 minutes'

1. C . C 11. > 1. C

,. A 6. 1,. 16. F

. C 8. A 1. A 18. E

4. A 9. E 14. A 19. A

. C 1;. E 1. E ,;. ?


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<ro(lem 4/,A &9; minutes'

I8S):C); 8;)% :e%ger accounts &as prepare% per <art 1' are sho$n after <art 6 as they$oul% appear after all entries are poste%.

<art , - Transactions for April

April 1 Cash...............................................................1;1 ,";;;Computer E0uipment...................................16 ,";;;. No)omi" Capital.................................;1 8";;;

;wner in*este in the (usiness+

, =ent E#pense................................................4; 1";;Cash........................................................1;1 1";;

#ai one month7s rent+

Office Supplies...............................................1,4 ,";;Cash........................................................1;1 ,";;

!cuire office supplies+

1; <repai% Insurance..........................................1,8 ,";,Cash........................................................1;1 ,";,

#ai $2 months7 premium in a*ance+

14 Salaries E#pense...........................................,, ,";;Cash........................................................1;1 ,";;

#ai two wee<s7 salaries+

,4 Cash...............................................................1;1 1";;;

Commissions Earne%............................4; 1";;;Collecte commissions from airlines+

,8 Salaries E#pense..........................................,, ,"4;;Cash........................................................1;1 ,"4;;

#ai two wee<s7 salaries+

,9 =epairs E#pense...........................................84 6;Cash........................................................1;1 6;

epaire the computer+

; Telephone E#pense......................................88 ;Cash........................................................1;1 ;#ai the telephone (ill+

; . No)omi" Hith%ra$als................................;, 1",;;Cash........................................................1;1 1",;;

;wner withrew cash+



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<ro(lem 4/,A &Continue'

#art 1

A3ENTU=E T=AE:

Una%+uste% Trial >alanceApril ;" ,;;9No. Account Title 3e(it Cre%it

1;1 Cash.......................................................... 4"498

1; Accounts recei!a(le................................ ;

1,4 Office supplies......................................... ,";;

1,8 <repai% insurance.................................... ,";,

16 Computer e0uipment............................... ,";;;

18 Accumulate% %epreciation-.................. Computer e0uipment.............................. ;

,;9 Salaries paya(le....................................... ;

;1 . No)omi" Capital.................................... 8";;;

;, . No)omi" Hith%ra$als........................... 1",;;

4; Commissions earne%.............................. 1";;;

1, 3epreciation e#pense-

Computer e0uipment.............................. ;

,, Salaries e#pense...................................... 4"6;;

6 Insurance e#pense.................................. ;

4; =ent e#pense............................................ 1";;

; Office supplies e#pense.......................... ;

84 =epairs e#pense...................................... 6;

88 Telephone e#pense.................................. ;

Totals......................................................... 64";;; 64";;;



8/9/2019 19Chapter 04 SM



#art 4

A%+usting entries

&a' Apr ; Insurance E#pense............................................... 6 19

<repai% Insurance.......................................... 1,8 19 )o recor epire insurance &=2,602>$2 2>1'+

&(' ; Office Supplies E#pense....................................... ; 1"8;;Office Supplies............................................... 1,4 1"8;;

)o recor cost of supplies use &=2,600 - =00'+

&c' ; 3epreciation E#p-Computer E0uipment........... 1, ;;Accumulate% 3epreciation-Computer E0uipment .................................... 18 ;;

)o recor epreciation+

&%' ; Salaries E#pense................................................... ,, 6,;Salaries <aya(le............................................. ,;9 6,;

)o recor accrue salaries+

&e' ; Accounts =ecei!a(le............................................ 1; ";;Commissions Earne%.................................... 4; ";;

)o recor accrue commissions+

#art 6

A3ENTU=E T=AE:Income StatementFor @onth En%e% April ;" ,;;9

Commissions earne%.................................................. 19";;

E#penses 3epreciation e#pense-Computer e0uipment........ ;;

Salaries e#pense........................................................ "4,;

Insurance e#pense.................................................... 19

=ent e#pense.............................................................. 1";;

Office supplies e#pense............................................ 1"8;;=epairs e#pense........................................................ 6;

Telephone e#pense.................................................... ;

Total e#penses........................................................... 1;"49

Net income.................................................................... 8"91



8/9/2019 19Chapter 04 SM



#art 6?continue

A3ENTU=E T=AE:Statement of O$ner*s E0uity

For @onth En%e% April ;" ,;;9

. No)omi" Capital" April 1" ,;;9.................... ;

A%% O$ner in!estments............................... 8";;;

Net Income............................................ 8"91"91

:ess Hith%ra$als........................................... &1",;;'

. No)omi" Capital" April ;" ,;;9.................. "91

A3ENTU=E T=AE:>alance SheetApril ;" ,;;9

!ssets

Cash.................................................................................. 4"498

Accounts recei!a(le........................................................ ";;

Office supplies................................................................. 6;;

<repai% insurance........................................................... ,"

Computer e0uipment...................................................... ,";;;

Accumulate% %epreciationKComputer e0uipment....... &;;' ,";;

Total assets...................................................................... "111

3ia(ilities

Salaries paya(le.............................................................. 6,;%uit

. No)omi" Capital............................................................ "91

Total lia(ilities an% e0uity............................................... "111



8/9/2019 19Chapter 04 SM



#art /

Closing entries

April ; Commissions Earne%..................................4; 19";;

Income Summary..................................9;1 19";;)o close the re*enue account+

; Income Summary..........................................9;1 1;"493epreciation E#pKComputer E0uip.....1, ;;Salaries E#pense...................................,, "4,;Insurance E#pense................................6 19=ent E#pense.........................................4; 1";;Office Supplies E#pense......................; 1"8;;=epairs E#pense...................................84 6;

Telephone E#pense...............................88 ;)o close the epense accounts+

; Income Summary..........................................9;1 8"91. No)omi" Capital.................................;1 8"91

)o close the Income Summar account+

; . No)omi" Capital.........................................;1 1",;;. No)omi" Hith%ra$als........................;, 1",;;


#art A3ENTU=E T=AE:<ost/Closing Trial >alance

April ;" ,;;93e(it Cre%it

Cash.......................................................... 4"498Accounts recei!a(le................................ ";;Office supplies......................................... 6;;<repai% insurance.................................... ,"Computer e0uipment............................... ,";;;

Accumulate% %epreciationKComputer e0uipment............................. ;;

Salaries paya(le....................................... 6,;. No)omi" Capital.................................... JJJJJJJ "91Totals......................................................... "11 "11


Funamental !ccountin" #rinciples, $9th %ition20/

8/9/2019 19Chapter 04 SM



#art ?continue

:e%ger as of April ;

Cash Acct. No. 1;1

3ate E#planation <= 3e(it Cre%it >alanceApril 1 ,";;; ,";;;

, 1";; ;"6;; ,";; ,8",;;1; ,";, ,"9814 ,";; ,"98,4 1";;; 9"98

,8 ,"4;; "998,9 6; ",48; ; "98; 1",;; 4"498

Accounts =ecei!a(le Acct. No. 1;

3ate E#planation <= 3e(it Cre%it >alanceApril ; A%+usting ";; ";;

Office Supplies Acct. No. 1,4

3ate E#planation <= 3e(it Cre%it >alanceApril ,";; ,";; ; A%+usting 1"8;; 6;;

<repai% Insurance Acct. No. 1,8

3ate E#planation <= 3e(it Cre%it >alanceApril 1; ,";, ,";, ; A%+usting 19 ,"

Computer E0uipment Acct. No. 16

3ate E#planation <= 3e(it Cre%it >alanceApril 1 ,";;; ,";;;

Accumulate% 3epreciationKComputer E0uipment Acct. No. 18

3ate E#planation <= 3e(it Cre%it >alanceApril ; A%+usting ;; ;;

Salaries <aya(le Acct. No. ,;93ate E#planation <= 3e(it Cre%it >alance

April ; A%+usting 6,; 6,;



8/9/2019 19Chapter 04 SM



. No)omi" Capital Acct. No. ;1

3ate E#planation <= 3e(it Cre%it >alanceApril 1 8";;; 8";;;April ; Closing 8"91 "91

; Closing 1",;; "91

. No)omi" Hith%ra$als Acct. No. ;,

3ate E#planation <= 3e(it Cre%it >alanceApril ; 1",;; 1",;; ; Closing 1",;; ;

Commissions Earne% Acct. No. 4;

3ate E#planation <= 3e(it Cre%it >alanceApril ,4 1";;; 1";;; ; A%+usting ";; 19";;

; Closing 19";; ;

3epreciation E#penseKComputer E0uipment Acct. No. 1,

3ate E#planation <= 3e(it Cre%it >alanceApril ; A%+usting ;; ;;

; Closing ;; ;

Salaries E#pense Acct. No. ,,

3ate E#planation <= 3e(it Cre%it >alanceApril 14 ,";; ,";;

,8 ,"4;; 4"6;;

; A%+usting 6,; "4,;; Closing "4,; ;

Insurance E#pense Acct. No. 6

3ate E#planation <= 3e(it Cre%it >alanceApril ; A%+usting 19 19

; Closing 19 ;

=ent E#pense Acct. No. 4;

3ate E#planation <= 3e(it Cre%it >alance

April , 1";; 1";;

April ; Closing 1";; ;

Office Supplies E#pense Acct. No. ;

3ate E#planation <= 3e(it Cre%it >alanceApril ; A%+usting 1"8;; 1"8;; ; Closing 1"8;; ;


Funamental !ccountin" #rinciples, $9th %ition20.

8/9/2019 19Chapter 04 SM


<ro(lem 4/,A &Conclue'

=epairs E#pense Acct. No. 84

3ate E#planation <= 3e(it Cre%it >alanceApril ,9 6; 6;

; Closing 6; ;

Telephone E#pense Acct. No. 88

3ate E#planation <= 3e(it Cre%it >alanceApril ; ; ; ; Closing ; ;

Income Summary Acct. No. 9;1

3ate E#planation <= 3e(it Cre%it >alanceApril ; Closing 19";; 19";;

; Closing 1;"49 8"91

; Closing 8"91 ;

<ro(lem 4/A &9; minutes'

#art $

CPA=ON =E<AI=S

Income StatementFor 2ear En%e% 3ecem(er 1" ,;;9

=epair fees earne%..................................... 98";;

E#penses

3epreciation e#pense-E0uipment........ ";;;

Hages e#pense......................................... 9";;;

Insurance e#pense................................... 8;;

=ent e#pense............................................ 1";;;

Office supplies e#pense.......................... "1;;

Utilities e#pense....................................... ,"9;;

Total e#penses......................................... "8;;

Net income.................................................. 4"8;;



8/9/2019 19Chapter 04 SM


<ro(lem 4/A K &Continue'

CPA=ON =E<AI=SStatement of O$ners E0uity


:. Charon" Capital" an. 1" ,;;9................ ";;;

A%% Net income ...................................... 4"8;;6"8;;

:ess Hith%ra$als..................................... &1";;;'

:. Charon" Capital" 3ec. 1" ,;;9.............. 1"8;;

CPA=ON =E<AI=S>alance Sheet

3ecem(er 1" ,;;9

!ssets

Current assets

Cash.............................................................. 1"1;;

Office supplies............................................. 1";;

<repai% insurance........................................ ,"8;;

Total current assets..................................... ,;",;;

<lant assets E0uipment..................................................... ;";;;

Accumulate% %epreciation-E0uipment.... &";;;' 4";;;

Total assets..................................................... ",;;

3ia(ilities

Current lia(ilities

Accounts paya(le........................................ 1,";;;

Hages paya(le............................................. 1"4;;

Total current lia(ilities................................. 1"4;;

%uit

:. Charon" Capital ......................................... 1"8;;

Total lia(ilities an% e0uity............................. ",;;


Funamental !ccountin" #rinciples, $9th %ition2$0

8/9/2019 19Chapter 04 SM


<ro(lem 4/A &Continue'#arts 2 an 1

CPA=ON =E<AI=SHor5 Sheet


A%+uste%Trial >alance Closing Entry Information

<ost/ClosingTrial >alance

No. Account Title 3r. Cr. 3r. Cr. 3r. Cr.

1;1 Cash................................ 1"1;; 1"1;;

1,4 Office supplies................... 1";; 1";;

1,8 <repai% insurance ............. ,"8;; ,"8;;

16 E0uipment........................ ;";;; ;";;;

18 Accumulate% %epreciation- E0uipment........................

";;; ";;;

,;1 Accounts paya(le.............. 1,";;; 1,";;;

,1; Hages paya(le.................. 1"4;; 1"4;;

;1 :. Charon" Capital............... ";;; &4' 1";;; &' 4"8;; 1"8;;

;, :. Charon" Hith%ra$als....... 1";;; &4' 1";;;

4;1 =epair fees earne%............. 98";; &1' 98";;

1, 3epreciation e#pense-

E0uipment.......................

";;; &,' ";;;

, Hages e#pense................. 9";;; &,' 9";;;

6 Insurance e#pense............. 8;; &,' 8;;

4; =ent e#pense.................... 1";;; &,' 1";;;

; Office supplies e#pense...... "1;; &,' "1;;

9; Utilities e#pense................. ,"9;; &,' ,"9;;

9;1 Income summary............... &,' "8;; &1' 98";; JJJJJJ JJJJJJ &' 4"8;; JJJJJJ JJJJJJ JJJJJJ

Totals................................ 1;";;

;

1;";;; ,1",;; ,1",;; 6;",;; 6;",;;


Solutions Manual, Chapter 4 2$$

8/9/2019 19Chapter 04 SM


<ro(lem 4/A &Continue'

Closing entries &all %ate% 3ecem(er 1" ,;;9'


&1' =epair Fees Earne%......................................... 98";;Income Summary..................................... 98";;)o close the re*enue account+

&,' Income Summary............................................ "8;;3epreciation E#pense-E0uipment....... ";;;Hages E#pense........................................ 9";;;Insurance E#pense.................................. 8;;=ent E#pense........................................... 1";;;Office Supplies E#pense......................... "1;;Utilities E#pense...................................... ,"9;;


&' Income Summary............................................ 4"8;;:. Charon" Capital.................................... 4"8;;


&4' :. Charon" Capital............................................ 1";;;:. Charon" Hith%ra$als........................... 1";;;




8/9/2019 19Chapter 04 SM


<ro(lem 4/A &Conclue'

#art 4

&a' If none of the 8;; insurance e#pense ha% e#pire%" the incomestatement $oul% not report any insurance e#pense an% net income

$oul% (e increase% (y 8;;.

&(' If there $ere no earne% an% unpai% $ages &meaning Hages <aya(lee0uals )ero'" $ages e#pense $oul% (e 1"4;; less an% net income$oul% (e 1"4;; more.

Summary Financial Statement Changes from >oth &a' an% &('

The income statement $oul% reflect the follo$ing

•

Net income $oul% (e increase% (y 8;; D 1"4;; 7 ,",;;.

The (alance sheet $oul% reflect the follo$ing

• <repai% insurance an% total assets $oul% (e increase% (y 8;;.

• There $oul% not (e any $ages paya(le.

• Total current lia(ilities $oul% (e 1"4;; less.

• Total e0uity $oul% (e increase% (y ,",;;.

• Total lia(ilities $oul% (e %ecrease% (y 1"4;;.


Solutions Manual, Chapter 4 2$1

8/9/2019 19Chapter 04 SM


<ro(lem 4/4A &6 minutes'

#art $

TA@A= CONST=UCTIONIncome Statement


=e!enues <rofessional fees earne%................................... 1;,";;;=ent earne%......................................................... 1";;;3i!i%en%s earne%............................................... ";;;Interest earne%.................................................... ,",;;Total re!enues.................................................... 1,,",;;

E#penses 3epreciation e#pense->uil%ing...................... 11"88;3epreciation e#pense-E0uipment.................. "6;

Hages e#pense................................................... ;";;Interest e#pense................................................. 4"6;;Insurance e#pense............................................. 8"9;;=ent e#pense...................................................... 1;"9;;Supplies e#pense............................................... ";;<ostage e#pense................................................ ,";;<roperty ta#es e#pense..................................... ";;;=epairs e#pense................................................. ",;;Telephone e#pense............................................ "1;;Utilities e#pense................................................. ";;;

Total e#penses.................................................... 98"9;Net income............................................................ ,",6;

TA@A= CONST=UCTIONStatement of O$ners E0uity


E. Tamar" Capital" 3ecem(er 1" ,;;8................ 1,4"6;;

A%% In!estments (y o$ner.............................. 6";;;

Net income................................................. ,",6; ;",6;14"96;

:ess Hith%ra$als (y o$ner.............................. &11";;;'

E. Tamar" Capital" 3ecem(er 1" ,;;9................ 14"96;



8/9/2019 19Chapter 04 SM


<ro(lem 4/4A &Continue'

TA@A= CONST=UCTION>alance Sheet

3ecem(er 1" ,;;9


Cash..................................................................... 6";;;

Short/term in!estments..................................... ,";;

Supplies.............................................................. 8",;;

<repai% insurance.............................................. 6";;

Total current assets........................................... 4",;;

<lant assets

E0uipment........................................................... 4";;;

Accumulate% %epreciation-E0uipment.......... &,,";;' ,,";;>uil%ing............................................................... 1,";;;

Accumulate% %epreciation->uil%ing.............. &4";;;' 1;8";;;

:an%..................................................................... "66;

Total plant assets............................................... 196",6;

Total assets........................................................... ,4"46;

3ia(ilities

Current lia(ilities

Accounts paya(le............................................... 16";;;Interest paya(le.................................................. ,"9;;

=ent paya(le....................................................... ";;

Hages paya(le.................................................... ,"1;;

<roperty ta#es paya(le...................................... 9;;

Unearne% professional fees.............................. 6"1;;

Current portion of long/term note paya(leR... 6";;

Total current lia(ilities....................................... 41";;;

:ong/term lia(ilities

:ong/term notes paya(le................................... 8";;Total lia(ilities....................................................... 99";;

%uit

E. Tamar" Capital .................................................. 14"96;

Total lia(ilities an% e0uity.................................... ,4"46;



8/9/2019 19Chapter 04 SM


<ro(lem 4/4A &Continue'

#art 2

Closing entries &all %ate% 3ecem(er 1" ,;;9'


&1' <rofessional Fees Earne%............................ 1;,";;;=ent Earne%................................................... 1";;;3i!i%en%s Earne%......................................... ";;;Interest Earne%.............................................. ,",;;

Income Summary.................................. 1,,",;;)o close the re*enue accounts+

&,' Income Summary.......................................... 98"9;3epreciation E#pense->uil%ing......... 11"88;3epreciation E#pense-E0uipment.... "6;

Hages E#pense..................................... ;";;Interest E#pense.................................... 4"6;;Insurance E#pense................................ 8"9;;=ent E#pense......................................... 1;"9;;Supplies E#pense.................................. ";;<ostage E#pense................................... ,";;<roperty Ta#es E#pense....................... ";;;=epairs E#pense................................... ",;;Telephone E#pense............................... "1;;Utilities E#pense.................................... ";;;


&' Income Summary.......................................... ,",6;E. Tamar" Capital.................................... ,",6;

)o close the income summar account+

&4' E. Tamar" Capital .......................................... 11";;;E. Tamar" Hith%ra$als.......................... 11";;;


#art 1

a. =eturn on assets 7 ,",6;G&,;;";;; D ,4"46;'G, 7 1;.

(. 3e(t ratio 7 99";;G,4"46; 7 ;.41

c. <rofit margin 7 ,",6;G1,,",;; 719

%. Current ratio 7 4",;;G41";;; 7 1.1


Funamental !ccountin" #rinciples, $9th %ition2$/

8/9/2019 19Chapter 04 SM


<ro(lem 4/A &9; minutes' #art $

A=CPE= CONST=UCTION CO.Hor5 Sheet

For 2ear En%e% une ;" ,;;9Una%+uste%Trial >alance A%+ustments


IncomeStatement >alance Sheet

No. Account Title 3r. Cr. 3r. Cr. 3r. Cr. 3r. Cr. 3r. Cr.1;1 Cash.........................................16";;; 16";;; 16";;;1, Supplies....................................6";;; &a' 4"48; ,",; ,",;

1,8 <repai% insurance.............. .........";; &(' "4 ,"; ,";16 E0uipment.................................149",;; 149",;; 149",;;18 Accumulate% %epreciation-

E0uipment.................................. ,";; &c' 8";; "8;; "8;;,;1 Accounts paya(le................. ...... ",;; &%' ; "6; "6;,; Interest paya(le........................... &h' ,;; ,;; ,;;,;8 =ent paya(le...... ..... ...... ...... ...... . &f' ;; ;; ;;,1; Hages paya(le........................... &e' 1"9;; 1"9;; 1"9;;,1 <roperty ta#es paya(le........ ......... &g' 6;; 6;; 6;;,1 :ong/term notes paya(le.............. ,;";;; ,;";;; ,;";;;;1 ?. Archer" Capital...... ............ ....... 8,"8;; 8,"8;; 8,"8;;;, ?. Archer" Hith%ra$als.................1";; 1";; 1";;4;1 Construction fees earne%... ........ .. 141";;; 141";;; 141";;;1, 3epreciation e#pense-

E0uipment................................ &c' 8";; 8";; 8";;

, Hages e#pense..........................4;";;; &e' 1"9;; 41"9;; 41"9;; Interest e#pense..... ................ .....,",;; &h' ,;; ,"4;; ,"4;;6 Insurance e#pense...................... &(' "4 "4 "44; =ent e#pense...... ...... ...... ..... ......11";;; &f' ;; 11";; 11";;, Supplies e#pense.................. ...... &a' 4"48; 4"48; 4"48;8 <roperty ta#es e#pense..... ...........4"9;; &g' 6;; ";; ";;84 =epairs e#pense..... ......... ...........,"9;; ,"9;; ,"9;;9; Utilities e#pense..... ....... .............. ";; JJJJJJ &%' ; JJJJJ "8; JJJJJJ "8; JJJJJJ JJJJJJ JJJJJJ

Totals........................................,64";; ,64";; ,;"1; ,;"1; ,8"; ,8"; 84"4; 141";;; ,;,", 14";Net Income......... ............ ........ .... "9 JJJJJJ JJJJJJ "9Totals........................................ 141";;; 141";;; ,;,", ,;,",



8/9/2019 19Chapter 04 SM



#art 2 A%+usting entries &all %ate% une ;" ,;;9'


&a' Supplies E#pense.............................................. 4"48;Supplies...................................................... 4"48;)o recor consumption of supplies+

&(' Insurance E#pense............................................ "4<repai% Insurance...................................... "4

)o recor epiration of insurance+

&c' 3epreciation E#pense-E0uipment................. 8";;Accumulate% 3epreciation-E0uipment....... 8";;


&%' Utilities E#pense................................................ ;Accounts <aya(le...................................... ;

)o recor accrue utilities costs+

&e' Hages E#pense.................................................. 1"9;;Hages <aya(le........................................... 1"9;;

)o recor accrue wa"es+

&f' =ent E#pense..................................................... ;;=ent <aya(le............................................... ;;

)o recor remainer of annual rent+

&g' <roperty Ta#es E#pense................................... 6;;<roperty Ta#es <aya(le............................. 6;;

)o recor aitional propert taes+

&h' Interest E#pense................................................ ,;;Interest <aya(le.......................................... ,;;

)o recor interest epense for @une+


Funamental !ccountin" #rinciples, $9th %ition2$.

8/9/2019 19Chapter 04 SM



Closing entries &all %ate% une ;" ,;;9'


&1' Construction Fees Earne%........................... 141";;;Income Summary.................................. 141";;;)o close the re*enue account+

&,' Income Summary.......................................... 84"4;3epreciation E#penseKE0uipment...... 8";;Hages E#pense..................................... 41"9;;Interest E#pense.................................... ,"4;;Insurance E#pense................................ "4=ent E#pense......................................... 11";;Supplies E#pense.................................. 4"48;

<roperty Ta#es E#pense....................... ";;=epairs E#pense................................... ,"9;;Utilities E#pense.................................... "8;


&' Income Summary.......................................... "9?. Archer" Capital.................................. "9


&4' ?. Archer" Capital.......................................... 1";;

?. Archer" Hith%ra$als......................... 1";;)o close the withrawals account+



8/9/2019 19Chapter 04 SM



#art 1

A=CPE= CONST=UCTION CO.Income Statement

For 2ear En%e% une ;" ,;;9Construction fees earne%................................. 141";;;

E#penses

3epreciation e#pense-E0uipment............... 8";;

Hages e#pense................................................ 41"9;;

Interest e#pense.............................................. ,"4;;

Insurance e#pense.......................................... "4

=ent e#pense.................................................... 11";;

Supplies e#pense............................................ 4"48;<roperty ta#es e#pense.................................. ";;

=epairs e#pense.............................................. ,"9;;

Utilities e#pense............................................... "8;

Total e#penses................................................. 84"4;

Net income......................................................... "9

A=CPE= CONST=UCTION CO.Statement of O$ner*s E0uityFor 2ear En%e% une ;" ,;;9

?. Archer" Capital" une ;" ,;;8..................... "8;;

A%% In!estments (y o$ner............................. ,6";;;

Net income.......................................................... "9 8"919"9

:ess Hith%ra$als (y o$ner............................ &1";;'

?. Archer" Capital" une ;" ,;;9..................... 1;6"89



8/9/2019 19Chapter 04 SM



A=CPE= CONST=UCTION CO.>alance Sheetune ;" ,;;9


Cash....................................................................... 16";;;

Supplies................................................................. ,",;

<repai% insurance................................................. ,";

Total current assets.............................................. ,1"

<lant assets

E0uipment............................................................. 149",;;

Accumulate% %epreciation-E0uipment............ &"8;;' 11"4;;

Total assets............................................................. 1"9

3ia(ilities

Current lia(ilities

Accounts paya(le................................................. "6;

Interest paya(le.................................................... ,;;

=ent paya(le......................................................... ;;

Hages paya(le...................................................... 1"9;;

<roperty ta#es paya(le........................................ 6;;

Current portion of long/term note paya(le........ 4";;

Total current lia(ilities.......................................... 1";

Noncurrent lia(ilities

:ong/term note paya(le....................................... 1";;

Total lia(ilities......................................................... ,9";;

%uit

?. Archer" Capital.................................................... 1;6"89

Total lia(ilities an% e0uity...................................... 1"9



8/9/2019 19Chapter 04 SM


<ro(lem 4/A &Conclue'#art 4

&a' This error enters the $rong amount in the correct accounts. Theen%ing (alance of the Supplies account shoul% (e ,",;" (ut theentry re%uces Supplies (y ,",;. >ecause its una%+uste% (alance

$as 6";;;" the a%+uste% (alance $ill (e 4"48; &6";;; / ,",;'"$hich is 1"9; greater than the correct ,",; (alance. In a%%ition"the Supplies E#pense account (alance $ill (e only ,",; instea% of 4"48;.

The a%+uste% trial (alance columns in the $or5 sheet $ill (e e0ual"(ut the error $ill cause the $or5 sheet*s net income to (e o!erstate%(y 1"9; (ecause of the un%erstatement of the e#pense. Ina%%ition" the (alance sheet columns $ill inclu%e the o!erstate%(alance for the Supplies account.

This error is not li5ely to (e %etecte% as a result of completing the$or5 sheet. If it is not" the income statement $ill o!erstate netincome (y 1"9;" an% the (alance sheet $ill o!erstate the cost of the supplies a!aila(le an% the capital account (y 1"9;. &If thefollo$ing year is %one correctly" the accounts $ill (e accurate after the follo$ing year a%+ustments.'

&(' This error inserts a cre%it in the a%+uste% trial (alance $hen a %e(itshoul% ha!e (een inserte%. As a result" the trial (alance $ill not(alance &the cre%it column $ill (e greater than the %e(it column (y

4";;;'" an% the error $ill (e trac5e% %o$n an% correcte% (eforegoing on $ith the ne#t step in the $or5 sheet.

>ecause the error $ill (e %etecte% an% correcte% (efore preparingthe financial statements" the statements $ill not (e affecte%.



8/9/2019 19Chapter 04 SM


<ro(lem 4/AA &4; minutes'

#art $

PUNTE= ?O:F =AN?EHor5 Sheet

For 2ear En%e% 3ecem(er 1" ,;;9Una%+uste%

Trial >alance A%+ustmentsA%+uste%

Trial >alanceAccount Title 3r. Cr. 3r. Cr. 3r. Cr.

Cash..............................1;";;; 1;";;;

Accounts recei!a(le........ &e' "9 "9

Supplies......................... 4",; &(' ,"14 ,";6

E0uipment.....................1;,";;; 1;,";;;Accumulate% %epre/

ciation//E0uipment......... 19"84 &f' 9"69, ,9"6

Interest paya(le............... &c' 1"4, 1"4,

Salaries paya(le.............. &a' 89 89

Unearne% mem(er fees..... 1;"66; &%' "4, 4";8

Notes paya(le................. 6";;; 6";;;

A.. Punter" Capital.......... ,8"89 ,8"89

A.. Punter" Hith%ra$als......1";;; 1";;;

@em(er fees earne%........ 4;"8;; &%'&e'

"4,"9

4"198

3epreciation e#pense- E0uipment.....................

&f' 9"69, 9"69,

Salaries e#pense............. ,1"4, &a' 89 ,,",1

Interest e#pense.............. 4",6 &c' 1"4, "6;;

Supplies e#pense............JJJJJJ JJJJJJ &(' ,"14 JJJJJ ,"14 JJJJJJ

Totals.............................16";46 16";46 ,6"48 ,6"48 16"889 16"889



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<ro(lem 4/AA &Continue'

#art 2 &all aAustin" entries ate ecem(er 1$, 2009'


&a' Salaries E#pense.......................................... 89

Salaries <aya(le.................................... 89)o recor accrue salaries+

&(' Supplies E#pense......................................... ,"14Supplies................................................. ,"14

)o recor cost of consume supplies+

&c' Interest E#pense........................................... 1"4,Interest <aya(le..................................... 1"4,

)o recor accrue interest epense+

&%' Unearne% @em(er Fees............................... "4,@em(er Fees Earne%............................ "4,

)o recor earne fees+

&e' Accounts =ecei!a(le.................................... "9@em(ership Fees Earne%..................... "9

)o recor accrue re*enues+

&f' 3epreciation E#pense-E0uipment............ 9"69,Accumulate% 3epreciation-E0uipment 9"69,


#art 1 &all re*ersin" entries ate @anuar $, 20$0'

&a' Salaries <aya(le........................................... 89Salaries E#pense................................... 89

)o re*erse accrue salaries+

&c' Interest <aya(le............................................ 1"4,Interest E#pense.................................... 1"4,

)o re*erse accrue interest epense+&e' @em(er Fees Earne%.................................... "9

Accounts =ecei!a(le............................ "9)o re*erse accrue re*enues+



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<ro(lem 4/AA &Conclue'

#art 4


,;1; an. 4 Salaries E#pense......................................... 1",,

Cash........................................................ 1",,)o recor paroll+

1 Interest E#pense.......................................... 1"61;Cash........................................................ 1"61;

)o recor interest pament+

1 Cash.............................................................. 14"9@em(er Fees Earne%............................ 14"9

)o recor collection of mem(ership fees&=/,91/ B =.,000'+



8/9/2019 19Chapter 04 SM


19chapter 04 sm

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