SOLUTION DISCUSSION QUESTIONS. Suggested Responses GENERAL JOURNAL Closing Entries

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1 SOLUTION GENERAL JOURNAL PAGE Closing Entries 1 2 Dec. 31 Commissions Earned 92, Income from Services 23, Income Summary 115, Income Summary 37, Salary Expense 21, Rent Expense 11, Supplies Expense 1, Depreciation Expense, Equipment 2, Miscellaneous Expense Income Summary 78, L. Thompson, Capital 78, L. Thompson, Capital 80, L. Thompson, Drawing 80, DISCUSSION QUESTIONS Suggested Responses DESCRIPTION 1. a. 3 Prepare a trial balance. b. 2 Post journal entries to the accounts in the ledger. c. 7 Journalize and post the adjusting entries from the data on the work sheet. d. 1 Analyze source documents and record business transactions in the journal. e. 6 Prepare financial statements from the data on the work sheet. f. 4 Gather adjustment data and record the adjusting entries on a work sheet. g. 8 Journalize and post the closing entries h. 9 Prepare a post-closing trial balance. i. 5 Complete the work sheet. 2. The steps in the closing procedure are: a. Close the revenue account(s) into Income Summary. b. Close the expense accounts into Income Summary. c. Close the Income Summary account into the Capital account, transferring the net income or net loss to the Capital account. d. Close the Drawing account into the Capital account. 3. The purpose of closing entries is to close out the temporary-equity or nominal accounts (revenue, expense, and Drawing accounts) and to transfer the net income or net loss to the Capital account, which prepares these accounts for the new fiscal period. If the closing entries are not made, proper matching of revenues and expenses in the fiscal period does not occur Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

2 4. Since the closing procedure causes zero balances in the temporary owner s equity accounts, if you do not print, save, and back up (make a copy of) your financial records, all accounts will be zero if you try to print your income statement. Similarly, in your statement of owner s equity, the net income or net loss and Drawing will be zero. 5. Real accounts, also called permanent accounts, are the balance sheet accounts other than Drawing; they are not closed at the end of the fiscal period. Examples are assets (Cash, Accounts Receivable, Prepaid Insurance, etc.), liabilities (Accounts Payable, etc.), and Capital. Nominal accounts, also called temporary accounts, are the income statement and Drawing accounts; they are closed at the end of the fiscal period. Examples are revenues (Service Revenue, etc.), expenses (Rent Expense, etc.), and Drawing. 6. Income Summary is a place to gather or summarize the revenues and expenses in order to calculate the net income or net loss to be transferred to the Capital account. 7. The purpose of the post-closing trial balance is to make sure that the debit balances equal the credit balances and to check that all nominal accounts have zero balances before proceeding to the next accounting period. The difference between a trial balance and a post-closing trial balance is that a post-closing trial balance contains only the real (permanent) accounts after adjustment, such as the assets, liabilities, and Capital; whereas a trial balance before closing contains all five classifications of accounts: assets, liabilities, revenue, expenses, and Capital (including Drawing). 8. The third closing entry to transfer the net income or net loss to the P. Hernandez, Capital account for the appropriate period. a. With a net income of $3,842. GENERAL JOURNAL PAGE DESCRIPTION 1 20 Closing Entries 1 2 Mar. 31 Income Summary 3, P. Hernandez, Capital 3, b. With a net loss of $1,781. GENERAL JOURNAL PAGE DESCRIPTION 1 20 Closing Entries 1 2 Jun. 30 P. Hernandez, Capital 1, Income Summary 1, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 183

3 SOLUTIONS TO EXERCISES Exercise 5-1 TITLE CLOSED REAL NOMINAL YES NO 0. Example: Building X X a. Prepaid Insurance X X b. Accounts Payable X X c. Wages Payable X X d. Service Revenue X X e. Rent Expense X X f. Supplies Expense X X g. Accumulated Depreciation, Equipment X X INCOME STATEMENT X X X SHEET X X X X X Exercise 5-2 GENERAL JOURNAL PAGE DESCRIPTION 1 Closing Entries 1 2 (1) Professional Fees 3, Income Summary 3, (2) Income Summary 4, Wages Expense 3, Insurance Expense Depreciation Expense, Equipment Miscellaneous Expense (3) J. Cortez, Capital Income Summary (4) J. Cortez, Capital J. Cortez, Drawing Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

4 Exercise 5-3 GENERAL JOURNAL PAGE DESCRIPTION 1 Closing Entries 1 2 Dec. 31 Professional Fees 7, Income Summary 7, Income Summary 3, Wages Expense 1, Rent Expense 1, Depreciation Expense, Equipment 1, Miscellaneous Expense Income Summary 3, C. Harris, Capital 3, C. Harris, Capital 1, C. Harris, Drawing 1, Exercise 5-4 GENERAL JOURNAL PAGE DESCRIPTION 1 Closing Entries 1 2 June 30 Service Revenue 6, Rental Revenue 3, Income Summary 10, Income Summary 5, Rent Expense 2, Wages Expense 1, Utilities Expense Miscellaneous Expense Income Summary 5, K. Dunn, Capital 5, K. Dunn, Capital 4, K. Dunn, Drawing 4, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 185

5 Exercise 5-5 GENERAL JOURNAL PAGE DESCRIPTION 1 Closing Entries 1 2 Dec. 31 Service Revenue 41, Rental Revenue 22, Income Summary 63, Income Summary 57, Wages Expense 48, Utilities Expense 7, Miscellaneous Expense 2, Income Summary 5, S. Cederblom, Capital 5, S. Cederblom, Capital 17, S. Cederblom, Drawing 17, Exercise 5-6 a. 12 Dec. 31 D. Mau, Capital 9, Income Summary 9, D. Mau, Capital 12, D. Mau, Drawing 12, b. $42,380 ($63,410 $9,030 $12,000) Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

6 Exercise 5-7 INCOME STATEMENT STATEMENT OF OWNER'S EQUITY SHEET 0. Example: The total liabilities of the business at the end of the year. X a. The amount of the owner's Capital balance at the end of the year. X X b. The amount of depreciation expense on equipment during the year. X c. The amount of the company's net income for the year. X X d. The book value of the equipment. X e. Total insurance expired during the year. X f. Total accounts receivable at the end of the year. X g. Total withdrawals by the owner. X h. The cost of utilities used during the year. X i. The amount of the owner's Capital balance at the beginning of the year. X Exercise 5-8 The Lindal Clinic Statement of Owner's Equity For Year Ended December 31, P. Lindal, Capital, January 1, $124,000 Investment on May 12, $ 7,000 Net Income for the Year 20,418 Subtotal $27,418 Less Withdrawals for the Year 31,500 Decrease in Capital (4,082) P. Lindal, Capital, December 31, $119, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

7 Problem 5-1A Assets Dr. Cr. = Liabilities + Owner's Equity + Revenue Dr. Cr. Dr. Cr. Dr. Cr Expenses Dr. Cr. B. Lyon, Capital Commissions Earned Rent Expense (4) 1,550 Bal. 7,520 (1) 4,679 Bal. 4,679 Bal. 995 (2) 995 (3) 2,281 Bal. 8,251 Supplies Expense B. Lyon, Drawing Bal. 575 (2) 575 Bal. 1,550 (4) 1,550 Depreciation Expense, Income Summary Office Equipment (2) 2,398 (1) 4,679 Bal. 462 (2) 462 (3) 2,281 Utilities Expense Bal. 269 (2) 269 Miscellaneous Expense Bal. 97 (2) Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

8 Problem 5-1A (concluded) GENERAL JOURNAL PAGE DESCRIPTION 1 Closing Entries May 31 Commissions Earned 4, Income Summary 4, Income Summary 2, Rent Expense Supplies Expense Depreciation Expense, Office 8 9 Equipment Utilities Expense Miscellaneous Expense Income Summary 2, B. Lyon, Capital 2, B. Lyon, Capital 1, B. Lyon, Drawing 1, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 189

9 Problem 5-2A Assets = Liabilities + Owner's Equity + Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr G. Ho, Capital Consulting Revenue Rent Expense (4) 2,400 Bal. 4,302 (1) 13,060 Bal. 13,060 Bal. 2,200 (2) 2,200 (3) 7,220 Bal. 9,122 Wages Expense G. Ho, Drawing Bal. 1,828 (2) 1,828 Bal. 2,400 (4) 2,400 Income Summary (2) 5,840 (1) 13,060 (3) 7,220 Supplies Expense Bal. 422 (2) 422 Insurance Expense Bal. 325 (2) 325 Depreciation Expense, Equipment Bal. 835 (2) 835 Miscellaneous Expense Bal. 230 (2) Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

10 Problem 5-2A (concluded) GENERAL JOURNAL PAGE DESCRIPTION 1 Closing Entries May 31 Consulting Revenue 13, Income Summary 13, Income Summary 5, Rent Expense 2, Wages Expense 1, Supplies Expense Insurance Expense Depreciation Expense, Equipment Miscellaneous Expense Income Summary 7, G. Ho, Capital 7, G. Ho, Capital 2, G. Ho, Drawing 2, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 191

11 Problem 5-3A Valerie Insurance Agency Work Sheet For Year Ended December 31, 20 TRIAL 1 Cash 7, Office Equipment 2, Accumulated Depreciation, Office 4 Equipment (a) M. Valerie, Capital 18, M. Valerie, Drawing 18, Premiums Earned 33, Wages Expense 20, (b) Rent Expense 2, Office Supplies Expense Telephone Expense Advertising Expense Miscellaneous Expense , , Depreciation Expense, Office Equipment (a) Wages Payable (b) NAME Net Income ADJUSTMENTS Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

12 Problem 5-3A (continued) ADJUSTED TRIAL INCOME STATEMENT SHEET 7, , , , , , , , , , , , , , , , , , , , , , , , , , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 193

13 Problem 5-3A (continued) GENERAL JOURNAL PAGE 17 DESCRIPTION 1 Adjusting Entries 1 2 Dec. 31 Depreciation Expense, Office 2 3 Equipment Accumulated Depreciation, Office 4 5 Equipment Wages Expense Wages Payable Closing Entries Premiums Earned , Income Summary , Income Summary , Wages Expense , Rent Expense 512 2, Office Supplies Expense Depreciation Expense, Office Equipment Telephone Expense Advertising Expense Miscellaneous Expense Income Summary 313 8, M. Valerie, Capital 311 8, M. Valerie, Capital , M. Valerie, Drawing , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

14 Problem 5-3A (continued) Cash NO. 111 GENERAL LEDGER Dec. 31 Balance 7, Office Equipment 124 NO. Dec. 31 Balance 2, Accumulated Depreciation, Office Equipment NO. 125 Dec. 31 Balance Adj Wages Payable NO. 222 Dec. 31 Adj M. Valerie, Capital NO. 311 Dec. 31 Balance 18, Closing 17 8, , Closing 17 18, , M. Valerie, Drawing NO. 312 Dec. 31 Balance 18, Closing 17 18, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 195

15 Problem 5-3A (continued) Income Summary NO. 313 Dec. 31 Closing 17 33, , Closing 17 25, , Closing 17 8, Premiums Earned 411 NO. Dec. 31 Balance 33, Closing 17 33, Wages Expense NO. 511 Dec. 31 Balance 20, Adj , Closing 17 20, Rent Expense NO. 512 Dec. 31 Balance 2, Closing 17 2, Office Supplies Expense NO. 513 Dec. 31 Balance Closing Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

16 Problem 5-3A (concluded) Depreciation Expense, Office Equipment NO. 514 Dec. 31 Adj Closing Telephone Expense NO. 515 Dec. 31 Balance Closing Advertising Expense NO. 516 Dec. 31 Balance Closing Miscellaneous Expense 519 NO. Dec. 31 Balance Closing NAME Valerie Insurance Agency Post-Closing Trial Balance December 31, Cash 7,532 Office Equipment 2,398 Accumulated Depreciation, Office Equipment 840 Wages Payable 428 M. Valerie, Capital 8,662 9,930 9, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 197

17 Problem 5-4A Bryan Company Work Sheet For Year Ended June 30, TRIAL 1 Cash 5, Accounts Receivable Prepaid Insurance 1, (a) Equipment 6, Accumulated Depreciation, 6 Equipment 2, (b) Van 10, Accumulated Depreciation, Van 4, (c) 1, Accounts Payable 1, B. Bryan, Capital 18, B. Bryan, Drawing 18, Fees Earned 38, Salary Expense 18, (d) Advertising Expense 1, Supplies Expense Van Operating Expense Utilities Expense Miscellaneous Expense , , Insurance Expense (a) Depreciation Expense, 22 Equipment (b) Depreciation Expense, Van (c) 1, Salaries Payable (d) , , Net Income NAME ADJUSTMENTS Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

18 Problem 5-4A (continued) ADJUSTED TRIAL INCOME STATEMENT SHEET 5, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 199

19 Problem 5-4A (continued) Bryan Company Income Statement For Year Ended June 30, Revenue: Fees Earned $38,417 Expenses: Salary Expense $19,140 Advertising Expense 1,887 Supplies Expense 397 Van Operating Expense 462 Utilities Expense 685 Insurance Expense 495 Depreciation Expense, Equipment 670 Depreciation Expense, Van 1,190 Miscellaneous Expense 164 Total Expenses 25,090 Net Income $13,327 Bryan Company Statement of Owner's Equity For Year Ended June 30, B. Bryan, Capital, July 1, $16,583 Investment on June 10, $ 2,000 Net Income for the Year 13,327 Subtotal $15,327 Less Withdrawals for the Year 18,000 Decrease in Capital (2,673) B. Bryan, Capital, June 30, $13, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

20 Problem 5-4A (continued) Bryan Company Balance Sheet June 30, Assets Cash $ 5,491 Accounts Receivable 624 Prepaid Insurance 785 Equipment $ 6,497 Less Accumulated Depreciation 3,342 3,155 Van $10,989 Less Accumulated Depreciation 5,558 5,431 Total Assets $15,486 Liabilities Accounts Payable $ 1,036 Salaries Payable 540 Total Liabilities $ 1,576 Owner's Equity B. Bryan, Capital 13,910 Total Liabilities and Owner's Equity $15, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 201

21 Problem 5-4A (concluded) GENERAL JOURNAL PAGE DESCRIPTION 1 Adjusting Entries 1 2 June 30 Insurance Expense Prepaid Insurance Depreciation Expense, Equipment Accumulated Depreciation, 6 7 Equipment Depreciation Expense, Van 1, Accumulated Depreciation, Van 1, Salary Expense Salaries Payable Closing Entries Fees Earned 38, Income Summary 38, Income Summary 25, Salary Expense 19, Advertising Expense 1, Supplies Expense Van Operating Expense Utilities Expense Insurance Expense Depreciation Expense, Equipment Depreciation Expense, Van 1, Miscellaneous Expense Income Summary 13, B. Bryan, Capital 13, B. Bryan, Capital 18, B. Bryan, Drawing 18, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

22 Problem 5-1B Assets = Liabilities + Owner's Equity + Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr M. Wally, Capital Commissions Earned Rent Expense (4) 1,600 Bal. 6,221 (1) 4,997 Bal. 4,997 Bal. 990 (2) 990 (3) 2,713 Bal. 7,334 Supplies Expense M. Wally, Drawing Bal. 480 (2) 480 Bal. 1,600 (4) 1,600 Depreciation Expense, Income Summary Office Equipment (2) 2,284 (1) 4,997 Bal. 420 (2) 420 (3) 2,713 Utilities Expense Bal. 286 (2) 286 Miscellaneous Expense Bal. 108 (2) Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 203

23 Problem 5-1B (concluded) GENERAL JOURNAL PAGE DESCRIPTION 1 Closing Entries May 31 Commissions Earned 4, Income Summary 4, Income Summary 2, Rent Expense Supplies Expense Depreciation Expense, Office 8 9 Equipment Utilities Expense Miscellaneous Expense Income Summary 2, M. Wally, Capital 2, M. Wally, Capital 1, M. Wally, Drawing 1, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

24 Problem 5-2B Assets = Liabilities + Owner's Equity + Revenue Expenses Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr W. Emil, Capital Consulting Revenue Rent Expense (4) 1,700 Bal. 5,367 (1) 9,546 Bal. 9,546 Bal. 1,800 (2) 1,800 (3) 4,616 Bal. 8,283 Wages Expense Bal. 1,533 (2) 1,533 W. Emil, Drawing Bal. 1,700 (4) 1,700 Supplies Expense Bal. 365 (2) 365 Income Summary (2) 4,930 (1) 9,546 (3) 4,616 Insurance Expense Bal. 364 (2) 364 Depreciation Expense, Equipment Bal. 700 (2) 700 Miscellaneous Expense Bal. 168 (2) Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 205

25 Problem 5-2B (concluded) GENERAL JOURNAL PAGE DESCRIPTION 1 Closing Entries June 30 Consulting Revenue 9, Income Summary 9, Income Summary 4, Rent Expense 1, Wages Expense 1, Supplies Expense Insurance Expense Depreciation Expense, Equipment Miscellaneous Expense Income Summary 4, W. Emil, Capital 4, W. Emil, Capital 1, W. Emil, Drawing 1, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

26 Extra Form GENERAL JOURNAL PAGE DESCRIPTION Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 207

27 Problem 5-3B Oliver Tour Company Work Sheet For Year Ended December 31, 20 1 Cash 4, Office Equipment 4, Accumulated Depreciation, Office 4 Equipment (a) S. Oliver, Capital 26, S. Oliver, Drawing 24, Tour Revenue 34, Wages Expense 22, (b) Rent Expense 2, Office Supplies Expense Telephone Expense Advertising Expense 1, Miscellaneous Expense , , Equipment (a) Wages Payable (b) TRIAL ADJUSTMENTS NAME Depreciation Expense, Office Net Income Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

28 Problem 5-3B (continued) ADJUSTED TRIAL INCOME STATEMENT SHEET 4, , , , , , , , , , , , , , , , , , , , , , , , , , , , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 209

29 Problem 5-3B (continued) GENERAL JOURNAL PAGE 17 DESCRIPTION 1 Adjusting Entries 1 2 Dec. 31 Depreciation Expense, Office 2 3 Equipment Accumulated Depreciation, Office 4 5 Equipment Wages Expense Wages Payable Closing Entries Tour Revenue , Income Summary , Income Summary , Wages Expense , Rent Expense 512 2, Office Supplies Expense Depreciation Expense, Office Equipment Telephone Expense Advertising Expense 516 1, Miscellaneous Expense Income Summary 313 4, S. Oliver, Capital 311 4, S. Oliver, Capital , S. Oliver, Drawing , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

30 Problem 5-3B (continued) GENERAL LEDGER Cash 111 NO. Dec. 31 Balance 4, Office Equipment NO. 124 Dec. 31 Balance 4, Accumulated Depreciation, Office Equipment NO. 125 Dec. 31 Balance Adj Wages Payable NO. 222 Dec. 31 Adj S. Oliver, Capital 311 NO. Dec. 31 Balance 26, Closing 17 4, , Closing 17 24, , S. Oliver, Drawing NO. 312 Dec. 31 Balance 24, Closing 17 24, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 211

31 Problem 5-3B (continued) Income Summary 313 NO. Dec. 31 Closing 17 34, , Closing 17 29, , Closing 17 4, Tour Revenue NO. 411 Dec. 31 Balance 34, Closing 17 34, Wages Expense NO. 511 Dec. 31 Balance 22, Adj , Closing 17 23, Rent Expense NO. 512 Dec. 31 Balance 2, Closing 17 2, Office Supplies Expense NO. 513 Dec. 31 Balance Closing Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

32 Problem 5-3B (concluded) Depreciation Expense, Office Equipment NO. 514 Dec. 31 Adj Closing Telephone Expense NO. 515 Dec. 31 Balance Closing Advertising Expense NO. 516 Dec. 31 Balance 1, Closing 17 1, Miscellaneous Expense NO. 519 Dec. 31 Balance Closing NAME Oliver Tour Company Post-Closing Trial Balance December 31, Cash 4,827 Office Equipment 4,042 Accumulated Depreciation, Office Equipment 932 Wages Payable 528 S. Oliver, Capital 7,409 8,869 8, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 213

33 Problem 5-4B Miss Beverly's Tutoring Service Work Sheet For Year Ended June 30, TRIAL ADJUSTMENTS NAME 1 Cash 6, Accounts Receivable Prepaid Insurance 1, (a) Equipment 5, Accumulated Depreciation, 6 Equipment 2, (b) Van 13, Accumulated Depreciation, Van 4, (c) 1, Accounts Payable 1, B. Morrow, Capital 14, B. Morrow, Drawing 18, Fees Earned 43, Salary Expense 16, (d) Advertising Expense 2, Van Operating Expense Supplies Expense Utilities Expense 1, Miscellaneous Expense , , Insurance Expense (a) Depreciation Expense, 22 Equipment (b) Depreciation Expense, Van (c) 1, Salaries Payable (d) , , Net Income Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

34 Problem 5-4B (continued) ADJUSTED TRIAL INCOME STATEMENT SHEET 6, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 215

35 Problem 5-4B (continued) Miss Beverly's Tutoring Service Income Statement For Year Ended June 30, Revenue: Fees Earned $43,680 Expenses: Salary Expense $16,574 Advertising Expense 2,200 Van Operating Expense 705 Supplies Expense 527 Utilities Expense 1,248 Insurance Expense 470 Depreciation Expense, Equipment 948 Depreciation Expense, Van 1,490 Miscellaneous Expense 358 Total Expenses 24,520 Net Income $19,160 Miss Beverly's Tutoring Service Statement of Owner's Equity For Year Ended June 30, B. Morrow, Capital, July 1, $11,848 Investment on June 10, $ 3,000 Net Income for the Year 19,160 Subtotal $22,160 Less Withdrawals for the Year 18,000 Increase in Capital 4,160 B. Morrow, Capital, June 30, $16, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

36 Problem 5-4B (continued) Miss Beverly's Tutoring Service Balance Sheet June 30, Assets Cash $ 6,491 Accounts Receivable 624 Prepaid Insurance 810 Equipment $ 5,497 Less Accumulated Depreciation 3,420 2,077 Van $13,674 Less Accumulated Depreciation 5,658 8,016 Total Assets $18,018 Liabilities Accounts Payable $ 1,436 Salaries Payable 574 Total Liabilities $ 2,010 Owner's Equity B. Morrow, Capital 16,008 Total Liabilities and Owner's Equity $18, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 217

37 Problem 5-4B (concluded) GENERAL JOURNAL PAGE DESCRIPTION 1 Adjusting Entries 1 2 June 30 Insurance Expense Prepaid Insurance Depreciation Expense, Equipment Accumulated Depreciation, 6 7 Equipment Depreciation Expense, Van 1, Accumulated Depreciation, Van 1, Salary Expense Salaries Payable Closing Entries Fees Earned 43, Income Summary 43, Income Summary 24, Salary Expense 16, Advertising Expense 2, Van Operating Expense Supplies Expense Utilities Expense 1, Insurance Expense Depreciation Expense, Equipment Depreciation Expense, Van 1, Miscellaneous Expense Income Summary 19, B. Morrow, Capital 19, B. Morrow, Capital 18, B. Morrow, Drawing 18, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

38 ING CYCLE REVIEW PROBLEM A SURF'S UP! Suggested Audit Questions 1. What was the amount incurred for advertising on July 5? 2. How much of the concessions income was received in cash? 3. What was the amount of the principal paid on the mortgage? 4. How much did Lacy withdraw from the business? 5. What is the amount of accrued wages? 6. How much insurance expired during the month? 7. What is the amount of depreciation of the pool/slide facility? 8. What is the ending balance of Lacy's Capital account? 9. As of the end of the month, what is the amount of the book value of the pool/slide facility? 10. How much cash did Lacy pay as a down payment on the purchase of Surf's Up!? Answers $1,320 $250 $1,910 $4,700 $920 $1,020 $675 $163,691 $149,830 $120, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 219

39 ING CYCLE REVIEW PROBLEM A (continued) GENERAL JOURNAL PAGE 1 DESCRIPTION July 1 Cash , L. Lacy, Capital , Invested cash in business Pool Furniture 126 3, Pool/Slide Facility , Building , Land , Cash , Mortgage Payable , Bought Surfs Up! Prepaid Insurance , Cash , Paid one-year premium for insurance Pool/Slide Facility 124 1, Cash Accounts Payable Bought inner tubes from Worn Tires Cash Concessions Income Received payment for rental space for video games and food concessions Advertising Expense 513 1, Accounts Payable 221 1, Grand opening expenses from Party Rentals ($620) and City Star ($700) Pool Maintenance Expense Cash July payment on contract to All-Around Maintenance Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

40 ING CYCLE REVIEW PROBLEM A (continued) GENERAL JOURNAL PAGE 2 DESCRIPTION July 6 Miscellaneous Expense Cash Paid for employee picnic Cash , Income from Services , For services rendered Pool Maintenance Expense Accounts Payable Bought parts on account from Arlen's Pool Supply Cash , Income from Services , For services rendered Wages Expense 512 8, Cash 111 8, For period July 1 through July Accounts Payable 221 1, Cash 111 1, Paid Party Rentals and City Star on account L. Lacy, Drawing 312 2, Cash 111 2, Withdrawal for personal use Pool Furniture 126 2, Accounts Payable 221 2, Bought pool furniture from Pool Suppliers Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 221

41 ING CYCLE REVIEW PROBLEM A (continued) GENERAL JOURNAL PAGE 3 DESCRIPTION July 18 Miscellaneous Expense Cash Paid for costume alterations Cash , Income from Services , For services rendered Accounts Payable Cash Partial payment to Worn Tires Accounts Payable Pool Furniture Received allowance from Pool Suppliers for damaged chairs Utilities Expense Cash Received and paid telephone bill Wages Expense 512 8, Cash 111 8, For period July 15 through Cash , Income from Services , For services rendered Accounts Payable Cash Paid Arlen's Pool Supply on account Utilities Expense Cash Received and paid water bill Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

42 ING CYCLE REVIEW PROBLEM A (continued) GENERAL JOURNAL PAGE 4 DESCRIPTION July 31 Mortgage Payable 223 1, Interest Expense 515 1, Cash 111 3, Paid installment on mortgage Utilities Expense Cash Received and paid electric bill Pool/Slide Facility Cash Accounts Payable Bought inner tubes from Worn Tires L. Lacy, Drawing 312 2, Cash 111 2, Withdrawal for personal use Accounts Receivable Concessions Income Additional revenue from concessions Adjusting Entries Insurance Expense 517 1, Prepaid Insurance 114 1, Depreciation Expense, Building Accumulated Depreciation, Building Depreciation Expense, Pool/Slide Facility Accumulated Depreciation, Pool/Slide Facility Depreciation Expense, Pool Furniture Accumulated Depreciation, Pool Furniture Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 223

43 ING CYCLE REVIEW PROBLEM A (continued) GENERAL JOURNAL PAGE 5 DESCRIPTION 1 Adjusting Entries (continued) 1 2 July Wages Expense Wages Payable Closing Entries 7 31 Income from Services , Concessions Income Income Summary , Income Summary , Pool Maintenance Expense 511 1, Wages Expense , Advertising Expense 513 1, Utilities Expense 514 1, Interest Expense 515 1, Insurance Expense 517 1, Depreciation Expense, Building Depreciation Expense, Pool/Slide Facility Depreciation Expense, Pool Furniture Miscellaneous Expense Income Summary , L. Lacy, Capital , L. Lacy, Capital 311 4, L. Lacy, Drawing 312 4, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

44 ING CYCLE REVIEW PROBLEM A (continued) GENERAL LEDGER Cash NO. 111 July , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Accounts Receivable NO. 112 July Prepaid Insurance NO. 114 July , , Adj. 4 1, , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 225

45 ING CYCLE REVIEW PROBLEM A (continued) Land 121 NO. July , , Building 122 NO. July , , Accumulated Depreciation, Building NO. 123 July 31 Adj Pool/Slide Facility NO. 124 July , , , , , Accumulated Depreciation, Pool/Slide Facility NO. 125 July 31 Adj Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

46 ING CYCLE REVIEW PROBLEM A (continued) Pool Furniture 126 NO. July 2 1 3, , , , , Accumulated Depreciation, Pool Furniture NO. 127 July 31 Adj Accounts Payable NO. 221 July , , , , , , , , , , , Wages Payable NO. 222 July 31 Adj Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 227

47 ING CYCLE REVIEW PROBLEM A (continued) Mortgage Payable 223 NO. July , , , , L. Lacy, Capital NO. 311 July , , Closing 5 18, , Closing 5 4, , L. Lacy, Drawing NO. 312 July , , , , Closing 5 4, Income Summary NO. 313 July 31 Closing 5 45, , Closing 5 26, , Closing 5 18, Income from Services 411 NO. July , , , , , , , , Closing 5 44, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

48 ING CYCLE REVIEW PROBLEM A (continued) Concessions Income 412 NO. July Closing Pool Maintenance Expense NO. 511 July , Closing 5 1, Wages Expense NO. 512 July , , , , Adj , Closing 5 17, Advertising Expense NO. 513 July 5 1 1, , Closing 5 1, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 229

49 ING CYCLE REVIEW PROBLEM A (continued) Utilities Expense NO. 514 July , Closing 5 1, Interest Expense NO. 515 July , , Closing 5 1, Insurance Expense NO. 517 July 31 Adj. 4 1, , Closing 5 1, Depreciation Expense, Building 518 NO. July 31 Adj Closing Depreciation Expense, Pool/Slide Facility NO. 519 July 31 Adj Closing Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

50 ING CYCLE REVIEW PROBLEM A (continued) Depreciation Expense, Pool Furniture 520 NO. July 31 Adj Closing Miscellaneous Expense NO. 522 July Closing Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 231

51 ING CYCLE REVIEW PROBLEM A (continued) Surf's Up! Work Sheet For Month Ended July 31, 1 Cash 31, TRIAL 2 Accounts Receivable Prepaid Insurance 12, (a) 1, Land 292, Building 96, Pool/Slide Facility 150, Pool Furniture 5, Accounts Payable 2, Mortgage Payable 418, L. Lacy, Capital 150, L. Lacy, Drawing 4, Income from Services 44, Concessions Income Pool Maintenance Expense 1, Wages Expense 16, (e) Advertising Expense 1, Utilities Expense 1, Interest Expense 1, Miscellaneous Expense , , Insurance Expense (a) 1, Depreciation Expense, 23 Building (b) Accumulated Depreciation, 25 Building (b) Depreciation Expense, 27 Pool/Slide Facility (c) Accumulated Depreciation, 29 Pool/Slide Facility (c) Depreciation Expense, 31 Pool Furniture (d) Accumulated Depreciation, 33 Pool Furniture (d) Wages Payable (e) , , Net Income NAME ADJUSTMENTS Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

52 ING CYCLE REVIEW PROBLEM A (continued) ADJUSTED TRIAL INCOME STATEMENT SHEET 31, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 233

53 ING CYCLE REVIEW PROBLEM A (continued) Surf's Up! Income Statement For Month Ended July 31, Revenue: Income from Services $44,731 Concessions Income 484 Total Revenue $45,215 Expenses: Pool Maintenance Expense $ 1,446 Wages Expense 17,607 Advertising Expense 1,320 Utilities Expense 1,800 Interest Expense 1,980 Insurance Expense 1,020 Depreciation Expense, Building 480 Depreciation Expense, Pool/Slide Facility 675 Depreciation Expense, Pool Furniture 120 Miscellaneous Expense 376 Total Expenses 26,824 Net Income $18,391 Surf's Up! Statement of Owner's Equity For Month Ended July 31, L. Lacy, Capital, July 1, $ 0 Investment on July 1, $150,000 Net Income for July 18,391 Subtotal $168,391 Less Withdrawals for July 4,700 Increase in Capital 163,691 L. Lacy, Capital, July 31, $163, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

54 ING CYCLE REVIEW PROBLEM A (continued) Surf's Up! Balance Sheet July 31, Assets Cash $ 31,778 Accounts Receivable 234 Prepaid Insurance 11,220 Land 292,000 Building $ 96,200 Less Accumulated Depreciation ,720 Pool/Slide Facility $150,505 Less Accumulated Depreciation ,830 Pool Furniture $ 5,675 Less Accumulated Depreciation 120 5,555 Total Assets $586,337 Liabilities Accounts Payable $ 2,836 Wages Payable 920 Mortgage Payable 418,890 Total Liabilities $422,646 Owner's Equity L. Lacy, Capital 163,691 Total Liabilities and Owner's Equity $586, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 235

55 ING CYCLE REVIEW PROBLEM A (concluded) Surf's Up! Post-Closing Trial Balance July 31, NAME Cash 31,778 Accounts Receivable 234 Prepaid Insurance 11,220 Land 292,000 Building 96,200 Accumulated Depreciation, Building 480 Pool/Slide Facility 150,505 Accumulated Depreciation, Pool/Slide Facility 675 Pool Furniture 5,675 Accumulated Depreciation, Pool Furniture 120 Accounts Payable Wages Payable Mortgage Payable L. Lacy, Capital 2, , , , , Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

56 ING CYCLE REVIEW PROBLEM B WIND SAILORS Suggested Audit Questions 1. What was the amount of cash paid for advertising on June 3? 2. How much of the concession income was received in cash? 3. What was the amount of the principal paid on the mortgage? 4. How much did Arden withdraw from the business? 5. What is the amount of accrued wages? 6. How much insurance expired during the month? 7. What is the amount of depreciation of the fan system in June? 8. What is the ending balance of Arden s Capital account? 9. As of the end of the month, what is the amount of the book value of the pool structure? 10. How much cash did Arden pay as a down payment on the purchase of Wind Sailors? Answers $350 $150 $497 $2,700 $790 $1,000 $260 $87,591 $139,285 $60, Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 237

57 ING CYCLE REVIEW PROBLEM B (continued) GENERAL JOURNAL PAGE 1 DESCRIPTION June 1 Cash , R. Arden, Capital , Invested cash in business Sailboats , Fan System , Pool Structure , Land , Cash , Mortgage Payable , Bought Wind Sailors Advertising Expense Cash Paid bill for newspaper advertising Prepaid Insurance , Cash , Paid one-year premium for insurance Sailboats 129 7, Cash 111 3, Accounts Payable 221 4, Bought additional boats from Larkin Manufacturing Co Cash Concessions Income Received payment for rental space for vending machines Advertising Expense Accounts Payable Promotional handouts from Quick Printing Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

58 ING CYCLE REVIEW PROBLEM B (continued) GENERAL JOURNAL PAGE 2 DESCRIPTION June 3 Sailboat Rental Expense Cash Leased sailboats from K. Erdmon 4 5 Boat Co Miscellaneous Expense Cash Paid miscellaneous expenses Cash 111 2, Income from Services 411 2, For services rendered Fan System Accounts Payable Bought an addition to fan system on account from Stark Pool Supply Wages Expense 512 3, Cash 111 3, For period June 1 through June Accounts Payable Cash Paid Quick Printing on account R. Arden, Drawing 312 1, Cash 111 1, Withdrawal for personal use Sailboats Accounts Payable Bought sails on account from Canvas Products, Inc Cash 111 4, Income from Services 411 4, For services rendered Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 239

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