EXERCISE 4-6

a.

Cash

 

Notes Payable

Debit

Credit

 

Debit

Credit

$10,000

 

 

 

$10,000

 

 

 

 

 

 

     This is an asset source transaction.  Assets are increased; liabilities are increased.

 

b.

Cash

 

Supplies

Debit

Credit

 

Debit

Credit

 

$500

 

$500

 

 

 

 

 

 

 

     This is an asset exchange transaction.  The asset supplies is increased and the asset cash is decreased.

c.

Cash

 

Land

 

Notes Payable

Debit

Credit

 

Debit

Credit

 

Debit

Credit

 

$5,000

 

$20,000

 

 

 

$15,000

 

 

 

 

 

 

 

 

                 

 

     This transaction is part an asset source and part an asset exchange.  Assets are increased by a net amount of $15,000 (Land is increased by $20,000, but cash is decreased by $5,000).  Liabilities are increased by $15,000, the amount of the note.

 

d.

Accounts Receivable

 

Revenue

Debit

Credit

 

Debit

Credit

$1,000

 

 

 

$1,000

 

 

 

 

 

 

     This is an asset source transaction.  Assets are increased by $1,000 and equity is increased by $1,000.


 

EXERCISE 4-7

 

Event Number

Account Debited

Account Credited

a.

     Cash

     Notes Payable

b.

     Cash

     Unearned Revenue

c.

     Depreciation Expense

     Accumulated Depreciation

d.

     Salaries Payable

     Cash

e.

     Accounts Receivable

     Service Revenue

f.

     Notes Payable

     Cash

g.

     Operating Expense

     Cash

h.

     Supplies

     Accounts Payable

i.

     Interest Expense

     Interest Payable

j.

     Unearned Revenue

     Revenue

k.

     Accounts Payable

      Cash

l.

     Office Equipment

      Cash

m.

     Cash

      Accounts Receivable

n.

     Interest Receivable

      Interest Revenue

o.

     Distributions

      Cash

 

 


 

 EXERCISE 4-9

 

General Journal

 

 

 

 

Date

Account Titles

Debit

Credit

 

 

 

 

a.

Accounts Receivable

26,000

 

 

     Service Revenue

 

26,000

 

 

 

 

b.

Equipment

48,000

 

 

     Cash

 

8,000

 

     Notes Payable

 

40,000

 

 

 

 

c.

Supplies

1,060

 

 

     Cash

 

1,060

 

 

 

 

d.

Cash

6,000

 

 

     Unearned Revenue

 

6,000

 

 

 

 

e.

Cash

16,800

 

 

     Accounts Receivable

 

16,800

 

 

 

 

f.

Repairs Expense

3,400

 

 

     Accounts Payable

 

3,400

 

 

 

 

g.

Cash

26,800

 

 

     Land

 

20,000

 

     Gain on Sale of Land

 

6,800

 

 

 

 

h.

Prepaid Insurance

4,600

 

 

     Cash

 

4,600

 

 

 

 

i.

Accounts Payable

2,400

 

 

     Cash

 

2,400

 

 

 

 

j.

Insurance Expense

1,600

 

 

     Prepaid Insurance

 

1,600

 

 

 

 

k.

Depreciation Expense

12,400

 

 

     Accumulated Depreciation

 

12,400

 

 

 

 

l.

Interest Expense

1,600

 

 

     Interest Payable

 

1,600


 

 EXERCISE 4-12

a.

Telephone Accessories, Inc.

T-Accounts

 

 

 

 

 

 

 

Cash

 

Accounts Payable

 

Cont. Cap.

 

Retained Earnings

Debit

Credit

 

Debit

Credit

 

Debit

Credit

 

Debit

Credit

1.   40,000

 

 

6.  13,600

4.    15,200

 

 

1.  40,000

 

 

-0-

2.    32,000

 

 

 

10.    1,600

 

 

Bal. 40,000

 

 

 

5.    26,400

 

 

 

Bal.   3,200

 

 

 

 

Revenue

 

6. 13,600

 

 

 

 

 

 

 

Debit

Credit

 

7.   2,000

 

 

 

 

 

 

 

 

3.    28,000

 

8.   8,000

 

Notes Payable

 

 

 

 

 

13.    2,400

9.      9,600

 

 

Debit

Credit

 

 

 

 

 

Bal. 30,400

Bal. 84,400

 

 

 

2.    32,000

 

 

 

 

 

 

 

 

 

 

Bal. 32,000

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

Debit

Credit

Accounts Rec.

 

Unearned Revenue

 

 

 

 

11. 2,080

 

Debit

Credit

 

Debit

Credit

 

 

 

 

Bal. 2,080

 

3. 28,000

5. 26,400

 

13. 2,400

9.       9,600

 

 

 

 

 

 

Bal. 1,600

 

 

 

Bal.    7,200

 

 

 

 

Operating Expense

 

 

 

 

 

 

 

 

 

Debit

Credit

 

 

 

 

 

 

 

 

 

4. 15,200

 

Supplies

 

Interest Payable

 

 

 

 

Bal. 15,200

 

Debit

Credit

 

Debit

Credit

 

 

 

 

 

 

10.  1,600

14. 1,200

 

 

11.    2,080

 

 

 

 

Depr. Expense

Bal.    400

 

 

 

Bal.   2,080

 

 

 

 

Debit

Credit

 

 

 

 

 

 

 

 

 

12. 1,600

 

 

 

 

 

 

 

 

 

 

Bal. 1,600

 

Equipment

 

 

 

 

 

 

 

 

 

Debit

Credit

 

 

 

 

 

 

 

Supplies Expense

8.    8,000

 

 

 

 

 

 

 

 

Debit

Credit

Bal. 8,000

 

 

 

 

 

 

 

 

14. 1,200

 

 

 

 

 

 

 

 

 

 

Bal. 1,200

 

Acc. Depr.

 

 

 

 

 

 

 

 

 

Debit

Credit

 

 

 

 

 

 

 

Distributions

 

12. 1,600

 

 

 

 

 

 

 

Debit

Credit

 

Bal. 1,600

 

 

 

 

 

 

 

7.   2,000

 

 

 

 

 

 

 

 

 

 

Bal. 2,000

 

 


 

EXERCISE 4-12 (cont.)

b.

Telephone Accessories, Inc.

Trial Balance

 

Account Titles

 

Debit

 

Credit

 

 

 

 

 

Cash

 

$  84,400

 

 

Accounts Receivable

 

1,600

 

 

Supplies

 

400

 

 

Office Equipment

 

8,000

 

 

Accumulated Depreciation

 

 

 

$    1,600

Accounts Payable

 

 

 

3,200

Notes Payable

 

 

 

32,000

Interest Payable

 

 

 

2,080

Unearned Revenue

 

 

 

7,200

Contributed Capital

 

 

 

40,000

Distributions

 

2,000

 

 

Revenue

 

 

 

30,400

Operating Expenses

 

15,200

 

 

Interest Expense

 

2,080

 

 

Depreciation Expense

 

1,600

 

 

Supplies Expense

 

1,200

 

 

 

 

 

 

 

Totals

 

$116,480

 

$116,480

 

 

 

 

 

 


 

 EXERCISE 4-14

a.

 

 

 

 

 

Date

Account Titles

Debit

Credit

 

 

 

 

1.

Accounts Receivable

124,000

 

 

     Service Revenue

 

124,000

 

 

 

 

2.

Operating Expenses

10,250

 

 

     Accounts Payable

 

10,250

 

 

 

 

3.

Cash

130,400

 

 

     Accounts Receivable

 

130,400

 

 

 

 

4.

Salaries Expense

61,000

 

 

     Cash

 

61,000

 

 

 

 

5.

Accounts Payable

11,600

 

 

     Cash

 

11,600

 

 

 

 

6.

Distributions

10,000

 

 

     Cash

 

10,000

 

 

 

 

 

d.

 

Closing Entries

 

 

 

 

 

 

7.

Revenue

124,000

 

 

     Retained Earnings

 

124,000

 

 

 

 

8.

Retained Earnings

71,250

 

 

     Operating Expenses

 

10,250

 

     Salaries Expense

 

61,000

 

 

 

 

9.

Retained Earnings

10,000

 

 

     Distributions

 

10,000

 

 

 

 


 

EXERCISE 4-14 (cont.)

 

b. and d.

Speedies Tacos

T-Accounts, 20X6

 

 

 

 

 

Cash

 

Accounts Payable

 

Cont. Capital

Debit

Credit

 

Debit

Credit

 

Debit

Credit

Bal. 12,500

 

 

 

Bal. 2,400

 

 

Bal. 10,000

3. 130,400

4. 61,000

 

5. 11,600

2. 10,250

 

 

 

 

5. 11,600

 

 

Bal. 1,050

 

Retained Earnings

 

6. 10,000

 

 

 

 

Debit

Credit

Bal. 60,300

 

 

 

 

 

 

Bal.  8,300

 

 

 

 

 

 

cl  71,250

cl 124,000

Accounts Receivable

 

 

 

 

cl  10,000

 

Debit

Credit

 

 

 

 

 

Bal. 51,050

Bal. 8,200

 

 

 

 

 

 

 

1. 124,000

3. 130,400

 

 

 

 

Service Revenue

Bal. 1,800

 

 

 

 

 

Debit

Credit

 

 

 

 

 

 

cl 124,000

1. 124,000

 

 

 

 

 

 

 

Bal.         -0-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expense

 

 

 

 

 

 

Debit

Credit

 

 

 

 

 

 

2.  10,250

cl  10,250

 

 

 

 

 

 

Bal.         -0-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries Expense

 

 

 

 

 

 

Debit

Credit

 

 

 

 

 

 

4.  61,000

cl  61,000

 

 

 

 

 

 

Bal.        -0-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions

 

 

 

 

 

 

Debit

Credit

 

 

 

 

 

 

6. 10,000

cl  10,000

 

 

 

 

 

 

Bal.      -0-

 


 

EXERCISE 4-14 (cont.)

c.

Speedies Tacos

Effect of Transactions on the Financial Statements for 20X6

 

 

 

Balance Sheet

 

Income Statement

 

Statement of

 

 

Assets

=

Liab.

+

Equity

 

Rev.

-

Exp.

=

Net Inc.

 

Cash Flows

 

No.

 

 

Cash

 

+

Accts. Rec.

 

=

Acc. Pay.

 

+

Cont. Cap.

 

+

Ret. Earn.

 

 

 

 

 

 

 

 

Bal.

 

12,500

+

8,200

=

2,400

+

10,000

+

8,300

 

n/a

 

n/a

 

n/a

 

n/a

1.

 

n/a

+

124,000

=

n/a

+

n/a

+

124,000

 

124,000

-

n/a

=

124,000

 

n/a

2.

 

n/a

+

n/a

=

10,250

+

n/a

+

(10,250)

 

n/a

-

10,250

=

(10,250)

 

n/a

3.

 

130,400

+

(130,400)

=

n/a

+

n/a

+

n/a

 

n/a

-

n/a

=

n/a

 

   130,400            OA

4.

 

(61,000)

+

n/a

=

n/a

+

n/a

+

(61,000)

 

n/a

-

61,000

=

(61,000)

 

    (61,000)            OA

5.

 

(11,600)

+

n/a

=

(11,600)

+

n/a

+

n/a

 

n/a

-

n/a

=

n/a

 

    (11,600)            OA

6.

 

(10,000)

+

n/a

=

n/a

+

n/a

+

(10,000)

 

n/a

-

n/a

=

n/a

 

    (10,000)            FA

Bal.

 

60,300

+

1,800

=

1,050

+

10,000

+

51,050

 

124,000

-

71,250

=

52,750

 

47,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                           

 

d. Net Income = $52,750;

e.  Change in retained earnings = $42,750 ($51,050 - $8,300)

     The difference between the change in retained earnings and net income is the $10,000 distribution to the owners.  The distribution reduces retained earnings but does not decrease net income.


 

EXERCISE 4-16

a. & b.

Assets

=

Liabilities

+

Equity

Accounts Rec.

 

Accounts Pay.

 

Retained Earnings

Debit

Credit

 

Debit

Credit

 

Debit

Credit

a1 10,000

 

 

 

a2 1,400

 

cl   1,100

cl 10,000

Bal. 10,000

 

 

 

Bal. 1,400

 

 

Bal. 8,900

 

 

 

 

 

 

 

 

Supplies

 

 

 

 

Revenue

Debit

Credit

 

 

 

 

Debit

Credit

a2 1,400

b.  1,100

 

 

 

 

cl 10,000

a1 10,000

Bal.   300

 

 

 

 

 

 

Bal.      -0-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplies Expense

 

 

 

 

 

 

Debit

Credit

 

 

 

 

 

 

b.   1,100

cl   1,100

 

 

 

 

 

 

Bal.     -0-

 

 


 

EXERCISE 4-16 (cont.)

c.

 

Anderson Consulting Services

Income Statement

For the Period Ended December 31, 20X7

 

 

 

 

 

Revenue

 

 

 

 

   Service Revenue

 

$10,000

 

 

 

 

 

 

 

Expenses

 

 

 

 

   Supplies Expense

 

(1,100)

 

 

 

 

 

 

 

Net Income

 

$  8,900

 

 

 

 

 

 

 

Anderson Consulting Services

Statement of Changes in Equity

For the Period Ended December 31, 20X7

 

 

 

 

 

 

Beginning Contributed Capital

$     -0-

 

 

 

Plus: Capital Acquisitions

-0-

 

 

 

Ending Contributed Capital

 

$      -0-

 

 

 

 

 

 

 

Beginning Retained Earnings

    -0-

 

 

 

Plus: Net Income

8,900

 

 

 

Less: Distributions

-0-

 

 

 

Ending Retained Earnings

 

8,900

 

 

 

 

 

 

 

Total Equity

 

$8,900

 

 

 

 

 

 

 

 


 

EXERCISE 4-16 c. (cont.)

 

Anderson Consulting Services

Balance Sheet

As of December 31, 20X7

 

 

 

 

 

 

 

Assets

 

 

 

 

      Accounts Receivable

$10,000

 

 

 

      Supplies

300

 

 

 

Total Assets

 

$10,300

 

 

 

 

 

 

 

Liabilities

 

 

 

 

      Accounts Payable

$  1,400

 

 

 

Total Liabilities

 

$  1,400

 

 

 

 

 

 

 

Equity

 

 

 

 

      Contributed Capital

-0-

 

 

 

      Retained Earnings

8,900

 

 

 

Total Equity

 

8,900

 

 

 

 

 

 

 

Total Liabilities and Equity

 

$10,300

 

 

 

 

 

 

           

 

Anderson Consulting Services

Statement of Cash Flows

For the Period Ended December 31, 20X7

 

 

 

 

 

 

Cash Flows From Operating Activities

 

$      -0-

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

      -0-

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

-0-

 

 

 

 

 

 

 

Net Change in Cash

 

-0-

 

 

Plus: Beginning Cash Balance

 

-0-

 

 

Ending Cash Balance

 

$     -0-

 

 

 

 

 

 

 

d.   $10,000 of revenue was earned and $1,100 of expense was incurred, but no cash was paid or received.


 

EXERCISE 4-16 (cont.)

 

e.     

General Journal

 

 

 

 

Date

Account Titles

Debit

Credit

 

 

 

 

 

Closing Entries

 

 

 

 

 

 

Dec. 31

Revenue

10,000

 

 

     Retained Earnings

 

10,000

 

 

 

 

 

Retained Earnings

1,100

 

 

     Supplies Expense

 

1,100

 

 

 

 

 

Closing entries are posted to the T-accounts in part a.

 

Anderson Counsulting Services

After-Closing Trial Balance

December 31, 20X7

 

 

 

 

 

Account Titles

 

Debit

 

Credit

 

 

 

 

 

Accounts Receivable

 

$10,000

 

 

Supplies

 

300

 

 

Accounts Payable

 

 

 

$  1,400

Retained Earnings

 

 

 

8,900

 

 

 

 

 

Totals

 

$10,300

 

$10,300

 

 

 

 

 

 


 

 EXERCISE 4-18

a.

 

Debit

Credit

Salaries Expense

     7,200

 

          Salaries Payable

 

   7,200

 

b.      Revenue                                $9,000

          Salaries Expense                 (7,200)

          Net Income                           $1,800

 

          Cash Flows From Operating Activities:

             Cash Received from Revenue                          $9,000

             Cash Payment for Expense                                        -0-

          Net Cash Flow from Operating Activities           $9,000

 

c.      Liability = $7,200


 

EXERCISE 4-19

a. & b.

 

Assets

=

Equity

 

Cash

 

Computer

 

Depreciation Expense

 

a. 30,000

 

a. 30,000

 

 

b.  8,000*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Depr.

 

 

 

 

 

 

 

b.   8,000

 

 

 

 

 

 

 

 

 

 

 

 

*($30,000 - $6,000) 3 = $8,000 depreciation per year

 

 

 

c.   Historical Cost                                                 $30,000

      Less: Accumulated Depreciation                   (8,000)

      Book Value                                                       $22,000

 

d.   Revenue                                                            $12,000

      Depreciation Expense                                      (8,000)

      Net Income                                                       $  4,000

 

e.   Cash Flows From Operating Activities:                  

          Cash Received from Revenue                  $12,000

      Net Cash Flow from Operating Activities   $12,000

 

f.    20X8 Depreciation Expense = $8,000 (the same as for 20X7)

 

g.   Historical Cost                                                 $30,000

      Less: Accumulated Depreciation                 (16,000)**

      Book Value, 12/31/X8                                     $14,000

 

**(20X7 $8,000 + 20X8 $8,000)

 


 

EXERCISE 4-20

 

a.   Asset Source Transaction

 

Assets

=

Liabilities

+

Equity

 

 

 

 

 

Cash

 

Notes Payable

 

 

   50,000

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

b.   Claims Exchange Transaction

 

Assets

=

Liabilities

+

Equity

 

 

 

 

 

 

 

 

 

 

Interest Payable

 

Interest Expense

 

 

 

 

 

       3,375

 

    3,375*

 

 

 

 

 

 

 

 

 

 

*$50,000 x .09 x 9/12 = $3,375

               

 

c.   Revenue                                                             $ 8,000

      Interest Expense                                                (3,375)

      Net Income                                                        $ 4,625

 

d.   Cash Flows From Operating Activities:                  

          Cash Received from Revenue                    $8,000

      Net Cash Flow from Operating Activities     $8,000

 

e.   Liabilities:

              Notes Payable            $50,000

              Interest Payable             3,375

      Total Liabilities                   $53,375

 


 

EXERCISE 4-20 (cont.)

 

f.   Two transactions occur in the repayment of the note: (1) the accrual of the remaining interest and (2) the payment of the principal and interest.

 

Assets

=

Liabilities

+

Equity

 

 

 

 

 

 

Cash

 

Notes Payable

 

Interest Expense

 

2.    54,500

 

2.   50,000

 

 

1.    1,125*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Payable

 

 

 

 

 

 

 

Bal.  3,375

 

 

 

 

 

 

2.      4,500

1.    1,125

 

 

 

 

 

 

 

 

 

 

 

 

*$50,000 x .09 x 3/12 = $1,125

                   

 

g. Transaction 1 is a claims exchange transaction; transaction 2 is an asset use transaction.


 

SOLUTIONS TO PROBLEMS - CHAPTER 4

 

PROBLEM 4-1A

 

No.

Account

Balance

 

No.

Account

Balance

 

 

 

 

 

 

 

a.

Contributed Capital

    Credit

 

p.

Depreciation Expense

   Debit

 

b.

Retained Earnings

    Credit

 

q.

Service Revenue

   Credit

 

c.

Certificate of Deposit

    Debit

 

r.

Notes Payable

   Credit

 

d.

Interest Expense

    Debit

 

s.

Notes Receivable

   Debit

 

e.

Accounts Receivable

    Debit

 

t.

Supplies

   Debit

 

f.

Interest Revenue

    Credit

 

u.

Utilities Payable

   Credit

 

g.

Insurance Expense

    Debit

 

v.

Consulting Revenue

   Credit

 

h.

Interest Payable

    Credit

 

w.

Interest Receivable

   Debit

 

i.

Cash

    Debit

 

x.

Supplies Expense

   Debit

 

j.

Distributions

    Debit

 

y.

Salaries Expense

   Debit

 

k.

Unearned Revenue

    Credit

 

z.

Equipment

   Debit

 

l.

Operating Expense

    Debit

 

aa.

Salaries Payable

   Credit

 

m.

Accumulated Depr.

    Credit

 

bb.

Land

   Debit

 

n.

Accounts Payable

    Credit

 

cc.

Prepaid Insurance

   Debit

 

o.

Office Equipment

    Debit

 

 

 

  

 

 


 

PROBLEM 4-2A

 

Event

 

Type of Event

 

Account Debited

 

Account Credited

 

1.

 

AS

 

Cash

 

Contributed Capital

 

2.

 

AU

 

Salaries Expense

 

Cash

 

3.

 

AS

 

Cash

 

Unearned Revenue

 

4.

 

AU

 

Utilities Expense

 

Cash

 

5.

 

AS

 

Accounts Receivable

 

Service Revenue

 

6.

 

AS & AE

 

Equipment

Cash &

Notes Payable

 

7.

 

AU

 

Distributions

 

Cash

 

8.

 

AS

 

Supplies

 

Accounts Payable

 

9.

 

AS

 

Cash

 

Service Revenue

 

10.

 

AE

 

Prepaid Rent

 

Cash

 

11.

 

AU

 

Note Payable

 

Cash

 

12.

 

AU

 

Operating Expense

 

Cash

 

13.

 

AU

 

Accounts Payable

 

Cash

 

14.

 

AE

 

Office Furniture

 

Cash

 

15.

 

AU

 

Depreciation Expense

 

Accumulated Depr.

 

16.

 

AU

 

Rent Expense

 

Prepaid Rent

 

17.

 

CE

 

Unearned Revenue

 

Service Revenue

 

18.

 

CE

 

Interest Expense

 

Interest Payable


 

PROBLEM 4-3A

General Journal

 

 

 

 

 

No.

Date

Account Titles

Debit

Credit

 

 

 

 

 

a.

Sept. 1

Prepaid Rent

13,950

 

 

 

            Cash

 

13,950

 

Dec. 31

Rent Expense

4,650

 

 

 

            Prepaid Rent

 

4,650

 

 

 

 

 

b.

Oct. 1

Cash

45,000

 

 

 

            Notes Payable

 

45,000

 

Dec. 31

Interest Expense1

675

 

 

 

            Interest Payable

 

675

 

 

 

 

 

c.

Sept. 1

Equipment

19,400

 

 

 

            Cash

 

19,400

 

Dec. 31

Depreciation Expense2

960

 

 

 

            Accumulated Depreciation

 

960

 

 

 

 

 

d.

June 1

Certificate of Deposit

22,000

 

 

 

            Cash

 

22,000

 

Dec. 31

Interest Receivable3

770

 

 

 

            Interest Revenue

 

770

 

 

 

 

 

e.

April 15

Supplies

1,725

 

 

 

            Accounts Payable

 

1,725

 

Dec. 31

Supplies Expense4

1,475

 

 

 

            Supplies

 

1,475

 

 

 

 

 

f.

July 1

Cash

7,200

 

 

 

            Unearned Revenue

 

7,200

 

Dec. 31

Unearned Revenue5

3,600

 

 

 

            Revenue

 

3,600

 

 

 

 

 

g.

Feb. 1

Prepaid Insurance

10,200

 

 

 

            Cash

 

10,200

 

Dec. 31

Insurance Expense6

9,350

 

 

 

            Prepaid Insurance

 

9,350

1($45,000 x 6%) x 3/12 = $675

2($19,400 - $5,000) 5 = $2,880; $2,880 x 4/12 = $960

3($22,000 x 6%) x 7/12 = $770

4$1,725 - $250 = $1,475

5$7,200 x 6/12 = $3,600

6 $10,200 x 11/12 = $9,350


 

PROBLEM 4-4A

a.

Merlin Company

General Journal, 20X6

 

 

 

 

Event

Account Title

Debit

Credit

 

 

 

 

1.

Cash

15,000

 

 

                Contributed Capital

 

15,000

 

 

 

 

2.

Supplies

450

 

 

                Accounts Payable

 

450

 

 

 

 

3.

Prepaid Rent

9,000

 

 

                Cash

 

9,000

 

 

 

 

4.

Accounts Receivable

10,500

 

 

                Revenue

 

10,500

 

 

 

 

5.

Operating Expense

6,750

 

 

                Accounts Payable

 

6,750

 

 

 

 

6.

Cash

5,400

 

 

                Accounts Receivable

 

5,400

 

 

 

 

7.

Accounts Payable

6,000

 

 

                Cash

 

6,000

 

 

 

 

8.

Distributions

500

 

 

                Cash

 

500

 

 

 

 

 

Adjusting Entries

 

 

 

 

 

 

9.

Supplies Expense ($450 - $75)

375

 

 

                Supplies

 

375

 

 

 

 

10.

Rent Expense ($9,000 x 4/12)

3,000

 

 

                Prepaid Rent

 

3,000

 

 

 

 

11.

Salaries Expense

1,800

 

 

                Salaries Payable

 

1,800

 

 

 

 


 

PROBLEM 4-4A (cont.)

b.

Merlin Company

T-Accounts, 20X6

 

 

 

 

 

Assets

=

Liabilities

+

Equity

 

 

 

 

 

Cash

 

Accounts Pay.

 

Cont. Capital

1.  15,000

3.   9,000

 

7.   6,000

2.       450

 

 

1.  15,000

6.    5,400

7.   6,000

 

 

5.   6,750

 

 

Bal. 15,000

 

8.      500

 

 

Bal. 1,200

 

 

 

Bal.  4,900

 

 

 

 

 

Revenue

 

 

 

Salaries Payable

 

 

4.  10,500

Supplies

 

 

11. 1,800

 

 

Bal. 10,500

2.        450

9.      375

 

 

Bal. 1,800

 

 

 

Bal.       75

 

 

 

 

 

Operating Expense

 

 

 

 

 

 

5.    6,750

 

Prepaid Rent

 

 

 

 

Bal.  6,750

 

3.      9,000

10. 3,000

 

 

 

 

 

 

Bal.  6,000

 

 

 

 

 

Salaries Expense

 

 

 

 

 

 

11.  1,800

 

Accounts Rec.

 

 

 

 

Bal. 1,800

 

4.  10,500

6.   5,400

 

 

 

 

 

 

Bal.  5,100

 

 

 

 

 

Supplies Expense

 

 

 

 

 

 

9.       375

 

 

 

 

 

 

 

Bal.    375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent Expense

 

 

 

 

 

 

10.  3,000

 

 

 

 

 

 

 

Bal. 3,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions

 

 

 

 

 

 

8.       500

 

 

 

 

 

 

 

Bal.    500

 

 

 

 

 

 

 

 

 

 


 

PROBLEM 4-4A (cont.)

c.

Merlin Company

Trial Balance

December 31, 20X6

 

Account Titles

 

Debit

 

Credit

 

 

 

 

 

Cash

 

$  4,900

 

 

Accounts Receivable

 

5,100

 

 

Supplies

 

75

 

 

Prepaid Rent

 

6,000

 

 

Accounts Payable

 

 

 

$  1,200

Salaries Payable

 

 

 

1,800

Contributed Capital

 

 

 

15,000

Distributions

 

500

 

 

Revenue

 

 

 

10,500

Operating Expense

 

6,750

 

 

Supplies Expense

 

375

 

 

Rent Expense

 

3,000

 

 

Salaries Expense

 

1,800

 

 

 

 

 

 

 

Totals

 

$28,500

 

$28,500

 

 

 

 

 

 


 

PROBLEM 4-4A (cont.)

d.

Merlin Company

Financial Statements

For the Period Ended December 31, 20X6

 

 

 

 

 

Income Statement

 

 

 

 

 

 

Revenue

 

$10,500

 

 

 

 

 

 

 

Expenses

 

 

 

 

      Operating Expense

$6,750

 

 

 

      Salaries Expense

1,800

 

 

 

      Supplies Expense

375

 

 

 

      Rent Expense

3,000

 

 

 

Total Expenses

 

(11,925)

 

 

 

 

 

 

 

Net Income (Loss)

 

$ (1,425)

 

 

 

 

 

 

Statement of Changes in Equity

 

 

 

 

 

 

Beginning Contributed Capital

      $                     -0-

 

 

 

Plus: Capital Acquisitions

                     15,000

 

 

 

Ending Contributed Capital

 

$15,000

 

 

 

 

 

 

 

Beginning Retained Earnings

                            -0-

 

 

 

Less: Net Loss

                     (1,425)

 

 

 

Less: Distributions

                        (500)

 

 

 

Ending Retained Earnings

 

(1,925)

 

 

 

 

 

 

 

Total Equity

 

$13,075

 

 

 

 

 

 

 

 


 

PROBLEM 4-4A d. (cont.)

 

 

Merlin Company

Balance Sheet

As of December 31 20X6

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

          Cash

$  4,900

 

 

 

 

          Accounts Receivable

5,100

 

 

 

 

          Supplies

75

 

 

 

 

          Prepaid Rent

6,000

 

 

 

 

Total Assets

 

$16,075

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

          Accounts Payable

$  1,200

 

 

 

 

          Salaries Payable

1,800

 

 

 

 

Total Liabilities

 

$  3,000

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

          Contributed Capital

15,000

 

 

 

 

          Retained Earnings

(1,925)

 

 

 

 

Total Equity

 

13,075

 

 

 

 

 

 

 

 

 

Total Liabilities and Equity

 

$16,075

 

 

 

 

 

 

 

Statement of Cash Flows

For the Period Ended December 31, 20X6

 

 

 

 

 

 

Cash Flows From Operating Activities:

 

 

 

 

      Inflow from Customers

$ 5,400

 

 

 

      Outflow for Expenses

(15,000)

 

 

 

Net Cash Flow from Operating Activities

 

$(9,600)

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

      -0-

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

      Inflow from Capital Acquisition

15,000

 

 

 

      Outflow for Distributions

(500)

 

 

 

Net Cash Flow from Financing Activities

 

14,500

 

 

 

 

 

 

 

Net Change in Cash

 

4,900

 

 

Plus: Beginning Cash Balance

 

-0-

 

 

Ending Cash Balance

 

$ 4,900

 

 

 

 

 

 

         


 

PROBLEM 4-4A (cont.)

e.

Date

Account Titles

Debit

Credit

 

 

 

 

 

Closing Entries

 

 

 

 

 

 

Dec. 31

Revenue

10,500

 

 

     Retained Earnings

 

10,500

 

 

 

 

Dec. 31

Retained Earnings

11,925

 

 

     Operating Expense

 

6,750

 

     Salaries Expense

 

1,800

 

     Supplies Expense

 

375

 

     Rent Expense

 

3,000

 

 

 

 

Dec. 31

Retained Earnings

500

 

 

     Distributions

 

500

 

 

 

 

 


 

PROBLEM 4-4A (cont.)

f.

Merlin Company

T-Accounts, 20X6 (Closing Entries)

 

 

 

 

 

Assets

=

Liabilities

+

Equity

 

 

 

 

 

Cash

 

Accounts Payable

 

Cont. Capital

Bal. 4,900

 

 

 

Bal. 1,200

 

 

Bal. 15,000

 

 

 

 

 

 

 

 

 

 

Salaries Payable

 

Retained Earnings

Supplies

 

 

Bal. 1,800

 

cl 11,925

cl  10,500

Bal.       75

 

 

 

 

 

cl      500

 

 

 

 

 

 

 

Bal. 1,925

 

 

 

 

 

 

 

 

 

Prepaid Rent

 

 

 

 

Revenue

Bal. 6,000

 

 

 

 

 

cl 10,500

Bal. 10,500

 

 

 

 

 

 

 

Bal.       -0-

 

 

 

 

 

 

 

 

Accounts Rec.

 

 

 

 

Operating Expense

Bal. 5,100

 

 

 

 

 

Bal. 6,750

cl    6,750

 

 

 

 

 

 

Bal.     -0-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries Expense

 

 

 

 

 

 

Bal. 1,800

cl    1,800

 

 

 

 

 

 

Bal.     -0-