Solution manual fundamentals of accounting by cabrera chapter 10

Chapter 10 Completing the Accounting Cycle Exercises Exercise Closing entry on Dec 31 Patient Services Laboratory Fees Income Summary 340,000 180,000 520,000 Exercise Closing entry on Dec 31 Income Summary Rent Expense Wages Expense Other Expenses 300,000 140,000 110,000 50,000 Exercise Closing entry on Dec 31 Income Summary Capital Account 22,000 22,000 Exercise Reversing entries a not reversed b not reversed c Salary Payable Salaries Expense 3,600 3,600 Chapter 10 Exercise (c) AJE April Salaries Expense 18,000 3,600 CE RE 4,800 Salaries Payable (c) AJE 21,600 3,600 RE 3,600 Exercise Closing entry on Dec 31 Repair Revenue 368,600 Wages Expense Rent Expense Supplies Expense Insurance Expense Depreciation Expense – Repair Equipment Income Taxes Expense Income Summary To close the revenue and expense accounts to Income Summary 122,600 18,000 63,900 13,700 20,200 40,000 90,200 3,600 Completing the Accounting Cycle Exercise Max Pest Control Services Worksheet For the Year Ended September 30, 2008 Cash Accounts receivable Prepaid rent Supplies Equipment Accumulated depreciation Accounts payable Salary payable Robert Claro, Capital Robert Claro, Drawing Service revenue Depreciation expense Salary expense Rent expense Utilities expense Supplies expense Trial Balance DR CR 356,000 34,400 12,000 33,900 126,000 (a) 2,100 (d) 6,000 (e) 16,500 28,400 16,000 160,300 (b) 400 (c) 5,000 (a) 2,100 30,000 Adjusted Trial Balance DR CR 356,000 36,500 6,000 17,400 126,000 Income Statement DR CR (b) (c) (d) 18,000 7,800 297,700 400 5,000 6,000 (e) 16,500 30,000 30,000 Balance Sheet DR CR 356,000 36,500 6,000 17,400 126,000 28,800 16,000 5,000 160,300 28,800 16,000 5,000 160,300 30,000 93,000 297,700 Net income Adjustments DR CR 30,000 95,100 400 23,000 6,000 7,800 16,500 305,200 305,200 95,100 400 23,000 6,000 7,800 16,500 53,700 41,400 95,100 95,100 251,500 95,100 251,500 210,100 41,400 251,500 Chapter 10 Exercise JOURNAL Date a b c Account Titles and Explanation Office Equipment Supplies Post Ref Debit 29,000 Rent Expense (P9,000 x 2) Prepaid Rent Cash 29,000 18,000 18,000 9,000 Salary Payable d e f Credit Unearned Service Revenue Accounts Receivable 9,000 32,000 32,000 Interest Receivable Accounts Receivable 8,000 Accounts Payable Cash 6,000 8,000 6,000 Exercise Bazooka Trailer Rental Income Statement For the Year Ended December 31, 2008 Trailer Rentals Less: Expenses Wage expense Insurance expense Supplies expense Depreciation expense, trailers Other expense Total expenses Net income Bazooka Trailer Rental P910,920 468,000 14,400 5,320 48,000 215,640 751,360 P159,560 Completing the Accounting Cycle Statement of Changes in Owner’s Equity For the Year Ended December 31, 2008 J Reyes, Capital, January Add: Net income P 83,880 159,560 P243,440 114,000 P129,440 Less: Withdrawals J Reyes, Capital, December 31 Bazooka Trailer Rental Balance Sheet December 31, 2008 Assets Current Assets Cash Accounts receivable Supplies Prepaid insurance Total current asset P 13,840 19,440 2,380 7,200 P 42,860 Trailers Less: Accumulated depreciation Net carrying value P240,000 144,000 96,000 Total Assets P138,860 Liabilities and Owner’s Equity Liabilities Current Liabilities Accounts payable Wages payable Total Liabilities Owner’s Equity J Reyes, Capital Total Liabilities and Owner’s Equity Exercise 10 P 5,420 4,000 9,420 129,440 P138,860 Chapter 10 There is no single correct way to present the solution to this case However, the solution should include answers to the following questions: What was the entity’s net income for the year? This question can be answered by completing the work sheet (The overall solution also requires preparation of the income statement) What were the entity’s total assets, liabilities, and capital at the end of the year? The balance sheet answers this question Did the owner’s capital account increase or decrease from its original balance of P250,000? This question is answered by the statement of owner’s equity Answers: (1) See the work sheet, which indicates that net income for the year was P335,400 The entity’s income statement is Dantes Computing Service Income Statement For the Month Ended December 31, 20xx Revenues: Service revenue Expenses: Salary expense Depreciation expense Rent expense Supplies expense Utilities expense Total expenses Net income P629,400 P182,000 59,000 24,000 21,000 8,000 294,000 P335,400 Completing the Accounting Cycle (2) Total assets were P383,900, total liabilities were P232,700, owner’s capital was P151,200,as reported on the balance sheet: Dantes Computing Service Balance Sheet December 31, 20xx ASSETS Current assets: Cash Accounts receivable Supplies Prepaid rent Total current assets Plant assets: Equipment P236,000 Less: Accum depr 59,000 Total assets LIABILITIES P 58,300 139,600 5,000 4,000 206,900 177,000 P383,900 Current liabilities: Accounts payable Salary payable Unearned service revenue Total current liabilities OWNER’S EQUITY Katrina Dantes, capital Total liabilities and owner’s equity P185,400 12,000 35,300 P232,700 151,200 P383,900 Instructional note: The Working Paper allows students to create a second peso amount column for assets if needed The student may also present the balance sheet in report format (3) During the year, Dantes’ capital account decreased from P250,000 to P151,200, as shown by the statement of owner’s equity Dantes Computing Service Statement of Owner’s Equity For the Month Ended December 31, 20xx Katrina Dantes, capital, January 2, 20xx Add: Net income Less: Withdrawals Katrina Dantes, capital, December 31, 20xx P250,000 335,400 585,400 434,200 P151,200 Dantes’ capital has decreased because withdrawals exceeded net income She would probably not get the bank loan You could recommend that Dantes earn more income or cut back on withdrawals from the business 8 Chapter 10 Dantes Computing Service Worksheet For the Year Ended December 31, 20xx Cash Accounts receivable Prepaid rent Supplies Equipment Accumulated depreciation Accounts payable Salary payable Unearned service revenue Katrina Dantes, Capital Katrina Dantes, Drawing Service revenue Salary expense Depreciation expense Rent expense Utilities expense Supplies expense Trial Balance DR CR 58,300 123,600 28,000 Adjustments DR CR (a) 16,000 (c) 24,000 (d) 21,000 26,000 236,000 41,300 (f) 12,000 (b) 6,000 250,000 434,200 Income Statement DR CR 5,000 23,600 (e) 59,000 185,400 170,000 8,000 (a) 16,000 (b) 6,000 59,000 185,400 12,000 59,000 185,400 12,000 35,300 35,300 250,000 250,000 629,400 182,000 182,000 (e) 59,000 (c) 24,000 59,000 24,000 8,000 59,000 24,000 8,000 21,000 1,084,10 434,200 629,400 (f) 12,000 (d) 138,000 138,000 21,000 1,117,11 Balance Sheet DR CR 58,300 139,600 4,000 5,000 23,600 434,200 607,400 1,084,10 Net income Adjusted Trial Balance DR CR 58,300 139,600 4,000 21,000 1,171,10 294,000 335,400 629,400 629,400 877,100 629,400 877,100 541,700 335,400 877,100 Completing the Accounting Cycle Multiple Choice Questions a d, a, e, b, f, c d d b c b c b 10 Chapter 10 Test Material Test Material 10-1 Rainbow Star Painting Contractors Worksheet For the Year Ended July 31, 2008 Account Title Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accumulated Depreciation – Equipment Building Accumulated Depreciation – Building Land Accounts Payable Interest Payable Wage Payable Unearned Service Revenue Note Payable – Longterm Nico Coral, Capital Nico Coral, Drawing Service Revenue Depreciation Expense – Equipment Depreciation Expense – Building Wage Expense Insurance Expense Interest Expense Utilities Expense Property Tax Expense Advertising Expense Supplies Expense Trial Balance Debit Credit P 12,000 378,200 176,600 23,000 326,900 (h) 11,000 (c) (d) P262,400 29,200 5,000 Adjusted Trial Balance Debit Credit 12,000 389,200 147,400 18,000 326,900 (a-1) 6,300 368,900 Income Statement Debit Credit 105,000 (a-2) 3,700 268,700 368,900 108,700 108,700 283,000 226,900 105,600 (g) (e) (b) (f) 1,000 1,800 2,400 283,000 227,900 1,800 2,400 49,700 224,000 591,300 42,000 227,900 1,800 2,400 55,900 55,900 224,000 591,300 224,000 591,300 42,000 141,900 (f) (h) 49,700 11,000 (a-1) 6,300 (a-2) (b) (d) (e) 32,000 2,700 8,400 3,400 (g) (c) 1,657,100 3,700 2,400 5,000 1,800 1,000 29,200 110,100 110,100 Balance Sheet Debit Credit P 12,000 388,200 147,400 18,000 326,900 268,700 368,900 283,000 1,657,100 Net Income Adjustments Debit Credit 42,000 202,600 202,600 6,300 6,300 3,700 34,400 5,000 1,800 2,700 8,400 4,400 29,200 1,683,300 3,700 34,400 5,000 1,800 2,700 8,400 4,400 29,200 95,900 106,700 1,683,300 202,600 1,587,400 1,480,700 106,700 Completing the Accounting Cycle 202,600 202,600 1,587,400 11 1,587,400 12 Chapter 10 Test Material 10-2 Requirement (1) JOURNAL Date June 30 30 30 30 30 30 30 30 Post Ref Account Titles and Explanation Adjusting Entries Depreciation Expense – Equipment Accumulated Depreciation Equipment Depreciation Expense – Building Accumulated Depreciation Building Debit 73,000 – 73,000 39,700 – 39,700 Supplies Expense Supplies 35,800 Insurance Expense Prepaid Insurance 31,000 35,800 31,000 Interest Expense Interest Payable 6,900 Accounts Receivable Service Revenue 9,400 Unearned Service Revenue Service Revenue Wage Expense Wage Payable Credit 6,900 9,400 77,900 77,900 7,700 7,700 Completing the Accounting Cycle 13 JOURNAL Date June 30 30 30 30 Post Ref Account Titles and Explanation Closing Entries Service Revenue Income Summary Debit 1,098,600 1,098,600 Income Summary Depreciation Expense – Equipment Depreciation Expense – Building Wage Expense Insurance Expense Interest Expense Utilities Expense Property Tax Expense Supplies Expense 552,300 Income 546,300 Summary (P1,098,600 P552,300) Molly Chan, Capital Credit 73,000 39,700 188,000 31,000 115,100 43,000 26,700 35,800 - 546,300 Molly Chan, Capital Molly Chan, Drawing 453,000 453,000 Requirement (2) Mabuhay Financial Couriers Income Statement For the Month Ended June 30, 2008 Revenues: Service revenue Expenses: Wage expense Interest expense Depreciation expense – equipment Utilities expense Depreciation expense – building Supplies expense Insurance expense Property tax expense Total expenses Net income P1,098,600 P188,000 115,100 73,000 43,000 39,700 35,800 31,000 26,700 552,300 P 546,300 14 Chapter 10 Mabuhay Financial Couriers Statement of Owner’s Equity For the Month Ended June 30, 2008 Molly Chan, capital, June 30, 2008 Add: Net income P 683,900 546,300 1,230,200 453,000 P 777,200 Less: Withdrawals Molly Chan, capital, June 30, 2008 Mabuhay Financial Couriers Balance Sheet June 30, 2008 ASSETS Current assets: Cash Accounts receivable Supplies Prepaid insurance Total current assets P 193,500 264,700 12,900 32,000 P 503,100 Plant assets: Equipment P 558,000 Less: Accum depr 164,800 Building P1,449,000 Less: Accum depr 168,500 Total assets LIABILITIES Current liabilities: Accounts payable Interest payable Wage payable Unearned service revenue Total current liabilities Long-term liabilities: Note payable Total liabilities P 384,000 14,900 7,700 23,000 429,600 970,000 P1,399,600 393,200 1,280,500 P2,176,800 OWNER’S EQUITY Molly Chan, capital Total liabilities and owner’s equity 777,200 P2,176,800 Instructional note: The Working Paper allows students to create a second peso-amount column for assets if needed Requirement (3) Faculty member can introduce the two important ratios as follows: Current ratio = Total current assets Total current liabilities = 2008 2007 1.17 1.01 0.64 0.71 P503,100 = P429,600 The ability to pay current liabilities with current assets improved during 2008 Debt ratio = Total liabilities Total assets = P1,399,600 = P2,176,800 Completing the Accounting Cycle 15 The overall ability to pay total liabilities improved during 2008 Working this problem will help in managing a business by showing how to use the current ratio and the debt ratio in decision making A manager can track his or her business’ current ratio to determine whether its ability to pay current liabilities is improving or deteriorating The manager can track the business’s debt ratio to see the trend in the entity’s overall ability to pay debts These ratios are widely used for this purpose and represent two of the most useful decision aids that students will learn in this course Students can also gain additional understanding of the information contained in the income statement and the balance sheet and the role that the end-of-period adjustments play in producing the financial statements They can also learn that the revenue, expense, and withdrawals accounts pertain to a specific period and must be closed at the end of the period This learning will aid a manager’s understanding of the nature of revenues, expenses, and withdrawals Test Material 10-3 Requirements (1) and (4) ACCOUNT DATE 2008 Oct 31 ITEM Bal ACCOUNT DATE 2008 Oct 31 31 JRNL REF DEBIT CREDIT JRNL REF DEBIT CREDIT JRNL REF Adj J.12 SUPPLIES JRNL CREDIT 00 12 BALANCE DEBIT CREDIT 153 0 ACCOUNT NO DEBIT 11 BALANCE DEBIT CREDIT 19 0 ACCOUNT NO PREPAID RENT ITEM Bal ACCOUNT DATE ACCOUNT NO ACCOUNTS RECEIVABLE ITEM Bal ACCOUNT DATE 2008 Oct CASH 13 BALANCE DEBIT CREDIT 22 0 20 0 ACCOUNT NO 14 BALANCE 16 Chapter 10 2008 Oct 31 ITEM Bal REF Adj J.12 ACCOUNT DATE 2008 Oct DATE 2008 Oct 31 DATE 2008 Oct DATE 2008 Oct 31 DATE 2008 Oct 31 70 JRNL REF JRNL REF DEBIT 40 70 ACCOUNT NO DEBIT CREDIT DEPRECIATION DEBIT J.12 - ACCOUNT NO CREDIT 50 DEBIT CREDIT JRNL REF DEBIT J.12 ACCOUNTS PAYABLE ITEM Bal JRNL REF CREDIT DEBIT 80 16 17 BALANCE DEBIT CREDIT 683 0 18 BALANCE DEBIT CREDIT 121 000 126 800 ACCOUNT NO CREDIT 15 BALANCE DEBIT CREDIT 34 000 36 500 ACCOUNT NO JRNL REF CREDIT BALANCE DEBIT CREDIT 268 0 ACCUMULATED DEPRECIATION - BUILDING ACCOUNT NO ITEM Bal Adj ACCOUNT BUILDING ITEM Bal ACCOUNT ACCUMULATED FURNITURE ITEM Bal Adj ACCOUNT CREDIT FURNITURE ITEM Bal ACCOUNT DEBIT 21 BALANCE DEBIT CREDIT 72 900 Completing the Accounting Cycle ACCOUNT DATE 2008 Oct 31 ITEM Adj ACCOUNT DATE 2008 Oct 31 31 DATE 2008 Oct 31 31 Clo DATE 2008 Oct 31 31 31 DATE DEBIT J.12 CREDIT JRNL REF DEBIT J.12 49 39 90 JRNL REF 855 JRNL REF J.12 J.12 J.12 CREDIT DEBIT 49 49 800 32 BALANCE DEBIT CREDIT 39 0 00 ACCOUNT NO CREDIT 99 0 33 BALANCE DEBIT CREDIT 99 600 700 900 COMMISSION REVENUE JRNL ACCOUNT NO 39 INCOME SUMMARY 31 BALANCE DEBIT CREDIT 844 900 894 800 000 DEBIT 23 BALANCE DEBIT CREDIT 53 000 49 000 ACCOUNT NO CREDIT 22 BALANCE DEBIT CREDIT 100 ACCOUNT NO 000 J.12 ITEM Clo ACCOUNT CREDIT 100 ELLA SANTOS, DRAWING Clo Clo Clo DEBIT JRNL REF J.12 ITEM Bal ACCOUNT JRNL REF J.12 ELLA SANTOS, CAPITAL ITEM Bal Clo ACCOUNT ACCOUNT NO UNEARNED COMMISSION REVENUE ITEM Bal Adj ACCOUNT DATE 2008 Oct 31 SALARY PAYABLE 17 49 ACCOUNT NO 41 BALANCE 900 18 Chapter 10 2008 Oct 31 31 31 ITEM Bal Adj REF Clo J.12 ACCOUNT DATE 2008 Oct 31 31 31 DATE 2008 Oct 31 31 Clo DATE 2008 Oct 31 31 DATE 2008 Oct 31 31 DATE 2008 Oct 31 ACCOUNT NO JRNL REF J.12 DEBIT JRNL REF J.12 100 18 21 50 Clo DEBIT Clo DEBIT 50 J.12 DEPRECIATION EXPENSE - BUILDING ITEM Adj JRNL REF J.12 DEBIT 80 52 53 BALANCE DEBIT CREDIT 30 ACCOUNT NO CREDIT 51 30 DEPRECIATION EXPENSE - FURNITURE JRNL REF J.12 600 00 CREDIT 99 BALANCE DEBIT CREDIT 00 ACCOUNT NO J.12 ITEM Adj 21 CREDIT 600 40 50 ACCOUNT NO DEBIT 00 95 BALANCE DEBIT CREDIT CREDIT UTILITIES EXPENSE JRNL REF CREDIT 600 J.12 ITEM Bal ACCOUNT 99 DEBIT 00 RENT EXPENSE Clo ACCOUNT J.12 ITEM Adj ACCOUNT J.12 CREDIT SALARY EXPENSE ITEM Bal Adj ACCOUNT DEBIT 54 BALANCE DEBIT CREDIT 50 50 ACCOUNT NO CREDIT 55 BALANCE DEBIT CREDIT 80 Completing the Accounting Cycle 31 Clo ACCOUNT DATE 2008 Oct 31 31 Clo JRNL REF DEBIT J.12 80 ACCOUNT NO CREDIT JRNL REF J.12 J.12 DEBIT 70 BALANCE DEBIT CREDIT 90 ACCOUNT NO CREDIT 56 90 SUPPLIES EXPENSE ITEM Adj Clo ADVERTISING EXPENSE ITEM Bal ACCOUNT DATE 2008 Oct 31 31 J.12 19 70 57 BALANCE DEBIT CREDIT 70 20 Chapter 10 Green Star Talent Agency Worksheet For the Month Ended October 31, 2008 Cash Accounts receivable Prepaid rent Supplies Furniture Accumulated depreciation – furniture Building Accumulated depreciation – building Accounts payable Salary payable Unearned commission revenue Ella Santos, Capital Ella Santos, Drawing Commission revenue Salary expense Rent expense Utilities expense Depreciation expense – furniture Depreciation expense - building Advertising expense Supplies expense Trial Balance DR CR 19,000 153,100 22,000 8,400 268,300 34,000 (b) (c) 2,000 7,700 (d) 2,500 683,000 53,000 844,900 39,000 Adjusted Trial Balance DR CR 19,000 153,100 20,000 700 268,300 Income Statement DR CR (a) 5,800 (f) 3,100 4,000 95,600 18,400 (e) (a) 400 36,500 4,900 1,221,40 39,000 683,000 126,800 72,900 3,100 126,800 72,900 3,100 49,000 844,900 49,000 844,900 99,600 99,600 (f) (b) 3,100 2,000 21,500 2,000 5,300 21,500 2,000 5,300 (d) 2,500 2,500 2,500 (e) 5,800 (c) 7,700 5,800 4,900 7,700 1,232,80 5,800 4,900 7,700 5,300 25,100 25,100 Balance Sheet DR CR 19,000 153,100 20,000 700 268,300 36,500 683,000 121,000 72,900 1,221,40 Net income Adjustments DR CR 1,232,80 39,000 49,700 49,900 99,600 1,183,10 99,600 99,600 1,183,10 1,133,20 49,900 1,183,10 Completing the Accounting Cycle 21 22 Chapter 10 Requirement (3) Green Star Talent Agency Income Statement For the Month Ended October 31, 2008 Revenues: Commission revenue Expenses: Salary expense Supplies expense Depreciation expense – building Utilities expense Advertising expense Depreciation expense - furniture Rent expense Total expenses Net income P99,600 P21,500 7,700 5,800 5,300 4,900 2,500 2,000 Green Star Talent Agency Statement of Owner’s Equity For the Month Ended October 31, 2008 Ella Santos, capital, October 1, 2008 Add: Net income Less: Withdrawals Ella Santos, capital, October 31, 2008 49,700 P 49,900 P 844,900 49,900 894,800 39,000 P 855,800 Completing the Accounting Cycle 23 Green Star Talent Agency Balance Sheet October 31, 2008 ASSETS Current assets: Cash Accounts receivable Prepaid rent Supplies Total current assets Plant assets: Furniture Less: Accumulated depreciation Building Less: Accumulated depreciation Total assets LIABILITIES Current liabilities: Accounts payable Salary payable Unearned commission revenue Total current liabilities OWNER’S EQUITY Ella Santos, capital Total liabilities and owner’s equity P 19,000 153,100 20,000 700 192,800 P268,300 36,500 P683,000 126,800 231,800 556,200 P980,800 P 72,900 3,100 49,000 125,000 855,800 P980,800 24 Chapter 10 Requirement (4) JOURNAL Date 2008 October 31 31 31 31 31 31 Post Ref Account Titles and Explanation Adjusting Entries Unearned Commission Revenue Commission Revenue Debit 23 41 4,000 Rent Expense Prepaid Rent 52 13 2,000 Supplies Expense Supplies 57 14 7,700 4,000 2,000 7,700 Depreciation Expense - Furniture Accumulated Depreciation Furniture 54 16 2,500 - Depreciation Expense – Building Accumulated Depreciation Building 55 18 58,000 – 51 22 3,100 Salary Expense Salary Payable Credit 2,500 58,000 3,100 JOURNAL Date 2008 October 31 31 31 31 Post Ref Account Titles and Explanation Closing Entries Commission Revenue Income Summary Income Summary Salary Expense Rent Expense Utilities Expense Depreciation Expense – Furniture Depreciation Expense – Building Advertising Expense Supplies Expense Income Summary P49,700) Ella Santos, Capital Ella Santos, Capital Ella Santos, Drawing (P99,600 - Debit 41 33 99,600 33 51 52 53 54 55 56 57 49,700 33 49,900 99,600 21,500 2,000 5,300 2,500 5,800 4,900 7,700 31 31 32 Credit 49,900 39,000 39,000 Completing the Accounting Cycle 25 Requirement (5) Green Star Talent Agency Postclosing Trial Balance October 31, 2008 P Cash Accounts receivable Prepaid rent Supplies Furniture Accumulated depreciation – Furniture Building Accumulated depreciation – Building Accounts payable Salary payable Unearned commission revenue Ella Santos, capital Total 19,000 153,100 20,000 700 268,300 P 36,500 68,300 P1,144,100 126,800 72,900 3,100 49,000 855,800 P1,144,100 ... CR 30,000 95 ,100 400 23,000 6,000 7,800 16,500 305,200 305,200 95 ,100 400 23,000 6,000 7,800 16,500 53,700 41,400 95 ,100 95 ,100 251,500 95 ,100 251,500 210, 100 41,400 251,500 Chapter 10 Exercise... 1,171 ,10 294,000 335,400 629,400 629,400 877 ,100 629,400 877 ,100 541,700 335,400 877 ,100 Completing the Accounting Cycle Multiple Choice Questions a d, a, e, b, f, c d d b c b c b 10 Chapter 10. .. 3,400 (g) (c) 1,657 ,100 3,700 2,400 5,000 1,800 1,000 29,200 110, 100 110, 100 Balance Sheet Debit Credit P 12,000 388,200 147,400 18,000 326,900 268,700 368,900 283,000 1,657 ,100 Net Income Adjustments