Chapter 6

BUSINESS AccOUNTING CYcLE PaRT II

Assessment Questions
AS-1 ( 1 ) What is the purpose of a worksheet? ______________________________________________________________________________ ______________________________________________________________________________ AS-2 ( 1 ) Why must adjustments be made at the end of the accounting period? ______________________________________________________________________________ ______________________________________________________________________________ AS-3 ( 1 ) When making an adjustment to record unearned revenue that is now earned, which accounts are used and how are they affected? ______________________________________________________________________________ ______________________________________________________________________________ AS-4 ( 1 ) When making an adjustment to record depreciation on property, plant and equipment, which accounts are used and how are they affected? ______________________________________________________________________________ ______________________________________________________________________________

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AS-5 ( 1 ) When making an adjustment to record the used portion of prepaid insurance, which accounts are used and how are they affected? ______________________________________________________________________________ ______________________________________________________________________________ AS-6 ( 1 ) When making an adjustment to record accrued interest on a bank loan, which accounts are used and how are they affected? ______________________________________________________________________________ ______________________________________________________________________________ AS-7 ( 2 ) What is an adjusted trial balance? ______________________________________________________________________________ ______________________________________________________________________________ AS-8 ( 3 ) What does the income statement report? ______________________________________________________________________________ ______________________________________________________________________________ AS-9 ( 3 ) Which statement is prepared after the income statement but before the balance sheet? ______________________________________________________________________________ ______________________________________________________________________________

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AS-10 ( 3 ) What does the statement of owners equity report? ______________________________________________________________________________ ______________________________________________________________________________ AS-11 ( 3 ) What two items will cause owners equity to increase and what two items will cause owners equity to decrease? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ AS-12 ( 3 ) Which categories of accounts will be reported on the balance sheet? ______________________________________________________________________________ ______________________________________________________________________________ AS-13 ( 3 ) How does accumulated depreciation affect the value of property, plant and equipment? ______________________________________________________________________________ ______________________________________________________________________________ AS-14 ( 5 ) What does it mean to close the books? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________

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AS-15 ( 5 ) What are the three steps to close directly to the capital account? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ AS-16 ( 5 ) What are the four steps to close the accounts using the income summary? ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ AS-17 ( 5 ) If a company has a net income for the period and closes their books using the income summary account, will the income summary account have a debit or credit balance before it is closed to the capital account? ______________________________________________________________________________ ______________________________________________________________________________ AS-18 ( 5 ) Which categories of accounts will appear on the post-closing trial balance? ______________________________________________________________________________ ______________________________________________________________________________ AS-19 ( 6 ) Identify two benefits of a computerized accounting system. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________
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Application Questions
AP-1 ( 1 , 2 ) Swordfish Programming provides computer solutions to the security industry. At the end of April 2011, they had the following adjustments: 1) A count of office supplies showed that there was $550 remaining in the office. 2) The balance of prepaid insurance is for a 12 month policy, one month of insurance has been used. 3) During April, Swordfish Programming earned $900 of unearned revenue. 4) Property, plant and equipment depreciated $120 during April. Required: Using the following trial balance, complete the adjustments and the adjusted trial balance in the worksheet.
Swordfish Programming Worksheet April 30, 2011 Account Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant and Equipment Accumulated Depreciation Accounts Payable Unearned Revenue Bank Loan Capital Account Owner's Drawings Service Revenue Depreciation Expense Insurance Expense Office Supplies Expense Rent Expense Telephone Expense Total Unadjusted Trial Balance Debit $4,200 2,300 1,800 800 10,400 1,500 0 0 0 1,300 275 $22,575 Credit $0 1,640 1,950 3,200 11,035 4,750 $22,575 Adjustments Debit Credit Adjusted Trial Balance Debit Credit

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AP-2 ( 1 , 2 ) Chirp Hearing provides hearing aids and other auditory services. At the end of November 2011, they had the following adjustments: 1) Accrued $40 interest on the bank loan. 2) The balance of the prepaid insurance is for the remaining 10 months of the insurance policy. One month of insurance has been used. 3) One month of depreciation is $180. 4) Chirp Hearing completed $650 of work that was previously unearned. 5) Office supplies used during the month totalled $400. Required: Using the following trial balance, complete the adjustments and the adjusted trial balance in the worksheet.
Chirp Hearing Worksheet November 30, 2011 Account Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant and Equipment Accumulated Depreciation Accounts Payable Interest Payable Unearned Revenue Bank Loan Capital Account Owner's Drawings Service Revenue Depreciation Expense Insurance Expense Interest Expense Office Supplies Expense Rent Expense Salaries Expense Total Unadjusted Trial Balance Debit $6,250 3,440 2,200 1,140 15,400 2,100 0 0 0 0 1,650 1,900 Credit $360 2,260 0 1,240 4,500 13,220 12,500 Adjustments Debit Credit Adjusted Trial Balance Debit Credit

$34,080 $34,080

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AP-3 ( 1 , 2 , 3 , 4 ) Mr. Allan Poe operates an advertising business called A Advertising. He had the following transactions for the month of December 2011: Dec 2 Dec 5 Dec 5 Dec 8 Dec 10 Dec 11 Dec 15 Dec 27 Dec 31 Dec 31 Dec 31 Invested $25,000 cash in the business Paid $2,500 cash for two months of rent in advance Prepaid $600 cash for a one-year subscription to Manila Bulletin, a monthly trade magazine that is left in the office for visitors to read Bought equipment worth $26,000 on account. The equipment has a useful life of 5 years with $2,000 salvage value Received $6,000 cash as advertising income Paid $13,000 cash as partial payment for the equipment bought on account Paid $2,000 cash for salaries Received $3,000 cash from Extreme Jockey Club for advertising services Recognized $1,250 rent expense for the month One month of the annual subscription has been used. This will be expensed to office supplies expense Depreciation for the month is $400

Adjustments:

Chart of Accounts:
Account Description
ASSETS

Account #

Account Description
REVENUE

Account #

Cash Accounts Receivable Prepaid Rent Prepaid Subscriptions Property, Plant & Equipment Accumulated Depreciation
LIABILITIES Accounts Payable Interest Payable Unearned Revenue Bank Loan OWNERS EQUITY

101 105 110 115 120 125

Service Revenue Interest Earned on Savings

EXPENSES

400 410

Advertising Expense Bad Debt Expense Depreciation Expense Insurance Expense Interest Expense Maintenance Expense Office Supplies Expense Professional Fees Expense Rent Expense

500 505 510 515 520 525 530 535 540 545 550 555

200 205 210 215

Capital Account Owners Drawings Income Summary

300 310 315

Salaries Expense Telephone Expense Travel Expense

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Required: Prepare the journal entries, post them to the general ledger, and complete the trial balance worksheet.
Journal Page 1 Account Title and Explanation PR Debit

Date

Credit

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Journal

Page 1 Account Title and Explanation PR Debit

Date

Credit

Account: CashGL. No. Date Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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Account: Date Description

GL. No. PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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A ADVERTISING WORKSHEET DECEMBER 31, 2011 Unadjusted Trial Balance ACCOUNT TITLES Debit Credit Adjustments Debit Credit Adjusted Trial Balance Debit Credit Income Statement Debit Credit Balance Sheet Debit Credit

AP-4 ( 1 , 2 , 3 , 4 ) Following is the list of transactions of MJ Sandblasting for the first month of operations during April 2011. Apr 1 Apr 1 Owner invested $30,000 cash in the business Purchased sandblasting equipment from Delta Company for $12,000. Paid $8,000 as a down payment with cash, and the remaining balance is payable in 60 days. The expected life of the equipment is 5 years Purchased a one year insurance policy, costing $3,600 Paid $3,000 cash for garage and office rent Received $5,000 cash from Billed Server Realty Corp. and $3,500 from Angela Building Corp. for services provided Paid $1,000 cash for utilities

Apr 2 Apr 5 Apr 8 Apr 14

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Apr 20 Apr 25 Apr 30 Apr 30

Paid $2,500 for salaries to employees Owner withdrew $2,000 cash for personal use Recognized $300 of insurance expense for the month Depreciation for the month is $200

Adjustments:

Chart of Accounts:
Account Description
ASSETS

Account #

Account Description
REVENUE

Account #

Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant & Equipment Accumulated Depreciation
LIABILITIES Accounts Payable Interest Payable Unearned Revenue Bank Loan OWNERS EQUITY

101 105 110 115 120 125

Service Revenue Interest Earned on Savings

EXPENSES

400 410

Advertising Expense Bad Debt Expense Depreciation Expense Insurance Expense Interest Expense Maintenance Expense Office Supplies Expense Professional Fees Expense Rent Expense

500 505 510 515 520 525 530 535 540 545 550 555

200 205 210 215

Capital Account Owners Drawings Income Summary

300 310 315

Salaries Expense Telephone Expense Utilities Expense

Required: Prepare the journal entries, post them to the general ledger, and complete the trial balance worksheet.
Journal Page 1 Account Title and Explanation PR Debit

Date

Credit

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Journal

Page 1 Account Title and Explanation PR Debit

Date

Credit

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Account: CashGL. No. Date Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date Description

GL. No. PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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MU Sandblasting Worksheet April 30, 2011 Unadjusted Trial Balance Accounts Debit Credit Adjustments Debit Credit Adjusted Trial Balance Debit Credit Income Statement Debit Credit Balance Sheet Debit Credit

AP-5 ( 1 , 2 , 3 , 4 ) Sprig Gardening Service provides seasonal gardening services. At the end of August 2011, the company must make the following adjustments: 1) Depreciation for their property, plant and equipment is $120. 2) Interest due on a bank loan is $50. It will be paid next month. 3) Accrued salary expense for an employee at the end of the month. The company owes the employee $450. 4) One month of prepaid insurance at $70 per month has been used. 5) A physical count of office supplies shows that $300 was used during August. 6) Sprig Gardening earned $670 that was previously unearned. Required: Prepare the adjusting journal entries. You are not required to fill in the PR column for this question.

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Answers:
Journal Date Account Title and Explanation PR Debit Page 1 Credit

AP-6 ( 1 , 2 , 3 , 4 , 5 , 6 ) Thomas Topology has completed all their journal entries for the month of April 2011 and posted them to the general ledger. Based on the ledger balances, an unadjusted trial balance has been prepared. Their chart of accounts and unadjusted trial balance are listed below.

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Account Description
ASSETS

Account #

Account Description
REVENUE

Account #

Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant & Equipment Accumulated Depreciation
LIABILITIES Accounts Payable Interest Payable Unearned Revenue Bank Loan OWNERS EQUITY

101 105 110 115 120 125

Service Revenue Interest Earned on Savings

EXPENSES

400 410

Advertising Expense Bad Debt Expense Depreciation Expense Insurance Expense Interest Expense Maintenance Expense Office Supplies Expense Professional Fees Expense Rent Expense

500 505 510 515 520 525 530 535 540 545 550 555

200 205 210 215

Capital Account Owners Drawings Income Summary

300 310 315

Salaries Expense Telephone Expense Travel Expense

Thomas Topology Unadjusted Trial Balance April 30, 2010 Account Titles Cash Accounts Receivable Prepaid Insurance Property, Plant & Equipment Accounts Payable Unearned Revenue Bank Loan Capital Account Service Revenue Interest Expense Rent Expense Salaries Expense Telephone Expense Travel Expense Total DR $32,050 9,000 1,200 15,000 50 1,000 8,000 250 8,000 $74,550 CR $25,550 4,500 1,500 18,000 25,000 $74,550

The following adjustments must be made at the end of April: Apr 30 Apr 30 Apr 30 One month of prepaid insurance has been used Depreciation on property, plant and equipment Unearned revenue that has now been earned $100 $120 $1,300

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Required: 1) Fill in the unadjusted trial balance on the worksheet and complete the rest of the worksheet. 2) Prepare the income statement, statement of owners equity and the balance sheet. 3) Create the journal entries for the adjustments from the worksheet and post the adjustments to the ledger accounts. 4) Create the closing entries using the income summary account and post the closing entries to the ledger accounts. 5) Prepare the post-closing trial balance. Note: The daily transactions for the month of April have already been posted in the general ledger. You are only responsible for posting the adjusting and closing entries.

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160
Thomas Topology Worksheet April 30, 2011 Unadjusted Trial Balance Adjustments Debit Credit Debit Credit Debit Credit Debit Debit Credit Adjusted Trial Balance Income Statement Balance Sheet Credit

Chapter 6

1) Worksheet

Account Titles

Business Accounting Cycle Part II

Business Accounting Cycle Part II

Chapter 6

2) Financial Statements
Thomas Topology Income Statement For the Month Ended April 30, 2011 Thomas Topology Statement of Owner's Equity For the Month Ended April 30, 2011

Thomas Topology Balance Sheet As at April 30, 2011

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3) Adjusting entries (the general ledger is at the end of this question).

Journal Date Account Title and Explanation PR DR Page 2 CR

4) Closing entries (the general ledger is at the end of this question).

Journal Date Account Title and Explanation PR DR Page 3 CR

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5) Post-closing trial balance.

Thomas Topology Post-Closing Trial Balance April 30, 2011 Account Titles DR CR

General Ledger
Account: CashGL. No: 101 Date 2011 Apr 1 Apr 2 Apr 3 Apr 4 Apr 10 Apr 14 Apr 20 Apr 30 Opening Balance Description PR J1 J1 J1 J1 J1 J1 J1 PR DR DR 25,000 CR CR 1,000 1,200 200 8,000 50 4,500 Balance 22,000 DR 47,000 DR 46,000 DR 44,800 DR 44,600 DR 36,600 DR 36,550 DR 32,050 DR GL No: 105 Balance 9,000 DR

Account: Accounts Receivable Date 2011 Apr 1 Opening Balance Description

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Account: Prepaid Insurance Date 2011 Apr 1 Apr 4 Opening Balance Description

PR J1 DR

CR 1,200

GL No: 110 Balance 0 DR 1,200 DR

Account: Property, Plant & Equipment Date 2011 Apr 1 Apr 1 Opening Balance Description

PR DR

CR

GL No: 120 Balance 8,000 DR 15,000 DR

J1

7,000

Account: Accumulated Depreciation Date Description

PR DR

CR

GL No: 125 Balance

PR J1 J1 J1 J1 PR DR DR

CR 200 CR

7,000 250 8,000

GL No: 200 Balance 10,500 CR 17,500 CR 17,300 CR 17,550 CR 25,550 CR GL No: 210 Balance 4,500 CR

Account: Accounts Payable Date 2011 Apr 1 Apr 1 Apr 10 Apr 22 Apr 24 Opening Balance Description

Account: Unearned Revenue Date 2011 Apr 1 Opening Balance Description

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Account: Bank Loan Date 2011 Apr 1 Apr 30 Opening Balance Description

PR J1 PR PR DR DR DR

CR 4,500 CR CR

GL No: 215 Balance 6,000 CR 1,500 CR GL No: 300 Balance 18,000 CR GL No: 315 Balance

Account: Capital Account Date 2011 Apr 1 Opening Balance Description

Account: Income Summary Date Description

PR J1 DR

CR

25,000

GL No: 400 Balance 25,000 CR

Account: Service Revenue Date 2011 Apr 2 Description

PR DR

CR

GL No: 510 Balance

Account: Depreciation Expense Date Description

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Account: Insurance Expense Date Description

PR DR

CR

GL No: 515 Balance

PR DR

CR

GL No: 520 Balance

Account: Interest Expense Date Description

Account: Rent Expense Date 2011 Apr 3 Description

PR J1 PR J1 PR J1 PR J1 DR DR DR DR

CR 1,000 CR 8,000 CR 250 CR 8,000

GL No: 540 Balance 1,000 DR GL No: 545 Balance 8,000 DR GL No: 550 Balance 250 DR GL No: 555 Balance 8,000 DR

Account: Salaries Expense Date 2011 Apr 14 Description

Account: Telephone Expense Date 2011 Apr 22 Description

Account: Travel Expense Date 2011 Apr 24 Description

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AP-7 ( 1 , 2 , 3 , 4 , 5 , 6 ) High Flying Biplane has completed all their journal entries for the month of June 2011 and posted them to the general ledger. Based on the ledger balances, an unadjusted trial balance has been prepared. Their chart of accounts and unadjusted trial balance are listed below.
Account Description
ASSETS

Account #

Account Description
REVENUE

Account #

Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant & Equipment Accumulated Depreciation
LIABILITIES Accounts Payable Interest Payable Unearned Revenue Bank Loan OWNERS EQUITY

101 105 110 115 120 125

Service Revenue Interest Earned on Savings

EXPENSES

400 410

Advertising Expense Bad Debt Expense Depreciation Expense Insurance Expense Interest Expense Maintenance Expense Office Supplies Expense Professional Fees Expense Rent Expense

500 505 510 515 520 525 530 535 540 545 550 555

200 205 210 215

Capital Account Owners Drawings Income Summary

300 310 315

Salaries Expense Telephone Expense Travel Expense

High Flying Biplane Unadjusted Trial Balance June 30, 2011 Account Titles Cash Accounts Receivable Prepaid Insurance Property, Plant & Equipment Accounts Payable Unearned Revenue Bank Loan Capital Account Owners Drawings Service Revenue Advertising Expense Telephone Expense Total DR $8,800 6,800 1,200 64,000 1,200 400 200 $82,600 CR $7,700 4,700 19,000 48,800 2,400 $82,600

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Note: During the month of June, the owner of High Flying Biplane invested $5,000 into the business. The following adjustments must be made at the end of June: Jun 30 Jun 30 Jun 30 Jun 30 Required: 1) Fill in the unadjusted trial balance on the worksheet and complete the rest of the worksheet. 2) Prepare the income statement, statement of owners equity and the balance sheet. 3) Create the journal entries for the adjustments from the worksheet and post the adjustments to the ledger accounts. 4) Create the closing entries using the income summary account and post the closing entries to the ledger accounts. 5) Prepare the post-closing trial balance. Note: The daily transactions for the month of June have already been posted in the general ledger. You are only responsible for posting the adjusting and closing entries. One month of prepaid insurance has been used Depreciation on property, plant and equipment Unearned revenue that has now been earned Interest is accrued and owed on the bank loan $100 $450 $620 $75

168

1) Worksheet

High Flying Biplane Worksheet June 30, 2011 Unadjusted Trial Balance Adjustments Debit Credit Debit Credit Debit Credit Debit Credit Adjusted Trial Balance Income Statement Balance Sheet Debit Credit

Business Accounting Cycle Part II

Account Titles

Chapter 6

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2) Financial Statements
High Flying Biplane Income Statement For the Month Ended June 30, 2011 High Flying Biplane Statement of Owner's Equity For the Month Ended June 30, 2011

High Flying Biplane Balance Sheet As at June 30, 2011

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3) Adjusting entries (the general ledger is at the end of this question).

Journal Date Account Title and Explanation PR DR Page 2 CR

4) Closing entries (the general ledger is at the end of this question).

Journal Date Account Title and Explanation PR DR Page 3 CR

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5) Post-closing trial balance.

High Flying Biplane Post-Closing Trial Balance June 30, 2011 Account Titles DR CR

General Ledger
Account: CashGL. No: 101 Date 2011 Jun 1 Jun 1 Jun 2 Jun 4 Jun 14 Jun 20 Jun 22 Jun 24 Jun 30 Opening Balance Description PR J1 J1 J1 J1 J1 J1 J1 J1 PR J1 J1 DR 2,400 DR 5,000 1,500 1,600 CR 1,600 CR 200 4,000 900 1,000 1,200 Balance 8,000 DR 13,000 DR 14,500 DR 14,300 DR 10,300 DR 11,900 DR 11,000 DR 10,000 DR 8,800 DR GL No: 105 Balance 6,000 DR 8,400 DR 6,800 DR

Account: Accounts Receivable Date 2011 Jun 1 Jun 10 Jun 20 Opening Balance Description

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Account: Prepaid Insurance Date 2011 Jun 1 Opening Balance Description

PR PR J1 PR DR DR DR

CR CR 4,000 CR

GL No: 110 Balance 1,200 DR GL No: 120 Balance 60,000 DR 64,000 DR GL No: 125 Balance

Account: Property, Plant & Equipment Date 2011 Jun 1 Jun 14 Opening Balance Description

Account: Accumulated Depreciation Date Description

PR J1 J1 DR

CR 900

400

GL No: 200 Balance 8,200 CR 8,600 CR 7,700 CR

Account: Accounts Payable Date 2011 Jun 1 Jun 3 Jun 22 Opening Balance Description

Account: Interest Payable Date Description

PR DR

CR

GL No: 205 Balance

PR J1 DR

CR

1,500

GL No: 210 Balance 3,200 CR 4,700 CR

Account: Unearned Revenue Date 2011 Jun 1 Jun 2 Opening Balance Description

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Account: Bank Loan Date 2011 Jun 1 Jun 24 Opening Balance Description

PR J1 PR J1 DR DR

CR 1,000 CR

5,000

GL No: 215 Balance 20,000 CR 19,000 CR GL No: 300 Balance 43,800 CR 48,800 CR

Account: Capital Account Date 2011 Jun 1 Jun 1 Opening Balance Description

Account: Owners Drawings Date 2011 Jun 30 Description

PR J1 PR DR DR

CR 1,200 CR

GL No: 310 Balance 1,200 DR GL No: 315 Balance

Account: Income Summary Date Description

PR J1 DR

CR

2,400

GL No: 400 Balance 2,400 CR

Account: Service Revenue Date 2011 Jun 10 Description

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Account: Advertising Expense Date 2011 Jun 3 Description

PR J1 PR DR DR

CR 400 CR

GL No: 500 Balance 400 DR GL No: 510 Balance

Account: Depreciation Expense Date Description

PR DR

CR

GL No: 515 Balance

Account: Insurance Expense Date Description

PR DR

CR

GL No: 520 Balance

Account: Interest Expense Date Description

Account: Telephone Expense Date 2011 Jun 4 Description

PR J1 DR

CR 200

GL No: 550 Balance 200 DR

AP-8 ( 1 , 2 , 3 , 4 , 5 , 6 ) Limbo Lower has completed all their journal entries for the month of September 2011 and posted them to the general ledger. Based on the ledger balances, an unadjusted trial balance has been prepared. Their chart of accounts and unadjusted trial balance are listed below.

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Account Description
ASSETS

Account #

Account Description
REVENUE

Account #

Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant & Equipment Accumulated Depreciation
LIABILITIES Accounts Payable Interest Payable Unearned Revenue Bank Loan OWNERS EQUITY

101 105 110 115 120 125

Service Revenue Interest Earned on Savings

EXPENSES

400 410

Advertising Expense Bad Debt Expense Depreciation Expense Insurance Expense Interest Expense Maintenance Expense Office Supplies Expense Professional Fees Expense Rent Expense

500 505 510 515 520 525 530 535 540 545 550 555

200 205 210 215

Capital Account Owners Drawings Income Summary

300 310 315

Salaries Expense Telephone Expense Travel Expense

Limbo Lower Unadjusted Trial Balance September 30, 2011 Account Titles Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant & Equipment Accounts Payable Unearned Revenue Bank Loan Capital Account Owners Drawings Service Revenue Interest Expense Rent Expense Total DR $5,800 1,450 1,800 1,100 9,300 1,600 40 1,350 $22,440 CR $3,050 1,400 4,640 11,450 1,900 $22,440

The following adjustments must be made at the end of September: Sep 30 Sep 30 Sep 30 Sep 30 One month of prepaid insurance has been used Depreciation on property, plant and equipment Unearned revenue that has now been earned Amount of office supplies used during the month $150 $120 $360 $450

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Required: 1) Fill in the unadjusted trial balance on the worksheet and complete the rest of the worksheet. 2) Prepare the income statement, statement of owners equity and the balance sheet. 3) Create the journal entries for the adjustments from the worksheet and post the adjustments to the ledger accounts. 4) Create the closing entries using the income summary account and post the closing entries to the ledger accounts. 5) Prepare the post-closing trial balance. Note: The daily transactions for the month of September have already been posted in the general ledger. You are only responsible for posting the adjusting and closing entries.

177

178
Limbo Lower Worksheet September 30, 2011 Unadjusted Trial Balance Adjustments Debit Credit Debit Credit Debit Credit Debit Debit Credit Adjusted Trial Balance Income Statement Balance Sheet Credit

Chapter 6

1) Worksheet

Account Titles

Business Accounting Cycle Part II

Business Accounting Cycle Part II

Chapter 6

2) Financial Statements
Limbo Lower Income Statement For the Month Ended September 30, 2011 Limbo Lower Statement of Owner's Equity For the Month Ended September 30, 2011

Limbo Lower Balance Sheet As at September 30, 2011

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3) Adjusting entries (the general ledger is at the end of this question).

Journal Date Account Title and Explanation PR DR Page 2 CR

4) Closing entries (the general ledger is at the end of this question).

Journal Date Account Title and Explanation PR DR Page 3 CR

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5) Post-closing trial balance.

Limbo Lower Post-Closing Trial Balance September 30, 2011 Account Titles DR CR

General Ledger
Account: CashGL. No: 101 Date 2011 Sep 1 Sep 1 Sep 2 Sep 3 Sep 10 Sep 10 Sep 20 Sep 22 Sep 24 Sep 30 Opening Balance Description PR J1 J1 J1 J1 J1 J1 J1 J1 J1 PR J1 DR DR 1,900 2,200 850 CR 850 CR 1,800 1,350 40 960 600 1,600 Balance 7,200 DR 5,400 DR 7,300 DR 5,950 DR 5,910 DR 4,950 DR 7,150 DR 8,000 DR 7,400 DR 5,800 DR GL No: 105 Balance 2,300 DR 1,450 DR

Account: Accounts Receivable Date 2011 Sep 1 Sep 22 Opening Balance Description

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Account: Prepaid Insurance Date 2011 Sep 1 Sep 1 Opening Balance Description

PR J1 PR J1 PR J1 PR DR DR DR DR

CR 1,800 CR 250 CR CR

2,200

GL No: 110 Balance 0 DR 1,800 DR GL No: 115 Balance 850 DR 1,100 DR GL No: 120 Balance 11,500 DR 9,300 DR GL No: 125 Balance

Account: Office Supplies Date 2011 Sep 1 Sep 4 Opening Balance Description

Account: Property, Plant & Equipment Date 2011 Sep 1 Sep 20 Opening Balance Description

Account: Accumulated Depreciation Date Description

PR J1 J1 PR DR DR

CR 600 CR

250

GL No: 200 Balance 3,400 CR 3,650 CR 3,050 CR GL No: 210 Balance 1,400 CR

Account: Accounts Payable Date 2011 Sep 1 Sep 4 Sep 24 Opening Balance Description

Account: Unearned Revenue Date 2011 Sep 1 Opening Balance Description

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Account: Bank Loan Date 2011 Sep 1 Sep 10 Opening Balance Description

PR J1 PR DR DR

CR 960 CR

GL No: 215 Balance 5,600 CR 4,640 CR GL No: 300 Balance 11,450 CR

Account: Capital Account Date 2011 Sep 1 Opening Balance Description

Account: Owners Drawings Date 2011 Sep 30 Description

PR J1 PR DR DR

CR 1,600 CR

GL No: 310 Balance 1,600 DR GL No: 315 Balance

Account: Income Summary Date Description

PR J1 DR

CR

1,900

GL No: 400 Balance 1,900 CR

Account: Service Revenue Date 2011 Sep 2 Description

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Account: Depreciation Expense Date Description

PR DR

CR

GL No: 510 Balance

PR DR

CR

GL No: 515 Balance

Account: Insurance Expense Date Description

PR J1 DR

CR 40

GL No: 520 Balance 40 DR

Account: Interest Expense Date 2011 Sep 10 Description

Account: Office Supplies Expense Date Description

PR DR

CR

GL No: 530 Balance

PR J1 DR

CR 1,350

GL No: 540 Balance 1,350 DR

Account: Rent Expense Date 2011 Sep 3 Description

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AP-9 ( 5 ) Keynote Consulting has journalized their adjusting entries and prepared their adjusted trial balance. Using the adjusted trial balance, prepare the closing entries using the income summary account for the month of August and create the post-closing trial balance.
Keynote Consulting Adjusted Trial Balance August 31, 2011 Account Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant and Equipment Accumulated Depreciation Accounts Payable Interest Payable Unearned Revenue Bank Loan Capital Account Owner's Drawings Service Revenue Depreciation Expense Insurance Expense Interest Expense Rent Expense Telephone Expense Total Debit $6,200 1,750 1,650 1,150 10,650 2,000 150 170 50 800 250 $24,820 Credit $320 1,640 50 1,420 3,000 14,290 4,100 $24,820

a) Closing entries (ignore the post reference column for this question).
Date Account Title and Explanation PR DR CR

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Date

Account Title and Explanation

PR

DR

CR

b) Post-closing trial balance

Keynote Consulting Post-Closing Trial Balance August 31, 2011 Account Debit Credit

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AP-10 ( 5 ) Franks Custom Framing has journalized their adjusting entries and prepared their adjusted trial balance. Using the adjusted trial balance, prepare the closing entries using the income summary account for the month of October and create the post-closing trial balance.
Frank's Custom Framing Adjusted Trial Balance October 31, 2011 Account Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant and Equipment Accumulated Depreciation Accounts Payable Interest Payable Unearned Revenue Bank Loan Capital Account Owner's Drawings Service Revenue Depreciation Expense Insurance Expense Interest Expense Rent Expense Telephone Expense Salaries Expense Total Debit $8,620 2,340 2,650 1,840 23,400 3,200 260 185 120 1,200 275 1,650 $45,740 Credit $1,640 3,540 120 2,110 5,500 24,080 8,750 $45,740

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a) Closing entries (ignore the post reference column for this question).
Date Account Title and Explanation PR DR CR

b) Post-closing trial balance

Frank's Custom Framing Post-Closing Trial Balance October 31, 2011 Debit

Account

Credit

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AP-11 ( 5 ) Home Protector has journalized their adjusting entries and prepared their adjusted trial balance. Using the adjusted trial balance, prepare the closing entries directly to the capital account for the month of December and create the post-closing trial balance.
Home Protector Adjusted Trial Balance December 31, 2011 Account Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant and Equipment Accumulated Depreciation Accounts Payable Salaries Payable Unearned Revenue Bank Loan Capital Account Owner's Drawings Service Revenue Depreciation Expense Insurance Expense Interest Expense Rent Expense Telephone Expense Salaries Expense Total Debit $12,650 5,420 2,820 2,240 25,600 4,300 320 220 160 1,890 350 3,540 $59,510 Credit $2,340 6,250 650 4,250 7,500 21,645 16,875 $59,510

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a) Closing entries (ignore the post reference column for this question).
Date Account Title and Explanation PR DR CR

b) Post-closing trial balance

Home Protector Post-Closing Trial Balance December 31, 2011 Account Debit Credit

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AP-12 ( 5 ) Luminary Electric has journalized their adjusting entries and prepared their adjusted trial balance. Using the adjusted trial balance, prepare the closing entries directly to the capital account for the month of March and create the post-closing trial balance.
Luminary Electric Adjusted Trial Balance March 31, 2011 Account Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant and Equipment Accumulated Depreciation Accounts Payable Salaries Payable Unearned Revenue Bank Loan Capital Account Owner's Drawings Service Revenue Depreciation Expense Insurance Expense Interest Expense Office Supplies Expense Rent Expense Telephone Expense Salaries Expense Total Debit $10,420 6,350 2,350 1,860 32,500 5,200 410 195 210 670 2,150 450 4,360 $67,125 Credit $5,480 4,870 840 5,340 9,000 23,745 17,850 $67,125

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a) Closing entries (ignore the post reference column for this question).
Date Account Title and Explanation PR DR CR

b) Post-closing trial balance

Luminary Electric Post-Closing Trial Balance March 31, 2011 Account Debit Credit

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Case Study
CS-1 ( 1 , 2 , 3 , 4 , 5 ) Grindstone Paving provides residential and commercial paving services. Their balance sheet at the end of June 2011 is shown below, along with their chart of accounts.
Grindstone Paving Balance Sheet As at June 30, 2011 Assets Cash Accounts Receivable Prepaid Insurance Property, Plant & Equipment Total Assets
Account Description
ASSETS

Liabilities $7,580 Accounts Payable 6,000 Unearned Revenue 1,800 Bank Loan 55,000
Account #

$15,800 6,200 22,000 44,000 26,380 $70,380

Total Liabilities Owners' Equity

Account Description
REVENUE

$70,380 Total Liabilities & Owners' Equity

Account #

Cash Accounts Receivable Prepaid Insurance Office Supplies Property, Plant & Equipment Accumulated Depreciation
LIABILITIES Accounts Payable Interest Payable Salary Payable Unearned Revenue Bank Loan OWNERS EQUITY

101 105 110 115 120 125

Service Revenue Interest Earned on Savings

EXPENSES

400 410

Advertising Expense Bad Debt Expense Depreciation Expense Insurance Expense Interest Expense Maintenance Expense Office Supplies Expense Professional Fees Expense Rent Expense Salaries Expense Telephone Expense Travel Expense

500 505 510 515 520 525 530 535 540 545 550 555

200 205 210 215 220

Capital Account Owners Drawings Income Summary

300 310 315

For the month of July 2011, Grindstone Paving had the following transactions: Jul 1 Jul 2 Jul 5 Jul 8 Jul 10 The owner invested cash into the business Received cash for work that will be provided in August Received an advertising bill which will be paid next month Paid the telephone bill with cash Provided services to customers who will pay later $8,000 $2,530 $600 $350 $4,680
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Jul 14 Jul 20 Jul 22 Jul 24 Jul 28 Jul 30

Purchase equipment with cash Received payment from customers paying their account Paid part of accounts payable Paid bank loan principal Paid salary to an employee The owner withdrew cash for personal use

$8,200 $2,350 $1,970 $1,300 $2,400 $2,200

At the end of July, the following adjustment had to be journalized to properly report the balances of the companys accounts: Jul 31 Jul 31 Jul 31 Jul 31 Jul 31 Required: 1) Enter the opening balances from the June 2011 balance sheet into the general ledger accounts (the ledger accounts are presented at the end of this question). 2) Prepare the journal entries for the month of July and post them to the appropriate general ledger accounts. 3) Create the trial balance in the worksheet, and then complete the remaining section of the worksheet. 4) Create the income statement, statement of owners equity and the balance sheet. 5) Prepare the journal entries for the adjustments and post them to the appropriate general ledger accounts. 6) Prepare the journal entries to close the books for the month of July 2011 (use the income summary account), and post the journal entries to the appropriate general ledger accounts. 7) Create the post-closing trial balance. Answers: 1) Journal entries
Journal Date Account Title and Explanation PR DR Page 1 CR

One month of prepaid insurance has been used Depreciation on property, plant and equipment Unearned revenue that has now been earned Interest is accrued and owed on the bank loan Accrued salary expense for an employee

$100 $450 $620 $75 $500

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Journal Date Account Title and Explanation PR DR

Page 1 CR

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Grindstone Paving Worksheet July 31, 2011 Unadjusted Trial Balance Adjustments Debit Credit Debit Credit Debit Credit Debit Debit Credit Adjusted Trial Balance Income Statement Balance Sheet Credit

Chapter 6

2) Worksheet

Account Titles

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Business Accounting Cycle Part II

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3) Financial statements
Grindstone Paving Income Statement For the Month Ended July 31, 2011 Grindstone Paving Statement of Owners Equity As at July 31, 2011

Grindstone Paving Balance Sheet For the Month Ended July 31, 2011

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4) Adjusting entries
Journal Date Account Title and Explanation PR DR Page 2 CR

5) Closing entries
Journal Date Account Title and Explanation PR DR Page 3 CR

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6) Create the post-closing trial balance.

Grindstone Paving Post-Closing Trial Balance July 31, 2011 Account Titles DR CR

General Ledger
Account: CashGL. No. Date Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date Description

GL. No. PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

Account: Date

GL. No. Description PR Debit Credit Balance

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Notes

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