Chapter 10

Chapter 10
Completing the Accounting Cycle
Exercises
Exercise 1
Closing entry on Dec. 31
Patient Services 340,000

Laboratory Fees 180,000
Income Summary 520,000
Exercise 2

Rent Expense 140,000
Wages Expense 110,000
Other Expenses 50,000
Exercise 3

Capital Account 22,000
Exercise 4
Reversing entries
a. not reversed
b. not reversed
c. Salary Payable 3,600
Salaries Expense 3,600
2 Chapter 10
Exercise 5
Salaries Expense Salaries Payable

18,000 (c) AJE 3,600
(c) AJE 3,600 CE 21,600
RE 3,600 RE 3,600
April 3 4,800
Exercise 6
1. Repair Revenue 368,600

Wages Expense 122,600
Rent Expense 18,000
Supplies Expense 63,900
Insurance Expense 13,700
Depreciation Expense Repair Equipment 20,200
Income Taxes Expense 40,000
To close the revenue and expense accounts
to Income Summary.
Completing the Accounting Cycle 3
Exercise 7
Max Pest Control Services

Worksheet
For the Year Ended September 30, 2008
Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
DR CR DR CR DR CR DR CR DR CR
Cash 356,000 356,000 356,000
Accounts receivable 34,400 (a) 2,100 36,500 36,500
Prepaid rent 12,000 (d) 6,000 6,000 6,000
Supplies 33,900 (e) 16,500 17,400 17,400
Equipment 126,000 126,000 126,000
Accumulated
depreciation 28,400 (b) 400 28,800 28,800
Accounts payable 16,000 16,000 16,000
Salary payable (c) 5,000 5,000 5,000
Robert Claro, Capital 160,300 160,300 160,300
Robert Claro, Drawing 30,000 30,000 30,000
Service revenue 93,000 (a) 2,100 95,100 95,100
Depreciation expense (b) 400 400 400
Salary expense 18,000 (c) 5,000 23,000 23,000
Rent expense (d) 6,000 6,000 6,000
Utilities expense 7,800 7,800 7,800
Supplies expense (e) 16,500 16,500 16,500
297,700 297,700 30,000 30,000 305,200 305,200 53,700 95,100 251,500 210,100
Net income 41,400 41,400
95,100 95,100 251,500 251,500
4 Chapter 10
Exercise 8
JOURNAL
Post
Date Account Titles and Explanation Ref Debit Credit
a Office Equipment 29,000
Supplies 29,000
b Rent Expense (P9,000 x 2) 18,000

Prepaid Rent 18,000
c Cash 9,000
Salary Payable 9,000
d Unearned Service Revenue 32,000

Accounts Receivable 32,000
e Interest Receivable 8,000

Accounts Receivable 8,000
f Accounts Payable 6,000

Cash 6,000
Exercise 9
Bazooka Trailer Rental

Income Statement
For the Year Ended December 31, 2008
Trailer Rentals P910,920

Less: Expenses
Wage expense 468,000
Insurance expense 14,400
Supplies expense 5,320
Depreciation expense, trailers 48,000
Other expense 215,640
Total expenses 751,360
Net income P159,560

Statement of Changes in Owners Equity
For the Year Ended December 31, 2008
J. Reyes, Capital, January 1 P 83,880

Add: Net income 159,560
P243,440
Less: Withdrawals 114,000
J. Reyes, Capital, December 31 P129,440

Balance Sheet
December 31, 2008
Assets
Current Assets
Cash P 13,840
Accounts receivable 19,440
Supplies 2,380
Prepaid insurance 7,200
Total current asset P 42,860
Trailers P240,000
Less: Accumulated depreciation 144,000
Net carrying value 96,000
Total Assets P138,860
Liabilities and Owners Equity
Liabilities
Current Liabilities
Accounts payable P 5,420
Wages payable 4,000
Total Liabilities 9,420
Owners Equity
J. Reyes, Capital 129,440
Total Liabilities and Owners Equity P138,860

6 Chapter 10
Exercise 10
There is no single correct way to present the solution to this case. However, the
solution should include answers to the following questions:
1. What was the entitys 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).
2. What were the entitys total assets, liabilities, and capital at the end of the
year? The balance sheet answers this question.
3. Did the owners capital account increase or decrease from its original
balance of P250,000? This question is answered by the statement of
owners equity.
Answers:
(1) See the work sheet, which indicates that net income for the year was
P335,400. The entitys income statement is
Dantes Computing Service

Income Statement
For the Month Ended December 31, 20xx
Revenues:
Service revenue P629,400
Expenses:
Salary expense P182,000
Depreciation expense 59,000
Rent expense 24,000
Utilities expense 8,000
Net income P335,400
(2) Total assets were P383,900, total liabilities were P232,700, owners capital
was P151,200,as reported on the balance sheet:

Balance Sheet
December 31, 20xx
ASSETS LIABILITIES
Current assets: Current liabilities:

Cash P 58,300 Accounts payable P185,400
Accounts receivable 139,600 Salary payable 12,000
Supplies 5,000 Unearned service revenue 35,300
Prepaid rent 4,000 Total current liabilities P232,700
Total current assets 206,900
Plant assets: OWNERS EQUITY
Equipment P236,000 Katrina Dantes, capital 151,200
Less: Accum. depr. 59,000 177,000 Total liabilities and
Total assets P383,900 owners equity 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 owners equity.

Statement of Owners Equity
For the Month Ended December 31, 20xx
Katrina Dantes, capital, January 2, 20xx P250,000
585,400
Katrina Dantes, capital, December 31, 20xx 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

Worksheet
For the Year Ended December 31, 20xx
Cash 58,300 58,300 58,300
Accounts receivable 123,600 (a) 16,000 139,600 139,600
Prepaid rent 28,000 (c) 24,000 4,000 4,000
Supplies 26,000 (d) 21,000 5,000 5,000
Equipment 236,000 23,600 23,600
Accumulated
depreciation (e) 59,000 59,000 59,000
Salary payable (f) 12,000 12,000 12,000
Unearned service
revenue 41,300 (b) 6,000 35,300 35,300
Katrina Dantes, Capital 250,000 250,000 250,000
Katrina Dantes, Drawing 434,200 434,200 434,200
Service revenue 607,400 (a) 16,000 629,400 629,400
(b) 6,000
Salary expense 170,000 (f) 12,000 182,000 182,000
Depreciation expense (e) 59,000 59,000 59,000
Rent expense (c) 24,000 24,000 24,000
Supplies expense (d) 21,000 21,000 21,000
1,084,100 1,084,100 138,000 138,000 1,117,110 1,171,100 294,000 629,400 877,100 541,700
Net income 335,400 335,400
629,400 629,400 877,100 877,100
Multiple Choice Questions
1. a 6. c
2. d, a, e, b, f, c 7. b
3. d 8. c
4. d 9. b
5. b
10 Chapter 10
Test Material
Test Material 10-1
Rainbow Star Painting Contractors
Worksheet
For the Year Ended July 31, 2008
Account Title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash P 12,000 12,000 P 12,000
Accounts Receivable 378,200 (h) 11,000 389,200 388,200
Supplies 176,600 (c) 29,200 147,400 147,400
Prepaid Insurance 23,000 (d) 5,000 18,000 18,000
Equipment 326,900 326,900 326,900
Accumulated Depreciation
Equipment P262,400 (a-1) 6,300 268,700 268,700
Building 368,900 368,900 368,900
Accumulated Depreciation
Building 105,000 (a-2) 3,700 108,700 108,700
Land 283,000 283,000 283,000
Accounts Payable 226,900 (g) 1,000 227,900 227,900
Interest Payable (e) 1,800 1,800 1,800
Wage Payable (b) 2,400 2,400 2,400
Unearned Service Revenue 105,600 (f) 49,700 55,900 55,900
Note Payable Long-term 224,000 224,000 224,000
Nico Coral, Capital 591,300 591,300 591,300
Nico Coral, Drawing 42,000 42,000 42,000
Service Revenue 141,900 (f) 49,700 202,600 202,600
(h) 11,000
Depreciation Expense
Equipment (a-1) 6,300 6,300 6,300
Depreciation Expense
Building (a-2) 3,700 3,700 3,700
Wage Expense 32,000 (b) 2,400 34,400 34,400
Insurance Expense (d) 5,000 5,000 5,000
Interest Expense (e) 1,800 1,800 1,800
Utilities Expense 2,700 2,700 2,700
Property Tax Expense 8,400 8,400 8,400
Advertising Expense 3,400 (g) 1,000 4,400 4,400
Supplies Expense (c) 29,200 29,200 29,200
1,657,100 1,657,100 110,100 110,100 1,683,300 1,683,300 95,900 202,600 1,587,400 1,480,700
Net Income 106,700 106,700
202,600 202,600 1,587,400 1,587,400
11 Chapter 10
Test Material 10-2
Requirement (1)
JOURNAL
Post
Adjusting Entries
June 30 Depreciation Expense Equipment 73,000
Accumulated Depreciation Equipment 73,000
30 Depreciation Expense Building 39,700

Accumulated Depreciation Building 39,700
30 Supplies Expense 35,800

Supplies 35,800
30 Insurance Expense 31,000

Prepaid Insurance 31,000
30 Interest Expense 6,900

Interest Payable 6,900
30 Accounts Receivable 9,400

Service Revenue 9,400
30 Unearned Service Revenue 77,900

Service Revenue 77,900
30 Wage Expense 7,700

Wage Payable 7,700
12 Chapter 10
JOURNAL
Post
Closing Entries
June 30 Service Revenue 1,098,600
Income Summary 1,098,600
30 Income Summary 552,300

Depreciation Expense Equipment 73,000
Depreciation Expense Building 39,700
Wage Expense 188,000
Insurance Expense 31,000
Interest Expense 115,100
Utilities Expense 43,000
Property Tax Expense 26,700
Supplies Expense 35,800
30 Income Summary (P1,098,600 - P552,300) 546,300

Molly Chan, Capital 546,300
30 Molly Chan, Capital 453,000

Molly Chan, Drawing 453,000
Requirement (2)
Mabuhay Financial Couriers

Income Statement
For the Month Ended June 30, 2008
Revenues:
Service revenue P1,098,600
Expenses:
Wage expense P188,000
Interest expense 115,100
Depreciation expense equipment 73,000
Depreciation expense building 39,700
Insurance expense 31,000
Property tax expense 26,700
Net income P 546,300

For the Month Ended June 30, 2008
Molly Chan, capital, June 30, 2008 P 683,900
1,230,200
Molly Chan, capital, June 30, 2008 P 777,200

Balance Sheet
June 30, 2008
ASSETS LIABILITIES
Current assets: Current liabilities:

Cash P 193,500 Accounts payable P 384,000
Accounts receivable 264,700 Interest payable 14,900
Supplies 12,900 Wage payable 7,700
Prepaid insurance 32,000 Unearned service revenue 23,000
Total current assets P 503,100 Total current liabilities 429,600
Long-term liabilities:
Plant assets: Note payable 970,000
Equipment P 558,000 Total liabilities P1,399,600
Less: Accum. depr. 164,800 393,200
Building P1,449,000 OWNERS EQUITY
Less: Accum. depr. 168,500 1,280,500 Molly Chan, capital 777,200
Total liabilities and
Total assets P2,176,800 owners equity 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:

2008 2007
Total current assets P503,100

Current ratio = = = 1.17 1.01
Total current liabilities P429,600
The ability to pay current liabilities with current assets improved during 2008.
Total liabilities P1,399,600
Debt ratio = = = 0.64 0.71
Total assets P2,176,800
The overall ability to pay total liabilities improved during 2008.

14 Chapter 10
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 businesss debt ratio to see the trend in the
entitys 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
managers understanding of the nature of revenues, expenses, and withdrawals.
Test Material 10-3
Requirements (1) and (4)
ACCOUNT CASH ACCOUNT NO. 11
DATE JRNL. BALANCE

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT
Oct. 31 Bal. 19 0 0 0
ACCOUNT ACCOUNTS RECEIVABLE ACCOUNT NO. 12
DATE JRNL. BALANCE

Oct. 31 Bal. 153 1 0 0
ACCOUNT PREPAID RENT ACCOUNT NO. 13
DATE JRNL. BALANCE

Oct. 1 Bal. 22 0 0 0
31 Adj. J.12 2 000 20 0 0 0
ACCOUNT SUPPLIES ACCOUNT NO. 14
DATE JRNL. BALANCE

Oct. 1 Bal. 8 400
31 Adj. J.12 7 700 700
ACCOUNT FURNITURE ACCOUNT NO. 15
DATE JRNL. BALANCE

Oct. 1 Bal. 268 3 0 0
ACCOUNT ACCUMULATED DEPRECIATION - FURNITURE ACCOUNT NO. 16
DATE JRNL. BALANCE

Oct. 1 Bal. 34 000
31 Adj. J.12 2 500 36 500
ACCOUNT BUILDING ACCOUNT NO. 17
DATE JRNL. BALANCE

Oct. 1 Bal. 683 0 0 0
ACCOUNT ACCUMULATED DEPRECIATION - BUILDING ACCOUNT NO. 18
DATE JRNL. BALANCE

Oct. 1 Bal. 121 000
31 Adj. J.12 5 800 126 800
ACCOUNT ACCOUNTS PAYABLE ACCOUNT NO. 21
DATE JRNL. BALANCE

Oct. 31 Bal. 72 900
ACCOUNT SALARY PAYABLE ACCOUNT NO. 22
DATE JRNL. BALANCE

Oct. 31 Adj. J.12 3 100 3 100
16 Chapter 10
ACCOUNT UNEARNED COMMISSION REVENUE ACCOUNT NO. 23
DATE JRNL. BALANCE

Oct. 1 Bal. 53 000
31 Adj. J.12 4 000 49 000
ACCOUNT ELLA SANTOS, CAPITAL ACCOUNT NO. 31
DATE JRNL. BALANCE

Oct. 1 Bal. 844 900
31 Clo. J.12 49 9 0 0 894 800
31 Clo. J.12 39 000 855 800
ACCOUNT ELLA SANTOS, DRAWING ACCOUNT NO. 32
DATE JRNL. BALANCE

Oct. 31 Bal. 39 0 0 0
31 Clo. J.12 39 0 0 0
ACCOUNT INCOME SUMMARY ACCOUNT NO. 33
DATE JRNL. BALANCE

Oct. 31 Clo. J.12 99 6 0 0 99 600
31 Clo. J.12 49 700 49 900
31 Clo. J.12 49 900
ACCOUNT COMMISSION REVENUE ACCOUNT NO. 41
DATE JRNL. BALANCE

Oct. 31 Bal.
31 Adj. J.12 4 000 95 600
31 Clo. J.12 99 600 99 600
ACCOUNT SALARY EXPENSE ACCOUNT NO. 51
DATE JRNL. BALANCE

Oct. 31 Bal.
31 Adj. J.12 3 100 18 4 0 0
31 Clo. J.12 21 5 0 0 21 5 0 0
ACCOUNT RENT EXPENSE ACCOUNT NO. 52
DATE JRNL. BALANCE

Oct. 31 Adj. J.12 2 000 2 000
31 Clo. J.12 2 000
ACCOUNT UTILITIES EXPENSE ACCOUNT NO. 53
DATE JRNL. BALANCE

Oct. 31 Bal. 5 300
31 Clo. J.12 5 300
ACCOUNT DEPRECIATION EXPENSE - FURNITURE ACCOUNT NO. 54
DATE JRNL. BALANCE

Oct. 31 Adj. J.12 2 500 2 500
31 Clo. J.12 2 500
ACCOUNT DEPRECIATION EXPENSE - BUILDING ACCOUNT NO. 55
DATE JRNL. BALANCE

Oct. 31 Adj. J.12 5 800 5 800
31 Clo. J.12 5 800
ACCOUNT ADVERTISING EXPENSE ACCOUNT NO. 56
DATE JRNL. BALANCE

Oct. 31 Bal. 4 900
31 Clo. J.12 4 900
ACCOUNT SUPPLIES EXPENSE ACCOUNT NO. 57
DATE JRNL. BALANCE

Oct. 31 Adj. J.12 7 700 7 700
31 Clo. J.12 7 700
18 Chapter 10
Green Star Talent Agency

Worksheet
For the Month Ended October 31, 2008
Cash 19,000 19,000 19,000
Accounts receivable 153,100 153,100 153,100
Prepaid rent 22,000 (b) 2,000 20,000 20,000
Supplies 8,400 (c) 7,700 700 700
Furniture 268,300 268,300 268,300
Accumulated
depreciation
furniture 34,000 (d) 2,500 36,500 36,500
Building 683,000 683,000 683,000
Accumulated
depreciation
building 121,000 (e) 5,800 126,800 126,800
Salary payable (f) 3,100 3,100 3,100
Unearned commission
revenue 53,000 (a) 4,000 49,000 49,000
Ella Santos, Capital 844,900 844,900 844,900
Ella Santos, Drawing 39,000 39,000 39,000
Commission revenue 95,600 (a) 400 99,600 99,600
Salary expense 18,400 (f) 3,100 21,500 21,500
Rent expense (b) 2,000 2,000 2,000
Depreciation expense
furniture (d) 2,500 2,500 2,500
Depreciation expense -
building (e) 5,800 5,800 5,800
Advertising expense 4,900 4,900 4,900
Supplies expense (c) 7,700 7,700 7,700
1,221,400 1,221,400 25,100 25,100 1,232,800 1,232,800 49,700 99,600 1,183,100 1,133,200
Net income 49,900 49,900
99,600 99,600 1,183,100 1,183,100
19 Chapter 10
Requirement (3)

Income Statement
Revenues:
Commission revenue P99,600
Expenses:
Salary expense P21,500
Depreciation expense building 5,800
Advertising expense 4,900
Depreciation expense - furniture 2,500
Rent expense 2,000
Net income P 49,900

Ella Santos, capital, October 1, 2008 P 844,900
894,800
Ella Santos, capital, October 31, 2008 P 855,800
20 Chapter 10

Balance Sheet
October 31, 2008
ASSETS
Current assets:
Cash P 19,000
Prepaid rent 20,000
Supplies 700
Total current assets 192,800
Plant assets:
Furniture P268,300
Less: Accumulated depreciation 36,500 231,800
Building P683,000
Less: Accumulated depreciation 126,800 556,200
Total assets P980,800
LIABILITIES
Current liabilities:
Accounts payable P 72,900
Salary payable 3,100
Unearned commission revenue 49,000
Total current liabilities 125,000
OWNERS EQUITY
Ella Santos, capital 855,800
Total liabilities and owners equity P980,800
Requirement (4)
JOURNAL
Post
2008 Adjusting Entries
October 31 Unearned Commission Revenue 23 4,000
Commission Revenue 41 4,000
31 Rent Expense 52 2,000

Prepaid Rent 13 2,000
31 Supplies Expense 57 7,700

Supplies 14 7,700
31 Depreciation Expense - Furniture 54 2,500

Accumulated Depreciation - Furniture 16 2,500
31 Depreciation Expense Building 55 58,000

Accumulated Depreciation Building 18 58,000
31 Salary Expense 51 3,100

Salary Payable 22 3,100
JOURNAL
Post
2008 Closing Entries
October 31 Commission Revenue 41 99,600
Income Summary 33 99,600
31 Income Summary 33 49,700

Salary Expense 51 21,500
Rent Expense 52 2,000
Utilities Expense 53 5,300
Depreciation Expense Furniture 54 2,500
Depreciation Expense Building 55 5,800
Advertising Expense 56 4,900
Supplies Expense 57 7,700
31 Income Summary (P99,600 - P49,700) 33 49,900

Ella Santos, Capital 31 49,900
31 Ella Santos, Capital 31 39,000

Ella Santos, Drawing 32 39,000
22 Chapter 10
Requirement (5)

Postclosing Trial Balance
October 31, 2008
Cash P 19,000
Prepaid rent 20,000
Supplies 700
Furniture 268,300
Accumulated depreciation Furniture P 36,500
Building 68,300
Accumulated depreciation Building 126,800
Accounts payable 72,900
Salary payable 3,100
Unearned commission revenue 49,000
Ella Santos, capital 855,800
Total P1,144,100 P1,144,100

Chapter 10

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Chapter 10

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Chapter 10

Completing the Accounting Cycle

Closing entry on Dec. 31

Patient Services 340,000

Closing entry on Dec. 31

Income Summary 300,000

Closing entry on Dec. 31

Income Summary 22,000

Salaries Expense Salaries Payable

Closing entry on Dec. 31

1. Repair Revenue 368,600

Max Pest Control Services

b Rent Expense (P9,000 x 2) 18,000

d Unearned Service Revenue 32,000

e Interest Receivable 8,000

f Accounts Payable 6,000

Bazooka Trailer Rental

Trailer Rentals P910,920

Bazooka Trailer Rental

J. Reyes, Capital, January 1 P 83,880

Bazooka Trailer Rental

Total Assets P138,860

Liabilities and Owners Equity

Total Liabilities and Owners Equity P138,860

Dantes Computing Service

Dantes Computing Service

Current assets: Current liabilities:

Instructional note: The Working Paper allows students to create a second

Dantes Computing Service

Dantes capital has decreased because withdrawals exceeded net income.

Dantes Computing Service

Multiple Choice Questions

Test Material 10-2

30 Depreciation Expense Building 39,700

30 Supplies Expense 35,800

30 Insurance Expense 31,000

30 Interest Expense 6,900

30 Accounts Receivable 9,400

30 Unearned Service Revenue 77,900

30 Wage Expense 7,700

30 Income Summary 552,300

30 Income Summary (P1,098,600 - P552,300) 546,300

30 Molly Chan, Capital 453,000

Mabuhay Financial Couriers

Mabuhay Financial Couriers

Mabuhay Financial Couriers

Current assets: Current liabilities:

Faculty member can introduce the two important ratios as follows:

Total current assets P503,100

The overall ability to pay total liabilities improved during 2008.

Test Material 10-3

Requirements (1) and (4)

ACCOUNT CASH ACCOUNT NO. 11

DATE JRNL. BALANCE

ACCOUNT ACCOUNTS RECEIVABLE ACCOUNT NO. 12

DATE JRNL. BALANCE

ACCOUNT PREPAID RENT ACCOUNT NO. 13

DATE JRNL. BALANCE

ACCOUNT SUPPLIES ACCOUNT NO. 14

DATE JRNL. BALANCE

ACCOUNT FURNITURE ACCOUNT NO. 15

DATE JRNL. BALANCE

ACCOUNT ACCUMULATED DEPRECIATION - FURNITURE ACCOUNT NO. 16