Q32PSA - Horngren'S Financial And Managerial Accounting

Question

The unadjusted trial balance of Walton Anvils at December 31, 2018, and the data for the adjustments follow: WALTON ANVILS Unadjusted Trial Balance December 31, 2018 Account Title Prepaid Rent Cash Debit Credit Accounts Receivable Office Supplies Equipment Accumulated Depreciation—Equipment Accounts Payable Salaries Payable Unearned Revenue Common Stock Dividends Retained Earnings Service Revenue Salaries Expense Rent Expense Depreciation Expense—Equipment Supplies Expense Balance \( 13,480 \) 62,100 \( 62,100 7,100 \) 1,000 23,000 6,000 4,600 24,000 4,500 19,500 2,500 14,500 2,320 1,700 Total Adjustment data: a. Unearned Revenue still unearned at December 31, \(1,800. b. Prepaid Rent still in force at December 31, \)2,100. c. Office Supplies used, \(1,500. d. Depreciation, \)390. e. Accrued Salaries Expense at December 31, $200. Requirements 1. Open the T-accounts using the balances in the unadjusted trial balance. 2. Complete the worksheet for the year ended December 31, 2018 (optional). 3. Prepare the adjusting entries, and post to the accounts. 4. Prepare an adjusted trial balance. 5. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in report form. 6. Prepare the closing entries, and post to the accounts. 7. Prepare a post-closing trial balance. 8. Calculate the current ratio for the company

Step-by-Step Solution

Answer

(1) T accounts is mentioned in Step 1. 

(2) Worksheet is mentioned in Step 2.

(3) Closing entries are mentioned in Step 3. 

(4) Under adjusted trial balance, total debits and credits equals $62,690.

(5) Net income is $18,890, ending balance of retained earnings equals $18,790  and total assets and total liabilities & stockholders’ equity equals $51,890.

(6) Closing entries are recorded and posted in Step 6.

(7) Under post-closing trial balance, total debits and credits equals $53,280.

(8) Current ratio equals 3.23 times.

Step-by-Step-Solution Step 1: T accounts

T accounts are as follows: 

Cash
Un. Adj. Bal.	$13,480

Accounts Receivable
Un. Adj. Bal.	$14,500

Prepaid Rent
Un. Adj. Bal.	$2,320

Office Supplies
Un. Adj. Bal.	$1,700

Equipment
Un. Adj. Bal.	$23,000

Accumulated Depreciation—Equipment
		$1,000	Un. Adj. Bal.

Accounts Payable
		$7,100	Un. Adj. Bal.

Unearned Revenue
		$6,000	Un. Adj. Bal.

Common Stock
		$24,000	Un. Adj. Bal.

Retained Earnings
		$4,500	Un. Adj. Bal.

Dividends
Un. Adj. Bal.	$4,600

Service Revenue
		$19,500	Un. Adj. Bal.

Un. Adj. Bal.	$2,500

Step 2: Worksheet

(2) Worksheet is shown as follows:

WALTON ANVILS
Worksheet
December 31, 2018
	Unadjusted Trial Balance			Adjustments			Adjusted Trial Balance		Income Statement		Balance Sheet
Account Names	Debit	Credit		Debit	Credit		Debit	Credit	Debit	Credit	Debit	Credit
Cash	$13,480						$13,480				$13,480
Accounts Receivable	14,500						14,500				14,500
Prepaid Rent	2,320				220	(b)	2,100				2,100
Office  Supplies	1,700				1,500	(c)	200				200
Equipment	23,000						23,000				23,000
Accumulated Depreciation—Equipment		$1,000			390	(d)		1,390				1,390
Accounts Payable		7,100						7,100				7,100
Salaries Payable					200	(e)		200				200
Unearned Revenue		6,000	(a)	4,200				1,800				1,800
Common Stock		24,000						24,000				24,000
Retained Earnings		4,500						4,500				4,500
Dividends	4,600						4,600				4,600
Service Revenue		19,500			4,200	(a)		23,700		23,700
Salaries Expense	2,500		(e)	200			2,700		2,700
Rent Expense			(b)	220			220		220
Depreciation Expense—Equipment			(d)	390			390		390
Supplies Expense			(c)	1,500			1,500		1,500
Total	$62,100	$62,100		$6,510	$6,510		$62,690	$62,690	$4,810	$23,700	$57,880	$38,990
								Net Income	18,890			18,890
Total									$23,700	$23,700	$57,880	$57,880

Step 3: Adjusting Entries Recording and Posting

(3) Adjusting entries are as follows:

	Date	Accounts and Explanation	Debit	Credit
(a)	Dec. 31	Unearned Revenue	$4,200
		Service Revenue		$4,200
		To record earned revenue
(b)	Dec. 31	Rent Expense	$220
		Prepaid Rent		$220
		To record rent expense expired
(c)	Dec. 31	Supplies Expense	$1,500
		Office Supplies		$1,500
		To record supplies expense
(d)	Dec. 31	Depreciation Expense- Equipment	$390
		Accumulated Depreciation-Equipment		$390
		To record depreciation expense
(e)	Dec. 31	Salaries Expense	$200
		Salaries Payable		$200
		To record accrued salaries expense

Unearned Revenue
Dec. 31	$4,200	$6,000	Un. Adj. Bal.
		$1,800	Bal.

Service Revenue
		$19,500	Un. Adj. Bal.
		$4,200	Dec. 31
		$23,700	Bal.

Prepaid Rent
Un. Adj. Bal.	$2,320	$220	Dec. 31
Bal.	$2,100

Rent Expense
Dec. 31	$220
Bal.	$220

Office Supplies
Un. Adj. Bal.	$1,700	$1,500	Dec.31
Bal.	$200

Supplies Expense
Un. Adj. Bal.	$1,500
Bal.	$1,500

Accumulated Depreciation—Equipment
		$1,000	Un. Adj. Bal.
		$390	Dec. 31
		$1,390	Bal.

Depreciation Expense
Dec. 31	$390
Bal.	$390

Salaries Expense
Un. Adj. Bal.	$2,500
Dec. 31	$200
Bal.	$2,700

Salaries Payable
		$200	Dec. 31
		$200	Bal.

Step 4: Adjusting Trial Balance

(4) Adjusted trial balance is shown as follows:

WALTON ANVILS
Adjusted Trial Balance
December 31, 2018
Account Names	Debit	Credit
Cash	$13,480
Accounts Receivable	14,500
Prepaid Rent	2,100
Office Supplies	200
Equipment	23,000
Accumulated Depreciation—Equipment		$1,390
Accounts Payable		7,100
Salaries Payable		200
Unearned Revenue		1,800
Common Stock		24,000
Retained Earnings		4,500
Dividends	4,600
Service Revenue		23,700
Salaries Expense	2,700
Rent Expense	220
Depreciation Expense—Equipment	390
Supplies Expense	1,500
Total	$62,690	$62,690

Step 5: I ncome statement, Statement of retained earnings, and the classified balance sheet

(5) Income statement is shown as follows: 

WALTON ANVILS
Income Statement
Year Ended  December 31, 2018
Revenues
Service Revenue		$23,700
Expenses
Salaries Expense	$2,700
Rent Expense	220
Depreciation Expense—Equipment	390
Supplies Expense	1,500
Total Expenses		4,810
Net Income		$18,890

Statement of retained earnings is shown as follows: 

WALTON ANVILS

Statement of Retained Earnings

Year Ended  December 31, 2018

Retained Earnings, Beginning Balance	$4,500
Net Income for the year	18,890
	23,390
Dividends	(4,600)
Retained Earnings,  Ending Balance	$18,790

Balance Sheet is shown as follows:

WALTON ANVILS
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash		$13,480
Accounts Receivable		14,500
Prepaid Rent		2,100
Office Supplies		200
Total Current Assets			$30,280
Property, Plant, and Equipment:
Equipment	$23,000
Less: Accumulated Depreciation- Equipment	(1,390)	21,610
Total Property, Plant, and Equipment:			21,610
Total Assets			$51,890

Liabilities
Current Liabilities:
Accounts Payable		7,100
Salaries Payable		200
Unearned revenue		1,800
Total Current Liabilities:			$9,100
Total Liabilities			$9,100

Stockholders’ Equity
Common Stock			24,000
Retained Earnings			18,790
Total Stockholders’ Equity			42,790
Total Liabilities and Stockholders’ Equity			$51,890

Step 6: Closing entries and posting

(6) Closing entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Dec. 31	Service Revenue	$23,700
	Income Summary		$23,700
	To close revenue.
Dec. 31	Income Summary	$4,810
	Salaries Expense		$2,700
	Rent Expense		$220
	Depreciation Expense—Equipment		$390
	Supplies Expense		$1,500
	To close expenses.
Dec. 31	Income Summary	$18,890
	Retained Earnings		$18,890
	To close Income Summary
Dec. 31	Retained Earnings	$4,600
	Dividends		$4,600
	To close Dividends

Retained Earnings
Clos.4	$4,600	$4,500	Un. Adj. Bal.
		$18,890	Clos.3
		$18,790	Bal.

Income Summary
Clos.2	$4,810	$23,700	Clos.1
		$18,890	Bal.
Clos.3	$18,890
		$0	Bal.

Dividends
Un. Adj. Bal.	$4,600	$4,600	Clos. 4
Bal.	$0

Service Revenue
Clos.1	$23,700	$19,500	Un. Adj. Bal.
		$4,200	Dec. 31
		$0	Bal.

Rent Expense
Dec. 31	$220	$220	Clos.2
Bal.	$0

Supplies Expense
Un. Adj. Bal.	$1,500	$1,500	Clos.2
Bal.	$0

Depreciation Expense
Dec. 31	$390	$390	Clos.2
Bal.	$0

Salaries Expense
Un. Adj. Bal.	$2,500	$2,700	Clos.2
Dec. 31	$200
Bal.	$0

Step 7: Post-closing Trial Balance

(7) Post-closing trial balance is shown as follows:

WALTON ANVILS
Post-Closing Trial Balance
December 31, 2018
Account Names	Debit	Credit
Cash	$13,480
Accounts Receivable	14,500
Prepaid Rent	2,100
Office Supplies	200
Equipment	23,000
Accumulated Depreciation—Equipment		$1,390
Accounts Payable		7,100
Salaries Payable		200
Unearned Revenue		1,800
Common Stock		24,000
Retained Earnings		18,790
Total	$53,280	$53,280

Step 8: Calculation of Current Ratio

(8) Current ratio is calculated as follows: 

$\begin{array}{c}\mathbf{Current}\mathbf{ }\mathbf{Ratio}\mathbf{=}\frac{\mathrm{Current} \mathrm{Assets}}{\mathrm{Current} \mathrm{Liabilities}}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\frac{\$30,280}{\$9,100}\\ \mathbf{=}\mathbf{3}\mathbf{.}\mathbf{23}\end{array}$