Q33PGA - Horngren'S Financial And Managerial Accounting

Question

Correcting errors in a trial balance 

The trial balance of Beautiful Tots Child Care does not balance.

 

Account Title                                 Debit       Credit

Office Supplies                              1,000

Cash                                                7,900

Accounts Receivable                   6,700

Prepaid Insurance                         300 

Equipment                                    91,500

Accounts Payable                                             3,400

Notes Payable                                                   45,000

Common Stock                                                  57,000

Dividends                                     5,000

Service Revenue                                              12,350

Rent Expense                                  750

Salaries Expense                            4,400

Total Balance                           \( 117,550    \) 117,750

 

The following errors are detected: 

a. Cash is understated by \(1,500. 

b. A \)4,100 debit to Accounts Receivable was posted as a credit. 

c. A \(1,400 purchase of office supplies on account was neither journalized nor posted. 

d. Equipment was incorrectly transferred from the ledger as \)91,500. It should have been transferred as \(83,000.

e. Salaries Expense is overstated by \)700. 

f. A \(300 cash payment for advertising expense was neither journalized nor posted. 

g. A \)200 cash dividend was incorrectly journalized as \(2,000. 

h. Service Revenue was understated by \)4,100. 

i. A 12-month insurance policy was posted as a $1,900 credit to Prepaid Insurance. Cash was posted correctly. 

Prepare the corrected trial balance as of August 31, 2018. Journal entries are not required.

Step-by-Step Solution

Answer

Rent expense is the cost of using someone else’s property and the required corrected trial balance is prepared in step 2.

Step 1: Definition of rent expense

The rent expense is defined as the cost incurred by the business for using the property owned by some other individual or business.

Step 2: Preparation of corrected Trial Balance

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Beautiful Tots Child Care
Corrected Trial Balance
August 31, 2018
Account Title	Calculations	Debit ($)	Credit ($)
Cash	7,900+1,500-300+1,800	$10,900
Accounts Receivables	6,700+8,200	$14,900
Office Supplies	1,000+1,400	$2,400
Prepaid Insurance	300+3,800	$4,100
Equipment		$83,000
Accounts Payable	3,400+1,400		$4,800
Notes Payable			$45,000
Common Stock			$57,000
Dividends	5,000-1,800	$3,200
Service Revenue	12,350+4,100		$16,450
Salaries Expense	4,400-700	$3,700
Rent Expense		$750
Advertising Expense		$300
Total		$123,250	$123,250

Step 3 Computation of correction

$$\begin{gathered} \mathbf{Cash}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Understated}\mathbf{-}\mathbf{Advertisingexpense}\mathbf{+}\mathbf{Dividends} \\ \mathbf{=}\mathbf{7}\mathbf{,}\mathbf{900}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{500}\mathbf{-}\mathbf{300}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{800} \\ \mathbf{=}\mathbf{10}\mathbf{,}\mathbf{900} \end{gathered}$$

$$\begin{gathered} \mathbf{AccountsReceivables}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{7}\mathbf{,}\mathbf{700}\mathbf{+}\mathbf{8}\mathbf{,}\mathbf{200} \\ \mathbf{=}\mathbf{\$}\mathbf{14}\mathbf{,}\mathbf{900} \end{gathered}$$

$$\begin{gathered} \mathbf{OfficeSupplies}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{1}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{400} \\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{400} \end{gathered}$$

$$\begin{gathered} \mathbf{PrepaidInsurance}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{300}\mathbf{+}\mathbf{3}\mathbf{,}\mathbf{800} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{100} \end{gathered}$$

$$\begin{gathered} \mathbf{AccountsPayable}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{3}\mathbf{,}\mathbf{400}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{400} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{800} \end{gathered}$$

$$\begin{gathered} \mathbf{Dividends}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{5}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{1}\mathbf{,}\mathbf{800} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{200} \end{gathered}$$

$$\begin{gathered} \mathbf{ServiceRevenue}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{12}\mathbf{,}\mathbf{350}\mathbf{+}\mathbf{4}\mathbf{,}\mathbf{100} \\ \mathbf{=}\mathbf{\$}\mathbf{16}\mathbf{,}\mathbf{450} \end{gathered}$$

$$\begin{gathered} \mathbf{RentExpense}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{4}\mathbf{,}\mathbf{400}\mathbf{-}\mathbf{700} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{700} \end{gathered}$$