Q39PGB - Horngren'S Financial And Managerial Accounting

Question

Correcting errors in a trial balance 

The trial balance of Love to Learn Child Care does not balance.

 

Account Title                                 Debit       Credit

Office Supplies                              1,000

Cash                                                8,060

Accounts Receivable                     8,700

Prepaid Insurance                         1,700

Equipment                                    90,400

Accounts Payable                                             3,000

Notes Payable                                                   45,000

Common Stock                                                  54,000

Dividends                                     3,740

Service Revenue                                              16,300

Rent Expense                                  400

Salaries Expense                            4,350

Total Balance                           \( 118,350    \) 118,300

 

The following errors are detected: 

a. Cash is understated by \(1,800. 

b. A \)3,800 debit to Accounts Receivable was posted as a credit. 

c. A \(1,000 purchase of office supplies on account was neither journalized nor posted. 

d. Equipment was incorrectly transferred from the ledger as \)90,400. It should have been transferred as \(82,500.

e. Salaries Expense is overstated by \)350. 

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

g. A \)160 cash dividend was incorrectly journalized as \(1,600. 

h. Service Revenue was understated by \)4,000. 

i. A 12-month insurance policy was posted as a $1,400 credit to Prepaid Insurance. Cash was posted correctly. 

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

Step-by-Step Solution

Answer

Salary expense is the cost of compensation to employees and the required corrected trial balance is prepared.

Step 1: Definition of salary expense

The salary expense is defined as the cost incurred that the business incurs to compensate the company's employees.

Step 2: Preparation of corrected Trial Balance

Love To Learn Child Care
Corrected Trial Balance
May 31, 2018
Account Title	Calculations	Debit ($)	Credit ($)
Cash	8,060+1,800-300+1,440	$11,000
Accounts Receivables	8,700+7,600	$16,300
Office Supplies	1,000+1,000	$2,000
Prepaid Insurance	1,700+2,800	$4,500
Equipment		$82,500
Accounts Payable	3,000+1,000		$4,000
Notes Payable			$45,000
Common Stock			$54,000
Dividends	3,740-1,440	$2,300
Service Revenue	16,300+4,000		$20,300
Salaries Expense	4,350-350	$4,000
Rent Expense		$400
Advertising Expense		$300
Total		$123,300	$123,300

Step 3: Computation of correction

$$\begin{gathered} \mathbf{Cash}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Understated}\mathbf{-}\mathbf{Advertisingexpense}\mathbf{+}\mathbf{Dividends} \\ \mathbf{=}\mathbf{8}\mathbf{,}\mathbf{060}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{800}\mathbf{-}\mathbf{300}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{440} \\ \mathbf{=}\mathbf{11}\mathbf{,}\mathbf{000} \end{gathered}$$

$$\begin{gathered} \mathbf{AccountsReceivables}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{8}\mathbf{,}\mathbf{700}\mathbf{+}\mathbf{7}\mathbf{,}\mathbf{600} \\ \mathbf{=}\mathbf{\$}\mathbf{16}\mathbf{,}\mathbf{300} \end{gathered}$$

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

$$\begin{gathered} \mathbf{PrepaidInsurance}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{1}\mathbf{,}\mathbf{700}\mathbf{+}\mathbf{2}\mathbf{,}\mathbf{800} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{500} \end{gathered}$$

$$\begin{gathered} \mathbf{AccountsPayable}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{000} \end{gathered}$$

$$\begin{gathered} \mathbf{Dividends}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{3}\mathbf{,}\mathbf{740}\mathbf{-}\mathbf{1}\mathbf{,}\mathbf{440} \\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{300} \end{gathered}$$

$$\begin{gathered} \mathbf{ServiceRevenue}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{16}\mathbf{,}\mathbf{300}\mathbf{+}\mathbf{4}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{20}\mathbf{,}\mathbf{300} \end{gathered}$$

$$\begin{gathered} \mathbf{RentExpense}\mathbf{=}\mathbf{OriginalAmount}\mathbf{+}\mathbf{Correctionentry} \\ \mathbf{=}\mathbf{4}\mathbf{,}\mathbf{350}\mathbf{-}\mathbf{350} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{000} \end{gathered}$$