Q3E - Intermediate Accounting (Kieso)

Question

E3-3 (L02) (Corrected Trial Balance) The following trial balance of Blues Traveler Corporation does not balance. 

BLUES TRAVELER CORPORATION

TRIAL BALANCE

APRIL 30, 2017

Debit Credit

Cash \( 5,912Accounts Receivable 5,240Supplies 2,967Equipment 6,100Accounts Payable \) 7,044Common Stock 8,000Retained Earnings 2,000Service Revenue 5,200Office Expense 4,320

Total \(24,539           \)22,244   

An examination of the ledger shows these errors.1. Cash received from a customer on account was recorded (both debit and credit) as \(1,380 instead of \)1,830.2. The purchase on account of a computer costing \(3,200 was recorded as a debit to Office Expense and a credit to AccountsPayable.3. Services were performed on account for a client, \)2,250, for which Accounts Receivable was debited \(2,250 and ServiceRevenue was credited \)225.4. A payment of \(95 for telephone charges was entered as a debit to Office Expense and a debit to Cash.5. The Service Revenue account was totaled at \)5,200 instead of $5,280.InstructionsFrom this information prepare a corrected trial balance.

Step-by-Step Solution

Answer

The trial balance totaled $24,349

Step-by-step Solution

A company prepares a trial balance at the end of the reporting period. Trial balance means the worksheet in which all the ledger balances are recorded and divided into debit and credit columns; the totals should be equal.  

Step 1:Meaning of Trial Balance

A company prepares a trial balance at the end of the reporting period. Trial balance means the worksheet in which all the ledger balances are recorded and divided into debit and credit columns; the totals should be equal.  

Step2: Preparation of trial balance

Blues traveler corporation   Trail Balance (Corrected) April 30, 2014
Particulars	Debit ($)	Credit ($)
Cash	6,172
Accounts receivable	4,790
Supplies	2,967
Equipment	9,300
Accounts payable		7,044
Common stock		8,000
Retained earnings		2,000
Service revenue		7,305
Office expenses	1,120
Total	24,349	24,349

 

Step 3: Preparation of Journal entries to rectify the errors

Blues Traveler Corporation
Journal entries
Date	Account and explanation	Debit ($)	Credit ($)
1	Cash	450
	Accountsreceivable		450
	(Being the difference amount has been recorded)
2	Equipment	3200
	Office expenses		3200
	(Being correction has been made to equipment and office expenses account)

Notes:

• Services performed on account for a client $2,250, and it is correctly debited in accounts receivable account but wrong amount credited in service revenue account, i.e., $225. Service revenue should be credited by $2,025 ($2,250-$225) to correct the above-stated error.

 

• While paying the telephone charges of $90, cash is debited by mistake, and it needs to be credited to rectify the error; cash is to be credited by $190($95+$95). 

 

• Service revenue totaled $5,200 instead of $5,280; fewer amounts is credited in the service revenue account, so to rectify the error, $80 ($5,280-$5,200) is more to be credited in the service revenue account.

Working notes:

1) Calculation of amount of Cash and Accounts Receivable 

 $\begin{array}{c}\text{Cash\hspace{0.17em}account}=\$5912+\$450-190\\ =\$6172\\ \text{Accounts\hspace{0.17em}receivable}=\$5240-\$450\\ =\$4790\\ \end{array}$

 

2) Calculation of amount of Equipment and office expenses 

 

 $\begin{array}{c}\text{Equipment}=\$6100+\$3200\\ =\$9300\\ \text{Office\hspace{0.17em}expenses}=\$4320-\$3200\\ =\$1,120\end{array}$

 

3) Calculation of Service revenue

 

 $\begin{array}{c}\text{Service\hspace{0.17em}revenue}=\$5200+\$2025+\$80\\ =\$7305\end{array}$