Q4-38PSB - Horngren'S Financial And Managerial Accounting

Question

The unadjusted trial balance of Watson Anvils at December 31, 2018, and the data for the adjustments follow: WATSON ANVILS Unadjusted Trial Balance December 31, 2018 Account Title Prepaid Rent Cash Debit Credit Accounts Receivable Office Supplies Equiment Accumulated Depreciation—Equipment Accounts Payable Salaries Payable Unearned Revenue Dividends Common Stock Service Revenue Salaries Expense Rent Expense Depreciation Expense—Equipment Supplies Expense Total Balance \( 13,560 \) 72,400 \( 72,400 5,600 4,600 12,000 Retained Earnings 17,600 19,000 17,000 2,140 2,800 \) 11,000 7,200 30,000 2,300.  Adjustment data: a. Unearned Revenue still unearned at December 31, \(3,600. b. Prepaid Rent still in force at December 31, \)2,000. c. Office Supplies used, \(600. d. Depreciation, \)400. e. Accrued Salaries Expense at December 31, $180. 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

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 $72,980.

(5) Net income is $17,380, ending balance of retained earnings equals $30,380  and total assets and total liabilities & stockholders’ equity equals $53,360.

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

(7) Under post-closing trial balance, total debits and credits equals $64,760.

(8) Current ratio equals 3.17 times.

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

T accounts are as follows: 

Cash
Un. Adj. Bal.	$13,560

 

Accounts Receivable
Un. Adj. Bal.	$17,000

 

Prepaid Rent
Un. Adj. Bal.	$2,140

 

Office Supplies
Un. Adj. Bal.	$2,800

 

Equipment
Un. Adj. Bal.	$30,000

 

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

 

Accounts Payable
		$7,200	Un. Adj. Bal.

 

Unearned Revenue
		$5,600	Un. Adj. Bal.

 

Common Stock
		$12,000	Un. Adj. Bal.

 

Retained Earnings
		$17,600	Un. Adj. Bal.

 

Dividends
Un. Adj. Bal.	$4,600

 

Service Revenue
		$19,000	Un. Adj. Bal.

 

Salaries Expense
Un. Adj. Bal.	$2,300

 

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	$13,560						$13,560				$13,560
Accounts Receivable	17,000						17,000				17,000
Prepaid Rent	2,140				140	(b)	2,000				2,000
Office  Supplies	2,800				600	(c)	2,200				2,200
Equipment	30,000						30,000				30,000
Accumulated Depreciation—Equipment		$11,000			400	(d)		11,400				11,400
Accounts Payable		7,200						7,200				7,200
Salaries Payable					180	(e)		180				180
Unearned Revenue		5,600	(a)	2,000				3,600				3,600
Common Stock		12,000						12,000				12,000
Retained Earnings		17,600						17,600				17,600
Dividends	4,600						4,600				4,600
Service Revenue		19,000			2,000	(a)		21,000		21,000
Salaries Expense	2,300		(e)	180			2,480		2,480
Rent Expense			(b)	140			140		140
Depreciation Expense—Equipment			(d)	400			400		400
Supplies Expense			(c)	600			600		600
Total	$72,400	$72,400		$3,320	$3,320		$72,980	$72,980	$3,620	$21,000	$69,360	$51,980
								Net Income	17,380			17,380
Total									$21,000	$21,000	$69,360	$69,360

Step 3: Adjusting Entries Recording and Posting

(3) Adjusting entries are as follows:

	Date	Accounts and Explanation	Debit	Credit
(a)	Dec. 31	Unearned Revenue	$2,000
		Service Revenue		$2,000
		To record earned revenue
(b)	Dec. 31	Rent Expense	$140
		Prepaid Rent		$140
		To record rent expense expired
(c)	Dec. 31	Supplies Expense	$600
		Office Supplies		$600
		To record supplies expense
(d)	Dec. 31	Depreciation Expense- Equipment	$400
		Accumulated Depreciation-Equipment		$400
		To record depreciation expense
(e)	Dec. 31	Salaries Expense	$180
		Salaries Payable		$180
		To record accrued salaries expense

 

Unearned Revenue
Dec. 31	$2,000	$5,600	Un. Adj. Bal.
		$3,600	Bal.

 

Service Revenue
		$19,000	Un. Adj. Bal.
		$2,000	Dec. 31
		$21,000	Bal.

 

Prepaid Rent
Un. Adj. Bal.	$2,140	$140	Dec. 31
Bal.	$2,000

 

Rent Expense
Dec. 31	$140
Bal.	$140

 

Office Supplies
Un. Adj. Bal.	$2,800	$600	Dec.31
Bal.	$2,200

 

Supplies Expense
Un. Adj. Bal.	$600
Bal.	$60

 

Accumulated Depreciation—Equipment
		$11,000	Un. Adj. Bal.
		$400	Dec. 31
		$11,400	Bal.

 

Depreciation Expense
Dec. 31	$400
Bal.	$400

 

Salaries Expense
Un. Adj. Bal.	$2,300
Dec. 31	$180
Bal.	$2,480

 

Salaries Payable
		$180	Dec. 31
		$180	Bal.

Step 4: Adjusting Trial Balance

(4) Adjuted trial balance is shown as follows:

WALTON ANVILS
Adjusted Trial Balance
December 31, 2018
Account Names	Debit	Credit
Cash	$13,560
Accounts Receivable	17,000
Prepaid Rent	2,000
Office Supplies	2,200
Equipment	30,000
Accumulated Depreciation—Equipment		$11,400
Accounts Payable		7,200
Salaries Payable		180
Unearned Revenue		3,600
Common Stock		12,000
Retained Earnings		17,600
Dividends	4,600
Service Revenue		21,000
Salaries Expense	2,480
Rent Expense	140
Depreciation Expense—Equipment	400
Supplies Expense	600
Total	$72,980	$72,980

 

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		$21,000
Expenses
Salaries Expense	$2,480
Rent Expense	140
Depreciation Expense—Equipment	400
Supplies Expense	600
Total Expenses		3,620
Net Income		$17,380

 

 

 

 

 

 

 

 

Statement of retained earnings is shown as follows: 

WALTON ANVILS
Statement of Retained Earnings
Year Ended  December 31, 2018
Retained Earnings, Beginning Balance	$17,600
Net Income for the year	17,380
	34,980
Dividends	(4,600)
Retained Earnings,  Ending Balance	$30,380

 

 

 

 

 

 

Balance Sheet is shown as follows:

WALTON ANVILS
Balance Sheet
December 31, 2018
Assets
Current Assets:
Cash		$13,560
Accounts Receivable		17,000
Prepaid Rent		2,000
Office Supplies		2,200
Total Current Assets			$34,760
Property, Plant, and Equipment:
Equipment	$30,000
Less: Accumulated Depreciation- Equipment	(11,400)	18,600
Total Property, Plant, and Equipment:			18,600
Total Assets			$53,360
Liabilities
Current Liabilities:
Accounts Payable		7,200
Salaries Payable		180
Unearned revenue		3,600
Total Current Liabilities:			$10,980
Total Liabilities			$10,980
Stockholders’ Equity
Common Stock			12,000
Retained Earnings			30,380
Total Stockholders’ Equity			42,380
Total Liabilities and Stockholders’ Equity			$53,360

 

Step 6: Closing entries and posting

(6) Closing entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Dec. 31	Service Revenue	$21,000
	Income Summary		$21,000
	To close revenue.
Dec. 31	Income Summary	$3,620
	Salaries Expense		$2,480
	Rent Expense		$140
	Depreciation Expense—Equipment		$400
	Supplies Expense		$600
	To close expenses.
Dec. 31	Income Summary	$17,380
	Retained Earnings		$17,380
	To close Income Summary
Dec. 31	Retained Earnings	$4,600
	Dividends		$4,600
	To close Dividends

 

Retained Earnings
Clos.4	$4,600	$17,600	Un. Adj. Bal.
		$17,380	Clos.3
		$30,380	Bal.

 

Income Summary
Clos.2	$3,620	$21,000	Clos.1
		$17,380	Bal.
Clos.3	$17,380
		$0	Bal.

 

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

 

Service Revenue
Clos.1	$21,000	$19,000	Un. Adj. Bal.
		$2,000	Dec. 31
		$0	Bal.

 

Rent Expense
Dec. 31	$140	$140	Clos.2
Bal.	$0

 

Supplies Expense
Un. Adj. Bal.	$600	$600	Clos.2
Bal.	$0

 

Depreciation Expense
Dec. 31	$400	$400	Clos.2
Bal.	$0

 

Salaries Expense
Un. Adj. Bal.	$2,300	$2,480	Clos.2
Dec. 31	$180
Bal.	$0

Step 7: Post-closing Trial Balance

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

WALTON ANVILS
Post-ClosingTrial Balance
December 31, 2018
Account Names	Debit	Credit
Cash	$13,560
Accounts Receivable	17,000
Prepaid Rent	2,000
Office Supplies	2,200
Equipment	30,000
Accumulated Depreciation—Equipment		$11,400
Accounts Payable		7,200
Salaries Payable		180
Unearned Revenue		3,600
Common Stock		12,000
Retained Earnings		30,380
Total	$64,760	$64,760

Step 8: Calculation of Current Ratio

(8) Current ratio is calculated as follows: 

$\begin{array}{c}\mathbf{CurrentRatio}\mathbf{=}\frac{\mathrm{CurrentAssets}}{\mathrm{CurrentLiabilities}}\\ \mathbf{=}\frac{\$34,760}{\$10,980}\\ =3.17\end{array}$