Chapter 4

Completing the Accounting Cycle

EXERCISES

Exercise 4-1 (15 minutes)

1. B 5. D 9. C 13. C

2. C 6. B 10. D 14. C

3. C 7. D 11. C 15. A

4. A 8. A 12. A 16. D

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Exercise 4-2 (20 minutes)

Planta Company
Work Sheet
Balance Sheet
Adjusted Income & Statement of
Trial Balance Statement Owner’s Equity
No. Account Dr. Cr. Dr. Cr. Dr. Cr.

10 Cash 7,000 7,000

1

10 Accounts receivable 27,200 27,200

6

15 Trucks 42,000 42,000

3
15 Accumulated depreciation
4 —Trucks 17,500 17,500
18 Land 32,000 32,000
3
20 Accounts payable 15,000 15,000
1
20 Salaries payable 4,200 4,200
9
23 Unearned fees 3,600 3,600
3
30 F. Planta, Capital 65,500 65,500
1
30 F. Planta, Withdrawals 15,400 15,400
2
40 Plumbing fees earned 84,000 84,000
1
61 Depreciation expense—
1 6,500 6,500
Trucks

62 Salaries expense 38,000 38,000

2

64 Rent expense 13,000 13,000

0

67 Miscellaneous expense 8,700 ______ 8,700 ______ _______ ______

7

Totals 189,800 189,800 66,200 84,000 123,600 105,800

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 Net income 17,800 ______ _______ 17,800
Totals 84,000 84,000 123,600 123,600

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Exercise 4-3 (20 minutes)
Instructor note: Entries are shown without an account reference column because no posting is required.

(a) Insurance Expense—Office Equipment.................. 332

Insurance Expense—Store Equipment................... 568
Prepaid Insurance.............................................. 900
To record expired insurance.

(b) Office Supplies Expense.......................................... 1,750

Office Supplies................................................... 1,750
To record consumed supplies.

(c) Depreciation Expense—Office Equipment............. 2,200

Accumulated Depreciation—Office Equip....... 2,200
To record depreciation of office equip.

(d) Interest Receivable.................................................... 880

Interest Revenue................................................ 880
To record accrued interest income.

(e) Office Salaries Expense............................................ 560

Salaries Payable................................................ 560
To record accrued salaries.

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Exercise 4-5 (10 minutes)

Exercise 4-6 (25 minutes)

1.
Work Sheet—partial
Account Title Debit Credit
Rent earned............................................ $120,000
Salaries expense................................... $46,300
Insurance expense................................ 7,400
Office supplies expense....................... 16,000
Bike repair expense.............................. 4,200
Depreciation expense—Bikes.............. 20,500
Totals...................................................... $94,400 $120,000
Net income............................................. 25,600
Totals...................................................... $120,000 $120,000

2. Closing entries

(1) Rent Earned................................................... 120,000

Income Summary.................................. 120,000
To close the revenue account.

(2) Income Summary.......................................... 94,400

Salaries Expense................................... 46,300
Insurance Expense................................ 7,400
Office Supplies Expense...................... 16,000
Bike Repair Expense............................. 4,200
Depreciation Expense—Bikes.............. 20,500
To close the expense accounts.

(3) Income Summary.......................................... 25,600

H. Brown, Capital .................................. 25,600
To close Income Summary.

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Exercise 4-7 Part 1 (30 minutes)

DYLAN DELIVERY COMPANY

Work Sheet
For Year Ended December 31, 2015
Balance Sheet
Unadjusted Adjusted Income and Statement of
Trial Balance Adjustments Trial Balance Statement Owner’s Equtiy
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 16,000 16,000 16,000
Accounts receivable 34,000 34,000 34,000
Office supplies 5,000 (c) 3,000 2,000 2,000
Trucks 350,000 350,000 350,000
Accum. Depreciation—Trucks 80,000 (a) 40,000 120,000 120,000
Land 160,000 160,000 160,000
Accounts payable 24,000 24,000 24,000
Interest payable 5,000 (b) 1,000 6,000 6,000
Long-term notes payable 100,000 100,000 100,000
S. Dylan, Capital 307,000 307,000 307,000
S. Dylan, Withdrawals 34,000 34,000 34,000
Delivery fees earned 263,000 263,000 263,000
Depreciation expense—Trucks 40,000 (a) 40,000 80,000 80,000
Salaries expense 110,000 110,000 110,000
Office supplies expense 15,000 (c) 3,000 18,000 18,000
Interest expense 5,000 (b) 1,000 6,000 6,000
Repairs expense—Trucks 10,000 ______ _____ _____ 10,000 ______ 10,000 ______ ______ ______
Totals 779,000 779,000 44,000 44,000 820,000 820,000 224,000 263,000 596,000 557,000
Net Income 39,000 ______ ______ 39,000

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Totals 263,000 263,000 596,000 596,000

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Exercise 4-7 (Continued)

2. Closing entries

Delivery Fees Earned................................... 263,000

Income Summary.................................. 263,000
To close the revenue account.

Income Summary.......................................... 224,000

Depreciation Expense—Trucks........... 80,000
Salaries Expense................................... 110,000
Office Supplies Expense...................... 18,000
Interest Expense.................................... 6,000
Repairs Expense—Trucks.................... 10,000
To close the expense accounts.

Income Summary.......................................... 39,000

S. Dylan, Capital.................................... 39,000
To close Income Summary.

S. Dylan, Capital............................................ 34,000

S. Dylan, Withdrawals .......................... 34,000
To close the withdrawals account.

S. Dylan, Capital on the balance sheet

Beginning balance........................................ $307,000
Add: Net income......................................... 39,000
346,000
Less: Withdrawals....................................... (34,000)
Ending balance............................................. $312,000

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Exercise 4-11 (20 minutes)

WILSON TRUCKING COMPANY

Income Statement
For Year Ended December 31, 2015

Trucking fees earned................................................ $130,000

Expenses
Depreciation expense—Trucks........................... $23,500
Salaries expense.................................................. 61,000
Office supplies expense...................................... 8,000
Repairs expense—Trucks................................... 12,000
Total expenses..................................................... 104,500
Net income................................................................. $ 25,500

WILSON TRUCKING COMPANY

Statement of Owner’s Equity
For Year Ended December 31, 2015

K. Wilson, Capital, December 31, 2014................... $175,000

Add: Net income...................................................... 25,500
200,500
Less: Withdrawals.................................................... (20,000)
K. Wilson, Capital, December 31, 2015................... $180,500

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Exercise 4-12 (20 minutes)

WILSON TRUCKING COMPANY

Balance Sheet
December 31, 2015
Assets
Current assets
Cash................................................................ $ 8,000
Accounts receivable..................................... 17,500
Office supplies............................................... 3,000
Total current assets...................................... 28,500
Plant assets
Trucks............................................................. $172,000
Accumulated depreciation-Trucks.............. (36,000) 136,000
Land................................................................ 85,000
Total plant assets.......................................... 221,000
Total assets...................................................... $249,500
Liabilities
Current liabilities
Accounts payable.......................................... $ 12,000
Interest payable............................................. 4,000
Total current liabilities.................................. 16,000
Long-term notes payable................................ 53,000
Total liabilities................................................. 69,000
Equity
*
K. Wilson, Capital ........................................... 180,500
Total liabilities and equity.............................. $249,500
*From Exercise 4-11
*
K. Wilson Capital is computed as:
Beginning balance $175,000
Plus: Net income ($130,000 - $23,500 - $61,000 - $8,000 -
25,500
$12,000)
(
20
Less: Withdrawals ,0
00
)
Ending balance $180,500

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 PROBLEM SET A
Problem 4-1A (90 minutes)
INSTRUCTOR: Ledger accounts are shown after Part 7 as they would appear after all entries are posted.
Part 2 — Transactions for April
April 1 Cash...............................................................101 30,000
Computer Equipment...................................167 20,000
J. Nozomi, Capital.................................301 50,000
Owner invested in the business.

2 Rent Expense................................................640 1,800

Cash........................................................101 1,800
Paid one month’s rent.

3 Office Supplies...............................................124 1,000

Cash........................................................101 1,000
Acquired office supplies.

10 Prepaid Insurance..........................................128 2,400

Cash........................................................101 2,400
Paid 12 months’ premium in advance.

14 Salaries Expense...........................................622 1,600

Cash........................................................101 1,600
Paid two weeks’ salaries.
24 Cash...............................................................101 8,000
Commissions Earned............................405 8,000
Collected commissions from airlines.

28 Salaries Expense..........................................622 1,600

Cash........................................................101 1,600
Paid two weeks’ salaries.

29 Repairs Expense...........................................684 350

Cash........................................................101 350
Repaired the computer.
30 Telephone Expense......................................688 750
Cash........................................................101 750
Paid the telephone bill.
30 J. Nozomi, Withdrawals................................302 1,500
Cash........................................................101 1,500
Owner withdrew cash.

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Problem 4-1A (Continued)

Part 3

ADVENTURE TRAVEL
Unadjusted Trial Balance
April 30, 2015
No. Account Title Debit
Credit
101 Cash.......................................................... $27,000
106 Accounts receivable................................ 0
124 Office supplies......................................... 1,000
128 Prepaid insurance.................................... 2,400
167 Computer equipment............................... 20,000
168 Accumulated depreciation—..................
Computer equipment............................. $ 0
209 Salaries payable....................................... 0
301 J. Nozomi, Capital.................................... 50,000
302 J. Nozomi, Withdrawals........................... 1,500
405 Commissions earned.............................. 8,000
612 Depreciation expense—
Computer equipment............................. 0
622 Salaries expense...................................... 3,200
637 Insurance expense.................................. 0
640 Rent expense............................................ 1,800
650 Office supplies expense.......................... 0
684 Repairs expense...................................... 350
688 Telephone expense................................. 750
Totals........................................................ $58,000 $58,000

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Problem 4-1A (Continued)

Part 4

Adjusting entries

(a) Apr 30 Insurance Expense............................................... 637 133

Prepaid Insurance.......................................... 128 133
To record expired insurance ($2,400/12 x2/3).

(b) 30 Office Supplies Expense....................................... 650 400

Office Supplies............................................... 124 400
To record cost of supplies used ($1,000 - $600).

(c) 30 Depreciation Exp—Computer Equipment........... 612 500

Accum. Depreciation—Computer Equip...... 168 500
To record depreciation.

(d) 30 Salaries Expense................................................... 622 420

Salaries Payable............................................. 209 420
To record accrued salaries.

(e) 30 Accounts Receivable............................................ 106 1,750

Commissions Earned.................................... 405 1,750
To record accrued commissions.

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Problem 4-1A (Continued)

Part 4

ADVENTURE TRAVEL
Adjusted Trial Balance
April 30, 2015
No. Account Title Debit
Credit
101 Cash.......................................................... $27,000
106 Accounts receivable................................ 1,750
124 Office supplies......................................... 600
128 Prepaid insurance.................................... 2,267
167 Computer equipment............................... 20,000
168 Accumulated depreciation—..................
Computer equipment.............................. $ 500
209 Salaries payable....................................... 420
301 J. Nozomi, Capital.................................... 50,000
302 J. Nozomi, Withdrawals........................... 1,500
405 Commissions earned.............................. 9,750
612 Depreciation expense—
Computer equipment.............................. 500
622 Salaries expense...................................... 3,620
637 Insurance expense.................................. 133
640 Rent expense............................................ 1,800
650 Office supplies expense.......................... 400
684 Repairs expense...................................... 350
688 Telephone expense................................. 750
Totals........................................................ $60,670 $60,670

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Problem 4-1A (Continued)

Part 5

ADVENTURE TRAVEL
Income Statement
For Month Ended April 30, 2015
Commissions earned.................................................. $9,750
Expenses
Depreciation expense—Computer equipment........ $ 500
Salaries expense........................................................ 3,620
Insurance expense.................................................... 133
Rent expense.............................................................. 1,800
Office supplies expense............................................ 400
Repairs expense........................................................ 350
Telephone expense................................................... 750
Total expenses........................................................... 7,553
Net income.................................................................... $2,197

ADVENTURE TRAVEL
Statement of Owner’s Equity
For Month Ended April 30, 2015

J. Nozomi, Capital, April 1, 2015.................... $ 0

Add: Owner investments............................... $50,000
Net Income............................................ 2,197
52,197
Less: Withdrawals........................................... (1,500)
J. Nozomi, Capital, April 30, 2015.................. $50,697

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Problem 4-1A (Continued)

Part 5—continued

ADVENTURE TRAVEL
Balance Sheet
April 30, 2015
Assets
Cash.................................................................................. $27,000
Accounts receivable........................................................ 1,750
Office supplies................................................................. 600
Prepaid insurance........................................................... 2,267
Computer equipment...................................................... $20,000
Accumulated depreciation–Computer equipment....... (500) 19,500
Total assets...................................................................... $51,117

Liabilities
Salaries payable.............................................................. $ 420
Equity
J. Nozomi, Capital............................................................ 50,697
Total liabilities and equity............................................... $51,117

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Problem 4-1A (Continued)
Part 6
Closing entries

April 30 Commissions Earned..................................405 9,750

Income Summary..................................901 9,750
To close the revenue account.

30 Income Summary..........................................901 7,553

Depreciation Exp–Computer Equip.....612 500
Salaries Expense...................................622 3,620
Insurance Expense................................637 133
Rent Expense.........................................640 1,800
Office Supplies Expense......................650 400
Repairs Expense...................................684 350
Telephone Expense...............................688 750
To close the expense accounts.

30 Income Summary..........................................901 2,197

J. Nozomi, Capital.................................301 2,197
To close the Income Summary account.

30 J. Nozomi, Capital.........................................301 1,500

J. Nozomi, Withdrawals........................302 1,500
To close the withdrawals account.

Part 7
ADVENTURE TRAVEL
Post-Closing Trial Balance
April 30, 2015
Debit Credit
Cash.......................................................... $27,000
Accounts receivable................................ 1,750
Office supplies......................................... 600
Prepaid insurance.................................... 2,267
Computer equipment............................... 20,000
Accumulated depreciation–
Computer equipment............................. $ 500
Salaries payable....................................... 420
J. Nozomi, Capital.................................... _______ 50,697
Totals........................................................ $51,617 $51,617

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Problem 4-1A (Continued)
Part 7—continued
Ledger as of April 30
Cash Acct. No. 101
Date Explanation PR Debit Credit Balance
April 1 30,000 30,000
2 1,800 28,200
3 1,000 27,200
10 2,400 24,800
14 1,600 23,200
24 8,000 31,200
28 1,600 29,600
29 350 29,250
30 750 28,500
30 1,500 27,000
Accounts Receivable Acct. No. 106
Date Explanation PR Debit Credit Balance
April 30 Adjusting 1,750 1,750
Office Supplies Acct. No. 124
Date Explanation PR Debit Credit Balance
April 3 1,000 1,000
30 Adjusting 400 600
Prepaid Insurance Acct. No. 128
Date Explanation PR Debit Credit Balance
April 10 2,400 2,400
30 Adjusting 133 2,267
Computer Equipment Acct. No. 167
Date Explanation PR Debit Credit Balance
April 1 20,000 20,000
Accumulated Depreciation–Computer Equipment Acct. No. 168
Date Explanation PR Debit Credit Balance
April 30 Adjusting 500 500
Salaries Payable Acct. No. 209
Date Explanation PR Debit Credit Balance
April 30 Adjusting 420 420

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Problem 4-1A (Continued)
J. Nozomi, Capital Acct. No. 301
Date Explanation PR Debit Credit Balance
April 1 50,000 50,000
30 Closing 2,197 52,197
30 Closing 1,500 50,697
J. Nozomi, Withdrawals Acct. No. 302
Date Explanation PR Debit Credit Balance
April 30 1,500 1,500
30 Closing 1,500 0
Commissions Earned Acct. No. 405
Date Explanation PR Debit Credit Balance
April 24 8,000 8,000
30 Adjusting 1,750 9,750
30 Closing 9,750 0
Depreciation Expense–Computer Equipment Acct. No. 612
Date Explanation PR Debit Credit Balance
April 30 Adjusting 500 500
30 Closing 500 0
Salaries Expense Acct. No. 622
Date Explanation PR Debit Credit Balance
April 14 1,600 1,600
28 1,600 3,200
30 Adjusting 420 3,620
30 Closing 3,620 0
Insurance Expense Acct. No. 637
Date Explanation PR Debit Credit Balance
April 30 Adjusting 133 133
30 Closing 133 0
Rent Expense Acct. No. 640
Date Explanation PR Debit Credit Balance

April 2 1,800 1,800

30 Closing 1,800 0
Office Supplies Expense Acct. No. 650
Date Explanation PR Debit Credit Balance
April 30 Adjusting 400 400
30 Closing 400 0

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Problem 4-1A (Concluded)

Repairs Expense Acct. No. 684

Date Explanation PR Debit Credit Balance
April 29 350 350
30 Closing 350 0

Telephone Expense Acct. No. 688

Date Explanation PR Debit Credit Balance
April 30 750 750
30 Closing 750 0
Income Summary Acct. No. 901
Date Explanation PR Debit Credit Balance
April 30 Closing 9,750 9,750
30 Closing 7,553 2,197
30 Closing 2,197 0

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Problem 4-2A (90 minutes) Part 1
ACE CONSTRUCTION CO.
Work Sheet
For Year Ended June 30, 2015
Unadjusted Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
No. Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
101 Cash 18,500 18,500 18,500
126 Supplies 9,900 (a) 6,600 3,300 3,300
128 Prepaid insurance 7,200 (b 3,800 3,400 3,400
)
167 Equipment 132,000 132,000 132,000
168 Accumulated depreciation—
Equipment 26,250 (c) 8,400 34,650 34,650
201 Accounts payable 6,800 (d 650 7,450 7,450
)
203 Interest payable (h 250 250 250
)
208 Rent payable (f) 500 500 500
210 Wages payable (e) 1,800 1,800 1,800
213 Property taxes payable (g 1,000 1,000 1,000
)
251 Long-term notes payable 25,000 25,000 25,000
301 V. Ace, Capital 88,660 88,660 88,660
302 V. Ace, Withdrawals 33,000 33,000 33,000
401 Construction fees earned 132,100 132,100 132,100
612 Depreciation expense—
Equipment (c) 8,400 8,400 8,400
623 Wages expense 46,860 (e) 1,800 48,660 48,660
633 Interest expense 2,750 (h 250 3,000 3,000
)
637 Insurance expense (b 3,800 3,800 3,800
)
640 Rent expense 12,000 (f) 500 12,500 12,500
652 Supplies expense (a) 6,600 6,600 6,600
683 Property taxes expense 7,800 (g 1,000 8,800 8,800
)
684 Repairs expense 2,910 2,910 2,910

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690 Utilities expense 5,890 ______ (d 650 _____ 6,540 ______ 6,540 ______ ______ ______
)
Totals 278,810 278,810 23,000 23,000 291,410 291,410 101,210 132,100 190,200 159,31
0
Net Income 30,890 ______ ______ 30,890
Totals 132,100 132,100 190,200 190,20
0

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Problem 4-2A (Continued)

Part 2 Adjusting entries (all dated June 30, 2015)

Instructor note: Entries are shown without an account reference column because no posting is required.

(a) Supplies Expense.............................................. 6,600

Supplies...................................................... 6,600
To record consumption of supplies.

(b) Insurance Expense............................................ 3,800

Prepaid Insurance...................................... 3,800
To record expiration of insurance.

(c) Depreciation Expense—Equipment................. 8,400

Accumulated Depreciation—Equipment....... 8,400
To record depreciation.

(d) Utilities Expense................................................ 650

Accounts Payable...................................... 650
To record accrued utilities costs.

(e) Wages Expense.................................................. 1,800

Wages Payable........................................... 1,800
To record accrued wages.

(f) Rent Expense..................................................... 500

Rent Payable............................................... 500
To record remainder of annual rent.

(g) Property Taxes Expense................................... 1,000

Property Taxes Payable............................. 1,000
To record additional property taxes.

(h) Interest Expense................................................ 250

Interest Payable.......................................... 250
To record interest expense for June.

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Problem 4-2A (Continued)

Closing entries (all dated June 30, 2015)

Instructor note: Entries are shown without an account reference column because no posting is required.

(1) Construction Fees Earned........................... 132,100

Income Summary.................................. 132,100
To close the revenue account.

(2) Income Summary.......................................... 101,210

Depreciation Expense–Equipment...... 8,400
Wages Expense..................................... 48,660
Interest Expense.................................... 3,000
Insurance Expense................................ 3,800
Rent Expense......................................... 12,500
Supplies Expense.................................. 6,600
Property Taxes Expense....................... 8,800
Repairs Expense................................... 2,910
Utilities Expense.................................... 6,540
To close the expense accounts.

(3) Income Summary.......................................... 30,890

V. Ace, Capital....................................... 30,890
To close the Income Summary account.

(4) V. Ace, Capital............................................... 33,000

V. Ace, Withdrawals.............................. 33,000
To close the withdrawals account.

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Problem 4-2A (Continued)

Part 3
ACE CONSTRUCTION CO.
Income Statement
For Year Ended June 30, 2015
Construction fees earned................................. $132,100
Expenses
Depreciation expense—Equipment............... $ 8,400
Wages expense................................................ 48,660
Interest expense.............................................. 3,000
Insurance expense.......................................... 3,800
Rent expense.................................................... 12,500
Supplies expense............................................ 6,600
Property taxes expense.................................. 8,800
Repairs expense.............................................. 2,910
Utilities expense............................................... 6,540
Total expenses................................................. 101,210
Net income......................................................... $ 30,890

ACE CONSTRUCTION CO.

Statement of Owner’s Equity
For Year Ended June 30, 2015
V. Ace, Capital, June 30, 2014.......................... $ 53,660
Add: Owner contribution................................. $35,000
Net income................................................ 30,890 65,890
119,550
Less: Withdrawals............................................. (33,000)
V. Ace, Capital, June 30, 2015.......................... $ 86,550

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Problem 4-2A (Continued)

ACE CONSTRUCTION CO.

Balance Sheet
June 30, 2015
Assets
Current assets
Cash....................................................................... $ 18,500
Supplies................................................................. 3,300
Prepaid insurance................................................. 3,400
Total current assets.............................................. $ 25,200
Plant assets
Equipment............................................................. 132,000
Accumulated depreciation—Equipment............ (34,650) 97,350
Total assets............................................................. $122,550

Liabilities
Current liabilities
Accounts payable................................................. $ 7,450
Interest payable.................................................... 250
Rent payable......................................................... 500
Wages payable...................................................... 1,800
Property taxes payable........................................ 1,000
Current portion of long-term note payable........ 5,000
Total current liabilities......................................... $ 16,000
Noncurrent liabilities
Long-term note payable....................................... 20,000
Total liabilities......................................................... 36,000
Equity
V. Ace, Capital......................................................... 86,550
Total liabilities and equity...................................... $122,550

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Problem 4-2A (Concluded)

Part 4
(a) This error enters the wrong amount in the correct accounts. The
ending balance of the Supplies account should be $3,300, but the entry
reduces Supplies by $3,300. Because its unadjusted balance was
$9,900, the adjusted balance will be $6,600 ($9,900 - $3,300), which is
$3,300 greater than the correct $3,300 balance. In addition, the
Supplies Expense account balance will be only $3,300 instead of
$6,600.
The adjusted trial balance columns in the work sheet will be equal, but
the error will cause the work sheet’s net income to be overstated by
$3,300 because of the understatement of the expense. In addition, the
balance sheet columns will include the overstated balance for the
Supplies account.
This error is not likely to be detected as a result of completing the work
sheet. If it is not, the income statement will overstate net income by
$3,300, and the balance sheet will overstate the cost of the supplies
available and the capital account by $3,300.
(b) This error inserts a credit in the adjusted trial balance when a debit
should have been inserted. As a result, the trial balance will not
balance (the credit column will be greater than the debit column by
$37,000), and the error will be tracked down and corrected before
going on with the next step in the work sheet.
Because the error will be detected and corrected before preparing the
financial statements, the statements will not be affected.

Problem 4-3A (15 minutes)

1. B 6. C 11. E 16. C

2. Z 7. F 12. C 17. C

3. A 8. E 13. A 18. Z

4. A 9. A 14. C 19. A

5. E 10. G 15. A 20. E

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Problem 4-4A (75 minutes)
Part 1
TYBALT CONSTRUCTION
Income Statement
For Year Ended December 31, 2015
Revenues
Professional fees earned................................... $97,000
Rent earned......................................................... 14,000
Dividends earned............................................... 2,000
Interest earned.................................................... 2,100
Total revenues.................................................... $115,100
Expenses
Depreciation expense—Building...................... 11,000
Depreciation expense—Equipment.................. 6,000
Wages expense.................................................. 32,000
Interest expense................................................. 5,100
Insurance expense............................................. 10,000
Rent expense...................................................... 13,400
Supplies expense............................................... 7,400
Postage expense................................................ 4,200
Property taxes expense..................................... 5,000
Repairs expense................................................. 8,900
Telephone expense............................................ 3,200
Utilities expense................................................. 4,600
Total expenses................................................... 110,800
Net income............................................................ $ 4,300

TYBALT CONSTRUCTION
Statement of Owner's Equity
For Year Ended December 31, 2015
O. Tybalt, Capital, December 31, 2014............... $121,400
Add: Investments by owner.............................. $5,000
Net income................................................. 4,300 9,300
130,700
Less: Withdrawals by owner.............................. (13,000)
O. Tybalt, Capital, December 31, 2015............... $117,700

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Problem 4-4A (Continued)

TYBALT CONSTRUCTION
Balance Sheet
December 31, 2015
Assets
Current assets
Cash..................................................................... $ 5,000
Short-term investments..................................... 23,000
Supplies.............................................................. 8,100
Prepaid insurance.............................................. 7,000
Total current assets........................................... $ 43,100
Plant assets
Equipment........................................................... 40,000
Accumulated depreciation—Equipment.......... (20,000) 20,000
Building............................................................... 150,000
Accumulated depreciation—Building.............. (50,000) 100,000
Land..................................................................... 55,000
Total plant assets............................................... 175,000
Total assets........................................................... $218,100

Liabilities
Current liabilities
Accounts payable............................................... $ 16,500
Interest payable.................................................. 2,500
Rent payable....................................................... 3,500
Wages payable................................................... 2,500
Property taxes payable...................................... 900
Unearned professional fees.............................. 7,500
Current portion of long-term note payable…... 7,000
Total current liabilities....................................... $ 40,400
Long-term liabilities
Long-term notes payable ($67,000-$7,000).......... 60,000
Total liabilities...................................................... 100,400
Equity
O. Tybalt, Capital ................................................. 117,700
Total liabilities and equity................................... $218,100

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Problem 4-4A (Continued)
Part 2
Closing entries (all dated December 31, 2015)
Instructor note: Entries are shown without an account reference column because no posting is required.

(1) Professional Fees Earned............................ 97,000

Rent Earned................................................... 14,000
Dividends Earned......................................... 2,000
Interest Earned.............................................. 2,100
Income Summary.................................. 115,100
To close the revenue accounts.
(2) Income Summary.......................................... 110,800
Depreciation Expense—Building......... 11,000
Depreciation Expense—Equipment..... 6,000
Wages Expense..................................... 32,000
Interest Expense.................................... 5,100
Insurance Expense................................ 10,000
Rent Expense......................................... 13,400
Supplies Expense.................................. 7,400
Postage Expense................................... 4,200
Property Taxes Expense....................... 5,000
Repairs Expense................................... 8,900
Telephone Expense............................... 3,200
Utilities Expense.................................... 4,600
To close the expense accounts.
(3) Income Summary.......................................... 4,300
O. Tybalt, Capital................................... 4,300
To close the income summary account.
(4) O. Tybalt, Capital .......................................... 13,000
O. Tybalt, Withdrawals.......................... 13,000
To close the withdrawals account.

Part 3
a. Return on assets = $4,300/[($200,000 + $218,100)/2] = 2.1% (or 0.021)
b. Debt ratio = $100,400/$218,100 = 0.46
c. Profit margin = $4,300/$115,100 =3.7% (or 0.037)
d. Current ratio = $43,100/$40,400 = 1.07

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Problem 4-5A (90 minutes)

Part 1

KARISE REPAIRS
Income Statement
For Year Ended December 31, 2015

Repair fees earned..................................... $90,950

Expenses
Depreciation expense—Equipment........ $ 5,000
Wages expense........................................ 37,500
Insurance expense................................... 800
Rent expense............................................ 10,600
Office supplies expense.......................... 3,600
Utilities expense....................................... 2,700
Total expenses........................................ 60,200
Net income.................................................. $30,750

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Problem 4-5A – (Continued)

KARISE REPAIRS
Statement of Owner's Equity
For Year Ended December 31, 2015

C. Karise, Capital, Jan. 1, 2015.................. $33,000

Add: Net income ...................................... 30,750
63,750
Less: Withdrawals..................................... (16,000)
C. Karise, Capital, Dec. 31, 2015............... $47,750

KARISE REPAIRS
Balance Sheet
December 31, 2015
Assets
Current assets
Cash.............................................................. $14,000
Office supplies............................................. 1,300
Prepaid insurance........................................ 2,050
Total current assets..................................... $17,350
Plant assets
Equipment..................................................... 50,000
Accumulated depreciation—Equipment.... (5,000) 45,000
Total assets.................................................... $62,350

Liabilities
Current liabilities
Accounts payable........................................ $14,000
Wages payable............................................. 600
Total current liabilities................................. 14,600
Equity
C. Karise, Capital ........................................... 47,750
Total liabilities and equity............................. $62,350

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Problem 4-5A (Continued)
Parts 2 and 3
KARISE REPAIRS
Work Sheet
For Year Ended December 31, 2015

Adjusted Closing Post-Closing

Trial Balance Entry Information Trial Balance
No. Account Title Dr. Cr. Dr. Cr. Dr. Cr.

101 Cash 14,000 14,000

124 Office supplies 1,300 1,300
128 Prepaid insurance 2,050 2,050
167 Equipment 50,000 50,000
168 Accumulated depre- 5,000 5,000
ciation—Equipment
201 Accounts payable 14,000 14,000
210 Wages payable 600 600
301 C. Karise, Capital 33,000 (4) 16,000 (3) 30,750 47,750
302 C. Karise, Withdrawals 16,000 (4) 16,000
401 Repair fees earned 90,950 (1) 90,950
612 Depreciation expense— 5,000 (2) 5,000
Equipment

623 Wages expense 37,500 (2) 37,500

637 Insurance expense 800 (2) 800
640 Rent expense 10,600 (2) 10,600
650 Office supplies expense 3,600 (2) 3,600
690 Utilities expense 2,700 (2) 2,700
901 Income summary (2) 60,200 (1) 90,950
______ ______ (3) 30,75 ______ ______ ______
0
Totals 143,550 143,550 197,900 197,900 67,350 67,35
0

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Problem 4-5A (Continued)

Closing entries (all dated December 31, 2015)

Instructor note: Entries are shown without an account reference column because no posting is required.

(1) Repair Fees Earned......................................... 90,950

Income Summary..................................... 90,950
To close the revenue account.

(2) Income Summary............................................ 60,200

Depreciation Expense—Equipment....... 5,000
Wages Expense........................................ 37,500
Insurance Expense.................................. 800
Rent Expense........................................... 10,600
Office Supplies Expense......................... 3,600
Utilities Expense...................................... 2,700
To close the expense accounts.

(3) Income Summary............................................ 30,750

C. Karise, Capital..................................... 30,750
To close the Income Summary account.

(4) C. Karise, Capital............................................. 16,000

C. Karise, Withdrawals............................ 16,000
To close the withdrawals account.

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Problem 4-5A (Concluded)

Part 4

(a) If none of the $800 insurance expense had expired, the income statement
would not report any insurance expense and net income would be
increased by $800.
(b) If there were no earned and unpaid wages (meaning Wages Payable
equals zero), wages expense would be $600 less and net income would
be $600 more.

Financial Statement Changes

The income statement would reflect the following:

 Net income would be increased by $800 + $600 = $1,400.
The balance sheet would reflect the following:
Prepaid insurance and total assets would be increased by $800.
There would not be any wages payable.
Total current liabilities would be $600 less.
Total equity would be increased by $1,400.
Total liabilities would be decreased by $600.

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