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Chapter 3: 2P (page 138)

Mason Advertising was founded in January 2013. Presented below are adjusted and unadjusted trial balances as of December 31, 2017.


MASON ADVERTISINGTRIAL BALANCEDECEMBER 31, 2017


UnadjustedAdjusted

Dr.

Cr.

Dr.

Cr.

Cash

\( 11,000

\) 11,000

Accounts Receivable

20,000

23,500

Supplies

8,400

3,000

Prepaid Insurance

3,350

2,500

Equipment

60,000

60,000

Accumulated Depreciation鈥擡quipment

\( 28,000

\) 33,000

Accounts Payable

5,000

5,000

Interest Payable

鈥�0鈥�

150

Notes Payable

5,000

5,000

Unearned Service Revenue

7,000

5,600

Salaries and Wages Payable

鈥�0鈥�

1,300

Common Stock

10,000

10,000

Retained Earnings

3,500

3,500

Service Revenue

58,600

63,500

Salaries and Wages Expense

10,000

11,300

Insurance Expense

850

Interest Expense

350

500

Depreciation Expense

5,000

Supplies Expense

5,400

Rent Expense

4,000

4,000

\(117,100

\)117,100

\(127,050

\)127,050

Instructions

  1. Journalize the annual adjusting entries that were made. (Omit explanations.)
  2. Prepare an income statement and a statement of retained earnings for the year ending December 31, 2017, and an unclassified balance sheet at December 31.
  3. Answer the following questions.
    1. If the note has been outstanding 3 months, what is the annual interest rate on that note?
    2. If the company paid $12,500 in salaries and wages in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?

Short Answer

Expert verified
  1. The total debit and credit side of the journal is $17,600
  2. Net income is $36,450

Statement of retained earnings shows the closing balance of retained earnings is $39,950

The balance sheet total is $67,000

  1. Interest = $50

Salaries and wages payable = $2,500

Step by step solution

01

Meaning of Income Statement

The income statement sometimes referred to as a profit and loss statement, is a document created by a company's management that lists the company's earnings, costs, and net gain or loss for a given period.

02

(a) Preparing Journal entries

Date

Particulars

Debit ($)

Credit ($)

Dec. 31

Account receivable

3,500

Service revenue

3,500

31

Unearned service revenue

1,400

Service revenue

1,400

31

Supplies expense

5,400

Supplies

5,400

31

Depreciation expense

5,000

Accumulated depreciation-

equipment

5,000

31

Internet expense

150

Interest payable

150

31

Insurance expense

850

Prepaid expense

850

31

Salaries and Wages Expense

1,300

Salaries and Wages payable

1,300

$17,600

$17,600

03

(b) Preparing income statement, statement of retained earnings, and unclassified balance sheet.

MASON ADVERTISING AGENCY

Income Statement

Revenues

Service revenues

$63,500

Expenses

Salaries and wages expense $11,300

Supplies expense 5,400

Depreciation expense 5,000

Rent expense 4,000

Insurance expense 850

Interest expense 500

Total Income

27,050

Net Income

$36,450

MASON ADVERTISING AGENCY

Statement of Retained Earnings

Retained earnings, January 1

$3,500

Add: Net Income

36,450

Retained earnings, December 31

$39,950

MASON ADVERTISING AGENCY

Balance Sheet

Assets

Cash

$11,000

Accounts receivables

23,500

Supplies

3,000

Prepaid insurance

2,500

Equipment $60,000

Less: Accumulated depreciation-equipment 33,000

27,000

Total assets

$67,000

Liabilities and Stockholder鈥檚 Equity

Liabilities

Notes payable $5,000

Accounts payable 5,000

Unearned service revenue 5,600

Salaries and wages payable 1,300

Interest payable 150

Total liabilities

$17,050

Stockholders鈥� Equity

Common stock $10,000

Retained earnings 39,950

49,950

Total liabilities and stockholders鈥� equity

$67,000

04

(c) Explaining the answers

  1. The monthly interest payment is $50 i.e., ($150/3 months) or 1% of the outstanding balance. 12 divided by 1 equals 12 percent annual interest.
  2. Calculation of salaries and wages payable on December 31, 2016

Salaries and wages expense

$11,300

Less: Salaries and wages payable Dec 31, 2017

$1,300

$10,000

Payments made in 2017

$12,500

Salaries and wages payable Dec 31, 2016

$2,500

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Most popular questions from this chapter

On January 1, 2017, Norma Smith and Grant Wood formed a computer sales and service company in Soapsville, Arkansas, by investing \(90,000 cash. The new company, Arkansas Sales and Service, has the following transactions during January.

1. Pays \)6,000 in advance for 3 months鈥� rent of office, showroom, and repair space.

2. Purchases 40 personal computers at a cost of \(1,500 each, 6 graphics computers at a cost of \)2,500 each, and 25 printers at a cost of \(300 each, paying cash upon delivery

3. Sales, repair, and office employees earn \)12,600 in salaries and wages during January, of which \(3,000 was still payable at the end of January.

4. Sells 30 personal computers at \)2,550 each, 4 graphics computers for \(3,600 each, and 15 printers for \)500 each; \(75,000 is received in cash in January, and \)23,400 is sold on a deferred payment basis.

5. Other operating expenses of \(8,400 are incurred and paid for during January; \)2,000 of incurred expenses are payable at January 31.

Instructions

  1. Using the transaction data above, prepare (1) a cash-basis income statement and (2) an accrual-basis income statement for the month of January.
  2. Using the transaction data above, prepare (1) a cash-basis balance sheet and (2) an accrual-basis balance sheet as of January 31, 2017.
  3. Identify the items in the cash-basis financial statements that make cash-basis accounting inconsistent with the theory underlying the elements of financial statements.

List two types of transactions that would receive differentaccountingtreatments using (a) strict cash basis accounting, and (b) a modified cash basis.

BE3-11 (L04) Side Kicks has year-end account balances of Sales Revenue \(808,900, Interest Revenue \)13,500, Cost of Goods Sold \(556,200, Administrative Expenses \)189,000, Income Tax Expense \(35,100, and Dividends \)18,900. Prepare the year-end closing entries

Give an example of a transaction that result in:

  1. A decrease in asset and a decrease in a liability.
  2. A decrease in one asset and an increase in another asset.
  3. A decrease in one liability and an increase in another liability.

E3-8 (L03) EXCEL (Adjusting Entries) Andy Roddick is the new owner of Ace Computer Services. At the end of August2017, his first month of ownership, Roddick is trying to prepare monthly financial statements. Below is some information relatedto unrecorded expenses that the business incurred during August.1. At August 31, Roddick owed his employees \(1,900 in wages that will be paid on September 1.2. At the end of the month, he had not yet received the month鈥檚 utility bill. Based on past experience, he estimated the billwould be approximately \)600.3. On August 1, Roddick borrowed \(30,000 from a local bank on a 15-year mortgage. The annual interest rate is 8%.4. A telephone bill in the amount of \)117 covering August charges is unpaid at August 31.InstructionsPrepare the adjusting journal entries as of August 31, 2017, suggested by the information above.
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