Problem 4 6 financial accounting

CHAPTER 4

Completing the Accounting Cycle

ASSIGNMENT CLASSIFICATION TABLE

Learning Objectives

Questions
Brief
Exercises

Do It!

Exercises

A
Problems

B

Problems

*1. Prepare a worksheet.

1, 2, 3, 4, 5

1, 2, 3

1

1, 2, 3, 5, 6

1A, 2A, 3A,

4A, 5A

1B, 2B, 3B,

4B, 5B

*2. Explain the process of closing the books.

6, 7, 11, 12

4, 5, 6

2

4, 7, 8, 11, 19

1A, 2A, 3A,

4A, 5A

1B, 2B, 3B,

4B, 5B

*3. Describe the content and purpose of a post-closing trial balance.

8, 9

7

4, 7, 8

1A, 2A, 3A,

4A, 5A

1B, 2B, 3B,

4B, 5B

*4. State the required steps in the accounting cycle.

10, 11, 12

8

10, 19

5A

5B

*5. Explain the approaches to preparing correcting entries.

13

9

12, 13

6A

*6. Identify the sections of a classified balance sheet.

14, 15, 16,

17, 18, 19

10, 11

3, 4

3, 9, 14, 15, 16, 17

1A, 2A, 3A,

4A, 5A

1B, 2B, 3B,

4B, 5B

*7. Prepare reversing entries.

10, 20, 21

12

18, 19

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix *to the chapter.

ASSIGNMENT CHARACTERISTICS TABLE

Problem

Number

Description

Difficulty

Level

Time Allotted (min.)

1A

Prepare worksheet, financial statements, and adjusting and closing entries.

Simple

40–50

2A

Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance.

Moderate

50–60

3A

Prepare financial statements, closing entries, and post-closing trial balance.

Moderate

40–50

4A

Complete worksheet; prepare classified balance sheet, entries, and post-closing trial balance.

Moderate

50–60

5A

Complete all steps in accounting cycle.

Complex

70–90

6A

Analyze errors and prepare correcting entries and trial balance.

Moderate

40–50

1B

Prepare worksheet, financial statements, and adjusting and closing entries.

Simple

40–50

2B

Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance.

Moderate

50–60

3B

Prepare financial statements, closing entries, and post-closing trial balance.

Moderate

40–50

4B

Complete worksheet; prepare classified balance sheet, entries, and post-closing trial balance.

Moderate

50–60

5B

Complete all steps in accounting cycle.

Complex

70–90

Comprehensive Problem: Chapters 2 to 4

WEYGANDT ACCOUNTING PRINCIPLES 11E

CHAPTER 4

COMPLETING THE ACCOUNTING CYCLE

Number

LO

BT

Difficulty

Time (min.)

BE1

1

K

Simple

2–4

BE2

1

AN

Moderate

6–8

BE3

1

C

Simple

3–5

BE4

2

AP

Simple

3–5

BE5

2

AP

Simple

4–6

BE6

2

AP

Simple

6–8

BE7

3

C

Simple

2–4

BE8

4

K

Simple

3–5

BE9

5

AN

Moderate

4–6

BE10

6

AP

Simple

4–6

BE11

6

C

Simple

3–5

BE12

7

AN

Moderate

4–6

DI1

1

C

Simple

4–6

DI2

2

AP

Simple

2–4

DI3

6

AP

Simple

6–8

DI4

6

C

Simple

4–6

EX1

1

AP

Simple

12–15

EX2

1

AP

Simple

10–12

EX3

1, 6

AP

Simple

12–15

EX4

2, 3

AP

Simple

12–15

EX5

1

AN

Simple

10–12

EX6

1

AN

Moderate

12–15

EX7

2, 3

AP

Simple

8–10

EX8

2, 3

AP

Simple

10–12

EX9

6

AP

Simple

12–15

EX10

4

C

Simple

3–5

EX11

2

AP

Simple

6–8

EX12

5

AN

Moderate

8–10

EX13

5

AN

Moderate

4–6

EX14

6

AP

Moderate

10–12

EX15

6

C

Simple

5–8

EX16

6

AP

Simple

8–10

COMPLETING THE ACCOUNTING CYCLE (Continued)

Number

LO

BT

Difficulty

Time (min.)

EX17

6

AP

Simple

12–15

EX18

7

AN

Moderate

5–7

EX19

2, 4, 7

AN

Moderate

10–12

P1A

1-3, 6

AN

Simple

40–50

P2A

1-3, 6

AP

Moderate

50–60

P3A

1-3, 6

AP

Moderate

40–50

P4A

1-3, 6

AN

Moderate

50–60

P5A

1-4, 6

AN

Complex

70–90

P6A

5

AN

Moderate

40–50

P1B

1-3, 6

AN

Simple

40–50

P2B

1-3, 6

AP

Moderate

50–60

P3B

1-3, 6

AP

Moderate

40–50

P4B

1-3, 6

AN

Moderate

50–60

P5B

1-4, 6

AN

Complex

70–90

BYP1

6

AN

Simple

10–12

BYP2

6

AN

Simple

8–10

BYP3

6

AN

Simple

8–10

BYP4

—

E

Simple

10–12

BYP5

6

AN

Moderate

15–20

BYP6

4

C

Simple

15–20

BYP7

—

E

Moderate

10–15

BYP8

6

AP

Moderate

12–16

BYP9

—

AP

Moderate

10–15

ANSWERS TO QUESTIONS

 1. No. A worksheet is not a permanent accounting record. The use of a worksheet is an optional step in the accounting cycle.

 2. The worksheet is merely a device used to make it easier to prepare adjusting entries and the financial statements.

 3. The amount shown in the adjusted trial balance column for an account equals the account balance in the ledger after adjusting entries have been journalized and posted.

 4. The net income of $12,000 will appear in the income statement debit column and the balance sheet credit column. A net loss will appear in the income statement credit column and the balance sheet debit column.

 5. Formal financial statements are needed because the columnar data are not properly arranged and classified for statement purposes. For example, a drawing account is listed with assets.

 6. (1) (Dr) Individual revenue accounts and (Cr) Income Summary.

(2) (Dr) Income Summary and (Cr) Individual expense accounts.

(3) (Dr) Income Summary and (Cr) Owner’s Capital (for net income).

(4) (Dr) Owner’s Capital and (Cr) Owner’s Drawings.

 7. Income Summary is a temporary account that is used in the closing process. The account is debited for expenses and credited for revenues. The difference, either net income or net loss, is then closed to the owner’s capital account.

 8. The post-closing trial balance contains only balance sheet accounts. Its purpose is to prove the equality of the permanent account balances that are carried forward into the next accounting period.

 9. The accounts that will not appear in the post-closing trial balance are Depreciation Expense; Owner’s Drawing; and Service Revenue.

10. A reversing entry is the exact opposite, both in amount and in account titles, of an adjusting entry and is made at the beginning of the new accounting period. Reversing entries are an optional step in the accounting cycle.

11. The steps that involve journalizing are: (1) journalize the transactions, (2) journalize the adjusting entries, and (3) journalize the closing entries.

12. The three trial balances are the: (1) trial balance, (2) adjusted trial balance, and (3) post-closing trial balance.

13. Correcting entries differ from adjusting entries because they: (1) are not a required part of the accounting cycle, (2) may be made at any time, and (3) may affect any combination of accounts.

Questions Chapter 4 (Continued)

*14. The standard classifications in a balance sheet are:

Assets

Liabilities and Owner’s Equity

Current Assets

Current Liabilities

Long-term Investments

Long-term Liabilities

Property, Plant, and Equipment

Owner’s Equity

Intangible Assets

*15. The operating cycle of a company is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.

*16. Current assets are assets that a company expects to convert to cash or use up in one year. Some companies use a period longer than one year to classify assets and liabilities as current because they have an operating cycle longer than one year. Companies usually list current assets in the order in which they expect to convert them into cash.

*17. Long-term investments are generally investments in stocks and bonds of other companies that are normally held for many years. Property, plant, and equipment are assets with relatively long useful lives that a company is currently using in operating the business.

*18. (a) The owner’s equity section for a corporation is called stockholders’ equity.

(b) The two accounts and the purpose of each are: (1) Common stock is used to record invest​ments of assets in the business by the owners (stockholders). (2) Retained earnings is used to record net income retained in the business.

*19.. Apple’s current liabilities at September 24, 2011 and September 25, 2010 were $27,970 million and $20,722 million respectively. Apple’s current liabilities were significantly lower than its current assets in both years.

*20. After reversing entries have been made, the balances will be Interest Payable, zero balance; Interest Expense, a credit balance.

*21. (a) Jan. 10 Salaries and Wages Expense 8,000

Cash 8,000

Because of the January 1 reversing entry that credited Salaries and Wages Expense for $3,500, Salaries and Wages Expense will have a debit balance of $4,500 which equals the expense for the current period.

(b) Jan. 10 Salaries and Wages Payable 3,500

Salaries and Wages Expense 4,500

Cash 8,000

Note that Salaries and Wages Expense will again have a debit balance of $4,500.

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1

The steps in using a worksheet are performed in the following sequence: (1) prepare a trial balance on the worksheet, (2) enter adjustment data, (3) enter adjusted balances, (4) extend adjusted balances to appropriate statement columns and (5) total the statement columns, compute net income (loss), and complete the worksheet. Filling in the blanks, the answers are 1, 3, 4, 5, 2.

The solution to BRIEF EXERCISE 4-2 is on page 4-9.

BRIEF EXERCISE 4-3

Income Statement

Balance Sheet

Account

Dr.

Cr.

Dr.

Cr.

Accumulated Depreciation

X

Depreciation Expense

X

Owner’s Capital

X

Owner’s Drawings

X

Service Revenue

X

Supplies

X

Accounts Payable

X

BRIEF EXERCISE 4-4

Dec. 31 Service Revenue 50,000

Income Summary 50,000

31 Income Summary 34,000

Salaries and Wages Expense 27,000

Supplies Expense 7,000

31 Income Summary 16,000

Owner’s Capital 16,000

31 Owner’s Capital 2,000

Owner’s Drawings 2,000

BRIEF EXERCISE 4-5

Salaries and Wages Expense

Income Summary

Service Revenue

Bal. 27,000

(2) 27,000

(2) 34,000

(1) 50,000

(1) 50,000

Bal. 50,000

(3) 16,000

50,000

50,000

Supplies Expense

Owner’s Capital

Owner’s Drawings

Bal. 7,000

(2) 7,000

(4) 2,000

Bal. 30,000

Bal. 2,000

(4) 2,000

(3) 16,000

Bal. 44,000

BRIEF EXERCISE 4-6

July 31 Service Revenue 16,400

Income Summary 16,400

31 Income Summary 10,700

Salaries and Wages Expense 8,200

Maintenance and Repairs Expense 2,500

Service Revenue

Date

Explanation

Ref.

Debit

Credit

Balance

7/31

Balance

16,400

16,400

7/31

Closing entry

16,400

0

Salaries and Wages Expense

Date

Explanation

Ref.

Debit

Credit

Balance

7/31

Balance

8,200

8,200

7/31

Closing entry

8,200

0

BRIEF EXERCISE 4-6 (Continued)

Maintenance and Repairs Expense

Date

Explanation

Ref.

Debit

Credit

Balance

7/31

Balance

2,500

2,500

7/31

Closing entry

2,500

0

BRIEF EXERCISE 4-7

The accounts that will appear in the post-closing trial balance are:

Accumulated Depreciation

Owner’s Capital

Supplies

Accounts Payable

BRIEF EXERCISE 4-8

The proper sequencing of the required steps in the accounting cycle is as follows:

1. Analyze business transactions.

2. Journalize the transactions.

3. Post to ledger accounts.

4. Prepare a trial balance.

5. Journalize and post adjusting entries.

6. Prepare an adjusted trial balance.

7. Prepare financial statements.

8. Journalize and post closing entries.

9. Prepare a post-closing trial balance.

Filling in the blanks, the answers are 4, 2, 8, 7, 5, 3, 9, 6, 1.

BRIEF EXERCISE 4-9

1. Service Revenue 870

Accounts Receivable 870

2. Accounts Payable ($1,750 – $1,570) 180

Supplies 180

BRIEF EXERCISE 4-10

HAMIDI COMPANY

Partial Balance Sheet

Current assets

Cash $ 4,100

Debt investments 6,700

Accounts receivable 12,500

Supplies 5,200

Prepaid insurance 3,600

Total current assets $32,100

BRIEF EXERCISE 4-11

CL

Accounts payable

CL

Income taxes payable

CA

Accounts receivable

LTI

Debt investments (long-term)

PPE

Accum. depreciation—buildings

PPE

Land

PPE

Buildings

CA

Inventory

CA

Cash

IA

Patents

IA

Copyrights

CA

Supplies

*BRIEF EXERCISE 4-12

Nov. 1 Salaries and Wages Payable 2,100

Salaries and Wages Expense 2,100

The balances after posting the reversing entry are Salaries and Wages Expense (Cr.) $2,100 and Salaries and Wages Payable $0.

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 4-1

Income statement debit column—Utilities Expense

Income statement credit column—Service Revenue

Balance sheet debit column—Accounts Receivable

Balance sheet credit column—Notes Payable; Accumulated Depreciation; Owner’s Capital

DO IT! 4-2

Dec. 31 Income Summary 41,000

Owner’s Capital 41,000

Dec. 31 Owner’s Capital 22,000

Owner’s Drawings 22,000

DO IT! 4-3

RYAN COMPANY

Partial Balance Sheet

Current assets

Cash $4,300

Debt investments 1,200

Accounts receivable 4,300

Inventory 2,900

Total current assets $12,700

Long-term investments

Stock investments 6,500

Property, plant and equipment

Equipment 21,700

Less: Accumulated depreciation 5,700 16,000

Total assets $35,200

DO IT! 4-4

NA

Interest revenue

OE

Owner’s capital

CL

Utilities payable

PPE

Accumulated depreciation—equipment

CL

Accounts payable

PPE

Equipment

CA

Supplies

NA

Salaries and wages expense

LTL

Bonds payable

LTI

Debt investments (long-term)

IA

Goodwill

CL

Unearned rent revenue

SOLUTIONS TO EXERCISES

EXERCISE 4-1
NANDURI COMPANY
Worksheet
For the Month Ended June 30, 2014

Account Titles
Trial Balance
Adjustments

Adj. Trial Balance
Income Statement

Balance Sheet

Dr.

Cr.

Dr.

Cr.

Dr.

Cr.

Dr.

Cr.

Dr.

Cr.

Cash
2,320

2,320

2,320

Accounts Receivable

2,440

2,440

2,440

Supplies

1,880

(a) 1,380

500

500

Accounts Payable

1,120

1,120

1,120

Unearned Service Revenue

240

(b) 140

100

100

Owner’s Capital

3,600

3,600

3,600

Service Revenue

2,400

(b) 140

2,540

2,540

Salaries and Wages Expense

560

(c) 210

770

770

Miscellaneous Expense

160

160

160

Totals

7,360

7,360

Supplies Expense

(a) 1,380

1,380

1,380

Salaries and Wages Payable

(c) 210

210

210

Totals

1,730

1,730

7,570

7,570

2,310

2,540

5,260

5,030

Net Income

230

230

Totals

2,540

2,540

5,260

5,260

EXERCISE 4-2

DESOUSA COMPANY

(Partial) Worksheet

For the Month Ended April 30, 2014

Adjusted Trial Balance

Income Statement

Balance Sheet

Account Titles

Dr.

Cr.

Dr.

Cr.

Dr.

Cr.

Cash

10,000

10,000

Accounts Receivable

7,840

7,840

Prepaid Rent

2,280

2,280

Equipment

23,050

23,050

Accum. Depreciation Equipment

4,921

4,921

Notes Payable

5,700

5,700

Accounts Payable

4,920

4,920

Owner’s Capital

27,960

27,960

Owner’s Drawings

3,650

3,650

Service Revenue

15,590

15,590

Salaries and Wages Expense

10,840

10,840

Rent Expense

760

760

Depreciation Expense

671

671

Interest Expense

57

57

Interest Payable

57

57

Totals

59,148

59,148

12,328

15,590

46,820

43,558

Net Income

3,262

3,262

Totals

15,590

15,590

46,820

46,820

EXERCISE 4-3

DESOUSA COMPANY

Income Statement

For the Month Ended April 30, 2014

Revenues

Service revenue $15,590

Expenses

Salaries and wages expense $10,840

Rent expense 760

Depreciation expense 671

Interest expense 57

Total expenses 12,328

Net income $ 3,262

DESOUSA COMPANY

Owner’s Equity Statement

For the Month Ended April 30, 2014

Owner’s Capital, April 1 $27,960

Add: Net income 3,262

31,222

Less: Drawings 3,650

Owner’s Capital, April 30 $27,572

DESOUSA COMPANY

Balance Sheet

April 30, 2014

Assets

Current assets

Cash $10,000

Accounts receivable 7,840

Prepaid rent 2,280

Total current assets $20,120

Property, plant, and equipment

Equipment 23,050

Less: Accumulated depreciation—equipment 4,921 18,129

Total assets $38,249

EXERCISE 4-3 (Continued)

DESOUSA COMPANY

Balance Sheet (Continued)

April 30, 2014

Liabilities and Owner’s Equity

Current liabilities

Notes payable $5,700

Accounts payable 4,920

Interest payable 57

Total current liabilities $10,677

Owner’s equity

Owner’s capital 27,572

Total liabilities and owner’s equity $38,249

EXERCISE 4-4

(a) Apr. 30 Service Revenue 15,590

Income Summary 15,590

30 Income Summary 12,328

Salaries and Wages Expense 10,840

Rent Expense 760

Depreciation Expense 671

Interest Expense 57

30 Income Summary 3,262

Owner’s Capital 3,262

30 Owner’s Capital 3,650

Owner’s Drawings 3,650

(b)

Income Summary

Owner’s Capital

(2) 12,328

(1) 15,590

(4) 3,650

Bal. 27,960

(3) 3,262

(3) 3,262

15,590

15,590

Bal. 27,572

EXERCISE 4-4 (Continued)

(c) DESOUSA COMPANY

Post-Closing Trial Balance

April 30, 2014

Debit

Credit

Cash $10,000

Accounts Receivable 7,840

Prepaid Rent 2,280

Equipment 23,050

Accumulated Depreciation—Equipment $ 4,921

Notes Payable 5,700

Accounts Payable 4,920

Interest Payable 57

Owner’s Capital 27,572

$43,170 $43,170

EXERCISE 4-5

(a) Accounts Receivable 1,100

Service Revenue 1,100

Insurance Expense 300

Prepaid Insurance 300

Depreciation Expense 900

Accumulated Depreciation—Equipment 900

Salaries and Wages Expense 500

Salaries and Wages Payable 500

EXERCISE 4-5 (Continued)

(b)

Income Statement

Balance Sheet

Dr.

Cr.

Dr.

Cr.

Accounts Receivable

X

Prepaid Insurance

X

Accum. Depreciation—Equip.

X

Salaries and Wages Payable

X

Service Revenue

X

Salaries and Wages Expense

X

Insurance Expense

X

Depreciation Expense

X

EXERCISE 4-6

(a) Accounts Receivable—$25,000 ($34,000 – $9,000).

Supplies—$2,500 ($7,000 – $4,500).

Accumulated Depreciation—Equipment—$22,000 ($12,000 + $10,000).

Salaries and Wages Payable—$0 No liability recorded until adjustments are made.

Insurance Expense—$6,000 ($26,000 – $20,000).

Salaries and Wages Expense—$43,400 ($49,000 – $5,600).

(b) Accounts Receivable 9,000

Service Revenue 9,000

Insurance Expense 6,000

Prepaid Insurance 6,000

Supplies Expense 4,500

Supplies 4,500

Depreciation Expense 10,000

Accumulated Depreciation—Equipment 10,000

Salaries and Wages Expense 5,600

Salaries and Wages Payable 5,600

EXERCISE 4-7

(a) Service Revenue 4,300

Income Summary 4,300

Income Summary 3,500

Salaries and Wages Expense 1,344

Miscellaneous Expense 256

Supplies Expense 1,900

Income Summary 800

Owner’s Capital 800

Owner’s Capital 628

Owner’s Drawings 628

(b) KAY MAGILL COMPANY

Post-Closing Trial Balance

June 30, 2014

Account Titles

Debit

Credit

Cash $3,712

Accounts Receivable 3,904

Supplies 480

Accounts Payable $1,556

Salaries and Wages Payable 448

Unearned Service Revenue 160

Owner’s Capital 5,932