Completing the Accounting Cycle PDF

4 Completing the Accounting Cycle Learning Objectives 1 Prepare a worksheet. 2 Prepare closing entries and a post-closing trial balance. Explain the steps in the accounting cycle and how to 3 prepare correcting entries....

4 Completing the Accounting Cycle Learning Objectives 1 Prepare a worksheet. 2 Prepare closing entries and a post-closing trial balance. Explain the steps in the accounting cycle and how to 3 prepare correcting entries. 4 Identify the sections of a classified balance sheet. 4-1 LEARNING OBJECTIVE 1 Prepare a worksheet. Worksheet  Multiple-column form used in preparing financial statements.  Not a permanent accounting record.  May be a computerized worksheet using an electronic spreadsheet program such as Excel.  Prepared using a five step process.  Use of worksheet is optional. 4-2 LO 1  Steps in Preparing a Worksheet Illustration 4-1 4-3  Steps in Preparing a Worksheet Illustration 4-2 STEP 1: PREPARE A TRIAL BALANCE ON THE WORKSHEET Adjusted Income Trial Balance Adjustments Trial Balance Statement Balance Sheet Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 15,200 Supplies 2,500 Prepaid Insurance 600 Equipment 5,000 Notes Payable 5,000 Accounts Payable 2,500 Unearned Revenue 1,200 Owner's Capital 10,000 Owner's Drawings 500 Service Revenue 10,000 Salaries and Wages Exp. 4,000 Rent Exp. 900 Totals 28,700 28,700 Trial balance amounts come directly from ledger accounts. Include all accounts with balances. 4-4 LO 1  Steps in Preparing a Worksheet Illustration 3-23 General journal showing adjusting entries Adjusting Journal Entries (Chapter 3) 4-5 LO 1  Steps in Preparing a Worksheet Illustration 4-3 STEP 2: ENTER THE ADJUSTMENTS IN THE ADJUSTMENTS COLUMNS Adjusted Income Trial Balance Adjustments Trial Balance Statement Balance Sheet Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 15,200 Supplies 2,500 (a) 1,500 Prepaid Insurance 600 (b) 50 Equipment 5,000 Adjustments Key: Notes Payable 5,000 Accounts Payable 2,500 (a) Supplies Used. Unearned Revenue 1,200 (d) 400 (b) Insurance Expired. Owner's Capital 10,000 Owner's Drawings 500 (c) Depreciation Expensed. Service Revenue 10,000 (d) 400 (d) Service Revenue Recognized. (e) 200 Salaries and Wages Exp. 4,000 (g) 1,200 (e) Service Revenue Accrued. Rent Exp. Totals 900 28,700 28,700 (f) Interest Accrued. Supplies Expense (a) 1,500 (g) Salaries Accrued. Insurance Expense (b) 50 Accumulated Depreciation (c) 40 Depreciation Expense (c) 40 Accounts Receivable (e) 200 Interest Expense (f) 50 Enter adjustment amounts, total Interest Payable (f) 50 adjustments columns, Salaries and Wages Payable Totals 3,440 (g) 1,200 3,440 and check for equality. Add additional accounts as needed. 4-6 LO 1  Steps in Preparing a Worksheet Illustration 4-4 STEP 3: COMPLETE THE ADJUSTED TRIAL BALANCE COLUMNS Adjusted Income Trial Balance Adjustments Trial Balance Statement Balance Sheet Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 15,200 15,200 Supplies 2,500 (a) 1,500 1,000 Prepaid Insurance 600 (b) 50 550 Equipment 5,000 5,000 Notes Payable 5,000 5,000 Accounts Payable 2,500 2,500 Unearned Revenue 1,200 (d) 400 800 Owner's Capital 10,000 10,000 Owner's Drawings 500 500 Service Revenue 10,000 (d) 400 10,600 (e) 200 Salaries and Wages Exp. 4,000 (g) 1,200 5,200 Rent Exp. 900 900 Totals 28,700 28,700 Supplies Expense (a) 1,500 1,500 Insurance Expense (b) 50 50 Accumulated Depreciation (c) 40 40 Depreciation Expense (c) 40 40 Accounts Receivable (e) 200 200 Interest Expense (f) 50 50 Interest Payable (f) 50 50 Salaries and Wages Payable (g) 1,200 1,200 Totals 3,440 3,440 30,190 30,190 Net Income Totals Total the adjusted trial balance columns and check for equality. 4-7 LO 1  Steps in Preparing a Worksheet Illustration 4-5 STEP 4: EXTEND AMOUNTS TO FINANCIAL STATEMENT COLUMNS Adjusted Income Trial Balance Adjustments Trial Balance Statement Balance Sheet Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 15,200 15,200 15,200 Supplies 2,500 (a) 1,500 1,000 1,000 Prepaid Insurance 600 (b) 50 550 550 Equipment 5,000 5,000 5,000 Notes Payable 5,000 5,000 5,000 Accounts Payable 2,500 2,500 2,500 Unearned Revenue 1,200 (d) 400 800 800 Owner's Capital 10,000 10,000 10,000 Owner's Drawings 500 500 500 Service Revenue 10,000 (d) 400 10,600 10,600 (e) 200 Salaries and Wages Exp. 4,000 (g) 1,200 5,200 5,200 Rent Exp. 900 900 900 Totals 28,700 28,700 Supplies Expense (a) 1,500 1,500 1,500 Insurance Expense (b) 50 50 50 Accumulated Depreciation (c) 40 40 40 Depreciation Expense (c) 40 40 40 Accounts Receivable (e) 200 200 200 Interest Expense (f) 50 50 50 Interest Payable (f) 50 50 50 Salaries and Wages Payable (g) 1,200 1,200 1,200 Totals 3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590 Net Income Totals Extend adjusted trial balance amounts to appropriate financial statement columns. 4-8 LO 1  Steps in Preparing a Worksheet Illustration 4-6 STEP 5: TOTAL COLUMNS, COMPUTE NET INCOME (LOSS) Adjusted Income Trial Balance Adjustments Trial Balance Statement Balance Sheet Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 15,200 15,200 15,200 Supplies 2,500 (a) 1,500 1,000 1,000 Prepaid Insurance 600 (b) 50 550 550 Equipment 5,000 5,000 5,000 Notes Payable 5,000 5,000 5,000 Accounts Payable 2,500 2,500 2,500 Unearned Revenue 1,200 (d) 400 800 800 Owner's Capital 10,000 10,000 10,000 Owner's Drawings 500 500 500 Service Revenue 10,000 (d) 400 10,600 10,600 (e) 200 Salaries and Wages Exp. 4,000 (g) 1,200 5,200 5,200 Rent Exp. 900 900 900 Totals 28,700 28,700 Supplies Expense (a) 1,500 1,500 1,500 Insurance Expense (b) 50 50 50 Accumulated Depreciation (c) 40 40 40 Depreciation Expense (c) 40 40 40 Accounts Receivable (e) 200 200 200 Interest Expense (f) 50 50 50 Interest Payable (f) 50 50 50 Salaries and Wages Payable (g) 1,200 1,200 1,200 Totals 3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590 Net Income 2,860 2,860 Totals 10,600 10,600 22,450 22,450 Compute Net Income or Net Loss. 4-9 LO 1  Steps in Preparing a Worksheet Question Net income is shown on a worksheet in the: a. income statement debit column only. b. balance sheet debit column only. c. income statement credit column and balance sheet debit column. d. income statement debit column and balance sheet credit column. 4-10 LO 1  Preparing Financial Statements from a Worksheet  Income statement is prepared from the income statement columns.  Balance sheet and owner’s equity statement are prepared from the balance sheet columns.  Companies can prepare financial statements before they journalize and post adjusting entries. 4-11 LO 1  Preparing Statements from a Worksheet Illustration 4-7 Financial statements from a worksheet 4-12 LO 1  Preparing Statements from a Worksheet Illustration 4-7 Financial statements from a worksheet 4-13 LO 1  Illustration 4-7 4-14 LO 1  Preparing Adjusting Entries from a Worksheet  Adjusting entries are prepared from the adjustments columns of the worksheet.  Journalizing and posting of adjusting entries follows the preparation of financial statements when a worksheet is used. 4-15 LO 1  DO IT! 1 Worksheet Susan Elbe is preparing a worksheet. Explain to Susan how she should extend the following adjusted trial balance accounts to the financial statement columns of the worksheet. Cash Balance sheet (debit column) Accumulated Depreciation Balance Sheet (credit column) Accounts Payable Balance Sheet (credit column) Owner’s Drawings Balance sheet (debit column) Service Revenue Income statement (credit column) Salaries and Wages Expense Income statement (debit column) 4-16 LO 1  LEARNING Prepare closing entries and a post- 2 OBJECTIVE closing trial balance. At the end of the accounting period, the company makes the accounts ready for the next period. Illustration 4-8 Temporary versus permanent accounts 4-17 LO 2  Preparing Closing Entries Closing entries formally recognize in the ledger the transfer of  net income (or net loss) and  owner’s drawings to owner’s capital. Companies generally journalize and post closing entries only at the end of the annual accounting period. Closing entries produce a zero balance in each temporary account. 4-18 LO 2  Preparing Closing Entries Illustration 4-9 Diagram of closing process—proprietorship Owner’s Capital is a permanent account. All other accounts are temporary accounts. 4-19 LO 2  Preparing Closing Entries CLOSING ENTRIES ILLUSTRATED Illustration 4-10 Closing entries 4-20 journalized  Posting Closing Entries Illustration 4-11 4-21 LO 2 4-22 LO 2  Preparing a Post-Closing Trial Balance Purpose is to prove the equality of the permanent account balances carried forward into the next accounting period. Illustration 4-12 Post-closing trial balance 4-23 LO 2  DO IT! 2 Closing Entries The worksheet for Hancock Company shows the following in the financial statement columns: Owner’s Drawings $15,000 Owner’s Capital $42,000 Net income $18,000 Prepare the closing entries at December 31 that affect owner’s capital. Income Summary 18,000 Owner’s Capital 18,000 Owner’s Capital 15,000 Owner’s Drawings 15,000 4-24 LO 2  LEARNING Explain the steps in the accounting cycle 3 OBJECTIVE and how to prepare correcting entries. Illustration 4-15 1. 1. Analyze Analyze business business transactions transactions 9. 9. Prepare Prepare aa post-closing post-closing 2. 2. Journalize Journalize the the trial trial balance balance transactions transactions 8. 8. Journalize Journalize and and post post 3. 3. Post Post to to ledger ledger accounts accounts closing closing entries entries 7. 7. Prepare Prepare financial financial 4. 4. Prepare Prepare aa trial trial balance balance statements statements 6. 6. Prepare Prepare an an adjusted adjusted trial trial 5. 5. Journalize Journalize and and post post balance balance adjusting adjusting entries entries 4-25 LO 3  Correcting Entries—An Avoidable Step  Unnecessary if accounting records are free of errors.  Made whenever an error is discovered.  Must be posted before closing entries. Instead of preparing a correcting entry, it is possible to reverse the incorrect entry and then prepare the correct entry. 4-26 LO 3  Correcting Entries—An Avoidable Step CASE 1: On May 10, Mercato Co. journalized and posted a $50 cash collection on account from a customer as a debit to Cash $50 and a credit to Service Revenue $50. The company discovered the error on May 20, when the customer paid the remaining balance in full. Incorrect Cash 50 entry Service Revenue 50 Correct Cash 50 entry Accounts Receivable 50 Correcting Service Revenue 50 entry Accounts Receivable 50 4-27 LO 3  Correcting Entries—An Avoidable Step CASE 2: On May 18, Mercato purchased on account equipment costing $450. The transaction was journalized and posted as a debit to Equipment $45 and a credit to Accounts Payable $45. The error was discovered on June 3. Incorrect Equipment 45 entry Accounts Payable 45 Correct Equipment 450 entry Accounts Payable 450 Correcting Equipment 405 entry Accounts Payable 405 4-28 LO 3 4-29 LO 3  DO IT! 3 Correcting Entries Sanchez Company discovered the following errors made in January 2017. 1. A payment of Salaries and Wages Expense of $600 was debited to Supplies and credited to Cash, both for $600. 2. A collection of $3,000 from a client on account was debited to Cash $200 and credited to Service Revenue $200. 3. The purchase of supplies on account for $860 was debited to Supplies $680 and credited to Accounts Payable $680. Correct the errors without reversing the incorrect entry. 4-30 LO 3  DO IT! 3 Correcting Entries Sanchez Company discovered the following errors made in January 2017. 1. A payment of Salaries and Wages Expense of $600 was debited to Supplies and credited to Cash, both for $600. Correct the error without reversing the incorrect entry. Salaries and Wages Expense 600 Supplies 600 4-31 LO 3  DO IT! 3 Correcting Entries Sanchez Company discovered the following errors made in January 2017. 2. A collection of $3,000 from a client on account was debited to Cash $200 and credited to Service Revenue $200. Correct the error without reversing the incorrect entry. Service Revenue 200 Cash 2,800 Accounts Receivable 3,000 4-32 LO 3  DO IT! 3 Correcting Entries Sanchez Company discovered the following errors made in January 2017. 3. The purchase of supplies on account for $860 was debited to Supplies $680 and credited to Accounts Payable $680. Correct the error without reversing the incorrect entry. Supplies ($860 - $680) 180 Accounts Payable 180 4-33 LO 3  LEARNING Identify the sections of a classified 4 OBJECTIVE balance sheet.  Presents a snapshot at a point in time.  To improve understanding, companies group similar assets and similar liabilities together. Standard Classifications Illustration 4-20 Assets Liabilities and Owner’s Equity Current assets Current liabilities Long-term investments Long-term liabilities Property, plant, and equipment Owner’s (Stockholders’) equity Intangible assets 4-34 LO 4  The Classified Balance Sheet Illustration 4-21 4-35 LO 4  Current Assets  Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer.  Operating cycle is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers. 4-36 LO 4  Current Assets Illustration 4-22 Usually listed in the order they expect to convert them into cash. 4-37 LO 4  Current Assets Question The correct order of presentation in a classified balance sheet for the following current assets is: a. accounts receivable, cash, prepaid insurance, inventory. b. cash, inventory, accounts receivable, prepaid insurance. c. cash, accounts receivable, inventory, prepaid insurance. d. inventory, cash, accounts receivable, prepaid insurance. 4-38 LO 4  Long-Term Investments  Investments in stocks and bonds of other companies.  Investments in long-term assets such as land or buildings that is not currently being used in operating activities.  Long-term notes receivable. Illustration 4-23 4-39 LO 4  Property, Plant, and Equipment  Long useful lives.  Currently used in operations.  Depreciation - allocating the cost of assets to a number of years.  Accumulated depreciation - total amount of depreciation expensed thus far in the asset’s life. 4-40 LO 4  Property, Plant, and Equipment Illustration 4-24 4-41 LO 4  Intangible Assets  Long-lived assets that do not have physical substance. Illustration 4-25 4-42 LO 4  The Classified Balance Sheet Question Patents and copyrights are a. Current assets. b. Intangible assets. c. Long-term investments. d. Property, plant, and equipment. 4-43 LO 4 4-44 LO 4  Current Liabilities  Obligations the company is to pay within the coming year or its operating cycle, whichever is longer.  Usually list notes payable first, followed by accounts payable. Other items follow in order of magnitude.  Common examples are accounts payable, salaries and wages payable, notes payable, interest payable, income taxes payable current maturities of long-term obligations.  Liquidity - ability to pay obligations expected to be due within the next year. 4-45 LO 4  Current Liabilities Illustration 4-26 4-46 LO 4 4-47 LO 4  Long-Term Liabilities  Obligations a company expects to pay after one year. Illustration 4-27 4-48 LO 4  The Classified Balance Sheet Question Which of the following is not a long-term liability? a. Bonds payable b. Current maturities of long-term obligations c. Long-term notes payable d. Mortgages payable 4-49 LO 4  Owner’s Equity  Proprietorship - one capital account.  Partnership - capital account for each partner.  Corporation - Common Stock and Retained Earnings. Illustration 4-28 4-50 LO 4  DO IT! 4 Balance Sheet Classifications The following accounts were taken from the financial statements of Callahan Company. Match each of the following accounts to its proper balance sheet classification, shown below. If the item would not appear on a balance sheet, use “NA.” Current assets (CA) Current liabilities (CL) Long-term investments (LTI) Long-term liabilities (LTL) Property, plant, and equipment (PPE) Owner’s equity (OE) Intangible assets (IA) 4-51 LO 4  LEARNING OBJECTIVE 5 APPENDIX 4A: Prepare reversing entries. Reversing Entries  It is often helpful to reverse some of the adjusting entries before recording the regular transactions of the next period.  Companies make a reversing entry at the beginning of the next accounting period.  Each reversing entry is the exact opposite of the adjusting entry made in the previous period.  The use of reversing entries does not change the amounts reported in the financial statements. 4-52 LO 5  Reversing Entries Example Illustration: To illustrate the optional use of reversing entries for accrued expenses, we will use the salaries expense transactions for Pioneer Advertising. 1. October 26 (initial salary entry): Pioneer pays $4,000 of salaries and wages earned between October 15 and October 26. 2. October 31 (adjusting entry): Salaries and wages earned between October 29 and October 31 are $1,200. The company will pay these in the November 9 payroll. 3. November 9 (subsequent salary entry): Salaries and wages paid are $4,000. Of this amount, $1,200 applied to accrued salaries and wages payable and $2,800 was earned between November 1 and November 9. 4-53 LO 5  Reversing Entries Example Illustration 4A-1 With Reversing Entries (per appendix) Initial Salary Entry Oct. 26 Same entry Adjusting Entry Oct. 31 Same entry Closing Entry Oct. 31 Same entry Reversing Entry Nov. 1 Salaries and Wages Payable 1,200 Salaries and Wages Expense 1,200 Subsequent Salary Entry Nov. 9 Salaries and Wages Expense 4,000 Cash 4,000 4-54 LO 5  Reversing Entries Example Illustration 4A-2 Postings with reversing entries 4-55 LO 5  A Look at IFRS LEARNING Compare the procedures for the closing OBJECTIVE 6 process under GAAP and IFRS. Key Points Similarities  The procedures of the closing process are applicable to all companies, whether they are using IFRS or GAAP.  IFRS generally requires a classified statement of financial position similar to the classified balance sheet under GAAP.  IFRS follows the same guidelines as this textbook for distinguishing between current and noncurrent assets and liabilities. 4-56 LO 6  A Look at IFRS Key Points Differences  IFRS recommends but does not require the use of the title “statement of financial position” rather than balance sheet.  The format of statement of financial position information is often presented differently under IFRS.  Although no specific format is required, many companies that follow IFRS present statement of financial position information in this order:  Non-current assets  Non-current liabilities  Current assets  Current liabilities  Equity 4-57 LO 6  A Look at IFRS Key Points Differences  Under IFRS, current assets are usually listed in the reverse order of liquidity. For example, under GAAP cash is listed first, but under IFRS it is listed last.  Both GAAP and IFRS are increasing the use of fair value to report assets. However, at this point IFRS has adopted it more broadly. As examples, under IFRS, companies can apply fair value to property, plant, and equipment, and in some cases intangible assets. 4-58 LO 6  A Look at IFRS Looking to the Future The IASB and the FASB are working on a project to converge their standards related to financial statement presentation. A key feature of the proposed framework is that each of the statements will be organized in the same format, to separate an entity’s financing activities from its operating and investing activities and, further, to separate financing activities into transactions with owners and creditors. Thus, the same classifications used in the statement of financial position would also be used in the income statement and the statement of cash flows. The project has three phases. You can follow the joint financial presentation project at the following link: http://www.fasb.org/project/ financial_statement_presentation.shtml. 4-59 LO 6  A Look at IFRS IFRS Self-Test Questions Companies that use IFRS: a) may report all their assets on the statement of financial position at fair value. b) may offset assets against liabilities and show net assets and net liabilities on their statements of financial position, rather than the underlying detailed line items. c) may report non-current assets before current assets on the statement of financial position. d) do not have any guidelines as to what should be reported on the statement of financial position. 4-60 LO 6  A Look at IFRS IFRS Self-Test Questions A company has purchased a tract of land and expects to build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. Under IFRS, the land should be reported as: a) land expense. b) property, plant, and equipment. c) an intangible asset. d) a long-term investment. 4-61 LO 6  A Look at IFRS IFRS Self-Test Questions Current assets under IFRS are listed generally: a) by importance. b) in the reverse order of their expected conversion to cash. c) by longevity. d) alphabetically. 4-62 LO 6  Accounting Principles ACC 2201 Review Chapter: 1. A worksheet is a mandatory form that must be prepared along with an income statement and balance sheet.. 2. If a worksheet is used, financial statements can be prepared before adjusting entries are journalized. 3. The adjusted trial balance columns of a worksheet are obtained by subtracting the adjustment columns from the trial balance columns.. 4. Closing entries are journalized after adjusting entries have been journalized. 1-63  Accounting Principles ACC 2201 5. Cash and supplies are both classified as current assets. 6. A liability is classified as a current liability if the company is to pay it within the forthcoming year. 7. After a worksheet has been completed, the statement columns contain all data that are required for the preparation of financial statements. 1-64  Accounting Principles ACC 2201 8. Preparing a worksheet involves a. two steps. b. three steps. c. four steps. d. five steps.. 9. The information for preparing a trial balance on a worksheet is obtained from a. financial statements. b. general ledger accounts.. c. general journal entries. e. business documents. 1-65  Accounting Principles ACC 2201 10. The account, Supplies, will appear in the following debit columns of the worksheet. a. Trial balance. b. Adjusted trial balance. c. Balance sheet. d. All of these answer choices are correct.. 1-66  Accounting Principles ACC 2201 11. The income statement and balance sheet columns of Beer and Nuts Company’s worksheet reflect the following totals: ________________________________________ Income Statement Balance Sheet Dr. Cr. Dr. Cr. Totals $75,000 $51,000 $60,000 $84,000 The net income (or loss) for the period is a. $51,000 income. b. $24,000 income. 1-67 c. $24,000 loss.  Accounting Principles ACC 2201 12. Each of the following accounts is closed to Income Summary except a. Expenses. b. Owner’s Drawings. c. Revenues. d. All of these are closed to Income Summary. 1-68  Accounting Principles ACC 2201 The income statement for the month of June, 2016 of Snap Shot, Inc. contains the following information: Revenues $7,300 Expenses: Salaries and Wages Expense $3,000 Rent Expense 1,300 Advertising Expense 700 Supplies Expense 200 Insurance Expense 100 Total expenses 5,300 Net income $2,000 The entry to close the expense accounts includes a a. debit to Income Summary for $2,000. b. credit to Rent Expense for $1,300. c. credit to Income Summary for $5,300. d. debit to Salaries and Wages Expense for $3,000. 1-69  Accounting Principles ACC 2201 The income statement for the month of June, 2016 of Snap Shot, Inc. contains the following information: Revenues $7,300 Expenses: Salaries and Wages Expense $3,000 Rent Expense 1,300 Advertising Expense 700 Supplies Expense 200 Insurance Expense 100 Total expenses 5,300 Net income $2,000 After the revenue and expense accounts have been closed, the balance in Income Summary will be a. a debit balance of $7,300. b. a debit balance of $2,000. c. a credit balance of $2,000. d. a credit balance of $7,300. $7,300 - $5,300 = $2,000 1-70  Accounting Principles ACC 2201 The following items are taken from the financial statements of the Freight Service for the year ending December 31, 2016: Accounts payable $ 19,000 Accounts receivable 13,000 Accumulated depreciation – equipment 26,000 Advertising expense 21,200 Cash 15,000 Owner’s capital (1/1/16) 104,000 Owner’s drawings 11,000 Depreciation expense 12,000 Insurance expense 3,800 Note payable, due 6/30/17 72,000 Prepaid insurance (12-month policy) 7,200 Rent expense 16,000 Salaries and wages expense 32,000 Service revenue 135,000 Supplies 5,000 Supplies expense 6,000 Equipment 210,000 What is the company’s net income for the year ending December 31, 2016? a. $14,000 b. $33,000 c. $44,000 1-71 d. $135,000  Accounting Principles ACC 2201 Solution: $135,000 - $21,200 - $12,000 - $3,800 - $16,000 - $32,000 - $6,000 = $44,00 1-72  Accounting Principles ACC 2201 The following items are taken from the financial statements of the Freight Service for the year ending December 31, 2016: Accounts payable $ 19,000 Accounts receivable 13,000 Accumulated depreciation – equipment 26,000 Advertising expense 21,200 Cash 15,000 Owner’s capital (1/1/16) 104,000 Owner’s drawings 11,000 Depreciation expense 12,000 Insurance expense 3,800 Note payable, due 6/30/17 72,000 Prepaid insurance (12-month policy) 7,200 Rent expense 16,000 Salaries and wages expense 32,000 Service revenue 135,000 Supplies 5,000 Supplies expense 6,000 Equipment 210,000 What are total current liabilities at December 31, 2016? a. $19,000 b. $72,000 1-73 c. $91,000 d. $102,000  Accounting Principles ACC 2201 Solution: $19,000 + $72,000 = $91,000 1-74  Accounting Principles ACC 2201 Use the following income statement for the year 2016 for Belle Company to prepare entries to close the revenue and expense accounts for the company. Service revenue $85,000 Expenses: Salaries and Wages Expense $40,000 Rent Expense 12,500 Advertising Expense 8,700 Total expenses 61,200 Net income (loss) $23,800 1-75  Accounting Principles ACC 2201 Solution: Service Revenue …………… 85,000 Income Summary …………………………. 85,000 Income Summary……………….. 61,200 Salaries and Wages Expense …………… 40,000 Rent Expense ……………………………… 12,500 Advertising Expense ………………………… 8,700 1-76  Accounting Principles ACC 2201 The following accounts were included on Retail Consultants adjusted trial balance at December 31, 2016: Accounts payable $ 9,800 Accounts receivable 13,000 Cash 5,500 Owner’s Capital 40,000 Owner’s Drawings 10,000 Interest expense 3,000 Note payable, due 8/31/19 65,000 Supplies 1,500 Service revenue 37,000 Equipment 5,000 (a) What are total current assets? (b) What are total current liabilities? 1-77  Accounting Principles ACC 2201 Solution: (a) $13,000 + $5,500 + $1,500 = $20,000 (b) $9,800 1-78  Accounting Principles ACC 2201 The following items are taken from the adjusted trial balance of Westley Company for the month ending July 31, 2016: Accounts payable $ 2,000 Accounts receivable 3,300 Accumulated depreciation – equipment 8,000 Cash 2,600 Depreciation expense 2,000 Equipment 54,000 Owner’s capital 7/1/16 52,000 Service revenue 33,000 Supplies 1,200 Prepare the current assets section of Westley’s classified balance sheet. 1-79  Accounting Principles ACC 2201 Solution: Current assets: Cash $2,600 Accounts receivable 3,300 Supplies 1,200 Total current assets $7,100 1-80  Accounting Principles ACC 2201 Indicate the worksheet column (income statement Dr., balance sheet Cr., etc.) to which each of the following accounts would be extended. Account Worksheet Column a. Accounts Receivable ________________ b. Accumulated Depreciation—Equip. ________________ c. Service Revenue ________________ d. Interest Expense ________________ e. Owner’s Drawings ________________ f. Unearned Service Revenue ________________ 1-81  Accounting Principles ACC 2201 Solution: a. Balance sheet Dr. b. Balance sheet Cr. c. Income statement Cr. d. Income statement Dr. e. Balance sheet Dr. f. Balance sheet Cr. 1-82