Extra Applications_Lecture Week 8_Part 1

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 Answers

PROBLEM (4-4) A IS TO BE SOLVED JOINTLY BY THE INSTRUCTOR AND THE STUDENTS

Problem 4-4A (75 minutes)

Part 1
SHARP CONSTRUCTION
Income Statement
For Year Ended December 31, 2011
Revenues
Professional fees earned.................................................... $96,000
Rent earned ..........................................................13,000
Dividends earned................................................................ 1,900
Interest earned.................................................................... 1,000
Total revenues.................................................................... $111,900
Expenses
Depreciation expense—Building......................................... 10,000
Depreciation expense—Equipment.................................... 5,000
Wages expense.................................................................. 31,000
Interest expense................................................................. 4,100
Insurance expense............................................................. 9,000
Rent expense...................................................................... 12,400
Supplies expense............................................................... 6,400
Postage expense................................................................ 3,200
Property taxes expense...................................................... 4,000
Repairs expense................................................................. 7,900
Telephone expense............................................................ 2,200
Utilities expense.................................................................. 3,600
Total expenses................................................................... 98,800
Net income ...................................................................... $ 13,100

SHARP CONSTRUCTION
Statement of Owner's Equity
For Year Ended December 31, 2011
J. Sharp, Capital, December 31, 2010.................................. $32,700
Add: Investments by owner................................................. $50,000
Net income.................................................................. 13,100 63,100
95,800
Less: Withdrawals by owner................................................. (12,000)
J. Sharp, Capital, December 31, 2011.................................. $83,800

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Problem 4-4A (Continued)

SHARP CONSTRUCTION
Balance Sheet
December 31, 2011
Assets
Current assets
Cash.................................................................................... $ 4,000
Short-term investments....................................................... 22,000
Supplies.............................................................................. 7,100
Prepaid insurance............................................................... 6,000
Total current assets............................................................ $ 39,100
Plant assets
Equipment........................................................................... 39,000
Accumulated depreciation—Equipment.............................. (20,000) 19,000
Building............................................................................... 130,000
Accumulated depreciation—Building.................................. (55,000) 75,000
Land.................................................................................... 45,000
Total plant assets................................................................ 139,000
Total assets.......................................................................... $178,100

Liabilities
Current liabilities
Accounts payable............................................................... $ 15,500
Interest payable.................................................................. 1,500
Rent payable....................................................................... 2,500
Wages payable................................................................... 1,500
Property taxes payable....................................................... 800
Unearned professional fees................................................ 6,500
Current portion of long-term note payable...................…... 6,600
Total current liabilities......................................................... $ 34,900
Long-term liabilities
Long-term notes payable*................................................... 59,400
Total liabilities....................................................................... 94,300
Equity
J. Sharp, Capital .................................................................. 83,800
Total liabilities and equity...................................................... $178,100
* $66,000-$6,600

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Problem 4-4A (Concluded)
Part 2
Closing entries (all dated December 31, 2011):
(1)Professional Fees Earned...................................................96,000
Rent Earned.............................................................................13,000
Dividends Earned....................................................................1,900
Interest Earned........................................................................1,000
Income Summary....................................................... 111,900
To close the revenue accounts.
(2)Income Summary................................................................98,800
Depreciation Expense, Building.................................. 10,000
Depreciation Expense, Equipment............................. 5,000
Wages Expense......................................................... 31,000
Interest Expense......................................................... 4,100
Insurance Expense..................................................... 9,000
Rent Expense............................................................. 12,400
Supplies Expense....................................................... 6,400
Postage Expense....................................................... 3,200
Property Taxes Expense............................................ 4,000
Repairs Expense........................................................ 7,900
Telephone Expense.................................................... 2,200
Utilities Expense......................................................... 3,600
To close the expense accounts.
(3)Income Summary................................................................13,100
J. Sharp, Capital......................................................... 13,100
To close the income summary account.
(4)J. Sharp, Capital .................................................................12,000
J. Sharp, Withdrawals................................................. 12,000
To close the withdrawals account.

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EXERCISE (4-2) IS TO BE SOLVED BY THE STUDENTS IN THE CLASS TO TEST THEIR
UNDERSTANDING OF THE CLOSING PROCESS. HOWEVER, EXERCISE (4-3) CAN BE USED BY
STUDENTS FOR PRACTICE AT HOME.

Exercise 4-2 (40 minutes)

Adjusted Post-Closing
Trial Balance Closing Entry Information Trial Balance
No. Account Title Dr. Cr. Dr. Cr. Dr. Cr.
101 Cash................................... 8,200 8,200
106 Accounts receivable................24,000 24,000
153 Equipment........................... 41,000 41,000
154 Accumulated depre-
ciation—Equipment............... 16,500 16,500
193 Franchise............................. 30,000 30,000
201 Accounts payable.................. 14,000 14,000
209 Salaries payable.................... 3,200 3,200
233 Unearned fees...................... 2,600 2,600
301 H. Sundance, Capital.............. 64,500 (4 14,400 (3) 16,800 66,900
)
302 H. Sundance, Withdrawals.......14,400 (4) 14,400
401 Marketing fees earned............. 79,000 (1 79,000
)
611 Depreciation expense—
Equipment.......................... 11,000 (2) 11,000
622 Salaries expense................... 31,500 (2) 31,500
640 Rent expense....................... 12,000 (2) 12,000
677 Miscellaneous expense...........7,700 (2) 7,700
901 Income summary................... (2 62,200 (1) 79,000
)
______ ______ (3 16,800 ______ ______ ______
)
Totals.................................. 179,800 179,800 172,400 172,400 103,200 103,200

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Exercise 4-3 (30 minutes)
1.
2011
Dec. 31 Services Revenue ...................................................36,000
Income Summary ...................................................... 36,000
To close the revenue account.

31 Income Summary ....................................................28,100

Depreciation Expense--Equipment............................. 2,000
Salaries Expense ....................................................... 21,000
Insurance Expense .................................................... 1,500
Rent Expense ............................................................ 2,400
Supplies Expense ...................................................... 1,200
To close the expense accounts.

31 Income Summary..................................................... 7,900

R. Showers, Capital ................................................... 7,900
To close Income Summary.

31 R. Showers, Capital ................................................6,000

R. Showers, Withdrawals .......................................... 6,000
To close the withdrawals account.

2.
SHOWERS COMPANY
Post-Closing Trial Balance
December 31, 2011
Debit Credit
Cash ........................................................................... $18,000
Supplies......................................................................... 12,000
Prepaid insurance......................................................... 2,000
Equipment..................................................................... 23,000
Accumulated depreciation–Equipment.......................... $ 6,500
R. Showers, Capital*..................................................... 48,500
Totals ........................................................................... $55,000 $55,000

*$46,600 + $7,900 - $6,000 = $48,500