Chapter 4 Completing the Accounting Cycle 177

On April 1, 2015, Jiro Nozomi created a new travel agency, Adventure Travel. The following transactions PROBLEM SET A
occurred during the company’s first month.
April 1 Nozomi invested $30,000 cash and computer equipment worth $20,000 in the company. Problem 4-1A
2 The company rented furnished office space by paying $1,800 cash for the first month’s (April) rent. Applying the accounting
3 The company purchased $1,000 of office supplies for cash. cycle
10 The company paid $2,400 cash for the premium on a 12-month insurance policy. Coverage C1 C2 P2 P3
begins on April 11.
14 The company paid $1,600 cash for two weeks’ salaries earned by employees.
24 The company collected $8,000 cash on commissions from airlines on tickets obtained for
customers.
28 The company paid $1,600 cash for two weeks’ salaries earned by employees.
29 The company paid $350 cash for minor repairs to the company’s computer.
30 The company paid $750 cash for this month’s telephone bill.
30 Nozomi withdrew $1,500 cash from the company for personal use.
The company’s chart of accounts follows:

101 Cash 405 Commissions Earned

106 Accounts Receivable 612 Depreciation Expense — Computer Equip.
124 Office Supplies 622 Salaries Expense
128 Prepaid Insurance 637 Insurance Expense
167 Computer Equipment 640 Rent Expense
168 Accumulated Depreciation—Computer Equip. 650 Office Supplies Expense
209 Salaries Payable 684 Repairs Expense
301 J. Nozomi, Capital 688 Telephone Expense
302 J. Nozomi, Withdrawals 901 Income Summary

Required
1. Use the balance column format to set up each ledger account listed in its chart of accounts.
2. Prepare journal entries to record the transactions for April and post them to the ledger accounts. The
company records prepaid and unearned items in balance sheet accounts.
3. Prepare an unadjusted trial balance as of April 30. Check (3) Unadj. trial
4. Use the following information to journalize and post adjusting entries for the month: balance totals, $58,000

a. Two-thirds (or $133) of one month’s insurance coverage has expired. (4a) Dr. Insurance
b. At the end of the month, $600 of office supplies are still available. Expense, $133

c. This month’s depreciation on the computer equipment is $500.

d. Employees earned $420 of unpaid and unrecorded salaries as of month-end.
(5) Net income,
e. The company earned $1,750 of commissions that are not yet billed at month-end. $2,197; J. Nozomi, Capital
5. Prepare the adjusted trial balance as of April 30. Prepare the income statement and the statement of (4/30/2015), $50,697; Total
owner’s equity for the month of April and the balance sheet at April 30, 2015. assets, $51,117
6. Prepare journal entries to close the temporary accounts and post these entries to the ledger. (7) P-C trial balance
7. Prepare a post-closing trial balance. totals, $51,617

The following unadjusted trial balance is for Ace Construction Co. as of the end of its 2015 fiscal year. Problem 4-2A
The June 30, 2014, credit balance of the owner’s capital account was $53,660, and the owner invested Preparing a work sheet,
$35,000 cash in the company during the 2015 fiscal year. adjusting and closing
entries, and financial
statements
C3 P1 P2
178 Chapter 4 Completing the Accounting Cycle

A B C D
1 ACE CONSTRUCTION CO.
2 Unadjusted Trial Balance
3 June 30, 2015
4 No. Account Title Debit Credit
5 101 Cash $ 18,500
6 126 Supplies 9,900
7 128 Prepaid insurance 7,200
8 167 Equipment 132,000
9 168 Accumulated depreciation—Equipment $ 26,250
10 201 Accounts payable 6,800
11 203 Interest payable 0
12 208 Rent payable 0
13 210 Wages payable 0
14 213 Property taxes payable 0
15 251 Long-term notes payable 25,000
16 301 V. Ace, Capital 88,660
17 302 V. Ace, Withdrawals 33,000
18 401 Construction fees earned 132,100
19 612 Depreciation expense—Equipment 0
20 623 Wages expense 46,860
21 633 Interest expense 2,750
22 637 Insurance expense 0
23 640 Rent expense 12,000
24 652 Supplies expense 0
25 683 Property taxes expense 7,800
26 684 Repairs expense 2,910
27 690 Utilities expense 5,890
28 Totals $278,810 $278,810
29

Required
1. Prepare and complete a 10-column work sheet for fiscal year 2015, starting with the unadjusted trial
balance and including adjustments based on these additional facts.
a. The supplies available at the end of fiscal year 2015 had a cost of $3,300.
b. The cost of expired insurance for the fiscal year is $3,800.
c. Annual depreciation on equipment is $8,400.
d. The June utilities expense of $650 is not included in the unadjusted trial balance because the bill
arrived after the trial balance was prepared. The $650 amount owed needs to be recorded.
e. The company’s employees have earned $1,800 of accrued wages at fiscal year-end.
f. The rent expense incurred and not yet paid or recorded at fiscal year-end is $500.
g. Additional property taxes of $1,000 have been assessed for this fiscal year but have not been paid
or recorded in the accounts.
h. The long-term note payable bears interest at 12% per year. The unadjusted Interest Expense ac-
count equals the amount paid for the first 11 months of the 2015 fiscal year. The $250 accrued
interest for June has not yet been paid or recorded. (The company is required to make a $5,000
payment toward the note payable during the 2016 fiscal year.)
2. Using information from the completed 10-column work sheet in part 1, journalize the adjusting entries
and the closing entries.
Check (3) Total assets, 3. Prepare the income statement and the statement of owner’s equity for the year ended June 30 and the
$122,550; Current liabilities, classified balance sheet at June 30, 2015.
$16,000; Net income, $30,890

Analysis Component
4. Analyze the following separate errors and describe how each would affect the 10-column work sheet.
Explain whether the error is likely to be discovered in completing the work sheet and, if not, the effect
of the error on the financial statements.
a. Assume that the adjustment for supplies used consisted of a credit to Supplies and a debit to
Supplies Expense for $3,300, when the correct amount was $6,600.
b. When the adjusted trial balance in the work sheet is completed, assume that the $18,500 Cash bal-
ance is incorrectly entered in the Credit column.
 Chapter 4 Completing the Accounting Cycle 179

In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet clas- Problem 4-3A
sification. If the item should not appear on the balance sheet, enter a Z in the blank. Determining balance
A. Current assets E. Current liabilities sheet classifications
B. Long-term investments F. Long-term liabilities C3
C. Plant assets G. Equity
D. Intangible assets
1. Long-term investment in stock 12. Accumulated depreciation—Trucks
2. Depreciation expense—Building 13. Cash
3. Prepaid rent 14. Buildings
4. Interest receivable 15. Store supplies
5. Taxes payable 16. Office equipment
6. Automobiles 17. Land (used in operations)
7. Notes payable (due in 3 years) 18. Repairs expense
8. Accounts payable 19. Office supplies
9. Prepaid insurance 20. Current portion of long-term
10. Owner, Capital note payable
11. Unearned services revenue

The adjusted trial balance for Tybalt Construction as of December 31, 2015, follows. Problem 4-4A
Preparing closing entries,
TYBALT CONSTRUCTION financial statements, and
Adjusted Trial Balance
ratios
December 31, 2015
C3 A1 P2
No. Account Title Debit Credit

101 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000

104 Short-term investments . . . . . . . . . . . . . . . . . . . . . 23,000
126 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,100
128 Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000
167 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
168 Accumulated depreciation—Equipment . . . . . . . . $ 20,000
173 Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
174 Accumulated depreciation—Building . . . . . . . . . . 50,000
183 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000
201 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 16,500
203 Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
208 Rent payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500
210 Wages payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
213 Property taxes payable . . . . . . . . . . . . . . . . . . . . . . 900
233 Unearned professional fees . . . . . . . . . . . . . . . . . . 7,500
251 Long-term notes payable . . . . . . . . . . . . . . . . . . . . 67,000
301 O. Tybalt, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . 126,400
302 O. Tybalt, Withdrawals . . . . . . . . . . . . . . . . . . . . . 13,000
401 Professional fees earned . . . . . . . . . . . . . . . . . . . . . 97,000
406 Rent earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000
407 Dividends earned . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
409 Interest earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,100
606 Depreciation expense—Building . . . . . . . . . . . . . . 11,000
612 Depreciation expense—Equipment . . . . . . . . . . . . 6,000
623 Wages expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
633 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,100
637 Insurance expense . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
640 Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,400
652 Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . 7,400
682 Postage expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200
683 Property taxes expense . . . . . . . . . . . . . . . . . . . . . 5,000
684 Repairs expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,900
688 Telephone expense . . . . . . . . . . . . . . . . . . . . . . . . 3,200
690 Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,600
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $411,900 $411,900
180 Chapter 4 Completing the Accounting Cycle

O. Tybalt invested $5,000 cash in the business during year 2015 (the December 31, 2014, credit balance
of the O. Tybalt, Capital account was $121,400). Tybalt Construction is required to make a $7,000 pay-
ment on its long-term notes payable during 2016.

Required
Check (1) Total assets 1. Prepare the income statement and the statement of owner’s equity for the calendar year 2015 and the
(12/31/2015), $218,100; Net classified balance sheet at December 31, 2015.
income, $4,300
2. Prepare the necessary closing entries at December 31, 2015.
3. Use the information in the financial statements to compute these ratios: (a) return on assets (total as-
sets at December 31, 2014, was $200,000), (b) debt ratio, (c) profit margin ratio (use total revenues as
the denominator), and (d) current ratio. Round ratios to three decimals for parts a and c, and to two
decimals for parts b and d.

Problem 4-5A The adjusted trial balance of Karise Repairs on December 31, 2015, follows.
Preparing trial balances,
closing entries, and
financial statements KARISE REPAIRS
Adjusted Trial Balance
C3 P2 P3 December 31, 2015

No. Account Title Debit Credit

101 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,000

124 Office supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300
128 Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 2,050
167 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
168 Accumulated depreciation—Equipment . . . . . . . . $ 5,000
201 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000
210 Wages payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
301 C. Karise, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . 33,000
302 C. Karise, Withdrawals . . . . . . . . . . . . . . . . . . . . . 16,000
401 Repair fees earned . . . . . . . . . . . . . . . . . . . . . . . . . 90,950
612 Depreciation expense—Equipment . . . . . . . . . . . . 5,000
623 Wages expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,500
637 Insurance expense . . . . . . . . . . . . . . . . . . . . . . . . . 800
640 Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,600
650 Office supplies expense . . . . . . . . . . . . . . . . . . . . . 3,600
690 Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,700
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $143,550 $143,550

Required
Check (1) Ending capital 1. Prepare an income statement and a statement of owner’s equity for the year 2015, and a classified bal-
balance, $47,750; net ance sheet at December 31, 2015. There are no owner investments in 2015.
income, $30,750
2. Enter the adjusted trial balance in the first two columns of a six-column table. Use columns three and
(2) P-C trial balance four for closing entry information and the last two columns for a post-closing trial balance. Insert an
totals, $67,350 Income Summary account as the last item in the trial balance.
3. Enter closing entry information in the six-column table and prepare journal entries for it.

Analysis Component
4. Assume for this part only that
a. None of the $800 insurance expense had expired during the year. Instead, assume it is a prepay-
ment of the next period’s insurance protection.
b. There are no earned and unpaid wages at the end of the year. (Hint: Reverse the $600 wages pay-
able accrual.)
Describe the financial statement changes that would result from these two assumptions.
 Chapter 4 Completing the Accounting Cycle 181

The following six-column table for Hawkeye Ranges includes the unadjusted trial balance as of December Problem 4-6AA
31, 2015. Preparing adjusting,
reversing, and next
period entries
A B C D E F G
1 HAWKEYE RANGES P4
2 December 31, 2015
3 Unadjusted Adjusted
4 Trial Balance Adjustments Trial Balance
5 Account Title Dr. Cr. Dr. Cr. Dr. Cr.
6 Cash $ 14,000
7 Accounts receivable 0
8 Supplies 6,500
9 Equipment 135,000
10 Accumulated depreciation—Equipment $ 30,000
11 Interest payable 0
12 Salaries payable 0
13 Unearned member fees 15,000
14 Notes payable 75,000
15 P. Hawkeye, Capital 50,250
16 P. Hawkeye, Withdrawals 21,125
17 Member fees earned 42,000
18 Depreciation expense—Equipment 0
19 Salaries expense 30,000
20 Interest expense 5,625
21 Supplies expense 0
22 Totals $212,250 $212,250
23

Required
1. Complete the six-column table by entering adjustments that reflect the following information.
a. As of December 31, 2015, employees had earned $1,200 of unpaid and unrecorded salaries. The
next payday is January 4, at which time $1,500 of salaries will be paid.
b. The cost of supplies still available at December 31, 2015, is $3,000.
c. The notes payable requires an interest payment to be made every three months. The amount of
unrecorded accrued interest at December 31, 2015, is $1,875. The next interest payment, at an
amount of $2,250, is due on January 15, 2016.
d. Analysis of the unearned member fees account shows $5,800 remaining unearned at December
31, 2015.
e. In addition to the member fees included in the revenue account balance, the company has earned
another $9,300 in unrecorded fees that will be collected on January 31, 2016. The company is also
expected to collect $10,000 on that same day for new fees earned in January 2016. Check (1) Adjusted trial
f. Depreciation expense for the year is $15,000. balance totals, $239,625
2. Prepare journal entries for the adjustments entered in the six-column table for part 1.
3. Prepare journal entries to reverse the effects of the adjusting entries that involve accruals.
4. Prepare journal entries to record the cash payments and cash collections described for January.

On July 1, 2015, Lula Plume created a new self-storage business, Safe Storage Co. The following trans- PROBLEM SET B
actions occurred during the company’s first month.
Problem 4-1B
July 1 Plume invested $30,000 cash and buildings worth $150,000 in the company.
Applying the accounting
2 The company rented equipment by paying $2,000 cash for the first month’s (July) rent.
cycle
5 The company purchased $2,400 of office supplies for cash.
10 The company paid $7,200 cash for the premium on a 12-month insurance policy. Coverage be- C1 C2 P2 P3
gins on July 11.
14 The company paid an employee $1,000 cash for two weeks’ salary earned.
24 The company collected $9,800 cash for storage fees from customers.
28 The company paid $1,000 cash for two weeks’ salary earned by an employee.
29 The company paid $950 cash for minor repairs to a leaking roof.
30 The company paid $400 cash for this month’s telephone bill.
31 Plume withdrew $2,000 cash from the company for personal use.