Question

Chapter 4

Trotman’s Variety Store is completing the accounting process for the current year just ended, December 31. The transactions during the year have been journalized and posted. The following data with respect to adjusting entries are available:

Required information [The following information applies to the questions displayed below.] Tunstall, Inc., a small service company, keeps its records without the help of an accountant. After much effort, an outside accountant prepared the following unadjusted trial balance as of the end of the annual accounting period on December 31: Tunstall, Inc. Unadjusted Trial Balance for the Year Ended December 31 Credit Debit 47,300 11,500 570 770 16,700 7,900 10, 460 2,210 Cash Accounts receivable Supplies Prepaid insurance Service trucks Accumulated depreciation Other assets Accounts payable Wages payable Income taxes payable Notes payable, long-term Common stock (4,400 shares outstanding) Additional paid-in capital Retained earnings Service revenue Wages expense Remaining expenses (not detailed; excludes income tax) Income tax expense Totals 15,000 1,946 17,514 5,300 86,910 16,200 33,280 136,780 136, 780 Data not yet recorded at December 31 included: a. The supplies count on December 31 reflected $170 in remaining supplies on hand to be used in the next year. b. Insurance expired during the current year, $770. c. Depreciation expense for the current year, $3,500. d. Wages earned by employees not yet paid on December 31, $520. e. Income tax expense, $5,480.

Answer 1

1) Adjusting Entries:
	Date	Account Titles and Explanations	Debit	Credit
a)	Dec. 31	Supplies Expense	$400
		Supplies ($570 - $170)		$400
		(To record the usage of supplies)
b)	Dec. 31	Insurance Expense	$770
		Prepaid Insurance		$770
		(To record the expiration of one month insurance)
c)	Dec. 31	Depreciation Expense	$3,500
		Accumulated Depreciation		$3,500
		(To record the depreciation expense)
d)	Dec. 31	Salaries and Wages Expense	$520
		Salaries and Wages Payable		$520
		(To record the salaries expense incurred)
e)	Dec. 31	Income Tax Expense	$5,480
		Income Tax Payable		$5,480
		(To record the income tax expense incurred)

2-a) Income Statement
TUNSTALL, INC.
Income Statement
Service Revenue	$86,910
Less: Expenses:
Salaries and Wages expense ($16,200 + $520)	($16,720)
Supplies expense	($400)
Insurance expense	($770)
Depreciation Expense	($3,500)
Other expenses	($33,280)
Income before tax	$32,240
Less: Income tax expense	($5,480)
Net Income	$26,760
Less: Preferred dividends	$0
Earnings available to common stockholders	$26,760
Earnings per share ($26,760 / 4,400 shares)	$6.08

2-b) Classified balance sheet
TUNSTALL, INC.
Balance Sheet
As on December 31.
Assets		Liabilities and Shareholders' Equity
Current Assets:		Current Liabilities:
Cash	$47,300	Accounts Payable	$2,210
Accounts Receivable	$11,500	Wages payable	$520
Supplies	$170	Income taxes payable	$5,480
Prepaid Insurance ($770 - $770)	$0	Total Current Liabilities	$8,210
Total Current Assets	$58,970	Notes payable, long-term	$15,000
Property, plant and equipment:		Total Liabilities	$23,210
Service trucks	$16,700	Shareholders' Equity:
Less: Accumulated Depreciation ($7,900 + $3,500)	($11,400)	Common stock	$1,946
Service trucks - net	$5,300	Additional paid-in capital	$17,514
Other assets	$10,460	Retained earnings ($5,300 + $26,760 - $0)	$32,060
		Total Shareholders' Equity	$51,520
Total Assets	$74,730	Total Liabilities and Shareholders Equity ($23,210 + $56,710)	$74,730

3) Closing Entries
Date	Account Titles and Explanations	Debit	Credit
Dec. 31	Service Revenue	$86,910
	Income Summary		$86,910
	(To close revenue accounts)
Dec. 31	Income Summary	$60,150
	Salaries and Wages expense ($16,200 + $520)		$16,720
	Supplies expense		$400
	Insurance expense		$770
	Depreciation Expense		$3,500
	Other expenses		$33,280
	Income tax expense		$5,480
	(To close expense accounts)
Dec. 31	Income Summary ($86,910 - $60,150)	$26,760
	Retained Earnings		$26,760
	(To close the net income account)