Question

Wells Technical Institute (WTI), a school owned by Tristana Wells, provides training to individuals who pay tuition directly to the school. WTI also offers training to groups in off-site locations. Its unadjusted trial balance as of December 31, 2017, follows. Descriptions of items a through h that require adjusting entries on December 31, 2017, follow.

Additional Information Items

a.An analysis of WTI’s insurance policies shows that $2,400 of coverage has expired.

b.An inventory count shows that teaching supplies costing $2,800 are available at year-end 2017.

c.Annual depreciation on the equipment is $13,200.

d.Annual depreciation on the professional library is $7,200.

e.On November 1, WTI agreed to do a special six-month course (starting immediately) for a client. The contract calls for a monthly fee of $2,500, and the client paid the first five months’ fees in advance. When the cash was received, the Unearned Training Fees account was credited. The fee for the sixth month will be recorded when it is collected in 2018.

f.On October 15, WTI agreed to teach a four-month class (beginning immediately) for an individual for $3,000 tuition per month payable at the end of the class. The class started on October 15, but no payment has yet been received. (WTI’s accruals are applied to the nearest half-month; for example, October recognizes one-half month accrual.)

g.WTI’s two employees are paid weekly. As of the end of the year, two days’ salaries have accrued at the rate of $100 per day for each employee.

h.The balance in the Prepaid Rent account represents rent for December.

[D]

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Required

1.Prepare T-accounts (representing the ledger) with balances from the unadjusted trial balance.

2.Prepare the necessary adjusting journal entries for items a through h and post them to the T-accounts. Assume that adjusting entries are made only at year-end.

3.Update balances in the T-accounts for the adjusting entries and prepare an adjusted trial balance.

4.Prepare Wells Technical Institute’s income statement and statement of owner’s equity for the year 2017 and prepare its balance sheet as of December 31, 2017.

Check (2e) Cr. Training Fees Earned, $5,000
(2f ) Cr. Tuition Fees Earned, $7,500
(3) Adj. trial balance totals, $345,700
(4) Net income, $49,600; Ending T. Wells, Capital, $89,600

Answer 1

1. T-accounts

Cash

Accounts Receivable

Teaching supplies

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Beg.Bal

34000

Beg.Bal

0

Beg.Bal

8000

5200

b

f

7500

End.Bal

34000

End Bal

7500

8000

5200

End.Bal.

2800

Prepaid Insurance

Prepaid Rent

Professional lbrary

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Beg.Bal

12000

2400

a

Beg.Bal

3000

Beg.Bal

35000

3000

h

12000

2400

3000

3000

End.Bal.

35000

End.Bal.

9600

End.Bal.

0

Accumulated depreciation - Profess. Liabrary

Equipment

Accumualted Depreciation - Equipment

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Beg.Bal

10000

Beg.Bal

80000

Beg.Bal

15000

7200

d

13200

c

80000

17200

28200

End.Bal.

17200

End.Bal.

80000

End.Bal.

28200

Accounts payable

Salaries payable

Unearned training fee

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Beg.Bal

26000

Beg.Bal

0

Beg.Bal

12500

400

g

e

5000

End Bal

26000

End Bal

400

5000

12500

End Bal

7500

T.Wells - capital

Tution fee earned

Training fee earned

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Beg.Bal

90000

Beg.Bal

123900

Beg.Bal

40000

7500

f

5000

e

45000

End Bal

90000

End Bal

131400

End Bal

45000

Depreciation expense - Professional Library

Depreciation expense - Equipment

Salaries expense

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Beg.Bal

0

Beg.Bal

0

Beg.Bal

50000

d

7200

c

13200

g

400

7200

13200

50400

End Bal

7200

0

End Bal

13200

0

End Bal

50400

Insurance expense

Rent expense

Teaching supplies expense

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Beg.Bal

0

Beg.Bal

33000

Beg.Bal

0

a

2400

h

3000

b

5200

2400

36000

5200

End Bal

2400

End Bal

36000

End Bal

5200

0

Advettising expense

Utilities expense

t. Wells - Withdrawals

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Event

Debit

Credit

Event

Beg.Bal

6000

Beg.Bal

6400

Beg.Bal

0

50000

6000

6400

0

50000

End Bal

6000

End Bal

6400

End Bal

50000

2.Adjustment Journal entries

WELLS TECHNICAL INSTITUTE
Adjustment journal entries for the year ending December31, 2017
Event	Account & Description	Debit	Credit
a	Insurance expense	2400
	Prepaid insurance		2400
	(Expired insurance recorded)
b	Teaching supplies expense	5200
	Teaching supplies		5200
	(Teaching supplies expense recorded)
c	Depreciation expense - Equipment	13200
	Accumulated depreciation - equipment		13200
	(Depreciation expense on equipment
	for the year recorded)
d	Depreciation expense - professional library	7200
	Accumulated depreciation - professional library		7200
	(Depreciation expense on professional library
	for the year recorded)
e	Unearned training fee	5000
	Trainingfee earned		5000
	(Training fee received for November & december )
f	Accounts receivable	7500
	Tution fee earned		7500
	(Tution fee from October 15th to December 31st )
g	Salaries expense	400
	Salaries payable		400
	(Salary of two employees for two days @100 per day)
h	Rent expense	3000
	Prepaid Rent		3000
	(Rent for December accounted)

3. Adjusted trial balance

WELLS TECHNICAL INSTITUTE
Adjusted Trial balance as at December 31 , 2017
Account		Debit	Credit
Cash		34000
Accounts Receivable		7500
Teaching supplies		2800
Prepaid insurance		9600
Preofessional Library		35000
Accumulated Depreciation - Professional Library			17200
Equipment		80000
Accumulated Depreciation - Equipment			28200
Accounts Payable			26000
Salaries Payable			400
Unearned Training Fee			7500
T.Wells - Capital			90000
T.Wells - Withdrawals		50000
Tution fee earned			131400
Training Fee earned			45000
Depreciation expense - Professional library		7200
Depreciation expense - Equipment		13200
Salaries expense		50400
Insurance Expense		2400
Rent Expense		36000
Teaching Supplies expense		5200
Advertisinf Expense		6000
Utilities expense		6400
T O T A L		345700	345700

4. Income Statement and Statement of owners' equity

WELLS TECHNICAL INSTITUTE
Income statement for the year ended December 31, 2017
		$	$
Revenue
Tutuion fee earned			131400
Training fee earned			45000
			176400
Less: Expenses
Salaries expense		50400
Rent Expense		36000
Depreciation expense - equipment		13200
Depreciation expense - Professional library		7200
Advertising expense		6000
Utilities expense		6400
Teaching Supplies expense		5200
Insurance epxense		2400
Total Expenses			126800
Net Income			49600
WELLS TECHNICAL INSTITUTE
Statement owners' equity as on December 31, 2017
Beginning Owner's equity		90000
Less: Drawings		50000
		40000
Add: Net income for the year		49600
Ending owner's equity		89600

Balance sheet

WELLS TECHNICAL INSTITUTE
Balance sheet as at December 31, 2017
Assets:		$	$
Cash			34000
Accounts Receivable			7500
Teaching Supplies			2800
Prepaid insurance			9600
Professional Library		35000
Accumulated Depreciation - Professional Library		-17200	17800
Equipment		80000
Accumulated Depreciation - Equipment		-28200	51800
Total Assets			123500
Liabilities & Owners' Equity
Accounts Payable			26000
Salaries Payable			400
Unearned Training Fee			7500
Owners' Equity			89600
Total Liabilities & owner's equity			123500