Financial Accounting

Seminar3 Accrual Accounting and Income

1. Consider the unadjusted trial balance of Kings, Inc., at December 31, 2017, and the related
month-end adjustment data.

Kings, Inc.
Trial Balance Work Sheet
31-Dec-17
Cash 9,200
Accounts receivable 1,500
Prepaid rent 2,400
Supplies 2,200
Furniture 81,000
Accumulated depreciation 3,900
Accounts payable 3,500
Salary payable
Common stock 15,000
Retained earnings 71,020
Dividends 3,600
Service revenue 10,000
Salary expense 3,000
Rent expense
Utilities expense 520
Depreciation expense
Supplies expense                        
Total 103,420 103,420

Adjustment data December 31, 2017:

a. Accrued advertising revenue at December 31, $2,000

b. Prepaid rent expired during the month. The unadjusted prepaid balance of $2,400
relates to the period December 2017 through February 2018.
c. Supplies used during December, $1,820
d. Depreciation on furniture for the month. The furniture’s expected useful life is
five years.
e. Accrued salary expense at December 31 for Monday, Tuesday, and Wednesday. The
fiveday weekly payroll is $5,200 and will be paid on Friday.

Requirements
1. Prepare the adjusted trial balance of Kings, Inc., at December 31, 2017. Key each
adjusting entry by letter.
2.
Prepare the monthly income statement, the statement of retained earnings, and the
classified balance sheet. Draw arrows linking the three statements.

Carmen Huian, PhD

 Financial Accounting

Solution:

Req. 1
Kings, Inc.
Adjusted Trial Balance
December 31, 2017
TRIAL BALANCE ADJUSTMENTS ADJUSTED TRIAL
BALANCE
ACCOUNT TITLE DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
Cash 9,200
Accounts receivable 1,500
Prepaid rent 2,400
Supplies 2,200
Furniture 81,000
Accumulated depreciation 3,900

Accounts payable 3,500

Salary payable
Common stock 15,000
Retained earnings 71,020
Dividends 3,600
Service revenue 10,000
Salary expense 3,000
Rent expense
Utilities expense 520
Depreciation expense
Supplies expense                        
Totals 103,420 103,420

Req. 2
Kings, Inc.
Income Statement
Month Ended December 31, 2017
Revenues:

Expenses:

Total expenses
Net income

Carmen Huian, PhD

 Financial Accounting

Kings, Inc.
Statement of Retained Earnings
Month Ended December 31, 2017
Retained earnings, December 1, 2016
Add:
Less:
Retained earnings, December 31, 2016

Kings, Inc.
Balance Sheet
December 31, 2017
ASSETS LIABILITIES
Current assets: Current liabilities:

Total current liabilities

Total current assets STOCKHOLDERS’

EQUITY

Total stockholders’
              equity
Total liabilities and  ______
Total assets stockholders’ equity

2. The unadjusted trial balance and income statement amounts from the December 31 adjusted
trial balance of Wallace Production Company follow.

Wallace Production Company From the Adjusted

Unadjusted
Account Trial Balance Trial Balance
Cash 13,600
Prepaid rent 1,100
Equipment. 48,000
Accumulated depreciation 3,600
Accounts payable 4,400
Salary payable
Unearned service revenue 8,500
Income tax payable
Notes payable, long-term 10,000
Common stock 8,400
Retained earnings 20,800
Dividends 1,000
Service revenue 13,400 19,900

Carmen Huian, PhD

 Financial Accounting

Salary expense 4,500 4,900

Rent expense 900 1,400
Depreciation expense 600
Income tax expense 1,700
Total 69,100 69,100 8,600 19,900

1. Journalize the adjusting and closing entries of Wallace Production Company at

December 31. There was only one adjustment to Service Revenue.
Solution:

Journal
DATE ACCOUNT TITLES AND DEBIT CREDIT
EXPLANATION
Adjusting Entries
Dec. 31

31

31

31

31

Closing Entries
31

31

31

Carmen Huian, PhD