Chapter-4

Practical Problems

Problem 1:
At the end of its first month of operations, Pampered Pet Service has the following
unadjusted trial balance.

PAMPERED PET SERVICE

August 31, 2017
Trial Balance
PAMPERED PT SERVICE
Accounts Titles Debit ($) Credit ($)
Cash 5,400
Accounts Receivable 2,800
Supplies 1,300
Prepaid Insurance 2,400
Equipment 60,000
Notes Payable 40,000
Accounts Payable 2,400
Owner’s Capital 30,000
Owner’s Drawings 1,000
Service Revenue 4,900
Salaries and Wages Expense 3,200
Utilities Expense 800
Advertising Expense 400
Total $77,300 $77,300
st1, 2017
Other data:
1. Insurance expires at the rate of $200 per month.
2. $1,000 of supplies are on hand at August 31.
3. Monthly depreciation on the equipment is $900.
4. Interest of $500 on the notes payable has accrued during August.

Instructions:
(a) Prepare a worksheet.
(b) Prepare a classified balance sheet assuming $35,000 of the notes payable is long-term.
(c) Journalize the closing entries.
Problem 2:
The trial balance columns of the worksheet for Warren Roofing at March 31, 2017 are as
follows-

WARREN ROOFING
Worksheet
For the Month Ended March 31, 2017

Accounts Titles Debit ($) Credit ($)

Cash 4,500
Accounts Receivable 3,200
Supplies 2,000
Equipment 11,000
Accumulated Depreciation—Equipment 1,250
Accounts Payable 2,500
Unearned Service Revenue 550
Owner’s Capital 12,900
Owner’s Drawings 1,100
Service Revenue 6,300
Salaries and Wages Expense 1,300
Miscellaneous Expense 400
Total $ 23,500 $ 23,500

Other data:
1. A physical count reveals only $480 of roofing supplies on hand.
2. Depreciation for March is $250.
3. Unearned revenue amounted to $260 at March 31.
4. Accrued salaries are $700.

Instructions:
(a) Enter the trial balance on a worksheet and complete the worksheet.
(b) Prepare an income statement and owner’s equity statement for the month of March and a
classified balance sheet at March 31. T. Warren made an additional investment in the
business of $10,000 in March.
(c) Journalize the closing entries from the financial statement columns of the worksheet.
Problem 3:
The adjusted trial balance columns of the worksheet for Summit Company, owned by Mr.
Rahman, are as follows-

SUMMIT COMPANY
Worksheet
For the Year Ended December 31, 2017

Adjusted Trial Balance

Accounts Titles Debit ($) Credit ($)
Cash 5,300
Accounts Receivable 10,800
Supplies 1,500
Prepaid Insurance 2,000
Equipment 27,000
Accumulated Depreciation—Equipment 5,600
Notes Payable 15,000
Accounts Payable 6,100
Salaries and Wages Payable 2,400
Interest Payable 600
Owner’s Capital 13,000
Owner’s Drawings 7,000
Service Revenue 61,000
Advertising Expense 8,400
Supplies Expense 4,000
Depreciation Expense 5,600
Insurance Expense 3,500
Salaries and Wages Expense 28,000
Interest Expense 600
Totals 103,700 103,700

Instructions:
(a) Complete the worksheet by extending the balances to the financial statement columns.
(b) Prepare an income statement, owner’s equity statement, and a classified balance sheet.
(Note: $5,000 of the notes payable becomes due in 2018.) Mr. Rahman did not make any
additional investments in the business during the year.
(c) Prepare the closing entries.
Problem 4:
Vang Management Services began business on January 1, 2017, with a capital investment of
$120,000. The company manages condominiums for owners (Service Revenue) and rents
space in its own office building (Rent Revenue). The trial balance and adjusted trial balance
columns of the worksheet at the end of the first year are as follows

VANG MANAGEMENT SERVICES

Worksheet
For the Year Ended December 31, 2017

Trial Balance Adjusted Trial

Accounts Titles Balance
Debit ($) Credit ($) Debit ($) Credit ($)
Cash 13800 13800
Accounts Receivable 28300 28300
Prepaid Insurance 3600 2400
Land 67000 67000
Buildings 127000 127000
Equipment 59000 59000
Accounts Payable 12500 12500
Unearned Rent Revenue 6000 1500
Mortgage Payable 120000 120000
Owner’s Capital 144000 144000
Owner’s Drawings 22000 22000
Service Revenue 90700 90700
Rent Revenue 29000 33500
Salaries and Wages Expense 42000 42000
Advertising Expense 20500 20500
Utilities Expense 19000 19000
Totals 402200 402200
Insurance Expense 1200
Depreciation Expense 6600
Accu. Depreciation—Buildings 3000
Accu. Depreciation—Equipment 3600
Interest Expense 10000
Interest Payable 10000
Totals 418800 418800

Instructions:
(a) Prepare a complete worksheet.
(b) Prepare a classified balance sheet. (Note: $30,000 of the mortgage note payable is due for
payment next year.)
(c) Prepare necessary adjustments.
(d) Journalize the closing entries.