Solution manual fundamentals of accounting by cabrera chapter 10

Exercise 7Max Pest Control Services Worksheet For the Year Ended September 30, 2008 Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet... Statement of Change

Completing the Accounting Cycle

To close the revenue and expense accounts

to Income Summary

Exercise 7

Max Pest Control Services

Worksheet For the Year Ended September 30, 2008

Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet

Statement of Changes in Owner’s EquityFor the Year Ended December 31, 2008

P243,440

Bazooka Trailer RentalBalance SheetDecember 31, 2008AssetsCurrent Assets

There is no single correct way to present the solution to this case However, thesolution should include answers to the following questions:

1 What was the entity’s net income for the year? This question can beanswered by completing the work sheet (The overall solution also requirespreparation of the income statement)

2 What were the entity’s total assets, liabilities, and capital at the end of theyear? The balance sheet answers this question

3 Did the owner’s capital account increase or decrease from its originalbalance of P250,000? This question is answered by the statement ofowner’s equity

(2) Total assets were P383,900, total liabilities were P232,700, owner’s capitalwas P151,200,as reported on the balance sheet:

Dantes Computing ServiceBalance SheetDecember 31, 20xx

Prepaid rent 4,000 Total current liabilities P232,700 Total current assets 206,900

Equipment P236,000 Katrina Dantes, capital 151,200 Less: Accum depr 59,000 177,000 Total liabilities and

Instructional note: The Working Paper allows students to create a secondpeso amount column for assets if needed The student may also present thebalance sheet in report format

(3) During the year, Dantes’ capital account decreased from P250,000 toP151,200, as shown by the statement of owner’s equity

Dantes Computing ServiceStatement of Owner’s EquityFor the Month Ended December 31, 20xx

585,400

Dantes’ capital has decreased because withdrawals exceeded net income.She would probably not get the bank loan You could recommend thatDantes earn more income or cut back on withdrawals from the business

Dantes Computing Service

Worksheet For the Year Ended December 31, 20xx

Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet

Multiple Choice Questions

Test Material

Test Material 10-1

Rainbow Star Painting Contractors

Worksheet For the Year Ended July 31, 2008

Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet Account Title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

(h) 11,000 Depreciation Expense –

202,600 202,600 1,587,400 1,587,400

Requirement (2)

Mabuhay Financial CouriersIncome StatementFor the Month Ended June 30, 2008Revenues:

Mabuhay Financial CouriersStatement of Owner’s EquityFor the Month Ended June 30, 2008

1,230,200

Mabuhay Financial CouriersBalance SheetJune 30, 2008

Accounts receivable 264,700 Interest payable 14,900

Prepaid insurance 32,000 Unearned service revenue 23,000 Total current assets P 503,100 Total current liabilities 429,600

Long-term liabilities:

Less: Accum depr 164,800 393,200

Less: Accum depr 168,500 1,280,500 Molly Chan, capital 777,200

Total liabilities and

Instructional note: The Working Paper allows students to create a second peso-amount column for assets if needed.

Requirement (3)

Faculty member can introduce the two important ratios as follows:

The ability to pay current liabilities with current assets improved during 2008.

Current ratio = Total current liabilitiesTotal current assets = P503,100P429,600 = 1.17 1.01

Debt ratio = Total liabilitiesTotal assets = P1,399,600P2,176,800 = 0.64 0.71

The overall ability to pay total liabilities improved during 2008.

Working this problem will help in managing a business by showing how to use the current ratio and the debt ratio in decision making A manager can track his or her business’ current ratio to determine whether its ability to pay current liabilities is improving or deteriorating The manager can track the business’s debt ratio to see the trend in the entity’s overall ability to pay debts These ratios are widely used for this purpose and represent two of the most useful decision aids that students will learn in this course Students can also gain additional understanding of the information contained in the income statement and the balance sheet and the role that the end-of-period adjustments play in producing the financial statements.

They can also learn that the revenue, expense, and withdrawals accounts pertain to a specific period and must be closed at the end of the period This learning will aid a manager’s understanding of the nature of revenues, expenses, and withdrawals.

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT

ACCOUNT SALARY PAYABLE ACCOUNT NO 22

2008 ITEM REF DEBIT CREDIT DEBIT CREDIT

Green Star Talent Agency Worksheet For the Month Ended October 31, 2008 Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet

Requirement (3)

Green Star Talent AgencyIncome StatementFor the Month Ended October 31, 2008Revenues:

894,800

Green Star Talent AgencyBalance SheetOctober 31, 2008ASSETS

OWNER’S EQUITY

31 Income Summary (P99,600

Requirement (5)

Green Star Talent AgencyPostclosing Trial Balance October 31, 2008