STEP 1. PREPARE A TRIAL BALANCE ON THE WORKSHEET

Enter all ledger accounts with balances in the account titles column. Enter debit and credit amounts from the ledger in the trial balance columns. Illustration 4-2 shows the worksheet trial balance for Yazici Advertising A.Ş. This trial balance is the same one that appears in Illustration 2-32 (page 73) and Illustration 3-3 (page 105).

STEP 2. ENTER THE ADJUSTMENTS IN THE ADJUSTMENTS COLUMNS

When using a worksheet, enter all adjustments in the adjustments columns. In entering the adjustments, use applicable trial balance accounts. If additional accounts are needed, insert them on the lines immediately below the trial balance totals. A different letter identifies the debit and credit for each adjusting entry. The term used to describe this process is keying. Companies do not journalize the adjustments until after they complete the worksheet and prepare the financial statements.

The adjustments for Yazici Advertising A.Ş. are the same as the adjustments in Illustration 3-23 (page 119). They are keyed in the adjustments columns of the worksheet as follows.

1. Yazici debits an additional account, Supplies Expense, 1,500 for the cost of supplies used, and credits Supplies 1,500.
2. Yazici debits an additional account, Insurance Expense, 50 for the insurance that has expired, and credits Prepaid Insurance 50.
3. The company needs two additional depreciation accounts. It debits Depreciation Expense 40 for the month’s depreciation, and credits Accumulated Depreciation—Equipment 40.
4. Yazici debits Unearned Service Revenue 400 for services performed, and credits Service Revenue 400.
5. Yazici debits an additional account, Accounts Receivable, 200 for services performed but not billed, and credits Service Revenue 200.
6. The company needs two additional accounts relating to interest. It debits Interest Expense 50 for accrued interest, and credits Interest Payable 50.
7. Yazici debits Salaries and Wages Expense 1,200 for accrued salaries, and credits an additional account, Salaries and Wages Payable, 1,200.

After Yazici has entered all the adjustments, the adjustments columns are totaled to prove their equality.

STEP 3. ENTER ADJUSTED BALANCES IN THE ADJUSTED TRIAL BALANCE COLUMNS

Yazici determines the adjusted balance of an account by combining the amounts entered in the first four columns of the worksheet for each account. For example, the Prepaid Insurance account in the trial balance columns has a 600 debit balance and a 50 credit in the adjustments columns. The result is a 550 debit balance recorded in the adjusted trial balance columns. For each account, the amount in the adjusted trial balance columns is the balance that will appear in the ledger after journalizing and posting the adjusting entries. The balances in these columns are the same as those in the adjusted trial balance in Illustration 3-25 (page 121).

After Yazici has entered all account balances in the adjusted trial balance columns, the columns are totaled to prove their equality. If the column totals do not agree, the fi nancial statement columns will not balance and the fi nancial statements will be incorrect.

STEP 4. EXTEND ADJUSTED TRIAL BALANCE AMOUNTS TO APPROPRIATE FINANCIAL STATEMENT COLUMNS

• HELPFUL HINT
Every adjusted trial balance amount must be extended to one of the four statement columns.

The fourth step is to extend adjusted trial balance amounts to the income statement and statement of financial position columns of the worksheet. Yazici enters statement of financial position accounts in the appropriate statement of financial position debit and credit columns. For instance, it enters Cash in the statement of financial position debit column, and Notes Payable in the credit column. Yazici extends Accumulated Depreciation—Equipment to the statement of financial position credit column. The reason is that accumulated depreciation is a contra asset account with a credit balance.

Because the worksheet does not have columns for the retained earnings statement, Yazici extends the balance in Share Capital—Ordinary and Retained Earnings, if any, to the statement of financial position credit column. In addition, it extends the balance in Dividends to the statement of financial position debit column because it is an equity account with a debit balance.

The company enters the expense and revenue accounts such as Salaries and Wages Expense and Service Revenue in the appropriate income statement columns.

STEP 5. TOTAL THE STATEMENT COLUMNS, COMPUTE THE NET INCOME (OR NET LOSS), AND COMPLETE THE WORKSHEET

The company now must total each of the financial statement columns. The net income or loss for the period is the difference between the totals of the two income statement columns. If total credits exceed total debits, the result is net income. In such a case, as shown in Illustration 4-2, the company inserts the words “Net Income” in the account titles space. It then enters the amount in the income statement debit column and the statement of financial position credit column. The debit amount balances the income statement columns; the credit amount balances the statement of financial position columns. In addition, the credit in the statement of financial position column indicates the increase in equity resulting from net income.

What if total debits exceed total credits in the income statement columns? In that case, the company has a net loss. It enters the amount of the net loss in the income statement credit column and the statement of financial position debit column.

After entering the net income or net loss, the company determines new column totals. The totals shown in the debit and credit income statement columns will match. The totals shown in the debit and credit statement of financial position columns will also match. If either the income statement columns or the statement of financial position columns are not equal after the net income or net loss has been entered, there is an error in the worksheet.

CLOSING ENTRIES ILLUSTRATED

In practice, companies generally prepare closing entries only at the end of the annual accounting period. However, to illustrate the journalizing and posting of closing entries, we will assume that Yazici Advertising A.Ş. closes its books monthly. Illustration 4-6 (page 170) shows the closing entries at October 31. (The numbers in parentheses before each entry correspond to the four entries diagrammed in Illustration 4-5.)

Note that the amounts for Income Summary in entries (1) and (2) are the totals of the income statement credit and debit columns, respectively, in the worksheet.

A couple of cautions in preparing closing entries. (1) Avoid unintentionally doubling the revenue and expense balances rather than zeroing them. (2) Do not close Dividends through the Income Summary account. Dividends are not an expense, and they are not a factor in determining net income.

Learning Objective 3

Describe the content and purpose of a post-closing trial balance.

Learning Objective 5

Explain the approaches to preparing correcting entries.

CASE 1

On May 10, Bai Co. journalized and posted a NT$500 cash collection on account from a customer as a debit to Cash NT$500 and a credit to Service Revenue NT$500. The company discovered the error on May 20, when the customer paid the remaining balance in full.

Comparison of the incorrect entry with the correct entry reveals that the debit to Cash NT$500 is correct. However, the NT$500 credit to Service Revenue should have been credited to Accounts Receivable. As a result, both Service Revenue and Accounts Receivable are overstated in the ledger. Bai makes the following correcting entry.

CASE 2

On May 18, Bai purchased on account equipment costing NT$4,500. The transaction was journalized and posted as a debit to Equipment NT$450 and a credit to Accounts Payable NT$450. The error was discovered on June 3, when Bai received the monthly statement for May from the creditor.

Comparison of the two entries shows that two accounts are incorrect. Equipment is understated NT$4,050, and Accounts Payable is understated NT$4,050. Bai makes the following correcting entry.

Instead of preparing a correcting entry, it is possible to reverse the incorrect entry and then prepare the correct entry. This approach will result in more entries and postings than a correcting entry, but it will accomplish the desired result.

(LO 1)

1. Which of the following statements is incorrect concerning the worksheet?

   1. The worksheet is essentially a working tool of the accountant.
   2. The worksheet is distributed to management and other interested parties.
   3. The worksheet cannot be used as a basis for posting to ledger accounts.
   4. Financial statements can be prepared directly from the worksheet before journalizing and posting the adjusting entries.

(LO 1)

2. In a worksheet, net income is entered in the following columns:

   1. income statement (Dr) and statement of financial position (Dr).
   2. income statement (Cr) and statement of financial position (Dr).
   3. income statement (Dr) and statement of financial position (Cr).
   4. income statement (Cr) and statement of financial position (Cr).

(LO 1)

3. In the unadjusted trial balance of its worksheet for the year ended December 31, 2017, Taitum Company reported Equipment of £120,000. The year-end adjusting entries require an adjustment of £15,000 for depreciation expense for the equipment. After the adjusted trial balance is completed, what amount should be shown in the financial statement columns?

   1. A debit of £105,000 for Equipment in the statement of financial position column.
   2. A credit of £15,000 for Depreciation Expense—Equipment in the income statement column.
   3. A debit of £120,000 for Equipment in the statement of financial position column.
   4. A debit of £15,000 for Accumulated Depreciation—Equipment in the statement of financial position column.

(LO 2)

4. An account that will have a zero balance after closing entries have been journalized and posted is:

   1. Service Revenue.
   2. Supplies.
   3. Prepaid Insurance.
   4. Accumulated Depreciation—Equipment.

(LO 2)

5. When a net loss has occurred, Income Summary is:

   1. debited and Retained Earnings is credited.
   2. credited and Retained Earnings is debited.
   3. debited and Dividends is credited.
   4. credited and Dividends is debited.

(LO 2)

6. The closing process involves separate entries to close (1) expenses, (2) dividends, (3) revenues, and (4) income summary. The correct sequencing of the entries is:

   1. (4), (3), (2), (1)
   2. (1), (2), (3), (4)
   3. (3), (1), (4), (2)
   4. (3), (2), (1), (4)

(LO 3)

7. Which types of accounts will appear in the post-closing trial balance?

   1. Permanent (real) accounts.
   2. Temporary (nominal) accounts.
   3. Accounts shown in the income statement columns of a worksheet.
   4. None of these answer choices is correct.

(LO 4)

8. All of the following are required steps in the accounting cycle except:

   1. journalizing and posting closing entries.
   2. preparing financial statements.
   3. journalizing the transactions.
   4. preparing a worksheet.

(LO 4)

9. The proper order of the following steps in the accounting cycle is:

   1. prepare unadjusted trial balance, journalize transactions, post to ledger accounts, journalize and post adjusting entries.
   2. journalize transactions, prepare unadjusted trial balance, post to ledger accounts, journalize and post adjusting entries.
   3. journalize transactions, post to ledger accounts, prepare unadjusted trial balance, journalize and post adjusting entries.
   4. prepare unadjusted trial balance, journalize and post adjusting entries, journalize transactions, post to ledger accounts.

(LO 5)

10. When Alexander Company purchased supplies worth £500, it incorrectly recorded a credit to Supplies for £5,000 and a debit to Cash for £5,000. Before correcting this error:

    1. Cash is overstated and Supplies is overstated.
    2. Cash is understated and Supplies is understated.
    3. Cash is understated and Supplies is overstated.
    4. Cash is overstated and Supplies is understated.

(LO 5)

11. Cash of NT$3,000 received at the time the service was performed was journalized and posted as a debit to Cash NT$3,000 and a credit to Accounts Receivable NT$3,000. Assuming the incorrect entry is not reversed, the correcting entry is:

    1. debit Service Revenue NT$3,000 and credit Accounts Receivable NT$3,000.
    2. debit Accounts Receivable NT$3,000 and credit Service Revenue NT$3,000.
    3. debit Cash NT$3,000 and credit Service Revenue NT$3,000.
    4. debit Accounts Receivable NT$3,000 and credit Cash NT$3,000.

(LO 6)

12. The correct order of presentation in a classified statement of financial position for the following current assets is:

    1. accounts receivable, cash, prepaid insurance, inventories.
    2. cash, inventories, accounts receivable, prepaid insurance.
    3. prepaid insurance, inventories, accounts receivable, cash.
    4. inventories, cash, accounts receivable, prepaid insurance.

(LO 6)

13. A company has purchased a tract of land. It expects to build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. The land should be reported as:

    1. property, plant, and equipment.
    2. land expense.
    3. a long-term investment.
    4. an intangible asset.

(LO 6)

14. In a classified statement of financial position, assets are usually classified using the following sequence of categories:

    1. current assets; non-current assets; property, plant, and equipment; intangible assets.
    2. tangible assets; property, plant, and equipment; long-term investments; current assets.
    3. current assets; long-term investments; tangible assets; intangible assets.
    4. intangible assets; property, plant, and equipment; long-term investments; current assets.

(LO 6)

15. Current assets are listed:

    1. by the reverse order of their expected conversion to cash.
    2. by importance.
    3. by longevity.
    4. alphabetically.

(LO 7)

16. On December 31, Frank Voris Company Ltd. correctly made an adjusting entry to recognize €2,000 of accrued salaries payable. On January 8 of the next year, total salaries of €3,400 were paid. Assuming the correct reversing entry was made on January 1, the entry on January 8 will result in a credit to Cash €3,400 and the following debit(s):
    1. Salaries and Wages Payable €1,400 and Salaries and Wages Expense €2,000.
    2. Salaries and Wages Payable €2,000 and Salaries and Wages Expense €1,400.
    3. Salaries and Wages Expense €3,400.
    4. Salaries and Wages Payable €3,400.

Solutions

Journalize and post closing entries, and prepare a post-closing trial balance.

(LO 2, 3)

1. Arapaho Company AG ended its fiscal year on July 31, 2017. The company’s adjusted trial balance as of the end of its fiscal year is as follows.

Prepare worksheet and classified statement of financial position, and journalize closing entries.

(LO 1, 2, 6)

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

Other data:

1. Insurance expires at the rate of NT$200 per month.
2. NT$1,000 of supplies are on hand at August 31.
3. Monthly depreciation on the equipment is NT$900.
4. Interest of NT$500 on the notes payable has accrued during August.

1. “A worksheet is a permanent accounting record and its use is required in the accounting cycle.” Do you agree? Explain.
2. Explain the purpose of the worksheet.
3. What is the relationship, if any, between the amount shown in the adjusted trial balance column for an account and that account’s ledger balance?
4. If a company’s revenues are €125,000 and its expenses are €113,000, in which financial statement columns of the worksheet will the net income of €12,000 appear? When expenses exceed revenues, in which columns will the difference appear?
5. Why is it necessary to prepare formal financial statements if all of the data are in the statement columns of the worksheet?
6. Identify the account(s) debited and credited in each of the four closing entries, assuming the company has net income for the year.
7. Describe the nature of the Income Summary account and identify the types of summary data that may be posted to this account.
8. What are the content and purpose of a post-closing trial balance?
9. Which of the following accounts would not appear in the post-closing trial balance? Interest Payable, Equipment, Depreciation Expense, Dividends, Unearned Service Revenue, Accumulated Depreciation—Equipment, and Service Revenue.
10. Distinguish between a reversing entry and an adjusting entry. Are reversing entries required?
11. Indicate, in the sequence in which they are made, the three required steps in the accounting cycle that involve journalizing.
12. Identify, in the sequence in which they are prepared, the three trial balances that are often used to report financial information about a company.
13. How do correcting entries differ from adjusting entries?
14. What standard classifications are used in preparing a classified statement of financial position?
15. What is meant by the term “operating cycle”?
16. Define current assets. What basis is used for arranging individual items within the current assets section?
17. Distinguish between long-term investments and property, plant, and equipment.
18. Identify the two equity accounts in a corporation and indicate the purpose of each.
19. Using TSMC’s annual report, determine its current liabilities at December 31, 2013, and December 31, 2012. Were current liabilities higher or lower than current assets in these two years?
20.     Triumph Company Ltd. prepares reversing entries. If the adjusting entry for interest payable is reversed, what type of an account balance, if any, will there be in Interest Payable and Interest Expense after the reversing entry is posted?
21.     At December 31, accrued salaries payable totaled £3,500. On January 10, total salaries of £9,200 are paid. (a) Assume that reversing entries are made at January 1. Give the January 10 entry, and indicate the Salaries and Wages Expense account balance after the entry is posted. (b) Repeat part (a) assuming reversing entries are not made.

List the steps in preparing a worksheet.
(LO 1)

BE4-1 The steps in using a worksheet are presented in random order below. List the steps in the proper order by placing numbers 1–5 in the blank spaces.

1. _____ Prepare a trial balance on the worksheet.
2. _____ Enter adjusted balances.
3. _____ Extend adjusted balances to appropriate statement columns.
4. _____ Total the statement columns, compute net income (loss), and complete the worksheet.
5. _____ Enter adjustment data.

Prepare partial worksheet.
(LO 1)

BE4-2 The ledger of Van Heiden Company, NV includes the following unadjusted balances: Prepaid Insurance €3,000, Service Revenue €61,000, and Salaries and Wages Expense €25,000. Adjusting entries are required for (a) expired insurance €1,300; (b) services performed €1,100, but unbilled and uncollected; and (c) accrued salaries payable €800. Enter the unadjusted balances and adjustments into a worksheet and complete the worksheet for all accounts. (Note: You will need to add the following accounts: Accounts Receivable, Salaries and Wages Payable, and Insurance Expense.)

Identify worksheet columns for selected accounts.
(LO 1)

BE4-3 The following selected accounts appear in the adjusted trial balance columns of the worksheet for Cesar Company: Accumulated Depreciation; Depreciation Expense; Share Capital—Ordinary; Dividends; Service Revenue; Supplies; and Accounts Payable. Indicate the financial statement column (income statement Dr., statement of financial position Cr., etc.) to which each balance should be extended.

Prepare closing entries from ledger balances.
(LO 2)

BE4-4 The ledger of Yilmaz Company contains the following balances: Retained Earnings 30,000; Dividends 2,000; Service Revenue 47,000; Salaries and Wages Expense 27,000; and Supplies Expense 5,000. Prepare the closing entries at December 31.

Post closing entries; underline and balance T-accounts.
(LO 2)

BE4-5 Using the data in BE4-4, enter the balances in T-accounts, post the closing entries, and underline and balance the accounts.

Journalize and post closing entries using the three-column form of account.
(LO 2)

BE4-6 The income statement for Mosquera Golf Club for the month ending July 31 shows Service Revenue €19,200, Salaries and Wages Expense €8,800, Maintenance and Repairs Expense €2,500, and Net Income €7,900. Prepare the entries to close the revenue and expense accounts. Post the entries to the revenue and expense accounts, and complete the closing process for these accounts using the three-column form of account.

Identify post-closing trial balance accounts.
(LO 3)

BE4-7 Using the data in BE4-3, identify the accounts that would be included in a post-closing trial balance.

List the required steps in the accounting cycle in sequence.
(LO 4)

BE4-8 The steps in the accounting cycle are listed in random order below. List the steps in proper sequence, assuming no worksheet is prepared, by placing numbers 1–9 in the blank spaces.

1. _____ Prepare a trial balance.
2. _____ Journalize the transactions.
3. _____ Journalize and post closing entries.
4. _____ Prepare financial statements.
5. _____ Journalize and post adjusting entries.
6. _____ Post to ledger accounts.
7. _____ Prepare a post-closing trial balance.
8. _____ Prepare an adjusted trial balance.
9. _____ Analyze business transactions.

Prepare correcting entries.
(LO 5)

BE4-9 At Rafeul Company SA, the following errors were discovered after the transactions had been journalized and posted. Prepare the correcting entries.

1. A collection on account from a customer for €1,140 was recorded as a debit to Cash €1,140 and a credit to Service Revenue €1,140.
2. The purchase of store supplies on account for €1,580 was recorded as a debit to Supplies €1,850 and a credit to Accounts Payable €1,850.

Prepare the current assets section of a statement of financial position.
(LO 6)

BE4-10 The statement of financial position debit column of the worksheet for Alvin Company, Ltd. includes the following accounts: Accounts Receivable £12,500; Prepaid Insurance £3,600; Cash £6,700; Supplies £5,200; and Short-Term Investments £4,900. Prepare the current assets section of the statement of financial position, listing the accounts in proper sequence.

Classify accounts on statement of financial position.
(LO 6)

BE4-11 The following are the major statement of financial position classifications:

Match each of the following accounts to its proper statement of financial position classification.

Prepare reversing entries.
(LO 7)

*BE4-12 At October 31, Prasad Company Ltd. made an accrued expense adjusting entry of €1,680 for salaries. Prepare the reversing entry on November 1, and indicate the balances in Salaries and Wages Payable and Salaries and Wages Expense after posting the reversing entry.

Complete the worksheet.
(LO 1)

E4-1 The trial balance columns of the worksheet for Lim Company, Ltd. at June 30, 2017, are as follows (in thousands).

Other data:

1. A physical count reveals HK$460,000 of supplies on hand.
2. HK$100,000 of the unearned revenue is still unearned at month-end.
3. Accrued salaries are HK$250,000.

Instructions

Enter the trial balance on a worksheet and complete the worksheet.

Complete the worksheet.
(LO 1)

E4-2 The adjusted trial balance columns of the worksheet for Albanese Company, SpA are as follows.

Instructions

Complete the worksheet.

Prepare financial statements from worksheet.
(LO 1, 6)

E4-3 Worksheet data for Albanese Company, SpA are presented in E4-2. No ordinary shares were issued during April.

Instructions

Journalize and post closing entries and prepare a post-closing trial balance.
(LO 2, 3)

Prepare an income statement, a retained earnings statement, and a classified statement of financial position, using euros as the currency.

E4-4 Worksheet data for Albanese Company, SpA are presented in E4-2.

Instructions

Prepare adjusting entries from a worksheet, and extend balances to worksheet columns.
(LO 1)

1. Journalize the closing entries at April 30.
2. Post the closing entries to Income Summary and Retained Earnings. Use T-accounts.
3. Prepare a post-closing trial balance at April 30, using euros as the currency.

E4-5 The adjustments columns of the worksheet for Munoz Company SA are shown on the next page.

Instructions

1. Prepare the adjusting entries.
2. Assuming the adjusted trial balance amount for each account is normal, indicate the financial statement column to which each balance should be extended.

Derive adjusting entries from worksheet data.
(LO 1)

E4-6 Selected worksheet data for Zugi Company, SJSC are presented below.

Instructions

1. Fill in the missing amounts.
2. Prepare the adjusting entries that were made.

Prepare closing entries, and prepare a post-closing trial balance.
(LO 2, 3)

E4-7 Lanza Company, SA had the following adjusted trial balance.

Instructions

1. Prepare closing entries at June 30, 2017.
2. Prepare a post-closing trial balance.

Journalize and post closing entries, and prepare a post-closing trial balance.
(LO 2, 3)

E4-8 Windsor Company, Ltd. ended its fiscal year on July 31, 2017. The company’s adjusted trial balance as of the end of its fiscal year is shown below.

Instructions

1. Prepare the closing entries using page J15.
2. Post to Retained Earnings and No. 350 Income Summary accounts. (Use the three-column form.)
3. Prepare a post-closing trial balance at July 31.

Prepare financial statements.
(LO 6)

E4-9 The adjusted trial balance for Windsor Company, Ltd. is presented in E4-8.

Instructions

1. Prepare an income statement and a retained earnings statement for the year.
2. Prepare a classified statement of financial position at July 31.

Answer questions related to the accounting cycle.
(LO 4)

E4-10 Juan Aquino has prepared the following list of statements about the accounting cycle.

1. “Journalize the transactions” is the first step in the accounting cycle.
2. Reversing entries are a required step in the accounting cycle.
3. Correcting entries do not have to be part of the accounting cycle.
4. If a worksheet is prepared, some steps of the accounting cycle are incorporated into the worksheet.
5. The accounting cycle begins with the analysis of business transactions and ends with the preparation of a post-closing trial balance.
6. All steps of the accounting cycle occur daily during the accounting period.
7. The step of “post to the ledger accounts” occurs before the step of “journalize the transactions.”
8. Closing entries must be prepared before financial statements can be prepared.

Instructions

Identify each statement as true or false. If false, indicate how to correct the statement.

Prepare closing entries.
(LO 2)

E4-11 Selected accounts for Michelle’s Salon SA are presented as follows. All June 30 postings are from closing entries.

Instructions

1. Prepare the closing entries that were made.
2. Post the closing entries to Income Summary.

Prepare correcting entries.
(LO 5)

E4-12 Karlsen Company, ASA discovered the following errors made in January 2017.

1. A payment of Salaries and Wages Expense of €700 was debited to Equipment and credited to Cash, both for €700.
2. A collection of €800 from a client on account was debited to Cash €300 and credited to Service Revenue €300.
3. The purchase of equipment on account for €760 was debited to Equipment €670 and credited to Accounts Payable €670.

Instructions

1. Correct the errors by reversing the incorrect entry and preparing the correct entry.
2. Correct the errors without reversing the incorrect entry.

Prepare correcting entries.
(LO 5)

E4-13 Souza Company, SA has an inexperienced accountant. During the first 2 weeks on the job, the accountant made the following errors in journalizing transactions. All entries were posted as made.

1. A payment on account of R$840 to a creditor was debited to Accounts Payable R$480 and credited to Cash R$480.
2. The purchase of supplies on account for R$380 was debited to Equipment R$38 and credited to Accounts Payable R$38.
3. A R$620 cash dividend was debited to Salaries and Wages Expense R$620 and credited to Cash R$620.

Instructions

Prepare the correcting entries.

Prepare a classified statement of financial position.
(LO 6)

E4-14 The adjusted trial balance for Patel Bowling Alley Ltd. at December 31, 2017, contains the following accounts.

Instructions

1. Prepare a classified statement of financial position; assume that £15,000 of the note payable will be paid in 2018.
2. Comment on the liquidity of the company.

Classify accounts on statement of financial position.
(LO 6)

E4-15 The following are the major statement of financial position classifications.

Instructions

Classify each of the following accounts taken from Geraldo Company’s statement of financial position.

Prepare a classified statement of financial position.
(LO 6)

E4-16 The following items were taken from the financial statements of Sexton Company Ltd. (All amounts are in thousands.)

Instructions

Prepare a classified statement of financial position in good form as of December 31, 2017.

Prepare financial statements.
(LO 1,6)

E4-17 These financial statement items are for Van Dijk Company NV at year-end, July 31, 2017.

Instructions

1. Prepare an income statement and a retained earnings statement for the year.
2. Prepare a classified statement of financial position at July 31.

Use reversing entries.
(LO 7)

*E4-18 Ronaldo Company SA pays salaries of R$9,000 every Monday for the preceding 5-day week (Monday through Friday). Assume December 31 falls on a Thursday, so Ronaldo’s employees have worked 4 days without being paid.

Instructions

1. Assume the company does not use reversing entries. Prepare the December 31 adjusting entry and the entry on Monday, January 4, when Ronaldo pays the payroll.
2. Assume the company does use reversing entries. Prepare the December 31 adjusting entry, the January 1 reversing entry, and the entry on Monday, January 4, when Ronaldo pays the payroll.

Prepare closing and reversing entries.
(LO 2, 4, 7)

*E4-19 On December 31, the adjusted trial balance of Feng Employment Agency, Ltd. shows the following selected data.

Analysis shows that adjusting entries were made to (1) accrue NT$153,000 of service revenue and (2) accrue NT$39,000 interest expense.

Instructions

1. Prepare the closing entries for the temporary accounts shown above at December 31.
2. Prepare the reversing entries on January 1.
3. Post the entries in (a) and (b), excluding the Income Summary account. Underline and balance the accounts. (Use T-accounts.)
4. Prepare the entries to record (1) the collection of the accrued revenue on January 10 and (2) the payment of all interest due (NT$90,000) on January 15.
5. Post the entries in (d) to the temporary accounts.

Prepare worksheet, financial statements, and adjusting and closing entries.
(LO 1, 2, 6)

P4-1A Hercules Poirot began operations as a private investigator on January 1, 2017. The trial balance columns of the worksheet for Hercules Poirot, P.I., SA at March 31 are as follows.

Other data:

1. Supplies on hand total €500.
2. Depreciation is €680 per quarter.
3. Interest accrued on 6-month note payable, issued January 1, €300.
4. Insurance expires at the rate of €200 per month.
5. Services performed but unbilled at March 31 total €1,080.

Instructions

(a) Adjusted trial balance €43,610

(b) Net income €3,980 Total assets €35,030

1. Enter the trial balance on a worksheet and complete the worksheet.
2. Prepare an income statement and a retained earnings statement for the quarter and a classified statement of financial position at March 31.
3. Journalize the adjusting entries from the adjustments columns of the worksheet.
4. Journalize the closing entries from the financial statement columns of the worksheet.

Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance.
(LO 1, 2, 3, 6)

P4-2A The adjusted trial balance columns of the worksheet for Watson Company, Ltd. are as follows.

Instructions

(a) Net income £22,500

(b) Current assets £38,900 Current liabilities £16,600

(e) Post-closing trial balance £84,900

1. Complete the worksheet by extending the balances to the financial statement columns.
2. Prepare an income statement, a retained earnings statement, and a classified statement of financial position (amounts in British pounds). (Note: £5,000 of the notes payable become due in 2018.)
3. Prepare the closing entries. Use J14 for the journal page.
4. Post the closing entries. Use the three-column form of account. Income Summary is account No. 350.
5. Prepare a post-closing trial balance.

Prepare financial statements, closing entries, and post-closing trial balance.
(LO 1, 2, 3, 6)

P4-3A The completed financial statement columns of the worksheet for Rahim Company, Ltd. are as follows.

Instructions

(a) Net loss €2,000 Ending retained earnings €3,700 Total assets €37,400

(d) Post-closing trial balance €47,300

1. Prepare an income statement, a retained earnings statement, and a classified statement of financial position (amounts in euros).
2. Prepare the closing entries.
3. Post the closing entries, and underline and balance the accounts. (Use T-accounts.) Income Summary is account No. 350.
4. Prepare a post-closing trial balance.

Complete worksheet; prepare classified statement of financial position, adjusting and closing entries, and post-closing trial balance.
(LO 1, 2, 3, 6)

P4-4A Teresina Amusement Park, SA has a fiscal year ending on September 30. Selected data from the September 30 worksheet are as follows.

Instructions

(a) Net income R$52,600

(b) Total current assets R$47,500

(e) Post-closing trial balance R$247,500

1. Prepare a complete worksheet.
2. Prepare a classified statement of financial position (amounts in Brazilian reais). (Note: R$15,000 of the mortgage note payable is due for payment in the next fiscal year.)
3. Journalize the adjusting entries using the worksheet as a basis.
4. Journalize the closing entries using the worksheet as a basis.
5. Prepare a post-closing trial balance.

Complete all steps in accounting cycle.
(LO 1, 2, 3, 4, 6)

P4-5A Zoe Parker opened Fresh Step Carpet Cleaners, Ltd. on March 1. During March, the following transactions were completed.

The chart of accounts for Fresh Step Carpet Cleaners, Ltd. contains the following accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 130 Prepaid Insurance, No. 157 Equipment, No. 158 Accumulated Depreciation—Equipment, No. 201 Accounts Payable, No. 212 Salaries and Wages Payable, No. 311 Share Capital—Ordinary, No. 320 Retained Earnings, No. 332 Dividends, No. 350 Income Summary, No. 400 Service Revenue, No. 633 Gasoline Expense, No. 631 Supplies Expense, No. 711 Depreciation Expense, No. 722 Insurance Expense, and No. 726 Salaries and Wages Expense.

Instructions

(b) Trial balance £27,200

(c) Adjusted trial balance £29,190

(d) Net income £3,790 Total assets £23,880

(g) Post-closing trial balance £24,180

1. Journalize and post the March transactions. Use page J1 for the journal and the three-column form of account.
2. Prepare a trial balance at March 31 on a worksheet.
3. Enter the following adjustments on the worksheet and complete the worksheet.
   1. Unbilled revenue for services performed at March 31 was £1,000.
   2. Depreciation on equipment for the month was £300.
   3. One-twelfth of the insurance expired.
   4. An inventory count shows £250 of cleaning supplies on hand at March 31.
   5. Accrued but unpaid employee salaries were £690.
4. Prepare the income statement and a retained earnings statement for March and a classified statement of financial position at March 31.
5. Journalize and post adjusting entries. Use page J2 for the journal.
6. Journalize and post closing entries and complete the closing process. Use page J3 for the journal.
7. Prepare a post-closing trial balance at March 31.

Analyze errors and prepare correcting entries and trial balance.
(LO 5)

P4-6A Sara Yu, CA, was retained by Info Cable, Ltd. to prepare financial statements for April 2017. Yu accumulated all the ledger balances per Info’s records and found the following.

Sara Yu reviewed the records and found the following errors.

1. Cash received from a customer on account was recorded as £950 instead of £590.
2. A payment of £75 for advertising expense was entered as a debit to Miscellaneous Expense £75 and a credit to Cash £75.
3. The first salary payment this month was for £1,850, which included £700 of salaries payable on March 31. The payment was recorded as a debit to Salaries and Wages Expense £1,850 and a credit to Cash £1,850. (No reversing entries were made on April 1.)
4. The purchase on account of a printer costing £310 was recorded as a debit to Supplies and a credit to Accounts Payable for £310.
5. A cash payment of repair expense on equipment for £125 was recorded as a debit to Equipment £152 and a credit to Cash £152.

Instructions

(b) Trial balance £22,570

1. Prepare an analysis of each error showing (1) the incorrect entry, (2) the correct entry, and (3) the correcting entry. Items 4 and 5 occurred on April 30, 2017.
2. Prepare a correct trial balance.

Prepare worksheet, financial statements, and adjusting and closing entries.
(LO 1, 2, 6)

P4-1B The trial balance columns of the worksheet for Firmament Roofing, Ltd. at March 31, 2017, are as follows.

Other data:

1. A physical count reveals only £550 of roofing supplies on hand.
2. Depreciation for March is £250.
3. Unearned service revenue amounted to £220 at March 31.
4. Accrued salaries are £420.

Instructions

(a) Adjusted trial balance £21,370

(b) Net income £3,430 Total assets £15,470

1. Enter the trial balance on a worksheet and complete the worksheet.
2. Prepare an income statement and a retained earnings statement for the month of March and a classified statement of financial position at March 31. Ordinary shares were issued in exchange for £10,000 cash at the beginning of March.
3. Journalize the adjusting entries from the adjustments columns of the worksheet.
4. Journalize the closing entries from the financial statement columns of the worksheet.

Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance.
(LO 1, 2, 3, 6)

P4-2B The adjusted trial balance columns of the worksheet for Bleecker Street, Ltd., owned by Raymond Pearson, are as follows.

Instructions

(a) Net income £9,200

(b) Current assets £19,600; Current liabilities £10,600

(e) Post-closing trial balance £46,600

1. Complete the worksheet by extending the balances to the financial statement columns.
2. Prepare an income statement, a retained earnings statement, and a classified statement of financial position (amounts in British pounds). (Note: £3,000 of the notes payable become due in 2018.)
3. Prepare the closing entries. Use J14 for the journal page.
4. Post the closing entries. Use the three-column form of account. Income Summary is No. 350.
5. Prepare a post-closing trial balance.

Prepare financial statements, closing entries, and post-closing trial balance.
(LO 1, 2, 3, 6)

P4-3B The completed financial statement columns of the worksheet for Yulon Company, Ltd. are as follows.

Instructions

(a) Ending retained earnings NT$849,000; Total current assets NT$675,000

(d) Post-closing trial balance NT$1,515,000

1. Prepare an income statement, a retained earnings statement, and a classified statement of financial position (amounts in Taiwan, new dollars).
2. Prepare the closing entries.
3. Post the closing entries, and underline and balance the accounts. (Use T-accounts.) Income Summary is account No. 350.
4. Prepare a post-closing trial balance.

Complete worksheet; prepare classified statement of financial position, adjusting and closing entries, and post-closing trial balance.
(LO 1, 2, 3, 6)

P4-4B Carroll Management Services, Ltd. 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.

Instructions

(a) Net income £24,700

(b) Total current assets £41,900

(e) Post-closing trial balance £294,900

1. Prepare a complete worksheet.
2. Prepare a classified statement of financial position. (Note: £25,000 of the mortgage note payable is due for payment next year.)
3. Journalize the adjusting entries.
4. Journalize the closing entries.
5. Prepare a post-closing trial balance.

Complete all steps in accounting cycle.
(LO 1, 2, 3, 4, 6)

P4-5B Lori Callebaut opened Callebaut Cleaning Service, AG on July 1, 2017. During July the following transactions were completed.

The chart of accounts for Callebaut Cleaning Service contains the following accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 130 Prepaid Insurance, No. 157 Equipment, No. 158 Accumulated Depreciation—Equipment, No. 201 Accounts Payable, No. 212 Salaries and Wages Payable, No. 311 Share Capital—Ordinary, No. 320 Retained Earnings, No. 332 Dividends, No. 350 Income Summary, No. 400 Service Revenue, No. 633 Gasoline Expense, No. 631 Supplies Expense, No. 711 Depreciation Expense, No. 722 Insurance Expense, and No. 726 Salaries and Wages Expense.

Instructions

(b) Trial balance €42,500

(c) Adjusted trial balance €48,500

(d) Net income €9,160; Total assets €37,360

(g) Post-closing trial balance €37,860

1. Journalize and post the July transactions. Use page J1 for the journal and the three-column form of account.
2. Prepare a trial balance at July 31 on a worksheet.
3. Enter the following adjustments on the worksheet and complete the worksheet.
   1. Services performed but unbilled and uncollected at July 31 were €3,300.
   2. Depreciation on equipment for the month was €500.
   3. One-twelfth of the insurance expired.
   4. An inventory count shows €560 of cleaning supplies on hand at July 31.
   5. Accrued but unpaid employee salaries were €2,200.
4. Prepare the income statement and retained earnings statement for July and a classified statement of financial position at July 31.
5. Journalize and post adjusting entries. Use page J2 for the journal.
6. Journalize and post closing entries and complete the closing process. Use page J3 for the journal.
7. Prepare a post-closing trial balance at July 31.

CP4 Tara Harris opened Tara’s Maids Cleaning Service, Ltd. on July 1, 2017. During July, the company completed the following transactions.

The chart of accounts for Tara’s Maids Cleaning Service contains the following accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 130 Prepaid Insurance, No. 157 Equipment, No. 158 Accumulated Depreciation—Equipment, No. 201 Accounts Payable, No. 212 Salaries and Wages Payable, No. 311 Share Capital—Ordinary, No. 320 Retained Earnings, No. 332 Dividends, No. 350 Income Summary, No. 400 Service Revenue, No. 633 Gasoline Expense, No. 631 Supplies Expense, No. 711 Depreciation Expense, No. 722 Insurance Expense, and No. 726 Salaries and Wages Expense.

Instructions

(b) Trial balance totals £28,600

(d) Net income £2,900 Total assets £25,330

(g) Post-closing trial balance £25,530

1. Journalize and post the July transactions. Use page J1 for the journal.
2. Prepare a trial balance at July 31 on a worksheet.
3. Enter the following adjustments on the worksheet, and complete the worksheet.
   1. Unbilled fees for services performed at July 31 were £1,300.
   2. Depreciation on equipment for the month was £200.
   3. One-twelfth of the insurance expired.
   4. An inventory count shows £280 of cleaning supplies on hand at July 31.
   5. Accrued but unpaid employee salaries were £630.
4. Prepare the income statement and retained earnings statement for July, and a classified statement of financial position at July 31, 2017.
5. Journalize and post the adjusting entries. Use page J2 for the journal.
6. Journalize and post the closing entries, and complete the closing process. Use page J3 for the journal.
7. Prepare a post-closing trial balance at July 31.

(Note: This is a continuation of the Matcha Creations problem from Chapters 1–3.)

MC4 Mei-ling had a very busy December. At the end of the month, after journalizing and posting the December transactions and adjusting entries, Mei-ling prepared the following adjusted trial balance.

Instructions

Using the information in the adjusted trial balance, do the following.

1. Prepare an income statement and a retained earnings statement for the 2 months ended December 31, 2017, and a classified statement of financial position at December 31, 2017. The note payable has a stated interest rate of 6%, and the principal and interest are due on November 16, 2019.
2. Mei-ling has decided that her year-end will be December 31, 2017. Prepare closing entries as of December 31, 2017.
3. Prepare a post-closing trial balance.

Financial Reporting Problem: TSMC, Ltd. (TWN)

BYP4-1 The financial statements of TSMC are presented in Appendix A at the end of this textbook. The company’s complete annual report, including the notes to the financial statements, is available in the Investors section of the company’s website, www.tsmc.com.

Instructions

Answer the questions below using the statement of financial position and the notes to consolidated financial statements section.

1. What were TSMC’s total current assets at December 31, 2013, and December 31, 2012?
2. Are assets that TSMC included under current assets listed in proper order? Explain.
3. How are TSMC’s assets classified?
4. What are “cash equivalents”?
5. What were TSMC’s total current liabilities at December 31, 2013, and December 31, 2012?

Comparative Analysis Problem:
Nestlé SA (CHE) vs. Petra Foods Ltd. (SGP)

BYP4-2 Nestlé’s financial statements are presented in Appendix B. Financial statements for Petra Foods are presented in Appendix C.

Instructions

1. Based on the information contained in these financial statements, determine each of the following for Nestlé and Petra Foods at December 31, 2013.
   1. Total current assets.
   2. Net amount of property, plant, and equipment (land, buildings, and equipment).
   3. Total current liabilities.
   4. Total equity.
2. What conclusions concerning the companies’ respective financial positions can be drawn from the companies’ current assets and current liabilities?

Real-World Focus

BYP4-3 Numerous companies have established home pages on the Internet, e.g., Capt’n Eli Root Beer Company (www.captneli.com/rootbeer.php) and Kodak (www.kodak.com).

Instructions

Examine the home pages of any two companies and answer the following questions.

1. What type of information is available?
2. Is any accounting-related information presented?
3. Would you describe the home page as informative, promotional, or both? Why?

Decision-Making Across the Organization

BYP4-4 Everclean Janitorial Service, Ltd. was started 2 years ago by Lauren Baird. Because business has been exceptionally good, Lauren decided on July 1, 2017, to expand operations by acquiring an additional truck and hiring two more assistants. To finance the expansion, Lauren obtained on July 1, 2017, a £25,000, 10% bank loan, payable £10,000 on July 1, 2018, and the balance on July 1, 2019. The terms of the loan require the borrower to have £10,000 more current assets than current liabilities at December 31, 2017. If these terms are not met, the bank loan will be refinanced at 15% interest. At December 31, 2017, the accountant for Everclean Janitorial Service prepared the statement of financial position shown below.

Lauren presented the statement of financial position to the bank’s loan officer on January 2, 2018, confident that the company had met the terms of the loan. The loan officer was not impressed. She said, “We need financial statements audited by a public accountant.” A public accountant was hired and immediately realized that the statement of financial position had been prepared from a trial balance and not from an adjusted trial balance. The adjustment data at the statement of financial position date consisted of the following.

1. Unbilled janitorial services performed were £3,900.
2. Janitorial supplies on hand were £2,100.
3. Prepaid insurance was a 3-year policy dated January 1, 2017.
4. December expenses incurred but unpaid at December 31, £620.
5. Interest on the bank loan was not recorded.
6. The amounts for property, plant, and equipment presented in the statement of financial position were reported net of accumulated depreciation (cost less accumulated depreciation). These amounts were £4,000 for cleaning equipment and £5,000 for delivery trucks as of January 1, 2017. Depreciation for 2017 was £2,000 for cleaning equipment and £5,000 for delivery trucks.

Instructions

With the class divided into groups, answer the following.

1. Prepare a correct statement of financial position.
2. Were the terms of the bank loan met? Explain.

Communication Activity

BYP4-5 The accounting cycle is important in understanding the accounting process.

Instructions

Write a memo to your instructor that lists the steps of the accounting cycle in the order they should be completed. End with a paragraph that explains the optional steps in the cycle.

Ethics Case

BYP4-6 As the controller of Take No Prisoners Perfume Company, SA, you discover a misstatement that overstated net income in the prior year’s financial statements. The misleading financial statements appear in the company’s annual report which was issued to banks and other creditors less than a month ago. After much thought about the consequences of telling the president, Fabien LaRue, about this misstatement, you gather your courage to inform him. Fabien says, “Hey! What they don’t know won’t hurt them. But, just so we set the record straight, we’ll adjust this year’s financial statements for last year’s misstatement. We can absorb that misstatement better in this year than in last year anyway! Just don’t make such a mistake again.”

Instructions

1. Who are the stakeholders in this situation?
2. What are the ethical issues in this situation?
3. What would you do as a controller in this situation?

Similarities

• Both IFRS and GAAP require disclosures about (1) accounting policies followed, (2) judgments that management has made in the process of applying the entity’s accounting policies, and (3) the key assumptions and estimation uncertainty that could result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
• Comparative prior-period information must be presented and financial statements must be prepared annually.

Differences

• IFRS officially uses the term statement of financial position in its literature, while in the United States it is often referred to as the balance sheet.
• IFRS requires that specific items be reported on the statement of financial position, whereas no such general standard exists in GAAP. However, under GAAP, public companies must follow U.S. Securities and Exchange Commission (SEC) regulations, which require specific line items as well. In addition, specific GAAP standards mandate certain forms of reporting statement of financial position information. The SEC guidelines are more detailed than IFRS.
• While IFRS companies often report non-current assets before current assets in their statements of financial position, this is never seen under GAAP. Also, some IFRS companies report the subtotal “net assets,” which equals total assets minus total liabilities. This practice is also not seen under GAAP.
• A key difference in valuation is that under IFRS, companies, under certain conditions, can report property, plant, and equipment at cost or at fair value, whereas under GAAP this practice is not allowed.
• GAAP has many differences in terminology from what are shown in your textbook. For example, in the following sample balance sheet (statement of financial position), notice in the investment category that shares are called stock. Also note that Share Capital—Ordinary is referred to as Common Stock. In addition, the format used for statement of financial position presentation is often different between GAAP and IFRS.