Question

Chapter 7 In Financial Reporting, What Information Is Conveyed about Receivables? In Chapter 5, Leon Jackson started Webworks, a Web site design and maintenance firm. At that time, an adjusted trial balance was prepared for June. Here are Webworks financial statements as of June 30. Webworks Income Statement as of June 30 Revenue $ 1,050 380 670 Expenses Earning before Tax Tax Expense Net Income 200 $ 470 Webworks Statement of Retained Earnings as of June 30 Retained Earnings, June 1 $ 0 Net Income 470 Retained Earnings, June 30 $ 470 Webworks Balance Sheet as of June 30 Liabilities Assets Current Cash Accounts Receivable $ $ 280 Current 9,800 Accounts Payable 450 Salaries Payable 100 Unearned Revenue 10,350 Total Current Liabilities 100 500 Supplies Inventory Total Current Assets 880 Noncurrent Equipment Noncurrent 3,000 Notes Payable 10,000 2,000 Owners' Equity Capital Stock Retained Earnings Total Owners' Equity 470 2,470 Total Assets $ 13,350 $ 13,350 Total Liabilities & Owners' Equity The following events occur during July: a. Webworks purchases additional equipment for $4,000 cash. b. Webworks purchases supplies worth $90 on account. c. Webworks pays off accounts payable and salaries payable from June.

Answer 1

Webworks Journal entries Date Account a Equipment Cash Credit Calculation Debit $ 4,000 $ 4,000 b $ 90 Supplies Inventory Accounts Payable $ 90 C 280 Accounts Payable Salaries Payable Cash $ $ 100 $ 380 d $ 1,800 Accounts Receivable Service Revenue $ 1,800 $ 500 Unearned Revenue Service Revenue $ 500 f $ 1,200 Cash Accounts Receivable $ 1,200 g $ 500 Salaries expense Cash $ 500 h $ 500 =200+300 Cash Unearned Revenue $ 500 i $ 600 Prepaid Rent Cash $ 600 $ 300 $ 300 j Tax expense Cash Adjusting entries AJE-a Salaries expense Salaries Payable $ 200 $ 200 $ 150 AJE-b Utility expense Accounts Payable $ 150 $ 140 190-50 AJE - Supplies expense Supplies Inventory $ 140 $ 200 600/3 months AJE-d Rent expense Prepaid Rent $ 200 $ 105 1050*10% AJE - e Bad debts expense Allowance for bad debts $ 105

Credit Date Date Date Webworks T Accounts Date Debit Date Cash Op bal $ 9,800 a f $ 1,200 с h $ 500 i Debit Date Credit Accounts Receivable $ 450 $ 1,800 f $ 1,200 Debit Date Credit Allowance for bad debts Op bal $ AJE - e $ 105 Debit Date Credit Supplies Inventory $ 100 $ 90 AJE-C $ 140 Op bal b $ 4,000 Op bal $ 380 d $ 500 $ 600 $ 300 j Bal. Bal. Bal. $ 105 Bal. $ 50 $ 5,720 Prepaid Rent $ $ 600 AJE-d $ 1,050 Equipment $ 3,000 $ 4,000 Op bal Op bal i $ 200 a Bal. Bal. $ 400 Accounts Payable Op bal $ 280 b AJE - b $ 7,000 Salaries Payable Op bal $ $ 100 AJE-a Notes Payable 280 Op bal $ 10,000 Unearned Revenue Op bal $ 500 h $ $ $ $ $ 100 200 $ $ 500 500 C 90 с ID 150 $ 240 $ 200 Bal. $ 500 Bal. $ 10,000 Bal. Capital Stock Op bal Bal. Retained Earnings Op bal $ 2,000 $ 470 $ 2,000 $ 470 Bal. Service Revenue d Bal. Salaries expense $ 500 $ 200 Rent expense 200 Utility expense $ 150 AJE-d $ AJE - b $ 1,800 $ 500 g AJE - a e $ 2,300 Bal. Bal. $ 200 Bal. $ 150 Bal. Supplies expense $ 140 $ 700 Bad debts expense $ 105 Tax expense 300 AJE-C AJE-e j $ Bal. $ 140 Bal. $ 105 Bal. $ 300

Unadjusted TB Debit Credit 5,720 1,050 Adjusted TB Debit Credit 5,720 1,050 105 50 400 7,000 240 190 600 7,000 90 200 500 500 Webworks Account Names Cash Accounts Receivable Allowance for bad debts Supplies Inventory Prepaid Rent Equipment Accounts Payable Salaries Payable Unearned Revenue Notes Payable Capital Stock Retained Earnings Service Revenue Salaries expense Rent expense Utility expense Supplies expense Bad debts expense Tax expense Totals 10,000 2,000 470 2,300 10,000 2,000 470 2,300 500 700 200 150 - 140 105 300 300 15,360 15,360 15,815 15,815

2,300 700 200 Webworks Income Statement For the Month Ended July 31 Service Revenue Operating Expenses Salaries expense Rent expense Utility expense Supplies expense Bad debts expense Total Operating Expenses Earnings before Tax Tax expense Net Income 150 140 105 1,295 1,005 300 705 Statement of Retained Earnings For the Month Ended July 31 Retained Earnings, July 1 Net Income Retained Earnings, July 31 470 705 1,175

Webworks Balance Sheet As of July 31 Assets Current Assets Cash Accounts Receivable Allowance for bad debts Supplies Inventory Prepaid Rent Total Current Assets 240 200 Liabilities & Owners Equity Current Liabilities 5,720 Accounts Payable 1,050 Salaries Payable (105) Unearned Revenue 50 400 7,115 Total Current Liabilities 500 940 Non-Current Assets Equipment Non-Current Liabilties 7,000 Notes Payable Total Liabilties 10,000 10,940 Owners Equity Capital Stock Retained Earnings Total Owners Equity 2,000 1,175 3,175 Total Assets 14,115 Total Liabilities & Owners Equity 14,115