Solutions Manual

Practice Set I (AR Rentals)

Answers to Practice Set I: AR Rentals

GENERAL JOURNAL
Page 1
Date Accounts and Explanation Debit Credit
20X1
Sept. 1 Cash 80,000
A. Reyes, Capital 80,000
Owner invested cash in the business.
1 Rental Equipment 180,000
Cash 70,000
Notes Payable 110,000
Purchased equipment from Rent-Out. Note
payable is due in one year; interest at 9%.
1 Prepaid Rent 9,000
Cash 9,000
Paid three months’ rent in advance to
Southern Realty.
4 Office Supplies 1,630
Accounts Payable 1,630
Purchased supplies on account; payment
due in 30 days.
8 Cash 10,000
Unearned Rental Fees 10,000
Received advance payment for equipment
rental by Moon Construction Company.
12 Salaries Expense 3,600
Cash 3,600
Paid salaries for the first two weeks in
September.

PS I SOL - 1
 Page 2
Date Accounts and Explanation Debit Credit
20X1
Sept. 15 Cash 6,800
Accounts Receivable 1,300
Rental Fees Earned 8,100
To record rental fees earned in first 15 days
of September.
17 Maintenance Expense 340
Accounts Payable 340
To record purchases of repair parts on
account from Green Movers, Inc.; payment
due in 10 days.
23 Cash 210
Accounts Receivable 210
Collection of an account receivable.
25 (No entry required to record rental of
backhoe.)
26 Salaries Expense 3,600
Cash 3,600
Paid biweekly payroll.
27 Accounts Payable 340
Cash 340
Paid account payable to Green Movers, Inc.
28 A. Reyes, Drawings 2,000
Cash 2,000
Owner withdrew cash for personal use.
29 Unexpired Insurance 2,700
Cash 2,700
Purchased 12-month liability policy, effective
October 1.
Sept. 30 Utilities Expense 270
Accounts Payable 270
Utilities for September; payment due in 30
days.
30 Cash 8,450
Rental Fees Earned 8,450
Fees earned in last half of September.

PS I SOL - 2
Requirements 2 and 6: Posting to General Ledger of Journal Entries for transactions in
September. Unadjusted Debit (Credit) balance of the account as of September 30 is
italicized and highlighted. Journalization and Posting of Adjusting and Closing Entries as
of September 30, 20X1 are done after preparing the Financial Statements.

Cash Account No. 1

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 1 80,000 80,000
1 70,000 10,000
1 9,000 1,000
8 10,000 11,000
12 3,600 7,400
15 6,800 14,200
23 210 14,410
26 3,600 10,810
27 340 10,470
28 2,000 8470
29 2,700 5,770
30 8,450 *14,220

Accounts Receivable Account No. 4

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 15 1,300 1,300
23 210 1,090
30 AJE (f) 500 1,590

Prepaid Rent Account No. 6

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 1 9,000 9,000
30 AJE(a) 3,000 6,000

Unexpired Insurance Account No. 7

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 29 2,700 2,700

PS I SOL - 3
 Office Supplies Account No. 8
Date Explanation Debit Credit Balance
Dr (Cr)
Sept 4 1,630 1,630
30 AJE (d) 530 1,100

Rental Equipment Account No. 10

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 1 180,000 180,000

Accumulated Depreciation: Rental Equipment Account No. 12

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 30 AJE (c) 1,500 1,500

Notes Payable Account No. 20

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 1 110,000 (110,000)

Accounts Payable Account No. 22

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 4 1,630 1,630
17 340 1,970
27 340 1,630
30 270 (1,900)

Interest Payable Account No. 25

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 30 AJE (b) 825 (825)

Salaries Payable Account No. 26

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 30 AJE (g) 900 (900)

PS I SOL - 4
 Unearned Rental Fees Account No. 28
Date Explanation Debit Credit Balance
Dr (Cr)
Sept 8 10,000 (10,000)
30 AJE (e) 4,840 (5,160)

A. Reyes, Capital Account No. 30

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 1 80,000 (80,000)
Sept 30 To close Income Summary balance C/E (3) 7,325 (87,325)
Sept 30 To close Drawings Account balance C/E (4) 2,000 85,325

A. Reyes, Drawings Account No. 35

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 28 2,000 2,000
30 To close to Capital Account C/E (4) 2,000 -0-

Income Summary Account No. 40

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 30 To close revenue accounts C/E (1) 21,890 (21,890)
30 To close revenue accounts C/E (2) 14,565 (7,325)
30 To close C/E (3) 7,325 -0-

Rental Fees Earned Account No. 50

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 15 8,100 8,100
30 8,450 (16,550)
30 AJE (e) 4,840 21,390
30 AJE (f) 500 (21,890)
30 To close C/E (2) 21,890 -0-

PS I SOL - 5
 Salaries Expense Account No. 60
Date Explanation Debit Credit Balance
Dr (Cr)
Sept 12 3,600 3,600
26 3,600 7,200
30 AJE (g) 900 8,100
30 To close C/E (2) 8,100 -0-

Maintenance Expense Account No. 61

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 17 340 340
30 To close C/E (2) 340 -0-

Utilities Expense Account No. 62

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 30 270 270
30 To close C/E (2) 270 -0-

Rent Expense Account No. 63

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 30 AJE(a) 3,000 3,000
30 To close C/E (2) 3,000 -0-

Office Supplies Expense Account No. 64

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 30 AJE (d) 530 530
30 To close C/E (2) 530 -0-

Depreciation Expense Account No. 65

Date Explanation Debit Credit Balance
Dr (Cr)
Sept 30 AJE 1,500 1,500
30 To close C/E (2) 1,500 -0-

PS I SOL - 6
 Interest Expense Account No. 66
Date Explanation Debit Credit Balance
Dr (Cr)
Sept 30 AJE (b) 825 825
30 To close C/E (2) 825 -0-

Requirement 3: Preparation of Unadjusted Trial Balance as of September 30, 20X1.

AR Rentals
Unadjusted Trial Balance*
September 30, 20X1
Account Title Dr Cr
Cash P 14,220
Accounts receivable 1,090
Prepaid rent 9,000
Unexpired insurance 2,700
Office supplies 1,630
Rental equipment 180,000
Notes payable P110,000
Accounts payable 1,900
Unearned rental fees 10,000
A. Reyes, Capital 80,000
A. Reyes, Drawings 2,000
Interest payable
Accumulated depreciation – rental equipment
Salaries payable
Rental fees earned 16,550
Salaries expense 7,200
Maintenance expense 340
Utilities expense 270 _______
Total P218,450 P218,450

* Unadjusted balance of the account as of September 30 is shown in italics and highlighted in the
general ledger.

PS I SOL - 7
Requirement 4: Preparation of the adjusting journal entries as of September
30, 20X1.

GENERAL JOURNAL
(Adjusting Journal Entries)
Date Accounts and Explanation Debit Credit
Sept. 30, 20X1
AJE (a) Rent Expense 3,000
Prepaid Rent 3,000
To recognize rent expense for September.

AJE (b) Interest Expense 825

Interest Payable 825
To record interest accrued on note payable to
Rent-Out.

AJE (c) Depreciation Expense 1,500

Accumulated Depreciation: Rental 1,500
Equipment
Depreciation for September (P180,000  10
years x 1/12 = P1,500)

AJE (d) Office Supplies Expense 530

Office Supplies 530
To record office supplies used during the month
(P1,630 – P1,100 = P530).

AJE (e) Unearned Rental Fees 4,840

Rental Fees Earned 4,840
To record portion of advance payment by Moon
Construction Co. earned during September.

AJE (f) Accounts Receivable 500

Rental Fees Earned 500
To record fees earned from Fields Landscaping
on backhoe rental (5 days x P100 per day).

AJE (g) Salaries Expense 900

Salaries Payable 900
To record accrued salaries payable at month
end.

PS I SOL - 8
Requirement 5: Preparation of 10-Column Worksheet
AR Rentals
Worksheet
September 30, 20X1
Unadjusted Statement of Statement of
Adjusted Trial Comprehensive Financial
Account Trial Balance Adjustments Balance Income Position
Title Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Balance Sheet Accounts:
Cash 14,220 14,220 14,220
Accounts receivable 1,090 (f) 500 1,590 1,590
Prepaid rent 9,000 (a) 3,000 6,000 6,000
Unexpired insurance 2,700 2,700 2,700
Office supplies 1,630 (d) 530 1,100 1,100
Rental equipment 180,000 180,000 180,000
Notes payable 110,000 110,000 110,000
Accounts payable 1,900 1,900 1,900
Unearned rental fees 10,000 (e) 4,840 5,160 5,160
A. Reyes, Capital 80,000 80,000 80,000
A. Reyes, Drawings 2,000 2,000 2,000
Interest payable (b) 825 825 825
Accumulated depreciation – rental equipment (d) 1,500 1,500 1,500
Salaries payable (g) 900 900 900
Income Statement Accounts:
Rental fees earned 16,550 (e) 4,840 21,890 21,890
(f) 500
Salaries expense 7,200 (g) 900 8,100 8,100
Maintenance expense 340 340 340
Utilities expense 270 270 270
218,450 218,450

Rent expense (a) 3,000 3,000 3,000

Interest expense (b) 825 825 825
Depreciation expense (c) 1,500 1,500 1,500
Office supplies expense (d) 530 530 530
15,025 15,025 222,175 222,175 14,565 21,890 207,610 200,285
Net income 7,325 7,325
Totals 21,890 21,890 207,610 207,610

PS I SOL - 9
*Adjustments
(a) Rent for September (P9,000  3).
(b) Interest accrued during September.
(c) Depreciation for the month (P180,000  10 yrs  1/12).
(d) Office supplies used (P1,630  P1,100).
(e) Portion of advance collection earned in September.
(f) Unrecorded revenue earned in September.
(g) Accrued salaries payable at month-end.

Requirement 6: Preparation of the Statement of Comprehensive Income

AR Rentals
Statement of Comprehensive Income
For the Month Ended September 30, 20X1
Revenue:
Rental fees earned P21,890
Expenses:
Salaries expense P8,100
Maintenance expense 340
Utilities expense 270
Rent expense 3,000
Interest expense 825
Depreciation expense 1,500
Office supplies expense 530 14,565
Net Income P 7,325

Requirement 7: Preparation of the Statement of Financial Position

AR Rentals
Statement of Financial Position
September 30, 20X1
Assets
Current Assets
Cash P 14,220
Accounts receivable 1,590
Prepaid rent 6,000
Unexpired insurance 2,700
Office supplies 1,100
Total current assets P25,610

Non-Current Assets
Rental equipment P180,000
Less: Accumulated depreciation 1,500 178,500
Total assets P204,110
PS I SOL - 10
 Liabilities & Owner’s Equity

Current Liabilities
Notes payable P110,000
Accounts payable 1,900
Interest payable 825
Salaries payable 900
Unearned rental fees 5,160
Total current liabilities 118,785

Owner’s Equity
A. Reyes, Capital 80,000
Add (Deduct):
Net Income 7,325
Withdrawals (2,000)
Total owner’s equity 85,325
Total liabilities and owner’s equity P204,110

Requirement 8: Preparation of the Notes to Financial Statements

Note 1—Depreciation policies

Depreciation expense in the financial statements is computed by the straight-
line method. The estimated useful life of the rental equipment is 10 years.

Note 2—Maturity dates of liabilities

The Company’s notes payable consist of a single obligation which matures on
September 1 of the coming year. The maturity value of this note, including
interest, will amount to P119,900.

PS I SOL - 11
Requirement 9: Preparation of Closing Entries as of September 30, 20X1

GENERAL JOURNAL
(Closing Entries)
Date Accounts and Explanation Debit Credit
Sept. 30, 20X1
CE (1) Rent Fees Earned 21,890
Income Summary 21,890
To close the revenue account.

CE (2) Income Summary 14,565

Salaries Expense 8,100
Maintenance Expense 340
Utilities Expense 270
Rent Expense 3,000
Office Supplies Expense 530
Depreciation Expense 1,500
Interest Expense 825
To close the expense accounts.

CE (3) Income Summary 7,325

A. Reyes, Capital 7,325
To close the Income Summary account.

CE (4) A. Reyes, Capital 2,000

A. Reyes, Drawings 2,000
Note: Postings of the above closing entries could be traced in the general ledger.

PS I SOL - 12
Requirement 10: Preparation of the Post-Closing Trial Balance

AR Rentals
Post-Closing Trial Balance
September 30, 20X1

Cash P 14,220
Accounts receivable 1,590
Prepaid rent 6,000
Unexpired insurance 2,700
Office supplies 1,100
Rental equipment 180,000
Accumulated depreciation: rental equipment P 1,500
Notes payable 110,000
Accounts payable 1,900
Interest payable 825
Salaries payable 900
Unearned rental fees 5,160
A. Reyes, Capital ________ 85,325

P205,610 P205,610

Note: The above accounts and their corresponding final balance can be traced to
the general ledger.

PS I SOL - 13