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Chapter 3: Q8Q (page 127)

Employees are paid every Saturday for the preceding work week. If a balance sheet is prepared on Wednesday, December 31, what does the amount of wages earned during the first three days of the week (12/29, 12/30, 12/31) represent? Explain.

Short Answer

Expert verified

It indicates a current liability and therefore, it must be listed in the term in which it has been incurred.

Step by step solution

01

Meaning of Balance Sheet

The balance sheet is defined as the statement that aims to determine the nature and amount of different assets and liabilities so that the financial position could clearly be known to all those concerned. Hence, the primary role of the balance sheet is to depict a fair picture of the business at a certain date.

02

Representation of the amount of the wages earned

The wages of the first three days of the week to be paid to employees on December 31 specify current liability. Expenses associated with it must be 'matched' to this period so as to properly indicate the expenses incurred.

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Most popular questions from this chapter

List two types of transactions that would receive differentaccountingtreatments using (a) strict cash basis accounting, and (b) a modified cash basis.

Why are revenue and expense accounts called temporary or nominal accounts?

E3-1 (L02) (Transaction Analysis—Service Company) Beverly Crusher is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the following events and transactions occurred.April 2 Invested \(32,000 cash and equipment valued at \)14,000 in the business.2 Hired an administrative assistant at a salary of \(290 per week payable monthly.3 Purchased supplies on account \)700. (Debit an asset account.)7 Paid office rent of \(600 for the month.11 Completed a tax assignment and billed client \)1,100 for services rendered. (Use Service Revenue account.)12 Received \(3,200 advance on a management consulting engagement.17 Received cash of \)2,300 for services completed for Ferengi Co.21 Paid insurance expense \(110.30 Paid administrative assistant \)1,160 for the month.30 A count of supplies indicated that \(120 of supplies had been used.30 Purchased a new computer for \)6,100 with personal funds. (The computer will be used exclusively for business purposes.)InstructionsJournalize the transactions in the general journal. (Omit explanations.)

The following trial balance of Watteau Co. does not balance:

WATTEAU CO.

TRIAL BALANCE

JUNE 30, 2017

Debit \(

Credit \)

Cash

\(2,870

Accounts receivable

\)3,231

Supplies

800

Equipment

3,800

Account payable

2,666

Unearned service revenue

1,200

Common stock

6,000

Retained earnings

3,000

Service revenue

2,380

Salaries and wages expenses

3,400

Office expenses

940

\(13,371

\)16,916

Each of the listed accounts should have a normal balance per the general ledger. An examination of the ledger and journal reveals the following errors.

  1. Cash received from the customer on account was debited for \(570, and accounts receivable was credited for the same amount. The actual collection was for \)750.
  2. The purchase of a computer printer on account for \(500 was recorded as a debit to Supplies for \)500 and a credit to Accounts Payable for \(500.
  3. Services were performed on account for a client for \)890. Accounts receivable was debited for \(890 and service revenue was credited for \)89.
  4. A payment of \(65 for telephone charges was recorded as a debit to Office Expense for \)65 and a debit to Cash for \(65.
  5. When the unearned service revenue account was reviewed, it was found that service revenue amounting to \)325 was performed prior to June 30 (related to unearned service revenue).
  6. A debit posting to salaries and wages expenses of \(670 was omitted.
  7. A payment on account for \)206 was credited to cash for \(206 and credit to account payable for \)260.
  8. A dividend of \(575 was debited to salaries and wages expenses for \)575 and credit to cash for $575.

Instruction

Prepare a correct trial balance. (Note: It may be necessary to add one or more accounts to the trial balance.)

The adjusted trial balance for Ed Bradley Co. is presented in the following worksheet for the month ended April 30, 2017.

ED BRADLEY CO.

Worksheet (PARTIAL)

For The Month Ended April 30, 2017



Adjusted Trial Balance
Income Statement

Balance Sheet

Account Titles

Dr.

Cr.

Dr.

Cr.

Dr.

Cr.

Cash

18,972

Accounts Receivable

6,920

Prepaid Rent

2,280

Equipment

18,050

Accumulated Depreciation—Equipment

4,895

Notes Payable

5,700

Accounts Payable

4,472

Common Stock

34,960

Retained Earnings—April 1, 2017

1,000

Dividends

6,650

Service Revenue

12,590

Salaries and Wages Expense

6,840

Rent Expense

3,760

Depreciation Expense

145

Interest Expense

83

Interest Payable

83

Instructions

Complete the worksheet and prepare a classified balance sheet.
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