Work4Me I Problem 6 3rd Web-Based Edition, Copyright 2010 PKL Software, Incorporated. All rights reserved. Last Revised: April 1, 2010 Page 1 Work4Me I Accounting Simulations 3rd Web-Based Edition Problem Six Adjusting Entries, Closing Entries, and Financial Analysis Work4Me I Problem 6 3rd Web-Based Edition, Copyright 2010 PKL Software, Incorporated. All rights reserved. Last Revised: April 1, 2010 Page 2 Emory Legal Services, Inc. Trial Balance For The Quarter Ended, September 30 ______________________________________________________________________________ Debit Credit Cash 1,980.00 Accounts Receivable 4,575.00 Prepaid Rent 9,000.00 Prepaid Insurance 1,977.00 Office Supplies 1,440.00 Office Equipment 10,050.00 Accumulated Deprec. Office Equip. 3,200.00 Automobile 30,500.00 Accumulated Deprec. - Automobile 10,400.00 Building 40,000.00 Land 50,000.00 Accounts Payable 4,750.00 Short-term Notes Payable 3,000.00 Salaries and Wages Payable 650.00 Long-term Notes Payable 12,000.00 Common Stock 80,000.00 Retained Earnings 12,377.00 Cash Dividends Declared 500.00 Legal Fees Earned 34,500.00 Consulting Fees Earned 5,110.00 Salaries and Wages Expense 12,650.00 Vehicle Operating Expense 745.00 Advertising Expense 1,050.00 Delivery Expense 125.00 Electric and Gas Expense 645.00 Telephone Expense 475.00 License Expense 200.00 Miscellaneous Expense 75.00 ---------- = ---------- Total 165,987.00 165,987.00 ========== ========== Work4Me I Problem 6 3rd Web-Based Edition, Copyright 2010 PKL Software, Incorporated. All rights reserved. Last Revised: April 1, 2010 Page 3 Emory Legal Services, Incorporated CHART OF ACCOUNTS Problem 6 ASSETS REVENUE 101 Cash 401 Legal Fees Earned 105 Accounts Receivable 405 Consulting Fees Earned 109 Notes Receivable 121 Prepaid Rent 122 Prepaid Insurance EXPENSES 125 Prepaid Advertising 127 Office Supplies 601 Salaries and Wages Expense 131 Office Equipment 602 Office Supplies Expense 132 Accum. Depreciation, Office Equip. 604 Vehicle Operating Expense 139 Automobiles 605 Advertising Expense 140 Accum. Depreciation, Automobiles 606 Delivery Expense 150 Building 610 Depreciation Exp., Office Equip. 151 Accum. Depreciation, Building 612 Depreciation Exp., Automobiles 160 Land 615 Depreciation Exp., Building 621 Rent Expense 622 Insurance Expense LIABILITIES 624 Property Tax Expense 625 Electric and Gas Expense 201 Accounts Payable 626 Telephone Expense 203 Short-Term Notes Payable 628 License Expense 209 Salaries & Wages Payable 635 Miscellaneous Expense 211 Property Taxes Payable 651 Interest Expense 213 Dividends Payable 215 Interest Payable 220 Unearned Consulting Fees INCOME SUMMARY 231 Long-Term Notes Payable 241 Mortgage Payable 901 Income Summary STOCKHOLDERS EQUITY 301 Common Stock 305 Retained Earnings 310 Cash Dividends Declared Work4Me I Problem 6 3rd Web-Based Edition, Copyright 2010 PKL Software, Incorporated. All rights reserved. Last Revised: April 1, 2010 Page 4 Problem 6 Adjusting, Closing, and Analysis Emory Legal Services, Incorporated Adjusting, Closing and Analysis For the Quarter Ended, September 30 1. Go to www.pklsoftware.com, select Work4Me, and log in. 2. From the Menu Bar of the Data Entry page, select Problem 6, Adjusting, Closing, and Analysis and click. Using the copy of the Emory Legal Services, Incorporated, September 30 Trial Balance shown on page 2 and the chart of accounts on page 3, record the required adjusting entries for the end of the third quarter, September 30. Be sure to enter your adjusting entries by selecting the Adjusting JE data entry format. Remember that all corrections to adjusting entries must also be entered in the Adjusting JE data entry format. Emory Legal Services, Incorporated Adjusting Entries for the Third Quarter ended September 30 A. The ending inventory of office supplies totals $220. B. Two insurance policies provide the insurance coverage for the law firm. Policy one was purchased on July 1, last year for $2,064 and provides 24 months of liability coverage. Policy two was purchased on January 2, this year for $1,260 and is also a 24 month policy covering the business equipment. C. Rent was prepaid for six months on July 1, of this year. D. Accrued interest on all short-term and long-term notes payable totals $425 for the quarter. E. An examination of the Consulting Fees Earned account disclosed that $1,350 of this account balance is unearned on September 30. Work4Me I Problem 6 3rd Web-Based Edition, Copyright 2010 PKL Software, Incorporated. All rights reserved. Last Revised: April 1, 2010 Page 5 F. Accrued property taxes for the quarter total $266. G. Wages accrued total 11.5 hours worked at a rate of $11.80 per hour. H. Depreciation of office equipment totals $130 per month. I. The automobile used by the business cost $30,500. It is estimated that this vehicle will depreciated to a salvage value of $4,500 over 5 year period. This is a net cost of $26,000 that will be depreciated over 60 months at $5,200 per year. J. Depreciation on the new building complex acquired the last day of June will be $1,200 per year. K. All of the newspaper and radio advertisements paid for and charged to the Advertising Expense account have been run by the end of the quarter, September 30. Is an adjusting entry required? When you have completed entering the September 30 adjusting entries for Emory Legal Services, Incorporated, it is time to check the accuracy of your work. In the Check It Out box below are the correct balances of key accounts from the Adjusted Trial Balance. 1. Move the pointer to Journals/Ledgers/Statements in the Menu Bar, move down to the General Ledger selection and click. The completed Adjusted Trial Balance will appear on the screen. 2. Check your balances against the totals shown in the Check It Out box on the next page. If all of your totals match the check figures, print the Adjusted Trial Balance and proceed to instruction 4 that follows the Check It Out box on the following page. If your totals DO NOT match the check figures, using the procedures outlined in the previous problems, print a copy of your Adjusted Trial Balance and a copy of the General Journal. Make the necessary correction entries and when your account totals match the check figures, proceed to instruction 3. 3. Print a copy of the corrected Adjusted Trial Balance. Work4Me I Problem 6 3rd Web-Based Edition, Copyright 2010 PKL Software, Incorporated. All rights reserved. Last Revised: April 1, 2010 Page 6 4. Move the pointer to Journal/Ledgers/Statements in the Menu Bar, then down to Financial Statements and select and print the Income Statement. 5. Move the pointer to Journal/Ledgers/Statements in the Menu Bar, then down to Financial Statements and select and print the Retained Earnings Statement and the Balance sheet. 6. Move the pointer to the Journal/Ledgers/Statements and click on Data Entry. The program used by Emory Legal Services, Inc., will, when directed, automatically close the books. Click on the Closing JE button and the closing entries will be recorded and posted. 7. Print a copy of the Post-Closing Trial Balance 8. Move the pointer to Journal/Ledgers/Statements and down to General Journal. Print a copy of the adjusting and closing entries. 9. When all of the required documents have been printed, you have completed your computer work for Problem 6. Move the pointer to Home Page on the Menu Bar and click. From the PKL software Home Page you may make another selection or click on File and exit the system. DO YOU NEED TO RESTORE YOUR WORK BACK TO THE ADJUSTING ENTRIES TO CORRECT AN ERROR? CHECK THE RESTORE FEATURE ON PAGE 7. CHECK IT OUT 121 Prepaid Rent $4,500.00 122 Prepaid Insurance 1,561.50 127 Office Supplies 220.00 132 Accumulated Depreciation, Office Equip. 3,590.00 151 Accumulated Depreciation, Building 300.00 209 Salaries & Wages Payable 785.70 211 Property Taxes Payable 266.00 220 Unearned Consulting Fees 1,350.00 605 Advertising Expense 1,050.00 612 Depreciation Expense, Automobile 1,300.00 651 Interest Expense 425.00 ADJUSTED TRIAL BALANCE TOTAL $168,803.70 Work4Me I Problem 6 3rd Web-Based Edition, Copyright 2010 PKL Software, Incorporated. All rights reserved. Last Revised: April 1, 2010 Page 7 RESTORE FEATURE It is possible to restore your closed books back to the Adjusted Trial Balance totals if you discover an error after you have closed your accounts. Click on the Restore button on the Menu Bar and account balances will be restored to their pre-closing totals. Select the General Ledger and the Adjusted Trial Balance will appear on the screen. You may then make corrections to adjusting entries using the Adjusting JE data entry process, or corrections to daily entries using the Daily JE data entry process. When all correction entries have been completed, print a new Adjusted Trial Balance, new Financial Statements, and close the books again. Print a Post-Closing Trial Balance and exit the system. Using your printed documents, carefully answer the questions on the Emory Legal Services, Incorporated, Problem Six Analysis Form. Work4Me I Problem 6 3rd Web-Based Edition, Copyright 2010 PKL Software, Incorporated. All rights reserved. Last Revised: April 1, 2010 Page 8 WORK4ME I - PROBLEM SIX NAME___________________________________ ADJUSTING, CLOSING AND CLASS DAY & TIME__________DATE_______ ANAYLSIS 1. The last account on a corporation Post-Closing Trial Balance is the Common Stock account. Answer only T for True or F for False for all True/False questions. ______________ 2. If the Income Summary account has a debit balance after the revenues and expenses have been closed, the business has a net loss. ______________ 3. If the business has net income for the period, this income will be closed into the Retained Earnings account with a debit to Retained Earnings and a credit to Income Summary. ______________ 4. A net loss for the period will result in a debit balance in the Income Summary account (before the account is closed) because the expenses are greater than the revenues. ______________ 5. Cash Dividends Declared is an account that is closed into the Income Summary account. ______________ 6. The Cash Dividends Declared account is an account that is closed at the end of each accounting period. ______________ 7. Expense accounts are closed by being debited. ______________ 8. All revenue accounts can be closed with a single journal entry. ______________ 9. If a work sheet is used in the accounting process, the adjusting entries are entered on the work sheet after being recorded in the general journal. ______________ 10. The final step in the accounting cycle is the journalizing and posting of the closing entries. ______________ 11. Income from Operations for the second quarter totaled $9,352 and total revenues were $28,955. Has Income from Operations as a percentage of total revenues improved during the third quarter? Answer only Y for Yes or N for No. ______________ Work4Me I Problem 6 3rd Web-Based Edition, Copyright 2010 PKL Software, Incorporated. All rights reserved. Last Revised: April 1, 2010 Page 9 12. For the third quarter ended September 30, what is the Income from Operations as a percentage of Total Revenues? A. Less than 34.00% B. More than 40.00% C. 34.87% D. 33.78% ______________ 13. Using information from questions 11 and 12, what has been the percentage increase in third quarter revenues over second quarter revenues? A. 32.44% B. 33.42% C. 32.14% D. More than 35.00% E. None of the above. ______________ 14. Salaries Expense is what percent of total revenues? A. 32.44% B. 33.42% C. 32.14% D. More than 35.00% E. None of the above. ______________ 15. Is the building owned by the company: A. Very Old B. Very New C. About six years old D. Fully depreciated ______________ 16. What is the book value of Office Equipment? ______________ 17. What has been the total amount of net increase in retained earnings during the third quarter ended September 30? $_____________ 18. Emory Legal Services, Incorporated, began with an investment of $80,000. What is the current net worth of Emory Legal Services, Incorporated on September 30? $_____________ Work4Me I Problem 6 3rd Web-Based Edition, Copyright 2010 PKL Software, Incorporated. All rights reserved. Last Revised: April 1, 2010 Page 10 19. If the depreciation entries for Emory had not been recorded because of a clerical error, what would have been the reported Income from Operations of the business? $_____________ 20. If during the fourth quarter of this year, the Emory Legal Services sustained a net loss of $4,500, and at the same time paid a dividend of $3,000, what would be the new Retained Earnings balance when the books are closed on December 31? $_____________