Question

Wells Technical Institute (WTI), a school owned by Tristana Wells, provides training to individuals who pay tuition directly to the school. WTI also offers training to groups in off-site locations. WTI initially records prepaid expenses and unearned revenues in balance sheet accounts. Its unadjusted trial balance as of December 31 follows along with descriptions of items a through h that require adjusting entries on December 31.
Additional Information:

1. An analysis of WTI's insurance policies shows that $2,542 of coverage has expired.
2. An inventory count shows that teaching supplies costing $2,204 are available at year-end.
3. Annual depreciation on the equipment is $10,170.
4. Annual depreciation on the professional library is $5,085.
5. On September 1, WTI agreed to do five courses for a client for $2,400 each. Two courses will start immediately and finish before the end of the year. Three courses will not begin until next year. The client paid $12,000 cash in advance for all five courses on September 1, and WTI credited Unearned Training Fees.
6. On October 15, WTI agreed to teach a four-month class (beginning immediately) for an executive with payment due at the end of the class. At December 31, $6,498 of the tuition has been earned by WTI.
7. WTI's two employees are paid weekly. As of the end of the year, two days' salaries have accrued at the rate of $100 per day for each employee.
8. The balance in the Prepaid Rent account represents rent for December.


Debit Credit
Cash $26,944
Accounts receivable 0
Teaching supplies 10,362
Prepaid insurance 15,545
Prepaid rent 2,073
Professional library 31,088
Accumulated depreciation—Professional library $9,328
Equipment 72,533
Accumulated depreciation—Equipment 16,582
Accounts payable 37,202
Salaries payable 0
Unearned training fees 11,500
Common stock 11,000
Retained earnings, December 31, 2017 54,908
Dividends 41,452
Tuition fees earned 105,701
Training fees earned 39,379
Depreciation expense—Professional library 0
Depreciation expense—Equipment 0
Salaries expense 49,743
Insurance expense 0
Rent expense 22,803
Teaching supplies expense 0
Advertising expense 7,254
Utilities expense 5,803
Totals $285,600 $285,600

Required:
a. Prepare Wells Technical Institute's income statement for the year 2018.
b. Prepare Wells Technical Institute's statement of retained earnings for the year 2018.
c. Prepare Wells Technical Institute's balance sheet as of December 31, 2018.

Answer 1

Answer:

1. An analysis of WTI's insurance policies shows that $2,542 of coverage has expired.

Dr Insurance expense 2,542

    Cr Prepaid insurance 2,542

2. An inventory count shows that teaching supplies costing $2,204 are available at year-end.

Dr Teaching supplies expense 8,158

   Cr Teaching supplies 8,158

3. Annual depreciation on the equipment is $10,170.

Dr Depreciation expense 10,170

   Cr Accumulated depreciation: equipment 10,170

4. Annual depreciation on the professional library is $5,085.

Dr Depreciation expense 5,085

    Cr Accumulated depreciation: professional library 5,085

5. On September 1, WTI agreed to do five courses for a client for $2,400 each. Two courses will start immediately and finish before the end of the year. Three courses will not begin until next year. The client paid $12,000 cash in advance for all five courses on September 1, and WTI credited Unearned Training Fees.

Dr Unearned training fees 4,800

    Cr Training fees earned 4,800

6. On October 15, WTI agreed to teach a four-month class (beginning immediately) for an executive with payment due at the end of the class. At December 31, $6,498 of the tuition has been earned by WTI.

Dr Accounts receivable 6,498

   Cr Tuition fees earned 6,498

7. WTI's two employees are paid weekly. As of the end of the year, two days' salaries have accrued at the rate of $100 per day for each employee.

Dr Salaries expense 400

   Cr Salaries payable 400

8. The balance in the Prepaid Rent account represents rent for December.

Dr Rent expense 2,073

   Cr Prepaid rent 2,073

Wells Technical Institute (WTI)

Adjusted Trial Balance

                                                  Debit                  Credit

Cash                                      $26,944

Accounts receivable               $6,498

Prepaid rent                               $0

Teaching supplies                  $2,204

Prepaid insurance                 $13,003

Professional library                $31,088

Accumulated depreciation:                                 $14,413

Professional library

Equipment                              $72,533

Accumulated depreciation:                                $26,752

Equipment

Accounts payable                                                $37,202

Salaries payable                                                       $400

Unearned training fees                                         $6,700

Common stock                                                      $11,000

Retained earnings                                               $54,908

Dividends                                 $41,452

Tuition fees earned                                             $112,199

Training fees earned                                            $44,179

Depreciation expense:             $5,085

Professional library

Depreciation expense:             $10,170

Equipment

Salaries expense                      $50,143

Insurance expense                    $2,542

Rent expense                           $24,876

Teaching supplies expense       $8,158

Advertising expense                  $7,254

Utilities expense                         $5,803                              

Totals                                       $307,753             $307,753

a) Wells Technical Institute (WTI)

Income Statement

For the year ended December 31, 2018

Revenue:

• Tuition fees earned $112,199
• Training fees earned $44,179                    $156,378

Operating expenses:

• Depreciation expense $15,255
• Salaries expense $50,143
• Insurance expense $2,542
• Rent expense $24,876
• Teaching supplies expense $8,158
• Advertising expense $7,254
• Utilities expense $5,803                             ($114,031)

Operating income                                                 $42,347

b)Wells Technical Institute (WTI)

Balance  Sheet

For the year ended December 31, 2018

Assets:                                                

Cash $26,944

Accounts receivable $6,498

Teaching supplies $2,204

Prepaid insurance $13,003

Professional library, net $16,675

Equipment, net $45,781    

Total assets                                                         $111,105

Liabilities:

Accounts payable $37,202

Salaries payable $400

Unearned training fees $6,700

Total liabilities                                                      $44,302

Stockholders' Equity:

Common stock $11,000

Retained earnings $55,803

Total stockholders' Equity                                  $66,803

Total liabilities and equity                                    $111,105

c)Wells Technical Institute (WTI)

Statement of Retained Earnings

For the year ended December 31, 2018

Beginning balance January 1, 2018             $54,908

Net income                                                    $42,347

Subtotal                                                         $97,255

Dividends                                                     ($41,452 )

Ending balance December 31, 2018           $66,803