Question

Following is data for Pitt-Vaughn Academy (PVA). Use the data below to answer each of the enumerated requirements.

Pitt-Vaughn Academy (PVA), a school owned by Lily Pitt-Vaughn, provides training to individuals who pay tuition directly to the school. PVA also offers training to groups in off-site locations. PVA 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 Items

1. An analysis of PVA's insurance policies shows that $3,732 of coverage has expired.
2. An inventory count shows that teaching supplies costing $3,235 are available at year-end.
3. Annual depreciation on the equipment is $14,929.
4. Annual depreciation on the professional library is $7,464.
5. On September 1, PVA agreed to do five courses for a client for $2,700 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 $13,500 cash in advance for all five courses on September 1, and PVA credited Unearned Training Fees.
6. On October 15, PVA agreed to teach a four-month class (beginning immediately) for an executive with payment due at the end of the class. At December 31, $11,600 of the tuition has been earned by PVA.
7. PVA'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.
   

Pitt-Vaughn Academy Unadjusted Trial Balance December 31
	Debit			Credit
Cash	$	27,396
Accounts receivable		0
Teaching supplies		10,536
Prepaid insurance		15,806
Prepaid rent		2,108
Professional library		31,610
Accumulated depreciation—Professional library				$	9,484
Equipment		73,751
Accumulated depreciation—Equipment					16,861
Accounts payable					36,022
Salaries payable					0
Unearned training fees					13,500
L. Pitt-Vaughn, Capital					67,016
L. Pitt-Vaughn, Withdrawals		42,149
Tuition fees earned					107,477
Training fees earned					40,040
Depreciation expense—Professional library		0
Depreciation expense—Equipment		0
Salaries expense		50,579
Insurance expense		0
Rent expense		23,188
Teaching supplies expense		0
Advertising expense		7,376
Utilities expense		5,901
Totals	$	290,400		$	290,400

Required:

1. Prepare the required adjusting journal entries for items a through h.
2. Prepare the Adjusted Trial Balance
3. Prepare the Income Statement for the year end
4. Prepare the Statement of Owner’s Equity for the year
5. Prepare the Balance Sheet as of December 31

Use the information in the financial statements to calculate the following ratios:

1. Return on Assets
2. Debt ratio
3. Profit margin
4. Current ratio

Below are the industry averages for the corresponding ratios

• Return on Assets = 11.48%
• Debt ratio = 42%
• Profit margin = 21.60%
• Current ratio = 1.06

How does the company’s performance compare to that of the industry? Provide a brief discussion of the company’s performance. Your discussion should be at least 4 well-articulated sentences.

Answer 1

Solutions:

	Adjusting Entries	Debit	Credit
a	Insurance Expense	3732
	Prepaid Insurance		3732
b	Teaching Supplies Expense	7,301
	Teaching Supplies		7,301
c	Depreciation Expense	14929
	Accumulated Depreciation - Equipment		14929
d	Depreciation Expense	7464
	Accumulated depreciation—Professional library		7464
e	Unearned training fees	5400
	Training fees earned ($2700*2)		5400
f	Accounts Receivable	11600
	Tuition fees earned		11600
g	Salaries Expense	400
	Salaries Payable (2*$100*2Days)		400
h	Rent Expense	2108
	Prepaid Rent		2108

Pitt-Vaughn Academy
Adjusted Trial Balance
	Unadjusted		Adjustments		Adjusted
	Debit	Credit	Debit	Credit	Debit	Credit
Cash	27,396				27396	0
Accounts receivable	0		11600		11600	0
Teaching supplies	10,536			7,301	3235	0
Prepaid insurance	15,806			3732	12074	0
Prepaid rent	2,108			2,108	0	0
Professional library	31,610				31610	0
Accumulated depreciation—Professional library		9,484		7464	0	16948
Equipment	73,751				73751	0
Accumulated depreciation—Equipment		16,861		14929	0	31790
Accounts payable		36,022			0	36022
Salaries payable		0		400	0	400
Unearned training fees		13,500	5400		0	8100
L. Pitt-Vaughn, Capital		67,016			0	67016
L. Pitt-Vaughn, Withdrawals	42,149				42149	0
Tuition fees earned		1,07,477		11600	0	119077
Training fees earned		40,040		5400	0	45440
Depreciation expense—Professional library	0		7464		7464	0
Depreciation expense—Equipment	0		14929		14929	0
Salaries expense	50,579		400		50979	0
Insurance expense	0		3732		3732	0
Rent expense	23,188		2,108		25,296	0
Teaching supplies expense	0		7,301		7,301	0
Advertising expense	7,376				7376	0
Utilities expense	5,901				5901	0
Totals	2,90,400	2,90,400	52,934	52,934	3,24,793	3,24,793

Income Statement
Tuition fees earned	119077
Training fees earned	45440
Total Revenues		164517
Less: Expenses
Depreciation expense—Professional library	7464
Depreciation expense—Equipment	14929
Salaries expense	50979
Insurance expense	3732
Rent expense	25296
Teaching supplies expense	7301
Advertising expense	7376
Utilities expense	5901
Total Expenses		122978
Net Income		41539

Statement of Owners Equity
L. Pitt-Vaughn, Capital	67016
Add: Net Income	41539
SubTotal	108555
Less: L.Pitt-Vaughn Drawings	42149
L. Pitt-Vaughn, Capital	66406

Balance Sheet
Assets
Cash		27396
Accounts receivable		11600
Teaching supplies		3235
Prepaid insurance		12074
Prepaid rent		0
Professional library	31610
Accumulated depreciation—Professional library	16948	14662
Equipment	73751
Accumulated depreciation—Equipment	31790	41961
Total Assets		110928
Liabilities & Owners Equity
Accounts payable	36022
Salaries payable	400
Unearned training fees	8100
Total Liabilities		44522
Owners Equity
L. Pitt-Vaughn, Capital	66406
Total Owners Equity		66406
Total Liabilities & Owners Equity		110928

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