Fa4e Sm Ch03

Chapter 3 Adjusting Accounts for Financial Statements Learning Objectives – coverage by question MiniExercises

Exercises

Problems

LO2 – Review the process of journalizing and posting transactions.

21 - 23, 25,

33, 35,

40 - 42, 46,

29, 30

36, 38

47, 52, 54

LO3 – Describe the adjusting process and illustrate adjusting entries.

23, - 25,

32 - 36,

29, 30

38

Cases and Projects

LO1 – Identify the major steps in the accounting cycle.

LO4 – Prepare financial statements from adjusted accounts.

55 - 58

40 - 43, 46 - 49,

55 - 58

52 - 54 40 - 42,

26

39

44, 47, 49,

55, 58

50, 53, 54 LO5 – Describe the process of closing temporary accounts.

LO6 – Analyzing

changes in balance sheet accounts.

27, 28, 30

25, 29

31, 33,

42, 44 - 46,

37, 39

49 - 54

32, 34 - 36, 38

53

55

56

©Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3

3-1

DISCUSSION QUESTIONS Q3-1.

The five major steps in the accounting cycle are: 1. Analyze business activity using transaction analysis based on the related source documents. 2. Record results of the transaction analysis chronologically in the general journal and create a trial balance. 3. Adjust the recorded data to update all accounts for expense and revenue recognition not previously recognized. 4. Report the adjusted financial data in the form of financial statements. 5. Close the books by posting the adjusting and closing entries, which ―zero out‖ the temporary accounts.

Q3-2.

The fiscal year is the annual accounting period adopted by a firm. A firm using a fiscal year ending on December 31 is on a calendar-year basis.

Q3-3.

Examples of source documents that underlie business transactions are invoices sent to customers, invoices received from suppliers, bank checks, bank deposit slips, cash receipt forms, and written contracts.

Q3-4.

A general journal is a book of original entry that may be used for the initial recording of any type of transaction. It contains space for dates and for accounts to be debited and credited, columns for the amounts of the debits and credits, and a posting reference column for numbers of the accounts that are posted.

Q3--5. When entries are posted, the page number and identifying initials of the appropriate journal are placed next to the amounts in the appropriate accounts. The account number is entered beside the related amount posted in the journal's posting reference column. This procedure enables interested users to trace amounts in the ledger back to the originating journal entry and permits us to know which entries have been posted. Q3-6.

A compound journal entry is a journal entry containing more than one debit entry or one credit entry.

Q3-7.

A chart of accounts is a list of the accounts appearing in the general ledger, with the account numbering system indicated. Normally the accounts are classified as asset, liability, owners' equity, revenue, and expense accounts, and often the numbering system identifies the account classification. For example, a coding system might assign the numbers 100–199 to assets, 200–299 to liabilities, and so on.

©Cambridge Business Publishers, 2014 3-2

Financial Accounting, 4th Edition

Q3-8.

Many of the transactions reflected in the accounting records through the first two steps of the accounting cycle affect the net income of more than one period. Therefore, adjustments to the account balances are ordinarily necessary at the end of each accounting period to record the proper amount of revenue and to match expenses with revenue properly. This process is also intended to achieve a more accurate picture of financial position by adjusting balance sheet amounts to show unexpired costs, up-to-date amounts of obligations, and so on.

Q3-9.

1. Allocating assets to expense to reflect expenses incurred during the period. Example: Recording supplies used by debiting Supplies Expense and crediting Supplies. 2. Allocating payments received in advance by crediting the revenue account to reflect revenues earned during the period. Example: Recording service fees earned by debiting Unearned Service Fees and crediting Service Fees Earned. 3. Accruing expenses to reflect expenses incurred during the period that are not yet paid or recorded. Example: Recording unpaid wages by debiting Wages Expense and crediting Wages Payable. 4. Accruing revenues to reflect revenues earned during the period that are not yet received or recorded. Example: Recording commissions earned by debiting Commissions Receivable and crediting Commissions Earned.

Q3-10. Jan. 31

Insurance expense (+E, -SE) Prepaid insurance (-A) To record insurance expense for January ($1,872/24 = $78).

78 78

Q3-11. A contra account is an account that is related to, and deducted from, another account when financial statements are prepared or when book values are computed. Accumulated depreciation is deducted from the cost of a depreciable asset in computing and portraying the asset's book value. Q3-12. The building is five years old by the end of 2014, so the accumulated depreciation of $800,000 represents five years of depreciation at an annual rate of $160,000 ($800,000/5). If the annual depreciation is $160,000, then the expected life of the building must be 25 years. At the end of 2021, the building will be twelve years old, and the accumulated depreciation will be 12×$160,000, or $1,920,000. The book value of the building (defined as original cost less accumulated depreciation) will be $2,080,000.


3-3

Q3-13. (a)

(b)

Jan. 1

Cash (+A) Subscriptions received in advance (+L) To record receipt of two-year subscriptions. Jan. 31 Subscriptions received in advance (-L) Subscriptions revenue (+R,+SE) To record subscription revenue earned during January ($9,720/24 = $405).

Q3-14. Jan. 31

Q3-15. Jan. 31

9,720 9,720

405 405

Wages expense (+E, -SE) Wages payable (+L) To record unpaid wages for Jan. 30–31 [($475/5)  2 = $190].

190

Interest receivable (+A) Interest income (+R,+SE) To record interest earned during January.

360

190

360

Q3-16. The temporary accounts—sometimes called nominal accounts—are closed at year-end. They consist principally of the income statement accounts (expense and revenue accounts). (The Income Summary account and the Dividend account are also closed if they are used.) Q3-17. Step 1) Close revenue accounts: Debit each revenue account for an amount equal to its balance, and credit the Retained Earnings account for the total of revenues. Step 2) Close expense accounts: Credit each expense account for an amount equal to its balance, and debit the Retained Earnings account for the total of expenses. Q3-18. A post-closing trial balance ensures that an equality of debits and credits has been maintained throughout the adjusting and closing procedures and that the general ledger is in balance to start the next period. Only balance sheet accounts appear in a post-closing trial balance. Depreciation Expense and Supplies Expense are temporary accounts that should have been closed and should not appear in the post-closing trial balance.



Q3-19. The cost principle and the matching concept support Dehning's handling of its catalog costs. Prepaid Catalog Costs is an asset account that is initially recorded at the amount that the catalogs cost Dehning. This is consistent with the cost principle that states that assets are initially recorded at the amounts paid to acquire the assets. The catalogs help Dehning generate sales revenues. The matching concept states that the catalog costs should be matched as expenses with the revenues they help generate. Dehning does this by expensing the catalog costs over their estimated useful lives. Q3-20. (a) Supplies Expense ($825 + $260  $630 = $455) for the period is omitted from the income statement, overstating net income by $455 (ignoring taxes). (b) Both Supplies and Owners' Equity are overstated by $455 on the January 31 balance sheet (again, before considering taxes).


3-5

MINI EXERCISES M3-21. (45 mintes)

a. Balance Sheet Transaction June 1. Invested $12,000 cash. June 2. Paid $950 cash for June rent. June 3. Purchased $6,400 of office equipment on account. June 6. Purchased $3,800 of supplies; $1,800 cash, $2,000 on account. June 11. $4,700 billed for services.

Cash Noncash Liabil+ = Asset Assets ities +12,000 = Cash -950 +6,400 Office Equipment

-1,800

+3,800

Cash

Supplies

+4,700 Accounts Receivable

June 30. Paid $350 utilities.

TOTALS

5,750

-950

-

Retained Earnings

Net Income

= +950 Rent Expense

=

Accounts

= Payable

-

=

-

=

-

=

-

=

-

=

-

=

+2,000 Accounts

= Payable

=

+4,700

+4,700

Retained Earnings

Service Fees Earned

=

Payable

-900 =

Retained Earnings

=

Retained Earnings

=

Retained Earnings

-350

-

-2,500

Cash

+ 11,650

= 5,400

+ 12,000 +

0

4,700

+350 Utilities Expense

=

+2,500

+4,700

-350 -2,500

-

Salaries Expense

=

-

3,800

=

continued next page


-950

+6,400

-3,000 = Accounts

Cash

-2,500

Revenues - Expenses =

-3,250 Accounts Receivable

-350

June 30. Paid $2,500 salaries.

Earned Capital

Common Stock

=

Cash

June 17. Collected +3,250 Cash $3,250 on accounts. June 19. Paid $3,000 -3,000 Cash on office equipment account. June 25. Paid cash -900 Cash dividend of $900.

Income Statement

Contrib. + + Capital +12,000


900

M3-21. continued b. June 1

2

3

6

Cash (+A) 12,000 Common stock (+SE) Owner invested cash for stock.

12,000

Rent expense (+E, -SE) Cash (-A) Paid June rent.

950 950

Office equipment (+A) Accounts payable (+L) Purchased office equipment on account.

6,400

Supplies (+A) Cash (-A) Accounts payable (+L) Purchased $3,800 of supplies; paid $1,800 down with balance due in 30 days.

3,800

6,400

1,800 2,000

11 Accounts receivable (+A) Service fees earned (+R,+SE) Billed clients for services.

4,700

17 Cash (+A) Accounts receivable (-A) Collections from clients on account.

3,250

19 Accounts payable (-L) Cash (-A) Payment on account.

3,000

4,700

3,250

3,000

25 Retained earnings (-SE) Cash (-A) Issued dividends.

900

30 Utilities expense (+E, -SE) Cash (-A) Paid utilities bill for June.

350

30 Salaries expense (+E, -SE) Cash (-A) Paid salaries for June.

900

350

2,500 2,500

continued next page


3-7

M3-21. concluded c. + June 1 17

+ June 11

-

-

Cash (A) 12,000 950 3,250 1,800 3,000 900 350 2,500

June 2 6 19 25 30 30

Accounts Receivable (A) 4,700 3,250 June 17

Common Stock (SE) 12,000

+ June 1

Service Fees Earned (R) + 4,700 June 11

+ June 6

+ June 3 June 19

Supplies (A) 3,800

Office Equipment (A) 6,400 Accounts Payable (L) 3,000 6,400 2,000

-

-

+ June 3 June 6

Retained Earnings (SE) June 25 900

+

+ June 2

Rent Expense (E) 950

-

+ June 30

Utilities Expense (E) 350

-

+ June 30

Salaries Expense (E) 2,500

-



M3-22. (45 minutes) a. Income Statement

Balance Sheet Transaction April 1. Invested $9,000 in cash. April 2. Paid $2,850 cash for lease. April 3. Borrowed $10,000. April 3. Purchased $5,500 equipment for $2,500 cash with rest on account. April 4. Paid $4,300 cash for supplies. April 7. Paid $350 cash for ad.

Cash Noncash Liabil+ = Asset Assets ities +9,000 = Cash -2,850

+2,850

Cash

Prepaid Van Lease

Contrib. + + Capital +9,000

Net Revenues - Expenses = Income

Common Stock

=

+10,000

-

=

-

=

-

=

-

=

-

=

+10,000 =

Cash

Note Payable

-2,500

+5,500

+3,000

Cash

Equipment

Accounts Payable

=

-4,300

+4,300

Cash

Supplies

=

-350

-350

Cash

April 21. Billed $3,500 for services

Earned Capital


April 23. Paid $3,000 cash on account.

-3,000

April 28. Collected $2,300 on account.

+2,300

-2,300

Cash

Accounts Receivable

April 29. Paid $1,000 cash dividend.

-1,000

April 30. Paid $1,750 cash for wages.

-1,750

+350

=

Retained Earnings

-

=

+3,500

+3,500

Retained Earnings

Cleaning Fees Earned

-3,000 = Accounts

Cash

Ad. Expense

-350 =

-

=

-

=

-

=

-

=

+3,500

Payable

Cash

-995

TOTALS

4,555

-1,000

=

Retained Earnings

=

Retained Earnings

=

Retained Earnings

-1,750

Cash

April 30. Paid $995 cash for gas.

=

+1,750 Wages Expense

-

Van Fuel Expense

=

-

3,095

=

-995

Cash

+ 13,850

= 10,000 + 9,000 +

-595

-1,750

-

=

+995 3,500

-995

continued next page


3-9

405

M3-22 continued b. April

1

2

3

3

4

7

Cash (+A) Common stock (+SE) Owner invested cash for stock.

9,000

Prepaid van lease (+A) Cash (-A) Paid six months' lease on van.

2,850

9,000

2,850

Cash (+A) Notes payable (+L) Borrowed money from bank for one year at 10% interest.

10,000 10,000

Equipment (+A) Cash (-A) Accounts payable (+L) Purchased $5,500 of equipment; paid $2,500 down with balance due in 30 days.

5,500

Supplies (+A) Cash (-A) Purchased supplies for cash.

4,300

Advertising expense (+E, -SE) Cash (-A) Paid for April advertising.

2,500 3,000

4,300 350 350

21 Accounts receivable (+A) Cleaning fees earned (+R, +SE) Billed customers for services.

3,500

23 Accounts payable (-L) Cash (-A) Payment on account.

3,000

28 Cash (+A) Accounts receivable (-A) Collections from customers on account.

2,300

29 Retained earnings (-SE) Cash (-A) Issued cash dividends.

1,000

30 Wages expense (+E, -SE) Cash (-A) Paid wages for April.

1,750

30 Van fuel expense (+E, -SE) Cash (-A) Paid for gasoline used in April.

3,500

3,000

2,300

1,000

1,750 995 995 continued next page



M3-22 concluded c. + April 1 3 28

+ April 4

Cash (A) 9,000 2,850 April 2 10,000 2,500 3 2,300 4,300 4 350 7 3,000 23 1,000 29 1,750 30 995 30 Supplies(A) 4,300

Accounts Payable (L) April 23 3,000 3,000 -

Common Stock (SE) 9,000

-

Van Fuel Expense (E) 995

Accounts Receivable (A) 3,500 2,300 April 28

+ April 2

Prepaid Van Lease (A) 2,850 +

April 3 -

+ April 3 + April 1

+ Advertising Expense (E) April 7 350

+ April 30

+ April 21

-

Equipment (A) 5,500

-

-

Notes Payable (L) 10,000

+ April 3

- Retained Earnings (SE) April 29 1,000 -

+ April 30

+

Cleaning Fees Earned (R) + 3,500 April 21

Wages Expense (E) 1,750

-

-


3-11

M3-23. (20 minutes) a. Balance Sheet

Income Statement

Cash Noncash LiabilContrib. + = + + Transaction Asset Assets ities Capital 1. Received $20,100 in +20,100 +20,100 advance for Cash = Unearned Service contract work.

Earned Capital

Net Revenues - Expenses = Income -

=

Fees

Jan.

1 Cash (+A) Unearned service fees (+L) To record fee received in advance.

20,100 20,100

b. Balance Sheet Cash Asset

Transaction

+

2. Adjusting entry for work completed by Jan. 31.

Income Statement

Noncash LiabilContrib. = + + Assets ities Capital -3,350 Unearned = Service Fees

Earned Capital +3,350 Retained Earnings

Net Revenues - Expenses = Income +3,350 +3,350 Service = Fees

Jan. 31 Unearned service fees (-L) Service fees (+R, +SE) To reflect January service fees earned on contract ($20,100/6 = $3,350).

3,350 3,350

c. Balance Sheet Cash Asset

Transaction 3. Adjusting entry for fees earned but not billed.

Jan. 31

+

Noncash Liabil= Assets ities +570 Fees =

+

Income Statement Contrib. + Capital

Receivable

Fees receivable (+A) Service fees (+R, +SE) To record unbilled service fees earned at January 31.

Earned Capital +570 Retained Earnings

Net Revenues - Expenses = Income +570 +570 Service = Fees

570 570



M3-24. (15 minutes) 1. Balance Sheet Cash Asset

Transaction 1. Adjusting entry for

prepaid insurance.

Jan.

Noncash Liabil+ = Assets ities -185 = Prepaid

Income Statement

Contrib. + + Capital

Retained Earnings

Insurance

31

Earned Capital -185

Net Revenues - Expenses = Income +185 -185 - Insurance = Expense

Insurance expense (+E, -SE) Prepaid insurance (-A) To record January insurance expense ($6,660/36 = $185).

185 185

2. Balance Sheet Cash Asset

Transaction 2. Adjusting entry for supplies used.

Jan.

31

+

Noncash Liabil= Assets ities -1,080 = Supplies

+


Earned Capital -1,080

Revenues - Expenses = +1,080 -

Retained Earnings

Supplies expense (+E, -SE) Supplies (-A) To record January supplies expense ($1,930  $850 = $1,080).

Supplies Expense

Net Income -1,080

=

1,080 1,080

3. Balance Sheet Cash Asset

Transaction

+

Noncash Assets

3. Adjusting entry for depreciation of equipment.

Jan.

31

-

Contra Assets

-

+62 Accumulated Depreciation

=

Liabilities

Income Statement +

Contrib. Capital

+

Earned Capital

Revenues

-62

-

-

Retained Earnings

Depreciation expense—Equipment (+E, -SE) Accumulated depreciation—Equipment (+XA, -A) To record January depreciation on office equipment ($5,952/96 = $62).

Expenses

=

Net Income

+62

=

-62

Depreciation Expense

62 62

continued next page


3-13

M3-24. concluded 4.

Balance Sheet Cash Asset

Transaction 4. Adjusting entry for rent.

Noncash LiabilContrib. + = + + Assets ities Capital -875 = Unearned Rent Revenue

Income Statement Earned Capital +875

Net Revenues - Expenses = Income +875 +875 Retained Rent Revenue = Earnings

Jan. 31 Unearned rent revenue (-L) Rent revenue (+R, +SE) To record portion of advance rent earned in January.

875 875

5.


Transaction 5. Adjusting entry for accrued salaries.

Jan.

+

Noncash LiabilContrib. = + + Assets ities Capital +490 = Salaries Payable

Income Statement Earned Capital -490 Retained Earnings

31 Salaries expense (+E, -SE) Salaries payable (+L) To record accrued salaries at January 31.

Revenues - Expenses = +490 -

Salaries Expense

Net Income -490

=

490 490



M3-25. (15 minutes) (All amounts in $ millions.) a. Balance Sheet Cash Asset

Transaction

+

Inventory purchases (total).

Noncash = Liabilities Assets +3,734 +3,734 Inventory

=

+


Earned Capital

Revenues - Expenses =

Accounts Payable

-

Net Income

=

Inventories (+A)……………………….. 3,734 Accounts payable (+L)…………….. 3,734 To record total purchases made at various dates. b. Beginning AP balance + Purchases – Payments = Ending AP balance. So $447 + $3,734 - Payments = $510. Thus Payments = $3,671 c.

Income Statement


Transaction

+ Noncash Assets = Liabilities

Adjusting entry for cost of goods sold for 2011.

-3,617 Inventory

=

+

Contrib. Capital

+

Earned Capital

-3,617 Retained Earnings

Revenues

-

-

Expenses

= Net Income

+3,617 Cost of Goods Sold

=

Beginning Inv balance + Purchases – Cost of goods sold = Ending Inv balance. So $897 + $3,734 – COGS = $1.014. Thus COGS = $3,617 *

Cost of goods sold (+E, -SE)…………………... 3,617 Inventories (-A)………………………………… 3,617 To record cost of goods sold for the year ended 1/31/2012. (Note: the COGS figure can be verified from the firm’s financial statements. Purchases can not be so determined, but could be established by working backwards. See M3-29.)


3-15

-3,17

M3-26. (15 minutes) ARCHITECT SERVICES COMPANY Statement of Stockholders’ Equity For Year Ended December 31, 2014 Common Stock Balance at December 31, 2013 ..............$30,000 Stock issuance ..................................... 6,000 Dividends ............................................. Net income ........................................... _____ Balance at December 31, 2014 ..............$36,000

Retained Earnings $18,000 (9,700) 29,900 $38,200

Total Stockholders’ Equity $48,000 6,000 (9,700) 29,900 $74,200

M3-27. (5 minutes) Ending balance = Beginning balance + Credit from closing revenue – Debit from closing expenses: $137,600 = $99,000 + $347,400 - $308,800

M3-28. (15 minutes) a.

Date 2013 Description Dec. 31 Commissions revenue (-R) Retained earnings (+SE) To close the revenue account. 31 Retained earnings (-SE) Wages expense (-E) Insurance expense (-E) Utilities expense (-E) Depreciation expense (-E) To close the expense accounts.

Debit

Credit

84,900 84,900 55,900 36,000 1,900 8,200 9,800

Closing the revenue and expense accounts into retained earnings has the effect of increasing the retained earnings balance by an amount equal to net income (revenue minus expenses). The balance of Smith’s Retained Earnings after closing entries are posted is: $101,100 credit ($72,100 + $84,900 - $55,900).

continued next page



M3-28 concluded b. + Bal. Bal. + Bal. Bal. + Bal. Bal.

Wages Expense (E) 36,000 36,000 (2)Dec. 31 0 Insurance Expense (E) 1,900 1,900 (2)Dec. 31 0 Depreciation Expense (E) 9,800 9,800 (2)Dec. 31 0

+ Bal. Bal.

Utilities Expense (E) 8,200 8,200 (2) Dec. 31 0

- Commissions Revenue (R) + (1)Dec. 31 84,900 84,900 Bal. 0 Bal. - Retained Earnings (SE) + (2)Dec. 31 55,900 72,100 Bal. 84,900 (1)Dec.31 101,100 Bal. Dec.31

M3-29. (30 minutes) (All amounts in $ millions.) a. Balance Sheet Cash Asset

Transaction Recognize cost of goods sold

+

Noncash = Assets -5,206 Merchandise = Inventory

Liabilities

+


Earned Capital -5,206 Retained Earnings

Revenues -

Cost of goods sold (+E,-SE) .................................................... Merchandise Inventory(-A) ..................................................

Expenses

+5,206 Cost of goods sold

=

=

5,206 5206

To recognize the cost of goods sold. continued next page


3-17

Net Income -5,206

M3-29. concluded b. Beginning Inv balance + Purchases – Cost of goods sold = Ending Inv balance. So $1,370 + Purchases - $5,206 = $1,375. Thus purchases = $5,211 Balance Sheet Cash Asset

Transaction Recognize cost of goods sold.

Noncash Liabil + = Assets -ities +5,211 +5,211 Merchandise = Account inventory Payable


+

Earned Capital

Revenues -

Expenses

=

-

Merchandise Inventory(+A) ..................................................... Accounts Payable (+L) ........................................................

Net Income -

=

5,211 5,211

To recognize the purchases on account.

c. Beginning AP balance + Purchases – Payments = Ending AP balance. So $869 + $5,211 - Payments = $949. Thus Payments = $5,131

M3-30 (10 minutes) a. Balance Sheet Transaction

Cash Asset

+

a. Dec. 31 Interest earned.

Noncash Liabil= Assets ities +600 = Interest

+


Earned Capital +600 Retained Earnings

Receivable

Net Revenues - Expenses = Income +600 +600 = Interest Income

Dec. 31 Interest receivable (+A) Interest income (+R, +SE) To record accrued interest income. b. Dec. 31

600 600

Interest income (-R) Retained earnings (+SE) To close the Interest Income account.

2,400 2,400

c. Income Statement

Balance Sheet Transaction c. 1/31 Receipt of $900 interest.

Cash Asset +900 Cash

+

Noncash Liabil= Assets ities -600 = Interest

+

Contrib. + Capital

Receivable

2014 Jan. 31 Cash (+A) Interest income (+R, +SE) Interest receivable (-A) To record cash receipt of interest.

Earned Capital + 300 Retained Earnings

Net Revenues - Expenses = Income +300 +300 = Interest Income

900 300 600



EXERCISES E3-31. (30 minutes) a. Dec. 31

31

Service fees earned (-R,-SE) Retained earnings (+SE) To close the revenue account.

80,300

Retained earnings (-SE) Rent expense (-E) Salaries expense (-E) Supplies expense (-E) Depreciation expense (-E) To close the expense accounts.

82,300

80,300

20,800 45,700 5,600 10,200

b. + Bal. Bal.

Rent Expense (E) 20,800 20,800 0

-

+ (2)

Bal. Bal. + Bal. Bal.

+ Bal. Bal. (2)

Salaries Expense (E) 45,700 45,700 0 Retained Earnings (SE) 82,300 67,000 80,300 65,000

(2)

(1)

Supplies Expense (E) 5,600 5,600 0 Depreciation Expense (E) 10,200 10,200 0

-

Service Fees Earned (R) 80,300 80,300 0

+

(2) (2)

Bal. Bal.

+ Bal. (1) Bal.

Brooks Consulting earned a loss during the period (expenses exceeded revenues by $2,000), so the ending retained earnings is lower than the beginning retained earnings (even though no dividends were paid).


3-19

E3-32. (30 minutes) a. Balance Sheet Cash Asset

Transaction

+

Noncash Assets

1. Adjusting entry for depreciation: equipment. 2. Adjusting entry for supplies expense.

-1,890 Supplies

3. Adjusting entry for utilities expense.

-


=

5. Adjusting entry for premium revenues.

0

+

+300 Interest Receivable

-

-2,290

-

610

Earned Capital

Revenues

-

Expenses

=

Net Income

-

+610 Depreciation Expense

=

-610

=


-

+1,890 Supplies Expense

=

-1,890

-390 Retained Earnings

-

+390 Utilities Expense

=

-390

=


-

+700 Rent Expense

=

-700

=

-468 Unearned Premium Revenue = +965 Wages Payable

+468 Retained Earnings

=

+468

=

-965

=


+300 Interest Income

-

=

+300

-3,787

768

-

=

-3,787

+390 Utilities Payable

-

-

7. Adjusting entry for interest earned.

+

-

-

6. Adjusting entry for wage expense.



=

-700 Prepaid Rent

Liabilities

=

-

4. Adjusting entry for rent expense.

TOTALS

-

Contra Assets

=

887

+468 Premium Revenue


+

0

+

-

-

b. 1. Depreciation expense—Equipment (+E,-SE) Accumulated depreciation—Equip (+XA)

+965 Wage Expense

4,555

610 610

To record depreciation for the period.

2. Supplies expense (+E,-SE) Supplies (-A)

1,890

3. Utilities expense (+E, - SE) Utilities payable (+L)

390

1,890

To record supplies expense for the period ($2,990  $1,100 = $1,890).

390

To record accrued utilities expense.

4. Rent expense (+E,-SE) Prepaid rent (-A)

700 700

To record rent expense for the month ($2,800/4 = $700).

5. Unearned premium revenue (-L) Premium revenue (+R,+SE)

468

6. Wages expense (+E,-SE) Wages payable (+L)

965

468

To record premium revenue earned [($624/12)  9 = $468].

965

To record accrued wages at the end of the period.

7. Interest receivable (+A) Interest income (+R,+SE)

300 300

To accrue interest earned but not yet received. ©Cambridge Business Publishers, 2014 3-20



Transaction

+

Noncash Assets

a. Adjusting entry for salaries expense.

= Liabilities +


+4,700 = Salaries Payable


2013 Dec. 31 Salaries expense (+E,-SE) Salaries payable (+L) To record accrued salaries payable.

b.

Revenues -

Expenses

=

-

+4,700 Salaries Expense

=

Net Income -4,700

4,700 4,700

31 Retained earnings (-RE) Salaries expense (-E)

250,000 250,000

To close the Salaries Expense account.

c. Balance Sheet Transaction c. Paid salaries.

2014 Jan.

Cash Asset -12,000 Cash

+

Noncash Assets

= Liabilities +


-4,700 = Salaries Payable


Revenues -

7 Salaries payable (-L) Salaries expense (+E,-SE) Cash (-A)

-

Expenses

=

+7,300 Salary Expense

=

Net Income -7,300

4,700 7,300 12,000

To record payment of salaries.

E3-34. (20 minutes) a. Balance, January 1 = $960 + $800  $620 = $1,140. b. Amount of premium = $82  12 = $984. Therefore, five months' premium ($984  $574 = $410) has expired by January 31. The policy term began on and has been in effect since September 1, 2013. c.

Wages paid in January = $3,200  $500 = $2,700.

d. Monthly depreciation expense = $8,700/60 months = $145. Fields has owned the truck for 18 months ($2,610/$145 = 18).


3-21


Transaction

+

1. 7/31 Adjusting entry for rent expense. 2. 7/31 Adjusting entry for ad. expense. 3. 7/31 Adjusting entry for supplies expense. 4. 7/31 Adjusting entry for fees revenue.

Noncash Assets -475 Prepaid Rent -210 Prepaid Advertising -1,900 Supplies

Income Statement Contrib. + + Capital

=

=

+800 Fees Receivable

5. 7/31 Adjusting entry for fees revenue.

TOTALS

=

Liabilities

0

+

-1,785

-300 Unearned Refinish. Fees = -300

+

0

Earned Capital -475 Retained Earnings - 210 Retained Earnings -1,900 Retained Earnings +800 Retained Earnings +300 Retained Earnings

+800 Refinish. Revenue +300 Refinish. Revenue

-1,485

1,100

+

Revenues -

-

-

b. July 31 Rent expense (+E,-SE) Prepaid rent (-A)

Expenses +475 Rent Expense +210 Advertising Expense +1,900 Supplies Expense

= =

-210 = -1,900 = +800

-

= +300

-

= 2,585

=

475 475

To record July rent expense ($5,700/12 = $475).

31 Advertising expense (+E,-SE) Prepaid advertising (-A)

210 210

To record July advertising expense ($630/3 = $210).

31 Supplies expense (+E,-SE) Supplies (-A)

1,900 1,900

To record supplies expense for July ($3,000  $1,100 = $1,900).

31 Fees receivable (+A) Refinishing fees revenue (+R,+SE)

800 800

To record unbilled revenue earned during July.

31 Unearned refinishing fees (-L) Refinishing fees revenue (+R,+SE)

300 300

To record portion of advance fees earned in July ($600/2 = $300).

continued next page


Net Income -475


-1,485

E3-35. concluded c.

Bal. Bal.

+ Prepaid Rent (A) 5,700 475 5,225

(1)

Bal. Bal.

Bal. Bal.

+ Prepaid Advertising (A) 630 210 420

(2)

(5)

(4)

+ Fees Receivable (A) 800

+ Supplies (A) 3,000 1,900 1,100

(3)

- Unearned Finishing Fees (L) + 300 600 Bal. 300 Bal. - Refinishing Fees Revenue (R) + 2,500 Bal. 800 (4) 300 (5) 3,600 Bal. +

Supplies Expense (E) 1,900

(3)

+ (2)

Advertising Expense(E) 210

+ (1)

-

Rent Expense (E) 475

-


3-23

E3-36. (30 minutes) (All amounts in $ thousands.) a. Balance Sheet Transaction

Cash Asset

+

Recognize inventory purchases.

Noncash Assets +482,303 Inventory

=

Liabilities

+

Income Statement Contrib. Capital

+

Earned Capital

= +482,303 Account Payable

Revenues -

Expenses

-

Inventory (+A) ......................................................................... 482,303* Accounts payable (+L) ........................................................

=

Net Income

=

482,303

To recognize inventory purchases.

*Beginning Inv balance + Purchases – Cost of goods sold = Ending Inv. So $43,526 + Purchases - $456,664= $69,165. Thus purchases = $482,303 b. Beginning compensation payable + Compensation expense – Compensation paid = Ending compensation payable, so $10,529 + $40,000 – Payments = $10,841 Payments = $39,688 c.

Accrued compensation is reported as a current liability.

E3-37. (30 minutes) a. Dec. 31

Service fees earned (-R) Interest income (-R) Retained earnings (+SE)

92,500 2,200 94,700

To close the revenue accounts.

31

Retained earnings (-SE) Salaries expense (-E) Advertising expense (-E) Depreciation expense (-E) Income tax expense (-E)

64,700 41,800 4,300 8,700 9,900

To close the expense accounts.

continued next page



E3-37. concluded b. - Retained Earnings (SE) + 64,700 42,700 Bal. 94,700 (1) 72,700 Bal.

(2)

- Service Fees Earned (R) + 92,500 92,500 Bal. 0 Bal. - Interest Income (R) + 2,200 2,200 Bal. 0 Bal.

(1)

(1)

+ Salaries Expense (E) Bal. 41,800 41,800 Bal. 0 + Depreciation Expense (E) Bal. 8,700 8,700 Bal. 0

(2)

Bal. Bal.

(2)

Bal. Bal.

+ Advertising Expense (E) 4,300 4,300 0 + Income Tax Expense(E) 9,900 9,900 0

(2)

(2)

E3-38. (15 minutes) a. Balance Sheet Transaction (1) Collect deposits from customers. (2) Recognize income on completed customer orders.

(1)

Cash Asset

+

+200,000 Cash

Noncash Assets

=

Liabilities

Income Statement +

Contrib. Capital

+

Earned Capital

Revenues -

+200,000 = Customer

Expenses

Net Income

=

-

=

-

=

Deposits

+489,004 Cash

-189,956 = Customer Deposits

+678,960 +678,960 Retained Earnings

Cash (+A) ……………………………………………… Customer deposits* (+L) ………………………

Sales Revenue

+678,960

200,000 200,000

To record unearned customer deposits.

(2)

Customer deposits* (-L) ........................................................... 189,956 ** Cash (+A)………………………………………………… 489,004 Sales revenue (+R, +SE) .....................................................

678,960

To record sales revenue and recognized deposits earned. * Also sometimes called Unearned Customer Deposits ** $52,605 + $200,000 – Deposits earned = $62,649; Deposits earned = $189,956. continued next page ©Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3

3-25

E3-38. concluded b. Transaction Record inventory purchases.

Cash Asset

+

Noncash Assets -337,152 Inventory

Balance Sheet Liabil = + -ities =


Earned Capital

Revenues -

+337,152 Acc. Payable

Expenses

=

-

Inventory (+A) ......................................................................... Accounts Payable (+L) ......................................................

Net Income

=

337,152 337,152

To recognize inventory purchases. BI +Purchases – EI = COGS. So $134,040 + Purchases - $329 500 = $141,692. Thus: Purchases =$337,152

c. Customer Deposits are reported as a current liability.

E3-39. (40 minutes) a. SOLOMON CORPORATION Income Statement For Year Ended December 31, 2013 Service fees earned ........................................................................................................

$71,000

Rent expense ..................................................................................................................

(18,000)

Salaries expense ............................................................................................................

(37,100)

Depreciation expense……………………………….……………..

(7,000)

Net income......................................................................................................................

$8,900

SOLOMON CORPORATION Statement of Stockholders’ Equity For Year Ended December 31, 2013

Balance at December 31, 2012 ...........................

Common Stock $43,000

Retained Earnings $20,600*

Total Stockholders’ Equity $63,600

Stock issuance ..................................................... Dividends .............................................................

(8,000)

(8,000)

Net income ...........................................................

_______

8,900

8,900

Balance at December 31, 2013 ...........................

$43,000

$21,500

$64,500

*12,600 + 8,000 The dividend was paid and debited to retained earnings prior to the end of the period. continued next page ©Cambridge Business Publishers, 2014 3-26


E3-39. continued SOLOMON CORPORATION Balance Sheet December 31, 2013 Assets

Liabilities $ 4,000 Notes payable 6,500 Total Liabilities

Cash Accounts receivable Equipment Less:Accumulated depreciation

$ 10,000 10,000

$ 78,000 64,000

Owners’ Equity

14,000 Common stock Retained earnings $74,500 Total Liabilities and Owners’ Equity

Total Assets

43,000 21,500 $74,500

b. 1.

2.

3.

4.

Service fees earned (-R) ......................................................... 71,000 Retained earnings (+SE) ....................................................

71,000

Retained earnings (-SE).......................................................... 18,000 Rent expense (-E)...............................................................

18,000

Retained earnings (-SE).......................................................... 37,100 Salaries expense (-E) .........................................................

37,100

Retained earnings (-SE)..........................................................7,000 Depreciation expense (-E) .................................................

7,000

The cash dividend has already been paid and is already reflected in the adjusted trial balance. continued next page


3-27

E3-39. concluded c. Only the T-accounts affected by closing process are shown here. + Depreciation Expense (E) Bal. 7,000 7,000 Bal 0

Bal. Bal.

+ Salaries Expense (E) 37,100 37,100 0

(4)

(1)

- Service Fees Earned (R) + 71,000 71,000 Bal. 0 Bal. +

(3)

Bal. Bal

(2-4)

Rent Expense (E) 18,000 18,000 0

- Retained Earnings (SE) + 62,100 12,600 71,000 21,500

(2)

Bal. (1) Bal.



PROBLEMS P3-40. (90 minutes) a. +

Cash (A)

Apr. 1 5 18

Bal.

11,500 1,800 4,900

-

2,880 6,100 1,000 675 100 2,500

+ Apr. 1 2 2 29 30 30

Accounts Receivable (A)

Apr. 12 30 Bal. + Apr. 5 Unadj. bal.

4,945

Adj. bal. + Apr. 1 Unadj. bal.

Adj bal. + Apr. 2 Bal.

-

+ Apr. 30

Prepaid Insurance (A) 2,880 2,880 120 (d) 2,760 Equipment (A) 3,100 3,100

Adj. Bal.

+ Apr. 30 Bal.

Advertising Expense (E) 100 100

5,500 4,900 4,000 4,600

Apr. 18

Supplies (A) 1,200 1,200 800 (d) 400

Apr. 30

+ Apr. 30

-

Apr. 2 Bal. -

Roofing Fees Earned (R) + 5,500 Apr. 12 4,000 30 9,500 Unadj. bal. 450 (d) 30 9,950 Adj. Bal. Supplies Expense (E) (d) 800 800

-

-

-

Trucks (A) 6,100 6,100

-

Accounts Payable (L) 2,100 1,200 3,300

+ Apr. 2 5 Bal.

-

Unearned Roofing Fees (L) + 1,800 Apr. 5 Apr. 30 (d) 450 1,800 Unadj. bal 1,350 Adj. Bal

-

Common Stock (SE) 11,500 11,500

+ Apr. 29 Bal.

Fuel Expense (E) 675 675

+ Apr. 1 Bal. -

continued next page


3-29

P3-40. continued a. continued + Insurance Expense (E) Apr. 30 (d) 120 Adj. Bal. 120 + Depreciation Expense – Equip. (E) Apr. 30 (d) 35 Adj. Bal. 35

+ Wages Expense (E) Apr. 30 2,500 Bal. 2,500 - Accumulated Deprec. – Equip. (XA) + 35 (d) Apr. 30 35 Adj. Bal.

+ Depreciation Expense - Trucks (E) Apr. 30 (d) 125 Adj. Bal. 125

- Accumulated Deprec. – Trucks (XA) + 125 (d) Apr. 30 125 Adj. Bal

b. Balance Sheet Cash Noncash + Transaction Asset Assets Apr. 1. Cash received for +11,500 stock. Cash Apr. 1. Purchase liability insurance.

-2,880 Cash

Apr. 2. Purchase truck for cash. Apr. 2. Purchase equipment.

-6,100 Cash -1,000 Cash

Apr. 5. Purchase supplies on account. Apr. 5. Cash in advance for roofing repairs.

+1,800 Cash

Apr. 12. Bill customers for services. Apr. 18. Collected cash on account.

+4,900 Cash

= Liabilities =

+2,880 Prepaid = Insurance + 6,100 = Truck +3,100 +2,100 Equipment = Accounts Payable + 1,200 +1,200 Supplies = Accounts Payable +1,800 Unearned = Roofing Fees +5,500 Accounts = Receivable -4,900 Accounts = Receivable

Apr. 29. Paid cash for fuel.

-675 Cash

=

Apr. 30. Paid cash for ads.

-100 Cash

=

Apr. 30. paid cash wages.

-2,500 Cash

=

4,945

+4,000 Accounts = Receivable + 17,880 =

Apr. 30. Bill customers for services. Totals

Income Statement

Contrib. + + Capital +11,500 Common Stock

5,100

Earned Capital

+5,500 Retained Earnings

+

11,500

+

-675 Retained Earnings -100 Retained Earnings -2,500 Retained Earnings +4,000 Retained Earnings 6,225

Revenues -

Expenses

=

-

=

-

=

-

=

-

=

-

=

-

=

+5,500 Roofing Fees Revenue

=

-

=

+5,500

+675 - Fuel Expense =

-675

+100 - Ad. Expense =

-100


-2,500

+4,000 Roofing fees Earned 9,500

Net Income

= +4,000

-

= 3,275

=

6,225

continued next page ©Cambridge Business Publishers, 2014 3-30


P3-40. continued b. continued Date 2014 Apr. 1

1

2

2

5

5

12

18

29

30

30

30

Description Cash (+A) Common stock (+SE) Owner invested cash.

Debit Credit 11,500 11,500

Prepaid insurance (+A) Cash (-A) Paid two-year premium on liability insurance policy.

2,880

Trucks (+A) Cash (-A) Purchased used truck for $6,100 cash.

6,100

Equipment (+A) Cash (-A) Accounts payable (+L) Purchased ladders and other equipment, $1,000 down with $2,100 balance due in 30 days.

3,100

Supplies (+A) Accounts payable (+L) Purchased supplies on account.

1,200

Cash (+A) Unearned roofing fees (+L) Received advance payment for services. Accounts receivable (+A) Roofing fees earned (+R,+SE) Billed customers for services. Cash (+A) Accounts receivable (-A) Collection on account from customers.

2,880

6,100

1,000 2,100

1,200

1,800 1,800

5,500 5,500

4,900 4,900

Fuel expense (+E,-SE) Cash (-A) Paid truck fuel bill for April.

675

Advertising expense (+E,-SE) Cash (-A) Paid for April newspaper advertising.

100

675

100

Wages expense (+E, -SE) Cash (-A) Paid wages.

2,500

Accounts receivable (+A) Roofing fees earned (+R, +SE)

4,000

2,500

4,000

Billed customeers for services. continued next page ©Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3

3-31

P3-40. continued c. LOUGEE ROOFING SERVICE Unadjusted Trial Balance April 30, 2014 Debit $ 4,945 4,600 1,200 2,880 6,100 3,100

Cash Accounts Receivable Supplies Prepaid Insurance Trucks Equipment Accounts Payable Unearned Roofing Fees Common Stock Roofing Fees Earned Fuel Expense Advertising Expense Wages Expense

Credit

$ 3,300 1,800 11,500 9,500 675 100 2,500 $26,100

$26,100

d. Balance Sheet Transaction

Cash Asset

1. Recognize one month of insurance expense. 2. Recognize supplies expense. 3. Recognize depreciation expense – Trucks. 4. Recognize depreciation expense on equipment. 5. Recognize roofing fees earned.

Totals

Noncash + Assets -120 Prepaid Insurance -800 Supplies

0

+

-920

-

Contra Assets

= Liabilities

-

=

-

=

-

Income Statement +

Contrib. Capital

+

Earned Capital -120 Retained Earnings

Revenues

-

Expenses

-

+120 Insurance Expense

Net Income = -120 =

-

+800 = Supplies Expense +125 = Depreciation Expense

-800

+125 = Accumulated Depreciation

-800 Retained Earnings -125 Retained Earnings

-

+35 = Accumulated Depreciation


-

+35 = Depreciation Expense

-35

-

=

-450 Unearned Roofing Fees

=

+450

=

-450

=

-630

-

160

+

0

+


+450 Roofing Fees Earned

-

-630

450

-

1,080

continued next page



-125

P3-40. concluded d. continued Date 2014 Description April 30 Insurance expense (+E,-SE) Prepaid insurance (-A)

Debit 120

Credit 120

To record April insurance expense ($2,880/24 months = $120).

30

Supplies expense (+E,-SE) Supplies (-A)

800

Depreciation expense—Trucks (+E,-SE) Accumulated depreciation—Trucks (+XA,-A)

125

800

To record April supplies expense ($1,200  $400 = $800).

30

125

To record April depreciation on trucks.

30

Depreciation expense—Equipment (+E,-SE) Accumulated depreciation—Equipment (+XA,-A)

35 35

To record April depreciation on equipment.

30

Unearned roofing fees (-L) Roofing fees earned (+R,+SE)

450 450

To record portion of advance payment earned in April ($1,800/4 = $450).


3-33

P3-41. (40 minutes) SNAPSHOT COMPANY Unadjusted Trial Balance December 31, 2013 a. Debit $2,150 3,800 12,600 2,970 4,250 22,800

Cash Accounts Receivable Prepaid Rent Prepaid Insurance Supplies Equipment Accounts Payable Unearned Photography Fees Common Stock Photography Fees Earned Wages Expense Utilities Expense

Credit

$1,910 2,600 24,000 34,480 11,000 3,420 $62,990

______ $62,990

b. Balance Sheet Transaction 1. Fees earned but not received. 2. Recognize depreciation expense for one year. 3. Recognize utilities expense. 4. Recognize rent expense for year. 5. Recognize photo revenues. 6. Recognize insurance expense. 7. Recognize supplies expense. 8. Recognize wages expense. Totals

Cash Asset

Noncash + Assets +925 Fees Receivable -

-6,300 Prepaid Rent

-990 Prepaid Insurance -2,730 Supplies

0

+

-9,095

Contra Assets

= Liabilities

+

+

= +2,280 Accumulated = Depreciation +400 Utilities Payable

-

=

-

=

-

-2,600 = Unearned Photo Fees

-

=

-

=

-

=

-

Income Statement Contrib. Capital

2,280

+375 Wages Payable = -1,825

+

0

+

Earned Capital +925 Retained Earnings -2,280 Retained Earnings -400 Retained Earnings -6,300 Retained Earnings +2,600 Retained Earnings -990 Retained Earnings -2,730 Retained Earnings -375 Retained Earnings -9,550

Revenues

-

Expenses

+925 Photography Fees Earned -

-

-

-

3,525

-

+2,280 Depreciation = Expense +400 Utilities Expense +6,300 Rent Expense

-2,280

-400 = -6,300 = +2,600 =

+990 Insurance Expense +2,730 Supplies Expense +375 Wages Expense 13,075

-990 = -2,730 = -375 = =

continued next page


Net Income +925

=

+2,600 Photography Fee Earned -

=


-9,550

P3-41. continued b. continued Date 2013 Description Dec. 31 Fees receivable (+A) Photography fees earned (+R, +SE) `

Debit 925

Credit 925

To record revenue earned but not billed.

31

Depreciation expense (+E,-SE) Accum. depreciation—Equipment (+XA, -A)

2,280 2,280

To record depreciation for the year ($22,800/10 years = $2,280).

31

Utilities expense (+E, -SE) Utilities payable (+L)

400 400

To record estimated December utilities expense.

31

Rent expense (+E, -SE) Prepaid rent (-A)

6,300 6,300

To record rent expense for the year ($12,600/2 years = $6,300).

31

Unearned photography fees (-L) Photography fees earned (+R, +SE)

2,600 2,600

To record advance payments earned during the year.

31

Insurance expense (+E, -SE) Prepaid insurance (-A)

990 990

To record insurance expense for the year ($2,970/3 years = $990).

31

Supplies expense (+E,-SE) Supplies (-A)

2,730 2,730

To record supplies expense for the year ($4,250  $1,520 = $2,730).

31

Wages expense (+E, -SE) Wages payable(+L)

375 375

To record unpaid wages at December 31.

continued next page


3-35

P3-41. concluded c. + Cash (A) Unadj. bal. 2,150 Adj. bal. 2,150 + Accounts Receivable (A) Unadj. bal. 3,800 Adj. bal. 3,800 + Fees Receivable (A) Dec. 31 (1) 925 Adj. bal. 925 + Prepaid Rent (A) Unadj. bal. Dec.31 12,600 6,300 (4) Adj. bal. 6,300 + Prepaid Insurance (A) Unadj. bal. Dec.31 2,970 990 (6) Adj. bal. 1,980 + Supplies (A) Unadj. bal. Dec.31 4,250 2,730 (7) Adj. bal. 1,520

+ Equipment (A) Unadj. bal. 22,800 Adj. bal. 22,800 - Accum. Depreciation – Equip. (XA) + Dec.31 2,280 (2) Adj. Bal. 2,280 + Supplies Expense (E) (7) 2,730 Adj. bal. 2,730 + Insurance Expense (E) Dec. 31 (6) 990 Adj. bal. 990 Dec. 31

- Accounts Payable (L) + Unadj. bal. 1,910 Adj. bal. 1,910 - Unearned Photo Fees (L) + Unadj. bal. Dec.31 (5) 2,600 2,600 Adj. bal. 0 - Utilities Payable (L) + Dec.31 400 (3) Adj. bal. 400 - Wages Payable (L) + Dec.31 375 (8) Adj. bal. 375 - Common Stock (SE) + Unadj. bal. 24,000 Adj. bal. 24,000 - Photo Fees Earned (R) + Unadj. bal 34,480 Dec.31 925 (1) Dec.31 2,600 (5) Adj. bal. 38,005 + Wages Expense (E) Unadj. bal. 11,000 Dec.31 (8) 375 Adj. Bal. 11,375 + Utilities Expense (E) Unadj. bal. 3,420 Dec.31 (3) 400 Adj. Bal. 3,820 + Depreciation Expense – Equip. (E) Dec.31 (2) 2,280 Adj. Bal. 2,280 + Rent Expense (E) Dec.31 (4) 6,300 Adj. Bal. 6,300



P3-42. (90 minutes) a. Balance Sheet Transaction

Cash Asset

+

1. Recognize rent expense. 2. To recognize supplies expense. 3. To recognize depreciation expense. 4. To recognize wages expense. 5. To recognize utilities expense. 6. To recognize fees earned.

Noncash Assets

-

Contra Assets

-775 Prepaid Rent

Income Statement +

Contrib. + Capital

= = =

Date 2014 June 30

=

-775

74

-

= 510

-

0

+

-

+74

=

-74

+210

=

-210

+300

=

-300

Utilities Expense

+380

+380

Retained Earnings

Service Fees Earned

-2,679

380

Description Rent expense (+E, -SE) Prepaid rent (-A)

= -1,700

Wages Expense

-300

+

+1,700

Depreciation Expense

Retained Earnings

=

-

+775

Supplies Expense

-210

Utilities Payable

+380

-2,095

-

Retained Earnings

= +300

+

Net Income

-

-74

Wages Payable

-

0

=

Retained Earnings

= +210

Totals

Expenses Rent Expense

-1,700

Accum. Deprec.

-

-

-

Retained Earnings

+74

Accounts Receivable

Revenues

Retained Earnings

-

Earned Capital

-775

-

-1,700 Supplies

=

Liabilities

-

-

Debit 775

= +380

3,059

= -2,679

Credit 775

To record June rent expense ($3,100/4 months = $775).

30

Supplies expense (+E, -SE) Supplies (-A)

1,700 1,700

To record June supplies expense (2,520  $820 = $1,700).

30

Depreciation expense—Equip (+E, -SE) Accum. depreciation—Equipment (+XA, -A)

74 74

To record June depreciation ($4,440/60 months = $74).

30

Wages expense (+E, -SE) Wages payable (+L)

210 210

To record unpaid wages at June 30.

30

Utilities expense (+E, -SE) Utilities payable (+L)

300 300

To record estimated June utilities expense.

30

Accounts receivable (+A) Service fees earned (+R, +SE)

380 380

To record fees earned but not billed in June. continued next page ©Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3

3-37

P3-42. continued b. + Cash (A) 1,180 Adj. bal. 1,180 + Accounts Receivable (A) Unadj. bal 450 Jun. 30 (6) 380 Adj. bal. 830

- Accounts Payable (L) + Unadj. bal 760 Adj. bal. 760 - Wages Payable (L) + Jun.30 210 (4) Adj. bal. 210

Unadj. bal

+ Prepaid Rent (A) Unadj. bal 3,100 775 (1) Adj. bal. 2,325

Jun.30 Adj. bal.

Unadj. bal Adj. bal.

Unadj. bal Adj. bal.

- Utilities Payable (L) + Jun.30 300 (5) Adj. bal. 300 - Retained Earnings (SE) + Unadj. bal. 5,300

Jun.30

+ Rent Expense (E) (1) 775 775 + Supplies (A) 2,520 1,700 (2) 820

- Common Stock (SE) + Unadj. bal 2,000 Adj. bal. 2,000

Jun.30

+ Equipment (A) 4,440 4,440

- Accum. Depreciation – Equip.(XA) + 74 (3) Jun.30 Adj. Bal. 74 + Supplies Expense (E) (2) 1,700 Adj. bal. 1,700 Jun. 30

- Service Fees Earned (R) + 4,650 Unadj. bal 380 (6) Jun.30 Adj. bal. 5,030 + Wages Expense (E) Unadj. bal 1,020 Jun.30 (4) 210 Adj. bal. 1,230 + Utilities Expense (E) Jun.30 (5) 300 Adj. bal. 300 + Depreciation Expense - EQPT (E) (3) 74 Adj. bal. 74 Jun.30

continued next page



P3-42. continued c. MURDOCK CARPET CLEANERS Income Statement For Year Ended June 30, 2014 Revenues Service fees…………………………………….…

$5,030

Expenses Rent expense……………………………………

$ 775

Wages expense…………………………………

1,230

Supplies expense…………………………………

1,700

Utilities expense………………………………….

300

Depreciation expense……………………………

74

Total expenses……………………………………

4,079

Net income………………………………………… .......................................... $ 951

MURDOCK CARPET CLEANERS Balance Sheet June 30, 2014 Assets

Liabilities $ 1,180 Accounts payable 830 Wages payable

Cash Accounts receivable Supplies Prepaid rent Equipment Less: Accumulated depreciation

Total Assets

$ 760 210

820 Utilities payable 2,325 Total Liabilities $ 4,440 74

4,366

300 1,270

Owners’ Equity

Common stock Retained earnings $9,521 Total Liabilities and Owners’ Equity

2,000 6,251 $9,521

continued next page


3-39

P3-42. concluded d. 1. 2. 3.

4. 5. 6.

1. 2. 3. 4. 5.

Bal.

Retained earnings (-SE) ........................................................ Rent expense (-E) ..............................................................

775

Retained earnings (-SE) ......................................................... Supplies expense (-E) ........................................................

1,700

Retained earnings (-SE) ......................................................... Wages expense (-E) ..........................................................

1,230

Retained earnings (-SE) ......................................................... Utilities expense (-E ) .........................................................

300

Retained earnings (-SE) ......................................................... Depreciation expense (-E) .................................................

74

Service fees earned (-R) ........................................................ Retained earnings (+SE)....................................................

5,030

- Retained Earnings (SE) + 5,300 Bal. 775 1,700 1,230 300 74 5,030 6. 6,251 Bal. + Wages Expense(E) 1,230 1,230 0

+ Depreciation Expense (E) Bal. 74 74 0

3.

5.

775 1,700 1,230

300 74 5,030

Bal.

+ Rent Expense (E) 775 775 0

1.

Bal.

+ Supplies Expense (E) 1,700 1,700 0

2.

Bal.

6.

+ Utilities Expense (E) 300 300 4. 0 - Service Fees Earned (R) + 5,030 5,030 Bal. 0



P 3-43. (30 minutes) a. Balance Sheet Transaction

Cash Asset

+

Noncash Assets

-

1. Accrue salary expense.

-

2. Accrue interest expense. 3. Accrue fees receivable.

-

+900

= =

=

-

Liabilities

Income Statement +

Contrib. Capital

+

-400

+720


+200

-200

Interest Payable

Retained Earnings

=

-

=

-

=

=

-

-

b. Date Dec 31

31

31

31

+238

+900 Printing Revenue


=

+2,175

=

-

2,175

-

+

-

=

-720

=

-200

=

+900

=

-400

=

-300

=

-160

=

+38

=

-2,175

+200

+400 +300 Ad. Expense

-

+160 Rent Expense

+38

+38

Retained Earnings

Interest Revenue

-3,017

+720

Maintenanc e Expense

-

-

-2,175 0

Net Income

-

Retained Earnings

= 1,080 +

=

Interest Expense

+900

Rent Payable

Accumulated Depreciation

+

-

Retained Earnings

+160

Expenses Salaries Expense

-300

Interest Receivable

0

-

Retained Earnings -

+38

-

Retained Earnings

Prepaid Advertising

6. Accrue rent expanse.

Revenues

-400

Prepaid Maintenance

-300

Earned Capital

Salaries Payable

Fees Receivable

4. Accrue maintenanc e expense. 5. Accrue ad. Expense.

7. Accrue interest revenue. 8. Accrue depreciation expense. Totals

Contra Assets

+2,175 Depreciation Expense

938

Description Debit Salaries expense (+E, -SE) 720 Salaries payable (+L) To accrue salaries at December 31 ($1,800  2/5 = $720). Interest expense (+E, -SE) Interest payable (+L) To accrue interest expense at December 31.

200

Fees receivable (+A) Printing revenue (+R, +SE) To record revenue earned but not yet billed.

900

Maintenance expense (+E ,-SE) Prepaid maintenance (-A) To record December maintenance expense.

400

-

3,955

= -3,017

Credit 720

200

900

400 continued next page


3-41

P 3-43. concluded b. continued Date

Description

Dec. 31

31

31

31

Debit

Advertising expense (+E, -SE) Prepaid advertising (-A) To record December advertising expense ($900  1/3 = $300).

300

Rent expense (+E, -SE) Rent payable (+L) To accrue one-half month's rent expense [(400  $0.80)/2 = $160].

160

Interest receivable (+A) Interest income (+R, +SE) To accrue interest earned in December.

38

Credit

300

160

38

Depreciation expense—Equipment (+E, -SE) Accum. depreciation—Equipment (+XA) To record annual depreciation on equipment.

2,175 2,175

P3-44. (40 minutes) TRUEMAN CONSULTING INC. Income Statement For the Year Ended December 31, 2013 a. Revenue Service fees earned Expenses Rent expense Salaries expense Supplies expense Insurance expense Depreciation expense—Equipment Interest expense Total Expenses Net Income

$58,400 $12,000 33,400 4,700 3,250 720 630 54,700 $ 3,700 continued next page



P3-44. concluded a. continued TRUEMAN CONSULTING INC. Statement of Stockholders’ Equity For the Year Ended December 31, 2013 Common Retained Stock Earnings Balance at December 31, 2012 .............. $1,000 Stock issuance .......................................

Total Stockholders’ Equity

$3,305

$4,305

Net income ............................................. _____

3,700

3,700

Balance at December 31, 2013 .............. $1,000

$7,005

$8,005

Dividends ................................................

TRUEMAN CONSULTING Balance Sheet December 31, 2013 Assets

Liabilities

Cash Accounts receivable Supplies Prepaid insurance Equipment Less: Accumulated depreciation Total Assets

$ 2,700 3,270 3,060 1,500 $ 6,400 1,080

Accounts payable Long-term notes payable

$ 845 7,000

Total Liabilities

7,845

Owners’ Equity 5,320

$15,850

Common stock

1,000

Retained earnings Total Liabilities and Owners’ Equity

7,005 $15,850

b. Date 2013 Description Dec. 31 Service fees earned (-R) Retained earnings (+SE) To close the revenue account. 31 Retained earnings (-SE) Rent expense (-E) Salaries expense(-E) Supplies expense (-E) Insurance expense (-E) Depreciation expense—Equip (-E) Interest expense (-E) To close the expense accounts.

Debit 58,400

Credit 58,400

54,700 12,000 33,400 4,700 3,250 720 630


3-43

P3-45. (30 minutes) a. Date 2013 Dec. 31

31

Description Service fees earned (-R) Miscellaneous income (-R) Retained earnings (+SE) To close the revenue accounts.

Debit 97,200 4,200

Retained earnings (-SE) Salaries expense (-E) Rent expense (-E) Insurance expense (-E) Depreciation expense (-E) Income tax expense (-E) To close the expense accounts.

74,800

Credit

101,400

42,800 13,400 1,800 8,000 8,800

b. After the closing entries are posted, Retained Earnings has a $45,700 credit balance ($19,100 + $26,600 net income).

c. Wilson Company Post-Closing Trial Balance December 31, 2013 Debit Cash Accounts Receivable Prepaid Insurance Equipment Accumulated Depreciation Accounts Payable Income Tax Payable Common Stock Retained Earnings

Credit

$8,500 8,000 3,600 72,000

______ $92,100

$12,000 600 8,800 25,000 45,700 $92,100



P3-46. (30 minutes) a. Balance Sheet Transaction

Cash Asset

+

1. Recognize Advertising expense.

Noncash Assets -400 Prepaid Advertising

2. Accrue wage expense.

=

-1,140 Prepaid Insurance

4. Recognize service fees earned.

+

=

=

3. Recognize insurance expense.

Liabilities


+1,300 Wages Payable*

Totals

0

+

+1,000 Rent Receivable -540

-

-


=

= =

Revenues -


-2,400 Unearned = Service Fees

5. Recognize rent revenue.

Earned Capital -400 Retained Earnings

-1,100

+

0

+

-


+2,400 Service Fees Earned

+1,000 Retained Earnings 560

+1,000 Rental Income 3,400

Expenses

=

+400 Advertising Expense

=

+1,300 Wages Expense +1,140 Insurance Expense

Net Income -400

-1,300 = -1,140 = +2,400

-

=

-

=

+1,000

-

2,840

=

*Assumes wages earned had not been accrued or recognized yet as an expense.

Date 2013 Dec. 31

Description Advertising expense (+E, -SE) Prepaid advertising (-A)

Debit 400

400

To record advertising expense ($1,200  $800 = $400).

31


Credit

1,300 1,300

To record accrued wages.

31

Insurance expense (+E, -SE) Prepaid insurance (-A)

1,140

Unearned service fees (-L) Service fees earned (+R, +SE)

2,400

1,140

To record insurance expense ($3,420  $2,280 = $1,140).

31

2,400

To recognize unearned fees as earned ($5,400  $3,000 = $2,400).

31

Rent receivable (+A) Rental income (R, +SE)

1,000 1,000

To record rent earned but not yet recorded. continued next page


3-45

560

P3-46. concluded b. Balance Sheet Transaction

Cash Asset

1. Pay -2,400 wages of Cash $2,400. 2. Receipt of +1,000 $1,000 rent Cash revenue.

Date 2014 Jan.

4

+

Noncash Assets

Income Statement

Contrib. = Liabil-ities + + Capital =

Earned Capital

-1,300

-1,100

Wages Payable

Retained Earnings

Revenues -

Expenses

=

+1,100 -

Wages Expense

Net Income

-1,100 =

-1,000 Rent Receivable

=

-

Description Credit Wages payable (-L) Wages expense (+E, -SE) Cash (-A)

=

Debit 1,300 1,100 2,400

To record payment of wages.

4

Cash (+A) Rent receivable (-A)

1,000 1,000

To record collection of rent.

P3-47. (90 minutes) For part d, the adjusting entries are indicated by the numbers 1-5. The unadjusted trial balance required in part c is calculated before the adjusting entries are made. a. 6/1 6/2 6/30

6/10 6/28

+ Cash (A) 24,000 4,400 6,400 875 7,800 930 3,600 1,240 520 3,600 1,500 21,535 + Accounts Receivable (A) 5,800 7,800 5,200 3,200

6/1 6/2 6/2 6/12 6/15 6/18 6/26 6/30 5.

6/30

- Accounts Payable (L) + 9,480

6/1

- Salaries Payable (L) + 725

2.

- Unearned Service Fees (L) + 3,200 6,400 3,200 - Common Stock (SE) + 24,000

6/2

6/1



P3-47. continued a. continued

6/2

+ Prepaid Advertising (A) 930 310 620

6/1

+ Office Supplies (A) 2,840 1,310 1,530

6/1

4.

1.

+ Office Equipment (A) 11,040

- Acc. Depreciation – Off. Equip (XA) + 115 3.

4.

6/12 6/26 2.

6/18

+ Advertising Expense (E) 310 + Salaries Expenses (E) 3,600 3,600 725 7,925

6/30

1.

6/15

- Retained Earnings(SE) + 1,500

+ Supplies Expense (E) 1,310

+ Travel Expense (E) 1,240

3.

+ Depreciation Expense(E) 115

6/2

+ Rent Expense (E) 875 - Service Fees Earned (R) + 5,800 5,200 3,200 14,200

6/10 6/28 5.

+ Postage Expense (E) 520

continued next page


3-47

P3-47. continued b. Balance Sheet Cash Asset

Transaction 6/1. Investment for common stock. 6/1. Purchase of assets for cash & on account.

+

Noncash Assets

+24,000

=

Liabilities

+

Earned Capital

Revenues -

+24,000

=

Cash

+

Income Statement Contrib. Capital Common Stock

-4,400

+ 11,040

+9,480

Cash

Office Equipment

Accounts Payable =

Expenses

=

-

=

-

=

Net Income

+2,840 Supplies 6/2. Pay rent $875.

-875

-875 =

Cash 6/2.Purchase $930 of advertising in advance. 6/2Signed research contract.

-930

+930

Cash

Prepaid Advertising

6/12. Paid salaries.

6/18. Paid postage.


+5,800

Retained Earnings

Service Fees Earned

=

Retained Earnings

=

Retained Earnings

=

Retained Earnings

=

Retained Earnings

+5,200

+5,200

=

Retained Earnings

Service Fees Earned

-1,240

=

-

=

-

=

+5,800 +3,600 -

-1,240

Cash

-520

+5,200 +7,800

-7,800

Cash

Acts. Rec.

=

-1,500

-1,500

Cash

Retained Earnings

-3,600 =

+1,240 Travel Expense

-

Postage Expense

-1,240 =

+520

-3,600

Accounts Receivable

Salaries Expense

-

-520

-3,600

6/28. Bill customers for services.

-875 =

-

-3,600

Cash

6/30. Collect service fees. 6/30. Cash dividend paid.

+5,800 =

-3,600

Cash 6/26. Paid salaries.

Rent Expense

+6,400 = Unearned Service Fees

Cash

Cash 6/15. Paid travel expenses.

=

+6,400

6/10. Bill customers for services.

+875 -

Retained Earnings

-520 =

+3,600 -

Salaries Expense

-3,600 =

+5,200 -

=

-

=

-

continued next page



P3-47. continued b. continued Date 2014 Description June 1 Cash (+A) Common stock (+SE)

Debit 24,000

Credit 24,000

Owner invested cash for common stock.

1 Office equipment (+A) Office supplies (+A) Cash (-A) Accounts payable (+L)

11,040 2,840 4,400 9,480

Purchased equipment and supplies; $4,400 cash paid with the remainder due in 60 days.

2 Rent expense (+E, -SE) Cash (-A)

875 875

Paid June rent.

2 Prepaid advertising (+A) Cash (-A)

930 930

Paid three months' advertising in advance.

2 Cash (+A) Unearned service fees (+L)

6,400 6,400

Received two months' fees in advance on six-month contract.

10 Accounts receivable (+A) Service fees earned (+R, +SE)

5,800 5,800

Billed customers for services.

12 Salaries expense (+E, -SE) Cash (-A)

3,600 3,600

Paid two weeks' salaries to employees.

15 Travel expense (+E, -SE) Cash (-A)

1,240 1,240

Paid business travel expenses.

18 Postage expense (+E, -SE) Cash (-A)

520 520

Paid postage for questionnaire mailing.

26 Salaries expense (+E, -SE) Cash (-A)

3,600 3,600

Paid two weeks' salaries to employees. continued next page ©Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3

3-49

P3-47. continued b. continued Date 2014 Description June 28 Accounts receivable (+A) Service fees earned (+R, +SE)

Debit 5,200

Credit 5,200

Billed customers for services.

30 Cash (+A) Accounts receivable (-A)

7,800 7,800

Collections from customers on account.

30 Retained earnings (-SE) Cash (-A)

1,500 1,500

Declared and paid dividends.

c.

Cash Accounts Receivable Office Supplies Prepaid Advertising Office Equipment Accounts Payable Unearned Service Fees Common Stock Retained Earnings* Service Fees Earned Salaries Expense Rent Expense Travel Expense Postage Expense

MARKET-PROBE Unadjusted Trial Balance June 30, 2014 Debit $21,535 3,200 2,840 930 11,040

Credit

$9,480 6,400 24,000 1,500 11,000

7,200 875 1,240 520 ______ $50,880 $50,880 * The negative (debit) balance in Retained Earnings reflects the dividend paid. continued next page



P3-47. concluded d. Balance Sheet Transaction

Cash Asset

a. Recognize supplies expense. b. Recognize salaries expense. c. Accrue depreciation expense. d. Recognize advertising expense. e. Recognize earned service fees.

Noncash + Assets -1,310 Office Supplies

-

Contra Assets

= Liabilities =

=

+725 Salaries Payable

-

-


-310 Prepaid Advertising

=

=

= -

Date 2014

Description

June

Supplies expense (+E, -SE) Office supplies (-A)

30

Income Statement Contrib. + + Capital

-3,200 Unearned Service Fees

Earned Capital -1,310 Retained Earnings -725 Retained Earnings -115 Retained Earnings -310 Retained Earnings +3,200 Retained Earnings

Revenues

-

Expenses

-

+1,310 Supplies Expense +725 Salaries Expense +115 Depreciation Expense +310 Advertising Expense -

+3,200 Service Fees Earned

Debit

=

Net Income -1,310

=

-725

=

-115

=

-310

=

+3,200

=

Credit

1,310 1,310

To record supplies used during June ($2,840  $1,530 = $1,310).

30

Salaries expense (+E, -SE) Salaries payable (+L)

725 725

To record unpaid salaries at June 30.

30

Depreciation expense—Office equipment (+E, -SE) Accum. deprec. Off. equipment (+XA, -A)

115 115

To record June depreciation ($11,040/96 mo. = $115).

30

Advertising expense (+E, -SE) Prepaid advertising (-A)

310 310

To record one month's advertising expense.

30

Unearned service fees (-L) Service fees earned (+R, +SE)

3,200 3,200

To record one month's fees earned, received in advance.


3-51

P3-48. (40 minutes) DELIVERALL Unadjusted Trial Balance December 31, 2013 a. Debit $ 2,300 5,120 1,680 6,270 42,240

Cash Accounts Receivable Prepaid Advertising Supplies Equipment Notes Payable Accounts Payable Common Stock Mailing Fees Earned Wages Expense Rent Expense Utilities Expense

Credit

$7,500 2,700 9,530 86,000 38,800 6,300 3,020 $105,730

________ $105,730

b. Balance Sheet Transaction 1. Recognize advertising expense. 2. Recognize depreciation expense. 3. Recognize utilities expense. 4. Accrue wages expense. 5. Recognize supplies expense. 6. Accrue interest expense. 7. Recognize rent expense*.

Cash Asset

Noncash + Assets -1,540 Prepaid Advertising -

Contra Assets

=

Liabilities

=

+5,280 Accumulated Depreciation

=

= -

-4,750 Supplies

+325 Accts Payable = +1,200 Wages Payable =

= -

-

+450 Interest Payable = +430 Accts Payable

Income Statement +

Contrib. Capital

+

Earned Capital -1,540 Retained Earnings -5,280 Retained Earnings -325 Retained Earnings -1,200 Retained Earnings -4,750 Retained Earnings -450 Retained Earnings -430 Retained Earnings

Revenues

-

Expenses

-

+1,540 Advertising Expense +5,280 Depreciation Expense +325 Utilities Expense +1,200 Wages Expense +4,750 Supplies Expense +450 Interest Expense +430 Rent Expense

-

-

-

-

-

-

Net Income = -1,540 =

=

-5,280

=

-325

=

-1,200

=

-4,750

=

-450

=

-430

*(1/2%  $86,000 = $430). The rent for the year ($6,300 = $525 x 12) has already been recognized in the accounts. See the beginning balances given in the problem statement. continued next page



P3-48. continued b. continued Date 2013 Dec. 31

Description Advertising expense (+E, -SE) Prepaid advertising (-A)

Debit 1,540

Credit 1,540

To record 11 months' advertising expense ($1,680  11/12 = $1,540).

31

Depreciation expense (+E, -SE) Accumulated depreciation (+XA, -A)

5,280 5,280

To record depreciation for the year ($42,240/8 years = $5,280).

. 31

Utilities expense (+E, -SE) Accounts payable (+L)

325 325

To record estimated December utilities expense.

31


1,200 1,200

To record unpaid wages at December 31.

31


4,750 4,750

To record supplies expense for the year ($6,270  $1,520 = $4,750).

31

Interest expense (+E, -SE) Interest payable (+L)

450 450

To record accrual of interest expense at Dec. 31.

31

Rent expense (+E, -SE) Accounts payable (+L)

430 430

To record additional rent owed under lease (1/2%  $86,000 = $430).

continued next page


3-53

P3-48. concluded c. Only the T-accounts needed to enter the adjustments are provided. - Accounts Payable (L) + 2,700 325 430

Bal. 3. 7.

- Accumulated Depreciation–Equip (XA) + 5,280 2.

Bal.

+ Prepaid Advertising (A) 1,680 1,540

1.

Bal.

+ Supplies (A) 6,270 4,750

5.

1.

+Advertising Expense (E) 1,540

- Interest Payable (L) + 450

6.

Bal. 7.

+ Rent Expense (E) 6,300 430

- Wages Payable (L) + 1,200

4.

Bal. 4.

+ Wages Expense (E) 38,800 1,200

Bal. 3.

+ Utilities Expense (E) 3,020 325

5.

+ Supplies Expense (E) 4,750

2.

+ Depreciation Expense (E) 5,280

6.

+ Interest Expense (E) 450



P3-49 (60 minutes) a. Balance Sheet Transaction

Cash Asset

1. Recognize rent expense. 2. Recognize supplies expense. 3. Accrue depreciation expense. 4. Accrue wages payable.

Noncash + Assets -795 Prepaid Rent -1,980 Supplies

-

Contra Assets

=

Liabilities

Income Statement +

Contrib. Capital

+

= = -

-


=

= -

5. Recognize utilities expense. 6. Recognize service revenue.

-

-

+560 Wages Payable = +390 Accounts Payable = -500 Unearned Service Revenue

Earned Capital -795 Retained Earnings -1,980 Retained Earnings -335 Retained Earnings -560 Retained Earnings -390 Retained Earnings +500 Retained Earnings

Date 2014 Description Mar.

31

Rent expense (+E, -SE) Prepaid rent (-A)

Revenues

-

Expenses

=

-

+795 Rent Expense +1,980 Supplies Expense +335 Depreciation Expense +560 Wages Expense +390 Utilities Expense

=

Net Income -795

=

-1,980

=

-335

=

-560

=

-390

=

+500

-

-

-

-

+500 Service Revenue

Debit

-

Credit

795 795

To record March rent expense ($4,770/6 months = $795).

31


1,980 1,980

To record March supplies expense ($3,700$1,720 = $1,980).

31

Depreciation expense—Equipment (+E, -SE) Accumulated depreciation—Equipment (+XA, -A)

335 335

To record March depreciation ($36,180/108 months = $335).

31


560 560

To record unpaid wages at March 31.

31

Utilities expense (+E, -SE) Accounts payable (+L)

390 390

To record estimated March utilities expense.

31

Unearned service revenue (-L) Service revenue (+R, +SE)

500 500

To record revenue received in advance that was earned in March.

continued next page


3-55

P3-49. continued b. Not all the T-accounts given are needed to enter the adjustments required. Also, the closing entries required in part d are referenced by 1c, 2c etc. - Accounts Payable (L) + 2,510 390 2,900

Bal. 5. Bal.

- Acc Depreciation - Equipment (XA) + 335 3.

6c.

3.

5.

1c. 2c. 3c. 4c. 5c.

-Service Revenue(R) + 12,860 12,360 500

+Depreciation Expense (E) 335 335

Bal. 6.

3c.

+ Utilities Expense (E) 390 390

5c.

- Retained Earnings (SE) + 795 1,980 335 4,460 390 12,860 4,900

6c. 7c.

Bal. Bal.

+ Prepaid Rent (A) 4,770 795 3,975

1.

+ Supplies (A) Bal. 3,700 1,980 2. Bal. 1,720 - Unearned Service Revenue (L) + 6. 500 1,000 Bal. 500 Bal.

1.

+ Rent Expense (E) 795 795

1c.

2.

+ Supplies Expense (E) 1,980 1,980

2c.

+Wages Expense (E) 3,900 560 4,460

4c.

- Wages Payable (L) + 560

4.

Bal. 4.

continued next page



P3-49. continued c. WHEEL PLACE COMPANY Income Statement For Month Ended March 31, 2014 Service revenue……………………………………….……...

$12,860

Expenses: Utilities expense…………….…………………..…………

$390

Supplies expense…………..………………………………

1,980

Wages expense……………..…………………………..…

4,460

Depreciation expense………………………………….…

335

Rent expense……………………………………………...

795

Net income …………………………………………………...

7,960 $4,900

WHEEL PLACE COMPANY BALANCE SHEET March 31, 2014 Assets

Liabilities $ 1,900 Accounts payable 3,820 Wages payable

Cash Accounts receivable Supplies Prepaid rent Equipment Less:Accumulated depreciation

Total Assets

$ 2,900 560

1,720 Unearned service revenue 3,975 Total Liabilities $ 36,180 335

35,845

500 3,960

Owners’ Equity

Common stock Retained earnings $47,260 Total Liabilities and Owners’ Equity

38,400 4,900 $47,260

continued next page


3-57

P3-49. concluded

d. 1c.

2c.

3c.

4c.

5c.

6c.

Retained earnings (-SE) ...................................................... Rent expense (-E) ...........................................................

795

Retained earnings (-SE) ...................................................... Supplies expense (-E) .....................................................

1,980

Retained earnings (-SE) ...................................................... Depreciation expense (-E) ..............................................

335

Retained earnings (-SE) ...................................................... Wages expense (-E) .......................................................

4,460

Retained earnings (-SE) ...................................................... Utilities expense (-E) .......................................................

390

795

1,980

335

4,460

Service revenue (-R) .......................................................... 12,860 Retained earnings (+SE) .................................................

390

12,860

The closing journal entries are shown in the T-accounts in part a.



P3-50. (30 minutes) a. TRAILS, INC. Income Statement For the Year Ended December 31, 2013 Revenues Subscription revenue Advertising revenue Total revenues Expenses Salaries expense Printing and mailing expense Rent expense Supplies expense Insurance expense Depreciation expense Income tax expense Total expenses Net income

$ 168,300 49,700 $218,000 100,230 85,600 8,800 6,100 1,860 5,500 1,600 209,690 $8,310

TRAILS, INC. Statement of Stockholders’ Equity For Year Ended December 31, 2013

$25,000

$23,220

Total Stockholders’ Equity $48,220

_____ $25,000

8,310 $31,530

8,310 $56,530

Common Stock Balance at December 31, 20012 ............ Stock issuance ..................................... Dividends ............................................. Net income ........................................... Balance at December 31, 2013 ..............

Retained Earnings

continued next page


3-59

P3-50. Concluded a. continued TRAILS, INC. Balance Sheet December 31, 2013 Assets Cash Accounts receivable Supplies Prepaid insurance Office equipment Less: Accum. depreciation

$3,400 8,600 4,200 930

Liabilities Accounts payable Unearned subscription revenue Salaries payable Total liabilities

$ 2, 100 10,000 3,500 15,600

$66,000 Stockholders' equity 11,000

Total assets

55,000

$72,130

Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity

$25,000 31,530 56,530 $72,130

b. Date 2013 Description Dec. 31 Subscription revenue (-R) Advertising revenue (-R) Retained earnings (+SE)

Debit 168,300 49,700

Credit

218,000

To close the revenue accounts.

31

Retained earnings (-SE) Salaries expense (-E) Printing and mailing expense (-E) Rent expense (-E) Supplies expense (-E) Insurance expense (-E) Depreciation expense (-E) Income tax expense (-E)

209,690 100,230 85,600 8,800 6,100 1,860 5,500 1,600




P3-51. (30 minutes) a. Date 2013 Dec. 31

Description Service fees earned (-R) Retained earnings (+SE)

Debit 72,500

Credit 72,500

To close the revenue account.

31

Retained earnings (-SE) Wages expense (-E) Rent expense (-E) Insurance expense (-E) Supplies expense (-E) Advertising expense(-E) Depreciation expense—Trucks(-E) Depreciation expense—Equipment (-E)

58,800 29,800 10,200 2,900 5,100 6,000 4,000 800


b. The balance in Retained Earnings after closing entries are posted is $29,250 credit ($15,550 + $13,700).

c. MAYFLOWER MOVING SERVICE Post-Closing Trial Balance December 31, 2013 Debit Cash $ 3,800 Accounts Receivable 5,250 Supplies 2,300 Prepaid Advertising 3,000 Trucks 28,300 Accumulated Depreciation—Trucks Equipment 7,600 Accumulated Depreciation—Equipment Accounts Payable Unearned Service Fees Common Stock Retained Earnings ______ $50,250

Credit

$10,000 2,100 1,200 2,700 5,000 29,250 $50,250


3-61

P3-52. (20 minutes) a. Cash Asset

Transaction 1. Recognize maintenance expense. 2. Recognize supplies expense.

Noncash + Assets -1,800 Prepaid Maintenance -5,200 Supplies

3. Accrue earned commissions.

Balance Sheet Liabil= + ities


=

= -4,500 Unearned = Commis -sion Fees

4. Earned but unbilled commission fees.

+2,800 Fees Receivable

=

5. Rent expense. =

+913 Rent Payable

Earned Capital -1,800 Retained Earnings -5,200 Retained Earnings +4,500 Retained Earnings +2,800 Retained Earnings -913 Retained Earnings

Date 2013 Description Dec. 31 Maintenance expense (+E, -SE) Prepaid maintenance (-A)

Revenues

-

+4,500 Commission Fees Earned +2,800 Commission Fees Earned

Expenses

=

+1,800 Maintenance Expense +5,200 Supplies Expense

= -5,200 = +4,500

-

=

-

=

+2,800

-

+913 Rent Expense

Debit 1,800

-913 =

Credit 1,800

To record four months' maintenance expense [($2,700/6)  4 = $1,800].

31 Supplies expense (+E, -SE) Supplies (-A)

5,200

31 Unearned commission fees (-L) Commission fees earned (+R, +SE)

4,500

5,200

To record supplies expense ($8,400  $3,200 = $5,200).

4,500

To transfer fees earned from unearned fees ($8,500  $4,000 = $4,500).

31 Fees receivable (+A) Commission fees earned (+R, +SE)

2,800 2,800

To record fees earned but not yet billed.

31 Rent expense (+E, -SE) Rent payable (+L)

913 913

To record additional 2008 rent [1%  ($84,000 + $4,500 + $2,800) = $913].

continued next page


Net Income -1,800


P3-52. concluded b. Balance Sheet Cash Asset

Transaction

+

1/10. Billing of commission fees earned.

Noncash Assets

=

Liabilities

Income Statement +

Contrib. Capital

+

Earned Capital

Revenues -

-2,800

+1,800

+1,800

Fees Receivable

Retained Earnings

Commission Fees Earned

+4,600

=

Expenses

=

Net Income

+1,800 -

=

-

=

Accounts Receivable 1/10. Payment of additional rent in cash.

2014 Jan. 10

-913

-913

= Rent Payable

Cash

Accounts receivable (+A) Fees receivable (-A) Commision fees earned (+R, +SE)

4,600 2,800 1,800

To record billings on Jan. 10, 2011.

10

Rent payable (-L) Cash (-A)

913 913

To record payment of contingent rent from 2010.

P3-53. (60 minutes) a. Balance Sheet Transaction 1. Cash sales.

2. Record inventory purchased and used. 3. Recognize recent payments on A/P. 4. Recognize rent paid and rent expense. 5. Recognize wage expense and wages paid. 6. Recognize depreciation expense.

Cash + Asset +145,850 Cash

Noncash Assets

= Liabil-ities + =

+2,500 Inventories

-77,300 Cash

-24,000 Cash

-

Contra Assets

-

+200 Prepaid Rent

-12,500 Cash

= +76,200 Accounts Payable


Earned Capital +145,850 Retained Earnings -73,700 Retained Earnings

= -77,300 Accounts Payable =

= +1,700 = - Accumulated Depreciation

+250 Wages Payable

Revenues

-

+145,850 Sales Revenue

-

-

Expenses

+73,700 Cost of Sales

-

=

Net Income +145,850

=

-73,700

=

=


-

+23,800 Rent Expense

=

-23,800


-


=

-12,750


-

+1,700 Depreciation Expense

=

-1,700

continued next page ©Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3

3-63

P3-53. continued a. continued 1. Cash (+A) ............................................................................................ 145,850 Sales revenue (+R,+SE) ..................................................................... 145,850 2. Inventories (+A) ................................................................................... 2,500 Cost of goods sold (+E, -SE) .............................................................. 73,700* Accounts payable (+L) ........................................................................ 76,200 Or, make two separate entries with the same net effect:

Inventory (+A) ...................................................................................... 76,200 Accounts payable (+L) ........................................................................ 76,200 Cost of goods sold (+E, -SE) .............................................................. 73,700* Inventory (-A) ....................................................................................... 73,700 *73,700 = 12,000 +76,200 – 14,500.

3. Accounts payable (-L) ......................................................................... 77,300* Cash (-A) ............................................................................................. 77,300 *77,300 = 5,200 +76,200 – 4,100.

4. Prepaid rent (+A) ................................................................................. 200* Rent expense (+E, -SE) ...................................................................... 23,800* Cash (-A) .............................................................................................. 24,000 *23,800 = 3,800 + (24,000 ÷12)(10) and 200 = 24,000 – 3,800 – (24,000 ÷12)(10). The rent expense for the first two months of the year is $3,800. But the rate for March 1, 2014 through February 29, 2015 is $2,000 per month. So, for the last ten months of 2014, the rent expense is $20,000, making the total rent expense $23,800 for 2014.

5.

Wages expense (+E,-SE) .................................................................... 12,750* Cash (-A) .............................................................................................. 12,500 Wages payable (+L) ............................................................................ 250 * 12,750 = 12,500 + (350 – 100).

6.

Depreciation expense (+E,-SE) .......................................................... 1,700 Acc. depreciation – Equipment (+XA, -A) ...........................................1,700 continued next page



P3-53. continued b, d.

The closing entries required in part d are also included here and indicated by the letter d before the relevent entry. + Cash (A) -

Bal. 1.

Bal.

8,500 145,850

77,300 24,000 12,500

3. 4. 5.

Bal. 2. Bal.

40,550 Bal.

Bal. Bal.

4.

+ Equipment (A) 7,500 7,500

Bal.

- Accumulated Depreciation Equip.(XA) + Bal. 3,000 6. 1,700 Bal. 4,700

3.

d.

-Accounts Payable (L)+ 5,200 77,300 76,200 4,100 -Sales Revenue (R)+ 145,850 145,850 0

4.

Bal.

5.

Bal.

+Rent Expense (E)23,800 23,800 0

+Wages Expense (E)12,750 12,750 0

-Owners’ Equity (SE)+ 23,500 33,900 57,400

Bal.

Bal.

+ Prepaid Rent (A) 3,800 200 4,000

- Wages Payable (L) + 100 Bal. 250 5. 350 Bal.

Bal. 2.

1.

+ Inventories (A) 12,000 2,500 14,500

2. Bal.

6.

d. Bal.

Bal. d. Bal.

+Cost of Goods Sold (E)73,700 73,700 d. 0 +Depreciation Expense(E)1,700 1,700 d. 0

d.

continued next page


3-65

P3-53. concluded c, d. Part c is easier to complete if the closing entries required in part d are journalized and entered in the T-accounts. The appropriate T-account entries for part d have been made earlier and indicated by the letter d. Sales revenue (-R) ................................................................................... 145,850 Cost of goods sold (-E) ............................................................................. Rent expense (-E) .................................................................................... Wages expense (-E) ................................................................................. Depreciation expense (-E) ......................................................................... Owners’ equity..........................................................................................

73,700 23,800 12,750 1,700 33,900

To close temporary revenue and expense accounts.

FISCHER CARD SHOP Income Statement For the Year ended December 31, 2014 Sales revenue Cost of goods sold Gross profit Other expenses: Rent expense Wages expense Depreciation expense Total other expenses Net income

$145,850 73,700 72,150 $23,800 12,750 1,700 38,250 $33,900

FISCHER CARD SHOP Balance Sheets As of December 31, Assets: Cash Inventories Prepaid rent Total current assets Equipment Accumulated depreciation Equipment, net Total assets Liabilities and owners’ equity: Accounts payable Wages payable Total liabilities Owners’ equity Total liabilities and owners’ equity

2013

2014

$ 8,500 12,000 3,800 24,300 7,500 (3,000) 4,500 $ 28,800

$ 40,550 14,500 4,000 59,050 7,500 (4,700) 2,800 $ 61,850

$ 5,200 100 5,300 23,500 $ 28,800

$ 4,100 350 4,450 57,400 $ 61,850



P3-54. (120 minutes) a, b. The T-accounts follow the journal entries and the FSET. Balance Sheet Cash Asset

Transaction 12/1. Investment for common stock. 12/2. Rent paid in cash. 12/2. Purchase supplies on account. 12/3. Office equipment bought for 4,700 cash and rest on account. 12/8. Paid for supplies.

+

Noncash Assets

= Liabilities

+20,000 Cash

=

-1,200 Cash

=

Contrib. Capital

+

Earned Capital

Revenues

+20,000 Common Stock

-4,700 Cash


-

+1,080 = Accounts Payable +9,500 +4,800 Office Accounts = Equipment Payable

-1,080 Cash

-1,080 = Accounts Payable

-900 Cash

=

12/20. Received cash for consulting services. 12/28. Paid wages in cash.

+3,000 Cash

=

-900 Cash

=

12/30. Bill clients for consulting.

+7,200 Fees = Receivable -1,800 Cash

=

-

Expenses

-

+1,080 Supplies

12/14. Paid wages in cash.

I2/30. Paid cash dividends.

+

Income Statement

-900 Retained Earnings +3,000 Retained Earnings -900 Retained Earnings +7,200 Retained Earnings -1,800 Retained Earnings

+1,200 Rent Expense

-1,200 =

=

-

=

-

= +900 Wages Expense

-900 = +3,000

-

+7,200 Consulting Revenue

Net Income

=

-


=

= +900 Wages Expense

-900 = +7,200

-

=

-

=

b. Dec. 1 Cash (+A) Common stock (+SE)

20,000 20,000

Invested $20,000 cash in the business.

2 Rent expense (+E, -SE) Cash (-A)

1,200 1,200

Paid rent for December.

2 Supplies (+A) Accounts payable (+L)

1,080 1,080

Purchased various supplies on account.

continued next page


3-67

P3-54. continued b. continued Dec.

3 Office equipment (+A) Cash (-A) Accounts payable (+L)

9,500 4,700 4,800

Purchased $9,500 of office equipment, $4,700 cash down payment and balance due in 30 days.

8 Accounts payable (-L) Cash (-A)

1,080 1,080

Payment on account.

14 Wages expense (+E, -SE) Cash (-A)

900 900

Paid assistant's wages.

20 Cash (+A) Consulting revenue (+R, +SE)

3,000 3,000

Cash received for services.

28 Wages expense (+E, -SE) Cash (-A)

900 900

Paid assistant's wages.

30 Fees receivable (+A) Consulting revenue (+R, +SE) Billed customers for services.

7,200

31 Retained earnings (-SE) Cash (-A)

1,800

7,200

1,800

Issued and paid $1,800 in dividends.

continued next page



P3-54. continued b. continued The adjusting entries requested in part d are included and are denoted by the letter d followed by a number 1 through 5. The closing entries requested in part g are indicated by the letter g. + 12/1 12/20

Bal.

Cash (A) 20,000 1,200 3,000 4,700 1,080 900 900 1,800 12,420

-Wages Payable(L) + 2d. -Accumulated Depreciation+ Office Equipment (XA) 120

12/8

- Accounts Payable (L) + 1,080 1,080 4,800 4,800

- Retained Earnings (SE)+ 12/31 1,800 12,450 g. 3,760 6,890

g.

3d. Bal.

-Consulting Revenue(R)+ 3,000 7,200 12,450 2,250 Bal. +Depreciation Expense(E)120 120 0

12/2 12/3 12/8 12/14 12/28 12/31

12/2 Bal.

+Supplies(A)1,080 370 710

12/3

+Office Equipment (A) 9,500

d1

270 -Common Stock(SE)+ 3d.

12/2 12/3 Bal.

g.

Bal.

12/20 12/30 4d. 0

g.

20,000

12/2 Bal.

+Rent Expense (E) 1,200 1,200 0

12/14 12/28 2d. Bal.

+ Wages Expense (E) 900 2,070 900 270 0

12/30 4d. Bal.

+Fees Receivable (A)7,200 2,250 9,450

1d. Bal.

+ Supplies Expense (E) 370 370 0

12/1

g.

g.

g.


3-69

P3-54. continued c. RHOADES TAX SERVICES Unadjusted Trial Balance December 31, 2013 Debit $12,420 7,200 1,080 9,500

Cash Fees Receivable Supplies Office Equipment Accounts Payable Common Stock Retained Earnings (Dividend) Consulting Revenue Wages Expense Rent Expense

Credit

$4,800 20,000 1,800 10,200 1,800 1,200 $35,000

______ $35,000

d.

Transaction 1. Record supplies expense. 2. Accrue wages expense. 3. Record depreciation expense. 4. Recognize accrued consulting fees.

Cash Asset

Noncash + Assets -370 Supplies

-

Balance Sheet Contra Liabi= Assets lities =

= -

-


+2,250 Fees Receivable

=

=

+270 Wages Payable

Income Statement +

Contrib. Capital

+

Earned Capital -370 Retained Earnings -270 Retained Earnings -120 Retained Earnings +2,250 Retained Earnings

Revenues

-


Expenses

Net Income = -370 =

+370 Supplies Expense +270 = Wages Expense +120 = Depreciation Expense =

continued next page



-270

-120

+2,250

P3-54. continued d. continued Date 2013 Description Dec. 31 Supplies expense (+E, -SE) Supplies (-A)

Debit 370

Credit 370

To record December supplies expense ($1,080  $710).

31


270 270

To reflect unpaid wages at December 31.

31

Depreciation expense (+E, -SE) Accumulated depreciation (+XA, -A)

120 120

To record December depreciation.

31

Fees receivable (+A) Consulting revenue (+R, +SE)

2,250 2,250

To record unbilled service revenue (30  $75).

e. RHOADES TAX SERVICES Adjusted Trial Balance December 31, 2013 Debit Cash $12,420 Fees Receivable 9,450 Supplies 710 Office Equipment 9,500 Accumulated Depreciation Accounts Payable Wages Payable Common Stock Retained Earnings 1,800 Consulting Revenue Supplies Expense 370 Wages Expense 2,070 Rent Expense 1,200 Depreciation Expense 120 $37,640

Credit

$120 4,800 270 20,000 12,450

______ $37,640

continued next page


3-71

P3-54. continued f. RHOADES TAX SERVICES Income Statement For the Month of December 2013 Revenue Consulting revenue Expenses Wages expense Rent expense Supplies expense Depreciation expense Total expenses Net income

$12,450 $ 2,070 1,200 370 120 3,760 $ 8,690

RHOADES TAX SERVICES Statement of Stockholders’ Equity For the Month of December 2013 Common Stock Balance at December 1, 2012 ................ Stock issuance .....................................

$0 20,000

Dividends ............................................. Net income ...........................................

_____

Balance at December 31, 2013 ..............

$20,000

Retained Earnings $0 (1,800) 8,690 $6,890

Total Stockholders’ Equity $0 20,000 (1,800) 8,690 $26,890

RHOADES TAX SERVICES Balance Sheet December 31, 2013 Assets Cash Fees receivable Supplies Total current assets Office equipment $ 9,500 Less: Accum. depreciation 120 Total assets

Liabilities and Equity $12,420 Accounts payable 9,450 Wages payable 710 Total liabilities 22,580 Stockholders’ equity Common stock 9,380 Retained earnings Total liabilities and stockholders’ $31,960 equity

$ 4,800 270 5,070

20,000 6,890 $31,960



P3-54. concluded g. Date 2013 Description Dec.31 Consulting revenue (-R) Retained earnings (+SE)

Debit Credit 12,450 12,450

To close the revenue account.

31 Retained earnings (-SE) Wages expense (-E) Rent expense (-E) Supplies expense (-E) Depreciation expense (-E)

3,760 2,070 1,200 370 120


h.

Cash Fees Receivable Supplies Office Equipment Accumulated Depreciation Accounts Payable Wages Payable Retained Earnings Common Stock

RHOADES TAX SERVICES Post-Closing Trial Balance December 31,2013 Debit $12,420 9,450 710 9,500

$32,080

Credit

$ 120 4,800 270 6,890 20,000 $32,080


3-73

CASES and PROJECTS C3-55. (90 minutes) a1. Entries in the FSET are first shown for the initial deposits and checks. These are entries 1- 8. Entries a - f are the adjusting entries that would be made at the end of the three months. The expenditures for rent and salaries are assumed to have been initially debited to expense accounts. Balance Sheet Cash Transaction Asset + 1. Investment for +50,000 common Cash stock. 2. Collections +81,000 from Cash customers. 3. Bank +10,000 borrowing. Cash

Noncash Assets

-

=

=

= +10,000 Loans Payable =

-

-

-25,000 Cash

+25,000 Equipment -

6. Purchased inventory.

-62,000 Cash

7. Paid salaries.

-6,000 Cash

-

-13,000 Cash

-

+62,000 Inventory

b. Adjust rent expense.

+12,000 Prepaid Rent



-

Expenses

=

-

=

-

=

-

=

-

+24,000 Rent Expanse

=

=

=

-

=

= = = +3,000 Salaries Payable =

-

-

+1,250 Accumulated Depreciation

=

= -

+300 Interest Payable

-6,000 Retained Earnings -13,000 Retained Earnings +9,000 Retained Earnings +12,000 Retained Earnings -3,000 Retained Earnings -41,000 Retained Earnings -1,250 Retained Earnings -300 Retained Earnings

-

-


+6,000 Salaries Expense +13,000 Misc. Expenses

+81,000

-24,000

-

-

-

-

-

-

-12,000 Rent Expense +3,000 Salaries Expense +41,000 Cost of Goods Sold +1,250 Deprec. Expense +300 Interest Expense

=

-6,000

=

-13,000

=

+9,000

= +12,000 =

-3,000

=

-41,000

=

-1,250

=

-300

continued next page


Net Income

-

-41,000 Inventory

Revenues

-

=

+9,000 A/R

Earned Capital

=

=

a. Recognize credit sales.

Income Statement Contrib. + + Capital +50,000 Investment


-

5. Purchased equipment.

c. Accrue salaries expense. d. Recognize cost of goods sold. e. Accrue depreciation expense. f. Accrue interest expense*.

=

Liabilities

-

4. Rent expense. -24,000 Cash

8. Paid other expenses.

Contra Assets


C3-55. continued a. continued a2. Journal entries are shown only for the adjustments a-f. a. Accounts receivable (+A) Sales revenue (+R, +SE)

9,000 9,000

To recognize sales on account.

b. Prepaid rent (+A) Rent expense (-E, +SE)

12,000 12,000

To recognize remaining prepaid rent and correct rent expense.

c. Salaries expense (+E, -SE) Salaries payable (+L)

3,000 3,000

To recognize unpaid salaries earned during September.

d. Cost of goods sold (+E, -SE) Merchandise inventory (-A)

41,000 41,000

To recognize cost of sales; ($62,000 - $21,000).

e. Depreciation expense (+E, -SE) Accumulated depreciation (+XA, -A)

1,250 1,250

To accrue depreciation on the fixtures and equipment ($25,000/60)(3).

f. Interest expense (+E, -SE) Interest payable (+L)

300 300

To accrue interest on bank loan assumed taken out 7/1/2008. ($10,000)(0.12)(1/4).

continued next page


3-75

C3-55. continued b.

T-accounts: The opening balances shown are the amounts in the accounts prior to the entry of the adjustments described in items a through f. The cash balance represents the deposits made, $141,000, less the checks drawn, $130,000. + Cash (A) 11,000

Bal.

Bal.

+ Merchandise Inventory (A) 62,000 41,000 + Prepaid Rent (A) 12,000

b. + Equipment (A) 25,000

Bal.

- Accumulated Deprec.-Equip. (XA) + 1,250

a.

e.

+ Accounts Receivable (A) 9,000

- Sales Revenue (R) + 81,000 9,000

Bal.

+ Rent Expense (E) 24,000 12,000

Bal.

+ Other Expense (E) 13,000

+ Bal. c. + f.

d.

Bal. a.

b.

- Salaries Payable (L) + 3,000

c.

- Owners’ Equity (SE) + 50,000

Bal.

d.

+ Cost of Goods Sold (E) 41,000

e.

+ Depreciation Expense (E) 1,250

- Bank Loan Payable (L) + 10,000

Salaries Expense (E) 6,000 3,000

-

Interest Expense (E) 300

-

-

Interest Payable (L) + 300

Bal.

f.

continued next page



C3-55. continued c. SEASIDE SURF SHOP Income Statement July 1, 2010 to September 30 ,2014

Sales revenue Cost of goods sold Gross margin Expenses: Rent expense Salaries expense Depreciation expense Interest expense Misc. expenses Net income

$90,000 41,000 49,000 $12,000 9,000 1,250 300 13,000

35,550 $13,450

SEASIDE SURF SHOP Balance Sheet September 30, 2014

Assets Current assets Cash Accounts receivable Inventory Prepaid rent Total current assets

$11,000 9,000 21,000 12,000 53,000

Fixtures and equipment, net Total assets

23,750 $76,750

Liabilities and owners’ equity Current liabilities Salaries payable Bank loan payable Interest payable Total current liabilities

$3,000 10,000 300 13,300

Owners’ equity* Total liabilities and owners’ equity

63,450 $76,750

*$50,000 + $13,450


3-77

C3-55. concluded d. Chapter 1 introduced the return on equity ratio as a simple performance measure that can be used to evaluate how well this new business is doing. The return on equity is calculated as the ratio of net income to average total equity. In this case, the return on equity for the three-month period was 23.7% = $13,450 / [($50,000+ $63,450)/2]. This is a very good return for a three-month period and equates to 95% annualized. However, the favorable performance evaluation should be tempered by a few caveats: (1) Because this business appears to be a sole proprietorship, any ―salary‖ paid to the owner is not deducted from net income. Instead, cash payments to the owner are treated as dividends (or withdrawals). As a consequence, any services provided by the owner to the business would not be reflected among the expenses reported in the income statement, and net income would be overstated. (2) No expense is reported in the income statement for income taxes. This is consistent with the business being a sole proprietorship, in which income taxes are levied against the owner as an individual taxpayer. Again, this makes ―net‖ income appear to be larger than it otherwise might be. (3) Retail businesses are notoriously seasonal. That is, sales (and profits) fluctuate from season to season. A business such as this one would likely have its highest sales in the second and third quarters. This seasonality must be considered when we try to annualize quarterly results like these. Once the business has operated for a year or two, the owner would likely have a better idea about how seasonal fluctuations affect sales and returns and would be better able to interpret quarterly performance measures. (4) Finally, Seaside’s cash position is precarious. The firm has burned through most of the $60 thousand cash raised to begin the business and is likely to have trouble replacing its inventory as well as paying its bills. Perhaps they can convince lenders to come to their rescue. If not, the firm will not last another three months.



C3-56. (15 minutes) a. The following analysis shows how the relevant information affects total assets, liabilities, and owners’ equity of the firm: Owners’ Assets Equity Per Original balance sheet Percentage of debt and equity 1. Recognition of insurance expense ($4,500  1/2 = $2,250) 2. Depreciation correction (5%  $68,500 = $3,425) 3. (No adjustment required) 4. Unbilled services performed 5. Advance consulting fee earned ($11,300  1/2 = $5,650) 6. Recognition of supplies expense ($13,200  $4,800 = $8,400) Revised totals Percentage of debt and equity

$88,500

Liabilities $45,900 51.9%

$42,600 48.1%

(2,250)

(2,250)

3,425

3,425

6,000

6,000 (5,650)

(8,400) $87,275

______ $40,250 46.1%

5,650 (8,400) $47,025 53.9%

Revised debt-to-equity ratio: $40,250/$47,025 = 0.86 Original debt-to-equity ratio: $45,900/$42,600 = 1.08 b. Apparently, the loan agreement has not been violated.


3-79

C3-57. (30 minutes) a. Discussion of this case may consider the following ethical considerations facing Javetz: 1. Balancing the long-run interests of the firm (securing the international contract) against the short-run requirement to present accurately the financial data of the company for the current year (recording $150,000 adjusting entry). 2. Compromising the confidentiality of the contract negotiations (by disclosing the contract negotiations to additional persons) versus compromising her professional responsibilities (by omitting a significant year-end adjusting entry). 3. Jeopardizing her position with the firm (by revealing information the president wants kept secret) versus risking possible future legal action by parties relying on the firm's financial statements (by not revealing a significant accrued expense and accrued liability in the financial statements). b. Discussion of this case should also note that outside auditors frequently access confidential data and disclosing the contract negotiations to the auditor should not represent a significant breach of confidentiality. Perhaps Javetz can achieve a reasonable solution to her dilemma by suggesting that an adjusting entry be recorded and described in very general terms (for example, labeling the liability Payable to Consultants and indicating it is for marketing research and development). Such an adjustment would permit the disclosure of the significant liability without revealing important details to anyone else within or outside the company.



C3-58. (30 minutes) a,b,c and d. FSET: Balance Sheet Transaction a1. Recognize prepaid catalog costs.

Cash Asset -62,550 Cash

+

a2. Advertising credits received.

+ 849 Advertising Credits Receivable -62,138 Prepaid Catalog Costs

b. Recognize advertising expense. c. Recognize expiration of advertising credits.

d1. Sales of gift certificates.

Noncash Assets +62,550 Prepaid Catalog Costs

-336 Advertising Credits Receivable +19,175 Cash

d2. Recognize sales using gift certificates.

= Liabilities

Income Statement +

Contrib. Capital

+

Earned Capital

Revenues -

=

-

=


=


=


+849 Advertising Credits Revenue

-

= +62,138 Catalog Expenses

-62,138 =

+336 Expense: - Expiration of = Advertising Credits

+18,230 Gift Certificate Revenues

+18,230 -

=

62,550 62,550

To record catalog printing costs.

a2. Advertising credits receivable (+A) Advertising credits revenue (+R, +SE)

849 849

To recognize advertising credits earned.

b.

Catalog expense (+E, -SE) Prepaid catalog costs (-A)

62,138 62,138

To regognize catalog expense ($3,894 + $62,550 - $4,306). continued next page


-336

=

Journal Entries: a1. Prepaid catalog costs (+A) Cash (-A)

Net Income

=

-


=

+849

-

+19,175 Unearned Gift = Certificate Revenues - 18,230 Unearned Gift = Certificate Revenues

Expenses

3-81

C3-58. concluded c.

Advertising credit expiration expense (+E, -SE) Advertising credits receivable (-A)

336 336

To record the expiration of advertising credits ($21 + $849 - $534).

Advertising credits expire either because they were used to advertise or, if there was a time limitation to their use, the time limit expired. d1. Cash (+A) Unearned gift certificate revenues (+L)

19,175 19,175

To recognize gift certificates sold but not yet redeemed.

d2. Unearned gift certificate revenues (-L) Gift certificate revenues (+R, +SE)

18,230 18,230

To recognize revenues based on redeemed gift certificates ($6,108 +$19,175 - $7,053).



Fa4e Sm Ch03

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