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Chapter 3
Adjusting Accounts for FinancialStatements
Learning Objectives coverage by questionMini-
exercisesExercises Problems Cases
LO1 Identify the major stepsin the accounting cycle.
LO2 Review the process ofjournalizing and postingtransactions.
21, 22, 23, 25,
29, 3033, 35, 36, 38
40, 41, 42, 46,
47, 52, 5455, 56, 57, 58
LO3 Describe the adjustingprocess and illustrate adjustingentries.
23, 24, 25, 29,
30
32, 33, 34, 35,
36, 38
40, 41, 42, 43,
46, 47, 48, 49,
52, 53, 54
55, 56, 57, 58
LO4 Prepare financialstatements from adjustedaccounts.
26 3940, 41, 42, 44,47, 49, 50, 53,
54
55, 58
LO5 Describe the process ofclosing temporary accounts.
27, 28, 30 31, 33, 37, 39
42, 44, 45, 46,
49, 50, 51, 52,
53, 54
55
LO6 Analyzing changes in
balance sheet accounts.25, 29
32, 34, 35, 36,
3853 56
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QUESTIONS
Q3-1 The five major steps in the accounting cycle are
1. Analyze business activity using transaction analysis based on therelated 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 areinvoices 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 initialrecording of any type of transaction. It contains space for dates and foraccounts to be debited and credited, columns for the amounts of the debitsand credits, and a posting reference column for numbers of the accounts thatare posted.
Q3-5 When entries are posted, the page number and identifying initials of theappropriate journal are placed next to the amounts in the appropriateaccounts. The account number is entered beside the related amount postedin the journal's posting reference column. This procedure enables interestedusers to trace amounts in the ledger back to the originating journal entry andpermits us to know which entries have been posted.
Q3-6 A compound journal entry is a journal entry containing more than one debitentry 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 areclassified as asset, liability, owners' equity, revenue, and expense accounts,and often the numbering system identifies the account classification. Forexample, a coding system might assign the numbers 100199 to assets, 200299 to liabilities, and so on.
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Q3-8 Many of the transactions reflected in the accounting records through the firsttwo steps of the accounting cycle affect the net income of more than oneperiod. Therefore, adjustments to the account balances are ordinarilynecessary at the end of each accounting period to record the proper amountof revenue and to match expenses with revenue properly. This process is
also intended to achieve a more accurate picture of financial position byadjusting balance sheet amounts to show unexpired costs, up-to-dateamounts of obligations, and so on.
Q3-9 1. Allocating assets to expense to reflect expenses incurred during theperiod. Example: Recording supplies used by debiting Supplies Expenseand crediting Supplies.
2. Allocating payments received in advance by crediting the revenue accountto reflect revenues earned during the period. Example: Recording servicefees earned by debiting Unearned Service Fees and crediting Service Fees
Earned.
3. Accruing expenses to reflect expenses incurred during the period that arenot yet paid or recorded. Example: Recording unpaid wages by debitingWages Expense and crediting Wages Payable.
4. Accruing revenues to reflect revenues earned during the period that arenot yet received or recorded. Example: Recording commissions earned bydebiting Commissions Receivable and crediting Commissions Earned.
Q3-10 Jan. 31 Insurance expense (+E, -SE) 78
Prepaid insurance (-A) 78To record insurance expense for January ($1,872/24 = $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 bookvalues are computed. Accumulated depreciation is deducted from the costof a depreciable asset in computing and portraying the asset's book value.
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Q3-12 The building is five years old by the end of 2011, so the accumulateddepreciation of $800,000 represents five years of depreciation at an annualrate of $160,000 ($800,000/5). If the annual depreciation is $160,000, thenthe expected life of the building must be 25 years.
At the end of 2018, the building will be twelve years old, and theaccumulated depreciation will be 12$160,000, or $1,920,000. The bookvalue of the building (defined as original cost less accumulateddepreciation) will be $2,080,000.
Q3-13 (a) Jan. 1 Cash (+A) 9,720Subscriptions received in advance (+L) 9,720
To record receipt of two-year subscriptions.
(b) Jan. 31 Subscriptions received in advance (-L) 405Subscriptions revenue (+R,+SE) 405
To record subscription revenue earned duringJanuary ($9,720/24 = $405).
Q3-14 Jan. 31 Wages expense (+E, -SE) 190Wages payable (+L) 190
To record unpaid wages for Jan. 3031[($475/5) 2 = $190].
Q3-15 Jan. 31 Interest receivable (+A) 360Interest income (+R,+SE) 360
To record interest earned during January.
Q3-16 The temporary accountssometimes called nominalaccountsare closedat year-end. They consist principally of the income statement accounts(expense and revenue accounts). (The Income Summary account and theDividend account are also closed if they are used.)
Q3-17 Step 1) Close revenue accounts: Debit each revenue account for an amountequal to its balance, and credit the Retained Earnings account forthe total of revenues.
Step 2) Close expense accounts: Credit each expense account for anamount 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 creditshas been maintained throughout the adjusting and closing procedures andthat the general ledger is in balance to start the next period. Only balancesheet accounts appear in a post-closing trial balance. DepreciationExpense and Supplies Expense are temporary accounts that should havebeen closed and should not appear in the post-closing trial balance.
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Q3-19 The cost principle and the matching concept support Dehning's handling ofits catalog costs. Prepaid Catalog Costs is an asset account that is initiallyrecorded at the amount that the catalogs cost Dehning. This is consistentwith the cost principle that states that assets are initially recorded at the
amounts paid to acquire the assets. The catalogs help Dehning generatesales revenues. The matching concept states that the catalog costs shouldbe matched as expenses with the revenues they help generate. Dehningdoes 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 (ignoringtaxes).
(b) Both Supplies and Owners' Equity are overstated by $455 on the
January 31 balance sheet (again, before considering taxes).
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Mini Exercises
M3-21 (45 mintes)
a. Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
June 1. Invested$12,000 cash.
+12,000Cash =
+12,000Common
Stock- =
June 2. Paid $950cash for Junerent.
-950Cash =
-950RetainedEarnings
-+950Rent
Expense=
-950
June 3. Purchased$6,400 of officeequipment onaccount.
+6,400Office
Equipment =
+6,400AccountsPayable - =
June 6. Purchased$3,800 ofsupplies; $1,800cash, $2,000 onaccount.
-1,800Cash
+3,800Supplies
=
+2,000AccountsPayable - =
June 11. $4,700 billedfor services.
+4,700Accounts
Receivable=
+4,700RetainedEarnings
+4,700Service Fees
Earned- =
+4,700
June 17. Collected$3,250 onaccounts.
+3,250Cash
-3,250Accounts
Receivable= - =
June 19. Paid $3,000on office
equipmentaccount.
-3,000Cash
=
-3,000Accounts
Payable- =
June 25. Paid cashdividend of $900.
-900Cash =
-900RetainedEarnings
- =
June 30. Paid $350utilities.
-350Cash =
-350RetainedEarnings
-+350
UtilitiesExpense
=-350
June 30. Paid $2,500salaries.
-2,500Cash =
-2,500RetainedEarnings
-+2,500SalariesExpense
=-2,500
TOTALS 5,750 + 11,650 = 5,400 + 12,000 + 0 4,700 - 3,800 = 900
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b.
June 1 Cash (+A) 12,000Common stock (+SE) 12,000
Owner invested cash for stock.
2 Rent expense (+E, -SE) 950Cash (-A) 950
Paid June rent.
3 Office equipment (+A) 6,400Accounts payable (+L) 6,400
Purchased office equipment on account.
6 Supplies (+A) 3,800Cash (-A) 1,800
Accounts payable (+L) 2,000Purchased $3,800 of supplies; paid $1,800 downwith balance due in 30 days.
11 Accounts receivable (+A) 4,700Service fees earned (+R,+SE) 4,700
Billed clients for services.
17 Cash (+A) 3,250Accounts receivable (-A) 3,250
Collections from clients on account.
19 Accounts payable (-L) 3,000Cash (-A) 3,000
Payment on account.
25 Retained earnings (-SE) 900Cash (-A) 900
Issued dividends.
30 Utilities expense (+E, -SE) 350Cash (-A) 350
Paid utilities bill for June.
30 Salaries expense (+E, -SE) 2,500Cash (-A) 2,500
Paid salaries for June.
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M3-22 (45 minutes)a.
Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
April 1. Invested
$9,000 in cash.
+9,000Cash =
+9,000Common
Stock- =
April 2. Paid $2,850cash for lease.
-2,850Cash
+2,850Prepaid Van
Lease= - =
April 3. Borrowed$10,000.
+10,000Cash =
+10,000Note
Payable- =
April 3. Purchased$5,500 equipmentfor $2,500 cashwith rest onaccount.
-2,500Cash
+5,500Equipment
=
+3,000AccountsPayable - =
April 4. Paid $4,300
cash for supplies.
-4,300
Cash
+4,300
Supplies= - =
April 7. Paid $350cash for ad.
-350Cash =
-350RetainedEarnings
-+350Ad.
Expense=
-350
April 21. Billed$3,500 forservices
+3,500Accounts
Receivable=
+3,500RetainedEarnings
+3,500Cleaning
FeesEarned
- =
+3,500
April 23. Paid $3,000cash on account.
-3,000Cash =
-3,000AccountsPayable
- =
April 28. Collected$2,300 onaccount.
+2,300Cash
-2,300Accounts
Receivable= - =
April 29. Paid $1,000cash dividend.
-1,000Cash =
-1,000RetainedEarnings
- =
April 30. Paid $1,750cash for wages.
-1,750Cash =
-1,750RetainedEarnings
-+1,750Wages
Expense=
-1,750
April 30. Paid $995cash for gas.
-995Cash =
-995RetainedEarnings
-+995
Van FuelExpense
=-995
TOTALS 4,555 + 13,850 = 10,000 + 9,000 + -595 3,500 - 3,095 = 405
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b.April 1 Cash (+A) 9,000
Common stock (+SE) 9,000Owner invested cash for stock.
2 Prepaid van lease (+A) 2,850Cash (-A) 2,850Paid six months' lease on van.
3 Cash (+A) 10,000Notes payable (+L) 10,000
Borrowed money from bank for one year at10% interest.
3 Equipment (+A) 5,500Cash (-A) 2,500
Accounts payable (+L) 3,000Purchased $5,500 of equipment; paid $2,500 downwith balance due in 30 days.
4 Supplies (+A) 4,300Cash (-A) 4,300
Purchased supplies for cash.
7 Advertising expense (+E, -SE) 350Cash (-A) 350
Paid for April advertising.
21 Accounts receivable (+A) 3,500Cleaning fees earned (+R, +SE) 3,500
Billed customers for services.
23 Accounts payable (-L) 3,000Cash (-A) 3,000
Payment on account.
28 Cash (+A) 2,300Accounts receivable (-A) 2,300
Collections from customers on account.
29 Retained earnings (-SE) 1,000Cash (-A) 1,000
Issued cash dividends.
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30 Wages expense (+E, -SE) 1,750Cash (-A) 1,750
Paid wages for April.
30 Van fuel expense (+E, -SE) 995
Cash (-A) 995Paid for gasoline used in April.
c.
+ Cash (A) - + Accounts Receivable (A) -
April 1 9,000 2,850 April 2 April 21 3,500 2,300 April 28
3 10,000 2,500 328 2,300 4,300 4
350 7 + Prepaid Van Lease (A) -
3,000 23 April 2 2,850
1,000 29
1,750 30 + Equipment (A) -
995 30 April 3 5,500
+ Supplies(A) - - Notes Payable (L) +
April 4 4,300 10,000 April 3
- Accounts Payable (L) + - Retained Earnings (SE) +
April 23 3,000 3,000 April 3 April 29 1,000
- Common Stock (SE) + - Cleaning Fees Earned (R) +
9,000 April 1 3,500 April 21
+ Advertising Expense (E) - + Wages Expense (E) -
April 7 350 April 30 1,750
+ Van Fuel Expense (E) -
April 30 995
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M3-23 (20 minutes)a.
Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
1. Received $20,100
in advance forcontract work.
+20,100
Cash =
+20,100UnearnedService
Fees
- =
Jan. 1 Cash (+A) 20,100Unearned service fees (+L) 20,100
To record fee received in advance.b.
Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
2. Adjusting entry for
work completedby Jan. 31.
=
-3,350
UnearnedServiceFees
+3,350
RetainedEarnings
+3,350
ServiceFees - =
+3,350
Jan. 31 Unearned service fees (-L) 3,350Service fees (+R, +SE) 3,350
To reflect January service fees earned oncontract ($20,100/6 = $3,350).
c.
Balance Sheet Income Statement
Transaction Cash
Asset+ Noncash
Assets= Liabil-
ities+ Contrib.
Capital+ Earned
CapitalRevenues - Expenses = Net
Income3. Adjusting entry forfees earned butnot billed.
+570Fees
Receivable=
+570RetainedEarnings
+570Service
Fees- =
+570
Jan. 31 Fees receivable (+A) 570Service fees (+R, +SE) 570
To record unbilled service fees earnedat January 31.
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M3-24 (15 minutes)1.
Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
1. Adjusting entry for
prepaidinsurance.
-185Prepaid
Insurance=
-185RetainedEarnings
-
+185InsuranceExpense
=
-185
Jan. 31 Insurance expense (+E, -SE) 185Prepaid insurance (-A) 185
To record January insurance expense($6,660/36 = $185).
2.
Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
2. Adjusting entry forsupplies used.
-1,080Supplies =
-1,080RetainedEarnings
-+1,080SuppliesExpense
=-1,080
Jan. 31 Supplies expense (+E, -SE) 1,080Supplies (-A) 1,080
To record January supplies expense
($1,930 $850 = $1,080).3.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets -
ContraAssets
= Liabil-ities +Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncom
3. Adjustingentry fordepreciationofequipment.
-+62
Accumulated
Depreciation
-62Retained
Earnings
- +62Depreciation
Expense
= -62
Jan. 31 Depreciation expenseEquipment (+E, -SE) 62Accumulated depreciationEquipment (+XA, -A) 62
To record January depreciation on officeequipment ($5,952/96 = $62).
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4.
Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
4. Adjusting entry forrent. =
-875Unearned
RentRevenue
+875Retained
Earnings
+875Rent
Revenue
- =
+875
Jan. 31 Unearned rent revenue (-L) 875Rent revenue (+R, +SE) 875
To record portion of advance rent earnedin January.
5.
Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
5. Adjusting entry foraccrued salaries. =
+490SalariesPayable
-490RetainedEarnings
-+490
SalariesExpense
=-490
Jan. 31 Salaries expense (+E, -SE) 490Salaries payable (+L) 490
To record accrued salaries at January 31.
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M3-25 (10 minutes)(All amounts in $ millions.)a.
Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets = Liabilities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NeInco
Inventory purchases(total).
+2,913.49Inventory
=
+2,913.49AccountsPayable - =
Inventories (+A).. 2,913.49Accounts payable (+L).. 2,913.49
To record total purchases made at various dates.
b. Beginning AP balance + Purchases Payments = Ending AP balance, or$2,980.13 = $365.75 + $2,913.49 - $299.11 = Payments.
c.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets = Liabilities +
Contrib.Capital +
EarnedCapital Revenues - Expenses = Net Inc
Adjusting entry forcost of goods soldfor 2009.
-2,946.08Inventory
= -2,946.08RetainedEarnings
- +2,946.08Cost of
Goods Sold
= -2,946
* Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance, or$2,946.08 = $887.36 + $2,913.49 $854.77 = COGS
Cost of goods sold (+E, -SE)... 2,946.08
Inventories (-A) 2,946.08To record cost of goods sold for the year ended 1/31/2009.
M3-26 (15 minutes)
Architect Services CompanyStatement of Stockholders EquityFor Year Ended December 31, 2011
CommonStock
RetainedEarnings
TotalStockholders
EquityBalance at December 31, 2010 $30,000 $18,000 $48,000
Stock issuance.......................... 6,000 6,000
Dividends.................................. (9,700) (9,700)
Net income................................ _____ 29,900 29,900
Balance at December 31, 2011 $36,000 $38,200 $74,200
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M3-27 (5 minutes)
Ending balance = Beginning balance + Credit from closing revenue Debit fromclosing expenses: $137,600 = $99,000 + $347,400 - $308,800
M3-28 (15 minutes)a.
Date 2010 Description Debit CreditDec. 31 Commissions revenue (-R) 84,900
Retained earnings (+SE) 84,900To close the revenue account.
31 Retained earnings (-SE) 55,900Wages expense (-E) 36,000Insurance expense (-E) 1,900
Utilities expense (-E) 8,200Depreciation expense (-E) 9,800
To close the expense accounts.
Closing the revenue and expense accounts into retained earnings has the effect ofincreasing the retained earnings balance by an amount equal to net income(revenue minus expenses). The balance of Smiths Retained Earnings after closingentries are posted is
$101,100 credit ($72,100 + $29,000).
b.+ Wages Expense (E) - + Utilities Expense (E) -
Bal. 36,000 36,000 (2)Dec.31
Bal. 8,200 8,200 (2) Dec. 3
Bal. 0 Bal. 0
+ Insurance Expense (E) - - Commissions Revenue (R) +
Bal. 1,900 1,900 (2)Dec.31
(1)Dec.31
84,000 84,900 Bal.
Bal. 0 0 Bal.
+ Depreciation Expense (E) - - Retained Earnings (SE) +
Bal. 9,800 9,800 (2)Dec.31
(2)Dec.31
55,900 72,100 Bal.
Bal. 0 84,900 (1)Dec.31
101,100 Bal. Dec.31
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M3-29 (20 minutes)(All amounts in $ millions.)
a.
Balance Sheet Income Statement
Transaction CashAsset + NoncashAssets = Liabilities + Contrib.Capital + EarnedCapital Revenues - Expenses = InPurchase of inventory
on account.+3,385.90Merchandise
Inventory=
+3,385.90AccountsPayable
-
=
Merchandise inventory (+A).............................................. 3,385.90
Accounts payable (+L).................................................. 3,385.90
To recognize the purchase of merchandise inventory on account.
b.Beginning AP balance + Purchases Payments = Ending AP balance, or $3,470.97 =$831.67 + $3,385.90 - $746.60 = Payments.
c.Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses = In
Recognize cost ofgoods sold.
-3,540.60Merchandise
inventory=
-3,540.60RetainedEarnings
-+3,540.60
Cost ofGoods Sold
=-3,5
Cost of goods sold (+E,-SE).............................................. 3,540.60*
Merchandise inventory (-A)........................................... 3,540.60
To recognize the cost of goods sold.
*Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance, or$3,540.60 = $1,358.17 + $3,385.90 - $1,203.47 = COGS
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M3-30 (10 minutes)a.
Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
a. Dec. 31 Interestearned.
+600Interest
Receivable=
+600RetainedEarnings
+600InterestIncome
- =+600
Dec. 31 Interest receivable (+A) 600Interest income (+R, +SE) 600
To record accrued interest income.
b.Dec. 31 Interest income (-R) 2,400
Retained earnings (+SE) 2,400To close the Interest Income account.c.
Balance Sheet Income Statement
Transaction CashAsset +NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
c. 1/31 Receipt of$900 interest.
+900Cash
-600Interest
Receivable=
+ 300RetainedEarnings
+300InterestIncome
- =+300
2011Jan. 31 Cash (+A) 900
Interest income (+R, +SE) 300Interest receivable (-A)
600To record cash receipt of interest.
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Exercises
E3-31 (30 minutes)a.
Dec. 31 Service fees earned (-R,-SE) 80,300Retained earnings (+SE) 80,300
To close the revenue account.
31 Retained earnings (-SE) 82,300Rent expense (-E) 20,800Salaries expense (-E) 45,700Supplies expense (-E) 5,600Depreciation expense (-E) 10,200
To close the expense accounts.
b.+ Rent Expense (E) - + Supplies Expense (E) -
Bal. 20,800 20,800 (2) Bal. 5,600 5,600 (2)
Bal. 0 Bal. 0
+ Depreciation Expense (E) -
Bal. 10,200 10,200 (2)
Bal. 0
+ Salaries Expense (E) - - Service Fees Earned (R) +
Bal. 45,700 45,700 (2) (1) 80,300 80,300 Bal.
Bal. 0 0 Bal.
- Retained Earnings (SE) +
(2) 82,300 67,000 Bal.
80,300 (1)
65,000 Bal.
Brooks Consulting earned a loss during the period (expenses exceededrevenues by $2,000), so the ending retained earnings is lower than thatbeginning retained earnings (even if no dividends were paid).
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E3-32 (30 minutes)a.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets -
ContraAssets
= Liabilities + Contrib.Capital +EarnedCapital Revenues - Expenses =
NeIncom
1. Adjusting entryfor depreciation:
equipment.-
+610Accumulated
Depreciation
= -610Retained
Earnings
- +610Depreciation
Expense
= -61
2. Adjusting entry
for supplies
expense.
-1,890
Supplies -
= -1,890
Retained
Earnings
- +1,890
Supplies
Expense
= -1,89
3. Adjusting entry
for utilities
expense.-
= +390
Utilities
Payable
-390
Retained
Earnings
- +390
Utilities
Expense
= -39
4. Adjusting entry
for rent expense.
-700
Prepaid
Rent-
= -700
Retained
Earnings
- +700
Rent
Expense
= -70
5. Adjusting entry
for premium
revenues.-
= -468
Unearned
Premium
Revenue
+468
Retained
Earnings
+468
Premium
Revenue
- = +46
6. Adjusting entryfor wage
expense.-
= +965Wages
Payable
-965Retained
Earnings
- +965Wage
Expense
= -96
7. Adjusting entry
for interest
earned.
+300
Interest
Receivable-
= +300
Retained
Earnings
+300
Interest
Income
- = +30
TOTALS 0 + -2,290 - 610 = 887 + 0 + -3,787 768 - 4,555 = -3,78
b.1. Depreciation expenseEquipment (+E,-SE) 610
Accumulated depreciationEquip (+XA)610
To record depreciation for the period.
2. Supplies expense (+E,-SE) 1,890Supplies (-A) 1,890
To record supplies expense for the period ($2,990 $1,100 = $1,890).
3. Utilities expense (+E, - SE) 390Utilities payable (+L) 390
To record accrued utilities expense.
4. Rent expense (+E,-SE) 700Prepaid rent (-A) 700
To record rent expense for the month ($2,800/4 = $700).
5. Unearned premium revenue (-L) 468Premium revenue (+R,+SE) 468
To record premium revenue earned [($624/12) 9 = $468].
6. Wages expense (+E,-SE) 965Wages payable (+L) 965
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To record accrued wages at the end of the period.
7. Interest receivable (+A) 300Interest income (+R,+SE) 300
To accrue interest earned but not yet received.
E3-33 (15 minutes)a.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets = Liabilities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
a. Adjusting entry forsalaries expense. =
+4,700SalariesPayable
-4,700RetainedEarnings
-+4,700
SalariesExpense
=-4,700
2010Dec. 31 Salaries expense (+E,-SE) 4,700
Salaries payable (+L) 4,700
To record accrued salaries payable.
b.31 Retained earnings (-RE) 250,000
Salaries expense (-E) 250,000To close the Salaries Expense account.
c.Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets = Liabilities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
c. Paid salaries. -12,000Cash =
-4,700Salaries
Payable
-7,300Retained
Earnings
-+7,300Salary
Expense
=-7,300
2011Jan. 7 Salaries payable (-L) 4,700
Salaries expense (+E,-SE) 7,300Cash (-A) 12,000
To record payment of salaries.
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To record supplies expense for July ($3,000 $1,100 = $1,900).
31 Fees receivable (+A) 800Refinishing fees revenue (+R,+SE) 800
To record unbilled revenue earned during July.
31 Unearned refinishing fees (-L) 300Refinishing fees revenue (+R,+SE) 300
To record portion of advance fees earned in July ($600/2 = $300).
c.
+ Prepaid Rent (A) - + Supplies (A) -
Bal. 5,700 475 (1) Bal. 3,000 1,900 (3)
Bal. 5,225 Bal. 1,100
+ Prepaid Advertising (A) - - Unearned Finishing Fees (L) +Bal. 630 210 (2) (5) 300 600 Bal.
Bal. 420 300 Bal.
+ Fees Receivable (A) - - Refinishing Fees Revenue (R) +
(4) 800 2,500 Bal.
800 (4)300 (5)
3,600 Bal.
+ Supplies Expense (E) -(3) 1,900
+ Advertising Expense(E) -
(2) 210
+ Rent Expense (E) -
(1) 475
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E3-36 (15 minutes)(All amounts in $ thousands.)a.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses = Net Income
Recognize cost ofgoods sold.
-242,265Inventory
=-242,265RetainedEarnings
- +242,265Cost of
Goods Sold
= -242,265
Cost of goods sold (+E,-SE).............................................. 242,265*
Inventory (-A)................................................................. 242,265
To recognize the cost of goods sold.
*Beginning Inv balance + Cost of acquisition Cost of goods sold = Ending Invbalance, so $242,265 = $110,596 + $178,519 - $46,850 = COGS
b. Beginning compensation payable + Compensation expense Compensationpaid = Ending compensation payable, so$10,070 + $40,000 Payments = $10,204
Payments = $39,866
E3-37 (30 minutes)a.
Dec. 31 Service fees earned (-R) 92,500Interest income (-R) 2,200
Retained earnings (+SE) 94,700To close the revenue accounts.
31 Retained earnings (-SE) 64,700Salaries expense (-E) 41,800Advertising expense (-E) 4,300Depreciation expense (-E) 8,700Income tax expense (-E) 9,900
To close the expense accounts.
b.
- Retained Earnings (SE) + - Service Fees Earned (R) +
(2) 64,700 42,700 Bal. (1) 92,500 92,500 Bal.
94,700 (1) 0 Bal.
72,700 Bal. - Interest Income (R) +
(1) 2,200 2,200 Bal.
0 Bal.
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+ Salaries Expense (E) - + Advertising Expense (E) -
Bal. 41,800 41,800 (2) Bal. 4,300 4,300 (2)
Bal. 0 Bal. 0
+ Depreciation Expense (E) - + Income Tax Expense(E) -
Bal. 8,700 8,700 (2) Bal. 9,900 9,900 (2)Bal. 0 Bal. 0
E3-38 (15 minutes)a.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets = Liabilities +
Contrib.Capital +
EarnedCapital Revenues - Expenses = Net Income
(1) Collectdeposits fromcustomers.
+200,000Cash =
+200,000CustomerDeposits
- =
(2) Recognizeincome oncompletedcustomer orders.
+458,671Cash =
-215,606CustomerDeposits
+674,277RetainedEarnings
+674,277Sales
Revenue- =
+674,277
(1) Cash (+A) 200,000
Customer deposits liability* (+L) 200,000
To record unearned customer deposits.
(2) Customer deposits liability* (-L)....................................... 215,606 **
Cash (+A) 458,671
Sales revenue (+R, +SE)................................................ 674,277To record sales revenue and recognized deposits earned.
* Also sometimes called Unearned Customer Deposits** $47,297 + $200,000 Deposits earned = $31,691; Deposits earned = $215,606.
b.Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital Revenues - Expenses = Net Income
Recognize costof goods sold.
-326,935Inventory =
-326,935RetainedEarnings
-+326,935
Cost of GoodsSold
=-326,935
Cost of goods sold (+E,-SE).................................................. 326,935 ***
Inventory (-A)..................................................................... 326,935
To recognize the cost of goods sold.
***$186,265 + $297,189 Cost of goods sold = $156,519; Cost of goods sold = $326,935
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E3-39 (40 minutes)a.
Solomon CorporationIncome Statement
For Year Ended December 31, 2011
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 EquityFor Year Ended December 31, 2011Common
StockRetainedEarnings
TotalStockholders
Equity
Balance at December 31, 2010.... $43,000 $20,600*
$63,600
Stock issuance..............................
Dividends...................................... (8,000) (8,000)
Net income.................................... _____ 8,900 8,900
Balance at December 31, 2011.... $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.
Solomon CorporationBalance Sheet
December 31, 2011
Assets LiabilitiesCash $ 4,000 Notes payable $ 10,000
Accounts receivable 6,500 Total Liabilities 10,000
Equipment $ 78,000Less:Accumulateddepreciation
14,000 64,000 Owners Equity
Common stock 43,000Retained earnings 21,500
Total Assets $74,500 Total Liabilities and Owners Equity $74,500
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b.
1. Service fees earned (-R).................................................. 71,000Retained earnings (+SE)............................................. 71,000
2. Retained earnings (-SE)................................................... 18,000Rent expense (-E)......................................................... 18,000
3. Retained earnings (-SE)................................................... 37,100Salaries expense (-E)................................................... 37,100
4. Retained earnings (-SE)................................................... 7,000Depreciation expense (-E) .......................................... 7,000
The cash dividend has already been paid and is already reflected in the
adjusted trial balance.
c. Only the T-accounts affected by closing process are shown here.
+ Depreciation Expense (E) - - Service Fees Earned (R) +
Bal. 7,000 7,000 (4) (1) 71,000 71,000 Bal.
Bal 0 0 Bal.
+ Salaries Expense (E) - + Rent Expense (E) -
Bal. 37,100 37,100 (3) Bal. 18,000 18,000 (2)
Bal. 0 Bal 0
- Retained Earnings (SE) +
(2-4) 62,100 12,60071,000
Bal.(1)
21,500 Bal.
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PROBLEMSP3-40 (90 minutes)
a. + Cash (A) - + Accounts Receivable (A) -
Apr. 1 11,500 2,880 Apr. 1 Apr. 12 5,500 4,900 Apr. 185 1,800 6,100 2 30 4,000
18 4,900 1,000 2 Bal. 4,600675 29
100 30 + Supplies (A) -
2,500 30 Apr. 5 1,200
Bal. 4,945 Unadj. bal. 1,200 800 (d) Apr. 30
Adj. bal. 400
+ Prepaid Insurance (A) -Apr. 1 2,880 + Trucks (A) -Unadj. bal. 2,880 120 (d) Apr. 30 Apr. 2 6,100
Adj bal. 2,760 Bal. 6,100
+ Equipment (A) - - Accounts Payable (L) +
Apr. 2 3,100 2,100 Apr. 2
Bal. 3,100 1,200 5
3,300 Bal.
- Roofing Fees Earned (R) + - Unearned Roofing Fees (L) +
5,500 Apr. 12 1,800 Apr. 5
4,000 30 Apr. 30 (d) 450 1,800 Unadj. bal
9,500 Unadj. bal. 1,350 Adj. Bal450 (d) 30
9,950 Adj. Bal.
+ Supplies Expense (E) - - Common Stock (SE) +
Apr. 30 (d) 800 11,500 Apr. 1Adj. Bal. 800 11,500 Bal.
+ Advertising Expense (E) - + Fuel Expense (E) -Apr. 30 100 Apr. 29 675
Bal. 100 Bal. 675
+ Insurance Expense (E) - + Wages Expense (E) -
Apr. 30 (d) 120 Apr. 30 2,500
Adj. Bal. 120 Bal. 2,500
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+ Depreciation Expense Equip. (E) - - Accumulated Deprec. Equip. (XA) +
Apr. 30 (d) 35 35 (d) Apr. 30
Adj. Bal. 35 35 Adj. Bal.
+ Depreciation Expense - Trucks (E) - - Accumulated Deprec. Trucks (XA) +
Apr. 30 (d) 125 125 (d) Apr. 30Adj. Bal. 125 125 Adj. Bal
b.Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets = Liabilities +
Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
Apr. 1. Cash receivedfor stock.
+11,500Cash =
+11,500Common
Stock- =
Apr. 1. Purchaseliability insurance.
-2,880Cash
+2,880Prepaid
Insurance
= - =
Apr. 2. Purchase truckfor cash.
-6,100Cash
+ 6,100Truck = - =
Apr. 2. Purchaseequipment.
-1,000Cash
+3,100Equipment =
+2,100AccountsPayable
- =
Apr. 5. Purchasesupplies onaccount.
+ 1,200Supplies =
+1,200AccountsPayable
- =
Apr. 5. Cash inadvance for roofingrepairs.
+1,800Cash =
+1,800UnearnedRoofing
Fees
- =
Apr. 12. Bill customers
for services.
+5,500
AccountsReceivable =
+5,500
RetainedEarnings
+5,500
Roofing FeesRevenue - =
+5,500
Apr. 18. Collected cashon account.
+4,900Cash
-4,900Accounts
Receivable= - =
Apr. 29. Paid cash forfuel.
-675Cash =
-675RetainedEarnings
-+675Fuel
Expense=
-675
Apr. 30. Paid cash forads.
-100Cash =
-100RetainedEarnings
-+100
Ad. Expense =-100
Apr. 30. paid cashwages.
-2,500Cash =
-2,500RetainedEarnings
-+2,500Wages
Expense=
-2,500
Apr. 30. Bill customers
for services.
+4,000
AccountsReceivable =
+4,000
RetainedEarnings
+4,000
Roofing feesEarned - =
+4,000
Totals 4,945 + 17,880 = 5,100 + 11,500 + 6,225 9,500 - 3,275 = 6,225
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Date 2010 Description Debit CreditApr. 1 Cash (+A) 11,500
Common stock (+SE) 11,500Owner invested cash.
1 Prepaid insurance (+A) 2,880Cash (-A)
2,880Paid two-year premium on liability insurance policy.
2 Trucks (+A) 6,100Cash (-A) 6,100
Purchased used truck for $6,100 cash.
2 Equipment (+A) 3,100Cash (-A) 1,000Accounts payable (+L) 2,100
Purchased ladders and other equipment, $1,000 down with
$2,100 balance due in 30 days.
5 Supplies (+A) 1,200Accounts payable (+L) 1,200
Purchased supplies on account.
5 Cash (+A) 1,800Unearned roofing fees (+L) 1,800
Received advance payment for services.
12 Accounts receivable (+A) 5,500Roofing fees earned (+R,+SE) 5,500
Billed customers for services.
18 Cash (+A) 4,900Accounts receivable (-A) 4,900
Collection on account from customers.
29 Fuel expense (+E,-SE) 675Cash (-A)
675Paid truck fuel bill for April.
30 Advertising expense (+E,-SE) 100Cash (-A) 100
Paid for April newspaper advertising.
30 Wages expense (+E, -SE) 2,500Cash (-A)
2,500Paid wages.
30 Accounts receivable (+A) 4,000Roofing fees earned (+R, +SE) 4,000
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Billed customeers for services.
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c.Lougee ROOFING SERVICE
UNADJUSTED TRIAL BALANCEAPRIL 30, 2010
Debit Credit
Cash $ 4,945Accounts Receivable 4,600Supplies 1,200Prepaid Insurance 2,880Trucks 6,100Equipment 3,100Accounts Payable $ 3,300Unearned Roofing Fees 1,800Common Stock 11,500Roofing Fees Earned 9,500Fuel Expense 675
Advertising Expense 100Wages Expense 2,500
$26,100 $26,100
d.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets -
ContraAssets
= Liabilities + Contrib.Capital +EarnedCapital Revenues - Expenses =
NetIncome
1. Recognize one
month ofinsurance
expense.
-120
PrepaidInsurance
- = -120
RetainedEarnings
- +120
InsuranceExpense
= -120
2. Recognize
supplies
expense .
-800Supplies
- = -800RetainedEarnings
- +800Supplies
Expense
= -800
3. Recognize
depreciation
expense
Trucks.
- +125Accumulated
Depreciation
= -125Retained
Earnings
- +125Depreciation
Expense
= -125
4. Recognize
depreciation
expense on
equipment.
- +35Accumulated
Depreciation
= -35Retained
Earnings
- +35Depreciation
Expense
= -35
5. Recognize
roofing fees
earned.
- = -450Unearned
Roofing
Fees
+450Retained
Earnings
+450Roofing Fees
Earned
- = +450
Totals 0 + -920 - 160 = -450 + 0 + -630 450 - 1,080 = -630
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Date 2010 Description Debit CreditApril 30 Insurance expense (+E,-SE) 120
Prepaid insurance (-A) 120To record April insurance expense ($2,880/24 months = $120).
30 Supplies expense (+E,-SE) 800Supplies (-A) 800
To record April supplies expense ($1,200 $400 = $800).
30 Depreciation expenseTrucks (+E,-SE) 125Accumulated depreciationTrucks (+XA,-A) 125
To record April depreciation on trucks.
30 Depreciation expenseEquipment (+E,-SE) 35Accumulated depreciationEquipment (+XA,-A) 35
To record April depreciation on equipment.
30 Unearned roofing fees (-L) 450Roofing fees earned (+R,+SE) 450
To record portion of advance payment earned in April($1,800/4 = $450).
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P3-41 (40 minutes)SnapShot Company
UNADJUSTED TRIAL BALANCEDECEMBER 31, 2010
a.Debit Credit
Cash $2,150Accounts Receivable 3,800Prepaid Rent 12,600Prepaid Insurance 2,970Supplies 4,250Equipment 22,800Accounts Payable $1,910Unearned Photography Fees 2,600Common Stock 24,000Photography Fees Earned 34,480
Wages Expense 11,000Utilities Expense 3,420 ______
$62,990 $62,990
b.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets -
ContraAssets
= Liabilities + Contrib.Capital +EarnedCapital Revenues - Expenses =
NetIncome
1. Fees earned
but not
received.
+925Fees
Receivable
- =+925
Retained
Earnings
+925Photography
Fees Earned
- =+925
2. Recognize
depreciationexpense for
one year.
-
+2,280
Accumulated
Depreciation =
-2,280
RetainedEarnings -
+2,280
DepreciationExpense =
-2,280
3. Recognize
utilities
expense.- =
+400Utilities
Payable
-400Retained
Earnings
-+400
Utilities
Expense
=-400
4. Recognize
rent
expense for
year.
-6,300Prepaid
Rent- =
-6,300Retained
Earnings-
+6,300Rent
Expense=
-6,300
5. Recognize
photo
revenues.
- =
-2,600Unearned
Photo Fees
+2,600Retained
Earnings
+2,600Photography
Fee Earned
- =+2,60
6. Recognize
insurance
expense.
-990Prepaid
Insurance
- =-990
Retained
Earnings
-+990
Insurance
Expense
=-990
7. Recognize
supplies
expense.
-2,730Supplies - =
-2,730Retained
Earnings
-+2,730Supplies
Expense
=-2,730
8. Recognize
wages
expense.- =
+375Wages
Payable
-375Retained
Earnings
-+375Wages
Expense
=-375
Totals 0 + -9,095 - 2,280 = -1,825 + 0 + -9,550 3,525 - 13,075 = -9,550
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Date 2010 Description Debit CreditDec. 31 Fees receivable (+A) 925
Photography fees earned (+R, +SE) ` 925To record revenue earned but not billed.
31 Depreciation expense (+E,-SE) 2,280Accum. depreciationEquipment (+XA, -A) 2,280To record depreciation for the year
($22,800/10 years = $2,280).
31 Utilities expense (+E, -SE) 400Utilities payable (+L) 400
To record estimated December utilities expense.
31 Rent expense (+E, -SE) 6,300Prepaid rent (-A) 6,300
To record rent expense for the year($12,600/2 years = $6,300).
31 Unearned photography fees (-L) 2,600Photography fees earned (+R, +SE) 2,600
To record advance payments earned during the year.
31 Insurance expense (+E, -SE) 990Prepaid insurance (-A) 990
To record insurance expense for the year($2,970/3 years = $990).
31 Supplies expense (+E,-SE) 2,730Supplies (-A) 2,730
To record supplies expense for the year($4,250 $1,520 = $2,730).
31 Wages expense (+E, -SE) 375Wages payable(+L) 375
To record unpaid wages at December 31.
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c.
+ Cash (A) - - Accounts Payable (L) +Unadj. bal. 2,150 1,910 Unadj. bal.
Adj. bal. 2,150 1,910 Adj. bal.
+ Accounts Receivable (A) - - Unearned Photo Fees (L) +Unadj. bal. 3,800 Dec.31 (5) 2,600 2,600 Unadj. bal.
Adj. bal. 3,800 0 Adj. bal.
+ Fees Receivable (A) - - Utilities Payable (L) +Dec. 31 (1) 925 400 (3) Dec.31
Adj. bal. 925 400 Adj. bal.
+ Prepaid Rent (A) - - Wages Payable (L) +Unadj. bal. 12,600 6,300 (4) Dec.31 375 (8) Dec.31
Adj. bal. 6,300 375 Adj. bal.
+ Prepaid Insurance (A) - - Common Stock (SE) +
Unadj. bal. 2,970 990 (6) Dec.31 24,000 Unadj. bal.Adj. bal. 1,980 24,000 Adj. bal.
+ Supplies (A) - - Photo Fees Earned (R) +Unadj. bal. 4,250 2,730 (7) Dec.31 34,480 Unadj. bal
Adj. bal. 1,520 925 (1) Dec.31
2,600 (5) Dec.31
38,005 Adj. bal.
+ Equipment (A) - + Wages Expense (E) -Unadj. bal. 22,800 Unadj. bal. 11,000Adj. bal. 22,800 Dec.31 (8) 375
Adj. Bal. 11,375- Accum. Depreciation Equip. (XA)
++ Utilities Expense (E) -
2,280 (2) Dec.31 Unadj. bal. 3,420
2,280 Adj. Bal. Dec.31 (3) 400Adj. Bal. 3,820
+ Supplies Expense (E) - + Depreciation Expense Equip. (E) -Dec. 31 (7) 2,730 Dec.31 (2) 2,280Adj. bal. 2,730 Adj. Bal. 2,280
+ Insurance Expense (E) - + Rent Expense (E) -
Dec. 31 (6) 990 Dec.31 (4) 6,300Adj. bal. 990 Adj. Bal. 6,300
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P3-42 (90 minutes)a.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets -
ContraAssets
= Liabil-ities +Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
1. Recognize
rent expense.-775
Prepaid
Rent-
= -775Retained
Earnings
- +775Rent
Expense
= -775
2. To recognize
supplies
expense.
-1,700Supplies -
= -1,700Retained
Earnings
- +1,700Supplies
Expense
= -1,700
3. To recognize
depreciation
expense.-
+74Accumulated
Depreciation
= -74Retained
Earnings
- +74Depreciation
Expense
= -74
4. To recognize
wages
expense.-
= +210Wages
Payable
-210Retained
Earnings
- +210Wages
Expense
= -210
5. To recognize
utilities
expense.-
= +300Utilities
Payable
-300Retained
Earnings
- +300Utilities
Expense
= -300
6. To recognize
fees earned.
+380
AccountsReceivable -
= +380
RetainedEarnings
+380
Service FeesEarned
- = +380
Totals 0 + -2,095 - 74 = 510 + 0 + -2,679 380 - 3,059 = -2,679
Date 2011 Description Debit CreditJune 30 Rent expense (+E, -SE) 775
Prepaid rent (-A) 775To record June rent expense ($3,100/4 months = $775).
30 Supplies expense (+E, -SE) 1,700Supplies (-A) 1,700
To record June supplies expense (2,520 $820 = $1,700).
30 Depreciation expenseEquip (+E, -SE) 74Accum. depreciationEquipment (+XA, -A) 74
To record June depreciation ($4,440/60 months = $74).
30 Wages expense (+E, -SE) 210Wages payable (+L) 210
To record unpaid wages at June 30.
30 Utilities expense (+E, -SE) 300
Utilities payable (+L) 300To record estimated June utilities expense.
30 Accounts receivable (+A) 380Service fees earned (+R, +SE) 380
To record fees earned but not billed in June.
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b.
+ Cash (A) - - Accounts Payable (L) +Unadj. bal 1,180 760 Unadj. bal
Adj. bal. 1,180 760 Adj. bal.
+ Accounts Receivable (A) - - Wages Payable (L) +
Unadj. bal 450 210 (4) Jun.30Jun. 30 (6) 380 210 Adj. bal.
Adj. bal. 830
- Utilities Payable (L) +
300 (5) Jun.30
300 Adj. bal.
+ Prepaid Rent (A) - - Retained Earnings (SE) +Unadj. bal 3,100 775 (1) Jun.30 5,300 Unadj. bal.
Adj. bal. 2,325
+ Rent Expense (E) - - Common Stock (SE) +Jun.30 (1) 775 2,000 Unadj. bal
Adj. bal. 775 2,000 Adj. bal.
+ Supplies (A) - - Service Fees Earned (R) +Unadj. bal 2,520 1,700 (2) Jun.30 4,650 Unadj. bal
Adj. bal. 820 380 (6) Jun.30
5,030 Adj. bal.
+ Equipment (A) - + Wages Expense (E) -Unadj. bal 4,440 Unadj. bal 1,020
Adj. bal. 4,440 Jun.30 (4) 210Adj. bal. 1,230
- Accum. Depreciation Equip.(XA) + + Utilities Expense (E) -
74 (3) Jun.30 Jun.30 (5) 300
74 Adj. Bal. Adj. bal. 300
+ Supplies Expense (E) - + Depreciation Expense - EQPT (E) -Jun. 30 (2) 1,700 Jun.30 (3) 74Adj. bal. 1,700 Adj. bal. 74
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c.
Murdock Carpet CleanersIncome Statement
For Year Ended June 30, 2011
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 CleanersBALANCE SHEETJune 30, 2011
Assets LiabilitiesCash $ 1,180 Accounts payable $ 760Accounts receivable 830 Wages payable 210
Supplies 820 Utilities payable 300Prepaid rent 2,325 Total Liabilities 1,270Equipment $ 4,440Less: Accumulateddepreciation
74 4,366 Owners Equity
Common stock 2,000Retained earnings 6,251
Total Assets $9,521 Total Liabilities and Owners Equity $9,521
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d.1. Retained earnings (-SE) .................................................... 775
Rent expense (-E)........................................................... 775
2. Retained earnings (-SE)..................................................... 1,700
Supplies expense (-E).................................................... 1,700
3. Retained earnings (-SE)..................................................... 1,230Wages expense (-E)....................................................... 1,230
4. Retained earnings (-SE)..................................................... 300Utilities expense (-E )..................................................... 300
5. Retained earnings (-SE)..................................................... 74Depreciation expense (-E)............................................. 74
6. Service fees earned (-R)..................................................... 5,030
Retained earnings (+SE)................................................ 5,030
- Retained Earnings (SE) + + Rent Expense (E) -
5,300 Bal. Bal. 775 775 1.
1. 775 02. 1,700
3. 1,230 + Supplies Expense (E) -
4. 300 Bal. 1,700 1,700 2.
5. 74 5,030 6. 06,251 Bal.
+ Wages Expense(E) - + Utilities Expense (E) -
Bal. 1,230 1,230 3. Bal. 300 300 4.
0 0
+ Depreciation Expense (E) - - Service Fees Earned (R) +
Bal. 74 74 5. 6. 5,030 5,030 Bal.
0 0
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P 3-43 (30 minutes)a.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets -
ContraAssets
= Liabil-ities +Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
1. Accrue salaryexpense.
- = +720Salaries
Payable
-720Retained
Earnings
- +720Salaries
Expense
= -720
2. Accrue
interest
expense.
- = +200Interest
Payable
-200Retained
Earnings
- +200Interest
Expense
= -200
3. Accrue fees
receivable.+900Fees
Receivable
- = +900Retained
Earnings
+900Printing
Revenue
- = +900
4. Accrue
maintenance
expense.
-400Prepaid
Maintenance
- = -400Retained
Earnings
- +400Maintenance
Expense
= -400
5. Accrue ad.
Expense.-300
Prepaid
Advertising
- = -300Retained
Earnings
- +300Ad. Expense
= -300
6. Accrue rentexpanse.
- = +160Rent
Payable
-160Retained
Earnings
- +160Rent
Expense
= -160
7. Accrue
interest
revenue.
+38Interest
Receivable
- = +38Retained
Earnings
+38Interest
Revenue
- = +38
8. Accrue
depreciation
expense.
- +2,175Accumulated
Depreciation
= -2,175Retained
Earnings
- +2,175Depreciation
Expense
= -2,175
Totals 0 + +238 - 2,175 = 1,080 + 0 + -3,017 938 - 3,955 = -3,017
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b.
Date Description Debit CreditDec 31 Salaries expense (+E, -SE) 720
Salaries payable (+L) 720To accrue salaries at December 31 ($1,800 2/5 = $720).
31 Interest expense (+E, -SE) 200Interest payable (+L) 200
To accrue interest expense at December 31.
31 Fees receivable (+A) 900Printing revenue (+R, +SE) 900
To record revenue earned but not yet billed.
31 Maintenance expense (+E ,-SE) 400Prepaid maintenance (-A) 400
To record December maintenance expense.
31 Advertising expense (+E, -SE) 300Prepaid advertising (-A) 300
To record December advertising expense($900 1/3 = $300).
31 Rent expense (+E, -SE) 160Rent payable (+L) 160
To accrue one-half month's rent expense
[(400 $0.80)/2 = $160].
31 Interest receivable (+A) 38Interest income (+R, +SE) 38
To accrue interest earned in December.
31 Depreciation expenseEquipment (+E, -SE) 2,175Accum. depreciationEquipment (+XA) 2,175
To record annual depreciation on equipment.
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P3-44 (40 minutes)TRUEMAN CONSULTING INC.
INCOME STATEMENTFORTHE YEAR ENDED DECEMBER 31, 2010
a.RevenueService fees earned $58,400
ExpensesRent expense $12,000Salaries expense 33,400Supplies expense 4,700Insurance expense 3,250Depreciation expenseEquipment 720Interest expense 630
Total Expenses 54,700
Net Income $ 3,700
TRUEMAN CONSULTING INC.STATEMENTOF STOCKHOLDERS EQUITY
FORTHE YEAR ENDED DECEMBER 31, 2010
CommonStock
RetainedEarnings
Total StockholdersEquity
Balance at December 31, 2009.......... $1,000 $3,305 $4,305
Stock issuance......................................
Dividends..............................................Net income............................................ _____ 3,700 3,700
Balance at December 31, 2010.......... $1,000 $7,005 $8,005
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TRUEMAN CONSULTINGBALANCE SHEET
DECEMBER 31, 2010
Assets Liabilities
Cash $ 2,700 Accounts payable $ 845Accounts receivable 3,270 Long-term notes payable 7,000
Supplies 3,060 Total Liabilities 7,845Prepaid insurance 1,500Equipment $ 6,400 Owners EquityLess: Accumulateddepreciation
1,080 5,320 Common stock 1,000
Retained earnings 7,005Total Assets $15,850 Total Liabilities and Owners Equity $15,850
b.
Date 2010 Description Debit CreditDec. 31 Service fees earned (-R) 58,400
Retained earnings (+SE) 58,400To close the revenue account.
31 Retained earnings (-SE) 54,700Rent expense (-E) 12,000Salaries expense(-E) 33,400
Supplies expense (-E) 4,700Insurance expense (-E) 3,250Depreciation expenseEquip (-E) 720Interest expense (-E) 630
To close the expense accounts.
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P3-45 (30 minutes)
a.
Date 2010 Description Debit CreditDec. 31 Service fees earned (-R) 97,200
Miscellaneous income (-R) 4,200Retained earnings (+SE) 101,400
To close the revenue accounts.
31 Retained earnings (-SE) 74,800Salaries expense (-E) 42,800Rent expense (-E) 13,400Insurance expense (-E) 1,800Depreciation expense (-E) 8,000Income tax expense (-E) 8,800
To close the expense accounts.
b. After the closing entries are posted, Retained Earnings has a $45,700 creditbalance ($19,100 + $26,600 net income).
c.Wilson Company
Post-Closing Trial BalanceDecember 31, 2010
Debit Credit
Cash $8,500Accounts Receivable 8,000Prepaid Insurance 3,600Equipment 72,000Accumulated Depreciation $12,000Accounts Payable 600Income Tax Payable 8,800Common Stock 25,000Retained Earnings ______ 45,700
$92,100 $92,100
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P3-46 (30 minutes)a.
*Assumes wages earned had not been accrued or recognized yet as an expense.
Date 2010 Description Debit CreditDec. 31 Advertising expense (+E, -SE) 400
Prepaid advertising (-A) 400To record advertising expense ($1,200 $800 = $400).
31 Wages expense (+E, -SE) 1,300Wages payable (+L) 1,300
To record accrued wages.
31 Insurance expense (+E, -SE) 1,140Prepaid insurance (-A) 1,140
To record insurance expense ($3,420 $2,280 = $1,140).
31 Unearned service fees (-L) 2,400Service fees earned (+R, +SE) 2,400
To recognize unearned fees as earned
($5,400 $3,000 = $2,400).
31 Rent receivable (+A) 1,000Rental income (R, +SE) 1,000
To record rent earned but not yet recorded.
Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets = Liabilities +
Contrib.Capital +
EarnedCapital
Revenues - Expenses = NetIncom1. Recognize
Advertisingexpense.
-400Prepaid
Advertising=
-400RetainedEarnings
-+400
AdvertisingExpense
=-400
2. Accrue wageexpense. =
+1,300Wages
Payable*
-1,300RetainedEarnings
-
+1,300Wages
Expense=
-1,300
3. Recognizeinsuranceexpense.
-1,140Prepaid
Insurance=
-1,140RetainedEarnings
-
+1,140InsuranceExpense
=-1,140
4. Recognizeservice feesearned.
=
-2,400Unearned
Service Fees
+2,400RetainedEarnings
+2,400Service Fees
Earned- =
+2,40
5. Recognize
rent revenue.
+1,000
RentReceivable =
+1,000
RetainedEarnings
+1,000
RentalIncome - =
+1,00
Totals 0 + -540 = -1,100 + 0 + 560 3,400 - 2,840 = 560
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b.Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets =
Liabil-ities +
Contrib.Capital +
EarnedCapital
Revenues - Expenses = NetIncome
1. Paywages of$2,400.
-2,400Cash =
-1,300Wages
Payable
-1,100RetainedEarnings
-+1,100Wages
Expense=
-1,100
2. Receipt of$1,000 rentrevenue.
+1,000Cash
-1,000Rent
Receivable= - =
Date 2011 Description Debit CreditJan. 4 Wages payable (-L) 1,300
Wages expense (+E, -SE) 1,100Cash (-A) 2,400
To record payment of wages.
4 Cash (+A) 1,000Rent receivable (-A) 1,000
To record collection of rent.
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P3-47 (90 minutes)
a, b and d. For part d, the adjusting entries are indicated by the numbers 1-5. Theunadjusted trial balance required in part c is calculated before the adjusting entries
are made.
+ Cash (A) - - Accounts Payable (L) +
6/1 24,000 4,400 6/1 9,480 6/1
6/2 6,400 875 6/26/30 7,800 930 6/2
3,600 6/12 - Salaries Payable (L) +
1,240 6/15 725 2.
520 6/183,600 6/26
1,500 6/30 - Unearned Service Fees (L) +
21,535 5. 3,200 6,400 6/2
3,200
+ Accounts Receivable (A) -
6/10 5,800 7,800 6/30 - Common Stock (SE) +
6/28 5,200 24,000 6/1
3,200
+ Prepaid Advertising (A) - - Retained Earnings(SE) +
6/2 930 310 4. 6/30 1,500
620
+ Office Supplies (A) - + Supplies Expense (E) -
6/1 2,840 1,310 1. 1. 1,310
1,530
+ Office Equipment (A) - + Travel Expense (E) -
6/1 11,040 6/15 1,240
- Acc. Depreciation Off. Equip (XA) + + Depreciation Expense(E) -115 3. 3. 115
+ Advertising Expense (E) - + Rent Expense (E) -
4. 310 6/2 875
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+ Salaries Expenses (E) - - Service Fees Earned (R) +
6/12 3,600 5,800 6/106/26 3,600 5,200 6/282. 725 3,200 5.
7,925 14,200
+ Postage Expense (E) -
6/18 520
b.Balance Sheet Income Statement
ransaction CashAsset +
NoncashAssets = Liabilities +
Contrib.Capital
+EarnedCapital
Revenues - Expenses = Net Inco
/1. Investment forcommon stock.
+24,000Cash =
+24,000Common
Stock
- =
/1. Purchase ofassets for cash& on account.
-4,400
Cash
+ 11,040
OfficeEquipment
+2,840Supplies
=
+9,480
AccountsPayable - =
/2. Pay rent $875. -875Cash =
-875RetainedEarnings
-+875Rent
Expense
=-875
/2.Purchase $930of advertising inadvance.
-930Cash
+930Prepaid
Advertising
= - =
/2Signed researchcontract.
+6,400Cash =
+6,400Unearned
Service Fees
- =
/10. Bill customersfor services.
+5,800Accounts
Receivable
=+5,800Retained
Earnings
+5,800Service Fees
Earned
- =+5,80
/12. Paid salaries. -3,600Cash =
-3,600RetainedEarnings
-+3,600SalariesExpense
=-3,60
/15. Paid travelexpenses.
-1,240Cash =
-1,240RetainedEarnings
-+1,240
TravelExpense
=-1,24
/18. Paid postage. -520Cash =
-520RetainedEarnings
-+520
PostageExpense
=-520
/26. Paid salaries. -3,600Cash =
-3,600RetainedEarnings
-+3,600SalariesExpense
=-3,60
/28. Bill customersfor services.
+5,200Accounts
Receivable=
+5,200RetainedEarnings
+5,200Service
FeesEarned
- =
+5,20
/30. Collectservice fees.
+7,800Cash
-7,800Acts. Rec.
= - =
/30. Cash dividendpaid.
-1,500Cash
-1,500RetainedEarnings
-
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Date 2010 Description Debit CreditJune 1 Cash (+A) 24,000
Common stock (+SE) 24,000Owner invested cash for common stock.
1 Office equipment (+A) 11,040Office supplies (+A) 2,840
Cash (-A) 4,400Accounts payable (+L) 9,480
Purchased equipment and supplies;$4,400 cash paid with the remainder due in 60 days.
2 Rent expense (+E, -SE) 875Cash (-A) 875
Paid June rent.
2 Prepaid advertising (+A) 930Cash (-A) 930
Paid three months' advertising in advance.
2 Cash (+A) 6,400Unearned service fees (+L) 6,400
Received two months' fees in advance on six-month contract.
10 Accounts receivable (+A) 5,800Service fees earned (+R, +SE) 5,800
Billed customers for services.
12 Salaries expense (+E, -SE) 3,600Cash (-A) 3,600
Paid two weeks' salaries to employees.
15 Travel expense (+E, -SE) 1,240Cash (-A) 1,240
Paid business travel expenses.
18 Postage expense (+E, -SE) 520Cash (-A) 520
Paid postage for questionnaire mailing.
26 Salaries expense (+E, -SE) 3,600Cash (-A) 3,600
Paid two weeks' salaries to employees.
28 Accounts receivable (+A) 5,200Service fees earned (+R, +SE) 5,200
Billed customers for services.
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30 Cash (+A) 7,800Accounts receivable (-A) 7,800
Collections from customers on account.
30 Retained earnings (-SE) 1,500Cash (-A) 1,500
Declared and paid dividends.
c.MARKET-PROBE
UNADJUSTED TRIAL BALANCEJUNE 30, 2010
Debit CreditCash $21,535Accounts Receivable 3,200Office Supplies 2,840Prepaid Advertising 930Office Equipment 11,040Accounts Payable $9,480Unearned Service Fees 6,400Common Stock 24,000Retained Earnings* 1,500Service Fees Earned 11,000Salaries Expense 7,200Rent Expense 875Travel Expense 1,240Postage Expense 520 ______
$50,880 $50,880
* The negative (debit) balance in Retained Earnings reflects the dividend paid.d.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets -
ContraAssets
= Liabilities + Contrib.Capital +EarnedCapital Revenues - Expenses =
NetIncom
a. Recognize
supplies
expense.
-1,310Office
Supplies
-= -1,310
Retained
Earnings
- +1,310Supplies
Expense
= -1,310
b. Recognize
salaries
expense.-
= +725Salaries
Payable
-725Retained
Earnings
- +725Salaries
Expense
= -725
c. Accruedepreciation
expense.-
+115Accumulated
Depreciation
= -115Retained
Earnings
- +115Depreciation
Expense
= -115
d. Recognize
advertising
expense.
-310Prepaid
Advertising
-= -310
Retained
Earnings
- +310Advertising
Expense
= -310
e. Recognize
earned
service fees.-
= -3,200Unearned
Service Fees
+3,200Retained
Earnings
+3,200Service Fees
Earned
- = +3,20
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Date 2010 Description Debit CreditJune 30 Supplies expense (+E, -SE) 1,310
Office supplies (-A) 1,310To record supplies used during June
($2,840 $1,530 = $1,310).
30 Salaries expense (+E, -SE) 725Salaries payable (+L) 725
To record unpaid salaries at June 30.
30 Depreciation expenseOffice equipment (+E, -SE) 115Accum. deprec. Off. equipment (+XA, -A) 115
To record June depreciation ($11,040/96 mo. = $115).
30 Advertising expense (+E, -SE) 310Prepaid advertising (-A) 310
To record one month's advertising expense.
30 Unearned service fees (-L) 3,200Service fees earned (+R, +SE) 3,200To record one month's fees earned, received in advance.
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P3-48 (40 minutes)
DELIVERALLUNADJUSTED TRIAL BALANCE
DECEMBER 31, 2010a.
Debit CreditCash $ 2,300Accounts Receivable 5,120Prepaid Advertising 1,680Supplies 6,270Equipment 42,240Notes Payable $7,500Accounts Payable 2,700Common Stock 9,530Mailing Fees Earned 86,000Wages Expense 38,800
Rent Expense 6,300Utilities Expense 3,020 ________
$105,730 $105,730
b.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets -
ContraAssets
= Liabil-ities +Contrib.Capital +
EarnedCapital Revenues - Expenses =
NetIncome
1. Recognize
advertising
expense.
-1,540Prepaid
Advertising
-
= -1,540Retained
Earnings
- +1,540Advertising
Expense
= -1,540
2. Recognize
depreciation
expense.-
+5,280Accumulated
Depreciation
= -5,280Retained
Earnings
- +5,280Depreciation
Expense
= -5,280
3. Recognize
utilities
expense.-
= +325Accounts
Payable
-325Retained
Earnings
- +325Utilities
Expense
= -325
4. Accrue wages
expense. -
= +1,200Wages
Payable
-1,200Retained
Earnings
- +1,200Wages
Expense
= -1,200
5. Recognize
supplies
expense.
-4,750Supplies -
= -4,750Retained
Earnings
- +4,750Supplies
Expense
= -4,750
6. Accrue interest
expense. -
= +450Interest
Payable
-450Retained
Earnings
- +450Interest
Expense
= -450
7. Recognize rent
expense*. -
= +430Accounts
Payable
-430Retained
Earnings
- +430Rent
Expense
= -430
*(1/2% $86,000 = $430). The rent for the year ($6,300 = $525 x 12) has already beenrecognized in the accounts. See the beginning balances given in the problem statement.
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Date 2010 Description Debit CreditDec. 31 Advertising expense (+E, -SE) 1,540
Prepaid advertising (-A) 1,540To record 11 months' advertising expense
($1,680 11/12 = $1,540).
31 Depreciation expense (+E, -SE) 5,280Accumulated depreciation (+XA, -A) 5,280
To record depreciation for the year($42,240/8 years = $5,280).
.31 Utilities expense (+E, -SE) 325
Accounts payable (+L) 325To record estimated December utilities expense.
31 Wages expense (+E, -SE) 1,200Wages payable (+L) 1,200
To record unpaid wages at December 31.
31 Supplies expense (+E, -SE) 4,750Supplies (-A) 4,750
To record supplies expense for the year
($6,270 $1,520 = $4,750).
31 Interest expense (+E, -SE) 450Interest payable (+L) 450
To record accrual of interest expense at Dec. 31.
31 Rent expense (+E, -SE) 430Accounts payable (+L) 430
To record additional rent owed under lease(1/2% $86,000 = $430).
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c.
Only the T-accounts needed to enter the adjustments are provided.
- Accounts Payable (L) + + Prepaid Advertising (A) -
2,700 Bal. Bal. 1,680 1,540 1.325 3.430 7.
+ Supplies (A) -
Bal. 6,270 4,750 5.
- Accumulated DepreciationEquip (XA) + +Advertising Expense (E) -
5,280 2. 1. 1,540
- Interest Payable (L) + + Rent Expense (E) -
450 6. Bal. 6,3007. 430
- Wages Payable (L) + + Wages Expense (E) -
1,200 4. Bal. 38,800
4. 1,200
+ Depreciation Expense (E) - + Utilities Expense (E) -
2. 5,280 Bal.
3.
3,020
325
+ Interest Expense (E) - + Supplies Expense (E) -
6. 450 5. 4,750
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P3-49 (60 minutes)a.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets -
ContraAssets
= Liabilities + Contrib.Capital +EarnedCapital Revenues - Expenses = Net Inco
1. Recognize rentexpense. -795PrepaidRent
-= -795
Retained
Earnings
- +795Rent
Expense
= -795
2. Recognize
supplies
expense.
-1,980Supplies -
= -1,980Retained
Earnings
- +1,980Supplies
Expense
= -1,980
3. Accrue
depreciation
expense.-
+335Accumulated
Depreciation
= -335Retained
Earnings
- +335Depreciation
Expense
= -335
4. Accrue wages
payable. -
= +560Wages
Payable
-560Retained
Earnings
- +560Wages
Expense
= -560
5. Recognize
utilities
expense.-
= +390Accounts
Payable
-390Retained
Earnings
- +390Utilities
Expense
= -390
6. Recognize
service
revenue. -
=
-500UnearnedService
Revenue
+500RetainedEarnings
+500ServiceRevenue
-
= +500
Date 2010 Description Debit CreditMar. 31 Rent expense (+E, -SE) 795
Prepaid rent (-A) 795To record March rent expense ($4,770/6 months = $795).
31 Supplies expense (+E, -SE) 1,980Supplies (-A) 1,980
To record March supplies expense ($3,700$1,720 = $1,980).
31 Depreciation expenseEquipment (+E, -SE) 335Accumulated depreciationEquipment (+XA, -A) 335
To record March depreciation ($36,180/108 months = $335).
31 Wages expense (+E, -SE) 560Wages payable (+L) 560
To record unpaid wages at March 31.
31 Utilities expense (+E, -SE) 390Accounts payable (+L) 390
To record estimated March utilities expense.
31 Unearned service revenue (-L) 500Service revenue (+R, +SE) 500
To record revenue received in advance that was earned in March.
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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) + + Prepaid Rent (A) -
2,510 Bal. Bal. 4,770 795 1.390 5. Bal. 3,975
2,900 Bal.
+ Supplies (A) -
Bal. 3,700 1,980 2.
Bal. 1,720
- Acc Depreciation - Equipment (XA) + - Unearned Service Revenue (L) +
335 3. 6. 500 1,000 Bal.
500 Bal.
-Service Revenue(R) + + Rent Expense (E) -6c. 12,860 12,360 Bal. 1. 795 795 1c.
500 6.
+ Supplies Expense (E) -
2. 1,980 1,980 2c.
+Depreciation Expense (E) - +Wages Expense (E) -
3. 335 335 3c. Bal. 3,900
4. 560 4,460 4c.
+ Utilities Expense (E) - - Wages Payable (L) +5. 390 390 5c. 560 4.
- Retained Earnings (SE) +
1c. 7952c. 1,9803c. 3354c. 4,4605c. 390
12,860 6c.
4,900 7c.
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c.
Wheel Place CompanyIncome Statement
For Month Ended March 31, 2010
Service revenue.... $12,860
Expenses:
Utilities expense... $390
Supplies expense.. 1,980
Wages expense.... 4,460
Depreciation expense. 335
Rent expense... 795 7,960
Net income ... $4,900
Wheel Place CompanyBALANCE SHEETMarch 31, 2010
Assets LiabilitiesCash $ 1,900 Accounts payable $ 2,900Accounts receivable 3,820 Wages payable 560
Supplies 1,720 Unearned service revenue 500
Prepaid rent 3,975 Total Liabilities 3,960Equipment $ 36,180Less:Accumulateddepreciation
335 35,845 Owners Equity
Common stock 38,400Retained earnings 4,900
Total Assets $47,260 Total Liabilities and Owners Equity $47,260
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d.
1c. Retained earnings (-SE).............................................. 795Rent expense (-E).................................................... 795
2c. Retained earnings (-SE).............................................. 1,980Supplies expense (-E)............................................. 1,980
3c. Retained earnings (-SE).............................................. 335Depreciation expense (-E)...................................... 335
4c. Retained earnings (-SE).............................................. 4,460Wages expense (-E)................................................. 4,460
5c. Retained earnings (-SE).............................................. 390Utilities expense (-E)............................................... 390
6c. Service revenue (-R) ................................................... 12,860Retained earnings (+SE)......................................... 12,860
The closing journal entries are shown in the T-accounts in part a.
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P3-50 (30 minutes)a.
TRAILS, INC.INCOME STATEMENT
FORTHE YEAR ENDED DECEMBER 31, 2010
RevenuesSubscription revenue $ 168,300Advertising revenue 49,700
Total revenues $218,000Expenses
Salaries expense 100,230Printing and mailing expense 85,600Rent expense 8,800Supplies expense 6,100Insurance expense 1,860Depreciation expense 5,500
Income tax expense 1,600Total expenses 209,690Net income $8,310
Trails, Inc.Statement of Stockholders EquityFor Year Ended December 31, 2010
CommonStock
RetainedEarnings
TotalStockholders
EquityBalance at December 31, 2009.... $25,000 $23,220 $48,220
Stock issuance............................
Dividends.....................................
Net income.................................. _____ 8,310 8,310
Balance at December 31, 2010.... $25,000 $31,530 $56,530
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TRAILS, INC.BALANCE SHEET
DECEMBER 31, 2010Assets Liabilities
Cash $3,400 Accounts payable $ 2, 100Accounts receivable 8,600 Unearned subscription revenue 10,000
Supplies 4,200 Salaries payable 3,500Prepaid insurance 930 Total liabilities 15,600Office equipment $66,000Less:Accum. depreciation 11,000 55,000
Stockholders' equity
Common stock $25,000Retained earnings 31,530
Total stockholders' equity 56,530Total liabilities and
Total assets $72,130 stockholders' equity $72,130
b.
Date 2010 Description Debit CreditDec. 31 Subscription revenue (-R) 168,300
Advertising revenue (-R) 49,700Retained earnings (+SE) 218,000
To close the revenue accounts.
31 Retained earnings (-SE) 209,690Salaries expense (-E) 100,230Printing and mailing expense (-E) 85,600
Rent expense (-E) 8,800Supplies expense (-E) 6,100Insurance expense (-E) 1,860Depreciation expense (-E) 5,500Income tax expense (-E) 1,600
To close the expense accounts.
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P3-51 (30 minutes)a.
Date 2010 Description Debit CreditDec. 31 Service fees earned (-R) 72,500
Retained earnings (+SE) 72,500
To close the revenue account.
31 Retained earnings (-SE) 58,800Wages expense (-E) 29,800Rent expense (-E) 10,200Insurance expense (-E) 2,900Supplies expense (-E) 5,100Advertising expense(-E) 6,000Depreciation expenseTrucks(-E) 4,000Depreciation expenseEquipment (-E) 800
To close the expense accounts.
b. The balance in Retained Earnings after closing entries are posted is $29,250credit ($15,550 + $13,700).
c.Mayflower MOVING SERVICE
POST-CLOSING TRIAL BALANCEDECEMBER 31, 2010
Debit CreditCash $ 3,800Accounts Receivable 5,250Supplies 2,300Prepaid Advertising 3,000Trucks 28,300Accumulated DepreciationTrucks $10,000Equipment 7,600Accumulated DepreciationEquipment 2,100Accounts Payable 1,200Unearned Service Fees 2,700
Common Stock 5,000Retained Earnings ______ 29,250$50,250 $50,250
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P3-52 (20 minutes)a.
Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets =
Liabil-ities
+ Contrib.Capital +EarnedCapital
Revenues - Expenses = NetIncome1. Recognize
maintenance
expense.
-1,800Prepaid
Maintenance
=-1,800
RetainedEarnings
-+1,800
MaintenanceExpense
=-1,800
2. Recognizesupplies expense.
-5,200Supplies =
-5,200RetainedEarnings
-+5,200SuppliesExpense
=-5,200
3. Accrue earnedcommissions.
=
-4,500UnearnedCommis-sion Fees
+4,500RetainedEarnings
+4,500CommissionFees Earned
- =
+4,500
4. Earned butunbilledcommission fees.
+2,800Fees
Receivable
=+2,800RetainedEarnings
+2,800CommissionFees Earned
- =+2,800
5. Rent expense.
=+913Rent
Payable
-913RetainedEarnings
-+913Rent
Expense
=-913
Date 2010 Description Debit CreditDec. 31 Maintenance expense (+E, -SE) 1,800
Prepaid maintenance (-A) 1,800To record four months' maintenance expense
[($2,700/6) 4 = $1,800].
31 Supplies expense (+E, -SE) 5,200Supplies (-A) 5,200
To record supplies expense ($8,400 $3,200 = $5,200).
31 Unearned commission fees (-L) 4,500Commission fees earned (+R, +SE) 4,500
To transfer fees earned from unearned fees($8,500 $4,000 = $4,500).
31 Fees receivable (+A) 2,800Commission fees earned (+R, +SE) 2,800
To record fees earned but not yet billed.
31 Rent expense (+E, -SE) 913
Rent payable (+L) 913To record additional 2008 rent[1% ($84,000 + $4,500 + $2,800) = $913].
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b.Balance Sheet Income Statement
Transaction CashAsset +
NoncashAssets = Lia
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