Upload
tamara-wilson
View
215
Download
0
Embed Size (px)
Citation preview
8/3/2019 Accounting 04
1/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
CHAPTER 4
Accrual Accounting Concepts
ANSWERS TO QUESTIONS
1. (a) Under the time period assumption, an accountant is required to determine the effect of eaccounting transaction on specific accounting periods.
(b) An accounting time period that is one year in length is referred to as a fiscal year.
2. The two generally accepted accounting principles that pertain to adjusting the accounts are:The revenue recognition principle, which states that revenue should be recognized in the tperiod in which it is earned.The matching principle which states that efforts (expenses) be matched with accomplishm(revenues) that they helped generate.
3. The law firm should recognize the revenue in April. The revenue recognition principle states revenue should be recognized in the accounting period in which it is earned.
4. Expenses of $4,500 should be deducted from the revenues in April. Under the matching princefforts (expenses) should be matched with accomplishments (revenues).
5. No, adjusting entries are required by the revenue recognition and matching principles.
6. The financial information in a trial balance may not be up-to-date because:(1) Some events are not journalized daily because it is not useful or efficient to do so.(2) The expiration of some costs occurs with the passage of time rather than as a resu
recurring daily transactions.(3) Some items may be unrecorded because the transaction data are not known.
7. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of revenand expenses paid before they are earned or incurred. Accruals consist of revenues and expenearned or incurred prior to payment.
8. In a prepaid expense adjusting entry, expenses are debited and assets are credited.
9. No. Depreciation is the process of allocating the cost of an asset to expense over its useful Depreciation results in the presentation of the book value of the asset, not its market value.
10. Depreciation expense is an expense account whose normal balance is a debit. This accoshows the cost that has expired during the current accounting period. Accumulated depreciais a contra asset account whose normal balance is a credit. The balance in this account isdepreciation that has been recognized from the date of acquisition to the balance sheet date.
11. Equipment ................................................................................................. $15,000Less: Accumulated Depreciation.............................................................. 9,000 $6,0
8/3/2019 Accounting 04
2/91
4-2 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
Questions Chapter 4 (Continued)
2. In an unearned revenue adjusting entry, liabilities are debited and revenues are credited.
3. The sale of a three-year maintenance contract on December 29, 2009 will have no effect on the2009 income statement but receipt of $100,000 on December 29, 2009 will increase an asset,cash, and a liability, unearned revenue. As Computer Technologies provides service to itscustomer during 2010, 2011, and 2012, the liability will decrease and revenue will be recognized.Accrual accounting rules require that revenue be recognized as it is earned rather than when
cash is received.
4. This promotion plan sounds like a bad idea for two reasons.(1) GAAP requires that the sale of a gift card be recorded as unearned revenue (a liability)
rather than sales revenue. Revenue recognition is delayed until the gift card is used orexpires. Mickeys plan will not help the company meet its target revenue unless customersuse the cards by year-end.
(2) Selling a $50 card for $40 will probably not help the company meet its target net income.Although this promotion may result in additional sales revenue as the cards are used, theincome resulting from the cards will be much less than usual since they eliminate $10 ofnormal gross profit.
5. Asset and revenue. An asset is debited and revenue is credited.
6. Expense and liability. An expense is debited and a liability is credited.
7. Net income was understated $300 because prior to adjustment revenues are understated by$800 and expenses are understated by $500. The difference in this case is $300 ($800 $500).
8. The entry is:Jan. 9 Salaries Payable ................................................................................ 1,100
Salaries Expense ............................................................................... 4,900Cash.......................................................................................... 6,000
9. (a) Accrued revenues. (d) Accrued expenses or prepaid expenses.(b) Unearned revenues. (e) Prepaid expenses.(c) Accrued expenses. (f) Accrued revenues or unearned revenues.
20. (a) Salaries Payable. (d) Supplies Expense.(b) Accumulated Depreciation. (e) Service Revenue.(c) Interest Expense. (f) Service Revenue.
21. Disagree. An adjusting entry affects only one balance sheet account and one income statementaccount.
22. Tootsie Roll reports Accounts Receivable. This suggests that it records revenue when it has
delivered goods, even though it hasnt received payment. If it used a cash basis it wouldnt recordrevenue until cash was received, and it would therefore not establish receivables.
23. Financial statements can be prepared from an adjusted trial balance because the balances of allaccounts have been adjusted to show the effects of all financial events that have occurred duringthe accounting period.
8/3/2019 Accounting 04
3/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
Questions Chapter 4 (Continued)
24. (a) Information presented on an accrual basis is useful because it reveals important informaabout the relationship between efforts and results. This information is useful in predicfuture results. Trends in revenues and expenses are thus more meaningful.
(b) Information presented on a cash basis is useful for predicting the future availability of cCash basis financial statements provide useful information about a companys sources
uses of cash.
25. The amount shown in the adjusted trial balance column for an account equals the accobalance in the ledger after adjusting entries have been journalized and posted.
26. (1) (Dr) Individual revenue accounts and (Cr) Income Summary.(2) (Dr) Income Summary and (Cr) Individual expense accounts.(3) (Dr) Income Summary and (Cr) Retained Earnings (for net income).(4) (Dr) Retained Earnings and (Cr) Dividends.
27. Financial information is used by managers to direct and evaluate a companys performance. sooner such information is made available; the sooner changes can be made to get a compback on track. A virtual close speeds up the reporting process and allows managers to remuch faster to changing economic conditions.
28. Income Summary is a temporary account that is used in the closing process. The accoundebited for expenses and credited for revenues. The difference, either net income or net losthen closed to Retained Earnings.
29. The post-closing trial balance contains only balance sheet accounts. Its purpose is to proveequality of the permanent account balances that are carried forward into the next accounting perio
30. The accounts that will not appear in the post-closing trial balance are: Depreciation ExpenDividends; and Service Revenue.
31. The steps that involve journalizing are (1) journalize the transactions, (2) journalize the adjusentries, and (3) journalize the closing entries.
32. The three trial balances are the (1) trial balance, (2) adjusted trial balance, and (3) post-clostrial balance.
33. Earnings management is the planned timing of revenues, expenses, gains, and losses to smoothbumps in net income. Such action is undertaken to help a company meet target financial numbers
Quality of earnings indicates the level of full and transparent information that a company provideusers of financial statements.
34. Examples of ways a company can manage earnings include the following.
Use of one-time items to prop up earnings numbers. A company may decide to sell propthat has appreciated in value in order to record a gain on the sale. Such a gain will increasecurrent years net income but future income will probably not include a similar increase.
Inflating revenue in the short-run to the detriment of the long-run. A company may implemchanges in its promotion activities near the end of an accounting period to boost year-revenues. Offering a special rebate or a twoforone package is likely to increase sales fortime the promotion runs but usually results in lower sales in subsequent periods. Sacustomers may even postpone purchases until special deals are available.
8/3/2019 Accounting 04
4/91
4-4 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
Recording improper adjusting entries. Some adjusting entries require estimates and judgment toproperly recognize revenue and match expenses. By recognizing revenue sooner and delayingthe recognition of expenses, earnings can be overstated in early periods and understated insubsequent periods. This type of management is most prevalent with multi-year contracts andprepaid expenses.
35. The worksheet is a working paper designed to make it easier to prepare adjusting entries andfinancial statements.
36. The columns of the worksheet from left to right are two columns each for the trial balance,adjustments, adjusted trial balance, income statement, and balance sheet.
8/3/2019 Accounting 04
5/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 4-1
Cash Net Income(a)(b)(c)(d)(e)(f)
$10000
+8002,500
0
$040
+1,30000
600
BRIEF EXERCISE 4-2
(a) Prepaid Insuranceto recognize insurance expired during the perio
(b) Depreciation Expenseto account for the allocation of the cost of asset to expense during its useful life.
(c) Unearned Service Revenueto account for unearned revenue that hbeen earned during the period.
(d) Interest Payableto recognize interest accrued but unpaid on nopayable.
BRIEF EXERCISE 4-3
Item(1)
Type of Adjustment(2)
Accounts Before Adjustment
(a) Prepaid Expenses Assets OverstatedExpenses Understated
(b) Accrued Revenues Assets UnderstatedRevenues Understated
(c) Accrued Expenses Expenses UnderstatedLiabilities Understated
(d) Unearned Revenues Liabilities OverstatedRevenues Understated
8/3/2019 Accounting 04
6/91
4-6 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 4-4
Dec. 31 Advertising Supplies Expense........................ 7,400Advertising Supplies................................ 7,400
Advertising Supplies Advertising Supplies Expense
8,800 12/31 7,400 12/31 7,4002/31 Bal. 1,400
BRIEF EXERCISE 4-5
Dec. 31 Depreciation Expense...................................... 2,200Accumulated Depreciation
Equipment............................................. 2,200
Depreciation ExpenseAccumulated Depreciation
Equipment2/31 2,200 12/31 2,200
Balance Sheet:Equipment................................................................... $22,000Less: Accumulated Depreciation............................. 2,200 $19,800
BRIEF EXERCISE 4-6
July 1 Prepaid Insurance ............................................ 10,800Cash........................................................... 10,800
Dec. 31 Insurance Expense ($10,800 X 6/24)............... 2,700Prepaid Insurance .................................... 2,700
Prepaid Insurance Insurance Expense
7/1 10,800 12/31 2,700 12/31 2,70012/31 Bal. 8,100
8/3/2019 Accounting 04
7/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 4-7
July 1 Cash .................................................................. 10,800Unearned Insurance Revenue................. 10,80
Dec. 31 Unearned Insurance Revenue ........................ 2,700Insurance Revenue ($10,800 X 6/24) ...... 2,70
Unearned Insurance Revenue Insurance Revenue12/31 2,700 7/1 10,800 12/31 2,70
12/31 Bal. 8,100
BRIEF EXERCISE 4-8
(a) Dec. 31 Interest Expense ...................................... 300Interest Payable................................ 30
(b) 31 Accounts Receivable............................... 1,400Service Revenue............................... 1,40
(c) 31 Salaries Expense...................................... 780Salaries Payable............................... 78
BRIEF EXERCISE 4-9
Account
(1)
Type of Adjustment
(2)
Related Account
(a) Accounts Receivable Accrued Revenues Service Revenue
(b) Prepaid Insurance Prepaid Expenses Insurance Expense
(c) Equipment Not required
(d) Accum. DepreciationEquipment
Prepaid Expenses Depreciation Expen
(e) Notes Payable Not required
(f) Interest Payable Accrued Expenses Interest Expense
(g) Unearned ServiceRevenue
Unearned Revenues Service Revenue
8/3/2019 Accounting 04
8/91
4-8 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 4-10
ROSE CORPORATIONIncome Statement
For the Year Ended December 31, 2010
Revenues
Service revenue..................................................... $32,000Expenses
Salaries expense ................................................... $13,000Rent expense......................................................... 3,500Insurance expense................................................ 1,800Supplies expense.................................................. 1,200Depreciation expense ........................................... 1,000
Total expenses............................................... 20,500Net income..................................................................... $11,500
BRIEF EXERCISE 4-11
ROSE CORPORATIONRetained Earnings Statement
For the Year Ended December 31, 2010
Retained earnings, January 1 .......................................................... $17,200Add: Net income ............................................................................. 10,000
27,200Less: Dividends ............................................................................... 6,000Retained earnings, December 31 .................................................... $21,200
BRIEF EXERCISE 4-12
Account
a)
b)c)d)e)f)g)
Accumulated Depreciation
Depreciation ExpenseRetained EarningsDividendsService RevenueSuppliesAccounts Payable
Balance Sheet
Income StatementRetained Earnings Statement and Balance SheetRetained Earnings StatementIncome StatementBalance SheetBalance Sheet
8/3/2019 Accounting 04
9/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 4-13
The accounts that will appear in the post-closing trial balance are:
Accumulated DepreciationRetained EarningsSupplies
Accounts Payable
BRIEF EXERCISE 4-14
(a) Closing EntriesJuly 31 Green Fees Revenue................................ 16,000
Income Summary .............................. 16,00(To close revenue account)
Income Summary ..................................... 11,900Salaries Expense............................... 8,40Maintenance Tax Expense ............... 2,50Income Tax Expense......................... 1,00
(To close expense accounts)
Income Summary ..................................... 4,100Retained Earnings............................. 4,10
(To close net income to
retained earnings)
Retained Earnings.................................... 1,000Dividends........................................... 1,00
(To close dividends to retainedearnings)
(b) Retained Earnings1,000 20,000
4,1007/31 Bal. 23,100
8/3/2019 Accounting 04
10/91
4-10 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 4-15
The proper sequencing of the required steps in the accounting cycle is asollows:
1. (c) Analyze business transactions.2. (e) Journalize the transactions.
3. (i) Post to ledger accounts.4. (d) Prepare a trial balance.5. (h) Journalize and post adjusting entries.6. (b) Prepare an adjusted trial balance.7. (g) Prepare financial statements.8. (f) Journalize and post closing entries.9. (a) Prepare a post-closing trial balance.
8/3/2019 Accounting 04
11/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
SOLUTIONS TO DO IT! REVIEW EXERCISES
DO IT! 4-1
1. Insurance Expense ........................................................ 300Prepaid Insurance ................................................... 3
(To record insurance expired)
2. Office Supplies Expense............................................... 1,600Office Supplies ........................................................ 1,6
(To record supplies used)
3. Depreciation Expense ................................................... 500Accumulated DepreciationOff. Equip. ............... 5
(To record monthly depreciation)
4. Unearned Revenue ........................................................ 4,000Service Revenue...................................................... 4,0(To record revenue for services provided)
DO IT! 4-2
1. Salaries Expense ........................................................... 1,100Salaries Payable ...................................................... 1,1
(To record accrued salaries)
2. Interest Expense ............................................................ 200Interest Payable....................................................... 2
(To record accrued interest)
3. Accounts Receivable .................................................... 1,600Service Revenue...................................................... 1,6
(To record revenue for service provided)
DO IT! 4-3
Income statement: Service Revenue, Utilities Expense
Balance sheet: Accounts Receivable, Accumulated Depreciation, NoPayable, Common Stock.
8/3/2019 Accounting 04
12/91
4-12 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
DO IT! 4-4
Dec. 31 Income Summary...................................................... 29,000Retained Earnings ............................................. 29,000
(To close net income to retained earnings)
Dec. 31 Retained Earnings .................................................... 22,000
Dividends............................................................ 22,000(To close dividends to retained earnings)
8/3/2019 Accounting 04
13/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
SOLUTIONS TO EXERCISES
EXERCISE 4-1
(a) 8. Going concern assumption.(b) 1. Economic entity assumption.
(c) 7. Full disclosure principle.(d) 3. Monetary unit assumption.(e) 6. Materiality.(f) 4. Time period assumption.(g) 2. Matching principle.(h) 5. Cost principle.
EXERCISE 4-2
(a) Since the sales effort is not complete until the flight actually occurevenue should not be recognized until December. Southwest Airlinshould recognize the revenue in December when the customer hbeen provided with the flight.
(b) If Ultimate Electronics is reasonably certain of collection, revenue shobe recognized at the time of sale. If the company has concerns over tcollectibility of the accounts receivable, revenue should not be recognizuntil the time that collection is reasonably assured.
(c) Revenue should be recognized on a per game basis over the seas
from April through October.(d) Interest revenue should be accrued and recognized by RBC evenly o
the term of the loan.
(e) Revenue should be recognized when the sweater is shipped to customer in September provided there is reasonable assurancecollectibility.
EXERCISE 4-3
(a) Revenue recognition principle.(b) Time period assumption.(c) No violation.(d) Going concern assumption.(e) Cost principle or conservatism.(f) Economic entity assumption.
8/3/2019 Accounting 04
14/91
4-14 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
EXERCISE 4-4
$ 33,640 Cash basis earnings.
+ 3,400Accounts receivable arise from sales that have been made,thus revenue must be recognized for balance outstanding atthe end of the current year.
2,800 Accounts receivable collected in current year, for sales madein previous year must be deducted from earnings.
+ 1,300Supplies on hand at year end should be set up as an assetrather than expensed, this increases earnings.
1,160Supplies on hand at the end of the previous year should beexpensed this year, this decreases earnings.
2,000Wages owing at the end of the current year should beaccrued, thus reducing earnings.
+ 2,400Wages owed at the end of the previous year should not bededucted from the current years earnings, thus increasing
earnings.
1,400Other unpaid amounts owed at the end of the current yearshould be accrued, thus reducing earnings.
+ 1,600Other unpaid amounts owed at the end of the previous yearshould not be deducted from the current years earnings, thusincreasing earnings.
$ 34,980 Accrual basis earnings.
8/3/2019 Accounting 04
15/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
EXERCISE 4-5
(a) BOULDER COMPANYIncome Statement
For the Six Months Ended April 30, 2010
Revenues
Repair services ($32,150 + $350)..................... $32,50Expenses
Income tax expense.......................................... $10,000Wages expense ($2,600 + $420) ...................... 3,020Rent expense ($1,225 $175) .......................... 1,050Utilities expense ............................................... 970Depreciation expense [($9,200 5) X 6/12]..... 920Advertising expense......................................... 375
Total expenses........................................... 16,33Net income................................................................ $16,16
(b) BOULDER COMPANYBalance SheetApril 30, 2010
AssetsCurrent Assets
Cash................................................................ $27,780Accounts receivable ...................................... 350Prepaid rent .................................................... 175
Total current assets................................ $28,30Property, plant, and equipment
Equipment....................................................... 9,200Less: Accumulated depreciation................. 920 8,28
Total assets ........................................................... $36,58
Liabilities and Stockholders EquityCurrent Liabilities
Wages payable.............................................. $ 42Stockholders equity
Common stock.............................................. $20,000Retained earnings......................................... 16,165
Total stockholders equity.............. 36,16Total liabilities and stockholders
equity ................................................... $36,58
8/3/2019 Accounting 04
16/91
4-16 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
EXERCISE 4-6
tem(1)
Type of Adjustment(2)
Accounts Before Adjustment
a) Accrued Revenues Assets UnderstatedRevenues Understated
b) Prepaid Expenses Assets OverstatedExpenses Understated
c) Accrued Expenses Expenses UnderstatedLiabilities Understated
d) Unearned Revenues Liabilities OverstatedRevenues Understated
e) Accrued Expenses Expenses UnderstatedLiabilities Understated
f) Prepaid Expenses Assets OverstatedExpenses Understated
8/3/2019 Accounting 04
17/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
EXERCISE 4-7
1. Jan. 31 Accounts Receivable .................................... 680Service Revenue.................................... 68
2. 31 Utilities Expense............................................ 520Utilities Payable ..................................... 52
3. 31 Depreciation Expense................................... 400Accumulated Depreciation
Dental Equipment .............................. 40
31 Interest Expense............................................ 500Interest Payable ..................................... 50
4. 31 Insurance Expense ($24,000 12) ............... 2,000
Prepaid Insurance ................................. 2,00
5. 31 Supplies Expense ($1,750 $550) ............... 1,200Supplies.................................................. 1,20
8/3/2019 Accounting 04
18/91
4-18 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
EXERCISE 4-8
1. Oct. 31 Advertising Supplies Expense ..................... 2,000Advertising Supplies
($2,500 $500).................................... 2,000
2. 31 Insurance Expense ........................................ 100
Prepaid Insurance.................................. 100
3. 31 Depreciation Expense ................................... 50Accumulated Depreciation
Office Equipment ............................... 50
4. 31 Unearned Service Revenue .......................... 800Service Revenue .................................... 800
5. 31 Accounts Receivable..................................... 200Service Revenue .................................... 200
6. 31 Interest Expense ............................................ 70Interest Payable...................................... 70
7. 31 Salaries Expense ........................................... 1,400Salaries Payable..................................... 1,400
EXERCISE 4-9
MARX CO.Income Statement
For the Month Ended July 31, 2010
RevenuesService revenue ($5,500 + $700) ............................. $6,200
ExpensesWages expense ($2,300 + $300).............................. $2,600Utilities expense....................................................... 800Supplies expense ($900 $200).............................. 700Insurance expense................................................... 350Depreciation expense .............................................. 150
Total expenses.................................................. 4,600Net income........................................................................ $1,600
8/3/2019 Accounting 04
19/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
EXERCISE 4-10
Answer Computation
(a) Supplies balance = $1,000 Supplies expense $ 95Add: Supplies (1/31) 70Less: Supplies purchased (65
Supplies (1/1) $1,00
(b) Total premium = $6,240 Total premium = Monthly premium12; $520 X 12 = $6,240
Purchase date = May 1, 2009 Purchase date: On Jan. 31, there 3 months coverage remaining ($520 XThus, the purchase date was 9 monearlier on May 1, 2009.
(c) Salaries payable = $1,900 Cash paid $2,50Salaries payable (1/31/10) 1,20
3,70Less: Salaries expense 1,80Salaries payable (12/31/09) $1,90
(d) Service revenue = $950 Service revenue $2,00Unearned revenue (1/31/10) 75
2,75Cash received in Jan. 1,80Unearned revenue (12/31/09) $ 95
8/3/2019 Accounting 04
20/91
4-20 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
EXERCISE 4-11
Jan. 31 Service Revenue ................................................... 2,000Income Summary .......................................... 2,000
31 Income Summary.................................................. 3,270Salaries Expense........................................... 1,800
Supplies Expense.......................................... 950Insurance Expense........................................ 520
31 Retained Earnings ................................................ 1,270Income Summary .......................................... 1,270
EXERCISE 4-12
a) July 10 Supplies.......................................................... 200Cash ........................................................ 200
14 Cash................................................................ 4,100Service Revenue .................................... 4,100
15 Salaries Expense ........................................... 1,200Cash ........................................................ 1,200
20 Cash................................................................ 600Unearned Service Revenue................... 600
b) July 31 Supplies Expense .......................................... 750Supplies .................................................. 750
31 Accounts Receivable..................................... 500Service Revenue .................................... 500
31 Salaries Expense ........................................... 1,200Salaries Payable..................................... 1,200
31 Unearned Service Revenue .......................... 900Service Revenue .................................... 900
8/3/2019 Accounting 04
21/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
EXERCISE 4-13
Aug. 31 Accounts Receivable ........................................... 600Service Revenue ........................................... 60
31 Office Supplies Expense...................................... 2,000Office Supplies.............................................. 2,00
31 Insurance Expense............................................... 1,500Prepaid Insurance......................................... 1,50
31 Depreciation Expense.......................................... 1,200Accumulated DepreciationOffice
Equipment ................................................. 1,20
31 Salaries Expense.................................................. 1,100
Salaries Payable ........................................... 1,10
31 Unearned Rent Revenue...................................... 900Rent Revenue................................................ 90
EXERCISE 4-14
IVY COMPANYIncome Statement
For the Year Ended August 31, 2010
RevenuesService revenue ..................................................... $34,600Rent revenue.......................................................... 14,100
Total revenues................................................ $48,70Expenses
Salaries expense.................................................... $18,100Rent expense ......................................................... 12,000
Office supplies expense........................................ 2,000Insurance expense ................................................ 1,500Depreciation expense............................................ 1,200
Total expenses ............................................... 34,80Net income ..................................................................... $13,90
8/3/2019 Accounting 04
22/91
4-22 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
EXERCISE 4-14 (Continued)
IVY COMPANYRetained Earnings Statement
For the Year Ended August 31, 2010
Retained earnings, September 1, 2009 ........................................... $ 5,600
Add: Net income ............................................................................. 13,90019,500
Less: Dividends ............................................................................... 2,800Retained earnings, August 31, 2010 ............................................... $16,700
IVY COMPANYBalance Sheet
August 31, 2010
AssetsCurrent Assets
Cash ......................................................................... $10,900Accounts receivable ............................................... 9,400Office supplies ........................................................ 500Prepaid insurance ................................................... 2,500
Total current assets ........................................ $23,300Office equipment..................................................... $16,000Less: Accum. depreciationoffice equipment ..... 4,800 11,200
Total assets...................................................... $34,500
Liabilities and Stockholders EquityCurrent Liabilities
Accounts payable ................................................... $ 5,800Salaries payable ...................................................... 1,100Unearned rent revenue ........................................... 900
Total current liabilities .................................... $ 7,800Stockholders equity
Common stock ........................................................ 10,000
Retained earnings ................................................... 16,700Total stockholders equity .......................... 26,700
Total liabilities and stockholders equity ...... $34,500
8/3/2019 Accounting 04
23/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
EXERCISE 4-15
Aug. 31 Service Revenue.............................................. 34,600Rent Revenue................................................... 14,100
Income Summary..................................... 48,70
31 Income Summary............................................. 34,800
Salaries Expense ..................................... 18,10Rent Expense ........................................... 12,00Office Supplies Expense......................... 2,00Insurance Expense .................................. 1,50Depreciation Expense ............................. 1,20
31 Income Summary............................................. 13,900Retained Earnings ................................... 13,90
31 Retained Earnings........................................... 2,800Dividends.................................................. 2,80
8/3/2019 Accounting 04
24/91
4-24 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
SOLUTIONS TO PROBLEMS
PROBLEM 4-1A
a)1. Cash .................................................................. 19,000
Accounts Receivable ............................... 19,000
2. Unearned Rent Revenue ................................. 38,000Rent Revenue ........................................... 38,000
3. Cash .................................................................. 89,000Unearned Rent Revenue.......................... 89,000
Unearned Rent Revenue ($89,000 $30,000) ... 59,000Rent Revenue ........................................... 59,000
4. Accounts Receivable....................................... 162,000Dues Revenue........................................... 162,000
5. Cash ................................................................. 147,000Accounts Receivable ($162,000 $15,000)... 147,000
b) Cash received with respect to rent and dues
1. Collection of 2006 dues $ 19,0003. Collection of rent 89,0005. Collection of 2007 dues 147,000
$255,000
Accounts Receivable2006 Bal. 19,0004. 162,000 1. 19,000
5. 147,0002007 Bal. 15,000
Unearned Rent Revenue
2. 38,0003. 59,000
2006 Bal. 38,0003. 89,000
2007 Bal. 30,000
Dues Revenue4. 162,0002007 Bal. 162,000
Rent Revenue
2. 38,0003. 59,0002007 Bal. 97,000
Cash
1. 19,0003. 89,0005. 147,000
2007 Bal. 255,000
8/3/2019 Accounting 04
25/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-2A
(a)
Date Account Titles Debit Cred1.
2007April 30 Supplies Expense.....................................
Supplies ($1,000 $320) ..................
680
680
2. 30 Phone Expense.........................................Phone Payable ..................................
120120
3. 30 Rent Expense............................................Prepaid Rent......................................
($2,700 3 months)
900900
4. 30 Unearned Service Revenue .....................Service Revenue...............................
2,2002,200
5. 30 Salaries Expense......................................Salaries Payable ...............................
1,4601,460
6. 30 Depreciation Expense..............................
Accumulated DepreciationOffice Equipment..........................
300
300
7. 30 Accounts Receivable ...............................Service Revenue...............................
2,8002,800
(b)Cash
4/30 Bal. 9,300
Accounts Receivable4/30 Bal. 5,0004/30 2,8004/30 Bal. 7,800
Prepaid Rent4/30 Bal. 2,700 4/30 9
4/30 Bal. 1,800
Supplies4/30 Bal. 1,000 4/30 64/30 Bal. 320
8/3/2019 Accounting 04
26/91
4-26 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-2A (Continued)
Office Equipment4/30 Bal. 20,000
Accumulated Depreciation
Office Equipment4/30 3004/30 Bal. 300
Accounts Payable4/30 Bal. 5,100
Phone Payable4/30 1204/30 Bal. 120
Salaries Payable4/30 1,4604/30 Bal. 1,460
Unearned Service Revenue4/30 2,200 4/30 Bal. 3,100
4/30 Bal. 900
Common Stock4/30 Bal. 25,000
Service Revenue4/30 Bal. 9,0004/30 2,2004/30 2,8004/30 Bal. 14,000
Salaries Expense4/30 Bal. 3,8004/30 1,4604/30 Bal. 5,260
Insurance Expense4/30 Bal. 400
Depreciation Expense4/30 3004/30 Bal. 300
Rent Expense4/30 9004/30 Bal. 900
Phone Expense4/30 1204/30 Bal. 120
Supplies Expense4/30 6804/30 Bal. 680
8/3/2019 Accounting 04
27/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-2A (Continued)
(c) DO IT NOW CONSULTINGAdjusted Trial Balance
April 30, 2007
Debit CrediCash .....................................................................Accounts Receivable..........................................Prepaid Rent........................................................Supplies...............................................................Office Equipment ................................................Accumulated DepreciationOffice
Equipment .......................................................Accounts Payable ...............................................
Phone Payable ....................................................Salaries Payable .................................................Unearned Service Revenue................................Common Stock....................................................Service Revenue.................................................Salaries Expense ................................................Insurance Expense .............................................Depreciation Expense ........................................Rent Expense ......................................................Phone Expense ...................................................
Supplies Expense...............................................
$ 9,3007,8001,800
32020,000
5,260400300900120
680$46,880
$ 305,10
121,4690
25,0014,00
$46,88
8/3/2019 Accounting 04
28/91
4-28 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-3A
a) 1. March 31 Insurance Expense .................................. 400Prepaid Insurance............................ 400
2. 31 Supplies Expense .................................... 1,400Supplies ............................................ 1,400
($3,300 $1,900)
3. 31 Depreciation ExpenseLodge............... 370($4,440 X 1/12)
Accumulated DepreciationLodge ............................................ 370
31 Depreciation ExpenseFurniture .......... 300($3,600 X 1/12)Accumulated Depreciation
Furniture ....................................... 300
4. 31 Interest Expense ...................................... 375Interest Payable................................ 375
[($50,000 X 9%) X 1/12]
5. 31 Unearned Rent Revenue ......................... 1,300
Rent Revenue ................................... 1,300
6. 31 Salaries Expense ..................................... 960Salaries Payable............................... 960
b)Cash
3/31 Bal. 2,700
Prepaid Insurance3/31 Bal. 2,400 3/31 4003/31 Bal. 2,000
Supplies3/31 Bal. 3,300 3/31 1,4003/31 Bal. 1,900
Land3/31 Bal. 25,000
8/3/2019 Accounting 04
29/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-3A (Continued)
Lodge3/31 Bal. 85,000
Accumulated DepreciationLodge
3/31 3703/31 Bal. 370
Furniture3/31 Bal. 22,400
Accumulated DepreciationFurniture
3/31 3003/31 Bal. 300
Accounts Payable3/31 Bal. 9,200
Unearned Rent Revenue3/31 1,300 3/31 Bal. 2,800
3/31 Bal. 1,500
Salaries Payable3/31 9603/31 Bal. 960
Interest Payable3/31 3753/31 Bal. 375
Mortgage Payable3/31 Bal. 50,0
Common Stock3/31 Bal. 72,0
Rent Revenue3/31 Bal. 11,03/31 1,33/31 Bal. 12,3
Salaries Expense3/31 Bal. 3,0003/31 9603/31 Bal. 3,960
Utilities Expense3/31 Bal. 800
Advertising Expense3/31 Bal. 400
Interest Expense3/31 3753/31 Bal. 375
Insurance Expense3/31 4003/31 Bal. 400
8/3/2019 Accounting 04
30/91
4-30 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-3A (Continued)
Supplies Expense3/31 1,4003/31 Bal. 1,400
Depreciation LodgeLodge3/31 3703/31 Bal. 370
Depreciation ExpenseFurniture3/31 3003/31 Bal. 300
c) WELCOME INNAdjusted Trial Balance
March 31, 2007
Debit Credit
Cash...................................................................Prepaid Insurance ............................................Supplies ............................................................Land...................................................................Lodge.................................................................Accumulated DepreciationLodge................Furniture............................................................Accumulated DepreciationFurniture...........Accounts Payable ............................................Unearned Rent Revenue..................................
Salaries Payable ...............................................Interest Payable................................................Mortgage Payable.............................................Common Stock .................................................Rent Revenue ...................................................Salaries Expense..............................................Utilities Expense...............................................Advertising Expense........................................Interest Expense...............................................
Insurance Expense...........................................Supplies Expense.............................................Depreciation ExpenseLodge .......................Depreciation ExpenseFurniture ..................
$ 2,7002,0001,900
25,00085,000
22,400
3,960800400375
4001,400370300
$147,005
$ 370300
9,2001,500
960375
50,00072,00012,300
$147,005
8/3/2019 Accounting 04
31/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-3A (Continued)
(d) WELCOME INNIncome Statement
For the Month Ended March 31, 2007
RevenuesRent revenue ................................................... $12,30
ExpensesSalaries expense............................................. $3,960Supplies expense............................................ 1,400Utilities expense.............................................. 800Advertising expense....................................... 400Insurance expense.......................................... 400Interest expense.............................................. 375Depreciation expenselodge........................ 370Depreciation expensefurniture................... 300
Total expenses ........................................ 8,00Net income .............................................................. $ 4,29
WELCOME INNRetained Earnings Statement
For the Month Ended March 31, 2007
Retained earnings, March 1 ................................... $ Add: Net income ................................................... 4,29Retained earnings, March 31 ................................. $4,29
8/3/2019 Accounting 04
32/91
4-32 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-3A (Continued)
WELCOME INNBalance SheetMarch 31, 2007
Assets
Current AssetsCash ......................................... $ 2,700Supplies ................................... 1,900Prepaid insurance................... 2,000
Total current assets ........ $ 6,600Property, plant, and equipment
Land.......................................... 25,000Lodge ....................................... $85,000Less: Accumulated deprec.... 370 84,630Furniture .................................. 22,400Less: Accumulated deprec.... 300 22,100 131,730
Total assets...................... $138,330
Liabilities and Stockholders EquityCurrent Liabilities
Accounts payable .............................................. $ 9,200Unearned rent revenue ...................................... 1,500Salaries payable ................................................. 960Interest payable.................................................. 375
Total current liabilities ............................... $ 12,035Long-term Liabilities
Mortgage payable............................................... 50,000Total liabilities............................................. $ 62,035
Stockholders equityCommon stock ................................................... 72,000Retained earnings .............................................. 4,295
Total stockholders equity ................. 76,295Total liabilities and stockholders
equity....................................................... $138,330
e) The following accounts would be closed:
Rent Revenue, Salaries Expense, Utilities Expense, Advertising Expense,Interest Expense, Insurance Expense, Supplies Expense, DepreciationExpenseLodge, Depreciation ExpenseFurniture.
8/3/2019 Accounting 04
33/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-4A
(a) June 30 Accounts Receivable..................................... 400Dues Revenue ........................................ 40
30 Insurance Expense ........................................ 600Prepaid Insurance.................................. 60
30 Supplies Expense .......................................... 690Supplies .................................................. 69
30 Depreciation Expense ................................... 750Accum. DepreciationEquipment ....... 75
30 Interest Expense ............................................ 100Interest Payable...................................... 10
30 Unearned Rent Revenue ............................... 500Rent Revenue ......................................... 50
30 Salaries Expense ........................................... 900Salaries Payable..................................... 90
(b) GREEN ACRES GOLF INC.Income Statement
For the Quarter Ended June 30, 2007
RevenuesDues revenue .................................................. $15,000Rent revenue ................................................... 1,200
Total revenues ......................................... $16,20Expenses
Salaries expense............................................. 11,000Insurance expense.......................................... 1,800Depreciation expense..................................... 750Supplies expense............................................ 690Utilities expense.............................................. 660Interest expense.............................................. 100
Total expenses ........................................ 15,00Net income .............................................................. $ 1,20
8/3/2019 Accounting 04
34/91
4-34 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-4A (Continued)
GREEN ACRES GOLF INC.Retained Earnings Statement
For the Quarter Ended June 30, 2007
Retained earnings, April 1, 2007................................................ $ 0
Add: Net income ....................................................................... 1,2001,200
Less: Dividends.......................................................................... 450Retained earnings, June 30, 2007.............................................. $ 750
GREEN ACRES GOLF INC.Balance SheetJune 30, 2007
Assets
Current AssetsCash................................................................ $ 7,890Accounts receivable...................................... 1,900Supplies.......................................................... 1,410Prepaid insurance ......................................... 1,800
Total current assets............................... $13,000Equipment ...................................................... 18,000Less: Accumulated depreciationequipment ...................................................... 750 17,250
Total assets ............................................ $30,250
Liabilities and Stockholders EquityCurrent Liabilities
Notes payable ................................................ $ 7,500Accounts payable.......................................... 2,200Salaries payable ............................................ 900Unearned rent revenue ................................. 800Interest payable ............................................. 100
Total current liabilities........................... $11,500
Stockholders equityCommon stock............................................... 18,000Retained earnings ......................................... 750
Total stockholders equity .................... 18,750Total liabilities and stockholders
equity .................................................. $30,250
8/3/2019 Accounting 04
35/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-4A (Continued)
(c) The following accounts would be closed: Dues Revenue, Rent RevenSalaries Expense, Insurance Expense, Utilities Expense, DepreciatExpense, Supplies Expense, Interest Expense, Dividends.
(d) Interest of 8% per year equals a monthly rate of .67%; monthly interis $50 ($7,500 X .67%). Since total interest expense is $100, the nhas been outstanding two months.
8/3/2019 Accounting 04
36/91
4-36 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-5A
1. Dec. 31 Insurance Expense ........................................ 6,000Prepaid Insurance.................................. 6,000
[($11,400 3) = $3,800
[($8,800 2 X 6/12) = 2,200$6,000]
2. Dec. 31 Unearned Subscription Revenue ................. 5,560Subscription Revenue ........................... 5,560
[Sept. 240 X $24 X 4/12 = $1,920[Oct. 260 X $24 X 3/12 = 1,560[Nov. 330 X $24 X 2/12 = 1,320[Dec. 380 X $24 X 1/12 = 760
$5,560]
3. Dec. 31 Interest Expense ............................................ 600Interest Payable...................................... 600
($16,000 X 9% X 5/12)
4. Dec. 31 Salaries Expense ........................................... 2,496Salaries Payable..................................... 2,496
[4 X $480 X 4/5 = $1,536[2 X $600 X 4/5 = 960
$2,496]
8/3/2019 Accounting 04
37/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-6A
(a) 1. April 30 Tuition Revenue.......................................... 70,000Unearned Tuition Revenue .................. 70,0
2. 30 Books and Supplies Expense.................... 7,200Books and Supplies ($9,800 $2,600)... 7,2
3. 30 Insurance Expense ($12,000 12 X 3) ........ 3,000Prepaid Insurance................................. 3,0
4. 30 Advertising Expense .................................. 80Repairs Expense......................................... 2,560
Utilities Expense......................................... 530Accounts Payable................................. 3,1
5. 30 Wages Expense ($1,380 X 3)...................... 4,140Wages Payable...................................... 4,1
6. 30 Interest Expense ($15,000 X 8% X 3/12) ..... 300Interest Payable .................................... 3
7. 30 Income Tax Expense .................................. 15,200
Income Tax Payable ............................. 15,2
8/3/2019 Accounting 04
38/91
4-38 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-6A (Continued)
b) A-PLUS TEST PREPIncome Statement
For the Quarter Ended April 30, 2007
Revenues
Tuition revenues ($240,000 $70,000) ................. $170,000Expenses
Wages expense ($92,000 + $4,140)....................... $96,140Income tax expense ............................................... 15,200Books and supplies expense ................................ 7,200Advertising expense ($6,400 + $80)...................... 6,480Repairs expense ($1,700 + $2,560) ....................... 4,260Insurance expense................................................. 3,000Depreciation expense ............................................ 2,400Utilities expense ($1,300 + $530)........................... 1,830Interest expense..................................................... 300Total expenses ....................................................... 136,810Net income.............................................................. $ 33,190
c) The generally accepted accounting principles pertaining to the incomestatement not recognized by Denise were the revenue recognitionprinciple and the matching principle.
The revenue recognition principle states that revenue is recognized
when it is earned. The cash payments of $70,000 for summer classeshave not been earned and, therefore, should not be reported asincome for the quarter ended April 30.
The matching principle dictates that efforts (expenses) be matched withaccomplishments (revenue) whenever it is reasonable and practicableto do so. This means that the expenses should include amountsincurred in April but not paid until May, and any other costs relatedto the operations of the business during the period FebruaryApril.
The difference in reported expenses was $33,010 ($136,810 $103,800).The overstatement of revenues ($70,000) plus the understatementof expenses ($33,010) equals the difference in reported income of$103,010 ($136,200 $33,190).
8/3/2019 Accounting 04
39/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-7A
(a), (c) & (e)
Cash8/1 Bal. 6,0408/5 1,2008/12 2,8008/29 780
8/10 3,1208/20 2,5008/22 3808/25 2,900
8/31 Bal. 1,920
Accounts Receivable
8/1 Bal. 2,9108/27 3,130
8/5 1,200
8/31 Bal. 4,840
Supplies8/1 Bal. 1,0308/17 860
8/31 930
8/31 Bal. 960
Store Equipment8/1 Bal. 10,0008/15 2,0008/31 Bal. 12,000
Accumulated DepreciationStore Equipment
8/1 Bal. 6008/31 3208/31 Bal. 920
Accounts Payable8/20 2,500 8/1 Bal. 2,3
8/15 2,08/17 88/31 Bal. 2,6
UnearnedService Revenue
8/31 800 8/1 Bal. 1,28/29 78/31 Bal. 1,2
Salaries Payable8/10 1,420 8/1 Bal. 1,4
8/31 1,58/31 Bal. 1,5
Common Stock8/1 Bal. 10,08/31 Bal. 10,0
Retained Earnings8/1 Bal. 4,48/31 Bal. 4,4
8/3/2019 Accounting 04
40/91
4-40 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-7A (Continued)
Service Revenue8/12 2,8008/27 3,1308/31 8008/31 Bal. 6,730
Depreciation Expense8/31 3208/31 Bal. 320
Supplies Expense8/31 930
8/31 Bal. 930
Salaries Expense8/10 1,7008/25 2,9008/31 1,5408/31 Bal. 6,140
Rent Expense8/22 3808/31 Bal. 380
8/3/2019 Accounting 04
41/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-7A (Continued)
(b) General Journal
Date Account Titles Debit CredAug. 5 Cash ................................................................
Accounts Receivable .............................1,200
1,200
10 Salaries Payable.............................................Salaries Expense ...........................................
Cash ........................................................
1,4201,700
3,120
12 Cash ................................................................Service Revenue ....................................
2,8002,800
15 Store Equipment ............................................Accounts Payable ..................................
2,0002,000
17 Supplies..........................................................Accounts Payable ..................................
860860
20 Accounts Payable..........................................Cash ........................................................
2,5002,500
22 Rent Expense .................................................Cash ........................................................
380380
25 Salaries Expense ...........................................Cash ........................................................
2,9002,900
27 Accounts Receivable.....................................Service Revenue ....................................
3,1303,130
29 Cash ................................................................
Unearned Service Revenue...................
780
780
8/3/2019 Accounting 04
42/91
4-42 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-7A (Continued)
d) & (f) BOB AND NORM REPAIR SERVICESTrial Balances
August 31, 2007
Before
Adjustment
After
AdjustmentDr. Cr. Dr. Cr.
Cash ............................................Accounts Receivable .................Supplies ......................................Store Equipment ........................Accumulated Depreciation........Accounts Payable ......................Unearned Service Revenue.......
Salaries Payable.........................Common Stock...........................Retained Earnings......................Service Revenue ........................Salaries Expense........................Rent Expense .............................Supplies Expense ......................Depreciation Expense................
$ 1,9204,8401,890
12,000
4,600380
$25,630
$ 6002,6602,040
10,000
4,4005,930
$25,630
$ 1,9204,840
96012,000
6,140380930320
$27,490
$ 9202,6601,240
1,54010,000
4,4006,730
$27,490
e) 1.Aug. 31 Supplies Expense........................................... 930
Supplies ($1,890 $960)......................... 930
2.31 Salaries Expense............................................ 1,540
Salaries Payable ..................................... 1,540
3.31 Depreciation Expense.................................... 320
Accum. Depr.Store Equipment .......... 320
4.31 Unearned Service Revenue ........................... 800
Service Revenue ..................................... 800
8/3/2019 Accounting 04
43/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-7A (Continued)
(g) BOB AND NORM REPAIR SERVICESIncome Statement
For the Month Ended August 31, 2007
RevenuesService revenue............................................... ($6,73
ExpensesSalaries expense............................................. $6,140Supplies expense............................................ 930Rent expense................................................... 380Depreciation expense..................................... 320
Total expenses ........................................ 7,77Net loss.................................................................... ($1,04
BOB AND NORM REPAIR SERVICESRetained Earnings Statement
For the Month Ended August 31, 2007
Retained earnings, August 1 ................................. $4,40Less: Net loss ........................................................ (1,04Retained earnings, August 31 ............................... $3,36
8/3/2019 Accounting 04
44/91
4-44 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-7A (Continued)
BOB AND NORM REPAIR SERVICESBalance Sheet
August 31, 2007
AssetsCurrent assets
Cash................................................................ $ 1,920Accounts receivable...................................... 4,840Supplies.......................................................... 960
Total current assets............................... $ 7,720Property, plant and equipment
Store equipment ............................................ 12,000Less: Accumulated depreciationstore
equipment .................................................. 920 11,080Total assets ............................................ $18,800
Liabilities and Stockholders EquityCurrent liabilities
Accounts payable............................................... $ 2,660Unearned service revenue................................. 1,240Salaries payable ................................................. 1,540
Total current liabilities................................ $ 5,440Stockholders equity
Common stock.................................................... 10,000Retained earnings .............................................. 3,360
Total stockholders equity ......................... 13,360Total liabilities and stockholders equity.. $18,800
8/3/2019 Accounting 04
45/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-8A
(a) General Journal
Date Account Titles Debit CredJan. 1 Cash.................................................................
Common Stock .......................................18,000
18,00
1 Equipment.......................................................Cash.........................................................Accounts Payable...................................
12,0004,008,00
3 Cleaning Supplies ..........................................
Accounts Payable...................................
940
945 Prepaid Insurance ..........................................
Cash.........................................................7,200
7,20
12 Accounts Receivable .....................................Service Revenue.....................................
4,1004,10
18 Accounts Payable ..........................................
Cash.........................................................900
90
20 Salaries Expense............................................
Cash.........................................................2,600
2,60
21 Cash.................................................................Accounts Receivable..............................
2,3002,30
25 Accounts Receivable .....................................
Service Revenue.....................................2,850
2,85
31 Gas & Oil Expense .........................................Cash.........................................................
45045
31 Dividends ........................................................
Cash.........................................................600
60
8/3/2019 Accounting 04
46/91
4-46 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-8A (Continued)
b), (e) & (h)
Cash/1 18,000/21 2,300
1/1 4,0001/5 7,200
1/18 9001/20 2,6001/31 4501/31 600
/31 Bal. 4,550
Accounts Receivable/12 4,100
/25 2,850/31 2,340
1/21 2,300
/31 Bal. 6,990
Cleaning Supplies/3 940 1/31 730/31 Bal. 210
Prepaid Insurance/5 7,200 1/31 600/31 Bal. 6,600
Equipment/1 12,000/31 Bal. 12,000
Accumulated DepreciationEquipment
1/31 3201/31 Bal. 320
Accounts Payable1/18 900 1/1 8,000
1/3 940
1/31 Bal. 8,040
Salaries Payable1/31 7601/31 Bal. 760
Common Stock
1/1 18,0001/31 Bal. 18,000
Retained Earnings1/31 600 1/31 3,830
1/31 Bal. 3,230
Dividends
1/31 600 1/31 6001/31 Bal. 0
Income Summary1/31 5,4601/31 3,830
1/31 9,290
1/31 Bal. 0
Service Revenue1/31 9,290 1/12 4,100
1/25 2,8501/31 2,3401/31 Bal. 0
8/3/2019 Accounting 04
47/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-8A (Continued)
Gas & Oil Expense1/31 450 1/31 4501/31 Bal. 0
Cleaning Supplies Expense1/31 730 1/31 7301/31 Bal. 0
Depreciation Expense1/31 320 1/31 3201/31 Bal. 0
Insurance Expense1/31 600 1/31 61/31 Bal. 0
Salaries Expense1/20 2,6001/31 760
1/31 3,3
1/31 Bal. 0
8/3/2019 Accounting 04
48/91
4-48 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-8A (Continued)
c) & (f) MAGIC CARPET CLEANERS INC.Trial Balance
January 31, 2007
Before
Adjustment
After
AdjustmentDebit Credit Debit Credit
Cash ....................................................Accounts Receivable.........................Cleaning Supplies..............................Prepaid Insurance..............................Equipment ..........................................Accumulated Depreciation
Equipment ......................................
Accounts Payable..............................Salaries Payable.................................Common Stock...................................Dividends............................................Service Revenue ................................Salaries Expense ...............................Gas & Oil Expense.............................Depreciation Expense .......................nsurance Expense ............................
Cleaning Supplies Expense..............
$ 4,5504,650
9407,200
12,000
600
2,600450
$32,990
$ 8,040
18,000
6,950
$32,990
$ 4,5506,990
2106,600
12,000
600
3,360450320600730
$36,410
320
$ 8,040760
18,000
9,290
$36,410
8/3/2019 Accounting 04
49/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-8A (Continued)
(d) General Journal
Date Account Titles Debit Cred1. Jan. 31 Accounts Receivable ......................................
Service Revenue ......................................2,340
2,340
2. 31 Depreciation Expense.....................................Accumulated DepreciationEquipment .
320320
3. 31 Insurance Expense ($7,200 X 1/12) ................Prepaid Insurance....................................
600600
4. 31 Cleaning Supplies Expense ($940 $210) ....
Cleaning Supplies....................................
730
730
5. 31 Salaries Expense.............................................Salaries Payable ......................................
760760
(g) MAGIC CARPET CLEANERS INC.Income Statement
For the Month Ended January 31, 2007
RevenuesService revenue................................................. $9,29
ExpensesSalaries expense............................................... $3,360Cleaning supplies expense.............................. 730Insurance expense............................................ 600Gas & oil expense ............................................. 450Depreciation expense....................................... 320
Total expenses .......................................... 5,46
Net income ................................................................ $3,83
8/3/2019 Accounting 04
50/91
4-50 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-8A (Continued)
g) MAGIC CARPET CLEANERS INC.Retained Earnings Statement
For the Month Ended January 31, 2007
Retained earnings, January 1 ................................ $ 0
Add: Net income ................................................... 3,8303,830
Less: Dividends..................................................... 600Retained earnings, January 31 ............................. $3,230
MAGIC CARPET CLEANERS INC.Balance Sheet
January 31, 2007
AssetsCurrent assets
Cash.................................................................. $ 4,550Accounts receivable........................................ 6,990Cleaning supplies............................................ 210Prepaid insurance ........................................... 6,600
Total current assets................................. $18,350Property, plant, and equipment
Equipment ........................................................ 12,000
Less: Accumulated depreciation .................. 320 11,680Total assets .............................................. $30,030
Liabilities and Stockholders EquityCurrent liabilities
Accounts payable............................................ $ 8,040Salaries payable .............................................. 760
Total current liabilities............................. $ 8,800Stockholders equity
Common stock................................................. 18,000Retained earnings ........................................... 3,230Total stockholders equity ...................... 21,230Total liabilities and stockholders
equity .................................................... $30,030
8/3/2019 Accounting 04
51/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-8A (Continued)
(h) General Journal
Date Account Titles Debit CredJan. 31 Service Revenue.............................................
Income Summary....................................9,290
9,290
31 Income Summary ...........................................Salaries Expense ....................................Depreciation Expense ............................Insurance Expense.................................Cleaning Supplies Expense...................Gas & Oil Expense..................................
5,4603,360
320600730450
31 Income Summary ...........................................Retained Earnings .................................. 3,830 3,830
31 Retained Earnings..........................................Dividends.................................................
600600
(i) MAGIC CARPET CLEANERS INC.Post-Closing Trial Balance
January 31, 2007Debit Credi
Cash .....................................................................Accounts Receivable..........................................Cleaning Supplies...............................................Prepaid Insurance...............................................Equipment ...........................................................Accumulated DepreciationEquipment ..........Accounts Payable...............................................
Salaries Payable .................................................Common Stock....................................................Retained Earnings ..............................................
$ 4,5506,990
2106,600
12,000
$30,350
$ 328,04
7618,00
3,23$30,35
8/3/2019 Accounting 04
52/91
4-52 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-1B
a)1. Cash ........................................................................ 6,000
Accounts Receivable ....................................... 6,000
2. Unearned Fees Revenue ....................................... 18,000Fees Revenue ................................................... 18,000
3. Cash ........................................................................ 40,000Unearned Fees Revenue.................................. 40,000
Unearned Fees Revenue ($40,000 $17,000) ........ 23,000Fees Revenue ................................................... 23,000
4. Accounts Receivable............................................. 121,000Fees Revenue
($162,000 $18,000 $23,000) ..................... 121,0005. Cash ........................................................................ 101,000
Accounts Receivable ($121,000 $20,000).... 101,000
b) Cash received with respect to fees:1. Collection of accounts receivable.................. $ 6,0003. Gift certificates................................................. 40,0005. Partial collection of fees receivable ............... 101,000
$147,000
T-accounts (not required)
Accounts ReceivableBal. 6,0004. 121,000 1. 6,000
5. 101,000Bal. 20,000
Fees Revenue2. 18,0003. 23,0004. 121,000Bal. 162,000
Unearned Fees Revenue
2. 18,0003. 23,000
Bal. 18,0003. 40,000
Bal. 17,000
Cash1. 6,000
3. 40,0005. 101,000Bal. 147,000
8/3/2019 Accounting 04
53/91
Copyright 2009 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-2B
(a)
Date Account Titles Debit Cred1.
2010June 30 Supplies Expense.....................................
Supplies ($2,000 $980) ..................
1,020
1,020
2. 30 Utilities Expense.......................................Utilities Payable ................................
180180
3. 30 Insurance Expense...................................Prepaid Insurance
($2,640 12 months) ....................
220
220
4. 30 Unearned Service Revenue .....................Service Revenue ...............................
3,9003,900
5. 30 Salaries Expense......................................Salaries Payable ...............................
1,2501,250
6. 30 Depreciation Expense..............................
Accumulated DepreciationOffice Equipment ..........................
250
250
7. 30 Accounts Receivable ...............................Service Revenue ...............................
3,5003,500
(b)
Cash
6/30 Bal. 6,850
Accounts Receivable6/30 Bal. 7,0006/30 3,5006/30 Bal. 10,500
Prepaid Insurance
6/30 Bal. 2,640 6/30 26/30 Bal. 2,420
Supplies6/30 Bal. 2,000 6/30 1,06/30 Bal. 980
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
8/3/2019 Accounting 04
54/91
4-54 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-2B (Continued)
Office Equipment6/30 Bal. 15,000
Accumulated Depreciation
Office Equipment6/30 2506/30 Bal. 250
Accounts Payable6/30 Bal. 4,540
Utilities Payable6/30 1806/30 Bal. 180
Salaries Payable6/30 1,2506/30 Bal. 1,250
Unearned Service Revenue6/30 3,900 6/30 Bal. 5,200
6/30 Bal. 1,300
Common Stock6/30 Bal. 21,750
Service Revenue6/30 Bal. 8,0006/30 3,9006/30 3,5006/30 Bal. 15,400
Salaries Expense6/30 Bal. 4,0006/30 1,250
6/30 Bal. 5,250
Rent Expense6/30 Bal. 2,000
Depreciation Expense6/30 2506/30 Bal. 250
Insurance Expense6/30 2206/30 Bal. 220
Utilities Expense6/30 1806/30 Bal. 180
Supplies Expense6/30 1,0206/30 Bal. 1,020
8/3/2019 Accounting 04
55/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-2B (Continued)
(c) WAEGELEIN CONSULTINGAdjusted Trial Balance
June 30, 2010
Debit CrediCash .....................................................................Accounts Receivable..........................................Prepaid Insurance...............................................Supplies ...............................................................Office Equipment ................................................Accumulated DepreciationOffice
Equipment .......................................................Accounts Payable ...............................................
Utilities Payable ..................................................Salaries Payable..................................................Unearned Service Revenue................................Common Stock....................................................Service Revenue .................................................Salaries Expense ................................................Rent Expense ......................................................Depreciation Expense ........................................Insurance Expense .............................................Utilities Expense .................................................
Supplies Expense ...............................................
$ 6,85010,5002,420
98015,000
5,2502,000
250220180
1,020$44,670
$ 254,54
181,251,30
21,7515,40
$44,67
8/3/2019 Accounting 04
56/91
4-56 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-3B
a) 1. Aug. 31 Insurance Expense ($450 X 3)................ 1,350Prepaid Insurance ........................... 1,350
2. 31 Supplies Expense ($4,300 $700) ......... 3,600Supplies ........................................... 3,600
3. 31 Depreciation ExpenseCottages($4,400 X 1/4) ....................................... 1,100
Accum. Depr.Cottages ................ 1,100
31 Depreciation ExpenseFurniture($4,000 X 1/4) ....................................... 1,000
Accum. Depr.Furniture................ 1,000
4. 31 Unearned Rent Revenue......................... 5,000Rent Revenue .................................. 5,000
5. 31 Salaries Expense..................................... 600Salaries Payable .............................. 600
6. 31 Accounts Receivable.............................. 1,200Rent Revenue .................................. 1,200
7. 31 Interest Expense ..................................... 800Interest Payable
[($120,000 X 8%) X 1/12].............. 800
b)
Cash8/31 Bal. 24,600
Accounts Receivable8/31 1,2008/31 Bal. 1,200
Prepaid Insurance8/31 Bal. 5,400 8/31 1,350
8/31 Bal. 4,050
Supplies8/31 Bal. 4,300 8/31 3,6008/31 Bal. 700
8/3/2019 Accounting 04
57/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-3B (Continued)
Land8/31 Bal. 40,000
Cottages8/31 Bal. 132,000
Accumulated DepreciationCottages
8/31 1,1008/31 Bal. 1,100
Furniture8/31 Bal. 36,000
Accumulated DepreciationFurniture
8/31 1,0008/31 Bal. 1,000
Accounts Payable8/31 Bal. 6,500
Unearned Rent Revenue8/31 5,000 8/31 Bal. 6,800
8/31 Bal. 1,800
Salaries Payable8/31 6008/31 Bal. 600
Interest Payable8/31 88/31 Bal. 8
Mortgage Payable8/31 Bal. 120,0
Common Stock8/31 Bal. 100,0
Dividends8/31 Bal. 5,000
Rent Revenue8/31 Bal. 80,08/31 5,08/31 1,28/31 Bal. 86,2
Salaries Expense8/31 Bal. 53,0008/31 6008/31 Bal. 53,600
Utilities Expense8/31 Bal. 9,400
Repair Expense8/31 Bal. 3,600
8/3/2019 Accounting 04
58/91
4-58 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-3B (Continued)
Insurance Expense8/31 1,3508/31 Bal. 1,350
Supplies Expense8/31 3,6008/31 Bal. 3,600
Depreciation ExpenseCottages
8/31 1,1008/31 Bal. 1,100
Depreciation ExpenseFurniture
8/31 1,0008/31 Bal. 1,000
Interest Expense8/31 8008/31 Bal. 800
8/3/2019 Accounting 04
59/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-3B (Continued)
(c) FLINT HILLS RESORTAdjusted Trial Balance
August 31, 2010
Debit CreditCash ..................................................................Accounts Receivable.......................................Prepaid Insurance............................................Supplies ............................................................Land ..................................................................Cottages............................................................Accumulated DepreciationCottages...........Furniture ...........................................................
Accumulated DepreciationFurniture ..........Accounts Payable............................................Unearned Rent Revenue .................................Salaries Payable...............................................Interest Payable ...............................................Mortgage Payable ............................................Common Stock.................................................Dividends..........................................................Rent Revenue ...................................................Salaries Expense .............................................
Utilities Expense ..............................................Repair Expense................................................Insurance Expense ..........................................Supplies Expense ............................................Depreciation ExpenseCottages ..................Depreciation ExpenseFurniture ..................Interest Expense ..............................................
$ 24,6001,2004,050
70040,000
132,000
36,000
5,000
53,600
9,4003,6001,3503,6001,1001,000
800$318,000
$ 1,10
1,006,501,80
6080
120,00100,00
86,20
$318,00
8/3/2019 Accounting 04
60/91
4-60 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)
PROBLEM 4-3B (Continued)
d) FLINT HILLS RESORTIncome Statement
For the Three Months Ended August 31, 2010
Revenues
Rent revenue.................................................. $86,200Expenses
Salaries expense ........................................... $53,600Utilities expense ............................................ 9,400Repair expense.............................................. 3,600Supplies expense .......................................... 3,600Insurance expense ........................................ 1,350Depreciation expensecottages ................. 1,100Depreciation expensefurniture ................. 1,000Interest expense ............................................ 800
Total expenses....................................... 74,450Net income............................................................. $11,750
FLINT HILLS RESORTRetained Earnings Statement
For the Three Months Ended August 31, 2010
Retained earnings, June 1.................................... $ 0
Add: Net income ................................................. 11,75011,750Less: Dividends.................................................... 5,000Retained earnings, August 31.............................. $ 6,750
8/3/2019 Accounting 04
61/91
Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4
PROBLEM 4-3B (Continued)
FLINT HILLS RESORTBalance Sheet
August 31, 2010
AssetsCurrent assets
Cash .......................................... $ 24,600Accounts receivable................ 1,200Supplies.................................... 700Prepaid insurance.................... 4,050
Total current assets........... $ 30,55Property, plant, and equipment