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©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-1
Chapter 3
Adjusting Accounts for Financial Statements
Learning Objectives – coverage by question
Mini-exercises
Exercises Problems Cases
LO1 – Identify the major steps in the accounting cycle.
LO2 – Review the process of journalizing and posting transactions.
21, 22, 23, 25,
29, 30 33, 35, 36, 38
40, 41, 42, 46,
47, 52, 54 55, 56, 57, 58
LO3 – Describe the adjusting process and illustrate adjusting entries.
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 financial statements from adjusted accounts.
26 39
40, 41, 42, 44,
47, 49, 50, 53,
54
55, 58
LO5 – Describe the process of closing 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,
38 53 56
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-2
QUESTIONS
Q3-1 The five major steps in the accounting cycle are
1. Analyze business activity using transaction analysis based on the related source documents.
2. Record results of the transaction analysis chronologically in the general journal and create a trial balance.
3. Adjust the recorded data to update all accounts for expense and revenue recognition not previously recognized.
4. Report the adjusted financial data in the form of financial statements. 5. Close the books by posting the adjusting and closing entries, which “zero
out” the temporary accounts. Q3-2 The fiscal year is the annual accounting period adopted by a firm. A firm
using a fiscal year ending on December 31 is on a calendar-year basis. Q3-3 Examples of source documents that underlie business transactions are
invoices sent to customers, invoices received from suppliers, bank checks, bank deposit slips, cash receipt forms, and written contracts.
Q3-4 A general journal is a book of original entry that may be used for the initial
recording of any type of transaction. It contains space for dates and for accounts to be debited and credited, columns for the amounts of the debits and credits, and a posting reference column for numbers of the accounts that are posted.
Q3-5 When entries are posted, the page number and identifying initials of the
appropriate journal are placed next to the amounts in the appropriate accounts. The account number is entered beside the related amount posted in the journal's posting reference column. This procedure enables interested users to trace amounts in the ledger back to the originating journal entry and permits us to know which entries have been posted.
Q3-6 A compound journal entry is a journal entry containing more than one debit
entry or one credit entry. Q3-7 A chart of accounts is a list of the accounts appearing in the general ledger,
with the account numbering system indicated. Normally the accounts are classified as asset, liability, owners' equity, revenue, and expense accounts, and often the numbering system identifies the account classification. For example, a coding system might assign the numbers 100–199 to assets, 200–299 to liabilities, and so on.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-3
Q3-8 Many of the transactions reflected in the accounting records through the first two steps of the accounting cycle affect the net income of more than one period. Therefore, adjustments to the account balances are ordinarily necessary at the end of each accounting period to record the proper amount of revenue and to match expenses with revenue properly. This process is also intended to achieve a more accurate picture of financial position by adjusting balance sheet amounts to show unexpired costs, up-to-date amounts of obligations, and so on.
Q3-9 1. Allocating assets to expense to reflect expenses incurred during the
period. Example: Recording supplies used by debiting Supplies Expense and crediting Supplies.
2. Allocating payments received in advance by crediting the revenue account
to reflect revenues earned during the period. Example: Recording service fees earned by debiting Unearned Service Fees and crediting Service Fees Earned.
3. Accruing expenses to reflect expenses incurred during the period that are
not yet paid or recorded. Example: Recording unpaid wages by debiting Wages Expense and crediting Wages Payable.
4. Accruing revenues to reflect revenues earned during the period that are
not yet received or recorded. Example: Recording commissions earned by debiting Commissions Receivable and crediting Commissions Earned.
Q3-10 Jan. 31 Insurance expense (+E, -SE) 78 Prepaid insurance (-A) 78 To 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 book values are computed. Accumulated depreciation is deducted from the cost of a depreciable asset in computing and portraying the asset's book value.
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-4
Q3-12 The building is five years old by the end of 2011, so the accumulated depreciation of $800,000 represents five years of depreciation at an annual rate of $160,000 ($800,000/5). If the annual depreciation is $160,000, then the expected life of the building must be 25 years.
At the end of 2018, the building will be twelve years old, and the
accumulated depreciation will be 12×$160,000, or $1,920,000. The book value of the building (defined as original cost less accumulated depreciation) will be $2,080,000.
Q3-13 (a) Jan. 1 Cash (+A) 9,720 Subscriptions received in advance (+L) 9,720 To record receipt of two-year subscriptions. (b) Jan. 31 Subscriptions received in advance (-L) 405 Subscriptions revenue (+R,+SE) 405 To record subscription revenue earned during January ($9,720/24 = $405). Q3-14 Jan. 31 Wages expense (+E, -SE) 190 Wages payable (+L) 190 To record unpaid wages for Jan. 30–31
[($475/5) 2 = $190]. Q3-15 Jan. 31 Interest receivable (+A) 360 Interest income (+R,+SE) 360 To record interest earned during January. Q3-16 The temporary accounts—sometimes called nominal accounts—are closed
at year-end. They consist principally of the income statement accounts (expense and revenue accounts). (The Income Summary account and the Dividend account are also closed if they are used.)
Q3-17 Step 1) Close revenue accounts: Debit each revenue account for an amount
equal to its balance, and credit the Retained Earnings account for the total of revenues.
Step 2) Close expense accounts: Credit each expense account for an amount equal to its balance, and debit the Retained Earnings account for the total of expenses.
Q3-18 A post-closing trial balance ensures that an equality of debits and credits
has been maintained throughout the adjusting and closing procedures and that the general ledger is in balance to start the next period. Only balance sheet accounts appear in a post-closing trial balance. Depreciation Expense and Supplies Expense are temporary accounts that should have been closed and should not appear in the post-closing trial balance.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-5
Q3-19 The cost principle and the matching concept support Dehning's handling of
its catalog costs. Prepaid Catalog Costs is an asset account that is initially recorded at the amount that the catalogs cost Dehning. This is consistent with the cost principle that states that assets are initially recorded at the amounts paid to acquire the assets. The catalogs help Dehning generate sales revenues. The matching concept states that the catalog costs should be matched as expenses with the revenues they help generate. Dehning does this by expensing the catalog costs over their estimated useful lives.
Q3-20
(a) Supplies Expense ($825 + $260 $630 = $455) for the period is omitted from the income statement, overstating net income by $455 (ignoring taxes).
(b) Both Supplies and Owners' Equity are overstated by $455 on the
January 31 balance sheet (again, before considering taxes).
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-6
Mini Exercises M3-21 (45 mintes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
June 1. Invested $12,000 cash.
+12,000 Cash
=
+12,000 Common
Stock
-
=
June 2. Paid $950 cash for June rent.
-950 Cash
=
-950
Retained Earnings
-
+950 Rent
Expense =
-950
June 3. Purchased $6,400 of office equipment on account.
+6,400 Office
Equipment =
+6,400 Accounts Payable
-
=
June 6. Purchased $3,800 of supplies; $1,800 cash, $2,000 on account.
-1,800 Cash
+3,800 Supplies
=
+2,000 Accounts Payable
-
=
June 11. $4,700 billed for services.
+4,700 Accounts
Receivable
=
+4,700 Retained Earnings
+4,700 Service Fees
Earned -
=
+4,700
June 17. Collected $3,250 on accounts.
+3,250 Cash
-3,250 Accounts
Receivable =
-
=
June 19. Paid $3,000 on office equipment account.
-3,000 Cash
=
-3,000 Accounts Payable
-
=
June 25. Paid cash dividend of $900.
-900 Cash
=
-900 Retained Earnings
-
=
June 30. Paid $350 utilities.
-350 Cash
=
-350 Retained Earnings
-
+350 Utilities Expense
= -350
June 30. Paid $2,500 salaries.
-2,500 Cash
=
-2,500 Retained Earnings
-
+2,500 Salaries Expense
= -2,500
TOTALS 5,750 + 11,650 = 5,400 + 12,000 + 0 4,700 - 3,800 = 900
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-7
b. June 1 Cash (+A) 12,000 Common stock (+SE) 12,000 Owner invested cash for stock. 2 Rent expense (+E, -SE) 950 Cash (-A) 950 Paid June rent. 3 Office equipment (+A) 6,400 Accounts payable (+L) 6,400 Purchased office equipment on account. 6 Supplies (+A) 3,800 Cash (-A) 1,800 Accounts payable (+L) 2,000 Purchased $3,800 of supplies; paid $1,800 down with balance due in 30 days. 11 Accounts receivable (+A) 4,700 Service fees earned (+R,+SE) 4,700 Billed clients for services. 17 Cash (+A) 3,250 Accounts receivable (-A) 3,250 Collections from clients on account. 19 Accounts payable (-L) 3,000 Cash (-A) 3,000 Payment on account. 25 Retained earnings (-SE) 900 Cash (-A) 900 Issued dividends. 30 Utilities expense (+E, -SE) 350 Cash (-A) 350 Paid utilities bill for June. 30 Salaries expense (+E, -SE) 2,500 Cash (-A) 2,500 Paid salaries for June.
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-8
c.
+ Cash (A) - + Supplies (A) -
June 1 12,000 950 June 2 June 6 3,800
17 3,250 1,800 6 3,000 19 900 25
350 30 + Office Equipment (A) -
2,500 30 June 3 6,400
+ Accounts Receivable (A) - - Accounts Payable (L) +
June 11 4,700 3,250 June 17 June 19 3,000 6,400 June 3
2,000 June 6
- Common Stock (SE) + - Retained Earnings (SE) +
12,000 June 1 June 25 900
+ Rent Expense (E) -
June 2 950
- Service Fees Earned (R) + + Utilities Expense (E) -
4,700 June 11 June 30 350
+ Salaries Expense (E) -
June 30 2,500
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-9
M3-22 (45 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income April 1. Invested
$9,000 in cash. +9,000
Cash
=
+9,000 Common
Stock
-
=
April 2. Paid $2,850 cash for lease.
-2,850 Cash
+2,850 Prepaid Van
Lease
=
-
=
April 3. Borrowed $10,000.
+10,000 Cash
=
+10,000 Note
Payable
-
=
April 3. Purchased $5,500 equipment for $2,500 cash with rest on account.
-2,500 Cash
+5,500 Equipment
=
+3,000 Accounts Payable
-
=
April 4. Paid $4,300 cash for supplies.
-4,300 Cash
+4,300 Supplies
=
-
=
April 7. Paid $350 cash for ad.
-350 Cash
=
-350 Retained Earnings
-
+350 Ad.
Expense =
-350
April 21. Billed $3,500 for services
+3,500 Accounts
Receivable =
+3,500 Retained Earnings
+3,500 Cleaning
Fees Earned
-
=
+3,500
April 23. Paid $3,000 cash on account.
-3,000 Cash
=
-3,000 Accounts Payable
-
=
April 28. Collected $2,300 on account.
+2,300 Cash
-2,300 Accounts
Receivable =
-
=
April 29. Paid $1,000 cash dividend.
-1,000 Cash
=
-1,000 Retained Earnings
-
=
April 30. Paid $1,750 cash for wages.
-1,750 Cash
=
-1,750 Retained Earnings
-
+1,750 Wages
Expense =
-1,750
April 30. Paid $995 cash for gas.
-995 Cash
=
-995 Retained Earnings
-
+995 Van Fuel Expense
= -995
TOTALS 4,555 + 13,850 = 10,000 + 9,000 + -595 3,500 - 3,095 = 405
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-10
b. April 1 Cash (+A) 9,000 Common stock (+SE) 9,000 Owner invested cash for stock. 2 Prepaid van lease (+A) 2,850 Cash (-A) 2,850 Paid six months' lease on van. 3 Cash (+A) 10,000 Notes payable (+L) 10,000 Borrowed money from bank for one year at 10% interest. 3 Equipment (+A) 5,500 Cash (-A) 2,500 Accounts payable (+L) 3,000 Purchased $5,500 of equipment; paid $2,500 down with balance due in 30 days. 4 Supplies (+A) 4,300 Cash (-A) 4,300 Purchased supplies for cash. 7 Advertising expense (+E, -SE) 350 Cash (-A) 350 Paid for April advertising. 21 Accounts receivable (+A) 3,500 Cleaning fees earned (+R, +SE) 3,500 Billed customers for services. 23 Accounts payable (-L) 3,000 Cash (-A) 3,000 Payment on account. 28 Cash (+A) 2,300 Accounts receivable (-A) 2,300 Collections from customers on account. 29 Retained earnings (-SE) 1,000 Cash (-A) 1,000 Issued cash dividends.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-11
30 Wages expense (+E, -SE) 1,750 Cash (-A) 1,750 Paid wages for April. 30 Van fuel expense (+E, -SE) 995 Cash (-A) 995 Paid 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 3 28 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
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-12
M3-23 (20 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income 1. Received $20,100
in advance for contract work.
+20,100 Cash
=
+20,100Unearned Service
Fees
-
=
Jan. 1 Cash (+A) 20,100 Unearned service fees (+L) 20,100 To record fee received in advance. b.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income 2. Adjusting entry for
work completed by Jan. 31.
=
-3,350 Unearned Service
Fees
+3,350 Retained Earnings
+3,350 Service
Fees -
=
+3,350
Jan. 31 Unearned service fees (-L) 3,350 Service fees (+R, +SE) 3,350 To reflect January service fees earned on contract ($20,100/6 = $3,350). c.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
3. Adjusting entry for fees earned but not billed.
+570 Fees
Receivable =
+570 Retained Earnings
+570 Service
Fees -
=
+570
Jan. 31 Fees receivable (+A) 570 Service fees (+R, +SE) 570 To record unbilled service fees earned at January 31.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-13
M3-24 (15 minutes) 1.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income 1. Adjusting entry for
prepaid insurance.
-185 Prepaid
Insurance =
-185 Retained Earnings
-
+185 Insurance Expense
= -185
Jan. 31 Insurance expense (+E, -SE) 185 Prepaid insurance (-A) 185 To record January insurance expense ($6,660/36 = $185). 2.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
2. Adjusting entry for supplies used.
-1,080 Supplies =
-1,080 Retained Earnings
-
+1,080 Supplies Expense
= -1,080
Jan. 31 Supplies expense (+E, -SE) 1,080 Supplies (-A) 1,080 To record January supplies expense
($1,930 $850 = $1,080). 3.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
3. Adjusting entry for depreciation of equipment.
-
+62
Accumulated
Depreciation
-62 Retained
Earnings
-
+62 Depreciation
Expense
=
-62
Jan. 31 Depreciation expense—Equipment (+E, -SE) 62 Accumulated depreciation—Equipment (+XA, -A) 62 To record January depreciation on office equipment ($5,952/96 = $62).
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-14
4.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income 4. Adjusting entry for
rent.
=
-875 Unearned
Rent Revenue
+875 Retained Earnings
+875 Rent
Revenue -
=
+875
Jan. 31 Unearned rent revenue (-L) 875 Rent revenue (+R, +SE) 875 To record portion of advance rent earned in January. 5.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income 5. Adjusting entry for
accrued salaries.
= +490
Salaries Payable
-490
Retained Earnings
-
+490 Salaries Expense
= -490
Jan. 31 Salaries expense (+E, -SE) 490 Salaries payable (+L) 490 To record accrued salaries at January 31.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-15
M3-25 (10 minutes) (All amounts in $ millions.) a.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income Inventory purchases
(total).
+2,913.49 Inventory
=
+2,913.49 Accounts Payable
-
=
Inventories (+A)……………………….. 2,913.49 Accounts 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 Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net Income
Adjusting entry for cost of goods sold for 2009.
-2,946.08 Inventory
=
-2,946.08 Retained Earnings
-
+2,946.08
Cost of Goods Sold
=
-2,946.08
* 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)………………………………… 2,946.08 To record cost of goods sold for the year ended 1/31/2009. M3-26 (15 minutes)
Architect Services Company Statement of Stockholders’ Equity For Year Ended December 31, 2011
Common Stock
Retained Earnings
Total Stockholders’
Equity
Balance 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
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-16
M3-27 (5 minutes) Ending balance = Beginning balance + Credit from closing revenue – Debit from closing expenses: $137,600 = $99,000 + $347,400 - $308,800 M3-28 (15 minutes) a.
Date 2010 Description Debit Credit Dec. 31 Commissions revenue (-R) 84,900 Retained earnings (+SE) 84,900 To close the revenue account. 31 Retained earnings (-SE) 55,900 Wages expense (-E) 36,000 Insurance expense (-E) 1,900 Utilities expense (-E) 8,200 Depreciation expense (-E) 9,800 To close the expense accounts. Closing the revenue and expense accounts into retained earnings has the effect of increasing the retained earnings balance by an amount equal to net income (revenue minus expenses). The balance of Smith’s Retained Earnings after closing entries are posted is
$101,100 credit ($72,100 + $29,000).
b.
+ Wages Expense (E) - + Utilities Expense (E) -
Bal. 36,000 36,000 (2)Dec. 31 Bal. 8,200 8,200 (2) Dec. 31
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
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-17
M3-29 (20 minutes) (All amounts in $ millions.) a.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income Purchase of inventory
on account.
+3,385.90 Merchandise
Inventory =
+3,385.90 Accounts Payable
-
=
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 Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income Recognize cost of
goods sold.
-3,540.60
Merchandise inventory
=
-3,540.60 Retained Earnings
-
+3,540.60 Cost of
Goods Sold =
-3,540.60
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
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-18
M3-30 (10 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income a. Dec. 31 Interest
earned.
+600
Interest Receivable
=
+600
Retained Earnings
+600 Interest Income
-
= +600
Dec. 31 Interest receivable (+A) 600 Interest income (+R, +SE) 600 To record accrued interest income. b. Dec. 31 Interest income (-R) 2,400 Retained earnings (+SE) 2,400 To close the Interest Income account. c.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income c. 1/31 Receipt of
$900 interest. +900 Cash
-600 Interest
Receivable =
+ 300 Retained Earnings
+300 Interest Income
-
= +300
2011 Jan. 31 Cash (+A) 900 Interest income (+R, +SE) 300 Interest receivable (-A) 600 To record cash receipt of interest.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-19
Exercises E3-31 (30 minutes) a. Dec. 31 Service fees earned (-R,-SE) 80,300 Retained earnings (+SE) 80,300 To close the revenue account. 31 Retained earnings (-SE) 82,300 Rent expense (-E) 20,800 Salaries expense (-E) 45,700 Supplies expense (-E) 5,600 Depreciation 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 exceeded revenues by $2,000), so the ending retained earnings is lower than that beginning retained earnings (even if no dividends were paid).
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-20
E3-32 (30 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Adjusting entry
for depreciation:
equipment.
-
+610
Accumulated
Depreciation
= -610
Retained
Earnings
- +610
Depreciation
Expense
= -610
2. Adjusting entry
for supplies
expense.
-1,890
Supplies -
= -1,890
Retained
Earnings
- +1,890
Supplies
Expense
= -1,890
3. Adjusting entry
for utilities
expense.
-
= +390
Utilities
Payable
-390
Retained
Earnings
- +390
Utilities
Expense
= -390
4. Adjusting entry
for rent expense.
-700
Prepaid
Rent -
= -700
Retained
Earnings
- +700
Rent
Expense
= -700
5. Adjusting entry
for premium
revenues.
-
= -468
Unearned
Premium
Revenue
+468
Retained
Earnings
+468
Premium
Revenue
- = +468
6. Adjusting entry
for wage
expense.
-
= +965
Wages
Payable
-965
Retained
Earnings
- +965
Wage
Expense
= -965
7. Adjusting entry
for interest
earned.
+300
Interest
Receivable -
= +300
Retained
Earnings
+300
Interest
Income
- = +300
TOTALS 0 + -2,290 - 610 = 887 + 0 + -3,787 768 - 4,555 = -3,787
b. 1. Depreciation expense—Equipment (+E,-SE) 610 Accumulated depreciation—Equip (+XA) 610 To record depreciation for the period.
2. Supplies expense (+E,-SE) 1,890 Supplies (-A) 1,890 To record supplies expense for the period ($2,990 $1,100 = $1,890).
3. Utilities expense (+E, - SE) 390 Utilities payable (+L) 390 To record accrued utilities expense. 4. Rent expense (+E,-SE) 700 Prepaid rent (-A) 700 To record rent expense for the month ($2,800/4 = $700).
5. Unearned premium revenue (-L) 468 Premium revenue (+R,+SE) 468 To record premium revenue earned [($624/12) 9 = $468].
6. Wages expense (+E,-SE) 965 Wages payable (+L) 965 To record accrued wages at the end of the period.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-21
7. Interest receivable (+A) 300 Interest income (+R,+SE) 300 To accrue interest earned but not yet received.
E3-33 (15 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
a. Adjusting entry for salaries expense.
=
+4,700 Salaries Payable
-4,700
Retained Earnings
-
+4,700 Salaries Expense
= -4,700
2010 Dec. 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) 250,000 To close the Salaries Expense account. c.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
c. Paid salaries. -12,000 Cash
=
-4,700 Salaries Payable
-7,300
Retained Earnings
-
+7,300 Salary Expense
= -7,300
2011 Jan. 7 Salaries payable (-L) 4,700 Salaries expense (+E,-SE) 7,300 Cash (-A) 12,000 To record payment of salaries.
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-22
E3-34 (20 minutes)
a. Balance, January 1 = $960 + $800 $620 = $1,140.
b. Amount of premium = $82 12 = $984.
Therefore, five months' premium ($984 $574 = $410) has expired by January 31. The policy has been in effect since September 1, 2010.
The policy term began on September 1 of the previous year.
c. Wages paid in January = $3,200 $500 = $2,700. d. Monthly depreciation expense = $8,700/60 months = $145. Fields has owned the truck for 18 months ($2,610/$145 = 18). E3-35 (30 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil- ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. 7/31 Adjusting entry for rent expense.
-475 Prepaid
Rent =
-475 Retained Earnings
-
+475 Rent
Expense =
-475
2. 7/31 Adjusting entry for ad. expense.
-210 Prepaid
Advertising =
- 210 Retained Earnings
-
+210 Advertising
Expense =
-210
3. 7/31 Adjusting entry for supplies expense.
-1,900 Supplies
-1,900 Retained Earnings
-
+1,900 Supplies Expense
= -1,900
4. 7/31 Adjusting entry for fees revenue.
+800 Fees
Receivable
+800 Retained Earnings
+800 Refinish. Revenue
-
= +800
5. 7/31 Adjusting entry for fees revenue.
-300 Unearned Refinish.
Fees
+300 Retained Earnings
+300 Refinish. Revenue -
=
+300
TOTALS 0 + -1,785 = -300 + 0 + -1,485 1,100 - 2,585 = -1,485
b. July 31 Rent expense (+E,-SE) 475 Prepaid rent (-A) 475 To record July rent expense ($5,700/12 = $475). 31 Advertising expense (+E,-SE) 210 Prepaid advertising (-A) 210 To record July advertising expense ($630/3 = $210).
31 Supplies expense (+E,-SE) 1,900 Supplies (-A) 1,900 To record supplies expense for July ($3,000 $1,100 = $1,900).
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-23
31 Fees receivable (+A) 800 Refinishing fees revenue (+R,+SE) 800 To record unbilled revenue earned during July.
31 Unearned refinishing fees (-L) 300 Refinishing 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
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-24
E3-36 (15 minutes) (All amounts in $ thousands.) a.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net Income
Recognize cost of
goods sold.
-242,265 Inventory
=
-242,265 Retained Earnings
-
+242,265
Cost 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 Inv balance, so $242,265 = $110,596 + $178,519 - $46,850 = COGS
b. Beginning compensation payable + Compensation expense – Compensation
paid = 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) 92,500 Interest income (-R) 2,200 Retained earnings (+SE) 94,700 To close the revenue accounts. 31 Retained earnings (-SE) 64,700 Salaries expense (-E) 41,800 Advertising expense (-E) 4,300 Depreciation expense (-E) 8,700 Income 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.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-25
+ 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 Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net Income
(1) Collect deposits from customers.
+200,000 Cash
=
+200,000 Customer Deposits
-
=
(2) Recognize income on completed customer orders.
+458,671 Cash
=
-215,606 Customer Deposits
+674,277 Retained Earnings
+674,277 Sales
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) ................................................... 674,277
To 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 Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net Income
Recognize cost of goods sold.
-326,935 Inventory =
-326,935 Retained Earnings
-
+326,935
Cost of Goods Sold
= -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
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-26
E3-39 (40 minutes) a.
Solomon Corporation Income 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’ Equity For Year Ended December 31, 2011
Common Stock
Retained Earnings
Total Stockholders’
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 Corporation
Balance Sheet December 31, 2011
Assets Liabilities
Cash $ 4,000 Notes payable $ 10,000
Accounts receivable 6,500 Total Liabilities 10,000
Equipment $ 78,000
Less:Accumulated depreciation
14,000 64,000 Owners’ Equity
Common stock 43,000
Retained earnings 21,500
Total Assets $74,500 Total Liabilities and Owners’ Equity $74,500
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-27
b. 1. Service fees earned (-R) ....................................................... 71,000 Retained earnings (+SE) .................................................. 71,000
2. Retained earnings (-SE) ....................................................... 18,000 Rent expense (-E) ............................................................. 18,000 3. Retained earnings (-SE) ....................................................... 37,100 Salaries expense (-E) ....................................................... 37,100 4. Retained earnings (-SE) ....................................................... 7,000 Depreciation expense (-E) .............................................. 7,000 The cash dividend has already been paid and is already reflected in the
adjusted trial balance. 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 12,600 71,000
Bal. (1)
21,500 Bal.
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-28
PROBLEMS P3-40 (90 minutes) a.
+ Cash (A) - + Accounts Receivable (A) -
Apr. 1 11,500 2,880 Apr. 1 Apr. 12 5,500 4,900 Apr. 18 5 1,800 6,100 2 30 4,000
18 4,900 1,000 2 Bal. 4,600 675 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. Bal 450 (d) 30
9,950 Adj. Bal.
+ Supplies Expense (E) - - Common Stock (SE) +
Apr. 30 (d) 800 11,500 Apr. 1
Adj. 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
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-29
+ 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. 30
Adj. Bal. 125 125 Adj. Bal b.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
Apr. 1. Cash received for stock.
+11,500 Cash
=
+11,500 Common
Stock
-
=
Apr. 1. Purchase liability insurance.
-2,880 Cash
+2,880 Prepaid
Insurance =
-
=
Apr. 2. Purchase truck for cash.
-6,100 Cash
+ 6,100 Truck =
-
=
Apr. 2. Purchase equipment.
-1,000 Cash
+3,100 Equipment =
+2,100 Accounts Payable
-
=
Apr. 5. Purchase supplies on account.
+ 1,200 Supplies =
+1,200 Accounts Payable
-
=
Apr. 5. Cash in advance for roofing repairs.
+1,800 Cash
=
+1,800 Unearned Roofing
Fees
-
=
Apr. 12. Bill customers for services.
+5,500 Accounts
Receivable =
+5,500 Retained Earnings
+5,500 Roofing Fees
Revenue -
=
+5,500
Apr. 18. Collected cash on account.
+4,900 Cash
-4,900 Accounts
Receivable =
-
=
Apr. 29. Paid cash for fuel.
-675 Cash
=
-675 Retained Earnings
-
+675 Fuel
Expense
= -675
Apr. 30. Paid cash for ads.
-100 Cash
=
-100 Retained Earnings
-
+100 Ad. Expense =
-100
Apr. 30. paid cash wages.
-2,500 Cash
=
-2,500 Retained Earnings
-
+2,500 Wages
Expense =
-2,500
Apr. 30. Bill customers for services.
+4,000 Accounts
Receivable =
+4,000 Retained Earnings
+4,000 Roofing fees
Earned -
=
+4,000
Totals 4,945 + 17,880 = 5,100 + 11,500 + 6,225 9,500 - 3,275 = 6,225
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-30
Date 2010 Description Debit Credit Apr. 1 Cash (+A) 11,500 Common stock (+SE) 11,500 Owner invested cash.
1 Prepaid insurance (+A) 2,880 Cash (-A) 2,880 Paid two-year premium on liability insurance policy.
2 Trucks (+A) 6,100 Cash (-A) 6,100 Purchased used truck for $6,100 cash.
2 Equipment (+A) 3,100 Cash (-A) 1,000 Accounts payable (+L) 2,100 Purchased ladders and other equipment, $1,000 down with $2,100 balance due in 30 days.
5 Supplies (+A) 1,200 Accounts payable (+L) 1,200 Purchased supplies on account.
5 Cash (+A) 1,800 Unearned roofing fees (+L) 1,800 Received advance payment for services.
12 Accounts receivable (+A) 5,500 Roofing fees earned (+R,+SE) 5,500 Billed customers for services.
18 Cash (+A) 4,900 Accounts receivable (-A) 4,900 Collection on account from customers.
29 Fuel expense (+E,-SE) 675 Cash (-A) 675 Paid truck fuel bill for April.
30 Advertising expense (+E,-SE) 100 Cash (-A) 100 Paid for April newspaper advertising.
30 Wages expense (+E, -SE) 2,500 Cash (-A) 2,500 Paid wages.
30 Accounts receivable (+A) 4,000 Roofing fees earned (+R, +SE) 4,000 Billed customeers for services.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-31
c. Lougee ROOFING SERVICE
UNADJUSTED TRIAL BALANCE APRIL 30, 2010
Debit Credit
Cash $ 4,945 Accounts Receivable 4,600 Supplies 1,200 Prepaid Insurance 2,880 Trucks 6,100 Equipment 3,100 Accounts Payable $ 3,300 Unearned Roofing Fees 1,800 Common Stock 11,500 Roofing Fees Earned 9,500 Fuel Expense 675 Advertising Expense 100 Wages Expense 2,500 $26,100 $26,100
d.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Recognize one
month of
insurance
expense.
-120 Prepaid
Insurance
- = -120 Retained
Earnings
- +120 Insurance
Expense
= -120
2. Recognize
supplies
expense .
-800 Supplies
- = -800 Retained
Earnings
- +800 Supplies
Expense
= -800
3. Recognize
depreciation
expense –
Trucks.
- +125 Accumulated
Depreciation
= -125 Retained
Earnings
- +125 Depreciation
Expense
= -125
4. Recognize
depreciation
expense on
equipment.
- +35 Accumulated
Depreciation
= -35 Retained
Earnings
- +35 Depreciation
Expense
= -35
5. Recognize
roofing fees
earned.
- = -450 Unearned
Roofing
Fees
+450 Retained
Earnings
+450 Roofing Fees
Earned
- = +450
Totals 0 + -920 - 160 = -450 + 0 + -630 450 - 1,080 = -630
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-32
Date 2010 Description Debit Credit
April 30 Insurance expense (+E,-SE) 120 Prepaid insurance (-A) 120 To record April insurance expense ($2,880/24 months = $120).
30 Supplies expense (+E,-SE) 800 Supplies (-A) 800 To record April supplies expense ($1,200 $400 = $800).
30 Depreciation expense—Trucks (+E,-SE) 125 Accumulated depreciation—Trucks (+XA,-A) 125 To record April depreciation on trucks. 30 Depreciation expense—Equipment (+E,-SE) 35 Accumulated depreciation—Equipment (+XA,-A) 35 To record April depreciation on equipment. 30 Unearned roofing fees (-L) 450 Roofing fees earned (+R,+SE) 450 To record portion of advance payment earned in April ($1,800/4 = $450).
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-33
P3-41 (40 minutes) SnapShot Company
UNADJUSTED TRIAL BALANCE DECEMBER 31, 2010
a. Debit Credit Cash $2,150 Accounts Receivable 3,800 Prepaid Rent 12,600 Prepaid Insurance 2,970 Supplies 4,250 Equipment 22,800 Accounts Payable $1,910 Unearned Photography Fees 2,600 Common Stock 24,000 Photography Fees Earned 34,480 Wages Expense 11,000 Utilities Expense 3,420 ______ $62,990 $62,990
b.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Fees earned
but not
received.
+925 Fees
Receivable
-
=
+925
Retained
Earnings
+925 Photography
Fees Earned
-
= +925
2. Recognize
depreciation
expense for
one year.
-
+2,280
Accumulated
Depreciation =
-2,280 Retained
Earnings
-
+2,280 Depreciation
Expense =
-2,280
3. Recognize
utilities
expense.
-
=
+400 Utilities
Payable
-400 Retained
Earnings
-
+400 Utilities
Expense =
-400
4. Recognize
rent
expense for
year.
-6,300 Prepaid
Rent -
=
-6,300 Retained
Earnings
-
+6,300 Rent
Expense =
-6,300
5. Recognize
photo
revenues.
-
=
-2,600 Unearned
Photo Fees
+2,600 Retained
Earnings
+2,600 Photography
Fee Earned -
=
+2,600
6. Recognize
insurance
expense.
-990 Prepaid
Insurance -
=
-990 Retained
Earnings
-
+990 Insurance
Expense =
-990
7. Recognize
supplies
expense.
-2,730 Supplies -
=
-2,730 Retained
Earnings
-
+2,730 Supplies
Expense =
-2,730
8. Recognize
wages
expense.
-
=
+375 Wages
Payable
-375 Retained
Earnings
-
+375 Wages
Expense =
-375
Totals 0 + -9,095 - 2,280 = -1,825 + 0 + -9,550 3,525 - 13,075 = -9,550
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-34
Date 2010 Description Debit Credit
Dec. 31 Fees receivable (+A) 925 Photography fees earned (+R, +SE) ` 925 To record revenue earned but not billed. 31 Depreciation expense (+E,-SE) 2,280 Accum. depreciation—Equipment (+XA, -A) 2,280 To record depreciation for the year ($22,800/10 years = $2,280). 31 Utilities expense (+E, -SE) 400 Utilities payable (+L) 400 To record estimated December utilities expense. 31 Rent expense (+E, -SE) 6,300 Prepaid rent (-A) 6,300 To record rent expense for the year ($12,600/2 years = $6,300). 31 Unearned photography fees (-L) 2,600 Photography fees earned (+R, +SE) 2,600 To record advance payments earned during the year. 31 Insurance expense (+E, -SE) 990 Prepaid insurance (-A) 990 To record insurance expense for the year ($2,970/3 years = $990). 31 Supplies expense (+E,-SE) 2,730 Supplies (-A) 2,730 To record supplies expense for the year
($4,250 $1,520 = $2,730). 31 Wages expense (+E, -SE) 375 Wages payable(+L) 375 To record unpaid wages at December 31.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-35
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. 11,000 Adj. 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) 400
Adj. Bal. 3,820
+ Supplies Expense (E) - + Depreciation Expense – Equip. (E) - Dec. 31 (7) 2,730 Dec.31 (2) 2,280 Adj. bal. 2,730 Adj. Bal. 2,280
+ Insurance Expense (E) - + Rent Expense (E) - Dec. 31 (6) 990 Dec.31 (4) 6,300 Adj. bal. 990 Adj. Bal. 6,300
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-36
P3-42 (90 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Recognize
rent expense. -775
Prepaid
Rent -
= -775 Retained
Earnings
- +775 Rent
Expense
= -775
2. To recognize
supplies
expense.
-1,700 Supplies -
= -1,700 Retained
Earnings
- +1,700 Supplies
Expense
= -1,700
3. To recognize
depreciation
expense.
-
+74
Accumulated
Depreciation
= -74 Retained
Earnings
- +74 Depreciation
Expense
= -74
4. To recognize
wages
expense.
-
= +210 Wages
Payable
-210 Retained
Earnings
- +210 Wages
Expense
= -210
5. To recognize
utilities
expense.
-
= +300 Utilities
Payable
-300 Retained
Earnings
- +300 Utilities
Expense
= -300
6. To recognize
fees earned. +380
Accounts
Receivable -
= +380 Retained
Earnings
+380 Service Fees
Earned
- = +380
Totals 0 + -2,095 - 74 = 510 + 0 + -2,679 380 - 3,059 = -2,679
Date 2011 Description Debit Credit
June 30 Rent expense (+E, -SE) 775 Prepaid rent (-A) 775 To record June rent expense ($3,100/4 months = $775).
30 Supplies expense (+E, -SE) 1,700 Supplies (-A) 1,700 To record June supplies expense (2,520 $820 = $1,700).
30 Depreciation expense—Equip (+E, -SE) 74 Accum. depreciation—Equipment (+XA, -A) 74 To record June depreciation ($4,440/60 months = $74).
30 Wages expense (+E, -SE) 210 Wages payable (+L) 210 To record unpaid wages at June 30.
30 Utilities expense (+E, -SE) 300 Utilities payable (+L) 300 To record estimated June utilities expense.
30 Accounts receivable (+A) 380 Service fees earned (+R, +SE) 380 To record fees earned but not billed in June.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-37
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.30
Jun. 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) 210
Adj. 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) 74 Adj. bal. 1,700 Adj. bal. 74
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-38
c.
Murdock Carpet Cleaners Income 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 Cleaners BALANCE SHEET June 30, 2011
Assets Liabilities
Cash $ 1,180 Accounts payable $ 760
Accounts receivable 830 Wages payable 210
Supplies 820 Utilities payable 300
Prepaid rent 2,325 Total Liabilities 1,270 Equipment $ 4,440
Less: Accumulated depreciation
74 4,366 Owners’ Equity
Common stock 2,000
Retained earnings 6,251
Total Assets $9,521 Total Liabilities and Owners’ Equity $9,521
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-39
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) ....................................................... 1,230
Wages expense (-E) ......................................................... 1,230
4. Retained earnings (-SE) ....................................................... 300
Utilities expense (-E ) ....................................................... 300
5. Retained earnings (-SE) ....................................................... 74
Depreciation 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 0 2. 1,700
3. 1,230 + Supplies Expense (E) -
4. 300 Bal. 1,700 1,700 2.
5. 74 5,030 6. 0
6,251 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
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-40
P 3-43 (30 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Accrue salary
expense.
- = +720
Salaries
Payable
-720 Retained
Earnings
- +720 Salaries
Expense
= -720
2. Accrue
interest
expense.
- = +200
Interest
Payable
-200 Retained
Earnings
- +200 Interest
Expense
= -200
3. Accrue fees
receivable.
+900 Fees
Receivable
- = +900 Retained
Earnings
+900 Printing
Revenue
- = +900
4. Accrue
maintenance
expense.
-400 Prepaid
Maintenance
- = -400 Retained
Earnings
- +400
Maintenance
Expense
= -400
5. Accrue ad.
Expense.
-300 Prepaid
Advertising
- = -300 Retained
Earnings
- +300 Ad. Expense
= -300
6. Accrue rent
expanse.
- = +160 Rent
Payable
-160 Retained
Earnings
- +160 Rent
Expense
= -160
7. Accrue
interest
revenue.
+38 Interest
Receivable
- = +38 Retained
Earnings
+38 Interest
Revenue
- = +38
8. Accrue
depreciation
expense.
- +2,175 Accumulated
Depreciation
= -2,175 Retained
Earnings
- +2,175
Depreciation
Expense
= -2,175
Totals 0 + +238 - 2,175 = 1,080 + 0 + -3,017 938 - 3,955 = -3,017
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-41
b.
Date Description Debit Credit
Dec 31 Salaries expense (+E, -SE) 720 Salaries payable (+L) 720
To accrue salaries at December 31 ($1,800 2/5 = $720). 31 Interest expense (+E, -SE) 200 Interest payable (+L) 200 To accrue interest expense at December 31. 31 Fees receivable (+A) 900 Printing revenue (+R, +SE) 900 To record revenue earned but not yet billed. 31 Maintenance expense (+E ,-SE) 400 Prepaid maintenance (-A) 400 To record December maintenance expense. 31 Advertising expense (+E, -SE) 300 Prepaid advertising (-A) 300 To record December advertising expense
($900 1/3 = $300). 31 Rent expense (+E, -SE) 160 Rent payable (+L) 160 To accrue one-half month's rent expense
[(400 $0.80)/2 = $160]. 31 Interest receivable (+A) 38 Interest income (+R, +SE) 38 To accrue interest earned in December. 31 Depreciation expense—Equipment (+E, -SE) 2,175 Accum. depreciation—Equipment (+XA) 2,175 To record annual depreciation on equipment.
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-42
P3-44 (40 minutes) TRUEMAN CONSULTING INC.
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2010
a. Revenue Service fees earned $58,400 Expenses Rent expense $12,000 Salaries expense 33,400 Supplies expense 4,700 Insurance expense 3,250 Depreciation expense—Equipment 720 Interest expense 630 Total Expenses 54,700 Net Income $ 3,700
TRUEMAN CONSULTING INC. STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2010
Common Stock
Retained Earnings
Total Stockholders’ Equity
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
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-43
TRUEMAN CONSULTING BALANCE SHEET
DECEMBER 31, 2010
Assets Liabilities
Cash $ 2,700 Accounts payable $ 845
Accounts receivable 3,270 Long-term notes payable 7,000
Supplies 3,060 Total Liabilities 7,845
Prepaid insurance 1,500 Equipment $ 6,400 Owners’ Equity
Less: Accumulated depreciation
1,080 5,320 Common stock 1,000
Retained earnings 7,005
Total Assets $15,850 Total Liabilities and Owners’ Equity $15,850
b.
Date 2010 Description Debit Credit
Dec. 31 Service fees earned (-R) 58,400 Retained earnings (+SE) 58,400 To close the revenue account. 31 Retained earnings (-SE) 54,700 Rent expense (-E) 12,000 Salaries expense(-E) 33,400 Supplies expense (-E) 4,700 Insurance expense (-E) 3,250 Depreciation expense—Equip (-E) 720 Interest expense (-E) 630 To close the expense accounts.
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-44
P3-45 (30 minutes) a.
Date 2010 Description Debit Credit
Dec. 31 Service fees earned (-R) 97,200 Miscellaneous income (-R) 4,200 Retained earnings (+SE) 101,400 To close the revenue accounts. 31 Retained earnings (-SE) 74,800 Salaries expense (-E) 42,800 Rent expense (-E) 13,400 Insurance expense (-E) 1,800 Depreciation expense (-E) 8,000 Income tax expense (-E) 8,800 To close the expense accounts.
b. After the closing entries are posted, Retained Earnings has a $45,700 credit
balance ($19,100 + $26,600 net income). c.
Wilson Company Post-Closing Trial Balance
December 31, 2010 Debit Credit
Cash $8,500 Accounts Receivable 8,000 Prepaid Insurance 3,600 Equipment 72,000 Accumulated Depreciation $12,000 Accounts Payable 600 Income Tax Payable 8,800 Common Stock 25,000 Retained Earnings ______ 45,700 $92,100 $92,100
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-45
P3-46 (30 minutes) a.
*Assumes wages earned had not been accrued or recognized yet as an expense.
Date 2010 Description Debit Credit
Dec. 31 Advertising expense (+E, -SE) 400 Prepaid advertising (-A) 400 To record advertising expense ($1,200 $800 = $400).
31 Wages expense (+E, -SE) 1,300 Wages payable (+L) 1,300 To record accrued wages.
31 Insurance expense (+E, -SE) 1,140 Prepaid insurance (-A) 1,140 To record insurance expense ($3,420 $2,280 = $1,140).
31 Unearned service fees (-L) 2,400 Service fees earned (+R, +SE) 2,400 To recognize unearned fees as earned
($5,400 $3,000 = $2,400).
31 Rent receivable (+A) 1,000 Rental income (R, +SE) 1,000 To record rent earned but not yet recorded.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income 1. Recognize
Advertising expense.
-400 Prepaid
Advertising =
-400
Retained Earnings
-
+400
Advertising Expense
= -400
2. Accrue wage expense.
=
+1,300 Wages
Payable*
-1,300 Retained Earnings
-
+1,300 Wages
Expense =
-1,300
3. Recognize insurance expense.
-1,140 Prepaid
Insurance =
-1,140
Retained Earnings
-
+1,140
Insurance Expense
=
-1,140
4. Recognize service fees earned.
=
-2,400
Unearned Service Fees
+2,400
Retained Earnings
+2,400
Service Fees Earned
-
=
+2,400
5. Recognize rent revenue.
+1,000
Rent Receivable
=
+1,000 Retained Earnings
+1,000 Rental Income
-
= +1,000
Totals 0 + -540 = -1,100 + 0 + 560 3,400 - 2,840 = 560
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-46
b. Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Pay wages of $2,400.
-2,400 Cash
= -1,300
Wages Payable
-1,100
Retained Earnings
- +1,100
Wages Expense
= -1,100
2. Receipt of $1,000 rent revenue.
+1,000 Cash
-1,000 Rent
Receivable
=
-
=
Date 2011 Description Debit Credit Jan. 4 Wages payable (-L) 1,300 Wages expense (+E, -SE) 1,100 Cash (-A) 2,400 To record payment of wages.
4 Cash (+A) 1,000 Rent receivable (-A) 1,000 To record collection of rent.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-47
P3-47 (90 minutes) a, b and d. For part d, the adjusting entries are indicated by the numbers 1-5. The unadjusted trial balance required in part c is calculated before the adjusting entries are made.
+ Cash (A) - - Accounts Payable (L) +
6/1 24,000 4,400 6/1 9,480 6/1
6/2 6,400 875 6/2 6/30 7,800 930 6/2
3,600 6/12 - Salaries Payable (L) +
1,240 6/15 725 2.
520 6/18 3,600 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
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-48
+ Salaries Expenses (E) - - Service Fees Earned (R) +
6/12 3,600 5,800 6/10
6/26 3,600 5,200 6/28
2. 725 3,200 5.
7,925 14,200
+ Postage Expense (E) -
6/18 520
b.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
6/1. Investment for common stock.
+24,000 Cash
=
+24,000
Common Stock
-
=
6/1. Purchase of assets for cash & on account.
-4,400 Cash
+ 11,040 Office
Equipment
+2,840
Supplies
=
+9,480
Accounts Payable
-
=
6/2. Pay rent $875. -875 Cash
=
-875
Retained Earnings
- +875
Rent Expense
= -875
6/2.Purchase $930 of advertising in advance.
-930 Cash
+930 Prepaid
Advertising
=
-
=
6/2Signed research contract.
+6,400 Cash
= +6,400
Unearned Service Fees
-
=
6/10. Bill customers for services.
+5,800
Accounts Receivable
=
+5,800 Retained Earnings
+5,800 Service Fees
Earned
-
= +5,800
6/12. Paid salaries. -3,600 Cash
=
-3,600
Retained Earnings
- +3,600 Salaries Expense
= -3,600
6/15. Paid travel expenses.
-1,240 Cash
=
-1,240
Retained Earnings
- +1,240 Travel
Expense
= -1,240
6/18. Paid postage. -520 Cash
=
-520
Retained Earnings
- +520
Postage Expense
= -520
6/26. Paid salaries. -3,600 Cash
=
-3,600
Retained Earnings
- +3,600 Salaries Expense
= -3,600
6/28. Bill customers for services.
+5,200 Accounts
Receivable =
+5,200 Retained Earnings
+5,200 Service
Fees Earned
-
=
+5,200
6/30. Collect service fees.
+7,800 Cash
-7,800
Acts. Rec. =
-
=
6/30. Cash dividend paid.
-1,500 Cash
-1,500
Retained Earnings
-
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-49
Date 2010 Description Debit Credit
June 1 Cash (+A) 24,000 Common stock (+SE) 24,000 Owner invested cash for common stock.
1 Office equipment (+A) 11,040 Office supplies (+A) 2,840 Cash (-A) 4,400 Accounts payable (+L) 9,480 Purchased equipment and supplies; $4,400 cash paid with the remainder due in 60 days.
2 Rent expense (+E, -SE) 875 Cash (-A) 875 Paid June rent.
2 Prepaid advertising (+A) 930 Cash (-A) 930 Paid three months' advertising in advance.
2 Cash (+A) 6,400 Unearned service fees (+L) 6,400 Received two months' fees in advance on six-month contract.
10 Accounts receivable (+A) 5,800 Service fees earned (+R, +SE) 5,800 Billed customers for services.
12 Salaries expense (+E, -SE) 3,600 Cash (-A) 3,600 Paid two weeks' salaries to employees.
15 Travel expense (+E, -SE) 1,240 Cash (-A) 1,240 Paid business travel expenses.
18 Postage expense (+E, -SE) 520 Cash (-A) 520 Paid postage for questionnaire mailing.
26 Salaries expense (+E, -SE) 3,600 Cash (-A) 3,600 Paid two weeks' salaries to employees.
28 Accounts receivable (+A) 5,200 Service fees earned (+R, +SE) 5,200 Billed customers for services.
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-50
30 Cash (+A) 7,800 Accounts receivable (-A) 7,800 Collections from customers on account.
30 Retained earnings (-SE) 1,500 Cash (-A) 1,500 Declared and paid dividends.
c.
MARKET-PROBE UNADJUSTED TRIAL BALANCE
JUNE 30, 2010
Debit Credit
Cash $21,535 Accounts Receivable 3,200 Office Supplies 2,840 Prepaid Advertising 930 Office Equipment 11,040 Accounts Payable $9,480 Unearned Service Fees 6,400 Common Stock 24,000 Retained Earnings* 1,500 Service Fees Earned 11,000 Salaries Expense 7,200 Rent Expense 875 Travel Expense 1,240 Postage Expense 520 ______ $50,880 $50,880
* The negative (debit) balance in Retained Earnings reflects the dividend paid. d.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
a. Recognize
supplies
expense.
-1,310 Office
Supplies -
= -1,310 Retained
Earnings
- +1,310 Supplies
Expense
= -1,310
b. Recognize
salaries
expense.
-
= +725 Salaries
Payable
-725 Retained
Earnings
- +725 Salaries
Expense
= -725
c. Accrue
depreciation
expense.
-
+115 Accumulated
Depreciation
= -115 Retained
Earnings
- +115 Depreciation
Expense
= -115
d. Recognize
advertising
expense.
-310 Prepaid
Advertising
- = -310
Retained
Earnings
- +310 Advertising
Expense
= -310
e. Recognize
earned
service fees.
-
= -3,200 Unearned
Service Fees
+3,200 Retained
Earnings
+3,200 Service Fees
Earned
- = +3,200
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-51
Date 2010 Description Debit Credit June 30 Supplies expense (+E, -SE) 1,310 Office supplies (-A) 1,310 To record supplies used during June
($2,840 $1,530 = $1,310). 30 Salaries expense (+E, -SE) 725 Salaries payable (+L) 725 To record unpaid salaries at June 30.
30 Depreciation expense—Office equipment (+E, -SE) 115 Accum. deprec. Off. equipment (+XA, -A) 115 To record June depreciation ($11,040/96 mo. = $115). 30 Advertising expense (+E, -SE) 310 Prepaid advertising (-A) 310 To record one month's advertising expense. 30 Unearned service fees (-L) 3,200 Service fees earned (+R, +SE) 3,200 To record one month's fees earned, received in advance.
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-52
P3-48 (40 minutes)
DELIVERALL
UNADJUSTED TRIAL BALANCE DECEMBER 31, 2010
a.
Debit Credit
Cash $ 2,300 Accounts Receivable 5,120 Prepaid Advertising 1,680 Supplies 6,270 Equipment 42,240 Notes Payable $7,500 Accounts Payable 2,700 Common Stock 9,530 Mailing Fees Earned 86,000 Wages Expense 38,800 Rent Expense 6,300 Utilities Expense 3,020 ________ $105,730 $105,730
b.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Recognize
advertising
expense.
-1,540 Prepaid
Advertising
-
= -1,540 Retained
Earnings
- +1,540
Advertising
Expense
= -1,540
2. Recognize
depreciation
expense.
- +5,280
Accumulated
Depreciation
= -5,280 Retained
Earnings
- +5,280
Depreciation
Expense
= -5,280
3. Recognize
utilities
expense.
-
= +325 Accounts
Payable
-325 Retained
Earnings
- +325 Utilities
Expense
= -325
4. Accrue wages
expense.
-
= +1,200 Wages
Payable
-1,200 Retained
Earnings
- +1,200 Wages
Expense
= -1,200
5. Recognize
supplies
expense.
-4,750 Supplies -
= -4,750 Retained
Earnings
- +4,750 Supplies
Expense
= -4,750
6. Accrue interest
expense.
-
= +450 Interest
Payable
-450 Retained
Earnings
- +450 Interest
Expense
= -450
7. Recognize rent
expense*.
-
= +430 Accounts
Payable
-430 Retained
Earnings
- +430 Rent
Expense
= -430
*(1/2% $86,000 = $430). The rent for the year ($6,300 = $525 x 12) has already been recognized in the accounts. See the beginning balances given in the problem statement.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-53
Date 2010 Description Debit Credit
Dec. 31 Advertising expense (+E, -SE) 1,540 Prepaid advertising (-A) 1,540 To record 11 months' advertising expense
($1,680 11/12 = $1,540). 31 Depreciation expense (+E, -SE) 5,280 Accumulated 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) 325 To record estimated December utilities expense. 31 Wages expense (+E, -SE) 1,200 Wages payable (+L) 1,200 To record unpaid wages at December 31. 31 Supplies expense (+E, -SE) 4,750 Supplies (-A) 4,750 To record supplies expense for the year
($6,270 $1,520 = $4,750). 31 Interest expense (+E, -SE) 450 Interest payable (+L) 450 To record accrual of interest expense at Dec. 31. 31 Rent expense (+E, -SE) 430 Accounts payable (+L) 430 To record additional rent owed under lease
(1/2% $86,000 = $430).
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-54
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 Depreciation–Equip (XA) + +Advertising Expense (E) -
5,280 2. 1. 1,540
- Interest Payable (L) + + Rent Expense (E) -
450 6. Bal. 6,300
7. 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
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-55
P3-49 (60 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Recognize rent
expense.
-795 Prepaid
Rent
-
= -795 Retained
Earnings
- +795 Rent
Expense
= -795
2. Recognize
supplies
expense.
-1,980 Supplies -
= -1,980 Retained
Earnings
- +1,980 Supplies
Expense
= -1,980
3. Accrue
depreciation
expense.
- +335
Accumulated
Depreciation
= -335 Retained
Earnings
- +335
Depreciation
Expense
= -335
4. Accrue wages
payable.
-
= +560 Wages
Payable
-560 Retained
Earnings
- +560 Wages
Expense
= -560
5. Recognize
utilities
expense.
-
= +390 Accounts
Payable
-390 Retained
Earnings
- +390 Utilities
Expense
= -390
6. Recognize
service
revenue.
-
= -500
Unearned
Service
Revenue
+500 Retained
Earnings
+500
Service
Revenue
- = +500
Date 2010 Description Debit Credit Mar. 31 Rent expense (+E, -SE) 795 Prepaid rent (-A) 795 To record March rent expense ($4,770/6 months = $795).
31 Supplies expense (+E, -SE) 1,980 Supplies (-A) 1,980 To record March supplies expense ($3,700$1,720 = $1,980).
31 Depreciation expense—Equipment (+E, -SE) 335 Accumulated depreciation—Equipment (+XA, -A) 335 To record March depreciation ($36,180/108 months = $335).
31 Wages expense (+E, -SE) 560 Wages payable (+L) 560 To record unpaid wages at March 31.
31 Utilities expense (+E, -SE) 390 Accounts payable (+L) 390 To record estimated March utilities expense.
31 Unearned service revenue (-L) 500 Service revenue (+R, +SE) 500 To record revenue received in advance that was earned in March.
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-56
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. 795 2c. 1,980 3c. 335 4c. 4,460 5c. 390 12,860 6c.
4,900 7c.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-57
c.
Wheel Place Company Income 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 Company BALANCE SHEET March 31, 2010
Assets Liabilities
Cash $ 1,900 Accounts payable $ 2,900
Accounts receivable 3,820 Wages payable 560
Supplies 1,720 Unearned service revenue 500
Prepaid rent 3,975 Total Liabilities 3,960 Equipment $ 36,180
Less:Accumulated depreciation
335 35,845 Owners’ Equity
Common stock 38,400
Retained earnings 4,900
Total Assets $47,260 Total Liabilities and Owners’ Equity $47,260
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-58
d. 1c. Retained earnings (-SE) .................................................... 795 Rent expense (-E) .......................................................... 795
2c. Retained earnings (-SE) .................................................... 1,980 Supplies expense (-E) ................................................... 1,980 3c. Retained earnings (-SE) .................................................... 335 Depreciation expense (-E) ............................................ 335 4c. Retained earnings (-SE) .................................................... 4,460 Wages expense (-E) ...................................................... 4,460
5c. Retained earnings (-SE) .................................................... 390 Utilities expense (-E) ..................................................... 390 6c. Service revenue (-R) ......................................................... 12,860 Retained earnings (+SE) ............................................... 12,860
The closing journal entries are shown in the T-accounts in part a.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
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P3-50 (30 minutes) a.
TRAILS, INC. INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2010 Revenues Subscription revenue $ 168,300 Advertising revenue 49,700 Total revenues $218,000 Expenses Salaries expense 100,230 Printing and mailing expense 85,600 Rent expense 8,800 Supplies expense 6,100 Insurance expense 1,860 Depreciation expense 5,500 Income tax expense 1,600 Total expenses 209,690 Net income $8,310
Trails, Inc. Statement of Stockholders’ Equity For Year Ended December 31, 2010
Common
Stock Retained Earnings
Total Stockholders’
Equity
Balance 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
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-60
TRAILS, INC. BALANCE SHEET
DECEMBER 31, 2010 Assets Liabilities
Cash $3,400 Accounts payable $ 2, 100 Accounts receivable 8,600 Unearned subscription revenue 10,000 Supplies 4,200 Salaries payable 3,500 Prepaid insurance 930 Total liabilities 15,600 Office equipment $66,000 Less: Accum. depreciation
11,000
55,000
Stockholders' equity
Common stock $25,000 Retained earnings 31,530 Total stockholders' equity 56,530 Total liabilities and Total assets $72,130 stockholders' equity $72,130
b.
Date 2010 Description Debit Credit
Dec. 31 Subscription revenue (-R) 168,300 Advertising revenue (-R) 49,700 Retained earnings (+SE) 218,000 To close the revenue accounts.
31 Retained earnings (-SE) 209,690 Salaries expense (-E) 100,230 Printing and mailing expense (-E) 85,600 Rent expense (-E) 8,800 Supplies expense (-E) 6,100 Insurance expense (-E) 1,860 Depreciation expense (-E) 5,500 Income tax expense (-E) 1,600 To close the expense accounts.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
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P3-51 (30 minutes) a.
Date 2010 Description Debit Credit
Dec. 31 Service fees earned (-R) 72,500 Retained earnings (+SE) 72,500 To close the revenue account.
31 Retained earnings (-SE) 58,800 Wages expense (-E) 29,800 Rent expense (-E) 10,200 Insurance expense (-E) 2,900 Supplies expense (-E) 5,100 Advertising expense(-E) 6,000 Depreciation expense—Trucks(-E) 4,000 Depreciation expense—Equipment (-E) 800 To close the expense accounts.
b. The balance in Retained Earnings after closing entries are posted is $29,250
credit ($15,550 + $13,700). c.
Mayflower MOVING SERVICE POST-CLOSING TRIAL BALANCE
DECEMBER 31, 2010
Debit Credit
Cash $ 3,800 Accounts Receivable 5,250 Supplies 2,300 Prepaid Advertising 3,000 Trucks 28,300 Accumulated Depreciation—Trucks $10,000 Equipment 7,600 Accumulated Depreciation—Equipment 2,100 Accounts Payable 1,200 Unearned Service Fees 2,700 Common Stock 5,000 Retained Earnings ______ 29,250 $50,250 $50,250
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-62
P3-52 (20 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabil- ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income 1. Recognize
maintenance expense.
-1,800 Prepaid
Maintenance
=
-1,800
Retained Earnings
- +1,800
Maintenance Expense
= -1,800
2. Recognize supplies expense.
-5,200
Supplies =
-5,200
Retained Earnings
- +5,200
Supplies Expense
= -5,200
3. Accrue earned commissions.
=
-4,500 Unearned Commis-sion Fees
+4,500 Retained Earnings
+4,500
Commission Fees Earned
-
=
+4,500
4. Earned but unbilled commission fees.
+2,800
Fees Receivable
=
+2,800
Retained Earnings
+2,800
Commission Fees Earned
-
= +2,800
5. Rent expense.
= +913 Rent
Payable
-913
Retained Earnings
- +913 Rent
Expense
= -913
Date 2010 Description Debit Credit
Dec. 31 Maintenance expense (+E, -SE) 1,800 Prepaid maintenance (-A) 1,800 To record four months' maintenance expense
[($2,700/6) 4 = $1,800]. 31 Supplies expense (+E, -SE) 5,200 Supplies (-A) 5,200 To record supplies expense ($8,400 $3,200 = $5,200). 31 Unearned commission fees (-L) 4,500 Commission fees earned (+R, +SE) 4,500 To transfer fees earned from unearned fees
($8,500 $4,000 = $4,500). 31 Fees receivable (+A) 2,800 Commission fees earned (+R, +SE) 2,800 To record fees earned but not yet billed. 31 Rent expense (+E, -SE) 913 Rent payable (+L) 913 To record additional 2008 rent
[1% ($84,000 + $4,500 + $2,800) = $913].
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
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b. Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1/10. Billing of commission fees earned.
-2,800
Fees Receivable
+4,600 Accounts
Receivable
=
+1,800
Retained Earnings
+1,800
Commission Fees
Earned -
=
+1,800
1/10. Payment of additional rent in cash.
-913 Cash
=
-913 Rent Payable
-
=
2011 Jan. 10 Accounts receivable (+A) 4,600 Fees receivable (-A) 2,800 Commision fees earned (+R, +SE) 1,800 To record billings on Jan. 10, 2011.
10 Rent payable (-L) 913 Cash (-A) 913 To record payment of contingent rent from 2010.
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-64
P3-53 (60 minutes) a.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Cash sales. +145,850 Cash
-
= +145,850
Retained
Earnings
+145,850
Sales
Revenue
- = +145,850
2. Record
inventory
purchased
and used.
+2,500
Inventories -
= +76,200
Accounts
Payable
-73,700 Retained
Earnings
- +73,700 Cost of
Sales
= -73,700
3. Recognize
recent
payments on
A/P.
-77,300 Cash
-
= -77,300
Accounts
Payable
- =
4. Recognize
rent paid
and rent
expense.
-24,000 Cash
+200 Prepaid
Rent -
= -23,800 Retained
Earnings
- +23,800 Rent
Expense
= -23,800
5. Recognize
wage expense
and wages
paid.
-12,500 Cash
-
= +250
Wages
Payable
-12,750
Retained
Earnings
- +12,750
Wages
Expense
= -12,750
6. Recognize
depreciation
expense.
-
+1,700
Accumulated
Depreciation
= -1,700
Retained
Earnings
- +1,700
Depreciation
Expense
= -1,700
1. Cash (+A) ............................................................................................ 145,850 Sales revenue (+R,+SE) .................................................................... 145,850 2. Inventories (+A) .................................................................................
Cost of goods sold (+E, -SE) ........................................................... 2,500
73,700*
Accounts payable (+L) ..................................................................... 76,200 Or, make two separate entries with the same net effect:
Inventory (+A) .................................................................................... 76,200 Accounts payable (+L) ..................................................................... 76,200 Cost of goods sold (+E, -SE) ........................................................... 73,700* Inventory (-A) ..................................................................................... 73,700
*73,700 = 12,000 +76,200 – 14,500.
3. Accounts payable (-L) ....................................................................... 77,300* Cash (-A) ............................................................................................. 77,300
*77,300 = 5,200 +76,200 – 4,100.
4. Prepaid rent (+A) ................................................................................
Rent expense (+E, -SE) ..................................................................... 200*
23,800*
Cash (-A) ............................................................................................. 24,000 *23,800 = 3,800 + (24,000 ÷12)(10) and 200 = 24,000 – 3,800 – (24,000 ÷12)(10). The rent
expense for the first two months of the year is $3,800. But the rate for March 1, 2011 through February 29, 2012 is $2,000 per month. So, for the last ten months of 2011, the rent expense is $20,000, making the total rent expense $23,800 for 2011.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
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5. Wages expense (+E,-SE) .................................................................. 12,750* Cash (-A) .............................................................................................
Wages payable (+L) ........................................................................... 12,500
250 * 12,750 = 12,500 + (350 – 100). 6. Depreciation expense (+E,-SE) ........................................................ 1,700 Acc. depreciation – Equipment (+XA, -A) ....................................... 1,700
b, d. The closing entries required in part d are also included here and indicated by the letter d before the relevent entry.
+ Cash (A) - + Inventories (A) - Bal. 8,500 Bal. 12,000 1. 145,850 77,300 3. 2. 2,500
24,000 4. Bal. 14,500
12,500 5.
Bal. 40,550 + Prepaid Rent (A) - Bal. 3,800
+ Equipment (A) - 4. 200 Bal. 7,500 Bal. 4,000 Bal. 7,500
- Accumulated Depreciation Equip.(XA) + - Wages Payable (L) +
3,000 Bal. 100 Bal.
1,700 6. 250 5.
4,700 Bal. 350 Bal.
-Accounts Payable (L)+ -Owners’ Equity (SE)+
5,200 Bal. 23,500 Bal. 3. 77,300 76,200 2. 33,900 d.
4,100 Bal. 57,400 Bal.
-Sales Revenue (R)+ +Cost of Goods Sold (E)-
145,850 1. 2. 73,700 d. 145,850 73,700 d.
0 Bal. Bal. 0
+Rent Expense (E)- +Depreciation Expense(E)- 4. 23,800 6. 1,700
23,800 d. 1,700 d.
Bal. 0 Bal. 0
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-66
+Wages Expense (E)- 5. 12,750
12,750 d.
Bal. 0
c, d. Part c is easier to complete if the closing entries required in part d are journalized and entered in the T-accounts. The appropriate T-account entries for part d have been made earlier and indicated by the letter d.
Sales revenue (-R) .................................................................................. 145,850
Cost of goods sold (-E) ........................................................................... 73,700
Rent expense (-E) ................................................................................... 23,800
Wages expense (-E) ................................................................................ 12,750
Depreciation expense (-E) ....................................................................... 1,700
Owners’ equity ........................................................................................ 33,900
To close temporary revenue and expense accounts.
Fischer Card Shop Income Statement
For the Year ended December 31, 2011 Sales revenue $145,850 Cost of goods sold 73,700 Gross profit 72,150 Other expenses: Rent expense $23,800 Wages expense 12,750 Depreciation expense 1,700 Total other expenses 38,250 Net income $33,900
Fischer Card Shop Balance Sheets
As of December 31, 2010 2011
Assets: Cash $ 8,500 $ 40,550 Inventories 12,000 14,500 Prepaid rent 3,800 4,000 Total current assets 24,300 59,050 Equipment 7,500 7,500 Accumulated depreciation (3,000) (4,700) Equipment, net 4,500 2,800 Total assets $ 28,800 $ 61,850 Liabilities and owners’ equity: Accounts payable $ 5,200 $ 4,100 Wages payable 100 350 Total liabilities 5,300 4,450 Owners’ equity 23,500 57,400
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
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Total liabilities and owners’ equity $ 28,800 $ 61,850 P3-54 (120 minutes) a, b. The T-accounts follow the journal entries and the FSET.
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
12/1. Investment for common stock.
+20,000 Cash
=
+20,000 Common
Stock
-
=
12/2. Rent paid in cash.
-1,200 Cash
=
-1,200
Retained Earnings
- +1,200
Rent Expense
= -1,200
12/2. Purchase supplies on account.
+1,080
Supplies = +1,080
Accounts Payable
-
=
12/3. Office equipment bought for 4,700 cash and rest on account.
-4,700 Cash
+9,500
Office Equipment =
+4,800
Accounts Payable
-
=
12/8. Paid for supplies.
-1,080 Cash
= -1,080
Accounts Payable
-
=
12/14. Paid wages in cash.
-900 Cash
=
-900
Retained Earnings
- +900 Wages
Expense
= -900
12/20. Received cash for consulting services.
+3,000 Cash
=
+3,000 Retained Earnings
+3,000 Consulting Revenue
-
= +3,000
12/28. Paid wages in cash.
-900 Cash
=
-900
Retained Earnings
- +900 Wages
Expense
= -900
12/30. Bill clients for consulting.
+7,200
Fees Receivable
=
+7,200 Retained Earnings
+7,200 Consulting Revenue
-
= +7,200
I2/30. Paid cash dividends.
-1,800 Cash
=
-1,800
Retained Earnings
-
=
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-68
b.
Date 2010 Description Debit Credit
Dec. 1 Cash (+A) 20,000 Common stock (+SE) 20,000 Invested $20,000 cash in the business. 2 Rent expense (+E, -SE) 1,200 Cash (-A) 1,200 Paid rent for December. 2 Supplies (+A) 1,080 Accounts payable (+L) 1,080 Purchased various supplies on account. 3 Office equipment (+A) 9,500 Cash (-A) 4,700 Accounts payable (+L) 4,800 Purchased $9,500 of office equipment, $4,700 cash down payment and balance due in 30 days. 8 Accounts payable (-L) 1,080 Cash (-A) 1,080 Payment on account. 14 Wages expense (+E, -SE) 900 Cash (-A) 900 Paid assistant's wages. 20 Cash (+A) 3,000 Consulting revenue (+R, +SE) 3,000 Cash received for services. 28 Wages expense (+E, -SE) 900 Cash (-A) 900 Paid assistant's wages. 30 Fees receivable (+A) 7,200 Consulting revenue (+R, +SE) 7,200 Billed customers for services. 31 Retained earnings (-SE) 1,800 Cash (-A) 1,800 Issued and paid $1,800 in dividends.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-69
The adjusting entries requested in part d are included and are denoted by the letter d followed by a number 1 through 5. The closing entries requested in part g are indicated by the letter g.
+ Cash (A) - +Supplies(A)-
12/1 20,000 1,200 12/2 12/2 1,080 370 d1
12/20 3,000 4,700 12/3 Bal. 710 1,080 12/8 900 12/14 900 12/28 1,800 12/31
Bal. 12,420 +Office Equipment (A) -
12/3 9,500
-Wages Payable(L) +
2d. 270
-Accumulated Depreciation+ Office Equipment (XA)
-Common Stock(SE)+
120 3d. 20,000 12/1
- Accounts Payable (L) + +Rent Expense (E) -
12/8 1,080 1,080 12/2 12/2 1,200 1,200 g.
4,800 12/3 Bal. 0
4,800 Bal.
- Retained Earnings (SE)+ + Wages Expense (E) -
12/31 g.
1,800 3,760
12,450 g. 12/14 12/28 2d.
900 900 270
2,070 g.
6,890 Bal. Bal. 0
-Consulting Revenue(R)+ +Fees Receivable (A)-
3,000 12/20 12/30 7,200 7,200 12/30 4d. 2,250
g. 12,450 2,250 4d. Bal. 9,450
Bal. 0
+ Supplies Expense (E) -
+Depreciation Expense(E)- 1d. 370 370 g.
3d. 120 120 g. Bal. 0
Bal. 0
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-70
c. Rhoades TAX Services
UNADJUSTED TRIAL BALANCE DECEMBER 31, 2010
Debit Credit
Cash $12,420 Fees Receivable 7,200 Supplies 1,080 Office Equipment 9,500 Accounts Payable $4,800 Common Stock 20,000 Retained Earnings (Dividend) 1,800 Consulting Revenue 10,200 Wages Expense 1,800 Rent Expense 1,200 ______ $35,000 $35,000
d.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabi-lities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Record
supplies
expense.
-370 Supplies -
= -370 Retained
Earnings
- +370
Supplies
Expense
= -370
2. Accrue wages
expense.
-
= +270
Wages
Payable
-270 Retained
Earnings
- +270
Wages
Expense
= -270
3. Record
depreciation
expense.
- +120
Accumulated
Depreciation
= -120 Retained
Earnings
- +120
Depreciation
Expense
= -120
4. Recognize
accrued
consulting
fees.
+2,250 Fees
Receivable -
= +2,250
Retained
Earnings
+2,250
Consulting
Revenue
- = +2,250
Date 2010 Description Debit Credit
Dec. 31 Supplies expense (+E, -SE) 370 Supplies (-A) 370 To record December supplies expense ($1,080 $710).
31 Wages expense (+E, -SE) 270 Wages payable (+L) 270 To reflect unpaid wages at December 31.
31 Depreciation expense (+E, -SE) 120 Accumulated depreciation (+XA, -A) 120 To record December depreciation.
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
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31 Fees receivable (+A) 2,250 Consulting revenue (+R, +SE) 2,250 To record unbilled service revenue (30 $75).
e. RHOADES TAX SERVICES
ADJUSTED TRIAL BALANCE DECEMBER 31, 2010
Debit Credit
Cash $12,420 Fees Receivable 9,450 Supplies 710 Office Equipment 9,500 Accumulated Depreciation $120 Accounts Payable 4,800 Wages Payable 270 Common Stock 20,000 Retained Earnings 1,800 Consulting Revenue 12,450 Supplies Expense 370 Wages Expense 2,070 Rent Expense 1,200 Depreciation Expense 120 ______ $37,640 $37,640
f.
RHOADES TAX SERVICES INCOME STATEMENT
FOR THE MONTH OF DECEMBER 2010 Revenue Consulting revenue $12,450 Expenses Wages expense $ 2,070 Rent expense 1,200 Supplies expense 370 Depreciation expense 120 Total expenses 3,760 Net income $ 8,690
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-72
Rhoades TAX Services
STATEMENT OF Stockholders’ EQUITY FOR THE MONTH OF DECEMBER 2010
Common Stock
Retained Earnings
Total Stockholders’
Equity
Balance at December 1, 2010 .............. $0 $0 $0
Stock issuance ..................................... 20,000 20,000
Dividends ............................................. (1,800) (1,800)
Net income ........................................... _____ 8,690 8,690
Balance at December 31, 2010 ............ $20,000 $6,890 $26,890
Rhoades TAX Services BALANCE SHEET
DECEMBER 31, 2010 Assets Liabilities and Equity
Cash $12,420 Accounts payable $ 4,800 Fees receivable 9,450 Wages payable 270 Supplies 710 Total liabilities 5,070 Total current assets 22,580 Office equipment $ 9,500 Stockholders’ equity Less: Accum. depreciation
120
9,380
Common stock 20,000
Retained earnings 6,890
Total assets $31,960 Total liabilities and stockholders’ equity
$31,960
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-73
g.
Date 2010 Description Debit Credit
Dec. 31 Consulting revenue (-R) 12,450 Retained earnings (+SE) 12,450 To close the revenue account. 31 Retained earnings (-SE) 3,760 Wages expense (-E) 2,070 Rent expense (-E) 1,200 Supplies expense (-E) 370 Depreciation expense (-E) 120 To close the expense accounts.
h.
Rhoades TAX Services POST-CLOSING TRIAL BALANCE
DECEMBER 31,2010
Debit Credit
Cash $12,420 Fees Receivable 9,450 Supplies 710 Office Equipment 9,500 Accumulated Depreciation $ 120 Accounts Payable 4,800 Wages Payable 270 Retained Earnings 6,890 Common Stock 20,000 $32,080 $32,080
©Cambridge Business Publishers, 2011
Financial Accounting, 3rdEdition 3-74
CASES C3-55 (90 minutes) a1. Entries in the FSET are first shown for the initial deposits and checks. These are entries 1- 8. Entries a - f are the adjusting entries that would be made at the end of the three months. The expenditures for rent and salaries are assumed to have been initially debited to expense accounts.
Balance Sheet Income Statement
Transaction Cash Asset
+
Noncash Assets -
Contra Assets
= Liabil-ities
+ Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income
1. Investment for
common
stock.
+50,000
Cash
-
= +50,000
Investment
- =
2. Collections
from
customers.
+81,000
Cash
-
= +81,000
Retained
Earnings
+81,000
Sales
Revenue
- = +81,000
3. Bank
borrowing.
+10,000
Cash
-
= +10,000
Loans
Payable
- =
4. Rent expense. -24,000
Cash
-
= -24,000
Retained
Earnings
- +24,000
Rent
Expanse
= -24,000
5. Purchased
equipment.
-25,000
Cash
+25,000
Equipment -
= - =
6. Purchased
inventory.
-62,000
Cash
+62,000
Inventory -
= - =
7. Paid salaries. -6,000
Cash
-
= -6,000
Retained
Earnings
- +6,000
Salaries
Expense
= -6,000
8. Paid other
expenses.
-13,000
Cash
-
= -13,000
Retained
Earnings
- +13,000
Misc.
Expenses
= -13,000
a. Recognize
credit sales.
+9,000
A/R -
= +9,000
Retained
Earnings
+9,000
Sales
Revenue
- = +9,000
b. Adjust rent
expense.
+12,000
Prepaid
Rent -
= +12,000
Retained
Earnings
- -12,000
Rent
Expense
= +12,000
c. Accrue salaries
expense.
-
= +3,000
Salaries
Payable
-3,000
Retained
Earnings
- +3,000
Salaries
Expense
= -3,000
d. Recognize cost
of goods sold.
-41,000
Inventory -
= -41,000
Retained
Earnings
- +41,000
Cost of
Goods Sold
= -41,000
e. Accrue
depreciation
expense.
-
+1,250
Accumulated
Depreciation
= -1,250
Retained
Earnings
- +1,250
Deprec.
Expense
= -1,250
f. Accrue interest
expense*.
-
= +300
Interest
Payable
-300
Retained
Earnings
- +300
Interest
Expense
= -300
©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 3
3-75
a2. Journal entries are shown only for the adjustments a-f. a. Accounts receivable (+A) 9,000 Sales revenue (+R, +SE) 9,000 To recognize sales on account.
b. Prepaid rent (+A) 12,000 Rent expense (-E, +SE) 12,000
To recognize remaining prepaid rent and correct rent expense.
c. Salaries expense (+E, -SE) 3,000 Salaries payable (+L) 3,000 To recognize unpaid salaries earned during September. d. Cost of goods sold (+E, -SE) 41,000 Merchandise inventory (-A) 41,000 To recognize cost of sales; ($62,000 - $21,000). e. Depreciation expense (+E, -SE) 1,250 Accumulated depreciation (+XA, -A) 1,250 To accrue depreciation on the fixtures and equipment ($25,000/60)(3). f. Interest expense (+E, -SE) 300 Interest payable (+L) 300 To accrue interest on bank loan assumed taken out 7/1/2008. ($10,000)(0.12)(1/4). b. T-accounts: The opening balances shown are the amounts in the accounts
prior to the entry of the adjustments described in items a through f. The cash balance represents the deposits made, $141,000, less the checks drawn, $130,000.
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Financial Accounting, 3rdEdition 3-76
+ Cash (A) - + Merchandise Inventory (A) - Bal. 11,000 Bal. 62,000 41,000 d. + Prepaid Rent (A) -
b. 12,000
+ Equipment (A) - Bal. 25,000
- Accumulated Deprec.-Equip. (XA) + - Salaries Payable (L) +
1,250 e. 3,000 c.
+ Accounts Receivable (A) - - Owners’ Equity (SE) +
a. 9,000 50,000 Bal.
- Sales Revenue (R) + + Cost of Goods Sold (E) -
81,000 Bal. d. 41,000 9,000 a.
+ Rent Expense (E) - + Depreciation Expense (E) - Bal. 24,000 12,000 b. e. 1,250
+ Other Expense (E) - - Bank Loan Payable (L) + Bal. 13,000 10,000 Bal.
+ Salaries Expense (E) - Bal. 6,000 - Interest Payable (L) + c. 3,000 300 f.
+ Interest Expense (E) - f. 300
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c. Seaside Surf Shop Income Statement
July 1, 2010 to September 30 ,2010
Sales revenue $90,000 Cost of goods sold 41,000 Gross margin 49,000 Expenses: Rent expense $12,000 Salaries expense 9,000 Depreciation expense 1,250 Interest expense 300 Misc. expenses 13,000 35,550 Net income $13,450
Seaside Surf Shop
Balance Sheet
September 30, 2010
Assets
Current assets
Cash $11,000
Accounts receivable 9,000
Inventory 21,000
Prepaid rent 12,000
Total current assets 53,000
Fixtures and equipment, net 23,750
Total assets $76,750
Liabilities and owners’ equity
Current liabilities
Salaries payable $3,000
Bank loan payable 10,000
Interest payable 300
Total current liabilities 13,300
Owners’ equity* 63,450
Total liabilities and owners’ equity $76,750
*$50,000 + $13,450
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Financial Accounting, 3rdEdition 3-78
d. Chapter 1 introduced the return on equity ratio as a simple performance measure that can be used to evaluate how well this new business is doing. The return on equity is calculated as the ratio of net income to average total equity. In this case, the return on equity for the three-month period was 23.7% = $13,450 / [($50,000+ $63,430)/2]. This is a very good return for a three-month period and equates to 95% annualized. However, the favorable performance evaluation should be tempered by a few caveats: (1) Because this business appears to be a sole proprietorship, any “salary”
paid to the owner is not deducted from net income. Instead, cash payments to the owner are treated as dividends (or withdrawals). As a consequence, any services provided by the owner to the business would not be reflected among the expenses reported in the income statement, and net income would be overstated.
(2) No expense is reported in the income statement for income taxes. This is consistent with the business being a sole proprietorship, in which income taxes are levied against the owner as an individual taxpayer. Again, this makes “net” income appear to be larger than it otherwise might be.
(3) Retail businesses are notoriously seasonal. That is, sales (and profits) fluctuate from season to season. A business such as this one would likely have its highest sales in the second and third quarters. This seasonality must be considered when we try to annualize quarterly results like these. Once the business has operated for a year or two, the owner would likely have a better idea about how seasonal fluctuations affect sales and returns and would be better able to interpret quarterly performance measures.
(4) Finally, Seaside’s cash position is precarious. The firm has burned through most of the $60 thousand cash raised to begin the business and is likely to have trouble replacing its inventory as well as paying its bills. Perhaps they can convince lenders to come to their rescue. If not, the firm will not last another three months.
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C3-56 (15 minutes) a. The following analysis shows how the relevant information affects total assets, liabilities, and owners’ equity of the firm:
Owners’ Assets Liabilities Equity
Per Original balance sheet $88,500 $45,900 $42,600 Percentage of debt and equity 51.9% 48.1% 1. Recognition of insurance expense
($4,500 1/2 = $2,250) (2,250) (2,250) 2. Depreciation correction
(5% $68,500 = $3,425) 3,425 3,425 3. (No adjustment required) 4. Unbilled services performed 6,000 6,000 5. Advance consulting fee earned
($11,300 1/2 = $5,650) (5,650) 5,650 6. Recognition of supplies expense
($13,200 $4,800 = $8,400) (8,400) ______ (8,400) Revised totals $87,275 $40,250 $47,025
Percentage of debt and equity 46.1% 53.9%
Revised debt-to-equity ratio: $40,250/$47,025 = 0.86 Original debt-to-equity ratio: $45,900/$42,600 = 1.08 b. Apparently, the loan agreement has not been violated.
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C3-57 (30 minutes) Discussion of this case may consider the following ethical considerations facing Javetz: 1. Balancing the long-run interests of the firm (securing the international contract)
against the short-run requirement to present accurately the financial data of the company for the current year (recording $150,000 adjusting entry).
2. Compromising the confidentiality of the contract negotiations (by disclosing the
contract negotiations to additional persons) versus compromising her professional responsibilities (by omitting a significant year-end adjusting entry).
3. Jeopardizing her position with the firm (by revealing information the president
wants kept secret) versus risking possible future legal action by parties relying on the firm's financial statements (by not revealing a significant accrued expense and accrued liability in the financial statements).
Discussion of this case should also note that outside auditors frequently access confidential data and disclosing the contract negotiations to the auditor should not represent a significant breach of confidentiality. Perhaps Javetz can achieve a reasonable solution to her dilemma by suggesting that an adjusting entry be recorded and described in very general terms (for example, labeling the liability Payable to Consultants and indicating it is for marketing research and development). Such an adjustment would permit the disclosure of the significant liability without revealing important details to anyone else within or outside the company.
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C3-58 (30 minutes) a,b,c and d. FSET:
Balance Sheet Income Statement
Transaction Cash Asset
+ Noncash Assets
= Liabilities + Contrib. Capital
+ Earned Capital
Revenues - Expenses = Net
Income a1. Recognize
prepaid catalog costs.
-62,550 Cash
+62,550
Prepaid Catalog Costs
=
-
=
a2. Advertising credits received.
+ 849
Advertising Credits
Receivable
=
+849 Retained Earnings
+849
Advertising Credits
Revenue
-
=
+849
b. Recognize advertising expense.
-62,138
Prepaid Catalog Costs
=
-62,138
Retained Earnings
-
+62,138
Catalog Expenses
=
-62,138
c. Recognize expiration of advertising credits.
-336
Advertising Credits
Receivable =
-336 Retained Earnings
-
+336
Expense: Expiration
of Advertising
Credits
=
-336
d1. Sales of gift certificates.
+19,175 Cash
=
+19,175
Unearned Gift
Certificate Revenues
-
=
d2. Recognize sales using gift certificates.
=
- 18,230
Unearned Gift
Certificate Revenues
+18,230 Retained Earnings
+18,230 Gift
Certificate Revenues
-
=
+18,230
©Cambridge Business Publishers, 2011
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Journal Entries: a1. Prepaid catalog costs (+A) 62,550 Cash (-A) 62,550 To record catalog printing costs.
a2. Advertising credits receivable (+A) 849 Advertising credits revenue (+R, +SE) 849 To recognize advertising credits earned. b. Catalog expense (+E, -SE) 62,138 Prepaid catalog costs (-A) 62,138 To regognize catalog expense ($3,894 + $62,550 - $4,306).
c. Advertising credit expiration expense (+E, -SE) 336 Advertising credits receivable (-A) 336 To record the expiration of advertising credits ($21 + $849 - $534).
Advertising credits expire either because they were used to advertise or, if there was a time limitation to their use, the time limit expired. d1. Cash (+A) 19,175 Unearned gift certificate revenues (+L) 19,175 To recognize gift certificates sold but not yet redeemed.
d2. Unearned gift certificate revenues (-L) 18,230 Gift certificate revenues (+R, +SE) 18,230 To recognize revenues based on redeemed gift certificates
($6,108 +$19,175 - $7,053).