Accounting Tools for Business Decision Makers 4e Ch4

7/22/2019 Accounting Tools for Business Decision Makers 4e Ch4

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CHAPTER 4

Accrual Accounting Concepts

Study Objectives

1. Explain the revenue recognition principle and the expense recognition principle.

2. Differentiate between the cash basis and the accrual basis of accounting.

3. Explain why adjusting entries are needed, and identify the major types of adjusting entries.

4. Prepare adjusting entries for deferrals.

5. Prepare adjusting entries for accruals.

6. Describe the nature and purpose of the adjusted trial balance.

7. Explain the purpose of closing entries.

8. Describe the required steps in the accounting cycle.

9. Understand the causes of differences between net income and cash provided by

operating activities.

10. Describe the purpose and the basic form of a worksheet.

Summary of Questions by Study Objectives and Blooms Taxonomy

Item SO BT Item SO BT Item SO BT Item SO BT Item SO B

Questions

1. 1 C 9. 4 C 16. 5 K 23. 6 C 30. 7

2. 1 K 10. 4 C 17. 5 AN 24. 2 C 31. 8

3. 1 C 11. 4 K 18. 5 AP 25. 6 C 32. 8

4. 1 AP 12. 4 K 19. 4, 5 K 26. 7 K 33. 8

5. 3 C 13. 1 C 20. 4, 5 K 27. 7 C 34. 8

6. 3 C 14. 1 AN 21. 5 C 28. 7 C 35. 10*7. 3 C 15. 5 C 22. 5 C 29. 7 K 36. 10*

8. 4 K

Brief Exercises

1. 2, 9 C 4. 4 AP 7. 4 AP 10. 6 AP 13. 7

2. 3 C 5. 4 AP 8. 5 AP 11. 6 AP 14. 7

3. 3 AN 6. 4 AP 9. 6 AN 12. 6 K 15. 8

Do It! Review Exercises

1. 4 AP 2. 5 AP 3. 6 C 4. 7 AP

Exercises

1. 1 C 5. 2, 9 AP 9. 4, 5 AP 13. 1, 4, 5, 6 AN 17. 6

2. 1 K 6. 2, 4, 5, 9 AP 10. 4, 5 AP 14. 7 AP 18. 7

3. 1 C 7. 2, 3, 9 C 11. 4, 5 AP 15. 4, 5, 6 AN

4. 2, 4, 5, 9 AP 8. 3, 4, 5 AN 12. 1, 4, 5, 6 AP 16. 4, 5, 6 AP

Copyright 2011 John Wiley & Sons, Inc. Kimmel, Financial Accounting,6/e, Solutions Manual ( For Instructor Use Only)


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Summary of Questions by Study Objectives and Blooms Taxonomy (Continued)

Problems: Set A

1. 2, 4,9 AP 3. 4, 5, 6, 7 AP 5. 4, 5 AP 7. 4, 5, 6 AP 8. 4, 5, 6, 7, 8 AP

2. 4, 5,6 AP 4. 4, 5, 6, 7 AP 6. 4, 5 AN

Problems: Set B

1. 2, 4,9 AP 3. 4, 5, 6, 7 AP 5. 4, 5 AP 7. 4, 5, 6 AP 8. 4, 5, 6, 7, 8 AP

2. 4, 5, 6 AP 4. 4, 5, 6, 7 AP 6. 4, 5 AN

4-2 Copyright 2011 John Wiley & Sons, Inc. Kimmel, Financial Accounting,6/e, Solutions Manual ( For Instructor Use Only)


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ASSIGNMENT CHARACTERISTICS TABLE

ProblemNumber Description

DifficultyLevel

TimeAllotted (min

1A Record transactions on accrual basis; convert revenue tocash receipts.

Simple 2030

2A Prepare adjusting entries, post to ledger accounts, andprepare an adjusted trial balance.

Simple 4050

3A Prepare adjusting entries, adjusted trial balance, andfinancial statements.

Simple 5060

4A Prepare adjusting entries and financial statements; identifyaccounts to be closed.

Moderate 4050

5A Prepare adjusting entries. Moderate 3040

6A Prepare adjusting entries and a corrected incomestatement.

Moderate 3040

7A Journalize transactions and follow through accountingcycle to preparation of financial statements.

Moderate 6070

8A Complete all steps in accounting cycle. Moderate 7080

1B Record transactions on accrual basis; convert revenue tocash receipts.

Simple 2030

2B Prepare adjusting entries, post to ledger accounts, andprepare adjusted trial balance.

Simple 4050

3B Prepare adjusting entries, adjusted trial balance, and

financial statements.

Simple 5060

4B Prepare adjusting entries and financial statements;identify accounts to be closed.

Moderate 4050

5B Prepare adjusting entries. Moderate 3040

6B Prepare adjusting entries and a corrected incomestatement.

Moderate 3040

7B Journalize transactions and follow through accountingcycle to preparation of financial statements.

Moderate 6070

8B Complete all steps in accounting cycle. Moderate 7080



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ANSWERS TO QUESTIONS

1. (a) Under the periodicity assumption, an accountant is required to determine the effect of eachaccounting transaction on a specific accounting period.

(b) An accounting time period that is one year in length is referred to as a fiscal year.

2. The two generally accepted accounting principles that pertain to adjusting the accounts are:The revenue recognition principle, which states that revenue should be recognized in the timeperiod in which it is earned.The expense recognition principle which states that efforts (expenses) be matched with results(revenues) that they helped generate.

3. The law firm should recognize the revenue in April. The revenue recognition principle states thatrevenue should be recognized in the accounting period in which it is earned.

4. Expenses of $4,700 should be deducted from the revenues in April. Under the expenserecognition principle efforts (expenses) should be matched with results (revenues).

5. No, adjusting entries are required by the revenue and expense recognition principles.

6. The financial information in a trial balance may not be up-to-date because:(1) Some events are not journalized daily because it is not useful or efficient to do so.(2) The expiration of some costs occurs with the passage of time rather than as a result of

recurring daily transactions.(3) Some items may be unrecorded because the transaction data are not known.

7. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of revenuescollected and expenses paid before they are earned or incurred. Accruals consist of revenuesearned and expenses incurred prior to collection or payment.

8. In a prepaid expense adjusting entry, expenses are debited and assets are credited.

9. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life.Depreciation results in the presentation of the book value of the asset, not its fair value.

0. Depreciation expense is an expense account whose normal balance is a debit. This accountshows the cost that has expired during the current accounting period. Accumulated depreciationis a contra asset account whose normal balance is a credit. The balance in this account is thedepreciation that has been recognized from the date of acquisition to the balance sheet date.

1. Equipment.................................................................................................. $15,000Less: Accumulated DepreciationEquipment.......................................... 7,000 $8,000

2. In an unearned revenue adjusting entry, liabilities are debited and revenues are credited.

3. The sale of a three-year maintenance contract on December 29, 2011 will have no effect on the2011 income statement but receipt of $100,000 on December 29, 2011, 2012, and 2013 willincrease an asset, Cash, and a liability, Unearned Revenue. As Data Technologies providesservice to its customer during 2012, 2013, and 2014, the liability will decrease and revenue willbe recognized. Accrual accounting rules require that revenue be recognized as it is earned ratherthan when cash is received.



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Questions Chapter 4(Continued)

14. This promotion plan sounds like a bad idea for two reasons.(1) GAAP requires that the sale of a gift card be recorded as Unearned Revenue (a liab

rather than Sales Revenue. Revenue recognition is delayed until the gift card is usedexpires. Chriss plan will not help the company meet its target revenue unless customersthe cards by year-end.

(2) Selling a $50 card for $45 will probably not help the company meet its target net incomAlthough this promotion may result in additional sales revenue as the cards are used, income resulting from the cards will be much less than usual since they eliminate $normal gross profit.

15. An asset is debited and a revenue is credited.

16. An expense is debited and a liability is credited.

17. Net income was understated $270 because prior to adjustment revenues are understated$780 and expenses are understated by $510. The difference in this case is $270 ($780 $51

18. The entry is:

Jan. 9 Salaries and Wages Expense............................................................ 5,100Salaries and Wages Payable............................................................. 1,100Cash.......................................................................................... 6,2

19. (a) Accrued revenues. (d) Accrued expenses or prepaid expenses.(b) Unearned revenues. (e) Prepaid expenses.(c) Accrued expenses. (f) Accrued revenues or unearned revenues.

20. (a) Salaries and Wages Payable. (d) Supplies Expense.(b) Accumulated Depreciation. (e) Service Revenue.(c) Interest Expense. (f) Service Revenue.

21. Disagree. An adjusting entry affects only one balance sheet account and one income statemaccount.

22. Tootsie Roll reports Accounts Receivable. This suggests that it records revenue when it delivered goods, even though it hasnt received payment. If it used a cash basis it wouldnt rerevenue until cash was received, and it would therefore not establish receivables.

23. Financial statements can be prepared from an adjusted trial balance because the balances oaccounts have been adjusted to show the effects of all financial events that have occurred duthe accounting period.

24. (a) Information presented on an accrual basis is useful because it reveals important informaabout the relationship between efforts and results. This information is useful in predic

future results. Trends in revenues and expenses are thus more meaningful.(b) Information presented on a cash basis is useful for predicting the future availability of c

Cash basis financial statements provide useful information about a companys sources uses of cash.

25. The amount shown in the adjusted trial balance column for an account equals the accobalance in the ledger after adjusting entries have been journalized and posted.



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Questions Chapter 4(Continued)

26. (1) (Dr) Individual revenue accounts and (Cr) Income Summary.(2) (Dr) Income Summary and (Cr) Individual expense accounts.(3) (Dr) Income Summary and (Cr) Retained Earnings (for net income).(4) (Dr) Retained Earnings and (Cr) Dividends.

27. Financial information is used by managers to direct and evaluate a companys performance. Thesooner such information is made available; the sooner changes can be made to get a company

back on track. A virtual close speeds up the reporting process and allows managers to reactmuch faster to changing economic conditions.

28. Income Summary is a temporary account that is used in the closing process. The account isdebited for expenses and credited for revenues. The difference, either net income or net loss, isthen closed to Retained Earnings.

29. The post-closing trial balance contains only balance sheet accounts. Its purpose is to prove theequality of the permanent account balances that are carried forward into the next accounting period.

30. The accounts that will not appear in the post-closing trial balance are: Depreciation Expense;Dividends; and Service Revenue.

31. The steps that involve journalizing are (1) journalize the transactions, (2) journalize the adjustingentries, and (3) journalize the closing entries.

32. The three trial balances are the (1) trial balance, (2) adjusted trial balance, and (3) post-closingtrial balance.

33. Earnings management is the planned timing of revenues, expenses, gains, and losses to smooth outbumps in net income. Such action is undertaken to help a company meet target financial numbers.

Quality of earnings indicates the level of full and transparent information that a company provides tousers of financial statements.

34. Examples of ways a company can manage earnings include the following.

Use of one-time items to prop up earnings numbers. A company may decide to sell propertythat has appreciated in value in order to record a gain on the sale. Such a gain will increase thecurrent years net income but future income will probably not include a similar increase.

Inflating revenue in the short-run to the detriment of the long-run. A company may implementchanges in its promotion activities near the end of an accounting period to boost year-endrevenues. Offering a special rebate or a twoforone package is likely to increase sales for thetime the promotion runs but usually results in lower sales in subsequent periods. Savvycustomers may even postpone purchases until special deals are available.

Recording improper adjusting entries. Some adjusting entries require estimates and judgment toproperly recognize revenue and match expenses. By recognizing revenue sooner and delayingthe recognition of expenses, earnings can be overstated in early periods and understated insubsequent periods. This type of management is most prevalent with multi-year contracts andprepaid expenses.

35. The worksheet is a working paper designed to make it easier to prepare adjusting entries andfinancial statements.

36. The columns of the worksheet from left to right are two columns each for the trial balance,adjustments, adjusted trial balance, income statement, and balance sheet.



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SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1

Cash Net Income

(a)(b)(c)(d)(e)(f)

$10000

+8002,500

0

$020+1,300

00

600

BRIEF EXERCISE 4-2

(a) Prepaid Insuranceto recognize insurance expired during the period

(b) Depreciation Expenseto allocate the cost of an asset to expenduring the current period.

(c) Unearned Service Revenueto account for unearned revenue that hbeen earned during the period.

(d) Interest Payableto recognize interest accrued but unpaid on nopayable during the current period.

BRIEF EXERCISE 4-3

Item(1)

Type of Adjustment(2)

Accounts Before Adjustment

(a) Prepaid Expenses Assets OverstatedExpenses Understated

(b) Accrued Revenues Assets Understated

Revenues Understated

(c) Accrued Expenses Expenses UnderstatedLiabilities Understated

(d) Unearned Revenues Liabilities OverstatedRevenues Understated



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BRIEF EXERCISE 4-4

Dec. 31 Supplies Expense.............................................. 7,700Supplies...................................................... 7,700

Supplies Supplies Expense

8,800 12/31 7,700 12/31 7,7002/31 Bal. 1,100

BRIEF EXERCISE 4-5

Dec. 31 Depreciation Expense....................................... 2,750Accumulated Depreciation

Equipment .............................................. 2,750

Depreciation ExpenseAccumulated Depreciation

Equipment2/31 2,750 12/31 2,750

Balance Sheet:Equipment.................................................................... $22,000Less: Accumulated DepreciationEquipment....... 2,750 $19,250

BRIEF EXERCISE 4-6

July 1 Prepaid Insurance............................................. 12,400Cash............................................................ 12,400

Dec. 31 Insurance Expense ($12,400 X 6/24)............... 3,100Prepaid Insurance..................................... 3,100

Prepaid Insurance Insurance Expense

7/1 12,400 12/31 3,100 12/31 3,10012/31 Bal. 9,300



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BRIEF EXERCISE 4-7

July 1 Cash.................................................................... 12,400Unearned Service Revenue...................... 12,40

Dec. 31 Unearned Service Revenue.............................. 3,100Service Revenue ($12,400 X 6/24)............ 3,10

Unearned Service Revenue Service Revenue12/31 3,100 7/1 12,400 12/31 3,10

12/31 Bal. 9,300

BRIEF EXERCISE 4-8

(a) Dec. 31 Interest Expense........................................ 300Interest Payable................................. 30

(b) 31 Accounts Receivable................................ 1,700Service Revenue................................ 1,70

(c) 31 Salaries and Wages Expense................... 780Salaries and Wages Payable............ 78

BRIEF EXERCISE 4-9

Account

(1)

Type of Adjustment

(2)

Related Account

(a) Accounts Receivable Accrued Revenues Service Revenue

(b) Prepaid Insurance Prepaid Expenses Insurance Expense

(c) Equipment Not required

(d) Accum. DepreciationEquipment Prepaid Expenses Depreciation Expen

(e) Notes Payable Not required

(f) Interest Payable Accrued Expenses Interest Expense

(g) Unearned ServiceRevenue Unearned Revenues Service Revenue



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BRIEF EXERCISE 4-10

HANLON CORPORATIONIncome Statement

For the Year Ended December 31, 2012

RevenuesService revenue...................................................... $32,000Expenses

Salaries and wages expense................................. $14,000Rent expense.......................................................... 3,900Insurance expense................................................. 1,800Supplies expense................................................... 1,500Depreciation expense............................................. 1,000

Total expenses................................................ 22,200Net income...................................................................... $ 9,800

BRIEF EXERCISE 4-11

HANLON CORPORATIONRetained Earnings Statement

For the Year Ended December 31, 2012

Retained earnings, January 1........................................................... $17,200Add: Net income.............................................................................. 10,400

27,600Less: Dividends................................................................................ 6,000Retained earnings, December 31..................................................... $21,600

BRIEF EXERCISE 4-12

Account

a)b)c)d)e)f)g)

Accumulated DepreciationDepreciation ExpenseRetained EarningsDividendsService RevenueSuppliesAccounts Payable

Balance SheetIncome StatementRetained Earnings StatementRetained Earnings StatementIncome StatementBalance SheetBalance Sheet



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BRIEF EXERCISE 4-13

The accounts that will appear in the post-closing trial balance are:

Accumulated DepreciationRetained EarningsSupplies

Accounts Payable

BRIEF EXERCISE 4-14

(a) Closing EntriesJuly 31 Service Revenue....................................... 16,000

Income Summary............................... 16,00(To close revenue account)

Income Summary...................................... 11,900Salaries and Wages Expense........... 8,40Maintenance and Repairs

Expense........................................... 2,50Income Tax Expense......................... 1,00

(To close expense accounts)

Income Summary...................................... 4,100Retained Earnings.............................. 4,10

(To close net income toretained earnings)

Retained Earnings..................................... 1,300Dividends............................................ 1,30

(To close dividends to retainedearnings)

(b)Retained Earnings

1,300 7/1 Bal. 20,0004,100

7/31 Bal. 22,800



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BRIEF EXERCISE 4-15

The proper sequencing of the required steps in the accounting cycle is asollows:

1. (c) Analyze business transactions.2. (e) Journalize the transactions.

3. (i) Post to ledger accounts.4. (d) Prepare a trial balance.5. (h) Journalize and post adjusting entries.6. (b) Prepare an adjusted trial balance.7. (g) Prepare financial statements.8. (f) Journalize and post closing entries.9. (a) Prepare a post-closing trial balance.



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SOLUTIONS TO DO IT! REVIEW EXERCISES

DO IT! 4-1

1. Insurance Expense......................................................... 300Prepaid Insurance.................................................... 3

(To record insurance expired)

2. Supplies Expense........................................................... 1,600Supplies..................................................................... 1,6

(To record supplies used)

3. Depreciation Expense..................................................... 200Accumulated DepreciationEquipment............... 2

(To record monthly depreciation)

4. Unearned Service Revenue............................................ 4,000Service Revenue....................................................... 4,0(To record revenue for services provided)

DO IT! 4-2

1. Salaries and Wages Expense........................................ 1,100Salaries and Wages Payable................................... 1,1

(To record accrued salaries)

2. Interest Expense ($20,000 X .09 X 1/12)........................ 150Interest Payable........................................................ 1

(To record accrued interest)

3. Accounts Receivable ..................................................... 1,600Service Revenue....................................................... 1,6

(To record revenue for service provided)

DO IT! 4-3

Income statement: Service Revenue, Utilities Expense

Balance sheet: Accounts Receivable, Accumulated Depreciation, NoPayable, Common Stock.



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DO IT! 4-4

Dec. 31 Income Summary....................................................... 36,000Retained Earnings.............................................. 36,000 (To close net income to retained earnings)

Dec. 31 Retained Earnings..................................................... 22,000

Dividends............................................................. 22,000 (To close dividends to retained earnings)



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SOLUTIONS TO EXERCISES

EXERCISE 4-1

(a) Since the sales effort is not complete until the flight actually occurevenue should not be recognized until December. Southwest Airlin

should recognize the revenue in December when the customer hbeen provided with the flight.

(b) Sales revenue should be recognized at the time of delivery.

(c) Revenue should be recognized on a per game basis over the seasfrom April through October.

(d) Interest revenue should be accrued and recognized by RBC evenly othe term of the loan.

(e) Revenue should be recognized when the sweater is shipped to customer in September.

EXERCISE 4-2

(a) 8. Going concern assumption.(b) 1. Economic entity assumption.(c) 7. Full disclosure principle.(d) 3. Monetary unit assumption.(e) 6. Materiality constraint.(f) 4. Periodicity assumption.(g) 2. Expense recognition principle.(h) 5. Cost principle.

EXERCISE 4-3

(a) Revenue recognition principle.(b) Periodicity assumption.(c) No violation.

(d) Going concern assumption.(e) Cost principle.(f) Economic entity assumption.



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EXERCISE 4-4

$ 33,640 Cash basis earnings.

+ 3,400Accounts receivable arise from sales that have been made,thus revenue must be recognized for balance outstanding atthe end of the current year.

2,800 Accounts receivable collected in current year, for sales madein previous year must be deducted from earnings.

+ 1,300Supplies on hand at year end should be set up as an assetrather than expensed, this increases earnings.

1,460Supplies on hand at the end of the previous year should beexpensed this year, this decreases earnings.

2,000Wages owing at the end of the current year should beaccrued, thus reducing earnings.

+ 2,400Wages owed at the end of the previous year should not bededucted from the current years earnings, thus increasing

earnings.

1,400Other unpaid amounts owed at the end of the current yearshould be accrued, thus reducing earnings.

+ 1,100Other unpaid amounts owed at the end of the previous yearshould not be deducted from the current years earnings, thusincreasing earnings.

$ 34,180 Accrual basis earnings.

EXERCISE 4-5

a) Cash Basis Accrual BasisService Revenue

Operating Expenses Insurance ExpenseNet Income

$22,00012,0002,400

$ 7,600

$28,00015,800

$12,200

b) The accrual basis of accounting provides more useful information fordecision makers because it recognizes revenues when earned andexpenses when incurred.



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EXERCISE 4-6

(a) MT. HOREB COMPANYIncome Statement

For the Six Months Ended April 30, 2012

RevenuesRepair services ($32,150 + $420)..................... $32,57Expenses

Income tax expense........................................... $10,000Salaries and Wages expense ($2,600 + $420). 3,020Rent expense ($1,225 $175)........................... 1,050Utilities expense................................................ 970Depreciation expense [($9,200 4) X 6/12]..... 1,150Advertising expense.......................................... 375

Total expenses............................................ 16,56

Net income................................................................. $16,00

(b) MT. HOREB COMPANYBalance SheetApril 30, 2012

AssetsCurrent Assets

Cash................................................................. $27,780

Accounts receivable....................................... 420Prepaid rent..................................................... 175

Total current assets................................ $28,37Property, plant, and equipment

Equipment........................................................ 9,200Less: Accumulated

depreciationequipment............................ 1,150 8,05Total assets.............................................. $36,42

Liabilities and Stockholders Equity

Current LiabilitiesSalaries and wages payable......................... $ 42Stockholders equity

Common stock............................................... $20,000Retained earnings.......................................... 16,005

Total stockholders equity............... 36,00Total liabilities and stockholders

equity..................................................... $36,42



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EXERCISE 4-7

a) Event Cash Accounting Accrual Accounting180-dayfinancing forlarge customers

Revenue is recordedas cash is received.

Revenue is recorded as itis earned. KidVid recordsrevenue (and a receivable)as soon as goods are

shipped but may wait up to180 days to receive cash.

Payment tosuppliers upondelivery of goods

Cost of goods isrecorded as anexpense as soon asgoods are delivered.

Cost of goods is recordedas an asset until goods areshipped to customers.Cost of goods is recordedas an expense when goodsare shipped to customers.

Prepayment for2 years ofinsurancecoverage

Insurance expense isrecorded as soon aspayment is made.

Prepayment is recorded asan asset and recognizedas an expense as timepasses.

One monthssalaries owed atyear-end

No salary expense isrecorded until salariesare paid.

Salary expense is recordedas employees performwork. Amounts owed atyear-end would be

recorded as a liability.

Proper accrual accounting would require adjusting entries for prepaidinsurance and accrued salaries.



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EXERCISE 4-7 (Continued)

(b) Accrual accounting rules require that revenue be recognized as itearned and expenses be matched with the revenue they help produReceipt or payment of cash does not influence the calculation of nincome.

KidVid has made many sales during the year and thus shipped laramounts of goods with the result being positive net income. SincKidVid allowed its largest customers to take up to 180 days to pay, bwas forced to pay cash for all purchases, it is likely that the compahas very little cash at year-end. New companies frequently experiencash shortages because they extend credit to attract customers but aunable to receive credit from their suppliers. As time passes, the casupply should increase as payments on accounts receivable comeand offset current purchases.

EXERCISE 4-8

Item(1)

Type of Adjustment(2)

Accounts Before Adjustment

(a) Accrued Revenues Assets UnderstatedRevenues Understated

(b) Prepaid Expenses Assets OverstatedExpenses Understated

(c) Accrued Expenses Expenses UnderstatedLiabilities Understated

(d) Unearned Revenues Liabilities OverstatedRevenues Understated

(e) Accrued Expenses Expenses UnderstatedLiabilities Understated

(f) Prepaid Expenses Assets OverstatedExpenses Understated



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EXERCISE 4-9

1. Mar. 31 Depreciation Expense ($280 X 3).................. 840Accumulated Depreciation

Equipment ............................................ 8402. 31 Unearned Rent Revenue................................ 6,200

Rent Revenue ($12,400 X 1/2)................ 6,200

3. 31 Interest Expense............................................. 400Interest Payable...................................... 400

4. 31 Supplies Expense........................................... 2,150Supplies ($3,000 $850)........................ 2,150

5. 31 Insurance Expense ($400 X 3)....................... 1,200

Prepaid Insurance.................................. 1,200

EXERCISE 4-10

1. Jan. 31 Accounts Receivable..................................... 760Service Revenue..................................... 760

2. 31 Utilities Expense............................................. 450Accounts Payable................................... 450

3. 31 Depreciation Expense.................................... 400Accumulated Depreciation

Dental Equipment ............................... 40031 Interest Expense............................................. 500

Interest Payable...................................... 500

4. 31 Insurance Expense ($24,000 12)................ 2,000

Prepaid Insurance.................................. 2,000

5. 31 Supplies Expense ($1,750 $550)................ 1,200Supplies................................................... 1,200



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EXERCISE 4-11

1. Oct. 31 Supplies Expense........................................... 2,000Supplies

($2,500 $500) ..................................... 2,002. 31 Insurance Expense......................................... 100

Prepaid Insurance.................................. 10

3. 31 Depreciation Expense.................................... 75Accumulated Depreciation

Equipment ............................................ 74. 31 Unearned Service Revenue........................... 800

Service Revenue..................................... 80

5. 31 Accounts Receivable..................................... 280Service Revenue..................................... 28

6. 31 Interest Expense............................................. 70Interest Payable...................................... 7

7. 31 Salaries and Wages Expense........................ 1,400Salaries and Wages Payable................. 1,40

EXERCISE 4-12

KALETA CO.Income Statement

For the Month Ended July 31, 2012

RevenuesService revenue ($5,500 + $700)............................... $6,20

Expenses

Salaries and Wages expense ($2,100 + $360)......... $2,460Supplies expense ($900 $200)............................... 700Utilities expense......................................................... 500Insurance expense.................................................... 350Depreciation expense................................................ 150

Total expenses................................................... 4,16Net income......................................................................... $2,04



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EXERCISE 4-13

Answer Computation

a) Supplies balance = $1,350 Supplies expense $ 950)Add: Supplies (1/31) 700)

Less: Supplies purchased (300 )Supplies (1/1) $1,350)

b) Total premium = $6,240 Total premium = Monthly premium X12; $520 X 12 = $6,240

Purchase date = May 1, 2011 Purchase date: On Jan. 31, there are3 months coverage remaining ($520 X 3).Thus, the purchase date was 9 months

earlier on May 1, 2011.

c) Salaries and wagespayable = $1,760 Cash paid $2,500

Salaries and wagespayable (1/31/12) 1,060

3,560Less: Salaries and wages

expense 1,800Salaries and wages

payable (12/31/11) $1,760

d) Unearned servicerevenue = $950 Service revenue $2,000

Unearned revenue (1/31/12) 7502,750

Cash received in Jan. 1,800Unearned revenue (12/31/11) $ 950



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EXERCISE 4-14

Jan. 31 Service Revenue.................................................... 2,000Income Summary........................................... 2,00

31 Income Summary................................................... 3,270Salaries and Wages Expense....................... 1,80Supplies Expense.......................................... 95Insurance Expense........................................ 52

31 Retained Earnings................................................. 1,270Income Summary........................................... 1,27

EXERCISE 4-15

(a) July 10 Supplies........................................................... 200Cash......................................................... 20

14 Cash................................................................. 3,800Service Revenue..................................... 3,80

15 Salaries and Wages Expense........................ 1,000Cash......................................................... 1,00

20 Cash................................................................. 600Unearned Service Revenue................... 60

(b) July 31 Supplies Expense........................................... 750Supplies................................................... 75

31 Accounts Receivable..................................... 500Service Revenue..................................... 50

31 Salaries and Wages Expense........................ 1,000Salaries and Wages Payable................. 1,00

31 Unearned Service Revenue........................... 900Service Revenue..................................... 90



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EXERCISE 4-16

Aug. 31 Accounts Receivable............................................ 600Service Revenue............................................ 600

31 Supplies Expense.................................................. 2,000Supplies.......................................................... 2,000

31 Insurance Expense................................................ 1,500Prepaid Insurance.......................................... 1,500

31 Depreciation Expense........................................... 1,200Accumulated DepreciationEquipment..... 1,200

31 Salaries and Wages Expense............................... 1,100Salaries and Wages Payable........................ 1,100

31 Unearned Rent Revenue....................................... 1,000Rent Revenue................................................. 1,000

EXERCISE 4-17

AMIT COMPANYIncome Statement

For the Year Ended August 31, 2012

RevenuesService revenue...................................................... $34,600Rent revenue........................................................... 13,100

Total revenues................................................. $47,700Expenses

Salaries and wages expense................................. 18,100Rent expense.......................................................... 10,800Supplies expense................................................... 2,000Insurance expense................................................. 1,500Depreciation expense............................................. 1,200

Total expenses................................................ 33,600Net income...................................................................... $14,100



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EXERCISE 4-17 (Continued)

AMIT COMPANYRetained Earnings Statement

For the Year Ended August 31, 2012

Retained earnings, September 1, 2011............................................ $ 5,50Add: Net income.............................................................................. 14,1019,60

Less: Dividends................................................................................ 2,80Retained earnings, August 31, 2012................................................ $16,80

AMIT COMPANYBalance Sheet

August 31, 2012


Cash.......................................................................... $10,900Accounts receivable................................................ 9,400Supplies.................................................................... 500Prepaid insurance.................................................... 2,500

Total current assets......................................... $23,30Equipment................................................................. 16,000

Less: Accum. depreciationequipment................ 4,800 11,20Total assets....................................................... $34,50

Liabilities and Stockholders EquityCurrent Liabilities

Accounts payable.................................................... $ 5,800Salaries and wages payable................................... 1,100Unearned rent revenue............................................ 800

Total current liabilities..................................... $ 7,70

Stockholders equityCommon stock......................................................... 10,000Retained earnings.................................................... 16,800

Total stockholders equity........................... 26,80Total liabilities and stockholders equity...... $34,50



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EXERCISE 4-18

Aug. 31 Service Revenue............................................... 34,600Rent Revenue.................................................... 13,100

Income Summary...................................... 47,700

31 Income Summary.............................................. 33,600

Salaries and Wages Expense.................. 18,100Rent Expense............................................. 10,800Supplies Expense..................................... 2,000Insurance Expense................................... 1,500Depreciation Expense............................... 1,200

31 Income Summary.............................................. 14,100Retained Earnings..................................... 14,100

31 Retained Earnings............................................ 2,800Dividends................................................... 2,800



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SOLUTIONS TO PROBLEMS

PROBLEM 4-1A

(a)

1. Cash........................................................................ 19,000Accounts Receivable...................................... 19,00

2. Unearned Sales Revenue..................................... 23,000Sales Revenue................................................. 23,00

3. Cash....................................................................... 44,000Unearned Sales Revenue............................... 44,00

Unearned Sales Revenue($44,000 $20,000)............................................. 24,000

Sales Revenue................................................. 24,00

4. Accounts Receivable............................................ 151,000Service Revenue............................................. 151,00

5. Cash....................................................................... 136,000Accounts Receivable ($151,000 $15,000). ... 136,00

(b) Cash received with respect to fees and dues

1. Collection of 2011 dues $ 19,0003. Sale of tickets 44,000

5. Collection of 2012 dues 136,000$199,000

Accounts Receivable2011 Bal. 19,0004. 151,000 1. 19,000

5. 136,0002012 Bal. 15,000

Unearned Sales Revenue

2. 23,0003. 24,000

2011 Bal. 23,0003. 44,000

2012 Bal. 20,000

Service Revenue4. 151,02012 Bal.151,0

Sales Revenue2. 23,03. 24,0

2012 Bal. 47,0

Cash1. 19,0003. 44,0005. 136,0002012 Bal. 199,000



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29/116

PROBLEM 4-2A

(a)

Date Account Titles Debit Cred

1.2012June 30 Supplies Expense.....................................

Supplies ($2,000 $720)..................

1,280

1,280

2. 30 Utilities Expense.......................................Accounts Payable.............................

180180

3. 30 Insurance Expense...................................Prepaid Insurance

($2,880 12 months) .....................240

240

4. 30 Unearned Service Revenue.....................Service Revenue...............................

4,1004,100

5. 30 Salaries and Wages Expense..................Salaries and Wages Payable...........

1,2501,250

6. 30 Depreciation Expense..............................Accumulated Depreciation

Equipment ......................................250

250

7. 30 Accounts Receivable...............................Service Revenue...............................

3,9003,900

(b)

Cash6/30 Bal. 6,850

Accounts Receivable6/30 Bal. 7,0006/30 3,9006/30 Bal. 10,900

Prepaid Insurance6/30 Bal. 2,880 6/30 240

6/30 Bal. 2,640

Supplies6/30 Bal. 2,000 6/30 1,26/30 Bal. 720



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PROBLEM 4-2A (Continued)

Equipment6/30 Bal. 15,000

Accumulated Depreciation

Equipment6/30 2506/30 Bal. 250

Accounts Payable6/30 Bal. 4,2306/30 1806/30 4,410

Salaries and Wages Payable6/30 1,2506/30 Bal. 1,250

Unearned Service Revenue6/30 4,100 6/30 Bal. 5,200

6/30 Bal. 1,100

Common Stock6/30 Bal. 22,000

Service Revenue6/30 Bal. 8,3006/30 4,1006/30 3,9006/30 Bal. 16,300

Salaries and Wages Expense6/30 Bal. 4,0006/30 1,2506/30 Bal. 5,250

Rent Expense6/30 Bal. 2,000

Depreciation Expense6/30 2506/30 Bal. 250

Insurance Expense6/30 2406/30 Bal. 240

Utilities Expense6/30 1806/30 Bal. 180

Supplies Expense6/30 1,2806/30 Bal. 1,280



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c) VOGEL CONSULTINGAdjusted Trial Balance

June 30, 2012

Debit CreditCash.......................................................................Accounts Receivable...........................................Prepaid Insurance................................................Supplies................................................................Equipment.............................................................Accumulated DepreciationEquipment...........Accounts Payable................................................Salaries and Wages Payable...............................Unearned Service Revenue.................................

Common Stock.....................................................Service Revenue..................................................Salaries and Wages Expense.............................Rent Expense.......................................................Depreciation Expense..........................................Insurance Expense..............................................Utilities Expense..................................................Supplies Expense................................................

$ 6,85010,9002,640

72015,000

5,2502,000

250240180

1,280$45,310

$ 2504,4101,2501,100

22,00016,300

$45,310


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PROBLEM 4-3A

(a) 1. May 31 Insurance Expense................................... 450Prepaid Insurance............................. 45

2. 31 Supplies Expense..................................... 1,550Supplies ($2,600 $1,050)............... 1,55

3. 31 Depreciation Expense($3,600 X 1/12) ....................................... 300

Accumulated DepreciationBuilding .......................................... 30

31 Depreciation Expense

($3,000 X 1/12)

....................................... 250Accumulated DepreciationEquipment ...................................... 25

4. 31 Interest Expense....................................... 180Interest Payable

[($36,000 X 6%) X 1/12] ................. 185. 31 Unearned Rent Revenue.......................... 2,500

Rent Revenue.................................... 2,50

6. 31 Salaries and Wages Expense.................. 900Salaries and Wages Payable........... 90

(b)

Cash5/31 Bal. 2,500

Prepaid Insurance5/31 Bal. 1,800 5/31 4505/31 Bal. 1,350

Supplies5/31 Bal. 2,600 5/31 1,55/31 Bal. 1,050

Land5/31 Bal. 15,000



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Building5/31 Bal. 70,000


Building5/31 3005/31 Bal. 300


Accumulated DepreciationEquipment

5/31 2505/31 Bal. 250

Accounts Payable5/31 Bal. 4,700

Unearned Rent Revenue5/31 2,500 5/31 Bal. 3,300

5/31 Bal. 800

Salaries and Wages Payable5/31 9005/31 Bal. 900

Interest Payable5/31 1805/31 Bal. 180

Mortgage Payable5/31 Bal. 36,000


Rent Revenue5/31 Bal. 9,0005/31 2,5005/31 Bal. 11,500

Salaries and Wages Expense5/31 Bal. 3,0005/31 900

5/31 Bal. 3,900

Utilities Expense5/31 Bal. 800

Advertising Expense5/31 Bal. 500

Interest Expense5/31 1805/31 Bal. 180



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Supplies Expense5/31 1,5505/31 Bal. 1,550

Depreciation Expense5/31 3005/31 2505/31 Bal. 550

c) VANG HOTELAdjusted Trial Balance

May 31, 2012

Debit Credit

Cash...................................................................Prepaid Insurance............................................Supplies.............................................................Land...................................................................Building.............................................................Accumulated DepreciationBuilding............Equipment.........................................................

Accumulated DepreciationEquipment........Accounts Payable.............................................Unearned Rent Revenue..................................Salaries and Wages Payable...........................Interest Payable................................................Mortgage Payable.............................................Common Stock.................................................Rent Revenue....................................................Salaries and Wages Expense..........................Utilities Expense...............................................

Advertising Expense........................................Interest Expense...............................................Insurance Expense...........................................Supplies Expense.............................................Depreciation Expense......................................

$ 2,5001,3501,050

15,00070,00016,800

3,900800500 180450

1,550550

$114,630

$ 300250

4,700

800900180

36,00060,00011,500

$114,630


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(d) VANG HOTELIncome Statement

For the Month Ended May 31, 2012

RevenuesRent revenue..................................................... $11,50Expenses

Salaries and wages expense........................... $3,900Supplies expense............................................. 1,550Utilities expense............................................... 800Depreciation expense...................................... 550Advertising expense........................................ 500Insurance expense........................................... 450Interest expense............................................... 180

Total expenses.......................................... 7,93Net income................................................................ $ 3,57

VANG HOTELRetained Earnings Statement

For the Month Ended May 31, 2012

Retained earnings, May 1........................................ $ Add: Net income.................................................... 3,57Retained earnings, May 31...................................... $3,57



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VANG HOTELBalance SheetMay 31, 2012


Cash..................................................... $ 2,500Supplies............................................... 1,050Prepaid insurance.............................. 1,350

Total current assets................... $ 4,900Property, plant, and equipment

Land..................................................... 15,000Building............................................... $70,000Less: Accumulated

deprec.Building............................ 300 69,700Equipment........................................... 16,800Less: Accumulated

deprec.equipment........................ 250 16,550 101,250Total assets................................. $106,150

Liabilities and Stockholders EquityCurrent Liabilities

Accounts payable............................................. $ 4,700Salaries and wages payable............................ 900

Unearned rent revenue.................................... 800Interest payable................................................ 180

Total current liabilities............................. $ 6,580Long-term Liabilities

Mortgage payable............................................. 36,000Total liabilities........................................... 42,580

Stockholders equityCommon stock.................................................. 60,000Retained earnings............................................ 3,570

Total stockholders equity................ 63,570Total liabilities and stockholders

equity ...................................................... $106,150e) The following accounts would be closed:

Rent Revenue, Salaries and Wages Expense, Utilities Expense,Advertising Expense, Interest Expense, Insurance Expense, SuppliesExpense, Depreciation Expense.


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PROBLEM 4-4A

(a) Sept. 30 Accounts Receivable..................................... 600Service Revenue..................................... 60

30 Rent Expense.................................................. 900Prepaid Rent............................................ 90

30 Supplies Expense........................................... 1,020Supplies................................................... 1,02

30 Depreciation Expense.................................... 350Accum. DepreciationEquipment....... 35

30 Interest Expense............................................. 50Interest Payable...................................... 5

30 Unearned Rent Revenue................................ 200Rent Revenue.......................................... 20

30 Salaries and Wages Expense........................ 600Salaries and Wages Payable................. 60

(b) ROLLING HILLS GOLF INC.

Income StatementFor the Quarter Ended September 30, 2012

RevenuesService revenue................................................ $14,700Rent revenue..................................................... 900

Total revenues.......................................... $15,60Expenses

Salaries and wages expense........................... 9,400

Rent expense.................................................... 1,800Supplies expense............................................. 1,020Utilities expense............................................... 470Depreciation expense...................................... 350Interest expense............................................... 50

Total expenses.......................................... 13,09Net income................................................................ $ 2,51



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(c) The following accounts would be closed: Service Revenue, Rent RevenSalaries and Wages Expense, Rent Expense, Utilities ExpenDepreciation Expense, Supplies Expense, Interest Expense, Dividend

(d) Interest of 12% per year equals a monthly rate of 1%; monthly interis $50 ($5,000 X 1%). Since total interest expense is $50, the note hbeen outstanding one month.



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PROBLEM 4-5A

1. Dec. 31 Insurance Expense......................................... 8,000Prepaid Insurance.................................. 8,000

[($9,600 3) = $3,200

[($7,200 12/18) = 4,800$8,000]

2. Dec. 31 Unearned Sales Revenue.............................. 3,500Sales Revenue........................................ 3,500

[Oct. 250 X $24 X 3/12 = $1,500[Nov. 300 X $24 X 2/12 = 1,200[Dec. 400 X $24 X 1/12 = 800$3,500]

3. Dec. 31 Interest Expense............................................. 700Interest Payable

($40,000 X 7% X 3/12).......................... 700

4. Dec. 31 Salaries Expense............................................ 3,060Salaries Payable..................................... 3,060

[5 X $600 X 3/5 = $1,800[3 X $700 X 3/5 = 1,260 $3,060]


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PROBLEM 4-6A

(a) 1. June 30 Rent Revenue.................................... 57,000Unearned Rent Revenue......... 57,00

2. 30 Supplies Expense.............................. 6,400Supplies ($8,200 $1,800)...... 6,40

3. 30 Insurance Expense($14,400 X 3/12)............................... 3,600

Prepaid Insurance................... 3,60

4. 30 Maintenance andRepairs Expense............................ 4,450

Utilities Expense................................ 215Advertising Expense......................... 110Accounts Payable................... 4,77

5. 30 Salaries and Wages Expense($300 X 4)......................................... 1,200

Salaries and Wages Payable.................................. 1,20

6. 30 Interest Expense($14,000 X 6% X 2/12)..................... 140

Interest Payable ...................... 14

7. 30 Income Tax Expense......................... 13,400Income Tax Payable................ 13,40



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b) OPEN ROAD TRAVEL COURTIncome Statement

For the Quarter Ended June 30, 2012

RevenuesRent revenue ($212,000 $57,000)........................ $155,000

ExpensesSalaries and wages expense

($80,500 + $1,200)................................................. $ 81,700Income tax expense................................................ 13,400Maintenance and repairs expense ($4,300 + $4,450)................................................... 8,750Supplies expense.................................................... 6,400Advertising expense ($3,800 + $110)..................... 3,910

Insurance expense.................................................. 3,600Depreciation expense............................................. 2,700Utilities expense ($900 + $215).............................. 1,115Interest expense...................................................... 140Total expenses......................................................... 121,715Net income............................................................... $ 33,285

c) The generally accepted accounting principles pertaining to the incomestatement not recognized by Tiffany were the revenue recognition

principle and the expense recognition principle.

The revenue recognition principle states that revenue is recognizedwhen it is earned. The cash payments of $57,000 for summer rentalshave not been earned and, therefore, should not be reported asincome for the quarter ended June 30.

The expense recognition principle dictates that efforts (expenses) bematched with accomplishments (revenue) whenever it is reasonableand practicable to do so. This means that the expenses should include

amounts incurred in June but not paid until July, and any other costsrelated to the operations of the business during the period AprilJune.

The difference in reported expenses was $29,515 ($121,715 $92,200).The overstatement of revenues ($57,000) plus the understatement ofexpenses ($29,515) equals the difference in reported income of $86,515($119,800 $33,285).


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PROBLEM 4-7A

(a), (c) & (e)

Cash

11/1 Bal. 2,79011/10 1,80011/12 1,70011/29 750

11/8 1,22011/20 2,50011/22 48011/25 1,000

11/30 Bal. 1,840

Accounts Receivable11/1 Bal. 2,910

11/27 90011/10 1,800

11/30 Bal. 2,010

Supplies11/1 Bal. 1,12011/17 1,300

11/30 1,320

11/30 Bal. 1,100

Equipment11/1 Bal. 10,00011/15 3,60011/30 Bal.13,600


11/1 Bal. 500

11/30 25011/30 Bal. 750

Accounts Payable

11/20 2,500 11/1 Bal. 2,311/15 3,611/17 1,311/30 Bal. 4,7

UnearnedService Revenue

11/30 500 11/1 Bal. 411/29 711/30 Bal. 6

Salaries and Wages Payable11/8 620 11/1 Bal. 6

11/30 411/30 Bal. 4

Common Stock11/1 Bal. 10,011/30 Bal.10,0

Retained Earnings11/1 Bal. 3,011/30 Bal. 3,0



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Service Revenue11/12 1,70011/27 90011/30 50011/30 Bal. 3,100


Supplies Expense11/30 1,320

11/30 Bal. 1,320

Salaries and Wages Expense11/8 60011/25 1,00011/30 48011/30 Bal. 2,080

Rent Expense11/22 48011/30 Bal. 480


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b)General Journal

Date Account Titles Debit CreditNov. 8 Salaries and Wages Payable............................

Salaries and Wages Expense...........................Cash............................................................

620600

1,220

10 Cash....................................................................Accounts Receivable................................

1,8001,800

12 Cash....................................................................Service Revenue........................................

1,7001,700

15 Equipment..........................................................

Accounts Payable......................................

3,600

3,600

17 Supplies.............................................................Accounts Payable......................................

1,3001,300

20 Accounts Payable.............................................Cash............................................................

2,5002,500

22 Rent Expense.....................................................Cash............................................................

480480

25 Salaries and Wages Expense...........................Cash............................................................

1,0001,000

27 Accounts Receivable........................................Service Revenue........................................

900900

29 Cash....................................................................Unearned Service Revenue......................

750750


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(d) & (f) TATE EQUIPMENT REPAIRTrial Balances

November 30, 2012

BeforeAdjustment AfterAdjustment

Dr. Cr. Dr. Cr.Cash.............................................Accounts Receivable.................Supplies.......................................Equipment...................................Accumulated Depreciation Equipment

Accounts Payable.......................Unearned Service Revenue.......Salaries and Wages Payable.....Common Stock...........................Retained Earnings......................Service Revenue.........................Salaries and Wages Expense....Rent Expense..............................Supplies Expense.......................Depreciation Expense................

$ 1,8402,0102,420

13,600

1,600480

$21,950

$ 5004,7001,150

10,0003,0002,600

$21,950

$ 1,8402,0101,100

13,600

2,080480

1,320250

$22,680

$ 754,70

6548

10,003,003,10

$22,68

(e) 1.Nov. 30 Supplies Expense............................................ 1,320

Supplies ($2,420 $1,100)...................... 1,32

2.30 Salaries and Wages Expense......................... 480

Salaries and Wages Payable.................. 48

3.30 Depreciation Expense..................................... 250

Accum. Depr.Equipment..................... 25

4.30 Unearned Service Revenue............................ 500

Service Revenue...................................... 50



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g) TATE EQUIPMENT REPAIRIncome Statement

For the Month Ended November 30, 2012

RevenuesService revenue................................................ ($3,100)Expenses

Salaries and wages expense........................... $2,080Supplies expense............................................. 1,320Rent expense.................................................... 480Depreciation expense...................................... 250

Total expenses.......................................... 4,130)Net loss...................................................................... ($1,030)

TATE EQUIPMENT REPAIRRetained Earnings Statement

For the Month Ended November 30, 2012

Retained earnings, November 1............................. $3,000Less: Net loss.......................................................... 1,030Retained earnings, November 30........................... $1,970


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TATE EQUIPMENT REPAIRBalance Sheet

November 30, 2012

Assets

Current assetsCash...................................................................... $ 1,840Accounts receivable........................................... 2,010Supplies............................................................... 1,100

Total current assets.................................... $ 4,95Property, plant and equipment

Equipment............................................................ 13,600

Less: Accumulated depreciationequipment................................................ 750 12,85Total assets.................................................. $17,80

Liabilities and Stockholders EquityCurrent liabilities

Accounts payable................................................ $ 4,700Unearned service revenue................................. 650Salaries and wages payable............................... 480

Total current liabilities................................ $ 5,83

Stockholders equityCommon stock.................................................... 10,000Retained earnings............................................... 1,970

Total stockholders equity...................... 11,97Total liabilities and stockholders

equity......................................................... $17,80



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PROBLEM 4-8A

a)General Journal

Date Account Titles Debit CreditJuly 1 Cash.....................................................................

Common Stock............................................12,000

12,000

1 Equipment...........................................................Accounts Payable.......................................Cash.............................................................

8,0006,0002,000

3 Supplies...............................................................Accounts Payable.......................................

900900

5 Prepaid Insurance...............................................Cash.............................................................

1,8001,800

12 Accounts Receivable.........................................Service Revenue.........................................

3,7003,700

18 Accounts Payable...............................................Cash.............................................................

1,5001,500

20 Salaries and Wages Expense............................Cash.............................................................

2,0002,000

21 Cash.....................................................................Accounts Receivable..................................

1,6001,600

25 Accounts Receivable.........................................Service Revenue.........................................

2,5002,500

31 Maintenance and Repairs Expense..................Cash.............................................................

290290

31 Dividends.............................................................Cash.............................................................

600600


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(b), (e) & (h)

Cash7/1 12,0007/21 1,600

7/1 2,0007/5 1,800

7/18 1,5007/20 2,0007/31 2907/31 600

7/31 Bal. 5,410

Accounts Receivable7/12 3,700

7/25 2,5007/31 1,700

7/21 1,600

7/31 Bal. 6,300

Supplies7/3 900 7/31 5807/31 Bal. 320

Prepaid Insurance7/5 1,800 7/31 1507/31 Bal. 1,650

Equipment7/1 8,0007/31 Bal. 8,000


7/31 1807/31 Bal. 180

Accounts Payable7/18 1,500 7/1 6,0

7/3 9

7/31 Bal. 5,4


Common Stock

7/1 12,07/31 Bal. 12,0

Retained Earnings7/31 600 7/31 3,8

7/31 Bal. 3,2

Dividends

7/31 600 7/31 6

Income Summary7/31 3,6007/31 4,300

7/31 7,9

7/31 Bal. Service Revenue

7/31 7,900 7/12 3,77/25 2,57/31 1,77/31 Bal.



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Maintenance and RepairsExpense

7/31 290 7/31 2907/31 Bal. 0

Supplies Expense7/31 580 7/31 5807/31 Bal. 0

Depreciation Expense7/31 180 7/31 1807/31 Bal. 0

Insurance Expense7/31 150 7/31 1507/31 Bal. 0

Salaries and Wages Expense7/20 2,0007/31 400

7/31 2,400

7/31 Bal. 0



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c) & (f) PRO WINDOW WASHING INC.Trial BalanceJuly 31, 2012

BeforeAdjustment AfterAdjustment

Debit Credit Debit CreditCash.....................................................Accounts Receivable.........................Supplies...............................................Prepaid Insurance..............................Equipment...........................................Accumulated Depreciation

Equipment

.......................................Accounts Payable...............................Salaries and Wages Payable.............Common Stock...................................Dividends............................................Service Revenue.................................Salaries and Wages Expense............Maintenance and Repairs Expense. .Depreciation Expense........................nsurance Expense.............................

Supplies Expense...............................

$ 5,4104,600

9001,8008,000

6002,000

290

$23,600

$ 5,400

12,000

6,200

$23,600

$ 5,4106,300

3201,6508,000

6002,400

290180150580$25,880

$ 1805,400

40012,000

7,900

$25,880



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(d)General Journal

Date Account Titles Debit Cred1. July 31 Accounts Receivable.........................................

Service Revenue..........................................1,700

1,70

2. 31 Depreciation Expense.......................................Accumulated DepreciationEquipment....

18018

3. 31 Insurance Expense ($1,800 X 1/12)..................Prepaid Insurance........................................

15015

4. 31 Supplies Expense ($900 $320)......................Supplies........................................................

58058

5. 31 Salaries and Wages Expense...........................Salaries and Wages Payable......................

40040

(g) PRO WINDOW WASHING INC.Income Statement


RevenuesService revenue.................................................. $7,90

ExpensesSalaries and wages expense............................ $2,400Supplies expense............................................... 580Maintenance and repairs expense................... 290Depreciation expense........................................ 180Insurance expense............................................. 150

Total expenses........................................... 3,60

Net income.................................................................. $4,30



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g) PRO WINDOW WASHING INC.Retained Earnings Statement


Retained earnings, July 1........................................ $ 0Add: Net income.................................................... 4,300 4,300Less: Dividends...................................................... 600Retained earnings, July 31..................................... $3,700

PRO WINDOW WASHING INC.Balance Sheet

July 31, 2012

AssetsCurrent assets

Cash................................................................... $ 5,410Accounts receivable......................................... 6,300Supplies............................................................. 320Prepaid insurance............................................ 1,650

Total current assets.................................. $13,680Property, plant, and equipment

Equipment......................................................... 8,000Less: Accumulated depreciation................... 180 7,820

Total assets............................................... $21,500

Liabilities and Stockholders EquityCurrent liabilities

Accounts payable............................................. $ 5,400Salaries and wages payable............................ 400

Total current liabilities............................. $ 5,800

Stockholders equityCommon stock.................................................. 12,000Retained earnings............................................ 3,700

Total stockholders equity.................. 15,700Total liabilities and stockholders

equity ...................................................... $21,500



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(h)General Journal

Date Account Titles and Explanation Debit CredJuly 31 Service Revenue..............................................

Income Summary.....................................7,900

7,900

31 Income Summary.............................................Salaries and Wages Expense.................Supplies Expense....................................Depreciation Expense.............................Maintenance and Repairs Expense.......Depreciation Expense.............................Insurance Expense..................................

3,6002,400580290180150

31 Income Summary.............................................Retained Earnings................................... 4,300 4,300

31 Retained Earnings...........................................Dividends..................................................

600600

(i) PRO WINDOW WASHING INC.Post-Closing Trial Balance

July 31, 2012

Debit CrediCash.......................................................................Accounts Receivable...........................................Supplies................................................................Prepaid Insurance................................................Equipment.............................................................Accumulated DepreciationEquipment...........

Accounts Payable................................................Salaries and Wages Payable...............................Common Stock.....................................................Retained Earnings................................................

$ 5,4106,300

3201,6508,000

$21,680

$ 185,40

4012,00

3,70$21,68



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PROBLEM 4-1B

a)1. Cash......................................................................... 18,000

Accounts Receivable........................................ 18,000

2. Unearned Service Revenue................................... 11,000Service Revenue............................................... 11,000

3. Cash......................................................................... 40,000Unearned Service Revenue............................. 40,000

Unearned Service Revenue($40,000 $17,000)............................................... 23,000

Service Revenue............................................... 23,000

4. Accounts Receivable............................................. 138,000

Service Revenue($172,000 $11,000 $23,000)..................... 138,000

5. Cash......................................................................... 126,000Accounts Receivable ($138,000 $12,000).... 126,000

b) Cash received with respect to fees:1. Collection of accounts receivable................... $ 18,0003. Gift certificates.................................................. 40,0005. Partial collection of fees receivable................ 126,000

$184,000T-accounts (not required)

Accounts ReceivableBal. 18,0004. 138,0001. 18,000

5. 126,000Bal. 12,000

Service Revenue

2. 11,0003. 23,0004. 138,000Bal. 172,000

Unearned Service Revenue

2. 11,0003. 23,000

Bal. 11,0003. 40,000

Bal. 17,000

Cash

1. 18,0003. 40,0005. 126,000Bal. 184,000



61/116

PROBLEM 4-2B

(a)

Date Account Titles Debit Cred

1.

2012

May 31 Supplies Expense........................................Supplies................................................

750750

2. 31 Utilities Expense..........................................Accounts Payable................................

260260

3. 31 Insurance Expense......................................Prepaid Insurance

($3,600 24 months) .......................150

150

4. 31 Unearned Service Revenue........................Service Revenue ($4,000 $1,500).....

2,5002,500

5. 31 Salaries and Wages Expense.....................Salaries and Wages Payable

[(4/5 X $600) X 2 employees] ...........960

960

6. 31 Depreciation Expense.................................Accumulated Depreciation

Equipment ........................................200

200

7. 31 Accounts Receivable..................................Service Revenue..................................

1,9801,980

(b)

Cash5/31 Bal. 7,500

Accounts Receivable5/31 Bal. 3,0005/31 1,9805/31 Bal. 4,980

Prepaid Insurance5/31 Bal. 3,600 5/31 1

5/31 Bal. 3,450

Supplies5/31 Bal. 2,500 5/31 75/31 Bal. 1,750



62/116

PROBLEM 4-2B (Continued)



Equipment5/31 2005/31 Bal. 200

Accounts Payable5/31 Bal. 3,5005/31 2605/31 Bal. 3,760


Unearned Service Revenue5/31 2,500 5/31 Bal. 4,000

5/31 Bal. 1,500


Service Revenue5/31 Bal. 7,5005/31 2,5005/31 1,980

5/31 Bal. 11,980

Salaries and Wages Expense5/31 Bal. 4,0005/31 9605/31 Bal. 4,960

Rent Expense5/31 Bal. 1,500



Utilities Expense5/31 2605/31 Bal. 260

Supplies Expense5/31 7505/31 Bal. 750


63/116

PROBLEM 4-2B (Continued)

(c) QUINN CONSULTINGAdjusted Trial Balance

May 31, 2012

Debit CrediCash.......................................................................Accounts Receivable...........................................Prepaid Insurance................................................Supplies................................................................Equipment.............................................................Accumulated Depreciation

Equipment .........................................................Accounts Payable................................................

Salaries and Wages Payable...............................Unearned Service Revenue.................................Common Stock.....................................................Service Revenue..................................................Salaries and Wages Expense.............................Rent Expense.......................................................Depreciation Expense..........................................Insurance Expense..............................................Utilities Expense..................................................Supplies Expense................................................

$ 7,5004,9803,4501,750

12,000

4,9601,500

200150260750

$37,500

$ 203,76

961,5019,1011,98

$37,50

Copyright 2009 John Wiley & Sons, Inc. Kimmel, Financial Accounting,5/e, Solutions Manual ( For

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