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Chapter 3
Adjusting Accounts for Financial Statements
Learning Objectives – coverage by questionMini-
ExercisesExercises Problems
Cases and Projects
LO1 – Identify the major steps in the accounting cycle.
LO2 – Review the process of journalizing and posting transactions.
21 - 23, 25,
29, 30
33, 35,
36, 38
40 - 42, 46,
47, 52, 5455 - 58
LO3 – Describe the adjusting process and illustrate adjusting entries.
23, - 25,
29, 30
32 - 36,
38
40 - 43,
46 - 49,
52 - 54
55 - 58
LO4 – Prepare financial statements from adjusted accounts. 26 39
40 - 42,
44, 47, 49,
50, 53, 54
55, 58
LO5 – Describe the process of closing temporary accounts.
27, 28, 3031, 33,
37, 39
42, 44 - 46,
49 - 5455
LO6 – Analyzing changes in balance sheet accounts.
25, 2932, 34 - 36,
3853 56
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-1
DISCUSSION QUESTIONS
Q3-1. The five major steps in the accounting cycle are:
1. Analyze business activity using transaction analysis based on the related source documents.
2. Record results of the transaction analysis chronologically in the general journal and create a trial balance.
3. Adjust the recorded data to update all accounts for expense and revenue recognition not previously recognized.
4. Report the adjusted financial data in the form of financial statements.5. Close the books by posting the adjusting and closing entries, which “zero out”
the temporary accounts.
Q3-2. The fiscal year is the annual accounting period adopted by a firm. A firm using a fiscal year ending on December 31 is on a calendar-year basis.
Q3-3. Examples of source documents that underlie business transactions are invoices sent to customers, invoices received from suppliers, bank checks, bank deposit slips, cash receipt forms, and written contracts.
Q3-4. A general journal is a book of original entry that may be used for the initial recording of any type of transaction. It contains space for dates and for accounts to be debited and credited, columns for the amounts of the debits and credits, and a posting reference column for numbers of the accounts that are posted.
Q3--5. When entries are posted, the page number and identifying initials of the appropriate journal are placed next to the amounts in the appropriate accounts. The account number is entered beside the related amount posted in the journal's posting reference column. This procedure enables interested users to trace amounts in the ledger back to the originating journal entry and permits us to know which entries have been posted.
Q3-6. A compound journal entry is a journal entry containing more than one debit entry or one credit entry.
Q3-7. A chart of accounts is a list of the accounts appearing in the general ledger, with the account numbering system indicated. Normally the accounts are classified as asset, liability, owners' equity, revenue, and expense accounts, and often the numbering system identifies the account classification. For example, a coding system might assign the numbers 100–199 to assets, 200–299 to liabilities, and so on.
©Cambridge Business Publishers, 2014
3-2 Financial Accounting, 4th Edition
Q3-8. Many of the transactions reflected in the accounting records through the first two steps of the accounting cycle affect the net income of more than one period. Therefore, adjustments to the account balances are ordinarily necessary at the end of each accounting period to record the proper amount of revenue and to match expenses with revenue properly. This process is also intended to achieve a more accurate picture of financial position by adjusting balance sheet amounts to show unexpired costs, up-to-date amounts of obligations, and so on.
Q3-9. 1. Allocating assets to expense to reflect expenses incurred during the period. Example: Recording supplies used by debiting Supplies Expense and crediting Supplies.
2. Allocating payments received in advance by crediting the revenue account to reflect revenues earned during the period. Example: Recording service fees earned by debiting Unearned Service Fees and crediting Service Fees Earned.
3. Accruing expenses to reflect expenses incurred during the period that are not yet paid or recorded. Example: Recording unpaid wages by debiting Wages Expense and crediting Wages Payable.
4. Accruing revenues to reflect revenues earned during the period that are not yet received or recorded. Example: Recording commissions earned by debiting Commissions Receivable and crediting Commissions Earned.
Q3-10. Jan. 31 Insurance expense (+E, -SE) 78Prepaid 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.
Q3-12. The building is five years old by the end of 2014, so the accumulated depreciation of $800,000 represents five years of depreciation at an annual rate of $160,000 ($800,000/5). If the annual depreciation is $160,000, then the expected life of the building must be 25 years.
At the end of 2021, the building will be twelve years old, and the accumulated depreciation will be 12×$160,000, or $1,920,000. The book value of the building (defined as original cost less accumulated depreciation) will be $2,080,000.
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-3
Q3-13. (a) Jan. 1 Cash (+A) 9,720Subscriptions received in advance (+L) 9,720
To record receipt of two-year subscriptions.
(b) Jan. 31 Subscriptions received in advance (-L) 405Subscriptions revenue (+R,+SE) 405
To record subscription revenue earned during January ($9,720/24 = $405).
Q3-14. Jan. 31 Wages expense (+E, -SE) 190Wages payable (+L) 190
To record unpaid wages for Jan. 30–31[($475/5) 2 = $190].
Q3-15. Jan. 31 Interest receivable (+A) 360Interest income (+R,+SE) 360
To record interest earned during January.
Q3-16. The temporary 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, 2014
3-4 Financial Accounting, 4th Edition
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, 2014
Solutions Manual, Chapter 3 3-5
MINI EXERCISES
M3-21. (45 mintes)
a.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
IncomeJune 1. Invested
$12,000 cash.+12,000
Cash =+12,000Common
Stock- =
June 2. Paid $950 cash for June rent.
-950Cash =
-950Retained Earnings
-+950
Rent Expense =-950
June 3. Purchased $6,400 of office equipment on account.
+6,400Office
Equipment =
+6,400Accounts Payable - =
June 6. Purchased $3,800 of supplies; $1,800 cash, $2,000 on account.
-1,800Cash
+3,800Supplies
=
+2,000Accounts Payable - =
June 11. $4,700 billed for services.
+4,700Accounts
Receivable=
+4,700Retained Earnings
+4,700Service Fees
Earned- =
+4,700
June 17. Collected $3,250 on accounts.
+3,250Cash
-3,250Accounts
Receivable= - =
June 19. Paid $3,000 on office equipment account.
-3,000Cash =
-3,000Accounts Payable
- =
June 25. Paid cash dividend of $900.
-900Cash =
-900Retained Earnings
- =
June 30. Paid $350 utilities.
-350Cash =
-350Retained Earnings
-+350Utilities
Expense=
-350
June 30. Paid $2,500 salaries.
-2,500Cash =
-2,500Retained Earnings
-+2,500Salaries Expense
=-2,500
TOTALS 5,750 + 11,650 = 5,400 + 12,000 + 0 4,700 - 3,800 = 900
continued next page
©Cambridge Business Publishers, 2014
3-6 Financial Accounting, 4th Edition
M3-21. continued
b. June 1 Cash (+A) 12,000Common stock (+SE) 12,000Owner invested cash for stock.
2 Rent expense (+E, -SE) 950Cash (-A) 950Paid June rent.
3 Office equipment (+A) 6,400Accounts payable (+L) 6,400Purchased office equipment on account.
6 Supplies (+A) 3,800Cash (-A) 1,800Accounts payable (+L) 2,000Purchased $3,800 of supplies; paid $1,800 down with balance due in 30 days.
11 Accounts receivable (+A) 4,700Service fees earned (+R,+SE) 4,700
Billed clients for services.
17 Cash (+A) 3,250Accounts receivable (-A) 3,250
Collections from clients on account.
19 Accounts payable (-L) 3,000Cash (-A) 3,000
Payment on account.
25 Retained earnings (-SE) 900Cash (-A) 900
Issued dividends.
30 Utilities expense (+E, -SE) 350Cash (-A) 350
Paid utilities bill for June.
30 Salaries expense (+E, -SE) 2,500Cash (-A) 2,500
Paid salaries for June.
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-7
M3-21. concluded
c.
+ Cash (A) - + Supplies (A) -June 1 12,000 950 June 2 June 6 3,800 17 3,250 1,800 6
3,000 19900 25350 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, 2014
3-8 Financial Accounting, 4th Edition
M3-22. (45 minutes)
a.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
IncomeApril 1. Invested
$9,000 in cash.+9,000
Cash =+9,000Common
Stock- =
April 2. Paid $2,850 cash for lease.
-2,850Cash
+2,850Prepaid Van
Lease= - =
April 3. Borrowed $10,000.
+10,000Cash =
+10,000Note
Payable- =
April 3. Purchased $5,500 equipment for $2,500 cash with rest on account.
-2,500Cash
+5,500Equipment
=
+3,000Accounts Payable - =
April 4. Paid $4,300 cash for supplies.
-4,300Cash
+4,300Supplies = - =
April 7. Paid $350 cash for ad.
-350Cash =
-350Retained Earnings
-+350Ad.
Expense=
-350
April 21. Billed $3,500 for services
+3,500Accounts
Receivable=
+3,500Retained Earnings
+3,500Cleaning Fees
Earned- =
+3,500
April 23. Paid $3,000 cash on account.
-3,000Cash =
-3,000Accounts Payable
- =
April 28. Collected $2,300 on account.
+2,300Cash
-2,300Accounts
Receivable= - =
April 29. Paid $1,000 cash dividend.
-1,000Cash =
-1,000Retained Earnings
- =
April 30. Paid $1,750 cash for wages.
-1,750Cash =
-1,750Retained Earnings
-+1,750Wages
Expense=
-1,750
April 30. Paid $995 cash for gas.
-995Cash =
-995Retained Earnings
-+995
Van Fuel Expense
=-995
TOTALS 4,555 + 13,850 = 10,000 + 9,000 + -595 3,500 - 3,095 = 405
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-9
M3-22 continued
b. April 1 Cash (+A) 9,000Common stock (+SE) 9,000
Owner invested cash for stock.
2 Prepaid van lease (+A) 2,850Cash (-A) 2,850
Paid six months' lease on van.
3 Cash (+A) 10,000Notes payable (+L) 10,000
Borrowed money from bank for one year at 10% interest.
3 Equipment (+A) 5,500Cash (-A) 2,500Accounts payable (+L) 3,000
Purchased $5,500 of equipment; paid $2,500 down with balance due in 30 days.
4 Supplies (+A) 4,300Cash (-A) 4,300
Purchased supplies for cash.
7 Advertising expense (+E, -SE) 350Cash (-A) 350
Paid for April advertising.
21 Accounts receivable (+A) 3,500Cleaning fees earned (+R, +SE) 3,500
Billed customers for services.
23 Accounts payable (-L) 3,000Cash (-A) 3,000
Payment on account.
28 Cash (+A) 2,300Accounts receivable (-A) 2,300Collections from customers on account.
29 Retained earnings (-SE) 1,000Cash (-A) 1,000
Issued cash dividends.
30 Wages expense (+E, -SE) 1,750Cash (-A) 1,750
Paid wages for April.
30 Van fuel expense (+E, -SE) 995Cash (-A) 995
Paid for gasoline used in April.continued next page
©Cambridge Business Publishers, 2014
3-10 Financial Accounting, 4th Edition
M3-22 concluded
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 2,8501,000 291,750 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, 2014
Solutions Manual, Chapter 3 3-11
M3-23. (20 minutes)
a.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income1. Received $20,100 in
advance for contract work.
+20,100Cash =
+20,100Unearned
Service Fees
- =
Jan. 1 Cash (+A) 20,100Unearned service fees (+L) 20,100
To record fee received in advance.
b.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income2. Adjusting entry for
work completed by Jan. 31.
=-3,350
Unearned Service
Fees
+3,350Retained Earnings
+3,350Service
Fees- =
+3,350
Jan. 31 Unearned service fees (-L) 3,350 Service fees (+R, +SE) 3,350
To reflect January service fees earned oncontract ($20,100/6 = $3,350).
c.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income3. Adjusting entry for
fees earned but not billed.
+570Fees
Receivable=
+570Retained Earnings
+570Service
Fees- =
+570
Jan. 31 Fees receivable (+A) 570 Service fees (+R, +SE) 570
To record unbilled service fees earnedat January 31.
©Cambridge Business Publishers, 2014
3-12 Financial Accounting, 4th Edition
M3-24. (15 minutes)
1.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income1. Adjusting entry for
prepaid insurance.-185
Prepaid Insurance
=-185
Retained Earnings
-+185
InsuranceExpense
=-185
Jan. 31 Insurance expense (+E, -SE) 185Prepaid insurance (-A) 185
To record January insurance expense($6,660/36 = $185).
2.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income2. Adjusting entry for
supplies used.-1,080Supplies =
-1,080Retained Earnings
-+1,080Supplies Expense
=-1,080
Jan. 31 Supplies expense (+E, -SE) 1,080Supplies (-A) 1,080
To record January supplies expense($1,930 $850 = $1,080).
3.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income3. Adjusting entry
for depreciation of equipment.
-+62
AccumulatedDepreciation
-62Retained Earnings
- +62Depreciation
Expense
= -62
Jan. 31 Depreciation expense—Equipment (+E, -SE) 62Accumulated depreciation—Equipment (+XA, -A) 62
To record January depreciation on officeequipment ($5,952/96 = $62).
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-13
M3-24. concluded
4.Balance Sheet Income Statement
Transaction Cash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income4. Adjusting entry for
rent. =-875
Unearned Rent
Revenue
+875Retained Earnings
+875Rent Revenue - =
+875
Jan. 31 Unearned rent revenue (-L) 875 Rent revenue (+R, +SE) 875
To record portion of advance rent earnedin January.
5.Balance Sheet Income Statement
Transaction Cash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income5. Adjusting entry for
accrued salaries. =+490
Salaries Payable
-490Retained Earnings
-+490
Salaries Expense
=-490
Jan. 31 Salaries expense (+E, -SE) 490Salaries payable (+L) 490
To record accrued salaries at January 31.
©Cambridge Business Publishers, 2014
3-14 Financial Accounting, 4th Edition
M3-25. (15 minutes)
(All amounts in $ millions.)a.
Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = Net Income
Inventory purchases (total).
+3,734 Inventory
=
+3,734 Accounts Payable - =
Inventories (+A)……………………….. 3,734 Accounts payable (+L)…………….. 3,734
To record total purchases made at various dates.
b. Beginning AP balance + Purchases – Payments = Ending AP balance. So $447 + $3,734 - Payments = $510. Thus Payments = $3,671
c.Balance Sheet Income Statement
TransactionCash Asset + Noncash Assets = Liabilities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net Income
Adjusting entry for cost of goods sold for 2011.
-3,617Inventory
= -3,617Retained Earnings
- +3,617Cost of Goods
Sold
= -3,17
* Beginning Inv balance + Purchases – Cost of goods sold = Ending Inv balance. So $897 + $3,734 – COGS = $1.014. Thus COGS = $3,617
Cost of goods sold (+E, -SE)…………………... 3,617Inventories (-A)………………………………… 3,617
To record cost of goods sold for the year ended 1/31/2012.(Note: the COGS figure can be verified from the firm’s financial statements.
Purchases can not be so determined, but could be established by working backwards. See M3-29.)
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-15
M3-26. (15 minutes)
ARCHITECT SERVICES COMPANYStatement of Stockholders’ Equity
For Year Ended December 31, 2014
Common Stock
Retained Earnings
Total Stockholders’
EquityBalance at December 31, 2013 $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, 2014 $36,000 $38,200 $74,200
M3-27. (5 minutes)
Ending balance = Beginning balance + Credit from closing revenue – Debit from closing expenses: $137,600 = $99,000 + $347,400 - $308,800
M3-28. (15 minutes)
a. Date 2013 Description Debit Credit
Dec. 31 Commissions revenue (-R) 84,900Retained earnings (+SE) 84,900
To close the revenue account.31 Retained earnings (-SE) 55,900
Wages expense (-E) 36,000Insurance expense (-E) 1,900Utilities expense (-E) 8,200Depreciation expense (-E) 9,800
To close the expense accounts.
Closing the revenue and expense accounts into retained earnings has the effect of increasing the retained earnings balance by an amount equal to net income (revenue minus expenses). The balance of Smith’s Retained Earnings after closing entries are posted is:
$101,100 credit ($72,100 + $84,900 - $55,900).
continued next page
©Cambridge Business Publishers, 2014
3-16 Financial Accounting, 4th Edition
M3-28 concluded
b.+ Wages Expense (E) - + Utilities Expense (E) -
Bal. 36,000 36,000 (2)Dec. 31 Bal. 8,200 8,200 (2) Dec. 31Bal. 0 Bal. 0
+ Insurance Expense (E) - - Commissions Revenue (R) +Bal. 1,900 1,900 (2)Dec. 31 (1)Dec. 31 84,900 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
M3-29. (30 minutes)
(All amounts in $ millions.)
a.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = Net Income
Recognize cost ofgoods sold
-5,206 Merchandise
Inventory=
-5,206RetainedEarnings
-
+5,206Cost ofgoods sold
=
-5,206
Cost of goods sold (+E,-SE) 5,206
Merchandise Inventory(-A) 5206To recognize the cost of goods sold.
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-17
M3-29. concluded
b. Beginning Inv balance + Purchases – Cost of goods sold = Ending Inv balance. So $1,370 + Purchases - $5,206 = $1,375. Thus purchases = $5,211
Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
IncomeRecognize cost ofgoods sold.
+5,211Merchandise
inventory=
+5,211AccountPayable
- =-
Merchandise Inventory(+A) 5,211
Accounts Payable (+L) 5,211To recognize the purchases on account.
c. Beginning AP balance + Purchases – Payments = Ending AP balance. So $869 + $5,211 - Payments = $949. Thus Payments = $5,131
M3-30 (10 minutes)a.
Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Incomea. Dec. 31 Interest
earned.+600 Interest
Receivable=
+600 Retained Earnings
+600Interest Income
- =+600
Dec. 31 Interest receivable (+A) 600Interest income (+R, +SE) 600
To record accrued interest income.
b. Dec. 31 Interest income (-R) 2,400Retained earnings (+SE) 2,400
To close the Interest Income account.
c.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Incomec. 1/31 Receipt of
$900 interest.+900Cash
-600 Interest
Receivable=
+ 300Retained Earnings
+300Interest Income
- =+300
2014Jan. 31 Cash (+A) 900
Interest income (+R, +SE) 300Interest receivable (-A)
600
©Cambridge Business Publishers, 2014
3-18 Financial Accounting, 4th Edition
To record cash receipt of interest.
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-19
EXERCISES
E3-31. (30 minutes)
a.
Dec. 31 Service fees earned (-R,-SE) 80,300Retained earnings (+SE) 80,300
To close the revenue account.
31 Retained earnings (-SE) 82,300Rent expense (-E) 20,800Salaries expense (-E) 45,700Supplies expense (-E) 5,600Depreciation expense (-E) 10,200
To close the expense accounts.
b.+ Rent Expense (E) - + Supplies Expense (E) -
Bal. 20,800 20,800 (2) Bal. 5,600 5,600 (2)Bal. 0 Bal. 0
+ Depreciation Expense (E) -Bal. 10,200 10,200 (2)Bal. 0
+ Salaries Expense (E) - - Service Fees Earned (R) +Bal. 45,700 45,700 (2) (1) 80,300 80,300 Bal.Bal. 0 0 Bal.
- Retained Earnings (SE) +
(2) 82,300 67,000 Bal.80,300 (1)
65,000 Bal.
Brooks Consulting earned a loss during the period (expenses exceeded revenues by $2,000), so the ending retained earnings is lower than the beginning retained earnings (even though no dividends were paid).
©Cambridge Business Publishers, 2014
3-20 Financial Accounting, 4th Edition
E3-32. (30 minutes)a.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income1. Adjusting entry for
depreciation: equipment.
-+610
Accumulated Depreciation
= -610Retained Earnings
- +610 Depreciation
Expense
= -610
2. Adjusting entry for supplies expense.
-1,890Supplies -
= -1,890 Retained Earnings
- +1,890 Supplies Expense
= -1,890
3. Adjusting entry for utilities expense. -
= +390Utilities Payable
-390Retained Earnings
- +390Utilities
Expense
= -390
4. Adjusting entry for rent expense.
-700Prepaid
Rent-
= -700 Retained Earnings
- +700Rent
Expense
= -700
5. Adjusting entry for premium revenues.
-
= -468 Unearned Premium Revenue
+468Retained Earnings
+468Premium Revenue
- = +468
6. Adjusting entry for wage expense. -
= +965Wages Payable
-965Retained Earnings
- +965Wage
Expense
= -965
7. Adjusting entry for interest earned.
+300Interest
Receivable-
= +300Retained Earnings
+300InterestIncome
- = +300
TOTALS 0 + -2,290 - 610 = 887 + 0 + -3,787 768 - 4,555 = -3,787
b. 1. Depreciation expense—Equipment (+E,-SE) 610Accumulated depreciation—Equip (+XA) 610
To record depreciation for the period.
2. Supplies expense (+E,-SE) 1,890Supplies (-A) 1,890
To record supplies expense for the period ($2,990 $1,100 = $1,890).
3. Utilities expense (+E, - SE) 390Utilities payable (+L) 390
To record accrued utilities expense.
4. Rent expense (+E,-SE) 700Prepaid rent (-A) 700
To record rent expense for the month ($2,800/4 = $700).
5. Unearned premium revenue (-L) 468Premium revenue (+R,+SE) 468
To record premium revenue earned [($624/12) 9 = $468].
6. Wages expense (+E,-SE) 965Wages payable (+L) 965
To record accrued wages at the end of the period.
7. Interest receivable (+A) 300Interest income (+R,+SE) 300
To accrue interest earned but not yet received.
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-21
E3-33. (15 minutes)
a.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = NetIncome
a. Adjusting entry for salaries expense. =
+4,700 Salaries Payable
-4,700 Retained Earnings
-+4,700 Salaries Expense
=-4,700
2013Dec. 31 Salaries expense (+E,-SE) 4,700
Salaries payable (+L) 4,700To record accrued salaries payable.
b. 31 Retained earnings (-RE) 250,000Salaries expense (-E) 250,000
To close the Salaries Expense account.
c.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = NetIncome
c. Paid salaries. -12,000Cash =
-4,700 Salaries Payable
-7,300 Retained Earnings
-+7,300 Salary Expense
=-7,300
2014Jan. 7 Salaries payable (-L) 4,700
Salaries expense (+E,-SE) 7,300Cash (-A) 12,000
To record payment of salaries.
E3-34. (20 minutes)
a. Balance, January 1 = $960 + $800 $620 = $1,140.
b. Amount of premium = $82 12 = $984.Therefore, five months' premium ($984 $574 = $410) has expired by January 31. The policy term began on and has been in effect since September 1, 2013.
c. Wages paid in January = $3,200 $500 = $2,700.
d. Monthly depreciation expense = $8,700/60 months = $145.Fields has owned the truck for 18 months ($2,610/$145 = 18).
©Cambridge Business Publishers, 2014
3-22 Financial Accounting, 4th Edition
E3-35. (30 minutes)
a.
Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income1. 7/31 Adjusting entry for
rent expense.-475
PrepaidRent
=-475
Retained Earnings
-+475Rent
Expense=
-475
2. 7/31 Adjusting entry for ad. expense.
-210Prepaid
Advertising=
- 210Retained 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.
+800Fees
Receivable
+800Retained Earnings
+800Refinish. Revenue
- =+800
5. 7/31 Adjusting entry for fees revenue.
-300 Unearned Refinish.
Fees
+300Retained Earnings
+300Refinish. Revenue
- =
+300
TOTALS 0 + -1,785 = -300 + 0 + -1,485 1,100 - 2,585 = -1,485
b. July 31 Rent expense (+E,-SE) 475Prepaid rent (-A) 475
To record July rent expense ($5,700/12 = $475).
31 Advertising expense (+E,-SE) 210Prepaid advertising (-A) 210To record July advertising expense ($630/3 = $210).
31 Supplies expense (+E,-SE) 1,900Supplies (-A) 1,900
To record supplies expense for July ($3,000 $1,100 = $1,900).
31 Fees receivable (+A) 800Refinishing fees revenue (+R,+SE) 800
To record unbilled revenue earned during July.
31 Unearned refinishing fees (-L) 300Refinishing fees revenue (+R,+SE) 300
To record portion of advance fees earned in July ($600/2 = $300).
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-23
E3-35. concluded
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, 2014
3-24 Financial Accounting, 4th Edition
E3-36. (30 minutes)
(All amounts in $ thousands.)a.
Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income
Recognizeinventorypurchases.
+482,303Inventory
= +482,303 AccountPayable
- =
Inventory (+A) 482,303*
Accounts payable (+L) 482,303To recognize inventory purchases.
*Beginning Inv balance + Purchases – Cost of goods sold = Ending Inv. So $43,526 + Purchases - $456,664= $69,165. Thus purchases = $482,303
b. Beginning compensation payable + Compensation expense – Compensation paid =
Ending compensation payable, so $10,529 + $40,000 – Payments = $10,841
Payments = $39,688
c. Accrued compensation is reported as a current liability.
E3-37. (30 minutes)
a. Dec. 31 Service fees earned (-R) 92,500Interest income (-R) 2,200
Retained earnings (+SE) 94,700To close the revenue accounts.
31 Retained earnings (-SE) 64,700Salaries expense (-E) 41,800Advertising expense (-E) 4,300Depreciation expense (-E) 8,700Income tax expense (-E) 9,900
To close the expense accounts.
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-25
E3-37. concluded
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.
+ 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
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = NetIncome
(1) Collect deposits from customers.
+200,000Cash =
+200,000Customer Deposits
- =
(2) Recognize income on completed customer orders.
+489,004Cash =
-189,956 Customer Deposits
+678,960Retained Earnings
+678,960Sales
Revenue- =
+678,960
(1) Cash (+A) ……………………………………………… 200,000
Customer deposits* (+L) ……………………… 200,000To record unearned customer deposits.
(2) Customer deposits* (-L) 189,956 **
Cash (+A)………………………………………………… 489,004
Sales revenue (+R, +SE) 678,960To record sales revenue and recognized deposits earned.
* Also sometimes called Unearned Customer Deposits** $52,605 + $200,000 – Deposits earned = $62,649; Deposits earned = $189,956.
continued next page
©Cambridge Business Publishers, 2014
3-26 Financial Accounting, 4th Edition
E3-38. concluded
b.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income
Record inventory purchases.
-337,152 Inventory
=+337,152
Acc.Payable
- =
Inventory (+A) 337,152
Accounts Payable (+L) 337,152To recognize inventory purchases. BI +Purchases – EI = COGS. So $134,040 + Purchases - $329 500 = $141,692.Thus: Purchases =$337,152
c. Customer Deposits are reported as a current liability.
E3-39. (40 minutes)
a.SOLOMON CORPORATION
Income StatementFor Year Ended December 31, 2013
Service fees earned $71,000
Rent expense (18,000)
Salaries expense (37,100)
Depreciation expense……………………………….…………….. (7,000 )
Net income $8,900
SOLOMON CORPORATIONStatement of Stockholders’ Equity
For Year Ended December 31, 2013
CommonStock
RetainedEarnings
Total Stockholders’ Equity
Balance at December 31, 2012 $43,000 $20,600* $63,600
Stock issuance
Dividends (8,000) (8,000)
Net income _______ 8,900 8,900
Balance at December 31, 2013 $43,000 $21,500 $64,500
*12,600 + 8,000 The dividend was paid and debited to retained earnings prior to the end of the period.
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-27
E3-39. continued
SOLOMON CORPORATIONBalance Sheet
December 31, 2013Assets Liabilities
Cash $ 4,000 Notes payable $ 10,000 Accounts receivable 6,500 Total Liabilities 10,000
Equipment $ 78,000Less:Accumulated depreciation
14,000
64,000 Owners’ Equity
Common stock 43,000Retained earnings 21,500
Total Assets $74,500 Total Liabilities and Owners’ Equity $74,500
b.
1. Service fees earned (-R) 71,000Retained earnings (+SE) 71,000
2. Retained earnings (-SE) 18,000Rent expense (-E) 18,000
3. Retained earnings (-SE) 37,100Salaries expense (-E) 37,100
4. Retained earnings (-SE) 7,000Depreciation expense (-E) 7,000
The cash dividend has already been paid and is already reflected in the adjusted trial balance.
continued next page
©Cambridge Business Publishers, 2014
3-28 Financial Accounting, 4th Edition
E3-39. concluded
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
71,000Bal. (1)
21,500 Bal.
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-29
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. 4,600675 29100 30 + Supplies (A) -
2,500 30 Apr. 5 1,200Bal. 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 6,100Adj bal. 2,760 Bal. 6,100
+ Equipment (A) - - Accounts Payable (L) +Apr. 2 3,100 2,100 Apr. 2Bal. 3,100 1,200 5
3,300 Bal.
- Roofing Fees Earned (R) + - Unearned Roofing Fees (L) +5,500 Apr. 12 1,800 Apr. 54,000 30 Apr. 30 (d) 450 1,800 Unadj. bal9,500 Unadj. bal. 1,350 Adj. Bal
450 (d) 309,950 Adj. Bal.
+ Supplies Expense (E) - - Common Stock (SE) +Apr. 30 (d) 800 11,500 Apr. 1Adj. Bal. 800 11,500 Bal.
+ Advertising Expense (E) - + Fuel Expense (E) -Apr. 30 100 Apr. 29 675Bal. 100 Bal. 675
continued next page
©Cambridge Business Publishers, 2014
3-30 Financial Accounting, 4th Edition
P3-40. continued
a. continued
+ Insurance Expense (E) - + Wages Expense (E) -Apr. 30 (d) 120 Apr. 30 2,500Adj. Bal. 120 Bal. 2,500
+ Depreciation Expense – Equip. (E) - - Accumulated Deprec. – Equip. (XA) +Apr. 30 (d) 35 35 (d) Apr. 30Adj. Bal. 35 35 Adj. Bal.
+ Depreciation Expense - Trucks (E) - - Accumulated Deprec. – Trucks (XA) +Apr. 30 (d) 125 125 (d) Apr. 30Adj. Bal. 125 125 Adj. Bal
b.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = NetIncome
Apr. 1. Cash received for stock.
+11,500Cash =
+11,500 Common
Stock- =
Apr. 1. Purchase liability insurance.
-2,880Cash
+2,880 Prepaid
Insurance= - =
Apr. 2. Purchase truck for cash.
-6,100Cash
+ 6,100 Truck
= - =
Apr. 2. Purchase equipment.
-1,000Cash
+3,100 Equipment =
+2,100AccountsPayable
- =
Apr. 5. Purchase supplies on account.
+ 1,200 Supplies =
+1,200AccountsPayable
- =
Apr. 5. Cash in advance for roofing repairs.
+1,800Cash
=
+1,800 Unearned Roofing
Fees
- =
Apr. 12. Bill customers for services.
+5,500Accounts
Receivable=
+5,500 Retained Earnings
+5,500 Roofing Fees
Revenue- =
+5,500
Apr. 18. Collected cash on account.
+4,900Cash
-4,900Accounts
Receivable= - =
Apr. 29. Paid cash for fuel.
-675Cash =
-675Retained Earnings
-+675
Fuel Expense =-675
Apr. 30. Paid cash for ads.
-100Cash =
-100Retained Earnings
-+100
Ad. Expense =-100
Apr. 30. paid cash wages.
-2,500Cash =
-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
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-31
P3-40. continued
b. continued
Date 2014 Description Debit CreditApr. 1 Cash (+A) 11,500
Common stock (+SE) 11,500Owner invested cash.
1 Prepaid insurance (+A) 2,880Cash (-A) 2,880
Paid two-year premium on liability insurance policy.
2 Trucks (+A) 6,100Cash (-A) 6,100
Purchased used truck for $6,100 cash.
2 Equipment (+A) 3,100Cash (-A) 1,000Accounts payable (+L) 2,100
Purchased ladders and other equipment, $1,000 down with$2,100 balance due in 30 days.
5 Supplies (+A) 1,200Accounts payable (+L) 1,200
Purchased supplies on account.
5 Cash (+A) 1,800Unearned roofing fees (+L) 1,800
Received advance payment for services.
12 Accounts receivable (+A) 5,500Roofing fees earned (+R,+SE) 5,500
Billed customers for services.
18 Cash (+A) 4,900Accounts receivable (-A) 4,900
Collection on account from customers.
29 Fuel expense (+E,-SE) 675Cash (-A) 675
Paid truck fuel bill for April.
30 Advertising expense (+E,-SE) 100Cash (-A) 100
Paid for April newspaper advertising.
30 Wages expense (+E, -SE) 2,500Cash (-A) 2,500
Paid wages.
30 Accounts receivable (+A) 4,000Roofing fees earned (+R, +SE) 4,000
Billed customeers for services.continued next page
©Cambridge Business Publishers, 2014
3-32 Financial Accounting, 4th Edition
P3-40. continued
c. LOUGEE ROOFING SERVICE
Unadjusted Trial BalanceApril 30, 2014
Debit CreditCash $ 4,945Accounts Receivable 4,600Supplies 1,200Prepaid Insurance 2,880Trucks 6,100Equipment 3,100Accounts Payable $ 3,300Unearned Roofing Fees 1,800Common Stock 11,500Roofing Fees Earned 9,500Fuel Expense 675Advertising Expense 100Wages Expense 2,500
$26,100 $26,100
d.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = Net Income
1. Recognize one month of insurance expense.
-120Prepaid
Insurance
- = -120Retained Earnings
- +120Insurance Expense
= -120
2. Recognize supplies expense.
-800Supplies
- = -800 Retained Earnings
- +800Supplies Expense
= -800
3. Recognize depreciation expense – Trucks.
- +125Accumulated Depreciation
= -125Retained Earnings
- +125 Depreciation
Expense
= -125
4. Recognize depreciation expense on equipment.
- +35 Accumulated Depreciation
= -35Retained Earnings
- +35 Depreciation
Expense
= -35
5. Recognize roofing fees earned.
- = -450 Unearned Roofing
Fees
+450Retained Earnings
+450Roofing
FeesEarned
- = +450
Totals 0 + -920 - 160 = -450 + 0 + -630 450 - 1,080 = -630
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-33
P3-40. concluded
d. continuedDate 2014 Description Debit Credit
April 30 Insurance expense (+E,-SE) 120Prepaid insurance (-A) 120
To record April insurance expense ($2,880/24 months = $120).
30 Supplies expense (+E,-SE) 800 Supplies (-A) 800To record April supplies expense ($1,200 $400 = $800).
30 Depreciation expense—Trucks (+E,-SE) 125 Accumulated depreciation—Trucks (+XA,-A) 125To record April depreciation on trucks.
30 Depreciation expense—Equipment (+E,-SE) 35Accumulated depreciation—Equipment (+XA,-A) 35
To record April depreciation on equipment.
30 Unearned roofing fees (-L) 450Roofing fees earned (+R,+SE) 450
To record portion of advance payment earned in April ($1,800/4 = $450).
©Cambridge Business Publishers, 2014
3-34 Financial Accounting, 4th Edition
P3-41. (40 minutes)
SNAPSHOT COMPANYUnadjusted Trial Balance
December 31, 2013
a.Debit Credit
Cash $2,150Accounts Receivable 3,800Prepaid Rent 12,600Prepaid Insurance 2,970Supplies 4,250Equipment 22,800Accounts Payable $1,910Unearned Photography Fees 2,600Common Stock 24,000Photography Fees Earned 34,480Wages Expense 11,000Utilities Expense 3,420 ______
$62,990 $62,990
b.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = Net Income
1. Fees earned but not received.
+925Fees
Receivable- =
+925Retained Earnings
+925Photography Fees Earned
- =+925
2. Recognize depreciation expense for one year.
-
+2,280Accumulated Depreciation
=
-2,280 Retained Earnings
-
+2,280 Depreciation
Expense=
-2,280
3. Recognize utilities expense.
- =+400
Utilities Payable
-400Retained Earnings
-+400
Utilities Expense
=-400
4. Recognize rent expense for year.
-6,300 Prepaid
Rent- =
-6,300 Retained Earnings
-+6,300Rent
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- =
-990Retained 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
-375Retained Earnings
-+375
Wages Expense
=-375
Totals 0 + -9,095 - 2,280 = -1,825 + 0 + -9,550 3,525 - 13,075 = -9,550
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-35
P3-41. continued
b. continued
Date 2013 Description Debit CreditDec. 31 Fees receivable (+A) 925
Photography fees earned (+R, +SE) ` 925To record revenue earned but not billed.
31 Depreciation expense (+E,-SE) 2,280Accum. depreciation—Equipment (+XA, -A) 2,280
To record depreciation for the year ($22,800/10 years = $2,280).
31 Utilities expense (+E, -SE) 400Utilities payable (+L) 400
To record estimated December utilities expense.
31 Rent expense (+E, -SE) 6,300Prepaid rent (-A) 6,300
To record rent expense for the year ($12,600/2 years = $6,300).
31 Unearned photography fees (-L) 2,600Photography fees earned (+R, +SE) 2,600
To record advance payments earned during the year.
31 Insurance expense (+E, -SE) 990Prepaid insurance (-A) 990
To record insurance expense for the year ($2,970/3 years = $990).
31 Supplies expense (+E,-SE) 2,730Supplies (-A) 2,730
To record supplies expense for the year($4,250 $1,520 = $2,730).
31 Wages expense (+E, -SE) 375Wages payable(+L) 375
To record unpaid wages at December 31.
continued next page
©Cambridge Business Publishers, 2014
3-36 Financial Accounting, 4th Edition
P3-41. concluded
c.
+ Cash (A) - - Accounts Payable (L) +Unadj. bal. 2,150 1,910 Unadj. bal.
Adj. bal. 2,150 1,910 Adj. bal.
+ Accounts Receivable (A) - - Unearned Photo Fees (L) +Unadj. bal. 3,800 Dec.31 (5) 2,600 2,600 Unadj. bal.
Adj. bal. 3,800 0 Adj. bal.
+ Fees Receivable (A) - - Utilities Payable (L) +Dec. 31 (1) 925 400 (3) Dec.31
Adj. bal. 925 400 Adj. bal.
+ Prepaid Rent (A) - - Wages Payable (L) +Unadj. bal. 12,600 6,300 (4) Dec.31 375 (8) Dec.31
Adj. bal. 6,300 375 Adj. bal.
+ Prepaid Insurance (A) - - Common Stock (SE) +Unadj. bal. 2,970 990 (6) Dec.31 24,000 Unadj. bal.
Adj. bal. 1,980 24,000 Adj. bal.
+ Supplies (A) - - Photo Fees Earned (R) +Unadj. bal. 4,250 2,730 (7) Dec.31 34,480 Unadj. bal
Adj. bal. 1,520 925 (1) Dec.31
2,600 (5) Dec.31
38,005 Adj. bal.
+ Equipment (A) - + Wages Expense (E) -Unadj. bal. 22,800 Unadj. bal. 11,000Adj. bal. 22,800 Dec.31 (8) 375
Adj. Bal. 11,375- Accum. Depreciation – Equip. (XA) + + Utilities Expense (E) -
2,280 (2) Dec.31 Unadj. bal. 3,4202,280 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) 2,280Adj. bal. 2,730 Adj. Bal. 2,280
+ Insurance Expense (E) - + Rent Expense (E) -Dec. 31 (6) 990 Dec.31 (4) 6,300Adj. bal. 990 Adj. Bal. 6,300
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-37
P3-42. (90 minutes)
a.Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income1. Recognize
rent expense.
-775Prepaid
Rent-
= -775Retained Earnings
- +775Rent
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
Accum. Deprec.
= -74Retained Earnings
- +74 Depreciation
Expense
= -74
4. To recognize wages expense.
-= +210
Wages Payable
-210Retained Earnings
- +210Wages
Expense
= -210
5. To recognize utilities expense.
-= +300
Utilities Payable
-300Retained Earnings
- +300 Utilities
Expense
= -300
6. To recognize fees earned.
+380Accounts
Receivable-
= +380 Retained Earnings
+380Service
FeesEarned
- = +380
Totals 0 + -2,095 - 74 = 510 + 0 + -2,679 380 - 3,059 = -2,679
Date 2014 Description Debit CreditJune 30 Rent expense (+E, -SE) 775
Prepaid rent (-A) 775To record June rent expense ($3,100/4 months = $775).
30 Supplies expense (+E, -SE) 1,700Supplies (-A) 1,700
To record June supplies expense (2,520 $820 = $1,700).
30 Depreciation expense—Equip (+E, -SE) 74Accum. depreciation—Equipment (+XA, -A) 74
To record June depreciation ($4,440/60 months = $74).
30 Wages expense (+E, -SE) 210Wages payable (+L) 210
To record unpaid wages at June 30.
30 Utilities expense (+E, -SE) 300Utilities payable (+L) 300
To record estimated June utilities expense.
30 Accounts receivable (+A) 380Service fees earned (+R, +SE) 380
To record fees earned but not billed in June.
continued next page
©Cambridge Business Publishers, 2014
3-38 Financial Accounting, 4th Edition
P3-42. continued
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 1,020Adj. 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) 30074 Adj. Bal. Adj. bal. 300
+ Supplies Expense (E) - + Depreciation Expense - EQPT (E) -Jun. 30 (2) 1,700 Jun.30 (3) 74Adj. bal. 1,700 Adj. bal. 74
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-39
P3-42. continued
c.
MURDOCK CARPET CLEANERSIncome Statement
For Year Ended June 30, 2014
Revenues
Service fees…………………………………….… $5,030
Expenses
Rent expense…………………………………… $ 775
Wages expense………………………………… 1,230
Supplies expense………………………………… 1,700
Utilities expense…………………………………. 300
Depreciation expense…………………………… 74
Total expenses…………………………………… 4,079
Net income………………………………………… $ 951
MURDOCK CARPET CLEANERSBalance SheetJune 30, 2014
Assets LiabilitiesCash $ 1,180 Accounts payable $ 760Accounts receivable 830 Wages payable 210
Supplies 820 Utilities payable 300 Prepaid rent 2,325 Total Liabilities 1,270Equipment $ 4,440Less: Accumulated depreciation
74 4,366 Owners’ Equity
Common stock 2,000Retained earnings 6,251
Total Assets $9,521 Total Liabilities and Owners’ Equity $9,521
continued next page
©Cambridge Business Publishers, 2014
3-40 Financial Accounting, 4th Edition
P3-42. concluded
d.1. Retained earnings (-SE) 775
Rent expense (-E) 775
2. Retained earnings (-SE) 1,700Supplies expense (-E) 1,700
3. Retained earnings (-SE) 1,230Wages expense (-E) 1,230
4. Retained earnings (-SE) 300Utilities expense (-E ) 300
5. Retained earnings (-SE) 74Depreciation expense (-E) 74
6. Service fees earned (-R) 5,030Retained earnings (+SE) 5,030
- Retained Earnings (SE) + + Rent Expense (E) -5,300 Bal. Bal. 775 775 1.
1. 775 02. 1,7003. 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, 2014
Solutions Manual, Chapter 3 3-41
P 3-43. (30 minutes)
a.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income1. Accrue salary
expense.- = +720
Salaries Payable
-720Retained Earnings
- +720SalariesExpense
= -720
2. Accrue interest expense.
- = +200 Interest Payable
-200Retained Earnings
- +200Interest
Expense
= -200
3. Accrue fees receivable.
+900Fees
Receivable
- = +900Retained Earnings
+900 Printing Revenue
- = +900
4. Accrue maintenance expense.
-400Prepaid
Maintenance
- = -400Retained Earnings
- +400 Maintenance Expense
= -400
5. Accrue ad. Expense.
-300Prepaid
Advertising
- = -300Retained Earnings
- +300Ad.
Expense
= -300
6. Accrue rent expanse.
- = +160Rent
Payable
-160Retained Earnings
- +160 Rent
Expense
= -160
7. Accrue interest revenue.
+38Interest
Receivable
- = +38Retained Earnings
+38Interest
Revenue
- = +38
8. Accrue depreciation expense.
- +2,175Accumulated Depreciation
= -2,175Retained Earnings
- +2,175 Depreciation
Expense
= -2,175
Totals 0 + +238 - 2,175 = 1,080 + 0 + -3,017 938 - 3,955 = -3,017
b.Date Description Debit CreditDec 31 Salaries expense (+E, -SE) 720
Salaries payable (+L) 720To accrue salaries at December 31 ($1,800 2/5 = $720).
31 Interest expense (+E, -SE) 200Interest payable (+L) 200
To accrue interest expense at December 31.
31 Fees receivable (+A) 900Printing revenue (+R, +SE) 900
To record revenue earned but not yet billed.
31 Maintenance expense (+E ,-SE) 400Prepaid maintenance (-A) 400
To record December maintenance expense.
continued next page
©Cambridge Business Publishers, 2014
3-42 Financial Accounting, 4th Edition
P 3-43. concluded
b. continued
Date Description Debit Credit
Dec. 31 Advertising expense (+E, -SE) 300Prepaid advertising (-A) 300
To record December advertising expense($900 1/3 = $300).
31 Rent expense (+E, -SE) 160Rent payable (+L) 160
To accrue one-half month's rent expense[(400 $0.80)/2 = $160].
31 Interest receivable (+A) 38Interest income (+R, +SE) 38
To accrue interest earned in December.
31 Depreciation expense—Equipment (+E, -SE) 2,175Accum. depreciation—Equipment (+XA) 2,175
To record annual depreciation on equipment.
P3-44. (40 minutes)
TRUEMAN CONSULTING INC.Income Statement
For the Year Ended December 31, 2013
a.Revenue
Service fees earned $58,400Expenses
Rent expense $12,000Salaries expense 33,400Supplies expense 4,700Insurance expense 3,250Depreciation expense—Equipment 720Interest expense 630
Total Expenses 54,700Net Income $ 3,700
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-43
P3-44. concluded
a. continued
TRUEMAN CONSULTING INC.Statement of Stockholders’ Equity
For the Year Ended December 31, 2013Common
StockRetained Earnings
Total Stockholders’ Equity
Balance at December 31, 2012 $1,000 $3,305 $4,305
Stock issuance
Dividends
Net income _____ 3,700 3,700
Balance at December 31, 2013 $1,000 $7,005 $8,005
TRUEMAN CONSULTINGBalance Sheet
December 31, 2013Assets Liabilities
Cash $ 2,700 Accounts payable $ 845Accounts receivable 3,270 Long-term notes payable 7,000
Supplies 3,060 Total Liabilities 7,845Prepaid insurance 1,500Equipment $ 6,400 Owners’ EquityLess: 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 2013 Description Debit CreditDec. 31 Service fees earned (-R) 58,400
Retained earnings (+SE) 58,400To close the revenue account.
31 Retained earnings (-SE) 54,700Rent expense (-E) 12,000Salaries expense(-E) 33,400Supplies expense (-E) 4,700Insurance expense (-E) 3,250Depreciation expense—Equip (-E) 720Interest expense (-E) 630
To close the expense accounts.
©Cambridge Business Publishers, 2014
3-44 Financial Accounting, 4th Edition
P3-45. (30 minutes)
a.Date 2013 Description Debit CreditDec. 31 Service fees earned (-R) 97,200
Miscellaneous income (-R) 4,200Retained earnings (+SE) 101,400
To close the revenue accounts.
31 Retained earnings (-SE) 74,800Salaries expense (-E) 42,800Rent expense (-E) 13,400Insurance expense (-E) 1,800Depreciation expense (-E) 8,000Income tax expense (-E) 8,800
To close the expense accounts.
b. After the closing entries are posted, Retained Earnings has a $45,700 credit balance ($19,100 + $26,600 net income).
c.Wilson Company
Post-Closing Trial BalanceDecember 31, 2013
Debit Credit
Cash $8,500Accounts Receivable 8,000Prepaid Insurance 3,600Equipment 72,000Accumulated Depreciation $12,000Accounts Payable 600Income Tax Payable 8,800Common Stock 25,000Retained Earnings ______ 45,700
$92,100 $92,100
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-45
P3-46. (30 minutes)
a.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = NetIncome
1. Recognize Advertising expense.
-400Prepaid
Advertising=
-400Retained Earnings
-
+400Advertising Expense
=
-400
2. Accrue wage expense.
=
+1,300Wages
Payable*
-1,300Retained Earnings -
+1,300Wages
Expense =
-1,300
3. Recognize insurance expense.
-1,140Prepaid
Insurance=
-1,140Retained Earnings
-
+1,140 Insurance Expense
=
-1,140
4. Recognize service fees earned. =
-2,400 Unearned
Service Fees
+2,400 Retained Earnings
+2,400Service
FeesEarned
- =
+2,400
5. Recognize rent revenue.
+1,000Rent
Receivable=
+1,000Retained Earnings
+1,000RentalIncome
- =+1,000
Totals 0 + -540 = -1,100 + 0 + 560 3,400 - 2,840 = 560
*Assumes wages earned had not been accrued or recognized yet as an expense.
Date 2013 Description Debit CreditDec. 31 Advertising expense (+E, -SE) 400
Prepaid advertising (-A) 400To record advertising expense ($1,200 $800 = $400).
31 Wages expense (+E, -SE) 1,300Wages payable (+L) 1,300
To record accrued wages.
31 Insurance expense (+E, -SE) 1,140Prepaid insurance (-A) 1,140
To record insurance expense ($3,420 $2,280 = $1,140).
31 Unearned service fees (-L) 2,400Service fees earned (+R, +SE) 2,400
To recognize unearned fees as earned ($5,400 $3,000 = $2,400).
31 Rent receivable (+A) 1,000Rental income (R, +SE) 1,000
To record rent earned but not yet recorded.
continued next page
©Cambridge Business Publishers, 2014
3-46 Financial Accounting, 4th Edition
P3-46. concluded
b.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib. Capital + Earned
Capital Revenues - Expenses = Net Income
1. Pay wages of $2,400.
-2,400Cash =
-1,300 Wages Payable
-1,100 Retained Earnings
-+1,100 Wages
Expense=
-1,100
2. Receipt of $1,000 rent revenue.
+1,000Cash
-1,000Rent
Receivable= - =
Date 2014 Description DebitCredit
Jan. 4 Wages payable (-L) 1,300Wages expense (+E, -SE) 1,100
Cash (-A) 2,400To record payment of wages.
4 Cash (+A) 1,000Rent receivable (-A) 1,000
To record collection of rent.
P3-47. (90 minutes)
For part d, the adjusting entries are indicated by the numbers 1-5. The unadjusted trial balance required in part c is calculated before the adjusting entries are made.
a.+ Cash (A) - - Accounts Payable (L) +
6/1 24,000 4,400 6/1 9,480 6/16/2 6,400 875 6/26/30 7,800 930 6/2
3,600 6/12 - Salaries Payable (L) +1,240 6/15 725 2.
520 6/183,600 6/261,500 6/30 - Unearned Service Fees (L) +
21,535 5. 3,200 6,400 6/23,200
+ Accounts Receivable (A) -6/10 5,800 7,800 6/30 - Common Stock (SE) +6/28 5,200 24,000 6/1
3,200
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-47
P3-47. continued
a. continued
+ 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
+ Salaries Expenses (E) - - Service Fees Earned (R) +6/12 3,600 5,800 6/106/26 3,600 5,200 6/282. 725 3,200 5.
7,925 14,200
+ Postage Expense (E) -6/18 520
continued next page
©Cambridge Business Publishers, 2014
3-48 Financial Accounting, 4th Edition
P3-47. continued
b.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib.Capital + Earned
Capital Revenues - Expenses = NetIncome
6/1. Investment for common stock.
+24,000Cash
= +24,000 Common Stock
- =
6/1. Purchase of assets for cash & on account.
-4,400Cash
+ 11,040Office
Equipment+2,840 Supplies
=
+9,480Accounts Payable
- =
6/2. Pay rent $875. -875Cash =
-875Retained Earnings
-+875Rent
Expense=
-875
6/2.Purchase $930 of advertising in advance.
-930Cash
+930Prepaid
Advertising= - =
6/2Signed research contract.
+6,400Cash =
+6,400Unearned Service
Fees- =
6/10. Bill customers for services.
+5,800Accounts
Receivable=
+5,800 Retained Earnings
+5,800 Service Fees
Earned- =
+5,800
6/12. Paid salaries. -3,600Cash =
-3,600Retained Earnings
-+3,600Salaries Expense
=-3,600
6/15. Paid travel expenses.
-1,240Cash =
-1,240Retained Earnings
-+1,240Travel
Expense=
-1,240
6/18. Paid postage. -520Cash =
-520Retained Earnings
-+520
Postage Expense
=-520
6/26. Paid salaries. -3,600Cash =
-3,600Retained Earnings
-+3,600Salaries Expense
=-3,600
6/28. Bill customers for services.
+5,200Accounts
Receivable=
+5,200Retained Earnings
+5,200 Service
Fees Earned- =
+5,200
6/30. Collect service fees.
+7,800Cash
-7,800Acts. Rec.
= - =
6/30. Cash dividend paid.
-1,500Cash
-1,500Retained Earnings
-
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-49
P3-47. continued
b. continued
Date 2014 Description Debit CreditJune 1 Cash (+A) 24,000
Common stock (+SE) 24,000Owner invested cash for common stock.
1 Office equipment (+A) 11,040Office supplies (+A) 2,840
Cash (-A) 4,400Accounts payable (+L) 9,480
Purchased equipment and supplies;$4,400 cash paid with the remainder due in 60 days.
2 Rent expense (+E, -SE) 875Cash (-A) 875
Paid June rent.
2 Prepaid advertising (+A) 930Cash (-A) 930
Paid three months' advertising in advance.
2 Cash (+A) 6,400Unearned service fees (+L) 6,400
Received two months' fees in advance on six-month contract.
10 Accounts receivable (+A) 5,800Service fees earned (+R, +SE) 5,800
Billed customers for services.
12 Salaries expense (+E, -SE) 3,600Cash (-A) 3,600
Paid two weeks' salaries to employees.
15 Travel expense (+E, -SE) 1,240Cash (-A) 1,240
Paid business travel expenses.
18 Postage expense (+E, -SE) 520Cash (-A) 520
Paid postage for questionnaire mailing.
26 Salaries expense (+E, -SE) 3,600Cash (-A) 3,600
Paid two weeks' salaries to employees.
continued next page
©Cambridge Business Publishers, 2014
3-50 Financial Accounting, 4th Edition
P3-47. continued
b. continued
Date 2014 Description Debit CreditJune 28 Accounts receivable (+A) 5,200
Service fees earned (+R, +SE) 5,200Billed customers for services.
30 Cash (+A) 7,800Accounts receivable (-A) 7,800
Collections from customers on account.
30 Retained earnings (-SE) 1,500Cash (-A) 1,500
Declared and paid dividends.
c. MARKET-PROBE
Unadjusted Trial BalanceJune 30, 2014
Debit CreditCash $21,535Accounts Receivable 3,200Office Supplies 2,840Prepaid Advertising 930Office Equipment 11,040Accounts Payable $9,480Unearned Service Fees 6,400Common Stock 24,000Retained Earnings* 1,500Service Fees Earned 11,000Salaries Expense 7,200Rent Expense 875Travel Expense 1,240Postage Expense 520 ______
$50,880 $50,880* The negative (debit) balance in Retained Earnings reflects the dividend paid.
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-51
P3-47. concluded
d.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = Net Income
a. Recognize supplies expense.
-1,310Office
Supplies-
= -1,310Retained Earnings
- +1,310Supplies Expense
= -1,310
b. Recognize salaries expense.
-= +725
Salaries Payable
-725Retained Earnings
- +725Salaries Expense
= -725
c. Accrue depreciation expense.
-+115
Accumulated Depreciation
= -115Retained Earnings
- +115 Depreciation
Expense
= -115
d. Recognize advertising expense.
-310Prepaid
Advertising-
= -310Retained Earnings
- +310Advertising Expense
= -310
e. Recognize earned service fees.
-
= -3,200Unearned
Service Fees
+3,200Retained Earnings
+3,200Service
FeesEarned
- = +3,200
Date 2014 Description Debit CreditJune 30 Supplies expense (+E, -SE) 1,310
Office supplies (-A) 1,310To record supplies used during June
($2,840 $1,530 = $1,310).
30 Salaries expense (+E, -SE) 725Salaries payable (+L) 725
To record unpaid salaries at June 30.
30 Depreciation expense—Office equipment (+E, -SE) 115Accum. deprec. Off. equipment (+XA, -A) 115
To record June depreciation ($11,040/96 mo. = $115).
30 Advertising expense (+E, -SE) 310Prepaid advertising (-A) 310
To record one month's advertising expense.
30 Unearned service fees (-L) 3,200Service fees earned (+R, +SE) 3,200
To record one month's fees earned, received in advance.
©Cambridge Business Publishers, 2014
3-52 Financial Accounting, 4th Edition
P3-48. (40 minutes)
DELIVERALLUnadjusted Trial Balance
December 31, 2013a.
Debit CreditCash $ 2,300Accounts Receivable 5,120Prepaid Advertising 1,680Supplies 6,270Equipment 42,240Notes Payable $7,500Accounts Payable 2,700Common Stock 9,530Mailing Fees Earned 86,000Wages Expense 38,800Rent Expense 6,300Utilities Expense 3,020 ________
$105,730 $105,730
b.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income1. Recognize
advertising expense.
-1,540Prepaid
Advertising-
= -1,540Retained Earnings
- +1,540 Advertising Expense
= -1,540
2. Recognize depreciation expense.
-+5,280
Accumulated Depreciation
= -5,280Retained Earnings
- +5,280 Depreciation
Expense
= -5,280
3. Recognize utilities expense.
-= +325
Accts Payable
-325Retained Earnings
- +325Utilities
Expense
= -325
4. Accrue wages expense. -
= +1,200Wages Payable
-1,200Retained Earnings
- +1,200Wages
Expense
= -1,200
5. Recognize supplies expense.
-4,750Supplies -
= -4,750Retained Earnings
- +4,750Supplies Expense
= -4,750
6. Accrue interest expense.
-= +450
Interest Payable
-450Retained Earnings
- +450InterestExpense
= -450
7. Recognize rent expense*.
-= +430
Accts Payable
-430Retained Earnings
- +430Rent
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.
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-53
P3-48. continued
b. continued
Date 2013 Description Debit CreditDec. 31 Advertising expense (+E, -SE) 1,540
Prepaid advertising (-A) 1,540To record 11 months' advertising expense
($1,680 11/12 = $1,540).
31 Depreciation expense (+E, -SE) 5,280Accumulated depreciation (+XA, -A) 5,280
To record depreciation for the year($42,240/8 years = $5,280).
.31 Utilities expense (+E, -SE) 325
Accounts payable (+L) 325To record estimated December utilities expense.
31 Wages expense (+E, -SE) 1,200Wages payable (+L) 1,200
To record unpaid wages at December 31.
31 Supplies expense (+E, -SE) 4,750Supplies (-A) 4,750
To record supplies expense for the year($6,270 $1,520 = $4,750).
31 Interest expense (+E, -SE) 450Interest payable (+L) 450
To record accrual of interest expense at Dec. 31.
31 Rent expense (+E, -SE) 430Accounts payable (+L) 430
To record additional rent owed under lease (1/2% $86,000 = $430).
continued next page
©Cambridge Business Publishers, 2014
3-54 Financial Accounting, 4th Edition
P3-48. concluded
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, 2014
Solutions Manual, Chapter 3 3-55
P3-49 (60 minutes)
a.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = NetIncome
1. Recognize rent expense.
-795Prepaid
Rent-
= -795Retained Earnings
- +795Rent
Expense
= -795
2. Recognize supplies expense.
-1,980Supplies -
= -1,980Retained Earnings
- +1,980Supplies Expense
= -1,980
3. Accrue depreciation expense.
-+335
Accumulated Depreciation
= -335Retained Earnings
- +335 Depreciation
Expense
= -335
4. Accrue wages payable. -
= +560Wages Payable
-560Retained Earnings
- +560Wages
Expense
= -560
5. Recognize utilities expense.
-= +390
Accounts Payable
-390Retained Earnings
- +390Utilities
Expense
= -390
6. Recognize service revenue.
-
= -500 Unearned Service
Revenue
+500Retained Earnings
+500Service
Revenue
- = +500
Date 2014 Description Debit CreditMar. 31 Rent expense (+E, -SE) 795
Prepaid rent (-A) 795To record March rent expense ($4,770/6 months = $795).
31 Supplies expense (+E, -SE) 1,980Supplies (-A) 1,980
To record March supplies expense ($3,700$1,720 = $1,980).
31 Depreciation expense—Equipment (+E, -SE) 335Accumulated depreciation—Equipment (+XA, -A) 335
To record March depreciation ($36,180/108 months = $335).
31 Wages expense (+E, -SE) 560Wages payable (+L) 560
To record unpaid wages at March 31.
31 Utilities expense (+E, -SE) 390Accounts payable (+L) 390
To record estimated March utilities expense.
31 Unearned service revenue (-L) 500Service revenue (+R, +SE) 500
To record revenue received in advance that was earned in March.
continued next page
©Cambridge Business Publishers, 2014
3-56 Financial Accounting, 4th Edition
P3-49. continued
b. Not all the T-accounts given are needed to enter the adjustments required. Also, the closing entries required in part d are referenced by 1c, 2c etc.
- Accounts Payable (L) + + Prepaid Rent (A) -2,510 Bal. Bal. 4,770 795 1. 390 5. Bal. 3,9752,900 Bal.
+ Supplies (A) -Bal. 3,700 1,980 2.Bal. 1,720
- Acc Depreciation - Equipment (XA) + - Unearned Service Revenue (L) +335 3. 6. 500 1,000 Bal.
500 Bal.
-Service Revenue(R) + + Rent Expense (E) -6c. 12,860 12,360 Bal. 1. 795 795 1c.
500 6.+ Supplies Expense (E) -
2. 1,980 1,980 2c.
+Depreciation Expense (E) - +Wages Expense (E) -3. 335 335 3c. Bal. 3,900
4. 560 4,460 4c.
+ Utilities Expense (E) - - Wages Payable (L) +5. 390 390 5c. 560 4.
- Retained Earnings (SE) +1c. 7952c. 1,9803c. 3354c. 4,4605c. 390
12,860 6c.4,900 7c.
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-57
P3-49. continued
c.
WHEEL PLACE COMPANYIncome Statement
For Month Ended March 31, 2014
Service revenue……………………………………….……...
$12,860
Expenses:
Utilities expense…………….…………………..………… $390
Supplies expense…………..……………………………… 1,980
Wages expense……………..…………………………..… 4,460
Depreciation expense………………………………….… 335
Rent expense……………………………………………... 795 7,960
Net income …………………………………………………...
$4,900
WHEEL PLACE COMPANYBALANCE SHEET
March 31, 2014Assets Liabilities
Cash $ 1,900 Accounts payable $ 2,900Accounts receivable 3,820 Wages payable 560
Supplies 1,720 Unearned service revenue 500 Prepaid rent 3,975 Total Liabilities 3,960Equipment $ 36,180Less:Accumulated depreciation
335 35,845 Owners’ Equity
Common stock 38,400Retained earnings 4,900
Total Assets $47,260 Total Liabilities and Owners’ Equity $47,260
continued next page
©Cambridge Business Publishers, 2014
3-58 Financial Accounting, 4th Edition
P3-49. concluded
d.
1c. Retained earnings (-SE) 795Rent expense (-E) 795
2c. Retained earnings (-SE) 1,980Supplies expense (-E) 1,980
3c. Retained earnings (-SE) 335Depreciation expense (-E) 335
4c. Retained earnings (-SE) 4,460Wages expense (-E) 4,460
5c. Retained earnings (-SE) 390Utilities expense (-E) 390
6c. Service revenue (-R) 12,860Retained earnings (+SE) 12,860
The closing journal entries are shown in the T-accounts in part a.
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-59
P3-50. (30 minutes)
a.TRAILS, INC.
Income StatementFor the Year Ended December 31, 2013
RevenuesSubscription revenue $ 168,300Advertising revenue 49,700
Total revenues $218,000Expenses
Salaries expense 100,230Printing and mailing expense 85,600Rent expense 8,800Supplies expense 6,100Insurance expense 1,860Depreciation expense 5,500Income tax expense 1,600
Total expenses 209,690Net income $8,310
TRAILS, INC.Statement of Stockholders’ Equity
For Year Ended December 31, 2013
Common Stock
Retained Earnings
TotalStockholders’
EquityBalance at December 31, 20012 $25,000 $23,220 $48,220
Stock issuance
Dividends
Net income _____ 8,310 8,310
Balance at December 31, 2013 $25,000 $31,530 $56,530
continued next page
©Cambridge Business Publishers, 2014
3-60 Financial Accounting, 4th Edition
P3-50. Concluded
a. continued
TRAILS, INC.Balance Sheet
December 31, 2013Assets Liabilities
Cash $3,400 Accounts payable $ 2, 100Accounts receivable 8,600 Unearned subscription revenue 10,000Supplies 4,200 Salaries payable 3,500 Prepaid insurance 930 Total liabilities 15,600Office equipment $66,000Less:Accum. depreciation 11,000 55,000
Stockholders' equity
Common stock $25,000Retained earnings 31,530 Total stockholders' equity 56,530 Total liabilities and
Total assets $72,130 stockholders' equity $72,130
b.
Date 2013 Description Debit CreditDec. 31 Subscription revenue (-R) 168,300
Advertising revenue (-R) 49,700Retained earnings (+SE) 218,000
To close the revenue accounts.
31 Retained earnings (-SE) 209,690Salaries expense (-E) 100,230Printing and mailing expense (-E) 85,600Rent expense (-E) 8,800Supplies expense (-E) 6,100Insurance expense (-E) 1,860Depreciation expense (-E) 5,500Income tax expense (-E) 1,600
To close the expense accounts.
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-61
P3-51. (30 minutes)
a.
Date 2013 Description Debit CreditDec. 31 Service fees earned (-R) 72,500
Retained earnings (+SE) 72,500To close the revenue account.
31 Retained earnings (-SE) 58,800Wages expense (-E) 29,800Rent expense (-E) 10,200Insurance expense (-E) 2,900Supplies expense (-E) 5,100Advertising expense(-E) 6,000Depreciation expense—Trucks(-E) 4,000Depreciation 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 SERVICEPost-Closing Trial Balance
December 31, 2013Debit Credit
Cash $ 3,800Accounts Receivable 5,250Supplies 2,300Prepaid Advertising 3,000Trucks 28,300Accumulated Depreciation—Trucks $10,000Equipment 7,600Accumulated Depreciation—Equipment 2,100Accounts Payable 1,200Unearned Service Fees 2,700Common Stock 5,000Retained Earnings ______ 29,250
$50,250 $50,250
©Cambridge Business Publishers, 2014
3-62 Financial Accounting, 4th Edition
P3-52. (20 minutes)
a.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabil-ities + Contrib.
Capital + EarnedCapital Revenues - Expenses = Net
Income1. Recognize
maintenance expense.
-1,800Prepaid
Maintenance=
-1,800Retained Earnings
-+1,800
Maintenance Expense
=-1,800
2. Recognize supplies expense.
-5,200Supplies =
-5,200Retained Earnings
-+5,200
Supplies Expense
=-5,200
3. Accrue earned commissions.
=
-4,500Unearned Commis
-sion Fees
+4,500Retained Earnings
+4,500 Commission Fees Earned
- =
+4,500
4. Earned but unbilled commission fees.
+2,800Fees
Receivable=
+2,800 Retained Earnings
+2,800 Commission Fees Earned
- =+2,800
5. Rent expense.=
+913Rent
Payable
-913Retained Earnings
-+913Rent
Expense=
-913
Date 2013 Description Debit CreditDec. 31 Maintenance expense (+E, -SE) 1,800
Prepaid maintenance (-A) 1,800To record four months' maintenance expense
[($2,700/6) 4 = $1,800].
31 Supplies expense (+E, -SE) 5,200Supplies (-A) 5,200
To record supplies expense ($8,400 $3,200 = $5,200).
31 Unearned commission fees (-L) 4,500Commission fees earned (+R, +SE) 4,500
To transfer fees earned from unearned fees ($8,500 $4,000 = $4,500).
31 Fees receivable (+A) 2,800Commission fees earned (+R, +SE) 2,800
To record fees earned but not yet billed.
31 Rent expense (+E, -SE) 913Rent payable (+L) 913
To record additional 2008 rent [1% ($84,000 + $4,500 + $2,800) = $913].
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-63
P3-52. concluded
b.Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = Net Income
1/10. Billing of commission fees earned.
-2,800 Fees
Receivable+4,600Accounts
Receivable
=
+1,800 Retained Earnings
+1,800 Commission
FeesEarned
- =
+1,800
1/10. Payment of additional rent in cash.
-913Cash =
-913Rent Payable - =
2014Jan. 10 Accounts receivable (+A) 4,600
Fees receivable (-A) 2,800Commision fees earned (+R, +SE) 1,800
To record billings on Jan. 10, 2011.
10 Rent payable (-L) 913 Cash (-A) 913To record payment of contingent rent from 2010.
P3-53. (60 minutes)
a.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabil-ities + Contrib. Capital + Earned
Capital Revenues - Expenses = NetIncome
1. Cash sales. +145,850Cash -
= +145,850Retained Earnings
+145,850Sales
Revenue
- = +145,850
2. Record inventory purchased and used.
+2,500 Inventories
-
= +76,200Accounts Payable
-73,700Retained Earnings
- +73,700Cost ofSales
= -73,700
3. Recognize recent payments on A/P.
-77,300Cash
-
= -77,300 Accounts Payable
- =
4. Recognize rent paid and rent expense.
-24,000Cash
+200Prepaid
Rent-
= -23,800Retained Earnings
- +23,800Rent
Expense
= -23,800
5. Recognize wage expense and wages paid.
-12,500Cash
-
= +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
continued next page
©Cambridge Business Publishers, 2014
3-64 Financial Accounting, 4th Edition
P3-53. continued
a. continued
1.
Cash (+A) 145,850
Sales revenue (+R,+SE) 145,850
2.
Inventories (+A)Cost of goods sold (+E, -SE)
2,50073,700*
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, 2014 through February 29, 2015 is $2,000 per month. So, for the last ten months of 2014, the rent expense is $20,000, making the total rent expense $23,800 for 2014.
5. Wages expense (+E,-SE) 12,750*Cash (-A)Wages payable (+L)
12,500250
* 12,750 = 12,500 + (350 – 100).
6. Depreciation expense (+E,-SE) 1,700Acc. depreciation – Equipment (+XA, -A) 1,700
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-65
P3-53. continued
b, d. The closing entries required in part d are also included here and indicated by the letter d before the relevent entry.
+ Cash (A) - + Inventories (A) -Bal. 8,500 Bal. 12,0001. 145,850 77,300 3. 2. 2,500
24,000 4. Bal. 14,50012,500 5.
Bal. 40,550 + Prepaid Rent (A) -Bal. 3,800
+ Equipment (A) - 4. 200Bal. 7,500 Bal. 4,000Bal. 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
+Wages Expense (E)-5. 12,750
12,750 d.Bal. 0
continued next page
©Cambridge Business Publishers, 2014
3-66 Financial Accounting, 4th Edition
P3-53. concluded
c, d. Part c is easier to complete if the closing entries required in part d are journalized and entered in the T-accounts. The appropriate T-account entries for part d have been made earlier and indicated by the letter d.
Sales revenue (-R) 145,850Cost of goods sold (-E) 73,700Rent expense (-E) 23,800Wages expense (-E) 12,750Depreciation expense (-E) 1,700Owners’ equity 33,900
To close temporary revenue and expense accounts.
FISCHER CARD SHOPIncome Statement
For the Year ended December 31, 2014Sales revenue $145,850Cost of goods sold 73,700Gross profit 72,150Other expenses:
Rent expense $23,800Wages expense 12,750Depreciation expense 1,700Total other expenses 38,250
Net income $33,900
FISCHER CARD SHOPBalance Sheets
As of December 31, 2013 2014 Assets:Cash $ 8,500 $ 40,550Inventories 12,000 14,500Prepaid rent 3,800 4,000 Total current assets 24,300 59,050Equipment 7,500 7,500Accumulated depreciation (3,000 ) (4,700 ) Equipment, net 4,500 2,800 Total assets $ 28,800 $ 61,850Liabilities and owners’ equity:Accounts payable $ 5,200 $ 4,100Wages payable 100 350 Total liabilities 5,300 4,450Owners’ equity 23,500 57,400 Total liabilities and owners’ equity $ 28,800 $ 61,850
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-67
P3-54. (120 minutes)
a, b. The T-accounts follow the journal entries and the FSET.
Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib.Capital + Earned
Capital Revenues - Expenses = NetIncome
12/1. Investment for common stock.
+20,000Cash =
+20,000Common
Stock- =
12/2. Rent paid in cash.
-1,200Cash =
-1,200RetainedEarnings
-+1,200Rent
Expense=
-1,200
12/2. Purchase supplies on account.
+1,080 Supplies =
+1,080Accounts Payable
- =
12/3. Office equipment bought for 4,700 cash and rest on account.
-4,700Cash
+9,500 Office
Equipment=
+4,800Accounts Payable
- =
12/8. Paid for supplies.
-1,080Cash =
-1,080Accounts Payable
- =
12/14. Paid wages in cash.
-900Cash =
-900RetainedEarnings
-+900
Wages Expense
=-900
12/20. Received cash for consulting services.
+3,000Cash =
+3,000RetainedEarnings
+3,000Consulting Revenue
- =+3,000
12/28. Paid wages in cash.
-900Cash =
-900RetainedEarnings
-+900
Wages Expense
=-900
12/30. Bill clients for consulting.
+7,200Fees
Receivable=
+7,200RetainedEarnings
+7,200Consulting Revenue
- =+7,200
I2/30. Paid cash dividends.
-1,800Cash =
-1,800RetainedEarnings
- =
b.Dec. 1 Cash (+A) 20,000
Common stock (+SE) 20,000Invested $20,000 cash in the business.
2 Rent expense (+E, -SE) 1,200Cash (-A) 1,200
Paid rent for December.
2 Supplies (+A) 1,080Accounts payable (+L) 1,080
Purchased various supplies on account.
continued next page
©Cambridge Business Publishers, 2014
3-68 Financial Accounting, 4th Edition
P3-54. continued
b. continued
Dec. 3 Office equipment (+A) 9,500Cash (-A) 4,700Accounts 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) 1,080Cash (-A) 1,080
Payment on account.
14 Wages expense (+E, -SE) 900Cash (-A) 900
Paid assistant's wages.
20 Cash (+A) 3,000Consulting revenue (+R, +SE) 3,000
Cash received for services.
28 Wages expense (+E, -SE) 900Cash (-A) 900
Paid assistant's wages.
30 Fees receivable (+A) 7,200Consulting revenue (+R, +SE) 7,200
Billed customers for services.
31 Retained earnings (-SE) 1,800Cash (-A) 1,800
Issued and paid $1,800 in dividends.
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-69
P3-54. continued
b. continuedThe 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 d112/20 3,000 4,700 12/3 Bal. 710
1,080 12/8900 12/14900 12/28
1,800 12/31Bal. 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. 04,800 Bal.
- Retained Earnings (SE)+ + Wages Expense (E) -12/31g.
1,8003,760
12,450 g. 12/1412/282d.
900900270
2,070 g.
6,890 Bal. Bal. 0
-Consulting Revenue(R)+ +Fees Receivable (A)-3,000 12/20 12/30 7,2007,200 12/30 4d. 2,250
g. 12,450 2,250 4d. Bal. 9,450Bal. 0
+ Supplies Expense (E) -+Depreciation Expense(E)- 1d. 370 370 g.
3d. 120 120 g. Bal. 0Bal. 0
continued next page
©Cambridge Business Publishers, 2014
3-70 Financial Accounting, 4th Edition
P3-54. continued
c.RHOADES TAX SERVICES
Unadjusted Trial BalanceDecember 31, 2013
Debit CreditCash $12,420Fees Receivable 7,200Supplies 1,080Office Equipment 9,500Accounts Payable $4,800Common Stock 20,000Retained Earnings (Dividend) 1,800Consulting Revenue 10,200Wages Expense 1,800Rent Expense 1,200 ______
$35,000 $35,000
d.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabi-lities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income1. Record
supplies expense.
-370Supplies -
= -370Retained Earnings
- +370Supplies Expense
= -370
2. Accrue wages expense. -
= +270 Wages Payable
-270 Retained Earnings
- +270Wages
Expense
= -270
3. Record depreciation expense.
-+120
Accumulated Depreciation
= -120Retained Earnings
- +120 Depreciation
Expense
= -120
4. Recognize accrued consulting fees.
+2,250Fees
Receivable-
= +2,250 Retained Earnings
+2,250 Consulting Revenue
- = +2,250
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-71
P3-54. continued
d. continued
Date 2013 Description Debit CreditDec. 31 Supplies expense (+E, -SE) 370
Supplies (-A) 370To record December supplies expense ($1,080 $710).
31 Wages expense (+E, -SE) 270 Wages payable (+L) 270To reflect unpaid wages at December 31.
31 Depreciation expense (+E, -SE) 120 Accumulated depreciation (+XA, -A) 120To record December depreciation.
31 Fees receivable (+A) 2,250 Consulting revenue (+R, +SE) 2,250To record unbilled service revenue (30 $75).
e.RHOADES TAX SERVICES
Adjusted Trial BalanceDecember 31, 2013
Debit CreditCash $12,420Fees Receivable 9,450Supplies 710Office Equipment 9,500Accumulated Depreciation $120Accounts Payable 4,800Wages Payable 270Common Stock 20,000Retained Earnings 1,800Consulting Revenue 12,450Supplies Expense 370Wages Expense 2,070Rent Expense 1,200Depreciation Expense 120 ______
$37,640 $37,640
continued next page
©Cambridge Business Publishers, 2014
3-72 Financial Accounting, 4th Edition
P3-54. continued
f.RHOADES TAX SERVICES
Income StatementFor the Month of December 2013
RevenueConsulting revenue $12,450
ExpensesWages expense $ 2,070Rent expense 1,200Supplies expense 370Depreciation expense 120
Total expenses 3,760Net income $ 8,690
RHOADES TAX SERVICESStatement of Stockholders’ EquityFor the Month of December 2013
Common Stock
Retained Earnings
TotalStockholders’
EquityBalance at December 1, 2012 $0 $0 $0
Stock issuance 20,000 20,000
Dividends (1,800) (1,800)
Net income _____ 8,690 8,690
Balance at December 31, 2013 $20,000 $6,890 $26,890
RHOADES TAX SERVICESBalance Sheet
December 31, 2013Assets Liabilities and Equity
Cash $12,420 Accounts payable $ 4,800Fees receivable 9,450 Wages payable 270 Supplies 710 Total liabilities 5,070Total current assets 22,580Office equipment $ 9,500 Stockholders’ equityLess:Accum. depreciation 120 9,380
Common stock 20,000
Retained earnings 6,890
Total assets $31,960 Total liabilities and stockholders’ equity
$31,960
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-73
P3-54. concluded
g.
Date 2013 Description Debit CreditDec.31 Consulting revenue (-R) 12,450
Retained earnings (+SE) 12,450To 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) 120To close the expense accounts.
h.RHOADES TAX SERVICESPost-Closing Trial Balance
December 31,2013Debit Credit
Cash $12,420Fees Receivable 9,450Supplies 710Office Equipment 9,500Accumulated Depreciation $ 120Accounts Payable 4,800Wages Payable 270Retained Earnings 6,890Common Stock 20,000
$32,080 $32,080
©Cambridge Business Publishers, 2014
3-74 Financial Accounting, 4th Edition
CASES and PROJECTS
C3-55. (90 minutes)
a1.Entries in the FSET are first shown for the initial deposits and checks. These are entries 1- 8. Entries a - f are the adjusting entries that would be made at the end of the three months. The expenditures for rent and salaries are assumed to have been initially debited to expense accounts.
Balance Sheet Income Statement
TransactionCash Asset +
Noncash Assets - Contra
Assets = Liabil-ities + Contrib.
Capital + Earned Capital Revenues - Expenses = Net
Income1. Investment for
common stock.
+50,000Cash -
= +50,000Investment
- =
2. Collections from customers.
+81,000Cash -
= +81,000Retained Earnings
+81,000Sales
Revenue
- = +81,000
3. Bank borrowing.
+10,000Cash -
= +10,000 Loans
Payable
- =
4. Rent expense. -24,000Cash -
= -24,000Retained Earnings
- +24,000Rent
Expanse
= -24,000
5. Purchased equipment.
-25,000Cash
+25,000 Equipment -
= - =
6. Purchased inventory.
-62,000Cash
+62,000 Inventory -
= - =
7. Paid salaries. -6,000Cash -
= -6,000 Retained Earnings
- +6,000 Salaries Expense
= -6,000
8. Paid other expenses.
-13,000Cash -
= -13,000 Retained Earnings
- +13,000 Misc.
Expenses
= -13,000
a. Recognize credit sales.
+9,000A/R -
= +9,000 Retained Earnings
+9,000Sales
Revenue
- = +9,000
b. Adjust rent expense.
+12,000 Prepaid
Rent-
= +12,000 Retained Earnings
- -12,000Rent
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
- +41,000Cost 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
-300Retained Earnings
- +300 Interest Expense
= -300
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-75
C3-55. continued
a. continued
a2. Journal entries are shown only for the adjustments a-f.
a. Accounts receivable (+A) 9,000Sales revenue (+R, +SE) 9,000
To recognize sales on account.
b. Prepaid rent (+A) 12,000Rent expense (-E, +SE) 12,000
To recognize remaining prepaid rent and correct rent expense.
c. Salaries expense (+E, -SE) 3,000Salaries payable (+L) 3,000
To recognize unpaid salaries earned during September.
d. Cost of goods sold (+E, -SE) 41,000Merchandise inventory (-A) 41,000
To recognize cost of sales; ($62,000 - $21,000).
e. Depreciation expense (+E, -SE) 1,250Accumulated depreciation (+XA, -A) 1,250
To accrue depreciation on the fixtures and equipment($25,000/60)(3).
f. Interest expense (+E, -SE) 300Interest payable (+L) 300
To accrue interest on bank loan assumed taken out 7/1/2008.($10,000)(0.12)(1/4).
continued next page
©Cambridge Business Publishers, 2014
3-76 Financial Accounting, 4th Edition
C3-55. continued
b. T-accounts: The opening balances shown are the amounts in the accounts prior to the entry of the adjustments described in items a through f. The cash balance represents the deposits made, $141,000, less the checks drawn, $130,000.
+ Cash (A) - + 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
continued next page
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-77
C3-55. continued
c.SEASIDE SURF SHOP
Income StatementJuly 1, 2010 to September 30 ,2014
Sales revenue $90,000Cost of goods sold 41,000 Gross margin 49,000Expenses:
Rent expense $12,000Salaries expense 9,000Depreciation expense 1,250Interest expense 300Misc. expenses 13,000 35,550
Net income $13,450
SEASIDE SURF SHOPBalance Sheet
September 30, 2014
AssetsCurrent assets
Cash $11,000Accounts receivable 9,000Inventory 21,000Prepaid rent 12,000Total current assets 53,000
Fixtures and equipment, net 23,750Total assets $76,750
Liabilities and owners’ equityCurrent liabilities
Salaries payable $3,000Bank loan payable 10,000Interest payable 300Total current liabilities 13,300
Owners’ equity* 63,450Total liabilities and owners’ equity $76,750
*$50,000 + $13,450continued next page
©Cambridge Business Publishers, 2014
3-78 Financial Accounting, 4th Edition
C3-55. concluded
d. Chapter 1 introduced the return on equity ratio as a simple performance measure that can be used to evaluate how well this new business is doing. The return on equity is calculated as the ratio of net income to average total equity. In this case, the return on equity for the three-month period was 23.7% = $13,450 / [($50,000+ $63,450)/2]. This is a very good return for a three-month period and equates to 95% annualized. However, the favorable performance evaluation should be tempered by a few caveats:
(1) Because this business appears to be a sole proprietorship, any “salary” paid to the owner is not deducted from net income. Instead, cash payments to the owner are treated as dividends (or withdrawals). As a consequence, any services provided by the owner to the business would not be reflected among the expenses reported in the income statement, and net income would be overstated.
(2) No expense is reported in the income statement for income taxes. This is consistent with the business being a sole proprietorship, in which income taxes are levied against the owner as an individual taxpayer. Again, this makes “net” income appear to be larger than it otherwise might be.
(3) Retail businesses are notoriously seasonal. That is, sales (and profits) fluctuate from season to season. A business such as this one would likely have its highest sales in the second and third quarters. This seasonality must be considered when we try to annualize quarterly results like these. Once the business has operated for a year or two, the owner would likely have a better idea about how seasonal fluctuations affect sales and returns and would be better able to interpret quarterly performance measures.
(4) Finally, Seaside’s cash position is precarious. The firm has burned through most of the $60 thousand cash raised to begin the business and is likely to have trouble replacing its inventory as well as paying its bills. Perhaps they can convince lenders to come to their rescue. If not, the firm will not last another three months.
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-79
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 EquityPer 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 3,4253. (No adjustment required)4. Unbilled services performed 6,000 6,0005. Advance consulting fee earned
($11,300 1/2 = $5,650) (5,650) 5,6506. 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.
©Cambridge Business Publishers, 2014
3-80 Financial Accounting, 4th Edition
C3-57. (30 minutes)
a. Discussion of this case may consider the following ethical considerations facing Javetz:
1. Balancing the long-run interests of the firm (securing the international contract) against the short-run requirement to present accurately the financial data of the company for the current year (recording $150,000 adjusting entry).
2. Compromising the confidentiality of the contract negotiations (by disclosing the contract negotiations to additional persons) versus compromising her professional responsibilities (by omitting a significant year-end adjusting entry).
3. Jeopardizing her position with the firm (by revealing information the president wants kept secret) versus risking possible future legal action by parties relying on the firm's financial statements (by not revealing a significant accrued expense and accrued liability in the financial statements).
b. Discussion of this case should also note that outside auditors frequently access confidential data and disclosing the contract negotiations to the auditor should not represent a significant breach of confidentiality. Perhaps Javetz can achieve a reasonable solution to her dilemma by suggesting that an adjusting entry be recorded and described in very general terms (for example, labeling the liability Payable to Consultants and indicating it is for marketing research and development). Such an adjustment would permit the disclosure of the significant liability without revealing important details to anyone else within or outside the company.
©Cambridge Business Publishers, 2014
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C3-58. (30 minutes)
a,b,c and d.
FSET:
Balance Sheet Income Statement
TransactionCash Asset + Noncash
Assets = Liabilities + Contrib. Capital + Earned
Capital Revenues - Expenses = Net Income
a1. Recognize prepaid catalog costs.
-62,550Cash
+62,550 Prepaid Catalog Costs
= - =
a2. Advertising credits received.
+ 849 Advertising
Credits Receivable
=
+849Retained 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
=
-336Retained Earnings -
+336 Expense:
Expiration of Advertising
Credits
=
-336
d1. Sales of gift certificates.
+19,175Cash
=
+19,175 Unearned
Gift Certificate Revenues
- =
d2. Recognize sales using gift certificates. =
- 18,230 Unearned
Gift Certificate Revenues
+18,230Retained Earnings
+18,230Gift
Certificate Revenues
- =
+18,230
Journal Entries:
a1. Prepaid catalog costs (+A) 62,550Cash (-A) 62,550
To record catalog printing costs.
a2. Advertising credits receivable (+A) 849Advertising credits revenue (+R, +SE) 849
To recognize advertising credits earned.
b. Catalog expense (+E, -SE) 62,138Prepaid catalog costs (-A) 62,138
To regognize catalog expense ($3,894 + $62,550 - $4,306).
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C3-58. concluded
c. Advertising credit expiration expense (+E, -SE) 336Advertising 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) 19,175Unearned gift certificate revenues (+L) 19,175
To recognize gift certificates sold but not yet redeemed.
d2. Unearned gift certificate revenues (-L) 18,230Gift certificate revenues (+R, +SE) 18,230
To recognize revenues based on redeemed gift certificates($6,108 +$19,175 - $7,053).
©Cambridge Business Publishers, 2014
Solutions Manual, Chapter 3 3-83