DISCUSSION QUESTIONSjamesholmes.weebly.com/.../warren_sm_ch.04_final.docx · Web viewFor example,...

CHAPTER 4 COMPLETING THE ACCOUNTING CYCLE

EYE OPENERS

1. The end-of-period spreadsheet (work sheet) illustrates flow of accounting information from the unadjusted trial balance into the ad-justed trial balance and into the financial statements. In doing so, the spreadsheet (work sheet) illustrates the impact of the ad-justments on the financial statements.

2. No. The end-of-period spreadsheet (work sheet) is a device used by the accountant to facilitate the preparation of statements.

3. A net income of $240,350 ($915,800 – $675,450) would be reported. When the Credit column exceeds the Debit column, net income is reported. If the Debit column of the Income Statement columns is more than the Credit column, a net loss is reported.

4. a. Current assets are composed of cash and other assets that may reasonably be expected to be realized in cash or sold or consumed in the near future through the normal operations of the business.

b. Property, plant, and equipment is com-posed of assets used in the business that are of a permanent or relatively fixed nature.

5. Current liabilities are liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets. Liabilities that will not be due for a comparatively long time (usually more than one year) are called long-term liabilities.

6. Revenue, expense, and drawing accounts are generally referred to as temporary accounts.

7. Closing entries are necessary at the end of an accounting period (1) to transfer the bal-ances in temporary accounts to permanent accounts and (2) to prepare the temporary accounts for use in accumulating data for the following accounting period.

8. Adjusting entries bring the accounts up to date, while closing entries reduce the rev-enue, expense, and drawing accounts to zero balances for use in accumulating data for the following accounting period.

9. (1) Debit each revenue account for its bal-ance and credit Income Summary for the total revenue.

(2) Credit each expense account for its bal-ance and debit Income Summary for the total expenses.

(3) Debit Income Summary for its balance and credit the owner’s capital account.

(4) Debit the owner’s capital account for the balance of the drawing account and credit the drawing account.

10. The purpose of the post-closing trial balance is to make sure that the ledger is in balance at the beginning of the next period.

11. a. The financial statements are the most important output of the accounting cycle.

b. Yes, all companies have an accounting cycle that begins with analyzing and journalizing transactions and ends with a post-closing trial balance. However, companies may differ in how they imple-ment the steps in the accounting cycle. For example, while most companies use computerized accounting systems, some companies may use manual sys-tems.

12. The natural business year is the fiscal year that ends when business activities have reached the lowest point in the annual oper-ating cycle.

13. January is more likely to have a lower level of business activity than is December for a department store. Therefore, the additional work to adjust and close the accounts and prepare the financial statements can more easily be performed at the end of January than at the end of December.

14. All the companies listed are general mer-chandisers whose busiest time of the year is during the holiday season, which extends through most of December. Traditionally, the lowest point of business activity for general

merchandisers will be near the end of Janu-ary and the beginning of February. Thus, these companies have chosen their natural business year for their fiscal years.

159

PRACTICE EXERCISES

PE 4–1A

1. Balance Sheet column 5. Balance Sheet column2. Balance Sheet column 6. Balance Sheet column3. Income Statement column 7. Balance Sheet column4. Income Statement column 8. Income Statement column

PE 4–1B

1. Balance Sheet column 5. Income Statement column2. Income Statement column 6. Income Statement column3. Balance Sheet column 7. Balance Sheet column4. Balance Sheet column 8. Balance Sheet column

PE 4–2A

A net income of $47,200 ($233,400 – $186,200) would be reported. When the Credit column exceeds the Debit column, net income is reported. If the Debit column of the Income Statement columns is more than the Credit column, a net loss is re-ported.

PE 4–2B

A net loss of $130,200 ($505,200 – $375,000) would be reported. When the Credit column exceeds the Debit column, a net loss is reported. If the Debit column of the Balance Sheet columns is more than the Credit column, a net income is re-ported.

160

PE 4–3A

4U Delivery ServicesStatement of Owner’s Equity

For the Year Ended December 31, 2009

Meg Ostermiller, capital, January 1, 2009........................... $900,500Net loss.................................................................................. $24,900Add withdrawals.................................................................... 60,000 Decrease in owner’s equity.................................................. 84,900 Meg Ostermiller, capital, December 31, 2009...................... $815,600

PE 4–3B

Steuben Advertising ServicesStatement of Owner’s Equity


Rod Zoot, capital, January 1, 2009...................................... $475,000Additional investment during 2009...................................... 75,000

Total.................................................................................. $550,000Net income............................................................................. $110,000Less withdrawals................................................................... 30,000 Increase in owner’s equity................................................... 80,000 Rod Zoot, capital, December 31, 2009................................. $630,000

PE 4–4A

1. Current liability 5. Owner’s equity2. Current asset 6. Long-term liability3. Property, plant, and equipment 7. Current asset4. Current asset 8. Current liability

PE 4–4B

1. Property, plant, and equipment 5. Current liability2. Owner’s equity 6. Current asset3. Long-term liability 7. Current liability4. Current asset 8. Current liability

161

PE 4–5A

Nov. 30 Fees Earned......................................................... 779,000Income Summary............................................ 779,000

30 Income Summary................................................. 467,600Wages Expense.............................................. 389,000Rent Expense.................................................. 60,000Supplies Expense........................................... 7,200Miscellaneous Expense................................. 11,400

30 Income Summary................................................. 311,400Brett Maxim, Capital....................................... 311,400

30 Brett Maxim, Capital............................................ 50,000Brett Maxim, Drawing..................................... 50,000

PE 4–5B

July 31 Fees Earned......................................................... 515,000Income Summary............................................ 515,000


31 Sherry Kerney, Capital........................................ 56,100Income Summary............................................ 56,100

31 Sherry Kerney, Capital........................................ 20,000Sherry Kerney, Drawing................................. 20,000

PE 4–6A

The following two steps are missing: (1) assembling and analyzing adjustment data and (2) journalizing and posting the closing entries. The adjustment data should be assembled and analyzed after step (c). The closing entries should be journalized and posted to the ledger after step (g).

PE 4–6B

The following two steps are missing: (1) posting the transactions to the ledger and (2) the preparation of the financial statements. Transactions should be posted to the ledger after step (a). The financial statements should be prepared after step (f).

162

EXERCISES

Ex. 4–1

a. Income statement: 5, 8, 9b. Balance sheet: 1, 2, 3, 4, 6, 7, 10

Ex. 4–2

a. Asset: 2, 5, 6, 10b. Liability: 1, 9, 12c. Revenue: 3, 7d. Expense: 4, 8, 11

163

Ex. 4–3

ALPINE CONSULTINGIncome Statement

For the Year Ended March 31, 2010

Fees earned........................................................................... $43,800Expenses:

Salary expense................................................................. $17,450Supplies expense............................................................. 1,850Depreciation expense...................................................... 1,200Miscellaneous expense................................................... 1,850

Total expenses............................................................ 22,350 Net income............................................................................. $ 21,450

ALPINE CONSULTINGStatement of Owner’s Equity


Scott Young, capital, April 1, 2009....................................... $22,600Net income............................................................................. $21,450Less withdrawals................................................................... 3,000 Increase in owner’s equity................................................... 18,450 Scott Young, capital, March 31, 2010.................................. $ 41,050

ALPINE CONSULTINGBalance Sheet March 31, 2010

Assets LiabilitiesCurrent assets: Current liabilities:

Cash............................ $ 9,500 Accounts payable.... $6,100Accounts receivable. . 22,500 Salaries payable...... 200 Supplies...................... 550 Total liabilities............ $ 6,300

Total current assets $32,550Property, plant, and

equipment:Office equipment........ $18,500Less accum. depr....... 3,700 Owner’s Equity

Total property, plant, Scott Young, capital... 41,050 and equipment.... 14,800 Total liabilities and

Total assets................... $ 47,350 owner’s equity......... $ 47,350

164

Ex. 4–4

AARDVARK CONSULTINGIncome Statement

For the Year Ended November 30, 2010

Fees earned........................................................................... $60,000Expenses:

Salary expense................................................................. $32,400Supplies expense............................................................. 2,250Depreciation expense...................................................... 900Miscellaneous expense................................................... 1,500

Total expenses............................................................ 37,050 Net income............................................................................. $ 22,950

AARDVARK CONSULTINGStatement of Owner’s Equity


Jan Sullivan, capital, December 1, 2009.............................. $27,200Net income............................................................................. $22,950Less withdrawals................................................................... 2,000 Increase in owner’s equity................................................... 20,950 Jan Sullivan, capital, November 30, 2010............................ $ 48,150

AARDVARK CONSULTINGBalance Sheet

November 30, 2010


Cash............................ $ 7,500 Accounts payable.... $3,300Accounts receivable. . 18,500 Salaries payable...... 400 Supplies...................... 750 Total liabilities............ $ 3,700


equipment:Office equipment........ $30,500 Owner’s EquityLess accum. depr....... 5,400 Jan Sullivan,

Total property, plant, capital....................... 48,150 and equipment...... 25,100 Total liabilities and


165

Ex. 4–5

3 RIVERS MESSENGER SERVICEIncome Statement

For the Year Ended September 30, 2010

Fees earned......................................................................... $425,000Expenses:

Salaries expense......................................................... $213,800Rent expense............................................................... 60,500Utilities expense.......................................................... 23,200Depreciation expense................................................. 8,000Supplies expense........................................................ 2,750Insurance expense...................................................... 1,500Miscellaneous expense............................................... 3,250

Total expenses......................................................... 313,000 Net income.......................................................................... $112,000

Ex. 4–6

INFINET SERVICES CO.Income Statement

For the Year Ended January 31, 2010

Service revenue.................................................................. $233,900Expenses:

Wages expense............................................................ $184,300Rent expense............................................................... 49,300Utilities expense.......................................................... 18,750Depreciation expense................................................. 12,200Insurance expense...................................................... 6,000Supplies expense........................................................ 2,875Miscellaneous expense............................................... 4,750

Total expenses......................................................... 278,175 Net loss................................................................................ $ 44,275

166

Ex. 4–7

a.FEDEX CORPORATION

Income StatementFor the Year Ended May 31, 2007

(in millions)

Revenues............................................................................. $22,527Expenses:

Salaries and employee benefits................................. $8,051Fuel............................................................................... 2,946Rentals and landing fees............................................ 1,598Maintenance and repairs............................................ 1,440Purchased transportation........................................... 1,097Depreciation................................................................. 845Provision for income taxes......................................... 733Other expense (income) net....................................... 4,566

Total expenses......................................................... 21,276 Net income.......................................................................... $ 1,251

b. The income statements are very similar. The actual statement includes some additional expense and income classifications. For example, the actual state-ment reports Income Before Income Taxes and Provision for Income Taxes separately. In addition, the “Other expense (income) net” in the text is a sum-mary of several items from the Web site, including Intercompany charges, In-terest expense, and Interest income.

Ex. 4–8

JACKRABBIT SYSTEMS CO.Statement of Owner’s Equity


Terry Collins, capital, April 1, 2009................................... $611,900Net income for year............................................................ $320,000Less withdrawals................................................................ 32,000 Increase in owner’s equity................................................. 288,000 Terry Collins, capital, March 31, 2010............................... $899,900

167

Ex. 4–9

PICASSO SPORTSStatement of Owner’s Equity

For the Year Ended June 30, 2010

Margarita Castillo, capital, July 1, 2009............................ $237,600Net loss for year................................................................. $32,300Plus withdrawals................................................................ 4,000 Decrease in owner’s equity............................................... 36,300 Margarita Castillo, capital, June 30, 2010......................... $201,300

Ex. 4–10

a. Current asset: 1, 3, 5, 6b. Property, plant, and equipment: 2, 4

Ex. 4–11

Since current liabilities are usually due within one year, $24,000 ($2,000 × 12 months) would be reported as a current liability on the balance sheet. The remain-der of $336,000 ($360,000 – $24,000) would be reported as a long-term liability on the balance sheet.

168

Ex. 4–12

OPTIMUM WEIGHT CO.Balance SheetJune 30, 2010


Cash.............................................. $ 9,375 Accounts payable............. $8,625Accounts receivable.................... 20,780 Salaries payable................ 3,375Supplies........................................ 520 Unearned fees................... 2,500 Prepaid insurance........................ 4,800 Total liabilities...................... $ 14,500Prepaid rent.................................. 3,000

Total current assets.................. $ 38,475Property, plant, and equipment:

Land.............................................. $100,000Equipment.................................... $75,000 Owner’s EquityLess accumulated depreciation. 25,975 49,025 Carlos Kiser, capital............ 173,000

Total property, plant, andequipment............................... 149,025 Total liabilities and

Total assets...................................... $187,500 owner’s equity................... $187,500

169

Ex. 4–13

1. The date of the statement should be “August 31, 2010” and not “For the Year Ended August 31, 2010.”

2. Accounts payable should be a current liability.

3. Land should be classified as property, plant, and equipment.

4. “Accumulated depreciation” should be deducted from the related fixed asset.

5. An adding error was made in determining the amount of the total property, plant, and equipment.

6. Accounts receivable should be a current asset.

7. Net income should be reported on the income statement.

8. Wages payable should be a current liability.

A corrected balance sheet would be as follows:

170

Ex. 4–13 Concluded

CABANA SERVICES CO.Balance Sheet

August 31, 2010


Cash.............................................. $15,840 Accounts payable............... $20,370Accounts receivable.................... 41,250 Wages payable................... 4,020 Supplies........................................ 4,950 Total liabilities....................... $ 24,390Prepaid insurance........................ 14,400


Land.............................................. $180,000 Owner’s EquityBuilding........................................ $470,100 Hector Delgado, capital........ 515,610 Less accumulated depreciation. 260,100 210,000Equipment.................................... $129,000Less accumulated depreciation. 55,440 73,560

Total property, plant, andequipment.............................. 463,560 Total liabilities and


171

Ex. 4–14

c. Depreciation Expense—Equipmentg. Fees Earnedj. Supplies Expensek. Wages Expense

Note: Erin Dowley, Drawing is closed to Erin Dowley, Capital rather than to In-come Summary.

Ex. 4–15

The income summary account is used to close the revenue and expense ac-counts, and it aids in detecting and correcting errors. The $432,200 represents ex-pense account balances, and the $572,600 represents revenue account balances that have been closed.

Ex. 4–16

a. Income Summary............................................................ 65,200Laurie Engan, Capital................................................ 65,200

($258,600 – $193,400).

Laurie Engan, Capital..................................................... 25,000Laurie Engan, Drawing............................................. 25,000

b. $340,200 ($300,000 + $65,200 – $25,000)

Ex. 4–17

July 31 Fees Earned......................................................... 215,000Income Summary............................................ 215,000


31 John O’Neil, Capital............................................. 36,300Income Summary............................................ 36,300

31 John O’Neil, Capital............................................. 30,000John O’Neil, Drawing..................................... 30,000

172

Ex. 4–18

a. Accounts Payableb. Accumulated Depreciationc. Bo Erath, Capitale. Cashh. Office Equipmentj. Salaries Payablek. Supplies

Ex. 4–19

LA JOLLA BILLIARDS CO.Post-Closing Trial Balance

October 31, 2010

Debit CreditBalances Balances

Cash..................................................................................... 13,200Accounts Receivable......................................................... 29,350Supplies............................................................................... 1,850Equipment........................................................................... 130,600Accumulated Depreciation—Equipment.......................... 43,500Accounts Payable............................................................... 15,800Salaries Payable................................................................. 1,500Unearned Rent.................................................................... 6,000Trisha Valentino, Capital.................................................... 108,200

175,000 175,000

Ex. 4–20

1. c 2. b 3. a 4. h 5. d

6. j 7. e 8. f 9. i

10. g

173

Appendix Ex. 4–211. i2. a3. g4. d5. c6. f7. j8. e9. h

10. b

174

Appendix Ex. 4–22

A B C D E1 HOMELAND SECURITY SERVICES CO.2 End-of-Period Spreadsheet (Work Sheet)3 For the Year Ended October 31, 20104 Unadjusted

Trial Balance AdjustmentsAdjusted

Trial Balance56 Account Title Debit Credit Debit Credit Debit Credit7 Cash 6 68 Accounts Receivable 40 (a) 4 449 Supplies 4 (b) 3 1

10 Prepaid Insurance 6 (c) 5 111 Land 50 5012 Equipment 20 2013 Accum. Depr.—Equipment 2 (d) 2 414 Accounts Payable 18 1815 Wages Payable 0 (e) 2 216 Gloria Millard, Capital 85 8517 Gloria Millard, Drawing 4 418 Fees Earned 45 (a) 4 4919 Wages Expense 10 (e) 2 1220 Rent Expense 6 621 Insurance Expense 0 (c) 5 522 Utilities Expense 3 323 Depreciation Expense 0 (d) 2 224 Supplies Expense 0 (b) 3 325 Miscellaneous Expense 1 ___ __ __ 1 ___26 Totals 150 150 16 16 158 158

175

Appendix Ex. 4–23

A B C D E1 HOMELAND SECURITY SERVICES CO.2 End-of-Period Spreadsheet (Work Sheet)3 For the Year Ended October 31, 20104 Adjusted

Trial BalanceIncome

StatementBalanceSheet5

6 Account Title Debit Credit Debit Credit Debit Credit7 Cash 6 68 Accounts Receivable 44 449 Supplies 1 1

10 Prepaid Insurance 1 111 Land 50 5012 Equipment 20 2013 Accum. Depr.—Equipment 4 414 Accounts Payable 18 1815 Wages Payable 2 216 Gloria Millard, Capital 85 8517 Gloria Millard, Drawing 4 418 Fees Earned 49 4919 Wages Expense 12 1220 Rent Expense 6 621 Insurance Expense 5 522 Utilities Expense 3 323 Supplies Expense 3 324 Depreciation Expense 2 2 25 Miscellaneous Expense 1 ___ _1 __ _ ___26 Totals 158 158 32 49 126 10927 Net income (loss) 17 __ ___ 1728 49 49 126 126

176

Appendix Ex. 4–24HOMELAND SECURITY SERVICES CO.

Income StatementFor the Year Ended October 31, 2010

Fees earned......................................................................... $49Expenses:

Wages expense............................................................ $12Rent expense............................................................... 6Insurance expense...................................................... 5Utilities expense.......................................................... 3Supplies expense........................................................ 3Depreciation expense................................................. 2Miscellaneous expense............................................... 1

Total expenses......................................................... 32 Net income.......................................................................... $ 17

HOMELAND SECURITY SERVICES CO.Statement of Owner’s Equity

For the Year Ended October 31, 2010

Gloria Millard, capital, November 1, 2009......................... $85Net income for the year...................................................... $17Less withdrawals................................................................ 4 Increase in owner’s equity................................................. 13 Gloria Millard, capital, October 31, 2010........................... $98

HOMELAND SECURITY SERVICES CO.Balance Sheet

October 31, 2010


Cash............................... $ 6 Accounts payable......... $18Accounts receivable..... 44 Wages payable.............. 2 Supplies......................... 1 Total liabilities................... $ 20Prepaid insurance......... 1

Total current assets... $ 52Property, plant, and

equipment:Land............................... $ 50Equipment..................... $20Less accum. depr.......... 4 16 Owner’s Equity

Total property, plant, Gloria Millard, capital.... 98 and equipment...... 66 Total liabilities and

Total assets....................... $118 owner’s equity............ $118

177

Appendix Ex. 4–25

2010Oct. 31 Accounts Receivable........................................... 4

Fees Earned.................................................... 4Accrued fees.

31 Supplies Expense................................................ 3Supplies.......................................................... 3

Supplies used ($4 – $1).

31 Insurance Expense.............................................. 5Prepaid Insurance.......................................... 5

Insurance expired.

31 Depreciation Expense......................................... 2Accumulated Depreciation—Equipment...... 2

Equipment depreciation.

31 Wages Expense................................................... 2Wages Payable............................................... 2

Accrued wages.

Appendix Ex. 4–26

2010Oct. 31 Fees Earned......................................................... 49

Income Summary............................................ 4931 Income Summary................................................. 32

Wages Expense.............................................. 12Rent Expense.................................................. 6Insurance Expense......................................... 5Utilities Expense............................................. 3Supplies Expense........................................... 3Depreciation Expense.................................... 2Miscellaneous Expense................................. 1

31 Income Summary................................................. 17Gloria Millard, Capital..................................... 17

31 Gloria Millard, Capital.......................................... 4Gloria Millard, Drawing.................................. 4

178

Ex. 4–27

a. December 31, 2007 2006

Current assets.......... $322,245 $244,952Current liabilities...... 95,699 71,563 Working capital........ $226,546 $173,389

Current ratio..... 3.37 ($322,245/$95,699) 3.42 ($244,952/$71,563)

b. Under Armour’s working capital increased by $53,157 ($226,546 – $173,389) during 2007. The current ratio decreased slightly, from 3.42 to 3.37, in 2007. However, a current ratio of 3.37 still indicates a strong solvency position. Thus, short-term creditors should not be concerned about receiving payment from Under Armour.

Ex. 4–28

a.Sept. 30, 2007 Oct. 1, 2006

Current assets.......... $1,696,487 $1,529,700Current liabilities...... 2,155,566 1,935,620 Working capital........ $ (459,079 ) $ (405,920 )

Current ratio............. 0.79 0.79 ($1,696,487/$2,155,566) ($1,529,700/$1,935,620)

b. Starbucks Corporation has negative (deficit) working capital of $459,079 and $405,920 for 2007 and 2006. Starbucks’ working capital decreased by $53,159 ($459,079 – $405,920) during 2007; however, the current ratio of 0.79 remained the same. Normally, a negative working capital would be of concern to short-term creditors. However, in notes to its financial statements, Starbucks indi-cates that it has unused credit with banks of $1 billion through 2011. Thus, short-term creditors can be assured of receiving payment even though Star-bucks has negative working capital and a current ratio below 1.

179

PROBLEMS

Prob. 4–1A

1.PRISON WATCH COMPANY

Income StatementFor the Year Ended June 30, 2010

Revenues:Fees revenue................................................................ $281,200Rent revenue................................................................ 4,000

Total revenues.......................................................... $285,200Expenses:

Salaries and wages expense...................................... $147,000Advertising expense................................................... 86,800Utilities expense.......................................................... 30,000Travel expense............................................................. 18,750Depreciation expense—equipment............................ 6,000Depreciation expense—building................................ 2,500Supplies expense........................................................ 1,525Insurance expense...................................................... 900Miscellaneous expense............................................... 5,875

Total expenses......................................................... 299,350 Net loss................................................................................ $ 14,150

2.PRISON WATCH COMPANYStatement of Owner’s Equity

For the Year Ended June 30, 2010

Cassandra Jaffee, capital, July 1, 2009............................ $311,300Net loss for the year........................................................... $14,150Add withdrawals................................................................. 20,000 Decrease in owner’s equity............................................... 34,150 Cassandra Jaffee, capital, June 30, 2010......................... $277,150

180

Prob. 4–1A Continued

3.PRISON WATCH COMPANY

Balance SheetJune 30, 2010


Cash.............................................. $ 5,100 Accounts payable............. $9,750Accounts receivable.................... 13,950 Salaries and wagesPrepaid insurance........................ 2,700 payable............................ 1,900Supplies........................................ 500 Unearned rent.................... 500

Total current assets.................. $ 22,250 Total liabilities...................... $ 12,150Property, plant, and equipment:

Land.............................................. $ 80,000 Owner’s EquityBuilding........................................ $200,000 Cassandra Jaffee, capital.... 277,150 Less accum. depreciation........... 92,500 107,500Equipment.................................... $140,000Less accum. depreciation........... 60,450 79,550



181


4.

2010June30 Fees Revenue....................................................... 281,200

Rent Revenue....................................................... 4,000Income Summary............................................ 285,200

30 Income Summary................................................. 299,350Salaries and Wages Expense........................ 147,000Advertising Expense...................................... 86,800Utilities Expense............................................. 30,000Travel Expense............................................... 18,750Depreciation Expense—Equipment.............. 6,000Depreciation Expense—Building.................. 2,500Supplies Expense........................................... 1,525Insurance Expense......................................... 900Miscellaneous Expense................................. 5,875

30 Cassandra Jaffee, Capital................................... 14,150Income Summary............................................ 14,150

30 Cassandra Jaffee, Capital................................... 20,000Cassandra Jaffee, Drawing............................ 20,000

182

Prob. 4–1A Concluded

5.PRISON WATCH COMPANYPost-Closing Trial Balance

June 30, 2010


Cash....................................................................................... 5,100Accounts Receivable............................................................ 13,950Prepaid Insurance................................................................. 2,700Supplies................................................................................. 500Land........................................................................................ 80,000Building.................................................................................. 200,000Accumulated Depreciation—Building................................. 92,500Equipment.............................................................................. 140,000Accumulated Depreciation—Equipment............................. 60,450Accounts Payable................................................................. 9,750Salaries and Wages Payable................................................ 1,900Unearned Rent....................................................................... 500Cassandra Jaffee, Capital..................................................... 277,150

442,250 442,250

183

Prob. 4–2A

1.THE HOMETOWN SERVICES COMPANY

Income StatementFor the Year Ended March 31, 2010

Revenues:Service fees.................................................................. $475,000Rent revenue................................................................ 5,000


Salary expense............................................................ $340,600Depreciation expense—equipment............................ 18,500Rent expense............................................................... 15,500Supplies expense........................................................ 10,950Utilities expense.......................................................... 9,900Depreciation expense—buildings.............................. 6,600Repairs expense.......................................................... 5,450Insurance expense...................................................... 3,000Miscellaneous expense............................................... 5,100


THE HOMETOWN SERVICES COMPANYStatement of Owner’s Equity


Jane Maines, capital, April 1, 2009.................................... $427,600Net income for the year...................................................... $64,400Less withdrawals................................................................ 25,000 Increase in owner’s equity................................................. 39,400 Jane Maines, capital, March 31, 2010............................... $467,000

184


THE HOMETOWN SERVICES COMPANYBalance SheetMarch 31, 2010


Cash.............................................. $ 12,950 Accounts payable............. $33,300Accounts receivable.................... 28,150 Salaries payable................ 3,300Supplies........................................ 4,400 Unearned rent.................... 1,500 Prepaid insurance........................ 9,500 Total liabilities...................... $ 38,100


Land.............................................. $100,000 Owner’s EquityBuildings...................................... $360,000 Jane Maines, capital............ 467,000 Less accum. depreciation........... 117,200 242,800Equipment.................................... $260,000Less accum. depreciation........... 152,700 107,300



185


2.

2010Mar. 31 Service Fees......................................................... 475,000


31 Income Summary................................................. 415,600Salary Expense............................................... 340,600Depreciation Expense—Equipment.............. 18,500Rent Expense.................................................. 15,500Supplies Expense........................................... 10,950Utilities Expense............................................. 9,900Depreciation Expense—Buildings................ 6,600Repairs Expense............................................. 5,450Insurance Expense......................................... 3,000Miscellaneous Expense................................. 5,100

31 Income Summary................................................. 64,400Jane Maines, Capital...................................... 64,400

31 Jane Maines, Capital............................................ 25,000Jane Maines, Drawing.................................... 25,000

3. $60,000 net income. The $35,000 increase is caused by the $25,000 with-drawals and a $60,000 net income.

186

Prob. 4–3A

1, 3, 6.Cash

Oct. 31 Bal. 4,350

Laundry SuppliesOct. 31 Bal. 11,250 Oct. 31 Adj. 8,350

31 Adj. Bal. 2,900

Prepaid InsuranceOct. 31 Bal. 7,200 Oct. 31 Adj. 6,000

31 Adj. Bal. 1,200

Laundry EquipmentOct. 31 Bal. 163,500

Accumulated DepreciationOct. 31 Bal. 61,500

31 Adj. 9,500 31 Adj. Bal. 71,000

Accounts PayableOct. 31 Bal. 9,300

Wages PayableOct. 31 Adj. 1,250

Hilda Dinero, CapitalOct. 31 Clos. 3,000 Oct. 31 Bal. 56,700

_____ 31 Clos. 36,70031 Bal. 90,400

Hilda Dinero, DrawingOct. 31 Bal. 3,000 Oct. 31 Clos. 3,000

187


Income SummaryOct. 31 Clos. 210,800 Oct. 31 Clos. 247,500

31 Clos. 36,700

Laundry RevenueOct. 31 Clos. 247,500 Oct. 31 Bal. 247,500

Wages ExpenseOct. 31 Bal. 107,250 Oct. 31 Clos. 108,500

31 Adj. 1,250 ______31 Adj. Bal. 108,500

Rent ExpenseOct. 31 Bal. 54,000 Oct. 31 Clos. 54,000

Utilities ExpenseOct. 31 Bal. 20,400 Oct. 31 Clos. 20,400

Depreciation ExpenseOct. 31 Adj. 9,500 Oct. 31 Clos. 9,500

Laundry Supplies ExpenseOct. 31 Adj. 8,350 Oct. 31 Clos. 8,350

Insurance ExpenseOct. 31 Adj. 6,000 Oct. 31 Clos. 6,000

Miscellaneous ExpenseOct. 31 Bal. 4,050 Oct. 31 Clos. 4,050

188


2. Optional (Appendix)A B C D E F G H I J K

1 SURF SUDS LAUNDRY 2 End-of-Period Spreadsheet (Work Sheet) 3 For the Year Ended October 31, 2010 4 Unadjusted


Trial BalanceIncome

StatementBalance

Sheet 5 6 Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. 7 Cash 4,350 4,350 4,350 8 Laundry Supplies 11,250 (c) 8,350 2,900 2,900 9 Prepaid Insurance 7,200 (d) 6,000 1,200 1,20010 Laundry Equipment 163,500 163,500 163,50011 Accum. Depreciation 61,500 (b) 9,500 71,000 71,00012 Accounts Payable 9,300 9,300 9,30013 Wages Payable (a) 1,250 1,250 1,25014 Hilda Dinero, Capital 56,700 56,700 56,70015 Hilda Dinero, Drawing 3,000 3,000 3,00016 Laundry Revenue 247,500 247,500 247,50017 Wages Expense 107,250 (a) 1,250 108,500 108,50018 Rent Expense 54,000 54,000 54,00019 Utilities Expense 20,400 20,400 20,40020 Depreciation Expense (b) 9,500 9,500 9,50021 Laundry Supp. Expense (c) 8,350 8,350 8,35022 Insurance Expense (d) 6,000 6,000 6,00023 Misc. Expense 4,050 _______ 4,050 4,05024 375,000 375,000 25,100 25,100 385,750 385,750 210,800 247,500 174,950 138,25025 Net income 36,700 ______ ______ 36,70026 247,500 247,500 174,950 174,950

189


3.Adjusting Entries

2010Oct. 31 Wages Expense.................................................. 1,250

Wages Payable.............................................. 1,250Accrued wages.

31 Depreciation Expense........................................ 9,500Accumulated Depreciation........................... 9,500

Equipment depreciation.31 Laundry Supplies Expense................................ 8,350

Laundry Supplies.......................................... 8,350Supplies used ($11,250 – $2,900).

31 Insurance Expense............................................. 6,000Prepaid Insurance......................................... 6,000

Insurance expired.

4.SURF SUDS LAUNDRYAdjusted Trial Balance

October 31, 2010


Cash....................................................................................... 4,350Laundry Supplies.................................................................. 2,900Prepaid Insurance................................................................. 1,200Laundry Equipment............................................................... 163,500Accumulated Depreciation................................................... 71,000Accounts Payable................................................................. 9,300Wages Payable...................................................................... 1,250Hilda Dinero, Capital............................................................. 56,700Hilda Dinero, Drawing........................................................... 3,000Laundry Revenue.................................................................. 247,500Wages Expense..................................................................... 108,500Rent Expense......................................................................... 54,000Utilities Expense.................................................................... 20,400Depreciation Expense........................................................... 9,500Laundry Supplies Expense.................................................. 8,350Insurance Expense................................................................ 6,000Miscellaneous Expense........................................................ 4,050

385,750 385,750

190


5.SURF SUDS LAUNDRY

Income StatementFor the Year Ended October 31, 2010

Laundry revenue................................................................. $247,500Expenses:

Wages expense............................................................ $108,500Rent expense............................................................... 54,000Utilities expense.......................................................... 20,400Depreciation expense................................................. 9,500Laundry supplies expense......................................... 8,350Insurance expense...................................................... 6,000Miscellaneous expense............................................... 4,050


SURF SUDS LAUNDRYStatement of Owner’s Equity

For the Year Ended October 31, 2010

Hilda Dinero, capital, November 1, 2009........................... $56,700Net income for the year...................................................... $36,700Less withdrawals................................................................ 3,000 Increase in owner’s equity................................................. 33,700 Hilda Dinero, capital, October 31, 2010............................ $ 90,400

SURF SUDS LAUNDRYBalance Sheet

October 31, 2010


Cash........................... $ 4,350 Accounts payable.... $9,300Laundry supplies...... 2,900 Wages payable......... 1,250 Prepaid insurance..... 1,200 Total liabilities............ $ 10,550

Total current assets $ 8,450Property, plant, and

equipment: Owner’s EquityLaundry equipment... $163,500 Hilda Dinero, capital... 90,400 Less accum. depr...... 71,000

Total property, plant,and equipment..... 92,500 Total liabilities and

Total assets.................. $ 100,950 owner’s equity......... $ 100,950

191


6.Closing Entries

2010Oct. 31 Laundry Revenue............................................... 247,500

Income Summary.......................................... 247,50031 Income Summary................................................ 210,800

Wages Expense............................................. 108,500Rent Expense................................................ 54,000Utilities Expense........................................... 20,400Depreciation Expense................................... 9,500Laundry Supplies Expense.......................... 8,350Insurance Expense....................................... 6,000Miscellaneous Expense................................ 4,050

31 Income Summary................................................ 36,700Hilda Dinero, Capital..................................... 36,700

31 Hilda Dinero, Capital.......................................... 3,000Hilda Dinero, Drawing................................... 3,000

7.SURF SUDS LAUNDRY

Post-Closing Trial BalanceOctober 31, 2010


Cash....................................................................................... 4,350Laundry Supplies.................................................................. 2,900Prepaid Insurance................................................................. 1,200Laundry Equipment............................................................... 163,500Accumulated Depreciation................................................... 71,000Accounts Payable................................................................. 9,300Wages Payable...................................................................... 1,250Hilda Dinero, Capital............................................................. 90,400

171,950 171,950

192

Prob. 4–4A1. Optional (Appendix)

A B C D E F G H I J K1 MECHANICAL SERVICES CO.2 End-of-Period Spreadsheet (Work Sheet)3 For the Month Ended July 31, 20104 Unadjusted


Trial BalanceIncome


6 Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.7 Cash 26,870 26,870 26,8708 Accounts Receivable 10,900 (a) 3,000 13,900 13,9009 Supplies 3,050 (b) 1,575 1,475 1,475

10 Prepaid Insurance 4,800 (c) 1,200 3,600 3,60011 Land 50,000 50,000 50,00012 Building 57,500 57,500 57,50013 Acc. Depr.—Building 23,400 (d) 1,300 24,700 24,70014 Equipment 32,000 32,000 32,00015 Acc. Depr.—Equipment 10,200 (e) 1,250 11,450 11,45016 Accounts Payable 3,350 3,350 3,35017 Wages Payable (g) 500 500 50018 Unearned Rent 2,700 (f) 1,000 1,700 1,70019 Rafael Cagle, Capital 123,000 123,000 123,00020 Rafael Cagle, Drawing 2,000 2,000 2,00021 Service Revenue 35,000 (a) 3,000 38,000 38,00022 Rent Revenue (f) 1,000 1,000 1,00023 Wages Expense 5,000 (g) 500 5,500 5,50024 Supplies Expense (b) 1,575 1,575 1,57525 Rent Expense 2,500 2,500 2,50026 Depr. Exp.—Building (d) 1,300 1,300 1,30027 Utilities Expense 1,650 1,650 1,65028 Depr. Exp.—Equipment (e) 1,250 1,250 1,25029 Insurance Expense (c) 1,200 1,200 1,20030 Misc. Expense 1,380 1,380 1,38031 197,650 197,650 9,825 9,825 203,700 203,700 16,355 39,000 187,345 164,70032 Net income 22,645 ______ _______ 22,64533 39,000 39,000 187,345 187,345

193


2.JOURNAL Page 26

Post.Date Ref. Debit Credit

2010 Adjusting EntriesJuly 31 Accounts Receivable................................... 12 3,000

Service Revenue..................................... 41 3,000Accrued revenue.

31 Supplies Expense........................................ 52 1,575Supplies.................................................. 13 1,575

Supplies used ($3,050 – $1,475).

31 Insurance Expense...................................... 57 1,200Prepaid Insurance.................................. 14 1,200

Insurance expired.

31 Depreciation Expense—Building................ 54 1,300Accumulated Depreciation—Building. . 17 1,300

Building depreciation.

31 Depreciation Expense—Equipment........... 56 1,250Accum. Depreciation—Equipment........ 19 1,250


31 Unearned Rent............................................. 23 1,000Rent Revenue......................................... 42 1,000

Rent revenue earned ($2,700 – $1,700).

31 Wages Expense............................................ 51 500Wages Payable....................................... 22 500

Accrued wages.

194


3.MECHANICAL SERVICES CO.

Adjusted Trial BalanceJuly 31, 2010


Cash....................................................................................... 26,870Accounts Receivable............................................................ 13,900Supplies................................................................................. 1,475Prepaid Insurance................................................................. 3,600Land........................................................................................ 50,000Building.................................................................................. 57,500Accumulated Depreciation—Building................................. 24,700Equipment.............................................................................. 32,000Accumulated Depreciation—Equipment............................. 11,450Accounts Payable................................................................. 3,350Wages Payable...................................................................... 500Unearned Rent....................................................................... 1,700Rafael Cagle, Capital............................................................. 123,000Rafael Cagle, Drawing........................................................... 2,000Service Revenue.................................................................... 38,000Rent Revenue........................................................................ 1,000Wages Expense..................................................................... 5,500Supplies Expense.................................................................. 1,575Rent Expense......................................................................... 2,500Depreciation Expense—Building......................................... 1,300Utilities Expense.................................................................... 1,650Depreciation Expense—Equipment..................................... 1,250Insurance Expense................................................................ 1,200Miscellaneous Expense........................................................ 1,380

203,700 203,700

195



Income StatementFor the Month Ended July 31, 2010

Revenues:Service revenue........................................................... $38,000Rent revenue................................................................ 1,000


Wages expense............................................................ $ 5,500Rent expense............................................................... 2,500Utilities expense.......................................................... 1,650Supplies expense........................................................ 1,575Depreciation expense—building................................ 1,300Depreciation expense—equipment............................ 1,250Insurance expense...................................................... 1,200Miscellaneous expense............................................... 1,380


MECHANICAL SERVICES CO.Statement of Owner’s Equity

For the Month Ended July 31, 2010

Rafael Cagle, capital, July 1, 2010..................................... $118,000Additional investment during the month.......................... 5,000 Total..................................................................................... $123,000Net income for the month.................................................. $22,645Less withdrawals................................................................ 2,000 Increase in owner’s equity................................................. 20,645 Rafael Cagle, capital, July 31, 2010................................... $ 143,645

196


MECHANICAL SERVICES CO.Balance SheetJuly 31, 2010


Cash.............................................. $26,870 Accounts payable................. $3,350Accounts receivable.................... 13,900 Wages payable...................... 500Supplies........................................ 1,475 Unearned rent........................ 1,700 Prepaid insurance........................ 3,600 Total liabilities.......................... $ 5,550


Land.............................................. $50,000 Owner’s EquityBuilding........................................ $57,500 Rafael Cagle, capital................ 143,645 Less accum. depreciation........... 24,700 32,800Equipment.................................... $32,000Less accum. depreciation........... 11,450 20,550


Total assets...................................... $ 149,195 owner’s equity....................... $ 149,195

197


5.JOURNAL Page 27

Post.Date Ref. Debit Credit

2010 Closing EntriesJuly 31 Service Revenue.......................................... 41 38,000

Rent Revenue............................................... 42 1,000Income Summary................................... 33 39,000

31 Income Summary......................................... 33 16,355Wages Expense...................................... 51 5,500Supplies Expense................................... 52 1,575Rent Expense.......................................... 53 2,500Depreciation Expense—Building.......... 54 1,300Utilities Expense..................................... 55 1,650Depreciation Expense—Equipment...... 56 1,250Insurance Expense................................. 57 1,200Miscellaneous Expense......................... 59 1,380

31 Income Summary......................................... 33 22,645Rafael Cagle, Capital.............................. 31 22,645

31 Rafael Cagle, Capital.................................... 31 2,000Rafael Cagle, Drawing............................ 32 2,000

198


2. and 5.

Cash 11Post. Balance

Date Item Ref. Dr. Cr. Dr. Cr.

2010July 1 Balance.................... ............. ............. 6,000 .............

3 ................................. 23 ............. 2,500 3,500 .............4 ................................. 23 5,000 ............. 8,500 .............5 ................................. 23 ............. 400 8,100 .............7 ................................. 23 3,200 ............. 11,300 .............8 ................................. 23 5,900 ............. 17,200 .............8 ................................. 23 ............. 4,500 12,700 .............8 ................................. 23 9,400 ............. 22,100 .............

10 ................................. 24 ............. 500 21,600 .............12 ................................. 24 ............. 2,400 19,200 .............15 ................................. 24 7,800 ............. 27,000 .............16 ................................. 24 ............. 1,000 26,000 .............19 ................................. 24 ............. 2,100 23,900 .............22 ................................. 24 ............. 1,200 22,700 .............22 ................................. 24 8,100 ............. 30,800 .............24 ................................. 25 ............. 800 30,000 .............26 ................................. 25 ............. 2,600 27,400 .............30 ................................. 25 ............. 350 27,050 .............30 ................................. 25 ............. 600 26,450 .............31 ................................. 25 ............. 1,000 25,450 .............31 ................................. 25 2,200 ............. 27,650 .............31 ................................. 25 ............. 780 26,870 .............

Accounts Receivable 12

2010July 1 Balance.................... ............. ............. 12,500 .............

7 ................................. 23 ............. 3,200 9,300 .............8 ................................. 23 ............. 5,900 3,400 .............

22 ................................. 24 7,500 ............. 10,900 .............31 Adjusting................. 26 3,000 ............. 13,900 .............

199


Supplies 13Post. Balance


2010July 1 Balance.................... ............. ............. 1,750 .............

10 ................................. 24 500 ............. 2,250 .............27 ................................. 25 800 ............. 3,050 .............31 Adjusting................. 26 ............. 1,575 1,475 .............

Prepaid Insurance 14

2010July 1 Balance.................... ............. ............. 3,600 .............

22 ................................. 24 1,200 ............. 4,800 .............31 Adjusting................. 26 ............. 1,200 3,600 .............

Land 15

2010July 1 Balance.................... ............. ............. 50,000 .............

Building 16

2010July 1 Balance.................... ............. ............. 57,500 .............

Accumulated Depreciation—Building 17

2010July 1 Balance.................... ............. ............. ............. 23,400

31 Adjusting................. 26 ............. 1,300 ............. 24,700

Equipment 18

2010July 1 Balance.................... ............. ............. 29,250 .............

3 ................................. 23 2,750 ............. 32,000 .............

Accumulated Depreciation—Equipment 19

2010July 1 Balance.................... ............. ............. ............. 10,200

31 Adjusting................. 26 ............. 1,250 ............. 11,450

200


Accounts Payable 21Post. Balance


2010July 1 Balance.................... ............. ............. ............. 6,300

3 ................................. 23 ............. 2,750 ............. 9,0508 ................................. 23 4,500 ............. ............. 4,550

19 ................................. 24 2,100 ............. ............. 2,45031 ................................. 25 ............. 900 ............. 3,350

Wages Payable 22

2010July 31 Adjusting................. 26 ............. 500 ............. 500

Unearned Rent 23

2010July 1 Balance.................... ............. ............. ............. 2,700

31 Adjusting................. 26 1,000 ............. ............. 1,700

Rafael Cagle, Capital 31

2010July 1 Balance.................... ............. ............. ............. 118,000

4 ................................. 23 ............. 5,000 ............. 123,00031 Closing.................... 27 ............. 22,645 ............. 145,64531 Closing.................... 27 2,000 ............. ............. 143,645

Rafael Cagle, Drawing 32

2010July 16 ................................. 24 1,000 ............. 1,000 .............

31 ................................. 25 1,000 ............. 2,000 .............31 Closing.................... 27 ............. 2,000 — —

Income Summary 33

2010July 31 Closing.................... 27 ............. 39,000 ............. 39,000

31 Closing.................... 27 16,355 ............. ............. 22,64531 Closing.................... 27 22,645 ............. — —

201


Service Revenue 41Post. Balance


2010July 8 ................................. 23 ............. 9,400 ............. 9,400

15 ................................. 24 ............. 7,800 ............. 17,20022 ................................. 24 ............. 8,100 ............. 25,30022 ................................. 24 ............. 7,500 ............. 32,80031 ................................. 25 ............. 2,200 ............. 35,00031 Adjusting................. 26 ............. 3,000 ............. 38,00031 Closing.................... 27 38,000 ............. — —

Rent Revenue 42

2010July 31 Adjusting................. 26 ............. 1,000 ............. 1,000

31 Closing.................... 27 1,000 ............. — —

Wages Expense 51

2010July 12 ................................. 24 2,400 ............. 2,400 .............

26 ................................. 25 2,600 ............. 5,000 .............31 Adjusting................. 26 500 ............. 5,500 .............31 Closing.................... 27 ............. 5,500 — —

Supplies Expense 52

2010July 31 Adjusting................. 26 1,575 ............. 1,575 .............

31 Closing.................... 27 ............. 1,575 — —

Rent Expense 53

2010July 3 ................................. 23 2,500 ............. 2,500 .............

31 Closing.................... 27 ............. 2,500 — —

202


Depreciation Expense—Building 54Post. Balance


2010July 31 Adjusting................. 26 1,300 ............. 1,300 .............

31 Closing.................... 27 ............. 1,300 — —

Utilities Expense 55

2010July 5 ................................. 24 400 ............. 400 .............

30 ................................. 25 350 ............. 750 .............31 ................................. 25 900 ............. 1,650 .............31 Closing.................... 27 ............. 1,650 — —

Depreciation Expense—Equipment 56

2010July 31 Adjusting................. 26 1,250 ............. 1,250 .............

31 Closing.................... 27 ............. 1,250 — —

Insurance Expense 57

2010July 31 Adjusting................. 26 1,200 ............. 1,200 .............

31 Closing.................... 27 ............. 1,200 — —

Miscellaneous Expense 59

2010July 30 ................................. 25 600 ............. 600 .............

31 ................................. 25 780 ............. 1,380 .............31 Closing.................... 27 ............. 1,380 — —

203



Post-Closing Trial BalanceJuly 31, 2010


Cash..................................................................................... 26,870Accounts Receivable......................................................... 13,900Supplies............................................................................... 1,475Prepaid Insurance.............................................................. 3,600Land..................................................................................... 50,000Building............................................................................... 57,500Accumulated Depreciation—Building.............................. 24,700Equipment........................................................................... 32,000Accumulated Depreciation—Equipment.......................... 11,450Accounts Payable............................................................... 3,350Wages Payable................................................................... 500Unearned Rent.................................................................... 1,700Rafael Cagle, Capital.......................................................... 143,645

185,345 185,345

204

Prob. 4–5A

1., 3., and 6.



2010Dec. 31 Balance.................... ............. ............. 1,825 .............

Supplies 13

2010Dec. 31 Balance.................... ............. ............. 4,820 .............

31 Adjusting................. 26 ............. 3,320 1,500 .............


2010Dec. 31 Balance.................... ............. ............. 7,500 .............

31 Adjusting................. 26 ............. 2,500 5,000 .............

Equipment 16

2010Dec. 31 Balance.................... ............. ............. 70,200 .............


2010Dec. 31 Balance.................... ............. ............. ............. 12,050

31 Adjusting................. 26 ............. 4,700 ............. 16,750

Trucks 18

2010Dec. 31 Balance.................... ............. ............. 50,000 .............

Accumulated Depreciation—Trucks 19

2010Dec. 31 Balance.................... ............. ............. ............. 27,100

31 Adjusting................. 26 ............. 3,100 ............. 30,200

205




2010Dec. 31 Balance.................... ............. ............. ............. 12,015

Wages Payable 22

2010Dec. 31 Adjusting................. 26 ............. 750 ............. 750

Reed Barmack, Capital 31

2010Dec. 31 Balance.................... ............. ............. ............. 27,885

31 Closing.................... 27 ............. 43,425 ............. 71,31031 Closing.................... 27 2,500 ............. ............. 68,810

Reed Barmack, Drawing 32

2010Dec. 31 Balance.................... ............. ............. 2,500 .............

31 Closing.................... 27 ............. 2,500 — —

Income Summary 33

2010Dec. 31 Closing.................... 27 ............. 120,950 ............. 120,950

31 Closing.................... 27 77,525 ............. ............. 43,42531 Closing.................... 27 43,425 ............. — —

Service Revenue 41

2010Dec. 31 Balance.................... ............. ............. ............. 120,950

31 Closing.................... 27 120,950 ............. — —

Wages Expense 51

2010Dec. 31 Balance.................... ............. ............. 48,010 .............

31 Adjusting................. 26 750 ............. 48,760 .............31 Closing.................... 27 ............. 48,760 — —

206


Supplies Expense 52Post. Balance


2010Dec. 31 Adjusting................. 26 3,320 ............. 3,320 .............

31 Closing.................... 27 ............. 3,320 — —

Rent Expense 53

2010Dec. 31 Balance.................... ............. ............. 7,600 .............

31 Closing.................... 27 ............. 7,600 — —


2010Dec. 31 Adjusting................. 26 4,700 ............. 4,700 .............

31 Closing.................... 27 ............. 4,700 — —

Truck Expense 55

2010Dec. 31 Balance.................... ............. ............. 5,350 .............

31 Closing.................... 27 ............. 5,350 — —

Depreciation Expense—Trucks 56

2010Dec. 31 Adjusting................. 26 3,100 ............. 3,100 .............

31 Closing.................... 27 ............. 3,100 — —


2010Dec. 31 Adjusting................. 26 2,500 ............. 2,500 .............

31 Closing.................... 27 ............. 2,500 — —


2010Dec. 31 Balance.................... ............. ............. 2,195 .............

31 Closing.................... 27 ............. 2,195 — —

207

Prob. 4–5A Continued2. Optional (Appendix)

A B C D E F G H I J K1 LOOSE LEAF CO.2 End-of-Period Spreadsheet (Work Sheet)3 For the Year Ended December 31, 20104 Unadjusted


Trial BalanceIncome

StatementBalance

Sheet56 Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.7 Cash 1,825 1,825 1,8258 Supplies 4,820 (a) 3,320 1,500 1,5009 Prepaid Insurance 7,500 (b) 2,500 5,000 5,000

10 Equipment 70,200 70,200 70,20011 Accum. Depr.—Equipment 12,050 (c) 4,700 16,750 16,75012 Trucks 50,000 50,000 50,00013 Accum. Depr.—Trucks 27,100 (d) 3,100 30,200 30,20014 Accounts Payable 12,015 12,015 12,01515 Wages Payable (e) 750 750 75016 Reed Barmack, Capital 27,885 27,885 27,88517 Reed Barmack, Drawing 2,500 2,500 2,50018 Service Revenue 120,950 120,950 120,95019 Wages Expense 48,010 (e) 750 48,760 48,76020 Supplies Expense (a) 3,320 3,320 3,32021 Rent Expense 7,600 7,600 7,60022 Depr. Exp.—Equipment (c) 4,700 4,700 4,70023 Truck Expense 5,350 5,350 5,35024 Depr. Exp.—Trucks (d) 3,100 3,100 3,10025 Insurance Expense (b) 2,500 2,500 2,50026 Misc. Expense 2,195 2,195 2,19527 200,000 200,000 14,370 14,370 208,550 208,550 77,525 120,950 131,025 87,60028 Net income 43,425 ______ _______ 43,42529 120,950 120,950 131,025 131,025

208


3. JOURNAL Page 26Post.

Date Ref. Debit Credit

Adjusting Entries2010Dec. 31 Supplies Expense........................................ 52 3,320

Supplies.................................................. 13 3,320Supplies used ($4,820 – $1,500).


Insurance expired.

31 Depreciation Expense—Equipment........... 54 4,700Accumulated Depreciation—Equip....... 17 4,700


31 Depreciation Expense—Trucks.................. 56 3,100Accumulated Depreciation—Trucks..... 19 3,100

Truck depreciation.


Accrued wages.

209


4.LOOSE LEAF CO.

Adjusted Trial BalanceDecember 31, 2010


Cash..................................................................................... 1,825Supplies............................................................................... 1,500Prepaid Insurance.............................................................. 5,000Equipment........................................................................... 70,200Accumulated Depreciation—Equipment.......................... 16,750Trucks.................................................................................. 50,000Accumulated Depreciation—Trucks................................. 30,200Accounts Payable............................................................... 12,015Wages Payable................................................................... 750Reed Barmack, Capital....................................................... 27,885Reed Barmack, Drawing..................................................... 2,500Service Revenue................................................................. 120,950Wages Expense.................................................................. 48,760Supplies Expense............................................................... 3,320Rent Expense...................................................................... 7,600Depreciation Expense—Equipment.................................. 4,700Truck Expense.................................................................... 5,350Depreciation Expense—Trucks......................................... 3,100Insurance Expense............................................................. 2,500Miscellaneous Expense..................................................... 2,195

208,550 208,550

210


5.LOOSE LEAF CO.Income Statement



Wages expense............................................................ $48,760Rent expense............................................................... 7,600Truck expense............................................................. 5,350Depreciation expense—equipment............................ 4,700Supplies expense........................................................ 3,320Depreciation expense—trucks................................... 3,100Insurance expense...................................................... 2,500Miscellaneous expense............................................... 2,195


LOOSE LEAF CO.Statement of Owner’s Equity


Reed Barmack, capital, January 1, 2010............................. $27,885Net income for the year........................................................ $43,425Less withdrawals................................................................... 2,500 Increase in owner’s equity................................................... 40,925 Reed Barmack, capital, December 31, 2010........................ $ 68,810

211


LOOSE LEAF CO.Balance Sheet

December 31, 2010


Cash.............................................. $ 1,825 Accounts payable................ $12,015Supplies........................................ 1,500 Wages payable..................... 750 Prepaid insurance........................ 5,000 Total liabilities........................ $12,765


Equipment.................................... $70,200 Owner’s EquityLess accumulated depr. ............. 16,750 $53,450 Reed Barmack, capital........... 68,810 Trucks........................................... $50,000Less accumulated depr. ............. 30,200 19,800


Total assets...................................... $ 81,575 owner’s equity..................... $ 81,575

212




Closing Entries2010Dec. 31 Service Revenue.......................................... 41 120,950

Income Summary................................... 33 120,95031 Income Summary......................................... 33 77,525

Wages Expense...................................... 51 48,760Supplies Expense................................... 52 3,320Rent Expense.......................................... 53 7,600Depreciation Expense—Equipment...... 54 4,700Truck Expense........................................ 55 5,350Depreciation Expense—Trucks............. 56 3,100Insurance Expense................................. 57 2,500Miscellaneous Expense......................... 59 2,195

31 Income Summary......................................... 33 43,425Reed Barmack, Capital........................... 31 43,425

31 Reed Barmack, Capital................................ 31 2,500Reed Barmack, Drawing........................ 32 2,500

7.LOOSE LEAF CO.

Post-Closing Trial BalanceDecember 31, 2010


Cash..................................................................................... 1,825Supplies............................................................................... 1,500Prepaid Insurance.............................................................. 5,000Equipment........................................................................... 70,200Accumulated Depreciation—Equipment.......................... 16,750Trucks.................................................................................. 50,000Accumulated Depreciation—Trucks................................. 30,200Accounts Payable............................................................... 12,015Wages Payable................................................................... 750Reed Barmack, Capital....................................................... 68,810

128,525 128,525

213

Prob. 4–6A

1. and 2. JOURNAL Pages 1 and 2Post.

Date Description Ref. Debit Credit

2010June 1 Cash.............................................................. 11 20,000

Accounts Receivable................................... 12 4,500Supplies........................................................ 14 2,000Office Equipment......................................... 18 11,500

Emily Page, Capital................................ 31 38,0001 Prepaid Rent................................................. 15 6,000

Cash......................................................... 11 6,0002 Prepaid Insurance........................................ 16 2,400

Cash......................................................... 11 2,4004 Cash.............................................................. 11 2,700

Unearned Fees........................................ 23 2,7005 Office Equipment......................................... 18 3,500

Accounts Payable.................................. 21 3,5006 Cash.............................................................. 11 3,000

Accounts Receivable............................. 12 3,00010 Miscellaneous Expense............................... 59 200

Cash......................................................... 11 20012 Accounts Payable........................................ 21 750

Cash......................................................... 11 75012 Accounts Receivable................................... 12 5,100

Fees Earned............................................ 41 5,10014 Salary Expense............................................ 51 1,100

Cash......................................................... 11 1,10017 Cash.............................................................. 11 6,500

Fees Earned............................................ 41 6,50018 Supplies........................................................ 14 750


Fees Earned............................................ 41 3,10024 Cash.............................................................. 11 5,150

Fees Earned............................................ 41 5,150

214




2010June 26 Cash.............................................................. 11 6,900

Accounts Receivable............................. 12 6,90027 Salary Expense............................................ 51 1,100

Cash......................................................... 11 1,10029 Miscellaneous Expense............................... 59 150

Cash......................................................... 11 15030 Miscellaneous Expense............................... 59 400

Cash......................................................... 11 40030 Cash.............................................................. 11 2,500

Fees Earned............................................ 41 2,50030 Accounts Receivable................................... 12 1,000

Fees Earned............................................ 41 1,00030 Emily Page, Drawing.................................... 32 5,000

Cash......................................................... 11 5,000

215


2., 6., and 9.Cash 11

Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2010June 1 ................................. 1 20,000 ............. 20,000 .............

1 ................................. 1 ............. 6,000 14,000 .............2 ................................. 1 ............. 2,400 11,600 .............4 ................................. 1 2,700 ............. 14,300 .............6 ................................. 1 3,000 ............. 17,300 .............

10 ................................. 1 ............. 200 17,100 .............12 ................................. 1 ............. 750 16,350 .............14 ................................. 1 ............. 1,100 15,250 .............17 ................................. 2 6,500 ............. 21,750 .............18 ................................. 2 ............. 750 21,000 .............24 ................................. 2 5,150 ............. 26,150 .............26 ................................. 2 6,900 ............. 33,050 .............27 ................................. 2 ............. 1,100 31,950 .............29 ................................. 2 ............. 150 31,800 .............30 ................................. 2 ............. 400 31,400 .............30 ................................. 2 2,500 ............. 33,900 .............30 ................................. 2 ............. 5,000 28,900 .............


2010June 1 ................................. 1 4,500 ............. 4,500 .............

6 ................................. 1 ............. 3,000 1,500 .............12 ................................. 1 5,100 ............. 6,600 .............20 ................................. 2 3,100 ............. 9,700 .............26 ................................. 2 ............. 6,900 2,800 .............30 ................................. 2 1,000 ............. 3,800 .............

Supplies 14

2010June 1 ................................. 1 2,000 ............. 2,000 .............

18 ................................. 2 750 ............. 2,750 .............30 Adjusting................. 3 ............. 2,100 650 .............

216


Prepaid Rent 15Post. Balance


2010June 1 ................................. 1 6,000 ............. 6,000 .............

30 Adjusting................. 3 ............. 2,000 4,000 .............


2010June 2 ................................. 1 2,400 ............. 2,400 .............

30 Adjusting................. 3 ............. 200 2,200 .............

Office Equipment 18

2010June 1 ................................. 1 11,500 ............. 11,500 .............

5 ................................. 1 3,500 ............. 15,000 .............

Accumulated Depreciation 19

2010June 30 Adjusting................. 3 ............. 250 ............. 250

Accounts Payable 21

2010June 5 ................................. 1 ............. 3,500 ............. 3,500

12 ................................. 1 750 ............. ............. 2,750

Salaries Payable 22

2010June 30 Adjusting................. 3 ............. 220 ............. 220

Unearned Fees 23

2010June 4 ................................. 1 ............. 2,700 ............. 2,700

30 Adjusting................. 3 825 ............. ............. 1,875

217


Emily Page, Capital 31Post. Balance


2010June 1 ................................. 1 ............. 38,000 ............. 38,000

30 Closing.................... 4 ............. 16,455 ............. 54,45530 Closing.................... 4 5,000 ............. ............. 49,455

Emily Page, Drawing 32

2010June 30 ................................. 2 5,000 ............. 5,000 .............

30 Closing.................... 4 ............. 5,000 — —

Income Summary 33

2010June 30 Closing.................... 4 ............. 24,175 ............. 24,175

30 Closing.................... 4 7,720 ............. ............. 16,45530 Closing.................... 4 16,455 ............. — —

Fees Earned 41

2010June 12 ................................. 1 ............. 5,100 ............. 5,100

17 ................................. 2 ............. 6,500 ............. 11,60020 ................................. 2 ............. 3,100 ............. 14,70024 ................................. 2 ............. 5,150 ............. 19,85030 ................................. 2 ............. 2,500 ............. 22,35030 ................................. 2 ............. 1,000 ............. 23,35030 Adjusting................. 3 ............. 825 ............. 24,17530 Closing.................... 4 24,175 ............. — —

Salary Expense 51

2010June 14 ................................. 1 1,100 ............. 1,100 .............

27 ................................. 2 1,100 ............. 2,200 .............30 Adjusting................. 3 220 ............. 2,420 .............30 Closing.................... 4 ............. 2,420 — —

218


Rent Expense 52Post. Balance


2010June 30 Adjusting................. 3 2,000 ............. 2,000 .............

30 Closing.................... 4 ............. 2,000 — —

Supplies Expense 53

2010June 30 Adjusting................. 3 2,100 ............. 2,100 .............

30 Closing.................... 4 ............. 2,100 — —

Depreciation Expense 54

2010June 30 Adjusting................. 3 250 ............. 250 .............

30 Closing.................... 4 ............. 250 — —


2010June 30 Adjusting................. 3 200 ............. 200 .............

30 Closing.................... 4 ............. 200 — —


2010June 10 ................................. 1 200 ............. 200 .............

29 ................................. 2 150 ............. 350 .............30 ................................. 2 400 ............. 750 .............30 Closing.................... 4 ............. 750 — —

219


3.BOTTOM LINE CONSULTING

Unadjusted Trial BalanceJune 30, 2010


Cash....................................................................................... 28,900Accounts Receivable............................................................ 3,800Supplies................................................................................. 2,750Prepaid Rent.......................................................................... 6,000Prepaid Insurance................................................................. 2,400Office Equipment................................................................... 15,000Accumulated Depreciation................................................... 0Accounts Payable................................................................. 2,750Salaries Payable.................................................................... 0Unearned Fees....................................................................... 2,700Emily Page, Capital............................................................... 38,000Emily Page, Drawing............................................................. 5,000Fees Earned........................................................................... 23,350Salary Expense...................................................................... 2,200Rent Expense......................................................................... 0Supplies Expense.................................................................. 0Depreciation Expense........................................................... 0Insurance Expense................................................................ 0Miscellaneous Expense........................................................ 750

66,800 66,800

220

Prob. 4–6A Continued5. Optional (Appendix)

A B C D E F G H I J K1 BOTTOM LINE CONSULTING2 End-of-Period Spreadsheet (Work Sheet)3 For the Month Ended June 30, 20104 Unadjusted


Trial BalanceIncome

StatementBalance

Sheet56 Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.7 Cash 28,900 28,900 28,9008 Accounts Receivable 3,800 3,800 3,8009 Supplies 2,750 (b) 2,100 650 650

10 Prepaid Rent 6,000 (e) 2,000 4,000 4,00011 Prepaid Insurance 2,400 (a) 200 2,200 2,20012 Office Equipment 15,000 15,000 15,00013 Accum. Depreciation (c) 250 250 25014 Accounts Payable 2,750 2,750 2,75015 Salaries Payable (d) 220 220 22016 Unearned Fees 2,700 (f) 825 1,875 1,87517 Emily Page, Capital 38,000 38,000 38,00018 Emily Page, Drawing 5,000 5,000 5,00019 Fees Earned 23,350 (f) 825 24,175 24,17520 Salary Expense 2,200 (d) 220 2,420 2,42021 Rent Expense (e) 2,000 2,000 2,00022 Supplies Expense (b) 2,100 2,100 2,10023 Depreciation Expense (c) 250 250 25024 Insurance Expense (a) 200 200 20025 Miscellaneous Expense 750 750 75026 66,800 66,800 5,595 5,595 67,270 67,270 7,720 24,175 59,550 43,09527 Net income 16,455 ______ ______ 16,45528 24,175 24,175 59,550 59,550

221




Adjusting Entries2010June 30 Insurance Expense...................................... 55 200

Prepaid Insurance.................................. 16 200Insurance expired.


Supplies used ($2,750 – $650).

30 Depreciation Expense.................................. 54 250Accumulated Depreciation.................... 19 250


30 Salary Expense............................................ 51 220Salaries Payable..................................... 22 220

Accrued salaries.

30 Rent Expense............................................... 52 2,000Prepaid Rent........................................... 15 2,000

Rent expired.

30 Unearned Fees............................................. 23 825Fees Earned............................................ 41 825

Unearned fees earned ($2,700 – $1,875).

222



Adjusted Trial BalanceJune 30, 2010


Cash....................................................................................... 28,900Accounts Receivable............................................................ 3,800Supplies................................................................................. 650Prepaid Rent.......................................................................... 4,000Prepaid Insurance................................................................. 2,200Office Equipment................................................................... 15,000Accumulated Depreciation................................................... 250Accounts Payable................................................................. 2,750Salaries Payable.................................................................... 220Unearned Fees....................................................................... 1,875Emily Page, Capital............................................................... 38,000Emily Page, Drawing............................................................. 5,000Fees Earned........................................................................... 24,175Salary Expense...................................................................... 2,420Rent Expense......................................................................... 2,000Supplies Expense.................................................................. 2,100Depreciation Expense........................................................... 250Insurance Expense................................................................ 200Miscellaneous Expense........................................................ 750

67,270 67,270

223



Income StatementFor the Month Ended June 30, 2010


Salary expense............................................................ $2,420Supplies expense........................................................ 2,100Rent expense............................................................... 2,000Depreciation expense................................................. 250Insurance expense...................................................... 200Miscellaneous expense............................................... 750


BOTTOM LINE CONSULTINGStatement of Owner’s Equity

For the Month Ended June 30, 2010

Emily Page, capital, June 1, 2010...................................... $ 0Additional investments during the month........................ 38,000 Total..................................................................................... $38,000Net income for the month.................................................. $16,455Less withdrawals................................................................ 5,000 Increase in owner’s equity................................................. 11,455 Emily Page, capital, June 30, 2010.................................... $ 49,455

224


BOTTOM LINE CONSULTINGBalance SheetJune 30, 2010


Cash............................ $28,900 Accounts payable.... $2,750Accounts receivable. . 3,800 Salaries payable...... 220Supplies...................... 650 Unearned fees.......... 1,875 Prepaid rent................ 4,000 Total liabilities............ $ 4,845Prepaid insurance...... 2,200

Total current assets $39,550Property, plant, and Owner’s Equity

equipment: Emily Page,Office equipment........ $15,000 capital....................... 49,455 Less accum. depr. ..... 250

Total property, plant,and equipment...... 14,750 Total liabilities and


225




Closing Entries2010June 30 Fees Earned.................................................. 41 24,175


Salary Expense....................................... 51 2,420Rent Expense.......................................... 52 2,000Supplies Expense................................... 53 2,100Depreciation Expense............................ 54 250Insurance Expense................................. 55 200Miscellaneous Expense......................... 59 750

30 Income Summary......................................... 33 16,455Emily Page, Capital................................ 31 16,455

30 Emily Page, Capital...................................... 31 5,000Emily Page, Drawing.............................. 32 5,000

10.BOTTOM LINE CONSULTINGPost-Closing Trial Balance

June 30, 2010


Cash..................................................................................... 28,900Accounts Receivable......................................................... 3,800Supplies............................................................................... 650Prepaid Rent....................................................................... 4,000Prepaid Insurance.............................................................. 2,200Office Equipment................................................................ 15,000Accumulated Depreciation................................................ 250Accounts Payable............................................................... 2,750Salaries Payable................................................................. 220Unearned Fees.................................................................... 1,875Emily Page, Capital............................................................ 49,455

54,550 54,550

226

Prob. 4–1B

1.LIGHTWORKS COMPANY

Income StatementFor the Year Ended July 31, 2010

Revenues:Fees revenue................................................................ $307,000Rent revenue................................................................ 1,000


Salaries and wages expense...................................... $114,900Advertising expense................................................... 21,700Utilities expense.......................................................... 11,400Repairs expense.......................................................... 8,850Depreciation expense—equipment............................ 3,200Insurance expense...................................................... 3,000Supplies expense........................................................ 1,900Depreciation expense—building................................ 1,400Miscellaneous expense............................................... 4,320



Statement of Owner’s EquityFor the Year Ended July 31, 2010

Marisa Crider, capital, August 1, 2009.............................. $103,100Net income for the year...................................................... $137,330Less withdrawals................................................................ 10,000 Increase in owner’s capital................................................ 127,330 Marisa Crider, capital, July 31, 2010................................. $230,430

227

Prob. 4–1B Continued


Balance SheetJuly 31, 2010


Cash.............................................. $ 5,800 Accounts payable................. $5,700Accounts receivable.................... 22,200 Salaries and wagesPrepaid insurance........................ 1,200 payable................................ 1,800Supplies........................................ 830 Unearned rent........................ 1,100

Total current assets.................. $ 30,030 Total liabilities.......................... $ 8,600Property, plant, and equipment:

Land.............................................. $98,000Building........................................ $200,000 Owner’s EquityLess accum. depreciation........... 101,700 98,300 Marisa Crider, capital.............. 230,430 Equipment.................................... $101,000Less accum. depreciation........... 88,300 12,700


Total assets...................................... $239,030 owner’s equity....................... $239,030

228


4.

2010July 31 Fees Revenue....................................................... 307,000


31 Income Summary................................................. 170,670Salaries & Wages Expense............................ 114,900Advertising Expense...................................... 21,700Utilities Expense............................................. 11,400Repairs Expense............................................. 8,850Depreciation Expense—Equipment ............. 3,200Insurance Expense......................................... 3,000Supplies Expense........................................... 1,900Depreciation Expense—Building.................. 1,400Miscellaneous Expense................................. 4,320

31 Income Summary................................................. 137,330Marisa Crider, Capital..................................... 137,330

31 Marisa Crider, Capital.......................................... 10,000Marisa Crider, Drawing.................................. 10,000

229

Prob. 4–1B Concluded

5.

LIGHTWORKS COMPANYPost-Closing Trial Balance

July 31, 2010


Cash....................................................................................... 5,800Accounts Receivable............................................................ 22,200Prepaid Insurance................................................................. 1,200Supplies................................................................................. 830Land........................................................................................ 98,000Building.................................................................................. 200,000Accumulated Depreciation—Building................................. 101,700Equipment.............................................................................. 101,000Accumulated Depreciation—Equipment............................. 88,300Accounts Payable................................................................. 5,700Salaries & Wages Payable.................................................... 1,800Unearned Rent....................................................................... 1,100Marisa Crider, Capital........................................................... 230,430

429,030 429,030

230

Prob. 4–2B

1.SUSPICIONS COMPANY

Income StatementFor the Year Ended November 30, 2010

Revenues:Service fees.................................................................. $480,000Rent revenue................................................................ 20,000


Salary expense............................................................ $375,000Rent expense............................................................... 62,500Supplies expense........................................................ 9,000Depreciation expense—equipment............................ 5,000Utilities expense.......................................................... 4,400Repairs expense.......................................................... 3,200Insurance expense...................................................... 2,800Miscellaneous expense............................................... 4,600


SUSPICIONS COMPANYStatement of Owner’s Equity


Curtis Graves, capital, December 1, 2009........................ $172,800Net income for the year...................................................... $33,500Less withdrawals................................................................ 30,000 Increase in owner’s capital................................................ 3,500 Curtis Graves, capital, November 30, 2010...................... $176,300

231


SUSPICIONS COMPANYBalance Sheet

November 30, 2010


Cash.............................................. $11,500 Accounts payable............ $6,000Accounts receivable.................... 47,200 Salaries payable.............. 1,500Supplies........................................ 3,500 Unearned rent.................. 3,000 Prepaid insurance........................ 4,800 Total liabilities.................... $ 10,500


Equipment.................................... $175,000 Owner’s EquityLess accum. depreciation........... 55,200 Curtis Graves, capital.............. 176,300


Total assets...................................... $186,800 owner’s equity....................... $186,800

232


2.

2010Nov. 30 Service Fees......................................................... 480,000


30 Income Summary................................................. 466,500Salary Expense............................................... 375,000Rent Expense.................................................. 62,500Supplies Expense........................................... 9,000Depreciation Expense—Equipment ............. 5,000Utilities Expense............................................. 4,400Repairs Expense............................................. 3,200Insurance Expense......................................... 2,800Miscellaneous Expense................................. 4,600

30 Income Summary................................................. 33,500Curtis Graves, Capital.................................... 33,500

30 Curtis Graves, Capital......................................... 30,000Curtis Graves, Drawing.................................. 30,000

3. $10,000 net loss. The $40,000 decrease is caused by the $30,000 withdrawals and a $10,000 net loss.

233

Prob. 4–3B

1, 3, 6.

CashApr. 30 Bal. 11,000

Laundry SuppliesApr. 30 Bal. 18,900 Apr. 30 Adj. 14,900

30 Adj. Bal. 4,000

Prepaid InsuranceApr. 30 Bal. 8,600 Apr. 30 Adj. 5,200

30 Adj. Bal. 3,400

Laundry EquipmentApr. 30 Bal. 284,000

Accumulated DepreciationApr. 30 Bal. 150,400

30 Adj. 6,000 30 Adj. Bal. 156,400

Accounts PayableApr. 30 Bal. 9,800

Wages PayableApr. 30 Adj. 1,100

Deanna Beaven, CapitalApr. 30 Clos. 8,400 Apr. 30 Bal. 107,600

_____ Apr. 30 Clos. 35,900Apr. 30 Bal. 135,100

234


Deanna Beaven, DrawingApr. 30 Bal. 8,400 Apr. 30 Clos. 8,400

Income SummaryApr. 30 Clos. 196,300 Apr. 30 Clos. 232,200Apr. 30 Clos. 35,900

Laundry RevenueApr. 30 Clos. 232,200 Apr. 30 Bal. 232,200

Wages ExpenseApr. 30 Bal. 104,000 Apr. 30 Clos. 105,100

30 Adj. 1,100 ______30 Adj. Bal. 105,100

Rent ExpenseApr. 30 Bal. 39,300 Apr. 30 Clos. 39,300

Utilities ExpenseApr. 30 Bal. 20,400 Apr. 30 Clos. 20,400

Laundry Supplies ExpenseApr. 30 Adj. 14,900 Apr. 30 Clos. 14,900

Depreciation ExpenseApr. 30 Adj. 6,000 Apr. 30 Clos. 6,000

Insurance ExpenseApr. 30 Adj. 5,200 Apr. 30 Clos. 5,200

Miscellaneous ExpenseApr. 30 Bal. 5,400 Apr. 30 Clos. 5,400

235


2. Optional (Appendix)

A B C D E F G H I J K1 OCEAN BREEZE LAUNDROMAT2 End-of-Period Spreadsheet (Work Sheet)3 For the Year Ended April 30, 20104 Unadjusted


Trial BalanceIncome


6 Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.7 Cash 11,000 11,000 11,0008 Laundry Supplies 18,900 (a)14,900 4,000 4,0009 Prepaid Insurance 8,600 (b) 5,200 3,400 3,400

10 Laundry Equipment 284,000 284,000 284,00011 Accumulated Depr. 150,400 (c) 6,000 156,400 156,40012 Accounts Payable 9,800 9,800 9,80013 Wages Payable (d) 1,100 1,100 1,10014 Deanna Beaven, Capital 107,600 107,600 107,60015 Deanna Beaven, Drawing 8,400 8,400 8,40016 Laundry Revenue 232,200 232,200 232,20017 Wages Expense 104,000 (d) 1,100 105,100 105,10018 Rent Expense 39,300 39,300 39,30019 Utilities Expense 20,400 20,400 20,40020 Laundry Supplies Exp. (a) 14,900 14,900 14,90021 Depreciation Expense (c) 6,000 6,000 6,00022 Insurance Expense (b) 5,200 5,200 5,20023 Misc. Expense 5,400 5,400 5,40024 500,000 500,000 27,200 27,200 507,100 507,100 196,300 232,200 310,800 274,90025 Net income 35,900 ______ ______ 35,90026 232,200 232,200 310,800 310,800

236


3.Adjusting Entries

2010Apr. 30 Laundry Supplies Expense................................ 14,900

Laundry Supplies.......................................... 14,900Supplies used ($18,900 – $4,000).

30 Insurance Expense............................................. 5,200Prepaid Insurance......................................... 5,200

Insurance expired.30 Depreciation Expense........................................ 6,000

Accumulated Depreciation........................... 6,000Equipment depreciation.

30 Wages Expense.................................................. 1,100Wages Payable.............................................. 1,100

Accrued wages.

4.OCEAN BREEZE LAUNDROMAT

Adjusted Trial BalanceApril 30, 2010


Cash....................................................................................... 11,000Laundry Supplies.................................................................. 4,000Prepaid Insurance................................................................. 3,400Laundry Equipment............................................................... 284,000Accumulated Depreciation................................................... 156,400Accounts Payable................................................................. 9,800Wages Payable...................................................................... 1,100Deanna Beaven, Capital........................................................ 107,600Deanna Beaven, Drawing..................................................... 8,400Laundry Revenue.................................................................. 232,200Wages Expense..................................................................... 105,100Rent Expense......................................................................... 39,300Utilities Expense.................................................................... 20,400Laundry Supplies Expense.................................................. 14,900Depreciation Expense........................................................... 6,000Insurance Expense................................................................ 5,200Miscellaneous Expense........................................................ 5,400

507,100 507,100

237



Income StatementFor the Year Ended April 30, 2010

Laundry revenue................................................................. $232,200Expenses:

Wages expense............................................................ $105,100Rent expense............................................................... 39,300Utilities expense.......................................................... 20,400Laundry supplies expense......................................... 14,900Depreciation expense................................................. 6,000Insurance expense...................................................... 5,200Miscellaneous expense............................................... 5,400


OCEAN BREEZE LAUNDROMATStatement of Owner’s Equity

For the Year Ended April 30, 2010

Deanna Beaven, capital, May 1, 2009................................ $107,600Net income for the year...................................................... $35,900Less withdrawals................................................................ 8,400 Increase in owner’s equity................................................. 27,500 Deanna Beaven, capital, April 30, 2010............................ $ 135,100

OCEAN BREEZE LAUNDROMATBalance SheetApril 30, 2010


Cash........................... $ 11,000 Accounts payable.... $9,800Laundry supplies...... 4,000 Wages payable......... 1,100 Prepaid insurance..... 3,400 Total liabilities............ $ 10,900

Total current assets $ 18,400Property, plant, and

equipment: Owner’s EquityLaundry equipment... $284,000 Deanna Beaven, capital 135,100 Less accum. depr...... 156,400

Total property, plant,and equipment..... 127,600 Total liabilities and

Total assets.................. $ 146,000 owner’s equity......... $ 146,000

238


6.Closing Entries

2010Apr. 30 Laundry Revenue............................................... 232,200

Income Summary.......................................... 232,20030 Income Summary................................................ 196,300

Wages Expense............................................. 105,100Rent Expense................................................ 39,300Utilities Expense........................................... 20,400Laundry Supplies Expense.......................... 14,900Depreciation Expense................................... 6,000Insurance Expense....................................... 5,200Miscellaneous Expense................................ 5,400

30 Income Summary................................................ 35,900Deanna Beaven, Capital............................... 35,900

30 Deanna Beaven, Capital..................................... 8,400Deanna Beaven, Drawing............................. 8,400


Post-Closing Trial BalanceApril 30, 2010


Cash....................................................................................... 11,000Laundry Supplies.................................................................. 4,000Prepaid Insurance................................................................. 3,400Laundry Equipment............................................................... 284,000Accumulated Depreciation................................................... 156,400Accounts Payable................................................................. 9,800Wages Payable...................................................................... 1,100Deanna Beaven, Capital........................................................ 135,100

302,400 302,400

239

Prob. 4–5B

1., 3., and 6.



2010Feb. 28 Balance.................... ............. ............. 3,950 .............

Supplies 13

2010Feb. 28 Balance.................... ............. ............. 15,295 .............

28 Adjusting................. 26 ............. 11,295 4,000 .............


2010Feb. 28 Balance.................... ............. ............. 2,735 .............

28 Adjusting................. 26 ............. 2,000 735 .............

Equipment 16

2010Feb. 28 Balance.................... ............. ............. 100,650 .............


2010Feb. 28 Balance.................... ............. ............. ............. 21,209

28 Adjusting................. 26 ............. 6,000 ............. 27,209

Trucks 18

2010Feb. 28 Balance.................... ............. ............. 36,300 .............

Accumulated Depreciation—Trucks 19

2010Feb. 28 Balance.................... ............. ............. ............. 7,400

28 Adjusting................. 26 ............. 3,500 ............. 10,900

240




2010Feb. 28 Balance.................... ............. ............. ............. 4,015

Wages Payable 22

2010Feb. 28 Adjusting................. 26 ............. 450 ............. 450

Tomas Guerrero, Capital 31

2010Feb. 28 Balance.................... ............. ............. ............. 72,426

28 Closing.................... 27 ............. 35,635 ............. 108,06128 Closing.................... 27 5,000 ............. ............. 103,061

Tomas Guerrero, Drawing 32

2010Feb. 28 Balance.................... ............. ............. 5,000 .............

28 Closing.................... 27 ............. 5,000 — —

Income Summary 33

2010Feb. 28 Closing.................... 27 ............. 119,950 ............. 119,950

28 Closing.................... 27 84,315 ............. ............. 35,63528 Closing.................... 27 35,635 ............. — —

Service Revenue 41

2010Feb. 28 Balance.................... ............. ............. ............. 119,950

Closing.................... 27 119,950 ............. — —

Wages Expense 51

2010Feb. 28 Balance.................... ............. ............. 39,925 .............

28 Adjusting................. 26 450 ............. 40,375 .............28 Closing.................... 27 ............. 40,375 — —

241


Supplies Expense 52Post. Balance


2010Feb. 28 Adjusting................. 26 11,295 ............. 11,295 .............

28 Closing.................... 27 ............. 11,295 — —

Rent Expense 53

2010Feb. 28 Balance.................... ............. ............. 10,600 .............

28 Closing.................... 27 ............. 10,600 — —


2010Feb. 28 Adjusting................. 26 6,000 ............. 6,000 .............

28 Closing.................... 27 ............. 6,000 — —

Truck Expense 55

2010Feb. 28 Balance.................... ............. ............. 7,350 .............

28 Closing.................... 27 ............. 7,350 — —

Depreciation Expense—Trucks 56

2010Feb. 28 Adjusting................. 26 3,500 ............. 3,500 .............

28 Closing.................... 27 ............. 3,500 — —


2010Feb. 28 Adjusting................. 26 2,000 ............. 2,000 .............

28 Closing.................... 27 ............. 2,000 — —


2010Feb. 28 Balance.................... ............. ............. 3,195 .............

28 Closing.................... 27 ............. 3,195 — —

242

Prob. 4–5B Continued2. Optional (Appendix)

A B C D E F G H I J K1 FIX-IT CO.2 End-of-Period Spreadsheet (Work Sheet)3 For the Year Ended February 28, 20104 Unadjusted


Trial BalanceIncome


6 Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.7 Cash 3,950 3,950 3,9508 Supplies 15,295 (a)11,295 4,000 4,0009 Prepaid Insurance 2,735 (b) 2,000 735 735

10 Equipment 100,650 100,650 100,65011 Accum. Depr.—Equip. 21,209 (c) 6,000 27,209 27,20912 Trucks 36,300 36,300 36,30013 Accum. Depr.—Trucks 7,400 (d) 3,500 10,900 10,90014 Accounts Payable 4,015 4,015 4,01515 Wages Payable (e) 450 450 45016 Tomas Guerrero, Capital 72,426 72,426 72,42617 Tomas Guerrero, Drawing 5,000 5,000 5,00018 Service Revenue 119,950 119,950 119,95019 Wages Expense 39,925 (e) 450 40,375 40,37520 Supplies Expense (a) 11,295 11,295 11,29521 Rent Expense 10,600 10,600 10,60022 Depr. Exp.—Equipment (c) 6,000 6,000 6,00023 Truck Expense 7,350 7,350 7,35024 Depr. Exp.—Trucks (d) 3,500 3,500 3,50025 Insurance Expense (b) 2,000 2,000 2,00026 Misc. Expense 3,195 3,195 3,19527 225,000 225,000 23,245 23,245 234,950 234,950 84,315 119,950 150,635 115,00028 Net income 35,635 _ _ 35,63529 119,950 119,950 150,635 150,635

243




Adjusting Entries2010Feb. 28 Supplies Expense........................................ 52 11,295

Supplies.................................................. 13 11,295Supplies used ($15,295 – $4,000).


Insurance expired.

28 Depreciation Expense—Equipment........... 54 6,000Accumulated Depr.—Equipment........... 17 6,000


28 Depreciation Expense—Trucks.................. 56 3,500Accumulated Depr.—Trucks................. 19 3,500

Truck depreciation.


Accrued wages.

244


4.FIX-IT CO.

Adjusted Trial BalanceFebruary 28, 2010


Cash..................................................................................... 3,950Supplies............................................................................... 4,000Prepaid Insurance.............................................................. 735Equipment........................................................................... 100,650Accumulated Depreciation—Equipment.......................... 27,209Trucks.................................................................................. 36,300Accumulated Depreciation—Trucks................................. 10,900Accounts Payable............................................................... 4,015Wages Payable................................................................... 450Tomas Guerrero, Capital.................................................... 72,426Tomas Guerrero, Drawing.................................................. 5,000Service Revenue................................................................. 119,950Wages Expense.................................................................. 40,375Supplies Expense............................................................... 11,295Rent Expense...................................................................... 10,600Truck Expense.................................................................... 7,350Depreciation Expense—Equipment.................................. 6,000Depreciation Expense—Trucks......................................... 3,500Insurance Expense............................................................. 2,000Miscellaneous Expense..................................................... 3,195

234,950 234,950

245


5.FIX-IT CO.

Income StatementFor the Year Ended February 28, 2010


Wages expense............................................................ $40,375Supplies expense........................................................ 11,295Rent expense............................................................... 10,600Truck expense............................................................. 7,350Depreciation expense—equipment............................ 6,000Depreciation expense—trucks................................... 3,500Insurance expense...................................................... 2,000Miscellaneous expense............................................... 3,195


FIX-IT CO.Statement of Owner’s Equity

For the Year Ended February 28, 2010

Tomas Guerrero, capital, March 1, 2009........................... $ 72,426Net income for the year...................................................... $35,635Less withdrawals................................................................ 5,000 Increase in owner’s capital................................................ 30,635 Tomas Guerrero, capital, February 28, 2010.................... $103,061

246


FIX-IT CO.Balance Sheet

February 28, 2010


Cash.............................................. $ 3,950 Accounts payable................ $4,015Supplies........................................ 4,000 Wages payable..................... 450 Prepaid insurance........................ 735 Total liabilities........................ $ 4,465


Equipment.................................... $100,650 Owner’s EquityLess accum. depreciation........... 27,209 $73,441 Tomas Guerrero, capital........ 103,061 Trucks........................................... $ 36,300Less accum. depreciation........... 10,900 25,400


Total assets...................................... $107,526 owner’s equity..................... $107,526

247




Closing Entries2010Feb. 28 Service Revenue.......................................... 41 119,950


Wages Expense...................................... 51 40,375Supplies Expense................................... 52 11,295Rent Expense.......................................... 53 10,600Truck Expense........................................ 55 7,350Depreciation Expense—Equipment...... 54 6,000Depreciation Expense—Trucks............. 56 3,500Insurance Expense................................. 57 2,000Miscellaneous Expense......................... 59 3,195

28 Income Summary......................................... 33 35,635Tomas Guerrero, Capital........................ 31 35,635

28 Tomas Guerrero, Capital............................. 31 5,000Tomas Guerrero, Drawing..................... 32 5,000

7.FIX-IT CO.

Post-Closing Trial BalanceFebruary 28, 2010


Cash..................................................................................... 3,950Supplies............................................................................... 4,000Prepaid Insurance.............................................................. 735Equipment........................................................................... 100,650Accumulated Depreciation—Equipment.......................... 27,209Trucks.................................................................................. 36,300Accumulated Depreciation—Trucks................................. 10,900Accounts Payable............................................................... 4,015Wages Payable................................................................... 450Tomas Guerrero, Capital.................................................... 103,061

145,635 145,635

248

Prob. 4–6B



2010Oct. 1 Cash.............................................................. 11 18,000

Accounts Receivable................................... 12 5,000Supplies........................................................ 14 1,500Office Equipment......................................... 18 10,750

Kareem Ismail, Capital........................... 31 35,2501 Prepaid Rent................................................. 15 4,800

Cash......................................................... 11 4,8002 Prepaid Insurance........................................ 16 2,700

Cash......................................................... 11 2,7004 Cash.............................................................. 11 3,150

Unearned Fees........................................ 23 3,1505 Office Equipment......................................... 18 1,250

Accounts Payable.................................. 21 1,2506 Cash.............................................................. 11 2,000




Fees Earned............................................ 41 5,75014 Salary Expense............................................ 51 900

Cash......................................................... 11 90017 Cash.............................................................. 11 9,250

Fees Earned............................................ 41 9,25018 Supplies........................................................ 14 600


Fees Earned............................................ 41 4,10024 Cash.............................................................. 11 4,850

Fees Earned............................................ 41 4,850

249




2010Oct. 26 Cash.............................................................. 11 3,450

Accounts Receivable............................. 12 3,45027 Salary Expense............................................ 51 900



Cash......................................................... 11 30031 Cash.............................................................. 11 3,975

Fees Earned............................................ 41 3,97531 Accounts Receivable................................... 12 2,500

Fees Earned............................................ 41 2,50031 Kareem Ismail, Drawing............................... 32 7,500

Cash......................................................... 11 7,500

250


2., 6., and 9.Cash 11


2010Oct. 1 ................................. 1 18,000 ............. 18,000 .............

1 ................................. 1 ............. 4,800 13,200 .............2 ................................. 1 ............. 2,700 10,500 .............4 ................................. 1 3,150 ............. 13,650 .............6 ................................. 1 2,000 ............. 15,650 .............

10 ................................. 1 ............. 325 15,325 .............12 ................................. 1 ............. 750 14,575 .............14 ................................. 1 ............. 900 13,675 .............17 ................................. 2 9,250 ............. 22,925 .............18 ................................. 2 ............. 600 22,325 .............24 ................................. 2 4,850 ............. 27,175 .............26 ................................. 2 3,450 ............. 30,625 .............27 ................................. 2 ............. 900 29,725 .............29 ................................. 2 ............. 250 29,475 .............31 ................................. 2 ............. 300 29,175 .............31 ................................. 2 3,975 ............. 33,150 .............31 ................................. 2 ............. 7,500 25,650 .............


2010Oct. 1 ................................. 1 5,000 ............. 5,000 .............

6 ................................. 1 ............. 2,000 3,000 .............12 ................................. 1 5,750 ............. 8,750 .............20 ................................. 2 4,100 ............. 12,850 .............26 ................................. 2 ............. 3,450 9,400 .............31 ................................. 2 2,500 ............. 11,900 .............

Supplies 14

2010Oct. 1 ................................. 1 1,500 ............. 1,500 .............

18 ................................. 2 600 ............. 2,100 .............31 Adjusting................. 3 ............. 1,225 875 .............

251




2010Oct. 1 ................................. 1 4,800 ............. 4,800 .............

31 Adjusting................. 3 ............. 1,600 3,200 .............


2010Oct. 2 ................................. 1 2,700 ............. 2,700 .............

31 Adjusting................. 3 ............. 225 2,475 .............

Office Equipment 18

2010Oct. 1 ................................. 1 10,750 ............. 10,750 .............

5 ................................. 1 1,250 ............. 12,000 .............


2010Oct. 31 Adjusting................. 3 ............. 400 ............. 400

Accounts Payable 21

2010Oct. 5 ................................. 1 ............. 1,250 ............. 1,250

12 ................................. 1 750 ............. ............. 500

Salaries Payable 22

2010Oct. 31 Adjusting................. 3 ............. 200 ............. 200

Unearned Fees 23

2010Oct. 4 ................................. 1 ............. 3,150 ............. 3,150

31 Adjusting................. 3 2,000 ............. ............. 1,150

252


Kareem Ismail, Capital 31Post. Balance


2010Oct. 1 ................................. 1 ............. 35,250 ............. 35,250

31 Closing.................... 4 ............. 26,100 ............. 61,35031 Closing.................... 4 7,500 ............. ............. 53,850

Kareem Ismail, Drawing 32

2010Oct. 31 ................................. 2 7,500 ............. 7,500 .............

31 Closing.................... 4 ............. 7,500 — —

Income Summary 33

2010Oct. 31 Closing.................... 4 ............. 32,425 ............. 32,425

31 Closing.................... 4 6,325 ............. ............. 26,10031 Closing.................... 4 26,100 ............. — —

Fees Earned 41

2010Oct. 12 ................................. 1 ............. 5,750 ............. 5,750

17 ................................. 2 ............. 9,250 ............. 15,00020 ................................. 2 ............. 4,100 ............. 19,10024 ................................. 2 ............. 4,850 ............. 23,95031 ................................. 2 ............. 3,975 ............. 27,92531 ................................. 2 ............. 2,500 ............. 30,42531 Adjusting................. 3 ............. 2,000 ............. 32,42531 Closing.................... 4 32,425 ............. — —

Salary Expense 51

2010Oct. 14 ................................. 1 900 ............. 900 .............

27 ................................. 2 900 ............. 1,800 .............31 Adjusting................. 3 200 ............. 2,000 .............31 Closing.................... 4 ............. 2,000 — —

253




2010Oct. 31 Adjusting................. 3 1,600 ............. 1,600 .............

31 Closing.................... 4 ............. 1,600 — —

Supplies Expense 53

2010Oct. 31 Adjusting................. 3 1,225 ............. 1,225 .............

31 Closing.................... 4 ............. 1,225 — —


2010Oct. 31 Adjusting................. 3 400 ............. 400 .............

31 Closing.................... 4 ............. 400 — —


2010Oct. 31 Adjusting................. 3 225 ............. 225 .............

31 Closing.................... 4 ............. 225 — —


2010Oct. 10 ................................. 1 325 ............. 325 .............

29 ................................. 2 250 ............. 575 .............31 ................................. 2 300 ............. 875 .............31 Closing.................... 4 ............. 875 — —

254


3.IRON MOUNTAIN CONSULTING

Unadjusted Trial BalanceOctober 31, 2010


Cash....................................................................................... 25,650Accounts Receivable............................................................ 11,900Supplies................................................................................. 2,100Prepaid Rent.......................................................................... 4,800Prepaid Insurance................................................................. 2,700Office Equipment................................................................... 12,000Accumulated Depreciation................................................... 0Accounts Payable................................................................. 500Salaries Payable.................................................................... 0Unearned Fees....................................................................... 3,150Kareem Ismail, Capital.......................................................... 35,250Kareem Ismail, Drawing........................................................ 7,500Fees Earned........................................................................... 30,425Salary Expense...................................................................... 1,800Rent Expense......................................................................... 0Supplies Expense.................................................................. 0Depreciation Expense........................................................... 0Insurance Expense................................................................ 0Miscellaneous Expense........................................................ 875

69,325 69,325

255

Prob. 4–6B Continued5. Optional (Appendix)

A B C D E F G H I J K1 IRON MOUNTAIN CONSULTING2 End-of-Period Spreadsheet (Work Sheet)3 For the Month Ended October 31, 20104 Unadjusted


Trial BalanceIncome

StatementBalance

Sheet56 Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.7 Cash 25,650 25,650 25,6508 Accounts Receivable 11,900 11,900 11,9009 Supplies 2,100 (b) 1,225 875 875

10 Prepaid Rent 4,800 (e) 1,600 3,200 3,20011 Prepaid Insurance 2,700 (a) 225 2,475 2,47512 Office Equipment 12,000 12,000 12,00013 Accum. Depreciation (c) 400 400 40014 Accounts Payable 500 500 50015 Salaries Payable (d) 200 200 20016 Unearned Fees 3,150 (f) 2,000 1,150 1,15017 Kareem Ismail, Capital 35,250 35,250 35,25018 Kareem Ismail, Drawing 7,500 7,500 7,50019 Fees Earned 30,425 (f) 2,000 32,425 32,42520 Salary Expense 1,800 (d) 200 2,000 2,00021 Rent Expense (e) 1,600 1,600 1,60022 Supplies Expense (b) 1,225 1,225 1,22523 Depreciation Expense (c) 400 400 40024 Insurance Expense (a) 225 225 22525 Miscellaneous Expense 875 875 87526 69,325 69,325 5,650 5,650 69,925 69,925 6,325 32,425 63,600 37,50027 Net income 26,100 ______ _____ _ 26,10028 32,425 32,425 63,600 63,600

256




Adjusting Entries2010Oct. 31 Insurance Expense...................................... 55 225



Supplies used ($2,100 – $875).

31 Depreciation Expense.................................. 54 400Accumulated Depreciation.................... 19 400



Accrued salaries.

31 Rent Expense............................................... 52 1,600Prepaid Rent........................................... 15 1,600

Rent expired.

31 Unearned Fees............................................. 23 2,000Fees Earned............................................ 41 2,000

Unearned fees earned ($3,150 – $1,150).

257



Adjusted Trial BalanceOctober 31, 2010


Cash....................................................................................... 25,650Accounts Receivable............................................................ 11,900Supplies................................................................................. 875Prepaid Rent.......................................................................... 3,200Prepaid Insurance................................................................. 2,475Office Equipment................................................................... 12,000Accumulated Depreciation................................................... 400Accounts Payable................................................................. 500Salaries Payable.................................................................... 200Unearned Fees....................................................................... 1,150Kareem Ismail, Capital.......................................................... 35,250Kareem Ismail, Drawing........................................................ 7,500Fees Earned........................................................................... 32,425Salary Expense...................................................................... 2,000Rent Expense......................................................................... 1,600Supplies Expense.................................................................. 1,225Depreciation Expense........................................................... 400Insurance Expense................................................................ 225Miscellaneous Expense........................................................ 875

69,925 69,925

258



Income StatementFor the Month Ended October 31, 2010


Salary expense............................................................ $2,000Rent expense............................................................... 1,600Supplies expense........................................................ 1,225Depreciation expense................................................. 400Insurance expense...................................................... 225Miscellaneous expense............................................... 875


IRON MOUNTAIN CONSULTINGStatement of Owner’s Equity

For the Month Ended October 31, 2010

Kareem Ismail, capital, October 1, 2010........................... $ 0Additional investments during the month........................ 35,250 Total..................................................................................... $35,250Net income for the month.................................................. $26,100Less withdrawals................................................................ 7,500 Increase in owner’s equity................................................. 18,600 Kareem Ismail, capital, October 31, 2010......................... $ 53,850

259


IRON MOUNTAIN CONSULTINGBalance Sheet

October 31, 2010


Cash............................ $25,650 Accounts payable.... $ 500Accounts receivable. . 11,900 Salaries payable...... 200Supplies...................... 875 Unearned fees.......... 1,150 Prepaid rent................ 3,200 Total liabilities............ $ 1,850Prepaid insurance...... 2,475


equipment:.................. Owner’s EquityOffice equipment........ $12,000 Kareem Ismail, capital 53,850 Less accum. depr....... 400 Total property, plant,

and equipment......... 11,600 Total liabilities andTotal assets................... $ 55,700 owner’s equity......... $ 55,700

260




Closing Entries2010Oct. 31 Fees Earned.................................................. 41 32,425



31 Income Summary......................................... 33 26,100Kareem Ismail, Capital........................... 31 26,100

31 Kareem Ismail, Capital................................. 31 7,500Kareem Ismail, Drawing......................... 32 7,500


Post-Closing Trial BalanceOctober 31, 2010


Cash..................................................................................... 25,650Accounts Receivable......................................................... 11,900Supplies............................................................................... 875Prepaid Rent....................................................................... 3,200Prepaid Insurance.............................................................. 2,475Office Equipment................................................................ 12,000Accumulated Depreciation................................................ 400Accounts Payable............................................................... 500Salaries Payable................................................................. 200Unearned Fees.................................................................... 1,150Kareem Ismail, Capital....................................................... 53,850

56,100 56,100

261

CONTINUING PROBLEM1. Optional (Appendix)

A B C D E F G H I J K1 MUSIC DEPOT2 End-of-Period Spreadsheet (Work Sheet)3 For the Two Months Ended July 31, 20104 Unadjusted


Trial BalanceIncome

StatementBalance

Sheet56 Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.7 Cash 12,780 12,780 12,7808 Accounts Receivable 3,150 (a) 1,600 4,750 4,7509 Supplies 850 (b) 675 175 175

10 Prepaid Insurance 2,700 (c) 225 2,475 2,47511 Office Equipment 5,000 5,000 5,00012 Acc. Depr.—Office Equip. (d) 60 60 6013 Accounts Payable 5,680 5,680 5,68014 Wages Payable (f) 120 120 12015 Unearned Revenue 7,200 (e) 3,600 3,600 3,60016 Lee Chang, Capital 10,500 10,500 10,50017 Lee Chang, Drawing 1,700 1,700 1,70018 Fees Earned 15,300 (a) 1,600 20,500 20,50019 (e) 3,60020 Wages Expense 2,400 (f) 120 2,520 2,52021 Office Rent Expense 2,750 2,750 2,75022 Equip. Rent Expense 1,100 1,100 1,10023 Utilities Expense 860 860 86024 Music Expense 2,810 2,810 2,81025 Advertising Expense 1,600 1,600 1,60026 Supplies Expense 180 (b) 675 855 85527 Insurance Expense (c) 225 225 22528 Depreciation Expense (d) 60 60 6029 Miscellaneous Expense 800 800 80030 38,680 38,680 6,280 6,280 40,460 40,460 13,580 20,500 26,880 19,96031 Net income 6,920 ______ ______ 6,92032 20,500 20,500 26,880 26,880

262

Continuing Problem Continued

2.MUSIC DEPOT

Income StatementFor the Two Months Ended July 31, 2010


Music expense............................................................. $2,810Office rent expense..................................................... 2,750Wages expense............................................................ 2,520Advertising expense................................................... 1,600Equipment rent expense............................................. 1,100Utilities expense.......................................................... 860Supplies expense........................................................ 855Insurance expense...................................................... 225Depreciation expense................................................. 60Miscellaneous expense............................................... 800


MUSIC DEPOTStatement of Owner’s Equity

For the Two Months Ended July 31, 2010

Lee Chang, capital, June 1, 2010....................................... $ 0Additional investments during the period........................ 10,500 Total..................................................................................... $10,500Net income for the period.................................................. $6,920Less withdrawals................................................................ 1,700 Increase in owner’s equity................................................. 5,220 Lee Chang, capital, July 31, 2010...................................... $15,720

275


MUSIC DEPOTBalance SheetJuly 31, 2010


Cash............................... $12,780 Accounts payable.... $5,680Accounts receivable..... 4,750 Wages payable......... 120Supplies......................... 175 Unearned revenue.. . 3,600 Prepaid insurance......... 2,475 Total liabilities............ $ 9,400

Total current assets... $20,180Property, plant, and

equipment: Owner’s EquityOffice equipment........... $ 5,000 Lee Chang,Less accum. depr.......... 60 capital....................... 15,720

Total property, plant,and equipment......... 4,940 Total liabilities and

Total assets...................... $ 25,120 owner’s equity......... $25,120

276




Closing Entries2010July 31 Fees Earned.................................................. 41 20,500


Wages Expense...................................... 50 2,520Office Rent Expense.............................. 51 2,750Equipment Rent Expense...................... 52 1,100Utilities Expense..................................... 53 860Music Expense....................................... 54 2,810Advertising Expense.............................. 55 1,600Supplies Expense................................... 56 855Insurance Expense................................. 57 225Depreciation Expense............................ 58 60Miscellaneous Expense......................... 59 800

31 Income Summary......................................... 33 6,920Lee Chang, Capital................................. 31 6,920

31 Lee Chang, Capital....................................... 31 1,700Lee Chang, Drawing............................... 32 1,700

277




2010July 1 Balance.................... ............. ............. 8,010 .............

1 ................................. 1 2,500 ............. 10,510 .............1 ................................. 1 ............. 2,000 8,510 .............1 ................................. 1 ............. 2,700 5,810 .............2 ................................. 1 1,350 ............. 7,160 .............3 ................................. 1 7,200 ............. 14,360 .............3 ................................. 1 ............. 250 14,110 .............4 ................................. 1 ............. 500 13,610 .............8 ................................. 1 ............. 200 13,410 .............

11 ................................. 1 800 ............. 14,210 .............13 ................................. 1 ............. 600 13,610 .............14 ................................. 1 ............. 1,000 12,610 .............16 ................................. 2 1,750 ............. 14,360 .............21 ................................. 2 ............. 420 13,940 .............22 ................................. 2 ............. 800 13,140 .............23 ................................. 2 750 ............. 13,890 .............27 ................................. 2 ............. 560 13,330 .............28 ................................. 2 ............. 1,000 12,330 .............29 ................................. 2 ............. 150 12,180 .............30 ................................. 2 400 ............. 12,580 .............31 ................................. 2 2,800 ............. 15,380 .............31 ................................. 2 ............. 1,100 14,280 .............31 ................................. 2 ............. 1,500 12,780 .............


2010July 1 Balance.................... ............. ............. 1,350 .............

2 ................................. 1 ............. 1,350 — —23 ................................. 2 1,750 ............. 1,750 .............30 ................................. 2 1,400 ............. 3,150 .............31 Adjusting................. 3 1,600 ............. 4,750 .............

278


Supplies 14Post. Balance


2010July 1 Balance.................... ............. ............. 170 .............

18 ................................. 2 680 ............. 850 .............31 Adjusting................. 3 ............. 675 175 .............


2010July 1 ................................. 1 2,700 ............. 2,700 .............

31 Adjusting................. 3 ............. 225 2,475 .............

Office Equipment 17

2010July 5 ................................. 1 5,000 ............. 5,000 .............

Accumulated Depreciation—Office Equipment 18

2010July 31 Adjusting................. 3 ............. 60 ............. 60

Accounts Payable 21

2010July 1 Balance.................... ............. ............. ............. 250

3 ................................. 1 250 ............. — —5 ................................. 1 ............. 5,000 ............. 5,000

18 ................................. 2 ............. 680 ............. 5,680

Wages Payable 22

2010July 31 Adjusting................. 3 ............. 120 ............. 120

Unearned Revenue 23

2010July 3 ................................. 1 ............. 7,200 ............. 7,200

31 Adjusting................. 3 3,600 ............. ............. 3,600

279


Lee Chang, Capital 31Post. Balance


2010July 1 Balance.................... ............. ............. ............. 8,000

1 ................................. 1 ............. 2,500 ............. 10,50031 Closing.................... 4 ............. 6,920 ............. 17,42031 Closing.................... 4 1,700 ............. ............. 15,720

Lee Chang, Drawing 32

2010July 1 Balance.................... ............. ............. 200 .............

31 ................................. 2 1,500 ............. 1,700 .............31 Closing.................... 4 ............. 1,700 — —

Income Summary 33

2010July 31 Closing.................... 4 ............. 20,500 ............. 20,500

31 Closing.................... 4 13,580 ............. ............. 6,92031 Closing.................... 4 6,920 ............. — —

Fees Earned 41

2010July 1 Balance.................... ............. ............. ............. 5,650

11 ................................. 1 ............. 800 ............. 6,45016 ................................. 2 ............. 1,750 ............. 8,20023 ................................. 2 ............. 2,500 ............. 10,70030 ................................. 2 ............. 1,800 ............. 12,50031 ................................. 2 ............. 2,800 ............. 15,30031 Adjusting................. 3 ............. 1,600 ............. 16,90031 Adjusting................. 3 ............. 3,600 ............. 20,50031 Closing.................... 4 20,500 ............. — —

Wages Expense 50

2010July 1 Balance.................... ............. ............. 400 .............

14 ................................. 1 1,000 ............. 1,400 .............28 ................................. 2 1,000 ............. 2,400 .............31 Adjusting................. 3 120 ............. 2,520 .............31 Closing.................... 4 ............. 2,520 — —

280


Office Rent Expense 51Post. Balance


2010July 1 Balance.................... ............. ............. 750 .............

1 ................................. 1 2,000 ............. 2,750 .............31 Closing.................... 4 ............. 2,750 — —

Equipment Rent Expense 52

2010July 1 Balance.................... ............. ............. 500 .............

13 ................................. 1 600 ............. 1,100 .............31 Closing.................... 4 ............. 1,100 — —

Utilities Expense 53

2010July 1 Balance.................... ............. ............. 300 .............

27 ................................. 2 560 ............. 860 .............31 Closing.................... 4 ............. 860 — —

Music Expense 54

2010July 1 Balance.................... ............. ............. 1,290 .............

21 ................................. 2 420 ............. 1,710 .............31 ................................. 2 1,100 ............. 2,810 .............31 Closing.................... 4 ............. 2,810 — —

Advertising Expense 55

2010July 1 Balance.................... ............. ............. 600 .............

8 ................................. 1 200 ............. 800 .............22 ................................. 2 800 ............. 1,600 .............31 Closing.................... 4 ............. 1,600 — —

Supplies Expense 56

2010July 1 Balance.................... ............. ............. 180 .............

31 Adjusting................. 3 675 ............. 855 .............31 Closing.................... 4 ............. 855 — —

281

Continuing Problem Concluded

Insurance Expense 57Post. Balance


2010July 31 Adjusting................. 3 225 ............. 225 .............

31 Closing.................... 4 ............. 225 — —


2010July 31 Adjusting................. 3 60 ............. 60 .............

31 Closing.................... 4 ............. 60 — —


2010July 1 Balance.................... ............. ............. 150 .............

4 ................................. 1 500 ............. 650 .............29 ................................. 2 150 ............. 800 .............31 Closing.................... 4 ............. 800 — —

4.MUSIC DEPOT

Post-Closing Trial BalanceJuly 31, 2010


Cash..................................................................................... 12,780Accounts Receivable......................................................... 4,750Supplies............................................................................... 175Prepaid Insurance.............................................................. 2,475Office Equipment................................................................ 5,000Accumulated Depreciation—Office Equipment............... 60Accounts Payable............................................................... 5,680Wages Payable................................................................... 120Unearned Revenue............................................................. 3,600Lee Chang, Capital............................................................. 15,720

25,180 25,180

282

COMPREHENSIVE PROBLEM 1



2010May 3 Cash.............................................................. 11 2,500

Unearned Fees........................................ 23 2,5005 Cash.............................................................. 11 1,750




Fees Earned............................................ 41 6,10016 Salary Expense............................................ 51 630

Salaries Payable........................................... 22 120Cash......................................................... 11 750

17 Cash.............................................................. 11 8,200Fees Earned............................................ 41 8,200

20 Supplies........................................................ 14 400Accounts Payable.................................. 21 400

21 Accounts Receivable................................... 12 3,900Fees Earned............................................ 41 3,900

25 Cash.............................................................. 11 5,100Fees Earned............................................ 41 5,100

27 Cash.............................................................. 11 9,500Accounts Receivable............................. 12 9,500

28 Salary Expense............................................ 51 750Cash......................................................... 11 750

30 Miscellaneous Expense............................... 59 120Cash......................................................... 11 120

31 Miscellaneous Expense............................... 59 290Cash......................................................... 11 290

31 Cash.............................................................. 11 3,875Fees Earned............................................ 41 3,875

283

Comp. Prob. 1 Continued



2010May 31 Accounts Receivable................................... 12 3,200

Fees Earned............................................ 41 3,20031 Kelly Pitney, Drawing................................... 32 8,000

Cash......................................................... 11 8,000

284


2., 6., and 9.Cash 11


2010May 1 Balance.................... ............. ............. 22,100 .............

3 ................................. 5 2,500 ............. 24,600 .............5 ................................. 5 1,750 ............. 26,350 .............9 ................................. 5 ............. 300 26,050 .............

13 ................................. 5 ............. 400 25,650 .............16 ................................. 5 ............. 750 24,900 .............17 ................................. 6 8,200 ............. 33,100 .............25 ................................. 6 5,100 ............. 38,200 .............27 ................................. 6 9,500 ............. 47,700 .............28 ................................. 6 ............. 750 46,950 .............30 ................................. 6 ............. 120 46,830 .............31 ................................. 6 ............. 290 46,540 .............31 ................................. 6 3,875 ............. 50,415 .............31 ................................. 6 ............. 8,000 42,415 .............


2010May 1 Balance.................... ............. ............. 3,400 .............

5 ................................. 5 ............. 1,750 1,650 .............15 ................................. 5 6,100 ............. 7,750 .............21 ................................. 6 3,900 ............. 11,650 .............27 ................................. 6 ............. 9,500 2,150 .............31 ................................. 6 3,200 ............. 5,350 .............

Supplies 14

2010May 1 Balance.................... ............. ............. 1,350 .............

20 ................................. 6 400 ............. 1,750 .............31 Adjusting................. 7 ............. 1,150 600 .............

285




2010May 1 Balance.................... ............. ............. 3,200 .............

31 Adjusting................. 7 ............. 1,600 1,600 .............


2010May 1 Balance.................... ............. ............. 1,500 .............

31 Adjusting................. 7 ............. 300 1,200 .............

Office Equipment 18

2010May 1 Balance.................... 5 ............. ............. 14,500 .............


2010May 1 Balance.................... ............. ............. ............. 330

31 Adjusting................. 7 ............. 330 ............. 660

Accounts Payable 21

2010May 1 Balance.................... ............. ............. ............. 800

13 ................................. 5 400 ............. ............. 40020 ................................. 6 ............. 400 ............. 800

Salaries Payable 22

2010May 1 Balance.................... ............. ............. ............. 120

16 ................................. 5 120 ............. ............. —31 Adjusting................. 7 ............. 240 ............. 240

Unearned Fees 23

2010May 1 Balance.................... ............. ............. ............. 2,500

3 ................................. 5 ............. 2,500 ............. 5,00031 Adjusting................. 7 3,000 ............. ............. 2,000

286


Kelly Pitney, Capital 31Post. Balance


2010May 1 Balance.................... ............. ............. ............. 42,300

31 Closing.................... 8 ............. 27,665 ............. 69,96531 Closing.................... 8 8,000 ............. ............. 61,965

Kelly Pitney, Drawing 32

2010May 31 ................................. 6 8,000 ............. 8,000 .............

31 Closing.................... 8 ............. 8,000 — —

Income Summary 33

2010May 31 Closing.................... 8 ............. 33,375 ............. 33,375

31 Closing.................... 8 5,710 ............. ............. 27,66531 Closing.................... 8 27,665 ............. — —

Fees Earned 41

2010May 15 ................................. 5 ............. 6,100 ............. 6,100

17 ................................. 6 ............. 8,200 ............. 14,30021 ................................. 6 ............. 3,900 ............. 18,20025 ................................. 6 ............. 5,100 ............. 23,30031 ................................. 6 ............. 3,875 ............. 27,17531 ................................. 6 ............. 3,200 ............. 30,37531 Adjusting................. 7 ............. 3,000 ............. 33,37531 Closing.................... 8 33,375 ............. — —

Salary Expense 51

2010May 16 ................................. 5 630 ............. 630 .............

28 ................................. 6 750 ............. 1,380 .............31 Adjusting................. 7 240 ............. 1,620 .............31 Closing.................... 8 ............. 1,620 — —

287




2010May 31 Adjusting................. 7 1,600 ............. 1,600 .............

31 Closing.................... 8 ............. 1,600 — —

Supplies Expense 53

2010May 31 Adjusting................. 7 1,150 ............. 1,150 .............

31 Closing.................... 8 ............. 1,150 — —


2010May 31 Adjusting................. 7 330 ............. 330 .............

31 Closing.................... 8 ............. 330 — —


2010May 31 Adjusting................. 7 300 ............. 300 .............

31 Closing.................... 8 ............. 300 — —


2010May 9 ................................. 5 300 ............. 300 .............

30 ................................. 6 120 ............. 420 .............31 ................................. 6 290 ............. 710 .............31 Closing.................... 8 ............. 710 — —

288


3.

KELLY CONSULTINGUnadjusted Trial Balance

May 31, 2010


Cash....................................................................................... 42,415Accounts Receivable............................................................ 5,350Supplies................................................................................. 1,750Prepaid Rent.......................................................................... 3,200Prepaid Insurance................................................................. 1,500Office Equipment................................................................... 14,500Accumulated Depreciation................................................... 330Accounts Payable................................................................. 800Salaries Payable.................................................................... 0Unearned Fees....................................................................... 5,000Kelly Pitney, Capital.............................................................. 42,300Kelly Pitney, Drawing............................................................ 8,000Fees Earned........................................................................... 30,375Salary Expense...................................................................... 1,380Rent Expense......................................................................... 0Supplies Expense.................................................................. 0Depreciation Expense........................................................... 0Insurance Expense................................................................ 0Miscellaneous Expense........................................................ 710

78,805 78,805

289

Comp. Prob. 1 Continued5. Optional (Appendix)

A B C D E F G H I J K1 KELLY CONSULTING2 End-of-Period Spreadsheet (Work Sheet)3 For the Month Ended May 31, 20104 Unadjusted


Trial BalanceIncome

StatementBalance

Sheet56Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.7 Cash 42,415 42,415 42,4158 Accounts Receivable 5,350 5,350 5,3509 Supplies 1,750 (b) 1,150 600 600

10 Prepaid Rent 3,200 (e) 1,600 1,600 1,60011 Prepaid Insurance 1,500 (a) 300 1,200 1,20012 Office Equipment 14,500 14,500 14,50013 Accum. Depreciation 330 (c) 330 660 66014 Accounts Payable 800 800 80015 Salaries Payable (d) 240 240 24016 Unearned Fees 5,000 (f) 3,000 2,000 2,00017 Kelly Pitney, Capital 42,300 42,300 42,30018 Kelly Pitney, Drawing 8,000 8,000 8,00019 Fees Earned 30,375 (f) 3,000 33,375 33,37520 Salary Expense 1,380 (d) 240 1,620 1,62021 Rent Expense (e) 1,600 1,600 1,60022 Supplies Expense (b) 1,150 1,150 1,15023 Depreciation Expense (c) 330 330 33024 Insurance Expense (a) 300 300 30025 Miscellaneous Expense 710 710 710 26 78,805 78,805 6,620 6,620 79,375 79,375 5,710 33,375 73,665 46,00027 Net income 27,665 27,66528 33,375 33,375 73,665 73,665

290




Adjusting Entries2010May 31 Insurance Expense...................................... 55 300



Supplies used ($1,750 – $600).31 Depreciation Expense.................................. 54 330

Accumulated Depreciation.................... 19 330Equipment depreciation.


Accrued salaries.31 Rent Expense............................................... 52 1,600

Prepaid Rent........................................... 15 1,600Rent expired.

31 Unearned Fees............................................. 23 3,000Fees Earned............................................ 41 3,000

Unearned fees ($5,000 – $2,000).

291


7.

KELLY CONSULTINGAdjusted Trial Balance

May 31, 2010


Cash....................................................................................... 42,415Accounts Receivable............................................................ 5,350Supplies................................................................................. 600Prepaid Rent.......................................................................... 1,600Prepaid Insurance................................................................. 1,200Office Equipment................................................................... 14,500Accumulated Depreciation................................................... 660Accounts Payable................................................................. 800Salaries Payable.................................................................... 240Unearned Fees....................................................................... 2,000Kelly Pitney, Capital.............................................................. 42,300Kelly Pitney, Drawing............................................................ 8,000Fees Earned........................................................................... 33,375Salary Expense...................................................................... 1,620Rent Expense......................................................................... 1,600Supplies Expense.................................................................. 1,150Depreciation Expense........................................................... 330Insurance Expense................................................................ 300Miscellaneous Expense........................................................ 710

79,375 79,375

292


8.KELLY CONSULTING

Income StatementFor the Month Ended May 31, 2010


Salary expense............................................................ $1,620Rent expense............................................................... 1,600Supplies expense........................................................ 1,150Depreciation expense................................................. 330Insurance expense...................................................... 300Miscellaneous expense............................................... 710


KELLY CONSULTINGStatement of Owner’s Equity

For the Month Ended May 31, 2010

Kelly Pitney, capital, May 1, 2010...................................... $42,300Net income for the month.................................................. $27,665Less withdrawals................................................................ 8,000 Increase in owner’s equity................................................. 19,665 Kelly Pitney, capital, May 31, 2010.................................... $ 61,965

293


KELLY CONSULTINGBalance SheetMay 31, 2010


Cash............................ $42,415 Accounts payable.... $ 800Accounts receivable. . 5,350 Salaries payable...... 240Supplies...................... 600 Unearned fees.......... 2,000 Prepaid rent................ 1,600 Total liabilities....... $ 3,040Prepaid insurance...... 1,200

Total current assets $51,165Property, plant, and Owner’s Equity

equipment: Kelly Pitney,Office equipment........ $14,500 capital....................... 61,965

Less accum. depr.. . . 660 13,840 Total liabilities andTotal assets................... $ 65,005 owner’s equity......... $ 65,005

294

Comp. Prob. 1 Concluded



Closing Entries2010May 31 Fees Earned.................................................. 41 33,375



31 Income Summary......................................... 33 27,665Kelly Pitney, Capital............................... 31 27,665

31 Kelly Pitney, Capital..................................... 31 8,000Kelly Pitney, Drawing............................. 32 8,000

10.KELLY CONSULTING

Post-Closing Trial BalanceMay 31, 2010


Cash..................................................................................... 42,415Accounts Receivable......................................................... 5,350Supplies............................................................................... 600Prepaid Rent....................................................................... 1,600Prepaid Insurance.............................................................. 1,200Office Equipment................................................................ 14,500Accumulated Depreciation................................................ 660Accounts Payable............................................................... 800Salaries Payable................................................................. 240Unearned Fees.................................................................... 2,000Kelly Pitney, Capital........................................................... 61,965

Totals............................................................................ 65,665 65,665

295

SPECIAL ACTIVITIES

Activity 4–1

It is unacceptable to prepare financial statements in such a way that users of the statements would be misled. The August 31, 2010, balance sheet of Pixel Graph-ics could be misleading in two ways. First, the account receivable from Chas should be segregated and reported separately from trade (customer) receivables. Such receivables are normally reported as “officer receivables” or “other receiv-ables” and accompanied by a note disclosing the nature of the receivable. Such disclosure is required for what are termed “related-party transactions.” Second, given that the receivable has been outstanding since November 2008, it is ques-tionable whether the receivable from Chas should be classified as a current as-set. Marcie could justify the classification as “current” if Chas has agreed to a written schedule for repaying within the next year. Alternatively, the receivable could be classified as current if it has been converted to a note receivable with a specific due date within the next year.

In summary, because of the preceding issues, it appears that Marcie is not behav-ing in a professional manner. Note: It is a criminal offense to submit false or mis-leading documents to a bank in applying for a loan.

296

Activity 4–2

1. (a) With the decreasing cost of computers and related software, DeSoto Sup-plies Co. may find it desirable to computerize its financial reporting sys-tem. In many cases, the computerization of a manual accounting system reduces the overall cost of the accounting function.

(b) A computerized accounting system would allow for eliminating the end-of-period spreadsheet (work sheet) and, thus, financial statements could be prepared with “a push of a button.” However, adjustment data would still need to be recorded at the end of the accounting period before the finan-cial statements could be prepared.

(c) In designing a computerized financial reporting (accounting) system, it is essential that proper accounting principles, concepts, and procedures be followed. At a minimum, basic controls such as the use of the double-en-try accounting system should be included. For example, debits must equal credits for all transactions, and assets must equal liabilities plus owner’s equity. In addition, the system should be designed to detect obvious er-rors, such as a credit (minus) balance for supplies or prepaid insurance. In other words, to design an adequate financial reporting system, a computer programmer must have a thorough understanding of accounting and the accounting cycle.Note: Numerous accounting software packages, similar to the Klooster and Allen General Ledger Software package accompanying this text, are available. Therefore, it would probably be better for DeSoto Supplies Co. to purchase an existing accounting software package rather than trying to design its own.

2. Supplies cannot have a credit balance, since the supplies account is an asset account. A business cannot have a “negative” asset. Thus, the only way that a credit balance could have occurred in supplies is the result of an error in recording one or more transactions.

297

Activity 4–3

1. A set of financial statements provides useful information concerning the eco-nomic condition of a company. For example, the balance sheet describes the financial condition of the company as of a given date and is useful in assess-ing the company’s financial soundness and liquidity. The income statement describes the results of operations for a period and indicates the profitability of the company. The statement of owner’s equity describes the changes in the owner’s interest in the company for a period. Each of these statements is use-ful in evaluating whether to extend credit to the company.

2. The following adjustments might be necessary before an accurate set of finan-cial statements could be prepared: No supplies expense is shown. The supplies account should be adjusted

for the supplies used during the year. No depreciation expense is shown for the trucks or equipment accounts.

An adjusting entry should be prepared for depreciation expense on each of these assets.

An inquiry should be made as to whether any accrued expenses, such as wages or utilities, exist at the end of the year.

An inquiry should be made as to whether any prepaid expenses, such as rent or insurance, exist at the end of the year.

An inquiry should be made as to whether the owner withdrew any funds from the company during the year. No drawing account is shown in the “Statement of Accounts.”

The following items should be relabeled for greater clarity:Billings Due from Others—Accounts ReceivableAmounts Owed to Others—Accounts PayableInvestment in Business—Yolanda Tovar, CapitalOther Expenses—Miscellaneous Expense

Note to Instructors: The preceding items are not intended to include all adjust-ments that might exist in the Statement of Accounts. The possible adjust-ments listed include only items that have been covered in Chapters 1–4. For example, uncollectible accounts expense (discussed in a later chapter) is not mentioned.

298

Activity 4–3 Concluded

3. In general, the decision to extend a loan is based on an assessment of the profitability and riskiness of the loan. Although the financial statements pro-vide useful data for this purpose, other factors such as the following might also be significant: The due date and payment terms of the loan. Security for the loan. For example, whether Yolanda Tovar is willing to

pledge personal assets in support of the loan will affect the riskiness of the loan.

The intended use of the loan. For example, if the loan is to purchase real estate (possibly for a future building site), the real estate could be used as security for the loan.

The projected profitability of the company.

Activity 4–4

Note to Instructors: The purpose of this activity is to familiarize students with the information that a balance sheet provides about a company.

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