Dmp3e Ch03 Solutions 02.17.10 Final

7/27/2019 Dmp3e Ch03 Solutions 02.17.10 Final

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Chapter 3

Adjusting Accounts for FinancialStatements

Learning Objectives coverage by questionMini-

exercisesExercises Problems Cases

LO1 Identify the major stepsin the accounting cycle.

LO2 Review the process ofjournalizing and postingtransactions.

21, 22, 23, 25,

29, 3033, 35, 36, 38

40, 41, 42, 46,

47, 52, 5455, 56, 57, 58

LO3 Describe the adjustingprocess and illustrate adjustingentries.

23, 24, 25, 29,

30

32, 33, 34, 35,

36, 38

40, 41, 42, 43,

46, 47, 48, 49,

52, 53, 54

55, 56, 57, 58

LO4 Prepare financialstatements from adjustedaccounts.

26 3940, 41, 42, 44,47, 49, 50, 53,

54

55, 58

LO5 Describe the process ofclosing temporary accounts.

27, 28, 30 31, 33, 37, 39

42, 44, 45, 46,

49, 50, 51, 52,

53, 54

55

LO6 Analyzing changes in

balance sheet accounts.25, 29

32, 34, 35, 36,

3853 56

Cambridge Business Publishers, 2011Solutions Manual, Chapter 3 3-1


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QUESTIONS

Q3-1 The five major steps in the accounting cycle are

1. Analyze business activity using transaction analysis based on therelated source documents.2. Record results of the transaction analysis chronologically in the

general journal and create a trial balance.3. Adjust the recorded data to update all accounts for expense and

revenue recognition not previously recognized.4. Report the adjusted financial data in the form of financial statements.5. Close the books by posting the adjusting and closing entries, which

zero out the temporary accounts.

Q3-2 The fiscal year is the annual accounting period adopted by a firm. A firm

using a fiscal year ending on December 31 is on a calendar-year basis.

Q3-3 Examples of source documents that underlie business transactions areinvoices sent to customers, invoices received from suppliers, bank checks,bank deposit slips, cash receipt forms, and written contracts.

Q3-4 A general journal is a book of original entry that may be used for the initialrecording of any type of transaction. It contains space for dates and foraccounts to be debited and credited, columns for the amounts of the debitsand credits, and a posting reference column for numbers of the accounts thatare posted.

Q3-5 When entries are posted, the page number and identifying initials of theappropriate journal are placed next to the amounts in the appropriateaccounts. The account number is entered beside the related amount postedin the journal's posting reference column. This procedure enables interestedusers to trace amounts in the ledger back to the originating journal entry andpermits us to know which entries have been posted.

Q3-6 A compound journal entry is a journal entry containing more than one debitentry or one credit entry.

Q3-7 A chart of accounts is a list of the accounts appearing in the general ledger,with the account numbering system indicated. Normally the accounts areclassified as asset, liability, owners' equity, revenue, and expense accounts,and often the numbering system identifies the account classification. Forexample, a coding system might assign the numbers 100199 to assets, 200299 to liabilities, and so on.

Cambridge Business Publishers, 2011

Financial Accounting, 3rdEdition3-2


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Q3-8 Many of the transactions reflected in the accounting records through the firsttwo steps of the accounting cycle affect the net income of more than oneperiod. Therefore, adjustments to the account balances are ordinarilynecessary at the end of each accounting period to record the proper amountof revenue and to match expenses with revenue properly. This process is

also intended to achieve a more accurate picture of financial position byadjusting balance sheet amounts to show unexpired costs, up-to-dateamounts of obligations, and so on.

Q3-9 1. Allocating assets to expense to reflect expenses incurred during theperiod. Example: Recording supplies used by debiting Supplies Expenseand crediting Supplies.

2. Allocating payments received in advance by crediting the revenue accountto reflect revenues earned during the period. Example: Recording servicefees earned by debiting Unearned Service Fees and crediting Service Fees

Earned.

3. Accruing expenses to reflect expenses incurred during the period that arenot yet paid or recorded. Example: Recording unpaid wages by debitingWages Expense and crediting Wages Payable.

4. Accruing revenues to reflect revenues earned during the period that arenot yet received or recorded. Example: Recording commissions earned bydebiting Commissions Receivable and crediting Commissions Earned.

Q3-10 Jan. 31 Insurance expense (+E, -SE) 78

Prepaid insurance (-A) 78To record insurance expense for January ($1,872/24 = $78).

Q3-11 A contra account is an account that is related to, and deducted from,another account when financial statements are prepared or when bookvalues are computed. Accumulated depreciation is deducted from the costof a depreciable asset in computing and portraying the asset's book value.



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Q3-12 The building is five years old by the end of 2011, so the accumulateddepreciation of $800,000 represents five years of depreciation at an annualrate of $160,000 ($800,000/5). If the annual depreciation is $160,000, thenthe expected life of the building must be 25 years.

At the end of 2018, the building will be twelve years old, and theaccumulated depreciation will be 12$160,000, or $1,920,000. The bookvalue of the building (defined as original cost less accumulateddepreciation) will be $2,080,000.

Q3-13 (a) Jan. 1 Cash (+A) 9,720Subscriptions received in advance (+L) 9,720

To record receipt of two-year subscriptions.

(b) Jan. 31 Subscriptions received in advance (-L) 405Subscriptions revenue (+R,+SE) 405

To record subscription revenue earned duringJanuary ($9,720/24 = $405).

Q3-14 Jan. 31 Wages expense (+E, -SE) 190Wages payable (+L) 190

To record unpaid wages for Jan. 3031[($475/5) 2 = $190].

Q3-15 Jan. 31 Interest receivable (+A) 360Interest income (+R,+SE) 360

To record interest earned during January.

Q3-16 The temporary accountssometimes called nominalaccountsare closedat year-end. They consist principally of the income statement accounts(expense and revenue accounts). (The Income Summary account and theDividend account are also closed if they are used.)

Q3-17 Step 1) Close revenue accounts: Debit each revenue account for an amountequal to its balance, and credit the Retained Earnings account forthe total of revenues.

Step 2) Close expense accounts: Credit each expense account for anamount equal to its balance, and debit the Retained Earnings

account for the total of expenses.

Q3-18 A post-closing trial balance ensures that an equality of debits and creditshas been maintained throughout the adjusting and closing procedures andthat the general ledger is in balance to start the next period. Only balancesheet accounts appear in a post-closing trial balance. DepreciationExpense and Supplies Expense are temporary accounts that should havebeen closed and should not appear in the post-closing trial balance.




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Q3-19 The cost principle and the matching concept support Dehning's handling ofits catalog costs. Prepaid Catalog Costs is an asset account that is initiallyrecorded at the amount that the catalogs cost Dehning. This is consistentwith the cost principle that states that assets are initially recorded at the

amounts paid to acquire the assets. The catalogs help Dehning generatesales revenues. The matching concept states that the catalog costs shouldbe matched as expenses with the revenues they help generate. Dehningdoes this by expensing the catalog costs over their estimated useful lives.

Q3-20(a) Supplies Expense ($825 + $260 $630 = $455) for the period is omitted

from the income statement, overstating net income by $455 (ignoringtaxes).

(b) Both Supplies and Owners' Equity are overstated by $455 on the

January 31 balance sheet (again, before considering taxes).



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Mini Exercises

M3-21 (45 mintes)

a. Balance Sheet Income Statement

Transaction CashAsset +NoncashAssets =

Liabil-ities +

Contrib.Capital +

EarnedCapital Revenues - Expenses =

NetIncome

June 1. Invested$12,000 cash.

+12,000Cash =

+12,000Common

Stock- =

June 2. Paid $950cash for Junerent.

-950Cash =

-950RetainedEarnings

-+950Rent

Expense=

-950

June 3. Purchased$6,400 of officeequipment onaccount.

+6,400Office

Equipment =

+6,400AccountsPayable - =

June 6. Purchased$3,800 ofsupplies; $1,800cash, $2,000 onaccount.

-1,800Cash

+3,800Supplies

=


June 11. $4,700 billedfor services.

+4,700Accounts

Receivable=

+4,700RetainedEarnings

+4,700Service Fees

Earned- =

+4,700

June 17. Collected$3,250 onaccounts.

+3,250Cash

-3,250Accounts

Receivable= - =

June 19. Paid $3,000on office

equipmentaccount.

-3,000Cash

=

-3,000Accounts

Payable- =

June 25. Paid cashdividend of $900.

-900Cash =


- =

June 30. Paid $350utilities.

-350Cash =


-+350

UtilitiesExpense

=-350

June 30. Paid $2,500salaries.

-2,500Cash =

-2,500RetainedEarnings

-+2,500SalariesExpense

=-2,500

TOTALS 5,750 + 11,650 = 5,400 + 12,000 + 0 4,700 - 3,800 = 900




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b.

June 1 Cash (+A) 12,000Common stock (+SE) 12,000

Owner invested cash for stock.

2 Rent expense (+E, -SE) 950Cash (-A) 950

Paid June rent.

3 Office equipment (+A) 6,400Accounts payable (+L) 6,400

Purchased office equipment on account.

6 Supplies (+A) 3,800Cash (-A) 1,800

Accounts payable (+L) 2,000Purchased $3,800 of supplies; paid $1,800 downwith balance due in 30 days.

11 Accounts receivable (+A) 4,700Service fees earned (+R,+SE) 4,700

Billed clients for services.

17 Cash (+A) 3,250Accounts receivable (-A) 3,250

Collections from clients on account.

19 Accounts payable (-L) 3,000Cash (-A) 3,000

Payment on account.

25 Retained earnings (-SE) 900Cash (-A) 900

Issued dividends.

30 Utilities expense (+E, -SE) 350Cash (-A) 350

Paid utilities bill for June.

30 Salaries expense (+E, -SE) 2,500Cash (-A) 2,500

Paid salaries for June.



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M3-22 (45 minutes)a.

Balance Sheet Income Statement


Liabil-ities +

Contrib.Capital +


NetIncome

April 1. Invested

$9,000 in cash.

+9,000Cash =

+9,000Common

Stock- =

April 2. Paid $2,850cash for lease.

-2,850Cash

+2,850Prepaid Van

Lease= - =

April 3. Borrowed$10,000.

+10,000Cash =

+10,000Note

Payable- =

April 3. Purchased$5,500 equipmentfor $2,500 cashwith rest onaccount.

-2,500Cash

+5,500Equipment

=


April 4. Paid $4,300

cash for supplies.

-4,300

Cash

+4,300

Supplies= - =

April 7. Paid $350cash for ad.

-350Cash =


-+350Ad.

Expense=

-350

April 21. Billed$3,500 forservices

+3,500Accounts

Receivable=


+3,500Cleaning

FeesEarned

- =

+3,500

April 23. Paid $3,000cash on account.

-3,000Cash =

-3,000AccountsPayable

- =

April 28. Collected$2,300 onaccount.

+2,300Cash

-2,300Accounts

Receivable= - =

April 29. Paid $1,000cash dividend.

-1,000Cash =


- =

April 30. Paid $1,750cash for wages.

-1,750Cash =


-+1,750Wages

Expense=

-1,750

April 30. Paid $995cash for gas.

-995Cash =


-+995

Van FuelExpense

=-995

TOTALS 4,555 + 13,850 = 10,000 + 9,000 + -595 3,500 - 3,095 = 405



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b.April 1 Cash (+A) 9,000

Common stock (+SE) 9,000Owner invested cash for stock.

2 Prepaid van lease (+A) 2,850Cash (-A) 2,850Paid six months' lease on van.

3 Cash (+A) 10,000Notes payable (+L) 10,000

Borrowed money from bank for one year at10% interest.

3 Equipment (+A) 5,500Cash (-A) 2,500

Accounts payable (+L) 3,000Purchased $5,500 of equipment; paid $2,500 downwith balance due in 30 days.

4 Supplies (+A) 4,300Cash (-A) 4,300

Purchased supplies for cash.

7 Advertising expense (+E, -SE) 350Cash (-A) 350

Paid for April advertising.

21 Accounts receivable (+A) 3,500Cleaning fees earned (+R, +SE) 3,500

Billed customers for services.

23 Accounts payable (-L) 3,000Cash (-A) 3,000

Payment on account.


Collections from customers on account.

29 Retained earnings (-SE) 1,000Cash (-A) 1,000

Issued cash dividends.




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30 Wages expense (+E, -SE) 1,750Cash (-A) 1,750

Paid wages for April.

30 Van fuel expense (+E, -SE) 995

Cash (-A) 995Paid for gasoline used in April.

c.

+ Cash (A) - + Accounts Receivable (A) -

April 1 9,000 2,850 April 2 April 21 3,500 2,300 April 28

3 10,000 2,500 328 2,300 4,300 4

350 7 + Prepaid Van Lease (A) -

3,000 23 April 2 2,850

1,000 29

1,750 30 + Equipment (A) -

995 30 April 3 5,500

+ Supplies(A) - - Notes Payable (L) +

April 4 4,300 10,000 April 3

- Accounts Payable (L) + - Retained Earnings (SE) +

April 23 3,000 3,000 April 3 April 29 1,000

- Common Stock (SE) + - Cleaning Fees Earned (R) +

9,000 April 1 3,500 April 21

+ Advertising Expense (E) - + Wages Expense (E) -

April 7 350 April 30 1,750

+ Van Fuel Expense (E) -

April 30 995



12/83




Liabil-ities +

Contrib.Capital +


NetIncome

1. Received $20,100

in advance forcontract work.

+20,100

Cash =

+20,100UnearnedService

Fees

- =

Jan. 1 Cash (+A) 20,100Unearned service fees (+L) 20,100

To record fee received in advance.b.



Liabil-ities +

Contrib.Capital +


NetIncome

2. Adjusting entry for

work completedby Jan. 31.

=

-3,350

UnearnedServiceFees

+3,350

RetainedEarnings

+3,350

ServiceFees - =

+3,350

Jan. 31 Unearned service fees (-L) 3,350Service fees (+R, +SE) 3,350

To reflect January service fees earned oncontract ($20,100/6 = $3,350).

c.


Transaction Cash

Asset+ Noncash

Assets= Liabil-

ities+ Contrib.

Capital+ Earned

CapitalRevenues - Expenses = Net

Income3. Adjusting entry forfees earned butnot billed.

+570Fees

Receivable=

+570RetainedEarnings

+570Service

Fees- =

+570

Jan. 31 Fees receivable (+A) 570Service fees (+R, +SE) 570

To record unbilled service fees earnedat January 31.




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M3-24 (15 minutes)1.



Liabil-ities +

Contrib.Capital +


NetIncome

1. Adjusting entry for

prepaidinsurance.

-185Prepaid

Insurance=


-

+185InsuranceExpense

=

-185

Jan. 31 Insurance expense (+E, -SE) 185Prepaid insurance (-A) 185

To record January insurance expense($6,660/36 = $185).

2.



Liabil-ities +

Contrib.Capital +


NetIncome

2. Adjusting entry forsupplies used.

-1,080Supplies =


-+1,080SuppliesExpense

=-1,080

Jan. 31 Supplies expense (+E, -SE) 1,080Supplies (-A) 1,080

To record January supplies expense

($1,930 $850 = $1,080).3.


Transaction CashAsset +

NoncashAssets -

ContraAssets

= Liabil-ities +Contrib.Capital +


NetIncom

3. Adjustingentry fordepreciationofequipment.

-+62

Accumulated

Depreciation

-62Retained

Earnings

- +62Depreciation

Expense

= -62

Jan. 31 Depreciation expenseEquipment (+E, -SE) 62Accumulated depreciationEquipment (+XA, -A) 62

To record January depreciation on officeequipment ($5,952/96 = $62).



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4.



Liabil-ities +

Contrib.Capital +


NetIncome

4. Adjusting entry forrent. =

-875Unearned

RentRevenue

+875Retained

Earnings

+875Rent

Revenue

- =

+875

Jan. 31 Unearned rent revenue (-L) 875Rent revenue (+R, +SE) 875

To record portion of advance rent earnedin January.

5.



Liabil-ities +

Contrib.Capital +


NetIncome

5. Adjusting entry foraccrued salaries. =

+490SalariesPayable


-+490

SalariesExpense

=-490

Jan. 31 Salaries expense (+E, -SE) 490Salaries payable (+L) 490

To record accrued salaries at January 31.




15/83

M3-25 (10 minutes)(All amounts in $ millions.)a.


Transaction CashAsset +NoncashAssets = Liabilities +

Contrib.Capital +


NeInco

Inventory purchases(total).

+2,913.49Inventory

=

+2,913.49AccountsPayable - =

Inventories (+A).. 2,913.49Accounts payable (+L).. 2,913.49

To record total purchases made at various dates.

b. Beginning AP balance + Purchases Payments = Ending AP balance, or$2,980.13 = $365.75 + $2,913.49 - $299.11 = Payments.

c.



NoncashAssets = Liabilities +

Contrib.Capital +

EarnedCapital Revenues - Expenses = Net Inc

Adjusting entry forcost of goods soldfor 2009.

-2,946.08Inventory

= -2,946.08RetainedEarnings

- +2,946.08Cost of

Goods Sold

= -2,946

* Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance, or$2,946.08 = $887.36 + $2,913.49 $854.77 = COGS

Cost of goods sold (+E, -SE)... 2,946.08

Inventories (-A) 2,946.08To record cost of goods sold for the year ended 1/31/2009.

M3-26 (15 minutes)

Architect Services CompanyStatement of Stockholders EquityFor Year Ended December 31, 2011

CommonStock

RetainedEarnings

TotalStockholders

EquityBalance at December 31, 2010 $30,000 $18,000 $48,000

Stock issuance.......................... 6,000 6,000

Dividends.................................. (9,700) (9,700)

Net income................................ _____ 29,900 29,900

Balance at December 31, 2011 $36,000 $38,200 $74,200



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M3-27 (5 minutes)

Ending balance = Beginning balance + Credit from closing revenue Debit fromclosing expenses: $137,600 = $99,000 + $347,400 - $308,800


Date 2010 Description Debit CreditDec. 31 Commissions revenue (-R) 84,900

Retained earnings (+SE) 84,900To close the revenue account.

31 Retained earnings (-SE) 55,900Wages expense (-E) 36,000Insurance expense (-E) 1,900

Utilities expense (-E) 8,200Depreciation expense (-E) 9,800

To close the expense accounts.

Closing the revenue and expense accounts into retained earnings has the effect ofincreasing the retained earnings balance by an amount equal to net income(revenue minus expenses). The balance of Smiths Retained Earnings after closingentries are posted is

$101,100 credit ($72,100 + $29,000).

b.+ Wages Expense (E) - + Utilities Expense (E) -

Bal. 36,000 36,000 (2)Dec.31

Bal. 8,200 8,200 (2) Dec. 3

Bal. 0 Bal. 0

+ Insurance Expense (E) - - Commissions Revenue (R) +

Bal. 1,900 1,900 (2)Dec.31

(1)Dec.31

84,000 84,900 Bal.

Bal. 0 0 Bal.

+ Depreciation Expense (E) - - Retained Earnings (SE) +

Bal. 9,800 9,800 (2)Dec.31

(2)Dec.31

55,900 72,100 Bal.

Bal. 0 84,900 (1)Dec.31

101,100 Bal. Dec.31




17/83

M3-29 (20 minutes)(All amounts in $ millions.)

a.


Transaction CashAsset + NoncashAssets = Liabilities + Contrib.Capital + EarnedCapital Revenues - Expenses = InPurchase of inventory

on account.+3,385.90Merchandise

Inventory=

+3,385.90AccountsPayable

-

=

Merchandise inventory (+A).............................................. 3,385.90

Accounts payable (+L).................................................. 3,385.90

To recognize the purchase of merchandise inventory on account.

b.Beginning AP balance + Purchases Payments = Ending AP balance, or $3,470.97 =$831.67 + $3,385.90 - $746.60 = Payments.

c.Balance Sheet Income Statement


Liabil-ities +

Contrib.Capital +

EarnedCapital Revenues - Expenses = In

Recognize cost ofgoods sold.

-3,540.60Merchandise

inventory=

-3,540.60RetainedEarnings

-+3,540.60

Cost ofGoods Sold

=-3,5

Cost of goods sold (+E,-SE).............................................. 3,540.60*

Merchandise inventory (-A)........................................... 3,540.60

To recognize the cost of goods sold.

*Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance, or$3,540.60 = $1,358.17 + $3,385.90 - $1,203.47 = COGS



18/83




Liabil-ities +

Contrib.Capital +


NetIncome

a. Dec. 31 Interestearned.

+600Interest

Receivable=


+600InterestIncome

- =+600

Dec. 31 Interest receivable (+A) 600Interest income (+R, +SE) 600

To record accrued interest income.

b.Dec. 31 Interest income (-R) 2,400

Retained earnings (+SE) 2,400To close the Interest Income account.c.



Liabil-ities +

Contrib.Capital +


NetIncome

c. 1/31 Receipt of$900 interest.

+900Cash

-600Interest

Receivable=

+ 300RetainedEarnings

+300InterestIncome

- =+300

2011Jan. 31 Cash (+A) 900

Interest income (+R, +SE) 300Interest receivable (-A)

600To record cash receipt of interest.




19/83

Exercises

E3-31 (30 minutes)a.

Dec. 31 Service fees earned (-R,-SE) 80,300Retained earnings (+SE) 80,300

To close the revenue account.

31 Retained earnings (-SE) 82,300Rent expense (-E) 20,800Salaries expense (-E) 45,700Supplies expense (-E) 5,600Depreciation expense (-E) 10,200


b.+ Rent Expense (E) - + Supplies Expense (E) -

Bal. 20,800 20,800 (2) Bal. 5,600 5,600 (2)

Bal. 0 Bal. 0

+ Depreciation Expense (E) -

Bal. 10,200 10,200 (2)

Bal. 0

+ Salaries Expense (E) - - Service Fees Earned (R) +

Bal. 45,700 45,700 (2) (1) 80,300 80,300 Bal.

Bal. 0 0 Bal.

- Retained Earnings (SE) +

(2) 82,300 67,000 Bal.

80,300 (1)

65,000 Bal.

Brooks Consulting earned a loss during the period (expenses exceededrevenues by $2,000), so the ending retained earnings is lower than thatbeginning retained earnings (even if no dividends were paid).



20/83




NoncashAssets -

ContraAssets

= Liabilities + Contrib.Capital +EarnedCapital Revenues - Expenses =

NeIncom

1. Adjusting entryfor depreciation:

equipment.-

+610Accumulated

Depreciation

= -610Retained

Earnings

- +610Depreciation

Expense

= -61

2. Adjusting entry

for supplies

expense.

-1,890

Supplies -

= -1,890

Retained

Earnings

- +1,890

Supplies

Expense

= -1,89

3. Adjusting entry

for utilities

expense.-

= +390

Utilities

Payable

-390

Retained

Earnings

- +390

Utilities

Expense

= -39

4. Adjusting entry

for rent expense.

-700

Prepaid

Rent-

= -700

Retained

Earnings

- +700

Rent

Expense

= -70

5. Adjusting entry

for premium

revenues.-

= -468

Unearned

Premium

Revenue

+468

Retained

Earnings

+468

Premium

Revenue

- = +46

6. Adjusting entryfor wage

expense.-

= +965Wages

Payable

-965Retained

Earnings

- +965Wage

Expense

= -96

7. Adjusting entry

for interest

earned.

+300

Interest

Receivable-

= +300

Retained

Earnings

+300

Interest

Income

- = +30

TOTALS 0 + -2,290 - 610 = 887 + 0 + -3,787 768 - 4,555 = -3,78

b.1. Depreciation expenseEquipment (+E,-SE) 610

Accumulated depreciationEquip (+XA)610

To record depreciation for the period.

2. Supplies expense (+E,-SE) 1,890Supplies (-A) 1,890

To record supplies expense for the period ($2,990 $1,100 = $1,890).

3. Utilities expense (+E, - SE) 390Utilities payable (+L) 390

To record accrued utilities expense.

4. Rent expense (+E,-SE) 700Prepaid rent (-A) 700

To record rent expense for the month ($2,800/4 = $700).

5. Unearned premium revenue (-L) 468Premium revenue (+R,+SE) 468

To record premium revenue earned [($624/12) 9 = $468].

6. Wages expense (+E,-SE) 965Wages payable (+L) 965




21/83

To record accrued wages at the end of the period.

7. Interest receivable (+A) 300Interest income (+R,+SE) 300

To accrue interest earned but not yet received.





Contrib.Capital +


NetIncome

a. Adjusting entry forsalaries expense. =

+4,700SalariesPayable


-+4,700

SalariesExpense

=-4,700

2010Dec. 31 Salaries expense (+E,-SE) 4,700

Salaries payable (+L) 4,700

To record accrued salaries payable.

b.31 Retained earnings (-RE) 250,000

Salaries expense (-E) 250,000To close the Salaries Expense account.

c.Balance Sheet Income Statement



Contrib.Capital +


NetIncome

c. Paid salaries. -12,000Cash =

-4,700Salaries

Payable

-7,300Retained

Earnings

-+7,300Salary

Expense

=-7,300

2011Jan. 7 Salaries payable (-L) 4,700

Salaries expense (+E,-SE) 7,300Cash (-A) 12,000

To record payment of salaries.



22/83


23/83

To record supplies expense for July ($3,000 $1,100 = $1,900).

31 Fees receivable (+A) 800Refinishing fees revenue (+R,+SE) 800

To record unbilled revenue earned during July.

31 Unearned refinishing fees (-L) 300Refinishing fees revenue (+R,+SE) 300

To record portion of advance fees earned in July ($600/2 = $300).

c.

+ Prepaid Rent (A) - + Supplies (A) -

Bal. 5,700 475 (1) Bal. 3,000 1,900 (3)

Bal. 5,225 Bal. 1,100

+ Prepaid Advertising (A) - - Unearned Finishing Fees (L) +Bal. 630 210 (2) (5) 300 600 Bal.

Bal. 420 300 Bal.

+ Fees Receivable (A) - - Refinishing Fees Revenue (R) +

(4) 800 2,500 Bal.

800 (4)300 (5)

3,600 Bal.

+ Supplies Expense (E) -(3) 1,900

+ Advertising Expense(E) -

(2) 210

+ Rent Expense (E) -

(1) 475



24/83

E3-36 (15 minutes)(All amounts in $ thousands.)a.



NoncashAssets =

Liabil-ities +

Contrib.Capital +

EarnedCapital Revenues - Expenses = Net Income

Recognize cost ofgoods sold.

-242,265Inventory

=-242,265RetainedEarnings

- +242,265Cost of

Goods Sold

= -242,265

Cost of goods sold (+E,-SE).............................................. 242,265*

Inventory (-A)................................................................. 242,265


*Beginning Inv balance + Cost of acquisition Cost of goods sold = Ending Invbalance, so $242,265 = $110,596 + $178,519 - $46,850 = COGS

b. Beginning compensation payable + Compensation expense Compensationpaid = Ending compensation payable, so$10,070 + $40,000 Payments = $10,204

Payments = $39,866


Dec. 31 Service fees earned (-R) 92,500Interest income (-R) 2,200

Retained earnings (+SE) 94,700To close the revenue accounts.

31 Retained earnings (-SE) 64,700Salaries expense (-E) 41,800Advertising expense (-E) 4,300Depreciation expense (-E) 8,700Income tax expense (-E) 9,900


b.

- Retained Earnings (SE) + - Service Fees Earned (R) +

(2) 64,700 42,700 Bal. (1) 92,500 92,500 Bal.

94,700 (1) 0 Bal.

72,700 Bal. - Interest Income (R) +

(1) 2,200 2,200 Bal.

0 Bal.




25/83

+ Salaries Expense (E) - + Advertising Expense (E) -

Bal. 41,800 41,800 (2) Bal. 4,300 4,300 (2)

Bal. 0 Bal. 0

+ Depreciation Expense (E) - + Income Tax Expense(E) -

Bal. 8,700 8,700 (2) Bal. 9,900 9,900 (2)Bal. 0 Bal. 0





Contrib.Capital +


(1) Collectdeposits fromcustomers.

+200,000Cash =

+200,000CustomerDeposits

- =

(2) Recognizeincome oncompletedcustomer orders.

+458,671Cash =

-215,606CustomerDeposits


+674,277Sales

Revenue- =

+674,277

(1) Cash (+A) 200,000

Customer deposits liability* (+L) 200,000

To record unearned customer deposits.

(2) Customer deposits liability* (-L)....................................... 215,606 **

Cash (+A) 458,671

Sales revenue (+R, +SE)................................................ 674,277To record sales revenue and recognized deposits earned.

* Also sometimes called Unearned Customer Deposits** $47,297 + $200,000 Deposits earned = $31,691; Deposits earned = $215,606.

b.Balance Sheet Income Statement


NoncashAssets =

Liabil-ities +

Contrib.Capital +


Recognize costof goods sold.

-326,935Inventory =


-+326,935

Cost of GoodsSold

=-326,935

Cost of goods sold (+E,-SE).................................................. 326,935 ***

Inventory (-A)..................................................................... 326,935


***$186,265 + $297,189 Cost of goods sold = $156,519; Cost of goods sold = $326,935



26/83


Solomon CorporationIncome Statement

For Year Ended December 31, 2011

Service fees earned................................................................ $71,000

Rent expense........................................................................... (18,000)

Salaries expense..................................................................... (37,100)

Depreciation expense.. (7,000 )

Net income............................................................................... $8,900

Solomon Corporation

Statement of Stockholders EquityFor Year Ended December 31, 2011Common

StockRetainedEarnings

TotalStockholders

Equity

Balance at December 31, 2010.... $43,000 $20,600*

$63,600

Stock issuance..............................

Dividends...................................... (8,000) (8,000)

Net income.................................... _____ 8,900 8,900

Balance at December 31, 2011.... $43,000 $21,500 $64,500*12,600 + 8,000 The dividend was paid and debited to retained earnings prior to the end of the period.

Solomon CorporationBalance Sheet

December 31, 2011

Assets LiabilitiesCash $ 4,000 Notes payable $ 10,000

Accounts receivable 6,500 Total Liabilities 10,000

Equipment $ 78,000Less:Accumulateddepreciation

14,000 64,000 Owners Equity

Common stock 43,000Retained earnings 21,500

Total Assets $74,500 Total Liabilities and Owners Equity $74,500




27/83

b.

1. Service fees earned (-R).................................................. 71,000Retained earnings (+SE)............................................. 71,000

2. Retained earnings (-SE)................................................... 18,000Rent expense (-E)......................................................... 18,000

3. Retained earnings (-SE)................................................... 37,100Salaries expense (-E)................................................... 37,100

4. Retained earnings (-SE)................................................... 7,000Depreciation expense (-E) .......................................... 7,000

The cash dividend has already been paid and is already reflected in the

adjusted trial balance.

c. Only the T-accounts affected by closing process are shown here.

+ Depreciation Expense (E) - - Service Fees Earned (R) +

Bal. 7,000 7,000 (4) (1) 71,000 71,000 Bal.

Bal 0 0 Bal.

+ Salaries Expense (E) - + Rent Expense (E) -

Bal. 37,100 37,100 (3) Bal. 18,000 18,000 (2)

Bal. 0 Bal 0


(2-4) 62,100 12,60071,000

Bal.(1)

21,500 Bal.



28/83

PROBLEMSP3-40 (90 minutes)

a. + Cash (A) - + Accounts Receivable (A) -

Apr. 1 11,500 2,880 Apr. 1 Apr. 12 5,500 4,900 Apr. 185 1,800 6,100 2 30 4,000

18 4,900 1,000 2 Bal. 4,600675 29

100 30 + Supplies (A) -

2,500 30 Apr. 5 1,200

Bal. 4,945 Unadj. bal. 1,200 800 (d) Apr. 30

Adj. bal. 400

+ Prepaid Insurance (A) -Apr. 1 2,880 + Trucks (A) -Unadj. bal. 2,880 120 (d) Apr. 30 Apr. 2 6,100

Adj bal. 2,760 Bal. 6,100

+ Equipment (A) - - Accounts Payable (L) +

Apr. 2 3,100 2,100 Apr. 2

Bal. 3,100 1,200 5

3,300 Bal.

- Roofing Fees Earned (R) + - Unearned Roofing Fees (L) +

5,500 Apr. 12 1,800 Apr. 5

4,000 30 Apr. 30 (d) 450 1,800 Unadj. bal

9,500 Unadj. bal. 1,350 Adj. Bal450 (d) 30

9,950 Adj. Bal.

+ Supplies Expense (E) - - Common Stock (SE) +

Apr. 30 (d) 800 11,500 Apr. 1Adj. Bal. 800 11,500 Bal.

+ Advertising Expense (E) - + Fuel Expense (E) -Apr. 30 100 Apr. 29 675

Bal. 100 Bal. 675

+ Insurance Expense (E) - + Wages Expense (E) -

Apr. 30 (d) 120 Apr. 30 2,500

Adj. Bal. 120 Bal. 2,500




29/83

+ Depreciation Expense Equip. (E) - - Accumulated Deprec. Equip. (XA) +

Apr. 30 (d) 35 35 (d) Apr. 30

Adj. Bal. 35 35 Adj. Bal.

+ Depreciation Expense - Trucks (E) - - Accumulated Deprec. Trucks (XA) +

Apr. 30 (d) 125 125 (d) Apr. 30Adj. Bal. 125 125 Adj. Bal




Contrib.Capital +


NetIncome

Apr. 1. Cash receivedfor stock.

+11,500Cash =

+11,500Common

Stock- =

Apr. 1. Purchaseliability insurance.

-2,880Cash

+2,880Prepaid

Insurance

= - =

Apr. 2. Purchase truckfor cash.

-6,100Cash

+ 6,100Truck = - =

Apr. 2. Purchaseequipment.

-1,000Cash

+3,100Equipment =

+2,100AccountsPayable

- =

Apr. 5. Purchasesupplies onaccount.

+ 1,200Supplies =

+1,200AccountsPayable

- =

Apr. 5. Cash inadvance for roofingrepairs.

+1,800Cash =

+1,800UnearnedRoofing

Fees

- =

Apr. 12. Bill customers

for services.

+5,500

AccountsReceivable =

+5,500

RetainedEarnings

+5,500

Roofing FeesRevenue - =

+5,500

Apr. 18. Collected cashon account.

+4,900Cash

-4,900Accounts

Receivable= - =

Apr. 29. Paid cash forfuel.

-675Cash =


-+675Fuel

Expense=

-675

Apr. 30. Paid cash forads.

-100Cash =


-+100

Ad. Expense =-100

Apr. 30. paid cashwages.

-2,500Cash =


-+2,500Wages

Expense=

-2,500

Apr. 30. Bill customers

for services.

+4,000

AccountsReceivable =

+4,000

RetainedEarnings

+4,000

Roofing feesEarned - =

+4,000

Totals 4,945 + 17,880 = 5,100 + 11,500 + 6,225 9,500 - 3,275 = 6,225



30/83

Date 2010 Description Debit CreditApr. 1 Cash (+A) 11,500

Common stock (+SE) 11,500Owner invested cash.

1 Prepaid insurance (+A) 2,880Cash (-A)

2,880Paid two-year premium on liability insurance policy.

2 Trucks (+A) 6,100Cash (-A) 6,100

Purchased used truck for $6,100 cash.

2 Equipment (+A) 3,100Cash (-A) 1,000Accounts payable (+L) 2,100

Purchased ladders and other equipment, $1,000 down with

$2,100 balance due in 30 days.

5 Supplies (+A) 1,200Accounts payable (+L) 1,200

Purchased supplies on account.

5 Cash (+A) 1,800Unearned roofing fees (+L) 1,800

Received advance payment for services.

12 Accounts receivable (+A) 5,500Roofing fees earned (+R,+SE) 5,500



Collection on account from customers.

29 Fuel expense (+E,-SE) 675Cash (-A)

675Paid truck fuel bill for April.

30 Advertising expense (+E,-SE) 100Cash (-A) 100

Paid for April newspaper advertising.

30 Wages expense (+E, -SE) 2,500Cash (-A)

2,500Paid wages.

30 Accounts receivable (+A) 4,000Roofing fees earned (+R, +SE) 4,000




31/83

Billed customeers for services.



32/83

c.Lougee ROOFING SERVICE

UNADJUSTED TRIAL BALANCEAPRIL 30, 2010

Debit Credit

Cash $ 4,945Accounts Receivable 4,600Supplies 1,200Prepaid Insurance 2,880Trucks 6,100Equipment 3,100Accounts Payable $ 3,300Unearned Roofing Fees 1,800Common Stock 11,500Roofing Fees Earned 9,500Fuel Expense 675

Advertising Expense 100Wages Expense 2,500

$26,100 $26,100

d.



NoncashAssets -

ContraAssets


NetIncome

1. Recognize one

month ofinsurance

expense.

-120

PrepaidInsurance

- = -120

RetainedEarnings

- +120

InsuranceExpense

= -120

2. Recognize

supplies

expense .

-800Supplies

- = -800RetainedEarnings

- +800Supplies

Expense

= -800

3. Recognize

depreciation

expense

Trucks.

- +125Accumulated

Depreciation

= -125Retained

Earnings

- +125Depreciation

Expense

= -125

4. Recognize

depreciation

expense on

equipment.

- +35Accumulated

Depreciation

= -35Retained

Earnings

- +35Depreciation

Expense

= -35

5. Recognize

roofing fees

earned.

- = -450Unearned

Roofing

Fees

+450Retained

Earnings

+450Roofing Fees

Earned

- = +450

Totals 0 + -920 - 160 = -450 + 0 + -630 450 - 1,080 = -630




33/83

Date 2010 Description Debit CreditApril 30 Insurance expense (+E,-SE) 120

Prepaid insurance (-A) 120To record April insurance expense ($2,880/24 months = $120).

30 Supplies expense (+E,-SE) 800Supplies (-A) 800

To record April supplies expense ($1,200 $400 = $800).

30 Depreciation expenseTrucks (+E,-SE) 125Accumulated depreciationTrucks (+XA,-A) 125

To record April depreciation on trucks.

30 Depreciation expenseEquipment (+E,-SE) 35Accumulated depreciationEquipment (+XA,-A) 35

To record April depreciation on equipment.

30 Unearned roofing fees (-L) 450Roofing fees earned (+R,+SE) 450

To record portion of advance payment earned in April($1,800/4 = $450).



34/83

P3-41 (40 minutes)SnapShot Company

UNADJUSTED TRIAL BALANCEDECEMBER 31, 2010

a.Debit Credit

Cash $2,150Accounts Receivable 3,800Prepaid Rent 12,600Prepaid Insurance 2,970Supplies 4,250Equipment 22,800Accounts Payable $1,910Unearned Photography Fees 2,600Common Stock 24,000Photography Fees Earned 34,480

Wages Expense 11,000Utilities Expense 3,420 ______

$62,990 $62,990

b.



NoncashAssets -

ContraAssets


NetIncome

1. Fees earned

but not

received.

+925Fees

Receivable

- =+925

Retained

Earnings

+925Photography

Fees Earned

- =+925

2. Recognize

depreciationexpense for

one year.

-

+2,280

Accumulated

Depreciation =

-2,280

RetainedEarnings -

+2,280

DepreciationExpense =

-2,280

3. Recognize

utilities

expense.- =

+400Utilities

Payable

-400Retained

Earnings

-+400

Utilities

Expense

=-400

4. Recognize

rent

expense for

year.

-6,300Prepaid

Rent- =

-6,300Retained

Earnings-

+6,300Rent

Expense=

-6,300

5. Recognize

photo

revenues.

- =

-2,600Unearned

Photo Fees

+2,600Retained

Earnings

+2,600Photography

Fee Earned

- =+2,60

6. Recognize

insurance

expense.

-990Prepaid

Insurance

- =-990

Retained

Earnings

-+990

Insurance

Expense

=-990

7. Recognize

supplies

expense.

-2,730Supplies - =

-2,730Retained

Earnings

-+2,730Supplies

Expense

=-2,730

8. Recognize

wages

expense.- =

+375Wages

Payable

-375Retained

Earnings

-+375Wages

Expense

=-375

Totals 0 + -9,095 - 2,280 = -1,825 + 0 + -9,550 3,525 - 13,075 = -9,550




35/83

Date 2010 Description Debit CreditDec. 31 Fees receivable (+A) 925

Photography fees earned (+R, +SE) ` 925To record revenue earned but not billed.

31 Depreciation expense (+E,-SE) 2,280Accum. depreciationEquipment (+XA, -A) 2,280To record depreciation for the year

($22,800/10 years = $2,280).

31 Utilities expense (+E, -SE) 400Utilities payable (+L) 400

To record estimated December utilities expense.

31 Rent expense (+E, -SE) 6,300Prepaid rent (-A) 6,300

To record rent expense for the year($12,600/2 years = $6,300).

31 Unearned photography fees (-L) 2,600Photography fees earned (+R, +SE) 2,600

To record advance payments earned during the year.

31 Insurance expense (+E, -SE) 990Prepaid insurance (-A) 990

To record insurance expense for the year($2,970/3 years = $990).

31 Supplies expense (+E,-SE) 2,730Supplies (-A) 2,730

To record supplies expense for the year($4,250 $1,520 = $2,730).

31 Wages expense (+E, -SE) 375Wages payable(+L) 375

To record unpaid wages at December 31.



36/83

c.

+ Cash (A) - - Accounts Payable (L) +Unadj. bal. 2,150 1,910 Unadj. bal.

Adj. bal. 2,150 1,910 Adj. bal.

+ Accounts Receivable (A) - - Unearned Photo Fees (L) +Unadj. bal. 3,800 Dec.31 (5) 2,600 2,600 Unadj. bal.

Adj. bal. 3,800 0 Adj. bal.

+ Fees Receivable (A) - - Utilities Payable (L) +Dec. 31 (1) 925 400 (3) Dec.31

Adj. bal. 925 400 Adj. bal.

+ Prepaid Rent (A) - - Wages Payable (L) +Unadj. bal. 12,600 6,300 (4) Dec.31 375 (8) Dec.31


+ Prepaid Insurance (A) - - Common Stock (SE) +

Unadj. bal. 2,970 990 (6) Dec.31 24,000 Unadj. bal.Adj. bal. 1,980 24,000 Adj. bal.

+ Supplies (A) - - Photo Fees Earned (R) +Unadj. bal. 4,250 2,730 (7) Dec.31 34,480 Unadj. bal

Adj. bal. 1,520 925 (1) Dec.31

2,600 (5) Dec.31

38,005 Adj. bal.

+ Equipment (A) - + Wages Expense (E) -Unadj. bal. 22,800 Unadj. bal. 11,000Adj. bal. 22,800 Dec.31 (8) 375

Adj. Bal. 11,375- Accum. Depreciation Equip. (XA)

++ Utilities Expense (E) -

2,280 (2) Dec.31 Unadj. bal. 3,420

2,280 Adj. Bal. Dec.31 (3) 400Adj. Bal. 3,820

+ Supplies Expense (E) - + Depreciation Expense Equip. (E) -Dec. 31 (7) 2,730 Dec.31 (2) 2,280Adj. bal. 2,730 Adj. Bal. 2,280

+ Insurance Expense (E) - + Rent Expense (E) -

Dec. 31 (6) 990 Dec.31 (4) 6,300Adj. bal. 990 Adj. Bal. 6,300




37/83

P3-42 (90 minutes)a.



NoncashAssets -

ContraAssets



NetIncome

1. Recognize

rent expense.-775

Prepaid

Rent-

= -775Retained

Earnings

- +775Rent

Expense

= -775

2. To recognize

supplies

expense.

-1,700Supplies -

= -1,700Retained

Earnings

- +1,700Supplies

Expense

= -1,700

3. To recognize

depreciation

expense.-

+74Accumulated

Depreciation

= -74Retained

Earnings

- +74Depreciation

Expense

= -74

4. To recognize

wages

expense.-

= +210Wages

Payable

-210Retained

Earnings

- +210Wages

Expense

= -210

5. To recognize

utilities

expense.-

= +300Utilities

Payable

-300Retained

Earnings

- +300Utilities

Expense

= -300

6. To recognize

fees earned.

+380

AccountsReceivable -

= +380

RetainedEarnings

+380

Service FeesEarned

- = +380

Totals 0 + -2,095 - 74 = 510 + 0 + -2,679 380 - 3,059 = -2,679

Date 2011 Description Debit CreditJune 30 Rent expense (+E, -SE) 775

Prepaid rent (-A) 775To record June rent expense ($3,100/4 months = $775).

30 Supplies expense (+E, -SE) 1,700Supplies (-A) 1,700

To record June supplies expense (2,520 $820 = $1,700).

30 Depreciation expenseEquip (+E, -SE) 74Accum. depreciationEquipment (+XA, -A) 74

To record June depreciation ($4,440/60 months = $74).

30 Wages expense (+E, -SE) 210Wages payable (+L) 210

To record unpaid wages at June 30.

30 Utilities expense (+E, -SE) 300

Utilities payable (+L) 300To record estimated June utilities expense.

30 Accounts receivable (+A) 380Service fees earned (+R, +SE) 380

To record fees earned but not billed in June.



38/83

b.

+ Cash (A) - - Accounts Payable (L) +Unadj. bal 1,180 760 Unadj. bal


+ Accounts Receivable (A) - - Wages Payable (L) +

Unadj. bal 450 210 (4) Jun.30Jun. 30 (6) 380 210 Adj. bal.

Adj. bal. 830

- Utilities Payable (L) +

300 (5) Jun.30

300 Adj. bal.

+ Prepaid Rent (A) - - Retained Earnings (SE) +Unadj. bal 3,100 775 (1) Jun.30 5,300 Unadj. bal.

Adj. bal. 2,325

+ Rent Expense (E) - - Common Stock (SE) +Jun.30 (1) 775 2,000 Unadj. bal

Adj. bal. 775 2,000 Adj. bal.

+ Supplies (A) - - Service Fees Earned (R) +Unadj. bal 2,520 1,700 (2) Jun.30 4,650 Unadj. bal

Adj. bal. 820 380 (6) Jun.30

5,030 Adj. bal.

+ Equipment (A) - + Wages Expense (E) -Unadj. bal 4,440 Unadj. bal 1,020

Adj. bal. 4,440 Jun.30 (4) 210Adj. bal. 1,230

- Accum. Depreciation Equip.(XA) + + Utilities Expense (E) -

74 (3) Jun.30 Jun.30 (5) 300

74 Adj. Bal. Adj. bal. 300

+ Supplies Expense (E) - + Depreciation Expense - EQPT (E) -Jun. 30 (2) 1,700 Jun.30 (3) 74Adj. bal. 1,700 Adj. bal. 74




39/83

c.

Murdock Carpet CleanersIncome Statement

For Year Ended June 30, 2011

Revenues

Service fees.. $5,030

Expenses

Rent expense. $ 775

Wages expense. 1,230

Supplies expense. 1,700

Utilities expense... 300

Depreciation expense. 74

Total expenses. 4,079

Net income $ 951

Murdock Carpet CleanersBALANCE SHEETJune 30, 2011

Assets LiabilitiesCash $ 1,180 Accounts payable $ 760Accounts receivable 830 Wages payable 210

Supplies 820 Utilities payable 300Prepaid rent 2,325 Total Liabilities 1,270Equipment $ 4,440Less: Accumulateddepreciation

74 4,366 Owners Equity





40/83

d.1. Retained earnings (-SE) .................................................... 775

Rent expense (-E)........................................................... 775

2. Retained earnings (-SE)..................................................... 1,700

Supplies expense (-E).................................................... 1,700

3. Retained earnings (-SE)..................................................... 1,230Wages expense (-E)....................................................... 1,230

4. Retained earnings (-SE)..................................................... 300Utilities expense (-E )..................................................... 300

5. Retained earnings (-SE)..................................................... 74Depreciation expense (-E)............................................. 74

6. Service fees earned (-R)..................................................... 5,030

Retained earnings (+SE)................................................ 5,030

- Retained Earnings (SE) + + Rent Expense (E) -

5,300 Bal. Bal. 775 775 1.

1. 775 02. 1,700

3. 1,230 + Supplies Expense (E) -

4. 300 Bal. 1,700 1,700 2.

5. 74 5,030 6. 06,251 Bal.

+ Wages Expense(E) - + Utilities Expense (E) -

Bal. 1,230 1,230 3. Bal. 300 300 4.

0 0

+ Depreciation Expense (E) - - Service Fees Earned (R) +

Bal. 74 74 5. 6. 5,030 5,030 Bal.

0 0




41/83

P 3-43 (30 minutes)a.



NoncashAssets -

ContraAssets



NetIncome

1. Accrue salaryexpense.

- = +720Salaries

Payable

-720Retained

Earnings

- +720Salaries

Expense

= -720

2. Accrue

interest

expense.

- = +200Interest

Payable

-200Retained

Earnings

- +200Interest

Expense

= -200

3. Accrue fees

receivable.+900Fees

Receivable

- = +900Retained

Earnings

+900Printing

Revenue

- = +900

4. Accrue

maintenance

expense.

-400Prepaid

Maintenance

- = -400Retained

Earnings

- +400Maintenance

Expense

= -400

5. Accrue ad.

Expense.-300

Prepaid

Advertising

- = -300Retained

Earnings

- +300Ad. Expense

= -300

6. Accrue rentexpanse.

- = +160Rent

Payable

-160Retained

Earnings

- +160Rent

Expense

= -160

7. Accrue

interest

revenue.

+38Interest

Receivable

- = +38Retained

Earnings

+38Interest

Revenue

- = +38

8. Accrue

depreciation

expense.

- +2,175Accumulated

Depreciation

= -2,175Retained

Earnings

- +2,175Depreciation

Expense

= -2,175

Totals 0 + +238 - 2,175 = 1,080 + 0 + -3,017 938 - 3,955 = -3,017



42/83

b.

Date Description Debit CreditDec 31 Salaries expense (+E, -SE) 720

Salaries payable (+L) 720To accrue salaries at December 31 ($1,800 2/5 = $720).

31 Interest expense (+E, -SE) 200Interest payable (+L) 200

To accrue interest expense at December 31.

31 Fees receivable (+A) 900Printing revenue (+R, +SE) 900

To record revenue earned but not yet billed.

31 Maintenance expense (+E ,-SE) 400Prepaid maintenance (-A) 400

To record December maintenance expense.

31 Advertising expense (+E, -SE) 300Prepaid advertising (-A) 300

To record December advertising expense($900 1/3 = $300).

31 Rent expense (+E, -SE) 160Rent payable (+L) 160

To accrue one-half month's rent expense

[(400 $0.80)/2 = $160].

31 Interest receivable (+A) 38Interest income (+R, +SE) 38

To accrue interest earned in December.

31 Depreciation expenseEquipment (+E, -SE) 2,175Accum. depreciationEquipment (+XA) 2,175

To record annual depreciation on equipment.




43/83

P3-44 (40 minutes)TRUEMAN CONSULTING INC.

INCOME STATEMENTFORTHE YEAR ENDED DECEMBER 31, 2010

a.RevenueService fees earned $58,400

ExpensesRent expense $12,000Salaries expense 33,400Supplies expense 4,700Insurance expense 3,250Depreciation expenseEquipment 720Interest expense 630

Total Expenses 54,700

Net Income $ 3,700

TRUEMAN CONSULTING INC.STATEMENTOF STOCKHOLDERS EQUITY

FORTHE YEAR ENDED DECEMBER 31, 2010

CommonStock

RetainedEarnings

Total StockholdersEquity

Balance at December 31, 2009.......... $1,000 $3,305 $4,305

Stock issuance......................................

Dividends..............................................Net income............................................ _____ 3,700 3,700

Balance at December 31, 2010.......... $1,000 $7,005 $8,005



44/83

TRUEMAN CONSULTINGBALANCE SHEET

DECEMBER 31, 2010

Assets Liabilities

Cash $ 2,700 Accounts payable $ 845Accounts receivable 3,270 Long-term notes payable 7,000

Supplies 3,060 Total Liabilities 7,845Prepaid insurance 1,500Equipment $ 6,400 Owners EquityLess: Accumulateddepreciation

1,080 5,320 Common stock 1,000

Retained earnings 7,005Total Assets $15,850 Total Liabilities and Owners Equity $15,850

b.

Date 2010 Description Debit CreditDec. 31 Service fees earned (-R) 58,400

Retained earnings (+SE) 58,400To close the revenue account.

31 Retained earnings (-SE) 54,700Rent expense (-E) 12,000Salaries expense(-E) 33,400

Supplies expense (-E) 4,700Insurance expense (-E) 3,250Depreciation expenseEquip (-E) 720Interest expense (-E) 630





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P3-45 (30 minutes)

a.


Miscellaneous income (-R) 4,200Retained earnings (+SE) 101,400

To close the revenue accounts.

31 Retained earnings (-SE) 74,800Salaries expense (-E) 42,800Rent expense (-E) 13,400Insurance expense (-E) 1,800Depreciation expense (-E) 8,000Income tax expense (-E) 8,800


b. After the closing entries are posted, Retained Earnings has a $45,700 creditbalance ($19,100 + $26,600 net income).

c.Wilson Company

Post-Closing Trial BalanceDecember 31, 2010

Debit Credit

Cash $8,500Accounts Receivable 8,000Prepaid Insurance 3,600Equipment 72,000Accumulated Depreciation $12,000Accounts Payable 600Income Tax Payable 8,800Common Stock 25,000Retained Earnings ______ 45,700

$92,100 $92,100



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*Assumes wages earned had not been accrued or recognized yet as an expense.

Date 2010 Description Debit CreditDec. 31 Advertising expense (+E, -SE) 400

Prepaid advertising (-A) 400To record advertising expense ($1,200 $800 = $400).

31 Wages expense (+E, -SE) 1,300Wages payable (+L) 1,300

To record accrued wages.

31 Insurance expense (+E, -SE) 1,140Prepaid insurance (-A) 1,140

To record insurance expense ($3,420 $2,280 = $1,140).

31 Unearned service fees (-L) 2,400Service fees earned (+R, +SE) 2,400

To recognize unearned fees as earned

($5,400 $3,000 = $2,400).

31 Rent receivable (+A) 1,000Rental income (R, +SE) 1,000

To record rent earned but not yet recorded.


Financial Accounting, 3rdEdition




Contrib.Capital +

EarnedCapital

Revenues - Expenses = NetIncom1. Recognize

Advertisingexpense.

-400Prepaid

Advertising=


-+400

AdvertisingExpense

=-400

2. Accrue wageexpense. =

+1,300Wages

Payable*


-

+1,300Wages

Expense=

-1,300

3. Recognizeinsuranceexpense.

-1,140Prepaid

Insurance=


-

+1,140InsuranceExpense

=-1,140

4. Recognizeservice feesearned.

=

-2,400Unearned

Service Fees


+2,400Service Fees

Earned- =

+2,40

5. Recognize

rent revenue.

+1,000

RentReceivable =

+1,000

RetainedEarnings

+1,000

RentalIncome - =

+1,00

Totals 0 + -540 = -1,100 + 0 + 560 3,400 - 2,840 = 560

3-46


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NoncashAssets =

Liabil-ities +

Contrib.Capital +

EarnedCapital

Revenues - Expenses = NetIncome

1. Paywages of$2,400.

-2,400Cash =

-1,300Wages

Payable


-+1,100Wages

Expense=

-1,100

2. Receipt of$1,000 rentrevenue.

+1,000Cash

-1,000Rent

Receivable= - =

Date 2011 Description Debit CreditJan. 4 Wages payable (-L) 1,300

Wages expense (+E, -SE) 1,100Cash (-A) 2,400

To record payment of wages.

4 Cash (+A) 1,000Rent receivable (-A) 1,000

To record collection of rent.



48/83

P3-47 (90 minutes)

a, b and d. For part d, the adjusting entries are indicated by the numbers 1-5. Theunadjusted trial balance required in part c is calculated before the adjusting entries

are made.

+ Cash (A) - - Accounts Payable (L) +

6/1 24,000 4,400 6/1 9,480 6/1

6/2 6,400 875 6/26/30 7,800 930 6/2

3,600 6/12 - Salaries Payable (L) +

1,240 6/15 725 2.

520 6/183,600 6/26

1,500 6/30 - Unearned Service Fees (L) +

21,535 5. 3,200 6,400 6/2

3,200

+ Accounts Receivable (A) -

6/10 5,800 7,800 6/30 - Common Stock (SE) +

6/28 5,200 24,000 6/1

3,200

+ Prepaid Advertising (A) - - Retained Earnings(SE) +

6/2 930 310 4. 6/30 1,500

620

+ Office Supplies (A) - + Supplies Expense (E) -

6/1 2,840 1,310 1. 1. 1,310

1,530

+ Office Equipment (A) - + Travel Expense (E) -

6/1 11,040 6/15 1,240

- Acc. Depreciation Off. Equip (XA) + + Depreciation Expense(E) -115 3. 3. 115

+ Advertising Expense (E) - + Rent Expense (E) -

4. 310 6/2 875




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+ Salaries Expenses (E) - - Service Fees Earned (R) +

6/12 3,600 5,800 6/106/26 3,600 5,200 6/282. 725 3,200 5.

7,925 14,200

+ Postage Expense (E) -

6/18 520


ransaction CashAsset +


Contrib.Capital

+EarnedCapital

Revenues - Expenses = Net Inco

/1. Investment forcommon stock.

+24,000Cash =

+24,000Common

Stock

- =

/1. Purchase ofassets for cash& on account.

-4,400

Cash

+ 11,040

OfficeEquipment

+2,840Supplies

=

+9,480

AccountsPayable - =

/2. Pay rent $875. -875Cash =


-+875Rent

Expense

=-875

/2.Purchase $930of advertising inadvance.

-930Cash

+930Prepaid

Advertising

= - =

/2Signed researchcontract.

+6,400Cash =

+6,400Unearned

Service Fees

- =

/10. Bill customersfor services.

+5,800Accounts

Receivable

=+5,800Retained

Earnings

+5,800Service Fees

Earned

- =+5,80

/12. Paid salaries. -3,600Cash =



=-3,60

/15. Paid travelexpenses.

-1,240Cash =


-+1,240

TravelExpense

=-1,24

/18. Paid postage. -520Cash =


-+520

PostageExpense

=-520

/26. Paid salaries. -3,600Cash =



=-3,60

/28. Bill customersfor services.

+5,200Accounts

Receivable=


+5,200Service

FeesEarned

- =

+5,20

/30. Collectservice fees.

+7,800Cash

-7,800Acts. Rec.

= - =

/30. Cash dividendpaid.

-1,500Cash


-



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Date 2010 Description Debit CreditJune 1 Cash (+A) 24,000

Common stock (+SE) 24,000Owner invested cash for common stock.

1 Office equipment (+A) 11,040Office supplies (+A) 2,840

Cash (-A) 4,400Accounts payable (+L) 9,480

Purchased equipment and supplies;$4,400 cash paid with the remainder due in 60 days.

2 Rent expense (+E, -SE) 875Cash (-A) 875

Paid June rent.

2 Prepaid advertising (+A) 930Cash (-A) 930

Paid three months' advertising in advance.

2 Cash (+A) 6,400Unearned service fees (+L) 6,400

Received two months' fees in advance on six-month contract.

10 Accounts receivable (+A) 5,800Service fees earned (+R, +SE) 5,800



Paid two weeks' salaries to employees.

15 Travel expense (+E, -SE) 1,240Cash (-A) 1,240

Paid business travel expenses.

18 Postage expense (+E, -SE) 520Cash (-A) 520

Paid postage for questionnaire mailing.


Paid two weeks' salaries to employees.

28 Accounts receivable (+A) 5,200Service fees earned (+R, +SE) 5,200





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Collections from customers on account.

30 Retained earnings (-SE) 1,500Cash (-A) 1,500

Declared and paid dividends.

c.MARKET-PROBE

UNADJUSTED TRIAL BALANCEJUNE 30, 2010

Debit CreditCash $21,535Accounts Receivable 3,200Office Supplies 2,840Prepaid Advertising 930Office Equipment 11,040Accounts Payable $9,480Unearned Service Fees 6,400Common Stock 24,000Retained Earnings* 1,500Service Fees Earned 11,000Salaries Expense 7,200Rent Expense 875Travel Expense 1,240Postage Expense 520 ______

$50,880 $50,880

* The negative (debit) balance in Retained Earnings reflects the dividend paid.d.



NoncashAssets -

ContraAssets


NetIncom

a. Recognize

supplies

expense.

-1,310Office

Supplies

-= -1,310

Retained

Earnings

- +1,310Supplies

Expense

= -1,310

b. Recognize

salaries

expense.-

= +725Salaries

Payable

-725Retained

Earnings

- +725Salaries

Expense

= -725

c. Accruedepreciation

expense.-

+115Accumulated

Depreciation

= -115Retained

Earnings

- +115Depreciation

Expense

= -115

d. Recognize

advertising

expense.

-310Prepaid

Advertising

-= -310

Retained

Earnings

- +310Advertising

Expense

= -310

e. Recognize

earned

service fees.-

= -3,200Unearned

Service Fees

+3,200Retained

Earnings

+3,200Service Fees

Earned

- = +3,20



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Date 2010 Description Debit CreditJune 30 Supplies expense (+E, -SE) 1,310

Office supplies (-A) 1,310To record supplies used during June

($2,840 $1,530 = $1,310).

30 Salaries expense (+E, -SE) 725Salaries payable (+L) 725

To record unpaid salaries at June 30.

30 Depreciation expenseOffice equipment (+E, -SE) 115Accum. deprec. Off. equipment (+XA, -A) 115

To record June depreciation ($11,040/96 mo. = $115).

30 Advertising expense (+E, -SE) 310Prepaid advertising (-A) 310

To record one month's advertising expense.

30 Unearned service fees (-L) 3,200Service fees earned (+R, +SE) 3,200To record one month's fees earned, received in advance.




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P3-48 (40 minutes)

DELIVERALLUNADJUSTED TRIAL BALANCE

DECEMBER 31, 2010a.

Debit CreditCash $ 2,300Accounts Receivable 5,120Prepaid Advertising 1,680Supplies 6,270Equipment 42,240Notes Payable $7,500Accounts Payable 2,700Common Stock 9,530Mailing Fees Earned 86,000Wages Expense 38,800

Rent Expense 6,300Utilities Expense 3,020 ________

$105,730 $105,730

b.



NoncashAssets -

ContraAssets



NetIncome

1. Recognize

advertising

expense.

-1,540Prepaid

Advertising

-

= -1,540Retained

Earnings

- +1,540Advertising

Expense

= -1,540

2. Recognize

depreciation

expense.-

+5,280Accumulated

Depreciation

= -5,280Retained

Earnings

- +5,280Depreciation

Expense

= -5,280

3. Recognize

utilities

expense.-

= +325Accounts

Payable

-325Retained

Earnings

- +325Utilities

Expense

= -325

4. Accrue wages

expense. -

= +1,200Wages

Payable

-1,200Retained

Earnings

- +1,200Wages

Expense

= -1,200

5. Recognize

supplies

expense.

-4,750Supplies -

= -4,750Retained

Earnings

- +4,750Supplies

Expense

= -4,750

6. Accrue interest

expense. -

= +450Interest

Payable

-450Retained

Earnings

- +450Interest

Expense

= -450

7. Recognize rent

expense*. -

= +430Accounts

Payable

-430Retained

Earnings

- +430Rent

Expense

= -430

*(1/2% $86,000 = $430). The rent for the year ($6,300 = $525 x 12) has already beenrecognized in the accounts. See the beginning balances given in the problem statement.



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Date 2010 Description Debit CreditDec. 31 Advertising expense (+E, -SE) 1,540

Prepaid advertising (-A) 1,540To record 11 months' advertising expense

($1,680 11/12 = $1,540).

31 Depreciation expense (+E, -SE) 5,280Accumulated depreciation (+XA, -A) 5,280

To record depreciation for the year($42,240/8 years = $5,280).

.31 Utilities expense (+E, -SE) 325

Accounts payable (+L) 325To record estimated December utilities expense.

31 Wages expense (+E, -SE) 1,200Wages payable (+L) 1,200

To record unpaid wages at December 31.


To record supplies expense for the year

($6,270 $1,520 = $4,750).

31 Interest expense (+E, -SE) 450Interest payable (+L) 450

To record accrual of interest expense at Dec. 31.

31 Rent expense (+E, -SE) 430Accounts payable (+L) 430

To record additional rent owed under lease(1/2% $86,000 = $430).




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c.

Only the T-accounts needed to enter the adjustments are provided.

- Accounts Payable (L) + + Prepaid Advertising (A) -

2,700 Bal. Bal. 1,680 1,540 1.325 3.430 7.

+ Supplies (A) -

Bal. 6,270 4,750 5.

- Accumulated DepreciationEquip (XA) + +Advertising Expense (E) -

5,280 2. 1. 1,540

- Interest Payable (L) + + Rent Expense (E) -

450 6. Bal. 6,3007. 430

- Wages Payable (L) + + Wages Expense (E) -

1,200 4. Bal. 38,800

4. 1,200

+ Depreciation Expense (E) - + Utilities Expense (E) -

2. 5,280 Bal.

3.

3,020

325

+ Interest Expense (E) - + Supplies Expense (E) -

6. 450 5. 4,750



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NoncashAssets -

ContraAssets

= Liabilities + Contrib.Capital +EarnedCapital Revenues - Expenses = Net Inco

1. Recognize rentexpense. -795PrepaidRent

-= -795

Retained

Earnings

- +795Rent

Expense

= -795

2. Recognize

supplies

expense.

-1,980Supplies -

= -1,980Retained

Earnings

- +1,980Supplies

Expense

= -1,980

3. Accrue

depreciation

expense.-

+335Accumulated

Depreciation

= -335Retained

Earnings

- +335Depreciation

Expense

= -335

4. Accrue wages

payable. -

= +560Wages

Payable

-560Retained

Earnings

- +560Wages

Expense

= -560

5. Recognize

utilities

expense.-

= +390Accounts

Payable

-390Retained

Earnings

- +390Utilities

Expense

= -390

6. Recognize

service

revenue. -

=

-500UnearnedService

Revenue


+500ServiceRevenue

-

= +500

Date 2010 Description Debit CreditMar. 31 Rent expense (+E, -SE) 795

Prepaid rent (-A) 795To record March rent expense ($4,770/6 months = $795).


To record March supplies expense ($3,700$1,720 = $1,980).

31 Depreciation expenseEquipment (+E, -SE) 335Accumulated depreciationEquipment (+XA, -A) 335

To record March depreciation ($36,180/108 months = $335).

31 Wages expense (+E, -SE) 560Wages payable (+L) 560

To record unpaid wages at March 31.

31 Utilities expense (+E, -SE) 390Accounts payable (+L) 390

To record estimated March utilities expense.

31 Unearned service revenue (-L) 500Service revenue (+R, +SE) 500

To record revenue received in advance that was earned in March.




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b.Not all the T-accounts given are needed to enter the adjustments required. Also,the closing entries required in part d are referenced by 1c, 2c etc.

- Accounts Payable (L) + + Prepaid Rent (A) -

2,510 Bal. Bal. 4,770 795 1.390 5. Bal. 3,975

2,900 Bal.

+ Supplies (A) -

Bal. 3,700 1,980 2.

Bal. 1,720

- Acc Depreciation - Equipment (XA) + - Unearned Service Revenue (L) +

335 3. 6. 500 1,000 Bal.

500 Bal.

-Service Revenue(R) + + Rent Expense (E) -6c. 12,860 12,360 Bal. 1. 795 795 1c.

500 6.

+ Supplies Expense (E) -

2. 1,980 1,980 2c.

+Depreciation Expense (E) - +Wages Expense (E) -

3. 335 335 3c. Bal. 3,900

4. 560 4,460 4c.

+ Utilities Expense (E) - - Wages Payable (L) +5. 390 390 5c. 560 4.


1c. 7952c. 1,9803c. 3354c. 4,4605c. 390

12,860 6c.

4,900 7c.



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c.

Wheel Place CompanyIncome Statement

For Month Ended March 31, 2010

Service revenue.... $12,860

Expenses:

Utilities expense... $390

Supplies expense.. 1,980

Wages expense.... 4,460

Depreciation expense. 335

Rent expense... 795 7,960

Net income ... $4,900

Wheel Place CompanyBALANCE SHEETMarch 31, 2010

Assets LiabilitiesCash $ 1,900 Accounts payable $ 2,900Accounts receivable 3,820 Wages payable 560

Supplies 1,720 Unearned service revenue 500

Prepaid rent 3,975 Total Liabilities 3,960Equipment $ 36,180Less:Accumulateddepreciation

335 35,845 Owners Equity






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d.

1c. Retained earnings (-SE).............................................. 795Rent expense (-E).................................................... 795

2c. Retained earnings (-SE).............................................. 1,980Supplies expense (-E)............................................. 1,980

3c. Retained earnings (-SE).............................................. 335Depreciation expense (-E)...................................... 335

4c. Retained earnings (-SE).............................................. 4,460Wages expense (-E)................................................. 4,460

5c. Retained earnings (-SE).............................................. 390Utilities expense (-E)............................................... 390

6c. Service revenue (-R) ................................................... 12,860Retained earnings (+SE)......................................... 12,860

The closing journal entries are shown in the T-accounts in part a.



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TRAILS, INC.INCOME STATEMENT

FORTHE YEAR ENDED DECEMBER 31, 2010

RevenuesSubscription revenue $ 168,300Advertising revenue 49,700

Total revenues $218,000Expenses

Salaries expense 100,230Printing and mailing expense 85,600Rent expense 8,800Supplies expense 6,100Insurance expense 1,860Depreciation expense 5,500

Income tax expense 1,600Total expenses 209,690Net income $8,310

Trails, Inc.Statement of Stockholders EquityFor Year Ended December 31, 2010

CommonStock

RetainedEarnings

TotalStockholders

EquityBalance at December 31, 2009.... $25,000 $23,220 $48,220

Stock issuance............................

Dividends.....................................

Net income.................................. _____ 8,310 8,310

Balance at December 31, 2010.... $25,000 $31,530 $56,530




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TRAILS, INC.BALANCE SHEET

DECEMBER 31, 2010Assets Liabilities

Cash $3,400 Accounts payable $ 2, 100Accounts receivable 8,600 Unearned subscription revenue 10,000

Supplies 4,200 Salaries payable 3,500Prepaid insurance 930 Total liabilities 15,600Office equipment $66,000Less:Accum. depreciation 11,000 55,000

Stockholders' equity

Common stock $25,000Retained earnings 31,530

Total stockholders' equity 56,530Total liabilities and

Total assets $72,130 stockholders' equity $72,130

b.

Date 2010 Description Debit CreditDec. 31 Subscription revenue (-R) 168,300

Advertising revenue (-R) 49,700Retained earnings (+SE) 218,000

To close the revenue accounts.

31 Retained earnings (-SE) 209,690Salaries expense (-E) 100,230Printing and mailing expense (-E) 85,600

Rent expense (-E) 8,800Supplies expense (-E) 6,100Insurance expense (-E) 1,860Depreciation expense (-E) 5,500Income tax expense (-E) 1,600




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Retained earnings (+SE) 72,500

To close the revenue account.

31 Retained earnings (-SE) 58,800Wages expense (-E) 29,800Rent expense (-E) 10,200Insurance expense (-E) 2,900Supplies expense (-E) 5,100Advertising expense(-E) 6,000Depreciation expenseTrucks(-E) 4,000Depreciation expenseEquipment (-E) 800


b. The balance in Retained Earnings after closing entries are posted is $29,250credit ($15,550 + $13,700).

c.Mayflower MOVING SERVICE

POST-CLOSING TRIAL BALANCEDECEMBER 31, 2010

Debit CreditCash $ 3,800Accounts Receivable 5,250Supplies 2,300Prepaid Advertising 3,000Trucks 28,300Accumulated DepreciationTrucks $10,000Equipment 7,600Accumulated DepreciationEquipment 2,100Accounts Payable 1,200Unearned Service Fees 2,700

Common Stock 5,000Retained Earnings ______ 29,250$50,250 $50,250




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NoncashAssets =

Liabil-ities

+ Contrib.Capital +EarnedCapital

Revenues - Expenses = NetIncome1. Recognize

maintenance

expense.

-1,800Prepaid

Maintenance

=-1,800

RetainedEarnings

-+1,800

MaintenanceExpense

=-1,800

2. Recognizesupplies expense.

-5,200Supplies =


-+5,200SuppliesExpense

=-5,200

3. Accrue earnedcommissions.

=

-4,500UnearnedCommis-sion Fees


+4,500CommissionFees Earned

- =

+4,500

4. Earned butunbilledcommission fees.

+2,800Fees

Receivable

=+2,800RetainedEarnings

+2,800CommissionFees Earned

- =+2,800

5. Rent expense.

=+913Rent

Payable


-+913Rent

Expense

=-913

Date 2010 Description Debit CreditDec. 31 Maintenance expense (+E, -SE) 1,800

Prepaid maintenance (-A) 1,800To record four months' maintenance expense

[($2,700/6) 4 = $1,800].


To record supplies expense ($8,400 $3,200 = $5,200).

31 Unearned commission fees (-L) 4,500Commission fees earned (+R, +SE) 4,500

To transfer fees earned from unearned fees($8,500 $4,000 = $4,500).

31 Fees receivable (+A) 2,800Commission fees earned (+R, +SE) 2,800

To record fees earned but not yet billed.

31 Rent expense (+E, -SE) 913

Rent payable (+L) 913To record additional 2008 rent[1% ($84,000 + $4,500 + $2,800) = $913].



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NoncashAssets = Lia

Dmp3e Ch03 Solutions 02.17.10 Final

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Transcript of Dmp3e Ch03 Solutions 02.17.10 Final