Module 3 EXTRA Solutions

7/27/2019 Module 3 EXTRA Solutions

1/17

Cambridge Business Publ ishers, 2008

So lu t io n s Man u al, Mo d u le 3 3 -1

Module 3Constructing Financial Statementsand Analyzing Transactions

QUESTIONS

Q3-1 The fiscal year is the annual accounting period that a firm adopts. A firm that usesDecember 31 year end is on a calendar-year basis. Traditionally, fiscal years that end inJanuary through the end of May, are labelled as the prior calendar year. For example, afiscal year ending January 31, 2008 would be labelled fiscal 2007 because the bulk ofthe operations occurred in calendar 2007 rather than in 2008.

Q3-2 A journal entry records a transaction in a companys general journal. A generaljournal is a book of original entry for the initial recording of any type of transaction oraccrual. It contains space for dates and for accounts to be debited and credited,columns for the amounts of the debits and credits, and a posting reference column fornumbers of the accounts that are posted. Most companies have electronic journals butthe basics are the same.

Q3-3 Posting means including the transaction amount in the affected general ledgeraccounts. This procedure enables company personnel to trace amounts in the ledgerback to the originating journal entry and to determine which entries have been added tothe ledger so that account totals are updated.

Q3-4 1. Prepaid Expenses Allocating assets to expense to reflect expenses incurred duringthe period. Example: Recording supplies used by debiting Supplies Expense andcrediting Supplies or recording depreciation expense and reducing PPE (or increasingaccumulated depreciation).

2. Unearned Revenues Adjusting unearned revenues to reflect revenues earnedduring the period. Example: Recording service fees earned by debiting UnearnedService Fees and crediting Service Fees Earned.

3. Accrued Expenses Accruing expenses to reflect expenses incurred during theperiod that are not yet paid or recorded. Example:Recording unpaid wages by debitingWages Expense and crediting Wages Payable or recording interest owing on loans.

4. Accrued Revenues Accruing revenues to reflect revenues earned during the periodthat are not yet received or invoiced. Example: Recording commissions earned bydebiting Commissions Receivable and crediting Commissions Earned.


2/17

Cambridge B usiness Publ ishers, 2008

Financial Accounting for MBAs, 3rd Edit ion3-2

Q3-5Jan. 31 Insurance Expense........................................................ 78

Prepaid Insurance .................................................... 78

To recor d insu rance expense f or J anuary ($1,872 / 24 = $78).

Q3-6 (a) Supplies Expense of $455 must be recorded for the period. This will reduce theasset account and increase the expense account by $455. ($825+$260-$630=$455)

(b) If the adjustment is not made, Supplies Expense is understated by $455, Supplies(asset) and Equity are both overstated by $455 on the January 31 balance sheet.

Q3-7

Balance Sheet Income Statement

TransactionCash

Asset+

NoncashAssets

=Liabil-

ities+

Contrib.Capital

+EarnedCapital

Rev-enues

Expen

-ses=

Netncome

Cash 9,720UR 9,720

,720

9,720

Cash

R

Received$9,720 cash inadvance forsubscriptions

+9,720Cash

=9,720

UnearnedRevenue

=

UR 405Sales 405

05

405

R

Sales

Delivered $405of magazines

=-405

UnearnedRevenue

+405RetainedEarnings

+405Sales

= +405

Q3-8 (a) Jan. 1 Cash................................................................................ 9,720Subscriptions Received in Advance ...................... 9,720

To record receipt of two-year subscriptions.

(b) Jan. 31 Subscriptions Received in Advance............................ 405Subscriptions Revenue........................................... 405

To record sub scription r evenue earneddur ing January ($9,720 / 24 = $405).

Q3-9 Jan. 31 Wages Expense ............................................................. 190Wages Payable......................................................... 190

To reco rd u npaid wages fo r Jan. 3031

[($475 / 5) 2 = $190].


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So lu t io n s Man u al, Mo d u le 3 3 -3

Q3-10 On January 31, the interest receivable account and the interest income account bothshould be increased by $360 to reflect the fact that the company has earned interestbut not yet received it.

The journal entry would be as follows:Jan. 31 Interest Receivable........................................................ 360

Interest Income ........................................................ 360To record interest earned during January.

Q3-11 All temporary accounts are closed at year-end. They consist of the income statementaccounts (expense and revenue accounts) and the dividend account.

Step 1) Close revenue accounts: Debit each revenue account for an amount equal to itsbalance, and credit retained earnings for the total of revenues.

Step 2) Close expense accounts: Credit each expense account for an amount equal to

its balance, and debit retained earnings for the total of expenses.Step 3) Close the dividend account: Credit the dividend account for an amount equal to

its balance, and debit retained earnings.


4/17



M3-16 (10 minutes)

a. Balance Sheet Income Statement

Transaction

CashAsset

+oncash

Assets=

Liabil-ities

+ContribCapital

+EarnedCapital

Rev-enues

Expen-

ses=

NetIncome

ash 0,100UR 20,100

20,100

0,100

ash

R

Received$20,100 inadvance forcontractwork

+20,100Cash

=

20,100Unearne

dRevenue

b.Balance Sheet Income Statement

TransactionCashAsset

+oncas

Assets=

Liabil-ities

+ContribCapital

+arneapita

Rev-enues

xpen-ses

=Net

IncomeR 3,350

Rev 3,350

3,350

,350

R

ev

Adjustingentry forworkcompletedby Jan. 31*

=

-3,350Unearne

dRevenue

+3,350Revenue

= +3,350

* $20,100/6 = $3,350

c.Balance Sheet Income Statement

Transaction

CashAsset

+Noncash

Assets=

Liabil-ities

+ContriCapita

+Earned

apitalRev-

enues

Expen-ses

=Net

IncomeR 570

Rev 570

70

70

R

ev

Adjustingentry forfees earned

but notbilled

+570Fees

Receivable

=+570etained

arnings

+570Service

evenue

= +570


5/17


So lu t io n s Man u al, Mo d u le 3 3-13

M3-17 (10 minutes)

Jan. 1 Cash 20,100Unearned Service Fees 20,100To cash r eceived for service fees.

Jan. 31 Unearned Service Fees 3,350Service Fees Earned 3,350

To reflect January service fees earned on

co nt ract ($20,100/6 = $3,350).

Jan. 31 Fees Receivable 570Service Fees Earned 570

To record unb i l led service fees earnedat January 31.

M3-18 (25 minutes)

a.Balance Sheet Income Statement

Transaction

CashAsset

+Noncash

Assets=

Liabilities

+ContribCapital

+EarnedCapital

Rev-enues

Expen-

ses=

NetIncom

eE 185PPI 185

85

85

IE

PI

Adjustingentry forprepaidinsurance

-185Prepaid

Insurance=

-185etained

Earnings

+185Insurance

Expense= -185

b.Balance Shee Income Statement

TransactionCash

Asset +Noncash

Assets =Liabil-

ities +ContribCapital +

EarnedCapital

Rev-enues

Expen-ses =

NetIncome

UPE 1,080SUP 1,080

,080

,080

SUPE

SUP

Adjustingentry forsuppliesused

-1,080Supplies

=-1,080

etainedEarnings

+1,080Supplies

Expense

=-1,080


6/17



M3-18continued

c. Balance Sheet Income Statement

TransactionCash

Asset+

NoncashAssets

=Liabil

ities+

ContribCapital

+EarnedCapital

Rev-enues

xpen-ses

=Net

IncomeE 62

AD 62

62

2

E

D

Adjustingentry fordepreciationof equipment

-62Accum.

Deprecia-tion

=-62

RetainedEarnings

+62Deprecia-

tionExpense

= -62

d.Balance Sheet Income Statement

TransactionCash

Asset+

NoncashAssets

=Liabil-

ities+

ContribCapital

+EarnedCapital

Rev-enues

Expen-

ses=

NetIncom

eR 875

Rev 875

75

75

R

ev

Adjustingntry for rent

revenueearned

=

-875nearned

RentRevenue

+875etained

Earnings

+875Rent

Revenue = +875

e.Balance Sheet Income Statement

TransactionCash

Asset+

NoncashAssets

=Liabil-

ities+

ContribCapital

+EarnedCapital

Rev-enues

Expen-

ses=

NetIncom

eE 490WP 490

90

90

E

P

Adjustingentry for

accruedsalaries

=+490

WagesPayable

-490RetainedEarnings

+490Wages

Expense

= -490


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So lu t io n s Man u al, Mo d u le 3 3- 1

EXERCISES

E3-26 (30 minutes)


TransactionCash

Asset+

NoncashAssets

=Liabil-

ities+

ContribCapital

+EarnedCapital

Rev-enues

Expen-

ses=

NetIncom

eE 10

AD 610

610

10

DE

AD

a. Adjustingentry fordepreciation of

equipment

-610Accum.

Deprecia-

tion

=-610etained

Earnings

+610Deprecia-

tion

Expense

= -610

UPE 1,890SUP 1,890

,890

,890

UPE

SUP

b. Adjustingentry forsuppliesexpense

-1,890Supplies

=-1,890etained

Earnings

+1,890

SuppliesExpense

= -1,890

E 390AP 390

390

390

UE

AP

c. Adjustingentry forutilities

expense

=

+390Accounts(Utilities)

Payable

-390etained

Earnings

+390UtilitiesExpense

= -390

NTE 700PPRNT 700

700

00

RNTE

PRNT

d. Adjustingentry for rentexpense

-700Prepaid

Rent

=-700etained

Earnings

+700Rent

Expense

= -700

R 468Rev 468

468

68

UR

Rev

e. Adjustingentry forpremiumrevenues

=

-468Unearnedpremium

revenue

+468etained

Earnings

+468remium

Revenue

= +468

E 965WP 965

965

65

E

P

f. Adjustingentry for wagesexpense

=+965

WagesPayable

-965etained

Earnings

+965Wages

Expense= -965


8/17



E3-26continued

R 300

OI 300

00

00

R

I

g. Adjustingentry forinterest earned

+300Interest

receivable

=+300etained

Earnings

+300Interest(Other)Income

= +300

E3-27 (30 minutes)

a. Depreciation ExpenseEquipment ................... 610Accumulated DepreciationEquipment ...... 610To record depreciation for the period.

b. Supplies Expense 1,890Supplies 1,890

To record su ppl ies expense for the period

($2,990 $1,100 = $1,890).

c. Utilities Expense 390Utilities Payable 390

To record accrued uti l i t ies expense

d. Rent Expense 700Prepaid Rent 700

To record rent expense for the month

($2,800 / 4 = $700).

e. Unearned Premium Revenue 468Premium Revenue 468

To record prem ium revenue earned

[($624 / 12) 9 = $468].

f. Wages Expense 965Wages Payable 965

To accrue wages at the end of th e period.

g. Interest Receivable 300Interest Income 300

To accrue interest earned b ut n ot y et received.


9/17



PROBLEMS

P3-39 (35 minutes)Balance Sheet Income Statement

TransactionCash

Asset+

NoncashAssets

=Liabil-

ities+

ContribCapital

+EarnedCapital

Rev-enues

Expen-

ses=

NetIncom

E 720WP 720

20

20

E

P

1. Accruesalaryexpense

=+720

WagesPayable


+720

WageExpense

= -720

E 200IP 200

00

00

IE

IP

2. AccrueInterestexpense

=+200

InterestPayable


+200Interest

Expense

= -200

R 900Rev 900

00

00

R

Rev

3. Accruefeesreceivable

+900Fees

(Accounts)Receivable

=+900

RetainedEarnings

+900Printing

FeesRevenue

= +900

E 400PPD 400

00

00

E

PD

4. Accruemaintenanceexpense

-400Prepaid

Mainten-ance

=-400

RetainedEarnings

+400aintenance

(Operating)Expense

= -400

E 300PPDA 300

00

00

E

PPDA

5. Accrueadvertisingexpense

-300Prepaid

Advertising=


+300

dvertistingExpense

= -300

NTE 160

RNTP 160

60

60

RNTE

RNTP

6. Accruerent expense

=+160Rent

Payable


+160

RentExpense

= -160

R 38OI 38

8

8

R

I

7. Accrueinterestrevenue

+38Interest


=+38

RetainedEarnings

+38Interest(Other)income

= +38


10/17



P3-39continued

E 2,175

AD 2,175

2,175

,175

E

D

8. Recorddepreciationexpense

-2,175Accum.

Deprecia-tion

=-2,175

etainedEarnings

+2,175Deprecia-

tionExpense

= -2,175

P3-40 (20 minutes)

Date Description Debit Credit

Dec 31 Salaries Expense 720Salaries Payable 720

To accrue salaries at December 31

($1,800 2/5 = $720).

31 Interest Expense 200Interest Payable 200

To accrue interest expense at December 31.

31 Fees Receivable 900Printing Revenue 900

To record revenue earned but n ot yet bi l led.31 Maintenance Expense 400

Prepaid Maintenance 400To record December m aintenance expense.

31 Advertising Expense 300Prepaid Advertising 300

To record December advert is ing expense

($900 1/3 = $300).

31 Rent Expense 160

Rent Payable 160To accrue one-half mon th's rent expense[(400 $0.80)/2 = $160].

31 Interest Receivable 38Interest Income 38

To accrue interest earned in Decemb er.

31 Depreciation ExpenseEquipment 2,175Accumulated DepreciationEquipment ...... 2,175

To record annual depreciation on equipment.


11/17



P3-44 (25 minutes)

a. Balance Sheet Income Statement

Transaction

CashAsset

+oncas

Assets=

Liabilities

+Contrib.Capital

+Earned

apitalRev-

enues

Expen-ses

=Net

Incomeash 11,500

CS 11,500

11,500

1,500

ash

S

Apr. 1.Cashreceived forstock

11,500Cash

=11,500ommonstock

=

PE ,100C ash 6,100

6,100

,100

PE

ash

Apr. 2.

Purchasetruck forcash

-6,100Cash

+ 6,100Truck

= =

PE 100AP 2,100Cash 1,000

3,100

,100

,000

PE

P

ash

Apr. 2.Purchaseequipment

-1,000Cash

+3,100quipment

=+2,100ccounts

Payable=

PI 2,880Cash 2,880

2,880

,880

PI

ash

Apr. 3.Purchaseliabilityinsurance

- ,880Cash

+2,880Prepaid

nsurance

= =

UP 1,200AP 1,200

1,200

,200

UP

P

Apr. 5.Purchasesupplies on

account

+ 1,200Supplies

=+1,200ccounts

Payable=

ash 1,800UR 1,800

1,800

,800

ash

R

pr. 5. Cashin advancefor roofingrepairs

+1,800Cash

=

+1,800nearned

roofingfees

=


12/17



P3-44continued


TransactionCash

Asset+

NoncashAssets

=Liabil

ities+

ContribCapital

+EarnedCapital

Rev-enues

xpenses

=Net

ncomeR 5,500

Rev 5,500

5,500

,500

R

ev

Apr. 12. Billcustomersfor services.

+5,500Accounts

Receivable=

+5,500Reta nedEarnings

+5,500Roofing

FeesRevenue

= +5,500

ash 4,900AR 4,900

4,900

,900

ash

R

Apr. 18.Cash

collected onaccount

4,900

Cash

-4,900Accounts

Receivable

= =

E 675Cash 675

75

75

E

ash

pr. 29. Paidcash for fuel

-675Cash

=-675

RetainedEarnings

+675Fuel

Operating)Expense

= -675

E 100Cash 100

00

00

E

ash

pr. 30. Paid

cash for ads

-100Cash

=-100

Retained

Earnings

+100

dvertising

Expense

= -100

E 2,500Cash 2,500

2,500

,500

E

ash

Apr. 30. paidcash wages

-2,500Cash

=-2,500

RetainedEarnings

+2,500

WagesExpense

= -2,500

R ,0 0Rev 4,000

4,000

,000

R

ev

Apr. 30. Billcustomers

for services

+4,000Accounts

Receivable

=+4,000

Retained

Earnings

+4,000Roofing

Fees

Revenue

= +4,000


13/17



P3-44continued

b. Balance Sheet Income Statement

TransactionCash

Asset+

NoncashAssets

=Liabil-

ities+

ContribCapital

+EarnedCapital

Rev-enues

Expen-

ses=

NetIncom

eIE 120

PPI 120

120

120

INSE

PPI

1. Recognizeone month ofinsuranceexpense

-120Prepaid

Insurance

=-120

RetainedEarnings

+120

InsuranceExpense

= -120

SUPE 800SUP 800

00

800

UPE

UP

2. Recognizesuppliesexpense

-800Supplies

=-800

RetainedEarnings

+800

SuppliesExpense

= -800

DE 125AD 125

25

125

DE

AD

3. Recognizedepreciationexpense -Trucks

-125Accum.Deprn

--Trucks*

=-125

RetainedEarnings

+125

epreciationExpense

= -125

DE 35AD 35

5

35

DE

AD

4. Recognizedepreciationexpense -Equipment

-35Accum.Deprn

--Equipment*

=-35

RetainedEarnings

+35

epreciationExpense

= -35

UR 450Rev 450

50

450

R

ev

5. Recognizeroofing feesearned

=

-450UnearnedRoofing

Fees

+450RetainedEarnings

+450Roofing

Feesevenue

= +450


14/17



P3-45 (25 minutes)a.

Pownall Photomake CompanyUnadjusted Trial BalanceDecember 31, 2008

Debit Credit

Cash.............................................................. $2,150Accounts Receivable .................................. 3,800Prepaid Rent ................................................ 12,600Prepaid Insurance ....................................... 2,970Supplies........................................................ 4,250Equipment.................................................... 22,800

Accounts Payable ....................................... $1,910Unearned Photography Fees..................... 2,600Common Stock............................................ 24,000Photography Fees Earned.......................... 34,480Wages Expense........................................... 11,000Utilities Expense.......................................... 3,420 ______Totals............................................................ $62,990 $62,990

b.alance Sheet Income Statement

Transaction CashAsset + NoncashAssets = Liabilities + ontribCapital + EarnedCapital Rev-enues Expen-ses = NetIncomeAR 925

Rev 925

25

925

AR

ev

1. Feesearned butnot received

+925Fees


=+925etained

Earnings

+925Photo-graphy

FeesEarned

= +925

DE 2,280D 2,280

,280

2,280

DE

AD

2. Recognizedepreciationexpense forone year

-2,280Accum.

DepreciationEquipment

=-2,280etained

Earnings

+2,280

epreciation

expense

= -2,280

OE 400CC 400

00

400

E

CC

3. Recognizeutilitiesexpense

=+400

UtilitiesPayable

-400etained

Earnings

+400

UtilitiesExpense

= - 400


15/17



P3-45continued


TransactionCash

Asset+

NoncashAssets

=Liabil-

ities+

Contrib.Capital

+EarnedCapital

Rev-enues

Expen-

ses=

etIncome

NTE 6,300PPRNT 6,300

6,300

,300

RNTE

PPRNT

. Recognizerent expensefor year

-6,300Prepaid

Rent

=-6,300etained

Earnings

+6,300

RentExpense

= -6,300

R 2,600Rev 2,600

2,600

,600

R

ev

. Recognize

photorevenues

=

-2,600Unearned

photo.fees

+2,600

etainedEarnings

2,600Photo-

graphyFees

Earned

= +2,600

E 990PPI 990

990

990

INSE

PPI

. Recognizeinsuranceexpense

-990Prepaid

insurance=

-990etained

Earnings

+990Insuranceexpense

= - 990

UPE 2,730SUP 2,730

2,730

,730

SUPE

UP

. Recognize

suppliesexpense

-2,730Supplies

= -2,730etainedEarnings

+2,730Suppliesexpense

= -2,730

E 375WP 375

75

75

E

P

. Recognizewagesexpense

=+375Wages

payable

-375etained

Earnings

+375

Wagesexpense

= - 375


16/17



P3-47 (40 minutes)a.

BensExUnadjusted Trial BalanceDecember 31, 2008

Debit Credit

Cash $ 2,300Accounts Receivable 5,120Prepaid Advertising 1,680Supplies 6,270Equipment 42,240Notes Payable $ 7,500

Accounts Payable 2,700Common Stock 9,530Mailing Fees Earned 86,000Wages Expense 38,800Rent Expense 6,300Utilities Expense 3,020 ________ Totals $105,730 $105,730

b.


TransactionCash

Asset+

NoncashAssets

=Liabil-

ities+

ContribCapital

+EarnedCapital

Rev-enues

Expen-

ses=

NetIncom

eE 1,540

PPDA 1,540

1,540

,540

AE

PDA

1. Recognizeadvertisingexpense

-1,540Prepaid

advertising

=-1,540etained

Earnings

+1,540

Advertisingexpense

= -1,540

E 5,280AD 5,280

5,280

,280

E

D

2. Recognizedepreciationexpense

-5,280Accum.

Deprn equipment

=-5,280etained

Earnings

+5,280

Depreciationexpense

= -5,280

E 325AP 325

25

25

E

AP

3. Recognizeutilitiesexpense

=+325

ccountsPayable

-325etained

Earnings

+325Utilities

expense= -325


17/17



P3-47continued


TransactionCash

Asset+

oncasAssets

=Liabil-

ities+

ContribCapital

+EarnedCapital

Rev-enues

xpenses

=Net

IncomeE 1,200WP 1,200

1,200

,200

E

P

4. Accruewagesexpense

=+1,200Wages

payable

-1,200RetainedEarnings

+1,200

Wagesexpense

= -1,200

UPE 4,750SUP 4,750

4,750

,750

SUPE

UP

5. Record

suppliesexpense

-4,750Supplies =

-4,750

RetainedEarnings

+4,750

SuppliesExpense

= -4,750

E 450IP 450

50

50

IE

IP

6. Accrueinterestexpense

=+450

Interestpayable


+450Interest

Expense

= -450

NTE 430AP 430

30

30

RNTE

P

. Recognize

rentexpense* =

+430

ccountsPayable

-430

RetainedEarnings

+430

RentExpense = -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 problemstatement.

Module 3 EXTRA Solutions

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Transcript of Module 3 EXTRA Solutions