Wey IFRS 1e SM Ch03 final · The revenue recognition principle, which states that revenue should be...

Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-1

CHAPTER 3

Adjusting the Accounts

ASSIGNMENT CLASSIFICATION TABLE

Study Objectives QuestionsBrief

Exercises Do It! ExercisesA

ProblemsB

Problems

*1. Explain the time periodassumption.

1 1 1

*2. Explain the accrualbasis of accounting.

2, 3, 4, 5 1 2, 3, 10

*3. Explain the reasons foradjusting entries.

6, 7 1

*4. Identify the major typesof adjusting entries.

8, 18 2, 8 4, 6, 11

*5. Prepare adjustingentries for deferrals.

8, 9, 10, 11,12, 13, 18,19, 20

3, 4, 5, 6 2 5, 6, 7, 8, 9,10, 11, 12,13, 15, 16

1A, 2A, 3A,4A, 5A, 6A

1B, 2B, 3B,4B, 5B

*6. Prepare adjustingentries for accruals.

8, 14, 15,16, 17, 18,19, 20

7 3 5, 6, 7, 8, 9,10, 11, 12,13, 15, 16

1A, 2A, 3A,4A, 5A, 6A

1B, 2B, 3B,4B, 5B

*7. Describe the nature andpurpose of an adjustedtrial balance.

21 9, 10 4 10, 11, 12,13, 14

1A, 2A, 3A,5A, 6A

1B, 2B,3B, 5B

*8. Prepare adjustingentries for the alternativetreatment of deferrals.

22 11 17, 18 6A

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to thechapter.

http://www.freedownloadslide.blogspot.com

3-2 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)

ASSIGNMENT CHARACTERISTICS TABLE

ProblemNumber Description

DifficultyLevel

TimeAllotted (min.)

1A Prepare adjusting entries, post to ledger accounts,and prepare an adjusted trial balance.

Simple 40–50

2A Prepare adjusting entries, post, and prepare adjustedtrial balance and financial statements.

Simple 50–60

3A Prepare adjusting entries and financial statements. Moderate 40–50

4A Prepare adjusting entries. Moderate 30–40

5A Journalize transactions and follow through accountingcycle to preparation of financial statements.

Moderate 60–70

*6A* Prepare adjusting entries, adjusted trial balance,and financial statements using appendix.

Moderate 40–50

1B Prepare adjusting entries, post to ledger accounts,and prepare an adjusted trial balance.

Simple 40–50

2B Prepare adjusting entries, post, and prepare adjustedtrial balance and financial statements.

Simple 50–60

3B Prepare adjusting entries and financial statements. Moderate 40–50

4B Prepare adjusting entries. Moderate 30–40

5B Journalize transactions and follow through accountingcycle to preparation of financial statements.

Moderate 60–70



WEYGANDT IFRS 1ECHAPTER 3

ADJUSTING THE ACCOUNTS

Number SO BT Difficulty Time (min.)

BE1 3 C Simple 4–6

BE2 4 AN Moderate 6–8

BE3 5 AN Simple 3–5






BE9 7 AP Simple 4–6

BE10 7 AP Simple 2–4

BE11* 8 AN Moderate 3–5

DI1 1, 2 K Simple 2–4

DI2 5 AN Simple 6–8

DI3 6 AN Simple 4–6

DI4 7 AN Moderate 20–30

EX1 1 C Simple 3–5

EX2 2 E Moderate 10–15

EX3 2 AP Simple 6–8

EX4 4 AN Simple 5–6

EX5 5, 6 AN Moderate 10–15

EX6 4–6 AN Moderate 10–12



EX9 5, 6 AN Simple 8–10

EX10 2, 5–7 AN Moderate 8–10



EX13 5–7 AN Simple 8–10

EX14 7 AP Simple 12–15



ADJUSTING THE ACCOUNTS (Continued)

Number SO BT Difficulty Time (min.)

EX15 5, 6 AN, S Moderate 8–10

EX16 5, 6 AN, C Moderate 10–15

EX17 8 AN Moderate 6–8

EX18 8 AN Moderate 10–12

P1A 5–7 AN Simple 40–50

P2A 5–7 AN Simple 50–60

P3A 5–7 AN Moderate 40–50

P4A 5, 6 AN Moderate 30–40



P1B 5–7 AN Simple 40–50

P2B 5–7 AN Simple 50–60

P3B 5–7 AN Moderate 40–50

P4B 5, 6 AN Moderate 30–40

P5B 5–7 AN Moderate 60–70

BYP1 5, 6 AN Simple 10–15

BYP2 — AN Simple 10–15

BYP3 — AN Simple 10–15

BYP4 2–7 S Moderate 15–20

BYP5 3–6 C Simple 10–15

BYP6 3–6 E Moderate 10–15


BLOOM’S TAXONOMY TABLE


Co

rrel

atio

n C

har

t b

etw

een

Blo

om

’s T

axo

no

my,

Stu

dy

Ob

ject

ives

an

d E

nd

-of-

Ch

apte

r E

xerc

ises

an

d P

rob

lem

s

Stu

dy

Ob

ject

ive

Kn

ow

led

ge

Co

mp

reh

ensi

on

Ap

plic

atio

nA

nal

ysis

Syn

thes

isE

valu

atio

n

*1.

Exp

lain

th

e ti

me

per

iod

ass

um

pti

on

.D

I3-1

Q3-

1E

3-1

*2.

Exp

lain

th

e ac

cru

al b

asis

of

acco

un

tin

g.

DI3

-1Q

3-2

Q3-

3Q

3-4

Q3-

5E

3-3

E3-

10E

3-2

*3.

Exp

lain

th

e re

aso

ns

for

adju

stin

g e

ntr

ies.

Q3-

6Q

3-7

BE

3-1

*4.

Iden

tify

th

e m

ajo

r ty

pes

of

adju

stin

g e

ntr

ies.

Q3-

8Q

3-18

BE

3-2

BE

3-8

E3-

4E

3-6

E3-

11

*5.

Pre

par

e ad

just

ing

en

trie

s fo

r d

efer

rals

.Q

3-8

Q3-

9Q

3-10

Q3-

11Q

3-12

Q3-

13Q

3-19

Q3-

20

Q3-

18B

E3-

3B

E3-

4B

E3-

5B

E3-

6D

I3-2

E3-

5E

3-6

E3-

7E

3-8

E3-

9E

3-10

E3-

11E

3-12

E3-

13E

3-15

E3-

16P

3-1A

P3-

2AP

3-3A

P3-

4AP

3-5A

P3-

6AP

3-1B

P3-

2BP

3-3B

P3-

4BP

3-5B

E3-

15

*6.

Pre

par

e ad

just

ing

en

trie

s fo

r ac

cru

als.

Q3-

8Q

3-14

Q3-

15Q

3-19

Q3-

20

Q3-

17Q

3-16

Q3-

18B

E3-

7D

I3-3

E3-

5E

3-6

E3-

7E

3-8

E3-

9

E3-

10E

3-11

E3-

12E

3-13

E3-

15E

3-16

P3-

1AP

3-2A

P3-

3A

P3-

4AP

3-5A

P3-

6AP

3-1B

P3-

2BP

3-3B

P3-

4BP

3-5B

E3-

15

*7.

Des

crib

e th

e n

atu

re a

nd

pu

rpo

se o

f an

adju

sted

tri

al b

alan

ce.

Q3-

21B

E3-

9B

E3-

10E

3-14

DI3

-4E

3-10

E3-

11E

3-12

E3-

13

P3-

1AP

3-2A

P3-

3AP

3-5A

P3-

6A

P3-

1BP

3-2B

P3-

3BP

3-5B

*8.

Pre

par

e ad

just

ing

en

trie

s fo

r th

e al

tern

ativ

etr

eatm

ent

of

def

erra

ls.

Q3-

22B

E3-

11E

3-17

E3-

18P

3-6A

Bro

aden

ing

Yo

ur

Per

spec

tive

Co

mm

un

icat

ion

Fin

anci

al R

epo

rtin

gC

om

par

ativ

e A

nal

ysis

Exp

lori

ng

th

e W

eb

Dec

isio

n M

akin

g A

cro

ss t

he

Org

aniz

atio

n

Eth

ics

Cas

e



ANSWERS TO QUESTIONS

1. (a) Under the time period assumption, an accountant is required to determine the relevance ofeach business transaction to specific accounting periods.

(b) An accounting time period of one year in length is referred to as a fiscal year. A fiscal yearthat extends from January 1 to December 31 is referred to as a calendar year. Accountingperiods of less than one year are called interim periods.

2. The two principles are:

The revenue recognition principle, which states that revenue should be recognized when futurebenefits are probable and measurable.

The expense recognition principle, which states that expenses should be recognized when assetsare used up or liabilities are incurred to generate revenues.

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

4. Information presented on an accrual basis is more useful than on a cash basis because it revealsrelationships that are likely to be important in predicting future results. To illustrate, under accrualaccounting, revenues are recognized when earned so they can be related to the economicenvironment in which they occur. Trends in revenues are thus more meaningful.

5. Expenses of $4,500 should be deducted from the revenues in April. Under the expense recognitionprinciple efforts (expenses) should be matched with accomplishments (revenues).

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

7. A trial balance may not contain up-to-date information for financial statements because:

(a) Some events are not journalized daily because it is not efficient to do so.(b) The expiration of some costs occurs with the passage of time rather than as a result of daily

transactions.(c) Some items may be unrecorded because the transaction data are not yet known.

8. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of prepaidexpenses and unearned revenues. Accruals consist of accrued revenues and accrued expenses.

9. In the adjusting entry for a prepaid expense, an expense is debited and an asset is credited.

10. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life ina rational and systematic manner. Depreciation results in the presentation of the book value ofthe asset, not its fair value.

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



Questions Chapter 3 (Continued)

12. Equipment ............................................................................................. Rs18,000,000Less: Accumulated Depreciation..................................................... 6,000,000 Rs12,000,000

*13. In the adjusting entry for an unearned revenue, a liability is debited and a revenue is credited.

*14. Asset and revenue. An asset would be debited and a revenue would be credited.

*15. An expense is debited and a liability is credited.

*16. Net income was understated $200 because prior to adjustment, revenues are understated by$900 and expenses are understated by $700. The difference in this case is $200 ($900 – $700).

*17. The entry is:Jan. 9 Salaries Payable......................................................................................... 2,000

Salaries Expense........................................................................................ 3,000Cash..................................................................................................... 5,000

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

*19. (a) Salaries Payable. (d) Supplies Expense.(b) Accumulated Depreciation. (e) Service Revenue.(c) Interest Expense. (f) Service Revenue.

*20. Disagree. An adjusting entry affects only one statement of financial position account and oneincome statement account.

*21. Financial statements can be prepared from an adjusted trial balance because the balances of allaccounts have been adjusted to show the effects of all financial events that have occurredduring the accounting period.

*22. For Supplies Expense (prepaid expense): expenses are overstated and assets are understated.The adjusting entry is:

Assets (Supplies) ..................................................................................................... XXExpenses (Supplies Expense) ....................................................................... XX

For Rent Revenue (unearned revenues): revenues are overstated and liabilities are understated.The adjusting entry is:

Revenues (Rent Revenue)..................................................................................... XXLiabilities (Unearned Rent Revenue)............................................................ XX

*



SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3-1

(a) Prepaid Insurance—to recognize insurance expired during the period.

(b) Depreciation Expense—to account for the depreciation that has occurredon the asset during the period.

(c) Unearned Revenue—to record revenue earned for services provided.

(d) Interest Payable—to recognize interest accrued but unpaid on notespayable.

BRIEF EXERCISE 3-2

Item(a)

Type of Adjustment(b)

Account Balances before Adjustment

1. Prepaid Expenses Assets OverstatedExpenses Understated

2. Accrued Revenues Assets UnderstatedRevenues Understated

3. Accrued Expenses Expenses UnderstatedLiabilities Understated

4. Unearned Revenues Liabilities OverstatedRevenues Understated

BRIEF EXERCISE 3-3

Dec. 31 Advertising Supplies Expense ................................. 4,000Advertising Supplies (£6,700 – £2,700)......... 4,000

Advertising Supplies Advertising Supplies Expense6,700 12/31 4,000 12/31 4,000

12/31 Bal. 2,700



BRIEF EXERCISE 3-4

Dec. 31 Depreciation Expense—Equipment ........................ 5,000Accumulated Depreciation— Equipment .......................................................... 5,000

Depr. Expense—Equipment Accum. Depreciation—Equipment12/31 5,000 12/31 5,000

Statement of Financial Position:Equipment ...................................................................... $30,000Less: Accumulated Depreciation .......................... 5,000 $25,000

BRIEF EXERCISE 3-5

July 1 Prepaid Insurance ................................................... 18,000Cash .................................................................... 18,000

Dec. 31 Insurance Expense [($18,000 ÷ 3) X 1/2].......... 3,000Prepaid Insurance .......................................... 3,000

Prepaid Insurance Insurance Expense7/1 18,000 12/31 3,000 12/31 3,000 12/31 Bal. 15,000

BRIEF EXERCISE 3-6

July 1 Cash............................................................................. 18,000Unearned Insurance Revenue.................... 18,000

Dec. 31 Unearned Insurance Revenue............................. 3,000Insurance Revenue ........................................ 3,000

Unearned Insurance Revenue Insurance Revenue12/31 3,000 7/1 18,000 12/31 3,000

12/31 Bal. 15,000



BRIEF EXERCISE 3-7

1. Dec. 31 Interest Expense................................................... 400Interest Payable........................................... 400

2. 31 Accounts Receivable .......................................... 1,500Service Revenue.......................................... 1,500

3. 31 Salaries Expense.................................................. 900Salaries Payable .......................................... 900

BRIEF EXERCISE 3-8

Account(a)


Related Account

Accounts Receivable Accrued Revenues Service RevenuePrepaid Insurance Prepaid Expenses Insurance ExpenseAccum. Depr.—Equipment Prepaid Expenses Depreciation ExpenseInterest Payable Accrued Expenses Interest ExpenseUnearned Service Revenue Unearned Revenues Service Revenue

BRIEF EXERCISE 3-9

KWUN COMPANY, INC.Income Statement

For the Year Ended December 31, 2011 Revenues

Service revenue ............................................................. W35,400Expenses

Salaries expense............................................................ W16,000Rent expense .................................................................. 4,000Insurance expense........................................................ 2,000Supplies expense .......................................................... 1,500Depreciation expense .................................................. 1,300

Total expenses ...................................................... 24,800Net income................................................................................ W10,600



BRIEF EXERCISE 3-10

KWUN COMPANY, INC.Retained Earnings Statement

For the Year Ended December 31, 2011 Retained Earnings, January 1................................................................... W 0Add: Net income .......................................................................................... 10,600

10,600Less: Dividends............................................................................................ 6,000Retained Earnings, December 31 ............................................................ W 4,600

*BRIEF EXERCISE 3-11

(a) Apr. 30 Supplies ................................................................... 1,000Supplies Expense ........................................ 1,000

(b) 30 Service Revenue ................................................... 3,000Unearned Service Revenue ...................... 3,000

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 3-1

1. (d) 2. (e) 3. (h) 4. (c)

DO IT! 3-2

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

(To record insurance expired)

2. Office Supplies Expense (CHF2,500 – CHF900)........... 1,600Office Supplies................................................................ 1,600

(To record supplies used)

3. Depreciation Expense........................................................... 500Accumulated Depreciation—Off. Equip.................. 500

(To record monthly depreciation)



DO IT! 3-2 (Continued)

4. Unearned Revenue (CHF10,000 x 2/5).............................. 4,000Service Revenue ............................................................. 4,000

(To record revenue for services provided)

DO IT! 3-3

1. Salaries Expense .................................................................... 1,100Salaries Payable.............................................................. 1,100

(To record accrued salaries)

2. Interest Expense ($20,000 x .12 x 1/12) ........................... 200Interest Payable............................................................... 200

(To record accrued interest)

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

(To record revenue for service provided)

DO IT! 3-4

(a) The net income is determined by adding revenues and subtractingexpenses. The net income is computed as follows:

RevenuesCommission revenue .............................................. R$11,360Rent revenue .............................................................. 690

Total revenues .................................................. R$12,050Expenses

Salaries expense....................................................... R$7,520Rent expense ............................................................. 1,200Depreciation expense.............................................. 700Utilities expense........................................................ 410Supplies expense ..................................................... 160Interest expense........................................................ 40

Total expenses ................................................. 10,030Net income........................................................................... R$ 2,020



DO IT! 3-4 (Continued)

(b) Total assets and liabilities are computed as follows:

AssetsEquipment ............................................................... R$12,000Less: Accumulated depreciation ..................... 700 R$11,300Supplies.................................................................... 800Prepaid rent............................................................. 720Accounts receivable............................................. 480Cash........................................................................... 5,360

Total assets .................................................... R$18,660

LiabilitiesNotes payable......................................................... R$ 4,000Accounts payable ................................................. 1,200Unearned rent......................................................... 400Salaries payable .................................................... 300Interest payable ..................................................... 40

Total Liabilities.............................................. R$ 5,940

(c) Retained Earnings, April 1 .......................................... R$ –0–Add: Net income.......................................................... 2,020

2,020Less: Dividends............................................................. 500Retained Earnings, June 30........................................ R$ 1,520



SOLUTIONS TO EXERCISES

EXERCISE 3-1

1. True.

2. True.

3. False. Many business transactions affect more than one of these artificialtime periods. For example, the purchase of a building affects expensesfor many years.

4. True.

5. False. A time period that lasts less than one year, such as monthly orquarterly periods, is called an interim period.

6. False. All calendar years are fiscal years, but not all fiscal years arecalendar years. An accounting time period that is one year in length isreferred to as a fiscal year. A fiscal year that starts on January 1 andends on December 31 is a calendar year.

EXERCISE 3-2

(a) Accrual-basis accounting records the transactions that change acompany’s financial statements in the periods in which the eventsoccur rather than in the periods in which the company receives or payscash. Information presented on an accrual basis is useful because itreveals relationships that are likely to be important in predicting futureresults. Conversely, under cash-basis accounting, revenue is recordedonly when cash is received, and an expense is recognized only whencash is paid. As a result, the cash basis of accounting often leads tomisleading financial statements.

(b) Politicians might desire a cash-basis accounting system over an accrual-basis system because if an accrual-accounting system is used, it couldmean that billions in government liabilities presently unrecorded wouldhave to be reported in the federal budget immediately. The recognitionof these additional liabilities would make the deficit even worse. Thisis not what politicians would like to see and be held responsible for.



EXERCISE 3-2 (Continued)

(c) Dear Official,

It is my understanding, after having taken a beginning course in accountingprinciples, that the government uses a cash-basis system rather thanan accrual-basis accounting system.

I am shocked at such a practice! There must be billions of dollars ofliabilities hidden in many contracts that have not been recorded yet forthe mere reason that they haven’t been paid yet. I realize that the deficitwould dramatically increase if we were to implement an accrual system,but in all fairness, we citizens should be given a more accurate pictureof what our government is up to.

Sincerely,

CONCERNED STUDENT

EXERCISE 3-3

(a) Cash received from revenue................................................... $100,000Cash paid for expenses............................................................ (70,000)

Cash-basis net income .................................................. $ 30,000

(b) Revenues [($100,000 – $25,000) + $40,000] ....................... $115,000Expenses [($70,000 – $30,000) + $42,000].......................... (82,000)

Accrual-basis net income ............................................. $ 33,000

EXERCISE 3-4

1. Unearned revenue.2. Accrued expense.3. Accrued expense.4. Accrued revenue.5. Prepaid expense.6. Unearned revenue.7. Accrued revenue.8. Prepaid expense.9. Prepaid expense.

10. Prepaid expense.11. Accrued expense.



EXERCISE 3-5

1. Interest Expense .............................................................. 400Interest Payable

($10,000 X 12% X 4/12) ....................................... 400

2. Supplies Expense............................................................ 1,650Supplies ($2,450 – $800)........................................ 1,650

3. Depreciation Expense .................................................... 1,000Accumulated Depreciation—Equipment.......... 1,000

4. Insurance Expense.......................................................... 1,225Prepaid Insurance

($2,100 X 7/12)....................................................... 1,225

5. Unearned Consulting Revenue ................................... 10,000Consulting Revenue

($40,000 X 1/4)....................................................... 10,000

6. Accounts Receivable...................................................... 4,200Consulting Revenue ............................................... 4,200

7. Salaries Expense ............................................................. 5,400Salaries Payable

($9,000 X 3/5) ......................................................... 5,400



EXERCISE 3-6

Item(a)


Accounts before Adjustment

1. Accrued Revenues Assets UnderstatedRevenues Understated



4. Unearned Revenues Liabilities OverstatedRevenues Understated



EXERCISE 3-7

1. Mar. 31 Depreciation Expense ($400 X 3)..................... 1,200Accumulated Depreciation— Equipment.................................................. 1,200

2. 31 Unearned Rent Revenue..................................... 3,300Rent Revenue ($9,900 X 1/3)..................... 3,300

3. 31 Interest Expense ................................................... 500Interest Payable............................................ 500

4. 31 Supplies Expense ................................................. 2,100Supplies ($2,800 – $700) ............................ 2,100

5. 31 Insurance Expense ($200 X 3) .......................... 600Prepaid Insurance........................................ 600



EXERCISE 3-8

1. Jan. 31 Accounts Receivable .......................................... 875Service Revenue.......................................... 875

2. 31 Utilities Expense................................................... 520Utilities Payable ........................................... 520

3. 31 Depreciation Expense......................................... 400Accumulated Depreciation— Dental Equipment ................................... 400

31 Interest Expense................................................... 500Interest Payable ........................................... 500

4. 31 Insurance Expense (TL12,000 ÷ 12) ............... 1,000Prepaid Insurance ....................................... 1,000

5. 31 Supplies Expense (TL1,600 – TL400)............. 1,200Supplies.......................................................... 1,200

EXERCISE 3-9

1. Oct. 31 Advertising Supplies Expense......................... 2,000Advertising Supplies ($2,500 – $500) ......................................... 2,000

2. 31 Insurance Expense .............................................. 100Prepaid Insurance ....................................... 100

3. 31 Depreciation Expense......................................... 50Accumulated Depreciation— Office Equipment .................................... 50

4. 31 Unearned Revenue............................................... 600Service Revenue.......................................... 600

5. 31 Accounts Receivable .......................................... 300Service Revenue.......................................... 300




6. Oct. 31 Interest Expense ........................................... 70Interest Payable.................................... 70

7. 31 Salaries Expense........................................... 1,500Salaries Payable................................... 1,500

EXERCISE 3-10

BENNING CO.Income Statement

For the Month Ended July 31, 2011 Revenues

Service revenue ($5,500 + $500)................................... $6,000Expenses

Wages expense ($2,300 + $300) ................................... $2,600Supplies expense ($1,200 – $200) ............................... 1,000Utilities expense ................................................................ 600Insurance expense............................................................ 400Depreciation expense...................................................... 150

Total expenses.......................................................... 4,750Net income ................................................................................... $1,250

EXERCISE 3-11

Answer Computation

(a) Supplies balance = £1,300 Supplies expense £ 950Add: Supplies (1/31) 850Less: Supplies purchased 500Supplies (1/1) £1,300

(b) Total premium = £4,800 Total premium = Monthly premium X 12;£400 X 12 = £4,800

Purchase date = Aug. 1, 2010 Purchase date: On Jan. 31, there are6 months’ coverage remaining (£400X 6). Thus, the purchase date was6 months earlier on Aug. 1, 2010.




(c) Salaries payable = £2,500 Cash paid £3,500Salaries payable (1/31/11) 800

4,300Less: Salaries expense 1,800Salaries payable (12/31/10) £2,500

(d) Unearned revenue = £1,150 Service revenue £2,000Unearned service revenue (1/31/11) 750

2,750Cash received in January 1,600Unearned service revenue (12/31/10) £1,150

EXERCISE 3-12

(a) July 10 Supplies................................................................... 400Cash................................................................. 400

14 Cash.......................................................................... 2,000Service Revenue.......................................... 2,000

15 Salaries Expense.................................................. 1,200Cash................................................................. 1,200

20 Cash.......................................................................... 1,000Unearned Revenue...................................... 1,000

(b) July 31 Supplies Expense................................................. 800Supplies.......................................................... 800

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

31 Salaries Expense.................................................. 1,200Salaries Payable .......................................... 1,200

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



EXERCISE 3-13

Aug. 31 Accounts Receivable ........................................... 1,000Service Revenue........................................... 1,000

31 Office Supplies Expense..................................... 1,600Office Supplies.............................................. 1,600

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

31 Depreciation Expense.......................................... 900Accumulated Depreciation—Office Equipment.................................................. 900

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

31 Unearned Rent Revenue..................................... 900Rent Revenue ................................................ 900

EXERCISE 3-14

GARCIA COMPANYIncome Statement

For the Year Ended August 31, 2011 Revenues

Service revenue................................................................. €35,000Rent revenue....................................................................... 11,900

Total revenues........................................................... 46,900Expenses

Salaries expense ............................................................... €18,100Rent expense...................................................................... 15,000Office supplies expense ................................................. 1,600Insurance expense............................................................ 1,500Depreciation expense...................................................... 900

Total expenses.......................................................... 37,100Net income ................................................................................... € 9,800




GARCIA COMPANYRetained Earnings Statement

For the Year Ended August 31, 2011 Retained Earnings, September 1, 2010 .................................................. € 5,600Add: Net income.......................................................................................... 9,800Retained Earnings, August 31, 2011....................................................... €15,400

GARCIA COMPANYStatement of Financial Position

August 31, 2011

AssetsOffice equipment ........................................................................ €14,000Less: Accum. depreciation—office equipment............... 4,500 € 9,500Prepaid insurance ...................................................................... 2,500Office supplies ............................................................................ 700Accounts receivable.................................................................. 9,800Cash................................................................................................ 10,400

Total assets ................................................................ €32,900

Equity and LiabilitiesEquity

Share capital—ordinary.................................................. €10,000Retained earnings ............................................................ 15,400 €25,400

LiabilitiesAccounts payable............................................................. 5,800Salaries payable................................................................ 1,100Unearned rent revenues................................................. 600 7,500

Total equity and liabilities....................................................... €32,900



EXERCISE 3-15

(a) 1. Cash............................................................................... 9,000Fees Receivable................................................ 9,000

2. Unearned Fees ........................................................... 25,000Fees Revenue.................................................... 25,000

3. (a) Cash...................................................................... 35,000Unearned Fees ......................................... 35,000

(b) Unearned Fees ($35,000 – $17,000)...................................... 18,000

Fees Revenue........................................... 18,000

4. Fees Receivable......................................................... 110,000Fees Revenue ($153,000 – $25,000 – $18,000) ................ 110,000

5. Cash............................................................................... 96,000Fees Receivable ($110,000 – $14,000).................................... 96,000

(b) Cash received with respect to fees = $9,000 + $96,000 + $35,000= $140,000

EXERCISE 3-16

(a) Cash received from services provided...................... R$22,000Cash paid for expenses .................................................. (13,000)Cash paid for prepaid insurance ................................. (2,600)Cash flow from operations............................................. R$ 6,400

(b) Service revenue................................................................. R$30,000Operating expenses ......................................................... 15,500Net income .......................................................................... R$14,500

(c) Under the accrual basis, companies record transactions that change acompany’s and financial statements in the period in which the eventsoccur. Cash basis accounting fails to record revenue that a companyhas earned but has not collected the cash. Also it does not matchexpenses with earned revenue.



*EXERCISE 3-17

1. Prepaid Insurance ........................................................... 875Insurance Expense ($2,100 X 5/12)....................................................... 875

2. Consulting Revenue ....................................................... 30,000Unearned Consulting Revenue ($40,000 X 3/4)....................................................... 30,000

3. Supplies.............................................................................. 800Supplies Expense.................................................... 800

*EXERCISE 3-18

(a) Jan. 2 Insurance Expense ............................................ 1,800Cash............................................................... 1,800

10 Supplies Expense............................................... 1,700Cash............................................................... 1,700

15 Cash........................................................................ 6,100Service Revenue........................................ 6,100

Insurance Expense Supplies Expense1/2 1,800 1/10 1,700

Cash Service Revenue1/15 6,100 1/2 1,800

1/10 1,7001/15 6,100



*EXERCISE 3-18 (Continued)

(b) Jan. 31 Prepaid Insurance (€150 X 11 months) ........ 1,650Insurance Expense.................................... 1,650

31 Supplies ................................................................. 800Supplies Expense ...................................... 800

31 Service Revenue ................................................. 3,600Unearned Revenue .................................... 3,600

Insurance Expense Supplies Expense Service Revenue1/2 1,800 1/31 1,650 1/10 1,700 1/31 800 1/31 3,600 1/15 6,100Bal. 150 Bal. 900 Bal. 2,500

Prepaid Insurance Supplies Unearned Revenue1/31 1,650 1/31 800 1/31 3,600

(c) Insurance expense............................................................................ € 150Supplies expense.............................................................................. 900Service revenue................................................................................. 2,500Prepaid insurance............................................................................. 1,650Supplies................................................................................................ 800Unearned revenue............................................................................. 3,600



SOLUTIONS TO PROBLEMS

PROBLEM 3-1A

(a)J3

Date Account Titles and Explanation Ref. Debit Credit2011June 30 Supplies Expense.................................

Supplies ........................................ ($2,000 – $600)

631126

1,400 1,400

30 Utilities Expense...................................Utilities Payable..........................

732244

150 150

30 Insurance Expense ..............................Prepaid Insurance...................... ($3,000 ÷ 12 months)

722130

250 250

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

209400

2,5002,500

30 Salaries Expense..................................Salaries Payable .........................

726212

2,0002,000

30 Depreciation Expense.........................Accumulated Depreciation— Office Equipment................... ($15,000 ÷ 60 months)

711

158

250

250

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

112400

1,0001,000

(b)

Cash No. 101

Date Explanation Ref. Debit Credit Balance2011June 30 Balance �� 7,150



PROBLEM 3-1A (Continued)

Accounts Receivable No. 112Date Explanation Ref. Debit Credit Balance2011June 30

30BalanceAdjusting

��J3 1,000

6,000 7,000

Supplies No. 126Date Explanation Ref. Debit Credit Balance2011June 30

30BalanceAdjusting

��J3 1,400

2,000 600

Prepaid Insurance No. 130

Date Explanation Ref. Debit Credit Balance2011June 30

30BalanceAdjusting

��J3 250

3,000 2,750

Office Equipment No. 157Date Explanation Ref. Debit Credit Balance2011June 30 Balance �� 15,000

Accumulated Depreciation—Office Equipment No. 158Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 250 250

Accounts Payable No. 201Date Explanation Ref. Debit Credit Balance2011June 30 Balance �� 4,500




Unearned Service Revenue No. 209


30BalanceAdjusting

��J3 2,500

4,000 1,500

Salaries Payable No. 212

Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 2,000 2,000

Utilities Payable No. 244

Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 150 150

Share Capital—Ordinary No. 311

Date Explanation Ref. Debit Credit Balance2011June 30 Balance �� 21,750

Service Revenue No. 400


3030

BalanceAdjustingAdjusting

��J3J3

2,5001,000

7,90010,40011,400

Supplies Expense No. 631

Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 1,400 1,400




Depreciation Expense No. 711


Insurance Expense No. 722


Salaries Expense No. 726


30BalanceAdjusting

��J3 2,000

4,000 6,000

Rent Expense No. 729Date Explanation Ref. Debit Credit Balance2011June 30 Balance �� 1,000

Utilities Expense No. 732Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 150 150




(c) MASASI COMPANY, INC.Adjusted Trial Balance

June 30, 2011

Debit CreditCash.................................................................................Accounts Receivable .................................................Supplies..........................................................................Prepaid Insurance.......................................................Office Equipment.........................................................Accumulated Depreciation—Office Equipment.................................................................Accounts Payable .......................................................Unearned Service Revenue .....................................Salaries Payable ..........................................................Utilities Payable ...........................................................Share Capital—Ordinary...........................................Service Revenue..........................................................Supplies Expense .......................................................Depreciation Expense................................................Insurance Expense .....................................................Salaries Expense.........................................................Rent Expense................................................................Utilities Expense..........................................................

$ 7,150 7,000

600 2,750 15,000

1,400 250 250 6,000 1,000 150$41,550

$ 250 4,500 1,500 2,000 150 21,750 11,400

$41,550



PROBLEM 3-2A

(a)J1

Date Account Titles and Explanation Ref. Debit CreditAug. 31 Insurance Expense (€400 X 3).............

Prepaid Insurance ........................722130

1,2001,200

31 Supplies Expense (€3,300 – €600).........Supplies...........................................

631126

2,7002,700

31 Depreciation Expense—Cottages (€6,000 X 1/4) ........................................

Accumulated Depreciation— Cottages......................................

620

144

1,500

1,500

31 Depreciation Expense—Furniture (€2,400 X 1/4) ........................................

Accumulated Depreciation— Furniture......................................

621

150

600

600

31 Unearned Rent Revenue.......................Rent Revenue.................................

209429

4,1004,100

31 Salaries Expense.....................................Salaries Payable............................

726212

400 400

31 Accounts Receivable.............................Rent Revenue.................................

112429

1,0001,000

31 Interest Expense .....................................Interest Payable [(€80,000 X 9%) X 1/12] ...........

718

230

600

600

(b)

Cash No. 101

Date Explanation Ref. Debit Credit BalanceAug. 31 Balance �� 19,600




Accounts Receivable No. 112

Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 1,000 1,000

Supplies No. 126

Date Explanation Ref. Debit Credit BalanceAug. 31

31BalanceAdjusting

��J1 2,700

3,300 600



31BalanceAdjusting

��J1 1,200

6,000 4,800

Land No. 140


Cottages No. 143


Accumulated Depreciation—Cottages No. 144


Furniture No. 149





Accumulated Depreciation—Furniture No. 150Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 600 600

Accounts Payable No. 201


Unearned Rent Revenue No. 209


31BalanceAdjusting

��J1 4,100

7,400 3,300


Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 400 400

Interest Payable No. 230


Mortgage Payable No. 275Date Explanation Ref. Debit Credit BalanceAug. 31 Balance �� 80,000






Dividends No. 332


Rent Revenue No. 429


3131


��J1J1

4,1001,000

80,00084,10085,100

Depreciation Expense—Cottages No. 620


Depreciation Expense—Furniture No. 621

Date Explanation Ref. Debit Credit Balance

Aug. 31 Adjusting J1 600 600

Repair Expense No. 622




Interest Expense No. 718





Insurance Expense No. 722Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 1,200 1,200



31BalanceAdjusting

��J1 400

51,00051,400

Utilities Expense No. 732





(c) NEOSHO RIVER RESORT, INC.Adjusted Trial Balance

August 31, 2011

Debit CreditCash.................................................................................Accounts Receivable .................................................Supplies..........................................................................Prepaid Insurance.......................................................Land.................................................................................Cottages .........................................................................Accumulated Depreciation—Cottages.................Furniture.........................................................................Accumulated Depreciation—Furniture ................Accounts Payable .......................................................Unearned Rent Revenue...........................................Salaries Payable ..........................................................Interest Payable ...........................................................Mortgage Payable .......................................................Share Capital—Ordinary...........................................Dividends .......................................................................Rent Revenue ...............................................................Depreciation Expense—Cottages..........................Depreciation Expense—Furniture .........................Repair Expense............................................................Supplies Expense .......................................................Interest Expense..........................................................Insurance Expense .....................................................Salaries Expense.........................................................Utilities Expense..........................................................

€ 19,6001,000

600 4,800 25,000 125,000

26,000

5,000

1,500 600 3,600 2,700 600 1,200 51,400 9,400€278,000

€ 1,500

600 6,500 3,300 400 600 80,000 100,000

85,100

€278,000




(d) NEOSHO RIVER RESORT, INC.Income Statement

For the Three Months Ended August 31, 2011 Revenues

Rent revenue........................................................... € 85,100Expenses

Salaries expense ................................................... €51,400Utilities expense .................................................... 9,400Repair expense ...................................................... 3,600Supplies expense.................................................. 2,700Depreciation expense—cottages..................... 1,500Insurance expense................................................ 1,200Interest expense .................................................... 600Depreciation expense—furniture..................... 600

Total expenses.............................................. 71,000Net income........................................................................ € 14,100

NEOSHO RIVER RESORT, INC.Retained Earnings Statement

For the Three Months Ended August 31, 2011 Retained Earnings, June 1 .............................................................. € 0Add: Net income............................................................................... 14,100

14,100Less: Dividends................................................................................. 5,000Retained Earnings, August 31 ....................................................... € 9,100




NEOSHO RIVER RESORT, INC.Statement of Financial Position

August 31, 2011

AssetsLand .............................................................................. € 25,000Cottages....................................................................... €125,000Less: Accum. depreciation—cottages ............. 1,500 123,500Furniture ...................................................................... 26,000Less: Accum. depreciation—furniture ............. 600 25,400Prepaid insurance .................................................... 4,800Supplies....................................................................... 600Accounts receivable................................................ 1,000Cash .............................................................................. 19,600

Total assets .............................................. €199,900


Share capital—ordinary................................. €100,000Retained earnings ........................................... 9,100 €109,100

LiabilitiesAccounts payable............................................ € 6,500Mortgage payable ............................................ 80,000Unearned rent revenue .................................. 3,300Interest payable................................................ 600Salaries payable............................................... 400 90,800

Total equity and liabilities...................................... €199,900



PROBLEM 3-3A

(a) Dec. 31 Accounts Receivable................................... 2,500Advertising Revenue .......................... 2,500

31 Unearned Advertising Fees....................... 1,600Advertising Revenue .......................... 1,600

31 Art Supplies Expense.................................. 3,600Art Supplies........................................... 3,600

31 Depreciation Expense................................. 6,000Accumulated Depreciation ............... 6,000

31 Interest Expense ........................................... 150Interest Payable.................................... 150

31 Insurance Expense....................................... 850Prepaid Insurance ............................... 850

31 Salaries Expense .......................................... 1,300Salaries Payable................................... 1,300

(b) FERNETTI ADVERTISING AGENCY, INC.Income Statement

For the Year Ended December 31, 2011 Revenues

Advertising revenue ................................................ $62,700Expenses

Salaries expense ...................................................... $11,300Depreciation expense ............................................. 6,000Rent expense............................................................. 4,000Art supplies expense .............................................. 3,600Insurance expense................................................... 850Interest expense ....................................................... 500

Total expenses................................................. 26,250Net income........................................................................... $36,450




FERNETTI ADVERTISING AGENCY, INC.Retained Earnings Statement

For the Year Ended December 31, 2011 Retained Earnings, January 1 .......................................................... $ 500Add: Net income.................................................................................. 36,450

36,950Less: Dividends ................................................................................... 12,000Retained Earnings, December 31.................................................... $24,950

FERNETTI ADVERTISING AGENCY, INC.Statement of Financial Position

December 31, 2011

AssetsPrinting equipment........................................................ $60,000Less: Accumulated depreciation ............................ 34,000 $26,000Prepaid insurance ......................................................... 2,500Art supplies ..................................................................... 5,000Accounts receivable..................................................... 22,500Cash ................................................................................... 11,000

Total assets ................................................... $67,000


Share capital—ordinary...................................... $25,000Retained earnings ................................................ 24,950 $49,950

LiabilitiesNotes payable ........................................................ 5,000Accounts payable................................................. 5,000Unearned advertising fees................................. 5,600Salaries payable.................................................... 1,300Interest payable..................................................... 150 17,050

Total equity and liabilities........................................... $67,000




(c) 1. I = P X R X T$150 = $5,000 X R X 1/2$150 = $2,500R

$150R =$2,500

R = 6%

2. Salaries Expense, $11,300 less Salaries Payable 12/31/11, $1,300 =$10,000. Total payments, $12,500 – $10,000 = $2,500 SalariesPayable 12/31/10.



PROBLEM 3-4A

1. Dec. 31 Salaries Expense............................................. 2,320Salaries Payable ..................................... 2,320 [5 X £800 X 2/5 = £1,600 [3 X £600 X 2/5 = 720

£2,320]

2. 31 Unearned Rent.................................................. 74,000Rent Revenue .......................................... 74,000 [5 X £4,000 X 2 = £40,000) (4 X £8,500 X 1 = 34,000) £74,000]

3. 31 Advertising Expense...................................... 4,800Prepaid Advertising............................... 4,800 [A650 – £450 per month

for 8 months = £3,600) (B974 – £400 per month

for 3 months = 1,200)£4,800]

4. 31 Interest Expense.............................................. 6,300Interest Payable ...................................... 6,300

(£120,000 X 9% X 7/12)



PROBLEM 3-5A

(a), (c) & (e)

Cash No. 101

Date Explanation Ref. Debit Credit BalanceSept. 1

8101220222529

Balance ��J1J1J1J1J1J1J1

1,2003,400

650

1,400

4,500 5001,250

4,880 3,480 4,680 8,080 3,580 3,080 1,830 2,480

Accounts Receivable No. 112Date Explanation Ref. Debit Credit BalanceSept. 1

1027

Balance ��J1J1 1,500

1,200 3,520 2,320 3,820

Supplies No. 126


1730

Balance

Adjusting

��J1J1

1,2002,000

2,000 3,200 1,200

Store Equipment No. 153Date Explanation Ref. Debit Credit BalanceSept. 1

15Balance ��

J1 3,00015,00018,000




Accumulated Depreciation—Equipment No. 154


30BalanceAdjusting

��J1 100

1,500 1,600



151720

Balance ��J1J1J1 4,500

3,0001,200

3,400 6,400 7,600 3,100



2930

Balance

Adjusting

��J1J1 1,450

650 1,400 2,050 600



830

Balance

Adjusting

��J1J1

500 400

500 0 400


Date Explanation Ref. Debit Credit BalanceSept. 1 Balance �� 15,000

Retained Earnings No. 320

Date Explanation Ref. Debit Credit BalanceSept. 1 Balance �� 3,600




Service Revenue No. 400Date Explanation Ref. Debit Credit BalanceSept. 12

2730 Adjusting

J1J1J1

3,4001,5001,450

3,4004,9006,350


Date Explanation Ref. Debit Credit BalanceSept. 30 Adjusting J1 100 100


Date Explanation Ref. Debit Credit BalanceSept. 30 Adjusting J1 2,000 2,000



2530 Adjusting

J1J1J1

9001,250 400

9002,1502,550

Rent Expense No. 729

Date Explanation Ref. Debit Credit BalanceSept. 22 J1 500 500




(b)General Journal J1

Date Account Titles Ref. Debit CreditSept. 8 Salaries Payable........................................

Salaries Expense ......................................Cash.......................................................

212726101

500 900

1,400

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

101112

1,2001,200

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

101400

3,4003,400

15 Store Equipment .......................................Accounts Payable.............................

153201

3,0003,000

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

126201

1,2001,200

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

201101

4,5004,500

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

729101

500 500

25 Salaries Expense ......................................Cash ......................................................

726101

1,2501,250

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

112400

1,5001,500

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

101209

650 650




(d) & (f) RAND EQUIPMENT REPAIR, INC.Trial Balances

September 30, 2011

BeforeAdjustment

AfterAdjustment

Dr. Cr. Dr. Cr.Cash ....................................................Accounts Receivable.....................Supplies .............................................Store Equipment .............................Accumulated Depreciation ..........Accounts Payable...........................Unearned Service Revenue .........Salaries Payable..............................Share Capital—Ordinary...............Retained Earnings ..........................Service Revenue .............................Depreciation Expense ...................Supplies Expense...........................Salaries Expense ............................Rent Expense ...................................

£ 2,480 3,820 3,200 18,000

2,150 500£30,150

£ 1,500 3,100 2,050

–0– 15,000 3,600 4,900

£30,150

£ 2,480 3,820 1,200 18,000

100 2,000 2,550 500£30,650

£ 1,600 3,100 600 400 15,000 3,600 6,350

£30,650

(e) 1. Sept. 30 Supplies Expense ............................ 631 2,000Supplies (£3,200 – £1,200) ....... 126 2,000

2. 30 Salaries Expense ............................. 726 400Salaries Payable........................ 212 400

3. 30 Depreciation Expense .................... 615 100Accumulated Depreciation— Equipment .............................. 154 100

4. 30 Unearned Service Revenue .......... 209 1,450Service Revenue ....................... 400 1,450




(g) RAND EQUIPMENT REPAIR, INC.Income Statement

For the Month Ended September 30, 2011 Revenues

Service revenue........................................................... £6,350Expenses

Salaries expense......................................................... £2,550Supplies expense ....................................................... 2,000Rent expense ............................................................... 500Depreciation expense................................................ 100

Total expenses ................................................... 5,150Net income............................................................................. £1,200

RAND EQUIPMENT REPAIR, INC.Retained Earnings Statement

For the Month Ended September 30, 2011 Retained Earnings, September 1..................................................... £3,600Add: Net income .................................................................................. 1,200Retained Earnings, September 30 .................................................. £4,800




RAND EQUIPMENT REPAIR, INC.Statement of Financial Position

September 30, 2011

AssetsEquipment ........................................................................ £18,000Less: Accumulated depreciation—

equipment ........................................................... 1,600 £16,400Supplies............................................................................. 1,200Accounts receivable...................................................... 3,820Cash.................................................................................... 2,480

Total assets............................................................. £23,900


Share capital—ordinary ...................................... £15,000Retained earnings................................................. 4,800 £19,800

LiabilitiesAccounts payable ................................................. 3,100Unearned service revenue ................................. 600Salaries payable .................................................... 400 4,100

Total equity and liabilities ........................................... £23,900



*PROBLEM 3-6A

(a) 1. June 30 Supplies ......................................................... 1,300Supplies Expense .............................. 1,300

2. 30 Interest Expense ......................................... 750 ($20,000 X 9% X 5/12)

Interest Payable.................................. 750

3. 30 Prepaid Insurance....................................... 1,200 [($1,800 ÷ 12) X 8]

Insurance Expense............................ 1,200

4. 30 Consulting Revenue .................................. 1,500Unearned Consulting Revenue........ 1,500

5. 30 Accounts Receivable................................. 2,000Graphic Revenue ............................... 2,000

6. 30 Depreciation Expense ............................... 1,000 ($2,000 ÷ 2)

Accumulated Depreciation— Equipment........................................ 1,000



*PROBLEM 3-6A (Continued)

(b) GIVENS GRAPHICS COMPANY, INC.Adjusted Trial Balance

June 30, 2011

Debit CreditCash ............................................................................Accounts Receivable ($14,000 + $2,000).........Supplies .....................................................................Prepaid Insurance...................................................Equipment .................................................................Accumulated Depreciation ..................................Notes Payable ..........................................................Accounts Payable...................................................Interest Payable.......................................................Unearned Consulting Revenue ..........................Share Capital—Ordinary.......................................Graphic Revenue ($52,100 + $2,000) ................Consulting Revenue ($6,000 – $1,500).............Salaries Expense ....................................................Supplies Expense ($3,700 – $1,300) .................Advertising Expense..............................................Rent Expense ...........................................................Utilities Expense .....................................................Depreciation Expense ...........................................Insurance Expense ($1,800 – $1,200)...............Interest Expense .....................................................

$ 9,500 16,000 1,300 1,200 45,000

30,000 2,400 1,900 1,500 1,700 1,000 600 750$112,850

$ 1,000 20,000 9,000

750 1,500 22,000 54,100 4,500

$112,850




(c) GIVENS GRAPHICS COMPANY, INC.Income Statement

For the Six Months Ended June 30, 2011 Revenues

Graphic revenue.................................................... $54,100Consulting revenue.............................................. 4,500

Total revenues .............................................. 58,600Expenses

Salaries expense................................................... $30,000Supplies expense ................................................. 2,400Advertising expense............................................ 1,900Utilities expense.................................................... 1,700Rent expense ......................................................... 1,500Depreciation expense.......................................... 1,000Interest expense.................................................... 750Insurance expense............................................... 600

Total expenses ............................................. 39,850Net income....................................................................... $18,750

GIVENS GRAPHICS COMPANY, INC.Retained Earnings Statement

For the Six Months Ended June 30, 2011 Retained Earnings, January 1 .......................................................... $ 0Add: Net income.................................................................................. 18,750Retained Earnings, June 30 .............................................................. $18,750




GIVENS GRAPHICS COMPANY, INC.Statement of Financial Position

June 30, 2011

AssetsEquipment ........................................................................ $45,000Less: Accumulated depreciation............................. 1,000 $44,000Prepaid insurance.......................................................... 1,200Supplies............................................................................. 1,300Accounts receivable...................................................... 16,000Cash.................................................................................... 9,500

Total assets.................................................... $72,000


Share capital—ordinary ...................................... $22,000Retained earnings................................................. 18,750 $40,750

LiabilitiesNotes payable......................................................... 20,000Accounts payable ................................................. 9,000Unearned consulting revenue........................... 1,500Interest payable ..................................................... 750 31,250

Total equity and liabilities ............................................. $72,000



PROBLEM 3-1B

(a)J4

Date Account Titles Ref. Debit Credit2011May 31 Supplies Expense.....................................

Supplies ............................................631126

900 900

31 Travel Expense..........................................Travel Payable.................................

736229

250 250

31 Insurance Expense...................................Prepaid Insurance.......................... (R$3,600 ÷ 24 months)

722130

150 150

31 Unearned Service Revenue...................Service Revenue ............................ (R$2,000 – R$400)

209400

1,6001,600

31 Salaries Expense ......................................Salaries Payable............................. [(3/5 X R$800) X 2 employees]

726212

960 960

31 Depreciation Expense.............................Accumulated Depreciation— Office Furniture.......................... (R$10,200 ÷ 60 months)

717

150

170

170

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

112400

1,2001,200

(b)

Cash No. 101

Date Explanation Ref. Debit Credit Balance2011May 31 Balance �� 5,700



PROBLEM 3-1B (Continued)

Accounts Receivable No. 112Date Explanation Ref. Debit Credit Balance2011May 31

31BalanceAdjusting

��J4 1,200

6,000 7,200

Supplies No. 126

Date Explanation Ref. Debit Credit Balance2011May 31

31BalanceAdjusting

��J4 900

1,900 1,000



31BalanceAdjusting

��J4 150

3,600 3,450

Office Furniture No. 149


Accumulated Depreciation—Office Furniture No. 150

Date Explanation Ref. Debit Credit Balance2011May 31 Adjusting J4 170 170








31BalanceAdjusting

��J4 1,600

2,000 400



Travel Payable No. 229




Service Revenue No. 400Date Explanation Ref. Debit Credit Balance2011May 31

3131


��J4J4

1,6001,200

7,500 9,100

10,300

Supplies Expense No. 631Date Explanation Ref. Debit Credit Balance2011May 31 Adjusting J4 900 900




Depreciation Expense No. 717Date Explanation Ref. Debit Credit Balance2011May 31 Adjusting J4 170 170



Salaries Expense 726


31BalanceAdjusting

��J4 960

3,4004,360


Date Explanation Ref. Debit Credit Balance2011May 31 Balance �� 900

Travel Expense No. 736





(c) LULA CONSULTING, INC.Adjusted Trial Balance

May 31, 2011

Debit CreditCash.................................................................................Accounts Receivable .................................................Supplies..........................................................................Prepaid Insurance.......................................................Office Furniture............................................................Accumulated Depreciation—Office Furniture ....................................................................Accounts Payable .......................................................Unearned Service Revenue......................................Salaries Payable ..........................................................Travel Payable..............................................................Share Capital—Ordinary...........................................Service Revenue..........................................................Supplies Expenses .....................................................Depreciation Expenses .............................................Insurance Expenses...................................................Salaries Expenses.......................................................Rent Expenses .............................................................Travel Expenses ..........................................................

R$ 5,700 7,200 1,000 3,450 10,200

900 170

1504,360

900 250R$34,280

R$ 1704,500

400 960

250 17,700 10,300

R$34,280



PROBLEM 3-2B

(a)J1

Date Account Titles Ref. Debit CreditMay 31 Insurance Expense....................................

Prepaid Insurance ........................... ($2,280 X 1/12)

722130

190 190

31 Supplies Expense ......................................Supplies ($2,200 – $750) ...............

631126

1,4501,450

31 Depreciation Expense—Lodge.............. ($3,000 X 1/12)

Accumulated Depreciation— Lodge ..............................................

619

142

250

250

31 Depreciation Expense—Furniture ........ ($2,700 X 1/12)

Accumulated Depreciation— Furniture ........................................

621

150

225

225

31 Interest Expense.........................................Interest Payable ...............................

[($35,000 X 12%) X 1/12]

718230

350 350

31 Unearned Rent Revenue..........................Rent Revenue ................................... (2/3 X $3,300)

209429

2,2002,200

31 Salaries Expense........................................Salaries Payable ..............................

726212

750 750

(b)

Cash No. 101

Date Explanation Ref. Debit Credit BalanceMay 31 Balance �� 3,500




Supplies No. 126

Date Explanation Ref. Debit Credit BalanceMay 31

31BalanceAdjusting

��J1 1,450

2,200 750



31BalanceAdjusting

��J1 190

2,280 2,090

Land No. 140


Lodge No. 141


Accumulated Depreciation—Lodge No. 142

Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 250 250

Furniture No. 149


Accumulated Depreciation—Furniture No. 150





Accounts Payable No. 201Date Explanation Ref. Debit Credit BalanceMay 31 Balance �� 4,800

Unearned Rent Revenue No. 209


31BalanceAdjusting

��J1 2,200

3,300 1,100

Salaries Payable No. 212Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 750 750

Interest Payable No. 230


Mortgage Payable No. 275


Share Capital—Ordinary No. 311Date Explanation Ref. Debit Credit BalanceMay 31 Balance �� 46,380

Rent Revenue No. 429


31BalanceAdjusting

��J1 2,200

10,30012,500




Advertising Expense No. 610

Date Explanation Ref. Debit Credit BalanceMay 31 Balance �� 600

Depreciation Expense—Lodge No. 619Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 250 250

Depreciation Expense—Furniture No. 621



Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 1,450 1,450

Interest Expense No. 718






31BalanceAdjusting

��J1 750

3,3004,050




Utilities Expense No. 732Date Explanation Ref. Debit Credit BalanceMay 31 Balance �� 900

(c) MOUND VIEW MOTEL, INC.Adjusted Trial Balance

May 31, 2011

Debit CreditCash ............................................................................Supplies .....................................................................Prepaid Insurance...................................................Land.............................................................................Lodge..........................................................................Accumulated Depreciation—Lodge..................Furniture ....................................................................Accumulated Depreciation—Furniture............Accounts Payable...................................................Unearned Rent Revenue.......................................Salaries Payable......................................................Interest Payable.......................................................Mortgage Payable ...................................................Share Capital—Ordinary.......................................Rent Revenue...........................................................Advertising Expense..............................................Depreciation Expense—Lodge...........................Depreciation Expense—Furniture.....................Supplies Expense...................................................Interest Expense .....................................................Insurance Expense.................................................Salaries Expense ....................................................Utilities Expense .....................................................

$ 3,500 750 2,090 12,000 60,000

15,000

600 250 225 1,450 350 190 4,050 900$101,355

$ 250

225 4,800 1,100 750 350 35,000 46,380 12,500

$101,355




(d) MOUND VIEW MOTEL, INC.Income Statement

For the Month Ended May 31, 2011 Revenues

Rent revenue ............................................................ $12,500Expenses

Salaries expense..................................................... $4,050Supplies expense ................................................... 1,450Utilities expense...................................................... 900Advertising expense.............................................. 600Interest expense...................................................... 350Depreciation expense—lodge ............................ 250Depreciation expense—furniture ...................... 225Insurance expense................................................. 190

Total expenses ............................................... 8,015Net income......................................................................... $ 4,485

MOUND VIEW MOTEL, INC.Retained Earnings Statement

For the Month Ended May 31, 2011 Retained Earnings, May 1 .................................................................. $ 0Add: Net income................................................................................. 4,485Retained Earnings, May 31................................................................ $4,485




MOUND VIEW MOTEL, INC.Statement of Financial Position

May 31, 2011

AssetsLand................................................................................ $12,000Lodge ............................................................................. $60,000Less: Accumulated depreciation—lodge.......... 250 59,750Furniture........................................................................ 15,000Less: Accumulated depreciation—furniture ....... 225 14,775Prepaid insurance...................................................... 2,090Supplies......................................................................... 750Cash................................................................................ 3,500

Total assets ................................................ $92,865


Share capital—ordinary .................................. $46,380Retained earnings............................................. 4,485 $50,865

LiabilitiesAccounts payable ............................................. 4,800Mortgage payable.............................................. 35,000Unearned rent..................................................... 1,100Salaries payable ................................................ 750Interest payable ................................................. 350 42,000

Total equity and liabilities .......................................... $92,865



PROBLEM 3-3B

(a) Sept. 30 Accounts Receivable..................................... 800Commission Revenue ............................ 800

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

30 Supplies Expense........................................... 600Supplies ...................................................... 600

30 Depreciation Expense................................... 500Accum. Depreciation—Equipment........ 500

30 Interest Expense ............................................. 100Interest Payable........................................ 100

30 Unearned Rent Revenue .............................. 850Rent Revenue............................................ 850

30 Salaries Expense ............................................ 725Salaries Payable....................................... 725

(b) BERN CO., INC.Income Statement

For the Quarter Ended September 30, 2011 Revenues

Commission revenue ....................................... CHF16,800Rent revenue ....................................................... 2,260

Total revenues ........................................... 19,060Expenses

Salaries expense................................................ CHF8,725Rent expense ...................................................... 2,800Utilities expense................................................. 1,510Supplies expense .............................................. 600Depreciation expense....................................... 500Interest expense................................................. 100

Total expenses .......................................... 14,235Net income.................................................................... CHF 4,825




BERN CO., INC.Retained Earnings Statement

For the Quarter Ended September 30, 2011 Retained Earnings, July 1, 2011...................................................... CHF 0Add: Net income ................................................................................ 4,825

4,825Less: Dividends................................................................................... 1,600Retained Earnings, September 30, 2011 ...................................... CHF3,225

BERN CO., INC.Statement of Financial Position

September 30, 2011

AssetsEquipment .................................................................... CHF18,000Less: Accum. depreciation—equipment........... 500 CHF17,500Prepaid rent.................................................................. 1,300Supplies......................................................................... 900Accounts receivable.................................................. 11,200Cash................................................................................ 8,700

Total assets ................................................ CHF39,600


Share capital—ordinary .................................. CHF22,000Retained earnings............................................. 3,225

Total equity................................................. CHF25,225Liabilities

Notes payable..................................................... 10,000Accounts payable ............................................. 2,500Salaries payable ................................................ 725Unearned rent revenue.................................... 1,050Interest payable ................................................. 100

Total liabilities ........................................... 14,375Total equity and liabilities ....................................... CHF39,600

(c) Interest of 12% per year equals a monthly rate of 1%; monthly interestis CHF100 (CHF10,000 X 1%). Since total interest expense is CHF100,the note has been outstanding one month.



PROBLEM 3-4B

1. Dec. 31 Insurance Expense .............................................. 4,650Prepaid Insurance ....................................... 4,650

[(€7,200 ÷ 3) = €2,400[(€4,500 ÷ 2) = 2,250

€4,650]

2. Dec. 31 Unearned Subscriptions .................................... 6,375Subscription Revenue ............................... 6,375

[Oct. 200 X €45 X 3/12 = €2,250 [Nov. 300 X €45 X 2/12 = 2,250 [Dec. 500 X €45 X 1/12 = 1,875

€6,375]

3. Dec. 31 Interest Expense................................................... 1,500Interest Payable ........................................... 1,500 (€100,000 X 9% X 2/12)

4. Dec. 31 Salaries Expense.................................................. 2,000Salaries Payable .......................................... 2,000 [5 X €700 X 2/5 = €1,400 [3 X €500 X 2/5 = 600 €2,000]



PROBLEM 3-5B

(a), (c) & (e)

Cash No. 101

Date Explanation Ref. Debit Credit BalanceNov. 1

8101220222529

Balance ��J1J1J1J1J1J1J1

3,4203,100

600

1,700

2,700 4001,700

2,400 700

4,1207,220

4,520 4,1202,4203,020

Accounts Receivable No. 112Date Explanation Ref. Debit Credit BalanceNov. 1

1027

Balance ��J1J1 900

3,420 4,250

830 1,730

Supplies No. 126


1730

Balance

Adjusting

��J1J1

7001,300

1,800 2,500 1,200

Store Equipment No. 153Date Explanation Ref. Debit Credit BalanceNov. 1

15Balance ��

J1 2,00012,00014,000




Accumulated Depreciation—Store Equipment No. 154


30BalanceAdjusting

��J1 200

2,000 2,200



151720

Balance ��J1J1J1 2,700

2,000 700

2,600 4,600 5,300 2,600



2930

Balance

Adjusting

��J1J1 1,250

600 1,200 1,800 550



830

Balance

Adjusting

��J1J1

700 400

700 0 400


Date Explanation Ref. Debit Credit BalanceNov. 1 Balance �� 10,000

Retained Earnings No. 320

Date Explanation Ref. Debit Credit BalanceNov. 1 Balance �� 3,950




Service Revenue No. 400Date Explanation Ref. Debit Credit BalanceNov. 12

2730 Adjusting

J1J1J1

3,100 9001,250

3,1004,0005,250


Date Explanation Ref. Debit Credit BalanceNov. 30 Adjusting J1 200 200


Date Explanation Ref. Debit Credit BalanceNov. 30 Adjusting J1 1,300 1,300



2530 Adjusting

J1J1J1

1,0001,700 400

1,0002,7003,100


Date Explanation Ref. Debit Credit BalanceNov. 22 J1 400 400




(b) General JournalJ1

Date Account Titles and Explanation Ref. Debit CreditNov. 8 Salaries Payable........................................

Salaries Expense ......................................Cash......................................................

212726101

700 1,000

1,700

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

101112

3,4203,420

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

101400

3,1003,100

15 Store Equipment .......................................Accounts Payable............................

153201

2,0002,000

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

126201

700 700

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

201101

2,7002,700

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

729101

400 400

25 Salaries Expense ......................................Cash.....................................................

726101

1,7001,700

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

112400

900 900

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

101209

600 600




(d) & (f) MORELLI EQUIPMENT REPAIRTrial Balances

November 30, 2011

BeforeAdjustment

AfterAdjustment

Dr. Cr. Dr. Cr.Cash ....................................................Accounts Receivable.....................Supplies .............................................Store Equipment .............................Accumulated Depreciation ..........Accounts Payable...........................Unearned Service Revenue .........Salaries Payable..............................Share Capital—Ordinary...............Retained Earnings ..........................Service Revenue .............................Depreciation Expense ...................Supplies Expense...........................Salaries Expense ............................Rent Expense ...................................

$ 3,020 1,730 2,500 14,000

2,700 400$24,350

$ 2,000 2,600 1,800 –0– 10,000 3,950 4,000

$24,350

$ 3,020 1,730 1,200 14,000

200 1,300 3,100 400$24,950

$ 2,2002,600

550400

10,0003,9505,250

$24,950

(e) 1. Nov. 30 Supplies Expense............................. 631 1,300Supplies ($2,500 – $1,200)...... 126 1,300

2. 30 Salaries Expense.............................. 726 400Salaries Payable ........................ 212 400

3. 30 Depreciation Expense..................... 615 200Accumulated Depreciation— Store Equipment ................... 154 200

4. 30 Unearned Service Revenue........... 209 1,250Service Revenue........................ 400 1,250




(g) MORELLI EQUIPMENT REPAIRIncome Statement

For the Month Ended November 30, 2011 Revenues

Service revenue....................................................... $5,250Expenses

Salaries expense..................................................... $3,100Supplies expense ................................................... 1,300Rent expense ........................................................... 400Depreciation expense............................................ 200

Total expenses ............................................... 5,000Net Income......................................................................... $ 250

MORELLI EQUIPMENT REPAIRRetained Earnings Statement

For the Month Ended November 30, 2011 Retained Earnings, November 1...................................................... $3,950Plus: Net income.................................................................................. 250Retained Earnings, November 30.................................................... $4,200




MORELLI EQUIPMENT REPAIRStatement of Financial Position

November 30, 2011

AssetsEquipment ........................................................................ $14,000Less: Accumulated depreciation—

equipment............................................................ 2,200 $11,800Supplies............................................................................. 1,200Accounts receivable...................................................... 1,730Cash.................................................................................... 3,020

Total assets............................................................. $17,750


Share capital—ordinary ...................................... $10,000Retained earnings................................................. 4,200 $14,200

LiabilitiesAccounts payable ................................................. 2,600Unearned service revenue ................................. 550Salaries payable .................................................... 400 3,550

Total equity and liabilities ........................................... $17,750



BYP 3-1 FINANCIAL REPORTING PROBLEM

(a) Items that may result in adjusting entries for prepayments are:

1. Prepaid expenses and other current assets (per statement of financialposition).

2. Property, plant and equipment, net of depreciation (per statement offinancial position).

3. Amortizable intangible assets, net (per statement of financial position)—amortization is similar to depreciation (explained later in Chapter 9).

(b) Accrual adjusting entries were probably made for accounts payableand other current liabilities, interest expense, and income taxes payable.



BYP 3-2 COMPARATIVE ANALYSIS PROBLEM

Cadbury Nestlé

(a) Net increase (decrease) in property,plant, and equipment (net) from 2007to 2008.

£ (143,000,000) CHF (968,000,000)

(b) Increase (decrease) in selling, general,and administrative expenses from 2007to 2008.

£ 187,000,000 CHF (680,000,000)

(c) Increase (decrease) in long-term debt(obligations) from 2007 to 2008.

£ (657,000,000) CHF (817,000,000)

(d) Increase (decrease) in net income from2007 to 2008.

£ (41,000,000) CHF(7,669,000,000)

(e) Increase (decrease) in cash and cashequivalents from 2007 to 2008.

£ (242,000,000) CHF (759,000,000)



BYP 3-3 EXPLORING THE WEB

(a) The categories are:

1. The Big 4 10. Edgar2. Professional 11. FASB3. Associations 12. International4. Education 13. Publishers5. Finance 14. Journals and Publications6. Professors 15. Softwares7. Taxation 16. Other sites8. Audit and Law 17. Entertainment9. Government 18. Interest books

(b) Student answers will vary depending on the category selected.



BYP 3-4 DECISION MAKING ACROSS THE ORGANIZATION

(a) HAPPY CAMPER PARK, INC.Income Statement

For the Quarter Ended March 31, 2011 Revenues

Rental revenue ($90,000 – $15,000)................. $75,000Expenses

Wages expense [$29,800 + ($300 X 2)]........... $30,400Advertising expense ($5,200 + $110).............. 5,310Supplies expense ($6,200 – $1,700) ................ 4,500Repairs expense ($4,000 + $260) ..................... 4,260Insurance expense ($7,200 X 3/12).................. 1,800Utilities expense ($900 + $180) ......................... 1,080Depreciation expense .......................................... 800Interest expense ($12,000 X 10% X 3/12)........... 300

Total expenses.............................................. 48,450Net income........................................................................ $26,550

(b) The international financial reporting standards pertaining to the incomestatement that were not recognized by Amaya were the revenue recognitionprinciple and the expense recognition principle. The revenue recognitionprinciple states that revenue is recognized when it is earned. The fees of$15,000 for summer rentals have not been earned and, therefore, shouldnot be reported in income for the quarter ended March 31. The expenserecognition principle dictates that efforts (expenses) be matched withaccomplishments (revenues) whenever it is reasonable and practicableto do so. This means that the expenses should include amounts incurredin March but not paid until April. The difference in expenses was $7,750($48,450 – $40,700). The overstatement of revenues ($15,000) plus theunderstatement of expenses ($7,750) equals the difference in reportedincome of $22,750 ($49,300 – $26,550).



BYP 3-5 COMMUNICATION ACTIVITY

Dear President Nickels:

Upon reviewing the accounts of your company at the end of the year,I discovered that adjusting entries were not made.

Adjusting entries are made at the end of the accounting period to ensurethat the revenue recognition and expense recognition principles requiredunder international financial reporting standards are followed. The use ofadjusting entries makes it possible to report on the statement of financialposition the appropriate assets, liabilities, and equity at the statement dateand to report on the income statement the proper net income (or loss) forthe year.

Adjusting entries are needed because the trial balance may not contain anup-to-date and complete record of transactions and events for the followingreasons:

1. Some events are not journalized daily because it is not efficient todo so. Examples are the use of supplies and the earning of wagesby employees.

2. The expiration of some costs is not journalized during the account-ing period because these costs expire with the passage of timerather than as a result of recurring daily transactions. Examplesof such costs are building and equipment depreciation, rent, andinsurance.

3. Some expenses, such as the cost of utility service and propertytaxes, may be unrecorded because the bills for the costs have notbeen received.

There are four types of adjusting entries:

1. Prepaid expenses—expenses paid in cash and recorded as assetsbefore they are used or consumed.

2. Unearned revenues—revenues received in cash and recorded asliabilities before they are earned.



BYP 3-5 (Continued)

3. Accrued revenues—revenues earned but not yet received in cashor recorded.

4. Accrued expenses—expenses incurred but not yet paid in cash orrecorded.

I will be happy to answer any questions you may have on adjusting entries.

Signature



BYP 3-6 ETHICS CASE

(a) The stakeholders in this situation are:

�� Cathi Bell, controller.�� The president of Bluestem Company.�� Bluestem Company shareholders.

(b) 1. It is unethical for the president to place pressure on Cathi to misstatenet income by requesting her to prepare incorrect adjusting entries.

2. It is customary for adjusting entries to be dated as of the statementof financial position date although the entries are prepared at a laterdate. Cathi did nothing unethical by dating the adjusting entriesDecember 31.

(c) Cathi can accrue revenues and defer expenses through the preparationof adjusting entries and be ethical so long as the entries reflecteconomic reality. Intentionally misrepresenting the company’s financialcondition and its results of operations is unethical (it is also illegal).


Wey IFRS 1e SM Ch03 final · The revenue recognition principle, which states that revenue should be...

Documents

Transcript of Wey IFRS 1e SM Ch03 final · The revenue recognition principle, which states that revenue should be...