Dmp3e Ch03 Solutions 02.17.10 Final

Chapter 3
Adjusting Accounts for Financial Statements

Learning Objectives coverage by question
Miniexercises LO1 Identify the major steps in the accounting cycle. LO2 Review the process of journalizing and posting transactions. LO3 Describe the adjusting process and illustrate adjusting entries. LO4 Prepare financial statements from adjusted accounts. LO5 Describe the process of closing temporary accounts. LO6 Analyzing Exercises Problems Cases
21, 22, 23, 25, 29, 30
33, 35, 36, 38
40, 41, 42, 46, 47, 52, 54 40, 41, 42, 43, 46, 47, 48, 49, 52, 53, 54 40, 41, 42, 44,
55, 56, 57, 58
23, 24, 25, 29, 30
32, 33, 34, 35, 36, 38
55, 56, 57, 58
26
39
47, 49, 50, 53, 54 42, 44, 45, 46,
55, 58
27, 28, 30
31, 33, 37, 39
49, 50, 51, 52, 53, 54
55
changes in balance sheet accounts.
25, 29
32, 34, 35, 36, 38
53
56
Solutions Manual, Chapter 3
Cambridge Business Publishers, 2011 3-1
QUESTIONS
Q3-1 The five major steps in the accounting cycle are 1. 2. 3. 4. 5. Analyze business activity using transaction analysis based on the related source documents. Record results of the transaction analysis chronologically in the general journal and create a trial balance. Adjust the recorded data to update all accounts for expense and revenue recognition not previously recognized. Report the adjusted financial data in the form of financial statements. Close the books by posting the adjusting and closing entries, which zero out the temporary accounts.
Q3-2 The fiscal year is the annual accounting period adopted by a firm. A firm using a fiscal year ending on December 31 is on a calendar-year basis. Q3-3 Examples of source documents that underlie business transactions are invoices sent to customers, invoices received from suppliers, bank checks, bank deposit slips, cash receipt forms, and written contracts. Q3-4 A general journal is a book of original entry that may be used for the initial recording of any type of transaction. It contains space for dates and for accounts to be debited and credited, columns for the amounts of the debits and credits, and a posting reference column for numbers of the accounts that are posted. Q3-5 When entries are posted, the page number and identifying initials of the appropriate journal are placed next to the amounts in the appropriate accounts. The account number is entered beside the related amount posted in the journal's posting reference column. This procedure enables interested users to trace amounts in the ledger back to the originating journal entry and permits us to know which entries have been posted. Q3-6 A compound journal entry is a journal entry containing more than one debit entry or one credit entry. Q3-7 A chart of accounts is a list of the accounts appearing in the general ledger, with the account numbering system indicated. Normally the accounts are classified as asset, liability, owners' equity, revenue, and expense accounts, and often the numbering system identifies the account classification. For example, a coding system might assign the numbers 100199 to assets, 200 299 to liabilities, and so on.
Financial Accounting, 3rdEdition
Q3-8 Many of the transactions reflected in the accounting records through the first two steps of the accounting cycle affect the net income of more than one period. Therefore, adjustments to the account balances are ordinarily necessary at the end of each accounting period to record the proper amount of revenue and to match expenses with revenue properly. This process is also intended to achieve a more accurate picture of financial position by adjusting balance sheet amounts to show unexpired costs, up-to-date amounts of obligations, and so on. Q3-9 1. Allocating assets to expense to reflect expenses incurred during the period. Example: Recording supplies used by debiting Supplies Expense and crediting Supplies. 2. Allocating payments received in advance by crediting the revenue account to reflect revenues earned during the period. Example: Recording service fees earned by debiting Unearned Service Fees and crediting Service Fees Earned. 3. Accruing expenses to reflect expenses incurred during the period that are not yet paid or recorded. Example: Recording unpaid wages by debiting Wages Expense and crediting Wages Payable. 4. Accruing revenues to reflect revenues earned during the period that are not yet received or recorded. Example: Recording commissions earned by debiting Commissions Receivable and crediting Commissions Earned. Q3-10 Jan. 31 Insurance expense (+E, -SE) Prepaid insurance (-A) To record insurance expense for January ($1,872/24 = $78). 78 78
Q3-11 A contra account is an account that is related to, and deducted from, another account when financial statements are prepared or when book values are computed. Accumulated depreciation is deducted from the cost of a depreciable asset in computing and portraying the asset's book value.
Q3-12
The building is five years old by the end of 2011, so the accumulated depreciation of $800,000 represents five years of depreciation at an annual rate of $160,000 ($800,000/5). If the annual depreciation is $160,000, then the expected life of the building must be 25 years. At the end of 2018, the building will be twelve years old, and the accumulated depreciation will be 12$160,000, or $1,920,000. The book value of the building (defined as original cost less accumulated depreciation) will be $2,080,000.
Q3-13 (a) Jan. 1
Cash (+A) 9,720 Subscriptions received in advance (+L) To record receipt of two-year subscriptions.
9,720
(b) Jan. 31 Subscriptions received in advance (-L) 405 Subscriptions revenue (+R,+SE) To record subscription revenue earned during January ($9,720/24 = $405). Q3-14 Jan. 31 Wages expense (+E, -SE) Wages payable (+L) To record unpaid wages for Jan. 3031 [($475/5) 2 = $190]. Interest receivable (+A) Interest income (+R,+SE) To record interest earned during January. 190
405
190
Q3-15 Jan. 31
360 360
Q3-16 The temporary accountssometimes called nominal accountsare closed at year-end. They consist principally of the income statement accounts (expense and revenue accounts). (The Income Summary account and the Dividend account are also closed if they are used.) Q3-17 Step 1) Close revenue accounts: Debit each revenue account for an amount equal to its balance, and credit the Retained Earnings account for the total of revenues. Step 2) Close expense accounts: Credit each expense account for an amount equal to its balance, and debit the Retained Earnings account for the total of expenses. Q3-18 A post-closing trial balance ensures that an equality of debits and credits has been maintained throughout the adjusting and closing procedures and that the general ledger is in balance to start the next period. Only balance sheet accounts appear in a post-closing trial balance. Depreciation Expense and Supplies Expense are temporary accounts that should have been closed and should not appear in the post-closing trial balance.
Q3-19
The cost principle and the matching concept support Dehning's handling of its catalog costs. Prepaid Catalog Costs is an asset account that is initially recorded at the amount that the catalogs cost Dehning. This is consistent with the cost principle that states that assets are initially recorded at the amounts paid to acquire the assets. The catalogs help Dehning generate sales revenues. The matching concept states that the catalog costs should be matched as expenses with the revenues they help generate. Dehning does this by expensing the catalog costs over their estimated useful lives. (a) Supplies Expense ($825 + $260 $630 = $455) for the period is omitted from the income statement, overstating net income by $455 (ignoring taxes). (b) Both Supplies and Owners' Equity are overstated by $455 on the January 31 balance sheet (again, before considering taxes).
Q3-20
Mini Exercises
M3-21 (45 mintes) a.
Balance Sheet
Transaction
June 1. Invested $12,000 cash. June 2. Paid $950 cash for June rent. June 3. Purchased $6,400 of office equipment on account. June 6. Purchased $3,800 of supplies; $1,800 cash, $2,000 on account. June 11. $4,700 billed for services. June 17. Collected $3,250 on accounts. June 19. Paid $3,000 on office equipment account. June 25. Paid cash dividend of $900. June 30. Paid $350 utilities. June 30. Paid $2,500 salaries. TOTALS Cash Noncash LiabilContrib. Asset + Assets = ities + Capital + +12,000 +12,000 = Cash Common
Stock
Income Statement
Earned Capital Net Revenues - Expenses = Income
-950
Retained Earnings
= +950
Rent Expense
-950
Cash
= +6,400
Office Equipment
-950 =
+6,400 =
Accounts Payable
-1,800
Cash
+3,800
Supplies
+2,000 =
Accounts Payable
+4,700
Retained Earnings
= +4,700
+4,700
Accounts Receivable
= = -3,000 =
Accounts Payable
+4,700
Service Fees Earned
= =
+3,250
Cash
-3,250
Accounts Receivable
-3,000
Cash
-900
Retained Earnings
-900
Cash
= = = + 11,650 = 5,400 + 12,000 +
4,700 +350
Utilities Expense
= = = = -350 -2,500 900
-350
Cash
-350
Retained Earnings
-2,500
Cash
-2,500
Retained Earnings
+2,500
Salaries Expense
5,750
3,800
b. June 1 Cash (+A) Common stock (+SE) Owner invested cash for stock. Rent expense (+E, -SE) Cash (-A) Paid June rent. Office equipment (+A) Accounts payable (+L) Purchased office equipment on account. Supplies (+A) Cash (-A) Accounts payable (+L) Purchased $3,800 of supplies; paid $1,800 down with balance due in 30 days. Accounts receivable (+A) Service fees earned (+R,+SE) Billed clients for services. Cash (+A) Accounts receivable (-A) Collections from clients on account. Accounts payable (-L) Cash (-A) Payment on account. Retained earnings (-SE) Cash (-A) Issued dividends. Utilities expense (+E, -SE) Cash (-A) Paid utilities bill for June. Salaries expense (+E, -SE) Cash (-A) Paid salaries for June. 12,000 12,000 950 950 6,400 6,400 3,800 1,800 2,000
11
4,700 4,700 3,250 3,250 3,000 3,000 900 900 350 350 2,500 2,500
17
19
25
30
30
c. + June 1 17 Cash (A) 12,000 950 3,250 1,800 3,000 900 350 2,500 + June 6 Supplies (A) 3,800 -
June 2 6 19 25 30 30
+ June 3
Office Equipment (A) 6,400
+ June 11
Accounts Receivable (A) 4,700 3,250 June 17
Accounts Payable (L) June 19 3,000 6,400 2,000
+ June 3 June 6
Common Stock (SE) 12,000
+ June 1
Retained Earnings (SE) June 25 900 + June 2 Rent Expense (E) 950
Service Fees Earned (R) + 4,700 June 11
+ June 30
Utilities Expense (E) 350
+ June 30
Salaries Expense (E) 2,500
M3-22 (45 minutes) a.
Balance Sheet
Transaction
April 1. Invested $9,000 in cash. April 2. Paid $2,850 cash for lease. April 3. Borrowed $10,000. April 3. Purchased $5,500 equipment for $2,500 cash with rest on account. April 4. Paid $4,300 cash for supplies. April 7. Paid $350 cash for ad. April 21. Billed $3,500 for services April 23. Paid $3,000 cash on account. April 28. Collected $2,300 on account. April 29. Paid $1,000 cash dividend. April 30. Paid $1,750 cash for wages. April 30. Paid $995 cash for gas. TOTALS -3,000
Cash
Income Statement
Earned Capital Net Revenues - Expenses = Income = = =
Cash Noncash LiabilContrib. Asset + Assets = ities + Capital + +9,000 +9,000 = Cash Common
Stock
-2,850
Cash
+2,850
Prepaid Van Lease
= = +10,000
Note Payable
+10,000
Cash
-2,500
Cash
+5,500
Equipment
+3,000 =
Accounts Payable
-4,300
Cash
+4,300
Supplies
= = -350
Retained Earnings
+3,500
Cleaning Fees Earned
= +350
Ad. Expense
-350
Cash
= = = = =
-350 +3,500
+3,500
Accounts Receivable
+3,500 = -3,000 = Accounts

Payable Retained Earnings
+2,300
Cash
-2,300
Accounts Receivable
= = = = -1,000
Retained Earnings
-1,000
Cash
3,500 +1,750
Wages Expense
-1,750
Cash
-1,750
Retained Earnings
= = =
-1,750 -995 405
-995
Cash
-995
Retained Earnings
+995
Van Fuel Expense
4,555
+ 13,850
= 10,000 + 9,000 +
-595
3,095
b. April 1
Cash (+A) Common stock (+SE) Owner invested cash for stock. Prepaid van lease (+A) Cash (-A) Paid six months' lease on van. Cash (+A) Notes payable (+L) Borrowed money from bank for one year at 10% interest. Equipment (+A) Cash (-A) Accounts payable (+L) Purchased $5,500 of equipment; paid $2,500 down with balance due in 30 days. Supplies (+A) Cash (-A) Purchased supplies for cash. Advertising expense (+E, -SE) Cash (-A) Paid for April advertising. Accounts receivable (+A) Cleaning fees earned (+R, +SE) Billed customers for services. Accounts payable (-L) Cash (-A) Payment on account. Cash (+A) Accounts receivable (-A) Collections from customers on account. Retained earnings (-SE) Cash (-A) Issued cash dividends.
9,000 9,000 2,850 2,850 10,000 10,000
5,500 2,500 3,000
4,300 4,300 350 350 3,500 3,500 3,000 3,000 2,300 2,300 1,000 1,000
21
23
28
29
30
Wages expense (+E, -SE) Cash (-A) Paid wages for April. Van fuel expense (+E, -SE) Cash (-A) Paid for gasoline used in April.
1,750 1,750 995 995
30
c. + April 1 3 28 Cash (A) 9,000 2,850 April 2 10,000 2,500 3 2,300 4,300 4 350 7 3,000 23 1,000 29 1,750 30 995 30 Supplies(A) 4,300 + Accounts Receivable (A) April 21 3,500 2,300 April 28
+ April 2 + April 3 -
Prepaid Van Lease (A) 2,850 Equipment (A) 5,500 Notes Payable (L) 10,000 -
+ April 4
+ April 3
Accounts Payable (L) April 23 3,000 3,000 Common Stock (SE) 9,000
+ April 3 + April 1
- Retained Earnings (SE) April 29 1,000 -
Cleaning Fees Earned (R) + 3,500 April 21
+ Advertising Expense (E) April 7 350
+ April 30
Wages Expense (E) 1,750
+ Van Fuel Expense (E) April 30 995
Balance Sheet
Transaction
1. Received $20,100
Income Statement
Earned Capital Net Revenues - Expenses = Income =
in advance for contract work.
Cash Noncash LiabilContrib. Asset + Assets = ities + Capital + +20,100 +20,100 Unearned Cash = Service
Fees
Jan. b.
Cash (+A) Unearned service fees (+L) To record fee received in advance.
20,100 20,100
Balance Sheet
Transaction
2. Adjusting entry for work completed by Jan. 31. Cash Asset LiabilContrib. + Noncash Assets = ities + Capital + -3,350 Unearned = Service
Fees
Income Statement
Earned Capital +3,350
Retained Earnings
Net Revenues - Expenses = Income +3,350 +3,350 Service = Fees
Jan.
31
Unearned service fees (-L) Service fees (+R, +SE) To reflect January service fees earned on contract ($20,100/6 = $3,350).
3,350 3,350
c.
Balance Sheet
Transaction
3. Adjusting entry for fees earned but not billed. Cash Asset LiabilContrib. + Noncash Assets = ities + Capital + +570 Fees =
Receivable
Income Statement
Earned Capital +570
Retained Earnings
Net Revenues - Expenses = Income +570 +570 Service =

Fees
Jan.
31
Fees receivable (+A) Service fees (+R, +SE) To record unbilled service fees earned at January 31.
570 570
M3-24 (15 minutes) 1.
Balance Sheet
Transaction
1. Adjusting entry for
Income Statement
Earned Capital -185
Retained Earnings
Cash Asset
prepaid insurance.
LiabilContrib. + Noncash Assets = ities + Capital + -185 Prepaid =

Insurance
Net Revenues - Expenses = Income +185 -185 - Insurance =

Expense
Jan.
31
Insurance expense (+E, -SE) Prepaid insurance (-A) To record January insurance expense ($6,660/36 = $185).
185 185
2.
Balance Sheet
Transaction
2. Adjusting entry for supplies used. Cash Asset LiabilContrib. + Noncash Assets = ities + Capital + -1,080 Supplies = Earned Capital -1,080
Retained Earnings
Income Statement
Net Revenues - Expenses = Income +1,080 -1,080 - Supplies =
Expense
Jan.
31
Supplies expense (+E, -SE) Supplies (-A) To record January supplies expense ($1,930 $850 = $1,080).
Balance Sheet
1,080 1,080
3.
Income Statement
+ Contrib. Capital + Earned Capital Revenues Expenses Net = Income Noncash + Assets Contra Assets +62 Accumulated Depreciation
Transaction 3. Adjusting entry for depreciation of equipment.
Cash Asset
= Liabilities
-62
Retained Earnings
+62
Depreciation Expense
-62
Jan.
31
Depreciation expenseEquipment (+E, -SE) Accumulated depreciationEquipment (+XA, -A) To record January depreciation on office equipment ($5,952/96 = $62).
62 62
4.
Balance Sheet
Transaction
4. Adjusting entry for rent. Cash Asset LiabilContrib. + Noncash Assets = ities + Capital + -875 = Unearned Rent
Revenue
Income Statement
Earned Capital +875
Retained Earnings
Net Revenues - Expenses = Income +875 +875 Rent = Revenue
Jan. 31
Unearned rent revenue (-L) Rent revenue (+R, +SE) To record portion of advance rent earned in January.
875 875
5.
Balance Sheet
Transaction
5. Adjusting entry for accrued salaries. Cash Asset LiabilContrib. + Noncash Assets = ities + Capital + +490 = Salaries
Payable
Income Statement
Earned Capital -490
Retained Earnings
Net Revenues - Expenses = Income +490 -490 = Salaries

Expense
Jan.
31
Salaries expense (+E, -SE) Salaries payable (+L) To record accrued salaries at January 31.
490 490
M3-25 (10 minutes) (All amounts in $ millions.) a.
Balance Sheet
Transaction
Inventory purchases (total). Cash Asset Contrib. + Noncash Assets = Liabilities + Capital + +2,913.49 +2,913.49
Inventory
Income Statement
Accounts Payable
Inventories (+A).. 2,913.49 Accounts payable (+L).. 2,913.49 To record total purchases made at various dates. b. Beginning AP balance + Purchases Payments = Ending AP balance, or $2,980.13 = $365.75 + $2,913.49 - $299.11 = Payments. c.
Balance Sheet
Transaction Adjusting entry for cost of goods sold for 2009. * Cash Asset + Noncash Assets = Liabilities + = Contrib. + Capital Earned Capital
Income Statement
Revenues Expenses = Net Income =
-2,946.08
Inventory
-2,946.08
Retained Earnings
+2,946.08
Cost of Goods Sold
-2,946.08
Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance, or $2,946.08 = $887.36 + $2,913.49 $854.77 = COGS Cost of goods sold (+E, -SE)... 2,946.08 Inventories (-A) 2,946.08 To record cost of goods sold for the year ended 1/31/2009. M3-26 (15 minutes) Architect Services Company Statement of Stockholders Equity For Year Ended December 31, 2011 Common Retained Stock Earnings Balance at December 31, 2010 Stock issuance.......................... Dividends.................................. Net income................................ Balance at December 31, 2011
$30,000 6,000 _____ $36,000
$18,000 (9,700) 29,900 $38,200
Total Stockholders Equity $48,000 6,000 (9,700) 29,900 $74,200
M3-27 (5 minutes) Ending balance = Beginning balance + Credit from closing revenue Debit from closing expenses: $137,600 = $99,000 + $347,400 - $308,800
Date 2010 Description

Dec. 31 31 Commissions revenue (-R) Retained earnings (+SE) To close the revenue account. Retained earnings (-SE) Wages expense (-E) Insurance expense (-E) Utilities expense (-E) Depreciation expense (-E) To close the expense accounts.
Debit
84,900
Credit
84,900
55,900 36,000 1,900 8,200 9,800
Closing the revenue and expense accounts into retained earnings has the effect of increasing the retained earnings balance by an amount equal to net income (revenue minus expenses). The balance of Smiths Retained Earnings after closing entries are posted is $101,100 credit ($72,100 + $29,000). b. + Bal. Bal. + Bal. Bal. + Bal. Bal. Wages Expense (E) 36,000 36,000 0 Insurance Expense (E) 1,900 1,900 0 Depreciation Expense (E) 9,800 9,800 (2)Dec. 31 0 (2)Dec. 31 (2)Dec. 31 Bal. Bal. + Utilities Expense (E) 8,200 8,200 (2) Dec. 31 0
- Commissions Revenue (R) + (1)Dec. 84,000 84,900 Bal. 31 0 Bal. - Retained Earnings (SE) + (2)Dec. 55,900 72,100 Bal. 31 84,900 (1)Dec.31 101,100 Bal. Dec.31
M3-29 (20 minutes) (All amounts in $ millions.) a.
Balance Sheet
Transaction
Purchase of inventory on account. Cash Asset Contrib. + Noncash Assets = Liabilities + Capital + +3,385.90 +3,385.90 Merchandise = Accounts
Inventory Payable
Income Statement
Merchandise inventory (+A).............................................. Accounts payable (+L)..................................................
3,385.90 3,385.90
To recognize the purchase of merchandise inventory on account.
b. Beginning AP balance + Purchases Payments = Ending AP balance, or $3,470.97 = $831.67 + $3,385.90 - $746.60 = Payments. c.
Balance Sheet
Transaction
Recognize cost of goods sold. Cash Asset Liabil+ Noncash Assets = ities -3,540.60 Merchandise =
inventory
Income Statement
Earned Capital -3,540.60
Retained Earnings
+ Contrib. Capital +
Net Revenues - Expenses = Income +3,540.60 -3,540.60 = Cost of

Goods Sold
Cost of goods sold (+E,-SE).............................................. Merchandise inventory (-A)...........................................

To recognize the cost of goods sold.
3,540.60* 3,540.60
* Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance, or $3,540.60 = $1,358.17 + $3,385.90 - $1,203.47 = COGS
Balance Sheet
Transaction
a. Dec. 31 Interest earned. Cash Asset LiabilContrib. + Noncash Assets = ities + Capital + +600 = Interest
Receivable
Income Statement
Earned Capital +600
Retained Earnings
Net Revenues - Expenses = Income +600 +600 = Interest

Income
Dec. 31
Interest receivable (+A) Interest income (+R, +SE) To record accrued interest income. Interest income (-R) Retained earnings (+SE) To close the Interest Income account.
600 600
b. Dec. 31 c.
2,400 2,400
Balance Sheet
Transaction
c. 1/31 Receipt of $900 interest. Cash Asset +900
Cash
Income Statement
Earned Capital + 300
Retained Earnings
LiabilContrib. + Noncash Assets = ities + Capital + -600 = Interest

Receivable
Net Revenues - Expenses = Income +300 +300 = Interest

Income
2011 Jan. 31 600
Cash (+A) Interest income (+R, +SE) Interest receivable (-A) To record cash receipt of interest.
900 300
Exercises
E3-31 (30 minutes) a. Dec. 31 Service fees earned (-R,-SE) Retained earnings (+SE) To close the revenue account. Retained earnings (-SE) Rent expense (-E) Salaries expense (-E) Supplies expense (-E) Depreciation expense (-E) To close the expense accounts. 80,300 80,300 82,300 20,800 45,700 5,600 10,200
31
b.
+ Bal. Bal. Rent Expense (E) 20,800 20,800 0 + (2) Bal. Bal. + Bal. Bal. + Bal. Bal. (2) Salaries Expense (E) 45,700 45,700 0 Retained Earnings (SE) 82,300 67,000 80,300 65,000 (2) (1) Supplies Expense (E) 5,600 5,600 0 Depreciation Expense (E) 10,200 10,200 0 Service Fees Earned (R) 80,300 80,300 0 (2) (2)
+ Bal. Bal.
+ Bal. (1) Bal.
Brooks Consulting earned a loss during the period (expenses exceeded revenues by $2,000), so the ending retained earnings is lower than that beginning retained earnings (even if no dividends were paid).
E3-32 (30 minutes) a.

Balance Sheet
Transaction 1. Adjusting entry for depreciation: equipment. 2. Adjusting entry for supplies expense. 3. Adjusting entry for utilities expense. 4. Adjusting entry for rent expense. 5. Adjusting entry for premium revenues. 6. Adjusting entry for wage expense. 7. Adjusting entry for interest earned. TOTALS Cash Asset Noncash + Assets Contra = Liabilities + Assets +610 = - Accumulated Depreciation = = -700 Prepaid Rent = = -468 Unearned Premium Revenue = +965 Wages Payable = +390 Utilities Payable Contrib. Capital + Earned Capital -610 Retained Earnings -1,890 Retained Earnings -390 Retained Earnings -700 Retained Earnings +468 Retained Earnings -965 Retained Earnings +300 Retained Earnings -3,787
Income Statement
Revenues Expenses +610 Depreciation Expense +1,890 Supplies Expense +390 Utilities Expense +700 Rent Expense Net = Income = -610 = -1,890
-1,890 Supplies
-390
-700
+468 Premium Revenue
+468
+300 Interest Receivable + -2,290
+965 Wage Expense
-965
610 = 887 + 0 +
+300 Interest Income 768
+300
4,555
-3,787
b. 1. 610
Depreciation expenseEquipment (+E,-SE) Accumulated depreciationEquip (+XA)

To record depreciation for the period.
610
2.
Supplies expense (+E,-SE) Supplies (-A) Utilities expense (+E, - SE) Utilities payable (+L)
1,890 1,890
To record supplies expense for the period ($2,990 $1,100 = $1,890).
3.
390 390 700 700 468 468 965 965
To record accrued utilities expense.
4.
Rent expense (+E,-SE) Prepaid rent (-A)

To record rent expense for the month ($2,800/4 = $700).
5.
Unearned premium revenue (-L) Premium revenue (+R,+SE) Wages expense (+E,-SE) Wages payable (+L)
To record premium revenue earned [($624/12) 9 = $468].
6.
To record accrued wages at the end of the period.
7.
Interest receivable (+A) Interest income (+R,+SE)

To accrue interest earned but not yet received.
300 300

Balance Sheet Transaction a. Adjusting entry for salaries expense. Cash Asset + Noncash Assets = Liabilities + +4,700 = Salaries Payable Contrib. + Capital Earned Capital -4,700 Retained Earnings Income Statement Revenues Expenses +4,700 Salaries Expense = = Net Income -4,700
2010 Dec. 31
Salaries expense (+E,-SE) Salaries payable (+L) To record accrued salaries payable. Retained earnings (-RE) Salaries expense (-E)
To close the Salaries Expense account.
4,700 4,700
b. 31 250,000 250,000
c.
Balance Sheet Transaction c. Paid salaries. Cash Asset -12,000 Cash + Noncash Assets = Liabilities + -4,700 = Salaries Payable Contrib. + Capital Earned Capital -7,300 Retained Earnings Income Statement Revenues Expenses +7,300 Salary Expense = = Net Income -7,300
2011 Jan.
Salaries payable (-L) Salaries expense (+E,-SE) Cash (-A)

To record payment of salaries.
4,700 7,300 12,000
E3-34 (20 minutes) a. Balance, January 1 = $960 + $800 $620 = $1,140. b. Amount of premium = $82 12 = $984. Therefore, five months' premium ($984 $574 = $410) has expired by January 31. The policy has been in effect since September 1, 2010. The policy term began on September 1 of the previous year. c. Wages paid in January = $3,200 $500 = $2,700. d. Monthly depreciation expense = $8,700/60 months = $145. Fields has owned the truck for 18 months ($2,610/$145 = 18). E3-35 (30 minutes) a.
Balance Sheet Transaction Cash Asset + Noncash Assets = Liabilities + Contrib. + Capital Earned Capital Income Statement Revenues Expenses = Net Income
1. 7/31 Adjusting entry for rent expense. 2. 7/31 Adjusting entry for ad. expense. 3. 7/31 Adjusting entry for supplies expense. 4. 7/31 Adjusting entry for fees revenue. 5. 7/31 Adjusting entry for fees revenue. TOTALS 0 +
-475
Prepaid Rent
-475 = =
Retained Earnings
+475 +800
Refinish. Revenue Rent Expense
-475 = -210 = -1,900 = +800 = +300
-210
Prepaid Advertising
- 210
Retained Earnings
+210
Advertising Expense
-1,900
Supplies
-1,900
Retained Earnings
+1,900
Supplies Expense
+800
Fees Receivable
+800
Retained Earnings
-300
Unearned Refinish. Fees
+300
Retained Earnings
+300
Refinish. Revenue
2,585
= = -1,485
-1,785
-300
-1,485
1,100
b. July
31
Rent expense (+E,-SE) Prepaid rent (-A)

To record July rent expense ($5,700/12 = $475).
475 475 210 210 1,900 1,900
31
Advertising expense (+E,-SE) Prepaid advertising (-A)

To record July advertising expense ($630/3 = $210).
31
Supplies expense (+E,-SE) Supplies (-A)
To record supplies expense for July ($3,000 $1,100 = $1,900).
31
Fees receivable (+A) Refinishing fees revenue (+R,+SE)

To record unbilled revenue earned during July.
800 800 300 300
31
Unearned refinishing fees (-L) Refinishing fees revenue (+R,+SE)
To record portion of advance fees earned in July ($600/2 = $300).
c. + Prepaid Rent (A) 5,700 475 5,225 + Prepaid Advertising (A) 630 210 420 + Fees Receivable (A) 800 + Supplies (A) 3,000 1,900 1,100
Bal. Bal.
(1)
Bal. Bal.
(3)
Bal. Bal.
(2)
- Unearned Finishing Fees (L) + (5) 300 600 Bal. 300 Bal. - Refinishing Fees Revenue (R) + 2,500 Bal. 800 (4) 300 (5) 3,600 Bal. + (3) Supplies Expense (E) 1,900 -
(4)
+ (2)
Advertising Expense(E) 210
+ (1)
Rent Expense (E) 475
E3-36 (15 minutes) (All amounts in $ thousands.) a.

Transaction Recognize cost of goods sold. Cash Asset + Noncash Assets Balance Sheet = Liabil+ Contrib. ities Capital + = Income Statement Earned Capital Revenues Expenses = Net Income =
-242,265
Inventory
-242,265
Retained Earnings
+242,265
Cost of Goods Sold
-242,265
Cost of goods sold (+E,-SE).............................................. Inventory (-A).................................................................

242,265* 242,265
*Beginning Inv balance + Cost of acquisition Cost of goods sold = Ending Inv balance, so $242,265 = $110,596 + $178,519 - $46,850 = COGS b. Beginning compensation payable + Compensation expense Compensation paid = Ending compensation payable, so $10,070 + $40,000 Payments = $10,204 Payments = $39,866
E3-37 (30 minutes) a. Dec. 31 Service fees earned (-R) Interest income (-R) Retained earnings (+SE)
To close the revenue accounts.
92,500 2,200 94,700 64,700 41,800 4,300 8,700 9,900
31
Retained earnings (-SE) Salaries expense (-E) Advertising expense (-E) Depreciation expense (-E) Income tax expense (-E)
To close the expense accounts.
b. (2) - Retained Earnings (SE) + 64,700 42,700 Bal. 94,700 (1) 72,700 Bal. (1) - Service Fees Earned (R) + 92,500 92,500 Bal. 0 Bal. - Interest Income (R) + 2,200 2,200 Bal. 0 Bal.
(1)
+ Salaries Expense (E) Bal. 41,800 41,800 (2) Bal. 0 + Depreciation Expense (E) Bal. 8,700 8,700 (2) Bal. 0
Bal. Bal. Bal. Bal.
+ Advertising Expense (E) 4,300 4,300 0 + Income Tax Expense(E) 9,900 9,900 0
(2)
(2)

Balance Sheet Transaction (1) Collect deposits from customers. (2) Recognize income on completed customer orders. Income Statement + Contrib. + Capital Earned Capital Revenues Expenses = Net Income
+200,000
Cash
Cash Asset
+ Noncash Assets
Liabilities
= =
+200,000
Customer Deposits
+674,277 +674,277
Retained Earnings Sales Revenue
= +674,277 =
+458,671
Cash
-215,606
Customer Deposits
(1)
Cash (+A) Customer deposits liability* (+L)

To record unearned customer deposits.
200,000 200,000
(2)
Customer deposits liability* (-L)....................................... Cash (+A) Sales revenue (+R, +SE)................................................
To record sales revenue and recognized deposits earned.
215,606 ** 458,671 674,277
* Also sometimes called Unearned Customer Deposits ** $47,297 + $200,000 Deposits earned = $31,691; Deposits earned = $215,606.
b.
Transaction
Recognize cost of goods sold.
Cash Asset
-326,935
Inventory
Noncash Assets
Balance Sheet Contrib. = Liabilities + Capital +
Income Statement
-326,935
Retained Earnings
Earned Capital
Revenues -
Expenses
Net Income
+326,935
Cost of Goods Sold
-326,935
Cost of goods sold (+E,-SE).................................................. Inventory (-A).....................................................................

326,935 *** 326,935
***$186,265 + $297,189 Cost of goods sold = $156,519; Cost of goods sold = $326,935
E3-39 (40 minutes) a. Solomon Corporation Income Statement For Year Ended December 31, 2011 Service fees earned................................................................ Rent expense........................................................................... Salaries expense..................................................................... Depreciation expense.. Net income............................................................................... $71,000 (18,000) (37,100) (7,000) $8,900
Solomon Corporation Statement of Stockholders Equity For Year Ended December 31, 2011 Common Retained Stock Earnings Balance at December 31, 2010.... Stock issuance.............................. Dividends...................................... Net income.................................... Balance at December 31, 2011.... $43,000 $20,600 * (8,000) 8,900 $21,500
Total Stockholders Equity $63,600
_____ $43,000
(8,000) 8,900 $64,500
*12,600 + 8,000 The dividend was paid and debited to retained earnings prior to the end of the period.
Solomon Corporation Balance Sheet December 31, 2011

Assets Cash Accounts receivable Equipment Less:Accumulated depreciation $ 78,000 14,000 Liabilities $ 4,000 Notes payable 6,500 Total Liabilities 64,000 Owners Equity 43,000 21,500 $74,500 $ 10,000 10,000
Total Assets
Common stock Retained earnings $74,500 Total Liabilities and Owners Equity
b. 1. 2. 3. 4. Service fees earned (-R).................................................. Retained earnings (+SE)............................................. Retained earnings (-SE)................................................... Rent expense (-E)......................................................... Retained earnings (-SE)................................................... Salaries expense (-E)................................................... Retained earnings (-SE)................................................... Depreciation expense (-E) .......................................... 71,000 71,000 18,000 18,000 37,100 37,100 7,000 7,000
The cash dividend has already been paid and is already reflected in the adjusted trial balance. c. Only the T-accounts affected by closing process are shown here. + Depreciation Expense (E) Bal. 7,000 7,000 Bal 0 + Salaries Expense (E) 37,100 37,100 0 - Service Fees Earned (R) + 71,000 71,000 Bal. 0 Bal. + (3) Bal. Bal Rent Expense (E) 18,000 18,000 0
(4)
(1)
Bal. Bal.
(2)
- Retained Earnings (SE) + (2-4) 62,100 12,600 71,000 21,500
Bal. (1) Bal.
PROBLEMS
P3-40 (90 minutes) a. + Cash (A) Apr. 1 5 18 11,500 1,800 4,900 2,880 6,100 1,000 675 100 2,500 Apr. 1 2 2 29 30 30 + Accounts Receivable (A) 5,500 4,900 4,000 4,600 Supplies (A) 1,200 1,200 800 (d) 400 Trucks (A) 6,100 6,100 Accounts Payable (L) 2,100 1,200 3,300 Apr. 18
Apr. 12 30 Bal. + Apr. 5

Unadj. bal.
Apr. 30
Bal. + Apr. 1
4,945 -
Adj. bal. Prepaid Insurance (A) 2,880 Unadj. bal. 2,880 120 (d) Adj bal. 2,760 + Apr. 2 Bal. Equipment (A) 3,100 3,100 + Apr. 30 Apr. 2 Bal. -
+ Apr. 2 5 Bal.
Roofing Fees Earned (R) + 5,500 Apr. 12 4,000 30 9,500 Unadj. bal. 450 (d) 30 9,950 Adj. Bal. Supplies Expense (E) (d) 800 800 Advertising Expense (E) 100 100 -
Unearned Roofing Fees (L) + 1,800 Apr. 5 Apr. 30 (d) 450 1,800 Unadj. bal 1,350 Adj. Bal
+ Apr. 30
Adj. Bal.
Common Stock (SE) 11,500 11,500 Fuel Expense (E) 675 675 Wages Expense (E) 2,500 2,500
+ Apr. 1 Bal. -
+ Apr. 30 Bal.
+ Apr. 29 Bal. + Apr. 30 Bal.
+ Insurance Expense (E) Apr. 30 (d) 120 Adj. Bal. 120

+ Depreciation Expense Equip. (E) Apr. 30 (d) 35 Adj. Bal. 35 + Depreciation Expense - Trucks (E) Apr. 30 (d) 125 Adj. Bal. 125 b.
Balance Sheet Transaction Cash Asset + Noncash Assets = Liabilities + Contrib. + Capital
- Accumulated Deprec. Equip. (XA) + 35 (d) Apr. 30 35 Adj. Bal. - Accumulated Deprec. Trucks (XA) + 125 (d) Apr. 30 125 Adj. Bal
Income Statement Earned Capital Revenues Expenses = Net Income
Apr. 1. Cash received +11,500 Cash for stock. Apr. 1. Purchase liability insurance. Apr. 2. Purchase truck for cash. Apr. 2. Purchase equipment. -2,880
Cash
= +2,880
Prepaid Insurance
+11,500
Common Stock
= = = = =
= = +2,100 = Accounts
Payable
-6,100
Cash
+ 6,100
Truck
-1,000
Cash
+3,100
Equipment
Apr. 5. Purchase supplies on account. Apr. 5. Cash in +1,800 advance for roofing Cash repairs. Apr. 12. Bill customers for services. Apr. 18. Collected cash +4,900 Cash on account. Apr. 29. Paid cash for fuel. Apr. 30. Paid cash for ads. Apr. 30. paid cash wages. Apr. 30. Bill customers for services. Totals -675
Cash
+ 1,200
Supplies
+1,200 = Accounts
Payable
+1,800 = +5,500
Accounts Receivable Unearned Roofing Fees
+5,500
Retained Earnings
= = = +675
Fuel Expense
= = = = =
+5,500
Roofing Fees Revenue
+5,500
-4,900
Accounts Receivable
-675
Retained Earnings
+4,000
Roofing fees Earned
= = = =
-675 -100 -2,500 +4,000 6,225
-100
Cash
-100
Retained Earnings
+100
Ad. Expense
-2,500
Cash
-2,500
Retained Earnings
+2,500
Wages Expense
+4,000
Accounts Receivable
= = 5,100 + 11,500 +
+4,000
Retained Earnings
3,275
4,945 + 17,880
6,225
9,500
Date 2010
Apr. 1
Description
Cash (+A) Common stock (+SE) Owner invested cash. Prepaid insurance (+A) Cash (-A) Paid two-year premium on liability insurance policy.
Debit
11,500
Credit
11,500
1 2,880 2
2,880
Trucks (+A) Cash (-A) Purchased used truck for $6,100 cash.
6,100 6,100
Equipment (+A) 3,100 Cash (-A) Accounts payable (+L) Purchased ladders and other equipment, $1,000 down with $2,100 balance due in 30 days. Supplies (+A) Accounts payable (+L) Purchased supplies on account. Cash (+A) Unearned roofing fees (+L) Received advance payment for services. Accounts receivable (+A) Roofing fees earned (+R,+SE) Billed customers for services. Cash (+A) Accounts receivable (-A) Collection on account from customers. Fuel expense (+E,-SE) Cash (-A) Paid truck fuel bill for April. 1,200
1,000 2,100
1,200 1,800 1,800 5,500 5,500 4,900 4,900 675
12
18
29 675 30
Advertising expense (+E,-SE) Cash (-A) Paid for April newspaper advertising. Wages expense (+E, -SE) Cash (-A) Paid wages.
100 100 2,500
30 2,500 30
Accounts receivable (+A) Roofing fees earned (+R, +SE)
4,000 4,000
Billed customeers for services.
c. Lougee ROOFING SERVICE UNADJUSTED TRIAL BALANCE APRIL 30, 2010 Debit $ 4,945 4,600 1,200 2,880 6,100 3,100
Credit
Cash Accounts Receivable Supplies Prepaid Insurance Trucks Equipment Accounts Payable Unearned Roofing Fees Common Stock Roofing Fees Earned Fuel Expense Advertising Expense Wages Expense
$ 3,300 1,800 11,500 9,500 675 100 2,500 $26,100
$26,100
d.
Balance Sheet
Transaction 1. Recognize one month of insurance expense. 2. Recognize supplies expense . 3. Recognize depreciation expense Trucks. 4. Recognize depreciation expense on equipment. 5. Recognize roofing fees earned. Cash Asset Noncash + Assets Contra Assets = Liabilities + Contrib. Capital + Earned Capital
Income Statement
Revenues Expenses Net = Income
-120
Prepaid Insurance
-120
Retained Earnings
+120
Insurance Expense
-120
-800
Supplies
+125
Accumulated Depreciation
= =
-800
Retained Earnings
+800
Supplies Expense
= =
-800 -125
-125
Retained Earnings
+125
+35
-35
Retained Earnings
+35
-35
-450
Unearned Roofing Fees
+450
Retained Earnings
+450
Roofing Fees Earned
+450
Totals
-920
160
-450
-630
450
1,080
-630
Date 2010 April 30
Description Insurance expense (+E,-SE) Prepaid insurance (-A) Supplies expense (+E,-SE) Supplies (-A)
Debit 120
Credit 120
To record April insurance expense ($2,880/24 months = $120).
30
800 800 125 125 35 35 450 450
To record April supplies expense ($1,200 $400 = $800).
30
Depreciation expenseTrucks (+E,-SE) Accumulated depreciationTrucks (+XA,-A)

To record April depreciation on trucks.
30
Depreciation expenseEquipment (+E,-SE) Accumulated depreciationEquipment (+XA,-A)

To record April depreciation on equipment.
30
Unearned roofing fees (-L) Roofing fees earned (+R,+SE)

To record portion of advance payment earned in April ($1,800/4 = $450).
P3-41 (40 minutes) SnapShot Company UNADJUSTED TRIAL BALANCE DECEMBER 31, 2010 a. Cash Accounts Receivable Prepaid Rent Prepaid Insurance Supplies Equipment Accounts Payable Unearned Photography Fees Common Stock Photography Fees Earned Wages Expense Utilities Expense b.
Balance Sheet
Transaction Cash Asset
Debit $2,150 3,800 12,600 2,970 4,250 22,800
Credit
$1,910 2,600 24,000 34,480 11,000 3,420 $62,990 ______ $62,990
Income Statement
Contrib. Capital + Earned Capital Revenues Expenses Net = Income
1. Fees earned but not received. 2. Recognize depreciation expense for one year. 3. Recognize utilities expense. 4. Recognize rent expense for year. 5. Recognize photo revenues. 6. Recognize insurance expense. 7. Recognize supplies expense. 8. Recognize wages expense.
Noncash + Assets
Contra Assets
= Liabilities +
+925
Fees Receivable
+2,280 Accumulated Depreciation
+925
Retained Earnings
+925
Photography Fees Earned
+2,280 Depreciation Expense
+925 -2,280
-2,280 = +400
Utilities Payable Retained Earnings
= -400 -6,300 = +2,600 -990 -2,730 -375
-6,300
Prepaid Rent
-400
Retained Earnings
+400
Utilities Expense
-6,300 = -2,600
Unearned Photo Fees Retained Earnings
+6,300 +2,600
Photography Fee Earned Rent Expense
-990
Prepaid Insurance
= = = = 2,280
+2,600
Retained Earnings
+990
Insurance Expense
= = = =
-990
Retained Earnings
-2,730
Supplies
-2,730
Retained Earnings
+2,730
Supplies Expense
+375
Wages Payable
-375
Retained Earnings
+375
Wages Expense
Totals
+ -9,095
= -1,825
-9,550
3,525
13,075
= -9,550
Date 2010 Dec. 31
Description Fees receivable (+A) Photography fees earned (+R, +SE)

To record revenue earned but not billed.
Debit 925 ` 2,280
Credit 925
31
Depreciation expense (+E,-SE) Accum. depreciationEquipment (+XA, -A)

To record depreciation for the year ($22,800/10 years = $2,280).
2,280
31
Utilities expense (+E, -SE) Utilities payable (+L)

To record estimated December utilities expense.
400 400 6,300 6,300
31
Rent expense (+E, -SE) Prepaid rent (-A)

To record rent expense for the year ($12,600/2 years = $6,300).
31
Unearned photography fees (-L) Photography fees earned (+R, +SE)

To record advance payments earned during the year.
2,600 2,600 990 990
31
Insurance expense (+E, -SE) Prepaid insurance (-A)

To record insurance expense for the year ($2,970/3 years = $990).
31
Supplies expense (+E,-SE) Supplies (-A)

To record supplies expense for the year ($4,250 $1,520 = $2,730).
2,730 2,730
31
Wages expense (+E, -SE) Wages payable(+L)

To record unpaid wages at December 31.
375 375
c. + Cash (A) 2,150 Adj. bal. 2,150 + Accounts Receivable (A) Unadj. bal. 3,800 Adj. bal. 3,800 + Fees Receivable (A) Dec. 31 (1) 925 Adj. bal. 925 + Prepaid Rent (A) Unadj. bal. 12,600 6,300 (4) Dec.31 Adj. bal. 6,300 + Prepaid Insurance (A) Unadj. bal. Dec.31 2,970 990 (6) Adj. bal. 1,980 + Supplies (A) Unadj. bal. Dec.31 4,250 2,730 (7) Adj. bal. 1,520
Unadj. bal.
Unadj. bal. Adj. bal.
+ Equipment (A) 22,800 22,800
- Accum. Depreciation Equip. (XA) + Dec.31 2,280 (2) Adj. Bal. 2,280 + Supplies Expense (E) (7) 2,730 Adj. bal. 2,730 + Insurance Expense (E) Dec. 31 (6) 990 Adj. bal. 990
Dec. 31
- Accounts Payable (L) + Unadj. bal. 1,910 Adj. bal. 1,910 - Unearned Photo Fees (L) + Unadj. bal. Dec.31 (5) 2,600 2,600 Adj. bal. 0 - Utilities Payable (L) + Dec.31 400 (3) Adj. bal. 400 - Wages Payable (L) + Dec.31 375 (8) Adj. bal. 375 - Common Stock (SE) + Unadj. bal. 24,000 Adj. bal. 24,000 - Photo Fees Earned (R) + Unadj. bal 34,480 Dec.31 925 (1) Dec.31 2,600 (5) Adj. bal. 38,005 + Wages Expense (E) Unadj. bal. 11,000 Dec.31 (8) 375 Adj. Bal. 11,375 + Utilities Expense (E) Unadj. bal. Dec.31
3,420 (3) 400 Adj. Bal. 3,820 + Depreciation Expense Equip. (E) Dec.31 (2) 2,280 Adj. Bal. 2,280 + Rent Expense (E) Dec.31 (4) 6,300 Adj. Bal. 6,300
P3-42 (90 minutes) a.

Balance Sheet
Income Statement
+ Contrib. Capital + Earned Capital Revenues Expenses Net = Income
1. Recognize rent expense. 2. To recognize supplies expense. 3. To recognize depreciation expense. 4. To recognize wages expense. 5. To recognize utilities expense. 6. To recognize fees earned.
Noncash + Assets
Contra Assets
= Liabilities
-775
Prepaid Rent
+74
= = = = +210
Wages Payable
-775
Retained Earnings
+380
Service Fees Earned
+775
Rent Expense
-775
-1,700
Supplies
-1,700
Retained Earnings
+1,700
Supplies Expense
= -1,700 = = = = -74 -210 -300 +380
-74
Retained Earnings
+74
-210
Retained Earnings
+210
Wages Expense
= +300
Utilities Payable
-300
Retained Earnings
+300
Utilities Expense
+380
Accounts Receivable
74
= = 510 + 0 +
+380
Retained Earnings
3,059
Totals
+ -2,095
-2,679
380
= -2,679
Date 2011 June 30
Description Rent expense (+E, -SE) Prepaid rent (-A)

To record June rent expense ($3,100/4 months = $775).
Debit 775
Credit 775
30
Supplies expense (+E, -SE) Supplies (-A)
1,700 1,700 74 74 210 210 300 300 380 380
To record June supplies expense (2,520 $820 = $1,700).
30
Depreciation expenseEquip (+E, -SE) Accum. depreciationEquipment (+XA, -A)

To record June depreciation ($4,440/60 months = $74).
30
Wages expense (+E, -SE) Wages payable (+L)

To record unpaid wages at June 30.
30
Utilities expense (+E, -SE) Utilities payable (+L)

To record estimated June utilities expense.
30
Accounts receivable (+A) Service fees earned (+R, +SE)

To record fees earned but not billed in June.
b. + Cash (A) Unadj. bal 1,180 Adj. bal. 1,180 + Accounts Receivable (A) Unadj. bal 450 Jun. 30 (6) 380 Adj. bal. 830 - Accounts Payable (L) + Unadj. bal 760 Adj. bal. 760 - Wages Payable (L) + Jun.30 210 (4) Adj. bal. 210 - Utilities Payable (L) + Jun.30 300 (5) Adj. bal. 300 - Retained Earnings (SE) + Unadj. bal. 5,300
+ Prepaid Rent (A) 3,100 775 (1) Jun.30 Adj. bal. 2,325
Unadj. bal
+ Rent Expense (E) (1) 775 Adj. bal. 775

Jun.30
- Common Stock (SE) + Unadj. bal 2,000 Adj. bal. 2,000 - Service Fees Earned (R) + 4,650 Unadj. bal 380 (6) Jun.30 Adj. bal. 5,030 + Wages Expense (E) Unadj. bal 1,020 Jun.30 (4) 210 Adj. bal. 1,230 + Utilities Expense (E) Jun.30 (5) 300 Adj. bal. 300 + Depreciation Expense - EQPT (E) (3) 74 Adj. bal. 74
Jun.30
Unadj. bal Adj. bal.
+ Supplies (A) 2,520 1,700 (2) 820
Jun.30
+ Equipment (A) Unadj. bal 4,440 Adj. bal. 4,440 - Accum. Depreciation Equip.(XA) + 74 (3) Jun.30 Adj. Bal. 74 + Supplies Expense (E) (2) 1,700 Adj. bal. 1,700
Jun. 30
c. Murdock Carpet Cleaners Income Statement For Year Ended June 30, 2011 Revenues Service fees.. Expenses Rent expense. Wages expense. Supplies expense. Utilities expense... Depreciation expense. Total expenses. Net income $ 775 1,230 1,700 300 74 4,079 $ 951 $5,030
Murdock Carpet Cleaners BALANCE SHEET June 30, 2011

Assets Cash Accounts receivable Supplies Prepaid rent Equipment Less: Accumulated depreciation Liabilities $ 1,180 Accounts payable 830 Wages payable 820 Utilities payable 2,325 Total Liabilities $ 4,440 74 4,366 Owners Equity 2,000 6,251 $9,521 $ 760 210 300 1,270
Total Assets
d. 1. 2. 3. 4. 5. 6. Retained earnings (-SE) .................................................... Rent expense (-E)........................................................... Retained earnings (-SE)..................................................... Supplies expense (-E).................................................... Retained earnings (-SE)..................................................... Wages expense (-E)....................................................... Retained earnings (-SE)..................................................... Utilities expense (-E )..................................................... Retained earnings (-SE)..................................................... Depreciation expense (-E)............................................. Service fees earned (-R)..................................................... Retained earnings (+SE)................................................ 775 775 1,700 1,700 1,230 1,230 300 300 74 74 5,030 5,030
1. 2. 3. 4. 5.
- Retained Earnings (SE) + 5,300 Bal. 775 1,700 1,230 300 74 5,030 6. 6,251 Bal. + Wages Expense(E) 1,230 1,230 0 + Depreciation Expense (E) 74 74 0
Bal.
+ Rent Expense (E) 775 775 0
1.
+ Supplies Expense (E) Bal. 1,700 1,700 0
2.
Bal.
3.
Bal.
+ Utilities Expense (E) 300 300 4. 0 - Service Fees Earned (R) + 5,030 5,030 Bal. 0
Bal.
5.
6.
P 3-43 (30 minutes) a.

Balance Sheet
Income Statement
+ Contrib. Capital + Earned Capital Revenues Expenses
1. Accrue salary expense. 2. Accrue interest expense. 3. Accrue fees receivable. 4. Accrue maintenance expense. 5. Accrue ad. Expense. 6. Accrue rent expanse. 7. Accrue interest revenue. 8. Accrue depreciation expense. Totals
Noncash Assets
Contra Assets
+900
Fees Receivable
= Liabilities = +720 Salaries Payable = +200 Interest Payable =
-720
Retained Earnings
+720
Salaries Expense
Net = Income = -720 =
-200
Retained Earnings
+200
Interest Expense
-200 +900 -400 -300 -160 +38 -2,175
+900
Retained Earnings
+900
Printing Revenue
= +400
Maintenance Expense =
-400
Prepaid Maintenance
-400
Retained Earnings
-300
Prepaid Advertising
-300
Retained Earnings
+300
Ad. Expense
+160
Rent Payable
-160
Retained Earnings
+160
Rent Expense
+38
Interest Receivable
+38
Retained Earnings
+38
Interest Revenue
+2,175
-2,175
Retained Earnings
+2,175
+238
2,175
= 1,080 +
-3,017
938
3,955
= -3,017
b. Date Dec 31
Description Debit Salaries expense (+E, -SE) 720 Salaries payable (+L) To accrue salaries at December 31 ($1,800 2/5 = $720). Interest expense (+E, -SE) Interest payable (+L) To accrue interest expense at December 31. Fees receivable (+A) Printing revenue (+R, +SE) To record revenue earned but not yet billed. Maintenance expense (+E ,-SE) Prepaid maintenance (-A) To record December maintenance expense. Advertising expense (+E, -SE) Prepaid advertising (-A) To record December advertising expense ($900 1/3 = $300). Rent expense (+E, -SE) Rent payable (+L) To accrue one- half month's rent expense [(400 $0.80)/2 = $160]. Interest receivable (+A) Interest income (+R, +SE) To accrue interest earned in December. Depreciation expenseEquipment (+E, -SE) Accum. depreciationEquipment (+XA) To record annual depreciation on equipment. 200
Credit 720
31
200 900 900 400 400 300 300
31
31
31
31
160 160
31
38 38 2,175 2,175
31
P3-44 (40 minutes) TRUEMAN CONSULTING INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2010 a. Revenue Service fees earned Expenses Rent expense Salaries expense Supplies expense Insurance expense Depreciation expenseEquipment Interest expense Total Expenses Net Income
$58,400 $12,000 33,400 4,700 3,250 720 630 54,700 $ 3,700
TRUEMAN CONSULTING INC. STATEMENT OF STOCKHOLDERS EQUITY FOR THE YEAR ENDED DECEMBER 31, 2010 Common Retained Stock Earnings Balance at December 31, 2009.......... Stock issuance...................................... Dividends.............................................. Net income............................................ Balance at December 31, 2010.......... _____ $1,000 3,700 $7,005 $1,000 $3,305
Total Stockholders Equity $4,305
3,700 $8,005
TRUEMAN CONSULTING BALANCE SHEET DECEMBER 31, 2010

Assets Cash Accounts receivable Supplies Prepaid insurance Equipment Less: Accumulated depreciation Total Assets Liabilities $ 2,700 Accounts payable 3,270 Long-term notes payable 3,060 1,500 $ 6,400 1,080 Total Liabilities $ 845 7,000 7,845 1,000 7,005 $15,850
Owners Equity 5,320 Common stock $15,850 Retained earnings Total Liabilities and Owners Equity
b. Date 2010 Description Dec. 31 Service fees earned (-R) Retained earnings (+SE) To close the revenue account. 31 Retained earnings (-SE) Rent expense (-E) Salaries expense(-E) Supplies expense (-E) Insurance expense (-E) Depreciation expenseEquip (-E) Interest expense (-E) To close the expense accounts. Debit 58,400 Credit 58,400 54,700 12,000 33,400 4,700 3,250 720 630
P3-45 (30 minutes) a. Date 2010 Dec. 31
Description Service fees earned (-R) Miscellaneous income (-R) Retained earnings (+SE) To close the revenue accounts. Retained earnings (-SE) Salaries expense (-E) Rent expense (-E) Insurance expense (-E) Depreciation expense (-E) Income tax expense (-E) To close the expense accounts.
Debit 97,200 4,200
Credit 101,400
31
74,800 42,800 13,400 1,800 8,000 8,800
b. After the closing entries are posted, Retained Earnings has a $45,700 credit balance ($19,100 + $26,600 net income). c. Wilson Company Post-Closing Trial Balance December 31, 2010 Debit Cash Accounts Receivable Prepaid Insurance Equipment Accumulated Depreciation Accounts Payable Income Tax Payable Common Stock Retained Earnings $8,500 8,000 3,600 72,000 $12,000 600 8,800 25,000 45,700 $92,100 Credit
______ $92,100

Balance Sheet Transaction Cash Asset + Noncash Assets = = Liabilities + Contrib. + Capital Earned Capital Income Statement Revenues Expenses
1. Recognize Advertising expense. 2. Accrue wage expense. 3. Recognize insurance expense. 4. Recognize service fees earned. 5. Recognize rent revenue. Totals
-400
Prepaid Advertising
-400
Retained Earnings
+400
Advertising Expense
Net = Income -400 = -1,300 = -1,140 = +2,400 = = +1,000 560
+1,300
= Wages Payable*
-1,300
Retained Earnings -
+1,300
Wages Expense
-1,140
Prepaid Insurance =
-1,140
Retained Earnings -
+1,140
Insurance Expense
-2,400
= Unearned Service Fees
+2,400
Retained Earnings
+2,400
Service Fees Earned
+1,000
Rent Receivable
+1,000
Retained Earnings
+1,000
Rental Income
-540
-1,100
560
3,400
2,840
*Assumes wages earned had not been accrued or recognized yet as an expense.
Date 2010 Dec. 31
Description Advertising expense (+E, -SE) Prepaid advertising (-A) Wages expense (+E, -SE) Wages payable (+L)
To record accrued wages.
Debit 400
Credit 400
To record advertising expense ($1,200 $800 = $400).
31
1,300 1,300 1,140 1,140 2,400 2,400
31
Insurance expense (+E, -SE) Prepaid insurance (-A)
To record insurance expense ($3,420 $2,280 = $1,140).
31
Unearned service fees (-L) Service fees earned (+R, +SE)

To recognize unearned fees as earned ($5,400 $3,000 = $2,400).
31
Rent receivable (+A) Rental income (R, +SE)

To record rent earned but not yet recorded.
1,000 1,000
b.
Balance Sheet Transaction Cash Asset + Noncash Assets = = Liabilities + Contrib. Capital + Income Statement Earned Capital Revenues Expenses Net = Income =
1. Pay -2,400 wages of Cash $2,400. 2. Receipt of +1,000 $1,000 rent Cash revenue.
-1,300
Wages Payable
-1,100
Retained Earnings
+1,100
Wages Expense
-1,100
-1,000
Rent Receivable
Date 2011 Jan. 4
Description Wages payable (-L) Wages expense (+E, -SE) Cash (-A)
To record payment of wages.
Debit 1,300 1,100
Credit 2,400
Cash (+A) Rent receivable (-A)

To record collection of rent.
1,000 1,000
P3-47 (90 minutes) a, b and d. For part d, the adjusting entries are indicated by the numbers 1-5. The unadjusted trial balance required in part c is calculated before the adjusting entries are made. + Cash (A) 24,000 4,400 6,400 875 7,800 930 3,600 1,240 520 3,600 1,500 21,535 - Accounts Payable (L) + 9,480
6/1 6/2 6/30
6/1 6/2 6/2 6/12 6/15 6/18 6/26 6/30 5.
6/1
- Salaries Payable (L) + 725
2.
- Unearned Service Fees (L) + 3,200 6,400 3,200 - Common Stock (SE) + 24,000
6/2
6/10 6/28
+ Accounts Receivable (A) 5,800 7,800 6/30 5,200 3,200 + Prepaid Advertising (A) 930 310 620 + Office Supplies (A) 2,840 1,310 1,530 + Office Equipment (A) 11,040
6/1
6/2
4.
6/30
- Retained Earnings(SE) + 1,500
6/1
1.
1.
+ Supplies Expense (E) 1,310
6/1
6/15
+ Travel Expense (E) 1,240
- Acc. Depreciation Off. Equip (XA) + 115 3.
3.
+ Depreciation Expense(E) 115
4.
+ Advertising Expense (E) 310
6/2
+ Rent Expense (E) 875
6/12 6/26 2.
+ Salaries Expenses (E) 3,600 3,600 725 7,925 + Postage Expense (E) 520
- Service Fees Earned (R) + 5,800 5,200 3,200 14,200
6/10 6/28 5.
6/18 b.
Balance Sheet Transaction 6/1. Investment for common stock. 6/1. Purchase of assets for cash & on account. Cash Asset + Noncash Assets = = Liabilities + Contrib. Capital + Earned Capital
Income Statement Revenues Expenses = Net Income =
+24,000
Cash
+24,000
Common Stock
-4,400
Cash
+ 11,040
Office Equipment =
+9,480
Accounts Payable =
+2,840
Supplies 6/2. Pay rent $875.
-875
Cash
-875
Retained Earnings
+875
Rent Expense
-875
6/2.Purchase $930 of advertising in advance. 6/2Signed research contract. 6/10. Bill customers for services. 6/12. Paid salaries.
-930
Cash
+930
Prepaid Advertising
+6,400
Cash
+6,400
Unearned Service Fees
+5,800
Accounts Receivable
+5,800
Retained Earnings
+5,800
Service Fees Earned
+5,800 -3,600 -1,240 -520 -3,600 +5,200
-3,600
Cash
-3,600
Retained Earnings
+3,600
Salaries Expense
6/15. Paid travel expenses. 6/18. Paid postage.
-1,240
Cash
-1,240
Retained Earnings
+1,240
Travel Expense
-520
Cash
-520
Retained Earnings
+520
Postage Expense
6/26. Paid salaries.
-3,600
Cash
-3,600
Retained Earnings
+3,600
Salaries Expense
6/28. Bill customers for services.
+5,200
Accounts Receivable =
+5,200
Retained Earnings
+5,200
Service Fees Earned =
6/30. Collect service fees. 6/30. Cash dividend paid.
+7,800
Cash
-7,800
Acts. Rec.
-1,500
Cash
-1,500
Retained Earnings
Date 2010 Description June 1 Cash (+A) Common stock (+SE)

Owner invested cash for common stock.
Debit 24,000
Credit 24,000
1 Office equipment (+A) Office supplies (+A) Cash (-A) Accounts payable (+L)
Purchased equipment and supplies; $4,400 cash paid with the remainder due in 60 days.
11,040 2,840 4,400 9,480
2 Rent expense (+E, -SE) Cash (-A)

Paid June rent.
875 875 930 930 6,400 6,400 5,800 5,800 3,600 3,600 1,240 1,240 520 520 3,600 3,600 5,200 5,200
2 Prepaid advertising (+A) Cash (-A)

Paid three months' advertising in advance.
2 Cash (+A) Unearned service fees (+L)

Received two months' fees in advance on six-month contract.
10 Accounts receivable (+A) Service fees earned (+R, +SE)

Billed customers for services.
12 Salaries expense (+E, -SE) Cash (-A)

Paid two weeks' salaries to employees.
15 Travel expense (+E, -SE) Cash (-A)

Paid business travel expenses.
18 Postage expense (+E, -SE) Cash (-A)

Paid postage for questionnaire mailing.
26 Salaries expense (+E, -SE) Cash (-A)

Paid two weeks' salaries to employees.
28 Accounts receivable (+A) Service fees earned (+R, +SE)

Billed customers for services.
30 Cash (+A) Accounts receivable (-A)

Collections from customers on account.
7,800 7,800 1,500 1,500
30 Retained earnings (-SE) Cash (-A)

Declared and paid dividends.
c. MARKET-PROBE UNADJUSTED TRIAL BALANCE JUNE 30, 2010 Debit $21,535 3,200 2,840 930 11,040 $9,480 6,400 24,000 1,500 11,000
Credit
Cash Accounts Receivable Office Supplies Prepaid Advertising Office Equipment Accounts Payable Unearned Service Fees Common Stock Retained Earnings* Service Fees Earned Salaries Expense Rent Expense Travel Expense Postage Expense
7,200 875 1,240 520 ______ $50,880 $50,880 * The negative (debit) balance in Retained Earnings reflects the dividend paid. d.
Balance Sheet
Transaction a. Recognize supplies expense. b. Recognize salaries expense. c. Accrue depreciation expense. d. Recognize advertising expense. e. Recognize earned service fees. Cash Asset Noncash + Assets Contra Assets = Liabilities + Contrib. Capital + Earned Capital
Income Statement
-1,310
Office Supplies
+115
= = = = = -3,200
Unearned Service Fees
-1,310
Retained Earnings
+3,200
Service Fees Earned
+1,310
Supplies Expense
= -1,310 = = = -725 -115 -310
+725
Salaries Payable
-725
Retained Earnings
+725
Salaries Expense
-115
Retained Earnings
+115
-310
Prepaid Advertising
-310
Retained Earnings
+310
Advertising Expense
+3,200
Retained Earnings
= +3,200
Date 2010
June 30
Description
Supplies expense (+E, -SE) Office supplies (-A)
To record supplies used during June ($2,840 $1,530 = $1,310).
Debit
1,310
Credit
1,310
30
Salaries expense (+E, -SE) Salaries payable (+L)

To record unpaid salaries at June 30.
725 725 115 115 310 310 3,200 3,200
30
Depreciation expenseOffice equipment (+E, -SE) Accum. deprec. Off. equipment (+XA, -A)
To record June depreciation ($11,040/96 mo. = $115).
30
Advertising expense (+E, -SE) Prepaid advertising (-A)

To record one month's advertising expense.
30
Unearned service fees (-L) Service fees earned (+R, +SE)

To record one month's fees earned, received in advance.
P3-48 (40 minutes) DELIVERALL UNADJUSTED TRIAL BALANCE DECEMBER 31, 2010 a. Cash Accounts Receivable Prepaid Advertising Supplies Equipment Notes Payable Accounts Payable Common Stock Mailing Fees Earned Wages Expense Rent Expense Utilities Expense b.
Balance Sheet
Transaction 1. Recognize advertising expense. 2. Recognize depreciation expense. 3. Recognize utilities expense. 4. Accrue wages expense. 5. Recognize supplies expense. 6. Accrue interest expense. 7. Recognize rent expense*. Cash Asset Noncash + Assets Contra Assets
Debit $ 2,300 5,120 1,680 6,270 42,240
Credit
$7,500 2,700 9,530 86,000 38,800 6,300 3,020 $105,730 ________ $105,730
Income Statement
+ Contrib. Capital + Earned Capital Revenues Expenses Net = Income
Prepaid Advertising -
-1,540
= Liabilities =
-1,540
Retained Earnings
+1,540
Advertising Expense
= -1,540 = -5,280 = -325
+5,280
-5,280
Retained Earnings
+5,280
= = -
+325
Accounts Payable
-325
Retained Earnings
+325
Utilities Expense
+1,200
Wages Payable
-1,200
Retained Earnings
+1,200
Wages Expense
= -1,200 = -4,750
=
-4,750
Supplies
= = = -
-4,750
Retained Earnings
+4,750
Supplies Expense
+450
Interest Payable
-450
Retained Earnings
+450
Interest Expense
-450 -430
+430
Accounts Payable
-430
Retained Earnings
+430
Rent Expense
*(1/2% $86,000 = $430). The rent for the year ($6,300 = $525 x 12) has already been recognized in the accounts. See the beginning balances given in the problem statement.
Date 2010 Dec. 31
Description Advertising expense (+E, -SE) Prepaid advertising (-A)

To record 11 months' advertising expense ($1,680 11/12 = $1,540).
Debit 1,540
Credit 1,540
31
Depreciation expense (+E, -SE) Accumulated depreciation (+XA, -A)

To record depreciation for the year ($42,240/8 years = $5,280).
5,280 5,280
. 31 Utilities expense (+E, -SE) Accounts payable (+L)

To record estimated December utilities expense.
325 325 1,200 1,200 4,750 4,750
31

To record unpaid wages at December 31.
31

To record supplies expense for the year ($6,270 $1,520 = $4,750).
31
Interest expense (+E, -SE) Interest payable (+L)

To record accrual of interest expense at Dec. 31.
450 450 430 430
31
Rent expense (+E, -SE) Accounts payable (+L)

To record additional rent owed under lease (1/2% $86,000 = $430).
c. Only the T-accounts needed to enter the adjustments are provided. - Accounts Payable (L) + 2,700 325 430 + Prepaid Advertising (A) 1,680 1,540
Bal. 3. 7.
Bal.
1.
Bal. - Accumulated DepreciationEquip (XA) + 5,280 2. - Interest Payable (L) + 450
+ Supplies (A) 6,270 4,750 +Advertising Expense (E) 1,540 + Rent Expense (E) 6,300 430 + Wages Expense (E) 38,800 1,200
5.
1.
6.
Bal. 7.
- Wages Payable (L) + 1,200
4.
Bal. 4.
2.
+ Depreciation Expense (E) 5,280
Bal. 3.
+ Utilities Expense (E) 3,020 325
6.
+ Interest Expense (E) 450
5.
+ Supplies Expense (E) 4,750

Balance Sheet
Transaction 1. Recognize rent expense. 2. Recognize supplies expense. 3. Accrue depreciation expense. 4. Accrue wages payable. 5. Recognize utilities expense. 6. Recognize service revenue. Cash Asset Noncash + Assets = Contra Assets = Liabilities = + Contrib. + Capital Earned Capital
Income Statement
Revenues Expenses = Net Income
-795
Prepaid Rent
-795
Retained Earnings
+795
Rent Expense
= = = = = =
-795 -1,980 -335 -560 -390 +500
-1,980
Supplies
-1,980
Retained Earnings
+1,980
Supplies Expense
+335
-335
Retained Earnings
+335
= = = -
+560
Wages Payable
-560
Retained Earnings
+560
Wages Expense
+390
Accounts Payable
-390
Retained Earnings
+390
Utilities Expense
-500
Unearned Service Revenue
+500
Retained Earnings
+500
Service Revenue
Date 2010 Description

Mar. 31 Rent expense (+E, -SE) Prepaid rent (-A)
To record March rent expense ($4,770/6 months = $795).
Debit
795
Credit
795 1,980 1,980 335 335 560 560 390 390 500 500
31
To record March supplies expense ($3,700 $1,720 = $1,980).
31
Depreciation expenseEquipment (+E, -SE) Accumulated depreciationEquipment (+XA, -A)

To record March depreciation ($36,180/108 months = $335).
31

To record unpaid wages at March 31.
31
Utilities expense (+E, -SE) Accounts payable (+L)

To record estimated March utilities expense.
31
Unearned service revenue (-L) Service revenue (+R, +SE)

To record revenue received in advance that was earned in March.
b. Not all the T-accounts given are needed to enter the adjustments required. Also, the closing entries required in part d are referenced by 1c, 2c etc. - Accounts Payable (L) + 2,510 390 2,900 + Prepaid Rent (A) 4,770 795 3,975
Bal. 5. Bal.
Bal. Bal.
1.
- Acc Depreciation - Equipment (XA) + 335 3.
+ Supplies (A) Bal. 3,700 1,980 2. Bal. 1,720 - Unearned Service Revenue (L) + 6. 500 1,000 Bal. 500 Bal. + Rent Expense (E) 795 795 + Supplies Expense (E) 1,980 1,980 +Wages Expense (E) 3,900 560 4,460 - Wages Payable (L) + 560
6c.
-Service Revenue(R) + 12,860 12,360 500
Bal. 6.
1.
1c.
2. +Depreciation Expense (E) 335 335
2c.
3.
3c.
Bal. 4.
4c.
5.
+ Utilities Expense (E) 390 390 - Retained Earnings (SE) + 795 1,980 335 4,460 390 12,860 4,900
5c.
4.
1c. 2c. 3c. 4c. 5c.
6c. 7c.
c. Wheel Place Company Income Statement For Month Ended March 31, 2010 Service revenue.... Expenses: Utilities expense... Supplies expense.. Wages expense.... Depreciation expense. Rent expense... Net income ... $390 1,980 4,460 335 795 7,960 $4,900 $12,860
Wheel Place Company BALANCE SHEET March 31, 2010

Assets Cash Accounts receivable Supplies Prepaid rent Equipment Less:Accumulated depreciation Liabilities $ 1,900 Accounts payable 3,820 Wages payable 1,720 Unearned service revenue 3,975 Total Liabilities $ 36,180 335 35,845 Owners Equity 38,400 4,900 $47,260 $ 2,900 560 500 3,960
Total Assets
d.
1c. 2c. 3c. 4c. 5c. 6c. Retained earnings (-SE).............................................. Rent expense (-E).................................................... Retained earnings (-SE).............................................. Supplies expense (-E)............................................. Retained earnings (-SE).............................................. Depreciation expense (-E)...................................... Retained earnings (-SE).............................................. Wages expense (-E)................................................. Retained earnings (-SE).............................................. Utilities expense (-E)............................................... Service revenue (-R) ................................................... Retained earnings (+SE)......................................... 795 795 1,980 1,980 335 335 4,460 4,460 390 390 12,860 12,860
The closing journal entries are shown in the T-accounts in part a.
P3-50 (30 minutes) a. TRAILS, INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2010 Revenues Subscription revenue Advertising revenue Total revenues Expenses Salaries expense Printing and mailing expense Rent expense Supplies expense Insurance expense Depreciation expense Income tax expense Total expenses Net income $ 168,300 49,700 $218,000 100,230 85,600 8,800 6,100 1,860 5,500 1,600 209,690 $8,310
Trails, Inc. Statement of Stockholders Equity For Year Ended December 31, 2010 Common Stock Balance at December 31, 2009.... Stock issuance............................ Dividends..................................... Net income.................................. Balance at December 31, 2010.... $25,000 Retained Earnings $23,220 Total Stockholders Equity $48,220
_____ $25,000
8,310 $31,530
8,310 $56,530
TRAILS, INC. BALANCE SHEET DECEMBER 31, 2010

Assets Cash Accounts receivable Supplies Prepaid insurance Office equipment $66,000 Less: Accum. depreciation 11,000 $3,400 8,600 4,200 930 55,000 Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $25,000 31,530 56,530 $72,130 Liabilities Accounts payable Unearned subscription revenue Salaries payable Total liabilities Stockholders' equity $ 2, 100 10,000 3,500 15,600
Total assets
$72,130
b. Date 2010 Description Dec. 31 Subscription revenue (-R) Advertising revenue (-R) Retained earnings (+SE)
To close the revenue accounts.
Debit 168,300 49,700
Credit 218,000
31
Retained earnings (-SE) Salaries expense (-E) Printing and mailing expense (-E) Rent expense (-E) Supplies expense (-E) Insurance expense (-E) Depreciation expense (-E) Income tax expense (-E)
209,690 100,230 85,600 8,800 6,100 1,860 5,500 1,600
P3-51 (30 minutes) a. Date 2010 Description Dec. 31 Service fees earned (-R) Retained earnings (+SE)
To close the revenue account.
Debit 72,500
Credit 72,500
31
Retained earnings (-SE) Wages expense (-E) Rent expense (-E) Insurance expense (-E) Supplies expense (-E) Advertising expense(-E) Depreciation expenseTrucks(-E) Depreciation expenseEquipment (-E)
58,800 29,800 10,200 2,900 5,100 6,000 4,000 800
b. The balance in Retained Earnings after closing entries are posted is $29,250 credit ($15,550 + $13,700). c. Mayflower MOVING SERVICE POST-CLOSING TRIAL BALANCE DECEMBER 31, 2010 Debit Cash $ 3,800 Accounts Receivable 5,250 Supplies 2,300 Prepaid Advertising 3,000 Trucks 28,300 Accumulated DepreciationTrucks Equipment 7,600 Accumulated DepreciationEquipment Accounts Payable Unearned Service Fees Common Stock Retained Earnings ______ $50,250
Credit
$10,000 2,100 1,200 2,700 5,000 29,250 $50,250

Balance Sheet Transaction 1. Recognize maintenance expense. 2. Recognize supplies expense. 3. Accrue earned commissions. Cash Asset + Noncash Assets = Liabilities + Contrib. + Capital Earned Capital Revenues Income Statement Expenses
= Prepaid Maintenance
-1,800 -5,200
-1,800
Retained Earnings
+1,800
Maintenance Expense
Net = Income -1,800 = = = = +2,800 -913 -5,200 +4,500
Supplies
-5,200
Retained Earnings
+5,200
Supplies Expense
-4,500
= Unearned Commission Fees
+4,500
Retained Earnings
+4,500
Commission Fees Earned -
4. Earned but unbilled commission fees. 5. Rent expense.
+2,800
Fees Receivable
+2,800
Retained Earnings
+2,800
Commission Fees Earned
+913
Rent Payable
-913
Retained Earnings
+913
Rent Expense
Date 2010 Description Dec. 31 Maintenance expense (+E, -SE) Prepaid maintenance (-A)
To record four months' maintenance expense [($2,700/6) 4 = $1,800].
Debit 1,800
Credit 1,800
31 Supplies expense (+E, -SE) Supplies (-A)
5,200 5,200 4,500 4,500
To record supplies expense ($8,400 $3,200 = $5,200).
31 Unearned commission fees (-L) Commission fees earned (+R, +SE)

To transfer fees earned from unearned fees ($8,500 $4,000 = $4,500).
31 Fees receivable (+A) Commission fees earned (+R, +SE)

To record fees earned but not yet billed.
2,800 2,800 913 913
31 Rent expense (+E, -SE) Rent payable (+L)

To record additional 2008 rent [1% ($84,000 + $4,500 + $2,800) = $913].
b.
Balance Sheet Transaction 1/10. Billing of commission fees earned. Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital Income Statement Net Revenues - Expenses = Income
-2,800
Fees Receivable
+1,800
=
+1,800
=
+1,800
+4,600
Accounts Receivable 1/10. Payment of additional rent in cash.
Retained Commission Earnings Fees Earned
-913
Cash
= Rent Payable
-913
2011 Jan. 10
Accounts receivable (+A) Fees receivable (-A) Commision fees earned (+R, +SE)
To record billings on Jan. 10, 2011.
4,600 2,800 1,800 913 913
10
Rent payable (-L) Cash (-A)

To record payment of contingent rent from 2010.

Balance Sheet
Transaction 1. Cash sales. Cash Asset Noncash + Assets Contra Assets = = Liabilities + Contrib. + Capital Earned Capital Retained Earnings = = -
Income Statement
Revenues Sales Revenue Expenses = = Net Income
+145,850
Cash
+145,850 +145,850 +76,200

Accounts Payable
+145,850 -73,700
2. Record inventory purchased and used. 3. Recognize recent payments on A/P. 4. Recognize rent paid and rent expense. 5. Recognize wage expense and wages paid. 6. Recognize depreciation expense.
+2,500
Inventories
-73,700
Retained Earnings
+73,700
Cost of Sales
-77,300
Cash
-77,300
Accounts Payable
-24,000
Cash
+200
Prepaid Rent -
-23,800
Retained Earnings
+23,800
Rent Expense
-23,800
-12,500
Cash -
+250
Wages Payable
-12,750
Retained Earnings
+12,750
Wages Expense
-12,750
+1,700 = - Accumulated Depreciation
-1,700
Retained Earnings
+1,700
-1,700
1. Cash (+A) ......................................................... Sales revenue (+R,+SE) ....................... 2. Inventories (+A) ............................................... Cost of goods sold (+E, -SE) ......................... Accounts payable (+L) ........................
Or, make two separate entries with the same net effect:
145,850 145,850 2,500 73,700* 76,200 76,200 76,200 73,700* 73,700 77,300* 77,300 200* 23,800* 24,000
Inventory (+A) .................................................. Accounts payable (+L) ........................ Cost of goods sold (+E, -SE) ......................... Inventory (-A) ........................................
*73,700 = 12,000 +76,200 14,500.
3. Accounts payable (-L) .................................... Cash (-A) ...............................................

*77,300 = 5,200 +76,200 4,100.
4. Prepaid rent (+A) ............................................. Rent expense (+E, -SE) ................................... Cash (-A) ...............................................
*23,800 = 3,800 + (24,000 12)(10) and 200 = 24,000 3,800 (24,000 12)(10). The rent expense for the first two months of the year is $3,800. But the rate for March 1, 2011 through February 29, 2012 is $2,000 per month. So, for the last ten months of 2011, the rent expense is $20,000, making the total rent expense $23,800 for 2011.
5.
Wages expense (+E,-SE) .................................... Cash (-A) ....................................................... Wages payable (+L) .....................................
* 12,750 = 12,500 + (350 100).
12,750* 12,500 250 1,700 1,700
6.
Depreciation expense (+E,-SE) .............................. Acc. depreciation Equipment (+XA, -A) ..
b, d. The closing entries required in part d are also included here and indicated by the letter d before the relevent entry. + Cash (A) Bal. 1.
8,500 145,850
77,300 24,000 12,500
3. 4. 5.
Bal. 2. Bal.
+ Inventories (A) 12,000 2,500 14,500 + Prepaid Rent (A) 3,800 200 4,000
Bal.
40,550
Bal.
Bal. Bal.
+ Equipment (A) 7,500 7,500
4. Bal.
- Accumulated Depreciation Equip.(XA) + Bal. 3,000 6. 1,700 Bal. 4,700 -Accounts Payable (L)+ 5,200 77,300 76,200 4,100 -Sales Revenue (R)+ 145,850 145,850
0
- Wages Payable (L) + 100 Bal. 250 5. 350 Bal. -Owners Equity (SE)+ 23,500 33,900 57,400
3.
Bal. 2. Bal.
Bal. d. Bal.
1. Bal.
2. Bal.
d.
+Cost of Goods Sold (E)73,700 73,700 d. 0 +Depreciation Expense(E)1,700 1,700 d. 0
4.
Bal.
+Rent Expense (E)23,800 23,800 0
6.
d.
Bal.
5.
Bal.
+Wages Expense (E)12,750 12,750 0
d.
c, d. Part c is easier to complete if the closing entries required in part d are journalized and entered in the T-accounts. The appropriate T-account entries for part d have been made earlier and indicated by the letter d.
Sales revenue (-R) .................................................................. Cost of goods sold (-E) ..................................................... Rent expense (-E) ............................................................ Wages expense (-E) ......................................................... Depreciation expense (-E) ................................................. Owners equity.................................................................
To close temporary revenue and expense accounts.
145,850 73,700 23,800 12,750 1,700 33,900
Fischer Card Shop Income Statement For the Year ended December 31, 2011 Sales revenue Cost of goods sold Gross profit Other expenses: Rent expense Wages expense Depreciation expense Total other expenses Net income Fischer Card Shop Balance Sheets
As of December 31, 2010 2011
$145,850 73,700 72,150 $23,800 12,750 1,700 38,250 $33,900
Assets: Cash Inventories Prepaid rent Total current assets Equipment Accumulated depreciation Equipment, net Total assets Liabilities and owners equity: Accounts payable Wages payable Total liabilities Owners equity Total liabilities and owners equity
$ 8,500 12,000 3,800 24,300 7,500 (3,000) 4,500 $ 28,800 $ 5,200 100 5,300 23,500 $ 28,800
$ 40,550 14,500 4,000 59,050 7,500 (4,700) 2,800 $ 61,850 $ 4,100 350 4,450 57,400 $ 61,850
P3-54 (120 minutes) a, b. The T-accounts follow the journal entries and the FSET.
Balance Sheet Transaction 12/1. Investment for common stock. 12/2. Rent paid in cash. 12/2. Purchase supplies on account. 12/3. Office equipment bought for 4,700 cash and rest on account. 12/8. Paid for supplies. 12/14. Paid wages in cash. 12/20. Received cash for consulting services. 12/28. Paid wages in cash. 12/30. Bill clients for consulting. I2/30. Paid cash dividends. Cash Asset + Noncash Assets = Liabilities = + Contrib. Capital + Earned Capital Income Statement Revenues Expenses = Net Income =
+20,000
Cash
+20,000
Common Stock
-1,200
Cash
-1,200
Retained Earnings
+1,200
Rent Expense
-1,200
+1,080
Supplies
= Accounts Payable
+1,080
-4,700
Cash
+9,500
+4,800
=
Office Accounts Equipment = Payable
-1,080
Cash
= Accounts Payable =
-1,080
-900
Cash
-900
Retained Earnings
+900
Wages Expense
-900 +3,000 -900 +7,200
+3,000
Cash
+3,000
Retained Earnings
+3,000
Consulting Revenue
-900
Cash
-900
Retained Earnings
+900
Wages Expense
= Fees Receivable
+7,200
+7,200
Retained Earnings
+7,200
Consulting Revenue
-1,800
Cash
-1,800
Retained Earnings
b. Date 2010 Description Dec. 1 Cash (+A) Common stock (+SE)

Invested $20,000 cash in the business.
Debit 20,000
Credit 20,000
Rent expense (+E, -SE) Cash (-A)

Paid rent for December.
1,200 1,200 1,080 1,080 9,500 4,700 4,800
Supplies (+A) Accounts payable (+L)

Purchased various supplies on account.
Office equipment (+A) Cash (-A) Accounts payable (+L)

Purchased $9,500 of office equipment, $4,700 cash down payment and balance due in 30 days.
Accounts payable (-L) Cash (-A)

Payment on account.
1,080 1,080 900 900 3,000 3,000 900 900 7,200 7,200 1,800 1,800
14
Wages expense (+E, -SE) Cash (-A)

Paid assistant's wages.
20
Cash (+A) Consulting revenue (+R, +SE)

Cash received for services.
28
Wages expense (+E, -SE) Cash (-A)

Paid assistant's wages.
30
Fees receivable (+A) Consulting revenue (+R, +SE) Billed customers for services. Retained earnings (-SE) Cash (-A)
Issued and paid $1,800 in dividends.
31
The adjusting entries requested in part d are included and are denoted by the letter d followed by a number 1 through 5. The closing entries requested in part g are indicated by the letter g. + 12/1 12/20 Cash (A) 20,000 1,200 3,000 4,700 1,080 900 900 1,800 12,420 +Supplies(A)1,080 370 710
12/2 12/3 12/8 12/14 12/28 12/31
12/2 Bal.
d1
Bal.
12/3 -Wages Payable(L) + 2d. -Accumulated Depreciation+ Office Equipment (XA) 120 270
+Office Equipment (A) 9,500
-Common Stock(SE)+ 3d. 20,000 12/1
12/8
- Accounts Payable (L) + 1,080 1,080 4,800 4,800
12/2 12/3 Bal.
12/2 Bal.
+Rent Expense (E) 1,200 1,200 0
g.
- Retained Earnings (SE)+ 12/31 1,800 12,450 g. 3,760 6,890
g. Bal.
12/14 12/28 2d. Bal.
+ Wages Expense (E) 900 2,070 900 270 0 +Fees Receivable (A)7,200 2,250 9,450 + Supplies Expense (E) 370 370 0
g.
g.
-Consulting Revenue(R)+ 3,000 12/20 7,200 12/30 12,450 2,250 4d. Bal. 0 +Depreciation Expense(E)120 120 0
12/30 4d. Bal.
3d. Bal.
g.
1d. Bal.
g.
c. Rhoades TAX Services UNADJUSTED TRIAL BALANCE DECEMBER 31, 2010 Debit $12,420 7,200 1,080 9,500 1,800 10,200 1,800 1,200 $35,000 ______ $35,000
Credit
Cash Fees Receivable Supplies Office Equipment Accounts Payable Common Stock Retained Earnings (Dividend) Consulting Revenue Wages Expense Rent Expense d.
$4,800 20,000
Balance Sheet
Transaction 1. Record supplies expense. 2. Accrue wages expense. 3. Record depreciation expense. 4. Recognize accrued consulting fees. Cash Asset Noncash + Assets = Contra Assets = = Liabilities + Contrib. Capital + Earned Capital
Income Statement
-370
Supplies
-370
Retained Earnings
+370
Supplies Expense
= = =
-370 -270 -120
+270
Wages Payable
-270
Retained Earnings
+270
Wages Expense
+120
-120
Retained Earnings
+120
+2,250
Fees Receivable -
+2,250
Retained Earnings
+2,250
Consulting Revenue
= +2,250
Date 2010 Description Dec. 31 Supplies expense (+E, -SE) Supplies (-A) 31 Wages expense (+E, -SE) Wages payable (+L)
Debit 370
Credit 370
To record December supplies expense ($1,080 $710).
270 270 120 120
To reflect unpaid wages at December 31.
31

To record December depreciation.
31
Fees receivable (+A) Consulting revenue (+R, +SE)
2,250 2,250
To record unbilled service revenue (30 $75).
e. RHOADES TAX SERVICES ADJUSTED TRIAL BALANCE DECEMBER 31, 2010 Debit $12,420 9,450 710 9,500
Credit
Cash Fees Receivable Supplies Office Equipment Accumulated Depreciation Accounts Payable Wages Payable Common Stock Retained Earnings Consulting Revenue Supplies Expense Wages Expense Rent Expense Depreciation Expense
$120 4,800 270 20,000 1,800 12,450 370 2,070 1,200 120 $37,640
______ $37,640
f. RHOADES TAX SERVICES INCOME STATEMENT FOR THE MONTH OF DECEMBER 2010 Revenue Consulting revenue Expenses Wages expense Rent expense Supplies expense Depreciation expense Total expenses Net income $12,450 $ 2,070 1,200 370 120 3,760 $ 8,690
Rhoades TAX Services STATEMENT OF Stockholders EQUITY FOR THE MONTH OF DECEMBER 2010 Common Retained Stock Earnings Balance at December 1, 2010.......... Stock issuance.................................. Dividends.......................................... Net income........................................ Balance at December 31, 2010........ $0 20,000 _____ $20,000 $0 (1,800) 8,690 $6,890
Total Stockholders Equity $0 20,000 (1,800) 8,690 $26,890
Rhoades TAX Services BALANCE SHEET DECEMBER 31, 2010

Assets Cash Fees receivable Supplies Total current assets Office equipment $ 9,500 Less: Accum. depreciation 120 Total assets Liabilities and Equity $12,420 Accounts payable 9,450 Wages payable 710 Total liabilities 22,580 Stockholders equity Common stock 9,380 Retained earnings Total liabilities and stockholders $31,960 equity $ 4,800 270 5,070 20,000 6,890 $31,960
g. Date 2010 Description Dec. 31 Consulting revenue (-R) Retained earnings (+SE)
To close the revenue account.
Debit 12,450
Credit 12,450
31
Retained earnings (-SE) Wages expense (-E) Rent expense (-E) Supplies expense (-E) Depreciation expense (-E)
3,760 2,070 1,200 370 120
h. Rhoades TAX Services POST-CLOSING TRIAL BALANCE DECEMBER 31,2010 Debit $12,420 9,450 710 9,500
Credit
Cash Fees Receivable Supplies Office Equipment Accumulated Depreciation Accounts Payable Wages Payable Retained Earnings Common Stock
$32,080
$ 120 4,800 270 6,890 20,000 $32,080
CASES
C3-55 (90 minutes) a1. Entries in the FSET are first shown for the initial deposits and checks. These are entries 1- 8. Entries a - f are the adjusting entries that would be made at the end of the three months. The expenditures for rent and salaries are assumed to have been initially debited to expense accounts.
Balance Sheet
Transaction 1. Investment for common stock. 2. Collections from customers. 3. Bank borrowing. 4. Rent expense. Cash Asset +50,000 Cash +81,000 Cash +10,000 Cash -24,000 Cash -25,000 Cash -62,000 Cash -6,000 Cash -13,000 Cash +9,000 A/R +12,000 Prepaid Rent Noncash + Assets = = +10,000 Loans Payable = Contra Assets = Liabilities = + Contrib. Capital + +50,000 Investment Earned Capital
Income Statement
Revenues +81,000 Retained Earnings +81,000 Sales Revenue Expenses = = = +81,000 Net Income
+25,000 Equipment +62,000 Inventory =
-24,000 Retained Earnings
+24,000 Rent Expanse
-24,000
5. Purchased equipment. 6. Purchased inventory. 7. Paid salaries.
= = = = = = +3,000 Salaries Payable = -6,000 Retained Earnings -13,000 Retained Earnings +9,000 Retained Earnings +12,000 Retained Earnings -3,000 Retained Earnings -41,000 Retained Earnings -1,250 Retained Earnings -300 Retained Earnings
8. Paid other expenses. a. Recognize credit sales. b. Adjust rent expense. c. Accrue salaries expense. d. Recognize cost of goods sold. e. Accrue depreciation expense. f. Accrue interest expense*.
+6,000 Salaries Expense +13,000 Misc. Expenses
-6,000
-13,000
+9,000 Sales Revenue
+9,000
-41,000 Inventory
+1,250 Accumulated Depreciation =
= -
+300 Interest Payable
-12,000 Rent Expense +3,000 Salaries Expense +41,000 Cost of Goods Sold +1,250 Deprec. Expense +300 Interest Expense
+12,000
-3,000
-41,000
-1,250
-300
a2. Journal entries are shown only for the adjustments a-f. a. Accounts receivable (+A) Sales revenue (+R, +SE)
To recognize sales on account.
9,000 9,000 12,000 12,000 3,000 3,000 41,000 41,000 1,250 1,250
b.
Prepaid rent (+A) Rent expense (-E, +SE) Salaries expense (+E, -SE) Salaries payable (+L)
To recognize unpaid salaries earned during September.
To recognize remaining prepaid rent and correct rent expense.
c.
d.
Cost of goods sold (+E, -SE) Merchandise inventory (-A)

To recognize cost of sales; ($62,000 - $21,000).
e.

To accrue depreciation on the fixtures and equipment ($25,000/60)(3).
f.
Interest expense (+E, -SE) Interest payable (+L)

To accrue interest on bank loan assumed taken out 7/1/2008. ($10,000)(0.12)(1/4).
300 300
b.
T-accounts: The opening balances shown are the amounts in the accounts prior to the entry of the adjustments described in items a through f. The cash balance represents the deposits made, $141,000, less the checks drawn, $130,000.
Bal.
+ Cash (A) 11,000
+ Merchandise Inventory (A) Bal. 62,000 41,000 d. + Prepaid Rent (A) 12,000
b.
Bal.
+ Equipment (A) 25,000
- Accumulated Deprec.-Equip. (XA) + 1,250 e.
- Salaries Payable (L) + 3,000
c.
a.
+ Accounts Receivable (A) 9,000
- Owners Equity (SE) + 50,000
Bal.
- Sales Revenue (R) + 81,000 9,000
Bal. a.
d.
+ Cost of Goods Sold (E) 41,000
Bal.
+ Rent Expense (E) 24,000 12,000
b.
e.
+ Depreciation Expense (E) 1,250
Bal.
+ Other Expense (E) 13,000
- Bank Loan Payable (L) + 10,000
Bal.
+
Bal. c.
Salaries Expense (E) 6,000 3,000 Interest Expense (E) 300
Interest Payable (L) 300 + f.
+
f.
c. Seaside Surf Shop Income Statement

July 1, 2010 to September 30 ,2010
Sales revenue Cost of goods sold Gross margin Expenses: Rent expense Salaries expense Depreciation expense Interest expense Misc. expenses Net income
$90,000 41,000 49,000 $12,000 9,000 1,250 300 13,000
35,550 $13,450
Seaside Surf Shop Balance Sheet

September 30, 2010
Assets Current assets Cash Accounts receivable Inventory Prepaid rent Total current assets Fixtures and equipment, net Total assets Liabilities and owners equity Current liabilities Salaries payable Bank loan payable Interest payable Total current liabilities Owners equity* Total liabilities and owners equity
*$50,000 + $13,450
$11,000 9,000 21,000 12,000 53,000 23,750 $76,750
$3,000 10,000 300 13,300 63,450 $76,750
d. Chapter 1 introduced the return on equity ratio as a simple performance measure that can be used to evaluate how well this new business is doing. The return on equity is calculated as the ratio of net income to average total equity. In this case, the return on equity for the three-month period was 23.7% = $13,450 / [($50,000+ $63,430)/2]. This is a very good return for a three-month period and equates to 95% annualized. However, the favorable performance evaluation should be tempered by a few caveats: (1) Because this business appears to be a sole proprietorship, any salary paid to the owner is not deducted from net income. Instead, cash payments to the owner are treated as dividends (or withdrawals). As a consequence, any services provided by the owner to the business would not be reflected among the expenses reported in the income statement, and net income would be overstated. (2) No expense is reported in the income statement for income taxes. This is consistent with the business being a sole proprietorship, in which income taxes are levied against the owner as an individual taxpayer. Again, this makes net income appear to be larger than it otherwise might be. (3) Retail businesses are notoriously seasonal. That is, sales (and profits) fluctuate from season to season. A business such as this one would likely have its highest sales in the second and third quarters. This seasonality must be considered when we try to annualize quarterly results like these. Once the business has operated for a year or two, the owner would likely have a better idea about how seasonal fluctuations affect sales and returns and would be better able to interpret quarterly performance measures. (4) Finally, Seasides cash position is precarious. The firm has burned through most of the $60 thousand cash raised to begin the business and is likely to have trouble replacing its inventory as well as paying its bills. Perhaps they can convince lenders to come to their rescue. If not, the firm will not last another three months.
C3-56 (15 minutes) a. The following analysis shows how the relevant information affects total assets, liabilities, and owners equity of the firm: Assets $88,500 (2,250) 3,425 6,000 (5,650) (8,400) $87,275 ______ $40,250 46.1% Liabilities $45,900 51.9% Owners Equity $42,600 48.1% (2,250) 3,425 6,000 5,650 (8,400) $47,025 53.9%
Per Original balance sheet Percentage of debt and equity 1. Recognition of insurance expense ($4,500 1/2 = $2,250) 2. Depreciation correction (5% $68,500 = $3,425) 3. (No adjustment required) 4. Unbilled services performed 5. Advance consulting fee earned ($11,300 1/2 = $5,650) 6. Recognition of supplies expense ($13,200 $4,800 = $8,400) Revised totals Percentage of debt and equity
Revised debt-to-equity ratio: $40,250/$47,025 = 0.86 Original debt-to-equity ratio: $45,900/$42,600 = 1.08 b. Apparently, the loan agreement has not been violated.
C3-57 (30 minutes) Discussion of this case may consider the following ethical considerations facing Javetz: 1. Balancing the long-run interests of the firm (securing the international contract) against the short-run requirement to present accurately the financial data of the company for the current year (recording $150,000 adjusting entry). 2. Compromising the confidentiality of the contract negotiations (by disclosing the contract negotiations to additional persons) versus compromising her professional responsibilities (by omitting a significant year-end adjusting entry). 3. Jeopardizing her position with the firm (by revealing information the president wants kept secret) versus risking possible future legal action by parties relying on the firm's financial statements (by not revealing a significant accrued expense and accrued liability in the financial statements). Discussion of this case should also note that outside auditors frequently access confidential data and disclosing the contract negotiations to the auditor should not represent a significant breach of confidentiality. Perhaps Javetz can achieve a reasonable solution to her dilemma by suggesting that an adjusting entry be recorded and described in very general terms (for example, labeling the liability Payable to Consultants and indicating it is for marketing research and development). Such an adjustment would permit the disclosure of the significant liability without revealing important details to anyone else within or outside the company.
C3-58 (30 minutes) a,b,c and d. FSET:

Balance Sheet Transaction Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital Income Statement Revenues Expenses
a1. Recognize prepaid catalog costs. a2. Advertising credits received. b. Recognize advertising expense. c. Recognize expiration of advertising credits. d1. Sales of gift certificates.
-62,550
Cash
+62,550
Prepaid Catalog Costs = -
Net = Income = +849
+ 849
Advertising = Credits Receivable
+849
Retained Earnings
+849
Advertising Credits Revenue -
= +62,138 -62,138 = -336 =
-62,138
Prepaid Catalog Costs =
-62,138
Retained Earnings -
Catalog Expenses
-336
Advertising Credits = Receivable
-336
Retained Earnings
+336
Expense: - Expiration of Advertising Credits
+19,175
Cash
+19,175
Unearned Gift = Certificate Revenues -
= +18,230
d2. Recognize sales using gift certificates.
- 18,230
Unearned Gift = Certificate Revenues
+18,230
Retained Earnings
+18,230
Gift Certificate Revenues -
Journal Entries: a1. Prepaid catalog costs (+A) Cash (-A)

To record catalog printing costs.
62,550 62,550 849 849 62,138 62,138 336 336
a2. Advertising credits receivable (+A) Advertising credits revenue (+R, +SE)
To recognize advertising credits earned.
b.
Catalog expense (+E, -SE) Prepaid catalog costs (-A)

To regognize catalog expense ($3,894 + $62,550 - $4,306).
c.
Advertising credit expiration expense (+E, -SE) Advertising credits receivable (-A)
To record the expiration of advertising credits ($21 + $849 - $534).
Advertising credits expire either because they were used to advertise or, if there was a time limitation to their use, the time limit expired. d1. Cash (+A) Unearned gift certificate revenues (+L)
To recognize gift certificates sold but not yet redeemed.
19,175 19,175 18,230 18,230
d2. Unearned gift certificate revenues (-L) Gift certificate revenues (+R, +SE)
To recognize revenues based on redeemed gift certificates ($6,108 +$19,175 - $7,053).

Dmp3e Ch03 Solutions 02.17.10 Final

Cargado por

Información del documento

Derechos de autor

Formatos disponibles

Compartir este documento

Compartir o incrustar documentos

Opciones para compartir

¿Le pareció útil este documento?

¿Este contenido es inapropiado?

Copyright:

Formatos disponibles

Dmp3e Ch03 Solutions 02.17.10 Final

Cargado por

Copyright:

Formatos disponibles

Chapter 3

Adjusting Accounts for Financial Statements

21, 22, 23, 25, 29, 30

33, 35, 36, 38

55, 56, 57, 58

23, 24, 25, 29, 30

32, 33, 34, 35, 36, 38

55, 56, 57, 58

47, 49, 50, 53, 54 42, 44, 45, 46,

31, 33, 37, 39

49, 50, 51, 52, 53, 54

changes in balance sheet accounts.

32, 34, 35, 36, 38

Solutions Manual, Chapter 3

Cambridge Business Publishers, 2011 3-1

Cambridge Business Publishers, 2011 3-2

Financial Accounting, 3rdEdition

Solutions Manual, Chapter 3

Cambridge Business Publishers, 2011 3-3

Q3-13 (a) Jan. 1

Financial Accounting, 3rdEdition

Solutions Manual, Chapter 3

Cambridge Business Publishers, 2011 3-5

= = = + 11,650 = 5,400 + 12,000 +

= = = = -350 -2,500 900

Cambridge Business Publishers, 2011 3-6

Financial Accounting, 3rdEdition

Solutions Manual, Chapter 3

Cambridge Business Publishers, 2011 3-7

Office Equipment (A) 6,400

Accounts Receivable (A) 4,700 3,250 June 17

Accounts Payable (L) June 19 3,000 6,400 2,000

Common Stock (SE) 12,000

Service Fees Earned (R) + 4,700 June 11

Utilities Expense (E) 350

Salaries Expense (E) 2,500

Cambridge Business Publishers, 2011 3-8

Financial Accounting, 3rdEdition

M3-22 (45 minutes) a.

+3,500 = -3,000 = Accounts

-1,750 -995 405

Solutions Manual, Chapter 3

Cambridge Business Publishers, 2011 3-9

9,000 9,000 2,850 2,850 10,000 10,000

5,500 2,500 3,000

Cambridge Business Publishers, 2011 3-10

Financial Accounting, 3rdEdition

1,750 1,750 995 995

- Retained Earnings (SE) April 29 1,000 -

Cleaning Fees Earned (R) + 3,500 April 21

+ Advertising Expense (E) April 7 350

Wages Expense (E) 1,750

+ Van Fuel Expense (E) April 30 995

Solutions Manual, Chapter 3

Cambridge Business Publishers, 2011 3-11

M3-23 (20 minutes) a.

in advance for contract work.

Net Revenues - Expenses = Income +3,350 +3,350 Service = Fees

Net Revenues - Expenses = Income +570 +570 Service =

Cambridge Business Publishers, 2011 3-12

Financial Accounting, 3rdEdition

M3-24 (15 minutes) 1.

LiabilContrib. + Noncash Assets = ities + Capital + -185 Prepaid =

Net Revenues - Expenses = Income +185 -185 - Insurance =