Chapter 4
Completing the Accounting Cycle
Excel Application Exercise
Solution
Depending on the years used for the analysis, the
answers to the discussion questions may vary. The
solution provided here is based on FY 02 and FY 01
results.
1. The only one with an “acceptable” current ratio is
Amazon.com in FY 02. At 1.52, it just clears the
1.50 mark.
2. Barnes & Noble.com is in better position, relative
to Amazon.com, although its debt ratio borders on
the high end of the normal range. Amazon.com’s
debt ratio decreased from FY 01 and, at 1.68 for FY
02, is well into the high-risk category. As the
textbook notes, Federated Department Stores’
bankruptcy was due largely to its high debt during
recession, so students should question why
investors tolerate such a high debt ratio from
Amazon.com.
Chapter 4
Completing the Accounting Cycle
219
3. Amazon’s current ratio went from 1.31 in FY 01 to
1.52 in FY 02, a positive trend. Barnes &
Noble.com’s current ratio went from 1.32 in FY 01
to 1.02 in FY 02, a marked decline. For the debt
ratio, Amazon’s FY 01 ratio is 1.88, and its FY 02
ratio is 1.68, a slight improvement. Barnes &
Noble.com’s debt ratio for FY 01 was .85 and .89 in
FY 02.
Reasons for the changes? Amazon’s FY 02
balance sheet shows an increase in both assets
and liabilities. The company’s total stockholders’
equity was boosted by additional comprehensive
income. Barnes & Noble downsized operations in
FY 02, with significant reductions in current assets
and total assets.
4. As students will see from this exercise, the term
“better” is relative. Compared to the rules of
thumb given in the text, Amazon.com has the
better current ratio. Barnes & Noble.com’s debt
raatio is much better than Amazon.com’s.
Students interested in seeing the effects of the
dot-com bubble burst can get a glimpse of the
effects by spending a bit more time examining the
annual reports of both of these high-profile
companies.
220
Accounting 6/e Solutions Manual

Quick Check
Answers:
1. a
2. a
3. d
4. b
5. b
6. c
7. d
8. b
9. b
10. d
Explanations:
5. b. Supplies expense is $4,000 (unadjusted balance $6,000
– ending supplies $2,000)
10. d. Current ratio is 2.07 (Total current assets / Total current
liabilities = $29,700 / $14,350 = 2.07)
Chapter 4
Completing the Accounting Cycle
221

Starters
(10 min.)
S 4-1
a. The business owes some salary to its employees.
b. Some of the unearned service revenue has been earned.
c. The business has used some of the supplies.
d. Some of the prepaid rent has expired.
e. The furniture has depreciated.
(10-15 min.)
S 4-2
a. Accounts receivable—amount that the business expects to
collect in cash
b. Cost of the supplies on hand for use
c. Amount of rent that Gillen has prepaid and is available for
use by the business
d. Cost of furniture purchased for use by the business
e. Portion of the furniture’s cost that has depreciated
f. Amount that the business owes creditors
g. Amount that the business has collected in advance from
clients and owes them in the form of service
h. Amount that the business earned during the period
i. Used-up portion of the prepaid rent; the cost to the entity of
obtaining a place to do business.
Student responses will vary.
222
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(5 min.)
S 4-3
1. Owner’s Capital—credit balance
2. Income Statement account with a credit balance—Service
Revenue
3. Income Statement accounts with a debit balance—all the
expenses (Rent Expense, Salary Expense, Supplies Expense,
Depreciation Expense, Utilities Expense)
4. Revenues – Expenses = Net income, which is closed into the
Owner’s Capital account.
Chapter 4
Completing the Accounting Cycle
223
(10-15 min.)
S 4-4
1.
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Closing entries (all at April 30):
a. Gay Gillen, Capital
Gay Gillen, Withdrawals
3,200
b. Service Revenue
Income Summary
7,400
c. Income Summary
Rent Expense
Salary Expense
Supplies Expense
Depreciation Expense
Utilities Expense
3,875
d. Income Summary
($7,400 – $3,875)
Gay Gillen, Capital
3,200
7,400
1,000
1,900
300
275
400
3,525
3,525
2.
Gay Gillen, Capital
Clo. 3,200 Bal. 31,250
Clo.
3,525
Bal. 31,575
Gay Gillen, Withdrawals
Bal.
3,200 Clo.
3,200
Income Summary
Clo. 3,875 Clo. 7,400
Clo. 3,525 Bal. 3,525
Service Revenue
Clo. 7,400 Bal.
7,400
Bal.
Rent Expense
1,000 Clo.
1,000
Salary Expense
Bal. 1,900 Clo. 1,900
Supplies Expense
Bal.
300 Clo.
300
Depreciation Expense
Bal.
275 Clo.
275
Utilities Expense
Bal.
400 Clo.
400
224
Accounting 6/e Solutions Manual
(5 min.)
S 4-5
1. Gay Gillen, Capital ending balance = $31,575
($31,250 – $3,200 + $7,400 – $1,000
– $1,900 – $300 – $275 – $400)
2. Statement of owner’s equity — ending amount
Balance sheet — owner’s equity
(5 min.)
S 4-6
Journal
DATE
POST.
REF.
ACCOUNTS AND EXPLANATIONS
CLOSING ENTRIES
May 31 Service Revenue
Income Summary
DEBIT
CREDIT
Millions
5,139
5,139
31 Income Summary
Sales and Marketing Expense
Interest Expense
2,643
2,622
21
(5 min.)
S 4-7
(All amounts in millions)
Clo.
Service Revenue
5,139 Bal.
5,139
Bal.
Interest Expense
21 Clo.
21
Sales and Marketing Expense
Bal.
2,622 Clo.
2,622
Clo.
Income Summary
2,643 Clo.
5,139
Bal.
2,496
Chapter 4
Completing the Accounting Cycle
225
(10 min.)
S 4-8
Oracle Corporation
Post-Closing Trial Balance
May 31, 20XX
Cash
Accounts receivable
Other current assets
Property
Other assets
Accounts payable
Short-term notes payable
Other current liabilities
Long-term liabilities
Owners’ equity
Total
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Accounting 6/e Solutions Manual
Millions
$1,786
2,479
1,182
988
825
$ 284
4
2,759
518
3,695
$7,260
$7,260
(5 min.)
S 4-9
Current assets:
Inventory
Receivables
Prepaid expenses
Current liabilities:
Accounts payable
Accrued liabilities
Long-term assets:
Equipment
Land and buildings
Accumulated depreciation
Long-term liabilities:
None
(10 min.)
S 4-10
All amounts in millions
a. Total current assets = $7,877
b. Total current liabilities = $7,519
c. Book value of property, plant, and equipment = $826
d. Total long-term assets = $5,658 ($826 + $4,832)
e. Total long-term liabilities = $1,322 ($520 + $802)
Chapter 4
Completing the Accounting Cycle
227
(10-15 min.)
Current ratio
=
Total current assets
Total current liabilities
=
$6,000 + $3,000 + $1,000 + $2,000
$5,000 + $2,000
228
1.71
Total liabilities
Total assets
Debt ratio =
=
=
S 4-11
$5,000 + $9,000 + $2,000
= 0.67
$6,000 + $3,000 + $12,000 + $1,000 + $2,000
Accounting 6/e Solutions Manual
(10-15 min.)
S 4-12
(All amounts in millions)
CURRENT
Total current assets
$1,786 + $2,479 + $1,182
=
=
RATIO
Total current liabilities
$284 + $4 + $2,759
=
$5,447
$3,047
= 1.79
DEBT
RATIO
=
Total liabilities
Total assets
=
$3,047 + $518
$5,447 + $988 + $825
=
$3,565
$7,260
=
0.49
1. For every dollar of current liabilities, Oracle has $1.79 of
current assets. The current ratio measures this relationship.
2. 49% of Oracle’s total assets are financed with debt. The
name of this ratio is the debt ratio.
3. Oracle’s owners own 51% (100% – 49%) of the company’s
total assets.
Chapter 4
Completing the Accounting Cycle
229

Exercises
The solutions to the exercises begin on the next page.
230
Accounting 6/e Solutions Manual
(20-30 min.)
E 4-1
DaySpring Woodworking Service
Work Sheet
Month Ended September 30, 20X6
ACCOUNT TITLE
Cash
Accounts receivable
Prepaid rent
Supplies
Equipment
Accumulated depreciation
Accounts payable
Salary payable
Gail Pfeiffer, capital
Gail Pfeiffer, withdrawals
Service revenue
Depreciation expense
Salary expense
Rent expense
Utilities expense
Supplies expense
TRIAL BALANCE
ADJUSTMENTS
DEBIT
CREDIT
DEBIT
CREDIT
3,500
3,400
(a)
600
1,200
(d)
800
3,300
(e) 1,600
32,600
1,800
(b)
100
3,600
(c)
500
36,000
2,000
7,100
(a)
600
(b) 100
1,800
(c) 500
(d) 800
700
(e) 1,600
48,500
48,500
3,600
3,600
ADJUSTED TRIAL
BALANCE
DEBIT
CREDIT
3,500
4,000
400
1,700
32,600
1,900
3,600
500
36,000
2,000
7,700
100
2,300
800
700
1,600
49,700
49,700
Net income
INCOME
STATEMENT
BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT
3,500
4,000
400
1,700
32,600
1,900
3,600
500
36,000
2,000
7,700
100
2,300
800
700
1,600
5,500
7,700 44,200
42,000
2,200
2,200
7,700
7,700 44,200
44,200
Net income: $2,200
Chapter 4
Completing the Accounting Cycle
231
(15-20 min.)
E 4-2
Journal
DATE
ACCOUNTS AND EXPLANATIONS
Adjusting Entries
Sept. 30 Account Receivable
Service Revenue
DEBIT
600
100
30 Salary Expense
Salary Payable
500
30 Rent Expense
Prepaid Rent
800
Closing Entries
30 Service Revenue
Income Summary
100
500
800
1,600
1,600
7,700
7,700
30 Income Summary
Depreciation Expense
Salary Expense
Rent Expense
Utilities Expense
Supplies Expense
5,500
30 Income Summary ($7,700 – $5,500)
Gail Pfeiffer, Capital
2,200
30 Gail Pfeiffer, Capital
Gail Pfeiffer, Withdrawals
2,000
Accounting 6/e Solutions Manual
CREDIT
600
30 Depreciation Expense
Accumulated Depreciation
30 Supplies Expense
Supplies
232
POST.
REF.
100
2,300
800
700
1,600
2,200
2,000
(20-30 min.)
Accounts Receivable
3,400
Adj.
600
Bal.
4,000
Bal.
Supplies
3,300 Adj.
1,700
Salary Payable
Adj.
Bal.
Bal.
1,600
500
500
Gail Pfeiffer, Withdrawals
2,000 Clo.
2,000
Service Revenue
Clo.
Adj.
Bal.
Bal.
Adj.
7,700 Bal.
7,100
600
7,700
Salary Expense
1,800
500
2,300 Clo.
2,300
Utilities Expense
700
700 Clo.
700
E 4-3
Prepaid Rent
1,200 Adj.
400
800
Accumulated Depreciation
1,800
Adj.
100
Bal.
1,900
Gail Pfeiffer, Capital
36,000
Clo.
2,000 Clo.
2,200
Bal.
36,200
Income Summary
Clo.
5,500 Clo.
7,700
Clo.
2,200 Bal.
2,200
Depreciation Expense
Adj.
100
Bal.
100 Clo.
100
Adj.
Bal.
Rent Expense
800
800 Clo.
800
Supplies Expense
Adj.
1,600
Bal.
1,600 Clo.
1,600
Chapter 4
Completing the Accounting Cycle
233
(10-15 min.)
E 4-4
DaySpring Woodworking Service
Postclosing Trial Balance
September 30, 20X6
ACCOUNT
DEBIT CREDIT
Cash
$ 3,500
Accounts receivable ($3,400 + $600)
4,000
Prepaid rent ($1,200 – $800)
400
Supplies ($3,300 – $1,600)
1,700
Equipment
32,600
Accumulated depreciation ($1,800 + $100)
$ 1,900
Accounts payable
3,600
Salary payable ($0 + $500)
500
Gail Pfeiffer, capital (see solution to Ex. 4-3)
36,200
Total
$42,200 $42,200
234
Accounting 6/e Solutions Manual
E 4-5
(15 min.)
Req. 1
Prepaid Insurance
12/31/X1 1,400
12/31/X2 1,600
Insurance Expense
Unearned Service Revenue
12/31/X1 4,100
12/21/X2 3,100
Service Revenue
Req. 2
Journal
ACCOUNTS AND EXPLANATIONS
a.
b.
c.
d.
Prepaid Insurance
Cash
POST.
REF.
DEBIT
CREDIT
4,800
4,800
Insurance Expense
($1,400 + $4,800 – $1,600)
Prepaid Insurance
4,600
4,600
Cash
Unearned Service Revenue
17,000
Unearned Service Revenue
Service Revenue
18,000
Chapter 4
17,000
18,000
Completing the Accounting Cycle
235
E 4-5
(continued)
Req. 2 (continued)
Prepaid Insurance
1,400
4,800
4,600
1,600
Insurance Expense
4,600
Unearned Service Revenue
4,100
18,000
17,000
3,100
Service Revenue
18,000
(10 min.)
E 4-6
Journal
DATE
ACCOUNTS AND EXPLANATIONS
Closing Entries
Service Revenue
Income Summary
DEBIT
18,000
4,600
4,600
Clo.
Service Revenue
18,000
18,000
These accounts have zero balances after closing.
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Accounting 6/e Solutions Manual
CREDIT
18,000
Income Summary
Insurance Expense
Insurance Expense
4,600 Clo.
4,600
POST.
REF.
(10-20 min.)
E 4-7
Journal
DATE
POST.
REF.
ACCOUNTS AND EXPLANATIONS
Closing Entries
June 30 Service Revenue
Interest Revenue
Income Summary
DEBIT
CREDIT
110,000
700
110,700
30 Income Summary
Salary Expense
Supplies Expense
Interest Expense
Depreciation Expense
Rent Expense
32,500
12,500
1,700
2,200
10,200
5,900
30 Income Summary
($110,700 – $32,500)
Park Daewoo, Capital
78,200
78,200
30 Park Daewoo, Capital
Park Daewoo, Withdrawals
40,000
40,000
Park Daewoo, Capital
Withdrawals
40,000 Net income
Balance
Chapter 4
21,600
78,200
59,800
Completing the Accounting Cycle
237
(10-15 min.)
E 4-8
Req. 1
Journal
DATE
ACCOUNTS AND EXPLANATIONS
Closing Entries
Dec. 31 Service Revenue
($108,000 + $9,500)
Income Summary
31 Income Summary
Salary Expense
($26,000 + $700)
Supplies Expense
Depreciation Expense—Furniture
Depreciation Expense—Building
31 Income Summary
($117,500 – $35,800)
Felix Rohr, Capital
31 Felix Rohr, Capital
Felix Rohr, Withdrawals
POST.
REF.
DEBIT
117,500
117,500
35,800
26,700
2,000
1,100
6,000
81,700
81,700
61,400
61,400
Req. 2
Felix Rohr, Capital
Withdrawals
238
61,400 Net inc.
Balance
Accounting 6/e Solutions Manual
CREDIT
52,400
81,700
72,700
(5-10 min.)
Chang Realty Company
Statement of Owner’s Equity
Year Ended December 31, 20X2
Alvin Chang, capital, January 1, 20X2
Add: Net income
Less: Withdrawals
Alvin Chang, capital, December 31, 20X2
Chapter 4
E 4-9
$164,000
143,000
307,000
(72,000)
$235,000
Completing the Accounting Cycle
239
(15-25 min.)
E 4-10
Req. 1
Journal
DATE
ACCOUNTS AND EXPLANATIONS
Adjusting Entries
April 30 Unearned Service Revenue
Service Revenue ($16,000 – $14,800)
1,200
800
30 Rent Expense ($1,400 – $1,200)
Prepaid Rent
200
30 Depreciation Expense ($300 – $0)
Accumulated Depreciation
300
30 Supplies Expense ($400 – $0)
Supplies
400
800
200
300
400
16,000
16,000
30 Income Summary
Salary Expense
Rent Expense
Depreciation Expense
Supplies Expense
Utilities Expense
6,700
30 Income Summary ($16,000 – $6,700)
Megan Price, Capital
9,300
30 Megan Price, Capital
Megan Price, Withdrawals
1,000
Accounting 6/e Solutions Manual
CREDIT
1,200
30 Salary Expense ($3,800 – $3,000)
Salary Payable
Closing Entries
April 30 Service Revenue
Income Summary
240
POST.
REF. DEBIT
3,800
1,400
300
400
800
9,300
1,000
(continued)
E 4-10
Req. 2
Price had a net income of $9,300. Service revenue ($16,000)
exceeded total expenses ($6,700).
Chapter 4
Completing the Accounting Cycle
241
(15-20 min.)
E 4-11
Req. 1
The Megan Price Decorator Guild
Balance Sheet
April 30, 20XX
ASSETS
Current:
Cash
Supplies ($2,400 – $400)
Prepaid rent [$1,100 – ($1,400 – $1,200)]
Total current assets
Plant:
Equipment
$51,100
Less accumulated depreciation
($6,200 + $300)
(6,500)
Total assets
LIABILITIES
Current:
Accounts payable
Salary payable ($3,800 – $3,000)
Unearned service revenue
[$4,400 – ($16,000 – $14,800)]
Total current liabilities
Long-term note payable
Total liabilities
OWNER’S EQUITY
Megan Price, capital
($34,800 + $9,300 – $1,000)
Total liabilities and owner’s equity
242
Accounting 6/e Solutions Manual
$14,200
2,000
900
17,100
44,600
$61,700
$ 4,600
800
3,200
8,600
10,000
18,600
43,100
$61,700
(continued)
E 4-11
Req. 2
Current
Ratio
=
Total current assets
Total current liabilities
=
$17,100
=
$8,600
Current
Year
Prior
Year
1.99
1.50
The ability to pay current liabilities with current assets has
improved.
Debt
Ratio
=
Total liabilities
Total assets
=
$18,600
$61,700
=
0.30
0.30
The overall ability to pay total liabilities hasn’t changed.
Chapter 4
Completing the Accounting Cycle
243
(20 min.)
E 4-12
Joy’s Dance Studio
Income Statement
Year Ended December 31, 20X7
Service revenue:
($93,600 + $8,100)
$101,700
Expenses:
Salary expense ($42,700 + $1,400)
Depreciation expense
Supplies expense
Insurance expense
Net income
49,400
$ 52,300
244
Accounting 6/e Solutions Manual
$44,100
2,900
600
1,800
(75 min.)
E 4-13
Req. 1
Closing Entries
Dec. 31 Service Revenue
Income Summary
3,200
3,200
31 Income Summary
Rent Expense
Utilities Expense
Salary Expense
Depreciation Expense—
Equipment
Depreciation Expense—
Furniture
Supplies Expense
1,510
31 Income Summary ($3,200 – $1,510)
Marsha Walker, Capital
1,690
31 Marsha Walker, Capital
Marsha Walker, Withdrawals
1,600
Chapter 4
500
200
500
50
60
200
1,690
1,600
Completing the Accounting Cycle
245
(continued)
E 4-13
Req. 1
Income Summary
Clo.
1,510 Clo.
3,200
Clo.
1,690
Marsha Walker, Capital
Dec. 2 14,000
Clo.
1,600 Clo.
1,690
Bal.
14,090
Marsha Walker, Withdrawals
Dec. 30 1,600 Clo.
1,600
Service Revenue
Dec. 9 1,700
Dec. 18
800
Bal.
2,500
Adj.
400
Adj.
300
3,200 Bal.
3,200
Clo.
Rent Expense
Dec. 2
500 Clo.
Adj.
Salary Expense
500 Clo.
500
Utilities Expense
Dec. 12
200 Clo.
500
Depreciation Expense –
Equipment
Adj.
50 Clo.
50
Depreciation Expense –
Furniture
Adj.
60 Clo.
60
246
Accounting 6/e Solutions Manual
Supplies Expense
Adj.
200 Clo.
200
200
(continued)
E 4-13
Req. 2
Marsha Walker, Consultant
Balance Sheet
December 31, 20XX
ASSETS
LIABILITIES
Current assets:
Current liabilities:
Cash
$11,700
Accounts payable
Accounts receivable
1,500
Salary payable
Supplies
100
Unearned service
Total current assets
13,300
revenue
Plant assets:
Total current liabilities
Equipment
$2,000
Less accum.
depr.
(50)
1,950
OWNER’S EQUITY
Furniture
$3,600
Marsha Walker, capital
Less accum.
depr.
(60)
3,540 Total liabilities and
Total assets
$18,790
owner’s equity
Chapter 4
$ 3,600
500
600
4,700
14,090
$18,790
Completing the Accounting Cycle
247
(continued)
E 4-13
Req. 3
Marsha Walker, Consultant
Accounting Work Sheet
December 31, 20XX
TRIAL BALANCE
ACCOUNT TITLE
Cash
Accounts receivable
Supplies
Equipment
Accumulated depr.—equip.
Furniture
Accumulated depr.—furn.
Accounts payable
Salary payable
Unearned service revenue
Marsha Walker, capital
Marsha Walker, withdrawals
Service revenue
Rent expense
Utilities expense
Salary expense
Depreciation expense—equip.
Depreciation expense—furn.
Supplies expense
DEBIT
11,700
1,100
300
2,000
248
Accounting 6/e Solutions Manual
DEBIT
(a)
CREDIT
400
(c)
200
(d1)
50
(d2)
60
(e)
500
3,600
ADJUSTED TRIAL
BALANCE
DEBIT
CREDIT
INCOME
BALANCE SHEET
STATEMENT
DEBIT CREDIT DEBIT CREDIT
11,700
1,500
100
2,000
11,700
1,500
100
2,000
50
50
3,600
900 (b)
14,000
300
1,600
3,600
60
3,600
500
600
14,000
3,600
60
3,600
500
600
14,000
1,600
2,500
(a)
(b)
400
300
500
200
21,000
Net income
CREDIT
ADJUSTMENTS
(e) 500
(d1) 50
(d2) 60
(c) 200
21,000
1,510
1,510
1,600
3,200
500
200
500
50
60
200
22,010
22,010
3,200
500
200
500
50
60
200
1,510
1,690
3,200
3,200 20,500 18,810
1,690
3,200 20,500 20,500

Problems
Group A
The solutions for these problems begin on the next page.
Chapter 4
Completing the Accounting Cycle
249
(40-50 min.)
P 4-1A
Lane’s Interiors
Work Sheet
Month Ended May 31, 20X8
ACCOUNT TITLE
Cash
Notes receivable
Interest receivable
Supplies
Prepaid insurance
Furniture
Accumulated depr.—furniture
Building
Accumulated depr.—building
Land
Accounts payable
Interest payable
Salary payable
Unearned service revenue
Note payable, long-term
K. Lane, capital
K. Lane, withdrawals
Service revenue
Interest revenue
Depreciated expense—furniture
Depreciated expense—building
Salary expense
Insurance expense
Interest expense
Utilities expense
Advertising expense
Supplies expense
TRIAL BALANCE
DEBIT
CREDIT
4,300
10,300
(h)
200
500
1,700
27,400
(c)
(d)
100
300
1,400
(a-1)
500
34,500
(a-2)
400
14,700
(g)
(e)
(b)
100
200
600
53,900
18,700
8,800
18,700
29,900
(f)
4,400
3,800
16,800
1,100
1,000
124,800
Accounting 6/e Solutions Manual
(f) 4,400
(h)
200
(a-1)
(a-2)
(b)
(d)
(e)
2,100
Net income
250
ADJUSTMENTS
DEBIT
CREDIT
(g)
(c)
124,800
500
400
600
300
200
100
100
6,800
6,800
ADJUSTED TRIAL
BALANCE
DEBIT
CREDIT
4,300
10,300
200
400
1,400
27,400
1,900
53,900
34,900
18,700
14,800
200
600
4,400
18,700
29,900
3,800
21,200
200
500
400
2,700
300
200
1,100
1,100
100
126,800 126,800
INCOME
STATEMENT
DEBIT CREDIT
BALANCE SHEET
DEBIT
CREDIT
4,300
10,300
200
400
1,400
27,400
1,900
53,900
34,900
18,700
14,800
200
600
4,400
18,700
29,900
3,800
21,200
200
500
400
2,700
300
200
1,100
1,100
100
6,400
15,000
21,400
21,400
120,400
21,400
120,400
105,400
15,000
120,400
(50-60 min.)
P 4-2A
Req. 1
ACCOUNT TITLE
Cash
Accounts receivable
Supplies
Equipment
Accumulated depreciation
Accounts payable
Salary payable
Unearned service revenue
Note payable, long-term
Ross Reagan, capital
Ross Reagan, withdrawals
Service revenue
Salary expense
Supplies expense
Depreciation expense
Interest expense
Insurance expense
TRIAL BALANCE
DEBIT CREDIT
29,000
44,000
6,000
102,000
12,000
16,000
2,000
40,000
41,000
54,000
175,000
36,000
5,000
10,000
286,000
_______
286,000
Ross Reagan, M.D.
Work Sheet
Year Ended December 31, 20X5
ADJUSTED TRIAL
ADJUSTMENTS
BALANCE
DEBIT
CREDIT
DEBIT
CREDIT
29,000
(c) 4,000
48,000
(b) 4,000
2,000
102,000
(a) 5,000
17,000
16,000
(e) 4,000
4,000
(d) 2,000
40,000
41,000
54,000
(c) 4,000
181,000
(d) 2,000
(e) 4,000
40,000
(b) 4,000
4,000
(a) 5,000
5,000
5,000
______
______
10,000
_______
19,000
19,000
299,000
299,000
Net income
Chapter 4
Completing the Accounting Cycle
INCOME
STATEMENT
BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT
29,000
48,000
2,000
102,000
17,000
16,000
4,000
40,000
41,000
54,000
181,000
40,000
4,000
5,000
5,000
10,000 _______ _______ _______
64,000 181,000 235,000 118,000
117,000 _______ _______ 117,000
181,000 181,000 235,000 235,000
251
(continued)
P 4-2A
Req. 2
Ross Reagan, M.D.
Income Statement
Year Ended December 31, 20X5
Revenues:
Service revenue
Expenses:
Salary expense
Insurance expense
Depreciation expense
Interest expense
Supplies expense
Total expenses
Net income
$181,000
$40,000
10,000
5,000
5,000
4,000
Ross Reagan, M.D.
Statement of Owner’s Equity
Year Ended December 31, 20X5
Ross Reagan, capital, December 31, 20X4
Add: Net income
Less: Withdrawals
Ross Reagan, capital, December 31, 20X5
252
Accounting 6/e Solutions Manual
64,000
$117,000
$ 41,000
117,000
158,000
(54,000)
$104,000
(continued)
P 4-2A
Req. 3
Ross Reagan, M.D.
Balance Sheet
December 31, 20X5
ASSETS
Current assets:
Cash
Accounts receivable
Supplies
Total current assets
Plant assets:
$102,000
Equipment
Less Accum.
deprec. (17,000)
Total assets
LIABILITIES
Current liabilities:
$ 29,000
Accounts payable
$ 16,000
48,000
Salary payable
4,000
2,000
Total current liabilities
20,000
79,000
Long-term liabilities:
Note payable
Total liabilities
40,000
60,000
85,000
OWNER’S EQUITY
Ross Reagan, capital
Total liabilities and
$164,000
owner’s equity
104,000
$164,000
Req. 4
Reagan had a good year during 20X5. The income statement
reports net income of $117,000.
Chapter 4
Completing the Accounting Cycle
253
(30 min.)
P 4-3A
Req. 1
Journal
DATE
Apr.
ACCOUNTS AND EXPLANATIONS
Adjusting Entries
30 Accounts Receivable
Service Revenue
DEBIT
2,200
6,900
30 Depreciation Expense—Building
Accumulated Depreciation—
Building
3,700
30 Unearned Service Revenue
Service Revenue
6,900
3,700
800
800
4,100
4,100
30 Supplies Expense
Supplies
500
30 Insurance Expense
Prepaid Expense
700
30 Interest Expense
Interest Payable
Accounting 6/e Solutions Manual
CREDIT
2,200
30 Depreciation Expense—Equipment
Accumulated Depreciation—
Equipment
30 Wage Expense
Wages Payable
254
POST.
REF.
500
700
1,200
1,200
(continued)
P 4-3A
Req. 2
Journal
DATE
ACCOUNTS AND EXPLANATIONS
Closing Entries
Apr. 30 Service Revenue
($98,500 + $2,200 + $4,100)
Income Summary
POST.
REF.
DEBIT
CREDIT
104,800
104,800
30 Income Summary
Depreciation Expense—Equipment
Depreciation Expense—Building
Wage Expense ($32,800 + $800)
Insurance Expense ($5,100 + $700)
Interest Expense ($8,100 + $1,200)
Utilities Expense
Supplies Expense ($6,800 + $500)
71,500
30 Income Summary ($104,800 – $71,500)
Jeff Trichel, Capital
33,300
30 Jeff Trichel, Capital
Jeff Trichel, Withdrawals
27,500
6,900
3,700
33,600
5,800
9,300
4,900
7,300
33,300
27,500
Chapter 4
Completing the Accounting Cycle
255
(15-20 min.)
P 4-4A
TexasOnline Service
Income Statement
Year Ended April 30, 20X8
Revenues:
Service revenue
($98,500 + $2,200 + $4,100)
Expenses:
Wage expense ($32,800 + $800)
Interest expense ($8,100 + $1,200)
Supplies expense ($6,800 + $500)
Depreciation expense—equipment
Insurance expense ($5,100 + $700)
Utilities expense
Depreciation expense—building
Total expenses
Net income
256
Accounting 6/e Solutions Manual
$104,800
$33,600
9,300
7,300
6,900
5,800
4,900
3,700
71,500
$ 33,300
(120-150 min.)
P 4-5A
Reqs. 1 and 4
ACCOUNT
DATE
20X6
Oct.
ITEM
DATE
1 Bal.
31 Adj.
JRNL.
REF.
DEBIT
ACCOUNT NO. 12
CREDIT
1 Bal.
31 Adj.
BALANCE
DEBIT
CREDIT
15,310
JRNL.
REF.
ACCOUNT NO. 13
DEBIT
CREDIT
J.12
200
SUPPLIES
ITEM
BALANCE
DEBIT
CREDIT
4,900
PREPAID RENT
ITEM
ACCOUNT
20X6
Oct.
CREDIT
31 Bal.
DATE
DATE
DEBIT
ACCOUNTS RECEIVABLE
ITEM
ACCOUNT
20X6
Oct.
ACCOUNT NO. 11
JRNL.
REF.
31 Bal.
ACCOUNT
20X6
Oct.
CASH
JRNL.
REF.
BALANCE
DEBIT
CREDIT
2,200
2,000
ACCOUNT NO. 14
DEBIT
CREDIT
J.12
770
Chapter 4
BALANCE
DEBIT
CREDIT
840
70
Completing the Accounting Cycle
257
(continued)
P 4-5A
Reqs. 1 and 4
ACCOUNT
DATE
20X6
Oct.
EQUIPMENT
ITEM
JRNL.
REF.
ACCOUNT NO. 15
DEBIT
CREDIT
1 Bal.
26,830
ACCOUNT ACCUMULATED
DEPRECIATION-EQUIPMENT
DATE
20X6
Oct.
ITEM
1 Bal.
31 Adj.
ACCOUNT
DATE
20X6
Oct.
20X6
Oct.
258
DEBIT
J.12
CREDIT
250
JRNL.
REF.
DEBIT
CREDIT
31 Adj.
BALANCE
DEBIT
CREDIT
3,400
3,650
BALANCE
DEBIT
CREDIT
7,290
SALARY PAYABLE
ITEM
ACCOUNT NO. 16
ACCOUNT NO. 21
31 Bal.
ACCOUNT
DATE
JRNL.
REF.
ACCOUNTS PAYABLE
ITEM
BALANCE
DEBIT
CREDIT
JRNL.
REF.
J.12
Accounting 6/e Solutions Manual
DEBIT
ACCOUNT NO. 22
CREDIT
310
BALANCE
DEBIT
CREDIT
310
(continued)
P 4-5A
Reqs. 1 and 4
ACCOUNT
DATE
20X6
Oct.
ITEM
1 Bal.
31 Adj.
ACCOUNT
DATE
20X6
Oct.
1 Bal.
31 Clo.
31 Clo.
DATE
DATE
20X6
Oct.
J.12
DEBIT
CREDIT
JRNL.
REF.
J.12
J.12
BALANCE
DEBIT
CREDIT
5,300
800
4,500
DEBIT
CREDIT
ACCOUNT NO. 31
BALANCE
DEBIT
CREDIT
28,290
40,960
37,060
12,670
3,900
MELANIE LANGE,
WITHDRAWALS
ACCOUNT NO. 32
JRNL.
REF.
BALANCE
DEBIT
CREDIT
ITEM
31 Bal.
31 Clo.
ACCOUNT
JRNL.
REF.
ACCOUNT NO. 23
MELANIE LANGE, CAPITAL
ITEM
ACCOUNT
20X6
Oct.
UNEARNED SERVICE
REVENUE
DEBIT
CREDIT
J.12
3,900
INCOME SUMMARY
ITEM
31 Clo.
31 Clo.
31 Clo.
JRNL.
REF.
J.12
J.12
J.12
DEBIT
3,900
—
ACCOUNT NO. 33
CREDIT
17,060
4,390
12,670
Chapter 4
BALANCE
DEBIT
CREDIT
17,060
12,670
—
Completing the Accounting Cycle
259
(continued)
P 4-5A
Reqs. 1 and 4
ACCOUNT
DATE
20X6
Oct.
ITEM
31 Bal.
31 Adj.
31 Clo.
ACCOUNT
DATE
20X6
Oct.
20X6
Oct.
260
JRNL.
REF.
J.12
J.12
DEBIT
ACCOUNT NO. 41
CREDIT
31 Bal.
31 Adj.
31 Clo.
JRNL.
REF.
DEBIT
ACCOUNT NO. 51
CREDIT
310
3,170
RENT EXPENSE
ITEM
31 Adj.
31 Clo.
J.12
J.12
Accounting 6/e Solutions Manual
12,560
17,060
—
17,060
J.12
J.12
JRNL.
REF.
BALANCE
DEBIT
CREDIT
4,500
SALARY EXPENSE
ITEM
ACCOUNT
DATE
SERVICE REVENUE
BALANCE
DEBIT
CREDIT
2,860
3,170
—
ACCOUNT NO. 52
DEBIT
CREDIT
200
200
BALANCE
DEBIT
CREDIT
200
—
(continued)
P 4-5A
Reqs. 1 and 4
ACCOUNT
DATE
20X6
Oct.
ITEM
31 Adj.
31 Clo.
ACCOUNT
DATE
20X6
Oct.
DEPRECIATION EXPENSE—
EQUIPMENT
JRNL.
REF.
J.12
J.12
DEBIT
CREDIT
250
250
SUPPLIES EXPENSE
ITEM
31 Adj.
31 Clo.
JRNL.
REF.
J.12
J.12
DEBIT
ACCOUNT NO. 54
BALANCE
DEBIT
CREDIT
250
—
ACCOUNT NO. 56
CREDIT
770
770
Chapter 4
BALANCE
DEBIT
CREDIT
770
—
Completing the Accounting Cycle
261
(continued)
P 4-5A
Req. 2
Lange Party Productions
Work Sheet
Month Ended October 31, 20X6
ACCOUNT TITLE
Cash
Accounts receivable
Prepaid rent
Supplies
Equipment
Accum. depr.— equipment
Accounts payable
Salary payable
Unearned service revenue
Melanie Lange, capital
Melanie Lange, withdrawals
Service revenue
Salary expense
Rent expense
Depreciation expense—
equipment
Supplies expense
TRIAL BALANCE
DEBIT CREDIT
4,900
15,310
2,200
840
26,830
3,400
7,290
(b)
(c)
200
770
(d)
250
(e)
310
3,900
12,560
Accounting 6/e Solutions Manual
4,900
15,310
2,000
70
26,830
3,650
7,290
310
800
28,290
3,650
7,290
310
800
28,290
3,900
2,860
Net income
INCOME
STATEMENT
BALANCE SHEET
DEBIT CREDIT DEBIT CREDIT
4,900
15,310
2,000
70
26,830
5,300 (a) 4,500
28,290
56,840
262
ADJUSTMENTS
DEBIT
CREDIT
ADJUSTED TRIAL
BALANCE
DEBIT
CREDIT
56,840
(a) 4,500
17,060
(e)
(b)
310
200
3,170
200
(d)
(c)
250
770
6,030
250
770
57,400
6,030
3,900
17,060
3,170
200
57,400
250
770
4,390 17,060
12,670
17,060 17,060
53,010
53,010
40,340
12,670
53,010
(continued)
P 4-5A
Req. 3
Lange Party Productions
Income Statement
Month Ended October 31, 20X6
Revenues:
Service revenue
Expenses:
Salary expense
Supplies expense
Depreciation expense—equipment
Rent expense
Total expenses
Net income
$17,060
$3,170
770
250
200
4,390
$12,670
Lange Party Productions
Statement of Owner’s Equity
Month Ended October 31, 20X6
Melanie Lange, capital, October 1, 20X6
Add: Net income
Less: Withdrawals
Melanie Lange, capital, October 31, 20X6
Chapter 4
$28,290
12,670
40,960
(3,900)
$37,060
Completing the Accounting Cycle
263
(continued)
P 4-5A
Req. 3
Lange Party Productions
Balance Sheet
October 31, 20X6
ASSETS
Current assets:
Cash
Accounts receivable
Prepaid rent
Supplies
Total current assets
Plant assets:
Equipment
$26,830
Less Accumulated depreciation
(3,650)
Total assets
LIABILITIES
Current liabilities:
Accounts payable
Salary payable
Unearned service revenue
Total current liabilities
OWNER’S EQUITY
Melanie Lange, capital
Total liabilities and owner’s equity
264
Accounting 6/e Solutions Manual
$ 4,900
15,310
2,000
70
22,280
23,180
$45,460
$ 7,290
310
800
8,400
37,060
$45,460
(continued)
P 4-5A
Req. 4
Journal
DATE
Page 12
POST.
REF.
ACCOUNTS AND EXPLANATIONS
20X6
Adjusting Entries
Oct. 31 Unearned Service Revenue
Service Revenue
DEBIT
23
41
4,500
31 Rent Expense
Prepaid Rent
52
13
200
31 Supplies Expense
Supplies
56
14
770
54
250
31 Depreciation Expense—
Equipment
Accumulated Depreciation—
Equipment
31 Salary Expense
Salary Payable
4,500
200
770
16
51
22
Chapter 4
CREDIT
250
310
Completing the Accounting Cycle
310
265
(continued)
P 4-5A
Req. 4 (continued)
Journal
DATE
ACCOUNTS AND EXPLANATIONS
20X6
Closing Entries
Oct. 31 Service Revenue
Income Summary
31 Income Summary
Salary Expense
Rent Expense
Depreciation Expense—
Equipment
Supplies Expense
266
Page 12
POST.
REF.
DEBIT
41
33
17,060
33
51
52
4,390
17,060
3,170
200
54
56
250
770
31 Income Summary
($17,060 – $4,390)
Melanie Lange, Capital
33
31
12,670
31 Melanie Lange, Capital
Melanie Lange, Withdrawals
31
32
3,900
Accounting 6/e Solutions Manual
CREDIT
12,670
3,900
(continued)
P 4-5A
Req. 5
Lange Party Productions
Postclosing Trial Balance
October 31, 20X6
ACCOUNT
DEBIT
Cash
$ 4,900
Accounts receivable
15,310
Prepaid rent
2,000
Supplies
70
Equipment
26,830
Accumulated depreciation—equipment
Accounts payable
Salary payable
Unearned service revenue
Melanie Lange, capital
Total
$49,110
Chapter 4
CREDIT
$ 3,650
7,290
310
800
37,060
$49,110
Completing the Accounting Cycle
267
(25-40 min.)
P 4-6A
Req. 1
Mark Tynes, Architect
Balance Sheet
December 31, 20X3
ASSETS
Current assets:
Cash
Accounts receivable
Prepaid rent
Prepaid insurance
Supplies
Total current assets
Plant assets:
Equipment
Less Accumulated depreciation
Building
Less Accumulated depreciation
Other assets
Total assets
LIABILITIES
Current liabilities:
Accounts payable
Salary payable
Unearned service revenue
Other current liabilities
Total current liabilities
Note payable, long-term
Total liabilities
OWNER’S EQUITY
Mark Tynes, capital
Total liabilities and owner’s equity
268
Accounting 6/e Solutions Manual
$ 3,400
41,500
4,700
600
3,800
54,000
$24,200
(7,700)
$55,900
(47,300)
16,500
8,600
2,300
$81,400
$34,700
2,400
1,700
1,100
39,900
3,200
43,100
38,300
$81,400
(continued)
P 4-6A
Req. 2
Current Ratio =
Total current assets
$54,000
=
Total current liabilities
$39,900
=
20X3
20X2
1.35
1.28
The ability to pay current liabilities with current assets
improved during 20X3.
Debt Ratio
=
Total liabilities
Total assets
=
$43,100
$81,400
=
0.53
0.52
The overall ability to pay total liabilities was almost
unchanged during 20X3.
Chapter 4
Completing the Accounting Cycle
269
(20-30 min.)
P 4-7A
Req. a
Net income understated by omission of:
Revenue earned after collection
in advance
Accrued service revenue
Total understatement
Net income overstated by omission of:
Depreciation expense
Insurance expense
Accrued interest expense
Total overstatement
Overall effect—net income understated by
270
Accounting 6/e Solutions Manual
$2,700
1,400
$4,100
$ 700
360
520
1,580
$2,520
(continued)
P 4-7A
Req. b
Journal
DATE
ACCOUNTS AND EXPLANATIONS
Adjusting Entries
Feb. 28 Depreciation Expense
Accumulated Depreciation
POST.
REF.
DEBIT
CREDIT
700
700
28 Unearned Service Revenue
Service Revenue
2,700
28 Accounts Receivable
Service Revenue
1,400
28 Insurance Expense
Prepaid Insurance
360
28 Interest Expense
Interest Payable
520
2,700
1,400
360
520
Chapter 4
Completing the Accounting Cycle
271
(continued)
P 4-7A
Req. c
(1)
This error will be detected in the trial balance, which will
not balance.
(2)
This type of error is called a transposition. Total debits and
total credits on the trial balance will differ by $2,700
($4,100 – $1,400 = $2,700). To identify this error as a
transposition, the difference is evenly divisible by 9
($2,700 / 9 = $300). For transpositions and slides, refer to
Chapter 2.
Req. d
(1)
This type of error is called a slide (Chapter 2).
(2)
Total debits will be greater by $11,700 ($13,000 – $1,300)
because the debits are overstated by that amount.
(3)
Dividing the “out of balance” difference ($11,700) by 9
yields $1,300, the correct amount. Then trace $1,300 back
to the Computer Software account to identify this error as
a slide.
272
Accounting 6/e Solutions Manual

Problems
Group B
The solutions for these problems begin on the next page.
Chapter 4
Completing the Accounting Cycle
273
(40-50 min.)
P 4-1B
Roadster Tune Center
Work Sheet
Month Ended June 30, 20X3
ACCOUNT TITLE
Cash
Accounts receivable
Supplies
Prepaid insurance
Equipment
Accumulated depr.—equipment
Building
Accumulated depr.—building
Land
Accounts payable
Interest payable
Wages payable
Unearned service revenue
Note payable, long-term
Dan Runyan, capital
Dan Runyan, withdrawals
Service revenue
Depreciation expense—equip.
Depreciation expense—building
Wage expense
Insurance expense
Interest expense
Utilities expense
Advertising expense
Supplies expense
TRIAL BALANCE
DEBIT CREDIT
21,200
37,800
17,600
2,300
32,600
26,200
42,800
10,500
28,300
22,600
10,500
22,400
79,100
(h)
1,100
(c)
(d)
(f)
3,300
500
(a-1)
600
(a-2)
300
(g)
(e)
(b)
100
100
200
(f)
(h)
4,900
1,100
4,900
4,200
20,100
(a-1)
(a-2)
(b)
(d)
(e)
3,200
1,100
300
191,400
Net income
274
ADJUSTMENTS
DEBIT
CREDIT
Accounting 6/e Solutions Manual
(g)
(c)
191,400
600
300
200
500
100
100
3,300
11,100
11,100
ADJUSTED TRIAL
BALANCE
DEBIT
CREDIT
21,200
38,900
14,300
1,800
32,600
26,800
42,800
10,800
28,300
22,700
100
200
5,600
22,400
79,100
4,200
26,100
600
300
3,400
500
100
1,100
400
3,300
193,800
193,800
INCOME
STATEMENT
DEBIT
CREDIT
BALANCE SHEET
DEBIT CREDIT
21,200
38,900
14,300
1,800
32,600
26,800
42,800
10,800
28,300
22,700
100
200
5,600
22,400
79,100
4,200
26,100
600
300
3,400
500
100
1,100
400
3,300
9,700
16,400
26,100
26,100
184,100
26,100
184,100
167,700
16,400
184,100
(50-60 min.)
P 4-2B
Req. 1
Lake Air Studio
Work Sheet
Year Ended December 31, 20X6
TRIAL BALANCE
ACCOUNT TITLE
Cash
Accounts receivable
Supplies
Equipment
Accumulated depreciation
Accounts payable
Salary payable
Unearned service revenue
Note payable, long-term
Betsy Willis, capital
Betsy Willis, withdrawals
Service revenue
Salary expense
Supplies expense
Depreciation expense
Interest expense
Rent expense
Insurance expense
ADJUSTMENTS
DEBIT CREDIT
DEBIT
CREDIT
15,000
36,000
(e) 2,000
9,000
(b) 8,000
99,000
13,000
(c) 9,000
6,000
(d) 1,000
5,000 (a) 5,000
60,000
36,000
62,000
182,000
(a) 5,000
(e) 2,000
53,000
(d) 1,000
(b) 8,000
(c) 9,000
6,000
15,000
7,000 _______
_____
_____
302,000 302,000
25,000
25,000
ADJUSTED TRIAL
BALANCE
DEBIT
CREDIT
15,000
38,000
1,000
99,000
22,000
6,000
1,000
INCOME
BALANCE SHEET
STATEMENT
DEBIT CREDIT DEBIT CREDIT
15,000
38,000
1,000
99,000
22,000
6,000
1,000
60,000
36,000
60,000
36,000
62,000
62,000
189,000
54,000
8,000
9,000
6,000
15,000
7,000
314,000
314,000
Net income
Chapter 4
Completing the Accounting Cycle
189,000
54,000
8,000
9,000
6,000
15,000
7,000
99,000
90,000
189,000
______
189,000
______
189,000
_______ _______
215,000 125,000
_______ 90,000
215,000 215,000
275
(continued)
P 4-2B
Req. 2
Lake Air Studio
Income Statement
Year Ended December 31, 20X6
Revenues:
Service revenue
Expenses:
Salary expense
Rent expense
Depreciation expense
Supplies expense
Insurance expense
Interest expense
Total expenses
Net income
$189,000
$54,000
15,000
9,000
8,000
7,000
6,000
Lake Air Studio
Statement of Owner’s Equity
Year Ended December 31, 20X6
Betsy Willis, capital, December 31, 20X5
Add: Net income
Less: Withdrawals
Betsy Willis, capital, December 31, 20X6
276
Accounting 6/e Solutions Manual
99,000
$ 90,000
$ 36,000
90,000
126,000
(62,000)
$ 64,000
(continued)
P 4-2B
Req. 2
Lake Air Studio
Balance Sheet
December 31, 20X6
ASSETS
Current assets:
Cash
Accounts receivable
Supplies
Total current assets
Plant assets:
Equipment
$99,000
Less Accum.
deprec. (22,000)
Total assets
LIABILITIES
Current liabilities:
$ 15,000
Accounts payable
$ 6,000
38,000
Salary payable
1,000
1,000
Total current liabilities
7,000
54,000
Long-term liabilities:
Note payable
60,000
Total liabilities
67,000
77,000
OWNER’S EQUITY
Betsy Willis, capital
Total liabilities and
$131,000
owner’s equity
64,000
$131,000
Req. 3
Lake Air had a profitable year during 20X6. The income
statement reports net income of $90,000.
Chapter 4
Completing the Accounting Cycle
277
(30 min.)
P 4-3B
Req. 1
Journal
DATE
ACCOUNTS AND EXPLANATIONS
Adjusting Entries
June 30 Insurance Expense
Prepaid Insurance
DEBIT
2,200
500
30 Accounts Receivable
Service Revenue
900
30 Wage Expense
Wages Payable
700
30 Depreciation Expense—
Building
Accumulated Depreciation—
Building
30 Supplies Expense
Supplies
Accounting 6/e Solutions Manual
CREDIT
2,200
30 Interest Expense
Interest Payable
30 Depreciation Expense—
Equipment
Accumulated Depreciation—
Equipment
278
POST.
REF.
500
900
700
7,300
7,300
3,900
3,900
200
200
(continued)
P 4-3B
Req. 2
Journal
DATE
June
POST.
REF.
ACCOUNTS AND EXPLANATIONS
Closing Entries
30 Service Revenue ($139,800 + $900)
Income Summary
DEBIT
140,700
140,700
30 Income Summary
Depreciation Expense—Equipment
Depreciation Expense—Building
Wage Expense ($21,400 + $700)
Insurance Expense ($3,100 + $2,200)
Interest Expense ($8,500 + $500)
Utilities Expense
Supplies Expense ($3,500 + $200)
55,600
30 Income Summary ($140,700 – $55,600)
Linda Gallo, Capital
85,100
30 Linda Gallo, Capital
Linda Gallo, Withdrawals
45,300
Chapter 4
CREDIT
7,300
3,900
22,100
5,300
9,000
4,300
3,700
85,100
45,300
Completing the Accounting Cycle
279
(15-20 min.)
P 4-4B
Oriental Rug Repair
Income Statement
Year Ended June 30, 20X9
Revenues:
Service revenue
Expenses:
Wage expense
Interest expense
Depreciation expense—equipment
Insurance expense
Utilities expense
Depreciation expense—building
Supplies expense
Total expenses
Net income
280
Accounting 6/e Solutions Manual
$140,700
$22,100
9,000
7,300
5,300
4,300
3,900
3,700
55,600
$ 85,100
(120-150 min.)
P 4-5B
Reqs. 1 and 4
ACCOUNT
DATE
20X9
Aug.
ITEM
DATE
1 Bal.
31 Adj.
DATE
1 Bal.
31 Adj.
ACCOUNT
20X9
Aug.
JRNL.
REF.
DEBIT
ACCOUNT NO. 12
CREDIT
JRNL.
REF.
ACCOUNT NO. 13
DEBIT
CREDIT
J.7
240
JRNL.
REF.
DEBIT
CREDIT
J.7
JRNL.
REF.
BALANCE
DEBIT
CREDIT
1,290
1,050
ACCOUNT NO. 14
5,340
EQUIPMENT
ITEM
BALANCE
DEBIT
CREDIT
15,560
SUPPLIES
ITEM
BALANCE
DEBIT
CREDIT
3,800
PREPAID RENT
ITEM
ACCOUNT
DATE
CREDIT
31 Bal.
DATE
20X9
Aug.
DEBIT
ACCOUNTS RECEIVABLE
ITEM
ACCOUNT
20X9
Aug.
ACCOUNT NO. 11
JRNL.
REF.
31 Bal.
ACCOUNT
20X9
Aug.
CASH
BALANCE
DEBIT
CREDIT
20,900
15,560
ACCOUNT NO. 15
DEBIT
CREDIT
1 Bal.
BALANCE
DEBIT
CREDIT
15,350
Chapter 4
Completing the Accounting Cycle
281
(continued)
P 4-5B
Reqs. 1 and 4
ACCOUNT
DATE
20X9
Aug.
ITEM
1 Bal.
31 Adj.
ACCOUNT
DATE
20X9
Aug.
1 Bal.
31 Adj.
DATE
282
JRNL.
REF.
DEBIT
CREDIT
12,800
13,170
BALANCE
DEBIT
CREDIT
89,900
JRNL.
REF.
DEBIT
J.7
CREDIT
130
JRNL.
REF.
DEBIT
ACCOUNT NO. 18
BALANCE
DEBIT
CREDIT
28,600
28,730
ACCOUNT NO. 21
CREDIT
BALANCE
DEBIT
CREDIT
4,240
SALARY PAYABLE
31 Adj.
BALANCE
DEBIT
CREDIT
ACCOUNT NO. 17
31 Bal.
ITEM
ACCOUNT NO. 16
370
ACCOUNTS PAYABLE
ITEM
ACCOUNT
20X9
Aug.
J.7
CREDIT
ACCUMULATED
DEPRECIATION-BUILDING
ITEM
ACCOUNT
DATE
DEBIT
1 Bal.
DATE
20X9
Aug.
JRNL.
REF.
BUILDING
ITEM
ACCOUNT
20X9
Aug.
ACCUMULATED
DEPRECIATION-EQUIPMENT
JRNL.
REF.
J.7
Accounting 6/e Solutions Manual
DEBIT
ACCOUNT NO. 22
CREDIT
460
BALANCE
DEBIT
CREDIT
460
(continued)
P 4-5B
Reqs. 1 and 4
ACCOUNT
DATE
20X9
Aug.
ITEM
1 Bal.
31 Adj.
ACCOUNT
DATE
20X9
Aug.
1 Bal.
31 Clo.
31 Clo.
DATE
DATE
20X9
Aug.
J.7
DEBIT
CREDIT
JRNL.
REF.
J.7
J.7
31 Bal.
31 Clo.
JRNL.
REF.
2,400
DEBIT
ACCOUNT NO. 31
CREDIT
31 Clo.
31 Clo.
31 Clo.
J.7
J.7
J.7
71,920
92,920
88,120
4,800
ACCOUNT NO. 32
DEBIT
CREDIT
4,800
INCOME SUMMARY
ITEM
BALANCE
DEBIT
CREDIT
21,000
J.7
JRNL.
REF.
BALANCE
DEBIT
CREDIT
8,900
6,500
PAUL REVERE,
WITHDRAWALS
ITEM
ACCOUNT
JRNL.
REF.
ACCOUNT NO. 23
PAUL REVERE, CAPITAL
ITEM
ACCOUNT
20X9
Aug.
UNEARNED SERVICE
REVENUE
DEBIT
BALANCE
DEBIT
CREDIT
4,800
—
ACCOUNT NO. 33
CREDIT
29,700
8,700
21,000
Chapter 4
BALANCE
DEBIT
CREDIT
29,700
21,000
—
Completing the Accounting Cycle
283
(continued)
P 4-5B
Reqs. 1 and 4
ACCOUNT
DATE
20X9
Aug.
ITEM
31 Bal.
31 Adj.
31 Clo.
ACCOUNT
DATE
20X9
Aug.
20X9
Aug.
284
JRNL.
REF.
J.7
J.7
DEBIT
ACCOUNT NO. 41
CREDIT
31 Bal.
31 Adj.
31 Clo.
JRNL.
REF.
DEBIT
ACCOUNT NO. 51
CREDIT
460
2,620
RENT EXPENSE
ITEM
31 Adj.
31 Clo.
J.7
J.7
Accounting 6/e Solutions Manual
27,300
29,700
—
29,700
J.7
J.7
JRNL.
REF.
BALANCE
DEBIT
CREDIT
2,400
SALARY EXPENSE
ITEM
ACCOUNT
DATE
SERVICE REVENUE
BALANCE
DEBIT
CREDIT
2,160
2,620
—
ACCOUNT NO. 52
DEBIT
CREDIT
240
240
BALANCE
DEBIT
CREDIT
240
—
(continued)
P 4-5B
Reqs. 1 and 4
ACCOUNT
DATE
20X9
Aug.
ITEM
31 Adj.
31 Clo.
ACCOUNT
DATE
20X9
Aug.
20X9
Aug.
JRNL.
REF.
J.7
J.7
DEBIT
CREDIT
370
370
DEPRECIATION EXPENSE—
BUILDING
ITEM
31 Adj.
31 Clo.
ACCOUNT
DATE
DEPRECIATION EXPENSE—
EQUIPMENT
JRNL.
REF.
J.7
J.7
DEBIT
CREDIT
130
130
SUPPLIES EXPENSE
ITEM
31 Adj.
31 Clo.
JRNL.
REF.
J.7
J.7
DEBIT
ACCOUNT NO. 54
BALANCE
DEBIT
CREDIT
370
—
ACCOUNT NO. 55
BALANCE
DEBIT
CREDIT
130
—
ACCOUNT NO. 57
CREDIT
5,340
5,340
Chapter 4
BALANCE
DEBIT
CREDIT
5,340
—
Completing the Accounting Cycle
285
(continued)
P 4-5B
Req. 2
TRIAL BALANCE
Revere Silver Plating
Work Sheet
Month Ended August 31, 20X9
ADJUSTMENTS
ADJUSTED TRIAL
INCOME
BALANCE
BALANCE
STATEMENT
SHEET
DEBIT
CREDIT
DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT
3,800
3,800
15,560
15,560
(b) 240
1,050
1,050
(c) 5,340
15,560
15,560
15,350
15,350
(d) 370
13,170
13,170
89,900
89,900
(e) 130
28,730
28,730
4,240
4,240
(f)
460
460
460
(a) 2,400
6,500
6,500
71,920
71,920
4,800
4,800
(a) 2,400
29,700
29,700
(f)
460
2,620
2,620
(b) 240
240
240
ACCOUNT TITLE
DEBIT CREDIT
Cash
3,800
Accounts receivable
15,560
Prepaid rent
1,290
Supplies
20,900
Equipment
15,350
Accum. depr.—equipment
12,800
Building
89,900
Accum. depr.—building
28,600
Accounts payable
4,240
Salary payable
Unearned service revenue
8,900
Paul Revere, capital
71,920
Paul Revere, withdrawals
4,800
Service revenue
27,300
Salary expense
2,160
Rent expense
Depreciation expense—
Equipment
(d) 370
Depreciation expense—
building
(e) 130
Supplies expense
(c) 5,340
153,760 153,760
8,940
Net income
286
Accounting 6/e Solutions Manual
370
8,940
130
5,340
154,720 154,720
370
130
5,340
8,700
21,000
29,700
29,700 146,020 125,020
21,000
29,700 146,020 146,020
(continued)
P 4-5B
Req. 3
Revere Silver Plating
Income Statement
Month Ended August 31, 20X9
Revenues:
Service revenue
Expenses:
Supplies expense
Salary expense
Depreciation expense—equipment
Rent expense
Depreciation expense—building
Total expenses
Net income
$29,700
$5,340
2,620
370
240
130
8,700
$21,000
Revere Silver Plating
Statement of Owner’s Equity
Month Ended August 31, 20X9
Paul Revere, capital, August 1, 20X9
Add: Net income
Less: Withdrawals
Paul Revere, capital, August 31, 20X9
Chapter 4
$71,920
21,000
92,920
(4,800)
$88,120
Completing the Accounting Cycle
287
(continued)
P 4-5B
Req. 3
Revere Silver Plating
Balance Sheet
August 31, 20X9
ASSETS
Current assets:
Cash
Accounts receivable
Prepaid rent
Supplies
Total current assets
Plant assets:
Equipment
$15,350
Less Accumulated depreciation
(13,170)
Building
$89,900
Less Accumulated depreciation
(28,730)
Total assets
LIABILITIES
Current liabilities:
Accounts payable
Salary payable
Unearned service revenue
Total current liabilities
OWNER’S EQUITY
Paul Revere, capital
Total liabilities and owner’s equity
288
Accounting 6/e Solutions Manual
$ 3,800
15,560
1,050
15,560
35,970
2,180
61,170
$99,320
$ 4,240
460
6,500
11,200
88,120
$99,320
(continued)
P 4-5B
Req. 4
Journal
DATE
Page 7
POST.
REF.
ACCOUNTS AND EXPLANATIONS
20X9
Adjusting Entries
Aug. 31 Unearned Service Revenue
Service Revenue
DEBIT
23
41
2,400
31 Rent Expense
Prepaid Rent
52
13
240
31 Supplies Expense
Supplies
57
14
5,340
54
370
31 Depreciation Expense—
Equipment
Accumulated Depreciation—
Equipment
31 Depreciation Expense—
Building
Accumulated Depreciation—
Building
31 Salary Expense
Salary Payable
2,400
240
5,340
16
55
370
130
18
51
22
Chapter 4
CREDIT
130
460
Completing the Accounting Cycle
460
289
(continued)
P 4-5B
Req. 4
Journal
DATE
ACCOUNTS AND EXPLANATIONS
20X9
Closing Entries
Aug. 31 Service Revenue
Income Summary
31 Income Summary
Salary Expense
Rent Expense
Depreciation Expense—
Equipment
Depreciation Expense—
Building
Supplies Expense
290
Page 7
POST.
REF.
DEBIT
41
33
29,700
33
51
52
8,700
29,700
2,620
240
54
370
55
57
130
5,340
31 Income Summary
($29,700 – $8,700)
Paul Revere, Capital
33
31
21,000
31 Paul Revere, Capital
Paul Revere, Withdrawals
31
32
4,800
Accounting 6/e Solutions Manual
CREDIT
21,000
4,800
(continued)
P 4-5B
Req. 5
Revere Silver Plating
Postclosing Trial Balance
August 31, 20X9
ACCOUNT
DEBIT
Cash
$ 3,800
Accounts receivable
15,560
Prepaid rent
1,050
Supplies
15,560
Equipment
15,350
Accumulated depreciation—equipment
Building
89,900
Accumulated depreciation—building
Accounts payable
Salary payable
Unearned service revenue
Paul Revere, capital
Total
$141,220
Chapter 4
CREDIT
$ 13,170
28,730
4,240
460
6,500
88,120
$141,220
Completing the Accounting Cycle
291
(30-40 min.)
P 4-6B
Req. 1
Noteworthy Communications
Balance Sheet
December 31, 20X6
ASSETS
Current assets:
Cash
Accounts receivable
Prepaid rent
Prepaid insurance
Supplies
Total current assets
Plant assets:
Computers
$ 22,700
Less Accumulated depreciation
(11,600)
Equipment
$114,400
Less Accumulated depreciation
(37,800)
Other assets
Total assets
LIABILITIES
Current liabilities:
Accounts payable
Salary payable
Interest payable
Unearned service revenue
Other current liabilities
Total current liabilities
Note payable, long-term
Total liabilities
OWNER’S EQUITY
Lori Stone, capital
Total liabilities and owner’s equity
292
Accounting 6/e Solutions Manual
$ 16,500
6,600
6,600
1,100
2,500
33,300
11,100
76,600
3,600
$124,600
$ 15,100
3,900
600
5,400
4,700
29,700
27,800
57,500
67,100
$124,600
(continued)
P 4-6B
Req. 2
Current Ratio =
Total current assets
$33,300
=
Total current liabilities
$29,700
=
20X6
20X5
1.12
1.52
The ability to pay current liabilities with current assets
deteriorated during 20X6.
Debt Ratio
=
Total liabilities
Total assets
=
$57,500
=
$124,600
0.46
0.39
The overall ability to pay total liabilities deteriorated during
20X6.
Chapter 4
Completing the Accounting Cycle
293
(20-30 min.)
P 4-7B
Req. a
Net income understated by omission of:
Accrued interest revenue
Revenue earned after collection
in advance
Total understatement
Net income overstated by omission of:
Accrued property tax expense
Supplies expense
Depreciation expense
Total overstatement
Overall effect—net income understated by
294
Accounting 6/e Solutions Manual
$1,650
1,100
$2,750
$ 200
1,090
400
1,690
$1,060
(continued)
P 4-7B
Req. b
Journal
DATE
ACCOUNTS AND EXPLANATIONS
Adjusting Entries
Dec. 31 Property Tax Expense
Property Tax Payable
POST.
REF.
DEBIT
CREDIT
200
200
31 Supplies Expense
Supplies
1,090
31 Interest Receivable
Interest Revenue
1,650
1,090
1,650
31 Depreciation Expense
Accumulated Depreciation
31 Unearned Rent Revenue
Rent Revenue
Chapter 4
400
400
1,100
1,100
Completing the Accounting Cycle
295
(continued)
P 4-7B
Req. c
(1)
This error will be detected in the trial balance, which will
not balance.
(2)
Total debits and total credits on the trial balance will differ
by $1,000 ($500  2 = $1,000). To identify the amount of this
error, divide the $1,000 difference by two ($1,000 / 2 =
$500). This type of error is discussed in Chapter 2.
Req. d
(1)
This type of error is called a slide (Chapter 2).
(2)
Total credits will be greater by $14,400 ($16,000 – $1,600).
(3)
Dividing the “out of balance” difference ($14,400) by 9
yields $1,600, the correct amount. Then trace back to the
correct amount in the Equipment account to identify this
error as a slide.
296
Accounting 6/e Solutions Manual

Decision Cases
(30 min.) Decision Case 1
The way to solve this case is to
1. Prepare the income statement to determine net income.
2. Compare net income to withdrawals. If net income exceeds
withdrawals, Heinz’s capital increased. But if withdrawals
exceed net income, her capital decreased.
United Rentals
Income Statement
Year Ended December 31, 20XX
Revenues:
Rent revenue ($80,740 + $1,600 + $2,500)
$84,840
Expenses:
Salary expense ($17,000 + $1,200)
$18,200
Depreciation expense
5,900
Advertising expense
2,400
Supplies expense
2,100
Utilities expense
800
Total expenses
29,400
Net income
$55,440
Withdrawals ($60,000) exceeded net income ($55,440), so Heinz
cannot expect to get the loan.
Chapter 4
Completing the Accounting Cycle
297
(10-15 min.) Decision Case 2
a. Profit because total credits (revenues) exceeded total debits
(expenses).
b. You entered the balancing amount from the income
statement (net income) as a debit on the balance sheet
instead of a credit. The debit was incorrect. This error would
cause the out-of-balance amount on the balance sheet to be
$90,000, which is two times the amount of net income
($45,000).
298
Accounting 6/e Solutions Manual

Ethical Issue
1. The journal entry to record the revenue is:
Dec.
Accounts Receivable ........... XXX
Service Revenue .............
XXX
The debit to Accounts Receivable will increase total current
assets and, as a result, increase (improve) the current ratio.
2. To record this transaction in December is unethical because
it violates the revenue principle. At December 31, the
business has not performed the service for the client and,
therefore, has not yet earned the revenue. Revenue should
not be recorded before it is earned. Only after performing the
service can Hemingway ethically record the revenue.
3. The authors suggest that Hemingway report the current ratio
of 1.40 because that is the true value of the ratio. Hemingway
can tell the bank of the signed contract for additional work
and express the hope for a better set of ratio values in the
future. Hemingway may have to renegotiate the agreement
with the bank and ask for less stringent ratio requirements.
Chapter 4
Completing the Accounting Cycle
299

Financial Statement Case
(30-40 min.) Financial Statement Case
Req. 1 Report format of balance sheet (all amounts in
thousands)
Req. 2 Largest current asset
= Cash and cash equivalents
($738,254)
Largest current liability = Accounts Payable ($618,128)
Req. 3 Current ratio:
December 31, 2002
December 31, 2001
Total current assets
$1,615,676
=
= 1.52
Total current liabilities
$1,065,958
$1,207,920
= 1.31
$921,414
The current ratio improved.
Req. 4 Fixed assets
Req. 5
Cost……………………………………………….. $482,736
Less: Accumulated depreciation…………... (243,338)
Book value………………………………………. $239,398
300
Accounting 6/e Solutions Manual

Team Project
Req. 1
Grant Lawn Service
Income Statement
Four Months Ended August 31, 20XX
Service revenue: ($5,500 + $500)
Expenses:
Wage expense ($1,800 + $300)
$2,100
400
Rent expense ($600  4/6)
Supplies expense ($400 – $50)
350
Repair expense
300
100
Depreciation expense ($300  1/3)
Total expenses
Net income
Chapter 4
$6,000
3,250
$2,750
Completing the Accounting Cycle
301
(continued) Team Project
Req. 2
Grant Lawn Service
Balance Sheet
August 31, 20XX
ASSETS
LIABILITIES
Current assets:
Current:
Cash
$2,000
Wages payable
$ 300
Accounts receivable
500
Total current liabilities
300
Receivable from Ludwig
(or Prepaid rent)
200
Supplies
50
Total current assets
2,750
Long-term:
OWNER’S EQUITY
Trailer
$ 300
Aaron Grant, capital
Less accumulated
($400 + $2,750 – $500)
2,650
depreciation (100)
200 Total liabilities and
Total assets
$2,950
owner’s equity
$2,950
Req. 3
Grant’s summer work was sucessful. He earned net income of
$2,750.
302
Accounting 6/e Solutions Manual
Chapter 4 Appendix
Reversing Entries: An Optional Step

Appendix Problem
(30-40 min.)
P 4A-1
Reqs. 1, 2, and 3
Nov. 5
Salary Payable
310 Oct. 31
Salary Expense
Oct. 31
2,860 Oct. 31
31
310
Nov. 5
190
310
3,170
Reqs. 2 and 3
Journal
DATE
ACCOUNTS AND EXPLANATIONS
Adjusting Entry
Oct. 31 Salary Expense
Salary Payable
Closing Entry
Oct. 31 Income Summary
Salary Expense
Nov.
POST.
REF.
DEBIT
CREDIT
310
310
3,170
3,170
Cash Payment Entry
5 Salary Payable
Salary Expense
Cash
Chapter 4
310
190
500
Completing the Accounting Cycle
303
(continued)
P 4A-1
Req. 4
Salary Payable
Nov. 1
310 Oct. 31
310
Salary Expense
Oct. 31 2,860 Oct. 31
31
310
Nov. 5
500 Nov. 1
Nov. 5
190
3,170
310
Journal
DATE
Oct.
Oct.
Nov.
Nov.
ACCOUNTS AND EXPLANATIONS
Adjusting Entry
31 Salary Expense
Salary Payable
Closing Entry
31 Income Summary
Salary Expense
POST.
REF.
DEBIT
CREDIT
310
310
3,170
3,170
Reversing Entry
1 Salary Payable
Salary Expense
310
Cash Payment Entry
5 Salary Expense
Cash
500
310
500
Salary Payable’s balance is $0 and Salary Expense’s balance is
$190 regardless of whether the reversing entry is used or not.
304
Accounting 6/e Solutions Manual