SOLUTIONS TO EXERCISES—SET B
EXERCISE 3-1B
1.
False. Adjusting entries are necessary to update the accounting records
to the accrual basis.
2.
True.
3.
True.
4.
False. Accounting time periods can be any length, and are generally a
month, a quarter, or a year.
5.
True.
6.
False. All calendar years are fiscal years, but not all fiscal years are
calendar years. An accounting time period that is one year in length is
referred to as a fiscal year. A fiscal year that starts on January 1 and
ends on December 31 is a calendar year.
EXERCISE 3-2B
(a)
Cash received from revenue ...................................................
Cash paid for expenses ............................................................
Cash-basis net income...................................................
$150,000
(100,000)
$ 50,000
(b)
Revenues [($150,000 – $30,000) + $47,000]........................
Expenses [($100,000 – $30,000) + $44,000] ........................
Accrual-basis net income..............................................
$167,000
(114,000)
$ 53,000
EXERCISE 3-3B
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Prepaid expense.
Accrued expense.
Accrued expense.
Accrued revenue.
Unearned revenue.
Prepaid expense.
Accrued revenue.
Prepaid expense.
Unearned revenue.
Prepaid expense.
Accrued expense.
© 2008
For Instructor Use Only
3-1
EXERCISE 3-4B
1.
2.
3.
4.
5.
6.
7.
Interest Expense..............................................................
Interest Payable .......................................................
($25,000 X 12% X 3/12)
750
Supplies Expense............................................................
Supplies......................................................................
($2,650 – $700)
1,950
Depreciation Expense....................................................
Accumulated Depreciation—Equipment .........
2,000
Insurance Expense .........................................................
Prepaid Insurance ...................................................
($2,520 X 5/12)
1,050
Unearned Consulting Revenue...................................
Consulting Revenue...............................................
($50,000 X 1/4)
12,500
Accounts Receivable .....................................................
Consulting Revenue...............................................
5,300
Salaries Expense .............................................................
Salaries Payable ......................................................
($10,000 X 2/5)
4,000
© 2008
For Instructor Use Only
750
1,950
2,000
1,050
12,500
5,300
4,000
3-2
EXERCISE 3-5B
(a)
Type of Adjustment
(b)
Accounts before Adjustment
1.
Prepaid Expenses
Assets Overstated
Expenses Understated
2.
Accrued Revenues
Assets Understated
Revenues Understated
3.
Unearned Revenues
Liabilities Overstated
Revenues Understated
4.
Accrued Expenses
Expenses Understated
Liabilities Understated
5.
Prepaid Expenses
Assets Overstated
Expenses Understated
6.
Accrued Expenses
Expenses Understated
Liabilities Understated
Item
EXERCISE 3-6B
1.
Mar. 31
2.
3.
4.
5.
© 2008
31
31
31
31
Depreciation Expense ($500 X 3) ....................
Accumulated Depreciation—
Equipment .................................................
1,500
Unearned Rent.......................................................
Rent Revenue ($10,800 X 1/4)..................
2,700
Interest Expense ...................................................
Interest Payable ...........................................
750
Supplies Expense.................................................
Supplies ($3,400 – $1,100) ........................
2,300
Insurance Expense ($4,200 X 3/24).................
Prepaid Insurance .......................................
525
For Instructor Use Only
1,500
2,700
750
2,300
525
3-3
EXERCISE 3-7B
1.
Jan. 31
2.
31
3.
31
31
4.
31
5.
31
Accounts Receivable...........................................
Service Revenue...........................................
1,280
Utilities Expense ...................................................
Utilities Payable............................................
365
Depreciation Expense .........................................
Accumulated Depreciation—
Dental Equipment....................................
500
Interest Expense ...................................................
Interest Payable............................................
600
Insurance Expense ($9,600 ÷ 12).....................
Prepaid Insurance........................................
800
Supplies Expense ($2,300 – $700)...................
Supplies ..........................................................
1,600
1,280
365
500
600
800
1,600
EXERCISE 3-8B
1.
Oct. 31
2.
3.
4.
5.
© 2008
31
31
31
31
Advertising Supplies Expense .........................
Advertising Supplies ..................................
($2,500 – $700)
1,800
Insurance Expense...............................................
Prepaid Insurance........................................
75
Depreciation Expense .........................................
Accumulated Depreciation—
Office Equipment.....................................
100
Unearned Revenue ...............................................
Service Revenue...........................................
(2/3 X $1,200)
800
Accounts Receivable ...........................................
Service Revenue...........................................
375
For Instructor Use Only
1,800
75
100
800
375
3-4
EXERCISE 3-8B (Continued)
6.
Oct. 31
7.
31
Interest Expense ............................................
Interest Payable ....................................
($5,000 X 6% X 1/12)
25
Salaries Expense ...........................................
Salaries Payable....................................
(3 X $350)
1,050
25
1,050
EXERCISE 3-9B
BENNING CO.
Income Statement
For the Month Ended July 31, 2008
Revenues
Service revenue ($6,700 + $650) ...................................
Expenses
Wages expense ($2,500 + $350)....................................
Supplies expense ($1,700 – $250) ................................
Depreciation expense.......................................................
Insurance expense ............................................................
Utilities expense.................................................................
Total expenses...........................................................
Net income ....................................................................................
$7,350
$2,850
1,450
225
600
500
5,625
$1,725
EXERCISE 3-10B
Answer
Computation
(a) Supplies balance = $300
Supplies expense
Add: Supplies (1/31)
Less: Supplies purchased
Supplies (1/1)
(b) Total premium = $6,000
Total premium = Monthly premium X 12;
$500 X 12 = $6,000
Purchase date = June 1, 2007
© 2008
For Instructor Use Only
$1,100
900
(1,700)
$ 300
Purchase date: On Jan. 31, there are
4 months’ coverage remaining ($500 X 4).
Thus, the purchase date was 8 months
earlier on June 1, 2007.
3-5
EXERCISE 3-10B (Continued)
(c) Salaries payable = $1,350
Cash paid
Salaries payable (1/31/08)
$4,000
1,000
5,000
3,650
$1,350
Less: Salaries expense
Salaries payable (12/31/07)
(d) Unearned revenue = $1,050
Service revenue
Unearned service revenue
(1/31/08)
$3,500
550
4,050
3,000
Cash received in January
Unearned service revenue
(12/31/07)
$1,050
EXERCISE 3-11B
(a) July 10
14
15
20
(b) July 31
31
31
31
© 2008
Supplies ...................................................................
Cash..................................................................
1,500
Cash ..........................................................................
Service Revenue...........................................
3,300
Salaries Expense...................................................
Cash..................................................................
1,400
Cash ..........................................................................
Unearned Revenue ......................................
1,200
Supplies Expense .................................................
Supplies ..........................................................
1,900
Accounts Receivable...........................................
Service Revenue...........................................
900
Salaries Expense...................................................
Salaries Payable ...........................................
850
Unearned Revenue ...............................................
Service Revenue...........................................
1,800
For Instructor Use Only
1,500
3,300
1,400
1,200
1,900
900
850
1,800
3-6
EXERCISE 3-12B
Aug. 31
31
31
31
31
31
Accounts Receivable............................................
Service Revenue ...........................................
1,300
Office Supplies Expense .....................................
Office Supplies ..............................................
1,900
Insurance Expense................................................
Prepaid Insurance.........................................
1,400
Depreciation Expense ..........................................
Accumulated Depreciation—Office
Equipment...................................................
800
Salaries Expense ...................................................
Salaries Payable............................................
1,400
Unearned Rent ........................................................
Rent Revenue.................................................
1,100
1,300
1,900
1,400
800
1,400
1,100
EXERCISE 3-13B
VASQUEZ COMPANY
Income Statement
For the Year Ended August 31, 2008
Revenues
Service revenue..................................................................
Rent revenue .......................................................................
Total revenues ...........................................................
Expenses
Salaries expense................................................................
Rent expense ......................................................................
Office supplies expense ..................................................
Insurance expense ............................................................
Depreciation expense.......................................................
Total expenses...........................................................
Net income ....................................................................................
© 2008
For Instructor Use Only
$39,300
13,100
52,400
$17,400
14,000
1,900
1,400
800
35,500
$16,900
3-7
EXERCISE 3-13B (Continued)
VASQUEZ COMPANY
Retained Earnings Statement
For the Year Ended August 31, 2008
Retained earnings, September 1, 2007 ..................................................
Add: Net income..........................................................................................
Retained earnings, August 31, 2008 .......................................................
$ 4,700
16,900
$21,600
VASQUEZ COMPANY
Balance Sheet
August 31, 2008
Assets
Cash................................................................................................
Accounts receivable .................................................................
Office supplies ............................................................................
Prepaid insurance......................................................................
Office equipment........................................................................
Less: Accum. depreciation—office equipment...............
Total assets ................................................................
$ 7,700
13,300
900
2,800
$16,000
4,800
11,200
$35,900
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable ..............................................................
Salaries payable .................................................................
Unearned rent......................................................................
Total liabilities ............................................................
Stockholders’ equity
Common stock....................................................................
Retained earnings..............................................................
Total liabilities and stockholders’ equity ..........
© 2008
For Instructor Use Only
$ 2,200
1,400
700
4,300
$10,000
21,600
31,600
$35,900
3-8
EXERCISE 3-14B
(a) 1.
2.
3.
4.
5.
Cash ...............................................................................
Fees Receivable ................................................
12,000
Unearned Fees............................................................
Fees Revenue.....................................................
27,000
(a) Cash ......................................................................
Unearned Fees..........................................
38,000
(b) Unearned Fees...................................................
($38,000 – $18,000)
Fees Revenue............................................
20,000
Fees Receivable .........................................................
Fees Revenue.....................................................
($161,000 – $27,000 – $20,000)
114,000
Cash ...............................................................................
Fees Receivable ................................................
($114,000 – $19,000)
95,000
12,000
27,000
38,000
20,000
114,000
95,000
(b) Cash received with respect to fees = $12,000 + $95,000 + $38,000
= $145,000
*EXERCISE 3-15B
1.
2.
3.
Prepaid Insurance ...........................................................
Insurance Expense..................................................
($3,600 X 7/12)
2,100
Consulting Revenue .......................................................
Unearned Consulting Revenue ...........................
($65,000 X 4/5)
52,000
Supplies ..............................................................................
Supplies Expense....................................................
1,200
© 2008
For Instructor Use Only
2,100
52,000
1,200
3-9
*EXERCISE 3-16B
(a) Jan. 2
10
15
1/2
1/15
Insurance Expense.............................................
Cash................................................................
2,700
Supplies Expense ...............................................
Cash................................................................
2,100
Cash ........................................................................
Service Revenue.........................................
7,000
Insurance Expense
2,700
Cash
7,000 1/2
1/10
(b) Jan. 31
31
31
1/10
2,700
2,100
7,000
Supplies Expense
2,100
2,700
2,100
Service Revenue
1/15
Prepaid Insurance ($225 X 11 months)........
Insurance Expense....................................
2,475
Supplies .................................................................
Supplies Expense ......................................
900
Service Revenue .................................................
Unearned Revenue ....................................
2,500
Insurance Expense
1/2 2,700 1/31 2,475
Bal.
225
Prepaid Insurance
1/31 2,475
Supplies Expense
1/10 2,100 1/31
900
Bal. 1,200
1/31
Supplies
900
2,475
900
For Instructor Use Only
2,500
Service Revenue
1/31 2,500 1/15 7,000
Bal. 4,500
Unearned Revenue
1/31 2,500
(c) Insurance expense..................................................................................
Supplies expense....................................................................................
Service revenue .......................................................................................
Prepaid insurance...................................................................................
Supplies......................................................................................................
Unearned revenue...................................................................................
© 2008
7,000
$ 225
1,200
4,500
2,475
900
2,500
3-10
SOLUTIONS TO PROBLEMS
PROBLEM 3-1C
(a)
Date
Account Titles
2008
May 31 Supplies Expense.....................................
Supplies ............................................
Ref.
Debit
560
130
900
31 Travel Expense ..........................................
Travel Payable.................................
510
210
250
31 Insurance Expense...................................
Prepaid Insurance..........................
($3,600 ÷ 24 months)
540
120
150
31 Unearned Service Revenue ...................
Service Revenue.............................
($2,000 – $400)
230
400
1,600
31 Salaries Expense ......................................
Salaries Payable .............................
[(3/5 X $800) X 2 employees]
510
220
960
31 Depreciation Expense .............................
Accumulated Depreciation—
Office Furniture ..........................
($10,200 ÷ 60 months)
530
170
31 Accounts Receivable...............................
Service Revenue.............................
110
400
J4
Credit
900
250
150
1,600
960
136
170
1,200
1,200
(b)
Cash
Date
Explanation
2008
May 31 Balance
© 2008
For Instructor Use Only
Ref.
Debit
Credit
No. 101
Balance
5,700
3-11
PROBLEM 3-1C (Continued)
Accounts Receivable
Date
Explanation
2008
May 31 Balance
31 Adjusting
Prepaid Insurance
Date
Explanation
2008
May 31 Balance
31 Adjusting
Supplies
Date
Explanation
2008
May 31 Balance
31 Adjusting
Office Furniture
Date
Explanation
2008
May 31 Balance
Ref.
J4
Ref.
Debit
1,200
6,000
7,200
Debit
Credit
No. 120
Balance
150
3,600
3,450
Credit
No. 130
Balance
900
1,900
1,000
Credit
No. 135
Balance
J4
Ref.
Debit
J4
Ref.
Debit
10,200
Accumulated Depreciation—Office Furniture
Date
Explanation
Ref.
Debit
2008
May 31 Adjusting
J4
Accounts Payable
Date
Explanation
2008
May 31 Balance
© 2008
For Instructor Use Only
Credit
Ref.
No. 110
Balance
Debit
Credit
No. 136
Balance
170
170
Credit
No. 200
Balance
4,500
3-12
PROBLEM 3-1C (Continued)
Travel Payable
Date
Explanation
2008
May 31 Adjusting
Salaries Payable
Date
Explanation
2008
May 31 Adjusting
Unearned Service Revenue
Date
Explanation
2008
May 31 Balance
31 Adjusting
Common Stock
Date
Explanation
2008
May 31 Balance
Service Revenue
Date
Explanation
2008
May 31 Balance
31 Adjusting
31 Adjusting
Salaries Expense
Date
Explanation
2008
May 31 Balance
31 Adjusting
© 2008
For Instructor Use Only
Ref.
Debit
J4
Ref.
Debit
J4
Ref.
J4
Ref.
Debit
Credit
No. 210
Balance
250
250
Credit
No. 220
Balance
960
960
Credit
No. 230
Balance
1,600
2,000
400
Debit
No. 311
Balance
Credit
Ref.
17,700
Debit
J4
J4
Ref.
J4
Debit
960
Credit
No. 400
Balance
1,600
1,200
7,500
9,100
10,300
Credit
510
Balance
3,400
4,360
3-13
PROBLEM 3-1C (Continued)
Rent Expense
Date
Explanation
2008
May 31 Balance
Depreciation Expense
Date
Explanation
2008
May 31 Adjusting
Insurance Expense
Date
Explanation
2008
May 31 Adjusting
Travel Expense
Date
Explanation
2008
May 31 Adjusting
Supplies Expense
Date
Explanation
2008
May 31 Adjusting
© 2008
For Instructor Use Only
Ref.
Debit
Credit
Ref.
J4
Ref.
J4
Ref.
J4
Ref.
J4
No. 520
Balance
900
Debit
Credit
No. 530
Balance
170
170
Debit
No. 540
Balance
Credit
150
150
Debit
No. 550
Balance
Credit
250
250
Debit
No. 560
Balance
900
Credit
900
3-14
PROBLEM 3-1C (Continued)
(c)
HAMBONE CONSULTING
Adjusted Trial Balance
May 31, 2008
Cash.................................................................................
Accounts Receivable .................................................
Prepaid Insurance .......................................................
Supplies..........................................................................
Office Furniture ............................................................
Accumulated Depreciation—Office
Furniture ....................................................................
Accounts Payable .......................................................
Travel Payable ..............................................................
Salaries Payable ..........................................................
Unearned Service Revenue......................................
Common Stock.............................................................
Service Revenue..........................................................
Salaries Expense .........................................................
Rent Expense................................................................
Depreciation Expense................................................
Insurance Expense .....................................................
Travel Expense.............................................................
Supplies Expense........................................................
© 2008
For Instructor Use Only
Debit
$ 5,700
7,200
3,450
1,000
10,200
Credit
$
170
4,500
250
960
400
17,700
10,300
4,360
900
170
150
250
900
$34,280
$34,280
3-15
PROBLEM 3-2C
(a)
Date
May 31
31
31
31
31
31
31
Account Titles
Insurance Expense....................................
Prepaid Insurance ...........................
($2,280 X 1/12)
Ref.
722
130
Debit
190
Supplies Expense ......................................
Supplies ($2,200 – $750) ...............
631
126
1,450
Depreciation Expense—Lodge..............
($3,000 X 1/12)
Accumulated Depreciation—
Lodge ..............................................
619
250
Depreciation Expense—Furniture ........
($2,700 X 1/12)
Accumulated Depreciation—
Furniture ........................................
621
Interest Expense.........................................
Interest Payable ...............................
[($35,000 X 12%) X 1/12]
718
230
350
Unearned Rent ............................................
Rent Revenue ...................................
(2/3 X $3,300 – $2,200)
208
429
2,200
Salaries Expense........................................
Salaries Payable ..............................
726
212
750
J1
Credit
190
1,450
142
250
225
150
225
350
2,200
750
(b)
Cash
Date
Explanation
May 31 Balance
© 2008
For Instructor Use Only
Ref.
Debit
Credit
No. 101
Balance
3,500
3-16
PROBLEM 3-2C (Continued)
Supplies
Date
Explanation
May 31 Balance
31 Adjusting
Prepaid Insurance
Date
Explanation
May 31 Balance
31 Adjusting
Land
Date
Explanation
May 31 Balance
Lodge
Date
Explanation
May 31 Balance
Accumulated Depreciation—Lodge
Date
Explanation
May 31 Adjusting
Furniture
Date
Explanation
May 31 Balance
Ref.
J1
Ref.
J1
Ref.
Ref.
Ref.
J1
Ref.
Accumulated Depreciation—Furniture
Date
Explanation
Ref.
May 31 Adjusting
J1
© 2008
For Instructor Use Only
Debit
Credit
1,450
Debit
Credit
190
Debit
Debit
Debit
Debit
Debit
No. 126
Balance
2,200
750
No. 130
Balance
2,280
2,090
Credit
No. 140
Balance
12,000
Credit
No. 141
Balance
60,000
Credit
250
Credit
Credit
225
No. 142
Balance
250
No. 149
Balance
15,000
No. 150
Balance
225
3-17
PROBLEM 3-2C (Continued)
Accounts Payable
Date
Explanation
May 31 Balance
Unearned Rent
Date
Explanation
May 31 Balance
31 Adjusting
Salaries Payable
Date
Explanation
May 31 Adjusting
Interest Payable
Date
Explanation
May 31 Adjusting
Mortgage Payable
Date
Explanation
May 31 Balance
Common Stock
Date
Explanation
May 31 Balance
Rent Revenue
Date
Explanation
May 31 Balance
31 Adjusting
© 2008
For Instructor Use Only
Ref.
Ref.
J1
Ref.
J1
Ref.
J1
Ref.
Ref.
Ref.
J1
Debit
Debit
Credit
Credit
2,200
Debit
Debit
Debit
Debit
Debit
No. 201
Balance
4,800
No. 208
Balance
3,300
1,100
Credit
750
No. 212
Balance
750
Credit
350
No. 230
Balance
350
Credit
No. 275
Balance
35,000
Credit
No. 311
Balance
46,380
Credit
2,200
No. 429
Balance
10,300
12,500
3-18
PROBLEM 3-2C (Continued)
Advertising Expense
Date
Explanation
May 31 Balance
Depreciation Expense—Lodge
Date
Explanation
May 31 Adjusting
Depreciation Expense—Furniture
Date
Explanation
May 31 Adjusting
Supplies Expense
Date
Explanation
May 31 Adjusting
Interest Expense
Date
Explanation
May 31 Adjusting
Insurance Expense
Date
Explanation
May 31 Adjusting
Salaries Expense
Date
Explanation
May 31 Balance
31 Adjusting
© 2008
For Instructor Use Only
Ref.
Ref.
J1
Ref.
J1
Ref.
J1
Ref.
J1
Ref.
J1
Ref.
J1
Debit
Debit
250
Debit
225
Debit
1,450
Debit
350
Debit
190
Debit
750
Credit
No. 610
Balance
600
Credit
No. 619
Balance
250
Credit
No. 621
Balance
225
Credit
No. 631
Balance
1,450
Credit
No. 718
Balance
350
Credit
No. 722
Balance
190
Credit
No. 726
Balance
3,300
4,050
3-19
PROBLEM 3-2C (Continued)
Utilities Expense
Date
Explanation
May 31 Balance
(c)
Ref.
Debit
Credit
No. 732
Balance
900
MOUND VIEW MOTEL
Adjusted Trial Balance
May 31, 2008
Cash ............................................................................
Supplies .....................................................................
Prepaid Insurance...................................................
Land.............................................................................
Lodge ..........................................................................
Accumulated Depreciation—Lodge..................
Furniture ....................................................................
Accumulated Depreciation—Furniture............
Accounts Payable...................................................
Unearned Rent .........................................................
Salaries Payable......................................................
Interest Payable.......................................................
Mortgage Payable ...................................................
Common Stock ........................................................
Rent Revenue...........................................................
Advertising Expense..............................................
Depreciation Expense—Lodge...........................
Depreciation Expense—Furniture.....................
Supplies Expense ...................................................
Interest Expense .....................................................
Insurance Expense.................................................
Salaries Expense ....................................................
Utilities Expense .....................................................
© 2008
For Instructor Use Only
Debit
$ 3,500
750
2,090
12,000
60,000
Credit
$
250
15,000
225
4,800
1,100
750
350
35,000
46,380
12,500
600
250
225
1,450
350
190
4,050
900
$101,355
$101,355
3-20
PROBLEM 3-2C (Continued)
(d)
MOUND VIEW MOTEL
Income Statement
For the Month Ended May 31, 2008
Revenues
Rent revenue ............................................................
Expenses
Salaries expense.....................................................
Supplies expense ...................................................
Utilities expense......................................................
Advertising expense ..............................................
Interest expense......................................................
Depreciation expense—lodge ............................
Depreciation expense—furniture ......................
Insurance expense .................................................
Total expenses................................................
Net income .........................................................................
$12,500
$4,050
1,450
900
600
350
250
225
190
8,015
$ 4,485
MOUND VIEW MOTEL
Retained Earnings Statement
For the Month Ended May 31, 2008
Retained earnings, May 1...................................................................
Add: Net income .................................................................................
Retained earnings, May 31 ................................................................
© 2008
For Instructor Use Only
$
0
4,485
$4,485
3-21
PROBLEM 3-2C (Continued)
MOUND VIEW MOTEL
Balance Sheet
May 31, 2008
Assets
Cash................................................................................
Supplies.........................................................................
Prepaid insurance......................................................
Land................................................................................
Lodge .............................................................................
Less: Accumulated depreciation—lodge..........
Furniture........................................................................
Less: Accumulated depreciation—furniture .......
Total assets ................................................
$ 3,500
750
2,090
12,000
$60,000
250
15,000
225
59,750
14,775
$92,865
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable ......................................................
Mortgage payable.......................................................
Unearned rent..............................................................
Salaries payable .........................................................
Interest payable ..........................................................
Total liabilities ....................................................
Stockholders’ equity
Common stock ............................................................ $46,380
Retained earnings ......................................................
4,485
Total liabilities and stockholders’ equity .....
© 2008
For Instructor Use Only
$ 4,800
35,000
1,100
750
350
42,000
50,865
$92,865
3-22
PROBLEM 3-3C
(a) Sept.30 A
(b)
Accounts Receivable ..................................
Commission Revenue...........................
800
800
30 B Supplies Expense...........................................
Supplies .......................................................
600
30 C Rent Expense...................................................
Prepaid Rent...............................................
900
30 D Depreciation Expense ...................................
Accum. Depreciation—Equipment ........
500
30 E Salaries Expense ............................................
Salaries Payable........................................
725
30 F Interest Expense .............................................
Interest Payable ........................................
100
30 G Unearned Rent.................................................
Rent Revenue.............................................
850
600
900
500
725
100
850
POBLANO CO.
Income Statement
For the Quarter Ended September 30, 2008
Revenues
Commission revenue..................................................
Rent revenue .................................................................
Total revenues .....................................................
Expenses
Salaries expense..........................................................
Rent expense.................................................................
Utilities expense...........................................................
Supplies expense ........................................................
Depreciation expense.................................................
Interest expense...........................................................
Total expenses.....................................................
Net income ..............................................................................
© 2008
For Instructor Use Only
$16,800
2,260
19,060
$8,725
2,800
1,510
600
500
100
14,235
$ 4,825
3-23
PROBLEM 3-3C (Continued)
POBLANO CO.
Retained Earnings Statement
For the Quarter Ended September 30, 2008
Retained earnings, July 1, 2008 ......................................................
Add: Net income ................................................................................
Less: Dividends...................................................................................
Retained earnings, September 30, 2008.......................................
$
0
4,825
4,825
1,600
$3,225
POBLANO CO.
Balance Sheet
September 30, 2008
Assets
Cash..........................................................................................
Accounts receivable............................................................
Supplies...................................................................................
Prepaid rent............................................................................
Equipment ..............................................................................
Less: Accum. depreciation—equipment.....................
Total assets ..........................................................
$ 8,700
11,200
900
1,300
$18,000
500
17,500
$39,600
Liabilities and Stockholders’ Equity
Liabilities
Notes payable................................................................
Accounts payable ........................................................
Salaries payable ...........................................................
Unearned rent................................................................
Interest payable ............................................................
Total liabilities ......................................................
Stockholders’ equity
Common stock .............................................................. $22,000
Retained earnings ........................................................
3,225
Total liabilities and stockholders’ equity ....
$10,000
2,500
725
1,050
100
$14,375
25,225
$39,600
(c) Interest of 12% per year equals a monthly rate of 1%; monthly interest
is $100 ($10,000 X 1%). Since total interest expense is $100, the note
has been outstanding one month.
© 2008
For Instructor Use Only
3-24
PROBLEM 3-4C
1.
2.
3.
4.
Dec. 31
Dec. 31
Dec. 31
Dec. 31
© 2008
Insurance Expense ..............................................
Prepaid Insurance .......................................
[($7,200 ÷ 3) = $2,400
[($4,500 ÷ 2) = 2,250
$4,650]
4,650
Unearned Subscriptions ....................................
Subscription Revenue................................
[Oct. 200 X $45 X 3/12 = $2,250
[Nov. 300 X $45 X 2/12 = 2,250
[Dec. 500 X $45 X 1/12 = 1,875
$6,375]
6,375
Interest Expense ...................................................
Interest Payable ...........................................
($100,000 X 9% X 2/12)
1,500
Salaries Expense ..................................................
Salaries Payable...........................................
[5 X $700 X 2/5 = $1,400
[3 X $500 X 2/5 =
600
$2,000]
2,000
For Instructor Use Only
4,650
6,375
1,500
2,000
3-25
PROBLEM 3-4C (Continued)
A review of the ledger of Obi Company at December 31, 2008, produces the
following data pertaining to the preparation of annual adjusting entries.
Note: Prepare adjusting entries.
1. Prepaid Insurance $9,900. The company has separate insurance
policies on its buildings and its motor vehicles. Policy B4564 on the
building was purchased on April 1, 2007, for $7,200. The policy has a
term of 3 years. Policy A2958 on the vehicles was purchased on
January 1, 2008, for $4,500. This policy has a term of 2 years.
2. Unearned Subscriptions $45,000. The company began selling magazine
subscriptions in 2008 on an annual basis. The magazine is published
monthly. The selling price of a subscription is $45. A review of
subscription contracts reveals the following.
Subscription Date
October 1
November 1
December 1
Number of Subscription
200
300
500
1,000
3. Notes Payable $100,000. This balance consists of a note for 9 months
at an annual interest rate of 9%, dated November 1.
© 2008
For Instructor Use Only
3-26
PROBLEM 3-5C
(a), (c) & (e)
Cash
Date
Nov. 1
8
10
12
20
22
25
29
Explanation
Balance
Accounts Receivable
Date
Explanation
Nov. 1 Balance
10
27
Supplies
Date
Explanation
Nov. 1 Balance
17
30 Adjusting
Store Equipment
Date
Explanation
Nov. 1 Balance
15
© 2008
For Instructor Use Only
Ref.
J1
J1
J1
J1
J1
J1
J1
Ref.
J1
J1
Ref.
J1
J1
Ref.
J1
Debit
Credit
1,700
3,420
3,100
2,700
400
1,700
600
Debit
Credit
3,420
900
Debit
Credit
700
1,300
Debit
2,000
Credit
No. 101
Balance
2,400
700
4,120
7,220
4,520
4,120
2,420
3,020
No. 112
Balance
4,250
830
1,730
No. 126
Balance
1,800
2,500
1,200
No. 153
Balance
12,000
14,000
3-27
PROBLEM 3-5C (Continued)
Accumulated Depreciation—Store Equipment
Date
Explanation
Ref.
Debit
Nov. 1 Balance
30 Adjusting
J1
Accounts Payable
Date
Explanation
Nov. 1 Balance
15
17
20
Unearned Service Revenue
Date
Explanation
Nov. 1 Balance
29
30 Adjusting
Salaries Payable
Date
Explanation
Nov. 1 Balance
8
30 Adjusting
Common Stock
Date
Explanation
Nov. 1 Balance
Retained Earnings
Date
Explanation
Nov. 1 Balance
© 2008
For Instructor Use Only
Ref.
J1
J1
J1
Ref.
J1
J1
Ref.
J1
J1
Ref.
Ref.
Debit
Credit
200
Credit
2,000
700
2,700
Debit
Credit
600
1,250
Debit
Credit
700
400
Debit
Debit
No. 154
Balance
2,000
2,200
No. 201
Balance
2,600
4,600
5,300
2,600
No. 209
Balance
1,200
1,800
550
No. 212
Balance
700
0
400
Credit
No. 311
Balance
10,000
Credit
No. 320
Balance
3,950
3-28
PROBLEM 3-5C (Continued)
Service Revenue
Date
Explanation
Nov. 12
27
30 Adjusting
Depreciation Expense
Date
Explanation
Nov. 30 Adjusting
Supplies Expense
Date
Explanation
Nov. 30 Adjusting
Salaries Expense
Date
Explanation
Nov. 8
25
30 Adjusting
Rent Expense
Date
Explanation
Nov. 22
© 2008
For Instructor Use Only
Ref.
J1
J1
J1
Ref.
J1
Ref.
J1
Ref.
J1
J1
J1
Ref.
J1
Debit
Debit
200
Debit
1,300
Debit
1,000
1,700
400
Debit
400
Credit
3,100
900
1,250
No. 407
Balance
3,100
4,000
5,250
Credit
No. 615
Balance
200
Credit
No. 631
Balance
1,300
Credit
Credit
No. 726
Balance
1,000
2,700
3,100
No. 729
Balance
400
3-29
PROBLEM 3-5C (Continued)
(b)
Date
Nov.
8
10
12
15
17
20
22
25
27
29
© 2008
General Journal
Account Titles and Explanation
Salaries Payable ........................................
Salaries Expense .......................................
Cash ......................................................
Ref.
212
726
101
Debit
700
1,000
Cash...............................................................
Accounts Receivable ......................
101
112
3,420
Cash...............................................................
Service Revenue...............................
101
407
3,100
Store Equipment........................................
Accounts Payable ............................
153
201
2,000
Supplies........................................................
Accounts Payable ............................
126
201
700
Accounts Payable .....................................
Cash......................................................
201
101
2,700
Rent Expense..............................................
Cash......................................................
729
101
400
Salaries Expense .......................................
Cash......................................................
726
101
1,700
Accounts Receivable ...............................
Service Revenue...............................
112
407
900
Cash...............................................................
Unearned Service Revenue...........
101
209
600
For Instructor Use Only
J1
Credit
1,700
3,420
3,100
2,000
700
2,700
400
1,700
900
600
3-30
PROBLEM 3-5C (Continued)
(d) & (f)
MORELLI EQUIPMENT REPAIR
Trial Balances
November 30, 2008
Cash....................................................
Accounts Receivable ....................
Supplies.............................................
Store Equipment.............................
Accumulated Depreciation..........
Accounts Payable ..........................
Unearned Service Revenue.........
Salaries Payable .............................
Common Stock................................
Retained Earnings..........................
Service Revenue.............................
Depreciation Expense...................
Supplies Expense...........................
Salaries Expense ............................
Rent Expense...................................
(e) 1. Nov. 30
2.
3.
4.
© 2008
30
30
30
Before
After
Adjustment
Adjustment
Dr.
Cr.
Dr.
Cr.
$ 3,020
$ 3,020
1,730
1,730
1,200
2,500
14,000
14,000
$ 2,000
$ 2,200
2,600
2,600
1,800
550
400
10,000
10,000
3,950
3,950
4,000
5,250
200
1,300
3,100
2,700
400
400
$24,350 $24,350 $24,950 $24,950
Supplies Expense ..............................
Supplies ($2,500 – $1,200) .......
631
126
1,300
Salaries Expense................................
Salaries Payable..........................
726
212
400
Depreciation Expense ......................
Accumulated Depreciation—
Store Equipment.....................
615
200
Unearned Service Revenue ............
Service Revenue .........................
209
407
For Instructor Use Only
1,300
400
154
200
1,250
1,250
3-31
PROBLEM 3-5C (Continued)
(g)
MORELLI EQUIPMENT REPAIR
Income Statement
For the Month Ended November 30, 2008
Revenues
Service revenue .......................................................
Expenses
Salaries expense .....................................................
Supplies expense....................................................
Rent expense ............................................................
Depreciation expense ............................................
Total expenses ................................................
Net Income..........................................................................
$5,250
$3,100
1,300
400
200
5,000
$ 250
MORELLI EQUIPMENT REPAIR
Retained Earnings Statement
For the Month Ended November 30, 2008
Retained earnings, November 1......................................................
Plus: Net income................................................................................
Retained earnings, November 30....................................................
© 2008
For Instructor Use Only
$3,950
250
$4,200
3-32
PROBLEM 3-5C (Continued)
MORELLI EQUIPMENT REPAIR
Balance Sheet
November 30, 2008
Assets
Cash ...........................................................................................
$ 3,020
Accounts receivable .............................................................
1,730
Supplies ....................................................................................
1,200
Equipment ................................................................................ $14,000
Less: Accumulated depreciation—
equipment...............................................................
2,200 11,800
Total assets.....................................................................
$17,750
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable .........................................................
$ 2,600
Unearned service revenue.........................................
550
Salaries payable ............................................................
400
Total liabilities.......................................................
3,550
Stockholders’ equity
Common stock............................................................... $10,000
Retained earnings.........................................................
4,200 14,200
Total liabilities and stockholders’ equity.....
$17,750
© 2008
For Instructor Use Only
3-33