CH 3

CHAPTER 3
Adjusting the Accounts

ASSIGNMENT CLASSIFICATION TABLE
Study Objectives
Questions
Brief
Exercises
Exercises
Problems
Set A
Problems
Set B
1. Explain the time period

assumption.
2. Distinguish between the revenue

recognition principle and the
matching principle.
2, 3, 4
3. Explain the accrual basis of

accounting.
5, 6
4. Explain why and distinguish when

adjusting entries are needed.
7, 8
5. Identify and distinguish between

the major types of adjusting
entries.
6. Identify and prepare adjusting

entries for prepayments.
10, 11, 17,

21, 22
2, 3, 4, 7,
8, 9, *13
3, 4, 5, 6, 7,
8, 9, 10, 11
2, 3, 5, 6,
7, 8, 9, 10,
11
2, 3, 5, 6,
7, 8, 9, 10,
11
7. Identify and prepare adjusting

entries for accruals.
12, 13, 14,

15, 16, 17,
21, 22
5, 7, 8, 9
4, 5, 6, 7, 8,
9, 10, 11
3, 4, 5, 6,
7, 8, 9, 10,
11, *13
3, 4, 5, 6,
7, 8, 9, 10,
11, *13
8. Identify and prepare the adjusting

entry for amortization.
18, 19, 20,

21, 22
6, 7, 8, 9
6, 7, 8, 9,
10, 11
7, 8, 9, 10,
11, *13
3, 7, 8, 9,
10, 11,
*13
9. Describe the nature and purpose of

an adjusted trial balance and
prepare.
23
10, 11
11, 12
9, 10, 11,
*13
9, 10, 11,
*13
*10. Identify and prepare adjusting

entries for the alternative treatment
of prepayments (Appendix 3A).
*24
*12, *13
*13
*12, *13
*12, *13
1, 2
3, 4, 7
3, 4, 7
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the Appendix to each
chapter.
3-1
ASSIGNMENT CHARACTERISTICS TABLE

Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
Simple
10-15
1A
Match adjusting entry type.
2A
Prepare original and adjusting journal entries for

prepayments.
Moderate
20-25
3A
Convert income from cash to accrual basis.
Complex
25-35
4A
Record transactions on accrual basis; convert revenue to

cash receipts.
Complex
25-35
5A
Prepare original and adjusting journal entries.
Moderate
25-35
6A
Prepare adjusting entries.
Moderate
25-35
7A
Prepare accrual-based income statement from cashbased information.
Complex
25-35
8A
Identify effects of adjusting journal entries.
Moderate
10-15
9A
Prepare adjusting entries, post, and prepare adjusted trial

balance.
Moderate
50-60
10A

balance and financial statements.
Moderate
50-60
11A
Prepare adjusting entries and financial statements.
Moderate
45-55
*12A

prepayments, using alternative treatment.
Moderate
20-25
*13A
Prepare adjusting entries, adjusted trial balance and

financial statements, using alternative treatment of
prepayments.
Moderate
55-65
Simple
10-15
1B
Match adjusting entry type.
2B

prepayments.
Moderate
20-25
3B
Convert income from cash to accrual basis.
Complex
25-35
4B
Record transactions on accrual basis; convert revenue to

cash receipts.
Complex
25-35
5B
Prepare original and adjusting journal entries.
Moderate
25-35
6B
Prepare adjusting entries.
Moderate
25-35
7B
Prepare accrual-based income statement from cashbased information.
Complex
25-35
8B
Identify effects of adjusting journal entries.
Moderate
10-15
9B
Prepare adjusting entries, post and prepare adjusted trial

balance.
Moderate
50-60
3-2
Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
10B

balance and financial statements.
Moderate
50-60
11B
Prepare adjusting entries and financial statements.
Moderate
45-55
*12B

prepayments, using alternative treatment.
Moderate
20-25
*13B
Prepare adjusting entries, adjusted trial balance and

financial statements, using alternative treatment of
prepayments.
Moderate
55-65
Cumulative CoverageChapters 2 to 3
Moderate
90-100
3-3
BLOOMS TAXONOMY TABLE
Correlation Chart between Blooms Taxonomy, Study Objectives and End-of-Chapter Material
Study Objectives
1. Explain the time period
assumption.
Knowledge
Comprehension
Q3-1
2. Distinguish between the

revenue recognition
principle and the
matching principle.
Q3-2
Q3-3
Q3-4
3. Explain the accrual basis

of accounting.
Q3-5
Q3-6
E3-1
4. Explain why and

distinguish when
adjusting entries are
needed.
Q3-7
Q3-8
BE3-1
Application
BE3-7
E3-2
P3-3A
P3-4A
P3-7A
P3-3B
P3-4B
P3-7B
5. Identify and distinguish

between the major types
of adjusting entries.
P3-1A
P3-1B
Q3-9
6. Identify and prepare

adjusting entries for
prepayments.
Q3-10
Q3-11
Q3-21
Q3-17
Q3-22
BE3-8
BE3-9
BE3-2
BE3-3
BE3-4
BE3-7
*BE3-13
E3-3
E3-4
E3-5
E3-6
E3-7
E3-8
E3-9
E3-10
E3-11
P3-2A
P3-3A
P3-5A
P3-6A
P3-7A
P3-8A
P3-9A
P3-10A
P3-11A
P3-2B
P3-3B
P3-5B
P3-6B
P3-7B
P3-8B
P3-9B
P3-10B
P3-11B
7. Identify and prepare

adjusting entries for
accruals.
Q3-12
Q3-13
Q3-14
Q3-21
Q3-17
Q3-22
BE3-8
BE3-9
Q3-15
Q3-16
BE3-5
BE3-7
E3-4
E3-5
E3-6
E3-7
E3-8
E3-9
E3-10
E3-11
P3-3A
P3-4A
P3-5A
P2-6A
P3-7A
P3-8A
P3-9A
P3-10A
P3-11A
*P3-13A
P3-3B
P3-4B
P3-5B
P3-6B
P3-7B
P3-8B
P3-9B
P3-10B
P3-11B
*P3-13B
3-4
Analysis
Synthesis
Evaluation
Study Objectives
8. Identify and prepare the
adjusting entry for
amortization.
9. Describe the nature and

purpose of an adjusted
trial balance and
prepare.
*10. Identify and prepare

adjusting entries for the
alternative treatment of
prepayments.
Broadening Your
Perspective
Knowledge
Q3-21
Comprehension
Q3-18
Q3-19
Q3-22
BE3-8
BE3-9
Application
Q3-20
P3-9A
BE3-6
P3-10A
BE3-7
P3-11A
E3-6
*P3-13A
E3-7
P3-3B
E3-8
P3-7B
E3-9
P3-8B
E3-10
P3-9B
E3-11
P3-10B
P3-7A
P3-11B
P3-8A
*P3-13B
Q3-23
BE3-10
BE3-11
E3-11
E3-12
P3-9A
P3-10A
P3-11A
*P3-13A
P3-9B
P3-10B
P3-11B
*P3-13B
*Q3-24
*BE3-12
*BE3-13
*E3-13
*P3-12A
*P3-13A
*P3-12B
*P3-13B
BYP3-1
BYP3-2
BYP3-3
BYP3-4
Cumulative Coverage
3-5
Analysis
Synthesis
Evaluation
BYP3-5
BYP3-6
BYP3-7
ANSWERS TO QUESTIONS
01.
(a) Under the time period assumption, an accountant is required to

determine the relevance of each business transaction to specific
accounting periods, and its effects on those periods.
(b) An accounting time period of one year in length is referred to as a
fiscal year. A fiscal year that extends from January 1 to December
31 is referred to as a calendar year. Accounting periods of less
than one year are called interim periods.
2.
The two generally accepted accounting principles that pertain to

adjusting the accounts are:
1. The revenue recognition principle, which states that revenue
should be recognized in the time period in which it is earned.
2. The matching principle, which states that efforts (expenses)
should be matched with accomplishments (revenues).
03. The law firm should recognize the revenue in April. The revenue
recognition principle states that revenue should be recognized in the
accounting period in which it is earned (i.e., when the work is done).
04. Expenses of $4,500 ($2,000 + $2,500) should be deducted from the
revenues in April. Under the matching principle, efforts (expenses)
should be matched with accomplishments (revenues).
05.
Information presented on an accrual basis is useful because it reveals

relationships that are likely to be important in predicting future
results. To illustrate, under accrual accounting, revenues are
recognized when earned so they can be related to the economic
environment in which they occur. Trends in revenues are thus more
meaningful.
06. The balance in total owners equity should not equal the balance in the
cash account. Owners equity reflects the net amount the owners have
invested in the company, which comprises total assetsnot just cash
net of liabilities.
3-6
Questions Chapter 3 (Continued)

07. No, adjusting entries are required by the revenue recognition and
matching principles.
08. A trial balance may not contain up-to-date information for financial
statements because:
1. Some events are not journalized daily because it is unnecessary
and inefficient to do so.
2. The expiration of some costs occurs with the passage of time
rather than as a result of recurring daily transactions.
3. Some items may be unrecorded because the transaction data are
not known.
09. The three categories of adjusting entries are prepayments, accruals,
and estimates. Prepayments consist of transactions in which the cash
is exchanged in advance resulting in prepaid expenses and unearned
revenues. Accruals consist of transactions in which the cash will be
exchanged later, resulting in accrued revenues and accrued expenses.
Because we dont always know what will happen in the future,
estimates are required. One example of an estimate is the allocation of
the cost of a capital asset over its estimated useful life.
10. If the original purchase was recorded as an asset, then in the adjusting
entry expenses are debited (to increase them) and assets are credited
(to decrease them).
11. In the adjusting entry, liabilities are debited (to decrease them) and
revenues are credited (to increase them).
12. It may have credited unearned revenue or accounts receivable.
13. Asset and revenue. An asset (a receivable) is debited and revenue is
credited.
14. Utilities Expense is debited and Accounts Payable (a liability) is
credited.
3-7

15.
On the income statement, net income was understated $300. Prior to

adjustment, revenues are understated by $900 and expenses are
understated by $600. The impact on net income is $300 ($900 $600).
On the balance sheet, accounts receivable are understated by $900,
accounts payable are understated by $600, and owners equity
understated by $300 (see net income).
16.
The entry is:

Jan. 9 Salaries Payable...............................................
Salaries Expense.............................................
Cash............................................................
17.
(a)
(b)
(c)
(d)
(e)
(f)
1,700
3,300
5,000
Accrued revenues.
Unearned revenues.
Accrued expenses.
Accrued expenses, prepaid expenses, or estimates (amortization).
Prepaid expenses or estimates (amortization).
Accrued revenues or unearned revenues.
18. No. Amortization is the process of allocating the cost of an asset to

expense over its useful life in a rational and systematic manner.
Amortization results in the presentation of the book value of the asset,
not its market value.
19. Amortization expense is an expense account whose normal balance is
a debit. This account shows the cost that has expired during the
current accounting period. Accumulated amortization is a contra asset
account whose normal balance is a credit. The balance in this account
is the total of all the amortization that has been recognized from the
date of acquisition to the balance sheet date.
*20. Equipment............................................$12,000
Less: Accumulated amortization...... 7,000
Net book value................................... 5,000
3-8

21. (a)
(b)
(c)
(d)
(e)
(f)
Salaries Payable is credited.

Accumulated Amortization is credited.
Interest Expense is debited.
Supplies Expense is debited.
Service Revenue is credited.
Service Revenue is credited.
22. Disagree. An adjusting entry affects only one balance sheet account
and one income statement account.
23. Financial statements can be prepared from an adjusted trial balance
because the balances of all accounts have been adjusted to show the
effects of all financial events that have occurred during the
accounting period.
*24. For Supplies Expense: expenses are overstated and assets (prepaid
expense) are understated. The adjusting entry is:
Assets (Supplies)..................................................................
Expenses (Supplies Expense).......................................
XX
XX
For Rent Revenue: revenues are overstated and liabilities (unearned

revenues) are understated. The adjusting entry is:
Revenues (Rent Revenue)....................................................
Liabilities (Unearned Rent)............................................
3-9
XX
XX
SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3-1
1.
Prepaid Insuranceto recognize insurance expired (expenses) during

the period.
2.
Accumulated Amortizationto allocate the cost of the capital asset to

expense over the period it benefits.
3.
Unearned Revenueto account for Unearned Revenue received in

advance that was earned (revenues) during the period.
4.
Interest Payableto recognize interest expense accrued but unpaid on

notes payable.
5.
Rent Receivableto recognize rent earned (revenues) but not yet

collected.
BRIEF EXERCISE 3-2

Dec. 31
Advertising Supplies Expense................................

Advertising Supplies........................................
Advertising Supplies
12/31
8,700 12/31
Balance
1,500
7,200
7,200
Advertising Supplies Expense

7,200
12/31
3-10
7,200
BRIEF EXERCISE 3-3

July
Dec. 31
Prepaid Insurance.........................................
Cash........................................................
10,000
Insurance Expense ($10,000 x 6/24 mos.). . .

Prepaid Insurance..................................
2,500
10,000
2,500
Cash
7/1
Prepaid Insurance
7/1
Insurance Expense
10,000 12/31
12/31 Bal.
10,000
2,500
12/31
2,500
7,500
BRIEF EXERCISE 3-4

July 1
Cash.........................................................................
Unearned Insurance Revenue........................
10,000
Dec. 31
Unearned Insurance Revenue................................

Insurance Revenue ($10,000 x 6/24 mos.)......
2,500
10,000
2,500
Cash
7/1
10,000
Unearned Insurance Revenue

12/31
2,500 7/1
12/31 Bal.
Insurance Revenue
10,000
12/31
7,500
3-11
2,500
BRIEF EXERCISE 3-5

1.
Dec. 31
Interest Receivable..........................................
Interest Revenue......................................
300
2.
31
Accounts Receivable.......................................
Service Revenue......................................
1,400
3.
31
Salaries Payable.......................................
900
300
1,400
900
BRIEF EXERCISE 3-6

Dec. 31
Amortization ExpenseEquipment......................
Accumulated Amortization
Equipment....................................................
Amortization ExpenseEquipment
12/31
5,000
5,000
Accum. AmortizationEquipment
5,000
12/31
5,000
TAI WOO COMPANY

Balance Sheet (Partial)
December 31
Capital assets
Equipment................................................................$25,000
Less: Accumulated amortization...........................
005,000
3-12
$20,000
BRIEF EXERCISE 3-7

Transaction
Cash
Purchased supplies on hand for cash

Recorded the use of supplies
Performed services on account
Received from customers payment of their
account
(e) Purchased office equipment for cash
(f) Recorded amortization of office equipment
-$100
0
0
0
-50
+1,000
+800
-500
0
0
0
-50
(a)
(b)
(c)
(d)
Net Income
$
BRIEF EXERCISE 3-8

(a)
Type of
Adjustment
(b)
Status of Accounts
Before Adjustment
Account
Relationship
1. Prepaid
Expenses
Assets and Expenses
Assets (Supplies) Overstated

Expenses (Supplies Expense)
Understated
2. Accrued
Revenues
Assets and Revenues
Assets (Accounts Receivable)

Understated
Revenues (Service Revenue)
Understated
3. Accrued
Expenses
Expenses and
Liabilities
Expenses (Interest Expense)

Understated
Liabilities (Interest Payable) Understated
4. Unearned
Revenues
Liabilities and
Revenues
5. Amortization Expenses and Assets

(contra account)
Liabilities (Unearned Rent) Overstated

Revenues (Rent Earned) Understated
Expenses (Amortization Expense)
Understated
Assets (Capital Assets) Overstated
3-13
BRIEF EXERCISE 3-9

(a)
Type of Adjustment
Account
(b)
Related Account
Accounts Receivable
Accrued Revenues
Service Revenue
Prepaid Insurance
Prepaid Expenses
Insurance Expense
Equipment
Estimates
Amortization
Expense/Accum.
Amortization
Supplies
Prepaid Expenses
Supplies Expense
Interest Payable
Accrued Expenses
Interest Expense
Unearned Service
Revenue
Unearned Revenues
Revenue Earned
Interest Receivable
Accrued Revenues
Interest Revenue
Rent Payable
Accrued Expenses
Rent Expense
BRIEF EXERCISE 3-10

KLAR COMPANY
Income Statement
For the Year Ended December 31, 2003
Revenues
Service revenue........................................................
Expenses
Salaries expense......................................................
Rent expense............................................................
Insurance expense...................................................
Amortization expense..............................................
Supplies expense.....................................................
Total expenses..................................................
Net income.......................................................................
3-14
$38,400
$13,000
4,000
2,000
001,000
500
020,500
$17,900
BRIEF EXERCISE 3-11

KLAR COMPANY
Statement of Owner's Equity
S. Klar, Capital, January 1.....................................................................
Add: Net income..................................................................................
Less: Drawings.....................................................................................
S. Klar, Capital, December 31...............................................................
$15,600
017,900
33,500
006,000
$27,500
*BRIEF EXERCISE 3-12

(a)
Dec. 31
Advertising Supplies...............................................
Advertising Supplies Expense........................
Advertising Supplies
12/31
1,500
1,500
Advertising Supplies Expense
1,500
12/31
8,700 12/31
12/31 Bal.
7,200
1,500
(b) The adjusted balances are the same. It does not matter whether the
original entry is recorded to an asset or an expenses account as long
as the adjustment is done correctly.
3-15
*BRIEF EXERCISE 3-13

(a)
May
Cash..........................................................................
Unearned Rental Revenue...............................
600
May 31
Unearned Rental Revenue.......................................

Rental Revenue................................................
600
Cash..........................................................................
Rental Revenue................................................
600
600
600
(b)
May
May 31
No adjustment required
(c) The ending balances are the same under either alternative.
3-16
600
SOLUTIONS TO EXERCISES
EXERCISE 3-1
(a)
Accrual basis accounting records the events that change an entitys

financial statements in the periods in which the events occur, rather
than in the periods in which the entity receives or pays cash. That is,
revenue is recognized when it is earned. Expenses are recognized
when services or goods are used or consumed in the production of
revenue. Information presented on an accrual basis is useful because
it reveals relationships that are likely to be important in predicting
future results.
Conversely, under the cash basis of accounting, revenue is recorded
only when cash is received, and an expense is recognized only when
cash is paid. As a result, the cash basis of accounting often leads to
misleading financial statements.
(b)
The government is not using either the cash or accrual basis of

accounting. It is using some other basis that is not a generally
accepted accounting policy. The government may believe it is
appropriate because the commitment to spend the funds has been
made.
(c)
Dear Member of Parliament,

It is my understanding that the Federal government is making
changes in the method of accounting it uses and is switching from
the cash basis of accounting to the accrual basis. I understand in
2001 accrual accounting is fully in use.
The government is to be commended for this change. The use of full
accrual accounting will provide a more accurate reflection of the true
costs of services that government provides and a more complete
reflection of its assets and liabilities. This will result in improved
information for decision makers and citizens.
Sincerely,
ACCOUNTING STUDENT
3-17
EXERCISE 3-2
(a)
Cash
$22,000
Revenue
Expenses
Operating
Insurance
Net income
Accrual
$26,000
13,500
15,000
2,500 0000000
$ 6,000
$ 11,000
(b) The accrual basis provides the most useful information for decision
making as it reflects transactions in the period in which they occur and
properly matches revenue and expenses.
EXERCISE 3-3
(a) 1. Prepaid Rent.............................................................
Cash....................................................................
To record payment of rent for January 1May 31, 2002.
20,000
2. Security Deposit.......................................................
Cash....................................................................
To record payment of security deposit.
5,000
3. Prepaid Rent.............................................................
Cash....................................................................
To record payment of rent for June 1November 30, 2002.
30,000
20,000
5,000
30,000
4. No entry required.
(b)
Rent Expense................................................................ 55,000

Prepaid Rent........................................................
Rent Payable........................................................
See (c) for calculations.
3-18
50,000
5,000
EXERCISE 3-3 (Continued)

(c) Rent expense:
$20,000 January 1 May 31 ($4,000 x 5 mos.)
30,000 June 1 November 30 ($5,000 x 6 mos.)
5,000 December 1 December 31 ($5,000 x 1 mos. accrual)
$55,000
(d) Balance sheet amounts with respect to rent:
Assets
Security deposit, $5,000
Liabilities
Rent payable, $5,000 (for the month of December)
3-19
EXERCISE 3-4
(a) July
(b) July
10 Supplies............................................................
Cash..........................................................
200
14 Cash..................................................................
Service Revenue.......................................
3,000
15 Salaries Expense..............................................
Cash..........................................................
1,200
20 Cash..................................................................
Unearned Service Revenue.....................
700
31
Supplies Expense............................................
Supplies....................................................
500
31
Service Revenue......................................
500
31
Salaries Payable.......................................
1,200
31
Unearned Service Revenue.............................

Service Revenue......................................
900
3-20
200
3,000
1,200
700
500
500
1,200
900
EXERCISE 3-5
Answer
Calculation
(a) Supplies balance = $800
Supplies expense
Add: Supplies (1/31/03)
Less: Supplies purchased
Supplies (12/31/02)
(b) Total premium = $4,800
Total premium = Monthly premium X

12; $400 X 12 = $4,800
Purchase date = Aug. 1, 2002
(c) Salaries payable = $1,500
Purchase date:On Jan. 31, there are

6 months coverage remaining ($400
X 6). Thus, the purchase date was 6
months earlier on Aug. 1, 2002.
Cash paid
Salaries payable (1/31/03)
Less: Salaries expense
Salaries payable (12/31/02)
(d) Unearned revenue = $1,150
$950)
700)
(850)
$800)
Service revenue
Unearned revenue (1/31/03)
Cash received in Jan.
Unearned revenue (12/31/02)
3-21
$2,500
800
3,300
1,800
$1,500
$2,000
750
2,750
1,600
$1,150
EXERCISE 3-6
Item
(a)
Type of
Adjustment
(b)
Accounts
Before Adjustment
1.
Accrued
Revenues
Assets (Accounts Receivable) Understated

Revenues (Service Revenue) Understated
2.
Prepaid
Expenses
Assets (Store Supplies) Overstated

Expenses (Store Supplies Expenses) Understated
3.
Accrued
Expenses
Expenses (Utility Expense) Understated

Liabilities (Accounts Payable) Understated
4.
Unearned
Revenues
Liabilities (Unearned Service Revenue) Overstated

Revenues (Service Revenue) Understated
5.
Accrued
Expenses
Expenses (Salaries Expense) Understated

Liabilities (Salaries Payable) Understated
6.
Prepaid
Expenses
Assets (Prepaid Insurance) Overstated

Expenses (Insurance Expense) Understated
7.
Amortization
Assets (Capital Assets) Overstated

Expenses (Amortization Expense) Understated
3-22
EXERCISE 3-7
1.
Mar. 31
Amortization Expense ($400 3)......................

Equipment...............................................
1,200
1,200
2.
31
Unearned Rent Revenue....................................

Rent Revenue ($9,300 1/3)......................
3,100
3.
31
Interest Expense................................................
Interest Payable..........................................
500
4.
31
Supplies Expense..............................................
Supplies ($2,800 $850)............................
1,950
5.
31
Insurance Expense ($300 3)...........................

Prepaid Insurance......................................
900
3,100
500
1,950
900
EXERCISE 3-8
1.
Jan. 31
Accounts Receivable.........................................
Service Revenue........................................
750
2.
31
Utilities Expense................................................
Utilities Payable..........................................
520
3.
31
Amortization Expense.......................................
Dental Equipment....................................
1,000
31
250
4.
31
Insurance Expense ($12,000 12)....................

1,000
5.
31
Supplies Expense ($1,600 $500)....................

Supplies......................................................
1,100
3-23
750
520
1,000
250
1,000
1,100
EXERCISE 3-9
1.
Oct. 31
Advertising Supplies Expense..........................

Advertising Supplies ($2,500 $1,400)....
1,100
2.
31
Insurance Expense............................................
100
3.
31
Amortization Expense.......................................
Office Equipment....................................
50
100
50
4.
31
Unearned Service Revenue...............................

Service Revenue........................................
600
5.
31
Accounts Receivable.........................................
Service Revenue........................................
300
6.
31
70
7.
31
Salaries Expense...............................................
Salaries Payable.........................................
1,500
3-24
1,100
600
300
70
1,500
EXERCISE 3-10
Aug. 31
Accounts Receivable..............................................
Service Revenue..............................................
600
31
Office Supplies Expense.........................................

Office Supplies................................................
1,600
31
Insurance Expense..................................................
Prepaid Insurance...........................................
1,500
31
Amortization Expense.............................................
Accumulated AmortizationOffice
Equipment.....................................................
1,200
31
Salaries Expense.....................................................
Salaries Payable..............................................
1,100
31
Unearned Rent Revenue.........................................

Rent Revenue...................................................
800
3-25
600
1,600
1,500
1,200
1,100
800
EXERCISE 3-11
(a)
(b)
July 31
Insurance Expense..........................................
Prepaid Insurance....................................
300
31
Supplies...........................................................
Supplies Expense....................................
500
31
Amortization Expense.....................................
Accumulated Amortization Equipment
150
31
Wages Expense...............................................
Wages Payable.........................................
300
31
Service Revenue......................................
900
300
500
150
300
900
VIRMANI CO.
Income Statement
For the Month Ended July 31, 2003
Revenues
Service revenue ($5,500 + $900)......................
Expenses
Wages expense ($2,300 + $300)......................
Supplies expense ($1,200 $500)...................
Utilities expense...............................................
Insurance expense...........................................
Amortization expense......................................
Total expenses..........................................
Net income...............................................................
3-26
$6,400
$2,600
700
600
300
0,150
04,350
$2,050
EXERCISE 3-12
LIM COMPANY
Income Statement
For the Year Ended August 31, 2003
Revenues
Service revenue.............................................................................
Rent revenue.................................................................................
Total revenues.......................................................................
Expenses
Salaries expense........................................................ $18,100
Rent expense..............................................................
15,000
Office supplies expense.............................................
1,600
Insurance expense.....................................................
1,500
Amortization expense................................................
01,200
Total expenses.......................................................................
Net income............................................................................................
$34,600
011,800
46,400
037,400
$ 9,000
LIM COMPANY
For the Year Ended August 31, 2003
E. Lim, Capital, August 1, 2002.............................................................
Add: Net income..................................................................................
E. Lim, Capital, August 31, 2003...........................................................
3-27
$15,600
009,000
$24,600
EXERCISE 3-12 (Continued)

LIM COMPANY
Balance Sheet
August 31, 2003
Assets
Cash.......................................................................................................
Accounts receivable.............................................................................
Office supplies......................................................................................
Prepaid insurance.................................................................................
Office equipment...............................................................
$14,000
Less: Accumulated amortizationoffice equipment....
004,800
Total assets............................................................................
$10,400
9,400
700
2,500
009,200
$32,200
Liabilities and Owner's Equity

Liabilities
Accounts payable..........................................................................
Salaries payable............................................................................
Unearned rent revenue.................................................................
Total liabilities........................................................................
$05,800
1,100
700
7,600
Owner's equity
E. Lim, Capital...............................................................................
Total liabilities and owner's equity.......................................
024,600
$32,200
3-28
*EXERCISE 3-13
(a) Jan. 02
Insurance Expense..........................................
Cash..........................................................
2,400
10
Supplies Expense............................................
Cash..........................................................
1,700
15
Cash..................................................................
Service Revenue......................................
5,100
Insurance Expense
1/2
2,400
5,100 1/2
1/10
1,700
5,100
Supplies Expense
1/10
Cash
1/15
2,400
1,700
Service Revenue
2,400
1,700
1/15
5,100
(b) Jan. 31
Prepaid Insurance ($200 11 months)...........

Insurance Expense..................................
2,200
31
Supplies............................................................
Supplies Expense....................................
800
31
Service Revenue..............................................
Unearned Service Revenue.....................
3,600
3-29
2,200
800
3,600
*EXERCISE 3-13 (Continued)

(b) (Continued)
Cash
1/15
Service Revenue
5,100 1/2
1/10
1,000
Bal.
2,400
1,700
1/31
Insurance Expense
1/2
Bal.
2,400 1/31
5,100
Bal.
1,500
Supplies Expense
2,200
1/10
200
Bal.
Prepaid Insurance
1/31 2,200
3,600 1/15
Supplies
1/31
800
1,700 1/31
800
900
Unearned Service
Revenue
1/31
3,600
(c) Cash................................................................................................ $1,000

Prepaid insurance..........................................................................
2,200
Supplies..........................................................................................
800
Unearned service revenue............................................................
3,600
Service revenue.............................................................................
1,500
Insurance expense.........................................................................
200
Supplies expense...........................................................................
900
3-30
SOLUTIONS TO PROBLEMS
PROBLEM 3-1A
3
4
5
4
(a)
(b)
(c)
(d)
(e)
3
1
(f)
(g)
(h)
Record interest on note payable.

Record interest on note receivable.
Allocate cost of capital asset over its useful life.
Record revenue that has been earned but not billed or
collected.
Record revenue that has been earned that was previously
received in advance.
Record hiring of employees.
Record salaries owed.
Record supplies used.
3-31
PROBLEM 3-2A
1.
Jan. 1
Dec. 31
2.
Sept. 1
Dec. 31
3.
Nov. 15
Dec. 31
4.
Dec. 15
Dec. 31
Office Supplies...............................................
Cash........................................................
4,500
Supplies Expense ($4,500 $900).................

Office Supplies.......................................
3,600
Prepaid Insurance..........................................
Cash........................................................
3,600
Insurance Expense ($3,600 12 x 4).............

1,200
Cash................................................................
Unearned Service Revenue...................
1,200
Unearned Service Revenue ..........................

Service Revenue.....................................
1,200
Cash................................................................
Unearned Rent Revenue........................
460
Unearned Rent Revenue ($460 2)...............

Rent Revenue..........................................
230
3-32
4,500
3,600
3,600
1,200
1,200
1,200
460
230
PROBLEM 3-3A
Students may find this to be a fairly challenging problem, so here are a few
points that should help:
Under the CASH BASIS, revenues are recorded when they are
collected (received in cash), even if they were earned (the sale was
made) earlier;
Under the ACCRUAL BASIS of accounting, revenues are recorded
when they are earned (the sale is made)even if the cash is not
collected until later, or is received prior to the revenue being earned.
Under the CASH BASIS, expenses are recorded when the cash is
paid out; and
Under the ACCRUAL BASIS of accounting, expenses are recorded
when the cost has expired or been used up, which is not always
in the same time period as when the cash is paid out.
For example,
Under the CASH BASIS, Supplies are recorded as expenses as
soon as they are purchased and paid for;
Under the ACCRUAL BASIS of accounting, Supplies are not
recorded as expenses until they have been used up. While the
supplies are still on hand, they are recorded as assets because they
have future benefits;
Under the CASH BASIS, amounts such as Unpaid Wages Owing at
the end of 2002 would not be considered expenses until they are
actually paid outin 2003; and
Under the ACCRUAL BASIS of accounting, Unpaid Wages Owing at
the end of 2002 would be considered expenses in 2002, because the
cost was incurred or used up during 2002even though the cash
will not be paid out until 2003.
3-33
PROBLEM 3-3A (Continued)

$35,190
Cash basis income
+3,400
Accounts Receivable arise from sales that have been

made, thus revenue must be recognized.
-2,500
Accounts Receivable collected in 2003 from sales that

were made (and revenue that was earned) in 2002.
+1,300
Supplies are not recorded as expenses until used up).
-1,160
Supplies from 2002 that were used up (and an expense

incurred) in 2003.
-1,200
Which is an expense because the cost was incurred

during 2003.
+2,400
For 2002 wages expense that were paid in 2003.
-1,440
Which is an expense because the cost was incurred

during 2003.
+1,600
For 2002 expenses that were paid in cash in 2003.
$37,590
Accrual basis income
3-34
PROBLEM 3-4A
(a)
1. Cash..........................................................................
Fees Receivable................................................
9,000
9,000
2. Unearned Fees Revenue............................................. 22,000

Fees Revenue....................................................
22,000
3. Cash.............................................................................. 30,000
Unearned Fees Revenue..................................
30,000
Unearned Fees Revenue ($30,000 $17,000)............. 13,000

Fees Revenue....................................................
13,000
4. Fees Receivable........................................................... 118,000

Fees Revenue ($153,000 $22,000 $13,000)118,000
5. Cash.............................................................................. 106,000
Fees Receivable ($118,000 $12,000).............
106,000
(b) Cash received with respect to fees = $9,000 + $106,000 + $30,000 =
$145,000
T accounts (not required)
(4)
Unearned Fees Revenue

22,000
(2)
22,000
(3)
30,000
(3)
13,000
17,000
Fees Receivable
9,000
118,000
(1)
9,000
(5)
106,000
12,000
Fees Revenue
(2)
(3)
(4)
(1)
22,000
13,000
118,000
153,000
(3)
(5)
3-35
Cash
9
,000
30,000
106,000
145,000
PROBLEM 3-5A
1. (a) July
1 Office Supplies............................................
Cash........................................................
(b) Dec. 31
2. (a) Jan.
1,560
1,560
Supplies Expense ($1,560 + $640 $740). .

Office Supplies.......................................
1,460
1 Cash..............................................................
Note Payable...........................................
10,000
(b) Dec. 31
3. (b) Dec. 31
4. (a) Jan. 1
(b) Dec. 31
5. (a) Dec. 26
(b) Dec. 31
1,460
10,000
Interest Expense..........................................
Interest Payable ($10,000 X 6%)............
600
Telephone Expense.....................................
Accounts Payable...................................
400
Truck.............................................................
Cash........................................................
18,000
Amortization Expense.................................
Accumulated AmortizationTruck.........
3,600
Wages Expense...........................................
Cash........................................................
3,000
Wages Expense...........................................
Wages Payable ($3,000 5 x 3)..............
1,800
600
400
18,000
3,600
3,000
1,800
Note to Instructors: The January 3, 2003 journal entry follows for

information:
Jan.
3 Wages Expense...........................................
Wages Payable.............................................
Cash........................................................
3-36
1,200
1,800
3,000
PROBLEM 3-6A
1.
Dec. 31
Advertising Expense.........................................
Prepaid Advertising...................................
A650 $6,000 / 12 = $500 per month
for 8 months =
B974 $7,200 / 24 = $300 per month
for 4 months =
0
2.
Dec. 31
5,200
5,200
$4,000
1,200
$5,200
Unearned Rent Revenue.................................... 108,000

Rent Revenue.............................................
108,000
5 $4,000 2 =
4 $8,500 2 =
Total rent earned
$ 40,000
68,000
$108,000
Note that the $369,000 balance in Unearned Rent Revenue includes the
security deposits.
3.
Dec. 31
3,733
3,733
$80,000 8% 7/12 mos. = $3,733

4.
Dec. 31
Salaries Expense...............................................
Salaries Payable.........................................
5 x $700 x 2/5 days = $1,400
3 x $500 x 2/5 days =
600
Total
$2,000
3-37
2,000
2,000
PROBLEM 3-7A
EXOTIC DESIGNS
Income Statement
Revenues
Design revenue ($61,500 + (6) $3,800)............
Expenses
Wage expense ($18,400 + (5) $400)................. $18,800
Supplies expense ($12,200 (2) $1,800)......... 10,400
Rent expense ($9,600 (3) $600)..................... 9,000
Automobile expense [(7) 12,000 X $0.30)]......
3,600
Advertising expense........................................
Amortization expense ($18,400 (1) 10)........
Telephone expense..........................................
Insurance expense ($1,800 (4) 2)..................
Total expenses..........................................
Net income...............................................................
3,600
1,840
980
900
$65,300
49,120
$16,180
EXOTIC DESIGNS
Balance Sheet
December 31, 2003
Assets
Cash..........................................................................
Prepaid insurance ($1,800 2 (4))...........................
Rent deposit..............................................................
Accounts receivable (6)...........................................
Supplies (2)...............................................................
Equipment................................................................. $18,400
Less: Accumulated amortizationequipment...... 1,840
Total assets.......................................................
$2,520
900
600
3,800
1,800
16,560
$26,180
Liabilities and Owners Equity

Liabilities
Wages payable (5)...........................................
Accounts payable ((7) $12,000 X $0.30)........
Total liabilities..........................................
3-38
$ 400
3,600
4,000
Owners equity
Smith, Capital ($30,000 - $16,120 - $24,000). .
Total liabilities and owners equity.........
3-39
22,180
$26,180
PROBLEM 3-8A
Balance Sheet
Adj.
Entry
1.
2.
3.
4.
5.
6.
Assets =
$500 O
$200 O
NA
NA
$100 U
$1,200 O
Liabilities +
NA
NA
$750 O
$500 U
NA
NA
Income Statement
Owners
Equity
$500 O
$200 O
$750 U
$500 O
$100 U
$1,200 O
3-40
Revenues NA
NA
$750 U
NA
$100 U
NA
Expenses =
$500 U
$200 U
NA
$500 U
NA
$1,200 U
Net
Income
$500 O
$200 O
$750 U
$500 O
$100 U
$1,200 O
PROBLEM 3-9A
(a) 1. June 30
2.
30
Insurance Expense ($7,200 1/12)...........

Prepaid Insurance..............................
Amortization ExpenseOffice
Equipment...............................................
Office Equipment.............................
600
50
50
30
Amortization ExpenseBuses.................
Accum. AmortizationBuses............
2,300
3.
30
Interest Expense........................................
Interest Payable..................................
300
4.
30
Unearned Fees Revenue............................

Fees Earned ($1,500 4)....................
6,000
5.
30
Salaries Expense........................................
Salaries Payable ($400 3)................
1,200
6.
30
Accounts Receivable.................................
Fees Earned........................................
1,200
7.
30
Advertising Expense..................................
Accounts Payable...............................
500
3-41
600
2,300
300
6,000
1,200
1,200
500

(b)
Cash
Date
Explanation
June 30
Balance
Ref.
Debit
Credit
Balance
3,000
Accounts Receivable
Date
Explanation
June 30
Ref.
Debit
J2
1,200
Ref.
Debit
Credit
Balance
1,200
Prepaid Insurance
Date
Explanation
June 30
30
Balance
J2
Credit
0,600
Balance
007,200
006,600
Office Equipment
Date
Explanation
June 30
Balance
Ref.
Debit
Credit
Balance
001,800
Accumulated AmortizationOffice Equipment

Date
Explanation
Ref.
June 30
Debit
J2
Credit
0,050
Balance
000,050
Buses
Date
Explanation
June 30
Balance
Ref.
3-42
Debit
Credit
Balance
140,000

(b) (Continued)
Accumulated AmortizationBuses
Date
Explanation
Ref.
June 30
Debit
J2
Credit
2,300
Balance
002,300
Notes Payable
Date
Explanation
June 30
Balance
Ref.
Debit
Credit
Ref.
Debit
Credit
J2
0,
500
Ref.
Debit
Credit
Balance
62,000
Accounts Payable
Date
Explanation
June 30
Balance
0,5500
Interest Payable
Date
Explanation
June 30
J2
0,300
Balance
000,300
Salaries Payable
Date
Explanation
Ref.
June 30
Debit
J2
Credit
1,200
Balance
001,200
Unearned Fees
Date
Explanation
June 30
30
Balance
Ref.
J2
3-43
Debit
6,000
Credit
Balance
15,000
9,000

(b) (Continued)
Eldon Kaplan, Capital
Date
Explanation
June 30
Balance
Ref.
Debit
Credit
Balance
70,000
Fees Earned
Date
Explanation
June 30
30
30
Balance
Ref.
Debit
J2
J2
Credit
6,000
1,200
Balance
15,900
21,900
23,100
Salaries Expense
Date
Explanation
June 30
30
Balance
Ref.
Debit
J2
1,200
Ref.
Debit
Credit
Balance
09,000
10,200
Advertising Expense
Date
Explanation
June 30
30
Balance
J2
500
Ref.
Debit
Credit
Balance
00,800
1,300
Gas and Oil Expense

Date
Explanation
June 30
Balance
3-44
Credit
Balance
1,100

(b) (Continued)
Insurance Expense
Date
Explanation
June 30
Ref.
Debit
J2
0,600
Credit
Balance
0,600
Amortization ExpenseOffice Equipment

Date
Explanation
June 30
Ref.
Debit
J2
0,050
Ref.
Debit
J2
2,300
Ref.
Debit
J2
0,300
Credit
Balance
0,050
Amortization ExpenseBuses
Date
Explanation
June 30
Credit
Balance
2,300
Interest Expense
Date
Explanation
June 30
3-45
Credit
Balance
0,300

(c)
ATLANTIC TOURS
Adjusted Trial Balance
June 30, 2003
Debit
Cash..........................................................................
Accounts Receivable...............................................
Prepaid Insurance....................................................
Office Equipment.....................................................
Accumulated AmortizationOffice
Equipment..............................................................
Buses........................................................................
Accumulated AmortizationBuses........................
Notes Payable...........................................................
Accounts Payable.....................................................
Interest Payable........................................................
Salaries Payable.......................................................
Unearned Fees.........................................................
Eldon Kaplan, Capital..............................................
Fees Earned..............................................................
Salaries Expense......................................................
Advertising Expense................................................
Gas and Oil Expense................................................
Insurance Expense...................................................
Amortization ExpenseOffice Equipment.............
Amortization ExpenseBuses...............................
Interest Expense......................................................
3-46
Credit
3,000
1,200
6,600
1,800
140,000
10,200
1,300
1,100
600
50
2,300
300
$ 168,450
50
2,300
62,000
500
300
1,200
9,000
70,000
23,100
0000000
$168,450
PROBLEM 3-10A
(a) 1. Aug. 31
Insurance Expense ($450 3)...................

1,350
2,300
2.
31
Supplies Expense ($3,300 $1,000).........

Supplies..............................................
3.
31
Amortization ExpenseCottages
($6,250 1/4) .........................................
Accum. Amort.Cottages.................
1,562
Amortization ExpenseFurniture
($5,200 1/4) .........................................
Accum. Amort.Furniture.................
1,300
31
4.
31
Unearned Rent Revenue............................

Rent Revenue.....................................
5,000
5.
31
Salaries Payable.................................
400
6.
31
Rent Revenue.....................................
800
7.
31
533
Interest Payable [($80,000 8%) 1/12]
3-47
1,350
2,300
1,562
1,300
5,000
400
800
533

(b)
Cash
Date
Explanation
Aug. 31
Balance
Ref.
Debit
Credit
Balance
19,600
Accounts Receivable
Date
Explanation
Aug. 31
Ref.
Debit
J1
800
Ref.
Debit
Credit
Balance
00,800
Prepaid Insurance
Date
Explanation
Aug. 31
31
Balance
J1
Credit
0,1,350
Balance
005,400
004,050
Supplies
Date
Explanation
Aug. 31
31
Balance
Ref.
Debit
J1
Credit
2,300
Balance
003,300
001,000
Land
Date
Aug.
Explanation
31
Ref.
Debit
Credit
Balance
Balance
025,000
Cottages
Date
Explanation
Aug. 31
Balance
Ref.
3-48
Debit
Credit
Balance
125,000

(b) (Continued)
Accumulated AmortizationCottages
Date
Explanation
Ref.
Aug. 31
Debit
J1
Credit
1,562
Balance
001,562
Furniture
Date
Explanation
Aug. 31
Balance
Ref.
Debit
Credit
Balance
026,000
Accumulated AmortizationFurniture
Date
Explanation
Ref.
Aug. 31
Debit
J1
Credit
Balance
1,300
000,1,300
Credit
Balance
Accounts Payable
Date
Explanation
Aug. 31
Balance
Ref.
Debit
006,500
Unearned Rent Revenue

Date
Explanation
Aug. 31
31
Balance
Ref.
Debit
J1
5,000
Ref.
Debit
Credit
Balance
006,800
001,800
Salaries Payable
Date
Explanation
Aug. 31
J1
Credit
400
Balance
000,400
Interest Payable
Date
Explanation
Ref.
Aug. 31
J1
3-49
Debit
Credit
0,533
Balance
000,533

(b) (Continued)
Mortgage Payable
Date
Explanation
Aug. 31
Balance
Ref.
Debit
Credit
Balance
080,000
Keath Yhap, Capital

Date
Explanation
Aug. 31
Balance
Ref.
Debit
Credit
Balance
100,000
Keath Yhap, Drawings

Date
Explanation
Aug. 31
Balance
Ref.
Debit
Credit
Balance
05,000
Rent Revenue
Date
Explanation
Aug. 31
31
31
Balance
Ref.
Debit
J1
J1
Credit
5,000
0,800
Balance
80,000
85,000
85,800
Salaries Expense
Date
Explanation
Aug. 31
31
Balance
Ref.
Debit
J1
400
Ref.
Debit
Credit
Balance
51,000
51,400
Utilities Expense
Date
Explanation
Aug. 31
Balance
3-50
Credit
Balance
09,400

(b) (Continued)
Repair Expense
Date
Explanation
Aug. 31
Balance
Ref.
Debit
Credit
Balance
03,600
Insurance Expense
Date
Explanation
Aug. 31
Ref.
Debit
J1
1,350
Ref.
Debit
J1
2,300
Ref.
Debit
J1
1,562
Ref.
Debit
J1
0,11,300
Ref.
Debit
J1
0,533
Credit
Balance
00,11,350
Supplies Expense
Date
Explanation
Aug. 31
Credit
Balance
2,300
Amortization ExpenseCottages
Date
Explanation
Aug. 31
Credit
Balance
1,562
Date
Explanation
Aug. 31
Credit
Balance
0,1,300
Interest Expense
Date
Explanation
Aug. 31
3-51
Credit
Balance
0,533

(c)
HIGHLAND COVE RESORT

August 31, 2003
Debit
Cash..................................................................................
$ 19,600
Accounts Receivable.......................................................
800
Prepaid Insurance............................................................ 4,050
Supplies............................................................................ 1,000
Land.................................................................................. 25,000
Cottages...........................................................................125,000
Accumulated AmortizationCottages...........................
Furniture........................................................................... 26,000
Accumulated AmortizationFurniture...........................
Accounts Payable............................................................
Unearned Rent Revenue..................................................
Salaries Payable...............................................................
Interest Payable...............................................................
Mortgage Payable............................................................
Keath Yhap, Capital.........................................................
Keath Yhap, Drawings..................................................... 5,000
Rent Revenue...................................................................
Salaries Expense............................................................. 51,400
Utilities Expense.............................................................. 9,400
Repair Expense................................................................ 3,600
Insurance Expense.......................................................... 1,350
Supplies Expense............................................................ 2,300
Amortization ExpenseCottages................................... 1,562
Amortization ExpenseFurniture.................................. 1,300
Interest Expense..............................................................
000 0533
$277,895
3-52
Credit
$ 1,562
1,300
6,500
1,800
400
533
80,000
100,000
85,800
0000 000
$277,895

(d)

Income Statement
For the Three Months Ended August 31, 2003
Revenues
Rent revenue..............................................................
Expenses
Salaries expense.......................................................
$ 51,400
Utilities expense........................................................ 9,400
Repair expense.......................................................... 3,600
Supplies expense...................................................... 2,300
Amortization expensecottages............................. 1,562
Insurance expense.................................................... 1,350
Interest expense........................................................
533
Amortization expensefurniture............................. 1,300
Total expenses...................................................
Net income.......................................................................
$ 85,800
71,445
$ 14,355

For the Three Months Ended August 31, 2003
Keath Yhap, Capital, June 1................................................................
$
0
Add: Investment by owner................................................................100,000
Net income................................................................................
0 14,355
114,355
Less: Drawings...................................................................................
0 05,000
Keath Yhap, Capital, August 31..........................................................
$109,355
3-53

(d) (Continued)
Balance Sheet
August 31, 2003
Assets
Cash..................................................................................
Accounts receivable........................................................
Prepaid insurance............................................................
Supplies............................................................................
Land..................................................................................
Cottages...........................................................................
$125,000
Less: Accumulated amortizationcottages................. 1,562
Furniture...........................................................................26,000
Less: Accumulated amortizationfurniture................. 1,300
Total assets.......................................................
$ 19,600
800
4,050
1,000
25,000
123,438
24,700
$ 198,588

Liabilities
Accounts payable.....................................................
Salaries payable.......................................................
Interest payable........................................................
Unearned rent revenue............................................
Mortgage payable.....................................................
Total liabilities..................................................
Owner's equity
Keath Yhap, Capital..................................................
Total liabilities and owner's equity..................
3-54
6,500
400
533
1,800
80,000
89,233
109,355
$198,588
PROBLEM 3-11A
(a) Dec. 31
Accounts Receivable........................................
Advertising Revenue.................................
1,500
31
Art Supplies Expense.......................................

Art Supplies...............................................
3,400
31
Insurance Expense...........................................
Prepaid Insurance.....................................
850
31
Amortization Expense......................................
Accumulated Amortization.......................
7,000
31
Interest Expense...............................................
Interest Payable.........................................
150
31
Unearned Advertising Revenue.......................

Advertising Revenue.................................
1,400
31
Salaries Expense..............................................
Salaries Payable........................................
1,300
3-55
1,500
3,400
850
7,000
150
1,400
1,300

(b)
YOUNT ADVERTISING AGENCY

Income Statement
Revenues
Advertising revenue......................................................
Expenses
Salaries expense...........................................................
$11,300
Amortization expense................................................... 7,000
Rent expense................................................................. 4,000
Art supplies expense.................................................... 3,400
Insurance expense........................................................ 850
Interest expense............................................................000500
Total expenses.......................................................
Net income...........................................................................
$61,500
27,050
$34,450

T. Yount, Capital, January 1...................................................................
$25,500
Add: Net income..................................................................................34,450
59,950
Less: Drawings.....................................................................................12,000
T. Yount, Capital, December 31.............................................................
$47,950
3-56

(b) (Continued)
Balance Sheet
December 31, 2002
Assets
Cash......................................................................................
Accounts receivable............................................................
Art supplies..........................................................................
Prepaid insurance................................................................
Printing equipment..............................................................
$60,000
Less: Accumulated amortization
Printing equipment
35,000
Total assets.............................................................
$11,000
21,500
5,000
2,500
25,000
$65,000

Liabilities
Notes payable.................................................................
Accounts payable...........................................................
Interest payable..............................................................
Unearned advertising revenue......................................
Salaries payable.............................................................
Total liabilities.........................................................
$ 5,000
5,000
150
5,600
1,300
17,050
Owner's equity
T. Yount, Capital...............................................................
Total liabilities and owner's equity......................
47,950
$65,000
3-57

(c) $5,000 x ? x 10/12 mos. = $500
$500 interest for 10 months is equivalent to $600 interest for 12
months.
$600 / $5,000 = 12% interest per year
(d) Salaries Expense, $11,300 less Salaries Payable on 12/31/02, $1,300 =
$10,000 payment made for 2002 salaries. Total Payments, $13,500
$10,000 = $3,500 Salaries Payable on 12/31/01
Salaries Payable
12/31/01
Payments 13,500
Expense
12/31/02
3-58
3,500
11,300
1,300
*PROBLEM 3-12A
1.
Jan. 1
Dec. 31
2.
Sept. 1
Dec. 31
3.
4.
Nov. 15
Supplies Expense...........................................
Cash........................................................
4,500
Office Supplies ..............................................

Office Supplies Expense........................
900
Insurance Expense.........................................
Cash........................................................
3,600
Prepaid Insurance ($3,600 12 x 8).............

Insurance Expense.................................
2,400
Cash................................................................
Service Revenue.....................................
1,200
4,500
900
3,600
2,400
1,200
Dec. 31
No entry required
Dec. 15
Cash................................................................
Rental Revenue.......................................
460
Rental Revenue ($460 2).............................

Unearned Rental Revenue.....................
230
Dec. 31
3-59
460
230
*PROBLEM 3-13A
(a) 1. June 30
Supplies......................................................
Supplies Expense...............................
1,500
2.
30
Interest Expense ($17,000 8% 5/12). . .

Interest Payable.................................
567
3.
30
Prepaid Insurance ($1,800 x 8/12).............

Insurance Expense............................
1,200
4.
30
Consulting Revenue...................................
Unearned Consulting Revenue..........
1,000
5.
30
Graphic Revenue................................
2,000
6.
30
Amortization Expense ($9,000 2)...........

Equipment........................................
4,500
3-60
1,500
567
1,200
1,000
2,000
4,500
*PROBLEM 3-13A (Continued)

(b)
GLOBAL GRAPHICS COMPANY

June 30, 2003
Debit
Cash..........................................................................
Accounts Receivable ($14,000 + $2,000)................
Supplies....................................................................
Equipment.................................................................
Accumulated Amortization......................................
Notes Payable...........................................................
Unearned Consulting Revenue...............................
Jill Batke, Capital.....................................................
Graphic Revenue ($52,100 + $2,000).......................
Consulting Revenue ($5,000 $1,000)....................
Supplies Expense ($2,700 $1,500)........................
Rent Expense...........................................................
Utilities Expense......................................................
Amortization Expense..............................................
Insurance Expense ($1,800 $1,200)......................
3-61
$ 9,500
16,000
1,500
1,200
45,000
30,000
1,200
1,900
1,500
1,700
4,500
600
567
$ 115,167
Credit
$ 4,500
17,000
9,000
567
1,000
25,000
54,100
4,000
$ 115,167

(c)

Income Statement
For the Six Months Ended June 30, 2003
Revenues
Graphic revenue...........................................................
Consulting revenue......................................................
Total revenues.......................................................
Expenses
Salaries expense..........................................................
$30,000
Advertising expense.................................................... 1,900
Utilities expense........................................................... 1,700
Rent expense................................................................ 1,500
Supplies expense......................................................... 1,200
Amortization expense.................................................. 4,500
Interest expense........................................................... 567
Insurance expense....................................................... 600
Total expenses......................................................
Net income...........................................................................
$54,100
4,000
58,100
41,967
$16,133

For the Six Months Ended June 30, 2003
Jill Batke, Capital, January 1................................................................ $
0
Add: Investment by owner.................................................................. 25,000
Net income.................................................................................. 16,133
Jill Batke, Capital, June 30.................................................................... $41,133
3-62

(c) (Continued)
Balance Sheet
June 30, 2003
Assets
Cash......................................................................................
Supplies................................................................................
Equipment............................................................................
$45,000
Less: Accumulated amortization.......................................
4,500
Total assets.................................................................
$ 9,500
16,000
1,500
1,200
40,500
$68,700

Liabilities
Notes payable..............................................................
Accounts payable........................................................
Interest payable...........................................................
Unearned consulting revenue....................................
Total liabilities......................................................
$17,000
9,000
567
1,000
27,567
Owner's equity
Jill Batke, Capital........................................................
Total liabilities and owner's equity.....................
41,133
$68,700
3-63
PROBLEM 3-1B
3
4
5
4
2
(a)
(b)
(c)
(d)
(e)
3
1
(f)
(g)
(h)
Record interest on overdue account payable.

Record interest earned on overdue account receivable.
Allocate cost of equipment over its useful life.
Record revenue owed by customers for services provided.
Record fees that have been earned that were previously
received in advance.
Record signing of lease for rental space.
Record property taxes due.
Record expiration of rent at the end of the month.
3-64
PROBLEM 3-2B
1.
Jan. 1
Dec. 31
2.
Aug. 1
Dec. 31
3.
Nov. 15
Dec. 31
4.
Dec. 15
Dec. 31
Office Supplies...............................................
Cash........................................................
2,800
Supplies Expense ($2,800 $500).................

Office Supplies.......................................
2,300
Prepaid Insurance..........................................
Cash........................................................
3,600
Insurance Expense ($3,600 12 x 5).............

1,500
Cash................................................................
1,200
Unearned Service Revenue ($400 x 2)..........

Service Revenue.....................................
800
Prepaid Rent...................................................
Cash........................................................
4,500
No entry required
3-65
2,800
2,300
3,600
1,500
1,200
800
4,500
PROBLEM 3-3B
$43,900
+3,600
- 2,700
+1,550
- 1,310
- 1,500
+2,200
- 1,360
+1,500
- 2,000
$43,880
Cash basis earnings.

Accounts receivable arise from sales that have been made,
thus revenue must be recognized for balance outstanding at
the end of the current year.
Accounts receivable collected in current year, for sales made
in previous year must be deducted from earnings.
Prepaid expenses at year end should be set up as an asset
rather than expensed, this increases earnings.
Prepaid expenses at the end of the previous year should be
expensed this year, this decreases earnings.
Accounts payable owing at the end of the current year
should be accrued, thus reducing earnings.
Accounts payable owed at the end of the previous year
should not be deducted from the current years earnings,
thus increasing earnings.
Unearned revenue at the end of the current year should be
accrued, thus reducing earnings.
Unearned revenue at the end of the previous year should not
be deducted from the current years income, thus increasing
earnings.
Amortization expense is equal to the increase in
accumulated amortization from 2001 to 2002 ($22,000 $20,000 = $2,000)
Accrual basis income.
3-66
PROBLEM 3-4B
(a)
1. Cash ................................................................
Dues Receivable....................................
11,000
2. Unearned Ticket Revenue..............................

Ticket Revenue......................................
25,000
3. Cash ................................................................
Unearned Ticket Revenue.....................
35,000
Unearned Ticket Revenue ($35,000- $20,000)

Ticket Revenue......................................
15,000
4. Dues Receivable.............................................
Dues Revenue .......................................
148,000
5. Cash ................................................................
Dues Receivable ($148,000 $15,000).
133,000
Dues Receivable
2001 Bal. 11,000
4.
148,000 1.
11,000
5.
133,000
2002 Bal. 15,000
2.
3.
11,000
25,000
35,000
15,000
148,000
133,000
20,000
Dues Revenue
4.
148,000
2002 Bal.
148,000
Unearned Ticket Revenue

2001 Bal. 25,000
25,000 3.
35,000
15,000
2002 Bal.
Ticket Revenue
2.
25,000
3.
15,000
2002 Bal. 50,000
(b)
Cash received with respect to dues and tickets:
1.
3.
5.
Collection of 2001 dues

Sale of tickets
Collection of 2002 dues
$ 11,000
35,000
133,000
$179,000
3-67
PROBLEM 3-5B
1. (a) Jan. 31 Supplies........................................................
Cash.......................................................
(b) Dec. 31
1,500
Supplies Expense ($300 + $1,500 $500). .

Office Supplies......................................
1,300
Cash..............................................................
Note Payable.........................................
4,000
Interest Expense..........................................
Interest Payable ($4,000 X 8% x 7/12)..
187
Utilities Expense..........................................
Accounts Payable.................................
1,400
Truck.............................................................
Cash.......................................................
38,000
(b) Dec. 31 Amortization Expense.................................

Accumulated Amortization Truck.....
10,000
Dec. 31 Wages Expense ($3,000 x 2/12* days)........

Wages Payable......................................
500
2. (a) June 1
(b) Dec. 31
3. (b) Dec. 31
4. (a) Jan. 1
5.
,500
1,300
4,000
187
1,400
38,000
10,000
500
*See errata note.

Note to Instructors: The January 11, 2003 journal entry follows for
information:
Jan. 11
Wages Expense ($3,000 x 10/12 days)........

Wages Payable ($3,000 x 1/12 days)...........
Cash.......................................................
Errata Note: Advise students to see errata sheet if

they have the first printing of the text. In
transaction #5, December 31 falls on a Tuesday,
not Thursday, in 2002. December 28 falls on a
Saturday. No adjusting entry has been recorded
for the period from December 30 through
December 31. Assume a six-day (Monday through
Saturday) work week.
..................
2,500
500
3,000
PROBLEM 3-6B
(a)
Prepaid Insurance before adjustments

A2958 $ 5,800
B4564
9,600
$15,400
(b)
1.
Dec. 31
Insurance Expense...........................
Prepaid Insurance....................
5,300
Prepaid Insurancebalance after adjustment

($15,400 - $5,300 = $10,100)
A2958 $5,800 24 = $242 per month
for 12 months =
$ 2,900
B4564 $9,600 24 = $400 per month
for 18 months =
0 7,200
$10,100
Insurance Expense
A2958 $5,800 24 = $242 per month
for 12 months =
$2,900
B4564 $9,600 24 = $400 per month
for 6 months =
2,400
$5,300
5,300
PROBLEM 3-6B (Continued)

(b) (Continued)
2.
Dec. 31
Unearned Subscription Revenue.....

Rent Subscription Revenue....
Subscription Revenue Earned

October 200 x $50 x 3/12 =
November 300 x $50 x 2/12 =
December 480 x $50 x 1/12 =
7,000
7,000
$2,500
2,500
2,000
$7,000
Unearned Subscription Revenue ($49,000 - $7,000 = $42,000)

October 200 x $50 x 9/12 =
$ 7,500
November 300 x $50 x 10/12 =
12,500
December 480 x $50 x 11/12 =
22,000
$42,000
3.
Dec. 31
Salaries Expense..........................3,060
Salaries Payable..................
5 x $600 x 3/5 days =
3 x $700 x 3/5 days =
Total
$1,800
1,260
$3,060
3,060
PROBLEM 3-7B
(a)
THE RADICAL EDGE

Income Statement
For the Six Months Ended April 30, 2003
Revenues
Repair services ($32,150 + $650).....................
Expenses
Wages expense ($2,600 + $120)......................
Rent expense ($1,225 - $175)...........................
Advertising expense........................................
Amortization expense ($9,200 (i) 8 x 6/12 ).
Total expenses..........................................
Net income...............................................................
$32,800
$2,720
1,050
375
575
970
5,690
$27,110
(b)
THE RADICAL EDGE
Balance Sheet
April 30, 2003
Assets
Cash.........................................................................
Rent deposit............................................................
Accounts receivable ..............................................
Equipment...............................................................
Less: Accumulated amortizationequip.............
Total assets......................................................
$37,780
175
650
$9,200
575
8,625
$47,230

Liabilities
Wages payable................................................
$ 120
Owners equity
Charron, Capital ($20,000 + $27,110).............
Total liabilities and owners equity........
47,110
$47,230
PROBLEM 3-8B
Adj.
Entry
1.
2.
3.
4.
5.
6.
Balance Sheet
Assets =
$300 O
$1,000 O
NA
$2,000 U
NA
$1,000 O
Liabilities +
NA
NA
$750 O
NA
$250 U
NA
Income Statement
Owners
Revenues - Expenses =
Equity
$300 O
NA
$300 U
$1,000 O
NA
$1,000 U
$750 U
$750 U
NA
$2,000 U
$2,000 U
NA
$250 O
NA
$250 U
$1,000 O
NA
$1,000 U
Net
Income
$300 O
$1,000 O
$750 U
$2,000 U
$250 O
$1,000 O
PROBLEM 3-9B
(a) 1. Dec. 31
Service Revenue.................................
2,500
1,800
2.
31
Insurance Expense ($3,600 1/2).............

3.
31
Amortization ExpenseAutomobiles...... 15,000

Automobiles.....................................
4.
31
Interest Payable..................................
5,400
5.
31
Unearned Service Revenue.......................

Service Revenue ................................
1,000
6.
31
Salaries Payable ($500 3)................
1,500
7.
31
Repair Expense..........................................
Accounts Payable...............................
650
2,500
1,800
15,000
5,400
1,000
1,500
650

(b)
Cash
Date
Explanation
Dec. 31
Balance
Ref.
Debit
Credit
Balance
12,400
Accounts Receivable
Date
Explanation
Dec. 31
31
Balance
Ref.
Debit
J2
2,500
Ref.
Debit
Credit
Balance
3,200
5,700
Prepaid Insurance
Date
Explanation
Dec. 31
31
Balance
J2
Credit
0,1,800
Balance
003,600
001,800
Automobiles
Date
Explanation
Dec. 31
Balance
Ref.
Debit
Credit
Balance
0058,000
Accumulated AmortizationAutomobiles
Date
Explanation
Dec. 31
Ref.
Debit
J2
Credit
0,015,000
Balance
0015,000
Notes Payable
Date
Explanation
Dec. 31
Balance
Ref.
Debit
Credit
Balance
45,000

(b) (Continued)
Accounts Payable
Date
Explanation
Dec. 31
Ref.
Debit
Credit
Balance
J2
0,
650
Ref.
Debit
Credit
Balance
0,5,400
000,5,400
Credit
Balance
0,5650
Interest Payable
Date
Explanation
Dec. 31
J2
Salaries Payable
Date
Explanation
Dec. 31
Ref.
Debit
J2
1,500
001,500
Unearned Revenue
Date
Explanation
Dec. 31
31
Balance
Ref.
Debit
J2
1,000
Ref.
Debit
Credit
Balance
2,500
1,500
C. Orosco, Capital
Date
Explanation
Dec. 31
Balance
Credit
Balance
18,000
Service Revenue
Date
Explanation
Dec. 31
31
31
Balance
Ref.
J2
J2
Debit
Credit
2,500
1,000
Balance
84,000
86,500
87,500

(b) (Continued)
Salaries Expense
Date
Explanation
Dec. 31
31
Balance
Ref.
Debit
J2
1,500
Ref.
Debit
Credit
Balance
057,000
58,500
Repair Expense
Date
Explanation
Dec. 31
31
Balance
J2
650
Ref.
Debit
Credit
Balance
00,6,000
6,650
Gas and Oil Expense

Date
Explanation
Dec. 31
Balance
Credit
Balance
9,300
Insurance Expense
Date
Explanation
Dec. 31
Ref.
Debit
J2
0,1,800
Ref.
Debit
J2
0,015,000
Ref.
Debit
J2
05,400
Credit
Balance
0,11,800
Amortization ExpenseAutomobiles
Date
Explanation
Dec. 31
Credit
Balance
0,15,000
Interest Expense
Date
Dec. 31
Explanation
Credit
Balance
05,400

(c)
OROSCO SECURITY SERVICE

December 31, 2002
Debit
Cash..........................................................................
Accounts Receivable...............................................
Automobiles.............................................................
...................................................................................
AmortizationAutomobiles....................................
Notes Payable...........................................................
Salaries Payable.......................................................
Unearned Revenue...................................................
C. Orosco, Capital....................................................
Service Revenue.......................................................
Repair Expense........................................................
Gas and Oil Expense................................................
Insurance Expense...................................................
Amortization ExpenseAutomobiles.....................
$ 12,400
5,700
1,800
58,000
58,500
6,650
9,300
1,800
15,000
0005,400
$174,550
Credit
$ 15,000
45,000
5,400
650
1,500
1,500
18,000
87,500
0000000
$174,550
PROBLEM 3-10B
(a) 1. May
31
Insurance Expense ($1,800 x 1/12)...........

150
2.
31
Supplies Expense ($1,900 $1,000).........

Supplies..............................................
900
3.
31
Amortization ExpenseLodge
($3,500 1/12) .......................................
Accum. Amort.Lodge......................
292
($3,360 1/12).......................................
Accum. Amort.Furniture.................
280
31
4.
31
Interest Payable ($35,000 8% 1/12)
233
5.
31
Unearned Rent Revenue............................

Rent Revenue.....................................
1,500
6.
31
Rent Revenue.....................................
800
7.
31
Salaries Payable.................................
300
150
900
292
280
233
1,500
800
300

(b)
Cash
Date
Explanation
May 31
Balance
Ref.
Debit
Credit
Balance
2,500
Accounts Receivable
Date
Explanation
May 31
Ref.
Debit
J1
800
Ref.
Debit
Credit
Balance
00,800
Prepaid Insurance
Date
Explanation
May 31
31
Balance
J1
Credit
0, 150
Balance
001,800
001,650
Supplies
Date
Explanation
May 31
31
Balance
Ref.
Debit
J1
Credit
900
Balance
001,900
001,000
Land
Date
Explanation
May 31
Balance
Ref.
Debit
Credit
Balance
015,000
Lodge
Date
Explanation
May 31
Balance
Ref.
Debit
Credit
Balance
70,000

(b) (Continued)
Accumulated AmortizationLodge
Date
Explanation
May 31
Ref.
Debit
J1
Credit
292
Balance
292
Furniture
Date
Explanation
May 31
Balance
Ref.
Debit
Credit
Balance
016,800
Accumulated AmortizationFurniture
Date
Explanation
May 31
Ref.
Debit
J1
Credit
280
Balance
000,280
Accounts Payable
Date
Explanation
May 31
Balance
Ref.
Debit
Credit
Balance
004,700
Unearned Rent Revenue

Date
Explanation
May 31
31
Balance
Ref.
Debit
J1
1,500
Ref.
Debit
Credit
Balance
003,600
002,100
Salaries Payable
Date
May 31
Explanation
J1
Credit
300
Balance
000,300

(b) (Continued)
Interest Payable
Date
Explanation
May 31
Ref.
Debit
Credit
0,233
Balance
0,233
Debit
Credit
Balance
J1
Mortgage Payable
Date
Explanation
May 31
Balance
Ref.
035,000
Sara Sutton, Capital

Date
Explanation
May 31
Balance
Ref.
Debit
Credit
Balance
60,000
Rent Revenue
Date
Explanation
May 31
31
31
Balance
Ref.
Debit
J1
J1
Credit
1,500
0,800
Balance
9,200
10,700
11,500
Salaries Expense
Date
Explanation
May 31
31
Balance
Ref.
Debit
J1
300
Ref.
Debit
Credit
Balance
3,000
3,300
Utilities Expense
Date
Explanation
May 31
Balance
Credit
Balance
01,000

(b) (Continued)
Advertising Expense
Date
Explanation
May 31
Balance
Ref.
Debit
Credit
Balance
0 500
Insurance Expense
Date
Explanation
May 31
Ref.
Debit
J1
150
Ref.
Debit
Credit
Balance
150
Supplies Expense
Date
Explanation
May 31
J1
Credit
900
Balance
900
Amortization ExpenseLodge
Date
Explanation
May 31
Ref.
J1
Debit
Credit
292
Balance
292
Date
Explanation
May 31
Ref.
Debit
J1
0,280
Ref.
Debit
J1
0,233
Credit
Balance
0280
Interest Expense
Date
May 31
Explanation
Credit
Balance
0233

(c)
SUPER MOTEL
May 31, 2003
Debit
Cash..................................................................................
$ 2,500
Accounts Receivable.......................................................
800
Prepaid Insurance............................................................ 1,650
Supplies............................................................................ 1,000
Land.................................................................................. 15,000
Lodge................................................................................ 70,000
Accumulated AmortizationLodge................................
Furniture........................................................................... 16,800
Accumulated AmortizationFurniture...........................
Accounts Payable............................................................
Unearned Rent Revenue..................................................
Salaries Payable...............................................................
Interest Payable...............................................................
Mortgage Payable............................................................
Sara Sutton, Capital.........................................................
Rent Revenue...................................................................
Salaries Expense............................................................. 3,300
Utilities Expense.............................................................. 1,000
Advertising Expense........................................................
500
Insurance Expense..........................................................
150
Supplies Expense............................................................
900
Amortization ExpenseLodge.......................................
292
Amortization ExpenseFurniture..................................
280
Interest Expense..............................................................
00 00233
$114,405
Credit
292
280
4,700
2,100
300
233
35,000
60,000
11,500
0000 000
$114,405

(d)
SUPER MOTEL
Income Statement
For the Month Ended May 31, 2003
Revenues
Rent revenue...........................................................
Expenses
Salaries expense.....................................................$3,300
Utilities expense...................................................... 1,000
Advertising expense............................................... 500
Supplies expense.................................................... 900
Amortization expenselodge................................ 292
Insurance expense.................................................. 150
Interest expense...................................................... 233
Amortization expensefurniture........................... 280
Total expenses.................................................
Net income.......................................................................
$11,500
6,655
$ 4,845
SUPER MOTEL
For the Month Ended May 31, 2003
Sara Sutton, Capital, May 1.................................................................$
0
Add: Investment by owner................................................................. 60,000
Net income................................................................................. 4,845
64,845
Less: Drawings...................................................................................
0
Sara Sutton, Capital, May 31...............................................................$64,845

(d) (Continued)
SUPER MOTEL
Balance Sheet
May 31, 2003
Assets
Cash..................................................................................
Accounts receivable........................................................
Prepaid insurance............................................................
Supplies............................................................................
Land..................................................................................
Cottages...........................................................................$70,000
Less: Accumulated amortizationcottages.................000292
Furniture........................................................................... 16,800
Less: Accumulated amortizationfurniture.................000280
Total assets..............................................................
$ 2,500
800
1,650
1,000
15,000
69,708
0016,520
$107,178

Liabilities
Accounts payable.....................................................
Salaries payable.......................................................
Interest payable........................................................
Unearned revenue....................................................
Mortgage payable.....................................................
Total liabilities..................................................
Owner's equity
Sara Sutton, Capital.................................................
Total liabilities and owner's equity..................
4,700
300
233
2,100
0035,000
42,333
0064,845
$107,178
PROBLEM 3-11B
(a) Sept. 30
30
30
30
30
30
30
Accounts Receivable.....................................
Commission Revenue............................
600
Rent Expense.................................................
Prepaid Rent...........................................
600
Supplies..................................................
200
Amortization Expense....................................
Accum. AmortizationEquipment........
350
Interest Expense............................................
Interest Payable......................................
50
Unearned Rent Revenue................................

Rent Revenue..........................................
300
Salaries Expense............................................
Salaries Payable.....................................
400
600
600
200
350
50
300
400

(b)
IRABU CO.
Income Statement
For the Quarter Ended September 30, 2003
Revenues
Commission revenue.......................................
Rent revenue....................................................
Total revenues...........................................
Expenses
Salaries expense..............................................
Rent expense....................................................
Amortization expense......................................
Supplies expense.............................................
Interest expense...............................................
Total expenses..........................................
Net income........................................................
$14,600
700
15,300
$9,400
1,500
510
350
200
50
12,010
$3,290
IRABU CO.
Statement of Owners Equity
For the Quarter Ended September 30, 2003
Yosuke Irabu, Capital, July 1.......................................................
Add: Investment........................................................................
Net income........................................................................
Less: Drawings...........................................................................
Yosuke Irabu, Capital, September 30..........................................
$ 0
14,000
3,290
17,290
600
$16,690

(b) (Continued)
IRABU CO.
Balance Sheet
September 30, 2003
Assets
Cash........................................................................
Accounts receivable...............................................
Prepaid rent............................................................
Supplies..................................................................
Equipment...............................................................
Less: Accum. amortizationequipment..............
Total assets.....................................................
$6,700
1,000
900
1,000
$15,000
350
14,650
$24,250

Liabilities
Notes payable.................................................
Accounts payable...........................................
Salaries payable..............................................
Interest payable...............................................
Unearned rent revenue...................................
Total liabilities.........................................
$5,000
1,510
400
50
600
7,560
Owners equity
Yosuke Irabu, Capital......................................
Total liabilities and owners equity.........
16,690
$24,250
(c) Interest of 12% per year equals a monthly rate of 1%; monthly interest is
$50 ($5,000 X 1%). Since total interest expense is $50, the note has been
outstanding one month.
*PROBLEM 3-12B
1.
Jan. 1
Dec. 31
2.
Aug. 1
Dec. 31
3.
Nov. 15
Dec. 31
4.
Dec. 15
Dec. 31
Cash........................................................
2,800
Office Supplies...............................................
Supplies Expense...................................
500
Insurance Expense.........................................
Cash........................................................
3,600
Prepaid Insurance ($3,600 12 x 7)..............

Insurance Expense.................................
2,100
Cash................................................................
Service Revenue.....................................
1,200
Service Revenue ............................................

400
Rent Expense.................................................
Cash........................................................
4,500
Prepaid Rent...................................................
Rent Expense..........................................
4,500
2,800
500
3,600
2,100
1,200
400
4,500
4,500
*PROBLEM 3-13B
(a) 1. Dec. 31
Supplies......................................................
Supplies Expense ($3,300 - $1,500)...
1,800
2.
31
Interest Expense ($18,000 10% 2/12).

Interest Payable.................................
300
3.
31
Prepaid Insurance ($2,100 x 8/12).............

Insurance Expense............................
1,400
4.
31
Consulting Fees Earned............................

Unearned Consulting Fees................
1,600
5.
31
Amortization Expense ($2,200 2)...........

Equipment........................................
1,100
Utilities Expense........................................
Accounts Payable..............................
200
6.
31
1,800
300
1,400
1,600
1,100
200
*PROBLEM 3-13B (Continued)

(b)
ROYAL GRAPHICS COMPANY

December 31, 2002
Debit
Cash.......................................................................... $ 8,600
Accounts Receivable ..............................................
13,000
Supplies....................................................................
1,800
1,400
Equipment.................................................................
48,000
Accumulated Amortization......................................
Notes Payable...........................................................
Accounts Payable ($11,000 + $200).........................
Unearned Consulting Fees......................................
Jan Bejar, Capital.....................................................
Graphic Fees Earned...............................................
Consulting Fees Earned ($7,600 $1,600).............
33,000
Supplies Expense ($3,300 $1,800)........................
1,500
1,700
Rent Expense...........................................................
2,500
Utilities Expense ($1,900 + $200)............................
2,100
Amortization Expense..............................................
1,100
Insurance Expense ($2,100 $1,400)......................
700
Interest Expense...................................................... 00 00300
$115,700
Credit
$ 1,100
18,000
11,200
300
1,600
22,000
55,500
6,000
00 0000
$115,700

(c)

Income Statement
For the Six Months Ended December 31, 2002
Revenues
Graphic fees earned...................................................
Consulting fees earned..............................................
Total revenues.....................................................
Expenses
Salaries expense.........................................................
$33,000
Advertising expense...................................................1,700
Utilities expense..........................................................2,100
Rent expense..............................................................2,500
Supplies expense........................................................1,500
Amortization expense.................................................1,100
Interest expense.......................................................... 300
Insurance expense......................................................
000700
Total expenses....................................................
Net income...........................................................................
$55,500
6,000
61,500
42,900
$18,600

For the Six Months Ended December 31, 2002
Jan Bejar, Capital, July 1.......................................................................$
0
Add: Investment by owner.................................................................... 22,000
Net income.................................................................................... 18,600
Jan Bejar, Capital, December 31..........................................................$40,600

(c) (Continued)
Balance Sheet
December 31, 2002
Assets
Cash......................................................................................
Supplies................................................................................
Equipment............................................................................
$48,000
Less: Accumulated amortization.......................................
001,100
Total assets...........................................................
$ 8,600
13,000
1,800
1,400
46,900
$71,700

Liabilities
Notes payable..............................................................
Accounts payable........................................................
Interest payable...........................................................
Unearned consulting fees..........................................
Total liabilities......................................................
$18,000
11,200
300
1,600
31,100
Owner's equity
Jan Bejar, Capital........................................................
Total liabilities and owner's equity.....................
40,600
$71,700

CH 3

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CH 3

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CHAPTER 3

Adjusting the Accounts

1. Explain the time period

2. Distinguish between the revenue

3. Explain the accrual basis of

4. Explain why and distinguish when

5. Identify and distinguish between

6. Identify and prepare adjusting

10, 11, 17,

7. Identify and prepare adjusting

12, 13, 14,

8. Identify and prepare the adjusting

18, 19, 20,

9. Describe the nature and purpose of

*10. Identify and prepare adjusting

ASSIGNMENT CHARACTERISTICS TABLE

Match adjusting entry type.

Prepare original and adjusting journal entries for

Convert income from cash to accrual basis.

Record transactions on accrual basis; convert revenue to

Prepare original and adjusting journal entries.

Prepare adjusting entries.

Prepare accrual-based income statement from cashbased information.

Identify effects of adjusting journal entries.

Prepare adjusting entries, post, and prepare adjusted trial

Prepare adjusting entries, post, and prepare adjusted trial

Prepare adjusting entries and financial statements.

Prepare original and adjusting journal entries for

Prepare adjusting entries, adjusted trial balance and

Match adjusting entry type.

Prepare original and adjusting journal entries for

Convert income from cash to accrual basis.

Record transactions on accrual basis; convert revenue to

Prepare original and adjusting journal entries.

Prepare adjusting entries.

Prepare accrual-based income statement from cashbased information.

Identify effects of adjusting journal entries.

Prepare adjusting entries, post and prepare adjusted trial

Prepare adjusting entries, post, and prepare adjusted trial

Prepare adjusting entries and financial statements.

Prepare original and adjusting journal entries for

Prepare adjusting entries, adjusted trial balance and

BLOOMS TAXONOMY TABLE

2. Distinguish between the

3. Explain the accrual basis

4. Explain why and

5. Identify and distinguish

6. Identify and prepare

7. Identify and prepare

9. Describe the nature and

*10. Identify and prepare

(a) Under the time period assumption, an accountant is required to

The two generally accepted accounting principles that pertain to

Information presented on an accrual basis is useful because it reveals

Questions Chapter 3 (Continued)

Questions Chapter 3 (Continued)

On the income statement, net income was understated $300. Prior to

The entry is:

18. No. Amortization is the process of allocating the cost of an asset to

Questions Chapter 3 (Continued)

Salaries Payable is credited.

For Rent Revenue: revenues are overstated and liabilities (unearned