Fa4e SM Ch03

Chapter 3
Adjusting Accounts for Financial Statements

Learning Objectives coverage by question
MiniExercises
LO1 Identify the major steps in the accounting cycle. LO2 Review the process of journalizing and posting transactions. LO3 Describe the adjusting process and illustrate adjusting entries. 21 - 23, 25, 29, 30 33, 35, 36, 38 40 - 42, 46, 47, 52, 54 40 - 43, 46 - 49, 52 - 54 40 - 42, 26 39 44, 47, 49, 50, 53, 54 LO5 Describe the process of closing temporary accounts. 31, 33, 37, 39 32, 34 - 36, 38 42, 44 - 46, 49 - 54 55, 58 55 - 58
Exercises
Problems
Cases and Projects
55 - 58
23, - 25, 29, 30
32 - 36, 38
LO4 Prepare financial statements from adjusted accounts.
27, 28, 30
55
LO6 Analyzing
changes in balance sheet accounts.
25, 29
53
56
Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3 3-1
DISCUSSION QUESTIONS
Q3-1. The five major steps in the accounting cycle are: 1. Analyze business activity using transaction analysis based on the related source documents. 2. Record results of the transaction analysis chronologically in the general journal and create a trial balance. 3. Adjust the recorded data to update all accounts for expense and revenue recognition not previously recognized. 4. Report the adjusted financial data in the form of financial statements. 5. Close the books by posting the adjusting and closing entries, which zero out the temporary accounts. Q3-2. The fiscal year is the annual accounting period adopted by a firm. A firm using a fiscal year ending on December 31 is on a calendar-year basis. Examples of source documents that underlie business transactions are invoices sent to customers, invoices received from suppliers, bank checks, bank deposit slips, cash receipt forms, and written contracts. A general journal is a book of original entry that may be used for the initial recording of any type of transaction. It contains space for dates and for accounts to be debited and credited, columns for the amounts of the debits and credits, and a posting reference column for numbers of the accounts that are posted.
Q3-3.
Q3-4.
Q3--5. When entries are posted, the page number and identifying initials of the appropriate journal are placed next to the amounts in the appropriate accounts. The account number is entered beside the related amount posted in the journal's posting reference column. This procedure enables interested users to trace amounts in the ledger back to the originating journal entry and permits us to know which entries have been posted. Q3-6. A compound journal entry is a journal entry containing more than one debit entry or one credit entry. A chart of accounts is a list of the accounts appearing in the general ledger, with the account numbering system indicated. Normally the accounts are classified as asset, liability, owners' equity, revenue, and expense accounts, and often the numbering system identifies the account classification. For example, a coding system might assign the numbers 100199 to assets, 200299 to liabilities, and so on.
Q3-7.
Cambridge Business Publishers, 2014 3-2 Financial Accounting, 4th Edition
Q3-8.
Many of the transactions reflected in the accounting records through the first two steps of the accounting cycle affect the net income of more than one period. Therefore, adjustments to the account balances are ordinarily necessary at the end of each accounting period to record the proper amount of revenue and to match expenses with revenue properly. This process is also intended to achieve a more accurate picture of financial position by adjusting balance sheet amounts to show unexpired costs, up-to-date amounts of obligations, and so on. 1. Allocating assets to expense to reflect expenses incurred during the period. Example: Recording supplies used by debiting Supplies Expense and crediting Supplies. 2. Allocating payments received in advance by crediting the revenue account to reflect revenues earned during the period. Example: Recording service fees earned by debiting Unearned Service Fees and crediting Service Fees Earned. 3. Accruing expenses to reflect expenses incurred during the period that are not yet paid or recorded. Example: Recording unpaid wages by debiting Wages Expense and crediting Wages Payable. 4. Accruing revenues to reflect revenues earned during the period that are not yet received or recorded. Example: Recording commissions earned by debiting Commissions Receivable and crediting Commissions Earned.
Q3-9.
Q3-10. Jan. 31
Insurance expense (+E, -SE) Prepaid insurance (-A) To record insurance expense for January ($1,872/24 = $78).
78 78
Q3-11. A contra account is an account that is related to, and deducted from, another account when financial statements are prepared or when book values are computed. Accumulated depreciation is deducted from the cost of a depreciable asset in computing and portraying the asset's book value. Q3-12. The building is five years old by the end of 2014, so the accumulated depreciation of $800,000 represents five years of depreciation at an annual rate of $160,000 ($800,000/5). If the annual depreciation is $160,000, then the expected life of the building must be 25 years. At the end of 2021, the building will be twelve years old, and the accumulated depreciation will be 12$160,000, or $1,920,000. The book value of the building (defined as original cost less accumulated depreciation) will be $2,080,000.
Q3-13. (a)
Jan. 1
Cash (+A) Subscriptions received in advance (+L) To record receipt of two-year subscriptions. Jan. 31 Subscriptions received in advance (-L) Subscriptions revenue (+R,+SE) To record subscription revenue earned during January ($9,720/24 = $405). Wages expense (+E, -SE) Wages payable (+L) To record unpaid wages for Jan. 3031 [($475/5) 2 = $190]. Interest receivable (+A) Interest income (+R,+SE) To record interest earned during January.
9,720 9,720
(b)
405 405
Q3-14. Jan. 31
190 190
Q3-15. Jan. 31
360 360
Q3-16. The temporary accountssometimes called nominal accountsare closed at year-end. They consist principally of the income statement accounts (expense and revenue accounts). (The Income Summary account and the Dividend account are also closed if they are used.) Q3-17. Step 1) Close revenue accounts: Debit each revenue account for an amount equal to its balance, and credit the Retained Earnings account for the total of revenues. Step 2) Close expense accounts: Credit each expense account for an amount equal to its balance, and debit the Retained Earnings account for the total of expenses. Q3-18. A post-closing trial balance ensures that an equality of debits and credits has been maintained throughout the adjusting and closing procedures and that the general ledger is in balance to start the next period. Only balance sheet accounts appear in a post-closing trial balance. Depreciation Expense and Supplies Expense are temporary accounts that should have been closed and should not appear in the post-closing trial balance.
Q3-19. The cost principle and the matching concept support Dehning's handling of its catalog costs. Prepaid Catalog Costs is an asset account that is initially recorded at the amount that the catalogs cost Dehning. This is consistent with the cost principle that states that assets are initially recorded at the amounts paid to acquire the assets. The catalogs help Dehning generate sales revenues. The matching concept states that the catalog costs should be matched as expenses with the revenues they help generate. Dehning does this by expensing the catalog costs over their estimated useful lives. Q3-20. (a) Supplies Expense ($825 + $260 $630 = $455) for the period is omitted from the income statement, overstating net income by $455 (ignoring taxes). (b) Both Supplies and Owners' Equity are overstated by $455 on the January 31 balance sheet (again, before considering taxes).
MINI EXERCISES
M3-21. (45 mintes)
a.
Balance Sheet Transaction June 1. Invested $12,000 cash. June 2. Paid $950 cash for June rent. June 3. Purchased $6,400 of office equipment on account. June 6. Purchased $3,800 of supplies; $1,800 cash, $2,000 on account. June 11. $4,700 billed for services. Cash Noncash Liabil+ = Asset Assets ities +12,000 = Cash -950
Cash
Income Statement Earned Capital Revenues - Expenses = Net Income
Contrib. + + Capital +12,000

Common Stock
-950
Retained Earnings
= +950
Rent Expense
= +6,400
Office Equipment
-950
+6,400 = Payable +2,000 = Payable

Accounts Accounts
-1,800
Cash
+3,800
Supplies
+4,700
Retained Earnings
= +4,700
+4,700
Accounts Receivable
= = -3,000 = Accounts
Payable
+4,700
Service Fees Earned
= =
June 17. Collected +3,250 Cash $3,250 on accounts. June 19. Paid $3,000 -3,000 Cash on office equipment account. June 25. Paid cash -900 Cash dividend of $900. June 30. Paid $350 utilities. June 30. Paid $2,500 salaries. TOTALS -350
Cash
-3,250
Accounts Receivable
= = +350
Utilities Expense
-900 = = = + 11,650 = 5,400 + 12,000 +

Retained Earnings
4,700
-350
Retained Earnings
= = =
-350 -2,500 900
-2,500
Cash
-2,500
Retained Earnings
+2,500
Salaries Expense
5,750
3,800
continued next page
M3-21. continued b. June 1 Cash (+A) 12,000 Common stock (+SE) Owner invested cash for stock. Rent expense (+E, -SE) Cash (-A) Paid June rent. Office equipment (+A) Accounts payable (+L) Purchased office equipment on account. Supplies (+A) Cash (-A) Accounts payable (+L) Purchased $3,800 of supplies; paid $1,800 down with balance due in 30 days. 950 950
12,000
6,400 6,400
3,800 1,800 2,000
11 Accounts receivable (+A) Service fees earned (+R,+SE) Billed clients for services. 17 Cash (+A) Accounts receivable (-A) Collections from clients on account. 19 Accounts payable (-L) Cash (-A) Payment on account. 25 Retained earnings (-SE) Cash (-A) Issued dividends. 30 Utilities expense (+E, -SE) Cash (-A) Paid utilities bill for June. 30 Salaries expense (+E, -SE) Cash (-A) Paid salaries for June.
4,700 4,700
3,250 3,250
3,000 3,000
900 900
350 350
2,500 2,500
continued next page
M3-21. concluded c. + June 1 17 Cash (A) 12,000 950 3,250 1,800 3,000 900 350 2,500 + June 6 Supplies (A) 3,800 -
June 2 6 19 25 30 30
+ June 3 June 19
Office Equipment (A) 6,400 Accounts Payable (L) 3,000 6,400 2,000
+ June 11
Accounts Receivable (A) 4,700 3,250 June 17
+ June 3 June 6
Common Stock (SE) 12,000
+ June 1
Retained Earnings (SE) June 25 900 + June 2 Rent Expense (E) 950
Service Fees Earned (R) + 4,700 June 11
+ June 30
Utilities Expense (E) 350
+ June 30
Salaries Expense (E) 2,500
M3-22. (45 minutes) a.

Balance Sheet
Transaction April 1. Invested $9,000 in cash. April 2. Paid $2,850 cash for lease. April 3. Borrowed $10,000. April 3. Purchased $5,500 equipment for $2,500 cash with rest on account. April 4. Paid $4,300 cash for supplies. April 7. Paid $350 cash for ad. April 21. Billed $3,500 for services April 23. Paid $3,000 cash on account. April 28. Collected $2,300 on account. April 29. Paid $1,000 cash dividend. April 30. Paid $1,750 cash for wages. April 30. Paid $995 cash for gas. TOTALS -3,000
Cash
Income Statement
Earned Capital Net Revenues - Expenses = Income = = =
Cash Noncash Liabil+ = Asset Assets ities +9,000 = Cash -2,850

Cash
Contrib. + + Capital +9,000

Common Stock
+2,850
Prepaid Van Lease
= +10,000 =
Note Payable
+10,000
Cash
-2,500
Cash
+5,500
Equipment
+3,000 =
Accounts Payable
-4,300
Cash
+4,300
Supplies
= -350 =
Retained Earnings
+350 +3,500
Cleaning Fees Earned Ad. Expense
= -350 = = = = = +1,750 -1,750 = -995 = = 405

Wages Expense
-350
Cash
+3,500
Accounts Receivable
= -3,000 = Accounts
Payable
+3,500
Retained Earnings
+3,500
+2,300
Cash
-2,300
Accounts Receivable
= = = = -1,000
Retained Earnings
-1,000
Cash
3,500 -
-1,750
Cash
-1,750
Retained Earnings
-995
Cash
-995
Retained Earnings
+995
Van Fuel Expense
4,555
+ 13,850
= 10,000 + 9,000 +
-595
3,095
continued next page
M3-22 continued b. April 1 Cash (+A) Common stock (+SE) Owner invested cash for stock. Prepaid van lease (+A) Cash (-A) Paid six months' lease on van. Cash (+A) Notes payable (+L) Borrowed money from bank for one year at 10% interest. Equipment (+A) Cash (-A) Accounts payable (+L) Purchased $5,500 of equipment; paid $2,500 down with balance due in 30 days. Supplies (+A) Cash (-A) Purchased supplies for cash. Advertising expense (+E, -SE) Cash (-A) Paid for April advertising. 9,000 9,000 2,850 2,850 10,000 10,000
5,500 2,500 3,000
4,300 4,300 350 350 3,500 3,500 3,000 3,000 2,300 2,300 1,000 1,000 1,750 1,750 995 995
continued next page
21 Accounts receivable (+A) Cleaning fees earned (+R, +SE) Billed customers for services. 23 Accounts payable (-L) Cash (-A) Payment on account. 28 Cash (+A) Accounts receivable (-A) Collections from customers on account. 29 Retained earnings (-SE) Cash (-A) Issued cash dividends. 30 Wages expense (+E, -SE) Cash (-A) Paid wages for April. 30 Van fuel expense (+E, -SE) Cash (-A) Paid for gasoline used in April.
Cambridge Business Publishers, 2014 3-10
Financial Accounting, 4th Edition
M3-22 concluded c. + April 1 3 28 Cash (A) 9,000 2,850 April 2 10,000 2,500 3 2,300 4,300 4 350 7 3,000 23 1,000 29 1,750 30 995 30 Supplies(A) 4,300 + April 21 Accounts Receivable (A) 3,500 2,300 April 28
+ April 2 + April 3 -
Prepaid Van Lease (A) 2,850 Equipment (A) 5,500 Notes Payable (L) 10,000 -
+ April 4
+ April 3
Accounts Payable (L) April 23 3,000 3,000 Common Stock (SE) 9,000
+ April 3 + April 1
- Retained Earnings (SE) April 29 1,000 -
Cleaning Fees Earned (R) + 3,500 April 21
+ Advertising Expense (E) April 7 350
+ April 30
Wages Expense (E) 1,750
+ April 30
Van Fuel Expense (E) 995

Balance Sheet Cash Noncash LiabilContrib. + = + + Transaction Asset Assets ities Capital 1. Received $20,100 in +20,100 +20,100 advance for Cash = Unearned Service contract work.
Fees
Income Statement Earned Capital Net Revenues - Expenses = Income =
Jan.
1 Cash (+A) Unearned service fees (+L) To record fee received in advance.
20,100 20,100
b.
Balance Sheet Transaction 2. Adjusting entry for work completed by Jan. 31. Cash Asset + Noncash LiabilContrib. = + + Assets ities Capital -3,350 Unearned =
Service Fees
Income Statement Earned Capital +3,350

Retained Earnings
Net Revenues - Expenses = Income +3,350 +3,350 Service =

Fees
Jan. 31 Unearned service fees (-L) Service fees (+R, +SE) To reflect January service fees earned on contract ($20,100/6 = $3,350).
3,350 3,350
c.
Balance Sheet Transaction 3. Adjusting entry for fees earned but not billed. Cash Asset + Noncash Liabil= Assets ities +570 Fees = + Contrib. + Capital Earned Capital +570
Retained Earnings
Income Statement Net Revenues - Expenses = Income +570 +570 Service =

Fees
Receivable
Jan. 31
Fees receivable (+A) Service fees (+R, +SE) To record unbilled service fees earned at January 31.
570 570
M3-24. (15 minutes) 1.

Balance Sheet Transaction
1. Adjusting entry for
Income Statement Earned Capital -185

Retained Earnings
Cash Asset
prepaid insurance.
Noncash Liabil+ = Assets ities -185 = Prepaid

Insurance
Contrib. + + Capital
Net Revenues - Expenses = Income +185 -185 - Insurance =

Expense
Jan.
31
Insurance expense (+E, -SE) Prepaid insurance (-A) To record January insurance expense ($6,660/36 = $185).
185 185
2.
Balance Sheet Transaction 2. Adjusting entry for supplies used. Cash Asset + Noncash Liabil= Assets ities -1,080 = Supplies + Contrib. + Capital Earned Capital -1,080
Retained Earnings
Income Statement Revenues - Expenses = +1,080 Supplies Expense
Net Income -1,080
Jan.
31
Supplies expense (+E, -SE) Supplies (-A) To record January supplies expense ($1,930 $850 = $1,080).
1,080 1,080
3.
Balance Sheet
Transaction 3. Adjusting entry for depreciation of equipment. Cash Asset + Noncash Assets Contra Assets +62 Accumulated Depreciation = Liabilities + Contrib. Capital + Earned Capital
Income Statement
Revenues Expenses = Net Income
-62
Retained Earnings
+62
Depreciation Expense
-62
Jan.
31
Depreciation expenseEquipment (+E, -SE) Accumulated depreciationEquipment (+XA, -A) To record January depreciation on office equipment ($5,952/96 = $62).
62 62
continued next page
M3-24. concluded 4.
Balance Sheet
Transaction
4. Adjusting entry for rent. Cash Asset Noncash LiabilContrib. + = + + Assets ities Capital -875 = Unearned
Rent Revenue
Income Statement
Earned Capital +875
Earnings
Net Revenues - Expenses = Income +875 +875 Retained Rent Revenue =
Jan. 31 Unearned rent revenue (-L) Rent revenue (+R, +SE) To record portion of advance rent earned in January.
875 875
5.
Balance Sheet
Transaction
5. Adjusting entry for accrued salaries. Cash Asset + Noncash LiabilContrib. = + + Assets ities Capital +490 = Salaries
Payable
Income Statement
Earned Capital -490
Retained Earnings
Revenues - Expenses = +490 Salaries Expense
Net Income -490
Jan.
31 Salaries expense (+E, -SE) Salaries payable (+L) To record accrued salaries at January 31.
490 490
M3-25. (15 minutes) (All amounts in $ millions.) a.

Balance Sheet Transaction Inventory purchases (total). Cash Asset + Noncash = Liabilities Assets +3,734 +3,734
Inventory
Income Statement Contrib. + Capital Earned Capital Revenues - Expenses = = Net Income
Accounts Payable
Inventories (+A).. 3,734 Accounts payable (+L).. 3,734 To record total purchases made at various dates. b. Beginning AP balance + Purchases Payments = Ending AP balance. So $447 + $3,734 - Payments = $510. Thus Payments = $3,671 c.
Balance Sheet
Transaction Adjusting entry for cost of goods sold for 2011. * Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital
Income Statement
-3,617
Inventory
-3,617
Retained Earnings
+3,617
Cost of Goods Sold
-3,17
Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance. So $897 + $3,734 COGS = $1.014. Thus COGS = $3,617 Cost of goods sold (+E, -SE)... 3,617 Inventories (-A) 3,617 To record cost of goods sold for the year ended 1/31/2012. (Note: the COGS figure can be verified from the firms financial statements. Purchases can not be so determined, but could be established by working backwards. See M3-29.)
M3-26. (15 minutes) ARCHITECT SERVICES COMPANY Statement of Stockholders Equity For Year Ended December 31, 2014 Common Stock Balance at December 31, 2013 ..............$30,000 Stock issuance ..................................... 6,000 Dividends ............................................. Net income ........................................... _____ Balance at December 31, 2014 ..............$36,000 Retained Earnings $18,000 (9,700) 29,900 $38,200 Total Stockholders Equity $48,000 6,000 (9,700) 29,900 $74,200
M3-27. (5 minutes) Ending balance = Beginning balance + Credit from closing revenue Debit from closing expenses: $137,600 = $99,000 + $347,400 - $308,800
Date 2013 Description

Dec. 31 Commissions revenue (-R) Retained earnings (+SE) To close the revenue account. 31 Retained earnings (-SE) Wages expense (-E) Insurance expense (-E) Utilities expense (-E) Depreciation expense (-E) To close the expense accounts.
Debit
84,900
Credit
84,900
55,900 36,000 1,900 8,200 9,800
Closing the revenue and expense accounts into retained earnings has the effect of increasing the retained earnings balance by an amount equal to net income (revenue minus expenses). The balance of Smiths Retained Earnings after closing entries are posted is: $101,100 credit ($72,100 + $84,900 - $55,900).
continued next page
M3-28 concluded b. + Bal. Bal. + Bal. Bal. + Bal. Bal. Wages Expense (E) 36,000 36,000 (2)Dec. 31 0 Insurance Expense (E) 1,900 1,900 (2)Dec. 31 0 Depreciation Expense (E) 9,800 9,800 (2)Dec. 31 0 + Bal. Bal. Utilities Expense (E) 8,200 8,200 (2) Dec. 31 0
- Commissions Revenue (R) + (1)Dec. 31 84,900 84,900 Bal. 0 Bal. - Retained Earnings (SE) + (2)Dec. 31 55,900 72,100 Bal. 84,900 (1)Dec.31 101,100 Bal. Dec.31
M3-29. (30 minutes) (All amounts in $ millions.) a.

Balance Sheet
Transaction Recognize cost of goods sold Cash Asset + Noncash = Assets -5,206 Merchandise = Inventory Liabilities + Contrib. + Capital Earned Capital -5,206 Retained Earnings
Income Statement
Revenues Expenses = +5,206 Cost of goods sold Net Income -5,206
Cost of goods sold (+E,-SE) .................................................... Merchandise Inventory(-A) ..................................................

To recognize the cost of goods sold.
5,206 5206
continued next page
M3-29. concluded b. Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance. So $1,370 + Purchases - $5,206 = $1,375. Thus purchases = $5,211
Balance Sheet
Transaction Recognize cost of goods sold. Cash Asset Noncash Liabil + = Assets -ities +5,211 +5,211 Merchandise = Account inventory Payable + Contrib. + Capital Earned Capital
Income Statement
Revenues Expenses = = Net Income -
Merchandise Inventory(+A) ..................................................... Accounts Payable (+L) ........................................................

To recognize the purchases on account.
5,211 5,211
c. Beginning AP balance + Purchases Payments = Ending AP balance. So $869 + $5,211 - Payments = $949. Thus Payments = $5,131
M3-30 (10 minutes) a.

Balance Sheet Transaction a. Dec. 31 Interest earned. Cash Asset + Noncash Liabil= Assets ities +600 = Interest
Receivable
Income Statement Contrib. + Capital Earned Capital +600

Retained Earnings
Net Revenues - Expenses = Income +600 +600 = Interest

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

Retained Earnings
Noncash Liabil= Assets ities -600 = Interest

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

Income
2014 Jan. 31 Cash (+A) Interest income (+R, +SE) Interest receivable (-A) To record cash receipt of interest.
900 300 600
EXERCISES
E3-31. (30 minutes) a. Dec. 31 Service fees earned (-R,-SE) Retained earnings (+SE) To close the revenue account. Retained earnings (-SE) Rent expense (-E) Salaries expense (-E) Supplies expense (-E) Depreciation expense (-E) To close the expense accounts. 80,300 80,300
31
82,300 20,800 45,700 5,600 10,200
b.
+ Bal. Bal. Rent Expense (E) 20,800 20,800 0 (2) Bal. Bal. + Bal. Bal. + Bal. Bal. (2) Salaries Expense (E) 45,700 45,700 0 Retained Earnings (SE) 82,300 67,000 80,300 65,000 (2) (1) + Supplies Expense (E) 5,600 5,600 0 Depreciation Expense (E) 10,200 10,200 0 Service Fees Earned (R) 80,300 80,300 0 (2) (2)
+ Bal. Bal.
+ Bal. (1) Bal.
Brooks Consulting earned a loss during the period (expenses exceeded revenues by $2,000), so the ending retained earnings is lower than the beginning retained earnings (even though no dividends were paid).
E3-32. (30 minutes) a.

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

To record depreciation for the period.
610 610 1,890 1,890 390 390 700 700 468 468 965 965 300 300
2. Supplies expense (+E,-SE) Supplies (-A) 3. Utilities expense (+E, - SE) Utilities payable (+L)
To record supplies expense for the period ($2,990 $1,100 = $1,890).
To record accrued utilities expense.
4. Rent expense (+E,-SE) Prepaid rent (-A)

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

To accrue interest earned but not yet received.

Balance Sheet Transaction a. Adjusting entry for salaries expense. Cash Asset + Noncash Assets = Liabilities + +4,700 = Salaries Payable Contrib. + Capital Earned Capital -4,700 Retained Earnings Income Statement Revenues Expenses +4,700 Salaries Expense = = Net Income -4,700
2013 Dec. 31 Salaries expense (+E,-SE) Salaries payable (+L) To record accrued salaries payable.
4,700 4,700
b.
31 Retained earnings (-RE) Salaries expense (-E)

To close the Salaries Expense account.
250,000 250,000
c.
Balance Sheet Transaction c. Paid salaries. Cash Asset -12,000 Cash + Noncash Assets = Liabilities + -4,700 = Salaries Payable Contrib. + Capital Earned Capital -7,300 Retained Earnings Income Statement Revenues Expenses +7,300 Salary Expense = = Net Income -7,300
2014 Jan.
7 Salaries payable (-L) Salaries expense (+E,-SE) Cash (-A)

To record payment of salaries.
4,700 7,300 12,000
E3-34. (20 minutes) a. Balance, January 1 = $960 + $800 $620 = $1,140. b. Amount of premium = $82 12 = $984. Therefore, five months' premium ($984 $574 = $410) has expired by January 31. The policy term began on and has been in effect since September 1, 2013. c. Wages paid in January = $3,200 $500 = $2,700.
d. Monthly depreciation expense = $8,700/60 months = $145. Fields has owned the truck for 18 months ($2,610/$145 = 18).

Balance Sheet Transaction 1. 7/31 Adjusting entry for rent expense. 2. 7/31 Adjusting entry for ad. expense. 3. 7/31 Adjusting entry for supplies expense. 4. 7/31 Adjusting entry for fees revenue. 5. 7/31 Adjusting entry for fees revenue. Cash Asset + Noncash Assets -475 Prepaid Rent -210 Prepaid Advertising -1,900 Supplies +800 Fees Receivable -300 Unearned Refinish. Fees = -300 = = Liabilities Contrib. + + Capital Earned Capital -475 Retained Earnings - 210 Retained Earnings -1,900 Retained Earnings +800 Retained Earnings +300 Retained Earnings -1,485 Income Statement Revenues Expenses +475 Rent Expense +210 Advertising Expense +1,900 Supplies Expense = = -210 = -1,900 = +800 = +300 2,585 = = -1,485 Net Income -475
+800 Refinish. Revenue +300 Refinish. Revenue 1,100
TOTALS
-1,785
b. July 31 Rent expense (+E,-SE) Prepaid rent (-A)

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

To record July advertising expense ($630/3 = $210).
31 Supplies expense (+E,-SE) Supplies (-A)

To record supplies expense for July ($3,000 $1,100 = $1,900).
31 Fees receivable (+A) Refinishing fees revenue (+R,+SE)

To record unbilled revenue earned during July.
800 800 300 300
31 Unearned refinishing fees (-L) Refinishing fees revenue (+R,+SE)

To record portion of advance fees earned in July ($600/2 = $300).
continued next page
E3-35. concluded c. + Prepaid Rent (A) 5,700 475 5,225 + Prepaid Advertising (A) 630 210 420 + Fees Receivable (A) 800 + Supplies (A) 3,000 1,900 1,100
Bal. Bal.
(1)
Bal. Bal.
(3)
Bal. Bal.
(2)
(5)
- Unearned Finishing Fees (L) + 300 600 Bal. 300 Bal. - Refinishing Fees Revenue (R) + 2,500 Bal. 800 (4) 300 (5) 3,600 Bal. + Supplies Expense (E) 1,900 -
(4)
(3)
+ (2)
Advertising Expense(E) 210
+ (1)
Rent Expense (E) 475
E3-36. (30 minutes) (All amounts in $ thousands.) a.

Balance Sheet Transaction Recognize inventory purchases. Cash Asset + Noncash Assets +482,303 Inventory = Liabilities + Contrib. Capital + Earned Capital Income Statement Revenues Expenses = Net Income
= +482,303 Account Payable
Inventory (+A) ......................................................................... 482,303* Accounts payable (+L) ........................................................

To recognize inventory purchases.
482,303
*Beginning Inv balance + Purchases Cost of goods sold = Ending Inv. So $43,526 + Purchases - $456,664= $69,165. Thus purchases = $482,303 b. Beginning compensation payable + Compensation expense Compensation paid = Ending compensation payable, so $10,529 + $40,000 Payments = $10,841 Payments = $39,688 c. Accrued compensation is reported as a current liability.
E3-37. (30 minutes) a. Dec. 31 Service fees earned (-R) Interest income (-R) Retained earnings (+SE)
To close the revenue accounts.
92,500 2,200 94,700 64,700 41,800 4,300 8,700 9,900
31
Retained earnings (-SE) Salaries expense (-E) Advertising expense (-E) Depreciation expense (-E) Income tax expense (-E)
To close the expense accounts.
continued next page
E3-37. concluded b. (2) - Retained Earnings (SE) + 64,700 42,700 Bal. 94,700 (1) 72,700 Bal. (1) - Service Fees Earned (R) + 92,500 92,500 Bal. 0 Bal. - Interest Income (R) + 2,200 2,200 Bal. 0 Bal.
(1)
+ Salaries Expense (E) Bal. 41,800 41,800 Bal. 0 + Depreciation Expense (E) Bal. 8,700 8,700 Bal. 0
(2)
Bal. Bal. Bal. Bal.
(2)
+ Advertising Expense (E) 4,300 4,300 0 + Income Tax Expense(E) 9,900 9,900 0
(2)
(2)

Balance Sheet Transaction (1) Collect deposits from customers. (2) Recognize income on completed customer orders. Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital Income Statement Revenues Expenses = Net Income
+200,000
Cash
+200,000 = Customer
Deposits
+678,960 +678,960
Retained Earnings Sales Revenue
= +678,960 =
+489,004
Cash
-189,956 = Customer
Deposits
(1)
Cash (+A) Customer deposits* (+L)

To record unearned customer deposits.
200,000 200,000
(2)
Customer deposits* (-L) ........................................................... 189,956 ** Cash (+A) 489,004 Sales revenue (+R, +SE) .....................................................
To record sales revenue and recognized deposits earned.
678,960
* Also sometimes called Unearned Customer Deposits ** $52,605 + $200,000 Deposits earned = $62,649; Deposits earned = $189,956. continued next page
E3-38. concluded b.
Transaction Record inventory purchases. Cash Asset + Noncash Assets -337,152 Inventory Balance Sheet Liabil = + -ities = +337,152 Acc. Payable Income Statement Contrib. + Capital Earned Capital Revenues Expenses = Net Income
Inventory (+A) ......................................................................... Accounts Payable (+L) ......................................................

To recognize inventory purchases. BI +Purchases EI = COGS. So $134,040 + Purchases - $329 500 = $141,692. Thus: Purchases =$337,152
337,152 337,152
c. Customer Deposits are reported as a current liability.

SOLOMON CORPORATION Income Statement For Year Ended December 31, 2013 Service fees earned ........................................................................................................ Rent expense .................................................................................................................. Salaries expense ............................................................................................................ Depreciation expense... Net income...................................................................................................................... $71,000 (18,000) (37,100) (7,000) $8,900
SOLOMON CORPORATION Statement of Stockholders Equity For Year Ended December 31, 2013 Common Stock $43,000 Retained Earnings $20,600* (8,000) _______ $43,000 8,900 $21,500 Total Stockholders Equity $63,600 (8,000) 8,900 $64,500
Balance at December 31, 2012 ........................... Stock issuance ..................................................... Dividends ............................................................. Net income ........................................................... Balance at December 31, 2013 ...........................
*12,600 + 8,000 The dividend was paid and debited to retained earnings prior to the end of the period. continued next page
E3-39. continued SOLOMON CORPORATION Balance Sheet December 31, 2013

Assets Cash Accounts receivable Equipment Less:Accumulated depreciation $ 78,000 64,000 14,000 Common stock Retained earnings $74,500 Total Liabilities and Owners Equity 43,000 21,500 $74,500 Owners Equity Liabilities $ 4,000 Notes payable 6,500 Total Liabilities $ 10,000 10,000
Total Assets
b. 1. Service fees earned (-R) ......................................................... 71,000 Retained earnings (+SE) .................................................... Retained earnings (-SE).......................................................... 18,000 Rent expense (-E)............................................................... Retained earnings (-SE).......................................................... 37,100 Salaries expense (-E) ......................................................... Retained earnings (-SE)..........................................................7,000 Depreciation expense (-E) .................................................
71,000
2.
18,000
3.
37,100
4.
7,000
The cash dividend has already been paid and is already reflected in the adjusted trial balance.
continued next page
E3-39. concluded c. Only the T-accounts affected by closing process are shown here. + Depreciation Expense (E) Bal. 7,000 7,000 Bal 0 + Salaries Expense (E) 37,100 37,100 0 - Service Fees Earned (R) + 71,000 71,000 Bal. 0 Bal. + (3) Bal. Bal Rent Expense (E) 18,000 18,000 0
(4)
(1)
Bal. Bal.
(2)
(2-4)
- Retained Earnings (SE) + 62,100 12,600 71,000 21,500
Bal. (1) Bal.
PROBLEMS
P3-40. (90 minutes) a. + Apr. 1 5 18 Cash (A) 11,500 1,800 4,900 2,880 6,100 1,000 675 100 2,500 Apr. 1 2 2 29 30 30 + Accounts Receivable (A) 5,500 4,900 4,000 4,600 Supplies (A) 1,200 1,200 800 (d) 400 Trucks (A) 6,100 6,100 Accounts Payable (L) 2,100 1,200 3,300 Apr. 18 Apr. 12 30 Bal. + Apr. 5
Unadj. bal.
Apr. 30
Bal. + Apr. 1
Unadj. bal.
4,945 Prepaid Insurance (A) 2,880 2,880 120 (d) 2,760 Equipment (A) 3,100 3,100 -
Adj. bal. + Apr. 30 Apr. 2 Bal. -
Adj bal. + Apr. 2 Bal.
+ Apr. 2 5 Bal.
Roofing Fees Earned (R) + 5,500 Apr. 12 4,000 30 9,500 Unadj. bal. 450 (d) 30 9,950 Adj. Bal. Supplies Expense (E) (d) 800 800 Advertising Expense (E) 100 100 -
Unearned Roofing Fees (L) + 1,800 Apr. 5 Apr. 30 (d) 450 1,800 Unadj. bal 1,350 Adj. Bal
+ Apr. 30
Adj. Bal.
Common Stock (SE) 11,500 11,500 Fuel Expense (E) 675 675
+ Apr. 1 Bal. -
+ Apr. 30 Bal.
+ Apr. 29 Bal.
continued next page
P3-40. continued a. continued + Insurance Expense (E) Apr. 30 (d) 120 Adj. Bal. 120 + Depreciation Expense Equip. (E) Apr. 30 (d) 35 Adj. Bal. 35 + Depreciation Expense - Trucks (E) Apr. 30 (d) 125 Adj. Bal. 125 + Wages Expense (E) Apr. 30 2,500 Bal. 2,500 - Accumulated Deprec. Equip. (XA) + 35 (d) Apr. 30 35 Adj. Bal. - Accumulated Deprec. Trucks (XA) + 125 (d) Apr. 30 125 Adj. Bal
b.
Balance Sheet Cash Noncash + Transaction Asset Assets Apr. 1. Cash received for +11,500 stock. Cash Apr. 1. Purchase liability insurance. Apr. 2. Purchase truck for cash. Apr. 2. Purchase equipment. Apr. 5. Purchase supplies on account. Apr. 5. Cash in advance for roofing repairs. +1,800 Cash -2,880 Cash -6,100 Cash -1,000 Cash = Liabilities = Contrib. + + Capital +11,500 Common Stock Earned Capital Income Statement Revenues Expenses = = Net Income
Apr. 12. Bill customers for services. Apr. 18. Collected cash on account. Apr. 29. Paid cash for fuel. Apr. 30. Paid cash for ads. Apr. 30. paid cash wages. Apr. 30. Bill customers for services. Totals 4,945 +4,900 Cash -675 Cash -100 Cash -2,500 Cash
+2,880 Prepaid = Insurance + 6,100 = Truck +3,100 +2,100 Equipment = Accounts Payable + 1,200 +1,200 Supplies = Accounts Payable +1,800 Unearned = Roofing Fees +5,500 Accounts = Receivable -4,900 Accounts = Receivable =
= = =
+5,500 Retained Earnings +5,500 Roofing Fees Revenue -675 Retained Earnings -100 Retained Earnings -2,500 Retained Earnings +4,000 Retained Earnings 6,225
= +5,500 =
= -675
+675 - Fuel Expense = +100 - Ad. Expense = +2,500 Wages Expense
-100
-2,500 = +4,000
= +4,000 Accounts = Receivable + 17,880 =
+4,000 Roofing fees Earned 9,500
3,275
= = 6,225
5,100
11,500
continued next page

P3-40. continued b. continued

Date 2014 Apr. 1 Description Cash (+A) Common stock (+SE) Owner invested cash. Prepaid insurance (+A) Cash (-A) Paid two-year premium on liability insurance policy. Trucks (+A) Cash (-A) Purchased used truck for $6,100 cash. Equipment (+A) Cash (-A) Accounts payable (+L) Purchased ladders and other equipment, $1,000 down with $2,100 balance due in 30 days. Supplies (+A) Accounts payable (+L) Purchased supplies on account. Cash (+A) Unearned roofing fees (+L) Received advance payment for services. Accounts receivable (+A) Roofing fees earned (+R,+SE) Billed customers for services. Cash (+A) Accounts receivable (-A) Collection on account from customers. Fuel expense (+E,-SE) Cash (-A) Paid truck fuel bill for April. Advertising expense (+E,-SE) Cash (-A) Paid for April newspaper advertising. Wages expense (+E, -SE) Cash (-A) Paid wages. Accounts receivable (+A) Roofing fees earned (+R, +SE) Debit Credit 11,500 11,500
2,880 2,880
6,100 6,100
3,100 1,000 2,100
1,200 1,200
1,800 1,800
12
5,500 5,500
18
4,900 4,900
29
675 675
30
100 100
30
2,500 2,500
30
4,000 4,000 continued next page

Cambridge Business Publishers, 2014
Billed customeers for services.
Solutions Manual, Chapter 3
3-31
P3-40. continued c. LOUGEE ROOFING SERVICE Unadjusted Trial Balance April 30, 2014 Debit $ 4,945 4,600 1,200 2,880 6,100 3,100
Credit
Cash Accounts Receivable Supplies Prepaid Insurance Trucks Equipment Accounts Payable Unearned Roofing Fees Common Stock Roofing Fees Earned Fuel Expense Advertising Expense Wages Expense
$ 3,300 1,800 11,500 9,500 675 100 2,500 $26,100
$26,100
d.
Balance Sheet
Transaction 1. Recognize one month of insurance expense. 2. Recognize supplies expense. 3. Recognize depreciation expense Trucks. 4. Recognize depreciation expense on equipment. 5. Recognize roofing fees earned. Cash Asset Noncash + Assets -120 Prepaid Insurance -800 Supplies Contra Assets = Liabilities = + Contrib. Capital + Earned Capital -120 Retained Earnings -800 Retained Earnings -125 Retained Earnings -35 Retained Earnings -450 Unearned Roofing Fees -450 + 0 + +450 Retained Earnings +450 Roofing Fees Earned 450
Income Statement
Revenues Expenses +120 Insurance Expense Net Income = -120 =
+125 = Accumulated Depreciation +35 = Accumulated Depreciation =
+800 = Supplies Expense +125 = Depreciation Expense +35 = Depreciation Expense =
-800
-125
-35
+450
Totals
-920
160
-630
1,080
-630
continued next page
P3-40. concluded d. continued Date 2014 Description April 30 Insurance expense (+E,-SE) Prepaid insurance (-A)
To record April insurance expense ($2,880/24 months = $120).
Debit 120
Credit 120
30
Supplies expense (+E,-SE) Supplies (-A)
800 800
To record April supplies expense ($1,200 $400 = $800).
30
Depreciation expenseTrucks (+E,-SE) Accumulated depreciationTrucks (+XA,-A)

To record April depreciation on trucks.
125 125 35 35 450 450
30
Depreciation expenseEquipment (+E,-SE) Accumulated depreciationEquipment (+XA,-A)

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

To record portion of advance payment earned in April ($1,800/4 = $450).
P3-41. (40 minutes) SNAPSHOT COMPANY Unadjusted Trial Balance December 31, 2013 a. Cash Accounts Receivable Prepaid Rent Prepaid Insurance Supplies Equipment Accounts Payable Unearned Photography Fees Common Stock Photography Fees Earned Wages Expense Utilities Expense b.
Balance Sheet
Transaction 1. Fees earned but not received. 2. Recognize depreciation expense for one year. 3. Recognize utilities expense. 4. Recognize rent expense for year. 5. Recognize photo revenues. 6. Recognize insurance expense. 7. Recognize supplies expense. 8. Recognize wages expense. Totals Cash Asset Noncash + Assets +925 Fees Receivable Contra Assets = Liabilities = +2,280 Accumulated = Depreciation +400 Utilities Payable + Contrib. Capital + Earned Capital +925 Retained Earnings -2,280 Retained Earnings -400 Retained Earnings -6,300 Retained Earnings +2,600 Retained Earnings -990 Retained Earnings -2,730 Retained Earnings -375 Retained Earnings -9,550
Debit $2,150 3,800 12,600 2,970 4,250 22,800
Credit
$1,910 2,600 24,000 34,480 11,000 3,420 $62,990 ______ $62,990
Income Statement
Revenues Expenses = = +2,280 Depreciation = Expense +400 Utilities Expense +6,300 Rent Expense -2,280 +925 Photography Fees Earned Net Income +925
-400 = -6,300 = +2,600 =
-6,300 Prepaid Rent
= -2,600 = Unearned Photo Fees =
+2,600 Photography Fee Earned -
-990 Prepaid Insurance -2,730 Supplies
= +375 Wages Payable = -1,825 = 2,280
0 + -9,095 -
3,525 -
+990 Insurance Expense +2,730 Supplies Expense +375 Wages Expense 13,075
-990 = -2,730 = -375 = = -9,550
continued next page
P3-41. continued b. continued Date 2013 Description Dec. 31 Fees receivable (+A) Photography fees earned (+R, +SE) `
To record revenue earned but not billed.
Debit 925
Credit 925
31
Depreciation expense (+E,-SE) Accum. depreciationEquipment (+XA, -A)

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

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

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

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

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

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

To record unpaid wages at December 31.
375 375
continued next page
P3-41. concluded c. + Cash (A) Unadj. bal. 2,150 Adj. bal. 2,150 + Accounts Receivable (A) Unadj. bal. 3,800 Adj. bal. 3,800 + Fees Receivable (A) Dec. 31 (1) 925 Adj. bal. 925 + Prepaid Rent (A) Unadj. bal. Dec.31 12,600 6,300 (4) Adj. bal. 6,300 + Prepaid Insurance (A) Unadj. bal. Dec.31 2,970 990 (6) Adj. bal. 1,980 + Supplies (A) Unadj. bal. Dec.31 4,250 2,730 (7) Adj. bal. 1,520 - Accounts Payable (L) + Unadj. bal. 1,910 Adj. bal. 1,910 - Unearned Photo Fees (L) + Unadj. bal. Dec.31 (5) 2,600 2,600 Adj. bal. 0 - Utilities Payable (L) + Dec.31 400 (3) Adj. bal. 400 - Wages Payable (L) + Dec.31 375 (8) Adj. bal. 375 - Common Stock (SE) + Unadj. bal. 24,000 Adj. bal. 24,000 - Photo Fees Earned (R) + Unadj. bal 34,480 Dec.31 925 (1) Dec.31 2,600 (5) Adj. bal. 38,005 + Wages Expense (E) Unadj. bal. 11,000 Dec.31 (8) 375 Adj. Bal. 11,375 + Utilities Expense (E) Unadj. bal. 3,420 Dec.31 (3) 400 Adj. Bal. 3,820 + Depreciation Expense Equip. (E) Dec.31 (2) 2,280 Adj. Bal. 2,280 + Rent Expense (E) Dec.31 (4) 6,300 Adj. Bal. 6,300
+ Equipment (A) Unadj. bal. 22,800 Adj. bal. 22,800 - Accum. Depreciation Equip. (XA) + Dec.31 2,280 (2) Adj. Bal. 2,280 + Supplies Expense (E) (7) 2,730 Adj. bal. 2,730 + Insurance Expense (E) Dec. 31 (6) 990 Adj. bal. 990
Dec. 31
P3-42. (90 minutes) a.

Balance Sheet
Transaction Cash Asset + Noncash Assets Contra Assets = Liabilities + Contrib. + Capital Earned Capital
Income Statement
1. Recognize rent expense. 2. To recognize supplies expense. 3. To recognize depreciation expense. 4. To recognize wages expense. 5. To recognize utilities expense. 6. To recognize fees earned.
-775
Prepaid Rent
= = +74 Accum. Deprec.
-775
Retained Earnings
+380
Service Fees Earned
+775
Rent Expense
-775
-1,700
Supplies
-1,700
Retained Earnings
+1,700
Supplies Expense
= -1,700 = = = -74 -210 -300
= = +210
Wages Payable
-74
Retained Earnings
+74
-210
Retained Earnings
+210
Wages Expense
= +300
Utilities Payable
-300
Retained Earnings
+300
Utilities Expense
+380
Accounts Receivable
= 74 = 510 + 0 +
+380
Retained Earnings
= +380
Totals
-2,095
-2,679
380
3,059
= -2,679
Date 2014 June 30
Description Rent expense (+E, -SE) Prepaid rent (-A)

To record June rent expense ($3,100/4 months = $775).
Debit 775
Credit 775
30
Supplies expense (+E, -SE) Supplies (-A)
1,700 1,700 74 74 210 210 300 300 380 380

continued next page
To record June supplies expense (2,520 $820 = $1,700).
30
Depreciation expenseEquip (+E, -SE) Accum. depreciationEquipment (+XA, -A)

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

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

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

To record fees earned but not billed in June.
3-37
P3-42. continued b. + Cash (A) 1,180 Adj. bal. 1,180 + Accounts Receivable (A) Unadj. bal 450 Jun. 30 (6) 380 Adj. bal. 830
Unadj. bal
- Accounts Payable (L) + Unadj. bal 760 Adj. bal. 760 - Wages Payable (L) + Jun.30 210 (4) Adj. bal. 210 - Utilities Payable (L) + Jun.30 300 (5) Adj. bal. 300 - Retained Earnings (SE) + Unadj. bal. 5,300
+ Prepaid Rent (A) Unadj. bal 3,100 775 (1) Adj. bal. 2,325 + Rent Expense (E) (1) 775 775 + Supplies (A) 2,520 1,700 (2) 820 + Equipment (A) 4,440 4,440
Jun.30
Jun.30 Adj. bal.
- Common Stock (SE) + Unadj. bal 2,000 Adj. bal. 2,000 - Service Fees Earned (R) + 4,650 Unadj. bal 380 (6) Jun.30 Adj. bal. 5,030 + Wages Expense (E) Unadj. bal 1,020 Jun.30 (4) 210 Adj. bal. 1,230 + Utilities Expense (E) Jun.30 (5) 300 Adj. bal. 300 + Depreciation Expense - EQPT (E) (3) 74 Adj. bal. 74
Jun.30 continued next page
Unadj. bal Adj. bal.
Jun.30
Unadj. bal Adj. bal.
- Accum. Depreciation Equip.(XA) + 74 (3) Jun.30 Adj. Bal. 74 + Supplies Expense (E) (2) 1,700 Adj. bal. 1,700
Jun. 30
P3-42. continued c. MURDOCK CARPET CLEANERS Income Statement For Year Ended June 30, 2014 Revenues Service fees. Expenses Rent expense Wages expense Supplies expense Utilities expense. Depreciation expense Total expenses $ 775 1,230 1,700 300 74 4,079 $5,030
Net income .......................................... $ 951
MURDOCK CARPET CLEANERS Balance Sheet June 30, 2014

Assets Cash Accounts receivable Supplies Prepaid rent Equipment Less: Accumulated depreciation Liabilities $ 1,180 Accounts payable 830 Wages payable 820 Utilities payable 2,325 Total Liabilities $ 4,440 74 4,366 Owners Equity 2,000 6,251 $9,521 $ 760 210 300 1,270
Total Assets
Common stock Retained earnings $9,521 Total Liabilities and Owners Equity
continued next page
P3-42. concluded d. 1. 2. 3. Retained earnings (-SE) ........................................................ Rent expense (-E) .............................................................. Retained earnings (-SE) ......................................................... Supplies expense (-E) ........................................................ Retained earnings (-SE) ......................................................... Wages expense (-E) .......................................................... Retained earnings (-SE) ......................................................... Utilities expense (-E ) ......................................................... Retained earnings (-SE) ......................................................... Depreciation expense (-E) ................................................. Service fees earned (-R) ........................................................ Retained earnings (+SE).................................................... 775 775 1,700 1,700 1,230 1,230 300 300 74 74 5,030 5,030
4. 5. 6.
1. 2. 3. 4. 5.
- Retained Earnings (SE) + 5,300 Bal. 775 1,700 1,230 300 74 5,030 6. 6,251 Bal. + Wages Expense(E) 1,230 1,230 0
Bal.
+ Rent Expense (E) 775 775 0 + Supplies Expense (E) 1,700 1,700 0
1.
Bal.
2.
Bal.
3.
Bal.
+ Utilities Expense (E) 300 300 4. 0 - Service Fees Earned (R) + 5,030 5,030 Bal. 0
+ Depreciation Expense (E) Bal. 74 74 0
5.
6.
P 3-43. (30 minutes) a.

Balance Sheet
Transaction Cash Asset + Noncash Assets Contra Assets = = Liabilities + Contrib. Capital + Earned Capital
Income Statement
Revenues Expenses = = Net Income
1. Accrue salary expense. 2. Accrue interest expense. 3. Accrue fees receivable. 4. Accrue maintenanc e expense. 5. Accrue ad. Expense. 6. Accrue rent expanse. 7. Accrue interest revenue. 8. Accrue depreciation expense. Totals
+720
Salaries Payable
-720
Retained Earnings
+720
Salaries Expense
-720 -200 +900 -400 -300 -160 +38 -2,175
+200
Interest Payable
-200
Retained Earnings
+200
Interest Expense
+900
Fees Receivable
+900
Retained Earnings
+900
Printing Revenue
= +400
Maintenanc e Expense =
-400
Prepaid Maintenance
-400
Retained Earnings
-300
Prepaid Advertising
-300
Retained Earnings
+300
Ad. Expense
+160
Rent Payable
-160
Retained Earnings
+160
Rent Expense
+38
Interest Receivable
+38
Retained Earnings
+38
Interest Revenue
+2,175
Accumulated Depreciation
-2,175
Retained Earnings
+2,175
+238
2,175
= 1,080 +
-3,017
938
3,955
= -3,017
b. Date Dec 31
Description Debit Salaries expense (+E, -SE) 720 Salaries payable (+L) To accrue salaries at December 31 ($1,800 2/5 = $720). Interest expense (+E, -SE) Interest payable (+L) To accrue interest expense at December 31. Fees receivable (+A) Printing revenue (+R, +SE) To record revenue earned but not yet billed. Maintenance expense (+E ,-SE) Prepaid maintenance (-A) To record December maintenance expense. 200
Credit 720
31
200
31
900 900
31
400 400
continued next page
P 3-43. concluded b. continued Date Dec. 31 Description Advertising expense (+E, -SE) Prepaid advertising (-A) To record December advertising expense ($900 1/3 = $300). Rent expense (+E, -SE) Rent payable (+L) To accrue one-half month's rent expense [(400 $0.80)/2 = $160]. Interest receivable (+A) Interest income (+R, +SE) To accrue interest earned in December. Depreciation expenseEquipment (+E, -SE) Accum. depreciationEquipment (+XA) To record annual depreciation on equipment. Debit 300 300 Credit
31
160 160
31
38 38
31
2,175 2,175
P3-44. (40 minutes) TRUEMAN CONSULTING INC. Income Statement For the Year Ended December 31, 2013 a. Revenue Service fees earned Expenses Rent expense Salaries expense Supplies expense Insurance expense Depreciation expenseEquipment Interest expense Total Expenses Net Income $58,400 $12,000 33,400 4,700 3,250 720 630 54,700 $ 3,700
continued next page
P3-44. concluded a. continued TRUEMAN CONSULTING INC. Statement of Stockholders Equity For the Year Ended December 31, 2013 Common Retained Stock Earnings Balance at December 31, 2012 .............. $1,000 Stock issuance ....................................... Dividends ................................................ Net income ............................................. _____ Balance at December 31, 2013 .............. $1,000 3,700 $7,005 3,700 $8,005 $3,305
Total Stockholders Equity $4,305
TRUEMAN CONSULTING Balance Sheet December 31, 2013

Assets
Cash Accounts receivable Supplies Prepaid insurance Equipment Less: Accumulated depreciation Total Assets $ 2,700 3,270 3,060 1,500 $ 6,400 1,080 5,320
Liabilities
Accounts payable Long-term notes payable Total Liabilities Owners Equity Common stock Retained earnings Total Liabilities and Owners Equity 1,000 7,005 $15,850 $ 845 7,000 7,845
$15,850
b. Date 2013 Description Dec. 31 Service fees earned (-R) Retained earnings (+SE) To close the revenue account. 31 Retained earnings (-SE) Rent expense (-E) Salaries expense(-E) Supplies expense (-E) Insurance expense (-E) Depreciation expenseEquip (-E) Interest expense (-E) To close the expense accounts. Debit 58,400 Credit 58,400
54,700 12,000 33,400 4,700 3,250 720 630
P3-45. (30 minutes) a. Date 2013 Dec. 31 Description Service fees earned (-R) Miscellaneous income (-R) Retained earnings (+SE) To close the revenue accounts. Retained earnings (-SE) Salaries expense (-E) Rent expense (-E) Insurance expense (-E) Depreciation expense (-E) Income tax expense (-E) To close the expense accounts. Debit 97,200 4,200 Credit
101,400
31
74,800 42,800 13,400 1,800 8,000 8,800
b. After the closing entries are posted, Retained Earnings has a $45,700 credit balance ($19,100 + $26,600 net income).
c. Wilson Company Post-Closing Trial Balance December 31, 2013 Debit Cash Accounts Receivable Prepaid Insurance Equipment Accumulated Depreciation Accounts Payable Income Tax Payable Common Stock Retained Earnings $8,500 8,000 3,600 72,000 $12,000 600 8,800 25,000 45,700 $92,100 Credit
______ $92,100

Balance Sheet Transaction 1. Recognize Advertising expense. 2. Accrue wage expense. Cash Asset + Noncash Assets -400 Prepaid Advertising = = +1,300 Wages Payable* Liabilities + Contrib. + Capital Earned Capital -400 Retained Earnings -1,300 Retained Earnings -1,140 Retained Earnings +2,400 Retained Earnings +2,400 Service Fees Earned +1,000 Rental Income 3,400 Income Statement Revenues Expenses +400 Advertising Expense +1,300 Wages Expense +1,140 Insurance Expense = = -1,300 = -1,140 = +2,400 = +1,000 2,840 = = 560 Net Income -400
= -1,140 Prepaid Insurance
3. Recognize insurance expense. 4. Recognize service fees earned. 5. Recognize rent revenue. Totals 0 +
= -2,400 Unearned = Service Fees
+1,000 Rent Receivable -540
= = -1,100 + 0 +
+1,000 Retained Earnings 560
*Assumes wages earned had not been accrued or recognized yet as an expense.
Date 2013 Dec. 31
Description Advertising expense (+E, -SE) Prepaid advertising (-A) Wages expense (+E, -SE) Wages payable (+L)
To record accrued wages.
Debit 400
Credit 400
To record advertising expense ($1,200 $800 = $400).
31
1,300 1,300 1,140 1,140 2,400 2,400
31
Insurance expense (+E, -SE) Prepaid insurance (-A)
To record insurance expense ($3,420 $2,280 = $1,140).
31
Unearned service fees (-L) Service fees earned (+R, +SE)

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

To record rent earned but not yet recorded.
1,000 1,000
continued next page
P3-46. concluded b.
Balance Sheet Transaction Cash Asset + Noncash Assets Contrib. = Liabil-ities + + Capital Earned Capital Income Statement Revenues Expenses = = Net Income
1. Pay -2,400 wages of Cash $2,400. 2. Receipt of +1,000 $1,000 rent Cash revenue.
-1,300
= Wages Payable
-1,100
Retained Earnings
+1,100
Wages Expense
-1,100
-1,000
Rent Receivable = =
Date 2014 Jan. 4
Description Credit Wages payable (-L) Wages expense (+E, -SE) Cash (-A)
To record payment of wages.
Debit 1,300 1,100 2,400 1,000 1,000
Cash (+A) Rent receivable (-A)

To record collection of rent.
P3-47. (90 minutes) For part d, the adjusting entries are indicated by the numbers 1-5. The unadjusted trial balance required in part c is calculated before the adjusting entries are made. a. 6/1 6/2 6/30 + Cash (A) 24,000 4,400 6,400 875 7,800 930 3,600 1,240 520 3,600 1,500 21,535 + Accounts Receivable (A) 5,800 7,800 5,200 3,200 6/1 6/2 6/2 6/12 6/15 6/18 6/26 6/30 5. - Accounts Payable (L) + 9,480 6/1
- Salaries Payable (L) + 725
2.
- Unearned Service Fees (L) + 3,200 6,400 3,200 - Common Stock (SE) + 24,000
6/2
6/10 6/28
6/30
6/1
continued next page

P3-47. continued a. continued + Prepaid Advertising (A) 930 310 620 + Office Supplies (A) 2,840 1,310 1,530 + Office Equipment (A) 11,040 - Retained Earnings(SE) + 1,500
6/2
4.
6/30
6/1
1.
1.
+ Supplies Expense (E) 1,310
6/1
6/15
+ Travel Expense (E) 1,240
- Acc. Depreciation Off. Equip (XA) + 115 3.
3.
+ Depreciation Expense(E) 115
4.
+ Advertising Expense (E) 310 + Salaries Expenses (E) 3,600 3,600 725 7,925 + Postage Expense (E) 520
6/2
+ Rent Expense (E) 875 - Service Fees Earned (R) + 5,800 5,200 3,200 14,200
6/12 6/26 2.
6/10 6/28 5.
6/18
continued next page
P3-47. continued b.
Balance Sheet Transaction 6/1. Investment for common stock. 6/1. Purchase of assets for cash & on account. Cash Asset + Noncash Assets = = Liabilities + Contrib. Capital + Earned Capital Income Statement Revenues Expenses = = Net Income
+24,000
Cash
+24,000
Common Stock
-4,400
Cash
+ 11,040
Office Equipment =
+9,480
Accounts Payable =
+2,840
Supplies 6/2. Pay rent $875.
-875
Cash =
-875
Retained Earnings -
+875
Rent Expense =
-875
6/2.Purchase $930 of advertising in advance. 6/2Signed research contract. 6/10. Bill customers for services. 6/12. Paid salaries.
-930
Cash
+930
Prepaid Advertising = =
+6,400
Cash
+6,400
= Unearned Service Fees =
+5,800
Accounts Receivable =
+5,800
Retained Earnings
+5,800
Service Fees Earned =
+5,800 +3,600
Salaries Expense =
-3,600
Cash =
-3,600
Retained Earnings
-3,600 -1,240
=
6/15. Paid travel expenses. 6/18. Paid postage.
-1,240
Cash =
-1,240
Retained Earnings -
+1,240
Travel Expense
-520
Cash =
-520
Retained Earnings -
+520
Postage Expense =
-520 -3,600
=
6/26. Paid salaries.
-3,600
Cash =
-3,600
Retained Earnings -
+3,600
Salaries Expense
6/28. Bill customers for services. 6/30. Collect service fees. 6/30. Cash dividend paid.
+5,200
Accounts Receivable = =
+5,200
Retained Earnings
+5,200
Service Fees Earned = =
+5,200
+7,800
Cash
-7,800
Acts. Rec.
-1,500
Cash
-1,500
Retained Earnings -
continued next page
P3-47. continued b. continued Date 2014 Description June 1 Cash (+A) Common stock (+SE)
Owner invested cash for common stock.
Debit 24,000
Credit 24,000
1 Office equipment (+A) Office supplies (+A) Cash (-A) Accounts payable (+L)
Purchased equipment and supplies; $4,400 cash paid with the remainder due in 60 days.
11,040 2,840 4,400 9,480
2 Rent expense (+E, -SE) Cash (-A)

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

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

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

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

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

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

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

Paid two weeks' salaries to employees.
3-49
P3-47. continued b. continued Date 2014 Description June 28 Accounts receivable (+A) Service fees earned (+R, +SE)
Billed customers for services.
Debit 5,200
Credit 5,200
30 Cash (+A) Accounts receivable (-A)

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

Declared and paid dividends.
c. MARKET-PROBE Unadjusted Trial Balance June 30, 2014 Debit $21,535 3,200 2,840 930 11,040
Credit
Cash Accounts Receivable Office Supplies Prepaid Advertising Office Equipment Accounts Payable Unearned Service Fees Common Stock Retained Earnings* Service Fees Earned Salaries Expense Rent Expense Travel Expense Postage Expense
$9,480 6,400 24,000 1,500 11,000
7,200 875 1,240 520 ______ $50,880 $50,880 * The negative (debit) balance in Retained Earnings reflects the dividend paid.
continued next page
P3-47. concluded d.
Balance Sheet
Transaction a. Recognize supplies expense. b. Recognize salaries expense. c. Accrue depreciation expense. d. Recognize advertising expense. e. Recognize earned service fees. Cash Asset Noncash + Assets -1,310 Office Supplies = +115 Accumulated Depreciation = +725 Salaries Payable Contra Assets = Liabilities = Contrib. + + Capital Earned Capital -1,310 Retained Earnings -725 Retained Earnings -115 Retained Earnings -310 Retained Earnings +3,200 Retained Earnings
Income Statement
Revenues Expenses = = +1,310 Supplies Expense +725 Salaries Expense +115 Depreciation Expense +310 Advertising Expense Net Income -1,310
-725
-115
-310 Prepaid Advertising -
-310
-3,200 Unearned Service Fees
+3,200 Service Fees Earned
+3,200
Date 2014
June 30
Description
Supplies expense (+E, -SE) Office supplies (-A)
To record supplies used during June ($2,840 $1,530 = $1,310).
Debit
1,310
Credit
1,310
30
Salaries expense (+E, -SE) Salaries payable (+L)

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

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

To record one month's fees earned, received in advance.
P3-48. (40 minutes) DELIVERALL Unadjusted Trial Balance December 31, 2013 a. Cash Accounts Receivable Prepaid Advertising Supplies Equipment Notes Payable Accounts Payable Common Stock Mailing Fees Earned Wages Expense Rent Expense Utilities Expense Debit $ 2,300 5,120 1,680 6,270 42,240 Credit
$7,500 2,700 9,530 86,000 38,800 6,300 3,020 $105,730
________ $105,730
b.
Balance Sheet
Transaction 1. Recognize advertising expense. 2. Recognize depreciation expense. 3. Recognize utilities expense. 4. Accrue wages expense. 5. Recognize supplies expense. 6. Accrue interest expense. 7. Recognize rent expense*. Cash Asset Noncash + Assets -1,540 Prepaid Advertising Contra Assets = = Liabilities + Contrib. Capital + Earned Capital -1,540 Retained Earnings -5,280 Retained Earnings -325 Retained Earnings -1,200 Retained Earnings -4,750 Retained Earnings -450 Retained Earnings -430 Retained Earnings
Income Statement
Revenues Expenses +1,540 Advertising Expense +5,280 Depreciation Expense +325 Utilities Expense +1,200 Wages Expense +4,750 Supplies Expense +450 Interest Expense +430 Rent Expense Net Income = -1,540 =
+5,280 Accumulated Depreciation
-5,280
= -
-4,750 Supplies
+325 Accts Payable = +1,200 Wages Payable =
-325
-1,200
-4,750
= +450 Interest Payable = +430 Accts Payable
-450
-430
*(1/2% $86,000 = $430). The rent for the year ($6,300 = $525 x 12) has already been recognized in the accounts. See the beginning balances given in the problem statement.
continued next page
P3-48. continued b. continued Date 2013 Dec. 31 Description Advertising expense (+E, -SE) Prepaid advertising (-A)
To record 11 months' advertising expense ($1,680 11/12 = $1,540).
Debit 1,540
Credit 1,540
31
Depreciation expense (+E, -SE) Accumulated depreciation (+XA, -A)

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

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

To record unpaid wages at December 31.
31

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

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

To record additional rent owed under lease (1/2% $86,000 = $430).
continued next page
P3-48. concluded c. Only the T-accounts needed to enter the adjustments are provided. - Accounts Payable (L) + 2,700 325 430 + Prepaid Advertising (A) 1,680 1,540
Bal. 3. 7.
Bal.
1.
Bal. - Accumulated DepreciationEquip (XA) + 5,280 2. - Interest Payable (L) + 450
+ Supplies (A) 6,270 4,750 +Advertising Expense (E) 1,540 + Rent Expense (E) 6,300 430 + Wages Expense (E) 38,800 1,200
5.
1.
6.
Bal. 7.
- Wages Payable (L) + 1,200
4.
Bal. 4.
2.
+ Depreciation Expense (E) 5,280
Bal. 3.
+ Utilities Expense (E) 3,020 325
6.
+ Interest Expense (E) 450
5.
+ Supplies Expense (E) 4,750
P3-49 (60 minutes) a.

Balance Sheet
Transaction 1. Recognize rent expense. 2. Recognize supplies expense. 3. Accrue depreciation expense. 4. Accrue wages payable. 5. Recognize utilities expense. 6. Recognize service revenue. Cash Asset Noncash + Assets -795 Prepaid Rent -1,980 Supplies = +335 Accumulated Depreciation = Contra Assets = = Liabilities + Contrib. Capital + Earned Capital -795 Retained Earnings -1,980 Retained Earnings -335 Retained Earnings -560 Retained Earnings -390 Retained Earnings +500 Retained Earnings
Income Statement
Revenues Expenses +795 Rent Expense +1,980 Supplies Expense +335 Depreciation Expense +560 Wages Expense +390 Utilities Expense = = Net Income -795
-1,980
-335
= -
+560 Wages Payable = +390 Accounts Payable = -500 Unearned Service Revenue
-560
-390
+500 Service Revenue
+500
Date 2014 Description

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

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

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

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

To record revenue received in advance that was earned in March.
continued next page
P3-49. continued b. Not all the T-accounts given are needed to enter the adjustments required. Also, the closing entries required in part d are referenced by 1c, 2c etc. - Accounts Payable (L) + 2,510 390 2,900 + Prepaid Rent (A) 4,770 795 3,975
Bal. 5. Bal.
Bal. Bal.
1.
- Acc Depreciation - Equipment (XA) + 335 3.
+ Supplies (A) Bal. 3,700 1,980 2. Bal. 1,720 - Unearned Service Revenue (L) + 6. 500 1,000 Bal. 500 Bal. + Rent Expense (E) 795 795 + Supplies Expense (E) 1,980 1,980 +Wages Expense (E) 3,900 560 4,460 - Wages Payable (L) + 560
6c.
-Service Revenue(R) + 12,860 12,360 500
Bal. 6.
1.
1c.
2. +Depreciation Expense (E) 335 335
2c.
3.
3c.
Bal. 4.
4c.
5.
+ Utilities Expense (E) 390 390 - Retained Earnings (SE) + 795 1,980 335 4,460 390 12,860 4,900
5c.
4.
1c. 2c. 3c. 4c. 5c.
6c. 7c.
continued next page
P3-49. continued c. WHEEL PLACE COMPANY Income Statement For Month Ended March 31, 2014 Service revenue.... Expenses: Utilities expense... Supplies expense.. Wages expense.... Depreciation expense. Rent expense... Net income ... $390 1,980 4,460 335 795 7,960 $4,900 $12,860
WHEEL PLACE COMPANY BALANCE SHEET March 31, 2014

Assets Cash Accounts receivable Supplies Prepaid rent Equipment Less:Accumulated depreciation Liabilities $ 1,900 Accounts payable 3,820 Wages payable 1,720 Unearned service revenue 3,975 Total Liabilities $ 36,180 335 35,845 Owners Equity 38,400 4,900 $47,260 $ 2,900 560 500 3,960
Total Assets
Common stock Retained earnings $47,260 Total Liabilities and Owners Equity
continued next page
P3-49. concluded
d.
1c. Retained earnings (-SE) ...................................................... Rent expense (-E) ........................................................... Retained earnings (-SE) ...................................................... Supplies expense (-E) ..................................................... Retained earnings (-SE) ...................................................... Depreciation expense (-E) .............................................. Retained earnings (-SE) ...................................................... Wages expense (-E) ....................................................... Retained earnings (-SE) ...................................................... Utilities expense (-E) ....................................................... 795 795 1,980 1,980 335 335 4,460 4,460 390 390
2c.
3c.
4c.
5c.
6c.
Service revenue (-R) .......................................................... 12,860 Retained earnings (+SE) .................................................
12,860
The closing journal entries are shown in the T-accounts in part a.
P3-50. (30 minutes) a. TRAILS, INC. Income Statement For the Year Ended December 31, 2013 Revenues Subscription revenue Advertising revenue Total revenues Expenses Salaries expense Printing and mailing expense Rent expense Supplies expense Insurance expense Depreciation expense Income tax expense Total expenses Net income $ 168,300 49,700 $218,000 100,230 85,600 8,800 6,100 1,860 5,500 1,600 209,690 $8,310
TRAILS, INC. Statement of Stockholders Equity For Year Ended December 31, 2013 Common Stock Balance at December 31, 20012 ............ Stock issuance ..................................... Dividends ............................................. Net income ........................................... Balance at December 31, 2013 .............. $25,000 Retained Earnings $23,220 Total Stockholders Equity $48,220
_____ $25,000
8,310 $31,530
8,310 $56,530
continued next page
P3-50. Concluded a. continued TRAILS, INC. Balance Sheet December 31, 2013
Assets Cash Accounts receivable Supplies Prepaid insurance Office equipment Less: Accum. depreciation $3,400 8,600 4,200 930 $66,000 Stockholders' equity 11,000 55,000 Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $25,000 31,530 56,530 $72,130 Liabilities Accounts payable Unearned subscription revenue Salaries payable Total liabilities $ 2, 100 10,000 3,500 15,600
Total assets
$72,130
b. Date 2013 Description Dec. 31 Subscription revenue (-R) Advertising revenue (-R) Retained earnings (+SE)
To close the revenue accounts.
Debit 168,300 49,700
Credit
218,000 209,690 100,230 85,600 8,800 6,100 1,860 5,500 1,600
31
Retained earnings (-SE) Salaries expense (-E) Printing and mailing expense (-E) Rent expense (-E) Supplies expense (-E) Insurance expense (-E) Depreciation expense (-E) Income tax expense (-E)
P3-51. (30 minutes) a. Date 2013 Dec. 31 Description Service fees earned (-R) Retained earnings (+SE)
To close the revenue account.
Debit 72,500
Credit 72,500
31
Retained earnings (-SE) Wages expense (-E) Rent expense (-E) Insurance expense (-E) Supplies expense (-E) Advertising expense(-E) Depreciation expenseTrucks(-E) Depreciation expenseEquipment (-E)
58,800 29,800 10,200 2,900 5,100 6,000 4,000 800
b. The balance in Retained Earnings after closing entries are posted is $29,250 credit ($15,550 + $13,700).
c. MAYFLOWER MOVING SERVICE Post-Closing Trial Balance December 31, 2013 Debit Cash $ 3,800 Accounts Receivable 5,250 Supplies 2,300 Prepaid Advertising 3,000 Trucks 28,300 Accumulated DepreciationTrucks Equipment 7,600 Accumulated DepreciationEquipment Accounts Payable Unearned Service Fees Common Stock Retained Earnings ______ $50,250
Credit
$10,000 2,100 1,200 2,700 5,000 29,250 $50,250

Transaction 1. Recognize maintenance expense. 2. Recognize supplies expense. 3. Accrue earned commissions. Cash Asset Noncash + Assets -1,800 Prepaid Maintenance -5,200 Supplies Balance Sheet Liabil= + ities = Income Statement Contrib. + Capital Earned Capital -1,800 Retained Earnings -5,200 Retained Earnings +4,500 Retained Earnings +2,800 Retained Earnings -913 Retained Earnings Revenues Expenses +1,800 Maintenance Expense +5,200 Supplies Expense = = -5,200 = +4,500 = +2,800 +913 Rent Expense = -913 = Net Income -1,800
= -4,500 Unearned = Commis -sion Fees
+4,500 Commission Fees Earned +2,800 Commission Fees Earned
4. Earned but unbilled commission fees. 5. Rent expense.
+2,800 Fees Receivable
= +913 Rent Payable
Date 2013 Description Dec. 31 Maintenance expense (+E, -SE) Prepaid maintenance (-A)
To record four months' maintenance expense [($2,700/6) 4 = $1,800].
Debit 1,800
Credit 1,800
31 Supplies expense (+E, -SE) Supplies (-A)
5,200 5,200 4,500 4,500
To record supplies expense ($8,400 $3,200 = $5,200).
31 Unearned commission fees (-L) Commission fees earned (+R, +SE)

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

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

To record additional 2008 rent [1% ($84,000 + $4,500 + $2,800) = $913].
continued next page
P3-52. concluded b.
Balance Sheet Transaction 1/10. Billing of commission fees earned. Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital Income Statement Revenues Expenses = Net Income
-2,800
Fees Receivable
+1,800
= Retained Earnings
+1,800
Commission Fees Earned =
+1,800
+4,600
Accounts Receivable 1/10. Payment of additional rent in cash.
-913
Cash
= Rent Payable
-913
2014 Jan. 10
Accounts receivable (+A) Fees receivable (-A) Commision fees earned (+R, +SE)
To record billings on Jan. 10, 2011.
4,600 2,800 1,800 913 913
10
Rent payable (-L) Cash (-A)

To record payment of contingent rent from 2010.

Balance Sheet
Transaction 1. Cash sales. Cash + Asset +145,850 Cash Noncash Assets +2,500 Inventories = +76,200 Accounts Payable = -77,300 Accounts Payable = = +1,700 = - Accumulated Depreciation +250 Wages Payable -23,800 Retained Earnings -12,750 Retained Earnings -1,700 Retained Earnings Contra Assets = Liabil-ities + = Contrib. + Capital Earned Capital +145,850 Retained Earnings -73,700 Retained Earnings Revenues +145,850 Sales Revenue
Income Statement
Expenses = = Net Income +145,850
2. Record inventory purchased and used. 3. Recognize recent payments on A/P. 4. Recognize rent paid and rent expense. 5. Recognize wage expense and wages paid. 6. Recognize depreciation expense.
+73,700 Cost of Sales
-73,700
-77,300 Cash
+200 Prepaid Rent
-24,000 Cash
+23,800 Rent Expense +12,750 Wages Expense +1,700 Depreciation Expense
-23,800
-12,500 Cash
-12,750
-1,700
continued next page

P3-53. continued a. continued 1. Cash (+A) ............................................................................................ 145,850 Sales revenue (+R,+SE) ..................................................................... 145,850 2. Inventories (+A) ................................................................................... 2,500 Cost of goods sold (+E, -SE) .............................................................. 73,700* Accounts payable (+L) ........................................................................ 76,200
Or, make two separate entries with the same net effect:
Inventory (+A) ...................................................................................... 76,200 Accounts payable (+L) ........................................................................ 76,200 Cost of goods sold (+E, -SE) .............................................................. 73,700* Inventory (-A) ....................................................................................... 73,700
*73,700 = 12,000 +76,200 14,500.
3. Accounts payable (-L) ......................................................................... 77,300* Cash (-A) ............................................................................................. 77,300

*77,300 = 5,200 +76,200 4,100.
4. Prepaid rent (+A) ................................................................................. 200* Rent expense (+E, -SE) ...................................................................... 23,800* Cash (-A) .............................................................................................. 24,000
*23,800 = 3,800 + (24,000 12)(10) and 200 = 24,000 3,800 (24,000 12)(10). The rent expense for the first two months of the year is $3,800. But the rate for March 1, 2014 through February 29, 2015 is $2,000 per month. So, for the last ten months of 2014, the rent expense is $20,000, making the total rent expense $23,800 for 2014.
5.
Wages expense (+E,-SE) .................................................................... 12,750* Cash (-A) .............................................................................................. 12,500 Wages payable (+L) ............................................................................ 250
* 12,750 = 12,500 + (350 100).
6.
Depreciation expense (+E,-SE) .......................................................... 1,700 Acc. depreciation Equipment (+XA, -A) ........................................... 1,700
continued next page
P3-53. continued b, d. The closing entries required in part d are also included here and indicated by the letter d before the relevent entry. + Cash (A) Bal. 1.
8,500 145,850
77,300 24,000 12,500
3. 4. 5.
Bal. 2. Bal.
+ Inventories (A) 12,000 2,500 14,500 + Prepaid Rent (A) 3,800 200 4,000
Bal.
40,550
Bal.
Bal. Bal.
+ Equipment (A) 7,500 7,500
4. Bal.
- Accumulated Depreciation Equip.(XA) + Bal. 3,000 6. 1,700 Bal. 4,700 -Accounts Payable (L)+ 5,200 77,300 76,200 4,100 -Sales Revenue (R)+ 145,850 145,850
0
- Wages Payable (L) + 100 Bal. 250 5. 350 Bal. -Owners Equity (SE)+ 23,500 33,900 57,400
3.
Bal. 2. Bal.
Bal. d. Bal.
1. Bal.
2. Bal.
d.
+Cost of Goods Sold (E)73,700 73,700 d. 0 +Depreciation Expense(E)1,700 1,700 d. 0
4.
Bal.
+Rent Expense (E)23,800 23,800 0
6.
d.
Bal.
5.
Bal.
+Wages Expense (E)12,750 12,750 0
d.
continued next page
P3-53. concluded c, d. Part c is easier to complete if the closing entries required in part d are journalized and entered in the T-accounts. The appropriate T-account entries for part d have been made earlier and indicated by the letter d.
Sales revenue (-R) ................................................................................... 145,850 Cost of goods sold (-E) ............................................................................. Rent expense (-E) .................................................................................... Wages expense (-E) ................................................................................. Depreciation expense (-E) ......................................................................... Owners equity..........................................................................................
To close temporary revenue and expense accounts.
73,700 23,800 12,750 1,700 33,900
FISCHER CARD SHOP Income Statement For the Year ended December 31, 2014 Sales revenue Cost of goods sold Gross profit Other expenses: Rent expense Wages expense Depreciation expense Total other expenses Net income FISCHER CARD SHOP Balance Sheets As of December 31, Assets: Cash Inventories Prepaid rent Total current assets Equipment Accumulated depreciation Equipment, net Total assets Liabilities and owners equity: Accounts payable Wages payable Total liabilities Owners equity Total liabilities and owners equity 2013 $ 8,500 12,000 3,800 24,300 7,500 (3,000) 4,500 $ 28,800 $ 5,200 100 5,300 23,500 $ 28,800 2014 $ 40,550 14,500 4,000 59,050 7,500 (4,700) 2,800 $ 61,850 $ 4,100 350 4,450 57,400 $ 61,850 $145,850 73,700 72,150 $23,800 12,750 1,700 38,250 $33,900
P3-54. (120 minutes) a, b. The T-accounts follow the journal entries and the FSET.
Balance Sheet Transaction 12/1. Investment for common stock. 12/2. Rent paid in cash. 12/2. Purchase supplies on account. 12/3. Office equipment bought for 4,700 cash and rest on account. 12/8. Paid for supplies. 12/14. Paid wages in cash. 12/20. Received cash for consulting services. 12/28. Paid wages in cash. 12/30. Bill clients for consulting. I2/30. Paid cash dividends. -1,800 Cash Cash Asset +20,000 Cash -1,200 Cash +1,080 Supplies + Noncash Assets = Liabilities + Contrib. Capital +20,000 Common Stock -1,200 Retained Earnings + Earned Capital Revenues Income Statement Expenses = Net Income
+1,200 Rent Expense
= -1,200 =
= +1,080 = Accounts Payable +9,500 +4,800 Office Accounts = Equipment Payable -1,080 = Accounts Payable =
-4,700 Cash
-1,080 Cash -900 Cash +3,000 Cash -900 Cash
-900 Retained Earnings +3,000 Retained Earnings -900 Retained Earnings +7,200 Retained Earnings -1,800 Retained Earnings +900 Wages Expense
= -900 = +3,000
+3,000 Consulting Revenue
+900 Wages Expense
= -900 = +7,200
= +7,200 Fees = Receivable =
b. Dec. 1 Cash (+A) Common stock (+SE)

Invested $20,000 cash in the business.
20,000 20,000 1,200 1,200 1,080 1,080
2 Rent expense (+E, -SE) Cash (-A)

Paid rent for December.
2 Supplies (+A) Accounts payable (+L)

Purchased various supplies on account.
continued next page
P3-54. continued b. continued Dec. 3 Office equipment (+A) Cash (-A) Accounts payable (+L)
Purchased $9,500 of office equipment, $4,700 cash down payment and balance due in 30 days.
9,500 4,700 4,800
8 Accounts payable (-L) Cash (-A)

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

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

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

Paid assistant's wages.
30 Fees receivable (+A) Consulting revenue (+R, +SE) Billed customers for services. 31 Retained earnings (-SE) Cash (-A)
Issued and paid $1,800 in dividends.
1,800 1,800
continued next page
P3-54. continued b. continued The adjusting entries requested in part d are included and are denoted by the letter d followed by a number 1 through 5. The closing entries requested in part g are indicated by the letter g. + 12/1 12/20 Cash (A) 20,000 1,200 3,000 4,700 1,080 900 900 1,800 12,420 +Supplies(A)1,080 370 710
12/2 12/3 12/8 12/14 12/28 12/31
12/2 Bal.
d1
Bal.
12/3 -Wages Payable(L) + 2d. -Accumulated Depreciation+ Office Equipment (XA) 120 270
+Office Equipment (A) 9,500
-Common Stock(SE)+ 3d. 20,000 12/1
12/8
- Accounts Payable (L) + 1,080 1,080 4,800 4,800
12/2 12/3 Bal.
12/2 Bal.
+Rent Expense (E) 1,200 1,200 0
g.
- Retained Earnings (SE)+ 12/31 1,800 12,450 g. 3,760 6,890 -Consulting Revenue(R)+ 3,000 7,200 12,450 2,250 Bal. +Depreciation Expense(E)120 120 0
g.
Bal.
12/14 12/28 2d. Bal.
+ Wages Expense (E) 900 2,070 900 270 0 +Fees Receivable (A)7,200 2,250 9,450 + Supplies Expense (E) 370 370 0
g.
g.
12/20 12/30 4d. 0
12/30 4d. Bal.
3d. Bal.
g.
1d. Bal.
g.
continued next page

P3-54. continued c. RHOADES TAX SERVICES Unadjusted Trial Balance December 31, 2013 Debit $12,420 7,200 1,080 9,500
Credit
Cash Fees Receivable Supplies Office Equipment Accounts Payable Common Stock Retained Earnings (Dividend) Consulting Revenue Wages Expense Rent Expense
$4,800 20,000 1,800 10,200 1,800 1,200 $35,000 ______ $35,000
d.
Cash Asset Noncash + Assets -370 Supplies Balance Sheet Contra Liabi= Assets lities = Income Statement + Contrib. Capital + Earned Capital -370 Retained Earnings -270 Retained Earnings -120 Retained Earnings +2,250 Retained Earnings Revenues Expenses Net Income = -370 =
Transaction 1. Record supplies expense. 2. Accrue wages expense. 3. Record depreciation expense. 4. Recognize accrued consulting fees.
= +120 Accumulated Depreciation =
+270 Wages Payable
+2,250 Fees Receivable
+370 Supplies Expense +270 = Wages Expense +120 = Depreciation Expense =
-270
-120
+2,250
continued next page
P3-54. continued d. continued Date 2013 Description Dec. 31 Supplies expense (+E, -SE) Supplies (-A) 31 Wages expense (+E, -SE) Wages payable (+L)
To reflect unpaid wages at December 31.
Debit 370
Credit 370
To record December supplies expense ($1,080 $710).
270 270 120 120 2,250 2,250
31
Depreciation expense (+E, -SE) Accumulated depreciation (+XA, -A)

To record December depreciation.
31
Fees receivable (+A) Consulting revenue (+R, +SE)
To record unbilled service revenue (30 $75).
e. RHOADES TAX SERVICES Adjusted Trial Balance December 31, 2013 Debit Cash $12,420 Fees Receivable 9,450 Supplies 710 Office Equipment 9,500 Accumulated Depreciation Accounts Payable Wages Payable Common Stock Retained Earnings 1,800 Consulting Revenue Supplies Expense 370 Wages Expense 2,070 Rent Expense 1,200 Depreciation Expense 120 $37,640
Credit
$120 4,800 270 20,000 12,450
______ $37,640
continued next page
P3-54. continued f. RHOADES TAX SERVICES Income Statement For the Month of December 2013 Revenue Consulting revenue Expenses Wages expense Rent expense Supplies expense Depreciation expense Total expenses Net income
$12,450 $ 2,070 1,200 370 120 3,760 $ 8,690
RHOADES TAX SERVICES Statement of Stockholders Equity For the Month of December 2013 Common Stock Balance at December 1, 2012 ................ Stock issuance ..................................... Dividends ............................................. Net income ........................................... Balance at December 31, 2013 .............. $0 20,000 _____ $20,000 Retained Earnings $0 (1,800) 8,690 $6,890 Total Stockholders Equity $0 20,000 (1,800) 8,690 $26,890
RHOADES TAX SERVICES Balance Sheet December 31, 2013

Assets Cash Fees receivable Supplies Total current assets Office equipment $ 9,500 Less: Accum. depreciation 120 Total assets Liabilities and Equity $12,420 Accounts payable 9,450 Wages payable 710 Total liabilities 22,580 Stockholders equity Common stock 9,380 Retained earnings Total liabilities and stockholders $31,960 equity $ 4,800 270 5,070
20,000 6,890 $31,960
continued next page

P3-54. concluded g. Date 2013 Description Dec.31 Consulting revenue (-R) Retained earnings (+SE)
To close the revenue account.
Debit Credit 12,450 12,450 3,760 2,070 1,200 370 120
31 Retained earnings (-SE) Wages expense (-E) Rent expense (-E) Supplies expense (-E) Depreciation expense (-E)
h. RHOADES TAX SERVICES Post-Closing Trial Balance December 31,2013 Debit $12,420 9,450 710 9,500
Credit
Cash Fees Receivable Supplies Office Equipment Accumulated Depreciation Accounts Payable Wages Payable Retained Earnings Common Stock
$32,080
$ 120 4,800 270 6,890 20,000 $32,080
CASES and PROJECTS

C3-55. (90 minutes) a1. Entries in the FSET are first shown for the initial deposits and checks. These are entries 1- 8. Entries a - f are the adjusting entries that would be made at the end of the three months. The expenditures for rent and salaries are assumed to have been initially debited to expense accounts.
Balance Sheet
Cash Transaction Asset + 1. Investment for +50,000 common Cash stock. 2. Collections +81,000 from Cash customers. 3. Bank +10,000 borrowing. Cash 4. Rent expense. -24,000 Cash 5. Purchased equipment. 6. Purchased inventory. 7. Paid salaries. -25,000 Cash -62,000 Cash -6,000 Cash -13,000 Cash +9,000 A/R +12,000 Prepaid Rent Noncash Assets = = +10,000 Loans Payable = Contra Assets = = Liabilities Contrib. + + Capital +50,000 Investment Earned Capital
Income Statement
Revenues Expenses = = Net Income
+81,000 Retained Earnings
+81,000 Sales Revenue
+81,000
+25,000 Equipment +62,000 Inventory =
-24,000 Retained Earnings
+24,000 Rent Expanse
-24,000
= = = = = = +3,000 Salaries Payable = -6,000 Retained Earnings -13,000 Retained Earnings +9,000 Retained Earnings +12,000 Retained Earnings -3,000 Retained Earnings -41,000 Retained Earnings -1,250 Retained Earnings -300 Retained Earnings
8. Paid other expenses. a. Recognize credit sales. b. Adjust rent expense. c. Accrue salaries expense. d. Recognize cost of goods sold. e. Accrue depreciation expense. f. Accrue interest expense*.
+6,000 Salaries Expense +13,000 Misc. Expenses
-6,000
-13,000
+9,000 Sales Revenue
+9,000
-41,000 Inventory
+1,250 Accumulated Depreciation =
= -
+300 Interest Payable
-12,000 Rent Expense +3,000 Salaries Expense +41,000 Cost of Goods Sold +1,250 Deprec. Expense +300 Interest Expense
= +12,000 = -3,000
-41,000
-1,250
-300
continued next page
C3-55. continued a. continued a2. Journal entries are shown only for the adjustments a-f. a. Accounts receivable (+A) Sales revenue (+R, +SE)
To recognize sales on account.
9,000 9,000 12,000 12,000 3,000 3,000 41,000 41,000 1,250 1,250
b. Prepaid rent (+A) Rent expense (-E, +SE) c. Salaries expense (+E, -SE) Salaries payable (+L)
To recognize unpaid salaries earned during September.
To recognize remaining prepaid rent and correct rent expense.
d. Cost of goods sold (+E, -SE) Merchandise inventory (-A)

To recognize cost of sales; ($62,000 - $21,000).
e. Depreciation expense (+E, -SE) Accumulated depreciation (+XA, -A)

To accrue depreciation on the fixtures and equipment ($25,000/60)(3).
f. Interest expense (+E, -SE) Interest payable (+L)
300 300
To accrue interest on bank loan assumed taken out 7/1/2008. ($10,000)(0.12)(1/4).
continued next page
C3-55. continued b. T-accounts: The opening balances shown are the amounts in the accounts prior to the entry of the adjustments described in items a through f. The cash balance represents the deposits made, $141,000, less the checks drawn, $130,000.
+ Cash (A) 11,000 Bal. + Merchandise Inventory (A) 62,000 41,000 + Prepaid Rent (A) 12,000 d.
Bal.
b. Bal. + Equipment (A) 25,000
- Accumulated Deprec.-Equip. (XA) + 1,250
e.
- Salaries Payable (L) + 3,000
c.
a.
+ Accounts Receivable (A) 9,000
- Owners Equity (SE) + 50,000
Bal.
- Sales Revenue (R) + 81,000 9,000
Bal. a.
d.
+ Cost of Goods Sold (E) 41,000
Bal.
+ Rent Expense (E) 24,000 12,000
b.
e.
+ Depreciation Expense (E) 1,250
Bal.
+ Other Expense (E) 13,000
- Bank Loan Payable (L) + 10,000
Bal.
+ Bal. c. + f.
Salaries Expense (E) 6,000 3,000 Interest Expense (E) 300
Interest Payable (L) + 300 f.
continued next page
C3-55. continued c. SEASIDE SURF SHOP Income Statement

July 1, 2010 to September 30 ,2014
Sales revenue Cost of goods sold Gross margin Expenses: Rent expense Salaries expense Depreciation expense Interest expense Misc. expenses Net income
$90,000 41,000 49,000 $12,000 9,000 1,250 300 13,000
35,550 $13,450
SEASIDE SURF SHOP Balance Sheet

September 30, 2014
Assets Current assets Cash Accounts receivable Inventory Prepaid rent Total current assets Fixtures and equipment, net Total assets Liabilities and owners equity Current liabilities Salaries payable Bank loan payable Interest payable Total current liabilities Owners equity* Total liabilities and owners equity
*$50,000 + $13,450
$11,000 9,000 21,000 12,000 53,000 23,750 $76,750
$3,000 10,000 300 13,300 63,450 $76,750

continued next page
3-77
C3-55. concluded d. Chapter 1 introduced the return on equity ratio as a simple performance measure that can be used to evaluate how well this new business is doing. The return on equity is calculated as the ratio of net income to average total equity. In this case, the return on equity for the three-month period was 23.7% = $13,450 / [($50,000+ $63,450)/2]. This is a very good return for a three-month period and equates to 95% annualized. However, the favorable performance evaluation should be tempered by a few caveats: (1) Because this business appears to be a sole proprietorship, any salary paid to the owner is not deducted from net income. Instead, cash payments to the owner are treated as dividends (or withdrawals). As a consequence, any services provided by the owner to the business would not be reflected among the expenses reported in the income statement, and net income would be overstated. (2) No expense is reported in the income statement for income taxes. This is consistent with the business being a sole proprietorship, in which income taxes are levied against the owner as an individual taxpayer. Again, this makes net income appear to be larger than it otherwise might be. (3) Retail businesses are notoriously seasonal. That is, sales (and profits) fluctuate from season to season. A business such as this one would likely have its highest sales in the second and third quarters. This seasonality must be considered when we try to annualize quarterly results like these. Once the business has operated for a year or two, the owner would likely have a better idea about how seasonal fluctuations affect sales and returns and would be better able to interpret quarterly performance measures. (4) Finally, Seasides cash position is precarious. The firm has burned through most of the $60 thousand cash raised to begin the business and is likely to have trouble replacing its inventory as well as paying its bills. Perhaps they can convince lenders to come to their rescue. If not, the firm will not last another three months.
C3-56. (15 minutes) a. The following analysis shows how the relevant information affects total assets, liabilities, and owners equity of the firm: Owners Assets Equity Per Original balance sheet Percentage of debt and equity 1. Recognition of insurance expense ($4,500 1/2 = $2,250) 2. Depreciation correction (5% $68,500 = $3,425) 3. (No adjustment required) 4. Unbilled services performed 5. Advance consulting fee earned ($11,300 1/2 = $5,650) 6. Recognition of supplies expense ($13,200 $4,800 = $8,400) Revised totals Percentage of debt and equity $88,500 Liabilities $45,900 51.9% $42,600 48.1% (2,250) 3,425 6,000 (5,650) (8,400) $87,275 ______ $40,250 46.1% 5,650 (8,400) $47,025 53.9%
(2,250) 3,425 6,000
Revised debt-to-equity ratio: $40,250/$47,025 = 0.86 Original debt-to-equity ratio: $45,900/$42,600 = 1.08 b. Apparently, the loan agreement has not been violated.
C3-57. (30 minutes) a. Discussion of this case may consider the following ethical considerations facing Javetz: 1. Balancing the long-run interests of the firm (securing the international contract) against the short-run requirement to present accurately the financial data of the company for the current year (recording $150,000 adjusting entry). 2. Compromising the confidentiality of the contract negotiations (by disclosing the contract negotiations to additional persons) versus compromising her professional responsibilities (by omitting a significant year-end adjusting entry). 3. Jeopardizing her position with the firm (by revealing information the president wants kept secret) versus risking possible future legal action by parties relying on the firm's financial statements (by not revealing a significant accrued expense and accrued liability in the financial statements). b. Discussion of this case should also note that outside auditors frequently access confidential data and disclosing the contract negotiations to the auditor should not represent a significant breach of confidentiality. Perhaps Javetz can achieve a reasonable solution to her dilemma by suggesting that an adjusting entry be recorded and described in very general terms (for example, labeling the liability Payable to Consultants and indicating it is for marketing research and development). Such an adjustment would permit the disclosure of the significant liability without revealing important details to anyone else within or outside the company.
C3-58. (30 minutes) a,b,c and d. FSET:

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

To record catalog printing costs.
62,550 62,550 849 849 62,138 62,138

continued next page
a2. Advertising credits receivable (+A) Advertising credits revenue (+R, +SE)
To recognize advertising credits earned.
b.
Catalog expense (+E, -SE) Prepaid catalog costs (-A)

To regognize catalog expense ($3,894 + $62,550 - $4,306).
C3-58. concluded c. Advertising credit expiration expense (+E, -SE) Advertising credits receivable (-A)
To record the expiration of advertising credits ($21 + $849 - $534).
336 336
Advertising credits expire either because they were used to advertise or, if there was a time limitation to their use, the time limit expired. d1. Cash (+A) Unearned gift certificate revenues (+L)
To recognize gift certificates sold but not yet redeemed.
19,175 19,175 18,230 18,230
d2. Unearned gift certificate revenues (-L) Gift certificate revenues (+R, +SE)
To recognize revenues based on redeemed gift certificates ($6,108 +$19,175 - $7,053).

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Chapter 3

Adjusting Accounts for Financial Statements

Cases and Projects

23, - 25, 29, 30

LO4 Prepare financial statements from adjusted accounts.

changes in balance sheet accounts.

Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3 3-1

Cambridge Business Publishers, 2014 3-2 Financial Accounting, 4th Edition

Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3 3-3

Cambridge Business Publishers, 2014 3-4 Financial Accounting, 4th Edition

Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3 3-5

Income Statement Earned Capital Revenues - Expenses = Net Income

Contrib. + + Capital +12,000

+6,400 = Payable +2,000 = Payable

-900 = = = + 11,650 = 5,400 + 12,000 +

-350 -2,500 900

continued next page

Cambridge Business Publishers, 2014 3-6 Financial Accounting, 4th Edition

3,800 1,800 2,000

continued next page

Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3 3-7

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

Common Stock (SE) 12,000

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

Utilities Expense (E) 350

Salaries Expense (E) 2,500

Cambridge Business Publishers, 2014 3-8 Financial Accounting, 4th Edition

M3-22. (45 minutes) a.

Cash Noncash Liabil+ = Asset Assets ities +9,000 = Cash -2,850

Contrib. + + Capital +9,000

= -350 = = = = = +1,750 -1,750 = -995 = = 405

continued next page

Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3 3-9

5,500 2,500 3,000

Financial Accounting, 4th Edition

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

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

+ Advertising Expense (E) April 7 350

Wages Expense (E) 1,750

Van Fuel Expense (E) 995

Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3 3-11

M3-23. (20 minutes) a.

Income Statement Earned Capital Net Revenues - Expenses = Income =

Income Statement Earned Capital +3,350

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

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

Cambridge Business Publishers, 2014 3-12 Financial Accounting, 4th Edition

M3-24. (15 minutes) 1.

Income Statement Earned Capital -185

Noncash Liabil+ = Assets ities -185 = Prepaid

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

Income Statement Revenues - Expenses = +1,080 Supplies Expense

Net Income -1,080

continued next page

Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3 3-13

Net Revenues - Expenses = Income +875 +875 Retained Rent Revenue =

Revenues - Expenses = +490 Salaries Expense

Net Income -490

Cambridge Business Publishers, 2014 3-14 Financial Accounting, 4th Edition

M3-25. (15 minutes) (All amounts in $ millions.) a.

Cambridge Business Publishers, 2014 Solutions Manual, Chapter 3 3-15

M3-28. (15 minutes) a.

Date 2013 Description