BRIEF EXERCISE 4-5
Dec. 31
Depreciation Expense .....................................
Accumulated Depreciation—
Equipment ............................................
Depreciation Expense
12/31
2,750
2,750
2,750
Accumulated Depreciation—
Equipment
12/31
2,750
Balance Sheet:
Equipment .................................................................
Less: Accumulated Depreciation—Equipment ......
$22,000
2,750
$19,250
BRIEF EXERCISE 4-15
The proper sequencing of the required steps in the accounting cycle
is as follows:
1.
2.
3.
4.
5.
6.
7.
8.
9.
(c)
(e)
(i)
(d)
(h)
(b)
(g)
(f)
(a)
Analyze business transactions.
Journalize the transactions.
Post to ledger accounts.
Prepare a trial balance.
Journalize and post adjusting entries.
Prepare an adjusted trial balance.
Prepare financial statements.
Journalize and post closing entries.
Prepare a post-closing trial balance.
EXERCISE 4-1
(a) Since the sales effort is not complete until the flight actually
occurs, revenue should not be recognized until December.
Southwest Airlines should recognize the revenue in December
when the customer has been provided with the flight.
(b) Sales revenue should be recognized at the time of delivery.
(c) Revenue should be recognized on a per game basis over the
season from April through October.
(d) Interest revenue should be accrued and recognized by RBC evenly
over the term of the loan.
(e) Revenue should be recognized when the sweater is shipped to
the customer in September.
EXERCISE 4-17
AMIT COMPANY
Income Statement
For the Year Ended August 31, 2012
Revenues
Service revenue .....................................................
Rent revenue .........................................................
Total revenues ...............................................
Expenses
Salaries and wages expense ................................
Rent expense .........................................................
Supplies expense ..................................................
Insurance expense ................................................
Depreciation expense ...........................................
Total expenses...............................................
Net income ....................................................................
$34,600
13,100
$47,700
18,100
10,800
2,000
1,500
1,200
33,600
$14,100
EXERCISE 4-17 (Continued)
AMIT COMPANY
Retained Earnings Statement
For the Year Ended August 31, 2012
Retained earnings, September 1, 2011 ...........................................
Add: Net income ............................................................................
Less: Dividends ..............................................................................
Retained earnings, August 31, 2012 ...............................................
$ 5,500
14,100
19,600
2,800
$16,800
AMIT COMPANY
Balance Sheet
August 31, 2012
Assets
Cash ........................................................................
Accounts receivable ..............................................
Supplies ..................................................................
Prepaid insurance ..................................................
Equipment ..............................................................
Less: Accum. Depreciation- equipment ................
Total assets ............................................................
Liabilities
Accounts payable ..................................................
Salaries and wages payable ..................................
Unearned rent revenue ..........................................
Total liabilities ........................................................
Stockholders’ equity
Common stock .......................................................
Retained earnings ..................................................
Total stockholders’ equity .....................................
Total liabilities and stockholders’ equity..............
$10,900
9,400
500
2,500
$16,000
4,800
11,200
$34,500
5,800
1,100
800
7,700
10,000
16,800
26,800
$34,500
EXERCISE 4-18
Aug. 31
31
31
31
Service Revenue .............................................
Rent Revenue ..................................................
Income Summary.....................................
34,600
13,100
Income Summary ............................................
Salaries and Wages Expense .................
Rent Expense ...........................................
Supplies Expense ....................................
Insurance Expense ..................................
Depreciation Expense .............................
33,600
Income Summary ............................................
Retained Earnings ...................................
14,100
Retained Earnings ...........................................
Dividends .................................................
2,800
47,700
18,100
10,800
2,000
1,500
1,200
14,100
2,800
PROBLEM 4-2A
(a)
1.
2.
3.
4.
5.
6.
7.
Date
2012
June 30
30
30
30
30
30
30
Account Titles
Debit
Supplies Expense .....................................
Supplies ($2,000 – $720) ...................
1,280
Utilities Expense .......................................
Utilities Payable .................................
180
Insurance Expense....................................
Prepaid Insurance
($2,880 ÷ 12 months) .....................
240
Unearned Service Revenue ......................
Service Revenue ................................
4,100
Salaries and Wages Expense ...................
Salaries and Wages Payable .............
1,250
Depreciation Expense ...............................
Accumulated Depreciation—
Equipment ......................................
250
Accounts Receivable ................................
Service Revenue ................................
3,900
Credit
1,280
180
240
4,100
1,250
250
3,900
PROBLEM 4-5A
1.
2.
3.
4.
Dec. 31
Dec. 31
Dec. 31
Dec. 31
Insurance Expense .......................................
Prepaid Insurance .................................
[($9,600 ÷ 3)
= $3,200
[($7,200 ÷ 12/18) = 4,800
$8,000]
8,000
Unearned Sales Revenue .............................
Sales Revenue .......................................
[Oct. 250 X $24 X 3/12 = $1,500
[Nov. 300 X $24 X 2/12 = 1,200
[Dec. 400 X $24 X 1/12 =
800
$3,500]
3,500
Interest Expense ...........................................
Interest Payable
($40,000 X 7% X 3/12) .........................
700
Salaries Expense ..........................................
Salaries Payable ....................................
[5 X $600 X 3/5 = $1,800
[3 X $700 X 3/5 = 1,260
$3,060]
3,060
8,000
3,500
700
3,060
BYP 4-8
ETHICS CASE
(a) The stakeholders in this situation are:




Brad Ellis, controller.
The president of Prism Company.
Employees if Prism Company.
Prism Company stockholders and potential stockholders.
(b) 1.
It is unethical for the president to place pressure on Brad to
mis-state net income by requesting him to prepare incorrect
adjusting entries.
2.
It is customary for adjusting entries to be dated as of the
balance sheet date although the entries are prepared at a later
date. Brad did nothing unethical by dating the adjusting
entries December 31.
(c) Brad can accrue revenues and defer expenses through the
preparation of adjusting entries and be ethical so long as the
entries reflect economic reality. Intentionally misrepresenting the
company’s financial condition and its results of operations is
unethical (it is also illegal).