Chapter 3 exercises & answers

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Intermediate Accounting
IFRS Edition-2nd
Questions & Solutions
Chapter 3
The Accounting
Information
System
Donald E. Kieso
Jerry J. Weygandt
Terry D. Warfield
BRIEF EXERCISES
4
BE3-1 Transactions for Mehta Company for the month of May are presented below. Prepare journal entries
for each of these transactions. (You may omit explanations.)
May
4
1
3
13
21
B.D. Mehta invests €4,000 cash in exchange for ordinary shares in a small welding corporation.
Buys equipment on account for €1,100.
Pays €400 to landlord for May rent.
Bills Noble Corp. €500 for welding work done.
BE3-2 Agazzi Repair Shop had the following transactions during the first month of business as a proprietorship. Journalize the transactions. (Omit explanations.)
Aug. 2
7
12
15
19
Invested €12,000 cash and €2,500 of equipment in the business.
Purchased supplies on account for €500. (Debit asset account.)
Performed services for clients, for which €1,300 was collected in cash and €670 was billed to the
clients.
Paid August rent €600.
Counted supplies and determined that only €270 of the supplies purchased on August 7 are still
on hand.
4
5
BE3-3 On July 1, 2015, Crowe Co. pays €15,000 to Zubin Insurance Co. for a 3-year insurance policy. Both
companies have fiscal years ending December 31. For Crowe Co. journalize the entry on July 1 and the
adjusting entry on December 31.
4
5
BE3-4 Using the data in BE3-3, journalize the entry on July 1 and the adjusting entry on December 31 for
Zubin Insurance Co. Zubin uses the accounts Unearned Insurance Revenue and Insurance Revenue.
4
5
BE3-5 Assume that on February 1, Marks and Spencer plc (M&S) (GBR) paid £72,000 in advance for
2 years’ insurance coverage. Prepare M&S’s February 1 journal entry and the annual adjusting entry on
June 30.
114 Chapter 3 The Accounting Information System
4
5
BE3-6 LaBouche Corporation owns a warehouse. On November 1, it rented storage space to a lessee (tenant) for 3 months for a total cash payment of €2,400 received in advance. Prepare LaBouche’s November 1
journal entry and the December 31 annual adjusting entry.
4
5
BE3-7 Dresser Company’s weekly payroll, paid on Fridays, totals €8,000. Employees work a 5-day week.
Prepare Dresser’s adjusting entry on Wednesday, December 31, and the journal entry to record the €8,000
cash payment on Friday, January 2.
5
BE3-8 Included in Gonzalez Company’s December 31 trial balance is a note receivable of €12,000. The note
is a 4-month, 10% note dated October 1. Prepare Gonzalez’s December 31 adjusting entry to record €300 of
accrued interest, and the February 1 journal entry to record receipt of €12,400 from the borrower.
4
BE3-9 Prepare the following adjusting entries at August 31 for Nokia (FIN).
(a)
(b)
(c)
(d)
Interest on notes payable of €300 is accrued.
Unbilled fees for services performed total €1,400.
Salaries and wages earned by employees of €700 have not been recorded.
Bad debt expense for year is €900.
Use the following account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable, Salaries and Wages Expense, Salaries and Wages Payable, Allowance for Doubtful Accounts, and
Bad Debt Expense.
5
BE3-10 At the end of its first year of operations, the trial balance of Alonzo Company shows Equipment
€30,000 and zero balances in Accumulated Depreciation—Equipment and Depreciation Expense. Depreciation for the year is estimated to be €2,000. Prepare the adjusting entry for depreciation at December 31,
and indicate the statement of financial position presentation for the equipment at December 31.
7
BE3-11 Side Kicks has year-end account balances of Sales Revenue €808,900; Interest Revenue €13,500;
Cost of Goods Sold €556,200; Operating Expenses €189,000; Income Tax Expense €35,100; and Dividends
€18,900. Prepare the year-end closing entries.
9 *BE3-12 Kelly Company had cash receipts from customers in 2015 of €142,000. Cash payments for oper-
ating expenses were €97,000. Kelly has determined that at January 1, accounts receivable was €13,000,
and prepaid expenses were €17,500. At December 31, accounts receivable was €18,600, and prepaid
expenses were €23,200. Compute (a) service revenue and (b) operating expenses.
10 *BE3-13 Assume that GlaxoSmithKline (GBR) made a December 31 adjusting entry to debit Salaries and
Wages Expense and credit Salaries and Wages Payable for £4,200 for one of its departments. On January 2,
Glaxo paid the weekly payroll of £7,000. Prepare Glaxo’s (a) January 1 reversing entry; (b) January 2 entry
(assuming the reversing entry was prepared); and (c) January 2 entry (assuming the reversing entry was
not prepared).
EXERCISES
4
E3-1 (Transaction Analysis—Service Company) Kai Edo is a licensed public accountant. During the first
month of operations of her business (a sole proprietorship), the following events and transactions occurred
(amounts in thousands).
April 2
2
3
7
11
12
17
21
30
30
30
Invested ¥30,000 cash and equipment valued at ¥14,000 in the business.
Hired a secretary-receptionist at a salary of ¥290 per week payable monthly.
Purchased supplies on account ¥700. (Debit an asset account.)
Paid office rent of ¥600 for the month.
Completed a tax assignment and billed client ¥1,100 for services rendered. (Use Service Revenue
account.)
Received ¥3,200 advance on a management consulting engagement.
Received cash of ¥2,300 for services completed for Ferengi Co.
Paid insurance expense ¥110.
Paid secretary-receptionist ¥1,160 for the month.
A count of supplies indicated that ¥120 of supplies had been used.
Purchased a new computer for ¥5,100 with personal funds. (The computer will be used exclusively
for business purposes.)
Instructions
Journalize the transactions in the general journal. (Omit explanations.)
Exercises 115
4
E3-2 (Corrected Trial Balance) The trial balance of Geronimo Company does not balance. Your review
of the ledger reveals the following. (a) Each account had a normal balance. (b) The debit footings in Prepaid Insurance, Accounts Payable, and Property Tax Expense were each understated €1,000. (c) A transposition error was made in Accounts Receivable and Service Revenue; the correct balances for Accounts
Receivable and Service Revenue are €2,750 and €6,690, respectively. (d) A debit posting to Advertising
Expense of €300 was omitted. (e) A €3,200 cash drawing by the owner was debited to Geronimo, Capital,
and credited to Cash.
GERONIMO COMPANY
TRIAL BALANCE
APRIL 30, 2015
Debit
Cash
Accounts Receivable
Prepaid Insurance
Equipment
Accounts Payable
Property Taxes Payable
Geronimo, Capital
Service Revenue
Salaries and Wages Expense
Advertising Expense
Property Tax Expense
Credit
€ 2,100
2,570
700
€ 8,000
4,500
560
11,200
6,960
4,200
1,100
800
€18,190
€24,500
Instructions
Prepare a correct trial balance.
4
E3-3 (Corrected Trial Balance) The trial balance of Scarlatti Corporation does not balance.
SCARLATTI CORPORATION
TRIAL BALANCE
APRIL 30, 2015
Debit
Cash
Accounts Receivable
Supplies
Equipment
Accounts Payable
Share Capital—Ordinary
Retained Earnings
Service Revenue
Office Expense
Credit
$ 5,912
5,240
2,967
6,100
$ 7,044
8,000
2,000
5,200
4,320
$24,539
$22,244
An examination of the ledger shows these errors.
1. Cash received from a customer on account was recorded (both debit and credit) as $1,580 instead
of $1,850.
2. The purchase on account of a computer costing $1,900 was recorded as a debit to Office Expense
and a credit to Accounts Payable.
3. Services were performed on account for a client, $2,250, for which Accounts Receivable was debited $2,250 and Service Revenue was credited $225.
4. A payment of $95 for telephone charges was entered as a debit to Office Expense and a debit to Cash.
5. The Service Revenue account was totaled at $5,200 instead of $5,280.
Instructions
From this information prepare a corrected trial balance.
116 Chapter 3 The Accounting Information System
4
E3-4 (Corrected Trial Balance) The trial balance of Oakley Co. does not balance.
OAKLEY CO.
TRIAL BALANCE
JUNE 30, 2015
Debit
Cash
Accounts Receivable
Supplies
Equipment
Accounts Payable
Unearned Service Revenue
Share Capital—Ordinary
Retained Earnings
Service Revenue
Salaries and Wages Expense
Office Expense
€ 3,231
800
3,800
Credit
€ 2,870
2,666
1,200
6,000
3,000
2,380
3,400
940
€13,371
€16,916
Each of the listed accounts should have a normal balance per the general ledger. An examination of the
ledger and journal reveals the following errors.
1. Cash received from a customer on account was debited for €370, and Accounts Receivable was
credited for the same amount. The actual collection was for €730.
2. The purchase of a computer printer on account for €500 was recorded as a debit to Supplies for
€500 and a credit to Accounts Payable for €500.
3. Services were performed on account for a client for €890. Accounts Receivable was debited for
€890 and Service Revenue was credited for €89.
4. A payment of €65 for telephone charges was recorded as a debit to Office Expense for €65 and a
debit to Cash for €65.
5. When the Unearned Service Revenue account was reviewed, it was found that service revenue
amounting to €225 was performed prior to June 30.
6. A debit posting to Salaries and Wages Expense of €670 was omitted.
7. A payment on account for €206 was credited to Cash for €206 and credited to Accounts Payable for €260.
8. A dividend of €575 was debited to Salaries and Wages Expense for €575 and credited to Cash for €575.
Instructions
Prepare a correct trial balance. (Note: It may be necessary to add one or more accounts to the trial balance.)
5
E3-5 (Adjusting Entries) The ledger of Chopin Rental Agency on March 31 of the current year includes
the following selected accounts before adjusting entries have been prepared.
Debit
Prepaid Insurance
Supplies
Equipment
Accumulated Depreciation—Equipment
Notes Payable
Unearned Rent Revenue
Rent Revenue
Interest Expense
Salaries and Wages Expense
€ 8,400
20,000
6,300
60,000
–0–
14,000
An analysis of the accounts shows the following.
1. The equipment depreciates €250 per month.
2. One-third of the unearned rent was earned during the quarter.
3. Interest of €500 is accrued on the notes payable.
4. Supplies on hand total €650.
5. Insurance expires at the rate of €300 per month.
Credit
€ 3,600
2,800
25,000
Exercises 117
Instructions
Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional
accounts are Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense. (Omit
explanations.)
5
E3-6 (Adjusting Entries) Stephen King, D.D.S., opened a dental practice on January 1, 2015. During the
first month of operations, the following transactions occurred.
1. Performed services for patients who had dental plan insurance. At January 31, $750 of such services was performed but not yet billed to the insurance companies.
2. Utility expenses incurred but not paid prior to January 31 totaled $520.
3. Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000,
3-year note payable. The equipment depreciates $400 per month. Interest is $500 per month.
4. Purchased a one-year malpractice insurance policy on January 1 for $15,000.
5. Purchased $1,600 of dental supplies. On January 31, determined that $400 of supplies were on hand.
Instructions
Prepare the adjusting entries on January 31. (Omit explanations.) Account titles are Accumulated Depreciation—
Equipment, Depreciation Expense, Service Revenue, Accounts Receivable, Insurance Expense, Interest Expense,
Interest Payable, Prepaid Insurance, Supplies, Supplies Expense, Utilities Expense, and Accounts Payable.
5
E3-7 (Analyze Adjusted Data) A partial adjusted trial balance of Safin Company at January 31, 2015,
shows the following.
SAFIN COMPANY
ADJUSTED TRIAL BALANCE
JANUARY 31, 2015
Debit
Supplies
Prepaid Insurance
Salaries and Wages Payable
Unearned Service Revenue
Supplies Expense
Insurance Expense
Salaries and Wages Expense
Service Revenue
Credit
£ 900
2,400
£ 800
750
950
400
1,800
2,000
Instructions
Answer the following questions, assuming the year begins January 1.
(a) If the amount in Supplies Expense is the January 31 adjusting entry and £850 of supplies was purchased in January, what was the balance in Supplies on January 1?
(b) If the amount in Insurance Expense is the January 31 adjusting entry and the original insurance
premium was for one year, what was the total premium and when was the policy purchased?
(c) If £2,700 of salaries and wages were paid in January, what was the balance in Salaries and Wages
Payable at December 31, 2014?
(d) If £1,600 was received in January for services performed in January, what was the balance in
Unearned Service Revenue at December 31, 2014?
5
E3-8 (Adjusting Entries) William Bryant is the new owner of Ace Computer Services. At the end of
August 2015, his first month of ownership, Bryant is trying to prepare monthly financial statements. Below
is some information related to unrecorded expenses that the business incurred during August.
1. At August 31, Bryant owed his employees $2,900 in salaries and wages that will be paid on
September 1.
2. At the end of the month, he had not yet received the month’s utility bill. Based on past experience,
he estimated the bill would be approximately $600.
3. On August 1, Bryant borrowed $60,000 from a local bank on a 15-year mortgage. The annual interest
rate is 8%.
4. A telephone bill in the amount of $117 covering August charges is unpaid at August 31 (use Telephone and Internet Expense account).
Instructions
Prepare the adjusting journal entries as of August 31, 2015, suggested by the information provided.
118 Chapter 3 The Accounting Information System
5
E3-9 (Adjusting Entries) Selected accounts of Leno Company are shown below.
Supplies
Beg. Bal.
800
10 ⁄ 31
Accounts Receivable
470
10 ⁄ 17
10 ⁄ 31
Salaries and Wages Expense
10 ⁄ 15
10 ⁄ 31
2,100
1,650
Salaries and Wages Payable
800
600
10 ⁄ 31
Unearned Service Revenue
10 ⁄ 31
400
10 ⁄ 20
600
Supplies Expense
650
10 ⁄ 31
470
Service Revenue
10 ⁄ 17
10 ⁄ 31
10 ⁄ 31
2,100
1,650
400
Instructions
From an analysis of the T-accounts, reconstruct (a) the October transaction entries, and (b) the adjusting
journal entries that were made on October 31, 2015. Prepare explanations for each journal entry.
5
E3-10 (Adjusting Entries) Uhura Resort opened for business on June 1 with eight air-conditioned units. Its
trial balance on August 31 is as follows (in thousands).
UHURA RESORT
TRIAL BALANCE
AUGUST 31, 2015
Debit
Cash
Prepaid Insurance
Supplies
Land
Buildings
Equipment
Accounts Payable
Unearned Rent Revenue
Mortgage Payable
Share Capital—Ordinary
Retained Earnings
Dividends
Rent Revenue
Salaries and Wages Expense
Utilities Expense
Maintenance and Repairs Expense
Credit
¥ 19,600
4,500
2,600
20,000
120,000
16,000
¥
4,500
4,600
50,000
100,000
0
5,000
86,200
44,800
9,200
3,600
¥245,300
¥245,300
Other data:
1. The balance in prepaid insurance is a one-year premium paid on June 1, 2015.
2. An inventory count on August 31 shows ¥650 of supplies on hand.
3. Annual depreciation rates are buildings (4%) and equipment (10%). Residual value is estimated to
be 10% of cost.
4. Unearned rent revenue of ¥3,800 was earned prior to August 31.
5. Salaries and wages of ¥375 were unpaid at August 31.
6. Rentals of ¥800 were due from tenants at August 31.
7. The mortgage note is dated 1/1/2015. The mortgage interest rate is 8% per year.
Instructions
(a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Omit
explanations.)
(b) Prepare an adjusted trial balance on August 31.
Exercises 119
6
E3-11 (Prepare Financial Statements) The adjusted trial balance of Cavamanlis Co. as of December 31,
2015, contains the following.
CAVAMANLIS CO.
ADJUSTED TRIAL BALANCE
DECEMBER 31, 2015
Account Titles
Dr.
Cash
Accounts Receivable
Prepaid Rent
Equipment
Accumulated Depreciation—Equipment
Notes Payable
Accounts Payable
Share Capital—Ordinary
Retained Earnings
Dividends
Service Revenue
Salaries and Wages Expense
Rent Expense
Depreciation Expense
Interest Expense
Interest Payable
Cr.
$18,972
6,920
2,280
18,050
$ 4,895
5,700
4,472
20,000
11,310
3,000
12,590
6,840
2,760
145
83
83
$59,050
$59,050
Instructions
(a) Prepare an income statement.
(b) Prepare a retained earnings statement.
(c) Prepare a classified statement of financial position.
6
E3-12 (Prepare Financial Statements) Flynn Design Agency was founded by Kevin Flynn in January 2011.
Presented below is the adjusted trial balance as of December 31, 2015.
FLYNN DESIGN AGENCY
ADJUSTED TRIAL BALANCE
DECEMBER 31, 2015
Dr.
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation—Equipment
Accounts Payable
Interest Payable
Notes Payable
Unearned Service Revenue
Salaries and Wages Payable
Share Capital—Ordinary
Retained Earnings
Service Revenue
Salaries and Wages Expense
Insurance Expense
Interest Expense
Depreciation Expense
Supplies Expense
Rent Expense
Cr.
€ 10,000
21,500
5,000
2,500
60,000
€ 35,000
8,000
150
5,000
5,600
1,300
10,000
3,500
58,500
12,300
850
500
7,000
3,400
4,000
€127,050
€127,050
120 Chapter 3 The Accounting Information System
Instructions
(a) Prepare an income statement and a retained earnings statement for the year ending December 31,
2015, and an unclassified statement of financial position at December 31.
(b) Answer the following questions.
(1) If the note has been outstanding 6 months, what is the annual interest rate on that note?
(2) If the company paid €17,500 in salaries and wages in 2015, what was the balance in Salaries
and Wages Payable on December 31, 2014?
7
E3-13 (Closing Entries) The adjusted trial balance of Faulk Company shows the following data pertaining to sales at the end of its fiscal year, October 31, 2015: Sales Revenue £800,000; Delivery Expense £12,000;
Sales Returns and Allowances £24,000; and Sales Discounts £12,000.
Instructions
(a) Prepare the revenues section of the income statement.
(b) Prepare separate closing entries for (1) sales revenue and (2) the contra accounts to sales revenue.
7
E3-14 (Closing Entries) Presented below is information related to Russell Corporation for the month
of January 2015.
Cost of goods sold
Delivery expense
Insurance expense
Rent expense
€202,000
7,000
12,000
20,000
€ 61,000
8,000
13,000
340,000
Salaries and wages expense
Sales discounts
Sales returns and allowances
Sales revenue
Instructions
Prepare the necessary closing entries.
8
E3-15 (Missing Amounts) Presented below is financial information for two different companies.
Shabbona Company
Jenkins Company
$90,000
(a)
85,000
56,000
(b)
15,000
(c)
(d)
$ 5,000
90,000
(e)
38,000
23,000
15,000
Sales revenue
Sales returns and allowances
Net sales
Cost of goods sold
Gross profit
Operating expenses
Net income
Instructions
Compute the missing amounts.
7
E3-16 (Closing Entries for a Corporation) Presented below are selected account balances for Alistair Co.
as of December 31, 2015.
Inventory 12/31/15
Share Capital—Ordinary
Retained Earnings
Dividends
Sales Returns and Allowances
Sales Discounts
Sales Revenue
$ 60,000
75,000
45,000
18,000
12,000
15,000
390,000
Cost of Goods Sold
Selling Expenses
Administrative Expenses
Income Tax Expense
$235,700
16,000
38,000
30,000
Instructions
Prepare closing entries for Alistair Co. on December 31, 2015. (Omit explanations.)
4
E3-17 (Transactions of a Corporation, Including Investment and Dividend) Snyder Miniature Golf and
Driving Range Inc. was opened on March 1 by Mickey Snyder. The following selected events and transactions occurred during March.
Mar. 1
3
5
6
10
Invested £60,000 cash in the business in exchange for ordinary shares.
Purchased Michelle Wie’s Golf Land for £38,000 cash. The price consists of land £10,000, building
£22,000, and equipment £6,000. (Make one compound entry.)
Advertised the opening of the driving range and miniature golf course, paying advertising expenses of
£1,600.
Paid cash £1,480 for a one-year insurance policy.
Purchased golf equipment for £2,500 from Young Company, payable in 30 days.
Exercises 121
18
25
30
30
31
Received golf fees of £1,200 in cash.
Declared and paid a £1,000 cash dividend.
Paid salaries and wages of £900.
Paid Young Company in full.
Received £750 of fees in cash.
Snyder uses the following accounts: Cash, Prepaid Insurance, Land, Buildings, Equipment, Accounts Payable,
Share Capital—Ordinary, Dividends, Service Revenue, Advertising Expense, and Salaries and Wages Expense.
Instructions
Journalize the March transactions. (Provide explanations for the journal entries.)
9 *E3-18 (Cash to Accrual Basis) Corinne Dunbar, M.D., maintains the accounting records of Dunbar Clinic
on a cash basis. During 2015, Dr. Dunbar collected €142,600 from her patients and paid €60,470 in expenses.
At January 1, 2015, and December 31, 2015, she had accounts receivable, unearned service revenue, accrued
expenses, and prepaid expenses as follows. (All long-lived assets are rented.)
January 1, 2015
December 31, 2015
€11,250
2,840
3,435
1,917
€15,927
4,111
2,108
3,232
Accounts receivable
Unearned service revenue
Accrued expenses
Prepaid expenses
Instructions
Prepare a schedule that converts Dr. Dunbar’s “excess of cash collected over cash disbursed” for the year
2015 to net income on an accrual basis for the year 2015.
9 *E3-19 (Cash and Accrual Basis) Nalezny Corp. maintains its financial records on the cash basis of ac-
counting. Interested in securing a long-term loan from its regular bank, Nalezny Corp. requests you to
convert its cash-basis income statement data to the accrual basis. You are provided with the following summarized data covering 2014, 2015, and 2016.
Cash receipts from sales:
On 2014 sales
On 2015 sales
On 2016 sales
Cash payments for expenses:
On 2014 expenses
On 2015 expenses
On 2016 expenses
2014
2015
2016
$290,000
–0–
$160,000
355,000
$ 30,000
90,000
408,000
185,000
40,000a
67,000
170,000
45,000b
25,000
55,000
218,000
a
Prepayments of 2015 expenses.
Prepayments of 2016 expenses.
b
Instructions
(a) Using the data above, prepare abbreviated income statements for the years 2014 and 2015 on the
cash basis.
(b) Using the data above, prepare abbreviated income statements for the years 2014 and 2015 on the
accrual basis.
5
10 *E3-20 (Adjusting and Reversing Entries) When the accounts of Constantine Inc. are examined, the
adjusting data listed below are uncovered on December 31, the end of an annual fiscal period.
1. The prepaid insurance account shows a debit of 6,000, representing the cost of a 2-year fire insurance policy dated August 1 of the current year.
2. On November 1, Rent Revenue was credited for 2,400, representing revenue from a subrental for
a 3-month period beginning on that date.
3. Purchase of advertising materials for 800 during the year was recorded in the Supplies Expense
account. On December 31, advertising materials of 290 are on hand.
4. Interest of 770 has accrued on notes payable.
Instructions
Prepare the following in general journal form.
(a) The adjusting entry for each item.
(b) The reversing entry for each item where appropriate.
122 Chapter 3 The Accounting Information System
11 *E3-21 (Worksheet) Presented below are selected accounts for Acevedo Company as reported in the
worksheet at the end of May 2015.
Acevedo Company.xls
Home
Insert
Page Layout Formulas
Data
A
4
5
6
7
B
C
Adjusted
Trial Balance
Dr.
Cr.
Account Titles
1
3
View
fx
P18
2
Review
Cash
Inventory
Sales Revenue
Sales Returns and Allowances
Sales Discounts
Cost of Goods Sold
E
Income
Statement
Dr.
Cr.
D
F
G
Statement of
Financial Position
Dr.
Cr.
15,000
80,000
470,000
10,000
5,000
250,000
Instructions
Complete the worksheet by extending amounts reported in the adjusted trial balance to the appropriate
columns in the worksheet. Do not total individual columns.
11 *E3-22 (Worksheet and Statement of Financial Position Presentation) The adjusted trial balance for
Madrasah Co. (in euros) is presented in the following worksheet for the month ended April 30, 2015.
Madrasah Co.xls
Home
P18
Insert
Page Layout Formulas
Data
Review
A
1
2
3
B
Adjusted
Trial Balance
6
7
Account Titles
Dr.
8
Cash
Accounts Receivable
Prepaid Rent
Equipment
Accumulated Depreciation—Equipment
Notes Payable
Accounts Payable
Madrasah, Capital
Madrasah, Drawing
Service Revenue
Salaries and Wages Expense
Rent Expense
Depreciation Expense
Interest Expense
Interest Payable
18,972
6,920
2,280
18,050
11
12
13
14
15
16
17
18
19
20
21
22
E
F
G
MADRASAH CO.
5
9
D
C
Worksheet (PARTIAL)
For the Month Ended April 30, 2015
4
10
View
fx
Cr.
Income
Statement
Dr.
Cr.
4,895
5,700
4,472
34,960
6,650
12,590
6,840
2,760
145
83
83
Instructions
Complete the worksheet and prepare a classified statement of financial position.
Statement of
Financial Position
Dr.
Cr.
Problems 123
11 *E3-23 (Partial Worksheet Preparation) Letterman Co. prepares monthly financial statements from a
worksheet. Selected portions of the January worksheet showed the following data.
Letterman Co.xls
Home
P18
Insert
Page Layout Formulas
Data
Review
View
fx
A
1
2
3
B
C
D
E
LETTERMAN CO.
5
6
Trial Balance
Adjustments
Dr.
7
Account Titles
Dr.
8
Supplies
Accumulated Depreciation—Equipment
Interest Payable
Supplies Expense
Depreciation Expense
Interest Expense
3,256
9
11
12
13
G
Worksheet (PARTIAL)
For the Month Ended January 31, 2015
4
10
F
Cr.
7,710
100
(a) 1,500
(b) 257
(c)
50
Adjusted
Trial Balance
Cr.
Dr.
(a) 1,500
(b) 257
(c)
50
1,756
Cr.
7,967
150
1,500
257
50
During February, no events occurred that affected these accounts. But at the end of February, the following
information was available.
(a) Supplies on hand
(b) Monthly depreciation
(c) Accrued interest
€515
€257
€ 50
Instructions
Reproduce the data that would appear in the February worksheet and indicate the amounts that would be
shown in the February income statement.
PROBLEMS
4
6
7
P3-1 (Transactions, Financial Statements—Service Company) Listed below are the transactions of
Yasunari Kawabata, D.D.S., for the month of September (amounts in thousands).
Sept. 1
2
4
4
5
8
10
14
18
19
20
25
30
30
Kawabata begins practice as a dentist and invests ¥20,000 cash.
Purchases equipment on account from Green Jacket Co. for ¥17,280.
Pays rent for office space, ¥680 for the month.
Employs a receptionist, Michael Bradley.
Purchases dental supplies for cash, ¥942.
Receives cash of ¥1,690 from patients for services performed.
Pays miscellaneous office expenses, ¥430.
Bills patients ¥5,820 for services performed.
Pays Green Jacket Co. on account, ¥3,600.
Withdraws ¥3,000 cash from the business for personal use.
Receives ¥980 from patients on account.
Bills patients ¥2,110 for services performed.
Pays the following expenses in cash: office salaries ¥1,800; miscellaneous office expenses ¥85.
Dental supplies used during September, ¥330.
124 Chapter 3 The Accounting Information System
Instructions
(a) Enter the transactions shown above in appropriate general ledger accounts (use T-accounts). Use
the following ledger accounts: Cash; Accounts Receivable; Supplies; Equipment; Accumulated
Depreciation—Equipment; Accounts Payable; Yasunari Kawabata, Capital; Service Revenue; Rent
Expense; Office Expense; Salaries and Wages Expense; Supplies Expense; Depreciation Expense;
and Income Summary. Allow 10 lines for the Cash and Income Summary accounts, and 5 lines for
each of the other accounts needed. Record depreciation using a 5-year life on the equipment, the
straight-line method, and no residual value. Do not use a drawing account.
(b) Prepare a trial balance.
(c) Prepare an income statement, a statement of owner’s equity, and an unclassified statement of
financial position.
(d) Close the ledger.
(e) Prepare a post-closing trial balance.
5
6
P3-2 (Adjusting Entries and Financial Statements) Mason Advertising Agency was founded in January
2011. Presented below are adjusted and unadjusted trial balances as of December 31, 2015.
MASON ADVERTISING AGENCY
TRIAL BALANCE
DECEMBER 31, 2015
Unadjusted
Dr.
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation—Equipment
Accounts Payable
Interest Payable
Notes Payable
Unearned Service Revenue
Salaries and Wages Payable
Share Capital—Ordinary
Retained Earnings
Service Revenue
Salaries and Wages Expense
Insurance Expense
Interest Expense
Depreciation Expense
Supplies Expense
Rent Expense
Adjusted
Cr.
€ 11,000
20,000
8,400
3,350
60,000
Dr.
€ 28,000
5,000
–0–
5,000
7,000
–0–
10,000
3,500
58,600
10,000
€ 33,000
5,000
150
5,000
5,600
1,300
10,000
3,500
63,500
11,300
850
500
5,000
5,400
4,000
350
4,000
€117,100
Cr.
€ 11,000
23,500
3,000
2,500
60,000
€117,100
€127,050
€127,050
Instructions
(a) Journalize the annual adjusting entries that were made. (Omit explanations.)
(b) Prepare an income statement and a retained earnings statement for the year ending December 31,
2015, and an unclassified statement of financial position at December 31.
(c) Answer the following questions.
(1) If the note has been outstanding 3 months, what is the annual interest rate on that note?
(2) If the company paid €12,500 in salaries in 2015, what was the balance in Salaries and Wages
Payable on December 31, 2014?
5
P3-3 (Adjusting Entries) A review of the ledger of Baylor Company at December 31, 2015, produces the
following data pertaining to the preparation of annual adjusting entries.
1. Salaries and Wages Payable $0. There are eight employees. Salaries and wages are paid every Friday
for the current week. Five employees receive $700 each per week, and three employees earn $600 each
per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last
2 days of December.
Problems 125
2. Unearned Rent Revenue $429,000. The company began subleasing office space in its new building on
November 1. Each tenant is required to make a $5,000 security deposit that is not refundable until
occupancy is terminated. At December 31, the company had the following rental contracts that are
paid in full for the entire term of the lease.
Date
Term (in months)
Monthly Rent
Number of Leases
Nov. 1
Dec. 1
6
6
$6,000
$8,500
5
4
3. Prepaid Advertising $13,200. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as shown
below.
Contract
Date
Amount
Number of Magazine Issues
A650
B974
May 1
Oct. 1
$6,000
$7,200
12
24
The first advertisement runs in the month in which the contract is signed.
4. Notes Payable $60,000. This balance consists of a note for one year at an annual interest rate of 12%,
dated June 1.
Instructions
Prepare the adjusting entries at December 31, 2015. (Show all computations.)
4
5
6
7
P3-4 (Financial Statements, Adjusting and Closing Entries) The trial balance of Bellemy Fashion Center
contained the following accounts at November 30, the end of the company’s fiscal year.
BELLEMY FASHION CENTER
TRIAL BALANCE
NOVEMBER 30, 2015
Debit
Cash
Accounts Receivable
Inventory
Supplies
Equipment
Accumulated Depreciation—Equipment
Notes Payable
Accounts Payable
Share Capital—Ordinary
Retained Earnings
Sales Revenue
Sales Returns and Allowances
Cost of Goods Sold
Salaries and Wages Expense
Advertising Expense
Utilities Expense
Maintenance and Repairs Expense
Delivery Expense
Rent Expense
€ 24,000
51,000
48,500
90,000
8,000
757,200
4,200
495,400
140,000
26,400
14,000
12,100
16,700
24,000
€978,700
Adjustment data:
1. Supplies on hand totaled €1,500.
2. Depreciation is €15,000 on the equipment.
3. Interest of €11,000 is accrued on notes payable at November 30.
Other data:
1. Salaries and wages expense is 70% selling and 30% administrative.
2. Rent expense and utilities expense are 80% selling and 20% administrative.
3. €30,000 of notes payable are due for payment next year.
4. Maintenance and repairs expense is 100% administrative.
Credit
€ 28,700
33,700
45,000
5,500
133,000
€978,700
126 Chapter 3 The Accounting Information System
Instructions
(a) Journalize the adjusting entries.
(b) Prepare an adjusted trial balance.
(c) Prepare an income statement and retained earnings statement for the year and a classified statement of financial position as of November 30, 2015.
(d) Journalize the closing entries.
(e) Prepare a post-closing trial balance.
5
P3-5 (Adjusting Entries) The accounts listed below appeared in the December 31 trial balance of the
Savard Theater.
Debit
Equipment
Accumulated Depreciation—Equipment
Notes Payable
Admissions Revenue
Advertising Expense
Salaries and Wages Expense
Interest Expense
€192,000
Credit
€ 60,000
90,000
380,000
13,680
57,600
1,400
Instructions
(a) From the account balances listed above and the information given below, prepare the annual
adjusting entries necessary on December 31. (Omit explanations.)
(1) The equipment has an estimated life of 16 years and a residual value of €24,000 at the end of
that time. (Use straight-line method.)
(2) The note payable is a 90-day note given to the bank October 20 and bearing interest at 8%.
(Use 360 days for denominator.)
(3) In December, 2,000 coupon admission books were sold at €30 each. They could be used for
admission any time after January 1. The proceeds were recorded as Admissions Revenue.
(4) Advertising expense paid in advance and included in Advertising Expense €1,100.
(5) Salaries and wages accrued but unpaid €4,700.
(b) What amounts should be shown for each of the following on the income statement for the
year?
5
6
(1) Interest expense.
(3) Advertising expense.
(2) Admissions revenue.
(4) Salaries and wages expense.
P3-6 (Adjusting Entries and Financial Statements) The following are the trial balance and other information related to Yorkis Perez, a consulting engineer.
YORKIS PEREZ, CONSULTING ENGINEER
TRIAL BALANCE
DECEMBER 31, 2015
Debit
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation—Equipment
Notes Payable
Yorkis Perez, Capital
Service Revenue
Rent Expense
Salaries and Wages Expense
Utilities Expense
Office Expense
Credit
R$ 29,500
49,600
R$
750
1,960
1,100
25,000
6,250
7,200
35,010
100,000
9,750
30,500
1,080
720
R$149,210
R$149,210
Problems 127
1. Fees received in advance from clients R$6,000.
2. Services performed for clients that were not recorded by December 31, R$4,900.
3. Bad debt expense for the year is R$1,430.
4. Insurance expired during the year R$480.
5. Equipment is being depreciated at 10% per year.
6. Yorkis Perez gave the bank a 90-day, 10% note for R$7,200 on December 1, 2015.
7. Rent of the building is R$750 per month. The rent for 2015 has been paid, as has that for January 2016.
8. Salaries and wages earned but unpaid December 31, 2015, R$2,510.
Instructions
(a) From the trial balance and other information given, prepare annual adjusting entries as of
December 31, 2015. (Omit explanations.)
(b) Prepare an income statement for 2015, a statement of owner’s equity, and a classified statement of financial position. Yorkis Perez withdrew R$17,000 cash for personal use during the
year.
5
6
P3-7 (Adjusting Entries and Financial Statements) Sorenstam Advertising Corp. was founded in
January 2011. Presented below are the adjusted and unadjusted trial balances as of December 31,
2015.
SORENSTAM ADVERTISING CORP.
TRIAL BALANCE
DECEMBER 31, 2015
Unadjusted
Dr.
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation—
Equipment
Accounts Payable
Interest Payable
Notes Payable
Unearned Service Revenue
Salaries and Wages Payable
Share Capital—Ordinary
Retained Earnings
Service Revenue
Salaries and Wages Expense
Insurance Expense
Interest Expense
Depreciation Expense
Supplies Expense
Rent Expense
€
Adjusted
Dr.
Cr.
€
7,000
19,000
8,500
3,250
60,000
€ 27,000
5,000
€ 35,750
5,000
150
5,000
5,600
1,500
10,000
4,500
61,000
5,000
7,000
10,000
4,500
58,600
10,000
11,500
750
500
8,750
10,000
4,000
350
5,000
4,000
€117,100
Cr.
7,000
20,000
3,500
2,500
60,000
€117,100
€128,500
€128,500
Instructions
(a) Journalize the annual adjusting entries that were made. (Omit explanations.)
(b) Prepare an income statement and a retained earnings statement for the year ending December 31,
2015, and an unclassified statement of financial position at December 31, 2015.
128 Chapter 3 The Accounting Information System
(c) Answer the following questions.
(1) If the useful life of equipment is 6 years, what is the expected residual value?
(2) If the note has been outstanding 3 months, what is the annual interest rate on that note?
(3) If the company paid €12,500 in salaries and wages in 2015, what was the balance in Salaries
and Wages Payable on December 31, 2014?
4
5
6
7
P3-8 (Adjusting and Closing) Presented below is the trial balance of the Ko Golf Club, Inc. as of December 31. The books are closed annually on December 31.
KO GOLF CLUB, INC.
TRIAL BALANCE
DECEMBER 31
Debit
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Prepaid Insurance
Land
Buildings
Accumulated Depreciation—Buildings
Equipment
Accumulated Depreciation—
Equipment
Share Capital—Ordinary
Retained Earnings
Dues Revenue
Green Fees Revenue
Rent Revenue
Utilities Expense
Salaries and Wages Expense
Maintenance and Repairs Expense
Credit
£ 15,000
13,000
£
1,100
9,000
350,000
120,000
38,400
150,000
70,000
400,000
82,000
200,000
5,900
17,600
54,000
80,000
24,000
£815,000
£815,000
Instructions
(a) Enter the balances in ledger accounts. Allow five lines for each account.
(b) From the trial balance and the information given below, prepare annual adjusting entries and post
to the ledger accounts. (Omit explanations.)
(1) The buildings have an estimated life of 30 years with no residual value (straight-line
method).
(2) The equipment is depreciated at 10% per year.
(3) Insurance expired during the year £3,500.
(4) The rent revenue represents the amount received for 11 months for dining facilities. The
December rent has not yet been received.
(5) It is estimated that 12% of the accounts receivable will be uncollectible.
(6) Salaries and wages earned but not paid by December 31, £3,600.
(7) Dues received in advance from members £8,900.
(c) Prepare an adjusted trial balance.
(d) Prepare closing entries and post.
4
5
6
7
8
P3-9 (Adjusting and Closing) Presented on page 129 is the December 31 trial balance of New York
Boutique.
Problems 129
NEW YORK BOUTIQUE
TRIAL BALANCE
DECEMBER 31
Debit
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Inventory, December 31
Prepaid Insurance
Equipment
Accumulated Depreciation—Equipment
Notes Payable
Share Capital—Ordinary
Retained Earnings
Sales Revenue
Cost of Goods Sold
Salaries and Wages Expense
Advertising Expense
Office Expense
Credit
€ 18,500
32,000
€
700
80,000
5,100
84,000
35,000
28,000
80,600
10,000
600,000
408,000
115,000
6,700
5,000
€754,300
€754,300
Instructions
(a) Construct T-accounts and enter the balances shown.
(b) Prepare adjusting journal entries for the following and post to the T-accounts. (Omit explanations.) Open additional T-accounts as necessary. (The books are closed yearly on December 31.)
(1) Bad debt expense is estimated to be €1,400.
(2) Equipment is depreciated based on a 7-year life (no residual value).
(3) Insurance expired during the year €2,550.
(4) Interest accrued on notes payable €3,360.
(5) Salaries and wages earned but not paid €2,400.
(6) Advertising paid in advance €700.
(7) Office supplies on hand €1,500, charged to Office Expense when purchased.
(c) Prepare closing entries and post to the accounts.
9 *P3-10 (Cash and Accrual Basis) On January 1, 2015, Norma Smith and Grant Wood formed a computer
sales and service enterprise in Manchester, U.K., by investing £90,000 cash. The new company, Lakeland
Sales and Service, has the following transactions during January.
1. Pays £6,000 in advance for 3 months’ rent of office, showroom, and repair space.
2. Purchases 40 personal computers at a cost of £1,500 each, 6 graphics computers at a cost of £2,500
each, and 25 printers at a cost of £300 each, paying cash upon delivery.
3. Sales, repair, and office employees earn £12,600 in salaries and wages during January, of which £3,000
was still payable at the end of January.
4. Sells 30 personal computers at £2,550 each, 4 graphics computers for £3,600 each, and 15 printers
for £500 each; £75,000 is received in cash in January, and £23,400 is sold on a deferred payment
basis.
5. Other operating expenses of £8,400 are incurred and paid for during January; £2,000 of incurred
expenses are payable at January 31.
Instructions
(a) Using the transaction data above, prepare for the month of January (1) a cash-basis income
statement, and (2) an accrual-basis income statement.
(b) Using the transaction data above, prepare as of January 31, 2015, (1) a cash-basis statement of
financial position and (2) an accrual-basis statement of financial position.
(c) Identify the items in the cash-basis financial statements that make cash-basis accounting inconsistent with the theory underlying the elements of financial statements.
130 Chapter 3 The Accounting Information System
5 6 *P3-11 (Worksheet, Statement of Financial Position, Adjusting and Closing Entries) Cooke Company has
7 11 a fiscal year ending on September 30. Selected data from the September 30 worksheet are presented below.
Cooke Co.xls
Home
P18
Insert
Page Layout Formulas
Data
A
B
6
Account Titles
7
Cash
Supplies
Prepaid Insurance
Land
Equipment
Accumulated Depreciation—Equipment
Accounts Payable
Unearned Service Revenue
Mortgage Payable
Cooke, Capital
Cooke, Drawing
Service Revenue
Salaries and Wages Expense
Maintenance and Repairs Expense
Advertising Expense
Utilities Expense
Property Tax Expense
Interest Expense
Totals
Insurance Expense
Supplies Expense
Interest Payable
Depreciation Expense
Property Taxes Payable
Totals
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
D
E
Worksheet
For the Month Ended September 30, 2015
5
9
C
COOKE COMPANY
4
10
View
fx
1
2
3
8
Review
Trial Balance
Dr.
Cr.
37,400
18,600
31,900
80,000
120,000
Adjusted Trial Balance
Dr.
Cr.
37,400
4,200
3,900
80,000
120,000
36,200
14,600
2,700
50,000
109,700
14,000
42,000
14,600
700
50,000
109,700
14,000
278,500
109,000
30,500
9,400
16,900
18,000
6,000
491,700
280,500
109,000
30,500
9,400
16,900
21,000
12,000
491,700
28,000
14,400
6,000
5,800
506,500
3,000
506,500
Instructions
(a) Prepare a complete worksheet.
(b) Prepare a classified statement of financial position. (Note: €10,000 of the mortgage payable is due
for payment in the next fiscal year.)
(c) Journalize the adjusting entries using the worksheet as a basis.
(d) Journalize the closing entries using the worksheet as a basis.
(e) Prepare a post-closing trial balance.
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 3-1
May
1
Cash .................................................................
4,000
Share Capital-Ordinary ...........................
3
Equipment .......................................................
4,000
1,100
Accounts Payable....................................
13
Rent Expense ..................................................
1,100
400
Cash ..........................................................
21
Accounts Receivable ......................................
400
500
Service Revenue ......................................
500
BRIEF EXERCISE 3-2
Aug.
2
Cash ..................................................................
12,000
Equipment ........................................................
2,500
Agazzi, Capital ..........................................
7
Supplies ............................................................
14,500
500
Accounts Payable .....................................
12
500
Cash ..................................................................
1,300
Accounts Receivable .......................................
670
Service Revenue .......................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
1,970
3-7
BRIEF EXERCISE 3-2 (Continued)
15
Rent Expense ....................................................
600
Cash ...........................................................
19
600
Supplies Expense .............................................
230
Supplies (€500 – €270) ..............................
230
BRIEF EXERCISE 3-3
July
1
Prepaid Insurance ............................................
15,000
Cash ...........................................................
Dec.
31
15,000
Insurance Expense ...........................................
2,500
Prepaid Insurance
(€15,000 X 1/2 X 1/3) ..............................
2,500
BRIEF EXERCISE 3-4
July
1
Cash ...................................................................
15,000
Unearned Insurance Revenue ..................
Dec.
31
Unearned Insurance Revenue .........................
15,000
2,500
Insurance Revenue
(€15,000 X 1/2 X 1/3) ..............................
3-8
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
2,500
(For Instructor Use Only)
BRIEF EXERCISE 3-5
Feb.
1
Prepaid Insurance ............................................
72,000
Cash ...........................................................
June 30
Insurance Expense ..........................................
72,000
15,000
Prepaid Insurance
(£72,000 X 5/24) .....................................
15,000
BRIEF EXERCISE 3-6
Nov.
1
Cash ..................................................................
2,400
Unearned Rent Revenue ..........................
Dec.
31
Unearned Rent Revenue..................................
2,400
1,600
Rent Revenue
(€2,400 X 2/3) .........................................
1,600
BRIEF EXERCISE 3-7
Dec.
31
Salaries and Wages Expense..........................
4,800
Salaries and Wages Payable
(€8,000 X 3/5) .........................................
Jan.
2
4,800
Salaries and Wages Payable ...........................
4,800
Salaries and Wages Expense..........................
3,200
Cash ...........................................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
8,000
3-9
BRIEF EXERCISE 3-8
Dec.
31
Interest Receivable ...........................................
300
Interest Revenue .......................................
Feb.
1
Cash ...................................................................
300
12,400
Notes Receivable ......................................
12,000
Interest Receivable ...................................
300
Interest Revenue .......................................
100
BRIEF EXERCISE 3-9
Aug. 31
Interest Expense ...............................................
300
Interest Payable.........................................
31
Accounts Receivable .......................................
300
1,400
Service Revenue .......................................
31
Salaries and Wages Expense ..........................
1,400
700
Salaries and Wages Payable ....................
31
Bad Debt Expense ............................................
700
900
Allowance for Doubtful Accounts ...........
900
BRIEF EXERCISE 3-10
Depreciation Expense .......................................................
2,000
Accumulated Depreciation—Equipment ..................
2,000
Equipment .......................................................................... €30,000
Less: Accumulated Depreciation—Equipment ..............
3-10
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
2,000
€28,000
(For Instructor Use Only)
BRIEF EXERCISE 3-11
Sales Revenue ...........................................................
808,900
Interest Revenue .......................................................
13,500
Income Summary ...............................................
Income Summary ......................................................
822,400
780,300
Cost of Goods Sold............................................
556,200
Operating Expenses ..........................................
189,000
Income Tax Expense..........................................
35,100
Income Summary ......................................................
42,100
Retained Earnings..............................................
Retained Earnings .....................................................
42,100
18,900
Dividends ............................................................
18,900
*BRIEF EXERCISE 3-12
(a)
Cash receipts ....................................................
$142,000
+ Increase in accounts receivable
(b)
(€18,600 – €13,000) ....................................
5,600
Service revenue ................................................
$147,600
Payments for operating expenses ..................
$ 97,000
– Increase in prepaid expenses
(€23,200 – €17,500) ....................................
(5,700)
Operating expenses .........................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
$ 91,300
(For Instructor Use Only)
3-11
*BRIEF EXERCISE 3-13
(a)
Salaries and Wages Payable..................................
4,200
Salaries and Wages Expense .........................
(b)
Salaries and Wages Expense ................................
4,200
7,000
Cash ..................................................................
(c)
7,000
Salaries and Wages Payable..................................
4,200
Salaries and Wages Expense ................................
2,800
Cash ..................................................................
3-12
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
7,000
(For Instructor Use Only)
SOLUTIONS TO EXERCISES
EXERCISE 3-1 (15–20 minutes)
Apr.
2
Cash ..................................................................
30,000
Equipment.........................................................
14,000
Kai Edo, Capital ........................................
2
No entry—not a transaction.
3
Supplies ............................................................
44,000
700
Accounts Payable .....................................
7
Rent Expense ...................................................
700
600
Cash ...........................................................
11
Accounts Receivable .......................................
600
1,100
Service Revenue .......................................
12
Cash ..................................................................
1,100
3,200
Unearned Service Revenue .....................
17
Cash ..................................................................
3,200
2,300
Service Revenue .......................................
21
Insurance Expense ..........................................
2,300
110
Cash ...........................................................
30
Salaries and Wages Expense ..........................
110
1,160
Cash ...........................................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
1,160
3-13
EXERCISE 3-1 (Continued)
30
Supplies Expense ............................................
120
Supplies ....................................................
30
Equipment ........................................................
Kai Edo, Capital ........................................
120
5,100
5,100
EXERCISE 3-2 (10–15 minutes)
GERONIMO COMPANY
Trial Balance
April 30, 2015
Debit
Cash ......................................................................
€ 2,100
Accounts Receivable ...........................................
2,750
Prepaid Insurance (€700 + €1,000) .....................
1,700
Equipment ............................................................
8,000
Credit
Accounts Payable (€4,500 – €1,000) ...................
€ 3,500
Property Tax Payable ..........................................
560
Geronimo, Capital (€11,200 + €3,200) .................
14,400
Geronimo, Drawing ..............................................
3,200
Service Revenue ..................................................
6,690
Salaries and Wages Expense..............................
4,200
Advertising Expense (€1,100 + €300) .................
1,400
Property Tax Expense (€800 + €1,000) ...............
1,800
€25,150
3-14
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
€25,150
(For Instructor Use Only)
EXERCISE 3-3 (15–20 minutes)
The ledger accounts are reproduced below, and corrections are shown in
the accounts.
Cash
Bal.
(1)
5,912 (4)
Accounts Payable
190
Bal.
270
Accounts Receivable
Bal.
5,240 (1)
Share Capital—Ordinary
270
Bal.
Supplies
Bal.
7,044
8,000
Retained Earnings
2,967
Bal.
Equipment
2,000
Service Revenue
Bal.
6,100
Bal.
5,200
(2)
1,900
(3)
2,025
(5)
80
Office Expense
Bal.
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
4,320 (2)
(For Instructor Use Only)
1,900
3-15
EXERCISE 3-3 (Continued)
SCARLATTI CORPORATION
Trial Balance (Corrected)
April 30, 2015
Debit
Cash ......................................................................
$ 5,992
Accounts Receivable ...........................................
4,970
Supplies ................................................................
2,967
Equipment ............................................................
8,000
Credit
Accounts Payable ................................................
$ 7,044
Share Capital—Ordinary .....................................
8,000
Retained Earnings ...............................................
2,000
Service Revenue ..................................................
7,305
Office Expense .....................................................
2,420
$24,349
3-16
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
$24,349
(For Instructor Use Only)
EXERCISE 3-4 (15–20 minutes)
OAKLEY CO.
Trial Balance
June 30, 2015
Debit
Credit
Cash (€2,870 + €360 – €65 – €65) ....................................... € 3,100
Accounts Receivable (€3,231 – €360) ................................
2,871
Supplies (€800 – €500) ........................................................
300
Equipment (€3,800 + €500) .................................................
4,300
Accounts Payable (€2,666 – €206 – €260) .........................
€ 2,200
Unearned Service Revenue (€1,200 – €225) ......................
975
Share Capital—Ordinary .....................................................
6,000
Dividends .............................................................................
575
Retained Earnings ...............................................................
3,000
Service Revenue (€2,380 + €801 + €225) ...........................
3,406
Salaries and Wages Expense (€3,400 + €670 – €575).......
3,495
Office Expense.....................................................................
940
€15,581 €15,581
EXERCISE 3-5 (10–15 minutes)
1.
Depreciation Expense (€250 X 3) ...............................
750
Accumulated Depreciation—Equipment ............
2.
Unearned Rent Revenue (€6,300 X 1/3) .....................
750
2,100
Rent Revenue .......................................................
3.
Interest Expense ..........................................................
2,100
500
Interest Payable ....................................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
500
3-17
EXERCISE 3-5 (Continued)
4.
Supplies Expense .......................................................
2,150
Supplies (€2,800 – €650) .....................................
5.
Insurance Expense (€300 X 3)....................................
2,150
900
Prepaid Insurance ...............................................
900
EXERCISE 3-6 (10–15 minutes)
1.
Accounts Receivable ....................................................
750
Service Revenue ....................................................
2.
Utilities Expense ...........................................................
750
520
Accounts Payable ..................................................
3.
Depreciation Expense ..................................................
520
400
Accumulated Depreciation—Equipment .............
Interest Expense ...........................................................
400
500
Interest Payable .....................................................
4.
Insurance Expense ($15,000 X 1/12)............................
500
1,250
Prepaid Insurance .................................................
5.
Supplies Expense ($1,600 – $400) ...............................
Supplies ..................................................................
3-18
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
1,250
1,200
1,200
(For Instructor Use Only)
EXERCISE 3-7 (15–20 minutes)
(a)
Ending balance of supplies .................................
£ 900
Add: Adjusting entry ...........................................
950
Deduct: Purchases..............................................
850
Beginning balance of supplies ...........................
£1,000
(b) Total prepaid insurance .....................................
£4,800
Amount used (6 X £400) .....................................
2,400
Present balance ..................................................
£2,400
(£400 X 12)
The policy was purchased six months ago (August 1, 2014)
(c)
The entry in January to record salaries paid was
Salaries and Wages Expense ............................
1,800
Salaries and Wages Payable .............................
900
Cash ..............................................................
2,700
The “T” account for salaries and Wages payable is
Salaries and Wages Payable
Paid
900
Beg. Bal.
?
End Bal.
800
January
The beginning balance is therefore
Ending balance of Salaries
and Wages Payable ...........................................
£ 800
Plus: Reduction of Salaries
and Wages Payable ...........................................
900
Beginning balance of Salaries
and Wages Payable ...........................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
£1,700
(For Instructor Use Only)
3-19
EXERCISE 3-7 (Continued)
(d)
Service revenue ...........................................
£2,000
Cash received ..............................................
1,600
Unearned service revenue reduced ...........
£ 400
Ending Unearned revenue January 31, 2015 ...............
£ 750
Plus: Unearned service revenue reduced ....................
400
Beginning unearned revenue December 31, 2014 .......
£1,150
EXERCISE 3-8 (10–15 minutes)
(a) Salaries and Wages Expense...........................................
2,900
Salaries and Wages Payable ....................................
(b) Utilities Expense ...............................................................
2,900
600
Accounts Payable ......................................................
(c) Interest Expense ($60,000 X 8% X 1/12) ..........................
600
400
Interest Payable .........................................................
(d) Telephone and Internet Expense .....................................
Accounts Payable ......................................................
3-20
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
400
117
117
(For Instructor Use Only)
EXERCISE 3-9 (15–20 minutes)
(a)
10/15 Salaries and Wages Expense.............................
Cash ..............................................................
(To record payment of October 15
payroll)
800
10/17 Accounts Receivable ..........................................
Service Revenue ..........................................
(To record revenue for services
performed for which payment has
not yet been received)
2,100
10/20 Cash .....................................................................
Unearned Service Revenue ........................
(To record receipt of cash for
services not yet performed)
650
(b) 10/31 Supplies Expense ...............................................
Supplies ........................................................
(To record the use of supplies during
October)
470
10/31 Accounts Receivable ..........................................
Service Revenue ..........................................
(To record revenue for services
performed for which payment
has not yet been received)
1,650
10/31 Salaries and Wages Expense.............................
Salaries and Wages Payable ......................
(To record liability for accrued payroll)
600
10/31 Unearned Service Revenue ................................
Service Revenue ..........................................
(To reduce the Unearned Service
Revenue account for service that
has been performed)
400
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
800
2,100
650
470
1,650
600
(For Instructor Use Only)
400
3-21
EXERCISE 3-10 (25–30 minutes)
(a)
1. Aug. 31
2. Aug. 31
3. Aug. 31
Aug. 31
4. Aug. 31
5. Aug. 31
6. Aug. 31
7. Aug. 31
3-22
Insurance Expense (¥4,500 X 3/12) ...........
Prepaid Insurance ...............................
1,125
Supplies Expense (¥2,600 – ¥650) ............
Supplies ...............................................
1,950
Depreciation Expense ................................
Accumulated Depreciation—
Buildings ...........................................
(¥120,000 – ¥12,000 = ¥108,000;
¥108,000 X 4% = ¥4,320 per year;
¥4,320 X 3/12 = ¥1,080)
1,080
Depreciation Expense ................................
Accumulated Depreciation—
Equipment.........................................
(¥16,000 – ¥1,600 = ¥14,400;
¥14,400 X 10% = ¥1,440;
¥1,440 X 3/12 = ¥360)
360
Unearned Rent Revenue ............................
Rent Revenue ......................................
3,800
Salaries and Wages Expense ....................
Salaries and Wages Payable ..............
375
Accounts Receivable .................................
Rent Revenue ......................................
800
Interest Expense .........................................
Interest Payable
[(¥50,000 X 8%) X 3/12] ...................
1,000
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
1,125
1,950
1,080
360
3,800
375
800
1,000
(For Instructor Use Only)
EXERCISE 3-10 (Continued)
(b)
UHURA RESORT
Adjusted Trial Balance
August 31, 2015
Debit
Cash ........................................................................ ¥ 19,600
Accounts Receivable ............................................
800
Prepaid Insurance (¥4,500 – ¥1,125) ....................
3,375
Supplies (¥2,600 – ¥1,950) ....................................
650
Land ........................................................................ 20,000
Buildings ................................................................ 120,000
Accumulated Depreciation—Buildings ...............
Equipment .............................................................. 16,000
Accumulated Depreciation—Equipment .............
Accounts Payable..................................................
Unearned Rent Revenue (¥4,600 – ¥3,800) ..........
Salaries and Wages Payable ................................
Interest Payable .....................................................
Mortgage Payable ..................................................
Share Capital—Ordinary .......................................
Retained Earnings .................................................
Dividends ...............................................................
5,000
Rent Revenue (¥86,200 + ¥3,800 + ¥800) .............
Salaries and Wages Expense (¥44,800 + ¥375)... 45,175
Utilities Expense ....................................................
9,200
Maintenance and Repairs Expense .....................
3,600
Insurance Expense ................................................
1,125
Supplies Expense ..................................................
1,950
Depreciation Expense—(Buildings) .....................
1,080
Depreciation Expense—(Equipment) ..................
360
Interest Expense ....................................................
1,000
¥248,915
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
Credit
¥
1,080
360
4,500
800
375
1,000
50,000
100,000
90,800
¥248,915
(For Instructor Use Only)
3-23
EXERCISE 3-11 (20–25 Minutes)
(a)
CAVAMANLIS CO.
Income Statement
For the Year Ended December 31, 2015
Revenues
Service revenue .......................................
$12,590
Expenses
Salaries and wages expense ..................
$6,840
Rent expense ...........................................
2,760
Depreciation expense .............................
145
Interest expense ......................................
83
Net Income .........................................................
(b)
3-24
9,828
$ 2,762
CAVAMANLIS CO.
Retained Earnings Statement
For the Year Ended December 31, 2015
Retained earnings, January 1 .................................................
$11,310
Add: Net income ....................................................................
2,762
Less: Dividends ......................................................................
3,000
Retained earnings, December 31 ...........................................
$11,072
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
EXERCISE 3-11 (Continued)
(c)
CAVAMANLIS CO.
Statement of Financial Position
December 31, 2015
Assets
Noncurrent assets
Property, plant, and equipment
Equipment ........................................................ $18,050
Less: Accumulated depreciation—
equipment ........................................................
4,895
$13,155
Current assets
Prepaid rent ......................................................
2,280
Accounts receivable ........................................
6,920
Cash ..................................................................
18,972
Total current assets ...................................
28,172
Total assets...................................................................
$41,327
Equity and Liabilities
Equity
Share capital—ordinary .................................. $20,000
Retained earnings ...........................................
11,072
$31,072
Current liabilities
Notes payable ..................................................
5,700
Accounts payable ...........................................
4,472
Interest payable ...............................................
83
Total current liabilities ..............................
10,255
Total equity and liabilities ............................................
$41,327
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
3-25
EXERCISE 3-12 (20–25 Minutes)
(a)
FLYNN DESIGN AGENCY
Income Statement
For the Year Ended December 31, 2015
Revenues
Service revenue .....................................
€58,500
Expenses
Salaries and wages expense ................
€12,300
Depreciation expense ............................
7,000
Rent expense ..........................................
4,000
Supplies expense ...................................
3,400
Insurance expense .................................
850
Interest expense .....................................
500
Total expenses ................................
28,050
Net income ........................................................
€30,450
FLYNN DESIGN AGENCY
Retained Earnings Statement
For the Year Ended December 31, 2015
3-26
Retained earnings, January 1 .................................................
€ 3,500
Add: Net income......................................................................
30,450
Retained earnings, December 31............................................
€33,950
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
EXERCISE 3-12 (Continued)
(a) (Continued)
FLYNN DESIGN AGENCY
Statement of Financial Position
December 31, 2015
Assets
Equipment .....................................................................
€60,000
Less: Accumulated depreciation—equipment ..........
35,000 €25,000
Supplies .........................................................................
5,000
Prepaid insurance .........................................................
2,500
Accounts receivable .....................................................
21,500
Cash ...............................................................................
10,000
Total assets .........................................................
€64,000
Equity and Liabilities
Equity
Share capital—ordinary ....................................
€10,000
Retained earnings .............................................
33,950
€43,950
Liabilities
Notes payable ......................................................
5,000
Accounts payable ................................................
8,000
Unearned service revenue ..................................
5,600
Salaries and wages payable ...............................
1,300
Interest payable ...................................................
150
Total liabilities ..............................................
20,050
Total equity and liabilities ...........................................
€64,000
(b) 1. Based on interest payable at December 31, 2015, interest is €25 per
month or .5% of the note payable. .5% X 12 = 6% interest per year.
2. Salaries and Wages Expense, €12,300 less Salaries and Wages Payable
12/31/15, €1,300 = €11,000. Total Payments, €17,500 – €11,000 =
€6,500 Salaries and Wages Payable 12/31/14.
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
3-27
EXERCISE 3-13 (10–15 Minutes)
(a) Sales revenue .........................................................
£800,000
Less: Sales returns and allowances ...................
£24,000
Sales discount ............................................
12,000
Net sales .................................................................
(b) Sales Revenue ........................................................
£764,000
800,000
Income Summary ............................................
Income Summary ...................................................
36,000
800,000
36,000
Sales Returns and Allowances......................
24,000
Sales Discounts ..............................................
12,000
EXERCISE 3-14 (10–15 minutes)
Sales Revenue................................................................
340,000
Sales Returns and Allowances .............................
13,000
Sales Discounts ......................................................
8,000
Income Summary....................................................
319,000
Income Summary ...........................................................
302,000
Cost of Goods Sold ................................................
202,000
Delivery Expense ....................................................
7,000
Insurance Expense .................................................
12,000
Rent Expense ..........................................................
20,000
Salaries and Wages Expense ................................
61,000
Income Summary ...........................................................
17,000
Retained Earnings ..................................................
3-28
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
17,000
(For Instructor Use Only)
EXERCISE 3-15 (10–15 minutes)
(a) $5,000 ($90,000 – $85,000)
(d) $95,000 ($5,000 + $90,000)
(b) $29,000 ($85,000 – $56,000)
(e) $52,000 ($90,000 – $38,000)
(c) $14,000 ($29,000 – $15,000)
EXERCISE 3-16 (10–15 minutes)
Sales Revenue ............................................................
390,000
Cost of Goods Sold.............................................
235,700
Sales Returns and Allowances ..........................
12,000
Sales Discounts ..................................................
15,000
Selling Expenses.................................................
16,000
Administrative Expenses ...................................
38,000
Income Tax Expense...........................................
30,000
Income Summary ................................................
43,300
(or)
Sales Revenue ............................................................
390,000
Income Summary ................................................
Income Summary .......................................................
390,000
346,700
Cost of Goods Sold.............................................
235,700
Sales Returns and Allowances ..........................
12,000
Sales Discounts ..................................................
15,000
Selling Expenses.................................................
16,000
Administrative Expenses ...................................
38,000
Income Tax Expense...........................................
30,000
Income Summary .......................................................
43,300
Retained Earnings...............................................
Retained Earnings ......................................................
43,300
18,000
Dividends .............................................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
18,000
(For Instructor Use Only)
3-29
EXERCISE 3-17 (10–15 minutes)
Mar.
3-30
1 Cash ..............................................................................
Share Capital—Ordinary ...................................
(Investment of cash in business)
60,000
3 Land ..............................................................................
Buildings ......................................................................
Equipment ....................................................................
Cash ....................................................................
(Purchased Michelle Wie’s Golf Land)
10,000
22,000
6,000
5 Advertising Expense ...................................................
Cash ....................................................................
(Paid for advertising)
1,600
6 Prepaid Insurance .......................................................
Cash ....................................................................
(Paid for one-year insurance policy)
1,480
10 Equipment ....................................................................
Accounts Payable ..............................................
(Purchased equipment on account)
2,500
18 Cash ..............................................................................
Service Revenue ................................................
(Received cash for services performed)
1,200
25 Dividends .....................................................................
Cash ....................................................................
(Declared and paid a £1,000 cash dividend)
1,000
30 Salaries and Wages Expense .....................................
Cash ....................................................................
(Paid salaries and wages expense)
900
30 Accounts Payable ........................................................
Cash ....................................................................
(Paid creditor on account)
2,500
31 Cash ..............................................................................
Service Revenue ................................................
(Received cash for services performed)
750
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
60,000
38,000
1,600
1,480
2,500
1,200
1,000
900
2,500
750
(For Instructor Use Only)
*EXERCISE 3-18 (15–20 minutes)
CORINNE DUNBAR, M.D.
Conversion of Cash Basis to Accrual Basis
For the Year 2015
Excess of cash collected over cash disbursed
(€142,600 – €60,470) ......................................................................
€82,130
Add increase in accounts receivable (€11,250 – €15,927) ..............
4,677
Deduct increase in unearned service revenue (€2,840 – €4,111) ...
(1,271)
Add decrease in accrued expenses (€3,435 – €2,108) ....................
1,327
Add increase in prepaid expenses (€1,917 – €3,232) ......................
1,315
Net income on an accrual basis ........................................................
€88,178
Alternate solution:
CORINNE DUNBAR, M.D.
Conversion of Income Statement Data
from Cash Basis to Accrual Basis
For the Year 2015
Cash
Basis
Collections from customers:
–Accounts receivable, Jan. 1
+Accounts receivable, Dec. 31
+Unearned service revenue, Jan. 1
–Unearned service revenue, Dec. 31
Service revenue
Disbursements for expenses:
–Accrued liabilities, Jan. 1
+Accrued liabilities, Dec. 31
+Prepaid expenses, Jan. 1
–Prepaid expenses, Dec. 31
Operating expenses
Net income—cash basis
Net income—accrual basis
Copyright © 2014 John Wiley & Sons, Inc.
Adjustments
Add
Deduct
Accrual
Basis
€142,600
€11,250
€15,927
2,840
4,111
€146,006
60,470
3,435
2,108
1,917
3,232
57,828
€ 82,130
Kieso, IFRS, 2/e, Solutions Manual
€ 88,178
(For Instructor Use Only)
3-31
*EXERCISE 3-19 (10–15 minutes)
(a)
NALEZNY CORP.
Income Statement (Cash Basis)
For the Year Ended December 31,
2014
2015
Cash receipts ...............................................
$290,000
$515,000
Cash payments ............................................
225,000
282,000
Net income ...................................................
$ 65,000
$233,000
(b)
NALEZNY CORP.
Income Statement (Accrual Basis)
For the Year Ended December 31,
2014
2015
Revenues* ....................................................
$480,000
$445,000
Expenses** ...................................................
277,000
265,000
Net income ...................................................
$203,000
$180,000
*2014:
2015:
3-32
$290,000 + $160,000 + $30,000 = $480,000
$355,000 + $90,000 = $445,000
**2014:
$185,000 + $67,000 + $25,000 = $277,000
2015:
$40,000 + $170,000 + $55,000 = $265,000
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
*EXERCISE 3-20 (20–25 minutes)
(a)
Adjusting Entries:
1.
Insurance Expense (₺6,000 X 5/24).......................
1,250
Prepaid Insurance ..........................................
2.
Rental Revenue (₺2,400 X 1/3) ..............................
1,250
800
Unearned Rental Revenue.............................
3.
Supplies .................................................................
800
290
Supplies Expense ..........................................
4.
Interest Expense ....................................................
290
770
Interest Payable..............................................
770
(b) Reversing Entries:
1.
No reversing entry required.
2.
Unearned Rent Revenue .......................................
800
Rent Revenue .................................................
3.
Supplies Expense ..................................................
800
290
Supplies ..........................................................
4.
Interest Payable .....................................................
290
770
Interest Expense ............................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
770
3-33
*EXERCISE 3-21 (10–15 minutes)
Statement of
Accounts
Adjusted Trial
Income
Financial
Balance
Statement
Position
Dr.
Cr.
Dr.
Cr.
Dr.
Cash
15,000
15,000
Inventory
80,000
80,000
Sales Revenue
470,000
Cr.
470,000
Sales Returns and
Allowances
10,000
10,000
Sales Discounts
5,000
5,000
250,000
250,000
Cost of Goods Sold
3-34
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
*EXERCISE 3-22 (20–25 minutes)
MADRASAH CO.
Worksheet (Partial)
For the Month Ended April 30, 2015
Adjusted Trial
Balance
Account Titles
Cash
Dr.
Cr.
Income
Statement
Dr.
Cr.
Statement of
Financial
Position
Dr.
18,972
18,972
Accounts Receivable
6,920
6,920
Prepaid Rent
2,280
2,280
18,050
18,050
Equipment
Cr.
Accum. Depr. –
Equipment
4,895
4,895
Notes Payable
5,700
5,700
Accounts Payable
4,472
4,472
Madrasah, Capital
34,960
34,960
Madrasah, Drawing
6,650
Service Revenue
6,650
12,590
12,590
Salaries and Wages
Expense
Rent Expense
Depreciation Expense
Interest Expense
6,840
6,840
2,760
2,760
145
145
83
83
Interest Payable
Totals
Net Income
Totals
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83
62,700
62,700
83
9,828
12,590
52,872 50,110
2,762
12,590
Kieso, IFRS, 2/e, Solutions Manual
2,762
12,590
52,872 52,872
(For Instructor Use Only)
3-35
*EXERCISE 3-22 (Continued)
MADRASAH CO.
Statement of Financial Position
April 30, 2015
Assets
Noncurrent Assets
Property, plant, and equipment
Equipment........................................................... €18,050
Less Accumulated depreciation–equipment ...
4,895
€13,155
Current Assets
Prepaid rent .................................................................
2,280
Accounts receivable ...................................................
6,920
Cash ............................................................................. 18,972
Total current assets ...........................................
28,172
Total assets ............................................................................
€41,327
Equity and Liabilities
Equity
Madrasah, capital ........................................................
€31,072*
Current liabilities
Notes payable .............................................................. € 5,700
Accounts payable........................................................
4,472
Interest payable ...........................................................
83
Total current liabilities .......................................
10,255
Total equity and liabilities .....................................................
€41,327
*Beg. Balance – Drawings + Net Income = Ending Balance
€34,960
3-36
–
€6,650 +
€2,762
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=
€31,072
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
*EXERCISE 3-23 (10–15 minutes)
LETTERMAN CO.
Worksheet (Partial)
For Month Ended February 28, 2015
Adjusted
Trial
Balance
Account Titles
Supplies
Accumulated
Depreciation–
Equipment
Interest
Payable
Dr.
Adjustments
Cr.
Dr.
Cr.
1,756
Trial
Income
of Financial
Balance
Statement
Position
Dr.
(a) 1,241
Statement
Cr.
Dr.
Cr.
515
Dr.
Cr.
515
7,967
(b)
257
8,224
8,224
150
(c)
50
200
200
Supplies
Expense
(a)
1,241
1,241
1,241
Depreciation
Expense
(b)
257
257
257
Interest
Expense
(c)
50
50
50
The following accounts and amounts would be shown in the February
income statement:
Supplies expense .................................
Depreciation expense ..........................
Interest expense ...................................
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€1,241
€ 257
€ 50
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3-37
SOLUTIONS TO PROBLEMS
PROBLEM 3-1
(a)
(Explanations are omitted.) and (d)
Cash
Sept.
1
8
20
Equipment
20,000 Sept. 4
1,690
5
980
10
18
680
942
430
3,600
Sept.
19
30
3,000
1,800
Sept.
30
85
2
17,280
Yasunari Kawabata, Capital
19
3,000 Sept.
Bal.
1
30
20,000
6,007
30
23,007
2
17,280
30
13,680
8
1,690
14
25
5,820
2,110
9,620
30 Bal. 12,133
Accounts Receivable
Sept. 14
25
Bal.
30
5,820 Sept. 20
2,110
980
Accounts Payable
6,950
Sept.
18
3,600 Sept.
Bal.
Rent Expense
Sept.
4
680 Sept.
30
680
Supplies
Sept.
5
Bal.
30
942 Sept.
Service Revenue
30
330
Sept.
30
9,620 Sept.
612
9,620
Office Expense
Sept.
10
30
430 Sept.
85
515
Accumulated Depreciation–Equipment
30
515
Sept.
30
288
515
Salaries and Wages Expense
Sept.
30
1,800 Sept.
30
1,800
Supplies Expense
Sept.
30
330 Sept.
30
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3-39
PROBLEM 3-1 (Continued)
Depreciation Expense
Sept.
(b)
30
288 Sept. 30
Income Summary
288
Sept.
30
30
30
30
30
30 Inc.
680 Sept.
515
1,800
330
288
6,007
9,620
30
9,620
9,620
YASUNARI KAWABATA, D.D.S.
Trial Balance
September 30
Debit
Cash .....................................................................
¥12,133
Accounts Receivable ..........................................
6,950
Supplies ...............................................................
612
Equipment ...........................................................
17,280
Accumulated Depreciation–Equipment.............
Credit
¥
288
Accounts Payable ...............................................
13,680
Yasunari Kawabata, Capital ...............................
17,000
Service Revenue .................................................
9,620
Rent Expense ......................................................
680
Office Expense ....................................................
515
Salaries and Wages Expense ............................
1,800
Supplies Expense ...............................................
330
Depreciation Expense ........................................
288
Totals .........................................................
¥40,588
3-40
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¥40,588
(For Instructor Use Only)
PROBLEM 3-1 (Continued)
(c)
YASUNARI KAWABATA, D.D.S.
Income Statement
For the Month of September
Service revenue........................................................
¥9,620
Expenses:
Salaries and wages expense ...................
¥1,800
Rent expense ............................................
680
Supplies expense .....................................
330
Depreciation expense ...............................
288
Office expense ..........................................
515
Total expenses......................................
3,613
Net income ................................................................
¥6,007
YASUNARI KAWABATA, D.D.S.
Statement of Owner’s Equity
For the Month of September
Kawabata, Capital September 1 ..........................................
¥20,000
Add: Net income for September .......................................
6,007
26,007
Less: Withdrawal by owner ................................................
3,000
Kawabata, Capital September 30 ........................................
¥23,007
Copyright © 2014 John Wiley & Sons, Inc.
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(For Instructor Use Only)
3-41
PROBLEM 3-1 (Continued)
YASUNARI KAWABATA, D.D.S.
Statement of Financial Position
As of September 30
Assets
Equity and Liabilities
Equipment. .................... ¥17,280
Yasunari Kawabata,
Accum. depreciation–
Capital.............................. ¥23,007
equipment .............
(288)
Supplies ........................
612
Accounts receivable ....
6,950
Cash...............................
12,133
Total assets........... ¥36,687
(e)
Accounts payable .............. 13,680
Total equity and
liabilities .......................... ¥36,687
YASUNARI KAWABATA, D.D.S.
Post-Closing Trial Balance
September 30
Debit
Cash ...............................................................
¥12,133
Accounts Receivable....................................
6,950
Supplies .........................................................
612
Equipment .....................................................
17,280
Accumulated Depreciation–Equipment ......
¥
288
Accounts Payable .........................................
13,680
Yasunari Kawabata, Capital .........................
23,007
Totals ..................................................
3-42
Credit
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¥36,975
Kieso, IFRS, 2/e, Solutions Manual
¥36,975
(For Instructor Use Only)
PROBLEM 3-2
(a) Dec. 31 Accounts Receivable...........................................
3,500
Service Revenue...........................................
31 Unearned Service Revenue ................................
3,500
1,400
Service Revenue...........................................
31 Supplies Expense ................................................
1,400
5,400
Supplies ........................................................
31 Depreciation Expense .........................................
5,400
5,000
Accumulated Depreciation-Equipment ......
31 Interest Expense ..................................................
5,000
150
Interest Payable ............................................
31 Insurance Expense ..............................................
150
850
Prepaid Insurance ........................................
31 Salaries and Wages Expense .............................
850
1,300
Salaries and Wages Payable .......................
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Kieso, IFRS, 2/e, Solutions Manual
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1,300
3-43
PROBLEM 3-2 (Continued)
(b)
MASON ADVERTISING AGENCY
Income Statement
For the Year Ended December 31, 2015
Revenues
Service revenue ....................................
€63,500
Expenses
Salaries and wages expense ...............
€11,300
Supplies expense .................................
5,400
Depreciation expense ...........................
5,000
Rent expense ........................................
4,000
Insurance expense ...............................
850
Interest expense ...................................
500
Total expenses ...............................
27,050
Net income .......................................................
€36,450
MASON ADVERTISING AGENCY
Retained Earnings Statement
For the Year Ended December 31, 2015
3-44
Retained earnings, January 1 .................................................
€ 3,500
Add: Net income ......................................................................
36,450
Retained earnings, December 31 ............................................
€39,950
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 3-2 (Continued)
MASON ADVERTISING AGENCY
Statement of Financial Position
December 31, 2015
Assets
Equipment .................................................................
€60,000
Less: Accumulated depreciation—equipment ......
33,000
€27,000
Supplies .....................................................................
3,000
Prepaid insurance.....................................................
2,500
Accounts receivable .................................................
23,500
Cash ...........................................................................
11,000
Total assets ................................................
€67,000
Equity and Liabilities
Equity
Share capital—ordinary .................................
€10,000
Retained earnings...........................................
39,950
€49,950
Liabilities
Notes payable .................................................
5,000
Accounts payable ...........................................
5,000
Unearned service revenue .............................
5,600
Salaries and wages payable ..........................
1,300
Interest payable ..............................................
150
Total liabilities ..........................................
17,050
Total equity and liabilities ......................................
€67,000
(c) 1. Interest is €50 per month or 1% of the note payable. 1% X 12 = 12%
interest per year.
2. Salaries and Wages Expense, €11,300 less Salaries and Wages
Payable 12/31/15, €1,300 = €10,000. Total Payments, €12,500 –
€10,000 = €2,500 Salaries and Wages Payable 12/31/14.
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3-45
PROBLEM 3-3
1. December 31 Salaries and Wages Expense ....................
Salaries and Wages Payable .............
(5 X $700 X 2/5) = $1,400
(3 X $600 X 2/5) =
720
Total accrued salaries $2,120
2,120
2,120
2.
Unearned Rent Revenue ............................ 94,000
Rent Revenue ......................................
94,000
(5 X $6,000 X 2) =
$60,000
(4 X $8,500 X 1) =
34,000
Total rent recognized $94,000
3.
Advertising Expense ..................................
Prepaid Advertising ............................
(A650 – $500 per month
for 8 months) = $4,000
(B974 – $300 per month
for 3 months) =
900
Total advertising expense $4,900
4,900
Interest Expense ........................................
Interest Payable
($60,000 X 12% X 7/12) ...................
4,200
4.
3-46
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Kieso, IFRS, 2/e, Solutions Manual
4,900
4,200
(For Instructor Use Only)
PROBLEM 3-4
(a) November 30 Supplies Expense ......................................
4,000
Supplies ..............................................
4,000
Depreciation Expense—Equipment ......... 15,000
Accumulated Depreciation—
Equipment .......................................
15,000
Interest Expense ........................................ 11,000
Interest Payable ..................................
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(For Instructor Use Only)
11,000
3-47
PROBLEM 3-4 (Continued)
(b)
BELLEMY FASHION CENTER
Adjusted Trial Balance
November 30, 2015
Dr.
28,700
33,700
45,000
1,500
133,000
Cash ............................................................. €
Accounts Receivable ..................................
Inventory ......................................................
Supplies .......................................................
Equipment ...................................................
Accumulated Depreciation—Equipment..
Notes Payable .............................................
Accounts Payable .......................................
Share Capital—Ordinary ............................
Retained Earnings ......................................
Sales Revenue.............................................
Sales Returns and
Allowances ...............................................
4,200
Cost of Goods Sold ....................................
495,400
Salaries Expense ........................................
140,000
Advertising Expense ..................................
26,400
Utilities Expense .........................................
14,000
Maintenance and Repairs Expense ...........
12,100
Delivery Expense ........................................
16,700
Rent Expense ..............................................
24,000
Supplies Expense .......................................
4,000
Depreciation Expense—Equipment ..........
15,000
Interest Expense .........................................
11,000
Interest Payable ..........................................
Totals ..................................................... €1,004,700
3-48
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
Cr.
€
39,000
51,000
48,500
90,000
8,000
757,200
11,000
€1,004,700
(For Instructor Use Only)
PROBLEM 3-4 (Continued)
(c)
BELLEMY FASHION CENTER
Income Statement
For the Year Ended November 30, 2015
Sales revenue
Sales revenue ..................................................
Less: Sales returns and allowances ............
Net sales ..........................................................
Cost of goods sold ....................................................
Gross profit ................................................................
Operating expenses
Selling expenses
Salaries and wages expense
(€140,000 X 70%) ................................
Advertising expense ..............................
Rent expense (€24,000 X 80%)..............
Delivery expense....................................
Utilities expense (€14,000 X 80%).........
Depr. exp.— equipment .........................
Supplies expense...................................
Administrative expenses
Salaries and wages expense
(€140,000 X 30%) ................................
Maintence and repairs expense............
Rent expense (€24,000 X 20%)..............
Utilities expense (€14,000 X 20%).........
Other income and expense
Interest expense ..............................................
Net loss .....................................................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
€757,200
4,200
753,000
495,400
257,600
€98,000
26,400
19,200
16,700
11,200
15,000
4,000
190,500
42,000
12,100
4,800
2,800
61,700
11,000
(€ 5,600)
(For Instructor Use Only)
3-49
PROBLEM 3-4 (Continued)
BELLEMY FASHION CENTER
Retained Earnings Statement
For the Year Ended November 30, 2015
Retained earnings, December 1, 2014 .......................................
Less: Net loss .............................................................................
Retained earnings, November 30, 2015 .....................................
€8,000
5,600
€2,400
BELLEMY FASHION CENTER
Statement of Financial Position
November 30, 2015
Assets
Noncurrent assets
Property, plant, and equipment
Equipment ........................................... €133,000
Accum. depreciation–equipment ...... 39,000 €94,000
Current assets
Supplies ..............................................
1,500
Inventory .............................................
45,000
Accounts receivable ..........................
33,700
Cash ....................................................
28,700
Total current assets ..................
108,900
Total assets ........................................
€202,900
Equity and Liabilities
Equity
Share capital—ordinary .....................
€90,000
Retained earnings ..............................
2,400 € 92,400
Noncurrent Liabilities
Notes payable .....................................
21,000
Current Liabilities
Notes payable due next year ............. €30,000
Accounts payable .............................. 48,500
Interest payable .................................. 11,000
Total current liabilities ..............
89,500
Total liabilities ...........................
110,500
Total equity and liabilities ..........................
€202,900
3-50
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 3-4 (Continued)
(d) Nov. 30 Sales Revenue ............................................. 757,200
Income Summary .................................
757,200
30 Income Summary ......................................... 762,800
Sales Returns and Allowances ...........
4,200
Cost of Goods Sold ..............................
495,400
Salaries and Wages Expense ..............
140,000
Advertising Expense ............................
26,400
Utilities Expense...................................
14,000
Maintenance and Repairs Expense ....
12,100
Delivery Expense..................................
16,700
Rent Expense........................................
24,000
Supplies Expense.................................
4,000
Depreciation Expense—
Equipment .........................................
15,000
Interest Expense...................................
11,000
30 Retained Earnings .......................................
5,600
Income Summary .................................
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Kieso, IFRS, 2/e, Solutions Manual
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5,600
3-51
PROBLEM 3-4 (Continued)
(e)
BELLEMY FASHION CENTER
Post-Closing Trial Balance
November 30, 2015
Debit
Credit
Cash ........................................................................ € 28,700
Accounts Receivable .............................................
33,700
Merchandise Inventory ..........................................
45,000
Supplies ..................................................................
1,500
Equipment...............................................................
133,000
Accumulated Depreciation—Equipment ..............
€ 39,000
Notes Payable.........................................................
51,000
Accounts Payable ..................................................
48,500
Interest Payable......................................................
11,000
Share Capital—Ordinary........................................
90,000
Retained Earnings..................................................
2,400
€241,900
3-52
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
€241,900
(For Instructor Use Only)
PROBLEM 3-5
(a)
-1Depreciation Expense ............................................
10,500
Accumulated Depreciation—Equipment
(1/16 X [€192,000 – €24,000]) ......................
10,500
-2Interest Expense .....................................................
1,440*
Interest Payable
(€90,000 X 8% X 72/360) ..............................
1,440*
-3Admissions Revenue .............................................
60,000
Unearned Admissions Revenue
(2,000 X €30) ................................................
60,000
-4Prepaid Advertising................................................
1,100
Advertising Expense .......................................
1,100
-5Salaries and Wages Expense ................................
4,700
Salaries and Wages Payable ..........................
(b) 1.
4,700
Interest expense, €2,840 (€1,400 + €1,440).
2.
Admissions revenue, €320,000 (€380,000 – €60,000).
3.
Advertising expense, €12,580 (€13,680 – €1,100).
4.
Salaries and wages expense, €62,300 (€57,600 + €4,700).
*Note to instructor: If 30-day months are assumed, interest expense =
€1,400 (€90,000 X 8% X 70/360).
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
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3-53
PROBLEM 3-6
(a)
-1Service Revenue ..........................................................
Unearned Service Revenue .................................
6,000
-2Accounts Receivable ...................................................
Service Revenue ...................................................
4,900
-3Bad Debt Expense .......................................................
Allowance for Doubtful Accounts .......................
1,430
-4Insurance Expense ......................................................
Prepaid Insurance ................................................
480
-5Depreciation Expense—Equipment ...........................
Accumulated Depreciation—Equipment
(R$25,000 X .10) ................................................
-6Interest Expense ..........................................................
Interest Payable
(R$7,200 X .10 X 30/360) ...................................
3-54
6,000
4,900
1,430
480
2,500
2,500
60
60
-7Prepaid Rent .................................................................
Rent Expense ........................................................
750
-8Salaries and Wages Expense......................................
Salaries and Wages Payable ...............................
2,510
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Kieso, IFRS, 2/e, Solutions Manual
750
2,510
(For Instructor Use Only)
PROBLEM 3-6 (Continued)
(b)
YORKIS PEREZ, CONSULTING ENGINEER
Income Statement
For the Year Ended December 31, 2015
Service revenue (R$100,000 – R$6,000 + R$4,900) ...
R$98,900
Expenses
Salaries and wages expense
(R$30,500 + R$2,510) .........................................
R$33,010
Rent expense (R$9,750 – R$750) .........................
9,000
Depreciation expense ...........................................
2,500
Bad debt expense .................................................
1,430
Utilities expense ...................................................
1,080
Office expense ......................................................
720
Insurance expense ...............................................
480
Interest expense ...................................................
60
Total expenses .................................................
48,280
Net income ...................................................................
R$50,620
Copyright © 2014 John Wiley & Sons, Inc.
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3-55
PROBLEM 3-6 (Continued)
YORKIS PEREZ, CONSULTING ENGINEER
Statement of Changes in Equity
For the Year Ended December 31, 2015
Yorkis Perez, Capital, January 1 ............................................ R$ 52,010a
Add: Net income ......................................................................
50,620
Less: Withdrawals ...................................................................
17,000
Yorkis Perez, Capital, December 31....................................... R$ 85,630
(a)
Yorkis Perez, Capital—trial balance ...............
Withdrawals during the year ...........................
Yorkis Perez, Capital, as of January 1, 2015 ...
3-56
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R$35,010
(17,000)
R$52,010
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 3-6 (Continued)
YORKIS PEREZ, CONSULTING ENGINEER
Statement of Financial Position
December 31, 2015
Assets
Noncurrent assets
Equipment.........................................
R$25,000
Less: Accum. depreciation—
equipment ..................................
8,750** R$ 16,250
Current assets
Supplies ............................................
1,960
Prepaid insurance
(R$1,100 – R$480).........................
620
Prepaid rent ......................................
750
Accounts receivable
(R$49,600 + R$4,900) ................... R$54,500
Less: Allowance for doubtful
accounts ....................................
2,180* 52,320
Cash ..................................................
29,500
Total current assets ..................
85,150
Total assets ..........................
R$101,400
Equity and Liabilities
Equity
Yorkis Perez, Capital
(R$35,010 + R$50,620) .................
Liabilities
Current liabilities
Notes payable............................
Unearned service revenue .......
Salaries and wages payable ....
Interest payable.........................
Total equity and liabilities...
R$ 85,630
R$7,200
6,000
2,510
60
15,770
R$101,400
*( R$750 + R$1,430)
**( R$6,250 + R$2,500)
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3-57
PROBLEM 3-7
(a) Dec. 31 Account Receivable ...............................
1,000
Service Revenue .............................
31 Unearned Service Revenue ...................
1,000
1,400
Service Revenue .............................
31 Supplies Expense ..................................
1,400
5,000
Art Supplies.....................................
31 Depreciation Expense ............................
5,000
8,750
Accumulated Depreciation—
Equipment ...................................
31 Interest Expense ....................................
8,750
150
Interest Payable ..............................
31 Insurance Expense ................................
150
750
Prepaid Insurance ...........................
31 Salaries and Wages Expense ................
Salaries and Wages Payable .........
3-58
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750
1,500
1,500
(For Instructor Use Only)
PROBLEM 3-7 (Continued)
(b)
SORENSTAM ADVERTISING CORP.
Income Statement
For the Year Ended December 31, 2015
Revenues
Service revenue .........................................
€61,000
Expenses
Salaries and wages expense ....................
€11,500
Supplies expense ......................................
10,000
Depreciation expense ...............................
8,750
Rent expense .............................................
4,000
Insurance expense ....................................
750
Interest expense ........................................
500
Total expenses ..................................
35,500
Net income............................................................
€25,500
SORENSTAM ADVERTISING CORP.
Retained Earnings Statement
For the Year Ended December 31, 2015
Retained earnings, January 1 .....................................................
€ 4,500
Add: Net income .........................................................................
25,500
Retained earnings, December 31 ...............................................
€30,000
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
3-59
PROBLEM 3-7 (Continued)
SORENSTAM ADVERTISING CORP.
Statement of Financial Position
December 31, 2015
Assets
Equipment .................................................................
€60,000
Less: Accum. depr.—equipment............................
35,750
€24,250
Prepaid insurance ....................................................
2,500
Supplies ....................................................................
3,500
Accounts receivable.................................................
20,000
Cash ...........................................................................
7,000
Total assets ...................................................
€57,250
Equity and Liabilities
Equity
Share capital—ordinary.................................
€10,000
Retained earnings ..........................................
30,000
Total equity ...........................................
€40,000
Liabilities
3-60
Notes payable ................................................
5,000
Accounts payable ..........................................
5,000
Unearned service revenue ............................
5,600
Salaries and wages payable .........................
1,500
Interest payable .............................................
150
Total liabilities .......................................
17,250
Total equity and liabilities........................................
€57,250
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 3-7 (Continued)
(c)
1.
Total depreciable cost = €8,750 X 6 = €52,500.
Residual value = cost €60,000 less depreciable cost €52,500 =
€7,500
2.
3.
Based on the balance in interest payable, interest is €50 per
month or 1% of the note payable, per month.
1% X 12 = 12% interest per year.
Salaries and Wages Expense, €11,500 less Salaries and Wages
Payable 12/31/15, €1,500 = €10,000. Total payments, €12,500 –
€10,000 = €2,500 Salaries and Wages Payable 12/31/14.
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
3-61
PROBLEM 3-8
(a), (b), (d)
Bal.
Cash
15,000
Bal.
Prepaid Insurance
9,000 Adj.
3,500
5,500
Salaries and Wages Expense
Bal.
80,000 Close 83,600
Adj.
3,600
83,600
83,600
Share Capital—Ordinary
Bal.
Accounts Receivable
Bal.
13,000
Allow. for Doubtful Accts.
Bal.
1,100
Adj.
460
1,560
Bal.
Land
350,000
Bal.
Buildings
120,000
Retained Earnings
Bal.
82,000
Inc.
31,640
113,640
Adj.
Cls.
Close
Rent Receivable
Adj.
$1,600 Rev. 1,600
3-62
Bal.
Adj.
Maintenance and Repairs
Expense
Bal.
24,000 Close 24,000
Dues Revenue
8,900 Bal.
200,000
191,100
200,000
200,000
Rev.
8,900
Green Fees Revenue
Close
5,900 Bal.
5,900
Rev.
Accum. Depr.—Buildings
Bal. 38,400
Adj. 4,000
42,400
400,000
Rent Revenue
19,200 Bal.
Adj.
19,200
1,600
Adj.
Adj.
Depr. Expense
4,000 Close 19,000
15,000
19,000
17,600
1,600
19,200
Accum. Depr.—Equipment
Bal.
70,000
Adj.
15,000
85,000
Utilities Expense
54,000 Close 54,000
Insurance Expense
Adj.
3,500 Close
3,500
Bad Debt Expense
460 Close
Copyright © 2014 John Wiley & Sons, Inc.
460
Exp.
Inc.
Income Summary
184,560 Rev. 216,200
31,640
216,200
216,200
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 3-8 (Continued)
Salaries and Wages Payable
Adj.
3,600
Unearned Dues Revenue
Adj.
8,900
Equipment
Bal.
150,000
(b)
-1Depreciation Expense .............................................
Accumulated Depreciation—Buildings
(1/30 X £120,000) ..........................................
-2Depreciation Expense .............................................
Accumulated Depreciation—Equipment
(10% X £150,000) ..........................................
-3Insurance Expense .................................................
Prepaid Insurance ............................................
-4Rent Receivable ......................................................
Rent Revenue
(1/11 X £17,600) ............................................
-5Bad Debt Expense ...................................................
Allowance for Doubtful Accounts
[(£13,000 X 12%) – £1,100] ...........................
4,000
4,000
15,000
15,000
3,500
3,500
1,600
1,600
460
460
-6Salaries and Wages Expense .................................
Salaries and Wages Payable...........................
3,600
-7Dues Revenue .........................................................
Unearned Dues Revenue.................................
8,900
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Kieso, IFRS, 2/e, Solutions Manual
3,600
(For Instructor Use Only)
8,900
3-63
*PROBLEM 3-8 (Continued)
(c)
KO GOLF CLUB, INC.
Adjusted Trial Balance
December 31, XXXX
Dr.
Cr.
Cash ................................................................... £ 15,000
Accounts Receivable........................................
13,000
Allowance for Doubtful Accounts ...................
£
Prepaid Insurance.............................................
5,500
Land ...................................................................
350,000
Buildings ...........................................................
120,000
Accumulated Depreciation—Buildings...........
Equipment .........................................................
42,400
150,000
Accumulated Depreciation—Equipment ........
85,000
Salaries and Wages Payable ...........................
3,600
Share Capital—Ordinary ..................................
400,000
Retained Earnings ............................................
82,000
Dues Revenue ...................................................
191,100
Green Fees Revenue ........................................
5,900
Rent Revenue ....................................................
19,200
Utilities Expense ...............................................
54,000
Salaries and Wages Expense ..........................
83,600
Maintenance and Repairs Expense .................
24,000
Bad Debt Expense ............................................
460
Unearned Dues Revenue .................................
8,900
Rent Receivable ................................................
1,600
Depreciation Expense ......................................
19,000
Insurance Expense ...........................................
3,500
Totals ....................................................... £839,660
3-64
1,560
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
£839,660
(For Instructor Use Only)
*PROBLEM 3-8 (Continued)
(d)
December 31
Dues Revenues....................................................... 191,100
Green Fees Revenue ..............................................
5,900
Rent Revenue .........................................................
19,200
Income Summary ............................................
216,200
December 31
Income Summary ................................................... 184,560
Utilities Expense .............................................
54,000
Bad Debt Expense ..........................................
460
Salaries and Wages Expense ........................
83,600
Maintenance and Repairs Expense ...............
24,000
Depreciation Expense ....................................
19,000
Insurance Expense .........................................
3,500
December 31
Income Summary ...................................................
31,640
Retained Earnings ..........................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
31,640
3-65
PROBLEM 3-9
(a), (b), (c)
Cash
Bal.
Accounts Receivable
18,500
Bal.
Inventory
Bal.
80,000
Bal.
5,100 Adj.
2,550
80,600
115,000 Cls. 117,400
2,400
117,400
117,400
1,400 Cls.
Supplies
Adj.
3-66
35,000
12,000
47,000
1,400
28,000
Sales Revenue
Cls.
600,000 Bal.
Insurance Expense
600,000
Bal.
6,700 Adj.
Cls.
6,700
700
6,000
6,700
Bal.
5,000 Adj.
Cls.
5,000
Adj.
12,000 Cls.
2,550 Cls.
2,550
Interest Expense
Adj.
Office Expense
3,360 Cls.
3,360
Prepaid Advertising
1,500
3,500
5,000
Depreciation Expense
3,360
Adj.
Advertising Expense
Interest Payable
Adj.
Bal.
Adj.
Bal.
Bad Debt Expense
Adj.
700
1,400
2,100
Accum. Depr.—Equipment
84,000
2,550
Salaries and Wages
Expense
Bal.
Adj.
Bal.
Adj.
Notes Payable
Share Capital—Ordinary
Bal.
32,000
Equipment
Prepaid Insurance
Bal.
Allow. for Doubtful Accts.
12,000
Adj.
700
Income Summary
Exp. 554,210 Sales 600,000
Inc.
45,790
600,000
600,000
Salaries and Wages Payable
1,500
Copyright © 2014 John Wiley & Sons, Inc.
Adj.
2,400
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 3-9 (Continued)
Retained Earnings
Bal.
Inc.
Bal.
10,000
45,790
55,790
Bal.
(b)
Cost of Goods Sold
408,000 Cls.
408,000
-1Bad Debt Expense .......................................................
1,400
Allowance for Doubtful Accounts ......................
1,400
-2Depreciation Expense (€84,000 ÷ 7) ..........................
12,000
Accumulated Depreciation—Equipment............
12,000
-3Insurance Expense......................................................
2,550
Prepaid Insurance ................................................
2,550
-4Interest Expense..........................................................
3,360
Interest Payable ...................................................
-5Salaries and Wages Expense .....................................
3,360
2,400
Salaries and Wages Payable ...............................
2,400
-6Prepaid Advertising ....................................................
700
Advertising Expense ...........................................
700
-7Supplies .......................................................................
1,500
Office Expense .....................................................
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
1,500
3-67
PROBLEM 3-9 (Continued)
(c)
Dec. 31
Sales Revenue .......................................................
Income Summary ...........................................
Dec. 31
Income Summary ...................................................
Cost of Goods Sold ........................................
Advertising Expense ......................................
Salaries and Wages Expense ........................
Office Expense (€5,000 – €1,500) ..................
Insurance Expense .........................................
Bad Debt Expense ..........................................
600,000
600,000
554,210
408,000
6,000
117,400
3,500
2,550
1,400
Depreciation Expense ....................................
Interest Expense .............................................
Dec. 31
Income Summary ...................................................
Retained Earnings ..........................................
3-68
Copyright © 2014 John Wiley & Sons, Inc.
12,000
3,360
45,790
Kieso, IFRS, 2/e, Solutions Manual
45,790
(For Instructor Use Only)
*PROBLEM 3-10
(a)
LAKELAND SALES AND SERVICE
Income Statement
For the Month Ended January 31, 2015
(1)
(2)
Cash Basis
Accrual Basis
Revenues ....................................................
£ 75,000
£98,400*
Expenses
Cost of computers & printers:
Purchased and paid ..................
82,500**
Cost of goods sold ....................
59,500***
Salaries and wages .........................
9,600
12,600
Rent ..................................................
6,000
2,000
Other operating expenses ..............
8,400
10,400
Total expenses ........................
106,500
84,500
£(31,500)
£13,900
Net income (loss) .......................................
*(£2,550 X 30) + (£3,600 X 4) + (£500 X 15)
**(£1,500 X 40) + (£2,500 X 6) + (£300 X 25)
***(£1,500 X 30) + (£2,500 X 4) + (£300 X 15)
Note: The headings for the cash basis income statement should technically
be cash receipts and cash payments.
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
3-69
*PROBLEM 3-10 (Continued)
(b)
LAKELAND SALES AND SERVICE
Statement of Financial Position
As of January 31, 2015
(1)
Cash Basis
Assets
Prepaid rent ....................................
Inventory.........................................
Accounts receivable ......................
Cash ................................................
Total assets ..............................
Equity and Liabilities
Equity ..............................................
Salaries and wages payable .........
Accounts payable ..........................
Total equity and liabilities .........
a
Original investment
Cash sales
Cash purchases
Rent paid
Salaries and wages paid
Other operating expenses
Cash balance Jan. 31
b
(2)
Accrual Basis
£
£58,500a
£58,500
£58,500c
£58,500
4,000
23,000b
23,400
58,500a
£108,900
£103,900d
3,000
2,000
£108,900
£ 90,000
75,000
(82,500)
(6,000)
(9,600)
(8,400)
£ 58,500
(10 @ £1,500) + (2 @ £2,500) + (10 @ £300).
c
Initial investment minus net loss: £90,000 – £31,500.
d
3-70
Initial investment plus net income: £90,000 + £13,900.
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 3-10 (Continued)
(c)
1.
The £23,400 in receivables from customers is an asset and a future
cash flow resulting from sales that is ignored. The cash basis
under-states the amount of revenues and inflow of assets in
January from the sale of computers and printers by £23,400.
2.
The cost of computers and printers sold in January is overstated
by £23,000. The unsold computers and printers are an asset of
£23,000 in the form of inventory.
3.
The cash basis ignores £3,000 of the salaries and wages that have
been earned by the employees in January and will be paid in
February.
4.
Rent expense on the cash basis is overstated by £4,000 under the
cash basis. This prepayment is an asset in the form of two
months’ future right to the use of office, showroom, and repair
space and should appear on the statement of financial position.
5.
Other operating expenses on a cash basis are understated by
£2,000 as is the liability for the unpaid portion of these expenses
incurred in January.
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(For Instructor Use Only)
3-71
3-72
Account Titles
Dr.
37,400
18,600
31,900
80,000
120,000
Cr.
Trial Balance
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
491,700 491,700
(c)
5,800
_____
59,200
(a) 28,000
(b) 14,400
(e)
(f)
(d)
(c)
3,000
59,200
6,000
2,000
5,800
(b) 14,400
(a) 28,000
Cr.
5,800
______
506,500
28,000
14,400
3,000
506,500
6,000
5,800
______
247,000
33,500
280,500
28,000
14,400
30,500
9,400
16,900
21,000
12,000
30,500
9,400
16,900
21,000
12,000
Dr.
109,000
280,500
42,000
14,600
700
50,000
109,700
Cr.
109,000
14,000
Dr.
37,400
4,200
3,900
80,000
120,000
______
280,500
______
280,500
280,500
Cr.
Income
Statement
______
259,500
______
259,500
14,000
Dr.
37,400
4,200
3,900
80,000
120,000
3,000
226,000
33,500
259,500
6,000
42,000
14,600
700
50,000
109,700
Cr.
Statement of
Financial
Position
Key: (a) Expired Insurance; (b) Supplies Used; (c) Depreciation Expensed; (d) Admission Revenue Earned; (e) Accrued Property
Taxes; (f) Accrued Interest Payable.
Totals
Insurance Expense
Supplies Expense
Interest Payable
Depreciation Expense
Prop. Taxes Payable
Totals
Net Income
Totals
3,000
6,000
2,000
Dr.
Adjustments
Adjusted Trial
Balance
COOKE COMPANY
Worksheet
For the Year Ended September 30, 2015
Cash
Supplies
Prepaid Insurance
Land
Equipment
Accum. Depreciation—
Equipment
36,200
Accounts Payable
14,600
Unearned Service Rev.
2,700 (d)
Mortgage Payable
50,000
Cooke, Capital
109,700
Cooke, Drawing
14,000
Service Revenue
278,500
Salaries and Wages Expense 109,000
Maintenance and Repairs
Expense
30,500
Advertising Expense
9,400
Utilities Expense
16,900
Prop. Taxes Expense
18,000
(e)
Interest Expense
6,000 ______ (f)
(a)
*PROBLEM 3-11
(For Instructor Use Only)
*PROBLEM 3-11 (Continued)
(b)
COOKE COMPANY
Statement of Financial Position
September 30, 2015
Assets
Noncurrent assets
Property, plant, and equipment
Land ................................................
€80,000
Equipment ...................................... €120,000
Less: Accum. depreciation—
equip. ...........................................
42,000
78,000
€158,000
Current assets
Supplies .........................................
4,200
Prepaid insurance .........................
3,900
Cash................................................
37,400
Total current assets .............
45,500
Total assets ..........................
€203,500
Equity and Liabilities
Equity
Cooke, capital (€109,700 + €33,500 – €14,000) ..
€129,200
Liabilities
Mortgage payable............................................. €40,000
Current liabilities
Accounts payable ............................. €14,600
Current maturity of long-term debt.. 10,000
Interest payable .................................
6,000
Property taxes payable .....................
3,000
Unearned service revenue ...............
Total current liabilities.............
Total liabilities ..........................
Total equity and liabilities ...........................
700
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Kieso, IFRS, 2/e, Solutions Manual
34,300
74,300
€203,500
(For Instructor Use Only)
3-73
*PROBLEM 3-11 (Continued)
(c) Sep. 30 Insurance Expense .....................................
28,000
Prepaid Insurance ................................
28,000
30 Supplies Expense .......................................
14,400
Supplies ................................................
14,400
30 Depreciation Expense .................................
5,800
Accumulated Depreciation—
Equipment ........................................
5,800
30 Unearned Service Revenue ........................
2,000
Service Revenue ..................................
2,000
30 Property Tax Expense ................................
3,000
Property Taxes Payable ......................
3,000
30 Interest Expense .........................................
6,000
Interest Payable ...................................
(d) Sep. 30 Service Revenue .........................................
6,000
280,500
Income Summary .................................
30 Income Summary ........................................
3-74
280,500
247,000
Salaries and Wages Expense .............
109,000
Maintenance and Repairs Expense ....
30,500
Insurance Expense ..............................
28,000
Property Tax Expense .........................
21,000
Supplies Expense ................................
14,400
Utilities Expense ..................................
16,900
Interest Expense ..................................
12,000
Advertising Expense ...........................
9,400
Depreciation Expense .........................
5,800
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, IFRS, 2/e, Solutions Manual
(For Instructor Use Only)
*PROBLEM 3-11 (Continued)
30 Income Summary ...................................
33,500
Cooke, Capital ................................
30 Cooke, Capital ........................................
33,500
14,000
Cooke, Drawing ..............................
(e)
14,000
COOKE COMPANY
Post-Closing Trial Balance
September 30, 2015
Debit
Credit
Cash .............................................................. € 37,400
Supplies ........................................................
4,200
Prepaid Insurance........................................
3,900
Land ..............................................................
80,000
Equipment ....................................................
120,000
Accumulated Depreciation—Equipment ...
€ 42,000
Accounts Payable ........................................
14,600
Unearned Service Revenue ........................
700
Interest Payable ...........................................
6,000
Property Taxes Payable ..............................
3,000
Mortgage Payable ........................................
50,000
Cooke, Capital ..............................................
129,200
€245,500
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Kieso, IFRS, 2/e, Solutions Manual
€245,500
(For Instructor Use Only)
3-75
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