CHAPTER 3 Adjusting the Accounts ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions *1. Explain the time period assumption. *2. Brief Exercises A Problems B Problems 5, 6, 7, 8, 9, 10, 11, 12, 13, 15, 16 1A, 2A, 3A, 4A, 5A, 6A 1B, 2B, 3B, 4B, 5B 3 5, 6, 7, 8, 9, 10, 11, 12, 13, 15, 16 1A, 2A, 3A, 4A, 5A, 6A 1B, 2B, 3B, 4B, 5B 4 10, 11, 12, 13, 14 1A, 2A, 3A, 5A, 6A 1B, 2B, 3B, 5B 17, 18 6A Do It! Exercises 1 1 1 Explain the accrual basis of accounting. 2, 3, 4, 5 1 2, 3, 10 *3. Explain the reasons for adjusting entries. 6, 7 1 *4. Identify the major types of adjusting entries. 8, 18 2, 8 *5. Prepare adjusting entries for deferrals. 8, 9, 10, 11, 12, 13, 18, 19, 20 3, 4, 5, 6 2 *6. Prepare adjusting entries for accruals. 8, 14, 15, 16, 17, 18, 19, 20 7 *7. Describe the nature and purpose of an adjusted trial balance. 21 9, 10 *8. Prepare adjusting entries for the alternative treatment of deferrals. 22 11 4, 6, 11 *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter. Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Difficulty Level Time Allotted (min.) 1A Prepare adjusting entries, post to ledger accounts, and prepare an adjusted trial balance. Simple 40–50 2A Prepare adjusting entries, post, and prepare adjusted trial balance and financial statements. Simple 50–60 3A Prepare adjusting entries and financial statements. Moderate 40–50 4A Prepare adjusting entries. Moderate 30–40 5A Journalize transactions and follow through accounting cycle to preparation of financial statements. Moderate 60–70 Prepare adjusting entries, adjusted trial balance, and financial statements using appendix. Moderate 40–50 *6A* 3-2 Description 1B Prepare adjusting entries, post to ledger accounts, and prepare an adjusted trial balance. Simple 40–50 2B Prepare adjusting entries, post, and prepare adjusted trial balance and financial statements. Simple 50–60 3B Prepare adjusting entries and financial statements. Moderate 40–50 4B Prepare adjusting entries. Moderate 30–40 5B Journalize transactions and follow through accounting cycle to preparation of financial statements. Moderate 60–70 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) WEYGANDT IFRS 1E CHAPTER 3 ADJUSTING THE ACCOUNTS Number SO BT Difficulty Time (min.) BE1 3 C Simple 4–6 BE2 4 AN Moderate 6–8 BE3 5 AN Simple 3–5 BE4 5 AN Simple 3–5 BE5 5 AN Simple 2–4 BE6 5 AN Simple 2–4 BE7 6 AN Simple 4–6 BE8 4 AN Simple 5–7 BE9 7 AP Simple 4–6 BE10 7 AP Simple 2–4 BE11* 8 AN Moderate 3–5 DI1 1, 2 K Simple 2–4 DI2 5 AN Simple 6–8 DI3 6 AN Simple 4–6 DI4 7 AN Moderate 20–30 EX1 1 C Simple 3–5 EX2 2 E Moderate 10–15 EX3 2 AP Simple 6–8 EX4 4 AN Simple 5–6 EX5 5, 6 AN Moderate 10–15 EX6 4–6 AN Moderate 10–12 EX7 5, 6 AN Moderate 8–10 EX8 5, 6 AN Moderate 8–10 EX9 5, 6 AN Simple 8–10 EX10 2, 5–7 AN Moderate 8–10 EX11 4–7 AN Moderate 12–15 EX12 5–7 AN Moderate 8–10 EX13 5–7 AN Simple 8–10 EX14 7 AP Simple 12–15 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-3 ADJUSTING THE ACCOUNTS (Continued) Number SO BT Difficulty Time (min.) EX15 5, 6 AN, S Moderate 8–10 EX16 5, 6 AN, C Moderate 10–15 EX17 8 AN Moderate 6–8 EX18 8 AN Moderate 10–12 P1A 5–7 AN Simple 40–50 P2A 5–7 AN Simple 50–60 P3A 5–7 AN Moderate 40–50 P4A 5, 6 AN Moderate 30–40 P5A 5–7 AN Moderate 60–70 P6A 5–8 AN Moderate 40–50 P1B 5–7 AN Simple 40–50 P2B 5–7 AN Simple 50–60 P3B 5–7 AN Moderate 40–50 P4B 5, 6 AN Moderate 30–40 P5B 5–7 AN Moderate 60–70 BYP1 5, 6 AN Simple 10–15 BYP2 — AN Simple 10–15 BYP3 — AN Simple 10–15 BYP4 2–7 S Moderate 15–20 BYP5 3–6 C Simple 10–15 BYP6 3–6 E Moderate 10–15 3-4 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) Study Objective Knowledge Comprehension Application Analysis Synthesis Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) *1. Explain the time period assumption. DI3-1 Q3-1 E3-1 *2. Explain the accrual basis of accounting. DI3-1 Q3-2 Q3-3 Q3-4 *3. Explain the reasons for adjusting entries. Q3-6 Q3-7 BE3-1 *4. Identify the major types of adjusting entries. Q3-8 Q3-18 BE3-2 BE3-8 E3-6 E3-4 E3-11 *5. Prepare adjusting entries for deferrals. Q3-8 Q3-9 Q3-10 Q3-11 Q3-12 Q3-13 Q3-19 Q3-20 Q3-18 BE3-3 BE3-4 BE3-5 BE3-6 DI3-2 E3-5 E3-6 E3-7 E3-8 E3-9 E3-10 E3-11 E3-12 E3-13 E3-15 E3-16 P3-1A P3-2A P3-3A P3-4A E3-15 P3-5A P3-6A P3-1B P3-2B P3-3B P3-4B P3-5B *6. Prepare adjusting entries for accruals. Q3-8 Q3-14 Q3-15 Q3-19 Q3-20 Q3-17 Q3-16 Q3-18 BE3-7 DI3-3 E3-5 E3-6 E3-7 E3-8 E3-9 E3-10 E3-11 E3-12 E3-13 E3-15 E3-16 P3-1A P3-2A P3-3A P3-4A E3-15 P3-5A P3-6A P3-1B P3-2B P3-3B P3-4B P3-5B *7. Describe the nature and purpose of an adjusted trial balance. Q3-21 BE3-9 BE3-10 E3-14 DI3-4 E3-10 E3-11 E3-12 E3-13 P3-1A P3-2A P3-3A P3-5A P3-6A P3-1B P3-2B P3-3B P3-5B *8. Prepare adjusting entries for the alternative treatment of deferrals. Q3-22 BE3-11 E3-17 Broadening Your Perspective Communication Q3-5 E3-3 E3-10 Evaluation E3-2 E3-18 P3-6A Decision Making Ethics Case Financial Reporting Comparative Analysis Across the Organization Exploring the Web BLOOM’S TAXONOMY TABLE Copyright © 2011 John Wiley & Sons, Inc. Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems 3-5 ANSWERS TO QUESTIONS 1. (a) Under the time period assumption, an accountant is required to determine the relevance of each business transaction to specific accounting periods. (b) An accounting time period of one year in length is referred to as a fiscal year. A fiscal year that extends from January 1 to December 31 is referred to as a calendar year. Accounting periods of less than one year are called interim periods. 2. The two principles are: The revenue recognition principle, which states that revenue should be recognized when future benefits are probable and measurable. The expense recognition principle, which states that expenses should be recognized when assets are used up or liabilities are incurred to generate revenues. 3. The law firm should recognize the revenue in April. The revenue recognition principle states that revenue should be recognized in the accounting period in which it is earned. 4. Information presented on an accrual basis is more useful than on a cash basis because it reveals relationships that are likely to be important in predicting future results. To illustrate, under accrual accounting, revenues are recognized when earned so they can be related to the economic environment in which they occur. Trends in revenues are thus more meaningful. 5. Expenses of $4,500 should be deducted from the revenues in April. Under the expense recognition principle efforts (expenses) should be matched with accomplishments (revenues). 6. No, adjusting entries are required by the revenue recognition and expense recognition principles. 7. A trial balance may not contain up-to-date information for financial statements because: (a) Some events are not journalized daily because it is not efficient to do so. (b) The expiration of some costs occurs with the passage of time rather than as a result of daily transactions. (c) Some items may be unrecorded because the transaction data are not yet known. 8. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of prepaid expenses and unearned revenues. Accruals consist of accrued revenues and accrued expenses. 9. In the adjusting entry for a prepaid expense, an expense is debited and an asset is credited. 10. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner. Depreciation results in the presentation of the book value of the asset, not its fair value. 11. Depreciation expense is an expense account whose normal balance is a debit. This account shows the cost that has expired during the current accounting period. Accumulated depreciation is a contra asset account whose normal balance is a credit. The balance in this account is the depreciation that has been recognized from the date of acquisition to the statement of financial position date. 3-6 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) Questions Chapter 3 (Continued) 12. Equipment ............................................................................................. Less: Accumulated Depreciation..................................................... Rs18,000,000 6,000,000 Rs12,000,000 *13. In the adjusting entry for an unearned revenue, a liability is debited and a revenue is credited. *14. Asset and revenue. An asset would be debited and a revenue would be credited. *15. An expense is debited and a liability is credited. *16. Net income was understated $200 because prior to adjustment, revenues are understated by $900 and expenses are understated by $700. The difference in this case is $200 ($900 – $700). *17. The entry is: Jan. 9 Salaries Payable......................................................................................... Salaries Expense........................................................................................ Cash..................................................................................................... 2,000 3,000 5,000 *18. (a) (b) (c) Accrued revenues. Unearned revenues. Accrued expenses. (d) (e) (f) Accrued expenses or prepaid expenses. Prepaid expenses. Accrued revenues or unearned revenues. *19. (a) (b) (c) Salaries Payable. Accumulated Depreciation. Interest Expense. (d) (e) (f) Supplies Expense. Service Revenue. Service Revenue. *20. Disagree. An adjusting entry affects only one statement of financial position account and one income statement account. *21. Financial statements can be prepared from an adjusted trial balance because the balances of all accounts have been adjusted to show the effects of all financial events that have occurred during the accounting period. *22. For Supplies Expense (prepaid expense): expenses are overstated and assets are understated. The adjusting entry is: Assets (Supplies) ..................................................................................................... XX Expenses (Supplies Expense) ....................................................................... XX For Rent Revenue (unearned revenues): revenues are overstated and liabilities are understated. The adjusting entry is: Revenues (Rent Revenue)..................................................................................... XX Liabilities (Unearned Rent Revenue) ............................................................ XX * Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-7 SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 3-1 (a) Prepaid Insurance—to recognize insurance expired during the period. (b) Depreciation Expense—to account for the depreciation that has occurred on the asset during the period. (c) Unearned Revenue—to record revenue earned for services provided. (d) Interest Payable—to recognize interest accrued but unpaid on notes payable. BRIEF EXERCISE 3-2 (a) Type of Adjustment (b) Account Balances before Adjustment 1. Prepaid Expenses Assets Overstated Expenses Understated 2. Accrued Revenues Assets Understated Revenues Understated 3. Accrued Expenses Expenses Understated Liabilities Understated 4. Unearned Revenues Liabilities Overstated Revenues Understated Item BRIEF EXERCISE 3-3 Dec. 31 Advertising Supplies Expense ................................. Advertising Supplies (£6,700 – £2,700)......... Advertising Supplies 6,700 12/31 4,000 12/31 Bal. 2,700 3-8 Copyright © 2011 John Wiley & Sons, Inc. 4,000 4,000 Advertising Supplies Expense 12/31 4,000 Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) BRIEF EXERCISE 3-4 Dec. 31 Depreciation Expense—Equipment ........................ Accumulated Depreciation— Equipment .......................................................... Depr. Expense—Equipment 12/31 5,000 5,000 5,000 Accum. Depreciation—Equipment 12/31 5,000 Statement of Financial Position: Equipment ...................................................................... Less: Accumulated Depreciation .......................... $30,000 5,000 $25,000 BRIEF EXERCISE 3-5 July 1 Dec. 31 Prepaid Insurance ................................................... Cash .................................................................... 18,000 Insurance Expense [($18,000 ÷ 3) X 1/2].......... Prepaid Insurance .......................................... 3,000 Prepaid Insurance 7/1 18,000 12/31 12/31 Bal. 15,000 3,000 12/31 18,000 3,000 Insurance Expense 3,000 BRIEF EXERCISE 3-6 July 1 Dec. 31 Cash ............................................................................. Unearned Insurance Revenue .................... 18,000 Unearned Insurance Revenue ............................. Insurance Revenue ........................................ 3,000 Unearned Insurance Revenue 12/31 3,000 7/1 18,000 12/31 Bal. 15,000 Copyright © 2011 John Wiley & Sons, Inc. 18,000 Insurance Revenue 12/31 Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3,000 3,000 3-9 BRIEF EXERCISE 3-7 1. 2. 3. Dec. 31 31 31 Interest Expense................................................... Interest Payable ........................................... 400 Accounts Receivable .......................................... Service Revenue.......................................... 1,500 Salaries Expense.................................................. Salaries Payable .......................................... 900 400 1,500 900 BRIEF EXERCISE 3-8 Account (a) Type of Adjustment (b) Related Account Accounts Receivable Prepaid Insurance Accum. Depr.—Equipment Interest Payable Unearned Service Revenue Accrued Revenues Prepaid Expenses Prepaid Expenses Accrued Expenses Unearned Revenues Service Revenue Insurance Expense Depreciation Expense Interest Expense Service Revenue BRIEF EXERCISE 3-9 KWUN COMPANY, INC. Income Statement For the Year Ended December 31, 2011 Revenues Service revenue ............................................................. Expenses Salaries expense............................................................ Rent expense .................................................................. Insurance expense ........................................................ Supplies expense .......................................................... Depreciation expense .................................................. Total expenses ...................................................... Net income................................................................................ 3-10 Copyright © 2011 John Wiley & Sons, Inc. W35,400 W16,000 4,000 2,000 1,500 1,300 Weygandt, IFRS, 1/e, Solutions Manual 24,800 W10,600 (For Instructor Use Only) BRIEF EXERCISE 3-10 KWUN COMPANY, INC. Retained Earnings Statement For the Year Ended December 31, 2011 Retained Earnings, January 1................................................................... Add: Net income .......................................................................................... Less: Dividends............................................................................................ Retained Earnings, December 31 ............................................................ W 0 10,600 10,600 6,000 W 4,600 *BRIEF EXERCISE 3-11 (a) Apr. 30 (b) 30 Supplies ................................................................... Supplies Expense ........................................ 1,000 Service Revenue ................................................... Unearned Service Revenue ...................... 3,000 1,000 3,000 SOLUTIONS FOR DO IT! REVIEW EXERCISES DO IT! 3-1 1. (d) 2. (e) 3. (h) 4. (c) DO IT! 3-2 1. 2. 3. Insurance Expense ................................................................ Prepaid Insurance .......................................................... (To record insurance expired) 300 Office Supplies Expense (CHF2,500 – CHF900)........... Office Supplies................................................................ (To record supplies used) 1,600 Depreciation Expense........................................................... Accumulated Depreciation—Off. Equip.................. (To record monthly depreciation) 500 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual 300 1,600 (For Instructor Use Only) 500 3-11 DO IT! 3-2 (Continued) 4. Unearned Revenue (CHF10,000 x 2/5).............................. Service Revenue ............................................................. (To record revenue for services provided) 4,000 4,000 DO IT! 3-3 1. 2. 3. Salaries Expense .................................................................... Salaries Payable.............................................................. (To record accrued salaries) 1,100 Interest Expense ($20,000 x .12 x 1/12) ........................... Interest Payable............................................................... (To record accrued interest) 200 Accounts Receivable............................................................. Service Revenue ............................................................. (To record revenue for service provided) 1,600 1,100 200 1,600 DO IT! 3-4 (a) The net income is determined by adding revenues and subtracting expenses. The net income is computed as follows: Revenues Commission revenue .............................................. Rent revenue .............................................................. Total revenues .................................................. Expenses Salaries expense....................................................... Rent expense ............................................................. Depreciation expense.............................................. Utilities expense........................................................ Supplies expense ..................................................... Interest expense........................................................ Total expenses ................................................. Net income........................................................................... 3-12 Copyright © 2011 John Wiley & Sons, Inc. R$11,360 690 R$12,050 R$7,520 1,200 700 410 160 40 Weygandt, IFRS, 1/e, Solutions Manual 10,030 R$ 2,020 (For Instructor Use Only) DO IT! 3-4 (Continued) (b) Total assets and liabilities are computed as follows: Assets Equipment ............................................................... R$12,000 Less: Accumulated depreciation ..................... 700 Supplies.................................................................... Prepaid rent............................................................. Accounts receivable............................................. Cash........................................................................... Total assets .................................................... R$11,300 800 720 480 5,360 R$18,660 Liabilities Notes payable......................................................... Accounts payable ................................................. Unearned rent......................................................... Salaries payable .................................................... Interest payable ..................................................... Total Liabilities.............................................. R$ 4,000 1,200 400 300 40 R$ 5,940 (c) Retained Earnings, April 1 .......................................... Add: Net income .......................................................... Less: Dividends............................................................. Retained Earnings, June 30........................................ Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual R$ –0– 2,020 2,020 500 R$ 1,520 (For Instructor Use Only) 3-13 SOLUTIONS TO EXERCISES EXERCISE 3-1 1. True. 2. True. 3. False. Many business transactions affect more than one of these artificial time periods. For example, the purchase of a building affects expenses for many years. 4. True. 5. False. A time period that lasts less than one year, such as monthly or quarterly periods, is called an interim period. 6. False. All calendar years are fiscal years, but not all fiscal years are calendar years. An accounting time period that is one year in length is referred to as a fiscal year. A fiscal year that starts on January 1 and ends on December 31 is a calendar year. EXERCISE 3-2 (a) Accrual-basis accounting records the transactions that change a company’s financial statements in the periods in which the events occur rather than in the periods in which the company receives or pays cash. Information presented on an accrual basis is useful because it reveals relationships that are likely to be important in predicting future results. Conversely, under cash-basis accounting, revenue is recorded only when cash is received, and an expense is recognized only when cash is paid. As a result, the cash basis of accounting often leads to misleading financial statements. (b) Politicians might desire a cash-basis accounting system over an accrualbasis system because if an accrual-accounting system is used, it could mean that billions in government liabilities presently unrecorded would have to be reported in the federal budget immediately. The recognition of these additional liabilities would make the deficit even worse. This is not what politicians would like to see and be held responsible for. 3-14 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-2 (Continued) (c) Dear Official, It is my understanding, after having taken a beginning course in accounting principles, that the government uses a cash-basis system rather than an accrual-basis accounting system. I am shocked at such a practice! There must be billions of dollars of liabilities hidden in many contracts that have not been recorded yet for the mere reason that they haven’t been paid yet. I realize that the deficit would dramatically increase if we were to implement an accrual system, but in all fairness, we citizens should be given a more accurate picture of what our government is up to. Sincerely, CONCERNED STUDENT EXERCISE 3-3 (a) Cash received from revenue................................................... Cash paid for expenses............................................................ Cash-basis net income .................................................. $100,000 (70,000) $ 30,000 (b) Revenues [($100,000 – $25,000) + $40,000] ....................... Expenses [($70,000 – $30,000) + $42,000].......................... Accrual-basis net income ............................................. $115,000 (82,000) $ 33,000 EXERCISE 3-4 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Unearned revenue. Accrued expense. Accrued expense. Accrued revenue. Prepaid expense. Unearned revenue. Accrued revenue. Prepaid expense. Prepaid expense. Prepaid expense. Accrued expense. Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-15 EXERCISE 3-5 1. 2. 3. 4. 5. 6. 7. 3-16 Interest Expense .............................................................. Interest Payable ($10,000 X 12% X 4/12) ....................................... 400 Supplies Expense ............................................................ Supplies ($2,450 – $800)........................................ 1,650 Depreciation Expense .................................................... Accumulated Depreciation—Equipment.......... 1,000 Insurance Expense.......................................................... Prepaid Insurance ($2,100 X 7/12)....................................................... 1,225 Unearned Consulting Revenue ................................... Consulting Revenue ($40,000 X 1/4)....................................................... 10,000 Accounts Receivable...................................................... Consulting Revenue ............................................... 4,200 Salaries Expense ............................................................. Salaries Payable ($9,000 X 3/5) ......................................................... 5,400 Copyright © 2011 John Wiley & Sons, Inc. 400 1,650 1,000 1,225 Weygandt, IFRS, 1/e, Solutions Manual 10,000 4,200 5,400 (For Instructor Use Only) EXERCISE 3-6 Item (a) Type of Adjustment (b) Accounts before Adjustment 1. Accrued Revenues Assets Understated Revenues Understated 2. Prepaid Expenses Assets Overstated Expenses Understated 3. Accrued Expenses Expenses Understated Liabilities Understated 4. Unearned Revenues Liabilities Overstated Revenues Understated 5. Accrued Expenses Expenses Understated Liabilities Understated 6. Prepaid Expenses Assets Overstated Expenses Understated EXERCISE 3-7 1. 2. 3. 4. 5. Mar. 31 31 31 31 31 Depreciation Expense ($400 X 3)..................... Accumulated Depreciation— Equipment.................................................. 1,200 Unearned Rent Revenue..................................... Rent Revenue ($9,900 X 1/3)..................... 3,300 Interest Expense ................................................... Interest Payable............................................ 500 Supplies Expense ................................................. Supplies ($2,800 – $700) ............................ 2,100 Insurance Expense ($200 X 3) .......................... Prepaid Insurance........................................ 600 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual 1,200 3,300 500 2,100 (For Instructor Use Only) 600 3-17 EXERCISE 3-8 1. 2. 3. Jan. 31 31 31 31 4. 5. 31 31 Accounts Receivable .......................................... Service Revenue .......................................... 875 Utilities Expense................................................... Utilities Payable ........................................... 520 Depreciation Expense......................................... Accumulated Depreciation— Dental Equipment ................................... 400 Interest Expense................................................... Interest Payable ........................................... 500 Insurance Expense (TL12,000 ÷ 12) ............... Prepaid Insurance ....................................... 1,000 Supplies Expense (TL1,600 – TL400)............. Supplies.......................................................... 1,200 Advertising Supplies Expense......................... Advertising Supplies ($2,500 – $500) ......................................... 2,000 Insurance Expense .............................................. Prepaid Insurance ....................................... 100 Depreciation Expense......................................... Accumulated Depreciation— Office Equipment .................................... 50 Unearned Revenue............................................... Service Revenue .......................................... 600 Accounts Receivable .......................................... Service Revenue .......................................... 300 875 520 400 500 1,000 1,200 EXERCISE 3-9 1. 2. 3. 4. 5. 3-18 Oct. 31 31 31 31 31 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual 2,000 100 50 600 300 (For Instructor Use Only) EXERCISE 3-9 (Continued) 6. 7. Oct. 31 31 Interest Expense ........................................... Interest Payable.................................... 70 Salaries Expense........................................... Salaries Payable ................................... 1,500 70 1,500 EXERCISE 3-10 BENNING CO. Income Statement For the Month Ended July 31, 2011 Revenues Service revenue ($5,500 + $500)................................... Expenses Wages expense ($2,300 + $300) ................................... Supplies expense ($1,200 – $200) ............................... Utilities expense ................................................................ Insurance expense............................................................ Depreciation expense ...................................................... Total expenses .......................................................... Net income ................................................................................... $6,000 $2,600 1,000 600 400 150 4,750 $1,250 EXERCISE 3-11 Answer Computation (a) Supplies balance = £1,300 Supplies expense Add: Supplies (1/31) Less: Supplies purchased Supplies (1/1) (b) Total premium = £4,800 Total premium = Monthly premium X 12; £400 X 12 = £4,800 Purchase date = Aug. 1, 2010 Copyright © 2011 John Wiley & Sons, Inc. £ 950 850 500 £1,300 Purchase date: On Jan. 31, there are 6 months’ coverage remaining (£400 X 6). Thus, the purchase date was 6 months earlier on Aug. 1, 2010. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-19 EXERCISE 3-11 (Continued) (c) Salaries payable = £2,500 Cash paid Salaries payable (1/31/11) £3,500 800 4,300 1,800 £2,500 Less: Salaries expense Salaries payable (12/31/10) (d) Unearned revenue = £1,150 Service revenue Unearned service revenue (1/31/11) £2,000 750 2,750 1,600 Cash received in January Unearned service revenue (12/31/10) £1,150 EXERCISE 3-12 (a) July 10 14 15 20 (b) July 31 31 31 31 3-20 Supplies................................................................... Cash ................................................................. 400 Cash.......................................................................... Service Revenue .......................................... 2,000 Salaries Expense .................................................. Cash ................................................................. 1,200 Cash.......................................................................... Unearned Revenue...................................... 1,000 Supplies Expense................................................. Supplies.......................................................... 800 Accounts Receivable .......................................... Service Revenue .......................................... 500 Salaries Expense .................................................. Salaries Payable .......................................... 1,200 Unearned Revenue............................................... Service Revenue .......................................... 900 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual 400 2,000 1,200 1,000 800 500 1,200 900 (For Instructor Use Only) EXERCISE 3-13 Aug. 31 31 31 31 31 31 Accounts Receivable ........................................... Service Revenue........................................... 1,000 Office Supplies Expense..................................... Office Supplies.............................................. 1,600 Insurance Expense ............................................... Prepaid Insurance ........................................ 1,500 Depreciation Expense.......................................... Accumulated Depreciation—Office Equipment .................................................. 900 Salaries Expense................................................... Salaries Payable ........................................... 1,100 Unearned Rent Revenue ..................................... Rent Revenue ................................................ 900 1,000 1,600 1,500 900 1,100 900 EXERCISE 3-14 GARCIA COMPANY Income Statement For the Year Ended August 31, 2011 Revenues Service revenue ................................................................. Rent revenue....................................................................... Total revenues........................................................... Expenses Salaries expense ............................................................... Rent expense...................................................................... Office supplies expense ................................................. Insurance expense............................................................ Depreciation expense ...................................................... Total expenses .......................................................... Net income ................................................................................... Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual €35,000 11,900 46,900 €18,100 15,000 1,600 1,500 900 (For Instructor Use Only) 37,100 € 9,800 3-21 EXERCISE 3-14 (Continued) GARCIA COMPANY Retained Earnings Statement For the Year Ended August 31, 2011 Retained Earnings, September 1, 2010 .................................................. Add: Net income .......................................................................................... Retained Earnings, August 31, 2011 ....................................................... € 5,600 9,800 €15,400 GARCIA COMPANY Statement of Financial Position August 31, 2011 Assets Office equipment ........................................................................ Less: Accum. depreciation—office equipment ............... Prepaid insurance ...................................................................... Office supplies ............................................................................ Accounts receivable.................................................................. Cash ................................................................................................ Total assets ................................................................ €14,000 4,500 € 9,500 2,500 700 9,800 10,400 €32,900 Equity and Liabilities Equity Share capital—ordinary.................................................. Retained earnings ............................................................ Liabilities Accounts payable............................................................. Salaries payable................................................................ Unearned rent revenues................................................. Total equity and liabilities....................................................... 3-22 Copyright © 2011 John Wiley & Sons, Inc. €10,000 15,400 Weygandt, IFRS, 1/e, Solutions Manual 5,800 1,100 600 €25,400 7,500 €32,900 (For Instructor Use Only) EXERCISE 3-15 (a) 1. 2. 3. Cash............................................................................... Fees Receivable................................................ 9,000 Unearned Fees ........................................................... Fees Revenue .................................................... 25,000 (a) Cash...................................................................... Unearned Fees ......................................... 35,000 (b) Unearned Fees ($35,000 – $17,000) ...................................... Fees Revenue ........................................... 4. 5. 9,000 25,000 35,000 18,000 18,000 Fees Receivable......................................................... Fees Revenue ($153,000 – $25,000 – $18,000) ................ 110,000 Cash............................................................................... Fees Receivable ($110,000 – $14,000).................................... 96,000 110,000 96,000 (b) Cash received with respect to fees = $9,000 + $96,000 + $35,000 = $140,000 EXERCISE 3-16 (a) Cash received from services provided ...................... Cash paid for expenses .................................................. Cash paid for prepaid insurance ................................. Cash flow from operations............................................. R$22,000 (13,000) (2,600) R$ 6,400 (b) Service revenue ................................................................. Operating expenses ......................................................... Net income .......................................................................... R$30,000 15,500 R$14,500 (c) Under the accrual basis, companies record transactions that change a company’s and financial statements in the period in which the events occur. Cash basis accounting fails to record revenue that a company has earned but has not collected the cash. Also it does not match expenses with earned revenue. Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-23 *EXERCISE 3-17 1. 2. 3. Prepaid Insurance ........................................................... Insurance Expense ($2,100 X 5/12)....................................................... 875 Consulting Revenue ....................................................... Unearned Consulting Revenue ($40,000 X 3/4)....................................................... 30,000 Supplies .............................................................................. Supplies Expense.................................................... 800 875 30,000 800 *EXERCISE 3-18 (a) Jan. 2 10 15 1/2 1/15 3-24 Insurance Expense ............................................ Cash ............................................................... 1,800 Supplies Expense............................................... Cash ............................................................... 1,700 Cash........................................................................ Service Revenue ........................................ 6,100 Insurance Expense 1,800 Cash 6,100 1/2 1/10 1/10 1,800 1,700 Copyright © 2011 John Wiley & Sons, Inc. 1,800 1,700 6,100 Supplies Expense 1,700 Service Revenue 1/15 Weygandt, IFRS, 1/e, Solutions Manual 6,100 (For Instructor Use Only) *EXERCISE 3-18 (Continued) (b) Jan. 31 31 31 Prepaid Insurance (€150 X 11 months) ........ Insurance Expense.................................... 1,650 Supplies ................................................................. Supplies Expense ...................................... 800 Service Revenue ................................................. Unearned Revenue .................................... 3,600 Insurance Expense 1/2 1,800 1/31 1,650 Bal. 150 Prepaid Insurance 1/31 1,650 Supplies Expense 1/10 1,700 1/31 800 Bal. 900 1/31 Supplies 800 1,650 800 Service Revenue 1/31 3,600 1/15 6,100 Bal. 2,500 Unearned Revenue 1/31 3,600 (c) Insurance expense............................................................................ Supplies expense.............................................................................. Service revenue ................................................................................. Prepaid insurance............................................................................. Supplies................................................................................................ Unearned revenue............................................................................. Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual 3,600 (For Instructor Use Only) € 150 900 2,500 1,650 800 3,600 3-25 SOLUTIONS TO PROBLEMS PROBLEM 3-1A (a) Date 2011 June 30 30 30 30 30 30 30 Account Titles and Explanation Ref. Debit Supplies Expense................................. Supplies ........................................ ($2,000 – $600) 631 126 1,400 Utilities Expense ................................... Utilities Payable .......................... 732 244 150 Insurance Expense .............................. Prepaid Insurance...................... ($3,000 ÷ 12 months) 722 130 250 Unearned Service Revenue............... Service Revenue......................... 209 400 2,500 Salaries Expense .................................. Salaries Payable ......................... 726 212 2,000 Depreciation Expense......................... Accumulated Depreciation— Office Equipment................... ($15,000 ÷ 60 months) 711 250 Accounts Receivable........................... Service Revenue......................... 112 400 J3 Credit 1,400 150 250 2,500 2,000 158 250 1,000 1,000 (b) Cash No. 101 Date 2011 June 30 3-26 Explanation Balance Copyright © 2011 John Wiley & Sons, Inc. Ref. Debit Credit Weygandt, IFRS, 1/e, Solutions Manual Balance 7,150 (For Instructor Use Only) PROBLEM 3-1A (Continued) Accounts Receivable Date Explanation 2011 June 30 Balance 30 Adjusting Supplies Date 2011 June 30 30 Explanation Balance Adjusting Ref. J3 Ref. Debit Credit 1,000 6,000 7,000 Debit No. 126 Balance J3 Credit Explanation Balance Adjusting Office Equipment Date Explanation 2011 June 30 Balance No. 130 Ref. Debit J3 Ref. Copyright © 2011 John Wiley & Sons, Inc. Credit Debit Credit Ref. Balance 3,000 2,750 250 No. 157 Balance 15,000 Accumulated Depreciation—Office Equipment Date Explanation Ref. Debit 2011 June 30 Adjusting J3 Accounts Payable Date Explanation 2011 June 30 Balance 2,000 600 1,400 Prepaid Insurance Date 2011 June 30 30 No. 112 Balance Debit Credit No. 158 Balance 250 Credit 250 No. 201 Balance Weygandt, IFRS, 1/e, Solutions Manual 4,500 (For Instructor Use Only) 3-27 PROBLEM 3-1A (Continued) Unearned Service Revenue Date 2011 June 30 30 Explanation Balance Adjusting No. 209 Ref. J3 Debit Credit Balance 4,000 1,500 2,500 Salaries Payable Date 2011 June 30 Explanation Adjusting No. 212 Ref. Debit J3 Credit Balance 2,000 2,000 Utilities Payable Date 2011 June 30 Explanation Adjusting No. 244 Ref. Debit J3 Credit Balance 150 150 Share Capital—Ordinary Date 2011 June 30 Explanation Balance No. 311 Ref. Debit Credit Balance 21,750 Service Revenue Date 2011 June 30 30 30 Explanation Balance Adjusting Adjusting No. 400 Ref. Debit J3 J3 Credit Balance 2,500 1,000 7,900 10,400 11,400 Supplies Expense Date 2011 June 30 3-28 Explanation Adjusting Copyright © 2011 John Wiley & Sons, Inc. No. 631 Ref. Debit J3 1,400 Credit Weygandt, IFRS, 1/e, Solutions Manual Balance 1,400 (For Instructor Use Only) PROBLEM 3-1A (Continued) Depreciation Expense Date Explanation 2011 June 30 Adjusting Ref. Debit J3 250 Credit 250 Insurance Expense Date 2011 June 30 Explanation Adjusting No. 722 Ref. Debit J3 250 Credit Explanation Balance Adjusting Rent Expense Date Explanation 2011 June 30 Balance Utilities Expense Date Explanation 2011 June 30 Adjusting Copyright © 2011 John Wiley & Sons, Inc. Balance 250 Salaries Expense Date 2011 June 30 30 No. 711 Balance No. 726 Ref. J3 Ref. Debit Credit Balance 2,000 4,000 6,000 Debit No. 729 Balance Credit 1,000 Ref. Debit J3 150 Weygandt, IFRS, 1/e, Solutions Manual Credit No. 732 Balance 150 (For Instructor Use Only) 3-29 PROBLEM 3-1A (Continued) (c) MASASI COMPANY, INC. Adjusted Trial Balance June 30, 2011 Cash................................................................................. Accounts Receivable ................................................. Supplies.......................................................................... Prepaid Insurance ....................................................... Office Equipment......................................................... Accumulated Depreciation—Office Equipment................................................................. Accounts Payable ....................................................... Unearned Service Revenue ..................................... Salaries Payable .......................................................... Utilities Payable ........................................................... Share Capital—Ordinary ........................................... Service Revenue.......................................................... Supplies Expense ....................................................... Depreciation Expense................................................ Insurance Expense ..................................................... Salaries Expense......................................................... Rent Expense................................................................ Utilities Expense.......................................................... 3-30 Copyright © 2011 John Wiley & Sons, Inc. Debit $ 7,150 7,000 600 2,750 15,000 Credit $ 250 4,500 1,500 2,000 150 21,750 11,400 1,400 250 250 6,000 1,000 150 $41,550 Weygandt, IFRS, 1/e, Solutions Manual $41,550 (For Instructor Use Only) PROBLEM 3-2A (a) Date Aug. 31 31 31 31 31 31 31 31 Account Titles and Explanation Insurance Expense (€400 X 3)............. Prepaid Insurance ........................ Ref. 722 130 Debit 1,200 Supplies Expense (€3,300 – €600)......... Supplies ........................................... 631 126 2,700 620 1,500 Depreciation Expense—Cottages (€6,000 X 1/4) ........................................ Accumulated Depreciation— Cottages ...................................... Depreciation Expense—Furniture (€2,400 X 1/4) ........................................ Accumulated Depreciation— Furniture...................................... J1 Credit 1,200 2,700 144 621 1,500 600 150 600 Unearned Rent Revenue....................... Rent Revenue................................. 209 429 4,100 Salaries Expense..................................... Salaries Payable............................ 726 212 400 Accounts Receivable............................. Rent Revenue................................. 112 429 1,000 Interest Expense ..................................... Interest Payable [(€80,000 X 9%) X 1/12] ........... 718 600 4,100 400 1,000 230 600 (b) Cash Date Explanation Aug. 31 Balance Copyright © 2011 John Wiley & Sons, Inc. No. 101 Ref. Debit Weygandt, IFRS, 1/e, Solutions Manual Credit Balance 19,600 (For Instructor Use Only) 3-31 PROBLEM 3-2A (Continued) Accounts Receivable Date Explanation Aug. 31 Adjusting No. 112 Ref. J1 Debit 1,000 Credit Supplies Date Explanation Aug. 31 Balance 31 Adjusting No. 126 Ref. J1 Debit Credit 2,700 Prepaid Insurance Date Explanation Aug. 31 Balance 31 Adjusting Balance 1,000 Balance 3,300 600 No. 130 Ref. J1 Debit Credit 1,200 Land Balance 6,000 4,800 No. 140 Date Explanation Aug. 31 Balance Ref. Debit Credit Cottages Date Explanation Aug. 31 Balance No. 143 Ref. Debit Credit Accumulated Depreciation—Cottages Date Explanation Aug. 31 Adjusting Ref. J1 Balance 125,000 No. 144 Debit Credit 1,500 Furniture Balance 1,500 No. 149 Date Explanation Aug. 31 Balance Ref. 3-32 Weygandt, IFRS, 1/e, Solutions Manual Copyright © 2011 John Wiley & Sons, Inc. Balance 25,000 Debit Credit Balance 26,000 (For Instructor Use Only) PROBLEM 3-2A (Continued) Accumulated Depreciation—Furniture Date Explanation Ref. Aug. 31 Adjusting J1 Debit Credit 600 Accounts Payable Date Explanation Aug. 31 Balance Unearned Rent Revenue Date Explanation Aug. 31 Balance 31 Adjusting No. 201 Ref. Ref. J1 Debit Debit Credit Credit 4,100 Salaries Payable Date Explanation Aug. 31 Adjusting Mortgage Payable Date Explanation Aug. 31 Balance Ref. J1 Debit Credit 400 Copyright © 2011 John Wiley & Sons, Inc. No. 209 Balance 7,400 3,300 Balance 400 No. 230 Ref. J1 Ref. Debit Debit Credit 600 Balance 600 Credit No. 275 Balance 80,000 Share Capital—Ordinary Date Explanation Aug. 31 Balance Balance 6,500 No. 212 Interest Payable Date Explanation Aug. 31 Adjusting No. 150 Balance 600 No. 311 Ref. Debit Weygandt, IFRS, 1/e, Solutions Manual Credit Balance 100,000 (For Instructor Use Only) 3-33 PROBLEM 3-2A (Continued) Dividends No. 332 Date Explanation Aug. 31 Balance Rent Revenue Date Explanation Aug. 31 Balance 31 Adjusting 31 Adjusting Ref. Ref. J1 J1 Debit Debit Credit Credit 4,100 1,000 Depreciation Expense—Cottages Date Explanation Aug. 31 Adjusting Explanation Aug. 31 Adjusting Ref. J1 Debit 1,500 Credit Ref. J1 Debit Credit 600 No. 622 Ref. Debit Credit 3-34 Copyright © 2011 John Wiley & Sons, Inc. Balance 3,600 No. 631 Ref. J1 Debit 2,700 Credit Interest Expense Date Explanation Aug. 31 Adjusting Balance 600 Supplies Expense Date Explanation Aug. 31 Adjusting Balance 1,500 No. 621 Repair Expense Date Explanation Aug. 31 Balance No. 429 Balance 80,000 84,100 85,100 No. 620 Depreciation Expense—Furniture Date Balance 5,000 Balance 2,700 No. 718 Ref. J1 Debit 600 Credit Weygandt, IFRS, 1/e, Solutions Manual Balance 600 (For Instructor Use Only) PROBLEM 3-2A (Continued) Insurance Expense Date Explanation Aug. 31 Adjusting Ref. J1 Debit 1,200 Credit Salaries Expense Date Explanation Aug. 31 Balance 31 Adjusting Utilities Expense Date Explanation Aug. 31 Balance Copyright © 2011 John Wiley & Sons, Inc. No. 722 Balance 1,200 No. 726 Ref. J1 Ref. Debit Credit 400 Debit Weygandt, IFRS, 1/e, Solutions Manual Credit Balance 51,000 51,400 No. 732 Balance 9,400 (For Instructor Use Only) 3-35 PROBLEM 3-2A (Continued) (c) NEOSHO RIVER RESORT, INC. Adjusted Trial Balance August 31, 2011 Cash................................................................................. Accounts Receivable ................................................. Supplies.......................................................................... Prepaid Insurance ....................................................... Land ................................................................................. Cottages ......................................................................... Accumulated Depreciation—Cottages................. Furniture......................................................................... Accumulated Depreciation—Furniture ................ Accounts Payable ....................................................... Unearned Rent Revenue ........................................... Salaries Payable .......................................................... Interest Payable ........................................................... Mortgage Payable ....................................................... Share Capital—Ordinary ........................................... Dividends ....................................................................... Rent Revenue ............................................................... Depreciation Expense—Cottages.......................... Depreciation Expense—Furniture ......................... Repair Expense............................................................ Supplies Expense ....................................................... Interest Expense.......................................................... Insurance Expense ..................................................... Salaries Expense......................................................... Utilities Expense.......................................................... 3-36 Copyright © 2011 John Wiley & Sons, Inc. Debit € 19,600 1,000 600 4,800 25,000 125,000 Credit € 1,500 26,000 600 6,500 3,300 400 600 80,000 100,000 5,000 85,100 1,500 600 3,600 2,700 600 1,200 51,400 9,400 €278,000 Weygandt, IFRS, 1/e, Solutions Manual €278,000 (For Instructor Use Only) PROBLEM 3-2A (Continued) (d) NEOSHO RIVER RESORT, INC. Income Statement For the Three Months Ended August 31, 2011 Revenues Rent revenue........................................................... Expenses Salaries expense ................................................... Utilities expense .................................................... Repair expense ...................................................... Supplies expense.................................................. Depreciation expense—cottages..................... Insurance expense................................................ Interest expense .................................................... Depreciation expense—furniture..................... Total expenses .............................................. Net income........................................................................ € 85,100 €51,400 9,400 3,600 2,700 1,500 1,200 600 600 71,000 € 14,100 NEOSHO RIVER RESORT, INC. Retained Earnings Statement For the Three Months Ended August 31, 2011 Retained Earnings, June 1 .............................................................. Add: Net income............................................................................... Less: Dividends................................................................................. Retained Earnings, August 31 ....................................................... Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual 0 14,100 14,100 5,000 € 9,100 € (For Instructor Use Only) 3-37 PROBLEM 3-2A (Continued) NEOSHO RIVER RESORT, INC. Statement of Financial Position August 31, 2011 Assets Land .............................................................................. Cottages....................................................................... Less: Accum. depreciation—cottages ............. Furniture ...................................................................... Less: Accum. depreciation—furniture ............. Prepaid insurance .................................................... Supplies ....................................................................... Accounts receivable ................................................ Cash .............................................................................. Total assets .............................................. € 25,000 €125,000 1,500 26,000 600 123,500 25,400 4,800 600 1,000 19,600 €199,900 Equity and Liabilities Equity Share capital—ordinary................................. Retained earnings ........................................... Liabilities Accounts payable............................................ Mortgage payable ............................................ Unearned rent revenue .................................. Interest payable................................................ Salaries payable............................................... Total equity and liabilities...................................... 3-38 Copyright © 2011 John Wiley & Sons, Inc. €100,000 9,100 € 6,500 80,000 3,300 600 400 Weygandt, IFRS, 1/e, Solutions Manual €109,100 90,800 €199,900 (For Instructor Use Only) PROBLEM 3-3A (a) Dec. 31 31 31 31 31 31 31 (b) Accounts Receivable................................... Advertising Revenue .......................... 2,500 Unearned Advertising Fees....................... Advertising Revenue .......................... 1,600 Art Supplies Expense.................................. Art Supplies........................................... 3,600 Depreciation Expense ................................. Accumulated Depreciation ............... 6,000 Interest Expense ........................................... Interest Payable.................................... 150 Insurance Expense....................................... Prepaid Insurance ............................... 850 Salaries Expense .......................................... Salaries Payable................................... 1,300 2,500 1,600 3,600 6,000 150 850 1,300 FERNETTI ADVERTISING AGENCY, INC. Income Statement For the Year Ended December 31, 2011 Revenues Advertising revenue ................................................ Expenses Salaries expense ...................................................... Depreciation expense ............................................. Rent expense ............................................................. Art supplies expense .............................................. Insurance expense................................................... Interest expense ....................................................... Total expenses ................................................. Net income........................................................................... Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual $62,700 $11,300 6,000 4,000 3,600 850 500 26,250 $36,450 (For Instructor Use Only) 3-39 PROBLEM 3-3A (Continued) FERNETTI ADVERTISING AGENCY, INC. Retained Earnings Statement For the Year Ended December 31, 2011 Retained Earnings, January 1 .......................................................... Add: Net income.................................................................................. Less: Dividends ................................................................................... Retained Earnings, December 31.................................................... $ 500 36,450 36,950 12,000 $24,950 FERNETTI ADVERTISING AGENCY, INC. Statement of Financial Position December 31, 2011 Assets Printing equipment........................................................ Less: Accumulated depreciation ............................ Prepaid insurance ......................................................... Art supplies ..................................................................... Accounts receivable ..................................................... Cash ................................................................................... Total assets ................................................... $60,000 34,000 $26,000 2,500 5,000 22,500 11,000 $67,000 Equity and Liabilities Equity Share capital—ordinary...................................... Retained earnings ................................................ Liabilities Notes payable ........................................................ Accounts payable................................................. Unearned advertising fees................................. Salaries payable.................................................... Interest payable..................................................... Total equity and liabilities........................................... 3-40 Copyright © 2011 John Wiley & Sons, Inc. $25,000 24,950 5,000 5,000 5,600 1,300 150 Weygandt, IFRS, 1/e, Solutions Manual $49,950 17,050 $67,000 (For Instructor Use Only) PROBLEM 3-3A (Continued) (c) 1. I=PXRXT $150 = $5,000 X R X 1/2 $150 = $2,500R R = $150 $2,500 R = 6% 2. Salaries Expense, $11,300 less Salaries Payable 12/31/11, $1,300 = $10,000. Total payments, $12,500 – $10,000 = $2,500 Salaries Payable 12/31/10. Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-41 PROBLEM 3-4A 1. 2. 3. 4. 3-42 Dec. 31 31 31 31 Salaries Expense ............................................. Salaries Payable ..................................... [5 X £800 X 2/5 = £1,600 [3 X £600 X 2/5 = 720 £2,320] 2,320 Unearned Rent.................................................. Rent Revenue .......................................... [5 X £4,000 X 2 = £40,000) (4 X £8,500 X 1 = 34,000) £74,000] 74,000 Advertising Expense ...................................... Prepaid Advertising ............................... [A650 – £450 per month for 8 months = £3,600) (B974 – £400 per month for 3 months = 1,200) £4,800] 4,800 Interest Expense.............................................. Interest Payable ...................................... (£120,000 X 9% X 7/12) 6,300 Copyright © 2011 John Wiley & Sons, Inc. 2,320 Weygandt, IFRS, 1/e, Solutions Manual 74,000 4,800 6,300 (For Instructor Use Only) PROBLEM 3-5A (a), (c) & (e) Cash Date Sept. No. 101 Explanation 1 Balance 8 10 12 20 22 25 29 Accounts Receivable Date Explanation Sept. 1 Balance 10 27 Ref. J1 J1 J1 J1 J1 J1 J1 Ref. J1 J1 Debit Credit 1,400 1,200 3,400 4,500 500 1,250 650 Debit Credit 1,200 1,500 Supplies Date Sept. Explanation 1 Balance 17 30 Adjusting Store Equipment Date Explanation Sept. 1 Balance 15 Copyright © 2011 John Wiley & Sons, Inc. Balance 4,880 3,480 4,680 8,080 3,580 3,080 1,830 2,480 No. 112 Balance 3,520 2,320 3,820 No. 126 Ref. J1 J1 Ref. J1 Debit Credit 1,200 2,000 Debit 3,000 Weygandt, IFRS, 1/e, Solutions Manual Credit Balance 2,000 3,200 1,200 No. 153 Balance 15,000 18,000 (For Instructor Use Only) 3-43 PROBLEM 3-5A (Continued) Accumulated Depreciation—Equipment Date Sept. 1 30 Explanation Balance Adjusting Ref. J1 No. 154 Debit Credit 100 Accounts Payable Date Sept. 1 15 17 20 Explanation Balance No. 201 Ref. J1 J1 J1 Debit Credit 3,000 1,200 4,500 Unearned Service Revenue Date Sept. Explanation 1 Balance 29 30 Adjusting Explanation 1 Balance 8 30 Adjusting Ref. J1 J1 Debit Credit 650 1,450 Explanation 1 Balance Ref. J1 J1 Debit Credit 500 400 Explanation 1 Balance 3-44 Copyright © 2011 John Wiley & Sons, Inc. Balance 500 0 400 No. 311 Ref. Debit Credit Retained Earnings Date Sept. Balance 1,400 2,050 600 No. 212 Share Capital—Ordinary Date Sept. Balance 3,400 6,400 7,600 3,100 No. 209 Salaries Payable Date Sept. Balance 1,500 1,600 Balance 15,000 No. 320 Ref. Debit Credit Weygandt, IFRS, 1/e, Solutions Manual Balance 3,600 (For Instructor Use Only) PROBLEM 3-5A (Continued) Service Revenue Date Explanation Sept. 12 27 30 Adjusting Ref. J1 J1 J1 Debit Credit 3,400 1,500 1,450 Depreciation Expense Date Explanation Sept. 30 Adjusting No. 615 Ref. J1 Debit 100 Credit Supplies Expense Date Explanation Sept. 30 Adjusting Explanation 8 25 30 Adjusting Rent Expense Date Explanation Sept. 22 Copyright © 2011 John Wiley & Sons, Inc. Balance 100 No. 631 Ref. J1 Debit 2,000 Credit Salaries Expense Date Sept. No. 400 Balance 3,400 4,900 6,350 Balance 2,000 No. 726 Ref. J1 J1 J1 Ref. J1 Debit 900 1,250 400 Debit 500 Weygandt, IFRS, 1/e, Solutions Manual Credit Credit Balance 900 2,150 2,550 No. 729 Balance 500 (For Instructor Use Only) 3-45 PROBLEM 3-5A (Continued) (b) General Journal Date Sept. 8 10 12 15 17 20 22 25 27 29 3-46 J1 Account Titles Salaries Payable........................................ Salaries Expense ...................................... Cash....................................................... Ref. 212 726 101 Debit 500 900 Cash .............................................................. Accounts Receivable....................... 101 112 1,200 Cash .............................................................. Service Revenue ............................... 101 400 3,400 Store Equipment ....................................... Accounts Payable............................. 153 201 3,000 Supplies ....................................................... Accounts Payable............................. 126 201 1,200 Accounts Payable..................................... Cash ...................................................... 201 101 4,500 Rent Expense ............................................. Cash ...................................................... 729 101 500 Salaries Expense ...................................... Cash ...................................................... 726 101 1,250 Accounts Receivable............................... Service Revenue ............................... 112 400 1,500 Cash .............................................................. Unearned Service Revenue............. 101 209 650 Copyright © 2011 John Wiley & Sons, Inc. Credit 1,400 1,200 3,400 3,000 1,200 4,500 500 1,250 Weygandt, IFRS, 1/e, Solutions Manual 1,500 650 (For Instructor Use Only) PROBLEM 3-5A (Continued) (d) & (f) RAND EQUIPMENT REPAIR, INC. Trial Balances September 30, 2011 Before Adjustment Cash .................................................... Accounts Receivable..................... Supplies ............................................. Store Equipment ............................. Accumulated Depreciation .......... Accounts Payable........................... Unearned Service Revenue ......... Salaries Payable.............................. Share Capital—Ordinary............... Retained Earnings .......................... Service Revenue ............................. Depreciation Expense ................... Supplies Expense ........................... Salaries Expense ............................ Rent Expense ................................... (e) 1. Sept. 30 2. 3. 4. 30 30 30 Dr. £ 2,480 3,820 3,200 18,000 After Adjustment Cr. Dr. £ 2,480 3,820 1,200 18,000 £ 1,500 3,100 2,050 –0– 15,000 3,600 4,900 £ 1,600 3,100 600 400 15,000 3,600 6,350 100 2,000 2,550 2,150 500 500 £30,150 £30,150 £30,650 £30,650 Supplies Expense ............................ Supplies (£3,200 – £1,200) ....... 631 126 2,000 Salaries Expense ............................. Salaries Payable........................ 726 212 400 Depreciation Expense .................... Accumulated Depreciation— Equipment .............................. 615 100 Unearned Service Revenue .......... Service Revenue ....................... 209 400 Copyright © 2011 John Wiley & Sons, Inc. Cr. Weygandt, IFRS, 1/e, Solutions Manual 2,000 400 154 100 1,450 (For Instructor Use Only) 1,450 3-47 PROBLEM 3-5A (Continued) (g) RAND EQUIPMENT REPAIR, INC. Income Statement For the Month Ended September 30, 2011 Revenues Service revenue........................................................... Expenses Salaries expense......................................................... Supplies expense ....................................................... Rent expense ............................................................... Depreciation expense................................................ Total expenses ................................................... Net income............................................................................. £6,350 £2,550 2,000 500 100 5,150 £1,200 RAND EQUIPMENT REPAIR, INC. Retained Earnings Statement For the Month Ended September 30, 2011 Retained Earnings, September 1..................................................... Add: Net income .................................................................................. Retained Earnings, September 30 .................................................. 3-48 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual £3,600 1,200 £4,800 (For Instructor Use Only) PROBLEM 3-5A (Continued) RAND EQUIPMENT REPAIR, INC. Statement of Financial Position September 30, 2011 Assets Equipment ........................................................................ Less: Accumulated depreciation— equipment ........................................................... Supplies............................................................................. Accounts receivable...................................................... Cash.................................................................................... Total assets ............................................................. £18,000 1,600 £16,400 1,200 3,820 2,480 £23,900 Equity and Liabilities Equity Share capital—ordinary ...................................... Retained earnings ................................................. Liabilities Accounts payable ................................................. Unearned service revenue ................................. Salaries payable .................................................... Total equity and liabilities ........................................... Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual £15,000 4,800 3,100 600 400 £19,800 4,100 £23,900 (For Instructor Use Only) 3-49 *PROBLEM 3-6A (a) 1. 2. 3. 4. 5. 6. 3-50 June 30 30 30 30 30 30 Supplies ......................................................... Supplies Expense .............................. 1,300 Interest Expense ......................................... ($20,000 X 9% X 5/12) Interest Payable.................................. 750 Prepaid Insurance....................................... [($1,800 ÷ 12) X 8] Insurance Expense............................ 1,200 Consulting Revenue .................................. Unearned Consulting Revenue........ 1,500 Accounts Receivable................................. Graphic Revenue ............................... 2,000 Depreciation Expense ............................... ($2,000 ÷ 2) Accumulated Depreciation— Equipment........................................ 1,000 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual 1,300 750 1,200 1,500 2,000 1,000 (For Instructor Use Only) *PROBLEM 3-6A (Continued) (b) GIVENS GRAPHICS COMPANY, INC. Adjusted Trial Balance June 30, 2011 Cash ............................................................................ Accounts Receivable ($14,000 + $2,000)......... Supplies ..................................................................... Prepaid Insurance................................................... Equipment ................................................................. Accumulated Depreciation .................................. Notes Payable .......................................................... Accounts Payable................................................... Interest Payable....................................................... Unearned Consulting Revenue .......................... Share Capital—Ordinary....................................... Graphic Revenue ($52,100 + $2,000) ................ Consulting Revenue ($6,000 – $1,500)............. Salaries Expense .................................................... Supplies Expense ($3,700 – $1,300) ................. Advertising Expense.............................................. Rent Expense ........................................................... Utilities Expense ..................................................... Depreciation Expense ........................................... Insurance Expense ($1,800 – $1,200)............... Interest Expense ..................................................... Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual Debit $ 9,500 16,000 1,300 1,200 45,000 Credit $ 30,000 2,400 1,900 1,500 1,700 1,000 600 750 $112,850 1,000 20,000 9,000 750 1,500 22,000 54,100 4,500 $112,850 (For Instructor Use Only) 3-51 *PROBLEM 3-6A (Continued) (c) GIVENS GRAPHICS COMPANY, INC. Income Statement For the Six Months Ended June 30, 2011 Revenues Graphic revenue.................................................... Consulting revenue.............................................. Total revenues .............................................. Expenses Salaries expense................................................... Supplies expense ................................................. Advertising expense............................................ Utilities expense.................................................... Rent expense ......................................................... Depreciation expense.......................................... Interest expense.................................................... Insurance expense ............................................... Total expenses ............................................. Net income....................................................................... $54,100 4,500 58,600 $30,000 2,400 1,900 1,700 1,500 1,000 750 600 39,850 $18,750 GIVENS GRAPHICS COMPANY, INC. Retained Earnings Statement For the Six Months Ended June 30, 2011 Retained Earnings, January 1 .......................................................... Add: Net income.................................................................................. Retained Earnings, June 30 .............................................................. 3-52 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual $ 0 18,750 $18,750 (For Instructor Use Only) *PROBLEM 3-6A (Continued) GIVENS GRAPHICS COMPANY, INC. Statement of Financial Position June 30, 2011 Assets Equipment ........................................................................ Less: Accumulated depreciation............................. Prepaid insurance.......................................................... Supplies............................................................................. Accounts receivable...................................................... Cash.................................................................................... Total assets .................................................... $45,000 1,000 $44,000 1,200 1,300 16,000 9,500 $72,000 Equity and Liabilities Equity Share capital—ordinary ...................................... Retained earnings ................................................. Liabilities Notes payable......................................................... Accounts payable ................................................. Unearned consulting revenue........................... Interest payable ..................................................... Total equity and liabilities ............................................. Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual $22,000 18,750 20,000 9,000 1,500 750 $40,750 31,250 $72,000 (For Instructor Use Only) 3-53 PROBLEM 3-1B (a) Date Account Titles 2011 May 31 Supplies Expense..................................... Supplies ............................................ Ref. Debit 631 126 900 31 Travel Expense.......................................... Travel Payable................................. 736 229 250 31 Insurance Expense................................... Prepaid Insurance.......................... (R$3,600 ÷ 24 months) 722 130 150 31 Unearned Service Revenue................... Service Revenue ............................ (R$2,000 – R$400) 209 400 1,600 31 Salaries Expense ...................................... Salaries Payable............................. [(3/5 X R$800) X 2 employees] 726 212 960 31 Depreciation Expense ............................. Accumulated Depreciation— Office Furniture.......................... (R$10,200 ÷ 60 months) 717 170 31 Accounts Receivable............................... Service Revenue ............................ 112 400 J4 Credit 900 250 150 1,600 960 150 170 1,200 1,200 (b) Cash No. 101 Date Explanation 2011 May 31 Balance 3-54 Copyright © 2011 John Wiley & Sons, Inc. Ref. Debit Credit Weygandt, IFRS, 1/e, Solutions Manual Balance 5,700 (For Instructor Use Only) PROBLEM 3-1B (Continued) Accounts Receivable Date Explanation 2011 May 31 Balance 31 Adjusting Ref. J4 Debit Credit 6,000 7,200 1,200 Supplies Date Explanation 2011 May 31 Balance 31 Adjusting Prepaid Insurance Date Explanation 2011 May 31 Balance 31 Adjusting No. 126 Ref. Debit J4 Ref. Debit J4 Credit Balance 900 1,900 1,000 Credit No. 130 Balance 150 3,600 3,450 Office Furniture Date Explanation 2011 May 31 Balance No. 149 Ref. Debit Copyright © 2011 John Wiley & Sons, Inc. Credit Balance 10,200 Accumulated Depreciation—Office Furniture Date Explanation Ref. Debit 2011 May 31 Adjusting J4 Accounts Payable Date Explanation 2011 May 31 Balance No. 112 Balance Ref. Debit Credit No. 150 Balance 170 170 Credit No. 201 Balance Weygandt, IFRS, 1/e, Solutions Manual 4,500 (For Instructor Use Only) 3-55 PROBLEM 3-1B (Continued) Unearned Service Revenue Date Explanation 2011 May 31 Balance 31 Adjusting No. 209 Ref. J4 Debit Credit 2,000 400 1,600 Salaries Payable Date Explanation 2011 May 31 Adjusting No. 212 Ref. Debit J4 Credit Balance 960 960 Travel Payable Date Explanation 2011 May 31 Adjusting No. 229 Ref. Debit J4 Credit Balance 250 250 Share Capital—Ordinary Date Explanation 2011 May 31 Balance Service Revenue Date Explanation 2011 May 31 Balance 31 Adjusting 31 Adjusting Supplies Expense Date Explanation 2011 May 31 Adjusting 3-56 Copyright © 2011 John Wiley & Sons, Inc. Balance No. 311 Ref. Debit Credit Ref. 17,700 Debit J4 J4 Ref. J4 Balance Debit Credit No. 400 Balance 1,600 1,200 7,500 9,100 10,300 Credit No. 631 Balance 900 Weygandt, IFRS, 1/e, Solutions Manual 900 (For Instructor Use Only) PROBLEM 3-1B (Continued) Depreciation Expense Date Explanation 2011 May 31 Adjusting Insurance Expense Date Explanation 2011 May 31 Adjusting Salaries Expense Date Explanation 2011 May 31 Balance 31 Adjusting Ref. J4 Ref. J4 Ref. J4 Debit Credit 170 170 Debit No. 722 Balance Credit 150 150 Debit 726 Balance Credit 3,400 4,360 960 Rent Expense Date Explanation 2011 May 31 Balance Travel Expense Date Explanation 2011 May 31 Adjusting Copyright © 2011 John Wiley & Sons, Inc. No. 717 Balance No. 729 Ref. Debit Credit Balance Ref. J4 900 Debit Credit No. 736 Balance 250 Weygandt, IFRS, 1/e, Solutions Manual 250 (For Instructor Use Only) 3-57 PROBLEM 3-1B (Continued) (c) LULA CONSULTING, INC. Adjusted Trial Balance May 31, 2011 Cash................................................................................. Accounts Receivable ................................................. Supplies.......................................................................... Prepaid Insurance ....................................................... Office Furniture............................................................ Accumulated Depreciation—Office Furniture .................................................................... Accounts Payable ....................................................... Unearned Service Revenue...................................... Salaries Payable .......................................................... Travel Payable.............................................................. Share Capital—Ordinary ........................................... Service Revenue.......................................................... Supplies Expenses ..................................................... Depreciation Expenses ............................................. Insurance Expenses................................................... Salaries Expenses....................................................... Rent Expenses ............................................................. Travel Expenses .......................................................... 3-58 Copyright © 2011 John Wiley & Sons, Inc. Debit R$ 5,700 7,200 1,000 3,450 10,200 Credit R$ 170 4,500 400 960 250 17,700 10,300 900 170 150 4,360 900 250 R$34,280 Weygandt, IFRS, 1/e, Solutions Manual R$34,280 (For Instructor Use Only) PROBLEM 3-2B (a) Date May 31 31 31 31 31 31 31 Account Titles Insurance Expense.................................... Prepaid Insurance ........................... ($2,280 X 1/12) Ref. 722 130 Debit 190 Supplies Expense ...................................... Supplies ($2,200 – $750) ............... 631 126 1,450 Depreciation Expense—Lodge.............. ($3,000 X 1/12) Accumulated Depreciation— Lodge .............................................. 619 250 Depreciation Expense—Furniture ........ ($2,700 X 1/12) Accumulated Depreciation— Furniture ........................................ 621 Interest Expense......................................... Interest Payable ............................... [($35,000 X 12%) X 1/12] 718 230 350 Unearned Rent Revenue.......................... Rent Revenue ................................... (2/3 X $3,300) 209 429 2,200 Salaries Expense........................................ Salaries Payable .............................. 726 212 750 J1 Credit 190 1,450 142 250 225 150 225 350 2,200 750 (b) Cash Date Explanation May 31 Balance Copyright © 2011 John Wiley & Sons, Inc. No. 101 Ref. Debit Weygandt, IFRS, 1/e, Solutions Manual Credit Balance 3,500 (For Instructor Use Only) 3-59 PROBLEM 3-2B (Continued) Supplies Date Explanation May 31 Balance 31 Adjusting No. 126 Ref. J1 Debit Credit Balance 2,200 750 1,450 Prepaid Insurance Date Explanation May 31 Balance 31 Adjusting No. 130 Ref. J1 Debit Credit 190 Land No. 140 Date Explanation May 31 Balance Ref. Debit Credit Balance 12,000 Lodge No. 141 Date Explanation May 31 Balance Ref. Debit Credit Balance 60,000 Accumulated Depreciation—Lodge Date Explanation May 31 Adjusting No. 142 Ref. J1 Debit Credit 250 Furniture Date Explanation May 31 Balance Date Explanation May 31 Adjusting Copyright © 2011 John Wiley & Sons, Inc. Balance 250 No. 149 Ref. Debit Credit Accumulated Depreciation—Furniture 3-60 Balance 2,280 2,090 Ref. J1 Balance 15,000 No. 150 Debit Credit 225 Weygandt, IFRS, 1/e, Solutions Manual Balance 225 (For Instructor Use Only) PROBLEM 3-2B (Continued) Accounts Payable Date Explanation May 31 Balance Ref. Debit Credit No. 201 Balance 4,800 Unearned Rent Revenue Date Explanation May 31 Balance 31 Adjusting Salaries Payable Date Explanation May 31 Adjusting No. 209 Ref. J1 Ref. J1 Debit Credit 2,200 Debit Credit 750 Balance 3,300 1,100 No. 212 Balance 750 Interest Payable Date Explanation May 31 Adjusting No. 230 Ref. J1 Debit Credit 350 Balance 350 Mortgage Payable Date Explanation May 31 Balance Share Capital—Ordinary Date Explanation May 31 Balance No. 275 Ref. Ref. Debit Debit Credit Credit Balance 35,000 No. 311 Balance 46,380 Rent Revenue Date Explanation May 31 Balance 31 Adjusting Copyright © 2011 John Wiley & Sons, Inc. No. 429 Ref. J1 Debit Weygandt, IFRS, 1/e, Solutions Manual Credit 2,200 Balance 10,300 12,500 (For Instructor Use Only) 3-61 PROBLEM 3-2B (Continued) Advertising Expense Date Explanation May 31 Balance Depreciation Expense—Lodge Date Explanation May 31 Adjusting No. 610 Ref. Ref. J1 Debit Debit 250 Credit Credit Depreciation Expense—Furniture Date Explanation May 31 Adjusting Explanation Adjusting Ref. J1 Debit 225 Credit Ref. J1 Debit 1,450 Credit Ref. J1 Debit 350 Credit 3-62 Copyright © 2011 John Wiley & Sons, Inc. Balance 350 No. 722 Ref. J1 Debit 190 Credit Salaries Expense Date Explanation May 31 Balance 31 Adjusting Balance 1,450 No. 718 Insurance Expense Date Explanation May 31 Adjusting Balance 225 No. 631 Interest Expense Date Explanation May 31 Adjusting No. 619 Balance 250 No. 621 Supplies Expense Date May 31 Balance 600 Balance 190 No. 726 Ref. J1 Debit Credit 750 Weygandt, IFRS, 1/e, Solutions Manual Balance 3,300 4,050 (For Instructor Use Only) PROBLEM 3-2B (Continued) Utilities Expense Date Explanation May 31 Balance (c) Ref. Debit Credit No. 732 Balance 900 MOUND VIEW MOTEL, INC. Adjusted Trial Balance May 31, 2011 Cash ............................................................................ Supplies ..................................................................... Prepaid Insurance................................................... Land............................................................................. Lodge .......................................................................... Accumulated Depreciation—Lodge.................. Furniture .................................................................... Accumulated Depreciation—Furniture............ Accounts Payable................................................... Unearned Rent Revenue....................................... Salaries Payable...................................................... Interest Payable....................................................... Mortgage Payable ................................................... Share Capital—Ordinary....................................... Rent Revenue........................................................... Advertising Expense.............................................. Depreciation Expense—Lodge........................... Depreciation Expense—Furniture..................... Supplies Expense ................................................... Interest Expense ..................................................... Insurance Expense................................................. Salaries Expense .................................................... Utilities Expense ..................................................... Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual Debit $ 3,500 750 2,090 12,000 60,000 Credit $ 250 15,000 225 4,800 1,100 750 350 35,000 46,380 12,500 600 250 225 1,450 350 190 4,050 900 $101,355 $101,355 (For Instructor Use Only) 3-63 PROBLEM 3-2B (Continued) (d) MOUND VIEW MOTEL, INC. Income Statement For the Month Ended May 31, 2011 Revenues Rent revenue ............................................................ Expenses Salaries expense..................................................... Supplies expense ................................................... Utilities expense...................................................... Advertising expense.............................................. Interest expense...................................................... Depreciation expense—lodge ............................ Depreciation expense—furniture ...................... Insurance expense ................................................. Total expenses ............................................... Net income......................................................................... $12,500 $4,050 1,450 900 600 350 250 225 190 8,015 $ 4,485 MOUND VIEW MOTEL, INC. Retained Earnings Statement For the Month Ended May 31, 2011 Retained Earnings, May 1 .................................................................. Add: Net income ................................................................................. Retained Earnings, May 31................................................................ 3-64 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual $ 0 4,485 $4,485 (For Instructor Use Only) PROBLEM 3-2B (Continued) MOUND VIEW MOTEL, INC. Statement of Financial Position May 31, 2011 Assets Land................................................................................ Lodge ............................................................................. Less: Accumulated depreciation—lodge.......... Furniture........................................................................ Less: Accumulated depreciation—furniture ....... Prepaid insurance...................................................... Supplies......................................................................... Cash................................................................................ Total assets ................................................ $12,000 $60,000 250 15,000 225 59,750 14,775 2,090 750 3,500 $92,865 Equity and Liabilities Equity Share capital—ordinary .................................. Retained earnings ............................................. Liabilities Accounts payable ............................................. Mortgage payable.............................................. Unearned rent..................................................... Salaries payable ................................................ Interest payable ................................................. Total equity and liabilities .......................................... Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual $46,380 4,485 4,800 35,000 1,100 750 350 $50,865 42,000 $92,865 (For Instructor Use Only) 3-65 PROBLEM 3-3B (a) Sept. 30 30 30 30 30 30 30 (b) Accounts Receivable..................................... Commission Revenue ............................ 800 Rent Expense................................................... Prepaid Rent .............................................. 900 Supplies Expense........................................... Supplies ...................................................... 600 Depreciation Expense ................................... Accum. Depreciation—Equipment........ 500 Interest Expense ............................................. Interest Payable........................................ 100 Unearned Rent Revenue .............................. Rent Revenue ............................................ 850 Salaries Expense ............................................ Salaries Payable ....................................... 725 800 900 600 500 100 850 725 BERN CO., INC. Income Statement For the Quarter Ended September 30, 2011 Revenues Commission revenue ....................................... Rent revenue ....................................................... Total revenues ........................................... Expenses Salaries expense................................................ CHF8,725 Rent expense ...................................................... 2,800 Utilities expense................................................. 1,510 Supplies expense .............................................. 600 Depreciation expense....................................... 500 Interest expense................................................. 100 Total expenses .......................................... Net income.................................................................... 3-66 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual CHF16,800 2,260 19,060 14,235 CHF 4,825 (For Instructor Use Only) PROBLEM 3-3B (Continued) BERN CO., INC. Retained Earnings Statement For the Quarter Ended September 30, 2011 Retained Earnings, July 1, 2011...................................................... CHF 0 Add: Net income ................................................................................ 4,825 4,825 Less: Dividends................................................................................... 1,600 Retained Earnings, September 30, 2011 ...................................... CHF3,225 BERN CO., INC. Statement of Financial Position September 30, 2011 Assets Equipment .................................................................... CHF18,000 Less: Accum. depreciation—equipment........... 500 CHF17,500 Prepaid rent.................................................................. 1,300 Supplies......................................................................... 900 Accounts receivable.................................................. 11,200 Cash................................................................................ 8,700 Total assets ................................................ CHF39,600 Equity and Liabilities Equity Share capital—ordinary .................................. CHF22,000 Retained earnings ............................................. 3,225 Total equity................................................. CHF25,225 Liabilities Notes payable..................................................... 10,000 Accounts payable ............................................. 2,500 Salaries payable ................................................ 725 Unearned rent revenue.................................... 1,050 Interest payable ................................................. 100 Total liabilities ........................................... 14,375 Total equity and liabilities ....................................... CHF39,600 (c) Interest of 12% per year equals a monthly rate of 1%; monthly interest is CHF100 (CHF10,000 X 1%). Since total interest expense is CHF100, the note has been outstanding one month. Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-67 PROBLEM 3-4B 1. 2. 3. 4. 3-68 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Insurance Expense .............................................. Prepaid Insurance ....................................... [(€7,200 ÷ 3) = €2,400 [(€4,500 ÷ 2) = 2,250 €4,650] 4,650 Unearned Subscriptions .................................... Subscription Revenue ............................... [Oct. 200 X €45 X 3/12 = €2,250 [Nov. 300 X €45 X 2/12 = 2,250 [Dec. 500 X €45 X 1/12 = 1,875 €6,375] 6,375 Interest Expense................................................... Interest Payable ........................................... (€100,000 X 9% X 2/12) 1,500 Salaries Expense .................................................. Salaries Payable .......................................... [5 X €700 X 2/5 = €1,400 [3 X €500 X 2/5 = 600 €2,000] 2,000 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual 4,650 6,375 1,500 2,000 (For Instructor Use Only) PROBLEM 3-5B (a), (c) & (e) Cash Date Nov. No. 101 1 8 10 12 20 22 25 29 Explanation Balance Accounts Receivable Date Explanation Nov. 1 Balance 10 27 Ref. J1 J1 J1 J1 J1 J1 J1 Ref. J1 J1 Debit Credit 1,700 3,420 3,100 2,700 400 1,700 600 Debit Credit 3,420 900 Balance 2,400 700 4,120 7,220 4,520 4,120 2,420 3,020 No. 112 Balance 4,250 830 1,730 Supplies Date Nov. 1 17 30 No. 126 Explanation Balance Adjusting Store Equipment Date Explanation Nov. 1 Balance 15 Copyright © 2011 John Wiley & Sons, Inc. Ref. J1 J1 Ref. J1 Debit Credit 700 1,300 Debit 2,000 Weygandt, IFRS, 1/e, Solutions Manual Credit Balance 1,800 2,500 1,200 No. 153 Balance 12,000 14,000 (For Instructor Use Only) 3-69 PROBLEM 3-5B (Continued) Accumulated Depreciation—Store Equipment Date Nov. 1 30 Explanation Balance Adjusting Ref. J1 No. 154 Debit Credit 200 Accounts Payable Date Nov. 1 15 17 20 Explanation Balance No. 201 Ref. J1 J1 J1 Debit Credit 2,000 700 2,700 Unearned Service Revenue Date Nov. 1 29 30 Explanation Balance Adjusting 1 8 30 Explanation Balance Adjusting Ref. J1 J1 Debit Credit 600 1,250 1 Explanation Balance Ref. J1 J1 Debit Credit 700 400 3-70 1 Explanation Balance Copyright © 2011 John Wiley & Sons, Inc. Balance 700 0 400 No. 311 Ref. Debit Credit Retained Earnings Date Nov. Balance 1,200 1,800 550 No. 212 Share Capital—Ordinary Date Nov. Balance 2,600 4,600 5,300 2,600 No. 209 Salaries Payable Date Nov. Balance 2,000 2,200 Balance 10,000 No. 320 Ref. Debit Credit Weygandt, IFRS, 1/e, Solutions Manual Balance 3,950 (For Instructor Use Only) PROBLEM 3-5B (Continued) Service Revenue Date Explanation Nov. 12 27 30 Adjusting Ref. J1 J1 J1 Debit Credit 3,100 900 1,250 No. 400 Balance 3,100 4,000 5,250 Depreciation Expense Date Nov. 30 Explanation Adjusting No. 615 Ref. J1 Debit 200 Credit Balance 200 Supplies Expense Date Nov. 30 Explanation Adjusting No. 631 Ref. J1 Debit 1,300 Credit Balance 1,300 Salaries Expense Date Nov. Explanation 8 25 30 Adjusting Rent Expense Date Explanation Nov. 22 Copyright © 2011 John Wiley & Sons, Inc. No. 726 Ref. J1 J1 J1 Ref. J1 Debit 1,000 1,700 400 Debit 400 Weygandt, IFRS, 1/e, Solutions Manual Credit Credit Balance 1,000 2,700 3,100 No. 729 Balance 400 (For Instructor Use Only) 3-71 PROBLEM 3-5B (Continued) (b) General Journal J1 Date Nov. 8 10 12 15 17 20 22 25 27 29 3-72 Account Titles and Explanation Salaries Payable........................................ Salaries Expense ...................................... Cash...................................................... Ref. 212 726 101 Debit 700 1,000 Cash .............................................................. Accounts Receivable...................... 101 112 3,420 Cash .............................................................. Service Revenue .............................. 101 400 3,100 Store Equipment ....................................... Accounts Payable............................ 153 201 2,000 Supplies ....................................................... Accounts Payable............................ 126 201 700 Accounts Payable..................................... Cash ..................................................... 201 101 2,700 Rent Expense ............................................. Cash ..................................................... 729 101 400 Salaries Expense ...................................... Cash ..................................................... 726 101 1,700 Accounts Receivable............................... Service Revenue .............................. 112 400 900 Cash .............................................................. Unearned Service Revenue .......... 101 209 600 Copyright © 2011 John Wiley & Sons, Inc. Credit 1,700 3,420 3,100 2,000 700 2,700 400 Weygandt, IFRS, 1/e, Solutions Manual 1,700 900 600 (For Instructor Use Only) PROBLEM 3-5B (Continued) (d) & (f) MORELLI EQUIPMENT REPAIR Trial Balances November 30, 2011 Cash .................................................... Accounts Receivable..................... Supplies ............................................. Store Equipment ............................. Accumulated Depreciation .......... Accounts Payable........................... Unearned Service Revenue ......... Salaries Payable.............................. Share Capital—Ordinary............... Retained Earnings .......................... Service Revenue ............................. Depreciation Expense ................... Supplies Expense ........................... Salaries Expense ............................ Rent Expense ................................... (e) 1. Nov. 30 2. 3. 4. 30 30 30 Before After Adjustment Adjustment Dr. Cr. Dr. Cr. $ 3,020 $ 3,020 1,730 1,730 1,200 2,500 14,000 14,000 $ 2,000 $ 2,200 2,600 2,600 1,800 550 –0– 400 10,000 10,000 3,950 3,950 5,250 4,000 200 1,300 3,100 2,700 400 400 $24,350 $24,350 $24,950 $24,950 Supplies Expense............................. Supplies ($2,500 – $1,200)...... 631 126 1,300 Salaries Expense .............................. Salaries Payable ........................ 726 212 400 Depreciation Expense..................... Accumulated Depreciation— Store Equipment ................... 615 200 154 Unearned Service Revenue........... Service Revenue........................ 209 400 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual 1,300 400 200 1,250 (For Instructor Use Only) 1,250 3-73 PROBLEM 3-5B (Continued) (g) MORELLI EQUIPMENT REPAIR Income Statement For the Month Ended November 30, 2011 Revenues Service revenue....................................................... Expenses Salaries expense..................................................... Supplies expense ................................................... Rent expense ........................................................... Depreciation expense............................................ Total expenses ............................................... Net Income......................................................................... $5,250 $3,100 1,300 400 200 5,000 $ 250 MORELLI EQUIPMENT REPAIR Retained Earnings Statement For the Month Ended November 30, 2011 Retained Earnings, November 1...................................................... Plus: Net income.................................................................................. Retained Earnings, November 30.................................................... 3-74 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual $3,950 250 $4,200 (For Instructor Use Only) PROBLEM 3-5B (Continued) MORELLI EQUIPMENT REPAIR Statement of Financial Position November 30, 2011 Assets Equipment ........................................................................ Less: Accumulated depreciation— equipment............................................................ Supplies............................................................................. Accounts receivable...................................................... Cash.................................................................................... Total assets ............................................................. $14,000 2,200 $11,800 1,200 1,730 3,020 $17,750 Equity and Liabilities Equity Share capital—ordinary ...................................... Retained earnings ................................................. Liabilities Accounts payable ................................................. Unearned service revenue ................................. Salaries payable .................................................... Total equity and liabilities ........................................... Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual $10,000 4,200 2,600 550 400 $14,200 3,550 $17,750 (For Instructor Use Only) 3-75 BYP 3-1 FINANCIAL REPORTING PROBLEM (a) Items that may result in adjusting entries for prepayments are: 1. Prepaid expenses and other current assets (per statement of financial position). 2. Property, plant and equipment, net of depreciation (per statement of financial position). 3. Amortizable intangible assets, net (per statement of financial position)— amortization is similar to depreciation (explained later in Chapter 9). (b) Accrual adjusting entries were probably made for accounts payable and other current liabilities, interest expense, and income taxes payable. 3-76 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) BYP 3-2 COMPARATIVE ANALYSIS PROBLEM Cadbury Nestlé (a) Net increase (decrease) in property, plant, and equipment (net) from 2007 to 2008. £ (143,000,000) CHF (968,000,000) (b) Increase (decrease) in selling, general, and administrative expenses from 2007 to 2008. £ 187,000,000 CHF (680,000,000) (c) Increase (decrease) in long-term debt (obligations) from 2007 to 2008. £ (657,000,000) CHF (817,000,000) (d) Increase (decrease) in net income from 2007 to 2008. £ (41,000,000) CHF(7,669,000,000) (e) Increase (decrease) in cash and cash equivalents from 2007 to 2008. £ (242,000,000) CHF (759,000,000) Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-77 BYP 3-3 EXPLORING THE WEB (a) The categories are: 1. 2. 3. 4. 5. 6. 7. 8. 9. The Big 4 Professional Associations Education Finance Professors Taxation Audit and Law Government 10. 11. 12. 13. 14. 15. 16. 17. 18. Edgar FASB International Publishers Journals and Publications Softwares Other sites Entertainment Interest books (b) Student answers will vary depending on the category selected. 3-78 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) BYP 3-4 (a) DECISION MAKING ACROSS THE ORGANIZATION HAPPY CAMPER PARK, INC. Income Statement For the Quarter Ended March 31, 2011 Revenues Rental revenue ($90,000 – $15,000)................. Expenses Wages expense [$29,800 + ($300 X 2)]........... Advertising expense ($5,200 + $110).............. Supplies expense ($6,200 – $1,700) ................ Repairs expense ($4,000 + $260) ..................... Insurance expense ($7,200 X 3/12).................. Utilities expense ($900 + $180) ......................... Depreciation expense .......................................... Interest expense ($12,000 X 10% X 3/12)........... Total expenses .............................................. Net income........................................................................ $75,000 $30,400 5,310 4,500 4,260 1,800 1,080 800 300 48,450 $26,550 (b) The international financial reporting standards pertaining to the income statement that were not recognized by Amaya were the revenue recognition principle and the expense recognition principle. The revenue recognition principle states that revenue is recognized when it is earned. The fees of $15,000 for summer rentals have not been earned and, therefore, should not be reported in income for the quarter ended March 31. The expense recognition principle dictates that efforts (expenses) be matched with accomplishments (revenues) whenever it is reasonable and practicable to do so. This means that the expenses should include amounts incurred in March but not paid until April. The difference in expenses was $7,750 ($48,450 – $40,700). The overstatement of revenues ($15,000) plus the understatement of expenses ($7,750) equals the difference in reported income of $22,750 ($49,300 – $26,550). Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-79 BYP 3-5 COMMUNICATION ACTIVITY Dear President Nickels: Upon reviewing the accounts of your company at the end of the year, I discovered that adjusting entries were not made. Adjusting entries are made at the end of the accounting period to ensure that the revenue recognition and expense recognition principles required under international financial reporting standards are followed. The use of adjusting entries makes it possible to report on the statement of financial position the appropriate assets, liabilities, and equity at the statement date and to report on the income statement the proper net income (or loss) for the year. Adjusting entries are needed because the trial balance may not contain an up-to-date and complete record of transactions and events for the following reasons: 1. Some events are not journalized daily because it is not efficient to do so. Examples are the use of supplies and the earning of wages by employees. 2. The expiration of some costs is not journalized during the accounting period because these costs expire with the passage of time rather than as a result of recurring daily transactions. Examples of such costs are building and equipment depreciation, rent, and insurance. 3. Some expenses, such as the cost of utility service and property taxes, may be unrecorded because the bills for the costs have not been received. There are four types of adjusting entries: 3-80 1. Prepaid expenses—expenses paid in cash and recorded as assets before they are used or consumed. 2. Unearned revenues—revenues received in cash and recorded as liabilities before they are earned. Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) BYP 3-5 (Continued) 3. Accrued revenues—revenues earned but not yet received in cash or recorded. 4. Accrued expenses—expenses incurred but not yet paid in cash or recorded. I will be happy to answer any questions you may have on adjusting entries. Signature Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-81 BYP 3-6 ETHICS CASE (a) The stakeholders in this situation are: Cathi Bell, controller. The president of Bluestem Company. Bluestem Company shareholders. (b) 1. It is unethical for the president to place pressure on Cathi to misstate net income by requesting her to prepare incorrect adjusting entries. 2. It is customary for adjusting entries to be dated as of the statement of financial position date although the entries are prepared at a later date. Cathi did nothing unethical by dating the adjusting entries December 31. (c) Cathi can accrue revenues and defer expenses through the preparation of adjusting entries and be ethical so long as the entries reflect economic reality. Intentionally misrepresenting the company’s financial condition and its results of operations is unethical (it is also illegal). 3-82 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)