Chapter 3 - The Accounting Cycle: End of the Period
Chapter 3
The Accounting Cycle: End of the Period
REVIEW QUESTIONS
Question 3-1 (LO 3-1)
The revenue recognition principle states that we record revenue in the period in which we earn it.
If a company sells products or provides services to a customer in the current year, then the company
should report the revenue in its current income statement. If the company sells products or provides
services to a customer in the following year, then it should report the revenue in the following year’s
income statement, and so on.
Question 3-2 (LO 3-1)
The matching principle states that we recognize expenses in the same period as the revenues they
help to generate. There is a cause-and-effect relationship between revenue and expense recognition
implicit in this principle. The result is a measure net income that matches current period
accomplishments (revenues) and sacrifices (expenses).
Question 3-3 (LO 3-1)
Net income is an important profitability measure used by investors, creditors, and others in
assessing the performance of the company. Net income equals revenues minus expenses. Therefore,
to accurately assess profitability, it is important that revenues and the expenses that helped to
generate those revenues be reported in the same period. Otherwise, it would be difficult to tell from
-generating ability.
Question 3-4 (LO 3-2)
Under cash-basis accounting, revenues are recorded when cash is received and expenses are
recorded when cash is paid. In contrast, under accrual-basis accounting, revenues are recorded when
earned (revenue recognition principle) and expenses are recorded when used to generate revenues
(matching principle).
Question 3-5 (LO 3-2)
(1) April 10th.
(2) April 10th.
(3) April 10th.
Question 3-6 (LO 3-2)
(1) March 28th.
(2) April 10th.
(3) May 2nd.
Solutions Manual, Chapter 3
© The McGraw-Hill Companies, Inc., 2014
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Chapter 3 - The Accounting Cycle: End of the Period
Answers to Review Questions (continued)
Question 3-7 (LO 3-2)
(1) April 10th.
(2) April 10th.
(3) April 10th.
Question 3-8 (LO 3-2)
(1) March 28th.
(2) April 10th.
(3) May 2nd.
Question 3-9 (LO 3-3)
One of the primary purposes of adjusting entries is to allow for proper application of the revenue
recognition principle (revenues) or the matching principle (expenses). The revenue recognition
principle and matching principle are key components of accrual-basis accounting.
Question 3-10 (LO 3-3)
Prepayments are cases where cash is received before revenue is recognized or where cash is paid
before the expense is recognized. Accruals are cases where cash is received after revenue is
recognized or where cash is paid after the expense is recognized.
Question 3-11 (LO 3-3)
A prepaid expense includes the purchase of supplies, prepaid insurance, and prepaid rent. The
adjusting entry for a prepaid expense always includes a debit to an expense account and a credit to an
asset account.
Question 3-12 (LO 3-3)
An unearned revenue includes a customer paying cash before receiving the related product or
service, such as a magazine subscription. The adjusting entry for an unearned revenue always
includes a debit to a liability account and a credit to a revenue account.
Question 3-13 (LO 3-3)
An accrued expense includes incurring an expense before the related cash outflow, such as when
the cost of employees’ salaries, utilities, taxes, and interest are incurred but not paid until a later
time. The adjusting entry for an accrued expense always includes a debit to an expense account and a
credit to a liability account.
Question 3-14 (LO 3-3)
An accrued revenue includes earning a revenue before the related cash inflow, such as providing
products or services to customers on account. The adjusting entry for an accrued revenue always
includes a debit to an asset account and a credit to a revenue account.
© The McGraw-Hill Companies, Inc., 2014
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Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Answers to Review Questions (continued)
Question 3-15 (LO 3-3)
October 31
Supplies Expense ($75 − $25)
Supplies
(Consume supplies during the current period)
Debit
Credit
50
50
Question 3-16 (LO 3-3)
Yes. Utilities expense and utilities payable will be understated at the end of September. Utilities
expense should be recorded during the period incurred (that is, in the period it helps to produce
revenues), regardless of whether it is paid. Utilities payable should be recorded in the period the
obligation (debt) arises.
Question 3-17 (LO 3-3)
November 30
Debit
Unearned Revenues
Service Revenue
(Provide services to customers who paid in advance)
20,000
Credit
20,000
Question 3-18 (LO 3-3)
Yes. Accounts receivable and service revenue will be understated at the end of May. Accounts
receivable should be recorded in the period the right to receive cash arises. Service revenue should
be recorded in the period the revenue is earned, regardless of whether cash is received.
Question 3-19 (LO 3-3)
(a) Prepaid expense: Debit Supplies Expense; credit Supplies.
(b) Unearned revenue: Debit Unearned Revenue; credit Service Revenue.
(c) Accrued expense: Debit Salaries Expense; credit Salaries Payable.
(d) Accrued revenue: Debit Accounts Receivable; credit Service Revenue.
Question 3-20 (LO 3-4)
The purpose of the adjusted trial balance is to list all accounts and their balances after updating
account balances for adjusting entries and check the equality of total debits and total credits. Account
balances reported on the (unadjusted) trial balance do not include the effects of adjusting entries.
Account balances reported on the adjusted trial balance do include the effects of adjusting entries.
Question 3-21 (LO 3-5)
Classified indicates that assets are separated into those that provide a benefit over the next year
(current assets) and those that provide a benefit for more than one year (long-term assets). Similarly,
liabilities are divided into those due over the next year (current liabilities) and those due in more than
one year (long-term liabilities).
Solutions Manual, Chapter 3
© The McGraw-Hill Companies, Inc., 2014
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Chapter 3 - The Accounting Cycle: End of the Period
Answers to Review Questions (continued)
Question 3-22 (LO 3-5)
Stockholders’
+
equity
Assets
=
Liabilities
$12,000
=
$8,000
+
$X
$12,000
−
$8,000
=
$4,000
Question 3-23 (LO 3-6)
The two purposes of closing entries are (1) to transfer the balances of temporary accounts
(revenues, expenses, and dividends) to the retained earnings account and (2) to reduce the balances
of these temporary accounts to zero to prepare them for measuring activity in the next period.
Question 3-24 (LO 3-6)
at the end of the accounting period. The reason is that temporary accounts measure activity over a
single period only and therefore need to start each period at zero. To start a period at zero, it is
necessary to end the previous period with a zero balance. Dividends, revenues, and expenses are
closed.
Question 3-25 (LO 3-6)
The first closing entry transfers revenue transactions to retained earnings by debiting all revenue
accounts (reducing their balances to zero) and crediting retained earnings. The second closing entry
transfers expense transactions to retained earnings by crediting all expense accounts (reducing their
balance to zero) and debiting retained earnings. The third closing entry transfers dividend
transactions to retained earnings by crediting the dividends account (reducing its balance to zero) and
debiting retained earnings.
Question 3-26 (LO 3-6)
Year 1
Year 2
Year 3
Year 4
Net Income
$ 300
900
1,500
2,400
* Retained earnings = P
© The McGraw-Hill Companies, Inc., 2014
3-4
Dividends
$200
200
200
200
Retained Earnings*
$ 100
800
2,100
4,300
Net income
Dividends
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Answers to Review Questions (continued)
Question 3-27 (LO 3-6)
It is important to understand that transactions are recorded from the company’s perspective. The
company is paying dividends to its stockholders. From the company’s perspective, there is a
reduction in total assets of the company (generally cash) and total stockholders’ equity when
dividends are paid. [The personal accounting records of the stockholder would show an increase in
cash and stockholders’ equity when the dividend is received from the company.]
Question 3-28 (LO 3-7)
The adjusted trial balance does not include the effect of closing entries while the post-closing
trial balance does. This means that revenues, expenses, and dividends will be reported in the adjusted
trial balance but not in the post-closing trial balance. The balance of retained earnings will differ in
the two trial balances. In the post-closing trial balance, all balances for revenue, expense, and
dividends accounts will have been transferred to the balance of retained earnings.
Solutions Manual, Chapter 3
© The McGraw-Hill Companies, Inc., 2014
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Chapter 3 - The Accounting Cycle: End of the Period
BRIEF EXERCISES
Brief Exercise 3-1 (LO 3-1)
(a) $0; Cash received in advance is recorded as unearned revenue (liability).
(b) $900.
(c) $2,300.
Brief Exercise 3-2 (LO 3-1)
(a) $600.
(b) $200.
(c) $0; The payment would reduce accounts payable (liability).
Brief Exercise 3-3 (LO 3-1)
Revenues
$17,000
−
−
Expenses
$12,000
© The McGraw-Hill Companies, Inc., 2014
3-6
= Net Income
=
$5,000
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-4 (LO 3-1, 3-2)
Cash
Balance
Cash-basis
Net Income
Accrual-basis
Net Income
+$1,500
+$1,500
$0
Provide $3,200 of consulting
services to a local business.
Payment is not expected
until June.
$0
$0
+$3,200
Purchase office supplies for
$400 on account. All
supplies are used by the end
of May.
$0
$0
−$400
Pay $600 to workers. $400 is
for work in May and $200 is
for work in April.
−$600
−$600
−$400
Pay $200 to advertise in a
local newspaper in May.
−$200
−$200
−$200
+$700
+$700
+$2,200
Impact on:
(a)
(b)
(c)
(d)
(e)
Receive $1,500 from
customers who were billed
for services in April.
Total
Brief Exercise 3-5 (LO 3-1, 3-2)
Cash-basis
Accrual
Accrual-basis
net income
adjustments
net income
Cash inflows
$50,000
+$6,900*
$56,900
Cash outflows
21,900
−$3,000**
18,900
$28,100
$38,000
* The increase in accounts receivable ($6,900) represents accrual-basis revenues with no
corresponding cash inflows.
** The decrease in salaries owed ($3,000) represents cash outflows for salaries of the prior year
and would not be expensed in the current year.
Solutions Manual, Chapter 3
© The McGraw-Hill Companies, Inc., 2014
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Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-6 (LO 3-3)
(1)
May 15
Debit
Supplies
Cash
(Purchase supplies for cash)
(2)
May 31
Credit
3,300
3,300
Debit
Supplies Expense
Supplies
(Adjust supplies)
Credit
3,500
3,500
(3)
Supplies
May 1
Beginning balance
May 15
Purchase
$ 500
Supplies
Expense
$
0
3,300
Adjustment Supplies used during May
(3,500)
3,500
May 31
$ 300
$3,500
Ending balance
© The McGraw-Hill Companies, Inc., 2014
3-8
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-7 (LO 3-3)
(1)
Oct. 1
Debit
Prepaid Rent
Cash
(Pay for rent in advance)
Credit
25,200
(2)
Dec. 31
25,200
Debit
Rent Expense
Prepaid Rent
(Adjust prepaid rent)
Credit
6,300
6,300
= $2,100 per month x 3 months (Oct., Nov., and Dec.)
(3)
Prepaid
Rent
Jan. 1
Beginning balance
Oct. 1
Purchase
Adjustment Prepaid rent expired during year
Dec. 31
Solutions Manual, Chapter 3
Ending balance
$
0
Rent
Expense
$
0
25,200
(6,300)
$18,900
6,300
$6,300
© The McGraw-Hill Companies, Inc., 2014
3-9
Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-8 (LO 3-3)
(1)
Mar. 1
Debit
Prepaid Insurance
Cash
(Purchase insurance in advance)
(2)
Dec. 31
36,000
36,000
Debit
Insurance Expense
Prepaid Insurance
(Adjust prepaid insurance)
Credit
Credit
30,000
30,000
= $3,000 per month x 10 months (Mar. – Dec.)
(3)
Prepaid
Insurance
Jan. 1
Beginning balance
Mar. 1
Purchase
$
0
Insurance
Expense
$
0
36,000
Adjustment Insurance expired during year
(30,000)
30,000
Dec. 31
$ 6,000
$30,000
Ending balance
© The McGraw-Hill Companies, Inc., 2014
3-10
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-9 (LO 3-3)
(1)
Apr. 1
Debit
Equipment
Cash
(Purchase equipment)
Credit
50,400
50,400
(2)
Dec. 31
Debit
Depreciation Expense
Accumulated Depreciation
(Adjust accumulated depreciation)
Credit
5,400
5,400
= $600 per month x 9 months (Apr. – Dec.)
(3)
Jan. 1
Beginning balance
Adjustment Depreciation during year
Dec. 31
Solutions Manual, Chapter 3
Ending balance
Accumulated
Depreciation
Depreciation
Expense
$
$
0
0
5,400
5,400
$5,400
$5,400
© The McGraw-Hill Companies, Inc., 2014
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Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-10 (LO 3-3)
(1)
Nov. 1
Debit
Cash
6,000
Credit
Unearned Revenue
(Receive cash in advance from customer)
(2)
Dec. 31
6,000
Debit
Unearned Revenue
Service Revenue
(Adjust unearned revenue)
Credit
4,000
4,000
= $2,000 per month x 2 months (Nov. and Dec.)
Unearned
Revenue
(3)
Jan. 1
Beginning balance
Nov. 1
Receipt
$
0
Service
Revenue
$
0
6,000
Adjustment Revenue earned during year
(4,000)
4,000
Dec. 31
$2,000
$4,000
Ending balance
© The McGraw-Hill Companies, Inc., 2014
3-12
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-11 (LO 3-3)
(1)
Dec. 31, 2015
Debit
Credit
Salaries Expense
1,200
Salaries Payable
1,200
(Adjust salaries payable)
($1,200 = $400 per day x 3 days [Dec. 29 – 31])
(2)
Jan. 11, 2016
Debit
Salaries Payable
Salaries Expense
Cash
(Pay two-week salaries, including
amounts payable from prior year)
Credit
1,200
4,400
5,600
Salaries
Payable
(3)
Jan. 1, 2015
Beginning balance
$ 0
Adjustment
Salaries incurred but not paid
1,200
Dec. 31, 2015 Ending balance
Solutions Manual, Chapter 3
$1,200
© The McGraw-Hill Companies, Inc., 2014
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Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-12 (LO 3-3)
(1)
Jul. 1, 2015
Debit
Cash
15,000
Notes Payable
(Borrow cash)
(2)
Dec. 31, 2015
15,000
Debit
Interest Expense
Interest Payable
(Adjust interest payable)
Credit
Credit
900
900
= $150 (or 1% of $15,000) per month x 6 months (Jul. – Dec.)
(3)
Jan. 1, 2015
Beginning balance
Adjustment
Interest incurred but not paid
Interest
Payable
Interest
Expense
$ 0
$ 0
900
900
$900
$900
Dec. 31, 2015 Ending balance
Brief Exercise 3-13 (LO 3-3)
(1)
Jul. 1, 2015
Notes Receivable
Cash
(Lend cash)
(2)
Dec. 31, 2015
Interest Receivable
Interest Revenue
(Adjust interest receivable)
Debit
Credit
15,000
15,000
Debit
Credit
900
900
= $150 (or 1% of $15,000) per month x 6 months (Jul. – Dec.)
© The McGraw-Hill Companies, Inc., 2014
3-14
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
(3)
Jan. 1, 2015
Beginning balance
Adjustment
Interest earned but not received
Dec. 31, 2015 Ending balance
Solutions Manual, Chapter 3
Interest
Receivable
Interest
Revenue
$ 0
$ 0
900
900
$900
$900
© The McGraw-Hill Companies, Inc., 2014
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Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-14 (LO 3-5)
Account
Financial Statement
1. Accounts Receivable
Balance Sheet
2. Unearned Revenue
Balance Sheet
3. Supplies Expense
Income Statement
4. Salaries Payable
Balance Sheet
5. Depreciation Expense
Income Statement
6. Service Revenue
Income Statement
Brief Exercise 3-15 (LO 3-5)
1. (b)
2. (d)
3. (a)
4. (c)
© The McGraw-Hill Companies, Inc., 2014
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Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-16 (LO 3-5)
Beavers Corporation
Income Statement
For the year ended December 31, 2015
Service revenue
Expenses:
Salaries
Supplies
Rent
Depreciation
Delivery
Total expenses
Net income
$275,000
$110,000
20,000
26,000
44,000
18,000
218,000
$ 57,000
Brief Exercise 3-17 (LO 3-5)
Spiders Corporation
Statement of Stockholders’ Equity
For the year ended December 31, 2015
Balance at January 1
Issuance of common stock
Add: Net income for 2015
Less: Dividends
Balance at December 31
Common
Stock
Retained
Earnings
$30,000
0
$8,000
$30,000
Total
Stockholders’
Equity
3,000 *
(1,000)
$10,000
$38,000
0
3,000
(1,000)
$40,000
* $3,000 is calculated as total revenues ($28,000) less total expenses ($25,000) for the year.
Solutions Manual, Chapter 3
© The McGraw-Hill Companies, Inc., 2014
3-17
Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-18 (LO 3-5)
Blue Devils Corporation
Balance Sheet
December 31, 2015
Assets
Cash
$
Accounts receivable
Supplies
Total current assets
Equipment
Accumulated depr.
Total assets
*
Assets
$108,000
$108,000
Liabilities
Accounts payable
Salaries payable
Total current liabilities
5,000
9,000
19,000
33,000
Stockholders’ Equity
Common stock
60,000
Retained earnings
6,000 *
Total stockholders’ equity
66,000
Total liabilities and
stockholders’ equity
$108,000
120,000
(45,000)
$108,000
=
=
−
Liabilities
$42,000
$42,000
© The McGraw-Hill Companies, Inc., 2014
3-18
$ 26,000
16,000
42,000
+
+
−
Stockholders’ equity
($60,000 + Retained earnings)
$60,000 = Retained earnings
$6,000 = Retained earnings
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Brief Exercise 3-19 (LO 3-6)
December 31
Debit
Credit
Service Revenue
Retained Earnings
(Close revenue accounts)
900,000
Retained Earnings
Salaries Expense
Rent Expense
Interest Expense
(Close expense accounts)
625,000
Retained Earnings
Dividends
(Close dividends account)
60,000
900,000
390,000
150,000
85,000
60,000
Brief Exercise 3-20 (LO 3-7)
Hilltoppers Corporation
Post-Closing Trial Balance
Accounts
Cash
Equipment
Accounts Payable
Common Stock
Retained Earnings
Totals
* Retained Earnings
+ Revenues
(before closing)
8,100
+ 16,000
Solutions Manual, Chapter 3
Debit
$ 5,000
17,000
Credit
$ 3,000
11,000
8,000 *
$22,000
$22,000
Expenses
Dividends
15,000
1,100
Retained Earnings
(after closing)
=
8,000
=
© The McGraw-Hill Companies, Inc., 2014
3-19
Chapter 3 - The Accounting Cycle: End of the Period
EXERCISES
Exercise 3-1 (LO 3-1)
1. August 16.
2. January 27.
3. April 2.
4. Revenue would be recognized as each magazine is delivered.
Exercise 3-2 (LO 3-1)
1. August 16.
2. January 27.
3.
is recorded each month.
4. February 4.
Exercise 3-3 (LO 3-2)
1. June 12.
2. February 2.
3. April 2.
4. July 1.
© The McGraw-Hill Companies, Inc., 2014
3-20
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-4 (LO 3-2)
1. September 2.
2. January 6.
3. January 1.
4. February 23.
Exercise 3-5 (LO 3-1)
Net income (unadjusted)
$100,000
a. Record insurance expense of $2,000 per month
(6,000)
b. Reclassify service revenue as unearned revenue (liability)
(4,000)
c. Reclassify supplies expense as supplies (asset)
2,750
d. Record interest expense of $525 per month (9%/12 of $70,000)
Net income (adjusted)
Solutions Manual, Chapter 3
(2,100)
$90,650
© The McGraw-Hill Companies, Inc., 2014
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Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-6 (LO 3-3, 3-4, 3-5, 3-6, 3-7)
(i) Use source documents to identify accounts affected by
external transactions.
(g) Analyze the impact of the transaction on the accounting
equation.
(h) Assess whether the transaction results in a debit or a credit to
the account balance.
(c) Record the transaction.
(b) Post the transaction to the T-account in the general ledger.
(f) Prepare a trial balance.
(a) Record and post adjusting entries.
(d) Prepare financial statements (income statement, statement of
stockholders’ equity, balance sheet, and statement of cash
flows).
(e) Record and post closing entries.
© The McGraw-Hill Companies, Inc., 2014
3-22
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-7 (LO 3-3)
(a)
Debit
Supplies Expense
Supplies
(Adjust supplies)
3,000
(b)
Debit
Insurance Expense
Prepaid Insurance
(Adjust prepaid insurance)
2,000
(c)
Debit
Salaries Expense
Salaries Payable
(Adjust salaries payable)
16,000
(d)
Debit
Unearned Revenue
Service Revenue
(Adjust unearned revenue)
1,500
Solutions Manual, Chapter 3
Credit
3,000
Credit
2,000
Credit
16,000
Credit
1,500
© The McGraw-Hill Companies, Inc., 2014
3-23
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-8 (LO 3-3)
(a)
Debit
Depreciation Expense
Accumulated Depreciation
(Adjust accumulated depreciation)
7,000
(b)
Debit
Interest Receivable
Interest Revenue
(Adjust interest receivable)
1,750
(c)
Debit
Unearned Revenue
Service Revenue
(Adjust unearned revenue)
4,000
Credit
7,000
Credit
1,750
Credit
4,000
Exercise 3-9 (LO 3-3)
If the adjusting entry is NOT made:
Revenues
Expenses
=
Net Income
(a)
$0
7,000
=
+$7,000
(b)
1,750
$0
=
$1,750
(c)
$4,000
$0
=
$4,000
Total
© The McGraw-Hill Companies, Inc., 2014
3-24
+$1,250
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-10 (LO 3-3)
(a)
Debit
Unearned Revenue
Service Revenue
(Adjust unearned revenue)
1,500
(b)
Debit
Credit
1,500
Advertising Expense
Prepaid Advertising
(Adjust prepaid advertising)
Credit
900
900
(c)
Debit
Salaries Expense
Salaries Payable
(Adjust salaries payable)
8,000
(d)
Debit
Interest Expense
Interest Payable
(Adjust interest payable)
2,100
Credit
8,000
Credit
2,100
Exercise 3-11 (LO 3-3, 3-4)
If the adjusting entry is NOT made:
=
Assets
+
Liabilities
Equity
(a)
$0
=
+$1,500
+
500
(b)
+$900
=
$0
+
+$900
(c)
$0
=
$8,000
+
+$8,000
(d)
$0
=
$2,100
+
+$2,100
Total
+$900
Solutions Manual, Chapter 3
8,600
+$9,500
© The McGraw-Hill Companies, Inc., 2014
3-25
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-12 (LO 3-3)
(a)
Debit
Unearned Revenue
Service Revenue
(Adjust unearned revenue)
2,000
(b)
Debit
Insurance Expense
Prepaid Insurance
(Adjust prepaid insurance)
6,600
(c)
Debit
Salaries Expense
Salaries Payable
(Adjust salaries payable)
3,000
(d)
Debit
Interest Expense
Interest Payable
(Adjust interest payable)
2,000
Credit
6,600
Credit
3,000
Credit
250
250
(e)
Debit
Supplies Expense
Supplies
(Adjust office supplies)
3,900
© The McGraw-Hill Companies, Inc., 2014
3-26
Credit
Credit
3,900
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-13 (LO 3-3)
(a)
Interest Receivable
Interest Revenue
(Adjust interest receivable)
Debit
270
270
(b)
Debit
Rent Expense
Prepaid Rent
(Adjust prepaid rent)
3,000
(c)
Debit
Unearned Revenue
Service Revenue
(Adjust unearned revenue)
5,500
(d)
Debit
Depreciation Expense
Accumulated Depreciation
(Adjust accumulated depreciation)
5,500
(e)
Debit
Salaries Expense
Salaries Payable
(Adjust salaries payable)
5,000
(f)
Debit
Supplies Expense
Supplies
(Adjust supplies)
3,500
Solutions Manual, Chapter 3
Credit
Credit
3,000
Credit
5,500
Credit
5,500
Credit
5,000
Credit
3,500
© The McGraw-Hill Companies, Inc., 2014
3-27
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-14 (LO 3-3, 3-4)
Requirement 1
(a)
Debit
Rent Expense
Prepaid Rent
(Adjust prepaid rent)
2,400
(b)
Debit
Unearned Revenue
Service Revenue
(Adjust unearned revenue)
(c)
Salaries Expense
Salaries Payable
(Adjust salaries payable)
2,400
Credit
750
750
Debit
Credit
700
700
(d)
Debit
Supplies Expense
Supplies
(Adjust supplies)
3,200
© The McGraw-Hill Companies, Inc., 2014
3-28
Credit
Credit
3,200
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-14 (concluded)
Requirement 2
Adjusted Trial Balance
Accounts
Cash
Accounts Receivable
Prepaid Rent
Supplies
Unearned Revenue
Salaries Payable
Common Stock
Retained Earnings
Service Revenue
Salaries Expense
Rent Expense
Supplies Expense
Totals
Solutions Manual, Chapter 3
Debit
$ 10,000
15,000
4,800
800
Credit
$ 2,250
700
11,000
6,000
51,950
35,700
2,400
3,200
$71,900
$71,900
© The McGraw-Hill Companies, Inc., 2014
3-29
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-15 (LO 3-5)
Year
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Volunteers Inc.
(in millions)
Net
Retained
Income (Loss)
Earnings
—
$0
$ 30
30
(7)
23
41
64
135
199
30
229
(131)
98
577
675
359
1,034
360
1,394
© The McGraw-Hill Companies, Inc., 2014
3-30
Raiders Inc.
(in millions)
Net
Retained
Income (Loss)
Earnings
$ 35
$ 11
(43)
(32)
63
31
63
94
102
196
135
331
(42)
289
74
363
110
473
162
635
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-16 (LO 3-5)
Requirement 1
Fightin’ Blue Hens Corporation
Income Statement
For the year ended December 31, 2015
Service revenue
Expenses:
Salaries
Rent
Depreciation
Interest
Total expenses
Net income
$500,000
$400,000
20,000
40,000
5,000
465,000
$ 35,000
Requirement 2
Fightin’ Blue Hens Corporation
Statement of Stockholders’ Equity
For the period ended December 31, 2015
Balance at July 1
Issuance of common stock
Add: Net income for 2015
Less: Dividends
Balance at December 31
Common
Stock
Retained
Earnings
$300,000
0
$60,000
$300,000
35,000
(0)
$95,000
Total
Stockholders’
Equity
$360,000
0
35,000
(0)
$395,000
Exercise 3-16 (concluded)
Requirement 3
Fightin’ Blue Hens Corporation
Balance Sheet
December 31, 2015
Assets
Cash
Solutions Manual, Chapter 3
$ 12,000
Liabilities
Accounts payable
$ 12,000
© The McGraw-Hill Companies, Inc., 2014
3-31
Chapter 3 - The Accounting Cycle: End of the Period
Accounts receivable 150,000
Prepaid rent
6,000
Supplies
30,000
Total current assets 198,000
Equipment
400,000
Accumulated depr. (135,000)
Total assets
*
$463,000
Salaries payable
11,000
Interest payable
5,000
Total current liabilities
28,000
Notes payable
40,000
Stockholders’ Equity
Common stock
300,000
Retained earnings
95,000 *
Total stockholders’ equity
395,000
Total liabilities and
stockholders’ equity
$463,000
Retained earnings = Beginning retained earnings + Net income − Dividends
= $60,000 + $35,000 − $0
= $95,000
© The McGraw-Hill Companies, Inc., 2014
3-32
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-17 (LO 3-6)
Requirement 1
December 31, 2015
Debit
Service Revenue
Interest Revenue
Retained Earnings
(Close revenue accounts)
50,000
6,000
Retained Earnings
Salaries Expense
Rent Expense
Advertising Expense
Depreciation Expense
Interest Expense
(Close expense accounts)
40,000
Retained Earnings
Dividends
(Close dividends account)
3,000
Credit
56,000
15,000
6,000
3,000
11,000
5,000
3,000
Requirement 2
Retained Earnings
30,000
40,000
56,000
3,000
43,000
Solutions Manual, Chapter 3
© The McGraw-Hill Companies, Inc., 2014
3-33
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-18 (LO 3-6)
Requirement 1
December 31, 2015
Debit
Service Revenue
Retained Earnings
(Close revenue accounts)
54,000
Retained Earnings
Salaries Expense
Advertising Expense
Rent Expense
Utilities Expense
(Close expense accounts)
51,000
Retained Earnings
Dividends
(Close dividends account)
4,000
Credit
54,000
20,000
13,000
10,000
8,000
4,000
Requirement 2
Retained Earnings
9000
51,000
54,000
4,000
8,000
© The McGraw-Hill Companies, Inc., 2014
3-34
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-19 (LO 3-6, 3-7)
Requirement 1
December 31, 2015
Debit
Credit
Service Revenue
Retained Earnings
(Close revenue accounts)
500,000
Retained Earnings
Salaries Expense
Rent Expense
Depreciation Expense
Interest Expense
(Close expense accounts)
465,000
500,000
400,000
20,000
40,000
5,000
Requirement 2
Fightin’ Blue Hens Corporation
Post-Closing Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Prepaid Rent
Office Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Salaries Payable
Interest Payable
Notes Payable
Common Stock
Retained Earnings
Totals
Solutions Manual, Chapter 3
Debit
$ 12,000
150,000
6,000
30,000
400,000
$598,000
Credit
$135,000
12,000
11,000
5,000
40,000
300,000
95,000
$598,000
© The McGraw-Hill Companies, Inc., 2014
3-35
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-20 (LO 3-3, 3-4, 3-5, 3-6, 3-7)
Requirement 1
Debit
1. Cash
Common Stock
(Issue shares of common stock)
20,000
2. Cash
Accounts Receivable
Service Revenue
(Provide services to customers for
cash and on account)
35,000
30,000
3. Salaries Expense
Cash
(Pay salaries to employees)
23,000
4. Prepaid Rent
Cash
(Pay for one-year rental policy)
12,000
5. Supplies
Accounts Payable
(Purchase supplies on account)
22,000
6. Dividends
Cash
(Pay dividends)
2,000
© The McGraw-Hill Companies, Inc., 2014
3-36
Credit
20,000
65,000
23,000
12,000
22,000
2,000
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-20 (continued)
Requirement 2
Debit
1. Salaries Expense
Salaries Payable
(Adjust salaries payable)
4,000
2. Rent Expense
Prepaid Rent
(Adjust prepaid rent)
3,000
3. Supplies Expense
Supplies
(Adjust supplies)
25,000
4. Unearned Revenue
Service Revenue
(Adjust unearned revenue)
5,000
Solutions Manual, Chapter 3
Credit
4,000
3,000
25,000
5,000
© The McGraw-Hill Companies, Inc., 2014
3-37
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-20 (continued)
Requirement 3
Red Flash Photography
Adjusted Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Supplies
Prepaid Rent
Land
Accounts Payable
Salaries Payable
Common Stock
Retained Earnings
Dividends
Service Revenue
Salaries Expense
Rent Expense
Supplies Expense
Total
© The McGraw-Hill Companies, Inc., 2014
3-38
Debit
$ 30,000
30,000
5,000
9,000
60,000
Credit
$ 22,000
4,000
70,000
25,000
2,000
70,000
27,000
3,000
25,000
$191,000
$191,000
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-20 (continued)
Requirement 4
Red Flash Photography
Income Statement
For the year ended December 31, 2015
Service revenue
Expenses:
Salaries
Rent
Supplies
$70,000
Total expenses
Net income
55,000
$15,000
27,000
3,000
25,000
Red Flash Photography
Statement of Stockholders’ Equity
For the period ended December 31, 2015
Balance at January 1
Issuance of common stock
Add: Net income for 2015
Less: Dividends
Balance at December 31
Solutions Manual, Chapter 3
Common
Stock
Retained
Earnings
$50,000
20,000
$25,000
$70,000
15,000
(2,000)
$38,000
Total
Stockholders’
Equity
$ 75,000
20,000
15,000
(2,000)
$108,000
© The McGraw-Hill Companies, Inc., 2014
3-39
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-20 (continued)
Requirement 4 (continued)
Red Flash Photography
Balance Sheet
December 31, 2015
Assets
Cash
$ 30,000
Accounts receivable 30,000
Supplies
5,000
Prepaid rent
9,000
Total current assets
74,000
Land
Total assets
60,000
$134,000
© The McGraw-Hill Companies, Inc., 2014
3-40
Liabilities
Accounts payable
$ 22,000
Salaries payable
4,000
Total current liabilities
26,000
Stockholders’ Equity
Common stock
70,000
Retained earnings
38,000
Total stockholders’ equity
108,000
Total liabilities and
stockholders’ equity
$134,000
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Exercise 3-20 (concluded)
Requirement 5
December 31, 2015
Debit
Service Revenue
Retained Earnings
(Close revenue accounts)
70,000
Retained Earnings
Salaries Expense
Rent Expense
Supplies Expense
(Close expense accounts)
55,000
Retained Earnings
Dividends
(Close dividends account)
2,000
Solutions Manual, Chapter 3
Credit
70,000
27,000
3,000
25,000
2,000
© The McGraw-Hill Companies, Inc., 2014
3-41
Chapter 3 - The Accounting Cycle: End of the Period
PROBLEMS: SET A
Problem 3-1A (LO 3-1, 3-2)
Transaction
1. Receive cash from customers in
advance, $600
2. Pay utilities bill for the previous
month, $150.
3. Pay for insurance one year in
advance, $2,000
4. Pay workers’ salaries for the current
month, $800.
5. Incur costs for employee salaries in
the current month but do not pay,
$1,000.
6. Receive cash from customers at the
time of service, $1,700
7. Purchase office supplies on account,
$330.
8. Borrow cash from the bank, $4,000.
9. Receive cash from customers for
services performed last month, $750.
10. Pay for advertising to appear in the
current month, $450.
© The McGraw-Hill Companies, Inc., 2014
3-42
Accrual-Basis
Revenue Expense
Cash-Basis
Revenue Expense
$0
$0
$600
$0
$0
$0
$0
$150
$0
$0
$0
$2,000
$0
$800
$0
$800
$0
$1,000
$0
$0
$1,700
$0
$1,700
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$750
$0
$0
$450
$0
$450
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-2A (LO 3-1, 3-2)
Minutemen Law Services
Income Statement
For the year ended December 31, 2015
Service revenue
Expenses:
Salaries
Supplies
Rent
Insurance
Utilities
Total expenses
Net income
$73,000a
$37,700b
7,000c
5,000d
3,300e
3,000f
56,000
$17,000
a
$70,000 (cash from customers) + $3,000 (increase in accounts receivable) = $73,000
$36,000 (cash paid for salaries) + $1,700 (increase in salaries payable) = $37,700
c
$4,000 (cash paid for supplies) + $3,000 (decrease in supplies) = $7,000
b
d
$5,000 (cash paid for rent) +/− $0 (decrease/increase in prepaid rent) = $5,000
$7,000 (cash paid for insurance) − $3,700 (increase in prepaid insurance) = $3,300
f
$3,000 (cash paid for utilities) +/− $0 (increase/decrease in utilities payable) = $3,000
e
Solutions Manual, Chapter 3
© The McGraw-Hill Companies, Inc., 2014
3-43
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-3A (LO 3-3)
(a)
Debit
Unearned Revenue
Service Revenue
(Adjust unearned revenue)
3,600
(b)
Debit
Depreciation Expense
Accumulated Depreciation
(Adjust accumulated depreciation)
7,000
(c)
Debit
Insurance Expense
Prepaid Insurance
(Adjust prepaid insurance)
1,600
(d)
Debit
Interest Expense
Interest Payable
(Adjust interest payable)
3,600
Credit
7,000
Credit
1,600
Credit
800
800
(e)
Debit
Supplies Expense
Supplies
(Adjust supplies)
1,700
© The McGraw-Hill Companies, Inc., 2014
3-44
Credit
Credit
1,700
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-4A (LO 3-3)
(a)
Debit
Depreciation Expense
Accumulated Depreciation
(Adjust accumulated depreciation)
6,000
(b)
Debit
Salaries Expense
Salaries Payable
(Adjust salaries payable)
2,100
(c)
Debit
Interest Expense
Interest Payable
(Adjust interest payable)
6,000
Credit
800
800
Debit
Supplies Expense
Supplies
(Adjust supplies)
1,300
(e)
Debit
Rent Expense
Prepaid Rent
(Adjust prepaid rent)
5,400
(f)
Debit
Solutions Manual, Chapter 3
Credit
2,100
(d)
Utilities Expense
Utilities Payable
(Adjust utilities payable)
Credit
Credit
1,300
Credit
5,400
Credit
200
200
© The McGraw-Hill Companies, Inc., 2014
3-45
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-5A (LO 3-5)
Boilermaker Unlimited
Income Statement
For the year ended December 31, 2015
Service revenues:
New construction
Remodel
Total revenues
Expenses:
Salaries
Supplies
Depreciation
Insurance
Utilities
Interest
Service fee
Total expenses
Net income
© The McGraw-Hill Companies, Inc., 2014
3-46
$450,000
280,000
$730,000
160,000
285,000
50,000
25,000
42,000
9,000
73,000
644,000
$ 86,000
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-5A (concluded)
Boilermaker Unlimited
Statement of Stockholders’ Equity
For the year ended December 31, 2015
Balance at January 1
Issuance of common stock
Add: Net income for 2015
Less: Dividends
Balance at December 31
Common
Stock
Retained
Earnings
$170,000
30,000
$ 31,000
$200,000
Total
Stockholders’
Equity
86,000
(26,000)
$91,000
$201,000
30,000
86,000
(26,000)
$291,000
Boilermaker Unlimited
Balance Sheet
December 31, 2015
Assets
Cash
$
Accounts receivable
Supplies
Prepaid insurance
Total current assets
16,000
25,000
32,000
7,000
80,000
Equipment
625,000
Accumulated depr. (200,000)
Total assets
Solutions Manual, Chapter 3
$505,000
Liabilities
Accounts payable
$ 31,000
Salaries payable
28,000
Utilities payable
5,000
Total current liabilities
64,000
Notes payable
150,000
Total Liabilities
214,000
Stockholders’ Equity
Common stock
200,000
Retained earnings
91,000
Total stockholders’ equity
291,000
Total liabilities and
stockholders’ equity
$505,000
© The McGraw-Hill Companies, Inc., 2014
3-47
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-6A (LO 3-6, 3-7)
Requirement 1
December 31
Debit
Credit
Service Revenue
Retained Earnings
(Close revenue accounts)
77,500
Retained Earnings
Salaries Expense
Utilities Expense
Insurance Expense
Supplies Expense
(Close expense accounts)
62,100
Retained Earnings
Dividends
(Close dividends account)
6,000
77,500
46,000
8,200
5,800
2,100
6,000
Requirement 2
Rattlers Tax Services
Post-Closing Trial Balance
Accounts
Cash
Accounts Receivable
Land
Accounts Payable
Common Stock
Retained Earnings
Totals
© The McGraw-Hill Companies, Inc., 2014
3-48
Debit
$ 4,700
7,200
115,000
$126,900
Credit
$ 3,000
90,000
33,900
$126,900
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7A (LO 3-4, 3-5, 3-6, 3-7)
Requirements 1 and 2 (adjusting entries posted in red)
Cash
Accounts Receivable
10,300
9,500
Supplies
2,000
1,300
10,300
9,500
Prepaid Rent
7,200
700
Equipment
Accumulated Depr.
90,000
12,000
6,000
18,000
5,400
1,800
90,000
Accounts Payable
Salaries Payable
7,700
0
2,100
2,100
7,700
Utilities Payable
Notes Payable
0
200
200
Retained Earnings
24,500
2,100
26,600
Supplies Expense
0
1,300
1,300
Solutions Manual, Chapter 3
0
800
800
Common Stock
20,000
45,000
20,000
45,000
Service Revenue
19,000
19,000
Salaries Expense
Interest Payable
42,200
42,200
Interest Expense
0
800
800
Utilities Expense
2,400
200
2,600
Rent Expense
0
5,400
5,400
Depr. Expense
0
6,000
6,000
© The McGraw-Hill Companies, Inc., 2014
3-49
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7A (continued)
Requirement 3
Crimson Tide Music Academy
Adjusted Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Supplies
Prepaid Rent
Equipment
Accumulated Depreciation
Accounts Payable
Salaries Payable
Interest Payable
Utilities Payable
Notes Payable
Common Stock
Retained Earnings
Service Revenue
Salaries Expense
Interest Expense
Rent Expense
Supplies Expense
Utilities Expense
Depreciation Expense
Total
© The McGraw-Hill Companies, Inc., 2014
3-50
Debit
$ 10,300
9,500
700
1,800
90,000
Credit
$ 18,000
7,700
2,100
800
200
20,000
45,000
19,000
42,200
26,600
800
5,400
1,300
2,600
6,000
$155,000
$155,000
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7A (continued)
Requirement 4
Crimson Tide Music Academy
Income Statement
For the year ended December 31, 2015
Service revenue
Expenses:
Salaries
Interest
Rent
Supplies
Utilities
Depreciation
$42,200
Total expenses
Net income (Loss)
42,700
$ (500)
26,600
800
5,400
1,300
2,600
6,000
Crimson Tide Music Academy
Statement of Stockholders’ Equity
For the year ended December 31, 2015
Balance at January 1
Issuance of common stock
Add: Net income for 2015
Less: Dividends
Balance at December 31
Solutions Manual, Chapter 3
Common
Stock
Retained
Earnings
$45,000
0
$19,000
$45,000
Total
Stockholders’
Equity
−500
(0)
$18,500
$64,000
0
−500
(0)
$63,500
© The McGraw-Hill Companies, Inc., 2014
3-51
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7A (continued)
Crimson Tide Music Academy
Balance Sheet
December 31, 2015
Assets
Cash
$ 10,300
Accounts receivable 9,500
Supplies
700
Prepaid rent
1,800
Total current assets
22,300
Equipment
90,000
Accumulated depr. (18,000)
Total assets
$94,300
© The McGraw-Hill Companies, Inc., 2014
3-52
Liabilities
Accounts payable
$ 7,700
Salaries payable
2,100
Interest payable
800
Utilities payable
200
Total current liabilities
10,800
Notes payable
20,000
Total liabilities
30,800
Stockholders’ Equity
Common stock
45,000
Retained earnings
18,500
Total stockholders’ equity
63,500
Total liabilities and
stockholders’ equity
$94,300
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7A (continued)
Requirement 5
December 31, 2015
Debit
Service Revenue
Retained Earnings
(Close revenue accounts)
42,200
Retained Earnings
Salaries Expense
Interest Expense
Rent Expense
Supplies Expense
Utilities Expense
Depreciation Expense
(Close expense accounts)
42,700
Solutions Manual, Chapter 3
Credit
42,200
26,600
800
5,400
1,300
2,600
6,000
© The McGraw-Hill Companies, Inc., 2014
3-53
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7A (concluded)
Requirement 6 (closing entries posted in red)
Retained Earnings
Service Revenue
19,000
42,700
42,200
18,500
Salaries Expense
24,500
2,100
42,200
42,200
0
Interest Expense
0
800
26,600
0
0
5,400
800
0
Supplies Expense
0
1,300
Rent Expense
0
Utilities Expense
1,300
0
2,400
200
5,400
Depr. Expense
0
6,000
2,600
0
6,000
0
Requirement 7
Crimson Tide Music Academy
Post-Closing Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Supplies
Prepaid Rent
Equipment
Accumulated Depreciation
Accounts Payable
Salaries Payable
Interest Payable
Utilities Payable
Notes Payable
Common Stock
Retained Earnings
Total
© The McGraw-Hill Companies, Inc., 2014
3-54
Debit
$ 10,300
9,500
700
1,800
90,000
$112,300
Credit
$ 18,000
7,700
2,100
800
200
20,000
45,000
18,500
$112,300
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8A (LO 3-3, 3-4, 3-5, 3-6, 3-7)
Requirement 1
Cash
20,000
20,000
Accounts Receivable
8,000
8,000
Equipment
4,000
4,000
Accumulated Depr.
15,000
15,000
Supplies
Salaries Payable
5,000
5,000
Common Stock
Retained Earnings
25,000
25,000
Dividends
0
0
Depr. Expense
0
0
Solutions Manual, Chapter 3
7,500
7,500
Service Revenue
9,500
9,500
Salaries Expense
0
0
0
0
R&M Expense
0
0
Supplies Expense
0
0
© The McGraw-Hill Companies, Inc., 2014
3-55
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8A (continued)
Requirement 2
(a)
Debit
Accounts Receivable
21,000
Cash
39,000
Service Revenue
(Service revenue on account and for cash)
(b)
Debit
Cash
Credit
60,000
Credit
18,000
Accounts Receivable
(Collect on account)
18,000
(c)
Debit
Cash
6,000
Common Stock
(Issue common stock)
6,000
(d)
Debit
Salaries Payable
Salaries Expense
Cash
(Pay past and current salaries)
(e)
7,500
18,500
Credit
26,000
Debit
Repairs and Maintenance Expense
13,000
Cash
(Pay repairs and maintenance expenses)
(f)
Debit
Equipment
Cash
(Purchase equipment)
(g)
8,000
Dividends
Cash
(Pay dividends)
1,100
© The McGraw-Hill Companies, Inc., 2014
3-56
Credit
Credit
13,000
Credit
8,000
Debit
Credit
1,100
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8A (continued)
Requirement 3 (entries posted in red)
Cash
Accounts Receivable
20,000
39,000
18,000
6,000
34,900
26,000
13,000
8,000
1,100
8,000
21,000
4,000
18,000
11,000
Equipment
4,000
Accumulated Depr.
15,000
8,000
23,000
Supplies
Salaries Payable
5,000
7,500
7,500
5,000
Common Stock
Retained Earnings
25,000
6,000
31,000
Dividends
0
1,100
1,100
Depr. Expense
0
0
Solutions Manual, Chapter 3
0
Service Revenue
9,500
0
60,000
60,000
9,500
Salaries Expense
R&M Expense
0
18,500
18,500
0
13,000
13,000
Supplies Expense
0
0
© The McGraw-Hill Companies, Inc., 2014
3-57
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8A (continued)
Requirement 4
Red Storm Cleaners
Unadjusted Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Supplies
Equipment
Accumulated Depreciation
Salaries Payable
Common Stock
Retained Earnings
Dividends
Service Revenue
Salaries Expense
Repairs and Main. Expense
Depreciation Expense
Supplies Expense
Total
Debit
$34,900
11,000
4,000
23,000
Credit
$ 5,000
0
31,000
9,500
1,100
60,000
18,500
13,000
0
0
$105,500
$105,500
Requirement 5
Debit
Salaries Expense
Salaries Payable
(Adjust salaries payable)
1,100
Depreciation Expense
Accumulated Depreciation
(Adjust accumulated depreciation)
5,000
Supplies Expense
Supplies
(Adjust supplies)
2,800
© The McGraw-Hill Companies, Inc., 2014
3-58
Credit
1,100
5,000
2,800
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8A (continued)
Requirement 6 (adjusted entries posted in red)
Cash
Accounts Receivable
20,000
39,000
18,000
6,000
34,900
26,000
13,000
8,000
1,100
8,000
21,000
4,000
18,000
11,000
Equipment
Salaries Payable
5,000
5,000
10,000
23,000
Common Stock
Retained Earnings
25,000
6,000
31,000
Dividends
0
1,100
1,100
Depr. Expense
7,500
7,500
1,100
1,100
Service Revenue
9,500
0
60,000
60,000
9,500
Salaries Expense
R&M Expense
0
18,500
1,100
19,600
0
13,000
13,000
Supplies Expense
0
0
5,000
5,000
2,800
2,800
Solutions Manual, Chapter 3
2,800
1,200
Accumulated Depr.
15,000
8,000
Supplies
© The McGraw-Hill Companies, Inc., 2014
3-59
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8A (continued)
Requirement 7
Red Storm Cleaners
Adjusted Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Supplies
Equipment
Accumulated Depreciation
Salaries Payable
Common Stock
Retained Earnings
Dividends
Service Revenue
Salaries Expense
Repairs and Main. Expense
Depreciation Expense
Supplies expense
Total
© The McGraw-Hill Companies, Inc., 2014
3-60
Debit
$ 34,900
11,000
1,200
23,000
Credit
$ 10,000
1,100
31,000
9,500
1,100
60,000
19,600
13,000
5,000
2,800
$111,600
$111,600
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8A (continued)
Requirement 8
Red Storm Cleaners
Income Statement
For the year ended December 31, 2015
Service revenue
Expenses:
Salaries
Repairs and main.
Depreciation
Supplies
$60,000
Total expenses
Net income
40,400
$19,600
19,600
13,000
5,000
2,800
Red Storm Cleaners
Balance Sheet
December 31, 2015
Assets
Cash
$34,900
Accounts receivable 11,000
Supplies
1,200
Total current assets
47,100
Equipment
23,000
Accumulated depr. (10,000)
Total assets
*
$60,100
Liabilities
Salaries payable
$ 1,100
Stockholders’ Equity
Common stock
31,000
Retained earnings
28,000 *
Total stockholders’ equity
59,000
Total liabilities and
stockholders’ equity
$60,100
Retained earnings = Beginning retained earnings + Net income − Dividends
= $9,500 + $19,600 − $1,100
= $28,000
Solutions Manual, Chapter 3
© The McGraw-Hill Companies, Inc., 2014
3-61
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8A (continued)
Requirement 9
December 31, 2015
Debit
Service Revenue
Retained Earnings
(Close revenue accounts)
60,000
Retained Earnings
Salaries Expense
Repairs and Main. Expense
Depreciation Expense
Supplies Expense
(Close expense accounts)
40,400
Retained Earnings
Dividends
(Close dividends account)
1,100
© The McGraw-Hill Companies, Inc., 2014
3-62
Credit
60,000
19,600
13,000
5,000
2,800
1,100
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8A (continued)
Requirement 10 (closing entries posted in red)
Cash
20,000
39,000
18,000
6,000
34,900
Accounts Receivable
26,000
13,000
8,000
1,100
8,000
21,000
4,000
18,000
11,000
Equipment
Salaries Payable
5,000
5,000
10,000
23,000
Common Stock
25,000
6,000
Retained Earnings
7,500
7,500
60,000
1,100
1,100
Service Revenue
9,500
40,400
2,800
1,200
Accumulated Depr.
15,000
8,000
Supplies
60,000
0
60,000
1,100
31,000
Dividends
0
1,100
1,100
0
28,000
Salaries Expense
R&M Expense
0
18,500
1,100
0
13,000
0
5,000
2,800
5,000
Solutions Manual, Chapter 3
0
Supplies Expense
0
0
13,000
19,600
0
Depr. Expense
0
2,800
0
© The McGraw-Hill Companies, Inc., 2014
3-63
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8A (concluded)
Requirement 11
Red Storm Cleaners
Post-Closing Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Supplies
Equipment
Accumulated Depreciation
Salaries Payable
Common Stock
Retained Earnings
Total
© The McGraw-Hill Companies, Inc., 2014
3-64
Debit
$34,900
11,000
1,200
23,000
$70,100
Credit
$10,000
1,100
31,000
28,000
$70,100
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
PROBLEMS: SET B
Problem 3-1B (LO 3-1, 3-2)
Transaction
1. Receive cash from customers at the
time of service, $3,700
2. Issue common stock for cash,
$6,000.
3. Receive cash from customers who
were previously billed, $1,700
4. Incur utilities cost in the current
month but do not pay, $600.
5. Pay workers’ salaries for the current
month, $700.
6. Pay for rent one year in advance,
$3,600
7. Repay a long-term note to the bank,
$3,000.
8. Pay workers’ salaries for the
previous month, $850.
9. Pay dividends to stockholders, $500.
10. Purchase office supplies for cash,
$540.
Solutions Manual, Chapter 3
Accrual-Basis
Revenue Expense
Cash-Basis
Revenue Expense
$3,700
$0
$3,700
$0
$0
$0
$0
$0
$0
$0
$1,700
$0
$0
$600
$0
$0
$0
$700
$0
$700
$0
$0
$0
$3,600
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$850
$0
$0
$0
$0
$540
© The McGraw-Hill Companies, Inc., 2014
3-65
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-2B (LO 3-1, 3-2)
Horned Frogs Fine Cooking
Income Statement
For the year ended December 31, 2015
Service revenue
Expenses:
Salaries
Supplies
Repairs and maintenance
Insurance
Advertising
Total expenses
Net income
$60,000a
$21,600b
7,000c
8,000d
1,500e
6,000f
44,100
$15,900
a
$65,000 (cash from customers) − $5,000 (decrease in accounts receivable) = $60,000
$23,000 (cash paid for salaries) − $1,400 (decrease in salaries payable) = $21,600
c
$9,000 (cash paid for supplies) − $2,000 (increase in supplies) = $7,000
b
d
$8,000 (cash paid for maintenance) +/− $0 (increase/decrease in maintenance payable) = $8,000
$4,000 (cash paid for insurance) − $2,500 (increase in prepaid insurance) = $1,500
f
$6,000 (cash paid for advertising) +/− $0 (decrease/increase in prepaid advertising) = $6,000
e
© The McGraw-Hill Companies, Inc., 2014
3-66
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-3B (LO 3-3)
(a)
Debit
Depreciation Expense
Accumulated Depreciation
(Adjust accumulated depreciation)
(b)
7,000
Salaries Expense
Salaries Payable
(Adjust salaries payable)
(c)
4,000
Interest Receivable
Interest Revenue
(Adjust interest receivable)
(d)
1,500
Insurance Expense
Prepaid Insurance
(Adjust prepaid insurance)
(e)
4,950
Supplies Expense
Supplies
(Adjust supplies)
(f)
1,700
Unearned Revenue
Service Revenue
(Adjust unearned revenue)
(g)
1,800
Rent Expense
Prepaid Rent
(Adjust prepaid rent)
2,000
Solutions Manual, Chapter 3
Credit
7,000
Debit
Credit
4,000
Debit
Credit
1,500
Debit
Credit
4,950
Debit
Credit
1,700
Debit
Credit
1,800
Debit
Credit
2,000
© The McGraw-Hill Companies, Inc., 2014
3-67
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-4B (LO 3-3)
(a)
Debit
Depreciation Expense
Accumulated Depreciation
(Adjust accumulated depreciation)
10,000
(b)
Debit
Salaries Expense
Salaries Payable
(Adjust salaries payable)
4,000
(c)
Debit
Interest Expense
Interest Payable
(Adjust interest payable)
1,050
(d)
Debit
Insurance Expense
Prepaid Insurance
(Adjust prepaid insurance)
20,000
(e)
Debit
Supplies Expense
Supplies
(Adjust supplies)
22,000
(f)
Debit
Utilities Expense
Utilities Payable
(Adjust utilities payable)
2,200
© The McGraw-Hill Companies, Inc., 2014
3-68
Credit
10,000
Credit
4,000
Credit
1,050
Credit
20,000
Credit
22,000
Credit
2,200
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-5B (LO 3-5)
Orange Designs
Income Statement
For the year ended December 31, 2015
Service revenue
Expenses:
Salaries
Rent
Depreciation
Supplies
Advertising
Utilities
Interest
$111,900
Total expenses
Net income
109,000
$ 2,900
Solutions Manual, Chapter 3
43,000
19,000
8,000
9,000
14,000
13,000
3,000
© The McGraw-Hill Companies, Inc., 2014
3-69
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-5B (concluded)
Orange Designs
Statement of Stockholders’ Equity
For the year ended December 31, 2015
Balance at January 1
Issuance of common stock
Add: Net income for 2015
Less: Dividends
Balance at December 31
Common
Stock
Retained
Earnings
$49,000
11,000
$16,000
$60,000
2,900
(0)
$18,900
Total
Stockholders’
Equity
$65,000
11,000
2,900
(0)
$78,900
Orange Designs
Balance Sheet
December 31, 2015
Assets
Cash
$
Accounts receivable
Supplies
Prepaid rent
Total current assets
Buildings
Accum. depr.
Total assets
6,000
5,000
3,000
7,000
21,000
120,000
(22,000)
$119,000
© The McGraw-Hill Companies, Inc., 2014
3-70
Liabilities
Accounts payable
$ 4,000
Salaries payable
5,000
Utilities payable
1,100
Total current liabilities
10,100
Notes payable
30,000
Total liabilities
40,100
Stockholders’ Equity
Common stock
60,000
Retained earnings
18,900
Total stockholders’ equity
78,900
Total liabilities and
stockholders’ equity
$119,000
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-6B (LO 3-6, 3-7)
December 31
Debit
Credit
Service Revenue
Retained Earnings
(Close revenue accounts)
89,700
Retained Earnings
Salaries Expense
Supplies Expense
Rent Expense
Delivery Expense
(Close expense accounts)
73,300
Retained Earnings
Dividends
(Close dividends account)
7,000
89,700
50,000
10,100
8,500
4,700
7,000
Fighting Illini
Post-Closing Trial Balance
Accounts
Cash
Accounts Receivable
Land
Accounts Payable
Common Stock
Retained Earnings
Totals
Solutions Manual, Chapter 3
Debit
$ 7,600
10,200
120,000
$137,800
Credit
$ 5,100
90,000
42,700
$137,800
© The McGraw-Hill Companies, Inc., 2014
3-71
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7B (LO 3-4, 3-5, 3-6, 3-7)
Requirements 1 and 2 (adjusting entries posted in red)
Cash
Accounts Receivable
22,000
15,000
Supplies
27,000
22,000
22,000
15,000
Prepaid Insurance
24,000
5,000
Equipment
Accumulated Depr.
95,000
37,000
10,000
47,000
20,000
4,000
95,000
Accounts Payable
Salaries Payable
12,000
0
4,000
4,000
12,000
Interest Payable
Notes Payable
0
1,050
1,050
Retained Earnings
10,000
10,000
Salaries Expense
Common Stock
35,000
35,000
35,000
Dividends
Service Revenue
3,000
3,000
Depreciation Expense
0
10,000
10,000
Supplies Expense
Utilities Expense
© The McGraw-Hill Companies, Inc., 2014
3-72
0
2,200
2,200
35,000
158,000
4,000
162,000
0
22,000
22,000
Utilities Payable
12,000
2,200
14,200
227,000
227,000
Insurance Expense
0
20,000
20,000
Interest Expense
0
1,050
1,050
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7B (continued)
Requirement 3
Jaguar Auto Company
Adjusted Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation
Accounts Payable
Salaries Payable
Utilities Payable
Interest Payable
Notes Payable
Common Stock
Retained Earnings
Dividends
Service Revenue
Salaries Expense
Depreciation Expense
Insurance Expense
Supplies Expense
Utilities Expense
Interest Expense
Total
Solutions Manual, Chapter 3
Debit
$ 22,000
15,000
5,000
4,000
95,000
Credit
$ 47,000
12,000
4,000
2,200
1,050
35,000
35,000
10,000
3,000
227,000
162,000
10,000
20,000
22,000
14,200
1,050
$373,250
$373,250
© The McGraw-Hill Companies, Inc., 2014
3-73
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7B (continued)
Requirement 4
Jaguar Auto Company
Income Statement
For the year ended December 31, 2015
Service revenue
Expenses:
Salaries
Depreciation
Insurance
Supplies
Utilities
Interest
$227,000
Total expenses
Net income (Loss)
229,250
$ (2,250)
162,000
10,000
20,000
22,000
14,200
1,050
Jaguar Auto Company
Statement of Stockholders’ Equity
For the year ended December 31, 2015
Balance at January 1
Issuance of common stock
Less: Net loss for 2015
Less: Dividends
Balance at December 31
© The McGraw-Hill Companies, Inc., 2014
3-74
Common
Stock
Retained
Earnings
$35,000
0
$10,000
$35,000
(2,250)
(3,000)
$ 4,750
Total
Stockholders’
Equity
$45,000
0
(2,250)
(3,000)
$39,750
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7B (continued)
Jaguar Auto Company
Balance Sheet
December 31, 2015
Assets
Cash
$22,000
Accounts receivable 15,000
Supplies
5,000
Prepaid insurance
4,000
Total current assets
46,000
Equipment
95,000
Accumulated depr. (47,000)
Total assets
Solutions Manual, Chapter 3
$94,000
Liabilities
Accounts payable
$12,000
Salaries payable
4,000
Utilities payable
2,200
Interest payable
1,050
Total current liabilities
19,250
Notes payable
35,000
Total liabilities
54,250
Stockholders’ Equity
Common stock
35,000
Retained earnings
4,750
Total stockholders’ equity
39,750
Total liabilities and
stockholders’ equity
$94,000
© The McGraw-Hill Companies, Inc., 2014
3-75
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7B (continued)
Requirement 5
December 31, 2015
Service Revenue
Retained Earnings
(Close revenue accounts)
Debit
227,000
227,000
Retained Earnings
Salaries Expense
Depreciation Expense
Insurance Expense
Supplies Expense
Utilities Expense
Interest Expense
(Close expense accounts)
229,250
Retained Earnings
Dividends
(Close dividends account)
3,000
© The McGraw-Hill Companies, Inc., 2014
3-76
Credit
162,000
10,000
20,000
22,000
14,200
1,050
3,000
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-7B (concluded)
Requirement 6 (closing entries posted in red)
Retained Earnings
Dividends
229,250
3,000
10,000
227,000
Salaries Expense
162,000
0
227,000
227,000
0
0
Depreciation Expense
0
10,000
Insurance Expense
0
20,000
10,000
0
Supplies Expense
0
22,000
3,000
3,000
4,750
158,000
4,000
Service Revenue
22,000
0
0
Utilities Expense
12,000
2,200
20,000
Interest Expense
0
1,050
14,200
0
1,050
0
Requirement 7
Jaguar Auto Company
Post-Closing Trial Balance
December 31, 2015
Accounts
Debit
Cash
$ 22,000
Accounts Receivable
15,000
Supplies
5,000
Prepaid Insurance
4,000
Equipment
95,000
Accumulated Depreciation
Accounts Payable
Salaries Payable
Utilities Payable
Interest Payable
Notes Payable
Common Stock
Retained Earnings
Total
$141,000
Solutions Manual, Chapter 3
Credit
$ 47,000
12,000
4,000
2,200
1,050
35,000
35,000
4,750
$141,000
© The McGraw-Hill Companies, Inc., 2014
3-77
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8B (LO 3-3, 3-4, 3-5, 3-6, 3-7)
Requirement 1
Cash
Accounts Receivable
4,500
4,500
9,500
9,500
Equipment
3,500
3,500
Accumulated Depr.
36,000
36,000
Supplies
Accounts Payable
8,000
8,000
Utilities Payable
Unearned Revenue
7,000
7,000
Retained Earnings
9,500
9,500
Salaries Expense
0
0
6,000
6,000
Common Stock
0
0
Dividends
23,000
23,000
Service Revenue
0
0
Utilities Expense
0
0
0
0
Supplies Expense
0
0
Depr. Expense
0
0
© The McGraw-Hill Companies, Inc., 2014
3-78
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8B (continued)
Requirement 2
(a)
Debit
Accounts Receivable
65,000
Cash
20,000
Service Revenue
(Provide services on account and for cash)
(b)
Debit
Cash
Credit
85,000
Credit
53,000
Accounts Receivable
(Collect on account)
53,000
(c)
Debit
Cash
11,000
Common Stock
(Issue common stock)
(d)
Salaries Expense
Cash
(Pay current salaries)
(e)
Credit
11,000
Debit
33,000
Credit
33,000
Debit
Credit
Utilities Payable
7,000
Utilities Expense
6,000
Cash
(Pay for past and current utilities expenses)
(f)
Debit
13,000
Cash
Credit
10,000
Unearned Revenue
(Receive cash in advance)
10,000
(g)
Debit
Dividends
Cash
(Pay dividends)
3,000
Solutions Manual, Chapter 3
Credit
3,000
© The McGraw-Hill Companies, Inc., 2014
3-79
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8B (continued)
Requirement 3 (entries posted in red)
Cash
Accounts Receivable
4,500
20,000
53,000
11,000
10,000
49,500
9,500
33,000
13,000
3,000
65,000
3,500
53,000
21,500
Equipment
Supplies
3,500
Accumulated Depr.
36,000
36,000
Accounts Payable
8,000
8,000
Utilities Payable
Unearned Revenue
7,000
0
9,500
9,500
Salaries Expense
0
33,000
33,000
Common Stock
0
10,000
10,000
7,000
Retained Earnings
6,000
6,000
Dividends
23,000
11,000
34,000
Service Revenue
0
3,000
3,000
Utilities Expense
0
6,000
6,000
0
85,000
85,000
Supplies Expense
0
0
Depr. Expense
0
0
© The McGraw-Hill Companies, Inc., 2014
3-80
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8B (continued)
Requirement 4
Pipers Plumbing
Unadjusted Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Utilities Payable
Unearned Revenue
Common Stock
Retained Earnings
Dividends
Service Revenue
Salaries Expense
Utilities Expense
Supplies Expense
Depreciation Expense
Total
Debit
$ 49,500
21,500
3,500
36,000
Credit
$ 8,000
6,000
0
10,000
34,000
9,500
3,000
85,000
33,000
6,000
0
0
$152,500
$152,500
Requirement 5
Debit
Depreciation Expense
Accumulated Depreciation
(Adjust accumulated depreciation)
8,000
Supplies Expense
Supplies
(Adjust supplies)
2,400
Unearned Revenue
Service Revenue
(Adjust unearned revenue)
7,000
Solutions Manual, Chapter 3
Credit
8,000
2,400
7,000
© The McGraw-Hill Companies, Inc., 2014
3-81
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8B (continued)
Requirement 6 (adjusted entries posted in red)
Cash
Accounts Receivable
4,500
20,000
53,000
11,000
10,000
49,500
9,500
33,000
13,000
3,000
65,000
3,500
53,000
21,500
Equipment
Accounts Payable
8,000
8,000
16,000
36,000
Utilities Payable
Unearned Revenue
7,000
7,000
7,000
0
Retained Earnings
0
3,000
9,500
3,000
Salaries Expense
0
33,000
33,000
Utilities Expense
0
6,000
6,000
6,000
6,000
Common Stock
0
10,000
3,000
Dividends
9,500
2,400
1,100
Accumulated Depr.
36,000
Supplies
23,000
11,000
34,000
Service Revenue
0
85,000
7,000
92,000
Supplies Expense
0
2,400
2,400
Depr. Expense
0
8,000
8,000
© The McGraw-Hill Companies, Inc., 2014
3-82
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8B (continued)
Requirement 7
Pipers Plumbing
Adjusted Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Utilities Payable
Unearned Revenue
Common Stock
Retained Earnings
Dividends
Service Revenue
Salaries Expense
Utilities Expense
Supplies Expense
Depreciation Expense
Total
Solutions Manual, Chapter 3
Debit
$ 49,500
21,500
1,100
36,000
Credit
$ 16,000
6,000
0
3,000
34,000
9,500
3,000
92,000
33,000
6,000
2,400
8,000
$160,500
$160,500
© The McGraw-Hill Companies, Inc., 2014
3-83
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8B (continued)
Requirement 8
Pipers Plumbing
Income Statement
For the year ended December 31, 2015
Service revenue
Expenses:
Salaries
Utilities
Supplies
Depreciation
$92,000
Total expenses
Net income
49,400
$ 42,600
33,000
6,000
2,400
8,000
Pipers Plumbing
Balance Sheet
December 31, 2015
Assets
Cash
$49,500
Accounts receivable 21,500
Supplies
1,100
Total current assets
72,100
Equipment
36,000
Accumulated depr. (16,000)
Total assets
*
$92,100
Liabilities
Accounts payable
Unearned revenue
Total current liabilities
$ 6,000
3,000
9,000
Stockholders’ Equity
Common stock
34,000
Retained earnings
49,100 *
Total stockholders’ equity
83,100
Total liabilities and
stockholders’ equity
$92,100
Retained earnings = Beginning retained earnings + Net income − Dividends
= $9,500 + $42,600 − $3,000
= $49,100
© The McGraw-Hill Companies, Inc., 2014
3-84
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8B (continued)
Requirement 9
December 31, 2015
Debit
Service Revenue
Retained Earnings
(Close revenue accounts)
92,000
Retained Earnings
Salaries Expense
Utilities Expense
Supplies Expense
Depreciation Expense
(Close expense accounts)
49,400
Retained Earnings
Dividends
(Close dividends account)
3,000
Solutions Manual, Chapter 3
Credit
92,000
33,000
6,000
2,400
8,000
3,000
© The McGraw-Hill Companies, Inc., 2014
3-85
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8B (continued)
Requirement 10 (closing entries posted in red)
Cash
Accounts Receivable
4,500
20,000
53,000
11,000
10,000
49,500
9,500
33,000
13,000
3,000
65,000
Utilities Payable
Unearned Revenue
7,000
7,000
7,000
0
Retained Earnings
9,500
Accounts Payable
92,000
6,000
6,000
Common Stock
0
10,000
3,000
Dividends
0
3,000
23,000
11,000
34,000
Service Revenue
3,000
92,000
49,100
Salaries Expense
33,000
0
0
85,000
7,000
0
Utilities Expense
0
6,000
0
2,400
1,100
8,000
8,000
16,000
36,000
0
33,000
0
53,000
Accumulated Depr.
36,000
49,400
3,000
3,500
21,500
Equipment
Supplies
6,000
Supplies Expense
0
2,400
0
2,400
Depr. Expense
0
8,000
0
8,000
© The McGraw-Hill Companies, Inc., 2014
3-86
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Problem 3-8B (concluded)
Requirement 11
Pipers Plumbing
Post-Closing Trial Balance
December 31, 2015
Accounts
Cash
Accounts Receivable
Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Utilities Payable
Unearned Revenue
Common Stock
Retained Earnings
Total
Solutions Manual, Chapter 3
Debit
$ 49,500
21,500
1,100
36,000
$108,100
Credit
$ 16,000
6,000
0
3,000
34,000
49,100
$108,100
© The McGraw-Hill Companies, Inc., 2014
3-87
Chapter 3 - The Accounting Cycle: End of the Period
ADDITIONAL PERSPECTIVES
Additional Perspective 3-1
Requirement 1
Aug. 1, 2015
Debit
Cash
30,000
Notes Payable
(Obtain loan from city council)
Aug. 4, 2015
Equipment (Kayaks)
28,000
Cash
(Pay cash for kayaks)
Aug. 10, 2015
Cash
3,000
Unearned Revenue
4,000
Service Revenue (Clinic)
(Receive cash and hold kayak clinic)
Aug. 17, 2015
Cash
10,500
Service Revenue (Clinic)
(Receive cash and hold kayak clinic)
Aug. 24, 2015
Accounts Payable
1,800
Cash
(Pay cash on account)
Sep. 1, 2015
Prepaid Rent
2,400
Cash
(Pay cash for one-year rental policy)
Sep. 21, 2015
Cash
13,200
Service Revenue (Clinic)
(Receive cash for rock climbing clinic)
Oct. 17, 2015
Cash
17,900
Service Revenue (Clinic)
(Receive cash for orienteering clinic)
© The McGraw-Hill Companies, Inc., 2014
3-88
Credit
30,000
28,000
7,000
10,500
1,800
2,400
13,200
17,900
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-1 (continued)
Requirement 1 (concluded)
Dec. 8, 2015
Miscellaneous Expense
1,200
Cash
(Pay cash for race permit)
Dec. 12, 2015
Supplies (Racing)
2,800
Accounts Payable
(Purchase racing supplies on account)
Dec. 15, 2015
Cash
20,000
Service Revenue (Racing)
(Receive cash for adventure race)
Dec. 16, 2015
Salaries Expense
2,000
Cash
(Pay cash for salary)
Dec. 31, 2015
Dividend
4,000
Cash
(Pay cash for dividend)
Solutions Manual, Chapter 3
1,200
2,800
20,000
2,000
4,000
© The McGraw-Hill Companies, Inc., 2014
3-89
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-1 (continued)
Requirement 2
Dec. 31, 2015
Depreciation Expense
Accumulated Depreciation
(Adjust accumulated depreciation)
Dec. 31, 2015
Insurance Expense
Prepaid Insurance
(Adjust prepaid insurance)
Dec. 31, 2015
Rent Expense
Prepaid Rent
(Adjust prepaid rent)
Dec. 31, 2015
Supplies Expense (Office)
Supplies (Office)
(Adjust office supplies)
Dec. 31, 2015
Interest Expense
Interest Payable
(Adjust interest payable)
Dec. 31, 2015
Supplies Expense (Racing)
Supplies (Racing)
(Adjust racing supplies)
Dec. 31, 2015
Income Tax Expense
Income Tax Payable
(Adjust income tax payable)
© The McGraw-Hill Companies, Inc., 2014
3-90
Debit
8,000
Credit
8,000
2,400
2,400
800
800
1,500
1,500
750
750
2,600
2,600
14,000
14,000
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-1 (continued)
Requirement 3 (Note: adjusting entries in italics)
Cash
10,000
4,800
10,000
1,500
2,000
300
2,300
12,000
4,000
700
30,000
28,000
3,000
1,800
10,500
2,400
13,200
1,200
17,900
2,000
20,000
4,000
64,200
Prepaid Insurance
2,400
4,800
2,400
Prepaid Rent
800
2,400
1,600
Supplies (Racing)
2,600
2,800
200
Equipment (Bikes)
12,000
12,000
Equipment (Kayaks)
28,000
28,000
Accum. Depr.
8,000
8,000
Accounts Payable
1800
1,800
2,800
2,800
Unearned Revenue
4,000
4,000
0
Interest Payable
750
750
Income Tax Payable
14,000
14,000
Notes Payable
30,000
30,000
Common Stock
10,000
10,000
20,000
Dividends
4,000
4,000
Advertising Expense
300
700
1,000
Depr. Expense
8,000
8,000
Interest Expense
750
750
Solutions Manual, Chapter 3
Service Revenue
(Clinic)
2,000
2,300
7,000
10,500
13,200
17,900
52,900
Service Revenue
(Racing)
20,000
20,000
Insurance Expense
2,400
2,400
Supplies Expense
(Office)
1,500
1,500
Rent Expense
800
800
Supplies (Office)
1,500
1,800
300
Legal Fees Expense
1,500
1,500
Salaries Expense
2,000
2,000
Supplies Expense
(Racing)
2,600
2,600
Income Tax Expense Miscellaneous Expense
14,000
1,200
14,000
1,200
© The McGraw-Hill Companies, Inc., 2014
3-91
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-1 (continued)
Requirement 4
Great Adventures, Inc.
Adjusted Trial Balance
December 31, 2015
Accounts
Cash
Prepaid Insurance
Prepaid Rent
Supplies (Office)
Supplies (Racing)
Equipment (Bikes)
Equipment (Kayaks)
Accumulated Depreciation
Accounts Payable
Income Tax Payable
Interest Payable
Notes Payable
Common Stock
Dividends
Service Revenue (Clinic)
Service Revenue (Racing)
Advertising Expense
Depreciation Expense
Income Tax Expense
Insurance Expense
Interest Expense
Legal Fees Expense
Miscellaneous Expense
Rent Expense
Salaries Expense
Supplies Expense (Office)
Supplies Expense (Racing)
Totals
© The McGraw-Hill Companies, Inc., 2014
3-92
Debit
$ 64,200
2,400
1,600
300
200
12,000
28,000
Credit
$ 8,000
2,800
14,000
750
30,000
20,000
4,000
52,900
20,000
1,000
8,000
14,000
2,400
750
1,500
1,200
800
2,000
1,500
2,600
$148,450
$148,450
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-1 (continued)
Requirement 5
Great Adventures, Inc.
Income Statement
For the period ended December 31, 2015
Revenues:
Service revenue (clinic)
Service revenue (racing)
Total revenues
Expenses:
Advertising expense
Depreciation expense
Income tax expense
Insurance expense
Interest expense
Legal fees expense
Miscellaneous expense
Rent expense
Salaries expense
Supplies expense (office)
Supplies expense (racing)
Total expenses
Net income
$52,900
20,000
$72,900
1,000
8,000
14,000
2,400
750
1,500
1,200
800
2,000
1,500
2,600
35,750
$37,150
Great Adventures, Inc.
Statement of Stockholders’ Equity
For the period ended December 31, 2015
Common
Stock
Balance at July 1
Issuance of common stock
Add: Net income for 2015
Less: Dividends
Balance at December 31
Solutions Manual, Chapter 3
$
0
20,000
$20,000
Retained
Earnings
$
0
37,150
(4,000)
$33,150
Total
Stockholders’
Equity
$
0
20,000
37,150
(4,000)
$53,150
© The McGraw-Hill Companies, Inc., 2014
3-93
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-1 (continued)
Requirement 5 (concluded)
Great Adventures, Inc.
Balance Sheet
December 31, 2015
Assets
Cash
$ 64,200
Prepaid insurance
2,400
Prepaid rent
1,600
Supplies (office)
300
Supplies (racing)
200
Total current assets
68,700
Equipment (bikes)
Equipment (kayaks)
Accumulated depr.
Total assets
12,000
28,000
(8,000)
$100,700
© The McGraw-Hill Companies, Inc., 2014
3-94
Liabilities
Accounts payable
Interest payable
Income tax payable
Total current liabilities
Notes payable
$ 2,800
750
14,000
17,550
30,000
Stockholders’ Equity
Common stock
20,000
Retained earnings
33,150
Total stockholders’ equity
53,150
Total liabilities and
stockholders’ equity
$100,700
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-1 (continued)
Requirement 6
Dec. 31, 2015
Service Revenue (Clinic)
Service Revenue (Racing)
Retained Earnings
(Close revenue accounts)
Dec. 31, 2015
Retained Earnings
Advertising Expense
Depreciation Expense
Income Tax Expense
Insurance Expense
Interest Expense
Legal Fees Expense
Miscellaneous Expense
Rent Expense
Salaries Expense
Supplies Expense (Office)
Supplies Expense (Racing)
(Close expense accounts)
Dec. 31, 2015
Retained Earnings
Dividends
(Close dividends account)
Solutions Manual, Chapter 3
Debit
52,900
20,000
Credit
72,900
35,750
1,000
8,000
14,000
2,400
750
1,500
1,200
800
2,000
1,500
2,600
4,000
4,000
© The McGraw-Hill Companies, Inc., 2014
3-95
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-1 (continued)
Requirement 7 (Note: closing entries in italics)
Cash
10,000
4,800
10,000
1,500
2,000
300
2,300
12,000
4,000
700
30,000
28,000
3,000
1,800
10,500
2,400
13,200
1,200
17,900
2,000
20,000
4,000
64,200
Prepaid Insurance
4,800
2,400
2,400
Prepaid Rent
2,400
800
1,600
Supplies (Racing)
2,800
2,600
200
Equipment (Bikes)
12,000
12,000
Equipment (Kayaks)
28,000
28,000
Accum. Depr.
8,000
8,000
Accounts Payable
1800
1,800
2,800
2,800
Unearned Revenue
4,000
4,000
0
Interest Payable
750
750
Income Tax Payable
14,000
14,000
Notes Payable
30,000
30,000
Common Stock
10,000
10,000
20,000
Dividends
4,000
4,000
0
Service Revenue
(Clinic)
52,900
2,000
2,300
7,000
10,500
13,200
17,900
0
Advertising Expense
1,000
300
700
0
Depr. Expense
8,000
8,000
0
Interest Expense
750
750
0
Insurance Expense
2,400
2,400
0
Service Revenue
(Racing)
20,000
20,000
0
Legal Fees Expense
1,500
1,500
0
Rent Expense
800
800
0
Salaries Expense
2,000
2,000
0
Supplies Expense
(Racing)
2,600
2,600
0
Supplies Expense
(Office)
1,500
1,500
0
Income Tax Expense Miscellaneous Expense
14,000
1,200
14,000
1,200
0
0
© The McGraw-Hill Companies, Inc., 2014
3-96
Supplies (Office)
1,800
1,500
300
Retained Earnings
35,750
72,900
4,000
33,150
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-1 (concluded)
Requirement 8
Great Adventures, Inc.
Post-closing Trial Balance
December 31, 2015
Accounts
Cash
Prepaid Insurance
Prepaid Rent
Supplies (Office)
Supplies (Racing)
Equipment (Bikes)
Equipment (Kayaks)
Accumulated Depreciation
Accounts Payable
Income Tax Payable
Interest Payable
Notes Payable
Common Stock
Retained Earnings
Totals
Solutions Manual, Chapter 3
Debit
$ 64,200
2,400
1,600
300
200
12,000
28,000
$108,700
Credit
$ 8,000
2,800
14,000
750
30,000
20,000
33,150
$108,700
© The McGraw-Hill Companies, Inc., 2014
3-97
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-2
Requirement 1
Current assets equal $1,141,800 thousand. Current assets include cash and cash
equivalents, short-term investments, merchandise inventory, accounts receivable,
prepaid expenses and other, and deferred income taxes. The ratio of current assets to
total assets is 0.65 (= $1,141,800 / $1,756,053).
Requirement 2
Current liabilities equal $435,902 thousand. Current liabilities include accounts
payable, note payable, accrued compensation and payroll taxes, accrued rent, accrued
income and other taxes, unredeemed store value cards and gift certificates, current
portion of deferred lease credits, and other liabilities and accrued expenses. The ratio
of current liabilities to total liabilities is 0.81 (= $435,902 / $534,866).
Requirement 3
Prepaid expenses and accrued liabilities likely relate to adjusting entries.
Requirement 4
The change in retained earnings is -$238,406 thousand (= $1,533,058
1,771,464).
Requirement 5
The amount of net income is $232,108 thousand.
Requirement 6
The change in retained earnings represents net income for the year less dividends. If
the change in retained earnings is -$238,406 thousand and net income equals
$232,108 thousand, then dividends normally would be $470,514 thousand. The
414,301
thousand. The reasons for the inequality are due to the reissuance of treasury stock.
Normally, these types of events do not occur and the change in retained earnings
would equal net income less dividends.
© The McGraw-Hill Companies, Inc., 2014
3-98
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-3
Requirement 1
Current assets equal $276,873 thousand. Current assets include cash and cash
equivalents, short-term investments, inventory, and prepaid expenses and other assets.
The ratio of current assets to total assets is 0.58 (= $276,873 / $477,974).
Requirement 2
Current liabilities equal $128,956 thousand. Current liabilities include accounts
payable, accrued employee compensation, accrued store operating expenses, gift
certificates redeemable, and income taxes payable. The ratio of current liabilities to
total liabilities is 0.68 (= $128,956 / $188,325).
Requirement 3
Prepaid expenses and accrued liabilities likely relate to adjusting entries.
Requirement 4
The change in retained earnings is -$90,328 thousand (= $172,711
263,039).
Requirement 5
The amount of net income is $164,305 thousand.
Requirement 6
The change in retained earnings represents net income for the year less dividends. If
the change in retained earnings is -$90,328 thousand and net income equals $164,305
thousand, then dividends should be $254,633 thousand. This is verified looking at the
ty which shows
dividends of $254,633.
Solutions Manual, Chapter 3
© The McGraw-Hill Companies, Inc., 2014
3-99
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-4
Requirement 1
For American Eagle, the ratio of current assets to total assets is 0.65 (= $1,141,800 /
$1,756,053). For Buckle, the ratio of current assets to total assets is 0.58 (= $276,873
/ $477,974).
will provide benefits within the next year or become cash in the next year. With more
cash-based resources, the company may be better able to respond to competitive
opportunities.
Requirement 2
For American Eagle, the ratio of current liabilities to total liabilities is 0.81 (=
$435,902 / $534,866). For Buckle, the ratio of current liabilities to total liabilities is
0.68 (= $128,956 / $188,325). A higher ratio indicates that a higher portion of the
company may be less able to respond to competitive opportunities and face a higher
risk of bankruptcy.
Requirement 3
For American Eagle, the dividend payout ratio is 1.78 (= $414,301 / $232,108). For
Buckle, the dividend payout ratio is 1.55 (= $254,633 / $164,305). A higher ratio
More often, growth companies pay fewer dividends because they are using available
cash to expand the company. Mature companies, typically have more cash available
to pay dividends. This appears to be the case here. Buckle, which is a higher-growth
company compared to American Eagle, pays fewer dividends relative to net income.
© The McGraw-Hill Companies, Inc., 2014
3-100
Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-5
What is the issue?
By reporting the $80,000 as Service Revenue instead of Unearned Revenue, beforetax profit will increase from $280,000 to $360,000. This adjustment would make it
appear that t
In addition, liabilities this year
will be understated by $80,000, making it appear that the company has fewer
obligations than it really does.
Who are the parties affected?
As the assistant controller (accountant), you should understand that your
responsibilities include accurately recording and reporting
By falsely reporting activities this year, you mislead innocent people (investors and
other employees) who are relying on your financial reports.
What factors should you consider in making your decision?
president will know he can count on you, and this could be your fast track to the top.
However, next year the $80,000 cannot be counted again in before-tax profits, likely
causing a big decline in reported performance. When this occurs, investors and other
thought that profitability was increasing, may sustain large losses as the stock price
falls.
Solutions Manual, Chapter 3
© The McGraw-Hill Companies, Inc., 2014
3-101
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-6
(Note to instructor: Answers ar
and dollar amounts are in millions.)
12 annual report,
Requirement 1
Revenues exceed expenses because the company reports net income of $5,464.8.
Requirement 2
Net income decreased from $5,503.1 to $5,464.8.
Requirement 3
Current assets include cash and equivalents, accounts and notes receivable,
inventories, and prepaid expenses and other current assets. Other assets include assets
that will provide a benefit for more than one year.
Requirement 4
Current liabilities include accounts payable, income taxes, other taxes, accrued
interest, accrued payroll and other liabilities, and current maturities of long-term debt.
Other liabilities include liabilities that are due in more than one year.
Requirement 5
Retained earnings increased $2,570.5, from $39,278.0 to $36,707.5.
Requirement 6
The amount of dividends paid equals $2,896.6.
Requirement 7
In most instances, the change in retained earnings equals net income less dividends.
For McDonald’s, net income in requirement 1 ($5,464.8) less dividends in
requirement 6 ($2,896.6) equals $2,568.2, which is slightly different from the change
in retained earnings in requirement 5 ($2,570.5). The difference of $2.3 is due to
unusual adjustments beyond the scope of this course.
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Financial Accounting, 3e
Chapter 3 - The Accounting Cycle: End of the Period
Additional Perspective 3-7
Requirement 1
Prepaid revenues occur when cash is received before the related revenues are
reported. Prepaid expenses occur when cash (or an obligation to pay cash) is paid
before the related expenses are reported. Accrued revenues occur when cash is
received after the related revenues are reported. Accrued expenses occur when cash is
paid after the related expenses and liabilities are reported.
Requirement 2
The adjusting entry for prepaid expenses includes a debit to an expense and a credit to
an asset. The adjusting entry for unearned revenue includes a debit to unearned
revenue (liability) and a credit to a revenue. By not recording an adjusting entry for a
prepaid expense, expenses will be understated and assets will be overstated. By not
recording an adjusting entry for unearned revenue, liabilities will be overstated and
revenues will be understated.
Requirement 3
The adjusting entry for accrued expenses includes a debit to an expense and a credit
to a liability. The adjusting entry for accrued revenues includes a debit to an asset and
a credit to a revenue. By not recording an adjusting entry for an accrued expense,
expenses will be understated and liabilities will be understated. By not recording an
adjusting entry for an accrued revenue, assets will be understated and revenues will
be understated.
Solutions Manual, Chapter 3
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