Problem Solutions: Topics 1 and 2
ACCT 60601
Evaluating Financial Performance
Fall 2015
Note: All problems are organized by Topic. Each problem is numbered with
the topic number first followed by a dash and then the problem number for
that topic. Many of the problems in this set are from the Dyckman, Magee
and Pfeiffer (4th edition) textbook. For those problems, the topic-problem
number is followed by the textbook reference number in parentheses. Note
that some of the problems extracted from the textbook have been revised or
reworded.
Topic 1 Solutions: Financial Accounting Theory and Concepts
1-1 (Q1.1)
Organizations undertake planning activities that subsequently shape three major
activities: financing, investing, and operating. Financing is the means used to pay
for resources. Investing refers to the buying and selling of resources necessary
to carry out the organization’s plans. Operating activities are the actual carrying
out of these plans. (Planning is the glue that connects these activities, including
the organization’s ideas, goals and strategies.)
1-2 (Q1.2)
An organization’s financing activities (liabilities and equity = sources of funds)
pay for investing activities (assets = uses of funds). An organization cannot have
more or less assets than its liabilities and equity combined and, similarly, it
cannot have more or less liabilities and equity than its total assets. This means:
assets = liabilities + equity. This relation is called the accounting equation
(sometimes called the balance sheet equation, or BSE), and it applies to all
organizations at all times.
1-3 (Q1.3)
The four main financial statements are: income statement, balance sheet,
statement of stockholders’ equity, and statement of cash flows. The income
statement provides information relating to the company’s revenues, expenses
and profitability over a period of time. The balance sheet lists the company’s
assets (what it owns), liabilities (what it owes), and stockholders’ equity (the
residual claims of its owners) as of a point in time. The statementofstockholders’
equity reports on the changes to each stockholders’ equity account during the
year. Some changes to stockholders’ equity, such as those resulting from the
payment of dividends and unrealized gains (losses) on marketable securities,
can only be found in this statement as they are not included in the computation of
net income. The statement of cash flows identifies the sources (inflows) and uses
(outflows) of cash, that is, from what sources the company has derived its cash
and how that cash has been used. All four statements are necessary in order to
provide a complete picture of the financial condition of the company.
1-4 (Q1.4)
The balance sheet provides information that helps users understand a
company’s resources (assets) and claims to those resources (liabilities and
stockholders’ equity) as of a given point in time.
2 An income statement reports whether the business has earned a net income
(also called profit or earnings) or a net loss. Importantly, the income statement
lists the types and amounts of revenues and expenses making up net income or
net loss. The income statement covers a period of time.
1-5 (Q1.6)
The statement of cash flows reports on the cash inflows and outflows relating to
a company’s operating, investing, and financing activities over a period of time.
The sum of these three activities yields the net change in cash for the period.
This statement is a useful complement to the income statement which reports on
revenues and expenses, but conveys relatively little information about cash
flows.
1-6 (Q1.7) Articulation refers to the updating of the balance sheet by information
contained in the income statement or the statement of cash flows. For example,
retained earnings is increased each period by any profit earned during the period
(as reported in the income statement) and decreased each period by the
payment of dividends (as reported in the statement of cash flows and the
statement of stockholders’ equity). It is by the process of articulation that the
financial statements are linked.
1-7 (Q1.14)
Generally Accepted Accounting Principles (GAAP) are the various methods,
rules, practices, and other procedures that have evolved over time in response to
the need to regulate the preparation of financial statements. They are primarily
set by the Financial Accounting Standards Board (FASB), an entity of the private
sector with representatives from companies that issue financial statements,
accounting firms that audit those statements, and users of financial information.
1-8 (Q2-2)
The revenue recognition principle requires that revenues be recognized when
earned. Revenues are earned when the product has been delivered to the buyer
and is usually signified by a formal transfer of title. A good test of whether
revenue has been earned is whether the rights, risks and obligations of
ownership have been transferred to the buyer. If a service is involved, revenues
are not earned until the service has been provided. The matching principle
prescribes that the expenses incurred in providing the service or product be
matched against the revenues recognized from the sale or the provision of the
service. When these two principles are followed, income can be properly
measured in a given accounting reporting period.
3 1-9 (Q2-3)
Accrual accounting entails the recognition of revenue under the revenue
recognition principle (record revenues when earned), and the recognition of
expenses using the matching principle (record expenses when incurred). The
recognition of revenues or the expenses does not require that cash be received
or disbursed. For example the recognition of revenues on sale can lead to an
account receivable, and wage expense can be accrued using a wages payable
(accrued) liability account. This differs from a cash-based accounting system,
where revenues are recognized only when cash is received and expenses are
recognized only when cash is expended.
1-10 (M1.20) Financing and Investing Relations, and Financing Sources
($ millions)
Assets
$72,921
=
Liabilities
+
Equity
$41,604
$31,317
Coca-Cola receives slightly more of its financing from creditors ($41,604 million) versus
owners ($31,317 million). Its owner financing comprises 42.9% of its total financing
($31,317 mil./ $72,921 mil.). Several years ago, the percentage was 50%.
1-11 (M2-16) Applying the Accounting Equation to the Balance Sheet
a. $375,000 - $105,000 = $270,000 equity
b. $43,000 + $11,000 = $54,000 assets
c. $878,000 - $422,000 = $456,000 liabilities
1-12 (M1.21) Applying the
Proportions
Assets
($ millions)
Hewlett-Packard
General Mills
Harley-Davidson
Accounting Equation and Computing Financing
$129,517
$ 18,675
(c) $
9,674
=
Liabilities
4 $90,513
(b)$12,063
$ 7,254
+
Equity
(a)$39,004
$ 6,612
$ 2,420
The percent of owner financing for each company follows:
Hewlett-Packard,
30.1%
($39,004 mil./ $129,517 mil.);
General Mills,
35.4%
($6,612 mil./ $18,675 mil.);
Harley-Davidson,
25.0%
($2,420 mil./ $9,674 mil.).
The creditor percent of financing is computed as 100% minus the owner percent.
Therefore, Hewlett-Packard is more owner-financed than the other two firms, while
Harley-Davidson and General Mills rely more on creditor financing.
1-13 (E1-28) Applying the Accounting Equation and Financial Statement
Articulation
($ millions)
a.
Using the accounting equation:
($ millions)
Assets
Intel
$63,186
=
Liabilities
+
$13,756
Equity
$49,430
b.
Starting with the accounting equation at the beginning of the year:
($ millions)
Assets
JetBlue
$6,549
=
Liabilities
$5,003
+
Equity
$1,546
Using the accounting equation at the end of the year:
($ millions)
Assets
=
JetBlue
$6,549+$44
Liabilities
+
$5,003-$64
Equity
$1,654
c.
Starting with the accounting equation at the end of the year:
($ millions)
Assets
Walt Disney
$72,124
=
Liabilities
+
$29,864+$2,807 Equity
$39,453
Using the accounting equation at the beginning of the year:
($ millions)
Assets
Walt Disney
$72,124$2,918
=
Liabilities
$29,864
5 +
Equity
$39,342
Topic 2 Solutions: Accounting for Transactions and Preparing
Financial Statements
2-1 (Q2-1)
An asset is something that we own that is expected to provide future benefits. A
liability is a current obligation that will require a future sacrifice. Equity is the
difference between assets and liabilities. It represents the claims of the
company’s owners to its income and assets. The following are some examples of
each:
ASSETS
LIABILITIES
EQUITY
2-2 (Q3-8)
•
•
•
•
•
•
•
•
•
•
•
•
Cash
Receivables
Inventories
Plant, property and equipment
Accounts payable
Accrued liabilities
Notes payable
Long-term debt
Contributed capital (common and preferred
stock)
Additional paid-in capital
Earned capital (retained earnings)
Treasury stock
Many of the transactions reflected in the accounting records through the first two
steps of the accounting cycle affect the net income of more than one period.
Therefore, adjustments to the account balances are ordinarily necessary at the end
of each accounting period to record the proper amount of revenue and to match
expenses with revenue properly. This process is also intended to achieve a more
accurate picture of financial position by adjusting balance sheet amounts to show
unexpired costs, up-to-date amounts of obligations, and so on.
2-3 (Q3-9)
1. Allocating assets to expense to reflect expenses incurred during the period.
Example: Recording supplies used by debiting Supplies Expense and crediting
Supplies.
2. Allocating payments received in advance by crediting the revenue account to
reflect revenues earned during the period. Example: Recording service fees
earned by debiting Unearned Service Fees and crediting Service Fees Earned.
6 3. Accruing expenses to reflect expenses incurred during the period that are not yet
paid or recorded. Example: Recording unpaid wages by debiting Wages
Expense and crediting Wages Payable.
4. Accruing revenues to reflect revenues earned during the period that are not yet
received or recorded. Example: Recording commissions earned by debiting
Commissions Receivable and crediting Commissions Earned.
2-4 (Q3-11)
A contra account is an account that is related to, and deducted from, another
account when financial statements are prepared or when book values are
computed. Accumulated depreciation is deducted from the cost of a depreciable
asset in computing and portraying the asset's book value.
2-5 (Q3-12)
The building is five years old by the end of 2014, so the accumulated depreciation
of $800,000 represents five years of depreciation at an annual rate of $160,000
($800,000/5). If the annual depreciation is $160,000, then the expected life of the
building must be 25 years.
At the end of 2021, the building will be twelve years old, and the accumulated
depreciation will be 12×$160,000, or $1,920,000. The book value of the building
(defined as original cost less accumulated depreciation) will be $2,080,000.
2-6 (Q3-16)
The temporary accounts—sometimes called nominal accounts—are closed at
year-end. They consist principally of the income statement accounts (expense and
revenue accounts). (The Income Summary account and the Dividend account are
also closed if they are used.)
2-7 (Q3-18)
A post-closing trial balance ensures that an equality of debits and credits has been
maintained throughout the adjusting and closing procedures and that the general
ledger is in balance to start the next period. Only balance sheet accounts appear in
a post-closing trial balance. Depreciation Expense and Supplies Expense are
temporary accounts that should have been closed and should not appear in the
post-closing trial balance.
7 2-8 (M1.24) Identifying Financial Statement Line Items and Accounts
a. BS
d. BS
g. SCF and SE
b. IS
e. SCF
h. SCF and SE
c. BS
f. BS and SE
i.
IS, SE, and SCF
2-9 (E1-30) Financial Statement Relations to Compute Dividends
Computation of dividends
Retained earnings, 2009 ......................................................
$13,157
+ Net income..............................................................................
2,203
– Cash dividends ........................................................................
(?)
= Retained earnings, 2010 ........................................................
$14,329
Thus, dividends were $1,031 million for 2010. This dividends amount comprises
46.8% ($1,031/ $2,203) of its 2010 net income.
2-10 (P1-39) Formulating a Statement of Stockholders’ Equity from Raw Data
DP Systems, Inc.
Statement of Stockholders’ Equity
For Year Ended December 31, 2013
Common
Retained
Stock
Earnings
Stockholders’ Equity
December 31, 2012 ..................
$ 550
$2,437
$2,987
Net income................................
859
859
Cash dividends .........................
(281)
(281)
December 31, 2013 ..................
$ 550
8 $3,015
$3,565
2-11 (M2-14) Determining Retained Earnings and Net Income Using the Balance
Sheet
Use the accounting equation.
a.
Cash
Accounts receivable
Supplies
Equipment
$ 8,000
23,000
9,000
138,000
178,000
Accounts payable
Common stock
Retained earnings
$ 11,000
110,000
b.
Retained Earnings:
December 31, 2013
January 1, 2013
Increase
Add: Dividends
Net Income 2013
$ 57,000
30,000
27,000
12,000
$ 39,000
2-12 (M2-18) Analyzing Transaction Effects on Equity
a. no effect
b. decrease
c. decrease
d. no effect
e. increase
f. increase
g. increase
9 121,000
$ 57,000
2-13 (M2-19 Identifying and Classifying Financial Statement Items
Balance sheet
b.
Income statement
c.
Balance sheet
d.
Income statement
e.
Balance sheet
f.
Balance sheet
g.
Balance sheet
h.
Balance sheet
i.
Income statement
j.
Income statement
k.
Balance sheet
l.
Balance sheet
2-14 (M2-25 Analyzing the Effect of transactions on the Balance Sheet
a.
b.
c.
d.
e.
f.
g.
h.
i.
a.
Increase assets (Cash)
Increase equity (Service Revenues)
Increase assets (Office Supplies)
Increase liabilities (Accounts Payable)
Increase assets (Cash)
Increase equity (Contributed Capital or Common Stock)
Decrease liabilities (Accounts Payable)
Decrease assets (Cash)
Increase assets (Cash)
Increase liabilities (Notes Payable)
Increase assets (Accounts Receivable)
Increase equity (Service Revenues)
Increase assets (Office Equipment)
Decrease assets (Cash)
Decrease equity (Interest Expense)
Decrease assets (Cash)
Decrease equity (Utilities Expense) Increase liabilities (Accounts Payable
10 2-15 (M2-29) Analyzing Transactions using the Financial Statement effects
Template
Balance Sheet
Cash
Asset
Transaction
a. Issue stock for
$1,000 cash.
+
Noncash
Liabil=
Assets
ities
+1,000
Cash
+500
Cash
Inventory
c. Sell inventory for
$2,000 on credit.
Accts Rec
=
d. Record $500 for
cost of inventory
sold in c.
=
-500
Inventory
Totals
2,500
+2,000
Cash
-2,000
+2,000
+2,000
Retained
Earnings
Sales
Net
Revenues - Expenses =
Income
Common
Stock
+2,000
e. Receive $2,000
cash on receivable
from c.
Earned
Capital
+1,000
-500
Contrib.
+
Capital
=
b. Purchase inventory
for $500 cash.
+
Income Statement
=
-
=
-
=
+2,000
-
-500
=
+500
-
Retained
Earnings
COGS
Expense
-
=
-500
=
=
Accts Rec
+
0
=
=
+ 1,000 +
11 1,500
2,000
-
500
=
1,500
2-16 (M2-30) Journalizing Business Transactions
a.
b.
c.
d.
e.
Cash (+A) ...........................................................................
Common stock (+SE) ....................................................
Inventory (+A) .....................................................................
Cash (-A) ........................................................................
Accounts receivable (+A)....................................................
Sales (+R, +SE) .............................................................
Cost of goods sold (+E, -SE) ..............................................
Inventory (-A)..................................................................
Cash (+A) ...........................................................................
Accounts receivable (-A) ................................................
1,000
500
2,000
500
2,000
1,000
500
2,000
500
2,000
2-17 (M2-31) Posting to T-Accounts
+
Cash (A)
(a)
1,000 (b)
(e)
2,000
+
(c)
500
-
Sales (R)
(c)
+
(b)
Inventory (A)
500 (d)
-
Common Stock (SE)
(a)
12 -
500 2,000
Cost of Goods Sold (E)
(d)
500
+
+
-
2,000
-
2,000 (e)
Accounts Receivable (A)
+
1,000
2-18 (E2-34) Preparing Balance Sheets, Computing Income and Applying the
Current and Quick Ratios.
Lang Services
Balance Sheet
a.
December 31,
2013
2012
$10,000
22,800
4,700
32,000
$69,500
$ 8,000
17,500
4,200
27,000
$56,700
$25,000
1,800
26,800
$25,000
1,600
26,600
42,700
$69,500
30,100
$56,700
Assets
Cash
Accounts receivable
Supplies
Equipment
Total assets
Liabilities
Accounts payable
Notes payable
Total liabilities
Stockholders’ equity
Equity
Total liabilities and stockholders’ equity
b.
Equity, December 31, 2013
Equity, December 31, 2012
Increase
Add: Dividends
$42,700
30,100
12,600
17,000
29,600
5,000
$24,600
Less: Common Stock issued
Net Income for 2013
13 2-19 (E2-35) Constructing Balance Sheets and Determining Income
LYNCH SERVICES
BALANCE SHEETS
a.
December 31,
2013
2012
$ 23,000
42,000
20,000
40,000
250,000
43,000
$418,000
$ 20,000
33,000
18,000
40,000
260,000
45,000
$416,000
$ 6,000
90,000
96,000
$ 9,000
100,000
109,000
Stockholders' equity
Common stock
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
220,000
102,000
322,000
$418,000
220,000
87,000
307,000
$416,000
b.
Retained Earnings, December 31, 2013
Retained Earnings, December 31, 2012
Increase during 2013
Add: Dividend for 2013
Net Income for 2013
$102,000
87,000
15,000
10,000
$ 25,000
Assets
Cash
Accounts receivable
Supplies
Land
Building
Equipment
Total assets
Liabilities
Accounts payable
Mortgage payable
Total liabilities
14 2-20 (E2-44) Constructing Balance Sheets
Bettis Contractors
Balance Sheets
a. and b.
June 30,
2013
Assets
Cash …………………………………………………………… $ 14,700
Accounts receivable
9,200
Supplies
30,500
Current assets
54,400
Land
25,000
Equipment
98,000
Total assets
$177,400
July 2,
2013
$ 2,200
9,200
30,500
41,900
25,000
108,000
$174,900
Liabilities
Accounts payable
Current liabilities
Notes payable
Total liabilities
8,900
8,900
$ 30,000
38,900
8,900
8,900
$ 33,000
41,900
Stockholders' Equity
Common stock
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
100,000
38,500
138,500
$177,400
100,000
33,000
133,000
$174,900
15 2-21 (E2-45) Analyzing Transactions Using the Financial Statement Effects
Template
Balance Sheet
Transaction
1. Receive $20,000
cash in exchange
for common
stock.
Cash
Asset
+
+20,000
Cash
Noncash
Assets
2. Purchase $2,000
of inventory on
credit.
+2,000
Inventory
3. Sell inventory for
$3,000 on credit.
+3,000
Accounts
Receivable
=
Liabilities
+
Income Statement
Contrib.
+
Capital
4. Record cost of
goods sold in 3.
=
+2,000
= Accounts
Payable
5. Collect $3,000
cash from
transaction 3.
6. Acquire $5,000 of
equipment by
signing a note.
7. Pay wages of
$1,000 in cash.
+3,000
Retained
Earnings
=
-2,000
Inventory
8. Pay $5,000 cash on a note payable. 9. Pay $2,000 cash TOTALS -
=
-
=
+3,000
Sales
-
=
-
+ 2,000
COGS
Expense
=
Net
Income
+3,000
- 2,000
-3,000
Accounts
Receivable
+3,000
Cash
=
+5,000
Equipment
=
-1,000
Cash
=
-5,000
Cash
=
-2,000
+5,000
Notes
Payable
-5,000
Notes
Payable
+
5,000
=
20,000
16 +
-
=
-
+
=
-2,000
Retained
Earnings
2,000
-
-1,000
Retained
Earnings
=
Cash
15,000
-2,000
Retained
Earnings
=
dividend. Revenues - Expenses =
+20,000
Common
Stock
Earned
Capital
-2,000
3,000
+ 1,000
Wages
Expense
=
-
=
-
=
-
3,000
=
- 1,000
0
2-22 (E2-46) Recording Transactions using Journal Entries and T-Accounts
Part a:
1.
Cash (+A) ...........................................................................
Common stock (+SE) .....................................................
2.
3.
4.
5.
6.
7.
8.
9.
20,000
20,000
Inventory (+A) .....................................................................
Accounts payable (+L)....................................................
2,000
Accounts receivable (+A)....................................................
Sales (+R, +SE) .............................................................
3,000
Cost of goods sold (+E, -SE) ..............................................
Inventory (-A)..................................................................
2,000
Cash (+A) ...........................................................................
Accounts receivable (-A) ................................................
3,000
Equipment (+A)...................................................................
Notes payable (+L) .........................................................
5,000
Wages expense (+E, -SE) ..................................................
Cash (-A) ........................................................................
1,000
Notes payable (-L) ..............................................................
Cash (-A) ........................................................................
5,000
Retained earnings (-SE) .....................................................
Cash (-A) ........................................................................
2,000
17 2,000
3,000
2,000
3,000
5,000
1,000
5,000
2,000
Part b:
+
(1)
(5)
Cash (A)
20,000 1,000
3,000 5,000
2,000
-
(7)
(8)
(9)
Common Stock (SE)
20,000
-
Inventory (A)
2,000 2,000
Cost of Goods Sold (E)
2,000 +
(7)
(3)
Accounts Receivable (A)
3,000 3,000
(8)
-
Notes Payable (L)
5,000 5,000
+
(6)
18 (2)
(9)
Equipment (A)
5,000 +
2,000
-
+
(6)
Accounts Payable (L)
-
(5)
Wages Expense (E)
1,000 +
-
(3)
+
(4)
(4)
+
3,000
+
(2)
Sales Revenue (R)
+
(1)
Retained Earnings (SE)
2,000 +
2-23 (P2-51) Preparing a Balance Sheet, Computing Net Income, and
Understanding Equity Transactions.
Barth Company
Balance Sheet
December 31, 2013
a.
Assets
Liabilities
Cash.................................$ 8,800
Accounts receivable ..........18,400
Equipment ...........................9,000
Land ..................................50,000
Accounts payable..............
$ 7,500
Equity
Stockholders’ equity ..........
Total liabilities & equity .....
78,700
$86,200
Total assets
b.
c.
$86,200
Increase in Equity ($78,700-$67,500)
Add: Dividends
Net Income for 2013 Increase in Equity
Add: Dividends
($78,700-$67,500)
Less: Additional Investment
Net Income for 2013
19 $11,200
12,000
23,200
$11,200
21,000
32,200
13,500
$18,700
2-24 (P2-55) Analyzing Transactions using the Financial Statement Effects
Template and Preparing an Income Statement.
a.
Balance Sheet
Cash
Noncash
Liabil+
=
Asset
Assets
ities
+7,000
=
Cash
Transaction
1. Issued common
stock $7,000.
2. Paid rent $750.
=
Cash
-750
3. Received $500
invoice for
advertising
expense.
4. Borrowed $15,000
cash from bank.
5. $1,200 Cash
received for
services.
6. Billed clients $6,800
for services.
7. Paid $2,200 cash
for salary.
8. Paid $370 cash for
utilities.
9. Paid $900 cash
dividend.
+15,000
=
=
Cash
+
Contrib.
+
Capital
+7,000
-750
+500
Retained
Earnings
Accounts
Payable
Retained
Earnings
+6,800
Accounts
Receivable
-2,200
+15,000
Notes
Payable
-370
Cash
-900
Cash
+1,200
+6,800
Retained
Earnings
Services
Revenue
-2,200
-370
Retained
Earnings
=
Retained
Earnings
+13,000
Land
=
Retained
Earnings
Totals
$5,880 + $19,800 = $15,500 + $7,000 +
$3,180
=
-100
20 Advertising
Expense
$8,000
-500
=
=
+1,200
=
+6,800
= -
-750
=
+500
-
-
-900
Cash
+750
Rent Expense
-
Retained
Earnings
=
=
-
+6,800
-13,000
Cash
Counseling
Services
Revenue
=
-
Retained
Earnings
10. Acquired land for
$13,000.
11. Paid $100 interest
in cash.
-100
=
Cash
-
-500
=
Net
Revenues - Expenses = Income
-
+1,200
Cash
Earned
Capital
Common
Stock
+1,200
Income Statement
+2,200
Salary
Expense
+370
Utilities
Expense
=
=
-
=
-
=
+100
-2,200
-370
-100
-
Interest
Expense
=
-
$3,920
= $4,080
b.
Lambert Services
Income Statement
For the Month of December 2013
Counseling services revenue
Expenses
Rent expense
Advertising expense
Salary expense
Utilities expense
Interest expense
Total expenses
Net income
$8,000
$ 750
500
2,200
370
100
3,920
$4,080
21 2-25 (P2-60) Analyzing Transactions using the Financial Statement Effects
Template and Preparing an Income Statement.
a.
Balance Sheet
Transaction
1. Issued common
stock for cash.
2. Rent paid in cash
$4,800.
3. Invoice for
entertainment
expense: $1,600.
4. Cash paid for
advertising: $900.
5. July insurance
premium prepaid in
cash: $1,800.
6. Flight services
collected in cash
$22,700.
7. Billed for flight
services $15,900.
8. Paid $1,500 on
accounts.
Cash
Noncash
LiabilAsset + Assets = ities
+$50,000
=
Cash
Contrib.
Capital +
+$50,000
Common
Stock
= +1,600
= Accounts
Cash
-1,800
+1,800
Cash
Prepaid
Insurance
-4,800
-
Retained
Earnings
=
+22,700
Retained
Earnings
Flight
Services
Revenue
+15,900
+15,900
Retained
Earnings
Flight
Services
Revenue
+15,900
Accounts
Receivable
=
-1,500
-1,500
= Accounts
Cash
-13,200
Accounts
Receivable
Cash
$57,900 +
$4,500
Advertising
Expense
=
-900
=
+22,700
-
=
+15,900
-
=
-
=
-
=
Payable
=
-16,000
= +3,500
= Accounts
-3,000
+900
+22,700
+1,600
Expense
-900
=
-1,600
- Entertainment = Cash
= +4,800
-4,800
- Rent Expense = Retained
Earnings
Net
Income
-
-1,600
+16,000
-
Retained
Earnings
-3,500
Retained
Earnings
= $3,600 + $50,000 +
$8,800
22 =
- Fuel Expense =
-3,000
=
Wages
expense
+3,500
Retained
Earnings
Payable
+22,700
11. Invoice received for
fuel; $3,500.
TOTALS
Revenues - Expenses =
Retained
Earnings
=
Cash
10. Paid wages in cash: -16,000
$16,000.
Cash
12. Cash dividend paid:
$3,000.
Earned
Capital
Payable
-900
9. Received $13,200 on +13,200
account.
Cash
-4,800
+
Income Statement
$38,600
-
-16,000
-3,500
=
$26,800
= $11,800
b.
Outback Flights
INCOME STATEMENT
FOR THE MONTH OF JUNE 2013
Revenue
Services fees earned
Expenses
Rent expense
Entertainment expense
Advertising expense
Wages expense
Fuel expense
Total expenses
Net income
$38,600
$4,800
1,600
900
16,000
3,500
26,800
$11,800
Note that the insurance premium paid is for the next month (July) and is not an
expense, but a prepaid asset, at the end of June.
23 2-26 (P2-61) Recording Transactions in Journal Entries and T-Accounts
a.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Cash (+A) ...........................................................................
Common stock (+SE) .....................................................
Rent expense (+E,-SE).......................................................
Cash (-A) ........................................................................
Entertainment expense (+E,-SE) ........................................
Accounts payable (+L)....................................................
Advertising expense (+E,-SE) ............................................
Cash (-A) ........................................................................
Prepaid insurance (+A) .......................................................
Cash (-A) ........................................................................
Cash (+A) ..........................................................................
Flight services revenue (+R,+SE)...................................
Accounts receivable (+A)....................................................
Flight services revenue (+R,+SE)...................................
Accounts payable (-L).........................................................
Cash (-A) ........................................................................
Cash (+A) ...........................................................................
Accounts receivable (-A) ................................................
Wages expense (+E,-SE) ...................................................
Cash (-A) ........................................................................
Fuel expense (+E,-SE) .......................................................
Accounts payable (+L)....................................................
Retained earnings (dividend paid) (-SE).............................
Cash (-A) ........................................................................
24 50,000
4,800
1,600
900
1,800
22,700
15,900
1,500
13,200
16,000
3,500
3,000
50,000
4,800
1,600
900
1,800
22,700
15,900
1,500
13,200
16,000
3,500
3,000
b.
+
(1)
(6)
(9)
Cash (A)
50,000
22,700
13,200
-
-
4,800
900
1,800
1,500
16,000
3,000
(2)
(4)
(5)
(8)
(10)
(12)
Accounts Receivable (A)
(7)
15,900 (9)
+
Prepaid Insurance (A)
(5)
(12)
(2)
Rent Expense (E)
4,800 -
Flight Services Revenue (R)
+
(4)
Advertising Expense (E)
+
Wages Expense (E)
(10)
+
(11)
25 -
16,000 -
-
900 Entertainment Expense (E)
1,600 (3)
+
-
+
22,700 (6)
15,900 (7)
+
+
(1)
Retained Earnings (SE)
3,000 +
-
1,800 Common Stock (SE)
50,000
(3)
(11)
-
13,200
+
1,500 1,600
3,500
-
(8)
+
Accounts Payable (L)
Fuel Expense (E)
3,500 -
2-27 (P2-64) Preparing the Income Statement, Statement of Stockholders’ Equity,
and the Balance Sheet.
a.
Geyer, Inc.
Income Statement
For Year Ended December 31, 2013
Service fee revenue.....................................................................
$67,600
Supplies expense ........................................................................ $ 9,700
Insurance expense ......................................................................
1,500
Salaries expense ......................................................................... 30,000
Advertising expense ....................................................................
1,700
Rent expense ..............................................................................
7,500
Miscellaneous expense ...............................................................
200
Total expenses ......................................................................
50,600
Net income ..................................................................................
$17,000
b.
Geyer, Inc.
Statement of Stockholders’ Equity
For Year Ended December 31, 2013
Common
Retained Total Stockholders’
Stock
Earnings
Equity
Balance at December 31, 2012 ....
$4,000
$6,200
$10,200
Stock issuance ...........................
1,400
1,400
Dividends ...................................
(13,500)
(13,500)
Net income .................................
17,000
17,000
Balance at December 31, 2013 ....
$5,400
$9,700
$15,100
26 c.
Geyer, Inc. Balance Sheet
December 31, 2013
Cash .....................................
$14,800
Supplies................................
6,100
Total assets ..........................
$20,900
Accounts payable....................... $ 1,800
Notes payable ...........................
4,000
Total liabilities ………………
5,800
Common stock ……………….
5,400
Retained earnings* ………….
9,700
Total liabilities and equities ..
* $6,200 beginning balance + $17,000 net income - $13,500 dividend
$20,900
27 2-28 (P2-65) Analyzing Transactions Using the Financial Statement Effects
Template and Preparing Financial Statements.
a & b.
Balance Sheet
Transaction
Beginning Balances
1. Paid $600 cash
toward accounts
payable
2. Paid rent in cash:
$3,600
Cash
Noncash
Contrib.
+
= Liabil-ities +
+
Asset
Assets
Capital
+5,000
+5,200 = +3,500
+5,500
-600
-600
Cash
=
-3,600
=
Cash
+11,500
Accounts
Receivable
4. $500 invoice
received for
advertising
=
=
5. Cash collected on
account: $10,000
+10,000
-10,000
Cash
Accounts
Receivable
6. Paid wages
expense in cash:
$2,400
7. Invoiced for utility
expense: $680
-2,400
8. Paid $20 cash for
interest on note
-20
9. Paid $900 cash
dividend
10. Paid $4,000 cash
for sound
equipment
TOTALS
-900
Cash
-4,000
+4,000
Cash
Equipment
Retained
Earnings
Services
Revenue
+500
-500
Accounts
Payable
Retained
Earnings
=
+3,600
-3,600
- Rent Expense = -
-
=
=
+500
Advertising
Expense
-2,400
+680
-680
Retained
Earnings
-20
=
Retained
Earnings
=
Retained
Earnings
-900
=
$3,480 + $10,700 = $4,080
+ $5,500 +
28 $4,600
$11,500
Wages
Expense
+680
-
Utilities
Expense
-
Interest
Expense
-500
=
+20
=
=
=
-
=
-
=
-
+11,500
=
+2,400
-
Retained
Earnings
= Accounts
Cash
+11,500
+11,500
Retained
Earnings
=
Cash
Net
Revenues - Expenses = Income
-
Payable
Earned
Capital
+1,200
Accounts
Payable
-3,600
3. Billed clients
$11,500
Income Statement
$7,200
-2,400
-680
-20
= $4,300
2-29 (M3-23) Journalizing Transactions and Adjusting Accounts.
a.
Balance Sheet Income Statement Transaction 1. Received $20,100 in advance for contract work. Cash Noncash Liabil-­‐ + Contrib. + + Assets = ities Capital Asset +20,100 +20,100U Cash = nearned Earned Capital Revenues -­‐ Expenses = -­‐ ervice Fees Net Income = Jan. 1 Cash (+A) Unearned service fees (+L) To record fee received in advance. 20,100 20,100 b. Balance Sheet Cash Asset Transaction 2. Adjusting entry for work completed by Jan. 31. Income Statement + Noncash Liabil-­‐ + Contrib. + Assets = ities Capital -­‐3,350 = Unearned ervice Fees Earned Capital +3,350 Retained Earnings Revenues -­‐ Expenses = +3,350 Service Fees -­‐ Net Income +3,350 = Jan. 31 Unearned service fees (-­‐L) Service fees (+R, +SE) To reflect January service fees earned on contract ($20,100/6 = $3,350). 3,350 3,350 c. Balance Sheet Cash Asset Transaction 3. Adjusting entry for fees earned but not billed. Income Statement Noncash
Contrib.
+ Assets = Liabil-­‐ + Capital + ities +570 Fees = Receivable Earned Capital +570 Retained Earnings Revenues -­‐ Expenses = +570 Service Fees -­‐ = Jan. 31 Fees receivable (+A) Service fees (+R, +SE) To record unbilled service fees earned at January 31. 29 570 570 Net Income +570 2-­‐30 (M3-24) Adjusting Accounts.
1. Balance Sheet Cash Asset Transaction 1. Adjusting entry for prepaid insurance. Income Statement + Noncash = Liabil-­‐ + Contrib. + Assets Capital ities -­‐185 = Prepaid Insurance Earned Capital -­‐185 Revenues -­‐ Expenses = +185 -­‐ Retained Earnings Insurance Expense = Net Income -­‐185 Jan. 31 Insurance expense (+E, -­‐SE) Prepaid insurance (-­‐A) To record January insurance expense ($6,660/36 = $185). 185 185 2. Balance Sheet Cash Asset Transaction 2. Adjusting entry for supplies used. Income Statement + Noncash = Liabil-­‐ + Contrib. + Assets Capital ities -­‐1,080 = Supplies Earned Capital -­‐1,080 Revenues -­‐ Expenses = +1,080 -­‐ Retained Earnings Supplies Expense = Net Income -­‐1,080 Jan. 31 Supplies expense (+E, -­‐SE) Supplies (-­‐A) To record January supplies expense ($1,930 -­‐ $850 = $1,080). 1,080 1,080 3. Balance Sheet Transaction Cash Asset 3. Adjusting entry for depreciation of equipment. + Noncash Assets -­‐ -­‐ Contra Assets Income Statement = Liabil-­‐ities + Contrib. Capital + Earned Capital Revenues +62
Accumulated
Depreciation
-62
Retained
Earnings
-­‐ -
Expenses +62
Depreciation
Expense
Jan. 31 Depreciation expense—Equipment (+E, -­‐SE) Accumulated depreciation—Equipment (+XA, -­‐A) To record January depreciation on office equipment ($5,952/96 = $62). 30 62 62 = =
Net Income -62
4. Balance Sheet Cash Asset Transaction Income Statement + 4. Adjusting entry for rent. Noncash Liabil-­‐ + Contrib. + Assets = ities Capital -­‐875 = Unearned Rent Revenue Earned Capital +875 Retained Earnings Revenues -­‐ Expenses = +875 Rent Revenue -­‐ =
Net Income +875 Jan. 31 Unearned rent revenue (-­‐L) Rent revenue (+R, +SE) To record portion of advance rent earned in January. 875 875 5. Balance Sheet Cash Asset Transaction 5. Adjusting entry for accrued salaries. Income Statement + Noncash Liabil-­‐ + Contrib. + Assets = ities Capital +490 = Salaries Payable Earned Capital -­‐490 Retained Earnings Revenues -­‐ Expenses = -­‐ +490 Salaries Expense = Jan. 31 Salaries expense (+E, -­‐SE) Salaries payable (+L) To record accrued salaries at January 31. 31 490 490 Net Income -­‐490 2-31 (M3-25) Inferring Transactions from Financial Statements.
(All amounts in $ millions.) a. Balance Sheet Cash Asset Transaction Inventory purchases (total). + Noncash = Liabilities Assets +2,913.49 +2,913.49 Inventory = Accounts Income Statement Contrib. + Capital + Earned Capital Revenues -­‐ Expenses -­‐ Payable = Net Income = Inventories (+A)……………………….. 2,913.49 Accounts payable (+L)…………….. To record total purchases made at various dates. b. 2,913.49 Beginning AP balance + Purchases – Payments = Ending AP balance, or Payments = Beg AP Balance + Puchases -­‐ Ending AP Balance Payments= $365.75 + $2,913.49 -­‐ $299.11 = $2,980.13. c. Balance Sheet Transaction Cash Asset Adjusting entry for cost of goods sold for FYE 2012. + Noncash Assets -­‐2,946.08
Inventory = Liabilities + Contrib. Capital Income Statement + Earned Capital Revenues -­‐2,946.08 = -­‐ -­‐ Retained Earnings Expenses +2,946.08 Cost of Goods Sold * Beginning Inv balance + Purchases – Cost of goods sold = Ending Inv balance, or COGS = Beg Inv Balance +Purchases – Ending Inv Balance COGS = $887.36 + $2,913.49 – $854.77 = $2,946.08 Cost of goods sold (+E, -­‐SE)…………………... Inventories (-­‐A)………………………………… To record cost of goods sold for the year ended 1/28/2012. 32 2,946.08 2,946.08 = Net Income = -­‐2,946.08 2-32 (M3-28) Preparing Closing Entries Using Journal Entries and T-Accounts.
Part a.
Date 2014 Description
Dec. 31 31 Debit
Commissions revenue (-­‐R) Retained earnings (+SE) To close the revenue account. Retained earnings (-­‐SE) Wages expense (-­‐E) Insurance expense (-­‐E) Utilities expense (-­‐E) Depreciation expense (-­‐E) To close the expense accounts. 84,900 Credit
84,900 55,900 36,000 1,900 8,200 9,800 Closing the revenue and expense accounts into retained earnings has the effect of increasing the retained earnings balance by an amount equal to net income (revenue minus expenses). The balance of Smith’s Retained Earnings after closing entries are posted is $101,100 credit ($72,100 + $29,000). Part b. + Utilities Expense (E) + Wages Expense (E) -­‐ Bal. 36,000 Bal. 36,000 Bal. (2)Dec. 31 Bal. 0 8,200 (2) Dec. 31 0 -­‐ Commissions Revenue (R) + + Insurance Expense (E) -­‐ Bal. 1,900 Bal. 1,900 (1)Dec. 31 (2)Dec. 31 0 + Depreciation Expense (E) -­‐ Bal. Bal. 9,800 84,000 9,800 84,900 Bal. 0 Bal. -­‐ Retained Earnings (SE) + (2)Dec. 31 (2)Dec. 31 0 55,900 72,100 Bal. 84,900 (1)Dec.31 8,200 -­‐ 33 101,100 Bal. Dec.31 2-33 (E3-32) Preparing and Journalizing Adjusting Entries.
Part a. Balance Sheet Cash Asset Transaction Noncash Assets + 1. Adjusting entry for
depreciation:
equipment.
2. Adjusting entry for
supplies expense.
-­‐ -
-1,890
Supplies
-
4. Adjusting entry for
rent expense.
-700
Prepaid Rent -
7. Adjusting entry for
interest earned.
TOTALS
Contrib. Capital + + Earned Capital Revenues =
-390
Retained
Earnings
-700
Retained
Earnings
+468
Retained
Earnings
=
-468
Unearned
Premium
Revenue
=
+965
Wages
Payable
= 0
+300
Interest
Receivable
+
-2,290
-
-
-
610
=
887
+
34 0
+
-965
Retained
Earnings
+300
Retained
Earnings
-3,787
Expenses Net Income -610
= -
+610
=
Depreciation Expense
+1,890
=
Supplies
Expense
- +390 Utilities =
Expense
+390
Utilities
Payable
=
-
-­‐ -610
Retained
Earnings
-1,890 Retained
Earnings
=
5. Adjusting entry for
premium
revenues.
6. Adjusting entry for
wage expense.
= Liabilities =
-
3. Adjusting entry for
utilities expense.
Contra Assets +610
Accumulated
Depreciation
Income Statement -
+700
Rent Expense
+468 Premium Revenue
-
+300
Interest
Income
768
+965
Wage
Expense
-
-
4,555
-1,890
-390
=
-700
=
+468
=
=
=
-965
+300
-3,787
Part b.
1.
3.
Utilities expense (+E, - SE)
Utilities payable (+L)
To record accrued utilities expense.
390
Rent expense (+E,-SE)
Prepaid rent (-A)
To record rent expense for the month ($2,800/4 = $700).
700
Unearned premium revenue (-L)
Premium revenue (+R,+SE)
To record premium revenue earned [($624/12) * 9 = $468].
468
Wages expense (+E,-SE)
Wages payable (+L)
To record accrued wages at the end of the period.
Interest receivable (+A)
Interest income (+R,+SE)
To accrue interest earned but not yet received.
965
4.
5.
6.
7.
610
Supplies expense (+E,-SE)
1,890
Supplies (-A)
1,890
To record supplies expense for the period ($2,990 - $1,100 = $1,890).
610
2.
Depreciation expense—Equipment (+E,-SE)
Accumulated depreciation—Equip (+XA)
To record depreciation for the period.
35 390
700
468
965
300
300
2-34 (E3-34) Analyzing Accounts Using Adjusted Data
a.
Balance, January 1 = $960 + $800 - $620 = $1,140.
b.
Amount of premium = $82 * 12 = $984.
Therefore, five months' premium ($984 - $574 = $410à 410/82=5) has expired by
January 31. The policy has been in effect since September 1, 2013.
The policy term began on September 1 of the previous year.
c.
Wages paid in January = $3,200 - $500 = $2,700.
d.
Monthly depreciation expense = $8,700/60 months = $145.
the truck for 18 months ($2,610/$145 = 18).
Fields has owned
2-35 (E3-37) Preparing Closing Procedures.
Part a.
Dec. 31
31
Service fees earned (-R)
Interest income (-R)
Retained earnings (+SE)
To close the revenue accounts.
92,500
2,200
Retained earnings (-SE)
Salaries expense (-E)
Advertising expense (-E)
Depreciation expense (-E)
Income tax expense (-E)
To close the expense accounts.
64,700
36 94,700
41,800
4,300
8,700
9,900
Part b.
- Retained Earnings (SE) +
(2)
64,700 42,700
Bal.
94,700
(1)
72,700
Bal.
- Service Fees Earned (R) +
92,500
92,500
0
- Interest Income (R) +
(1)
(1)
2,200
2,200
0
Bal.
Bal.
Bal.
Bal.
+ Salaries Expense (E) Bal.
41,800 41,800
Bal.
0 + Depreciation Expense (E) Bal.
8,700
8,700
Bal.
0 (2)
Bal.
Bal.
(2)
Bal.
Bal.
+ Advertising Expense (E) 4,300
4,300
0 + Income Tax Expense(E) 9,900
0 9,900
2-36 (P3-41) Preparing an Unadjusted Trail Balance and Adjustments
SnapShot Company
UNADJUSTED TRIAL BALANCE
DECEMBER 31, 2013
a.
Debit
$2,150
3,800
12,600
2,970
4,250
22,800
Cash
Accounts Receivable
Prepaid Rent
Prepaid Insurance
Supplies
Equipment
Accounts Payable
Unearned Photography Fees
Common Stock
Photography Fees Earned
Wages Expense
Utilities Expense
Credit
$1,910
2,600
24,000
34,480
11,000
3,420
$62,990
37 $62,990
(2)
(2)
b.
Balance Sheet Transaction 1. Fees earned
but not
received.
2. Recognize
depreciation
expense for
one year.
3. Recognize
utilities
expense.
4. Recognize
rent expense
for year.
5. Recognize
photo
revenues.
6. Recognize
insurance
expense.
7. Recognize
supplies
expense.
8. Recognize
wages
expense.
Totals
Cash Asset + Noncash Assets +925
Fees
Receivable
-­‐ -
-
Contra Assets = Liabilities + Contrib. Capital + Earned Capital Revenues =
+2,280
Accumulated
Depreciation
-
Income Statement Retained
Earnings
=
+400
= -
-2,600
-
= Unearned
Prepaid
Insurance
Photo Fees
0
+ -9,095
+2,600
+2,600
Photography
Fee Earned
-990
-
=
-2,730
Supplies
-
-
=
2,280
Retained
Earnings
+375
-375
Wages
Payable
Retained
Earnings
= -1,825
+
38 0
+
-9,550
=
-400
=
-6,300
- Rent Expense = -
=
-
Insurance
Expense
+2,730
-
Supplies
Expense
+375
3,525
+925
-2,280
+400
Utilities
Expense
+6,300
-2,730
= -
Depreciation
Expense
+990
Retained
Earnings
Net Income +2,280
Retained
Earnings
Retained
Earnings
-990
= = -
-400
-6,300
Expenses -
Retained
Earnings
Payable
Prepaid Rent
+925
Photography
Fees Earned
-2,280
= Utilities
-6,300
+925
Retained
Earnings
-­‐ =
+2,600
-990
=
-2,730
-375
-
Wages
Expense
=
-
13,075
= -9,550
Date 2013
Dec. 31
Description
Fees receivable (+A)
Photography fees earned (+R, +SE)
`
To record revenue earned but not billed.
31
31
31
31
31
31
31
Depreciation expense (+E,-SE)
Accum. depreciation—Equipment (+XA, -A)
To record depreciation for the year
($22,800/10 years = $2,280).
Utilities expense (+E, -SE)
Utilities payable (+L)
To record estimated December utilities expense.
Rent expense (+E, -SE)
Prepaid rent (-A)
To record rent expense for the year
($12,600/2 years = $6,300).
Debit
Credit
925 925
2,280 400
400
6,300
6,300
Unearned photography fees (-L)
2,600
Photography fees earned (+R, +SE)
To record advance payments earned during the year.
Insurance expense (+E, -SE)
Prepaid insurance (-A)
To record insurance expense for the year
($2,970/3 years = $990).
Supplies expense (+E,-SE)
Supplies (-A)
To record supplies expense for the year
($4,250 - $1,520 = $2,730).
Wages expense (+E, -SE)
Wages payable(+L)
To record unpaid wages at December 31.
39 2,280
2,600
990
990
2,730
2,730
375
375
c. + Cash (A) -­‐ -­‐ Accounts Payable (L) + Unadj. bal. 2,150 1,910 Unadj. bal. Adj. bal. 2,150 1,910 Adj. bal. + Accounts Receivable (A) -­‐ -­‐ Unearned Photo Fees (L) + Unadj. bal. 3,800 Dec.31 (5) 2,600 2,600 Unadj. bal. Adj. bal. 3,800 Adj. bal. + Fees Receivable (A) -­‐ Dec. 31 Adj. bal. -­‐ Utilities Payable (L) + (1) 925 Adj. bal. Dec.31 400 (3) 925 Adj. bal. 400 + Prepaid Rent (A) -­‐ Unadj. bal. 0 12,600 6,300 (4) -­‐ Wages Payable (L) + Dec.31 Dec.31 375 (8) 6,300 Adj. bal. 375 + Prepaid Insurance (A) -­‐ -­‐ Common Stock (SE) + Unadj. bal. 2,970 990 (6) Dec.31 24,000 Unadj. bal. Adj. bal. 1,980 24,000 Adj. bal. + Supplies (A) -­‐ Unadj. bal. 4,250 2,730 (7) Adj. bal. 1,520 -­‐ Photo Fees Earned (R) + Dec.31 34,480 Unadj. bal 925 (1) 2,600 (5) 38,005 + Wages Expense (E) -­‐ + Equipment (A) -­‐ Unadj. bal. 22,800 Unadj. bal. 11,000 Adj. bal. 22,800 Dec.31 (8) 375 Adj. Bal. 11,375 -­‐ Accum. Depreciation – Equip. (XA) + 2,280 (2) 2,280 + Utilities Expense (E) -­‐ Unadj. bal. Dec.31 Adj. Bal. Dec.31 (3) 400 Adj. Bal. 3,820 + Supplies Expense (E) -­‐ Dec. 31 Adj. bal. Dec. 31 Adj. bal. + Depreciation Expense – Equip. (E) -­‐ Dec.31 (7) 2,730 Adj. Bal. 2,730 + Insurance Expense (E) -­‐ (6) 990 (2) 2,280 2,280 + Rent Expense (E) -­‐ Dec.31 Adj. Bal. 990 3,420 40 (4) 6,300 6,300 Dec.31 Dec.31 Adj. bal. 2-37 (P3-43) Preparing Adjusting Entries.
Part a.
Balance Sheet Transaction Cash Asset + Noncash Assets 1. Accrue salary
expense.
-
2. Accrue interest
expense.
-
+900
3. Accrue fees
receivable.
= Liabil-­‐ities + =
=
-
+720
Contrib. Capital + Earned Capital Revenues -720
Salaries
Payable
Retained
Earnings
+200
-200
Interest
Payable
Retained
Earnings
=
-400
-
=
-300
=
=
-
-
+238
+900
Retained
Earnings
Printing
Revenue
-160
Rent
Payable
Retained
Earnings
=
+2,175
=
+720
=
Salaries
Expense
+200
=
-200
=
+900
-400
-
-
-
-
2,175
-
41 0
+
+38
+38
Retained
Earnings
Interest
Revenue
-3,017
+400
=
Maintenance
Expense
+300
=
-300
=
-160
=
+38
=
-2,175
+160
Rent
Expense
-
-
Retained
Earnings
= 1,080 +
-720
Ad. Expense
-2,175
Accumulated
Depreciation
+
+900
+160
Interest
Receivable
0
-
Retained
Earnings
-
+38
= Interest
Expense
-300
Prepaid
Advertising
7. Accrue interest
revenue.
Expenses Retained
Earnings
-
Net Income -­‐ -
-400
Prepaid
Maintenance
6. Accrue rent
expanse.
8. Accrue
depreciation
expense.
Totals
Contra Assets Fees
Receivable
4. Accrue
maintenance
expense.
5. Accrue ad.
Expense.
-­‐ Income Statement +2,175
Depreciation
Expense
938
-
3,955
= -3,017
b.
Date
Dec 31
31
31
31
31
31
31
31
Description
Debit
Salaries expense (+E, -SE)
720
Salaries payable (+L)
To accrue salaries at December 31 ($1,800 * 2/5 = $720).
Interest expense (+E, -SE)
Interest payable (+L)
To accrue interest expense at December 31.
200
Fees receivable (+A)
Printing revenue (+R, +SE)
To record revenue earned but not yet billed.
900
Maintenance expense (+E ,-SE)
Prepaid maintenance (-A)
To record December maintenance expense.
400
Advertising expense (+E, -SE)
Prepaid advertising (-A)
To record December advertising expense
($900 * 1/3 = $300).
300
Rent expense (+E, -SE)
Rent payable (+L)
To accrue one-half month's rent expense
[(400 *$0.80)/2 = $160].
160
Interest receivable (+A)
Interest income (+R, +SE)
To accrue interest earned in December.
38
Depreciation expense—Equipment (+E, -SE)
Accum. depreciation—Equipment (+XA)
To record annual depreciation on equipment.
42 Credit
720
200
900
400
300
160
38
2,175
2,175
2-38 (P3-44) Preparing Financial Statements and Closing Entries.
TRUEMAN CONSULTING INC.
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2013
a.
Revenue
Service fees earned
Expenses
Rent expense
Salaries expense
Supplies expense
Insurance expense
Depreciation expense—Equipment
Interest expense
Total Expenses
Net Income
$58,400
$12,000
33,400
4,700
3,250
720
630
54,700
$ 3,700
TRUEMAN CONSULTING INC. STATEMENT
OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2013
Common
Retained
Stock
Earnings
Balance at December 31, 2012 ..............
Stock issuance .......................................
$1,000
Total Stockholders’
Equity
$3,305
$4,305
3,700
3,700
$7,005
$8,005
Dividends................................................
Net income .............................................
Balance at December 31, 2013 ..............
$1,000
43 TRUEMAN CONSULTING
BALANCE SHEET
DECEMBER 31, 2013
Assets
Liabilities
Cash
$ 2,700 Accounts payable
Accounts receivable
3,270 Long-term notes payable
Supplies
3,060
Total Liabilities
Prepaid insurance
1,500 Equipment
$ 6,400
Owners’ Equity
Less: Accumulated
1,080
Common stock
depreciation
5,320 Retained earnings
Total Assets
$15,850 Total Liabilities and Owners’ Equity
$ 845
7,000
7,845
1,000
7,005
$15,850
b.
Date 2013 Description
Dec. 31 Service fees earned (-R)
Retained earnings (+SE)
To close the revenue account.
31
Debit
58,400
Credit
58,400
Retained earnings (-SE)
Rent expense (-E)
Salaries expense(-E)
Supplies expense (-E)
Insurance expense (-E)
Depreciation expense—Equip (-E)
Interest expense (-E)
To close the expense accounts.
44 54,700
12,000
33,400
4,700
3,250
720
630
2-39 (P3-47) Journalizing and Posting Transactions, and Preparing a Trial
Balance and Adjustments.
a, b and d. For part d, the adjusting entries are indicated by the numbers 1-5. The
unadjusted trial balance required in part c is calculated before the adjusting entries are
made.
- Accounts Payable (L) +
+ Cash (A) -
6/1
6/2
6/30
24,000
6,400
7,800
4,400
875
930
6/1
6/2
6/2
3,600
1,240
520
3,600
1,500
6/12
6/15
6/18
6/26
6/30
725
+ Accounts Receivable (A) -
24,000
+ Prepaid Advertising (A) 930
620 310
- Retained Earnings(SE) +
4.
6/30
6/1
+ Office Supplies (A) 2,840
1,310
1,530 1.
+ Travel Expense (E) -
11,040 6/15
- Acc. Depreciation – Off. Equip (XA) +
115
3.
+ Supplies Expense (E) 1,310 + Office Equipment (A) 1,500 1.
6/1
- Unearned Service Fees (L) +
3,200
6,400
3,200
6/2
- Common Stock (SE) +
6/30
6/2
2.
5.
21,535 5,800
7,800
5,200
3,200 6/1
- Salaries Payable (L) +
6/10
6/28
9,480
3.
45 1,240 + Depreciation Expense(E) 115 6/1
+ Advertising Expense (E) 310 4.
+ Rent Expense (E) 875 6/2
- Service Fees Earned (R) +
+ Salaries Expenses (E) 3,600 3,600
725
7,925 6/12
6/26
2.
5,800
5,200
3,200
14,200
6/10
6/28
5.
+ Postage Expense (E) 6/18
520 b.
Balance Sheet Cash Asset Transaction 6/1. Investment for common stock. 6/1. Purchase of assets for cash & on account. + Noncash Assets +24,000 = Liabilities + Income Statement Revenues -­‐ Expenses Earned Capital +24,000 = Cash + Contrib. Capital Common Stock -­‐4,400 + 11,040 +9,480 Cash Office Equipment Accounts Payable = = Net Income -­‐ = -­‐ = +2,840 Supplies -­‐875 6/2. Pay rent $875. -­‐875 = Cash 6/2.Purchase $930 of advertising in advance. 6/2Signed research contract. 6/12. Paid salaries. 6/15. Paid travel expenses. 6/18. Paid postage. +930 Cash Prepaid Advertising +6,400 Cash 6/10. Bill customers for services. -­‐930 = +6,400 = Unearned Service Fees = Retained Earnings = Retained Earnings +5,800 -­‐3,600 -­‐3,600 Cash -­‐1,240 Cash -­‐520 Cash +5,800 Accounts Receivable +875 -­‐ Retained Earnings -­‐1,240 = Retained Earnings -­‐520 = Retained 46 Rent Expense -­‐875 = -­‐ = -­‐ = -­‐ = +5,800 Service Fees Earned +5,800 +3,600 -­‐3,600 -­‐ Salaries Expense = +1,240 -­‐1,240 -­‐ Travel Expense = +520 -­‐ = Postage Expense -­‐520 6/26. Paid salaries. -­‐3,600 6/28. Bill customers for services. 6/30. Collect service fees. 6/30. Cash dividend paid. = Retained Earnings +5,200 +5,200 = Retained Earnings Service Fees Earned +5,200 +7,800
Cash -­‐3,600 Cash Earnings Accounts Receivable -­‐7,800 Acts. Rec. = -­‐1,500 -­‐1,500 Cash Retained Earnings -­‐ Salaries Expense = +5,200 -­‐ = -­‐ = -­‐ Date 2014 Description
June 1 Cash (+A)
Common stock (+SE)
Owner invested cash for common stock.
1 Office equipment (+A)
Office supplies (+A)
Cash (-A)
Accounts payable (+L)
Purchased equipment and supplies;
$4,400 cash paid with the remainder due in 60 days.
Debit
24,000
Credit
24,000
11,040
2,840
4,400
9,480
2 Rent expense (+E, -SE)
Cash (-A)
Paid June rent.
875
2 Prepaid advertising (+A)
Cash (-A)
Paid three months' advertising in advance.
930
875
930
2 Cash (+A)
6,400
Unearned service fees (+L)
Received two months' fees in advance on six-month contract.
6,400
10 Accounts receivable (+A)
Service fees earned (+R, +SE)
Billed customers for services.
5,800
47 -­‐3,600 +3,600 5,800
12 Salaries expense (+E, -SE)
Cash (-A)
Paid two weeks' salaries to employees.
3,600
15 Travel expense (+E, -SE)
Cash (-A)
Paid business travel expenses.
1,240
3,600
1,240
18 Postage expense (+E, -SE)
Cash (-A)
Paid postage for questionnaire mailing.
520
26 Salaries expense (+E, -SE)
Cash (-A)
Paid two weeks' salaries to employees.
3,600
28 Accounts receivable (+A)
Service fees earned (+R, +SE)
Billed customers for services.
5,200
30 Cash (+A)
Accounts receivable (-A)
Collections from customers on account.
7,800
30 Retained earnings (-SE)
Cash (-A)
Declared and paid dividends.
1,500
520
3,600
5,200
7,800
1,500
48 c.
MARKET-PROBE UNADJUSTED
TRIAL BALANCE JUNE 30,
2014
Debit
$21,535
3,200
2,840
930
11,040
Cash
Accounts Receivable
Office Supplies
Prepaid Advertising
Office Equipment
Accounts Payable
Unearned Service Fees
Common Stock
Retained Earnings*
Service Fees Earned
Salaries Expense
Rent Expense
Travel Expense
Postage Expense
$9,480
6,400
24,000
1,500
11,000
7,200
875
1,240
520
$50,880
Credit
$50,880
* The negative (debit) balance in Retained Earnings reflects the dividend paid.
d.
Balance Sheet Transaction Cash Asset a. Recognize
supplies
expense.
+ Noncash Assets -­‐ -1,310
-
c. Accrue
depreciation
expense.
-
e. Recognize
earned service
fees.
-310
Prepaid
Advertising
= Liabilities =
-
Office
Supplies
b. Recognize
salaries
expense.
d. Recognize
advertising
expense.
Contra Assets -
-
Income Statement -1,310
=
+115
Accumulated
Depreciation
+725
-725
Salaries
Payable
Retained
Earnings
=
Expenses = -
+1,310
= -1,310
=
-310
Retained
Earnings
=
Supplies
Expense
-
-3,200
+3,200
Unearned
Service Fees
Retained
Earnings
49 +725
=
-725
=
-115
Salaries
Expense
-115
Retained
Earnings
Net Income -­‐ Retained
Earnings
+ Contrib. + Earned Capital Revenues Capital -
+115
Depreciation
Expense -
+310
Advertising
Expense
+3,200
Service Fees
Earned
-
=
-310
= +3,200
Date 2014
June 30
30
30
30
30
Description
Supplies expense (+E, -SE)
Office supplies (-A)
To record supplies used during June
($2,840 - $1,530 = $1,310).
Salaries expense (+E, -SE)
Salaries payable (+L)
To record unpaid salaries at June 30.
725
Depreciation expense—Office equipment (+E, -SE)
Accum. depr. Office equipment (+XA, -A)
To record June depreciation ($11,040/96 mo. = $115).
115
Advertising expense (+E, -SE)
Prepaid advertising (-A)
To record one month's advertising expense.
310
725
115
310
Unearned service fees (-L)
3,200
Service fees earned (+R, +SE)
To record one month's fees earned, received in advance.
3,200
2-40 (P3-50) Preparing Financial Statement and Closing Entries.
Part a.
TRAILS, INC. INCOME
STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2013
Revenues
Subscription revenue
Advertising revenue
Total revenues
Expenses
Salaries expense
Printing and mailing expense
Rent expense
Supplies expense
Insurance expense
Depreciation expense
Income tax expense
Total expenses
Net income
Debit
Credit
1,310 1,310
$ 168,300
49,700
$218,000
100,230
85,600
8,800
6,100
1,860
5,500
1,600
209,690
$8,310
50 Trails, Inc.
Statement of Stockholders’ Equity
For Year Ended December 31, 2013
Common
Retained
Stock
Earnings
Balance at December 31, 2012........
$25,000
$23,220
Stock issuance...............................
Dividends .......................................
Net income.....................................
Balance at December 31, 2013........
$25,000
Total Stockholders’
Equity
$48,220
8,310
$31,530
8,310
$56,530
TRAILS, INC.
BALANCE SHEET
DECEMBER 31, 2013
Assets
Liabilities
Cash
$3,400
Accounts receivable
8,600
Supplies
4,200
Prepaid insurance
930
Office equipment
$66,000
Less: Acc. Dep
11,000 55,000
Accounts payable
Unearned subscription revenue
Salaries payable
Total liabilities
Stockholders' equity
Total assets
$ 2,100
10,000
3,500
15,600
Common stock
Retained earnings
Total stockholders' equity
Total liabilities and
stockholders' equity
$72,130
51 $25,000
31,530
56,530
$72,130
b.
Date 2013 Description
Dec. 31 Subscription revenue (-R)
Advertising revenue (-R)
Retained earnings (+SE)
To close the revenue accounts.
31
Debit
168,300
49,700
218,000
Retained earnings (-SE)
Salaries expense (-E)
Printing and mailing expense (-E)
Rent expense (-E)
Supplies expense (-E)
Insurance expense (-E)
Depreciation expense (-E)
Income tax expense (-E)
To close the expense accounts.
Credit
209,690
100,230
85,600
8,800
6,100
1,860
5,500
1,600
2-41 Zealock Bookstore: Analysis of transactions and preparation of income
statement and balance sheet.
a.
T-accounts.
Cash (A)
(1)
25,000
20,000
(2)
30,000
4,000
(8)
24,600
10,000
(10)
142,400
8,000
(13)
850
16,700
139,800
24,350
(7)
(6)
(3)
(4)
(5)
(6)
(11)
(12)
Accounts Receivable (A)
148,200
142,400 (10)
5,800
Merchandise Inventory (A)
160,000
140,000
(8)
14,600
(9)
5,400
Deposit with Suppliers (A)
8,000
(3)
20,000
Prepaid Rent (A)
10,000 (15)
10,000
Equipment (A)
(4)
(5)
8,000
(8)
52 4,000
10,000
14,000
Accumulated Depreciation (XA)
400 (16)
1,500 (17)
1,900
Accounts Payable (L)
(9)
14,600
160,000
(12)
139,800
5,600
Interest Payable (L)
900
Common Stock (SE)
25,000
(19)
Sales Revenue (SE)
172,800
172,800
30,000
Advances from Customers (L)
850 (13)
(14)
850
Income Tax Payable (L)
1,320 (18)
1,320
(1)
25,000
Retained Earnings (SE)
1,980 (19)
1,980
(8)(8)
Cost of Goods Sold (SE)
140,000
140,000 (19)
Compensation Expense (SE)
(11)
16,700
16,700 (19) (14)
Interest Expense (SE)
900 900
(19)
(15)
Rent Expense (SE)
10,000
10,000
Depreciation Expense (SE)
(19) (16)
400
1,900
(19)
(17)
1,500
(18)
(2)
(7)
900
Note Payable (L)
30,000
Income Tax Expense (SE)
1,320
1,320 (19)
53 b.
ZEALOCK BOOKSTORE
Income Statement
For the Six Months Ending December 31, 2013
Sales Revenue......................................................................
$ 172,800
Less Expenses:
Cost of Goods Sold ...........................................................
$ 140,000
Compensation Expense ...................................................
16,700
Interest Expense .............................................................
900
Rent Expense ...................................................................
10,000
Depreciation Expense......................................................
1,900
Income Before Income Taxes ......................................
3,300
Income Tax Expense .......................................................
1,320
Net Income...................................................................
$ 1,980
c.
ZEALOCK BOOKSTORE
Balance Sheet
December 31, 2013
Assets
Current Assets:
Cash ............................................................................
Accounts Receivable ...................................................
Merchandise Inventories ...........................................
Prepaid Rent...............................................................
Deposit with Suppliers ...............................................
Total Current Assets ..............................................
Equipment ..................................................................
Less Accumulated Depreciation ................................
Equipment (Net).........................................................
Total Assets ............................................................
$
$
$
$
$
24,350
5,800
5,400
10,000
8,000
53,550
14,000
(1,900)
12,100
65,650
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts Payable........................................................
Note Payable...............................................................
Advances from Customers .........................................
Interest Payable .........................................................
Income Tax Payable ...................................................
Total Current Liabilities ........................................
Shareholders' Equity:
Common Stock ............................................................
Retained Earnings......................................................
Total Shareholders' Equity ....................................
Total Liabilities and Shareholders' Equity ...........
54 $
$
$
$
$
5,600
30,000
850
900
1,320
38,670
25,000
1,980
26,980
65,650
2-42 Zealock Bookstore: analysis of transactions and preparation of comparative
income statements and balance sheet.
a.
(3)
(4)
(7)
(9)
(6)
310,000
286,400
22,700
(7)
(8)
13,150
Prepaid Rent (A)
10,000
(5)
(8)
(11)
(2)
20,000
20,000 (13)
Equipment (A)
14,000
(4)
14,000
Accumulated Depreciation (XA)
1,900
800 (14)
3,000 (15)
5,700
Accounts Receivable (A)
5,800
327,950
320,600 (9)
10,000
Deposit with Suppliers (A)
8,000
8,000
0
Accounts Payable (L)
5,600
22,700
310,000
281,100
11,800
Interest Payable (L)
900
900
3,000
3,000
(6)
(2)
Note Payable (L)
30,000
30,000
75,000
(3)
75,000
Advance from Customers (L)
850
(7)
850
0
(16)
Common Stock (SE)
25,000
(1)
Income Tax Payable (L)
1,320
1,320
4,080 (17)
4,080
Retained Earnings (SE)
1,980
(12)
4,000
6,120 (18)
4,100
25,000
(7)
6,300
T-accounts.
Cash (A)
24,350
75,000
1,320
(1)
8,000
31,800
(2)
24,900
20,000
(5)
320,600
29,400 (10)
281,100 (11)
4,000 (12)
85,230
Merchandise Inventory (A)
5,400
55 Sales Revenue (SE)
353,700
353,700
(18)
Cost of Goods Sold (SE)
286,400
286,400 (18)
(7)(7)
Compensation Expense (SE)
29,400
29,400 (18) (2)
(10)
(16)
Interest Expense (SE)
900
3,000
3,900 (18)
Rent Expense (SE)
20,000
20,000
(13)
(18) (14)
Depreciation Expense (SE)
800
(15)
3,000
3,800 (18)
Income Tax Expense (SE)
4,080
4,080 (18)
(17)
b.
ZEALOCK BOOKSTORE
Comparative Income Statement
For 2013 and 2014
2014
Sales Revenue ............................................... $ 353,700
Less Expenses:
Cost of Goods Sold..................................... $ 286,400
Compensation Expense..............................
29,400
Interest Expense .........................................
3,900
Rent Expense .............................................
20,000
Depreciation Expense.................................
3,800
Income Before Income Taxes .................
10,200
Income Tax Expense ..................................
4,080
Net Income ............................................. $ 6,120
56 2013
$ 172,800
$ 140,000
16,700
900
10,000
1,900
3,300
1,320
$ 1,980
c.
ZEALOCK BOOKSTORE
Comparative Balance Sheet
December 31, 2013 and 2014
2014
Assets
Current Assets:
Cash ...........................................................
Accounts Receivable ..................................
Merchandise Inventories.............................
Prepaid Rent ...............................................
Deposit with Suppliers ................................
Total Current Assets ...............................
Noncurrent Assets:
Equipment...................................................
Less Accumulated Depreciation .................
Equipment (Net)..........................................
Total Assets ............................................
2013
$ 85,230
13,150
6,300
10,000
-$ 114,680
$ 24,350
5,800
5,400
10,000
8,000
$ 53,550
$ 14,000
(5,700)
$ 8,300
$ 122,980
$ 14,000
(1,900)
$ 12,100
$ 65,650
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts Payable ....................................... $
Note Payable ..............................................
Advances from Customers..........................
Interest Payable ..........................................
Income Tax Payable ...................................
Total Current Liabilities ........................... $
Shareholders' Equity:
Common Stock ........................................... $
Retained Earnings ......................................
Total Shareholders' Equity ...................... $
Total Liabilities and Shareholders'
Equity.................................................. $
57 11,800
75,000
-3,000
4,080
93,880
$
5,600
30,000
850
900
1,320
$ 38,670
25,000
4,100
29,100
$ 25,000
1,980
$ 26,980
122,980
$ 65,650