CHAPTER 3
Adjusting the Accounts
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 3-1
(a) Prepaid Insurance—to recognize insurance expired during the period.
(b) Depreciation Expense—to account for the depreciation that has occurred on the asset during the period.
(c) Unearned Revenue—to record revenue earned for services provided.
(d) Interest Payable—to recognize interest accrued but unpaid on notes
payable.
BRIEF EXERCISE 3-2
(a)
Type of Adjustment
(b)
Accounts before Adjustment
1.
Prepaid Expenses
Assets Overstated
Expenses Understated
2.
Accrued Revenues
Assets Understated
Revenues Understated
3.
Accrued Expenses
Expenses Understated
Liabilities Understated
4.
Unearned Revenues
Liabilities Overstated
Revenues Understated
Item
BRIEF EXERCISE 3-3
Dec. 31
Advertising Supplies Expense ............................
3-1
5,000
Advertising Supplies ($6,700 – $1,700) .......
Advertising Supplies
6,700 12/31
5,000
12/31 Bal. 1,700
5,000
Advertising Supplies Expense
12/31
5,000
3-2
BRIEF EXERCISE 3-4
Dec. 31
Depreciation Expense—Equipment....................
Accumulated Depreciation—
Equipment.................................................
Depr. Expense—Equipment
12/31
6,000
6,000
6,000
Accum. Depreciation—Equipment
12/31
6,000
Balance Sheet:
Equipment ............................................................
Less: Accumulated Depreciation ......................
$30,000
6,000
$24,000
BRIEF EXERCISE 3-5
July 1
Dec. 31
Prepaid Insurance ............................................
Cash ..........................................................
12,000
Insurance Expense ($12,000 ÷ 3) x 1/2 ...........
Prepaid Insurance ....................................
2,000
Prepaid Insurance
7/1
12,000 12/31
12/31 Bal. 10,000
2,000
12/31
12,000
2,000
Insurance Expense
2,000
BRIEF EXERCISE 3-6
July 1
Dec. 31
Cash ..................................................................
Unearned Insurance Revenue .................
12,000
Unearned Insurance Revenue .........................
Insurance Revenue ..................................
2,000
Unearned Insurance Revenue
12/31
2,000 7/1
12,000
12/31 Bal. 10,000
12,000
2,000
Insurance Revenue
12/31
2,000
3-3
BRIEF EXERCISE 3-7
1.
2.
3.
Dec. 31
31
31
Interest Expense ...........................................
Interest Payable ....................................
400
Accounts Receivable ...................................
Service Revenue ...................................
1,250
Salaries Expense ..........................................
Salaries Payable ...................................
900
400
1,250
900
BRIEF EXERCISE 3-8
Account
(a)
Type of Adjustment
(b)
Related Account
Accounts Receivable
Prepaid Insurance
Accum. Depr.—Equipment
Interest Payable
Unearned Service Revenue
Accrued Revenues
Prepaid Expenses
Prepaid Expenses
Accrued Expenses
Unearned Revenues
Service Revenue
Insurance Expense
Depreciation Expense
Interest Expense
Service Revenue
BRIEF EXERCISE 3-9
LUCILLE COMPANY
Income Statement
For the Year Ended December 31, 2005
Revenues
Service revenue ....................................................
Expenses
Salaries expense ...................................................
Rent expense ........................................................
Insurance expense................................................
Supplies expense..................................................
Depreciation expense ...........................................
Total expenses ..............................................
Net income ....................................................................
3-4
$38,400
$16,000
4,000
2,000
1,500
1,300
24,800
$13,600
BRIEF EXERCISE 3-10
LUCILLE COMPANY
Owner’s Equity Statement
For the Year Ended December 31, 2005
Capital, January 1............................................................................
Add: Net income ...........................................................................
Less: Drawings ...............................................................................
Capital, December 31 ......................................................................
$15,600
13,600
29,200
6,000
$23,200
*BRIEF EXERCISE 3-11
(a) Apr. 30
(b)
30
Supplies ........................................................
Supplies Expense .................................
1,000
Service Revenue ...........................................
Unearned Service Revenue ..................
2,000
3-5
1,000
2,000
SOLUTIONS TO EXERCISES
EXERCISE 3-1
(a) Accrual-basis accounting records the events that change a company’s financial statements in the periods in which the events occur
rather than in the periods in which the company receives or pays
cash. Information presented on an accrual basis is useful because
it reveals relationships that are likely to be important in predicting
future results. Conversely, under cash-basis accounting, revenue is
recorded only when cash is received, and an expense is recognized
only when cash is paid. As a result, the cash basis of accounting
often leads to misleading financial statements.
(b) Politicians might desire a cash-basis accounting system over an
accrual-basis system because if an accrual-accounting system is
used, it could mean that billions in government liabilities presently
unrecorded would have to be reported in the federal budget immediately. The recognition of these additional liabilities would make
the deficit even worse. This is not what politicians would like to see
and be held responsible for.
(c) Dear Senator,
It is my understanding, after having taken a beginning course in
accounting principles, that the Federal government uses a cashbasis system rather than an accrual-basis accounting system.
I am shocked at such a practice! There must be billions of dollars of
liabilities hidden in many contracts that have not been recorded yet
for the mere reason that they haven’t been paid yet. I realize that
the deficit would dramatically increase if we were to implement an
accrual system, but in all fairness, we citizens should be given a
more accurate picture of what our government is up to.
Sincerely,
CONCERNED STUDENT
3-6
EXERCISE 3-2
(a)
Type of Adjustment
(b)
Accounts before Adjustment
1.
Accrued Revenues
Assets Understated
Revenues Understated
2.
Prepaid Expenses
Assets Overstated
Expenses Understated
3.
Accrued Expenses
Expenses Understated
Liabilities Understated
4.
Unearned Revenues
Liabilities Overstated
Revenues Understated
5.
Accrued Expenses
Expenses Understated
Liabilities Understated
6.
Prepaid Expenses
Assets Overstated
Expenses Understated
Item
EXERCISE 3-3
1.
2.
3.
4.
5.
Mar. 31
31
31
31
31
Depreciation Expense ($300 X 3).................
Accumulated Depreciation—
Equipment .........................................
900
Unearned Rent ..............................................
Rent Revenue ($9,900 X 1/3).................
3,300
Interest Expense ...........................................
Interest Payable ....................................
500
Supplies Expense .........................................
Supplies ($2,800 – $900) .......................
1,900
Insurance Expense ($200 X 3) .....................
Prepaid Insurance .................................
600
3-7
900
3,300
500
1,900
600
EXERCISE 3-4
1.
2.
3.
Jan. 31
31
31
31
4.
5.
31
31
Accounts Receivable ....................................
Service Revenue ...................................
875
Utilities Expense ...........................................
Utilities Payable.....................................
520
Depreciation Expense ..................................
Accumulated Depreciation—
Dental Equipment ..............................
400
Interest Expense ...........................................
Interest Payable.....................................
500
Insurance Expense ($18,000 ÷ 12) ...............
Prepaid Insurance .................................
1,500
Supplies Expense ($1,600 – $600) ...............
Supplies .................................................
1,000
Advertising Supplies Expense.....................
Advertising Supplies ............................
($2,500 – $1,000)
1,500
Insurance Expense .......................................
Prepaid Insurance .................................
100
Depreciation Expense ..................................
Accumulated Depreciation—
Office Equipment ..............................
50
Unearned Revenue .......................................
Service Revenue ...................................
600
Accounts Receivable ....................................
Service Revenue ...................................
300
875
520
400
500
1,500
1,000
EXERCISE 3-5
1.
2.
3.
4.
5.
Oct. 31
31
31
31
31
3-8
1,500
100
50
600
300
EXERCISE 3-5 (Continued)
6.
7.
Oct. 31
31
Interest Expense ...........................................
Interest Payable ....................................
70
Salaries Expense ..........................................
Salaries Payable....................................
1,200
70
1,200
EXERCISE 3-6
OLYMPIC CO.
Income Statement
For the Month Ended July 31, 2005
Revenues
Service revenue ($5,500 + $1,000) ..........................
Expenses
Wages expense ($2,300 + $300) ..............................
Supplies expense ($1,200 – $300) ..........................
Utilities expense ......................................................
Insurance expense ..................................................
Depreciation expense ..............................................
Total expenses .................................................
Net income .......................................................................
$6,500
$2,600
900
600
400
150
4,650
$1,850
EXERCISE 3-7
Answer
Computation
(a) Supplies balance = $1,150
Supplies expense
Add: Supplies (1/31)
Less: Supplies purchased
Supplies (1/1)
(b) Total premium = $4,800
Total premium = Monthly premium X
12; $400 X 12 = $4,800
Purchase date = Aug. 1, 2004
$950)
850)
(650)
$1,150)
Purchase date: On Jan. 31, there are
6 months’ coverage remaining ($400
X 6). Thus, the purchase date was 6
months earlier on Aug. 1, 2004.
3-9
EXERCISE 3-7 (Continued)
(c) Salaries payable = $2,000
Cash paid
Salaries payable (1/31/05)
$3,000
800
3,800
1,800
$2,000
Less: Salaries expense
Salaries payable (12/31/04)
(d) Unearned revenue = $1,150
Service revenue
Unearned service revenue
(1/31/05)
$2,000
750
2,750
1,600
Cash received in January
Unearned service revenue
(12/31/04)
$1,150
EXERCISE 3-8
(a) July 10
14
15
20
(b) July 31
31
31
31
Supplies ........................................................
Cash .......................................................
200
Cash...............................................................
Service Revenue ...................................
2,000
Salaries Expense ..........................................
Cash .......................................................
1,200
Cash...............................................................
Unearned Revenue ................................
750
Supplies Expense .........................................
Supplies .................................................
800
Accounts Receivable ....................................
Service Revenue ...................................
500
Salaries Expense ..........................................
Salaries Payable ....................................
1,200
Unearned Revenue .......................................
Service Revenue ...................................
900
3-10
200
2,000
1,200
750
800
500
1,200
900
EXERCISE 3-9
Aug. 31
31
31
31
31
31
Accounts Receivable...........................................
Service Revenue ..........................................
600
Office Supplies Expense .....................................
Office Supplies .............................................
1,600
Insurance Expense ..............................................
Prepaid Insurance ........................................
1,500
Depreciation Expense .........................................
Accumulated Depreciation—Office
Equipment ................................................
1,300
Salaries Expense .................................................
Salaries Payable ...........................................
1,100
Unearned Rent .....................................................
Rent Revenue ...............................................
900
600
1,600
1,500
1,300
1,100
900
EXERCISE 3-10
VILLA COMPANY
Income Statement
For the Year Ended August 31, 2004
Revenues
Service revenue ....................................................
Rent revenue .........................................................
Total revenues ...............................................
Expenses
Salaries expense...................................................
Rent expense ........................................................
Office supplies expense .......................................
Insurance expense ...............................................
Depreciation expense ...........................................
Total expenses ..............................................
Net income ....................................................................
3-11
$34,600
11,900
46,500
$18,100
15,000
1,600
1,500
1,300
37,500
$ 9,000
EXERCISE 3-10 (Continued)
VILLA COMPANY
Owner’s Equity Statement
For the Year Ended August 31, 2004
Capital, September 1, 2003 .............................................................
Add: Net income ............................................................................
Capital, August 31, 2004 .................................................................
$15,600
9,000
$24,600
VILLA COMPANY
Balance Sheet
August 31, 2004
Assets
Cash ..............................................................................
Accounts receivable.....................................................
Office supplies ..............................................................
Prepaid insurance ........................................................
Office equipment ..........................................................
Less: Accum. depreciation—office equipment .........
Total assets ...................................................
$10,400
9,400
700
2,500
$14,000
4,900
9,100
$32,100
Liabilities and Owner’s Equity
Liabilities
Accounts payable ....................................................................
Salaries payable .......................................................................
Unearned rent ..........................................................................
Total liabilities ..................................................................
Owner’s equity
T. Villa, Capital .........................................................................
Total liabilities and owner’s equity .................................
$ 5,800
1,100
600
7,500
24,600
$32,100
EXERCISE 3-11
(a) 1.
2.
Cash ....................................................................
Fees Receivable .........................................
9,000
Unearned Fees ...................................................
Fees Revenues ...........................................
20,000
3-12
9,000
20,000
EXERCISE 3-11 (Continued)
3.
4.
5.
(a) Cash ..........................................................
Unearned Fees ..................................
35,000
(b) Unearned Fees .........................................
($35,000 – $17,000)
Fees Revenue ...................................
18,000
Fees Receivable ...............................................
Fees Revenue ...........................................
($153,000 – $20,000 – $18,000)
115,000
Cash ..................................................................
Fees Receivable .......................................
($115,000 – $12,000)
103,000
35,000
18,000
115,000
103,000
(b) Cash received with respect to fees = $9,000 + $103,000 + $35,000
= $147,000
*EXERCISE 3-12
(a) Jan. 2
10
15
1/2
1/15
Insurance Expense .......................................
Cash .......................................................
2,400
Supplies Expense .........................................
Cash .......................................................
1,700
Cash ..............................................................
Service Revenue ...................................
6,100
Insurance Expense
2,400
Cash
6,100 1/2
1/10
1/10
2,400
1,700
Supplies Expense
1,700
Service Revenue
1/15
2,400
1,700
3-13
6,100
6,100
*EXERCISE 3-12 (Continued)
(b) Jan. 31
31
31
Prepaid Insurance ($200 X 11 months) .......
Insurance Expense ...............................
2,200
Supplies ........................................................
Supplies Expense .................................
800
Service Revenue ...........................................
Unearned Revenue ................................
4,600
Insurance Expense
1/2 2,400 1/31 2,200
Bal.
200
Prepaid Insurance
1/31 2,200
Supplies Expense
1/10 1,700 1/31 800
Bal.
900
1/31
Supplies
800
2,200
800
Service Revenue
1/31 4,600 1/15 6,100
Bal. 1,500
Unearned Revenue
1/31 4,600
(c) Insurance expense.....................................................................
Supplies expense.......................................................................
Service revenue .........................................................................
Prepaid insurance ......................................................................
Supplies ......................................................................................
Unearned revenue......................................................................
3-14
4,600
$ 200
900
1,500
2,200
800
4,600
SOLUTIONS TO PROBLEMS
PROBLEM 3-1A
(a)
Date
2005
May 31
31
31
31
31
31
31
Account Titles and Explanation
Ref.
Debit
Supplies Expense
Supplies
560
130
500
Travel Expense
Travel Payable
550
210
200
Insurance Expense
Prepaid Insurance
($2,400 ÷ 24 months)
540
120
100
Unearned Service Revenue
Service Revenue
($3,000 – $1,000)
230
400
2,000
Salaries Expense
Salaries Payable
[(3/5 X $500) X 2 employees]
510
220
600
Depreciation Expense
Accumulated Depreciation—
Office Furniture
($12,000 ÷ 60 months)
530
200
Accounts Receivable
Service Revenue
110
400
J4
Credit
500
200
100
2,000
600
136
200
1,000
1,000
(b)
Cash
Date
2005
May 31
Explanation
Balance
Ref.

3-15
Debit
Credit
No. 101
Balance
7,700
PROBLEM 3-1A (Continued)
Accounts Receivable
Date
Explanation
2005
May 31
Balance
31
Adjusting
Prepaid Insurance
Date
Explanation
2005
May 31
Balance
31
Adjusting
Supplies
Date
2005
May 31
31
Explanation
Balance
Adjusting
Office Furniture
Date
Explanation
2005
May 31
Balance
Ref.

J4
Ref.
Debit
1,000
4,000
5,000
Debit
Credit
No. 120
Balance
100
2,400
2,300
Credit
No. 130
Balance
500
1,500
1,000
Credit
No. 135
Balance

J4
Ref.
Debit

J4
Ref.
Debit

12,000
Accumulated Depreciation—Office Furniture
Date
Explanation
Ref.
Debit
2005
May 31
Adjusting
J4
Accounts Payable
Date
Explanation
2005
May 31
Balance
Credit
Ref.

3-16
No. 110
Balance
Debit
Credit
200
Credit
No. 136
Balance
200
No. 200
Balance
3,500
PROBLEM 3-1A (Continued)
Travel Payable
Date
Explanation
2005
May 31
Adjusting
Salaries Payable
Date
Explanation
2005
May 31
Adjusting
Unearned Service Revenue
Date
Explanation
2005
May 31
Balance
31
Adjusting
L. Rig, Capital
Date
Explanation
2005
May 31
Balance
Service Revenue
Date
Explanation
2005
May 31
Balance
31
Adjusting
31
Adjusting
Salaries Expense
Date
Explanation
2005
May 31
Balance
31
Adjusting
Ref.
Debit
J4
Ref.
200
Debit
J4
Ref.

J4
Ref.
Credit
Credit
600
Debit
Credit
No. 210
Balance
200
No. 220
Balance
600
No. 230
Balance
2,000
3,000
1,000
Debit
No. 300
Balance
Credit

19,100
Ref.
Credit
No. 400
Balance
2,000
1,000
6,000
8,000
9,000
Credit
No. 510
Balance
Debit

J4
J4
Ref.

J4
3-17
Debit
600
3,000
3,600
PROBLEM 3-1A (Continued)
Rent Expense
Date
Explanation
2005
May 31
Balance
Depreciation Expense
Date
Explanation
2005
May 31
Adjusting
Insurance Expense
Date
Explanation
2005
May 31
Adjusting
Travel Expense
Date
Explanation
2005
May 31
Adjusting
Supplies Expense
Date
Explanation
2005
May 31
Adjusting
Ref.
Debit
Credit

No. 520
Balance
1,000
Ref.
Debit
J4
200
200
Ref.
Debit
No. 540
Balance
J4
100
100
Ref.
Debit
No. 550
Balance
J4
200
200
Ref.
Debit
No. 560
Balance
J4
500
3-18
Credit
No. 530
Balance
Credit
Credit
Credit
500
PROBLEM 3-1A (Continued)
(c)
VEKTEK CONSULTING
Adjusted Trial Balance
May 31, 2005
Cash ....................................................................
Accounts Receivable .........................................
Prepaid Insurance ..............................................
Supplies ..............................................................
Office Furniture ..................................................
Accumulated Depreciation—Office
Furniture .........................................................
Accounts Payable ..............................................
Travel Payable ....................................................
Salaries Payable ................................................
Unearned Service Revenue ...............................
L. Rig, Capital .....................................................
Service Revenue ................................................
Salaries Expense ...............................................
Rent Expense .....................................................
Depreciation Expense .......................................
Insurance Expense ............................................
Travel Expense ..................................................
Supplies Expense ..............................................
3-19
Debit
$ 7,700
5,000
2,300
1,000
12,000
Credit
$
200
3,500
200
600
1,000
19,100
9,000
3,600
1,000
200
100
200
500
$33,600
000,000
$33,600
PROBLEM 3-2A
(a)
Date
May 31
31
31
31
31
31
31
Account Titles and Explanation
Insurance Expense ............................
Prepaid Insurance ......................
Ref.
722
130
Debit
200
Supplies Expense ..............................
Supplies ($1,900 – $900) ............
631
126
1,000
Depreciation Expense—Lodge .........
($2,400 X 1/12)
Accumulated Depreciation—
Lodge ......................................
619
200
Depreciation Expense—Furniture.....
($3,000 X 1/12)
Accumulated Depreciation—
Furniture..................................
621
Interest Expense ................................
Interest Payable ..........................
[($35,000 X 12%) X 1/12]
718
230
350
Unearned Rent ...................................
Rent Revenue .............................
208
429
2,500
Salaries Expense ...............................
Salaries Payable .........................
726
212
800
J1
Credit
200
1,000
142
200
250
150
250
350
2,500
800
(b)
Cash
Date
May 31
Explanation
Balance
Ref.

3-20
Debit
Credit
No. 101
Balance
2,500
PROBLEM 3-2A (Continued)
Supplies
Date
May 31
31
Explanation
Balance
Adjusting
Prepaid Insurance
Date
Explanation
May 31
Balance
31
Adjusting
Land
Date
May 31
Lodge
Date
May 31
Explanation
Balance
Explanation
Balance
Ref.

J1
Ref.

J1
Ref.

Ref.

Accumulated Depreciation—Lodge
Date
Explanation
Ref.
May 31
Adjusting
J1
Furniture
Date
Explanation
May 31
Balance
Ref.

Accumulated Depreciation—Furniture
Date
Explanation
Ref.
May 31
Adjusting
J1
3-21
Debit
Credit
1,000
Debit
Credit
200
Debit
Debit
Debit
Debit
Debit
No. 126
Balance
1,900
900
No. 130
Balance
2,400
2,200
Credit
No. 140
Balance
15,000
Credit
No. 141
Balance
70,000
Credit
200
Credit
Credit
250
No. 142
Balance
200
No. 149
Balance
16,800
No. 150
Balance
250
PROBLEM 3-2A (Continued)
Accounts Payable
Date
Explanation
May 31
Balance
Unearned Rent
Date
Explanation
May 31
Balance
31
Adjusting
Salaries Payable
Date
Explanation
May 31
Adjusting
Interest Payable
Date
Explanation
May 31
Adjusting
Mortgage Payable
Date
Explanation
May 31
Balance
Sue Phillips, Capital
Date
Explanation
May 31
Balance
Rent Revenue
Date
Explanation
May 31
Balance
31
Adjusting
Ref.

Ref.

J1
Ref.
J1
Ref.
J1
Ref.

Ref.

Ref.

J1
3-22
Debit
Debit
Credit
Credit
2,500
Debit
Debit
Debit
Debit
Debit
No. 201
Balance
5,300
No. 208
Balance
3,600
1,100
Credit
800
No. 212
Balance
800
Credit
350
No. 230
Balance
350
Credit
No. 275
Balance
35,000
Credit
No. 301
Balance
60,000
Credit
2,500
No. 429
Balance
9,200
11,700
PROBLEM 3-2A (Continued)
Advertising Expense
Date
Explanation
May 31
Balance
Depreciation Expense—Lodge
Date
Explanation
May 31
Adjusting
Depreciation Expense—Furniture
Date
Explanation
May 31
Adjusting
Supplies Expense
Date
Explanation
May 31
Adjusting
Interest Expense
Date
Explanation
May 31
Adjusting
Insurance Expense
Date
Explanation
May 31
Adjusting
Salaries Expense
Date
Explanation
May 31
Balance
31
Adjusting
Ref.

Ref.
J1
Ref.
J1
Ref.
J1
Ref.
J1
Ref.
J1
Ref.

J1
3-23
Debit
Debit
200
Debit
250
Debit
1,000
Debit
350
Debit
200
Debit
800
Credit
No. 610
Balance
500
Credit
No. 619
Balance
200
Credit
No. 621
Balance
250
Credit
No. 631
Balance
1,000
Credit
No. 718
Balance
350
Credit
No. 722
Balance
200
Credit
No. 726
Balance
3,000
3,800
PROBLEM 3-2A (Continued)
Utilities Expense
Date
Explanation
May 31
Balance
(c)
Ref.

Debit
Credit
No. 732
Balance
1,000
THAYER MOTEL
Adjusted Trial Balance
May 31, 2005
Cash ....................................................................
Supplies ..............................................................
Prepaid Insurance ..............................................
Land ....................................................................
Lodge ..................................................................
Accumulated Depreciation—Lodge ..................
Furniture .............................................................
Accumulated Depreciation—Furniture .............
Accounts Payable ..............................................
Unearned Rent ...................................................
Salaries Payable .................................................
Interest Payable .................................................
Mortgage Payable ..............................................
Sue Phillips, Capital ...........................................
Rent Revenue .....................................................
Advertising Expense ..........................................
Depreciation Expense—Lodge .........................
Depreciation Expense—Furniture.....................
Supplies Expense ..............................................
Interest Expense ................................................
Insurance Expense ............................................
Salaries Expense ...............................................
Utilities Expense ................................................
3-24
Debit
$ 2,500
900
2,200
15,000
70,000
Credit
$
200
16,800
250
5,300
1,100
800
350
35,000
60,000
11,700
500
200
250
1,000
350
200
3,800
1,000
$114,700
0000,000
$114,700
PROBLEM 3-2A (Continued)
(d)
THAYER MOTEL
Income Statement
For the Month Ended May 31, 2005
Revenues
Rent revenue ...................................................
Expenses
Salaries expense .............................................
Utilities expense ..............................................
Supplies expense ............................................
Advertising expense .......................................
Interest expense ..............................................
Depreciation expense—furniture ...................
Depreciation expense—lodge ........................
Insurance expense ..........................................
Total expenses.........................................
Net income ..............................................................
$11,700
$3,800
1,000
1,000
500
350
250
200
200
7,300
$ 4,400
THAYER MOTEL
Owner’s Equity Statement
For the Month Ended May 31, 2005
Sue Phillips, Capital, May 1 .....................................................
Investment by owner ...............................................................
Add: Net income ....................................................................
Sue Phillips, Capital, May 31 ...................................................
3-25
$
0
60,000
4,400
$64,400
PROBLEM 3-2A (Continued)
THAYER MOTEL
Balance Sheet
May 31, 2005
Assets
Cash ....................................................................
Supplies ..............................................................
Prepaid insurance ..............................................
Land ....................................................................
Lodge ..................................................................
Less: Accumulated depreciation—lodge ........
Furniture .............................................................
Less: Accumulated depreciation—furniture ...
Total assets .........................................
$
$70,000
200
16,800
250
2,500
900
2,200
15,000
69,800
16,550
$106,950
Liabilities and Owner’s Equity
Liabilities
Accounts payable.......................................
Unearned rent .............................................
Salaries payable .........................................
Interest payable ..........................................
Mortgage payable .......................................
Total liabilities .....................................
Owner’s equity
Sue Phillips, Capital ...................................
Total liabilities and owner’s equity ....
3-26
$
5,300
1,100
800
350
35,000
42,550
64,400
$106,950
PROBLEM 3-3A
(a) Sept. 30
30
30
30
30
30
30
(b)
Accounts Receivable ....................................
Commission Revenue ...........................
200
Rent Expense ................................................
Prepaid Rent ..........................................
600
Supplies Expense .........................................
Supplies .................................................
200
Depreciation Expense...................................
Accum. Depreciation—Equipment .......
850
Interest Expense ...........................................
Interest Payable .....................................
50
Unearned Rent ..............................................
Rent Revenue ........................................
400
Salaries Expense ..........................................
Salaries Payable ....................................
400
200
600
200
850
50
400
400
MENDOZA CO.
Income Statement
For the Quarter Ended September 30, 2005
Revenues
Commission revenue ......................................
Rent revenue ...................................................
Total revenues .........................................
Expenses
Salaries expense .............................................
Rent expense ...................................................
Depreciation expense .....................................
Utilities expense ..............................................
Supplies expense ............................................
Interest expense ..............................................
Total expenses.........................................
Net income ..............................................................
3-27
$14,200
800
15,000
$9,400
1,500
850
510
200
50
12,510
$ 2,490
PROBLEM 3-3A (Continued)
MENDOZA CO.
Owner’s Equity Statement
For the Quarter Ended September 30, 2005
Jose Mendoza, Capital, July 1, 2005 .......................................
Investment by owner ...............................................................
Add: Net income ....................................................................
Less: Drawings .......................................................................
Jose Mendoza, Capital, September 30, 2005..........................
$
0
14,000
2,490
16,490
600
$15,890
MENDOZA CO.
Balance Sheet
September 30, 2005
Assets
Cash .......................................................................
Accounts receivable .............................................
Prepaid rent ...........................................................
Supplies .................................................................
Equipment .............................................................
Less: Accum. depreciation—equipment ............
Total assets ............................................
$ 6,700
600
900
1,000
$15,000
850
14,150
$23,350
Liabilities and Owner’s Equity
Liabilities
Notes payable ................................................
Accounts payable..........................................
Salaries payable ............................................
Interest payable .............................................
Unearned rent ................................................
Total liabilities ........................................
Owner’s equity
Jose Mendoza, Capital ..................................
Total liabilities and owner’s equity .......
$ 5,000
1,510
400
50
500
$ 7,460
15,890
$23,350
(c) Interest of 12% per year equals a monthly rate of 1%; monthly interest
is $50 ($5,000 X 1%). Since total interest expense is $50, the note has
been outstanding one month.
3-28
PROBLEM 3-4A
1.
2.
3.
4.
Dec. 31
Dec. 31
Dec. 31
Dec. 31
Insurance Expense .......................................
Prepaid Insurance .................................
[($6,000 ÷ 3) = $2,000
[($4,800 ÷ 2) = 2,400
$4,400]
4,400
Unearned Subscriptions ..............................
Subscription Revenue ..........................
[Oct. 200 X $50 X 3/12 = $2,500
[Nov. 300 X $50 X 2/12 = 2,500
[Dec. 480 X $50 X 1/12 = 2,000
$7,000]
7,000
Interest Expense ...........................................
Interest Payable ....................................
($40,000 X 9% X 4/12)
1,200
Salaries Expense ..........................................
Salaries Payable....................................
[5 X $500 X 3/5 = $1,500
[3 X $800 X 3/5 = 1,440
$2,940]
2,940
3-29
4,400
7,000
1,200
2,940
PROBLEM 3-5A
(a), (c) & (e)
Cash
Date
Nov. 1
8
10
12
20
22
25
29
Explanation
Balance
Accounts Receivable
Date
Explanation
Nov. 1
Balance
10
27
Supplies
Date
Nov. 1
17
30
Explanation
Balance
Adjusting
Store Equipment
Date
Explanation
Nov. 1
Balance
15
Ref.

J1
J1
J1
J1
J1
J1
J1
Ref.

J1
J1
Ref.

J1
J1
Ref.

J1
3-30
Debit
Credit
1,100
1,200
1,400
2,500
300
1,000
550
Debit
Credit
1,200
700
Debit
Credit
500
1,500
Debit
3,000
Credit
No. 101
Balance
2,790
1,690
2,890
4,290
1,790
1,490
490
1,040
No. 112
Balance
2,510
1,310
2,010
No. 126
Balance
2,000
2,500
1,000
No. 153
Balance
10,000
13,000
PROBLEM 3-5A (Continued)
Accumulated Depreciation—Store Equipment
Date
Explanation
Ref.
Debit
Nov. 1
Balance

30
Adjusting
J1
Accounts Payable
Date
Explanation
Nov. 1
Balance
15
17
20
Unearned Service Revenue
Date
Explanation
Nov. 1
Balance
29
30
Adjusting
Salaries Payable
Date
Explanation
Nov. 1
Balance
8
30
Adjusting
P. Samone, Capital
Date
Explanation
Nov. 1
Balance
Ref.

J1
J1
J1
Ref.

J1
J1
Ref.

J1
J1
Ref.

3-31
Debit
Credit
120
Credit
3,000
500
2,500
Debit
Credit
550
1,150
Debit
Credit
500
500
Debit
Credit
No. 154
Balance
500
620
No. 201
Balance
2,100
5,100
5,600
3,100
No. 209
Balance
1,400
1,950
800
No. 212
Balance
500
0
500
No. 301
Balance
12,800
PROBLEM 3-5A (Continued)
Service Revenue
Date
Explanation
Nov. 12
27
30
Adjusting
Depreciation Expense
Date
Explanation
Nov. 30
Adjusting
Supplies Expense
Date
Explanation
Nov. 30
Adjusting
Salaries Expense
Date
Explanation
Nov. 8
25
30
Adjusting
Rent Expense
Date
Explanation
Nov. 22
Ref.
J1
J1
J1
Ref.
J1
Ref.
J1
Ref.
J1
J1
J1
Ref.
J1
3-32
Debit
Debit
120
Debit
1,500
Debit
600
1,000
500
Debit
300
Credit
1,400
700
1,150
No. 407
Balance
1,400
2,100
3,250
Credit
No. 615
Balance
120
Credit
No. 631
Balance
1,500
Credit
Credit
No. 726
Balance
600
1,600
2,100
No. 729
Balance
300
PROBLEM 3-5A (Continued)
(b)
General Journal
Date
Nov. 8
10
12
15
17
20
22
25
27
29
Account Titles and Explanation
Salaries Payable
Salaries Expense
Cash
Ref.
212
726
101
Debit
500
600
Cash
Accounts Receivable
101
112
1,200
Cash
Service Revenue
101
407
1,400
Store Equipment
Accounts Payable
153
201
3,000
Supplies
Accounts Payable
126
201
500
Accounts Payable
Cash
201
101
2,500
Rent Expense
Cash
729
101
300
Salaries Expense
Cash
726
101
1,000
Accounts Receivable
Service Revenue
112
407
700
Cash
Unearned Service Revenue
101
209
550
3-33
J1
Credit
1,100
1,200
1,400
3,000
500
2,500
300
1,000
700
550
PROBLEM 3-5A (Continued)
(d) & (f)
SAMONE EQUIPMENT REPAIR
Trial Balances
November 30, 2005
Cash ............................................
Accounts Receivable .................
Supplies ......................................
Equipment ..................................
Accumulated Depreciation ........
Accounts Payable ......................
Unearned Service Revenue .......
Salaries Payable.........................
P. Samone, Capital .....................
Service Revenue ........................
Depreciation Expense................
Supplies Expense ......................
Salaries Expense .......................
Rent Expense .............................
(e) 1. Nov. 30
2.
3.
4.
30
30
30
Before
After
Adjustment
Adjustment
Dr.
Cr.
Dr.
Cr.
$ 1,040
$ 1,040
2,010
2,010
2,500
1,000
13,000
13,000
$ 500
$ 620
3,100
3,100
1,950
800
500
12,800
12,800
2,100
3,250
120
1,500
1,600
2,100
300
300 000,000
$20,450 $20,450 $21,070 $21,070
Supplies Expense ........................
Supplies ($2,500 – $1,000) ....
631
126
1,500
Salaries Expense .........................
Salaries Payable ....................
726
212
500
Depreciation Expense .................
Accumulated Depreciation—
Store Equipment ................
615
120
Unearned Service Revenue ........
Service Revenue....................
209
407
3-34
1,500
500
154
120
1,150
1,150
PROBLEM 3-5A (Continued)
(g)
SAMONE EQUIPMENT REPAIR
Income Statement
For the Month Ended November 30, 2005
Revenues
Service revenue...............................................
Expenses
Salaries expense .............................................
Supplies expense ............................................
Rent expense ...................................................
Depreciation expense .....................................
Total expenses.........................................
Net loss ...................................................................
$3,250
$2,100
1,500
300
120
4,020
$ (770)
SAMONE EQUIPMENT REPAIR
Owner’s Equity Statement
For the Month Ended November 30, 2005
P. Samone, Capital, November 1 ............................................
Less: Net loss ........................................................................
P. Samone, Capital, November 30 ..........................................
3-35
$12,800
770
$12,030
PROBLEM 3-5A (Continued)
SAMONE EQUIPMENT REPAIR
Balance Sheet
November 30, 2005
Assets
Cash .......................................................................
Accounts receivable .............................................
Supplies .................................................................
Equipment .............................................................
Less: Accumulated depreciation—
equipment ..............................................
Total assets ...................................................
$ 1,040
2,010
1,000
$13,000
620
12,380
$16,430
Liabilities and Owner’s Equity
Liabilities
Accounts payable.............................................................
Unearned service revenue ...............................................
Salaries payable ...............................................................
Total liabilities ...........................................................
Owner’s equity
P. Samone, Capital ...........................................................
Total liabilities and owner’s equity ..........................
3-36
$ 3,100
800
500
4,400
12,030
$16,430
*PROBLEM 3-6A
(a) 1.
2.
3.
4.
5.
6.
June 30
30
30
30
30
30
Supplies ................................................
Supplies Expense .........................
1,300
Interest Expense ...................................
($20,000 X 12% X 5/12)
Interest Payable ............................
1,000
Prepaid Insurance ................................
[($1,800 ÷ 12) X 8]
Insurance Expense .......................
1,200
Consulting Revenue .............................
Unearned Consulting Revenue ....
1,100
Accounts Receivable ...........................
Graphic Revenue ..........................
2,000
Depreciation Expense ..........................
($3,000 ÷ 2)
Accumulated Depreciation—
Equipment .................................
1,500
3-37
1,300
1,000
1,200
1,100
2,000
1,500
*PROBLEM 3-6A (Continued)
(b)
SALZER GRAPHICS COMPANY
Adjusted Trial Balance
June 30, 2005
Cash ....................................................................
Accounts Receivable ($14,000 + $2,000) ..........
Supplies ..............................................................
Prepaid Insurance ..............................................
Equipment ..........................................................
Accumulated Depreciation ................................
Notes Payable ....................................................
Accounts Payable ..............................................
Interest Payable .................................................
Unearned Consulting Revenue .........................
Jill Salzer, Capital...............................................
Graphic Revenue ($52,100 + $2,000).................
Consulting Revenue ($6,000 – $1,100) .............
Salaries Expense ...............................................
Supplies Expense ($3,700 – $1,300) .................
Advertising Expense ..........................................
Rent Expense .....................................................
Utilities Expense ................................................
Depreciation Expense ........................................
Insurance Expense ($1,800 – $1,200) ...............
Interest Expense ................................................
3-38
Debit
$ 9,500
16,000
1,300
1,200
45,000
Credit
$
30,000
2,400
1,900
1,500
1,700
1,500
600
1,000
$113,600
1,500
20,000
9,000
1,000
1,100
22,000
54,100
4,900
0000,000
$113,600
*PROBLEM 3-6A (Continued)
(c)
SALZER GRAPHICS COMPANY
Income Statement
For the Six Months Ended June 30, 2005
Revenues
Graphic revenue ............................................
Consulting revenue .......................................
Total revenues .......................................
Expenses
Salaries expense ...........................................
Supplies expense ..........................................
Advertising expense .....................................
Utilities expense ............................................
Rent expense .................................................
Depreciation expense ...................................
Interest expense ............................................
Insurance expense ........................................
Total expenses.......................................
Net income ............................................................
$54,100
4,900
59,000
$30,000
2,400
1,900
1,700
1,500
1,500
1,000
600
40,600
$18,400
SALZER GRAPHICS COMPANY
Owner’s Equity Statement
For the Six Months Ended June 30, 2005
Jill Salzer Capital, January 1 ...................................................
Investment by owner ...............................................................
Add: Net income ....................................................................
Jill Salzer, Capital, June 30 .....................................................
3-39
$
0
22,000
18,400
$40,400
*PROBLEM 3-6A (Continued)
SALZER GRAPHICS COMPANY
Balance Sheet
June 30, 2005
Assets
Cash .......................................................................
Accounts receivable .............................................
Supplies ................................................................
Prepaid insurance .................................................
Equipment .............................................................
Less: Accumulated depreciation ........................
Total assets ............................................
$ 9,500
16,000
1,300
1,200
$45,000
1,500
43,500
$71,500
Liabilities and Owner’s Equity
Liabilities
Notes payable ................................................
Accounts payable..........................................
Interest payable .............................................
Unearned consulting fees.............................
Total liabilities ........................................
Owner’s equity
Jill Salzer, Capital ..........................................
Total liabilities and owner’s
equity ..................................................
3-40
$20,000
9,000
1,000
1,100
31,100
40,400
$71,500
PROBLEM 3-1B
(a)
Date
2005
June 30
30
30
30
30
30
30
Account Titles and Explanation
Ref.
Debit
Supplies Expense
Supplies
($2,000 – $1,100)
560
130
900
Utilities Expense
Utilities Payable
550
210
150
Insurance Expense
Prepaid Insurance
($3,000 ÷ 12 months)
540
120
250
Unearned Service Revenue
Service Revenue
230
400
2,500
Salaries Expense
Salaries Payable
510
220
1,500
Depreciation Expense
Accumulated Depreciation—
Office Equipment
($15,000 ÷ 60 months)
530
250
Accounts Receivable
Service Revenue
110
400
J3
Credit
900
150
250
2,500
1,500
136
250
2,000
2,000
(b)
Cash
Date
2005
June 30
Explanation
Balance
Ref.

3-41
Debit
Credit
No. 100
Balance
7,150
PROBLEM 3-1B (Continued)
Accounts Receivable
Date
Explanation
2005
June 30
Balance
30
Adjusting
Prepaid Insurance
Date
Explanation
2005
June 30
Balance
30
Adjusting
Supplies
Date
2005
June 30
30
Explanation
Balance
Adjusting
Office Equipment
Date
Explanation
2005
June 30
Balance
Ref.

J3
Ref.
Debit
2,000
6,000
8,000
Debit
Credit
No. 120
Balance
250
3,000
2,750
Credit
No. 130
Balance
900
2,000
1,100
Credit
No. 135
Balance

J3
Ref.
Debit

J3
Ref.
Debit

15,000
Accumulated Depreciation—Office Equipment
Date
Explanation
Ref.
Debit
2005
June 30
Adjusting
J3
Accounts Payable
Date
Explanation
2005
June 30
Balance
Credit
Ref.

3-42
No. 110
Balance
Debit
Credit
250
Credit
No. 136
Balance
250
No. 200
Balance
4,500
PROBLEM 3-1B (Continued)
Utilities Payable
Date
Explanation
2005
June 30
Adjusting
Salaries Payable
Date
Explanation
2005
June 30
Adjusting
Unearned Service Revenue
Date
Explanation
2005
June 30
Balance
30
Adjusting
J. Cuono, Capital
Date
Explanation
2005
June 30
Balance
Service Revenue
Date
Explanation
2005
June 30
Balance
30
Adjusting
30
Adjusting
Salaries Expense
Date
Explanation
2005
June 30
Balance
30
Adjusting
Ref.
Debit
J3
Ref.
150
Debit
J3
Ref.

J3
Ref.
Credit
Debit
No. 210
Balance
150
Credit
No. 220
Balance
1,500
1,500
Credit
No. 230
Balance
2,500
4,000
1,500
Debit
No. 300
Balance
Credit

21,750
Ref.
Credit
No. 400
Balance
2,500
2,000
7,900
10,400
12,400
Credit
No. 510
Balance
Debit

J3
J3
Ref.

J3
3-43
Debit
1,500
4,000
5,500
PROBLEM 3-1B (Continued)
Rent Expense
Date
Explanation
2005
June 30
Balance
Depreciation Expense
Date
Explanation
2005
June 30
Adjusting
Insurance Expense
Date
Explanation
2005
June 30
Adjusting
Utilities Expense
Date
Explanation
2005
June 30
Adjusting
Supplies Expense
Date
Explanation
2005
June 30
Adjusting
Ref.
Debit
Credit
No. 520
Balance

1,000
Ref.
Debit
No. 530
Balance
J3
250
Ref.
Debit
J3
250
Ref.
Debit
J3
150
Ref.
Debit
J3
900
3-44
Credit
250
Credit
No. 540
Balance
250
Credit
No. 550
Balance
150
Credit
No. 560
Balance
900
PROBLEM 3-1B (Continued)
(c)
CUONO COMPANY
Adjusted Trial Balance
June 30, 2005
Cash ....................................................................
Accounts Receivable .........................................
Prepaid Insurance ..............................................
Supplies ..............................................................
Office Equipment ...............................................
Accumulated Depreciation—Office
Equipment ......................................................
Accounts Payable ..............................................
Utilities Payable .................................................
Salaries Payable ................................................
Unearned Service Revenue ...............................
J. Cuono, Capital................................................
Service Revenue ................................................
Salaries Expense ...............................................
Rent Expense .....................................................
Depreciation Expense .......................................
Insurance Expense ............................................
Utilities Expense ................................................
Supplies Expense ..............................................
3-45
Debit
$ 7,150
8,000
2,750
1,100
15,000
Credit
$
250
4,500
150
1,500
1,500
21,750
12,400
5,500
1,000
250
250
150
900
$42,050
000,000
$42,050
PROBLEM 3-2B
(a)
Date
Aug. 31
31
31
31
31
31
31
31
Account Titles and Explanation
Insurance Expense ($400 X 3) ..........
Prepaid Insurance......................
Ref.
722
130
Debit
1,200
Supplies Expense ($3,300 – $900)....
Supplies .....................................
631
126
2,400
Depreciation Expense—Cottages ....
($3,600 X 1/4)
Accumulated Depreciation—
Cottages .................................
620
900
Depreciation Expense—Furniture ....
($2,400 X 1/4)
Accumulated Depreciation—
Furniture .................................
621
Unearned Rent ...................................
Rent Revenue .............................
208
429
4,100
Salaries Expense ...............................
Salaries Payable ........................
726
212
400
Accounts Receivable ........................
Rent Revenue .............................
112
429
800
Interest Expense ...............................
Interest Payable .........................
[($80,000 X 9%) X 1/12]
718
230
600
Credit
1,200
2,400
144
900
600
150
600
4,100
400
800
600
(b)
Cash
Date
Aug. 31
Explanation
Balance
Ref.

3-46
Debit
Credit
No. 101
Balance
19,600
PROBLEM 3-2B (Continued)
Accounts Receivable
Date
Explanation
Aug. 31
Adjusting
Supplies
Date
Aug. 31
31
Explanation
Balance
Adjusting
Prepaid Insurance
Date
Explanation
Aug. 31
Balance
31
Adjusting
Land
Date
Aug. 31
Cottages
Date
Aug. 31
Explanation
Balance
Explanation
Balance
Ref.
J1
Ref.

J1
Ref.

J1
Ref.

Ref.

Accumulated Depreciation—Cottages
Date
Explanation
Ref.
Aug. 31
Adjusting
J1
Furniture
Date
Aug. 31
Explanation
Balance
Ref.

3-47
Debit
800
Debit
Credit
Credit
2,400
Debit
Credit
1,200
Debit
Debit
Debit
Debit
No. 112
Balance
800
No. 126
Balance
3,300
900
No. 130
Balance
6,000
4,800
Credit
No. 140
Balance
25,000
Credit
No. 143
Balance
125,000
Credit
900
Credit
No. 144
Balance
900
No. 149
Balance
26,000
PROBLEM 3-2B (Continued)
Accumulated Depreciation—Furniture
Date
Explanation
Ref.
Aug. 31
Adjusting
J1
Accounts Payable
Date
Explanation
Aug. 31
Balance
Unearned Rent
Date
Explanation
Aug. 31
Balance
31
Adjusting
Salaries Payable
Date
Explanation
Aug. 31
Adjusting
Interest Payable
Date
Explanation
Aug. 31
Adjusting
Mortgage Payable
Date
Explanation
Aug. 31
Balance
P. Orbis, Capital
Date
Explanation
Aug. 31
Balance
Ref.

Ref.

J1
Ref.
J1
Ref.
J1
Ref.

Ref.

3-48
Debit
Debit
Debit
Credit
600
Credit
No. 201
Balance
6,500
Credit
No. 208
Balance
7,400
3,300
4,100
Debit
Debit
Debit
Debit
No. 150
Balance
600
Credit
400
No. 212
Balance
400
Credit
600
No. 230
Balance
600
Credit
No. 275
Balance
80,000
Credit
No. 301
Balance
100,000
PROBLEM 3-2B (Continued)
P. Orbis, Drawing
Date
Explanation
Aug. 31
Balance
Rent Revenue
Date
Explanation
Aug. 31
Balance
31
Adjusting
31
Adjusting
Depreciation Expense—Cottages
Date
Explanation
Aug. 31
Adjusting
Depreciation Expense—Furniture
Date
Explanation
Aug. 31
Adjusting
Repair Expense
Date
Explanation
Aug. 31
Balance
Supplies Expense
Date
Explanation
Aug. 31
Adjusting
Interest Expense
Date
Explanation
Aug. 31
Adjusting
Ref.

Ref.

J1
J1
Ref.
J1
Ref.
J1
Ref.

Ref.
J1
Ref.
J1
3-49
Debit
Debit
Credit
Credit
4,100
800
Debit
900
Debit
600
Debit
Debit
2,400
Debit
600
No. 306
Balance
5,000
No. 429
Balance
80,000
84,100
84,900
Credit
No. 620
Balance
900
Credit
No. 621
Balance
600
Credit
No. 622
Balance
3,600
Credit
No. 631
Balance
2,400
Credit
No. 718
Balance
600
PROBLEM 3-2B (Continued)
Insurance Expense
Date
Explanation
Aug. 31
Adjusting
Salaries Expense
Date
Explanation
Aug. 31
Balance
31
Adjusting
Utilities Expense
Date
Explanation
Aug. 31
Balance
Ref.
J1
Ref.

J1
Ref.

3-50
Debit
1,200
Debit
Credit
Credit
400
Debit
Credit
No. 722
Balance
1,200
No. 726
Balance
51,000
51,400
No. 732
Balance
9,400
PROBLEM 3-2B (Continued)
(c)
SPRING RIVER RESORT
Adjusted Trial Balance
August 31, 2005
Cash ....................................................................
Accounts Receivable .........................................
Supplies ..............................................................
Prepaid Insurance ..............................................
Land ....................................................................
Cottages .............................................................
Accumulated Depreciation—Cottages .............
Furniture .............................................................
Accumulated Depreciation—Furniture .............
Accounts Payable ..............................................
Unearned Rent ...................................................
Salaries Payable ................................................
Interest Payable .................................................
Mortgage Payable ..............................................
P. Orbis, Capital .................................................
P. Orbis, Drawing ...............................................
Rent Revenue .....................................................
Depreciation Expense—Cottages .....................
Depreciation Expense—Furniture ....................
Repair Expense ..................................................
Supplies Expense ..............................................
Interest Expense ................................................
Insurance Expense ............................................
Salaries Expense ...............................................
Utilities Expense ................................................
3-51
Debit
$ 19,600
800
900
4,800
25,000
125,000
Credit
$
900
26,000
600
6,500
3,300
400
600
80,000
100,000
5,000
84,900
900
600
3,600
2,400
600
1,200
51,400
9,400
$277,200
$277,200
PROBLEM 3-2B (Continued)
(d)
SPRING RIVER RESORT
Income Statement
For the Three Months Ended August 31, 2005
Revenues
Rent revenue .................................................
Expenses
Salaries expense ...........................................
Utilities expense ............................................
Repair expense ..............................................
Supplies expense ..........................................
Insurance expense ........................................
Depreciation expense—cottages .................
Interest expense ............................................
Depreciation expense—furniture .................
Total expenses .......................................
Net income ............................................................
$84,900
$51,400
9,400
3,600
2,400
1,200
900
600
600
70,100
$14,800
SPRING RIVER RESORT
Owner’s Equity Statement
For the Three Months Ended August 31, 2005
P. Orbis, Capital, June 1 ........................................................
Investment by owner .............................................................
Add: Net income ..................................................................
Less: Drawings .....................................................................
P. Orbis, Capital, August 31 ..................................................
3-52
$
0
100,000
14,800
114,800
5,000
$109,800
PROBLEM 3-2B (Continued)
SPRING RIVER RESORT
Balance Sheet
August 31, 2005
Assets
Cash...................................................................
Accounts receivable .........................................
Supplies ............................................................
Prepaid insurance.............................................
Land ...................................................................
Cottages ............................................................
Less: Accum. depreciation—cottages ...........
Furniture ............................................................
Less: Accum. depreciation—furniture ...........
Total assets........................................
$ 19,600
800
900
4,800
25,000
$125,000
900
26,000
600
124,100
25,400
$200,600
Liabilities and Owner’s Equity
Liabilities
Accounts payable .....................................
Salaries payable ........................................
Interest payable .........................................
Unearned rent ............................................
Mortgage payable......................................
Total liabilities ...................................
Owner’s equity
P. Orbis, Capital ........................................
Total liabilities and owner’s
equity ..............................................
3-53
$
6,500
400
600
3,300
80,000
90,800
109,800
$200,600
PROBLEM 3-3B
(a) Dec. 31
31
31
31
31
31
31
(b)
Accounts Receivable ...................................
Advertising Revenue ............................
3,500
Unearned Advertising Fees .........................
Advertising Revenue ............................
1,600
Art Supplies Expense ...................................
Art Supplies...........................................
3,600
Depreciation Expense ..................................
Accumulated Depreciation ...................
5,000
Interest Expense ...........................................
Interest Payable ....................................
150
Insurance Expense .......................................
Prepaid Insurance .................................
850
Salaries Expense ..........................................
Salaries Payable ...................................
1,300
3,500
1,600
3,600
5,000
150
850
1,300
COSTELLO ADVERTISING AGENCY
Income Statement
For the Year Ended December 31, 2005
Revenues
Advertising revenue ......................................
Expenses
Salaries expense ...........................................
Depreciation expense ...................................
Rent expense .................................................
Art supplies expense ....................................
Insurance expense ........................................
Interest expense ............................................
Total expenses .......................................
Net income ............................................................
3-54
$63,700
$11,300
5,000
4,000
3,600
850
500
25,250
$38,450
PROBLEM 3-3B (Continued)
COSTELLO ADVERTISING AGENCY
Owner’s Equity Statement
For the Year Ended December 31, 2005
J. Costello, Capital, January 1 ................................................
Add: Net income ....................................................................
Less: Drawing .........................................................................
J. Costello, Capital, December 31 ...........................................
$25,500
38,450
63,950
12,000
$51,950
COSTELLO ADVERTISING AGENCY
Balance Sheet
December 31, 2005
Assets
Cash.......................................................................
Accounts receivable .............................................
Art supplies ...........................................................
Prepaid insurance.................................................
Printing equipment ...............................................
Less: Accumulated depreciation—printing
equipment .........................................................
Total assets............................................
$11,000
23,500
5,000
2,500
$60,000
33,000
27,000
$69,000
Liabilities and Owner’s Equity
Liabilities
Notes payable ................................................
Accounts payable .........................................
Interest payable .............................................
Unearned advertising fees ...........................
Salaries payable ............................................
Total liabilities .......................................
Owner’s equity
J. Costello, Capital ........................................
Total liabilities and owner’s
equity ..................................................
3-55
$ 5,000
5,000
150
5,600
1,300
17,050
51,950
$69,000
PROBLEM 3-3B (Continued)
(c) (1) I = P x R x T
$150 = $5,000 x R x 1/2
$150 = $2,500R
$150
$2,500
R = 6%
R=
(2) Salaries Expense, $11,300 less Salaries Payable 12/31/05, $1,300
= $10,000. Total payments, $14,500 – $10,000 = $4,500 Salaries
Payable 12/31/04.
3-56
PROBLEM 3-4B
1.
2.
3.
4.
Dec. 31
31
31
31
Salaries Expense ......................................
Salaries Payable................................
[5 X $800 X 2/5 = $1,600
[3 X $500 X 2/5 =
600
$2,200]
2,200
Unearned Rent ..........................................
Rent Revenue ....................................
[5 X $4,000 X 2 = $40,000)
(4 X $8,500 X 1 =
34,000)
$74,000]
74,000
Advertising Expense ................................
Prepaid Advertising ..........................
[A650 – $500 per month
for 8 months = $4,000)
(B974 – $400 per month
for 3 months = 1,200)
$5,200]
5,200
Interest Expense .......................................
Interest Payable ................................
($100,000 X 9% X 7/12)
5,250
3-57
2,200
74,000
5,200
5,250
PROBLEM 3-5B
(a), (c) & (e)
Cash
Date
Sept.
1
8
10
12
20
22
25
29
Explanation
Balance
Accounts Receivable
Date
Explanation
Sept. 1
Balance
10
27
Supplies
Date
Sept. 1
17
30
Explanation
Balance
Adjusting
Store Equipment
Date
Explanation
Sept. 1
Balance
15
Ref.

J1
J1
J1
J1
J1
J1
J1
Ref.

J1
J1
Ref.

J1
J1
Ref.

J1
3-58
Debit
Credit
1,400
1,200
3,400
4,500
500
1,050
650
Debit
Credit
1,200
1,200
Debit
Credit
1,200
1,500
Debit
3,000
Credit
No. 101
Balance
4,880
3,480
4,680
8,080
3,580
3,080
2,030
2,680
No. 112
Balance
3,520
2,320
3,520
No. 126
Balance
2,000
3,200
1,700
No. 153
Balance
15,000
18,000
PROBLEM 3-5B (Continued)
Accumulated Depreciation—Equipment
Date
Explanation
Ref.
Sept. 1
Balance

30
Adjusting
J1
Accounts Payable
Date
Explanation
Sept. 1
Balance
15
17
20
Unearned Service Revenue
Date
Explanation
Sept. 1
Balance
29
30
Adjusting
Salaries Payable
Date
Explanation
Sept. 1
Balance
8
30
Adjusting
J. Beck, Capital
Date
Explanation
Sept. 1
Balance
Ref.

J1
J1
J1
Ref.

J1
J1
Ref.

J1
J1
Ref.

3-59
Debit
Credit
200
Debit
Credit
3,000
1,200
4,500
Debit
Credit
650
1,450
Debit
Credit
500
400
Debit
Credit
No. 154
Balance
1,500
1,700
No. 201
Balance
3,400
6,400
7,600
3,100
No. 209
Balance
1,400
2,050
600
No. 212
Balance
500
0
400
No. 301
Balance
18,600
PROBLEM 3-5B (Continued)
Service Revenue
Date
Explanation
Sept. 12
27
30
Adjusting
Depreciation Expense
Date
Explanation
Sept. 30
Adjusting
Supplies Expense
Date
Explanation
Sept. 30
Adjusting
Salaries Expense
Date
Explanation
Sept. 8
25
30
Adjusting
Rent Expense
Date
Explanation
Sept. 22
Ref.
J1
J1
J1
Ref.
J1
Ref.
J1
Ref.
J1
J1
J1
Ref.
J1
3-60
Debit
Debit
200
Debit
1,500
Debit
900
1,050
400
Debit
500
Credit
3,400
1,200
1,450
No. 407
Balance
3,400
4,600
6,050
Credit
No. 615
Balance
200
Credit
No. 631
Balance
1,500
Credit
Credit
No. 726
Balance
900
1,950
2,350
No. 729
Balance
500
PROBLEM 3-5B (Continued)
(b)
General Journal
Date
Sept. 8
10
12
15
17
20
22
25
27
29
Account Titles and Explanation
Salaries Payable
Salaries Expense
Cash
Ref.
212
726
101
Debit
500
900
Cash
Accounts Receivable
101
112
1,200
Cash
Service Revenue
101
407
3,400
Store Equipment
Accounts Payable
153
201
3,000
Supplies
Accounts Payable
126
201
1,200
Accounts Payable
Cash
201
101
4,500
Rent Expense
Cash
729
101
500
Salaries Expense
Cash
726
101
1,050
Accounts Receivable
Service Revenue
112
407
1,200
Cash
Unearned Service Revenue
101
209
650
3-61
J1
Credit
1,400
1,200
3,400
3,000
1,200
4,500
500
1,050
1,200
650
PROBLEM 3-5B (Continued)
(d) & (f)
BECK EQUIPMENT REPAIR
Trial Balances
September 30, 2005
Cash ............................................
Accounts Receivable .................
Supplies ......................................
Store Equipment ........................
Accumulated Depreciation ........
Accounts Payable ......................
Unearned Service Revenue .......
Salaries Payable.........................
J. Beck, Capital ..........................
Service Revenue ........................
Depreciation Expense................
Supplies Expense ......................
Salaries Expense .......................
Rent Expense .............................
(e) 1. Sept. 30
2.
3.
4.
30
30
30
Before
After
Adjustment
Adjustment
Dr.
Cr.
Dr.
Cr.
$ 2,680
$ 2,680
3,520
3,520
3,200
1,700
18,000
18,000
$ 1,500
$ 1,700
3,100
3,100
2,050
600
-0400
18,600
18,600
4,600
6,050
200
1,500
1,950
2,350
500
500 000,000
$29,850 $29,850 $30,450 $30,450
Supplies Expense .......................
Supplies ($3,200 – $1,700) ....
631
126
1,500
Salaries Expense ........................
Salaries Payable ...................
726
212
400
Depreciation Expense ................
Accumulated Depreciation—
Equipment .........................
615
200
Unearned Service Revenue ........
Service Revenue ...................
209
407
3-62
1,500
400
154
200
1,450
1,450
PROBLEM 3-5B (Continued)
(g)
BECK EQUIPMENT REPAIR
Income Statement
For the Month Ended September 30, 2005
Revenues
Service revenue..................................................
Expenses
Salaries expense ................................................
Supplies expense ...............................................
Rent expense ......................................................
Depreciation expense ........................................
Total expenses............................................
Net income .................................................................
$6,050
$2,350
1,500
500
200
4,550
$1,500
BECK EQUIPMENT REPAIR
Owner’s Equity Statement
For the Month Ended September 30, 2005
J. Beck, Capital, September 1 .................................................
Add: Net income ....................................................................
J. Beck, Capital, September 30 ...............................................
3-63
$18,600
1,500
$20,100
PROBLEM 3-5B (Continued)
BECK EQUIPMENT REPAIR
Balance Sheet
September 30, 2005
Assets
Cash .......................................................................
Accounts receivable .............................................
Supplies .................................................................
Equipment .............................................................
Less: Accumulated depreciation—
equipment ..............................................
Total assets ...................................................
$ 2,680
3,520
1,700
$18,000
1,700
16,300
$24,200
Liabilities and Owner’s Equity
Liabilities
Accounts payable.............................................................
Salaries payable ...............................................................
Unearned service revenue ...............................................
Total liabilities ...........................................................
Owner’s equity
J. Beck, Capital .................................................................
Total liabilities and owner’s equity ..........................
3-64
$ 3,100
400
600
4,100
20,100
$24,200
3-65