E4
–3.
Req. 1
The annual reporting period for this company is January 1 through December 31,
2008.
Req. 2 (Adjusting entries)
Both transactions are accruals because revenue has been earned and expenses incurred but no cash has yet been received or paid.
( a ) December 31, 2008:
Wage expense (+E,

SE) ...........................................
Wages payable (+L) ........................................
6,000
6,000
To record wages earned by employees during 2008, but not yet paid by the company. This entry records the (a) 2008 expense, and (b) 2008 liability, which is necessary to conform to accrual accounting and the matching principle.
( b ) December 31, 2008:
Interest receivable (+A) ..............................................
Interest revenue (+R, +SE) ..............................
3,000
3,000
To record interest revenue earned during 2008, but not yet collected. This entry records the (a) 2008 revenue, and (b) 2008 receivable, which is necessary to conform to accrual accounting and the revenue principle.
Req. 3
Adjusting entries are necessary at the end of the accounting period to ensure that all revenues earned and expenses incurred and the related assets and liabilities are measured properly. The entries above are accruals; entry (a) is an accrued expense (incurred but not yet recorded) and entry (b) is an accrued revenue (earned but not yet recorded). In applying the accrual basis of accounting, revenues should be recognized when earned and measurable and expenses should be recognized when incurred in generating revenues.

E4
–4.
Req. 1
2007 Income statement:
Insurance expense ($7,800 x 4/24) = $1,300 used.
Shipping supplies expense: ($14,000 + $72,000 - $11,000) = $75,000 used.
Req. 2
2007 Balance sheet:
Prepaid insurance ($7,800 x 20/24) = $6,500 or $7,800 - $1,300 = $6,500
Shipping supplies (given) = $11,000
Req. 3
Adjusting entry (payment debited to Prepaid Insurance):
Prepaid Insurance Insurance Expense
9/1 7,800
AJE 1,300 AJE 1,300
End. 6,500 End. 1,300
Insurance expense (+E,

SE) ....................................
Prepaid insurance (

A) ....................................
1,300
To record the expiration of insurance for four months ($325 per month).
Req. 4
Adjusting entry (payment debited to Shipping Supplies):
Shipping Supplies Shipping Supplies Expense
Beg. 14,000
Purch. 72,000 AJE 75,000
End. 11,000
AJE 75,000
End. 75,000
1,300
Shipping supplies expense (+E,

SE) ........................ 75,000
Shipping supplies (

A) .....................................
To record the use of shipping supplies for the year.
75,000

E4
–5.
Balance Sheet
Stockholders’
Transaction Assets
E4 –4 (b) –75,000
Liabilities
E4
–3 (a)
NE +6,000
E4 –3 (b)
+3,000 NE
E4 –4 (a) –1,300 NE
NE
Equity
–6,000
+3,000
–1,300
–75,000
E4 –6.
Req. 1 and 2
Income Statement
Revenues
Net
Expenses Income
+6,000 –6,000 NE
+3,000
NE
NE +3,000
+1,300 –1,300
NE +75,000 –75,000 a. Deferred expense -- cash paid before expense is incurred.
Office supplies expense (+E,

SE) ..............................
Office supplies (

A) ............................................
Supplies used in 2007 ($350 + 800 - 300 = $850). b. Accrued expense -- expense incurred before cash is paid.
Wages expense (+E,

SE) ...........................................
Wages payable (+L) ...........................................
Amount is given. c. Deferred revenue -- cash received before revenue is earned.
Unearned rent revenue (

L) .........................................
Rent revenue (+R, +SE) .....................................
Rent earned in 2007 ($9,000 x 2/6). d. Accrued revenue -- revenue earned before cash is collected.
Rent receivable (+A) ....................................................
Rent revenue (+R, +SE) .....................................
($820 x 2 months) e. Deferred expense -- cash paid for equipment before being used.
Depreciation expense (+E,

SE) ..................................
Accumulated depreciation, delivery equipment (+XA,

A)
Amount is given. f. Deferred expense -- cash paid before expense is incurred.
Insurance expense (+E,

SE) ......................................
Prepaid insurance (

A) ......................................
($4,200 x 6/24 months) g. Accrued revenue -- revenue earned before cash is received.
Repair accounts receivable (+A) ..................................
Repair shop revenue (+R, +SE) .........................
850
850
3,700
3,000
3,700
3,000
1,640
1,640
5,000
1,050
5,000
1,050
750
750

P4 –8.
Amount is given.
Req. 1
December 31, 2007 Adjusting Entries:
( a ) Supplies expense (+E,

SE) .....................................
Supplies (

A) ..................................................
( b ) Insurance expense (+E,

SE) ...................................
Prepaid insurance (

A) ...................................
( c ) Depreciation expense (+E,

SE) ...............................
Accumulated depreciation, service trucks (+XA,

A) .............................................
( d ) Wages expense (+E,

SE) .........................................
Wages payable (+L) .......................................
( e ) Income tax expense (+E,

SE) .................................
Income taxes payable (+L) .............................
Req. 2
ST. DENIS, INC.
Income Statement
For the Year Ended December 31, 2007
Service revenue
Expenses:
Supplies expense ($800 - $300)
Insurance expense ($1,000 - $500)
Depreciation expense
Wages expense
Remaining expenses (not detailed)
Total expenses
Pretax income
Income tax expense
Net income
Earnings per share ($22,050 ÷ 5,000 shares)
500
500
4,000
500
500
900
7,350
4,000
900
7,350
$77,000
500
500
4,000
900
41,700
47,600
29,400
7,350
$22,050
$4.41

P4
–8. (continued)
Cash
Supplies
Assets
Current Assets:
Accounts receivable
Prepaid insurance
Total current assets
Service trucks
Accumulated depreciation,
service trucks
Other assets (not detailed)
Total assets
ST. DENIS, INC.
Balance Sheet
At December 31, 2007
Liabilities
Current Liabilities:
$60,000
13,000
300
Accounts payable
Wages payable
Income taxes payable
$ 3,000
900
7,350
500 Total current liabilities 11,250
73,800 Note payable, long term
20,000 Total liabilities
20,000
31,250
(16,000)
Stockholders' Equity
11,200 Contributed capital
Retained earnings*
Total stockholders' equity
$89,000
Total liabilities and stockholders' equity
28,200
29,550
57,750
$89,000
*Unadjusted balance, $7,500 + Net income, $22,050 = Ending balance, $29,550.
Req. 3
December 31, 2007 Closing Entry:
Service revenue (

R) .................................................
Retained earnings (+SE) ................................
Supplies expense (

E) ...................................
Insurance expense (

E) .................................
Depreciation expense (

E) .............................
Wages expense (

E) ......................................
Remaining expenses (not detailed) (

E) .........
Income tax expense (

E) ................................
77,000
22,050
500
500
4,000
900
41,700
7,350

AP4 –1.
Starbucks Corporation
Adjusted Trial Balance
At September 30, 2006
(in millions)
Debit Credit
Cash
Short-term investments
Accounts receivable
Inventories
Prepaid expenses
Other current assets
Long-term investments
Property, plant, and equipment
Accumulated depreciation
Other long-lived assets
Accounts payable
Accrued liabilities
Short-term bank debt
Long-term liabilities
Contributed capital
Retained earnings
Net revenues
Interest income
Cost of sales
Store operating expenses
Other operating expenses
Depreciation expense
General and admin. expenses
Interest expense
Income tax expense
Totals
$ 66
51
48
181
19
21
68
1,081
$ 321
38
56
131
64
40
647
212
1,680
741
544
51
98
90
9
1
62
$ 3,160 $ 3,160
Req. 2
Since debits are supposed to equal credits in a trial balance, the balance in
Retained Earnings is determined as the amount in the credit column necessary to make debits equal credits (a “plugged” figure).