CHAPTER 4
Completing the Accounting Cycle
ASSIGNMENT CLASSIFICATION TABLE
Exercises
A
Problems
B
Problems
1, 2, 3
1, 2, 3,
5, 6, 17
1A, 2A, 3A,
4A, 5A
1B, 2B, 3B,
4B, 5B
6, 7,
11, 12
4, 5, 6
4, 7, 8,
11, 19
1A, 2A, 3A,
4A, 5A
1B, 2B, 3B,
4B, 5B
*3. Describe the content and
purpose of a post-closing
trial balance.
8, 9
7
4, 7, 8
1A, 2A, 3A,
4A, 5A
1B, 2B, 3B,
4B, 5B
*4. State the required steps
in the accounting cycle.
10, 11, 12
8
10, 19
5A
5B
*5. Explain the approaches
to preparing correcting
entries.
13
9
12, 13
6A
*6. Identify the sections of a
classified balance sheet.
14, 15, 16,
17, 18
10, 11
3, 9, 14
15, 16, 17
1A, 2A, 3A,
4A, 5A
*7. Prepare reversing entries.
10, 19, 20
12
18, 19
Study Objectives
Questions
*1. Prepare a worksheet.
1, 2, 3,
4, 5
*2. Explain the process
of closing the books.
Brief
Exercises
1B, 2B, 3B,
4B, 5B
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix
*to the chapter.
4-1
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
Description
Difficulty
Level
Time Allotted
(min.)
Simple
40–50
1A
Prepare worksheet, financial statements, and adjusting
and closing entries.
2A
Complete worksheet; prepare financial statements,
closing entries, and post-closing trial balance.
Moderate
50–60
3A
Prepare financial statements, closing entries, and postclosing trial balance.
Moderate
40–50
4A
Complete worksheet; prepare classified balance sheet,
entries, and post-closing trial balance.
Moderate
50–60
5A
Complete all steps in accounting cycle.
Complex
70–90
6A
Analyze errors and prepare correcting entries and trial
balance.
Moderate
40–50
1B
Prepare worksheet, financial statements, and adjusting
and closing entries.
Simple
40–50
2B
Complete worksheet; prepare financial statements,
closing entries, and post-closing trial balance.
Moderate
50–60
3B
Prepare financial statements, closing entries, and postclosing trial balance.
Moderate
40–50
4B
Complete worksheet; prepare classified balance sheet,
entries, and post-closing trial balance.
Moderate
50–60
5B
Complete all steps in accounting cycle.
Complex
70–90
Comprehensive Problem: Chapters 2 to 4
4-2
4-3
Identify the sections of
a classified balance sheet.
Prepare reversing entries.
*6.
*7.
Broadening Your Perspective
Explain the approaches to
preparing correcting entries.
*5.
Describe the content and
purpose of a post-closing trial
balance.
*3.
State the required steps in
the accounting cycle.
Explain the process of closing
the books.
*2.
*4.
Prepare a worksheet.
*1.
Study Objective
Q4-14
Q4-15
Q4-16
Q4-11
Q4-12
BE4-8
Q4-6
Q4-11
Q4-12
BE4-1
Knowledge
Communication
Exploring the Web
Q4-10
Q4-19
E4-18
E4-19
Financial Reporting
Decision Making
Across the
Organization
Comparative Analysis
Q4-20
BE4-12
E4-17 P4-1A
P4-2A P4-4A
P4-3A P4-5A
P4-2B P4-1B
P4-3B
BE4-9
E4-12
E4-13
P4-6A
Q4-13
Q4-17
Q4-18
BE4-11
E4-15
E4-19
P4-5A
P4-5B
Q4-10
E4-10
P4-4B
P4-5B
P4-1B
P4-4B
P4-5B
P4-3A P4-1A
P4-2B P4-4A
P4-3B P4-5A
E4-4
E4-7
E4-8
P4-2A
Q4-8
Q4-9
BE4-7
BE4-10
E4-3
E4-9
E4-14
E4-16
P4-4B
P4-5B
E4-19
P4-1A
P4-4A
P4-5A
P4-1B
E4-11
P4-2A
P4-3A
P4-2B
P4-3B
BE4-4
BE4-5
BE4-6
E4-4
E4-7
E4-8
Q4-7
P4-1B
P4-4B
P4-5B
Analysis
E4-1
E4-2
E4-3
E4-17
P4-2A
P4-3A
P4-2B BE4-2
P4-3B E4-5
E4-6
P4-1A
P4-4A
P4-5A
Application
Q4-1
Q4-2
Q4-3
Q4-4
Q4-5
BE4-3
Comprehension
Synthesis
All About You
Ethics Case
Exploring the
Web
Evaluation
Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems
BLOOM’S TAXONOMY TABLE
ANSWERS TO QUESTIONS
1.
No. A worksheet is not a permanent accounting record. The use of a worksheet is an optional
step in the accounting cycle.
2.
The worksheet is merely a device used to make it easier to prepare adjusting entries and the
financial statements.
3.
The amount shown in the adjusted trial balance column for an account equals the account
balance in the ledger after adjusting entries have been journalized and posted.
4.
The net income of $12,000 will appear in the income statement debit column and the balance
sheet credit column. A net loss will appear in the income statement credit column and the
balance sheet debit column.
5.
Formal financial statements are needed because the columnar data are not properly arranged
and classified for statement purposes. For example, a drawing account is listed with assets.
6.
(1)
(2)
(3)
(4)
7.
Income Summary is a temporary account that is used in the closing process. The account is
debited for expenses and credited for revenues. The difference, either net income or loss, is then
closed to the owner’s capital account.
8.
The post-closing trial balance contains only balance sheet accounts. Its purpose is to prove the
equality of the permanent account balances that are carried forward into the next accounting
period.
9.
The accounts that will not appear in the post-closing trial balance are Depreciation Expense;
Jennifer Shaeffer, Drawing; and Service Revenue.
10.
A reversing entry is the exact opposite, both in amount and in account titles, of an adjusting entry
and is made at the beginning of the new accounting period. Reversing entries are an optional
step in the accounting cycle.
11.
The steps that involve journalizing are: (1) journalize the transactions, (2) journalize the adjusting
entries, and (3) journalize the closing entries.
12.
The three trial balances are the: (1) trial balance, (2) adjusted trial balance, and (3) post-closing
trial balance.
13.
Correcting entries differ from adjusting entries because they: (1) are not a required part of the
accounting cycle, (2) may be made at any time, and (3) may affect any combination of accounts.
(Dr) Individual revenue accounts and (Cr) Income Summary.
(Dr) Income Summary and (Cr) Individual expense accounts.
(Dr) Income Summary and (Cr) Owner’s Capital (for net income).
(Dr) Owner’s Capital and (Cr) Owner’s Drawing.
4-4
Questions Chapter 4 (Continued)
*14. The standard classifications in a balance sheet are:
Assets
Current Assets
Long-term Investments
Property, Plant, and Equipment
Intangible Assets
Liabilities and Owner’s Equity
Current Liabilities
Long-term Liabilities
Owner’s Equity
*15. A company’s operating cycle is the average time required to go from cash to cash in producing
revenues. The operating cycle of a company is the average time that it takes to purchase
inventory, sell it on account, and then collect cash from customers.
*16. Current assets are assets that a company expects to convert to cash or use up in one year. Some
companies use a period longer than one year to classify assets and liabilities as current because they
have an operating cycle longer than one year. Companies usually list current assets in the order
in which they expect to convert them into cash.
*17. Long-term investments are generally investments in stocks and bonds of other companies that
are normally held for many years. Property, plant, and equipment are assets with relatively long
useful lives that a company is currently using in operating the business.
*18. (a)
(b)
The owner’s equity section for a corporation is called stockholders’ equity.
The two accounts and the purpose of each are: (1) Capital stock is used to record investments of assets in the business by the owners (stockholders). (2) Retained earnings is used
to record net income retained in the business.
*
*19. After reversing entries have been made, the balances will be Interest Payable, zero balance;
Interest Expense, a credit balance.
*20. (a) Jan. 10
Salaries Expense ....................................................................................
Cash................................................................................................
8,000
8,000
Because of the January 1 reversing entry that credited Salaries Expense for $3,500, Salaries
Expense will have a debit balance of $4,500 which equals the expense for the current period.
(b)
Jan. 10
Salaries Payable .....................................................................................
Salaries Expense ....................................................................................
Cash................................................................................................
Note that Salaries Expense will again have a debit balance of $4,500.
4-5
3,500
4,500
8,000
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 4-1
The steps in using a worksheet are performed in the following sequence:
(1) prepare a trial balance on the worksheet, (2) enter adjustment data,
(3) enter adjusted balances, (4) extend adjusted balances to appropriate
statement columns and (5) total the statement columns, compute net
income (loss), and complete the worksheet. Filling in the blanks, the
answers are 1, 3, 4, 5, 2.
The solution to BRIEF EXERCISE 4-2 is on page 4-7.
BRIEF EXERCISE 4-3
Account
Accumulated Depreciation
Depreciation Expense
N. Batan, Capital
N. Batan, Drawing
Service Revenue
Supplies
Accounts Payable
Income Statement
Dr.
Cr.
Balance Sheet
Dr.
Cr.
X
X
X
X
X
X
X
BRIEF EXERCISE 4-4
Dec. 31
31
31
31
Service Revenue ......................................................
Income Summary............................................
50,000
Income Summary.....................................................
Salaries Expense ............................................
Supplies Expense...........................................
31,000
Income Summary.....................................................
D. Swann, Capital............................................
19,000
D. Swann, Capital ....................................................
D. Swann, Drawing .........................................
2,000
4-6
50,000
27,000
4,000
19,000
2,000
Prepaid Insurance
Service Revenue
Salaries Expense
Accounts Receivable
Salaries Payable
Insurance Expense
Account Titles
4-7
25,000
3,000
Dr.
58,000
Cr.
Trial Balance
(a) 1,200
(c)
800
(b) 1,100
Dr.
(c)
800
(a) 1,200
(b) 1,100
Cr.
Adjustments
LEY COMPANY
Worksheet
1,200
25,800
1,100
1,800
Dr.
800
59,100
Cr.
Adjusted
Trial Balance
1,200
25,800
Dr.
59,100
Cr.
Income
Statement
1,100
1,800
Dr.
800
Cr.
Balance
Sheet
BRIEF EXERCISE 4-2
BRIEF EXERCISE 4-5
Salaries Expense
27,000 (2) 27,000
Income Summary
(2) 31,000 (1) 50,000
(3) 19,000
50,000
50,000
Service Revenue
(1) 50,000
50,000
Supplies Expense
4,000 (2) 4,000
D. Swann, Capital
(4)
2,000
30,000
(3) 19,000
Bal. 47,000
D. Swann, Drawing
2,000 (4) 2,000
BRIEF EXERCISE 4-6
July 31
31
Date
7/31
7/31
Date
7/31
7/31
Green Fee Revenue .................................................
Income Summary.............................................
13,600
Income Summary .....................................................
Salaries Expense .............................................
Maintenance Expense....................................
10,700
Explanation
Balance
Closing entry
Explanation
Green Fee Revenue
Ref.
Debit
13,600
8,200
2,500
Credit
13,600
Balance
13,600
0
Credit
Balance
8,200
8,200
0
13,600
Salaries Expense
Ref.
Debit
Balance
Closing entry
8,200
4-8
BRIEF EXERCISE 4-6 (Continued)
Date
7/31
7/31
Explanation
Maintenance Expense
Ref.
Debit
Balance
Closing entry
Credit
Balance
2,500
2,500
0
2,500
BRIEF EXERCISE 4-7
The accounts that will appear in the post-closing trial balance are:
Accumulated Depreciation
N. Batan, Capital
Supplies
Accounts Payable
BRIEF EXERCISE 4-8
The proper sequencing of the required steps in the accounting cycle is as
follows:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Analyze business transactions.
Journalize the transactions.
Post to ledger accounts.
Prepare a trial balance.
Journalize and post adjusting entries.
Prepare an adjusted trial balance.
Prepare financial statements.
Journalize and post closing entries.
Prepare a post-closing trial balance.
Filling in the blanks, the answers are 4, 2, 8, 7, 5, 3, 9, 6, 1.
4-9
BRIEF EXERCISE 4-9
1.
2.
Service Revenue.............................................................................
Accounts Receivable ...........................................................
780
Accounts Payable ($1,750 – $1,570) ........................................
Store Supplies........................................................................
180
780
180
BRIEF EXERCISE 4-10
DIAZ COMPANY
Partial Balance Sheet
Current assets
Cash.........................................................................................................
Short-term investments ....................................................................
Accounts receivable...........................................................................
Supplies..................................................................................................
Prepaid insurance...............................................................................
Total current assets...................................................................
$15,400
6,700
12,500
5,200
3,600
$43,400
BRIEF EXERCISE 4-11
CL
CA
PPE
PPE
CA
IA
Accounts payable
Accounts receivable
Accumulated depreciation
Building
Cash
Copyrights
CL
LTI
PPE
CA
IA
CA
Income tax payable
Investment in long-term bonds
Land
Merchandise inventory
Patent
Supplies
*BRIEF EXERCISE 4-12
Nov. 1
Salaries Payable ...................................................................
Salaries Expense .........................................................
1,400
1,400
The balances after posting the reversing entry are Salaries Expense (Cr.)
$1,400 and Salaries Payable $0.
4-10
SOLUTIONS TO EXERCISES
EXERCISE 4-1
BRISCOE COMPANY
Worksheet
For the Month Ended June 30, 2008
Account Titles
Trial Balance
Dr.
Cash
Cr.
Adjustments
Dr.
Adj. Trial Balance
Cr.
Dr.
Cr.
Income Statement
Dr.
Cr.
Balance Sheet
Dr.
2,320
2,320
2,320
2,440
2,440
2,440
Cr.
Accounts
Receivable
Supplies
1,880
Accounts Payable
1,580
300
1,120
300
1,120
1,120
100
100
3,600
3,600
Unearned
240
Revenue
140
Lenny Briscoe,
Capital
3,600
Service Revenue
Salaries Expense
2,400
560
140
2,540
280
2,540
840
840
160
160
1,580
1,580
Miscellaneous
Expense
Totals
Supplies Expense
160
7,360
7,360
1,580
Salaries Payable
Totals
280
2,000
2,000
280
7,640
7,640
280
2,580
2,540
40
40
2,580
2,580
5,100
Net Loss
Totals
4-11
5,060
5,100
5,100
EXERCISE 4-2
GOODE COMPANY
(Partial) Worksheet
For the Month Ended April 30, 2008
Adjusted
Trial Balance
Account Titles
Cash
Accounts Receivable
Prepaid Rent
Equipment
Accum. Depreciation
Notes Payable
Accounts Payable
T. Goode, Capital
T. Goode, Drawing
Service Revenue
Salaries Expense
Rent Expense
Depreciation Expense
Interest Expense
Interest Payable
Totals
Net Income
Totals
Dr.
13,752
7,840
2,280
23,050
Cr.
Income
Statement
Dr.
Cr.
Balance Sheet
Dr.
13,752
7,840
2,280
23,050
4,921
5,700
5,672
30,960
4,921
5,700
5,672
30,960
3,650
3,650
15,590
10,840
760
671
57
62,900
Cr.
15,590
10,840
760
671
57
57
62,900
4-12
12,328
3,262
15,590
15,590
50,572
15,590
50,572
57
47,310
3,262
50,572
EXERCISE 4-3
GOODE COMPANY
Income Statement
For the Month Ended April 30, 2008
Revenues
Service revenue..................................................................
Expenses
Salaries expense................................................................
Rent expense ......................................................................
Depreciation expense.......................................................
Interest expense.................................................................
Total expenses...........................................................
Net income ....................................................................................
$15,590
$10,840
760
671
57
12,328
$ 3,262
GOODE COMPANY
Owner’s Equity Statement
For the Month Ended April 30, 2008
T. Goode, Capital, April 1 ....................................................................
Add: Net income ..................................................................................
Less: Drawings......................................................................................
T. Goode, Capital, April 30..................................................................
$30,960
3,262
34,222
3,650
$30,572
GOODE COMPANY
Balance Sheet
April 30, 2008
Assets
Current assets
Cash .......................................................................................
Accounts receivable .........................................................
Prepaid rent .........................................................................
Total current assets .................................................
Property, plant, and equipment
Equipment ............................................................................
Less: Accumulated depreciation.................................
Total assets.................................................................
4-13
$13,752
7,840
2,280
23,872
$23,050
4,921
18,129
$42,001
EXERCISE 4-3 (Continued)
GOODE COMPANY
Balance Sheet (Continued)
April 30, 2008
Liabilities and Owner’s Equity
Current liabilities
Notes payable.......................................................................................
Accounts payable ...............................................................................
Interest payable ...................................................................................
Total current liabilities..............................................................
Owner’s equity
T. Goode, Capital.................................................................................
Total liabilities and owner’s equity ......................................
$ 5,700
5,672
57
11,429
30,572
$42,001
EXERCISE 4-4
(a) Apr. 30
30
30
30
Service Revenue .............................................
Income Summary ...................................
15,590
Income Summary ............................................
Salaries Expense....................................
Rent Expense ..........................................
Depreciation Expense ..........................
Interest Expense.....................................
12,328
Income Summary ............................................
T. Goode, Capital....................................
3,262
T. Goode, Capital.............................................
T. Goode, Drawing .................................
3,650
15,590
10,840
760
671
57
3,262
3,650
(b)
(2)
(3)
Income Summary
12,328 (1)
15,590
3,262
15,590
15,590
4-14
(4)
T. Goode, Capital
3,650
30,960
(3)
3,262
Bal.
30,572
EXERCISE 4-4 (Continued)
(c)
GOODE COMPANY
Post-Closing Trial Balance
April 30, 2008
Cash ................................................................................
Accounts Receivable.................................................
Prepaid Rent.................................................................
Equipment .....................................................................
Accumulated Depreciation ......................................
Notes Payable ..............................................................
Accounts Payable.......................................................
Interest Payable...........................................................
T. Goode, Capital ........................................................
Debit
$13,752
7,840
2,280
23,050
$46,922
Credit
$ 4,921
5,700
5,672
57
30,572
$46,922
EXERCISE 4-5
(a) Accounts Receivable.................................................
Service Revenue .................................................
600
Insurance Expense.....................................................
Prepaid Insurance..............................................
400
Depreciation Expense ................................................
Accumulated Depreciation .............................
900
Salaries Expense .........................................................
Salaries Payable..................................................
500
4-15
600
400
900
500
EXERCISE 4-5 (Continued)
(b)
Income Statement
Dr.
Accounts Receivable
Prepaid Insurance
Accum. Depreciation
Salaries Payable
Service Revenue
Salaries Expense
Insurance Expense
Depreciation Expense
Cr.
Balance Sheet
Dr.
X
X
Cr.
X
X
X
X
X
X
EXERCISE 4-6
(a) Accounts Receivable—$25,000 ($34,000 – $9,000).
Supplies—$2,000 ($7,000 – $5,000).
Accumulated Depreciation—$22,000 ($12,000 + $10,000).
Salaries Payable—$0 No liability recorded until adjustments are made.
Insurance Expense—$6,000 ($26,000 – $20,000).
Salaries Expense—$44,000 ($49,000 – $5,000).
(b) Accounts Receivable .........................................................
Service Revenue.........................................................
9,000
Insurance Expense .............................................................
Prepaid Insurance ......................................................
6,000
Supplies Expense ...............................................................
Supplies.........................................................................
5,000
Depreciation Expense........................................................
Accumulated Depreciation......................................
10,000
Salaries Expense.................................................................
Salaries Payable .........................................................
5,000
4-16
9,000
6,000
5,000
10,000
5,000
EXERCISE 4-7
(a) Service Revenue .............................................................
Income Summary.....................................................
4,064
Income Summary............................................................
Salaries Expense .....................................................
Miscellaneous Expense.........................................
Supplies Expense....................................................
3,828
Income Summary............................................................
Emil Skoda, Capital.................................................
236
Emil Skoda, Capital........................................................
Emil Skoda, Drawing ..............................................
300
(b)
4,064
1,344
256
2,228
236
300
EMIL SKODA COMPANY
Post-Closing Trial Balance
For the Month Ended June 30, 2008
Account Titles
Cash ....................................................................................
Accounts Receivable.....................................................
Supplies .............................................................................
Accounts Payable...........................................................
Salaries Payable..............................................................
Unearned Revenue.........................................................
Emil Skoda, Capital........................................................
Debit
$3,712
3,904
480
$8,096
4-17
Credit
$1,792
448
160
5,696
$8,096
EXERCISE 4-8
(a)
General Journal
Date
Account Titles
Ref.
July 31 Commission Revenue .............................. 404
Rent Revenue .............................................. 429
Income Summary ............................ 350
Debit
65,000
6,500
31 Income Summary .......................................
Salaries Expense.............................
Utilities Expense..............................
Depreciation Expense....................
350
720
732
711
74,600
31 B. J. Apachi, Capital..................................
Income Summary ............................
301
350
3,100
31 B. J. Apachi, Capital..................................
B. J. Apachi, Drawing.....................
301
306
16,000
J15
Credit
71,500
55,700
14,900
4,000
3,100
16,000
(b)
B. J. Apachi, Capital
Date
Explanation
Ref.
Debit
July 31 Balance
31 Close net loss
J15
3,100
31 Close drawing
J15
16,000
Income Summary
Date
Explanation
Ref.
Debit
July 31 Close revenue
J15
31 Close expenses
J15
74,600
31 Close net loss
J15
4-18
Credit
Credit
71,500
3,100
No. 301
Balance
45,200
42,100
26,100
No. 350
Balance
71,500
(3,100)
0
EXERCISE 4-8 (Continued)
(c)
APACHI COMPANY
Post-Closing Trial Balance
July 31, 2008
Cash ................................................................................
Accounts Receivable.................................................
Equipment .....................................................................
Accumulated Depreciation ......................................
Accounts Payable.......................................................
Unearned Rent Revenue...........................................
B. J. Apachi, Capital...................................................
Debit
$14,840
8,780
15,900
$39,520
Credit
$ 7,400
4,220
1,800
26,100
$39,520
EXERCISE 4-9
(a)
APACHI COMPANY
Income Statement
For the Year Ended July 31, 2008
Revenues
Commission revenue........................................
Rent revenue .......................................................
Total revenues ...........................................
Expenses
Salaries expense................................................
Utilities expense.................................................
Depreciation expense.......................................
Total expenses...........................................
Net loss ..........................................................................
$65,000
6,500
71,500
$55,700
14,900
4,000
74,600
($ 3,100)
APACHI COMPANY
Owner’s Equity Statement
For the Year Ended July 31, 2008
B. J. Apachi, Capital, August 1, 2007 ...................
Less: Net loss .............................................................
Drawings...........................................................
B. J. Apachi, Capital, July 31, 2008.......................
4-19
$45,200
$ 3,100
16,000
19,100
$26,100
EXERCISE 4-9 (Continued)
(b)
APACHI COMPANY
Balance Sheet
July 31, 2008
Assets
Current assets
Cash...........................................................................
Accounts receivable.............................................
Total current assets.....................................
Property, plant, and equipment
Equipment ...............................................................
Less: Accumulated depreciation ....................
Total assets ....................................................
$14,840
8,780
23,620
$15,900
7,400
8,500
$32,120
Liabilities and Owner’s Equity
Current liabilities
Accounts payable .................................................
Unearned rent revenue........................................
Total current liabilities................................
Owner’s equity
B. J. Apachi, Capital .............................................
Total liabilities and owner’s equity.........
$ 4,220
1,800
6,020
26,100
$32,120
EXERCISE 4-10
1.
False “Analyze business transactions” is the first step in the accounting
cycle.
2.
False. Reversing entries are an optional step in the accounting cycle.
3.
True.
4.
True.
5.
True.
6.
False. Steps 1–3 may occur daily in the accounting cycle. Steps 4–7 are
performed on a periodic basis. Steps 8 and 9 are usually prepared only
at the end of a company’s annual accounting period.
7.
False. The step of “journalize the transactions” occurs before the step
of “post to the ledger accounts.”
8.
False. Closing entries are prepared after financial statements are prepared.
4-20
EXERCISE 4-11
(a) June 30
30
30
30
Service Revenue...........................................
Income Summary ................................
15,100
Income Summary .........................................
Salaries Expense.................................
Supplies Expense ...............................
Rent Expense .......................................
13,100
Income Summary .........................................
Nina Cole, Capital................................
2,000
Nina Cole, Capital ........................................
Nina Cole, Drawing .............................
2,500
15,100
8,800
1,300
3,000
2,000
2,500
(b)
Income Summary
June 30 13,100 June 30
June 30
2,000
15,100
15,100
15,100
EXERCISE 4-12
(a) 1.
2.
Cash .............................................................................
Equipment ........................................................
600
Salaries Expense .....................................................
Cash ...................................................................
600
Service Revenue ......................................................
Cash ...................................................................
100
Cash .............................................................................
Accounts Receivable....................................
1,000
4-21
600
600
100
1,000
EXERCISE 4-12 (Continued)
3.
(b) 1.
2.
3.
Accounts Payable....................................................
Equipment ........................................................
Equipment ..................................................................
Accounts Payable ..........................................
890
Salaries Expense......................................................
Equipment ........................................................
600
Service Revenue ......................................................
Cash .............................................................................
Accounts Receivable ....................................
100
900
Equipment ..................................................................
Accounts Payable ..........................................
90
890
980
980
600
1,000
90
EXERCISE 4-13
1.
2.
3.
Accounts Payable ($630 – $360) ..................................
Cash..............................................................................
270
Supplies................................................................................
Equipment ..................................................................
Accounts Payable ....................................................
560
M. Mason, Drawing ...........................................................
Salaries Expense......................................................
400
4-22
270
56
504
400
EXERCISE 4-14
(a)
KARR BOWLING ALLEY
Balance Sheet
December 31, 2008
Assets
Current assets
Cash .....................................................
Accounts receivable .......................
Prepaid insurance............................
Total current assets ...............
Property, plant, and equipment
Land......................................................
Building...............................................
Less: Acc. depr.—building ..........
Equipment ..........................................
Less: Acc. depr.—equipment .....
Total assets...............................
4-23
$ 18,040
14,520
4,680
37,240
$64,000
$128,800
42,600
62,400
18,720
86,200
43,680
193,880
$231,120
EXERCISE 4-14 (Continued)
KARR BOWLING ALLEY
Balance Sheet (Continued)
December 31, 2008
Liabilities and Owner’s Equity
Current liabilities
Current portion of note payable ...........................................
Accounts payable .....................................................................
Interest payable .........................................................................
Total current liabilities....................................................
Long-term liabilities
Note payable ...............................................................................
Total liabilities ...................................................................
Owner’s equity
S. Karr, Capital ($115,000 + $3,440*) ...................................
Total liabilities and owner’s equity.............................
$ 13,900
12,300
2,600
28,800
83,880
112,680
118,440
$231,120
*Net income = $14,180 – $780 – $7,360 – $2,600 = $3,440
(b) Current assets exceed current liabilities by $8,440 ($37,240 – $28,800).
In addition, approximately 50% of current assets are in the form of cash.
In sum, the company’s liquidity appears to be reasonably good.
EXERCISE 4-15
CL
CA
PPE
PPE
CA
OE
IA
CL
Accounts payable
Accounts receivable
Accumulated depreciation
Buildings
Cash
Roberts, Capital
Patents
Salaries payable
CA Inventories
LTI Investments
PPE Land
LTL Long-term dept
CA Supplies
PPE Office equipment
CA Prepaid expenses
4-24
EXERCISE 4-16
R. STEVENS COMPANY
Balance Sheet
December 31, 2008
(in thousands)
Assets
Current assets
Cash ...................................................................
Short-term investments ...............................
Accounts receivable .....................................
Inventories .......................................................
Prepaid expenses ..........................................
Total current assets .............................
Long-term investments.........................................
Property, plant, and equipment
Property, plant, and equipment ................
Less: Accumulated depreciation..............
Total assets ..............................................................
$ 2,668
3,690
1,696
1,256
880
$10,190
264
11,500
(5,655)
5,845
$16,299
Liabilities and Owner’s Equity
Current liabilities
Notes payable in 2009 ..................................
Accounts payable ..........................................
Total current liabilities ........................
Long-term liabilities
Long-term debt ...............................................
Notes payable (after 2009) ..........................
Total long-term liabilities .....................
Total liabilities..........................................................
Owner’s equity
R. Stevens, Capital ........................................
Total owner’s equity.............................
Total liabilities and owner’s equity...................
4-25
$
481
1,444
$ 1,925
943
368
1,311
3,236
13,063
13,063
$16,299
EXERCISE 4-17
(a)
B. SNYDER COMPANY
Income Statement
For the Year Ended July 31, 2008
Revenues
Commission revenue ....................................
Rent revenue....................................................
Total revenues........................................
Expenses
Salaries expense ............................................
Utilities expense .............................................
Depreciation expense ...................................
Total expense .........................................
Net loss .....................................................................
$61,100
8,500
$69,600
51,700
22,600
4,000
78,300
$ (8,700)
B. SNYDER COMPANY
Owner’s Equity Statement
For the Year Ended July 31, 2008
Owner’s equity, August 1, 2007..........................
Less: Net loss..........................................................
Drawings .......................................................
Owner’s equity, July 31, 2008 .............................
4-26
$51,200
$8,700
4,000
12,700
$38,500
EXERCISE 4-17 (Continued)
(b)
B. SNYDER COMPANY
Balance Sheet
July 31, 2008
Assets
Current assets
Cash ...........................................................................
Accounts receivable .............................................
Total current assets .....................................
Property, plant, and equipment
Equipment ................................................................
Less: Accumulated depreciation .....................
Total assets ...................................................
$24,200
9,780
$33,980
18,500
6,000
12,500
$46,480
Liabilities and Owner’s Equity
Current liabilities
Accounts payable ..................................................
Salaries payable .....................................................
Total current liabilities ................................
Long-term liabilities
Note payable............................................................
Total liabilities................................................
Owner’s equity
B. Snyder, Capital ..................................................
Total owner’s equity .............................................
Total liabilities and owner’s equity ..................
4-27
$ 4,100
2,080
$ 6,180
1,800
7,980
38,500
38,500
$46,480
*EXERCISE 4-18
(a) Dec. 31
Jan. 6
(b) Dec. 31
Jan. 1
Jan. 6
Salaries Expense ($10,000 X 2/5) ............
Salaries Payable...................................
4,000
Salaries Payable............................................
Salaries Expense ($10,000 X 3/5) ............
Cash .........................................................
4,000
6,000
Salaries Expense ..........................................
Salaries Payable...................................
4,000
Salaries Payable............................................
Salaries Expense .................................
4,000
Salaries Expense ..........................................
Cash .........................................................
10,000
4,000
10,000
4,000
4,000
10,000
*EXERCISE 4-19
(a) Dec. 31
31
(b) Jan. 1
1
Commission Revenue .................................
Income Summary.................................
92,000
Income Summary..........................................
Interest Expense ..................................
7,800
Commission Revenue .................................
Accounts Receivable..........................
4,500
Interest Payable ............................................
Interest Expense ..................................
1,500
4-28
92,000
7,800
4,500
1,500
*EXERCISE 4-19 (Continued)
(c) & (e)
Accounts Receivable
Dec. 31 Balance
*19,500
31 Adjusting
4,500
24,000
Jan. 1 Reversing
4,500
*($24,000 – $4,500)
Commission Revenue
Dec. 31 Closing
92,000 Dec. 31 Balance
31 Adjusting
92,000
Jan. 1 Reversing
4,500 Jan. 10
87,500*
4,500
92,000
4,500
*($92,000 – $4,500)
Jan. 1
Reversing
Dec. 31 Balance
31 Adjusting
Jan. 15
Interest Payable
Dec. 31 Adjusting
1,500
Interest Expense
*6,300 Dec. 31 Closing
1,500
7,800
2,500 Jan. 1 Reversing
1,500
7,800
7,800
1,500
*($7,800 – $1,500)
(d)
Jan. 10
15
(1)
Cash..........................................................................
Commission Revenue................................
4,500
(2)
Interest Expense...................................................
Cash.................................................................
2,500
4-29
4,500
2,500
Account Titles
4-30
13,620
10,000
12,350
20,000
2,200
1,300
1,200
200
55,970 55,970
600
11,400
5,620
1,050
2,400
30,000
530
300
600
3,100
(c)
(d)
(a)
670
(b) 1,000
(e)
530
670
600
(c)
3,100
300
(b) 1,000
(e)
(a)
(d)
Cr.
Dr.
Dr.
Cr.
Adjustments
Trial Balance
300
600
57,800 57,800
300
14,150
Cr.
600
7,470 14,150
6,680
14,150 14,150
300
670
1,000
670
1,000
Dr.
2,200
1,300
1,200
200
1,000
14,150
10,000
12,350
20,000
Cr.
Income
Statement
2,200
1,300
1,200
200
600
11,400
6,150
380
1,800
30,000
Dr.
Adjusted
Trial Balance
THOMAS MAGNUM P.I.
Worksheet
For the Quarter Ended March 31, 2008
Key: (a) Supplies Used; (b) Depreciation Expensed; (c) Accrued Interest on note; (d) Insurance Expired;
(e) Service Revenue Earned but unbilled.
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Notes Payable
Accounts Payable
T. Magnum, Capital
T. Magnum, Drawing
Service Revenue
Salaries Expense
Travel Expense
Rent Expense
Miscellaneous Expense
Totals
Supplies Expense
Depreciation Expense
Accumulated Depreciation
Interest Expense
Interest Payable
Insurance Expense
Totals
Net Income
Totals
(a)
300
1,000
10,000
12,350
20,000
Cr.
50,330 43,650
6,680
50,330 50,330
600
11,400
6,150
380
1,800
30,000
Dr.
Balance Sheet
SOLUTIONS TO PROBLEMS
PROBLEM 4-1A
PROBLEM 4-1A (Continued)
(b)
THOMAS MAGNUM P.I.
Income Statement
For the Quarter Ended March 31, 2008
Revenues
Service revenue.......................................................
Expenses
Salaries expense.....................................................
Travel expense.........................................................
Rent expense............................................................
Depreciation expense............................................
Supplies expense ...................................................
Insurance expense .................................................
Interest expense......................................................
Miscellaneous expense ........................................
Total expenses................................................
Net income .........................................................................
$14,150
$2,200
1,300
1,200
1,000
670
600
300
200
7,470
$ 6,680
THOMAS MAGNUM P.I.
Owner’s Equity Statement
For the Quarter Ended March 31, 2008
T. Magnum, Capital, January 1.....................................
Add: Investment by owner ..........................................
Net income.............................................................
Less: Drawings.................................................................
T. Magnum, Capital, March 31 ......................................
4-31
$
$20,000
6,680
0
26,680
600
$26,080
PROBLEM 4-1A (Continued)
THOMAS MAGNUM P.I.
Balance Sheet
March 31, 2008
Assets
Current assets
Cash...........................................................................
Accounts receivable.............................................
Supplies....................................................................
Prepaid insurance .................................................
Total current assets.....................................
Property, plant, and equipment
Equipment ...............................................................
Less: Accumulated depreciation ....................
Total assets ....................................................
$11,400
6,150
380
1,800
19,730
$30,000
1,000
29,000
$48,730
Liabilities and Owner’s Equity
Current liabilities
Notes payable.........................................................
Accounts payable .................................................
Interest payable .....................................................
Total current liabilities................................
Owner’s equity
T. Magnum, Capital...............................................
Total liabilities and owner’s
equity ...........................................................
(c) Mar. 31
31
31
31
$10,000
12,350
300
22,650
26,080
$48,730
Supplies Expense .......................................
Supplies ................................................
670
Depreciation Expense ...............................
Accumulated Depreciation ............
1,000
Interest Expense .........................................
Interest Payable..................................
300
Insurance Expense.....................................
Prepaid Insurance..............................
600
4-32
670
1,000
300
600
PROBLEM 4-1A (Continued)
Mar. 31
(d) Mar. 31
31
31
31
Accounts Receivable......................................
Service Revenue .....................................
530
Service Revenue ..............................................
Income Summary....................................
14,150
Income Summary.............................................
Travel Expense........................................
Salaries Expense ....................................
Rent Expense...........................................
Insurance Expense.................................
Depreciation Expense ...........................
Supplies Expense...................................
Interest Expense .....................................
Miscellaneous Expense........................
7,470
Income Summary.............................................
T. Magnum, Capital ................................
6,680
T. Magnum, Capital .........................................
T. Magnum, Drawing..............................
600
4-33
530
14,150
1,300
2,200
1,200
600
1,000
670
300
200
6,680
600
PROBLEM 4-2A
(a)
PORTER COMPANY
Partial Worksheet
For the Year Ended December 31, 2008
Account
No. Titles
101
112
126
130
151
152
200
201
212
230
301
306
400
610
631
711
722
726
905
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Office Equipment
Acc. Depr.—Off. Equip.
Notes Payable
Accounts Payable
Salaries Payable
Interest Payable
B. Porter, Capital
B. Porter, Drawing
Service Revenue
Advertising Expense
Supplies Expense
Depreciation Expense
Insurance Expense
Salaries Expense
Interest Expense
Totals
Net Income
Totals
Adjusted
Trial Balance
Dr.
Cr.
Income
Statement
Dr.
Cr.
18,800
16,200
2,300
4,400
44,000
Balance
Sheet
Dr.
Cr.
18,800
16,200
2,300
4,400
44,000
20,000
20,000
8,000
2,600
1,000
36,000
20,000
20,000
8,000
2,600
1,000
36,000
12,000
12,000
77,800
12,000
3,700
8,000
4,000
39,000
1,000
165,400 165,400
4-34
77,800
12,000
3,700
8,000
4,000
39,000
1,000
67,700
10,100
77,800
77,800
97,700
77,800
97,700
87,600
10,100
97,700
PROBLEM 4-2A (Continued)
(b)
PORTER COMPANY
Income Statement
For the Year Ended December 31, 2008
Revenues
Service revenue.....................................................
Expenses
Salaries expense...................................................
Advertising expense ............................................
Depreciation expense..........................................
Insurance expense ...............................................
Supplies expense .................................................
Interest expense....................................................
Total expenses..............................................
Net income .......................................................................
$77,800
$39,000
12,000
8,000
4,000
3,700
1,000
67,700
$10,100
PORTER COMPANY
Owner’s Equity Statement
For the Year Ended December 31, 2008
B. Porter, Capital, January 1 ............................................................
Add: Net income................................................................................
Less: Drawings....................................................................................
B. Porter, Capital, December 31......................................................
4-35
$36,000
10,100
46,100
12,000
$34,100
PROBLEM 4-2A (Continued)
PORTER COMPANY
Balance Sheet
December 31, 2008
Assets
Current assets
Cash...........................................................................
Accounts receivable.............................................
Supplies....................................................................
Prepaid insurance .................................................
Total current assets.....................................
Property, plant, and equipment
Office equipment ...................................................
Less: Accumulated depreciation ....................
Total assets ....................................................
$18,800
16,200
2,300
4,400
41,700
$44,000
20,000
24,000
$65,700
Liabilities and Owner’s Equity
Current liabilities
Notes payable.........................................................
Accounts payable .................................................
Salaries payable ....................................................
Interest payable .....................................................
Total current liabilities................................
Long-term liabilities
Notes payable.........................................................
Total liabilities ...............................................
Owner’s equity
B. Porter, Capital ...................................................
Total liabilities and owner’s
equity .............................................................
4-36
$10,000
8,000
2,600
1,000
21,600
10,000
31,600
34,100
$65,700
PROBLEM 4-2A (Continued)
(c)
General Journal
Date
Account Titles and Explanation
Dec. 31 Service Revenue ........................................
Income Summary............................
Ref.
400
350
Debit
77,800
31 Income Summary.......................................
Advertising Expense......................
Supplies Expense ...........................
Depreciation Expense ...................
Insurance Expense.........................
Salaries Expense ............................
Interest Expense .............................
350
610
631
711
722
726
905
67,700
31 Income Summary.......................................
B. Porter, Capital.............................
350
301
10,100
31 B. Porter, Capital........................................
B. Porter, Drawing ..........................
301
306
12,000
J14
Credit
77,800
12,000
3,700
8,000
4,000
39,000
1,000
10,100
12,000
(d)
Date
Explanation
Jan. 31 Balance
Dec. 31 Closing entry
31 Closing entry
B. Porter, Capital
Ref.
Debit
J14
J14
12,000
Date
Explanation
Dec. 31 Balance
31 Closing entry
B. Porter, Drawing
Ref.
Debit
12,000
J14
4-37
Credit
36,000
10,100
Credit
12,000
No. 301
Balance
36,000
46,100
34,100
No. 306
Balance
12,000
0
PROBLEM 4-2A (Continued)
Explanation
Closing entry
Closing entry
Closing entry
Income Summary
Ref.
Debit
J14
J14
67,700
J14
10,100
Date
Explanation
Dec. 31 Balance
31 Closing entry
Service Revenue
Ref.
Debit
J14
77,800
Date
Explanation
Dec. 31 Balance
31 Closing entry
Advertising Expense
Ref.
Debit
12,000
J14
Date
Explanation
Dec. 31 Balance
31 Closing entry
Supplies Expense
Ref.
Debit
3,700
J14
Date
Explanation
Dec. 31 Balance
31 Closing entry
Depreciation Expense
Ref.
Debit
8,000
J14
Date
Dec. 31
31
31
Date
Dec. 31
31
Explanation
Balance
Closing entry
Insurance Expense
Ref.
Debit
4,000
J14
4-38
Credit
77,800
Credit
77,800
Credit
12,000
Credit
3,700
Credit
8,000
Credit
4,000
No. 350
Balance
77,800
10,100
0
No. 400
Balance
77,800
0
No. 610
Balance
12,000
0
No. 631
Balance
3,700
0
No. 711
Balance
8,000
0
No. 722
Balance
4,000
0
PROBLEM 4-2A (Continued)
Date
Explanation
Dec. 31 Balance
31 Closing entry
Salaries Expense
Ref.
Debit
39,000
J14
Date
Explanation
Dec. 31 Balance
31 Closing entry
Interest Expense
Ref.
Debit
1,000
J14
(e)
Credit
39,000
Credit
1,000
No. 726
Balance
39,000
0
No. 905
Balance
1,000
0
PORTER COMPANY
Post-Closing Trial Balance
December 31, 2008
Cash ................................................................................
Accounts Receivable.................................................
Supplies .........................................................................
Prepaid Insurance ......................................................
Office Equipment ........................................................
Accumulated Depreciation—Office
Equipment ................................................................
Notes Payable ..............................................................
Accounts Payable.......................................................
Salaries Payable..........................................................
Interest Payable...........................................................
B. Porter, Capital.........................................................
Debit
$18,800
16,200
2,300
4,400
44,000
$85,700
4-39
Credit
$20,000
20,000
8,000
2,600
1,000
34,100
$85,700
PROBLEM 4-3A
(a)
WOODS COMPANY
Income Statement
For the Year Ended December 31, 2008
Revenues
Service revenue ..................................................
Expenses
Salaries expense ................................................
Repair expense ...................................................
Utilities expense .................................................
Depreciation expense .......................................
Insurance expense.............................................
Total expenses ...........................................
Net loss...........................................................................
$44,000
$35,200
5,400
4,000
2,800
1,200
48,600
$ (4,600)
WOODS COMPANY
Owner’s Equity Statement
For the Year Ended December 31, 2008
S. Woods, Capital, January 1 ..................................
Add: Additional investment by owner ...............
Less: Net loss..............................................................
Drawings ...........................................................
S. Woods, Capital, December 31............................
$30,000
4,000
34,000
$4,600
7,200
11,800
$22,200
WOODS COMPANY
Balance Sheet
December 31, 2008
Assets
Current assets
Cash........................................................................
Accounts receivable..........................................
Prepaid insurance ..............................................
Total current assets..................................
Property, plant, and equipment
Equipment ............................................................
Less: Accumulated depreciation .................
Total assets .................................................
4-40
$ 8,200
7,500
1,800
17,500
$28,000
8,600
19,400
$36,900
PROBLEM 4-3A (Continued)
WOODS COMPANY
Balance Sheet (Continued)
December 31, 2008
Liabilities and Owner’s Equity
Current liabilities
Accounts payable .......................................................................
Salaries payable ..........................................................................
Total current liabilities .....................................................
Owner’s equity
S. Woods, Capital .......................................................................
Total liabilities and owner’s
equity.................................................................................
(b)
$11,700
3,000
14,700
22,200
$36,900
General Journal
Date
Account Titles
Dec. 31 Service Revenue ........................................
Income Summary ............................
Ref.
400
350
Debit
44,000
Income Summary.......................................
Repair Expense................................
Depreciation Expense ...................
Insurance Expense.........................
Salaries Expense.............................
Utilities Expense..............................
350
622
711
722
726
732
48,600
S. Woods, Capital ......................................
Income Summary ............................
301
350
4,600
S. Woods, Capital ......................................
S. Woods, Drawing .........................
301
306
7,200
31
31
31
4-41
Credit
44,000
5,400
2,800
1,200
35,200
4,000
4,600
7,200
PROBLEM 4-3A (Continued)
(c)
12/31
12/31
S. Woods, Capital
No. 301
4,600 12/31 Bal. 34,000
7,200
12/31 Bal. 22,200
Repair Expense
5,400 12/31
12/31 Bal.
No. 622
5,400
Depreciation Expense No. 711
12/31 Bal.
2,800 12/31
2,800
12/31 Bal.
S. Woods, Drawing
7,200 12/31
No. 306
7,200
12/31 Bal.
12/31
12/31
(d)
Income Summary
48,600 12/31
12/31
48,600
Insurance Expense
1,200 12/31
No. 722
1,200
No. 350
44,000
4,600
48,600
Salaries Expense
12/31 Bal. 35,200 12/31
No. 726
35,200
Service Revenue
No. 400
44,000 12/31 Bal. 44,000
Utilities Expense
12/31 Bal.
4,000 12/31
No. 732
4,000
WOODS COMPANY
Post-Closing Trial Balance
December 31, 2008
Cash.................................................................................
Accounts Receivable .................................................
Prepaid Insurance.......................................................
Equipment .....................................................................
Accumulated Depreciation.......................................
Accounts Payable .......................................................
Salaries Payable ..........................................................
S. Woods, Capital........................................................
Totals
4-42
Debit
$ 8,200
7,500
1,800
28,000
$45,500
Credit
$ 8,600
11,700
3,000
22,200
$45,500
Account Titles
4-43
277,500
36,200
14,600
3,700
50,000
109,700
Cr.
105,000
30,500
9,400
16,900
18,000
6,000
491,700 491,700
14,000
41,400
18,600
31,900
80,000
120,000
Dr.
Trial Balance
(c)
55,100
6,000
(e)
3,000
55,100
3,000
504,700 504,700
6,000
279,200
Cr.
239,200 279,200
40,000
279,200 279,200
6,000
23,000
17,400
4,000
279,200
23,000
17,400
14,000
Dr.
(b) 23,000
(a) 17,400
4,000
1,700
42,200
14,600
2,000
50,000
109,700
Cr.
3,000
4,000
(f)
(d)
6,000
41,400
1,200
8,900
80,000
120,000
Dr.
Income
Statement
105,000
30,500
9,400
16,900
21,000
10,000
1,700
(c)
(a) 17,400
(b) 23,000
Cr.
Adjusted
Trial Balance
105,000
30,500
9,400
16,900
21,000
10,000
(e)
(f)
(d)
Dr.
Adjustments
DISNEY AMUSEMENT PARK
Worksheet
For the Year Ended September 30, 2008
265,500
265,500
14,000
41,400
1,200
8,900
80,000
120,000
Dr.
3,000
225,500
40,000
265,500
4,000
42,200
14,600
2,000
50,000
109,700
Cr.
Balance Sheet
Key: (a) Supplies Used; (b) Expired Insurance; (c) Depreciation Expensed; (d) Admissions Revenue Earned; (e) Accrued Property Taxes;
(f) Accrued Interest Payable.
Cash
Supplies
Prepaid Insurance
Land
Equipment
Accumulated Depreciation
Accounts Payable
Unearned Admissions Revenue
Mortgage Note Payable
L. Disney, Capital
L. Disney, Drawing
Admissions Revenue
Salaries Expense
Repair Expense
Advertising Expense
Utilities Expense
Property Taxes Expense
Interest Expense
Totals
Insurance Expense
Supplies Expense
Interest Payable
Depreciation Expense
Property Taxes Payable
Totals
Net Income
Totals
(a)
PROBLEM 4-4A
PROBLEM 4-4A (Continued)
(b)
DISNEY AMUSEMENT PARK
Balance Sheet
September 30, 2008
Assets
Current assets
Cash......................................................
Supplies ..............................................
Prepaid insurance............................
Total current assets ...............
Property, plant, and equipment
Land......................................................
Equipment ..........................................
Less: Accum. depreciation..........
Total assets...............................
$ 41,400
1,200
8,900
51,500
$80,000
$120,000
42,200
77,800
157,800
$209,300
Liabilities and Owner’s Equity
Current liabilities
Current maturity of mortgage
note payable..................................
Accounts payable ............................
Interest payable ................................
Property taxes payable ..................
Unearned admissions
revenue ...........................................
Total current liabilities...........
Long-term liabilities
Mortgage note payable...................
Total liabilities ..........................
Owner’s equity
L. Disney, Capital
($109,700 + $40,000 – $14,000) ........
Total liabilities and
owner’s equity .....................
4-44
$ 10,000
14,600
4,000
3,000
2,000
33,600
40,000
73,600
135,700
$209,300
PROBLEM 4-4A (Continued)
(c) Sept. 30
30
30
30
30
30
(d) Sept. 30
30
30
30
Supplies Expense......................................
Supplies ...............................................
17,400
Insurance Expense ...................................
Prepaid Insurance ............................
23,000
Depreciation Expense..............................
Accumulated Depreciation ............
6,000
Unearned Admissions Revenue ...........
Admissions Revenue ......................
1,700
Property Taxes Expense .........................
Property Taxes Payable..................
3,000
Interest Expense ........................................
Interest Payable ................................
4,000
Admissions Revenue ...............................
Income Summary..............................
279,200
Income Summary.......................................
Salaries Expense ..............................
Repair Expense .................................
Insurance Expense...........................
Property Taxes Expense ................
Supplies Expense.............................
Utilities Expense ...............................
Interest Expense ...............................
Advertising Expense .......................
Depreciation Expense .....................
239,200
Income Summary.......................................
L. Disney, Capital..............................
40,000
L. Disney, Capital.......................................
L. Disney, Drawing ...........................
14,000
4-45
17,400
23,000
6,000
1,700
3,000
4,000
279,200
105,000
30,500
23,000
21,000
17,400
16,900
10,000
9,400
6,000
40,000
14,000
PROBLEM 4-4A (Continued)
(e)
DISNEY AMUSEMENT PARK
Post-Closing Trial Balance
September 30, 2008
Cash ................................................................................
Supplies .........................................................................
Prepaid Insurance.......................................................
Land.................................................................................
Equipment .....................................................................
Accumulated Depreciation ......................................
Accounts Payable.......................................................
Interest Payable...........................................................
Property Taxes Payable............................................
Unearned Admissions Revenue ............................
Mortgage Note Payable.............................................
L. Disney, Capital ........................................................
Debit
$ 41,400
1,200
8,900
80,000
120,000
$251,500
4-46
Credit
$ 42,200
14,600
4,000
3,000
2,000
50,000
135,700
$251,500
PROBLEM 4-5A
(a)
General Journal
Date
Mar. 1
1
3
5
14
18
20
21
28
31
31
Account Titles and Explanation
Cash .............................................................
L. Eddy, Capital .............................
Ref.
101
301
Debit
10,000
Equipment..................................................
Cash ..................................................
Accounts Payable.........................
157
101
201
6,000
Cleaning Supplies ...................................
Accounts Payable.........................
128
201
1,200
Prepaid Insurance ...................................
Cash ..................................................
130
101
1,200
Accounts Receivable .............................
Service Revenue ...........................
112
400
4,800
Accounts Payable ...................................
Cash ..................................................
201
101
2,000
Salaries Expense .....................................
Cash ..................................................
726
101
1,800
Cash .............................................................
Accounts Receivable...................
101
112
1,400
Accounts Receivable .............................
Service Revenue ...........................
112
400
2,500
Gas & Oil Expense ..................................
Cash ..................................................
633
101
200
L. Eddy, Drawing......................................
Cash ..................................................
306
101
700
4-47
J1
Credit
10,000
3,000
3,000
1,200
1,200
4,800
2,000
1,800
1,400
2,500
200
700
Account Titles
4-48
200
1,800
19,500
700
2,500
5,900
1,200
1,200
6,000
19,500
7,300
2,200
10,000
100
800
(c)
(d)
2,350
250
500
700
(b)
(e)
(a)
(e)
(b)
(a)
(d)
(c)
500
2,350
250
700
800
100
Cr.
Dr.
Dr.
Cr.
Adjustments
Trial Balance
20,950
100
800
250
200
2,300
700
2,500
6,600
400
1,100
6,000
Dr.
500
20,950
250
8,000
2,200
10,000
Cr.
Adjusted
Trial Balance
EDDY’S CARPET CLEANERS
Worksheet
For the Month Ended March 31, 2008
3,650
4,350
8,000
100
800
250
200
2,300
Dr.
17,300
17,300
8,000
700
2,500
6,600
400
1,100
6,000
Dr.
500
12,950
4,350
17,300
250
2,200
10,000
Cr.
Balance Sheet
8,000
8,000
Cr.
Income
Statement
Key: (a) Service Revenue Earned; (b) Depreciation Expensed; (c) Insurance Expired; (d) Cleaning Supplies Used;
(e) Unpaid Salaries.
Cash
Accounts Receivable
Cleaning Supplies
Prepaid Insurance
Equipment
Accounts Payable
L. Eddy, Capital
L. Eddy, Drawing
Service Revenue
Gas & Oil Expense
Salaries Expense
Totals
Depreciation Expense
Accum. Depr.—Equipment
Insurance Expense
Cleaning Supplies Expense
Salaries Payable
Totals
Net Income
Totals
(b) & (c)
PROBLEM 4-5A (Continued)
PROBLEM 4-5A (Continued)
(a), (e) & (f)
Date
Mar. 1
1
5
18
20
21
31
31
Date
Mar. 14
21
28
31
Date
Mar. 3
31
Date
Mar. 5
31
Date
Mar. 1
Explanation
Explanation
Adjusting
Explanation
Adjusting
Explanation
Adjusting
Explanation
Cash
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
Debit
10,000
3,000
1,200
2,000
1,800
1,400
200
700
Accounts Receivable
Ref.
Debit
J1
4,800
J1
J1
2,500
J2
700
Cleaning Supplies
Ref.
Debit
J1
1,200
J2
Prepaid Insurance
Ref.
Debit
J1
1,200
J2
Equipment
Ref.
J1
4-49
Credit
Debit
6,000
Credit
1,400
Credit
800
Credit
100
Credit
No. 101
Balance
10,000
7,000
5,800
3,800
2,000
3,400
3,200
2,500
No. 112
Balance
4,800
3,400
5,900
6,600
No. 128
Balance
1,200
400
No. 130
Balance
1,200
1,100
No. 157
Balance
6,000
PROBLEM 4-5A (Continued)
Date
Mar. 31
Date
Mar. 1
3
18
Date
Mar. 31
Date
Mar. 1
31
31
Date
Mar. 31
31
Date
Mar. 31
31
31
Accumulated Depreciation—Equipment
Explanation
Ref.
Debit
Credit
Adjusting
J2
250
Explanation
Explanation
Adjusting
Explanation
Closing
Closing
Accounts Payable
Ref.
Debit
J1
J1
J1
2,000
Salaries Payable
Ref.
Debit
J2
L. Eddy, Capital
Ref.
Debit
J1
J3
J3
700
Closing
L. Eddy, Drawing
Ref.
Debit
J1
700
J3
Explanation
Closing
Closing
Closing
Income Summary
Ref.
Debit
J3
J3
3,650
J3
4,350
Explanation
4-50
Credit
3,000
1,200
Credit
500
Credit
10,000
4,350
Credit
700
Credit
8,000
No. 158
Balance
250
No. 201
Balance
3,000
4,200
2,200
No. 212
Balance
500
No. 301
Balance
10,000
14,350
13,650
No. 306
Balance
700
0
No. 350
Balance
8,000
4,350
0
PROBLEM 4-5A (Continued)
Date
Mar. 14
28
31
31
Date
Mar. 31
31
Explanation
Adjusting
Closing
Explanation
Closing
Service Revenue
Ref.
Debit
J1
J1
J2
J3
8,000
Gas & Oil Expense
Ref.
Debit
J1
200
J3
Date
Mar. 31
31
Cleaning Supplies Expense
Explanation
Ref.
Debit
Adjusting
J2
800
Closing
J3
Date
Mar. 31
31
Explanation
Adjusting
Closing
Depreciation Expense
Ref.
Debit
J2
250
J3
Explanation
Adjusting
Closing
Insurance Expense
Ref.
Debit
J2
100
J3
Date
Mar. 31
31
Date
Mar. 20
31
31
Explanation
Adjusting
Closing
Salaries Expense
Ref.
Debit
J1
1,800
J2
500
J3
4-51
Credit
4,800
2,500
700
No. 400
Balance
4,800
7,300
8,000
0
Credit
No. 633
Balance
200
0
200
Credit
800
Credit
250
Credit
100
Credit
2,300
No. 634
Balance
800
0
No. 711
Balance
250
0
No. 722
Balance
100
0
No. 726
Balance
1,800
2,300
0
PROBLEM 4-5A (Continued)
(d)
EDDY’S CARPET CLEANERS
Income Statement
For the Month Ended March 31, 2008
Revenues
Service revenue.....................................................
Expenses
Salaries expense ...................................................
Cleaning supplies expense................................
Depreciation expense..........................................
Gas & oil expense .................................................
Insurance expense ...............................................
Total expenses..............................................
Net income .......................................................................
$8,000
$2,300
800
250
200
100
3,650
$4,350
EDDY’S CARPET CLEANERS
Owner’s Equity Statement
For the Month Ended March 31, 2008
L. Eddy, Capital, March 1.............................................
Add: Investments.........................................................
Net income ..........................................................
Less: Drawings..............................................................
L. Eddy, Capital, March 31 ..........................................
$
$10,000
4,350
0
14,350
14,350
700
$13,650
EDDY’S CARPET CLEANERS
Balance Sheet
March 31, 2008
Assets
Current assets
Cash...........................................................................
Accounts receivable ............................................
Cleaning supplies .................................................
Prepaid insurance.................................................
Total current assets ....................................
4-52
$ 2,500
6,600
400
1,100
10,600
PROBLEM 4-5A (Continued)
EDDY’S CARPET CLEANERS
Balance Sheet (Continued)
March 31, 2008
Assets (Continued)
Property, plant, and equipment
Equipment.................................................................
Less: Accumulated depreciation .....................
Total assets .....................................................
$6,000
250
5,750
$16,350
Liabilities and Owner’s Equity
Current liabilities
Accounts payable...................................................
Salaries payable......................................................
Total current liabilities .................................
Owner’s equity
L. Eddy, Capital .......................................................
Total liabilities and owner’s
equity.............................................................
(e)
$ 2,200
500
2,700
13,650
$16,350
General Journal
Date
Mar. 31
31
31
31
31
Account Titles and Explanation
Accounts Receivable.............................
Service Revenue ...........................
Ref.
112
400
Debit
700
Depreciation Expense ...........................
Accumulated Depreciation—
Equipment ..................................
711
250
Insurance Expense.................................
Prepaid Insurance ........................
722
130
100
Cleaning Supplies Expense.................
Cleaning Supplies ........................
634
128
800
Salaries Expense.....................................
Salaries Payable ...........................
726
212
500
4-53
J2
Credit
700
158
250
100
800
500
PROBLEM 4-5A (Continued)
(f)
General Journal
Date
Mar. 31
(g)
Account Titles and Explanation
Service Revenue ......................................
Income Summary...........................
Ref.
400
350
Debit
8,000
31 Income Summary .....................................
Salaries Expense ...........................
Depreciation Expense ..................
Insurance Expense........................
Cleaning Supplies Expense .......
Gas & Oil Expense ........................
350
726
711
722
634
633
3,650
31 Income Summary .....................................
L. Eddy, Capital ..............................
350
301
4,350
31 L. Eddy, Capital.........................................
L. Eddy, Drawing............................
301
306
700
J3
Credit
8,000
2,300
250
100
800
200
4,350
700
EDDY’S CARPET CLEANERS
Post-Closing Trial Balance
March 31, 2008
Cash ................................................................................
Accounts Receivable.................................................
Cleaning Supplies.......................................................
Prepaid Insurance.......................................................
Equipment .....................................................................
Accumulated Depreciation—Equipment.............
Accounts Payable.......................................................
Salaries Payable..........................................................
L. Eddy, Capital............................................................
000,000
4-54
Debit
$ 2,500
6,600
400
1,100
6,000
Credit
$
$16,600
250
2,200
500
13,650
$16,600
Salaries Expense...............
Cash................................
Supplies ...............................
Accounts Payable.......
Equipment ...........................
Cash................................
4.
5.
Misc. Expense ....................
Cash................................
2.
3.
Cash ......................................
Accts. Receivable .......
(1) INCORRECT ENTRY
1.
(a)
4-55
59
290
1,900
65
960
59
290
1,900
65
960
65
690
65
690
Repair Expense..................
Cash ................................
Equipment ...........................
Accounts Payable .......
95
290
95
290
Salaries Expense............... 1,200
Salaries Payable ................
700
Cash ................................
1,900
Advertising Expense ........
Cash ................................
Cash.......................................
Accts. Receivable .......
(2) CORRECT ENTRY
65
65
Repair Expense ...................
Cash..................................
Equipment.......................
95
36
59
Equipment............................. 290
Supplies...........................
290
Salaries Payable.................. 700
Salaries Expense ..........
700
Advertising Expense .........
Misc. Expense ...............
Accounts Receivable......... 270
Cash..................................
270
(3) CORRECTING ENTRY
PROBLEM 4-6A
PROBLEM 4-6A (Continued)
(b)
FOX CABLE
Trial Balance
April 30, 2008
Cash ($4,100 – $270 – $36).......................................
Accounts Receivable ($3,200 + $270) ..................
Supplies ($800 – $290) ..............................................
Equipment ($10,600 + $290 – $59).........................
Accumulated Depreciation ......................................
Accounts Payable.......................................................
Salaries Payable ($700 – $700) ...............................
Unearned Revenue .....................................................
A. Manion, Capital.......................................................
Service Revenue .........................................................
Salaries Expense ($3,300 – $700) ..........................
Advertising Expense ($600 + $65).........................
Miscellaneous Expense ($290 – $65) ...................
Repair Expense............................................................
Depreciation Expense ...............................................
4-56
Debit
$ 3,794
3,470
510
10,831
Credit
$ 1,350
2,100
0
890
12,900
5,450
2,600
665
225
95
500
$22,690
$22,690
Account Titles
4-57
700
200
12,900
600
2,500
1,800
1,100
6,000
12,900
3,500
700
1,400
300
7,000
(a)
(b)
(d)
(c)
1,580
860
200
350
170
(d)
350
1,580
170
200
(b)
(c)
860
(a)
Cr.
Dr.
Dr.
Cr.
Adjustments
Trial Balance
13,450
860
200
1,050
200
600
2,500
1,800
240
6,000
Dr.
350
13,450
3,670
900
1,400
130
7,000
Cr.
Adjusted
Trial Balance
EVERLAST ROOFING
Worksheet
For the Month Ended March 31, 2008
2,310
1,360
3,670
860
200
1,050
200
Dr.
11,140
11,140
3,670
600
2,500
1,800
240
6,000
Dr.
350
9,780
1,360
11,140
900
1,400
130
7,000
Cr.
Balance Sheet
3,670
3,670
Cr.
Income
Statement
Key: (a) Supplies Used; (b) Depreciation Expensed; (c) Service Revenue Earned; (d) Salaries Accrued.
Cash
Accounts Receivable
Roofing Supplies
Equipment
Accumulated Depreciation
Accounts Payable
Unearned Revenue
J. Watt, Capital
J. Watt, Drawing
Service Revenue
Salaries Expense
Miscellaneous Expense
Totals
Supplies Expense
Depreciation Expense
Salaries Payable
Totals
Net Income
Totals
(a)
PROBLEM 4-1B
PROBLEM 4-1B (Continued)
(b)
EVERLAST ROOFING
Income Statement
For the Month Ended March 31, 2008
Revenues
Service revenue..........................................................
Expenses
Salaries expense ........................................................
Supplies expense.......................................................
Depreciation expense...............................................
Miscellaneous expense............................................
Total expenses...................................................
Net income ............................................................................
$3,670
$1,050
860
200
200
2,310
$1,360
EVERLAST ROOFING
Owner’s Equity Statement
For the Month Ended March 31, 2008
J. Watt, Capital, March 1 .......................................................................
Add: Net income ...................................................................................
Less: Drawings.......................................................................................
J. Watt, Capital, March 31.....................................................................
$7,000
1,360
8,360
600
$7,760
EVERLAST ROOFING
Balance Sheet
March 31, 2008
Assets
Current assets
Cash................................................................................
Accounts receivable .................................................
Roofing supplies ........................................................
Total current assets .........................................
Property, plant, and equipment
Equipment ....................................................................
Less: Accum. depreciation—equipment...........
Total assets.........................................................
4-58
$2,500
1,800
240
4,540
$6,000
900
5,100
$9,640
PROBLEM 4-1B (Continued)
EVERLAST ROOFING
Balance Sheet (Continued)
March 31, 2008
Liabilities and Owner’s Equity
Current liabilities
Accounts payable...........................................................................
Salaries payable..............................................................................
Unearned revenue ..........................................................................
Total current liabilities .........................................................
Owner’s equity
J. Watt, Capital.................................................................................
Total liabilities and owner’s equity..................................
(c) Mar. 31
31
31
31
(d) Mar. 31
31
31
31
Supplies Expense.................................................
Roofing Supplies .........................................
860
Depreciation Expense.........................................
Accumulated Depreciation.......................
200
Unearned Revenue ..............................................
Service Revenue..........................................
170
Salaries Expense..................................................
Salaries Payable ..........................................
350
Service Revenue...................................................
Income Summary.........................................
3,670
Income Summary .................................................
Salaries Expense .........................................
Supplies Expense........................................
Depreciation Expense................................
Miscellaneous Expense.............................
2,310
Income Summary .................................................
J. Watt, Capital .............................................
1,360
J. Watt, Capital ......................................................
J. Watt, Drawing...........................................
600
4-59
$1,400
350
130
1,880
7,760
$9,640
860
200
170
350
3,670
1,050
860
200
200
1,360
600
PROBLEM 4-2B
(a)
SPARKS COMPANY
Partial Worksheet
For the Year Ended December 31, 2008
Account
No.
101
112
126
130
151
152
200
201
212
230
301
306
400
610
631
711
722
726
905
Titles
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Office Equipment
Acc. Depr.—Off. Equip.
Notes Payable
Accounts Payable
Salaries Payable
Interest Payable
B. Sparks, Capital
B. Sparks, Drawing
Service Revenue
Advertising Expense
Supplies Expense
Depreciation Expense
Insurance Expense
Salaries Expense
Interest Expense
Totals
Net Income
Totals
Adjusted
Trial Balance
Dr.
11,600
15,400
2,000
2,800
34,000
Cr.
Income
Statement
Dr.
Cr.
Balance
Sheet
Dr.
11,600
15,400
2,000
2,800
34,000
8,000
20,000
9,000
3,500
800
25,000
8,000
20,000
9,000
3,500
800
25,000
10,000
10,000
85,000
12,000
5,700
8,000
5,000
44,000
800
151,300
Cr.
151,300
4-60
85,000
12,000
5,700
8,000
5,000
44,000
800
75,500
9,500
85,000
85,000
75,800
85,000
75,800
66,300
9,500
75,800
PROBLEM 4-2B (Continued)
(b)
SPARKS COMPANY
Income Statement
For the Year Ended December 31, 2008
Revenues
Service revenue .....................................................
Expenses
Salaries expense....................................................
Advertising expense.............................................
Depreciation expense ..........................................
Supplies expense ..................................................
Insurance expense ................................................
Interest expense.....................................................
Total expenses ..............................................
Net income........................................................................
$85,000
$44,000
12,000
8,000
5,700
5,000
800
75,500
$ 9,500
SPARKS COMPANY
Owner’s Equity Statement
For the Year Ended December 31, 2008
B. Sparks, Capital, January 1 ..........................................................
Add: Net income................................................................................
Less: Drawings ...................................................................................
B. Sparks, Capital, December 31....................................................
4-61
$25,000
9,500
34,500
10,000
$24,500
PROBLEM 4-2B (Continued)
SPARKS COMPANY
Balance Sheet
December 31, 2008
Assets
Current assets
Cash...........................................................................
Accounts receivable ............................................
Supplies ...................................................................
Prepaid insurance.................................................
Total current assets ....................................
Property, plant, and equipment
Office equipment...................................................
Less: Accumulated depreciation....................
Total assets....................................................
$11,600
15,400
2,000
2,800
31,800
$34,000
8,000
26,000
$57,800
Liabilities and Owner’s Equity
Current liabilities
Notes payable.........................................................
Accounts payable .................................................
Salaries payable ....................................................
Interest payable .....................................................
Total current liabilities................................
Long-term liabilities
Notes payable.........................................................
Total liabilities ...............................................
Owner’s equity
B. Sparks, Capital .................................................
Total liabilities and owner’s
equity ...........................................................
4-62
$10,000
9,000
3,500
800
23,300
10,000
33,300
24,500
$57,800
PROBLEM 4-2B (Continued)
(c)
General Journal
Date
Account Titles and Explanation
Ref.
Dec. 31 Service Revenue......................................... 400
Income Summary............................. 350
Debit
85,000
31 Income Summary .......................................
Advertising Expense ......................
Supplies Expense............................
Depreciation Expense ....................
Insurance Expense..........................
Salaries Expense .............................
Interest Expense ..............................
350
610
631
711
722
726
905
75,500
31 Income Summary .......................................
B. Sparks, Capital ............................
350
301
9,500
31 B. Sparks, Capital.......................................
B. Sparks, Drawing..........................
301
306
10,000
J14
Credit
85,000
12,000
5,700
8,000
5,000
44,000
800
9,500
10,000
(d)
Date
Jan. 1
Dec. 31
31
Date
Explanation
Balance
Closing entry
Closing entry
B. Sparks, Capital
Ref.
Debit
J14
J14
10,000
Explanation
B. Sparks, Drawing
Ref.
Debit
Dec. 31 Balance
31 Closing entry
J14
4-63
Credit
25,000
9,500
No. 301
Balance
25,000
34,500
24,500
Credit
No. 306
Balance
10,000
10,000
0
10,000
PROBLEM 4-2B (Continued)
Explanation
Closing entry
Closing entry
Closing entry
Income Summary
Ref.
Debit
J14
J14
75,500
J14
9,500
Explanation
Balance
Closing entry
Service Revenue
Ref.
Debit
J14 85,000
Explanation
Balance
Closing entry
Advertising Expense
Ref.
Debit
12,000
J14
Date
Dec. 31
31
Explanation
Balance
Closing entry
Supplies Expense
Ref.
Debit
5,700
J14
Date
Dec. 31
31
Depreciation Expense
Explanation
Ref.
Debit
Balance
8,000
Closing entry
J14
Date
Dec.
Date
Dec.
Date
Dec.
Date
Dec.
31
31
31
31
31
31
31
31
31
Explanation
Balance
Closing entry
Insurance Expense
Ref.
Debit
5,000
J14
4-64
Credit
85,000
No. 350
Balance
85,000
9,500
0
Credit
85,000
No. 400
Balance
85,000
0
Credit
12,000
Credit
5,700
Credit
8,000
Credit
5,000
No. 610
Balance
12,000
0
No. 631
Balance
5,700
0
No. 711
Balance
8,000
0
No. 722
Balance
5,000
0
PROBLEM 4-2B (Continued)
Date
Dec. 31
31
Date
Dec. 31
31
(e)
Explanation
Balance
Closing entry
Salaries Expense
Ref.
Debit
44,000
J14
Explanation
Balance
Closing entry
Interest Expense
Ref.
Debit
800
J14
Credit
44,000
Credit
800
No. 726
Balance
44,000
0
No. 905
Balance
800
0
SPARKS COMPANY
Post-Closing Trial Balance
December 31, 2008
Cash .................................................................................
Accounts Receivable..................................................
Supplies..........................................................................
Prepaid Insurance .......................................................
Office Equipment.........................................................
Accumulated Depreciation—Office
Equipment .................................................................
Notes Payable...............................................................
Accounts Payable........................................................
Salaries Payable ..........................................................
Interest Payable ...........................................................
B. Sparks, Capital ........................................................
Totals
4-65
Debit
$11,600
15,400
2,000
2,800
34,000
$65,800
Credit
$ 8,000
20,000
9,000
3,500
800
24,500
$65,800
PROBLEM 4-3B
(a)
MOLINDA COMPANY
Income Statement
For the Year Ended December 31, 2008
Revenues
Service revenue.....................................................
Expenses
Salaries expense ...................................................
Depreciation expense..........................................
Insurance expense ...............................................
Repair expense ......................................................
Utilities expense ....................................................
Total expenses..............................................
Net income .......................................................................
$69,000
$37,000
2,600
2,200
2,000
1,700
45,500
$23,500
MOLINDA COMPANY
Owner’s Equity Statement
For the Year Ended December 31, 2008
Ann Molinda, Capital, January 1 .............................................
Add: Net income ........................................................................
Less: Drawings............................................................................
Ann Molinda, Capital, December 31.......................................
$36,000
23,500
59,500
14,000
$45,500
MOLINDA COMPANY
Balance Sheet
December 31, 2008
Assets
Current assets
Cash...........................................................................
Accounts receivable ............................................
Prepaid insurance.................................................
Total current assets ....................................
Property, plant, and equipment
Equipment ...............................................................
Less: Accumulated depreciation....................
Total assets....................................................
4-66
$22,400
13,500
3,500
39,400
$26,000
5,600
20,400
$59,800
PROBLEM 4-3B (Continued)
MOLINDA COMPANY
Balance Sheet (Continued)
December 31, 2008
Liabilities and Owner’s Equity
Current liabilities
Accounts payable.......................................................................
Salaries payable..........................................................................
Total current liabilities .....................................................
Owner’s equity
Ann Molinda, Capital .................................................................
Total liabilities and owner’s
equity.................................................................................
(b)
$11,300
3,000
14,300
45,500
$59,800
General Journal
Date
Dec. 31
31
31
31
Account Titles and Explanation
Service Revenue.........................................
Income Summary.............................
Ref.
400
350
Debit
69,000
Income Summary........................................
Repair Expense ................................
Depreciation Expense ....................
Insurance Expense..........................
Salaries Expense .............................
Utilities Expense ..............................
350
622
711
722
726
732
45,500
Income Summary........................................
Ann Molinda, Capital.......................
350
301
23,500
Ann Molinda, Capital .................................
Ann Molinda, Drawing ....................
301
306
14,000
4-67
Credit
69,000
2,000
2,600
2,200
37,000
1,700
23,500
14,000
PROBLEM 4-3B (Continued)
(c)
12/31
Ann Molinda, Capital No. 301
14,000 1/1 Bal.
36,000
12/31
23,500
12/31 Bal. 45,500
Repair Expense
2,000 12/31
12/31 Bal.
No. 622
2,000
Depreciation Expense No. 711
12/31 Bal.
2,600 12/31
2,600
Ann Molinda, Drawing No. 306
12/31 Bal. 14,000 12/31
14,000
12/31
12/31
12/31
(d)
Income Summary
45,500 12/31
23,500
69,000
Insurance Expense
12/31 Bal.
2,200 12/31
No. 722
2,200
Salaries Expense
12/31 Bal. 37,000 12/31
No. 726
37,000
Utilities Expense
1,700 12/31
No. 732
1,700
No. 350
69,000
69,000
Service Revenue
No. 400
69,000 12/31 Bal. 69,000
12/31 Bal.
MOLINDA COMPANY
Post-Closing Trial Balance
December 31, 2008
Cash ................................................................................
Accounts Receivable.................................................
Prepaid Insurance.......................................................
Equipment .....................................................................
Accumulated Depreciation ......................................
Accounts Payable.......................................................
Salaries Payable..........................................................
Ann Molinda, Capital..................................................
Totals
4-68
Debit
$22,400
13,500
3,500
26,000
$65,400
Credit
$ 5,600
11,300
3,000
45,500
$65,400
Account Titles
4-69
35,000
17,000
15,800
335,000
18,000
11,500
23,600
3,100
56,000
106,000
49,000
Dr.
335,000
75,600
24,000
10,400
5,000
100,000
120,000
Cr.
Trial Balance
3,900
9,000
(c)
(e)
19,300
1,700
2,500
2,200
(a)
(b)
(d)
Dr.
(e)
(c)
9,000
3,900
1,700
2,500
35,000
17,000
15,800
18,000
11,500
23,600
1,400
56,000
106,000
49,000
Dr.
9,000
350,400
3,900
2,500
75,600
26,200
10,400
2,800
100,000
120,000
Cr.
Adjusted
Trial Balance
9,000
19,300 350,400
3,900
(b) 2,500
(d) 2,200
(a) 1,700
Cr.
Adjustments
PETTENGILL MANAGEMENT SERVICES
Worksheet
For the Year Ended December 31, 2008
84,900
16,900
101,800
9,000
3,900
1,700
2,500
35,000
17,000
15,800
Dr.
265,500
265,500
101,800
18,000
11,500
23,600
1,400
56,000
106,000
49,000
9,000
248,600
16,900
265,500
3,900
2,500
10,400
2,800
100,000
120,000
Cr.
Balance Sheet
Dr.
101,800
75,600
26,200
Cr.
Income
Statement
Key: (a) Expired Insurance; (b) Depreciation Expense—Building; (c) Depreciation Expense—Equipment; (d) Rent Revenue Earned;
(e) Accrued Interest Payable.
Cash
Accounts Receivable
Prepaid Insurance
Land
Building
Equipment
Accounts Payable
Unearned Rent Revenue
Mortgage Note Payable
G. Pettengill, Capital
G. Pettengill, Drawing
Service Revenue
Rent Revenue
Salaries Expense
Advertising Expense
Utilities Expense
Totals
Insurance Expense
Depr. Expense—Building
Accum. Depr.—Building
Depr. Expense—Equipment
Accum. Depr.—Equipment
Interest Expense
Interest Payable
Totals
Net Income
Totals
(a)
PROBLEM 4-4B
PROBLEM 4-4B (Continued)
(b)
PETTENGILL MANAGEMENT SERVICES
Balance Sheet
December 31, 2008
Assets
Current assets
Cash ...................................................
Accounts receivable .....................
Prepaid insurance .........................
Total current assets .............
Property, plant, and equipment
Land ...................................................
Building.............................................
Less: Accumulated
depreciation—building............
Equipment........................................
Less: Accumulated
depreciation—equipment .......
Total assets ............................
$ 11,500
23,600
1,400
36,500
$ 56,000
$106,000
2,500
49,000
103,500
3,900
45,100
204,600
$241,100
Liabilities and Owner’s Equity
Current liabilities
Current maturity of mortgage note payable ......................
Accounts payable.......................................................................
Interest payable...........................................................................
Unearned rent revenue .............................................................
Total current liabilities .....................................................
Long-term liabilities
Mortgage note payable .............................................................
Total liabilities.....................................................................
Owner’s equity
G. Pettengill, Capital ($120,000 – $18,000 + $16,900)...........
Total liabilities and owner’s equity..............................
4-70
$ 10,000
10,400
9,000
2,800
32,200
90,000
122,200
118,900
$241,100
PROBLEM 4-4B (Continued)
(c) Dec. 31
31
31
31
31
(d) Dec. 31
31
31
31
Insurance Expense......................................
Prepaid Insurance ..............................
1,700
Depreciation Expense—Building ...........
Accumulated Depreciation—
Building .............................................
2,500
Depreciation Expense—Equipment ......
Accumulated Depreciation—
Equipment ........................................
3,900
Unearned Rent Revenue ...........................
Rent Revenue.......................................
2,200
Interest Expense ..........................................
Interest Payable...................................
9,000
Service Revenue ..........................................
Rent Revenue................................................
Income Summary................................
75,600
26,200
Income Summary.........................................
Salaries Expense ................................
Advertising Expense .........................
Interest Expense .................................
Utilities Expense .................................
Depreciation Expense—
Equipment ........................................
Depreciation Expense—
Building .............................................
Insurance Expense.............................
84,900
Income Summary.........................................
G. Pettengill, Capital ..........................
16,900
G. Pettengill, Capital ...................................
G. Pettengill, Drawing........................
18,000
4-71
1,700
2,500
3,900
2,200
9,000
101,800
35,000
17,000
9,000
15,800
3,900
2,500
1,700
16,900
18,000
PROBLEM 4-4B (Continued)
(e)
PETTENGILL MANAGEMENT SERVICES
Post-Closing Trial Balance
December 31, 2008
Cash ............................................................................
Accounts Receivable.............................................
Prepaid Insurance ..................................................
Land ............................................................................
Building......................................................................
Accumulated Depreciation—Building .............
Equipment.................................................................
Accumulated Depreciation—Equipment ........
Accounts Payable...................................................
Interest Payable ......................................................
Unearned Rent Revenue ......................................
Mortgage Note Payable ........................................
G. Pettengill, Capital ..............................................
Debit
$ 11,500
23,600
1,400
56,000
106,000
$
2,500
49,000
$247,500
4-72
Credit
3,900
10,400
9,000
2,800
100,000
118,900
$247,500
PROBLEM 4-5B
(a)
General Journal
Date
July 1
1
3
5
12
18
20
21
25
31
31
Account Titles and Explanation
Cash ..............................................................
Lee Choi, Capital ............................
Ref.
101
301
Debit
12,000
Equipment...................................................
Cash....................................................
Accounts Payable ..........................
157
101
201
6,000
Cleaning Supplies ....................................
Accounts Payable ..........................
128
201
1,300
Prepaid Insurance ....................................
Cash....................................................
130
101
2,400
Accounts Receivable...............................
Service Revenue.............................
112
400
2,500
Accounts Payable.....................................
Cash....................................................
201
101
1,800
Salaries Expense ......................................
Cash....................................................
726
101
1,200
Cash ..............................................................
Accounts Receivable ....................
101
112
1,400
Accounts Receivable...............................
Service Revenue.............................
112
400
5,000
Gas & Oil Expense ...................................
Cash....................................................
633
101
200
Lee Choi, Drawing ....................................
Cash....................................................
306
101
900
4-73
J1
Credit
12,000
3,000
3,000
1,300
2,400
2,500
1,800
1,200
1,400
5,000
200
900
4-74
200
1,200
22,000
900
3,900
6,100
1,300
2,400
6,000
22,000
7,500
2,500
12,000
200
900
(c)
(d)
3,500
300
600
(b)
(e)
(a) 1,500
900
200
(e)
(b)
600
3,500
300
(a) 1,500
(d)
(c)
Cr.
Dr.
Dr.
Cr.
Adjustments
Trial Balance
24,400
200
900
300
200
1,800
900
3,900
7,600
400
2,200
6,000
Dr.
600
24,400
300
9,000
2,500
12,000
Cr.
Adjusted
Trial Balance
CHOI’S WINDOW WASHING
Worksheet
For the Month Ended July 31, 2008
3,400
5,600
9,000
200
900
300
200
1,800
Dr.
21,000
21,000
9,000
900
3,900
7,600
400
2,200
6,000
Dr.
600
15,400
5,600
21,000
300
2,500
12,000
Cr.
Balance Sheet
9,000
9,000
Cr.
Income
Statement
Key: (a) Service Revenue Earned; (b) Depreciation Expense; (c) Insurance Expired; (d) Cleaning Supplies Used;
(e) Unpaid Salaries.
Cash
Accounts Receivable
Cleaning Supplies
Prepaid Insurance
Equipment
Accounts Payable
Lee Choi, Capital
Lee Choi, Drawing
Service Revenue
Gas & Oil Expense
Salaries Expense
Totals
Depreciation Expense
Accum. Depr.—Equipment
Insurance Expense
Cleaning Supplies Expense
Salaries Payable
Totals
Net Income
Totals
Account Titles
(b) & (c)
PROBLEM 4-5B (Continued)
PROBLEM 4-5B (Continued)
(a), (e) & (f)
Date
Explanation
July 1
1
5
18
20
21
31
31
Date
Explanation
July 12
21
25
31 Adjusting
Date
July 3
31
Explanation
Adjusting
Date
Explanation
July 5
31 Adjusting
Date
July 1
Explanation
Cash
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
Debit
12,000
3,000
2,400
1,800
1,200
1,400
200
900
Accounts Receivable
Ref.
Debit
J1
2,500
J1
J1
5,000
J2
1,500
Cleaning Supplies
Ref.
Debit
J1
1,300
J2
Prepaid Insurance
Ref.
Debit
J1
2,400
J2
Equipment
Ref.
J1
4-75
Credit
Debit
6,000
Credit
1,400
Credit
900
Credit
200
Credit
No. 101
Balance
12,000
9,000
6,600
4,800
3,600
5,000
4,800
3,900
No. 112
Balance
2,500
1,100
6,100
7,600
No. 128
Balance
1,300
400
No. 130
Balance
2,400
2,200
No. 157
Balance
6,000
PROBLEM 4-5B (Continued)
Date
July 31
Date
July 1
3
18
Date
July 31
Date
July 1
31
31
Date
July 31
31
Date
July 31
31
31
Accumulated Depreciation—Equipment
Explanation
Ref.
Debit
Credit
Adjusting
J2
300
Explanation
Explanation
Adjusting
Explanation
Closing
Closing
Accounts Payable
Ref.
Debit
J1
J1
J1
1,800
Salaries Payable
Ref.
Debit
J2
Lee Choi, Capital
Ref.
Debit
J1
J3
J3
900
Closing
Lee Choi, Drawing
Ref.
Debit
J1
900
J3
Explanation
Closing
Closing
Closing
Income Summary
Ref.
Debit
J3
J3
3,400
J3
5,600
Explanation
4-76
Credit
3,000
1,300
Credit
600
Credit
12,000
5,600
Credit
900
Credit
9,000
No. 158
Balance
300
No. 201
Balance
3,000
4,300
2,500
No. 212
Balance
600
No. 301
Balance
12,000
17,600
16,700
No. 306
Balance
900
0
No. 350
Balance
9,000
5,600
0
PROBLEM 4-5B (Continued)
Date
July 12
25
31
31
Date
July 31
31
Explanation
Adjusting
Closing
Explanation
Closing
Service Revenue
Ref.
Debit
J1
J1
J2
J3
9,000
Gas & Oil Expense
Ref.
Debit
J1
200
J3
Date
July 31
31
Cleaning Supplies Expense
Explanation
Ref.
Debit
Adjusting
J2
900
Closing
J3
Date
July 31
31
Explanation
Adjusting
Closing
Depreciation Expense
Ref.
Debit
J2
300
J3
Explanation
Adjusting
Closing
Insurance Expense
Ref.
Debit
J2
200
J3
Date
July 31
31
Date
July 20
31
31
Explanation
Adjusting
Closing
Salaries Expense
Ref.
Debit
J1
1,200
J2
600
J3
4-77
Credit
2,500
5,000
1,500
No. 400
Balance
2,500
7,500
9,000
0
Credit
No. 633
Balance
200
0
200
Credit
900
Credit
300
Credit
200
Credit
1,800
No. 634
Balance
900
0
No. 711
Balance
300
0
No. 722
Balance
200
0
No. 726
Balance
1,200
1,800
0
PROBLEM 4-5B (Continued)
(d)
CHOI’S WINDOW WASHING
Income Statement
For the Month Ended July 31, 2008
Revenues
Service revenue.......................................................
Expenses
Salaries expense.....................................................
Cleaning supplies expense .................................
Depreciation expense............................................
Gas & oil expense...................................................
Insurance expense .................................................
Total expenses ...............................................
Net income.........................................................................
$9,000
$1,800
900
300
200
200
3,400
$5,600
CHOI’S WINDOW WASHING
Owner’s Equity Statement
For the Month Ended July 31, 2008
Lee Choi, Capital, July 1................................................
Add: Investments ..........................................................
Net income............................................................
$
$12,000
5,600
Less: Drawings ...............................................................
Lee Choi, Capital, July 31 .............................................
0
17,600
17,600
900
$16,700
CHOI’S WINDOW WASHING
Balance Sheet
July 31, 2008
Assets
Current assets
Cash ...................................................................................................
Accounts receivable .....................................................................
Cleaning supplies..........................................................................
Prepaid insurance .........................................................................
Total current assets .............................................................
4-78
$3,900
7,600
400
2,200
14,100
PROBLEM 4-5B (Continued)
CHOI’S WINDOW WASHING
Balance Sheet (Continued)
July 31, 2008
Assets (Continued)
Property, plant, and equipment
Equipment .................................................................
Less: Accumulated depreciation ......................
Total assets ......................................................
$6,000
300
5,700
$19,800
Liabilities and Owner’s Equity
Current liabilities
Accounts payable .......................................................................
Salaries payable ..........................................................................
Total current liabilities......................................................
Owner’s equity
Lee Choi, Capital .........................................................................
Total liabilities and owner’s equity...............................
(e)
$ 2,500
600
3,100
16,700
$19,800
General Journal
Date
July 31
31
31
31
31
Account Titles and Explanation
Accounts Receivable..............................
Service Revenue............................
Ref.
112
400
Debit
1,500
Depreciation Expense ............................
Accumulated Depreciation—
Equipment...................................
711
300
Insurance Expense..................................
Prepaid Insurance.........................
722
130
200
Cleaning Supplies Expense .................
Cleaning Supplies.........................
634
128
900
Salaries Expense .....................................
Salaries Payable ............................
726
212
600
4-79
J2
Credit
1,500
158
300
200
900
600
PROBLEM 4-5B (Continued)
(f)
General Journal
Date
July 31
31
31
31
(g)
Account Titles and Explanation
Service Revenue .......................................
Income Summary ...........................
Ref.
400
350
Debit
9,000
Income Summary......................................
Salaries Expense ...........................
Depreciation Expense ..................
Insurance Expense........................
Cleaning Supplies Expense .......
Gas & Oil Expense.........................
350
726
711
722
634
633
3,400
Income Summary......................................
Lee Choi, Capital............................
350
301
5,600
Lee Choi, Capital.......................................
Lee Choi, Drawing .........................
301
306
900
J3
Credit
9,000
1,800
300
200
900
200
5,600
900
CHOI’S WINDOW WASHING
Post-Closing Trial Balance
July 31, 2008
Cash ................................................................................
Accounts Receivable.................................................
Cleaning Supplies ......................................................
Prepaid Insurance ......................................................
Equipment.....................................................................
Accumulated Depreciation—Equipment ............
Accounts Payable.......................................................
Salaries Payable..........................................................
Lee Choi, Capital.........................................................
Debit
$ 3,900
7,600
400
2,200
6,000
$
$20,100
4-80
Credit
300
2,500
600
16,700
$20,100
COMPREHENSIVE PROBLEM: CHAPTERS 2 TO 4
(a)
General Journal
Date
July 1
1
3
5
12
18
20
21
25
31
31
Account Titles and Explanation
Cash ..............................................................
Julie Molony, Capital ...................
Ref.
101
301
Debit
14,000
Equipment...................................................
Cash ..................................................
Accounts Payable.........................
157
101
201
10,000
Cleaning Supplies ....................................
Accounts Payable.........................
128
201
800
Prepaid Insurance ....................................
Cash ..................................................
130
101
1,800
Accounts Receivable...............................
Service Revenue ...........................
112
400
3,800
Accounts Payable.....................................
Cash ..................................................
201
101
1,400
Salaries Expense ......................................
Cash ..................................................
726
101
1,600
Cash ..............................................................
Accounts Receivable...................
101
112
1,400
Accounts Receivable...............................
Service Revenue ...........................
112
400
1,500
Gas & Oil Expense ...................................
Cash ..................................................
633
101
400
Julie Molony, Drawing.............................
Cash ..................................................
306
101
600
4-81
J1
Credit
14,000
3,000
7,000
800
1,800
3,800
1,400
1,600
1,400
1,500
400
600
4-82
400
1,600
25,700
600
6,600
3,900
800
1,800
10,000
25,700
5,300
6,400
14,000
150
700
(c)
(d)
2,850
200
500
(b)
(e)
(a) 1,300
700
150
(e)
(b)
500
2,850
200
(a) 1,300
(d)
(c)
Cr.
Dr.
Dr.
Cr.
Adjustments
Trial Balance
27,700
150
700
200
400
2,100
600
6,600
5,200
100
1,650
10,000
Dr.
500
27,700
200
6,600
6,400
14,000
Cr.
Adjusted
Trial Balance
JULIE’S MAIDS CLEANING SERVICE
Worksheet
For the Month Ended July 31, 2008
3,550
3,050
6,600
150
700
200
400
2,100
Dr.
24,150
24,150
6,600
600
6,600
5,200
100
1,650
10,000
Dr.
500
21,100
3,050
24,150
200
6,400
14,000
Cr.
Balance Sheet
6,600
6,600
Cr.
Income
Statement
Key: (a) Service Revenue; (b) Depreciation Expense; (c) Insurance Expired; (d) Cleaning Supplies Used; (e) Unpaid Salaries.
Cash
Accounts Receivable
Cleaning Supplies
Prepaid Insurance
Equipment
Accounts Payable
Julie Molony, Capital
Julie Molony, Drawing
Service Revenue
Gas & Oil Expense
Salaries Expense
Total
Depreciation Expense
Accum. Depr.—Equipment
Insurance Expense
Cleaning Supplies Expense
Salaries Payable
Totals
Net Income
Totals
Account Titles
(b) & (c)
COMPREHENSIVE PROBLEM (Continued)
COMPREHENSIVE PROBLEM (Continued)
(a), (e) & (f)
Date
July 1
1
5
18
20
21
31
31
Date
July 12
21
25
31
Date
July 3
31
Date
July 5
31
Date
July 1
Explanation
Explanation
Adjusting
Explanation
Adjusting
Explanation
Adjusting
Explanation
Cash
Ref.
J1
J1
J1
J1
J1
J1
J1
J1
Debit
14,000
3,000
1,800
1,400
1,600
1,400
400
600
Accounts Receivable
Ref.
Debit
J1
3,800
J1
J1
1,500
J2
1,300
Cleaning Supplies
Ref.
Debit
J1
800
J2
Prepaid Insurance
Ref.
Debit
J1
1,800
J2
Equipment
Ref.
J1
4-83
Credit
Debit
10,000
Credit
1,400
Credit
700
Credit
150
Credit
No. 101
Balance
14,000
11,000
9,200
7,800
6,200
7,600
7,200
6,600
No. 112
Balance
3,800
2,400
3,900
5,200
No. 128
Balance
800
100
No. 130
Balance
1,800
1,650
No. 157
Balance
10,000
COMPREHENSIVE PROBLEM (Continued)
Date
July 31
Date
July 1
3
18
Date
July 31
Date
July 1
31
31
Date
July 31
31
Date
July 31
31
31
Accumulated Depreciation—Equipment
Explanation
Ref.
Debit
Credit
Adjusting
J2
200
Explanation
Explanation
Adjusting
Explanation
Closing
Closing
Explanation
Closing
Explanation
Closing
Closing
Closing
Accounts Payable
Ref.
Debit
J1
J1
J1
1,400
Salaries Payable
Ref.
Debit
J2
Julie Molony, Capital
Ref.
Debit
J1
J3
J3
600
Julie Molony, Drawing
Ref.
Debit
J1
600
J3
Income Summary
Ref.
Debit
J3
J3
3,550
J3
3,050
4-84
Credit
7,000
800
Credit
500
Credit
14,000
3,050
Credit
600
Credit
6,600
No. 158
Balance
200
No. 201
Balance
7,000
7,800
6,400
No. 212
Balance
500
No. 301
Balance
14,000
17,050
16,450
No. 306
Balance
600
0
No. 350
Balance
6,600
3,050
0
COMPREHENSIVE PROBLEM (Continued)
Date
July 12
25
31
31
Date
July 31
31
Explanation
Adjusting
Closing
Explanation
Closing
Service Revenue
Ref.
Debit
J1
J1
J2
J3
6,600
Gas & Oil Expense
Ref.
Debit
J1
400
J3
Date
July 31
31
Cleaning Supplies Expense
Explanation
Ref.
Debit
Adjusting
J2
700
Closing
J3
Date
July 31
31
Explanation
Adjusting
Closing
Depreciation Expense
Ref.
Debit
J2
200
J3
Explanation
Adjusting
Closing
Insurance Expense
Ref.
Debit
J2
150
J3
Date
July 31
31
Date
July 20
31
31
Explanation
Adjusting
Closing
Salaries Expense
Ref.
Debit
J1
1,600
J2
500
J3
4-85
Credit
3,800
1,500
1,300
No. 400
Balance
3,800
5,300
6,600
0
Credit
No. 633
Balance
400
0
400
Credit
700
Credit
200
Credit
150
Credit
2,100
No. 634
Balance
700
0
No. 711
Balance
200
0
No. 722
Balance
150
0
No. 726
Balance
1,600
2,100
0
COMPREHENSIVE PROBLEM (Continued)
(d)
JULIE’S MAIDS CLEANING SERVICE
Income Statement
For the Month Ended July 31, 2008
Revenues
Service revenue.......................................................
Expenses
Salaries expense.....................................................
Cleaning supplies expense .................................
Gas & oil expense...................................................
Depreciation expense............................................
Insurance expense .................................................
Total expenses ...............................................
Net income.........................................................................
$6,600
$2,100
700
400
200
150
3,550
$3,050
JULIE’S MAIDS CLEANING SERVICE
Statement of Owner’s Equity
For the Month Ended July 31, 2008
Julie Molony, Capital, July 1 ........................................
Add: Investments ..........................................................
Net income............................................................
Less: Drawings ...............................................................
Julie Molony, Capital, July 31......................................
4-86
$
$14,000
3,050
0
17,050
17,050
600
$16,450
COMPREHENSIVE PROBLEM (Continued)
JULIE’S MAIDS CLEANING SERVICE
Balance Sheet
July 31, 2008
Assets
Current assets
Cash.............................................................................
Accounts receivable...............................................
Cleaning supplies ...................................................
Prepaid insurance ...................................................
Total current assets.......................................
Capital assets
Equipment .................................................................
Less: Accumulated depreciation ......................
Total assets ......................................................
$ 6,600
5,200
100
1,650
13,550
$10,000
200
9,800
$23,350
Liabilities and Owner’s Equity
Current liabilities
Accounts payable ...................................................
Salaries payable ......................................................
Total current liabilities..................................
Owner’s equity
Julie Molony, Capital..............................................
Total liabilities and owner’s
equity .............................................................
4-87
$ 6,400
500
6,900
16,450
$23,350
COMPREHENSIVE PROBLEM (Continued)
(e)
General Journal
Date
July 31
31
31
31
31
(f)
Account Titles and Explanation
Accounts Receivable .............................
Service Revenue ...........................
Ref.
112
400
Debit
1,300
Depreciation Expense ...........................
Accumulated Depreciation—
Equipment ..................................
711
200
Insurance Expense.................................
Prepaid Insurance ........................
722
130
150
Cleaning Supplies Expense.................
Cleaning Supplies ........................
634
128
700
Salaries Expense.....................................
Salaries Payable............................
726
212
500
J2
Credit
1,300
158
200
150
700
500
General Journal
Date
July 31
31
31
31
Account Titles and Explanation
Service Revenue......................................
Income Summary..........................
Ref.
400
350
Debit
6,600
Income Summary ....................................
Salaries Expense ..........................
Depreciation Expense .................
Insurance Expense.......................
Cleaning Supplies Expense ......
Gas & Oil Expense .......................
350
726
711
722
634
633
3,550
Income Summary ....................................
Julie Molony, Capital ...................
350
301
3,050
Julie Molony, Capital..............................
Julie Molony, Drawing.................
301
306
600
4-88
J3
Credit
6,600
2,100
200
150
700
400
3,050
600
COMPREHENSIVE PROBLEM (Continued)
(g)
JULIE’S MAIDS CLEANING SERVICE
Post-Closing Trial Balance
July 31, 2008
Cash.................................................................................
Accounts Receivable .................................................
Cleaning Supplies.......................................................
Prepaid Insurance.......................................................
Equipment .....................................................................
Accumulated Depreciation—Equipment .............
Accounts Payable .......................................................
Salaries Payable ..........................................................
Julie Molony, Capital..................................................
Debit
$ 6,600
5,200
100
1,650
10,000
$
$23,550
4-89
Credit
200
6,400
500
16,450
$23,550
BYP 4-1
FINANCIAL REPORTING PROBLEM
(a)
Total current assets were $10,454 million at December 31, 2005, and
$8,639 million at December 25, 2004.
(b)
Current assets are properly listed in the order of liquidity. As you will
learn in the next chapter, inventory is considered to be less liquid
than receivables. Thus, it is listed below receivables and before prepaid
expenses and other current assets.
(c)
The asset classifications are similar to the text: (1) current assets,
(2) property, plant, and equipment, (3) intangible assets, and
(4) investments.
(d)
Cash equivalents are investments with original maturities of 3 months
or less that PepsiCo does not intend to rollover beyond three months.
(e)
Total current liabilities were $9,406 million at December 31, 2005, and
$6,752 million at December 25, 2004.
4-90
BYP 4-2
(a)
1.
2.
3.
4.
COMPARATIVE ANALYSIS PROBLEM
(in millions)
PepsiCo
Total current assets
Net property, plant & equipment
Total current liabilities
Total stockholders’ (shareholders’) equity
10,454
8,681
9,406
14,251*
Coca-Cola
10,250
5,786
9,836
16,355
*($31,727 – $17,476)
(b) Current assets are cash and other resources that are reasonably expected to be realized in cash or sold or consumed within one year or
the company’s operating cycle, whichever is longer. Current liabilities
are obligations that are reasonably expected to be paid from existing
current assets or through the creation of other current liabilities.
In both PepsiCo and Coca-Cola’s case, current assets were slightly
greater than current liabilities. From this information, it appears that
both are in approximately the same liquidity position.
Coca-Cola’s stockholders’ equity represents a larger percentage of




total assets 55.6%  $16,355  than PepsiCo’s 44.9%  $14,251 . As a result,
 $31,727 
 $29,427 
Coca-Cola has less debt relative to its total assets than PepsiCo. It
therefore appears that Coca-Cola is less likely to default on a debt
obligation.
4-91
BYP 4-3
EXPLORING THE WEB
The solution is dependent upon the companies chosen by the student.
4-92
BYP 4-4
(a)
DECISION MAKING ACROSS THE ORGANIZATION
WHITEGLOVES JANITORIAL SERVICE
Balance Sheet
December 31, 2008
Assets
Current assets
Cash.........................................................
Accounts receivable
($9,000 + $3,700) ..............................
Janitorial supplies
($5,200 – $2,700) ..............................
Prepaid insurance ($4,800 X 2/3).........
Total current assets...................
Property, plant, and equipment
Cleaning equipment
($22,000 + $4,000)............................
Less: Accum. depreciation—
cleaning equipment
($4,000 + $2,000) ................
Delivery trucks
($34,000 + $5,000)............................
Less: Accum. depreciation—
delivery trucks
($5,000 + $5,000) ................
Total assets ..................................
$ 6,500
12,700
2,500
3,200
24,900
$26,000
6,000
$20,000
39,000
10,000
29,000
49,000
$73,900
Liabilities and Owner’s Equity
Current liabilities
Notes payable due within one year .......................................
Accounts payable ($2,500 + $500).........................................
Interest payable ($25,000 X 10% X 6/12) ..............................
Total current liabilities......................................................
Long-term liabilities
Notes payable, due July 1, 2010.............................................
Total liabilities .....................................................................
Owner’s equity
Nancy Kohl, Capital ....................................................................
Total liabilities and owner’s equity...............................
4-93
$10,000
3,000
1,250
14,250
15,000
29,250
44,650*
$73,900
BYP 4-4 (Continued)
WHITEGLOVES JANITORIAL SERVICE
Balance Sheet (Continued)
December 31, 2008
*Capital balance as reported........................................
Add: Earned but unbilled fees.................................
Less: Janitorial supplies used .................................
Insurance expired ($4,800 X 1/3)..................
Depreciation ($2,000 + $5,000)......................
Expenses incurred but unpaid .....................
Interest accrued.................................................
Total..............................................................
Capital balance as adjusted .......................................
$54,000
3,700
57,700
$2,700
1,600
7,000
500
1,250
13,050
$44,650
(b) Whitegloves Janitorial Service met the terms of the bank loan because
current assets exceed current liabilities by $10,650 ($24,900 – $14,250)
at December 31, 2008.
4-94
BYP 4-5
COMMUNICATION ACTIVITY
MEMO
To:
Accounting Instructor
From:
Student
Re:
Accounting Cycle
The required steps in the accounting cycle, in the order in which they
should be completed, are:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Analyze business transactions.
Journalize the transactions.
Post to ledger accounts.
Prepare a trial balance.
Journalize and post adjusting entries.
Prepare an adjusted trial balance.
Prepare financial statements.
Journalize and post closing entries.
Prepare a post-closing trial balance.
The optional steps in the accounting cycle include preparing a worksheet
and preparing reversing entries. If a worksheet is prepared, it is done after
step 3 above, and it includes steps 4 and 6. The worksheet is a form used
to make it easier to prepare adjusting entries and financial statements. If reversing entries are prepared, they are journalized and posted after step 9,
at the beginning of the next accounting period. A reversing entry is the
exact opposite of a previously recorded adjusting entry and simplifies the
recording of subsequent transactions.
4-95
BYP 4-6
ETHICS CASE
(a) The stakeholders in this case are:
You, as controller.
Jerry McNabb, president.
Users of the company’s financial statements.
(b) The ethical issue is the continued circulation of significantly misstated
financial statements. As controller, you have just issued misleading
financial statements. You have acted ethically by telling the company’s
president. The president has reacted unethically by allowing the
misleading financial statements to continue to circulate.
(c) As controller, you should impress upon the president the consequences
of having those misleading financial statements be detected by some
user or the SEC (if you are a public company). Also stress upon him
that you have a professional obligation to correct the statements or
to resign.
4-96
BYP 4-7
ALL ABOUT YOU ACTIVITY
The following is a personal balance sheet using the classified presentation.
Note that the earnings from the part-time job as well as the tuition costs are
not listed since neither of those items is an asset, liability, or equity item.
Assets
Current assets
Cash..............................................................................
Money market account ...........................................
Certificate of deposit...............................................
Accounts receivable from brother......................
Total current assets........................................
$1,200
1,800
3,000
300
Property, plant, and equipment
Automobile .................................................................
Video and stereo equipment ................................
Home computer ........................................................
Total assets .......................................................
7,000
1,250
800
$ 6,300
9,050
$15,350
Liabilities and Owner’s Equity
Current liabilities
Current portion of automobile loan ...................
Current portion of credit card payable..............
Total current liabilities...................................
Long-term liabilities
Automobile loan .......................................................
Student loan...............................................................
Credit card payable .................................................
Total long-term liabilities..............................
Total liabilities ...........................................
Owner’s equity
M. Y. Own, Capital ($15,350 – $12,300) .............
Total liabilities and owner’s equity ........
4-97
$1,500
150
$ 1,650
4,000
5,000
1,650
10,650
12,300
3,050
$15,350