CHAPTER 3
BE3-2
Advertising Supplies
8700
7200
1500
Dec. 31
Advertising
Supplies Expense
7200
7200
Advertising Supplies Expense
Advertising Supplies
to adjust
7200
7200
BE3-3
Bere Co.
Prepaid Insurance
10000
Insurance Expense
2500
2500
7500
July 1
Dec. 31
2500
Prepaid Insurance
Cash
purchased a 2 year insurance policy
Insurance Expense
Prepaid Insurance
to adjust
10000
10000
2500
2500
Hindi Insurance Co.
Unearned Policies
10000
2500
7500
July 1
Dec. 31
Cash
Unearned Policies
to record cash received for future policies
Unearned Policies
Policy Revenue
to adjust
Policy Revenue
2500
2500
10000
10000
2500
2500
BE3-5
1.
2.
3.
Dec. 31
Dec. 31
Dec. 31
Interest Receivable
Interest Earned
to adjust
300
Accounts Receivable
Service Revenue
to adjust
1400
Salaries Expense
Salaries Payable
to adjust
900
300
1400
900
BE3-12
Advertising Supplies
Expense
8700
1500
Advertising Supplies
1500
7200
Dec. 31
BE3-13
a)
May 1
May 31
b)
May 1
May 31
c)
1500
Advertising Supplies
Advertising Supplies Expense
to adjust
1500
1500
Cash
Unearned Rent
received cash for future rent
600
Unearned Rent
Rent Revenue
to adjust
600
Cash
Rent Revenue
received cash for future rent
600
no entry required
Ending balances are the same under both methods
600
600
600
E3-2
a)
Cash basis:
Revenue
$22000 was received in cash
Expenses
$13500 was paid in cash
$ 2500 paid for prepaid insurance (record as expense when paid)
Net Income $ 6000
Accrual basis:
Revenue
$26000 total earned
$15000 total for year (omit prepaid for 2nd year)
Expenses
Net Income $11000
b)
Accrual method is most useful; gives "true" measure for a fiscal period
E3-3
a)
1.
2.
no entry
May 1
3.
b)
June 1
Dec. 31
Prepaid Rent - Security Deposit
Cash
paid for security deposit
5000
5000
Prepaid Rent
Cash
paid for 6 months rent
30000
Rent Expense
Prepaid Rent
Rent Payable
to adjust for rent used and owed
55000
c)
Expense - $55000
-5 months @ $4000
-7 months @ $5000
d)
Dec. 31 Balance Sheet:
-Prepaid Rent - Security Deposit $5000 (asset)
-Rent Payable $5000 (liability)
30000
50000
5000
E3-4
a)
July 10
14
15
20
b)
July 31
31
31
31
Supplies
Cash
purchased supplies for cash
200
Cash
Service Revenue
performed services for cash
3000
Salaries Expense
Cash
paid salaries
1200
200
3000
1200
Cash
Unearned Revenue
received cash for future services
700
Supplies Expense
Supplies
to adjust
500
700
500
Salaries Expense
Salaries Payable
to adjust
1200
Unearned Revenue
Service Revenue
to adjust
900
1200
Accounts Receivable
500
Service Revenue
500
to adjust
(text error in AR T-account: date should be 7/31, not Bal.)
E3-6
1.
2.
3.
4.
5.
6.
900
Type
accrued revenue
prepaid expense
accrued expense
unearned revenue
accrued expense
prepaid expense
Status
understated revenue, understated asset
overstated asset, understated expense
understated expense, understated liability
overstated liability, understated revenue
understated expense, understated liability
overstated asset, understated expense
E3-7
Mar. 31
31
31
31
E3-13
a)
Unearned Rent Revenue
Rent Revenue
to adjust ($9300 x 1/3)
3100
Interest Expense
Interest Payable
to adjust
Supplies Expense
Supplies
to adjust ($2800 balance - $850 left)
500
500
1950
Insurance Expense
Prepaid Insurance
to adjust ($300 x 3 months in a quarter)
Jan. 2
10
15
b)
3100
Jan. 31
31
31
1950
900
900
Insurance Expense
Cash
paid for one-year insurance policy
2400
Supplies Expense
Cash
purchased supplies
1700
Cash
Service Revenue
received cash for future services
5100
Prepaid Insurance
Insurance Expense
to adjust ($2400 x 11/12)
2200
Supplies
Supplies Expense
to adjust
Service Revenue
Unearned Service Revenue
to adjust
2400
1700
5100
2200
800
800
3600
3600
P3-2A
1.
Original:
Adjust:
2.
Original:
Adjust:
3.
Original:
Adjust:
4.
Original:
Adjust:
Jan. 1
Dec. 31
Sept. 1
Dec. 31
Nov. 15
Dec. 31
Dec. 15
Dec. 31
Office Supplies
Cash
bought supplies for cash
4500
Office Supplies Expense
Office Supplies
to adjust
3600
Prepaid Insurance
Cash
bought 1 year insurance policy
3600
Insurance Expense
Prepaid Insurance
to adjust ($3600 x 4/12)
1200
Cash
Unearned Accounting Fees
received cash for future services
1200
Unearned Accounting Fees
Accounting Fees
to adjust
1200
4500
3600
3600
1200
1200
1200
Cash
Unearned Rent
received cash for one month's rent
460
Unearned Rent
Rent Earned
to adjust (1/2 month)
230
460
230
P3-3A
$35,190
-$2,500
$3,400
-$1,160
$1,300
$2,400
-$1,200
$1,600
-$1,440
$37,590
Cash-based Net Income:
deduct 2002 A/R; this was a sale made in 2002, not 2003
add 2003 A/R; this was a true 2003 sale on account
deduct 2002 supplies on hand; these were supplies used in 2003
add supplies remaining on hand; not an expense yet
add 2002 wages; these would be a 2002 expense, not 2003
deduct 2003 wages; these are an expense for 2003
add 2002 unpaid amounts; these would be expenses for 2002
deduct 2003 unpaid amounts; these were incurred in 2003
Accrual-based Net Income
P3-4A
a)
Cash
Fees Receivable
collected 2001 fees on account
1.
2.
3.
4.
5.
b)
9000
9000
Unearned Fees Revenue
Fees Revenue
to adjust
22000
Cash
Unearned Fees Revenue
received cash for gift certificates
30000
Unearned Fees Revenue
Fees Revenue
to adjust
13000
22000
30000
13000
Fees Receivable
Fees Revenue
billed service fees to members
($153000 - 22000 - 13000)
118000
Cash
Fees Receivable
collected fees on account
($118000 - 12000)
106000
118000
106000
Cash received = $9000 + 30000 + 106000 = $145000
Fees Receivable
9000
9000
118000
106000
12000
Cash
9000
30000
106000
145000
Unearned Fees
22000
22000
13000
30000
17000
Fees Revenue
22000
13000
118000
153000
P3-6A
1.
Contract A650
Contract B974
Dec. 31
2.
3.
5200
5200
$120000 x 2/6 = $40000
$204000 x 2/6 = $68000
Unearned Rent Revenue
Rent Revenue
to adjust
108000
108000
$80000 x 8% x 7/12 = $3733.33
Dec. 31
4.
Advertising Expense
Prepaid Advertising
to adjust
$4000 rent group
$8500 rent group
Dec. 31
$6000 x 8/12 = $4000
$7200 x 4/24 = 1200
Interest Expense
Interest Payable
to adjust
3733.33
3733.33
$700/week ($700 x 2/5) x 5 workers = $1400
$500/week ($500 x 2/5) x 3 workers = $600
Dec. 31
Salaries Expense
Salaries Payable
to adjust
2000
2000
P3-7A
1.
Equipment amortization: $18400/10 years = $1840
Amortization Expense - Equipment $1840
2.
Supplies used: $12200 beginning - 1800 left = $10400
Supplies Expense $10400
3.
Rent expense: $750/month x 12 months = $9000
Rent Expense $9000
4.
Insurance used: $1800 x 1/2 = $900
Insurance Expense $900
5.
Wages expense: $18400 + 400 owing = $18800
Wages Expense $18800
6.
Design revenue: $61500 received + 3800 owing = $65300
Revenue $65300
7.
Use of personal car: $0.30 x 12000 km - $3600
Travel Expense $3600
8.
Other expenses listed in disbursements section:
Advertising Expense $3600
Telephone Expense $980
Exotic Designs
Income Statement
for the year ended December 31, 2003
REVENUE
Design Revenue
EXPENSES
Advertising Expense
Amortization Expense - Equipment
Insurance Expense
Rent Expense
Supplies Expense
Telephone Expense
Travel Expense
Wages Expense
Total Expenses
Net Income
$65,300
$3,600
1,840
900
9,000
10,400
980
3,600
18,800
49,120
$16,180
P3-10A
a)
Aug. 31
31
31
31
31
31
31
31
Insurance Expense
Prepaid Insurance
to adjust ($450 x 3 months)
1350
Supplies Expense
Supplies
to adjust ($3300 - 1000)
2300
1350
2300
Amortization Expense - Cottages
Accumulated Amort. - Cottages
to adjust ($6250 x 3/12)
1562.50
Amortization Expense - Furniture
Accumulated Amort. - Furniture
to adjust ($5200 x 3/12)
1300
Unearned Rent Revenue
Rent Revenue
to adjust
5000
1562.50
1300
5000
Salaries Expense
Salaries Payable
to adjust
400
Rent Receivable
Rent Revenue
to adjust
800
Interest Expense
Interest Payable
to adjut ($80000 x 8% x 1/12)
400
800
533.33
533.33
Highland Cove Resort
Adjusted Trial Balance
August 31, 2003
Cash
Rent Receivable
Prepaid Insurance
Supplies
Land
Cottages
Accumulated Amortization - Cottages
Furniture
Accumulated Amortization - Furniture
Accounts Payable
Unearned Rent Revenue
Interest Payable
Salaries Payable
Mortgage Payable
K. Yhap, Capital
K. Yhap, Drawings
Rent Revenue
Amortization Expense - Cottages
Amortization Expense - Furniture
Insurance Expense
Interest Expense
Repair Expense
Salaries Expense
Supplies Expense
Utilities Expense
$ 19,600.00
800.00
4,050.00
1,000.00
25,000.00
125,000.00
$
1,562.50
26,000.00
1,300.00
6,500.00
1,800.00
533.33
400.00
80,000.00
100,000.00
5,000.00
85,800.00
1,562.50
1,300.00
1,350.00
533.33
3,600.00
51,400.00
2,300.00
9,400.00
$ 277,895.83
$ 277,895.83
Highland Cove Resort
Income Statement
for the 3 months ended August 31, 2003
REVENUE
Rent Revenue
EXPENSES
Amortization Expense - Cottages
Amortization Expense - Furniture
Insurance Expense
Interest Expense
Repair Expense
Salaries Expense
Supplies Expense
Utilities Expense
Total Expenses
Net Income
$85,800.00
$1,562.50
1300.00
1350.00
533.33
3600.00
51400.00
2300.00
9400.00
71445.83
$14,354.17
Highland Cove Resort
Statement of Owner's Equity
for the 3 months ended August 31, 2003
K. Yhap, Capital, June 1
$ 100,000.00
Add: Net Income
14,354.17
114,354.17
5,000.00
Less: Drawings
$ 109,354.17
K. Yhap, Capital, August 31
P3-11A
a)
Dec. 31
31
31
31
31
31
31
c)
d)
A/R
Advertising Revenue
to adjust
1500
Art Supplies Expense
Art Supplies
to adjust
3400
Insurance Expense
Prepaid Insurance
to adjust
850
Amortization Expense
Accumulated Amortization
to adjust
Interest Expense
Interest Payable
to adjust
1500
3400
850
7000
7000
150
150
Unearned Advertising Revenue
Advertising Revenue
to adjust
1400
Salaries Expense
Salaries Payable
to adjust
1300
1400
1300
Interest Expense for 10 months is $500, therefore monthly interest is $50 ($500/10 months)
The note is for $5000 and the interest is $50/month. Let x be the interest (decimal)
=50
Therefore: $5000x
12 months
$5000x = 600
x=0.12
Therefore, the interest rate is 12%
Paid $13500 for salaries: $10000 has been paid for 2002 expense; that leaves $3500 from
Salaries Payable related to 2001
P3-5B - adjustments only
1.
Dec. 31
Office Supplies Expense
Office Supplies
to adjust ($300 + 1500 - 500)
2.
3.
4.
5.
Dec. 31
Dec. 31
Dec. 31
Dec. 31
Interest Expense
Interest Payable
to adjust ($4000 x 8% x 7/12)
Utilities Expense
A/P
to adjust
1300
1300
186.67
186.67
1400
1400
Amortization Expense - Truck
Accumulated Amort. - Truck
to adjust
Wages Expense
Wages Payable
to adjust ($3000 x 2/12)
10000
10000
500
500
P3-8B
Adj. Entry
1. In book
2.
A
Balance Sheet
L
OE
R
Income Statement
E
Net Inc.
$1,000
over
na
$1,000
over
na
$1,000
under
$1,000
over
3.
na
$750
over
$750
under
$750
under
na
$750
under
4.
$2,000
under
na
$2,000
under
$2,000
under
na
$2,000
under
5.
na
$250
under
$250
over
na
$250
under
$250
over
6.
$1,000
over
na
$1,000
over
na
$1,000
under
$1,000
over