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EXERCISE 3-10 (25-30 minutes)

 

(a)

1.

Aug. 31

Insurance Expense ($4,500 x 3/12).............................................................

1,125

 

 

 

 

          Prepaid Insurance..............................................................................

 

1,125

 

 

 

 

 

 

 

2.

Aug. 31

Supplies Expense ($2,600 – $450)..............................................................

2,150

 

 

 

 

          Supplies..............................................................................................

 

2,150

 

 

 

 

 

 

 

3.

Aug. 31

Depreciation Expense—Cottages...............................................................

1,080

 

 

 

 

          Accumulated Depreciation—
             Cottages..........................................................................................

 


1,080

 

 

 

               ($120,000 – $12,000 = $108,000;
                $108,000 x 4% = $4,320 per year;
                $4,320 x 1/4 = $1,080)

 

 

 

 

 

 

 

 

 

 

Aug. 31

Depreciation Expense—Furniture...............................................................

360

 

 

 

 

          Accumulated Depreciation—
             Furniture..........................................................................................

 


360

 

 

 

                ($16,000 – $1,600 = $14,400;
                  $14,400 x 10% = $1,440;

                  $1,440 x 1/4 = $360)

 

 

 

 

 

 

 

 

 

4.

Aug. 31

Unearned Rent Revenue.............................................................................

3,800

 

 

 

 

          Rent Revenue.....................................................................................

 

3,800

 

 

 

 

 

 

 

5.

Aug. 31

Salaries Expense.........................................................................................

375

 

 

 

 

          Salaries Payable.................................................................................

 

375

 

 

 

 

 

 

 

6.

Aug. 31

Accounts Receivable...................................................................................

800

 

 

 

 

          Rent Revenue.....................................................................................

 

800

 

 

 

 

 

 

 

7.

Aug. 31

Interest Expense..........................................................................................

1,200

 

 

 

 

          Interest Payable..................................................................................

 

1,200

 

 

 

              [($60,000 x 8%) x 1/4]

 

 

 

 

 

(b)                                                                    Greco Resort

 

Adjusted Trial Balance

 

August 31, 2005

 

 

Debit

Credit

 

Cash

$  19,600

 

 

Accounts Receivable

800

 

 

Prepaid Insurance ($4,500 – $1,125)

3,375

 

 

Supplies ($2,600 – $2,150)

450

 

 

Land

20,000

 

 

Cottages

120,000

 

 

Accumulated Depreciation—Cottages

 

$    1,080

 

Furniture

16,000

 

 

Accumulated Depreciation—Furniture

 

360

 

Accounts Payable

 

4,500

 

Unearned Rent Revenue ($4,600 – $3,800)

 

800

 

Salaries Payable

 

375

 

Interest Payable

 

1,200

 

Mortgage Payable

 

60,000

 

Common Stock

 

91,000

 

Retained Earnings

 

9,000

 

Dividends

5,000

 

 

Rent Revenue ($76,200 + $3,800 + $800)

 

80,800

 

Salaries Expense ($44,800 + $375)

45,175

 

 

Utilities Expense

9,200

 

 

Repair Expense

3,600

 

 

Insurance Expense

1,125

 

 

Supplies Expense

2,150

 

 

Depreciation Expense—Cottages

1,080

 

 

Depreciation Expense—Furniture

360

 

 

Interest Expense

      1,200

________

 

 

$249,115

$249,115

EXERCISE 3-12 (10-15 minutes)

 

 

Sales                                                                                                         

350,000

 

 

          Sales Returns and Allowances.......................................................

 

13,000

 

          Sales Discounts..............................................................................

 

8,000

 

          Income Summary...........................................................................

 

329,000

 

 

 

 

 

Income Summary.....................................................................................

308,000

 

 

          Cost of Goods Sold.........................................................................

 

208,000

 

          Freight-out.......................................................................................

 

7,000

 

          Insurance Expense.........................................................................

 

12,000

 

          Rent Expense.................................................................................

 

20,000

 

          Salary Expense...............................................................................

 

61,000

 

 

 

 

 

Income Summary.....................................................................................

21,000

 

 

          Retained Earnings..........................................................................

 

21,000

(Note: These entries can be combined into one or two entries.)

 

 

 

 

EXERCISE 3-21 (10-15 minutes)

 

J1

 

Date

Account Titles and Explanation

Ref.

Debit

Credit

 

Mar.

1

Cash

 

50,000

 

 

 

 

            Common Stock

 

 

50,000

 

 

 

                (Investment of cash in business)

 

 

 

 

 

 

 

 

 

 

 

 

3

Land

 

10,000

 

 

 

 

Building

 

22,000

 

 

 

 

Equipment

 

6,000

 

 

 

 

            Cash

 

 

38,000

 

 

 

                (Purchased Lee Janzen’s Golf Land)

 

 

 

 

 

 

 

 

 

 

 

 

5

Advertising Expense

 

1,600

 

 

 

 

            Cash

 

 

1,600

 

 

 

                (Paid for advertising)

 

 

 

 

 

 

 

 

 

 

 

 

6

Prepaid Insurance

 

1,480

 

 

 

 

            Cash

 

 

1,480

 

 

 

                (Paid for one-year insurance policy)

 

 

 

 

 

 

 

 

 

 

 

 

10

Equipment

 

2,500

 

 

 

 

            Accounts Payable

 

 

2,500

 

 

 

                (Purchased equipment on account)

 

 

 

 

 

 

 

 

 

 

 

 

18

Cash

 

1,200

 

 

 

 

            Service Revenue

 

 

1,200

 

 

 

                (Received cash for services performed)

 

 

 

 

 

 

 

 

 

 

 

 

25

Dividends

 

500

 

 

 

 

            Cash

 

 

500

 

 

 

                (Declared and paid a $500 cash dividend)

 

 

 

 

 

 

 

 

 

 

 

 

30

Wages Expense

 

900

 

 

 

 

            Cash

 

 

900

 

 

 

                (Paid wages expense)

 

 

 

 

 

 

 

 

 

 

 

 

30

Accounts Payable

 

2,500

 

 

 

 

            Cash

 

 

2,500

 

 

 

                (Paid creditor on account)

 

 

 

 

 

 

 

 

 

 

 

 

31

Cash

 

750

 

 

 

 

            Service Revenue

 

 

750

 

 

 

                (Received cash for services performed)

 

 

 

 

PROBLEM 3-1

 

 

 

 

 

 

(a)       (Explanations are omitted.) and (d)

 

Cash

 

Furniture and Equipment

 

Sept.

1

 

20,000

Sept.

4

 

680

 

Sept.

2

 

17,280

 

 

 

 

 

 

8

 

1,690

 

5

 

942

 

 

 

 

 

 

 

 

 

 

 

 20

 

980

 

10

 

430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

3,600

 

Isao Aoki, Capital

 

 

 

 

 

 

19

 

3,000

 

Sept.

19

 

3,000

Sept.

1

 

20,000

 

 

 

 

 

 

30

 

1,400

 

 

30

Bal.

22,707

 

30

 

5,707

 

 

 

 

 

 

30

 

85

 

 

 

 

 

Bal.

30

 

22,707

 

 

30

Bal

12,533

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

 

 

 

 

 

 

 

 

Sept.

14

 

5,120

Sept.

20

 

980

 

 

 

 

 

 

 

 

 

 

 

25

 

2,110

 

 

 

 

 

Accounts Payable

 

Bal.

30

 

6,250

 

 

 

 

 

Sept.

18

 

3,600

Sept.

2

 

17,280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bal.

30

 

13,680

 

Rent Expense

 

 

 

 

 

 

 

 

 

Sept.

4

 

680

Sept.

30

 

680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplies on Hand

 

Service Revenue

Sept.

5

 

942

Sept.

30

 

330

 

Sept.

30

 

8,920

Sept.

8

 

1,690

Bal.

30

 

612

 

 

 

 

 

 

 

 

 

 

14

 

5,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 

2,110

 

 

 

 

 

 

 

 

 

 

 

 

8,920

 

 

 

8,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Miscellaneous Office Expense

 

Accumulated Depreciation

Sept.

10

 

430

Sept.

30

 

515

 

 

 

 

 

Sept.

30

 

288

 

30

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

515

 

 

 

515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office Salaries Expense

 

 

Sept.

30

 

1,400

Sept.

30

 

1,400

 

 

 

Supplies Expense

 

 

Sept.

30

 

330

Sept.

30

 

330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation Expense

 

Income Summary

 

Sept.

30

 

288

Sept.

30

 

288

 

Sept.

30

 

680

Sept.

30

 

8,920

 

 

 

 

 

 

 

 

 

 

 

30

 

515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

1,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

Inc.

5,707

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,920

 

 

 

8,920

 

 

 

 (b)                                                                    Isao Aoki, D.D.S.

Trial Balance

September 30

 

Debit

Credit

Cash

12,533

 

Accounts Receivable

6,250

 

Supplies on Hand

612

 

Furniture and Equipment

17,280

 

Accumulated Depreciation

 

288

Accounts Payable

 

13,680

Isao Aoki, Capital

 

17,000

Service Revenue

 

8,920

Rent Expense

680

 

Miscellaneous Office Expense

515

 

Office Salaries Expense

1,400

 

Supplies Expense

330

 

Depreciation Expense

     288

_____

 

39,888

39,888

 

 

(c)                                                                      Isao Aoki, D.D.S.

Income Statement

For the Month of September

Service revenue

 

$8,920

Expenses:

 

 

            Rent expense

$  680

 

            Supplies expense

330

 

            Office salaries expense

1,400

 

            Depreciation expense

288

 

            Miscellaneous office expense

   515

 

                        Total expenses

 

  3,213

Net income

 

$5,707

 

 

 

 

 

Isao Aoki, D.D.S.

Balance Sheet

As of September 30

Assets

 

Liabilities and Owner’s Equity

Cash

$12,533

 

Accounts payable

$13,680

Accounts receivable

6,250

 

Isao Aoki, Capital

22,707

Supplies

612

 

 

 

Furniture and equip.

17,280

 

 

_______

Accum.  depreciation

      (288)

 

            Total liabilities and

 

            Total assets

$36,387

 

                owner’s equity

$36,387

Isao Aoki, D.D.S.

Statement of Owner’s Equity

For the Month of September

Aoki, Capital September 1

 

$20,000

Add: Net income for September

 

    5,707

 

 

25,707

Deduct: Withdrawal by owner

 

    3,000

Aoki, Capital September 30

 

$22,707

 

 

(e)                                                                   Isao Aoki, D.D.S.

Post-closing Trial Balance

September 30

 

Debit

Credit

Cash

12,533

 

Accounts Receivable

6,250

 

Supplies on Hand

612

 

Furniture and Equipment

17,280

 

Accumulated Depreciation

 

288

Accounts Payable

 

13,680

Isao Aoki, Capital

_____

22,707

            Totals

36,675

36,675

 

 

 

 

 

 

 

 

 

 

 

 

PROBLEM 3-7

 

 

(a)

-1-

 

Service Revenue

6,900

 

 

          Unearned Service Revenue

 

6,900

 

 

 

 

 

-2-

 

Accounts Receivable

4,900

 

 

          Service Revenue

 

4,900

 

 

 

 

 

-3-

 

Bad Debt Expense

1,430

 

 

          Allowance for Doubtful Accounts

 

1,430

 

 

 

 

 

-4-

 

Insurance Expense

480

 

 

          Unexpired Insurance

 

480

 

 

 

 

 

-5-

 

Depreciation Expense—Furniture and Equipment

3,125

 

 

          Accum.  Depr.—Furniture and Equipment

 

3,125

 

              ($25,000 X .125)

 

 

 

 

 

 

 

-6-

 

Interest Expense

60

 

 

          Interest Payable

 

60

 

              ($7,200 X .10 X 30/360)

 

 

 

 

 

 

 

-7-

 

Prepaid Rent

750

 

 

          Rent Expense

 

750

 

 

 

 

 

-8-

 

Office Salaries Expense

2,510

 

 

          Salaries Payable

 

2,510

 

 

(b)                                                 Muhammad Ali, Consulting Engineer

 

Income Statement

 

For the Year Ended December 31, 2005

 

Service Revenue ($100,000 – $6,900 + $4,900)

 

 

$98,000

 

Deduct Expenses:

 

 

 

 

            Office salaries expense ($28,500 + $2,510)

 

$31,010

 

 

            Heat, light, and water expense

 

1,080

 

 

            Rent expense ($9,750 – $750)

 

9,000

 

 

            Insurance expense

 

480

 

 

            Bad debt expense

 

1,430

 

 

            Depreciation expense

 

3,125

 

 

            Miscellaneous office expense

 

720

 

 

            Interest expense

 

         60

 

 

                    Total expenses

 

 

  46,905

 

Net income

 

 

$51,095

 

Muhammad Ali, Consulting Engineer

Balance Sheet

December 31, 2005

 

Assets

 

          Current assets

 

 

 

 

                     Cash

 

$31,500

 

 

                     Accounts receivable

                         (49,600 + $4,900)

$54,500

 

 

 

                       Less: Allowance for
                                      doubtful accounts


  (2,180
)*


52,320

 

 

                     Engineering supplies inventory

 

1,960

 

 

                     Unexpired insurance

                         ($1,000 – 480)

 

620

 

 

                     Prepaid rent

 

       750

 

 

                             Total current assets

 

 

$87,150

 

          Furniture and equipment

25,000

 

 

 

                       Less: Accum.  depreciation

(9,375)

 

    15,625

 

                             Total assets

 

 

$102,775

Liabilities and Owner’s Equity

            Current liabilities

 

 

 

                        Unearned service revenue

$  6,900

 

 

                        Interest payable

60

 

 

                        Salaries payable

2,510

 

 

                        Notes payable

  7,200

 

16,670

            Muhammad Ali, Capital

                ($35,010 + $51,095)

 

 

    86,105

                                Total liabilities and capital

 

$102,775

*($750 + $1,430)

Muhammad Ali, Consulting Engineer

Statement of Owner’s Equity

For the Year Ended December 31, 2005

Muhammad Ali, Capital, as of January 1, 2005

$52,010a

Add: Net income

51,095

Deduct: Withdrawals

 (17,000)

Muhammad Ali, Capital, as of December 31, 2005

$86,105

 

 aMuhammad Ali, Capital—trial balance                 $35,010

  Withdrawals during the year                                                  17,000

  Muhammad Ali, Capital, as of January 1, 2005            $52,010

 

 

PROBLEM 3-10

 

(a), (b), (c)

 

Cash

 

Accounts Receivable

 

Allow.  for Doubtful Accts.

Bal.

18,500

 

 

 

Bal.

42,000

 

 

 

 

 

Bal.

700

 

 

 

 

 

 

 

 

 

 

 

 

Adj.

1,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory

 

Furniture & Equipment

 

Accum.  Depr.  of F.  & E.

Bal.

80,000

 

 

 

Bal. 

84,000

 

 

 

 

 

Bal.

35,000

 

 

 

 

 

 

 

 

 

 

 

 

Adj.

14,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid Insurance

 

Notes Payable

 

Admin.  Salaries Expense

Bal.

5,100

Adj.

2,550

 

 

 

Bal.

28,000

 

Bal.

65,000

Cls.

65,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Sales

 

Insurance Expense

 

 

Bal.

80,600

 

Cls.

600,000

Bal.

600,000

 

Adj.

2,550

Cls.

2,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Salaries Expense

 

Advertising Expense

 

Interest Expense

Bal.

50,000

Cls.

52,400

 

Bal.

6,700

Adj.

700

 

Adj.

3,360

Close

3,360

Adj.

  2,400

 

_____

 

 

____

Close

6,000

 

 

 

 

 

 

52,400

 

52,400

 

 

6,700

 

6,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bad Debts Expense

 

Office Expense

 

Prepaid Advertising Expense

Adj.

1,400

Cls.

1,400

 

Bal.

5,000

Adj.

1,500

 

Adj.

700

 

 

 

 

 

 

 

 

_____

Close

3,500

 

 

 

 

 

 

 

 

 

 

 

5,000

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Payable

 

Depr.  Exp.—Furn.  & Equip.

 

Income Summary

 

 

Adj.

3,360

 

Adj.

14,000

Cls.

14,000

 

Exp.

546,210

Sales

600,000

 

 

 

 

 

 

 

 

 

 

Inc.

  53,790

 

______

 

 

 

 

 

 

 

 

 

 

 

600,000

 

600,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office Supplies

 

Salaries Payable

 

 

Adj.

1,500

 

 

 

 

 

Adj.

2,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained Earnings

 

Cost of Goods Sold

 

 

 

 

Bal.

10,000

 

Bal.

398,000

Cls.

398,000

 

 

 

 

 

 

 

Inc.

53,790

 

 

 

 

 

 

 

 

 

 

 

 

Bal.

63,790

 

 

 

 

 

 

 

 

 

 

 

(b)

-1-

 

Bad Debts Expense

1,400

 

 

          Allowance for Doubtful Accounts

 

1,400

 

 

 

 

 

-2-

 

Depreciation Expense—Furniture and
    Equipment ($84,000 ÷ 6)


14,000

 

 

          Accum.  Depr.  —Furniture and Equipment

 

14,000

 

 

 

 

 

-3-

 

Insurance Expense

2,550

 

 

          Prepaid Insurance

 

2,550

 

 

 

 

 

-4-

 

Interest Expense

3,360

 

 

          Interest Payable

 

3,360

 

 

 

 

 

-5-

 

Sales Salaries Expense

2,400

 

 

          Salaries Payable

 

2,400

 

 

 

 

 

-6-

 

Prepaid Advertising Expense

700

 

 

          Advertising Expense

 

700

 

-7-

 

Office Supplies

1,500

 

 

          Office Expense

 

1,500

 

(c)

Dec.  31

 

Sales

600,000

 

 

          Income Summary

 

600,000

 

 

 

 

 

 

 

 

 

Dec.  31

 

Income Summary

546,210

 

 

          Cost of Goods Sold

 

398,000

 

          Advertising Expense

 

6,000

 

          Administrative Salaries Expense

 

65,000

 

          Sales Salaries Expense

 

52,400

 

          Office Expense

 

3,500

 

          Insurance Expense

 

2,550

 

          Bad Debt Expense

 

1,400

 

          Depreciation Expense—Furniture and
              Equipment

 


14,000

 

          Interest Expense

 

3,360

 

 

 

 

 

 

 

 

 

Dec.  31

 

Income Summary

53,790

 

 

          Retained Earnings

 

53,790

 

 

*PROBLEM 3-11

 

 

(a)                                                   Razorback Sales and Services

Income Statement

For the Month Ended January 31, 2005

 

(1)

Cash Basis

 

(2)

Accrual       Basis

Revenues

$75,000

 

$105,750*

 

 

 

 

Expenses

 

 

 

            Cost of computers & printers:

 

 

 

                  Purchased and paid

89,250**

 

 

                  Sold

 

 

63,750***

            Salaries

9,600

 

12,600

            Rent

6,000

 

2,000

            Other Expenses

     8,400

 

    10,400

                    Total expenses

 113,250

 

    88,750

Net income (loss)

$(38,250)

 

$  17,000

 

 

  * ($2,550 X 30) + ($4,500 X 4) + ($750 X 15)

 ** ($1,500 X 40) + ($3,000 X 6) + ($450 X 25)

*** ($1,500 X 30) + ($3,000 X 4) + ($450 X 15)

 

(b)                                                    Razorback Sales and Services

Balance Sheet

As of January 31, 2005

 

(1)

Cash Basis

 

(2)

Accrual Basis

Assets

 

 

 

            Cash

$51,750a

 

$  51,750a

            Accounts Receivable

 

 

30,750

            Inventory

 

 

25,500b

            Prepaid rent

 ______

 

      4,000

                        Total assets

$51,750

 

$112,000

 

 

 

 

Liabilities and Owners’ Equity

 

 

 

            Accounts payable

 

 

$    2,000

            Salaries payable

 

 

3,000

            Owners’ equity

$51,750c

 

  107,000d

                        Total liabilities and owners’ equity

$51,750

 

$112,000

 

aOriginal investment   $ 90,000

  Cash sales           75,000

  Cash purchases         (89,250)

  Rent paid           (6,000)

  Salaries paid           (9,600)

  Other expenses        (8,400)

  Cash balance Jan. 31    $ 51,750

 

b(10 @ $1,500) + (2 @ $3,000) + (10 @ $450).

 

cInitial investment minus net loss: $90,000 – $38,250.

 

dInitial investment plus net income: $90,000 + $17,000.

 

(c)    1.             The $30,750 in receivables from customers is an asset and a future cash flow resulting from sales that is ignored. The cash basis understates the amount of revenues and inflow of assets in January from the sale of computers and printers by $30,750.

        2.             The cost of computers and printers sold in January is overstated by $25,500. The unsold computers and printers are an asset of $25,500 in the form of inventory.

 

        3.             The cash basis ignores $3,000 of the salaries that have been earned by the employees in January and will be paid in February.

        4.             Rent expense on the cash basis is overstated by $4,000 under the cash basis. This prepayment is an asset in the form of two months’ future right to the use of office, showroom, and repair space and should appear on the balance sheet.

 

        5.             Other operating expenses on a cash basis are understated by $2,000 as is the liability for the unpaid portion of these expenses incurred in January.