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	$52,010^a
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	$51,750^a	$ 51,750^a
Accounts Receivable		30,750
Inventory		25,500^b
Prepaid rent	______	4,000
Total assets	$51,750	$112,000
Liabilities and Owners’ Equity
Accounts payable		$ 2,000
Salaries payable		3,000
Owners’ equity	$51,750^c	107,000^d
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.