Chapter+3+Solutions - Chapter 3 E 3-4 a Revenue principle(also accrual accounting b Matching principle c Matching principle(also accrual accounting d

Chapter+3+Solutions - Chapter 3 E 3-4 a Revenue...

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Chapter 3 E 3-4 a. Revenue principle (also accrual accounting) b. Matching principle c. Matching principle (also accrual accounting) d. Time-period concept e. Revenue principle E 3-6 Req. 1 Adjusting Entries DATE ACCOUNT TITLES DEBIT CREDIT a. Interest Receivable…………………………… 1,200 Interest Revenue…………………………... 1,200 b. Unearned Service Revenue ($800 – $300).. 500 Service Revenue…………………………… 500 c. Depreciation Expense……………………….. 6,200 Accumulated Depreciation………………. 6,200 d. Salary Expense ($9,000 × 2/5)……………… 3,600 Salary Payable……………………….…….. 3,600 e. Income Tax Expense ($20,000 × .40)……… 8,000 Income Tax Payable………………………. 8,000 f. Insurance Expense ($600 + $2,000 – $800). 1,800 Prepaid Insurance…………………………. 1,800 Req. 2 Net income understated by omission of: Interest revenue…………………………….. $1,200 Service revenue……………………………... 500 Total understatement………………………. $ 1,700 Net income overstated by omission of: Depreciation expense……………………… $6,200 Salary expense……………………………… 3,600 Income tax expense………………………… 8,000 Insurance expense…………………………. 1,800 Total overstatement………………………… 19,600 Overall effect — net income overstated by.. $17,900 E 3-8 Statement Report Income statement Supplies expense, $1,400 Balance sheet Supplies, $600 Chapter 3 Using Accrual Accounting to Measure Income 1
E 3-12 Upper 10 Cola Company Income Statement Year Ended December 31, 20X6 Millions Revenues: Sales revenue………………... $20,500 Expenses: Cost of goods sold………….. $6,200 Selling, administrative, and general expense………….. 9,700 Total expenses……………. 15,900 Income before tax……………… 4,600 Income tax expense……………. 3,000 Net income………………………. $ 1,600 Upper 10 Cola Company Statement of Retained Earnings Year Ended December 31, 20X6 Millions Retained earnings, December 31, 20X5… $4,500 Add: Net income …………………………. 1,600 6,100 Less: Dividends……………………………. (1,700 ) Retained earnings, December 31, 20X6… $4,400 Upper 10 Cola Company Balance Sheet December 31, 20X6 Millions ASSETS LIABILITIES Cash……………………………. $ 900 Accounts payable……… $ 7,700 Accounts receivable………… 1,800 Income tax payable…….. 600 Inventories……………………. 1,100 Other liabilities………….. 2,200 Prepaid expenses……………. 1,900 Total liabilities…………... 10,500 Prop., plant, equip. $ 6,600 STOCKHOLDERS’ Less: Accum. EQUITY deprec……… (2,400 ) 4,200 Common stock………….. 4,900 Other assets………………….. 9,900 Retained earnings……… 4,400 Total stockholders’ equity 9,300 Total liabilities and Total assets…………………… $19,800 stockholders’ equity... $19,800 E 3-16 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Closing Entries ( Amounts in millions ) Dec. 31 Service Revenue………………………… 23,613 Other Revenue…………………………… 675 Retained Earnings……………………. 24,288 31 Retained Earnings……………………….

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