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Unformatted text preview: CHAPTER 4 Completion of the Accounting Cycle ASSIGNMENT CLASSIFICATION TABLE Study Objectives *1. Prepare a work sheet. *2. Explain the process of closing the books. *3. Describe the content and purpose of a post-closing trial balance. *4. State the required steps in the accounting cycle. *5. Explain the approaches to preparing correcting entries. *6. Identify the sections of a classified balance sheet. *7. Prepare reversing entries. Questions 1, 2, 3, 4, 5 6, 7, 11, 12 8, 9 Brief Exercises 1, 2, 3 4, 5, 6 7 Exercises 1, 2, 4, 5 3, 6, 8, 11 3, 6 A Problems 1A, 2A, 3A, 4A, 5A 1A, 2A, 3A, 4A, 5A 1A, 2A, 3A, 4A, 5A 5A 6A B Problems 1B, 2B, 3B, 4B, 5B 1B, 2B, 3B, 4B, 5B 1B, 2B, 3B, 4B, 5B 5B 10, 11, 12 13 8 9 11 9 14, 15, 16, 17, 18, 19, 20 10, 21, 22 10 2, 7, 10 1A, 2A, 3A, 4A, 5A 1B, 2B, 3B, 4B, 5B 11 11 *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix *to the chapter. 4-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number 1A 2A 3A 4A Description Prepare a work sheet, financial statements, and adjusting and closing entries. Complete work sheet and prepare financial statements, closing entries, and post-closing trial balance. Prepare financial statements, closing entries, and postclosing trial balance. Complete work sheet, prepare a classified balance sheet, adjusting and closing entries, and post-closing trial balance. Complete all steps in the accounting cycle. Analyze errors and prepare correcting entries and trial balance. Prepare a work sheet, financial statements, and adjusting and closing entries. Complete work sheet and prepare financial statements, closing entries, and post-closing trial balance. Prepare financial statements, closing entries, and postclosing trial balance. Complete work sheet, prepare a classified balance sheet, adjusting and closing entries, and post-closing trial balance. Complete all steps in the accounting cycle. Difficulty Level Simple Moderate Moderate Moderate Time Allotted (min.) 40-50 50-60 40-50 50-60 5A 6A 1B 2B 3B 4B Complex Moderate Simple Moderate Moderate Moderate 70-90 40-50 40-50 50-60 40-50 50-60 5B Complex 70-90 Comprehensive Problem: Chapters 2 to 4 4-2 Correlation Chart between Bloom's Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems Knowledge Comprehension BE4-1 Q4-1 Q4-2 Q4-3 Q4-4 Q4-5 BE4-3 Q4-7 BE4-4 BE4-5 BE4-6 E4-3 E4-6 E4-3 E4-6 P4-2A E4-11 P4-5A P4-5B BE4-9 E4-9 P4-6A BE4-10 E4-2 E4-7 E4-10 P4-2A P4-3A P4-2B P4-3B P4-1A P4-4A P4-5A P4-1B Q4-22 BE4-11 E4-11 Communication Exploring the Web Ethics Case Interpreting Financial Reporting Exploring the Web Group Decision Case Financial Comparative Analysis Statements: A Global Focus P4-4B P4-5B P4-3A P4-1A P4-2B P4-4A P4-3B P4-5A E4-8 P4-2A P4-3A P4-2B P4-3B E4-11 P4-1A P4-4A P4-5A P4-1B P4-4B P4-5B E4-1 E4-2 P4-2A P4-3A P4-2B P4-3B BE4-2 E4-4 E4-5 P4-1A P4-4A P4-5A P4-1B P4-4B P4-5B Application Analysis Synthesis Evaluation Study Objective *1. Prepare a work sheet. BLOOM'S TAXONOMY TABLE *2. Explain the process of closing Q4-6 the books. Q4-11 Q4-12 *3. Describe the content and purpose of a post-closing trial balance. Q4-11 Q4-12 BE4-8 Q4-13 Q4-10 Q4-8 Q4-9 BE4-7 P4-1B P4-4B P4-5B 4-3 Q4-17 Q4-18 Q4-19 Q4-20 Q4-10 Q4-21 *4. State the required steps in the accounting cycle. *5. Explain the approaches to preparing correcting entries. *6. Identify the sections of a clas- Q4-14 sified balance sheet. Q4-15 Q4-16 *7. Prepare reversing entries. Broadening Your Perspective ANSWERS TO QUESTIONS 1. No. A work sheet is not a permanent accounting record. The use of a work sheet is an optional step in the accounting cycle. The work sheet is merely a device used to make it easier to prepare adjusting entries and the financial statements. 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. 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. 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. (1) (2) (3) (4) (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. 2. 3. 4. 5. 6. 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 capital account. 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. The accounts that will not appear in the post-closing trial balance are Depreciation Expense; Elizabeth Sherrick, Drawing; and Service Revenue. 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. The steps that involve journalizing are: (1) journalize the transactions, (2) journalize the adjusting entries, and (3) journalize the closing entries. The three trial balances are the: (1) trial balance, (2) adjusted trial balance, and (3) post-closing trial balance. 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. 8. 9. 10. 11. 12. 13. 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. Current assets are cash and other resources that are reasonably expected to be realized in cash or sold or consumed in the business within one year of the balance sheet date or the company's operating cycle, whichever is longer. Current assets are listed in the order of their liquidity. Long-term investments are resources that can be realized in cash. However, the conversion into cash is not expected within one year or the operating cycle, whichever is longer. Property, plant, and equipment are tangible resources of a relatively permanent nature that are used in the business and not intended for sale. The major differences between current liabilities and long term-liabilities are: Difference Source of payment. Time of expected payment. Nature of items. Current Liabilities Existing current assets or other current liabilities. One year or the operating cycle. Debts pertaining to the operating cycle and other short-term debts. Long-term Liabilities Other than existing current assets or creating current liabilities. Beyond one year or the operating cycle. Mortgages, bonds, and other longterm liabilities. *16. *17. *18. *19. (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. *20. The report form balance sheet differs from the account form balance sheet in the location of the liabilities and owner's equity section. In the report form this section is placed below assets. In the account form the section is placed to the right of assets. After reversing entries have been made, the balances will be Interest Payable, zero balance; Interest Expense, a credit balance. (a) Jan. 10 Salaries Expense................................................................... Cash.............................................................................. 8,000 8,000 *21. *22. Because of the January 1 reversing entry that credited Salaries Expense for $4,500, Salaries Expense will have a debit balance of $3,500 which equals the expense for the current period. 4-5 Questions Chapter 4 (Continued) (b) Jan. 10 Salaries Payable.................................................................... Salaries Expense................................................................... Cash .............................................................................. 4,500 3,500 8,000 Note that Salaries Expense will again have a debit balance of $3,500. 4-6 SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 4-1 The steps in using a work sheet are performed in the following sequence: (1) prepare a trial balance on the work sheet, (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 work sheet. Filling in the blanks, the answers are 1, 3, 4, 5, 2. The solution to BRIEF EXERCISE 4-2 is on page 4-8. BRIEF EXERCISE 4-3 Account Accumulated Depreciation Depreciation Expense N. Cesar, Capital N. Cesar, Drawing Service Revenue Supplies Accounts Payable BRIEF EXERCISE 4-4 Dec. 31 31 Service Revenue ............................................... Income Summary ...................................... Income Summary.............................................. Salaries Expense ...................................... Supplies Expense ..................................... Income Summary.............................................. D. Rowen, Capital...................................... D. Rowen, Capital ............................................. D. Rowen, Drawing ................................... 4-7 Income Statement Dr. Cr. X Balance Sheet Dr. Cr. X X X X X X 50,000 50,000 27,000 23,000 4,000 23,000 23,000 2,000 2,000 31 31 BRIEF EXERCISE 4-2 KEO COMPANY Work Sheet Account Titles 4,000 58,000 25,000 (c) (a) 1,200 1,200 800 (c) 800 (b) 1,100 25,800 1,100 800 59,100 (a) 1,200 (b) 1,100 2,800 Trial Balance Dr. Cr. Adjustments Dr. Cr. Adjusted Trial Balance Dr. Cr. Income Statement Dr. Cr. 59,100 25,800 Balance Sheet Dr. Cr. 2,800 4-8 1,100 800 1,200 Prepaid Insurance Service Revenue Salaries Expense Accounts Receivable Salaries Payable Insurance Expense BRIEF EXERCISE 4-5 Salaries Expense 23,000 (2) 23,000 Income Summary (2) 27,000 (1) 50,000 (3) 23,000 50,000 50,000 Service Revenue (1) 50,000 50,000 Supplies Expense 4,000 (2) 4,000 D. Rowen, Capital (4) 2,000 30,000 (3) 23,000 Bal. 51,000 D. Rowen, Drawing 2,000 (4) 2,000 BRIEF EXERCISE 4-6 July 31 31 Green Fee Revenue ........................................... Income Summary....................................... Income Summary............................................... Salaries Expense ....................................... Maintenance Expense ............................... 14,600 14,600 10,700 8,200 2,500 Date 7/31 Explanation Closing entry Green Fee Revenue Ref. Debit 14,600 Salaries Expense Ref. Debit Credit Balance 14,600 0 Date 7/31 Explanation Closing entry Credit 8,200 Balance 8,200 0 4-9 BRIEF EXERCISE 4-6 (Continued) Maintenance Expense Ref. Debit Date 7/31 Explanation Closing entry Credit 2,500 Balance 2,500 0 BRIEF EXERCISE 4-7 The accounts that will appear in the post-closing trial balance are: Accumulated Depreciation N. Cesar, 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. BRIEF EXERCISE 4-9 1. Service Revenue ................................................................... Accounts Receivable.................................................... 4-10 780 780 BRIEF EXERCISE 4-9 (Continued) 2. Accounts Payable ($1,850 $1,580) ................................... Store Supplies ............................................................... 270 270 BRIEF EXERCISE 4-10 KREN COMPANY Partial Balance Sheet Current assets Cash ........................................................................................... Short-term investments............................................................ Accounts receivable ................................................................. Supplies ..................................................................................... Prepaid insurance..................................................................... Total current assets .......................................................... $18,400 6,700 12,500 5,200 3,600 $46,400 *BRIEF EXERCISE 4-11 Nov. 1 Salaries Payable ........................................................... 1,200 Salaries Expense .................................................. 1,200 The balances after posting the reversing entry are Salaries Expense (Cr.) $1,200 and Salaries Payable $0. 4-11 SOLUTIONS TO EXERCISES EXERCISE 4-1 CAJON COMPANY (Partial) Work Sheet For the Month Ended April 30, 2005 Adjusted Trial Balance Account Titles Cash Accounts Receivable Prepaid Rent Equipment Accum. Depreciation Notes Payable Accounts Payable P. Cajon, Capital P. Cajon, Drawing Service Revenue Salaries Expense Rent Expense Depreciation Expense Interest Expense Interest Payable Totals Net Income Totals Dr. 14,752 7,840 2,280 23,050 Cr. Income Statement Dr. Cr. Balance Sheet Dr. 14,752 7,840 2,280 23,050 Cr. 4,921 5,700 5,672 33,960 3,650 12,590 9,840 760 671 57 ______ 62,900 9,840 760 671 57 ______ 11,328 1,262 12,590 12,590 3,650 4,921 5,700 5,672 33,960 57 62,900 ______ 12,590 ______ 12,590 ______ 51,572 ______ 51,572 57 50,310 1,262 51,572 4-12 EXERCISE 4-2 CAJON COMPANY Income Statement For the Month Ended April 30, 2005 Revenues Service revenue ....................................................... Expenses Salaries expense...................................................... Rent expense............................................................ Depreciation expense.............................................. Interest expense....................................................... Total expenses ................................................. Net income........................................................................ $12,590 $9,840 760 671 57 11,328 $ 1,262 CAJON COMPANY Owner's Equity Statement For the Month Ended April 30, 2005 P. Cajon, Capital, April 1 .................................................................. Add: Net income ............................................................................. Less: Drawings ................................................................................ P. Cajon, Capital, April 30 ................................................................ $33,960 1,262 35,222 3,650 $31,572 CAJON COMPANY Balance Sheet April 30, 2005 Assets Current assets Cash ......................................................................... Accounts receivable ............................................... Prepaid rent ............................................................. Total current assets ........................................ Property, plant, and equipment Equipment................................................................ Less: Accumulated depreciation ......................... Total assets...................................................... 4-13 $14,752 7,840 2,280 24,872 $23,050 4,921 18,129 $43,001 EXERCISE 4-2 (Continued) CAJON COMPANY Balance Sheet (Continued) April 30, 2005 Liabilities and Owner's Equity Current liabilities Notes payable ............................................................................ Accounts payable ...................................................................... Interest payable ......................................................................... Total current liabilities....................................................... Owner's equity P. Cajon, Capital ........................................................................ Total liabilities and owner's equity .................................. $ 5,700 5,672 57 11,429 31,572 $43,001 EXERCISE 4-3 (a) Apr. 30 30 Service Revenue ........................................ Income Summary ............................... Income Summary ....................................... Salaries Expense................................ Rent Expense...................................... Depreciation Expense........................ Interest Expense................................. Income Summary ....................................... P. Cajon, Capital ................................. P. Cajon, Capital......................................... P. Cajon, Drawing............................... 12,590 12,590 11,328 9,840 760 671 57 1,262 1,262 3,650 3,650 30 30 (b) (2) (3) Income Summary 11,328 (1) 12,590 1,262 12,590 12,590 (4) P. Cajon, Capital 3,650 33,960 (3) 1,262 Bal. 31,572 4-14 EXERCISE 4-3 (Continued) (c) CAJON COMPANY Post-Closing Trial Balance April 30, 2005 Cash ...................................................................... Accounts Receivable........................................... Prepaid Rent ......................................................... Equipment............................................................. Accumulated Depreciation.................................. Notes Payable ...................................................... Accounts Payable ................................................ Interest Payable ................................................... P. Cajon, Capital................................................... Debit $14,752 7,840 2,280 23,050 Credit _______ $47,922 $ 4,921 5,700 5,672 57 31,572 $47,922 EXERCISE 4-4 (a) Accounts Receivable....................................................... Service Revenue ...................................................... Insurance Expense .......................................................... Prepaid Insurance .................................................... Depreciation Expense ..................................................... Accumulated Depreciation...................................... Salaries Expense ............................................................. Salaries Payable....................................................... 600 600 400 400 900 900 500 500 4-15 EXERCISE 4-4 (Continued) (b) Accounts Receivable Prepaid Insurance Accum. Depreciation Salaries Payable Service Revenue Salaries Expense Insurance Expense Depreciation Expense Income Statement Dr. Cr. Balance Sheet Dr. Cr. X X X X X X X X EXERCISE 4-5 (a) Accounts Receivable--$27,000 ($34,000 $7,000). Supplies--$3,000 ($7,000 $4,000). Accumulated Depreciation--$22,000 ($12,000 + $10,000). Salaries Payable--$0 No liability recorded until adjustments are made. Insurance Expense--$8,000 ($26,000 $18,000). Salaries Expense--$44,000 ($49,000 $5,000). (b) Accounts Receivable................................................... Service Revenue .................................................. Insurance Expense ...................................................... Prepaid Insurance................................................ Supplies Expense ........................................................ Supplies ................................................................ Depreciation Expense ................................................. Accumulated Depreciation ................................. Salaries Expense ......................................................... Salaries Payable................................................... 7,000 7,000 8,000 8,000 4,000 4,000 10,000 10,000 5,000 5,000 4-16 EXERCISE 4-6 (a) Date July 31 General Journal Account Titles and Explanation Commission Revenue Rent Revenue Income Summary Income Summary Salaries Expense Utilities Expense Depreciation Expense C. J. Lanza, Capital Income Summary C. J. Lanza, Capital C. J. Lanza, Drawing Ref. 404 429 350 350 720 732 711 301 350 301 306 Debit 67,000 6,500 74,600 55,700 14,900 4,000 1,100 1,100 16,000 16,000 J15 Credit 73,500 31 31 31 (b) C. J. Lanza, Capital Explanaiton Ref. Debit Balance Close net loss J15 1,100 Close drawing J15 16,000 Income Summary Explanation Ref. Debit Close revenue J15 Close expenses J15 74,600 Transfer net loss J15 No. 301 Balance 45,200 44,100 28,100 No. 350 Balance 73,500 (1,100) 0 Date July 31 31 31 Credit Date July 31 31 31 Credit 73,500 1,100 4-17 EXERCISE 4-6 (Continued) (c) LANZA COMPANY Post-Closing Trial Balance July 31, 2005 Cash ...................................................................... Accounts Receivable........................................... Equipment ............................................................ Accumulated Depreciation ................................. Accounts Payable................................................ Unearned Rent Revenue ..................................... C. J. Lanza, Capital .............................................. Debit $14,840 8,780 15,900 Credit _______ $39,520 $ 5,400 4,220 1,800 28,100 $39,520 EXERCISE 4-7 (a) LANZA COMPANY Income Statement For the Year Ended July 31, 2005 Revenues Commission revenue................................... Rent revenue ................................................ Total revenues...................................... Expenses Salaries expense.......................................... Utilities expense........................................... Depreciation expense.................................. Total expenses ..................................... Net loss ................................................................. $67,000 6,500 73,500 $55,700 14,900 4,000 74,600 ($ 1,100) LANZA COMPANY Owner's Equity Statement For the Year Ended July 31, 2005 C. J. Lanza, Capital, August 1, 2004 .................. Less: Net loss ..................................................... Drawings ................................................... C. J. Lanza, Capital, July 31, 2005...................... $45,200 $ 1,100 16,000 17,100 $28,100 4-18 EXERCISE 4-7 (Continued) (b) LANZA COMPANY Balance Sheet July 31, 2005 Assets Current assets Cash.................................................................. Accounts receivable ....................................... Total current assets ................................ Property, plant, and equipment Equipment........................................................ Less: Accumulated depreciation.................. Total assets.............................................. Liabilities and Owner's Equity Current liabilities Accounts payable ........................................... Unearned rent revenue ................................... Total current liabilities ............................ Owner's equity C. J. Lanza, Capital ......................................... Total liabilities and owner's equity........ $ 4,220 1,800 6,020 28,100 $34,120 $14,840 8,780 23,620 $15,900 5,400 10,500 $34,120 EXERCISE 4-8 (a) June 30 30 Service Revenue ...................................... Income Summary ............................. Income Summary ..................................... Salaries Expense.............................. Supplies Expense ............................ Rent Expense ................................... Income Summary ..................................... Jamie Roth, Capital.......................... Jamie Roth, Capital.................................. Jamie Roth, Drawing........................ 16,100 16,100 13,100 8,800 1,300 3,000 3,000 3,000 2,500 2,500 30 30 4-19 EXERCISE 4-8 (Continued) (b) Income Summary June 30 13,100 June 30 16,100 June 30 3,000 16,100 16,100 EXERCISE 4-9 1. 2. Accounts Payable ($830 $380) ......................................... Cash ............................................................................... Supplies ................................................................................. Equipment ..................................................................... Accounts Payable ......................................................... M. Kogan, Drawing ............................................................... Salaries Expense .......................................................... 450 450 560 56 504 400 400 3. EXERCISE 4-10 (a) REGO BOWLING ALLEY Balance Sheet December 31, 2005 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 .......................... $ 18,040 14,520 4,680 37,240 $64,000 $128,800 45,600 62,400 18,720 83,200 43,680 190,880 $228,120 4-20 EXERCISE 4-10 (Continued) REGO BOWLING ALLEY Balance Sheet (Continued) December 31, 2005 Liabilities and Owner's Equity Current liabilities Current portion of mortgage payable ............................ Accounts payable ............................................................ Interest payable................................................................ Total current liabilities ............................................. Long-term liabilities Mortgage payable............................................................. Total liabilities .......................................................... Owner's equity A. Rego, Capital ($115,000 + $3,440*) ............................ Total liabilities and owner's equity......................... *Net income = $14,180 $780 $7,360 $2,600 = $3,440 (b) Current assets exceed current liabilities by $8,740 ($37,240 $28,500). In addition, approximately 50% of current assets are in the form of cash. In sum, the company's liquidity appears to be reasonably good. $ 13,600 12,300 2,600 28,500 81,180 109,680 118,440 $228,120 *EXERCISE 4-11 (a) Dec. 31 31 Commission Revenue .............................. Income Summary .............................. Income Summary ...................................... Interest Expense ............................... Commission Revenue .............................. Accounts Receivable ........................ Interest Payable ........................................ Interest Expense ............................... 92,000 92,000 7,800 7,800 4,200 4,200 1,500 1,500 (b) Jan. 1 1 4-21 *EXERCISE 4-11 (Continued) (c) & (e) Accounts Receivable Dec. 31 Balance 19,800 31 Adjusting 4,200 24,000 Jan. 1 Reversing 4,200 Commission Revenue Dec. 31 Closing 92,000 Dec. 31 Balance 31 Adjusting 92,000 Jan. 1 Reversing 4,200 Jan. 10 87,800 4,200 92,000 4,200 Jan. 1 Reversing Interest Payable Dec. 31 Adjusting 1,500 1,500 Dec. 31 Balance 31 Adjusting Jan. 15 Interest Expense 6,300 Dec. 31 Closing 1,500 7,800 2,700 Jan. 1 Reversing 7,800 7,800 1,500 (d) Jan. 10 (1) Cash ................................................................ Commission Revenue ........................... (2) Interest Expense ............................................ Cash ........................................................ 4,200 4,200 2,700 2,700 15 4-22 (a) UNDERCOVER ROOFING Work Sheet For the Month Ended March 31, 2005 Trial Balance Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Adjustments Adjusted Trial Balance Income Statement Balance Sheet Dr. Cr. Account Titles 2,500 1,800 1,100 6,000 (a) (b) (c) 600 3,000 (c) (d) 12,900 (a) (b) (d) 960 200 0,000 1,680 960 200 350 1,680 13,450 350 13,450 960 200 2,410 760 3,170 350 170 1,050 200 700 200 12,900 3,170 1,050 200 170 1,400 1,400 130 7,000 1,200 1,400 300 7,000 600 200 960 2,500 1,800 140 6,000 2,500 1,800 140 6,000 1,400 1,400 130 7,000 600 3,170 SOLUTIONS TO PROBLEMS PROBLEM 4-1A 4-23 Cash Accounts Receivable Roofing Supplies Equipment Accumulated Depreciation Accounts Payable Unearned Revenue I. Spy, Capital I. Spy, Drawing Service Revenue Salaries Expense Miscellaneous Expense Totals Supplies Expense Depreciation Expense Salaries Payable Totals Net Income Totals 3,170 3,170 11,040 11,040 350 10,280 760 11,040 Key: (a) Supplies Used; (b) Depreciation Expensed; (c) Service Revenue Earned; (d) Salaries Accrued. PROBLEM 4-1A (Continued) (b) UNDERCOVER ROOFING Income Statement For the Month Ended March 31, 2005 Revenues Service revenue ................................................... Expenses Salaries expense.................................................. Supplies expense................................................. Depreciation expense.......................................... Miscellaneous expense ....................................... Total expenses ............................................. Net income ................................................................... $3,170 $1,050 960 200 200 2,410 $ 760 UNDERCOVER ROOFING Owner's Equity Statement For the Month Ended March 31, 2005 I. Spy, Capital, March 1................................................................. Add: Net income ......................................................................... Less: Drawings ............................................................................ I. Spy, Capital, March 31............................................................... $7,000 760 7,760 600 $7,160 UNDERCOVER ROOFING Balance Sheet March 31, 2005 Assets Current assets Cash ...................................................................... Accounts receivable ............................................ Roofing supplies.................................................. Total current assets ..................................... Property, plant, and equipment Equipment ............................................................ Less: Accum. depreciation--equipment .......... Total assets .................................................. 4-24 $2,500 1,800 140 4,440 $6,000 1,400 4,600 $9,040 PROBLEM 4-1A (Continued) UNDERCOVER ROOFING Balance Sheet (Continued) March 31, 2005 Liabilities and Owner's Equity Current liabilities Accounts payable ................................................................ Salaries payable ................................................................... Unearned revenue................................................................ Total current liabilities ................................................. Owner's equity I. Spy, Capital........................................................................ Total liabilities and owner's equity............................. (c) Mar. 31 31 31 31 Supplies Expense........................................... Roofing Supplies .................................... Depreciation Expense.................................... Accumulated Depreciation .................... Unearned Revenue......................................... Service Revenue..................................... Salaries Expense............................................ Salaries Payable ..................................... Service Revenue............................................. Income Summary.................................... Income Summary ........................................... Salaries Expense .................................... Supplies Expense................................... Depreciation Expense ............................ Miscellaneous Expense ......................... Income Summary ........................................... I. Spy, Capital .......................................... I. Spy, Capital.................................................. I. Spy, Drawing........................................ 4-25 $1,400 350 130 1,880 7,160 $9,040 960 960 200 200 170 170 350 350 3,170 3,170 2,410 1,050 960 200 200 760 760 600 600 (d) Mar. 31 31 31 31 PROBLEM 4-2A (a) EAGLE COMPANY Partial Work Sheet For the Year Ended December 31, 2005 Adjusted Trial Balance Dr. 13,600 15,400 2,000 2,800 34,000 Cr. Income Statement Dr. Cr. Balance Sheet Dr. 13,600 15,400 2,000 2,800 34,000 Cr. 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 A. Eagle, Capital A. Eagle, Drawing Service Revenue Advertising Expense Supplies Expense Depreciation Expense Insurance Expense Salaries Expense Interest Expense Totals Net Income Totals 8,000 20,000 6,000 3,500 800 25,000 10,000 88,000 12,000 5,700 8,000 5,000 42,000 800 _______ 151,300 151,300 88,000 12,000 5,700 8,000 5,000 42,000 800 ______ 73,500 88,000 14,500 ______ 88,000 88,000 10,000 8,000 20,000 6,000 3,500 800 25,000 ______ 77,800 ______ 77,800 ______ 63,300 14,500 77,800 4-26 PROBLEM 4-2A (Continued) (b) EAGLE COMPANY Income Statement For the Year Ended December 31, 2005 Revenues Service revenue............................................... Expenses Salaries expense ............................................. Advertising expense ....................................... Depreciation expense ..................................... Supplies expense............................................ Insurance expense.......................................... Interest expense.............................................. Total expenses ........................................ Net income............................................................... $88,000 $42,000 12,000 8,000 5,700 5,000 800 73,500 $14,500 EAGLE COMPANY Owner's Equity Statement For the Year Ended December 31, 2005 A. Eagle, Capital, January 1 ..................................................... Add: Net income ..................................................................... Less: Drawings ........................................................................ A. Eagle, Capital, December 31 ............................................... $25,000 14,500 39,500 10,000 $29,500 4-27 PROBLEM 4-2A (Continued) EAGLE COMPANY Balance Sheet December 31, 2005 Assets Current assets Cash ................................................................. Accounts receivable ....................................... Supplies ........................................................... Prepaid insurance........................................... Total current assets ................................ Property, plant, and equipment Office equipment............................................. Less: Accumulated depreciation ................. Total assets ............................................. 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 A. Eagle, Capital.............................................. Total liabilities and owner's equity.................................................... $10,000 6,000 3,500 800 20,300 10,000 30,300 29,500 $59,800 $13,600 15,400 2,000 2,800 33,800 $34,000 8,000 26,000 $59,800 4-28 PROBLEM 4-2A (Continued) (c) Date Dec. 31 31 General Journal Account Titles and Explanation Service Revenue Income Summary Income Summary Advertising Expense Supplies Expense Depreciation Expense Insurance Expense Salaries Expense Interest Expense Income Summary A. Eagle, Capital A. Eagle, Capital A. Eagle, Drawing Ref. 400 350 350 610 631 711 722 726 905 350 301 301 306 Debit 88,000 73,500 12,000 5,700 8,000 5,000 42,000 800 14,500 14,500 10,000 10,000 J14 Credit 88,000 31 31 (d) Date Jan. 1 Dec. 31 31 Explanation Balance Closing entry Closing entry A. Eagle, Capital Ref. Debit J14 J14 Credit 25,000 14,500 No. 301 Balance 25,000 39,500 29,500 10,000 Date Dec. 31 31 Explanation Balance Closing entry A. Eagle, Drawing Ref. Debit 10,000 J14 Credit 10,000 No. 306 Balance 10,000 0 4-29 PROBLEM 4-2A (Continued) Income Summary Ref. Debit J14 J14 73,500 J14 14,500 Service Revenue Ref. Debit J14 88,000 No. 350 Balance 88,000 14,500 0 No. 400 Balance 88,000 0 No. 610 Balance 12,000 0 No. 631 Balance 5,700 0 No. 711 Balance 8,000 0 No. 722 Balance 5,000 0 Date Dec. 31 31 31 Explanation Closing entry Closing entry Closing entry Credit 88,000 Date Dec. 31 31 Explanation Balance Closing entry Credit 88,000 Date Dec. 31 31 Explanation Balance Closing entry Advertising Expense Ref. Debit 12,000 J14 Supplies Expense Ref. Debit 5,700 J14 Depreciation Expense Ref. Debit 8,000 J14 Insurance Expense Ref. Debit 5,000 J14 Credit 12,000 Date Dec. 31 31 Explanation Balance Closing entry Credit 5,700 Date Dec. 31 31 Explanation Balance Closing entry Credit 8,000 Date Dec. 31 31 Explanation Balance Closing entry Credit 5,000 4-30 PROBLEM 4-2A (Continued) Salaries Expense Ref. Debit 42,000 J14 Interest Expense Ref. Debit 800 J14 No. 726 Balance 42,000 0 No. 905 Balance 800 0 Date Dec. 31 31 Explanation Balance Closing entry Credit 42,000 Date Dec. 31 31 Explanation Balance Closing entry Credit 800 (e) EAGLE COMPANY Post-Closing Trial Balance December 31, 2005 Cash ...................................................................... Accounts Receivable........................................... Supplies ................................................................ Prepaid Insurance................................................ Office Equipment ................................................. Accumulated Depreciation--Office Equipment......................................................... Notes Payable ...................................................... Accounts Payable ................................................ Salaries Payable................................................... Interest Payable ................................................... A. Eagle, Capital................................................... Totals Debit $13,600 15,400 2,000 2,800 34,000 Credit _______ $67,800 $ 8,000 20,000 6,000 3,500 800 29,500 $67,800 4-31 PROBLEM 4-3A (a) LATHROP COMPANY Income Statement For the Year Ended December 31, 2005 Revenues Service revenue .............................................. Expenses Salaries expense............................................. Depreciation expense..................................... Insurance expense.......................................... Repair expense ............................................... Utilities expense.............................................. Total expenses ........................................ Net income .............................................................. $64,000 $37,000 2,600 2,200 2,000 1,700 45,500 $18,500 LATHROP COMPANY Owner's Equity Statement For the Year Ended December 31, 2005 Sue Lathrop, Capital, January 1............................................... Add: Net income ...................................................................... Less: Drawings ......................................................................... Sue Lathrop, Capital, December 31 ......................................... LATHROP COMPANY Balance Sheet December 31, 2005 Assets Current assets Cash ................................................................. Accounts receivable ....................................... Prepaid insurance........................................... Total current assets ................................ Property, plant, and equipment Equipment ....................................................... Less: Accumulated depreciation ................. Total assets ............................................. 4-32 $36,000 18,500 54,500 14,000 $40,500 $17,400 13,500 3,500 34,400 $26,000 5,600 20,400 $54,800 PROBLEM 4-3A (Continued) LATHROP COMPANY Balance Sheet (Continued) December 31, 2005 Liabilities and Owner's Equity Current liabilities Accounts payable ............................................................. Salaries payable ................................................................ Total current liabilities .............................................. Owner's equity Sue Lathrop, Capital ......................................................... Total liabilities and owner's equity ...................................................................... $11,300 3,000 14,300 40,500 $54,800 (b) Date Dec. 31 31 General Journal Account Titles and Explanation Service Revenue Income Summary Income Summary Repair Expense Depreciation Expense Insurance Expense Salaries Expense Utilities Expense Income Summary Sue Lathrop, Capital Sue Lathrop, Capital Sue Lathrop, Drawing Ref. 400 350 350 622 711 722 726 732 350 301 301 306 Debit 64,000 45,500 2,000 2,600 2,200 37,000 1,700 18,500 18,500 14,000 14,000 Credit 64,000 31 31 4-33 PROBLEM 4-3A (Continued) (c) 12/31 Sue Lathrop, Capital No. 301 14,000 1/1 Bal. 36,000 12/31 18,500 12/31 Bal. 40,500 12/31 Bal. Repair Expense 2,000 12/31 No. 622 2,000 Depreciation Expense No. 711 12/31 Bal. 2,600 12/31 2,600 Sue Lathrop, Drawing No. 306 12/31 Bal. 14,000 12/31 14,000 Insurance Expense 12/31 Bal. 2,200 12/31 12/31 12/31 Income Summary 45,500 12/31 18,500 64,000 No. 350 64,000 64,000 Salaries Expense 12/31 Bal. 37,000 12/31 No. 726 37,000 No. 722 2,200 12/31 Service Revenue No. 400 64,000 12/31 Bal. 64,000 12/31 Bal. Utilities Expense 1,700 12/31 No. 732 1,700 (d) LATHROP COMPANY Post-Closing Trial Balance December 31, 2005 Cash ...................................................................... Accounts Receivable........................................... Prepaid Insurance................................................ Equipment ............................................................ Accumulated Depreciation ................................. Accounts Payable................................................ Salaries Payable .................................................. Sue Lathrop, Capital............................................ Totals Debit $17,400 13,500 3,500 26,000 Credit _______ $60,400 $ 5,600 11,300 3,000 _40,500 $60,400 4-34 (a) NISH KUMAR MANAGEMENT SERVICES Work Sheet For the Year Ended December 31, 2005 Trial Balance Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Adjustments Adjusted Trial Balance Income Statement Balance Sheet Dr. Cr. Account Titles 14,500 23,600 3,100 56,000 106,000 49,000 (a) 1,700 14,500 23,600 1,400 56,000 106,000 49,000 10,400 2,800 100,000 120,000 20,000 75,600 24,000 (d) 2,200 30,000 17,000 15,800 335,000 (a) (b) (c) (e) 3,900 (c) 9,000 ______ 19,300 (e) 3,900 9,000 19,300 9,000 _______ 350,400 1,700 2,500 (b) 2,500 3,900 3,900 9,000 350,400 1,700 2,500 2,500 3,900 1,700 2,500 30,000 17,000 15,800 335,000 75,600 26,200 30,000 17,000 15,800 10,400 5,000 100,000 120,000 (d) 2,200 20,000 14,500 23,600 1,400 56,000 106,000 49,000 10,400 2,800 100,000 120,000 20,000 75,600 26,200 PROBLEM 4-4A 4-35 2,500 3,900 9,000 _______ _______ 79,900 _101,800 21,900 101,800 101,800 _______ 270,500 270,500 9,000 248,600 21,900 270,500 Cash Accounts Receivable Prepaid Insurance Land Building Equipment Accounts Payable Unearned Rent Revenue Mortgage Payable N. Kumar, Capital N. Kumar, 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 Key: (a) Expired Insurance; (b) Depreciation Expense--Building; (c) Depreciation Expense--Equipment; (d) Rent Revenue Earned; (e) Accrued Interest Payable. PROBLEM 4-4A (Continued) (b) NISH KUMAR MANAGEMENT SERVICES Balance Sheet December 31, 2005 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 ......................... $ 14,500 23,600 1,400 39,500 $ 56,000 $106,000 2,500 49,000 3,900 103,500 45,100 204,600 $244,100 Liabilities and Owner's Equity Current liabilities Current maturity of mortgage payable ............................ Accounts payable.............................................................. Interest payable ................................................................. Unearned rent revenue ..................................................... Total current liabilities .............................................. Long-term liabilities Mortgage payable .............................................................. Total liabilities............................................................ Owner's equity N. Kumar, Capital ($120,000 $20,000 + $21,900).......... Total liabilities and owner's equity .......................... $ 10,000 10,400 9,000 2,800 32,200 90,000 122,200 121,900 $244,100 4-36 PROBLEM 4-4A (Continued) (c) Dec. 31 31 Insurance Expense................................. Prepaid Insurance........................... Depreciation Expense--Building .......... Accumulated Depreciation-- Building........................................ Depreciation Expense--Equipment...... Accumulated Depreciation-- Equipment ................................... Unearned Rent Revenue ........................ Rent Revenue .................................. Interest Expense ..................................... Interest Payable .............................. Service Revenue..................................... Rent Revenue.......................................... Income Summary............................ Income Summary.................................... Salaries Expense ............................ Advertising Expense ...................... Interest Expense ............................. Utilities Expense ............................. Depreciation Expense-- Equipment ................................... Depreciation Expense-- Building........................................ Insurance Expense ......................... Income Summary.................................... N. Kumar, Capital............................ N. Kumar, Capital.................................... N. Kumar, Drawing.......................... 1,700 1,700 2,500 2,500 3,900 3,900 2,200 2,200 9,000 9,000 75,600 26,200 101,800 79,900 30,000 17,000 9,000 15,800 3,900 2,500 1,700 21,900 21,900 20,000 20,000 31 31 31 (d) Dec. 31 31 31 31 4-37 PROBLEM 4-4A (Continued) (e) NISH KUMAR MANAGEMENT SERVICES Post-Closing Trial Balance December 31, 2005 Cash....................................................................... Accounts Receivable ........................................... Prepaid Insurance ................................................ Land ....................................................................... Building ................................................................. Accumulated Depreciation--Building................ Equipment ............................................................. 49,000 Accumulated Depreciation--Equipment............ Accounts Payable ................................................ Interest Payable.................................................... Unearned Rent Revenue...................................... Mortgage Payable................................................. N. Kumar, Capital ................................................. ________ $250,500 Debit $ 14,500 23,600 1,400 56,000 106,000 Credit $ 2,500 3,900 10,400 9,000 2,800 100,000 121,900 $250,500 4-38 PROBLEM 4-5A (a) Date July 1 1 General Journal Account Titles and Explanation Cash Eve Tsai, Capital Equipment Cash Accounts Payable Cleaning Supplies Accounts Payable Prepaid Insurance Cash Accounts Receivable Service Revenue Accounts Payable Cash Salaries Expense Cash Cash Accounts Receivable 25 31 31 Accounts Receivable Service Revenue Gas & Oil Expense Cash Eve Tsai, Drawing Cash Ref. 101 301 157 101 201 128 201 130 101 112 400 201 101 726 101 101 112 112 400 633 101 306 101 Debit 12,000 6,000 3,000 3,000 1,300 1,300 1,200 1,200 2,500 2,500 1,800 1,800 1,200 1,200 1,400 1,400 3,000 3,000 200 200 900 900 J1 Credit 12,000 3 5 12 18 20 21 4-39 (b) & (c) TSAI'S WINDOW WASHING Work Sheet For the Month Ended July 31, 2005 Trial Balance Dr. (a) 1,500 (d) (c) 2,500 12,000 900 900 5,500 (a) 1,500 (e) 20,000 (b) (b) (c) (d) _____ Account Titles Cr. Dr. Cr. Dr. Cr. Dr. Cr. Adjustments Adjusted Trial Balance Dr. Income Statement Balance Sheet Cr. PROBLEM 4-5A (Continued) 5,100 4,100 1,300 1,200 6,000 700 100 2,500 12,000 5,100 5,600 600 1,100 6,000 5,100 5,600 600 1,100 6,000 2,500 900 7,000 7,000 200 1,800 200 200 100 700 200 12,000 4-40 200 1,200 20,000 600 200 200 100 700 (e) 600 3,100 22,300 600 22,300 100 700 3,100 200 200 1,800 Cash Accounts Receivable Cleaning Supplies Prepaid Insurance Equipment Accounts Payable Eve Tsai, Capital Eve Tsai, 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 3,000 4,000 7,000 7,000 7,000 19,300 19,300 600 15,300 4,000 19,300 Key: (a) Service Revenue Earned; (b) Depreciation Expense; (c) Insurance Expired; (d) Cleaning Supplies Used; (e) Unpaid Salaries. PROBLEM 4-5A (Continued) (a), (e) & (f) Cash Ref. J1 J1 J1 J1 J1 J1 J1 J1 No. 101 Balance 12,000 9,000 7,800 6,000 4,800 6,200 6,000 5,100 No. 112 Balance 2,500 1,100 4,100 5,600 No. 128 Balance 1,300 600 No. 130 Balance 1,200 1,100 No. 157 Balance 6,000 Date July 1 1 5 18 20 21 31 31 Explanation Debit 12,000 Credit 3,000 1,200 1,800 1,200 1,400 200 900 Date July 12 21 25 31 Explanation Adjusting Accounts Receivable Ref. Debit J1 2,500 J1 J1 3,000 J2 1,500 Cleaning Supplies Ref. Debit J1 1,300 J2 Prepaid Insurance Ref. Debit J1 1,200 J2 Equipment Ref. J1 Credit 1,400 Date July 3 31 Explanation Adjusting Credit 700 Date July 5 31 Explanation Adjusting Credit 100 Date July 1 Explanation Debit 6,000 Credit 4-41 PROBLEM 4-5A (Continued) Accumulated Depreciation--Equipment Explanation Ref. Debit Credit Adjusting J2 200 Accounts Payable Ref. Debit J1 J1 J2 1,800 Salaries Payable Ref. Debit J2 Eve Tsai, Capital Ref. Debit J1 J3 J3 900 Eve Tsai, Drawing Ref. Debit J1 900 J3 Income Summary Ref. Debit J3 J3 3,000 J3 4,000 No. 158 Balance 200 No. 201 Balance 3,000 4,300 2,500 No. 212 Balance 600 No. 301 Credit 12,000 4,000 Balance 12,000 16,000 15,100 No. 306 Balance 900 0 No. 350 Balance 7,000 4,000 0 Date July 31 Date July 1 3 18 Explanation Credit 3,000 1,300 Date July 3 Explanation Adjusting Credit 600 Date July 1 31 31 Explanation Closing Closing Date July 31 31 Explanation Closing Credit 900 Date July 31 31 31 Explanation Closing Closing Closing Credit 7,000 4-42 PROBLEM 4-5A (Continued) Service Revenue Ref. Debit J1 J1 J2 J3 7,000 Gas & Oil Expense Ref. Debit J1 200 J3 No. 400 Credit 2,500 3,000 1,500 Balance 2,500 5,500 7,000 0 No. 633 Balance 200 0 No. 634 Balance 700 0 No. 711 Credit 200 Balance 200 0 No. 722 Credit 100 Balance 100 0 No. 726 Credit Balance 1,200 1,800 0 Date July 12 25 31 31 Explanation Adjusting Closing Date July 31 31 Explanation Closing Credit 200 Date July 31 31 Cleaning Supplies Expense Explanation Ref. Debit Adjusting J2 700 Closing J3 Depreciation Expense Ref. Debit J2 200 J3 Insurance Expense Ref. Debit J2 100 J3 Salaries Expense Ref. Debit J1 1,200 J2 600 J3 Credit 700 Date July 31 31 Explanation Adjusting Closing Date July 31 31 Explanation Adjusting Closing Date July 20 31 31 Explanation Adjusting Closing 1,800 4-43 PROBLEM 4-5A (Continued) (d) TSAI'S WINDOW WASHING Income Statement For the Month Ended July 31, 2005 Revenues Service revenue ................................................ Expenses Salaries expense .............................................. Cleaning supplies expense ............................. Depreciation expense ...................................... Gas & oil expense............................................. Insurance expense ........................................... Total expenses.......................................... Net income ................................................................ $7,000 $1,800 700 200 200 100 3,000 $4,000 TSAI'S WINDOW WASHING Owner's Equity Statement For the Month Ended July 31, 2005 Eve Tsai, Capital, July 1........................................... Add: Investments ................................................... Net income..................................................... Less: Drawings........................................................ Eve Tsai, Capital, July 31......................................... $ $12,000 4,000 0 16,000 16,000 900 $15,100 TSAI'S WINDOW WASHING Balance Sheet July 31, 2005 Assets Current assets Cash ...................................................................................... Accounts receivable............................................................ Cleaning supplies................................................................ Prepaid insurance ............................................................... Total current assets..................................................... $5,100 5,600 600 1,100 12,400 4-44 PROBLEM 4-5A (Continued) TSAI'S WINDOW WASHING Balance Sheet (Continued) July 31, 2005 Assets (Continued) Property, plant, and equipment Equipment ......................................................... Less: Accumulated depreciation ................... Total assets ............................................... Liabilities and Owner's Equity Current liabilities Accounts payable ............................................................... Salaries payable.................................................................. Total current liabilities................................................ Owner's equity Eve Tsai, Capital ................................................................. Total liabilities and owner's equity ........................... (e) Date July 31 31 General Journal Account Titles and Explanation Accounts Receivable Service Revenue Depreciation Expense Accumulated Depreciation-- Equipment Insurance Expense Prepaid Insurance Cleaning Supplies Expense Cleaning Supplies Salaries Expense Salaries Payable Ref. 112 400 711 158 722 130 634 128 726 212 Debit 1,500 200 200 100 100 700 700 600 600 J2 Credit 1,500 $ 2,500 600 3,100 15,100 $18,200 $6,000 200 5,800 $18,200 31 31 31 4-45 PROBLEM 4-5A (Continued) (f) Date July 31 31 General Journal Account Titles and Explanation Service Revenue Income Summary Income Summary Salaries Expense Depreciation Expense Insurance Expense Cleaning Supplies Expense Gas & Oil Expense Income Summary Eve Tsai, Capital Eve Tsai, Capital Eve Tsai, Drawing Ref. 400 350 350 726 711 722 634 633 350 301 301 306 Debit 7,000 3,000 1,800 200 100 700 200 4,000 4,000 900 900 J3 Credit 7,000 31 31 (g) TSAI'S WINDOW WASHING Post-Closing Trial Balance July 31, 2005 Cash....................................................................... Accounts Receivable ........................................... Cleaning Supplies ................................................ Prepaid Insurance ................................................ Equipment ............................................................. Accumulated Depreciation--Equipment............ Accounts Payable ................................................ Salaries Payable ................................................... Eve Tsai, Capital................................................... Debit $ 5,100 5,600 600 1,100 6,000 Credit $18,400 200 2,500 600 15,100 $18,400 $ 4-46 (a) (2) CORRECT ENTRY 870 870 65 65 Advertising Expense ....... Cash ............................. 65 65 780 Cash ................................... Accts. Receivable....... 780 (3) CORRECTING ENTRY Accounts Receivable........ Cash............................... Advertising Expense......... Misc. Expense .............. 90 90 65 65 Salaries Payable ................ 500 Salaries Expense ......... 500 (1) INCORRECT ENTRY 1. Cash ................................... Accts. Receivable....... 2. Misc. Expense................... Cash ............................. PROBLEM 4-6A 4-47 290 290 59 59 Equipment ......................... Accounts Payable ...... Repair Expense ................ Cash ............................. 3. Salaries Expense.............. 1,900 Cash ............................. 1,900 Salaries Expense.............. 1,400 Salaries Payable............... 500 Cash ............................. 1,900 290 290 95 95 4. Supplies............................. Accounts Payable ...... Equipment .......................... 290 Supplies ........................ 290 Repair Expense ................. Cash............................... Equipment .................... 95 36 59 5. Equipment ......................... Cash ............................. PROBLEM 4-6A (Continued) (b) 24/7 CABLE Trial Balance April 30, 2005 Cash ($4,100 $90 $36) .................................... Accounts Receivable ($3,200 + $90) .................. Supplies ($800 $290) ......................................... Equipment ($10,600 + $290 $59) ...................... Accumulated Depreciation .................................. Accounts Payable ................................................ Salaries Payable ($500 $500) ........................... Unearned Revenue............................................... A. Manion, Capital ................................................ Service Revenue................................................... Salaries Expense ($3,300 $500) ....................... Advertising Expense ($400 + $65) ...................... Miscellaneous Expense ($290 $65) ................. Repair Expense .................................................... Depreciation Expense.......................................... Debit $ 3,974 3,290 510 10,831 Credit $ 1,350 2,100 0 890 12,900 5,450 2,800 465 225 95 500 $22,690 _______ $22,690 4-48 (a) SHERLOCK HOLMES P.I. Work Sheet For the Quarter Ended March 31, 2005 Trial Balance Dr. (e) (a) (d) 10,000 12,350 20,000 600 600 13,620 (e) 2,200 1,300 1,200 200 (a) 370 (b) 1,000 (b) 1,000 (c) (d) 300 (c) 600 3,100 300 3,100 300 300 600 58,100 58,100 370 1,000 1,000 300 300 600 7,170 14,450 7,280 14,450 14,450 50,930 43,650 7,280 50,930 50,930 830 2,200 1,300 1,200 200 55,970 55,970 14,450 2,200 1,300 1,200 200 370 1,000 1,000 14,450 10,000 12,350 20,000 600 370 600 11,400 5,620 1,050 2,400 30,000 830 11,400 6,450 680 1,800 30,000 Cr. Dr. Cr. Dr. Cr. Dr. Cr. Adjustments Adjusted Trial Balance Dr. 11,400 6,450 680 1,800 30,000 10,000 12,350 20,000 Income Statement Balance Sheet Cr. Account Titles PROBLEM 4-1B 4-49 Cash Accounts Receivable Supplies Prepaid Insurance Equipment Notes Payable Accounts Payable S. Holmes, Capital S. Holmes, 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 Key: (a) Supplies Used; (b) Depreciation Expensed; (c) Accrued Interest on note; (d) Insurance Expired; (e) Service Revenue Earned but unbilled. PROBLEM 4-1B (Continued) (b) SHERLOCK HOLMES P.I. Income Statement For the Quarter Ended March 31, 2005 Revenues Service revenue ................................................ Expenses Salaries expense .............................................. Travel expense.................................................. Rent expense .................................................... Depreciation expense ...................................... Insurance expense ........................................... Supplies expense ............................................. Interest expense ............................................... Miscellaneous expense.................................... Total expenses.......................................... Net income ................................................................ $14,450 $2,200 1,300 1,200 1,000 600 370 300 200 7,170 $ 7,280 SHERLOCK HOLMES P.I. Owner's Equity Statement For the Quarter Ended March 31, 2005 S. Holmes, Capital, January 1 ................................ Add: Investment by owner ................................... Net income.................................................... Less: Drawings...................................................... S. Holmes, Capital, March 31 ................................ $ 20,000 7,280 0 27,280 600 $26,680 4-50 PROBLEM 4-1B (Continued) SHERLOCK HOLMES P.I. Balance Sheet March 31, 2005 Assets Current assets Cash ................................................................. Accounts receivable....................................... Supplies ........................................................... Prepaid insurance........................................... Total current assets................................ Property, plant, and equipment Equipment ....................................................... Less: Accumulated depreciation ................. Total assets ............................................. Liabilities and Owner's Equity Current liabilities Notes payable.................................................. Accounts payable ........................................... Interest payable .............................................. Total current liabilities............................ Owner's equity S. Holmes, Capital .......................................... Total liabilities and owner's equity.................................................... (c) Mar. 31 31 31 31 Supplies Expense ............................................... Supplies ....................................................... Depreciation Expense ........................................ Accumulated Depreciation......................... Interest Expense ................................................. Interest Payable........................................... Insurance Expense ............................................. Prepaid Insurance ....................................... $10,000 12,350 300 22,650 26,680 $49,330 370 370 1,000 1,000 300 300 600 600 $11,400 6,450 680 1,800 20,330 $30,000 1,000 29,000 $49,330 4-51 PROBLEM 4-1B (Continued) Mar. 31 Accounts Receivable ......................................... Service Revenue ......................................... Service Revenue ........................................ Income Summary ............................... Income Summary....................................... Travel Expense................................... Salaries Expense ............................... Rent Expense ..................................... Insurance Expense ............................ Depreciation Expense ....................... Supplies Expense .............................. Interest Expense ................................ Miscellaneous Expense .................... Income Summary....................................... S. Holmes, Capital.............................. S. Holmes, Capital ..................................... S. Holmes, Drawing ........................... 830 830 (d) Mar. 31 31 14,450 14,450 7,170 1,300 2,200 1,200 600 1,000 370 300 200 7,280 7,280 600 600 31 31 4-52 PROBLEM 4-2B (a) MR. WATSON COMPANY Partial Work Sheet For the Year Ended December 31, 2005 Adjusted Trial Balance Dr. Cr. 20,800 16,200 2,300 4,400 44,000 18,000 20,000 8,000 2,600 1,000 36,000 12,000 79,800 12,000 12,000 3,700 3,700 6,000 6,000 4,000 4,000 39,000 39,000 1,000 1,000 165,400 165,400 65,700 14,100 79,800 79,800 12,000 Income Statement Dr. Cr. Balance Sheet Dr. Cr. 20,800 16,200 2,300 4,400 44,000 18,000 20,000 8,000 2,600 1,000 36,000 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 M. Watson, Capital M. Watson, Drawing Service Revenue Advertising Expense Supplies Expense Depreciation Expense Insurance Expense Salaries Expense Interest Expense Totals Net Income Totals 79,800 ______ 79,800 99,700 _____ 99,700 85,600 14,100 99,700 4-53 PROBLEM 4-2B (Continued) (b) MR. WATSON COMPANY Income Statement For the Year Ended December 31, 2005 Revenues Service revenue .............................................. Expenses Salaries expense ............................................ Advertising expense ...................................... Depreciation expense .................................... Insurance expense ......................................... Supplies expense ........................................... Interest expense ............................................. Total expenses........................................ Net income .............................................................. $79,800 $39,000 12,000 6,000 4,000 3,700 1,000 65,700 $14,100 MR. WATSON COMPANY Owner's Equity Statement For the Year Ended December 31, 2005 M. Watson, Capital, January 1 ................................................. Add: Net income...................................................................... Less: Drawings......................................................................... M. Watson, Capital, December 31............................................ $36,000 14,100 50,100 12,000 $38,100 4-54 PROBLEM 4-2B (Continued) MR. WATSON COMPANY Balance Sheet December 31, 2005 Assets Current assets Cash ................................................................. Accounts receivable....................................... Supplies ........................................................... Prepaid insurance........................................... Total current assets................................ Property, plant, and equipment Office equipment ............................................ Less: Accumulated depreciation ................. Total assets ............................................. 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 M. Watson, Capital.......................................... Total liabilities and owner's equity...................................................... $10,000 8,000 2,600 1,000 21,600 10,000 31,600 38,100 $69,700 $20,800 16,200 2,300 4,400 43,700 $44,000 18,000 26,000 $69,700 4-55 PROBLEM 4-2B (Continued) (c) Date Dec. 31 31 General Journal Account Titles and Explanation Service Revenue Income Summary Income Summary Advertising Expense Supplies Expense Depreciation Expense Insurance Expense Salaries Expense Interest Expense Income Summary M. Watson, Capital M. Watson, Capital M. Watson, Drawing Ref. 400 350 350 610 631 711 722 726 905 350 301 301 306 Debit 79,800 65,700 12,000 3,700 6,000 4,000 39,000 1,000 14,100 14,100 12,000 12,000 J14 Credit 79,800 31 31 (d) Date Jan. 31 Dec. 31 31 Explanaiton Balance Closing entry Closing entry M. Watson, Capital Ref. Debit J14 J15 1,100 12,000 Credit 36,000 14,100 No. 301 Balance 36,000 50,100 38,100 No. 306 Balance 12,000 0 Date Dec. 31 31 Explanaiton Balance Closing entry M. Watson, Drawing Ref. Debit 12,000 J14 Credit 12,000 4-56 PROBLEM 4-2B (Continued) Income Summary Ref. Debit J14 J14 65,700 J14 14,100 No. 350 Balance 79,800 14,100 0 Date Dec. 31 31 31 Explanaiton Closing entry Closing entry Closing entry Credit 79,800 Date Dec. 31 31 Explanation Balance Closing entry Service Revenue Ref. Debit J14 79,800 Credit 79,800 No. 400 Balance 79,800 0 No. 610 Balance 12,000 0 No. 631 Balance 3,700 0 No. 711 Balance 6,000 0 No. 722 Balance 4,000 0 Date Explanation Dec. 31 Balance 31 Closing entry Advertising Expense Ref. Debit 12,000 J14 Supplies Expense Ref. Debit 3,700 J14 Depreciation Expense Ref. Debit 6,000 J14 Insurance Expense Ref. Debit 4,000 J14 Credit 12,000 Date Dec. 31 31 Explanation Balance Closing entry Credit 3,700 Date Dec. 31 31 Explanation Balance Closing entry Credit 6,000 Date Explanation Dec. 31 Balance 31 Closing entry Credit 4,000 4-57 PROBLEM 4-2B (Continued) Salaries Expense Ref. Debit 39,000 J14 No. 726 Credit 39,000 Balance 39,000 0 Date Dec. 31 31 Explanation Balance Closing entry Date Dec. 31 31 Explanation Balance Closing entry Interest Expense Ref. Debit 1,000 J14 Credit 1,000 No. 905 Balance 1,000 0 (e) MR. WATSON COMPANY Post-Closing Trial Balance December 31, 2005 Cash....................................................................... Accounts Receivable ........................................... Supplies................................................................. Prepaid Insurance ................................................ Office Equipment.................................................. Accumulated Depreciation--Office Equipment ......................................................... Notes Payable....................................................... Accounts Payable ................................................ Salaries Payable ................................................... Interest Payable.................................................... M. Watson, Capital ............................................... Debit $20,800 16,200 2,300 4,400 44,000 Credit _______ $87,700 $18,000 20,000 8,000 2,600 1,000 38,100 $87,700 4-58 PROBLEM 4-3B (a) HUBBS COMPANY Income Statement For the Year Ended December 31, 2005 Revenues Service revenue ........................................... Expenses Salaries expense.......................................... Utilities expense .......................................... Repair expense ............................................ Depreciation expense.................................. Insurance expense ...................................... Total expenses ..................................... Net loss................................................................. $44,000 $35,200 4,000 3,400 2,800 1,200 46,600 $ (2,600) HUBBS COMPANY Owner's Equity Statement For the Year Ended December 31, 2005 D. Hubbs, Capital, January 1 .............................. Add: Additional investment by owner............. Less: Net loss ..................................................... Drawings ................................................... D. Hubbs, Capital, December 31 ........................ HUBBS COMPANY Balance Sheet December 31, 2005 Assets Current assets Cash .............................................................. Accounts receivable.................................... Prepaid insurance........................................ Total current assets............................. Property, plant, and equipment Equipment .................................................... Less: Accumulated depreciation .............. Total assets .......................................... 4-59 $30,000 4,000 34,000 $2,600 7,200 9,800 $24,200 $10,200 7,500 1,800 19,500 $28,000 8,600 19,400 $38,900 PROBLEM 4-3B (Continued) HUBBS COMPANY Balance Sheet (Continued) December 31, 2005 Liabilities and Owner's Equity Current liabilities Accounts payable.............................................................. Salaries payable ................................................................ Total current liabilities .............................................. Owner's equity D. Hubbs, Capital............................................................... Total liabilities and owner's equity ...................................................................... $11,700 3,000 14,700 24,200 $38,900 (b) Date Dec. 31 General Journal Account Titles and Explanation Service Revenue Income Summary Income Summary Repair Expense Depreciation Expense Insurance Expense Salaries Expense Utilities Expense D. Hubbs, Capital Income Summary D. Hubbs, Capital D. Hubbs, Drawing Ref. 400 350 350 622 711 722 726 732 301 Debit 44,000 Credit 44,000 46,600 3,400 2,800 1,200 35,200 4,000 2,600 2,600 301 306 7,200 7,200 31 31 31 4-60 PROBLEM 4-3B (Continued) (c) 12/31 12/31 D. Hubbs, Capital No. 301 2,600 12/31 Bal. 34,000 7,200 12/31 Bal. 24,200 12/31 Bal. Repair Expense 3,400 12/31 No. 622 3,400 Depreciation Expense No. 711 12/31 Bal. 2,800 12/31 2,800 12/31 Bal. D. Hubbs, Drawing 7,200 12/31 No. 306 7,200 12/31 Bal. 12/31 Income Summary 46,600 12/31 12/31 46,600 No. 350 44,000 2,600 46,600 Insurance Expense 1,200 12/31 No. 722 1,200 Salaries Expense 12/31 Bal. 35,200 12/31 No. 726 35,200 12/31 Service Revenue No. 400 44,000 12/31 Bal. 44,000 Utilities Expense 12/31 Bal. 4,000 12/31 No. 732 4,000 (d) HUBBS COMPANY Post-Closing Trial Balance December 31, 2005 Cash ...................................................................... Accounts Receivable .......................................... Prepaid Insurance ............................................... Equipment ............................................................ Accumulated Depreciation ................................. Accounts Payable................................................ Salaries Payable .................................................. D. Hubbs, Capital ................................................. Totals Debit $10,200 7,500 1,800 28,000 Credit _______ $47,500 $ 8,600 11,700 3,000 24,200 $47,500 4-61 (a) LONDON AMUSEMENT PARK Work Sheet For the Year Ended September 30, 2005 Trial Balance Dr. 41,400 18,600 31,900 80,000 120,000 (a) 17,400 (b) 28,000 41,400 1,200 3,900 80,000 120,000 41,400 1,200 3,900 80,000 120,000 (c) (d) 2,700 42,200 14,600 1,000 50,000 109,700 14,000 277,500 (d) 105,000 30,500 9,400 16,900 21,000 10,000 28,000 17,400 (f) (c) (e) 61,100 6,000 3,000 61,100 4,000 4,000 6,000 ______ 3,000 504,700 504,700 2,700 280,200 105,000 30,500 9,400 16,900 21,000 10,000 28,000 17,400 4,000 6,000 ______ ______ 244,200 280,200 36,000 ______ 280,200 280,200 ______ 3,000 260,500 224,500 ______ 36,000 260,500 260,500 280,200 14,000 36,200 14,600 3,700 50,000 109,700 14,000 6,000 Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Adjustments Adjusted Trial Balance Balance Sheet Income Statement Account Titles 42,200 14,600 1,000 50,000 109,700 PROBLEM 4-4B 4-62 (e) (f) (b) 28,000 (a) 17,400 3,000 4,000 Cash Supplies Prepaid Insurance Land Equipment Accumulated Depreciation Accounts Payable Unearned Admissions Revenue Mortgage Payable J. London, Capital J. London, 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 105,000 30,500 9,400 16,900 18,000 6,000 ______ 491,700 491,700 Key: (a) Supplies Used; (b) Expired Insurance; (c) Depreciation Expensed; (d) Admissions Revenue Earned; (e) Accrued Property Taxes; (f) Accrued Interest Payable. PROBLEM 4-4B (Continued) (b) LONDON AMUSEMENT PARK Balance Sheet September 30, 2005 Assets Current assets Cash............................................... Supplies ........................................ Prepaid insurance ........................ Total current assets ............. Property, plant, and equipment Land............................................... Equipment..................................... Less: Accum. depreciation ........ Total assets........................... Current liabilities Current maturity of mortgage payable ...................................... Accounts payable ........................ Unearned admissions revenue...................................... Interest payable............................ Property taxes payable................ Total current liabilities ......... Long-term liabilities Mortgage payable......................... Total liabilities ...................... Owner's equity J. London, Capital ($109,700 + $36,000 $14,000) ...... Total liabilities and owner's equity .................. $ 41,400 1,200 3,900 46,500 $80,000 $120,000 42,200 77,800 157,800 $204,300 Liabilities and Owner's Equity $ 10,000 14,600 1,000 4,000 3,000 32,600 40,000 72,600 131,700 $204,300 4-63 PROBLEM 4-4B (Continued) (c) Sept. 30 30 30 30 30 30 Insurance Expense............................... Prepaid Insurance......................... Supplies Expense................................. Supplies......................................... Depreciation Expense .......................... Accumulated Depreciation .......... Unearned Admissions Revenue ......... Admissions Revenue ................... Property Taxes Expense...................... Property Taxes Payable ............... Interest Expense................................... Interest Payable ............................ Admissions Revenue ........................... Income Summary.......................... Income Summary.................................. Salaries Expense .......................... Repair Expense............................. Insurance Expense ....................... Property Taxes Expense.............. Supplies Expense ......................... Utilities Expense ........................... Interest Expense ........................... Advertising Expense .................... Depreciation Expense .................. Income Summary.................................. J. London, Capital......................... J. London, Capital ................................ J. London, Drawing ...................... 28,000 28,000 17,400 17,400 6,000 6,000 2,700 2,700 3,000 3,000 4,000 4,000 280,200 280,200 244,200 105,000 30,500 28,000 21,000 17,400 16,900 10,000 9,400 6,000 36,000 36,000 14,000 14,000 (d) Sept. 30 30 30 30 4-64 PROBLEM 4-4B (Continued) (e) LONDON AMUSEMENT PARK Post-Closing Trial Balance September 30, 2005 Cash ...................................................................... Supplies ................................................................ Prepaid Insurance................................................ Land....................................................................... Equipment............................................................. Accumulated Depreciation.................................. Accounts Payable ................................................ Unearned Admissions Revenue......................... Property Taxes Payable ...................................... Interest Payable ................................................... Mortgage Payable ................................................ J. London, Capital................................................ ________ $246,500 Debit $ 41,400 1,200 3,900 80,000 120,000 Credit $ 42,200 14,600 1,000 3,000 4,000 50,000 131,700 $246,500 4-65 PROBLEM 4-5B (a) Date Mar. 1 1 General Journal Account Titles and Explanation Cash M. Young, Capital Equipment Cash Accounts Payable Cleaning Supplies Accounts Payable Prepaid Insurance Cash Accounts Receivable Service Revenue Accounts Payable Cash Salaries Expense Cash Cash Accounts Receivable 28 31 31 Accounts Receivable Service Revenue Gas & Oil Expense Cash M. Young, Drawing Cash Ref. 101 301 157 101 201 128 201 130 101 112 400 201 101 726 101 101 112 112 400 633 101 306 101 Debit 10,000 6,000 3,000 3,000 1,200 1,200 1,800 1,800 2,800 2,800 2,000 2,000 1,800 1,800 1,400 1,400 2,500 2,500 200 200 700 700 J1 Credit 10,000 3 5 14 18 20 21 4-66 (b) & (c) YOUNG'S CARPET CLEANERS Work Sheet For the Month Ended March 31, 2005 Trial Balance Dr. Cr. (a) (d) (c) 2,200 10,000 700 5,300 (a) (e) 17,500 (b) (c) (d) 150 600 _____ Account Titles Adjustments Dr. Cr. 700 600 150 1,900 4,600 600 1,650 6,000 2,200 10,000 700 700 200 2,300 250 (b) 250 150 600 (e) 2,200 ______ PROBLEM 4-5B (Continued) Adjusted Trial Balance Dr. Cr. Income Statement Dr. Cr. Balance Sheet Dr. Cr. 1,900 4,600 600 1,650 6,000 2,200 10,000 700 1,900 3,900 1,200 1,800 6,000 4-67 200 1,800 17,500 500 250 500 2,200 6,000 200 2,300 250 250 150 600 ______ 6,000 250 ______ ______ 18,950 500 18,950 6,000 ______ 15,450 ______ Cash Accounts Receivable Cleaning Supplies Prepaid Insurance Equipment Accounts Payable M. Young, Capital M. Young, 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 3,500 2,500 6,000 6,000 15,450 500 12,950 2,500 15,450 Key: (a) Service Revenue Earned; (b) Depreciation Expensed; (c) Insurance Expired; (d) Cleaning Supplies Used; (e) Unpaid Salaries. PROBLEM 4-5B (Continued) (a), (e) & (f) Cash Ref. J1 J1 J1 J1 J1 J1 J1 J1 No. 101 Balance 10,000 7,000 5,200 3,200 1,400 2,800 2,600 1,900 No. 112 Balance 2,800 1,400 3,900 4,600 No. 128 Balance 1,200 600 No. 130 Balance 1,800 1,650 No. 157 Balance 6,000 Date Mar. 1 1 5 18 20 21 31 31 Explanation Debit 10,000 Credit 3,000 1,800 2,000 1,800 1,400 200 700 Date Mar. 14 21 28 31 Explanation Adjusting Accounts Receivable Ref. Debit J1 2,800 J1 J1 2,500 J2 700 Cleaning Supplies Ref. Debit J1 1,200 J2 Prepaid Insurance Ref. Debit J1 1,800 J2 Equipment Ref. J1 Credit 1,400 Date Mar. 3 31 Explanation Adjusting Credit 600 Date Mar. 5 31 Explanation Adjusting Credit 150 Date Mar. 1 Explanation Debit 6,000 Credit 4-68 PROBLEM 4-5B (Continued) Accumulated Depreciation--Equipment Explanation Ref. Debit Credit Adjusting J2 250 Accounts Payable Ref. Debit J1 J1 J1 2,000 Salaries Payable Ref. Debit J2 M. Young, Capital Ref. Debit J1 J3 J3 700 M. Young, Drawing Ref. Debit J1 700 J3 Income Summary Ref. Debit J3 J3 3,500 J3 2,500 No. 158 Balance 250 No. 201 Balance 3,000 4,200 2,200 No. 212 Balance 500 No. 301 Credit 10,000 2,500 Balance 10,000 12,500 11,800 No. 306 Balance 700 0 No. 350 Balance 6,000 2,500 0 Date Mar. 31 Date Mar. 1 3 18 Explanation Credit 3,000 1,200 Date Mar. 31 Explanation Adjusting Credit 500 Date Mar. 1 31 31 Explanation Closing Closing Date Mar. 31 31 Explanation Closing Credit 700 Date Mar. 31 31 31 Explanation Closing Closing Closing Credit 6,000 4-69 PROBLEM 4-5B (Continued) Service Revenue Ref. Debit J1 J1 J2 J3 6,000 Gas & Oil Expense Ref. Debit J1 200 J3 No. 400 Credit 2,800 2,500 700 Balance 2,800 5,300 6,000 0 No. 633 Balance 200 0 No. 634 Balance 600 0 No. 711 Credit 250 Balance 250 0 No. 722 Credit 150 Balance 150 0 No. 726 Credit Balance 1,800 2,300 0 Date Mar. 14 28 31 31 Explanation Adjusting Closing Date Mar. 31 31 Explanation Closing Credit 200 Date Mar. 31 31 Cleaning Supplies Expense Explanation Ref. Debit Adjusting J2 600 Closing J3 Depreciation Expense Ref. Debit J2 250 J3 Insurance Expense Ref. Debit J2 150 J3 Salaries Expense Ref. Debit J1 1,800 J2 500 J3 Credit 600 Date Mar. 31 31 Explanation Adjusting Closing Date Mar. 31 31 Explanation Adjusting Closing Date Mar. 20 31 31 Explanation Adjusting Closing 2,300 4-70 PROBLEM 4-5B (Continued) (d) YOUNG'S CARPET CLEANERS Income Statement For the Month Ended March 31, 2005 Revenues Service revenue............................................... Expenses Salaries expense ............................................. Cleaning supplies expense ............................ Depreciation expense ..................................... Gas & oil expense ........................................... Insurance expense.......................................... Total expenses ........................................ Net income............................................................... $6,000 $2,300 600 250 200 150 3,500 $2,500 YOUNG'S CARPET CLEANERS Owner's Equity Statement For the Month Ended March 31, 2005 M. Young, Capital, March 1 .................................... Add: Investments.................................................. Net income ................................................... Less: Drawings ...................................................... M. Young, Capital, March 31 .................................. $ $10,000 2,500 0 12,500 12,500 700 $11,800 YOUNG'S CARPET CLEANERS Balance Sheet March 31, 2005 Assets Current assets Cash.................................................................. Accounts receivable ....................................... Cleaning supplies ........................................... Prepaid insurance ........................................... Total current assets ................................ $ 1,900 4,600 600 1,650 8,750 4-71 PROBLEM 4-5B (Continued) YOUNG'S CARPET CLEANERS Balance Sheet (Continued) March 31, 2005 Assets (Continued) Property, plant, and equipment Equipment ........................................................ Less: Accumulated depreciation .................. Total assets .............................................. Liabilities and Owner's Equity Current liabilities Accounts payable ............................................ Salaries payable............................................... Total current liabilities............................. Owner's equity M. Young, Capital............................................. Total liabilities and owner's equity..................................................... (e) Date Mar. 31 31 General Journal Account Titles and Explanation Accounts Receivable Service Revenue Depreciation Expense Accumulated Depreciation-- Equipment Insurance Expense Prepaid Insurance Cleaning Supplies Expense Cleaning Supplies Salaries Expense Salaries Payable Ref. 112 400 711 158 722 130 634 128 726 212 Debit 700 250 250 150 150 600 600 500 500 J2 Credit 700 $ 2,200 500 2,700 11,800 $14,500 $6,000 250 5,750 $14,500 31 31 31 4-72 PROBLEM 4-5B (Continued) (f) Date Mar. 31 31 General Journal Account Titles and Explanation Service Revenue Income Summary Income Summary Salaries Expense Depreciation Expense Insurance Expense Cleaning Supplies Expense Gas & Oil Expense Income Summary M. Young, Capital M. Young, Capital M. Young, Drawing Ref. 400 350 350 726 711 722 634 633 350 301 301 306 Debit 6,000 3,500 2,300 250 150 600 200 2,500 2,500 700 700 J3 Credit 6,000 31 31 (g) YOUNG'S CARPET CLEANERS Post-Closing Trial Balance March 31, 2005 Debit $ 1,900 4,600 600 1,650 6,000 Credit Cash ...................................................................... Accounts Receivable........................................... Cleaning Supplies................................................ Prepaid Insurance................................................ Equipment............................................................. Accumulated Depreciation--Equipment ........... Accounts Payable ................................................ Salaries Payable................................................... M. Young, Capital................................................. 000,000 _______ $14,750 250 2,200 500 11,800 $14,750 $ 4-73 COMPREHENSIVE PROBLEM: CHAPTERS 2 TO 4 (a) Date July 1 1 General Journal Account Titles and Explanation Cash Mary Coleman, Capital Equipment Cash Accounts Payable Cleaning Supplies Accounts Payable Prepaid Insurance Cash Accounts Receivable Service Revenue Accounts Payable Cash Salaries Expense Cash Cash Accounts Receivable 25 31 31 Accounts Receivable Service Revenue Gas & Oil Expense Cash Mary Coleman, Drawing Cash Ref. 101 301 157 101 201 128 201 130 101 112 400 201 101 726 101 101 112 112 400 633 101 306 101 Debit 14,000 10,000 3,000 7,000 800 800 2,400 2,400 3,800 3,800 1,400 1,400 1,600 1,600 1,400 1,400 2,500 2,500 400 400 600 600 J1 Credit 14,000 3 5 12 18 20 21 4-74 (b) & (c) MARY'S MAIDS CLEANING SERVICE Work Sheet For the Month Ended July 31, 2005 Trial Balance Dr. (a) 1,300 (d) (c) 6,400 14,000 600 6,300 (a) 1,300 (e) (b) (b) (c) (d) _____ Account Titles Cr. Dr. Cr. Dr. Cr. Dr. Adjustments Adjusted Trial Balance Income Statement Cr. Balance Sheet Dr. Cr. 6,000 4,900 800 2,400 10,000 500 200 6,400 14,000 600 7,600 400 2,100 200 200 200 500 200 500 (e) 2,700 500 2,700 ______ 6,000 6,200 300 2,200 10,000 6,000 6,200 300 2,200 10,000 6,400 14,000 600 7,600 400 2,100 200 200 200 500 200 COMPREHENSIVE PROBLEM (Continued) 4-75 400 1,600 26,700 ______ 500 200 26,700 28,700 500 28,700 ______ ______ ______ 7,600 ______ 25,300 ______ Cash Accounts Receivable Cleaning Supplies Prepaid Insurance Equipment Accounts Payable Mary Coleman, Capital Mary Coleman, 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 3,400 4,200 7,600 7,600 25,300 500 21,100 4,200 25,300 Key: (a) Service Revenue; (b) Depreciation Expense; (c) Insurance Expired; (d) Cleaning Supplies Used; (e) Unpaid Salaries. COMPREHENSIVE PROBLEM (Continued) (a), (e) & (f) Cash Ref. J1 J1 J1 J1 J1 J1 J1 J1 No. 101 Balance 14,000 11,000 8,600 7,200 5,600 7,000 6,600 6,000 No. 112 Balance 3,800 2,400 4,900 6,200 No. 128 Balance 800 300 No. 130 Balance 2,400 2,200 No. 157 Balance 10,000 Date July 1 1 5 18 20 21 31 31 Explanation Debit 14,000 Credit 3,000 2,400 1,400 1,600 1,400 400 600 Date July 12 21 25 31 Explanation Adjusting Accounts Receivable Ref. Debit J1 3,800 J1 J1 2,500 J2 1,300 Cleaning Supplies Ref. Debit J1 800 J2 Prepaid Insurance Ref. Debit J1 2,400 J2 Equipment Ref. J1 Credit 1,400 Date July 3 31 Explanation Adjusting Credit 500 Date July 5 31 Explanation Adjusting Credit 200 Date July 1 Explanation Debit 10,000 Credit 4-76 COMPREHENSIVE PROBLEM (Continued) Accumulated Depreciation--Equipment Explanation Ref. Debit Credit Adjusting J2 200 Accounts Payable Ref. Debit J1 J1 J1 1,400 Salaries Payable Ref. Debit J2 Mary Coleman, Capital Ref. Debit J1 J3 J3 600 Mary Coleman, Drawing Ref. Debit J1 600 J3 Income Summary Ref. Debit J3 J3 3,400 J3 4,200 No. 158 Balance 200 No. 201 Balance 7,000 7,800 6,400 No. 212 Balance 500 No. 301 Credit 14,000 4,200 Balance 14,000 18,200 17,600 No. 306 Balance 600 0 No. 350 Balance 7,600 4,200 0 Date July 31 Date July 1 3 18 Explanation Credit 7,000 800 Date July 3 Explanation Adjusting Credit 500 Date July 1 31 31 Explanation Closing Closing Date July 31 31 Explanation Closing Credit 600 Date July 31 31 31 Explanation Closing Closing Closing Credit 7,600 4-77 COMPREHENSIVE PROBLEM (Continued) Service Revenue Ref. Debit J1 J1 J2 J3 7,600 Gas & Oil Expense Ref. Debit J1 400 J3 No. 400 Credit 3,800 2,500 1,300 Balance 3,800 6,300 7,600 0 No. 633 Balance 400 0 No. 634 Balance 500 0 No. 711 Credit 200 Balance 200 0 No. 722 Credit 200 Balance 200 0 No. 726 Credit Balance 1,600 2,100 0 Date July 12 25 31 31 Explanation Adjusting Closing Date July 31 31 Explanation Closing Credit 400 Date July 31 31 Cleaning Supplies Expense Explanation Ref. Debit Adjusting J2 500 Closing J3 Depreciation Expense Ref. Debit J2 200 J3 Insurance Expense Ref. Debit J2 200 J3 Salaries Expense Ref. Debit J1 1,600 J2 500 J3 Credit 500 Date July 31 31 Explanation Adjusting Closing Date July 31 31 Explanation Adjusting Closing Date July 20 31 31 Explanation Adjusting Closing 2,100 4-78 COMPREHENSIVE PROBLEM (Continued) (d) MARY'S MAIDS CLEANING SERVICE Income Statement For the Month Ended July 31, 2005 Revenues Service revenue................................................ Expenses Salaries expense .............................................. Cleaning supplies expense ............................. Gas & oil expense ............................................ Depreciation expense ...................................... Insurance expense........................................... Total expenses ......................................... Net income................................................................ $7,600 $2,100 500 400 200 200 3,400 $4,200 MARY'S MAIDS CLEANING SERVICE Statement of Owner's Equity For the Month Ended July 31, 2005 Mary Coleman, Capital, July 1 ................................ Add: Investments................................................... Net income .................................................... Less: Drawings ....................................................... Mary Coleman, Capital, July 31 .............................. $ $14,000 4,200 0 18,200 18,200 600 $17,600 4-79 COMPREHENSIVE PROBLEM (Continued) MARY'S MAIDS CLEANING SERVICE Balance Sheet July 31, 2005 Assets Current assets Cash .................................................................. Accounts receivable ........................................ Cleaning supplies ............................................ Prepaid insurance............................................ Total current assets ................................. Capital assets Equipment ........................................................ Less: Accumulated depreciation .................. Total assets .............................................. Liabilities and Owner's Equity Current liabilities Accounts payable ............................................ Salaries payable............................................... Total current liabilities............................. Owner's equity Mary Coleman, Capital .................................... Total liabilities and owner's equity..................................................... $ 6,400 500 6,900 17,600 $24,500 $ 6,000 6,200 300 2,200 14,700 $10,000 200 9,800 $24,500 4-80 COMPREHENSIVE PROBLEM (Continued) (e) Date July 31 31 General Journal Account Titles and Explanation Accounts Receivable Service Revenue Depreciation Expense Accumulated Depreciation-- Equipment Insurance Expense Prepaid Insurance Cleaning Supplies Expense Cleaning Supplies Salaries Expense Salaries Payable Ref. 112 400 711 158 722 130 634 128 726 212 Debit 1,300 200 200 200 200 500 500 500 500 J2 Credit 1,300 31 31 31 (f) Date July 31 31 General Journal J3 Account Titles and Explanation Service Revenue Income Summary Income Summary Salaries Expense Depreciation Expense Insurance Expense Cleaning Supplies Expense Gas & Oil Expense Income Summary Mary Coleman, Capital Mary Coleman, Capital Mary Coleman, Drawing 4-81 Ref. 400 350 350 726 711 722 634 633 350 301 301 306 Debit 7,600 3,400 Credit 7,600 2,100 200 200 500 400 31 31 4,200 4,200 600 600 COMPREHENSIVE PROBLEM (Continued) (g) MARY'S MAIDS CLEANING SERVICE Post-Closing Trial Balance July 31, 2005 Cash ...................................................................... Accounts Receivable........................................... Cleaning Supplies................................................ Prepaid Insurance................................................ Equipment ............................................................ Accumulated Depreciation--Equipment ........... Accounts Payable................................................ Salaries Payable .................................................. Mary Coleman, Capital ........................................ Debit $ 6,000 6,200 300 2,200 10,000 $ Credit _______ $24,700 200 6,400 500 17,600 $24,700 4-82 BYP 4-1 FINANCIAL REPORTING PROBLEM (a) Total current assets were $6,413 million at December 28, 2002, and $5,853 million at December 29, 2001. (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 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. (e) Total current liabilities were $6,052 million at December 28, 2002, and $4,998 million at December 29, 2001. 4-83 BYP 4-2 (a) 1. 2. 3. 4. COMPARATIVE ANALYSIS PROBLEM (in millions) Total current assets Net property, plant & equipment Total current liabilities Total stockholders' (shareholders') equity PepsiCo 6,413 7,390 6,052 9,298 Coca-Cola 7,352 5,911 7,341 11,800 (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 $11, 800 $9, 298 total assets 48.2% than PepsiCo's 39.6% . As a $24, 501 $23, 474 result, 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. 4-84 BYP 4-3 INTERPRETING FINANCIAL STATEMENTS A Global Focus The following are some of the differences between Lign Multiwood's balance sheet and the balance sheet presentation of U.S. companies: 1. 2. 3. 4. 5. 6. 7. 8. Its statements are presented using Swedish kronor, rather than U.S. dollars. It lists its noncurrent assets first, then its current assets. Its current assets are not listed in order of liquidity--in fact, cash is listed last instead of first. It uses the term share capital instead of common stock. It uses the term reserves instead of retained earnings. Its loss for the year is listed as a line item in equity. It lists equity before liabilities. It lists long-term liabilities first, then its short-term liabilities. 4-85 BYP 4-4 EXPLORING THE WEB The solution is dependent upon the companies chosen by the student. 4-86 BYP 4-5 (a) GROUP DECISION CASE EVERCLEAN JANITORIAL SERVICE Balance Sheet December 31, 2005 Assets Current assets Cash..................................................................................... Accounts receivable ($9,000 + $5,700) ............................ Janitorial supplies ($5,200 $2,400) ................................ Prepaid insurance ($4,800 X 2/3) ...................................... Total current assets ................................................... Property, plant, and equipment Cleaning equipment ($22,000 + $4,000)....................... $26,000 Less: Accum. depreciation-- cleaning equipment 6,000 $20,000 ($4,000 + $2,000) ............. Delivery trucks ($34,000 + $5,000)....................... 39,000 Less: Accum. depreciation-- delivery trucks 10,000 29,000 ($5,000 + $5,000) ............. Total assets............................. Liabilities and Owner's Equity Current liabilities Notes payable due within one year .................................. Accounts payable ($2,500 + $700).................................... Interest payable ($25,000 X 10% X 6/12) .......................... Total current liabilities ............................................... Long-term liabilities Notes payable, due July 1, 2007 ....................................... Total liabilities ............................................................ Owner's equity Laurie Merar, Capital.......................................................... Total liabilities and owner's equity........................... $ 6,500 14,700 2,800 3,200 27,200 49,000 $76,200 $10,000 3,200 1,250 14,450 15,000 29,450 46,750* $76,200 4-87 BYP 4-5 (Continued) EVERCLEAN JANITORIAL SERVICE Balance Sheet (Continued) December 31, 2005 *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 .................................. $2,400 1,600 7,000 700 1,250 12,950 $46,750 $54,000 5,700 59,700 (b) Everclean Janitorial Service met the terms of the bank loan because current assets exceed current liabilities by $12,750 ($27,200 $14,450) at December 31, 2005. 4-88 BYP 4-6 COMMUNICATION ACTIVITY MEMO To: From: Re: Accounting Instructor Student 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 work sheet and preparing reversing entries. If a work sheet is prepared, it is done after step 3 above, and it includes steps 4 and 6. The work sheet 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. 4-89 BYP 4-7 ETHICS CASE (a) The stakeholders in this case are: You, as controller. Rocky Balboa, 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. 4-90 ...
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