Exercise 4 - ACCOUNTING Exercise 4 Jet Blue 1 ECONOMIC EVENTS 2 1 Issue 2,000,000 shares of common stock Par value is $5 per share Selling price is

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Unformatted text preview: ACCOUNTING Exercise 4 Jet Blue 1 ECONOMIC EVENTS 2 1. Issue 2,000,000 shares of common stock. Par value is $5 per share. Selling price is $10 per share. 2. Acquire 10 aircraft from Airbus at $200,000,000 each. The bank pays for the aircraft. We sign a ten year, 10% Note Payable with the bank. 3. Pay $6,000,000 for route authorities. 4. Receive $400,000,000 cash from customers for flight reservations. 5. Pay $40,000,000 for salaries. 6. Pay $40,000,000 for jet fuel used on flights. 7. Accrue $2,000,000 estimated cost to provide future free flights under Frequent Flyer Rewards Program. 8. 90% of the flights from #4 above take place. 9. Loan $1,000,000 to a major supplier strapped for cash. Five year term, 10% interest rate. 10. End of year. Record one year depreciation on the aircraft (20 year lives). 11. End of year. Accrue one year interest on Note Receivable. 12. End of year. Accrue one year interest on the Notes Payable. 13. End of year. Accrue $4,000,000 for unpaid salaries. 14. Transfer 25,900,000 Net Income to Retained Earnings. JOURNAL ENTRIES 1. 2. 3. 4. 5. 3 JOURNAL ENTRIES 6. 7. 8. 9. 10. 4 JOURNAL ENTRIES 11. 12. 13. 14. 15. 5 6 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 7 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 8 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 9 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 10 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 11 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 12 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 13 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 14 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 15 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 16 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 17 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 18 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 19 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 20 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 21 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 22 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 23 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 24 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 25 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 26 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 27 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 28 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 29 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 30 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 31 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit 32 _________________ A/C Reference Transaction Debit Current Balance Credit Debit Credit TRIAL BALANCE…..page 1 Account Debit 33 Credit TRIAL BALANCE…..page 2 Account Total Debit 34 Credit BALANCE SHEET Current Assets Current Liabilities Long Term Assets Long Term Liabilities Stockholders Equity Total Total 35 36 INCOME STATEMENT Revenue Expense Net Income (Loss) 37 JOURNAL ENTRY ANSWERS 1. Dr Cash 20,000,000 Cr Common Stock (2,000,000 x $5 PV) 10,000,000 Cr Paid in Capital 10,000,000 2. Dr Aircraft (200,000,000 x 10) 2,000,000,000 Cr Notes Payable 2,000,000,000 3. Route Authorities 6,000,000 Cr Cash 6,000,000 4. Dr Cash 400,000,000 Cr Customer Advances 400,000,000 5. Dr Salaries Expense 40,000,000 Cr Cash 40,000,000 38 JOURNAL ENTRY ANSWERS 6. Dr Fuel Expense 40,000,000 Cr Cash 40,000,000 7. Dr Frequent Flyer Expense 2,000,000 Cr Frequent Flyer Liability 2,000,000 8. Dr Customer Advances 360,000,000 Cr Flight Revenue 360,000,000 9. Notes Receivable 1,000,000 Cr Cash 1,000,000 10. Dr Depreciation Expense 100,000,000 Cr Accumulated Depreciation 100,000,000 (2,000,000,000 / 20 years = 100,000,000) 39 JOURNAL ENTRY ANSWERS 11. Dr Interest Receivable (1,000,000 x 10%) 100,000 Cr Interest Revenue 100,000 12. Dr Interest Expense (2,000,000,000 x 10%) 200,000,000 Cr Interest Payable 200,000,000 13. Dr Salaries Expense 4,000,000 Cr Salaries Expense 4,000,000 14. Retained Earnings 25,900,000 Cr Net Loss 25,900,000 40 Cash Reference Transaction Debit GJ1 Credit 20,000,000 GJ3 GJ4 Current Balance Debit 20,000,000 6,000,000 400,000,000 14,000,000 414,000,000 GJ5 40,000,000 374,000,000 GJ6 40,000,000 334,000,000 GJ9 1,000,000 333,000,000 Credit 41 Common Stock Reference Transaction Debit GJ1 Current Balance Credit 10,000,000 Debit Credit 10,000,000 42 Paid in Capital Reference Transaction Debit GJ1 Current Balance Credit 10,000,000 Debit Credit 10,000,000 43 Aircraft Reference Transaction Debit GJ2 2,000,000,000 Current Balance Credit Debit 2,000,000,000 Credit 44 Notes Payable Reference Transaction Debit GJ2 Current Balance Credit 2,000,000,000 Debit Credit 2,000,000,000 45 Route Authorities Reference Transaction Debit GJ3 6,000,000 Current Balance Credit Debit 6,000,000 Credit Customer Advances Reference Transaction Debit GJ4 GJ8 Current Balance Credit 400,000,000 360,000,000 46 Debit Credit 400,000,000 40,000,000 47 Salaries Expense Reference Transaction Debit Current Balance Credit Debit GJ5 40,000,000 40,000,000 GJ13 4,000,000 44,000,000 Credit 48 Fuel Expense Reference Transaction Debit GJ6 40,000,000 Current Balance Credit Debit 40,000,000 Credit Frequent Flyer Expense Reference Transaction Debit GJ7 2,000,000 49 Current Balance Credit Debit 2,000,000 Credit Frequent Flyer Liability Reference Transaction Debit GJ7 50 Current Balance Credit 2,000,000 Debit Credit 2,000,000 51 Flight Revenue Reference Transaction Debit GJ8 Current Balance Credit 360,000,000 Debit Credit 360,000,000 52 Notes Receivable Reference Transaction Debit GJ9 1,000,000 Current Balance Credit Debit 1,000,000 Credit Depreciation Expense Reference Transaction Debit GJ10 100,000,000 53 Current Balance Credit Debit 100,000,000 Credit Accum Depreciation Reference Transaction Debit GJ10 54 Current Balance Credit 100,000,000 Debit Credit 100,000,000 Interest Receivable Reference Transaction Debit GJ11 100,000 55 Current Balance Credit Debit 100,000 Credit 56 Interest Revenue Reference Transaction Debit GJ11 Current Balance Credit 100,000 Debit Credit 100,000 57 Interest Expense Reference Transaction Debit GJ12 200,000,000 Current Balance Credit Debit 200,000,000 Credit 58 Interest Payable Reference Transaction Debit GJ12 Current Balance Credit 200,000,000 Debit Credit 200,000,000 59 Salaries Payable Reference Transaction Debit GJ13 Current Balance Credit 4,000,000 Debit Credit 4,000,000 Retained Earnings Reference Transaction Debit GJ14 25,900,000 60 Current Balance Credit Debit 25,900,000 Credit 61 Net Loss Reference Transaction Debit GJ14 Current Balance Credit 25,900,000 Debit Credit 25,900,000 TRIAL BALANCE…..page 1 Account Cash Debit 62 Credit 333,000,000 Common Stock 10,000,000 Paid in Capital 10,000,000 Aircraft 2,000,000,000 Notes Payable Route Authorities 2,000,000,000 6,000,000 Customer Advances 40,000,000 Salaries Expense 44,000,000 Fuel Expense 40,000,000 Frequent Flyer Expense 2,000,000 Frequent Flyer Liability 2,000,000 Flight Revenue Notes Receivable Depreciation Expense 360,000,000 1,000,000 100,000,000 TRIAL BALANCE…..page 2 Account Debit Accumulated Depreciation Interest Receivable Credit 100,000,000 100,000 Interest Revenue Interest Expense 63 100,000 200,000,000 Interest Payable 200,000,000 Salaries Payable 4,000,000 Retained Earnings 25,900,000 Net Loss Total 25,900,000 2,752,000,000 2,752,000,000 BALANCE SHEET Current Assets Cash Interest Receivable 64 Current Liabilities 333,000,000 100,000 Customer Advances 40,000,000 Frequent Flyer Liability 2,000,000 Interest Payable Salaries Payable Long Term Assets 200,000,000 4,000,000 Long Term Liabilities Aircraft 2,000,000,00 0 Accumulated Depre Notes Payable 2,000,000,000 (100,000,000) Net Book Value 1,900,000 Stockholders Equity Notes Receivable 1,000,000 Common Stock 10,000,000 Route Authorities 6,000,000 Paid in Capital 10,000,000 Retained Earnings Total 2,240,100,000 Total (25,900,000) 2,240,100,000 65 INCOME STATEMENT Revenue Flight Revenue Interest Revenue 360,000,000 100,000 Expense Salaries Expense 44,000,000 Fuel Expense 40,000,000 Frequent Flyer Expense 2,000,000 Depreciation Expense 100,000,000 Interest Expense 200,000,000 Net Income (Loss) (25,900,000) 66 Jet Blue Video 0% pe ns e t 0% ss e 2. Asset Expense A 1. 15 Ex Jet Blue pays for route authorities (to fly into certain locations). How does it account for these costs 67 Jet Blue Video 0% s an ce om er Ad v st tR ev en ue 0% ig h 2. Flight Revenue Customer Advances Fl 1. 15 Cu Passengers often pay well in advance of the scheduled flight. How does Jet Blue account for these cash receipts 68 Jet Blue Video 0% A cc r ue th e th e co ex pe st s ns e w ... i. . . 0% ns e 2. Expense the costs when passengers take the free flights Accrue the expense in advance pe 1. 15 Ex For the costs of providing free flights on Frequent Flyer Awards, does Jet Blue 69 Jet Blue Video What are the incremental costs in providing free flights under Frequent Flyer Awards 7. 8. 4 4 3 & 3 2 & & 3 & 2 & 1 6. & 5. 0% 0% 0% 0% 0% 0% 0% 0% 2 4. 1 3. 15 Pa Fu ss el rv en at ge io Fo ns ri od ns an ur d an tic ce ke t in g ... 2. Fuel Food Passenger insurance Reservations and ticketing costs 1&2 2&3 3&4 1&2&3&4 Re se 1. 70 1. Issue 2,000,000 shares of common stock. Par value is $5 per share. Selling price is $10 per share. Common Stock…..2,000,000 x $5 = 10,000,000 Paid in Capital…..2,000,000 x $5 = 10,000,000 00 Ca sh 20 ,00 0,0 00 20 ,0 Dr k1 Ca sh Dr St oc on 00 ,0 0. .. .. 0. k2 St oc Co m m on 4. 0% 0% 0% 0% Dr 3. 15 Co m m 2. Dr Common Stock 20,000,000 Cr Cash 20,000,000 Dr Common Stock 10,000,000 Dr Paid in Capital 10,000,000 Cr Cash 20,000,000 Dr Cash 20,000,000 Cr Common Stock 20,000,000 Dr Cash 20,000,000 Cr Common Stock 10,000,000 Cr Paid in Capital 10,000,000 Dr 1. 71 2. Acquire 10 aircraft from Airbus at $200,000,000 each. The bank pays for the aircraft. We sign a ten year, 10% Note Payable with the bank. 200,000,000 x 10 = $2,000,000,000 15 Dr 2, 0 ble sP ay a No te 2,0 00 ,00 0,0 ... 00 00 Dr Ai rc raf t 2,0 00 ,00 0,0 2, 0 ... raf t ble Ai rc Dr 4. 0% 0% 0% 0% sP ay a 3. No te 2. Dr Notes Payable 2,000,000,000 Cr Aircraft 2,000,000,000 Dr Aircraft 2,000,000,000 Cr Accounts Payable 2,000,000,000 Dr Aircraft 2,000,000,000 Cr Notes Payable 2,000,000,000 Dr Notes Payable 2,000,000,000 Cr Aircraft 2,000,000,000 Dr 1. 72 3. Pay $6,000,000 for route authorities. s.. . uth or itie Dr s.. . Ca sh 6,0 00 Dr ,00 Ca 0 sh 6,0 00 ,00 0 rit ie uth o te A Ro u Dr 4. 0% 0% 0% 0% te A 3. 15 Ro u 2. Dr Route Authorities 6,000,000 Cr Cash 6,000,000 Dr Route Authorities Expense 6,000,000 Cr Cash 6,000,000 Dr Cash 6,000,000 Cr Route Authorities Expense 6,000,000 Dr Cash 6,000,000 Cr Route Authorities 6,000,000 Dr 1. 73 4. Receive $400,000,000 cash from customers for flight reservations. ,00 Cu 0,0 st 00 om er Ad va nc .. 00 40 0 Dr Dr Ca s h 40 0 ,00 0,0 .. 40 . ue Ca sh Dr Re ve n 4. 0% 0% 0% 0% ht 3. 15 Fl ig 2. Dr Flight Revenue 400,000,000 Cr Cash 400,000,000 Dr Cash 400,000,000 Cr Flight Revenue 400,000,000 Dr Cash 400,000,000 Cr Customer Advances 400,000,000 Dr Customer Advances 400,000,000 Cr Cash 400,000,000 Dr 1. 74 5. Pay $40,000,000 for salaries. 0% 0,0 h4 Ca s Dr ies Ex pe ns e 00 ... ,00 0 0% Sa lar 2. Dr Salaries Expense 40,000,000 Cr Cash 40,000,000 Dr Cash 40,000,000 Cr Salaries Expense 40,000,000 Dr 1. 15 75 6. Pay $40,000,000 for jet fuel used on flights. 15 Dr Cas h 40, ... xpe nse 0% 40, 000 ,00 0 0% Fue lE 2. Dr Fuel Expense 40,000,000 Cr Cash 40,000,000 Dr Cash 40,000,000 Cr Fuel Expense 40,000,000 Dr 1. 76 7. Accrue $2,000,000 estimated cost to provide future free flights under Frequent Flyer Rewards Program. 15 Dr Dr Fre qu e Dr nt F ly e Fre rE x... qu e nt F ly er Lia bi.. . 000 x Ca ... sh 2, 0 00, er E Fl y 4. 0% 0% 0% 0% nt 3. Fre que 2. Dr Frequent Flyer Expense 2,000,000 Cr Cash 2,000,000 Dr Cash 2,000,000 Cr Frequent Flyer Expense 2,000,000 Dr Frequent Flyer Expense 2,000,000 Cr Frequent Flyer Liability 2,000,000 Dr Frequent Flyer Liability 2,000,000 Cr Frequent Flyer Expense 2,000,000 Dr 1. 77 8. Ninety percent 90% of the flights for which the company received advances take place. 400,000,000 x 90% = 360,000,000 15 0% Dr Fli g ht to me r Ad va n Re ve nu e3 6. . . c.. 0% Cu s 2. Dr Customer Advances 360,000,000 Cr Flight Revenue 360,000,000 Dr Flight Revenue 360,000,000 Cr Customer Advances 360,000,000 Dr 1. 78 9. Loan $1,000,000 to a major supplier strapped for cash. Five year term, 10% interest rate. Re ce iva Ca b.. sh Dr 1, 0 No 00 tes ,00 0 Re ce iva ble ... Dr un ts 1, 0 00 ,00 0 Ac co 4. 0% 0% 0% 0% Ca sh 3. Dr 2. Dr Cash 1,000,000 Cr Accounts Receivable 1,000,000 Dr Accounts Receivable 1,000,000 Cr Cash 1,000,000 Dr Cash 1,000,000 Cr Notes Receivable 1,000,000 Dr Notes Receivable 1,000,000 Cr Cash 1,000,000 Dr 1. 15 79 10. End of year. Record one year depreciation on the aircraft (20 year lives). 2,000,000,000 / 20 years = 100,000,000 De pr ... Ex p. .. ted Ac c Dr Dr De p re c um ula iat ion 00 ,00 0 00 ,0 ra ft 1 Ex p. .. ion Ai rc iat Dr 4. 0% 0% 0% 0% re c 3. 15 De p 2. Dr Depreciation Expense 100,000,000 Cr Aircraft 100,000,000 Dr Aircraft 100,000,000 Cr Depreciation Expense 100,000,000 Dr Depreciation Expense 100,000,000 Cr Accumulated Depreciation 100,000,000 Dr Accumulated Depreciation 100,000,000 Cr Depreciation Expense 100,000,000 Dr 1. 80 11. End of year. Accrue one year interest on Note Receivable. 1,000,000 x 10% = 100,000 15 Re ce iva Int ble er ... es tR ec Dr eiv Int ab er l... es tR ev Dr en Int ue er es .. . tR ev en ue 1.. . 4. 0% 0% 0% 0% Dr 3. No tes 2. Dr Notes Receivable 100,000 Cr Interest Revenue 100,000 Dr Interest Receivable 100,000 Cr Interest Revenue 100,000 Dr Interest Revenue 100,000 Cr Notes Receivable 100,000 Dr Interest Revenue 100,000 Cr Interest Receivable 100,000 Dr 1. 81 12. End of year. Accrue one year interest on the Notes Payable. 2,000,000,000 x 10% = 200,000,000 15 2.. . Pa ya ble 20 ... Int er es t Dr Dr No tes Pa ya ble e. .. ... xp en s ns e2 er es tE Ex pe Int 4. Dr 3. 0% 0% 0% 0% Int er es t 2. Dr Interest Expense 200,000,000 Cr Interest Payable 200,000,000 Dr Interest Expense 200,000,000 Cr Notes Payable 200,000,000 Dr Notes Payable 200,000,000 Cr Interest Expense 200,000,000 Dr Interest Payable 200,000,000 Cr Interest Expense 200,000,000 Dr 1. 82 13. End of year. Accrue $4,000,000 for unpaid salaries. 15 Dr Sa lar ies Pa ya b le . xp en se ... rie sE 0% .. 0% Sa la 2. Dr Salaries Expense 4,000,000 Cr Salaries Payable 4,000,000 Dr Salaries Payable 4,000,000 Cr Salaries Expense 4,000,000 Dr 1. 83 14. Transfer 25,900,000 Net Loss to Retained Earnings. 15 0% Dr Re ta i ne d Lo ss 25 ,9 Ea rn ing s ... 00 , 00 0 0% Ne t 2. Dr Net Loss 25,900,000 Cr Retained Earnings 25,900,000 Dr Retained Earnings 25,900,000 Cr Net Loss 25,900,000 Dr 1. 84 JET BLUE COMPETENT STAFF 85 86 NOOMA AICPA MOSKOW 87 88 ...
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This note was uploaded on 11/02/2010 for the course ACCT 325 taught by Professor Anderson,p during the Winter '09 term at Azusa Pacific.

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Exercise 4 - ACCOUNTING Exercise 4 Jet Blue 1 ECONOMIC EVENTS 2 1 Issue 2,000,000 shares of common stock Par value is $5 per share Selling price is

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