B alance s heet income s tatement assets liabilities

To record payment of 2004 property taxes on June 1.
B
ALANCE
S
HEET INCOME
S
TATEMENT
Assets = Liabilities + Owners' Equity + Revenues – Expenses
2005
6/1 Cash (52,500) Property Taxes
Payable (52,500)

CHAPTER 4 INCOME MEASUREMENT AND ACCRUAL ACCOUNTING
4-15
LO 5
EXERCISE 4-13 INTEREST RECEIVABLE
1. To record 10%, 60-day loan to MaxiDriver, Inc. on June 1.
B
ALANCE
S
HEET INCOME
S
TATEMENT
Assets = Liabilities + Owners' Equity + Revenues – Expenses
6/1 Cash (60,000)
Note Re-
ceivable 60,000
2. To accrue interest due on note for one month on June 30.
B
ALANCE
S
HEET INCOME
S
TATEMENT
Assets = Liabilities + Owners' Equity + Revenues – Expenses
6/30 Interest Interest
Receivable 500 Income 500
(60,000
X
.10
X
30/360)
3. To record collection of note and interest at maturity date on July 31.
B
ALANCE
S
HEET INCOME
S
TATEMENT
Assets = Liabilities + Owners' Equity + Revenues – Expenses
7/31 Cash 61,000 Interest Income 500
Note
Receivable (60,000)
Interest
Receivable (500)
LO 5 EXERCISE 4-14 UNBILLED ACCOUNTS RECEIVABLE

4-16
FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 5
EXERCISE 4-15 THE EFFECT OF IGNORING ADJUSTMENTS
ON NET INCOME
1. O 4. O
2. U 5. O
3. O 6. U
LO 5 EXERCISE 4-16 THE EFFECT OF ADJUSTMENTS ON THE
ACCOUNTING EQUATION
Assets = Liabilities + Owners' Equity
1. D NE D
2. NE I D
3. D NE D
4. NE D I
5. I NE I
6. NE I D
LO 6 EXERCISE 4-17 THE ACCOUNTING CYCLE
Order in the accounting cycle: 4, 7, 1, 5, 3, 6, 2
MULTI-CONCEPT EXERCISES
LO 1,2,3 EXERCISE 4-18 REVENUE RECOGNITION, CASH AND
ACCRUAL BASIS
1. Accrual basis income statements:
HATHAWAY HEALTH CLUB
INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31
Year 1 Year 2 Year 3
Sales*$ 122,000 $152,000 $182,000
Expenses:
Depreciation** $ 33,000 $ 33,000 $ 33,000
Salaries and wages 50,000 50,000 50,000
Advertising 5,000 5,000 5,000
Rent and utilities 36,000 36,000 36,000
Total expenses $ 124,000 $ 124,000 $ 124,000
Net income (loss) $ (2,000 ) $ 28,000 $ 58,000
* Year 1: $366,000/3 = $122,000 with a three year membership; only one-
third of the total recognized.

CHAPTER 4 INCOME MEASUREMENT AND ACCRUAL ACCOUNTING
4-17
LO 1,2,3 EXERCISE 4-19 THE EFFECT OF THE
PERCENTAGE-OF-COMPLETION METHOD ON
FINANCIAL STATEMENTS
1.
Income Recognized Under
Year Percentage-of-Completion Basis Cash Basis
1 (1,200,000/2,400,000*) 2,000,000 –
X
1,600,000** $ 800,000 1,200,000 $ 800,000
2 (600,000/2,400,000)
X
1,600,000 $ 400,000 0 – 600,000 (600,000)
3