ACG 2021Chapter 3 Power Points S15-3

Participation Questions Chap. 3 – due 2/8/15Which publicly traded Company is used as an example in class for the revenue recognition principle?

Apple Computers, JC Penney, Sears, or Walmart

The second example for the revenue recognition principle discusses Calvin actually taking a cruise in which month?

April 2013, November 2012, March 2013, or May 2013

Which depreciation method did we discuss for the $24,000 in Equipment purchased by Eagle Golf Academy, where the depreciation expense equals $1,000 per month if the useful life of the equipment is 24 months?

Straight-line, Double declining balance, or Activity based depreciation After all of the adjusting entries were completed for Eagle Golf Academy and the Income statement was prepared, was the income for Golf Eagle positive or negative?

Positive or Negative

The example of Eagle Golf Academy showed that companies can pay dividends even when there is a net loss for the month.

True or False

Announcements – 1/29/15 Handout for today–Chapter 3 PowerPoints Pg. 76 & Chapter 1 – 3 Review PowerPoint pg. 18 (Also, in the

Class Materials under Chapter 3 handout).

Assignments – Due 2/1/15

Homework Assignment #2 (Connect) – unlimited attempts Participation Questions for Chapter #2 questions (Webcourses) – 1 attempt Definitions Quiz (Webcourses) – 2 attempts

Due 2/8/15 Chapter 3 Homework (Connect) – unlimited attempts Participation questions for Chapter 3 (Webcourses) – 1 attempt Accounting Cycle Project (Connect) – unlimited attempts.

This assignment will take extra time – 2 to 3 hours, plan accordingly.

Exam 1 – February 9-11 @ CBA Testing Center BA2 room #104

Learn Smart – 5 points Extra Credit for Block 1 ends February 11th at 11:59 PM

Exam Review session during regular class time on 2/5/14

Announcements – 2/3/15 Handout for today–Chapter 3 PowerPoints Pg. 94 & Review PowerPoint pg. 18

Assignments – Due 2/8/15

Chapter 3 Homework (Connect) – unlimited attempts Participation questions for Chapter 3 (Webcourses) – 1 attempt Accounting Cycle Project (Connect) – unlimited attempts.

This assignment will take extra time – 2 to 3 hours, plan accordingly. Due 2/15/15

SEC Financial Statement Project (Webcourses) – 1 attempt

Exam 1 – February 9-11 @ CBA Testing Center BA2 room #104

Learn Smart – 5 points Extra Credit for Block 1 ends February 11th at 11:59 PM

Exam Review session during regular class time on 2/5/14

Questions to be Answered

Overall - What is financial reporting’s role in today’s American society?

Chapter 3 – Once we have all of the transactions aggregated, how do we communicate this information to decision-makers?

Chapter 03

The Financial Reporting Process

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc.

PART A - Accrual-Basis Accounting

3-7

LO1 Revenue and Expense Reporting

Accrual-basis accounting records revenues when earned (the revenue recognition principle) and expenses with related revenues (the matching principle).

Accrual-basis accounting records revenues when earned (the revenue recognition principle) and expenses with related revenues (the matching principle).

Revenue Recognition Principle

When to record

• After revenue is earned:• When good or

service has been delivered to customer

Amount to record

• Cash value of goods or services transferred to customer

Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 8

9

Walmart Statement of Income

Consolidated Statements Of Income (Audited) (USD $)

In Millions, except Per Share data, unless otherwise specified

12 Months Ended

Jan. 31, 2014 Jan. 31, 2013 Jan. 31, 2012

Revenues:

Net sales $ 473,076 $ 465,604 $ 443,416

Membership and other income 3,218 3,047 3,093

Total revenues 476,294 468,651 446,509

Costs and expenses:

Cost of sales 358,069 352,297 334,993

Operating, selling, general and administrative expenses

91,353 88,629 85,025

Operating income 26,872 27,725 26,491

Interest:

Debt 2,072 1,977 2,034

Capital leases 263 272 286

Interest income (119) (186) (161)

Interest, net 2,216 2,063 2,159

Income from continuing operations before income taxes

24,656 25,662 24,332

Current 8,619 7,976 6,722

Deferred (514) (18) 1,202

Provision for income taxes 8,105 7,958 7,924

Income from continuing operations 16,551 17,704 16,408

Income (loss) from discontinued operations, net of income taxes

144 52 (21)

Consolidated net income 16,695 17,756 16,387

Walmart – Revenue Recognition Sales

Walmart recognizes sales revenue, net of sales taxes and estimated sales returns, at the time it sells merchandise to the customer.

Membership Fee Revenue Walmart recognizes membership fee revenue both in the United States

and internationally over the term of the membership, which is typically 12 months.

Membership fee revenue is included in membership and other income in Walmart's Consolidated Statements of Income. The deferred membership fee is included in accrued liabilities in Walmart's Consolidated Balance Sheets.

Shopping Cards Customer purchases of shopping cards are not recognized as revenue

until the card is redeemed and the customer purchases merchandise using the shopping card

3-11


Recognize revenue when it is earnedo Calvin books a cruise with Carnival Cruise Lines,

the world’s largest cruise line. He makes reservations and pays for the cruise in November 2014, but the cruise is not scheduled to sail until April 2015.

o When does Carnival report revenue from the ticket sale?

Recognize revenue when it is earnedo Calvin books a cruise with Carnival Cruise Lines,

the world’s largest cruise line. He makes reservations and pays for the cruise in November 2014, but the cruise is not scheduled to sail until April 2015.

o When does Carnival report revenue from the ticket sale?

3-12


1. In November 2014???

No.

Because it has not substantially fulfilled its obligation to Calvin.

2. In April 2015???

Yes.

Because it is in April 2015 that the cruise occurs.

1. In November 2014???

No.

Because it has not substantially fulfilled its obligation to Calvin.

2. In April 2015???

Yes.

Because it is in April 2015 that the cruise occurs.

3-133-13


Suppose that, anticipating the cruise, Calvin buys a Jimmy Buffet CD from Best Buy.

Rather than paying cash, Calvin uses his Best Buy card to buy the CD on account.

When does Best Buy recognize revenue?

Suppose that, anticipating the cruise, Calvin buys a Jimmy Buffet CD from Best Buy.

Rather than paying cash, Calvin uses his Best Buy card to buy the CD on account.

When does Best Buy recognize revenue?

3-143-14


Even though Best Buy doesn’t receive cash

immediately from Calvin, it still records the

revenue at the time it sells the CD.

Even though Best Buy doesn’t receive cash

immediately from Calvin, it still records the

revenue at the time it sells the CD.

3-153-15

Matching Principle

Recognize expenses in the same period as the revenue they help generate.

Recognize expenses in the same period as the revenue they help generate.

Matching Principle

Identify expenses incurred

Measure the expenses

Match against revenues earned


3-18

LO2 Accrual–Basis Compared with Cash–Basis Accounting

There are no receivables or payables in the cash basis of accounting.

Special Bonus Material

McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc.

What is an extroverted accountant like?

He’ll look at your shoes while talking to you instead of his own.

Two accountants are in a bank when armed robbers burst in. While several of the robbers take the money from the tellers, others line the customers up against a wall and proceed to take their wallets, watches, and other valuables. In the midst of the chaos, accountant No. 1 jams something in accountant No. 2’s hand. Without looking down, accountant No. 2 whispers, "What is this?" to which accountant number one replies, "It's that $50 I owe you."

Part B The Measurement Process

3-213-21

Closing Process

LO3 Adjusting Entries

Reporting Process

External Transactions of Eagle Golf Academy – Page 43

Transaction Date External Transactions in JanuaryType of Activity

(1) Jan. 1 Sell shares of common stock for $25,000 to obtain the funds necessary to start the business.

Financing

(2) Jan. 1 Borrow $10,000 from the local bank and sign a note promising to repay the full amount of the debt in three years.

Financing

(3) Jan. 1 Purchase equipment necessary for giving golf training, $24,000.

Investing

(4) Jan. 1 Pay one year of rent in advance, $6,000 ($500 per month).

Operating

(5) Jan. 6 Purchase supplies on account, $2,300. Operating

2-22

Transaction Date External Transactions in JanuaryType of Activity

(6) Jan. 12 Provide golf training to customers for cash, $3,600.

Operating

(7) Jan. 17 Provide golf training to customers on account, $2,500.

Operating

(8) Jan. 23 Receive cash in advance for 10 golf training sessions to be given in the future, $600.

Operating

(9) Jan. 28 Pay salaries to employees, $2,800. Operating(10) Jan. 30 Pay cash dividends of $200 to

shareholders.Financing

Unadjusted Trial Balance of Eagle Golf Academy

Account Title Debit CreditCash $6,200 Accounts Receivable 2,500Supplies 2,300Prepaid Rent 6,000Equipment 24,000Accounts Payable $2,300 Unearned Revenue 600Notes Payable 10,000Common Stock 25,000Retained Earnings 0Dividends 200Service Revenue 6,100Salaries Expense 2,800

Totals $44,000 $44,000

Eagle Golf AcademyTrial BalanceJanuary 31

2-23

3-243-24

Purpose of Adjusting Entries

To record events that have occurred but we have not yet recorded.o To record revenues in the period earned.

o To record expenses in the period they are incurred in the generation of those revenues.

o Financial statements issued at end of periodo Several accounts on unadjusted trial balance need to be brought up-

to-date

To record events that have occurred but we have not yet recorded.o To record revenues in the period earned.

o To record expenses in the period they are incurred in the generation of those revenues.

o Financial statements issued at end of periodo Several accounts on unadjusted trial balance need to be brought up-

to-date

3-253-25

Adjusting Entries - Classifications

Prepayments:

o Prepaid expenses – we paid cash (or had an obligation to pay cash) for the purchase of an asset before we incurred the expense.

o Depreciation - The process of allocating the cost of plant assets to expense over estimated useful lives

o Unearned revenues – we received cash and recorded a liability before we earned the revenue.

Accruals:

o Accrued expenses – we paid cash after we incurred the expense and recorded a liability.

o Accrued revenues – we received cash after we earned the revenue and recorded an asset.

Prepayments:




Accruals:



3-263-26

Prepayments - Prepaid Expenses

o Costs of assets acquired in one period that will be expensed in a future period.

o Business has paid cash first before the asset was used to generate revenue

o Examples: Purchase of equipment or supplies, payment of rent in advance, payment of insurance in advance.

Adjusting Entry:

Debit expense account (increase an expense)

Credit asset account (decrease an asset)

o Costs of assets acquired in one period that will be expensed in a future period.

o Business has paid cash first before the asset was used to generate revenue

o Examples: Purchase of equipment or supplies, payment of rent in advance, payment of insurance in advance.

Adjusting Entry:


Credit asset account (decrease an asset)

Prepaid Expenses - Future Benefit Recorded as assets when purchased

JOURNAL

Date Accounts and explanation Debit Credit

Jan 1 Prepaid rent 6,000

Cash 6,000

Jan 6 Supplies 2,300

Cash 2,300

3-283-28

Example: Prepaid Rent

Prepaid rent expires

$500

Adjustingentry

$5,500Remaining

prepaid rentJan. 31

$6,000 Cash paid for prepaid rent

Jan. 1

3-293-29

Example: Supplies

Supplies used during January

$1,200

Adjustingentry

$1,100Supplies On-handJan. 31

$2,300 Cash paid for

Supplies Jan. 6

Prepaid Expenses - Benefit Received Expensed when expired or used

JOURNAL


Jan 31 Rent expense 500

Prepaid rent 500

Jan 31 Supplies expense 1,200

Supplies 1,200

Prepaid Rent

Prepaid rentJan 1 $6,000 Jan 31$500

$5,500

Rent expense$500Jan 31

Amount expiredAmount

remaining

Balance Sheet

Income Statement

Supplies

SuppliesJan 6 $2,300 Jan 31$1,200

$1,100

Supplies expense$1,200Jan 31

Amount usedAmount on hand

Balance Sheet

Income Statement

Prepayments - Depreciation Expense

As the Asset is used, the cost is transferred to Depreciation Expense – Matching principle

Examples of plant assets: Buildings, Equipment, Furniture

Accumulated Depreciation

Sum of all depreciation expense Increases over plant asset’s life

Contra-asset Normal credit balance Always has a companion account

Normal balance is opposite the companion account Book value

Cost of plant asset less accumulated depreciation

Apartment Investment & Management (AIV)

Condensed Consolidated Balance Sheets (Unaudited) (USD $)

In Thousands, unless otherwise specified

Sep. 30, 2013 Dec. 31, 2012

ASSETS

Buildings and improvements $ 6,481,745 $ 6,212,176

Land 1,937,239 1,915,683

Total real estate 8,418,984 8,127,859

Less accumulated depreciation (2,908,941) (2,728,660)

Net real estate ($420,079 and $599,302 related to VIEs)

5,510,043 5,399,199

Cash and cash equivalents ($20,721 and $23,599 related to VIEs)

67,622 84,413

Restricted cash ($38,918 and $38,576 related to VIEs)

130,511 146,281

Accounts receivable, net 32,925 34,020

Notes receivable 215,821 102,897

Other assets ($218,811 and $220,317 related to VIEs)

513,409 516,018

Assets held for sale 19,175 118,552

Total assets 6,489,506 6,401,380

LIABILITIES AND EQUITY

Non-recourse property debt ($374,444 and $495,012 related to VIEs)

4,530,971 4,570,719

Revolving credit facility borrowings 298,550 0

Total indebtedness 4,829,521 4,570,719

Accounts payable 27,438 30,747

Accrued liabilities and other ($156,157 and $160,590 related to VIEs)

328,910 315,637

Deferred income 111,390 128,098

Liabilities related to assets held for sale 17,118 121,239

Total liabilities 5,314,377 5,166,440

Preferred noncontrolling interests in Aimco Operating Partnership

79,969 80,046

Commitments and contingencies (Note 8)

0 0

Equity:

Perpetual Preferred Stock 68,114 68,114

Common Stock, $0.01 par value, 505,787,260 shares authorized, 145,916,439 and 145,563,903 shares issued/outstanding at September 30, 2013 and December 31, 2012, respectively

1,459 1,456

Additional paid-in capital 3,704,393 3,712,684

Accumulated other comprehensive loss (5,467) (3,542)

Distributions in excess of earnings (2,886,352) (2,863,287)

Total Aimco equity 882,147 915,425

Noncontrolling interests in consolidated real estate partnerships

245,735 271,065

Common noncontrolling interests in Aimco Operating Partnership

(32,722) (31,596)

Total equity 1,095,160 1,154,894

Total liabilities and equity 6,489,506 6,401,380

AIV – Income StatementCondensed Consolidated Statements

of Operations (Unaudited) (USD $) In Thousands, except Per Share data,

unless otherwise specified

3 Months Ended 9 Months Ended

Sep. 30, 2013 Sep. 30, 2012 Sep. 30, 2013 Sep. 30, 2012

REVENUES

Rental and other property revenues $ 247,117 [1] $ 242,149 [1] $ 732,112 [1] $ 716,307 [1]

Tax credit and asset management revenues

7,397

10,696

22,458

27,681

Total revenues 254,514

252,845

754,570

743,988

OPERATING EXPENSES

Property operating expenses 98,463 [1] 100,988 [1] 295,492 [1] 293,105 [1]

Investment management expenses 373

2,817

3,503 [1] 9,445

Depreciation and amortization 74,622 [1] 83,438 [1] 229,270

252,948 [1]

Provision for real estate impairment losses

0

0

8,349 [1]

General and administrative expenses 10,962

12,311

33,894

37,491

Other expense, net 2,215

4,440

6,445

9,060

Total operating expenses 186,635

203,994

568,604

610,398

Operating income 67,879

48,851

185,966

133,590

Interest income, net 3,587

1,998

12,663

6,852

Interest expense (61,726)

(61,196)

(182,525)

(182,614)

Equity in income (losses) of unconsolidated real estate partnerships

277

206

905

(2,800)

(Loss) gain on dispositions and other, net (1,899)

16,024

(4,553)

20,630

Income (loss) before income taxes and discontinued operations

8,118

5,883

12,456

(24,342)

Income tax benefit (expense) 77

40

(216)

352

Income (loss) from continuing operations 8,195

5,923

12,240

(23,990)

Income from discontinued operations, net 71,215

47,412

76,982

122,103

Net income 79,410

53,335

89,222

98,113

Depreciation – Equipment has a useful life of 24 months – Straight-line Depreciation

JOURNAL


Jan 1 Equipment 24,000

Cash 24,000

Jan 31 Depreciation expense 1,000

Accumulated depreciation 1,000

Depreciation – Straight Line

Equipment

Jan 1 $24,000

Depreciation Expense$1,000Jan 31

Balance Sheet

Income Statement

Accumulated DepreciationJan 31$1,000

Book Value

Balance SheetJanuary 31, 2012

Equipment $24,000

Less: Accumulated Depreciation (1,000)

Book value $23,000

3-403-40

Prepayments - Unearned Revenues

o Received cash first from customer before revenue is earned.

o Once a company has provided products or services, they can record revenue earned and reduce the obligation to the customer. Recorded as a liability when payment is received

Adjusting entry:

Debit liability account (decrease a liability)

Credit revenue account (increase a revenue)

o Received cash first from customer before revenue is earned.

o Once a company has provided products or services, they can record revenue earned and reduce the obligation to the customer. Recorded as a liability when payment is received

Adjusting entry:

Debit liability account (decrease a liability)


Southwest Airlines

3-41

Consolidated Balance Sheet (USD $) In Millions, unless otherwise specified

Dec. 31, 2012 Dec. 31, 2011

Current assets [Abstract]

Cash and cash equivalents $ 1,113 $ 829

Short-term investments 1,857 2,315

Accounts and other receivables 332 299

Inventories of parts and supplies, at cost 469 401

Deferred income taxes 246 263

Prepaid expenses and other current assets

210 238

Total current assets 4,227 4,345

Property and equipment, at cost [Abstract]

Flight equipment 16,367 15,542

Ground property and equipment 2,714 2,423

Deposits on flight equipment purchase contracts

416 456

Property and equipment, at cost 19,497 18,421

Less allowance for depreciation and amortization

6,731 6,294

Property and equipment, net 12,766 12,127

Goodwill 970 970

Other assets 633 626

Total assets 18,596 18,068

Current liabilities [Abstract]

Accounts payable 1,107 1,057

Accrued liabilities 1,102 996

Air traffic liability 2,170 1,836

Current maturities of long-term debt 271 644

Total current liabilities 4,650 4,533

Long-term debt less current maturities 2,883 3,107

Deferred income taxes 2,884 2,566

Deferred gains from sale and leaseback of aircraft

63 75

Other non-current liabilities 1,124 910

Stockholders' equity [Abstract]

Common stock 808 808

Capital in excess of par value 1,210 1,222

Retained earnings 5,768 5,395

Accumulated other comprehensive income (loss)

(119) (224)

Treasury stock, at cost (675) (324)

Total stockholders' equity 6,992 6,877

Total liabilities and stockholders' equity $ 18,596 $ 18,068

Revenue recognition Tickets sold for Passenger air travel are initially deferred as Air traffic liability. Passenger revenue is recognized and Air traffic liability is reduced when the service is provided (i.e., when the flight takes place). Air traffic liability primarily represents tickets sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in Air traffic liability, which includes a portion of the Company’s liability associated with its frequent flyer program, fluctuates throughout the year based on seasonal travel patterns, fare sale activity, and activity associated with the Company’s frequent flyer programs.

Unearned Revenue - Cash Received for 10 golf lessons

Receive cash before revenue is earned Creates a liability

Business owes customer a good or service Business has to repay cash received from

customer if good/service not delivered

JOURNAL


Jan 23 Cash 600

Unearned revenue 600

3-433-43

Example: Unearned Training Revenue

Adjustingentry

$?Unearned revenue remainsJan. 31

$600Cash

received in advanceJan. 26

Services provided

2 Lessons

Unearned Revenue - Good/Service Delivered – (2 golf lessons taken)

When revenue is earned (i.e. good/service delivered) Liability for unearned revenue is reduced Revenue is increased

JOURNAL


Jan 31 Unearned Revenue 120

Service Revenue 120

3-453-45

Adjusting Entries - Classifications

Prepayments:




Accruals:



Prepayments:




Accruals:



3-463-46

Accrued Expenseso Record before paying cash

o When a company has incurred an expense but hasn’t yet paid cash or recorded an obligation to pay, it still should record the expense.

o Examples: Accrued salaries, accrued interest.

o Adjusting entry:


Credit liability account (increase a liability)

o Record before paying cash

o When a company has incurred an expense but hasn’t yet paid cash or recorded an obligation to pay, it still should record the expense.

o Examples: Accrued salaries, accrued interest.

o Adjusting entry:


Credit liability account (increase a liability)

Accrued Salaries

JOURNAL


Jan 31 Salaries expense 1,680

Salaries payable 1,680

1-29Monday

1-30Tuesday

2-2Friday

2-1Thursday

1-31Wednesday

$2,800 weekly salaries$1,680 $1,120

3-483-48

Example: Accrued Interest Costs

Adjustingentry

$100Interest

owedJan. 31

$100Cash paid for Interest

Feb 15

Interest $100

Jan. 1

Bank Loan $10,000

3-493-49

Interest Calculation – Pg 90

Amount of Annual Interest Fraction InterestNote payable x Rate x of Year = Expense

10,000 12% 1/12 100

3-503-50

Example: Accrued Interest CostsJOURNAL


Jan 31 Interest Expense 100

Interest Payable 100

3-513-51

Accrued Revenueso When a company has earned revenue but hasn’t yet

received cash or recorded an amount receivable, it still should record the revenue. This is referred to as an accrued revenue.

o Examples: Interest receivable,

Adjusting entry:

Debit asset account (increase an asset)


o When a company has earned revenue but hasn’t yet received cash or recorded an amount receivable, it still should record the revenue. This is referred to as an accrued revenue.

o Examples: Interest receivable,

Adjusting entry:

Debit asset account (increase an asset)


Summary of the Adjusting Process

Two purposes of adjusting process Measure income (Revenues and

Expenses) Update balance sheet

Every adjusting entry affects at least one: Revenue or expense Asset or liability

Prepaids and Accruals -

PREPAIDS –CASH FIRST

FIRST LATER

Prepaid expenses

Prepaid expense Expense

Cash Prepaid expense

Unearned revenues

Cash Unearned revenue

Unearned revenue Revenue

ACCRUALS – CASH LATER

FIRST LATER

Accrued expenses

Expense Payable

Payable Cash

Accrued revenues

Receivable Cash

Revenue Receivable

Summary of Adjusting Entries

Recording the Adjustment

Category of Adjustment Debit Credit

Prepaid expense Expense Asset

Depreciation Expense Contra asset

Accrued expense Expense Liability

Accrued revenue Asset Revenue

Unearned revenue Liability Revenue

Unadjusted Trial Balance of Eagle Golf Academy

Account Title Debit CreditCash $6,200 Accounts Receivable 2,500Supplies 2,300Prepaid Rent 6,000Equipment 24,000Accounts Payable $2,300 Unearned Revenue 600Notes Payable 10,000Common Stock 25,000Retained Earnings 0Dividends 200Service Revenue 6,100Salaries Expense 2,800

Totals $44,000 $44,000

Eagle Golf AcademyTrial BalanceJanuary 31

2-55

3-563-56

LO4 Post Adjusting Entries

o Post adjusting entries to the T-accounts in the general ledger to update the account balances.

o Prepare an adjusted trial balance.

o An adjusted trial balance is a list of all accounts and their balances after we have updated account balances for adjusting entries.

o Post adjusting entries to the T-accounts in the general ledger to update the account balances.

o Prepare an adjusted trial balance.

o An adjusted trial balance is a list of all accounts and their balances after we have updated account balances for adjusting entries.

3-573-57

Unadjusted Trial Balance and Adjusted Trial Balance of Eagle Golf Academy

Debit Credit Debit Credit Debit CreditCash $6,200 $6,200 Accounts receivable 2,500 (h) 200 2,700Supplies 2,300 (b) 1,200 1,100Prepaid rent 6,000 (a) 500 5,500Equipment 24,000 24,000Accum. depr., equip (c) 1,000 $1,000 Accounts payable 2,300 2,300Unearned revenue 600 (d) 120 480Salaries payable (e) 1,680 1680Utilities payable (f) 960 960Interest payable (g) 100 100Notes payable 10,000 10,000Common stock 25,000 25,000Retained earnings 0 0Dividends 200 200Service revenue 6,100 6,420Supplies expense (b) 1,200 1200Rent expense (a) 500 500Depreciation expense (c) 1,000 1000Salaries expense 2,800 (e) 1,680 4,480

Utilities expense (f) 960 960Interest expense (g) 100 100

Totals $44,000 $44,000 $47,940 $47,940

AccountsUnadjusted

Trial Balance Adjustments

EAGLE GOLF ACADEMYUnadjusted Trial Balance and Adjusted Trial Balance

January 31

(d and h) 320

AdjustedTrial Balance

3-583-58

Unadjusted Trial Balance and Adjusted Trial Balance of Eagle Golf Academy

Debit Credit Debit Credit Debit CreditCash $6,200 $6,200 Accounts receivable 2,500 (h) 200 2,700Supplies 2,300 (b) 1,200 1,100Prepaid rent 6,000 (a) 500 5,500Equipment 24,000 24,000Accum. depr., equip (c) 1,000 $1,000 Accounts payable 2,300 2,300Unearned revenue 600 (d) 120 480Salaries payable (e) 1,680 1680Utilities payable (f) 960 960Interest payable (g) 100 100Notes payable 10,000 10,000Common stock 25,000 25,000Retained earnings 0 0Dividends 200 200Service revenue 6,100 6,420Supplies expense (b) 1,200 1200Rent expense (a) 500 500Depreciation expense (c) 1,000 1000Salaries expense 2,800 (e) 1,680 4,480

Utilities expense (f) 960 960Interest expense (g) 100 100

Totals $44,000 $44,000 $47,940 $47,940

AccountsUnadjusted

Trial Balance Adjustments

EAGLE GOLF ACADEMYUnadjusted Trial Balance and Adjusted Trial Balance

January 31

(d and h) 320

AdjustedTrial Balance

Part C

The Reporting Process

3-603-60

LO5 Financial Statements

Accounts Debit CreditCash $6,200 Accounts receivable 2,700Supplies 1,100Prepaid rent 5,500 BALANCEEquipment 24,000 SHEET

Accumulated Depreciation $1,000 AssetsAccounts payable 2,300 =Unearned revenue 480 LiabilitiesSalaries payable 1680 +Interest payable 100 Stockholders’ Equity

Utilities payable 960

Notes Payable 10,000STATEMENT OF Common stock 25,000

STOCKHOLDERS’ Retained earnings 0EQUITY Dividends 200

Common Stock Service revenue 6,420+ Supplies expense 1200 INCOME

Retained Earnings Rent expense 500 STATEMENT(= RE, Jan. 1 + NI – Div) Depreciation expense 1000 Revenues

= Salaries expense 4,480 −

Stockholders’ Equity Utilities expense 960 Expenses

Interest expense 100 =

Totals $47,940 $47,940 Net Income

EAGLE GOLF ACADEMYAdjusted Trial Balance

January 31

3-613-61

Income Statement

Revenues:Service revenue $6,420

Expenses:Salaries expense $4,480 Rent expense 500 Supplies expense 1,200 Depreciation expense 1,000 Interest expense 100 Utilities expense 960

Total expenses 8,240Net income ($1,820)

EAGLE GOLF ACADEMYIncome Statement

For the month ended January 31

3-623-62

Statement of Stockholders’ Equity

TotalCommon Retained Stockholders

’Stock Earnings Equity

Balance at January 1 -0- -0- -0-Issuance of common stock $25,000 $25,000 Add: Net income (Net Loss) (1820) (1820)Less: Dividends (200) (200)Balance at January 31 $25,000 ($2,020) $22,980

EAGLE GOLF ACADEMYStatement of Stockholders’ EquityFor the month ended January 31

Classifying Assets & Liabilities

Classified as current or long-term term based on liquidity (assets) or order of liquidation (liabilities) How quickly an item can be converted to cash

(assets) or liquidated using cash (liabilities)

Cash Most liquid

Accounts receivable Very liquid

Inventory Somewhat liquid

Plant assets Not liquid


• Converted to cash, sold or consumed in the next yearCurrent assets

• Held for longer than one year• Includes plant assets

Long-term assets

• Must be paid within one yearCurrent liabilities

• Due date more than one year from balance sheet date

Long-term liabilities

Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.

Classified Balance Sheet Categorizes and subtotals assets and

liabilities by current and long-term

Assets Liabilities

Current assets Current liabilities

Long-term investments Long-term liabilities

Property, plant and equipment

Other assets


3-663-66

Classified Balance SheetSheetJanuary 31

EAGLE GOLF ACADEMYClassified Balance

Assets Liabilities Current assets: Current liabilities: Cash $6,200 Accounts payable $2,300

Accounts receivable 2,700 Unearned revenue 480 Supplies 1,100 Salaries payable 1680 Prepaid rent 5,500 Utilities payable 960

Total current assets 15,500 Interest payable 100 Total current liabilities $5,520

Long-term assets: Equipment 24,000 Long-term liabilities:

Less: Accum. depr., equip. (1,000) Notes payable 10,000

Total long-term assets 23,000 Total liabilities $15,520

Stockholders’ Equity Common stock 25,000

Retained earnings (2,020) Total stockholders’ equity $22,980

Total assets $38,500 Total liabilities and stockholders’ equity $38,500

Part D

The Closing Process

3-68

LO6 Closing Entries

Prepares the accounts for next period Temporary accounts are set to zero and closed

into Retained earnings

o Increase the retained earnings account by the amount of revenues and decrease retained earnings by the amount of expenses and dividends.

o Does not affect the balances of permanent accounts other than retained earnings.

Prepares the accounts for next period Temporary accounts are set to zero and closed

into Retained earnings

o Increase the retained earnings account by the amount of revenues and decrease retained earnings by the amount of expenses and dividends.

o Does not affect the balances of permanent accounts other than retained earnings.

Closing Entries (Zero out temporary accounts)

Close DividendsDebit Retained earnings Credit Dividends

Close ExpensesDebit Retained earnings Credit each expense account

Close RevenuesDebit each revenue account Credit Retained earnings


JOURNAL


Sales revenue 6,420

Retained earnings 6,420

Retained earnings 8,240

Supplies Expense 1,200

Rent expense 500

Depreciation expense 1,000

Salaries expense 4,480

Utilities expense 960

Interest expense 100


JOURNAL


Retained earnings 200

Dividends 200


3-723-72

Close to Retained Earnings

0 Beginning balance6,420 Total revenues

Total expenses 8,240 Total dividends 200

(2,020) Ending balance

Retained Earnings

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LO7 Post Closing Entries and Prepare Post–Closing Trial Balance

Accounts Debit CreditCash $6,200 Accounts receivable 2,700 Supplies 1,100 Prepaid rent 5,500 Equipment 24,000 Accumulated Depreciation $1,000 Accounts payable 2,300 Unearned revenue 480 Salaries Payable 1,680 Interest Payable 100 Utilities Payable 960 Notes Payable 10,000 Common stock 25,000 Retained earnings (2,020)

Totals $39,500 $39,500

EAGLE GOLF ACADEMYPost-Closing Trial Balance

January 31

Accounting Cycle

New Accounting Period

End of Accounting Period Source Document - Transactions

Closing Entries Chart of Accounts - List of accounts and account numbers

Statement of Cashflows RECORD Journal Entry

Balance Sheet POST to Ledger - Accounts and balances

Statement of Retained Earnings Trial Balance (Unadjusted)

Statement of Operartions Adjusting Entries

Adjusted Trial Balance

Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.75

Balance Sheet

Accounting Equation: Assets = Liabilities + Owners Equity

GAAP (Rules) formulated by FASB

Principles• Revenue Recognition

• Matching Principle

Income Statement

Statement of Retained Earnings

Statement of Cash Flows

3-76

Account Title Debits Credits

Cash 9,300$

Accounts Receivable 8,500

Supplies 1,500

Prepaid Rent 6,000

Equipment 75,000

Accumulated Depreciation 10,000$

Accounts Payable 6,700

Salaries Payable -

Interest Payable -

Utilities Payable -

Notes Payable 15,000

Common Stock 35,000

Retained Earnings 14,000

Service Revenue 45,000

Salaries Expense 23,500

Interest Expense -

Rent Expense -

Supplies Expense -

Utilities Expense 1,900

Depreciation Expense -

Totals 125,700$ 125,700$

Additional information:

Depreciation of equipment for year 5,000$

Accrued salaries at year-end 1,600$

Principal amount borrowed 9/1/2012 15,000$

Term of loan in years 4$

Annual Interest rate of loan 10%

Unused supplies at year-end 600$

Paid 1 year's rent on new studio on 4/1/2012 6,000$

Monthly rent amount 500$

Unpaid utilities at year-end 100$

CRIMSON TIDE MUSIC ACADEMYUnadjusted Trial Balance

December 31, 2012

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Date Account Debit Credit

31-Dec

3-79


31-Dec Depreciation Expense 5,000$

Accumulated Depreciation 5,000$

Adjust accumulated depreciation


Salaries Payable 1,600

Adjust salaries payable

Interest Expense 500

Interest Payable 500

Adjust interest payable

Supplies Expense 900

Supplies 900

Adjust supplies

Rent expense 4,500

Prepaid rent 4,500

Adjust prepaid rent

Utilities Expense 100

Utilities Payable 100

Adjust utilities expense

3-80

Account Title Debits Credits Debits Credits Debits Credits

Cash 9,300$

Accounts Receivable 8,500

Supplies 1,500

Prepaid Rent 6,000

Equipment 75,000

Accumulated Depreciation 10,000

Accounts Payable 6,700

Salaries Payable -

Interest Payable -

Utilities Payable -

Notes Payable 15,000

Common Stock 35,000


Service Revenue 45,000


Interest Expense -

Rent Expense -

Supplies Expense -


Depreciation Expense -

Totals 125,700$ 125,700$ -$ -$ -$ -$

December 31, 2012

Unadjusted Trial Balance Adjustments Adjusted Trial Balance

CRIMSON TIDE MUSIC ACADEMYUnadjusted Trial Balance AND Adjusted Trial Balance

3-81

Account Title Debits Credits Debits Credits Debits CreditsCash 9,300$ 9,300$ Accounts Receivable 8,500 8,500 Supplies 1,500 900 600 Prepaid Rent 6,000 4,500 1,500 Equipment 75,000 75,000 Accumulated Depreciation 10,000 5,000 15,000 Accounts Payable 6,700 6,700 Salaries Payable - 1,600 1,600 Interest Payable - 500 500 Utilities Payable - 100 100 Notes Payable 15,000 15,000 Common Stock 35,000 35,000 Retained Earnings 14,000 14,000 Service Revenue 45,000 45,000 Salaries Expense 23,500 1,600 25,100 Interest Expense - 500 500 Rent Expense - 4,500 4,500 Supplies Expense - 900 900 Utilities Expense 1,900 100 2,000 Depreciation Expense - 5,000 5,000 Totals 125,700$ 125,700$ 12,600$ 12,600$ 132,900$ 132,900$

Adjusted Trial Balance

CRIMSON TIDE MUSIC ACADEMYUnadjusted Trial Balance AND Adjusted Trial Balance

December 31, 2012

Unadjusted Trial Balance Adjustments

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CRIMSON TIDE MUSIC ACADEMYIncome Statement

For the Period Ending December 31, 2012

Revenue:

Expenses:

Net Income

CRIMSON TIDE MUSIC ACADEMYStatement of Stockholders' Equity


Common Stock

Retained Earnings Total

Beginning Balance, December 31, _2011____ 35,000$ 14,000$ 49,000$ Add: Common Stock - Add: Net IncomeLess: DividendsEnding Balance, December 31, _2012____

3-83

CRIMSON TIDE MUSIC ACADEMYBalance SheetDecember 31, 2012

Assets:CashAccounts ReceivableSuppliesPrepaid RentOffi ce Equipment

Less: Accumulated DepreciationTotal Assets

Liabilities:Accounts PayableSalaries PayableInterest PayableUtilities PayableNotes Payable

Total Liabilities

Stockholders EquityCommon StockRetained Earnings

Total Stockholders' EquityTotal Liabilities and Stockholders' Equity

3-84

CRIMSON TIDE MUSIC ACADEMYIncome Statement


Revenue:Service Revenue 45,000$

Expenses:Salaries Expense 25,100 Interest Expense 500 Rent Expense 4,500 Supplies Expense 900 Utilities Expense 2,000 Depreciation Expense 5,000 38,000

Net Income 7,000.00$

CRIMSON TIDE MUSIC ACADEMYStatement of Stockholders' Equity


Common Stock

Retained Earnings Total

Beginning Balance, December 31, _2011____ 35,000$ 14,000$ 49,000$ Add: Common Stock - Add: Net Income 7,000 7,000 Less: Dividends - - Ending Balance, December 31, _2012____ 35,000$ 21,000$ 56,000$

3-85

CRIMSON TIDE MUSIC ACADEMYBalance Sheet

December 31, 2012

Assets:Cash 9,300$ Accounts Receivable 8,500 Supplies 600 Prepaid Rent 1,500 Offi ce Equipment 75,000

Less: Accumulated Depreciation 15,000 60,000 Total Assets 79,900$

Liabilities:Accounts Payable 6,700$ Salaries Payable 1,600 Interest Payable 500 Utilities Payable 100 Notes Payable 15,000

Total Liabilities 23,900$

Stockholders EquityCommon Stock 35,000$ Retained Earnings 21,000

Total Stockholders' Equity 56,000$ Total Liabilities and Stockholders' Equity 79,900$

3-86


31-Dec

3-87


31-Dec Service Revenue 45,000$

Retained Earnings 45,000$



Interest Expense 500

Rent Expense 4,500

Supplies Expense 900


Depreciation Expense 5,000

ACG 2021Chapter 3 Power Points S15-3

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