CH 3 Some Solutions

CH03_Solutions_DEP

Chapter 3

Adjusting Accounts for Financial Statements

MINI EXERCISES

M3-21. (45 mintes)

a.Balance SheetIncome Statement

TransactionCash Asset+Noncash Assets=Liabil-ities+Contrib. Capital+Earned CapitalRevenues-Expenses=Net Income

June 1. Invested $12,000 cash.+12,000Cash=+12,000Common Stock-=

June 2. Paid $950 cash for June rent.-950Cash=-950Retained Earnings-+950Rent Expense=-950

June 3. Purchased $6,400 of office equipment on account.+6,400Office Equipment=+6,400Accounts Payable-=

June 6. Purchased $3,800 of supplies; $1,800 cash, $2,000 on account.-1,800Cash+3,800Supplies=+2,000Accounts Payable-=

June 11. $4,700 billed for services.+4,700Accounts Receivable=+4,700Retained Earnings+4,700Service Fees Earned-=+4,700

June 17. Collected $3,250 on accounts.+3,250Cash-3,250Accounts Receivable=-=

June 19. Paid $3,000 on office equipment account.-3,000Cash=-3,000Accounts Payable-=

June 25. Paid cash dividend of $900.-900Cash=-900Retained Earnings-=

June 30. Paid $350 utilities.-350Cash=-350Retained Earnings-+350Utilities Expense=-350

June 30. Paid $2,500 salaries.-2,500Cash=-2,500Retained Earnings-+2,500Salaries Expense=-2,500

TOTALS5,750+11,650=5,400+12,000+04,700-3,800=900

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M3-21. continued

b.June1Cash (+A)12,000Common stock (+SE)12,000Owner invested cash for stock.

2Rent expense (+E, -SE) 950Cash (-A) 950Paid June rent.

3Office equipment (+A) 6,400Accounts payable (+L) 6,400Purchased office equipment on account.

6Supplies (+A) 3,800Cash (-A) 1,800Accounts payable (+L) 2,000Purchased $3,800 of supplies; paid $1,800 down with balance due in 30 days.

11Accounts receivable (+A) 4,700Service fees earned (+R,+SE)4,700Billed clients for services.

17Cash (+A) 3,250Accounts receivable (-A)3,250Collections from clients on account.

19Accounts payable (-L) 3,000Cash (-A)3,000Payment on account.

25Retained earnings (-SE) 900Cash (-A) 900Issued dividends.

30Utilities expense (+E, -SE) 350Cash (-A)350Paid utilities bill for June.

30Salaries expense (+E, -SE) 2,500Cash (-A)2,500Paid salaries for June.

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M3-21. concluded

c.

+ Cash (A) -+ Supplies (A) -

June 1 12,000950June 2June 63,800

173,2501,8006

3,00019

900 25

35030 + Office Equipment (A) -

2,50030June 3 6,400

+ Accounts Receivable (A) -- Accounts Payable (L) +

June 114,7003,250June 17June 19 3,0006,400 June 3

2,000June 6

- Common Stock (SE) +- Retained Earnings (SE) +

12,000June 1June 25900

+ Rent Expense (E) -

June 2 950

- Service Fees Earned (R) ++ Utilities Expense (E) -

4,700June 11June 30350

+ Salaries Expense (E) -

June 302,500

M3-22. (45 minutes)



April 1. Invested $9,000 in cash.+9,000Cash=+9,000Common Stock-=

April 2. Paid $2,850 cash for lease.-2,850Cash+2,850Prepaid Van Lease=-=

April 3. Borrowed $10,000.+10,000Cash=+10,000Note Payable-=

April 3. Purchased $5,500 equipment for $2,500 cash with rest on account.-2,500Cash+5,500Equipment=+3,000Accounts Payable-=

April 4. Paid $4,300 cash for supplies.-4,300Cash+4,300Supplies=-=

April 7. Paid $350 cash for ad.-350Cash=-350Retained Earnings-+350Ad.Expense=-350

April 21. Billed $3,500 for services+3,500Accounts Receivable=+3,500Retained Earnings+3,500Cleaning Fees Earned-=+3,500

April 23. Paid $3,000 cash on account.-3,000Cash=-3,000Accounts Payable-=

April 28. Collected $2,300 on account.+2,300Cash-2,300Accounts Receivable=-=

April 29. Paid $1,000 cash dividend.-1,000Cash=-1,000Retained Earnings-=

April 30. Paid $1,750 cash for wages.-1,750Cash=-1,750Retained Earnings-+1,750Wages Expense=-1,750

April 30. Paid $995 cash for gas.-995Cash=-995Retained Earnings-+995Van Fuel Expense=-995

TOTALS4,555+13,850=10,000+9,000+-5953,500-3,095=405

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M3-22. continued

b. April1Cash (+A)9,000Common stock (+SE) 9,000Owner invested cash for stock.

2Prepaid van lease (+A)2,850Cash (-A) 2,850Paid six months' lease on van.

3Cash (+A)10,000Notes payable (+L)10,000Borrowed money from bank for one year at 10% interest.

3Equipment (+A)5,500Cash (-A) 2,500Accounts payable (+L) 3,000Purchased $5,500 of equipment; paid $2,500 down with balance due in 30 days.

4Supplies (+A)4,300Cash (-A) 4,300Purchased supplies for cash.

7Advertising expense (+E, -SE)350Cash (-A) 350Paid for April advertising.

21Accounts receivable (+A)3,500Cleaning fees earned (+R, +SE) 3,500Billed customers for services.

23Accounts payable (-L)3,000Cash (-A) 3,000Payment on account.

28Cash (+A)2,300Accounts receivable (-A) 2,300Collections from customers on account.

29Retained earnings (-SE)1,000Cash (-A) 1,000Issued cash dividends.

30Wages expense (+E, -SE)1,750Cash (-A) 1,750Paid wages for April.

30Van fuel expense (+E, -SE) 995Cash (-A) 995Paid for gasoline used in April.continued next page

M3-22 concluded

c.+ Cash (A) -+ Accounts Receivable (A) -

April 19,0002,850April 2April 213,5002,300April 28

310,0002,5003

282,3004,3004

3507+ Prepaid Van Lease (A) -

3,00023April 2 2,850

1,000 29

1,750 30+ Equipment (A) -

995 30April 35,500

+ Supplies(A) -- Notes Payable (L) +

April 44,30010,000April 3

- Accounts Payable (L) +- Retained Earnings (SE) +

April 233,0003,000April 3April 29 1,000

- Common Stock (SE) +- Cleaning Fees Earned (R) +

9,000April 13,500 April 21

+ Advertising Expense (E) -+ Wages Expense (E) -

April 7350April 301,750

+ Van Fuel Expense (E) -

April 30995

M3-23. (20 minutes)



1. Received $20,100 in advance for contract work.+20,100Cash=+20,100 Unearned Service Fees-=

Jan.1Cash (+A)20,100Unearned service fees (+L)20,100To record fee received in advance.

b.Balance SheetIncome Statement


2. Adjusting entry for work completed by Jan. 31.=-3,350Unearned Service Fees+3,350Retained Earnings+3,350ServiceFees-=+3,350

Jan.31Unearned service fees (-L)3,350 Service fees (+R, +SE)3,350To reflect January service fees earned oncontract ($20,100/6 = $3,350).

c.Balance SheetIncome Statement


3. Adjusting entry for fees earned but not billed.+570Fees Receivable=+570Retained Earnings+570ServiceFees-=+570

Jan.31Fees receivable (+A)570 Service fees (+R, +SE)570To record unbilled service fees earnedat January 31.

M3-24. (15 minutes)

1.Balance SheetIncome Statement


1. Adjusting entry for prepaid insurance.-185Prepaid Insurance=-185Retained Earnings-+185InsuranceExpense=-185

Jan.31Insurance expense (+E, -SE)185Prepaid insurance (-A) 185To record January insurance expense($6,660/36 = $185).



2. Adjusting entry for supplies used.-1,080Supplies=-1,080Retained Earnings-+1,080Supplies Expense=-1,080

Jan.31Supplies expense (+E, -SE)1,080Supplies (-A)1,080To record January supplies expense($1,930 $850 = $1,080).

3.

Balance SheetIncome Statement

TransactionCash Asset+Noncash Assets-ContraAssets=Liabil-ities+Contrib. Capital+Earned CapitalRevenues-Expenses=Net Income

3. Adjusting entry for depreciation of equipment.-+62AccumulatedDepreciation-62Retained Earnings-+62Depreciation Expense=-62

Jan.31Depreciation expenseEquipment (+E, -SE) 62Accumulated depreciationEquipment (+XA, -A) 62To record January depreciation on officeequipment ($5,952/96 = $62).

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M3-24. concluded



4. Adjusting entry for rent.=-875Unearned Rent Revenue+875Retained Earnings+875Rent Revenue-=+875

Jan.31Unearned rent revenue (-L) 875 Rent revenue (+R, +SE) 875To record portion of advance rent earnedin January.



5. Adjusting entry for accrued salaries.=+490Salaries Payable-490Retained Earnings-+490Salaries Expense=-490

Jan.31Salaries expense (+E, -SE) 490Salaries payable (+L) 490To record accrued salaries at January 31.

M3-25. (15 minutes)

(All amounts in $ millions.)a. Balance SheetIncome Statement

TransactionCash Asset+Noncash Assets=Liabilities+Contrib. Capital+Earned CapitalRevenues-Expenses=NetIncome

Inventory purchases (total).+3,734 Inventory

=+3,734 Accounts Payable-=

Inventories (+A).. 3,734 Accounts payable (+L)..3,734To record total purchases made at various dates.

b. Beginning AP balance + Purchases Payments = Ending AP balance. So $447 + $3,734 - Payments = $510. Thus Payments = $3,671


TransactionCash Asset+Noncash Assets=Liabilities+Contrib. Capital+Earned CapitalRevenues-Expenses=Net Income

Adjusting entry for cost of goods sold for 2011.-3,617Inventory=-3,617Retained Earnings-+3,617Cost of Goods Sold=-3,17

* Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance. So $897 + $3,734 COGS = $1.014. Thus COGS = $3,617

Cost of goods sold (+E, -SE)... 3,617Inventories (-A)3,617To record cost of goods sold for the year ended 1/31/2012.(Note: the COGS figure can be verified from the firms financial statements. Purchases can not be so determined, but could be established by working backwards. See M3-29.)

M3-26. (15 minutes)Architect Services CompanyStatement of Stockholders EquityFor Year Ended December 31, 2014

Common StockRetained EarningsTotal Stockholders Equity

Balance at December 31, 2013$30,000$18,000$48,000

Stock issuance6,0006,000

Dividends (9,700)(9,700)

Net income_____29,90029,900


M3-27. (5 minutes)

Ending balance = Beginning balance + Credit from closing revenue Debit from closing expenses: $137,600 = $99,000 + $347,400 - $308,800

M3-28. (15 minutes)

a. Date 2013DescriptionDebitCredit

Dec.31Commissions revenue (-R)84,900Retained earnings (+SE)84,900To close the revenue account.31Retained earnings (-SE)55,900Wages expense (-E)36,000Insurance expense (-E) 1,900Utilities expense (-E) 8,200Depreciation expense (-E) 9,800To close the expense accounts.Closing the revenue and expense accounts into retained earnings has the effect of increasing the retained earnings balance by an amount equal to net income (revenue minus expenses). The balance of Smiths Retained Earnings after closing entries are posted is:$101,100 credit ($72,100 + $84,900 - $55,900).

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M3-28 concluded

b.+ Wages Expense (E) -+ Utilities Expense (E) -

Bal.36,00036,000(2)Dec. 31Bal.8,2008,200(2) Dec. 31

Bal.0Bal.0

+ Insurance Expense (E) -- Commissions Revenue (R) +

Bal.1,9001,900(2)Dec. 31(1)Dec. 3184,90084,900 Bal.

Bal.00 Bal.

+ Depreciation Expense (E) -- Retained Earnings (SE) +

Bal. 9,8009,800(2)Dec. 31(2)Dec. 3155,90072,100 Bal.

Bal.084,900(1)Dec.31

101,100Bal. Dec.31

M3-29. (30 minutes)

(All amounts in $ millions.)



Recognize cost ofgoods sold-5,206 Merchandise Inventory=-5,206RetainedEarnings

-+5,206Cost ofgoods sold=-5,206

Cost of goods sold (+E,-SE)5,206

Merchandise Inventory(-A) 5206

To recognize the cost of goods sold.

b.Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance. So $1,370 + Purchases - $5,206 = $1,375. Thus purchases = $5,211



Recognize cost ofgoods sold.+5,211Merchandise inventory=+5,211AccountPayable-=-

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M3-29. concluded

b.continuedMerchandise Inventory(+A)5,211

Accounts Payable (+L)5,211

To recognize the purchases on account.

c.Beginning AP balance + Purchases Payments = Ending AP balance. So $869 + $5,211 - Payments = $949. Thus Payments = $5,131

M3-30 (10 minutes)a.



a. Dec. 31 Interest earned.+600 Interest Receivable=+600 Retained Earnings+600Interest Income-=+600

Dec.31Interest receivable (+A) 600Interest income (+R, +SE) 600To record accrued interest income.

b.Dec. 31Interest income (-R)2,400Retained earnings (+SE)2,400To close the Interest Income account.



c. 1/31 Receipt of $900 interest.+900Cash-600 Interest Receivable=+ 300Retained Earnings+300Interest Income-=+300

2014Jan.31Cash (+A) 900Interest income (+R, +SE)300Interest receivable (-A)600To record cash receipt of interest.

EXERCISES

E3-31. (30 minutes)

a.Dec.31Service fees earned (-R,-SE)80,300Retained earnings (+SE)80,300To close the revenue account.

31Retained earnings (-SE)82,300Rent expense (-E)20,800Salaries expense (-E)45,700Supplies expense (-E) 5,600Depreciation expense (-E)10,200To close the expense accounts.

b.+ Rent Expense (E) -+ Supplies Expense (E) -

Bal.20,80020,800(2)Bal.5,6005,600(2)

Bal.0Bal. 0

+ Depreciation Expense (E) -

Bal. 10,20010,200(2)

Bal. 0

+ Salaries Expense (E) -- Service Fees Earned (R) +

Bal.45,700 45,700 (2) (1)80,300 80,300Bal.

Bal.00 Bal.

- Retained Earnings (SE) +

(2)82,300 67,000Bal.

80,300(1)

65,000Bal.

Brooks Consulting earned a loss during the period (expenses exceeded revenues by $2,000), so the ending retained earnings is lower than the beginning retained earnings (even though no dividends were paid).

E3-33. (15 minutes)


TransactionCash Asset+Noncash Assets=Liabi-lities+Contrib. Capital+Earned CapitalRevenues-Expenses=Net Income

a. Adjusting entry for salaries expense.=+4,700 Salaries Payable-4,700 Retained Earnings-+4,700 Salaries Expense=-4,700

2013Dec.31Salaries expense (+E,-SE) 4,700Salaries payable (+L) 4,700To record accrued salaries payable.

b.31Retained earnings (-RE)250,000Salaries expense (-E)250,000To close the Salaries Expense account.


TransactionCash Asset+Noncash Assets=Liabi-lities+Contrib. Capital+Earned CapitalRevenues-Expenses=NetIncome

c. Paid salaries.-12,000Cash=-4,700 Salaries Payable-7,300 Retained Earnings-+7,300 Salary Expense=-7,300

2014Jan. 7Salaries payable (-L)4,700Salaries expense (+E,-SE)7,300Cash (-A)12,000To record payment of salaries.

E3-34. (20 minutes)

a.Balance, January 1 = $960 + $800 $620 = $1,140.

b.Amount of premium = $82 12 = $984.Therefore, five months' premium ($984 $574 = $410) has expired by January 31. The policy term began on and has been in effect since September 1, 2013.

c.Wages paid in January = $3,200 $500 = $2,700.

d.Monthly depreciation expense = $8,700/60 months = $145.Fields has owned the truck for 18 months ($2,610/$145 = 18).

E3-35. (30 minutes)



1. 7/31 Adjusting entry for rent expense.-475PrepaidRent=-475 Retained Earnings-+475 Rent Expense=-475

2. 7/31 Adjusting entry for ad. expense. -210Prepaid Advertising =- 210 Retained Earnings-+210 Advertising Expense=-210

3. 7/31 Adjusting entry for supplies expense.-1,900 Supplies-1,900 Retained Earnings-+1,900 Supplies Expense=-1,900

4. 7/31 Adjusting entry for fees revenue.+800 Fees Receivable+800 Retained Earnings+800 Refinish. Revenue-=+800

5. 7/31 Adjusting entry for fees revenue.-300 Unearned Refinish.Fees +300 Retained Earnings+300 Refinish. Revenue-= +300

TOTALS0+-1,785=-300+0+-1,4851,100-2,585=-1,485

b.July31Rent expense (+E,-SE) 475Prepaid rent (-A) 475To record July rent expense ($5,700/12 = $475).

31Advertising expense (+E,-SE) 210Prepaid advertising (-A) 210To record July advertising expense ($630/3 = $210).

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E3-35. concluded

b.continuedJuly31Supplies expense (+E,-SE)1,900Supplies (-A)1,900To record supplies expense for July ($3,000 $1,100 = $1,900).

31Fees receivable (+A) 800Refinishing fees revenue (+R,+SE) 800To record unbilled revenue earned during July.

31Unearned refinishing fees (-L) 300Refinishing fees revenue (+R,+SE) 300To record portion of advance fees earned in July ($600/2 = $300).

c.+ Prepaid Rent (A) -+ Supplies (A) -

Bal.5,700475(1)Bal.3,0001,900(3)

Bal.5,225Bal.1,100

+ Prepaid Advertising (A) -- Unearned Finishing Fees (L) +

Bal.630210(2)(5) 300600Bal.

Bal.420300Bal.

+ Fees Receivable (A) -- Refinishing Fees Revenue (R) +

(4)8002,500 Bal.

800(4)

300(5)

3,600 Bal.

+ Supplies Expense (E) -

(3)1,900

+ Advertising Expense(E) -

(2) 210

+ Rent Expense (E) -

(1)475

E3-36. (30 minutes)

(All amounts in $ thousands.)a.Balance SheetIncome Statement


Recognizeinventorypurchases.+482,303Inventory=

+482,303 AccountPayable-

=

Inventory (+A)482,303*

Accounts payable (+L)482,303

To recognize inventory purchases.

*Beginning Inv balance + Purchases Cost of goods sold = Ending Inv. So $43,526 + Purchases - $456,664= $69,165. Thus purchases = $482,303 b.Beginning compensation payable + Compensation expense Compensation paid = Ending compensation payable, so $10,529 + $40,000 Payments = $10,841Payments = $39,688

c. Accrued compensation is reported as a current liability.

E3-37. (30 minutes)

a.Dec.31Service fees earned (-R)92,500Interest income (-R) 2,200Retained earnings (+SE)94,700To close the revenue accounts.

31Retained earnings (-SE)64,700Salaries expense (-E)41,800Advertising expense (-E) 4,300Depreciation expense (-E) 8,700Income tax expense (-E) 9,900To close the expense accounts.

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E3-37. concluded

b.- Retained Earnings (SE) +- Service Fees Earned (R) +

(2)64,70042,700 Bal. (1)92,50092,500Bal.

94,700(1) 0Bal.

72,700Bal.- Interest Income (R) +

(1) 2,2002,200Bal.

0Bal.

+ Salaries Expense (E) -+ Advertising Expense (E) -

Bal.41,80041,800(2)Bal. 4,3004,300 (2)

Bal.0Bal.0

+ Depreciation Expense (E) -+ Income Tax Expense(E) -

Bal.8,7008,700(2)Bal.9,9009,900(2)

Bal. 0Bal. 0

E3-38. (15 minutes)



(1) Collect deposits from customers.+200,000Cash=+200,000Customer Deposits-=

(2) Recognize income on completed customer orders.+489,004Cash=-189,956 Customer Deposits+678,960Retained Earnings+678,960Sales Revenue-=+678,960

(1)Cash (+A) 200,000

Customer deposits* (+L) 200,000

To record unearned customer deposits.

(2)Customer deposits* (-L)189,956**

Cash (+A)489,004

Sales revenue (+R, +SE)678,960

To record sales revenue and recognized deposits earned.

* Also sometimes called Unearned Customer Deposits** $52,605 + $200,000 Deposits earned = $62,649; Deposits earned = $189,956.

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E3-38. concluded

b.Balance SheetIncome Statement


Record inventory purchases.-337,152 Inventory=+337,152Acc.Payable-=

Inventory (+A)337,152

Accounts Payable (+L)337,152

To recognize inventory purchases. BI +Purchases EI = COGS. So $134,040 + Purchases - $329 500 = $141,692. Thus: Purchases =$337,152

c. Customer Deposits are reported as a current liability.

E3-39. (40 minutes)

a.Solomon CorporationIncome StatementFor Year Ended December 31, 2013Service fees earned$71,000

Rent expense(18,000)

Salaries expense(37,100)

Depreciation expense... (7,000)

Net income $8,900

Solomon CorporationStatement of Stockholders EquityFor Year Ended December 31, 2013

CommonStockRetainedEarningsTotal Stockholders Equity

Balance at December 31, 2012$43,000$20,600*$63,600

Stock issuance

Dividends(8,000)(8,000)

Net income_______ 8,9008,900


*12,600 + 8,000 The dividend was paid and debited to retained earnings prior to the end of the period.

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E3-39. continued

Solomon CorporationBalance SheetDecember 31, 2013

AssetsLiabilities

Cash$ 4,000Notes payable$ 10,000

Accounts receivable6,500Total Liabilities10,000

Equipment$78,000

Less:Accumulated depreciation 14,000 64,000Owners Equity

Common stock43,000

Retained earnings 21,500

Total Assets$74,500Total Liabilities and Owners Equity$74,500

b.1.Service fees earned (-R)71,000

Retained earnings (+SE)71,000

2.Retained earnings (-SE)18,000

Rent expense (-E)18,000


Salaries expense (-E)37,100


Depreciation expense (-E) 7,000

The cash dividend has already been paid and is already reflected in the adjusted trial balance.

c.Only the T-accounts affected by closing process are shown here.+ Depreciation Expense (E) - - Service Fees Earned (R) +

Bal.7,0007,000(4)(1)71,00071,000Bal.

Bal00Bal.

+ Salaries Expense (E) -+ Rent Expense (E) -

Bal.37,10037,100(3)Bal.18,00018,000(2)

Bal.0Bal0

- Retained Earnings (SE) +

(2-4)62,10012,600 71,000Bal. (1)

21,500Bal.

Cambridge Business Publishers, 20153-22Financial & Managerial Accounting for Decision Makers, 2nd EditionCambridge Business Publishers, 2015Solutions Manual, Chapter 33-21

CH 3 Some Solutions

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