Wey IFRS 1e SM Ch03 final · ADJUSTING THE ACCOUNTS Number SO BT Difficulty Time (min.) BE1 3 C...
Transcript of Wey IFRS 1e SM Ch03 final · ADJUSTING THE ACCOUNTS Number SO BT Difficulty Time (min.) BE1 3 C...
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-1
CHAPTER 3
Adjusting the Accounts
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives QuestionsBrief
Exercises Do It! ExercisesA
ProblemsB
Problems
*1. Explain the time periodassumption.
1 1 1
*2. Explain the accrualbasis of accounting.
2, 3, 4, 5 1 2, 3, 10
*3. Explain the reasons foradjusting entries.
6, 7 1
*4. Identify the major typesof adjusting entries.
8, 18 2, 8 4, 6, 11
*5. Prepare adjustingentries for deferrals.
8, 9, 10, 11,12, 13, 18,19, 20
3, 4, 5, 6 2 5, 6, 7, 8, 9,10, 11, 12,13, 15, 16
1A, 2A, 3A,4A, 5A, 6A
1B, 2B, 3B,4B, 5B
*6. Prepare adjustingentries for accruals.
8, 14, 15,16, 17, 18,19, 20
7 3 5, 6, 7, 8, 9,10, 11, 12,13, 15, 16
1A, 2A, 3A,4A, 5A, 6A
1B, 2B, 3B,4B, 5B
*7. Describe the nature andpurpose of an adjustedtrial balance.
21 9, 10 4 10, 11, 12,13, 14
1A, 2A, 3A,5A, 6A
1B, 2B,3B, 5B
*8. Prepare adjustingentries for the alternativetreatment of deferrals.
22 11 17, 18 6A
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to thechapter.
3-2 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
ASSIGNMENT CHARACTERISTICS TABLE
ProblemNumber Description
DifficultyLevel
TimeAllotted (min.)
1A Prepare adjusting entries, post to ledger accounts,and prepare an adjusted trial balance.
Simple 40–50
2A Prepare adjusting entries, post, and prepare adjustedtrial balance and financial statements.
Simple 50–60
3A Prepare adjusting entries and financial statements. Moderate 40–50
4A Prepare adjusting entries. Moderate 30–40
5A Journalize transactions and follow through accountingcycle to preparation of financial statements.
Moderate 60–70
*6A* Prepare adjusting entries, adjusted trial balance,and financial statements using appendix.
Moderate 40–50
1B Prepare adjusting entries, post to ledger accounts,and prepare an adjusted trial balance.
Simple 40–50
2B Prepare adjusting entries, post, and prepare adjustedtrial balance and financial statements.
Simple 50–60
3B Prepare adjusting entries and financial statements. Moderate 40–50
4B Prepare adjusting entries. Moderate 30–40
5B Journalize transactions and follow through accountingcycle to preparation of financial statements.
Moderate 60–70
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-3
WEYGANDT IFRS 1ECHAPTER 3
ADJUSTING THE ACCOUNTS
Number SO BT Difficulty Time (min.)
BE1 3 C Simple 4–6
BE2 4 AN Moderate 6–8
BE3 5 AN Simple 3–5
BE4 5 AN Simple 3–5
BE5 5 AN Simple 2–4
BE6 5 AN Simple 2–4
BE7 6 AN Simple 4–6
BE8 4 AN Simple 5–7
BE9 7 AP Simple 4–6
BE10 7 AP Simple 2–4
BE11* 8 AN Moderate 3–5
DI1 1, 2 K Simple 2–4
DI2 5 AN Simple 6–8
DI3 6 AN Simple 4–6
DI4 7 AN Moderate 20–30
EX1 1 C Simple 3–5
EX2 2 E Moderate 10–15
EX3 2 AP Simple 6–8
EX4 4 AN Simple 5–6
EX5 5, 6 AN Moderate 10–15
EX6 4–6 AN Moderate 10–12
EX7 5, 6 AN Moderate 8–10
EX8 5, 6 AN Moderate 8–10
EX9 5, 6 AN Simple 8–10
EX10 2, 5–7 AN Moderate 8–10
EX11 4–7 AN Moderate 12–15
EX12 5–7 AN Moderate 8–10
EX13 5–7 AN Simple 8–10
EX14 7 AP Simple 12–15
3-4 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
ADJUSTING THE ACCOUNTS (Continued)
Number SO BT Difficulty Time (min.)
EX15 5, 6 AN, S Moderate 8–10
EX16 5, 6 AN, C Moderate 10–15
EX17 8 AN Moderate 6–8
EX18 8 AN Moderate 10–12
P1A 5–7 AN Simple 40–50
P2A 5–7 AN Simple 50–60
P3A 5–7 AN Moderate 40–50
P4A 5, 6 AN Moderate 30–40
P5A 5–7 AN Moderate 60–70
P6A 5–8 AN Moderate 40–50
P1B 5–7 AN Simple 40–50
P2B 5–7 AN Simple 50–60
P3B 5–7 AN Moderate 40–50
P4B 5, 6 AN Moderate 30–40
P5B 5–7 AN Moderate 60–70
BYP1 5, 6 AN Simple 10–15
BYP2 — AN Simple 10–15
BYP3 — AN Simple 10–15
BYP4 2–7 S Moderate 15–20
BYP5 3–6 C Simple 10–15
BYP6 3–6 E Moderate 10–15
BLOOM’S TAXONOMY TABLE
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-5
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3-6 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
ANSWERS TO QUESTIONS
1. (a) Under the time period assumption, an accountant is required to determine the relevance ofeach business transaction to specific accounting periods.
(b) An accounting time period of one year in length is referred to as a fiscal year. A fiscal yearthat extends from January 1 to December 31 is referred to as a calendar year. Accountingperiods of less than one year are called interim periods.
2. The two principles are:
The revenue recognition principle, which states that revenue should be recognized when futurebenefits are probable and measurable.
The expense recognition principle, which states that expenses should be recognized when assetsare used up or liabilities are incurred to generate revenues.
3. The law firm should recognize the revenue in April. The revenue recognition principle states thatrevenue should be recognized in the accounting period in which it is earned.
4. Information presented on an accrual basis is more useful than on a cash basis because it revealsrelationships that are likely to be important in predicting future results. To illustrate, under accrualaccounting, revenues are recognized when earned so they can be related to the economicenvironment in which they occur. Trends in revenues are thus more meaningful.
5. Expenses of $4,500 should be deducted from the revenues in April. Under the expense recognitionprinciple efforts (expenses) should be matched with accomplishments (revenues).
6. No, adjusting entries are required by the revenue recognition and expense recognition principles.
7. A trial balance may not contain up-to-date information for financial statements because:
(a) Some events are not journalized daily because it is not efficient to do so.(b) The expiration of some costs occurs with the passage of time rather than as a result of daily
transactions.(c) Some items may be unrecorded because the transaction data are not yet known.
8. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of prepaidexpenses and unearned revenues. Accruals consist of accrued revenues and accrued expenses.
9. In the adjusting entry for a prepaid expense, an expense is debited and an asset is credited.
10. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life ina rational and systematic manner. Depreciation results in the presentation of the book value ofthe asset, not its fair value.
11. Depreciation expense is an expense account whose normal balance is a debit. This accountshows the cost that has expired during the current accounting period. Accumulated depreciationis a contra asset account whose normal balance is a credit. The balance in this account is thedepreciation that has been recognized from the date of acquisition to the statement of financialposition date.
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-7
Questions Chapter 3 (Continued)
12. Equipment ............................................................................................. Rs18,000,000Less: Accumulated Depreciation..................................................... 6,000,000 Rs12,000,000
*13. In the adjusting entry for an unearned revenue, a liability is debited and a revenue is credited.
*14. Asset and revenue. An asset would be debited and a revenue would be credited.
*15. An expense is debited and a liability is credited.
*16. Net income was understated $200 because prior to adjustment, revenues are understated by$900 and expenses are understated by $700. The difference in this case is $200 ($900 – $700).
*17. The entry is:Jan. 9 Salaries Payable......................................................................................... 2,000
Salaries Expense........................................................................................ 3,000Cash..................................................................................................... 5,000
*18. (a) Accrued revenues. (d) Accrued expenses or prepaid expenses.(b) Unearned revenues. (e) Prepaid expenses.(c) Accrued expenses. (f) Accrued revenues or unearned revenues.
*19. (a) Salaries Payable. (d) Supplies Expense.(b) Accumulated Depreciation. (e) Service Revenue.(c) Interest Expense. (f) Service Revenue.
*20. Disagree. An adjusting entry affects only one statement of financial position account and oneincome statement account.
*21. Financial statements can be prepared from an adjusted trial balance because the balances of allaccounts have been adjusted to show the effects of all financial events that have occurredduring the accounting period.
*22. For Supplies Expense (prepaid expense): expenses are overstated and assets are understated.The adjusting entry is:
Assets (Supplies) ..................................................................................................... XXExpenses (Supplies Expense) ....................................................................... XX
For Rent Revenue (unearned revenues): revenues are overstated and liabilities are understated.The adjusting entry is:
Revenues (Rent Revenue)..................................................................................... XXLiabilities (Unearned Rent Revenue)............................................................ XX
*
3-8 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 3-1
(a) Prepaid Insurance—to recognize insurance expired during the period.
(b) Depreciation Expense—to account for the depreciation that has occurredon the asset during the period.
(c) Unearned Revenue—to record revenue earned for services provided.
(d) Interest Payable—to recognize interest accrued but unpaid on notespayable.
BRIEF EXERCISE 3-2
Item(a)
Type of Adjustment(b)
Account Balances before Adjustment
1. Prepaid Expenses Assets OverstatedExpenses Understated
2. Accrued Revenues Assets UnderstatedRevenues Understated
3. Accrued Expenses Expenses UnderstatedLiabilities Understated
4. Unearned Revenues Liabilities OverstatedRevenues Understated
BRIEF EXERCISE 3-3
Dec. 31 Advertising Supplies Expense ................................. 4,000Advertising Supplies (£6,700 – £2,700)......... 4,000
Advertising Supplies Advertising Supplies Expense6,700 12/31 4,000 12/31 4,000
12/31 Bal. 2,700
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BRIEF EXERCISE 3-4
Dec. 31 Depreciation Expense—Equipment ........................ 5,000Accumulated Depreciation— Equipment .......................................................... 5,000
Depr. Expense—Equipment Accum. Depreciation—Equipment12/31 5,000 12/31 5,000
Statement of Financial Position:Equipment ...................................................................... $30,000Less: Accumulated Depreciation .......................... 5,000 $25,000
BRIEF EXERCISE 3-5
July 1 Prepaid Insurance ................................................... 18,000Cash .................................................................... 18,000
Dec. 31 Insurance Expense [($18,000 ÷ 3) X 1/2].......... 3,000Prepaid Insurance .......................................... 3,000
Prepaid Insurance Insurance Expense7/1 18,000 12/31 3,000 12/31 3,000 12/31 Bal. 15,000
BRIEF EXERCISE 3-6
July 1 Cash............................................................................. 18,000Unearned Insurance Revenue.................... 18,000
Dec. 31 Unearned Insurance Revenue............................. 3,000Insurance Revenue ........................................ 3,000
Unearned Insurance Revenue Insurance Revenue12/31 3,000 7/1 18,000 12/31 3,000
12/31 Bal. 15,000
3-10 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 3-7
1. Dec. 31 Interest Expense................................................... 400Interest Payable........................................... 400
2. 31 Accounts Receivable .......................................... 1,500Service Revenue.......................................... 1,500
3. 31 Salaries Expense.................................................. 900Salaries Payable .......................................... 900
BRIEF EXERCISE 3-8
Account(a)
Type of Adjustment(b)
Related Account
Accounts Receivable Accrued Revenues Service RevenuePrepaid Insurance Prepaid Expenses Insurance ExpenseAccum. Depr.—Equipment Prepaid Expenses Depreciation ExpenseInterest Payable Accrued Expenses Interest ExpenseUnearned Service Revenue Unearned Revenues Service Revenue
BRIEF EXERCISE 3-9
KWUN COMPANY, INC.Income Statement
For the Year Ended December 31, 2011 Revenues
Service revenue ............................................................. W35,400Expenses
Salaries expense............................................................ W16,000Rent expense .................................................................. 4,000Insurance expense........................................................ 2,000Supplies expense .......................................................... 1,500Depreciation expense .................................................. 1,300
Total expenses ...................................................... 24,800Net income................................................................................ W10,600
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-11
BRIEF EXERCISE 3-10
KWUN COMPANY, INC.Retained Earnings Statement
For the Year Ended December 31, 2011 Retained Earnings, January 1................................................................... W 0Add: Net income .......................................................................................... 10,600
10,600Less: Dividends............................................................................................ 6,000Retained Earnings, December 31 ............................................................ W 4,600
*BRIEF EXERCISE 3-11
(a) Apr. 30 Supplies ................................................................... 1,000Supplies Expense ........................................ 1,000
(b) 30 Service Revenue ................................................... 3,000Unearned Service Revenue ...................... 3,000
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 3-1
1. (d) 2. (e) 3. (h) 4. (c)
DO IT! 3-2
1. Insurance Expense ................................................................ 300Prepaid Insurance .......................................................... 300
(To record insurance expired)
2. Office Supplies Expense (CHF2,500 – CHF900)........... 1,600Office Supplies................................................................ 1,600
(To record supplies used)
3. Depreciation Expense........................................................... 500Accumulated Depreciation—Off. Equip.................. 500
(To record monthly depreciation)
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DO IT! 3-2 (Continued)
4. Unearned Revenue (CHF10,000 x 2/5).............................. 4,000Service Revenue ............................................................. 4,000
(To record revenue for services provided)
DO IT! 3-3
1. Salaries Expense .................................................................... 1,100Salaries Payable.............................................................. 1,100
(To record accrued salaries)
2. Interest Expense ($20,000 x .12 x 1/12) ........................... 200Interest Payable............................................................... 200
(To record accrued interest)
3. Accounts Receivable............................................................. 1,600Service Revenue ............................................................. 1,600
(To record revenue for service provided)
DO IT! 3-4
(a) The net income is determined by adding revenues and subtractingexpenses. The net income is computed as follows:
RevenuesCommission revenue .............................................. R$11,360Rent revenue .............................................................. 690
Total revenues .................................................. R$12,050Expenses
Salaries expense....................................................... R$7,520Rent expense ............................................................. 1,200Depreciation expense.............................................. 700Utilities expense........................................................ 410Supplies expense ..................................................... 160Interest expense........................................................ 40
Total expenses ................................................. 10,030Net income........................................................................... R$ 2,020
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DO IT! 3-4 (Continued)
(b) Total assets and liabilities are computed as follows:
AssetsEquipment ............................................................... R$12,000Less: Accumulated depreciation ..................... 700 R$11,300Supplies.................................................................... 800Prepaid rent............................................................. 720Accounts receivable............................................. 480Cash........................................................................... 5,360
Total assets .................................................... R$18,660
LiabilitiesNotes payable......................................................... R$ 4,000Accounts payable ................................................. 1,200Unearned rent......................................................... 400Salaries payable .................................................... 300Interest payable ..................................................... 40
Total Liabilities.............................................. R$ 5,940
(c) Retained Earnings, April 1 .......................................... R$ –0–Add: Net income.......................................................... 2,020
2,020Less: Dividends............................................................. 500Retained Earnings, June 30........................................ R$ 1,520
3-14 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
SOLUTIONS TO EXERCISES
EXERCISE 3-1
1. True.
2. True.
3. False. Many business transactions affect more than one of these artificialtime periods. For example, the purchase of a building affects expensesfor many years.
4. True.
5. False. A time period that lasts less than one year, such as monthly orquarterly periods, is called an interim period.
6. False. All calendar years are fiscal years, but not all fiscal years arecalendar years. An accounting time period that is one year in length isreferred to as a fiscal year. A fiscal year that starts on January 1 andends on December 31 is a calendar year.
EXERCISE 3-2
(a) Accrual-basis accounting records the transactions that change acompany’s financial statements in the periods in which the eventsoccur rather than in the periods in which the company receives or payscash. Information presented on an accrual basis is useful because itreveals relationships that are likely to be important in predicting futureresults. Conversely, under cash-basis accounting, revenue is recordedonly when cash is received, and an expense is recognized only whencash is paid. As a result, the cash basis of accounting often leads tomisleading financial statements.
(b) Politicians might desire a cash-basis accounting system over an accrual-basis system because if an accrual-accounting system is used, it couldmean that billions in government liabilities presently unrecorded wouldhave to be reported in the federal budget immediately. The recognitionof these additional liabilities would make the deficit even worse. Thisis not what politicians would like to see and be held responsible for.
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-15
EXERCISE 3-2 (Continued)
(c) Dear Official,
It is my understanding, after having taken a beginning course in accountingprinciples, that the government uses a cash-basis system rather thanan accrual-basis accounting system.
I am shocked at such a practice! There must be billions of dollars ofliabilities hidden in many contracts that have not been recorded yet forthe mere reason that they haven’t been paid yet. I realize that the deficitwould dramatically increase if we were to implement an accrual system,but in all fairness, we citizens should be given a more accurate pictureof what our government is up to.
Sincerely,
CONCERNED STUDENT
EXERCISE 3-3
(a) Cash received from revenue................................................... $100,000Cash paid for expenses............................................................ (70,000)
Cash-basis net income .................................................. $ 30,000
(b) Revenues [($100,000 – $25,000) + $40,000] ....................... $115,000Expenses [($70,000 – $30,000) + $42,000].......................... (82,000)
Accrual-basis net income ............................................. $ 33,000
EXERCISE 3-4
1. Unearned revenue.2. Accrued expense.3. Accrued expense.4. Accrued revenue.5. Prepaid expense.6. Unearned revenue.7. Accrued revenue.8. Prepaid expense.9. Prepaid expense.
10. Prepaid expense.11. Accrued expense.
3-16 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
EXERCISE 3-5
1. Interest Expense .............................................................. 400Interest Payable
($10,000 X 12% X 4/12) ....................................... 400
2. Supplies Expense............................................................ 1,650Supplies ($2,450 – $800)........................................ 1,650
3. Depreciation Expense .................................................... 1,000Accumulated Depreciation—Equipment.......... 1,000
4. Insurance Expense.......................................................... 1,225Prepaid Insurance
($2,100 X 7/12)....................................................... 1,225
5. Unearned Consulting Revenue ................................... 10,000Consulting Revenue
($40,000 X 1/4)....................................................... 10,000
6. Accounts Receivable...................................................... 4,200Consulting Revenue ............................................... 4,200
7. Salaries Expense ............................................................. 5,400Salaries Payable
($9,000 X 3/5) ......................................................... 5,400
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-17
EXERCISE 3-6
Item(a)
Type of Adjustment(b)
Accounts before Adjustment
1. Accrued Revenues Assets UnderstatedRevenues Understated
2. Prepaid Expenses Assets OverstatedExpenses Understated
3. Accrued Expenses Expenses UnderstatedLiabilities Understated
4. Unearned Revenues Liabilities OverstatedRevenues Understated
5. Accrued Expenses Expenses UnderstatedLiabilities Understated
6. Prepaid Expenses Assets OverstatedExpenses Understated
EXERCISE 3-7
1. Mar. 31 Depreciation Expense ($400 X 3)..................... 1,200Accumulated Depreciation— Equipment.................................................. 1,200
2. 31 Unearned Rent Revenue..................................... 3,300Rent Revenue ($9,900 X 1/3)..................... 3,300
3. 31 Interest Expense ................................................... 500Interest Payable............................................ 500
4. 31 Supplies Expense ................................................. 2,100Supplies ($2,800 – $700) ............................ 2,100
5. 31 Insurance Expense ($200 X 3) .......................... 600Prepaid Insurance........................................ 600
3-18 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
EXERCISE 3-8
1. Jan. 31 Accounts Receivable .......................................... 875Service Revenue.......................................... 875
2. 31 Utilities Expense................................................... 520Utilities Payable ........................................... 520
3. 31 Depreciation Expense......................................... 400Accumulated Depreciation— Dental Equipment ................................... 400
31 Interest Expense................................................... 500Interest Payable ........................................... 500
4. 31 Insurance Expense (TL12,000 ÷ 12) ............... 1,000Prepaid Insurance ....................................... 1,000
5. 31 Supplies Expense (TL1,600 – TL400)............. 1,200Supplies.......................................................... 1,200
EXERCISE 3-9
1. Oct. 31 Advertising Supplies Expense......................... 2,000Advertising Supplies ($2,500 – $500) ......................................... 2,000
2. 31 Insurance Expense .............................................. 100Prepaid Insurance ....................................... 100
3. 31 Depreciation Expense......................................... 50Accumulated Depreciation— Office Equipment .................................... 50
4. 31 Unearned Revenue............................................... 600Service Revenue.......................................... 600
5. 31 Accounts Receivable .......................................... 300Service Revenue.......................................... 300
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-19
EXERCISE 3-9 (Continued)
6. Oct. 31 Interest Expense ........................................... 70Interest Payable.................................... 70
7. 31 Salaries Expense........................................... 1,500Salaries Payable................................... 1,500
EXERCISE 3-10
BENNING CO.Income Statement
For the Month Ended July 31, 2011 Revenues
Service revenue ($5,500 + $500)................................... $6,000Expenses
Wages expense ($2,300 + $300) ................................... $2,600Supplies expense ($1,200 – $200) ............................... 1,000Utilities expense ................................................................ 600Insurance expense............................................................ 400Depreciation expense...................................................... 150
Total expenses.......................................................... 4,750Net income ................................................................................... $1,250
EXERCISE 3-11
Answer Computation
(a) Supplies balance = £1,300 Supplies expense £ 950Add: Supplies (1/31) 850Less: Supplies purchased 500Supplies (1/1) £1,300
(b) Total premium = £4,800 Total premium = Monthly premium X 12;£400 X 12 = £4,800
Purchase date = Aug. 1, 2010 Purchase date: On Jan. 31, there are6 months’ coverage remaining (£400X 6). Thus, the purchase date was6 months earlier on Aug. 1, 2010.
3-20 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
EXERCISE 3-11 (Continued)
(c) Salaries payable = £2,500 Cash paid £3,500Salaries payable (1/31/11) 800
4,300Less: Salaries expense 1,800Salaries payable (12/31/10) £2,500
(d) Unearned revenue = £1,150 Service revenue £2,000Unearned service revenue (1/31/11) 750
2,750Cash received in January 1,600Unearned service revenue (12/31/10) £1,150
EXERCISE 3-12
(a) July 10 Supplies................................................................... 400Cash................................................................. 400
14 Cash.......................................................................... 2,000Service Revenue.......................................... 2,000
15 Salaries Expense.................................................. 1,200Cash................................................................. 1,200
20 Cash.......................................................................... 1,000Unearned Revenue...................................... 1,000
(b) July 31 Supplies Expense................................................. 800Supplies.......................................................... 800
31 Accounts Receivable .......................................... 500Service Revenue.......................................... 500
31 Salaries Expense.................................................. 1,200Salaries Payable .......................................... 1,200
31 Unearned Revenue............................................... 900Service Revenue.......................................... 900
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-21
EXERCISE 3-13
Aug. 31 Accounts Receivable ........................................... 1,000Service Revenue........................................... 1,000
31 Office Supplies Expense..................................... 1,600Office Supplies.............................................. 1,600
31 Insurance Expense ............................................... 1,500Prepaid Insurance ........................................ 1,500
31 Depreciation Expense.......................................... 900Accumulated Depreciation—Office Equipment.................................................. 900
31 Salaries Expense................................................... 1,100Salaries Payable ........................................... 1,100
31 Unearned Rent Revenue..................................... 900Rent Revenue ................................................ 900
EXERCISE 3-14
GARCIA COMPANYIncome Statement
For the Year Ended August 31, 2011 Revenues
Service revenue................................................................. €35,000Rent revenue....................................................................... 11,900
Total revenues........................................................... 46,900Expenses
Salaries expense ............................................................... €18,100Rent expense...................................................................... 15,000Office supplies expense ................................................. 1,600Insurance expense............................................................ 1,500Depreciation expense...................................................... 900
Total expenses.......................................................... 37,100Net income ................................................................................... € 9,800
3-22 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
EXERCISE 3-14 (Continued)
GARCIA COMPANYRetained Earnings Statement
For the Year Ended August 31, 2011 Retained Earnings, September 1, 2010 .................................................. € 5,600Add: Net income.......................................................................................... 9,800Retained Earnings, August 31, 2011....................................................... €15,400
GARCIA COMPANYStatement of Financial Position
August 31, 2011
AssetsOffice equipment ........................................................................ €14,000Less: Accum. depreciation—office equipment............... 4,500 € 9,500Prepaid insurance ...................................................................... 2,500Office supplies ............................................................................ 700Accounts receivable.................................................................. 9,800Cash................................................................................................ 10,400
Total assets ................................................................ €32,900
Equity and LiabilitiesEquity
Share capital—ordinary.................................................. €10,000Retained earnings ............................................................ 15,400 €25,400
LiabilitiesAccounts payable............................................................. 5,800Salaries payable................................................................ 1,100Unearned rent revenues................................................. 600 7,500
Total equity and liabilities....................................................... €32,900
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-23
EXERCISE 3-15
(a) 1. Cash............................................................................... 9,000Fees Receivable................................................ 9,000
2. Unearned Fees ........................................................... 25,000Fees Revenue.................................................... 25,000
3. (a) Cash...................................................................... 35,000Unearned Fees ......................................... 35,000
(b) Unearned Fees ($35,000 – $17,000)...................................... 18,000
Fees Revenue........................................... 18,000
4. Fees Receivable......................................................... 110,000Fees Revenue ($153,000 – $25,000 – $18,000) ................ 110,000
5. Cash............................................................................... 96,000Fees Receivable ($110,000 – $14,000).................................... 96,000
(b) Cash received with respect to fees = $9,000 + $96,000 + $35,000= $140,000
EXERCISE 3-16
(a) Cash received from services provided...................... R$22,000Cash paid for expenses .................................................. (13,000)Cash paid for prepaid insurance ................................. (2,600)Cash flow from operations............................................. R$ 6,400
(b) Service revenue................................................................. R$30,000Operating expenses ......................................................... 15,500Net income .......................................................................... R$14,500
(c) Under the accrual basis, companies record transactions that change acompany’s and financial statements in the period in which the eventsoccur. Cash basis accounting fails to record revenue that a companyhas earned but has not collected the cash. Also it does not matchexpenses with earned revenue.
3-24 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
*EXERCISE 3-17
1. Prepaid Insurance ........................................................... 875Insurance Expense ($2,100 X 5/12)....................................................... 875
2. Consulting Revenue ....................................................... 30,000Unearned Consulting Revenue ($40,000 X 3/4)....................................................... 30,000
3. Supplies.............................................................................. 800Supplies Expense.................................................... 800
*EXERCISE 3-18
(a) Jan. 2 Insurance Expense ............................................ 1,800Cash............................................................... 1,800
10 Supplies Expense............................................... 1,700Cash............................................................... 1,700
15 Cash........................................................................ 6,100Service Revenue........................................ 6,100
Insurance Expense Supplies Expense1/2 1,800 1/10 1,700
Cash Service Revenue1/15 6,100 1/2 1,800
1/10 1,7001/15 6,100
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-25
*EXERCISE 3-18 (Continued)
(b) Jan. 31 Prepaid Insurance (€150 X 11 months) ........ 1,650Insurance Expense.................................... 1,650
31 Supplies ................................................................. 800Supplies Expense ...................................... 800
31 Service Revenue ................................................. 3,600Unearned Revenue .................................... 3,600
Insurance Expense Supplies Expense Service Revenue1/2 1,800 1/31 1,650 1/10 1,700 1/31 800 1/31 3,600 1/15 6,100Bal. 150 Bal. 900 Bal. 2,500
Prepaid Insurance Supplies Unearned Revenue1/31 1,650 1/31 800 1/31 3,600
(c) Insurance expense............................................................................ € 150Supplies expense.............................................................................. 900Service revenue................................................................................. 2,500Prepaid insurance............................................................................. 1,650Supplies................................................................................................ 800Unearned revenue............................................................................. 3,600
3-26 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
SOLUTIONS TO PROBLEMS
PROBLEM 3-1A
(a)J3
Date Account Titles and Explanation Ref. Debit Credit2011June 30 Supplies Expense.................................
Supplies ........................................ ($2,000 – $600)
631126
1,400 1,400
30 Utilities Expense...................................Utilities Payable..........................
732244
150 150
30 Insurance Expense ..............................Prepaid Insurance...................... ($3,000 ÷ 12 months)
722130
250 250
30 Unearned Service Revenue...............Service Revenue.........................
209400
2,5002,500
30 Salaries Expense..................................Salaries Payable .........................
726212
2,0002,000
30 Depreciation Expense.........................Accumulated Depreciation— Office Equipment................... ($15,000 ÷ 60 months)
711
158
250
250
30 Accounts Receivable...........................Service Revenue.........................
112400
1,0001,000
(b)
Cash No. 101
Date Explanation Ref. Debit Credit Balance2011June 30 Balance ���� 7,150
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-27
PROBLEM 3-1A (Continued)
Accounts Receivable No. 112Date Explanation Ref. Debit Credit Balance2011June 30
30BalanceAdjusting
����J3 1,000
6,000 7,000
Supplies No. 126Date Explanation Ref. Debit Credit Balance2011June 30
30BalanceAdjusting
����J3 1,400
2,000 600
Prepaid Insurance No. 130
Date Explanation Ref. Debit Credit Balance2011June 30
30BalanceAdjusting
����J3 250
3,000 2,750
Office Equipment No. 157Date Explanation Ref. Debit Credit Balance2011June 30 Balance ���� 15,000
Accumulated Depreciation—Office Equipment No. 158Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 250 250
Accounts Payable No. 201Date Explanation Ref. Debit Credit Balance2011June 30 Balance ���� 4,500
3-28 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-1A (Continued)
Unearned Service Revenue No. 209
Date Explanation Ref. Debit Credit Balance2011June 30
30BalanceAdjusting
����J3 2,500
4,000 1,500
Salaries Payable No. 212
Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 2,000 2,000
Utilities Payable No. 244
Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 150 150
Share Capital—Ordinary No. 311
Date Explanation Ref. Debit Credit Balance2011June 30 Balance ���� 21,750
Service Revenue No. 400
Date Explanation Ref. Debit Credit Balance2011June 30
3030
BalanceAdjustingAdjusting
����J3J3
2,5001,000
7,90010,40011,400
Supplies Expense No. 631
Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 1,400 1,400
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-29
PROBLEM 3-1A (Continued)
Depreciation Expense No. 711
Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 250 250
Insurance Expense No. 722
Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 250 250
Salaries Expense No. 726
Date Explanation Ref. Debit Credit Balance2011June 30
30BalanceAdjusting
����J3 2,000
4,000 6,000
Rent Expense No. 729Date Explanation Ref. Debit Credit Balance2011June 30 Balance ���� 1,000
Utilities Expense No. 732Date Explanation Ref. Debit Credit Balance2011June 30 Adjusting J3 150 150
3-30 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-1A (Continued)
(c) MASASI COMPANY, INC.Adjusted Trial Balance
June 30, 2011
Debit CreditCash.................................................................................Accounts Receivable .................................................Supplies..........................................................................Prepaid Insurance.......................................................Office Equipment.........................................................Accumulated Depreciation—Office Equipment.................................................................Accounts Payable .......................................................Unearned Service Revenue .....................................Salaries Payable ..........................................................Utilities Payable ...........................................................Share Capital—Ordinary...........................................Service Revenue..........................................................Supplies Expense .......................................................Depreciation Expense................................................Insurance Expense .....................................................Salaries Expense.........................................................Rent Expense................................................................Utilities Expense..........................................................
$ 7,150 7,000
600 2,750 15,000
1,400 250 250 6,000 1,000 150$41,550
$ 250 4,500 1,500 2,000 150 21,750 11,400
$41,550
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-31
PROBLEM 3-2A
(a)J1
Date Account Titles and Explanation Ref. Debit CreditAug. 31 Insurance Expense (€400 X 3).............
Prepaid Insurance ........................722130
1,2001,200
31 Supplies Expense (€3,300 – €600).........Supplies...........................................
631126
2,7002,700
31 Depreciation Expense—Cottages (€6,000 X 1/4) ........................................
Accumulated Depreciation— Cottages......................................
620
144
1,500
1,500
31 Depreciation Expense—Furniture (€2,400 X 1/4) ........................................
Accumulated Depreciation— Furniture......................................
621
150
600
600
31 Unearned Rent Revenue.......................Rent Revenue.................................
209429
4,1004,100
31 Salaries Expense.....................................Salaries Payable............................
726212
400 400
31 Accounts Receivable.............................Rent Revenue.................................
112429
1,0001,000
31 Interest Expense .....................................Interest Payable [(€80,000 X 9%) X 1/12] ...........
718
230
600
600
(b)
Cash No. 101
Date Explanation Ref. Debit Credit BalanceAug. 31 Balance ���� 19,600
3-32 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-2A (Continued)
Accounts Receivable No. 112
Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 1,000 1,000
Supplies No. 126
Date Explanation Ref. Debit Credit BalanceAug. 31
31BalanceAdjusting
����J1 2,700
3,300 600
Prepaid Insurance No. 130
Date Explanation Ref. Debit Credit BalanceAug. 31
31BalanceAdjusting
����J1 1,200
6,000 4,800
Land No. 140
Date Explanation Ref. Debit Credit BalanceAug. 31 Balance ���� 25,000
Cottages No. 143
Date Explanation Ref. Debit Credit BalanceAug. 31 Balance ���� 125,000
Accumulated Depreciation—Cottages No. 144
Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 1,500 1,500
Furniture No. 149
Date Explanation Ref. Debit Credit BalanceAug. 31 Balance ���� 26,000
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-33
PROBLEM 3-2A (Continued)
Accumulated Depreciation—Furniture No. 150Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 600 600
Accounts Payable No. 201
Date Explanation Ref. Debit Credit BalanceAug. 31 Balance ���� 6,500
Unearned Rent Revenue No. 209
Date Explanation Ref. Debit Credit BalanceAug. 31
31BalanceAdjusting
����J1 4,100
7,400 3,300
Salaries Payable No. 212
Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 400 400
Interest Payable No. 230
Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 600 600
Mortgage Payable No. 275Date Explanation Ref. Debit Credit BalanceAug. 31 Balance ���� 80,000
Share Capital—Ordinary No. 311
Date Explanation Ref. Debit Credit BalanceAug. 31 Balance ���� 100,000
3-34 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-2A (Continued)
Dividends No. 332
Date Explanation Ref. Debit Credit BalanceAug. 31 Balance ���� 5,000
Rent Revenue No. 429
Date Explanation Ref. Debit Credit BalanceAug. 31
3131
BalanceAdjustingAdjusting
����J1J1
4,1001,000
80,00084,10085,100
Depreciation Expense—Cottages No. 620
Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 1,500 1,500
Depreciation Expense—Furniture No. 621
Date Explanation Ref. Debit Credit Balance
Aug. 31 Adjusting J1 600 600
Repair Expense No. 622
Date Explanation Ref. Debit Credit BalanceAug. 31 Balance ���� 3,600
Supplies Expense No. 631
Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 2,700 2,700
Interest Expense No. 718
Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 600 600
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-35
PROBLEM 3-2A (Continued)
Insurance Expense No. 722Date Explanation Ref. Debit Credit BalanceAug. 31 Adjusting J1 1,200 1,200
Salaries Expense No. 726
Date Explanation Ref. Debit Credit BalanceAug. 31
31BalanceAdjusting
����J1 400
51,00051,400
Utilities Expense No. 732
Date Explanation Ref. Debit Credit BalanceAug. 31 Balance ���� 9,400
3-36 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-2A (Continued)
(c) NEOSHO RIVER RESORT, INC.Adjusted Trial Balance
August 31, 2011
Debit CreditCash.................................................................................Accounts Receivable .................................................Supplies..........................................................................Prepaid Insurance.......................................................Land.................................................................................Cottages .........................................................................Accumulated Depreciation—Cottages.................Furniture.........................................................................Accumulated Depreciation—Furniture ................Accounts Payable .......................................................Unearned Rent Revenue...........................................Salaries Payable ..........................................................Interest Payable ...........................................................Mortgage Payable .......................................................Share Capital—Ordinary...........................................Dividends .......................................................................Rent Revenue ...............................................................Depreciation Expense—Cottages..........................Depreciation Expense—Furniture .........................Repair Expense............................................................Supplies Expense .......................................................Interest Expense..........................................................Insurance Expense .....................................................Salaries Expense.........................................................Utilities Expense..........................................................
€ 19,6001,000
600 4,800 25,000 125,000
26,000
5,000
1,500 600 3,600 2,700 600 1,200 51,400 9,400€278,000
€ 1,500
600 6,500 3,300 400 600 80,000 100,000
85,100
€278,000
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-37
PROBLEM 3-2A (Continued)
(d) NEOSHO RIVER RESORT, INC.Income Statement
For the Three Months Ended August 31, 2011 Revenues
Rent revenue........................................................... € 85,100Expenses
Salaries expense ................................................... €51,400Utilities expense .................................................... 9,400Repair expense ...................................................... 3,600Supplies expense.................................................. 2,700Depreciation expense—cottages..................... 1,500Insurance expense................................................ 1,200Interest expense .................................................... 600Depreciation expense—furniture..................... 600
Total expenses.............................................. 71,000Net income........................................................................ € 14,100
NEOSHO RIVER RESORT, INC.Retained Earnings Statement
For the Three Months Ended August 31, 2011 Retained Earnings, June 1 .............................................................. € 0Add: Net income............................................................................... 14,100
14,100Less: Dividends................................................................................. 5,000Retained Earnings, August 31 ....................................................... € 9,100
3-38 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-2A (Continued)
NEOSHO RIVER RESORT, INC.Statement of Financial Position
August 31, 2011
AssetsLand .............................................................................. € 25,000Cottages....................................................................... €125,000Less: Accum. depreciation—cottages ............. 1,500 123,500Furniture ...................................................................... 26,000Less: Accum. depreciation—furniture ............. 600 25,400Prepaid insurance .................................................... 4,800Supplies....................................................................... 600Accounts receivable................................................ 1,000Cash .............................................................................. 19,600
Total assets .............................................. €199,900
Equity and LiabilitiesEquity
Share capital—ordinary................................. €100,000Retained earnings ........................................... 9,100 €109,100
LiabilitiesAccounts payable............................................ € 6,500Mortgage payable ............................................ 80,000Unearned rent revenue .................................. 3,300Interest payable................................................ 600Salaries payable............................................... 400 90,800
Total equity and liabilities...................................... €199,900
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-39
PROBLEM 3-3A
(a) Dec. 31 Accounts Receivable................................... 2,500Advertising Revenue .......................... 2,500
31 Unearned Advertising Fees....................... 1,600Advertising Revenue .......................... 1,600
31 Art Supplies Expense.................................. 3,600Art Supplies........................................... 3,600
31 Depreciation Expense................................. 6,000Accumulated Depreciation ............... 6,000
31 Interest Expense ........................................... 150Interest Payable.................................... 150
31 Insurance Expense....................................... 850Prepaid Insurance ............................... 850
31 Salaries Expense .......................................... 1,300Salaries Payable................................... 1,300
(b) FERNETTI ADVERTISING AGENCY, INC.Income Statement
For the Year Ended December 31, 2011 Revenues
Advertising revenue ................................................ $62,700Expenses
Salaries expense ...................................................... $11,300Depreciation expense ............................................. 6,000Rent expense............................................................. 4,000Art supplies expense .............................................. 3,600Insurance expense................................................... 850Interest expense ....................................................... 500
Total expenses................................................. 26,250Net income........................................................................... $36,450
3-40 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-3A (Continued)
FERNETTI ADVERTISING AGENCY, INC.Retained Earnings Statement
For the Year Ended December 31, 2011 Retained Earnings, January 1 .......................................................... $ 500Add: Net income.................................................................................. 36,450
36,950Less: Dividends ................................................................................... 12,000Retained Earnings, December 31.................................................... $24,950
FERNETTI ADVERTISING AGENCY, INC.Statement of Financial Position
December 31, 2011
AssetsPrinting equipment........................................................ $60,000Less: Accumulated depreciation ............................ 34,000 $26,000Prepaid insurance ......................................................... 2,500Art supplies ..................................................................... 5,000Accounts receivable..................................................... 22,500Cash ................................................................................... 11,000
Total assets ................................................... $67,000
Equity and LiabilitiesEquity
Share capital—ordinary...................................... $25,000Retained earnings ................................................ 24,950 $49,950
LiabilitiesNotes payable ........................................................ 5,000Accounts payable................................................. 5,000Unearned advertising fees................................. 5,600Salaries payable.................................................... 1,300Interest payable..................................................... 150 17,050
Total equity and liabilities........................................... $67,000
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-41
PROBLEM 3-3A (Continued)
(c) 1. I = P X R X T$150 = $5,000 X R X 1/2$150 = $2,500R
$150R =$2,500
R = 6%
2. Salaries Expense, $11,300 less Salaries Payable 12/31/11, $1,300 =$10,000. Total payments, $12,500 – $10,000 = $2,500 SalariesPayable 12/31/10.
3-42 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-4A
1. Dec. 31 Salaries Expense............................................. 2,320Salaries Payable ..................................... 2,320 [5 X £800 X 2/5 = £1,600 [3 X £600 X 2/5 = 720
£2,320]
2. 31 Unearned Rent.................................................. 74,000Rent Revenue .......................................... 74,000 [5 X £4,000 X 2 = £40,000) (4 X £8,500 X 1 = 34,000) £74,000]
3. 31 Advertising Expense...................................... 4,800Prepaid Advertising............................... 4,800 [A650 – £450 per month
for 8 months = £3,600) (B974 – £400 per month
for 3 months = 1,200)£4,800]
4. 31 Interest Expense.............................................. 6,300Interest Payable ...................................... 6,300
(£120,000 X 9% X 7/12)
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-43
PROBLEM 3-5A
(a), (c) & (e)
Cash No. 101
Date Explanation Ref. Debit Credit BalanceSept. 1
8101220222529
Balance ����J1J1J1J1J1J1J1
1,2003,400
650
1,400
4,500 5001,250
4,880 3,480 4,680 8,080 3,580 3,080 1,830 2,480
Accounts Receivable No. 112Date Explanation Ref. Debit Credit BalanceSept. 1
1027
Balance ����J1J1 1,500
1,200 3,520 2,320 3,820
Supplies No. 126
Date Explanation Ref. Debit Credit BalanceSept. 1
1730
Balance
Adjusting
����J1J1
1,2002,000
2,000 3,200 1,200
Store Equipment No. 153Date Explanation Ref. Debit Credit BalanceSept. 1
15Balance ����
J1 3,00015,00018,000
3-44 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-5A (Continued)
Accumulated Depreciation—Equipment No. 154
Date Explanation Ref. Debit Credit BalanceSept. 1
30BalanceAdjusting
����J1 100
1,500 1,600
Accounts Payable No. 201
Date Explanation Ref. Debit Credit BalanceSept. 1
151720
Balance ����J1J1J1 4,500
3,0001,200
3,400 6,400 7,600 3,100
Unearned Service Revenue No. 209
Date Explanation Ref. Debit Credit BalanceSept. 1
2930
Balance
Adjusting
����J1J1 1,450
650 1,400 2,050 600
Salaries Payable No. 212
Date Explanation Ref. Debit Credit BalanceSept. 1
830
Balance
Adjusting
����J1J1
500 400
500 0 400
Share Capital—Ordinary No. 311
Date Explanation Ref. Debit Credit BalanceSept. 1 Balance ���� 15,000
Retained Earnings No. 320
Date Explanation Ref. Debit Credit BalanceSept. 1 Balance ���� 3,600
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-45
PROBLEM 3-5A (Continued)
Service Revenue No. 400Date Explanation Ref. Debit Credit BalanceSept. 12
2730 Adjusting
J1J1J1
3,4001,5001,450
3,4004,9006,350
Depreciation Expense No. 615
Date Explanation Ref. Debit Credit BalanceSept. 30 Adjusting J1 100 100
Supplies Expense No. 631
Date Explanation Ref. Debit Credit BalanceSept. 30 Adjusting J1 2,000 2,000
Salaries Expense No. 726
Date Explanation Ref. Debit Credit BalanceSept. 8
2530 Adjusting
J1J1J1
9001,250 400
9002,1502,550
Rent Expense No. 729
Date Explanation Ref. Debit Credit BalanceSept. 22 J1 500 500
3-46 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-5A (Continued)
(b)General Journal J1
Date Account Titles Ref. Debit CreditSept. 8 Salaries Payable........................................
Salaries Expense ......................................Cash.......................................................
212726101
500 900
1,400
10 Cash ..............................................................Accounts Receivable.......................
101112
1,2001,200
12 Cash ..............................................................Service Revenue ...............................
101400
3,4003,400
15 Store Equipment .......................................Accounts Payable.............................
153201
3,0003,000
17 Supplies .......................................................Accounts Payable.............................
126201
1,2001,200
20 Accounts Payable.....................................Cash ......................................................
201101
4,5004,500
22 Rent Expense .............................................Cash ......................................................
729101
500 500
25 Salaries Expense ......................................Cash ......................................................
726101
1,2501,250
27 Accounts Receivable...............................Service Revenue ...............................
112400
1,5001,500
29 Cash ..............................................................Unearned Service Revenue.............
101209
650 650
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-47
PROBLEM 3-5A (Continued)
(d) & (f) RAND EQUIPMENT REPAIR, INC.Trial Balances
September 30, 2011
BeforeAdjustment
AfterAdjustment
Dr. Cr. Dr. Cr.Cash ....................................................Accounts Receivable.....................Supplies .............................................Store Equipment .............................Accumulated Depreciation ..........Accounts Payable...........................Unearned Service Revenue .........Salaries Payable..............................Share Capital—Ordinary...............Retained Earnings ..........................Service Revenue .............................Depreciation Expense ...................Supplies Expense...........................Salaries Expense ............................Rent Expense ...................................
£ 2,480 3,820 3,200 18,000
2,150 500£30,150
£ 1,500 3,100 2,050
–0– 15,000 3,600 4,900
£30,150
£ 2,480 3,820 1,200 18,000
100 2,000 2,550 500£30,650
£ 1,600 3,100 600 400 15,000 3,600 6,350
£30,650
(e) 1. Sept. 30 Supplies Expense ............................ 631 2,000Supplies (£3,200 – £1,200) ....... 126 2,000
2. 30 Salaries Expense ............................. 726 400Salaries Payable........................ 212 400
3. 30 Depreciation Expense .................... 615 100Accumulated Depreciation— Equipment .............................. 154 100
4. 30 Unearned Service Revenue .......... 209 1,450Service Revenue ....................... 400 1,450
3-48 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-5A (Continued)
(g) RAND EQUIPMENT REPAIR, INC.Income Statement
For the Month Ended September 30, 2011 Revenues
Service revenue........................................................... £6,350Expenses
Salaries expense......................................................... £2,550Supplies expense ....................................................... 2,000Rent expense ............................................................... 500Depreciation expense................................................ 100
Total expenses ................................................... 5,150Net income............................................................................. £1,200
RAND EQUIPMENT REPAIR, INC.Retained Earnings Statement
For the Month Ended September 30, 2011 Retained Earnings, September 1..................................................... £3,600Add: Net income .................................................................................. 1,200Retained Earnings, September 30 .................................................. £4,800
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-49
PROBLEM 3-5A (Continued)
RAND EQUIPMENT REPAIR, INC.Statement of Financial Position
September 30, 2011
AssetsEquipment ........................................................................ £18,000Less: Accumulated depreciation—
equipment ........................................................... 1,600 £16,400Supplies............................................................................. 1,200Accounts receivable...................................................... 3,820Cash.................................................................................... 2,480
Total assets............................................................. £23,900
Equity and LiabilitiesEquity
Share capital—ordinary ...................................... £15,000Retained earnings................................................. 4,800 £19,800
LiabilitiesAccounts payable ................................................. 3,100Unearned service revenue ................................. 600Salaries payable .................................................... 400 4,100
Total equity and liabilities ........................................... £23,900
3-50 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 3-6A
(a) 1. June 30 Supplies ......................................................... 1,300Supplies Expense .............................. 1,300
2. 30 Interest Expense ......................................... 750 ($20,000 X 9% X 5/12)
Interest Payable.................................. 750
3. 30 Prepaid Insurance....................................... 1,200 [($1,800 ÷ 12) X 8]
Insurance Expense............................ 1,200
4. 30 Consulting Revenue .................................. 1,500Unearned Consulting Revenue........ 1,500
5. 30 Accounts Receivable................................. 2,000Graphic Revenue ............................... 2,000
6. 30 Depreciation Expense ............................... 1,000 ($2,000 ÷ 2)
Accumulated Depreciation— Equipment........................................ 1,000
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-51
*PROBLEM 3-6A (Continued)
(b) GIVENS GRAPHICS COMPANY, INC.Adjusted Trial Balance
June 30, 2011
Debit CreditCash ............................................................................Accounts Receivable ($14,000 + $2,000).........Supplies .....................................................................Prepaid Insurance...................................................Equipment .................................................................Accumulated Depreciation ..................................Notes Payable ..........................................................Accounts Payable...................................................Interest Payable.......................................................Unearned Consulting Revenue ..........................Share Capital—Ordinary.......................................Graphic Revenue ($52,100 + $2,000) ................Consulting Revenue ($6,000 – $1,500).............Salaries Expense ....................................................Supplies Expense ($3,700 – $1,300) .................Advertising Expense..............................................Rent Expense ...........................................................Utilities Expense .....................................................Depreciation Expense ...........................................Insurance Expense ($1,800 – $1,200)...............Interest Expense .....................................................
$ 9,500 16,000 1,300 1,200 45,000
30,000 2,400 1,900 1,500 1,700 1,000 600 750$112,850
$ 1,000 20,000 9,000
750 1,500 22,000 54,100 4,500
$112,850
3-52 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 3-6A (Continued)
(c) GIVENS GRAPHICS COMPANY, INC.Income Statement
For the Six Months Ended June 30, 2011 Revenues
Graphic revenue.................................................... $54,100Consulting revenue.............................................. 4,500
Total revenues .............................................. 58,600Expenses
Salaries expense................................................... $30,000Supplies expense ................................................. 2,400Advertising expense............................................ 1,900Utilities expense.................................................... 1,700Rent expense ......................................................... 1,500Depreciation expense.......................................... 1,000Interest expense.................................................... 750Insurance expense............................................... 600
Total expenses ............................................. 39,850Net income....................................................................... $18,750
GIVENS GRAPHICS COMPANY, INC.Retained Earnings Statement
For the Six Months Ended June 30, 2011 Retained Earnings, January 1 .......................................................... $ 0Add: Net income.................................................................................. 18,750Retained Earnings, June 30 .............................................................. $18,750
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-53
*PROBLEM 3-6A (Continued)
GIVENS GRAPHICS COMPANY, INC.Statement of Financial Position
June 30, 2011
AssetsEquipment ........................................................................ $45,000Less: Accumulated depreciation............................. 1,000 $44,000Prepaid insurance.......................................................... 1,200Supplies............................................................................. 1,300Accounts receivable...................................................... 16,000Cash.................................................................................... 9,500
Total assets.................................................... $72,000
Equity and LiabilitiesEquity
Share capital—ordinary ...................................... $22,000Retained earnings................................................. 18,750 $40,750
LiabilitiesNotes payable......................................................... 20,000Accounts payable ................................................. 9,000Unearned consulting revenue........................... 1,500Interest payable ..................................................... 750 31,250
Total equity and liabilities ............................................. $72,000
3-54 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-1B
(a)J4
Date Account Titles Ref. Debit Credit2011May 31 Supplies Expense.....................................
Supplies ............................................631126
900 900
31 Travel Expense..........................................Travel Payable.................................
736229
250 250
31 Insurance Expense...................................Prepaid Insurance.......................... (R$3,600 ÷ 24 months)
722130
150 150
31 Unearned Service Revenue...................Service Revenue ............................ (R$2,000 – R$400)
209400
1,6001,600
31 Salaries Expense ......................................Salaries Payable............................. [(3/5 X R$800) X 2 employees]
726212
960 960
31 Depreciation Expense.............................Accumulated Depreciation— Office Furniture.......................... (R$10,200 ÷ 60 months)
717
150
170
170
31 Accounts Receivable...............................Service Revenue ............................
112400
1,2001,200
(b)
Cash No. 101
Date Explanation Ref. Debit Credit Balance2011May 31 Balance ���� 5,700
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-55
PROBLEM 3-1B (Continued)
Accounts Receivable No. 112Date Explanation Ref. Debit Credit Balance2011May 31
31BalanceAdjusting
����J4 1,200
6,000 7,200
Supplies No. 126
Date Explanation Ref. Debit Credit Balance2011May 31
31BalanceAdjusting
����J4 900
1,900 1,000
Prepaid Insurance No. 130
Date Explanation Ref. Debit Credit Balance2011May 31
31BalanceAdjusting
����J4 150
3,600 3,450
Office Furniture No. 149
Date Explanation Ref. Debit Credit Balance2011May 31 Balance ���� 10,200
Accumulated Depreciation—Office Furniture No. 150
Date Explanation Ref. Debit Credit Balance2011May 31 Adjusting J4 170 170
Accounts Payable No. 201
Date Explanation Ref. Debit Credit Balance2011May 31 Balance ���� 4,500
3-56 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-1B (Continued)
Unearned Service Revenue No. 209
Date Explanation Ref. Debit Credit Balance2011May 31
31BalanceAdjusting
����J4 1,600
2,000 400
Salaries Payable No. 212
Date Explanation Ref. Debit Credit Balance2011May 31 Adjusting J4 960 960
Travel Payable No. 229
Date Explanation Ref. Debit Credit Balance2011May 31 Adjusting J4 250 250
Share Capital—Ordinary No. 311
Date Explanation Ref. Debit Credit Balance2011May 31 Balance ���� 17,700
Service Revenue No. 400Date Explanation Ref. Debit Credit Balance2011May 31
3131
BalanceAdjustingAdjusting
����J4J4
1,6001,200
7,500 9,100
10,300
Supplies Expense No. 631Date Explanation Ref. Debit Credit Balance2011May 31 Adjusting J4 900 900
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-57
PROBLEM 3-1B (Continued)
Depreciation Expense No. 717Date Explanation Ref. Debit Credit Balance2011May 31 Adjusting J4 170 170
Insurance Expense No. 722
Date Explanation Ref. Debit Credit Balance2011May 31 Adjusting J4 150 150
Salaries Expense 726
Date Explanation Ref. Debit Credit Balance2011May 31
31BalanceAdjusting
����J4 960
3,4004,360
Rent Expense No. 729
Date Explanation Ref. Debit Credit Balance2011May 31 Balance ���� 900
Travel Expense No. 736
Date Explanation Ref. Debit Credit Balance2011May 31 Adjusting J4 250 250
3-58 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-1B (Continued)
(c) LULA CONSULTING, INC.Adjusted Trial Balance
May 31, 2011
Debit CreditCash.................................................................................Accounts Receivable .................................................Supplies..........................................................................Prepaid Insurance.......................................................Office Furniture............................................................Accumulated Depreciation—Office Furniture ....................................................................Accounts Payable .......................................................Unearned Service Revenue......................................Salaries Payable ..........................................................Travel Payable..............................................................Share Capital—Ordinary...........................................Service Revenue..........................................................Supplies Expenses .....................................................Depreciation Expenses .............................................Insurance Expenses...................................................Salaries Expenses.......................................................Rent Expenses .............................................................Travel Expenses ..........................................................
R$ 5,700 7,200 1,000 3,450 10,200
900 170
1504,360
900 250R$34,280
R$ 1704,500
400 960
250 17,700 10,300
R$34,280
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-59
PROBLEM 3-2B
(a)J1
Date Account Titles Ref. Debit CreditMay 31 Insurance Expense....................................
Prepaid Insurance ........................... ($2,280 X 1/12)
722130
190 190
31 Supplies Expense ......................................Supplies ($2,200 – $750) ...............
631126
1,4501,450
31 Depreciation Expense—Lodge.............. ($3,000 X 1/12)
Accumulated Depreciation— Lodge ..............................................
619
142
250
250
31 Depreciation Expense—Furniture ........ ($2,700 X 1/12)
Accumulated Depreciation— Furniture ........................................
621
150
225
225
31 Interest Expense.........................................Interest Payable ...............................
[($35,000 X 12%) X 1/12]
718230
350 350
31 Unearned Rent Revenue..........................Rent Revenue ................................... (2/3 X $3,300)
209429
2,2002,200
31 Salaries Expense........................................Salaries Payable ..............................
726212
750 750
(b)
Cash No. 101
Date Explanation Ref. Debit Credit BalanceMay 31 Balance ���� 3,500
3-60 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-2B (Continued)
Supplies No. 126
Date Explanation Ref. Debit Credit BalanceMay 31
31BalanceAdjusting
����J1 1,450
2,200 750
Prepaid Insurance No. 130
Date Explanation Ref. Debit Credit BalanceMay 31
31BalanceAdjusting
����J1 190
2,280 2,090
Land No. 140
Date Explanation Ref. Debit Credit BalanceMay 31 Balance ���� 12,000
Lodge No. 141
Date Explanation Ref. Debit Credit BalanceMay 31 Balance ���� 60,000
Accumulated Depreciation—Lodge No. 142
Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 250 250
Furniture No. 149
Date Explanation Ref. Debit Credit BalanceMay 31 Balance ���� 15,000
Accumulated Depreciation—Furniture No. 150
Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 225 225
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-61
PROBLEM 3-2B (Continued)
Accounts Payable No. 201Date Explanation Ref. Debit Credit BalanceMay 31 Balance ���� 4,800
Unearned Rent Revenue No. 209
Date Explanation Ref. Debit Credit BalanceMay 31
31BalanceAdjusting
����J1 2,200
3,300 1,100
Salaries Payable No. 212Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 750 750
Interest Payable No. 230
Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 350 350
Mortgage Payable No. 275
Date Explanation Ref. Debit Credit BalanceMay 31 Balance ���� 35,000
Share Capital—Ordinary No. 311Date Explanation Ref. Debit Credit BalanceMay 31 Balance ���� 46,380
Rent Revenue No. 429
Date Explanation Ref. Debit Credit BalanceMay 31
31BalanceAdjusting
����J1 2,200
10,30012,500
3-62 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-2B (Continued)
Advertising Expense No. 610
Date Explanation Ref. Debit Credit BalanceMay 31 Balance ���� 600
Depreciation Expense—Lodge No. 619Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 250 250
Depreciation Expense—Furniture No. 621
Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 225 225
Supplies Expense No. 631
Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 1,450 1,450
Interest Expense No. 718
Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 350 350
Insurance Expense No. 722
Date Explanation Ref. Debit Credit BalanceMay 31 Adjusting J1 190 190
Salaries Expense No. 726
Date Explanation Ref. Debit Credit BalanceMay 31
31BalanceAdjusting
����J1 750
3,3004,050
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-63
PROBLEM 3-2B (Continued)
Utilities Expense No. 732Date Explanation Ref. Debit Credit BalanceMay 31 Balance ���� 900
(c) MOUND VIEW MOTEL, INC.Adjusted Trial Balance
May 31, 2011
Debit CreditCash ............................................................................Supplies .....................................................................Prepaid Insurance...................................................Land.............................................................................Lodge..........................................................................Accumulated Depreciation—Lodge..................Furniture ....................................................................Accumulated Depreciation—Furniture............Accounts Payable...................................................Unearned Rent Revenue.......................................Salaries Payable......................................................Interest Payable.......................................................Mortgage Payable ...................................................Share Capital—Ordinary.......................................Rent Revenue...........................................................Advertising Expense..............................................Depreciation Expense—Lodge...........................Depreciation Expense—Furniture.....................Supplies Expense...................................................Interest Expense .....................................................Insurance Expense.................................................Salaries Expense ....................................................Utilities Expense .....................................................
$ 3,500 750 2,090 12,000 60,000
15,000
600 250 225 1,450 350 190 4,050 900$101,355
$ 250
225 4,800 1,100 750 350 35,000 46,380 12,500
$101,355
3-64 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-2B (Continued)
(d) MOUND VIEW MOTEL, INC.Income Statement
For the Month Ended May 31, 2011 Revenues
Rent revenue ............................................................ $12,500Expenses
Salaries expense..................................................... $4,050Supplies expense ................................................... 1,450Utilities expense...................................................... 900Advertising expense.............................................. 600Interest expense...................................................... 350Depreciation expense—lodge ............................ 250Depreciation expense—furniture ...................... 225Insurance expense................................................. 190
Total expenses ............................................... 8,015Net income......................................................................... $ 4,485
MOUND VIEW MOTEL, INC.Retained Earnings Statement
For the Month Ended May 31, 2011 Retained Earnings, May 1 .................................................................. $ 0Add: Net income................................................................................. 4,485Retained Earnings, May 31................................................................ $4,485
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-65
PROBLEM 3-2B (Continued)
MOUND VIEW MOTEL, INC.Statement of Financial Position
May 31, 2011
AssetsLand................................................................................ $12,000Lodge ............................................................................. $60,000Less: Accumulated depreciation—lodge.......... 250 59,750Furniture........................................................................ 15,000Less: Accumulated depreciation—furniture ....... 225 14,775Prepaid insurance...................................................... 2,090Supplies......................................................................... 750Cash................................................................................ 3,500
Total assets ................................................ $92,865
Equity and LiabilitiesEquity
Share capital—ordinary .................................. $46,380Retained earnings............................................. 4,485 $50,865
LiabilitiesAccounts payable ............................................. 4,800Mortgage payable.............................................. 35,000Unearned rent..................................................... 1,100Salaries payable ................................................ 750Interest payable ................................................. 350 42,000
Total equity and liabilities .......................................... $92,865
3-66 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-3B
(a) Sept. 30 Accounts Receivable..................................... 800Commission Revenue ............................ 800
30 Rent Expense................................................... 900Prepaid Rent .............................................. 900
30 Supplies Expense........................................... 600Supplies ...................................................... 600
30 Depreciation Expense................................... 500Accum. Depreciation—Equipment........ 500
30 Interest Expense ............................................. 100Interest Payable........................................ 100
30 Unearned Rent Revenue .............................. 850Rent Revenue............................................ 850
30 Salaries Expense ............................................ 725Salaries Payable....................................... 725
(b) BERN CO., INC.Income Statement
For the Quarter Ended September 30, 2011 Revenues
Commission revenue ....................................... CHF16,800Rent revenue ....................................................... 2,260
Total revenues ........................................... 19,060Expenses
Salaries expense................................................ CHF8,725Rent expense ...................................................... 2,800Utilities expense................................................. 1,510Supplies expense .............................................. 600Depreciation expense....................................... 500Interest expense................................................. 100
Total expenses .......................................... 14,235Net income.................................................................... CHF 4,825
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-67
PROBLEM 3-3B (Continued)
BERN CO., INC.Retained Earnings Statement
For the Quarter Ended September 30, 2011 Retained Earnings, July 1, 2011...................................................... CHF 0Add: Net income ................................................................................ 4,825
4,825Less: Dividends................................................................................... 1,600Retained Earnings, September 30, 2011 ...................................... CHF3,225
BERN CO., INC.Statement of Financial Position
September 30, 2011
AssetsEquipment .................................................................... CHF18,000Less: Accum. depreciation—equipment........... 500 CHF17,500Prepaid rent.................................................................. 1,300Supplies......................................................................... 900Accounts receivable.................................................. 11,200Cash................................................................................ 8,700
Total assets ................................................ CHF39,600
Equity and LiabilitiesEquity
Share capital—ordinary .................................. CHF22,000Retained earnings............................................. 3,225
Total equity................................................. CHF25,225Liabilities
Notes payable..................................................... 10,000Accounts payable ............................................. 2,500Salaries payable ................................................ 725Unearned rent revenue.................................... 1,050Interest payable ................................................. 100
Total liabilities ........................................... 14,375Total equity and liabilities ....................................... CHF39,600
(c) Interest of 12% per year equals a monthly rate of 1%; monthly interestis CHF100 (CHF10,000 X 1%). Since total interest expense is CHF100,the note has been outstanding one month.
3-68 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-4B
1. Dec. 31 Insurance Expense .............................................. 4,650Prepaid Insurance ....................................... 4,650
[(€7,200 ÷ 3) = €2,400[(€4,500 ÷ 2) = 2,250
€4,650]
2. Dec. 31 Unearned Subscriptions .................................... 6,375Subscription Revenue ............................... 6,375
[Oct. 200 X €45 X 3/12 = €2,250 [Nov. 300 X €45 X 2/12 = 2,250 [Dec. 500 X €45 X 1/12 = 1,875
€6,375]
3. Dec. 31 Interest Expense................................................... 1,500Interest Payable ........................................... 1,500 (€100,000 X 9% X 2/12)
4. Dec. 31 Salaries Expense.................................................. 2,000Salaries Payable .......................................... 2,000 [5 X €700 X 2/5 = €1,400 [3 X €500 X 2/5 = 600 €2,000]
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-69
PROBLEM 3-5B
(a), (c) & (e)
Cash No. 101
Date Explanation Ref. Debit Credit BalanceNov. 1
8101220222529
Balance ����J1J1J1J1J1J1J1
3,4203,100
600
1,700
2,700 4001,700
2,400 700
4,1207,220
4,520 4,1202,4203,020
Accounts Receivable No. 112Date Explanation Ref. Debit Credit BalanceNov. 1
1027
Balance ����J1J1 900
3,420 4,250
830 1,730
Supplies No. 126
Date Explanation Ref. Debit Credit BalanceNov. 1
1730
Balance
Adjusting
����J1J1
7001,300
1,800 2,500 1,200
Store Equipment No. 153Date Explanation Ref. Debit Credit BalanceNov. 1
15Balance ����
J1 2,00012,00014,000
3-70 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-5B (Continued)
Accumulated Depreciation—Store Equipment No. 154
Date Explanation Ref. Debit Credit BalanceNov. 1
30BalanceAdjusting
����J1 200
2,000 2,200
Accounts Payable No. 201
Date Explanation Ref. Debit Credit BalanceNov. 1
151720
Balance ����J1J1J1 2,700
2,000 700
2,600 4,600 5,300 2,600
Unearned Service Revenue No. 209
Date Explanation Ref. Debit Credit BalanceNov. 1
2930
Balance
Adjusting
����J1J1 1,250
600 1,200 1,800 550
Salaries Payable No. 212
Date Explanation Ref. Debit Credit BalanceNov. 1
830
Balance
Adjusting
����J1J1
700 400
700 0 400
Share Capital—Ordinary No. 311
Date Explanation Ref. Debit Credit BalanceNov. 1 Balance ���� 10,000
Retained Earnings No. 320
Date Explanation Ref. Debit Credit BalanceNov. 1 Balance ���� 3,950
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 3-71
PROBLEM 3-5B (Continued)
Service Revenue No. 400Date Explanation Ref. Debit Credit BalanceNov. 12
2730 Adjusting
J1J1J1
3,100 9001,250
3,1004,0005,250
Depreciation Expense No. 615
Date Explanation Ref. Debit Credit BalanceNov. 30 Adjusting J1 200 200
Supplies Expense No. 631
Date Explanation Ref. Debit Credit BalanceNov. 30 Adjusting J1 1,300 1,300
Salaries Expense No. 726
Date Explanation Ref. Debit Credit BalanceNov. 8
2530 Adjusting
J1J1J1
1,0001,700 400
1,0002,7003,100
Rent Expense No. 729
Date Explanation Ref. Debit Credit BalanceNov. 22 J1 400 400
3-72 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 3-5B (Continued)
(b) General JournalJ1
Date Account Titles and Explanation Ref. Debit CreditNov. 8 Salaries Payable........................................
Salaries Expense ......................................Cash......................................................
212726101
700 1,000
1,700
10 Cash ..............................................................Accounts Receivable......................
101112
3,4203,420
12 Cash ..............................................................Service Revenue..............................
101400
3,1003,100
15 Store Equipment .......................................Accounts Payable............................
153201
2,0002,000
17 Supplies .......................................................Accounts Payable............................
126201
700 700
20 Accounts Payable.....................................Cash.....................................................
201101
2,7002,700
22 Rent Expense .............................................Cash.....................................................
729101
400 400
25 Salaries Expense ......................................Cash.....................................................
726101
1,7001,700
27 Accounts Receivable...............................Service Revenue..............................
112400
900 900
29 Cash ..............................................................Unearned Service Revenue ..........
101209
600 600
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PROBLEM 3-5B (Continued)
(d) & (f) MORELLI EQUIPMENT REPAIRTrial Balances
November 30, 2011
BeforeAdjustment
AfterAdjustment
Dr. Cr. Dr. Cr.Cash ....................................................Accounts Receivable.....................Supplies .............................................Store Equipment .............................Accumulated Depreciation ..........Accounts Payable...........................Unearned Service Revenue .........Salaries Payable..............................Share Capital—Ordinary...............Retained Earnings ..........................Service Revenue .............................Depreciation Expense ...................Supplies Expense...........................Salaries Expense ............................Rent Expense ...................................
$ 3,020 1,730 2,500 14,000
2,700 400$24,350
$ 2,000 2,600 1,800 –0– 10,000 3,950 4,000
$24,350
$ 3,020 1,730 1,200 14,000
200 1,300 3,100 400$24,950
$ 2,2002,600
550400
10,0003,9505,250
$24,950
(e) 1. Nov. 30 Supplies Expense............................. 631 1,300Supplies ($2,500 – $1,200)...... 126 1,300
2. 30 Salaries Expense.............................. 726 400Salaries Payable ........................ 212 400
3. 30 Depreciation Expense..................... 615 200Accumulated Depreciation— Store Equipment ................... 154 200
4. 30 Unearned Service Revenue........... 209 1,250Service Revenue........................ 400 1,250
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PROBLEM 3-5B (Continued)
(g) MORELLI EQUIPMENT REPAIRIncome Statement
For the Month Ended November 30, 2011 Revenues
Service revenue....................................................... $5,250Expenses
Salaries expense..................................................... $3,100Supplies expense ................................................... 1,300Rent expense ........................................................... 400Depreciation expense............................................ 200
Total expenses ............................................... 5,000Net Income......................................................................... $ 250
MORELLI EQUIPMENT REPAIRRetained Earnings Statement
For the Month Ended November 30, 2011 Retained Earnings, November 1...................................................... $3,950Plus: Net income.................................................................................. 250Retained Earnings, November 30.................................................... $4,200
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PROBLEM 3-5B (Continued)
MORELLI EQUIPMENT REPAIRStatement of Financial Position
November 30, 2011
AssetsEquipment ........................................................................ $14,000Less: Accumulated depreciation—
equipment............................................................ 2,200 $11,800Supplies............................................................................. 1,200Accounts receivable...................................................... 1,730Cash.................................................................................... 3,020
Total assets............................................................. $17,750
Equity and LiabilitiesEquity
Share capital—ordinary ...................................... $10,000Retained earnings................................................. 4,200 $14,200
LiabilitiesAccounts payable ................................................. 2,600Unearned service revenue ................................. 550Salaries payable .................................................... 400 3,550
Total equity and liabilities ........................................... $17,750
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BYP 3-1 FINANCIAL REPORTING PROBLEM
(a) Items that may result in adjusting entries for prepayments are:
1. Prepaid expenses and other current assets (per statement of financialposition).
2. Property, plant and equipment, net of depreciation (per statement offinancial position).
3. Amortizable intangible assets, net (per statement of financial position)—amortization is similar to depreciation (explained later in Chapter 9).
(b) Accrual adjusting entries were probably made for accounts payableand other current liabilities, interest expense, and income taxes payable.
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BYP 3-2 COMPARATIVE ANALYSIS PROBLEM
Cadbury Nestlé
(a) Net increase (decrease) in property,plant, and equipment (net) from 2007to 2008.
£ (143,000,000) CHF (968,000,000)
(b) Increase (decrease) in selling, general,and administrative expenses from 2007to 2008.
£ 187,000,000 CHF (680,000,000)
(c) Increase (decrease) in long-term debt(obligations) from 2007 to 2008.
£ (657,000,000) CHF (817,000,000)
(d) Increase (decrease) in net income from2007 to 2008.
£ (41,000,000) CHF(7,669,000,000)
(e) Increase (decrease) in cash and cashequivalents from 2007 to 2008.
£ (242,000,000) CHF (759,000,000)
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BYP 3-3 EXPLORING THE WEB
(a) The categories are:
1. The Big 4 10. Edgar2. Professional 11. FASB3. Associations 12. International4. Education 13. Publishers5. Finance 14. Journals and Publications6. Professors 15. Softwares7. Taxation 16. Other sites8. Audit and Law 17. Entertainment9. Government 18. Interest books
(b) Student answers will vary depending on the category selected.
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BYP 3-4 DECISION MAKING ACROSS THE ORGANIZATION
(a) HAPPY CAMPER PARK, INC.Income Statement
For the Quarter Ended March 31, 2011 Revenues
Rental revenue ($90,000 – $15,000)................. $75,000Expenses
Wages expense [$29,800 + ($300 X 2)]........... $30,400Advertising expense ($5,200 + $110).............. 5,310Supplies expense ($6,200 – $1,700) ................ 4,500Repairs expense ($4,000 + $260) ..................... 4,260Insurance expense ($7,200 X 3/12).................. 1,800Utilities expense ($900 + $180) ......................... 1,080Depreciation expense .......................................... 800Interest expense ($12,000 X 10% X 3/12)........... 300
Total expenses.............................................. 48,450Net income........................................................................ $26,550
(b) The international financial reporting standards pertaining to the incomestatement that were not recognized by Amaya were the revenue recognitionprinciple and the expense recognition principle. The revenue recognitionprinciple states that revenue is recognized when it is earned. The fees of$15,000 for summer rentals have not been earned and, therefore, shouldnot be reported in income for the quarter ended March 31. The expenserecognition principle dictates that efforts (expenses) be matched withaccomplishments (revenues) whenever it is reasonable and practicableto do so. This means that the expenses should include amounts incurredin March but not paid until April. The difference in expenses was $7,750($48,450 – $40,700). The overstatement of revenues ($15,000) plus theunderstatement of expenses ($7,750) equals the difference in reportedincome of $22,750 ($49,300 – $26,550).
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BYP 3-5 COMMUNICATION ACTIVITY
Dear President Nickels:
Upon reviewing the accounts of your company at the end of the year,I discovered that adjusting entries were not made.
Adjusting entries are made at the end of the accounting period to ensurethat the revenue recognition and expense recognition principles requiredunder international financial reporting standards are followed. The use ofadjusting entries makes it possible to report on the statement of financialposition the appropriate assets, liabilities, and equity at the statement dateand to report on the income statement the proper net income (or loss) forthe year.
Adjusting entries are needed because the trial balance may not contain anup-to-date and complete record of transactions and events for the followingreasons:
1. Some events are not journalized daily because it is not efficient todo so. Examples are the use of supplies and the earning of wagesby employees.
2. The expiration of some costs is not journalized during the account-ing period because these costs expire with the passage of timerather than as a result of recurring daily transactions. Examplesof such costs are building and equipment depreciation, rent, andinsurance.
3. Some expenses, such as the cost of utility service and propertytaxes, may be unrecorded because the bills for the costs have notbeen received.
There are four types of adjusting entries:
1. Prepaid expenses—expenses paid in cash and recorded as assetsbefore they are used or consumed.
2. Unearned revenues—revenues received in cash and recorded asliabilities before they are earned.
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BYP 3-5 (Continued)
3. Accrued revenues—revenues earned but not yet received in cashor recorded.
4. Accrued expenses—expenses incurred but not yet paid in cash orrecorded.
I will be happy to answer any questions you may have on adjusting entries.
Signature
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BYP 3-6 ETHICS CASE
(a) The stakeholders in this situation are:
���� Cathi Bell, controller.���� The president of Bluestem Company.���� Bluestem Company shareholders.
(b) 1. It is unethical for the president to place pressure on Cathi to misstatenet income by requesting her to prepare incorrect adjusting entries.
2. It is customary for adjusting entries to be dated as of the statementof financial position date although the entries are prepared at a laterdate. Cathi did nothing unethical by dating the adjusting entriesDecember 31.
(c) Cathi can accrue revenues and defer expenses through the preparationof adjusting entries and be ethical so long as the entries reflecteconomic reality. Intentionally misrepresenting the company’s financialcondition and its results of operations is unethical (it is also illegal).