accounting 04

8/3/2019 Accounting 04

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Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)

CHAPTER 4

Accrual Accounting Concepts

ANSWERS TO QUESTIONS

1. (a) Under the time period assumption, an accountant is required to determine the effect of eaccounting transaction on specific accounting periods.

(b) An accounting time period that is one year in length is referred to as a fiscal year.

2. The two generally accepted accounting principles that pertain to adjusting the accounts are:The revenue recognition principle, which states that revenue should be recognized in the tperiod in which it is earned.The matching principle which states that efforts (expenses) be matched with accomplishm(revenues) that they helped generate.

3. The law firm should recognize the revenue in April. The revenue recognition principle states revenue should be recognized in the accounting period in which it is earned.

4. Expenses of $4,500 should be deducted from the revenues in April. Under the matching princefforts (expenses) should be matched with accomplishments (revenues).

5. No, adjusting entries are required by the revenue recognition and matching principles.

6. The financial information in a trial balance may not be up-to-date because:(1) Some events are not journalized daily because it is not useful or efficient to do so.(2) The expiration of some costs occurs with the passage of time rather than as a resu

recurring daily transactions.(3) Some items may be unrecorded because the transaction data are not known.

7. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of revenand expenses paid before they are earned or incurred. Accruals consist of revenues and expenearned or incurred prior to payment.

8. In a prepaid expense adjusting entry, expenses are debited and assets are credited.

9. No. Depreciation is the process of allocating the cost of an asset to expense over its useful Depreciation results in the presentation of the book value of the asset, not its market value.

10. Depreciation expense is an expense account whose normal balance is a debit. This accoshows the cost that has expired during the current accounting period. Accumulated depreciais a contra asset account whose normal balance is a credit. The balance in this account isdepreciation that has been recognized from the date of acquisition to the balance sheet date.

11. Equipment ................................................................................................. $15,000Less: Accumulated Depreciation.............................................................. 9,000 $6,0


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4-2 Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only)

Questions Chapter 4 (Continued)

2. In an unearned revenue adjusting entry, liabilities are debited and revenues are credited.

3. The sale of a three-year maintenance contract on December 29, 2009 will have no effect on the2009 income statement but receipt of $100,000 on December 29, 2009 will increase an asset,cash, and a liability, unearned revenue. As Computer Technologies provides service to itscustomer during 2010, 2011, and 2012, the liability will decrease and revenue will be recognized.Accrual accounting rules require that revenue be recognized as it is earned rather than when

cash is received.

4. This promotion plan sounds like a bad idea for two reasons.(1) GAAP requires that the sale of a gift card be recorded as unearned revenue (a liability)

rather than sales revenue. Revenue recognition is delayed until the gift card is used orexpires. Mickeys plan will not help the company meet its target revenue unless customersuse the cards by year-end.

(2) Selling a $50 card for $40 will probably not help the company meet its target net income.Although this promotion may result in additional sales revenue as the cards are used, theincome resulting from the cards will be much less than usual since they eliminate $10 ofnormal gross profit.

5. Asset and revenue. An asset is debited and revenue is credited.

6. Expense and liability. An expense is debited and a liability is credited.

7. Net income was understated $300 because prior to adjustment revenues are understated by$800 and expenses are understated by $500. The difference in this case is $300 ($800 $500).

8. The entry is:Jan. 9 Salaries Payable ................................................................................ 1,100

Salaries Expense ............................................................................... 4,900Cash.......................................................................................... 6,000

9. (a) Accrued revenues. (d) Accrued expenses or prepaid expenses.(b) Unearned revenues. (e) Prepaid expenses.(c) Accrued expenses. (f) Accrued revenues or unearned revenues.

20. (a) Salaries Payable. (d) Supplies Expense.(b) Accumulated Depreciation. (e) Service Revenue.(c) Interest Expense. (f) Service Revenue.

21. Disagree. An adjusting entry affects only one balance sheet account and one income statementaccount.

22. Tootsie Roll reports Accounts Receivable. This suggests that it records revenue when it has

delivered goods, even though it hasnt received payment. If it used a cash basis it wouldnt recordrevenue until cash was received, and it would therefore not establish receivables.

23. 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 occurred duringthe accounting period.


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Questions Chapter 4 (Continued)

24. (a) Information presented on an accrual basis is useful because it reveals important informaabout the relationship between efforts and results. This information is useful in predicfuture results. Trends in revenues and expenses are thus more meaningful.

(b) Information presented on a cash basis is useful for predicting the future availability of cCash basis financial statements provide useful information about a companys sources

uses of cash.

25. The amount shown in the adjusted trial balance column for an account equals the accobalance in the ledger after adjusting entries have been journalized and posted.

26. (1) (Dr) Individual revenue accounts and (Cr) Income Summary.(2) (Dr) Income Summary and (Cr) Individual expense accounts.(3) (Dr) Income Summary and (Cr) Retained Earnings (for net income).(4) (Dr) Retained Earnings and (Cr) Dividends.

27. Financial information is used by managers to direct and evaluate a companys performance. sooner such information is made available; the sooner changes can be made to get a compback on track. A virtual close speeds up the reporting process and allows managers to remuch faster to changing economic conditions.

28. Income Summary is a temporary account that is used in the closing process. The accoundebited for expenses and credited for revenues. The difference, either net income or net losthen closed to Retained Earnings.

29. The post-closing trial balance contains only balance sheet accounts. Its purpose is to proveequality of the permanent account balances that are carried forward into the next accounting perio

30. The accounts that will not appear in the post-closing trial balance are: Depreciation ExpenDividends; and Service Revenue.

31. The steps that involve journalizing are (1) journalize the transactions, (2) journalize the adjusentries, and (3) journalize the closing entries.

32. The three trial balances are the (1) trial balance, (2) adjusted trial balance, and (3) post-clostrial balance.

33. Earnings management is the planned timing of revenues, expenses, gains, and losses to smoothbumps in net income. Such action is undertaken to help a company meet target financial numbers

Quality of earnings indicates the level of full and transparent information that a company provideusers of financial statements.

34. Examples of ways a company can manage earnings include the following.

Use of one-time items to prop up earnings numbers. A company may decide to sell propthat has appreciated in value in order to record a gain on the sale. Such a gain will increasecurrent years net income but future income will probably not include a similar increase.

Inflating revenue in the short-run to the detriment of the long-run. A company may implemchanges in its promotion activities near the end of an accounting period to boost year-revenues. Offering a special rebate or a twoforone package is likely to increase sales fortime the promotion runs but usually results in lower sales in subsequent periods. Sacustomers may even postpone purchases until special deals are available.


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Recording improper adjusting entries. Some adjusting entries require estimates and judgment toproperly recognize revenue and match expenses. By recognizing revenue sooner and delayingthe recognition of expenses, earnings can be overstated in early periods and understated insubsequent periods. This type of management is most prevalent with multi-year contracts andprepaid expenses.

35. The worksheet is a working paper designed to make it easier to prepare adjusting entries andfinancial statements.

36. The columns of the worksheet from left to right are two columns each for the trial balance,adjustments, adjusted trial balance, income statement, and balance sheet.


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SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1

Cash Net Income(a)(b)(c)(d)(e)(f)

$10000

+8002,500

0

$040

+1,30000

600

BRIEF EXERCISE 4-2

(a) Prepaid Insuranceto recognize insurance expired during the perio

(b) Depreciation Expenseto account for the allocation of the cost of asset to expense during its useful life.

(c) Unearned Service Revenueto account for unearned revenue that hbeen earned during the period.

(d) Interest Payableto recognize interest accrued but unpaid on nopayable.

BRIEF EXERCISE 4-3

Item(1)

Type of Adjustment(2)

Accounts Before Adjustment

(a) Prepaid Expenses Assets OverstatedExpenses Understated

(b) Accrued Revenues Assets UnderstatedRevenues Understated

(c) Accrued Expenses Expenses UnderstatedLiabilities Understated

(d) Unearned Revenues Liabilities OverstatedRevenues Understated


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BRIEF EXERCISE 4-4

Dec. 31 Advertising Supplies Expense........................ 7,400Advertising Supplies................................ 7,400

Advertising Supplies Advertising Supplies Expense

8,800 12/31 7,400 12/31 7,4002/31 Bal. 1,400

BRIEF EXERCISE 4-5

Dec. 31 Depreciation Expense...................................... 2,200Accumulated Depreciation

Equipment............................................. 2,200

Depreciation ExpenseAccumulated Depreciation

Equipment2/31 2,200 12/31 2,200

Balance Sheet:Equipment................................................................... $22,000Less: Accumulated Depreciation............................. 2,200 $19,800

BRIEF EXERCISE 4-6

July 1 Prepaid Insurance ............................................ 10,800Cash........................................................... 10,800

Dec. 31 Insurance Expense ($10,800 X 6/24)............... 2,700Prepaid Insurance .................................... 2,700

Prepaid Insurance Insurance Expense

7/1 10,800 12/31 2,700 12/31 2,70012/31 Bal. 8,100


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BRIEF EXERCISE 4-7

July 1 Cash .................................................................. 10,800Unearned Insurance Revenue................. 10,80

Dec. 31 Unearned Insurance Revenue ........................ 2,700Insurance Revenue ($10,800 X 6/24) ...... 2,70

Unearned Insurance Revenue Insurance Revenue12/31 2,700 7/1 10,800 12/31 2,70

12/31 Bal. 8,100

BRIEF EXERCISE 4-8

(a) Dec. 31 Interest Expense ...................................... 300Interest Payable................................ 30

(b) 31 Accounts Receivable............................... 1,400Service Revenue............................... 1,40

(c) 31 Salaries Expense...................................... 780Salaries Payable............................... 78

BRIEF EXERCISE 4-9

Account

(1)

Type of Adjustment

(2)

Related Account

(a) Accounts Receivable Accrued Revenues Service Revenue

(b) Prepaid Insurance Prepaid Expenses Insurance Expense

(c) Equipment Not required

(d) Accum. DepreciationEquipment

Prepaid Expenses Depreciation Expen

(e) Notes Payable Not required

(f) Interest Payable Accrued Expenses Interest Expense

(g) Unearned ServiceRevenue

Unearned Revenues Service Revenue


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BRIEF EXERCISE 4-10

ROSE CORPORATIONIncome Statement

For the Year Ended December 31, 2010

Revenues

Service revenue..................................................... $32,000Expenses

Salaries expense ................................................... $13,000Rent expense......................................................... 3,500Insurance expense................................................ 1,800Supplies expense.................................................. 1,200Depreciation expense ........................................... 1,000

Total expenses............................................... 20,500Net income..................................................................... $11,500

BRIEF EXERCISE 4-11

ROSE CORPORATIONRetained Earnings Statement

For the Year Ended December 31, 2010

Retained earnings, January 1 .......................................................... $17,200Add: Net income ............................................................................. 10,000

27,200Less: Dividends ............................................................................... 6,000Retained earnings, December 31 .................................................... $21,200

BRIEF EXERCISE 4-12

Account

a)

b)c)d)e)f)g)

Accumulated Depreciation

Depreciation ExpenseRetained EarningsDividendsService RevenueSuppliesAccounts Payable

Balance Sheet

Income StatementRetained Earnings Statement and Balance SheetRetained Earnings StatementIncome StatementBalance SheetBalance Sheet


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BRIEF EXERCISE 4-13

The accounts that will appear in the post-closing trial balance are:

Accumulated DepreciationRetained EarningsSupplies

Accounts Payable

BRIEF EXERCISE 4-14

(a) Closing EntriesJuly 31 Green Fees Revenue................................ 16,000

Income Summary .............................. 16,00(To close revenue account)

Income Summary ..................................... 11,900Salaries Expense............................... 8,40Maintenance Tax Expense ............... 2,50Income Tax Expense......................... 1,00

(To close expense accounts)

Income Summary ..................................... 4,100Retained Earnings............................. 4,10

(To close net income to

retained earnings)

Retained Earnings.................................... 1,000Dividends........................................... 1,00

(To close dividends to retainedearnings)

(b) Retained Earnings1,000 20,000

4,1007/31 Bal. 23,100


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BRIEF EXERCISE 4-15

The proper sequencing of the required steps in the accounting cycle is asollows:

1. (c) Analyze business transactions.2. (e) Journalize the transactions.

3. (i) Post to ledger accounts.4. (d) Prepare a trial balance.5. (h) Journalize and post adjusting entries.6. (b) Prepare an adjusted trial balance.7. (g) Prepare financial statements.8. (f) Journalize and post closing entries.9. (a) Prepare a post-closing trial balance.


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Copyright 2010 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 4

SOLUTIONS TO DO IT! REVIEW EXERCISES

DO IT! 4-1

1. Insurance Expense ........................................................ 300Prepaid Insurance ................................................... 3

(To record insurance expired)

2. Office Supplies Expense............................................... 1,600Office Supplies ........................................................ 1,6

(To record supplies used)

3. Depreciation Expense ................................................... 500Accumulated DepreciationOff. Equip. ............... 5

(To record monthly depreciation)

4. Unearned Revenue ........................................................ 4,000Service Revenue...................................................... 4,0(To record revenue for services provided)

DO IT! 4-2

1. Salaries Expense ........................................................... 1,100Salaries Payable ...................................................... 1,1

(To record accrued salaries)

2. Interest Expense ............................................................ 200Interest Payable....................................................... 2

(To record accrued interest)

3. Accounts Receivable .................................................... 1,600Service Revenue...................................................... 1,6

(To record revenue for service provided)

DO IT! 4-3

Income statement: Service Revenue, Utilities Expense

Balance sheet: Accounts Receivable, Accumulated Depreciation, NoPayable, Common Stock.


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DO IT! 4-4

Dec. 31 Income Summary...................................................... 29,000Retained Earnings ............................................. 29,000

(To close net income to retained earnings)

Dec. 31 Retained Earnings .................................................... 22,000

Dividends............................................................ 22,000(To close dividends to retained earnings)


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SOLUTIONS TO EXERCISES

EXERCISE 4-1

(a) 8. Going concern assumption.(b) 1. Economic entity assumption.

(c) 7. Full disclosure principle.(d) 3. Monetary unit assumption.(e) 6. Materiality.(f) 4. Time period assumption.(g) 2. Matching principle.(h) 5. Cost principle.

EXERCISE 4-2

(a) Since the sales effort is not complete until the flight actually occurevenue should not be recognized until December. Southwest Airlinshould recognize the revenue in December when the customer hbeen provided with the flight.

(b) If Ultimate Electronics is reasonably certain of collection, revenue shobe recognized at the time of sale. If the company has concerns over tcollectibility of the accounts receivable, revenue should not be recognizuntil the time that collection is reasonably assured.

(c) Revenue should be recognized on a per game basis over the seas

from April through October.(d) Interest revenue should be accrued and recognized by RBC evenly o

the term of the loan.

(e) Revenue should be recognized when the sweater is shipped to customer in September provided there is reasonable assurancecollectibility.

EXERCISE 4-3

(a) Revenue recognition principle.(b) Time period assumption.(c) No violation.(d) Going concern assumption.(e) Cost principle or conservatism.(f) Economic entity assumption.


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EXERCISE 4-4

$ 33,640 Cash basis earnings.

+ 3,400Accounts receivable arise from sales that have been made,thus revenue must be recognized for balance outstanding atthe end of the current year.

2,800 Accounts receivable collected in current year, for sales madein previous year must be deducted from earnings.

+ 1,300Supplies on hand at year end should be set up as an assetrather than expensed, this increases earnings.

1,160Supplies on hand at the end of the previous year should beexpensed this year, this decreases earnings.

2,000Wages owing at the end of the current year should beaccrued, thus reducing earnings.

+ 2,400Wages owed at the end of the previous year should not bededucted from the current years earnings, thus increasing

earnings.

1,400Other unpaid amounts owed at the end of the current yearshould be accrued, thus reducing earnings.

+ 1,600Other unpaid amounts owed at the end of the previous yearshould not be deducted from the current years earnings, thusincreasing earnings.

$ 34,980 Accrual basis earnings.


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EXERCISE 4-5

(a) BOULDER COMPANYIncome Statement

For the Six Months Ended April 30, 2010

Revenues

Repair services ($32,150 + $350)..................... $32,50Expenses

Income tax expense.......................................... $10,000Wages expense ($2,600 + $420) ...................... 3,020Rent expense ($1,225 $175) .......................... 1,050Utilities expense ............................................... 970Depreciation expense [($9,200 5) X 6/12]..... 920Advertising expense......................................... 375

Total expenses........................................... 16,33Net income................................................................ $16,16

(b) BOULDER COMPANYBalance SheetApril 30, 2010

AssetsCurrent Assets

Cash................................................................ $27,780Accounts receivable ...................................... 350Prepaid rent .................................................... 175

Total current assets................................ $28,30Property, plant, and equipment

Equipment....................................................... 9,200Less: Accumulated depreciation................. 920 8,28

Total assets ........................................................... $36,58

Liabilities and Stockholders EquityCurrent Liabilities

Wages payable.............................................. $ 42Stockholders equity

Common stock.............................................. $20,000Retained earnings......................................... 16,165

Total stockholders equity.............. 36,16Total liabilities and stockholders

equity ................................................... $36,58


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EXERCISE 4-6

tem(1)

Type of Adjustment(2)

Accounts Before Adjustment

a) Accrued Revenues Assets UnderstatedRevenues Understated

b) Prepaid Expenses Assets OverstatedExpenses Understated

c) Accrued Expenses Expenses UnderstatedLiabilities Understated

d) Unearned Revenues Liabilities OverstatedRevenues Understated

e) Accrued Expenses Expenses UnderstatedLiabilities Understated

f) Prepaid Expenses Assets OverstatedExpenses Understated


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EXERCISE 4-7

1. Jan. 31 Accounts Receivable .................................... 680Service Revenue.................................... 68

2. 31 Utilities Expense............................................ 520Utilities Payable ..................................... 52

3. 31 Depreciation Expense................................... 400Accumulated Depreciation

Dental Equipment .............................. 40

31 Interest Expense............................................ 500Interest Payable ..................................... 50

4. 31 Insurance Expense ($24,000 12) ............... 2,000

Prepaid Insurance ................................. 2,00

5. 31 Supplies Expense ($1,750 $550) ............... 1,200Supplies.................................................. 1,20


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EXERCISE 4-8

1. Oct. 31 Advertising Supplies Expense ..................... 2,000Advertising Supplies

($2,500 $500).................................... 2,000

2. 31 Insurance Expense ........................................ 100

Prepaid Insurance.................................. 100

3. 31 Depreciation Expense ................................... 50Accumulated Depreciation

Office Equipment ............................... 50

4. 31 Unearned Service Revenue .......................... 800Service Revenue .................................... 800

5. 31 Accounts Receivable..................................... 200Service Revenue .................................... 200

6. 31 Interest Expense ............................................ 70Interest Payable...................................... 70

7. 31 Salaries Expense ........................................... 1,400Salaries Payable..................................... 1,400

EXERCISE 4-9

MARX CO.Income Statement

For the Month Ended July 31, 2010

RevenuesService revenue ($5,500 + $700) ............................. $6,200

ExpensesWages expense ($2,300 + $300).............................. $2,600Utilities expense....................................................... 800Supplies expense ($900 $200).............................. 700Insurance expense................................................... 350Depreciation expense .............................................. 150

Total expenses.................................................. 4,600Net income........................................................................ $1,600


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EXERCISE 4-10

Answer Computation

(a) Supplies balance = $1,000 Supplies expense $ 95Add: Supplies (1/31) 70Less: Supplies purchased (65

Supplies (1/1) $1,00

(b) Total premium = $6,240 Total premium = Monthly premium12; $520 X 12 = $6,240

Purchase date = May 1, 2009 Purchase date: On Jan. 31, there 3 months coverage remaining ($520 XThus, the purchase date was 9 monearlier on May 1, 2009.

(c) Salaries payable = $1,900 Cash paid $2,50Salaries payable (1/31/10) 1,20

3,70Less: Salaries expense 1,80Salaries payable (12/31/09) $1,90

(d) Service revenue = $950 Service revenue $2,00Unearned revenue (1/31/10) 75

2,75Cash received in Jan. 1,80Unearned revenue (12/31/09) $ 95


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EXERCISE 4-11

Jan. 31 Service Revenue ................................................... 2,000Income Summary .......................................... 2,000

31 Income Summary.................................................. 3,270Salaries Expense........................................... 1,800

Supplies Expense.......................................... 950Insurance Expense........................................ 520

31 Retained Earnings ................................................ 1,270Income Summary .......................................... 1,270

EXERCISE 4-12

a) July 10 Supplies.......................................................... 200Cash ........................................................ 200

14 Cash................................................................ 4,100Service Revenue .................................... 4,100

15 Salaries Expense ........................................... 1,200Cash ........................................................ 1,200

20 Cash................................................................ 600Unearned Service Revenue................... 600

b) July 31 Supplies Expense .......................................... 750Supplies .................................................. 750

31 Accounts Receivable..................................... 500Service Revenue .................................... 500

31 Salaries Expense ........................................... 1,200Salaries Payable..................................... 1,200

31 Unearned Service Revenue .......................... 900Service Revenue .................................... 900


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EXERCISE 4-13

Aug. 31 Accounts Receivable ........................................... 600Service Revenue ........................................... 60

31 Office Supplies Expense...................................... 2,000Office Supplies.............................................. 2,00

31 Insurance Expense............................................... 1,500Prepaid Insurance......................................... 1,50

31 Depreciation Expense.......................................... 1,200Accumulated DepreciationOffice

Equipment ................................................. 1,20

31 Salaries Expense.................................................. 1,100

Salaries Payable ........................................... 1,10

31 Unearned Rent Revenue...................................... 900Rent Revenue................................................ 90

EXERCISE 4-14

IVY COMPANYIncome Statement

For the Year Ended August 31, 2010

RevenuesService revenue ..................................................... $34,600Rent revenue.......................................................... 14,100

Total revenues................................................ $48,70Expenses

Salaries expense.................................................... $18,100Rent expense ......................................................... 12,000

Office supplies expense........................................ 2,000Insurance expense ................................................ 1,500Depreciation expense............................................ 1,200

Total expenses ............................................... 34,80Net income ..................................................................... $13,90


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EXERCISE 4-14 (Continued)

IVY COMPANYRetained Earnings Statement

For the Year Ended August 31, 2010

Retained earnings, September 1, 2009 ........................................... $ 5,600

Add: Net income ............................................................................. 13,90019,500

Less: Dividends ............................................................................... 2,800Retained earnings, August 31, 2010 ............................................... $16,700

IVY COMPANYBalance Sheet

August 31, 2010

AssetsCurrent Assets

Cash ......................................................................... $10,900Accounts receivable ............................................... 9,400Office supplies ........................................................ 500Prepaid insurance ................................................... 2,500

Total current assets ........................................ $23,300Office equipment..................................................... $16,000Less: Accum. depreciationoffice equipment ..... 4,800 11,200

Total assets...................................................... $34,500


Accounts payable ................................................... $ 5,800Salaries payable ...................................................... 1,100Unearned rent revenue ........................................... 900

Total current liabilities .................................... $ 7,800Stockholders equity

Common stock ........................................................ 10,000

Retained earnings ................................................... 16,700Total stockholders equity .......................... 26,700

Total liabilities and stockholders equity ...... $34,500


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EXERCISE 4-15

Aug. 31 Service Revenue.............................................. 34,600Rent Revenue................................................... 14,100

Income Summary..................................... 48,70

31 Income Summary............................................. 34,800

Salaries Expense ..................................... 18,10Rent Expense ........................................... 12,00Office Supplies Expense......................... 2,00Insurance Expense .................................. 1,50Depreciation Expense ............................. 1,20

31 Income Summary............................................. 13,900Retained Earnings ................................... 13,90

31 Retained Earnings........................................... 2,800Dividends.................................................. 2,80


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SOLUTIONS TO PROBLEMS

PROBLEM 4-1A

a)1. Cash .................................................................. 19,000

Accounts Receivable ............................... 19,000

2. Unearned Rent Revenue ................................. 38,000Rent Revenue ........................................... 38,000

3. Cash .................................................................. 89,000Unearned Rent Revenue.......................... 89,000

Unearned Rent Revenue ($89,000 $30,000) ... 59,000Rent Revenue ........................................... 59,000

4. Accounts Receivable....................................... 162,000Dues Revenue........................................... 162,000

5. Cash ................................................................. 147,000Accounts Receivable ($162,000 $15,000)... 147,000

b) Cash received with respect to rent and dues

1. Collection of 2006 dues $ 19,0003. Collection of rent 89,0005. Collection of 2007 dues 147,000

$255,000

Accounts Receivable2006 Bal. 19,0004. 162,000 1. 19,000

5. 147,0002007 Bal. 15,000

Unearned Rent Revenue

2. 38,0003. 59,000

2006 Bal. 38,0003. 89,000

2007 Bal. 30,000

Dues Revenue4. 162,0002007 Bal. 162,000

Rent Revenue

2. 38,0003. 59,0002007 Bal. 97,000

Cash

1. 19,0003. 89,0005. 147,000

2007 Bal. 255,000


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PROBLEM 4-2A

(a)

Date Account Titles Debit Cred1.

2007April 30 Supplies Expense.....................................

Supplies ($1,000 $320) ..................

680

680

2. 30 Phone Expense.........................................Phone Payable ..................................

120120

3. 30 Rent Expense............................................Prepaid Rent......................................

($2,700 3 months)

900900

4. 30 Unearned Service Revenue .....................Service Revenue...............................

2,2002,200

5. 30 Salaries Expense......................................Salaries Payable ...............................

1,4601,460

6. 30 Depreciation Expense..............................

Accumulated DepreciationOffice Equipment..........................

300

300

7. 30 Accounts Receivable ...............................Service Revenue...............................

2,8002,800

(b)Cash

4/30 Bal. 9,300

Accounts Receivable4/30 Bal. 5,0004/30 2,8004/30 Bal. 7,800

Prepaid Rent4/30 Bal. 2,700 4/30 9

4/30 Bal. 1,800

Supplies4/30 Bal. 1,000 4/30 64/30 Bal. 320


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PROBLEM 4-2A (Continued)

Office Equipment4/30 Bal. 20,000


Office Equipment4/30 3004/30 Bal. 300

Accounts Payable4/30 Bal. 5,100

Phone Payable4/30 1204/30 Bal. 120

Salaries Payable4/30 1,4604/30 Bal. 1,460

Unearned Service Revenue4/30 2,200 4/30 Bal. 3,100

4/30 Bal. 900

Common Stock4/30 Bal. 25,000

Service Revenue4/30 Bal. 9,0004/30 2,2004/30 2,8004/30 Bal. 14,000

Salaries Expense4/30 Bal. 3,8004/30 1,4604/30 Bal. 5,260

Insurance Expense4/30 Bal. 400

Depreciation Expense4/30 3004/30 Bal. 300

Rent Expense4/30 9004/30 Bal. 900

Phone Expense4/30 1204/30 Bal. 120

Supplies Expense4/30 6804/30 Bal. 680


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(c) DO IT NOW CONSULTINGAdjusted Trial Balance

April 30, 2007

Debit CrediCash .....................................................................Accounts Receivable..........................................Prepaid Rent........................................................Supplies...............................................................Office Equipment ................................................Accumulated DepreciationOffice

Equipment .......................................................Accounts Payable ...............................................

Phone Payable ....................................................Salaries Payable .................................................Unearned Service Revenue................................Common Stock....................................................Service Revenue.................................................Salaries Expense ................................................Insurance Expense .............................................Depreciation Expense ........................................Rent Expense ......................................................Phone Expense ...................................................

Supplies Expense...............................................

$ 9,3007,8001,800

32020,000

5,260400300900120

680$46,880

$ 305,10

121,4690

25,0014,00

$46,88


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PROBLEM 4-3A

a) 1. March 31 Insurance Expense .................................. 400Prepaid Insurance............................ 400

2. 31 Supplies Expense .................................... 1,400Supplies ............................................ 1,400

($3,300 $1,900)

3. 31 Depreciation ExpenseLodge............... 370($4,440 X 1/12)

Accumulated DepreciationLodge ............................................ 370

31 Depreciation ExpenseFurniture .......... 300($3,600 X 1/12)Accumulated Depreciation

Furniture ....................................... 300

4. 31 Interest Expense ...................................... 375Interest Payable................................ 375

[($50,000 X 9%) X 1/12]

5. 31 Unearned Rent Revenue ......................... 1,300

Rent Revenue ................................... 1,300

6. 31 Salaries Expense ..................................... 960Salaries Payable............................... 960

b)Cash

3/31 Bal. 2,700

Prepaid Insurance3/31 Bal. 2,400 3/31 4003/31 Bal. 2,000

Supplies3/31 Bal. 3,300 3/31 1,4003/31 Bal. 1,900

Land3/31 Bal. 25,000


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Lodge3/31 Bal. 85,000

Accumulated DepreciationLodge

3/31 3703/31 Bal. 370

Furniture3/31 Bal. 22,400

Accumulated DepreciationFurniture

3/31 3003/31 Bal. 300


Unearned Rent Revenue3/31 1,300 3/31 Bal. 2,800

3/31 Bal. 1,500

Salaries Payable3/31 9603/31 Bal. 960

Interest Payable3/31 3753/31 Bal. 375

Mortgage Payable3/31 Bal. 50,0


Rent Revenue3/31 Bal. 11,03/31 1,33/31 Bal. 12,3

Salaries Expense3/31 Bal. 3,0003/31 9603/31 Bal. 3,960

Utilities Expense3/31 Bal. 800

Advertising Expense3/31 Bal. 400

Interest Expense3/31 3753/31 Bal. 375

Insurance Expense3/31 4003/31 Bal. 400


30/91



Supplies Expense3/31 1,4003/31 Bal. 1,400

Depreciation LodgeLodge3/31 3703/31 Bal. 370

Depreciation ExpenseFurniture3/31 3003/31 Bal. 300

c) WELCOME INNAdjusted Trial Balance

March 31, 2007

Debit Credit

Cash...................................................................Prepaid Insurance ............................................Supplies ............................................................Land...................................................................Lodge.................................................................Accumulated DepreciationLodge................Furniture............................................................Accumulated DepreciationFurniture...........Accounts Payable ............................................Unearned Rent Revenue..................................

Salaries Payable ...............................................Interest Payable................................................Mortgage Payable.............................................Common Stock .................................................Rent Revenue ...................................................Salaries Expense..............................................Utilities Expense...............................................Advertising Expense........................................Interest Expense...............................................

Insurance Expense...........................................Supplies Expense.............................................Depreciation ExpenseLodge .......................Depreciation ExpenseFurniture ..................

$ 2,7002,0001,900

25,00085,000

22,400

3,960800400375

4001,400370300

$147,005

$ 370300

9,2001,500

960375

50,00072,00012,300

$147,005


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(d) WELCOME INNIncome Statement

For the Month Ended March 31, 2007

RevenuesRent revenue ................................................... $12,30

ExpensesSalaries expense............................................. $3,960Supplies expense............................................ 1,400Utilities expense.............................................. 800Advertising expense....................................... 400Insurance expense.......................................... 400Interest expense.............................................. 375Depreciation expenselodge........................ 370Depreciation expensefurniture................... 300

Total expenses ........................................ 8,00Net income .............................................................. $ 4,29

WELCOME INNRetained Earnings Statement

For the Month Ended March 31, 2007

Retained earnings, March 1 ................................... $ Add: Net income ................................................... 4,29Retained earnings, March 31 ................................. $4,29


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WELCOME INNBalance SheetMarch 31, 2007

Assets

Current AssetsCash ......................................... $ 2,700Supplies ................................... 1,900Prepaid insurance................... 2,000

Total current assets ........ $ 6,600Property, plant, and equipment

Land.......................................... 25,000Lodge ....................................... $85,000Less: Accumulated deprec.... 370 84,630Furniture .................................. 22,400Less: Accumulated deprec.... 300 22,100 131,730

Total assets...................... $138,330


Accounts payable .............................................. $ 9,200Unearned rent revenue ...................................... 1,500Salaries payable ................................................. 960Interest payable.................................................. 375

Total current liabilities ............................... $ 12,035Long-term Liabilities

Mortgage payable............................................... 50,000Total liabilities............................................. $ 62,035

Stockholders equityCommon stock ................................................... 72,000Retained earnings .............................................. 4,295

Total stockholders equity ................. 76,295Total liabilities and stockholders

equity....................................................... $138,330

e) The following accounts would be closed:

Rent Revenue, Salaries Expense, Utilities Expense, Advertising Expense,Interest Expense, Insurance Expense, Supplies Expense, DepreciationExpenseLodge, Depreciation ExpenseFurniture.


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PROBLEM 4-4A

(a) June 30 Accounts Receivable..................................... 400Dues Revenue ........................................ 40

30 Insurance Expense ........................................ 600Prepaid Insurance.................................. 60

30 Supplies Expense .......................................... 690Supplies .................................................. 69

30 Depreciation Expense ................................... 750Accum. DepreciationEquipment ....... 75

30 Interest Expense ............................................ 100Interest Payable...................................... 10

30 Unearned Rent Revenue ............................... 500Rent Revenue ......................................... 50

30 Salaries Expense ........................................... 900Salaries Payable..................................... 90

(b) GREEN ACRES GOLF INC.Income Statement

For the Quarter Ended June 30, 2007

RevenuesDues revenue .................................................. $15,000Rent revenue ................................................... 1,200

Total revenues ......................................... $16,20Expenses

Salaries expense............................................. 11,000Insurance expense.......................................... 1,800Depreciation expense..................................... 750Supplies expense............................................ 690Utilities expense.............................................. 660Interest expense.............................................. 100

Total expenses ........................................ 15,00Net income .............................................................. $ 1,20


34/91



GREEN ACRES GOLF INC.Retained Earnings Statement

For the Quarter Ended June 30, 2007

Retained earnings, April 1, 2007................................................ $ 0

Add: Net income ....................................................................... 1,2001,200

Less: Dividends.......................................................................... 450Retained earnings, June 30, 2007.............................................. $ 750

GREEN ACRES GOLF INC.Balance SheetJune 30, 2007

Assets

Current AssetsCash................................................................ $ 7,890Accounts receivable...................................... 1,900Supplies.......................................................... 1,410Prepaid insurance ......................................... 1,800

Total current assets............................... $13,000Equipment ...................................................... 18,000Less: Accumulated depreciationequipment ...................................................... 750 17,250

Total assets ............................................ $30,250


Notes payable ................................................ $ 7,500Accounts payable.......................................... 2,200Salaries payable ............................................ 900Unearned rent revenue ................................. 800Interest payable ............................................. 100

Total current liabilities........................... $11,500

Stockholders equityCommon stock............................................... 18,000Retained earnings ......................................... 750

Total stockholders equity .................... 18,750Total liabilities and stockholders

equity .................................................. $30,250


35/91



(c) The following accounts would be closed: Dues Revenue, Rent RevenSalaries Expense, Insurance Expense, Utilities Expense, DepreciatExpense, Supplies Expense, Interest Expense, Dividends.

(d) Interest of 8% per year equals a monthly rate of .67%; monthly interis $50 ($7,500 X .67%). Since total interest expense is $100, the nhas been outstanding two months.


36/91


PROBLEM 4-5A

1. Dec. 31 Insurance Expense ........................................ 6,000Prepaid Insurance.................................. 6,000

[($11,400 3) = $3,800

[($8,800 2 X 6/12) = 2,200$6,000]

2. Dec. 31 Unearned Subscription Revenue ................. 5,560Subscription Revenue ........................... 5,560

[Sept. 240 X $24 X 4/12 = $1,920[Oct. 260 X $24 X 3/12 = 1,560[Nov. 330 X $24 X 2/12 = 1,320[Dec. 380 X $24 X 1/12 = 760

$5,560]

3. Dec. 31 Interest Expense ............................................ 600Interest Payable...................................... 600

($16,000 X 9% X 5/12)

4. Dec. 31 Salaries Expense ........................................... 2,496Salaries Payable..................................... 2,496

[4 X $480 X 4/5 = $1,536[2 X $600 X 4/5 = 960

$2,496]


37/91


PROBLEM 4-6A

(a) 1. April 30 Tuition Revenue.......................................... 70,000Unearned Tuition Revenue .................. 70,0

2. 30 Books and Supplies Expense.................... 7,200Books and Supplies ($9,800 $2,600)... 7,2

3. 30 Insurance Expense ($12,000 12 X 3) ........ 3,000Prepaid Insurance................................. 3,0

4. 30 Advertising Expense .................................. 80Repairs Expense......................................... 2,560

Utilities Expense......................................... 530Accounts Payable................................. 3,1

5. 30 Wages Expense ($1,380 X 3)...................... 4,140Wages Payable...................................... 4,1

6. 30 Interest Expense ($15,000 X 8% X 3/12) ..... 300Interest Payable .................................... 3

7. 30 Income Tax Expense .................................. 15,200

Income Tax Payable ............................. 15,2


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b) A-PLUS TEST PREPIncome Statement

For the Quarter Ended April 30, 2007

Revenues

Tuition revenues ($240,000 $70,000) ................. $170,000Expenses

Wages expense ($92,000 + $4,140)....................... $96,140Income tax expense ............................................... 15,200Books and supplies expense ................................ 7,200Advertising expense ($6,400 + $80)...................... 6,480Repairs expense ($1,700 + $2,560) ....................... 4,260Insurance expense................................................. 3,000Depreciation expense ............................................ 2,400Utilities expense ($1,300 + $530)........................... 1,830Interest expense..................................................... 300Total expenses ....................................................... 136,810Net income.............................................................. $ 33,190

c) The generally accepted accounting principles pertaining to the incomestatement not recognized by Denise were the revenue recognitionprinciple and the matching principle.

The revenue recognition principle states that revenue is recognized

when it is earned. The cash payments of $70,000 for summer classeshave not been earned and, therefore, should not be reported asincome for the quarter ended April 30.

The matching principle dictates that efforts (expenses) be matched withaccomplishments (revenue) whenever it is reasonable and practicableto do so. This means that the expenses should include amountsincurred in April but not paid until May, and any other costs relatedto the operations of the business during the period FebruaryApril.

The difference in reported expenses was $33,010 ($136,810 $103,800).The overstatement of revenues ($70,000) plus the understatementof expenses ($33,010) equals the difference in reported income of$103,010 ($136,200 $33,190).


39/91


PROBLEM 4-7A

(a), (c) & (e)

Cash8/1 Bal. 6,0408/5 1,2008/12 2,8008/29 780

8/10 3,1208/20 2,5008/22 3808/25 2,900

8/31 Bal. 1,920

Accounts Receivable

8/1 Bal. 2,9108/27 3,130

8/5 1,200

8/31 Bal. 4,840

Supplies8/1 Bal. 1,0308/17 860

8/31 930

8/31 Bal. 960

Store Equipment8/1 Bal. 10,0008/15 2,0008/31 Bal. 12,000

Accumulated DepreciationStore Equipment

8/1 Bal. 6008/31 3208/31 Bal. 920

Accounts Payable8/20 2,500 8/1 Bal. 2,3

8/15 2,08/17 88/31 Bal. 2,6

UnearnedService Revenue

8/31 800 8/1 Bal. 1,28/29 78/31 Bal. 1,2

Salaries Payable8/10 1,420 8/1 Bal. 1,4

8/31 1,58/31 Bal. 1,5

Common Stock8/1 Bal. 10,08/31 Bal. 10,0

Retained Earnings8/1 Bal. 4,48/31 Bal. 4,4


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Service Revenue8/12 2,8008/27 3,1308/31 8008/31 Bal. 6,730


Supplies Expense8/31 930

8/31 Bal. 930

Salaries Expense8/10 1,7008/25 2,9008/31 1,5408/31 Bal. 6,140

Rent Expense8/22 3808/31 Bal. 380


41/91



(b) General Journal

Date Account Titles Debit CredAug. 5 Cash ................................................................

Accounts Receivable .............................1,200

1,200

10 Salaries Payable.............................................Salaries Expense ...........................................

Cash ........................................................

1,4201,700

3,120

12 Cash ................................................................Service Revenue ....................................

2,8002,800

15 Store Equipment ............................................Accounts Payable ..................................

2,0002,000

17 Supplies..........................................................Accounts Payable ..................................

860860

20 Accounts Payable..........................................Cash ........................................................

2,5002,500

22 Rent Expense .................................................Cash ........................................................

380380

25 Salaries Expense ...........................................Cash ........................................................

2,9002,900

27 Accounts Receivable.....................................Service Revenue ....................................

3,1303,130

29 Cash ................................................................

Unearned Service Revenue...................

780

780


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d) & (f) BOB AND NORM REPAIR SERVICESTrial Balances

August 31, 2007

Before

Adjustment

After

AdjustmentDr. Cr. Dr. Cr.

Cash ............................................Accounts Receivable .................Supplies ......................................Store Equipment ........................Accumulated Depreciation........Accounts Payable ......................Unearned Service Revenue.......

Salaries Payable.........................Common Stock...........................Retained Earnings......................Service Revenue ........................Salaries Expense........................Rent Expense .............................Supplies Expense ......................Depreciation Expense................

$ 1,9204,8401,890

12,000

4,600380

$25,630

$ 6002,6602,040

10,000

4,4005,930

$25,630

$ 1,9204,840

96012,000

6,140380930320

$27,490

$ 9202,6601,240

1,54010,000

4,4006,730

$27,490

e) 1.Aug. 31 Supplies Expense........................................... 930

Supplies ($1,890 $960)......................... 930

2.31 Salaries Expense............................................ 1,540

Salaries Payable ..................................... 1,540

3.31 Depreciation Expense.................................... 320

Accum. Depr.Store Equipment .......... 320

4.31 Unearned Service Revenue ........................... 800

Service Revenue ..................................... 800


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(g) BOB AND NORM REPAIR SERVICESIncome Statement

For the Month Ended August 31, 2007

RevenuesService revenue............................................... ($6,73

ExpensesSalaries expense............................................. $6,140Supplies expense............................................ 930Rent expense................................................... 380Depreciation expense..................................... 320

Total expenses ........................................ 7,77Net loss.................................................................... ($1,04

BOB AND NORM REPAIR SERVICESRetained Earnings Statement

For the Month Ended August 31, 2007

Retained earnings, August 1 ................................. $4,40Less: Net loss ........................................................ (1,04Retained earnings, August 31 ............................... $3,36


44/91



BOB AND NORM REPAIR SERVICESBalance Sheet

August 31, 2007

AssetsCurrent assets

Cash................................................................ $ 1,920Accounts receivable...................................... 4,840Supplies.......................................................... 960

Total current assets............................... $ 7,720Property, plant and equipment

Store equipment ............................................ 12,000Less: Accumulated depreciationstore

equipment .................................................. 920 11,080Total assets ............................................ $18,800

Liabilities and Stockholders EquityCurrent liabilities

Accounts payable............................................... $ 2,660Unearned service revenue................................. 1,240Salaries payable ................................................. 1,540

Total current liabilities................................ $ 5,440Stockholders equity

Common stock.................................................... 10,000Retained earnings .............................................. 3,360

Total stockholders equity ......................... 13,360Total liabilities and stockholders equity.. $18,800


45/91


PROBLEM 4-8A

(a) General Journal

Date Account Titles Debit CredJan. 1 Cash.................................................................

Common Stock .......................................18,000

18,00

1 Equipment.......................................................Cash.........................................................Accounts Payable...................................

12,0004,008,00

3 Cleaning Supplies ..........................................

Accounts Payable...................................

940

945 Prepaid Insurance ..........................................

Cash.........................................................7,200

7,20

12 Accounts Receivable .....................................Service Revenue.....................................

4,1004,10

18 Accounts Payable ..........................................

Cash.........................................................900

90

20 Salaries Expense............................................

Cash.........................................................2,600

2,60

21 Cash.................................................................Accounts Receivable..............................

2,3002,30

25 Accounts Receivable .....................................

Service Revenue.....................................2,850

2,85

31 Gas & Oil Expense .........................................Cash.........................................................

45045

31 Dividends ........................................................

Cash.........................................................600

60


46/91



b), (e) & (h)

Cash/1 18,000/21 2,300

1/1 4,0001/5 7,200

1/18 9001/20 2,6001/31 4501/31 600

/31 Bal. 4,550

Accounts Receivable/12 4,100

/25 2,850/31 2,340

1/21 2,300

/31 Bal. 6,990

Cleaning Supplies/3 940 1/31 730/31 Bal. 210

Prepaid Insurance/5 7,200 1/31 600/31 Bal. 6,600

Equipment/1 12,000/31 Bal. 12,000

Accumulated DepreciationEquipment

1/31 3201/31 Bal. 320

Accounts Payable1/18 900 1/1 8,000

1/3 940

1/31 Bal. 8,040


Common Stock

1/1 18,0001/31 Bal. 18,000

Retained Earnings1/31 600 1/31 3,830

1/31 Bal. 3,230

Dividends

1/31 600 1/31 6001/31 Bal. 0

Income Summary1/31 5,4601/31 3,830

1/31 9,290

1/31 Bal. 0

Service Revenue1/31 9,290 1/12 4,100

1/25 2,8501/31 2,3401/31 Bal. 0


47/91



Gas & Oil Expense1/31 450 1/31 4501/31 Bal. 0

Cleaning Supplies Expense1/31 730 1/31 7301/31 Bal. 0

Depreciation Expense1/31 320 1/31 3201/31 Bal. 0

Insurance Expense1/31 600 1/31 61/31 Bal. 0

Salaries Expense1/20 2,6001/31 760

1/31 3,3

1/31 Bal. 0


48/91



c) & (f) MAGIC CARPET CLEANERS INC.Trial Balance

January 31, 2007

Before

Adjustment

After

AdjustmentDebit Credit Debit Credit

Cash ....................................................Accounts Receivable.........................Cleaning Supplies..............................Prepaid Insurance..............................Equipment ..........................................Accumulated Depreciation

Equipment ......................................

Accounts Payable..............................Salaries Payable.................................Common Stock...................................Dividends............................................Service Revenue ................................Salaries Expense ...............................Gas & Oil Expense.............................Depreciation Expense .......................nsurance Expense ............................

Cleaning Supplies Expense..............

$ 4,5504,650

9407,200

12,000

600

2,600450

$32,990

$ 8,040

18,000

6,950

$32,990

$ 4,5506,990

2106,600

12,000

600

3,360450320600730

$36,410

320

$ 8,040760

18,000

9,290

$36,410


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(d) General Journal

Date Account Titles Debit Cred1. Jan. 31 Accounts Receivable ......................................

Service Revenue ......................................2,340

2,340

2. 31 Depreciation Expense.....................................Accumulated DepreciationEquipment .

320320

3. 31 Insurance Expense ($7,200 X 1/12) ................Prepaid Insurance....................................

600600

4. 31 Cleaning Supplies Expense ($940 $210) ....

Cleaning Supplies....................................

730

730

5. 31 Salaries Expense.............................................Salaries Payable ......................................

760760

(g) MAGIC CARPET CLEANERS INC.Income Statement

For the Month Ended January 31, 2007

RevenuesService revenue................................................. $9,29

ExpensesSalaries expense............................................... $3,360Cleaning supplies expense.............................. 730Insurance expense............................................ 600Gas & oil expense ............................................. 450Depreciation expense....................................... 320

Total expenses .......................................... 5,46

Net income ................................................................ $3,83


50/91



g) MAGIC CARPET CLEANERS INC.Retained Earnings Statement

For the Month Ended January 31, 2007

Retained earnings, January 1 ................................ $ 0

Add: Net income ................................................... 3,8303,830

Less: Dividends..................................................... 600Retained earnings, January 31 ............................. $3,230

MAGIC CARPET CLEANERS INC.Balance Sheet

January 31, 2007


Cash.................................................................. $ 4,550Accounts receivable........................................ 6,990Cleaning supplies............................................ 210Prepaid insurance ........................................... 6,600

Total current assets................................. $18,350Property, plant, and equipment

Equipment ........................................................ 12,000

Less: Accumulated depreciation .................. 320 11,680Total assets .............................................. $30,030

Liabilities and Stockholders EquityCurrent liabilities

Accounts payable............................................ $ 8,040Salaries payable .............................................. 760

Total current liabilities............................. $ 8,800Stockholders equity

Common stock................................................. 18,000Retained earnings ........................................... 3,230Total stockholders equity ...................... 21,230Total liabilities and stockholders

equity .................................................... $30,030


51/91



(h) General Journal

Date Account Titles Debit CredJan. 31 Service Revenue.............................................

Income Summary....................................9,290

9,290

31 Income Summary ...........................................Salaries Expense ....................................Depreciation Expense ............................Insurance Expense.................................Cleaning Supplies Expense...................Gas & Oil Expense..................................

5,4603,360

320600730450

31 Income Summary ...........................................Retained Earnings .................................. 3,830 3,830

31 Retained Earnings..........................................Dividends.................................................

600600

(i) MAGIC CARPET CLEANERS INC.Post-Closing Trial Balance

January 31, 2007Debit Credi

Cash .....................................................................Accounts Receivable..........................................Cleaning Supplies...............................................Prepaid Insurance...............................................Equipment ...........................................................Accumulated DepreciationEquipment ..........Accounts Payable...............................................

Salaries Payable .................................................Common Stock....................................................Retained Earnings ..............................................

$ 4,5506,990

2106,600

12,000

$30,350

$ 328,04

7618,00

3,23$30,35


52/91


PROBLEM 4-1B

a)1. Cash ........................................................................ 6,000

Accounts Receivable ....................................... 6,000

2. Unearned Fees Revenue ....................................... 18,000Fees Revenue ................................................... 18,000

3. Cash ........................................................................ 40,000Unearned Fees Revenue.................................. 40,000

Unearned Fees Revenue ($40,000 $17,000) ........ 23,000Fees Revenue ................................................... 23,000

4. Accounts Receivable............................................. 121,000Fees Revenue

($162,000 $18,000 $23,000) ..................... 121,0005. Cash ........................................................................ 101,000

Accounts Receivable ($121,000 $20,000).... 101,000

b) Cash received with respect to fees:1. Collection of accounts receivable.................. $ 6,0003. Gift certificates................................................. 40,0005. Partial collection of fees receivable ............... 101,000

$147,000

T-accounts (not required)

Accounts ReceivableBal. 6,0004. 121,000 1. 6,000

5. 101,000Bal. 20,000

Fees Revenue2. 18,0003. 23,0004. 121,000Bal. 162,000

Unearned Fees Revenue

2. 18,0003. 23,000

Bal. 18,0003. 40,000

Bal. 17,000

Cash1. 6,000

3. 40,0005. 101,000Bal. 147,000


53/91


PROBLEM 4-2B

(a)

Date Account Titles Debit Cred1.

2010June 30 Supplies Expense.....................................

Supplies ($2,000 $980) ..................

1,020

1,020

2. 30 Utilities Expense.......................................Utilities Payable ................................

180180

3. 30 Insurance Expense...................................Prepaid Insurance

($2,640 12 months) ....................

220

220

4. 30 Unearned Service Revenue .....................Service Revenue ...............................

3,9003,900

5. 30 Salaries Expense......................................Salaries Payable ...............................

1,2501,250

6. 30 Depreciation Expense..............................

Accumulated DepreciationOffice Equipment ..........................

250

250

7. 30 Accounts Receivable ...............................Service Revenue ...............................

3,5003,500

(b)

Cash

6/30 Bal. 6,850

Accounts Receivable6/30 Bal. 7,0006/30 3,5006/30 Bal. 10,500

Prepaid Insurance

6/30 Bal. 2,640 6/30 26/30 Bal. 2,420

Supplies6/30 Bal. 2,000 6/30 1,06/30 Bal. 980



54/91


PROBLEM 4-2B (Continued)

Office Equipment6/30 Bal. 15,000


Office Equipment6/30 2506/30 Bal. 250


Utilities Payable6/30 1806/30 Bal. 180

Salaries Payable6/30 1,2506/30 Bal. 1,250

Unearned Service Revenue6/30 3,900 6/30 Bal. 5,200

6/30 Bal. 1,300


Service Revenue6/30 Bal. 8,0006/30 3,9006/30 3,5006/30 Bal. 15,400

Salaries Expense6/30 Bal. 4,0006/30 1,250

6/30 Bal. 5,250

Rent Expense6/30 Bal. 2,000


Insurance Expense6/30 2206/30 Bal. 220

Utilities Expense6/30 1806/30 Bal. 180



55/91



(c) WAEGELEIN CONSULTINGAdjusted Trial Balance

June 30, 2010

Debit CrediCash .....................................................................Accounts Receivable..........................................Prepaid Insurance...............................................Supplies ...............................................................Office Equipment ................................................Accumulated DepreciationOffice

Equipment .......................................................Accounts Payable ...............................................

Utilities Payable ..................................................Salaries Payable..................................................Unearned Service Revenue................................Common Stock....................................................Service Revenue .................................................Salaries Expense ................................................Rent Expense ......................................................Depreciation Expense ........................................Insurance Expense .............................................Utilities Expense .................................................

Supplies Expense ...............................................

$ 6,85010,5002,420

98015,000

5,2502,000

250220180

1,020$44,670

$ 254,54

181,251,30

21,7515,40

$44,67


56/91


PROBLEM 4-3B

a) 1. Aug. 31 Insurance Expense ($450 X 3)................ 1,350Prepaid Insurance ........................... 1,350

2. 31 Supplies Expense ($4,300 $700) ......... 3,600Supplies ........................................... 3,600

3. 31 Depreciation ExpenseCottages($4,400 X 1/4) ....................................... 1,100

Accum. Depr.Cottages ................ 1,100

31 Depreciation ExpenseFurniture($4,000 X 1/4) ....................................... 1,000

Accum. Depr.Furniture................ 1,000

4. 31 Unearned Rent Revenue......................... 5,000Rent Revenue .................................. 5,000

5. 31 Salaries Expense..................................... 600Salaries Payable .............................. 600

6. 31 Accounts Receivable.............................. 1,200Rent Revenue .................................. 1,200

7. 31 Interest Expense ..................................... 800Interest Payable

[($120,000 X 8%) X 1/12].............. 800

b)

Cash8/31 Bal. 24,600

Accounts Receivable8/31 1,2008/31 Bal. 1,200

Prepaid Insurance8/31 Bal. 5,400 8/31 1,350

8/31 Bal. 4,050

Supplies8/31 Bal. 4,300 8/31 3,6008/31 Bal. 700


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Land8/31 Bal. 40,000

Cottages8/31 Bal. 132,000

Accumulated DepreciationCottages

8/31 1,1008/31 Bal. 1,100

Furniture8/31 Bal. 36,000

Accumulated DepreciationFurniture

8/31 1,0008/31 Bal. 1,000


Unearned Rent Revenue8/31 5,000 8/31 Bal. 6,800

8/31 Bal. 1,800


Interest Payable8/31 88/31 Bal. 8

Mortgage Payable8/31 Bal. 120,0


Dividends8/31 Bal. 5,000

Rent Revenue8/31 Bal. 80,08/31 5,08/31 1,28/31 Bal. 86,2

Salaries Expense8/31 Bal. 53,0008/31 6008/31 Bal. 53,600

Utilities Expense8/31 Bal. 9,400

Repair Expense8/31 Bal. 3,600


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Insurance Expense8/31 1,3508/31 Bal. 1,350


Depreciation ExpenseCottages

8/31 1,1008/31 Bal. 1,100

Depreciation ExpenseFurniture

8/31 1,0008/31 Bal. 1,000

Interest Expense8/31 8008/31 Bal. 800


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(c) FLINT HILLS RESORTAdjusted Trial Balance

August 31, 2010

Debit CreditCash ..................................................................Accounts Receivable.......................................Prepaid Insurance............................................Supplies ............................................................Land ..................................................................Cottages............................................................Accumulated DepreciationCottages...........Furniture ...........................................................

Accumulated DepreciationFurniture ..........Accounts Payable............................................Unearned Rent Revenue .................................Salaries Payable...............................................Interest Payable ...............................................Mortgage Payable ............................................Common Stock.................................................Dividends..........................................................Rent Revenue ...................................................Salaries Expense .............................................

Utilities Expense ..............................................Repair Expense................................................Insurance Expense ..........................................Supplies Expense ............................................Depreciation ExpenseCottages ..................Depreciation ExpenseFurniture ..................Interest Expense ..............................................

$ 24,6001,2004,050

70040,000

132,000

36,000

5,000

53,600

9,4003,6001,3503,6001,1001,000

800$318,000

$ 1,10

1,006,501,80

6080

120,00100,00

86,20

$318,00


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d) FLINT HILLS RESORTIncome Statement

For the Three Months Ended August 31, 2010

Revenues

Rent revenue.................................................. $86,200Expenses

Salaries expense ........................................... $53,600Utilities expense ............................................ 9,400Repair expense.............................................. 3,600Supplies expense .......................................... 3,600Insurance expense ........................................ 1,350Depreciation expensecottages ................. 1,100Depreciation expensefurniture ................. 1,000Interest expense ............................................ 800

Total expenses....................................... 74,450Net income............................................................. $11,750

FLINT HILLS RESORTRetained Earnings Statement

For the Three Months Ended August 31, 2010

Retained earnings, June 1.................................... $ 0

Add: Net income ................................................. 11,75011,750Less: Dividends.................................................... 5,000Retained earnings, August 31.............................. $ 6,750


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FLINT HILLS RESORTBalance Sheet

August 31, 2010


Cash .......................................... $ 24,600Accounts receivable................ 1,200Supplies.................................... 700Prepaid insurance.................... 4,050

Total current assets........... $ 30,55Property, plant, and equipment

accounting 04

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