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Chapter 3
Adjusting Accounts and PreparingFinancial Statements
QUESTIONS
! The cash "asis o# accounting reports re$enues %hen cash is recei$ed %hile theaccrual "asis reports re$enues %hen the& are earned! The cash "asis reportse'penses %hen cash is paid %hile the accrual "asis reports e'penses %hen the& areincurred (and matched %ith re$enues the& generated)!
*! The accrual "asis o# accounting generall& pro$ides a "etter indication o# compan&per#ormance and #inancial condition than does the cash "asis! Also+ the accrual"asis increases the compara"ilit& o# #inancial statements #rom one period to thene't! Thus+ "usiness decision ma,ers generall& pre#er the accrual "asis!
3! -usinesses that ha$e major seasonal $ariations in sales are most li,el& to select thenatural "usiness &ear as the #iscal &ear!
.! A prepaid e'pense is reported as an asset on the "alance sheet!
/! 0eprecia"le plant assets (such as e1uipment+ "uildings+ and machiner&) lead toadjustments #or depreciation!
2! The Accumulated 0epreciation contra account is used #or depreciation! It pro$ides#inancial statement users %ith additional in#ormation a"out the relati$e age o# theassets! ithout the contra account in#ormation+ the reader %ould not "e a"le to tell%hether the assets are ne% or in need o# replacement!
4! An unearned re$enue is reported as a lia"ilit& on the "alance sheet!
5! An accrued re$enue is re$enue that is earned "ut is not &et recei$ed in cash (and6orother assets) and the customer has not "een "illed prior to the end o# the period!There#ore+ end7o#7period adjustments are made to record accrued re$enue!E'amples are interest income that has "een earned "ut not collected and re$enues#rom ser$ices per#ormed that are neither collected nor "illed!
8! I# prepaid e'penses are initiall& recorded %ith de"its to e'pense accounts+ then theprepaid e'penses asset accounts are de"ited in the adjusting entries!
9! For :risp& :reme+ the t%o accounts o# Prepaid E'penses and Propert& andE1uipment re1uire adjusting entries! The e'pense account(s) related to the prepaidaccount and the depreciation e'pense account %ould "e understated on the incomestatement i# :risp& :reme #ails to adjust these t%o asset accounts! I# the adjustingentries are not made+ net income %ould "e o$erstated! Note: Students might alsocorrectly identify accounts receivable, deferred income taxes and intangible assetsas needing adjustment !
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! In addition to prepa&ments+ Tast&,a,e must ma,e adjusting entries to Propert&+Plant and E1uipment+ 0e#erred Income Ta'es+ Accrued Pa&roll and Emplo&ee-ene#its+ and possi"l& other assets and lia"ilities such as ;ecei$a"les (#or "adde"ts)!
*! The Accrued ages E'pense %ould "e reported as part o# <Accrued E'penses andOther =ia"ilities> on ?arle&70a$idson@s "alance sheet!
QUIC: STU0IES
Quic, Stud& 37 (9 minutes)
a! U; Unearned re$enue"! PE Prepaid e'penses (0epreciation)c! AE Accrued e'pensesd! A; Accrued re$enuee! PE Prepaid e'penses
Quic, Stud& 37* (9 minutes)
a! Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +599Prepaid Insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +599
+o record -month insurance coverage ex"ired$
"! Supplies E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+499Supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+499
+o record su""lies used during the year$.),&&& / .(,&&& 0 123 4 .),(&&5
Quic, Stud& 373 (9 minutes)
a! 0epreciation E'penseE1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+999Accumulated 0epreciationE1uipment!!!!!!!!!!!!! /+999+o record de"reciation ex"ense for the year$(B39+999 7 B/+999) 6 / &ears B/+999
"! No depreciation adjustments are made #or land as it is e'pected to lastinde#initel&!
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Quic, Stud& 37. (/ minutes)
a! Unearned ;e$enue!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+999=egal ;e$enue!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+999
+o recogni;e legal revenue earned %&,&&& x (<=5$
"! Unearned Su"scription ;e$enue!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.99Su"scription ;e$enue!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.99
+o recogni;e subscri"tion revenue earned$1)&& x .=> < )% month5 x months3
Quic, Stud& 37/ (9 minutes)
Salaries E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .99Salaries Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .99
+o record salaries incurred but not yet "aid$1?ne student earns, .)&& x = days, M-@3
Quic, Stud& 372 (/ minutes)
Accounts 0e"ited and Credited Financial Statementa! 0e"it Unearned ;e$enue -alance Sheet
Credit ;e$enue Earned Income Statement
"! 0e"it 0epreciation E'pense Income StatementCredit Accumulated 0epreciation -alance Sheet
c! 0e"it ages E'pense Income StatementCredit ages Pa&a"le -alance Sheet
d! 0e"it Accounts ;ecei$a"le -alance SheetCredit ;e$enue Earned Income Statement
e! 0e"it Insurance E'pense Income Statement
Credit Prepaid Insurance -alance Sheet
Quic, Stud& 374 (9 minutes)
Adjusting entr& 0e"it Credit
! Accrue salaries e'pense # d
*! Adjust the Unearned Ser$ices ;e$enue account e g
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to recogniDe earned re$enue
3! ;ecord the earning o# ser$ices re$enue #or %hichcash %ill "e recei$ed the #ollo%ing period
a g
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#nter"retation For e$er& one dollar that Hang Compan& records as re$enue+ itearns 8!4 cents in net income! Hang@s 8!4G is mar,edl& lo%er thancompetitors@ a$erage pro#it margin o# /Git must impro$e per#ormance!
Quic, Stud& 37*
A
(/ minutes)
The ans%er is d!
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EE;CISES
E'ercise 37 (/ minutes)
! -! .! F*! E! /! 03! C! 2! A!
E'ercise 37* (39 minutes)
a! Unearned Fee ;e$enue!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9+999Fee ;e$enue!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9+999
+o record earned "ortion of fee received in advance$
"! ages E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+999ages Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+999
+o record wages accrued but not yet "aid$
c! 0epreciation E'penseE1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+*4Accumulated 0epreciationE1uipment!!!!!!!!!!!!!!!!!!!!! 8+*4
+o record de"reciation ex"ense for the year$
d! O##ice Supplies E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+*.*O##ice SuppliesJJ!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+*.*
+o record office su""lies used .=>& / .',(=* - .'>95$
e! Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+599Prepaid InsuranceJ!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+599
+o record insurance coverage ex"ired .',&&& - .%,%&&5$
#! Interest ;ecei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4/9 Interest ;e$enue!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4/9 +o record interest earned but not yet received$
g! Interest E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+/99 Interest Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+/99 +o record interest incurred but not yet "aid$
NotesPrepaid InsuranceJ O##ice SuppliesJJ
-eg! -al! /+999 -eg! -al! .59Purch! /+3.8
K Used K UsedEnd! -al! *+*99 End! -al! /54
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E'ercise 372 (*/ minutes)
a!Apr! 39 =egal Fees E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+/99
=egal Fees Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+/99+o record accrued legal fees$
a& * =egal Fees Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+/99Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+/99
+o "ay accrued legal fees$
"!Apr! 39 Interest E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+959
Interest Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+959+o record accrued interest ex"ense*$B x .9>&,&&& x )&<(&5 or .,%=& x )&<(&5$
a& *9 Interest Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+959Interest E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+29
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+*.9+o record "ayment of accrued and currentinterest ex"ense *$B x .9>&,&&& x %&<(&5$
c!Apr! 39 Salaries E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+299
Salaries Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+299+o record accrued salaries.*,&&& x %<' weeA5$
a& 3 Salaries Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+299Salaries E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+.99
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+999+o record "ayment of accrued andcurrent salaries .*,&&& x (<' weeA5$
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E'ercise 374 (*9 minutes)
-alance Sheet Insurance Asset using Insurance E'pense using
Accrual-asisJ
Cash-asis
Accrual-asisJJ
Cash-asis
0ec! 3+ *993!!!!!!!!!!!!!!!!!!!!B+499 B9 *993!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!B .+/99 B2+*990ec! 3+ *99.!!!!!!!!!!!!!!!!!!!!2+399 9 *99.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!/+.99 9
0ec! 3+ *99/!!!!!!!!!!!!!!!!!!!!899 9 *99/!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!/+.99 9
0ec! 3+ *992!!!!!!!!!!!!!!!!!!!!9 9 *992!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 899 9
Total!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!B2+*99 B2+*99
EP=ANATIONS
JAccrual asset "alance e1uals months le#t in the polic& ' B./9 per month (monthl&cost is computed as B./9+ #rom B2+*99 di$ided "& 32 months)!
onths =e#t -alance
*636*993!!! *2 B+499*636*99.!!! . 2+399*636*99/!!! * 899*636*992!!! 9 9
JJAccrual insurance e'pense e1uals months co$ered in the &ear ' B./9 per month!onths Co$ered E'pense
*993!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 B .+/99
*99.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!* /+.99*99/!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!* /+.99*992!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!* 899
B2+*99
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E'ercise 378 (9 minutes)
a! B/+389 6 B..+539 *!9G"! B54+2.. 6 B385+8/. **!9Gc! B83+35/ 6 B*/4+95* 32!3G
d! B//+*3. 6 B+./5+888 3!5Ge! B49+/5 6 B.3/+8*/ 2!G
7nalysis and #nter"retation Compan& c has the highest pro#ita"ilit&according to the pro#it margin ratio! Compan& c earns 32!3 cents in netincome #or each one dollar o# net sales recorded!
E'ercise 379A (39 minutes)a!
0ec! Supplies E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+999Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+9998urchased su""lies$
"!0ec! * Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +..9
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +..98aid insurance "remiums$
c!0ec!/ Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999
;emodeling Fees Earned!!!!!!!!!!!!!!!!!!!!!!!! *+999@eceived fees for worA to be done$
d!0ec!*5 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+299
;emodeling Fees Earned!!!!!!!!!!!!!!!!!!!!!!!! 3+299@eceived fees for worA to be done$
e!0ec!3 Supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +8*9
Supplies E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +8*9 7djust ex"enses for unused su""lies$
#!0ec!3 Prepaid Insurance (B+..9 7 B*.9)!!!!!!!!!!!!!!!!! +*99
Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +*99 7djust ex"enses for unex"ired coverage$
g!0ec!3 ;emodeling Fees Earned !!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+399
Unearned ;emodeling Fees!!!!!!!!!!!!!!!!!!! 8+399 7djusted revenues for unfinished "rojects .)%,&&& / .(,&& - .,(&&5$
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E'ercise 37A (*/ minutes)
a! #nitial credit recorded in the Cnearned 6ees account:
Lul& Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999Unearned Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999
@eceived fees for worA to be done$2 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+.99
Unearned Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+.99@eceived fees for worA to be done$
* Unearned Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999
!om"leted worA for customer$
5 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99Unearned Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99
@eceived fees for worA to be done$
*4 Unearned Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+.99Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+.99
!om"leted worA for customer$
3 No adjusting entries re1uired!
"! #nitial credit recorded in the 6ees arned account:
Lul& Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999
@eceived fees for worA to be done$
2 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+.99Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+.99@eceived fees for worA to be done$
* No entr& re1uired!
5 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99
@eceived fees for worA to be done$
*4 No entr& re1uired!
3 Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99Unearned Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99
7djusted to reflect unearned fees for unfinished job$
c! Cnder the first method and using entries from a5:
Unearned Fees B*+999 B5+.99 7 B*+999 B4+/99 7 B5+.99 B4+/99Fees Earned B*+999 B5+.99 B9+.99
Cnder the second method and using entries from b5:
Unearned Fees B4+/99
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Fees Earned B*+999 B5+.99 B4+/99 7 B4+/99 B9+.991Note: Doth "rocedures yield identical results in the financial statements$3
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P;O-=E SET A
Pro"lem 37A (/ minutes)
! ! .! -! 4! ?! 9! 0!*! E! /! ! 5! E! ! A!3! I! 2! C! 8! F! *! 0!
Pro"lem 37*A (3/ minutes)8art )
Adjustment (a)
0ec!3 O##ice Supplies E'pense!!!!!!!!!!!!!!!!!!!!!!!!! *+429
O##ice Supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+429+o record cost of su""lies used .(,&&& / .)%,=&& - .%,=&5$
Adjustment (")
3 Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+3*Prepaid Insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+3*
+o record annual insurance coverage cost$
8olicy !ost "er MonthMonths 7ctive
in %&&' %&&' !ost
A B229 (B/+5.96*. mo!) * B 4+8*9- 323 (B3+925632 mo!) 8 3+*24C **/ (B *+499 6* mo!) / +*/
Total B*+3*
Adjustment (c)
3 Salaries E'pense (* da&s ' B*+99)!!!!!!!! .+*99Salaries Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+*99
+o record accrued but un"aid wages$
Adjustment (d)
3 0epreciation E'pense-uilding!!!!!!!!!!! *4+999Accumulated 0epreciation-uilding *4+999
+o record annual de"reciation ex"ense 1.>'',&&& -.=',&&&5 < (& years 4 .%9,&&&3
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Pro"lem 37*A (Continued)
Adjustment (e)
0ec!3 ;ent ;ecei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.99;ent Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.99
+o record earned but un"aid Eec$ rent$
Adjustment (#)
3 Unearned ;ent!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+3/9;ent Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+3/9
+o record the amount of rent earned for November and Eecember % x .%,)9'5$
8art % Cash Pa&ment #or (c)
Lan! 2 Salaries Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+*99Salaries E'penseJ!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+399
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9+/99+o record "ayment of accrued andcurrent salaries$ F( days x .%,)&&5
Cash Pa&ment #or (e)
/ Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+599
;ent ;ecei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.99;ent Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.99
+o record "ast due rent for two months$
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Pro"lem 373A (89 minutes)8arts ) and %
Cash E1uipmentUnadj! -al! *2+999 Unadj! -al! 49+999
Accounts ;ecei$a"leAccumulated 0epreciation
E1uipmentUnadj! -al! 9 Unadj! -al! 2+999(#) 4+/99 (c) *+999Adj! -al! 4+/99 Adj! -al! *5+999
Teaching Supplies Accounts Pa&a"leUnadj! -al! 9+999 -al! 32+999
(") 4+.99Adj! -al! *+299 Salaries Pa&a"le
Unadj! -al! 9Prepaid Insurance (g) .99
Unadj! -al! /+999 Adj! -al! .99(a) 3+999
Adj! -al! *+999 Unearned Training FeesUnadj! -al! +999
Prepaid ;ent (e) .+.99Unadj! -al! *+999 Adj! -al! 2+299
(h) *+999Adj! -al! 9 T! atson+ Capital
-al! 23+299Pro#essional =i"rar&
-al! 39+999 T! atson+ ithdra%als-al! .9+999
Accumulated 0epreciationPro#essional =i"rar&
Unadj! -al! 8+999(d) 2+999
Adj! -al! /+999
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Pro"lem 373A !ontinued5
8art % Adjustment (a)
0ec! 3 Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!3+999Prepaid Insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+999
+o record the insurance ex"ired$
Adjustment (")3 Teaching Supplies E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!4+.99
Teaching Supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+.99+o record su""lies used .)&,&&&-.%,&&5$
Adjustment (c)3 0epreciation E'penseE1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!*+999
Accumulated 0epreciationE1uipment!!!!!!!!!!!!!!!!!!!!! *+999+o record eui"ment de"reciation$
Adjustment (d)3 0epreciation E'pensePro#ess! =i"rar&!!!!!!!!!!!!!!!!!!!2+999Accumul! 0epreciationPro#ess! =i"rar&!!!!!!!!!!!!!!!! 2+999
+o record "rofessional library de"reciation$
Adjustment (e)3 Unearned Training Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!.+.99
Training Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+.99+o record training fees earned that werecollected in advance$
Adjustment (#)
3 Accounts ;ecei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!4+/99Tuition Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99
+o record tuition earned .(,&&& x % )<% months5$
Adjustment (g)3 Salaries E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!.99
Salaries Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .99+o record accrued salaries % days x .)&& x %5$
Adjustment (h)3 ;ent E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*+999
Prepaid ;ent!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999+o record ex"iration of "re"aid rent$
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Pro"lem 373A !ontinued5 8art (
atson Technical InstituteAdjusted Trial -alance
0ecem"er 3+ *99/ Eebit !redit Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B *2+999Accounts recei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99Teaching supplies !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+299Prepaid insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999Prepaid rent!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9Pro#essional li"rar&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 39+999Accumulated depreciationPro#essional li"rar&!!!! B /+999E1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 49+999Accumulated depreciationE1uipment!!!!!!!!!!!!!!!! *5+999Accounts pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 32+999Salaries pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .99Unearned training #ees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+299T! atson+ Capital!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 23+299T! atson+ ithdra%als!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .9+999Tuition #ees earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 98+/99Training #ees earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .*+.990epreciation e'pensePro#essional li"rar&!!!!!!!! 2+9990epreciation e'penseE1uipment!!!!!!!!!!!!!!!!!!!!!!! *+999Salaries e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .5+.99
Insurance e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+999;ent e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *.+999Teaching supplies e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+.99Ad$ertising e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+999Utilities e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+299 Totals!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B39+/99 B39+/99
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Pro"lem 373A !ontinued58art =
ATSON TEC?NICA= INSTITUTEIncome Statement
For Hear Ended 0ecem"er 3+ *99/;e$enues Tuition #ees earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B98+/99
Training #ees earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .*+.99Total re$enues!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B/+899
E'penses 0epreciation e'pensePro#essional li"rar&!!! 2+999
0epreciation e'penseE1uipment!!!!!!!!!!!!!!!!!! *+999Salaries e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .5+.99Insurance e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+999
;ent e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *.+999Teaching supplies e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+.99Ad$ertising e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+999Utilities e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+299Total e'penses!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+.99
Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B 35+/99
ATSON TEC?NICA= INSTITUTE
Statement o# O%ner@s E1uit&For Hear Ended 0ecem"er 3+ *99/
T! atson+ Capital+ 0ecem"er 3+ *99.!!!!!!!!!!!!!! B 23+299Plus Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 35+/99
9*+99=ess O%ner %ithdra%als!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .9+999T! atson+ Capital+ 0ecem"er 3+ *99/!!!!!!!!!!!!!! B 2*+99
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6undamental 7ccounting 8rinci"les, )9 th dition)=&
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Pro"lem 373A !oncluded5
ATSON TEC?NICA= INSTITUTE-alance Sheet
0ecem"er 3+ *99/
7ssetsCash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B *2+999Accounts recei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99Teaching supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+299Prepaid insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999Pro#essional li"rar&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B39+999Accumulated depreciationPro#essional li"rar&!!!!!!! (/+999) /+999E1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 49+999Accumulated depreciationE1uipment!!!!!!!!!!!!!!!!!!!!!! (*5+999) .*+999Total assets!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B9/+99
HiabilitiesAccounts pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B 32+999Salaries pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .99Unearned training #ees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+299Total lia"ilities!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .3+999
uity T! atson+ Capital!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2*+99Total lia"ilities and e1uit&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B9/+99
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Pro"lem 37.A (./ minutes) 8art )
AccountUnadjustedTrial -alance Adjustments
AdjustedTrial -alance
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B *4+999 B *4+999
Accounts recei$a"le!!!!!!!! !! *+999 (a
)
9+.29 **+.29
O##ice supplies!!!!!!!!!!!!!!!!!! 5+999 (")
/+999 3+999
Prepaid insurance!!!!!!!!!!!!! 4+3*9 (c) *+..9 .+559
O##ice e1uipment!!!!!!!!!!!!!!! 8*+999 8*+999
Accumulated depreciation O##ice e1uipment!!!!!!!!!! B *+999 (d
)2+999 B 5+999
Accounts pa&a"le!!!!!!!!!!!!! 8+399 (e) 899 9+*99
Interest pa&a"le!!!!!!!!!!!!!!!!!(#) 599 599Salaries pa&a"le!!!!!!!!!!!!!!!! (g)
2+299 2+299
Unearned consulting #ees!!! 2+999 (h) +499 .+399
=ong7term notes pa&a"le!!!! ..+999 ..+999
L! inner+ Capital!!!!!!!!!!!!!!! *5+.*9 *5+.*9
L! inner+ ithdra%als!!!!!!! 9+999 9+999
Consulting #ees earned!!!!!!!!!!!!!!!!!!!!!!!!!!! /2+999
(a)(h)
9+.29+499 25+29
0epreciation e'pense O##ice e1uipment!!!!!!!!!!!!! (d) 2+999 2+999
Salaries e'pense!!!!!!!!!!!!!!! 4+999 (g) 2+299 44+299
Interest e'pense!!!!!!!!!!!!!!!! +.99 (#) 599 *+*99
Insurance e'pense!!!!!!!!!!!! (c)
*+..9 *+..9
;ent e'pense!!!!!!!!!!!!!!!! !!! 3+*99 3+*99
O##ice supplies e'pense!!!!! (") /+999 /+999
Ad$ertising e'pense!!!!!!!!!! 3+599 (e
)
89
9
.+499
Totals!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B*2/+4*9 B*2/+4*9 B.3+899 B.3+89
9
B*89+.59 B*89+.59
Adjustment description
(a) Earned "ut uncollected re$enues!
(") Cost o# consumed o##ice supplies!
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(c) Cost o# e'pired insurance co$erage!
(d) 0epreciation e'pense on o##ice e1uipment!
(e) Incurred "ut unpaid ad$ertising e'pense!
(#) Incurred "ut unpaid interest e'pense!
(g) Incurred "ut unpaid salaries e'pense!
(h) Earned re$enues pre$iousl& recei$ed in ad$ance!
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Pro"lem 37.A
8art %
LL COPANH
Income StatementFor Hear Ended Lul& 3+ *99/
;e$enues
Consulting #ees earned !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B25+29
E'penses
0epreciation e'penseO##ice e1uipment! ! B 2+999
Salaries e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 44+299
Interest e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+*99
Insurance e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+..9
;ent e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+*99
O##ice supplies e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+999
Ad$ertising e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+499
Total e'penses!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+.9
Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B 34+9*9
LL COPANHStatement o# O%ner@s E1uit&For Hear Ended Lul& 3+ *99/
L! inner+ Capital+ Lul& 3+ *99.!!!!!!!!!!!!!!!!!!!! B*5+.*9
Plus Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 34+9*9
2/+..9
=ess O%ner %ithdra%als!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9+999
L! inner+ Capital+ Lul& 3+ *99/!!!!!!!!!!!!!!!!!!!! B//+..9
©McGraw-ill !om"anies, #nc$, %&&'
6undamental 7ccounting 8rinci"les, )9 th dition)==
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Pro"lem 37.A !oncluded58art %
LL COPANH-alance Sheet
Lul& 3+ *99/ 7ssets
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B *4+999
Accounts recei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! **+.29
O##ice supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+999
Prepaid insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+559
O##ice e1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B8*+999
Accumulated depreciationO##ice e1uipment!!!!!!!! (5+999) 4.+999
Total assets!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B3+3.9
Hiabilities
Accounts pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B 9+*99
Interest pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 599
Salaries pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+299
Unearned consulting #ees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+399
=ong7term notes pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ..+999
Total lia"ilities!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4/+899
uity
L! inner+ Capital!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! //+..9
Total lia"ilities and e1uit&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B3+3.9
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Pro"lem 37/A (/9 minutes)8art )
CA==A?AH COPANHIncome Statement
For Hear Ended 0ecem"er 3+ *99/
;e$enues
Fees earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B.*9+999
Interest earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+999
Total re$enues!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B.32+999
E'penses
0epreciation e'penseAutomo"iles!!!!! 5+999
0epreciation e'penseE1uipment!!!!!!!! 9+999
Salaries e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 59+999ages e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3*+999
Interest e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *.+999
O##ice supplies e'pense!!!!!!!!!!!!!!!!!!!!!!!!!! *2+999
Ad$ertising e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /9+999
;epairs e'penseAutomo"iles!!!!!!!!!!!!! 2+599
Total e'penses!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3/2+599
Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B 48+*99
CA==A?AH COPANHStatement o# O%ners E1uit&
For Hear Ended 0ecem"er 3+ *99/
L! Callaha&+ Capital+ 0ecem"er 3+ *99.! ! B*.4+599
Plus Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 48+*99
3*4+999
=ess ithdra%als "& o%ner!!!!!!!!!!!!!!!!!!!! 35+999
L! Callaha&+ Capital+ 0ecem"er 3+ *99/! ! B*58+999
©McGraw-ill !om"anies, #nc$, %&&'
6undamental 7ccounting 8rinci"les, )9 th dition)=
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Pro"lem 37/A (!oncluded )
CA==A?AH COPANH-alance Sheet
0ecem"er 3+ *99/
7ssetsCash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B **+999
Accounts recei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ..+999
Interest recei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9+999
Notes recei$a"le (due in 89 da&s)!!!!!!!!!!!!!!!!!!!!!!!! 29+999
O##ice supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+999
Automo"iles!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B29+999
Accumulated depreciationAutomo"iles!!!!!!!!!!! (.*+999) 5+999
E1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 39+999
Accumulated depreciationE1uipment!!!!!!!!!!!!!! (9+999) *9+999=and!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 49+999
Total assets!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B//*+999
Hiabilities
Accounts pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B 55+999
Interest pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999
Salaries pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +999
Unearned #ees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! **+999
=ong7term notes pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 39+999Total lia"ilities!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *23+999
uity
L! Callaha&+ Capital!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *58+999
Total lia"ilities and e1uit&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B//*+999
8art %
Pro#it margin B48+*99 6 B.32+999 5!*G
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Pro"lem 372AA (.9 minutes)8art ) Assume prepaid e'penses are recorded as assets and unearned re$enues as lia"ilities!
No$! Prepaid Ad$ertising !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +/99
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +/998aid for future advertising$
Prepaid Insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+29Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+29
8aid insurance for one year$
39 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+399Unearned Ser$ice Fees!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+399
@eceived fees in advance$
0ec! Prepaid Consulting Fees !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+499
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+4998aid for future consulting$
/ Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+2/9Unearned Ser$ice Fees!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+2/9
@eceived fees in advance$
3 Ad$ertising E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 299Prepaid Ad$ertising !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 299
+o adjust "re"aid advertising .),'&&-.*&&5$
3 Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 329Prepaid Insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 329
+o adjust "re"aid insurance.%,)& x %<)%5$
3 Unearned Ser$ice Fees !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+99Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+99
+o adjust unearned service fees.(,(&&-.),%&&5$
3 Consulting Fees E'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 899Prepaid Consulting Fees!!!!!!!!!!!!!!!!!!!!!!!!! 899
+o adjust "re"aid consulting fees
.%,9&& x )<(5$ 3 Unearned Ser$ice Fees !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+999
Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+999+o adjust unearned service fees$
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6undamental 7ccounting 8rinci"les, )9 th dition)=>
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Pro"lem 372AA !ontinued58art % Assume prepaid e'penses are recorded as e'penses and unearned re$enues as re$enues!
No$! Ad$ertising E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +/99Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +/99
8aid for future advertising$
Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+29Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+29
8aid insurance for one year$
39 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+399Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+399
@eceived fees in advance$
0ec! Consulting Fees E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+499Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+499
8aid for future consulting$ / Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+2/9
Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+2/9 @eceived fees in advance$
3 Prepaid Ad$ertising!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 899Ad$ertising E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 899
+o adjust for "re"aid advertising$
3 Prepaid Insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +599Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +599
+o adjust for "re"aid insurance$
3 Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +*99Unearned Ser$ice Fees!!!!!!!!!!!!!!!!!!!!!!!!!!! +*99
+o adjust for unearned service fees$
3 Prepaid Consulting Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +599Consulting Fees E'pense!!!!!!!!!!!!!!!!!!!!!!! +599
+o adjust for "re"aid consulting fees$
3 Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+2/9Unearned Ser$ice Fees!!!!!!!!!!!!!!!!!!!!!!!!!!! .+2/9
+o adjust for unearned service fees$
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Pro"lem 372AA !oncluded5
8art (
There are no di##erences "et%een the t%o methods in terms o# the amounts
that appear on the #inancial statements! In "oth cases+ the #inancialstatements re#lect the #ollo%ing
Ad$ertising e'pense #or t%o months!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B 299Prepaid ad$ertising as o# 0ecem"er 3!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 899Insurance e'pense #or t%o months!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 329Prepaid insurance as o# 0ecem"er 3!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +599Consulting #ees e'pense (63 o# total paid)!!!!!!!!!!!!!!!!!!!!!!!!! 899Prepaid consulting #ees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +599Ser$ice #ees earned #or t%o months (B*+99 B3+999)!!!!!! /+99
Unearned ser$ice #ees at *63 (B+*99 B.+2/9)!!!!!!!!!!!!!!! /+5/9
hen prepaid e'penses and unearned re$enues are recorded in "alancesheet accounts+ the related adjusting entries are designed to generate thecorrect asset+ e'pense+ lia"ilit&+ and re$enue account "alances! henprepaid e'penses and unearned re$enues are recorded in incomestatement accounts+ the related adjusting entries are designed toaccomplish e'actl& the same result!
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P;O-=E SET -
Pro"lem 37- (/ minutes)
! E! .! C! 4! F! 9! I!*! ?! /! 0! 5! I! ! A!3! ! 2! -! 8! F! *! -!
Pro"lem 37*- (39 minutes)8art )
Adjustment (a)
Oct! 3 O##ice Supplies E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+./9
O##ice Supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+./9+o record cost of su""lies used .'&& / .(,'& - .9&&5$
Adjustment (")
3 Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+32/Prepaid Insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+32/
+o record annual insurance coverage cost$
8olicy !ost "er MonthMonths 7ctive
in %&&' %&&'
x"enseA B*/ (B3+9996*. mo!) * B+/99- 99 (B3+299632 mo!) 4 499C // ( B229 6 * mo!) 3 2/
Total B*+32/
Adjustment (c)
3 Salaries E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 599Salaries Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 599
+o record accrued but un"aid wages) day x .>&&5$
Adjustment (d)
3 0epreciation E'pense-uilding!!!!!!!!!!!!!!!!!!!!!!!!!! /+.99Accumulated 0epreciation-uilding!!!!!!!!!!! /+.99
+o record annual de"reciation1.)'',&&&-.%&,&&&5 < %' years 4 .',=&&3$
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Pro"lem 37*- !oncluded5
Adjustment (e)
Oct! 3 ;ent ;ecei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 299;ent Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 299
+o record earned but un"aid ?ct$ rent$
Adjustment (#)
3 Unearned ;ent!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +9/9;ent Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +9/9
+o record rent earned for Se"temberand ?ctober % x .'%'5$
8art % Cash Pa&ment #or (c)
No$! 4 Salaries Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 599Salaries E'penseJ!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+*99
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+999+o record "ayment of accrued andcurrent salaries$ F= days x .>&&5
Cash Pa&ment #or (e)
/ Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +*99
;ent ;ecei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 299;ent Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 299
+o record "ast due rent for two months$
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6undamental 7ccounting 8rinci"les, )9 th dition)'%
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Pro"lem 373- (89 minutes)8arts ) and %
Cash Accounts Pa&a"le-al! /9+999 -al! *+*99
Accounts ;ecei$a"le Salaries Pa&a"leUnadj! -al! 9 Unadj! -al! 9(#) /+/99 (g) /.9Adj! -al! /+/99 Adj! -al! /.9
Teaching Supplies Unearned Training FeesUnadj! -al! 29+999 Unadj! -al! *4+299
(") /4+/99 (e) 8+*99Adj! -al! *+/99 Adj! -al! 5+.99
Prepaid Insurance ! Alcorn+ CapitalUnadj! -al! 5+999 -al! 25+/99
(a) 2+.99Adj! -al! +299
! Alcorn+ ithdra%als
Prepaid ;ent -al! *9+999Unadj! -al! *+299
(h) *+299Adj! -al! 9
Pro#essional =i"rar&-al! 9+999
Accumulated 0epreciationPro#essional =i"rar&
Unadj! -al! +/99(d) *+999Adj! -al! 3+/99
E1uipment-al! 39+999
Accumulated 0epreciationE1uipment
Unadj! -al! 2+999(c) .+999Adj! -al! *9+999
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Pro"lem 373- !ontinued58art %
Adjustment (a)
0ec! 3 Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+.99Prepaid Insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+.99
+o record the insurance ex"ired$
Adjustment (")
3 Teaching Supplies E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /4+/99Teaching Supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /4+/99
+o record the cost of su""lies used.&,&&&-.%,'&&5$
Adjustment (c)
3 0epreciation E'penseE1uipment!!!!!!!!!!!!!!!!!!!!! .+999
Accumulated 0epreciationE1uipment!!!!! .+999+o record eui"ment de"reciation$
Adjustment (d)
3 0epreciation E'pensePro#essional =i"rar&!!! ! *+999Accumulated 0epreciation Pro#essional =i"rar&!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999
+o record "rofessional library de"reciation$
Adjustment (e)
3 Unearned Training Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+*99Training Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+*99
+o record training fees earned thatwere collected in advance$
Adjustment (#)
3 Accounts ;ecei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+/99Tuition Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+/99
+o record tuition earned .%,%&& x % )<% mo5$
Adjustment (g) 3 Salaries E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /.9
Salaries Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /.9 +o accrue salaries ex"ense ( days x .)>&5$
Adjustment (h)
3 ;ent E'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+299 Prepaid ;ent!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+299
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+o record ex"iration of "re"aid rent$
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Pro"lem 373- !ontinued58art (
A=CO;N INSTITUTEAdjusted Trial -alance
0ecem"er 3+ *99/Eebit !redit
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B /9+999
Accounts recei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+/99
Teaching supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+/99
Prepaid insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +299
Prepaid rent!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9
Pro#essional li"rar&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9+999
Accumulated depreciationPro#essional li"rar&!!!!!!!!!!! B 3+/99
E1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 39+999
Accumulated depreciationE1uipment!!!!!!!!!!!!!!!!!!!!!!!! *9+999
Accounts pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+*99
Salaries pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /.9
Unearned training #ees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+.99
! Alcorn+ Capital!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 25+/99
! Alcorn+ ithdra%als!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *9+999
Tuition #ees earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9+/99
Training #ees earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+*990epreciation e'pensePro#essional li"rar&!!!!!!!!!!!!!!!!!! *+999
0epreciation e'penseE1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+999
Salaries e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .3+4.9
Insurance e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+.99
;ent e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+*99
Teaching supplies e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /4+/99
Ad$ertising e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+999
Utilities e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.99
Totals!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B39.+5.9 B39.+5.9
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Pro"lem 373- !oncluded5
A=CO;N INSTITUTE-alance Sheet
0ecem"er 3+ *99/
7ssetsCash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B/9+999
Accounts recei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+/99
Teaching supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+/99
Prepaid insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +299
Pro#essional li"rar&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B9+999
Accumulated depreciationPro#essional li"rar&!!!!!!!!!!! (3+/99) 2+/99
E1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 39+999
Accumulated depreciationE1uipment!!!!!!!!!!!!!!!!!!!! (*9+999) 9+999
Total assets!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B52+99
Hiabilities
Accounts pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B*+*99
Salaries pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /.9
Unearned training #ees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+.99
Total lia"ilities!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+.9
uity
! Alcorn+ Capital!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /.+829
Total lia"ilities and e1uit&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B52+99
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Pro"lem 37.- (./ minutes) I 8art )
AccountUnadjustedTrial -alance Adjustments
AdjustedTrial -alance
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!B .5+999 B .5+999
Accounts recei$a"le!!!!!!!!!!!!! 49+999 (a) 2+229 42+229
O##ice supplies!!!!!!!!!!!!!!!!!!!!! 39+999 (") *3+999 4+999
Prepaid insurance!!!!!!!!!!!!!!!! 3+*99 (c) .+299 5+299
O##ice e1uipment!!!!!!!!!!!!!!!!!!/9+999 /9+999
Accumulated depreciation O##ice e1uipment!!!!!!!!!!!!!!!!!!!!
B 39+999 (d) 9+999 B .9+999
Accounts pa&a"le!!!!!!!!!!!!!!!! 32+999 (e) 2+999 .*+999
Interest pa&a"le!!!!!!!!!!!!!!!!!!!! (#) +299 +299
Salaries pa&a"le!!!!!!!!!!!!!!!!!!! (g) +*99 +*99
Unearned consulting #ees!!!!! 39+999 (h) *+*99 4+599
=ong7term notes pa&a"le!!!!!! 59+999 59+999
0! Chen+ Capital!!!!!!!!!!!!!!!!!!!! 49+*99 49+*99
0! Chen+ ithdra%als!!!!!!!!!!! 9+999 9+999
Consulting #ees earned!!!!!!!!*2.+999
(a)(h)
2+229*+*99 *5*+529
0epreciation e'pense O##ice e1uipment!!!!!!!!!!!!!!! (d) 9+999 9+999
Salaries e'pense!!!!!!!!!!!!!!!!!!/+299 (g) +*99 *2+599
Interest e'pense!!!!!!!!!!!!!!!!!!! 2+.99 (#) +299 5+999
Insurance e'pense!!!!!!!!!!!!!! (c) .+299 .+299
;ent e'pense!!!!!!!!!!!!!!!!!!!!!!! *.+999 *.+999
O##ice supplies e'pense!!!!!!!! (") *3+999 *3+999
Ad$ertising e'pense!!!!!!!!!!!!! .3+999 (e) 2 +999 .8+999
Totals!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!B/9+*99 B/9+*99 B4/+*29 B4/+*29 B/./+229 B/./+229
Adjustment 0escriptions
(a) Earned "ut uncollected re$enues!
(") Cost o# consumed o##ice supplies!
(c) Cost o# e'pired insurance co$erage!
(d) 0epreciation e'pense on o##ice e1uipment!
(e) Incurred "ut unpaid ad$ertising e'pense!
(#) Incurred "ut unpaid interest e'pense!
(g) Incurred "ut unpaid salaries e'pense!
(h) Earned re$enues pre$iousl& recei$ed in ad$ance!
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Pro"lem 37.-
8art %
0AU CONSU=TIN COPANHIncome Statement
For Hear Ended 0ecem"er 3+ *99/
;e$enues
Consulting #ees earned !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B*5*+529
E'penses
0epreciation e'penseO##ice e1uipment!!!!!!! B 9+999
Salaries e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *2+599
Interest e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+999
Insurance e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+299
;ent e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *.+999O##ice supplies e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *3+999
Ad$ertising e'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .8+999
Total e'penses!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *./+.99
Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B 34+.29
0AU CONSU=TIN COPANH
Statement o# O%ner@s E1uit&For Hear Ended 0ecem"er 3+ *99/
0! Chen+ Capital+ 0ecem"er 3+ *99.!!!!!!!!!!!!!!!!! B 49+*99
Plus Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 34+.29
94+229
=ess O%ner %ithdra%als!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9+999
0! Chen+ Capital+ 0ecem"er 3+ *99/!!!!!!!!!!!!!!!!! B 84+229
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Pro"lem 37.- !oncluded5
8art %
0AU CONSU=TIN COPANH-alance Sheet0ecem"er 3+ *99/
7ssets
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B .5+999
Accounts recei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 42+229
O##ice supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+999
Prepaid insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5+299
O##ice e1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B/9+999
Accumulated depreciationO##ice e1uipment!!!!!!!!!! (.9+999) 9+999Total assets!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B*/9+*29
Hiabilities
Accounts pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B .*+999
Interest pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +299
Salaries pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +*99
Unearned consulting #ees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+599
=ong7term notes pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 59+999
Total lia"ilities!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /*+299
uity
0! Chen+ Capital!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 84+229
Total lia"ilities and e1uit&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B*/9+*29
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6undamental 7ccounting 8rinci"les, )9 th dition)%
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Pro"lem 37/- (/9 minutes)8art )
=I?TNIN COU;IE;Income Statement
For Hear Ended 0ecem"er 3+ *99/
;e$enues
0eli$er& #ees earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B/59+999
Interest earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *.+999
Total re$enues!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B29.+999
E'penses
0epreciation e'penseTruc,s!!!!!!!!!!!!!!!!!!!! *.+999
0epreciation e'penseE1uipment!!!!!!!!!!!!! .2+999
Salaries e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2.+999ages e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *89+999
Interest e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! */+999
O##ice supplies e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 33+999
Ad$ertising e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *2+.99
;epairs e'penseTruc,s!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3.+299
Total e'penses!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /.3+999
Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B 2+999
=I?TNIN COU;IE;Statement o# O%ners E1uit&
For Hear Ended 0ecem"er 3+ *99/
L! ?allam+ Capital+ 0ecem"er 3+ *99.!!!!!!!!!! B/+999
Plus Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+999
42+999=ess ithdra%als "& o%ner!!!!!!!!!!!!!!!!!!!!!!!!! .9+999
L! ?allam+ Capital+ 0ecem"er 3+ *99/!!!!!!!!!! B32+999
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Pro"lem 37/- (!oncluded )
=I?TNIN COU;IE;-alance Sheet
0ecem"er 3+ *99/
7ssetsCash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B .5+999
Accounts recei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9+999
Interest recei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2+999
Notes recei$a"le (due in 89 da&s)!!!!!!!!!!!!!!!!!!!!!!!!! *99+999
O##ice supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+999
Truc,s!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B *.+999
Accumulated depreciationTruc,s!!!!!!!!!!!!!!!!!!! (.5+999) 42+999
E1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *29+999
Accumulated depreciationE1uipment!!!!!!!!!!!! (89+999) 49+999=and!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 89+999
Total assets!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B2*+999
Hiabilities
Accounts pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B*.+999
Interest pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! **+999
Salaries pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 39+999
Unearned deli$er& #ees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9+999
=ong7term notes pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 89+999Total lia"ilities!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .42+999
uity
L! ?allam+ Capital!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 32+999
Total lia"ilities and e1uit&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B2*+999
8art %
Pro#it margin B2+999 6 B29.+999 9!G
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Pro"lem 372-A (.9 minutes)8art )
ethod that records prepaid e'penses and unearned re$enues in "alance sheet accounts
Apr! Prepaid Consulting Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+./9
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+./98aid for future consulting services$
Prepaid Insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+499Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+499
8aid insurance for one year$
39 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99Unearned Ser$ice Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99
@eceived fees in advance$
a& Prepaid Ad$ertising!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+./9
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+./98aid for future advertising$
*3 Cash !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+./9 Unearned Ser$ice Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+./9
@eceived fees in advance$
3 Consulting Fees E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +/99Prepaid Consulting Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +/99
+o adjust "re"aid consulting fees$
3 Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ./9Prepaid Insurance!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ./9
+o adjust "re"aid insurance$
3 Unearned Ser$ice Fees !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+899Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+899
+o adjust unearned service fees$
3 Ad$ertising E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.99Prepaid Ad$ertising!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.99
+o adjust "re"aid advertising$
3 Unearned Ser$ice Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+/99Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+/99
+o adjust unearned service fees$
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Pro"lem 372-A !ontinued58art %
ethod that records prepaid e'penses and unearned re$enues in income statement accounts
Apr! Consulting Fees E'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+./9Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+./98aid for future consulting services$
Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+499Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+499
8aid insurance for one year$
39 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+/99
@eceived fees in advance$
a& Ad$ertising E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+./9Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+./9
8aid for future advertising$
*3 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+./9Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 8+./9
@eceived fees in advance$
3 Prepaid Consulting Fees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +8/9Consulting Fees E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!! +8/9
+o adjust for "re"aid consulting fees$
3 Prepaid Insurance !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+*/9
Insurance E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+*/9+o adjust for "re"aid insurance$
3 Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+299Unearned Ser$ice Fees !!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+299
+o adjust for unearned service fees$
3 Prepaid Ad$ertising!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +9/9Ad$ertising E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +9/9
+o adjust for "re"aid advertising$
3 Ser$ice Fees Earned!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+8/9
Unearned Ser$ice Fees !!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+8/9+o adjust for unearned service fees$
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6undamental 7ccounting 8rinci"les, )9 th dition)
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Pro"lem 372-A !oncluded5 8art (
There are no di##erences "et%een the t%o methods in terms o# the amountsthat appear on the #inancial statements! In "oth cases+ the #inancialstatements re#lect the #ollo%ing
Prepaid consulting #ees as o# a& 3!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B +8/9Consulting #ees e'pense #or t%o months!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +/99Insurance e'pense #or t%o months!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ./9Prepaid insurance as o# a& 3!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+*/9Unearned ser$ice #ees as o# a& 3 (B3+299 B.+8/9)!!!!!!!!! 5+//9Ser$ice #ees earned #or t%o months (B3+899 B.+/99)!!!!!!!!! 5+.99Prepaid ad$ertising as o# a& 3!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +9/9Ad$ertising e'pense #or t%o months!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.99
hen prepaid e'penses and unearned re$enues are recorded in "alancesheet accounts+ the related adjusting entries are designed to generate thecorrect asset+ e'pense+ lia"ilit&+ and re$enue account "alances! henprepaid e'penses and unearned re$enues are recorded in incomestatement accounts+ the related adjusting entries are designed toaccomplish e'actl& the same result!
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Serial Pro"lem
Serial Pro"lem+ Success S&stems (*9 minutes) 8art )
Lournal entries0ec! * Ad$ertising E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2// +9*/
Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 +9*/8aid share of mall advertising costs$
3 ;epairs E'penseComputer!!!!!!!!!!!!!!!!!!!!25. /99Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 /99
@e"aired the com"uter$
. Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 3+8/9Accounts ;ecei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!92 3+8/9
!ollected accounts receivable$
9 ages E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2*3 4/9Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 4/9
8aid em"loyee for "art-time worA$
. Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 +/99Unearned Computer Ser$ices ;e$enue!!!*32 +/99
@eceived advance on worA to be "erformed$
/ Computer Supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*2 +99Accounts Pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*9 +99
8urchased su""lies on credit$
2 No entr& recorded in the journal!
*9 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 /+2*/Computer Ser$ices ;e$enue!!!!!!!!!!!!!.93 /+2*/
!ollected cash revenue from customer$
*5 Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 3+999Accounts ;ecei$a"le!!!!!!!!!!!!!!!!!!!!!!!!!!92 3+999
!ollected accounts receivable$
*8 ileage E'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!242 8*Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 8*
@eimbursed Dree;e for mileage$
3 :! -reeDe+ ithdra%als!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!39* +/99Cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9 +/99?wner withdraws cash$
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Serial Pro"lem !ontinued58art %
Adjusting entries
0ec! 3 Computer Supplies E'pense !!!!!!!!!!!!!!!!!!!!!!!!!2/* 3+92/
Computer Supplies !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*2 3+92/ 7djustment for su""lies used su""liesbalance less cost of su""lies available5$
3 Insurance E'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!234 ///Prepaid Insurance !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*5 ///
7djustment for ex"ired insurance )<=of original "re"aid amount5$
3 ages E'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2*3 /99
ages Pa&a"le !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!*9 /99 7djustment for accrued wages$
3 0epreciation E'pComputer E1uip!!!!!!!!!!!!!23 +*/9Accumulated 0epreciation Computer E1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!25 +*/9
7djustment for com"uter eui"ment de"reciation:!ost$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ .%&,&&& 8redicted life$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ = years
7nnual de"reciation cost<life5$$$$$$$$$$$$$$ .',&&& x"ense for three months$$$$$$$$$$$$$$$$$$$$$ .),%'&
3 0epreciation E'penseO##ice E1uip!!!!!!!!!!!!2* .99Accumulated 0epreciation O##ice E1uipment !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2. .99
7djustment for office eui"ment de"reciation:!ost$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ .>,&&& 8redicted life$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ' years
7nnual de"reciation cost<life5$$$$$$$$$$$$$$$ .),&&
x"ense for three months$$$$$$$$$$$$$$$$$$$$$$$ .=&&
3 ;ent E'pense !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2.9 *+.4/Prepaid ;ent !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!3 *+.4/
7djustment for ex"ired rent (<= oforiginal "re"aid amount5$
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Serial Pro"lem !ontinued58arts ) and %
Posting to the accounts
Cash Acct! No! 90ate E'planation P; 0e"it Credit -alanceOct! //+999 //+999
* 3+399 /+499/ *+**9 .8+.595 +.*9 .5+929
/ .+599 /*+5294 59/ /*+9//*9 +8.9 /9+/** +.99 /+//
3 54/ /9+2.93 3+299 .4+9.9
No$! 3*9 .2+4*9* .+233 /+3/3/ +*/ /9+**5
5 *+*95 /*+.32** */9 /*+52*5 35. /+59*39 +4/9 /9+9/*39 *+999 .5+9/*
0ec! * +9*/ .4+9*43 /99 .2+/*4. 3+8/9 /9+.44
9 4/9 .8+4*4. +/99 /+**4*9 /+2*/ /2+5/**5 3+999 /8+5/**8 8* /8+2293 +/99 /5+29
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Serial Pro"lem !ontinued58arts ) and %
Accounts ;ecei$a"le Acct! No! 92
0ate E'planation P; 0e"it Credit -alance
Oct! 2 .+599 .+599* +.99 2+*99/ .+599 +.99** +.99 9*5 /+*95 /+*95
No$! 5 /+225 9+5425 *+*95 5+225*. 3+8/9 *+25
0ec! . 3+8/9 5+225*5 3+999 /+225
Computer Supplies Acct! No! *2
0ate E'planation P; 0e"it Credit -alanceOct! 3 +.*9 +.*9No$! / +*/ *+/./0ec! / +99 3+2./
3 3+92/ /59
Prepaid Insurance Acct! No! *5
0ate E'planation P; 0e"it Credit -alance
Oct! / *+**9 *+**90ec! 3 /// +22/
Prepaid ;ent Acct! No! 3
0ate E'planation P; 0e"it Credit -alanceOct! * 3+399 3+3990ec! 3 *+.4/ 5*/
O##ice E1uipment Acct! No! 23
0ate E'planation P; 0e"it Credit -alance
Oct! 5+999 5+999
Accumulated 0epreciationO##ice E1uipment Acct! No! 2.
0ate E'planation P; 0e"it Credit -alance0ec! 3 .99 .99
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Serial Pro"lem !ontinued58arts ) and %
Computer E1uipment Acct! No! 24
0ate E'planation P; 0e"it Credit -alanceOct! *9+999 *9+999
Accumulated 0epreciationComputer E1uipment Acct! No! 25
0ate E'planation P; 0e"it Credit -alance0ec! 3 +*/9 +*/9
Accounts Pa&a"le Acct! No! *9
0ate E'planation P; 0e"it Credit -alance
Oct! 3 +.*9 +.*95 +.*9 9
0ec! / +99 +99
ages Pa&a"le Acct! No! *9
0ate E'planation P; 0e"it Credit -alance0ec! 3 /99 /99
Unearned Computer Ser$ices ;e$enue Acct! No! *32
0ate E'planation P; 0e"it Credit -alance0ec! . +/99 +/99
:! -reeDe+ Capital Acct! No! 39
0ate E'planation P; 0e"it Credit -alanceOct! 53+999 53+999
:! -reeDe+ ithdra%als Acct! No! 39*
0ate E'planation P; 0e"it Credit -alanceOct! 3 3+299 3+299No$! 39 *+999 /+2990ec! 3 +/99 4+99
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Serial Pro"lem !ontinued58arts ) and %
Computer Ser$ices ;e$enue Acct! No! .93
0ate E'planation P; 0e"it Credit -alanceOct! 2 .+599 .+599
* +.99 2+*99*5 /+*95 +.95
No$! * .+233 2+9.5 /+225 *+498
*. 3+8/9 */+2/80ec! *9 /+2*/ 3+*5.
0epreciation E'penseO##ice E1uipment Acct! No! 2*
0ate E'planation P; 0e"it Credit -alance
0ec! 3 .99 .99
0epreciation E'penseComputer E1uipment Acct! No! 23
0ate E'planation P; 0e"it Credit -alance0ec! 3 +*/9 +*/9
ages E'pense Acct! No! 2*3
0ate E'planation P; 0e"it Credit -alanceOct! 3 54/ 54/No$! 39 +4/9 *+2*/0ec! 9 4/9 3+34/
3 /99 3+54/
Insurance E'pense Acct! No! 234
0ate E'planation P; 0e"it Credit -alance0ec! 3 /// ///
;ent E'pense Acct! No! 2.9
0ate E'planation P; 0e"it Credit -alance
0ec! 3 *+.4/ *+.4/
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Serial Pro"lem !ontinued58arts ) and %
Computer Supplies E'pense Acct! No! 2/*
0ate E'planation P; 0e"it Credit -alance0ec! 3 3+92/ 3+92/
Ad$ertising E'pense Acct! No! 2//
0ate E'planation P; 0e"it Credit -alanceOct! *9 +8.9 +8.90ec! * +9*/ *+82/
ileage E'pense Acct! No! 2420ate E'planation P; 0e"it Credit -alanceNo$! 3*9 3*9
*5 35. 49.0ec! *8 8* 582
iscellaneous E'penses Acct! No! 244
0ate E'planation P; 0e"it Credit -alanceNo$! ** */9 */9
;epairs E'penseComputer Acct! No! 25.
0ate E'planation P; 0e"it Credit -alanceOct! 4 59/ 59/0ec! 3 /99 +39/
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Serial Pro"lem !ontinued58art =
SUCCESS SHSTESIncome Statement
For Three onths Ended 0ecem"er 3+ *99.
;e$enue Computer ser$ices re$enue!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B3+*5.
E'penses
0epreciation e'penseO##ice e1uipment!!!!!!!!!!!!!!!! B .99
0epreciation e'penseComputer e1uipment!!!!!!!!! +*/9
ages e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+54/
Insurance e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ///
;ent e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+.4/Computer supplies e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+92/
Ad$ertising e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *+82/
ileage e'pense!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 582
iscellaneous e'penses!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! */9
;epairs e'penseComputer!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +39/
Total e'penses!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+932
Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B.+*.5
8art '
SUCCESS SHSTESStatement o# O%ner@s E1uit&
For Three onths Ended 0ecem"er 3+ *99.
:! -reeDe+ Capital+ Octo"er + *99.!!!!!!!!!!!!!!!!! B 9
Plus O%ner in$estment!!!!!!!!!! 53+999
Net income!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! .+*.5 84+*.5
=ess O%ner %ithdra%als!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4+99
:! -reeDe+ Capital+ 0ecem"er 3+ *99.!!!!!!!!!!!! B89+.5
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Serial Pro"lem !ontinued58art
SUCCESS SHSTES-alance Sheet
0ecem"er 3+ *99.
7ssetsCash !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B/5+29
Accounts recei$a"le !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /+225
Computer supplies !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /59
Prepaid insurance !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! +22/
Prepaid rent !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5*/
O##ice e1uipment !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B 5+999Accumulated depreciationO##ice e1uipment!!!!!!!!!!! (.99) 4+299
Computer e1uipment!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! *9+999Accumulated depreciationComputer e1uipment!!! ! (+*/9) 5+4/9
Total assets!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B83+*.5
HiabilitiesAccounts pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B +99
ages pa&a"le!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! /99
Unearned computer ser$ices re$enue!!!!!!!!!!!!!!!!!!!!!!!!! +/99
Total lia"ilities!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3+99
uity:! -reeDe+ Capital!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 89+.5
Total lia"ilities and e1uit&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! B83+*.5
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;eporting in Action -TN 37
! The re$enue recognition principle re1uires that re$enue "e recorded%hen earned+ not "e#ore and not a#ter! ost companies earn re$enue
%hen the& pro$ide ser$ices and products to customers!
*! :risp& :reme pro$ides in#ormation related to re$enue recognition in#ootnote * discussing the <Nature o# -usiness and Signi#icantAccounting Policies!> A polic& on re$enue recognition is stated #or eachsegment o# the compan&!
• Compan& Store operations re$enue is deri$ed #rom the sale o#doughnuts and related items to on7premises and o##7premisescustomers! ;e$enue is recogniDed at the time o# sale #or on7premises
sales and at the time o# deli$er& #or o## premises sales!
• Franchise Operations re$enue is deri$ed #rom () de$elopment and#ranchise #ees #rom the opening o# ne% storesR and (*) ro&altiescharged to #ranchisees "ased on sales! 0e$elopment and #ranchise#ees are charged #or certain ne% stores and are de#erred until thestore is opened! The ro&alties recogniDed in each period are "ased onthe sales in that period!
• ::0 re$enue is deri$ed #rom the sale o# doughnut7ma,ing
e1uipment+ mi' and other supplies needed to operate a doughnutstore to Compan&7o%ned and #ranchised stores! ;e$enue isrecogniDed at the time the title and ris, o# loss pass to the customer+generall& upon deli$er& o# the goods!
3! For #iscal &ear7end Fe"ruar& *+ *993+ the pro#it margin is B33+.45+999 6 B.8+/.8+999 9!925 2!5G
For #iscal &ear7end Fe"ruar& 3+ *99*+ the pro#it margin is
B*2+345+999 6 B38.+3/.+999 9!924 2!4G
.! Solution depends on the #inancial statements accessed!
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Comparati$e Anal&sis -TN 37*
! :risp& :reme
Current &ear+ pro#it margin B33+.45 6 B.8+/.8 2!5G
Prior &ear+ pro#it margin B*2+345 6 B38.+3/. 2!4G
Tast&,a,e
Current &ear+ pro#it margin B*+999 6 B2*+*23 !*G Prior &ear+ pro#it margin B5+9.5 6 B22+*./ .!5G
*! :risp& :reme is more success#ul on the "asis o# pro#it margin! In themost current &ear+ :risp& :reme earned an a$erage o# 2!5 cents on thedollar %hile Tast&,a,e earned !* cents on the dollar! For the prior &ears+
:risp& :reme earned 2!4 cents on the dollar compared to .!5 cents #orTast&,a,e!
Ethics Challenge -TN 373
! AAP re1uires that annual deprecation "e accumulated in a contra7asset account+ called Accumulated 0epreciation! hile propert&+ plant+and e1uipment is o#ten sho%n at its net $alue on the "alance sheet (asin :risp& :reme@s "alance sheet in Appendi' A) the cost o# propert&+plant+ and e1uipment along %ith its related accumulated depreciationare reported in the #ootnotes! Thus+ -ergeD is correct %ith her journalentr& recommendation!
*! One strength o# elch@s method %ould "e the ease o# preparing the"alance sheet! The propert&+ plant+ and e1uipment "alance in theadjusted trial "alance %ould "e directl& trans#era"le to the "alance sheet%hen the preparer desired to sho% the amount at net! elch@s approachcarries %ea,nesses in that #inancial statement users %ould not "e a"le
to ascertain the original cost o# the e1uipment or "e a"le to ,no% ho%much o# the original cost had "een allocated to depreciation to date!
3! hile "oth approaches %ould lead to the same total assets on the"alance sheet+ AAP re1uires -ergeD@s approach! As a pro#essional+-ergeD is re1uired to uphold the standards o# her pro#ession and thusthe decision is an ethical one #or her!
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Communicating in Practice -TN 37.
This communication acti$it& has no set solution! A class discussion o# theratios can "e conducted %ith emphasis on () return and pro#ita"ilit& "&industries and (*) a contrast o# de"t #inancing "et%een industries!
Ta,ing It to the Net -TN 37/
! Cannondale@s primaril& sells mountain "i,es!
*! ;e$ie% 97:!
3! ;ecent #iscal &ears ha$e ended on Lune *8+ *99*+ Lune 39+ *99 and Lul&+ *999! hile Cannondale la"els these endings as <* months ended>the& appear to "e reporting as o# the end o# the /*nd %ee,!
.! Net sales #or the #iscal &ear ended Lune *8+ *99*+ is B/2+2//+999!
/! Net loss #or the #iscal &ear ended Lune *8+ *99*+ is B/+..9+999!
2! Pro#it margin is B(/+..9) 6 B/2+2// 79!988 78!5G (or non7interpreta"le)
4! Cannondale@s #iscal &ear7end appears to ("ut does not necessaril&)correspond to its natural "usiness &ear! The di##icult& in reaching ade#initi$e ans%er to this 1uestion is the lac, o# in#ormation inCannondale@s statements! The 1uarterl& sales data does re$eal that the 3months ending in Lune has reported the highest sales o# the #our1uarters #or the last t%o &ears reported! anagement does discuss<seasonalit&> as a #actor a##ecting "usiness! The "ottom line isCannondale@s #iscal &ear7end appears to correspond to its natural"usiness &ear+ "ut %e cannot "e certain!
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Team%or, in Action -TN 372
Note that there is no speci#ic solution to this acti$it&! Ne$ertheless+ thepresentation o# each e'pert team should re#lect the #ollo%ing summar& points
-e#ore Adjusting
-alance Sheet Income StatementT&pe Account Account Adjusting Entr&
Prepaid e'pense Asset o$erstated E'pense understated 0r! E'penseCr! AssetJ
Unearned re$enues =ia"ilit& o$erstated ;e$enue understated 0r! =ia"ilit&Cr! ;e$enue
Accrued E'penses =ia"ilit& understated E'pense understated 0r! E'penseCr! =ia"ilit&
Accrued ;e$enues Asset understated ;e$enue understated 0r! AssetCr! ;e$enue
J For depreciation+ one %ould Credit the Accumulated 0epreciation contra account!
Some im"lementation notes This acti$it& allo%s all students to "e acti$el&in$ol$ed in the learning process! Encourage students to ta,e the opportunit& toas, 1uestions in the small group en$ironment the learning team pro$ides!Encourage the "etter students to ser$e as e'perts on unearned re$enues! Theinstructor@s o"ser$ation o# and reactions to e'pert teams@ de$elopment o#presentation material as %ell as the deli$er& to learning teams %ill ha$e a
signi#icant impact on the e##ecti$eness o# this acti$it&!
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Dusiness JeeA Acti$it& -TN 374
! ?erD personall& #a$ors a mo$e to%ard %hat is ,no%n as <principles7"ased accounting!> This t&pe o# accounting %ould re1uire a $astsimpli#ication o# accounting standards %here pro#essionals %ould "e
as,ed to compl& %ith "road goals and o"jecti$es! Such accounting%ould "e a mo$e a%a& #rom a length& list o# rules and e'ceptions!
*! ?erD "elie$es that "rea,ing the rules is at the core o# most o# thescandals! hen a person or compan& just outright $iolates standardsand commits #raud+ it is hard to sa& the standard is %rong! It@s li,e %hensomeone ro"s a "an, Hou can@t reall& sa& that the la% against "an,ro""ing %as part o# the pro"lem!
3! A principles7"ased s&stem is one %here the accounting standard simpl&
la&s out o"jecti$es o# good reporting in an area! It ma& include somerules+ "ased on the o"jecti$es+ "ut it does not tr& to ans%er e$er&1uestion or pro$ide a rule #or e$er& situation! So a t&pical standard%ould "e more li,e 97to7* pages in length rather than *99 pages!
.! Principles7"ased accounting re1uires the e'ercise o# good judgment "&"oth companies and auditors! Those %ho don@t li,e the principles7"ased approach sa&+ <I don@t trust people to do that!> The& thin, peopleneed rules to #ollo% or the& %ill tr& to #ind a %a& to ma,e an o"jecti$e #italmost an& situation!
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Entrepreneurial 0ecision -TN 375
! an& "usinesses #ind it cheaper to use outside collection agencies ratherthan hire in7house sta## to handle past7due account collections!Additionall&+ o%ners o# collection agencies are usuall& e'perts in the art o#
collection and ma& "e a"le to collect on accounts that the "usinessesthemsel$es ne$er %ould "e a"le to! Although a /9G commission seemssteep+ it must "e %eighed against the possi"ilit& that Dero collections ma&"e realiDed i# the account is not turned o$er!
*! ellie@s net income Income ' Pro#it margin B.9+999+999 ' 9!95 B3+*99+999!
3! Current commission e'pense B.9+999+999 ' 9!9* B599+999!
.! I# the commission #ee charged can "e negotiated do%n #rom /9G to .9G+
this %ill "e a *9G reduction in commission e'pense! This is computed as(/9G 7 .9G) 6 /9G *9G! Speci#icall&+ the commission e'pense %ouldchange #rom B599+999 to 59G o# B599+999 or B2.9+999 (also computed asB.9+999+999 ' 9!9* ' (.9G6/9G))!
The B29+999 reduction #rom B599+999 to B2.9+999 represents a *9G decline#rom B599+999!
/! Net income %ould "e B29+999 higher since commission e'pense %ould "ereduced "& B29+999! Net income %ould change to B3+329+999 B3+*99+999
B29+999!
Pro#it margin %ould then e1ual B3+329+9996B.9+999+999 5!.G!
?itting the ;oad -TN 378
There is no #ormal solution to this #ield acti$it&! The instructor ma& %ish to
tall& students@ #indings to see %hat companies %ere selected+ %horesponded+ %hat %as the response time+ etc! The instructor can alsoperiodicall& as, students to "ring in e'amples #rom their selectedcompanies at certain times+ and then compare and contrast them %ith thee'amples in the "oo,!
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lo"al 0ecision -TN 379
! rupo -im"o states under its <Signi#icant Accounting Policies> in itsannual report that re$enue is recogniDed %hen the product is shipped!
*! The #i$e t&pes o# assets that are depreciated "& rupo -im"o are
a! -uildings
"! anu#acturing e1uipment
c! Vehicles
d! O##ice e1uipment
e! Computer e1uipment
=and+ construction7in7progress+ and machiner&7in7transit are notdepreciated!
3! rupo -im"o pro#it margin in thousands of "esos5
*99* pro#it margin +99*+22. 6 .+343+*28 *!.G
*99 pro#it margin +25*+9*/ 6 3.+825+984 .!5G