solution 121 (a) (15 min.)

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  • 8/14/2019 Solution 121 (a) (15 Min.)

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    EXERCISES

    Solution 121 (15 min.)

    (a) STOVER COMPANY

    Income StatementFor the Year Ended December 31, 2002

    Service revenue ............................................................................................. $390,000Expenses ....................................................................................................... 239,800Net income ..................................................................................................... $150,200

    (b) The accrual basis of accounting provides a better measure of income than the cash basis.The accrual basis is required under generally accepted accounting principles and recognizesrevenues when earned and expenses when incurred. Revenues and expenses recognizedunder the accrual basis are related to the economic environment in which they occur andthus allow trends to be more meaningfully interpreted.

    The cash basis often fails to recognize revenue in the period when earned and expenseswhen incurred. Additionally, expenses are not matched with revenues when earned;therefore, the matching principle is violated.

    Solution 122 (5 min.)

    Net Income before Adjustments ($9,000 4,800) $ 4,200

    Add: Unearned Revenues $3,500

    Accrued Revenues 2,800 6,30010,500

    Subtract: Depreciation Expense 1,300Interest Expense 900Insurance Expense 400 2,600

    Net Income after Adjustments $ 7,900

    Solution 127 (5 min.)

    (a) Rent Expense ............................................................................... 15,000Prepaid Rent ....................................................................... 15,000

    ($90,000 6 = $15,000)

    (b) Unearned Ticket Revenue ............................................................ 32,000Ticket Revenue ................................................................... 32,000

    ($160,000 20 = $8,000; $8,000 4 = $32,000)

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    Solution 128 (10 min.)

    (a) June 1 Delivery Truck ............................................................... 36,000Cash ..................................................................... 8,000Notes Payable . ..................................................... 28,000

    (To record acquisition of delivery truck andsigning of a 2-month, 12% note)

    (b) June 30 Depreciation Expense ................................................... 750Accumulated DepreciationDelivery Truck .... ..... 750

    (To record monthly depreciation)$9,000 12 = $750/month

    30 Interest Expense ........................................................... 280Interest Payable ................................................... 280

    (To accrue interest on notes payable)$28,000 12% 1/12 = $280

    (c) AssetsDelivery Truck $36,000Less: Accumulated DepreciationDelivery Truck 750 $35,250

    Solution 129 (10 min.)

    1. Office Supplies Expense ................................................................ 1,200Office Supplies ...................................................................... 1,200

    (To record the amount of office supplies used)

    2. Insurance Expense ......................................................................... 250Prepaid Insurance .................................................................. 250

    (To record insurance expired $6,000 24)

    3. Depreciation Expense .................................................................... 200Accumulated DepreciationOffice Equipment ...................... 200

    (To record monthly depreciation $2,400 12)

    4. Unearned Rent Revenue ................................................................ 900Rent Revenue ........................................................................ 900

    (To record rent revenue earned)

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    Solution 130 (10 min.)

    Case 1December 31Office Supplies Expense ................................................... 7,100

    Office Supplies ...................................................... 7,100(To record office supplies used during the year)

    Case 2December 31Depreciation Expense ....................................................... 2,400

    Accumulated DepreciationOffice Equipment...... . 2,400(To record depreciation expense for six months)$400 6 months = $2,400 Depreciation

    Case 3August 31Rent Receivable ................................................................ 3,600

    Rent Revenue ........................................................ 3,600(To accrue rent earned but not yet received)

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    Solution 131 (15 min.)

    JORDAN INSURANCE AGENCYIncome Statement

    For the Month Ended June 30____________________________________________________________________________

    RevenuesPremium Commission Revenue ($40,000 + $4,000).................... $44,000

    ExpensesSalary expense ($6,000 + $5,300) ............................................... $11,300

    Advertising expense .................................................................... 800Rent expense .............................................................................. 4,200Depreciation expense ($2,800 + $300) ........................................ 3,100Utilities expense ($0 + $2,000) .................................................... 2,000Supplies expense ($0 + $4,500) .................................................. 4,500

    Total expenses ................................................................... 25,900Net income ........................................................................................... $18,100

    Solution 132 (5 min.)

    1. Service Revenue 5. Utilities Payable2. Rent Expense 6. Interest Expense3. Service Revenue 7. Accounts Receivable or Unearned Revenue4. Accumulated Depreciation 8. Interest Revenue

    Solution 134 (10 min.)

    (a) June 30 Salaries Expense .......................................................... 9,700Salaries Payable .................................................. 9,700

    (To accrue salaries incurred but not yet paid)

    (b) July 2 Salaries Payable ........................................................... 9,700Salaries Expense .......................................................... 6,400

    Cash ..................................................................... 16,100(To record payment of July 2 payroll)

    Solution 135 (5 min.)

    (a) Dec. 31 Wages Expense ............................................................ 24,000Wages Payable .................................................... 24,000

    (b) Jan. 2 Wages Payable ............................................................. 24,000Wages Expense ............................................................ 16,000

    Cash ..................................................................... 40,000

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    Solution 133 (15 min.)

    (a) Journal EntryPrepaid Rent .......................................................................... 90,000

    Cash ............................................................................. 90,000

    Adjusting Entry

    Rent Expense ........................................................................ 30,000Prepaid Rent . ................................................................ 30,000

    (b) Journal EntryCash ...................................................................................... 600,000

    Unearned Admissions Revenue..................................... 600,000

    Adjusting EntryUnearned Admissions Revenue ............................................ 50,000

    Admissions Revenue .................................................... 50,000($600,000 12 = $50,000)

    (c) Journal EntryCash ...................................................................................... 200,000

    Note Payable ................................................................ 200,000

    Adjusting EntryInterest Expense .................................................................... 2,000

    Interest Payable ............................................................ 2,000($200,000 .12 1 12 = $2,000)

    (d) Journal EntryPrepaid Printing ..................................................................... 7,500

    Cash ............................................................................. 7,500

    Adjusting EntryPrinting Expense .................................................................... 2,500

    Prepaid Printing ............................................................ 2,500($7,500 20 60 = $2,500)

    (e) Journal EntryNone

    Adjusting Entry

    Accounts Receivable ............................................................. 14,000Concessions Revenue .................................................. 14,000

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    Solution 136 (15 min.)

    Accounts Receivable ............................................................................ 1,000Service Revenue ......................................................................... 1,000

    (To record revenue earned but not yet received)

    Rent Expense ....................................................................................... 900

    Prepaid Rent ............................................................................... 900(To record expiration of prepaid rent)

    Supplies Expense ................................................................................ 400Supplies ....................................................................................... 400

    (To record supplies used)

    Depreciation ExpenseAutomobile Equipment ................................... 500Accumulated DepreciationAutomobile Equipment ................... 500

    (To record depreciation expense)

    Salaries Expense ................................................................................. 500

    Salaries Payable .......................................................................... 500(To record salaries owed, not yet paid)

    Interest Expense .................................................................................. 150Interest Payable .......................................................................... 150

    (To record accrued interest payable)

    Unearned Revenue .............................................................................. 100Service Revenue ......................................................................... 100

    (To record revenue earned)

    Utilities Expense ................................................................................... 500

    Accounts Payable ........................................................................ 500(To record receipt of utility bill)

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    Solution 137 (15 min.)

    (a) 1. $6,000. The $12,000 balance on the adjusted trial balance reflects two monthsremaining on the prepaid lease. This indicates that the monthly lease is $6,000.

    2. The fencing is 11 months old. By dividing annual depreciation ($6,000) by 12, themonthly depreciation expense is $500. The accumulated depreciation account shows$5,500 which means that depreciation has been taken for 11 months.

    3. 240 tickets were originally sold. Forty tickets were used in April at $4.00 each. Theadjusted trial balance shows a balance of $800 indicating that 200 tickets are stilloutstanding. By adding the 40 used in April to the 200 still remaining to be used, 240tickets must have been sold on April 1.

    (b) 1. Rent Expense ........................................................................ 6,000Prepaid Rent ................................................................. 6,000

    2. Depreciation Expense ............................................................ 500Accumulated DepreciationFencing ............................ 500

    3. Unearned Ticket Revenue ..................................................... 160Ticket Revenue ............................................................. 160

    (40 $4 = $160)

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    Solution 138 (20 min.)

    1. PAYNE FINANCIAL PLANNERSIncome Statement

    For the Month Ended December 31, 2002____________________________________________________________________________

    RevenuesService Revenue ......................................................................... $4,300

    ExpensesDepreciation expense .................................................................. $2,500Rent expense .............................................................................. 2,000Office supplies expense .............................................................. 600

    Total expenses ...................................................................... 5,100Net loss ............................................................................................... $ (800)

    2. PAYNE FINANCIAL PLANNERSOwner's Equity Statement

    For the Month Ended December 31, 2002____________________________________________________________________________

    Payne, Capital, December 1 ................................................................ $14,400Less: Net loss .................................................................................... $ 800

    Drawings................................................................................... 2,500 3,300Payne, Capital, December 31 .............................................................. $11,100

    3. PAYNE FINANCIAL PLANNERSBalance Sheet

    December 31, 2002

    ____________________________________________________________________________

    AssetsCash..................................................................................................... $ 5,300

    Accounts receivable ............................................................................. 2,200Office supplies ...................................................................................... 1,800Office equipment .................................................................................. $15,000Less: Accumulated depreciationoffice equipment ........................... 4,000 11,000

    Total assets ................................................................................. $20,300

    Liabilities and Owner's EquityLiabilities

    Accounts payable ........................................................................ $4,200Unearned revenue ....................................................................... 5,000Total liabilities ........................................................................ $ 9,200

    Owner's EquityPayne, Capital ............................................................................. 11,100

    Total liabilities and owner's equity .......................................... $20,300