CHAPTER 4

CHAPTER 4 Completing the Accounting Cycle ASSIGNMENT CLASSIFICATION TABLE Exercises

A Problems

B Problems

1, 2, 3

1, 2, 3, 5, 6, 17

1A, 2A, 3A, 4A, 5A

1B, 2B, 3B, 4B, 5B

6, 7, 11, 12

4, 5, 6

4, 7, 8, 11, 19

1A, 2A, 3A, 4A, 5A

1B, 2B, 3B, 4B, 5B

*3. Describe the content and purpose of a post-closing trial balance.

8, 9

7

4, 7, 8

1A, 2A, 3A, 4A, 5A

1B, 2B, 3B, 4B, 5B

*4. State the required steps in the accounting cycle.

10, 11, 12

8

10, 19

5A

5B

*5. Explain the approaches to preparing correcting entries.

13

9

12, 13

6A

*6. Identify the sections of a classified balance sheet.

14, 15, 16, 17, 18

10, 11

3, 9, 14 15, 16, 17

1A, 2A, 3A, 4A, 5A

*7. Prepare reversing entries.

10, 19, 20

12

18, 19

Study Objectives

Questions

*1. Prepare a worksheet.

1, 2, 3, 4, 5

*2. Explain the process of closing the books.

Brief Exercises

1B, 2B, 3B, 4B, 5B

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix *to the chapter.

4-1

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

Description

Difficulty Level

Time Allotted (min.)

Simple

40–50

1A

Prepare worksheet, financial statements, and adjusting and closing entries.

2A

Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance.

Moderate

50–60

3A

Prepare financial statements, closing entries, and postclosing trial balance.

Moderate

40–50

4A

Complete worksheet; prepare classified balance sheet, entries, and post-closing trial balance.

Moderate

50–60

5A

Complete all steps in accounting cycle.

Complex

70–90

6A

Analyze errors and prepare correcting entries and trial balance.

Moderate

40–50

1B

Prepare worksheet, financial statements, and adjusting and closing entries.

Simple

40–50

2B

Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance.

Moderate

50–60

3B

Prepare financial statements, closing entries, and postclosing trial balance.

Moderate

40–50

4B

Complete worksheet; prepare classified balance sheet, entries, and post-closing trial balance.

Moderate

50–60

5B

Complete all steps in accounting cycle.

Complex

70–90

Comprehensive Problem: Chapters 2 to 4

4-2

4-3

Identify the sections of a classified balance sheet.

Prepare reversing entries.

*6.

*7.

Broadening Your Perspective

Explain the approaches to preparing correcting entries.

*5.

Describe the content and purpose of a post-closing trial balance.

*3.

State the required steps in the accounting cycle.

Explain the process of closing the books.

*2.

*4.

Prepare a worksheet.

*1.

Study Objective

Q4-14 Q4-15 Q4-16

Q4-11 Q4-12 BE4-8

Q4-6 Q4-11 Q4-12

BE4-1

Knowledge

Communication Exploring the Web

Q4-10 Q4-19

E4-18 E4-19 Financial Reporting Decision Making Across the Organization Comparative Analysis

Q4-20 BE4-12

E4-17 P4-1A P4-2A P4-4A P4-3A P4-5A P4-2B P4-1B P4-3B

BE4-9 E4-12 E4-13 P4-6A

Q4-13

Q4-17 Q4-18 BE4-11 E4-15

E4-19 P4-5A P4-5B

Q4-10 E4-10

P4-4B P4-5B

P4-1B P4-4B P4-5B

P4-3A P4-1A P4-2B P4-4A P4-3B P4-5A

E4-4 E4-7 E4-8 P4-2A

Q4-8 Q4-9 BE4-7

BE4-10 E4-3 E4-9 E4-14 E4-16

P4-4B P4-5B

E4-19 P4-1A P4-4A P4-5A P4-1B

E4-11 P4-2A P4-3A P4-2B P4-3B

BE4-4 BE4-5 BE4-6 E4-4 E4-7 E4-8

Q4-7

P4-1B P4-4B P4-5B

Analysis

E4-1 E4-2 E4-3 E4-17 P4-2A P4-3A

P4-2B BE4-2 P4-3B E4-5 E4-6 P4-1A P4-4A P4-5A

Application

Q4-1 Q4-2 Q4-3 Q4-4 Q4-5 BE4-3

Comprehension

Synthesis

All About You Ethics Case Exploring the Web

Evaluation

Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems

BLOOM’S TAXONOMY TABLE

ANSWERS TO QUESTIONS 1.

No. A worksheet is not a permanent accounting record. The use of a worksheet is an optional step in the accounting cycle.

2.

The worksheet is merely a device used to make it easier to prepare adjusting entries and the financial statements.

3.

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

4.

The net income of $12,000 will appear in the income statement debit column and the balance sheet credit column. A net loss will appear in the income statement credit column and the balance sheet debit column.

5.

Formal financial statements are needed because the columnar data are not properly arranged and classified for statement purposes. For example, a drawing account is listed with assets.

6.

(1) (2) (3) (4)

7.

Income Summary is a temporary account that is used in the closing process. The account is debited for expenses and credited for revenues. The difference, either net income or loss, is then closed to the owner’s capital account.

8.

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

9.

The accounts that will not appear in the post-closing trial balance are Depreciation Expense; Jennifer Shaeffer, Drawing; and Service Revenue.

10.

A reversing entry is the exact opposite, both in amount and in account titles, of an adjusting entry and is made at the beginning of the new accounting period. Reversing entries are an optional step in the accounting cycle.

11.

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

12.

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

13.

Correcting entries differ from adjusting entries because they: (1) are not a required part of the accounting cycle, (2) may be made at any time, and (3) may affect any combination of accounts.

(Dr) Individual revenue accounts and (Cr) Income Summary. (Dr) Income Summary and (Cr) Individual expense accounts. (Dr) Income Summary and (Cr) Owner’s Capital (for net income). (Dr) Owner’s Capital and (Cr) Owner’s Drawing.

4-4

Questions Chapter 4 (Continued)

*14. The standard classifications in a balance sheet are: Assets Current Assets Long-term Investments Property, Plant, and Equipment Intangible Assets

Liabilities and Owner’s Equity Current Liabilities Long-term Liabilities Owner’s Equity

*15. A company’s operating cycle is the average time required to go from cash to cash in producing revenues. The operating cycle of a company is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers. *16. Current assets are assets that a company expects to convert to cash or use up in one year. Some companies use a period longer than one year to classify assets and liabilities as current because they have an operating cycle longer than one year. Companies usually list current assets in the order in which they expect to convert them into cash. *17. Long-term investments are generally investments in stocks and bonds of other companies that are normally held for many years. Property, plant, and equipment are assets with relatively long useful lives that a company is currently using in operating the business. *18. (a) (b)

The owner’s equity section for a corporation is called stockholders’ equity. The two accounts and the purpose of each are: (1) Capital stock is used to record investments of assets in the business by the owners (stockholders). (2) Retained earnings is used to record net income retained in the business.

* *19. After reversing entries have been made, the balances will be Interest Payable, zero balance; Interest Expense, a credit balance. *20. (a) Jan. 10

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

8,000 8,000

Because of the January 1 reversing entry that credited Salaries Expense for $3,500, Salaries Expense will have a debit balance of $4,500 which equals the expense for the current period. (b)

Jan. 10

Salaries Payable ..................................................................................... Salaries Expense .................................................................................... Cash................................................................................................

Note that Salaries Expense will again have a debit balance of $4,500.

4-5

3,500 4,500 8,000

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 4-1 The steps in using a worksheet are performed in the following sequence: (1) prepare a trial balance on the worksheet, (2) enter adjustment data, (3) enter adjusted balances, (4) extend adjusted balances to appropriate statement columns and (5) total the statement columns, compute net income (loss), and complete the worksheet. Filling in the blanks, the answers are 1, 3, 4, 5, 2. The solution to BRIEF EXERCISE 4-2 is on page 4-7. BRIEF EXERCISE 4-3

Account Accumulated Depreciation Depreciation Expense N. Batan, Capital N. Batan, Drawing Service Revenue Supplies Accounts Payable

Income Statement Dr. Cr.

Balance Sheet Dr. Cr. X

X X X X X X

BRIEF EXERCISE 4-4 Dec. 31

31

31

31

Service Revenue ...................................................... Income Summary............................................

50,000

Income Summary..................................................... Salaries Expense ............................................ Supplies Expense...........................................

31,000

Income Summary..................................................... D. Swann, Capital............................................

19,000

D. Swann, Capital .................................................... D. Swann, Drawing .........................................

2,000

4-6

50,000

27,000 4,000

19,000

2,000

Prepaid Insurance Service Revenue Salaries Expense Accounts Receivable Salaries Payable Insurance Expense

Account Titles

4-7

25,000

3,000

Dr. 58,000

Cr.

Trial Balance

(a) 1,200

(c) 800 (b) 1,100

Dr.

(c)

800

(a) 1,200 (b) 1,100

Cr.

Adjustments

LEY COMPANY Worksheet

1,200

25,800 1,100

1,800

Dr.

800

59,100

Cr.

Adjusted Trial Balance

1,200

25,800

Dr.

59,100

Cr.

Income Statement

1,100

1,800

Dr.

800

Cr.

Balance Sheet

BRIEF EXERCISE 4-2

BRIEF EXERCISE 4-5 Salaries Expense 27,000 (2) 27,000

Income Summary (2) 31,000 (1) 50,000 (3) 19,000 50,000 50,000

Service Revenue (1) 50,000 50,000

Supplies Expense 4,000 (2) 4,000

D. Swann, Capital (4) 2,000 30,000 (3) 19,000 Bal. 47,000

D. Swann, Drawing 2,000 (4) 2,000

BRIEF EXERCISE 4-6 July 31

31

Date 7/31 7/31

Date 7/31 7/31

Green Fee Revenue ................................................. Income Summary.............................................

13,600

Income Summary ..................................................... Salaries Expense ............................................. Maintenance Expense....................................

10,700

Explanation Balance Closing entry

Explanation

Green Fee Revenue Ref. Debit

13,600

8,200 2,500

Credit 13,600

Balance 13,600 0

Credit

Balance

8,200

8,200 0

13,600

Salaries Expense Ref. Debit

Balance Closing entry

8,200

4-8

BRIEF EXERCISE 4-6 (Continued)

Date 7/31 7/31

Explanation

Maintenance Expense Ref. Debit

Balance Closing entry

Credit

Balance

2,500

2,500 0

2,500

BRIEF EXERCISE 4-7 The accounts that will appear in the post-closing trial balance are: Accumulated Depreciation N. Batan, Capital Supplies Accounts Payable

BRIEF EXERCISE 4-8 The proper sequencing of the required steps in the accounting cycle is as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Analyze business transactions. Journalize the transactions. Post to ledger accounts. Prepare a trial balance. Journalize and post adjusting entries. Prepare an adjusted trial balance. Prepare financial statements. Journalize and post closing entries. Prepare a post-closing trial balance.

Filling in the blanks, the answers are 4, 2, 8, 7, 5, 3, 9, 6, 1.

4-9

BRIEF EXERCISE 4-9 1.

2.

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

780

Accounts Payable ($1,750 – $1,570) ........................................ Store Supplies........................................................................

180

780

180

BRIEF EXERCISE 4-10 DIAZ COMPANY Partial Balance Sheet Current assets Cash......................................................................................................... Short-term investments .................................................................... Accounts receivable........................................................................... Supplies.................................................................................................. Prepaid insurance............................................................................... Total current assets...................................................................

$15,400 6,700 12,500 5,200 3,600 $43,400

BRIEF EXERCISE 4-11 CL CA PPE PPE CA IA

Accounts payable Accounts receivable Accumulated depreciation Building Cash Copyrights

CL LTI PPE CA IA CA

Income tax payable Investment in long-term bonds Land Merchandise inventory Patent Supplies

*BRIEF EXERCISE 4-12 Nov. 1

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

1,400 1,400

The balances after posting the reversing entry are Salaries Expense (Cr.) $1,400 and Salaries Payable $0. 4-10

SOLUTIONS TO EXERCISES EXERCISE 4-1 BRISCOE COMPANY Worksheet For the Month Ended June 30, 2008 Account Titles

Trial Balance Dr.

Cash

Cr.

Adjustments Dr.

Adj. Trial Balance

Cr.

Dr.

Cr.

Income Statement Dr.

Cr.

Balance Sheet Dr.

2,320

2,320

2,320

2,440

2,440

2,440

Cr.

Accounts Receivable Supplies

1,880

Accounts Payable

1,580

300

1,120

300 1,120

1,120

100

100

3,600

3,600

Unearned 240

Revenue

140

Lenny Briscoe, Capital

3,600

Service Revenue Salaries Expense

2,400 560

140

2,540

280

2,540

840

840

160

160

1,580

1,580

Miscellaneous Expense Totals Supplies Expense

160 7,360

7,360 1,580

Salaries Payable Totals

280 2,000

2,000

280 7,640

7,640

280 2,580

2,540 40

40

2,580

2,580

5,100

Net Loss Totals

4-11

5,060

5,100 5,100

EXERCISE 4-2 GOODE COMPANY (Partial) Worksheet For the Month Ended April 30, 2008 Adjusted Trial Balance Account Titles Cash Accounts Receivable Prepaid Rent Equipment Accum. Depreciation Notes Payable Accounts Payable T. Goode, Capital T. Goode, Drawing Service Revenue Salaries Expense Rent Expense Depreciation Expense Interest Expense Interest Payable Totals Net Income Totals

Dr. 13,752 7,840 2,280 23,050

Cr.


Cr.

Balance Sheet Dr. 13,752 7,840 2,280 23,050

4,921 5,700 5,672 30,960

4,921 5,700 5,672 30,960

3,650

3,650 15,590

10,840 760 671 57 62,900

Cr.

15,590 10,840 760 671 57

57 62,900

4-12

12,328 3,262 15,590

15,590

50,572

15,590

50,572

57 47,310 3,262 50,572

EXERCISE 4-3 GOODE COMPANY Income Statement For the Month Ended April 30, 2008 Revenues Service revenue.................................................................. Expenses Salaries expense................................................................ Rent expense ...................................................................... Depreciation expense....................................................... Interest expense................................................................. Total expenses........................................................... Net income ....................................................................................

$15,590 $10,840 760 671 57 12,328 $ 3,262

GOODE COMPANY Owner’s Equity Statement For the Month Ended April 30, 2008 T. Goode, Capital, April 1 .................................................................... Add: Net income .................................................................................. Less: Drawings...................................................................................... T. Goode, Capital, April 30..................................................................

$30,960 3,262 34,222 3,650 $30,572

GOODE COMPANY Balance Sheet April 30, 2008 Assets Current assets Cash ....................................................................................... Accounts receivable ......................................................... Prepaid rent ......................................................................... Total current assets ................................................. Property, plant, and equipment Equipment ............................................................................ Less: Accumulated depreciation................................. Total assets................................................................. 4-13

$13,752 7,840 2,280 23,872 $23,050 4,921

18,129 $42,001

EXERCISE 4-3 (Continued) GOODE COMPANY Balance Sheet (Continued) April 30, 2008 Liabilities and Owner’s Equity Current liabilities Notes payable....................................................................................... Accounts payable ............................................................................... Interest payable ................................................................................... Total current liabilities.............................................................. Owner’s equity T. Goode, Capital................................................................................. Total liabilities and owner’s equity ......................................

$ 5,700 5,672 57 11,429 30,572 $42,001

EXERCISE 4-4 (a) Apr. 30

30

30

30

Service Revenue ............................................. Income Summary ...................................

15,590

Income Summary ............................................ Salaries Expense.................................... Rent Expense .......................................... Depreciation Expense .......................... Interest Expense.....................................

12,328

Income Summary ............................................ T. Goode, Capital....................................

3,262

T. Goode, Capital............................................. T. Goode, Drawing .................................

3,650

15,590

10,840 760 671 57

3,262

3,650

(b) (2) (3)

Income Summary 12,328 (1) 15,590 3,262 15,590 15,590

4-14

(4)

T. Goode, Capital 3,650 30,960 (3) 3,262 Bal. 30,572

EXERCISE 4-4 (Continued) (c)

GOODE COMPANY Post-Closing Trial Balance April 30, 2008 Cash ................................................................................ Accounts Receivable................................................. Prepaid Rent................................................................. Equipment ..................................................................... Accumulated Depreciation ...................................... Notes Payable .............................................................. Accounts Payable....................................................... Interest Payable........................................................... T. Goode, Capital ........................................................

Debit $13,752 7,840 2,280 23,050

$46,922

Credit

$ 4,921 5,700 5,672 57 30,572 $46,922

EXERCISE 4-5 (a) Accounts Receivable................................................. Service Revenue .................................................

600

Insurance Expense..................................................... Prepaid Insurance..............................................

400

Depreciation Expense ................................................ Accumulated Depreciation .............................

900

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

500

4-15

600

400

900

500

EXERCISE 4-5 (Continued) (b)

Income Statement Dr. Accounts Receivable Prepaid Insurance Accum. Depreciation Salaries Payable Service Revenue Salaries Expense Insurance Expense Depreciation Expense

Cr.

Balance Sheet Dr. X X

Cr.

X X X X X X

EXERCISE 4-6 (a) Accounts Receivable—$25,000 ($34,000 – $9,000). Supplies—$2,000 ($7,000 – $5,000). Accumulated Depreciation—$22,000 ($12,000 + $10,000). Salaries Payable—$0 No liability recorded until adjustments are made. Insurance Expense—$6,000 ($26,000 – $20,000). Salaries Expense—$44,000 ($49,000 – $5,000). (b) Accounts Receivable ......................................................... Service Revenue.........................................................

9,000

Insurance Expense ............................................................. Prepaid Insurance ......................................................

6,000

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

5,000

Depreciation Expense........................................................ Accumulated Depreciation......................................

10,000

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

5,000

4-16

9,000

6,000

5,000

10,000

5,000

EXERCISE 4-7 (a) Service Revenue ............................................................. Income Summary.....................................................

4,064

Income Summary............................................................ Salaries Expense ..................................................... Miscellaneous Expense......................................... Supplies Expense....................................................

3,828

Income Summary............................................................ Emil Skoda, Capital.................................................

236

Emil Skoda, Capital........................................................ Emil Skoda, Drawing ..............................................

300

(b)

4,064

1,344 256 2,228

236

300

EMIL SKODA COMPANY Post-Closing Trial Balance For the Month Ended June 30, 2008 Account Titles Cash .................................................................................... Accounts Receivable..................................................... Supplies ............................................................................. Accounts Payable........................................................... Salaries Payable.............................................................. Unearned Revenue......................................................... Emil Skoda, Capital........................................................

Debit $3,712 3,904 480

$8,096

4-17

Credit

$1,792 448 160 5,696 $8,096

EXERCISE 4-8 (a)

General Journal

Date Account Titles Ref. July 31 Commission Revenue .............................. 404 Rent Revenue .............................................. 429 Income Summary ............................ 350

Debit 65,000 6,500

31 Income Summary ....................................... Salaries Expense............................. Utilities Expense.............................. Depreciation Expense....................

350 720 732 711

74,600

31 B. J. Apachi, Capital.................................. Income Summary ............................

301 350

3,100

31 B. J. Apachi, Capital.................................. B. J. Apachi, Drawing.....................

301 306

16,000

J15 Credit

71,500

55,700 14,900 4,000

3,100

16,000

(b) B. J. Apachi, Capital Date Explanation Ref. Debit July 31 Balance 31 Close net loss J15 3,100 31 Close drawing J15 16,000

Income Summary Date Explanation Ref. Debit July 31 Close revenue J15 31 Close expenses J15 74,600 31 Close net loss J15

4-18

Credit

Credit 71,500 3,100

No. 301 Balance 45,200 42,100 26,100

No. 350 Balance 71,500 (3,100) 0

EXERCISE 4-8 (Continued) (c)

APACHI COMPANY Post-Closing Trial Balance July 31, 2008 Cash ................................................................................ Accounts Receivable................................................. Equipment ..................................................................... Accumulated Depreciation ...................................... Accounts Payable....................................................... Unearned Rent Revenue........................................... B. J. Apachi, Capital...................................................

Debit $14,840 8,780 15,900

$39,520

Credit

$ 7,400 4,220 1,800 26,100 $39,520

EXERCISE 4-9 (a)

APACHI COMPANY Income Statement For the Year Ended July 31, 2008 Revenues Commission revenue........................................ Rent revenue ....................................................... Total revenues ........................................... Expenses Salaries expense................................................ Utilities expense................................................. Depreciation expense....................................... Total expenses........................................... Net loss ..........................................................................

$65,000 6,500 71,500 $55,700 14,900 4,000 74,600 ($ 3,100)

APACHI COMPANY Owner’s Equity Statement For the Year Ended July 31, 2008 B. J. Apachi, Capital, August 1, 2007 ................... Less: Net loss ............................................................. Drawings........................................................... B. J. Apachi, Capital, July 31, 2008.......................

4-19

$45,200 $ 3,100 16,000

19,100 $26,100

EXERCISE 4-9 (Continued) (b)

APACHI COMPANY Balance Sheet July 31, 2008 Assets Current assets Cash........................................................................... Accounts receivable............................................. Total current assets..................................... Property, plant, and equipment Equipment ............................................................... Less: Accumulated depreciation .................... Total assets ....................................................

$14,840 8,780 23,620 $15,900 7,400

8,500 $32,120

Liabilities and Owner’s Equity Current liabilities Accounts payable ................................................. Unearned rent revenue........................................ Total current liabilities................................ Owner’s equity B. J. Apachi, Capital ............................................. Total liabilities and owner’s equity.........

$ 4,220 1,800 6,020 26,100 $32,120

EXERCISE 4-10 1.

False “Analyze business transactions” is the first step in the accounting cycle.

2.

False. Reversing entries are an optional step in the accounting cycle.

3.

True.

4.

True.

5.

True.

6.

False. Steps 1–3 may occur daily in the accounting cycle. Steps 4–7 are performed on a periodic basis. Steps 8 and 9 are usually prepared only at the end of a company’s annual accounting period.

7.

False. The step of “journalize the transactions” occurs before the step of “post to the ledger accounts.”

8.

False. Closing entries are prepared after financial statements are prepared. 4-20

EXERCISE 4-11 (a) June 30

30

30

30

Service Revenue........................................... Income Summary ................................

15,100

Income Summary ......................................... Salaries Expense................................. Supplies Expense ............................... Rent Expense .......................................

13,100

Income Summary ......................................... Nina Cole, Capital................................

2,000

Nina Cole, Capital ........................................ Nina Cole, Drawing .............................

2,500

15,100

8,800 1,300 3,000

2,000

2,500

(b) Income Summary June 30 13,100 June 30 June 30 2,000 15,100

15,100 15,100

EXERCISE 4-12 (a) 1.

2.

Cash ............................................................................. Equipment ........................................................

600

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

600

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

100

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

1,000

4-21

600

600

100

1,000

EXERCISE 4-12 (Continued) 3.

(b) 1.

2.

3.

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

890

Salaries Expense...................................................... Equipment ........................................................

600

Service Revenue ...................................................... Cash ............................................................................. Accounts Receivable ....................................

100 900

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

90

890 980 980

600

1,000

90

EXERCISE 4-13 1.

2.

3.

Accounts Payable ($630 – $360) .................................. Cash..............................................................................

270

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

560

M. Mason, Drawing ........................................................... Salaries Expense......................................................

400

4-22

270

56 504

400

EXERCISE 4-14 (a)

KARR BOWLING ALLEY Balance Sheet December 31, 2008 Assets Current assets Cash ..................................................... Accounts receivable ....................... Prepaid insurance............................ Total current assets ............... Property, plant, and equipment Land...................................................... Building............................................... Less: Acc. depr.—building .......... Equipment .......................................... Less: Acc. depr.—equipment ..... Total assets...............................

4-23

$ 18,040 14,520 4,680 37,240 $64,000 $128,800 42,600 62,400 18,720

86,200 43,680

193,880 $231,120

EXERCISE 4-14 (Continued) KARR BOWLING ALLEY Balance Sheet (Continued) December 31, 2008 Liabilities and Owner’s Equity Current liabilities Current portion of note payable ........................................... Accounts payable ..................................................................... Interest payable ......................................................................... Total current liabilities.................................................... Long-term liabilities Note payable ............................................................................... Total liabilities ................................................................... Owner’s equity S. Karr, Capital ($115,000 + $3,440*) ................................... Total liabilities and owner’s equity.............................

$ 13,900 12,300 2,600 28,800 83,880 112,680 118,440 $231,120

*Net income = $14,180 – $780 – $7,360 – $2,600 = $3,440 (b) Current assets exceed current liabilities by $8,440 ($37,240 – $28,800). In addition, approximately 50% of current assets are in the form of cash. In sum, the company’s liquidity appears to be reasonably good.

EXERCISE 4-15 CL CA PPE PPE CA OE IA CL

Accounts payable Accounts receivable Accumulated depreciation Buildings Cash Roberts, Capital Patents Salaries payable

CA Inventories LTI Investments PPE Land LTL Long-term dept CA Supplies PPE Office equipment CA Prepaid expenses

4-24

EXERCISE 4-16 R. STEVENS COMPANY Balance Sheet December 31, 2008 (in thousands) Assets Current assets Cash ................................................................... Short-term investments ............................... Accounts receivable ..................................... Inventories ....................................................... Prepaid expenses .......................................... Total current assets ............................. Long-term investments......................................... Property, plant, and equipment Property, plant, and equipment ................ Less: Accumulated depreciation.............. Total assets ..............................................................

$ 2,668 3,690 1,696 1,256 880 $10,190 264 11,500 (5,655)

5,845 $16,299

Liabilities and Owner’s Equity Current liabilities Notes payable in 2009 .................................. Accounts payable .......................................... Total current liabilities ........................ Long-term liabilities Long-term debt ............................................... Notes payable (after 2009) .......................... Total long-term liabilities ..................... Total liabilities.......................................................... Owner’s equity R. Stevens, Capital ........................................ Total owner’s equity............................. Total liabilities and owner’s equity...................

4-25

$

481 1,444 $ 1,925 943 368 1,311 3,236

13,063 13,063 $16,299

EXERCISE 4-17 (a) B. SNYDER COMPANY Income Statement For the Year Ended July 31, 2008 Revenues Commission revenue .................................... Rent revenue.................................................... Total revenues........................................ Expenses Salaries expense ............................................ Utilities expense ............................................. Depreciation expense ................................... Total expense ......................................... Net loss .....................................................................

$61,100 8,500 $69,600 51,700 22,600 4,000 78,300 $ (8,700)

B. SNYDER COMPANY Owner’s Equity Statement For the Year Ended July 31, 2008 Owner’s equity, August 1, 2007.......................... Less: Net loss.......................................................... Drawings ....................................................... Owner’s equity, July 31, 2008 .............................

4-26

$51,200 $8,700 4,000

12,700 $38,500

EXERCISE 4-17 (Continued) (b) B. SNYDER COMPANY Balance Sheet July 31, 2008 Assets Current assets Cash ........................................................................... Accounts receivable ............................................. Total current assets ..................................... Property, plant, and equipment Equipment ................................................................ Less: Accumulated depreciation ..................... Total assets ...................................................

$24,200 9,780 $33,980 18,500 6,000

12,500 $46,480

Liabilities and Owner’s Equity Current liabilities Accounts payable .................................................. Salaries payable ..................................................... Total current liabilities ................................ Long-term liabilities Note payable............................................................ Total liabilities................................................ Owner’s equity B. Snyder, Capital .................................................. Total owner’s equity ............................................. Total liabilities and owner’s equity ..................

4-27

$ 4,100 2,080 $ 6,180 1,800 7,980 38,500 38,500 $46,480

*EXERCISE 4-18 (a) Dec. 31

Jan. 6

(b) Dec. 31

Jan. 1

Jan. 6

Salaries Expense ($10,000 X 2/5) ............ Salaries Payable...................................

4,000

Salaries Payable............................................ Salaries Expense ($10,000 X 3/5) ............ Cash .........................................................

4,000 6,000

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

4,000

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

4,000

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

10,000

4,000

10,000

4,000

4,000

10,000

*EXERCISE 4-19 (a) Dec. 31

31

(b) Jan. 1

1

Commission Revenue ................................. Income Summary.................................

92,000

Income Summary.......................................... Interest Expense ..................................

7,800

Commission Revenue ................................. Accounts Receivable..........................

4,500

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

1,500

4-28

92,000

7,800

4,500

1,500

*EXERCISE 4-19 (Continued) (c) & (e) Accounts Receivable Dec. 31 Balance *19,500 31 Adjusting 4,500 24,000 Jan. 1 Reversing

4,500

*($24,000 – $4,500) Commission Revenue Dec. 31 Closing 92,000 Dec. 31 Balance 31 Adjusting 92,000 Jan. 1 Reversing 4,500 Jan. 10

87,500* 4,500 92,000 4,500

*($92,000 – $4,500)

Jan. 1

Reversing

Dec. 31 Balance 31 Adjusting Jan. 15

Interest Payable Dec. 31 Adjusting 1,500 Interest Expense *6,300 Dec. 31 Closing 1,500 7,800 2,500 Jan. 1 Reversing

1,500

7,800 7,800 1,500

*($7,800 – $1,500) (d) Jan. 10

15

(1) Cash.......................................................................... Commission Revenue................................

4,500

(2) Interest Expense................................................... Cash.................................................................

2,500

4-29

4,500

2,500

Account Titles

4-30

13,620

10,000 12,350 20,000

2,200 1,300 1,200 200 55,970 55,970

600

11,400 5,620 1,050 2,400 30,000 530

300 600 3,100

(c) (d)

(a) 670 (b) 1,000

(e)

530

670 600

(c)

3,100

300

(b) 1,000

(e)

(a) (d)

Cr.

Dr.

Dr.

Cr.

Adjustments

Trial Balance

300 600 57,800 57,800

300

14,150

Cr.

600 7,470 14,150 6,680 14,150 14,150

300

670 1,000

670 1,000

Dr.

2,200 1,300 1,200 200

1,000

14,150

10,000 12,350 20,000

Cr.

Income Statement

2,200 1,300 1,200 200

600

11,400 6,150 380 1,800 30,000

Dr.


THOMAS MAGNUM P.I. Worksheet For the Quarter Ended March 31, 2008

Key: (a) Supplies Used; (b) Depreciation Expensed; (c) Accrued Interest on note; (d) Insurance Expired; (e) Service Revenue Earned but unbilled.

Cash Accounts Receivable Supplies Prepaid Insurance Equipment Notes Payable Accounts Payable T. Magnum, Capital T. Magnum, Drawing Service Revenue Salaries Expense Travel Expense Rent Expense Miscellaneous Expense Totals Supplies Expense Depreciation Expense Accumulated Depreciation Interest Expense Interest Payable Insurance Expense Totals Net Income Totals

(a)

300

1,000

10,000 12,350 20,000

Cr.

50,330 43,650 6,680 50,330 50,330

600

11,400 6,150 380 1,800 30,000

Dr.

Balance Sheet

SOLUTIONS TO PROBLEMS PROBLEM 4-1A

PROBLEM 4-1A (Continued) (b)

THOMAS MAGNUM P.I. Income Statement For the Quarter Ended March 31, 2008 Revenues Service revenue....................................................... Expenses Salaries expense..................................................... Travel expense......................................................... Rent expense............................................................ Depreciation expense............................................ Supplies expense ................................................... Insurance expense ................................................. Interest expense...................................................... Miscellaneous expense ........................................ Total expenses................................................ Net income .........................................................................

$14,150 $2,200 1,300 1,200 1,000 670 600 300 200 7,470 $ 6,680

THOMAS MAGNUM P.I. Owner’s Equity Statement For the Quarter Ended March 31, 2008 T. Magnum, Capital, January 1..................................... Add: Investment by owner .......................................... Net income............................................................. Less: Drawings................................................................. T. Magnum, Capital, March 31 ......................................

4-31

$ $20,000 6,680

0

26,680 600 $26,080

PROBLEM 4-1A (Continued) THOMAS MAGNUM P.I. Balance Sheet March 31, 2008 Assets Current assets Cash........................................................................... Accounts receivable............................................. Supplies.................................................................... Prepaid insurance ................................................. Total current assets..................................... Property, plant, and equipment Equipment ............................................................... Less: Accumulated depreciation .................... Total assets ....................................................

$11,400 6,150 380 1,800 19,730 $30,000 1,000

29,000 $48,730

Liabilities and Owner’s Equity Current liabilities Notes payable......................................................... Accounts payable ................................................. Interest payable ..................................................... Total current liabilities................................ Owner’s equity T. Magnum, Capital............................................... Total liabilities and owner’s equity ...........................................................

(c) Mar. 31

31

31

31

$10,000 12,350 300 22,650 26,080 $48,730

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

670

Depreciation Expense ............................... Accumulated Depreciation ............

1,000

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

300

Insurance Expense..................................... Prepaid Insurance..............................

600

4-32

670

1,000

300

600

PROBLEM 4-1A (Continued) Mar. 31

(d) Mar. 31

31

31

31

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

530

Service Revenue .............................................. Income Summary....................................

14,150

Income Summary............................................. Travel Expense........................................ Salaries Expense .................................... Rent Expense........................................... Insurance Expense................................. Depreciation Expense ........................... Supplies Expense................................... Interest Expense ..................................... Miscellaneous Expense........................

7,470

Income Summary............................................. T. Magnum, Capital ................................

6,680

T. Magnum, Capital ......................................... T. Magnum, Drawing..............................

600

4-33

530

14,150

1,300 2,200 1,200 600 1,000 670 300 200

6,680

600

PROBLEM 4-2A

(a)

PORTER COMPANY Partial Worksheet For the Year Ended December 31, 2008

Account No. Titles 101 112 126 130 151 152 200 201 212 230 301 306 400 610 631 711 722 726 905

Cash Accounts Receivable Supplies Prepaid Insurance Office Equipment Acc. Depr.—Off. Equip. Notes Payable Accounts Payable Salaries Payable Interest Payable B. Porter, Capital B. Porter, Drawing Service Revenue Advertising Expense Supplies Expense Depreciation Expense Insurance Expense Salaries Expense Interest Expense Totals Net Income Totals

Adjusted Trial Balance Dr. Cr.

Income Statement Dr. Cr.

18,800 16,200 2,300 4,400 44,000

Balance Sheet Dr. Cr. 18,800 16,200 2,300 4,400 44,000

20,000 20,000 8,000 2,600 1,000 36,000

20,000 20,000 8,000 2,600 1,000 36,000

12,000

12,000 77,800

12,000 3,700 8,000 4,000 39,000 1,000 165,400 165,400

4-34

77,800 12,000 3,700 8,000 4,000 39,000 1,000 67,700 10,100 77,800

77,800

97,700

77,800

97,700

87,600 10,100 97,700


PORTER COMPANY Income Statement For the Year Ended December 31, 2008 Revenues Service revenue..................................................... Expenses Salaries expense................................................... Advertising expense ............................................ Depreciation expense.......................................... Insurance expense ............................................... Supplies expense ................................................. Interest expense.................................................... Total expenses.............................................. Net income .......................................................................

$77,800 $39,000 12,000 8,000 4,000 3,700 1,000 67,700 $10,100

PORTER COMPANY Owner’s Equity Statement For the Year Ended December 31, 2008 B. Porter, Capital, January 1 ............................................................ Add: Net income................................................................................ Less: Drawings.................................................................................... B. Porter, Capital, December 31......................................................

4-35

$36,000 10,100 46,100 12,000 $34,100

PROBLEM 4-2A (Continued) PORTER COMPANY Balance Sheet December 31, 2008 Assets Current assets Cash........................................................................... Accounts receivable............................................. Supplies.................................................................... Prepaid insurance ................................................. Total current assets..................................... Property, plant, and equipment Office equipment ................................................... Less: Accumulated depreciation .................... Total assets ....................................................

$18,800 16,200 2,300 4,400 41,700 $44,000 20,000

24,000 $65,700

Liabilities and Owner’s Equity Current liabilities Notes payable......................................................... Accounts payable ................................................. Salaries payable .................................................... Interest payable ..................................................... Total current liabilities................................ Long-term liabilities Notes payable......................................................... Total liabilities ............................................... Owner’s equity B. Porter, Capital ................................................... Total liabilities and owner’s equity .............................................................

4-36

$10,000 8,000 2,600 1,000 21,600 10,000 31,600 34,100 $65,700

PROBLEM 4-2A (Continued) (c)

General Journal

Date Account Titles and Explanation Dec. 31 Service Revenue ........................................ Income Summary............................

Ref. 400 350

Debit 77,800

31 Income Summary....................................... Advertising Expense...................... Supplies Expense ........................... Depreciation Expense ................... Insurance Expense......................... Salaries Expense ............................ Interest Expense .............................

350 610 631 711 722 726 905

67,700

31 Income Summary....................................... B. Porter, Capital.............................

350 301

10,100

31 B. Porter, Capital........................................ B. Porter, Drawing ..........................

301 306

12,000

J14 Credit 77,800

12,000 3,700 8,000 4,000 39,000 1,000

10,100

12,000

(d) Date Explanation Jan. 31 Balance Dec. 31 Closing entry 31 Closing entry

B. Porter, Capital Ref. Debit J14 J14 12,000

Date Explanation Dec. 31 Balance 31 Closing entry

B. Porter, Drawing Ref. Debit 12,000 J14

4-37

Credit 36,000 10,100

Credit 12,000

No. 301 Balance 36,000 46,100 34,100

No. 306 Balance 12,000 0

PROBLEM 4-2A (Continued)

Explanation Closing entry Closing entry Closing entry

Income Summary Ref. Debit J14 J14 67,700 J14 10,100


Service Revenue Ref. Debit J14 77,800


Advertising Expense Ref. Debit 12,000 J14


Supplies Expense Ref. Debit 3,700 J14


Depreciation Expense Ref. Debit 8,000 J14

Date Dec. 31 31 31

Date Dec. 31 31


Insurance Expense Ref. Debit 4,000 J14

4-38

Credit 77,800

Credit 77,800

Credit 12,000

Credit 3,700

Credit 8,000

Credit 4,000

No. 350 Balance 77,800 10,100 0

No. 400 Balance 77,800 0

No. 610 Balance 12,000 0

No. 631 Balance 3,700 0

No. 711 Balance 8,000 0

No. 722 Balance 4,000 0



Salaries Expense Ref. Debit 39,000 J14


Interest Expense Ref. Debit 1,000 J14

(e)

Credit 39,000

Credit 1,000

No. 726 Balance 39,000 0

No. 905 Balance 1,000 0

PORTER COMPANY Post-Closing Trial Balance December 31, 2008 Cash ................................................................................ Accounts Receivable................................................. Supplies ......................................................................... Prepaid Insurance ...................................................... Office Equipment ........................................................ Accumulated Depreciation—Office Equipment ................................................................ Notes Payable .............................................................. Accounts Payable....................................................... Salaries Payable.......................................................... Interest Payable........................................................... B. Porter, Capital.........................................................

Debit $18,800 16,200 2,300 4,400 44,000

$85,700

4-39

Credit

$20,000 20,000 8,000 2,600 1,000 34,100 $85,700

PROBLEM 4-3A

(a)

WOODS COMPANY Income Statement For the Year Ended December 31, 2008 Revenues Service revenue .................................................. Expenses Salaries expense ................................................ Repair expense ................................................... Utilities expense ................................................. Depreciation expense ....................................... Insurance expense............................................. Total expenses ........................................... Net loss...........................................................................

$44,000 $35,200 5,400 4,000 2,800 1,200 48,600 $ (4,600)

WOODS COMPANY Owner’s Equity Statement For the Year Ended December 31, 2008 S. Woods, Capital, January 1 .................................. Add: Additional investment by owner ............... Less: Net loss.............................................................. Drawings ........................................................... S. Woods, Capital, December 31............................

$30,000 4,000 34,000 $4,600 7,200

11,800 $22,200

WOODS COMPANY Balance Sheet December 31, 2008 Assets Current assets Cash........................................................................ Accounts receivable.......................................... Prepaid insurance .............................................. Total current assets.................................. Property, plant, and equipment Equipment ............................................................ Less: Accumulated depreciation ................. Total assets ................................................. 4-40

$ 8,200 7,500 1,800 17,500 $28,000 8,600

19,400 $36,900

PROBLEM 4-3A (Continued) WOODS COMPANY Balance Sheet (Continued) December 31, 2008 Liabilities and Owner’s Equity Current liabilities Accounts payable ....................................................................... Salaries payable .......................................................................... Total current liabilities ..................................................... Owner’s equity S. Woods, Capital ....................................................................... Total liabilities and owner’s equity.................................................................................

(b)

$11,700 3,000 14,700 22,200 $36,900

General Journal

Date Account Titles Dec. 31 Service Revenue ........................................ Income Summary ............................

Ref. 400 350

Debit 44,000

Income Summary....................................... Repair Expense................................ Depreciation Expense ................... Insurance Expense......................... Salaries Expense............................. Utilities Expense..............................

350 622 711 722 726 732

48,600

S. Woods, Capital ...................................... Income Summary ............................

301 350

4,600

S. Woods, Capital ...................................... S. Woods, Drawing .........................

301 306

7,200

31

31

31

4-41

Credit 44,000

5,400 2,800 1,200 35,200 4,000

4,600

7,200

PROBLEM 4-3A (Continued) (c) 12/31 12/31

S. Woods, Capital No. 301 4,600 12/31 Bal. 34,000 7,200 12/31 Bal. 22,200

Repair Expense 5,400 12/31

12/31 Bal.

No. 622 5,400

Depreciation Expense No. 711 12/31 Bal. 2,800 12/31 2,800 12/31 Bal.

S. Woods, Drawing 7,200 12/31

No. 306 7,200 12/31 Bal.

12/31

12/31

(d)

Income Summary 48,600 12/31 12/31 48,600

Insurance Expense 1,200 12/31

No. 722 1,200

No. 350 44,000 4,600 48,600

Salaries Expense 12/31 Bal. 35,200 12/31

No. 726 35,200

Service Revenue No. 400 44,000 12/31 Bal. 44,000

Utilities Expense 12/31 Bal. 4,000 12/31

No. 732 4,000

WOODS COMPANY Post-Closing Trial Balance December 31, 2008 Cash................................................................................. Accounts Receivable ................................................. Prepaid Insurance....................................................... Equipment ..................................................................... Accumulated Depreciation....................................... Accounts Payable ....................................................... Salaries Payable .......................................................... S. Woods, Capital........................................................ Totals

4-42

Debit $ 8,200 7,500 1,800 28,000

$45,500

Credit

$ 8,600 11,700 3,000 22,200 $45,500

Account Titles

4-43 277,500

36,200 14,600 3,700 50,000 109,700

Cr.

105,000 30,500 9,400 16,900 18,000 6,000 491,700 491,700

14,000

41,400 18,600 31,900 80,000 120,000

Dr.

Trial Balance

(c)

55,100

6,000 (e)

3,000 55,100

3,000 504,700 504,700

6,000

279,200

Cr.

239,200 279,200 40,000 279,200 279,200

6,000

23,000 17,400 4,000

279,200

23,000 17,400

14,000

Dr.

(b) 23,000 (a) 17,400 4,000

1,700

42,200 14,600 2,000 50,000 109,700

Cr.

3,000 4,000

(f)

(d)

6,000

41,400 1,200 8,900 80,000 120,000

Dr.

Income Statement

105,000 30,500 9,400 16,900 21,000 10,000

1,700

(c)

(a) 17,400 (b) 23,000

Cr.


105,000 30,500 9,400 16,900 21,000 10,000

(e) (f)

(d)

Dr.

Adjustments

DISNEY AMUSEMENT PARK Worksheet For the Year Ended September 30, 2008

265,500

265,500

14,000

41,400 1,200 8,900 80,000 120,000

Dr.

3,000 225,500 40,000 265,500

4,000

42,200 14,600 2,000 50,000 109,700

Cr.

Balance Sheet

Key: (a) Supplies Used; (b) Expired Insurance; (c) Depreciation Expensed; (d) Admissions Revenue Earned; (e) Accrued Property Taxes; (f) Accrued Interest Payable.

Cash Supplies Prepaid Insurance Land Equipment Accumulated Depreciation Accounts Payable Unearned Admissions Revenue Mortgage Note Payable L. Disney, Capital L. Disney, Drawing Admissions Revenue Salaries Expense Repair Expense Advertising Expense Utilities Expense Property Taxes Expense Interest Expense Totals Insurance Expense Supplies Expense Interest Payable Depreciation Expense Property Taxes Payable Totals Net Income Totals

(a)

PROBLEM 4-4A


DISNEY AMUSEMENT PARK Balance Sheet September 30, 2008 Assets Current assets Cash...................................................... Supplies .............................................. Prepaid insurance............................ Total current assets ............... Property, plant, and equipment Land...................................................... Equipment .......................................... Less: Accum. depreciation.......... Total assets...............................

$ 41,400 1,200 8,900 51,500 $80,000 $120,000 42,200

77,800

157,800 $209,300

Liabilities and Owner’s Equity Current liabilities Current maturity of mortgage note payable.................................. Accounts payable ............................ Interest payable ................................ Property taxes payable .................. Unearned admissions revenue ........................................... Total current liabilities........... Long-term liabilities Mortgage note payable................... Total liabilities .......................... Owner’s equity L. Disney, Capital ($109,700 + $40,000 – $14,000) ........ Total liabilities and owner’s equity .....................

4-44

$ 10,000 14,600 4,000 3,000 2,000 33,600 40,000 73,600

135,700 $209,300

PROBLEM 4-4A (Continued) (c) Sept. 30

30

30

30

30

30

(d) Sept. 30

30

30

30

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

17,400

Insurance Expense ................................... Prepaid Insurance ............................

23,000

Depreciation Expense.............................. Accumulated Depreciation ............

6,000

Unearned Admissions Revenue ........... Admissions Revenue ......................

1,700

Property Taxes Expense ......................... Property Taxes Payable..................

3,000

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

4,000

Admissions Revenue ............................... Income Summary..............................

279,200

Income Summary....................................... Salaries Expense .............................. Repair Expense ................................. Insurance Expense........................... Property Taxes Expense ................ Supplies Expense............................. Utilities Expense ............................... Interest Expense ............................... Advertising Expense ....................... Depreciation Expense .....................

239,200

Income Summary....................................... L. Disney, Capital..............................

40,000

L. Disney, Capital....................................... L. Disney, Drawing ...........................

14,000

4-45

17,400

23,000

6,000

1,700

3,000

4,000

279,200

105,000 30,500 23,000 21,000 17,400 16,900 10,000 9,400 6,000

40,000

14,000

PROBLEM 4-4A (Continued) (e)

DISNEY AMUSEMENT PARK Post-Closing Trial Balance September 30, 2008 Cash ................................................................................ Supplies ......................................................................... Prepaid Insurance....................................................... Land................................................................................. Equipment ..................................................................... Accumulated Depreciation ...................................... Accounts Payable....................................................... Interest Payable........................................................... Property Taxes Payable............................................ Unearned Admissions Revenue ............................ Mortgage Note Payable............................................. L. Disney, Capital ........................................................

Debit $ 41,400 1,200 8,900 80,000 120,000

$251,500

4-46

Credit

$ 42,200 14,600 4,000 3,000 2,000 50,000 135,700 $251,500

PROBLEM 4-5A

(a)

General Journal

Date Mar. 1

1

3

5

14

18

20

21

28

31

31

Account Titles and Explanation Cash ............................................................. L. Eddy, Capital .............................

Ref. 101 301

Debit 10,000

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

157 101 201

6,000

Cleaning Supplies ................................... Accounts Payable.........................

128 201

1,200

Prepaid Insurance ................................... Cash ..................................................

130 101

1,200

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

112 400

4,800

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

201 101

2,000

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

726 101

1,800

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

101 112

1,400

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

112 400

2,500

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

633 101

200

L. Eddy, Drawing...................................... Cash ..................................................

306 101

700

4-47

J1 Credit 10,000

3,000 3,000

1,200

1,200

4,800

2,000

1,800

1,400

2,500

200

700

Account Titles

4-48 200 1,800 19,500

700

2,500 5,900 1,200 1,200 6,000

19,500

7,300

2,200 10,000

100 800

(c) (d) 2,350

250

500

700

(b)

(e)

(a)

(e)

(b)

(a)

(d) (c)

500 2,350

250

700

800 100

Cr.

Dr.

Dr.

Cr.

Adjustments

Trial Balance

20,950

100 800

250

200 2,300

700

2,500 6,600 400 1,100 6,000

Dr.

500 20,950

250

8,000

2,200 10,000

Cr.


EDDY’S CARPET CLEANERS Worksheet For the Month Ended March 31, 2008

3,650 4,350 8,000

100 800

250

200 2,300

Dr.

17,300 17,300

8,000

700

2,500 6,600 400 1,100 6,000

Dr.

500 12,950 4,350 17,300

250

2,200 10,000

Cr.

Balance Sheet

8,000

8,000

Cr.

Income Statement

Key: (a) Service Revenue Earned; (b) Depreciation Expensed; (c) Insurance Expired; (d) Cleaning Supplies Used; (e) Unpaid Salaries.

Cash Accounts Receivable Cleaning Supplies Prepaid Insurance Equipment Accounts Payable L. Eddy, Capital L. Eddy, Drawing Service Revenue Gas & Oil Expense Salaries Expense Totals Depreciation Expense Accum. Depr.—Equipment Insurance Expense Cleaning Supplies Expense Salaries Payable Totals Net Income Totals

(b) & (c)


PROBLEM 4-5A (Continued) (a), (e) & (f)

Date Mar. 1 1 5 18 20 21 31 31

Date Mar. 14 21 28 31

Date Mar. 3 31

Date Mar. 5 31

Date Mar. 1

Explanation

Explanation

Adjusting

Explanation Adjusting


Explanation

Cash Ref. J1 J1 J1 J1 J1 J1 J1 J1

Debit 10,000

3,000 1,200 2,000 1,800 1,400 200 700

Accounts Receivable Ref. Debit J1 4,800 J1 J1 2,500 J2 700

Cleaning Supplies Ref. Debit J1 1,200 J2

Prepaid Insurance Ref. Debit J1 1,200 J2

Equipment Ref. J1

4-49

Credit

Debit 6,000

Credit 1,400

Credit 800

Credit 100

Credit

No. 101 Balance 10,000 7,000 5,800 3,800 2,000 3,400 3,200 2,500

No. 112 Balance 4,800 3,400 5,900 6,600

No. 128 Balance 1,200 400

No. 130 Balance 1,200 1,100

No. 157 Balance 6,000


Date Mar. 31

Date Mar. 1 3 18

Date Mar. 31

Date Mar. 1 31 31

Date Mar. 31 31

Date Mar. 31 31 31

Accumulated Depreciation—Equipment Explanation Ref. Debit Credit Adjusting J2 250

Explanation


Explanation Closing Closing

Accounts Payable Ref. Debit J1 J1 J1 2,000

Salaries Payable Ref. Debit J2

L. Eddy, Capital Ref. Debit J1 J3 J3 700

Closing

L. Eddy, Drawing Ref. Debit J1 700 J3

Explanation Closing Closing Closing


Explanation

4-50

Credit 3,000 1,200

Credit 500

Credit 10,000 4,350

Credit 700

Credit 8,000

No. 158 Balance 250

No. 201 Balance 3,000 4,200 2,200

No. 212 Balance 500

No. 301 Balance 10,000 14,350 13,650

No. 306 Balance 700 0

No. 350 Balance 8,000 4,350 0


Date Mar. 14 28 31 31

Date Mar. 31 31

Explanation

Adjusting Closing

Explanation Closing

Service Revenue Ref. Debit J1 J1 J2 J3 8,000 Gas & Oil Expense Ref. Debit J1 200 J3

Date Mar. 31 31

Cleaning Supplies Expense Explanation Ref. Debit Adjusting J2 800 Closing J3

Date Mar. 31 31

Explanation Adjusting Closing

Depreciation Expense Ref. Debit J2 250 J3


Insurance Expense Ref. Debit J2 100 J3

Date Mar. 31 31

Date Mar. 20 31 31


Salaries Expense Ref. Debit J1 1,800 J2 500 J3

4-51

Credit 4,800 2,500 700

No. 400 Balance 4,800 7,300 8,000 0

Credit


200

Credit 800

Credit 250

Credit 100

Credit

2,300

No. 634 Balance 800 0 No. 711 Balance 250 0 No. 722 Balance 100 0 No. 726 Balance 1,800 2,300 0

PROBLEM 4-5A (Continued) (d)

EDDY’S CARPET CLEANERS Income Statement For the Month Ended March 31, 2008 Revenues Service revenue..................................................... Expenses Salaries expense ................................................... Cleaning supplies expense................................ Depreciation expense.......................................... Gas & oil expense ................................................. Insurance expense ............................................... Total expenses.............................................. Net income .......................................................................

$8,000 $2,300 800 250 200 100 3,650 $4,350

EDDY’S CARPET CLEANERS Owner’s Equity Statement For the Month Ended March 31, 2008 L. Eddy, Capital, March 1............................................. Add: Investments......................................................... Net income .......................................................... Less: Drawings.............................................................. L. Eddy, Capital, March 31 ..........................................

$ $10,000 4,350

0

14,350 14,350 700 $13,650

EDDY’S CARPET CLEANERS Balance Sheet March 31, 2008 Assets Current assets Cash........................................................................... Accounts receivable ............................................ Cleaning supplies ................................................. Prepaid insurance................................................. Total current assets ....................................

4-52

$ 2,500 6,600 400 1,100 10,600

PROBLEM 4-5A (Continued) EDDY’S CARPET CLEANERS Balance Sheet (Continued) March 31, 2008 Assets (Continued) Property, plant, and equipment Equipment................................................................. Less: Accumulated depreciation ..................... Total assets .....................................................

$6,000 250

5,750 $16,350

Liabilities and Owner’s Equity Current liabilities Accounts payable................................................... Salaries payable...................................................... Total current liabilities ................................. Owner’s equity L. Eddy, Capital ....................................................... Total liabilities and owner’s equity............................................................. (e)

$ 2,200 500 2,700 13,650 $16,350

General Journal

Date Mar. 31

31

31

31

31

Account Titles and Explanation Accounts Receivable............................. Service Revenue ...........................

Ref. 112 400

Debit 700

Depreciation Expense ........................... Accumulated Depreciation— Equipment ..................................

711

250

Insurance Expense................................. Prepaid Insurance ........................

722 130

100

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

634 128

800

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

726 212

500

4-53

J2 Credit 700

158

250

100

800

500

PROBLEM 4-5A (Continued) (f)

General Journal

Date Mar. 31

(g)

Account Titles and Explanation Service Revenue ...................................... Income Summary...........................

Ref. 400 350

Debit 8,000

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

350 726 711 722 634 633

3,650

31 Income Summary ..................................... L. Eddy, Capital ..............................

350 301

4,350

31 L. Eddy, Capital......................................... L. Eddy, Drawing............................

301 306

700

J3 Credit 8,000

2,300 250 100 800 200

4,350

700

EDDY’S CARPET CLEANERS Post-Closing Trial Balance March 31, 2008

Cash ................................................................................ Accounts Receivable................................................. Cleaning Supplies....................................................... Prepaid Insurance....................................................... Equipment ..................................................................... Accumulated Depreciation—Equipment............. Accounts Payable....................................................... Salaries Payable.......................................................... L. Eddy, Capital............................................................ 000,000

4-54

Debit $ 2,500 6,600 400 1,100 6,000

Credit

$

$16,600

250 2,200 500 13,650 $16,600

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

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

Equipment ........................... Cash................................

4.

5.

Misc. Expense .................... Cash................................

2.

3.

Cash ...................................... Accts. Receivable .......

(1) INCORRECT ENTRY

1.

(a)

4-55 59

290

1,900

65

960

59

290

1,900

65

960 65

690

65

690

Repair Expense.................. Cash ................................

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

95

290

95

290

Salaries Expense............... 1,200 Salaries Payable ................ 700 Cash ................................ 1,900

Advertising Expense ........ Cash ................................

Cash....................................... Accts. Receivable .......

(2) CORRECT ENTRY

65 65

Repair Expense ................... Cash.................................. Equipment.......................

95 36 59

Equipment............................. 290 Supplies........................... 290

Salaries Payable.................. 700 Salaries Expense .......... 700

Advertising Expense ......... Misc. Expense ...............

Accounts Receivable......... 270 Cash.................................. 270

(3) CORRECTING ENTRY

PROBLEM 4-6A


FOX CABLE Trial Balance April 30, 2008 Cash ($4,100 – $270 – $36)....................................... Accounts Receivable ($3,200 + $270) .................. Supplies ($800 – $290) .............................................. Equipment ($10,600 + $290 – $59)......................... Accumulated Depreciation ...................................... Accounts Payable....................................................... Salaries Payable ($700 – $700) ............................... Unearned Revenue ..................................................... A. Manion, Capital....................................................... Service Revenue ......................................................... Salaries Expense ($3,300 – $700) .......................... Advertising Expense ($600 + $65)......................... Miscellaneous Expense ($290 – $65) ................... Repair Expense............................................................ Depreciation Expense ...............................................

4-56

Debit $ 3,794 3,470 510 10,831

Credit

$ 1,350 2,100 0 890 12,900 5,450 2,600 665 225 95 500 $22,690

$22,690

Account Titles

4-57 700 200 12,900

600

2,500 1,800 1,100 6,000

12,900

3,500

700 1,400 300 7,000

(a) (b)

(d)

(c)

1,580

860 200

350

170

(d)

350 1,580

170

200

(b)

(c)

860

(a)

Cr.

Dr.

Dr.

Cr.

Adjustments

Trial Balance

13,450

860 200

1,050 200

600

2,500 1,800 240 6,000

Dr.

350 13,450

3,670

900 1,400 130 7,000

Cr.


EVERLAST ROOFING Worksheet For the Month Ended March 31, 2008

2,310 1,360 3,670

860 200

1,050 200

Dr.

11,140 11,140

3,670

600

2,500 1,800 240 6,000

Dr.

350 9,780 1,360 11,140

900 1,400 130 7,000

Cr.

Balance Sheet

3,670

3,670

Cr.

Income Statement

Key: (a) Supplies Used; (b) Depreciation Expensed; (c) Service Revenue Earned; (d) Salaries Accrued.

Cash Accounts Receivable Roofing Supplies Equipment Accumulated Depreciation Accounts Payable Unearned Revenue J. Watt, Capital J. Watt, Drawing Service Revenue Salaries Expense Miscellaneous Expense Totals Supplies Expense Depreciation Expense Salaries Payable Totals Net Income Totals

(a)

PROBLEM 4-1B

PROBLEM 4-1B (Continued) (b)

EVERLAST ROOFING Income Statement For the Month Ended March 31, 2008 Revenues Service revenue.......................................................... Expenses Salaries expense ........................................................ Supplies expense....................................................... Depreciation expense............................................... Miscellaneous expense............................................ Total expenses................................................... Net income ............................................................................

$3,670 $1,050 860 200 200 2,310 $1,360

EVERLAST ROOFING Owner’s Equity Statement For the Month Ended March 31, 2008 J. Watt, Capital, March 1 ....................................................................... Add: Net income ................................................................................... Less: Drawings....................................................................................... J. Watt, Capital, March 31.....................................................................

$7,000 1,360 8,360 600 $7,760

EVERLAST ROOFING Balance Sheet March 31, 2008 Assets Current assets Cash................................................................................ Accounts receivable ................................................. Roofing supplies ........................................................ Total current assets ......................................... Property, plant, and equipment Equipment .................................................................... Less: Accum. depreciation—equipment........... Total assets......................................................... 4-58

$2,500 1,800 240 4,540 $6,000 900

5,100 $9,640

PROBLEM 4-1B (Continued) EVERLAST ROOFING Balance Sheet (Continued) March 31, 2008 Liabilities and Owner’s Equity Current liabilities Accounts payable........................................................................... Salaries payable.............................................................................. Unearned revenue .......................................................................... Total current liabilities ......................................................... Owner’s equity J. Watt, Capital................................................................................. Total liabilities and owner’s equity.................................. (c) Mar. 31 31 31 31

(d) Mar. 31 31

31 31

Supplies Expense................................................. Roofing Supplies .........................................

860

Depreciation Expense......................................... Accumulated Depreciation.......................

200

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

170

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

350

Service Revenue................................................... Income Summary.........................................

3,670

Income Summary ................................................. Salaries Expense ......................................... Supplies Expense........................................ Depreciation Expense................................ Miscellaneous Expense.............................

2,310

Income Summary ................................................. J. Watt, Capital .............................................

1,360

J. Watt, Capital ...................................................... J. Watt, Drawing...........................................

600

4-59

$1,400 350 130 1,880 7,760 $9,640

860 200 170 350

3,670 1,050 860 200 200 1,360 600

PROBLEM 4-2B

(a)

SPARKS COMPANY Partial Worksheet For the Year Ended December 31, 2008

Account No. 101 112 126 130 151 152 200 201 212 230 301 306 400 610 631 711 722 726 905

Titles Cash Accounts Receivable Supplies Prepaid Insurance Office Equipment Acc. Depr.—Off. Equip. Notes Payable Accounts Payable Salaries Payable Interest Payable B. Sparks, Capital B. Sparks, Drawing Service Revenue Advertising Expense Supplies Expense Depreciation Expense Insurance Expense Salaries Expense Interest Expense Totals Net Income Totals

Adjusted Trial Balance Dr. 11,600 15,400 2,000 2,800 34,000

Cr.


Cr.

Balance Sheet Dr. 11,600 15,400 2,000 2,800 34,000

8,000 20,000 9,000 3,500 800 25,000

8,000 20,000 9,000 3,500 800 25,000

10,000

10,000 85,000

12,000 5,700 8,000 5,000 44,000 800 151,300

Cr.

151,300

4-60

85,000 12,000 5,700 8,000 5,000 44,000 800 75,500 9,500 85,000

85,000

75,800

85,000

75,800

66,300 9,500 75,800


SPARKS COMPANY Income Statement For the Year Ended December 31, 2008 Revenues Service revenue ..................................................... Expenses Salaries expense.................................................... Advertising expense............................................. Depreciation expense .......................................... Supplies expense .................................................. Insurance expense ................................................ Interest expense..................................................... Total expenses .............................................. Net income........................................................................

$85,000 $44,000 12,000 8,000 5,700 5,000 800 75,500 $ 9,500

SPARKS COMPANY Owner’s Equity Statement For the Year Ended December 31, 2008 B. Sparks, Capital, January 1 .......................................................... Add: Net income................................................................................ Less: Drawings ................................................................................... B. Sparks, Capital, December 31....................................................

4-61

$25,000 9,500 34,500 10,000 $24,500

PROBLEM 4-2B (Continued) SPARKS COMPANY Balance Sheet December 31, 2008 Assets Current assets Cash........................................................................... Accounts receivable ............................................ Supplies ................................................................... Prepaid insurance................................................. Total current assets .................................... Property, plant, and equipment Office equipment................................................... Less: Accumulated depreciation.................... Total assets....................................................

$11,600 15,400 2,000 2,800 31,800 $34,000 8,000

26,000 $57,800

Liabilities and Owner’s Equity Current liabilities Notes payable......................................................... Accounts payable ................................................. Salaries payable .................................................... Interest payable ..................................................... Total current liabilities................................ Long-term liabilities Notes payable......................................................... Total liabilities ............................................... Owner’s equity B. Sparks, Capital ................................................. Total liabilities and owner’s equity ...........................................................

4-62

$10,000 9,000 3,500 800 23,300 10,000 33,300 24,500 $57,800

PROBLEM 4-2B (Continued) (c)

General Journal

Date Account Titles and Explanation Ref. Dec. 31 Service Revenue......................................... 400 Income Summary............................. 350

Debit 85,000

31 Income Summary ....................................... Advertising Expense ...................... Supplies Expense............................ Depreciation Expense .................... Insurance Expense.......................... Salaries Expense ............................. Interest Expense ..............................

350 610 631 711 722 726 905

75,500

31 Income Summary ....................................... B. Sparks, Capital ............................

350 301

9,500

31 B. Sparks, Capital....................................... B. Sparks, Drawing..........................

301 306

10,000

J14 Credit 85,000

12,000 5,700 8,000 5,000 44,000 800

9,500

10,000

(d)

Date Jan. 1 Dec. 31 31

Date

Explanation Balance Closing entry Closing entry

B. Sparks, Capital Ref. Debit J14 J14 10,000

Explanation

B. Sparks, Drawing Ref. Debit

Dec. 31 Balance 31 Closing entry

J14

4-63

Credit 25,000 9,500

No. 301 Balance 25,000 34,500 24,500

Credit

No. 306 Balance

10,000

10,000 0

10,000

PROBLEM 4-2B (Continued)

Explanation Closing entry Closing entry Closing entry



Service Revenue Ref. Debit J14 85,000


Advertising Expense Ref. Debit 12,000 J14

Date Dec. 31 31


Supplies Expense Ref. Debit 5,700 J14

Date Dec. 31 31

Depreciation Expense Explanation Ref. Debit Balance 8,000 Closing entry J14

Date Dec.

Date Dec.

Date Dec.

Date Dec.

31 31 31

31 31

31 31

31 31


Insurance Expense Ref. Debit 5,000 J14

4-64

Credit 85,000

No. 350 Balance 85,000 9,500 0

Credit 85,000

No. 400 Balance 85,000 0

Credit 12,000

Credit 5,700

Credit 8,000

Credit 5,000

No. 610 Balance 12,000 0

No. 631 Balance 5,700 0

No. 711 Balance 8,000 0

No. 722 Balance 5,000 0


Date Dec. 31 31

Date Dec. 31 31

(e)


Salaries Expense Ref. Debit 44,000 J14


Interest Expense Ref. Debit 800 J14

Credit 44,000

Credit 800

No. 726 Balance 44,000 0


SPARKS COMPANY Post-Closing Trial Balance December 31, 2008 Cash ................................................................................. Accounts Receivable.................................................. Supplies.......................................................................... Prepaid Insurance ....................................................... Office Equipment......................................................... Accumulated Depreciation—Office Equipment ................................................................. Notes Payable............................................................... Accounts Payable........................................................ Salaries Payable .......................................................... Interest Payable ........................................................... B. Sparks, Capital ........................................................ Totals

4-65

Debit $11,600 15,400 2,000 2,800 34,000

$65,800

Credit

$ 8,000 20,000 9,000 3,500 800 24,500 $65,800

PROBLEM 4-3B

(a)

MOLINDA COMPANY Income Statement For the Year Ended December 31, 2008 Revenues Service revenue..................................................... Expenses Salaries expense ................................................... Depreciation expense.......................................... Insurance expense ............................................... Repair expense ...................................................... Utilities expense .................................................... Total expenses.............................................. Net income .......................................................................

$69,000 $37,000 2,600 2,200 2,000 1,700 45,500 $23,500

MOLINDA COMPANY Owner’s Equity Statement For the Year Ended December 31, 2008 Ann Molinda, Capital, January 1 ............................................. Add: Net income ........................................................................ Less: Drawings............................................................................ Ann Molinda, Capital, December 31.......................................

$36,000 23,500 59,500 14,000 $45,500

MOLINDA COMPANY Balance Sheet December 31, 2008 Assets Current assets Cash........................................................................... Accounts receivable ............................................ Prepaid insurance................................................. Total current assets .................................... Property, plant, and equipment Equipment ............................................................... Less: Accumulated depreciation.................... Total assets.................................................... 4-66

$22,400 13,500 3,500 39,400 $26,000 5,600

20,400 $59,800

PROBLEM 4-3B (Continued) MOLINDA COMPANY Balance Sheet (Continued) December 31, 2008 Liabilities and Owner’s Equity Current liabilities Accounts payable....................................................................... Salaries payable.......................................................................... Total current liabilities ..................................................... Owner’s equity Ann Molinda, Capital ................................................................. Total liabilities and owner’s equity.................................................................................

(b)

$11,300 3,000 14,300 45,500 $59,800

General Journal

Date Dec. 31

31

31

31

Account Titles and Explanation Service Revenue......................................... Income Summary.............................

Ref. 400 350

Debit 69,000

Income Summary........................................ Repair Expense ................................ Depreciation Expense .................... Insurance Expense.......................... Salaries Expense ............................. Utilities Expense ..............................

350 622 711 722 726 732

45,500

Income Summary........................................ Ann Molinda, Capital.......................

350 301

23,500

Ann Molinda, Capital ................................. Ann Molinda, Drawing ....................

301 306

14,000

4-67

Credit 69,000

2,000 2,600 2,200 37,000 1,700

23,500

14,000

PROBLEM 4-3B (Continued) (c) 12/31

Ann Molinda, Capital No. 301 14,000 1/1 Bal. 36,000 12/31 23,500 12/31 Bal. 45,500

Repair Expense 2,000 12/31

12/31 Bal.

No. 622 2,000

Depreciation Expense No. 711 12/31 Bal. 2,600 12/31 2,600 Ann Molinda, Drawing No. 306 12/31 Bal. 14,000 12/31 14,000

12/31 12/31

12/31

(d)

Income Summary 45,500 12/31 23,500 69,000

Insurance Expense 12/31 Bal. 2,200 12/31

No. 722 2,200

Salaries Expense 12/31 Bal. 37,000 12/31

No. 726 37,000

Utilities Expense 1,700 12/31

No. 732 1,700

No. 350 69,000 69,000

Service Revenue No. 400 69,000 12/31 Bal. 69,000

12/31 Bal.

MOLINDA COMPANY Post-Closing Trial Balance December 31, 2008 Cash ................................................................................ Accounts Receivable................................................. Prepaid Insurance....................................................... Equipment ..................................................................... Accumulated Depreciation ...................................... Accounts Payable....................................................... Salaries Payable.......................................................... Ann Molinda, Capital.................................................. Totals

4-68

Debit $22,400 13,500 3,500 26,000

$65,400

Credit

$ 5,600 11,300 3,000 45,500 $65,400

Account Titles

4-69 35,000 17,000 15,800 335,000

18,000

11,500 23,600 3,100 56,000 106,000 49,000

Dr.

335,000

75,600 24,000

10,400 5,000 100,000 120,000

Cr.

Trial Balance

3,900 9,000

(c) (e)

19,300

1,700 2,500

2,200

(a) (b)

(d)

Dr.

(e)

(c)

9,000

3,900

1,700 2,500

35,000 17,000 15,800

18,000

11,500 23,600 1,400 56,000 106,000 49,000

Dr.

9,000 350,400

3,900

2,500

75,600 26,200

10,400 2,800 100,000 120,000

Cr.


9,000 19,300 350,400

3,900

(b) 2,500

(d) 2,200

(a) 1,700

Cr.

Adjustments

PETTENGILL MANAGEMENT SERVICES Worksheet For the Year Ended December 31, 2008

84,900 16,900 101,800

9,000

3,900

1,700 2,500

35,000 17,000 15,800

Dr.

265,500 265,500

101,800

18,000

11,500 23,600 1,400 56,000 106,000 49,000

9,000 248,600 16,900 265,500

3,900

2,500

10,400 2,800 100,000 120,000

Cr.

Balance Sheet Dr.

101,800

75,600 26,200

Cr.

Income Statement

Key: (a) Expired Insurance; (b) Depreciation Expense—Building; (c) Depreciation Expense—Equipment; (d) Rent Revenue Earned; (e) Accrued Interest Payable.

Cash Accounts Receivable Prepaid Insurance Land Building Equipment Accounts Payable Unearned Rent Revenue Mortgage Note Payable G. Pettengill, Capital G. Pettengill, Drawing Service Revenue Rent Revenue Salaries Expense Advertising Expense Utilities Expense Totals Insurance Expense Depr. Expense—Building Accum. Depr.—Building Depr. Expense—Equipment Accum. Depr.—Equipment Interest Expense Interest Payable Totals Net Income Totals

(a)

PROBLEM 4-4B


PETTENGILL MANAGEMENT SERVICES Balance Sheet December 31, 2008 Assets Current assets Cash ................................................... Accounts receivable ..................... Prepaid insurance ......................... Total current assets ............. Property, plant, and equipment Land ................................................... Building............................................. Less: Accumulated depreciation—building............ Equipment........................................ Less: Accumulated depreciation—equipment ....... Total assets ............................

$ 11,500 23,600 1,400 36,500 $ 56,000 $106,000 2,500 49,000

103,500

3,900

45,100

204,600 $241,100

Liabilities and Owner’s Equity Current liabilities Current maturity of mortgage note payable ...................... Accounts payable....................................................................... Interest payable........................................................................... Unearned rent revenue ............................................................. Total current liabilities ..................................................... Long-term liabilities Mortgage note payable ............................................................. Total liabilities..................................................................... Owner’s equity G. Pettengill, Capital ($120,000 – $18,000 + $16,900)........... Total liabilities and owner’s equity..............................

4-70

$ 10,000 10,400 9,000 2,800 32,200 90,000 122,200 118,900 $241,100

PROBLEM 4-4B (Continued) (c) Dec. 31

31

31

31

31

(d) Dec. 31

31

31

31

Insurance Expense...................................... Prepaid Insurance ..............................

1,700

Depreciation Expense—Building ........... Accumulated Depreciation— Building .............................................

2,500

Depreciation Expense—Equipment ...... Accumulated Depreciation— Equipment ........................................

3,900

Unearned Rent Revenue ........................... Rent Revenue.......................................

2,200

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

9,000

Service Revenue .......................................... Rent Revenue................................................ Income Summary................................

75,600 26,200

Income Summary......................................... Salaries Expense ................................ Advertising Expense ......................... Interest Expense ................................. Utilities Expense ................................. Depreciation Expense— Equipment ........................................ Depreciation Expense— Building ............................................. Insurance Expense.............................

84,900

Income Summary......................................... G. Pettengill, Capital ..........................

16,900

G. Pettengill, Capital ................................... G. Pettengill, Drawing........................

18,000

4-71

1,700

2,500

3,900

2,200

9,000

101,800

35,000 17,000 9,000 15,800 3,900 2,500 1,700

16,900

18,000

PROBLEM 4-4B (Continued) (e)

PETTENGILL MANAGEMENT SERVICES Post-Closing Trial Balance December 31, 2008 Cash ............................................................................ Accounts Receivable............................................. Prepaid Insurance .................................................. Land ............................................................................ Building...................................................................... Accumulated Depreciation—Building ............. Equipment................................................................. Accumulated Depreciation—Equipment ........ Accounts Payable................................................... Interest Payable ...................................................... Unearned Rent Revenue ...................................... Mortgage Note Payable ........................................ G. Pettengill, Capital ..............................................

Debit $ 11,500 23,600 1,400 56,000 106,000 $

2,500

49,000

$247,500

4-72

Credit

3,900 10,400 9,000 2,800 100,000 118,900 $247,500

PROBLEM 4-5B

(a)

General Journal

Date July 1

1

3

5

12

18

20

21

25

31

31

Account Titles and Explanation Cash .............................................................. Lee Choi, Capital ............................

Ref. 101 301

Debit 12,000

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

157 101 201

6,000

Cleaning Supplies .................................... Accounts Payable ..........................

128 201

1,300

Prepaid Insurance .................................... Cash....................................................

130 101

2,400

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

112 400

2,500

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

201 101

1,800

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

726 101

1,200

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

101 112

1,400

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

112 400

5,000

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

633 101

200

Lee Choi, Drawing .................................... Cash....................................................

306 101

900

4-73

J1 Credit 12,000

3,000 3,000

1,300

2,400

2,500

1,800

1,200

1,400

5,000

200

900

4-74 200 1,200 22,000

900

3,900 6,100 1,300 2,400 6,000

22,000

7,500

2,500 12,000

200 900

(c) (d) 3,500

300

600

(b)

(e)

(a) 1,500 900 200

(e)

(b)

600 3,500

300

(a) 1,500

(d) (c)

Cr.

Dr.

Dr.

Cr.

Adjustments

Trial Balance

24,400

200 900

300

200 1,800

900

3,900 7,600 400 2,200 6,000

Dr.

600 24,400

300

9,000

2,500 12,000

Cr.


CHOI’S WINDOW WASHING Worksheet For the Month Ended July 31, 2008

3,400 5,600 9,000

200 900

300

200 1,800

Dr.

21,000 21,000

9,000

900

3,900 7,600 400 2,200 6,000

Dr.

600 15,400 5,600 21,000

300

2,500 12,000

Cr.

Balance Sheet

9,000

9,000

Cr.

Income Statement

Key: (a) Service Revenue Earned; (b) Depreciation Expense; (c) Insurance Expired; (d) Cleaning Supplies Used; (e) Unpaid Salaries.

Cash Accounts Receivable Cleaning Supplies Prepaid Insurance Equipment Accounts Payable Lee Choi, Capital Lee Choi, Drawing Service Revenue Gas & Oil Expense Salaries Expense Totals Depreciation Expense Accum. Depr.—Equipment Insurance Expense Cleaning Supplies Expense Salaries Payable Totals Net Income Totals

Account Titles

(b) & (c)


PROBLEM 4-5B (Continued) (a), (e) & (f)

Date Explanation July 1 1 5 18 20 21 31 31

Date Explanation July 12 21 25 31 Adjusting

Date July 3 31


Date Explanation July 5 31 Adjusting

Date July 1

Explanation


Debit 12,000

3,000 2,400 1,800 1,200 1,400 200 900

Accounts Receivable Ref. Debit J1 2,500 J1 J1 5,000 J2 1,500

Cleaning Supplies Ref. Debit J1 1,300 J2


Equipment Ref. J1

4-75

Credit

Debit 6,000

Credit 1,400

Credit 900

Credit 200

Credit

No. 101 Balance 12,000 9,000 6,600 4,800 3,600 5,000 4,800 3,900

No. 112 Balance 2,500 1,100 6,100 7,600

No. 128 Balance 1,300 400

No. 130 Balance 2,400 2,200



Date July 31

Date July 1 3 18

Date July 31

Date July 1 31 31

Date July 31 31

Date July 31 31 31


Explanation





Lee Choi, Capital Ref. Debit J1 J3 J3 900

Closing

Lee Choi, Drawing Ref. Debit J1 900 J3



Explanation

4-76

Credit 3,000 1,300

Credit 600

Credit 12,000 5,600

Credit 900

Credit 9,000

No. 158 Balance 300

No. 201 Balance 3,000 4,300 2,500

No. 212 Balance 600

No. 301 Balance 12,000 17,600 16,700


No. 350 Balance 9,000 5,600 0


Date July 12 25 31 31

Date July 31 31

Explanation

Adjusting Closing

Explanation Closing


Date July 31 31


Date July 31 31





Date July 31 31

Date July 20 31 31



4-77

Credit 2,500 5,000 1,500

No. 400 Balance 2,500 7,500 9,000 0

Credit


200

Credit 900

Credit 300

Credit 200

Credit

1,800


PROBLEM 4-5B (Continued) (d)

CHOI’S WINDOW WASHING Income Statement For the Month Ended July 31, 2008 Revenues Service revenue....................................................... Expenses Salaries expense..................................................... Cleaning supplies expense ................................. Depreciation expense............................................ Gas & oil expense................................................... Insurance expense ................................................. Total expenses ............................................... Net income.........................................................................

$9,000 $1,800 900 300 200 200 3,400 $5,600

CHOI’S WINDOW WASHING Owner’s Equity Statement For the Month Ended July 31, 2008 Lee Choi, Capital, July 1................................................ Add: Investments .......................................................... Net income............................................................

$ $12,000 5,600

Less: Drawings ............................................................... Lee Choi, Capital, July 31 .............................................

0

17,600 17,600 900 $16,700

CHOI’S WINDOW WASHING Balance Sheet July 31, 2008 Assets Current assets Cash ................................................................................................... Accounts receivable ..................................................................... Cleaning supplies.......................................................................... Prepaid insurance ......................................................................... Total current assets .............................................................

4-78

$3,900 7,600 400 2,200 14,100

PROBLEM 4-5B (Continued) CHOI’S WINDOW WASHING Balance Sheet (Continued) July 31, 2008 Assets (Continued) Property, plant, and equipment Equipment ................................................................. Less: Accumulated depreciation ...................... Total assets ......................................................

$6,000 300

5,700 $19,800

Liabilities and Owner’s Equity Current liabilities Accounts payable ....................................................................... Salaries payable .......................................................................... Total current liabilities...................................................... Owner’s equity Lee Choi, Capital ......................................................................... Total liabilities and owner’s equity...............................

(e)

$ 2,500 600 3,100 16,700 $19,800

General Journal

Date July 31

31

31

31

31

Account Titles and Explanation Accounts Receivable.............................. Service Revenue............................

Ref. 112 400

Debit 1,500

Depreciation Expense ............................ Accumulated Depreciation— Equipment...................................

711

300

Insurance Expense.................................. Prepaid Insurance.........................

722 130

200

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

634 128

900

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

726 212

600

4-79

J2 Credit 1,500

158

300

200

900

600

PROBLEM 4-5B (Continued) (f)

General Journal

Date July 31

31

31

31

(g)

Account Titles and Explanation Service Revenue ....................................... Income Summary ...........................

Ref. 400 350

Debit 9,000

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

350 726 711 722 634 633

3,400

Income Summary...................................... Lee Choi, Capital............................

350 301

5,600

Lee Choi, Capital....................................... Lee Choi, Drawing .........................

301 306

900

J3 Credit 9,000

1,800 300 200 900 200

5,600

900

CHOI’S WINDOW WASHING Post-Closing Trial Balance July 31, 2008 Cash ................................................................................ Accounts Receivable................................................. Cleaning Supplies ...................................................... Prepaid Insurance ...................................................... Equipment..................................................................... Accumulated Depreciation—Equipment ............ Accounts Payable....................................................... Salaries Payable.......................................................... Lee Choi, Capital.........................................................

Debit $ 3,900 7,600 400 2,200 6,000

$

$20,100

4-80

Credit

300 2,500 600 16,700 $20,100

COMPREHENSIVE PROBLEM: CHAPTERS 2 TO 4

(a)

General Journal

Date July 1

1

3

5

12

18

20

21

25

31

31

Account Titles and Explanation Cash .............................................................. Julie Molony, Capital ...................

Ref. 101 301

Debit 14,000

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

157 101 201

10,000

Cleaning Supplies .................................... Accounts Payable.........................

128 201

800

Prepaid Insurance .................................... Cash ..................................................

130 101

1,800

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

112 400

3,800

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

201 101

1,400

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

726 101

1,600

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

101 112

1,400

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

112 400

1,500

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

633 101

400

Julie Molony, Drawing............................. Cash ..................................................

306 101

600

4-81

J1 Credit 14,000

3,000 7,000

800

1,800

3,800

1,400

1,600

1,400

1,500

400

600

4-82 400 1,600 25,700

600

6,600 3,900 800 1,800 10,000

25,700

5,300

6,400 14,000

150 700

(c) (d) 2,850

200

500

(b)

(e)

(a) 1,300 700 150

(e)

(b)

500 2,850

200

(a) 1,300

(d) (c)

Cr.

Dr.

Dr.

Cr.

Adjustments

Trial Balance

27,700

150 700

200

400 2,100

600

6,600 5,200 100 1,650 10,000

Dr.

500 27,700

200

6,600

6,400 14,000

Cr.


JULIE’S MAIDS CLEANING SERVICE Worksheet For the Month Ended July 31, 2008

3,550 3,050 6,600

150 700

200

400 2,100

Dr.

24,150 24,150

6,600

600

6,600 5,200 100 1,650 10,000

Dr.

500 21,100 3,050 24,150

200

6,400 14,000

Cr.

Balance Sheet

6,600

6,600

Cr.

Income Statement

Key: (a) Service Revenue; (b) Depreciation Expense; (c) Insurance Expired; (d) Cleaning Supplies Used; (e) Unpaid Salaries.

Cash Accounts Receivable Cleaning Supplies Prepaid Insurance Equipment Accounts Payable Julie Molony, Capital Julie Molony, Drawing Service Revenue Gas & Oil Expense Salaries Expense Total Depreciation Expense Accum. Depr.—Equipment Insurance Expense Cleaning Supplies Expense Salaries Payable Totals Net Income Totals

Account Titles

(b) & (c)

COMPREHENSIVE PROBLEM (Continued)

COMPREHENSIVE PROBLEM (Continued) (a), (e) & (f)

Date July 1 1 5 18 20 21 31 31

Date July 12 21 25 31

Date July 3 31

Date July 5 31

Date July 1

Explanation

Explanation

Adjusting



Explanation


Debit 14,000

3,000 1,800 1,400 1,600 1,400 400 600

Accounts Receivable Ref. Debit J1 3,800 J1 J1 1,500 J2 1,300

Cleaning Supplies Ref. Debit J1 800 J2


Equipment Ref. J1

4-83

Credit

Debit 10,000

Credit 1,400

Credit 700

Credit 150

Credit

No. 101 Balance 14,000 11,000 9,200 7,800 6,200 7,600 7,200 6,600 No. 112 Balance 3,800 2,400 3,900 5,200

No. 128 Balance 800 100

No. 130 Balance 1,800 1,650



Date July 31

Date July 1 3 18

Date July 31

Date July 1 31 31

Date July 31 31

Date July 31 31 31


Explanation



Explanation Closing




Julie Molony, Capital Ref. Debit J1 J3 J3 600

Julie Molony, Drawing Ref. Debit J1 600 J3


4-84

Credit 7,000 800

Credit 500

Credit 14,000 3,050

Credit 600

Credit 6,600

No. 158 Balance 200

No. 201 Balance 7,000 7,800 6,400

No. 212 Balance 500

No. 301 Balance 14,000 17,050 16,450


No. 350 Balance 6,600 3,050 0


Date July 12 25 31 31

Date July 31 31

Explanation

Adjusting Closing

Explanation Closing


Date July 31 31


Date July 31 31





Date July 31 31

Date July 20 31 31



4-85

Credit 3,800 1,500 1,300

No. 400 Balance 3,800 5,300 6,600 0

Credit


400

Credit 700

Credit 200

Credit 150

Credit

2,100


COMPREHENSIVE PROBLEM (Continued) (d)

JULIE’S MAIDS CLEANING SERVICE Income Statement For the Month Ended July 31, 2008 Revenues Service revenue....................................................... Expenses Salaries expense..................................................... Cleaning supplies expense ................................. Gas & oil expense................................................... Depreciation expense............................................ Insurance expense ................................................. Total expenses ............................................... Net income.........................................................................

$6,600 $2,100 700 400 200 150 3,550 $3,050

JULIE’S MAIDS CLEANING SERVICE Statement of Owner’s Equity For the Month Ended July 31, 2008 Julie Molony, Capital, July 1 ........................................ Add: Investments .......................................................... Net income............................................................ Less: Drawings ............................................................... Julie Molony, Capital, July 31......................................

4-86

$ $14,000 3,050

0

17,050 17,050 600 $16,450

COMPREHENSIVE PROBLEM (Continued) JULIE’S MAIDS CLEANING SERVICE Balance Sheet July 31, 2008 Assets Current assets Cash............................................................................. Accounts receivable............................................... Cleaning supplies ................................................... Prepaid insurance ................................................... Total current assets....................................... Capital assets Equipment ................................................................. Less: Accumulated depreciation ...................... Total assets ......................................................

$ 6,600 5,200 100 1,650 13,550 $10,000 200

9,800 $23,350

Liabilities and Owner’s Equity Current liabilities Accounts payable ................................................... Salaries payable ...................................................... Total current liabilities.................................. Owner’s equity Julie Molony, Capital.............................................. Total liabilities and owner’s equity .............................................................

4-87

$ 6,400 500 6,900 16,450 $23,350

COMPREHENSIVE PROBLEM (Continued) (e)

General Journal

Date July 31

31

31

31

31 (f)

Account Titles and Explanation Accounts Receivable ............................. Service Revenue ...........................

Ref. 112 400

Debit 1,300

Depreciation Expense ........................... Accumulated Depreciation— Equipment ..................................

711

200

Insurance Expense................................. Prepaid Insurance ........................

722 130

150

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

634 128

700

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

726 212

500

J2 Credit 1,300

158

200

150

700

500

General Journal

Date July 31

31

31

31

Account Titles and Explanation Service Revenue...................................... Income Summary..........................

Ref. 400 350

Debit 6,600

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

350 726 711 722 634 633

3,550

Income Summary .................................... Julie Molony, Capital ...................

350 301

3,050

Julie Molony, Capital.............................. Julie Molony, Drawing.................

301 306

600

4-88

J3 Credit 6,600

2,100 200 150 700 400

3,050

600

COMPREHENSIVE PROBLEM (Continued) (g)

JULIE’S MAIDS CLEANING SERVICE Post-Closing Trial Balance July 31, 2008 Cash................................................................................. Accounts Receivable ................................................. Cleaning Supplies....................................................... Prepaid Insurance....................................................... Equipment ..................................................................... Accumulated Depreciation—Equipment ............. Accounts Payable ....................................................... Salaries Payable .......................................................... Julie Molony, Capital..................................................

Debit $ 6,600 5,200 100 1,650 10,000 $

$23,550

4-89

Credit

200 6,400 500 16,450 $23,550

BYP 4-1

FINANCIAL REPORTING PROBLEM

(a)

Total current assets were $10,454 million at December 31, 2005, and $8,639 million at December 25, 2004.

(b)

Current assets are properly listed in the order of liquidity. As you will learn in the next chapter, inventory is considered to be less liquid than receivables. Thus, it is listed below receivables and before prepaid expenses and other current assets.

(c)

The asset classifications are similar to the text: (1) current assets, (2) property, plant, and equipment, (3) intangible assets, and (4) investments.

(d)

Cash equivalents are investments with original maturities of 3 months or less that PepsiCo does not intend to rollover beyond three months.

(e)

Total current liabilities were $9,406 million at December 31, 2005, and $6,752 million at December 25, 2004.

4-90

BYP 4-2

(a) 1. 2. 3. 4.

COMPARATIVE ANALYSIS PROBLEM

(in millions)

PepsiCo

Total current assets Net property, plant & equipment Total current liabilities Total stockholders’ (shareholders’) equity

10,454 8,681 9,406 14,251*

Coca-Cola 10,250 5,786 9,836 16,355

*($31,727 – $17,476) (b) Current assets are cash and other resources that are reasonably expected to be realized in cash or sold or consumed within one year or the company’s operating cycle, whichever is longer. Current liabilities are obligations that are reasonably expected to be paid from existing current assets or through the creation of other current liabilities. In both PepsiCo and Coca-Cola’s case, current assets were slightly greater than current liabilities. From this information, it appears that both are in approximately the same liquidity position. Coca-Cola’s stockholders’ equity represents a larger percentage of     total assets 55.6%  $16,355  than PepsiCo’s 44.9%  $14,251 . As a result,  $31,727   $29,427  Coca-Cola has less debt relative to its total assets than PepsiCo. It therefore appears that Coca-Cola is less likely to default on a debt obligation.

4-91

BYP 4-3

EXPLORING THE WEB

The solution is dependent upon the companies chosen by the student.

4-92

BYP 4-4

(a)

DECISION MAKING ACROSS THE ORGANIZATION

WHITEGLOVES JANITORIAL SERVICE Balance Sheet December 31, 2008 Assets Current assets Cash......................................................... Accounts receivable ($9,000 + $3,700) .............................. Janitorial supplies ($5,200 – $2,700) .............................. Prepaid insurance ($4,800 X 2/3)......... Total current assets................... Property, plant, and equipment Cleaning equipment ($22,000 + $4,000)............................ Less: Accum. depreciation— cleaning equipment ($4,000 + $2,000) ................ Delivery trucks ($34,000 + $5,000)............................ Less: Accum. depreciation— delivery trucks ($5,000 + $5,000) ................ Total assets ..................................

$ 6,500 12,700 2,500 3,200 24,900

$26,000

6,000

$20,000

39,000

10,000

29,000

49,000 $73,900

Liabilities and Owner’s Equity Current liabilities Notes payable due within one year ....................................... Accounts payable ($2,500 + $500)......................................... Interest payable ($25,000 X 10% X 6/12) .............................. Total current liabilities...................................................... Long-term liabilities Notes payable, due July 1, 2010............................................. Total liabilities ..................................................................... Owner’s equity Nancy Kohl, Capital .................................................................... Total liabilities and owner’s equity............................... 4-93

$10,000 3,000 1,250 14,250 15,000 29,250 44,650* $73,900

BYP 4-4 (Continued) WHITEGLOVES JANITORIAL SERVICE Balance Sheet (Continued) December 31, 2008 *Capital balance as reported........................................ Add: Earned but unbilled fees................................. Less: Janitorial supplies used ................................. Insurance expired ($4,800 X 1/3).................. Depreciation ($2,000 + $5,000)...................... Expenses incurred but unpaid ..................... Interest accrued................................................. Total.............................................................. Capital balance as adjusted .......................................

$54,000 3,700 57,700 $2,700 1,600 7,000 500 1,250 13,050 $44,650

(b) Whitegloves Janitorial Service met the terms of the bank loan because current assets exceed current liabilities by $10,650 ($24,900 – $14,250) at December 31, 2008.

4-94

BYP 4-5

COMMUNICATION ACTIVITY

MEMO To:

Accounting Instructor

From:

Student

Re:

Accounting Cycle

The required steps in the accounting cycle, in the order in which they should be completed, are: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Analyze business transactions. Journalize the transactions. Post to ledger accounts. Prepare a trial balance. Journalize and post adjusting entries. Prepare an adjusted trial balance. Prepare financial statements. Journalize and post closing entries. Prepare a post-closing trial balance.

The optional steps in the accounting cycle include preparing a worksheet and preparing reversing entries. If a worksheet is prepared, it is done after step 3 above, and it includes steps 4 and 6. The worksheet is a form used to make it easier to prepare adjusting entries and financial statements. If reversing entries are prepared, they are journalized and posted after step 9, at the beginning of the next accounting period. A reversing entry is the exact opposite of a previously recorded adjusting entry and simplifies the recording of subsequent transactions.

4-95

BYP 4-6

ETHICS CASE

(a) The stakeholders in this case are: You, as controller. Jerry McNabb, president. Users of the company’s financial statements.

(b) The ethical issue is the continued circulation of significantly misstated financial statements. As controller, you have just issued misleading financial statements. You have acted ethically by telling the company’s president. The president has reacted unethically by allowing the misleading financial statements to continue to circulate. (c) As controller, you should impress upon the president the consequences of having those misleading financial statements be detected by some user or the SEC (if you are a public company). Also stress upon him that you have a professional obligation to correct the statements or to resign.

4-96

BYP 4-7

ALL ABOUT YOU ACTIVITY

The following is a personal balance sheet using the classified presentation. Note that the earnings from the part-time job as well as the tuition costs are not listed since neither of those items is an asset, liability, or equity item. Assets Current assets Cash.............................................................................. Money market account ........................................... Certificate of deposit............................................... Accounts receivable from brother...................... Total current assets........................................

$1,200 1,800 3,000 300

Property, plant, and equipment Automobile ................................................................. Video and stereo equipment ................................ Home computer ........................................................ Total assets .......................................................

7,000 1,250 800

$ 6,300

9,050 $15,350

Liabilities and Owner’s Equity Current liabilities Current portion of automobile loan ................... Current portion of credit card payable.............. Total current liabilities................................... Long-term liabilities Automobile loan ....................................................... Student loan............................................................... Credit card payable ................................................. Total long-term liabilities.............................. Total liabilities ........................................... Owner’s equity M. Y. Own, Capital ($15,350 – $12,300) ............. Total liabilities and owner’s equity ........

4-97

$1,500 150 $ 1,650

4,000 5,000 1,650 10,650 12,300

3,050 $15,350

CHAPTER 4

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