CHAPTER 4

COMPLETING THE ACCOUNTING CYCLE

CLASS DISCUSSION QUESTIONS

1. No. The work sheet is a device used by the 2. The second entry closes all income
accountant to facilitate the preparation of statement accounts with debit balances
statements and the recording of adjusting by transferring the total to the debit side
and closing entries. of Income Summary.
2. Net loss. The expenses exceed the 3. The third entry closes Income Summary
revenues. by transferring its balance, the net
3. Net income. The revenues exceed the income or net loss for the year, to the
expenses by $68,500. owner’s capital account.
4. (a) Current assets are composed of cash 4. The fourth entry closes the drawing
and other assets that may reasonably account by transferring its balance to
be expected to be realized in cash or the owner’s capital account.
sold or consumed in the near future 10. a. Expense accounts
through the normal operations of the b. Revenue accounts
business. 11. Owner’s capital account
(b) Property, plant, and equipment is 12. Owner’s capital account
composed of assets used in the
13. The purpose of the post-closing trial balance
business that are of a permanent or
relatively fixed nature. is to make sure that the ledger is in balance
at the beginning of the next period.
5. Current liabilities are liabilities that will be
due within a short time (usually one year or 14. The natural business year is the fiscal year
less) and that are to be paid out of current that ends when business activities have
assets. Liabilities that will not be due for a reached the lowest point in the annual
comparatively long time (usually more than operating cycle.
one year) are called long-term liabilities. 15. January is more likely to have a lower level
6. Revenue, expense, and drawing accounts of business activity than is December for a
are generally referred to as temporary department store. Therefore, the additional
accounts. work to adjust and close the accounts and
7. Closing entries are necessary at the end of prepare the financial statements can more
an accounting period (1) to transfer the easily be performed at the end of January
balances in temporary accounts to than at the end of December.
permanent accounts and (2) to prepare the 16. All the companies listed are general
temporary accounts for use in accumulating merchandisers whose busiest time of the
data for the following accounting period. year is during the holiday season, which
8. Adjusting entries bring the accounts up to extends through most of December.
date, while closing entries reduce the Traditionally, the lowest point of business
revenue, expense, and drawing accounts to activity for general merchandisers will be
zero balances for use in accumulating data near the end of January and the beginning
for the following accounting period.
of February. Thus, these companies have
9. 1. The first entry closes all income chosen their natural business year for their
statement accounts with credit balances
fiscal years.
by transferring the total to the credit side
of Income Summary.

127
 EXERCISES

Ex. 4–1

a. Income statement: 3, 8, 9
b. Balance sheet: 1, 2, 4, 5, 6, 7, 10

Ex. 4–2

a. Asset: 1, 4, 5, 6, 10
b. Liability: 9, 12
c. Revenue: 2, 7
d. Expense: 3, 8, 11

Ex. 4–3

1. c
2. i
3. j
4. h
5. g
6. f
7. e
8. d
9. a
10. b

128
Ex. 4–4

FRANCESCA SERVICES CO.

Work Sheet
For the Year Ended December 31, 2003
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Dr. Cr. Dr. Cr. Dr. Cr.

1 Cash 4 4 1
2 Accounts Receivable 25 (a) 3 28 2
3 Supplies 4 (b) 3 1 3
4 Prepaid Insurance 6 (c) 5 1 4
5 Land 25 25 5
6 Equipment 16 16 6
7 Accum. Depr.—Equip. 1 (d) 2 3 7
8 Accounts Payable 13 13 8
9 Wages Payable 0 (e) 1 1 9
10 Pamela Latham, Capital 56 56 10
11 Pamela Latham, Drawing 4 4 11
12 Fees Earned 30 (a) 3 33 12
13 Wages Expense 8 (e) 1 9 13
14 Rent Expense 4 4 14
15 Insurance Expense 0 (c) 5 5 15
16 Utilities Expense 2 2 16
17 Depreciation Expense 0 (d) 2 2 17
18 Supplies Expense 0 (b) 3 3 18
19 Miscellaneous Expense 2 2 19
20 Totals 100 100 14 14 106 106 20

129
Ex. 4–5

FRANCESCA SERVICES CO.

Work Sheet
For the Year Ended December 31, 2003
Adjusted Income Balance
Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr.

1 Cash 4 4 1
2 Accounts Receivable 28 28 2
3 Supplies 1 1 3
4 Prepaid Insurance 1 1 4
5 Land 25 25 5
6 Equipment 16 16 6
7 Accum. Depr.—Equip. 3 3 7
8 Accounts Payable 13 13 8
9 Wages Payable 1 1 9
10 Pamela Latham, Capital 56 56 10
11 Pamela Latham, Drawing 4 4 11
12 Fees Earned 33 33 12
13 Wages Expense 9 9 13
14 Rent Expense 4 4 14
15 Insurance Expense 5 5 15
16 Utilities Expense 2 2 16
17 Depreciation Expense 2 2 17
18 Supplies Expense 3 3 18
19 Miscellaneous Expense 2 2 19
20 Totals 106 106 27 33 79 73 20
21 Net income (loss) 6 6 21
22 33 33 79 79 22

130
Ex. 4–6
FRANCESCA SERVICES CO.
Income Statement
For the Year Ended December 31, 2003
Fees earned.......................................................................... $33
Expenses:
Wages expense............................................................ $9
Insurance expense....................................................... 5
Rent expense................................................................ 4
Supplies expense......................................................... 3
Utilities expense........................................................... 2
Depreciation expense.................................................. 2
Miscellaneous expense............................................... 2
Total expenses.......................................................... 27
Net income........................................................................... $6

FRANCESCA SERVICES CO.

Statement of Owner’s Equity
For the Year Ended December 31, 2003
Pamela Latham, capital, January 1, 2003......................... $56
Net income for the year...................................................... $6
Less withdrawals................................................................. 4
Increase in owner’s equity................................................. 2
Pamela Latham, capital, December 31, 2003.................... $ 58

FRANCESCA SERVICES CO.

Balance Sheet
December 31, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash.............................. $ 4 Accounts payable........ $13
Accounts receivable. . . 28 Wages payable............. 1
Supplies........................ 1 Total liabilities......... $14
Prepaid insurance....... 1
Total current assets. $34
Property, plant, and Owner’s Equity
equipment: Pamela Latham, capital... 58
Land.............................. $25
Equipment.................... $16
Less accum. depr........ 3 13
Total property, plant,
and equipment 38 Total liabilities and
Total assets...................... $72 owner’s equity........... $72

131
Ex. 4–7

2003
Dec. 31 Accounts Receivable........................................... 3
Fees Earned................................................... 3
31 Supplies Expense................................................. 3
Supplies.......................................................... 3
31 Insurance Expense............................................... 5
Prepaid Insurance......................................... 5
31 Depreciation Expense.......................................... 2
Accumulated Depreciation—Equipment.... 2
31 Wages Expense.................................................... 1
Wages Payable............................................... 1

Ex. 4–8

2003
Dec. 31 Fees Earned.......................................................... 33
Income Summary........................................... 33
31 Income Summary.................................................. 27
Wages Expense............................................. 9
Rent Expense................................................. 4
Insurance Expense........................................ 5
Utilities Expense............................................ 2
Depreciation Expense................................... 2
Supplies Expense.......................................... 3
Miscellaneous Expense................................ 2
31 Income Summary.................................................. 6
Pamela Latham, Capital................................ 6
31 Pamela Latham, Capital....................................... 4
Pamela Latham, Drawing.............................. 4

132
Ex. 4–9

SPEEDY MESSENGER SERVICE

Income Statement
For the Year Ended April 30, 2003
Fees earned.......................................................................... $173,700
Operating expenses:
Salaries expense.......................................................... $37,100
Rent expense................................................................ 12,500
Utilities expense........................................................... 7,500
Depreciation expense.................................................. 4,200
Supplies expense......................................................... 2,750
Insurance expense....................................................... 1,500
Miscellaneous expense............................................... 1,350
Total operating expenses........................................ 66,900
Net income........................................................................... $106,800

Ex. 4–10

PANDA SERVICES CO.

Income Statement
For the Year Ended January 31, 2003
Service revenue................................................................... $101,125
Operating expenses:
Wages expense............................................................ $46,800
Rent expense................................................................ 31,270
Utilities expense........................................................... 8,500
Depreciation expense.................................................. 7,500
Insurance expense....................................................... 3,500
Supplies expense......................................................... 3,100
Miscellaneous expense............................................... 2,250
Total operating expenses........................................ 102,920
Net loss................................................................................. $ (1,795)

133
Ex. 4–11

a.
FEDEX CORPORATION
Income Statement
For the Year Ended May 31, 1999
(in thousands)
Revenues.............................................................................. $16,773,400
Operating expenses:
Salaries and employee benefits................................. $7,087,728
Purchased transportation........................................... 1,537,785
Rentals and landing fees............................................ 1,396,694
Depreciation and amortization................................... 1,035,118
Maintenance and repairs............................................. 958,873
Fuel................................................................................ 604,929
Other operating expenses........................................... 2,989,257
Total operating expenses........................................ 15,610,384
Income from operations..................................................... $ 1,163,016
Interest expense.................................................................. $ 98,191
Other expenses................................................................... 3,831 102,022
Net income before income tax........................................... $ 1,060,994
Less provision for income taxes....................................... 429,731
Net income........................................................................... $ 631,263

b. The income statements are very similar. The actual statement includes some
additional information (i.e., earnings per share).

Ex. 4–12

GREENHORN SERVICES CO.

Statement of Owner’s Equity
For the Year Ended July 31, 2003
John Bozeman, capital, August 1, 2002........................... $183,750
Net income for year............................................................. $44,250
Less withdrawals................................................................. 11,000
Increase in owner’s equity................................................. 33,250
John Bozeman, capital, July 31, 2003............................... $217,000

134
Ex. 4–13

YANKEE SPORTS
Statement of Owner’s Equity
For the Year Ended October 31, 2003
Tori Jeter, capital, November 1, 2002................................ $310,300
Net loss for year.................................................................. $48,150
Plus withdrawals................................................................. 6,000
Decrease in owner’s equity................................................ 54,150
Tori Jeter, capital, October 31, 2003................................. $256,150

Ex. 4–14

a. Current asset: 1, 3, 5, 6
b. Property, plant, and equipment: 2, 4

Ex. 4–15

Since current liabilities are usually due within one year, $150,000 ($12,500 × 12
months) would be reported as a current liability on the balance sheet. The
remainder of $225,000 ($375,000 – $150,000) would be reported as a long-term
liability on the balance sheet.

135
Ex. 4–16

SHOSHONE CO.
Balance Sheet
June 30, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash.............................................. $ 2,150 Accounts payable............. $8,750
Accounts receivable.................... 18,725 Salaries payable................ 1,750
Supplies........................................ 675 Unearned fees................... 1,200
Prepaid insurance........................ 3,100 Total liabilities................ $11,700
Prepaid rent.................................. 2,400
Total current assets.................. $27,050 Owner’s Equity
Property, plant, and equipment: Keith Ferris, capital............. 84,850
Equipment..................................... $90,600
Less accumulated depreciation 21,100 69,500 Total liabilities and
Total assets...................................... $96,550 owner’s equity................... $96,550
Ex. 4–17

1. The date of the statement should be "March 31, 2003" and not "For the Year
Ended March 31, 2003."

2. Accounts payable should be a current liability.

3. Land should be classified as property, plant, and equipment.

4. "Accumulated depreciation" should be deducted from the related fixed asset.

5. An adding error was made in determining the amount of the total property,
plant, and equipment.

6. Accounts receivable should be a current asset.

7. Net loss should be reported on the income statement.

8. Wages payable should be a current liability.

A corrected balance sheet would be as follows:

Ex. 4–17 Concluded

ZIGZAG SERVICES CO.

Balance Sheet
March 31, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash.............................................. $ 3,170 Accounts payable.............. $4,390
Accounts receivable.................... 8,390 Wages payable................... 975
Supplies........................................ 750 Total liabilities.................. $ 5,365
Prepaid insurance........................ 1,600
Total current assets.................. $ 13,910
Property, plant, and equipment:
Land............................................... $100,000 Owner’s Equity
Building......................................... $55,500 Danielle Adcock, capital....... 153,295
Less accum. depreciation........ 23,000 32,500
Equipment..................................... $28,250
Less accum. depreciation........ 16,000 12,250
Total property, plant, and
equipment.............................. 144,750 Total liabilities and
Total assets...................................... $ 158,660 owner’s equity................... $158,660
Ex. 4–18

Accounts Receivable................................................. 5,100

Fees Earned.......................................................... 5,100
Supplies Expense...................................................... 1,225
Supplies................................................................. 1,225
Insurance Expense.................................................... 1,000
Prepaid Insurance................................................ 1,000
Depreciation Expense............................................... 1,800
Accumulated Depreciation—Equipment........... 1,800
Wages Expense.......................................................... 900
Wages Payable..................................................... 900
Unearned Rent........................................................... 2,500
Rent Revenue........................................................ 2,500

Ex. 4–19

c. Depreciation Expense—Buildings
g. Fees Earned
i. Salaries Expense
l. Supplies Expense

Ex. 4–20

The income summary account is used to close the revenue and expense
accounts, and it aids in detecting and correcting errors. The $631,335 represents
expense account balances, and the $812,575 represents revenue account
balances that have been closed.

Ex. 4–21

a. Income Summary............................................................. 216,450

Brenda Paxton, Capital............................................. 216,450
Brenda Paxton, Capital................................................... 40,000
Brenda Paxton, Drawing........................................... 40,000

b. $582,150 ($405,700 + $216,450 – $40,000)

Ex. 4–22

Jan. 31 Fees Earned.......................................................... 380,700

Income Summary........................................... 380,700
31 Income Summary.................................................. 299,300
Wages Expense............................................. 205,300
Rent Expense................................................. 74,000
Supplies Expense.......................................... 15,500
Miscellaneous Expense................................ 4,500
31 Income Summary ................................................. 81,400
Adam Pastore, Capital.................................. 81,400
31 Adam Pastore, Capital......................................... 45,000
Adam Pastore, Drawing................................ 45,000

Ex. 4–23

a. Accounts Receivable
b. Accumulated Depreciation
c. Cash
e. Equipment
f. Ernest Byrd, Capital
i. Supplies
k. Wages Payable

Ex. 4–24

BUCHANAN REPAIRS CO.

Post-Closing Trial Balance
July 31, 2003
Cash...................................................................................... 5,125
Accounts Receivable.......................................................... 18,500
Supplies................................................................................ 1,100
Equipment............................................................................ 35,000
Accumulated Depreciation—Equipment.......................... 11,100
Accounts Payable............................................................... 6,250
Salaries Payable.................................................................. 1,500
Unearned Rent..................................................................... 3,000
Sydney Buchanan, Capital................................................. 37,875
59,725 59,725
Ex. 4–25
e, f, g, a, c, b, d

Ex. 4–26

a. 2000 working capital: $5,914,000,000 ($11,110,000,000 – $5,196,000,000)

1999 working capital: $1,723,000,000 ($4,761,000,000 – $3,038,000,000)
2000 current ratio: 2.14 ($11,110,000,000 ÷ $5,196,000,000)
1999 current ratio: 1.57 ($4,761,000,000 ÷ $3,038,000,000)

b. The working capital and the current ratio increased during 2000, a favorable
trend. Before reaching a more definitive conclusion concerning Cisco
Systems’ ability to meet its current obligations, the working capital and
current ratio should be compared with past years, industry averages, and
similar firms in the industry. It appears, however, that Cisco Systems’ 2000
working capital and current ratio are adequate.

Appendix Ex. 4–27

a. (1) Sales Salaries Expense.............................................. 2,700

Salaries Payable..................................................... 2,700
(2) Accounts Receivable.................................................. 8,175
Fees Earned............................................................ 8,175

b. (1) Salaries Payable.......................................................... 2,700

Sales Salaries Expense......................................... 2,700
(2) Fees Earned................................................................. 8,175
Accounts Receivable............................................ 8,175
Appendix Ex. 4–28

a. (1) Payment (last payday in year)

(2) Adjusting (accrual of wages at end of year)

(3) Closing

(4) Reversing

(5) Payment (first payday in following year)

b. (1) Wages Expense........................................................... 25,000

Cash........................................................................ 25,000
(2) Wages Expense........................................................... 15,000
Wages Payable....................................................... 15,000
(3) Income Summary........................................................ 1,290,000
Wages Expense..................................................... 1,290,000
(4) Wages Payable............................................................ 15,000
Wages Expense..................................................... 15,000
(5) Wages Expense........................................................... 25,000
Cash........................................................................ 25,000
 PROBLEMS

Prob. 4–1A

1. THE PICKEREL LAUNDROMAT

Work Sheet
For the Year Ended July 31, 2003
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
1 Cash................................. 3,290 ............... ............... ............... 3,290 ............... ............... ............... 3,290 ............. 1
2 Laundry Supplies........... 5,850 ............... ............... (a) 4,710 1,140 ............... ............... ............... 1,140 ............. 2
3 Prepaid Insurance.......... 3,000 ............... ............... (b) 1,500 1,500 ............... ............... ............... 1,500 ............. 3
4 Laundry Equipment....... 109,750 ............... ............... ............... 109,750 ............... ............... ............... 109,750 ............. 4
5 Accumulated Depr......... ............... 52,700 ............... (c) 6,000 ............... 58,700 ............... ............... ............... 58,700 5
6 Accounts Payable.......... ............... 4,950 ............... ............... ............... 4,950 ............... ............... ............... 4,950 6
7 Shane Pond, Capital...... ............... 39,450 ............... ............... ............... 39,450 ............... ............... ............... 39,450 7
8 Shane Pond, Drawing.... 3,500 ............... ............... ............... 3,500 ............... ............... ............... 3,500 ............. 8
9 Laundry Revenue........... ............... 77,900 ............... ............... ............... 77,900 ............... 77,900 ............... ............. 9
10 Wages Expense.............. 23,400 ............... (d) 1,100 ............... 24,500 ............... 24,500 ............... ............... ............. 10
11 Rent Expense................. 16,400 ............... ............... ............... 16,400 ............... 16,400 ............... ............... ............. 11
12 Utilities Expense............. 8,500 ............... ............... ............... 8,500 ............... 8,500 ............... ............... ............. 12
13 Miscellaneous Exp......... 1,310 ............... ............... ............... 1,310 ............... 1,310 ............... ............... ............. 13
14 175,000 175,000 14
15 Laundry Supplies Exp.. . ............... ............... (a) 4,710 ............... 4,710 ............... 4,710 ............... ............... ............. 15
16 Insurance Expense......... ............... ............... (b) 1,500 ............... 1,500 ............... 1,500 ............... ............... ............. 16
17 Depreciation Expense.... ............... ............... (c) 6,000 ............... 6,000 ............... 6,000 ............... ............... ............. 17
18 Wages Payable............... ............... ............... ............... (d) 1,100 ............... 1,100 ............... ............... ............... 1,100 18
19 13,310 13,310 182,100 182,100 62,920 77,900 119,180 104,200 19
20 Net income...................... 14,980 ............... ............... 14,980 20
21 77,900 77,900 119,180 .119,180 21
Prob. 4–1A Continued

2.
THE PICKEREL LAUNDROMAT
Income Statement
For the Year Ended July 31, 2003
Laundry revenue................................................................. $ 77,900
Operating expenses:
Wages expense............................................................ $24,500
Rent expense................................................................ 16,400
Utilities expense........................................................... 8,500
Depreciation expense.................................................. 6,000
Laundry supplies expense.......................................... 4,710
Insurance expense....................................................... 1,500
Miscellaneous expense............................................... 1,310
Total operating expenses........................................ 62,920
Net income........................................................................... $ 14,980

THE PICKEREL LAUNDROMAT

Statement of Owner’s Equity
For the Year Ended July 31, 2003
Shane Pond, capital, August 1, 2002................................ $ 39,450
Net income for the year...................................................... $14,980
Less withdrawals................................................................. 3,500
Increase in owner’s equity................................................. 11,480
Shane Pond, capital, July 31, 2003................................... $ 50,930

THE PICKEREL LAUNDROMAT

Balance Sheet
July 31, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash........................... $ 3,290 Accounts payable.... $4,950
Laundry supplies...... 1,140 Wages payable........ 1,100
Prepaid insurance..... 1,500 Total liabilities....... $ 6,050
Total current assets $ 5,930
Property, plant, and
equipment: Owner’s Equity
Laundry equipment. . $109,750 Shane Pond, capital... 50,930
Less accum. depr... 58,700 51,050 Total liabilities and
Total assets.................. $ 56,980 owner’s equity......... $56,980
Prob. 4–1A Concluded

3.
Adjusting Entries
2003
July 31 Laundry Supplies Expense................................. 4,710
Laundry Supplies.......................................... 4,710
31 Insurance Expense............................................... 1,500
Prepaid Insurance......................................... 1,500
31 Depreciation Expense.......................................... 6,000
Accumulated Depreciation........................... 6,000
31 Wages Expense.................................................... 1,100
Wages Payable............................................... 1,100

4.
Closing Entries
2003
July 31 Laundry Revenue................................................. 77,900
Income Summary........................................... 77,900
31 Income Summary.................................................. 62,920
Wages Expense............................................. 24,500
Rent Expense................................................. 16,400
Utilities Expense............................................ 8,500
Miscellaneous Expense................................ 1,310
Laundry Supplies Expense.......................... 4,710
Insurance Expense........................................ 1,500
Depreciation Expense................................... 6,000
31 Income Summary.................................................. 14,980
Shane Pond, Capital...................................... 14,980
31 Shane Pond, Capital............................................. 3,500
Shane Pond, Drawing.................................... 3,500
Prob. 4–2A

1.
Closing Entries
2003
Apr. 30 Service Fees Earned............................................ 175,900
Rent Revenue........................................................ 3,000
Income Summary........................................... 178,900
30 Income Summary.................................................. 164,885
Salary Expense.............................................. 129,865
Rent Expense................................................. 16,000
Supplies Expense.......................................... 4,310
Depreciation Expense—Equipment............ 3,500
Utilities Expense............................................ 3,460
Taxes Expense............................................... 3,115
Insurance Expense........................................ 2,925
Miscellaneous Expense................................ 1,710
30 Income Summary.................................................. 14,015
Chandra Domir, Capital................................. 14,015
30 Chandra Domir, Capital....................................... 7,500
Chandra Domir, Drawing.............................. 7,500

2.
THE BREAKTHROUGH COMPANY
Statement of Owner’s Equity
For the Year Ended April 30, 2003
Chandra Domir, capital, May 1, 2002................................. $ 64,715
Net income for the year...................................................... $14,015
Less withdrawals................................................................. 7,500
Increase in owner’s equity................................................. 6,515
Chandra Domir, capital, April 30, 2003............................. $ 71,230

3. $12,500 net loss. The $20,000 decrease is caused by the $7,500 withdrawals
and a $12,500 net loss.
Prob. 4–3A
1. IDIOM.COM
Work Sheet
For the Month Ended January 31, 2003
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
1 Cash................................. 3,509 ............... ............... ............... 3,509 ............... ............... ............... 3,509 ............. 1
2 Accounts Receivable..... 1,550 ............... (a) 1,750 ............... 3,300 ............... ............... ............... 3,300 ............. 2
3 Supplies.......................... 1,647 ............... ............... (b) 1,297 350 ............... ............... ............... 350 ............. 3
4 Prepaid Insurance.......... 1,800 ............... ............... (c) 100 1,700 ............... ............... ............... 1,700 ............. 4
5 Land................................. 20,000 ............... ............... ............... 20,000 ............... ............... ............... 20,000 ............. 5
6 Building........................... 55,500 ............... ............... ............... 55,500 ............... ............... ............... 55,500 ............. 6
7 Acc. Depr.—Building..... ............... 23,400 ............... (d) 500 ............... 23,900 ............... ............... ............... 23,900 7
8 Equipment....................... 28,000 ............... ............... ............... 28,000 ............... ............... ............... 28,000 ............. 8
9 Acc. Depr.—Equipment. ............... 10,200 ............... (e) 150 ............... 10,350 ............... ............... ............... 10,350 9
10 Accounts Payable.......... ............... 5,141 ............... ............... ............... 5,141 ............... ............... ............... 5,141 10
11 Unearned Rent................ ............... 2,200 (f) 160 ............... ............... 2,040 ............... ............... ............... 2,040 11
12 Amanda Lusk, Capital.... ............... 53,825 ............... ............... ............... 53,825 ............... ............... ............... 53,825 12
13 Amanda Lusk, Drawing. 2,000 ............... ............... ............... 2,000 ............... ............... ............... 2,000 ............. 13
14 Service Revenue............. ............... 41,984 ............... (a) 1,750 ............... 43,734 ............... 43,734 ............... ............. 14
15 Wages Expense.............. 14,799 ............... (g) 400 ............... 15,199 ............... 15,199 ............... ............... ............. 15
16 Rent Expense................. 3,910 ............... ............... ............... 3,910 ............... 3,910 ............... ............... ............. 16
17 Utilities Expense............. 1,728 ............... ............... ............... 1,728 ............... 1,728 ............... ............... ............. 17
18 Misc. Expense................. 2,307 ............... ............... ............... 2,307 ............... 2,307 ............... ............... ............. 18
19 136,750 136,750 19
20 Supplies Expense........... ............... (b) 1,297 ............... 1,297 ............... 1,297 ............... ............... ............. 20
21 Insurance Expense......... ............... (c) 100 ............... 100 ............... 100 ............... ............... ............. 21
22 Depr. Exp.—Building..... ............... (d) 500 ............... 500 ............... 500 ............... ............... ............. 22
23 Depr. Exp.—Equipment. ............... (e) 150 ............... 150 ............... 150 ............... ............... ............. 23
24 Rent Revenue................. ............... ............... (f) 160 ............... 160 ............... 160 ............... ............. 24
25 Wages Payable............... ............... ............... (g) 400 ............... 400 ............... ............... ............... 400 25
26 4,357 4,357 139,550 139,550 25,191 43,894 114,359 95,656 26
27 Net income...................... 18,703 ............... ............... 18,703 27
28 43,894 43,894 114,359 114,359 28
Prob. 4–3A Continued

2.
IDIOM.COM
Income Statement
For the Month Ended January 31, 2003
Revenues:
Service revenue............................................................ $43,734
Rent revenue................................................................. 160
Total revenues.......................................................... $ 43,894
Operating expenses:
Wages expense............................................................ $15,199
Rent expense................................................................ 3,910
Utilities expense........................................................... 1,728
Supplies expense......................................................... 1,297
Depreciation expense—building................................ 500
Depreciation expense—equipment............................ 150
Insurance expense....................................................... 100
Miscellaneous expense............................................... 2,307
Total operating expenses........................................ 25,191
Net income........................................................................... $ 18,703

IDIOM.COM
Statement of Owner’s Equity
For the Month Ended January 31, 2003
Amanda Lusk, capital, January 1, 2003............................ $ 48,825
Additional investment during the month......................... 5,000
Total...................................................................................... $ 53,825
Net income for the month................................................... $18,703
Less withdrawals................................................................. 2,000
Increase in owner’s equity................................................. 16,703
Amanda Lusk, capital, January 31, 2003.......................... $ 70,528
Prob. 4–3A Continued

IDIOM.COM
Balance Sheet
January 31, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash.............................................. $ 3,509 Accounts payable................. $5,141
Accounts receivable.................... 3,300 Wages payable...................... 400
Supplies........................................ 350 Unearned rent........................ 2,040
Prepaid insurance........................ 1,700 Total current
Total current assets.................. $ 8,859 liabilities......................... $ 7,581
Property, plant, and equipment:
Land............................................... $20,000 Owner’s Equity
Building......................................... $55,500 Amanda Lusk, capital.............. 70,528
Less accum. depreciation........ 23,900 31,600
Equipment..................................... $28,000
Less accum. depreciation........ 10,350 17,650
Total property, plant, and
equipment............................. 69,250 Total liabilities and
Total assets...................................... $ 78,109 owner’s equity....................... $78,109
Prob. 4–3A Continued
3. JOURNAL Page 26
Post.
Date Ref. Debit Credit
2003 Adjusting Entries
Jan. 31 Accounts Receivable................................... 12 1,750
Service Revenue.................................. 41 1,750
31 Supplies Expense......................................... 52 1,297
Supplies................................................ 13 1,297
31 Insurance Expense....................................... 57 100
Prepaid Insurance................................ 14 100
31 Depreciation Expense—Building............... 54 500
Accum. Depreciation—Building......... 17 500
31 Depreciation Expense—Equipment........... 56 150
Accum. Depreciation—Equipment.... 19 150
31 Unearned Rent.............................................. 23 160
Rent Revenue....................................... 42 160
31 Wages Expense............................................ 51 400
Wages Payable..................................... 22 400
4. JOURNAL Page 27
Post.
Date Ref. Debit Credit
2003 Closing Entries
Jan. 31 Service Revenue........................................... 41 43,734
Rent Revenue................................................ 42 160
Income Summary................................. 33 43,894
31 Income Summary.......................................... 33 25,191
Wages Expense................................... 51 15,199
Rent Expense....................................... 53 3,910
Utilities Expense.................................. 55 1,728
Miscellaneous Expense...................... 59 2,307
Supplies Expense................................ 52 1,297
Insurance Expense.............................. 57 100
Depreciation Expense—Building....... 54 500
Depreciation Expense—Equip........... 56 150
31 Income Summary.......................................... 33 18,703
Amanda Lusk, Capital......................... 31 18,703
31 Amanda Lusk, Capital.................................. 31 2,000
Amanda Lusk, Drawing....................... 32 2,000
Prob. 4–3A Continued

3. and 4.
Cash 11
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Jan. 1 Balance....................  ............. ............. 1,259 .............
3 .................................. 23 ............. 910 349 .............
4 .................................. 23 5,000 ............. 5,349 .............
5 .................................. 23 ............. 86 5,263 .............
7 .................................. 23 800 ............. 6,063 .............
8 .................................. 23 400 ............. 6,463 .............
8 .................................. 23 ............. 2,584 3,879 .............
8 .................................. 23 1,695 ............. 5,574 .............
10 .................................. 24 ............. 510 5,064 .............
12 .................................. 24 ............. 2,319 2,745 .............
15 .................................. 24 2,718 ............. 5,463 .............
16 .................................. 24 ............. 1,000 4,463 .............
19 .................................. 24 ............. 2,135 2,328 .............
22 .................................. 24 ............. 370 1,958 .............
22 .................................. 24 3,992 ............. 5,950 .............
24 .................................. 25 ............. 527 5,423 .............
26 .................................. 25 ............. 2,480 2,943 .............
30 .................................. 25 ............. 156 2,787 .............
30 .................................. 25 ............. 26 2,761 .............
31 .................................. 25 ............. 1,000 1,761 .............
31 .................................. 25 2,029 ............. 3,790 .............
31 .................................. 25 ............. 281 3,509 .............

Accounts Receivable 12
2003
Jan. 1 Balance....................  1,200 ............. 1,200 .............
7 .................................. 23 ............. 800 400 .............
8 .................................. 23 ............. 400 ............. .............
22 .................................. 24 1,550 ............. 1,550 .............
31 Adjusting................. 26 1,750 ............. 3,300 .............
Prob. 4–3A Continued

Supplies 13
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Jan. 1 Balance....................  ............. ............. 610 .............
10 .................................. 24 510 ............. 1,120 .............
27 .................................. 25 527 ............. 1,647 .............
31 Adjusting................. 26 ............. 1,297 350 .............

Prepaid Insurance 14
2003
Jan. 1 Balance....................  ............. ............. 420 .............
22 .................................. 24 1,380 ............. 1,800 .............
31 Adjusting................. 26 ............. 100 1,700 .............

Land 15
2003
Jan. 1 Balance....................  ............. ............. 20,000 .............

Building 16
2003
Jan. 1 Balance....................  ............. ............. 55,500 .............

Accumulated Depreciation—Building 17
2003
Jan. 1 Balance....................  ............. ............. ............. 23,400
31 Adjusting................. 26 ............. 500 ............. 23,900

Equipment 18
2003
Jan. 1 Balance....................  ............. ............. 27,250 .............
3 .................................. 23 750 ............. 28,000 .............
Prob. 4–3A Continued

Accumulated Depreciation—Equipment 19
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Jan. 1 Balance....................  ............. ............. ............. 10,200
31 Adjusting................. 26 ............. 150 ............. 10,350

Accounts Payable 21
2003
Jan. 1 Balance....................  ............. ............. ............. 8,625
3 .................................. 23 ............. 750 ............. 9,375
8 .................................. 23 2,584 ............. ............. 6,791
19 .................................. 24 2,135 ............. ............. 4,656
31 .................................. 25 ............. 485 ............. 5,141

Wages Payable 22
2003
Jan. 31 Adjusting................. 26 ............. 400 ............. 400

Unearned Rent 23
2003
Jan. 1 Balance....................  ............. ............. ............. 2,200
31 Adjusting................. 26 160 ............. ............. 2,040

Amanda Lusk, Capital 31

2003
Jan. 1 Balance....................  ............. ............. ............. 48,825
4 .................................. 23 ............. 5,000 ............. 53,825
31 Closing.................... 27 ............. 18,703 ............. 72,528
31 Closing.................... 27 2,000 ............. ............. 70,528

Amanda Lusk, Drawing 32

2003
Jan. 16 .................................. 24 1,000 ............. 1,000 .............
31 .................................. 25 1,000 ............. 2,000 .............
31 Closing.................... 27 ............. 2,000 — —
Prob. 4–3A Continued

Income Summary 33
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Jan. 31 Closing.................... 27 ............. 43,894 ............. 43,894
31 Closing.................... 27 25,191 ............. ............. 18,703
31 Closing.................... 27 18,703 ............. — —

Service Revenue 41
2003
Jan. 8 .................................. 23 ............. 9,695 ............. 9,695
15 .................................. 24 ............. 7,718 ............. 17,413
22 .................................. 24 ............. 8,992 ............. 26,405
22 .................................. 24 ............. 7,550 ............. 33,955
31 .................................. 25 ............. 8,029 ............. 41,984
31 Adjusting................. 26 ............. 1,750 ............. 43,734
31 Closing.................... 27 43,734 ............. — —

Rent Revenue 42
2003
Jan. 1 Adjusting................. 26 ............. 160 ............. 160
31 Closing.................... 27 160 ............. — —

Wages Expense 51
2003
Jan. 12 .................................. 24 7,319 ............. 7,319 .............
26 .................................. 25 7,480 ............. 14,799 .............
31 Adjusting................. 26 400 ............. 15,199 .............
31 Closing.................... 27 ............. 15,199 — —

Supplies Expense 52
2003
Jan. 31 Adjusting................. 26 1,297 ............. 1,297 .............
31 Closing.................... 27 ............. 1,297 — —
Prob. 4–3A Continued

Rent Expense 53
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Jan. 3 .................................. 23 3,910 ............. 3,910 .............
31 Closing.................... 27 ............. 3,910 — —

Depreciation Expense—Building 54
2003
Jan. 31 Adjusting................. 26 500 ............. 500 .............
31 Closing.................... 27 ............. 500 — —

Utilities Expense 55
2003
Jan. 5 .................................. 24 586 ............. 586 .............
30 .................................. 25 456 ............. 1,042 .............
31 .................................. 25 686 ............. 1,728 .............
31 Closing.................... 27 ............. 1,728 — —

Depreciation Expense—Equipment 56
2003
Jan. 31 Adjusting................. 26 150 ............. 150 .............
31 Closing.................... 27 ............. 150 — —

Insurance Expense 57
2003
Jan. 31 Adjusting................. 26 100 ............. 100 .............
31 Closing.................... 27 ............. 100 — —

Miscellaneous Expense 59
2003
Jan. 30 .................................. 25 1,026 ............. 1,026 .............
31 .................................. 25 1,281 ............. 2,307 .............
31 Closing.................... 27 ............. 2,307 — —
Prob. 4–3A Concluded

5.
IDIOM.COM
Post-Closing Trial Balance
January 31, 2003
Cash...................................................................................... 3,509
Accounts Receivable.......................................................... 3,300
Supplies................................................................................ 350
Prepaid Insurance............................................................... 1,700
Land ................................................................................ 20,000
Building ................................................................................ 55,500
Accumulated Depreciation—Building.............................. 23,900
Equipment............................................................................ 28,000
Accumulated Depreciation—Equipment.......................... 10,350
Accounts Payable............................................................... 5,141
Wages Payable.................................................................... 400
Unearned Rent..................................................................... 2,040
Amanda Lusk, Capital......................................................... 70,528
112,359 112,359
Prob. 4–4A
1. FIGURE-EIGHT COMPANY
Work Sheet
For the Year Ended October 31, 2003
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
1 Cash................................. 5,500 ............... ............... ............... 5,500 ............... ............... ............... 5,500 ............. 1
2 Accounts Receivable..... 16,500 ............... (a) 2,500 ............... 19,000 ............... ............... ............... 19,000 ............. 2
3 Prepaid Insurance.......... 3,000 ............... ............... (b) 2,000 1,000 ............... ............... ............... 1,000 ............. 3
4 Supplies.......................... 1,950 ............... ............... (c) 1,500 450 ............... ............... ............... 450 ............. 4
5 Land................................. 70,000 ............... ............... ............... 70,000 ............... ............... ............... 70,000 ............. 5
6 Building........................... 100,500 ............... ............... ............... 100,500 ............... ............... ............... 100,500 ............. 6
7 Accum. Depr.—Bldg...... ............... 81,700 ............... (d) 1,620 ............... 83,320 ............... ............... ............... 83,320 7
8 Equipment....................... 72,400 ............... ............... ............... 72,400 ............... ............... ............... 72,400 ............. 8
9 Accum. Depr.—Equip.. . . ............... 63,800 ............... (e) 3,160 ............... 66,960 ............... ............... ............... 66,960 9
10 Accounts Payable.......... ............... 4,100 ............... ............... ............... 4,100 ............... ............... ............... 4,100 10
11 Unearned Rent................ ............... 1,500 (g) 1,000 ............... ............... 500 ............... ............... ............... 500 11
12 Tina Stroud, Capital....... ............... 57,700 ............... ............... ............... 57,700 ............... ............... ............... 57,700 12
13 Tina Stroud, Drawing..... 4,000 ............... ............... ............... 4,000 ............... ............... ............... 4,000 ............. 13
14 Fees Revenue................. ............... 171,200 ............... (a) 2,500 ............... 173,700 ............... 173,700 ............... ............. 14
15 Sal. & Wages Expense... 60,200 ............... (f) 2,000 ............... 62,200 ............... 62,200 ............... ............... ............. 15
16 Advertising Expense...... 18,500 ............... ............... ............... 18,500 ............... 18,500 ............... ............... ............. 16
17 Utilities Expense............. 15,100 ............... ............... ............... 15,100 ............... 15,100 ............... ............... ............. 17
18 Repairs Expense............ 9,300 ............... ............... ............... 9,300 ............... 9,300 ............... ............... ............. 18
19 Misc. Expense................. 3,050 ............... ............... ............... 3,050 ............... 3,050 ............... ............... ............. 19
20 380,000 380,000 20
21 Insurance Expense......... ............... ............... (b) 2,000 ............... 2,000 ............... 2,000 ............... ............... ............. 21
22 Supplies Expense........... ............... ............... (c) 1,500 ............... 1,500 ............... 1,500 ............... ............... ............. 22
23 Depr. Exp.—Building..... ............... ............... (d) 1,620 ............... 1,620 ............... 1,620 ............... ............... ............. 23
24 Depr. Exp.—Equip.......... ............... ............... (e) 3,160 ............... 3,160 ............... 3,160 ............... ............... ............. 24
25 Sal. & Wages Payable.... ............... ............... ............... (f) 2,000 ............... 2,000 ............... ............... ............... 2,000 25
26 Rent Revenue................. ............... ............... ............... (g) 1,000 ............... 1,000 ............... 1,000 ............... ............. 26
27 13,780 13,780 389,280 389,280 116,430 174,700 272,850 214,580 27
28 Net income...................... 58,270 ............... ............... 58,270 28
29 174,700 174,700 272,850 272,850 29
Prob. 4–4A Continued

2.
FIGURE-EIGHT COMPANY
Income Statement
For the Year Ended October 31, 2003
Revenues:
Fees revenue................................................................ $173,700
Rent revenue................................................................. 1,000
Total revenues ......................................................... $174,700
Operating expenses:
Salaries and wages expense...................................... $ 62,200
Advertising expense.................................................... 18,500
Utilities expense........................................................... 15,100
Repairs expense........................................................... 9,300
Depreciation expense—equipment............................ 3,160
Insurance expense....................................................... 2,000
Depreciation expense—building................................ 1,620
Supplies expense......................................................... 1,500
Miscellaneous expense............................................... 3,050
Total operating expenses........................................ 116,430
Net income........................................................................... $ 58,270

3.
FIGURE-EIGHT COMPANY
Statement of Owner’s Equity
For the Year Ended October 31, 2003
Tina Stroud, capital, November 1, 2002............................ $ 57,700
Net income for the year...................................................... $58,270
Less withdrawals................................................................. 4,000
Increase in owner’s capital................................................ 54,270
Tina Stroud, capital, October 31, 2003.............................. $111,970
Prob. 4–4A Concluded

4.
FIGURE-EIGHT COMPANY
Balance Sheet
October 31, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash.............................................. $ 5,500 Accounts payable................. $4,100
Accounts receivable.................... 19,000 Salaries and wages
Prepaid insurance........................ 1,000 payable................................ 2,000
Supplies........................................ 450 Unearned rent........................ 500
Total current assets.................. $ 25,950 Total liabilities.................... $ 6,600
Property, plant, and equipment:
Land............................................... $70,000
Building......................................... $100,500 Owner’s Equity
Less accum. depreciation........ 83,320 17,180 Tina Stroud, capital................. 111,970
Equipment..................................... $ 72,400
Less accum. depreciation........ 66,960 5,440
Total property, plant, and
equipment............................. 92,620 Total liabilities and
Total assets...................................... $118,570 owner’s equity....................... $118,570

5. $58,270 ÷ $174,700 = 33.4%

Prob. 4–5A

1., 4., and 5.

Cash 11
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Mar. 31 Balance....................  ............. ............. 2,950 .............

Supplies 13
2003
Mar. 31 Balance....................  ............. ............. 4,295 .............
31 Adjusting................. 26 ............. 3,545 750 .............

Prepaid Insurance 14
2003
Mar. 31 Balance....................  ............. ............. 2,735 .............
31 Adjusting................. 26 ............. 2,000 735 .............

Equipment 16
2003
Mar. 31 Balance....................  ............. ............. 40,650 .............

Accumulated Depreciation—Equipment 17
2003
Mar. 31 Balance....................  ............. ............. ............. 9,209
31 Adjusting................. 26 ............. 3,380 ............. 12,589

Trucks 18
2003
Mar. 31 Balance....................  ............. ............. 36,300 .............

Accumulated Depreciation—Trucks 19
2003
Mar. 31 Balance....................  ............. ............. ............. 6,400
31 Adjusting................. 26 ............. 4,400 ............. 10,800
Prob. 4–5A Continued

Accounts Payable 21
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Mar. 31 Balance....................  ............. ............. ............. 2,015

Wages Payable 22
2003
Mar. 31 Adjusting................. 26 ............. 900 ............. 900

Jesse Yoder, Capital 31

2003
Mar. 31 Balance....................  ............. ............. ............. 26,426
31 Closing.................... 27 ............. 33,655 ............. 60,081
31 Closing.................... 27 5,000 ............. ............. 55,081

Jesse Yoder, Drawing 32

2003
Mar. 31 Balance....................  ............. ............. 5,000 .............
31 Closing.................... 27 ............. 5,000 — —

Income Summary 33
2003
Mar. 31 Closing.................... 27 ............. 91,950 ............. 91,950
31 Closing.................... 27 58,295 ............. ............. 33,655
31 Closing.................... 27 33,655 ............. — —

Service Revenue 41
2003
Mar. 31 Balance....................  ............. ............. ............. 91,950
Closing.................... 27 91,950 ............. — —

Wages Expense 51
2003
Mar. 31 Balance....................  ............. ............. 23,925 .............
31 Adjusting................. 26 900 ............. 24,825 .............
31 Closing.................... 27 ............. 24,825 — —
Prob. 4–5A Continued

Supplies Expense 52
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Mar. 31 Adjusting................. 26 3,545 ............. 3,545 .............
31 Closing.................... 27 ............. 3,545 — —

Rent Expense 53
2003
Mar. 31 Balance....................  ............. ............. 10,600 .............
31 Closing.................... 27 ............. 10,600 — —

Depreciation Expense—Equipment 54
2003
Mar. 31 Adjusting................. 26 3,380 ............. 3,380 .............
31 Closing.................... 27 ............. 3,380 — —

Truck Expense 55
2003
Mar. 31 Balance....................  ............. ............. 7,350 .............
31 Closing.................... 27 ............. 7,350 — —

Depreciation Expense—Trucks 56
2003
Mar. 31 Adjusting................. 26 4,400 ............. 4,400 .............
31 Closing.................... 27 ............. 4,400 — —

Insurance Expense 57
2003
Mar. 31 Adjusting................. 26 2,000 ............. 2,000 .............
31 Closing.................... 27 ............. 2,000 — —

Miscellaneous Expense 59
2003
Mar. 31 Balance....................  ............. ............. 2,195 .............
31 Closing.................... 27 ............. 2,195 — —
Prob. 4–5A Continued

2. PARACHUTE REPAIRS
Work Sheet
For the Year Ended March 31, 2003
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
1 Cash................................. 2,950 ............... ............... ............... 2,950 ............... ............... ............... 2,950 ............. 1
2 Supplies.......................... 4,295 ............... ............... (a) 3,545 750 ............... ............... ............... 750 ............. 2
3 Prepaid Insurance.......... 2,735 ............... ............... (b) 2,000 735 ............... ............... ............... 735 ............. 3
4 Equipment....................... 40,650 ............... ............... ............... 40,650 ............... ............... ............... 40,650 ............. 4
5 Accum. Depr.—Equip.. . . ............... 9,209 ............... (c) 3,380 ............... 12,589 ............... ............... 12,589 5
6 Trucks.............................. 36,300 ............... ............... ............... 36,300 ............... ............... ............... 36,300 ............. 6
7 Accum. Depr.—Trucks... ............... 6,400 ............... (d) 4,400 ............... 10,800 ............... ............... ............... 10,800 7
8 Accounts Payable.......... ............... 2,015 ............... ............... ............... 2,015 ............... ............... ............... 2,015 8
9 Jesse Yoder, Capital...... ............... 26,426 ............... ............... ............... 26,426 ............... ............... ............... 26,426 9
10 Jesse Yoder, Drawing.... 5,000 ............... ............... ............... 5,000 ............... ............... ............... 5,000 ............. 10
11 Service Revenue............. ............... 91,950 ............... ............... ............... 91,950 ............... 91,950 ............... ............. 11
12 Wages Expense.............. 23,925 ............... (e) 900 ............... 24,825 ............... 24,825 ............... ............... ............. 12
13 Rent Expense................. 10,600 ............... ............... ............... 10,600 ............... 10,600 ............... ............... ............. 13
14 Truck Expense................ 7,350 ............... ............... ............... 7,350 ............... 7,350 ............... ............... ............. 14
15 Misc. Expense................. 2,195 ............... ............... ............... 2,195 ............... 2,195 ............... ............... ............. 15
16 136,000 136,000 16
17 Supplies Expense........... ............... ............... (a) 3,545 ............... 3,545 ............... 3,545 ............... ............... ............. 17
18 Insurance Expense......... ............... ............... (b) 2,000 ............... 2,000 ............... 2,000 ............... ............... ............. 18
19 Depr. Exp.—Equip.......... ............... ............... (c) 3,380 ............... 3,380 ............... 3,380 ............... ............... ............. 19
20 Depr. Exp.—Trucks........ ............... ............... (d) 4,400 ............... 4,400 ............... 4,400 ............... ............... ............. 20
21 Wages Payable............... ............... ............... ............... (e) 900 ............... 900 ............... ............... ............... 900 21
22 14,225 14,225 144,680 144,680 58,295 91,950 86,385 52,730 22
23 Net income...................... 33,655 ............... ............... 33,655 23
24 91,950 91,950 86,385 86,385 24
Prob. 4–5A Continued

3.
PARACHUTE REPAIRS
Income Statement
For the Year Ended March 31, 2003
Service revenue................................................................... $91,950
Operating expenses:
Wages expense............................................................ $24,825
Rent expense................................................................ 10,600
Truck expense.............................................................. 7,350
Depreciation expense—trucks................................... 4,400
Supplies expense......................................................... 3,545
Depreciation expense—equipment............................ 3,380
Insurance expense....................................................... 2,000
Miscellaneous expense............................................... 2,195
Total operating expenses........................................ 58,295
Net income........................................................................... $ 33,655

PARACHUTE REPAIRS
Statement of Owner’s Equity
For the Year Ended March 31, 2003
Jesse Yoder, capital, April 1, 2002.................................... $26,426
Net income for the year...................................................... $33,655
Less withdrawals................................................................. 5,000
Increase in owner’s capital................................................ 28,655
Jesse Yoder, capital, March 31, 2003................................ $55,081
Prob. 4–5A Continued

PARACHUTE REPAIRS
Balance Sheet
March 31, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash.............................................. $ 2,950 Accounts payable................ $2,015
Supplies........................................ 750 Wages payable..................... 900
Prepaid insurance........................ 735 Total liabilities................... $ 2,915
Total current assets.................. $ 4,435
Property, plant, and equipment:
Equipment..................................... $40,650 Owner’s Equity
Less accum. depreciation........ 12,589 $28,061 Jesse Yoder, capital............... 55,081
Trucks........................................... $36,300
Less accum. depreciation........ 10,800 25,500
Total property, plant, and
equipment............................. 53,561 Total liabilities and
Total assets...................................... $ 57,996 owner’s equity...................... $57,996
Prob. 4–5A Continued

4. JOURNAL Page 26
Post.
Date Ref. Debit Credit
Adjusting Entries
2003
Mar. 31 Supplies Expense......................................... 52 3,545
Supplies................................................ 13 3,545
31 Insurance Expense....................................... 57 2,000
Prepaid Insurance................................ 14 2,000
31 Depreciation Expense—Equipment........... 54 3,380
Accumulated Depr.—Equip................ 17 3,380
31 Depreciation Expense—Trucks.................. 56 4,400
Accumulated Depr.—Trucks.............. 19 4,400
31 Wages Expense............................................ 51 900
Wages Payable..................................... 22 900

5. JOURNAL Page 27
Post.
Date Ref. Debit Credit
Closing Entries
2003
Mar. 31 Service Revenue........................................... 41 91,950
Income Summary................................. 33 91,950
31 Income Summary.......................................... 33 58,295
Wages Expense................................... 51 24,825
Rent Expense....................................... 53 10,600
Truck Expense..................................... 55 7,350
Miscellaneous Expense...................... 59 2,195
Supplies Expense................................ 52 3,545
Insurance Expense.............................. 57 2,000
Depreciation Expense—Equip........... 54 3,380
Depreciation Expense—Trucks......... 56 4,400
31 Income Summary.......................................... 33 33,655
Jesse Yoder, Capital............................ 31 33,655
31 Jesse Yoder, Capital.................................... 31 5,000
Jesse Yoder, Drawing......................... 32 5,000
Prob. 4–5A Concluded

6.

PARACHUTE REPAIRS
Post-Closing Trial Balance
March 31, 2003
Cash...................................................................................... 2,950
Supplies................................................................................ 750
Prepaid Insurance............................................................... 735
Equipment............................................................................ 40,650
Accumulated Depreciation—Equipment.......................... 12,589
Trucks................................................................................... 36,300
Accumulated Depreciation—Trucks................................. 10,800
Accounts Payable............................................................... 2,015
Wages Payable.................................................................... 900
Jesse Yoder, Capital........................................................... 55,081
81,385 81,385
Prob. 4–1B

1. FORD’S LAUNDRY
Work Sheet
For the Year Ended October 31, 2003
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

1 Cash................................. 3,100 ............... ............... 3,100 ............... ............... ............... 3,100 ............. 1
2 Laundry Supplies........... 6,560 ............... ............... (c) 4,810 1,750 ............... ............... ............... 1,750 ............. 2
3 Prepaid Insurance.......... 4,490 ............... ............... (d) 2,500 1,990 ............... ............... ............... 1,990 ............. 3
4 Laundry Equipment....... 105,100 ............... ............... ............... 105,100 ............... ............... ............... 105,100 ............. 4
5 Accum. Depreciation..... ............... 40,200 ............... (b) 7,000 ............... 47,200 ............... ............... ............... 47,200 5
6 Accounts Payable.......... ............... 6,100 ............... ............... ............... 6,100 ............... ............... ............... 6,100 6
7 Ralph Edsel, Capital....... ............... 37,800 ............... ............... ............... 37,800 ............... ............... ............... 37,800 7
8 Ralph Edsel, Drawing.... 2,000 ............... ............... ............... 2,000 ............... ............... ............... 2,000 ............. 8
9 Laundry Revenue........... ............... 150,900 ............... ............... ............... 150,900 ............... 150,900 ............... ............. 9
10 Wages Expense.............. 61,400 ............... (a) 1,150 ............... 62,550 ............... 62,550 ............... ............... ............. 10
11 Rent Expense................. 36,000 ............... ............... ............... 36,000 ............... 36,000 ............... ............... ............. 11
12 Utilities Expense............. 13,650 ............... ............... ............... 13,650 ............... 13,650 ............... ............... ............. 12
13 Misc. Expense................. 2,700 ............... ............... ............... 2,700 ............... 2,700 ............... ............... ............. 13
14 235,000 235,000 14
15 Wages Payable............... ............... ............... ............... (a) 1,150 ............... 1,150 ............... ............... ............... 1,150 15
16 Depreciation Expense.... ............... ............... (b) 7,000 ............... 7,000 ............... 7,000 ............... ............... ............. 16
17 Laundry Supp. Exp........ ............... ............... (c) 4,810 ............... 4,810 ............... 4,810 ............... ............... ............. 17
18 Insurance Expense......... ............... ............... (d) 2,500 ............... 2,500 ............... 2,500 ............... ............... ............. 18
19 15,460 15,460 243,150 243,150 129,210 150,900 113,940 92,250 19
20 Net income...................... 21,690 ............... ............... 21,690 20
21 150,900 150,900 113,940 113,940 21
Prob. 4–1B Continued

2. FORD’S LAUNDRY
Income Statement
For the Year Ended October 31, 2003
Laundry revenue................................................................. $150,900
Operating expenses:
Wages expense............................................................ $62,550
Rent expense................................................................ 36,000
Utilities expense........................................................... 13,650
Depreciation expense.................................................. 7,000
Laundry supplies expense.......................................... 4,810
Insurance expense....................................................... 2,500
Miscellaneous expense............................................... 2,700
Total operating expenses........................................ 129,210
Net income........................................................................... $ 21,690

FORD’S LAUNDRY
Statement of Owner’s Equity
For the Year Ended October 31, 2003
Ralph Edsel, capital, November 1, 2002........................... $37,800
Net income for the year...................................................... $21,690
Less withdrawals................................................................. 2,000
Increase in owner’s equity................................................. 19,690
Ralph Edsel, capital, October 31, 2003............................. $ 57,490

FORD’S LAUNDRY
Balance Sheet
October 31, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash.......................... $ 3,100 Accounts payable.... $6,100
Laundry supplies..... 1,750 Wages payable........ 1,150
Prepaid insurance.. . 1,990 Total liabilities....... $ 7,250
Total current assets $ 6,840
Property, plant, and
equipment: Owner’s Equity
Laundry equipment. $105,100 Ralph Edsel, capital... 57,490
Less accum. depr. 47,200 57,900 Total liabilities and
Total assets................ $ 64,740 owner’s equity......... $ 64,740
Prob. 4–1B Concluded

3.
Adjusting Entries
2003
Oct. 31 Wages Expense.................................................... 1,150
Wages Payable............................................... 1,150
31 Depreciation Expense.......................................... 7,000
Accumulated Depreciation........................... 7,000
31 Laundry Supplies Expense................................. 4,810
Laundry Supplies.......................................... 4,810
31 Insurance Expense............................................... 2,500
Prepaid Insurance......................................... 2,500

4.
Closing Entries
2003
Oct. 31 Laundry Revenue................................................. 150,900
Income Summary........................................... 150,900
31 Income Summary.................................................. 129,210
Wages Expense............................................. 62,550
Rent Expense................................................. 36,000
Utilities Expense............................................ 13,650
Miscellaneous Expense................................ 2,700
Depreciation Expense................................... 7,000
Laundry Supplies Expense.......................... 4,810
Insurance Expense........................................ 2,500
31 Income Summary.................................................. 21,690
Ralph Edsel, Capital...................................... 21,690
31 Ralph Edsel, Capital............................................. 2,000
Ralph Edsel, Drawing.................................... 2,000
Prob. 4–2B

1. Closing Entries

2003
Dec. 31 Service Fees Earned............................................ 174,260
Rent Revenue........................................................ 1,500
Income Summary........................................... 175,760
31 Income Summary.................................................. 117,430
Salary Expense.............................................. 72,650
Depreciation Expense—Equipment............ 11,100
Rent Expense................................................. 9,000
Supplies Expense.......................................... 7,970
Utilities Expense............................................ 5,300
Depreciation Expense—Buildings............... 5,200
Taxes Expense............................................... 4,150
Insurance Expense........................................ 1,000
Miscellaneous Expense................................ 1,060
31 Income Summary.................................................. 58,330
Kerri Latimer, Capital.................................... 58,330
31 Kerri Latimer, Capital........................................... 10,000
Kerri Latimer, Drawing.................................. 10,000

2.
THE EPITOME COMPANY
Statement of Owner’s Equity
For the Year Ended December 31, 2003
Kerri Latimer, capital, January 1, 2003............................. $111,750
Net income for the year...................................................... $58,330
Less withdrawals................................................................. 10,000
Increase in owner’s equity................................................. 48,330
Kerri Latimer, capital, December 31, 2003........................ $160,080

3. $8,000 net loss. The $18,000 decrease is caused by the $10,000 withdrawals
and a $8,000 net loss.
Prob. 4–3B
1. IDIOM.COM
Work Sheet
For the Month Ended January 31, 2003
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
1 Cash................................. 3,509 ............... ............... ............... 3,509 ............... ............... ............... 3,509 ............. 1
2 Accounts Receivable..... 1,550 ............... (a) 2,750 ............... 4,300 ............... ............... ............... 4,300 ............. 2
3 Supplies.......................... 1,647 ............... ............... (b) 1,147 500 ............... ............... ............... 500 ............. 3
4 Prepaid Insurance.......... 1,800 ............... ............... (c) 150 1,650 ............... ............... ............... 1,650 ............. 4
5 Land................................. 20,000 ............... ............... ............... 20,000 ............... ............... ............... 20,000 ............. 5
6 Building........................... 55,500 ............... ............... ............... 55,500 ............... ............... ............... 55,500 ............. 6
7 Acc. Depr.—Building..... ............... 23,400 ............... (d) 625 ............... 24,025 ............... ............... ............... 24,025 7
8 Equipment....................... 28,000 ............... ............... ............... 28,000 ............... ............... ............... 28,000 ............. 8
9 Acc. Depr.—Equip.......... ............... 10,200 ............... (e) 200 ............... 10,400 ............... ............... ............... 10,400 9
10 Accounts Payable.......... ............... 5,141 ............... ............... ............... 5,141 ............... ............... ............... 5,141 10
11 Unearned Rent................ ............... 2,200 (f) 180 ............... ............... 2,020 ............... ............... ............... 2,020 11
12 Amanda Lusk, Capital.... ............... 53,825 ............... ............... ............... 53,825 ............... ............... ............... 53,825 12
13 Amanda Lusk, Drawing. 2,000 ............... ............... ............... 2,000 ............... ............... ............... 2,000 ............. 13
14 Service Revenue............. ............... 41,984 ............... (a) 2,750 ............... 44,734 ............... 44,734 ............... ............. 14
15 Wages Expense.............. 14,799 ............... (g) 600 ............... 15,399 ............... 15,399 ............... ............... ............. 15
16 Rent Expense................. 3,910 ............... ............... ............... 3,910 ............... 3,910 ............... ............... ............. 16
17 Utilities Expense............. 1,728 ............... ............... ............... 1,728 ............... 1,728 ............... ............... ............. 17
18 Misc. Expense................. 2,307 ............... ............... ............... 2,307 ............... 2,307 ............... ............... ............. 18
19 136,750 136,750 19
20 Supplies Expense........... ............... ............... (b) 1,147 ............... 1,147 ............... 1,147 ............... ............... ............. 20
21 Insurance Expense......... ............... ............... (c) 150 ............... 150 ............... 150 ............... ............... ............. 21
22 Depr. Exp.—Building..... ............... ............... (d) 625 ............... 625 ............... 625 ............... ............... ............. 22
23 Depr. Exp.—Equipment. ............... ............... (e) 200 ............... 200 ............... 200 ............... ............... ............. 23
24 Rent Revenue................. ............... ............... ............... (f) 180 ............... 180 ............... 180 ............... ............. 24
25 Wages Payable............... ............... ............... ............... (g) 600 ............... 600 ............... ............... ............... 600 25
26 5,652 5,652 140,925 140,925 25,466 44,914 115,459 96,011 26
27 Net income...................... 19,448 ............... ............... 19,448 27
28 44,914 44,914 115,459 115,459 28
Prob. 4–3B Continued

2.
IDIOM.COM
Income Statement
For the Month Ended January 31, 2003
Revenues:
Service revenue............................................................ $44,734
Rent revenue................................................................. 180
Total revenues.......................................................... $44,914
Operating expenses:
Wages expense............................................................ $15,399
Rent expense................................................................ 3,910
Utilities expense........................................................... 1,728
Supplies expense......................................................... 1,147
Depreciation expense—building................................ 625
Depreciation expense—equipment............................ 200
Insurance expense....................................................... 150
Miscellaneous expense............................................... 2,307
Total operating expenses........................................ 25,466
Net income........................................................................... $ 19,448

IDIOM.COM
Statement of Owner’s Equity
For the Month Ended January 31, 2003
Amanda Lusk, capital, January 1, 2003............................ $48,825
Additional investment during the month......................... 5,000
Total...................................................................................... $53,825
Net income for the month................................................... $19,448
Less withdrawals................................................................. 2,000
Increase in owner’s equity................................................. 17,448
Amanda Lusk, capital, January 31, 2003.......................... $ 71,273
Prob. 4–3B Continued

IDIOM.COM
Balance Sheet
January 31, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash.............................................. $ 3,509 Accounts payable............. $5,141
Accounts receivable.................... 4,300 Wages payable.................. 600
Supplies........................................ 500 Unearned rent.................... 2,020
Prepaid insurance........................ 1,650 Total liabilities................ $ 7,761
Total current assets.................. $ 9,959
Property, plant, and equipment:
Land............................................... $20,000 Owner’s Equity
Building......................................... $55,500 Amanda Lusk, capital.......... 71,273
Less accumulated depreciation. 24,025 31,475
Equipment..................................... $28,000
Less accumulated depreciation 10,400 17,600
Total property, plant, and
equipment............................. 69,075 Total liabilities and
Total assets...................................... $ 79,034 owner’s equity................... $79,034
Prob. 4–3B Continued
3. JOURNAL Page 26
Post.
Date Ref. Debit Credit
2003 Adjusting Entries
Jan. 31 Accounts Receivable................................... 12 2,750
Service Revenue.................................. 41 2,750
31 Supplies Expense......................................... 52 1,147
Supplies................................................ 13 1,147
31 Insurance Expense....................................... 57 150
Prepaid Insurance................................ 14 150
31 Depreciation Expense—Building............... 54 625
Accumulated Depr.—Building............ 17 625
31 Depreciation Expense—Equipment........... 56 200
Accumulated Depr.—Equipment....... 19 200
31 Unearned Rent.............................................. 23 180
Rent Revenue....................................... 42 180
31 Wages Expense............................................ 51 600
Wages Payable..................................... 22 600
4. JOURNAL Page 27
Post.
Date Ref. Debit Credit
2003 Closing Entries
Jan. 31 Service Revenue........................................... 41 44,734
Rent Revenue................................................ 42 180
Income Summary................................. 33 44,914
31 Income Summary.......................................... 33 25,466
Wages Expense................................... 51 15,399
Rent Expense....................................... 53 3,910
Utilities Expense.................................. 55 1,728
Miscellaneous Expense...................... 59 2,307
Supplies Expense................................ 52 1,147
Insurance Expense.............................. 57 150
Depreciation Expense—Building....... 54 625
Depreciation Expense—Equip........... 56 200
31 Income Summary.......................................... 33 19,448
Amanda Lusk, Capital......................... 31 19,448
31 Amanda Lusk, Capital.................................. 31 2,000
Amanda Lusk, Drawing....................... 32 2,000
Prob. 4–3B Continued

3. and 4.

Cash 11
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Jan. 1 Balance....................  ............. ............. 1,259 .............
3 .................................. 23 ............. 910 349 .............
4 .................................. 23 5,000 ............. 5,349 .............
5 .................................. 23 ............. 86 5,263 .............
7 .................................. 23 800 ............. 6,063 .............
8 .................................. 23 400 ............. 6,463 .............
8 .................................. 23 ............. 2,584 3,879 .............
8 .................................. 23 1,695 ............. 5,574 .............
10 .................................. 24 ............. 510 5,064 .............
12 .................................. 24 ............. 2,319 2,745 .............
15 .................................. 24 2,718 ............. 5,463 .............
16 .................................. 24 ............. 1,000 4,463 .............
19 .................................. 24 ............. 2,135 2,328 .............
22 .................................. 24 ............. 370 1,958 .............
22 .................................. 24 3,992 ............. 5,950 .............
24 .................................. 25 ............. 527 5,423 .............
26 .................................. 25 ............. 2,480 2,943 .............
30 .................................. 25 ............. 156 2,787 .............
30 .................................. 25 ............. 26 2,761 .............
31 .................................. 25 ............. 1,000 1,761 .............
31 .................................. 25 2,029 ............. 3,790 .............
31 .................................. 25 ............. 281 3,509 .............

Accounts Receivable 12
2003
Jan. 1 Balance....................  1,200 ............. 1,200 .............
7 .................................. 23 ............. 800 400 .............
8 .................................. 23 ............. 400 — —
22 .................................. 24 1,550 ............. 1,550 .............
31 Adjusting................. 26 2,750 ............. 4,300 .............
Prob. 4–3B Continued

Supplies 13
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Jan. 1 Balance....................  ............. ............. 610 .............
10 .................................. 24 510 ............. 1,120 .............
27 .................................. 25 527 ............. 1,647 .............
31 Adjusting................. 26 ............. 1,147 500 .............

Prepaid Insurance 14
2003
Jan. 1 Balance....................  ............. ............. 420 .............
22 .................................. 24 1,380 ............. 1,800 .............
31 Adjusting................. 26 ............. 150 1,650 .............

Land 15
2003
Jan. 1 Balance....................  ............. ............. 20,000 .............

Building 16
2003
Jan. 1 Balance....................  ............. ............. 55,500 .............

Accumulated Depreciation—Building 17
2003
Jan. 1 Balance....................  ............. ............. ............. 23,400
31 Adjusting................. 26 ............. 625 ............. 24,025

Equipment 18
2003
Jan. 1 Balance....................  ............. ............. 27,250 .............
3 .................................. 23 750 ............. 28,000 .............

Accumulated Depreciation—Equipment 19
2003
Jan. 1 Balance....................  ............. ............. ............. 10,200
31 Adjusting................. 26 ............. 200 ............. 10,400
Prob. 4–3B Continued

Accounts Payable 21
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Jan. 1 Balance....................  ............. ............. ............. 8,625
3 .................................. 23 ............. 750 ............. 9,375
8 .................................. 23 2,584 ............. ............. 6,791
19 .................................. 24 2,135 ............. ............. 4,656
31 .................................. 25 ............. 485 ............. 5,141

Wages Payable 22
2003
Jan. 31 Adjusting................. 26 ............. 600 ............. 600

Unearned Rent 23
2003
Jan. 1 Balance....................  ............. ............. ............. 2,200
31 Adjusting................. 26 180 ............. ............. 2,020

Amanda Lusk, Capital 31

2003
Jan. 1 Balance....................  ............. ............. ............. 48,825
4 .................................. 23 ............. 5,000 ............. 53,825
31 Closing.................... 27 ............. 19,448 ............. 73,273
31 Closing.................... 27 2,000 ............. ............. 71,273

Amanda Lusk, Drawing 32

2003
Jan. 16 .................................. 24 1,000 ............. 1,000 .............
31 .................................. 25 1,000 ............. 2,000 .............
31 Closing.................... 27 ............. 2,000 — —

Income Summary 33
2003
Jan. 31 Closing.................... 27 ............. 44,914 ............. 44,914
31 Closing.................... 27 25,466 ............. ............. 19,448
31 Closing.................... 27 19,448 ............. — —
Prob. 4–3B Continued

Service Revenue 41
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Jan. 8 .................................. 23 ............. 9,695 ............. 9,695
15 .................................. 24 ............. 7,718 ............. 17,413
22 .................................. 24 ............. 8,992 ............. 26,405
22 .................................. 24 ............. 7,550 ............. 33,955
31 .................................. 25 ............. 8,029 ............. 41,984
31 Adjusting................. 26 ............. 2,750 ............. 44,734
31 Closing.................... 27 44,734 ............. — —

Rent Revenue 42
2003
Jan. 31 Adjusting................. 26 ............. 180 ............. 180
31 Closing.................... 27 180 ............. — —

Wages Expense 51
2003
Jan. 12 .................................. 24 7,319 ............. 7,319 .............
26 .................................. 25 7,480 ............. 14,799 .............
31 Adjusting................. 26 600 ............. 15,399 .............
31 Closing.................... 27 ............. 15,399 — —

Supplies Expense 52
2003
Jan. 31 Adjusting................. 26 1,147 ............. 1,147 .............
31 Closing.................... 27 ............. 1,147 — —

Rent Expense 53
2003
Jan. 3 .................................. 23 3,910 ............. 3,910 .............
31 Closing.................... 27 ............. 3,910 — —

Depreciation Expense—Building 54
2003
Jan. 31 Adjusting................. 26 625 ............. 625 .............
31 Closing.................... 27 ............. 625 — —
Prob. 4–3B Continued

Utilities Expense 55
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Jan. 5 .................................. 24 586 ............. 586 .............
30 .................................. 25 456 ............. 1,042 .............
31 .................................. 25 686 ............. 1,728 .............
31 Closing.................... 27 ............. 1,728 — —

Depreciation Expense—Equipment 56
2003
Jan. 31 Adjusting................. 26 200 ............. 200 .............
31 Closing.................... 27 ............. 200 — —

Insurance Expense 57
2003
Jan. 31 Adjusting................. 26 150 ............. 150 .............
31 Closing.................... 27 ............. 150 — —

Miscellaneous Expense 59
2003
Jan. 30 .................................. 25 1,026 ............. 1,026 .............
31 .................................. 25 1,281 ............. 2,307 .............
31 Closing.................... 27 ............. 2,307 — —
Prob. 4–3B Concluded

5.
IDIOM.COM
Post-Closing Trial Balance
January 31, 2003
Cash...................................................................................... 3,509
Accounts Receivable.......................................................... 4,300
Supplies................................................................................ 500
Prepaid Insurance............................................................... 1,650
Land...................................................................................... 20,000
Building ................................................................................ 55,500
Accumulated Depreciation—Building.............................. 24,025
Equipment............................................................................ 28,000
Accumulated Depreciation—Equipment.......................... 10,400
Accounts Payable............................................................... 5,141
Wages Payable.................................................................... 600
Unearned Rent..................................................................... 2,020
Amanda Lusk, Capital......................................................... 71,273
113,459 113,459
Prob. 4–4B
1. SANGUINE COMPANY
Work Sheet
For the Year Ended June 30, 2003
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
1 Cash................................. 2,200 ............... ............... ................ 2,200 ............... ............... ............... 2,200 ............. 1
2 Accounts Receivable..... 7,500 ............... (a) 1,750 ................ 9,250 ............... ............... ............... 9,250 ............. 2
3 Prepaid Insurance.......... 1,800 ............... ............... (b) 800 1,000 ............... ............... ............... 1,000 ............. 3
4 Supplies.......................... 1,350 ............... ............... (c) 700 650 ............... ............... ............... 650 ............. 4
5 Land................................. 50,000 ............... ............... ............... 50,000 ............... ............... ............... 50,000 ............. 5
6 Building........................... 137,500 ............... ............... ............... 137,500 ............... ............... ............... 137,500 ............. 6
7 Acc. Depr.—Building..... ............... 51,700 ............... (d) 1,620 ............... 53,320 ............... ............... ............... 53,320 7
8 Equipment....................... 90,100 ............... ............... ............... 90,100 ............... ............... ............... 90,100 ............. 8
9 Acc. Depr.—Equip.......... ............... 35,300 ............... (e) 3,500 ............... 38,800 ............... ............... ............... 38,800 9
10 Accounts Payable.......... ............... 3,500 ............... ............... ............... 3,500 ............... ............... ............... 3,500 10
11 Unearned Rent................ ............... 3,000 (g) 2,000 ............... ............... 1,000 ............... ............... ............... 1,000 11
12 Sebrena Marsh, Capital. ............... 212,500 ............... ............... ............... 212,500 ............... ............... ............... 212,500 12
13 Sebrena Marsh, Drawing 10,000 ............... ............... ............... 10,000 ............... ............... ............... 10,000 ............. 13
14 Fees Revenue................. ............... 188,400 ............... (a) 1,750 ............... 190,150 ............... 190,150 ............... ............. 14
15 Salaries & Wages Exp.... 101,200 ............... (f) 1,050 ............... 102,250 ............... 102,250 ............... ............... ............. 15
16 Advertising Expense...... 58,200 ............... ............... ............... 58,200 ............... 58,200 ............... ............... ............. 16
17 Utilities Expense............. 19,000 ............... ............... ............... 19,000 ............... 19,000 ............... ............... ............. 17
18 Repairs Expense............ 11,500 ............... ............... ............... 11,500 ............... 11,500 ............... ............... ............. 18
19 Misc. Expense................. 4,050 ............... ............... ............... 4,050 ............... 4,050 ............... ............... ............. 19
20 494,400 494,400 20
21 Insurance Expense......... ............... ............... (b) 800 ............... 800 ............... 800 ............... ............... ............. 21
22 Supplies Expense........... ............... ............... (c) 700 ............... 700 ............... 700 ............... ............... ............. 22
23 Depr. Exp.—Building..... ............... ............... (d) 1,620 ............... 1,620 ............... 1,620 ............... ............... ............. 23
24 Depr. Exp.—Equip.......... ............... ............... (e) 3,500 ............... 3,500 ............... 3,500 ............... ............... ............. 24
25 Sal. & Wages Payable.... ............... ............... ............... (f) 1,050 ............... 1,050 ............... ............... ............... 1,050 25
26 Rent Revenue................. ............... ............... ............... (g) 2,000 ............... 2,000 ............... 2,000 ............... ............. 26
27 11,420 11,420 502,320 502,320 201,620 192,150 300,700 .310,170 27
28 Net loss........................... ............... 9,470 9,470 ............. 28
29 201,620 201,620 310,170 310,170 29
Prob. 4–4B Continued

2.
SANGUINE COMPANY
Income Statement
For the Year Ended June 30, 2003
Revenues:
Fees revenue................................................................ $190,150
Rent revenue................................................................. 2,000
Total revenues.......................................................... $192,150
Operating expenses:
Salaries and wages expense...................................... $102,250
Advertising expense.................................................... 58,200
Utilities expense........................................................... 19,000
Repairs expense........................................................... 11,500
Depreciation expense—equipment............................ 3,500
Depreciation expense—building................................ 1,620
Insurance expense....................................................... 800
Supplies expense......................................................... 700
Miscellaneous expense............................................... 4,050
Total operating expenses........................................ 201,620
Net loss................................................................................. $ 9,470

3.
SANGUINE COMPANY
Statement of Owner’s Equity
For the Year Ended June 30, 2003
Sebrena Marsh, capital, July 1, 2002................................ $212,500
Net loss for the year............................................................ $ 9,470
Add withdrawals.................................................................. 10,000
Decrease in owner’s equity................................................ 19,470
Sebrena Marsh, capital, June 30, 2003............................. $193,030
Prob. 4–4B Concluded

4.
SANGUINE COMPANY
Balance Sheet
June 30, 2003
Assets Liabilities
Current assets:................................. Current liabilities:
Cash.............................................. $ 2,200 Accounts payable............. $3,500
Accounts receivable.................... 9,250 Salaries and wages
Prepaid insurance........................ 1,000 payable............................ 1,050
Supplies........................................ 650 Unearned rent.................... 1,000
Total current assets.................. $ 13,100 Total liabilities................ $ 5,550
Property, plant, and equipment:
Land............................................... $50,000 Owner’s Equity
Building......................................... $137,500 Sebrena Marsh, capital....... 193,030
Less accum. depreciation........ 53,320 84,180
Equipment..................................... $ 90,100
Less accum. depreciation........ 38,800 51,300
Total property, plant, and
equipment............................. 185,480 Total liabilities and
Total assets...................................... $198,580 owner’s equity................... $198,580

5. $192,150 ÷ $198,580 = 96.8%

Prob. 4–5B

1., 4., and 5.

Cash 11
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Dec. 31 Balance....................  ............. ............. 1,825 .............

Supplies 13
2003
Dec. 31 Balance....................  ............. ............. 3,820 .............
31 Adjusting................. 26 ............. 3,020 800 .............

Prepaid Insurance 14
2003
Dec. 31 Balance....................  ............. ............. 2,500 .............
31 Adjusting................. 26 ............. 1,500 1,000 .............

Equipment 16
2003
Dec. 31 Balance....................  ............. ............. 44,200 .............

Accumulated Depreciation—Equipment 17
2003
Dec. 31 Balance....................  ............. ............. ............. 9,050
31 Adjusting................. 26 ............. 6,080 ............. 15,130

Trucks 18
2003
Dec. 31 Balance....................  ............. ............. 45,000 .............

Accumulated Depreciation—Trucks 19
2003
Dec. 31 Balance....................  ............. ............. ............. 27,100
31 Adjusting................. 26 ............. 5,500 ............. 32,600
Prob. 4–5B Continued

Accounts Payable 21
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Dec. 31 Balance....................  ............. ............. ............. 4,015

Wages Payable 22
2003
Dec. 31 Adjusting................. 26 ............. 500 ............. 500

Scott Waters, Capital 31

2003
Dec. 31 Balance....................  ............. ............. ............. 24,885
31 Closing.................... 27 ............. 18,695 ............. 43,580
31 Closing.................... 27 3,000 ............. ............. 40,580

Scott Waters, Drawing 32

2003
Dec. 31 Balance....................  ............. ............. 3,000 .............
31 Closing.................... 27 ............. 3,000 — —

Income Summary 33
2003
Dec. 31 Closing.................... 27 ............. 79,950 ............. 79,950
31 Closing.................... 27 61,255 ............. ............. 18,695
31 Closing.................... 27 18,695 ............. — —

Service Revenue 41
2003
Dec. 31 Balance....................  ............. ............. ............. 79,950
31 Closing.................... 27 79,950 ............. — —

Wages Expense 51
2003
Dec. 31 Balance....................  ............. ............. 22,010 .............
31 Adjusting................. 26 500 ............. 22,510 .............
31 Closing.................... 27 ............. 22,510 — —
Prob. 4–5B Continued

Supplies Expense 52
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
Dec. 31 Adjusting................. 26 3,020 ............. 3,020 .............
31 Closing.................... 27 ............. 3,020 — —

Rent Expense 53
2003
Dec. 31 Balance....................  ............. ............. 10,100 .............
31 Closing.................... 27 ............. 10,100 — —

Depreciation Expense—Equipment 54
2003
Dec. 31 Adjusting................. 26 6,080 ............. 6,080 .............
31 Closing.................... 27 ............. 6,080 — —

Truck Expense 55
2003
Dec. 31 Balance....................  ............. ............. 9,350 .............
31 Closing.................... 27 ............. 9,350 — —

Depreciation Expense—Trucks 56
2003
Dec. 31 Adjusting................. 26 5,500 ............. 5,500 .............
31 Closing.................... 27 ............. 5,500 — —

Insurance Expense 57
2003
Dec. 31 Adjusting................. 26 1,500 ............. 1,500 .............
31 Closing.................... 27 ............. 1,500 — —

Miscellaneous Expense 59
2003
Dec. 31 Balance....................  ............. ............. 3,195 .............
31 Closing.................... 27 ............. 3,195 — —
Prob. 4–5B Continued

2. DAGWOOD REPAIRS
Work Sheet
For the Year Ended December 31, 2003
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

1 Cash................................. 1,825 ............... ............... ............... 1,825 ............... ............... ............... 1,825 ............. 1
2 Supplies.......................... 3,820 ............... ............... (a) 3,020 800 ............... ............... ............... 800 ............. 2
3 Prepaid Insurance.......... 2,500 ............... ............... (b) 1,500 1,000 ............... ............... ............... 1,000 ............. 3
4 Equipment....................... 44,200 ............... ............... ............... 44,200 ............... ............... ............... 44,200 ............. 4
5 Acc. Depr.—Equip.......... ............... 9,050 ............... (c) 6,080 ............... 15,130 ............... ............... ............... 15,130 5
6 Trucks.............................. 45,000 ............... ............... ............... 45,000 ............... ............... ............... 45,000 ............. 6
7 Acc. Depr.—Trucks........ ............... 27,100 ............... (d) 5,500 ............... 32,600 ............... ............... ............... 32,600 7
8 Accounts Payable.......... ............... 4,015 ............... ............... ............... 4,015 ............... ............... ............... 4,015 8
9 Scott Waters, Capital..... ............... 24,885 ............... ............... ............... 24,885 ............... ............... ............... 24,885 9
10 Scott Waters, Drawing... 3,000 ............... ............... ............... 3,000 ............... ............... ............... 3,000 ............. 10
11 Service Revenue............. ............... 79,950 ............... ............... ............... 79,950 ............... 79,950 ............... ............. 11
12 Wages Expense.............. 22,010 ............... (e) 500 ............... 22,510 ............... 22,510 ............... ............... ............. 12
13 Rent Expense................. 10,100 ............... ............... ............... 10,100 ............... 10,100 ............... ............... ............. 13
14 Truck Expense................ 9,350 ............... ............... ............... 9,350 ............... 9,350 ............... ............... ............. 14
15 Misc. Expense................. 3,195 ............... ............... ............... 3,195 ............... 3,195 ............... ............... ............. 15
16 145,000 145,000 16
17 Supplies Expense........... ............... ............... (a) 3,020 ............... 3,020 ............... 3,020 ............... ............... ............. 17
18 Insurance Expense......... ............... ............... (b) 1,500 ............... 1,500 ............... 1,500 ............... ............... ............. 18
19 Depr. Exp.—Equip.......... ............... ............... (c) 6,080 ............... 6,080 ............... 6,080 ............... ............... ............. 19
20 Depr. Exp.—Trucks........ ............... ............... (d) 5,500 ............... 5,500 ............... 5,500 ............... ............... ............. 20
21 Wages Payable............... ............... ............... ............... (e) 500 ............... 500 ............... ............... ............... 500 21
22 16,600 16,600 157,080 157,080 61,255 79,950 95,825 77,130 22
23 Net income...................... 18,695 ............... ............... 18,695 23
24 79,950 79,950 95,825 95,825 24
Prob. 4–5B Continued

3.
DAGWOOD REPAIRS
Income Statement
For the Year Ended December 31, 2003
Service revenue................................................................... $ 79,950
Operating expenses:
Wages expense............................................................ $ 22,510
Rent expense................................................................ 10,100
Truck expense.............................................................. 9,350
Depreciation expense—equipment............................ 6,080
Depreciation expense—trucks................................... 5,500
Supplies expense......................................................... 3,020
Insurance expense....................................................... 1,500
Miscellaneous expense............................................... 3,195
Total operating expenses........................................ 61,255
Net income........................................................................... $ 18,695

DAGWOOD REPAIRS
Statement of Owner’s Equity
For the Year Ended December 31, 2003
Scott Waters, capital, January 1, 2003................................ $ 24,885
Net income for the year......................................................... $18,695
Less withdrawals................................................................... 3,000
Increase in owner’s equity.................................................... 15,695
Scott Waters, capital, December 31, 2003........................... $ 40,580
Prob. 4–5B Continued

DAGWOOD REPAIRS
Balance Sheet
December 31, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash.............................................. $ 1,825 Accounts payable................ $4,015
Supplies........................................ 800 Wages payable..................... 500
Prepaid insurance........................ 1,000 Total liabilities................... $ 4,515
Total current assets.................. $ 3,625
Property, plant, and equipment:
Equipment..................................... $44,200 Owner’s Equity
Less accumulated depr............ 15,130 $29,070 Scott Waters, capital.............. 40,580
Trucks........................................... $45,000
Less accumulated depr............ 32,600 12,400
Total property, plant, and
equipment............................. 41,470 Total liabilities and
Total assets...................................... $45,095 owner’s equity...................... $45,095
Prob. 4–5B Continued

4. JOURNAL Page 26
Post.
Date Ref. Debit Credit
Adjusting Entries
2003
Dec. 31 Supplies Expense......................................... 52 3,020
Supplies................................................ 13 3,020
31 Insurance Expense....................................... 57 1,500
Prepaid Insurance................................ 14 1,500
31 Depreciation Expense—Equipment........... 54 6,080
Accumulated Depreciation—Equip.. . 17 6,080
31 Depreciation Expense—Trucks.................. 56 5,500
Accumulated Depreciation—Trucks.. 19 5,500
31 Wages Expense............................................ 51 500
Wages Payable..................................... 22 500

5. JOURNAL Page 27
Post.
Date Ref. Debit Credit
Closing Entries
2003
Dec. 31 Service Revenue........................................... 41 79,950
Income Summary................................. 33 79,950
31 Income Summary.......................................... 33 61,255
Wages Expense................................... 51 22,510
Rent Expense....................................... 53 10,100
Truck Expense..................................... 55 9,350
Miscellaneous Expense...................... 59 3,195
Supplies Expense................................ 52 3,020
Insurance Expense.............................. 57 1,500
Depreciation Expense—Equipment... 54 6,080
Depreciation Expense—Trucks......... 56 5,500
31 Income Summary.......................................... 33 18,695
Scott Waters, Capital........................... 31 18,695
31 Scott Waters, Capital................................... 31 3,000
Scott Waters, Drawing......................... 32 3,000
Prob. 4–5B Concluded

6.
DAGWOOD REPAIRS
Post-Closing Trial Balance
December 31, 2003
Cash...................................................................................... 1,825
Supplies................................................................................ 800
Prepaid Insurance............................................................... 1,000
Equipment............................................................................ 44,200
Accumulated Depreciation—Equipment.......................... 15,130
Trucks................................................................................... 45,000
Accumulated Depreciation—Trucks................................. 32,600
Accounts Payable............................................................... 4,015
Wages Payable.................................................................... 500
Scott Waters, Capital.......................................................... 40,580
92,825 92,825
 CONTINUING PROBLEM
1. DANCIN MUSIC
Work Sheet
For the Two Months Ended December 31, 2002
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
1 Cash................................. 3,665 ............... ............... ............... 3,665 ............... ............... ............... 3,665 ............. 1
2 Accounts Receivable..... 880 ............... (a) 600 ............... 1,480 ............... ............... ............... 1,480 ............. 2
3 Supplies.......................... 460 ............... ............... (b) 375 85 ............... ............... ............... 85 ............. 3
4 Prepaid Insurance.......... 1,680 ............... ............... (c) 70 1,610 ............... ............... ............... 1,610 ............. 4
5 Office Equipment........... 2,500 ............... ............... ............... 2,500 ............... ............... ............... 2,500 ............. 5
6 Acc. Depr.—Office
Equipment................ ............... ............... ............... (d) 50 ............... 50 ............... ............... ............... 50 6
7 Accounts Payable.......... ............... 2,875 ............... ............... ............... 2,875 ............... ............... ............... 2,875 7
8 Wages Payable............... ............... ............... ............... (f) 65 ............... 65 ............... ............... ............... 65 8
9 Unearned Revenue......... ............... 2,400 (e) 1,200 ............... ............... 1,200 ............... ............... ............... 1,200 9
10 Lynn Kwan, Capital........ ............... 5,000 ............... ............... ............... 5,000 ............... ............... ............... 5,000 10
11 Lynn Kwan, Drawing...... 1,125 ............... ............... ............... 1,125 ............... ............... ............... 1,125 ............. 11
12 Fees Earned.................... ............... 5,605 ............... (a) 600 ............... 7,405 ............... 7,405 ............... ............. 12
13 ............... ............... ............... (e) 1,200 ............... ............... ............... ............... ............... ............. 13
14 Wages Expense.............. 1,400 ............... (f) 65 ............... 1,465 ............... 1,465 ............... ............... ............. 14
15 Office Rent Expense...... 1,300 ............... ............... ............... 1,300 ............... 1,300 ............... ............... ............. 15
16 Equip. Rent Expense..... 575 ............... ............... ............... 575 ............... 575 ............... ............... ............. 16
17 Utilities Expense............. 430 ............... ............... ............... 430 ............... 430 ............... ............... ............. 17
18 Music Expense............... 890 ............... ............... ............... 890 ............... 890 ............... ............... ............. 18
19 Advertising Expense...... 650 ............... ............... ............... 650 ............... 650 ............... ............... ............. 19
20 Supplies Expense........... 90 ............... (b) 375 ............... 465 ............... 465 ............... ............... ............. 20
21 Insurance Expense......... ............... ............... (c) 70 ............... 70 ............... 70 ............... ............... ............. 21
22 Depr. Expense................ ............... ............... (d) 50 ............... 50 ............... 50 ............... ............... ............. 22
23 Misc. Expense................. 235 ............... ............... ............... 235 ............... 235 ............... ............... ............. 23
24 15,880 15,880 2,360 2,360 16,595 16,595 6,130 7,405 10,465 9,190 24
25 Net income...................... 1,275 ............... ............... 1,275 25
26 7,405 7,405 10,465 10,465 26
Continuing Problem Continued

2.
DANCIN MUSIC
Income Statement
For the Two Months Ended December 31, 2002
Fees earned.......................................................................... $7,405
Operating expenses:
Wages expense............................................................ $1,465
Office rent expense...................................................... 1,300
Music expense.............................................................. 890
Advertising expense.................................................... 650
Equipment rent expense............................................. 575
Supplies expense......................................................... 465
Utilities expense........................................................... 430
Insurance expense....................................................... 70
Depreciation expense.................................................. 50
Miscellaneous expense............................................... 235
Total operating expenses........................................ 6,130
Net income........................................................................... $1,275

DANCIN MUSIC
Statement of Owner’s Equity
For the Two Months Ended December 31, 2002
Lynn Kwan, capital, November 1, 2002............................. $ 0
Additional investments during the period....................... 5,000
Total...................................................................................... $5,000
Net income for the period................................................... $1,275
Less withdrawals................................................................. 1,125
Increase in owner’s equity................................................. 150
Lynn Kwan, capital, December 31, 2002........................... $5,150
Continuing Problem Continued

DANCIN MUSIC
Balance Sheet
December 31, 2002
Assets Liabilities
Current assets: Current liabilities:
Cash............................... $3,665 Accounts payable.... $2,875
Accounts receivable..... 1,480 Wages payable........ 65
Supplies......................... 85 Unearned revenue... 1,200
Prepaid insurance......... 1,610 Total liabilities....... $4,140
Total current assets... $6,840
Property, plant, and
equipment: Owner’s Equity
Office equipment.......... $2,500 Lynn Kwan, capital.... 5,150
Less accum. depr....... 50
Total property, plant,
and equipment...... 2,450 Total liabilities and
Total assets...................... $9,290 owner’s equity......... $9,290
Continuing Problem Continued

3. JOURNAL Page 4
Post.
Date Ref. Debit Credit
Closing Entries
2002
Dec. 31 Fees Earned.................................................. 41 7,405
Income Summary................................. 33 7,405
31 Income Summary.......................................... 33 6,130
Wages Expense................................... 50 1,465
Office Rent Expense............................ 51 1,300
Equipment Rent Expense................... 52 575
Utilities Expense.................................. 53 430
Music Expense..................................... 54 890
Advertising Expense........................... 55 650
Supplies Expense................................ 56 465
Insurance Expense.............................. 57 70
Depreciation Expense......................... 58 50
Miscellaneous Expense...................... 59 235
31 Income Summary.......................................... 33 1,275
Lynn Kwan, Capital.............................. 31 1,275
31 Lynn Kwan, Capital...................................... 31 1,125
Lynn Kwan, Drawing........................... 32 1,125
Continuing Problem Continued

3.

Cash 11
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2002
Dec. 1 Balance....................  ............. ............. 3,080 .............
1 .................................. 1 1,500 ............. 4,580 .............
1 .................................. 1 ............. 800 3,780 .............
1 .................................. 1 ............. 1,680 2,100 .............
2 .................................. 1 600 ............. 2,700 .............
3 .................................. 1 2,400 ............. 5,100 .............
3 .................................. 1 ............. 125 4,975 .............
4 .................................. 1 ............. 75 4,900 .............
8 .................................. 1 ............. 100 4,800 .............
11 .................................. 1 300 ............. 5,100 .............
13 .................................. 1 ............. 250 4,850 .............
14 .................................. 1 ............. 600 4,250 .............
16 .................................. 2 550 ............. 4,800 .............
21 .................................. 2 ............. 120 4,680 .............
22 .................................. 2 ............. 250 4,430 .............
23 .................................. 2 200 ............. 4,630 .............
27 .................................. 2 ............. 280 4,350 .............
28 .................................. 2 ............. 600 3,750 .............
29 .................................. 2 ............. 85 3,665 .............
30 .................................. 2 300 ............. 3,965 .............
31 .................................. 2 1,000 ............. 4,965 .............
31 .................................. 2 ............. 300 4,665 .............
31 .................................. 2 ............. 1,000 3,665 .............

Accounts Receivable 12
2002
Dec. 1 Balance....................  ............. ............. 600 .............
2 .................................. 1 ............. 600 — —
23 .................................. 2 580 ............. 580 .............
30 .................................. 2 300 ............. 880 .............
31 Adjusting................. 3 600 ............. 1,480 .............
Continuing Problem Continued

Supplies 14
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2002
Dec. 1 Balance....................  ............. ............. 85 .............
18 .................................. 2 375 ............. 460 .............
31 Adjusting................. 3 ............. 375 85 .............

Prepaid Insurance 15
2002
Dec. 1 .................................. 1 1,680 ............. 1,680 .............
31 Adjusting................. 3 ............. 70 1,610 .............

Office Equipment 17
2002
Dec. 5 .................................. 1 2,500 ............. 2,500 .............

Accumulated Depreciation—Office Equipment 18

2002
Dec. 31 Adjusting................. 3 ............. 50 ............. 50

Accounts Payable 21
2002
Dec. 1 Balance....................  ............. ............. ............. 125
3 .................................. 1 125 ............. — —
5 .................................. 1 ............. 2,500 ............. 2,500
18 .................................. 2 ............. 375 ............. 2,875

Wages Payable 22
2002
Dec. 31 Adjusting................. 3 ............. 65 ............. 65

Unearned Revenue 23
2002
Dec. 3 .................................. 1 ............. 2,400 ............. 2,400
31 Adjusting................. 3 1,200 ............. ............. 1,200
Continuing Problem Continued
Lynn Kwan, Capital 31
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2002
Dec. 1 Balance....................  ............. ............. ............. 3,500
1 .................................. 1 ............. 1,500 ............. 5,000
31 Closing.................... 4 ............. 1,275 ............. 6,275
Closing.................... 4 1,125 ............. ............. 5,150

Lynn Kwan, Drawing 32

2002
Dec. 1 Balance....................  ............. ............. 125 .............
31 .................................. 2 1,000 ............. 1,125 .............
31 Closing.................... 4 ............. 1,125 — —

Income Summary 33
2002
Dec. 31 Closing.................... 4 ............. 7,405 ............. 7,405
31 Closing.................... 4 6,130 ............. ............. 1,275
31 Closing.................... 4 1,275 ............. — —

Fees Earned 41
2002
Dec. 1 Balance....................  ............. ............. ............. 2,375
11 .................................. 1 ............. 300 ............. 2,675
16 .................................. 2 ............. 550 ............. 3,225
23 .................................. 2 ............. 780 ............. 4,005
30 .................................. 2 ............. 600 ............. 4,605
31 .................................. 2 ............. 1,000 ............. 5,605
31 Adjusting................. 3 ............. 600 ............. 6,205
31 Adjusting................. 3 ............. 1,200 ............. 7,405
31 Closing.................... 4 7,405 ............. — —

Wages Expense 50
2002
Dec. 1 Balance....................  ............. ............. 200 .............
14 .................................. 1 600 ............. 800 .............
28 .................................. 2 600 ............. 1,400 .............
31 Adjusting................. 3 65 ............. 1,465 .............
31 Closing.................... 4 ............. 1,465 — —
Continuing Problem Continued
Office Rent Expense 51
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2002
Dec. 1 Balance....................  ............. ............. 500 .............
1 .................................. 1 800 ............. 1,300 .............
31 Closing.................... 4 ............. 1,300 — —

Equipment Rent Expense 52

2002
Dec. 1 Balance....................  ............. ............. 325 .............
13 .................................. 1 250 ............. 575 .............
31 Closing.................... 4 ............. 575 — —

Utilities Expense 53
2002
Dec. 1 Balance....................  ............. ............. 150 .............
27 .................................. 2 280 ............. 430 .............
31 Closing.................... 4 ............. 430 — —

Music Expense 54
2002
Dec. 1 Balance....................  ............. ............. 470 .............
21 .................................. 2 120 ............. 590 .............
31 .................................. 300 ............. 890 .............
31 Closing.................... 4 ............. 890 — —

Advertising Expense 55
2002
Dec. 1 Balance....................  ............. ............. 300 .............
8 .................................. 1 100 ............. 400 .............
22 .................................. 2 250 ............. 650 .............
31 Closing.................... 4 ............. 650 — —

Supplies Expense 56
2002
Dec. 1 Balance....................  ............. ............. 90 .............
31 Adjusting................. 3 375 ............. 465 .............
31 Closing.................... 4 ............. 465 — —
Continuing Problem Concluded

Insurance Expense 57
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2002
Dec. 31 Adjusting................. 3 70 ............. 70 .............
31 Closing.................... 4 ............. 70 — —

Depreciation Expense 58
2002
Dec. 31 Adjusting................. 3 50 ............. 50 .............
31 Closing.................... 4 ............. 50 — —

Miscellaneous Expense 59
2002
Dec. 1 Balance....................  ............. ............. 75 .............
4 .................................. 1 75 ............. 150 .............
29 .................................. 2 85 ............. 235 .............
31 Closing.................... 4 ............. 235 — —

4.
DANCIN MUSIC
Post-Closing Trial Balance
December 31, 2002
Cash...................................................................................... 3,665
Accounts Receivable.......................................................... 1,480
Supplies................................................................................ 85
Prepaid Insurance............................................................... 1,610
Office Equipment................................................................. 2,500
Accumulated Depreciation—Office Equipment............... 50
Accounts Payable............................................................... 2,875
Wages Payable.................................................................... 65
Unearned Revenue.............................................................. 1,200
Lynn Kwan, Capital............................................................. 5,150
9,340 9,340
 COMPREHENSIVE PROBLEM 1

1. and 2. JOURNAL Pages 1 and 2

Post.
Date Description Ref. Debit Credit
2003
June 1 Cash............................................................... 11 10,000
Accounts Receivable................................... 12 1,500
Supplies......................................................... 14 1,250
Office Equipment.......................................... 18 7,500
Dustin Larkin, Capital.......................... 31 20,250
1 Prepaid Rent.................................................. 15 4,500
Cash...................................................... 11 4,500
2 Prepaid Insurance........................................ 16 1,800
Cash...................................................... 11 1,800
4 Cash............................................................... 11 3,000
Unearned Fees..................................... 23 3,000
5 Office Equipment.......................................... 18 1,800
Accounts Payable................................ 21 1,800
6 Cash............................................................... 11 800
Accounts Receivable.......................... 12 800
10 Miscellaneous Expense............................... 59 120
Cash...................................................... 11 120
12 Accounts Payable........................................ 21 800
Cash...................................................... 11 800
12 Accounts Receivable................................... 12 2,250
Fees Earned.......................................... 41 2,250
14 Salary Expense............................................. 51 400
Cash...................................................... 11 400
17 Cash............................................................... 11 3,175
Fees Earned.......................................... 41 3,175
18 Supplies......................................................... 14 750
Cash...................................................... 11 750
20 Accounts Receivable................................... 12 1,100
Fees Earned.......................................... 41 1,100
24 Cash............................................................... 11 1,850
Fees Earned.......................................... 41 1,850
Comp. Prob. 1 Continued

1. and 2. JOURNAL Pages 1 and 2

Post.
Date Description Ref. Debit Credit
2003
June 26 Cash............................................................... 11 1,600
Accounts Receivable.......................... 12 1,600
27 Salary Expense............................................. 51 400
Cash...................................................... 11 400
29 Miscellaneous Expense............................... 59 130
Cash...................................................... 11 130
30 Miscellaneous Expense............................... 59 200
Cash...................................................... 11 200
30 Cash............................................................... 11 2,050
Fees Earned.......................................... 41 2,050
30 Accounts Receivable................................... 12 1,000
Fees Earned.......................................... 41 1,000
30 Dustin Larkin, Drawing................................ 32 4,500
Cash...................................................... 11 4,500
Comp. Prob. 1 Continued

2., 5., and 6.

Cash 11
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
June 1 .................................. 1 10,000 ............. 10,000 .............
1 .................................. 1 ............. 4,500 5,500 .............
2 .................................. 1 ............. 1,800 3,700 .............
4 .................................. 1 3,000 ............. 6,700 .............
6 .................................. 1 800 ............. 7,500 .............
10 .................................. 1 ............. 120 7,380 .............
12 .................................. 1 ............. 800 6,580 .............
14 .................................. 1 ............. 400 6,180 .............
17 .................................. 2 3,175 ............. 9,355 .............
18 .................................. 2 ............. 750 8,605 .............
24 .................................. 2 1,850 ............. 10,455 .............
26 .................................. 2 1,600 ............. 12,055 .............
27 .................................. 2 ............. 400 11,655 .............
29 .................................. 2 ............. 130 11,525 .............
30 .................................. 2 ............. 200 11,325 .............
30 .................................. 2 2,050 ............. 13,375 .............
30 .................................. 2 ............. 4,500 8,875 .............

Accounts Receivable 12
2003
June 1 .................................. 1 1,500 ............. 1,500 .............
6 .................................. 1 ............. 800 700 .............
12 .................................. 1 2,250 ............. 2,950 .............
20 .................................. 2 1,100 ............. 4,050 .............
26 .................................. 2 ............. 1,600 2,450 .............
30 .................................. 2 1,000 ............. 3,450 .............

Supplies 14
2003
June 1 .................................. 1 1,250 ............. 1,250 .............
18 .................................. 2 750 ............. 2,000 .............
30 Adjusting................. 3 ............. 980 1,020 .............
Comp. Prob. 1 Continued

Prepaid Rent 15
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
June 1 .................................. 1 4,500 ............. 4,500 .............
30 Adjusting................. 3 ............. 1,500 3,000 .............

Prepaid Insurance 16
2003
June 2 .................................. 1 1,800 ............. 1,800 .............
30 Adjusting................. 3 ............. 150 1,650 .............

Office Equipment 18
2003
June 1 .................................. 1 7,500 ............. 7,500 .............
5 .................................. 1 1,800 ............. 9,300 .............

Accumulated Depreciation 19
2003
June 30 Adjusting................. 3 ............. 500 ............. 500

Accounts Payable 21
2003
June 5 .................................. 1 ............. 1,800 ............. 1,800
12 .................................. 1 800 ............. ............. 1,000

Salaries Payable 22
2003
June 30 Adjusting................. 3 ............. 120 ............. 120

Unearned Fees 23
2003
June 4 .................................. 1 ............. 3,000 ............. 3,000
30 Adjusting................. 3 1,000 ............. ............. 2,000
Comp. Prob. 1 Continued

Dustin Larkin, Capital 31

Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
June 1 .................................. 1 ............. 20,250 ............. 20,250
30 Closing.................... 4 ............. 7,925 ............. 28,175
30 Closing.................... 4 4,500 ............. ............. 23,675

Dustin Larkin, Drawing 32

2003
June 30 .................................. 2 4,500 ............. 4,500 .............
30 Closing.................... 4 ............. 4,500 — —

Income Summary 33
2003
June 30 Closing.................... 4 ............. 12,425 ............. 12,425
30 Closing.................... 4 4,500 ............. ............. 7,925
30 Closing.................... 4 7,925 ............. — —

Fees Earned 41
2003
June 12 .................................. 1 ............. 2,250 ............. 2,250
17 .................................. 2 ............. 3,175 ............. 5,425
20 .................................. 2 ............. 1,100 ............. 6,525
24 .................................. 2 ............. 1,850 ............. 8,375
30 .................................. 2 ............. 2,050 ............. 10,425
30 .................................. 2 ............. 1,000 ............. 11,425
30 Adjusting................. 3 ............. 1,000 ............. 12,425
30 Closing.................... 4 12,425 ............. — —

Salary Expense 51
2003
June 14 .................................. 1 400 ............. 400 .............
27 .................................. 2 400 ............. 800 .............
30 Adjusting................. 3 120 ............. 920 .............
30 Closing.................... 4 ............. 920 — —
Comp. Prob. 1 Continued

Rent Expense 52
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.

2003
June 30 Adjusting................. 3 1,500 ............. 1,500 .............
30 Closing.................... 4 ............. 1,500 — —

Supplies Expense 53
2003
June 30 Adjusting................. 3 980 ............. 980 .............
30 Closing.................... 4 ............. 980 — —

Depreciation Expense 54
2003
June 30 Adjusting................. 3 500 ............. 500 .............
30 Closing.................... 4 ............. 500 — —

Insurance Expense 55
2003
June 30 Adjusting................. 3 150 ............. 150 .............
30 Closing.................... 4 ............. 150 — —

Miscellaneous Expense 59
2003
June 10 .................................. 1 120 ............. 120 .............
29 .................................. 2 130 ............. 250 .............
30 .................................. 2 200 ............. 450 .............
30 Closing.................... 4 ............. 450 — —
Comp. Prob. 1 Continued

3.
QUIXOTE CONSULTING
Work Sheet
For the Month Ended June 30, 2003
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

1 Cash................................. 8,875 ............... ............... ............... 8,875 ............... ............... ............... 8,875 ............. 1
2 Accounts Receivable..... 3,450 ............... ............... ............... 3,450 ............... ............... ............... 3,450 ............. 2
3 Supplies.......................... 2,000 ............... ............... (b) 980 1,020 ............... ............... ............... 1,020 ............. 3
4 Prepaid Rent................... 4,500 ............... ............... (e) 1,500 3,000 ............... ............... ............... 3,000 ............. 4
5 Prepaid Insurance.......... 1,800 ............... ............... (a) 150 1,650 ............... ............... ............... 1,650 ............. 5
6 Office Equipment........... 9,300 ............... ............... ............... 9,300 ............... ............... ............... 9,300 ............. 6
7 Accum. Depreciation..... ............... ............... ............... (c) 500 ............... 500 ............... ............... ............... 500 7
8 Accounts Payable.......... ............... 1,000 ............... ............... ............... 1,000 ............... ............... ............... 1,000 8
9 Salaries Payable............. ............... ............... ............... (d) 120 ............... 120 ............... ............... ............... 120 9
10 Unearned Fees................ ............... 3,000 (f) 1,000 ............... ............... 2,000 ............... ............... ............... 2,000 10
11 Dustin Larkin, Capital.... ............... 20,250 ............... ............... ............... 20,250 ............... ............... ............... 20,250 11
12 Dustin Larkin, Drawing. . 4,500 ............... ............... ............... 4,500 ............... ............... ............... 4,500 ............. 12
13 Fees Earned.................... ............... 11,425 ............... (f) 1,000 ............... 12,425 ............... 12,425 ............... ............. 13
14 Salary Expense............... 800 ............... (d) 120 ............... 920 ............... 920 ............... ............... ............. 14
15 Rent Expense................. ............... ............... (e) 1,500 ............... 1,500 ............... 1,500 ............... ............... ............. 15
16 Supplies Expense........... ............... ............... (b) 980 ............... 980 ............... 980 ............... ............... ............. 16
17 Depreciation Expense.... ............... ............... (c) 500 ............... 500 ............... 500 ............... ............... ............. 17
18 Insurance Expense......... ............... ............... (a) 150 ............... 150 ............... 150 ............... ............... ............. 18
19 Miscellaneous Exp......... 450 ............... ............... ............... 450 ............... 450 ............... ............... ............. 19
20 35,675 35,675 4,250 4,250 36,295 36,295 4,500 12,425 31,795 23,870 20
21 Net income...................... 7,925 ............... ............... 7,925 21
22 12,425 12,425 31,795 31,795 22
Comp. Prob. 1 Continued

4.
QUIXOTE CONSULTING
Income Statement
For the Month Ended June 30, 2003
Fees earned.......................................................................... $12,425
Operating expenses:
Rent expense................................................................ $1,500
Supplies expense......................................................... 980
Salary expense............................................................. 920
Depreciation expense.................................................. 500
Insurance expense....................................................... 150
Miscellaneous expense............................................... 450
Total operating expenses........................................ 4,500
Net income........................................................................... $ 7,925

QUIXOTE CONSULTING
Statement of Owner’s Equity
For the Month Ended June 30, 2003
Dustin Larkin, capital, June 1, 2003.................................. $ 0
Additional investments during the month....................... 20,250
Total...................................................................................... $20,250
Net income for the month................................................... $7,925
Less withdrawals................................................................. 4,500
Increase in owner’s equity................................................. 3,425
Dustin Larkin, capital, June 30, 2003................................ $ 23,675
Comp. Prob. 1 Continued

QUIXOTE CONSULTING
Balance Sheet
June 30, 2003
Assets Liabilities
Current assets: Current liabilities:
Cash............................. $8,875 Accounts payable.... $1,000
Accounts receivable. . 3,450 Salaries payable...... 120
Supplies...................... 1,020 Unearned fees.......... 2,000
Prepaid rent................ 3,000 Total liabilities....... $ 3,120
Prepaid insurance...... 1,650
Total current assets $17,995
Property, plant, and Owner’s Equity
equipment:.................. Dustin Larkin,
Office equipment........ $9,300 capital....................... 23,675
Less accum. depr.... 500 8,800 Total liabilities and
Total assets................... $ 26,795 owner’s equity......... $ 26,795

5. JOURNAL Page 3
Post.
Date Ref. Debit Credit
Adjusting Entries
2003
June 30 Insurance Expense....................................... 55 150
Prepaid Insurance................................ 16 150
30 Supplies Expense......................................... 53 980
Supplies................................................ 14 980
30 Depreciation Expense.................................. 54 500
Accumulated Depreciation................. 19 500
30 Salary Expense............................................. 51 120
Salaries Payable................................... 22 120
30 Rent Expense................................................ 52 1,500
Prepaid Rent......................................... 15 1,500
30 Unearned Fees.............................................. 23 1,000
Fees Earned.......................................... 41 1,000
Comp. Prob. 1 Concluded

6. JOURNAL Page 4
Post.
Date Ref. Debit Credit
Closing Entries
2003
June 30 Fees Earned.................................................. 41 12,425
Income Summary................................. 33 12,425
30 Income Summary.......................................... 33 4,500
Salary Expense.................................... 51 920
Rent Expense....................................... 52 1,500
Supplies Expense................................ 53 980
Depreciation Expense......................... 54 500
Insurance Expense.............................. 55 150
Miscellaneous Expense...................... 59 450
30 Income Summary.......................................... 33 7,925
Dustin Larkin, Capital.......................... 31 7,925
30 Dustin Larkin, Capital.................................. 31 4,500
Dustin Larkin, Drawing....................... 32 4,500

7.
QUIXOTE CONSULTING
Post-Closing Trial Balance
June 30, 2003
Cash...................................................................................... 8,875
Accounts Receivable.......................................................... 3,450
Supplies................................................................................ 1,020
Prepaid Rent........................................................................ 3,000
Prepaid Insurance............................................................... 1,650
Office Equipment................................................................. 9,300
Accumulated Depreciation................................................. 500
Accounts Payable............................................................... 1,000
Salaries Payable.................................................................. 120
Unearned Fees..................................................................... 2,000
Dustin Larkin, Capital......................................................... 23,675
Totals............................................................................. 27,295 27,295
 SPECIAL ACTIVITIES

Activity 4–1

It is unacceptable to prepare financial statements in such a way that users of the

statements would be misled. The October 31, 2003 balance sheet of Van Dyck
Co. could be misleading in two ways. First, the account receivable from Christie
should be segregated and reported separately from trade (customer) receivables.
Such receivables are normally reported as “officer receivables” or “other
receivables” and accompanied by a footnote disclosing the nature of the
receivable. Second, given that the receivable has been outstanding since
February 2002, it is questionable whether the receivable from Christie should be
classified as a current asset. Chadwick could justify the classification as
“current” if Christie has agreed to a written schedule for repaying within the next
year. Alternatively, the receivable could be classified as current if it has been
converted to a note receivable with a specific due date within the next year.

In summary, because of the preceding issues, it appears that Chadwick is not

behaving in a professional manner. Note: It is a criminal offense to submit false
or misleading documents to a bank in applying for a loan.
Activity 4–2

1. (a) With the decreasing cost of computers and related software, Flanders
Supplies Co. may find it desirable to computerize its financial reporting
system. In many cases, the computerization of a manual accounting
system reduces the overall cost of the accounting function.
(b) A computerized accounting system would allow for eliminating the work
sheet, and thus, financial statements could be prepared with “a push of a
button.” However, adjustment data would still need to be recorded at the
end of the accounting period before the financial statements could be
prepared.
(c) In designing a computerized financial reporting (accounting) system, it is
essential that proper accounting principles, concepts, and procedures be
followed. At a minimum, basic controls such as the use of the double-
entry accounting system should be included. For example, debits must
equal credits for all transactions, and assets must equal liabilities plus
owner’s equity. In addition, the system should be designed to detect
obvious errors, such as a credit (minus) balance for supplies or prepaid
insurance. In other words, to design an adequate financial reporting
system, a computer programmer must have a thorough understanding of
accounting and the accounting cycle.
Note: Numerous accounting software packages, similar to the general
ledger software package accompanying this text, are available. Therefore,
it would probably be better for Flanders Supplies Co. to purchase an
existing accounting software package rather than trying to design its
own.
2. Supplies cannot have a credit balance, since the supplies account is an asset
account. A business cannot have a “negative” asset. Thus, the only way that
a credit balance could have occurred in supplies is the result of an error in
recording one or more transactions.
Activity 4–3

1. A set of financial statements provides useful information concerning the

economic condition of a company. For example, the balance sheet describes
the financial condition of the company as of a given date and is useful in
assessing the company’s financial soundness and liquidity. The income
statement describes the results of operations for a period and indicates the
profitability of the company. The statement of owner’s equity describes the
changes in the owner’s interest in the company for a period. Each of these
statements is useful in evaluating whether to extend credit to the company.

2. The following adjustments might be necessary before an accurate set of

financial statements could be prepared:
 No supplies expense is shown. The supplies account should be adjusted
for the supplies used during the year.
 No depreciation expense is shown for the trucks or equipment accounts.
An adjusting entry should be prepared for depreciation expense on each
of these assets.
 An inquiry should be made as to whether any accrued expenses, such as
wages or utilities, exist at the end of the year.
 An inquiry should be made as to whether any prepaid expenses, such as
rent or insurance, exist at the end of the year.
 An inquiry should be made as to whether the owner withdrew any funds
from the company during the year. No drawing account is shown in the
"Statement of Accounts."
 The following items should be relabeled for greater clarity:
Billings Due from Others—Accounts Receivable
Amounts Owed to Others—Accounts Payable
Investment in Business—Erica Salley, Capital
Other Expenses—Miscellaneous Expense

Note to Instructors: The preceding items are not intended to include all
adjustments that might exist in the Statement of Accounts. The possible
adjustments listed include only items that have been covered in Chapters 1–4.
For example, uncollectible accounts expense (discussed in a later chapter) is
not mentioned.
Activity 4–3 Concluded

3. In general, the decision to extend a loan is based upon an assessment of the

profitability and riskiness of the loan. Although the financial statements
provide useful data for this purpose, other factors such as the following
might also be significant:
 The due date and payment terms of the loan.
 Security for the loan. For example, whether Erica Salley is willing to pledge
personal assets in support of the loan will affect the riskiness of the loan.
 The intended use of the loan. For example, if the loan is to purchase real
estate (possibly for a future building site), the real estate could be used as
security for the loan.
 The projected profitability of the company.

Activity 4–4

Note to Instructors: The purpose of this activity is to familiarize students with the
information that a balance sheet provides about a company.