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Accounting Chapter 3 SM

Wiley Accounting Principles New Edtion Chapter 3 SOLUTION MANUAL

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0% found this document useful (0 votes)

1K views80 pages

Accounting Chapter 3 SM

Wiley Accounting Principles New Edtion Chapter 3 SOLUTION MANUAL

Uploaded by

Faizan Ul Karim

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

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Accounting principles by kieso 13th edition, CH# 3 Solution

Accounting Principles by Kieso 13th Edition (Government College University Lahore)

StuDocu is not sponsored or endorsed by any college or university

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CHAPTER 3
Adjusting the Accounts

ASSIGNMENT CLASSIFICATION TABLE

Brief A
Learning Objectives Questions Exercises Do It! Exercises Problems

*1. Explain the accrual basis of 1, 2, 3, 4, 5, 1, 2, 8 1 1, 2, 3, 4, 10,

accounting and the reasons 6, 7, 8, 18 11
for adjusting entries.

*2. Prepare adjusting entries for 8, 9, 10, 11, 2, 3, 4, 5, 6,8 2 4, 5, 6, 7, 8, 1A, 2A, 3A,
deferrals. 12, 13, 18, 9, 10, 11, 12, 4A, 5A, 6A
19, 20 13, 14, 15,
17, 19

*3. Prepare adjusting entries for 8, 14, 15, 16, 7, 8 3 4, 5, 6, 7, 8, 1A, 2A, 3A,
accruals. 17, 18, 19, 9, 10, 11, 12, 4A, 5A, 6A
20 13, 14, 16,
17, 19

*4. Describe the nature and 21 9, 10 4 6, 10, 11, 17, 1A, 2A, 3A,
purpose of an adjusted trial 18 5A, 6A
balance.

*5. Prepare adjusting entries for 22 11 20, 21 6A

the alternative treatment of
deferrals.

*6. Discuss financial reporting 23, 24, 25, 12, 13, 14, 22, 23, 24,
concepts. 26, 27, 28 15 25, 26

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

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ASSIGNMENT CHARACTERISTICS TABLE

Problem Difficulty Time

Number Description Level Allotted (min.)

1A Prepare adjusting entries, post to ledger accounts, Easy 40–50

and prepare an adjusted trial balance.

2A Prepare adjusting entries, post, and prepare adjusted Easy 50–60

trial balance, and financial statements.

3A Prepare adjusting entries and financial statements. Moderate 40–50

4A Prepare adjusting entries. Moderate 30–40

5A Journalize transactions and follow through accounting Moderate 60–70

cycle to preparation of financial statements.

6A Prepare adjusting entries, adjusted trial balance, Moderate 40–50

and financial statements using appendix.

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ANSWERS TO QUESTIONS

1. (a) Under the time period assumption, an accountant is required to determine the relevance of
each business transaction to specific accounting periods.
(b) An accounting time period of one year in length is referred to as a fiscal year. A fiscal year
that extends from January 1 to December 31 is referred to as a calendar year. Accounting
periods of less than one year are called interim periods.
LO1 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Measurement

2. The two generally accepted accounting principles that relate to adjusting the accounts are:
(1) The revenue recognition principle, which states that revenue should be recognized in the
accounting period in the performance obligation is satisfied.
(2) The expense recognition principle, which states that efforts (expenses) be matched with
accomplishments (revenues).
LO1 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Measurement

3. The law firm should recognize the revenue in April. The revenue recognition principle states that
revenue should be recognized in the accounting period in the performance obligation is satisfied.
LO1 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

4. Information presented on an accrual basis is more useful than on a cash basis because it reveals
relationships that are likely to be important in predicting future results. To illustrate, under accrual
accounting, revenues are recognized when the performance obligation is satisfied so they can be
related to the economic environment in which they occur. Trends in revenues are thus more
meaningful.
LO1 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement

5. Expenses of $4,500 should be deducted from the revenues in April. Under the expense
recognition principle efforts (expenses) should be matched with accomplishments (revenues).
LO1 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Measurement

6. No, adjusting entries are required by the revenue recognition and expense recognition principles.
LO1 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

7. A trial balance may not contain up-to-date information for financial statements because:
(1) Some events are not journalized daily because it is not efficient to do so.
(2) The expiration of some costs occurs with the passage of time rather than as a result of daily
transactions.
(3) Some items may be unrecorded because the transaction data are not yet known.
LO1 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Measurement

8. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of prepaid
expenses and unearned revenues. Accruals consist of accrued revenues and accrued expenses.
LO1, 2, 3 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

9. In the adjusting entry for a prepaid expense, an expense is debited and an asset is credited.
LO2 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

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Questions Chapter 3 (Continued)

10. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life in
a rational and systematic manner. Depreciation results in the presentation of the book value of
the asset, not its fair value.
LO2 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

11. Depreciation expense is an expense account whose normal balance is a debit. This account
shows the cost that has expired during the current accounting period. Accumulated depreciation
is a contra asset account whose normal balance is a credit. The balance in this account is the
depreciation that has been recognized from the date of acquisition to the balance sheet date.
LO2 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement

12. Equipment................................................................................................. $18,000

Less: Accumulated Depreciation—Equipment.......................................... 6,000 $12,000
LO2 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

*13. In the adjusting entry for an unearned revenue, a liability is debited and a revenue is credited.
LO2 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

*14. Asset and revenue. An asset would be debited and a revenue would be credited.
LO3 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

*15. An expense is debited and a liability is credited in the adjusting entry.

LO3 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

*16. Net income was understated $200 because prior to adjustment, revenues are understated by
$900 and expenses are understated by $700. The difference in this case is $200 ($900 – $700).
($900 - $700 = $200 understated)
(Rev. understated – Exp. understated = Net inc. understated)
LO3 BT: AN Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Measurement, Reporting

*17. The entry is:

Jan. 9 Salaries and Wages Payable........................................................ 2,000
Salaries and Wages Expense........................................................ 3,000
Cash...................................................................................... 5,000
LO3 BT: AP Difficulty: Easy TOT: 2 min. AACSB: Analytic AICPA FC: Measurement

*18. (a) Accrued revenues. (d) Accrued expenses or prepaid expenses.

(b) Unearned revenues. (e) Prepaid expenses.
(c) Accrued expenses. (f) Accrued revenues or unearned revenues.
LO1, 2, 3 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement

*19. (a) Salaries and Wages Payable. (d) Supplies Expense.

(b) Accumulated Depreciation. (e) Service Revenue.
(c) Interest Expense. (f) Service Revenue.
LO2, 3 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement

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Questions Chapter 3 (Continued)

20. Disagree. An adjusting entry affects only one balance sheet account and one income statement
account.
LO2, 3 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

21. Financial statements can be prepared from an adjusted trial balance because the balances of
all accounts have been adjusted to show the effects of all financial events that have occurred
during the accounting period.
LO4 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

*22. For Supplies Expense (prepaid expense): expenses are overstated and assets are understated.
The adjusting entry is:
Assets (Supplies)....................................................................................... XX
Expenses (Supplies Expense)............................................................. XX
For Rent Revenue (unearned revenues): revenues are overstated and liabilities are understated.
The adjusting entry is:
Revenues (Rent Revenue)........................................................................ XX
Liabilities (Unearned Rent Revenue)................................................... XX
LO5 BT: AP Difficulty: Moderate TOT: 5 min. AACSB: Analytic AICPA FC: Measurement

**23. (a) The primary objective of financial reporting is to provide financial information that is useful to
investors and creditors for making decisions about providing capital.
(b) The fundamental qualitative characteristics are relevance and faithful representation. The
enhancing qualities are comparabiIity, consistency, verifiability, timeliness, and
understandability.
LO6 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

*24. Gross is correct. Consistency means using the same accounting principles and accounting
methods from period to period within a company. Without consistency in the application of
accounting principles, it is difficult to determine whether a company is better off, worse off, or
the same from period to period.
LO6 BT: C Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement

*25. Comparability results when different companies use the same accounting principles.
Consistency means using the same accounting principles and methods from year to year within
the same company.
LO6 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

*26. The constraint is the cost constraint. The cost constraint allows accounting standard setters to
weigh the cost that companies will incur to provide information against the benefit that financial
statement users will gain from having the information available.
LO6 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

*27. Accounting relies primarily on two measurement principles. Fair value is sometimes used when
market price information is readily available. However, in many situations reliable market price
information is not available. In these instances, accounting relies on cost as its basis.
LO6 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

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Questions Chapter 3 (Continued)

*28. The economic entity assumption states that every economic entity can be separately identified
and accounted for. This assumption requires that the activities of the entity be kept separate and
distinct from (1) the activities of its owners (the shareholders) and (2) all other economic entities.
A shareholder of a company charging personal living costs as expenses of the company is an
example of a violation of the economic entity assumption.
LO6 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Measurement

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SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3-1

(a) Prepaid Insurance—to recognize insurance expired during the period.

(b) Depreciation Expense—to account for the depreciation that has

occurred on the asset during the period.

(d) Interest Payable—to recognize interest accrued but unpaid on notes

payable.
LO1 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Measurement

BRIEF EXERCISE 3-2

(a) (b)
Item Type of Adjustment Account Balances before Adjustment
1. Prepaid Expenses Assets Overstated
Expenses Understated

2. Accrued Revenues Assets Understated

Revenues Understated

3. Accrued Expenses Expenses Understated

Liabilities Understated

4. Unearned Revenues Liabilities Overstated

Revenues Understated
LO1, 2 BT: AN Difficulty: Moderate TOT: 8 min. AACSB: Analytic AICPA FC: Measurement

BRIEF EXERCISE 3-3

Dec. 31 Supplies Expense.................................................. 4,600
Supplies ($6,700 – $2,100)............................ 4,600

Supplies Supplies Expense

6,700 12/31 4,600 12/31 4,600
12/31 Bal. 2,100
($6,700 - $2,100 = $4,600)
(Beg. sup. bal. – End. sup. bal. = Supp. exp.)

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LO2 BT: AN Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Measurement
BRIEF EXERCISE 3-4

Dec. 31 Depreciation Expense........................................... 3,750

Accumulated Depreciation—
Equipment.................................................. 3,750

Depreciation Expense Accum. Depreciation—Equipment

12/31 3,750 12/31 3,750

Balance Sheet:
Equipment............................................................. $30,000
Less: Accumulated Depreciation—
Equipment................................................. 3,750 $26,250
LO2 BT: AN Difficulty: Easy TOT: 5 min. AACSB: Analytic AICPA FC: Measurement, Reporting

BRIEF EXERCISE 3-5

July 1 Prepaid Insurance............................................. 15,120

Cash........................................................... 15,120

Dec. 31 Insurance Expense [($15,120 ÷ 4) X 1/2]......... 1,890

Prepaid Insurance..................................... 1,890

Prepaid Insurance Insurance Expense

7/1 15,120 12/31 1,890 12/31 1,890
12/31 Bal.13,230
[($15,120 ÷ 4) x ½ = $1,890]
[(Tot. amt. of ins. purch. ÷ Life of policy) x ½ yr. = Ins. exp.]
LO2 BT: AN Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Measurement

BRIEF EXERCISE 3-6

July 1 Cash................................................................... 15,120

Unearned Service Revenue...................... 15,120

Dec. 31 Unearned Service Revenue............................. 1,890

Service Revenue....................................... 1,890

Unearned Service Revenue Service Revenue

12/31 1,890 7/1 15,120 12/31 1,890
12/31 Bal.13,230

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[($15,120 ÷ 4) x ½ = $1,890]
[(Tot. amt. of ins. sold ÷ Life of policy) x ½ yr. = Serv. rev.]
LO2 BT: AN Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Measurement
BRIEF EXERCISE 3-7

1. Dec. 31 Interest Expense.................................... 400

Interest Payable..................................... 400

2. 31 Accounts Receivable.................................... 2,300

Service Revenue.................................... 2,300

3. 31 Salaries and Wages Expense....................... 900

Salaries and Wages Payable................. 900
LO3 BT: AN Difficulty: Easy TOT: 6 min. AACSB: Analytic AICPA FC: Measurement

BRIEF EXERCISE 3-8

(a) (b)
Account Type of Adjustment Related Account
Accounts Receivable Accrued Revenues Service Revenue
Prepaid Insurance Prepaid Expenses Insurance Expense
Accum. Depr.—Equipment Prepaid Expenses Depreciation Expense
Interest Payable Accrued Expenses Interest Expense
Unearned Service Revenue Unearned Revenues Service Revenue
LO1, 2, 3 BT: AN Difficulty: Easy TOT: 5 min. AACSB: Analytic AICPA FC: Measurement

BRIEF EXERCISE 3-9

MILLER COMPANY
Income Statement
For the Year Ended December 31, 2020

Revenues
Service revenue...................................................... $39,000
Expenses
Salaries and wages expense................................. $16,000
Rent expense.......................................................... 4,000
Insurance expense................................................. 2,000
Supplies expense................................................... 1,500
Depreciation expense............................................ 1,300
Total expenses................................................ 24,800
Net income..................................................................... $14,200
[$39,000 – ($16,000 + $4,000 + $2,000 + $1,500 + $1,300) = $14,200]

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[Serv. rev. – (Sal. & wages exp. + Rent exp. + Ins. exp. + Supp. exp. + Depr. exp.) = Net inc.]
LO4 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Reporting

BRIEF EXERCISE 3-10

MILLER COMPANY
Owner’s Equity Statement
For the Year Ended December 31, 2020

Owner’s capital, January 1............................................................... $16,400

Add: Net income.............................................................................. 14,200
30,600
Less: Drawings................................................................................ 7,000
Owner’s capital, December 31......................................................... $23,600
($16,400 + $14,200 - $7,000 = $23,600)
[Beg. owner’s cap. + Net inc. – Owner’s draws. = End. owner’s cap.]
LO4 BT: AP Difficulty: Easy TOT: 2 min. AACSB: Analytic AICPA FC: Reporting

*BRIEF EXERCISE 3-11

(a) Apr. 30 Supplies.......................................................... 400

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

(b) 30 Service Revenue............................................ 3,000

Unearned Service Revenue................... 3,000

LO5 BT: AN Difficulty: Moderate TOT: 4 min. AACSB: Analytic AICPA FC: Measurement

*BRIEF EXERCISE 3-12

(a) Predictive value.

(b) Confirmatory value.
(c) Materiality.
(d) Complete.
(e) Free from error.
(f) Comparability.
(g) Verifiability.
(h) Timeliness.
LO6 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Measurement

*BRIEF EXERCISE 3-13

(a) Relevant.
3-10 Copyright © 2018 WILEY Weygandt, Accounting Principles, 13/e, Solutions Manual (For Instructor Use Only)

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(b) Faithful representation.

*BRIEF EXERCISE 3-14

(a) 1. Predictive value.

(b) 2. Neutral.
(c) 3. Verifiable.
(d) 4. Timely.
LO6 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

*BRIEF EXERCISE 3-15

(c) Financial statements should disclose all events and circumstances

that would matter to users of financial statements.
LO6 BT: C Difficulty: Easy TOT: 1 min. AACSB: None AICPA FC: Measurement

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SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 3-1

1. (d) 2. (e) 3. (h) 4. (c)

LO1 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

DO IT! 3-2

1. Insurance Expense........................................................ 400

Prepaid Insurance.................................................. 400
(To record insurance expired)

2. Supplies Expense ($2,500 – $1,600)............................ 900

Supplies.................................................................. 900
(To record supplies used)
($2,500 - $1,600 = $900)
(Beg. sup. bal. – Supp. on hand = Supp. exp.)

3. Depreciation Expense................................................... 480

Accumulated Depreciation—Equipment.............. 480
(To record monthly depreciation)

4. Unearned Service Revenue ($9,000 x 2/5)................... 3,600

Service Revenue..................................................... 3,600
(To record revenue for services provided)
($9,000 x 2/5 = $3,600)
(Unearned serv. rev. amt. x Fraction of serv. performed = Serv. rev.)
LO2 BT: AN Difficulty: Easy TOT: 6 min. AACSB: Analytic AICPA FC: Measurement

DO IT! 3-3

1. Salaries and Wages Expense....................................... 1,300

Salaries and Wages Payable................................. 1,300
(To record accrued salaries)

2. Interest Expense ($20,000 x .06 x 1/12)....................... 100

Interest Payable...................................................... 100
(To record accrued interest)
($20,000 x .06 x 1/12 = $100)
(Prin. x Int. rate x one month = Int. exp.)

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DO IT! 3-3 (Continued)

3. Accounts Receivable.................................................... 2,400

Service Revenue..................................................... 2,400
(To record revenue for service performed)
LO3 BT: AN Difficulty: Easy TOT: 5 min. AACSB: Analytic AICPA FC: Measurement

DO IT! 3-4

(a) The net income is determined by adding revenues and subtracting

expenses. The net income is computed as follows:
Revenues
Service revenue................................................. $11,360
Rent revenue...................................................... 1,600
Total revenues............................................ $12,960
Expenses
Salaries and wages expense............................ 7,400
Rent expense..................................................... 1,200
Depreciation expense....................................... 700
Utilities expense................................................ 410
Supplies expense.............................................. 160
Interest expense................................................ 40
Total expenses........................................... 9,910
Net income................................................................. $ 3,050
[($11,360 + $1,600) – ($7,400 + $1,200 + $700 + $410 + $160 + $40) = $3,050]
[(Serv. rev. + Rent rev.) – (Sal. & wages exp. + Rent exp. + Depr. exp. + Util. exp. + Supp. exp. + Int. exp.) = Net
inc.]

(b) Total assets and liabilities are computed as follows:

Assets
Cash.................................................................... $ 5,360
Accounts receivable.......................................... 580
Prepaid rent....................................................... 1,120
Supplies............................................................. 920
Equipment.......................................................... $12,000
Less: Accumulated depreciation—
Equipment............................................... 700 11,300
Total assets................................................ $19,280

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DO IT! 3-4 (Continued)

Liabilities
Notes payable.................................................... $ 4,000
Accounts payable.............................................. 790
Unearned rent revenue..................................... 400
Salaries and wages payable............................. 300
Interest payable................................................. 40
Total liabilities............................................ $ 5,530
[($5,360 + $580 + $1,120 + $920) + ($12,000 - $700) = $19,280]; [(Cash + Accts. rec. + Prepd. rent. + Supp.) +
(Equip. – Accum. depr.-equip.) = Tot. assets]
($4,000 + $790 + $400 + $300 + $40 = $5,530); (Notes pay. + Accts. pay. + Unearned rent rev. + Sal. & wages
pay. + Int. pay. = Tot. liabl.)

(c) Owner’s Capital at June 30, 2020, can be computed in one of two ways.
Using the basic accounting equation (Assets = Liabilities + Owner’s
Equity), we find that total assets are $19,280 and total liabilities are
$5,530; therefore, Owner’s Equity (Owner’s Capital) is $13,750 ($19,280 –
$5,530).

Another way to compute the Owner’s Capital at June 30, 2020, is as

follows:

Owner’s capital, April 1............................................. $ –0–

Add: Investments...................................................... $11,200
Net income....................................................... 3,050 14,250
14,250
Less: Drawings.......................................................... 500
Owner’s capital, June 30.......................................... $13,750
($19,280 - $5,530 = $13,750); (Tot. assets – Tot. liabl. = Owner’s cap.) OR
[$0 + ($11,200 + $3,050) - $500 = $13,750]; [(Beg. owner’s cap. + (Invest. + Net inc.) – Owner’s draws. = End.
owner’s cap.]
LO4 BT: AN Difficulty: Moderate TOT: 25 min. AACSB: Analytic AICPA FC: Reporting

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SOLUTIONS TO EXERCISES

EXERCISE 3-1

1. True.
2. True.
3. False. Many business transactions affect more than one of these artificial
time periods. For example, the purchase of a building affects expenses
for many years.
4. True.
5. False. A time period that lasts less than one year, such as monthly or
quarterly periods, is called an interim period.
6. False. All calendar years are fiscal years, but not all fiscal years are
calendar years. An accounting time period that is one year in length is
referred to as a fiscal year. A fiscal year that starts on January 1 and
ends on December 31 is a calendar year.
LO1 BT: C Difficulty: Easy TOT: 5 min. AACSB: None AICPA FC: Measurement

EXERCISE 3-2

(a) Accrual-basis accounting records the transactions that change a

company’s financial statements in the periods in which the events
occur rather than in the periods in which the company receives or pays
cash. Information presented on an accrual basis is useful because it
reveals relationships that are likely to be important in predicting future
results. Conversely, under cash-basis accounting, revenue is recorded
only when cash is received, and an expense is recognized only when
cash is paid. As a result, the cash basis of accounting often leads to
misleading financial statements.

(b) Politicians might desire a cash-basis accounting system over an accrual-

basis system because if an accrual-accounting system is used, it could
mean that billions in government liabilities presently unrecorded would
have to be reported in the federal budget immediately. The recognition
of these additional liabilities would make the deficit even worse. This
is not what politicians would like to see and be held responsible for.

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EXERCISE 3-2 (Continued)

(c) Dear Senator,

It is my understanding, after having taken a beginning course in account-

ing principles, that the federal government uses a cash-basis system
rather than an accrual-basis accounting system.

I am shocked at such a practice! There must be billions of dollars of

liabilities hidden in many contracts that have not been recorded yet for
the mere reason that they haven’t been paid yet. I realize that the
deficit would dramatically increase if we were to implement an accrual
system, but in all fairness, we citizens should be given a more accurate
picture of what our government is up to.

Sincerely,

CONCERNED STUDENT
LO1 BT: E Difficulty: Moderate TOT: 25 min. AACSB: Reflective Thinking, Communication AICPA FC:
Reporting AICPA PC: Communication

EXERCISE 3-3

(a) Cash received from revenue............................................ $108,000

Cash paid for expenses.................................................... (72,000)
Cash-basis net income........................................... $ 36,000
($108,000 - $72,000 = $36,000)
(Cash collected from cust. – Cash pd. for exp. = Cash-basis net inc.)

(b) Revenues [($108,000 – $25,000) + $36,000].................... $119,000

Expenses [($72,000 – $30,000) + $42,000]...................... (84,000)
Accrual-basis net income....................................... $ 35,000
[(($108,000 - $25,000 + $36,000) – (($72,000 - $30,000) + $42,000) = $35,000]
[((Cash collected in 2020 – Cash related in 2019 svcs.) + Svcs. performed in 2020, not collected) – ((Cash pd. for
exp. in 2020 – Exp. incurred in 2019) + 2020 exp. incurred and not pd.) = Accrual-basis net inc.]
LO1 BT: AP Difficulty: Easy TOT: 4 min. AACSB: Analytic AICPA FC: Measurement, Reporting

EXERCISE 3-4

1. Unearned revenue.
2. Accrued expense.
3. Accrued expense.
4. Accrued revenue.
5. Prepaid expense.
6. Unearned revenue.
7. Accrued revenue.

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8. Prepaid expense.
EXERCISE 3-4 (Continued)

9. Prepaid expense.
10. Prepaid expense.
11. Accrued expense.
LO1, 2, 3 BT: AN Difficulty: Easy TOT: 5 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 3-5

1. Interest Expense...................................................... 300

Interest Payable
($10,000 X 9% X 4/12).................................... 300
($10,000 x 9% x 4/12 = $300)
(Prin. x Int. rate x Mos. loan outstanding = Int. exp.)

2. Supplies Expense.................................................... 1,550

Supplies ($2,450 – $900).................................. 1,550
($2,450 - $900 = $1,550)
(End. supp. bal. – Supp. on hand = Supp. exp.)

3. Depreciation Expense............................................. 1,000

Accumulated Depreciation—Equipment........ 1,000

4. Insurance Expense.................................................. 1,225

Prepaid Insurance
($2,100 X 7/12)............................................... 1,225

5. Unearned Service Revenue.................................... 8,000

Service Revenue
($32,000 X 1/4)............................................... 8,000

6. Accounts Receivable.............................................. 4,200

Service Revenue............................................... 4,200

7. Salaries and Wages Expense................................. 5,400

Salaries and Wages Payable
($9,000 X 3/5)................................................. 5,400
($9,000 x 3/5 = $5,400)
(Wkly. sal. amt. x Fraction of wk. worked = Sal. & wages exp.)
LO2, 3 BT: AN Difficulty: Moderate TOT: 15 min. AACSB: Analytic AICPA FC: Measurement

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EXERCISE 3-6

(a) (b)
Item Type of Adjustment Accounts before Adjustment
1. Accrued Revenues Assets Understated
Revenues Understated

2. Prepaid Expenses Assets Overstated

Expenses Understated

3. Accrued Expenses Expenses Understated

Liabilities Understated

4. Unearned Revenues Liabilities Overstated

Revenues Understated

5. Accrued Expenses Expenses Understated

Liabilities Understated

6. Prepaid Expenses Assets Overstated

Expenses Understated
LO2, 3, 4 BT: AN Difficulty: Moderate TOT: 12 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 3-7

1. Mar. 31 Depreciation Expense ($400 X 3).................. 1,200

Accumulated Depreciation—
Equipment........................................... 1,200
($400 x 3 = $1,200)
(Monthly depr. x 3 mos. = Depr. exp.)

2. 31 Unearned Rent Revenue............................... 3,400

Rent Revenue ($10,200 X 1/3)............... 3,400
($10,200 x 1/3 = $3,400)
(Unearned rent rev. bal. x Fraction of rev. earned = Rent rev.)

3. 31 Interest Expense............................................ 500

Interest Payable...................................... 500

4. 31 Supplies Expense.......................................... 2,050

Supplies ($2,800 – $750)........................ 2,050

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EXERCISE 3-7 (Continued)

($2,800 - $750 = $2,050)

(Beg. supp. bal. – End. supp. bal. – Supp. exp.)

5. 31 Insurance Expense ($300 X 3)...................... 900

Prepaid Insurance.................................. 900
LO2, 3 BT: AN Difficulty: Moderate TOT: 10 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 3-8

1. Jan. 31 Accounts Receivable..................................... 785

Service Revenue.................................... 785

2. 31 Utilities Expense............................................ 650

Utilities Payable...................................... 650

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

Accumulated Depreciation—
Equipment........................................... 400

31 Interest Expense............................................ 500

Interest Payable...................................... 500

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

Prepaid Insurance.................................. 2,000
($24,000 ÷ 12 = $2,000)
(Prepd. ins. bal. ÷ Term of policy in mos. = Ins. exp.)

5. 31 Supplies Expense ($1,600 – $400)................ 1,200

Supplies.................................................. 1,200
($1,600 - $400 = $1,200)
(Beg. supp. bal. – End. supp. bal. = Supp. exp.)
LO2, 3 BT: AN Difficulty: Moderate TOT: 10 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 3-9

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

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

2. 31 Insurance Expense........................................ 120

Prepaid Insurance.................................. 120

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EXERCISE 3-9 (Continued)

3. Oct. 31 Depreciation Expense................................... 50

Accumulated Depreciation—
Equipment........................................... 50

4. 31 Unearned Service Revenue........................... 600

Service Revenue.................................... 600

5. 31 Accounts Receivable..................................... 360

Service Revenue.................................... 360

6. 31 Interest Expense...................................... 95
Interest Payable............................... 95

7. 31 Salaries and Wages Expense................. 1,625

Salaries and Wages Payable........... 1,625
LO2, 3 BT: AN Difficulty: Easy TOT: 10 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 3-10
LUNDEEN CO.
Income Statement
For the Month Ended July 31, 2020

Revenues
Service revenue ($5,500 + $650).............................. $6,150
Expenses
Salaries and wages expense ($2,300 + $400)......... $2,700
Supplies expense ($1,200 – $250)........................... 950
Utilities expense........................................................ 600
Insurance expense.................................................... 500
Depreciation expense............................................... 150
Total expenses................................................... 4,900
Net income........................................................................ $1,250
[($5,500 + $650) – (($2,300 + $400) + ($1,200 - $250) + $600 + $500 + $150) = $1,250]
[Serv. rev. – (Sal. & wages exp. + Supp. exp. + Util. exp. + Ins. exp. + Depr. exp.) = Net inc.]
LO1, 2, 3, 4 BT: AN Difficulty: Moderate TOT: 10 min. AACSB: Analytic AICPA FC: Measurement

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EXERCISE 3-11

Answer Computation

(a) Supplies balance = $800 Supplies expense $ 950

Add: Supplies (1/31) 850
Less: Supplies purchased 1,000
Supplies (1/1) $ 800
($950 + $850 - $1,000 = $800)
(Supp. exp. + End. supp. bal. – Supp. purch. = Beg. supp. bal.)

(b) Total premium = $4,800 Total premium = Monthly premium X 12;

$400 X 12 = $4,800

Purchase date = Aug. 1, 2019 Purchase date: On Jan. 31, there are
6 months’ coverage remaining ($400 X 6).
Thus, the purchase date was 6 months
earlier on Aug. 1, 2019.
($400 x 12 = $4,800); $2,400 = ½ of $4,800, therefore 6 mos. have elapsed. Aug. 1 2019 is 6 mos. from Jan. 31,
2020
(Monthly exp. x 12 = Tot. prem. for 1 yr.); (6 mos. before Jan. 31, 2020 is Aug. 1, 2019)

(c) Salaries and wages

payable = $1,820 Cash paid $3,800
Salaries and wages
payable (1/31/20) 920
4,720
Less: Salaries and wages
expense 2,900
Salaries and wages
payable (12/31/19) $1,820
($3,800 + $920 - $2,900 = $1,820)
(Cash pd. + 1/31/20 Sal. & wages pay. – Sal. & wages exp. = 12/31/19 Sal. & wages pay.)
LO1, 2, 3, 4 BT: AN Difficulty: Moderate TOT: 15 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 3-12

(a) July 10 Supplies.......................................................... 650

Cash........................................................ 650

14 Cash................................................................ 2,200
Service Revenue.................................... 2,200

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EXERCISE 3-12 (Continued)

15 Salaries and Wages Expense....................... 1,200

Cash........................................................ 1,200
20 Cash................................................................ 1,000
Unearned Service Revenue................... 1,000
(b) July 31 Supplies Expense.......................................... 900
Supplies.................................................. 900
31 Accounts Receivable..................................... 500
Service Revenue.................................... 500
31 Salaries and Wages Expense....................... 1,200
Salaries and Wages Payable................. 1,200
31 Unearned Service Revenue........................... 1,150
Service Revenue.................................... 1,150
LO2, 3 BT: AN Difficulty: Moderate TOT: 10 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 3-13

Date Account Titles Debit Credit

July 31 Interest Expense ($20,000  .06  1/12).......... 100
Interest Payable.......................................... 100

31 Supplies Expense ($24,000 – $18,600)............. 5,400

Supplies...................................................... 5,400

31 Rent Expense ($3,600  4)................................ 900

Prepaid Rent............................................... 900

31 Salaries and Wages Expense............................ 3,100

Salaries and Wages Payable..................... 3,100

31 Depreciation Expense ($6,000  12)................ 500

Accumulated Depreciation—Buildings.... 500

31 Unearned Service Revenue............................... 4,700

Service Revenue......................................... 4,700

31 Maintenance and Repairs Expense.................. 2,300

Accounts Payable...................................... 2,300

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LO 2, 3 BT: AP Difficulty: Moderate TOT: 12 min. AACSB: Analytic AICPA FC: Reporting IMA: Reporting

EXERCISE 3-14

Total Total Owner’s

Item Net Income Assets Liabilities Equity
Incorrect balances $70,000 $150,000 $70,000 $80,000
Effects of:
Salaries and Wages (10,000) 10,000 (10,000)
Rent Revenue 4,000 (4,000) 4,000
Depreciation (9,000) (9,000) (9,000)
Correct balances $55,000 $141,000 $76,000 $65,000

(Net inc. = Current amt. – Sal. & wages exp. + Rent rev. – Depr. exp.); (Tot. liabl. = Current amt. + Sal. & wages pay. – Rent
rev.)
($70,000 – $10,000 + $4,000 – $9,000); ($70,000 + $10,000 – $4,000)
LO 2, 3 BT: AN Difficulty: Moderate TOT: 10 min. AACSB: Analytic AICPA FC: Reporting IMA: Reporting

EXERCISE 3-15

(a) 2020
June 1 Prepaid Insurance....................................... 1,800
Cash....................................................... 1,800

Aug. 31 Prepaid Rent................................................ 6,500

Cash....................................................... 6,500

Sept. 4 Cash............................................................. 3,600

Unearned Service Revenue................. 3,600

Nov. 30 Prepaid Cleaning......................................... 2,000

Cash....................................................... 2,000

Dec. 5 Cash............................................................. 1,500

Unearned Service Revenue................. 1,500

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EXERCISE 3-15 (Continued)

(b) 2020
Dec. 31 Insurance Expense...................................... 1,050
Prepaid Insurance.............................. 1,050
($1,800 × 7/12 months = $1,050)

31 Rent Expense............................................... 5,200

Prepaid Rent....................................... 5,200
($6,500 × 4/5 months = $5,200)

31 Unearned Service Revenue........................ 1,600

Service Revenue................................ 1,600
($3,600 × 4/9 months = $1,600)

31 Maintenance and Repairs Expense........... 1,000

Prepaid Cleaning................................ 1,000

31 Unearned Service Revenue........................ 1,025

Service Revenue................................ 1,025
($1,500 – $475 not played = $1,025 played)

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EXERCISE 3-15 (Continued)

Bal. 750 Rent Expense

Dec. 31 Adj. 5,200

Prepaid Rent

8/31 6,500
12/31 Adj. 5,200 Service Revenue

Bal. 1,300 12/31 Adj. 1,600

12/31 Adj. 1,025

Unearned Service Revenue

Bal. 2,625
12/31 Adj. 1,600 9/4 3,600
12/31 Adj. 1,025 12/5 1,500
Maintenance and Repairs Expense

Bal. 2,475 12/31 Adj. 1,000

Prepaid Cleaning

11/30 2,000 12/31 Adj. 1,000

Bal. 1,000

Note: The Cash account has not been included in this solution, as per the
instructions.
LO 2, BT: AP Difficulty: Moderate TOT: 20 min. AACSB: Analytic AICPA FC: Reporting IMA: Reporting

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EXERCISE 3-16

(a) 2020
Dec. 31 Utilities Expense.......................................... 425
Accounts Payable.............................. 425

31 Salaries and Wages Expense..................... 2,000

Salaries and Wages Payable............. 2,000
($3,500 × 4/7 days = $2,000)

31 Interest Expense.......................................... 200

Interest Payable.................................. 200
($45,000 × 5% × 1/12 months = $200)

31 Accounts Receivable.................................. 300

Service Revenue................................ 300

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

Rent Revenue..................................... 6,000

(b) 2021
Jan. 11 Accounts Payable....................................... 425
Cash....................................................... 425

4 Salaries and Wages Payable...................... 2,000

Salaries and Wages Expense..................... 1,500
Cash....................................................... 3,500

1 Interest Payable........................................... 200

Cash....................................................... 200

4 Cash............................................................. 300
Accounts Receivable........................... 300

2 Cash............................................................. 6,000
Accounts Receivable........................... 6,000
LO 3 BT: AP Difficulty: Moderate TOT: 15 min. AACSB: Analytic AICPA FC: Reporting IMA: Reporting

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EXERCISE 3-17

Aug. 31 Accounts Receivable...................................... 2,400

Service Revenue..................................... 2,400
31 Supplies Expense........................................... 1,600
Supplies................................................... 1,600
31 Insurance Expense......................................... 1,500
Prepaid Insurance................................... 1,500
31 Depreciation Expense.................................... 900
Accumulated Depreciation—
Equipment............................................ 900
31 Salaries and Wages Expense......................... 1,100
Salaries and Wages Payable.................. 1,100
31 Unearned Rent Revenue................................ 1,100
Rent Revenue.......................................... 1,100
LO2, 3, 4 BT: AN Difficulty: Easy TOT: 10 min. AACSB: Analytic AICPA FC: Measurement

EXERCISE 3-18

RENFRO COMPANY
Income Statement
For the Year Ended August 31, 2020

Revenues
Service revenue......................................................... $36,400
Rent revenue............................................................. 12,100
Total revenues................................................... $48,500
Expenses
Salaries and wages expense.................................... 18,100
Rent expense............................................................. 15,000
Supplies expense...................................................... 1,600

Insurance expense.................................................... 1,500

Depreciation expense............................................... 900
Total expenses................................................... 37,100
Net income........................................................................ $11,400
[($36,400 + $12,100) – ($18,100 + $15,000 + $1,600 + $1,500 + $900) = $11,400]
[(Serv. rev. + Rent rev.) – (Sal. & wages exp. + Rent exp. + Supp. exp. + Ins. exp. + Depr. exp.) = Net inc.]

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EXERCISE 3-18 (Continued)

RENFRO COMPANY
Owner’s Equity Statement
For the Year Ended August 31, 2020

Owner’s capital, September 1, 2019................................................ $15,600

Add: Net income............................................................................. 11,400
Owner’s capital, August 31, 2020 ................................................... $27,000
($15,600 + $11,400 = $27,000)
(Beg. owner’s cap. + Net inc. = End. owner’s cap.)

RENFRO COMPANY
Balance Sheet
August 31, 2020

Assets
Cash................................................................................... $10,400
Accounts receivable......................................................... 11,200
Supplies ............................................................................ 700
Prepaid insurance............................................................. 2,500
Equipment......................................................................... $14,000
Less: Accum. depreciation—equipment........................ 4,500 9,500
Total assets........................................................ $34,300

Liabilities and Owner’s Equity

Liabilities
Accounts payable...................................................................... $ 5,800
Salaries and wages payable..................................................... 1,100
Unearned rent revenue............................................................. 400
Total liabilities.................................................................... 7,300
Owner’s equity
Owner’s capital.......................................................................... 27,000
Total liabilities and owner’s equity.................................. $34,300

[($10,400 + $11,200 + $700 + $2,500) + ($14,000 - $4,500) = ($5,800 + $1,100 + $400) + $27,000]
[(Cash + Accts. rec. + Supp. + Prepd. ins.) + (Equip. – Accum. depr.-equip.) = (Accts. pay. + Sal. & wages pay. +
Unearned rent rev.) + Owner’s cap.]
LO4 BT: AP Difficulty: Easy TOT: 15 min. AACSB: Analytic AICPA FC: Reporting

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EXERCISE 3-19

(a) 1. Cash.................................................................... 8,000

Accounts Receivable................................. 8,000

2. Unearned Service Revenue............................... 25,000

Service Revenue......................................... 25,000

3. Cash.................................................................... 38,000
Unearned Service Revenue....................... 38,000

Unearned Service Revenue

($38,000 – $17,000)............................................. 21,000
Service Revenue............................................. 21,000
($38,000 - $17,000 = $21,000)
(Gift cert. sold in 2020 – Unused cert. at year-end = Serv. rev.)

4. Accounts Receivable......................................... 115,000

Service Revenue
($161,000 – $25,000 – $21,000)............... 115,000
($161,000 - $25,000 - $21,000 = $115,000)
(2020 Serv. rev. – 2019 Outstdg. gift cert. redeemed – 2020 Outstdg. Gift cert. redeemed = Accts. rec.)

5. Cash.................................................................... 99,000
Accounts Receivable
($115,000 – $16,000)................................ 99,000
($115,000 - $16,000 = $99,000)
(2020 Accts. rec. – End. accts. rec. bal. = Cash collect.)

(b) Cash received by the club = $8,000 + $99,000 + $38,000

= $145,000
($8,000 + $99,000 + $38,000 = $145,000)
(2019 Accts. rec. collect. + 2020 Accts. rec. collect. + Cash rec’d. for gift cert. = Tot. cash rec’d.)
LO2, 3 BT: AN Difficulty: Moderate TOT: 10 min. AACSB: Analytic AICPA FC: Measurement

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*EXERCISE 3-20

1. Prepaid Insurance................................................... 1,000

Insurance Expense
($2,400 X 5/12)............................................... 1,000
($2,400 x 5/12 = $1,000)
(Tot. ins. prem. amt. x Fraction of yr. not expired = Prepd. ins.)

2. Service Revenue...................................................... 30,000

Unearned Service Revenue
($40,000 X 3/4)............................................... 30,000
($40,000 x ¾ = $30,000)
(Tot. amt. rec’d for serv. to be provided x portion not performed = Unearned serv. rev.)

3. Supplies.................................................................... 600
Supplies Expense............................................. 600
LO5 BT: AN Difficulty: Moderate TOT: 6 min. AACSB: Analytic AICPA FC: Measurement

*EXERCISE 3-21

(a) Jan. 2 Insurance Expense....................................... 1,920

Cash....................................................... 1,920

10 Supplies Expense......................................... 1,700

Cash....................................................... 1,700

15 Cash............................................................... 6,100
Service Revenue................................... 6,100

Cash Service Revenue

1/15 6,100 1/2 1,920 1/15 6,100
1/10 1,700
Insurance Expense Supplies Expense
1/2 1,920 1/10 1,700
(b) Jan. 31 Prepaid Insurance ($160 X 11 months)...... 1,760
Insurance Expense............................... 1,760

31 Supplies........................................................ 650
Supplies Expense................................. 650

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*EXERCISE 3-21 (Continued)

31 Service Revenue........................................... 4,000

Unearned Service Revenue................. 4,000

Unearned Service
Prepaid Insurance Supplies Revenue
1/31 1,760 1/31 650 1/31 4,000

Insurance Expense Supplies Expense Service Revenue

1/2 1,920 1/31 1,760 1/10 1,700 1/31 650 1/31 4,000 1/15 6,100
Bal. 160 Bal. 1,050 Bal. 2,100

(c) Prepaid insurance....................................................................... $1,760

Supplies........................................................................................ 650
Unearned service revenue.......................................................... 4,000
Service revenue........................................................................... 2,100
Insurance expense...................................................................... 160
Supplies expense........................................................................ 1,050
LO5 BT: AN Difficulty: Moderate TOT: 12 min. AACSB: Analytic AICPA FC: Measurement

*EXERCISE 3-22

(a) 2 Going concern assumption

(b) 6 Economic entity assumption
(c) 3 Monetary unit assumption
(d) 4 Time period assumption
(e) 5 Historical cost principle
(f) 1 Full disclosure principle
LO6 BT: C Difficulty: Easy TOT: 6 min. AACSB: None AICPA FC: Measurement

*EXERCISE 3-23

(a) This is a violation of the historical cost principle. The inventory was
written up to its fair value when it should have remained at cost.
(b) This is a violation of the economic entity assumption. The treatment of
the transaction treats Austin Weber and Weber Co. as one entity when

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they are two separate entities. Owner’s Drawings should have been
debited for the purchase of the truck.
*EXERCISE 3-23 (Continued)
(c) This is a violation of the time period assumption. This assumption
states that the economic life of a business can be divided into artificial
time periods (months, quarters, or a year). By adding two more weeks
to the year, Weber Co. would be misleading financial statement
readers. In addition, 2020 results would not be comparable to previous
years’ results. The company should use a 52 week year.
LO6 BT: C Difficulty: Easy TOT: 6 min. AACSB: None AICPA FC: Measurement

*EXERCISE 3-24

1. Comparability
2. Going concern assumption
3. Materiality
4. Full disclosure principle
5. Time period assumption
6. Relevance
7. Historical cost principle
8. Consistency
9. Economic entity assumption
10. Faithful representation
11. Monetary unit assumption
12. Expense recognition principle
LO6 BT: C Difficulty: Easy TOT: 6 min. AACSB: None AICPA FC: Measurement

*EXERCISE 3-25
(a) The primary objective of financial reporting is to provide financial
information that is useful to investors and creditors for making
decisions about providing capital. Since Speyeware’s shares appear to
be actively traded, investors must be capable of using the information
made available by Speyeware to make decisions about the company.
(b) The investors must feel as if the company will show earnings in the
future. They must recognize that information relevant to their
investment choice is indicated by more than Speyeware’s net income.
(c) The change from Canadian dollars to U.S. dollars for reporting purposes
should make Speyeware more comparable with companies traded on
U.S. stock exchanges.

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LO6 BT: S Difficulty: Easy TOT: 12 min. AACSB: Reflective Thinking, Communication AICPA FC: Measurement

*EXERCISE 3-26

(a) Accounting information is the compilation and presentation of

financial information for a company. It provides information in the form
of financial statements and additional disclosures that is useful for
decision making.
The accounting rules and practices that have substantial authoritative
support and are recognized as a general guide for financial reporting
purposes are referred to as generally accepted accounting principles
(GAAP). The biotechnology company that employs Mindy will follow
GAAP to report its assets, liabilities, equity, revenues, and expenses
as it prepares financial statements.
(b) Mindy is correct in her understanding that the low success rate for
new biotech products will be a cause of concern for investors. Her
suggestion that detailed scientific findings be reported to prospective
investors might offset some of their concerns but it probably won’t
conform to the qualitative characteristics of accounting information.
These characteristics consist of relevance, faithful representation,
comparability, and consistency, verifiability, timeliness, and
understandability. They apply to accounting information rather than
the scientific findings that Mindy wants to include.
LO6 BT: S Difficulty: Easy TOT: 6 min. AACSB: Reflective Thinking AICPA FC: Measurement

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SOLUTIONS TO PROBLEMS
PROBLEM 3-1A

(a)
J4
Date Account Titles Ref. Debit Credit
2020
May 31 Supplies Expense................................ 631 900
Supplies....................................... 126 900

31 Utilities Expense.................................. 732 250

Accounts Payable....................... 201 250

31 Insurance Expense.............................. 722 150

Prepaid Insurance
($3,600 ÷ 24 months)............... 130 150

31 Unearned Service Revenue................. 209 1,600

Service Revenue
($2,000 – $400)......................... 400 1,600

31 Salaries and Wages Expense.............. 726 1,104

Salaries and Wages Payable
[(3/5 X $920) X 1,104
2 employees]............................ 212

31 Depreciation Expense.......................... 717 190

Accumulated Depreciation—
Equipment................................ 150 190

31 Accounts Receivable........................... 112 1,700

Service Revenue......................... 400 1,700

(b)

Cash No. 101

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  4,500

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PROBLEM 3-1A (Continued)

Accounts Receivable No. 112

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  6,000
31 Adjusting J4 1,700 7,700

Supplies No. 126

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  1,900
31 Adjusting J4 900 1,000

Prepaid Insurance No. 130

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  3,600
31 Adjusting J4 150 3,450

Equipment No. 149

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  11,400

Accumulated Depreciation—Equipment No. 150

Date Explanation Ref. Debit Credit Balance
2020
May 31 Adjusting J4 190 190

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PROBLEM 3-1A (Continued)

Accounts Payable No. 201

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  4,500
31 Adjusting J4 250 4,750

Unearned Service Revenue No. 209

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  2,000
31 Adjusting J4 1,600 400

Salaries and Wages Payable No. 212

Date Explanation Ref. Debit Credit Balance
2020
May 31 Adjusting J4 1,104 1,104

Owner’s Capital No. 301

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  18,700

Service Revenue No. 400

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  9,500
31 Adjusting J4 1,600 11,100
31 Adjusting J4 1,700 12,800

Supplies Expense No. 631

Date Explanation Ref. Debit Credit Balance
2020
May 31 Adjusting J4 900 900

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PROBLEM 3-1A (Continued)

Depreciation Expense No. 717

Date Explanation Ref. Debit Credit Balance
2020
May 31 Adjusting J4 190 190

Insurance Expense No. 722

Date Explanation Ref. Debit Credit Balance
2020
May 31 Adjusting J4 150 150

Salaries and Wages Expense 726

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  6,400
31 Adjusting J4 1,104 7,504

Rent Expense No. 729

Date Explanation Ref. Debit Credit Balance
2020
May 31 Balance  900

Utilities Expense No. 732

Date Explanation Ref. Debit Credit Balance
2020
May 31 Adjusting J4 250 250

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PROBLEM 3-1A (Continued)

(c) KRAUSE CONSULTING

Adjusted Trial Balance
May 31, 2020

Debit Credit
Cash...................................................................... $ 4,500
Accounts Receivable.......................................... 7,700
Supplies................................................................
Prepaid Insurance............................................... 1,000
Prepaid Insurance............................................... 3,450
Equipment............................................................ 11,400
Accumulated Depreciation— $ 190
Equipment........................................................ 4,750
Accounts Payable................................................ 400
Unearned Service Revenue................................ 1,104
Salaries and Wages Payable.............................. 18,700
Owner’s Capital................................................... 12,800
Service Revenue..................................................
Supplies Expense................................................ 900
Depreciation Expense......................................... 190
Insurance Expense.............................................. 150
Salaries and Wages Expense............................. 7,504
Rent Expense....................................................... 900
Utilities Expense.................................................. 250 $37,944
$37,944
[($4,500 + $7,700 + $1,000 + $3,450 + $11,400 + $900 + $190 + $150 + $7,504 + $900 + 250) = ($190 + $4,750
+ $400 + $1,104 + $18,700 + $12,800)]
[(Cash + Accts. rec. + Supp. + Prepd. ins. + Equip. + Supp. exp. + Depr. exp. + Ins. exp. + Sal. & wages exp. +
Rent exp. + Util. exp.) = (Accum. Depr.-equip. + Accts. pay. + Unearned serv. rev. + Sal. & wages pay. + Owner’s
cap. + Serv. rev.)
LO2, 3, 4 BT: AN Difficulty: Easy TOT: 50 min. AACSB: Analytic AICPA FC: Measurement, Reporting

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PROBLEM 3-2A

(a)
J1
Date Account Titles Ref. Debit Credit
May 31 Insurance Expense............................... 722 200
Prepaid Insurance
($2,400 X 1/12).......................... 130 200

31 Supplies Expense................................. 631 1,330

Supplies ($2,080 – $750)............. 126 1,330

31 Depreciation Expense
($3,600 X 1/12) + ($1,500 X 1/12)...... 619 425
Accumulated Depreciation—
Buildings.................................. 142 300
Accumulated Depreciation—
Equipment................................ 150 125

31 Interest Expense................................... 718 200

Interest Payable
[($40,000 X 6%) X 1/12].............. 230 200

31 Unearned Rent Revenue...................... 208 2,200

Rent Revenue
(2/3 X $3,300)........................... 429 2,200

31 Salaries and Wages Expense.............. 726 750

Salaries and Wages Payable...... 212 750

(b)

Cash No. 101

Date Explanation Ref. Debit Credit Balance
May Balance  3,400
31

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PROBLEM 3-2A (Continued)

Supplies No. 126

Date Explanation Ref. Debit Credit Balance
May 31 Balance  2,080
31 Adjusting J1 1,330 750

Prepaid Insurance No. 130

Date Explanation Ref. Debit Credit Balance
May 31 Balance  2,400
31 Adjusting J1 200 2,200

Land No. 140

Date Explanation Ref. Debit Credit Balance
May 31 Balance  12,000

Buildings No. 141

Date Explanation Ref. Debit Credit Balance
May 31 Balance  60,000

Accumulated Depreciation—Buildings No. 142

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 300 300

Equipment No. 149

Date Explanation Ref. Debit Credit Balance
May 31 Balance  15,000

Accumulated Depreciation—Equipment No. 150

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 125 125

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PROBLEM 3-2A (Continued)

Accounts Payable No. 201

Date Explanation Ref. Debit Credit Balance
May 31 Balance  4,700

Unearned Rent Revenue No. 208

Date Explanation Ref. Debit Credit Balance
May 31 Balance  3,300
31 Adjusting J1 2,200 1,100

Salaries and Wages Payable No. 212

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 750 750

Interest Payable No. 230

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 200 200

Mortgage Payable No. 275

Date Explanation Ref. Debit Credit Balance
May 31 Balance  40,000

Owner’s Capital No. 301

Date Explanation Ref. Debit Credit Balance
May 31 Balance  41,380

Rent Revenue No. 429

Date Explanation Ref. Debit Credit Balance
May 31 Balance  10,300
31 Adjusting J1 2,200 12,500

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PROBLEM 3-2A (Continued)

Advertising Expense No. 610

Date Explanation Ref. Debit Credit Balance
May 31 Balance  600

Depreciation Expense No. 619

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 425 425

Supplies Expense No. 631

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 1,330 1,330

Interest Expense No. 718

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 200 200

Insurance Expense No. 722

Date Explanation Ref. Debit Credit Balance
May 31 Adjusting J1 200 200

Salaries and Wages Expense No. 726

Date Explanation Ref. Debit Credit Balance
May 31 Balance  3,300
31 Adjusting J1 750 4,050

Utilities Expense No. 732

Date Explanation Ref. Debit Credit Balance
May 31 Balance  900

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PROBLEM 3-2A (Continued)

(c) HANK’S HOTEL

Adjusted Trial Balance
May 31, 2020

Debit Credit
Cash...................................................................... $ 3,400
Supplies................................................................ 750
Prepaid Insurance............................................... 2,200
Land...................................................................... 12,000
Buildings.............................................................. 60,000
Accumulated Depreciation—Buildings............. $ 300
Equipment............................................................ 15,000
Accumulated Depreciation—Equipment........... 125
Accounts Payable................................................ 4,700
Unearned Rent Revenue..................................... 1,100
Salaries and Wages Payable.............................. 750
Interest Payable................................................... 200
Mortgage Payable................................................ 40,000
Owner’s Capital................................................... 41,380
Rent Revenue....................................................... 12,500
Advertising Expense........................................... 600
Depreciation Expense......................................... 425
Supplies Expense................................................ 1,330
Interest Expense.................................................. 200
Insurance Expense.............................................. 200
Salaries and Wages Expense............................. 4,050
Utilities Expense.................................................. 900
$101,055 $101,055
[($3,400 + $750 + $2,200 + $12,000 + $60,000 + $15,000 + $600 + $425 + $1,330 + $200 + $200 + $4,050 +
$900) = ($300 + $125 + $4,700 + $1,100 + $750 + $200 + $40,000 + $41,380 + $12,500)]
[(Cash + Supp. + Prepd. ins. + Land + Bldgs. + Equip. + Adv. exp. + Depr. exp. + Supp. exp. + Int. exp. + Ins. exp.
+ Sal. & wages exp. + Util. exp.) = (Accum. depr.-bldgs. + Accum. depr.-equip. + Accts. pay. + Unearned rent rev.
+ Sal. & wages pay. + Int. pay. + Mort. pay. + Owner’s cap. + Rent rev.)]

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PROBLEM 3-2A (Continued)

(d) HANK’S HOTEL

Income Statement
For the Month Ended May 31, 2020

Revenues
Rent revenue.................................................... $12,500
Expenses
Salaries and wages expense.......................... $4,050
Supplies expense............................................. 1,330
Utilities expense............................................... 900
Advertising expense........................................ 600
Depreciation expense...................................... 425
Interest expense............................................... 200
Insurance expense........................................... 200
Total expenses.......................................... 7,705
Net income............................................................... $ 4,795
[$12,500 – ($4,050 + $1,330 + $900 + $600 + $425 + $200 + $200) = $4,795]
[Rent rev. – (Sal. & wages exp. + Supp. exp. + Util. exp. + Advert. exp. + Depr. exp. + Int. exp. + Ins. exp.) = Net
inc.]

HANK’S HOTEL
Owner’s Equity Statement
For the Month Ended May 31, 2020

Owner’s capital, May 1.............................................................. $ 0

Investment by owner................................................................. 41,380
41,380
Add: Net income...................................................................... 4,795
Owner’s capital, May 31............................................................ $46,175
($0 + $41,380 + $4,795 = $46,175)
(Beg. owner’s cap. + Invest. + Net inc. = End. owner’s cap.)

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PROBLEM 3-2A (Continued)

HANK’S HOTEL
Balance Sheet
May 31, 2020

Assets
Cash..................................................................... $ 3,400
Supplies............................................................... 750
Prepaid insurance............................................... 2,200
Land..................................................................... 12,000
Buildings.............................................................. $60,000
Less: Accumulated depreciation—
buildings.................................................. 300 59,700
Equipment........................................................... 15,000
Less: Accumulated depreciation—
equipment................................................. 125 14,875
Total assets.......................................... $92,925

Liabilities and Owner’s Equity

Liabilities
Accounts payable........................................ $ 4,700
Unearned rent revenue............................... 1,100
Salaries and wages payable....................... 750
Interest payable........................................... 200
Mortgage payable........................................ 40,000
Total liabilities...................................... 46,750
Owner’s equity
Owner’s capital............................................ 46,175
Total liabilities and owner’s equity....... $92,925
[($3,400 + $750 + $2,200 + $12,000 + ($60,000 - $300) + ($15,000 - $125) = ($4,700 + $1,100 + $750 + $200 +
$40,000) + $46,175]
[(Cash + Supp. + Prepd. ins. + Land + (Bldgs. – Accum. depr.-bldgs.) + (Equip. – Accum. depr.-equip) = (Accts.
pay. + Unearned rent rev. + Sal. & wages pay. + Int. pay. + Mort. pay.) + Owner’s cap.]
LO2, 3, 4 BT: AN Difficulty: Easy TOT: 60 min. AACSB: Analytic AICPA FC: Measurement, Reporting

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PROBLEM 3-3A

(a) Sept. 30 Accounts Receivable............................... 1,100

Service Revenue................................. 1,100

30 Rent Expense............................................ 1,700

Prepaid Rent........................................ 1,700

30 Supplies Expense..................................... 850

Supplies............................................... 850

30 Depreciation Expense.............................. 700

Accum. Depreciation—Equipment...... 700

30 Interest Expense....................................... 100

Interest Payable.................................. 100

30 Unearned Rent Revenue.......................... 1,450

Rent Revenue...................................... 1,450

30 Salaries and Wages Expense.................. 725

Salaries and Wages Payable.............. 725

(b) ALENA CO.

Income Statement
For the Quarter Ended September 30, 2020

Revenues
Service revenue................................................... $17,100
Rent revenue........................................................ 2,860
Total revenues.............................................. $19,960
Expenses
Salaries and wages expense.............................. 8,725
Rent expense....................................................... 3,600
Utilities expense.................................................. 1,510
Supplies expense................................................ 850
Depreciation expense.......................................... 700
Interest expense.................................................. 100
Total expenses............................................. 15,485
Net income................................................................... $ 4,475

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[($17,100 + $2,860) – ($8,725 + $3,600 + $1,510 + $850 + $700 + $100) = $4,475]

[(Serv. rev. + Rent rev.) – (Sal. & wages exp. + Rent exp. + Util. exp. + Supp. exp. + Depr. exp. + Int. exp.) = Net inc.]
PROBLEM 3-3A (Continued)

ALENA CO.
Owner’s Equity Statement
For the Quarter Ended September 30, 2020

Owner’s capital, July 1, 2020................................ $ 0

Investment by owner............................................. $22,000
Add: Net income................................................... 4,475 26,475
26,475
Less: Drawings...................................................... 1,600
Owner’s capital, September 30, 2020................... $24,875
($0 + ($22,000 + $4,475) - $1,600 = $24,875)
(Beg. owner’s cap. + (Invest. + Net inc.) – Owner’s draws. = End. owner’s cap.)

ALENA CO.
Balance Sheet
September 30, 2020

Assets
Cash........................................................................ $ 8,700
Accounts receivable.............................................. 11,500
Supplies.................................................................. 650
Prepaid rent............................................................ 500
Equipment.............................................................. $18,000
Less: Accum. depreciation—equipment............. 700 17,300
Total assets............................................. $38,650

Liabilities and Owner’s Equity

Liabilities
Notes payable................................................. $10,000
Accounts payable........................................... 2,500
Salaries and wages payable.......................... 725
Unearned rent revenue.................................. 450
Interest payable.............................................. 100
Total liabilities......................................... 13,775
Owner’s equity
Owner’s capital............................................... 24,875
Total liabilities and owner’s equity....... $38,650
[($8,700 + $11,500 + $650 + $500) + ($18,000 - $700) = ($10,000 + $2,500 + $725 + $450 + $100) + $24,875]

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[(Cash + Accts. rec. + Supp. + Prepd. rent) + (Equip. – Accum. depr.-equip) = (Notes pay. + Accts. pay. + Sal. &
wages pay. + Unearned rent rev. + Int. pay.) + Owner’s cap.]

PROBLEM 3-3A (Continued)

(c) Interest of 12% per year equals a monthly rate of 1%; monthly interest
is $100 ($10,000 X 1%). Since total interest expense is $100, the note
has been outstanding one month.
($10,000 x 12% x Fraction of a yr. = $100); (Fraction of a yr. = 1/12 or one month)
(Prin. x Int. rate x Fraction of a yr. = Int. exp.)
LO2, 3, 4 BT: AN Difficulty: Moderate TOT: 50 min. AACSB: Analytic AICPA FC: Measurement, Reporting

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PROBLEM 3-4A

1. Dec. 31 Insurance Expense........................................ 4,840

Prepaid Insurance.................................. 4,840
($7,920 ÷ 3) = $2,640
[($4,400 ÷ 2) = 2,200
$4,840
[($7,920 ÷ 3) + ($4,400 ÷ 2) = $4,840]
[(Policy B4564 ÷ Policy term) + (Policy A2958 ÷ Policy term) = Ins. exp.]

2. Dec. 31 Unearned Rent Revenue............................... 75,500

Rent Revenue......................................... 75,500
[Nov. 5 X $5,000 X 2 = $50,000
[Dec. 3 X $8,500 X 1 = 25,500
$75,500
[(5 x $5,000 x 2) + (3 x $8,500 x 1) = $75,500]
[(No. of Nov. leases x Monthly rent x No. of mos.) + (No. of Dec. leases x Monthly rent x No. of mos.) = Rent rev.]

3. Dec. 31 Interest Expense............................................ 1,200

Interest Payable
($120,000 X 6% X 2/12)....................... 1,200
($120,000 x 6% x 2/12 = $1,200)
(Prin. x Int. rate x Fraction of yr. = Int. exp.)
4. Dec. 31 Salaries and Wages Expense....................... 2,000
Salaries and Wages Payable................. 2,000
5 X $700 X 2/5 = $1,400
[3 X $500 X 2/5 = 600
$2,000
[(5 x $700 x 2/5) + (3 x $500 x 2/5) = $2,000]
[No. of emp. X Wkly sal. x Days worked) + (No. of emp. X Wkly. sal. x Days worked) = Sal. & wages exp.]
LO2, 3 BT: AN Difficulty: Moderate TOT: 40 min. AACSB: Analytic AICPA FC: Measurement

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PROBLEM 3-5A

(a), (c) & (e)

Cash No. 101

Date Explanation Ref. Debit Credit Balance
Nov. 1 Balance  2,400
8 J1 1,700 700
10 J1 3,620 4,320
12 J1 3,100 7,420
20 J1 2,700 4,720
22 J1 400 4,320
25 J1 1,700 2,620
29 J1 600 3,220

Accounts Receivable No. 112

Date Explanation Ref. Debit Credit Balance
Nov. 1 Balance  4,250
10 J1 3,620 630
27 J1 2,200 2,830

Supplies No. 126

Date Explanation Ref. Debit Credit Balance
Nov. 1 Balance  1,800
17 J1 700 2,500
30 Adjusting J1 1,100 1,400

Equipment No. 153

Date Explanation Ref. Debit Credit Balance
Nov. 1 Balance  12,000
15 J1 2,000 14,000

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PROBLEM 3-5A (Continued)

Accumulated Depreciation—Equipment No. 154

Date Explanation Ref. Debit Credit Balance
Nov. 1 Balance  2,000
30 Adjusting J1 200 2,200

Accounts Payable No. 201

Date Explanation Ref. Debit Credit Balance
Nov. 1 Balance  2,600
15 J1 2,000 4,600
17 J1 700 5,300
20 J1 2,700 2,600

Unearned Service Revenue No. 209

Date Explanation Ref. Debit Credit Balance
Nov. 1 Balance  1,200
29 J1 600 1,800
30 Adjusting J1 1,220 580

Salaries and Wages Payable No. 212

Date Explanation Ref. Debit Credit Balance
Nov. 1 Balance  700
8 J1 700 0
30 Adjusting J1 350 350

Owner’s Capital No. 301

Date Explanation Ref. Debit Credit Balance
Nov. 1 Balance  13,950

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PROBLEM 3-5A (Continued)

Service Revenue No. 407

Date Explanation Ref. Debit Credit Balance
Nov. 12 J1 3,100 3,100
27 J1 2,200 5,300
30 Adjusting J1 1,220 6,520

Depreciation Expense No. 615

Date Explanation Ref. Debit Credit Balance
Nov. 30 Adjusting J1 200 200

Supplies Expense No. 631

Date Explanation Ref. Debit Credit Balance
Nov. 30 Adjusting J1 1,100 1,100

Salaries and Wages Expense No. 726

Date Explanation Ref. Debit Credit Balance
Nov. 8 J1 1,000 1,000
25 J1 1,700 2,700
30 Adjusting J1 350 3,050

Rent Expense No. 729

Date Explanation Ref. Debit Credit Balance
Nov. 22 J1 400 400

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PROBLEM 3-5A (Continued)

(b) General Journal

J1
Date Account Titles and Explanation Ref. Debit Credit
Nov. 8 Salaries and Wages Payable.............. 212 700
Salaries and Wages Expense............. 726 1,000
Cash.............................................. 101 1,700

10 Cash...................................................... 101 3,620

Accounts Receivable.................. 112 3,620

12 Cash...................................................... 101 3,100

Service Revenue.......................... 407 3,100

15 Equipment............................................ 153 2,000

Accounts Payable........................ 201 2,000

17 Supplies............................................... 126 700

Accounts Payable........................ 201 700

20 Accounts Payable............................... 201 2,700

Cash.............................................. 101 2,700

22 Rent Expense....................................... 729 400

Cash.............................................. 101 400

25 Salaries and Wages Expense............. 726 1,700

Cash.............................................. 101 1,700

27 Accounts Receivable.......................... 112 2,200

Service Revenue.......................... 407 2,200

29 Cash...................................................... 101 600

Unearned Service Revenue......... 209 600

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PROBLEM 3-5A (Continued)

(d) & (f) HAMM EQUIPMENT REPAIR

Trial Balances
November 30, 2020

Before After
Adjustment Adjustment
Dr. Cr. Dr. Cr.
Cash............................................. $ 3,220 $ 3,220
Accounts Receivable................. 2,830 2,830
Supplies...................................... 2,500 1,400
Equipment................................... 14,000 14,000
Accumulated Depreciation—
Equipment................................ $ 2,000 $ 2,200
Accounts Payable...................... 2,600 2,600
Unearned Service Revenue....... 1,800 580
Salaries and Wages Payable..... –0– 350
Owner’s Capital.......................... 13,950 13,950
Service Revenue......................... 5,300 6,520
Depreciation Expense................ -0- 200
Supplies Expense....................... -0- 1,100
Salaries and Wages Expense.... 2,700 3,050
Rent Expense.............................. 400 400
$25,650 $25,650 $26,200 $26,200
[Before adj.: ($3,220 + $2,830 + $2,500 + $14,000 + $2,700 + $400) = ($2,000 + $2,600 + $1,800 + $0 + $13,950
+ $5,300)]; [(Cash + Accts. rec. + Supp. + Equip. + Sal. & wages exp. + Rent exp.) = (Accum. depr.-equip. +
Accts. pay. + Unearned serv. rev. + Sal. & wages pay. + Owner’s cap. + Serv. rev.)]
[After adj.: ($3,220 + $2,830 + $1,400 + $14,000 + $200 + $1,100 + $3,050 + $400) = ($2,200 + $2,600 + $580 +
$350 + $13,950 + $6,520)]; [(Cash + Accts. rec. + Supp. + Equip. + Depr. exp. + Supp. exp. + Sal. & wages exp. +
Rent exp.) = (Accum. depr.-equip. + Accts. pay. + Unearned serv. rev. + Sal. & wages pay. + Owner’s cap. + Serv.
rev.)]

(e) 1. Nov. 30 Supplies Expense......................... 631 1,100

Supplies ($2,500 – $1,400)..... 126 1,100

2. 30 Salaries and Wages Expense...... 726 350

Salaries and Wages
Payable................................. 212 350

3. 30 Depreciation Expense.................. 615 200

Accumulated Depreciation—
Equipment........................... 154 200

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PROBLEM 3-5A (Continued).......................................

4. 30 Unearned Service Revenue......... 209 1,220

Service Revenue..................... 407 1,220

(g) HAMM EQUIPMENT REPAIR

Income Statement
For the Month Ended November 30, 2020

Revenues
Service revenue............................................... $6,520
Expenses
Salaries and wages expense.......................... $3,050
Supplies expense............................................. 1,100
Rent expense.................................................... 400
Depreciation expense...................................... 200
Total expenses.......................................... 4,750
Net Income............................................................... $1,770
[$6,520 – ($3,050 + $1,100 + $400 + $200) = $1,770]
[Serv. rev. – (Sal. & wages exp. + Supp. exp. + Rent exp. + Depr. exp.) = Net inc.]

HAMM EQUIPMENT REPAIR

Owner’s Equity Statement
For the Month Ended November 30, 2020

Owner’s capital, November 1................................................... $13,950

Plus: Net income..................................................................... 1,770
Owner’s capital, November 30................................................. $15,720
($13,950 + $1,770 = $15,720)
(Beg. owner’s cap. + Net inc. = End. owner’s cap.)

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PROBLEM 3-5A (Continued)

HAMM EQUIPMENT REPAIR

Balance Sheet
November 30, 2020

Assets
Cash........................................................................ $ 3,220
Accounts receivable.............................................. 2,830
Supplies.................................................................. 1,400
Equipment.............................................................. $14,000
Less: Accumulated depreciation—
equipment.................................................... 2,200 11,800
Total assets..................................................... $19,250

Liabilities and Owner’s Equity

Liabilities
Accounts payable.............................................................. $ 2,600
Unearned service revenue................................................ 580
Salaries and wages payable............................................. 350
Total liabilities............................................................ 3,530
Owner’s equity
Owner’s capital.................................................................. 15,720
Total liabilities and owner’s equity.................................. $19,250
[($3,220 + $2,830 + $1,400) + ($14,000 - $2,200) = ($2,600 + $580 + $350) + $15,720]
[(Cash + Accts. rec. + Supp.) + (Equip. – Accum. depr.-equip) = (Accts. pay. + Unearned serv. rev. + Sal. & wages
pay.) + Owner’s cap.]
LO2, 3, 4 BT: AN Difficulty: Moderate TOT: 70 min. AACSB: Analytic AICPA FC: Measurement, Reporting

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*PROBLEM 3-6A

(a) 1. June 30 Supplies.................................................. 1,300

Supplies Expense.......................... 1,300

2. 30 Interest Expense
($20,000 X 6% X 5/12)......................... 500
Interest Payable............................. 500
($20,000 x 6% x 5/12 = $500)
(Prin. x Int. rate x Fraction of a yr. = Int. exp.)

3. 30 Prepaid Insurance
[($2,700 ÷ 12) X 9]............................... 2,025
Insurance Expense........................ 2,025
[($2,700 ÷ 12) x 9 = $2,025]
[(Amt. of ins. prem. ÷ Life of ins. policy in mos.) x No. of mos. unexpired = Prepd. ins. bal.]

4. 30 Service Revenue.................................... 1,300

Unearned Service Revenue............ 1,300

5. 30 Accounts Receivable............................. 2,000

Service Revenue............................ 2,000

6. 30 Depreciation Expense
($2,250 ÷ 2).......................................... 1,125
Accumulated Depreciation—
Equipment................................... 1,125
($2,250 x ½ = $1,125)
(Ann. depr. x ½ yr. = Depr. exp.)

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*PROBLEM 3-6A (Continued)

(b) GABRIEL’S GRAPHICS COMPANY

Adjusted Trial Balance
June 30, 2020

Debit Credit
Cash...................................................................... $ 8,600
Accounts Receivable ($14,000 + $2,000)........... 16,000
Supplies................................................................ 1,300
Prepaid Insurance............................................... 2,025
Equipment............................................................ 45,000
Accumulated Depreciation—Equipment........... $ 1,125
Notes Payable...................................................... 20,000
Accounts Payable................................................ 9,000
Interest Payable................................................... 500
Unearned Service Revenue................................ 1,300
Owner’s Capital................................................... 22,000
Sales Revenue..................................................... 52,100
Service Revenue ($6,000 – $1,300 + $2,000)..... 6,700
Salaries and Wages Expense............................. 30,000
Supplies Expense ($3,700 – $1,300).................. 2,400
Advertising Expense........................................... 1,900
Rent Expense....................................................... 1,500
Utilities Expense.................................................. 1,700
Depreciation Expense......................................... 1,125
Insurance Expense ($2,700 – $2,025)................ 675
Interest Expense.................................................. 500
$112,725 $112,725
[($8,600 + $16,000 + $1,300 + $2,025 + $45,000 + $30,000 + $2,400 + $1,900 + $1,500 + $1,700 + $1,125 +
$675 + $500) = ($1,125 + $20,000 + $9,000 + $500 + $1,300 + $22,000 + $52,100 + $6,700)]
[(Cash + Accts. rec. + Supp. + Prepd. ins. + Equip. + Sal. & wages exp. + Supp. exp. + Advert. exp. + Rent exp. +
Util. exp. + Depr. exp. + Ins. exp. + Int. exp.) = (Accum. depr.-equip. + Notes pay. + Accts. pay. + Int. pay. +
Unearned serv. rev. + Owner’s cap. + Sales rev. + Serv. rev.)]

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*PROBLEM 3-6A (Continued)

(c) GABRIEL’S GRAPHICS COMPANY

Income Statement
For the Six Months Ended June 30, 2020

Revenues
Sales revenue................................................. $52,100
Service revenue.............................................. 6,700
Total revenues......................................... $58,800
Expenses
Salaries and wages expense......................... 30,000
Supplies expense........................................... 2,400
Advertising expense...................................... 1,900
Utilities expense............................................. 1,700
Rent expense.................................................. 1,500
Depreciation expense.................................... 1,125
Insurance expense......................................... 675
Interest expense............................................. 500
Total expenses........................................ 39,800
Net income.............................................................. $19,000
[($52,100 + $6,700) – ($30,000 + $2,400 + $1,900 + $1,700 + $1,500 + $1,125 + $675 + $500) = $19,000]
[(Sales rev. + Serv. rev.) – (Sal. & wages exp. + Supp. exp. + Advert. exp. + Util. exp. + Rent exp. + Depr. exp. +
Ins. exp. + Int. exp.) = Net inc.]

GABRIEL’S GRAPHICS COMPANY

Owner’s Equity Statement
For the Six Months Ended June 30, 2020

Owner’s capital, January 1....................................................... $ 0

Investment by owner................................................................. 22,000
22,000
Add: Net income....................................................................... 19,000
Owner’s capital, June 30.......................................................... $41,000
($0 + $22,000 + $19,000 = $41,000)
(Beg. owner’s cap. + Invest. + Net inc. = End. owner’s cap.)

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*PROBLEM 3-6A (Continued)

GABRIEL’S GRAPHICS COMPANY

Balance Sheet
June 30, 2020

Assets
Cash........................................................................ $ 8,600
Accounts receivable.............................................. 16,000
Supplies.................................................................. 1,300
Prepaid insurance.................................................. 2,025
Equipment.............................................................. $45,000
Less: Accumulated depreciation—
equipment................................................... 1,125 43,875
Total assets............................................. $71,800

Liabilities and Owner’s Equity

Liabilities
Notes payable................................................. $20,000
Accounts payable........................................... 9,000
Unearned service revenue............................. 1,300
Interest payable.............................................. 500
Total liabilities......................................... 30,800
Owner’s equity
Owner’s capital............................................... 41,000
Total liabilities and owner’s equity......... $71,800
[($8,600 + $16,000 + $1,300 + $2,025) + ($45,000 - $1,125) = ($20,000 + $9,000 + $1,300 + $500) + $41,000]
[(Cash + Accts. rec. + Supp. + Prepd. ins.) + (Equip. – Accum. depr.-equip.) = (Notes pay. + Accts. pay. +
Unearned serv. rev. + Int. pay.) + Owner’s cap.]
LO2, 3, 4, 5 BT: AN Difficulty: Moderate TOT: 50 min. AACSB: Analytic AICPA FC: Measurement, Reporting

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CC3 CONTINUING COOKIE CHRONICLE

(a)
GENERAL JOURNAL J2
Date Account Titles and Explanation Debit Credit

Nov. 30 Supplies Expense............................................. 35

Supplies......................................................... 35

30 Depreciation Expense....................................... 20
Accumulated Depreciation—Equipment
[($300 + $900) ÷ 60 months].................... 20
[($300 + $900) ÷ 60 = $20]
(Cost of equip. ÷ Useful life in mos. = Monthly depr. exp.)

30 Interest Expense............................................... 5
Interest Payable
($2,000 X .06 X 1/12 X .5)........................... 5
($2,000 x .06 x 1/12 x .5 = $5)
(Prin. x Int. rate x half of a mo. = Monthly int. exp.)

30 Accounts Receivable........................................ 300

Service Revenue........................................... 300

30 Utilities Expense............................................... 45
Accounts Payable......................................... 45

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CC3 (Continued)

(a) (Continued)

Cash
Date Explanation Ref. Debit Credit Balance

Nov. 30 Balance  245

Accounts Receivable
Date Explanation Ref. Debit Credit Balance

Nov. 30 J2 300 300

Supplies
Date Explanation Ref. Debit Credit Balance

Nov. 30 Balance  125

30 J2 35 90

Prepaid Insurance
Date Explanation Ref. Debit Credit Balance

Nov. 30 Balance  1,320

Equipment
Date Explanation Ref. Debit Credit Balance

Nov. 30 Balance  1,200

Accumulated Depreciation—Equipment
Date Explanation Ref. Debit Credit Balance

Nov. 30 J2 20 20

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CC3 (Continued)

(a) (Continued)

Accounts Payable
Date Explanation Ref. Debit Credit Balance

Nov. 30 J2 45 45

Interest Payable
Date Explanation Ref. Debit Credit Balance

Nov. 30 J2 5 5

Unearned Service Revenue

Date Explanation Ref. Debit Credit Balance

Nov. 30 Balance  30

Notes Payable
Date Explanation Ref. Debit Credit Balance

Nov. 30 Balance  2,000

Owner’s Capital
Date Explanation Ref. Debit Credit Balance

Nov. 30 Balance  800

Service Revenue
Date Explanation Ref. Debit Credit Balance

Nov. 30 Balance  125

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30 J2 300 425
CC3 (Continued)

(a) (Continued)

Utilities Expense
Date Explanation Ref. Debit Credit Balance

Nov. 30 J2 45 45

Advertising Expense
Date Explanation Ref. Debit Credit Balance

Nov. 30 Balance  65 65

Supplies Expense
Date Explanation Ref. Debit Credit Balance

Nov. 30 J2 35 35

Depreciation Expense
Date Explanation Ref. Debit Credit Balance

Nov. 30 J2 20 20

Interest Expense
Date Explanation Ref. Debit Credit Balance

Nov. 30 J2 5 5

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CC3 (Continued)

(b)
COOKIE CREATIONS
Adjusted Trial Balance
November 30, 2019

Account Debit Credit

Cash................................................................................ $ 245
Accounts Receivable..................................................... 300
Supplies.......................................................................... 90
Prepaid Insurance.......................................................... 1,320
Equipment....................................................................... 1,200
Accumulated Depreciation—Equipment...................... $ 20
Accounts Payable.......................................................... 45
Interest Payable.............................................................. 5
Unearned Service Revenue........................................... 30
Notes Payable................................................................. 2,000
Owner’s Capital.............................................................. 800
Service Revenue............................................................ 425
Utilities Expense............................................................ 45
Advertising Expense...................................................... 65
Supplies Expense.......................................................... 35
Depreciation Expense.................................................... 20
Interest Expense............................................................ 5
Totals................................................................. $3,325 $3,325
[($245 + $300 + $90 + $1,320 + $1,200 + $45 + $65 + $35 + $20 + $5) = ($20 + $45 + $5 + $30 + $2,000 + $800
+ $425)]
[(Cash + Accts. rec. + Supp. + Prepd. ins. + Equip. + Util. exp. + Advert. exp. + Supp. exp. + Depr. exp. + Int.
exp.) = (Accum. depr.-equip. + Accts. pay. + Int. pay. + Unearned serv. rev. + Notes pay. + Owner’s cap. + Serv.
rev.)]

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CC3 (Continued)
(c)

Revenues
Service revenue.............................................................. $425
Expenses
Advertising expense...................................................... $65
Utilities expense............................................................. 45
Supplies expense........................................................... 35
Depreciation expense.................................................... 20
Interest expense............................................................. 5 170
Net income............................................................................. $255
[$425 – ($65 + $45 + $35 + $20 + $5) = $255]
[Serv. rev. – (Advert. exp. + Util. exp. + Supp. exp. + Depr. exp. + Int. exp.) = Net inc.]

Yes, Cookie Creations has been profitable in November. It has a profit of

$255 which is more than one half of the revenue earned in November.

[Note: Owner’s Equity Statement is not required—shown for information

purposes only.]

COOKIE CREATIONS
Owner’s Equity Statement
For the Month Ended November 30, 2019

Owner’s Capital, November 1, 2019..................................... $ 0

Add: Investment................................................................... 800
Net income................................................................... 255
Owner’s Capital, November 30, 2019................................... $1,055
($0 + $800 + $255 = $1,055)
(Beg. owner’s cap. + Invest. + Net inc. = End. owner’s cap.)

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CC3 (Continued)

[Note: Balance Sheet is not required—shown for information purposes

only.]

COOKIE CREATIONS
Balance Sheet
November 30, 2019

Assets

Cash.................................................................................. $ 245
Accounts receivable........................................................ 300
Supplies............................................................................ 90
Prepaid insurance............................................................ 1,320
Equipment........................................................................ $1,200
Less: Accumulated depreciation—equipment............. 20 1,180
Total assets.................................................................. $3,135

Liabilities and Owner’s Equity

Liabilities
Notes payable.............................................................. $2,000
Accounts payable....................................................... 45
Unearned service revenue......................................... 30
Interest payable........................................................... 5
Total liabilities......................................................... 2,080
Owner’s equity
Owner’s capital............................................................ 1,055
Total liabilities and owner’s equity....................... $3,135
[($245 + $300 + $90 + $1,320) + ($1,200 - $20) = ($2,000 + $45 + $30 + $5) + $1,055]
[(Cash + Accts. rec. + Supp. + Prepd. ins.) + (Equip. – Accum. depr.-equip.) = (Notes pay. + Accts. pay. +
Uneaned serv. rev. + Int. pay.) + Owner’s cap.]
LO2, 3, 4 BT: AP Difficulty: Moderate TOT: 60 min. AACSB: Analytic AICPA FC: Measurement, Reporting

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EC3 ETHICS CASE

(a) The stakeholders in this situation are:

 Zoe Baas, controller.

 The president of Russell Company.
 Russell Company stockholders.

(b) 1. It is unethical for the president to place pressure on Zoe to misstate

net income by requesting her to prepare incorrect adjusting entries.

2. It is customary for adjusting entries to be dated as of the balance

sheet date although the entries are prepared at a later date. Zoe did
nothing unethical by dating the adjusting entries December 31.

(c) Zoe can accrue revenues and defer expenses through the preparation
of adjusting entries and be ethical so long as the entries reflect
economic reality. Intentionally misrepresenting the company’s financial
condition and its results of operations is unethical (it is also illegal).
LO1, 2, 3, 4 BT: E Difficulty: Moderate TOT: 12 min. AACSB: Ethics AICPA FC: Measurement AICPA PC:
Professional Demeanor, Communication

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CT 3-1 FINANCIAL REPORTING PROBLEM

(a) Items that may result in adjusting entries for prepayments are:

1. Other current assets (per balance sheet).

2. Property, plant and equipment, net (per balance sheet).

3. Acquired intangible assets, net (per balance sheet)—amortization is

similar to depreciation (explained later in Chapter 10).

(b) Accrual adjusting entries were probably made for accounts payable
and accrued expenses.

(c) Apple’s net income increased since 2013. Its net income increased by
$2,473 million from 2013 to 2014, and by $13,884 million from 2014 to
2015. Apple’s net income increased by 44.2% from 2013 to 2015.
LO2, 3, 4 BT: AN Difficulty: Easy TOT: 12 min. AACSB: Analytic AICPA FC: Measurement, Reporting

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CT 3-2 COMPARATIVE ANALYSIS PROBLEM

(Amounts shown in millions)

PepsiCo Coca-Cola
(a) Net increase (decrease) in property, $(927) $(2,062)
plant, and equipment (net) from 2014 to
2015.

(b) Increase (decrease) in selling, general, $(1,241) $(791)

and administrative expenses
from 2014 to 2015.

(c) Increase (decrease) in long-term debt $5,392 $9,344

(obligations) from 2014 to 2015.

(d) Increase (decrease) in net income from $(1,057) $242

2014 to 2015.

(e) Increase (decrease) in cash (($ 2,962 $(1,649)

and cash equivalents from 2014 to 2015.
LO N/A BT: AP Difficulty: Easy TOT: 15 min. AACSB: Analytic AICPA FC: Reporting

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CT 3-3 COMPARATIVE ANALYSIS PROBLEM

1. (Amounts in millions)
Amazon Wal-Mart
(a) Increase (decrease) in interest $249 $87
expense, from 2014 to 2015.

(b) Increase (decrease) in net income $837 $(2,019)

from 2014 to 2015.

(c) Increase (decrease) in cash from ($5,078 $(1,175)

operations from 2014 to 2015.

2. Cash flow from operations is the difference between cash receipts

from revenues and cash payments for expenses (see chapter 1).
Depreciation expense is a major reason why cash flow from operations
and net income are different for these two companies. Depreciation
expense reduces a company’s net income, but does not affect cash
flow from operations since it’s a noncash expense. Other reasons
would include changes in accounts receivable, inventory, and
accounts payable.
LO N/A BT: AP Difficulty: Easy TOT: 15 min. AACSB: Analytic AICPA FC: Reporting

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CT 3-4 REAL–WORLD FOCUS

Answers will vary depending on the company and article chosen by

the student.
LO N/A BT: S Difficulty: Easy TOT: 15 min. AACSB: Technology, Communication AICPA FC: Reporting AICPA
PC: Communication

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CT 3-5 DECISION MAKING ACROSS THE ORGANIZATION

(a) HAPPY CAMPER PARK

Income Statement
For the Quarter Ended March 31, 2020

Revenues
Rent revenue ($90,000 – $15,000)................. $75,000
Expenses
Salaries and wages expense
[$29,800 + ($300 X 2)].................................. $30,400
Advertising expense ($5,200 + $110)............ 5,310
Supplies expense ($6,200 – $1,700).............. 4,500
Maintenance and repairs expense
($4,000 + $260)............................................. 4,260
Insurance expense ($7,200 X 3/12)............... 1,800
Utilities expense ($900 + $180)...................... 1,080
Depreciation expense.................................... 800
Interest expense ($12,000 X 10% X 3/12)......... 300
Total expenses........................................ 48,450
Net income.............................................................. $26,550
[($90,000 - $15,000) – ($29,800 + ($300 x 2)) – ($5,200 + $110) – ($6,200 - $1,700) – ($4,000 + $260) – ($7,200
x 3/12) – ($900 + $180) - $800 – ($12,000 x 10% x 3/12) = $26,550]
[Rent rev. – Sal. & wages exp. – Advert. exp. – Supp. exp. - Maint. & repairs exp. – Ins. exp. – Util. exp. – Depr.
exp. – Int. exp. = Net inc.]

(b) The generally accepted accounting principles pertaining to the income

statement that were not recognized by Erica were the revenue recognition
principle and the expense recognition principle. The revenue recognition
principle states that revenue is recognized when the performance
obligation is satisfied. The $15,000 for summer rentals has not been
performed and, therefore, should not be reported in income for the
quarter ended March 31. The expense recognition principle dictates
that efforts (expenses) be matched with accomplishments (revenues)
whenever it is reasonable and practicable to do so. This means that the
expenses should include amounts incurred in March but not paid until
April. The difference in expenses was $7,750 ($48,450 – $40,700). The
overstatement of revenues ($15,000) plus the understatement of
expenses ($7,750) equals the difference in reported income of $22,750
($49,300 – $26,550).
LO N/A BT: AN Difficulty: Moderate TOT: 20 min. AACSB: Analytic, Communication AICPA FC: Reporting
AICPA PC: Communication

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CT 3-6 COMMUNICATION ACTIVITY

Dear Ms. Kahn:

Upon reviewing the accounts of your company at the end of the year,
I discovered that adjusting entries were not made.

Adjusting entries are made at the end of the accounting period to ensure
that the revenue recognition and expense recognition principles required
under generally accepted accounting principles are followed. The use of
adjusting entries makes it possible to report on the balance sheet the
appropriate assets, liabilities, and owner’s equity at the statement date and
to report on the income statement the proper net income (or loss) for the
year.

Adjusting entries are needed because the trial balance may not contain an
up-to-date and complete record of transactions and events for the following
reasons:

1. Some events are not journalized daily because it is not efficient to

do so. Examples are the use of supplies and the earning of wages
by employees.

2. The expiration of some costs is not journalized during the account-

ing period because these costs expire with the passage of time
rather than as a result of recurring daily transactions. Examples of
such costs are building and equipment depreciation, rent, and
insurance.

3. Some expenses, such as the cost of utility service and property

taxes, may be unrecorded because the bills for the costs have not
been received.

There are four types of adjusting entries:

1. Prepaid expenses—expenses paid in cash and recorded as assets

before they are used or consumed.

2. Unearned revenues—revenues received in cash and recorded as

liabilities before they are earned.

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CT 3-6 (Continued)

3. Accrued revenues—revenues earned but not yet received in cash

or recorded.

4. Accrued expenses—expenses incurred but not yet paid in cash or

recorded.

I will be happy to answer any questions you may have on adjusting entries.

Signature
LO1, 2, 3 BT: S Difficulty: Moderate TOT: 15 min. AACSB: Communication AICPA FC: Measurement, Reporting
AICPA PC: Communication

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CT 3-7 ALL ABOUT YOU

We address the issue of contingent liabilities in greater detail in Chapter 11.

Our primary interest in this exercise is to engage students in a discussion
regarding the general nature of the financial statement elements (assets,
liabilities, equity, revenues and expenses).

(a) By taking out the bank loan your friend has incurred a liability. You do
not have a liability unless your friend defaults, or unless it becomes
clear that he will default. The loan application may, however, require you
to disclose any guarantees that you have signed, since they represent
potential liabilities.

(b) Accounting standards have specific requirements regarding account-

ing for situations where there is uncertainty regarding whether a liability
has been incurred. Those standards require an evaluation of the pro-
bability of an amount being owed. Without going into detail regarding
those standards, the basic idea is that if it is probable that you will
owe money, then you should accrue a liability. If it is not probable, but
it is possible that you will owe money, then you should disclose facts
regarding the situation. The most important point is that this event has
the potential to materially impact your finances, and therefore you have
a responsibility to disclose it to the bank in some form.

(c) Losing your job would not create a financial liability, although it would
most certainly reduce your revenues. You are obviously concerned that
you might lose your job, but you don’t have specific information that
would suggest that it will happen. Therefore, you probably don’t have
an obligation to disclose this information to the bank. However, unless
you are relatively certain that you would be able to find suitable
employment relatively quickly, you might want to wait until your job
situation has stabilized before pursuing a loan of this size.
LO N/A BT: E Difficulty: Moderate TOT: 15 min. AACSB: Communication AICPA FC: Reporting AICPA PC:
Communication

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CT 3-8 CONSIDERING PEOPLE, PLANET, AND PROFIT

The balance sheet should provide a fair representation of what a company

owns and what it owes. If significant obligations of the company are not
reported on the balance sheet, the company’s net worth (its equity) will be
overstated. While it is true that it is not possible to estimate the exact
amount of future environmental cleanup costs, it is becoming clear that
companies will be held accountable.

Therefore, it doesn’t seem reasonable to not accrue for environmental

costs. Recognition of these liabilities provides a more accurate picture of
the company’s financial position. It also has the potential to improve the
environment. As companies are forced to report these amounts on their
financial statements they will start to look for more effective and efficient
means to reduce toxic waste, and therefore reduce their costs.
LO N/A BT: E Difficulty: Moderate TOT: 10 min. AACSB: Communication AICPA FC: Reporting AICPA PC:
Communication

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CT 3-9 FASB CODIFICATION ACTIVITY

(a) Revenues are inflows or other enhancements of assets of an entity or

settlements of its liabilities (or a combination of both) from delivering
or producing goods, rendering services, or other activities that
constitute the entity’s ongoing major or central operations.

(b) Compensation is reciprocal transfers of cash or other assets in exchange

for services performed.
LO N/A BT: K Difficulty: Easy TOT: 12 min. AACSB: Communication AICPA FC: Reporting AICPA PC:
Communication

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IFRS 3-1 INTERNATIONAL FINANCIAL REPORTING PROBLEM

(a) Note 1.25 indicates that revenue is recognized in the following ways:
Direct sales to customers are recognized at the time of purchase by
retail customers; wholesale sales recognize revenue when title to the
goods passes to third party customers, generally upon shipment; and
revenue is presented net of all forms of discount.

(b) Note 1.25 states that the estimated rate of returns is based on
statistics of historical returns.

(c) Louis Vuitton could have adjustments for prepayments such as:
Depreciation expense, Amortization of intangible assets, and Deferred
tax assets.

(d) Louis Vuitton could have adjustments for accruals such as:
Finance costs (interest expense), Tax liabilities, and Trade and other
payables.
LO7 BT: AN Difficulty: Moderate TOT: 15 min. AACSB: Analytic, Diversity AICPA FC: Reporting

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Adjusting Accounts: Key Concepts
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Accounting Chapter 3 SM

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Accounting principles by kieso 13th edition, CH# 3 Solution

Accounting Principles by Kieso 13th Edition (Government College University Lahore)

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ASSIGNMENT CLASSIFICATION TABLE

*1. Explain the accrual basis of 1, 2, 3, 4, 5, 1, 2, 8 1 1, 2, 3, 4, 10,

*5. Prepare adjusting entries for 22 11 20, 21 6A

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ASSIGNMENT CHARACTERISTICS TABLE

Problem Difficulty Time

1A Prepare adjusting entries, post to ledger accounts, Easy 40–50

2A Prepare adjusting entries, post, and prepare adjusted Easy 50–60

3A Prepare adjusting entries and financial statements. Moderate 40–50

4A Prepare adjusting entries. Moderate 30–40

5A Journalize transactions and follow through accounting Moderate 60–70

*6A* Prepare adjusting entries, adjusted trial balance, Moderate 40–50

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Questions Chapter 3 (Continued)

12. Equipment................................................................................................. $18,000

*15. An expense is debited and a liability is credited in the adjusting entry.

*17. The entry is:

*18. (a) Accrued revenues. (d) Accrued expenses or prepaid expenses.

*19. (a) Salaries and Wages Payable. (d) Supplies Expense.

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Questions Chapter 3 (Continued)

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Questions Chapter 3 (Continued)

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SOLUTIONS TO BRIEF EXERCISES

(a) Prepaid Insurance—to recognize insurance expired during the period.

(b) Depreciation Expense—to account for the depreciation that has

(d) Interest Payable—to recognize interest accrued but unpaid on notes

BRIEF EXERCISE 3-2

2. Accrued Revenues Assets Understated

3. Accrued Expenses Expenses Understated

4. Unearned Revenues Liabilities Overstated

BRIEF EXERCISE 3-3

Supplies Supplies Expense

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Dec. 31 Depreciation Expense........................................... 3,750

Depreciation Expense Accum. Depreciation—Equipment

BRIEF EXERCISE 3-5

July 1 Prepaid Insurance............................................. 15,120

Dec. 31 Insurance Expense [($15,120 ÷ 4) X 1/2]......... 1,890

Prepaid Insurance Insurance Expense

BRIEF EXERCISE 3-6

July 1 Cash................................................................... 15,120

Dec. 31 Unearned Service Revenue............................. 1,890

Unearned Service Revenue Service Revenue

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1. Dec. 31 Interest Expense.................................... 400

2. 31 Accounts Receivable.................................... 2,300

3. 31 Salaries and Wages Expense....................... 900

BRIEF EXERCISE 3-8

BRIEF EXERCISE 3-9

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BRIEF EXERCISE 3-10

Owner’s capital, January 1............................................................... $16,400

*BRIEF EXERCISE 3-11

(a) Apr. 30 Supplies.......................................................... 400

(b) 30 Service Revenue............................................ 3,000

*BRIEF EXERCISE 3-12

(a) Predictive value.

*BRIEF EXERCISE 3-13

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(b) Faithful representation.

*BRIEF EXERCISE 3-14

(a) 1. Predictive value.

*BRIEF EXERCISE 3-15

(c) Financial statements should disclose all events and circumstances

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SOLUTIONS FOR DO IT! REVIEW EXERCISES

1. (d) 2. (e) 3. (h) 4. (c)

1. Insurance Expense........................................................ 400

2. Supplies Expense ($2,500 – $1,600)............................ 900

6A Prepare adjusting entries, adjusted trial balance, Moderate 40–50