148 ♦ Chapter 3
15. Refer to Hints. Identify the type of adjustment necessary (the type of item involved) and record the
transaction for the event. Make sure to include the ending balances after adjustment.
Assume that on June 1, 2004, Jimmy Jack’s Sausage Corp. received $6,000 in advance to provide
sausages over the next three months:
Assets = Liabilities + Stockholders’ Equity
Cash
Office
Equipment
Accumulated
Depreciation
Unearned
Revenue
Capital
Stock
Retained
Earnings
Beg. Bal.
6,000
6,000
Adjustment
Bal.
16. Refer to Hints. Identify the type of adjustment necessary (the type of item involved) and record the
transaction for the event. Make sure to include the ending balances.
On June 1st, Jimmy Jack’s Sausage Corp. borrowed $25,000 from the bank by signing a
promissory note from the bank, with 8% interest. The note is due in three months. Interest for June
has been incurred but not yet recorded. The interest to accrue for June is $167.
Assets = Liabilities + Stockholders’ Equity
Cash
Office
Equipment
Accumulated
Depreciation
Interest
Payable
Capital
Stock
Retained
Earnings
Beg. Bal.
Adjustment
Bal.
Assets = Liabilities + Stockholders’ Equity
6,000
6,000
6,000
4,000
Accrual Accounting Concepts ♦ 149
17. Refer to Hints. Identify the type of adjustment necessary (the type of item involved) and record the
transaction for the event. Make sure to include the ending balances after adjustment.
Assume that on June 1, 2004, Jimmy Jack’s Sausage Corp. signed a $2,000 contract to provide
sausage that will be completed and billed in July. As of June 30, 60% of the sausages have been
provided.
Assets = Liabilities + Stockholders’ Equity
Cash
Accounts
Receivable
Accumulated
Depreciation
Interest
Payable
Capital
Stock
Retained
Earnings
Beg. Bal.
Adjustment
Bal.
Assets = Liabilities + Stockholders’ Equity
Accounts
Accumulated
Interest
Capital
Retained
Bal.
Assets = Liabilities + Stockholders’ Equity
Accumulated
Interest
Capital
Retained
Beg. Bal.
Adjustment
Bal.
150 ♦ Chapter 3
18. Part A
Record the transactions below into the summary of transactions equation provided.
Jan.
2
Landetta’s Landscaping began business in January of 2006, by depositing $75,000 in a
checking account in the name of Landetta’s Landscaping, Inc. Common stock was issued.
2
Purchased equipment for $40,000.
3
Purchased supplies costing $2,000 on account from Mountain Supply.
3
Paid one month’s rent for business space in U-STOR-IT, $1,200 (record this as an expense,
not as a prepaid asset).
4
Borrowed $9,000 from City Bank for 5 years and signed a promissory note with an annual
interest rate of 6%.
4
Purchased a 6-month insurance policy, $2,400.
4
Paid $3,600 for advertising to appear in the Pine Press newspaper during the next three
months.
8
Received $700 from customers who paid in advance for winterizing their plants and sprinkler
systems for January and February.
11
Services provided to customer on account during the first half of January totaled $5,200.
11
Services provided to customers for cash during the first half of January totaled $3,400.
11
Paid employees for hours worked during the first two weeks of January, $1,500.
14
Paid $800 on account to Mountain Supply.
25
Paid wages for January 14 – 25, $1,500.
31
Collected accounts receivable in January, $2,200.
31
Received and paid the utility bill for electricity, $500.
31
Received but did not pay the telephone bill, $150.
31
Services provided to customers during the second half of January totaled $14,500. Cash
received totaled $11,800 and services on account were $2,700.
31
Declared and paid dividends to the stockholders, $3,000.
Assets = Liabilities + Stockholders’ Equity
Cash
Accounts
Receivable
Prepaid
Insurance
Prepaid
Advertising
Supplies
Equipment
Accounts
Payable
>
2
>
2
>
3
>
3
>
4
>
4
>
4
>
8
>
11
>
11
>
14
>
25
>
31
>
31
>
31
>
31
>
31
>
Bal.
>
Accrual Accounting Concepts ♦ 151
Assets = Liabilities + Stockholders’ Equity
<
Unearned
Revenue
Notes
Payable
Capital
Stock
Retained
Earnings
Type of Retained
Earnings
Transaction
<
<
<
<
<
<
<
<
<
<
<
<
<
<
<
<
<
<
Part B
Using the information from Part A, continue by adding the adjustments to the following summary
of transactions equation.
(a)
The equipment has an estimated useful life of ten years. Record depreciation for one month on the
equipment. (This comes to $333.)
(b)
Record insurance expired for one month.
(c)
One month of the unearned revenue from the customer who paid in advance for landscape services
has been earned.
(d)
Landscape services of $1,420 for January have been performed, but have not yet been billed.
(e)
Wages of $600 are owed to employees for hours they worked January 28-31.
(f)
Supplies on hand at the end of January have a cost of $500.
(g)
Record advertising expired for the month of January.
(h)
Accrued interest on the note payable is $45.
(i)
Income taxes to accrue for January are estimated to be $3,200.
152 ♦ Chapter 3
Assets = Liabilities + Stockholders’ Equity
Cash
Accounts
Receivable
Prepaid
Insurance
Prepaid
Advertising
Supplies
Equipment
Accumulated
Depreciation
Accounts
Payable
>
>
>
>
>
>
>
>
>
>
>
>
>
>
>
>
>
>
Bal.
>
Assets = Liabilities + Stockholders’ Equity
<
Salary
Payable
Interest
Payable
Taxes
Payable
Unearned
Revenue
Notes
Payable
Capital
Stock
Retained
Earnings
Type of Retained
Earnings
Transaction
<
<
<
<
<
<
<
<
<
<
<
<
<
<
<
<
<
<
Accrual Accounting Concepts ♦ 153
Part C
Using the results from Part B, prepare (1) an income statement, (2) a statement of retained
earnings, and (3) a balance sheet.
Landetta’s Landscaping, Inc.
Income Statement
Landetta’s Landscaping, Inc.
Statement of Retained Earnings
154 ♦ Chapter 3
Landetta’s Landscaping, Inc.
Balance Sheet
Accrual Accounting Concepts ♦ 155
156 ♦ Chapter 3
Accrual Accounting Concepts ♦ 157
158 ♦ Chapter 3
CASE
A. PepsiCo Specific Notes
1. Refer to PepsiCo Specific Notes. It is important to know the time period for financial preparation.
What is PepsiCo’s fiscal year end? Why isn’t it the same each year?
2. Refer to PepsiCo Specific Notes. A major adjusting entry at the end of the period is for
depreciation expense. How much is PepsiCo’s depreciation expense for 2001?
Accrual Accounting Concepts ♦ 159
3. Refer to PepsiCo Specific Notes. Does it appear that PepsiCo used the cash or accrual basis of
accounting?
B Starbucks Coffee’s Consolidated Statements of Earnings
160 ♦ Chapter 3
4. Refer to Starbucks Coffee’s Consolidated Statements of Earnings. Prepare a common size income
statement for the year ended September 30 2001.
5. Refer to Starbucks Coffee’s Consolidated Statements of Earnings. Using horizontal analysis, show
the percentage growth for each year in revenues and net income.