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Problem 3-4A (45 minutes) — Part 1
Account
Unadjusted
Trial Balance Adjustments
Adjusted
Trial Balance
Cash............................. $ 34,000 $ 34,000
Accounts receivable...... 14,000 (a) 8,000 22,000
Office supplies.............. 16,000 (b) 14,000 2,000
Prepaid insurance......... 8,540 (c) 5,580 2,960
Office equipment........... 84,000 84,000
Accumulated depreciation
—Office equipment...... $ 14,000 (d) 6,000 $ 20,000
Adjustment description
(a) Earned but uncollected revenues.
(b) Cost of office supplies used.
(c) Cost of expired insurance coverage.
Problem 3-4A (Continued)
Part 2
JKL COMPANY
Income Statement
For Year Ended July 31, 2015
Revenues
Consulting fees earned ............................... $134,240
Expenses
Depreciation expense—Office equipment. . $ 6,000
Salaries expense ......................................... 74,000
JKL COMPANY
Statement of Owner’s Equity
For Year Ended July 31, 2015
J. Logan, Capital, July 31, 2014..................... $40,000
Plus: Net income............................................ 4 ,960
Problem 3-4A (Concluded)
Part 2
JKL COMPANY
Balance Sheet
July 31, 2015
Assets
Cash........................................................................... $ 34,000
Accounts receivable................................................. 22,000
Liabilities
Accounts payable...................................................... $ 10,000
Interest payable......................................................... 1,000
Equity
J. Logan, Capital........................................................ 39,960
Total liabilities and equity......................................... $124,960
Problem 3-5A (50 minutes)
Part 1
CHIARA COMPANY
Income Statement
For Year Ended December 31, 2015
Revenues
Fees earned............................................. $484,000
Interest earned........................................ 24 ,000
Total revenues......................................... $508,000
Expenses
CHIARA COMPANY
Statement of Owner's Equity
For Year Ended December 31, 2015
R. Chiara, Capital, December 31, 2014............. $255,800
Problem 3-5A (Concluded)
CHIARA COMPANY
Balance Sheet
December 31, 2015
Assets
Cash....................................................................... $ 30,000
Accounts receivable............................................. 52,000
Interest receivable................................................ 18,000
Notes receivable (due in 90 days)........................ 168,000
Liabilities
Accounts payable................................................. $ 96,000
Interest payable..................................................... 20,000
Equity
Part 2
Problem 3-6AA (40 minutes)
Part 1
Assume prepaid expenses are recorded as assets and unearned revenues as liabilities.
Nov. 1 Prepaid Advertising ...................................... 1,800
Cash......................................................... 1,800
Paid for future advertising.
31 Insurance Expense........................................ 410
Prepaid Insurance................................... 410
To adjust prepaid insurance ($2,460 x 2/12).
Problem 3-6AA (Continued)
Part 2
Assume prepaid expenses are recorded as expenses and unearned revenues as revenues.
Nov. 1 Advertising Expense...................................... 1,800
Cash......................................................... 1,800
Paid for future advertising.
1 Insurance Expense........................................ 2,460
Cash......................................................... 2,460
Paid insurance for one year.
Problem 3-6AA (Concluded)
Part 3
There are no differences between the two methods in terms of the amounts
that appear on the financial statements. In both cases, the financial
statements reflect the following:
Advertising expense for two months.................................... $ 600
Prepaid advertising as of December 31................................ 1,200
Insurance expense for two months....................................... 410
When prepaid expenses and unearned revenues are recorded in balance
sheet accounts, the related adjusting entries are designed to generate the
correct asset, expense, liability, and revenue account balances. When
prepaid expenses and unearned revenues are recorded in income
statement accounts, the related adjusting entries are designed to
accomplish exactly the same result.
PROBLEM SET B
Problem 3-1B (15 minutes)
1. H 5. B 9. I
Problem 3-2B (30 minutes)
Part 1
Adjustment (a)
Oct. 31 Office Supplies Expense....................................... 4,370
Office Supplies............................................... 4,370
Adjustment (b)
31 Insurance Expense................................................ 4,730
Prepaid Insurance.......................................... 4,730
To record annual insurance coverage cost.
Policy Cost per Month
Months Active
in Fiscal Year
2015
Fiscal Year
2015
Expense
A $250 ($6,000/24 mo.) 12 $3,000
Adjustment (c)
31 Salaries Expense................................................... 1,000
Adjustment (d)
Oct.31 Depreciation Expense—Building......................... 5,400
Adjustment (e)
31 Rent Receivable..................................................... 1,000
Adjustment (f)
31 Unearned Rent....................................................... 1,450
Part 2
Cash Payment for (c)
Nov. 7 Salaries Payable.................................................... 1,000
Cash Payment for (e)
15 Cash....................................................................... 2,000
Rent Receivable............................................. 1,000
