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Problem 3-3A (Concluded)
WELLS TECHNICAL INSTITUTE
Balance Sheet
December 31, 2015
Assets
Accumulated depreciation—Professional library....... (17 ,200) 17,800
Equipment....................................................................... 80,000
Accumulated depreciation—Equipment...................... (28 ,200) 51 ,800
Total assets..................................................................... $123 ,500
Liabilities
Equity
T. Wells, Capital.............................................................. 89 ,600
Total liabilities and equity.............................................. $123 ,500
Problem 3-4A (45 minutes) — Part 1
Account
Unadjusted
Trial Balance Adjustments
Adjusted
Trial Balance
Accumulated depreciation
—Office equipment...... $ 14,000 (d) 6,000 $ 20,000
Accounts payable.......... 9,100 (e) 900 10,000
Interest payable............. (f) 1,000 1,000
Salaries payable............. (g) 7,000 7,000
Consulting fees
earned......................... 123,240
(h)
3,000 134,240
Depreciation expense—
Office equipment......... (d) 6,000 6,000
Advertising expense...... 12,100
_______ (e) 900
______ 13,000
_______
Totals............................ $256,340
$256,340
$45,480
$45,480
$279,240
$279,240
Adjustment description
(a) Earned but uncollected revenues.
(b) Cost of office supplies used.
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
Advertising expense .................................... 13 ,000
Total expenses............................................... 129 ,280
Net income....................................................... $ 4 ,960
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
Accumulated depreciation—Office equipment........ (20,000) 64,000
Total assets................................................................. $124,960
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
Expenses
Depreciation expense—Automobiles..... 26,000
Depreciation expense—Equipment........ 18,000
Total expenses.......................................... 420 ,800
Net income.................................................. $ 87 ,200
CHIARA COMPANY
Statement of Owner's Equity
For Year Ended December 31, 2015
R. Chiara, Capital, December 31, 2014.............. $255,800
Plus: Net income................................................ 87 ,200
Problem 3-5A (Concluded)
CHIARA COMPANY
Balance Sheet
December 31, 2015
Assets
Cash......................................................................... $ 30,000
Notes receivable (due in 90 days)........................ 168,000
Office supplies........................................................ 16,000
Automobiles............................................................ $168,000
Accumulated depreciation—Automobiles........... (50,000) 118,000
Accounts payable................................................... $ 96,000
Interest payable...................................................... 20,000
Salaries payable..................................................... 19,000
Part 2
Profit margin = $87,200 / $508,000 = 17.2%
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.
Unearned Service Fees........................... 7,950
Received fees in advance.
31 Advertising Expense....................................... 600
Prepaid Advertising ................................ 600
To adjust prepaid advertising
($1,800 - $1,200).
31 Insurance Expense.......................................... 410
Prepaid Insurance.................................... 410
To adjust prepaid insurance ($2,460 x 2/12).
To adjust unearned service fees.
Problem 3-6AA (Continued)
Part 2
Assume prepaid expenses are recorded as expenses and unearned revenues as revenues.
30 Cash.................................................................. 3,600
Service Fees Earned................................ 3,600
Received fees in advance.
Dec. 1 Consulting Fees Expense............................... 3,000
Cash.......................................................... 3,000
Paid for future consulting.
31 Service Fees Earned....................................... 1,500
Unearned Service Fees........................... 1,500
To adjust for unearned service fees.
31 Prepaid Consulting Fees................................ 2,000
Consulting Fees Expense....................... 2,000
To adjust for prepaid consulting fees.
($3,000 x 2/3)
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
When prepaid expenses and unearned revenues are recorded in balance
sheet accounts, the related adjusting entries are designed to generate the
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
To record cost of supplies used
($600 + $4,570 - $800).
Adjustment (b)
Policy Cost per Month
Months Active
in Fiscal Year
2015
Fiscal Year
2015
Expense
A $250 ($6,000/24 mo.) 12 $3,000
B 200 ($7,200/36 mo.) 7 1,400
Total $4,730
Adjustment (c)
Problem 3-2B (Concluded)
Adjustment (d)
Oct.31 Depreciation Expense—Building.......................... 5,400
Accumulated Depreciation—Building........... 5,400
To record annual depreciation
[($175,000-$40,000) / 25 years = $5,400].
Part 2
Cash Payment for (c)
Nov. 7 Salaries Payable..................................................... 1,000
Salaries Expense*................................................... 4,000
Cash.................................................................. 5,000
To record payment of accrued and
current salaries. *(4 days x $1,000)
Cash Payment for (e)
