Problem 3-6BA (40 minutes)
Part 1
Method that records prepaid expenses and unearned revenues in balance sheet accounts
Apr. 1 Prepaid Consulting Fees……………………………… 2,450
Cash……………………………………………………. 2,450
Paid for future consulting services.
May 1 Prepaid Advertising…………………………………….. 4,450
Cash……………………………………………………. 4,450
Paid for future advertising.
23 Cash …………………………………………………………. 10,450
Unearned Service Fees………………………… 10,450
Received fees in advance.
Problem 3-6BA (Continued)
Part 2
Method that records prepaid expenses and unearned revenues in income statement accounts
Apr. 1 Consulting Fees Expense…………………………… 2,450
Cash…………………………………………………… 2,450
Paid for future consulting services.
May 1 Advertising Expense………………………………….. 4,450
Cash…………………………………………………… 4,450
Paid for future advertising.
23 Cash………………………………………………………….. 10,450
Service Fees Earned……………………………. 10,450
Received fees in advance.
Problem 3-6BA (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:
Prepaid consulting fees as of May 31…………………………………. $ 450
When prepaid expenses and unearned revenues are recorded in balance
sheet accounts, the related adjusting entries are designed to generate the
SERIAL PROBLEM – SP 3
Serial Problem, Business Solutions (180 minutes) — Part 1
<Note: The general ledger is displayed at the end of Part 6>
Journal entries
Dec. 2 Advertising Expense……………………………655 1,025
Cash…………………………………………….101 1,025
Paid share of mall advertising costs.
3 Repairs Expense–Computer…………………684 500
Cash…………………………………………….101 500
Repaired the computer.
4 Cash…………………………………………………..101 3,950
Accounts Receivable…………………….106 3,950
Collected accounts receivable.
Serial Problem, SP 3 (Continued)
Part 2
Adjusting entries
Dec. 31 Computer Supplies Expense ……………………652 3,065
Computer Supplies …………………………..126 3,065
Adjustment for supplies used (supplies
balance less cost of supplies available).
31 Insurance Expense …………………………………637 555
Prepaid Insurance …………………………….128 555
Adjustment for expired insurance (1/4
of $2,220 original prepaid amount).
Serial Problem, SP 3 (Continued)
Part 3
BUSINESS SOLUTIONS
Adjusted Trial Balance
December 31, 2015
Debit Credit
Cash ……………………………………………………………….. $ 48,372
Accounts receivable ………………………………………… 5,668
Computer supplies …………………………………………… 580
Prepaid insurance ……………………………………………. 1,665
Prepaid rent …………………………………………………….. 825
Serial Problem, SP 3 (Continued)
Part 4
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended December 31, 2015
Revenue
Computer services revenue……………………………….. $31,284
Expenses
Depreciation expense—Office equipment…………… $ 400
Depreciation expense—Computer equipment……… 1,250
Wages expense…………………………………………………. 3,875
Part 5
BUSINESS SOLUTIONS
Statement of Owner’s Equity
For Three Months Ended December 31, 2015
S. Rey, Capital, October 1, 2015…………………………… $73,000
Plus: Net income……………………………………………….. 14 ,460
87,460
Serial Problem, SP 3 (Continued)
Part 6
BUSINESS SOLUTIONS
Balance Sheet
December 31, 2015
Assets
Cash …………………………………………………………………… $ 48,372
Accounts receivable ……………………………………………. 5,668
Computer supplies ……………………………………………… 580
Prepaid insurance ……………………………………………….. 1,665
Liabilities
Accounts payable………………………………………………… $ 1,100
Equity
Serial Problem, SP 3 (Continued)
[Note: Ledger includes all entries from prior three months. The Working Papers shorten
the solution by showing account balances as of November 30.]
General Ledger
Cash Acct. No. 101
Date Explanation PR Debit Credit Balance
Oct. 1 45,000 45,000
2 3,300 41,700
5 2,220 39,480
8 1,420 38,060
15 4,800 42,860