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.
Paid for future advertising.
23 Cash …………………………………………………………… 10,450
Unearned Service Fees…………..…………….. 10,450
Received fees in advance.
31 Consulting Fees Expense……………………………... 2,000
Prepaid Consulting Fees……………………...… 2,000
To adjust prepaid consulting fees.
31 Unearned Service Fees…………………………………. 5,500
Service Fees Earned………………………………. 5,500
To adjust unearned service fees.
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.
Paid for future advertising.
23 Cash……………………………………………………..……. 10,450
Service Fees Earned.……………………………. 10,450
Received fees in advance.
31 Prepaid Consulting Fees………………….……..…… 450
Consulting Fees Expense……………....…….. 450
To adjust prepaid consulting fees ($2,450 – $2,000).
To adjust for prepaid advertising.
31 Service Fees Earned……………………………………. 4,950
Unearned Service Fees …………..……..…….. 4,950
To adjust unearned service fees ($10,450 – $5,500).
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
Consulting fees expense for two months…………………….………. 2,000
Insurance expense for two months…………………………....……….. 600
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.
14 Cash………………………………………………….…101 1,500
Unearned Computer Services Revenue...236 1,500
Received advance on work to be performed.
15 Computer Supplies………………..…………….126 1,100
Accounts Payable……………….…………201 1,100
Purchased supplies on credit.
16 No entry recorded in the journal.
29 Mileage Expense………………………………….676 192
Cash…………………………..…………..…….101 192
Reimbursed Rey for mileage.
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 Depreciation Expense–Computer Equip.……613 1,250
Accumulated Depreciation—
Computer Equipment……..……………....168 1,250
Adjustment for computer equipment depreciation:
Cost…….………………….............................. $20,000
Predicted life………………………................. 4 years
Annual depreciation (cost/life)............... $5,000
Expense for three months………………….. $1,250
31 Depreciation Expense—Office Equip.…….....612 400
Accumulated Depreciation—
Office Equipment ………….………………...164 400
Adjustment for office equipment depreciation:
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
Wages payable ………………………………………………..... 500
Unearned computer services revenue ..……..…....... 1,500
S. Rey, Capital…………………………………………..……….. 73,000
S. Rey, Withdrawals………………………………………….… 7,100
Computer services revenue ………..………………..…… 31,284
Computer supplies expense ……………………………… 3,065
Advertising expense………………….…..………………….. 2,753
Mileage expense …………………………………….……..….. 896
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
Advertising expense………………………………...………… 2,753
Mileage expense……………………..……..………………….. 896
Miscellaneous expenses…………………………………….. 250
Repairs expense—Computer……………………….……… 1 ,305
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
Serial Problem, SP 3 (Continued)
Part 6
BUSINESS SOLUTIONS
Balance Sheet
December 31, 2015
Assets
Prepaid insurance …………………………………………..……. 1,665
Prepaid rent …………………………………………..…………….. 825
Office equipment …………………………………….………….... $ 8,000
Accumulated depreciation–Office equipment.………… (400) 7,600
Liabilities
Accounts payable………………………………………………….. $ 1,100
Wages payable………………………………………………………. 500
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
2 4,633 41,565
5 1,125 40,440
18 2,208 42,648
22 250 42,398
28 384 42,014
30 1,750 40,264
30 2,000 38,264
Serial Problem, SP 3 (Continued)
Accounts Receivable Acct. No. 106
Date Explanation PR Debit Credit Balance
Oct. 6 4,800 4,800
12 1,400 6,200
15 4,800 1,400
22 1,400 0
28 5,208 5,208
Computer Supplies Acct. No. 126
Date Explanation PR Debit Credit Balance
Oct. 3 1,420 1,420
Prepaid Insurance Acct. No. 128
Date Explanation PR Debit Credit Balance
Oct. 5 2,220 2,220
Dec. 31 555 1,665
Prepaid Rent Acct. No. 131
Date Explanation PR Debit Credit Balance
Accumulated Depreciation—Office Equipment Acct. No. 164
Date Explanation PR Debit Credit Balance
Dec. 31 400 400
Serial Problem, SP 3 (Continued)
Computer Equipment Acct. No. 167
Date Explanation PR Debit Credit Balance
Oct. 1 20,000 20,000
Accumulated Depreciation—Computer Equipment Acct. No. 168
Date Explanation PR Debit Credit Balance
Wages Payable Acct. No. 210
Date Explanation PR Debit Credit Balance
Dec. 31 500 500
Unearned Computer Services Revenue Acct. No. 236
Date Explanation PR Debit Credit Balance
Dec. 14 1,500 1,500
S. Rey, Capital Acct. No. 301
Date Explanation PR Debit Credit Balance