Quick Study 3-15 (15 minutes)
Accounts Debited and Credited Financial Statement
a. Debit Unearned Revenue Balance Sheet
Credit Revenue Earned Income Statement
Quick Study 3-16 (15 minutes)
The answer is 2.
Explanation:
Insurance premium error:
Understates expenses (and overstates assets) by…........ $3,200
Accrued salaries error:
Quick Study 3-17 (10 minutes)
The answer is b.
Explanation
The debit balance in Prepaid Insurance was reduced by $400, implying a
Quick Study 3-18 (10 minutes)
b. Under IFRS, financial statements normally present liabilities from
furthest from maturity to nearest to maturity.
Quick Study 3-19 (10 minutes)
Profit margin = $48,025 / $425,000 = 11.3%
Interpretation: For each dollar that the company records as revenue, it earns
11.3 cents in net income. The company’s profit margin of 11.3% is markedly
lower than competitors’ average profit margin of 15%—it must improve
performance.
Quick Study 3-20A (5 minutes)
The answer is a.
EXERCISES
Exercise 3-1 (20 minutes)
Balance Sheet Insurance Asset using Insurance Expense using
Accrual
Basis*
Cash
Basis
Accrual
Basis**
Cash
Basis
Dec. 31, 2013................$13,000 $0 2013….….……………….....$ 5,000 $18,000
Explanations:
*Accrual asset balance equals months left in the policy x $500 per month (monthly
cost is computed as $18,000 / 36 months).
Months Left Balance
12/31/2013… 26 $13,000
**Accrual insurance expense equals months covered in the year x $500 per month.
Months Covered Expense
2013………..….…................10 $ 5,000
Exercise 3-2 (10 minutes)
1. E 4. D
Exercise 3-3 (15 minutes)
a. Adjusting entry:
2015
Dec. 31 Wages Expense….…………………...................................
1,250
b. Payday entry:
2016
Jan. 4 Wages Expense….…………………...................................3,750
Exercise 3-4 (15 minutes)
a. Supplies expense for current year: $2,550
Proof:
(a) (b) (c) (d)
Supplies available – prior year-end......... $ 400 $1,200 $ 1,260 $2,288
Exercise 3-5 (25 minutes)
a.
Apr. 30 Legal Fees Expense……………………………………. 3,500
May 12 Legal Fees Payable……………….…………….......... 3,500
b.
Apr. 30 Interest Expense….…….………………................... 3,000
May 20 Interest Payable….………………........................... 3,000
c.
Apr. 30 Salaries Expense….…….………........................... 4,000
May 3 Salaries Payable……………................................. 4,000
Exercise 3-6 (25 minutes)
a. Depreciation Expense—Equipment..…………………..…..... 18,000
b. Insurance Expense…………………………………………………… 4,900
c. Office Supplies Expense…….…………........…......…......….. 3,880
d. Unearned Fee Revenue…………………………………………….. 10,000
e. Insurance Expense…………………………………………………… 5,800
f. Wages Expense………………………………………..…………..…. 3,200
Notes:
Prepaid Insurance*Office Supplies**
Exercise 3-7 (30 minutes)
a. Unearned Fee Revenue…………………………………………….. 5,000
b. Wages Expense…………………………………………………..…… 8,000
c. Depreciation Expense—Equipment..…………………..…..... 18,000
d. Office Supplies Expense…..………………......…......…......... 5,000
e. Insurance Expense…………………………………………………… 2,800
f. Interest Receivable..……….……………............................. 1,050
g. Interest Expense………………………………………….……….. 2,500
Notes:
Prepaid Insurance†Office Supplies*