Exercise 4-13 (15 minutes)
Current assets:
Cash…………………………………………………………….……….. $ 8,000
Accounts receivable………………………………….…………… 17,500
Office supplies……………………………………..…….…………. 3 ,000
Total current assets…………………………………..…….…….. $28 ,500
Current liabilities:
Current ratio = = = 1.78
Interpretation: Wilson Trucking Company’s current ratio of 1.78 exceeds
the industry average of 1.5. This implies the company is in a slightly better
Exercise 4-14 (10 minutes)
Dec. 31 Net Sales………………………………………….……. 1,014,345
31 Income Summary……………………………….….. 936,724
Cost of Sales…………………………………... 626,379
4-1
$28,500
$16,000
Current assets
Current liabilities
Exercise 4-15 (15 minutes)
Current
Assets
Current
Liabilities
Current
Ratio
Case 1 $ 79,040 / $ 32,000 = 2.47
Case 2 104,880 / 76,000 = 1.38
Analysis: Company 1 is in the strongest liquidity position. It has about
$2.47 of current assets for each $1 of current liabilities. The only potential
Exercise 4-16A (10 minutes)
Reversing entries are appropriate for accounting adjustments (a) and (e)
Sept. 1 Service Fees Earned………………………………. 6,000
Accounts Receivable…………….………… 6,000
To reverse accrued revenues.
4-2
Exercise 4-17A (30 minutes)
1. Adjusting entries
Oct. 31 Rent Expense………………………..………….…… 2,800
Rent Payable…………………………..………. 2,800
To record accrued rent expense.
2. Subsequent entries without reversing
Nov. 5 Rent Payable………………………….……………… 2,800
Rent Expense……………………….…….…………. 2,800
Cash……………………………………………..… 5,600
To record payment of 2 months’ rent.
3. Reversing entries and subsequent entries
Nov. 1 Rent Payable………………………….……………… 2,800
Rent Expense………………………………….. 2,800
To reverse accrual of rent expense.
8 Cash………………………………….…….……………. 1,700
Rent Earned……………….…….…………….. 1,700
To record collection of 2 months’ rent.
4-3
PROBLEM SET A
Problem 4-1A (90 minutes)
INSTRUCTOR: Ledger accounts are shown after Part 7 as they would appear after all entries are
posted.
Part 2 — Transactions for April
April 1 Cash…………………………………………….………..101 30,000
Computer Equipment…………………….……….167 20,000
J. Nozomi, Capital……………………………301 50,000
Owner invested in the business.
Paid two weeks’ salaries.
24 Cash…………………………………………….………..101 8,000
Commissions Earned……………………....405 8,000
Collected commissions from airlines.
28 Salaries Expense…………….………….………….622 1,600
Cash……………………………………………..…101 1,600
Paid two weeks’ salaries.
4-4
Owner withdrew cash.
Problem 4-1A (Continued)
Part 3
ADVENTURE TRAVEL
Unadjusted Trial Balance
April 30, 2015
No. Account Title Debit Credit
101 Cash………………………………..…………….…. $27,000
106 Accounts receivable………………………….. 0
124 Office supplies……………………….…………. 1,000
405 Commissions earned…..………….……...... 8,000
612 Depreciation expense—
Computer equipment…………………..…… 0
622 Salaries expense…………………………….…. 3,200
637 Insurance expense……………………………. 0
640 Rent expense…………………………………….. 1,800
Problem 4-1A (Continued)
Part 4
Adjusting entries
(a) Apr 30 Insurance Expense…………….….……………….…….. 637 133
Prepaid Insurance……………………………….….. 128 133
4-5
To record expired insurance ($2,400/12 x2/3).
(b) 30 Office Supplies Expense………………………………… 650 400
Office Supplies………………………….….………… 124 400
To record cost of supplies used ($1,000 – $600).
To record accrued commissions.
Problem 4-1A (Continued)
Part 4
ADVENTURE TRAVEL
Adjusted Trial Balance
April 30, 2015
No. Account Title Debit Credit
101 Cash………………………………..…………….…. $27,000
106 Accounts receivable………………………….. 1,750
301 J. Nozomi, Capital……………………….…….. 50,000
302 J. Nozomi, Withdrawals……………….…….. 1,500
405 Commissions earned…..………….……...... 9,750
612 Depreciation expense—
Computer equipment………………………… 500
622 Salaries expense…………………………….…. 3,620
637 Insurance expense……………………………. 133
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640 Rent expense…………………………………….. 1,800
650 Office supplies expense…………………..… 400
Problem 4-1A (Continued)
Part 5
ADVENTURE TRAVEL
Income Statement
For Month Ended April 30, 2015
Commissions earned……………..……….……………….…. $9,750
Expenses
Depreciation expense—Computer equipment.……. $ 500
Salaries expense……………………………………………….. 3,620
Insurance expense……………….………….…………….…. 133
Total expenses……………………………….….……………... 7 ,553
Net income………………………………………………………….. $2 ,197
ADVENTURE TRAVEL
Statement of Owner’s Equity
For Month Ended April 30, 2015
J. Nozomi, Capital, April 1, 2015…………........ $ 0
Add: Owner investments………………….……… $50,000
Net Income………………………….…………. 2,197
4-7
Problem 4-1A (Continued)
Part 5—continued
ADVENTURE TRAVEL
Balance Sheet
April 30, 2015
Assets
Cash…………………………………………………………….………... $27,000
Accounts receivable……………………………………………….. 1,750
Office supplies…………………………………………………….…. 600
Liabilities
Salaries payable……………………………….…………….……… $ 420
Equity
Problem 4-1A (Continued)
Part 6
Closing entries
April 30 Commissions Earned………..…………….…….405 9,750
Income Summary.……………………………901 9,750
To close the revenue account.
30 Income Summary……………………………………901 7,553
Depreciation Exp–Computer Equip.....612 500
4-8
To close the expense accounts.
30 Income Summary……………………………………901 2,197
J. Nozomi, Capital……………………………301 2,197
To close the Income Summary account.
Part 7
ADVENTURE TRAVEL
Post-Closing Trial Balance
April 30, 2015
Debit Credit
Cash……………………………….……….……….. $27,000
Accounts receivable………………………….. 1,750
Office supplies……………………….…………. 600
Prepaid insurance……………………………… 2,267
Computer equipment…………………….…… 20,000
Accumulated depreciation–
4-9
Problem 4-1A (Continued)
Part 7—continued
Ledger as of April 30
Cash Acct. No. 101
Date Explanation PR Debit Credit Balance
April 1 30,000 30,000
2 1,800 28,200
3 1,000 27,200
10 2,400 24,800
30 1,500 27,000
Accounts Receivable Acct. No. 106
Date Explanation PR Debit Credit Balance
April 30 Adjusting 1,750 1,750
Office Supplies Acct. No. 124
Date Explanation PR Debit Credit Balance
Prepaid Insurance Acct. No. 128
Date Explanation PR Debit Credit Balance
April 10 2,400 2,400
30 Adjusting 133 2,267
Computer Equipment Acct. No. 167
Date Explanation PR Debit Credit Balance
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