B. Ex. 3.8 a.
b.
c.
d.
e.
B. Ex. 3.9
B. Ex. 3.10
Gasoline purchased is an expense because it is ordinarily used up in the current
generating revenue.
Payment to an employee for services rendered in March is a March expense. Such a
The payment to the attorney for services rendered in a prior period reduced an
expense.
The purchase of a copying machine does not represent an expense. The asset Cash is
exchanged for the asset Office Equipment, without any change in owners’ equity.
The dividend does not constitute an expense. Unlike payments for advertising, rent,
Revenue is recognized when it is earned, not necessarily when cash is received.
Thus, the airline will recognize revenue of $3,000,000 in its October income
Expenses are recognized when they are incurred, not necessarily when cash is paid.
Ex. 3.1 a.
b.
h.
Ex. 3.2 a.
1,000$
2,100
100
…
…
…
b.
Insurance ……………………………………………………………………
…
Gasoline (15,000 miles at 30 mpg. = $4.20/gal.) ……………………………
…
Expenses
Costs of owning and operating an automobile (estimates will vary; the following list is
only an example):
SOLUTIONS TO EXERCISES
Accounting period
Accounting cycle
Registration and license ……………………………………………………
…
Note to instructor: Most employers do base their reimbursement of driving expenses on an average
cost per mile. You may want to point out that the incremental costs of this trip are much less than the
average cost. Thus, employees usually benefit somewhat in the short-term when they are reimbursed
for using their own cars.
Although you spent no money during this trip, you incurred significant costs. For
example, you have used much of the gasoline in your tank. Also, the more miles you
drive, the higher your repair and maintenance costs, depreciation, and insurance.
Assuming that it cost you about 34 cents per mile to own and operate your vehicle,
about $34 would be a reasonable estimate of your “driving expenses.”
*Note to instructor: It is worth noting that including both depreciation and the “principal” portion of
the car loan would be “double-counting” the purchase price of the car. Depreciation issues are
introduced in Chapter 4.
Ex. 3.3 Nov. 1 120,000
120,000
870,000
15 3,200
3,200
…
…
Cash ……………………………………………………
…
Capital Stock ……………………………
…
Office Equipment ………………………………………
…
Accounts Payable ………………………
…
Issued stock in exchange for cash.
Land ……………………………………………………
…
and issuing a note payable for the remaining balance.
Purchased office equipment on account.
Ex. 3.5 a.
billion
Ex. 3.6
Revenue Expenses = Assets Liabilities =
INEII NEI
Ex. 3.7
a.
Revenue Expenses = Assets Liabilities =
NE I D NE I D
INEII NEI
NE NE NE D NE D
b. 1.
2.
7.
8.
Owners’
Equity
Balance Sheet
Balance Sheet
1.
Income Statement Net
Income
Owners’
Equity
Liabilities at the beginning of the year: $116.4 billion – $76.6 billion = $39.8 billion
41.0$
Net income ……………………………….
2.
Trans-
action
3.
Trans-
action
Paid an outstanding account payable.
Incurred wages expense to be paid at a later date.
Earned revenue to be collected at a later date.
Purchased tools and equipment by paying part in cash and issuing a note payable for the
remaining balance.
1.
Net
Income
Income Statement
Ex. 3.8 a. Apr. 5 Accounts Receivable …………………………… 11,000
May 17 Dividends ………………………………………. 2,000
June 10 Accounts Payable ……………………………… 4,500
Cash ……………………………………. 4,500
June 25 2,000
Cash ……………………………………. 2,000
b.
Dividends Payable ……………………………..
Paid cash dividend declared May 17.
payment due in 30 days.
Construction for bill sent April 5.
The following transactions will not cause a change in net income.
May 17: Declaration of a cash dividend.
Ex. 3.9 Transaction Net Income Assets Liabilities Equity
a. NE I NE I
b. NE I I NE
c. DNE I D
g
. NENENENE
h. NE NE NE NE
Ex. 3.10 a. May 3 Cash……………………………………………. 950,000
Capital Stock……………………………. 950,000
4 Office Rent Expense…………………………….. 1,800
20 120,000
Client Revenue……………………….. 120,000
26 8,000
Dividends Payable……………………… 8,000
31 32,000
Cash…………………………………… 32,000
May 20.
Salary Expense…………………………………
Paid salary expense incurred in May.
Dividends……………………………………….
Declared dividend to be distributed in June.
Accounts Receivable…………………………
Billed clients for services on account.
Issued capital stock for $950,000.
Purchased a company car. Paid $15,000 cash and
issued a $30,000 note payable for the balance.
Education.
b. Cash
May 3 950,000 May 4 1,800 May 20 120,000 May 30 90,000
May 30 90,000 May 5 600
May 18 15,000
Vehicles Notes Payable
May 18 45,000 May 18 30,000
May 31 bal. 45,000 May 31 bal. 30,000
Accounts Payable Dividends Payable
May 31 bal. 950,000 May 31 bal. 120,000
Office Rent Expense Salary Expense
Utilities Expense Dividends
Accounts Receivable
c.
Janet Enterprises Incorporated
Trial Balance
May 31, 2015
Debit Credit
Cash……………………………………. 990,100$
Accounts receivable……………………
…
30,000
Office supplies………………………… 600
Office equipment……………………… 12,400
Vehicles……………………………….. 45,000
Notes payable…………………………. 30,000$
Accounts payable………………………. 12,400
Dividends payable…………………….. 8,000
Ex. 3.11 a. Sep. 2 Cash……………………………………………. 975,000
Capital Stock……………………………. 975,000
4 Land……………………………………………… 200,000
700,000
Cash ……………………………………. 100,000
29 60,000
Cash……………….…………………… 60,000
30 110,000
Accounts Receivable…………………… 110,000
Issued capital stock for $975,000.
Building…………………………………………..
Cash……………………………………………
Salary Expense…………………………………
Recorded and paid salary expense.
b. Cash
Sep. 2 975,000 Sep. 4 100,000 Sep. 19 180,000 Sep. 30 110,000
Sep. 30 110,000 Sep. 29 60,000
Sep. 30 bal. 925,000 Sep. 30 bal. 70,000
Accounts Payable Capital Stock
Sep. 12 500 Sep. 2 975,000
Sep. 30 bal. 500 Sep. 30 bal. 975,000
Client Revenue Salary Expense
Accounts Receivable