Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
Solutions Chapter 4 – Set B Exercises – Libby 8e
E4–1B.
Req. 1
The annual reporting period for this company is January 1 through December 31, 2014.
Req. 2 (Adjusting entries)
Beg. 12,000
Purch. 63,000
AJE 51,000
End. 24,000
E4–2B.
Req. 1
Prepaid Insurance is a deferred expense that needs to be adjusted each period for the amount
used during the period.
The amount of expense is computed as follows: $3,600 x 3/36 = $300 used
Adjusting entry:
Insurance expense (+E, −SE) …………………………………….. 300
Supplies on hand at end (24,000)
Supplies used $51,000
Adjusting entry:
Shipping supplies expense (+E, −SE) ………………………….. 51,000
Shipping supplies (−A) ……………………………………. 51,000
Req. 3
Prepaid Insurance
Insurance Expense
10/1 3,600
AJE 300
AJE 300
End. 3,300
End. 300
E4–3B.
Req. 1
a.
Accrued revenue
b.
Deferred expense
c.
Deferred expense
d.
Deferred revenue
e.
Accrued revenue
f.
Accrued expense
g.
Deferred expense
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4
E4–4B.
Req. 1
a.
Accrued expense
b.
Deferred revenue
c.
Deferred expense
d.
Deferred expense
e.
Accrued expense
f.
Accrued revenue
g.
Deferred expense
a.
Interest expense (+E, −SE) …………………………………………
6,500
$325,000 x .12
Interest payable (+L) ………………………………………….
6,500
x 2/12 (since last
payment) = $6,500
incurred
b.
Unearned storage revenue (−L) …………………………..……….
540
$3,240 x 1/6 =
Storage revenue (+R, +SE) ………………………………..
540
$540 earned
c.
Depreciation expense (+E, −SE) ………………………………….
25,000
Given
Accumulated depreciation (+XA, −A)
25,000
d.
Supplies expense (+E, −SE) ………………………………………..
51,100
$17,500 +
Supplies (−A) ……………………………………………………
51,100
$44,000 – $10,400
= $51,100 used
e.
Wages expense (+E, −SE) …………………………..……………..
3,950
Given
Wages payable (+L) ………………………………………….
3,950
f.
Accounts receivable (+A) …………………………………………….
2,650
Given
Service revenue (+R, +SE) …………………………………
2,650
g.
Advertising expense (+E, −SE) …………………………………….
1,350
$1,800 x 9/12 =
Prepaid advertising (−A) …………………………………….
1,350
$1,350 used
© 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole
or part.
6
E4–7B.
Selected Balance Sheet Amounts at December 31, 2015
Assets:
Equipment (recorded at cost per cost principle)
$16,000
Accumulated depreciation (for one year, as given)
(1,500)
Net book value of equipment (difference)
14,500
Office supplies (on hand, as given)
450
Prepaid insurance (remaining coverage, $840 x 18/24 months)
630
Selected Income Statement Amounts for the Year Ended December 31, 2015
Expenses:
Depreciation expense (for one year, as given)
$ 1,500
Office supplies expense (used, $1,800 – $450 on hand)
1,350
Insurance expense (for 6 months, $840 x 6/24 months)
210
© 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale
7
E4–8B.
Balance Sheet
Income Statement
Date
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
Note 1:
April 1, 2014
+34,000/
–34,000
NE
NE
NE
NE
NE
December 31, 2015a
+2,550
NE
+2,550
+2,550
NE
+2,550
March 31, 2015b
+37,400/
–36,550
NE
+850
+850
NE
+850
Note 2:
August 1, 2014
+36,000
+36,000
NE
NE
NE
NE
December 31, 2014c
NE
+1,800
–1,800
NE
+1,800
–1,800
January 31, 2015d
-38,160
-37,800
–360
NE
+360
–360
(a) $34,000 principal x .10 annual interest rate x 9/12 of a year = $2,550.
(b) Additional interest revenue in 2012: $34,000 x .10 x 3/12 = $850. Cash received was
$37,400 ($34,000 principal + $3,400 interest for 12 months); receivables decreased by
the $34,000 note receivable and $2,550 interest receivable accrued in 2014.
(c) $36,000 principal x .12 annual interest rate x 5/12 of a year = $1,800.
(d) Additional interest expense in 2015: $36,000 x .12 x 1/12 = $360. Cash paid was
$38,160 ($36,000 principal + $2,160 interest for 6 months); payables decreased by the
$36,000 note payable and $1,800 interest payable accrued in 2014.
© 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole
or part.
8
E4–9B.
Req. 1 Adjusting entries that were or should have been made at December 31:
(a) No entry was made. Entry that should have been made:
Rent receivable (+A) …………………………………………………. 1,600
Rent revenue (+R, +SE) ………………………………….. 1,600
Fee revenue (+R, +SE) …………………………………… 1,900
(d) Entry that was already made:
Interest expense (+E, −SE) ……………………………………….. 1,890
Interest payable (+L) ……………………………………… 1,890
($21,000 x .09 x 12/12 months)
Insurance expense (+E, −SE) …………………………………….. 750
Prepaid insurance (−A) …………………………………… 750
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
(a)
U 1,600
NE
U 1,600
U 1,600
NE
U 1,600
(b)
O 17,000
NE
O 17,000
NE
U 17,000
O 17,000
(c)
NE
O 1,900
U 1,900
U 1,900
NE
U 1,900
(d)
NE
O 1,575
U 1,575
NE
O 1,575
U 1,575
© 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole
or part.
9
E4–10B.
Selected Balance Sheet Amounts at December 31, 2015
Assets:
Equipment (recorded at cost per cost principle)
$19,000
Accumulated depreciation (for one year, as given)
(1,800)
Net book value of equipment (difference)
17,200
Office supplies (on hand, as given)
400
Prepaid insurance (remaining coverage, $960 x 18/24 months)
720
Selected Income Statement Amounts for the Year Ended December 31, 2015
Expenses:
Depreciation expense (for one year, as given)
$ 1,800
Office supplies expense (used, $1,750 – $400 on hand)
1,350
Insurance expense (for 6 months, $960 x 6/24 months)
240