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Exercise 3-6 (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
Supplies purchased in current year ........
2,800
6,500
8,490
3,000
Total supplies available ............................
3,200
7,700
9,750
5,288
Supplies available – current year-end .....
(650)
(6,500)
(1,350)
(700)
Supplies expense for current year...........
$2,550
$1,200
$ 8,400
$4,588
Exercise 3-7 (25 minutes)
Dec. 31 Accounts Receivable ............................................. 2,100
Fees Earned ..................................................... 2,100
To record earned but unbilled fees (30% x $7,000).
31 Salaries Expense .................................................... 2,250
Salaries Payable.............................................. 2,250
To record accrued salaries.
31 Insurance Expense .................................................. 1,400
Prepaid Insurance ........................................... 1,400
To record expired prepaid insurance.
Exercise 3-8 (20 minutes)
Balance Sheet Insurance Asset using
Insurance Expense using
Accrual
Basis*
Cash
Basis
Accrual
Basis**
Cash
Basis
Dec. 31, 2011 ................
$13,000
$0
2011 ...............................
$ 5,000
$18,000
Dec. 31, 2012 ................
7,000
0
2012 ...............................
6,000
0
Dec. 31, 2013 ................
1,000
0
2013 ...............................
6,000
0
Dec. 31, 2014 ................
0
0
2014 ...............................
1,000
0
Total ...............................
$18,000
$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
12/31/2011 .. 26 $13,000
**Accrual insurance expense equals months covered in the year x $500 per month.
Months Covered
Expense
2011 ................................
10
$ 5,000
2012 ................................
12
6,000
2013 ................................
12
6,000
2014 ................................
2
1,000
$18,000
Exercise 3-9 (10 minutes)
a. $ 4,361 / $ 44,500 = 9.8%
b. $ 97,706 / $ 398,800 = 24.5%
Analysis and Interpretation: Company c has the highest profitability
Exercise 3-10A (30 minutes)
a.
Dec. 1 Supplies Expense ................................................... 2,000
Cash ................................................................. 2,000
Purchased supplies.
d.
Dec. 28 Cash ......................................................................... 3,700
Remodeling Fees Earned ............................... 3,700
Received fees for work to be done.
e.
Dec. 31 Supplies .................................................................. 1,840
Supplies Expense ........................................... 1,840
Adjust expenses for unused supplies.
f.
Exercise 3-11A (25 minutes)
a. Initial credit recorded in the Unearned Fees account
July 1 Cash ....................................................................... 3,000
Unearned Fees .............................................. 3,000
Received fees for work to be done for Solana.
18 Cash ....................................................................... 8,500
Unearned Fees .............................................. 8,500
Received fees for work to be done for Jordan.
b. Initial credit recorded in the Fees Earned account
July 1 Cash ....................................................................... 3,000
Fees Earned ................................................... 3,000
Received fees for work to be done for Solana.
12 No entry required.
18 Cash ....................................................................... 8,500
Fees Earned ................................................... 8,500
Received fees for work to be done for Jordan.
27 No entry required.
Exercise 3-11A –concluded
c. Under the first method (and using entries from a)
Unearned Fees = $3,000 + $7,500 - $3,000 + $8,500 - $7,500 = $8,500
Under the second method (and using entries from b)
Unearned Fees = $8,500
Exercise 3-12 (20 minutes)
adidas AG
Balance Sheet
December 31, 2011
(Euros in millions)
Assets
Noncurrent assets
Intangible assets ................................................... € 154
Tangible and other assets .................................... 255
Other noncurrent assets ....................................... 3,429
Total noncurrent assets ........................................ 3,838
Current assets
Total assets .............................................................. € 6,046
Equity
Total equity .............................................................. € 2,322
Liabilities
Total noncurrent liabilities ..................................... 3,379
PROBLEM SET A
Problem 3-1A (10 minutes)
1. E 5. C 9. D
Problem 3-2A (35 minutes)
Part 1
Adjustment (a)
Dec. 31 Office Supplies Expense ................................ 14,846
($4,000 + $13,400 - $2,554).
Adjustment (b)
31 Insurance Expense .......................................... 7,120
Policy
Cost per Month
Months Active
in 2013
2013 Cost
A
$600
($14,400/24 mo.)
3
$ 1,800
B
360
($12,960/36 mo.)
12
4,320
C
200
($ 2,400 /12 mo.)
5
1,000
Total
$ 7,120
Instructor note: The first printing of the book had a typo in the marginal check
figure of 11,440 for Insurance Expense instead of the correct 7,120.
Adjustment (c)
31 Salaries Expense ............................................. 3,920
Problem 3-2A −concluded
Adjustment (d)
Dec. 31 Depreciation Expense—Building ................... 30,500
Accumulated Depreciation—Building ... 30,500
To record annual depreciation expense
[($960,000 -$45,000) / 30 years = $30,500]
Adjustment (e)
To record earned but unpaid Dec. rent.
Adjustment (f)
Part 2
Cash Payment for (c)
Jan. 6 Salaries Payable ........................................... 3,920
Salaries Expense* ........................................ 5,880
Cash ....................................................... 9,800
To record payment of accrued and
current salaries. *(3 days x $1,960)
Cash Payment for (e)
Problem 3-3A (90 minutes)
Parts 1 and 2
Cash
Equipment
Unadj. Bal.
34,000
Unadj. Bal.
80,000
Accounts Receivable
Accumulated Depreciation—
Equipment
Unadj. Bal.
0
Unadj. Bal.
15,000
(f)
7,500
(c)
13,200
Adj. Bal.
7,500
Adj. Bal.
28,200
Teaching Supplies
Accounts Payable
Unadj. Bal.
8,000
Bal.
26,000
(b)
5,200
Adj. Bal.
2,800
Salaries Payable
Unadj. Bal.
0
Prepaid Insurance
(g)
400
Unadj. Bal.
12,000
Adj. Bal.
400
(a)
2,400
Adj. Bal.
9,600
Unearned Training Fees
Unadj. Bal.
12,500
Prepaid Rent
(e)
5,000
Unadj. Bal.
3,000
Adj. Bal.
7,500
(h)
3,000
Adj. Bal.
0
T. Wells, Capital
Bal.
90,000
Professional Library
Bal.
35,000
T. Wells, Withdrawals
Bal.
50,000
Accumulated Depreciation—
Professional Library
Unadj. Bal.
10,000
(d)
7,200
Adj. Bal.
17,200
Problem 3-3A (Continued)
Tuition Fees Earned
Rent Expense
Unadj. Bal.
123,900
Unadj. Bal.
33,000
(f)
7,500
(h)
3,000
Adj. Bal.
131,400
Adj. Bal.
36,000
Training Fees Earned
Teaching Supplies Expense
Unadj. Bal.
40,000
Unadj.
Bal.
0
(e)
5,000
(b)
5,200
Adj. Bal.
45,000
Adj. Bal.
5,200
Depreciation Expense—
Professional Library
Advertising Expense
Unadj. Bal.
0
Bal.
6,000
(d)
7,200
Adj. Bal.
7,200
Depreciation Expense—
Equipment
Utilities Expense
Unadj. Bal.
0
Bal.
6,400
(c)
13,200
Adj. Bal.
13,200
Salaries Expense
Unadj. Bal.
50,000
(g)
400
Adj. Bal.
50,400
Insurance Expense
Unadj. Bal.
0
(a)
2,400
Adj. Bal.
2,400
Problem 3-3A (Continued)
Part 2
Adjustment (a)
Dec. 31
Insurance Expense ......................................................
2,400
Prepaid Insurance ..................................................
2,400
To record the insurance expired.
Adjustment (b)
31
Teaching Supplies Expense ................................
5,200
Teaching Supplies .................................................
5,200
To record supplies used ($8,000 - $2,800).
Adjustment (c)
31
Depreciation Expense—Equipment ...........................
13,200
Accumulated Depreciation—Equipment ....................
13,200
To record equipment depreciation.
Adjustment (d)
31
Depreciation Expense—Profess. Library ..................
7,200
Accumul. Depreciation—Profess. Library ................
7,200
To record professional library depreciation.
Adjustment (e)
31
Unearned Training Fees ..............................................
5,000
Training Fees Earned ............................................
5,000
To record 2 months’ training fees earned
that were collected in advance.
Adjustment (f)
31
Accounts Receivable ...................................................
7,500
Tuition Fees Earned...............................................
7,500
To record tuition earned
($3,000 x 2 1/2 months).
Adjustment (g)
31
Salaries Expense .........................................................
400
Salaries Payable.....................................................
400
To record accrued salaries
(2 days x $100 x 2 employees).
Adjustment (h)
31
Rent Expense ...............................................................
3,000
Prepaid Rent ...........................................................
3,000
To record expiration of prepaid rent.
Problem 3-3A (Continued)
Part 3
WELLS TECHNICAL INSTITUTE
Adjusted Trial Balance
December 31, 2013
Debit
Credit
Cash ..........................................................................
$ 34,000
Accounts receivable ................................................
7,500
Teaching supplies ...................................................
2,800
Prepaid insurance ....................................................
9,600
Prepaid rent ..............................................................
0
Professional library .................................................
35,000
Accumulated depreciation—Professional library ...
$ 17,200
Equipment ................................................................
80,000
Accumulated depreciation—Equipment ................
28,200
Accounts payable ....................................................
26,000
Salaries payable .......................................................
400
Unearned training fees ............................................
7,500
T. Wells, Capital .......................................................
90,000
T. Wells, Withdrawals ..............................................
50,000
Tuition fees earned ..................................................
131,400
Training fees earned ................................................
45,000
Depreciation expense—Professional library ........
7,200
Depreciation expense—Equipment .......................
13,200
Salaries expense .....................................................
50,400
Insurance expense ..................................................
2,400
Rent expense ............................................................
36,000
Teaching supplies expense ....................................
5,200
Advertising expense ................................................
6,000
Utilities expense.......................................................
6,400
_______
Totals ........................................................................
$345,700
$345,700
Problem 3-3A (Continued)
Part 4
WELLS TECHNICAL INSTITUTE
Income Statement
For Year Ended December 31, 2013
Revenues
Tuition fees earned ............................................ $131,400
Training fees earned .......................................... 45,000
Total revenues .................................................... $176,400
Expenses
Advertising expense .......................................... 6,000
Utilities expense ................................................. 6,400
Total expenses ................................................... 126,800
Net income ............................................................ $ 49,600
WELLS TECHNICAL INSTITUTE
Statement of Owner’s Equity
For Year Ended December 31, 2013
T. Wells, Capital, December 31, 2012 ................................. $ 90,000
Plus: Net income .................................................................. 49,600
Problem 3-3A (Concluded)
WELLS TECHNICAL INSTITUTE
Balance Sheet
December 31, 2013
Assets
Cash ................................................................................. $ 34,000
Accounts receivable ...................................................... 7,500
Teaching supplies .......................................................... 2,800
Prepaid insurance .......................................................... 9,600
Liabilities
Total liabilities ................................................................ 33,900
Equity
T. Wells, Capital .............................................................. 89,600
Total liabilities and equity ............................................. $123,500
