Problem 3-4A (45 minutes) — Part 1
Account
Unadjusted
Trial Balance
Adjustments
Adjusted
Trial Balance
Cash …………………………………..
$ 34,000
$ 34,000
Accounts receivable ………..
14,000
(a)
22,000
Office supplies ………………….
16,000
(b)
14,000
2,000
Prepaid insurance …………….
8,540
(c)
5,580
2,960
Office equipment ………………
84,000
84,000
Accumulated depreciation
—Office equipment ………..
$ 14,000
(d)
6,000
$ 20,000
Accounts payable …………….
9,100
(e)
900
10,000
Interest payable …………………
(f)
1,000
1,000
Salaries payable ……………….
(g)
7,000
7,000
Unearned consulting fees .
18,000
(h)
15,000
Long–term notes payable ..
52,000
52,000
J. Logan, Capital ……………….
40,000
40,000
J. Logan, Withdrawals ……..
5,000
5,000
Consulting fees
earned ………………………………
123,240
(a)
(h)
8,000
3,000
134,240
Depreciation expense—
Office equipment …………….
(d)
6,000
Salaries expense ………………
67,000
(g)
74,000
Interest expense ……………….
1,200
(f)
2,200
Insurance expense …………..
(c)
5,580
Rent expense ……………………
14,500
14,500
Office supplies expense ….
(b)
14,000
Advertising expense ………..
12,100
_______
(e)
______
13,000
_______
Totals ………………………………….
$256,340
$256,340
$45,480
$279,240
$279,240
Adjustment description
(a) Earned but uncollected revenues.
(b) Cost of office supplies used.
(c) Cost of expired insurance coverage.
Problem 3-4A (Continued)
Part 2
JKL COMPANY
Income Statement
For Year Ended July 31, 2013
Revenues
Consulting fees earned ………………………….. $134,240
Expenses
Depreciation expense—Office equipment .. $ 6,000
Salaries expense …………………………………… 74,000
Interest expense ……………………………………. 2,200
JKL COMPANY
Statement of Owner’s Equity
For Year Ended July 31, 2013
J. Logan, Capital, July 31, 2012 ………………… $40,000
Plus: Net income ……………………………………… 4,960
Problem 3-4A (Concluded)
Part 2
JKL COMPANY
Balance Sheet
July 31, 2013
Assets
Cash …………………………………………………………………..
$ 34,000
Accounts receivable …………………………………………..
22,000
Office supplies ……………………………………………………
2,000
Prepaid insurance ………………………………………………
2,960
Office equipment ………………………………………………..
$84,000
Accumulated depreciation—Office equipment …….
(20,000)
64,000
Total assets ………………………………………………………..
$124,960
Liabilities
Accounts payable ……………………………………………….
$ 10,000
Interest payable ………………………………………………….
1,000
Salaries payable …………………………………………………
7,000
Unearned consulting fees …………………………………..
15,000
Long-term notes payable …………………………………….
52,000
Total liabilities ……………………………………………………
85,000
Equity
J. Logan, Capital …………………………………………………
39,960
Total liabilities and equity …………………………………..
$124,960
Problem 3-5A (50 minutes)
Part 1
CHIARA COMPANY
Income Statement
For Year Ended December 31, 2013
Revenues
Fees earned ………………………………………. $484,000
Interest earned …………………………………… 24,000
Total revenues …………………………………… $508,000
Expenses
Depreciation expense—Automobiles ….. 26,000
Depreciation expense—Equipment …….. 18,000
Salaries expense ……………………………….. 188,000
CHIARA COMPANY
Statement of Owner‘s Equity
For Year Ended December 31, 2013
R. Chiara, Capital, December 31, 2012 …………. $255,800
Plus: Net income ……………………………………….. 87,200
Problem 3-5A (Concluded)
CHIARA COMPANY
Balance Sheet
December 31, 2013
Assets
Cash ………………………………………………………………
$ 30,000
Accounts receivable ……………………………………….
52,000
Interest receivable…………………………………………..
18,000
Notes receivable (due in 90 days) ……………………
168,000
Office supplies ……………………………………………….
16,000
Automobiles …………………………………………………..
$168,000
Accumulated depreciation—Automobiles ………..
(50,000)
118,000
Equipment ………………………………………………………
138,000
Accumulated depreciation—Equipment …………..
(18,000)
120,000
Land ……………………………………………………………….
78,000
Total assets ……………………………………………………
$600,000
Liabilities
Accounts payable …………………………………………..
$ 96,000
Interest payable ………………………………………………
20,000
Salaries payable ……………………………………………..
19,000
Unearned fees ………………………………………………..
30,000
Long-term notes payable ………………………………..
138,000
Total liabilities ………………………………………………..
303,000
Equity
R. Chiara, Capital ……………………………………………
297,000
Total liabilities and equity ……………………………….
$600,000
Part 2
Profit margin = $87,200 / $508,000 = 17.2%
Problem 3-6AA (40 minutes)
Part 1
Assume prepaid expenses are recorded as assets and unearned revenues as liabilities.
Nov. 1 Prepaid Advertising ………………………………… 1,800
Cash …………………………..…………………….. 1,800
Paid for future advertising.
Dec. 1 Prepaid Consulting Fees …………………………. 3,000
Cash …………………………..…………………….. 3,000
Paid for future consulting.
15 Cash …………………………..……………………………. 7,950
Unearned Service Fees ……………………… 7,950
Received fees in advance.
31 Consulting Fees Expense ………………………… 1,000
Prepaid Consulting Fees ……………………. 1,000
To adjust prepaid consulting fees ($3,000 x 1/3).
31 Unearned Service Fees …………………………….. 3,300
Service Fees Earned ………………………….. 3,300
To adjust unearned service fees.
Problem 3-6AA (Continued)
Part 2
Assume prepaid expenses are recorded as expenses and unearned revenues as revenues.
Nov. 1 Advertising Expense ………………………………… 1,800
Cash …………………………..…………………….. 1,800
Paid for future advertising.
Paid for future consulting.
15 Cash ………………………………………………………… 7,950
Service Fees Earned ………………………….. 7,950
Received fees in advance.
31 Prepaid Advertising …………………………………. 1,200
Advertising Expense …………………………. 1,200
To adjust for prepaid advertising.
31 Service Fees Earned ………………………………… 4,650
Unearned Service Fees ……………………… 4,650
To adjust for unearned service fees.
($7,950 – $3,300)
Problem 3-6AA (Concluded)
Part 3
There are no differences between the two methods in terms of the amounts
that appear on the financial statements. In both cases, the financial
statements reflect the following:
Advertising expense for two months ………………………………. $ 600
Prepaid advertising as of December 31 …………………………... 1,200
Insurance expense for two months …………………………………. 410
When prepaid expenses and unearned revenues are recorded in balance
sheet accounts, the related adjusting entries are designed to generate the
PROBLEM SET B
Problem 3-1B (15 minutes)
Problem 3-2B (30 minutes)
Part 1
Adjustment (a)
Oct. 31 Office Supplies Expense ………………………………… 4,370
Adjustment (b)
Policy
Cost per Month
Months Active
in Fiscal Year
2013
Fiscal Year
2013
Expense
A
$250
($6,000/24 mo.)
12
$3,000
B
200
($7,200/36 mo.)
7
1,400
C
110
($1,320/12 mo.)
3
330
Total
$4,730
Adjustment (c)
31 Salaries Expense …………………………..……………….. 1,000
Problem 3-2B (Concluded)
Adjustment (d)
Oct. 31 Depreciation Expense—Building …………………….. 5,400
Accumulated Depreciation—Building ………. 5,400
To record annual depreciation
[($175,000-$40,000) / 25 years = $5,400].
Adjustment (e)
To record earned but unpaid Oct. rent.
Adjustment (f)
Part 2
Cash Payment for (c)
Nov. 7 Salaries Payable …………………………………………….. 1,000
Salaries Expense* ………………………………………….. 4,000
Cash …………………………..…………………………... 5,000
To record payment of accrued and
current salaries. *(4 days x $1,000)
Cash Payment for (e)
Problem 3-3B (90 minutes)
Parts 1 and 2
Cash
Accounts Payable
Bal.
60,000
Bal.
11,200
Accounts Receivable
Salaries Payable
Unadj. Bal.
0
Unadj. Bal.
0
(f)
5,750
(g)
450
Adj. Bal.
5,750
Adj. Bal.
450
Teaching Supplies
Unearned Training Fees
Unadj. Bal.
70,000
Unadj. Bal.
28,600
(b)
50,000
(e)
28,600
Adj. Bal.
20,000
Adj. Bal.
0
Prepaid Insurance
C. Augustus, Capital
Unadj. Bal.
19,000
Bal.
71,500
(a)
9,500
Adj. Bal.
9,500
C. Augustus, Withdrawals
Prepaid Rent
Bal.
20,000
Unadj. Bal.
3,800
(h)
3,800
Adj. Bal.
0
Professional Library
Bal.
12,000
Accumulated Depreciation—
Professional Library
Unadj. Bal.
2,500
(d)
2,400
Adj. Bal.
4,900
Equipment
Bal.
40,000
Accumulated Depreciation—
Equipment
Unadj. Bal.
20,000
(c)
5,000
Adj. Bal.
25,000
Problem 3-3B (Continued)
Parts 1 and 2
Tuition Fees Earned
Advertising Expense
Unadj. Bal.
129,200
Bal.
19,000
(f)
5,750
Adj. Bal.
134,950
Training Fees Earned
Utilities Expense
Unadj. Bal.
68,000
Bal.
13,400
(e)
28,600
Adj. Bal.
96,600
Depreciation Expense—
Professional Library
Unadj. Bal.
0
(d)
2,400
Adj. Bal.
2,400
Depreciation Expense—
Equipment
Unadj. Bal.
0
(c)
5,000
Adj. Bal.
5,000
Salaries Expense
Unadj. Bal.
44,200
(g)
450
Adj. Bal.
44,650
Insurance Expense
Unadj. Bal.
0
(a)
9,500
Adj. Bal.
9,500
Rent Expense
Unadj. Bal.
29,600
(h)
3,800
Adj. Bal.
33,400
Teaching Supplies Expense
Unadj. Bal.
0
(b)
50,000
Adj. Bal.
50,000
Problem 3-3B (Continued)
Part 2
Adjustment (a)
Dec. 31 Insurance Expense ………………………………………… 9,500
Prepaid Insurance …………………………………… 9,500
To record the insurance expired.
Adjustment (b)
Adjustment (c)
31 Depreciation Expense—Equipment………………… 5,000
Accumulated Depreciation—Equipment ….. 5,000
To record equipment depreciation.
Adjustment (d)
Adjustment (e)
31 Unearned Training Fees ………………………………… 28,600
Training Fees Earned ……………………………… 28,600
To record training fees earned that were
collected in advance.
Adjustment (f)
To record tuition earned ($2,300 x 2 1/2 mo).
Adjustment (g)
31 Salaries Expense …………………………………………… 450
Salaries Payable……………………………………… 450
To accrue salaries expense (3 days x $150).
Adjustment (h)
Problem 3-3B (Continued)
Part 3
AUGUSTUS INSTITUTE
Adjusted Trial Balance
December 31, 2013
Debit
Credit
Cash ……………………………………………………………………………….
$ 60,000
Accounts receivable ……………………………………………………...
5,750
Teaching supplies ………………………………………………………….
20,000
Prepaid insurance ………………………………………………………….
9,500
Prepaid rent …………………………………………………………………...
0
Professional library ……………………………………………………….
12,000
Accumulated depreciation—Professional library ………...
$ 4,900
Equipment ……………………………………………………………………..
40,000
Accumulated depreciation—Equipment ……………………….
25,000
Accounts payable ………………………………………………………….
11,200
Salaries payable …………………………………………………………….
450
Unearned training fees …………………………………………………..
0
C. Augustus, Capital ……………………………………………………...
71,500
C. Augustus, Withdrawals ……………………………………………..
20,000
Tuition fees earned ……………………………………………………….
134,950
Training fees earned ……………………………………………………...
96,600
Depreciation expense—Professional library ………………...
2,400
Depreciation expense—Equipment ……………………………...
5,000
Salaries expense …………………………………………………………...
44,650
Insurance expense ………………………………………………………...
9,500
Rent expense ………………………………………………………………...
33,400
Teaching supplies expense …………………………………………..
50,000
Advertising expense ……………………………………………………...
19,000
Utilities expense …………………………………………………………….
13,400
_______
Totals ……………………………………………………………………………..
$344,600
$344,600
Problem 3-3B (Continued)
Part 4
AUGUSTUS INSTITUTE
Income Statement
For Year Ended December 31, 2013
Revenues
Tuition fees earned …………………………………………… $134,950
Training fees earned …………………………………………. 96,600
Total revenues ………………………………………………….. $231,550
Expenses
Depreciation expense—Professional library ………. 2,400
Depreciation expense—Equipment ……………………. 5,000
Salaries expense ………………………………………………. 44,650
Insurance expense ……………………………………………. 9,500
AUGUSTUS INSTITUTE
Statement of Owner’s Equity
For Year Ended December 31, 2013
C. Augustus, Capital, December 31, 2012 ………. $ 71,500
Plus: Net income ………………………………………….. 54,200