EXERCISES
Exercise 3-1 (25 minutes)
a.
Depreciation Expense—Equipment …………………………..
18,000
Accumulated Depreciation—Equipment ………………...
18,000
To record depreciation expense for the year.
b.
Insurance Expense …………………………………………………..
4,900
Prepaid Insurance* ……………………………………………….
4,900
To record insurance coverage that expired
($6,000 – $1,100).
c.
Office Supplies Expense …………………………………………..
3,882
Office Supplies** …………………………………………………...
3,882
To record office supplies used ($700 + $3,480 – $298).
d.
Unearned Fee Revenue …………………………………………….
10,000
Fee Revenue ………………………………………………………...
10,000
To record earned portion of fee received in advance
($15,000 x 2/3).
e.
Insurance Expense …………………………………………………..
5,800
Prepaid Insurance ………………………………………………...
5,800
To record insurance coverage that expired.
f.
Wages Expense ……………………………………………………….
3,200
Wages Payable ……………………………………………………..
3,200
To record wages accrued but not yet paid.
Notes:
Prepaid Insurance*
Office Supplies**
6,000
Beg. Bal.
700
Purch.
3,480
?
Used
?
Used
1,100
End. Bal.
298
Exercise 3-2 (30 minutes)
a.
Unearned Fee Revenue …………………………………………….
5,000
Fee Revenue ………………………………………………………...
5,000
To record earned portion of fee received in advance
($15,000 x 1/3).
b.
Wages Expense ……………………………………………………….
8,000
Wages Payable ……………………………………………………..
8,000
To record wages accrued but not yet paid.
c.
Depreciation Expense—Equipment …………………………..
18,531
Accumulated Depreciation—Equipment ………………...
18,531
To record depreciation expense for the year.
d.
Office Supplies Expense …………………………………………..
4,992
Office Supplies* …………………………………………………….
4,992
To record office supplies used ($240 + $5,239 – $487).
e.
Insurance Expense …………………………………………………..
2,800
Prepaid Insurance† ………………………………………………..
2,800
To record insurance coverage expired ($4,000 – $1,200).
f.
Interest Receivable ………………………………………………...
1,050
Interest Revenue ………………………………………………..
1,050
To record interest earned but not yet received.
g.
Interest Expense …………………………………………………….
2,500
Interest Payable…………………………………………………..
2,500
To record interest incurred but not yet paid.
Notes:
Prepaid Insurance†
Office Supplies*
4,000
Beg. Bal.
240
Purch.
5,239
?
Used
?
Used
1,200
End. Bal.
487
Financial & Managerial Accounting, 5th Edition
142
Exercise 3-3 (15 minutes)
a. Adjusting entry:
2013
Dec. 31
Wages Expense……………………………………………………..
1,250
Wages Payable …………………………………….………..
1,250
To record accrued wages for one day.
(5 workers x $250)
b. Payday entry:
2014
Jan. 4
Wages Expense……………………………………………………..
3,750
Wages Payable …………………………………………….………..
1,250
Cash …………………………………………………….…
5,000
To record accrued and current wages.
Wages expense = 5 workers x 3 days x $250
Cash = 5 workers x 4 days x $250
Exercise 3-4 (25 minutes)
a.
Apr. 30 Legal Fees Expense ……………………………………. 3,500
Legal Fees Payable ………………………………. 3,500
To record accrued legal fees.
May 12 Legal Fees Payable …………………………………….. 3,500
*($9,000 monthly interest x 20/30)
c.
Apr. 30 Salaries Expense ………………………………………… 4,000
Salaries Payable…………………………………… 4,000
To record accrued salaries ($10,000 x 2/5 week).
Financial & Managerial Accounting, 5th Edition
144
Exercise 3-5 (15 minutes)
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 3-6 (25 minutes)
Dec. 31 Accounts Receivable ……………………………………… 2,100
Fees Earned …………………………………………….. 2,100
To record earned but unbilled fees (30% x $7,000).
31 Unearned Fees ……………………………………………….. 4,900
Fees Earned …………………………………………….. 4,900
Exercise 3-7 (10 minutes)
Exercise 3-8A (30 minutes)
a.
Dec. 1 Supplies Expense …………………………………………… 2,000
Cash ……………………………………………………….. 2,000
Purchased supplies.
b.
Dec. 2 Insurance Expense …………………………………………. 1,540
Exercise 3-9A (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.
6 Cash …………………………………………………………….. 7,500
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.
6 Cash …………………………………………………………….. 7,500
Financial & Managerial Accounting, 5th Edition
148
Exercise 3-9A –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
Exercise 3-10 (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
Equity
Total equity …………………………………………………….. € 2,322
Liabilities
Total noncurrent liabilities ………………………………. 3,379
Financial & Managerial Accounting, 5th Edition
150
Exercise 3-11 (20 minutes)
WILSON TRUCKING COMPANY
Income Statement
For Year Ended December 31, 2013
Trucking fees earned …………………………..……………. $130,000
Expenses
Depreciation expense—Trucks ……………………… $23,500
WILSON TRUCKING COMPANY
Statement of Retained Earnings
For Year Ended December 31, 2013
Retained earnings, December 31, 2012 ………………. $145,000
Exercise 3-12 (20 minutes)
WILSON TRUCKING COMPANY
Balance Sheet
December 31, 2013
Assets
Current assets
Cash ………………………………………………………. $ 8,000
Accounts receivable ………………………………. 17,500
Office supplies ……………………………………….. 3,000
Liabilities
Current liabilities
Accounts payable …………………………………… $ 12,000
Interest payable ……………………………………… 4,000
*From Exercise 3-11
* Retained earnings is computed as:
Beginning balance ………………………………………………………………………...
$145,000
Plus: Net income ($130,000 – $23,500 – $61,000 – $8,000 – $12,000) …….
25,500
Less: Dividends ……………………………………………………………………………..
(20,000)
Ending balance ……………………………………………………………………………...
$150,500
Financial & Managerial Accounting, 5th Edition
152
Exercise 3-13 (15 minutes)
Current assets:
Cash ……………………………………………………………………… $ 8,000
accounts receivable. The existence of these more liquid assets is a positive
attribute for liquidity purposes.
Exercise 3-14 (15 minutes)
Current
Assets
Current
Liabilities
Current
Ratio
Case 1
$ 79,040
/
$ 32,000
=
2.47
Case 2
104,880
/
76,000
=
1.38
Case 3
45,080
/
49,000
=
0.92
Case 4
85,680
/
81,600
=
1.05
Case 5
61,000
/
100,000
=
0.61
Analysis: Company 1 is in the strongest liquidity position. It has about $2.47
Financial & Managerial Accounting, 5th Edition
154
Exercise 3-15A (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
3. Reversing entries and subsequent entries
Nov. 1 Rent Payable …………………………………………. 2,800
Rent Expense …………………………………. 2,800
To reverse accrual of rent expense.
1 Rent Earned ………………………………………….. 850