Financial & Managerial Accounting, 5th Edition
170
Problem 3-7A (90 minutes)
INSTRUCTOR NOTE: Ledger accounts are shown after Part 7 as they would appear after all entries
are posted.
Part 2 — Transactions for April
April 1 Cash ……………………………………………………… 101 30,000
Computer Equipment …………………………….. 167 20,000
Common Stock……………………………….. 307 50,000
Owner invested in business in exchange for stock.
2 Rent Expense ………………………………………… 640 1,800
Cash ………………………………………………. 101 1,800
Paid one month’s rent.
3 Office Supplies ………………………………………. 124 1,000
Collected commissions from airlines.
28 Salaries Expense …………………………………… 622 1,600
Cash ………………………………………………. 101 1,600
Paid two weeks’ salaries.
29 Repairs Expense …………………………………… 684 350
Problem 3-7A (Continued)
Part 3
ADVENTURE TRAVEL
Unadjusted Trial Balance
April 30, 2013
No. Account Title Debit Credit
101 Cash …………………………………………………. $27,000
106 Accounts receivable ………………………….. 0
319 Dividends ………………………………………….. 1,500
405 Commissions earned…………………………. 8,000
612 Depreciation expense—
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Problem 3-7A (Continued)
Part 4
Adjusting entries
(a) Apr 30 Insurance Expense ……………………………………….. 637 133
Prepaid Insurance …………………………………… 128 133
To record expired insurance ($2,400/12 x2/3).
(b) 30 Office Supplies Expense ……………………………….. 650 400
Problem 3-7A (Continued)
Part 4
ADVENTURE TRAVEL
Adjusted Trial Balance
April 30, 2013
No. Account Title Debit Credit
101 Cash …………………………………………………. $27,000
106 Accounts receivable ………………………….. 1,750
124 Office supplies ………………………………….. 600
128 Prepaid insurance ……………………………… 2,267
Computer equipment ………………………… 500
622 Salaries expense ……………………………….. 3,620
637 Insurance expense ……………………………. 133
640 Rent expense …………………………………….. 1,800
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Problem 3-7A (Continued)
Part 5
ADVENTURE TRAVEL
Income Statement
For Month Ended April 30, 2013
Commissions earned ………………………………………….. $9,750
Expenses
Depreciation expense—Computer equipment ……. $ 500
ADVENTURE TRAVEL
Statement of Retained Earnings
For Month Ended April 30, 2013
Retained earnings, April 1, 2013 ……………….. $ 0
Add: Net Income ……………………………………… 2,197
Problem 3-7A (Continued)
Part 5—continued
ADVENTURE TRAVEL
Balance Sheet
April 30, 2013
Assets
Cash ………………………………………………………………………. $27,000
Accounts receivable ………………………………………………. 1,750
Liabilities
Salaries payable …………………………………………………….. $ 420
Equity
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Problem 3-7A (Continued)
Part 6
Closing entries
April 30 Commissions Earned ……………………………. 405 9,750
Income Summary ……………………………. 901 9,750
To close the revenue account.
30 Income Summary ………………………………….. 901 7,553
Depreciation Exp–Computer Equip …. 612 500
Salaries Expense ……………………………. 622 3,620
Insurance Expense …………………………. 637 133
To close the Dividends account.
Part 7
ADVENTURE TRAVEL
Post-Closing Trial Balance
April 30, 2013
Debit Credit
Cash …………………………………………………. $27,000
Accounts receivable ………………………….. 1,750
Office supplies ………………………………….. 600
Problem 3-7A (Continued)
Part 7—continued
Ledger as of April 30
Cash Acct. No. 101
Date Explanation PR Debit Credit Balance
April 1 30,000 30,000
2 1,800 28,200
3 1,000 27,200
Accounts Receivable Acct. No. 106
Date Explanation PR Debit Credit Balance
April 30 Adjusting 1,750 1,750
Office Supplies Acct. No. 124
Date Explanation PR Debit Credit Balance
Problem 3-7A (Continued)
Common Stock Acct. No. 307
Date Explanation PR Debit Credit Balance
April 1 50,000 50,000
Retained Earnings Acct. No. 318
Date Explanation PR Debit Credit Balance
April 30 Closing 2,197 2,197
30 Closing 1,500 697
Dividends Acct. No. 319
Insurance Expense Acct. No. 637
Date Explanation PR Debit Credit Balance
April 30 Adjusting 133 133
30 Closing 133 0
Rent Expense Acct. No. 640
Date Explanation PR Debit Credit Balance
Problem 3-7A (Concluded)
Office Supplies Expense Acct. No. 650
Date Explanation PR Debit Credit Balance
April 30 Adjusting 400 400
30 Closing 400 0
Repairs Expense Acct. No. 684
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Problem 3-8A (75 minutes)
Part 1
TYBALT CONSTRUCTION
Income Statement
For Year Ended December 31, 2013
Revenues
Professional fees earned …………………………….. $97,000
Rent earned …………………………..……………………. 14,000
Dividends earned …………………………..…………… 2,000
Interest earned …………………………..……………….. 2,100
Total revenues ……………………………………………. $115,100
Expenses
Depreciation expense—Building …………………. 11,000
TYBALT CONSTRUCTION
Statement of Retained Earnings
For Year Ended December 31, 2013
Retained earnings, December 31, 2012 ………….. $121,400
Add: Net income …………………………..…………….. 4,300
Problem 3-8A (Continued)
TYBALT CONSTRUCTION
Balance Sheet
December 31, 2013
Assets
Current assets
Cash ……………………………………………………….….. $ 5,000
Short-term investments ………………………………. 23,000
Supplies …………………………………………………….. 8,100
Prepaid insurance ………………………………………. 7,000
Liabilities
Current liabilities
Accounts payable …………………………..…………… $ 16,500
Interest payable ………………………………………….. 2,500
Rent payable ………………………………………………. 3,500
Wages payable …………………………..………………. 2,500
Problem 3-8A (Continued)
Part 2
Closing entries (all dated December 31, 2013)
Instructor note: Entries are shown without an account reference column because no posting is required.
(1) Professional Fees Earned ……………………… 97,000
(2) Income Summary ………………………………….. 110,800
Depreciation Expense—Building …….. 11,000
Depreciation Expense—Equipment …. 6,000
Wages Expense………………………………. 32,000
Interest Expense …………………………….. 5,100
Insurance Expense …………………………. 10,000
Rent Expense …………………………………. 13,400
Supplies Expense …………………………... 7,400
Part 3
a. Return on assets = $4,300/[($200,000 + $218,100)/2] = 2.1% (or 0.021)
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)
31 Insurance Expense …………………………………………. 4,730
Prepaid Insurance ……………………………………. 4,730
To record annual insurance coverage cost.
Policy
Cost per Month
Months Active
in Fiscal Year
2013
Fiscal Year
2013
Expense
A
($6,000/24 mo.)
12
$3,000
B
($7,200/36 mo.)
7
1,400
C
($1,320/12 mo.)
3
330
Total
$4,730
Adjustment (c)
31 Salaries Expense ……………………………………………. 1,000
Financial & Managerial Accounting, 5th Edition
184
Problem 3-2B (Concluded)
Adjustment (d)
Oct. 31 Depreciation Expense—Building …………………….. 5,400
Accumulated Depreciation—Building ………. 5,400
To record annual depreciation
Part 2
Cash Payment for (c)
Nov. 7 Salaries Payable …………………………………………….. 1,000
Salaries Expense* ………………………………………….. 4,000