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EXERCISES
Exercise 3-1 (15 minutes)
a. Adjusting entry:
2015
Dec. 31
Wages Expense..............................................................
1,250
Wages Payable ......................................................
1,250
To record accrued wages for one day.
(5 workers x $250)
b. Payday entry:
2016
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 3-2 (25 minutes)
a.
Apr. 30 Legal Fees Expense ........................................... 3,500
Legal Fees Payable ..................................... 3,500
To record accrued legal fees.
Salaries Expense* .............................................. 6,000
Cash ............................................................. 10,000
To record payment of accrued and current
salaries. *($10,000 weekly salaries x 3/5 week)
Exercise 3-3 (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 ..................................................
3,880
Office Supplies** ............................................................
3,880
To record office supplies used ($700 + $3,480 - $300).
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**
Bal. Bal.
6,000
Beg. Bal.
700
Purch.
3,480
?
Used
?
Used
End. Bal.
1,100
End. Bal.
300
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Solutions Manual, Chapter 3
147
Exercise 3-4 (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 ................................
18,000
Accumulated Depreciation—Equipment .....................
18,000
To record depreciation expense for the year.
d.
Office Supplies Expense ..................................................
5,000
Office Supplies* .............................................................
5,000
To record office supplies used ($240 + $5,200 - $440).
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*
Beg. Bal.
4,000
Beg. Bal.
240
Purch.
5,200
?
Used
?
Used
End. Bal.
1,200
End. Bal.
440
Exercise 3-5 (25 minutes)
Dec. 31 Accounts Receivable ............................................. 2,100
Fees Earned ..................................................... 2,100
To record earned but unbilled fees (30% x $7,000).
To record expired prepaid insurance.
31 Office Supplies Expense ........................................ 580
Office Supplies ................................................ 580
To record use of office supplies.
Exercise 3-6 (20 minutes)
adidas AG
Balance Sheet
December 31, 2013
(Euros in millions)
Assets
Noncurrent assets
Intangible assets ................................................... € 148
Tangible and other assets .................................... 304
Other noncurrent assets ....................................... 3,476
Total noncurrent assets ........................................ 3,928
Current assets
Equity
Total equity .............................................................. € 2,489
Liabilities
Exercise 3-7 (20 minutes)
WILSON TRUCKING COMPANY
Income Statement
For Year Ended December 31, 2015
Trucking fees earned ................................................ $130,000
Expenses
Depreciation expense—Trucks ........................... $23,500
WILSON TRUCKING COMPANY
Statement of Retained Earnings
For Year Ended December 31, 2015
Retained earnings, December 31, 2014 ................... $155,000
Exercise 3-8 (10 minutes)
Dec. 31 Net Sales ....................................................... 1,014,345
Income Summary .................................. 1,014,345
Exercise 3-9 (20 minutes)
WILSON TRUCKING COMPANY
Balance Sheet
December 31, 2015
Assets
Current assets
Trucks ............................................................. $172,000
Accumulated depreciation-Trucks .............. (36,000) 136,000
Land ................................................................ 85,000
Total plant assets .......................................... 221,000
Total assets ...................................................... $249,500
Long-term notes payable ................................ 53,000
Total liabilities ................................................. 69,000
Equity
Common stock ................................................ 20,000
Retained earnings* .......................................... 160,500
Total liabilities and equity .............................. $249,500
*From Exercise 3-7
* Retained earnings is computed as:
Beginning balance ....................................................................................
$155,000
Plus: Net income ($130,000 - $23,500 - $61,000 - $8,000 - $12,000) .......
25,500
Less: Dividends .........................................................................................
(20,000)
Ending balance ..........................................................................................
$160,500
Exercise 3-10 (10 minutes)
a. $ 4,361 / $ 44,500 = 9.8%
b. $ 97,706 / $ 398,800 = 24.5%
Exercise 3-11 (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
Exercise 3-12A (30 minutes)
a.
Dec. 1 Supplies Expense ................................................... 2,000
Cash ................................................................. 2,000
Purchased supplies.
b.
g.
Dec. 31 Remodeling Fees Earned ..................................... 11,130
Unearned Remodeling Fees .......................... 11,130
Adjusted revenues for unfinished projects
($13,000 + 3,700 - $5,570).
Exercise 3-13A (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.
Completed work for Solana.
18 Cash ....................................................................... 8,500
Unearned Fees .............................................. 8,500
Received fees for work to be done for Jordan.
27 Unearned Fees ...................................................... 7,500
Fees Earned ................................................... 3,000
Received fees for work to be done for Solana.
6 Cash ....................................................................... 7,500
Fees Earned ................................................... 7,500
Received fees for work to be done for Haru.
Exercise 3-13A –concluded
c. Under the first method (and using entries from a)
Exercise 3-14B (25 minutes)
WESTCOTT COMPANY
December 31, 2015
Unadjusted
Trial Balance
Dr. Cr.
Adjustments
Dr. Cr.
Adjusted
Trial Balance
Dr. Cr.
Cash ....................................................
21
21
Accounts receivable .........................
12
12
Supplies .............................................
24
(d)
9
15
Prepaid insurance .............................
18
(e)
15
3
Equipment ..........................................
39
39
Accumulated depreciation–Equip
15
(a)
3
18
Accounts payable ..............................
6
6
Salaries payable ................................
(b)
6
6
Unearned revenue .............................
12
(c)
12
Common stock ................................
10
10
Retained earnings .............................
32
32
Dividends ...........................................
6
6
Revenue .............................................
75
(c)
12
87
Depreciation expense–Equip ...........
(a)
3
3
Salaries expense ...............................
18
(b)
6
24
Insurance expense ............................
(e)
15
15
Supplies expense ..............................
(d)
9
9
Utilities expense ................................
12
___
__
__
12
___
Totals ..................................................
150
150
45
45
159
159
Exercise 3-15C (30 minutes)
1. Adjusting entries
Oct. 31 Rent Expense ................................................ 2,800
2. Subsequent entries without reversing
Nov. 5 Rent Payable ................................................. 2,800
Rent Expense ................................................ 2,800
3. Reversing entries and subsequent entries
Nov. 1 Rent Payable ................................................. 2,800
Rent Expense ........................................ 2,800
To reverse accrual of rent expense.
PROBLEM SET A
Problem 3-1A (10 minutes)
1. E 5. C 9. D
Problem 3-2A (35 minutes)
Part 1
Adjustment (a)
Adjustment (b)
31 Insurance Expense .......................................... 7,120
Prepaid Insurance .................................... 7,120
To record annual insurance coverage cost.
Policy
Cost per Month
Months Active
in 2015
2015 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
Adjustment (c)
