3-38
SOLUTIONS TO PROBLEMS – SERIES A – CHAPTER 3
PROBLEM 3-25A
No.
Account
Balance
No.
Account
Balance
a.
Interest Receivable
Debit
k.
Service Revenue
Credit
b.
Interest Revenue
Credit
l.
Accounts Payable
Credit
c.
Prepaid Insurance
Debit
m.
Operating Expense
Debit
d.
Land
Debit
n.
Unearned Revenue
Credit
e.
Salaries Payable
Credit
o.
Dividends
Debit
f.
Salaries Expense
Debit
p.
Cash
Debit
g.
Supplies Expense
Debit
q.
Insurance Expense
Debit
h.
Consulting Revenue
Credit
r.
Accounts Receivable
Debit
i.
Utilities Payable
Credit
s.
Land
Debit
j.
Supplies
Debit
t.
Retained Earnings
Credit
u.
Common Stock
Credit
3-39
PROBLEM 3-26A
Event
Type of Event
Account Debited
Account Credited
1.
AS
Cash
Unearned Revenue
2.
AS
Cash
Common Stock
3.
AU
Salaries Expense
Cash
4.
AE
Prepaid Rent
Cash
5.
AU
Operating Expenses
Cash
6.
AU
Accounts Payable
Cash
7.
AU
Utilities Expense
Cash
8.
AS
Accounts Receivable
Service Revenue
9.
AU
Dividends
Cash
10.
AS
Supplies
Accounts Payable
11.
AS
Cash
Service Revenue
12.
CE
Salaries Expense
Salaries Payable
13.
AS
Interest Receivable
Interest Revenue
14.
AU
Rent Expense
Prepaid Rent
15.
CE
Unearned Revenue
Service Revenue
3-40
PROBLEM 3-27A
a.
Mary’s Designs T-Accounts
Cash
Accounts Payable
Common Stock
1. 90,000
6. 21,000
12. 3,600
5. 5,200
1. 90,000
2. 9,000
8. 3,150
13. 2,600
Bal. 90,000
3. 36,000
9. 12,000
14. 1,800
7. 49,000
10. 24,000
Bal. 6,000
11. 5,000
Dividends
12. 3,600
Unearned Revenue
11. 5,000
Bal. 115,250
15. 12,000
3. 36,000
Bal. 5,000
Bal. 24,000
Accounts Receivable
Service Revenue
4. 58,000
7. 49,000
Salaries Payable
2. 9,000
Bal. 9,000
16. 8,000
4. 58,000
Bal. 8,000
15. 12,000
Interest Receivable
Bal. 79,000
19. 500
Bal. 500
Advertising Expense
13. 2,600
Supplies
Bal. 2,600
5. 5,200
17. 6,450
8. 3,150
Rent Expense
Bal. 1,900
18. 4,000
Bal. 4,000
Prepaid Rent
9. 12,000
18. 4,000
Salary Expense
Bal. 8,000
10. 24,000
16. 8,000
Bal. 32,000
Land
6. 21,000
Supplies Expense
Bal. 21,000
17. 6,450
Bal. 6,450
Utilities Expense
14. 1,800
Bal. 1,800
Interest Revenue
19. 500
Bal. 500
3-1–41
PROBLEM 3-27A (cont.)
b.
Mary’s Designs
Before-Closing Trial Balance
December 31, 2016
Account Titles
Debit
Credit
Cash
$115,250
Accounts Receivable
9,000
Interest Receivable
500
Supplies
1,900
Prepaid Rent
8,000
Land
21,000
Accounts Payable
$ 6,000
Unearned Revenue
24,000
Salaries Payable
8,000
Common Stock
90,000
Dividends
5,000
Service Revenue
79,000
Interest Revenue
500
Advertising Expense
2,600
Rent Expense
4,000
Salary Expense
32,000
Supplies Expense
6,450
Utilities Expense
1,800
Totals
$207,500
$207,500
3-1–42
PROBLEM 3-27A (cont.)
c.
Mary’s Designs
Effect of Transactions on Financial Statements
Balance Sheet
Income Statement
Stmt. of
Event
Assets
=
Liab.
+
S. Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
1.
+
NA
+
NA
NA
NA
+ FA
2.
+
NA
+
+
NA
+
+ OA
3.
+
+
NA
NA
NA
NA
+ OA
4.
+
NA
+
+
NA
+
NA
5.
+
+
NA
NA
NA
NA
NA
6.
+−
NA
NA
NA
NA
NA
− IA
7.
+−
NA
NA
NA
NA
NA
+ OA
8.
+−
NA
NA
NA
NA
NA
− OA
9.
+−
NA
NA
NA
NA
NA
− OA
10.
−
NA
−
NA
+
−
− OA
11.
−
NA
−
NA
NA
NA
− FA
12.
−
−
NA
NA
NA
NA
− OA
13.
NA
+
−
NA
+
−
NA
14.
NA
+
−
NA
+
−
NA
15.
NA
−
+
+
NA
+
NA
16.
NA
+
−
NA
+
−
NA
17.
−
NA
−
NA
+
−
NA
18.
−
NA
−
NA
+
−
NA
19.
+
NA
+
+
NA
+
NA
3-1–43
PROBLEM 3-28A
Effect of Transactions on Financial Statements
Balance Sheet
Income Statement
Stmt. of
Event
Assets
=
Liab.
+
S. Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
1.
+
NA
+
NA
NA
NA
+ FA
2.
+−
NA
NA
NA
NA
NA
− OA
3.
+
NA
+
+
NA
+
NA
4.
+
+
NA
NA
NA
NA
+ OA
5.
+−
NA
NA
NA
NA
NA
+ OA
6.
+
+
NA
NA
NA
NA
NA
7.
−
NA
−
NA
+
−
− OA
8.
−
NA
−
NA
+
−
− OA
9.
−
NA
−
NA
+
−
NA
10.
NA
−
+
+
NA
+
NA
11.
+
NA
+
+
NA
+
+ OA
12.
−
NA
−
NA
NA
NA
− FA
13.
−
NA
−
NA
+
−
NA
3-1–44
PROBLEM 3-29A
Entry Date
Description of Transaction
January 1
Acquired cash from the issue of common stock.
February 1
Performed services and received cash.
March 1
Paid cash to rent space for the future.
April 1
Performed services on account.
May 1
Paid cash for supplies.
June10
Collected cash for services to be performed in the
future.
July 10
Received cash from customers on account.
August 1
Paid cash for salaries.
October 1
Paid a cash dividend to stockholders.
November 1
Paid cash for property taxes.
December 31
Recognized rent expense. Cash had been paid in a
prior transaction.
December 31
Recognized revenue that had been earned during the
period. Cash had been received in prior transactions.
December 31
Recognized expense for supplies that had been used
during the period.
3-1–45
PROBLEM 3-30A
General Journal
No.
Date
Account Titles
Debit
Credit
a.
July 1
Prepaid Rent
48,000
Cash
48,000
Dec. 31
Rent Expense ($48,000 x 6/12)
24,000
Prepaid Rent
24,000
b.
April 15
Supplies
5,000
Accounts Payable
5,000
Dec. 31
Supplies Expense1
4,500
Supplies
4,500
c.
July 1
Cash
9,600
Unearned Revenue
9,600
Dec. 31
Unearned Revenue2
4,800
Service Revenue
4,800
d.
Feb. 1
Prepaid Insurance
5,400
Cash
5,400
Dec. 31
Insurance Expense3
4,950
Prepaid Insurance
4,950
1$5,000 − $500 = $4,500
2$9,600 x 6/12 = $4,800
3$5,400 x 11/12 = $4,950
3-46
PROBLEM 3-31A
1. Cash is overstated by $90 (−90 Cash).
2. Cash is understated and Accounts Receivable is overstated by $900
3. Accounts Payable is understated by $600 (+600 Accounts Payable).
4. Land is understated by $24,000 (+24,000 Land).
5. Salaries Expense is overstated and Rent Expense is understated by
$500 (+500 Rent Expense; − 500 Salary Expense).
Corrected Trial Balance:
Ricardo Company
Trial Balance
As of April 30, 2016
Account Titles
Debit
Credit
Cash ($68,900 + $900 − $90)
$ 69,710
Accounts Receivable ($30,000 − $900)
29,100
Supplies
1,800
Prepaid Insurance
3,600
Land (−$12,000 + $24,000)
12,000
Accounts Payable ($9,600 + $600)
$ 10,200
Common Stock
100,000
Retained Earnings
27,510
Dividends
8,000
Service Revenue
60,000
Rent Expense ($9,600 + $500)
10,100
Salaries Expense ($31,500 − $500)
31,000
Operating Expense
32,400
Totals
$197,710
$197,710
3-47
PROBLEM 3-32A
a.
Smith Training Company General Journal, 2016
Date
Account Titles
Debit
Credit
Jan. 30
Cash
45,000
Common Stock
45,000
Feb 1
Prepaid Rent
24,000
Cash
24,000
Apr. 10
Supplies
3,200
Accounts Payable
3,200
July 1
Cash
24,000
Unearned Revenue
24,000
July 20
Accounts Payable
1,500
Cash
1,500
Aug. 15
Accounts Receivable
18,000
Service Revenue
18,000
Sept. 15
Cash
8,400
Service Revenue
8,400
Oct.1
Salaries Expense
12,000
Cash
12,000
Oct. 15
Cash
15,000
Accounts Receivable
15,000
Nov. 16
Accounts Receivable
42,000
Service Revenue
42,000
Dec. 1
Dividends
15,000
Cash
15,000
Dec. 31
Unearned Revenue1
12,000
Service Revenue
12,000
1$24,000 x 6/12 = $12,000
3-48
PROBLEM 3-32A a. (cont.)
Smith Training Company
General Journal (continued)
Date
Account Titles
Debit
Credit
Dec. 31
Salaries Expense
3,600
Salaries Payable
3,600
Dec. 31
Rent Expense1
11,000
Prepaid Rent
11,000
Dec. 31
Supplies Expense2
2,920
Supplies
2,920
1($24,000 24) x 11 = $11,000
2($3,200 − $280) = $2,920
3-49
PROBLEM 3-32A (cont.)
b.
Smith Training Company T-Accounts
Cash
Accounts Payable
Common Stock
1/30 45,000
2/1 24,000
7/20 1,500
4/10 3,200
1/30 45,000
7/1 24,000
7/20 1,500
Bal. 1,700
Bal. 45,000
9/15 8,400
10/1 12,000
10/15 15,000
12/1 15,000
Retained Earnings
Bal. 39,900
Unearned Revenue
Bal. -0-
12/31 12,000
7/1 24,000
Bal. 12,000
Dividends
Accounts Receivable
12/1 15,000
8/15 18,000
10/15 15,000
Salaries Payable
Bal. 15,000
11/16 42,000
12/31 3,600
Bal. 45,000
Bal. 3,600
Service Revenue
8/15 18,000
Prepaid Rent
9/15 8,400
2/1 24,000
12/31 11,000
11/16 42,000
Bal. 13,000
12/31 12,000
Bal. 80,400
Supplies
4/10 3,200
12/31 2,920
Rent Expense
Bal. 280
12/31 11,000
Bal. 11,000
Salaries Expense
10/1 12,000
12/31 3,600
Bal. 15,600
Supplies Expense
12/31 2,920
Bal. 2,920
3-50
PROBLEM 3-32A (cont.)
c.
Smith Training Company
Trial Balance
December 31, 2016
Account Titles
Debit
Credit
Cash
$ 39,900
Accounts Receivable
45,000
Prepaid Rent
13,000
Supplies
280
Accounts Payable
$ 1,700
Unearned Revenue
12,000
Salaries Payable
3,600
Common Stock
45,000
Dividends
15,000
Service Revenue
80,400
Salaries Expense
15,600
Rent Expense
11,000
Supplies Expense
2,920
Totals
$142,700
$142,700
3-51
PROBLEM 3-32A (cont.)
d.
Smith Training Company
Financial Statements
For the Year Ended December 31, 2016
Income Statement
Service Revenue
$80,400
Expenses
Salaries Expense
$15,600
Rent Expense
11,000
Supplies Expense
2,920
Total Expenses
(29,520)
Net Income
$50,880
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$ -0-
Plus: Stock Issued
45,000
Ending Common Stock
$45,000
Beginning Retained Earnings
$ -0-
Plus: Net Income
50,880
Less: Dividends
(15,000)
Ending Retained Earnings
35,880
Total Stockholders’ Equity
$80,880
3-52
PROBLEM 3-32A d. (cont.)
Smith Training Company
Balance Sheet
As of December 31, 2016
Assets
Cash
$39,900
Accounts Receivable
45,000
Prepaid Rent
13,000
Supplies
280
Total Assets
$98,180
Liabilities
Accounts Payable
$ 1,700
Unearned Revenue
12,000
Salaries Payable
3,600
Total Liabilities
$17,300
Stockholders’ Equity
Common Stock
$45,000
Retained Earnings
35,880
Total Stockholders’ Equity
80,880
Total Liabilities and Stockholders’ Equity
$98,180
3-53
PROBLEM 3-32A d. (cont.)
Smith Training Company
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Received cash from Customers*
$47,400
Paid cash for Expenses**
(37,500)
Net Cash Flow from Operating Activities
$ 9,900
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
Received cash from Stock Issue
$45,000
Paid cash for Dividends
(15,000)
Net Cash Flow from Financing Activities
30,000
Net Change in Cash
39,900
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$39,900
3-54
PROBLEM 3-32A (cont.)
e.
Smith Training Company
Closing Entries, 2016
Date
Debit
Credit
Dec. 31
Service Revenue
80,400
Retained Earnings
80,400
Dec. 31
Retained Earnings
29,520
Salaries Expense
15,600
Rent Expense
11,000
Supplies Expense
2,920
Dec. 31
Retained Earnings
15,000
Dividends
15,000
3-55
PROBLEM 3-32A e. (cont.)
Smith Training Company
T-Accounts for Closing Entries, 2016
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Accounts Payable
Common Stock
Bal. 39,900
Bal. 1,700
Bal. 45,000
Unearned Revenue
Retained Earnings
Accounts Receivable
Bal. 12,000
Cl 29,520
cl 80,400
Bal. 45,000
Cl 15,000
Salaries Payable
Bal. 35,880
Bal. 3,650
Prepaid Rent
Dividends
Bal. 13,000
Bal. 15,000
cl 15,000
Bal. -0-
Supplies
Service Revenue
Bal. 280
Cl 80,400
Bal. 80,400
Bal. -0-
Salaries Expense
Bal. 15,600
cl 15,600
Bal. -0-
Rent Expense
Bal. 11,000
cl 11,000
Bal. -0-
Supplies Expense
Bal. 2,920
cl 2,920
Bal. -0-
3-56
PROBLEM 3-32A (cont.)
f.
Smith Training Company
Post-Closing Trial Balance
December 31, 2016
Account Titles
Debit
Credit
Cash
$39,900
Accounts Receivable
45,000
Prepaid Rent
13,000
Supplies
280
Accounts Payable
$ 1,700
Unearned Revenue
12,000
Salaries Payable
3,600
Common Stock
45,000
Retained Earnings
35,880
Totals
$98,180
$98,180
3-57
PROBLEM 3-33A
a.
Colton Enterprises
General Journal, 2016
Event
Account Titles
Debit
Credit
1.
Cash
35,000
Common Stock
35,000
2.
Prepaid Rent
12,000
Cash
12,000
3.
Accounts Receivable
72,000
Service Revenue
72,000
4.
Operating Expenses
35,000
Accounts Payable
35,000
5.
Cash
55,500
Accounts Receivable
55,500
6.
Salaries Expense
21,000
Cash
21,000
7.
Accounts Payable
28,000
Cash
28,000
Adjusting Entries
8.
Rent Expense ($12,000 x 9/12)
9,000
Prepaid Rent
9,000
9.
Salaries Expense
2,400
Salaries Payable
2,400