M3–14
a.
Accounts Receivable (+A) …………………………………………..
200
Service Revenue (+R, +SE) ……………………………………
200
b.
Advertising Expense (+E, –SE) ……………………………………..
50
Cash (-A) ……………………………………………………………..
50
c.
Cash (+A) …………………………………………………………………
200
Service Revenue (+R, +SE) ……………………………………
200
d.
Utilities Expense (+E, –SE) ………………………………………….
85
Accounts Payable (+L) …………………………………………..
85
e.
Accounts Receivable (+A) ……………………………………………
180
Service Revenue (+R, +SE) ……………………………………
180
M3–15
a.
Cash (+A) …………………………………………………………………
4,000
Donation Revenue (+R, +SE) …………………………………..
4,000
b.
Salaries and Wages Expense (+E, –SE) …………………………
2,000
Cash (-A) ……………………………………………………………..
2,000
c.
Note Payable (short-term) (-L) ……………………………………..
1,000
Cash (-A) ……………………………………………………………..
1,000
d.
Supplies (+A) …………………………………………………………….
3,000
Cash (-A) ……………………………………………………………..
1,000
Note Payable (short-term) (+L)………………………………..
2,000
e.
Supplies (+A) ……………………………………………………………..
2,500
Donation Revenue (+R, +SE) ………………………………….
2,500
Preliminary net income is $4,500 ($4,000 + 2,500 – 2,000).
M3–16
a.
Cash (+A) …………………………………………………………………
150,000
Note Payable (long-term) (+L) …………………………………
150,000
b.
Accounts Receivable (+A) ……………………………………………
2,000
Service Revenue (+R, +SE) …………………………………….
2,000
c.
Rent Expense (+E, –SE) ……………………………………………..
600
Cash (-A) ……………………………………………………………..
600
d.
Cash (+A) …………………………………………………………………
450
Service Revenue (+R, +SE) …………………………………….
450
e.
Advertising Expense (+E, –SE) ……………………………………..
400
Accounts Payable (+L) …………………………………………..
400
Preliminary net income is $1,450 ($2,000 + 450 – 600 – 400).
M3–17
Assets
Stockholders’ Equity
a.
+15,000
Service Revenue (+R) +15,000
b.
+150
NE
c.
+/–4000 *
NE
d.
+2,250
NE
e.
+125
Service Revenue (+R) +125
* Transaction c. results in an increase in an asset (Cash) and a decrease in an asset
(Accounts Receivable). Therefore, there is no net effect on total assets.
M3–18
Assets
Stockholders’ Equity
f.
–4,750
Salaries and Wages Expense (+E) –4,750
g.
–1,750
NE
h.
NE
Utilities Expense (+E) –800
M3–19
SWING HARD INCORPORATED
Income Statement
For the Month Ended February 28
Revenues:
Service Revenue
$ 15,125
Total Revenues
15,125
Expenses:
Wages Expense
4,750
Utilities Expense
800
Total Expenses
5,550
Net Income
$ 9,575
Net Profit Margin=Net Income
Revenues
=$ 9,575
$15,125
=0.633 or 63.3%
Fundamentals of Financial Accounting, 5/e 3-14
M3-20
EQUILIBRIUM RIDING, INC.
Income Statement
For the Year Ended December 31
Revenues:
Service Revenue
$ 35,700
Total Revenues
35,700
Expenses:
Salaries and Wages Expense
3,900
Repairs and Maintenance Expense
410
Office Expenses
270
Total Expenses
4,580
Net Income
$ 31,120
EQUILIBRIUM RIDING, INC.
Statement of Retained Earnings
For the Year Ended December 31
Retained Earnings, Jan. 1
$ 14,500
Add: Net Income
31,120
Subtract: Dividends
(0)
Retained Earnings, Dec. 31
$ 45,620
Fundamentals of Financial Accounting, 5/e 3-15
M3–20 (continued) EQUILIBRIUM RIDING, INC.
Balance Sheet
At December 31
Assets
Current Assets
Cash
$ 59,750
Accounts Receivable
3,300
Prepaid Insurance
4,700
Total Current Assets
67,750
Equipment
64,600
Land
23,000
Total Assets
$ 155,350
Liabilities
Current Liabilities
Accounts Payable
$ 29,230
Unearned Revenue
1,500
Total Current Liabilities
30,730
Notes Payable (long-term)
74,000
Total Liabilities
104,730
Stockholders’ Equity
Common Stock
5,000
Retained Earnings
45,620
Total Stockholders’ Equity
50,620
Total Liabilities and Stockholders’ Equity
$ 155,350
M3–21
Item
(1) Statement
(2) Account Type
Example. Cash
$ 880
B/S
A
1. Service Revenue
5,500
I/S
R
2. Accounts Receivable
900
B/S
A
3. Interest Expense
380
I/S
E
4. Unearned Revenue
200
B/S
L
5. Income Tax Expense
250
I/S
E
6. Retained Earnings
120
B/S
SE
Fundamentals of Financial Accounting, 5/e 3-16
M3–21 (continued)
TIME WARNER CABLE, INC.
Income Statement
For the Year Ended December 31
(Amounts in millions)
Revenues:
Service Revenue
$ 5,500
Total Revenues
5,500
Expenses:
Operating Expenses
4,340
Interest Expense
380
Income Tax Expense
250
Total Expenses
4,970
Net Income
$ 530
Net Profit Margin=Net Income
Revenues
= $ 530
$5,500
=0.096 or 9.6%
M3–22
Expedia
Priceline
Net Profit Margin=Net Income
Priceline has generated a greater return of profit from each revenue dollar as shown by
M3–23
Total Assets = Total Liabilities + Stockholders’ Equity
$100,000 = $60,000 + Stockholders’ Equity
Stockholders’ Equity = $40,000
Stockholders’ Equity = Common Stock + Retained Earnings (ending)
$40,000 = $10,000 + Retained Earnings (ending)
ANSWERS TO EXERCISES
E3-1
TERM
B
(1) Expenses
A
(2) Unearned revenue
C
(3) Prepaid expenses
D
(4) Revenues
E3-2
TERM
D
(1) Accrual basis accounting
A
(2) Expense recognition principle
B
(3) Revenue recognition principle
C
(4) Cash basis accounting
E3-3
Activity
Amount of Revenue Earned in September or Explanation
a.
$10
b.
$2,000
c.
No transaction has occurred; exchange of promises only.
d.
$100,000 (= 1,000 installations x $100 per installation)
e.
Revenue recorded previously in (d) above.
f.
No revenue earned in September. Revenue will be earned, when
travel is provided in December. Until then, the $500 is unearned
revenue (a liability on the balance sheet).
E3-4
Activity
Amount of Revenue Earned in September or Explanation
a.
No revenue is earned; the issuance of stock is a financing activity.
b.
No revenue earned in September. Revenue will be earned as each
game is played. Until then, it is unearned revenue (a liability).
c.
$4,000,000 (= $20,000,000 ÷ 5 games)
d.
No revenue earned in September—the $50,000 is unearned revenue
(a liability). Revenue will be earned as construction is completed.
e.
No revenue earned in September. Revenue will be earned as
magazines are provided to subscribers. Until then, the $1,800 is
unearned revenue (a liability on the balance sheet).
f.
$100
E3-5
Activity
Amount of Expense Incurred in January or Explanation
a.
$90,000
b.
No expense has been incurred. $1,000 (= 1/3 × $3,000) of expense will
be incurred in each of the months of February, March, and April. Until
then, the $3,000 is Prepaid Rent (an asset on the balance sheet).
c.
$3,000
d.
$1,500
e.
$5,000
f.
$280
E3-6
Activity
Amount of Expense Incurred in January or Explanation
a.
Expense would have been recorded in December (along with a liability,
which is paid in January).
b.
$4,200
c.
$1 million will be recorded in January. The remaining $11 million
(= ($12 million ÷ 12 months) x 11 months remaining) is an asset
(prepaid expense) on the balance sheet.
d.
Expense will be recorded when the travel occurs in March. Until then, it
is an asset (prepaid expense) on the balance sheet.
e.
$120 (= $15 x 8 hours)
f.
$300 (= $3,600 ÷ 12 months)
g.
$230