(10-20 min.) E 3-25A
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Closing Entries
Dec.
31
Service Revenue …………………………………
Other Revenue ……………………………………
Retained Earnings ………………………….
32,300
31
Retained Earnings ………………………………
Cost of Services Sold …………………….
14,300
Selling, General, and Administrative
Expenses ………………………………….
6,400
Depreciation Expense …………………….
4,100
Income Tax Expense ………………………
600
31
Retained Earnings ………………………………
Dividends ………………………………………
300
Retained Earnings
Expenses
25,400
Dec. 31, 2013
2,600
Dividends
300
Revenues
32,300
Dec. 31, 2014
9,200
3-22 Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
(15-25 min.) E 3-26A
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Adjusting Entries
Dec.
31
Unearned Service Revenue ……………………….
7,400
Service Revenue ($20,600 − $13,200) …….
7,400
31
Salary Expense ($4,600 − $4,200) ………………
400
Salary Payable …………………………………….
400
31
Rent Expense ($1,600 − $1,400) …………………
200
Prepaid Rent ……………………………………….
200
31
Depreciation Expense ($850 − $0) ……………..
850
Accumulated Depreciation …………………..
850
31
Income Tax Expense ($1,450 − $0) …………….
1,450
Income Tax Payable …………………………….
1,450
Closing Entries
31
Service Revenue ………………………………………
20,600
Retained Earnings ……………………………….
20,600
31
Retained Earnings ……………………………………
8,500
Salary Expense ……………………………………
4,600
Rent Expense ………………………………………
1,600
Depreciation Expense ………………………….
850
Income Tax Expense …………………………...
1,450
31
Retained Earnings ……………………………………
1,250
Dividends ……………………………………………
1,250
(20-30 min.) E 3-27A
Req. 1
Warfield Production Company
Balance Sheet
December 31, 2014
ASSETS
Current assets:
Cash ………………………………………………………………………….
$14,250
Prepaid rent ($1,800 − $200) ………………………………………..
1,600
Total current assets ……………………………………………….
15,850
Plant assets:
Equipment ……………………………………………….
$42,000
Less accumulated depreciation
($3,400 + $850) ……………………………………..
(4,250)
37,750
Total assets …………………………………………………………………….
$53,600
LIABILITIES
Current liabilities:
Accounts payable ………………………………………………………
$ 5,100
Salary payable ($4,600 − $4,200) ………………………………….
400
Unearned service revenue ($10,100 − $7,400) ……………….
2,700
Income tax payable …………………………………………………….
1,450
Total current liabilities ……………………………………………
9,650
Note payable, long-term …………………………………………………..
16,000
Total liabilities ………………………………………………………………..
25,650
STOCKHOLDERS’ EQUITY
Common stock… …………………………………………………………….
8,600
Retained earnings ($8,500 + $20,600 − $4,600 − $1,600 −
$850 − $1,450 − $1,250) …………………..
19,350
Total stockholders’ equity ……………………………………………….
27,950
Total liabilities and stockholders’ equity …………………………..
$53,600
3-24 Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
(continued) E 3-27A
Req. 2
Current
Year
Prior
Year
Net working
capital
=
Total current assets −
current liabilities
=
$15,850 −
$9,650
=
$6,200
$6,400
Current ratio
=
Total current assets
=
$15,850
=
1.64
1.67
Total current liabilities
$9,650
Both net working capital and the current ratio have decreased slightly,
indicating that the ability to pay current liabilities with current assets has
deteriorated a little.
Debt ratio
=
Total liabilities
=
$25,650
=
0.48
0.40
Total assets
$53,600
An increase in the debt ratio indicates a deterioration in the ratio.
In summary, the overall ability to pay total liabilities deteriorated slightly.
(30 min.) E 3-28A
a.
Current ratio
=
$50
=
1.04
Debt ratio
=
$40 + $8
=
0.62
$40 + $8
$70 + $8
The purchase of equipment on account hurts both ratios.
Collecting cash in advance hurts both ratios.
(5-10 min.) E 3-29B
Millions
a.
Revenue …………………………..………………………………….
$860
The revenue principle says to record revenue when it has been
earned, regardless of when cash is collected. Therefore, report
the amount of revenue earned, regardless of when the company
collects cash.
b.
Total expense ……………………………………………………….
$610
The expense recognition principle governs accounting for
expenses.
c.
Revenue ($860 − $25) …………………………………………..
$835
Total expense ……………………………………………………….
$630
The accrual basis measures revenues as earned and expenses
as incurred, while the cash basis measures revenues collected in
cash and expenses paid in cash.
d.
The income statement reports revenues and expenses.
The statement of cash flows reports cash receipts and cash
payments.
(15-20 min.) E 3-30B
Req. 1
Adjusting Entries
DATE
ACCOUNT TITLES
DEBIT
CREDIT
a.
Insurance Expense …………………………………………..
1,550
Prepaid Insurance ($450 + $1,600 − $500) ………
1,550
b.
Interest Receivable …………………………………………..
2,700
Interest Revenue ………………………………………….
2,700
c.
Unearned Service Revenue ($1,400 − $300) ………..
1,100
Service Revenue ………………………………………….
1,100
d.
Depreciation Expense ………………………………………
5,400
Accumulated Depreciation …………………………...
5,400
e.
Salary Expense ($25,000 × 2/5) ………………………….
10,000
Salary Payable …………………………………………….
10,000
f.
Income Tax Expense ($26,000 × .35) ………………….
9,100
Income Tax Payable ……………………………………..
9,100
Req. 2
Net income understated by omission of:
Interest revenue ……………………………………………..
$ 2,700
Service revenue ……………………………………………..
1,100
Total understatement ……………………………………..
$ (3,800)
Net income overstated by omission of:
Insurance expense …………………………………………
$ 1,550
Depreciation expense …………………………………….
5,400
Salary expense ………………………………………………
10,000
Income tax expense ……………………………………….
9,100
Total overstatement ……………………………………….
26,050
Overall effect — net income overstated by ………….
$22,250
3-28 Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
(10-15 min.) E 3-31B
Missing amounts in italics.
1
2
3
4
Beginning Supplies
$ 560
$ 1,400
$1,100
$ 900
Add: Purchases of supplies
during the year
1,480
1,100
1,500
600
Total amount to account for
2,040
2,500
2,600
1,500
Less: Ending Supplies
(200)
(400)
(1,000)
(300)
Supplies Expense
$1,840
$2,100
$1,600
$1,200
Journal entries:
Situation 1:
Supplies ……………………………………..
1,480
Cash or Accounts Payable ………
1,480
Situation 2:
Supplies Expense………………………..
2,100
Supplies …………………………..…….
2,100
(10-20 min.) E 3-32B
Adjusting Entries
DATE
ACCOUNT TITLES
DEBIT
CREDIT
a.
Interest Expense ………………………………………………
2,100
Interest Payable …………………………………………..
2,100
b.
Interest Receivable …………………………………………..
3,900
Interest Revenue ………………………………………….
3,900
c.
Unearned Rent Revenue ($14,000 / 2 × 6/12) ……….
3,500
Rent Revenue ………………………………………………
3,500
d.
Salary Expense ($2,300 × 3) ………………………………
6,900
Salary Payable …………………………………………….
6,900
e.
Supplies Expense …………………………………………….
1,510
Supplies ($3,110 − $1,600) …………………………….
1,510
f.
Depreciation Expense ($120,000 / 5) ………………….
24,000
Accumulated Depreciation …………………………...
24,000
3-30 Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
(20-30 min.) E 3-33B
Oregon Flowers, Inc.
Income Statement
Year Ended December 31, 2014
Thousands
Revenues:
Sales revenue …………………………..
$43,600
Expenses:
Cost of goods sold ……………………
$25,500
Selling, administrative, and
general expenses ………………….
10,000
Total expenses …………………..
35,500
Income before tax …………………………
8,100
Income tax expense ………………………
2,500
Net income …………………………………..
$ 5,600
Oregon Flowers, Inc.
Statement of Retained Earnings
Year Ended December 31, 2014
Thousands
Retained earnings, December 31, 2013 ………….
$ 4,610
Add: Net income …………………………………………
5,600
Subtotal
10,210
Less: Dividends declared……………………………..
(1,400)
Retained earnings, December 31, 2014 ………….
$ 8,810
(continued) E 3-33B
Oregon Flowers, Inc.
Balance Sheet
December 31, 2014
Thousands
ASSETS
LIABILITIES
Cash ………………………………..
$ 2,510
Accounts payable …………
$ 7,500
Accounts receivable …………
1,900
Income tax payable ……….
600
Inventories ………………………
3,800
Other liabilities ……………..
2,400
Prepaid expenses …………….
1,700
Total liabilities ………………
10,500
Prop., plant, equip.
$16,700
STOCKHOLDERS’
Less: Accum.
EQUITY
deprec ……
(2,500)
14,200
Common stock ……………..
14,500
Other assets …………………….
9,700
Retained earnings …………
8,810
Total stockholders’ equity
23,310
Total liabilities and
Total assets ……………………..
$33,810
stockholders’ equity …..
$33,810
3-32 Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
(10-20 min.) E 3-34B
Amounts in millions
Receivables
Beg. bal.
210
Sales revenue
21,040
Collections
20,900
End. bal.
350
Prepaid Insurance
Beg. bal.
140
Payment
470
Insurance expense
410
End. bal.
200
Accrued Liabilities Payable
Beg. bal.
640
Payments
4,200
Other operating
expenses
4,280
End. bal.
720
(10-20 min.) E 3-35B
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Closing Entries
Dec.
31
Service Revenue ……………………………………
Other Revenue ………………………………………
Retained Earnings …………………………....
32,500
31
Retained Earnings …………………………………
Cost of Services Sold ………………………..
14,600
Selling, General, and Administrative
Expenses ……………………………………..
6,000
Depreciation Expense ……………………….
4,500
Income Tax Expense …………………………
510
31
Retained Earnings …………………………………
Dividends …………………………………………
400
Retained Earnings
Expenses
25,610
Dec. 31, 2013
2,200
Dividends
400
Revenues
32,500
Dec. 31, 2014
8,690
3-34 Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
(15-25 min.) E 3-36B
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Adjusting Entries
Dec.
31
Unearned Service Revenue ………………………….
6,500
Service Revenue ($20,600 − $14,100) ……….
6,500
31
Salary Expense ($5,600 − $4,600) …………………
1,000
Salary Payable ………………………………………..
1,000
31
Rent Expense ($2,300 − $1,600) ……………………
700
Prepaid Rent …………………………………………..
700
31
Depreciation Expense ($750 − $0) ………………..
750
Accumulated Depreciation ………………………
750
31
Income Tax Expense ($1,360 − $0) ……………….
1,360
Income Tax Payable ………………………………..
1,360
Closing Entries
31
Service Revenue …………………………………………
20,600
Retained Earnings…………………………………..
20,600
31
Retained Earnings ………………………………………
10,010
Salary Expense ………………………………………
5,600
Rent Expense …………………………………………
2,300
Depreciation Expense ……………………………..
750
Income Tax Expense ……………………………….
1,360
31
Retained Earnings ………………………………………
1,110
Dividends ……………………………………………….
1,110
(20-30 min.) E 3-37B
Req. 1
Terrell Production Company
Balance Sheet
December 31, 2014
ASSETS
Current assets:
Cash ………………………………………………………………………….
$14,450
Prepaid rent ($2,500 − $700) ………………………………………..
1,800
Total current assets ……………………………………………….
16,250
Plant assets:
Equipment ………………………………………………….
$44,000
Less accumulated depreciation
($3,500 + $750) ………………………………………..
(4,250)
39,750
Total assets ……………………………………………………………………
$56,000
LIABILITIES
Current liabilities:
Accounts payable ……………………………………………………..
$ 4,700
Salary payable ($5,600 − $4,600) …………………………………
1,000
Unearned service revenue ($9,100 − $6,500) ……………….
2,600
Income tax payable ……………………………………………………
1,360
Total current liabilities ………………………………………….
9,660
Note payable, long-term ………………………………………………….
17,000
Total liabilities ……………………………………………………………….
26,660
STOCKHOLDERS’ EQUITY
Common stock ………………………………………………………………
8,700
Retained earnings ($11,160 + $10,590* − $1,110) ………………
20,640
Total stockholders’ equity ………………………………………………
29,340
Total liabilities and stockholders’ equity ………………………….
$56,000
(continued) E 3-37B
Req. 2
Current
Year
Prior
Year
Net working
capital
=
Total current assets −
current liabilities
=
$16,250 −
$9,660
=
$6,590
$7,000
Current
ratio
=
Total current assets
=
$16,250
=
1.68
1.72
Total current liabilities
$9,660
Both net working capital and the current ratio have decreased, indicating
that the ability to pay current liabilities with current assets has
deteriorated.
(30 min.) E 3-38B
a.
Current ratio
=
$60
=
1.00
Debt ratio
=
$70 + $10
=
0.80
$50 + $10
$90 + $10
The purchase of equipment on account hurts both ratios.
$50
Collecting cash in advance hurts both ratios.
$60
Accruing an expense hurts both ratios.
e.
Current ratio
=
=
1.36
Debt ratio
=
$70
=
0.71
$50
A cash sale improves both ratios.
3-38 Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
Serial Exercise
(3 hours) E 3-39
Reqs. 1, 2, 5, and 7
Cash
Accounts Receivable
Jan. 2
11,000
Jan. 2
700
Jan. 18
1,500
Jan. 28
1,500
9
1,000
3
3,900
Bal.
0
21
2,400
12
200
Adj.
2,000
28
1,500
26
400
Bal.
2,000
31
1,200
Bal.
9,500
Supplies
Equipment
Jan. 5
400
Adj.
200
Jan. 3
3,900
Bal.
200
Bal.
3,900
Accumulated Depreciation –
Equipment
Furniture
Adj.
65
Jan. 4
4,700
Bal.
65
Bal.
4,700
Accumulated Depreciation –
Furniture
Accounts Payable
Adj.
78
Jan. 26
400
Jan. 4
4,700
Bal.
78
5
400
Bal.
4,700
(continued) E 3-39
Reqs. 1, 2, 5, and 7
Salary Payable
Unearned Service Revenue
Adj.
500
Adj.
800
Jan. 21
2,400
Bal.
500
Bal.
1,600
Common Stock
Retained Earnings
Jan. 2
11,000
Clo.
1,743
Clo.
5,300
Bal.
11,000
Clo.
1,200
Bal.
2,357
Jan. 31
Clo.
Jan. 9
1,000
18
1,500
Bal.
2,500
Adj.
2,000
Adj.
Jan. 2
700
Clo.
700
Jan. 12
Clo.
Salary Expense
Adj.
Clo.
Adj.
Clo.
3-40 Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
(continued) E 3-39
Req. 1
January 2 through 18 entries are repeated from Solution to E 2-34.
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Jan.
2
Cash ………………………………………………….
11,000
Common Stock ……………………………….
11,000
2
Rent Expense ……………………………………..
700
Cash ……………………………………………….
700
3
Equipment ………………………………………….
3,900
Cash ……………………………………………….
3,900
4
Furniture …………………………………………….
4,700
Accounts Payable …………………………...
4,700
5
Supplies …………………………………………….
400
Accounts Payable …………………………...
400
9
Cash ………………………………………………….
1,000
Service Revenue ……………………………..
1,000
12
Utilities Expense …………………………………
200
Cash ……………………………………………….
200
18
Accounts Receivable ………………………….
1,500
Service Revenue ……………………………..
1,500
21
Cash ………………………………………………….
2,400
Unearned Service Revenue ………………
2,400
21
No entry; no transaction yet
26
Accounts Payable ……………………………….
400
Cash ……………………………………………….
400
28
Cash ………………………………………………….
1,500
Accounts Receivable ……………………….
1,500
31
Dividends …………………………………………..
1,200
Cash ……………………………………………….
1,200