(continued) E 3-39
Reqs. 3 and 4
Sean Huffman, Certified Public Accountant, P.C.
Adjusted Trial Balance
January 31, 2014
TRIAL BALANCE
ADJUSTMENTS
ADJUSTED TRIAL BALANCE
ACCOUNT TITLE
DEBIT
CREDIT
DEBIT
CREDIT
DEBIT
CREDIT
Cash
9,500
9,500
Accounts receivable
—
(a) 2,000
2,000
Supplies
400
(c) 200
200
Equipment
3,900
3,900
Accumulated depr. – equip.
—
(d1) 65
65
Furniture
4,700
4,700
Accumulated depr. – furn.
—
(d2) 78
78
Accounts payable
4,700
4,700
Salary payable
—
(e) 500
500
Unearned service revenue
2,400
(b) 800
1,600
Common stock
11,000
11,000
Retained earnings
—
—
Dividends
1,200
1,200
Service revenue
2,500
(a)2,000
5,300
(b) 800
Rent expense
700
700
Utilities expense
200
200
Salary expense
(e) 500
500
Depreciation expense – equip.
(d1) 65
65
Depreciation expense – furn.
(d2) 78
78
Supplies expense
(c) 200
200
20,600
20,600
3,643
3,643
23,243
23,243
(continued) E 3-39
Req. 5
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Adjusting Entries
(a) Jan.
31
Accounts Receivable …………………………...
2,000
Service Revenue ……………………………….
2,000
(b)
31
Unearned Service Revenue …………………..
800
Service Revenue ……………………………….
800
(c)
31
Supplies Expense ($400 − $200) ……………
200
Supplies ……………………………………………
200
(d1)
31
Depreciation Expense – Equipment ……….
65
Accumulated Depreciation – Equip. ……
65
(d2)
31
Depreciation Expense – Furniture …………
78
Accumulated Depreciation – Furn ………
78
(e)
31
Salary Expense …………………………………….
500
Salary Payable …………………………………..
500
(continued) E 3-39
Req. 6
Sean Huffman, Certified Public Accountant, P.C.
Income Statement
Month Ended January 31, 2014
Revenues:
Service revenue ……………………………….
$5,300
Expenses:
Rent expense ……………………………………
$700
Salary expense …………………………………
500
Supplies expense …………………………..…
200
Utilities expense ……………………………….
200
Depreciation expense – furniture ……….
78
Depreciation expense – equipment ……
65
Total expenses ………………………………
1,743
Net income ……………………………………………
$3,557
Sean Huffman, Certified Public Accountant, P.C.
Statement of Retained Earnings
Month Ended January 31, 2014
Retained earnings, January 1, 2014 ………………
$ 0
Add: Net income …………………………………………
3,557
Subtotal
3,557
Less: Dividends declared …………………………….
(1,200)
Retained earnings, January 31, 2014 …………….
$ 2,357
(continued) E 3-39
Req. 6
Sean Huffman, Certified Public Accountant, P.C.
Balance Sheet
January 31, 2014
ASSETS
LIABILITIES
Current assets:
Current liabilities:
Cash
$ 9,500
Accounts payable
$ 4,700
Accounts receivable
2,000
Salary payable
500
Supplies
200
Unearned service
Total current assets
11,700
revenue
1,600
Plant assets:
Total current liabilities
6,800
Equipment $3,900
Less: accum.
STOCKHOLDERS’ EQUITY
depr. (65)
3,835
Common stock
11,000
Retained earnings
2,357
Furniture $4,700
Less: accum.
Total stockholders’
equity
13,357
depr. (78)
4,622
Total liabilities and
______
Total assets
$20,157
stockholders’ equity
$20,157
(continued) E 3-39
Req. 7
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Closing Entries
Jan.
31
Service Revenue ………………………………………
5,300
Retained Earnings ………………………………..
5,300
31
Retained Earnings ……………………………………
1,743
Rent Expense ………………………………………
700
Utilities Expense ………………………………….
200
Salary Expense …………………………………….
500
Depreciation Expense – Equipment ……….
65
Depreciation Expense – Furniture …………
78
Supplies Expense ………………………………..
200
31
Retained Earnings ……………………………………
1,200
Dividends …………………………………………….
1,200
(continued) E 3-39
Req. 8
Net working
capital
=
Total current assets –
current liabilities
=
$11,700 –
$6,800
=
$4,900
Current ratio
=
Total current assets
=
$11,700
=
1.72
Total current liabilities
$6,800
Debt ratio
=
Total liabilities
=
$6,800
=
0.34
Total assets
$20,157
The company has an excess of current assets over its current liabilities.
Quiz
Q3–40
a
Q3–41
d
Q3–42
b
Q3–43
c
Q3–44
c
Q3–45
d
Q3–46
a
Q3–47
b
Q3–48
c
($6,000 × 9/12 = $4,500)
Q3–49
b
($5,000 + $26,100 − $15,000 = revenue of $16,100)
Q3–50
a
Q3–51
d
Q3–52
a
Q3–53
c
Q3–54
b
Current ratio
=
$29,700 / $25,100
=
1.183
Debt ratio
=
$25,100 + $113,000
=
.633
$29,700 + $188,500
Q3–55
$10,485
($10,500 − $610 − $125 + $920 − $200)
Q3–56
c
Salary Payable
Beg. bal.
20,000
Payment
150,000
Salary exp.
136,000
End. bal.
6,000
Problems
(20-30 min.) P 3-57A
Req. 1
Ruiz Consulting
Amount of Revenue (Expense) for October
Date
Cash Basis Accrual Basis
Oct.
1
Expense
$(2,000)
$ 0
4
Expense
(8,000)
0
5
Revenue
1,700
1,700
8
Expense
(700)
(700)
11
Revenue
0
6,400
19
0
0
24
Revenue
6,400
0
26
Expense
(2,000)
0
29
Expense
(1,500)
(1,500)
31
Expense
0
$2,000 ÷ 3 =
(667)
31
Revenue
0
1,000
31
Expense
0
(208)
Req. 2
Income (loss) before tax
$ (6,100)
$6,025
(continued) P 3-57A
Req. 3
The accrual-basis measure of net income is preferable because it accounts
for revenues and expenses when they occur, not when they are received or
paid in cash. For example, on October 11, the company earned $6,400 of
(10-20 min.) P 3-58A
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Dec.
31
a. Insurance Expense ………………………….
5,100*
Prepaid Insurance ………………………..
5,100
To record insurance expense.
31
b. Salary Expense ($5,800 × 3/5) …………..
3,480
Salary Payable ……………………………..
3,480
To accrue salary expense.
31
c. Interest Receivable ………………………….
600
Interest Revenue ………………………….
600
To accrue interest revenue.
31
d. Supplies Expense …………………………...
7,200**
Supplies ………………………………………
7,200
To record supplies expense.
31
e. Unearned Service Revenue
($10,200 × 80%) ……………………………….
8,160
Service Revenue ………………………….
8,160
To record revenue collected in advance.
31
f. Depreciation Expense – Office
Furniture ……………………………………..
3,200
Depreciation Expense – Equipment……
5,300
Accumulated Depreciation –
Office Furniture ……………………….
3,200
Accumulated Depreciation –
Equipment ………………………………
5,300
To record depreciation expense.
_____
* $2,100 + $4,800 − $1,800 = $5,100
** $3,200 + $6,100 − $2,100 = $7,200
(45-60 min.) P 3-59A
Req. 1
WOW, Inc.
Adjusted Trial Balance
July 31, 2014
TRIAL BALANCE
ADJUSTMENTS
ADJUSTED TRIAL BALANCE
ACCOUNT TITLE
DEBIT
CREDIT
DEBIT
CREDIT
DEBIT
CREDIT
Cash
9,500
9,500
Accounts receivable
1,600
(a) 3,950
5,550
Prepaid rent
3,000
(b) 1,000*
2,000
Supplies
2,100
(c) 1,630
470
Furniture
90,000
90,000
Accumulated depreciation
3,000
(d) 1,500**
4,500
Accounts payable
3,200
3,200
Salary payable
(e) 9,000***
9,000
Common stock
14,000
14,000
Retained earnings
76,060
76,060
Dividends
3,900
3,900
Service revenue
17,700
(a) 3,950
21,650
Salary expense
3,400
(e) 9,000***
12,400
Rent expense
(b) 1,000*
1,000
Utilities expense
460
460
Depreciation expense
(d) 1,500**
1,500
Supplies expense
(c) 1,630
______
1,630
113,960
113,960
17,080
17,080
128,410
128,410
_____
* $3,000 ÷ 3 = $1,000
** $90,000 ÷ 5 = $18,000 ÷ 12 = $1,500
*** $15,000 × 3/5 = $9,000
(continued) P 3-59A
Req. 2
WOW, Inc.
Income Statement
Month Ended July 31, 2014
Revenues:
Service revenue
$21,650
Expenses:
Salary expense
$12,400
Supplies expense
1,630
Depreciation expense
1,500
Rent expense
1,000
Utilities expense
460
Total expenses
16,990
Net income
$ 4,660
WOW, Inc.
Statement of Retained Earnings
Month Ended July 31, 2014
Retained earnings, July 1, 2014
$76,060
Add: Net income
4,660
Subtotal
80,720
Less: Dividends declared
(3,900)
Retained earnings, July 31, 2014
$76,820
(continued) P 3-59A
Req. 2 (continued)
WOW, Inc.
Balance Sheet
July 31, 2014
ASSETS
LIABILITIES
Current assets:
Current liabilities:
Cash
$ 9,500
Accounts payable
$ 3,200
Accounts receivable
5,550
Salary payable
9,000
Prepaid rent
2,000
Total current liabilities
12,200
Supplies
470
Total current assets
17,520
Furniture $90,000
STOCKHOLDERS’ EQUITY
Less: Accum.
Common stock
14,000
deprec. (4,500)
85,500
Retained earnings
76,820
Total stockholders’ equity
90,820
Total liabilities and
Total assets
$103,020
stockholders’ equity
$103,020
(10-20 min.) P 3-60A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
June
30
Accounts Receivable ($6,830 − $6,200) …………….
630
Rental Revenue …………………………………………..
630
To accrue rental revenue.
30
Interest Receivable ($500 − $0) ………………………..
500
Interest Revenue ($1,300 − $800) ………………….
500
To accrue interest revenue.
30
Supplies Expense ($300 − $0) ………………………….
300
Supplies ($1,200 − $900) ……………………………..
300
To record supplies expense.
30
Insurance Expense ($1,400 − $0) ……………………..
1,400
Prepaid Insurance ($2,400 − $1,000) …………….
1,400
To record insurance expense.
30
Depreciation Expense ($1,900 − $0) …………………
1,900
Accumulated Depreciation
($11,000 − $9,100) ……………………………………
1,900
To record depreciation expense.
30
Wage Expense ($2,450 − $1,600)………………………
850
Wages Payable ($850 − $0) ………………………….
850
To accrue wage expense.
30
Unearned Rental Revenue ($1,700 − $1,280) ……..
420
Rental Revenue ($20,750 − $19,700 − $630) …..
420
To record revenue that was collected in advance.
(continued) P 3-60A
Req. 2
Total assets
=
$79,630 ($7,500 + $6,830 + $500 + $3,800 +
$900 + $1,000 + $70,100 − $11,000)
Total liabilities
=
$8,930 ($6,800 + $850 + $1,280)
Net income
=
$15,300 ($20,750 + $1,300 − $1,900 − $300 −
$100 − $2,450 − $600 − $1,400)
Total equity
=
$70,700 ($79,630 − $8,930) or ($19,000 +
$40,200 + $15,300 − $3,800)
(20-30 min.) P 3-61A
Req. 1
Griffith Corporation
Income Statement
Year Ended March 31, 2014
Revenues:
Service revenue
$105,500
Expenses:
Salary expense
$49,800
Rent expense
10,700
Insurance expense
4,000
Interest expense
2,700
Supplies expense
2,400
Depreciation expense
1,300
70,900
Income before tax
34,600
Income tax expense
7,000
Net income
$ 27,600
Griffith Corporation
Statement of Retained Earnings
Year Ended March 31, 2014
Retained earnings, March 31, 2013
$ 2,900
Add: Net income
27,600
Subtotal
30,500
Less: Dividends declared
(9,000)
Retained earnings, March 31, 2014
$21,500
(continued) P 3-61A
Req. 1 (continued)
Griffith Corporation
Balance Sheet
March 31, 2014
ASSETS
LIABILITIES
Cash
$ 12,400
Accounts payable
$ 9,100
Accounts receivable
18,800
Interest payable
700
Supplies
2,600
Unearned service revenue
800
Prepaid rent
1,700
Income tax payable
2,400
Note payable
18,400
Equipment
$36,000
Total liabilities
31,400
Less: Accum.
deprec.
(5,600)
30,400
STOCKHOLDERS’ EQUITY
Common stock
13,000
Retained earnings
21,500
Total stockholders’ equity
34,500
Total liabilities and
Total assets
$65,900
stockholders’ equity
$65,900
Req. 2
$65,900
(20 min.) P 3-62A
Req. 1
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Closing Entries
Jan.
31
Service Revenue ………………………………
95,300
Retained Earnings ………………………..
95,300
31
Retained Earnings …………………………...
44,500
Advertising Expense …………………….
11,300
Depreciation Expense …………………..
1,000
Interest Expense …………………………..
300
Salary Expense …………………………….
26,900
Supplies Expense …………………………
5,000
31
Retained Earnings …………………………...
12,500
Dividends …………………………………….
12,500
Req. 2
Retained Earnings
Jan. 31, 2014 Expenses
44,500
Jan. 31, 2013 Bal.
13,800
Jan. 31, 2014 Dividends
12,500
Jan. 31, 2014 Revenues
95,300
Jan. 31, 2014 Bal.
52,100
Net income = $50,800 ($95,300 − $44,500)
Req. 3
Retained Earnings increased during the year because net income of
$50,800 exceeded dividends of $12,500.
(25-40 min.) P 3-63A
Req. 1
Red River Services, Inc.
Balance Sheet
January 31, 2014
ASSETS
Current assets:
Cash
$ 17,200
Accounts receivable
16,600
Prepaid expenses
5,000
Supplies
4,700
Total current assets
43,500
Plant assets:
Equipment
$52,500
Less: Accumulated depreciation
(6,700)
45,800
Other assets
10,100
Total assets
$99,400
LIABILITIES
Current liabilities:
Current portion of note payable
$ 2,000
Accounts payable
12,600
Salary payable
2,500
Unearned service revenue
3,700
Total current liabilities
20,800
Note payable, long-term
15,700
Total liabilities
36,500
STOCKHOLDERS’ EQUITY
Common stock
10,800
Retained earnings
52,100*
Total stockholders’ equity
62,900
Total liabilities and stockholders’ equity
$99,400
*See next page
(continued) P 3-63A
Req. 1 (continued)
OR
*Retained earnings, January 31, 2013 ………………………….
$13,800
Add: Net income ($95,300 − $11,300 − $1,000 −
$300 − $26,900 − $5,000) ………………………………….
50,800
Subtotal
64,600
Less: Dividends declared …………………………………………
(12,500)
Retained earnings, January 31, 2014 …………………………
$52,100
Req. 2
2014 2013
Net working
capital
=
Total current assets –
current liabilities
$43,500 –
$20,800
=
$22,700 $21,800
Current ratio
=
Total current assets
=
$43,500
=
2.09
1.90
Total current liabilities
$20,800
2014.
2014 2013
Debt ratio
=
Total liabilities
=
$36,500
=
0.37
0.32
Total assets
$99,400