2-61 Solutions
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+1,500
–1,500
Dividend
Liabilities understated by $1,500 and shareholders’ equity overstated
by $1,500.
Solutions 2-62
2.41 continued.
f. Actual Entries:
Machinery ……………………………………………………….. 50,000
Accounts Payable …………………………………………. 50,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+50,000
+50,000
Accounts Payable …………………………………………….. 50,000
Cash ……………………………………………………………. 49,000
Miscellaneous Revenue …………………………………. 1,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–49,000
–50,000
+1,000
IncSt → RE
Maintenance Expense ………………………………………. 4,000
Cash ……………………………………………………………. 4,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–4,000
–4,000
IncSt → RE
Correct Entries:
Machinery ……………………………………………………….. 50,000
Accounts Payable …………………………………………. 50,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+50,000
+50,000
Accounts Payable …………………………………………….. 50,000
Cash ……………………………………………………………. 49,000
Machinery ……………………………………………………. 1,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–49,000
–50,000
–1,000
2-63 Solutions
2.41 f. continued.
2.42 (Prima Company; working backwards to balance sheet at beginning of the
period.)
Cash Marketable Securities
Solutions 2-64
2.42 continued.
Accounts Payable
(for Merchandise) Interest Payable
26,000 (p) 300 (p)
Taxes Payable Note Payable
Accumulated Depreciation Common Stock
Retained Earnings Sales
Interest Expense
(15) 1,200 1,200 (16c)
2-65 Solutions
2.42 continued.
Transactions spreadsheet.
Balance Sheet
Accounts
Transactions, By Number and Description
Balance:
Begin-
ning of
Period
Recog.
Sales
Rev.
Acct.
Rec.
Collected
Recog.
Pur. Of
Merchn.
Recog.
COGS
Recog.
Cash
Pay. To
Supp.
Recog.
Depre.
Exp.
Recog.
Tax Exp.
Recog.
Tax Paid
Recog.
Prepay.
Made
Recog.
Oper.
Exp.
Recog.
Int. Exp.
Recog.
Int. Paid
Recog.
Div. Dec.
and Paid
Record
Mkt.
Sec. Pur.
Balance:
End of
2008
1
2
3
4
5
6
7
8
9
10
11
12
13
14
ASSETS
Current Assets:
Cash
11,700
47,000
150,000
-128,000
-7,500
-49,000
-1,200
-5,000
-8,000
10,000
Marketable Securities
12,000
8,000
20,000
Accounts Receivable
22,000
153,000
-150,000
25,000
Merchandise Inventory
33,000
127,000
-130,000
30,000
Prepayments for
Miscellaneous Ser.
1,700
49,000
-47,700
3,000
Total Current Assets
80,400
88,000
Noncurrent Assets:
Land, Building, & Equip.
40,000
40,000
Accumulated
Depreciation
-12,000
-4,000
(16,000)
Total Noncurrent
Assets
28,000
24,000
Total Assets
108,400
112,000
LIABILITIES AND SHARE-
HOLDERS’ EQUITY
Current Liabilities:
Accounts Payable
26,000
127,000
-128,000
25,000
Interest Payable
300
1,200
-1,200
300
Taxes Payable
3,500
8,000
-7,500
4,000
Total Current Liabilities
29,800
29,300
Noncurrent Liabilities:
Note Payable
20,000
20,000
Total Noncurrent
Liabilities
20,000
20,000
Total Liabilities
49,800
49,300
Shareholders’ Equity:
Common Stock
50,000
50,000
Retained Earnings
8,600
200,000
-130,000
-4,000
-8,000
-47,700
-1,200
-5,000
12,700
Total Shareholders’
Equity
58,600
62,700
Total Liabilities and
Shareholders’ Equity
108,400
112,000
Imbalance, if Any
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Income Statement
Accounts
Sales
Rev.
COGS
Depre.
Exp.
Tax Exp.
Ot. Op.
Exp.
Int. Exp.
Solutions 2-66
2.42 continued.
PRIMA COMPANY
Balance Sheet
As of December 31, 2007
Assets
Cash ……………………………………………………………. $ 11,700
Marketable Securities ………………………………….. 12,000
2.43 (The Secunda Company; working backwards to cash receipts and
disbursements.)
2-67 Solutions
Solutions 2-68
2.43 continued.
Land, Buildings, and
Equipment Cost of Goods Sold
Interest Expense Other Operating Expenses
Bal. 0 Bal. 0
Accumulated Depreciation Interest Payable
Accounts Payable Mortgage Payable
30,000 Bal. 20,000 Bal.
(10p) 81,000 26,000 (6) (11p) 3,000
Common Stock Retained Earnings
Sales
0 Bal.
2-69 Solutions
Solutions 2-70
2.43 continued.
SECUNDA COMPANY
Cash Receipts and Disbursements Schedule
Disbursements:
Suppliers of Merchandise and Other Ser-
2-71 Solutions
2.43 continued.
Transactions spreadsheet.
Balance Sheet
Accounts
Transactions, By Number and Description
Balance:
Begin-
ning of
Period
Recog.
Sales on
Acct.
Cash
Collect.
From
Cus.
Recog.
COGS
Pur. Of
Mer. On
Acct.
Cash
Pay. For
Merchn.
Recog.
Int. Exp.
Int. Paid
Recog.
Depre.
Exp.
Recog.
Of Oper.
Exp.
Cash
Paid for
Prepay.
Recog.
Mort.
Paid
Recog.
Div. Dec.
& Paid
Check on
Ending
Bal. Sheet
Amts.
Balance:
End of
2008
1
2
3
4
5
6
7
8
8
9
10
11
12
ASSETS
Current Assets:
Cash
20,000
85,000
-55,000
-2,000
-26,000
-3,000
-10,000
9,000
9,000
Accounts Receivable
36,000
100,000
-85,000
51,000
51,000
Merchandise Inventory
45,000
-50,000
65,000
60,000
60,000
Prepayments
2,000
-27,000
26,000
1,000
1,000
Total Current Assets
103,000
121,000
121,000
Noncurrent Assets:
Land, Buildings, &
Equip.
40,000
40,000
40,000
Accumulated
Depreciation
-16,000
-2,000
-18,000
(18,000)
Total Noncurrent
Assets
24,000
22,000
22,000
Total Assets
127,000
143,000
143,000
LIABILITIES AND SHARE-
HOLDERS’ EQUITY
Current Liabilities:
Interest Payable
1,000
3,000
-2,000
2,000
2,000
Accounts Payable
30,000
65,000
-55,000
40,000
40,000
Total Current Liabilities
31,000
42,000
42,000
Noncurrent Liabilities:
Mortgage Payable
20,000
-3,000
17,000
17,000
Total Noncurrent
Liabilities
20,000
17,000
17,000
Total Liabilities
51,000
59,000
59,000
Shareholders’ Equity:
Common Stock
50,000
50,000
50,000
Retained Earnings
26,000
100,000
-50,000
-3,000
-2,000
-27,000
-10,000
34,000
34,000
Total Shareholders’
Equity
76,000
84,000
84,000
Total Liabilities and
Shareholders’ Equity
127,000
143,000
143,000
Imbalance, if Any
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Income Statement
Accounts
Sales
Rev.
COGS
Int. Exp.
Ot. Oper.
Exp.
Ot. Oper.
Exp.
Solutions 2-72
2.44 (Tertia Company; working backwards to income statements.)
A T-account method for deriving the solution appears below and on the
following page. Transactions (1)—(9) correspond to the numbered cash
transactions information. In Transactions (10)—(25), “p” indicates that the
figure was derived by a “plug” and “c” indicates a closing entry. The final
check is that the debit to close Income Summary in Transaction (25)
matches the plug in the Retained Earnings account.
Accounts and
Cash Notes Receivable
Bal. 40,000 Bal. 36,000
(1) 144,000 114,000 (4) (10p) 149,000 144,000 (1)
Merchandise Inventory Interest Receivable
Building, Machinery,
Prepaid Miscellaneous Services and Equipment
Bal. 4,000 Bal. 47,000
Accounts Payable Accounts Payable
(Miscellaneous Services) (Merchandise)
Property Tax Payable Accumulated Depreciation
2-73 Solutions
1,500 Bal. 12,000 Bal.
Solutions 2-74
2.44 continued.
Mortgage Payable Common Stock
2-75 Solutions
2.44 continued.
Transactions spreadsheet.
Balance Sheet
Accounts
Transactions, By Number and Description
Balance:
Begin-
ning of
Period
Collect.
From
Credit
Cust.
Recog.
Sales
Rev.
Collect.
Of
Interest
Recog.
Int. Rev.
Pay. To
Sup. Of
Merchn.
Pur. Of
Merchn.
Recog.
COGS
Repay.
Of Mort.
Pay. Of
Int.
Pay. For
Misc.
Ser.
Acq. Of
Misc.
Ser.
Pay. For
Prop.
Taxes
Recog.
Prop. Tax
Exp.
Dec.
and
Pay.
Div.
Recog.
Depre.
Exp.
Check on
Ending
Bal. Sheet
Amts.
Balance:
End of
2008
1
2
3a
3b
4
5
6
7
8
9
10
11
12
13
14
15
ASSETS
Current Assets:
Cash
40,000
144,000
63,000
1,000
-114,000
-5,000
–500
-57,500
-1,200
-2,000
67,800
67,800
Accounts & Notes Rec.
36,000
-144,000
149,000
41,000
41,000
Merchandise Inventory
55,000
121,000
-126,500
49,500
49,500
Interest Receivable
1,000
-1,000
700
700
700
Prepaid Misc. Services
4,000
1,200
5,200
5,200
Total Current Assets
136,000
164,200
164,200
Noncurrent Assets:
Bldg., Mach., &
Equipment
47,000
47,000
47,000
Accumulated
Depreciation
-10,000
-2,000
-12,000
(12,000)
Total Noncurrent
Assets
37,000
35,000
35,000
Total Assets
173,000
199,200
199,200
LIABILITIES AND SHARE-
HOLDERS’ EQUITY
Current Liabilities:
Accounts Pay.
(miscellaneous ser.)
2,000
-56,300
56,800
2,500
2,500
Accounts Pay.
(mer. pur.)
34,000
-114,000
121,000
41,000
41,000
Property Taxes Payable
1,000
-1,200
1,700
1,500
1,500
Total Current Liabilities
37,000
45,000
45,000
Noncurrent Liabilities:
Mortgage Payable
35,000
-5,000
30,000
30,000
Total Noncurrent
Liabilities
35,000
30,000
30,000
Total Liabilities
72,000
75,000
75,000
Shareholders’ Equity:
Common Stock
25,000
25,000
25,000
Retained Earnings
76,000
212,000
700
-126,500
–500
-56,800
-1,700
-2,000
-2,000
99,200
99,200
Total Shareholders’
Equity
101,000
124,200
Total Liabilities and
Shareholders’ Equity
173,000
199,200
Imbalance, if Any
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Income Statement
Accounts
Sales
Rev.
Int. Rev.
COGS
Int.
Exp.
Mis. Ser.
Exp.
Prop. Tax
Exp.
Depre.
Exp.
Solutions 2-76
2.44 continued.
TERTIA COMPANY
Statement of Income and Retained Earnings for 2008
2.45 (Preparing adjusting entries.)
a. The Prepaid Rent account on the year-end balance sheet should
2-77 Solutions
Solutions 2-78
2.45 b. continued.
Prepaid Rent …………………………………………………… 4,000
Rent Expense ………………………………………………. 4,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+4,000
+4,000
IncSt → RE
To increase the balance in the Prepaid Rent account,
reducing the amount in the Rent Expense account.
c. The Prepaid Rent account on the balance sheet at the end of 2008
should represent two months of prepayments. The rent per month is
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–14,000
–14,000
IncSt → RE
To decrease the balance in the Prepaid Rent account,
increasing the amount in the Rent Expense account.
The Rent Expense account will have a balance at the end of 2008
before closing entries of $32,000 (= $18,000 + $14,000). This amount
comprises $20,000 (= $2,500 X 8) for rent from January through August
and $12,000 (= $3,000 X 4) for rent from September through December.
d. The Wages Payable account should have a credit balance of $4,000 at
2-79 Solutions
2.45 d. continued.
Wages Payable ………………………………………………… 1,000
e. The Prepaid Insurance account balance of $3,000 represents four
f. The Advances from Tenants account has a balance of $25,000 carried
over from the start of the year. At the end of 2007, it should have a
Solutions 2-80
2.45 continued.