Purchased Supplies.
(5) Accounts Payable (–L)……………………………………………………….. 3
(6) Interest Payable (–L) …………………………………………………………. 3
Cash (–A)…………………………………………………………………….. 3
(8) Long-term Note Payable (-L) ……………………………………………… 15
Cash (–A)…………………………………………………………………….. 15
(10)Unearned Revenue (-L) ……………………………………………………… 3
Sales (R, +SE)……………………………………………………………….. 3
Rendered services.
(11)Interest Expenses (E, –SE) ………………………………………………….. 1
(12)Depreciation Expense (E, –SE) ……………………………………………. 4
(13)Supplies Expense (E, -SE) …………………………………………………… 5
Supplies (-A)………………………………………………………………… 5
Physical count of supplies.
(14)Dividends (-SE) …………………………………………………………………. 3
(15)Retained Earnings (–SE) …………………………………………………….. 3
Dividends (+SE) ……………………………………………………………. 3
Closed dividends to Retained Earnings.
(16)Sales (-SE) ……………………………………………………….……………….. 21
Wage Expense (+SE) …………………………………………………….. 5
(17)Income Summary (–SE) ……………………………………………………… 6
Retained Earnings (+SE) ………………………………………………… 6
Closed Income Summary to Retained Earnings.
Tybee Corporation
Income Statement
For the Month Ended January 31, 2015
(in millions)
Sales ………………………………………………………………………………………………….. $ 21
Supplies Expense ……………………………………………………………………………………. 5
Tybee Corporation
Statement of Stockholders’ Equity
For the Month Ended January 31, 2015
(in millions)
Common Retained
Stock Earnings
Beginning balance $ 20 $ 12
Tybee Corporation
Balance Sheet
January 31, 2015
(in millions)
Assets Liabilities and Stockholders’ Equity
Cash …………………………………. $ 12 Accounts Payable …………………… $ 1
Accounts Receivable …………….. 14 Interest Payable …………………….. 1
Tybee Corporation
Statement of Cash Flows
For the Month Ended January 31, 2015
(in millions)
Cash flows from operating activities:
Cash collections from customers ……………………………….. $ 19
Cash paid to suppliers ………………………………………………. (5)
Cash paid for interest ……………………………………………….. (3)
Cash paid for expenses ……………………………………………… (5)
Net cash increase due to operating activities ………….. $ 6
Ending cash balance ……………………………………………………… $ 12
Tybee Corporation
Statement of Cash Flows
For the Month Ended January 31, 2015
(in millions)
Net cash increase (decrease) due
to operating activities ……………………… $ 6
Cash flows from investing activities:
Cash paid for equipment …………………………………………… (5)
Net cash decrease due to investing activities ………….. (5)
P4–6
Net Operating
Accounts Direction Net Income Cash Flow
(1) Cash +
(6) Wages Payable –
(9) Cash –
Interest Expense + – –
P4–7
Classification Assets Liabilities Stockholders’ Equity Revenues Expenses
(1) A NE + – NE +
(2) C – NE – NE +
P4–8
a. Supplies Expense (E, –SE) ………………………………………………………… 55,000
Supplies Inventory (–A) …………………………………………………….. 55,000
Adjusted for supplies used.
b. Rent Expense (E, –SE) ……………………………………………………………… 2,400
Rent Payable (+L) ……………………………………………………….…….. 2,400
Accumulated Depreciation (–A) …………………………………………. 50,000
Depreciated fixed assets for 2011.
e. Interest Expense (E, –SE) ……………………………………………………….… 600
Interest Payable (+L) …………………………………………………………. 600
Incurred, but did not pay, interest.
P4–9
(1) Rent Expense (E, –SE) …………………………..…………………………………. 2,700
(2) Insurance Expense (E, –SE) ………………………………………………………. 700
(3) Depreciation Expense (E, –SE) …………………………..……………………… 2,400
(4) Salary Expense (E, –SE) ……………………………………………………………. 1,200
(5) Unearned Revenues (–L) …………………………………………………………. 200
P4–10
Case 1 Case 2 Case 3 Case 4 Case 5 Case 6
Beginning payable $ 400 $ 800 $ 400 $ X $ 200 $ X
P4–11
(2) Unearned Insurance Premium (–L)……………………………………… 70,000*
(3) The purpose of the adjusting journal entry is to recognize an economic event not captured on a
timely basis by a transaction. That is, the adjusting entry is to record the fact that Prustate fulfilled
(4) 2014 2015 2016 Total
Insurance revenue $ 70,000 $120,000 $50,000 $240,000
(2) Insurance Expense (E, –SE) ………………………………………………… 70,000
P4–11 Concluded
(3) The purpose of the adjusting journal entry is to recognize an economic event not captured on a
timely basis by a transaction. That is, the adjusting entry is to record the fact that Jacobs Printing
(4) 2014 2015 2016 Total
P4–12
(2) NE – – NE
(3) NE – – –
(7) NE NE NE NE
(8) – – – +c
__________________
P4–13
= 2.50
Debt/equity = Total liabilities ÷ Total stockholders’ equity
P4–13 Concluded
b. Financial Alternative Current Ratio Debt/Equity Ratio Book Value
2. Long-term note 2.50 .88 6.67
3. Open account 1.00 .88 6.67
c. Stock Issuance: Issuing stock is attractive because it improves the company’s debt/equity ratio. By
decreasing this ratio, the company might become more attractive to creditors in the future, thereby
allowing the company to borrow money at more favorable rates. Further, issuing stock, as opposed to
issuing debt, will not hurt future cash flows. Stock does not require mandatory interest payments, and
charges. However, the company would be placed in a severe financial bind by purchasing the
equipment on account. The $30,000 must be repaid within 30 days, and the company currently has
only $10,000 in cash. The company would have to raise an additional $20,000 either through
operations or by selling some of its assets. Either solution may not be desirable. Diverting money from
operations to pay off the obligation means that the company would not be able to plow as much of its
P4–14
Return on Current Debt/
Equity Ratio Equity
1. Purchase inventory on account. NE – +
2. Sell assets for cash at a gain. + + –
4. Make a principal payment on an
P4–15
Return on Current Debt/
Sales Ratio Equity
1. Purchase equipment for cash. NE – NE
3. Pay salaries, which have not been
5. Issue common stock to satisfy
a current obligation. NE + –
P4–16
Return on Current
Assets Ratio
2. Pay cash for marketing
its services. – –
4. Pay wages that were accrued in
a previous period + +
P4–17
a. All T-accounts for P4−17 appear in this section. Transactions are keyed to numbers in parentheses,
adjusting journal entries are keyed to lowercase letters, and closing entries are keyed to upper case
letters.
Cash Accounts Receivable Merchandise Inventory
B. B. 170,000 B. B. 188,000 B. B. 200,000
E. B. 9,000 E. B. 616,000 E. B. 320,000
Interest Receivable Notes Receivable Supplies Inventory
E. B. 1,620 E. B. 72,000 E. B. 40,000
Prepaid Insurance Prepaid Advertising Long-Term Investments
B. B. 74,000 B. B. 0 B. B. 160,000
(12) 50,000 (7) 30,000
Equipment Accum. Depr.—Equipment Machinery
Accum. Depr.—Machinery Patent Accounts Payable
B. B. 230,000 B. B. 75,000 B. B. 220,000
(6) 870,000 (2) 820,000
Wages Payable Op. Exp. Payable Interest Payable
B. B. 73,000 B. B. 0 B. B. 0
Short-Term Notes Payable Mortgage Payable Bonds Payable
B. B. 0 B. B. 300,000 B. B. 500,000
P4–17 Continued
Common Stock Retained Earnings Dividends
B. B. 500,000 B. B. 416,000 B. B. 0
(9) 120,000 (11) 50,000
Sales Interest Revenue Gain on Sale of Investment
B. B. 0 B. B. 0 B. B. 0
Cost of Goods Sold Wage Expense
B. B. 0 B. B. 0
Operating Expense Miscellaneous Op. Expense Insurance Expense
B. B. 0 B. B. 0 B. B. 0
(d) 36,000 (8) 148,000 (c) 25,000
E. B. 0 E. B. 0 E. B. 0
Supplies Expense Depr. Expense—Equipment Depr. Expense—Machinery
B. B. 0 B. B. 0 B. B. 0
Amortization Expense Interest Expense Income Summary
B. B. 0 B. B. 0
(g) 12,500 (h) 3,361
b. Entries are posted to the T-accounts in Part (a).
(1a) Cash (+A) …………………………………………………………………………. 350,000
Accounts Receivable (+A) ……………………………………………… 1,350,000
Sales (R, +SE) ………………………………………………………….. 1,700,000
P4–17 Continued
(3) Wage Expense (E, –SE) …………………………………………………. 327,000
Wages Payable (–L) ……………………………………………………… 73,000
Cash (–A) ……………………………………………………………….. 400,000
(6) Accounts Payable (–L) ………………………………………………….. 870,000
Cash (–A) ……………………………………………………………….. 870,000
(8) Miscellaneous Operating Expense (E, –SE)………………………. 148,000
Cash (–A) ……………………………………………………………….. 148,000
Incurred and paid expenses.
(11) Dividends (–SE) ………………………………………………………………… 50,000
Cash (–A) ……………………………………………………………….. 50,000
P4–17 Continued
c.
Unadjusted Trial Adjusted Trial Final Trial
Balance Adjusting Entries Balance Closing Entries Balance
Account Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 9,000 9,000 9,000
Machinery 950,000 950,000 950,000
Accum. Depr.—Mach. 230,000 (g) 47,500 277,500 277,500
Patent 75,000 (g) 12,500 62,500 62,500
Accounts Payable 170,000 170,000 170,000
Wages Payable (e) 43,000 43,000 43,000
Gain on Investment 7,000 7,000 (A) 7,000
Cost of Goods Sold 700,000 700,000 (A) 700,000
Wage Expense 327,000 (e) 43,000 370,000 (A) 370,000
Operating Exp. (d) 42,000 42,000 (A) 42,000
Miscellaneous Op.Exp. 148,000 (c&d) 61,000 87,000 (A) 87,000
P4–17 Continued
d. Entries are posted to the T–accounts in Part (a).
(a) Insurance Expense (E, –SE) ………………………………………………… 44,400
Prepaid Insurance (–A) …………………………………………………. 44,400
Adjusted for expiration of prepaid insurance.
Incurred, but did not pay, and reclassify.
* $6,000 = ($3,500 per month 12 months) – $36,000 misc. exp. payment
(e) Wage Expense (E, –SE) …………………………..…………………………. 43,000
Wages Payable (+L) ……………………………………………………… 43,000
Incurred, but did not pay, wages.