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E4.6.
(continued)
Month-end totals: Assets $25,350 = Liabilities $15,800 + Stockholders' Equity $9,550
Net income (loss) for the month: Revenues $16,250 - Expenses $12,700 = Net Income $3,550
* Ordinarily, the Wages Payable account would be increased for employee wage expense that has been
incurred but not yet paid.
Optional Continuation:
CARDINAL MOWING SERVICES, INC.
Income Statement
Service revenue ......... ........... ........... ........... ........... ........... ........... $16,250
Gasoline, oil, and trash bags (i.e, cost of services provided) ........... (1,700)
CARDINAL MOWING SERVICES, INC.
Balance Sheet
Assets:
Cash .. ........... ........... ........... ........... ........... ........... ........... ........... $ 9,800
Accounts receivable .. ........... ........... ........... ........... ........... ........... 6,350
Supplies ......... ........... ........... ........... ........... ........... ........... ........... 300
Total current assets .... ........... ........... ........... ........... ........... ........... $16,450
Stockholders’ Equity:
Paid-in Capital ........... ........... ........... ........... ........... ........... ........... $ 6,000
Retained earnings * ... ........... ........... ........... ........... ........... ........... 3,550
E4.7.
a.
b.
Dr. Cash ...... ........... ........... ........... ........... ........... ........... ........... 16,000
Cr. Paid-In Capital ....... ........... ........... ........... ........... ........... 16,000
Dr. Cash ...... ........... ........... ........... ........... ........... ........... ........... 10,000
Cr. Note Payable .......... ........... ........... ........... ........... ........... 10,000
Cr. Merchandise Inventory....... ........... ........... ........... ........... 8,000
g.
Dr. Advertising Expense ..... ........... ........... ........... ........... ........... 200
Cr. Accounts Payable ... ........... ........... ........... ........... ........... 200
h.
Dr. Merchandise Inventory . ........... ........... ........... ........... ........... 8,400
Cr. Cash ........... ........... ........... ........... ........... ........... ........... 2,400
E4.8.
a.
Dr. Cash ...... ........... ........... ........... ........... ........... ........... ........... 6,000
Cr. Paid-in Capital ....... ........... ........... ........... ........... ........... 6,000
b.
Dr. Cash ...... ........... ........... ........... ........... ........... ........... ........... 9,000
Cr. Note Payable ......... ........... ........... ........... ........... ........... 9,000
c.
Dr. Equipment ......... ........... ........... ........... ........... ........... ........... 8,900
Cr. Cash ........... ........... ........... ........... ........... ........... ........... 8,900
d.
Dr. Supplies . ........... ........... ........... ........... ........... ........... ........... 900
Cr. Cash ........... ........... ........... ........... ........... ........... ........... 900
e.
Dr. Advertising Expense ..... ........... ........... ........... ........... ........... 1,700
Cr. Accounts Payable ... ........... ........... ........... ........... ........... 1,700
f.
Dr. Cash ...... ........... ........... ........... ........... ........... ........... ........... 4,650
Dr. Accounts Receivable ..... ........... ........... ........... ........... ........... 2,400
Cr. Service Revenue ..... ........... ........... ........... ........... ........... 7,050
E4.9.
a.
b.
Transaction/Adjustment A = L + SE Net Income
Example transaction…………………… Supplies Supplies Exp
-2,800 -2,800
Paid an insurance premium of $960 Prepaid
for the coming year. An asset, prepaid Insurance
insurance, was debited………………… +960
h.
-4,200
Purchased $1,200 of merchandise Merch Accounts
inventory from a supplier on account….. Inventory Payable
-1,000 -1,000
Instructor’s Manual / Solutions Manual
E4.9.
(continued)
Journal entries:
a.
Dr. Supplies Expense ........... ........... ........... ........... ........... ........... 2,800
Cr. Supplies ....... ........... ........... ........... ........... ........... ……… 2,800
b.
Dr. Prepaid Insurance ........... ........... ........... ........... ........... ……… 960
Cr. Cash .. ........... ........... ........... ........... ........... ........... ……… 960
E4.10.
a.
b.
f.
Transaction/Adjustment A = L + SE Net Income
Example transaction…………….. Supplies Supplies Exp
+1,400 +1,400
During the month, the board of Dividends Retained
was received, and the balance is Acc. Rec. +44,400
due in 30 days .. ............ ............ +25,800
Newspaper ad costing $2,400 ran Accounts Advertising
this month, but will not be paid Payable Expense
for until next month ...... ............ +2,400 -2,400
E4.10.
(continued)
j.
Transaction/Adjustment A = L + SE Net Income
Issued 2,400 shares of $10 par value Cash Common
common stock for $52,800 in cash. +52,800 Stock
+52,800 *
The point to emphasize at this early stage is the difference between the paid-in capital and
retained earnings components of stockholders’ equity.
Journal entries:
a.
Dr. Supplies . ........... ........... ........... ........... ........... ........... ……… 1,400
Cr. Supplies Expense .... ........... ........... ........... ........... ........... 1,400
b.
Dr. Retained Earnings ......... ........... ........... ........... ........... ........... 28,800
E4.10.
(continued)
g.
Dr. Cash ....... ........... ........... ........... ........... ........... ........... ........... 6,600
Dr. Accounts Receivable ...... ........... ........... ........... ........... ........... 11,000
Cr. Sales ........... ........... ........... ........... ........... ........... ……… 17,600
Dr. Cost of Goods Sold ........ ........... ........... ........... ........... ........... 9,300
Alternative solution: The “Additional Paid-In Capital” account has not been introduced
in Chapter 4 (our attempt to keep it as simple as possible), but this is an opportunity to
discuss the concept for instructors who are so inclined:
E4.11.
a.
b.
g.
Transaction/Adjustment A = L + SE Net Income
Example transaction...... ............ ............ . +1,100 +1,100
Paid an insurance premium of
$720 for the coming year. An asset, -720
Received cash of $3,000 on accounts +3,000
receivable accrued in prior month .......... -3,000
Journal entries:
a.
Dr. Accounts Receivable ...... ........... ........... ........... ........... ........... 1,100
Cr. Service Revenue ..... ........... ........... ........... ........... ........... 1,100
E4.12.
a.
b.
c.
Transaction/Adjustment A = L + SE Net Income
Example transaction .. ........... ……… +700 +700
During the month supplies was
debited $2,600 for supplies purchased.
The total cost of supplies actually used
during the month was $1,900 ........... -1,900 -1,900
Received $1,700 of cash from clients
for services provided during the
current month ........... ........... ........... +1,700 +1,700
