(continued) E 3-41
Req. 1
August 2 through 18 entries are repeated from Solution to E 2-39.
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Aug.
2
Cash ………………………………………………….
10,000
Common Stock ……………………………….
10,000
2
Rent Expense …………………………………….
600
Cash ………………………………………………
600
3
Equipment …………………………………………
2,700
Cash ………………………………………………
2,700
4
Furniture ……………………………………………
4,500
Accounts Payable …………………………..
4,500
5
Supplies …………………………………………….
800
Accounts Payable …………………………..
800
9
Cash ………………………………………………….
12
Utilities Expense ………………………………..
300
Cash ………………………………………………
300
18
Accounts Receivable ………………………….
1,900
Service Revenue ……………………………..
1,900
21
Cash ………………………………………………….
2,700
Unearned Service Revenue ……………..
2,700
21
No entry; no transaction yet
26
Accounts Payable ………………………………
800
Cash ………………………………………………
28
Cash ………………………………………………….
1,900
Accounts Receivable ………………………
1,900
31
Dividends …………………………………………..
1,400
Cash ………………………………………………
1,400
(continued) E 3-41
Reqs. 3 and 4
Barbara Miracle, Certified Public Accountant, P.C.
Trial Balance Worksheet
August 31, 2016
TRIAL BALANCE
ADJUSTMENTS
ADJUSTED TRIAL BALANCE
ACCOUNT TITLE
DEBIT
CREDIT
DEBIT
CREDIT
DEBIT
CREDIT
Cash
10,200
10,200
Accounts receivable
—
(a) 1,800
1,800
Supplies
800
(c) 400
400
Equipment
2,700
2,700
—
4,500
4,500
—
Accounts payable
4,500
4,500
Salary payable
—
(e) 600
600
Unearned service revenue
2,700
(b) 900
1,800
Common stock
10,000
10,000
Retained earnings
—
—
Dividends
1,400
1,400
Service revenue
3,300
(a)1,800
6,000
(b) 900
Rent expense
600
600
300
300
Salary expense
600
Supplies expense
(c) 400
20,500
23,020
(continued) E 3-41
Req. 5
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Adjusting Entries
(a) Aug.
31
Accounts Receivable …………………………….
1,800
Service Revenue ………………………………..
1,800
(b)
Unearned Service Revenue ……………………
900
Service Revenue ………………………………..
900
(c)
31
400
Supplies ……………………………………………
400
(d1)
31
Depreciation Expense – Equipment ……….
45
(d2)
31
Depreciation Expense – Furniture ………….
75
Accumulated Depreciation – Furn. ………
75
(e)
31
Salary Expense …………………………………….
600
Salary Payable …………………………………..
600
(continued) E 3-41
Req. 6
Barbara Miracle, Certified Public Accountant, P.C.
Income Statement
Month Ended August 31, 2016
Revenues:
Service revenue ………………………………..
$6,000
Expenses:
Rent expense ……………………………………
$600
Salary expense …………………………………
Supplies expense ……………………………..
Utilities expense ……………………………….
Depreciation expense – furniture ……….
75
Depreciation expense – equipment …….
45
Total expenses ………………………………
2,020
Net income…………………………………………….
$3,980
Barbara Miracle, Certified Public Accountant, P.C.
Statement of Retained Earnings
Month Ended August 31, 2016
Retained earnings, August 1, 2016 ………………..
$ 0
Add: Net income ………………………………………….
3,980
Subtotal
3,980
Less: Dividends declared ……………………………..
Retained earnings, August 31, 2016 ………………
(continued) E 3-41
Req. 6
Barbara Miracle, Certified Public Accountant, P.C.
Balance Sheet
August 31, 2016
ASSETS
LIABILITIES
Current assets:
Current liabilities:
Cash
$10,200
Accounts payable
$ 4,500
Accounts receivable
1,800
Salary payable
600
Supplies
400
Unearned service
Total current assets
12,400
Revenue
1,800
Plant assets:
Total current liabilities
6,900
Equipment $2,700
Less: accum.
STOCKHOLDERS’ EQUITY
depr. (45)
2,655
Common stock
Retained earnings
depr. (75)
4,425
Total liabilities and
Total assets
stockholders’ equity
(continued) E 3-41
Req. 7
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Closing Entries
Aug.
31
Service Revenue ……………………………………..
6,000
Retained Earnings ……………………………….
6,000
Rent Expense ………………………………………
Utilities Expense ………………………………….
Salary Expense ……………………………………
Supplies Expense ………………………………..
31
Retained Earnings ……………………………………
1,400
Dividends ……………………………………………
1,400
(continued) E 3-41
Req. 8
Net working
capital
=
Total current assets –
current liabilities
=
$12,400 –
$6,900
=
$5,500
The company has an excess of current assets over its current liabilities.
The current and debt ratios indicate an excellent financial position. The
business has $1.80 in current assets for every $1.00 of current liabilities.
The debt ratio of 35% is not too high, which suggests that, overall, the
business should be able to pay its debts.
Quiz
Q3-42
a
Q3–43
d
Q3-44
b
Q3-45
a
Q3-46
d
Q3-47
d
Q3-48
c
Q3-49
d
Q3–50
b
($1,800 × 9/12 = $1,350)
Q3–51
c
Q3-52
b
Q3-53
b
Q3-54
d
Q3-55
d
Q3-56
b
Current ratio
=
1.200
Q3-57
Problems
(20-30 min.) P 3-59A
Req. 1
Masters Consulting
Amount of Revenue (Expense) for October
Date
Cash Basis Accrual Basis
Oct.
1
Expense
$(3,900)
$ 0
4
Expense
(4,500)
0
5
Revenue
1,000
1,000
8
Expense
11
Revenue
0
3,200
19
0
24
Revenue
3,200
Expense
(1,900)
0
29
Expense
(800)
(800)
31
Expense
0
$3,900 ÷ 3 =
(1,300)
31
Revenue
0
800
31
Expense
0
(460)
Income (loss) before tax
(continued) P 3-59A
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 $3,200 of
revenue and increased its wealth as a result. The accrual basis records this
(10-20 min.) P 3-60A
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Dec.
31
a. Insurance Expense ………………………….
4,700*
Prepaid Insurance………………………..
4,700
To record insurance expense.
31
b. Salary Expense ($5,900 × 2/5) …………..
2,360
Salary Payable …………………………….
2,360
To accrue salary expense.
31
c. Interest Receivable ………………………….
500
Interest Revenue ………………………….
To accrue interest revenue.
31
d. Supplies Expense …………………………...
7,000**
Supplies ……………………………………..
7,000
To record supplies expense.
31
e. Unearned Service Revenue
($11,400 × 60%) ……………………………….
6,840
Service Revenue ………………………….
6,840
To record revenue collected in advance.
5,800
Office Furniture ………………………
To record depreciation expense.
(45-60 min.) P 3-61A
Req. 1
Spateness, Inc.
Trial Balance Worksheet
December 31, 2016
TRIAL BALANCE
ADJUSTMENTS
ADJUSTED TRIAL BALANCE
ACCOUNT TITLE
DEBIT
CREDIT
DEBIT
CREDIT
DEBIT
CREDIT
Cash
8,300
8,300
Accounts receivable
1,400
(a) 3,960
5,360
Prepaid rent
3,000
(b) 1,000*
2,000
Supplies
2,200
(c) 1,880
320
Furniture
Accumulated depreciation
3,200
(d) 900**
4,100
Accounts payable
3,600
Salary payable
(e)12,000***
Common stock
Retained earnings
Dividends
3,900
3,900
Service revenue
27,400
(a) 3,960
31,360
Salary expense
3,000
(e)12,000***
15,000
Rent expense
(b) 1,000*
1,000
Utilities expense
470
470
Depreciation expense
(d) 900**
Supplies expense
(c) 1,880
(continued) P 3-61A
Req. 2
Spateness, Inc.
Income Statement
Month Ended December 31, 2016
Revenues:
Service revenue
$31,360
Expenses:
Salary expense
Supplies expense
Rent expense
Depreciation expense, furniture
Utilities expense
Total expenses
Net income
$12,110
Spateness, Inc.
Statement of Retained Earnings
Month Ended December 31, 2016
Retained earnings, December 1, 2016
$29,070
Add: Net income
Subtotal
Less: Dividends declared
Retained earnings, December 31, 2016
(continued) P 3-61A
Req. 2 (continued)
Spateness, Inc.
Balance Sheet
December 31, 2016
ASSETS
LIABILITIES
Current assets:
Current liabilities:
Accounts payable
Accounts receivable
Salary payable
Total current liabilities
Supplies
15,980
Furniture $54,000
STOCKHOLDERS’ EQUITY
Less: Accum.
Common stock
13,000
deprec. (4,100)
49,900
Retained earnings
37,280
Total liabilities and
Total assets
(10-20 min.) P 3-62A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
June
30
Accounts Receivable ($6,810 − $6,000) …………….
810
Rental Revenue …………………………………………..
810
To accrue rental revenue.
30
Interest Receivable ($300 − $0) …………………………
To accrue interest revenue.
30
To record supplies expense.
30
Insurance Expense ($1,700 − $0) ………………………
1,700
1,700
To record insurance expense.
30
Depreciation Expense−Building ($1,600 − $0) ……
1,600
Accumulated Depreciation−Building
($9,500 − $7,900) ……………………………………..
1,600
To record depreciation expense.
30
Wage Expense ($2,240 − $1,400) ………………………
840
Wages Payable ($840 − $0) …………………………..
840
To accrue wage expense.
Rental Revenue ($11,530 − $10,300 − $810) …..
420
To record revenue that was collected in advance.
(continued) P 3-62A
Req. 2
Total assets
=
$74,710 ($8,000 + $6,810 + $300 + $4,500 +
$700 + $900 + $63,000 − $9,500)
Total liabilities
=
$8,720 ($6,500 + $840 + $1,380)
$400 − $2,240 − $700 − $1,700)
(20-30 min.) P 3-63A
Req. 1
Nicholl Corporation
Income Statement
Year Ended October 31, 2016
Revenues:
Service revenue
$93,200
Expenses:
Salary expense
$40,500
Rent expense
Insurance expense
Interest expense
Supplies expense
Depreciation expense, equipment
Income before tax
Income tax expense
Net income
Nicholl Corporation
Statement of Retained Earnings
Year Ended October 31, 2016
Retained earnings, October 31, 2015
$ 2,900
Add: Net income
24,200
Subtotal
Less: Dividends declared
Retained earnings, October 31, 2016
(continued) P 3-63A
Req. 1 (continued)
Nicholl Corporation
Balance Sheet
October 31, 2016
ASSETS
LIABILITIES
Cash
$ 15,000
Accounts payable
$ 8,800
Accounts receivable
Interest payable
Supplies
Unearned service revenue
Prepaid rent
Income tax payable
Note payable
Equipment
$36,000
Total liabilities
Less: Accum.
deprec.
(4,700)
31,300
STOCKHOLDERS’ EQUITY
Common stock
16,000
Retained earnings
23,100
Total liabilities and
Total assets
Req. 2
(20 min.) P 3-64A
Req. 1
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Closing Entries
Jan.
31
Service Revenue …………………………..…..
95,000
Retained Earnings …………………………
95,000
31
Retained Earnings …………………………….
Advertising Expense ……………………..
11,300
Interest Expense …………………………..
Salary Expense …………………………….
Supplies Expense …………………………
31
Retained Earnings …………………………….
12,500
Dividends ……………………………………..
12,500
Req. 2
Retained Earnings
Jan. 31, 2016 Expenses
44,400
Jan. 31, 2015 Bal.
13,300
Jan. 31, 2016 Dividends
12,500
Jan. 31, 2016 Revenues
95,000
Jan. 31, 2016 Bal.
51,400
(25-40 min.) P 3-65A
Req. 1
Granger Services, Inc.
Balance Sheet
January 31, 2016
ASSETS
Current assets:
Cash
$ 17,400
Accounts receivable
17,000
Prepaid expenses
5,900
Total current assets
Plant assets:
Equipment
$42,000
Less: Accumulated depreciation
(6,500)
35,500
Other assets, long-term
13,700
Total assets
$93,000
LIABILITIES
Current liabilities:
Current portion of note payable
$ 1,900
Accounts payable
12,200
Salary payable
3,400
Unearned service revenue
Note payable, long-term
16,000
Total liabilities
36,300
STOCKHOLDERS’ EQUITY
Common stock
5,300
Retained earnings
51,400*
56,700