EXERCISE 0-21
(a) Revenue recognition principle.
EXERCISE 0-22
$ 33,640
Cash basis earnings.
+ 3,400
Accounts receivable arise from sales that have been made, thus revenue
must be recognized for balance outstanding at the end of the current
year.
Wages owed at the end of the previous year should not be
EXERCISE 0-23
(a)
Cash Basis
Service Revenue
– Operating Expenses
$22,000
12,000
EXERCISE 0-24
(a) Event
Cash Accounting
Accrual Accounting
180–day financing
for customers
Revenue is recorded as
cash is received.
Revenue is recorded when the
performance obligation is
satisfied. BizCon records
revenue (and a receivable) as
EXERCISE 0-24 (Continued)
(b) Accrual accounting rules require that revenue be recognized as a company
performs services and expenses be matched with the revenue they help produce.
Receipt or payment of cash does not influence the calculation of net income.
EXERCISE 0-25
Item
(1)
Type of Adjustment
(2)
Accounts Before Adjustment
(a)
Accrued Revenues
Assets Understated
Revenues Understated
(b)
Prepaid Expenses
Assets Overstated
Expenses Understated
(c)
Accrued Expenses
Expenses Understated
Liabilities Understated
(d)
Unearned Revenues
Liabilities Overstated
(e)
Accrued Expenses
Expenses Understated
Liabilities Understated
Prepaid Expenses
Assets Overstated
Expenses Understated
EXERCISE 0-26
1. Mar. 31 Depreciation Expense ($280 X 3) ………………………… 840
Accumulated Depreciation—
Equipment …………………………………………….. 840
EXERCISE 0-27
1. Jan. 31 Accounts Receivable …………………………………………. 760
Service Revenue ……………………………………….. 760
2. 31 Utilities Expense ……………………………………………….. 450
Accounts Payable ……………………………………… 450
EXERCISE 0-28
1. Oct. 31 Supplies Expense ……………………………………………… 2,000
Supplies ($2,500 – $500)…………………………….. 2,000
4. 31 Unearned Service Revenue ……………………………….. 800
Service Revenue ……………………………………….. 800
5. 31 Accounts Receivable …………………………………………. 280
Service Revenue ……………………………………….. 280
EXERCISE 0-29
Date
Account Titles
Debit
Credit
July 31
Interest Receivable ($20,000 .06 1/12) ………………..
Interest Revenue ……………………………………………
100
100
31
Supplies Expense ($24,000 – $18,600) …………………….
Supplies ………………………………………………………..
5,400
5,400
31
Rent Expense ($3,600 4) ………………………………………
Prepaid Rent ………………………………………………….
900
900
31
Salaries and Wages Expense ………………………………….
Salaries and Wages Payable …………………………..
3,100
3,100
31
Depreciation Expense ($6,000 12) ………………………..
Accumulated Depreciation—Buildings ……………
31
Unearned Service Revenue …………………………………….
Service Revenue ……………………………………………
4,700
4,700
Accounts Payable ………………………………………….
EXERCISE 0-30
(a) July 10 Supplies ……………………………………………………………. 200
Cash …………………………………………………………. 200
EXERCISE 0-30 (Continued)
(b) July 31 Supplies Expense ……………………………………………… 750
Supplies ……………………………………………………. 750
EXERCISE 0-31
Answer Computation
(a) Supplies balance = $1,350 Supplies expense $ 950)
Add: Supplies (1/31) 700)
Less: Supplies purchased (300)
Supplies (1/1) $1,350)
EXERCISE 0-31 (Continued)
(c) Salaries and wages
payable = $1,760 Cash paid $2,500
Salaries and wages
payable (1/31/17) 1,060
3,560
Less: Salaries and wages
EXERCISE 0-32
Item
Net Income
Total
Assets
Total
Liabilities
Stockholders’
Equity
Incorrect balances
$70,000
$150,000
$70,000
$80,000
Effects of:
Salaries and Wages
Rent Revenue
Depreciation
EXERCISE 0-33
(a) 2017
June 1 Prepaid Insurance …………………………………………… 1,800
Cash ……………………………………………………….. 1,800
Aug. 31 Prepaid Rent …………………………………………………… 6,500
Cash ……………………………………………………….. 6,500
EXERCISE 0-33 (Continued)
(b) 2017
Dec. 31 Insurance Expense …………………………………………. 1,050
Prepaid Insurance …………………………………. 1,050
($1,800 × 7/12 months = $1,050)
EXERCISE 0-33 (Continued)
(c)
Prepaid Insurance
June 1 1,800
Dec. 31 Adj. 1,050
Dec. 31 Bal. 750
Aug. 31 6,500
Dec. 31 Adj. 5,200
Dec. 31 Bal. 1,300
Dec. 31 Bal. 2,475
Prepaid Cleaning
Nov. 30 2,000
Dec. 31 Adj. 1,000
Dec. 31 Bal. 1,000
Insurance Expense
Dec. 31 Adj. 1,050
Dec. 31 Adj. 5,200
Dec. 31 Bal. 2,625
Dec. 31 Adj. 1,000
EXERCISE 0-34
(a) 2017
Dec. 31 Utilities Expense …………………………………………….. 425
Accounts Payable …………………………………. 425
31 Salaries and Wages Expense ………………………….. 2,000
Salaries and Wages Payable ………………….. 2,000
($3,500 × 4/7 days = $2,000)
(b) 2018
Jan. 11 Accounts Payable …………………………………………… 425
Cash ……………………………………………………….. 425
4 Salaries and Wages Payable ……………………………. 2,000
Salaries and Wages Expense ………………………….. 1,500
Cash ……………………………………………………….. 3,500
EXERCISE 0-35
Aug. 31 Accounts Receivable ………………………………………… 600
Service Revenue ………………………………………………. 600
31 Supplies Expense …………………………………………………….. 2,000
Supplies …………………………………………………………… 2,000
EXERCISE 0-36
(a) FRANKEN COMPANY
Income Statement
For the Six Months Ended April 30, 2017
Revenues
Service revenue ($32,150 + $540) ………………………….. $32,690
Expenses
Income tax expense ……………………………………………… $10,000
EXERCISE 0-36 (Continued)
(b) FRANKEN COMPANY
Balance Sheet
April 30, 2017
Assets
Current Assets
Cash …………………………………………………………………. $27,780
Accounts receivable ………………………………………….. 540
Prepaid rent ………………………………………………………. 175
Total current assets ……………………………………. $28,495
EXERCISE 0-37
NORSKI CO.
Income Statement
For the Month Ended July 31, 2017
Revenues
Service revenue ($5,500 + $700) ……………………………………. $6,200
Expenses
Salaries and wages expense ($2,100 + $360) …………………. $2,460
EXERCISE 0-38
RYAN COMPANY
Income Statement
For the Year Ended August 31, 2017
Revenues
Service revenue ………………………………………………………… $34,600
EXERCISE 0-38 (Continued)
RYAN COMPANY
Retained Earnings Statement
For the Year Ended August 31, 2017
Retained earnings, September 1, 2016 …………………………..………. $ 5,500
RYAN COMPANY
Balance Sheet
August 31, 2017
Assets
Current Assets
Cash ………………………………………………………………………….. $10,900
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable ………………………………………………………. $ 5,800
Salaries and wages payable ………………………………………… 1,100
Unearned rent revenue ……………………………………………….. 800
EXERCISE 0-39
Jan. 31 Service Revenue ………………………………………………………. 4,000
Income Summary ……………………………………………… 4,000
EXERCISE 0-40
(a)
Date
Account Titles
Debit
Credit
Dec. 31
Service Revenue …………………………………………………
Rent Revenue ……………………………………………………..
Income Summary ………………………………………..
183,800
6,200
190,000
Retained Earnings ………………………………………
EXERCISE 0-40 (Continued)
(b)
Retained Earnings
Dec. 31 26,300
Jan. 1 61,800
EXERCISE 0-41
Aug. 31 Service Revenue …………………………………………………. 34,600
Rent Revenue ……………………………………………………… 13,100
Income Summary ………………………………………… 47,700
31 Income Summary ………………………………………………… 33,600
Salaries and Wages Expense ……………………….. 18,100