Financial Accounting, 10/e 3-21
E3–11.
STACEY’S PIANO REBUILDING COMPANY
Income Statement (unadjusted)
For the Month Ended January 31
Operating Revenues:
Rebuilding fees revenue
$ 19,000
Operating Expenses:
Wages expense
Utilities expense
Other Item:
Rent revenue
Net Income
E3–12.
Transaction
O, I, or F Activity
(or No Effect) on
Statement of Cash Flows
Direction and
Amount of Effect
a.
O
+19,000
b.
O
+600
O
O
e.
g.
O
h.
O
O
Financial Accounting, 10/e 3-23
E3–13.
Req. 1
a.
Cash (+A) …………………………………………………………………
Consulting fees revenue (+R, +SE) ……………………….
9,500
b.
Cash (+A) [10 shares x $120 per share] …………………………
Common stock (+SE) [10 shares x $1 par] ………………
10
Additional paid-in capital (+SE) [$1,200 – $10] ………..
1,190
c.
Office equipment (+A) …………………………………………………
d.
Cash (+A) …………………………………………………………………
Unearned revenue (+L) ………………………………………
e.
Supplies (+A) …………………………………………………………….
Accounts payable (+L) …………………………………………
Utilities expense (+E, −SE) ………………………………………….
g.
Accounts receivable (+A) …………………………………………….
Consulting fee revenue (+R, +SE) …………………………
1,620
h.
Cash (+A) ………………………………………………………………..
2,980
Accounts receivable (−A) ……………………………………..
2,980
Cash (−A) ………………………………………………………….
5,300
Salaries payable (+L) …………………………………………..
Short-term investments (+A) ………………………………………..
Prepaid expenses (+A) ……………………………………………….
k.
Cash (+A) …………………………………………………………………
Interest revenue (+R, +SE) …………………………………..
10
E3–13. (continued)
Req. 2
Cash
Short-Term Investments
Accounts Receivable
1,640
2,210
Beg. 1,900
Beg. 410
Beg. 3,570
Supplies
Prepaid Expenses
Office Equipment
Beg. 150
(e) 470
Beg. 4,720
(j) 800
Beg. 1,530
(c) 640
620
5,520
2,170
Accumulated
Depreciation
Accounts
Payable
Unearned
Revenue
Salaries Payable
Short-Term Note Payable
870 Beg.
910 (i)
780 Beg.
480 (c)
1,780
1,260
1,190 (b)
Revenue
11,120
Salaries Expense
Utilities Expense
Beg. 0
(i) 6,210
Beg. 0
(f) 1,800
6,210
1,800
Financial Accounting, 10/e 3-25
E3–13. (continued)
Req. 3
Net income using the accrual basis of accounting:
Revenues
$11,130
($11,120 + $10)
– Expenses
8,010
($6,210 + $1,800)
Req. 4
On a pure cash basis, anything that affects Cash is
included in determining net income on a cash basis:
Cash basis net income ($5,290) is higher than accrual basis net income ($3,120)
because of the differences in the timing of recording revenues versus receipts and
expenses versus disbursements between the two methods.
• The $3,450 higher amount in cash receipts over revenues includes cash received
yet paid.
Cash
Beg. 1,900
E3–14.
Conover, Inc.
Income Statement (unadjusted)
For the Year Ended December 31
Operating Revenues:
Consulting fees revenue
$ 11,120
Total operating revenues
11,120
Operating Expenses:
Salaries expense
Utilities expense
Total operating expenses
Operating Income
Other Item:
Interest revenue
Net Income
Financial Accounting, 10/e 3-27
E3–15.
Req. 1 and 2
Cash
Accounts Receivable
Supplies
Accounts Payable
(k) 50,000
420 (g)
68,300
Beg. 0
(a)160,000
72,000 (b)
10,200 (d)
Beg. 0
(a) 2,000
Beg. 0
(a) 1,200
Note Payable
Mortgage Payable
0 Beg.
50,000 (c)
0 Beg.
288,000(b)
50,000
288,000
0 Beg.
1,000 (a)
0 Beg.
(j) 600
0 Beg.
1,000
Revenue
0 Beg.
16,900 (f)
0 Beg.
4,200 (e)
16,900
4,200
Common
Additional
Retained
Supplies Expense
Utilities Expense
Wages Expense
Beg. 0
(f) 10,830
Beg. 0
(g) 420
Beg. 0
(i) 6,280
10,830
420
6,280
Fuel Expense
Beg. 0
(h) 363
E3–16.
Req. 1
TRAVELING GOURMET, INC.
Income Statement (unadjusted)
For the Month Ended March 31
Revenues:
Food sales revenue
$ 16,900
Net Loss
$ 3,207
Req. 2
Transaction
O, I, or F Activity (or No
Effect) on Statement of
Cash Flows
Direction and Amount
of Effect
a.
F
+160,000
b.
I
-72,000
d.
e.
g.
h.
F
I
-70,000
Req. 3
The company generated a profit of $1,793 during its first month of operations, before
making any adjusting entries. The adjusting entries for use of the building and
equipment and interest expense on the borrowing will lower the net income. Cash flows
Financial Accounting, 10/e 3-29
E3–17.
Req. 1
Transaction
Brief Explanation
a
Issued 10,000 shares of common stock to shareholders for $82,000
cash.
b
Purchased store fixtures for $15,400 cash.
c
on account.
d
Sold $14,000 of goods or services to customers, receiving $9,820 cash
and the balance on account. The cost of the goods sold was $7,000.
e
Used $1,480 of utilities during the month, not yet paid.
Paid $1,300 in wages to employees.
g
Paid $2,480 in cash for rent, $620 related to the current month and
$1,860 related to future months.
h
Received $3,960 cash from customers, $1,450 related to current sales
Purchased $24,800 of inventory, paying $6,200 cash and the balance
Req. 2
Kate’s Kite Company
Income Statement (unadjusted)
For the Month Ended April 30
Sales Revenue
Expenses:
Cost of sales
Wages expense
$ 15,450
7,000
1,300
E3–17. (continued)
Kate’s Kite Company
Balance Sheet
At April 30
Assets
Liabilities and Shareholders’ Equity
Current Assets:
Current Liabilities:
Cash
$70,400
Accounts payable
$20,080
Accounts receivable
4,180
Prepaid expenses
1,860
Common stock
E3–18.
Req. 1
Assets
=
Liabilities
+
Stockholders’ Equity
$ 3,200
$ 2,400
$ 800
$17,600
$ 8,000
Financial Accounting, 10/e 3-31
E3–18. (continued)
Req. 2
Cash
Accounts
Receivable
Long-Term
Investments
Accounts
800 (f)
1,600 (e)
1,600
7,200
1,600
Beg. 3,200
Beg. 8,000
Beg. 6,400
Common Stock
Additional
Paid-in Capital
Retained Earnings
800 Beg.
4,000 Beg.
(g) 480
3,200 Beg.
800
4,000
2,720
Consulting Fee
Revenue
Interest
Revenue
0 Beg.
0 Beg.
58,000 (a)
400 (c)
58,000
Travel Expense
(d) 36,000
(d) 12,000
E3–18. (continued)
Req. 3
Revenues
$58,400
($58,000 from sales + $400 on investments)
– Expenses
56,400
($36,000 + $12,000 + $800 + $7,600)
Net Income
$ 2,000
$ 800
Req. 4
Net Profit Margin
=
Net Income
=
$2,000
=
0.0345
Ratio
Sales (Operating) Revenues
$58,000*
or 3.45%
Financial Accounting, 10/e 3-33
E3–19.
Req. 1
Accounts Receivable increases with customer sales on account and decreases with
cash payments received from customers.
Prepaid Expenses increases with cash payments for expenses related to future periods
Req. 2 (dollars in millions)
Accounts
Receivable
Prepaid
Expenses
Unearned
Subscriptions Revenue
1/1 358
1/1 35
133 1/1
Computations:
Beginning
+
“+”
−
“−”
=
Ending
Prepaid
+
?
=
Accounts
358
+
3,146
−
?
=
352
E3–20.
ITEM
LOCATION
1. Description of a company’s
primary business(es).
Letter to shareholders;
Management’s Discussion and Analysis;
Summary of significant accounting policies
note
2. Income taxes paid.
Notes; Statement of cash flows
3. Accounts receivable.
Balance sheet
Summary of significant accounting policies
note
Income statement (Cost of Goods Sold)
Income statement
Financial Accounting, 10/e 3-35
PROBLEMS
P3-1.
Transactions
Debit
Credit
a.
Example: Purchased equipment for use in the business;
paid one-third cash and signed a note payable for the balance.
5
1, 8
b.
Paid cash for salaries and wages earned by employees this
period.
15
1
Paid cash on accounts payable for expenses
incurred last period.
7
1
d.
Purchased supplies to be used later; paid cash.
3
1
e.
Performed services this period on credit.
2
14
Collected cash on accounts receivable for services
performed last period.
1
2
g.
Issued stock to new investors for cash greater than par value
1
11, 12
h.
Paid operating expenses incurred this period.
15
1
i.
Incurred operating expenses this period to be paid
next period.
15
7
j.
Purchased a patent (an intangible asset); paid cash.
6
1
Collected cash for services performed this period.
1
14
l.
Used some of the supplies on hand for operations.
15
3
Paid three-fourths of the income tax expense for the year;
the balance will be paid next year.
16
n.
Made a payment on the equipment note in (a); the payment
was part principal and part interest expense.
1
o.
On the last day of the current period, paid cash for an
insurance policy covering the next two years.
4
1
P3–2.
a.
Cash (+A) [2,000 shares x $20 per share] ………………………
40,000
Common stock (+SE) [2,000 shares x $0.01 par value) .
20
Additional paid-in capital (+SE) [difference] ……………….
39,980
b.
Cash (+A) ………………………………………………………………….
60,000
Note payable (long-term) (+L) ………………………………….
60,000
Prepaid rent (+A) ………………………………………………………..
d.
Prepaid insurance (+A) ………………………………………………..
2,400
Cash (−A) …………………………………………………………….
2,400
e.
Furniture and fixtures (or Equipment) (+A) ……………………..
15,000
Accounts payable (+L) …………………………………………..
12,000
f.
Inventory (+A) …………………………………………………………….
2,800
Cash (−A) …………………………………………………………….
2,800
g.
Advertising expense (+E, −SE)……………………………………..
350
Cash (−A) …………………………………………………………….
350
h.
Cash (+A) ………………………………………………………………….
Accounts receivable (+A) …………………………………………….
Sales revenue (+R, +SE) ……………………………………….
Cost of goods sold (+E, −SE) ……………………………………….
Inventory (−A) ………………………………………………………
Accounts payable (−L) …………………………………………………
Cash (−A) …………………………………………………………….
Cash (+A) ………………………………………………………………….
Financial Accounting, 10/e 3-37
P3–3.
Req. 1
Req. 2
Balance Sheet
Income Statement
Stmt of
Cash
Flows
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
a.
+ / –
+
NE
NE
NE
NE
O
b.
+ / –
NE
NE
NE
NE
NE
I
+
NE
+
O
d.
NE
+
NE
O
e.
NE
NE
+
NE
NE
NE
NE
g.
NE
+
NE
O
h.
NE
NE
+
O
P3–4.
Req. 1 and 2
Cash
Accounts Receivable
Supplies
400 (l)
1,560
Beg. 0
(a) 30,200
5,250 (b)
Beg. 0
(h) 825
600 (k)
Beg. 0
(d) 1,560
Inventory
Prepaid Expenses
Equipment
Beg. 0
(c) 6,000
1,600 (h)
600 (m)
Beg. 0
(b) 5,250
Beg. 0
(f) 2,750
3,800
5,250
2,750
Accounts Payable
0 Beg.
6,000 (c)
0 Beg.
8,250
5,450
Common
Stock
Additional Paid-in
Capital
0 Beg.
40 (a)
0 Beg.
30,160 (a)
40
30,160
1,200 (m)
Beg. 0
(h) 1,600
Beg. 0
2,200
1,300
Financial Accounting, 10/e 3-39
P3–4. (continued)
Req. 3
KAYLEE’S SWEETS
Income Statement (unadjusted)
For the Month Ended February 28
Revenues:
Sales revenue
$ 4,700
Req. 4
Date: (today’s date)
To: Kaylee James
From: (your name)
After analyzing the effects of transactions for Kaylee’s Sweets for February, the
company has realized a profit of $400. This is 8.5% of sales revenue. However, this is
Req. 5
Net Income
÷
Net Sales Revenue
=
Net Profit Margin Ratio
2021
$22,000
$93,500
0.235 or 23.5%
P3–5.
Transaction
O, I, or F Activity (or No
Effect) on Statement of
Cash Flows
Direction and Amount
of Effect
a.
F
+30,200
b.
O
-5,250
c.
NE
NE
d.
O
-1,560
e.
F
g.
O
h.
O
O
O
k.
O
O
O