Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 3
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Chapter 3
Adjusting Accounts for
Financial Statements
QUESTIONS
1. The cash basis of accounting reports revenues when cash is received while the
2. The accrual basis of accounting generally provides a better indication of company
5. Long-term tangible plant assets such as equipment, buildings, and machinery lead
6. The Accumulated Depreciation contra asset account is used for depreciation. It
7. Accrued revenue is revenue that is earned but is not yet received in cash (and/or
other assets) and the customer has not been billed prior to the end of the period.
9. For Apple, all of the accounts under the category of Property, plant and equipment
(except for Land), require adjusting entries. The expense related to the Depreciation
10. Google reports $29,016 million for property and equipment. For its adjusting entry, it
11. Unearned revenue refers to cash received in advance of providing products and
QUICK STUDIES
Quick Study 3-1 (5-10 minutes)
Quick Study 3-2 (10 minutes)
Cash Accounting
Revenues (cash receipts) ……………………………………………… $37,000
Quick Study 3-3 (10 minutes)
a. UR Unearned revenue d. PE Prepaid expenses
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Quick Study 3-4 (15 minutes)
Adjusting entry
Debit
Credit
1.
Accrue salaries expense.
e
c
Quick Study 3-5 (15 minutes)
a. Step 1: Prepaid Insurance equals $4,700
b. Step 1: Prepaid Insurance equals $5,890
c. Step 1: Prepaid Rent equals $24,000
Quick Study 3-6 (15 minutes)
a. Step 1: Supplies equal $300
b. Step 1: Supplies equal $800
c. Step 1: Supplies equal $4,000
Quick Study 3-7 (10 minutes)
a. Insurance Expense ………………………………………………. 1,200
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Quick Study 3-8 (15 minutes)
a. Step 1: Accumulated Depreciation equals $13,500
Step 2: Accumulated Depreciation should equal $28,100; adding current
b. Step 1: Accumulated Depreciation equals $0
c. Step 1: Accumulated Depreciation equals $0
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Quick Study 3-9 (10 minutes)
a. Depreciation Expense—Equipment ………………………. 3,600
Quick Study 3-10 (15 minutes)
a. Step 1: Unearned Rent Revenue equals $6,000
Step 2: Unearned Rent Revenue should equal $5,000; adjusted by
b. Step 1: Unearned Services Revenue equals $300
c. Step 1: Unearned Rent Revenue equals $24,000
Quick Study 3-11 (15 minutes)
a. Unearned Revenue ……………………………………………….. 7,500
Quick Study 3-12 (15 minutes)
a. Step 1: Salaries Payable equals $0
b. Step 1: Interest Payable equals $0
c. Step 1: Interest Payable equals $0
Quick Study 3-13 (10 minutes)
Salaries Expense ………………………………………………….. 400
Debit
Wages Expense
Income Statement
Credit
Wages Payable
Balance Sheet
c.
Debit
Accounts Receivable
Balance Sheet
Credit
Revenue
Income Statement
Debit
Insurance Expense
Income Statement
Credit
Balance Sheet
e.
Debit
Depreciation Expense
Income Statement
Credit
Accumulated Depreciation
Balance Sheet
Quick Study 3-14 (15 minutes)
a. Step 1: Accounts Receivable equals $0
Step 2: Accounts Receivable should equal $19,000 (not yet recorded)
Accounts Receivable……………………………………………….
b. Step 1: Interest Receivable equals $0
c. Step 1: Accounts Receivable equals $0
Step 2: Accounts Receivable should equal $1,300 (not yet recorded)
Quick Study 3-15 (15 minutes)
Accounts Debited and Credited
Financial Statement
a.
Debit
Unearned Revenue
Balance Sheet
Credit
Revenue
Income Statement
139
Quick Study 3-16 (15 minutes)
The answer is 2.
Explanation:
Insurance premium error:
Understates expenses (and overstates assets) by ………. $3,200
Accrued salaries error:
Quick Study 3-17 (10 minutes)
The answer is b.
Quick Study 3-18 (10 minutes)
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Quick Study 3-19A (20 minutes)
a. Recording prepayment of an expense in an asset account and
recording prepayment of revenue received in a liability account
Jan. 1 Prepaid Insurance ………………………………………….. 6,000
Cash ……………………………………………………….. 6,000
Quick Study 3-20A (5 minutes)
Quick Study 3-21 (10 minutes)
a. Under IFRS, financial statements normally present assets from least
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 3
141
EXERCISES
Exercise 3-1 (20 minutes)
Balance Sheet Insurance Asset using
Insurance Expense using
Accrual
Basis*
Cash
Basis
Accrual
Basis**
Cash
Basis
Dec. 31, 2015 …………….
$13,000
$0
2015 ………………………….
$ 5,000
$18,000
Explanations:
*Accrual asset balance equals months left in the policy x $500 per month (monthly
cost is computed as $18,000 / 36 months).
Months Left Balance
12/31/2015 .. 26 $13,000
**Accrual insurance expense equals months covered in the year x $500 per month.
Months Covered
Expense
2015 …………………………..
10
$ 5,000
2016 …………………………..
12
2017 …………………………..
12
2018 …………………………..
Dec. 31, 2016 …………….
2016 ………………………….
Dec. 31, 2018 …………….
2018 ………………………….
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Exercise 3-2 (10 minutes)
1. E 4. D
Exercise 3-3 (15 minutes)
a. Adjusting entry:
2017
Dec. 31
Wages Expense……………………………………………………..
1,250
Jan. 4
Wages Expense……………………………………………………..
Wages Payable ………………………………………………………
Exercise 3-4 (15 minutes)
a. Supplies expense for current year: $2,550
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Exercise 3-5 (25 minutes)
a.
Apr. 30 Legal Services Expense ……………………………… 3,500
Legal Services Payable ………………………… 3,500
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Exercise 3-6 (25 minutes)
a.
Depreciation Expense—Equipment …………………………..
18,000
Accumulated Depreciation—Equipment…………………
Record depreciation expense for the year.
Insurance Expense …………………………………………………..
Prepaid Insurance* ……………………………………………….
c.
Supplies Expense …………………………………………………….
Record office supplies used ($700 + $3,480 – $300).
Unearned Revenue ……………………………………………………
10,000
Revenue ……………………………………………………………….
e.
Insurance Expense …………………………………………………..
Prepaid Insurance …………………………………………………
Wages Expense ……………………………………………………….
Record wages accrued but not yet paid.
Beg. Bal.
Purch.
Used
Used
End. Bal.
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Exercise 3-7 (30 minutes)
a.
Wages Expense ……………………………………………………….
8,000
Wages Payable ……………………………………………………..
Record wages accrued but not yet paid.
b.
Record depreciation expense for the year.
c.
Supplies Expense …………………………………………………….
Record supplies used ($240 + $5,200 – $440).
d.
Insurance Expense …………………………………………………..
2,800
1,050
f.
2,500
Record interest incurred but not yet paid.
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Exercise 3-8 (25 minutes)
a. Dec. 31 Accounts Receivable …………………………………. 2,100
Fees Earned ………………………………………… 2,100
Record earned but unbilled fees (30% x $7,000).
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Exercise 3-9 (20 minutes)
a.
Accounts Receivable ……………………………………………..
2,000
Revenue ……………………………………………………….…..
Record services provided but payment not yet received.
1,000
Record wages expense accrued but not yet paid.
c.
Interest Payable …………………………………………………
Record lawn services incurred but not yet paid.
f.
Record salary expense accrued but not yet paid.
Exercise 3-10 (10 minutes)
a. $ 4,361 / $ 44,500 = 9.8%
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Exercise 3-11A (30 minutes)
a.
Dec. 1 Supplies Expense …………………………………………… 2,000
Cash ……………………………………………………….. 2,000
Purchased supplies.
b.
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Exercise 3-12A (25 minutes)
a. Initial credit recorded in the Unearned Fees account
July 1 Cash …………………………………………………………….. 3,000
Unearned Fees ………………………………………. 3,000
Received fees for work to be done for Solana.
b. Initial credit recorded in the Fees Earned account
July 1 Cash …………………………………………………………….. 3,000
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Exercise 3-12A –concluded
c. Under the first method (and using entries from a)
Exercise 3-13 (20 minutes)
adidas AG
Balance Sheet (Euros in millions)
December 31, 2014
Assets
Noncurrent assets