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Debit Credit Balance
Mar. 30 1,200 1,200
Debit Credit Balance
Mar. 9 11,300 11,300
28 14,400 25,700
Explanation
Date
Service Revenue
Current Yr.
PROBLEM 3.4B
Date
TONE DELIVERIES (continued)
Dividend Payable
Explanation
Current Yr.
Debit Credit Balance
Debit Credit Balance
PROBLEM 3.4B
Date
TONE DELIVERIES (continued)
Fuel Expense
Explanation
Salaries Expense
Date
Explanation
d.
50,800$
21,900
45,000
30,000$
830
PROBLEM 3.4B
TONE DELIVERIES
March 31, Current Year
Cash
TONE DELIVERIES (continued)
Trial Balance
Accounts payable
Accounts receivable
Notes payable
Truck
e.
Total Assets:
50,800$
21,900
45,000
117,700$
The above figures are most likely not the amounts to be
reported in the balance sheet dated March 31. The accounting
Accounts receivable
Total assets
Trucks
PROBLEM 3.4B
TONE DELIVERIES (concluded)
Cash
Revenue -Expenses = Assets -Liabilities =
NE NE NE INE I
PROBLEM 3.5B
60 Minutes, Strong
DR. CRAVATI, DMD
Balance Sheet
Income Statement
a.
Owners'
Equity
Transaction
Net
Income
Aug. 1
b.
Aug. 1 280,000
Capital Stock 280,000
9 75,000
Cash 75,000
16 25,000
Cash 10,000
24 1,000
12,000
Service Revenue 13,000
Issued 1,000 shares of capital stock.
Cash
PROBLEM 3.5B
DR. CRAVATI, DMD (continued)
Current Yr.
General Journal
Medical Instruments
Cash
Office Fixtures and Equipment
Purchased medical instruments.
Recorded dental service revenue earned.
Accounts Receivable
c.
Aug. 1 280,000 Aug. 4 80,000 Aug. 4 320,000
Aug. 21 4,200 Aug. 1 280,000
Aug. 31 Bal. 4,200 Aug. 31 Bal. 280,000
PROBLEM 3.5B
DR. CRAVATI, DMD (continued)
Notes Payable
Capital Stock
Cash
Office Supplies
d.
110,100$
11,500
4,200
75,000
25,000
Accounts receivable
Office supplies
Medical instruments
Office fixtures and equipment
Cash
Trial Balance
PROBLEM 3.5B
DR. CRAVATI, DMD (continued)
DR. CRAVATI, DMD
August 31, Current Year
e.
Total Assets:
110,100$
11,500
320,000$
15,450
335,450$
Accounts payable
Total liabilities
Notes payable
Total Liabilities:
PROBLEM 3.5B
DR. CRAVATI, DMD (concluded)
Cash
Accounts receivable
a.
Feb. 2 900
Cash 900
28 312
Cash 312
General Journal
PROBLEM 3.6B
50 Minutes, Strong
CLOWN AROUND, INC.
Current Yr.
Accounts Payable
Paid $900 in partial settlement of outstanding
accounts payable.
Salaries Expense
February.
Paid clown salaries for work performed in
b.
Feb. 1 Bal. 3,420 Feb. 2 900 Feb. 1 Bal. 1,080 Feb. 6 1,080
Feb. 2 900 Feb. 1 Bal. 960 Feb. 1 Bal. 2,400
Feb. 28 Bal. 60 Feb. 28 Bal. 2,400
Feb. 1 Bal. 900 Feb. 1 Bal. 0
Feb. 28 120
Feb. 28 Bal. 900 Feb. 28 Bal. 120
Dividends
Retained Earnings
PROBLEM 3.6B
CLOWN AROUND, INC. (continued)
Accounts Receivable
Capital Stock
Cash
Accounts Payable
c.
3,696$
210
60$
d.
Cash
Accounts payable
Dividends are not an expense. Thus, they are not deducted from revenue in the determination of
February 28, Current Year
Accounts receivable
(concluded)
PROBLEM 3.6B
CLOWN AROUND, INC.
Trial Balance
CLOWN AROUND, INC.
a.
Mar. 3 1,200
Accounts Receivable 1,200
20 4,000
Capital Stock 4,000
24 6,200
Client Revenue 6,200
Recorded revenue on account.
Accounts Receivable
Collected $1,200 from Kim Mitchell on account.
Issued additional shares of capital stock.
Cash
Cash
PROBLEM 3.7B
50 Minutes, Strong
Current Yr.
General Journal
AHUNA, INC.
b.
Cash
Mar. 1 bal. 5,700 Mar. 11 700 Mar. 1 bal. 1,800 Mar. 3 1,200
Cooking Supplies Accounts Payable
Mar. 1 bal. 800 Mar. 15 200 Mar. 1 bal. 300
Mar. 11 700 Mar. 31 300
Mar. 31 bal. 1,500 Mar. 31 bal. 400
Accounts Receivable
PROBLEM 3.7B
AHUNA, INC. (continued)
c.
8,700$
6,800
1,500
400$
d.
The company has not paid the dividends it previously declared as evidenced by the $500
PROBLEM 3.7B
AHUNA, INC. (concluded)
Trial Balance
Cash
AHUNA, INC.
March 31, Current Year
Accounts receivable
Cooking supplies
Accounts payable
Net Total
Total
Owners'
Error Income Assets Liabilities Equity
NE UNE U
NE O O NE
PROBLEM 3.8B
10 Minutes, Difficult
Recorded the issuance of capital stock by
debiting Capital Stock and crediting Cash.
BLIND RIVER, INC.
Recorded the payment of an account payable by
debiting Cash and crediting Accounts Payable.
a.
b.
c.
SOLUTIONS TO CRITICAL THINKING CASES
Periods that magazines are mailed to customers. The “goods” that a magazine publisher delivers
REVENUE RECOGNITION
Revenue is realized in the period that services are rendered to customers or goods are delivered to
customers. Using this principle as a guide, the three independent situations are analyzed below:
Period of flight. Airlines earn revenue by rendering a service—transportation—to their
Period furniture sold. In this case the furniture store delivers goods to its customers and acquires
CASE 3.1
15 Minutes, Medium
a.
(1)
(2)
(3)
(4)
(5)
b.
CASE 3.2
30 Minutes, Strong
It is not reasonable to report the entire $150,000 value of the equipment as an expense in the
The state-of-the-art printing equipment valued at $150,000 is an asset , not an expense. By
Charging weekly expenditures for business supplies directly to expense is reasonable, but
Income taxes on the Morris family’s salaries are personal expenses, not expenses of the
MEASURING INCOME
Discussion of “fairness and reasonableness” of income measurement policies:
Given that most revenue is received in cash and that credit terms are constant, recognizing
Morris’s salary of $60,000 is “fair and reasonable” because it has been agreed upon by both
ETHICS, FRAUD & CORPORATE GOVERNANCE
It is certainly unethical, and probably illegal, for Ed Grimm's boss to demand that Ed knowingly
engage in fraudulent reporting activities in order to retain his job. Ed may have been told that he would
be insulated from any responsibility or legal liability, but in reality, this may not be an acceptable
WHISTLE-BLOWING
CASE 3.3
5 Minutes, Easy
10 Minutes, Easy
A recent 10-K (see the MD&A) shows that sales of products to public sector clients has averaged
PC CONNECTION
CASE 3.4
INTERNET
