E3-10 Prepare correct income statement
The income statement of Montee Co. for the month of July shows net income of $1,400 based on Service Revenue $5,500, Salaries and Wages
Expense $2,300, Supplies Expense $1,200, and Utilities Expense $600. In reviewing the statement, you discover the following:
1.
2. Supplies expense includes $250 of supplies that are still on hand at July 31.
3. Depreciation on equipment of $150 was omitted.
4. Accrued but unpaid salaries and wages at July 31 of $300 were not included.
5. Services performed but unrecorded totaled $650.
Instructions
Prepare a correct income statement for July 2017.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
Debit Credit
Revenue
?
Expenses ?
?
Value
Value
Account Value
Total Expenses ?
Net Income ?
After you have completed the requirements of E3-10, consider this additional question.
1. How would net income change if Supplies Expense was $1,500 versus $1,200?
Account
Account
Account
Account
Insurance expired during July of $400 was omitted.
MONTEE COMPANY
Income Statement
For the Month Ended July 31, 2017
Account
E3-10 Solution
Debit Credit
Revenue 6,150$
Expenses 2,600$ 950 600 400
MONTEE COMPANY
Income Statement
For the Month Ended July 31, 2017
Service revenue ($5,500 + $650)
Salaries and wages expense ($2,300 + $300)
Utilities expense
Insurance expense
Supplies expense ($1,200 – $250)
E3-10 Solution to additional question
1.
How would net income change if Supplies Expense was $1,500 versus $1,200?
Debit Credit
Revenue
6,150$
Expenses 2,600$ 1,250 600 400
GOPITKUMAR CO.
Income Statement
For the Month Ended July 31, 2014
Service revenue ($5,500 + $650)
Salaries and wages expense ($2,300 + $300)
Utilities expense
Insurance expense
E3-11 – Analyze adjusted data.
A partial adjusted trial balance of Frangesch Company at January 31, 2017, shows the following.
Debit Credit
Supplies $850
Prepaid Insurance $2,400
Salaries and Wages Payable $920
Unearned Service Revenue $750
Supplies Expense $950
Insurance Expense $400
Salaries and Wages Expense $2,900
Service Revenue $2,000
Instructions:
Answer the following questions, assuming the year begins January 1.
(a) If the amount in Supplies Expense is the January 31 adjusting entry, and $1,000 of supplies was purchased in January , what was the
balance in Supplies on January 1?
(b) If the amount in Insurance Expense is the January 31 adjusting entry, and the original insurance premium was for one year, what was the
total premium and when was the policy purchased?
(c) If $3,800 of salaries was paid in January, what was the balance in Salaries and Wages Payable at December 31, 2016?
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a) Supplies Expense Value
Add: Supplies (1/31) Value
Less: Supplies purchased Value
Supplies (1/1) ?
(b) Purchase date Value
Monthly
Premium
# of
Months
Total
Premium
Value x Value = ?
(c) Cash paid Value
Add: Salaries and wages payable (1/31/17) Value
?
Less: Salaries and wages expense Value
Salaries and wages payable (12/31/16) ?
After you have completed the requirements of E3-11, consider this additional question.
1. If cash paid was $3,600, and Salaries and Wages Expense totaled $3,100 instead of $2,900 on trial balance,
and salaries and wages payable (12/31/16) is $1,500, what is Salaries and Wages Payable on Jan 31, 2017?
FRANGESCH COMPANY
Adjusted Trial Balance
January 31, 2017
E3-11 Solution
(a) Supplies Expense 950$
(b) Purchase date Aug. 1, 2016
On Jan. 31, there are 6 months coverage remaining. Thus, the
purchase date was 6 months earlier on Aug. 1, 2016.
Monthly
Premium
# of Months Total
Premium
400$ x 12 = 4,800$
E3-11 Solution to additional question
1. If cash paid was $3,600, and Salaries and Wages Expense totaled $3,100 instead of $2,900 on trial balance,
and salaries and wages payable (12/31/16) is $1,500, what is Salaries and Wages Payable on Jan 31, 2017?
Salaries and wages payable (12/31/16) 1,500$
CC3 Cookie Creations: The entrepreneurial Journey
(Note: This is a continuation of the Cookie Creations problem from Chapters 1 and 2. Use the information from the previous
chapters and follow the instructions below using the general ledger accounts you have already prepared.)
It is the end of November and Natalie has been in touch with her grandmother. Her grandmother asked Natalie how well
things went in her first month of business. Natalie, too, would like to know if she has been profitable or not during November.
Natalie realizes that in order to determine Cookie Creations’ income, she must first make adjustments.
Natalie puts together the following additional information.
1. A count reveals that $35 of baking supplies were used during November.
2. Natalie estimates that all of her baking equipment will have a useful life of 5 years or 60 months. (Assume Natalie decides
to record a full month’s worth of depreciation, regardless of when the equipment was obtained by the business.)
3. Natalie’s grandmother has decided to charge interest of 6% on the note payable extended on November 16. The loan plus
interest is to be repaid in 24 months. (Assume that half a month of interest accrued during November.)
4. On November 30, a friend of Natalie’s asks her to teach a class at the neighborhood school. Natalie agrees and teaches a
group of 35 first-grade students how to make gingerbread cookies. The next day, Natalie prepares an invoice for $300 and
leaves it with the school principal. The principal says that he will pass the invoice along to the head office, and it will be
paid sometime in December.
5. Natalie receives a utilities bill for $45. The bill is for utilities consumed by Natalie’s business during November and is due
December 15.
Instructions
Using the information that you have gathered through Chapter 2, and based on the new information above, do the following.
(a) Prepare and post the adjusting journal entries.
(b) Prepare an adjusted trial balance.
(c ) Using the adjusted trial balance, calculate Cookie Creations’ net income or net loss for the month of November. Do not
prepare an income statement.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a) Prepare and post the adjusting journal entries.
Date Debit Credit
Nov. 30 Value Value
30 Value Value
30 Value Value
30 Value Value
30 Value Value
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √245
Date Explanation Ref. Debit Credit Balance
Nov. 30 Ref. Value Value
Date Explanation Ref. Debit Credit Balance
Account Title
Account Titles and Explanation
GENERAL JOURNAL J2
Account Title
Account Title
Account Title
Account Title
Account Title
Account Title
Account Title
Account Title
Account Title
Cash
Accounts Receivable
Supplies
Nov. 30 Balance √125
30 Ref. Value ?
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √1,320
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √1,200
Date Explanation Ref. Debit Credit Balance
Nov. 30 Ref. Value Value
Date Explanation Ref. Debit Credit Balance
Nov. 30 Ref. Value Value
Date Explanation Ref. Debit Credit Balance
Nov. 30 Ref. Value ?
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √30
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √2,000
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √800
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √125
30 Ref. Value ?
Date Explanation Ref. Debit Credit Balance
Nov. 30 Ref. Value ?
Date Explanation Ref. Debit Credit Balance
Service Revenue
Prepaid Insurance
Equipment
Accumulated Depreciation – Equipment
Accounts Payable
Interest Payable
Unearned Service Revenue
Notes Payable
Owner’s Capital
Utilities Expense
Advertising Expense
Nov. 30 Balance √65
Date Explanation Ref. Debit Credit Balance
Nov. 30 Ref. Value ?
Date Explanation Ref. Debit Credit Balance
Nov. 30 Ref. Value ?
Date Explanation Ref. Debit Credit Balance
Nov. 30 Ref. Value ?
(b) Prepare an adjusted trial balance.
Account
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Accounts Payable
Interest Payable
Unearned Service Revenue
Notes Payable Value
Owner’s Capital Value
Service Revenue Value
Utilities Expense Value
Advertising Expense Value
Supplies Expense Value
Depreciation Expense Value
Interest Expense Value
Totals ? ?
(c ) Using the adjusted trial balance, calculate Cookie Creations’ net income or net loss for the month of November. Do not
prepare an income statement.
Revenues
Service revenue Value
Expenses
Advertising expense Value
Utilities expense Value
Supplies expense Value
Depreciation expense Value
Interest expense Value Value
Net income ?
Supplies Expense
Depreciation Expense
Interest Expense
Response:
After you have completed the requirements of CC3, consider this additional question.
1. Assume that equipment useful life changed to 3 years and that interest charged on loan from her grandmother
changed to 8%. Show the impact of these changes on the journal entries, posting to the general ledger and
adjusted trial balance. What was the impact on net income?
CC3 Solution
(a) Prepare and post the adjusting journal entries.
Date Debit Credit
Nov. 30 35 35
30 300 300
30 45 45
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √245
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √125
30 J2` 35 90
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
Accounts Payable
GENERAL JOURNAL J2
Account Titles and Explanation
Supplies Expense
Supplies
Accounts Receivable
Service Revenue
Utilities Expense
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation – Equipment
Depreciation Expense
Accumulated Depreciation-Equipment
Interest Expense
Interest Payable
Nov. 30 Balance √20 20
Date Explanation Ref. Debit Credit Balance
Nov. 30 J2 45 45
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √30
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √2,000
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √800
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
Nov. 30 J2 45 45
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √65
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
Utilities Expense
Advertising Expense
Supplies Expense
Service Revenue
Accounts Payable
Interest Payable
Unearned Service Revenue
Notes Payable
Owner’s Capital
Depreciation Expense
Nov. 30 J2 20 20
Date Explanation Ref. Debit Credit Balance
Nov. 30 J2 5 5
(b) Prepare an adjusted trial balance.
Account Debit Credit
Cash $245
Accounts Receivable 300
Accumulated Depreciation -Equipment $20
Accounts Payable 45
Interest Payable 5
Unearned Service Revenue 30
Service Revenue 425
Utilities Expense $45
Advertising Expense 65
Supplies Expense 35
(c ) Using the adjusted trial balance, calculate Cookie Creations’ net income or net loss for the month of November. Do not
prepare an income statement.
Revenues
Service revenue $425
Expenses
Advertising expense $65
Utilities expense 45
[ Note: Owner’s Equity Statement is not required – shown for information purposes only.]
Owner’s Capital, November 1, 2016 $0
Interest Expense
COOKIE CREATIONS
Owner’s Equity Statement
For the Month Ended November 30, 2016
Adjusted Trial Balance
November 30, 2016
COOKIE CREATIONS
[Note: Balance Sheet is not required – shown for information purposes only.]
Cash $245
Accounts receivable
300
Liabilities
Notes payable $2,000
Accounts payable 45
Unearned service revenue 30
COOKIE CREATIONS
Balance Sheet
November 30, 2016
Assets
Liabilities and Owner’s Equity
CC3 – Solution to additional question
After you have completed the requirements of CC3, consider this additional question.
1. Assume that equipment useful life changed to 3 years and that interest charged on loan from her grandmother
changed to 8%. Show the impact of these changes on the journal entries, posting to the general ledger and
adjusted trial balance. What was the impact on net income?
(a) Prepare and post the adjusting journal entries.
Date Debit Credit
Nov. 30 35 35
30 300 300
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √245
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √1,320
GENERAL JOURNAL J2
Account Titles and Explanation
Supplies Expense
Supplies
Accounts Receivable
Service Revenue
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Interest Payable
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √1,200
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
Nov. 30 J2 77
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √30
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
Accumulated Depreciation – Equipment
Equipment
Interest Payable
Unearned Service Revenue
Notes Payable
Service Revenue
Advertising Expense
Date Explanation Ref. Debit Credit Balance
Nov. 30 Balance √65
Date Explanation Ref. Debit Credit Balance
Date Explanation Ref. Debit Credit Balance
(b) Prepare an adjusted trial balance.
Account Debit Credit
Cash $245
Accounts Receivable 300
Supplies 90
Prepaid Insurance 1,320
Equipment 1,200
Owner’s Capital 800
Service Revenue 425
Utilities Expense $45
Advertising Expense 65
(c ) Using the adjusted trial balance, calculate Cookie Creations’ net income or net loss for the month of November. Do not
prepare an income statement.
Revenues
Service revenue $425
COOKIE CREATIONS
Supplies Expense
Interest Expense
Adjusted Trial Balance
November 30, 2016
Date Explanation Ref. Debit Credit Balance
Utilities expense 45
Supplies expense 35
[ Note: Owner’s Equity Statement is not required – shown for information purposes only.]
Owner’s Capital, November 1, 2016 $0
Add: Investment 800
[Note: Balance Sheet is not required – shown for information purposes only.]
Cash $245
Accounts receivable 300
Liabilities
Notes payable $2,000
Accounts payable 45
Balance Sheet
November 30, 2016
Assets
Liabilities and Owner’s Equity
COOKIE CREATIONS
Owner’s Equity Statement
For the Month Ended November 30, 2016
COOKIE CREATIONS