FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-20A
(15-20 min.)
Requirements
Solution:
Req. 1
DATE DEBIT CREDIT
a. Insurance Expense 2,600
Prepaid Insurance ($300 + $2,900 − $600)
2,600
Req. 2
Net income understated by omission of:
Interest revenue 2,400$
Service revenue 1,300
Total understatement (3,700)$
Net income overstated by omission of:
Insurance expense 2,600$
Depreciation expense 5,500
Salary expense 5,200
Income tax expense 7,000
Total overstatement 20,300
ACCOUNT TITLES
Adjusting Entries
1. Journalize the adjusting entries.
2. Suppose the adjustments were not made. Compute the overall overstatement or
understatement of net income as a result of the omission of these adjustments.
Chapter 3: Accrual Accounting and Income Page 21 of 105
d. Depreciation Expense 5,500
e. Salary Expense ($13,000 × 2/5) 5,200
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-21A
(10-15 min.)
Solution:
Missing amounts in italics.
1 2 3 4
Beginning Supplies 2,500$ 600$ 700$ 700$
Journal entries:
Situation 1: Supplies 1,000
Situation
Chapter 3: Accrual Accounting and Income Page 22 of 105
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-22A
(10-20 min.)
Solution:
DATE DEBIT CREDIT
a. Insurance Expense 3,200
Interest Payable
3,200
Adjusting Entries
ACCOUNT TITLES
Journalize the adjusting entry needed at December 31, 2016, for each
situation. Consider each fact separately.
Chapter 3: Accrual Accounting and Income Page 23 of 105
b. Interest Receivable 4,100
4,100
3,000
d. Salary Expense ($6,100 × 4) 24,400
e. Supplies Expense 1,900
1,900
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-23A
(10-15 min.)
Solution:
What amount appears for Prepaid Rent on
a. Childtime’s unadjusted trial balance at December 31, 2016?
Childtime Toys prepaid three years’ rent ($54,000) on January 1, 2016. At
December 31, 2016, Childtime prepared a trial balance and then made the
necessary adjusting entry at the end of the year. Childtime adjusts its
accounts once each year—on December 31.
Chapter 3: Accrual Accounting and Income Page 24 of 105
b. Childtime’s adjusted trial balance at December 31, 2016?
c. Childtime’s unadjusted trial balance at December 31, 2016?
d. Childtime’s adjusted trial balance at December 31, 2016?
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-24A
(20-30 min.)
Requirement
Solution:
Thousands
Revenues:
Sales revenue 41,200$
1. Prepare Honeybell, Inc.’s single step income statement and statement of
retained earnings for the year ended December 31, 2016, and its balance
sheet on that date.
Honeybell, Inc.
Income Statement
Year Ended December 31, 2016
Chapter 3: Accrual Accounting and Income Page 25 of 105
Thousands
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Cash 3,900$ Accounts payable 7,400$
Accounts receivable 1,400 Income tax payable 400
LIABILITIES
ASSETS
Honeybell, Inc.
Balance Sheet
December 31, 2016
Thousands
Chapter 3: Accrual Accounting and Income Page 26 of 105
Inventories 2,200 Other liabilities 2,500
Prepaid expenses 1,800 Total liabilities 10,300
Other assets 9,500 Retained earnings 7,800
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-25A
(10-20 min.)
Solution:
Amounts in millions
One mechanism for solving this exercise is to prepare the relevant T-accounts,
Receivables
290
Compute the amount of sales revenue, insurance expense, and other operating
expenses to report on the income statement for the year ended August 31, 2016.
Beg. bal.
Chapter 3: Accrual Accounting and Income Page 27 of 105
460
Beg. bal.
470
Beg. bal.
460
380
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-26A
(10-20 min.)
Solution:
DATE DEBIT CREDIT
Dec. 31 Service Revenue 32,100
Other Revenue 200
Retained Earnings 32,300
ACCOUNT TITLES
Closing Entries
Prepare the closing entries from the following selected accounts from the records of
Wolf Enterprises at December 31, 2016.
How much net income did Wolf Enterprises earn during 2016? Prepare a T-account for
Retained Earnings to show the December 31, 2016, balance of Retained Earnings.
Journal
Chapter 3: Accrual Accounting and Income Page 28 of 105
Cost of Services Sold 14,300
Depreciation Expense 4,600
Income Tax Expense 300
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-27A
(15-25 min.)
Requirement
Solution:
DATE DEBIT CREDIT
Dec. 31 Unearned Service Revenue 6,300
Service Revenue ($19,900 − $13,600) 6,300
Journal
ACCOUNT TITLES
1. Journalize the adjusting and closing entries of Winwood Production Company at
December 31. There was only one adjustment to Service Revenue.
Adjusting Entries
Chapter 3: Accrual Accounting and Income Page 29 of 105
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-28A
(20-30 min.)
Requirements
Solution:
Req. 1
Current assets:
Cash 13,300$
Prepaid rent ($1,600 − $800) 800
1. Use the data in the partial worksheet to prepare Winwood Production Company’s
classified balance sheet at December 31 of the current year. Use the report format. First
you must compute the adjusted balance for several of the balance-sheet accounts.
2. Compute Winwood Production Company’s net working capital, current ratio, and debt
ratio at December 31. A year ago, net working capital was $3,900, the current ratio was
1.40, and the debt ratio was 0.64. Indicate whether the company’s ability to pay its
debts—both current and total—improved or deteriorated during the current year.
ASSETS
Winwood Production Company
Balance Sheet
December 31, 2016
Chapter 3: Accrual Accounting and Income Page 30 of 105
Less accumulated depreciation
Total assets 55,400$
Current liabilities:
Accounts payable $4,900
Income tax payable 1,200
LIABILITIES
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Current Prior
Year Year
Total current assets −
Net working
$14,100 −
Chapter 3: Accrual Accounting and Income Page 31 of 105
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-29A
(30 min.)
Solution:
a.
Determine whether each transaction improved or hurt Landry’s current ratio
and debt ratio.
=
$20+$7
$50+$7
=
0.47
Current
ratio
=
$20
$10+$7
=
1.18
Debt
ratio
Chapter 3: Accrual Accounting and Income Page 32 of 105
b.
d.
e.
Current
ratio
=
=
2.80
Debt
ratio
=
=
=
=
0.52
0.34
=
=
0.45
=
=
Current
ratio
=
=
1.25
Debt
ratio
0.25
Current
=
=
1.67
Debt
Current
=
=
1.00
Debt
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-30B
(5-10 min.)
Solution:
Millions
a. Revenue 720$
a. Under accrual accounting, what amount of revenue should Gibson Network
report for 2016? How does the revenue principle help to answer these
questions?
b. Under accrual accounting, what amount of total expense should Gibson
report for 2016? Which accounting principle helps to answer this question?
c. Redo parts a and b using the cash basis. Explain how the accrual basis
differs from the cash basis.
d. Which financial statement reports revenues and expenses? Which
statement reports cash receipts and cash payments?
The revenue principle says to record revenue when it has been earned,
Chapter 3: Accrual Accounting and Income Page 33 of 105
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-31B
(15-20 min.)
Requirements
Solution:
Req. 1
DATE DEBIT CREDIT
a. Insurance Expense 1,400
Prepaid Insurance ($600 + $2,000 − $1,200) 1,400
Req. 2
Net income understated by omission of:
Interest revenue 2,100$
Service revenue 1,400
Total understatement (3,500)$
Net income overstated by omission of:
Insurance expense 1,400$
Depreciation expense 5,200
Salary expense 7,200
Income tax expense 8,750
Total overstatement 22,550
Adjusting Entries
ACCOUNT TITLES
1. Journalize the adjusting entries.
2. Suppose the adjustments were not made. Compute the overall overstatement or
understatement of net income as a result of the omission of these adjustments.
Chapter 3: Accrual Accounting and Income Page 34 of 105
b. Interest Receivable 2,100
d. Depreciation Expense 5,200
e. Salary Expense ($18,000 × 2/5) 7,200
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-32B
(10-15 min.)
Solution:
Missing amounts in italics .
1 2 3 4
Beginning Supplies 2,400$ 700$ 600$ 900$
Journal entries:
Situation 1: Supplies 1,000
Compute the amounts that have been left blank for each situation. For
situations 1 and 2, journalize the needed transaction. Consider each situation
separately.
Situations
Chapter 3: Accrual Accounting and Income Page 35 of 105
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-33B
(10-20 min.)
Solution:
DATE DEBIT CREDIT
a. Insurance Expense 3,300
Interest Payable 3,300
Adjusting Entries
ACCOUNT TITLES
Journalize the adjusting entry needed at December 31, 2016, for each situation.
Consider each fact separately.
Chapter 3: Accrual Accounting and Income Page 36 of 105
Interest Revenue 4,500
Rent Revenue 3,475
d. Salary Expense ($5,500 × 4) 22,000
Salary Payable 22,000
Accumulated Depreciation 12,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-34
(10-15 min.)
Solution:
What amount appears for Prepaid Rent on
a. McCool’s unadjusted trial balance at December 31, 2016?
McCool Floral Co. prepaid three years’ rent ($36,000) on January 1, 2016.
At December 31, 2016, McCool prepared a trial balance and then made
the necessary adjusting entry at the end of the year. McCool adjusts its
accounts once each year—on December 31.
Chapter 3: Accrual Accounting and Income Page 37 of 105
b. McCool’s adjusted trial balance at December 31, 2016?
c. McCool’s unadjusted trial balance at December 31, 2016?
d. McCool’s adjusted trial balance at December 31, 2016?
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-35B
(20-30 min.)
Requirement
Solution:
Thousands
Revenues:
Sales revenue 42,400$
Thousands
Retained earnings, December 31, 2015 5,100$
Add: Net income 4,200
Less: Dividends declared (1,500)
1. Prepare Marshall, Inc.’s single step income statement and statement of
retained earnings for the year ended December 31, 2016, and its balance
sheet on that date. Draw the arrows linking the three statements.
Marshall, Inc.
Income Statement
Year Ended December 31, 2016
Marshall, Inc.
Statement of Retained Earnings
Year Ended December 31, 2016
Chapter 3: Accrual Accounting and Income Page 38 of 105
Cost of goods sold 25,500$
Selling, administrative, and
Total expenses 36,000
Income before tax 6,400
Income tax expense 2,200
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Cash 4,300$ Accounts payable 7,500$
Accounts receivable 1,400 Income tax payable 800
Thousands
Marshall, Inc.
Balance Sheet
December 31, 2016
ASSETS
LIABILITIES
Chapter 3: Accrual Accounting and Income Page 39 of 105
Inventories 2,400 Other liabilities 2,700
Prepaid expenses 1,600 Total liabilities 11,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E3-36B
(10-20 min.)
Solution:
Amounts in millions
Prepaid Insurance
Beg. bal.
450
460
Compute the amount of sales revenue, insurance expense, and other operating
expenses to report on the income statement for the year ended August 31, 2016.
Receivables
Beg. bal.
290
Chapter 3: Accrual Accounting and Income Page 40 of 105
320
Beg. bal.
480