Weygandt Accounting Principles, 12e
Chapter Three
Solutions to Challenge Exercises
Challenge Exercise 3-1 – Solution
A
1. Interest Expense …………………………………………………………………. 1,000
Interest Payable …………………………………………………………… 1,000
($20,000 X 12% X 5/12)
3. Depreciation Expense ………………………………………………………….. 2,000
Accumulated Depreciation—Equipment …………………………... 2,000
4. Insurance Expense ………………………………………………………………. 1,800
Prepaid Insurance ………………………………………………………… 1,800
($2,700 X 8/12)
6. Accounts Receivable ……………………………………………………………. 6,300
Service Revenue …………………………………………………………. 6,300
7. Salaries and Wages Expense ………………………………………………… 7,800
Salaries and Wages Payable …………………………………………. 7,800
($13,000 X 3/5)
B.
Challenge Exercise 3-2 – Solution
A.
ANNETTE CO.
Income Statement
For the Month Ended July 31, 2017
Revenues
Service revenue ($7,700 + $700) …………………………………………….. $8,400
Expenses
Salaries and Wages expense ($2,600 + $400) …………………………... $3,000
Total expenses …………………………………………………………….. 5,350
Net income ………………………………………………………………………………….. $3,050
B. Decrease in Prepaid insurance $ (500)
Increase in Supplies 300
Decrease in Equipment due to depreciation (250)
Note to instructor: Net income decreased by $150, from $3,200 to $3,050. This would
decrease owner’s equity. You can verify your computations with the accounting equation: