P3-1A Analyze transactions and compute net income
On April 1, Wonder Travel Agency Inc. was established. These transactions were completed
during the month.
1. Stockholders invested $30,000 cash in the company in exchange for common stock.
2. Paid $900 cash for April office rent.
3. Purchased office equipment for $3,400 cash.
4.
Purchased $200 of advertising in the Chicago Tribune , on account.
5. Paid $500 cash for office supplies.
6. Performed services worth $12,000. Cash of $3,000 is received from customers, and the
balance of $9,000 is billed to customers on account.
7. Paid $400 cash dividends.
8.
Paid Chicago Tribune amount due in transaction (4)
9. Paid employees’ salaries $1,800.
10. Received $9,000 in cash from customers billed previously in transaction (6).
Instructions
(a) Prepare a tabular analysis of the transactions using these column headings: Cash,
Accounts Receivable, Supplies, Equipment, Accounts Payable, Common Stock, and
Retained Earnings (with separate columns for Revenues, Expenses, and Dividends).
Include margin explanations for any changes in Retained Earnings.
(b) From an analysis of the Retained Earnings columns, compute the net income or net loss
for April.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
=Liabilities +
Accounts Accounts Common
Cash + Receivable + Supplies + Equipment = Payable + Stock + Revenue – Expenses – Dividends
1. Value Value
2. Value Value
3. Value Value
4. Value Value
5. Value Value
6. Value Value Value
7. Value Value
8. Value Value
9. Value Value
10. Value Value
? + ? + ? + ? = ? + ? + ? – ? – ?
(b) Service Revenue Value
Expenses
Salaries and Wages Expense Value
Rent Expense Value
Advertising Expense Value ?
Net Income ?
OR
Revenues Value
Less: Expenses Value
Net Income ?
After you have completed P3-1A, consider the following additional question.
1. Assume that in transaction (6) services performed changed to $15,000 with $5,000 received in cash.
Also assume that the amount was paid in full (transaction 10). Show the impact of this change on the
analysis and on net income.
Assets
Stockholders’ Equity
WONDER TRAVEL AGENCY INC.
P3-1A Solution
=Liabilities +
Accounts Accounts Common
Cash +
Receivable
+ Supplies +
= Payable + Stock + Revenue –
– Dividends
1. +$30,000 +$30,000
2. -900 -$900 Rent Expense
3. -3,400 +$3,400
7. -400 -400 Dividend
9. -1,800 -1,800 Salaries and Wages Expense
10. +9,000 -9,000
(b) Service Revenue $12,000
Expenses
Salaries and Wages Expense $1,800 Value
WONDER TRAVEL AGENCY INC.
Assets
Stockholders‘ Equity
$38,700
$38,700
P3-1A Solution to additional question
1. Assume that in transaction (6) services performed changed to $15,000 with $5,000 received in cash.
Also assume that the amount was paid in full (transaction 10). Show the impact of these changes on the
analysis and on net income.
= Liabilities +
Accounts Accounts Common
Cash + Receivable + Supplies + Equipment = Payable + Stock + Revenue – Expenses – Dividends
1. +$30,000 +$30,000
2. -900 -$900 Rent Expense
3. -3,400 +$3,400
7. -400 -400 Dividend
10. +10,000 -10,000
$37,800 +$0 $500 + $3,400 = $0 + $30,000 + $15,000 – 2,900$ – $400
WONDER TRAVEL AGENCY INC.
Assets
Stockholders’ Equity
P3-3A Analyze transactions and prepare an income statement, retained earnings statement, and balance sheet
Bindy Crawford created a corporation providing legal services, Bindy Crawford Inc., on July 1, 2017. On July 31, the balance sheet
showed Cash $4,000; Accounts Receivable $2,500; Supplies $500; Equipment $5,000; Accounts Payable $4,200; Common
Stock $6,200; and Retained Earnings $1,600. During August, the following transactions occurred.
Aug 1 Collected $1,100 of accounts receivable due from customers.
4 Paid $2,700 cash for accounts payable due.
9 Performed services worth $5,400 of which $3,600 is collected in cash and the balance is due in September.
15 Purchased additional office equipment for $4,000, paying $700 in cash and the balance on account.
19 Paid salaries $1,400, rent for August $700, and advertising expenses $350.
23 Paid a cash dividend of $700.
26 Borrowed $5,000 from Standard Federal Bank; the money was borrowed on a 4-month note payable.
31 Incurred utility expenses for the month on account $380.
Instructions
(a) Prepare a tabular analysis of the August transactions beginning with July 31 balances. The column headings
should be Cash + Accounts Receivable + Supplies + Equipment = Notes Payable + Accounts Payable + Common
Stock + Retained Earnings + Revenue – Expenses – Dividends. Include margin explanations for any changes in
Retained Earnings.
(b) Prepare an income statement for August, a retained earnings statement for August, and a classified balance
sheet at August 31.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a) =
+
Accounts Notes Accounts Common Retained
Cash + Receivable +
Supplies
+ Equipment = Payable + Payable
+ Stock + Earnings + Revenue –
Expenses
– Dividends
July 31 Bal.
$4,000 + $2,500 + $500 + $5,000 $4,200
+ $6,200 + $1,600
Aug 1 Value
4 Value Value
9 Value Value
Value
15 Value Value Value
19 Value
Value
Value
Value
23 Value Value
26 Value Value `
31 Value Value
? + ? + ? + ? = ? + ? + ? + ? + ? – ? – ?
(b)
Revenues
Service revenue Value
Expenses
Salaries and wages expense Value
Rent expense Value
Utilities expense Value
Advertising expense Value
Total expenses ?
Net income ?
Retained earnings, August 1 Value
Add: Net income Value
Value
Less: Dividends Value
Retained earnings, August 31 ?
Balance Sheet
August 31, 2017
Income Statement
For the Month Ended August 31, 2017
BINDY CRAWFORD INC.
Retained Earnings Statement
For the Month Ended August 31, 2017
BINDY CRAWFORD INC.
Assets
Stockholders’ Equity
Liabilities
BINDY CRAWFORD INC.
BINDY CRAWFORD INC.
Current assets
Cash Value
Accounts receivable Value
Supplies Value
Total current assets ?
Equipment Value
Total assets ?
Current liabilities
Notes payable Value
Account payable Value
Total current liabilities ?
Stockholders‘ equity
Common stock Value
Retained earnings Value ?
Total liabilities and stockholders’
equity ?
After you have completed P3-3A, consider the following additional question
1. Assume that salaries and wages payable and the amount borrowed from the bank
changed to $1,600 and $7,500 respectively.
Assets
Liabilities and Stockholders‘ Equity
+
Notes Accounts Common Retained
Payable + Payable + Stock +
Earnings
+
Revenue
–
Expenses
– Dividends
+3,300
-$1,400 Salaries and Wages Expense
-700 Dividends
+5,000 `
Liabilities
Stockholders’ Equity
1. Assume that salaries and wages payable and the amount borrowed from the bank
changed to $1,600 and $7,500 respectively.
(a) = +
Accounts Notes Accounts Common Retained
Cash +
Receivable
+
Supplies
+ Equipment = Payable + Payable + Stock +
Earnings
+
Revenue
–
Expenses
– Dividends
July 31 Bal. $4,000 + $2,500 + $500 + $5,000 + $4,200 + $6,200 $1,600
Aug 1 +1,100 -1,100
15 -700 +4,000 +3,300
19 -2,650 -$1,600 Salaries and Wages Expense
23 -700 -700 Dividends
26 +7,500 +7,500 `
Advertising expense 350
Net income $2,370
Value
(b)
Revenues
Service revenue $5,400
Expenses
Salaries and wages expense $1,600
Retained earnings, August 1 $1,600
Add: Net income 2,370
Less: Dividends 700
Current assets
Cash $9,450
Accounts receivable 3,200
Supplies 500
Equipment 9,000
Account payable 5,180
Retained earnings 3,270 9,470
August 31, 2017
Assets
For the Month Ended August 31, 2017
BINDY CRAWFORD INC.
Retained Earnings Statement
For the Month Ended August 31, 2017
BINDY CRAWFORD INC.
Balance Sheet
Income Statement
BINDY CRAWFORD INC.
Assets
Liabilities
Stockholders’ Equity
BINDY CRAWFORD INC.
P3-7A Prepare a correct trial balance
This trial balance of Washburn Co. does not balance.
Debit Credit
Cash 3,090$
Accounts Receivable 3,190$
Supplies 800
Equipment 3,000
Accounts Payable 3,686
Unearned Service Revenue 1,200
Common Stock 9,000
Dividends 800
Service Revenue 3,480
Salaries and Wages Expense
3,600
Utilities Expense 910
13,500$ 19,256$
Each of the listed accounts has a normal balance per the general ledger. An examination
of the ledger and journal reveals the following errors:
1. Cash received from a customer on account was debited for $780, and Accounts Receivable
was credited for the same amount. The actual collection was for $870.
2. The purchase of a printer on account for $340 was recorded as a debit to Supplies for $340
and a credit to Accounts Payable for $340.
3. Services were performed on account for a client for $900. Accounts Receivable was debited
for $90 and Service Revenue was credited for $900.
4. A debit posting to Salaries and Wages Expense of $700 was omitted.
5.
A payment on account for $206 was credited to Cash for $206 and credited to Accounts
Payable for $260.
6. Payment of a $600 cash dividend to Washburn’s stockholders was debited to Salaries and
Wages Expense for $600 and credited to Cash for $600.
Instructions
Prepare the correct trial balance. (Hint: All accounts have normal balances.)
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
Debit Credit
Cash Value
Accounts Receivable Value
Supplies Value
Equipment Value
Accounts Payable Value
Unearned Service Revenue Value
Common Stock Value
Dividends Value
Service Revenue Value
WASHBURN CO.
Trial Balance
June 30, 2017
WASHBURN CO.
Trial Balance
June 30, 2017
Salaries and Wages Expense Value
Utilities Expense Value
? ?
When you have completed P3-7A, consider the following additional question.
1. In addition to the errors noted, assume that 20% of unearned revenue was
earned; however, no entry was processed. Show impact of this error on the
trial balance.
P3-7A Solution
Debit Credit
Cash ($3,090 – $780 + $870) $3,180
Accounts Receivable* 3,910
WASHBURN CO.
Trial Balance
June 30, 2017
P3-7A Solution to additional question
1. In addition to the errors noted, assume that 20% of unearned revenue was
earned; however, no entry was processed. Show impact of this error on the
trial balance.
Debit Credit
Cash ($3,090 – $780 + $870) $3,180
Accounts Receivable* 3,910
Dividends ($800 + $600) 1,400
Service Revenue*** 3,720
Salaries and Wages Expense
WASHBURN CO.
Trial Balance
June 30, 2017