1.
31 800
800
+ – = $800
$1,900
300 $1,600
June 30 230
Wages Expense
Insurance ExpenseDec.
$700
Prepaid Insurance
Less accumulated depreciation
Office equipment
Chapter 3, SE 5.
Balance Sheet Presentation:
$1,040
Chapter 3, SE 2.
c
$460
Chapter 3, SE 1.
Chapter 3, SE 3.
CHAPTER 3—Solutions
MEASURING BUSINESS INCOME
To record insurance expired during the year
31 760
$1,300
$4,300
Shimura Company
Statement of Retained Earnings
For the Month Ended December 31, 2011
Unearned Service Revenue
Retained earnings, November 30, 2011
Chapter 3, SE 6.
Shimura Company
Income Statement
Aug.
Chapter 3, SE 7.
Service revenue
For the Month Ended December 31, 2011
Revenue
Expenses
Dec. 31 1,300
1,300
950
450
200
Income Summary
To close the revenue account
Wages Expense
Rent Expense
Income Summary
Service Revenue
Chapter 3, SE 8.
Closing entries prepared
$1,950
$6,450
Service revenue
For the Month Ended October 31, 2011
Revenue
Cloud Company
Income Statement
Cloud Company
Statement of Retained Earnings
For the Month Ended October 31, 2011
Retained earnings, September 30, 2011
Chapter 3, SE 9.
Dec. 31 1,950
1,950
1,426
675
Closing entries prepared
Chapter 3, SE 10.
Income Summary
Service Revenue
Income Summary
To close the revenue account
Wages Expense
Chapter 3, SE 11.
$ 450
2,550
Unearned Revenue at December 31
Service Revenue earned during December
1.
2.
1.
penses, and dividends for the year, which are listed in the adjusted trial
is also an increase in assets and/or decrease in liabilities.
To measure a company’s performance (net income) accurately, each expense
(in this case, guaranty or warranty expense) must be matched with the related
(Note to the instructor: Because more than one concept may apply to a particular
intended to generate discussion.)
Chapter 3, E 3.
action, which concept is most applicable is a matter of judgment. This exercise is
Retained Earnings is not listed because it begins with a zero balance in the
first month of operation. It does not yet reflect the amounts of revenues, ex-
Chapter 3, E 1.
When a company has net income, its stockholders’ equity increases, but there
Chapter 3, E 2.
1.
31 87,500
1. 17,150
17,150
Chapter 3, E 5.
Chapter 3, E 4.
Services have not been rendered.
Magazine Subscriptions Received in Advance
2011
Dec.
Chapter 3, E 6.
Insurance Expense
Prepaid Insurance
1.
bcd
$ 217 $196 $ 822
2.
31 194
1. 31 28,000
2. June 3 42,000
28,000
70,000
$264
Salaries Expense
Salaries Expense
Adjusting entry for column a
Chapter 3, E 7.
Amounts indicated by the question marks are in italics
a
Salaries Payable
Cash
Supplies on hand at July 1
Supplies purchased during
July Supplies Expense
Chapter 3, E 8.
May
$20,000
31 64,500
31 64,500
1. Royalty expense and royalty income calculated
2. Adjusting entries recorded
Royalty Expense
Dec.
2011
Dec.
Chapter 3, E 9.
In Bit Comp, Inc.’s records:
In Regina Company’s records:
2011
Royalty Receivable
January to June 2011 (payment on November 1)
$14,620
$5,680
2,920
$ 2,020
$11,034
For the Month Ended August 31, 2011
Retained earnings, July 31, 2011
Spark Cleaning Company, Inc.
Statement of Retained Earnings
Janitorial revenue
Wages expense
Chapter 3, E 10.
For the Month Ended August 31, 2011
Spark Cleaning Company, Inc.
Income Statement
Expenses
Net income
Revenue
Supplies expense
$ 4,590
2,592
380
$ 420
80
920
800
Liabilities
Income taxes payable
Unearned janitorial revenue
Accounts receivable
Cash
Chapter 3, E 10. (Continued)
Spark Cleaning Company, Inc.
Prepaid insurance
Assets
Accounts payable
Balance Sheet
August 31, 2011
Wages payable
31 14,620
14,620
12,600
5,680
31 2,020
2,020
Aug.
Chapter 3, E 11.
Closing entries recorded
Retained Earnings
To close the revenue account
Janitorial Revenue
Income Summary
Wages Expense
Income Summary
Income Summary
To close the Income Summary account
1. 428
428
2. 1,065
1,065
3. 900
4. 425
425
5. 375
To record interest accrued during the period
Unearned Revenue
Interest Receivable
Interest Income
Chapter 3, E 12.
Accumulated Depreciation—Office Equipment
Office Supplies
To record supplies consumed during the year
Depreciation Expense—Office Equipment
Office Supplies Expense
To record depreciation allocated to the year
Property Taxes Expense
Beginning balance
$168
1 42,000
42,000
×3 =
2.
31 31,700
31,700
31 23,275
Dec. Consulting Fees Earned
Income Summary
Income Summary
Unearned Legal Fees
months
Cash
been earned. Unearned Legal Fees is a liability of $31,500 on the balance sheet.
$10,500
Revenue on the income statement includes the $10,500 in legal fees that have
Chapter 3, E 14.
Closing entries recorded
To close the revenue account
Chapter 3, E 13.
Entries recorded1.
Oct.
$52,000
44,000
$ 1,200
1,900
$ 1,650
$ 1,100
9,750
$ 2,100
4,450
Wages Payable at end of 2010
Retained earnings, December 31, 2010
Wages Expense during 2011
Fees Earned during 2011
Statement of retained earnings prepared
Chapter 3, E 16.
Cash payments for insurance during 2011
Insurance Expense during 2011
Unearned Revenue at end of 2011
Prepaid Insurance at end of 2011
Chapter 3, E 15.
Statement of Retained Earnings
For the Year Ended December 31, 2011
Cindy’s Beauty Salon, Inc.
Net income
1. $152,700
2. $26,400
3. $229,000
Cash Flows from Operating Activities
Net Income
$ 3,000
242,000
$ 15,000
Financial ratios calculated
=Cash Flow Yield
Salaries Expense
Cash paid during the year
$ 2,700
$229,000
Cash paid for salaries during the year:
Beginning balance
Chapter 3, E 18.
Cash paid for rent during the year:
Ending balance
Cash paid for interest during the year:
Beginning balance
Chapter 3, E 17.
Balance Balance
after after
Adjustment Adjustment
a. – $ 5,440 $ 1,360 + $ 5,440 $ 5,440
b. – 12,448 2,300 + 12,448 12,448
Chapter 3, P 1.
Income Adjustment
Insurance Expense
Balance Sheet Account (+ or –)
Adjustment
Prepaid Insurance
Amount of
Cleaning Supplies Expense
(+ or –)Statement Account
Amount of
Cleaning Supplies
a. June 30 26,000
26,000
b. 30 22,440
6,514
[( ÷
×6
[( ÷
×2
3,600
( ÷ 12 × 1 month
=
1. Adjusting entries recorded
Interest Expense
Interest Payable
To record accrued interest on mortgage
Chapter 3, P 2.
months ]
$5,800
To record expired insurance
Prepaid Insurance
12 months )2,900
$3,240
$6,732 36 months )
374
months ]
Service Revenue
$6,514
$43,200
$3,600
Salaries Expense
months)
To record service revenue earned on
services collected in advance
2. User Insight: Revenue recognition discussed
In transaction c, no revenue is recognized because even though a contract has
Chapter 3, P 2. (Continued)