Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-4 (LO 3-2)
1.
September 2.
2.
January 6.
3.
January 1.
4.
February 23.
Exercise 3-5 (LO 3-1)
Net income (unadjusted)
$100,000
1. Record insurance expense of $2,000 per month
(6,000)
2. Reclassify service revenue as deferred revenue (liability)
(4,000)
3. Reclassify supplies expense as supplies (asset)
Net income (adjusted)
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-6 (LO 3-3, 3-4, 3-5, 3-6, 3-7)
(i)
Use source documents to identify accounts affected by external
transactions.
(g)
Analyze the impact of the transaction on the accounting
equation.
the account balance.
Record the transaction.
Post the transaction to the T-account in the general ledger.
Prepare a trial balance.
flows).
Record and post closing entries.
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-7 (LO 3-3)
(1)
Credit
Supplies Expense
Supplies
3,000
(Supplies used during December)
(2)
Credit
Insurance Expense
Prepaid Insurance
2,000
(Reduce prepaid insurance)
(3)
Credit
Salaries Expense
Salaries Payable
16,000
(Record salaries owed at December 31)
(4)
Credit
Deferred Revenue
Service Revenue
1,500
Chapter 3 – The Accounting Cycle: End of the Period
3-24 Financial Accounting, 5e
Exercise 3-8 (LO 3-3)
(1)
Credit
Depreciation Expense
(2)
Credit
Interest Receivable
(3)
Credit
Deferred Revenue
Exercise 3-9 (LO 3-3)
If the adjusting entry is NOT made:
Revenues
−
Expenses
=
Net Income
(1)
$0
−
−$7,000
=
+$7,000
(2)
−
=
(3)
−
=
Total
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-10 (LO 3-3)
(1)
Credit
Deferred Revenue
Service Revenue
(2)
Credit
Advertising Expense
Prepaid Advertising
(3)
Credit
Salaries Expense
Salaries Payable
8,000
(Record salaries payable)
(4)
Credit
Interest Expense
Interest Payable
Exercise 3-11 (LO 3-3, 3-4)
If the adjusting entry is NOT made:
Assets
=
Liabilities
+
Stockholders’
Equity
(1)
$0
=
+$1,500
+
−$1,500
(2)
=
+
(3)
$0
=
+
(4)
=
+
Chapter 3 – The Accounting Cycle: End of the Period
3-26 Financial Accounting, 5e
Exercise 3-12 (LO 3-3)
(1)
Credit
Deferred Revenue
(2)
Credit
Insurance Expense
(3)
Credit
Salaries Expense
(4)
Credit
Interest Expense
(5)
Credit
Supplies Expense
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-13 (LO 3-3)
(1)
Credit
Interest Receivable
Interest Revenue
(2)
Debit
Credit
Rent Expense
3,000
(3)
Credit
Deferred Revenue
Service Revenue
)
(4)
Credit
Depreciation Expense
Accumulated Depreciation
5,500
(Depreciation expense = $5,500 for year)
(5
Credit
Salaries Expense
Salaries Payable
5,000
(Record salaries owed at December 31)
(6)
Credit
Supplies Expense
Supplies
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-14 (LO 3-3, 3-4)
Requirement 1
(1)
Credit
Rent Expense
Prepaid Rent
(2)
Credit
Deferred Revenue
Service Revenue
750
(Adjust deferred revenue for service
provided)
(3)
Credit
Salaries Expense
Salaries Payable
(4)
Credit
Supplies Expense
Supplies
(Supplies used during year; $1,700 + $2,300
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-14 (concluded)
Requirement 2
Demon Deacons Corporation
Adjusted Trial Balance
December 31, 2021
Accounts
Debit
Credit
Cash
$ 10,000
Accounts Receivable
15,000
Prepaid Rent
4,800
Supplies
Salaries Payable
700
Common Stock
Retained Earnings
Service Revenue
Rent Expense
2,400
Supplies Expense
3,200
Chapter 3 – The Accounting Cycle: End of the Period
3-30 Financial Accounting, 5e
Exercise 3-15 (LO 3-5)
Volunteers Inc.
(in millions)
Raiders Inc.
(in millions)
Year
Net
Income (Loss)
Retained
Earnings
Net
Income (Loss)
Retained
Earnings
2012
—
$ 0
$ 35
$ 11
2013
$ 30
30
(43)
(32)
2014
2015
2016
2017
2018
(42)
2019
2021
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-16 (LO 3-5)
Requirement 1
Fightin’ Blue Hens Corporation
Income Statement
For the year ended December 31, 2021
Service revenue
$500,000
Expenses:
Net income
Requirement 2
Fightin’ Blue Hens Corporation
Statement of Stockholders’ Equity
For the period ended December 31, 2021
Common
Stock
Retained
Earnings
Total
Stockholders’
Equity
Balance at July 1
$300,000
$60,000
$360,000
Issuance of common stock
Add: Net income for 2021
Balance at December 31
$300,000
$395,000
Exercise 3-16 (concluded)
Requirement 3
Fightin’ Blue Hens Corporation
Balance Sheet
December 31, 2021
Assets
Liabilities
Current assets:
Current liabilities:
Cash
$ 12,000
Accounts payable
$ 12,000
Accounts receivable
Salaries payable
Prepaid rent
Interest payable
Supplies
Notes payable
Stockholders’ Equity
Long-term assets:
Common stock
300,000
Equipment
400,000
Retained earnings
95,000
*
Accumulated depr.
Total assets
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-17 (LO 3-6)
Requirement 1
December 31, 2021
Debit
Credit
Service Revenue
50,000
Interest Revenue
6,000
Retained Earnings
56,000
(Close revenue accounts)
Retained Earnings
Salaries Expense
Rent Expense
Advertising Expense
Depreciation Expense
(Close expense accounts)
Retained Earnings
3,000
Dividends
3,000
(Close dividends account)
Requirement 2
Retained Earnings
3-34 Financial Accounting, 5e
Exercise 3-18 (LO 3-6)
Requirement 1
December 31, 2021
Debit
Credit
Service Revenue
54,000
Retained Earnings
54,000
(Close revenue accounts)
Retained Earnings
Advertising Expense
Rent Expense
Utilities Expense
(Close expense accounts)
Retained Earnings
4,000
Dividends
4,000
(Close dividends account)
Requirement 2
Retained Earnings
9000
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-18 (concluded)
Requirement 3
Laker Incorporated
Post-Closing Trial Balance
December 31, 2021
Accounts
Debit
Credit
Cash
$12,000
Supplies
Prepaid Rent
Notes Payable
Retained Earnings
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-19 (LO 3-6, 3-7)
Requirement 1
December 31, 2021
Debit
Credit
Service Revenue
500,000
Retained Earnings
500,000
Retained Earnings
465,000
Salaries Expense
Rent Expense
Interest Expense
Requirement 2
Fightin’ Blue Hens Corporation
Post-Closing Trial Balance
December 31, 2021
Accounts
Debit
Credit
Cash
$ 12,000
Accounts Receivable
150,000
Prepaid Rent
6,000
Office Supplies
Equipment
400,000
Accumulated Depreciation
Accounts Payable
Salaries Payable
Interest Payable
5,000
Notes Payable
Common Stock
Retained Earnings
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-20 (LO 3-3, 3-4, 3-5, 3-6, 3-7)
Requirement 1
February 15
Credit
1. Cash
Common Stock
20,000
(Issue shares of common stock)
May 20
2. Cash
Service Revenue
August 31
3. Salaries Expense
Cash
23,000
(Pay salaries to employees)
October 1
4. Prepaid Rent
Cash
12,000
November 17
5. Supplies
Accounts Payable
22,000
(Purchase supplies on account)
6. Dividends
Cash
(Pay dividends)
Chapter 3 – The Accounting Cycle: End of the Period
3-38 Financial Accounting, 5e
Exercise 3-20 (continued)
Requirement 2
December 31
Credit
1. Salaries Expense
Salaries Payable
4,000
(Record salaries owed at December 31)
2. Rent Expense
Prepaid Rent
3,000
3. Supplies Expense
Supplies
4. Deferred Revenue
Service Revenue
5,000
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-20 (continued)
Requirement 3
Red Flash Photography
Adjusted Trial Balance
December 31, 2021
Accounts
Debit
Credit
Cash
$ 30,000
Accounts Receivable
30,000
Supplies
5,000
Prepaid Rent
Land
Accounts Payable
Salaries Payable
Common Stock
Retained Earnings
Dividends
2,000
Service Revenue
Salaries Expense
Rent Expense
Supplies Expense
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-20 (continued)
Requirement 4
Red Flash Photography
Income Statement
For the year ended December 31, 2021
Service revenue
$70,000
Expenses:
Net income
Red Flash Photography
Statement of Stockholders’ Equity
For the period ended December 31, 2021
Common
Stock
Retained
Earnings
Total
Stockholders’
Equity
Balance at January 1
$50,000
$25,000
$ 75,000
Add: Net income for 2021
Less: Dividends
Balance at December 31
$108,000