Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-20 (continued)
Requirement 4 (continued)
Red Flash Photography
Balance Sheet
December 31, 2021
Assets
Liabilities
Current assets:
Current liabilities:
Cash
$ 30,000
Accounts payable
Common stock
Long-term assets:
Retained earnings
Total assets
Chapter 3 – The Accounting Cycle: End of the Period
3-42 Financial Accounting, 5e
Exercise 3-20 (concluded)
Requirement 5
December 31, 2021
Debit
Credit
Service Revenue
70,000
Retained Earnings
70,000
(Close revenue accounts)
Retained Earnings
(Close expense accounts)
Retained Earnings
(Close dividends account)
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-21
Requirement 1
January 2
Debit
Credit
Prepaid Rent
6,000
Cash
6,000
(Pay for one year of rent in advance)
January 9
Debit
Credit
Supplies
3,500
Accounts Payable
3,500
(Purchase supplies on account)
Accounts Receivable
Service Revenue
(Provide services on account)
January 17
Debit
Credit
Cash
3,700
Deferred Revenue
3,700
(Receive cash in advance from customers)
January 20
Debit
Credit
Salaries Expense
Cash
January 22
Debit
Credit
Cash
(Receive cash on account)
January 29
Debit
Credit
Accounts Payable
4,000
Cash
4,000
(Pay cash on account)
Exercise 3-21 (continued)
Requirement 2
(a) January 31
Debit
Credit
Rent Expense
500
Prepaid Rent
500
(Reduce prepaid rent for one month used of
twelve months prepaid)
(b) January 31
Debit
Credit
Supplies
3,800
Deferred Revenue
3,200
Service Revenue
3,200
(d) January 31
Debit
Credit
Salaries Expense
5,800
Salaries Payable
5,800
(Record salaries owed at January 31)
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-21 (continued)
Requirement 3
Dynamite Fireworks
Adjusted Trial Balance
January 31, 2021
Accounts
Debit
Credit
Cash
$ 30,100
Accounts Receivable
6,600
Supplies
2,800
Prepaid Rent
5,500
Accounts Payable
Deferred Revenue
Salaries Payable
Common Stock
Service Revenue
Salaries Expense
Rent Expense
Supplies Expense
3,800
$116,600
3-46 Financial Accounting, 5e
Exercise 3-21 (continued)
Requirement 3 (continued)
Accounts
Ending
Balance
Beginning balance in bold, entries during
January in blue, and adjusting entries in red.
Cash
30,100
=
23,800−6,000+3,700−11,500+24,100−4,000
Accounts Receivable
6,600
=
5,200+25,500−24,100
Supplies
=
3,100+3,500−3,800
Prepaid Rent
=
Land
50,000
=
Accounts Payable
=
3,200+3,500−4,000
Deferred Revenue
=
Salaries Payable
=
Common Stock
65,000
=
Retained Earnings
13,900
=
Service Revenue
28,700
=
Salaries Expense
=
Rent Expense
=
Supplies Expense
=
Chapter 3 – The Accounting Cycle: End of the Period
Exercise 3-21 (continued)
Requirement 4
Dynamite Fireworks
Income Statement
For the year ended January 31, 2021
Revenues:
Service revenue
Rent Expense
Supplies Expense
Net income
Requirement 5
Dynamite Fireworks
Balance Sheet
January 31, 2021
Assets
Liabilities
Current assets:
Current liabilities
Cash
$30,100
Accounts payable
$ 2,700
Supplies
Salaries payable
Prepaid Rent
9,000
Stockholders’ Equity
Common stock
65,000
Long-term assets:
Retained earnings
21,000
*
Land
50,000
Total stockholders’ equity
86,000
Total assets
$95,000
$95,000
Chapter 3 – The Accounting Cycle: End of the Period
3-48 Financial Accounting, 5e
Exercise 3-21 (concluded)
Requirement 6
January 31, 2021
Debit
Credit
Service Revenue
28,700
Retained Earnings
28,700
Requirement 7
(a) Profit is the amount of net income reported in the income statement = $7,100.
(c) Profits greater than zero indicate a company’s ability to generate revenues from its
customers in excess of the costs of providing services to those customers and
Chapter 3 – The Accounting Cycle: End of the Period
PROBLEMS: SET A
Problem 3-1A (LO 3-1, 3-2)
Accrual-Basis
Cash-Basis
Transaction
Expense
Revenue
Expense
1. Receive cash from customers in
advance, $600.
$0
$0
$600
$0
2. Pay utilities bill for the previous
month, $150.
$0
$0
$0
$150
3. Pay for insurance one year in
advance, $2,000.
$0
$0
$0
$2,000
month, $800.
$0
$0
$800
$0
$0
$0
6. Receive cash from customers at the
time of service, $1,700.
$0
$0
7. Purchase office supplies on account,
$0
$0
$0
$0
8. Borrow cash from the bank, $4,000.
$0
$0
$0
$0
$0
$0
$750
$0
10. Pay for advertising to appear in the
$0
$0
$450
Chapter 3 – The Accounting Cycle: End of the Period
3-50 Financial Accounting, 5e
Problem 3-2A (LO 3-1, 3-2)
Minutemen Law Services
Income Statement
For the year ended December 31, 2021
Service revenue
$73,000a
Expenses:
Net income
a $70,000 (cash from customers) + $3,000 (increase in accounts receivable) = $73,000
b $36,000 (cash paid for salaries) + $1,700 (increase in salaries payable) = $37,700
Chapter 3 – The Accounting Cycle: End of the Period
Problem 3-3A (LO 3-3)
(1)
Debit
Credit
Deferred Revenue
3,600
Service Revenue
advance; $60,000 × 6/10 = $3,600)
(2)
Debit
Credit
Depreciation Expense
7,000
Accumulated Depreciation
$28,000 ÷ 4 = $7,000)
(3)
Debit
Credit
Insurance Expense
1,600
(4)
Debit
Credit
Interest Expense
800
Interest Payable
800
(Record interest expense for four months not
yet paid; $20,000 × 0.12 × 4/12 = $800)
Supplies Expense
1,700
Supplies
(Supplies used during year; $2,700 – $1,000
= $1,700)
Chapter 3 – The Accounting Cycle: End of the Period
3-52 Financial Accounting, 5e
Problem 3-4A (LO 3-3)
(1)
Debit
Credit
Insurance Expense
3,000
Prepaid Insurance
3,000
(2)
Debit
Credit
Salaries Expense
25,000
Salaries Payable
25,000
(Record salaries owed at December 31)
(3)
Debit
Credit
Deferred Revenue
4,000
Service Revenue
4,000
(4)
Debit
Credit
Supplies Expense
16,000
Supplies
(5)
Debit
Credit
Advertising Expense
3,000
Prepaid Advertising
3,000
(Reduce prepaid advertising for one month used of four
months prepaid; $12,000 × ¼ = $3,000)
(6)
Debit
Credit
Interest Expense
3,000
Interest Payable
3,000
Chapter 3 – The Accounting Cycle: End of the Period
Chapter 3 – The Accounting Cycle: End of the Period
Problem 3-5A (LO 3-5)
Boilermaker Unlimited
Income Statement
For the year ended December 31, 2021
Service revenues:
New construction
$450,000
Remodel
280,000
Expenses:
Net income
Chapter 3 – The Accounting Cycle: End of the Period
Problem 3-5A (concluded)
Boilermaker Unlimited
Statement of Stockholders’ Equity
For the year ended December 31, 2021
Common
Stock
Retained
Earnings
Total
Stockholders’
Equity
Balance at January 1
$170,000
$ 31,000
$201,000
Add: Net income for 2021
Balance at December 31
Boilermaker Unlimited
Balance Sheet
December 31, 2021
Assets
Liabilities
Current assets:
Current liabilities:
Cash
Accounts payable
Accounts receivable
Salaries payable
Supplies
Utilities payable
Prepaid insurance
Notes payable
Long-term assets:
Equipment
Common stock
Accumulated depr.
Retained earnings
equity
Total assets
3-56 Financial Accounting, 5e
Problem 3-6A (LO 3-6, 3-7)
Requirement 1
December 31
Debit
Credit
Service Revenue
77,500
Retained Earnings
77,500
(Close revenue accounts)
Retained Earnings
Utilities Expense
(Close expense accounts)
(Close dividends account)
Requirement 2
Rattlers Tax Services
Post–Closing Trial Balance
Accounts
Debit
Credit
Cash
$ 4,700
Land
Accounts Payable
Common Stock
Retained Earnings
Chapter 3 – The Accounting Cycle: End of the Period
Problem 3-7A (LO 3-4, 3-5, 3-6, 3-7)
Requirements 1 and 2 (adjusting entries posted in red)
Cash
Accounts Receivable
Supplies
10,300
9,500
2,000
1,300
10,300
9,500
700
Interest Receivable
Prepaid Rent
Land
78,000
Utilities Payable
Deferred Revenue
Common Stock
0
200
3,300
5,300
79,000
200
2,000
79,000
Retained Earnings
Service Revenue
Interest Revenue
0
Supplies Expense
0
1,300
1,300
Chapter 3 – The Accounting Cycle: End of the Period
Problem 3-7A (continued)
Requirement 3
Crimson Tide Music Academy
Adjusted Trial Balance
December 31, 2021
Accounts
Debit
Credit
Cash
$ 10,300
Accounts Receivable
9,500
Interest Receivable
800
Supplies
700
Prepaid Rent
Land
Notes Receivable
Accounts Payable
Salaries Payable
Deferred Revenue
Utilities Payable
200
Common Stock
Retained Earnings
Service Revenue
Salaries Expense
Rent Expense
Supplies Expense
Utilities Expense
Total
Chapter 3 – The Accounting Cycle: End of the Period
Problem 3-7A (continued)
Requirement 4
Crimson Tide Music Academy
Income Statement
For the year ended December 31, 2021
Revenues:
Service
$45,500
Interest
800
Expenses:
Net income (Loss)
Crimson Tide Music Academy
Statement of Stockholders’ Equity
For the year ended December 31, 2021
Common
Stock
Retained
Earnings
Total
Stockholders’
Equity
Balance at January 1
$79,000
$19,700
$ 64,000
Issuance of common stock
Less: Net income for 2021
Less: Dividends
Balance at December 31
$79,000
Chapter 3 – The Accounting Cycle: End of the Period
3-60 Financial Accounting, 5e
Problem 3-7A (continued)
Crimson Tide Music Academy
Balance Sheet
December 31, 2021
Assets
Liabilities
Current assets:
Current liabilities:
Cash
$ 10,300
Accounts payable
$ 7,700
Common stock
Notes receivable