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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
$ 22,000
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)
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
January 17
Debit
Credit
Cash
3,700
Deferred Revenue
3,700
(Receive cash in advance from customers)
January 20
Debit
Credit
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)
(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
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
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:
Requirement 5
Dynamite Fireworks
Balance Sheet
January 31, 2021
Assets
Liabilities
Current assets:
Current liabilities
Cash
$30,100
Accounts payable
$ 2,700
Stockholders’ Equity
Common stock
65,000
Long-term assets:
Retained earnings
21,000
*
Land
50,000
Total stockholders’ equity
86,000
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
Revenue
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
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:
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
(2)
Debit
Credit
Depreciation Expense
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)
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
(2)
Debit
Credit
Salaries Expense
25,000
Salaries Payable
25,000
(Record salaries owed at December 31)
(3)
Debit
Credit
Deferred Revenue
4,000
(4)
Debit
Credit
Supplies Expense
16,000
(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
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
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
Boilermaker Unlimited
Balance Sheet
December 31, 2021
Assets
Liabilities
Current assets:
Current liabilities:
Cash
$ 16,000
Accounts payable
$ 31,000
Accounts receivable
25,000
Salaries payable
28,000
Supplies
32,000
Utilities payable
5,000
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)
Requirement 2
Rattlers Tax Services
Post-Closing Trial Balance
Accounts
Debit
Credit
Cash
$ 4,700
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
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
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
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
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
