EXERCISE 3.11 (20–25 minutes)
(a) ANDERSON COOPER CO.
Income Statement
For the Year Ended December 31, 2020
Revenues
Service revenue ………………………………………………
Expenses
Salaries and wages expense …………………………..
Rent expense …………………………..……………………..
Depreciation expense ………………………………………
(b) ANDERSON COOPER CO.
Retained Earnings Statement
For the Year Ended December 31, 2020
Retained earnings, January 1 …………………………………………………….
$11,310
Add: Net income ……………………………………………………………………….
(c) ANDERSON COOPER CO.
Balance Sheet
December 31, 2020
Assets
Current Assets
Cash ……………………………………………………….
$19,472
Accounts receivable …………………………………..
Prepaid rent ……………………………………………….
Total current assets ……………………………….
Property, plant, and equipment
Equipment ………………………………………………….
EXERCISE 3.11 (Continued)
$ 5,472
83
EXERCISE 3.12 (20–25 Minutes)
(a) SANTO DESIGN
Income Statement
For the Year Ended December 31, 2020
Revenues
Service revenue ……………………………………………..
$61,500
Expenses
Salaries and wages expense …………………………...
Depreciation expense ……………………………………..
Rent expense………………………………………………….
Supplies expense ……………………………………………
Insurance expense ………………………………………….
Interest expense ……………………………………………..
Total expenses …………………………………………
SANTO DESIGN
Retained Earnings Statement
For the Year Ended December 31, 2020
Retained earnings, January 1 …………………………………………………….
$ 3,500
Add: Net income ……………………………………………………………………….
EXERCISE 3.12 (Continued)
(a) Continued SANTO DESIGN
Balance Sheet
December 31, 2020
Assets
Cash ………………………………………………………………………..
$11,350
Accounts receivable …………………………………………………
21,500
Supplies …………………………………………………………………..
Prepaid insurance …………………………………………………….
Liabilities and Stockholders’ Equity
Liabilities
Notes payable ………………………………………………….
$ 5,000
Accounts payable …………………………………………….
5,000
Interest payable ……………………………………………….
Unearned service revenue ………………………………..
5,600
Salaries and wages payable ……………………………..
1,300
Total liabilities……………………………………………
Common stock ………………………………………………..
$10,000
Retained earnings …………………………..……………….
(b) (1) Based on interest payable at December 31, 2020, interest is $25 per
month ($150/6 months) or 0.5% of the note payable. 0.5% X 12 = 6%
EXERCISE 3.13 (10–15 minutes)
(a)
Sales revenue ……………………………………………………….
$800,000
Less: Sales returns and allowances …………………………..
Sales discounts ……………………………………………………….
Net sales ……………………………………………………….
$761,000
(b)
Sales Revenue ……………………………………………………….
800,000
Income Summary ……………………………………………………….
800,000
Income Summary……………………………………………………….
Sales Returns and Allowances …………………………..
Sales Discounts ……………………………………………………….
EXERCISE 3.14 (10–15 minutes)
Sales Revenue ……………………………………………………….
350,000
Income Summary ……………………………………………………….
350,000
Income Summary……………………………………………………….
329,000
Cost of Goods Sold ……………………………………………………….
Sales Returns and Allowances …………………………..
Sales Discounts ……………………………………………………….
Delivery Expense ……………………………………………………….
Insurance Expense ……………………………………………………….
Rent Expense ……………………………………………………….
Salaries and Wages Expense …………………………..
Income Summary ($350,000 – $329,000) …………………………..
Retained Earnings ……………………………………………………….
EXERCISE 3.15 (10–15 minutes)
(a) $9,000 ($90,000 − $81,000) (d) $100,000 ($95,000 + $5,000)
EXERCISE 3.16 (10–15 minutes)
Sales Revenue ……………………………………………………….
410,000
Cost of Goods Sold ……………………………………………………….
225,700
Sales Returns and Allowances …………………………..
Sales Discounts ……………………………………………………….
15,000
Selling Expenses ……………………………………………………….
16,000
Administrative Expenses ………………………………………………….
Income Tax Expense ……………………………………………………….
30,000
Income Summary ……………………………………………………….
73,300
(or)
Sales Revenue ……………………………………………………….
410,000
Income Summary ……………………………………………………….
410,000
Income Summary …………………………..…………………………..
336,700
Cost of Goods Sold ……………………………………………………….
225,700
Sales Returns and Allowances …………………………..
Sales Discounts ……………………………………………………….
Selling Expenses ……………………………………………………….
Administrative Expenses ………………………………………………….
Income Tax Expense ……………………………………………………….
Income Summary ($410,000 – $336,700) …………………………..
Retained Earnings……………………………………………………….
Retained Earnings ……………………………………………………….
Dividends …………………………..…………………………..
EXERCISE 3.17 (10–15 minutes)
J1
Date
Account Titles and Explanation
Ref.
Debit
Credit
Mar.
1
Cash
50,000
Common Stock
50,000
(Investment of cash in business)
3
Land
10,000
Buildings
22,000
Equipment
6,000
Cash
38,000
Advertising Expense
1,600
Cash
1,600
(Paid for advertising)
6
Prepaid Insurance
1,480
Cash
1,480
(Paid for one-year insurance policy)
10
Equipment
2,500
Accounts Payable
2,500
(Purchased equipment on account)
Service Revenue
1,200
(Received cash for services performed)
25
Dividends
500
Cash
500
(Declared and paid a $500 cash dividend)
30
Salaries and Wages Expense
900
Cash
900
(Paid wages expense)
30
Accounts Payable
2,500
Cash
2,500
(Paid creditor on account)
31
Cash
750
Service Revenue
750
(Received cash for services performed)
*EXERCISE 3.18 (15–20 minutes)
Jill Accardo, M.D.
Conversion of Cash Basis to Accrual Basis
For the Year 2020
Excess of cash collected over cash disbursed ($142,600 –
$55,470)
$87,130
Add increase in accounts receivable ($9,250 – $15, 927)
6,677
Deduct increase in unearned service revenue ($2,840 – $4,111)
Add increase in prepaid expenses ($1,917 – $3,232)
Alternate solution:
Jill Accardo, M.D.
Conversion of Income Statement Data
from Cash Basis to Accrual Basis
For the Year 2020
Cash
Adjustments
Accrual
Basis
Add
Deduct
Basis
Collections from customers:
$142,600
$142,600
–Accounts receivable, Jan. 1
$9,250
($9,250)
+Accounts receivable, Dec. 31
+Unearned service revenue, Jan. 1
$2,840
–Unearned service revenue, Dec. 31
$4,111
($4,111)
$142,600
$148,006
Disbursements for expenses:
–Accrued expenses, Jan. 1
$3,435
+Accrued expenses, Dec. 31
$2,108
+Prepaid expenses, Jan. 1
$1,917
–Prepaid expenses, Dec. 31
_______
$3,232
Operating expenses
$ 87,130
*EXERCISE 3.19 (10–15 minutes)
(a) Wayne Rogers Corp.
Income Statement (Cash Basis)
For the Year Ended December 31,
2019
2020
Sales revenue
$295,000
$515,000
Net income
$243,000
(b) Wayne Rogers Corp.
Income Statement (Accrual Basis)
For the Year Ended December 31,
2019
2020
Sales* revenue
$485,000
$445,000
Net income
$208,000
$190,000
*EXERCISE 3.20 (20–25 minutes)
(a)
Adjusting Entries:
1.
Dec. 31 Insurance Expense ($5,280 X 5/24) …………………………..
1,100
Prepaid Insurance …………………………..
1,100
2.
Dec. 31 Rent Revenue ($1,800 X 1/3) …………………………..
Unearned Rent Revenue …………………………..
3.
Dec. 31 Supplies ……………………………………………………….
Advertising Expense …………………………..
4.
Dec. 31 Interest Expense ……………………………………………………….
Interest Payable …………………………..
*EXERCISE 3.20 (Continued)
(b)
Reversing Entries:
1.
No reversing entry required.
2.
Unearned Rent Revenue ……………………………………………………….
Rent Revenue …………………………..…………………………..
3.
Advertising Expense ……………………………………………………….
Supplies ……………………………………………………….
4.
Interest Payable ……………………………………………………….
Interest Expense …………………………..…………………………..
*EXERCISE 3.21 (10–15 minutes)
Accounts
Adjusted Trial
Balance
Income
Statement
Balance Sheet
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Cash
9,000
9,000
Inventory
80,000
80,000
Sales Revenue
Sales Discounts
Cost of Goods Sold
*EXERCISE 3.22 (20–25 minutes)
Ed Bradley Co.
Worksheet (partial)
For the Month Ended April 30, 2020
Adjusted Trial
Balance
Income
Statement
Balance Sheet
Account Titles
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Cash
24,522
24,522
Accounts Receivable
6,920
6,920
Prepaid Rent
2,280
2,280
Equipment
18,050
18,050
Accum. Depreciation –
Equipment
4,895
4,895
Notes Payable
5,700
Accounts Payable
Common Stock
34,960
Retained Earnings
Dividends
1,100
1,100
Service Revenue
12,590
6,840
6,840
Rent Expense
3,760
3,760
Depreciation Expense
Interest Expense
Interest Payable
83
Net income
*EXERCISE 3.22 (Continued)
Ed Bradley Co.
Balance Sheet
April 30, 2020
Assets
Current Assets
Cash ……………………………………………………….
$24,522
Accounts receivable ………………………………..
Prepaid rent …………………………………………….
Total current assets …………………………
Property, plant, and equipment
Equipment ………………………………………………
Liabilities and Stockholders’ Equity
Liabilities
Notes payable …………………………………………
$ 5,700
Accounts payable ……………………………………
4,472
Interest payable ………………………………………
Total current liabilities …………………….
Common Stock ……………………………………….
Retained earnings ……………………………………
*EXERCISE 3.23 (10–15 minutes)
Jurassic Park Co.
Worksheet (partial)
For Month Ended February 28, 2020
Trial
Balance
Adjustments
Adjusted
Trial Balance
Income
Statementa
Balance
Sheet
Account Titles
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Supplies
1,756
(a)
1,041
715
715
(b)
7,196
Accumulated
The following accounts and amounts would be shown in the February
income statementa:
TIME AND PURPOSE OF PROBLEMS
Problem 3.1 (Time 25–35 minutes)
Problem 3.2 (Time 35–40 minutes)
Purpose—to provide an opportunity for the student to prepare adjusting entries, and prepare financial
Problem 3.3 (Time 25–30 minutes)
Problem 3.4 (Time 40–50 minutes)
Purpose—to provide an opportunity for the student to prepare adjusting entries and an adjusted trial
Problem 3.5 (Time 15–20 minutes)
Problem 3.6 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to prepare year-end adjusting entries from a trial
Problem 3.7 (Time 25–35 minutes)
Purpose—to provide an opportunity for the student to figure out the year-end adjusting entries that were
Problem 3.8 (Time 25–35 minutes)
Purpose—to provide an opportunity for the student to figure out the year-end adjusting entries that were
Problem 3.9 (Time 30–40 minutes)
Problem 3.10 (Time 30–35 minutes)
Purpose—to provide an opportunity for the student to prepare adjusting and closing entries from a trial
Time and Purpose of Problems (Continued)
*Problem 3.11 (Time 35–40 minutes)
*Problem 3.12 (Time 40–50 minutes)
Purpose—to provide an opportunity for the student to complete a worksheet and then prepare a
SOLUTIONS TO PROBLEMS
PROBLEM 3.1
(a) (Explanations are omitted.) and (d)
Cash
Equipment
Sept.
1
20,000
Sept.
4
680
Sept.
2
17,280
8
1,690
5
942
10
430
18
19
Sept.
1
30
30
Bal.
30
Bal
Sept.
30
6007
Accounts Receivable
Bal.
30
6007
Sept.
14
5,820
Sept.
20
980
Dividends
Sept.
19
3000
.
Bal.
9
3000
.
25
2,110
Accounts Payable
Bal.
30
6,950
Sept.
18
3,600
Sept.
2
17,280
Rent Expense
Sept.
Sept.
30
Sept.
5
Sept.
30
Sept.
30
Sept.
8
Bal.
30
25
Sept.
Sept.
30
Sept.
30
Salaries and Wages Expense
Sept.
30
1,800
Sept.
30
1,800
Supplies Expense
Sept.
30
330
Sept.
30
330
PROBLEM 3.1 (Continued)
Depreciation Expense
Income Summary
Sept.
30
288
Sept.
30
288
Sept.
30
680
Sept.
30
9,620
30
515
30
330
30
288
Inc.
(b) YASUNARI KAWABATA, D.D.S.
Trial Balance
September 30
Debit
Credit
Cash …………………………………………………………………………….
$12,133
Accounts Receivable …………………………………………………….
6,950
Supplies ……………………………………………………………………….
Accounts Payable ……………………………………………………….
Retained Earnings……………………………………………………….
Dividends ……………………………………………………………………..
3,000
Rent Expense …………………………..…………………………..
Office Expense ……………………………………………………….
Supplies Expense …………………………..…………………………..
Depreciation Expense ……………………………………………………
PROBLEM 3.1 (Continued)
(c) YASUNARI KAWABATA, D.D.S.
Income Statement
For the Month of September
Service revenue …………………………..…………………………..
$9,620
Expenses:
Salaries and wages expense…………………………
$1,800
Rent expense ………………………………………………
Supplies expense ………………………………………..
Depreciation expense …………………………..
Office expense …………………………………………….
Total expenses…………………………………………
YASUNARI KAWABATA, D.D.S.
Retained Earnings Statement
For the Month of September
Balance, September 1 ……………………………………………………….
$0
Add: Net income ……………………………………………………………..
Less: Dividends ……………………………………………………….………..
YASUNARI KAWABATA, D.D.S.
Balance Sheet
As of September 30
Assets
Liabilities and Owners’ Equity
Cash …………………………..
$12,133
Accounts payable ………………..
$13,680
Accounts receivable ……….
Common Stock ……………………..
Supplies …………………………
Equipment. …………………….
PROBLEM 3.1 (Continued)
(d) YASUNARI KAWABATA, D.D.S.
Post-Closing Trial Balance
September 30
Debit
Credit
Cash …………………………..…………………………..
$12,133
Accounts Receivable ………………………………………
Supplies …………………………..…………………………..
Equipment ………………………………………………………
Accounts Payable …………………………………………..
Common Stock ……………………………………………….
Retained Earnings …………………………………………..
PROBLEM 3.2
(a)
Dec. 31
Accounts Receivable ($23,500 − $20,000) …………………………..
3,500
Service Revenue ……………………………………………………….
3,500
31
Unearned Service Revenue ($7,000 − $5,600) …………………………..
1,400
Service Revenue ……………………………………………………….
1,400
31
Supplies Expense ……………………………………………………….
5,400
Supplies ($8,400 − $3,000) …………………………..
5,400
31
Depreciation Expense ……………………………………………………….
5,000
31
Interest Expense($500 − $350) …………………………..
Interest Payable ……………………………………………………….
31
Insurance Expense ……………………………………………………….
Prepaid Insurance ($3,350 – $2,500) …………………………..
31
Salaries and Wages Expense ($11,300 − $10,000) ………………………..
1,300
Salaries and Wages Payable …………………………..
(b) MASON ADVERTISING
Income Statement
For the Year Ended December 31, 2020
Revenues
Service revenue …………………………..………………….
$63,500
Expenses
Salaries and wages expense …………………………..
$11,300
Supplies expense …………………………..
Depreciation expense …………………………..
Rent expense ………………………………………………….
Insurance expense …………………………..
Interest expense ……………………………………………..
500
Total expenses…………………………..
PROBLEM 3.2 (Continued)
MASON ADVERTISING
Retained Earnings Statement
For the Year Ended December 31, 2020
Retained earnings, January 1 ……………………………………………………
Add: Net income……………………………………………………….
MASON ADVERTISING
Balance Sheet
December 31, 2020
Assets
Cash ………………………………………………………………………..
$11,000
Accounts receivable …………………………………………………
Supplies …………………………………………………………………..
Prepaid insurance …………………………………………………….
Equipment ……………………………………………………………….
$60,000
Liabilities and Stockholders’ Equity
Liabilities
Notes payable………………………………………………….
$ 5,000
Accounts payable ……………………………………………
Unearned service revenue …………………………..
Salaries and wages payable …………………………..
1,300
Interest payable ……………………………………………….
Total liabilities …………………………………………..
Common stock …………………………..……………………
Retained earnings ……………………………………………
(c) 1. Interest is $50 per month or 1% of the note payable. 1% X 12 = 12%
interest per year.