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EXERCISE 4-5
(a)
Cash Basis
Accrual Basis
Service Revenue
$22,000
$28,000
(b) The accrual basis of accounting provides more useful information for
EXERCISE 4-6
(a) FRANKEN COMPANY
Income Statement
For the Six Months Ended April 30, 2017
Revenues
Service revenue ($32,150 + $540) .................... $32,690
Expenses
Income tax expense .......................................... $10,000
Salaries and wages expense ($2,600 + $420) . 3,020
EXERCISE 4-6 (Continued)
(b) FRANKEN COMPANY
Balance Sheet
April 30, 2017
Assets
Current Assets
Cash ................................................................ $27,780
Liabilities and Stockholders’ Equity
Current Liabilities
Salaries and wages payable ......................... $ 420
Stockholders’ equity
EXERCISE 4-7
(a) Event
Cash Accounting
Accrual Accounting
180-day
financing for
customers
Revenue is recorded
as cash is received.
Revenue is recorded when
the performance obligation
is satisfied. BizCon
Payment to
equipment
suppliers upon
delivery of goods
Equipment expense is
recorded as an
expense as soon as
equipment is received
and paid for.
Equipment is recorded as
an asset and depreciated.
EXERCISE 4-7 (Continued)
(b) Accrual accounting rules require that revenue be recognized as a
company performs services and expenses be matched with the
revenue they help produce. Receipt or payment of cash does not
influence the calculation of net income.
EXERCISE 4-8
Item
(1)
Type of Adjustment
(2)
Accounts Before Adjustment
(a)
Accrued Revenues
Assets Understated
Revenues Understated
(b)
Prepaid Expenses
Assets Overstated
Expenses Understated
EXERCISE 4-9
1. Mar. 31 Depreciation Expense ($280 X 3) ................. 840
3. 31 Interest Expense ............................................ 400
Interest Payable ..................................... 400
5. 31 Insurance Expense ($400 X 3) ...................... 1,200
EXERCISE 4-10
2. 31 Utilities Expense ............................................ 450
3. 31 Depreciation Expense ................................... 400
Accumulated Depreciation—
5. 31 Supplies Expense ($1,750 – $550) ............... 1,200
EXERCISE 4-11
1. Oct. 31 Supplies Expense .......................................... 2,000
3. 31 Depreciation Expense ................................... 75
4. 31 Unearned Service Revenue .......................... 800
Service Revenue .................................... 800
6. 31 Interest Expense ............................................ 70
Interest Payable ...................................... 70
7. 31 Salaries and Wages Expense ....................... 1,400
EXERCISE 4-12
Date
Account Titles
Debit
Credit
July 31
Interest Receivable ($20,000 .06 1/12) .......
Interest Revenue ........................................
100
100
31
Salaries and Wages Expense ...........................
Salaries and Wages Payable ....................
3,100
3,100
31
Depreciation Expense ($6,000 12) ................
Accumulated Depreciation—Buildings ...
500
500
EXERCISE 4-13
NORSKI CO.
Income Statement
For the Month Ended July 31, 2017
Revenues
Service revenue ($5,500 + $700) ............................. $6,200
Expenses
Salaries and wages expense ($2,100 + $360) ........ $2,460
Supplies expense ($900 – $200) .............................. 700
EXERCISE 4-14
(a) July 10 Supplies .......................................................... 200
Cash ........................................................ 200
EXERCISE 4-14 (Continued)
(b) July 31 Supplies Expense .......................................... 750
Supplies .................................................. 750
EXERCISE 4-15
Answer Computation
(a) Supplies balance = $1,350 Supplies expense $ 950)
EXERCISE 4-15 (Continued)
(c) Salaries and wages
payable = $1,760 Cash paid $2,500
Salaries and wages
(d) Unearned service
revenue = $2,950 Service revenue $4,000
Unearned revenue (1/31/17) 750
EXERCISE 4-16
Item
Net Income
Total
Assets
Total
Liabilities
Stockholders’
Equity
Incorrect balances
$70,000
$150,000
$70,000
$80,000
Effects of:
Salaries and Wages
(10,000)
10,000
(10,000)
EXERCISE 4-17
(a) 2017
June 1 Prepaid Insurance ....................................... 1,800
Cash ...................................................... 1,800
Aug. 31 Prepaid Rent ................................................ 6,500
EXERCISE 4-17 (Continued)
(b) 2017
Dec. 31 Insurance Expense ..................................... 1,050
Prepaid Insurance .............................. 1,050
($1,800 × 7/12 months = $1,050)
31 Rent Expense .............................................. 5,200
Prepaid Rent ....................................... 5,200
($6,500 × 4/5 months = $5,200)
EXERCISE 4-17 (Continued)
(c)
Prepaid Insurance
June 1 1,800
Dec. 31 Adj. 1,050
Dec. 31 Bal. 750
Prepaid Cleaning
Nov. 30 2,000
Dec. 31 Adj. 1,000
Dec. 31 Bal. 1,000
Insurance Expense
Dec. 31 Adj. 1,050
Rent Expense
EXERCISE 4-18
(a) 2017
Dec. 31 Utilities Expense ......................................... 425
Accounts Payable .............................. 425
31 Salaries and Wages Expense ..................... 2,000
(b) 2018
Jan. 11 Accounts Payable ....................................... 425
Cash ...................................................... 425
4 Salaries and Wages Payable ...................... 2,000
Salaries and Wages Expense ..................... 1,500
Cash ...................................................... 3,500
EXERCISE 4-19
Jan. 31 Service Revenue ................................................... 4,000
Income Summary .......................................... 4,000
EXERCISE 4-20
(a)
Date
Account Titles
Debit
Credit
Dec. 31
Service Revenue ............................................
Rent Revenue .................................................
Income Summary ................................
183,800
6,200
190,000
31
Income Summary ...........................................
Salaries and Wages Expense ................
Depreciation Expense ............................
109,300
91,100
13,200
EXERCISE 4-20 (Continued)
(b)
Retained Earnings
EXERCISE 4-21
Aug. 31 Accounts Receivable ............................................ 600
Service Revenue............................................ 600
31 Supplies Expense ................................................. 2,000
31 Depreciation Expense .......................................... 1,200
Accumulated Depreciation—Equipment ..... 1,200
EXERCISE 4-22
RYAN COMPANY
Income Statement
For the Year Ended August 31, 2017
Revenues
Service revenue ..................................................... $34,600
Expenses
Salaries and wages expense ................................ 18,100
Rent expense ......................................................... 10,800
EXERCISE 4-22 (Continued)
RYAN COMPANY
Retained Earnings Statement
For the Year Ended August 31, 2017
Retained earnings, September 1, 2016 ........................................... $ 5,500
Add: Net income ............................................................................. 14,100
RYAN COMPANY
Balance Sheet
August 31, 2017
Assets
Current Assets
Cash ......................................................................... $10,900
Accounts receivable ............................................... 9,400
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable ................................................... $ 5,800
Salaries and wages payable ................................... 1,100
Unearned rent revenue ........................................... 800
EXERCISE 4-23
Aug. 31 Service Revenue .............................................. 34,600
31 Income Summary ............................................. 33,600
Salaries and Wages Expense ................. 18,100
Rent Expense ........................................... 10,800
SOLUTIONS TO PROBLEMS
PROBLEM 4-1A
(a)
1. Cash ....................................................................... 19,000
Accounts Receivable..................................... 19,000
3. Cash ...................................................................... 44,000
Unearned Sales Revenue .............................. 44,000
4. Accounts Receivable .......................................... 151,000
Service Revenue ............................................ 151,000
(b) Cash received with respect to fees and dues
3. Sale of tickets 44,000
Cash
3. 44,000
Accounts Receivable
4. 151,000
1. 19,000
Service Revenue
2017 Bal. 151,000
2. 23,000
3. 24,000
Unearned Sales Revenue
2. 23,000
2016 Bal. 23,000
3. 44,000
