Financial Accounting, 9/e 4-21
E4–10.
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Net
Income
(a)
NE
+2,700
–2,700
NE
–2,700
(b)
–675
NE
–675
NE
–675
E4–11
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Net
Income
(a)
+3,300
NE
+3,300
+3,300
+3,300
(b)
–1,650
(c)
+5,500
NE
NE
(e)
NE
NE
(g)
NE
+5,600
–5,600
(c)
+1,120
(d)
NE
NE
+12,100
(e)
NE
(g)
E4–12.
Debit
Credit
Independent Situations
Code
Amount
Code
Amount
a.
Accrued wages, unrecorded and unpaid at
year-end, $400 (example).
N
400
G
400
collected at year-end, $600.
Dividends declared and paid during the
year, $900.
K
900
A
900
$400; supplies on hand at year-end, $160.
e.
Service revenue collected in advance and
not yet earned, $800.
A
800
I
800
f.
Depreciation expense for the year, $1,000.
O
1,000
E
1,000
g.
At year-end, interest on note payable not
yet recorded or paid, $220.
P
220
H
220
entry at year-end.
account, $460. Prepare the closing entry
at year-end.
E4–13.
Selected Balance Sheet Amounts at December 31
Assets:
Equipment (recorded at cost per cost principle)
$25,000
Accumulated depreciation (for one year, as given)
(2,500)
Net book value of equipment (difference)
22,500
Office supplies (on hand, as given)
800
Selected Income Statement Amounts for the Current Year Ended December 31
Expenses:
Depreciation expense (for one year, as given)
$ 2,500
Office supplies expense (used, $3,000 – $800 on hand)
2,200
Insurance expense (for 6 months, $1,000 x 6/24 months)
250
Financial Accounting, 9/e 4-23
E4–14.
Balance Sheet
Income Statement
Date
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
Note 1:
April 1, 2017
+30,000/
–30,000
NE
NE
NE
NE
NE
(a) $30,000 principal x .10 annual interest rate x 9/12 of a year = $2,250
(b) Additional interest revenue in 2018: $30,000 x .10 x 3/12 = $750. Cash
received was $33,000 ($30,000 principal + $3,000 interest for 12 months);
receivables decreased by the $30,000 note receivable and $2,250 interest
receivable accrued in 2017.
+33,000/
–32,250
– 31,800
E4–15.
Req. 1 (a) Cash paid on accrued income taxes payable.
(b) Accrual of additional income tax expense.
Req. 2 Computations:
(a)
Beg. Bal.
+
accrued income taxes
–
cash paid
=
End. bal.
$154
+
1,424
–
?
=
$166
?
=
$1,412 paid
Beg. Bal.
+
–
cash paid
=
$127
+
–
?
=
?
=
Beg. Bal.
+
–
cash paid
=
+
–
=
Financial Accounting, 9/e 4-25
E4–16.
Req. 1 Adjusting entries that were or should have been made at December 31:
(a) No entry was made. Entry that should have been made:
Rent receivable (+A) …………………………………………… 1,400
Rent revenue (+R, +SE) ……………………………. 1,400
Entry that should have been made:
Interest expense (+E, −SE) …………………………………. 255
Interest payable (+L) …………………………………. 255
($17,000 x .09 x 2/12 months)
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Net
Income
(a)
U 1,400
NE
U 1,400
U 1,400
U 1,400
(b)
O 15,000
NE
NE
O 15,000
(c)
O 1,500
U 1,500
U 1,500
U 1,500
(d)
O 1,275
U 1,275
NE
U 1,275
(e)
O 650
NE
O 650
NE
O 650
E4–17.
Items
Net
Income
Total
Assets
Total
Liabilities
Stockholders’
Equity
Balances reported
$65,000
$185,000
$90,000
$95,000
Additional adjustments:
a. Wages
(37,000)
37,000
(37,000)
b. Depreciation
(19,000)
(19,000)
(19,000)
c. Rent revenue
Adjusted balances
123,500
d. Income taxes
Correct balances
Computations:
a. Given, $37,000 accrued and unpaid.
Financial Accounting, 9/e 4-27
E4–18.
Req. 1
a.
Rent receivable (+A) ……………………………..
2,500
Revenues (rent) (+R, +SE) ………………
2,500
Req. 2
As
Prepared
Effects of
Adjusting
Entries
Corrected
Amounts
Income statement:
Revenues
$97,000
a
$2,500
$99,500
Expenses
(73,000)
b
(4,500)
(77,500)
Income tax expense
c
(5,100)
(5,100)
Net income
$24,000
(7,100)
$16,900
Balance Sheet:
Assets
Cash
$20,000
$20,000
Accounts receivable
Rent receivable
a
2,500
Equipment
50,000
Accumulated depreciation
(10,000)
b
(4,500)
$82,000
(2,000)
Liabilities
Accounts payable
$10,000
$10,000
Income taxes payable
c
5,100
5,100
Stockholders’ Equity
Common stock
Additional paid-in capital
Retained earnings
$82,000
Income taxes payable (+L) ………………
5,100
E4–19.
Req. 1
a.
Salaries and wages expense (+E, −SE) …………….
730
Salaries and wages payable (+L) ……………….
730
b.
Utilities expense (+E, −SE) ………………………………
Utilities payable (+L) …………………………………
c.
Depreciation expense (+E, −SE) ………………………
Accumulated depreciation (+XA, −A) …………..
d.
Interest expense (+E, −SE) ……………………………..
Interest payable (+L) ………………………………..
($15,000 x .08 x 3/12)
e.
Maintenance expense (+E, −SE) ………………………
1,100
Maintenance supplies (−A) ………………………..
1,100
will not be earned until January (next year).
g.
Income tax expense (+E, −SE) …………………………
5,800
Financial Accounting, 9/e 4-29
E4–19. (continued)
Req. 2
JAY, INC.
Income Statement
For the Current Year Ended December 31
Operating Revenue:
Rental revenue
$109,000
Operating Expenses:
Salaries and wages ($26,500 + $730)
$27,230
Total expenses
81,870
Operating Income
27,130
Other Item:
Interest expense ($15,000 x .08 x 3/12)
300
Pretax income
26,830
Income tax expense
5,800
Net income
$ 21,030
Earnings per share: $21,030 ÷ 7,000 shares
$3.00
Req. 3
Maintenance expense ($12,000 + $1,100)
Rent expense
8,800
Utilities expense ($4,300 + $440)
4,740
Gas and oil expense
Depreciation expense
Miscellaneous expenses
1,000
E4–20.
Req. 1
(a) Insurance expense (+E, −SE) ……………………………… 7
Prepaid insurance (−A) ……………………………… 7
Req. 2
GREEN VALLEY COMPANY
Trial Balance
December 31
(in thousands of dollars)
Unadjusted
Adjustments
Adjusted
Account Titles
Debit
Credit
Debit
Credit
Debit
Credit
Cash
20
20
Accounts receivable
13
13
Prepaid insurance
8
a 7
1
Machinery
Accumulated depreciation
9
Accounts payable
11
11
Wages payable
b 4
4
Income taxes payable
11
Common stock
4
4
Additional paid-in capital
67
67
Retained earnings
6
6
Revenues (not detailed)
82
31
31
Financial Accounting, 9/e 4-31
E4–21.
GREEN VALLEY COMPANY
Income Statement
For the Current Year Ended December 31
(in thousands of dollars)
Revenues (not detailed)
$82
Expenses ($32 + $7 + $9 + $4)
52
GREEN VALLEY COMPANY
Statement of Stockholders’ Equity
For the Current Year Ended December 31
(in thousands of dollars)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Stockholders’
Equity
Beginning balances
$ 0
$ 0
$ 0
$ 0
Stock issuance
Net income
Dividends declared
$ 4
$ 67
$ 13
$ 84
Pretax income
30
Income tax expense
11
Net income
$19
EPS ($19,000 ÷ 4,000 shares)
E4–21 (continued)
GREEN VALLEY COMPANY
Balance Sheet
At December 31
(in thousands of dollars)
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$ 20
Accounts payable
$ 11
Accounts receivable
13
Wages payable
4
Prepaid insurance ($8 – $7)
Income taxes payable
11
34
Machinery
85
Accumulated depreciation
Common stock
Retained earnings
13
$110
stockholders’ equity
$110
E4–22.
Req. 1
The purposes of “closing the books” at the end of the accounting period are to:
• Transfer the balance in the temporary accounts to a permanent account
(Retained Earnings).
Financial Accounting, 9/e 4-33
PROBLEMS
P4–1.
Req. 1
Papa John’s International Inc.
Adjusted Trial Balance
At the End of a Recent Year
(in thousands of dollars)
Debit
Credit
Cash
$ 20,122
Short-term notes receivable
6,106
Accumulated depreciation
$337,524
Long-term notes receivable
12,801
Intangible assets
82,007
Other assets
42,530
Accounts payable
38,832
Accrued expenses payable
58,293
Unearned revenue
4,257
Income taxes payable
9,637
Long-term debt
230,451
Other long-term liabilities
64,063
Common stock
Additional paid-in capital
Retained earnings
14,390
Restaurant and franchise sales revenue
Cost of sales
Salaries and benefits expense
Rent and utilities expense
Advertising expense
63,463
General and administrative expenses
Depreciation expense
39,965
Interest revenue
Interest expense
4,077
Income tax expense
Totals
Accounts receivable
Inventories
27,394
Income tax receivable
9,527
Prepaid expenses and other current assets
36,812
Land
Buildings and leasehold improvements
Equipment
P4–1. (cont.)
Req. 2
Since debits are supposed to equal credits in a trial balance, the balance in Retained
Earnings is determined as the amount in the credit column necessary to make debits
equal credits (a “plugged” figure).
Financial Accounting, 9/e 4-35
P4–2.
Req. 1
a.
Deferred revenue
e.
Deferred expense
Req. 2
a.
Unearned rent revenue (−L) …………………………………..
5,600
Rent revenue (+R, +SE) ……………………………….
5,600
($8,400 ÷ 6 months = $1,400 per month x 4 months)
Interest payable (+L) ……………………………………..
($18,000 x .12 x 3/12)
Depreciation expense (+E, −SE) …………………………….
d.
Unearned service revenue (−L) ………………………………
500
Service revenue (+R, +SE) …………………………...
500
($3,000 x 2/12)
Prepaid insurance (−A)………………………………..
($9,000 ÷ 12 months = $750 per month x 2 months of coverage)
Accounts receivable (+A) ………………………………………
Service revenue (+R, +SE) …………………………..
Wages payable (+L) …………………………………….
h.
Property tax expense (+E, −SE) ……………………………..
500
Property tax payable (+L) ……………………………….
b.
Accrued expense
Accrued revenue
c.
Deferred expense
g.
Accrued expense
d.
Deferred revenue
h.
Accrued expense
P4–3.
Req. 1
a.
Deferred expense
e.
Accrued revenue
b.
Deferred expense
Deferred expense
Accrued expense
g.
Accrued expense
d.
Accrued expense
h.
Accrued expense
Req. 2
a.
Depreciation expense (+E, −SE) …………………………….
3,500
Accumulated depreciation (+XA, −A) ………………
3,500
b.
Supplies expense (+E, −SE) ………………………………….
Supplies (−A) ………………………………………………
1,350
Repairs expense (+E, −SE) ……………………………………
Accounts payable (+L) …………………………………
2,600
d.
Property tax expense (+E, −SE) ……………………………..
1,800
Property tax payable (+L) ……………………………….
1,800
e.
Accounts receivable (+A) ………………………………………
4,000
Service revenue (+R, +SE) …………………………..
4,000
Insurance expense (+E, −SE) ………………………………..
Prepaid insurance (−A)………………………………..
g.
Interest expense (+E, −SE) ……………………………………
Interest payable (+L) ……………………………………..
h.
Income tax expense (+E, −SE) ………………………………
7,263
Income tax payable (+L) …………………………………
7,263
To accrue income tax expense incurred but not paid:
Income before adjustments (given) $30,000
Effect of adjustments (a) through (g) (5,790) (–$3,500–$1,350–$2,600
Income before income taxes 24,210 –$1,800+$4,000–$150–$390)
Income tax rate x 30%
Income tax expense $ 7,263
Financial Accounting, 9/e 4-37
P4–4.
Req. 1
a.
Deferred revenue
e.
Deferred expense
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Net
Income
a.
NE
–5,600
+5,600
+5,600
+5,600
b.
NE
+540
–540
NE
–540
NE
d.
NE
e.
NE
+4,000
+4,000
g.
NE
NE
h.
NE
+500
–500
NE
–500
Computations:
a.
$8,400 ÷ 6 months = $1,400 per month x 4 months = $5,600 earned
b.
$18,000 principal x .12 x 3/12 = $540 interest incurred
c.
Amount is given.
d.
$3,000 unearned x 2/12 = $500 earned
e.
$9,000 ÷ 12 months = $750 per month x 2 months of coverage = $1,500 incurred
Amount is given.
g.
Amount is given.
h.
Amount is given.
b.
Accrued expense
Accrued revenue
c.
Deferred expense
g.
Accrued expense
d.
Deferred revenue
h.
Accrued expense
P4–5.
Req. 1
a.
Deferred expense
e.
Accrued revenue
b.
Deferred expense
Deferred expense
Accrued expense
g.
Accrued expense
d.
Accrued expense
h.
Accrued expense
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Net
Income
a.
− 3,500
NE
− 3,500
NE
− 3,500
b.
+ 2,600
NE
d.
+ 1,800
− 1,800
NE
− 1,800
NE
NE
g.
NE
h.
NE
NE
NE
– 1,350
Computations:
a.
Amount is given.
b.
Beg. inventory, $500 + Purchases, $1,000 – Ending inventory, $150 = $1,350 used
c.
Amount is given.
d.
Amount is given.
e.
Amount is given.
$900 x 6/36 = $150 used
g.
$13,000 x 12% x 3/12 = $390 interest expense for the period
Financial Accounting, 9/e 4-39
P4–6.
Req. 1
December 31 Adjusting Entries
(1)
Accounts receivable (+A) …………………………………..
1,820
(b)
Service revenue (+R, +SE) ………………………
1,820
(i)
To record service revenue earned, but not collected.
(4)
Income tax expense (+E, −SE) ………………………….
1,380
(m)
Income taxes payable (+L) ……………………….
1,380
(f)
To record income taxes for the current year.
Req. 2
Amounts before
Adjusting Entries
Amounts after
Adjusting Entries
Revenues:
Service revenue
$64,400
$66,220
Expenses:
Salary expense
55,470
55,470
Depreciation expense
Insurance expense
Income tax expense
1,380
Net income (loss)
Req. 3
Earnings per share = $3,240 net income 3,000 shares = $1.08 per share
(2)
Insurance expense (+E, −SE) …………………………...
To record insurance expired as an expense.
(3)
Depreciation expense (+E, −SE) …………………………
6,000
To record depreciation expense.
P4–6. (continued)
Req. 4
Total asset turnover ratio = Sales (or Operating) Revenue Average Total Assets
= $66,220 [($110,000 + $136,220)/2]
Req. 5
Service revenue (−R) ………………………………………..
66,220
Retained earnings (+SE) …………………………...
3,240
Depreciation expense (−E) ………………………….
Income tax expense (−E) …………………………...