E4–12.
Balance Sheet
Income Statement
Date
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
Note 1:
April 1, 2011
+30,000/
–30,000
NE
NE
NE
NE
NE
+33,000/
–32,250
Note 2:
August 1, 2011
+ 30,000
+ 30,000
NE
NE
NE
NE
December 31, 2011c
NE
+ 1,500
– 1,500
NE
+ 1,500
– 1,500
January 31, 2012d
– 31,800
– 31,500
– 300
NE
+ 300
– 300
(a) $30,000 principal x .10 annual interest rate x 9/12 of a year = $2,250
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-22
E4–13.
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.
$135
+
656
–
?
=
$79
?
=
$712 paid
Beg. Bal.
+
–
cash paid
=
$110
+
456
–
?
=
?
=
Beg. Bal.
+
–
cash paid
=
$140
+
–
=
=
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
E4–14.
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)
(e) No entry was made. Entry that should have been made:
Insurance expense (+E, −SE) ………………………………. 650
Prepaid insurance (−A) ……………………………… 650
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
(a)
U 1,400
NE
U 1,400
U 1,400
NE
U 1,400
(b)
NE
NE
(c)
U 1,500
U 1,500
NE
U 1,500
(d)
U 1,275
NE
U 1,275
(e)
NE
NE
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-24
E4–15.
Items
Net
Income
Total
Assets
Total
Liabilities
Stockholders’
Equity
Balances reported
$60,000
$170,000
$80,000
$90,000
Additional adjustments:
a. Wages
(39,000)
39,000
(39,000)
b. Depreciation
(17,000)
(17,000)
(17,000)
c. Rent revenue
Adjusted balances
d. Income taxes
Correct balances
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
E4–16.
Req. 1
a.
Rent receivable (+A) ……………………………..
2,500
Revenues (rent) (+R, +SE) ………………
2,500
Income taxes payable (+L) ………………
5,100
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)
(2,000)
Liabilities
Accounts payable
$10,000
Income taxes payable
c
5,100
Stockholders’ Equity
Contributed capital
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-26
E4–17.
Req. 1
a.
Salaries and wages expense (+E, −SE) …………….
730
Salaries and wages payable (+L) ……………….
730
b.
Utilities expense (+E, −SE) ………………………………
440
Utilities payable (+L) …………………………………
440
Depreciation expense (+E, −SE) ………………………
Accumulated depreciation (+XA, −A) …………..
Interest payable (+L) ………………………………..
e.
Maintenance expense (+E, −SE) ………………………
Maintenance supplies (−A) ………………………..
will not be earned until January (next year).
g.
Income tax expense (+E, −SE) …………………………
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
E4–17. (continued)
Req. 2
TYSON, INC.
Income Statement
For the Year Ended December 31, 2011
Operating Revenue:
Rental revenue
$109,000
Operating Expenses:
Salaries and wages ($26,500 + $730)
$27,230
Maintenance expense ($12,000 + $1,100)
13,100
Rent expense
Utilities expense ($4,300 + $440)
Gas and oil expense
Depreciation expense
24,000
Miscellaneous expenses
Total expenses
Operating Income
Other Item:
Interest expense ($15,000 x .08 x 3/12)
Pretax income
Income tax expense
Net income
Req. 3
Net profit margin = Net Income Net Sales (or Operating Revenue)
= $21,030 $109,000 = 19.3%
The net profit margin indicates that, for every $1 of rental revenues, Tyson earns $0.193
(19.3%) in net income. This ratio is higher than the industry average net profit margin of
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-28
E4–18.
Req. 1
(a) Insurance expense (+E, −SE) ……………………………… 4
Prepaid insurance (−A) ……………………………… 4
Req. 2
RED RIVER COMPANY
Trial Balance
December 31, 2011
(in thousands of dollars)
Unadjusted
Adjustments
Adjusted
Account Titles
Debit
Credit
Debit
Credit
Debit
Credit
Cash
35
35
Accounts receivable
9
9
Prepaid insurance
6
a 4
2
Machinery
Accumulated depreciation
8
Accounts payable
9
9
Wages payable
b 5
5
Income taxes payable
d 9
9
Contributed capital
Retained earnings
4
4
Revenues (not detailed)
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
E4–19.
RED RIVER COMPANY
Income Statement
For the Year Ended December 31, 2011
(in thousands of dollars)
Revenues (not detailed)
$84
Expenses ($32 + $4 + $8 + $5)
49
Pretax income
35
Income tax expense
9
Net income
$26
EPS ($26,000 ÷ 4,000 shares)
$6.50
RED RIVER COMPANY
Statement of Stockholders’ Equity
For the Year Ended December 31, 2011
(in thousands of dollars)
Contributed
Capital
Retained
Earnings
Total
Stockholders’
Equity
Beginning balances, 1/1/2011
$ 0
$ 0
$ 0
Stock issuance
73
73
Net income
26
26
Dividends declared
(4) *
(4)
$ 73
$ 22
$ 95
RED RIVER COMPANY
Balance Sheet
At December 31, 2011
(in thousands of dollars)
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$ 35
Accounts payable
$ 9
Accounts receivable
9
Wages payable
5
Prepaid insurance ($6 – $4)
2
Income taxes payable
9
Machinery
80
Accumulated depreciation
(8)
Contributed capital
Retained earnings
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-30
E4–20.
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).
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-31
PROBLEMS
P4–1.
Req. 1
Dell Inc.
Adjusted Trial Balance
At January 31, 2012
(in millions of dollars)
Debit
Credit
Cash
$ 8,352
Marketable securities
740
Accrued expenses payable
3,788
Long-term debt
1,898
Other liabilities
8,234
Contributed capital
11,189
Retained earnings (deficit)
9,396
Sales revenue
61,101
Other income
134
Cost of sales
50,144
Selling, general, and administrative expenses
7,102
Research and development expense
665
Income tax expense
846
Totals
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 debit column necessary to make debits
equal credits (a “plugged” figure).
Accounts receivable
6,443
Inventories
867
Property, plant, and equipment
4,510
Accumulated depreciation
Other assets
7,821
Accounts payable
8,309
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
P4–2.
Req. 1
a.
Deferred revenue
e.
Deferred expense
b.
Accrued expense
Accrued revenue
Deferred expense
g.
Accrued expense
d.
Deferred revenue
h.
Accrued 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)
b.
Interest expense (+E, −SE) ……………………………………
Interest payable (+L) ……………………………………..
($18,000 x .12 x 3/12)
c.
Depreciation expense (+E, −SE) …………………………….
2,500
d.
Unearned service revenue (−L) ………………………………
Service revenue (+R, +SE) …………………………...
($3,000 x 2/12)
e.
Insurance expense (+E, −SE) ………………………………..
1,500
Prepaid insurance (−A)………………………………..
1,500
($9,000 ÷ 12 months = $750 per month x 2 months of coverage)
f.
Accounts receivable (+A) ………………………………………
4,000
Service revenue (+R, +SE) …………………………..
4,000
g.
Wage expense (+E, −SE) ………………………………………
h.
Property tax expense (+E, −SE) ……………………………..
Property tax payable (+L) ……………………………….
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-33
P4–3.
Req. 1
a.
Deferred expense
e.
Accrued revenue
Req. 2
a.
Depreciation expense (+E, −SE) …………………………….
4,000
Accumulated depreciation (+XA, −A) ………………
4,000
b.
Supplies expense (+E, −SE) ………………………………….
Supplies (−A) ………………………………………………
(Beg. Inventory of $400 + Purchases $1,000 – Ending Inventory $250)
Repairs expense (+E, −SE) ……………………………………
Accounts payable (+L) …………………………………
1,200
Property tax expense (+E, −SE) ……………………………..
1,500
Property tax payable (+L) ……………………………….
1,500
e.
Accounts receivable (+A) ………………………………………
6,000
Service revenue (+R, +SE) …………………………..
6,000
Insurance expense (+E, −SE) ………………………………..
Prepaid insurance (−A)………………………………..
($1,200 ÷ 36 months x 6 months of coverage)
g.
Interest expense (+E, −SE) ……………………………………
Interest payable (+L) ……………………………………..
($11,000 x .14 x 3/12)
Income tax expense (+E, −SE) ………………………………
Income tax payable (+L) …………………………………
8,270
Income tax expense $ 8,270 (rounded)
b.
Deferred expense
Deferred expense
Accrued expense
g.
Accrued expense
d.
Accrued expense
h.
Accrued expense
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
P4–4.
Req. 1
a.
Deferred revenue
e.
Deferred expense
b.
Accrued expense
Accrued revenue
Deferred expense
g.
Accrued expense
d.
Deferred revenue
h.
Accrued expense
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
a.
NE
–5,600
+5,600
+5,600
NE
+5,600
b.
NE
d.
NE
NE
e.
+4,000
NE
+4,000
g.
NE
+14,000
h.
NE
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.
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-35
P4–5.
Req. 1
a.
Deferred expense
e.
Accrued revenue
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
a.
− 4,000
NE
− 4,000
NE
+ 4,000
− 4,000
b.
− 1,150
NE
− 1,150
NE
+ 1,150
– 1,150
− 1,200
NE
d.
− 1,500
NE
− 1,500
+ 6,000
+ 6,000
NE
NE
g.
NE
h.
− 8,270
NE
Computations:
a.
Amount is given.
b.
Beg. inventory, $400 + Purchases, $1,000 – Ending inventory, $250 = $1,150 used
c.
Amount is given.
d.
Amount is given.
e.
Amount is given.
$1,200 x 6/36 = $200 used
g.
b.
Deferred expense
Deferred expense
Accrued expense
g.
Accrued expense
d.
Accrued expense
h.
Accrued expense
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
P4–6.
Req. 1
December 31, 2012, Adjusting Entries
(1)
Accounts receivable (+A) …………………………………..
560
(b)
Service revenue (+R, +SE) ………………………
560
(i)
To record service revenue earned, but not collected.
To record insurance expired as an expense.
To record depreciation expense.
Income taxes payable (+L) ……………………….
(f)
To record income taxes for 2012.
Req. 2
Amounts before
Adjusting Entries
Amounts after
Adjusting Entries
Revenues:
Service revenue
$64,400
$64,960
Expenses:
Salary expense
56,380
56,380
Depreciation expense
Insurance expense
Income tax expense
6,580
Net income (loss)
Req. 3
Earnings (loss) per share = $(10,180) net loss 3,000 shares = $(3.39) per share
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-37
P4–6. (continued)
Req. 4
Net profit margin = Net Income Net Sales = $(10,180) net loss $64,960 = (15.7)%
sales price or costs) is required.
Req. 5
Service revenue (−R) ………………………………………..
64,960
Retained earnings (−SE) …………………………………..
10,180
Salary expense (−E) …………………………………..
56,380
Depreciation expense (−E) ………………………….
11,900
Insurance expense (−E) ……………………………..
Income tax expense (−E) …………………………...
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
P4–7.
Req. 1
December 31, 2011, Adjusting Entries:
(a) Supplies expense (+E, −SE) ……………………………….. 400
Supplies (−A) ………………………………………….. 400
Req. 2
ELLIS, INC.
Income Statement
For the Year Ended December 31, 2011
Operating Revenue:
Service revenue $61,600
Operating Expenses:
Supplies expense ($640 – $240) 400
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-39
P4–7. (continued)
Req. 2 (continued)
ELLIS, INC.
Balance Sheet
At December 31, 2011
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$46,000
Accounts payable
$ 2,400
Accounts receivable
10,400
Wages payable
720
Supplies
240
Income taxes payable
5,880
Total stockholders’ equity
43,200
Total assets
$68,200
Total liabilities and
stockholders’ equity
$68,200
*Unadjusted balance, $6,000 + Net income, $16,640 = Ending balance, $22,640.
Req. 3
December 31, 2011, Closing Entry:
Service revenue (−R) ………………………………………….. 61,600
Retained earnings (+SE) ………………………….. 16,640
Prepaid insurance
400
Total current liabilities
9,000
Total current assets
57,040
Note payable, long term
Service trucks
16,000
Accumulated depreciation
Stockholders’ Equity
Other assets (not detailed)
20,560
22,640
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
4-40
ALTERNATE PROBLEMS
AP4–1.
Req. 1
Starbucks Corporation
Adjusted Trial Balance
At September 30, 2012
(in millions)
Debit
Credit
Cash
$ 270
Accumulated depreciation
$ 2,761
Other long-lived assets
594
Accounts payable
325
Accrued liabilities
1,152
Short-term bank debt
713
Long-term liabilities
992
Contributed capital
Retained earnings
2,124
Net revenues
Interest income
Cost of sales
Store operating expenses
Other operating expenses
330
Depreciation expense
549
General and administrative expenses
723
Interest expense
53
Income tax expense
144
Totals
$ 18,613
$ 18,613
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).
Short-term investments
43
Accounts receivable
330
Inventories
693
Prepaid expenses
169
Other current assets
234
Long-term investments
374
Property, plant, and equipment