Financial Accounting, 9/e 4-41
P4–7.
Req. 1
December 31 Adjusting Entries:
(a) Supplies expense (+E, −SE) ……………………………….. 600
Supplies (−A) ………………………………………….. 600
(b) Insurance expense (+E, −SE) ……………………………… 800
Prepaid insurance (−A) …………………………….. 800
Req. 2
TUNSTALL, INC.
Income Statement
For the Current Year Ended December 31
Operating Revenue:
Service revenue $61,360
Operating Expenses:
Supplies expense ($900 – $300) 600
Insurance expense 800
P4–7. (continued)
Req. 2 (continued)
TUNSTALL, INC.
Balance Sheet
At December 31 of the Current Year
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$42,000
Accounts payable
$ 3,000
Accounts receivable
Wages payable
Supplies
Income taxes payable
Total current assets
Total current liabilities
Service trucks
Note payable, long term
Accumulated depreciation
26,180
Other assets (not detailed)
Stockholders’ Equity
Total stockholders’ equity
42,120
Total assets
$68,300
Total liabilities and
stockholders’ equity
$68,300
*Unadjusted balance, $6,000 + Net income, $16,720 = Ending balance, $22,720.
Req. 3
December 31 Closing Entry:
Financial Accounting, 9/e 4-43
ALTERNATE PROBLEMS
AP4–1.
Req. 1
Starbucks Corporation
Adjusted Trial Balance
At September 30
(in millions)
Credit
Cash
Short-term investments
Accounts receivable
Property, plant, and equipment
Accumulated depreciation
$ 3,808
Other long-lived assets
Accounts payable
540
Accrued liabilities
1,536
Long-term liabilities
897
Common stock
2
Additional paid-in capital
39
Retained earnings
3,098
Net revenues
Interest income
116
Cost of sales
Store operating expenses
Other operating expenses
Depreciation expense
General and administrative expenses
Interest expense
Income tax expense
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).
Inventories
966
Prepaid expenses
162
Other current assets
230
Long-term investments
479
AP4–2.
Req. 1
a.
Deferred expense
e.
Deferred revenue
b.
Deferred revenue
Accrued expense
Accrued expense
g.
Accrued expense
d.
Deferred expense
h.
Accrued revenue
Req. 2
a.
Insurance expense (+E, −SE) ………………………………..
1,600
Prepaid insurance (−A) ……………………………….
1,600
($3,200 ÷ 6 months x 3 months of coverage)
b.
Unearned maintenance revenue (−L) ……………………..
Maintenance revenue (+R, +SE) ……………………
225
($450 ÷ 2 months x 1 month)
c.
Wage expense (+E, −SE) ……………………………………..
900
Wages payable (+L) …………………………………….
900
d.
Depreciation expense (+E, −SE) …………………………...
3,000
Accumulated depreciation (+XA, −A) ………………
3,000
e.
Unearned service revenue (−L) ……………………………..
700
Service revenue (+R, +SE) …………………………...
700
($4,200 ÷ 12 months x 2 months)
Interest expense (+E, −SE) ……………………………………
Interest payable (+L) ……………………………………..
($18,000 x .09 x 5/12)
g.
Property tax expense (+E, −SE) …………………………….
Property tax payable (+L) ………………………………
500
Accounts receivable (+A) ………………………………………
Service revenue (+R, +SE) …………………………..
Financial Accounting, 9/e 4-45
AP4–3.
Req. 1
a.
Deferred expense
e.
Deferred expense
b.
Accrued revenue
f.
Deferred expense
c.
Deferred expense
g.
Accrued revenue
d.
Accrued expense
h.
Accrued expense
Req. 2
a.
Supplies expense (+E, −SE) ………………………………….
1,250
Supplies (−A) ………………………………………………
1,250
(Beg. Inventory of $450 + Purchases $1,200 – Ending Inventory $400)
d.
Repairs expense (+E, −SE) ……………………………………
600
Accounts payable (+L) …………………………………
600
e.
Rent expense (+E, −SE) ……………………………………….
700
Prepaid rent (−A) …………………………………………..
700
($2,100 x 1/3 months of rent used)
Depreciation expense (+E, −SE) …………………………….
Accumulated depreciation (+XA, −A) ………………
Interest receivable (+A) …………………………………………
Interest income (+R, +SE) ………………………………
($4,000 x .12 x 2/12)
h.
Income tax expense (+E, −SE) ………………………………
7,389
Income tax payable (+L) …………………………………
7,389
To accrue income tax expense incurred but not paid:
Accounts receivable (+A) ………………………………………
Catering revenue (+R, +SE) ………………………….
c.
Insurance expense (+E, −SE) ………………………………..
200
Prepaid insurance (−A)………………………………..
($1,200 x 2/12 months of coverage)
AP4–4.
Req. 1
a.
Deferred expense
e.
Deferred revenue
b.
Deferred revenue
Accrued expense
c.
Accrued expense
g.
Accrued expense
d.
Deferred expense
h.
Accrued revenue
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
a.
–1,600
NE
–1,600
NE
+1,600
–1,600
b.
NE
–225
+225
+225
NE
+225
NE
d.
–3,000
NE
–3,000
NE
+3,000
–3,000
e.
NE
+700
NE
+700
NE
NE
g.
NE
NE
h.
+2,000
NE
+2,000
NE
Computations:
a.
$3,200 prepaid insurance x 3/6 months of coverage = $1,600 used
b.
$450 unearned revenue x 1/2 months = $225 earned
c.
Amount is given.
d.
Amount is given.
e.
$4,200 unearned revenue x 2/12 months = $700 earned
g.
Amount is given.
h.
Amount is given.
Financial Accounting, 9/e 4-47
AP4–5.
Req. 1
a.
Deferred expense
e.
Deferred expense
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
a.
–1,250
NE
–1,250
NE
+1,250
–1,250
b.
+7,500
NE
+7,500
+7,500
NE
+7,500
NE
NE
d.
NE
e.
NE
NE
–2,600
NE
–2,600
NE
–2,600
g.
NE
NE
h.
+7,389
–7,389
NE
+7,389
–7,389
Computations:
a.
Beg. Inventory of $450 + Purchases $1,200 – Ending Inventory $400 = $1,250
used for the period.
b.
Amount is given.
c.
$1,200 prepaid expense x 2/12 = $200 insurance used
d.
Amount is given.
Amount is given.
g.
$4,000 principal x .12 x 2/12 months = $80 interest earned
Adjusted income = $22,400 – $1,250 + $7,500 – $200 – $600 – $700 – $2,600 + $80
= $24,630 x 30% tax rate = $7,389 income tax expense
b.
Accrued revenue
Deferred expense
Deferred expense
g.
Accrued revenue
d.
Accrued expense
h.
Accrued expense
AP4–6.
Req. 1
December 31 Adjusting Entries
(1)
Accounts receivable (+A) ………………………………….
1,500
(b)
Service revenue (+R, +SE) ………………………
1,500
(j)
To record service revenues earned, but not collected.
(2)
Rent expense (+E, −SE) …………………………………..
To record rent expired as an expense.
(3)
Depreciation expense (+E, −SE) ………………………..
To record depreciation expense.
(4)
Unearned revenue (−L) …………………………………….
8,000
(g)
Service revenue (+R, +SE) ………………………
8,000
(j)
To record service revenue earned.
Income taxes payable (+L) ……………………….
6,500
To record income taxes for the current year.
Req. 2
Amounts before
Adjusting Entries
Amounts after
Adjusting Entries
Revenues:
Service revenue
$83,000
$92,500
Expenses:
Salary expense
56,000
56,000
Depreciation expense
17,500
Rent expense
Income tax expense
Total expense
56,000
Net income
$ 27,000
Financial Accounting, 9/e 4-49
AP4–6. (continued)
Req. 3
Earnings per share = $12,100 net income 5,000 shares = $2.42 per share
Req. 4
Req. 5
Service revenue (−R) ………………………………………..
92,500
Retained earnings (+SE) …………………………….
12,100
Salary expense (−E) …………………………………..
56,000
Depreciation expense (−E) ………………………….
17,500
Rent expense (−E) …………………………………….
Income tax expense (−E) …………………………...
AP4–7.
Req. 1
December 31 Adjusting Entries:
(a) Depreciation expense (+E, −SE) …………………………. 3,000
Accumulated depreciation (+XA, −A) ………….. 3,000
Req. 2
SOUTH BEND REPAIR SERVICE CO.
Income Statement
For the Current Year Ended December 31
Operating Revenue:
Service revenue $48,000
Operating Expenses:
Depreciation expense 3,000
Insurance expense 450
Financial Accounting, 9/e 4-51
AP4–7. (continued)
SOUTH BEND REPAIR SERVICE CO.
Balance Sheet
At December 31 of the Current Year
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$19,600
Accounts payable
$ 2,500
Accounts receivable
7,000
Wages payable
2,100
Supplies
800
Income tax payable
3,150
Total assets
$44,950
Total liabilities and
stockholders’ equity
$44,950
*Unadjusted balance, $10,300 + Net income, $5,900 = Ending balance, $16,200.
Req. 3
December 31 Closing Entry:
Service revenue (−R) ………………………………………….. 48,000
Retained earnings (+SE) ………………………….. 5,900
Prepaid insurance
450
Total current liabilities
7,750
Total current assets
Note payable, long term
5,000
Equipment
Total liabilities
Stockholders’ Equity
Other assets (not detailed)
Total stockholders’ equity
CONTINUING PROBLEM
CON4-1.
Adjusting Entries:
Debit
Credit
a.
Wages expense (+E, –SE)
7,500
Wages payable (+L)
7,500
b.
Unearned revenue (-L)
4,000
Cleaning service revenue (+R, +SE)
4,000
Utilities expense (+E, –SE)
520
d.
Interest expense (+E, –SE)
2,000
Interest payable (+L)
2,000
Amount: $30,000 principal x .10 x 8/12 months
e.
Accounts receivable (+A)
800
Cleaning service revenue (+R, +SE)
800
Insurance expense (+E, –SE)
875
Prepaid insurance (-A)
875
Amount: $4,200 x 5/24 months
g.
Supplies expense (+E, –SE)
Supplies (-A)
purchased – $3,100 ending = $22,300 used
h.
Depreciation expense (+E, –SE)
8,300
Accumulated depreciation (+XA, –A)
8,300
Interest receivable (+A)
110
Interest revenue (+R, +SE)
110
Financial Accounting, 9/e 4-53
COMPREHENSIVE PROBLEMS
COMP4–1. Req. 1, 2, 3, and 5 T-accounts (in thousands)
Cash
Accounts Receivable
Supplies
Bal. 6
b 13
Bal. 5
Bal. 13
a 15
e 94
c 52
f 34
h 27
l 22
c 163
g 15
d 4
i 26
f 34
k 25
Bal. 49
Bal. 23
Bal. 18
Wages Payable
Interest Payable
LT Notes Payable
Bal. 0
Bal. 0
Bal. 0
o 16
n 1
a 15
Bal. 16
Bal. 1
Bal. 15
Common
Earnings
Bal. 4
Bal. 80
Bal. 17
d 2
d 2
CE 41
Bal. 6
Bal. 82
Bal. 33
Depreciation
Expense
Income Tax
Expense
Interest
Expense
Bal. 0
Bal. 0
Bal. 0
m 10
CE 10
p 11
CE 11
n 1
CE 1
Bal. 0
Bal. 0
Bal. 0
Expense
Expense
Bal. 0
Bal. 0
Bal. 0
CE 22
o 16
CE 16
e 114
CE 114
Bal. 0
Bal. 0
Bal. 0
Service
Revenue
Bal. 0
CE 215
c 215
Bal. 0
Land
Bal. 0
Bal. 78
Bal. 8
b 13
m 10
Bal. 13
Bal. 78
Bal. 18
Bal. 7
Bal. 0
Bal. 0
g 15
p 11
Bal. 22
Bal. 21
Bal. 11
COMP4–1. (continued)
Req. 2
a.
Cash (+A) ………………………………………………….
15,000
Notes payable (+L) …………………………….
15,000
b.
Land (+A) …………………………………………………..
13,000
Cash (−A) …………………………………………
13,000
c.
Cash (+A) ………………………………………………….
Accounts receivable (+A) ……………………………..
52,000
Service revenue (+R, +SE) ………………….
d.
Cash (+A) ………………………………………………….
4,000
Common stock (+SE) …………………………
2,000
Additional paid-in capital (+SE)…………..
2,000
Accounts payable (+L) ………………………..
20,000
Cash (−A) …………………………………………
94,000
Cash (+A) ………………………………………………….
34,000
g.
Other assets (+A) ……………………………………….
15,000
Cash (−A) …………………………………………
15,000
h.
Supplies (+A) …………………………..…………………
27,000
Accounts payable (+L) ………………………..
27,000
Cash (−A) …………………………………………
No entry required; no revenue earned in 2017.
Cash (−A) …………………………………………
25,000
Financial Accounting, 9/e 4-55
COMP4–1. (continued)
Req. 3
l.
Supplies expense (+E, −SE) …………………………
22,000
Supplies (−A) ……………………………………..
22,000
($40,000 in account – $18,000 at year end)
p.
Income tax expense (+E, −SE) ……………………..
11,000
Income taxes payable (+L) …………………..
11,000
Req. 4
H & H TOOL, INC.
Income Statement
For the Year Ended December 31, 2017
Operating Revenues:
Service revenue
$215,000
Operating Expenses:
Depreciation expense
10,000
Remaining expenses
Total operating expenses
Operating Income
Other Item:
Interest expense
Pretax income
Income tax expense
Net Income
[$41,000 ÷ 12,000 shares all year]
Depreciation expense (+E, −SE) …………………..
Accumulated depreciation (+XA, −A) ……..
n.
Interest expense (+E, −SE) ………………………….
Interest payable (+L) …………………………...
($15,000 x .08 x 10/12)
Wages expense (+E, −SE) …………………………..
Wages payable (+L) …………………………...
16,000
COMP4–1. (continued)
H & H TOOL, INC.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2017
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Stockholders’
Equity
Balance, January 1, 2017
$ 17,000
Balance, December 31, 2017
$121,000
H & H TOOL, INC.
Balance Sheet
At December 31, 2017
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$ 49,000
Accounts payable
$ 21,000
Accounts receivable
23,000
Interest payable
1,000
Supplies
18,000
Wages payable
Land
49,000
Notes payable
Equipment
Less: Accumulated deprec.
Stockholders’ Equity:
6,000
Other assets
22,000
33,000
equity
Total liabilities and
Financial Accounting, 9/e 4-57
COMP4–1. (continued)
Req. 5
Transaction
Type of Effect on
Cash Flows
Direction and
Amount of Effect
a.
F
+15,000
b.
I
-13,000
c.
O
+163,000
Req. 6
December 31, 2017, Closing Entry
Service revenue (−R) …………………………………..
215,000
Retained earnings (+SE) …………………….
41,000
Interest expense (−E) …………………………
Wages expense (−E) ………………………….
Income tax expense (−E) …………………….
10,000
d.
F
e.
O
-94,000
O
+34,000
g.
I
-15,000
h.
O
-26,000
k.
F
-25,000
COMP4–1. (continued)
Req. 7
(a) Current ratio = Current assets Current liabilities
= $90,000 $49,000
= 1.84
This suggests that H & H Tool, Inc. generated $1.50 for every dollar of assets.
(c) Net profit margin = Net income Sales
= $41,000 $215,000
= 0.191 or 19.1%
Financial Accounting, 9/e 4-59
COMP4-2. Req. 1, 2, 3, and 5 T-accounts (in thousands)
Cash
Accounts
Receivable
Supplies
Bal. 5
Bal. 4
Bal. 2
a 20
b 18
d 14
g 8
i 10
l 8
Small Tools
Equipment
Accumulated
Depreciation
Bal. 6
Bal. 0
Bal. 0
f 3
l 1
b 18
m 2
Bal. 8
Bal. 18
Bal. 2
Accounts Payable
Bal. 9
Bal. 7
Bal. 0
h 11
e 7
a 20
Bal. 9
Bal. 13
Bal. 20
Wages Payable
Interest Payable
Income Taxes
Payable
Bal. 0
Bal. 0
Bal. 0
o 3
n 1
p 4
Bal. 3
Bal. 1
Bal. 4
Common
Stock
Additional Paid-in
Capital
Retained
Earnings
Bal. 6
Bal. 9
k 10
Bal. 4
c 1
c 4
CE 16
Bal. 7
Bal. 13
Bal. 10
Bal. 0
Bal. 0
Bal. 0
d 70
CE 70
CE 4
CE 1
Bal. 0
Bal. 0
Bal. 0
Bal. 0
o 3
e 35
CE 2
CE 3
CE 44
Bal. 0
Bal. 0
Bal. 0
Unearned
Revenue
Bal. 0
j 3
Bal. 3
e 28
d 56
g 8
h 11
k 10
Bal. 27
Bal. 10
Bal. 4
COMP4-2. (continued)
Req. 2
a.
Cash (+A) ………………………………………………….
20,000
Notes payable (+L) …………………………….
20,000
b.
Equipment (+A) ………………………………………….
18,000
Cash (−A) …………………………………………
18,000
c.
Cash (+A) ………………………………………………….
Common stock (+SE) …………………………
Additional paid-in capital (+SE)…………..
d.
Cash (+A) ………………………………………………….
56,000
Accounts receivable (+A) ……………………………..
14,000
Service revenue (+R, +SE) ………………….
70,000
e.
Remaining expenses (+E, −SE) ……………………
35,000
Accounts payable (+L) ………………………..
Cash (−A) …………………………………………
28,000
Small tools (+A) ………………………………………….
Cash (−A) …………………………………………
g.
Cash (+A) ………………………………………………….
Accounts receivable (−A) …………………….
h.
Accounts payable (−L) …………………………..…….
11,000
Cash (−A) ………………………………………..
11,000
i.
Supplies (+A) …………………………..…………………
10,000
Accounts payable (+L) ………………………..
10,000
j.
Cash (+A) ………………………………………………….
Unearned revenue (+L) ……………………..
Retained earnings (−SE) ……………………………..
10,000
Cash (−A) …………………………………………
10,000