Financial Accounting, 10/e 4-41
P4–6. (continued)
Req. 4
Total asset turnover ratio = Net Sales (or Operating Revenue) Average Total Assets
Req. 5
Service revenue (−R) ………………………………………..
66,220
Retained earnings (+SE) …………………………...
3,465
Depreciation expense (−E) ………………………….
Income tax expense (−E) …………………………...
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
Financial Accounting, 10/e 4-43
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
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:
Service revenue (−R) ………………………………………….. 61,360
ALTERNATE PROBLEMS
AP4–1.
Req. 1
Starbucks Corporation
Adjusted Trial Balance
At September 30
(in millions)
Debit
Credit
Cash
2,462
Short-term investments
228
Accounts receivable
870
Inventories
1,364
Prepaid expenses and other current assets
358
Long-term investments
1,024
Property, plant, and equipment
Accumulated depreciation
Intangible assets
1,981
Other long-term assets
1,159
Accounts payable
783
Accrued liabilities
Unearned revenue
1,289
Other current liabilities
215
Long-term liabilities
3,933
Other long-term liabilities
755
Common stock
1
Additional paid-in capital
41
Retained earnings
2,529
Sales revenues
22,387
Other operating revenues
391
Interest income
275
Cost of sales
9,038
Store operating expenses
6,493
Other operating expenses
554
Depreciation expense
1,011
General and administrative expenses
1,393
Interest expense
Income tax expense
1,432
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, 10/e 4-45
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) ……………………..
225
Maintenance revenue (+R, +SE) ……………………
225
($450 ÷ 2 months x 1 month)
c.
Wages expense (+E, −SE)…………………………………….
900
Wages payable (+L) …………………………………….
900
Depreciation expense (+E, −SE) …………………………...
3,000
Accumulated depreciation (+XA, −A) ………………
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) …………………………....
500
Property tax payable (+L) ………………………………
500
Accounts receivable (+A) ………………………………………
AP4–3.
Req. 1
a.
Deferred expense
e.
Deferred expense
b.
Accrued revenue
Deferred expense
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)
b.
Accounts receivable (+A) ………………………………………
Catering revenue (+R, +SE) ………………………….
c.
Insurance expense (+E, −SE) ………………………………..
Prepaid insurance (−A)…………………………………
($1,200 x 2/12 months of coverage)
d.
Repairs expense (+E, −SE) ……………………………………
e.
Rent expense (+E, −SE) ……………………………………….
700
Prepaid rent (−A) …………………………………………
700
($2,100 x 1/3 months of rent used)
f.
Depreciation expense (+E, −SE) …………………………….
2,570
Accumulated depreciation (+XA, −A) …………….
2,570
g.
Interest receivable (+A) …………………………..…………….
80
($4,000 x .12 x 2/12)
h.
Income tax expense (+E, −SE) ………………………………
Financial Accounting, 10/e 4-47
AP4–4.
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
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.
NE
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.
AP4–5.
Req. 1
a.
Deferred expense
e.
Deferred expense
b.
Accrued revenue
Deferred expense
Deferred expense
g.
Accrued revenue
d.
Accrued expense
h.
Accrued 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.
NE
NE
NE
NE
d.
NE
e.
NE
NE
–2,570
NE
–2,570
NE
+2,570
–2,570
g.
NE
NE
h.
+6,150
–6,150
NE
+6,150
–6,150
Computations:
a.
Beg. Inventory of $450 + Purchases $1,200 – Ending Inventory $400 = $1,250
used for the period.
b.
Amount is given.
$1,200 prepaid expense x 2/12 = $200 insurance used
d.
Amount is given.
e.
$2,100 x 1/3 = $700 rent used
Amount is given.
g.
$4,000 principal x .12 x 2/12 months = $80 interest earned
h.
Adjusted income = $22,400 – $1,250 + $7,440 – $200 – $600 – $700 – $2,570 + $80
= $24,600 x 25% tax rate = $6,150 income tax expense
Financial Accounting, 10/e 4-49
AP4–6.
Req. 1
December 31 Adjusting Entries
(1)
Accounts receivable (+A) ………………………………….
1,500
(b)
Service revenue (+R, +SE) ………………………
1,500
To record service revenue earned, but not collected.
(2)
Rent expense (+E, −SE) …………………………………..
400
(m)
Prepaid rent (−A) ……………………………………..
400
(c)
To record rent expired as an expense.
(3)
Depreciation expense (+E, −SE) ………………………..
Accumulated depreciation (+XA, −A)
To record depreciation expense.
(4)
Unearned revenue (−L) …………………………………….
Service revenue (+R, +SE) ………………………
8,000
To record service revenue earned.
(5)
Income tax expense (+E, −SE) ………………………….
Income taxes payable (+L) ……………………….
4,650
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
AP4–6. (continued)
Req. 3
Earnings per share = $13,950 net income 5,000 shares = $2.79 per share
Req. 4
Total asset turnover = Net Sales (or Operating Revenue) Average Total Assets
Req. 5
Service revenue (−R) ………………………………………..
92,500
Retained earnings (+SE) …………………………….
Depreciation expense (−E) ………………………….
17,500
Income tax expense (−E) …………………………...
Financial Accounting, 10/e 4-51
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
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
Wages payable
Supplies
800
Income tax payable
Prepaid insurance
450
Total current liabilities
Total current assets
Note payable, long term
Equipment
Total liabilities
11,900
Stockholders’ Equity
Other assets (not detailed)
Total stockholders’ equity
33,050
Total assets
$44,950
Total liabilities and
stockholders’ equity
$44,950
*Unadjusted balance, $10,300 + Net income, $6,750 = Ending balance, $17,050.
Req. 3
December 31 Closing Entry:
Service revenue (−R) ………………………………………….. 48,000
Financial Accounting, 10/e 4-53
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
c.
Utilities expense (+E, –SE)
520
Utilities payable (+L)
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)
Insurance expense (+E, –SE)
875
Prepaid insurance (-A)
Amount: $4,200 x 5/24 months
g.
Supplies expense (+E, –SE)
Supplies (-A)
h.
Depreciation expense (+E, –SE)
8,300
Accumulated depreciation (+XA, –A)
8,300
Interest receivable (+A)
110
Interest revenue (+R, +SE)
COMPREHENSIVE PROBLEMS
COMP4–1. Req. 1, 2, 3, and 6 T-accounts (dollars 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
k(2) 25
Bal. 49
Bal. 23
Bal. 18
Land
b 13
m 10
Bal. 13
Bal. 78
Bal. 18
Other Noncurrent
Assets
Accounts
Payable
Income Taxes
Payable
Bal. 7
Bal. 0
Bal. 0
g 15
i 26
e 20
p 11
h 27
Bal. 22
Bal. 21
Bal. 11
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
Bal. 0
Bal. 0
CE 22
o 16
CE 105
CE 25
Bal. 0
Bal. 0
Service
Revenue
Bal. 0
CE 215
c 215
Bal. 0
Dividends
Payable
Bal. 0
k(2) 25
k(1) 25
Bal. 0
Financial Accounting, 10/e 4-55
COMP4–1. (continued)
Req. 2
a.
Cash (+A) ………………………………………………….
15,000
Long-term 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) ………………….
Common stock (+SE) …………………………
Additional paid-in capital (+SE)…………..
Wages expense (+E, −SE) …………………………..
Miscellaneous expenses (+E, −SE) ……………….
Accounts payable (+L) ………………………..
Cash (−A) …………………………………………
94,000
f.
Cash (+A) ………………………………………………….
34,000
Accounts receivable (−A) …………………….
34,000
g.
Other noncurrent assets (+A) ……………………….
15,000
Cash (−A) …………………………………………
15,000
h.
Supplies (+A) ……………………………………………..
27,000
Accounts payable (+L) ………………………..
i.
Accounts payable (−L) …………………………………
Cash (−A) …………………………………………
No entry required; no revenue earned in 2020.
k.
(1) Retained earnings (−SE) …………………………
Dividends payable (+L) ……………………..
25,000
(2) Dividends payable (−L)…………………………...
Cash (−A) ……………………………………….
25,000
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)
Depreciation expense (+E, −SE) …………………..
Accumulated depreciation (+XA, −A) ……..
Interest expense (+E, −SE) ………………………….
Interest payable (+L) …………………………...
($15,000 x .08 x 10/12)
Wages expense (+E, −SE) …………………………..
Wages payable (+L) …………………………...
Income tax expense (+E, −SE) ……………………..
11,000
Income taxes payable (+L) …………………..
Req. 4
H & H TOOL, INC.
Income Statement
For the Year Ended December 31, 2020
Operating Revenues:
Service revenue
$215,000
Operating Expenses:
Depreciation expense
10,000
Miscellaneous expenses
Total operating expenses
Operating Income
Other Item:
Interest expense
Pretax income
Income tax expense
Net Income
[$41,000 ÷ 12,000 shares all year]
Financial Accounting, 10/e 4-57
COMP4–1. (continued)
H & H TOOL, INC.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2020
Common
Stock
Additional
Paid–in
Capital
Retained
Earnings
Total
Stockholders’
Equity
Balance, January 1, 2020
$4,000
$80,000
$ 17,000
$101,000
Additional stock issuance
Net income
Dividends declared
Balance, December 31, 2020
$6,000
$82,000
$121,000
H & H TOOL, INC.
Balance Sheet
At December 31, 2020
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
16,000
Total current assets
90,000
Income taxes payable
11,000
Total current liabilities
49,000
Land
13,000
Notes payable
Total liabilities
Equipment
Less: Accumulated deprec.
Stockholders’ Equity:
Net book value
60,000
Common stock
6,000
Additional paid-in cap.
82,000
Other noncurrent assets
22,000
Retained earnings
33,000
equity
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
d.
F
+4,000
e.
O
-94,000
O
+34,000
g.
I
-15,000
h.
O
-26,000
F
-25,000
Req. 6
December 31, 2020, Closing Entry (CE)
Service revenue (−R) …………………………………..
215,000
Interest expense (−E) …………………………
Wages expense (−E) ………………………….
Income tax expense (−E) …………………….
Financial Accounting, 10/e 4-59
COMP4–1. (continued)
Req. 7
(a) Current ratio = Current assets Current liabilities
This suggests that H & H Tool, Inc., generated $1.50 of service revenue for every
dollar of assets.
(c) Net profit margin = Net income Operating revenues
COMP4-2.
Req. 1, 2, 3, and 6 T-accounts (in thousands)
Cash
Accounts
Receivable
Supplies
Bal. 5
Bal. 4
Bal. 2
a 20
l 8
d 56
g 8
k(2) 10
Bal. 27
Bal. 10
Bal. 4
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
Other Assets
Accounts Payable
Notes Payable
Bal. 9
Bal. 7
Bal. 0
h 11
e 7
Bal. 9
Bal. 13
Bal. 20
Wages Payable
Bal. 0
Bal. 1
Unearned
Bal. 0
Bal. 3
Bal. 0
k(2) 10
Bal. 0
Common
Stock
Additional Paid-in
Capital
Retained
Earnings
Bal. 6
Bal. 9
k(1) 10
Bal. 4
c 1
c 4
CE 16
Bal. 7
Bal. 13
Bal. 10
Service Revenue
Income Tax Expense
Interest Expense
Bal. 0
Bal. 0
Bal. 0
CE 70
CE 4
CE 1
Bal. 0
Wages Expense
Miscellaneous Expenses
Bal. 0
Bal. 0
Bal. 0
e 27
CE 2
CE 30
CE 17
Dividends Payable