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Ex. 5.8 a. 60,000
240,000
b. 450,000$
Ex. 5.9 a. 600
600
c.
Unexpired Insurance…………………………………………….
Retained Earnings, (January 1, Current Year)………...……
Insurance Expense……………………………………………………….
No, the dollar amounts are not the same in the adjusting and closing entries. The accounts
Consulting Revenue - Individual Clients……………..
Consulting Revenue - Corporate Clients……………..
Ex. 5.10 a. Net Income ($15,300) ÷ Total Revenue ($61,200) 25%
Computations:
Total revenue………………………………… 61,200$
Significance: Current assets often convert to cash in the near
future, whereas current liabilities often consume cash in the near
future. Thus, working capital is a measure of a company's short-
term liquidity.
Computations:
Total revenue………………………………… 152,000$
Based on the above measures, this company appears to be
marginally profitable but heading for liquidity problems.
Significance: Current assets often convert to cash in the near future,
whereas current liabilities often consume cash in the near future.
Thus, working capital is a measure of a company's short-term
liquidity.
Ex. 5.12
a. (1)
Ex. 5.13
a.
$ 45,000
$ 48,000
b.
$ 25,000
Ranking of profitability by quarter (revenue minus expenses):
Lift Ticket Revenue, $210,000 ($850,000 - $640,000)
September revenue ($159,000 - $134,000)
Expenses by Quarter
4th quarter ($90,000 - $45,000)……………………………….
January - March
Given that this business provides janitorial services to schools, the poor performance
in July and August is probably attributable to schools not being in session.
Ex. 5.14
a. U NE NE NE
Retained
Earnings
Error
Recorded a dividend as an
expense in the income
statement.
Net Income
Total
Assets
Total
Liabilities
Ex. 5.15 a.
b.
c. Profitability:
Liquidity:
The current ratio at January 31, 2016, was approximately 1.36-to-1 unchanged
from the previous year. Cash flows from operating activities for the year
ended January 31, 2016, were $9.373 billion, up from $8.242 billion reported in
The company uses straight-line depreciation as discussed in the Summary of
Revenue, net of estimated returns and sales tax, is recognized at the time
Net income for the year ended January 31, 2016, was $7.009 billion, which was
a.
156,000$
2,160$
14,400
1,440
90,000
9,600
18,000$
8,400
PARTY WAGON, INC.
Statement of Retained Earnings
For the Year Ended December 31, Current Year
Retained earnings (1/1/Current Year)
Add: Net Income
SOLUTIONS TO PROBLEMS SET A
PARTY WAGON, INC.
For the Year Ended December 31, Current Year
Insurance expense
Income Statement
20 Minutes, Easy
PROBLEM 5.1A
PARTY WAGON, INC.
Revenues:
Party revenue earned
Expenses:
Office rent expense
Supplies expense
Salary expense
Depreciation expense: van
Assets
$ 18,000
10,800
5,400
2,400
600
$ 8,400
46,800
1,920
Salaries payable
a. (cont'd)
Notes payable
Supplies
Accounts payable
Liabilities
PROBLEM 5.1A
PARTY WAGON, INC. (continued)
Accounts receivable
Unexpired insurance
PARTY WAGON, INC.
December 31, Current Year
Balance Sheet
Cash
Prepaid rent
b.
Dec. 31 156,000
Income Summary 156,000
31 147,600
Insurance Expense 2,160
Office Rent Expense 14,400
Supplies Expense 1,440
31 8,400
Retained Earnings 8,400
PROBLEM 5.1A
PARTY WAGON, INC.
12/31/Current Year
(1)
General Journal
PARTY WAGON (concluded)
Party Revenue Earned
To close Party Revenue Earned.
Income Summary
Income Summary
(2)
Retained Earnings account ($156,000 - $147,600 =
c.
For the year ended December 31, Current Year, the company generated net income of
(3)
To transfer net income earned in Current Year to the
$8,400).
a.
340,000$
4,800$
72,000
10,400
$ 60,000
PROBLEM 5.2A
AFFORDABLE LAWN CARE, INC.
Revenues:
30 Minutes, Medium
AFFORDABLE LAWN CARE, INC.
For the Year Ended December 31, Current Year
Income Statement
Supplies expense
Mowing revenue earned
Expenses:
Office rent expense
Insurance expense
Statement of Retained Earnings
Retained earnings (1/1/Current Year)
AFFORDABLE LAWN CARE, INC.
For the Year Ended December 31, Current Year
a. (cont'd)
Assets
117,050$
9,600
16,000
3,000$
100,000
1,800
300
PROBLEM 5.2A
AFFORDABLE LAWN CARE, INC. (continued)
Accounts receivable
Unexpired insurance
AFFORDABLE LAWN CARE, INC.
December 31, Current Year
Balance Sheet
Cash
Interest payable
Liabilities
Accounts payable
Notes payable
Salaries payable
b.
Dec. 31 340,000
Income Summary 340,000
31 312,200
Insurance Expense 4,800
Office Rent Expense 72,000
Supplies Expense 10,400
31 27,800
Retained Earnings 27,800
PROBLEM 5.2A
AFFORDABLE LAWN CARE, INC.
12/31/Current Year
(1)
General Journal
AFFORDABLE LAWN CARE, INC. (continued)
Mowing Revenue Earned
To close Mowing Revenue Earned.
(2)
Retained Earnings account ($340,000 - $300,200 =
Income Summary
(3)
Income Summary
To transfer net income earned in Current Year to the
$27,800).
c.
117,050$
9,600
16,000
6,000
2,150
300,000
240,000$
d.
For the year ended December 31, Current Year, the company generated net income of
$27,800 on $340,000 sales. Thus, net income as a percentage of sales was approximately
Trucks
Accounts receivable
Accumulated depreciation: trucks
Prepaid rent
Supplies
Cash
Unexpired insurance
PROBLEM 5.2A
AFFORDABLE LAWN CARE, INC. (concluded)
December 31, Current Year
After-Closing Trial Balance
AFFORDABLE LAWN CARE, INC.
a.
52,000$
6,000$
9,000
2,600$
MYSTIC MASTERS, INC.
For the Year Ended December 31, Current Year
Retained earnings (1/1/Current Year)
Statement of Retained Earnings
PROBLEM 5.3A
MYSTIC MASTERS, INC.
Revenues:
45 Minutes, Strong
MYSTIC MASTERS, INC.
For the Year Ended December 31, Current Year
Income Statement
Client revenue earned
Expenses:
Insurance expense
Office rent expense
a. (cont'd)
Assets
960$
300
6,540$
24,000
1,700
Cash
Notes payable
Salaries payable
Liabilities
Accounts payable
PROBLEM 5.3A
MYSTIC MASTERS, INC. (continued)
Accounts receivable
MYSTIC MASTERS, INC.
December 31, Current Year
Balance Sheet
b.
Dec. 31 52,000
Income Summary 52,000
31 83,240
Insurance Expense 6,000
Office Rent Expense 9,000
31 31,240
PROBLEM 5.3A
MYSTIC MASTERS, INC.
12/31/Current Year
(1)
General Journal
MYSTIC MASTERS, INC. (continued)
Client Revenue Earned
To close Client Revenue Earned.
Retained Earnings
Income Summary
(3)
(2)
c.
960$
300
2,000
e.
d.
Cash
The primary issue to be addressed in the notes to the financial statements is the company’s
ability, or lack thereof, to remain a going concern. In other words, just how much longer
For the year ended December 31, Current Year, the company suffered a net loss of $31,240
on $52,000 sales. Thus, the net loss as a percentage of sales was approximately 60%. The
Accounts receivable
Unexpired insurance
PROBLEM 5.3A
MYSTIC MASTERS, INC. (concluded)
MYSTIC MASTERS, INC.
December 31, Current Year
After-Closing Trial Balance
a.
Month Ended Quarter Ended 9 Months Ended
Sept. 30 Sept. 30 Sept. 30
16,000$ 54,000$ 144,000$
b.
c.
PROBLEM 5.4A
GUARDIAN INSURANCE AGENCY
25 Minutes, Easy
GUARDIAN INSURANCE AGENCY
For the Following Time Periods
Revenue:
Commissions earned
Income Statement
Expenses:
If Guardian closed its accounts monthly, the current adjusted balances could be used in
preparing financial statements for the month ended September 30. However, to prepare
The balances in the revenue and expense accounts at September 30 represent the year to
a.
Dec. 31 1,800
Consulting Services Revenue 1,800
31 360
Prepaid Rent 360
31 108
Unexpired Insurance 108
Insurance Expense
in December.
To record portion of insurance policies expired
PROBLEM 5.5A
SILVER LINING, INC.
12/31/Current Year
(1)
General Journal
SILVER LINING, INC.
70 Minutes, Strong
Accounts Receivable
To record revenue accrued at the end of Dec.
(6)
Rent Expense
To record December rent expense.
(5)
a. (cont'd)
Computations for each of the adjusting journal entries:
1. Accounts receivable increased by the $1,800 of accrued revenue in December.
SILVER LINING, INC. (continued)
PROBLEM 5.5A
The company's adjusted trial balance dated December 31, Current Year, appears on the following
page.
