Ex. 5.8 a. 60,000
240,000
b. 450,000$
Net loss in Current Year……………………………….
Ex. 5.9 a. 600
600
3,000
Insurance Expense……………………………………………….
Income Summary………………………………………………………..
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……………..
Retained Earnings………………………………………………
Interest Expense………………………………..
Salaries Expense………………………………..
Retained Earnings……………………………………….
Income Summary…………………………………
Office Supplies Expense…………………………
Travel Expense…………………………………..
Utilities Expense…………………………………
Telephone and Internet Expense………………
Advertising Expense…………………………………
Depreciation Expense: Computers……………..
Rent Expense…………………………………….
Income Summary………………………………………………..
Income Summary………………………………………….
Ex. 5.10 a. Net Income ($15,300) ÷ Total Revenue ($61,200) 25%
Computations:
Total revenue………………………………… 61,200$
Total expenses………………………………. (45,900)
Net income…………………………………… 15,300$
Stockholders’ equity (January 1, Current Year)… 35,520$
Total assets………………………………..… 55,680$
Less: Equipment (net of depreciation)… 17,280
Significance: Return on equity is a measure of net income relative
to a company’s stockholders’ equity throughout the year. Thus, it
Significance: The current ratio is simply working capital expressed
as a proportion. Thus, it is also a measure of short-term liquidity.
Computations:
Total revenue………………………………… 152,000$
Total expenses……………………………… (148,960)
Net income………………………………….. 3,040$
Stockholders’ equity (January 1, Current Year)… 79,000$
Total assets………………………………..… 316,000$
Less: Buses (net of depreciation)… (222,000)
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.
Significance: Return on equity is a measure of net income relative to
a company’s stockholders’ equity throughout the year. Thus, it
Ex. 5.12
a. (1)
Ex. 5.13
a.
$ 45,000
21,000
18,000
(10,000)
$ 74,000
$ 69,000
60,000
30,000
90,000
$ 249,000
Revenue by Quarter
January – March
Oct. – Dec. ($249,000 – $159,000)
April – June ($129,000 – $69,000)
July – Sept. ($159,000 – $129,000)
Profit for the year ending December 31 ($249,000 – $175,000)
2nd quarter ($60,000 – $42,000)……………………………….
1st quarter (69,000 – $48,000)…………………………………
3rd quarter ($30,000 – $40,000)……………………………….
Total revenue for the year
$ 48,000
42,000
40,000
45,000
$ 175,000
April – June ($90,000 – $48,000)
Total expenses for the year
July – Sept. ($130,000 – 90,000)
Oct. – Dec. ( $175,000 – $130,000)
b.
$ 25,000
(15,000)
$ 10,000
(10,000)
$ (20,000)
September expenses ($130,000 – $115,000)
September income
Loss in July and August
Less: September income (part b.)
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.
Lift Ticket Revenue, $960,000 ($990,000 – $30,000)
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$
Retained earnings (12/31/Current Year)
Less: Dividends
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
8,400
2,400
4,320
5,280 145,200
Net income
Income before taxes
Interest expense
Miscellaneous expense
Travel expense
Depreciation expense: equipment & music
Repair & maintenance expense
Income taxes expense
Assets
$ 18,000
10,800
5,400
2,400
600
$ 8,400
46,800
1,920
240
480
2,160
$ 60,000
$ 6,000
25,200
$ 31,200
$ 91,200
Stockholders’ Equity
Income taxes payable
Total Stockholders’ Equity
Total Liabilities
Capital stock
Interest payable
Total Liabilities and Stockholders’ Equity
Unearned party revenue
Retained earnings
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
Van
Less: Accumulated depreciation: van
Equipment & music
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
31 1,200
(4)
Retained Earnings
Retained Earnings account.
To transfer dividends declared in Current Year to
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
$8,400).
Salaries Expense 90,000
Depreciation Expense: Van 9,600
Depreciation Expense: Equip. & Music 8,400
Repair & Maintenance Expense 2,400
Travel Expense 7,200
Miscellaneous Expense 4,320
Interest Expense 5,280
Income Taxes Expense 2,400
To close all expense accounts.
a.
340,000$
4,800$
72,000
10,400
$ 60,000
Less: Dividends
Retained earnings (12/31/Current Year)
Add: Net Income
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
60,000
10,000
Repair & maintenance expense
Salary expense
Depreciation expense: trucks
Depreciation expense: mowing equipment
Net income
Fuel expense
Miscellaneous expense
Income before taxes
Income taxes expense
Interest expense
a. (cont’d)
Assets
117,050$
9,600
16,000
3,000$
100,000
1,800
300
2,100
1,800
109,000$
77,800
117,800$
226,800$
Total stockholders’ equity
Total liabilities
Stockholders’ Equity
Capital stock
Retained earnings
Total liabilities and stockholders’ equity
Unearned mowing revenue
Income taxes payable
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
6,000
2,150
Prepaid rent
Supplies
Trucks
Mowing equipment
Less: Accumulated depreciation: trucks
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
31 10,000
Retained Earnings
To transfer dividends declared in Current Year to
(4)
Retained Earnings account.
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
$27,800).
Salary Expense 120,000
Depreciation Expense: Mowing Equip. 8,000
Repair & Maintenance Expense 6,000
Fuel Expense 3,000
Miscellaneous Expense 10,000
Interest Expense 6,000
Income Taxes Expense 12,000
To close all expense accounts.
c.
117,050$
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 $340,000 sales. Thus, net income as a percentage of sales was approximately
Trucks
Accounts receivable
Accumulated depreciation: trucks
Prepaid rent
Supplies
Cash
Unexpired insurance
PROBLEM 5.2A
AFFORDABLE LAWN CARE, INC. (concluded)
December 31, Current Year
After-Closing Trial Balance
AFFORDABLE LAWN CARE, INC.
40,000
Accumulated depreciation: mowing equipment
Retained earnings
Income taxes payable
Capital stock
Accounts payable
Unearned mowing revenue
Notes payable
Mowing equipment
Interest payable
a.
52,000$
6,000$
9,000
2,600$
Retained earnings (12/31/Current Year)
Less: Net loss
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
1,400
3,000
4,900
4,000
5,000 83,240
Internet service expense
Net loss
Legal expense
Interest expense
Miscellaneous expense
Office and telephone expense
Supplies expense
Salary expense
Depreciation expense: furniture & fixtures
a. (cont’d)
Assets
960$
300
6,540$
24,000
1,700
360
200
4,000$
8,160$
Total stockholders’ equity
Total liabilities
Stockholders’ Equity
Capital stock
Retained earnings (deficit)
Interest payable
Total liabilities and stockholders’ equity (deficit)
Unearned client revenue
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
2,000
1,500
200
8,160$
Prepaid rent
Furniture & fixtures
Total assets
Unexpired insurance
b.
Dec. 31 52,000
Income Summary 52,000
31 83,240
Insurance Expense 6,000
Office Rent Expense 9,000
31 31,240
Income Summary 31,240
To transfer net loss in Current Year to the Retained
Note: No dividends were declared in Current Year.
Earnings account ($52,000 – $83,240 = $31,240 loss).
PROBLEM 5.3A
MYSTIC MASTERS, INC.
12/31/Current Year
(1)
General Journal
MYSTIC MASTERS, INC. (continued)
Client Revenue Earned
To close Client Revenue Earned.
Retained Earnings
Income Summary
(3)
(2)
Supplies Expense 440
Salary Expense 48,000
Office & Telephone Expense 3,000
Internet Service Expense 4,900
Legal Expense 1,500
Interest Expense 4,000
Miscellaneous Expense 5,000
To close all expense accounts.
c.
960$
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 $52,000 sales. Thus, the net loss as a percentage of sales was approximately 60%. The
Accounts receivable
Unexpired insurance
PROBLEM 5.3A
MYSTIC MASTERS, INC. (concluded)
MYSTIC MASTERS, INC.
December 31, Current Year
After-Closing Trial Balance
1,500
200
8,400
Salaries payable
Capital stock
Interest payable
Retained earnings
Accumulated depreciation: furniture & fixtures
Notes payable
Accounts payable
Furniture & fixtures
Prepaid rent
a.
Month Ended Quarter Ended 9 Months Ended
Sept. 30 Sept. 30 Sept. 30
16,000$ 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
11,800$ 33,400$ 89,200$
Advertising
September Commissions:
Supporting computations
Net Income
Depreciation expense
Rent expense
Salaries expense
Third Quarter Commissions:
a.
Dec. 31 1,800
Consulting Services Revenue 1,800
31 360
Prepaid Rent 360
31 108
Unexpired Insurance 108
Salaries Payable 2,280
Interest Payable 72
Income Taxes Payable 720
To record income taxes expense accrued in Dec.
(7)
Salaries Expense
Income Taxes Expense
Interest Expense
To record interest expense accrued in December.
(8)
To record accrued but unpaid salaries in Dec.
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)
Consulting Services Revenue 3,000
Office Supplies 114
31 900
(3)
Unearned Consulting Services Revenue
(2)
To record offices supplies used in December.
(4)
Depreciation Expense: Office Equipment
To record depreciation expense in December.
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.