E3-12B (20–25 Minutes)
(a) COMP CORP.
Income Statement
For the Year Ended December 31, 2014
Revenues
Service revenue ……………………………………….
$53,600
Expenses
Salaries and wages expense …………………….
$25,600
Rent expense …………………………………………..
Supplies expense …………………………………….
Depreciation expense …………………………..
Interest expense ………………………………………
Insurance expense …………………………………..
600
Total expenses …………………………..
COMP CORP.
Statement of Retained Earnings
For the Year Ended December 31, 2014
Retained earnings, January 1 …………………………………………………….
$ 7,060
Add: Net income* …………………………………………………………………….
8,840
E3-12B (Continued)
(a) (Continued) COMP CORP.
Cash ……………………………………………………………………..
$ 2,500
Accounts receivable ………………………………………………
35,600
Supplies ………………………………………………………………..
Prepaid insurance ………………………………………………….
Equipment …………………………………………………………….
$30,000
Less: Accumulated depreciation—equipment …………
Total assets ………………………………………………….
$66,200
Liabilities and Stockholders’ Equity
Liabilities
Notes payable ……………………………………………….
$10,000
Accounts payable ………………………………………….
17,600
Unearned service revenue …………………………..
2,100
Salaries and wages payable …………………………..
Interest payable …………………………………………….
200
Total liabilities …………………………..…………….
$30,300
Common stock ………………………………………………
$20,000
Retained earnings * ……………………………………….
*From Statement of Retained Earnings above.
(b) 1. Based on interest payable at December 31, 2014, interest is $100 per
E3-13B (10–15 minutes)
(a)
Sales ……………………………………………………………………………………
$320,000
Less: Sales returns and allowances …………………………..
$ 9,600
Net sales……………………………………………………….
$304,400
Income Summary ……………………………………………………….
Sales Returns and Allowances …………………………..
Sales Discounts ……………………………………………………….
E3-14B (10–15 minutes)
Sales …………………………..……………………………………………………….
812,000
Sales Returns and Allowances …………………………..
21,500
Sales Discounts ……………………………………………………….
31,000
Income Summary ……………………………………………………….
759,500
Income Summary ……………………………………………………….
628,500
Cost of Goods Sold ……………………………………………………….
361,000
Freight-out ……………………………………………………….
22,500
Insurance Expense ……………………………………………………….
12,000
Rent Expense ……………………………………………………….
32,000
Salary and Wages Expense ……………………………………………….
201,000
Income Summary ……………………………………………………….
131,000
Retained Earnings ……………………………………………………….
185,500
E3-15B (10–15 minutes)
(a) $3,000 (d) $33,200
E3-16B (10–15 minutes)
Sales ……………………………………………………….…………………………..
164,000
Cost of Goods Sold ……………………………………………………….
90,280
Sales Returns and Allowances …………………………..
Sales Discounts ……………………………………………………….
Selling Expenses ……………………………………………………….
Administrative Expenses …………………………..
15,200
Income Tax Expense ……………………………………………………….
12,000
Income Summary ……………………………………………………….
29,320
OR
Sales ……………………………………………………….…………………………..
164,000
Income Summary ……………………………………………………….
164,000
Income Summary ……………………………………………………….
134,680
Cost of Goods Sold ……………………………………………………….
90,280
Sales Returns and Allowances …………………………..
Sales Discounts ……………………………………………………….
Selling Expense ……………………………………………………….
Administrative Expense …………………………………………………….
15,200
Income Tax Expense ……………………………………………………….
12,000
Income Summary ……………………………………………………….
29,320
Retained Earnings ……………………………………………………….
29,320
Retained Earnings ……………………………………………………….
Dividends ……………………………………………………….
E3-17B (10–15 minutes)
J1
Date
Account Titles and Explanation
Ref.
Debit
Credit
Mar.
1
Cash
62,500
Common Stock
62,500
(Investment of cash in business)
3
Land
12,500
Building
27,500
Equipment
7,500
Cash
47,500
(Purchased Moises Moreno’s Golf Land)
5
Advertising Expense
2,000
Cash
2,000
(Paid for advertising)
6
Prepaid Insurance
1,850
Cash
1,850
(Paid for one-year insurance policy)
10
Equipment
3,125
Accounts Payable
3,125
(Purchased equipment on account)
18
Cash
1,500
Service Revenue
1,500
(Received cash for services performed)
25
Dividends
625
Cash
625
(Declared and paid a $625 cash dividend)
30
Salaries and Wages Expense
1,125
Cash
1,125
(Paid wages expense)
30
Accounts Payable
3,125
Cash
3,125
(Paid creditor on account)
31
Cash
950
Service Revenue
950
(Received cash for services performed)
*E3-18B (15–20 minutes)
JUNE MURRAY, M.D.
Conversion of Cash Basis to Accrual Basis
For the Year 2014
Excess of cash collected over cash disbursed
($285,200 – $110,940) …………………………………………………………
$174,260
Alternate solution:
JUNE MURRAY, M.D.
Conversion of Income Statement
from Cash Basis to Accrual Basis
For the Year 2014
Cash
Adjustments
Accrual
Basis
Add
Deduct
Basis
Revenue from fees:
$285,200
–Accounts receivable, Jan. 1
$18,500
+Accounts receivable, Dec. 31
+Unearned service revenue, Jan. 1
–Unearned service revenue, Dec. 31
8,222
Operating expenses:
110,940
–Accrued expenses, Jan. 1
6,870
+Accrued expenses, Dec. 31
+Prepaid expenses, Dec. 31
–Prepaid expenses, Dec. 31
6,464
Restated operating expenses
Net income—accrual basis
*E3-19B (10–15 minutes)
(a) LETTERMAN CORP.
Income Statement (Cash Basis)
For the Year Ended December 31,
2013
2014
Sales …………………………………………………….
$600,000
$902,000
Expenses ………………………………………………
Net income ……………………………………………
$230,000
$433,000
(b) LETTERMAN CORP.
Income Statement (Accrual Basis)
For the Year Ended December 31,
2013
2014
Sales* ……………………………………………………
$876,000
$862,000
Expenses** ……………………………………………
Net income ……………………………………………
$449,000
$375,000
*E3-20B (20–25 minutes)
(a)
Adjusting Entries:
1.
Insurance Expense ……………………………………………………….
1,500
Prepaid Insurance ……………………………………………………….
1,500
2.
Rent Revenue ……………………………………………………….
500
Unearned Rent Revenue …………………………..
500
3.
Supplies ……………………………………………………….
300
Advertising Expense ……………………………………………………….
300
4.
Interest Expense ……………………………………………………….
850
Interest Payable ……………………………………………………….
850
(b)
Reversing Entries:
1.
No reversing entry required.
2.
Unearned Rent Revenue ……………………………………………………….
500
Rent Revenue ……………………………………………………….
500
3.
Advertising Expense ……………………………………………………….
300
Supplies …………………………..…………………………..
300
4.
Interest Payable ……………………………………………………….
850
Interest Expense ……………………………………………………….
850
*E3-21B (10–15 minutes)
Adjusted Trial
Balance
Income
Statement
Balance Sheet
Accounts
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Cash
2,600
2,600
Inventory
112,000
Sales
801,000
Sales Returns and
Allowances
Sales Discounts
Cost of Goods Sold
*E3-22B (20–25 minutes)
BERKELEY CO.
Worksheet (Partial)
For the Month Ended April 30, 2014
Adjusted Trial
Balance
Income
Statement
Balance Sheet
Account Titles
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Cash
12,180
12,180
Accounts Receivable
21,316
21,316
Prepaid Rent
Equipment
36,510
36,510
Notes Payable
21,000
21,000
Accounts Payable
Common Stock
26,610
26,610
Retained Earnings.
April 1, 2014
2,000
2,000
Dividends
12,000
12,000
Service Revenue
37,591
37,591
Rent Expense
Depreciation Expense
Interest Expense
Interest Payable
Net Income
12,641
*E3-22B (Continued)
BERKELEY CO.
Balance Sheet
April 30, 2014
Assets
Current Assets
Cash ……………………………………………………….
$12,180
Accounts receivable …………………………..
Prepaid rent …………………………………………….
3,560
Total current assets …………………………
$37,056
Property, plant, and equipment
Equipment ………………………………………………
Less Accumulated depreciation ……………….
Liabilities and Owner’s Equity
Current liabilities
Notes payable …………………………………………
$21,000
Accounts payable ……………………………………
9,654
Interest payable……………………………………….
1,050
Total current liabilities ……………………..
Stockholders’ Equity
Common Stock
Retained Earnings …………………………………..
*E3-23B (10–15 minutes)
LENO CO.
Worksheet (Partial)
For Month Ended February 28, 2014
Trial Balance
Adjustments
Adjusted Trial
Balance
Income Stat
ement
Balance Sheet
Account Titles
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Supplies
3,700
(a)
1,550
2,150
2,150
Supplies
Depreciation
Accumulated
The following accounts and amounts would be shown in the February income
statement: