CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-21
PROBLEM 3-3 (Concluded)
2. EXPERT CONSULTING SERVICES INC.
INCOME STATEMENT
FOR THE MONTH OF MARCH
Revenues:
Computer installation services ………………………………. $4,000
3. EXPERT CONSULTING SERVICES INC.
BALANCE SHEET
MARCH 31
Assets
Current assets:
Cash …………………………………………………………………. $44,800
Accounts receivable ……………………………………………. 3,000
Supplies …………………………………………………………….. 700
Total current assets …………………………………………………. $48,500
4. Trade accounts often have a 30-day collection or payment period. For example,
cash should be received in April from the services provided on account on March 19.
Cash will most likely be paid in April for the $700 of miscellaneous supplies bought
on account on March 12.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3-22 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 3 PROBLEM 3-4 TRANSACTIONS RECONSTRUCTED FROM FINANCIAL STATEMENTS
ELM CORPORATION
TRANSACTIONS FOR THE MONTH OF JUNE
Assets = Liabilities + Owners’ Equity
Accounts Accounts Notes Capital Retained
Cash Receivable Equipment Building Land Payable Payable Stock Earnings
1. $30,000 $30,000
2. $18,000 $18,000
Bal. $30,000 $18,000 $18,000 $30,000
TOTAL ASSETS: $176,400 TOTAL LIABILITIES AND OWNERS’ EQUITY: $176,400
Assumptions: 1. The land was acquired for cash.
2. All sales were on account.
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-23
MULTI-CONCEPT PROBLEMS
LO 1,2 PROBLEM 3-5 IDENTIFICATION OF EVENTS WITH SOURCE DOCUMENTS
All of these events would be recorded in the entity’s accounts.
a. Payment of the insurance policy would be recorded with the use of the invoice from
the insurance company. The amount and period covered would be used to record
the event.
d. Source documents are needed to record the reduction in supplies and the amount of
loss from the fire. Invoices for supplies purchased and requisition forms for supplies
are important source documents for this purpose. By deducting the amount used (as
shown on the requisition forms) from the amount bought (per the invoices), one
could determine the amount of loss.
h. The lease agreement itself serves as the source document to record this event. The
amounts paid for taxes, title, and license are recorded on the basis of the lease
agreement.
LO 3,5 PROBLEM 3-6 ACCOUNTS USED TO RECORD TRANSACTIONS
Accounts
Accounts
Debited Credited Debited Credited
a. 1 10 f. 1 2
b. 5 1, 9 g. 13 1
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3-24 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 3,4,5 PROBLEM 3-7 TRANSACTION ANALYSIS AND JOURNAL ENTRIES RECORDED DIRECTLY IN T ACCOUNTS
1. BEVERLY ENTERTAINMENT ENTERPRISES
TRANSACTIONS FOR THE MONTH OF OCTOBER
Assets = Liabilities + Owners’ Equity
Accounts Concession Accounts Notes Capital Retained
Cash Receivable Land Building Supplies Payable Payable Stock Earnings
10/17 $1,500 1,500
Bal. $29,200 $1,500 $35,000 $95,000 $3,700 $6,200 $112,500 $40,000 $ 5,700
10/23 750 –750
Bal. $29,950 $ 750 $35,000 $95,000 $3,700 $6,200 $112,500 $40,000 $ 5,700
10/24 4,800 2,000
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-25
PROBLEM 3-7 (Concluded)
2. Cash Accounts Receivable
(10/1) 40,000 12,500 (10/2) (10/17) 1,500 750 (10/23)
(10/13) 4,200 2,500 (10/3)
(10/23) 750 3,000 (10/26)
(10/24) 4,800 500 (10/27)
(10/31) 4,300 2,400 (10/30)
54,050 20,900 Bal. 750
Bal. 33,150
Concession Supplies Accounts Payable
(10/12) 3,700 2,500 (10/3)
3,700 (10/12)
6,200 Bal.
Notes Payable Capital Stock
112,500 (10/2) 40,000 (10/1)
3-26 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 4,7 PROBLEM 3-8 TRIAL BALANCE AND FINANCIAL STATEMENTS
1. BEVERLY ENTERTAINMENT ENTERPRISES
TRIAL BALANCE
OCTOBER 31
Debits Credits
Cash ……………………………………………………………………… $ 33,150
Accounts Receivable ……………………………………………….. 750
2. BEVERLY ENTERTAINMENT ENTERPRISES
INCOME STATEMENT
FOR THE MONTH OF OCTOBER
Revenues:
Ticket sales………………………………………………………… $5,600*
Concession sales ……………………………………………….. 7,700**
3. BEVERLY ENTERTAINMENT ENTERPRISES
STATEMENT OF RETAINED EARNINGS
FOR THE MONTH OF OCTOBER
Beginning balance, October 1 ……………………………………………………….. $ 0
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-27
PROBLEM 3-8 (Concluded)
4. BEVERLY ENTERTAINMENT ENTERPRISES
BALANCE SHEET
OCTOBER 31
Assets
Current assets:
Cash …………………………………………………………………. $33,150
Accounts receivable ……………………………………………. 750
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable ……………………………………………….. $ 6,200
Long-term debt:
Notes payable …………………………………………………….. 112,500
LO 3,5,6 PROBLEM 3-9 JOURNAL ENTRIES
a.
Journal Cash …………………………………………………………. 200,000
Entry Capital Stock ………………………………………… 200,000
Analysis Issued 100,000 shares of capital stock for cash.
PROBLEM 3-9 (Continued)
b.
Journal Building ……………………………………………………… 110,000
Entry Land ………………………………………………………….. 40,000
Analysis Cash ……………………………………………………. 150,000
Acquired building and land for cash.
Balance Sheet Income Statement
c.
Journal Cash …………………………………………………………. 125,000
Entry Notes Payable ………………………………………. 125,000
Analysis Signed three-year promissory note.
Balance Sheet Income Statement
d.
Journal Office Equipment ………………………………………… 50,000
Entry Cash ……………………………………………………. 10,000
Analysis Accounts Payable …………………………………. 40,000
Purchased equipment, with down payment
and balance due in ten days.
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-29
PROBLEM 3-9 (Continued)
e.
Journal Wage and Salary Expense …………………………… 13,000
Entry Cash ……………………………………………………. 13,000
Analysis Paid payroll for first half of month.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Cash (13,000
)
(13,000)
Wage and Salary
Expense 13,000
(13,000)
f.
)
g.
Journal Accounts Receivable …………………………………… 24,000
Entry Advertising Revenue ……………………………… 24,000
Analysis Sold advertising during January, due by
February 15.
3-30 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 3-9 (Concluded)
h.
Journal Wage and Salary Expense …………………………… 15,000
Entry Cash ……………………………………………………. 15,000
Analysis Paid payroll for second half of month.
Balance Sheet Income Statement
i.
Journal Commissions Expense ………………………………… 3,500
Entry Commissions Payable ……………………………. 3,500
Analysis Commissions earned by salespeople during
January, to be paid on February 5.
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-31
LO 3,4,5 PROBLEM 3-10 JOURNAL ENTRIES RECORDED DIRECTLY IN T ACCOUNTS
1. T Accounts
Cash Accounts Receivable
(a) 200,000 150,000 (b) (g) 24,000
Land Building
(b) 40,000 (b) 110,000
Capital Stock Advertising Revenue
200,000 (a) 24,000 (g)
3-32 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 3-10 (Concluded)
2. ATKINS ADVERTISING AGENCY
TRIAL BALANCE
JANUARY 31
Debits Credits
Cash ……………………………………………………………………… $ 97,000
Accounts Receivable ……………………………………………….. 24,000
Land ………………………………………………………………………. 40,000
LO 3,5,7 PROBLEM 3-11 THE DETECTION OF ERRORS IN A TRIAL BALANCE AND
PREPARATION OF A CORRECTED TRIAL BALANCE
1. The trial balance is out of balance by $220,640 – $208,840, or $11,800. The differ-
ence can be accounted for as follows:
Amount by which trial balance is out of balance: $ 11,800
Dividends account should be a debit balance, not a credit balance;
removing a credit balance and replacing it with a debit balance
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-33
PROBLEM 3-11 (Concluded)
2. MALCOLM INC.
REVISED TRIAL BALANCE
JANUARY 31
Debits Credits
Cash ……………………………………………………………………… $ 9,980
Accounts Receivable ……………………………………………….. 8,640
Land ………………………………………………………………………. 80,000
LO 3,5,6,7 PROBLEM 3-12 JOURNAL ENTRIES, TRIAL BALANCE, AND FINANCIAL
STATEMENTS
1. Journal entries:
Journal Jan. 2 Cash ………………………………………………. 100,000
Entry Capital Stock ………………………………. 100,000
Analysis Issued 100,000 shares of capital stock
for cash.
3-34 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 3-12 (Continued)
Journal Jan. 3 Warehouse ……………………………………… 60,000
Entry Land ………………………………………………. 20,000
Analysis Cash …………………………………………. 80,000
Purchased warehouse and land for cash.
Balance Sheet Income Statement
Journal Jan. 4 Cash ………………………………………………. 50,000
Entry Notes Payable ……………………………. 50,000
Analysis Signed three-year promissory note
at Third State Bank.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Cash 50,000 Notes Payable 50,000
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-35
PROBLEM 3-12 (Continued)
Journal Jan. 31 Cash ………………………………………………. 7,490
Entry Accounts Receivable …………………… 7,490
Analysis Received cash from customers on
account.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Cash 7,490
Accounts
Receivable
(7,490
)
3-36 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 3-12 (Continued)
2. BLUE JAY DELIVERY SERVICE
TRIAL BALANCE
JANUARY 31
Debits Credits
Cash ……………………………………………………………………… $ 32,490
Warehouse …………………………………………………………….. 60,000
Land ………………………………………………………………………. 20,000
Delivery Trucks ……………………………………………………….. 45,000
3. BLUE JAY DELIVERY SERVICE
INCOME STATEMENT
FOR THE MONTH OF JANUARY
Service revenue ………………………………………………………………………….. $15,900
Gas and oil expense ……………………………………………………………………. 3,230
Net income …………………………………………………………………………………. $12,670
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-37
PROBLEM 3-12 (Concluded)
4. BLUE JAY DELIVERY SERVICE
BALANCE SHEET
JANUARY 31
Assets
Current assets:
Cash …………………………………………………………………. $ 32,490
Accounts receivable ……………………………………………. 8,410
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable ……………………………………………….. $ 3,230
Long-term debt:
Notes payable …………………………………………………….. 50,000
5. Additional information needed:
Jan. 3: Is the warehouse new?
How large is it?
What volume of business can it support?
Is it insured?
Jan. 4: What is the interest rate on the loan?
Are there any restrictions on the company’s operations in the debt
3-38 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 3,5,6,7 PROBLEM 3-13 JOURNAL ENTRIES, TRIAL BALANCE, AND FINANCIAL
STATEMENTS
1. Journal entries:
Journal June 5 Computer ……………………………………….. 12,000
Entry Cash …………………………………………. 2,500
Analysis Accounts Payable ……………………….. 9,500
Purchased computer with down payment;
balance due in 60 days.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Computer
12,000
Cash (2,500
)
Accounts Payable 9,500
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-39
PROBLEM 3-13 (Continued)
Journal June 17 Advertising Expense ………………………… 900
Entry Cash …………………………………………. 900
Analysis Paid for June advertising.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Cash (900
)
(900)
Advertising
Expense 900
(900)
3-40 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 3-13 (Continued)
Journal June 29 Rent Expense………………………………….. 2,200
Entry Rent Payable ……………………………… 2,200
Analysis Received bill for June rent to be paid
by July 10.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Rent Payable 2,200 (2,200) Rent Expense 2,200 (2,200)
Journal June 30 Accounts Receivable ………………………… 18,400
Entry Service Revenue ………………………… 18,400
Analysis Billed customers for services rendered
during the second half of June.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Accounts
Receivable
18,400
18,400
Service
Revenue
18,400
18,400