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3-1
CHAPTER 3
Processing Accounting Information
OVERVIEW OF EXERCISES, PROBLEMS, AND CASES
Estimated
Time in
Learning Objectives Exercises Minutes Level
Module 1
1. Explain the difference between external and internal events. 1 10 Easy
Module 2
4. Define the concept of a general ledger and understand the 5 10 Easy
use of the T account as a method for analyzing transactions. 10* 20 Mod
11* 10 Mod
12* 10 Mod
13* 10 Easy
Module 3
6. Explain the purposes of a journal and the posting process. 14* 20 Mod
15* 30 Mod
16* 20 Mod
17* 15 Mod
3-2 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
Problems Estimated
and Time in
Learning Objectives Alternates Minutes Level
Module 1
1. Explain the difference between external and internal events. 1 20 Easy
5* 45 Mod
Module 2
4. Define the concept of a general ledger and understand the 7* 60 Mod
use of the T account as a method for analyzing transactions. 8* 60 Mod
10* 45 Mod
11** 30 Diff
Module 3
6. Explain the purposes of a journal and the posting process. 9* 30 Mod
12* 75 Mod
13* 75 Mod
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-3
Estimated
Time in
Learning Objectives Cases Minutes Level
Module 1
1. Explain the difference between external and internal events. 3* 20 Mod
Module 2
4. Define the concept of a general ledger and understand the use 1 20 Mod
of the T account as a method for analyzing transactions.
Module 3
6. Explain the purposes of a journal and the posting process. 2* 15 Mod
3* 20 Mod
3-4 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
EXERCISES
LO 1 EXERCISE 3-1 TYPES OF EVENTS
1. E 3. NR 5. I 7. E
LO 2 EXERCISE 3-2 SOURCE DOCUMENTS MATCHED WITH TRANSACTIONS
LO 3 EXERCISE 3-3 THE EFFECT OF TRANSACTIONS ON THE ACCOUNTING EQUATION
Assets = Liabilities + Owners’ Equity
1. NE* NE NE
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-5
LO 3 EXERCISE 3-4 TYPES OF TRANSACTIONS
Type Examples of Transactions
1. a. Purchase supplies on credit.
b. Purchase land in exchange for promissory note.
4. a. Pay dividend to stockholders.
b. Pay wages to employees.
Many other examples exist; those given are representative of possible answers.
LO 4 EXERCISE 3-5 BALANCE SHEET ACCOUNTS AND THEIR USE
1. Notes Payable 7. Accounts Payable
LO 5 EXERCISE 3-6 NORMAL ACCOUNT BALANCES
1. Debit 7. Credit
3-6 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 5 EXERCISE 3-7 NORMAL ACCOUNT BALANCES FOR VAIL RESORTS
Item Classified as Normal Balance
1. Trade receivables, net of allowances A D
2. Segment operating expense—Lodging E D
LO 5 EXERCISE 3-8 DEBITS AND CREDITS
The debits and credits are reversed in this entry. The correct entry is:
Journal June 5 Cash ....................................................... 12,450
Entry Accounts Receivable ........................ 10,000
Analysis Sales Revenue ................................. 2,450
To record cash received on June 5:
$10,000 on account and $2,450 in
cash sales.
Balance Sheet Income Statement
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-7
LO 7 EXERCISE 3-9 TRIAL BALANCE
SPENCER CORPORATION
TRIAL BALANCE
DECEMBER 31
Debits Credits
Cash ............................................................................. $ 10,500
Accounts Receivable .................................................... 5,325
Office Supplies ............................................................. 500
Land ............................................................................. 50,000
Automobiles ................................................................. 9,200
Buildings ....................................................................... 150,000
3-8 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
MULTI-CONCEPT EXERCISES
LO 3,4,5 EXERCISE 3-10 JOURNAL ENTRIES RECORDED DIRECTLY IN T ACCOUNTS
Cash Accounts Receivable Office Supplies
(1) 19,500 130 (2) (5) 200 200 (7) (2) 130
(4) 125 15,000 (6)
(7) 200
19,825 15,130 Bal. 0
LO 4,7 EXERCISE 3-11 TRIAL BALANCE
WE-GO DELIVERY SERVICE
TRIAL BALANCE
DECEMBER 31
Debits Credits
Cash ............................................................................. $ 4,695
Office Supplies ............................................................. 130
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-9
LO 3,4,5 EXERCISE 3-12 DETERMINING AN ENDING ACCOUNT BALANCE
Cash
2,000 1,350
1,400
LO 3,4,5 EXERCISE 3-13 RECONSTRUCTING A BEGINNING ACCOUNT BALANCE
Beginning Balance + Services on Account – Collections = Ending Balance
LO 3,5,6 EXERCISE 3-14 JOURNAL ENTRIES
1.
Journal Accounts Receivable .......................................... 1,530
Entry Sales Revenue ............................................. 1,530
Analysis Made sales on open account.
Balance Sheet Income Statement
3-10 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
EXERCISE 3-14 (Continued)
2.
Journal Supplies .............................................................. 1,365
Entry Accounts Payable ........................................ 1,365
Analysis Purchased supplies on open account.
Balance Sheet Income Statement
3.
Journal Cash ................................................................... 750
Entry Sales Revenue ............................................. 750
Analysis Made cash sales.
Balance Sheet Income Statement
4.
Journal Equipment .......................................................... 4,240
Entry Cash ............................................................. 4,240
Analysis Purchased equipment with cash.
Balance Sheet Income Statement
5.
Journal Cash ................................................................... 2,500
Entry Notes Payable .............................................. 2,500
Analysis Issued promissory note for cash.
EXERCISE 3-14 (Concluded)
6.
Journal Cash ................................................................... 890
Entry Accounts Receivable .................................... 890
Analysis Collected open accounts.
Balance Sheet Income Statement
7.
Journal Land .................................................................... 50,000
Entry Capital Stock ................................................ 50,000
Analysis Issued capital stock in exchange for land.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Land 50,000
Capital
Stock 50,000
8.
9.
Journal Accounts Payable ............................................... 500
Entry Cash ............................................................. 500
Analysis Paid open account.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Cash (500
)
Accounts Payable (500)
3-12 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 3,5,6 EXERCISE 3-15 JOURNAL ENTRIES
Journal Apr. 1 Cash ....................................................... 100,000
Entry Capital Stock ..................................... 100,000
Analysis Issued 100,000 shares of capital stock.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Cash 100,000
Capital
Stock 100,000
Journal Apr. 8 Land ....................................................... 20,000
Entry Buildings ................................................ 60,000
Analysis Cash ................................................. 80,000
Purchased land and a storage shed.
Balance Sheet Income Statement
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-13
EXERCISE 3-15 (Continued)
Journal Apr. 10 Mowing Equipment ................................. 25,000
Entry Cash ................................................. 10,000
Analysis Accounts Payable ............................. 15,000
Purchased mowing equipment with
down payment and remainder due by
end of month.
Journal Apr. 18 Accounts Receivable .............................. 5,500
Entry Service Revenue .............................. 5,500
Analysis Billed customers for services provided
on account; amounts due within ten days.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Accounts
Receivable
5,500
5,500
Service
Revenue
5,500
5,500
3-14 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
EXERCISE 3-15 (Concluded)
Journal Apr. 30 Accounts Receivable .............................. 9,850
Entry Service Revenue .............................. 9,850
Analysis Billed customers for services provided
on account.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Accounts
Receivable
9,850
9,850
Service
Revenue
9,850
9,850
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-15
LO 3,5,6 EXERCISE 3-16 JOURNAL ENTRIES FOR VAIL RESORTS
1.
2.
Journal Cash ................................................................... 80
Entry Revenue—Mountain..................................... 80
Analysis Made cash sales for lift tickets.
Balance Sheet Income Statement
ASSETS = LIABILITIES +
STOCKHOLDERS’
EQUITY REVENUES – EXPENSES =
NET
INCOME
Cash 80
80
Revenue—
Mountain 80
80
3.
4.
Journal Cash ................................................................... 150
Entry Revenue—Lodging ...................................... 150
3-16 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
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LO 5,6 EXERCISE 3-17 THE PROCESS OF POSTING JOURNAL ENTRIES TO GENERAL
LEDGER ACCOUNTS
General Journal Page No. 7
Post.
Date Account Title and Explanation Ref. Debit Credit
June 1 Land 17 50,000
The purpose of the journal is to provide a chronological record of a company’s transac-
tions. In addition, it shows the complete transaction in one place. Thus, if you wanted to
review this particular transaction in the future, you would look at the general journal.
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-17
PROBLEMS
LO 1 PROBLEM 3-1 EVENTS TO BE RECORDED IN ACCOUNTS
1. E Not recorded
2. E Recorded: Supplies, Accounts Payable
3-18 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 3 PROBLEM 3-2 TRANSACTION ANALYSIS AND FINANCIAL STATEMENTS
1. JUST ROLLING ALONG INC.
TRANSACTIONS FOR THE MONTH OF MAY
Assets = Liabilities + Stockholders’ Equity
Accounts Accounts Capital Retained
Date Cash Receivable Equipment Supplies Payable Stock Earnings
Bal. $13,460 $7,400 $100 $3,100 $18,000 $ (140)
5/17 1,800 1,800
Bal. $15,260 $7,400 $100 $3,100 $18,000 $1,660
5/24 $1,200 1,200
Bal. $15,260 $1,200 $7,400 $100 $3,100 $18,000 $2,860
CHAPTER 3 • PROCESSING ACCOUNTING INFORMATION 3-19
PROBLEM 3-2 (Concluded)
2. JUST ROLLING ALONG INC.
INCOME STATEMENT
FOR THE MONTH OF MAY
3. JUST ROLLING ALONG INC.
BALANCE SHEET
MAY 31
Assets
Current assets:
Cash ............................................................................ $15,700
Accounts receivable .................................................... 600
Supplies ....................................................................... 100
4. Given the line of business that they are in, the two college students may be con-
cerned about their liability. One of the advantages of incorporating is the limited
liability of the stockholders. Generally, a stockholder is liable only for the amount
contributed to the business.
3-20 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 3 PROBLEM 3-3 TRANSACTION ANALYSIS AND FINANCIAL STATEMENTS
1. EXPERT CONSULTING SERVICES INC.
TRANSACTIONS FOR THE MONTH OF MARCH
Assets = Liabilities + Stockholders’ Equity
Accounts Accounts Notes Capital Retained
Date Cash Receivable Computer Supplies Payable Payable Stock Earnings
3/2 $40,000 $40,000
3/7 15,000 $15,000
Bal. $55,000 $15,000 $40,000
3/12 $700 $700
