EXERCISE 3-11 (20–25 minutes)
(a) ANDERSON COOPER CO.
Income Statement
For the Year Ended December 31, 2014
Revenues
Service revenue ………………………………………………
$11,590
Expenses
Salaries and wages expense …………………………..
Rent expense …………………………..……………………..
Depreciation expense ………………………………………
(b) ANDERSON COOPER CO.
Statement of Retained Earnings
For the Year Ended December 31, 2014
Retained earnings, January 1 …………………………………………………….
$11,310
Add: Net income ……………………………………………………………………….
(c) ANDERSON COOPER CO.
Balance Sheet
December 31, 2014
Assets
Current Assets
Cash ……………………………………………………….
$19,472
Accounts receivable …………………………………..
6,920
Prepaid rent ……………………………………………….
Total current assets ……………………………….
Property, plant, and equipment
Equipment ………………………………………………….
EXERCISE 3-11 (Continued)
$ 5,472
EXERCISE 3-12 (20–25 Minutes)
(a) SANTO DESIGN AGENCY
Income Statement
For the Year Ended December 31, 2014
Revenues
Service revenue ……………………………………………..
$61,500
Expenses
Salaries and wages expense …………………………...
$11,300
Depreciation expense ……………………………………..
Supplies expense ……………………………………………
Insurance expense ………………………………………….
Interest expense ……………………………………………..
Total expenses …………………………………………
SANTO DESIGN AGENCY
Statement of Retained Earnings
For the Year Ended December 31, 2014
Retained earnings, January 1 …………………………………………………….
$ 3,500
Add: Net income ……………………………………………………………………….
34,450
EXERCISE 3-12 (Continued)
(a) Continued SANTO DESIGN AGENCY
Balance Sheet
December 31, 2014
Assets
Cash ………………………………………………………………………..
$11,000
Accounts receivable …………………………………………………
21,500
Supplies …………………………………………………………………..
Prepaid insurance …………………………………………………….
$60,000
Less: Accumulated depreciation – equipment ………………..
Liabilities and Stockholders’ Equity
Liabilities
Notes payable ………………………………………………….
$ 5,000
Accounts payable …………………………………………….
5,000
Interest payable ……………………………………………….
150
Unearned service revenue ………………………………..
5,600
Salaries and wages payable ……………………………..
1,300
Total liabilities……………………………………………
Common stock ………………………………………………..
$10,000
Retained earnings …………………………..……………….
(b) (1) Based on interest payable at December 31, 2014, interest is $25 per
month or 0.5% of the note payable. 0.5% X 12 = 6% interest per year.
EXERCISE 3-13 (10–15 minutes)
(a)
Sales revenue ……………………………………………………….
$800,000
Less: Sales returns and allowances …………………………..
$24,000
Sales discounts ……………………………………………………….
Net sales ……………………………………………………….
(b)
Sales ……………………………………………………………………………………
Income Summary ……………………………………………………….
Income Summary……………………………………………………….
Sales Returns and Allowances …………………………..
EXERCISE 3-14 (10–15 minutes)
Sales Revenue ……………………………………………………….
350,000
Sales Returns and Allowances …………………………..
13,000
Sales Discounts ……………………………………………………….
8,000
Income Summary ……………………………………………………….
Income Summary……………………………………………………….
Cost of Goods Sold ……………………………………………………….
Delivery Expense ……………………………………………………….
Insurance Expense ……………………………………………………….
Rent Expense ……………………………………………………….
20,000
Salaries and Wages Expense …………………………..
61,000
Income Summary……………………………………………………….
Retained Earnings ……………………………………………………….
21,000
EXERCISE 3-15 (10–15 minutes)
EXERCISE 3-16 (10–15 minutes)
Sales Revenue ……………………………………………………….
410,000
Cost of Goods Sold ……………………………………………………….
225,700
Sales Returns and Allowances …………………………..
12,000
Sales Discounts ……………………………………………………….
Selling Expenses ……………………………………………………….
Administrative Expenses ………………………………………………….
38,000
Income Tax Expense ……………………………………………………….
Income Summary ……………………………………………………….
(or)
Sales Revenue ……………………………………………………….
410,000
Income Summary ……………………………………………………….
410,000
Income Summary …………………………..…………………………..
336,700
Cost of Goods Sold ……………………………………………………….
Sales Returns and Allowances …………………………..
Sales Discounts ……………………………………………………….
Selling Expenses ……………………………………………………….
Administrative Expenses ………………………………………………….
Income Tax Expense ……………………………………………………….
Income Summary …………………………..…………………………..
Retained Earnings……………………………………………………….
Retained Earnings ……………………………………………………….
Dividends ……………………………………………………….
EXERCISE 3-17 (10–15 minutes)
J1
Date
Account Titles and Explanation
Ref.
Debit
Credit
Mar.
1
Cash
50,000
Common Stock
50,000
(Investment of cash in business)
3
Land
10,000
Buildings
22,000
Equipment
6,000
Cash
38,000
(Purchased Michelle Wie’s Golf Land)
5
Advertising Expense
1,600
Cash
1,600
(Paid for advertising)
6
Prepaid Insurance
1,480
Cash
1,480
(Paid for one-year insurance policy)
10
Equipment
2,500
Accounts Payable
2,500
(Purchased equipment on account)
18
Cash
1,200
Service Revenue
1,200
(Received cash for services performed)
25
Dividends
500
Cash
500
(Declared and paid a $500 cash dividend)
30
Salaries and Wages Expense
900
Cash
900
(Paid wages expense)
30
Accounts Payable
2,500
Cash
2,500
(Paid creditor on account)
31
Cash
750
Service Revenue
750
(Received cash for services performed)
*EXERCISE 3-18 (15–20 minutes)
Jill Accardo, M.D.
Conversion of Cash Basis to Accrual Basis
For the Year 2014
Excess of cash collected over cash disbursed ($142,600 –
$55,470)
$87,130
Alternate solution:
Jill Accardo, M.D.
Conversion of Income Statement Data
from Cash Basis to Accrual Basis
For the Year 2014
Cash
Adjustments
Accrual
Basis
Add
Deduct
Basis
Collections from customers:
$142,600
–Accounts receivable, Jan. 1
$9,250
+Accounts receivable, Dec. 31
$15,927
+Unearned service revenue, Jan. 1
–Unearned service revenue, Dec. 31
Disbursements for expenses:
–Accrued liabilities, Jan. 1
+Accrued liabilities, Dec. 31
+Prepaid expenses, Jan. 1
Operating expenses
Net income—cash basis
$ 87,130
Net income—accrual basis
*EXERCISE 3-19 (10–15 minutes)
(a) Wayne Rogers Corp.
Income Statement (Cash Basis)
For the Year Ended December 31,
2013
2014
Sales revenue
$295,000
$515,000
Net income
(b) Wayne Rogers Corp.
Income Statement (Accrual Basis)
For the Year Ended December 31,
2013
2014
Sales* revenue
Net income
*EXERCISE 3-20 (20–25 minutes)
(a)
Adjusting Entries:
1.
Insurance Expense ($5,280 X 5/24) …………………………..
1,100
Prepaid Insurance ……………………………………………………….
1,100
2.
Rent Revenue ($1,800 X 1/3) …………………………..
Unearned Rent Revenue …………………………..
3.
Supplies ……………………………………………………….
Advertising Expense ……………………………………………………….
4.
Interest Expense ……………………………………………………….
Interest Payable ……………………………………………………….
*EXERCISE 3-20 (Continued)
(b)
Reversing Entries:
1.
No reversing entry required.
2.
Unearned Rent Revenue ……………………………………………………….
Rental Revenue ……………………………………………………….
3.
Advertising Expense ……………………………………………………….
Supplies ……………………………………………………….
4.
Interest Payable ……………………………………………………….
Interest Expense …………………………..…………………………..
*EXERCISE 3-21 (10–15 minutes)
Accounts
Adjusted Trial
Balance
Income
Statement
Balance Sheet
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Cash
9,000
9,000
Inventory
Sales Returns and
Cost of Goods Sold
*EXERCISE 3-22 (20–25 minutes)
Ed Bradley 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
18,972
18,972
Accounts Receivable
6,920
6,920
Prepaid Rent
2,280
2,280
Notes Payable
5,700
Accounts Payable
Common Stock
34,960
34,960
Retained Earnings
1,000
Dividends
6,650
6,650
Service Revenue
12,590
12,590
Salaries and Wages
Expense
6,840
6,840
Rent Expense
3,760
3,760
Depreciation Expense
Interest Expense
Interest Payable
83
83
Net income
EXERCISE 3-22 (Continued)
Ed Bradley Co.
Balance Sheet
April 30, 2014
Assets
Current Assets
Cash ……………………………………………………….
$18,972
Accounts receivable ………………………………..
6,920
Prepaid rent …………………………………………….
Total current assets …………………………
Property, plant, and equipment
Equipment ………………………………………………
Liabilities and Stockholders’ Equity
Current liabilities
Notes payable …………………………………………
$ 5,700
Accounts payable ……………………………………
4,472
Interest payable ………………………………………
Total current liabilities …………………….
Common Stock ……………………………………….
Retained earnings …………………………..……….
*EXERCISE 3-23 (10–15 minutes)
Jurassic Park Co.
Worksheet (partial)
For Month Ended February 28, 2014
Trial
Balance
Adjustments
Adjusted
Trial Balance
Income
Statement
Balance
Sheet
Account Titles
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Supplies
1,756
(a)
1,041
715
715
(b)
7,196
Accumulated
depreciation –
The following accounts and amounts would be shown in the February
income statement:
Supplies expense $1,041
TIME AND PURPOSE OF PROBLEMS
Problem 3-1 (Time 25–35 minutes)
Purpose—to provide an opportunity for the student to post daily transactions to a “T” account ledger,
Problem 3-3 (Time 25–30 minutes)
Purpose—to provide an opportunity for the student to prepare adjusting entries. The adjusting entries
are fairly complex in nature.
Problem 3-4 (Time 40–50 minutes)
Problem 3-5 (Time 15–20 minutes)
Problem 3-6 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to prepare year-end adjusting entries from a trial
balance and related information presented. The problem also requires the student to prepare an
income statement, a balance sheet, and a statement of owners’ equity. The problem covers the basics
of the end-of-period adjusting process.
Problem 3-7 (Time 25–35 minutes)
Purpose—to provide an opportunity for the student to figure out the year-end adjusting entries that were
Problem 3-8 (Time 25–35 minutes)
Purpose—to provide an opportunity for the student to figure out the year-end adjusting entries that were
Problem 3-9 (Time 30–40 minutes)
Problem 3-10 (Time 30–35 minutes)
Purpose—to provide an opportunity for the student to prepare adjusting and closing entries from a trial
balance and related information. The student is also required to post the entries to “T” accounts.
Time and Purpose of Problems (Continued)
*Problem 3-11 (Time 35–40 minutes)
Purpose—to provide an opportunity for the student to prepare and compare (a) cash basis and accrual-
basis income statements, (b) cash-basis and accrual-basis balance sheets, and (c) to discuss the
weaknesses of cash basis accounting.
*Problem 3-12 (Time 40–50 minutes)
SOLUTIONS TO PROBLEMS
PROBLEM 3-1
(a) (Explanations are omitted.) and (d)
Cash
Equipment
Sept.
1
20,000
Sept.
4
680
Sept.
2
17,280
5
10
18
19
Sept.
19
Sept.
1
30
30
6,007
30
Bal.
30
30
Bal
12,133
Accounts Receivable
Sept.
14
5,820
Sept.
20
980
25
2,110
Accounts Payable
Bal.
30
6,950
Sept.
18
3,600
Sept.
2
17,280
Bal.
30
13,680
Rent Expense
Sept.
30
Sept.
5
942
Sept.
30
330
Sept.
30
9,620
Sept.
1,690
Bal.
30
25
2,110
Office Expense
Accumulated Depreciation—Equipment
Sept.
10
430
Sept.
30
515
Sept.
30
288
30
85
515
515
Salaries and Wages Expense
Sept.
1,800
Sept.
30
PROBLEM 3-1 (Continued)
Depreciation Expense
Income Summary
Sept.
30
288
Sept.
30
288
Sept.
30
680
Sept.
30
9,620
30
515
30
330
30
288
(b) YASUNARI KAWABATA, D.D.S.
Trial Balance
September 30
Debit
Credit
Cash …………………………………………………………………………….
$12,133
Accounts Receivable …………………………………………………….
6,950
Supplies ……………………………………………………………………….
612
Equipment ……………………………………………………….
17,280
Accumulated Depreciation—Equipment …………………………
Accounts Payable ……………………………………………………….
Service Revenue ……………………………………………………….
Rent Expense …………………………..…………………………..
680
Office Expense ……………………………………………………….
Salaries and Wages Expense …………………………………………
1,800
Supplies Expense …………………………..…………………………..
330
Depreciation Expense ……………………………………………………
PROBLEM 3-1 (Continued)
(c) YASUNARI KAWABATA, D.D.S.
Income Statement
For the Month of September
Service revenue …………………………..…………………………..
$9,620
Expenses:
Salaries and wages expense…………………………
$1,800
Rent expense ………………………………………………
Supplies expense ………………………………………..
Depreciation expense …………………………..
Office expense …………………………………………….
Total expenses…………………………………………
YASUNARI KAWABATA, D.D.S.
Statement of Owners’ Equity
For the Month of September
Owner’s capital September 1 ……………………………………………..
$20,000
Add: Net income ……………………………………………………………..
Less: Withdrawal by owner ……………………………………………….
YASUNARI KAWABATA, D.D.S.
Balance Sheet
As of September 30
Assets
Liabilities and Owners’ Equity
Cash …………………………..
$12,133
Accounts payable ………………..
$13,680
Accounts receivable ……….
Supplies …………………………
Equipment. …………………….
PROBLEM 3-1 (Continued)
(d) YASUNARI KAWABATA, D.D.S.
Post-Closing Trial Balance
September 30
Debit
Credit
Cash …………………………..…………………………..
$12,133
Accounts Receivable ………………………………………
6,950
Accumulated Depreciation—Equipment …………..
PROBLEM 3-2
(a)
Dec. 31
Accounts Receivable ……………………………………………………….
3,500
Service Revenue ……………………………………………………….
3,500
31
Unearned Service Revenue …………………………..
1,400
Service Revenue ……………………………………………………….
1,400
31
Supplies Expense ……………………………………………………….
5,400
5,400
31
Depreciation Expense ……………………………………………………….
5,000
Accumulated Depreciation—
Equipment ……………………………………………………….
5,000
31
Interest Expense ……………………………………………………….
Interest Payable ……………………………………………………….
31
Insurance Expense ……………………………………………………….
Prepaid Insurance ……………………………………………………….
31
Salaries and Wages Expense …………………………..
1,300
Salaries and Wages Payable …………………………..
(b) MASON ADVERTISING AGENCY
Income Statement
For the Year Ended December 31, 2014
Revenues
Service revenue …………………………..………………….
$63,500
Expenses
Salaries and wages expense …………………………..
$11,300
Depreciation expense …………………………..
Rent expense ………………………………………………….
Insurance expense …………………………..
Interest expense ……………………………………………..
500
Total expenses…………………………..
PROBLEM 3-2 (Continued)
MASON ADVERTISING AGENCY
Statement of Retained Earnings
For the Year Ended December 31, 2014
Retained earnings, January 1 ……………………………………………………
$ 3,500
Add: Net income……………………………………………………….
MASON ADVERTISING AGENCY
Balance Sheet
December 31, 2014
Assets
Cash ………………………………………………………………………..
$11,000
Accounts receivable …………………………………………………
23,500
Supplies …………………………………………………………………..
Prepaid insurance …………………………………………………….
Equipment ……………………………………………………………….
$60,000
Less: Accumulated depreciation—equipment …………..
Liabilities and Stockholders’ Equity
Liabilities
Notes payable………………………………………………….
$ 5,000
Accounts payable ……………………………………………
5,000
Unearned service revenue …………………………..
5,600
Salaries and wages payable …………………………..
1,300
Interest payable ……………………………………………….
Total liabilities …………………………………………..
Common stock …………………………..……………………
Retained earnings ……………………………………………
(c) 1. Interest is $50 per month or 1% of the note payable. 1% X 12 = 12%
interest per year.