CHAPTER 4 • INCOME MEASUEMENT AND ACCRUAL ACCOUNTING 4-61
LO 5 PROBLEM 4-5A USE OF ACCOUNT BALANCES AS A BASIS FOR ADJUSTING
ENTRIES—ANNUAL ADJUSTMENTS
1. Adjusting entries on December 31, 2016:
a.
Journal Supplies Expense ………………………………………………. 4,270
Entry Office Supplies on Hand ………………………………… 4,270
Analysis To record supplies used: $5,790 – $1,520.
b.
Journal Deferred Revenue ……………………………………………… 1,200
Entry Service Revenue ………………………………………….. 1,200
Analysis To recognize revenue : $1,800 × 8/12.
c.
Journal Interest Expense ………………………………………………… 2,000
Entry Interest Payable …………………………………………… 2,000
Analysis To record interest on note: $60,000 × 10% × 4/12.
Balance Sheet Income Statement
4-62 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
LO 5 PROBLEM 4-6A USE OF A TRIAL BALANCE AS A BASIS FOR ADJUSTING ENTRIES
1. Adjusting entries on June 30, 2016:
a.
b.
Journal Supplies Expense ………………………………………………. 13,920
Entry Office Supplies on Hand ………………………………… 13,920
Analysis To record supplies used: $15,210 – $1,290.
c.
Journal Depreciation Expense …………………………………………. 333
Entry Accumulated Depreciation—Equipment …………… 333
Analysis To record depreciation: ($46,120 – $6,120) × 1/120.
CHAPTER 4 • INCOME MEASUEMENT AND ACCRUAL ACCOUNTING 4-63
PROBLEM 4-6A (Concluded)
d.
Journal Interest Expense ………………………………………………… 50
Entry Interest Payable …………………………………………… 50
Analysis To record interest on note payable.
e.
Journal Salaries Expense ……………………………………………….. 620
Entry Salaries Payable ………………………………………….. 620
Analysis To record salaries not yet paid.
Balance Sheet Income Statement
LO 5 PROBLEM 4-7A EFFECTS OF ADJUSTING ENTRIES ON THE ACCOUNTING
EQUATION
1. Effects of adjusting entries on the accounting equation:
Owners’
Assets = Liabilities + Equity
4-64 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 4-7A (Concluded)
2. Net increase (decrease) in net income from adjustments:
a. ………………………………………………………………………………….. $ (600)
LO 5 PROBLEM 4-8A RECONSTRUCTION OF ADJUSTING ENTRIES FROM ACCOUNT
BALANCES
1.
Journal June 30 Rent Expense……………………………………….. 1,000
Entry Prepaid Rent ……………………………………. 1,000
Analysis To record rent expense: $4,000 – $3,000.
on April 1, 2016, was $6,000.
3.
Journal June 30 Depreciation Expense ……………………………. 100
Entry Accumulated Depreciation …………………. 100
Analysis To record depreciation expense:
$900 – $800 = $100.
Balance Sheet Income Statement
PROBLEM 4-8A (Concluded)
5.
Journal June 30 Interest Expense …………………………………… 96
Entry Interest Payable ……………………………….. 96
Analysis To record interest expense: $864 – $768.
Balance Sheet Income Statement
LO 5 PROBLEM 4-9A USE OF A TRIAL BALANCE TO RECORD ADJUSTING ENTRIES IN T
ACCOUNTS
1. and 2. T accounts:
Cash Accounts Receivable
Bal. 6,200 Bal. 10,400
Accounts Payable Wages and Salaries Payable
1,180 Bal. 1,080 (d)
4-66 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 4-9A (Continued)
Retained Earnings Treatment Revenue
25,370 Bal. 40,600 Bal.
Depreciation Expense Chemical Expense
(b) 150 (c) 8,100
Income Tax Expense
(e) 1,881
Explanations:
(a) $4,800/12 months = $400/month
CHAPTER 4 • INCOME MEASUEMENT AND ACCRUAL ACCOUNTING 4-67
PROBLEM 4-9A (Concluded)
3. LEWIS AND ASSOCIATES
ADJUSTED TRIAL BALANCE
JUNE 30, 2016
Debits Credits
Cash …………………………………………………………………. $ 6,200
Accounts Receivable …………………………………………… 10,400
Prepaid Rent ………………………………………………………. 4,000
Chemical Inventory ……………………………………………… 1,300
Equipment ………………………………………………………….. 18,200
Accumulated Depreciation ……………………………………. $ 1,200
4. On the basis of the information available, Lewis appears to be a profitable business.
Net income for the month was $6,270 – $1,881 (taxes), or $4,389. With treatment
revenue of $40,600, this results in a profit margin of $4,389/$40,600, or approx-
imately 11%.
4-68 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
© 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.
LO 5 PROBLEM 4-10A EFFECTS OF ADJUSTING ENTRIES ON THE ACCOUNTING
EQUATION
Effects of adjusting entries on the accounting equation:
CHAPTER 4 • INCOME MEASUEMENT AND ACCRUAL ACCOUNTING 4-69
ALTERNATE MULTI-CONCEPT PROBLEMS
LO 3,4,7 PROBLEM 4-11A REVENUE AND EXPENSE RECOGNITION AND CLOSING
ENTRIES
1. Income statements for the first two years:
SUE’S AUDIO BOOK RENTALS
INCOME STATEMENTS
Year 1 Year 2
Sales revenue (a) …………………………………………………….. $21,000 $63,000
Explanations:
a. Let X = Year 1 sales:
Year 1 sales + 3(Year 1 sales) = $84,000
4X = $84,000
X = $21,000 = Year 1 sales
3X = $63,000 = Year 2 sales
PROBLEM 4-11A (Concluded)
2. Closing entries:
Year 1:
Sales ……………………………………………………………………… 21,000
Income Summary ……………………………………………….. 21,000
To close revenue account.
Year 2:
Sales ……………………………………………………………………… 63,000
Income Summary ……………………………………………….. 63,000
To close revenue account.
Income Summary …………………………………………………….. 28,000
Advertising Expense ……………………………………………. 4,500
1., 2., and 3. FOREVER GREEN LANDSCAPING
WORK SHEET
FOR THE MONTH ENDED AUGUST 31, 2016
Unadjusted Adjusted Income Balance
Trial Balance Adjusting Entries Trial Balance Statement Sheet
Account Titles Debits Credits Debits Credits Debits Credits Debits Credits Debits Credits
Cash 6,460 6,460 6,460
Accounts Receivable 23,400 23,400 23,400
Supplies on Hand 1,260 (a) 530 730 730
Prepaid Insurance 3,675 (b) 175 3,500 3,500
Equipment 28,800 28,800 28,800
Accum. Depreciation—Equipment 9,200 (c) 600 9,800 9,800
Buildings 72,000 72,000 72,000
14,900 14,900 135,590 135,590
4-72 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 4-12A (Concluded)
Explanations for adjusting entry amounts:
4. Closing entries on August 31:
Service Revenue ……………………………………………………… 14,200
Rent Revenue …………………………………………………………. 700
Income Summary ……………………………………………….. 14,900
To close revenue accounts for August.
Income Summary …………………………………………………….. 12,130
Advertising Expense ……………………………………………. 1,200
CHAPTER 4 • INCOME MEASUEMENT AND ACCRUAL ACCOUNTING 4-73
© 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.
LO 5,6,8 PROBLEM 4-13A TEN-COLUMN WORK SHEET AND FINANCIAL STATEMENTS (APPENDIX)
1., 2., and 3. TENFOUR TRUCKING COMPANY
WORK SHEET
FOR THE MONTH ENDED JANUARY 31, 2016
Unadjusted Adjusted Income Balance
Trial Balance
A
djusting Entries Trial Balance Statement Sheet
Notes Payable 50,000 50,000 50,000
Interest Payable 4,500 (d) 375 4,875 4,875
Customer Deposits 6,000 (e) 4,500 1,500 1,500
Capital Stock 100,000 100,000 100,000
Fleet
(c) 3,125
3,125 3,125
Interest Expense (d) 375 375 375
Wages and Salaries Payable (f) 8,200 8,200 8,200
Income Tax Expense (g) 9,237 9,237 9,237
Income Tax Payable (g) 9,237 9,237 9,237
4-74 FINANCIAL ACCOUNTING SOLUTIONS MANUAL
PROBLEM 4-13A (Continued)
Explanations for adjusting entry amounts:
(a) $18,000/24 months = $750/month
(b) ($40,000 – $4,000)/240 months = $150/month
4. Financial statements:
(a) TENFOUR TRUCKING COMPANY
INCOME STATEMENT
FOR THE MONTH ENDED JANUARY 31, 2016
Freight revenue ………………………………………………….. $170,170
Expenses:
Gas and oil ……………………………………………………. $57,330