1460T_c03.qxd12/31/0511:19 am Page104 EQA 104 Chapter 3 The Accounting Information System Uptown then balances the Income Statement columns.The company also enters the net income of $12,200 in the Balance Sheet Cr.column as an increase in retained earnings. Preparing Financial Statements from a Worksheet The worksheet provides the information needed for preparation of the financial state- ments without reference to the ledger or other records.In addition,the worksheet sorts the data into appropriate columns,which facilitates the preparation of the statements. The financial statements for Uptown Cabinet are shown in Chapter 3,pages 90-91. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 3C KEY TERM 11. worksheet,101 Prepare a 10-column worksheet.The 10-column worksheet provides columns for the first trial balance,adjustments,adjusted trial balance,income statement,and balance sheet.The worksheet does not replace the financial statements.Instead,it is an informal device for accumulating and sorting information needed for the financial statements. Note:All asterisked Questions,Exercises,Problems,and Cases relate to material con- tained in the appendixes to the chapter. QUESTIONS 1.Give an example of a transaction that results in: 7.Indicate whether each of the items below is a real or nom- (a)A decrease in an asset and a decrease in a liability. inal account and whether it appears in the balance sheet or the income statement. (b)Adecrease in one asset and an increase in another asset. (a)Prepaid Rent. (c)A decrease in one liability and an increase in another liability. (b)Salaries and Wages Payable. 2.Do the following events represent business transactions? (c)Merchandise Inventory. Explain your answer in each case. (d)Accumulated Depreciation. (a)A computer is purchased on account. (e)Office Equipment. (b)A customer returns merchandise and is given credit (f)Service Revenue. on account. (g)Office Salaries Expense. (c)A prospective employee is interviewed. (h)Supplies on Hand. (d)The owner of the business withdraws cash from the 8.Employees are paid every Saturday for the preceding business for personal use. work week.If a balance sheet is prepared on Wednes- (e)Merchandise is ordered for delivery next month. day,December 31,what does the amount of wages 3.Name the accounts debited and credited for each of the earned during the first three days of the week(12/29, following transactions. 12/30,12/31)represent?Explain. (a)Billing a customer for work done. 9.(a)How do the components of revenues and expenses (b)Receipt of cash from customer on account. differ between a merchandising company and a service enterprise?(b)Explain the income measurement process (c)Purchase of office supplies on account of a merchandising company. (d)Purchase of 15 gallons of gasoline for the delivery 10.What is the purpose of the Cost of Goods Sold account? truck. (Assume a periodic inventory system.) 4.Why are revenue and expense accounts called temporary 11.Under a perpetual system,what is the purpose of the or nominal accounts? Cost of Goods Sold account? 5.Omar Morena,a fellow student,contends that the double- 12.If the $3,900 cost of a new microcomputer and printer entry system means that each transaction must be purchased for office use were recorded as a debit to recorded twice.Is Omar correct?Explain. Purchases,what would be the effect of the error on the 6.Is it necessary that a trial balance be taken periodically? balance sheet and income statement in the period in What purpose does it serve? which the error was made?
Uptown then balances the Income Statement columns. The company also enters the net income of $12,200 in the Balance Sheet Cr. column as an increase in retained earnings. Preparing Financial Statements from a Worksheet The worksheet provides the information needed for preparation of the financial statements without reference to the ledger or other records. In addition, the worksheet sorts the data into appropriate columns, which facilitates the preparation of the statements. The financial statements for Uptown Cabinet are shown in Chapter 3, pages 90–91. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 3C 11. Prepare a 10-column worksheet. The 10-column worksheet provides columns for the first trial balance, adjustments, adjusted trial balance, income statement, and balance sheet. The worksheet does not replace the financial statements. Instead, it is an informal device for accumulating and sorting information needed for the financial statements. Note: All asterisked Questions, Exercises, Problems, and Cases relate to material contained in the appendixes to the chapter. 104 • Chapter 3 The Accounting Information System KEY TERM worksheet, 101 QUESTIONS 1. Give an example of a transaction that results in: (a) A decrease in an asset and a decrease in a liability. (b) Adecrease in one asset and an increase in another asset. (c) A decrease in one liability and an increase in another liability. 2. Do the following events represent business transactions? Explain your answer in each case. (a) A computer is purchased on account. (b) A customer returns merchandise and is given credit on account. (c) A prospective employee is interviewed. (d) The owner of the business withdraws cash from the business for personal use. (e) Merchandise is ordered for delivery next month. 3. Name the accounts debited and credited for each of the following transactions. (a) Billing a customer for work done. (b) Receipt of cash from customer on account. (c) Purchase of office supplies on account. (d) Purchase of 15 gallons of gasoline for the delivery truck. 4. Why are revenue and expense accounts called temporary or nominal accounts? 5. Omar Morena, a fellow student, contends that the doubleentry system means that each transaction must be recorded twice. Is Omar correct? Explain. 6. Is it necessary that a trial balance be taken periodically? What purpose does it serve? 7. Indicate whether each of the items below is a real or nominal account and whether it appears in the balance sheet or the income statement. (a) Prepaid Rent. (b) Salaries and Wages Payable. (c) Merchandise Inventory. (d) Accumulated Depreciation. (e) Office Equipment. (f) Service Revenue. (g) Office Salaries Expense. (h) Supplies on Hand. 8. Employees are paid every Saturday for the preceding work week. If a balance sheet is prepared on Wednesday, December 31, what does the amount of wages earned during the first three days of the week (12 ⁄ 29, 12 ⁄ 30, 12 ⁄ 31) represent? Explain. 9. (a) How do the components of revenues and expenses differ between a merchandising company and a service enterprise? (b) Explain the income measurement process of a merchandising company. 10. What is the purpose of the Cost of Goods Sold account? (Assume a periodic inventory system.) 11. Under a perpetual system, what is the purpose of the Cost of Goods Sold account? 12. If the $3,900 cost of a new microcomputer and printer purchased for office use were recorded as a debit to Purchases, what would be the effect of the error on the balance sheet and income statement in the period in which the error was made? 1460T_c03.qxd 12/31/05 11:19 am Page 104
1460T_c03.qxd1/14/0612:31 am Page105 EQA Brief Exercises·105 13.What differences are there between the trial balance be- 17.Selanne Enterprises made the following entry on De- fore closing and the trial balance after closing with re- cember 31,2007 spect to the following accounts? Interest Expense 10.000 (a)Accounts Payable. Interest Payable 10,000 (To record interest expense due on loan (b)Expense accounts. from Anaheim National Bank.) (c)Revenue accounts. What entry would Anaheim National Bank make (d)Retained Earnings account. regarding its outstanding loan to Selanne Enterprises? (e)Cash Explain why this must be the case. 14.What are adjusting entries and why are they necessary? *18.Distinguish between cash-basis accounting and accrual- 15.What are closing entries and why are they necessary? basis accounting.Why is accrual-basis accounting acceptable for most business enterprises and the cash- 16.John Damon,maintenance supervisor for Red Sox In- basis unacceptable in the preparation of an income state- surance Co.,has purchased a riding lawnmower and ac- ment and a balance sheet? cessories to be used in maintaining the grounds around corporate headquarters.He has sent the following in- *19.When wages expense for the year is computed,why are formation to the accounting department. beginning accrued wages subtracted from,and ending Cost of mower and 7/1/07 accrued wages added to,wages paid during the year? Date purchased accessories $3,000 Monthly salary of *20.List two types of transactions that would receive differ- Estimated useful life 5 yrs groundskeeper $1,100 ent accounting treatment using (a)strict cash-basis ac- Estimated annual fuel cost $150 counting,and (b)a modified cash basis. Compute the amount of depreciation expense(related to *21.What are reversing entries,and why are they used? the mower and accessories)that should be reported on *22."A worksheet is a permanent accounting record,and its Red Sox's December 31,2007,income statement.Assume use is required in the accounting cycle."Do you agree? straight-line depreciation. Explain. BRIEF EXERCISES PLUS (L0 4)BE3-1 Transactions for Argot Company for the month of May are presented below.Prepare journal en- tries for each of these transactions.(You may omit explanations.) May 1 B.D.Argot invests $3,000 cash in exchange for common stock in a small welding corporation 3 Buys equipment on account for $1,100. 13 Pays $400 to landlord for May rent. 21 Bills Noble Corp.$500 for welding work done. (L0 4)BE3-2 Brett Favre Repair Shop had the following transactions during the first month of business.Jour nalize the transactions.(Omit explanations.) Aug.2 Invested $12,000 cash and $2,500 of equipment in the business. 7 Purchased supplies on account for $400.(Debit asset account.) 12 Performed services for clients,for which $1,300 was collected in cash and $670 was billed to the clients. 15 Paid August rent $600. 19 Counted supplies and determined that only $270 of the supplies purchased on August 7 are still on hand. (Lo 4,BE3-3 On July 1,2007,Blair Co.pays $18,000 to Hindi Insurance Co.for a 3-year insurance contract. 5) Both companies have fiscal years ending December 31.For Blair Co.journalize the entry on July 1 and the adjusting entry on December 31. (L0 4,BE3-4 Using the data in BE3-3,journalize the entry on July 1 and the adjusting entry on December 5) 31 for Hindi Insurance Co.Hindi uses the accounts Unearned Insurance Revenue and Insurance Revenue (LO 4,BE3-5 Assume that on February 1,Procter Gamble (P&G)paid $840,000 in advance for 2 years'in- 5) surance coverage.Prepare P&G's February 1 journal entry and the annual adjusting entry on June 30. (L0 4,BE3-6 Mogilny Corporation owns a warehouse.On November 1,it rented storage space to a lessee (ten- 5) ant)for 3 months for a total cash payment of $2,700 received in advance.Prepare Mogilny's November 1 journal entry and the December 31 annual adjusting entry
Brief Exercises • 105 13. What differences are there between the trial balance before closing and the trial balance after closing with respect to the following accounts? (a) Accounts Payable. (b) Expense accounts. (c) Revenue accounts. (d) Retained Earnings account. (e) Cash. 14. What are adjusting entries and why are they necessary? 15. What are closing entries and why are they necessary? 16. John Damon, maintenance supervisor for Red Sox Insurance Co., has purchased a riding lawnmower and accessories to be used in maintaining the grounds around corporate headquarters. He has sent the following information to the accounting department. Cost of mower and Date purchased 7⁄1 ⁄07 accessories $3,000 Monthly salary of Estimated useful life 5 yrs groundskeeper $1,100 Estimated annual fuel cost $150 Compute the amount of depreciation expense (related to the mower and accessories) that should be reported on Red Sox’s December 31, 2007, income statement. Assume straight-line depreciation. 17. Selanne Enterprises made the following entry on December 31, 2007. Interest Expense 10,000 Interest Payable 10,000 (To record interest expense due on loan from Anaheim National Bank.) What entry would Anaheim National Bank make regarding its outstanding loan to Selanne Enterprises? Explain why this must be the case. *18. Distinguish between cash-basis accounting and accrualbasis accounting. Why is accrual-basis accounting acceptable for most business enterprises and the cashbasis unacceptable in the preparation of an income statement and a balance sheet? *19. When wages expense for the year is computed, why are beginning accrued wages subtracted from, and ending accrued wages added to, wages paid during the year? *20. List two types of transactions that would receive different accounting treatment using (a) strict cash-basis accounting, and (b) a modified cash basis. *21. What are reversing entries, and why are they used? *22. “A worksheet is a permanent accounting record, and its use is required in the accounting cycle.” Do you agree? Explain. BE3-1 Transactions for Argot Company for the month of May are presented below. Prepare journal entries for each of these transactions. (You may omit explanations.) May 1 B.D. Argot invests $3,000 cash in exchange for common stock in a small welding corporation. 3 Buys equipment on account for $1,100. 13 Pays $400 to landlord for May rent. 21 Bills Noble Corp. $500 for welding work done. BE3-2 Brett Favre Repair Shop had the following transactions during the first month of business. Journalize the transactions. (Omit explanations.) Aug. 2 Invested $12,000 cash and $2,500 of equipment in the business. 7 Purchased supplies on account for $400. (Debit asset account.) 12 Performed services for clients, for which $1,300 was collected in cash and $670 was billed to the clients. 15 Paid August rent $600. 19 Counted supplies and determined that only $270 of the supplies purchased on August 7 are still on hand. BE3-3 On July 1, 2007, Blair Co. pays $18,000 to Hindi Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. For Blair Co. journalize the entry on July 1 and the adjusting entry on December 31. BE3-4 Using the data in BE3-3, journalize the entry on July 1 and the adjusting entry on December 31 for Hindi Insurance Co. Hindi uses the accounts Unearned Insurance Revenue and Insurance Revenue. BE3-5 Assume that on February 1, Procter & Gamble (P&G) paid $840,000 in advance for 2 years’ insurance coverage. Prepare P&G’s February 1 journal entry and the annual adjusting entry on June 30. BE3-6 Mogilny Corporation owns a warehouse. On November 1, it rented storage space to a lessee (tenant) for 3 months for a total cash payment of $2,700 received in advance. Prepare Mogilny’s November 1 journal entry and the December 31 annual adjusting entry. BRIEF EXERCISES (L0 4) (L0 4) (L0 4, 5) (L0 4, 5) (L0 4, 5) (L0 4, 5) 1460T_c03.qxd 1/14/06 12:31 am Page 105
1460T_c03.qxd11/18/0508:34 am Page106 EQA 106 Chapter 3 The Accounting Information System (L0 4,BE3-7 Catherine Janeway Company's weekly payroll,paid on Fridays,totals $6,000.Employees work a 5) 5-day week.Prepare Janeway's adjusting entry on Wednesday,December 31,and the journal entry to record the $6,000 cash payment on Friday,January 2. (L0 5)BE3-8 Included in Martinez Company's December 31 trial balance is a note receivable of $10,000.The note is a 4-month,12%note dated October 1.Prepare Martinez's December 31 adjusting entry to record $300 of accrued interest,and the February 1 journal entry to record receipt of $10,400 from the borrower. (LO 5)BE3-9 Prepare the following adjusting entries at August 31 for Walgreens. (a)Interest on notes payable of $400 is accrued. (b)Fees earned but unbilled total $1,400. (c) Salaries earned by employees of $700 have not been recorded. (d) Bad debt expense for year is $900. Use the following account titles:Service Revenue,Accounts Receivable,Interest Expense,Interest Payable, Salaries Expense,Salaries Payable,Allowance for Doubtful Accounts,and Bad Debt Expense. (L05) BE3-10 At the end of its first year of operations,the trial balance of Rafael Company shows Equipment $30,000 and zero balances in Accumulated Depreciation-Equipment and Depreciation Expense.Depre- ciation for the year is estimated to be $3,000.Prepare the adjusting entry for depreciation at December 31, and indicate the balance sheet presentation for the equipment at December 31. (Lo 8)BE3-11 Willis Corporation has beginning inventory $81,000;Purchases $540,000;Freight-in $16,200;Pur- chase Returns $5,800;Purchase Discounts $5,000;and ending inventory $70,200.Compute cost of goods sold. (L0 7)BE3-12 Karen Sepaniak has year-end account balances of Sales $828,900;Interest Revenue $13,500;Cost of Goods Sold $556,200;Operating Expenses $189,000;Income Tax Expense $35,100;and Dividends $18,900. Prepare the year-end closing entries. (L0 9)*BE3-13 Smith Company had cash receipts from customers in 2007 of $152,000.Cash payments for op- erating expenses were $97,000.Smith has determined that at January 1,accounts receivable was $13,000, and prepaid expenses were $17,500.At December 31,accounts receivable was $18,600,and prepaid ex- penses were $23,200.Compute(a)service revenue and (b)operating expenses. ⊕ (L0 10)*BE3-14 Assume that Best Buy made a December 31 adjusting entry to debit Salaries Expense and credit Salaries Payable for $3,600 for one of its departments.On January 2,Best Buy paid the weekly payroll of $6,000.Prepare Best Buy's(a)January 1 reversing entry;(b)January 2 entry(assuming the reversing en- try was prepared);and (c)January 2 entry (assuming the reversing entry was not prepared). EXERCISES s (L0 4)E3-1 (Transaction Analysis-Service Company)Beverly Crusher is a licensed CPA.During the first month of operations of her business(a sole proprietorship),the following events and transactions occurred. April 2 Invested $32,000 cash and equipment valued at $14,000 in the business 2 Hired a secretary-receptionist at a salary of $290 per week payable monthly. 3 Purchased supplies on account $700.(Debit an asset account.) 7 Paid office rent of $600 for the month. 11 Completed a tax assignment and billed client $1,100 for services rendered.(Use Service Revenue account.) 12 Received $3,200 advance on a management consulting engagement. 17 Received cash of S2,300 for services completed for Ferengi Co. 21 Paid insurance expense $110. 30 Paid secretary-receptionist $1,160 for the month. 30 A count of supplies indicated that $120 of supplies had been used. 30 Purchased a new computer for $6,100 with personal funds.(The computer will be used exclusively for business purposes.) Instructions Journalize the transactions in the general journal.(Omit explanations.) (L0 4)E3-2 (Corrected Trial Balance)The trial balance of Wanda Landowska Company (shown on the next page)does not balance.Your review of the ledger reveals the following:(a)Each account had a
106 • Chapter 3 The Accounting Information System BE3-7 Catherine Janeway Company’s weekly payroll, paid on Fridays, totals $6,000. Employees work a 5-day week. Prepare Janeway’s adjusting entry on Wednesday, December 31, and the journal entry to record the $6,000 cash payment on Friday, January 2. BE3-8 Included in Martinez Company’s December 31 trial balance is a note receivable of $10,000. The note is a 4-month, 12% note dated October 1. Prepare Martinez’s December 31 adjusting entry to record $300 of accrued interest, and the February 1 journal entry to record receipt of $10,400 from the borrower. BE3-9 Prepare the following adjusting entries at August 31 for Walgreens. (a) Interest on notes payable of $400 is accrued. (b) Fees earned but unbilled total $1,400. (c) Salaries earned by employees of $700 have not been recorded. (d) Bad debt expense for year is $900. Use the following account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable, Salaries Expense, Salaries Payable, Allowance for Doubtful Accounts, and Bad Debt Expense. BE3-10 At the end of its first year of operations, the trial balance of Rafael Company shows Equipment $30,000 and zero balances in Accumulated Depreciation—Equipment and Depreciation Expense. Depreciation for the year is estimated to be $3,000. Prepare the adjusting entry for depreciation at December 31, and indicate the balance sheet presentation for the equipment at December 31. BE3-11 Willis Corporation has beginning inventory $81,000; Purchases $540,000; Freight-in $16,200; Purchase Returns $5,800; Purchase Discounts $5,000; and ending inventory $70,200. Compute cost of goods sold. BE3-12 Karen Sepaniak has year-end account balances of Sales $828,900; Interest Revenue $13,500; Cost of Goods Sold $556,200; Operating Expenses $189,000; Income Tax Expense $35,100; and Dividends $18,900. Prepare the year-end closing entries. *BE3-13 Smith Company had cash receipts from customers in 2007 of $152,000. Cash payments for operating expenses were $97,000. Smith has determined that at January 1, accounts receivable was $13,000, and prepaid expenses were $17,500. At December 31, accounts receivable was $18,600, and prepaid expenses were $23,200. Compute (a) service revenue and (b) operating expenses. *BE3-14 Assume that Best Buy made a December 31 adjusting entry to debit Salaries Expense and credit Salaries Payable for $3,600 for one of its departments. On January 2, Best Buy paid the weekly payroll of $6,000. Prepare Best Buy’s (a) January 1 reversing entry; (b) January 2 entry (assuming the reversing entry was prepared); and (c) January 2 entry (assuming the reversing entry was not prepared). EXERCISES E3-1 (Transaction Analysis—Service Company) Beverly Crusher is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the following events and transactions occurred. April 2 Invested $32,000 cash and equipment valued at $14,000 in the business. 2 Hired a secretary-receptionist at a salary of $290 per week payable monthly. 3 Purchased supplies on account $700. (Debit an asset account.) 7 Paid office rent of $600 for the month. 11 Completed a tax assignment and billed client $1,100 for services rendered. (Use Service Revenue account.) 12 Received $3,200 advance on a management consulting engagement. 17 Received cash of $2,300 for services completed for Ferengi Co. 21 Paid insurance expense $110. 30 Paid secretary-receptionist $1,160 for the month. 30 A count of supplies indicated that $120 of supplies had been used. 30 Purchased a new computer for $6,100 with personal funds. (The computer will be used exclusively for business purposes.) Instructions Journalize the transactions in the general journal. (Omit explanations.) E3-2 (Corrected Trial Balance) The trial balance of Wanda Landowska Company (shown on the next page) does not balance. Your review of the ledger reveals the following: (a) Each account had a (L0 4) (L0 4) (L0 4, 5) (L0 5) (L0 5) (L0 5) (L0 8) (L0 7) (L0 9) (L0 10) 1460T_c03.qxd 11/18/05 08:34 am Page 106
1460T_c03.qxd11/18/0508:34 am Page107 EQA Exercises·107 normal balance.(b)The debit footings in Prepaid Insurance,Accounts Payable,and Property Tax Ex- pense were each understated $100.(c)A transposition error was made in Accounts Receivable and Service Revenue;the correct balances for Accounts Receivable and Service Revenue are $2,750 and $6,690,respectively.(d)A debit posting to Advertising Expense of $300 was omitted.(e)A $1,500 cash drawing by the owner was debited to Wanda Landowska,Capital,and credited to Cash. WANDA LANDOWSKA COMPANY TRIAL BALANCE APRL30,2007 Debit Credit Cash $4.800 Accounts Receivable 2.570 Prepaid Insurance 700 Equipment $8.000 Accounts Payable 4,500 Property Tax Payable 560 Wanda Landowska,Capital 11,200 Service Revenue 6,960 Salaries Expense 4,200 Advertising Expense 1,100 Property Tax Expense 800 $20,890 $24,500 Instructions Prepare a correct trial balance (L04) E3-3 (Corrected Trial Balance)The trial balance of Blues Traveler Corporation does not balance. BLUES TRAVELER CORPORATION ⊕ TRIAL BALANCE APRL30,2007 Debit Credit Cash $5.912 Accounts Receivable 5.240 Supplies on Hand 2,967 Furniture and Equipment 6.100 Accounts Payable S7,044 Common Stock 8,000 Retained Earnings 2,000 Service Revenue 5,200 Office Expense 4,320 $24,539 $22,244 An examination of the ledger shows these errors. 1.Cash received from a customer on account was recorded (both debit and credit)as $1,380 instead of$1,830. 2.The purchase on account of a computer costing $3,200 was recorded as a debit to Office Expense and a credit to Accounts Payable. 3.Services were performed on account for a client,$2,250,for which Accounts Receivable was deb- ited $2,250 and Service Revenue was credited $225. 4.A payment of $95 for telephone charges was entered as a debit to Office Expenses and a debit to Cash. 5.The Service Revenue account was totaled at $5,200 instead of $5,280. Instructions From this information prepare a corrected trial balance. (L0 4)E3-4 (Corrected Trial Balance)The trial balance of Watteau Co.(shown on the next page)does not balance
Exercises • 107 normal balance. (b) The debit footings in Prepaid Insurance, Accounts Payable, and Property Tax Expense were each understated $100. (c) A transposition error was made in Accounts Receivable and Service Revenue; the correct balances for Accounts Receivable and Service Revenue are $2,750 and $6,690, respectively. (d) A debit posting to Advertising Expense of $300 was omitted. (e) A $1,500 cash drawing by the owner was debited to Wanda Landowska, Capital, and credited to Cash. WANDA LANDOWSKA COMPANY TRIAL BALANCE APRIL 30, 2007 Debit Credit Cash $ 4,800 Accounts Receivable 2,570 Prepaid Insurance 700 Equipment $ 8,000 Accounts Payable 4,500 Property Tax Payable 560 Wanda Landowska, Capital 11,200 Service Revenue 6,960 Salaries Expense 4,200 Advertising Expense 1,100 Property Tax Expense 800 $20,890 $24,500 An examination of the ledger shows these errors. 1. Cash received from a customer on account was recorded (both debit and credit) as $1,380 instead of $1,830. 2. The purchase on account of a computer costing $3,200 was recorded as a debit to Office Expense and a credit to Accounts Payable. 3. Services were performed on account for a client, $2,250, for which Accounts Receivable was debited $2,250 and Service Revenue was credited $225. 4. A payment of $95 for telephone charges was entered as a debit to Office Expenses and a debit to Cash. 5. The Service Revenue account was totaled at $5,200 instead of $5,280. Instructions From this information prepare a corrected trial balance. E3-4 (Corrected Trial Balance) The trial balance of Watteau Co. (shown on the next page) does not balance. BLUES TRAVELER CORPORATION TRIAL BALANCE APRIL 30, 2007 Debit Credit Cash $ 5,912 Accounts Receivable 5,240 Supplies on Hand 2,967 Furniture and Equipment 6,100 Accounts Payable $ 7,044 Common Stock 8,000 Retained Earnings 2,000 Service Revenue 5,200 Office Expense 4,320 $24,539 $22,244 Instructions Prepare a correct trial balance. E3-3 (Corrected Trial Balance) The trial balance of Blues Traveler Corporation does not balance. (L0 4) (L0 4) 1460T_c03.qxd 11/18/05 08:34 am Page 107
1460T_c03.qxd11/18/0508:34 am Page108 EQA 108 Chapter 3 The Accounting Information System WATTEAU CO. TRIAL BALANCE JUNE30,2007 Debit Credit Cash $2,870 Accounts Receivable $3,231 Supplies 800 Equipment 3,800 Accounts Payable 2,666 Unearned Service Revenue 1,200 Common Stock 6.000 Retained Earnings 3.000 Service Revenue 2.380 Wages Expense 3.400 Office Expense 940 S13,371 $16,916 Each of the listed accounts should have a normal balance per the general ledger.An examination of the ledger and journal reveals the following errors 1.Cash received from a customer on account was debited for $570,and Accounts Receivable was credited for the same amount.The actual collection was for $750. 2. The purchase of a computer printer on account for $500 was recorded as a debit to Supplies for $500 and a credit to Accounts Payable for $500. 3.Services were performed on account for a client for $890.Accounts Receivable was debited for $890 and Service Revenue was credited for $89. 4. A payment of $65 for telephone charges was recorded as a debit to Office Expense for $65 and a debit to Cash for $65. 5.When the Unearned Service Revenue account was reviewed,it was found that $325 of the balance ⊕ was earned prior to June 30. 6. A debit posting to Wages Expense of $670 was omitted. 7.A payment on account for $206 was credited to Cash for $206 and credited to Accounts Payable for$260. 8.A dividend of $575 was debited to Wages Expense for $575 and credited to Cash for $575 Instructions Prepare a correct trial balance.(Note:It may be necessary to add one or more accounts to the trial balance.) (L05) E3-5 (Adjusting Entries)The ledger of Duggan Rental Agency on March 31 of the current year in- cludes the following selected accounts before adjusting entries have been prepared. Debit Credit Prepaid Insurance $3,600 Supplies 2,800 Equipment 25,000 Accumulated Depreciation-Equipment $8,400 Notes Payable 20,000 Unearned Rent Revenue 9,300 Rent Revenue 60,000 Interest Expense -0- Wage Expense 14.000 An analysis of the accounts shows the following 1. The equipment depreciates $250 per month. 2. One-third of the unearned rent was earned during the quarter. 3.Interest of $500 is accrued on the notes payable. 4.Supplies on hand total $850. 5.Insurance expires at the rate of $300 per month. Instructions Prepare the adjusting entries at March 31,assuming that adjusting entries are made quarterly.Additional accounts are:Depreciation Expense;Insurance Expense;Interest Payable;and Supplies Expense.(Omit explanations.)
108 • Chapter 3 The Accounting Information System Each of the listed accounts should have a normal balance per the general ledger. An examination of the ledger and journal reveals the following errors. 1. Cash received from a customer on account was debited for $570, and Accounts Receivable was credited for the same amount. The actual collection was for $750. 2. The purchase of a computer printer on account for $500 was recorded as a debit to Supplies for $500 and a credit to Accounts Payable for $500. 3. Services were performed on account for a client for $890. Accounts Receivable was debited for $890 and Service Revenue was credited for $89. 4. A payment of $65 for telephone charges was recorded as a debit to Office Expense for $65 and a debit to Cash for $65. 5. When the Unearned Service Revenue account was reviewed, it was found that $325 of the balance was earned prior to June 30. 6. A debit posting to Wages Expense of $670 was omitted. 7. A payment on account for $206 was credited to Cash for $206 and credited to Accounts Payable for $260. 8. A dividend of $575 was debited to Wages Expense for $575 and credited to Cash for $575. Instructions Prepare a correct trial balance. (Note: It may be necessary to add one or more accounts to the trial balance.) E3-5 (Adjusting Entries) The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared. Debit Credit Prepaid Insurance $ 3,600 Supplies 2,800 Equipment 25,000 Accumulated Depreciation—Equipment $ 8,400 Notes Payable 20,000 Unearned Rent Revenue 9,300 Rent Revenue 60,000 Interest Expense –0– Wage Expense 14,000 An analysis of the accounts shows the following. 1. The equipment depreciates $250 per month. 2. One-third of the unearned rent was earned during the quarter. 3. Interest of $500 is accrued on the notes payable. 4. Supplies on hand total $850. 5. Insurance expires at the rate of $300 per month. Instructions Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are: Depreciation Expense; Insurance Expense; Interest Payable; and Supplies Expense. (Omit explanations.) WATTEAU CO. TRIAL BALANCE JUNE 30, 2007 Debit Credit Cash $ 2,870 Accounts Receivable $ 3,231 Supplies 800 Equipment 3,800 Accounts Payable 2,666 Unearned Service Revenue 1,200 Common Stock 6,000 Retained Earnings 3,000 Service Revenue 2,380 Wages Expense 3,400 Office Expense 940 $13,371 $16,916 (L0 5) 1460T_c03.qxd 11/18/05 08:34 am Page 108
1460T_c03.qxd11/18/0508:34 am Page109 EQA Exercises·109 (LO 5)E3-6 (Adjusting Entries)Karen Weller,D.D.S.,opened a dental practice on January 1,2007.During the first month of operations the following transactions occurred. 1.Performed services for patients who had dental plan insurance.At January 31,$750 of such ser- vices was earned but not yet billed to the insurance companies. 2. Utility expenses incurred but not paid prior to January 31 totaled $520. 3.Purchased dental equipment on January 1 for $80,000,paying $20,000 in cash and signing a $60,000,3-year note payable.The equipment depreciates $400 per month.Interest is $500 per month. 4.Purchased a one-year malpractice insurance policy on January 1 for $12,000. 5.Purchased $1,600 of dental supplies.On January 31,determined that $500 of supplies were on hand. Instructions Prepare the adjusting entries on January 31.(Omit explanations.)Account titles are:Accumulated Depreciation-Dental Equipment;Depreciation Expense;Service Revenue;Accounts Receivable;Insur- ance Expense;Interest Expense;Interest Payable;Prepaid Insurance;Supplies;Supplies Expense;Utili- ties Expense;and Utilities Payable. (Lo 5)E3-7 (Analyze Adjusted Data)A partial adjusted trial balance of Piper Company at January 31,2007, shows the following. PIPER COMPANY ADJUSTED TRIAL BALANCE JANUARY 31.2007 Debit Credit Supplies $700 Prepaid Insurance 2,400 Salaries Payable $800 ⊕ Unearned Revenue 750 Supplies Expense 950 Insurance Expense 400 Salaries Expense 1,800 Service Revenue 2,000 Instructions Answer the following questions,assuming the year begins January 1. (a)If the amount in Supplies Expense is the January 31 adjusting entry,and $850 of supplies was purchased in January,what was the balance in Supplies on January 1? (b)If the amount in Insurance Expense is the January 31 adjusting entry,and the original insur- ance premium was for one year,what was the total premium and when was the policy pur- chased？ (c) If $2,500 of salaries was paid in January,what was the balance in Salaries Payable at December 31,2006? (d)If $1,600 was received in January for services performed in January,what was the balance in Un- earned Revenue at December 31,2006? (L05) E3-8 (Adjusting Entries)Andy Roddick is the new owner of Ace Computer Services.At the end of August 2007,his first month of ownership,Roddick is trying to prepare monthly financial statements.Be- low is some information related to unrecorded expenses that the business incurred during August. 1.At August 31,Roddick owed his employees $1,900 in wages that will be paid on September 1. 2.At the end of the month he had not yet received the month's utility bill.Based on past experience, he estimated the bill would be approximately $600. 3.On August 1,Roddick borrowed $30,000 from a local bank on a 15-year mortgage.The annual in- terest rate is 8%. 4.A telephone bill in the amount of $117 covering August charges is unpaid at August 31. Instructions Prepare the adjusting journal entries as of August 31,2007,suggested by the information above. ⊕
Exercises • 109 E3-6 (Adjusting Entries) Karen Weller, D.D.S., opened a dental practice on January 1, 2007. During the first month of operations the following transactions occurred. 1. Performed services for patients who had dental plan insurance. At January 31, $750 of such services was earned but not yet billed to the insurance companies. 2. Utility expenses incurred but not paid prior to January 31 totaled $520. 3. Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000, 3-year note payable. The equipment depreciates $400 per month. Interest is $500 per month. 4. Purchased a one-year malpractice insurance policy on January 1 for $12,000. 5. Purchased $1,600 of dental supplies. On January 31, determined that $500 of supplies were on hand. Instructions Prepare the adjusting entries on January 31. (Omit explanations.) Account titles are: Accumulated Depreciation—Dental Equipment; Depreciation Expense; Service Revenue; Accounts Receivable; Insurance Expense; Interest Expense; Interest Payable; Prepaid Insurance; Supplies; Supplies Expense; Utilities Expense; and Utilities Payable. E3-7 (Analyze Adjusted Data) A partial adjusted trial balance of Piper Company at January 31, 2007, shows the following. PIPER COMPANY ADJUSTED TRIAL BALANCE JANUARY 31, 2007 Debit Credit Supplies $ 700 Prepaid Insurance 2,400 Salaries Payable $ 800 Unearned Revenue 750 Supplies Expense 950 Insurance Expense 400 Salaries Expense 1,800 Service Revenue 2,000 Instructions Answer the following questions, assuming the year begins January 1. (a) If the amount in Supplies Expense is the January 31 adjusting entry, and $850 of supplies was purchased in January, what was the balance in Supplies on January 1? (b) If the amount in Insurance Expense is the January 31 adjusting entry, and the original insurance premium was for one year, what was the total premium and when was the policy purchased? (c) If $2,500 of salaries was paid in January, what was the balance in Salaries Payable at December 31, 2006? (d) If $1,600 was received in January for services performed in January, what was the balance in Unearned Revenue at December 31, 2006? E3-8 (Adjusting Entries) Andy Roddick is the new owner of Ace Computer Services. At the end of August 2007, his first month of ownership, Roddick is trying to prepare monthly financial statements. Below is some information related to unrecorded expenses that the business incurred during August. 1. At August 31, Roddick owed his employees $1,900 in wages that will be paid on September 1. 2. At the end of the month he had not yet received the month’s utility bill. Based on past experience, he estimated the bill would be approximately $600. 3. On August 1, Roddick borrowed $30,000 from a local bank on a 15-year mortgage. The annual interest rate is 8%. 4. A telephone bill in the amount of $117 covering August charges is unpaid at August 31. Instructions Prepare the adjusting journal entries as of August 31, 2007, suggested by the information above. (L0 5) (L0 5) (L0 5) 1460T_c03.qxd 11/18/05 08:34 am Page 109
1460T_c03.qd11/18/0508:34 am Page110 EQA 110.Chapter 3 The Accounting Information System (L0 5)E3-9 (Adjusting Entries)Selected accounts of Urdu Company are shown below. Supplies Accounts Receivable Beg.Bal 80010/31 470 10/17 2,400 10/31 1,650 Salaries Expense Salaries Payable 10/15 800 10/31 600 10/31 600 Unearned Service Revenue Supplies Expense 10/31 400 10/20 650 10/31 470 Service Revenue 10/17 2,400 10/31 1,650 10/31 400 Instructions From an analysis of the T-accounts,reconstruct(a)the October transaction entries,and(b)the adjusting journal entries that were made on October 31,2007.Prepare explanations for each journal entry. (L0 5)E3-10 (Adjusting Entries)Greco Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows. GRECO RESORT TRIAL BALANCE ⊕ AUGUST 31,2007 Debit Credit Cash $19,600 Prepaid Insurance 4,500 Supplies 2,600 Land 20,000 Cottages 120,000 Furniture 16,000 Accounts Payable $4,500 Unearned Rent Revenue 4,600 Mortgage Payable 60,000 Common Stock 91,000 Retained Earnings 9.000 Dividends 5,000 Rent Revenue 76,200 Salaries Expense 44,800 Utilities Expense 9,200 Repair Expense 3,600 $245,300 $245,300 Other data: 1. The balance in prepaid insurance is a one-year premium paid on June 1,2007 2.An inventory count on August 31 shows $450 of supplies on hand. 3. Annual depreciation rates are cottages(4%)and furniture(10%).Salvage value is estimated to be 10%of cost. 4.Unearned Rent Revenue of $3,800 was earned prior to August 31. 5.Salaries of $375 were unpaid at August 31. 6.Rentals of $800 were due from tenants at August 31. 7. The mortgage interest rate is 8%per year
110 • Chapter 3 The Accounting Information System E3-9 (Adjusting Entries) Selected accounts of Urdu Company are shown below. Supplies Accounts Receivable Beg. Bal. 800 10 ⁄ 31 470 10 ⁄ 17 2,400 10 ⁄ 31 1,650 Salaries Expense Salaries Payable 10 ⁄ 15 800 10 ⁄ 31 600 10 ⁄ 31 600 Unearned Service Revenue Supplies Expense 10 ⁄ 31 400 10 ⁄ 20 650 10 ⁄ 31 470 Service Revenue 10 ⁄ 17 2,400 10 ⁄ 31 1,650 10 ⁄ 31 400 Instructions From an analysis of the T-accounts, reconstruct (a) the October transaction entries, and (b) the adjusting journal entries that were made on October 31, 2007. Prepare explanations for each journal entry. E3-10 (Adjusting Entries) Greco Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows. Other data: 1. The balance in prepaid insurance is a one-year premium paid on June 1, 2007. 2. An inventory count on August 31 shows $450 of supplies on hand. 3. Annual depreciation rates are cottages (4%) and furniture (10%). Salvage value is estimated to be 10% of cost. 4. Unearned Rent Revenue of $3,800 was earned prior to August 31. 5. Salaries of $375 were unpaid at August 31. 6. Rentals of $800 were due from tenants at August 31. 7. The mortgage interest rate is 8% per year. GRECO RESORT TRIAL BALANCE AUGUST 31, 2007 Debit Credit Cash $ 19,600 Prepaid Insurance 4,500 Supplies 2,600 Land 20,000 Cottages 120,000 Furniture 16,000 Accounts Payable $ 4,500 Unearned Rent Revenue 4,600 Mortgage Payable 60,000 Common Stock 91,000 Retained Earnings 9,000 Dividends 5,000 Rent Revenue 76,200 Salaries Expense 44,800 Utilities Expense 9,200 Repair Expense 3,600 $245,300 $245,300 (L0 5) (L0 5) 1460T_c03.qxd 11/18/05 08:34 am Page 110
1460T_c03.qxd12/31/0501:32 pm Page111 EQA Exercises·111 Instructions (a)Journalize the adjusting entries on August 31 for the 3-month period June 1-August 31.(Omit explanations.) (b) Prepare an adjusted trial balance on August 31. (L0 6)E3-11 (Prepare Financial Statements)The adjusted trial balance of Anderson Cooper Co.as of December 31,2007,contains the following. ANDERSON COOPER CO ADJUSTED TRIAL BALANCE DECEMBER 31,2007 Account Titles 0r. Cr. Cash $19.472 Accounts Receivable 6,920 Prepaid Rent 2280 Equipment 18.050 Accumulated Depreciation $4,895 Notes Payable 5,700 Accounts Payable 5,472 Common Stock 20.000 Retained Earnings 11,310 Dividends 3,000 Service Revenue 11,590 Salaries Expense 6.840 Rent Expense 2.260 Depreciation Expense 145 Interest Expense 83 Interest Payable 83 $59.050 $59,050 Instructions ⊕ (a) Prepare an income statement. (b)Prepare a statement of retained earnings (c) Prepare a classified balance sheet. (L0 6)E3-12 (Prepare Financial Statements)Santo Design Agency was founded by Thomas Grant in January 2003.Presented below is the adjusted trial balance as of December 31,2007. SANTO DESIGN AGENCY ADJUSTED TRIAL BALANCE DECEMBER 31,2007 Dr. Cr. Cash $11,000 Accounts Receivable 21.500 Art Supplies 5.000 Prepaid Insurance 2.500 Printing Equipment 60,000 Accumulated Depreciation $35,000 Accounts Payable 5.,000 Interest Payable 150 Notes Payable 5,000 Unearned Advertising Revenue 5.600 Salaries Payable 1.300 Common Stock 10,000 Retained Earnings 3,500 Advertising Revenue 61,500 Salaries Expense 11,300 Insurance Expense 850 Interest Expense 500 Depreciation Expense 7,000 Art Supplies Expense 3.400 Rent Expense 4.000 $127,050 $127.050 ⊕
Exercises • 111 Instructions (a) Prepare an income statement. (b) Prepare a statement of retained earnings. (c) Prepare a classified balance sheet. E3-12 (Prepare Financial Statements) Santo Design Agency was founded by Thomas Grant in January 2003. Presented below is the adjusted trial balance as of December 31, 2007. Instructions (a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Omit explanations.) (b) Prepare an adjusted trial balance on August 31. E3-11 (Prepare Financial Statements) The adjusted trial balance of Anderson Cooper Co. as of December 31, 2007, contains the following. ANDERSON COOPER CO. ADJUSTED TRIAL BALANCE DECEMBER 31, 2007 Account Titles Dr. Cr. Cash $19,472 Accounts Receivable 6,920 Prepaid Rent 2,280 Equipment 18,050 Accumulated Depreciation $ 4,895 Notes Payable 5,700 Accounts Payable 5,472 Common Stock 20,000 Retained Earnings 11,310 Dividends 3,000 Service Revenue 11,590 Salaries Expense 6,840 Rent Expense 2,260 Depreciation Expense 145 Interest Expense 83 Interest Payable 83 $59,050 $59,050 SANTO DESIGN AGENCY ADJUSTED TRIAL BALANCE DECEMBER 31, 2007 Dr. Cr. Cash $ 11,000 Accounts Receivable 21,500 Art Supplies 5,000 Prepaid Insurance 2,500 Printing Equipment 60,000 Accumulated Depreciation $ 35,000 Accounts Payable 5,000 Interest Payable 150 Notes Payable 5,000 Unearned Advertising Revenue 5,600 Salaries Payable 1,300 Common Stock 10,000 Retained Earnings 3,500 Advertising Revenue 61,500 Salaries Expense 11,300 Insurance Expense 850 Interest Expense 500 Depreciation Expense 7,000 Art Supplies Expense 3,400 Rent Expense 4,000 $127,050 $127,050 (L0 6) (L0 6) 1460T_c03.qxd 12/31/05 01:32 pm Page 111
1460T_c03.qxd11/18/0508:34 am Page112 EQA 112.Chapter 3 The Accounting Information System Instructions (a)Prepare an income statement and a statement of retained earnings for the year ending December 31,2007,and an unclassified balance sheet at December 31. (b)Answer the following questions. (1)If the note has been outstanding 6 months,what is the annual interest rate on that note? (2)If the company paid $17,500 in salaries in 2007,what was the balance in Salaries Payable on December 31,2006? (L0 7)E3-13 (Closing Entries)The adjusted trial balance of Lopez Company shows the following data pertaining to sales at the end of its fiscal year,October 31,2007:Sales $800,000,Freight-out $12,000,Sales Returns and Allowances $24,000,and Sales Discounts $15,000. Instructions (a)Prepare the sales revenue section of the income statement. (b)Prepare separate closing entries for(1)sales and (2)the contra accounts to sales. (L0 7)E3-14 (Closing Entries)Presented below is information related to Gonzales Corporation for the month of January 2007. Cost of goods sold $208,000 Salary expense $61,000 Freight-out 7.000 Sales discounts 8,000 Insurance expense 12,000 Sales returns and allowances 13,000 Rent expense 20,000 Sales 350,000 Instructions Prepare the necessary closing entries. (L0 8)E3-15 (Missing Amounts)Presented below is financial information for two different companies. Alatorre Eduardo Company Company Sales $90.000 (d) Sales returns (a) $5.000 Net sales 81,000 95,000 56,000 ⊕ Cost of goods sold (e) Gross profit (b) 38.000 Operating expenses 15.000 23.000 Net income (c) 15.000 Instructions Compute the missing amounts. (L0 8)E3-16 (Find Missing Amounts-Periodic Inventory)Financial information is presented below for four different companies. Pamela's Dean's Anderson Baywatch Cosmetics Grocery Wholesalers Supply Co. Sales $78,000 (c) $144,000 $100,000 Sales returns (a) $5,000 12,000 9,000 Net sales 74,000 94,000 132,000 (g) Beginning inventory 16,000 (d) 44,000 24,000 Purchases 88,000 100.000 (e) 85,000 Purchase returns 6,000 10,000 8,000 (h) Ending inventory 48.000 30,000 28,000 Cost of goods sold 64,000 72,000 (⑤ 72,000 Gross profit 10,000 22,000 18,000 Instructions Determine the missing amounts (a-i).Show all computations (L0 8)E3-17 (Cost of Goods Sold Section-Periodic Inventory)The trial balance of the Neville Mariner Com- pany at the end of its fiscal year,August 31,2007,includes the following accounts:Merchandise Inventory $17,500;Purchases $149,400;Sales $200,000;Freight-in $4,000;Sales Returns and Allowances $4,000;Freight- out $1,000;and Purchase Returns and Allowances $2,000.The ending merchandise inventory is $25,000. Instructions Prepare a cost of goods sold section for the year ending August 31. (L0 7)E3-18 (Closing Entries for a Corporation)Presented on the next page are selected account balances for Homer Winslow Co.as of December 31,2007
112 • Chapter 3 The Accounting Information System Instructions (a) Prepare an income statement and a statement of retained earnings for the year ending December 31, 2007, and an unclassified balance sheet at December 31. (b) Answer the following questions. (1) If the note has been outstanding 6 months, what is the annual interest rate on that note? (2) If the company paid $17,500 in salaries in 2007, what was the balance in Salaries Payable on December 31, 2006? E3-13 (Closing Entries) The adjusted trial balance of Lopez Company shows the following data pertaining to sales at the end of its fiscal year, October 31, 2007: Sales $800,000, Freight-out $12,000, Sales Returns and Allowances $24,000, and Sales Discounts $15,000. Instructions (a) Prepare the sales revenue section of the income statement. (b) Prepare separate closing entries for (1) sales and (2) the contra accounts to sales. E3-14 (Closing Entries) Presented below is information related to Gonzales Corporation for the month of January 2007. Cost of goods sold $208,000 Salary expense $ 61,000 Freight-out 7,000 Sales discounts 8,000 Insurance expense 12,000 Sales returns and allowances 13,000 Rent expense 20,000 Sales 350,000 Instructions Prepare the necessary closing entries. E3-15 (Missing Amounts) Presented below is financial information for two different companies. Alatorre Eduardo Company Company Sales $90,000 (d) Sales returns (a) $ 5,000 Net sales 81,000 95,000 Cost of goods sold 56,000 (e) Gross profit (b) 38,000 Operating expenses 15,000 23,000 Net income (c) 15,000 Instructions Compute the missing amounts. E3-16 (Find Missing Amounts—Periodic Inventory) Financial information is presented below for four different companies. Pamela’s Dean’s Anderson Baywatch Cosmetics Grocery Wholesalers Supply Co. Sales $78,000 (c) $144,000 $100,000 Sales returns (a) $ 5,000 12,000 9,000 Net sales 74,000 94,000 132,000 (g) Beginning inventory 16,000 (d) 44,000 24,000 Purchases 88,000 100,000 (e) 85,000 Purchase returns 6,000 10,000 8,000 (h) Ending inventory (b) 48,000 30,000 28,000 Cost of goods sold 64,000 72,000 (f) 72,000 Gross profit 10,000 22,000 18,000 (i) Instructions Determine the missing amounts (a–i). Show all computations. E3-17 (Cost of Goods Sold Section—Periodic Inventory) The trial balance of the Neville Mariner Company at the end of its fiscal year, August 31, 2007, includes the following accounts: Merchandise Inventory $17,500; Purchases $149,400; Sales $200,000; Freight-in $4,000; Sales Returns and Allowances $4,000; Freightout $1,000; and Purchase Returns and Allowances $2,000. The ending merchandise inventory is $25,000. Instructions Prepare a cost of goods sold section for the year ending August 31. E3-18 (Closing Entries for a Corporation) Presented on the next page are selected account balances for Homer Winslow Co. as of December 31, 2007. (L0 7) (L0 7) (L0 8) (L0 8) (L0 8) (L0 7) 1460T_c03.qxd 11/18/05 08:34 am Page 112
1460T_c03.qxd11/18/0508:34 am Page113 EQA Exercises·113 Merchandise Inventory 12/31/07 $60.000 Cost of Goods Sold $225,700 Common Stock 75.000 Selling Expenses 16,000 Retained Earnings 45.000 Administrative Expenses 38.000 Dividends 18.000 Income Tax Expense 30,000 Sales Returns and Allowances 12,000 Sales Discounts 15.000 Sales 410,000 Instructions Prepare closing entries for Homer Winslow Co.on December 31,2007.(Omit explanations.) (L0 4)E3-19 (Transactions of a Corporation,Including Investment and Dividend)Scratch Miniature Golf and Driving Range Inc.was opened on March 1 by Scott Verplank.The following selected events and transactions occurred during March. Mar.1 Invested S50,000 cash in the business in exchange for common stock. 3 Purchased Michelle Wie's Golf Land for $38,000 cash.The price consists of land $10,000;building $22,000;and equipment $6,000.(Make one compound entry.) 5 Advertised the opening of the driving range and miniature golf course,paying advertising expenses of $1,600. Paid cash $1,480 for a one-year insurance policy 10 Purchased golf equipment for $2,500 from Singh Company,payable in 30 days. 18 Received golf fees of $1.200 in cash. 25 Declared and paid a $500 cash dividend. 30 Paid wages of S900. 30 Paid Singh Company in full. 31 Received $750 of fees in cash. Scratch uses the following accounts:Cash;Prepaid Insurance;Land;Buildings;Equipment;Accounts Payable;Common Stock;Dividends;Service Revenue;Advertising Expense;and Wages Expense Instructions Journalize the March transactions.(Provide explanations for the journal entries.) ⊕ (L0 9)*E3-20 (Cash to Accrual Basis)Jill Accardo,M.D.,maintains the accounting records of Accardo Clinic on a cash basis.During 2007,Dr.Accardo collected $142,600 from her patients and paid $55,470 in expenses At January 1,2007,and December 31,2007,she had accounts receivable,unearned service revenue,accrued expenses,and prepaid expenses as follows.(All long-lived assets are rented.) January 1,2007 December 31,2007 Accounts receivable $9,250 $15,927 Unearned service revenue 2,840 4,111 Accrued expenses 3,435 2,108 Prepaid expenses 1,917 3,232 Instructions Prepare a schedule that converts Dr.Accardo's "excess of cash collected over cash disbursed"for the year 2007 to net income on an accrual basis for the year 2007. (L0 9)*E3-21 (Cash and Accrual Basis)Wayne Rogers Corp.maintains its financial records on the cash basis of accounting.Interested in securing a long-term loan from its regular bank,Wayne Rogers Corp.requests you as its independent CPA to convert its cash-basis income statement data to the accrual basis.You are provided with the following summarized data covering 2006,2007,and 2008. 2006 2007 2008 Cash receipts from sales: On 2006 sales $295,000 $160,000 $30,000 On 2007 sales -0- 355.000 90,000 On 2008 sales 408,000 Cash payments for expenses: On 2006 expenses 185.000 67,000 25.000 On 2007 expenses 40,000 160,000 55,000 On 2008 expenses 45,000 218,000 Prepayments of 2007 expenses. PPrepayments of 2008 expenses Instructions (a)Using the data above,prepare abbreviated income statements for the years 2006 and 2007 on the cash basis
Exercises • 113 Merchandise Inventory 12 ⁄ 31 ⁄ 07 $ 60,000 Cost of Goods Sold $225,700 Common Stock 75,000 Selling Expenses 16,000 Retained Earnings 45,000 Administrative Expenses 38,000 Dividends 18,000 Income Tax Expense 30,000 Sales Returns and Allowances 12,000 Sales Discounts 15,000 Sales 410,000 Instructions Prepare closing entries for Homer Winslow Co. on December 31, 2007. (Omit explanations.) E3-19 (Transactions of a Corporation, Including Investment and Dividend) Scratch Miniature Golf and Driving Range Inc. was opened on March 1 by Scott Verplank. The following selected events and transactions occurred during March. Mar. 1 Invested $50,000 cash in the business in exchange for common stock. 3 Purchased Michelle Wie’s Golf Land for $38,000 cash. The price consists of land $10,000; building $22,000; and equipment $6,000. (Make one compound entry.) 5 Advertised the opening of the driving range and miniature golf course, paying advertising expenses of $1,600. 6 Paid cash $1,480 for a one-year insurance policy. 10 Purchased golf equipment for $2,500 from Singh Company, payable in 30 days. 18 Received golf fees of $1,200 in cash. 25 Declared and paid a $500 cash dividend. 30 Paid wages of $900. 30 Paid Singh Company in full. 31 Received $750 of fees in cash. Scratch uses the following accounts: Cash; Prepaid Insurance; Land; Buildings; Equipment; Accounts Payable; Common Stock; Dividends; Service Revenue; Advertising Expense; and Wages Expense. Instructions Journalize the March transactions. (Provide explanations for the journal entries.) *E3-20 (Cash to Accrual Basis) Jill Accardo, M.D., maintains the accounting records of Accardo Clinic on a cash basis. During 2007, Dr. Accardo collected $142,600 from her patients and paid $55,470 in expenses. At January 1, 2007, and December 31, 2007, she had accounts receivable, unearned service revenue, accrued expenses, and prepaid expenses as follows. (All long-lived assets are rented.) January 1, 2007 December 31, 2007 Accounts receivable $9,250 $15,927 Unearned service revenue 2,840 4,111 Accrued expenses 3,435 2,108 Prepaid expenses 1,917 3,232 Instructions Prepare a schedule that converts Dr. Accardo’s “excess of cash collected over cash disbursed” for the year 2007 to net income on an accrual basis for the year 2007. *E3-21 (Cash and Accrual Basis) Wayne Rogers Corp. maintains its financial records on the cash basis of accounting. Interested in securing a long-term loan from its regular bank, Wayne Rogers Corp. requests you as its independent CPA to convert its cash-basis income statement data to the accrual basis. You are provided with the following summarized data covering 2006, 2007, and 2008. 2006 2007 2008 Cash receipts from sales: On 2006 sales $295,000 $160,000 $30,000 On 2007 sales –0– 355,000 90,000 On 2008 sales 408,000 Cash payments for expenses: On 2006 expenses 185,000 67,000 25,000 On 2007 expenses 40,000a 160,000 55,000 On 2008 expenses 45,000b 218,000 a Prepayments of 2007 expenses. b Prepayments of 2008 expenses. Instructions (a) Using the data above, prepare abbreviated income statements for the years 2006 and 2007 on the cash basis. (L0 4) (L0 9) (L0 9) 1460T_c03.qxd 11/18/05 08:34 am Page 113