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Chapter 4

Completing the Accounting Cycle

Short Exercises

(10 min.) S 4-1Req. 1

a. Some of the prepaid rent has expired.b. Some of the unearned service revenue has been earned.c. The business has used some of the supplies.d. The business owes some salary to its employees.e. The furniture has depreciated.

(10-15 min.) S 4-2Req. 1

a. Amount the business expects to collect in cash.b. Cost of the supplies on hand for use.c. Amount of rent that was prepaid and is available for use by

the business.d. Cost of furniture purchased for use.e. Portion of the furniture’s cost that has depreciated.f. Amount that the business owes creditors.g. Amount that the business has collected in advance from

customers and owes them in the form of service.h. Amount that the business earned during the period.i. Used-up portion of the prepaid rent. The cost of obtaining a

place to do business.

Chapter 4 Completing the Accounting Cycle 302

(5-10 min.) S 4-3

Req. 1 The Capital account has a credit balance.

Req. 2 The income statement account with a credit balance is the Service revenue account.

Req. 3 Expenses are the income statement accounts with a debit balance.

Req. 4 The difference between total debits and credits on the income statement is called net income. This difference is closed into the Capital account.

Accounting 9/e Solutions Manual303

(10-15 min.) S 4-4Req 1.

JournalDATE ACCOUNTS AND EXPLANATIONS

POST.REF. DEBIT CREDIT

Closing Entries Dec 31

a. Service revenue 20,600Income summary 20,600

b. Income summary 15,100Salary expense 7,200Rent expense 4,500Advertising expense 3,400

c. Income summary 5,500Tilman, capital 5,500

d. Tilman, capital 3,800Tilman, drawing 3,800


(5 min.) S 4-5Req. 1

Simon, capital Simon, drawing Income summaryBal 26,100 Bal 8,500

Service revenue Salary expense Rent expenseBal 23,700 Bal 6,100 Bal 4,000

Advertising expenseBal 3,300

Req. 2

Service revenueClo 23,700 Bal 23,700

Bal 0

Income summaryClo 13,400 Clo 23,700Clo 10,300 Bal 10,300

Bal 0

Salary expense Rent expenseBal 6,100 Clo 6,100 Bal 4,000 Clo 4,000Bal 0 Bal 0

Advertising expenseBal 3,300 Clo 3,300Bal 0

Req. 3

Ending balance of Simon, capital: $27,900

Simon, capitalClo 8,500 Bal 26,100

Clo 10,300Bal 27,900


(5 min.) S 4-6Req. 1



Closing EntriesNov 30 Service revenue 5,500

Income summary 5,500

30 Income summary 2,900Sales and marketing expense 2,100Depreciation expense 800

(5 min.) S 4-7Req. 1

Service revenue Sales and marketing expenseClo 4,000 Bal 4,000 Bal 1,600 Clo 1,600

Bal 0 Bal 0

Patel, capitalBal 500Clo 1,500Bal 2,000

Depreciation expense Income summaryBal 900 Clo 900 Clo 2,500 Clo 4,000Bal 0 Clo 1,500 Bal 1,500

Bal 0


(10 min.) S 4-8Req. 1

Goodrow Electric CompanyPost-Closing Trial Balance

July 31, 2012

Cash $ 100Accounts receivable 1,600Supplies 200Equipment 4,500Accumulated depreciation $ 1,300Land 1,200Accounts payable 1,100Unearned service revenue 1,400Long-term liabilities 800Goodrow, capital 3,000 Total $ 7,600 $ 7,600


(5 min.) S 4-9Reqs. 1 and 2

Account Identification ClassificationBuildings Assets Long-termAccounts payable Liabilities CurrentTotal expenses Neither N/AAccumulated depreciation Assets Long-termAccrued liabilities (Salary payable) Liabilities Current

Prepaid expenses Assets CurrentService revenue Neither N/ACash Assets CurrentReceivables Assets CurrentInterest expense Neither N/AEquipment Assets Long-term

(10 min.) S 4-10

Req. 1

a. Total current assets = $1,400

b. Total current liabilities = $1,000

c. Book value of plant assets = $2,300

d. Total long-term liabilities = $0


(10-15 min.) S 4-11Req. 1Current ratio = Total current assets

Total current liabilities

= $12,000 = 1.796,700

Debt ratio = Total liabilitiesTotal assets

= $14,500 = 0.54$27,000

Req. 2Heart of Texas Telecom has $1.79 of current assets for every dollar of current liabilities that it owes. The ratio that measures this relationship is the current ratio.


Exercises

(30-40 min.) E 4-12Req. 1

Mexican Riviera Tanning SalonWorksheet

Month Ended March 31, 2012

ACCOUNT TITLETRIAL BALANCE ADJUSTMENTS

ADJUSTED TRIAL BALANCE

INCOME STATEMENT BALANCE SHEET

DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDITCash $13,000 $13,000 $13,000Accounts receivable (a) 2,600 2,600 2,600Supplies 1,400 (b) $400 1,000 1,000Equipment 66,500 66,500 66,500Accumulated depreciation $18,500 (d) 4,100 $22,600 $22,600Accounts payable 3,200 3,200 3,200Salary payable (c) 1,700 1,700 1,700Neeland, capital 11,500 11,500 11,500Service revenue 89,900 (a) 2,600 92,500 $92,500Salary expense 42,200 (c) 1,700 43,900 $43,900Depreciation expense (d) 4,100 4,100 4,100Supplies expense (b) 400 400 400

$123,100 $123,100 $8,800 $ 8,800 $131,500 $131,500 $48,400 $92,500 $83,100 $39,000Net income 44,100 44,100

$92,500 $92,500 $83,100 $83,100

Req. 2 Mexican Riviera earned net income of $44,100 during March.


(20-30 min.) E 4-13Req. 1

Telegraphic Link Worksheet

Month Ended November 30, 2012




DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDITCash $4,000 $4,000 $4,000Accounts receivable 3,200 (a) $600 3,800 3,800Prepaid rent 1,900 (d) $500 1,400 1,400Supplies 3,000 (e) 100 2,900 2,900Equipment 34,800 34,800 34,800Accumulated depreciation $1,600 (b) 300 $1,900 $1,900Accounts payable 5,400 5,400 5,400Salary payable (c) 800 800 800Thomas, capital 35,700 35,700 35,700Thomas, drawing 2,100 2,100 2,100Service revenue 8,600 (a) 600 9,200 $9,200Depreciation expense (b) 300 300 $300Salary expense 1,700 (c) 800 2,500 2,500Rent expense (d) 500 500 500Utilities expense 600 600 600Supplies expense (e) 100 100 100

$51,300 $51,300 $2,300 $ 2,300 $53,000 $53,000 $4,000 $9,200 $49,000 $43,800Net income $5,200 $ 5,200

$9,200 $9,200 $49,000 $49,000

Req. 2 The net income for November was $5,200.


15-20 min.) E 4-14Req.1

Telegraphic Link Balance Sheet

November 30, 2012ASSETS LIABILITIES

Cash $ 4,000 Accounts payable $ 5,400Supplies 3,800 Salary payable 800 Prepaid rent 1,400 Total liabilities 6,200Supplies 2,900 OWNER’S EQUITYEquipment $ 34,800 Thomas, capital 38,800Accumulated depreciation (1,900) 32,900

Total assets $ 45,000Total liabilities and owner’s equity $ 45,000


Req.1 (15-20 min.) E 4-15



Adjusting EntriesNov 30 Account receivable 600

Service revenue 600

30 Depreciation expense 300Accumulated depreciation 300

30 Salary expense 800Salary payable 800

30 Rent expense 500Prepaid rent 500

30 Supplies expense 100Supplies 100

Adjusting EntriesNov 30 Service Revenue 9,200

Income Summary 9,200

30 Income Summary 4,000 Depreciation Expense 300 Salary Expense 2,500 Rent Expense 500 Utilities Expense 600 Supplies Expense 100

30 Income Summary 5,200 Thomas, Capital 5,200

30 Thomas, capital 2,100 Thomas, drawing 2,100


(20-30 min.) E 4-16

Reqs. 1 and 2

Accounts receivable Prepaid rentBal 3,200 Bal 1,900 (d) 500(a) 600 Bal 1,400Bal 3,800

Supplies Accumulated depreciationBal 3,000 (e) 100 Bal 1,600Bal 2,900 (b) 300

Bal 1,900

Salary payable Thomas, capitalBal 0 Clo 2,100 Bal 35,700(c) 800 Clo 5,200Bal 800 Bal 38,800

Thomas, drawing Income summaryBal 2,100 Clo 2,100 Clo 4,000 Clo 9,200Bal 0 Clo 5,200 Bal 5,200

Bal 0


(continued) E 4-16Reqs. 1 and 2

Service revenue Depreciation expenseClo 9,200 Bal 8,600 Bal 0

(a) 600 (b) 300 Clo 300Bal 0 Bal 0

Salary expense Rent expenseBal 1,700 Clo 2,500 Bal 0 Clo 500(c ) 800 (d) 500Bal 0 Bal 0

Utilities expense Supplies expenseBal 600 Clo 600 Bal

(e)0

100Clo 100

Bal 0 Bal 0


(20 min.) E 4-17Req. 1

Prepaid rent Rent expenseBal 200 Bal. 0Bal 3,100

Unearned service revenue Service revenue Bal 1,000 Bal. 0 Bal 500

Req. 2

JournalACCOUNTS AND EXPLANATIONS


a. Prepaid rent 8,000Cash 8,000

b. Rent expense 5,100Prepaid rent 5,100

c. Cash 4,400Unearned service revenue 4,400

d. Unearned service revenue 4,900Service revenue 4,900


(continued) E 4-17Req. 2

Prepaid rent Rent expenseBal 200 (b) 5,100 (b) 5,100

(a) 8,000 Bal 5,100Bal 3,100

Unearned service revenue Service revenueBal 1,000 (d) 4,900

(d) 4,900 (c) 4,400 Bal 4,900 Bal 600

Req. 3 The balance in Service revenue account is $4,900.

Req. 4 The balance in the Rent expense account is $5,100.

Req. 5



Closing EntriesDec 31 Service revenue 4,900


31 Income summary 5,100Rent expense 5,100


(15-25 min.) E 4-18Req. 1



Closing EntriesJan 31 Service revenue 16,800


31 Income summary 6,200Salary expense 3,600Rent expense 1,400Depreciation expense 400Supplies expense 200Utilities expense 600

31 Income summary 10,600Silver, capital 10,600

31 Silver, capital 800 Silver, drawing 800

Req. 2Silver had net income of $10,600. We know this because service revenue exceeded total expenses.

(5-10 min.) E 4-19Req. 1

Guitars by Peter Statement of Owner’s Equity

Year Ended December 31, 2012Peter, capital, January 1, 2012 $152,000Net income 120,000

272,000Drawing (31,000 ) Peter, capital, December 31, 2012 $241,000


(15 min.) E 4-20Req. 1





31 Income summary 5,100Rent expense 5,100

Req. 2

Service revenue Rent expenseClo 4,700 4,700 5,100 Clo 5,100

Bal 0 Bal 0

These accounts have zero balances after the closing entries have been posted.


(10-15 min.) E 4-21Req. 1





31 Income summary 35,500Salary expense 26,100Supplies expense 2,400Depreciation expense—furniture 800Depreciation expense—building 6,200

31 Income summary 74,500Klein, capital 74,500

31 Klein, capital 57,000 Klein, drawing 57,000

Req. 2Klein, capital

Clo 57,000 Beg Bal 47,000Clo 74,500End Bal 64,500


(10-15 min.) E 4-22Req. 1

Telegraphic Link Post-closing Trial Balance

November 30, 2012ACCOUNT DEBIT CREDIT

Cash $ 4,000Accounts receivable 3,800Prepaid rent 1,400Supplies 2,900Equipment 34,800Accumulated depreciation $ 1,900Accounts payable 5,400Salary payable 800Thomas, capital 38,800 Total $ 46,900 $ 46,900


(15-20 min.) E 4-23Req. 1

Beginning capital + Net Income – Drawing = Ending Capital $36,500 + $12,300 – $1,100 = $47,700

Brian O’Brion Dance Studio CompanyBalance Sheet

August 31, 2012ASSETS

Current assets:Cash $ 15,800Supplies 2,000Prepaid rent 900

Total current assets 18,700Plant asset:

Equipment $ 49,000Accumulated depreciation (5,500 ) 43,500

Total assets $ 62,200 LIABILITIES

Current liabilities:Accounts payable $ 4,500Salary payable 500Unearned service revenue 5,100

Total current liabilities 10,100Long-term liabilities:

Long-term note payable 4,400 Total liabilities 14,500

OWNER’S EQUITYO’Brion, capital 47,700 Total liabilities and owner’s equity $ 62,200


(continued) E 4-23

Req. 2

2012 2011

Current Ratio = Total current assetsTotal current liabilities = $18,700

$10,100 = 1.85 1.49

Since the current ratio was 1.49 one year ago, during the current year, Brian O’Brion Dance Studio’s ability to pay its current liabilities has improved.

Since the debt ratio was 0.29 one year ago, during the current year, Brian O’Brion Dance Studio’s ability to pay its debt has improved.

Accounting 9/e Solutions Manual

Debt Ratio = Total liabilitiesTotal assets = $14,500

$62,200 = 0.23 0.29

323

Problems

Group A

Req. 1 (40-50 min.) P 4-24A

Myla’s Motors Worksheet


ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS ADJUSTED TRIAL BALANCE


DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDITCash $4,300 $4,300 $4,300Accounts receivable 26,600 (f) $ 800 27,400 27,400Supplies 500 (c) $ 300 200 200Prepaid insurance 1,700 (d) 200 1,500 1,500Equipment 53,500 53,500 53,500Accumulated depreciation $36,400 (a) 1,100 $37,500 $37,500Accounts payable 13,400 13,400 13,400Wages payable (b) 600 600 600Unearned service revenue 8,000 (e) 4,000 4,000 4,000Myla, capital 19,700 19,700 19,700Myla, drawing 3,800 3,800 3,800Service revenue 16,000 (e) 4,000 20,800 $20,800

(f) 800Depreciation expense (a) 1,100 1,100 $1,100Wage expense 1,600 (b) 600 2,200 2,200Insurance expense (d) 200 200 200Utilities expense 1,500 1,500 1,500Supplies expense (c) 300 300 300

$93,500 $93,500 $7,000 $7,000 $96,000 $96,000 $5,300 $20,800 $90,700 $75,200Net income $15,500 $15,500

$20,800 $20,800 $90,700 $90,700


(continued) P 4-24AReq. 2

Myla’s Motors Income Statement

Month Ended November 30, 2012Revenue:

Service revenue $ 20,800Expenses:

Wage expense $ 2,200Utilities expense 1,500Depreciation expense 1,100Supplies expense 300Insurance expense 200

Total expenses 5,300 Net income $ 15,500

Myla’s Motors Statement of Owner’s Equity

Month Ended November 30, 2012Myla, capital, November 1, 2012 $ 19,700Net income 15,500

35,200Drawing ( 3,800 ) Myla, capital, November 30, 2012 $ 31,400


(continued) P 4-24A

Req. 2

Myla’s Motors Balance Sheet

November 30, 2012ASSETS LIABILITIES

Current assets: Current liabilities:Cash $ 4,300 Accounts payable $ 13,400Accounts receivable 27,400 Wages payable 600Supplies 200 Unearned service revenue 4,000

Prepaid Insurance 1,500 Total current liabilities 18,000Total current assets 33,400

Plant assets: OWNER’S EQUITYEquipment $53,500Accumulated. depr. (37,500) 16,000 Myla, capital 31,400

Total liabilities andTotal assets $ 49,400 owner’s equity $ 49,400


(50-60 min.) P 4-25AReq. 1

Fugazy Investment Advisers Worksheet

Year Ended December 31, 2012

ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTSADJUSTED TRIAL

BALANCEINCOME

STATEMENT BALANCE SHEETDEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

Cash $32,000 $32,000 $32,000Accounts receivable 46,000 (e) 4,000 50,000 50,000Supplies 3,000 (b) 2,000 1,000 1,000Equipment 25,000 25,000 25,000Accumulated depreciation $11,000 (c) 6,000 $17,000 $17,000Accounts payable 15,000 15,000 15,000Salary payable (d) 1,000 1,000 1,000Unearned service revenue 2,000 (a) 500 1,500 1,500Note payable, long-term 39,000 39,000 39,000Fugazy, capital 38,000 38,000 38,000Fugazy, drawing 50,000 50,000 50,000Service revenue 97,000 (a) 500 101,500 $101,500

(e) 4,000Salary expense 32,000 (d) 1,000 33,000 $33,000Supplies expense (b) 2,000 2,000 2,000Depreciation expense (c) 6,000 6,000 6,000Interest expense 3,000 3,000 3,000Rent expense 9,000 9,000 9,000Insurance expense 2,000 2,000 2,000 ___

$202,000 $202,000 $13,500 $13,500 $213,000 $213,000 $55,000 $101,500 $158,000 $111,500Net income 46,500 46,500

$101,500 $101,500 $158,000 $158,000


(continued) P 4-25A

Req. 2

Fugazy Investment Advisers Income Statement

Year Ended December 31, 2012Revenue:


Salary expense $ 33,000Rent expense 9,000Depreciation expense 6,000Interest expense 3,000Supplies expense 2,000Insurance expense 2,000


Fugazy Investment Advisers Statement of Owner’s Equity

Year Ended December 31, 2012Fugazy, capital, January 1, 2012 $ 38,000Net income 46,500

84,500Drawing ( 50,000 ) Fugazy, capital, December 31, 2012 $ 34,500


(continued) P 4-25A

Req. 2

Fugazy Investment Advisers Balance Sheet

December 31, 2012ASSETS LIABILITIES

Current assets: Current liabilities:Cash $ 32,000 Accounts payable $ 15,000Accounts receivable 50,000 Salary payable 1,000Supplies 1,000 Unearned service revenue 1,500

Total current assets 83,000 Total current liabilities 17,500Long-term liabilities:

Plant assets: Note payable 39,000Equipment $ 25,000 Total liabilities 56,500Acc. depr. (17,000 ) 8,000

OWNER’S EQUITYFugazy, capital 34,500

_______ Total liabilities andTotal assets $ 91,000 owner’s equity $ 91,000







31 Income summary 55,000Depreciation expense 6,000Salary expense 33,000Rent expense 9,000Insurance expense 2,000Supplies expense 2,000Interest expense 3,000

31 Income summary 46,500Fugazy, capital 46,500

31 Fugazy, capital 50,000 Fugazy, drawing 50,000

Req. 4

Fugazy Investment Advisers had a good year during 2012 because the income statement reports net income of $46,500.


(120-150 min.) P 4-26AReq. 1



Oct 31 Adjusting Entriesa. Unearned service revenue 4,200

Service revenue 4,200

b. Rent expense 200Prepaid rent 200

c. Supplies expense 1,000Supplies 1,000

d. Depreciation expense 300Accumulated depreciation 300

e. Salary expense 200Salary payable 200


(continued) P 4-26A

Req. 2

Wolfe Anvils Worksheet

Month Ended October 31, 2012


DEBIT CREDIT DEBIT CREDIT DEBIT CREDITCash $4,300 $4,300Accounts receivable 15,000 15,000Prepaid rent 2,700 (b) $200 2,500Supplies 1,600 (c) 1,000 600Equipment 31,200 31,200Accumulated depreciation $3,000 (d) 300 $3,300Accounts payable 6,900 6,900Salary payable (e) 200 200Unearned service revenue 5,400 (a) $4,200 1,200Wolfe, capital 26,600 26,600Wolfe, drawing 3,500 3,500Service revenue 18,900 (a) 4,200 23,100Salary expense 2,500 (e) 200 2,700Rent expense (b) 200 200Depreciation expense (d) 300 300Supplies expense ______ ______ (c) 1,000 ______ 1,000 ______Total $60,800 $60,800 $5,900 $5,900 $61,300 $61,300


(continued) P 4-26A

Req. 3

Wolfe Anvils Income Statement

Month Ended October 31, 2012Revenue:


Salary expense $ 2,700Supplies expense 1,000Depreciation expense 300Rent expense 200


Wolfe Anvils Statement of Owner’s Equity

Month Ended October 31, 2012Wolfe, capital, October 1, 2012 $ 26,600Net income 18,900

45,500Drawing (3,500 ) Wolfe, capital, October 31, 2012 $ 42,000



Wolfe Anvils Balance Sheet

October 31, 2012ASSETS

Current assets:Cash $ 4,300Accounts receivable 15,000Prepaid rent 2,500Supplies 600

Total current assets 22,400Plant assets:

Equipment $ 31,200Accumulated depreciation (3,300) 27,900

Total assets $ 50,300LIABILITIES


Total current liabilities 8,300OWNER’S EQUITY

Wolfe, capital 42,000Total liabilities and owner’s equity $ 50,300





Closing EntriesOct 31 Service revenue 23,100


31 Income summary 4,200Salary expense 2,700Rent expense 200Depreciation expense 300Supplies expense 1,000

31 Income summary 18,900Wolfe, capital 18,900

31 Wolfe, capital 3,500 Wolfe, drawing 3,500

Req. 4

Prepaid rentOct 31 2,700 Adj b) 200Bal 2,500

SuppliesOct.31 1,600 Adj c) 1,000Bal 600

Accumulated depreciationOct 31 3,000Adj d) 300Bal 3,300



Salary payableOct 31 0Adj e) 200Bal 200

Unearned service revenueAdj a) 4,200 Oct 31 5,400

Bal 1,200

Wolfe, capital Wolfe, drawingClo 3,500 Oct.31 26,600 Oct 31 3,500 Clo 3,500

Clo 18,900 Bal 0Bal 42,000

Service revenue Salary expenseClo 23,100 Oct. 31 18,900 Oct 31 2,500 Clo 2,700

Adj (a) 4,200 Adj (e) 200Bal 0 Bal. 0

Rent expense Income summaryOct 31 0 Clo 200 Clo 4,200 Clo 23,100Adj (b) 200 Clo 18,900 Bal 18,900

Bal 0 Bal 0

Depreciation expense Supplies expenseOct31 0 Clo 300 Oct31 0 Clo 1,000Adj (d) 300 Adj (c) 1,000Bal 0 Bal 0



Wolfe Anvils Post-closing Trial Balance

October 31, 2012ACCOUNT DEBIT CREDIT

Cash $ 4,300Accounts receivable 15,000Prepaid rent 2,500Supplies 600Equipment 31,200Accumulated depreciation $ 3,300Accounts payable 6,900Salary payable 200Unearned service revenue 1,200Wolfe, capital 42,000 Total $ 53,600 $ 53,600

Req. 6

Wolfe’s current ratio at October 31, 2012 is 2.70.

Wolfe’s debt ratio at October 31, 2012 is 0.17.


(120-150 min.) P 4-27A

Req. 1



Mar 31 Adjusting Entriesa. Unearned service revenue 9,300



c. Supplies expense 800Supplies 800





Racer Internet Worksheet

Month Ended March 31, 2012



DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDITCash $4,300 $4,300 $4,300Accounts receivable 15,100 15,100 15,100Prepaid rent 2,300 (b) $ 300 2,000 2,000Supplies 1,000 (c) 800 200 200Equipment 30,600 30,600 30,600Accumulated depreciation $3,900 (d) 400 $4,300 $4,300Accounts payable 6,400 6,400 6,400Salary payable (e) 600 600 600Unearned service revenue 9,800 (a) $9,300 500 500Racer, capital 23,000 23,000 23,000Racer, drawing 4,100 4,100 4,100Service revenue 17,300 (a) 9,300 26,600 $26,600Salary expense 3,000 (e) 600 3,600 $3,600Rent expense (b) 300 300 300Depreciation expense (d) 400 400 400Supplies expense ___ __ ___ __ (c) 800 __ ___ 800 ___ __ 800 ___ __

$ 60,400 $ 60,400 $ 11,400 $ 11,400 $ 61,400 $ 61,400 $5,100 $26,600 $56,300 $34,800Net income 21,500 21,500

$ 26,600 $ 26,600 $ 56,300 $ 56,300


(continued) P 4-27A

Req. 3

Racer Internet Income Statement

Month Ended March 31, 2012Revenue:


Salary expense $ 3,600Supplies expense 800Depreciation expense 400Rent expense 300


Racer Internet Statement of Owner’s EquityMonth Ended March 31, 2012

Racer, capital, March 1, 2012 $ 23,000Net income 21,500

44,500Drawing (4,100) Racer, capital, March 31, 2012 $ 40,400



Racer Internet Balance SheetMarch 31, 2012

ASSETSCurrent assets:

Cash $ 4,300Accounts receivable 15,100Prepaid rent 2,000Supplies 200




Current liabilities:Accounts payable $ 6,400Salary payable 600Unearned service revenue 500


Racer, capital 40,400Total liabilities and owner’s equity $ 47,900





2012 Closing EntriesMar 31 Service revenue 26,600


31 Income summary 5,100Salary expense 3,600Rent expense 300Depreciation expense 400Supplies expense 800

31 Income summary 21,500Racer, capital 21,500

31 Racer, capital 4,100 Racer, drawing 4,100

Req. 4

Prepaid rentMar 31 2,300 Adj (b) 300Bal 2,000

SuppliesMar 31 1,000 Adj (c) 800Bal 200

Accumulated depreciationMar 31 3,900Adj (d) 400Bal 4,300



Salary payableMar 31 0Adj (e) 600Bal 600

Unearned service revenueAdj (a) 9,300 Mar 31 9,800

Bal 500

Racer, capital Racer, drawingClo 4,100 Mar 31 23,000 Mar 31 4,100 Clo 4,100

Clo 21,500 Bal 0Bal 40,400

Service revenue Salary expenseClo 26,600 Mar 31 17,300 Mar 31 3,000 Clo 3,600

Adj (a) 9,300 Adj (e) 600Bal 0 Bal 0

Rent expense Income summary Mar 31 0 Clo 300 Clo 5,100 Clo 26,600Adj (b) 300 Clo 21,500 Bal 21,500

Bal 0 Bal 0

Depreciation expense Supplies expenseMar 31 0 Clo 400 Mar 31 0 Clo 800Adj (d) 400 Adj (c) 800Bal 0 Bal 0


(continued) P 4-27A

Req. 5

Racer Internet Post-closing Trial Balance

March 31, 2012ACCOUNT DEBIT CREDIT

Cash $ 4,300Accounts receivable 15,100Prepaid rent 2,000Supplies 200Equipment 30,600Accumulated depreciation $ 4,300Accounts payable 6,400Salary payable 600Unearned service revenue 500Racer, capital 40,400 Total $ 52,200 $ 52,200

Req. 6

Racer’s current ratio at March 31, 2012 is 2.88.

Racer’s debt ratio at March 31, 2012 is 0.16.


(45-60 min.) P 4-28A

Req. 1 Open T-accounts

Elias, capital Elias, drawingJun 30 30,800 Jun 30 27,900

Income summary Service revenueJun 30 0 Jun 30 97,900

Salary expense Depreciation expenseJun 30 32,400 Jun 30 0

Insurance expense Utilities expenseJun 30 4,200 Jun 30 4,000

Supplies expense Income summaryJun 30 6,500 Jun 30 0





Jun 30 Adjusting Entriesa. Insurance expense 300

Prepaid Insurance 300

b. Accounts receivable 1,300Service Revenue 1,300

c. Salary expense 900Salary payable 900

d. Depreciation expense 8,500Accumulated depreciation 8,500

e. Supplies expense 600Supplies 600


(continued) P 4-28AReq. 2 Adjusting entries

Accounts receivable SuppliesBal 4,000 Bal 3,000 Adj e) 600Adj b) 1,300 Bal 2,400Bal 5,300

Prepaid insurance Accumulated depreciationBal 2,200 Adj a) 300 Bal 18,800Bal 1,900 Adj d) 8,500

Bal 27,300

Salary payableBal 0Adj c) 900Bal 900



Elias, capital Elias, drawingBal 30,800 Bal 27,900Bal 30,800 Bal 27,900

Service revenueBal 97,900Adj b) 1,300Bal 99,200

Salary expense Depreciation expenseBal 32,400 Bal 0Adj c) 900 Adj d) 8,500Bal 33,300 Bal 8,500

Insurance expense Supplies expenseBal 4,200 Bal 6,500Adj a) 300 Adj e) 600Bal 4,500 Bal 7,100





Closing EntriesJun 30 Service revenue 99,200


30 Income summary 57,400Salary expense 33,300Depreciation expense 8,500Insurance expense 4,500Utilities expense 4,000Supplies expense 7,100

30 Income summary 41,800Elias, capital 41,800

30 Elias, capital 27,900Elias, drawing 27,900


(continued) P 4-28AReq. 3Closing entries

Elias, capital Elias, drawingClo 27,900 Bal 30,800 Bal 27,900 Clo 27,900

Clo 41,800Bal 44,700

Income summary Service revenueClo 54,700 Clo 99,200 Bal 97,900Clo 41,800 Bal 41,800 1,300

Clo 99,200 Bal 99,200

Salary expense Depreciation expenseBal 32,400 Bal 8,500

900 Bal 8,500 Clo 8,500Bal 33,300 Clo 33,300

Insurance expense Supplies expenseBal 4,200 Bal 6,500

300 600Bal 4,500 Clo 4,500 Bal 7,100 Clo 7,100

Req. 4

The ending balance of Elias, capital is $44,700.


(30-40 min.) P 4-29AReq. 1

Blume Irrigation SystemsBalance Sheet

December 31, 2012ASSETS

Current assets:Cash $ 11,000 Accounts receivable 43,100Prepaid insurance 4,000Supplies 3,300


Equipment $ 23,000Acc. depr. - equipment (7,900) 15,100Building $ 55,800Acc. depr. - building (24,000) 31,800

Other assets 2,200 Total assets $ 110,500

LIABILITIESCurrent liabilities:

Accounts payable $ 24,700Salary payable 3,900Interest payable 400Unearned service revenue 1,600

Total current liabilities 30,600Note payable, long-term 2,800 Total liabilities 33,400

OWNER’S EQUITYBlume, capital *77,100 Total liabilities and owner’s equity $ 110,500

*$52,000 + [$74,800 – ($900 + $16,300 + $30,500)] - $2,000 = $77,100


(continued) P 4-29A

Req. 2

2012 2011

Current Ratio = Total current assetsTotal current liabilities = $61,400

$30,600 = 2.01 1.81

The current ratio for Blume Irrigation is 2.01.

During 2012, Blume Irrigation System’s ability to pay current liabilities improved.

Debt Ratio = Total liabilitiesTotal assets = $33,400

$110,500 = 0.30 0.34

The debt ratio for Blume Irrigation Systems is 0.30.

During 2012, Blume Irrigation Systems’ ability to pay debts improved.


Problems

Group B

(40-50 min.) P 4-30BReq. 1

Brooke’s Motors Worksheet

Month Ended September 30, 2012




DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDITCash $4,200 $4,200 4,200Accounts receivable 26,500 (f) $ 900 27,400 27,400Supplies 800 (c) $ 100 700 700Prepaid insurance 1,800 (d) 200 1,600 1,600Equipment 53,500 53,500 53,500Accumulated depreciation $36,300 (a) 1,100 $37,400 37,400Accounts payable 13,300 13,300 13,300Wages payable (b) 500 500 500Unearned service revenue 8,500 (e) 4,500 4,000 4,000Brooke, capital 19,000 19,000 19,000Brooke, drawing 3,500 3,500 3,500Service revenue 16,500 (e) 4,500 21,900 $21,900

(f) 900Depreciation expense (a) 1,100 1,100 $1,100Wage expense 2,100 (b) 500 2,600 2,600Insurance expense (d) 200 200 200Utilities expense 1,200 1,200 1,200Supplies expense (c) 100 100 100

$93,600 $93,600 $7,300 $7,300 $96,100 $96,100 $5,200 $21,900 $90,900 $74,200Net income 16,700 16,700

$21,900 $21,900 $90,900 $90,900


(continued) P 4-30BReq. 2

Brooke’s Motors Income Statement

Month Ended September 30, 2012Revenue:

Service revenue $ 21,900 Expenses:

Wage expense $ 2,600Utilities expense 1,200Depreciation expense 1,100Insurance expense 200Supplies expense 100


Brooke’s Motors Statement of Owner’s Equity

Month Ended September 30, 2012Brooke, capital, September 1, 2012 $ 19,000Net income 16,700

35,700Drawing (3,500 ) Brooke, capital, September 30, 2012 $ 32,200


(continued) P 4-30B

Req. 2

Brooke’s Motors Balance Sheet

September 30, 2012ASSETS LIABILITIES

Current assets: Current liabilities:Cash $ 4,200 Accounts payable $ 13,300Accounts receivable 27,400 Wages payable 500Supplies 700 Unearned service revenue 4,000

Prepaid Insurance 1,600 Total current liabilities 17,800Total current assets 33,900

Plant assets: OWNER’S EQUITYEquipment $53,500 Brooke, capital 32,200 Acc. depr. (37,400) $ 16,100

Total liabilities and Total assets $ 50,000 owner’s equity $ 50,000


(50-60 min.) P 4-31BReq. 1

Giambi Investment Advisers Worksheet

Year Ended December 31, 2012

ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTSADJUSTED TRIAL

BALANCEINCOME

STATEMENT BALANCE SHEETDEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

Cash $28,000 $28,000 $28,000Accounts receivable 50,000 (e) $3,000 53,000 53,000Supplies 8,000 (b) $3,000 5,000 5,000Equipment 26,000 26,000 26,000Accumulated depreciation $16,000 (c) 8,000 $24,000 $24,000Accounts payable 14,000 14,000 14,000Salary payable (d) 1,000 1,000 1,000Unearned service revenue 1,000 (a) 500 500 500Note payable, long-term 44,000 44,000 44,000Giambi, capital 40,000 40,000 40,000Giambi, drawing 50,000 50,000 50,000Service revenue 97,000 (a) 500 100,500 $100,500

(e) 3,000Salary expense 32,000 (d) 1,000 33,000 $33,000Supplies expense (b) 3,000 3,000 3,000Depreciation expense (c) 8,000 8,000 8,000Interest expense 7,000 7,000 7,000Rent expense 7,000 7,000 7,000Insurance expense 4,000 4,000 4,000

$212,000 $212,000 $15,500 $15,500 $224,000 $224,000 $62,000 $100,500 $162,000 $123,500Net income 38,500 38,500

$100,500 $100,500 $162,000 $162,000


(continued) P 4-31B

Req. 2

Giambi Investment Advisers Income Statement

Year Ended December 31, 2012Revenue:


Salary expense $ 33,000Depreciation expense 8,000Interest expense 7,000Rent expense 7,000Insurance expense 4,000Supplies expense 3,000


Giambi Investment Advisers Statement of Owner’s Equity

Year Ended December 31, 2012Giambi, capital, December 1, 2011 $ 40,000Net income 38,500

78,500Drawing (50,000 ) Giambi, capital, December 31, 2012 $ 28,500


(continued) P 4-31B

Req. 2

Giambi Investment Advisers Balance Sheet


Current assets: Current liabilities:Cash $ 28,000 Accounts payable $ 14,000Accounts receivable 53,000 Salary payable 1,000Supplies 5,000 Unearned service revenue 500

Total current assets 86,000 Total current liabilities $ 15,500Long-term liabilities:

Plant assets: Note payable 44,000 Equipment $ 26,000 Total liabilities 59,500Acc. depr. (24,000 ) 2,000

OWNER’S EQUITYGiambi, capital 28,500

Total liabilities and Total assets $ 88,000 owner’s equity $ 88,000


(continued) P 4-31B

Req. 3





31 Income summary 62,000Salary expense 33,000Supplies expense 7,000Depreciation expense 8,000Interest expense 3,000Rent expense 4,000

Insurance expense 7,000

31 Income summary 38,500Giambi, capital 38,500

31 Giambi, capital 50,000Giambi, drawing 50,000

Req. 4

Giambi Investment Advisers had a good year during 2012 because the income statement reports net income of $38,500.


(120-150 min.) P 4-32B

Req. 1



Jan 31 Adjusting Entriesa. Unearned service revenue 4,500



c. Supplies expense 1,100Supplies 1,100




(continued) P 4-32B

Req. 2

Leopard Anvils Worksheet

Month Ended January 31, 2012


DEBIT CREDIT DEBIT CREDIT DEBIT CREDITCash $4,400 $4,400Accounts receivable 14,800 14,800Prepaid rent 2,300 (b) $500 1,800Supplies 1,200 (c) 1,100 100Equipment 30,100 30,100Accumulated depreciation $4,600 (d) 400 $5,000Accounts payable 7,500 7,500Salary payable (e) 500 500Unearned service revenue 4,900 (a) $4,500 400Leopard, capital 25,700 25,700Leopard, drawing 4,800 4,800Service revenue 17,400 (a) 4,500 21,900Salary expense 2,500 (e) 500 3,000Rent expense (b) 500 500Depreciation expense (d) 400 400Supplies expense _______ _______ (c) 1,100 ______ 1,100 ______Total $60,100 $60,100 $7,000 $7,000 $61,000 $61,000


(continued) P 4-32B

Req. 3

Leopard Anvils Income Statement

Month Ended January 31, 2012Revenue:


Salary expense $ 3,000Supplies expense 1,100Rent expense 500Depreciation expense 400


Leopard Anvils Statement of Owner’s Equity

Month Ended January 31, 2012Leopard, capital, January 1, 2012 $ 25,700Net income 16,900

42,600Drawing (4,800 ) Leopard, capital, January 31, 2012 $ 37,800



Leopard Anvils Balance Sheet

January 31, 2012ASSETS

Current assets:Cash $ 4,400Accounts receivable 14,800Prepaid rent 1,800Supplies 100



Total assets $46,200LIABILITIES

Current liabilities:Accounts payable $ 7,500Salary payable 500Unearned service revenue 400


Leopard, capital 37,800 Total liabilities and owner’s equity $ 46,200





Closing EntriesJan 31 Service revenue 21,900


31 Income summary 5,000Salary expense 3,000Rent expense 500Depreciation expense 400Supplies expense 1,100

31 Income summary 16,900Leopard, capital 16,900

31 Leopard, capital 4,800Leopard, drawing 4,800

Posting Adjusting and Closing entries

Prepaid rentJan 31 2,300 (b) 500Bal 1,800

SuppliesJan 31 1,200 (c) 1,100Bal 100

Accumulated depreciationJan 31 4,600(d) 400Bal 5,000



Salary payable(e) 500Bal 500

Unearned service revenue Leopard, drawing(a) 4,500 Jan 31 4,900 Jan 31 4,800 Clo 4,800

Bal 400 Bal 0

Leopard, capital Income summaryClo 4,800 Jan 31 25,700 Jan 31 0

Clo 16,900 Clo 5,000 Clo 21,900Bal 37,800 Clo 16,900 Bal 16,900

Bal 0

Service revenue Salary expenseClo 21,900 Jan 31 17,400 Jan 31 2,500 Clo 3,000

(a) 4,500 (e) 500

Bal 0 Bal 0

Rent expenseJan 31 0 Clo 500

(b) 500Bal 0

Depreciation expense Supplies expenseJan 31 0 Clo 400 Jan 31 0 Clo 1,100(d) 400 (c) 1,100

Bal 0 Bal 0



Leopard Anvils Post-closing Trial Balance

January 31, 2012ACCOUNT DEBIT CREDIT

Cash $ 4,400Accounts receivable 14,800Prepaid rent 1,800Supplies 100Equipment 30,100Accumulated depreciation $ 5,000Accounts payable 7,500Salary payable 500Unearned service revenue 400Leopard, capital 37,800Total $ 51,200 $ 51,200

Req. 6

Leopard’s current ratio at January 31, 2012 is 2.51.

Leopard’s debt ratio at January 31, 2012 is 0.18.


(120-150 min.) P 4-33B

Req. 1



Jul 31 Adjusting Entriesa. Unearned service revenue 4,200


b. 31 Rent expense 100Prepaid rent 100

c. 31 Supplies expense 800Supplies 800

d. 31 Depreciation expense 300Accumulated depreciation 300

e. 31 Salary expense 500Salary payable 500


(continued) P4-33BReq. 2

Road Runner Internet Worksheet

Month Ended July 31, 2012




DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDITCash $4,200 $4,200 $4,200Accounts receivable 14,600 14,600 14,600Prepaid rent 2,000 (b) $100 1,900 1,900Supplies 1,600 (c) 800 800 800Equipment 30,900 30,900 30,900Accumulated depreciation $3,900 (d) 300 $4,200 $4,200Accounts payable 6,700 6,700 6,700Salary payable (e) 500 500 500Unearned service revenue 5,400 (a) $4,200 1,200 1,200Runner, capital 25,800 25,800 25,800Runner, drawing 3,200 3,200 3,200Service revenue 17,700 (a) 4,200 21,900 $21,900Salary expense 3,000 (e) 500 3,500 $3,500Rent expense (b) 100 100 100Depreciation expense (d) 300 300 300Supplies expense ______ ______ (c) 800 ______ 800 ___ ___ 800

$59,500 $59,500 $5,900 $5,900 $60,300 $60,300 $4,700 $21,900 $55,600 $38,400Net income 17,200 17,200

$ 21,900 $ 21,900 $ 55,600 $ 55,600


(continued) P 4-33B

Req. 3

Road Runner Internet Income Statement

Month Ended July 31, 2012Revenue:

Service revenue $21,900Expenses:

Salary expense $ 3,500Supplies expense 800Depreciation expense 300Rent expense 100


Road Runner Internet Statement of Owner’s EquityMonth Ended July 31, 2012

Runner, capital, July 1, 2012 $25,800Net Income 17,200

43,000Drawing (3,200 ) Runner, capital, July 31, 2012 $39,800


(continued) P 4-33B

Req. 3

Road Runner Internet Balance SheetJuly 31, 2012

ASSETSCurrent assets:

Cash $ 4,200Accounts receivable 14,600Prepaid rent 1,900Supplies 800






Runner, capital 39,800 Total liabilities and owner’s equity $ 48,200





2011 Closing EntriesJul 31 Service revenue 21,900


31 Income summary 4,700Salary expense 3,500Rent expense 100Depreciation expense 300Supplies expense 800

31 Income summary 17,200Runner, capital 17,200

31 Runner, capital 3,200Runner, drawing 3,200


(continued) P 4-33BReq. 4Post Adjusting and Closing entries:

Prepaid rentJul 31 2,000 (b) 100Bal 1,900

SuppliesJul 31 1,600 (c) 800Bal 800

Accumulated depreciationJul 31 3,900(d) 300Bal 4,200

Salary payableJul 31 0(e) 500Bal 500

Unearned service revenue(a) 4,200 Jul 31 5,400 Bal 1,200

Runner, capital Runner, drawingClo 3,200 Jul 31 25,800 Jul 31 3,200 Clo 3,200

Clo 17,200 Bal 0Bal 39,800



Income summaryJul 31 0

Clo 4,700 Clo 21,900Clo 17,200 Bal 17,200

Service revenue Salary expenseClo 21,900 Jul 31 17,700 Jul 31 3,000 Clo 3,500

(a) 4,200 (e) 500Bal 0 Bal 0

Rent expenseJul 31 0 Clo 100(b) 100Bal 0

Depreciation expense Supplies expenseJul 31 0 Clo 300 Jul 31 0 Clo 800(d) 300 (c) 800Bal 0 Bal 0


(continued) P 4-33B

Req. 5

Road Runner Internet Post-closing Trial Balance

July 31, 2012ACCOUNT DEBIT CREDIT

Cash $ 4,200Accounts receivable 14,600Prepaid rent 1,900Supplies 800Equipment 30,900Accumulated depreciation $ 4,200Accounts payable 6,700Salary payable 500Unearned service revenue 1,200Runner, capital 39,800Total $ 52,400 $ 52,400

Req. 6

Road Runner’s current ratio at July 31, 2012 is 2.56.

Road Runner’s debt ratio at July 31, 2012 is 0.17.


(45-60 min.) P 4-34BReq. 1Open T-accounts

Smith, capital Smith, drawingJun 30 33,000 Jun 30 27,000


Salary expense Depreciation expenseJun 30 32,100 Jun 30 0

Insurance expense Utilities expenseJun 30 5,100 Jun 30 3,600

Supplies expenseJun 30 6,900


Req. 2 (continued) P4-34B



Jun 30 Adjusting Entriesa. Insurance expense 400

Prepaid insurance 400

b. Accounts receivable 1,100Service revenue 1,100

c. Salary expense 700Salary payable 700

d. Depreciation expense 8,500Accumulated depreciation 8,500

e. Supplies expense 100Supplies 100

Req. 2 Posting Adjusting entries

Accounts receivable Accumulated depreciationJun 30 3,500 Jun 30 18,600(b) 1,100 (d) 8,500Bal 4,600 Bal 27,100

Supplies Salary PayableJun 30 3,000 (e) 100 Jun 30 600Bal 2,900 (c) 700

Bal 1,300

Prepaid InsuranceJun 30 2,100 (a) 400Bal 1,700



Smith, capital Smith, drawingJun 30 33,000 Jun 30 27,000Bal 33,000 Bal 27,000


(b) 1,100 Bal 0 Bal 98,600

Salary expense Depreciation expenseJun 30 32,100 Jun 30 0(c) 700 (d) 8,500Bal. 32,800 Bal 8,500

Insurance expense Utilities expenseJun 30 5,100 Jun 30 3,600(a) 400

Bal 5,500 Bal 3,600

Supplies expenseJun 30 6,900(e) 100 Bal 7,000





Closing EntriesJun 30 Service revenue 98,600


30 Income summary 57,400Salary expense 32,800Depreciation expense 8,500Insurance expense 5,500Utilities expense 3,600Supplies expense 7,000

30 Income summary 41,200Smith, capital 41,200

30 Smith, capital 27,000Smith, drawing 27,000



Smith, capital Smith, drawingClo 27,000 Jun 30 33,000 Bal 27,000 Clo 27,000

Clo 41,200Bal 47,200

Income summary Service revenueClo 57,400 Clo 98,600 Jun 30 97,500Clo 41,200 Bal 41,200 (b) 1,100

Clo 98,600 Bal 98,600

Salary expense Depreciation expenseJun 30 32,100 Jun 30 0(c) 700 (d) 8,500Bal 32,800 Clo 32,800 Bal 8,500 Clo 8,500

Insurance expense Utilities expenseJun 30 5,100 Jun 30 3,600(a) 400 Bal 3,600 Clo 3,600Bal 5,500 Clo 5,500

Supplies expenseJun 30 6,900(e) 100Bal 7,000 Clo 7,000

Req. 4

The ending balance of Smith, capital is $47,200.


(30-40 min.) P 4-35BReq. 1

Browne Irrigation SystemsBalance Sheet

December 31, 2012ASSETS

Current assets:Cash $ 6,500 Accounts receivable 43,600Prepaid insurance 4,800Supplies 3,300


Equipment $ 23,000Accumulated depreciation (6,900) 16,100Building $ 58,200Accumulated depreciation (24,200) 34,000

Other assets 2,000 Total assets $ 110,300

LIABILITIESCurrent liabilities:

Accounts payable $ 22,300Salary payable 2,800Interest payable 400Unearned service revenue 1,800

Total current liabilities 27,300Note payable, long-term 4,200 Total liabilities 31,500

OWNER’S EQUITYBrowne, capital *78,800 Total liabilities and owner’s equity $ 110,300

*$54,000 + [$73,000 – ($500 + $17,700 + $25,000)] - $5,000 = $78,800


(continued) P 4-35B

Req. 2

The current ratio for Browne Irrigations Systems is 2.13. During 2012, Browne Irrigation Systems’ ability to pay current liabilities improved.

The debt ratio for Browne Irrigations Systems is 0.29. During 2012, Browne Irrigation Systems’ ability to pay debts improved.


Continuing Exercise E 4-36

Req. 1

Lawlor Lawn Service Worksheet

Month Ended May 31, 2012Adjusted Trial Balance Income Statement Balance Sheet

ACCOUNT DEBIT CREDIT DEBIT CREDIT DEBIT CREDITCash $2,420 $2,420Accounts receivable 50 50Lawn supplies 40 40Equipment 1,440 1,440Accumulated depreciation—equipment

$30 $30

Accounts payable 1,440 1,440Lawlor, capital 1,700 1,700Service revenue 950 $950Fuel expense 30 $30Supplies expense 110 110Depreciation expense 30 30 ______ Totals $ 4,120 $ 4,120 $170 $950 $3,950 $3,170Net Income 780 _____ ______ 780

$ 950 $ 950 $ 3,950 $ 3,950


(continued) E 4-36Req. 2



2012 Closing EntriesMay 31 Service revenue 950

Income summary 950

31 Income summary 170Fuel expense 30Supplies expense 110Depreciation expense 30

31 Income summary 780Lawlor, capital 780

Income summary Lawlor, capitalClo 170 Clo 950 Bal. 1,700Clo 780 Bal. 780 Clo 780

Bal 2,480

Service revenue Fuel expenseMay 31 950 May 31 30

Clo 950 Bal 950 Bal 30 Clo 30

Depreciation expense-equip. Supplies expenseMay 31 30 May 31 110Bal 30 Clo 30 Bal 110 Clo 110


Continuing Problem

P 4-37

Req. 1

Draper Consulting Worksheet

Month Ended December 31, 2012

ACCOUNTADJUSTED TRIAL

BALANCEINCOME

STATEMENT BALANCE SHEETDEBIT CREDIT DEBIT CREDIT DEBIT CREDIT

Cash $16,350 $16,350Accounts receivable 1,750 1,750Supplies 200 200Equipment 1,800 1,800Accumulated depreciation - equip. $30 $30Furniture 4,200 4,200Accumulated depreciation - furn. 70 70Accounts payable 4,650 4,650Salary payable 685 685Unearned service revenue 700 700Draper, capital 18,000 18,000Draper, drawing 1,400 1,400Service revenue 3,850 $3,850Rent expense 550 $550Utilities expense 250 250Salary expense 685 685Depreciation expense—equipment 30 30Depreciation expense—furniture 70 70Supplies expense 700 700 Total $ 27,985 $ 27,985 $2,285 $3,850 $25,700 $24,135Net income 1,565 1,565

$ 3,850 $ 3,850 $ 25,700 $ 25,700


(continued) P 4-37Req. 2





31 Income summary 2,285Rent expense 550Utilities expense 250Salary expense 685Depreciation expense - equipment 30Depreciation expense - furniture 70Supplies expense 700

31 Income summary 1,565Draper, capital 1,565

31 Draper, capital 1,400Draper, drawing 1,400

Req. 2

Income summary Draper, capitalClo 2,285 Clo 3,850 Clo 1,400 Bal 18,000Clo 1,565 Bal 1,565 Clo 1,565

Bal 0 Bal 18,165

Draper, drawing Service revenueDec 31 1,400 Clo 1,400 Clo 3,850 Dec 31 3,850


Bal 0 Bal 0

(continued) P 4-37Req. 2

Rent expense Utilities expenseDec 31 550 Clo 550 Dec 31 250 Clo 250Bal 0 Bal 0

Salary expenseDepreciation expense –

equipmentAdj 685 Clo 685 Adj 30 Clo 30Bal 0 Bal 0

Depreciation expense – furniture Supplies expense

Adj 70 Clo 700 Adj 700 Clo 700Bal 0 Bal 0

Req. 3

Draper Consulting Balance Sheet


Current assets: Current liabilities:Cash $ 16,350 Accounts payable $ 4,650Accounts receivable 1,750 Salary payable 685Supplies 200 Unearned service

Total current assets 18,300 revenue 700 Plant assets: Total current liabilities 6,035

Equipment 1,800Acc. depr. (30 ) 1,770 OWNER’S EQUITY

Furniture 4,200 Draper, capital 18,165Acc. depr. (70 ) 4,130

Total liabilities andTotal assets $ 24,200 owner’s equity $ 24,200


PRACTICE SET: Chapter 4Req. 1

Shine King Cleaning Worksheet


Adjusted Trial Balance Income Statement Balance Sheet

ACCOUNT Debit Credit Debit Credit Debit CreditCash $ 73,100 $ 73,100Accounts receivable 2,000 2,000Supplies 50 50Prepaid rent 1,500 1,500Prepaid insurance 2,200 2,200Truck 8,000 8,000Equipment 2,200 2,200Accumulated depreciation $ 170 $170Accounts payable 945 945Interest payable 100 100Unearned service revenue 3,450 3,450Notes payable 40,000 40,000Hudson, capital 43,000 43,000Hudson, drawing 600 600Service revenue 3,950 $3,950Contract labor expense 500 $ 500Utilities expense 175 175Advertising expense 100 100Interest expense 100 100Insurance expense 200 200Rent expense 500 500Depreciation expense 170 170Supplies expense 220 220 Total $ 91,615 $ 91,615 $ 1,965 $ 3,950 $89,650 $87,665Net Income 1,985 _______ _______ 1,985

$ 3,950 $ 3,950 $ 89,650 $ 89,650


(continued) Practice Set

Req. 2

Shine King Cleaning Income Statement

Month Ended November 30, 2012Revenue:


Rent expense $ 500Contract labor expense 500Supplies expense 220

Insurance expense 200 Utilities expense 175

Depreciation expense 170 Advertising expense 100

Interest expense 100 Total expenses 1,965

Net income $ 1,985

Shine King Cleaning Statement of Owner’s Equity

Month Ended November 30, 2012Hudson, capital, November 1, 2012 $ 0Owner investment 43,000Net income 1,985

44,985Drawing (600 ) Hudson, capital, November 30, 2012 $ 44,385


(continued) Practice Set

Req. 2

Shine King Cleaning Balance Sheet

November 30, 2012Assets

Current assets:Cash $ 73,100Accounts receivable 2,000Supplies 50Prepaid rent 1,500Prepaid insurance 2,200


Truck $ 8,000Equipment 2,200Accumulated depreciation __(170) 10,030

Total assets $ 88,880Liabilities

Current liabilities:Accounts payable $ 945Interest payable 100Unearned service revenue 3,450 Total current liabilities 4,495Long-term liabilities:Notes payable, long term 40,000 Total liabilities 44,495

Owner’s EquityHudson, capital 44,385 Total liabilities and owner’s equity $ 88,880


(continued) Practice SetReq. 3



Closing entriesNov 30 Service revenue 3,950


30 Income summary 1,965Contract labor expense 500Utilities expense 175Advertising expense 100Interest expense 100Insurance expense 200Rent expense 500Depreciation expense 170Supplied expense 220

30 Income summary 1,985Hudson, capital 1,985

30 Hudson, capital 600 Hudson, drawing 600


(continued) Practice SetReq. 4

Shine King Cleaning Post-closing Trial Balance

November 30, 2012ACCOUNT Debit CreditCash $ 73,100Accounts receivable 2,000Prepaid rent 1,500Prepaid insurance 2,200Supplies 50Truck 8,000Equipment 2,200Accumulated depreciation 170Accounts payable 945Interest payable 100Unearned service revenue 3,450Notes payable 40,000Hudson, capital 44,385 Total $ 89,050 $ 89,050


Ch 4: Apply Your Knowledge

Decision Case 4-1

The way to solve this case is to:

1

Prepare the income statement to determine net income.

2Compare net income to drawing. If net income exceedsdrawing, Collins’ capital increased. But if drawing exceed net income, the company’s owner’s equity decreased.

Collins Consignment Sales CompanyIncome Statement

Year Ended December 31, 20XXRevenues: Service revenue ($80,700 + $1,000 + $800) $82,500Expenses: Salary expense ($17,000 + $1,200) $18,200 Depreciation expense 7,000 Advertising expense 2,400 Supplies expense 2,100 Utilities expense 800

Total expenses 30,500 Net income $52,000


Req. 2 (continued) Decision Case 4-1

Net income ($52,000) exceeded Drawing ($50,000), so owner’s equity grew during the year. Collins can expect to get the loan.

Ethical Issue 4-1

Req. 1

The journal entry to record the revenue is:

Dec Accounts receivable.............. 10,000 Service revenue............... 10,000

The debit to Accounts receivable will increase total current assets and, as a result, increase (improve) the current ratio.

Req. 2 To record this transaction in December violates the revenue

principle. At December 31, the business has not performed the service for the client and, therefore, has not yet earned the revenue. Revenue should not be recorded before it is earned. This action is unethical because it deliberately misrepresents the facts.


Fraud Case 4-1

Req. 1 When a customer pays for product received, there will be a

debit to cash and a credit to accounts receivable, which has zero net effect on current assets, and on the current ratio. In this case, however, no cash is received. The accounts receivable is reduced which in turn reduces current assets and also reduces the current ratio. Note: ratio analysis is sometimes used to identify accounting irregularities.

Req. 2 A manager may receive a bonus for reaching income targets;

a manager may wish to conceal the fact that the company is having problems with product quality; a manager who has an equity interest (capital investment) in this company may wish to hide bad news to keep stakeholders (creditors) happy.


Financial Statement Case 4-1

Req. 1 Report format of balance sheet

Req. 2 Largest current asset = Cash and cash equivalents $3,444 M Corrected to reflect 2009 and 2008 data from annual report (pts 2, 3, and 5)

Largest current liability = Accounts payable $5,605 M

Req. 3 Current ratio:

December 31, 2009

December 31, 2008

Corrected to show data for 2009 and 2008

Total current assets 9,797 = 1.33 6,157 = 1.30

Total current liabilities 7,364 4,746

The current ratio went up (improved slightly) from 2008 to 2009.

Req. 4 Fixed assets

Req. 5Cost…………………………………………………. $1,915Accumulated depreciation…………................... (625 ) Book value…………………………………………. $1,290


Team Project 4-1

Req. 1

Wintz Lawn Service Income Statement

Four Months Ended August 31, 20XXService revenue: ($5,500 + $750) $6,250Expenses: Wage expense ($1,800 + $300) $2,100 Equipment rent expense ($600 4/6) 400 Supplies expense ($400 – $50) 350 Repair expense 300 Depreciation expense ($300 1/3) 100

Total expenses 3,250 Net income $3,000

Wintz Lawn Service Statement of Owner’s Equity

Four Months Ended August 31, 20XXWintz, capital, May 1, 20XX $ 0Owner investment 400Net income 3,000

3,400Drawing (500 )Wintz, capital, August 31, 20XX $ 2,900


(continued) Team Project

Req. 2

Wintz Lawn Service Balance Sheet

August 31, 20XXASSETS LIABILITIES

Current assets: Current: Cash $2,000 Wages payable $ 300 Accounts receivable 750 Total current liabilities 300 Prepaid equipment rent 200 Supplies 50

Total current assets 3,000Long-term: OWNER’S EQUITY

Trailer $ 300Acc. depr. (100) 200 Wintz, capital 2,900

Total assets $3,200Total liabilities and owner’s equity $3,200

Req. 3

Wintz’s summer work was successful. She earned net income of $3,000.


Communication Activity 4-1

Closing zeroes out the score keeping (revenue and expense) accounts as well as the drawing account and updates owner’s capital.


Chapter 4: Appendix A

Reversing Entries: An Optional StepAppendix Problem

(20 min.) P 4A-1AReq. 1

Unadjusted balance at the end of October 31, 2012:

Salary payable Salary expenseOct 31 0 Oct 31 2,500

At the end of month Adjusting and Journal entries:



Oct 31 Adjusting Entrye. Salary expense 200

Salary payable 200

Closing EntryOct 31 Income summary 2,700

Salary expense 2,700


(continued) P 4A-1AReq. 2

Adjusting and Closing entries

Salary payable Salary expenseOct 31 0 Oct 31 2,500 Clo 2,700Adj 200 Adj (e) 200Bal 200 Bal 0

Req. 3The following month, November, 2012:



Cash payment entryNov 5 Salary payable 200

Salary expense 700Cash 900

Cash payment for salary expense:

Cash Salary payable Nov 5 900 Nov 5 200 Nov 1 200

Bal 0

Salary expenseNov 1 0Nov 5 700Bal 700



Situation: Using Reversing entry, repeat Req. 1 - 3



Oct 31 Adjusting Entrye. Salary expense 200

Salary payable 200

Closing EntryOct 31 Income summary 2,700


Nov 1 Salary payable 200 Salary expense 200

5 Salary expense 900 Cash 900



Salary payable Salary expenseOct 31 200 Oct 31 2,500 Clo 2,700

Nov 1 Rev. 200 Adj (e) 200Bal 0 Nov 5 900 Nov 1 Rev. 200

Bal 700

The balance of the Salary payable account after using a reversing entry is the same as the balance computed without the reversing entry (as it appears in the answer to requirement 3). The balance of the Salary expense account after using a reversing entry is the same as the balance computed without the reversing entry (as it appears in the answer to requirement 3).


(20 min.) P 4A-2B

Req. 1

Unadjusted balance at the end of January 31, 2012:

Salary payable Salary expenseJan 31 0 Jan 31 2,500

Req. 2

At the end of month Adjusting and Journal entries:Journal

DATE ACCOUNTS AND EXPLANATIONSPOST.REF. DEBIT CREDIT

Jan 31 Adjusting Entrye. Salary expense 500

Salary payable 500

Closing EntryJan 31 Income summary 3,000


Adjusting and Closing entries

Salary payable Salary expenseJan 31 0 Jan 31 2,500 Clo 3,000Adj(e) 500 Adj (e) 500Bal 500 Bal 0


(continued) P 4A-2BReq. 3

The following month, February, 2012:



Cash payment entryFeb 5 Salary payable 500

Salary expense 100Cash 600

Cash payment for salary expense:

Cash Salary payable Feb 5 600 Feb 5 500 Feb 1 500

Bal 0

Salary expenseFeb 1 0Feb 5 100Bal 100



Situation: Using Reversing entry, repeat Req. 1 - 3



Jan 31 Adjusting Entrye. Salary expense 500

Salary payable 500

Closing EntryJan 31 Income summary 3,000


Feb 1 Salary payable 500 Salary expense 500

5 Salary expense 600 Cash 600



Salary payable Salary expenseJan 31 500 Jan 31 2,500 Clo 3,000

Feb1 Rev 500 Adj (e) 500Bal 0 Feb 5 600 Feb1 Rev 500

Bal 100

The balance of the Salary payable account after using a reversing entry is the same as the balance computed without the reversing entry (as it appears in the answer to requirement 3). The balance of the Salary expense account after using a reversing entry is the same as the balance computed without the reversing entry (as it appears in the answer to requirement 3).


Comprehensive Problem for Chapters 1- 4

(45 min)

Req. 1

JournalACCOUNTS AND EXPLANATIONS


a. Cash 6,000Delivery truck 11,000

Matthews, capital 17,000

b. Supplies 300Cash 300

c. Prepaid insurance 700Cash 700

d. Cash 800Service revenue 800

e. Accounts receivable 1,500Service revenue 1,500

f. Salary expense 700Cash 700

g. Cash 12,000Service revenue 12,000

h. Cash 600Unearned service revenue 600


i. Cash 1,500Accounts receivable 1,500

j. Fuel expense 200Accounts payable 200

k. Accounts receivable 900Service revenue 900

l. Rent expense 600Cash 600

m. Accounts payable 200Cash 200

n. Matthews, drawing 2,100Cash 2,100

(continued) Comprehensive Chs 1- 4Req. 2

Cash Accounts receivablea) 6,000 b) 300 e) 1,500 i) 1,500d) 800 c) 700 k) 900g) 12,000 f) 700 900h) 600 l) 600i) 1,500 m) 200

n) 2,10016,300

Supplies Prepaid insuranceb) 300 c) 700

300 700



Delivery truck Accounts payablea) 11,000 m) 200 j) 200

11,000 0

Unearned service revenueh) 600

600

Matthews, capital Service revenuea) 17,000 d) 800

17,000 e) 1,500g) 12,000k) 900

15,200

Matthews, drawingn) 2,100

2,100



Salary expense Fuel expensef) 700 j) 200

700 200

Rent expensel) 600

600


Req. 3 (continued) Comprehensive Chs 1- 4Matthews Delivery Service

WorksheetMonth Ended January 31, 2012

Trial Balance AdjustmentAdjusted Trial

Balance Income Statement Balance SheetACCOUNT Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

Cash $16,300 $16,300 $16,300 Accounts receivable 900 900 900 Supplies 300 d) $100 200 200 Prepaid insurance 700 c) 250 450 450 Delivery truck 11,000 11,000 11,000 Accumulated depreciation b) 60 $60 $60Accounts payable Salary payable a) 700 700 700Unearned service revenue $600 e) $500 100 100Matthews, capital 17,000 17,000 17,000Matthews, drawing 2,100 2,100 2,100 Service revenue 15,200 e) 500 15,700 15,700 Salary expense 700 a )700 1,400 1,400 Depreciation expense b) 60 60 60 Insurance expense c) 250 250 250 Fuel expense 200 200 200 Rent expense 600 600 600 Supplies expense d)100 100 100 Total $32,800 $32,800 $1,610 $1,610 $33,560 $33,560 $2,610 $15,700 $30,950 $17,860Net Income 13,090 13,090 $15,700 $15,700 $30,950 $30,950


Req. 4 (continued) Comprehensive Chs 1- 4

Matthews Delivery Service Income Statement

Month Ended January 31, 2012Revenue:


Salary expense $ 1,400Rent expense 600Insurance expense 250Fuel expense 200Supplies expense 100Depreciation expense 60 Total expenses 2,610

Net income $ 13,090

Matthews Delivery Service Statement of Owner’s Equity

Month Ended January 31, 2012Matthews, capital, January 1, 2012 $ 0Owner investment ($6,000 + $11,000) 17,000Net income 13,090

30,090Drawing (2,100 ) Matthews, capital, January 31, 2012 $ 27,990



Matthews Delivery Service Balance Sheet

January 31, 2012Assets

Current assets:Cash $ 16,300Accounts receivable 900Supplies 200Prepaid insurance 450

Total current assets 17,850

Property, plant, and equipment:Delivery truck $11,000Accumulated depreciation (60) 10,940

Total assets $ 28,790

LiabilitiesCurrent liabilities:Salary payable 700Unearned service revenue 100

Total current liabilities 800

Owner’s EquityMatthews, capital 27,990 Total liabilities and owner’s equity $ 28,790





Jan 31 Adjusting entriesa. Salary expense 700

Salary payable 700

b. Depreciation expense 60Accumulated depreciation 60

c. Insurance expense 250Prepaid insurance 250

d. Supplies expense 100Supplies 100

e. Unearned service revenue 500 Service revenue 500



Supplies Prepaid insuranceBal 300 Adj d) 100 Bal 700 Adj c) 250Bal 200 450

Accumulated depreciation Salary payableBal 0 Bal 0Adj b) 60 Adj a) 700Bal 60 Bal 700

Unearned service revenue Service revenueBal 600 800

Adj e) 500 1,500Bal 100 12,000

90015,200

Adj e) 500Bal 15,700



Salary expense Depreciation expenseBal 700 Bal 0Adj a) 700 Adj b) 60Bal 1,400 Bal 60

Insurance expenseBal 0Adj c) 250Bal 250

Supplies expenseBal 0Adj d) 100Bal 100





Closing entriesJan 31 Service revenue 15,700


31 Income summary 2,610Salary expense 1,400Depreciation expense 60Insurance expense 250Fuel expense 200Rent expense 600Supplies expense 100

31 Income summary 13,090Matthews, capital 13,090

31 Matthews, capital 2,100Matthews, drawing 2,100



Matthews, drawing Service RevenueJan 31 2,100 Clo 2,100 Clo 15,700 Jan 31 15,700Bal 0 Bal 0

Matthews, capital Income summaryClo 2,100 0 Clo 2,610 Clo 15,700

17,000 Clo 13,090 Bal 13,090 Clo 13,090 Bal 0 Bal 27,990

Salary Expense Depreciation ExpenseJan 31 1,400 Clo 1,400 Jan 31 60 Clo 60Bal 0 Bal 0

Insurance ExpenseJan 31 250 Clo 250Bal 0



Fuel Expense Rent ExpenseJan 31 200 Clo 200 Jan 31 600 Clo 600Bal 0 Bal 0

Supplies ExpenseJan 31 100 Clo 100Bal 0



Matthew Delivery Service Post-closing Trial Balance

January 31, 2012Balance

ACCOUNT Debit CreditCash $ 16,300Accounts receivable 900Supplies 200Prepaid insurance 450Delivery truck 11,000Accumulated depreciation $ 60Salary payable 700Unearned service revenue 100Matthews, capital 27,990Total $ 28,850 $ 28,850


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