Beginning inventory, purchases, and sales for Item CSW15 are as follows:
Mar. 1 Inventory 100 units at $15
7 Sale 88 units
15 Purchase 125 units at $18
24 Sale 75 units
Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of merchandise sold on March 24 and (b) the inventory on March 31.
Answer:
a. Cost of merchandise sold (March 24):
12 units @ $15 $ 180
63 units @ $18 1,134
75 $1,314
b. Inventory, March 31: $1,116 = 62 units × $18
Saturday, March 22, 2014
PE 7-2A Perpetual inventory using FIFO
Beginning inventory, purchases, and sales for Item B901 are as follows:
Aug. 1 Inventory 50 units at $80
9 Sale 30 units
13 Purchase 40 units at $85
28 Sale 25 units
Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of merchandise sold on August 28 and (b) the inventory on August 31.
Answer:
a. Cost of merchandise sold (August 28):
20 units @ $80 $1,600
5 units @ $85 425
25 $2,025
b. Inventory, August 31: $2,975 = 35 units × $85
Aug. 1 Inventory 50 units at $80
9 Sale 30 units
13 Purchase 40 units at $85
28 Sale 25 units
Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of merchandise sold on August 28 and (b) the inventory on August 31.
Answer:
a. Cost of merchandise sold (August 28):
20 units @ $80 $1,600
5 units @ $85 425
25 $2,025
b. Inventory, August 31: $2,975 = 35 units × $85
PE 7-1B Cost flow methods
Three identical units of Item ZE9 are purchased during April, as shown below.
Item JC07 Units Cost
Apr. 2 Purchase 1 $10
12 Purchase 1 12
23 Purchase 1 14
Total 3 $36
Average cost per unit $12 ($36 ÷ 3 units)
Assume that one unit is sold on April 27 for $29.
Determine the gross profit for April and ending inventory on April 30 using the
(a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods.
Answer:
Gross Profit Ending Inventory
July July 31
a. First-in, first-out (FIFO) $19 ($29 – $10) $26 ($12 + $14)
b. Last-in, first-out (LIFO) $15 ($29 – $14) $22 ($10 + $12)
c. Average cost $17 ($29 – $12) $24 ($12 × 2)
Item JC07 Units Cost
Apr. 2 Purchase 1 $10
12 Purchase 1 12
23 Purchase 1 14
Total 3 $36
Average cost per unit $12 ($36 ÷ 3 units)
Assume that one unit is sold on April 27 for $29.
Determine the gross profit for April and ending inventory on April 30 using the
(a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods.
Answer:
Gross Profit Ending Inventory
July July 31
a. First-in, first-out (FIFO) $19 ($29 – $10) $26 ($12 + $14)
b. Last-in, first-out (LIFO) $15 ($29 – $14) $22 ($10 + $12)
c. Average cost $17 ($29 – $12) $24 ($12 × 2)
PE 7-1A Cost flow methods
Three identical units of Item K113 are purchased during July, as shown below.
Item JC07 Units Cost
July 9 Purchase 1 $160
17 Purchase 1 168
26 Purchase 1 176
Total 3 $504
Average cost per unit $168 ($504 ÷ 3 units)
Assume that one unit is sold on July 31 for $225.
Determine the gross profit for July and ending inventory on July 31 using the
(a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods.
Answer:
Gross Profit Ending Inventory
July July 31
a. First-in, first-out (FIFO) $65 ($225 – $160) $344 ($168 + $176)
b. Last-in, first-out (LIFO) $49 ($225 – $176) $328 ($160 + $168)
c. Average cost $57 ($225 – $168) $336 ($168 × 2)
Item JC07 Units Cost
July 9 Purchase 1 $160
17 Purchase 1 168
26 Purchase 1 176
Total 3 $504
Average cost per unit $168 ($504 ÷ 3 units)
Assume that one unit is sold on July 31 for $225.
Determine the gross profit for July and ending inventory on July 31 using the
(a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods.
Answer:
Gross Profit Ending Inventory
July July 31
a. First-in, first-out (FIFO) $65 ($225 – $160) $344 ($168 + $176)
b. Last-in, first-out (LIFO) $49 ($225 – $176) $328 ($160 + $168)
c. Average cost $57 ($225 – $168) $336 ($168 × 2)
PE 6-7B Ratio of net sales to assets
The following financial Statement data for years ending December 31 for Beading Company
are shown below.
2012 2011
Net sales $675,000 $475,000
Total assets:
Beginning of year 200,000 180,000
End of year 250,000 200,000
a. Determine the ratio of net sales to assets for 2012 and 2011.
b. Does the change in the ratio of net sales to assets from 2011 to 2012 indicate a favorable or an unfavorable trend?
Answer:
a. 2012 2011
Ratio of net sales to assets 3.0* 2.5**
*$675,000/[($200,000 + $250,000)/2]
**$475,000/[($180,000 + $200,000)/2]
b. The change from 2.5 to 3.0 indicates a favorable trend in using assets to generate sales.
are shown below.
2012 2011
Net sales $675,000 $475,000
Total assets:
Beginning of year 200,000 180,000
End of year 250,000 200,000
a. Determine the ratio of net sales to assets for 2012 and 2011.
b. Does the change in the ratio of net sales to assets from 2011 to 2012 indicate a favorable or an unfavorable trend?
Answer:
a. 2012 2011
Ratio of net sales to assets 3.0* 2.5**
*$675,000/[($200,000 + $250,000)/2]
**$475,000/[($180,000 + $200,000)/2]
b. The change from 2.5 to 3.0 indicates a favorable trend in using assets to generate sales.
PE 6-7A Ratio of net sales to assets
The following financial statement data for years ending December 31 for Foodworks
Company are shown below.
2012 2011
Net sales $880,000 $787,500
Total assets:
Beginning of year 500,000 375,000
End of year 600,000 500,000
a. Determine the ratio of net sales to assets for 2012 and 2011.
b. Does the change in the ratio of net sales to assets from 2011 to 2012 indicate a favorable
or an unfavorable trend?
Answer:
a. 2012 2011
Ratio of net sales to assets 1.6* 1.8**
*$880,000/[($500,000 + $600,000)/2]
**$787,500/[($375,000 + $500,000)/2]
b. The change from 1.8 to 1.6 indicates an unfavorable trend in using assets to
generate sales.
Company are shown below.
2012 2011
Net sales $880,000 $787,500
Total assets:
Beginning of year 500,000 375,000
End of year 600,000 500,000
a. Determine the ratio of net sales to assets for 2012 and 2011.
b. Does the change in the ratio of net sales to assets from 2011 to 2012 indicate a favorable
or an unfavorable trend?
Answer:
a. 2012 2011
Ratio of net sales to assets 1.6* 1.8**
*$880,000/[($500,000 + $600,000)/2]
**$787,500/[($375,000 + $500,000)/2]
b. The change from 1.8 to 1.6 indicates an unfavorable trend in using assets to
generate sales.
PE 6-6B Inventory shrinkage
Zurich Company’s perpetual inventory records indicate that $1,380,000 of merchandise
should be on hand on August 31, 2012. The physical inventory indicates that $1,315,900
of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage
for Zurich Company for the year ended August 31, 2012. Assume that the inventory
shrinkage is a normal amount.
Answer:
Aug. 31 Cost of Merchandise Sold........................................ 64,100
Merchandise Inventory ....................................... 64,100
Inventory shrinkage
($1,380,000 – $1,315,900).
should be on hand on August 31, 2012. The physical inventory indicates that $1,315,900
of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage
for Zurich Company for the year ended August 31, 2012. Assume that the inventory
shrinkage is a normal amount.
Answer:
Aug. 31 Cost of Merchandise Sold........................................ 64,100
Merchandise Inventory ....................................... 64,100
Inventory shrinkage
($1,380,000 – $1,315,900).
PE 6-6A Inventory shrinkage
House of Clean Company’s perpetual inventory records indicate that $375,000 of merchandise
should be on hand on June 30, 2012. The physical inventory indicates that $366,500
of merchandise is actually on hand. Journalize the adjusting entry for the inventory
shrinkage for House of Clean Company for the year ended June 30, 2012. Assume that
the inventory shrinkage is a normal amount.
Answer:
June 30 Cost of Merchandise Sold........................................ 8,500
Merchandise Inventory ....................................... 8,500
Inventory shrinkage ($375,000 – $366,500).
should be on hand on June 30, 2012. The physical inventory indicates that $366,500
of merchandise is actually on hand. Journalize the adjusting entry for the inventory
shrinkage for House of Clean Company for the year ended June 30, 2012. Assume that
the inventory shrinkage is a normal amount.
Answer:
June 30 Cost of Merchandise Sold........................................ 8,500
Merchandise Inventory ....................................... 8,500
Inventory shrinkage ($375,000 – $366,500).
PE 6-5B Transactions for buyer and seller
SPA Co. sold merchandise to Boyd Co. on account, $25,000, terms FOB shipping point,
2/10, n/30. The cost of the merchandise sold is $16,000. SPA Co. paid freight of $675
and later received the amount due within the discount period. Journalize SPA Co.’s and
Boyd Co.’s entries for the payment of the amount due.
Answer:
SPA Co. journal entries:
Cash ($25,000 – $500 + $675)............................................... 25,175
Sales Discounts ($25,000 × 2%)........................................... 500
Accounts Receivable—Boyd Co. ($25,000 + $675)....... 25,675
Boyd Co. journal entries:
Accounts Payable—SPA Co. ($25,000 + $675) ................... 25,675
Merchandise Inventory ($25,000 × 2%).......................... 500
Cash ($25,000 – $500 + $675) .................................. 25,175
2/10, n/30. The cost of the merchandise sold is $16,000. SPA Co. paid freight of $675
and later received the amount due within the discount period. Journalize SPA Co.’s and
Boyd Co.’s entries for the payment of the amount due.
Answer:
SPA Co. journal entries:
Cash ($25,000 – $500 + $675)............................................... 25,175
Sales Discounts ($25,000 × 2%)........................................... 500
Accounts Receivable—Boyd Co. ($25,000 + $675)....... 25,675
Boyd Co. journal entries:
Accounts Payable—SPA Co. ($25,000 + $675) ................... 25,675
Merchandise Inventory ($25,000 × 2%).......................... 500
Cash ($25,000 – $500 + $675) .................................. 25,175
PE 6-5A Transactions for buyer and seller
Storall Co. sold merchandise to Bunting Co. on account, $8,000, terms 2/15, n/30. The
cost of the merchandise sold is $3,000. Storall Co. issued a credit memo for $1,000 for
merchandise returned and later received the amount due within the discount period. The
cost of the merchandise returned was $400. Journalize Storall Co.’s and Bunting Co.’s
entries for the payment of the amount due.
Answer:
Storall Co. journal entries:
Cash ($8,000 – $1,000 – $140).............................................. 6,860
Sales Discounts [($8,000 – $1,000) × 2%] ........................... 140
Accounts Receivable—Bunting Co. ($8,000 – $1,000) 7,000
Bunting Co. journal entries:
Accounts Payable—Storall Co. ($8,000 – $1,000) .............. 7,000
Merchandise Inventory [($8,000 – $1,000) × 2%]........... 140
Cash ($8,000 – $1,000 – $140).............................6,860
cost of the merchandise sold is $3,000. Storall Co. issued a credit memo for $1,000 for
merchandise returned and later received the amount due within the discount period. The
cost of the merchandise returned was $400. Journalize Storall Co.’s and Bunting Co.’s
entries for the payment of the amount due.
Answer:
Storall Co. journal entries:
Cash ($8,000 – $1,000 – $140).............................................. 6,860
Sales Discounts [($8,000 – $1,000) × 2%] ........................... 140
Accounts Receivable—Bunting Co. ($8,000 – $1,000) 7,000
Bunting Co. journal entries:
Accounts Payable—Storall Co. ($8,000 – $1,000) .............. 7,000
Merchandise Inventory [($8,000 – $1,000) × 2%]........... 140
Cash ($8,000 – $1,000 – $140).............................6,860
PE 6-4B Freight terms
Determine the amount to be paid in full settlement of each of invoices (a) and (b), assuming
that credit for returns and allowances was received prior to payment and that all
invoices were paid within the discount period.
Freight Returns and
Merchandise Paid by Seller Freight Terms Allowances
a. $20,000 $500 FOB destination, 1/10, n/30 $2,000
b. 18,000 250 FOB shipping point, 2/10, n/30 1,000
Answer:
a. $17,820. Purchase of $20,000 less return of $2,000 less the discount of $180 [($20,000 – $2,000) × 1%].
b. $16,910. Purchase of $18,000 less return of $1,000 less the discount of $340 [($18,000 – $1,000) × 2%] plus $250 of shipping.
that credit for returns and allowances was received prior to payment and that all
invoices were paid within the discount period.
Freight Returns and
Merchandise Paid by Seller Freight Terms Allowances
a. $20,000 $500 FOB destination, 1/10, n/30 $2,000
b. 18,000 250 FOB shipping point, 2/10, n/30 1,000
Answer:
a. $17,820. Purchase of $20,000 less return of $2,000 less the discount of $180 [($20,000 – $2,000) × 1%].
b. $16,910. Purchase of $18,000 less return of $1,000 less the discount of $340 [($18,000 – $1,000) × 2%] plus $250 of shipping.
PE 6-4A Freight terms
Determine the amount to be paid in full settlement of each of invoices (a) and (b), assuming
that credit for returns and allowances was received prior to payment and that all
invoices were paid within the discount period.
Freight Returns and
Merchandise Paid by Seller Freight Terms Allowances
a. $120,000 $5,000 FOB shipping point, 1/10, n/30 $15,000
b. 90,000 1,000 FOB destination, 2/10, n/30 2,000
Answer:
a. $108,950. Purchase of $120,000 less return of $15,000 less the discount of $1,050 [($120,000 – $15,000) × 1%] plus $5,000 of shipping.
b. $86,240. Purchase of $90,000 less return of $2,000 less the discount of $1,760 [($90,000 – $2,000) × 2%].
that credit for returns and allowances was received prior to payment and that all
invoices were paid within the discount period.
Freight Returns and
Merchandise Paid by Seller Freight Terms Allowances
a. $120,000 $5,000 FOB shipping point, 1/10, n/30 $15,000
b. 90,000 1,000 FOB destination, 2/10, n/30 2,000
Answer:
a. $108,950. Purchase of $120,000 less return of $15,000 less the discount of $1,050 [($120,000 – $15,000) × 1%] plus $5,000 of shipping.
b. $86,240. Purchase of $90,000 less return of $2,000 less the discount of $1,760 [($90,000 – $2,000) × 2%].
PE 6-3B Purchase transactions
Piedmont Company purchased merchandise on account from a supplier for $30,000, terms
1/10, n/30. Piedmont Company returned $4,000 of the merchandise and received full credit.
a. If Piedmont Company pays the invoice within the discount period, what is the amount of cash required for the payment?
b. Under a perpetual inventory system, what account is debited by Piedmont Company to record the return?
Answer:
a. $25,740. Purchase of $30,000 less the return of $4,000 less the discount of $260 [($30,000 – $4,000) × 1%].
b. Accounts Payable
1/10, n/30. Piedmont Company returned $4,000 of the merchandise and received full credit.
a. If Piedmont Company pays the invoice within the discount period, what is the amount of cash required for the payment?
b. Under a perpetual inventory system, what account is debited by Piedmont Company to record the return?
Answer:
a. $25,740. Purchase of $30,000 less the return of $4,000 less the discount of $260 [($30,000 – $4,000) × 1%].
b. Accounts Payable
PE 6-3A Purchase transactions
MR Tile Company purchased merchandise on account from a supplier for $9,000, terms
2/10, n/30. MR Tile Company returned $1,500 of the merchandise and received full credit.
a. If MR Tile Company pays the invoice within the discount period, what is the amount of cash required for the payment?
b. Under a perpetual inventory system, what account is credited by MR Tile Company to record the return?
Answer:
a. $7,350. Purchase of $9,000 less the return of $1,500 less the discount of $150 [($9,000 – $1,500) × 2%)].
b. Merchandise Inventory
2/10, n/30. MR Tile Company returned $1,500 of the merchandise and received full credit.
a. If MR Tile Company pays the invoice within the discount period, what is the amount of cash required for the payment?
b. Under a perpetual inventory system, what account is credited by MR Tile Company to record the return?
Answer:
a. $7,350. Purchase of $9,000 less the return of $1,500 less the discount of $150 [($9,000 – $1,500) × 2%)].
b. Merchandise Inventory
PE 6-2B Sales transactions
Journalize the following merchandise transactions:
a. Sold merchandise on account, $60,000 with terms 1/10, n/30. The cost of the merchandise sold was $40,000.
b. Received payment less the discount.
Answer:
a. Accounts Receivable ................................................... 60,000
Sales ........................................................................ 60,000
Cost of Merchandise Sold........................................... 40,000
Merchandise Inventory........................................... 40,000
b. Cash ....................................................................59,400
Sales Discounts ........................................................... 600
Accounts Receivable.............................................. 60,000
a. Sold merchandise on account, $60,000 with terms 1/10, n/30. The cost of the merchandise sold was $40,000.
b. Received payment less the discount.
Answer:
a. Accounts Receivable ................................................... 60,000
Sales ........................................................................ 60,000
Cost of Merchandise Sold........................................... 40,000
Merchandise Inventory........................................... 40,000
b. Cash ....................................................................59,400
Sales Discounts ........................................................... 600
Accounts Receivable.............................................. 60,000
PE 6-2A Sales transactions
Journalize the following merchandise transactions:
a. Sold merchandise on account, $29,000 with terms 2/10, n/30. The cost of the merchandise
sold was $21,750.
b. Received payment less the discount.
Answer:
a. Accounts Receivable ................................................... 29,000
Sales ........................................................................ 29,000
Cost of Merchandise Sold........................................... 21,750
Merchandise Inventory........................................... 21,750
b. Cash .......................................................................... 28,420
Sales Discounts ........................................................... 580
Accounts Receivable.............................................. 29,000
a. Sold merchandise on account, $29,000 with terms 2/10, n/30. The cost of the merchandise
sold was $21,750.
b. Received payment less the discount.
Answer:
a. Accounts Receivable ................................................... 29,000
Sales ........................................................................ 29,000
Cost of Merchandise Sold........................................... 21,750
Merchandise Inventory........................................... 21,750
b. Cash .......................................................................... 28,420
Sales Discounts ........................................................... 580
Accounts Receivable.............................................. 29,000
PE 6-1B Gross profit
During the current year, merchandise is sold for $40,000 cash and $415,000 on account.
The cost of the merchandise sold is $360,000. What is the amount of the gross profit?
Answer:
$95,000 ($40,000 + $415,000 – $360,000)
The cost of the merchandise sold is $360,000. What is the amount of the gross profit?
Answer:
$95,000 ($40,000 + $415,000 – $360,000)
PE 6-1A Gross profit
During the current year, merchandise is sold for $275,000 cash and $990,000 on account.
The cost of the merchandise sold is $950,000. What is the amount of the gross profit?
Answer:
$315,000 ($275,000 + $990,000 – $950,000)
The cost of the merchandise sold is $950,000. What is the amount of the gross profit?
Answer:
$315,000 ($275,000 + $990,000 – $950,000)
Friday, March 21, 2014
PE 5-5B Segment analysis
Outdoor Country, Inc. does business in two product segments, Camping and Fishing.
The following annual revenue information was determined from the accounting system’s
invoice information:
2012 2011
Camping $250,000 $280,000
Fishing 100,000 60,000
Total revenue $350,000 $340,000
Prepare a horizontal and vertical analysis of the segments. Round to one decimal place.
Answer:
Horizontal analysis:
Increase (Decrease)
2012 2011 Amount Percent
Camping $250,000 $280,000 $ (30,000) –10.7%
Fishing 100,000 60,000 40,000 66.7
Total revenue $350,000 $340,000 $ 10,000 2.9
Vertical analysis:
2012 2011
Amount Percent Amount Percent
Camping $250,000 71.4% $280,000 82.4%
Fishing 100,000 28.6 60,000 17.6
Total revenue $350,000 100.0% $340,000 100.0%
The following annual revenue information was determined from the accounting system’s
invoice information:
2012 2011
Camping $250,000 $280,000
Fishing 100,000 60,000
Total revenue $350,000 $340,000
Prepare a horizontal and vertical analysis of the segments. Round to one decimal place.
Answer:
Horizontal analysis:
Increase (Decrease)
2012 2011 Amount Percent
Camping $250,000 $280,000 $ (30,000) –10.7%
Fishing 100,000 60,000 40,000 66.7
Total revenue $350,000 $340,000 $ 10,000 2.9
Vertical analysis:
2012 2011
Amount Percent Amount Percent
Camping $250,000 71.4% $280,000 82.4%
Fishing 100,000 28.6 60,000 17.6
Total revenue $350,000 100.0% $340,000 100.0%
PE 5-5A Segment analysis
Harrow Company does business in two customer segments, Retail and Wholesale. The
following annual revenue information was determined from the accounting system’s invoice
information:
2012 2011
Retail $ 80,000 $ 75,000
Wholesale 120,000 140,000
Total revenue $200,000 $215,000
Prepare a horizontal and vertical analysis of the segments. Round to one decimal place.
Answer:
Horizontal analysis:
Increase (Decrease)
2012 2011 Amount Percent
Retail $ 80,000 $ 75,000 $ 5,000 6.7%
Wholesale 120,000 140,000 (20,000) –14.3
Total revenue $200,000 $215,000 $ (15,000) –7.0
Vertical analysis:
2012 2011
Amount Percent Amount Percent
Retail $ 80,000 40.0% $ 75,000 34.9%
Wholesale 120,000 60.0 140,000 65.1
Total revenue $200,000 100.0% $215,000 100.0%
following annual revenue information was determined from the accounting system’s invoice
information:
2012 2011
Retail $ 80,000 $ 75,000
Wholesale 120,000 140,000
Total revenue $200,000 $215,000
Prepare a horizontal and vertical analysis of the segments. Round to one decimal place.
Answer:
Horizontal analysis:
Increase (Decrease)
2012 2011 Amount Percent
Retail $ 80,000 $ 75,000 $ 5,000 6.7%
Wholesale 120,000 140,000 (20,000) –14.3
Total revenue $200,000 $215,000 $ (15,000) –7.0
Vertical analysis:
2012 2011
Amount Percent Amount Percent
Retail $ 80,000 40.0% $ 75,000 34.9%
Wholesale 120,000 60.0 140,000 65.1
Total revenue $200,000 100.0% $215,000 100.0%
PE 5-4B Accounts payable subsidiary ledger
The debits and credits from two transactions are presented in the following supplier’s
(creditor’s) account:
NAME Daisy Inc.
ADDRESS 5000 Grand Ave.
Post.
Date Item Ref. Debit Credit Balance
Feb. 1 Balance 92
11 Invoice 122 CP71 79 13
20 Invoice 139 P55 57 70
Describe each transaction and the source of each posting.
Answer:
Feb. 11. Paid $79 to Daisy Inc. on account (Invoice No. 122). Amount posted from page 71 of the cash payments journal.
20. Made purchases of $57 on account from Daisy Inc. (Invoice No. 139). Amount posted from page 55 of the purchases journal.
(creditor’s) account:
NAME Daisy Inc.
ADDRESS 5000 Grand Ave.
Post.
Date Item Ref. Debit Credit Balance
Feb. 1 Balance 92
11 Invoice 122 CP71 79 13
20 Invoice 139 P55 57 70
Describe each transaction and the source of each posting.
Answer:
Feb. 11. Paid $79 to Daisy Inc. on account (Invoice No. 122). Amount posted from page 71 of the cash payments journal.
20. Made purchases of $57 on account from Daisy Inc. (Invoice No. 139). Amount posted from page 55 of the purchases journal.
PE 5-4A Accounts payable subsidiary ledger
The debits and credits from two transactions are presented in the following supplier’s (creditor’s) account:
NAME Newton Computer Services Inc.
ADDRESS 2199 Technology Place
Post.
Date Item Ref. Debit Credit Balance
Nov. 1 Balance 9,400
11 Invoice 75 P8 2,790 12,190
21 Invoice 43 CP46 6,550 5,640
Describe each transaction and the source of each posting.
Answer:
Nov. 11. Made purchases of $2,790 on account from Newton Computer Services Inc. (Invoice No. 75). Amount posted from page 8 of the purchases journal.
21. Paid $6,550 to Newton Computer Services Inc. on account (Invoice No. 43). Amount posted from page 46 of the cash payments journal.
NAME Newton Computer Services Inc.
ADDRESS 2199 Technology Place
Post.
Date Item Ref. Debit Credit Balance
Nov. 1 Balance 9,400
11 Invoice 75 P8 2,790 12,190
21 Invoice 43 CP46 6,550 5,640
Describe each transaction and the source of each posting.
Answer:
Nov. 11. Made purchases of $2,790 on account from Newton Computer Services Inc. (Invoice No. 75). Amount posted from page 8 of the purchases journal.
21. Paid $6,550 to Newton Computer Services Inc. on account (Invoice No. 43). Amount posted from page 46 of the cash payments journal.
PE 5-3B Purchases journal
The following purchase transactions occurred during December for Rehoboth Inc.:
Dec. 6. Purchased office supplies for $415, on account from Supply Hut Inc.
14. Purchased office equipment for $1,950, on account from Zell Computer Inc.
19. Purchased office supplies for $450, on account from Supply Hut Inc.
Record these transactions in the following purchases journal format:
Post. Payable Supplies Account Post.
Date Accounts Credited Ref. Cr. Dr. Dr. Ref. Amount
Answer:
Post. Payable Supplies Account Post.
Date Accounts Credited Ref. Cr. Dr. Dr. Ref. Amount
Dec. 6 Supply Hut Inc. 415 415
14 Zell Computer Inc. 1,950 Office Equipment 1,950
19 Supply Hut Inc. 450 450
Dec. 6. Purchased office supplies for $415, on account from Supply Hut Inc.
14. Purchased office equipment for $1,950, on account from Zell Computer Inc.
19. Purchased office supplies for $450, on account from Supply Hut Inc.
Record these transactions in the following purchases journal format:
PURCHASES JOURNAL
Accounts Office OtherPost. Payable Supplies Account Post.
Date Accounts Credited Ref. Cr. Dr. Dr. Ref. Amount
Answer:
PURCHASES JOURNAL
Accounts Office OtherPost. Payable Supplies Account Post.
Date Accounts Credited Ref. Cr. Dr. Dr. Ref. Amount
Dec. 6 Supply Hut Inc. 415 415
14 Zell Computer Inc. 1,950 Office Equipment 1,950
19 Supply Hut Inc. 450 450
PE 5-3A Purchases journal
The following purchase transactions occurred during August for Elegance Catering Service:
Aug. 11. Purchased party supplies for $390, on account from Party Zone Supplies Inc.
14. Purchased party supplies for $290, on account from Fun 4 All Supplies Inc.
29. Purchased offi ce furniture for $3,560, on account from Offi ce Space Inc.
Record these transactions in the following purchases journal format:
Post. Payable Supplies Account Post.
Date Accounts Credited Ref. Cr. Dr. Dr. Ref. Amount
Aug. 11. Purchased party supplies for $390, on account from Party Zone Supplies Inc.
14. Purchased party supplies for $290, on account from Fun 4 All Supplies Inc.
29. Purchased offi ce furniture for $3,560, on account from Offi ce Space Inc.
Record these transactions in the following purchases journal format:
PURCHASES JOURNAL
Accounts Office OtherPost. Payable Supplies Account Post.
Date Accounts Credited Ref. Cr. Dr. Dr. Ref. Amount
Answer:
PURCHASES JOURNAL
Accounts Office Other
Post. Payable Supplies Account Post.
Date Accounts Credited Ref. Cr. Dr. Dr. Ref. Amount
Aug. 11 Party Zone Supplies Inc. 390 390
14 Fun 4 All Supplies Inc. 290 290
29 Office Space Inc. 3,560 Office Furniture 3,560
PE 5-2B Accounts receivable subsidiary ledger
The debits and credits from two transactions are presented in the following customer
account:
NAME Mobility Products Inc.
ADDRESS 46 W. Main St.
Post.
Date Item Ref. Debit Credit Balance
Sept. 1 Balance ô€€¹ 1,200
8 Invoice 119 R24 840 2,040
17 Invoice 106 CR46 590 1,450
Describe each transaction and the source of each posting.
Answer:
Sept. 8. Provided $840 services on account to Mobility Products Inc., itemized
on Invoice No. 119. Amount posted from page 24 of the revenue journal.
17. Collected cash of $590 from Mobility Products Inc. (Invoice No. 106).
Amount posted from page 46 of the cash receipts journal.
account:
NAME Mobility Products Inc.
ADDRESS 46 W. Main St.
Post.
Date Item Ref. Debit Credit Balance
Sept. 1 Balance ô€€¹ 1,200
8 Invoice 119 R24 840 2,040
17 Invoice 106 CR46 590 1,450
Describe each transaction and the source of each posting.
Answer:
Sept. 8. Provided $840 services on account to Mobility Products Inc., itemized
on Invoice No. 119. Amount posted from page 24 of the revenue journal.
17. Collected cash of $590 from Mobility Products Inc. (Invoice No. 106).
Amount posted from page 46 of the cash receipts journal.
PE 5-2A Accounts receivable subsidiary ledger
The debits and credits from two transactions are presented in the following customer
account:
NAME Signal Communications Inc.
ADDRESS 76 Oak Ridge Rd.
Post.
Date Item Ref. Debit Credit Balance
June 1 Balance 280
20 Invoice 579 CR106 95 185
28 Invoice 527 R92 75 260
Describe each transaction and the source of each posting.
Answer:
June 20. Collected cash of $95 from Signal Communications Inc. (Invoice No.
579). Amount posted from page 106 of the cash receipts journal.
28. Provided $75 of services on account to Signal Communications Inc.,
itemized on Invoice No. 527. Amount posted from page 92 of the revenue journal.
account:
NAME Signal Communications Inc.
ADDRESS 76 Oak Ridge Rd.
Post.
Date Item Ref. Debit Credit Balance
June 1 Balance 280
20 Invoice 579 CR106 95 185
28 Invoice 527 R92 75 260
Describe each transaction and the source of each posting.
Answer:
June 20. Collected cash of $95 from Signal Communications Inc. (Invoice No.
579). Amount posted from page 106 of the cash receipts journal.
28. Provided $75 of services on account to Signal Communications Inc.,
itemized on Invoice No. 527. Amount posted from page 92 of the revenue journal.
PE 5-1B Revenue journal
The following revenue transactions occurred during May:
May 6. Issued Invoice No. 78 to Lemon Co. for services provided on account, $1,240.
9. Issued Invoice No. 79 to Hitchcock Inc. for services provided on account, $3,420.
19. Issued Invoice No. 80 to Conrad Inc. for services provided on account, $1,470.
Record these three transactions into the following revenue journal format:
Date No. Account Debited Ref. Fees Earned Cr.
Answer:
Date No. Account Debited Ref. Fees Earned Cr.
May 6 78 Lemon Co. 1,240
9 79 Hitchcock Inc. 3,420
19 80 Conrad Inc 1,470
May 6. Issued Invoice No. 78 to Lemon Co. for services provided on account, $1,240.
9. Issued Invoice No. 79 to Hitchcock Inc. for services provided on account, $3,420.
19. Issued Invoice No. 80 to Conrad Inc. for services provided on account, $1,470.
Record these three transactions into the following revenue journal format:
REVENUE JOURNAL
Invoice Post. Accts. Rec. Dr.Date No. Account Debited Ref. Fees Earned Cr.
Answer:
REVENUE JOURNAL
Invoice Post. Accts. Rec. Dr.Date No. Account Debited Ref. Fees Earned Cr.
May 6 78 Lemon Co. 1,240
9 79 Hitchcock Inc. 3,420
19 80 Conrad Inc 1,470
PE 5-1A Revenue journal
The following revenue transactions occurred during October:
Oct. 7. Issued Invoice No. 121 to Darcy Co. for services provided on account, $320.
17. Issued Invoice No. 122 to Triple A Inc. for services provided on account, $470.
21. Issued Invoice No. 123 to Whaley Co. for services provided on account, $530.
Record these three transactions into the following revenue journal format:
Date No. Account Debited Ref. Fees Earned Cr.
Answer:
Date No. Account Debited Ref. Fees Earned Cr.
Oct. 7 121 Darcy Co 320
17 122 Triple A Inc. 470
21 123 Whaley Co. 530
Oct. 7. Issued Invoice No. 121 to Darcy Co. for services provided on account, $320.
17. Issued Invoice No. 122 to Triple A Inc. for services provided on account, $470.
21. Issued Invoice No. 123 to Whaley Co. for services provided on account, $530.
Record these three transactions into the following revenue journal format:
REVENUE JOURNAL
Invoice Post. Accts. Rec. Dr.Date No. Account Debited Ref. Fees Earned Cr.
Answer:
REVENUE JOURNAL
Invoice Post. Accts. Rec. Dr.Date No. Account Debited Ref. Fees Earned Cr.
Oct. 7 121 Darcy Co 320
17 122 Triple A Inc. 470
21 123 Whaley Co. 530
EX 4-22 Working capital and current ratio
The following data (in thousands) were taken from recent financial statements of Starbucks
Corporation:
Sept. 27, 2009 Sept. 28, 2008
Current assets $2,035,800 $1,748,000
Current liabilities 1,581,000 2,189,700
a. Compute the working capital and the current ratio as of September 27, 2009, and
September 28, 2008. Round to two decimal places.
b. What conclusions concerning the company’s ability to meet its financial obligations
can you draw from part (a)?
Answer:
a.
Sept. 27, 2009 Sept. 28, 2008
Current assets ............... $2,035,800 $1,748,000
Current liabilities ........... 1,581,000 2,189,700
Working capital.............. $ 454,800 $ (441,700)
Current ratio................... 1.29 0.80
($2,035,800/$1,581,000) ($1,748,000/$2,189,700)
b. Although Starbucks Corporation had negative (deficit) working capital of
$441,700 for 2008, it generated positive working capital of $454,800 for 2009.
The current ratio of 0.80 improved to 1.29 in 2009. The improving working
capital and current ratio for 2009 indicate that short-term creditors should not
be concerned about receiving payment from Starbucks.
Corporation:
Sept. 27, 2009 Sept. 28, 2008
Current assets $2,035,800 $1,748,000
Current liabilities 1,581,000 2,189,700
a. Compute the working capital and the current ratio as of September 27, 2009, and
September 28, 2008. Round to two decimal places.
b. What conclusions concerning the company’s ability to meet its financial obligations
can you draw from part (a)?
Answer:
a.
Sept. 27, 2009 Sept. 28, 2008
Current assets ............... $2,035,800 $1,748,000
Current liabilities ........... 1,581,000 2,189,700
Working capital.............. $ 454,800 $ (441,700)
Current ratio................... 1.29 0.80
($2,035,800/$1,581,000) ($1,748,000/$2,189,700)
b. Although Starbucks Corporation had negative (deficit) working capital of
$441,700 for 2008, it generated positive working capital of $454,800 for 2009.
The current ratio of 0.80 improved to 1.29 in 2009. The improving working
capital and current ratio for 2009 indicate that short-term creditors should not
be concerned about receiving payment from Starbucks.
EX 4-21 Working capital and current ratio
The following data (in thousands) were taken from recent financial statements of Under
Armour, Inc.:
December 31
2008 2007
Current assets $396,423 $322,245
Current liabilities 113,110 95,699
a. Compute the working capital and the current ratio as of December 31, 2008 and 2007.
Round to two decimal places.
b. What conclusions concerning the company’s ability to meet its financial obligations
can you draw from part (a)?
Answer:
a. December 31
2008 2007
Current assets ............... $396,423 $322,245
Current liabilities ...........113,110 95,699
Working capital............. $283,313 $226,546
Current ratio................... 3.50 3.37
($396,423/$113,110) ($322,245/$95,699)
b. Under Armour’s working capital increased by $56,767 ($283,313 – $226,546)
during 2008. The current ratio increased from 3.37 in 2007 to 3.50 in 2008. A
current ratio of 3.50 indicates a strong solvency position. Thus, short-term
creditors should not be concerned about receiving payment from Under Armour.
Armour, Inc.:
December 31
2008 2007
Current assets $396,423 $322,245
Current liabilities 113,110 95,699
a. Compute the working capital and the current ratio as of December 31, 2008 and 2007.
Round to two decimal places.
b. What conclusions concerning the company’s ability to meet its financial obligations
can you draw from part (a)?
Answer:
a. December 31
2008 2007
Current assets ............... $396,423 $322,245
Current liabilities ...........113,110 95,699
Working capital............. $283,313 $226,546
Current ratio................... 3.50 3.37
($396,423/$113,110) ($322,245/$95,699)
b. Under Armour’s working capital increased by $56,767 ($283,313 – $226,546)
during 2008. The current ratio increased from 3.37 in 2007 to 3.50 in 2008. A
current ratio of 3.50 indicates a strong solvency position. Thus, short-term
creditors should not be concerned about receiving payment from Under Armour.
EX 4-20 Steps in the accounting cycle
Rearrange the following steps in the accounting cycle in proper sequence:
a. Financial statements are prepared.
b. An adjusted trial balance is prepared.
c. Adjustment data are asssembled and analyzed.
d. Adjusting entries are journalized and posted to the ledger.
e. Closing entries are journalized and posted to the ledger.
f. An unadjusted trial balance is prepared.
g. Transactions are posted to the ledger.
h. Transactions are analyzed and recorded in the journal.
i. An optional end-of-period spreadsheet (work sheet) is prepared.
j. A post-closing trial balance is prepared.
Answer:
1. h
2. g
3. f
4. c
5. i
6. d
7. b
8. a
9. e
10. j
a. Financial statements are prepared.
b. An adjusted trial balance is prepared.
c. Adjustment data are asssembled and analyzed.
d. Adjusting entries are journalized and posted to the ledger.
e. Closing entries are journalized and posted to the ledger.
f. An unadjusted trial balance is prepared.
g. Transactions are posted to the ledger.
h. Transactions are analyzed and recorded in the journal.
i. An optional end-of-period spreadsheet (work sheet) is prepared.
j. A post-closing trial balance is prepared.
Answer:
1. h
2. g
3. f
4. c
5. i
6. d
7. b
8. a
9. e
10. j
EX 4-19 Post-closing trial balance
An accountant prepared the following post-closing trial balance:
Debit Credit
Balances Balances
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Accounts Receivable. . . . . . . . . . . . . . . . . . . 31,000
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5,500
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Accumulated Depreciation—Equipment . . . . . . . .19,000
Accounts Payable . . . . . . . . . . . . . . . . . . . . . 11,000
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Unearned Rent . . . . . . . . . . . . . . . . . . . . . .6,000
Leticia Aloni, Capital . . . . . . . . . . . . . . . . . . 92,500
177,500 81,500
Prepare a corrected post-closing trial balance. Assume that all accounts have normal balances and that the amounts shown are correct.
Answer:
Balances Balances
Cash ..............................................18,000
Accounts Receivable ...............................31,000
Supplies...........................................5,500
Equipment...........................................75,000
Accumulated Depreciation—Equipment .......................... 19,000
Accounts Payable ................................................... 11,000
Salaries Payable.......................................................1,000
Unearned Rent........................................................ 6,000
Leticia Aloni, Capital............................................... 92,500
129,500 129,500
Gypsy Treasures Co.
Post-Closing Trial Balance
March 31, 2012
Debit Credit
Balances Balances
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Accounts Receivable. . . . . . . . . . . . . . . . . . . 31,000
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5,500
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Accumulated Depreciation—Equipment . . . . . . . .19,000
Accounts Payable . . . . . . . . . . . . . . . . . . . . . 11,000
Salaries Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Unearned Rent . . . . . . . . . . . . . . . . . . . . . .6,000
Leticia Aloni, Capital . . . . . . . . . . . . . . . . . . 92,500
177,500 81,500
Prepare a corrected post-closing trial balance. Assume that all accounts have normal balances and that the amounts shown are correct.
Answer:
GYPSY TREASURES CO.
Post-Closing Trial Balance
March 31, 2012
Debit CreditBalances Balances
Cash ..............................................18,000
Accounts Receivable ...............................31,000
Supplies...........................................5,500
Equipment...........................................75,000
Accumulated Depreciation—Equipment .......................... 19,000
Accounts Payable ................................................... 11,000
Salaries Payable.......................................................1,000
Unearned Rent........................................................ 6,000
Leticia Aloni, Capital............................................... 92,500
129,500 129,500
EX 4-18 Identifying permanent accounts
Which of the following accounts will usually appear in the post-closing trial balance?
a. Accounts Payable
b. Accumulated Depreciation
c. Anthony Adams, Capital
d. Anthony Adams, Drawing
e. Cash
f. Depreciation Expense
g. Fees Earned
h. Office Equipment
i. Salaries Expense
j. Salaries Payable
k. Supplies
Answer:
a. Accounts Payable
b. Accumulated Depreciation
c. Anthony Adams, Capital
e. Cash
h. Office Equipment
j. Salaries Payable
k. Supplies
a. Accounts Payable
b. Accumulated Depreciation
c. Anthony Adams, Capital
d. Anthony Adams, Drawing
e. Cash
f. Depreciation Expense
g. Fees Earned
h. Office Equipment
i. Salaries Expense
j. Salaries Payable
k. Supplies
Answer:
a. Accounts Payable
b. Accumulated Depreciation
c. Anthony Adams, Capital
e. Cash
h. Office Equipment
j. Salaries Payable
k. Supplies
EX 4-17 Closing entries with net loss
Imex Services Co. offers its services to individuals desiring to improve their personal images.
After the accounts have been adjusted at March 31, the end of the fiscal year, the
following balances were taken from the ledger of Imex Services Co.
Margo Hoskins, Capital $300,000 Rent Expense $40,000
Margo Hoskins, Drawing 15,000 Supplies Expense 20,000
Fees Earned 180,000 Miscellaneous Expense 7,500
Wages Expense 90,000
Journalize the four entries required to close the accounts.
Answer:
Mar. 31 Fees Earned ........................................................ 180,000
Income Summary........................................... 180,000
31 Income Summary................................................ 157,500
Wages Expense ............................................. 90,000
Rent Expense................................................. 40,000
Supplies Expense.......................................... 20,000
Miscellaneous Expense ................................ 7,500
31 Margo Hoskins, Capital...................................... 22,500
Income Summary........................................... 22,500
31 Margo Hoskins, Capital...................................... 15,000
Margo Hoskins, Drawing............................... 15,000
After the accounts have been adjusted at March 31, the end of the fiscal year, the
following balances were taken from the ledger of Imex Services Co.
Margo Hoskins, Capital $300,000 Rent Expense $40,000
Margo Hoskins, Drawing 15,000 Supplies Expense 20,000
Fees Earned 180,000 Miscellaneous Expense 7,500
Wages Expense 90,000
Journalize the four entries required to close the accounts.
Answer:
Mar. 31 Fees Earned ........................................................ 180,000
Income Summary........................................... 180,000
31 Income Summary................................................ 157,500
Wages Expense ............................................. 90,000
Rent Expense................................................. 40,000
Supplies Expense.......................................... 20,000
Miscellaneous Expense ................................ 7,500
31 Margo Hoskins, Capital...................................... 22,500
Income Summary........................................... 22,500
31 Margo Hoskins, Capital...................................... 15,000
Margo Hoskins, Drawing............................... 15,000
EX 4-16 Closing entries with net income
After all revenue and expense accounts have been closed at the end of the fiscal year,
Income Summary has a debit of $315,000 and a credit of $449,500. At the same date,
Faye Barnes, Capital has a credit balance of $750,000, and Faye Barnes, Drawing has
a balance of $40,000. (a) Journalize the entries required to complete the closing of the
accounts. (b) Determine the amount of Faye Barnes, Capital at the end of the period.
Answer:
a. Income Summary........................................................... 134,500
Faye Barnes, Capital................................................ 134,500
($449,500 – $315,000).
Faye Barnes, Capital ..................................................... 40,000
Faye Barnes, Drawing.............................................. 40,000
b. $844,500 ($750,000 + $134,500 – $40,000)
Income Summary has a debit of $315,000 and a credit of $449,500. At the same date,
Faye Barnes, Capital has a credit balance of $750,000, and Faye Barnes, Drawing has
a balance of $40,000. (a) Journalize the entries required to complete the closing of the
accounts. (b) Determine the amount of Faye Barnes, Capital at the end of the period.
Answer:
a. Income Summary........................................................... 134,500
Faye Barnes, Capital................................................ 134,500
($449,500 – $315,000).
Faye Barnes, Capital ..................................................... 40,000
Faye Barnes, Drawing.............................................. 40,000
b. $844,500 ($750,000 + $134,500 – $40,000)
EX 4-15 Closing entries
Prior to its closing, Income Summary had total debits of $815,000 and total credits of $1,280,000.
Briefly explain the purpose served by the income summary account and the nature of the entries that resulted in the $815,000 and the $1,280,000.
Answer:
The income summary account is used to close the revenue and expense accounts, and it aids in detecting and correcting errors. The $815,000 represents expense account balances, and the $1,280,000 represents revenue account balances that have been closed.
Briefly explain the purpose served by the income summary account and the nature of the entries that resulted in the $815,000 and the $1,280,000.
Answer:
The income summary account is used to close the revenue and expense accounts, and it aids in detecting and correcting errors. The $815,000 represents expense account balances, and the $1,280,000 represents revenue account balances that have been closed.
EX 4-14 Identifying accounts to be closed
From the list at the top of the next page, identify the accounts that should be closed to
Income Summary at the end of the fiscal year:
a. Accounts Payable
b. Accumulated Depreciation—Equipment
c. Depreciation Expense—Equipment
d. Equipment
e. Fauzi Hanna, Capital
f. Fauzi Hanna, Drawing
g. Fees Earned
h. Land
i. Supplies
j. Supplies Expense
k. Wages Expense
l. Wages Payable
Answer:
c. Depreciation Expense—Equipment
g. Fees Earned
j. Supplies Expense
k. Wages Expense
Note: Fauzi Hanna, Drawing is closed to Fauzi Hanna, Capital rather than to
Income Summary.
Income Summary at the end of the fiscal year:
a. Accounts Payable
b. Accumulated Depreciation—Equipment
c. Depreciation Expense—Equipment
d. Equipment
e. Fauzi Hanna, Capital
f. Fauzi Hanna, Drawing
g. Fees Earned
h. Land
i. Supplies
j. Supplies Expense
k. Wages Expense
l. Wages Payable
Answer:
c. Depreciation Expense—Equipment
g. Fees Earned
j. Supplies Expense
k. Wages Expense
Note: Fauzi Hanna, Drawing is closed to Fauzi Hanna, Capital rather than to
Income Summary.
EX 4-13 Balance sheet
List the errors you find in the following balance sheet. Prepare a corrected balance sheet.
Poshe Services Co.
Balance Sheet
For the Year Ended May 31, 2012
Assets Liabilities
Current assets: Current liabilities:
Cash . . . . . . . . . . . . . . . .$ 14,000 Accounts receivable . . . .$ 32,500
Accounts payable . . . . . . . 24,000 Accum. depr.—building 155,000
Supplies . . . . . . . . . . . . . . 6,500 Accum. depr.—equipment 25,000
Prepaid insurance . . . . . . 12,000 Net income . . . . . . . . . . . 135,000
Land . . . . . . . . . . . . . . . . 180,000 Total liabilities . . . . . . . . . . . .. . $347,500
Total current assets . . . . . . . . . . . . $236,500
Property, plant, and equipment:
Owner’s Equity
Building . . . . . . . . . . . . $375,000 Wages payable . . . . . . . . . . . . . $ 2,500
Equipment . . . . . . . . . . .85,000 Hector Delgado, capital . . . . . 498,500
Total property, plant, Total owner’s equity . . . . . . . . . . . . . . . . .501,000
and equipment . . . . .. . . . . . . . . . 612,000
Total assets . . . . . . . . . . . . . . . . $848,500 Total liabilities and
owner’s equity . . . . . . . . . . . . $848,500
Answer:
1. The date of the statement should be “May 31, 2012” and not “For the Year
Ended May 31, 2012.”
2. Accounts payable should be a current liability.
3. Land should be classified as property, plant, and equipment.
4. “Accumulated depreciation” should be deducted from the related fixed asset.
5. An adding error was made in determining the amount of the total property,
plant, and equipment.
6. Accounts receivable should be a current asset.
7. Net income should be reported on the income statement.
8. Wages payable should be a current liability.
Poshe Services Co.
Balance Sheet
For the Year Ended May 31, 2012
Assets Liabilities
Current assets: Current liabilities:
Cash . . . . . . . . . . . . . . . .$ 14,000 Accounts receivable . . . .$ 32,500
Accounts payable . . . . . . . 24,000 Accum. depr.—building 155,000
Supplies . . . . . . . . . . . . . . 6,500 Accum. depr.—equipment 25,000
Prepaid insurance . . . . . . 12,000 Net income . . . . . . . . . . . 135,000
Land . . . . . . . . . . . . . . . . 180,000 Total liabilities . . . . . . . . . . . .. . $347,500
Total current assets . . . . . . . . . . . . $236,500
Property, plant, and equipment:
Owner’s Equity
Building . . . . . . . . . . . . $375,000 Wages payable . . . . . . . . . . . . . $ 2,500
Equipment . . . . . . . . . . .85,000 Hector Delgado, capital . . . . . 498,500
Total property, plant, Total owner’s equity . . . . . . . . . . . . . . . . .501,000
and equipment . . . . .. . . . . . . . . . 612,000
Total assets . . . . . . . . . . . . . . . . $848,500 Total liabilities and
owner’s equity . . . . . . . . . . . . $848,500
Answer:
1. The date of the statement should be “May 31, 2012” and not “For the Year
Ended May 31, 2012.”
2. Accounts payable should be a current liability.
3. Land should be classified as property, plant, and equipment.
4. “Accumulated depreciation” should be deducted from the related fixed asset.
5. An adding error was made in determining the amount of the total property,
plant, and equipment.
6. Accounts receivable should be a current asset.
7. Net income should be reported on the income statement.
8. Wages payable should be a current liability.
EX 4-11 Balance sheet classification
At the balance sheet date, a business owes a mortgage note payable of $480,000, the terms of which provide for monthly payments of $2,500.
Explain how the liability should be classified on the balance sheet.
Answer:
Since current liabilities are usually due within one year, $30,000 ($2,500 × 12
months) would be reported as a current liability on the balance sheet. The remainder of $450,000 ($480,000 – $30,000) would be reported as a long-term liability on the balance sheet.
Explain how the liability should be classified on the balance sheet.
Answer:
Since current liabilities are usually due within one year, $30,000 ($2,500 × 12
months) would be reported as a current liability on the balance sheet. The remainder of $450,000 ($480,000 – $30,000) would be reported as a long-term liability on the balance sheet.
EX 4-10 Classifying assets
Identify each of the following as (a) a current asset or (b) property, plant, and equipment:
1. Accounts receivable
2. Building
3. Cash
4. Equipment
5. Prepaid Insurance
6. Supplies
Answer:
1. Current Asset
2. Property, plant, and equipment
3. Current Asset
4. Property, plant, and equipment
5. Current Asset
6. Current Asset
1. Accounts receivable
2. Building
3. Cash
4. Equipment
5. Prepaid Insurance
6. Supplies
Answer:
1. Current Asset
2. Property, plant, and equipment
3. Current Asset
4. Property, plant, and equipment
5. Current Asset
6. Current Asset
EX 4-9 Statement of owner’s equity; net loss
Selected accounts from the ledger of Balboa Sports for the current fiscal year ended June 30, 2012, are as follows:
Erica Kilty, Capital Erica Kilty, Drawing
June 30 42,000 July 1 (2011) 398,500 Sept. 30 2,500 June 30 10,000
30 10,000 Dec. 31 2,500
May 31 2,500
June 30 2,500
Income Summary
June 30 402,000 June 30 360,000
30 42,000
Prepare a statement of owner’s equity for the year.
Answer:
Net loss for year ........................................ $42,000
Plus withdrawals.......................................... 10,000
Decrease in owner’s equity............................................... 52,000
Erica Kilty, capital, June 30, 2012................................... $346,500
Erica Kilty, Capital Erica Kilty, Drawing
June 30 42,000 July 1 (2011) 398,500 Sept. 30 2,500 June 30 10,000
30 10,000 Dec. 31 2,500
May 31 2,500
June 30 2,500
Income Summary
June 30 402,000 June 30 360,000
30 42,000
Prepare a statement of owner’s equity for the year.
Answer:
BALBOA SPORTS
Statement of Owner’s Equity
For the Year Ended June 30, 2012
Erica Kilty, capital, July 1, 2011 ........................................ $398,500Net loss for year ........................................ $42,000
Plus withdrawals.......................................... 10,000
Decrease in owner’s equity............................................... 52,000
Erica Kilty, capital, June 30, 2012................................... $346,500
EX 4-8 Statement of owner’s equity
Fouts Systems Co. offers its services to residents in the Chicago area. Selected accounts from the
ledger of Fouts Systems Co. for the current fiscal year ended October 31, 2012, are as follows:
Lisa DuBois, Capital Lisa DuBois, Drawing
Oct. 31 20,000 Nov. 1 (2011) 550,000 Jan. 31 5,000 Oct. 31 20,000
Oct. 31 105,000 Apr. 30 5,000
July 31 5,000
Oct. 31 5,000
Income Summary
Oct. 31 375,000 Oct. 31 480,000
31 105,000
Prepare a statement of owner’s equity for the year.
Answer:
Net income for year...................................$105,000
Less withdrawals ........................................20,000
Increase in owner’s equity ........................................... 85,000
Lisa DuBois, capital, October 31, 2012............................. $635,000
ledger of Fouts Systems Co. for the current fiscal year ended October 31, 2012, are as follows:
Lisa DuBois, Capital Lisa DuBois, Drawing
Oct. 31 20,000 Nov. 1 (2011) 550,000 Jan. 31 5,000 Oct. 31 20,000
Oct. 31 105,000 Apr. 30 5,000
July 31 5,000
Oct. 31 5,000
Income Summary
Oct. 31 375,000 Oct. 31 480,000
31 105,000
Prepare a statement of owner’s equity for the year.
Answer:
FOUTS SYSTEMS CO.
Statement of Owner’s Equity
For the Year Ended October 31, 2012
Lisa DuBois, capital, November 1, 2011........................... $550,000Net income for year...................................$105,000
Less withdrawals ........................................20,000
Increase in owner’s equity ........................................... 85,000
Lisa DuBois, capital, October 31, 2012............................. $635,000
EX 4-7 Income statement
FedEx Corporation had the following revenue and expense account balances (in millions)
at its fiscal year-end of May 31, 2009:
Depreciation $1,975 Purchased Transportation $ 4,534
Fuel 3,811 Rentals and Landing Fees 2,429
Maintenance and Repairs 1,898 Revenues 35,497
Other Expense (Income) Net 6,406 Salaries and Employee Benefi ts 13,767
Provision for Income Taxes 579
a. Prepare an income statement.
b. Compare your income statement with the related income statement that is available at
the FedEx Corporation Web site, which is linked to the text’s Web site at academic .cengage
.com/accounting/warren. What similarities and differences do you see?
Answer:
Expenses:
Salaries and employee benefits.....................$13,767
Purchased transportation................................4,534
Fuel..........................................................3,811
Rentals and landing fees................................ 2,429
Depreciation .................................................1,975
Maintenance and repairs................................1,898
Provision for income taxes ..............................579
Other expense (income) net.......................... 6,406
Total expenses......................................................... 35,399
Net income............................................................... $ 98
b. The income statements are very similar. The actual statement includes some
additional expense and income classifications. For example, the actual
statement reports Income Before Income Taxes and Provision for Income
Taxes separately. In addition, the “Other expense (income) net” in the text is
a summary of several items from the Web site, including Intercompany
charges, Interest expense, and Interest income.
at its fiscal year-end of May 31, 2009:
Depreciation $1,975 Purchased Transportation $ 4,534
Fuel 3,811 Rentals and Landing Fees 2,429
Maintenance and Repairs 1,898 Revenues 35,497
Other Expense (Income) Net 6,406 Salaries and Employee Benefi ts 13,767
Provision for Income Taxes 579
a. Prepare an income statement.
b. Compare your income statement with the related income statement that is available at
the FedEx Corporation Web site, which is linked to the text’s Web site at academic .cengage
.com/accounting/warren. What similarities and differences do you see?
Answer:
FEDEX CORPORATION
Income Statement
For the Year Ended May 31, 2009
(in millions)
Revenues....................................................................$35,497Expenses:
Salaries and employee benefits.....................$13,767
Purchased transportation................................4,534
Fuel..........................................................3,811
Rentals and landing fees................................ 2,429
Depreciation .................................................1,975
Maintenance and repairs................................1,898
Provision for income taxes ..............................579
Other expense (income) net.......................... 6,406
Total expenses......................................................... 35,399
Net income............................................................... $ 98
b. The income statements are very similar. The actual statement includes some
additional expense and income classifications. For example, the actual
statement reports Income Before Income Taxes and Provision for Income
Taxes separately. In addition, the “Other expense (income) net” in the text is
a summary of several items from the Web site, including Intercompany
charges, Interest expense, and Interest income.
EX 4-6 Income statement; net loss
The following revenue and expense account balances were taken from the ledger of
Graphics Services Co. after the accounts had been adjusted on February 29, 2012, the
end of the current fiscal year:
Depreciation Expense $ 9,000 Service Revenue $250,000
Insurance Expense 4,000 Supplies Expense 3,000
Miscellaneous Expense 5,000 Utilities Expense 14,600
Rent Expense 36,000 Wages Expense 215,000
Prepare an income statement.
Answer:
Service revenue........................................................$250,000
Expenses:
Wages expense ........................................$215,000
Rent expense............................................36,000
Utilities expense........................................14,600
Depreciation expense ............................... 9,000
Insurance expense..................................... 4,000
Supplies expense........................................3,000
Miscellaneous expense ............................. 5,000
Total expenses......................................................... 286,600
Net loss ...................................................................$ 36,600
Graphics Services Co. after the accounts had been adjusted on February 29, 2012, the
end of the current fiscal year:
Depreciation Expense $ 9,000 Service Revenue $250,000
Insurance Expense 4,000 Supplies Expense 3,000
Miscellaneous Expense 5,000 Utilities Expense 14,600
Rent Expense 36,000 Wages Expense 215,000
Prepare an income statement.
Answer:
GRAPHICS SERVICES CO.
Income Statement
For the Year Ended February 29, 2012
Expenses:
Wages expense ........................................$215,000
Rent expense............................................36,000
Utilities expense........................................14,600
Depreciation expense ............................... 9,000
Insurance expense..................................... 4,000
Supplies expense........................................3,000
Miscellaneous expense ............................. 5,000
Total expenses......................................................... 286,600
Net loss ...................................................................$ 36,600
EX 4-5 Income statement
The following account balances were taken from the adjusted trial balance for On-Time Messenger Service, a delivery service firm, for the current fiscal year ended April 30, 2012:
Depreciation Expense $ 6,400
Fees Earned 340,000
Insurance Expense 1,200
Miscellaneous Expense 2,600
Rent Expense $ 48,400
Salaries Expense 171,040
Supplies Expense 2,200
Utilities Expense 18,560
Prepare an income statement.
Answer:
Expenses:
Salaries expense ............................ $171,040
Rent expense................................. 48,400
Utilities expense............................ 18,560
Depreciation expense .................. 6,400
Supplies expense............................2,200
Insurance expense......................... 1,200
Miscellaneous expense ..................2,600
Total expenses......................................................... 250,400
Net income...............................................................$ 89,600
Depreciation Expense $ 6,400
Fees Earned 340,000
Insurance Expense 1,200
Miscellaneous Expense 2,600
Rent Expense $ 48,400
Salaries Expense 171,040
Supplies Expense 2,200
Utilities Expense 18,560
Prepare an income statement.
Answer:
ON-TIME MESSENGER SERVICE
Income Statement
For the Year Ended April 30, 2012
Fees earned ............................................................$340,000Expenses:
Salaries expense ............................ $171,040
Rent expense................................. 48,400
Utilities expense............................ 18,560
Depreciation expense .................. 6,400
Supplies expense............................2,200
Insurance expense......................... 1,200
Miscellaneous expense ..................2,600
Total expenses......................................................... 250,400
Net income...............................................................$ 89,600
EX 4-2 Classifying accounts
Balances for each of the following accounts appear in an adjusted trial balance. Identify
each as (a) asset, (b) liability, (c) revenue, or (d) expense.
1. Accounts Receivable
2. Equipment
3. Fees Earned
4. Insurance Expense
5. Prepaid Advertising
6. Prepaid Rent
7. Rent Revenue
8. Salary Expense
9. Salary Payable
10. Supplies
11. Supplies Expense
12. Unearned Rent
Answer:
1. Asset
2. Asset
3. Revenue
4. Expense
5. Asset
6. Asset
7. Revenue
8. Expense
9. Liability
10. Asset
11. Expense
12. Liability
each as (a) asset, (b) liability, (c) revenue, or (d) expense.
1. Accounts Receivable
2. Equipment
3. Fees Earned
4. Insurance Expense
5. Prepaid Advertising
6. Prepaid Rent
7. Rent Revenue
8. Salary Expense
9. Salary Payable
10. Supplies
11. Supplies Expense
12. Unearned Rent
Answer:
1. Asset
2. Asset
3. Revenue
4. Expense
5. Asset
6. Asset
7. Revenue
8. Expense
9. Liability
10. Asset
11. Expense
12. Liability
EX 4-1 Flow of accounts into financial statements
The balances for the accounts listed below appear in the Adjusted Trial Balance columns
of the end-of-period spreadsheet. Indicate whether each account would flow into the
income statement, statement of owner’s equity, or balance sheet.
1. Accounts Payable
2. Accounts Receivable
3. Cash
4. Dora Kovar, Drawing
5. Fees Earned
6. Supplies
7. Unearned Rent
8. Utilities Expense
9. Wages Expense
10. Wages Payable
Answer:
1. Balance Sheet
2. Balance Sheet
3. Balance Sheet
4. Statement of Owner's Equity
5. Income Statement
6. Balance Sheet
7. Balance Sheet
8. Income Statement
9. Income Statement
10. Balance Sheet
of the end-of-period spreadsheet. Indicate whether each account would flow into the
income statement, statement of owner’s equity, or balance sheet.
1. Accounts Payable
2. Accounts Receivable
3. Cash
4. Dora Kovar, Drawing
5. Fees Earned
6. Supplies
7. Unearned Rent
8. Utilities Expense
9. Wages Expense
10. Wages Payable
Answer:
1. Balance Sheet
2. Balance Sheet
3. Balance Sheet
4. Statement of Owner's Equity
5. Income Statement
6. Balance Sheet
7. Balance Sheet
8. Income Statement
9. Income Statement
10. Balance Sheet
PE 4-6B Working capital and current ratio
The following balance sheet data for Finn Company are shown below.
2012 2011
Current assets $288,000 $171,000
Current liabilities 120,000 90,000
a. Determine the working capital and current ratio for 2012 and 2011.
b. Does the change in the current ratio from 2011 to 2012 indicate a favorable or an
unfavorable trend?
Answer:
a. 2012 2011
Current assets ............... $288,000 $171,000
Current liabilities ........... 120,000 90,000
Working capital.............. $168,000 $ 81,000
Current ratio................... 2.40 1.90
($288,000 ÷ $120,000) ($171,000 ÷ $90,000)
b. The change from 1.90 to 2.40 indicates a favorable trend.
2012 2011
Current assets $288,000 $171,000
Current liabilities 120,000 90,000
a. Determine the working capital and current ratio for 2012 and 2011.
b. Does the change in the current ratio from 2011 to 2012 indicate a favorable or an
unfavorable trend?
Answer:
a. 2012 2011
Current assets ............... $288,000 $171,000
Current liabilities ........... 120,000 90,000
Working capital.............. $168,000 $ 81,000
Current ratio................... 2.40 1.90
($288,000 ÷ $120,000) ($171,000 ÷ $90,000)
b. The change from 1.90 to 2.40 indicates a favorable trend.
PE 4-6A Working capital and current ratio
The following balance sheet data for Mayer Company are shown below.
2012 2011
Current assets $840,000 $1,430,000
Current liabilities 600,000 550,000
a. Determine the working capital and current ratio for 2012 and 2011.
b. Does the change in the current ratio from 2011 to 2012 indicate a favorable or an
unfavorable trend?
Answer:
a. 2012 2011
Current assets ............... $840,000 $1,430,000
Current liabilities ........... 600,000 550,000
Working capital.............. $240,000 $ 880,000
Current ratio................... 1.40 2.60
($840,000 ÷ $600,000) ($1,430,000 ÷ $550,000)
2012 2011
Current assets $840,000 $1,430,000
Current liabilities 600,000 550,000
a. Determine the working capital and current ratio for 2012 and 2011.
b. Does the change in the current ratio from 2011 to 2012 indicate a favorable or an
unfavorable trend?
Answer:
a. 2012 2011
Current assets ............... $840,000 $1,430,000
Current liabilities ........... 600,000 550,000
Working capital.............. $240,000 $ 880,000
Current ratio................... 1.40 2.60
($840,000 ÷ $600,000) ($1,430,000 ÷ $550,000)
b. The change from 2.60 to 1.40 indicates an unfavorable trend.
PE 4-5B Accounting cycle
From the following list of steps in the accounting cycle, identify what two steps are missing.
a. Transactions are analyzed and recorded in the journal.
b. Transactions are posted to the ledger.
c. An unadjusted trial balance is prepared.
d. An optional end-of-period spreadsheet is prepared.
e. Adjusting entries are journalized and posted to the ledger.
f. An adjusted trial balance is prepared.
g. Financial statements are prepared.
h. A post-closing trial balance is prepared.
Answer:
The following two steps are missing: (1) assembling and analyzing adjustment data and (2) journalizing and posting the closing entries. The adjustment data should be assembled and analyzed after step (c). The closing entries should be journalized and posted to the ledger after step (g).
a. Transactions are analyzed and recorded in the journal.
b. Transactions are posted to the ledger.
c. An unadjusted trial balance is prepared.
d. An optional end-of-period spreadsheet is prepared.
e. Adjusting entries are journalized and posted to the ledger.
f. An adjusted trial balance is prepared.
g. Financial statements are prepared.
h. A post-closing trial balance is prepared.
Answer:
The following two steps are missing: (1) assembling and analyzing adjustment data and (2) journalizing and posting the closing entries. The adjustment data should be assembled and analyzed after step (c). The closing entries should be journalized and posted to the ledger after step (g).
PE 4-5A Accounting cycle
From the following list of steps in the accounting cycle, identify what two steps are missing.
a. Transactions are analyzed and recorded in the journal.
b. An unadjusted trial balance is prepared.
c. Adjustment data are assembled and analyzed.
d. An optional end-of-period spreadsheet is prepared.
e. Adjusting entries are journalized and posted to the ledger.
f. An adjusted trial balance is prepared.
g. Closing entries are journalized and posted to the ledger.
h. A post-closing trial balance is prepared.
Answer:
The following two steps are missing: (1) posting the transactions to the ledger and (2) the preparation of the financial statements. Transactions should be posted to the ledger after step (a). The financial statements should be prepared after step (f).
a. Transactions are analyzed and recorded in the journal.
b. An unadjusted trial balance is prepared.
c. Adjustment data are assembled and analyzed.
d. An optional end-of-period spreadsheet is prepared.
e. Adjusting entries are journalized and posted to the ledger.
f. An adjusted trial balance is prepared.
g. Closing entries are journalized and posted to the ledger.
h. A post-closing trial balance is prepared.
Answer:
The following two steps are missing: (1) posting the transactions to the ledger and (2) the preparation of the financial statements. Transactions should be posted to the ledger after step (a). The financial statements should be prepared after step (f).
PE 4-4B Closing entries
After the accounts have been adjusted at June 30, the end of the fiscal year, the following
balances were taken from the ledger of Hillcrest Landscaping Co.:
Bryan Orr, Capital $275,000
Bryan Orr, Drawing 25,000
Fees Earned 400,000
Wages Expense 280,000
Rent Expense 40,000
Supplies Expense 3,000
Miscellaneous Expense 12,000
Journalize the four entries required to close the accounts.
Answer:
June 30 Fees Earned ........................................................ 400,000
Income Summary........................................... 400,000
30 Income Summary................................................ 335,000
Wages Expense ............................................. 280,000
Rent Expense................................................. 40,000
Supplies Expense.......................................... 3,000
Miscellaneous Expense ................................ 12,000
30 Income Summary................................................ 65,000
Bryan Orr, Capital.......................................... 65,000
30 Bryan Orr, Capital............................................... 25,000
Bryan Orr, Drawing........................................ 25,000
balances were taken from the ledger of Hillcrest Landscaping Co.:
Bryan Orr, Capital $275,000
Bryan Orr, Drawing 25,000
Fees Earned 400,000
Wages Expense 280,000
Rent Expense 40,000
Supplies Expense 3,000
Miscellaneous Expense 12,000
Journalize the four entries required to close the accounts.
Answer:
June 30 Fees Earned ........................................................ 400,000
Income Summary........................................... 400,000
30 Income Summary................................................ 335,000
Wages Expense ............................................. 280,000
Rent Expense................................................. 40,000
Supplies Expense.......................................... 3,000
Miscellaneous Expense ................................ 12,000
30 Income Summary................................................ 65,000
Bryan Orr, Capital.......................................... 65,000
30 Bryan Orr, Capital............................................... 25,000
Bryan Orr, Drawing........................................ 25,000
PE 4-4A Closing entries
After the accounts have been adjusted at October 31, the end of the fiscal year, the following
balances were taken from the ledger of Silver Gate Delivery Services Co.:
Mira Craig, Capital $800,000
Mira Craig, Drawing 125,000
Fees Earned 700,000
Wages Expense 400,000
Rent Expense 75,000
Supplies Expense 16,000
Miscellaneous Expense 5,000
Journalize the four entries required to close the accounts
Answer:
Oct. 31 Fees Earned ........................................................ 700,000
Income Summary........................................... 700,000
31 Income Summary................................................ 496,000
Wages Expense ............................................. 400,000
Rent Expense................................................. 75,000
Supplies Expense.......................................... 16,000
Miscellaneous Expense ................................ 5,000
31 Income Summary ............................................... 204,000
Mira Craig, Capital......................................... 204,000
31 Mira Craig, Capital .............................................. 125,000
Mira Craig, Drawing....................................... 125,000
balances were taken from the ledger of Silver Gate Delivery Services Co.:
Mira Craig, Capital $800,000
Mira Craig, Drawing 125,000
Fees Earned 700,000
Wages Expense 400,000
Rent Expense 75,000
Supplies Expense 16,000
Miscellaneous Expense 5,000
Journalize the four entries required to close the accounts
Answer:
Oct. 31 Fees Earned ........................................................ 700,000
Income Summary........................................... 700,000
31 Income Summary................................................ 496,000
Wages Expense ............................................. 400,000
Rent Expense................................................. 75,000
Supplies Expense.......................................... 16,000
Miscellaneous Expense ................................ 5,000
31 Income Summary ............................................... 204,000
Mira Craig, Capital......................................... 204,000
31 Mira Craig, Capital .............................................. 125,000
Mira Craig, Drawing....................................... 125,000
PE 4-3B Classified balance sheet
The following accounts appear in an adjusted trial balance of F-18 Consulting. Indicate
whether each account would be reported in the (a) current asset; (b) property, plant,
and equipment; (c) current liability; (d) long-term liability; or (e) owner’s equity section
of the December 31, 2011, balance sheet of F-18 Consulting.
1. Accounts Payable
2. Accounts Receivable
3. Accumulated Depreciation—Building
4. Cash
5. Jess Garza, Capital
6. Note Payable (due in 2018)
7. Supplies
8. Wages Payable
Answer:
1. Current liability
2. Current asset
3. Property, plant, and equipment
4. Current asset
5. Owner’s equity
6. Long-term liability
7. Current asset
8. Current liability
whether each account would be reported in the (a) current asset; (b) property, plant,
and equipment; (c) current liability; (d) long-term liability; or (e) owner’s equity section
of the December 31, 2011, balance sheet of F-18 Consulting.
1. Accounts Payable
2. Accounts Receivable
3. Accumulated Depreciation—Building
4. Cash
5. Jess Garza, Capital
6. Note Payable (due in 2018)
7. Supplies
8. Wages Payable
Answer:
1. Current liability
2. Current asset
3. Property, plant, and equipment
4. Current asset
5. Owner’s equity
6. Long-term liability
7. Current asset
8. Current liability
PE 4-3A Classified balance sheet
The following accounts appear in an adjusted trial balance of Pilot Consulting. Indicate
whether each account would be reported in the (a) current asset; (b) property, plant,
and equipment; (c) current liability; (d) long-term liability; or (e) owner’s equity section
of the December 31, 2011, balance sheet of Pilot Consulting.
1. Building
2. Marty Ramsey, Capital
3. Notes Payable (due in 2017)
4. Prepaid Rent
5. Salaries Payable
6. Supplies
7. Taxes Payable
8. Unearned Service Fees
Answer:
1. Property, plant, and equipment
2. Owner’s equity
3. Long-term liability
4. Current asset
5. Current liability
6. Current asset
7. Current liability
8. Current liability
whether each account would be reported in the (a) current asset; (b) property, plant,
and equipment; (c) current liability; (d) long-term liability; or (e) owner’s equity section
of the December 31, 2011, balance sheet of Pilot Consulting.
1. Building
2. Marty Ramsey, Capital
3. Notes Payable (due in 2017)
4. Prepaid Rent
5. Salaries Payable
6. Supplies
7. Taxes Payable
8. Unearned Service Fees
Answer:
1. Property, plant, and equipment
2. Owner’s equity
3. Long-term liability
4. Current asset
5. Current liability
6. Current asset
7. Current liability
8. Current liability
PE 4-2B Statement of owner’s equity
Mavis Curry owns and operates A2Z Delivery Services. On January 1, 2011, Mavis Curry,
Capital had a balance of $600,000. During the year, Mavis made no additional investments
and withdrew $45,000. For the year ended December 31, 2011, A2Z Delivery Services
reported a net loss of $13,500. Prepare a statement of owner’s equity for the year ended
December 31, 2011.
Answer:
Net loss...............................................$13,500
Add withdrawals.........................................45,000
Decrease in owner’s equity............................................ 58,500
Mavis Curry, capital, December 31, 2011 ........................... $541,500
Capital had a balance of $600,000. During the year, Mavis made no additional investments
and withdrew $45,000. For the year ended December 31, 2011, A2Z Delivery Services
reported a net loss of $13,500. Prepare a statement of owner’s equity for the year ended
December 31, 2011.
Answer:
A2Z Delivery Services
Statement of Owner’s Equity
For the Year Ended December 31, 2011
Mavis Curry, capital, January 1, 2011................................. $600,000Net loss...............................................$13,500
Add withdrawals.........................................45,000
Decrease in owner’s equity............................................ 58,500
Mavis Curry, capital, December 31, 2011 ........................... $541,500
PE 4-2A Statement of owner’s equity
Judy Flint owns and operates Derby Advertising Services. On January 1, 2011, Judy Flint,
Capital had a balance of $290,000. During the year, Judy invested an additional $100,000
and withdrew $40,000. For the year ended December 31, 2011, Derby Advertising Services
reported a net income of $93,750. Prepare a statement of owner’s equity for the
year ended December 31, 2011.
Answer:
Additional investment during 2011..................100,000
Total ............................................................................ $390,000
Net income............................................. $ 93,750
Less withdrawals ........................................40,000
Increase in owner’s equity .................................................. 53,750
Judy Flint, capital, December 31, 2011............................... $443,750
Capital had a balance of $290,000. During the year, Judy invested an additional $100,000
and withdrew $40,000. For the year ended December 31, 2011, Derby Advertising Services
reported a net income of $93,750. Prepare a statement of owner’s equity for the
year ended December 31, 2011.
Answer:
Derby Advertising Services
Statement of Owner’s Equity
For the Year Ended December 31, 2011
Judy Flint, capital, January 1, 2011 ..............$290,000Additional investment during 2011..................100,000
Total ............................................................................ $390,000
Net income............................................. $ 93,750
Less withdrawals ........................................40,000
Increase in owner’s equity .................................................. 53,750
Judy Flint, capital, December 31, 2011............................... $443,750
PE 4-1B Flow of accounts into financial statements
The balances for the accounts listed below appear in the Adjusted Trial Balance columns of
the end-of-period spreadsheet. Indicate whether each account would flow into the income
statement, statement of owner’s equity, or balance sheet.
1. Accumulated Depreciation—Building
2. Cash
3. Fees Earned
4. Insurance Expense
5. Prepaid Rent
6. Supplies
7. Vincent Schafer, Drawing
8. Wages Expense
Answer:
1. Balance sheet
2. Balance sheet
3. Income statement
4. Income statement
5. Balance sheet
6. Balance sheet
7. Statement of owner’s equity
the end-of-period spreadsheet. Indicate whether each account would flow into the income
statement, statement of owner’s equity, or balance sheet.
1. Accumulated Depreciation—Building
2. Cash
3. Fees Earned
4. Insurance Expense
5. Prepaid Rent
6. Supplies
7. Vincent Schafer, Drawing
8. Wages Expense
Answer:
1. Balance sheet
2. Balance sheet
3. Income statement
4. Income statement
5. Balance sheet
6. Balance sheet
7. Statement of owner’s equity
PE 4-1A Flow of accounts into financial statements
The balances for the accounts listed below appear in the Adjusted Trial Balance columns
of the end-of-period spreadsheet. Indicate whether each account would flow into the
income statement, statement of owner’s equity, or balance sheet.
1. Accounts Receivable
2. Depreciation Expense—Equipment
3. Jean Kehler, Capital
4. Office Equipment
5. Rent Revenue
6. Supplies Expense
7. Unearned Revenue
8. Wages Payable
Answer:
1. Balance sheet
2. Income statement
3. Balance sheet
4. Balance sheet
5. Income statement
6. Income statement
7. Balance sheet
8. Balance sheet
of the end-of-period spreadsheet. Indicate whether each account would flow into the
income statement, statement of owner’s equity, or balance sheet.
1. Accounts Receivable
2. Depreciation Expense—Equipment
3. Jean Kehler, Capital
4. Office Equipment
5. Rent Revenue
6. Supplies Expense
7. Unearned Revenue
8. Wages Payable
Answer:
1. Balance sheet
2. Income statement
3. Balance sheet
4. Balance sheet
5. Income statement
6. Income statement
7. Balance sheet
8. Balance sheet
PR 3-1B Adjusting entries
On January 31, 2012, the following data were accumulated to assist the accountant in
preparing the adjusting entries for Oceanside Realty:
a. Fees accrued but unbilled at January 31 are $10,280.
b. The supplies account balance on January 31 is $6,100. The supplies on hand at January 31 are $1,300.
c. Wages accrued but not paid at January 31 are $3,000.
d. The unearned rent account balance at January 31 is $4,500, representing the receipt of an advance payment on January 1 of three months’ rent from tenants.
e. Depreciation of office equipment is $1,400.
Instructions
1. Journalize the adjusting entries required at January 31, 2012.
2. Briefly explain the difference between adjusting entries and entries that would be
made to correct errors.
Answer:
1. a. Accounts Receivable ................................................ 10,280
Fees Earned.......................................................... 10,280
Accrued fees earned.
b. Supplies Expense...................................................... 4,800
Supplies................................................................ 4,800
Supplies used ($6,100 – $1,300).
c. Wages Expense ......................................................... 3,000
Wages Payable ..................................................... 3,000
Accrued wages.
d. Unearned Rent........................................................... 1,500
Rent Revenue ....................................................... 1,500
Rent earned ($4,500/3).
e. Depreciation Expense............................................... 1,400
Accumulated Depreciation—Equipment............ 1,400
Depreciation expense.
2. Adjusting entries are a planned part of the accounting process to update the
accounts. Correcting entries are not planned but arise only when necessary to
correct errors.
preparing the adjusting entries for Oceanside Realty:
a. Fees accrued but unbilled at January 31 are $10,280.
b. The supplies account balance on January 31 is $6,100. The supplies on hand at January 31 are $1,300.
c. Wages accrued but not paid at January 31 are $3,000.
d. The unearned rent account balance at January 31 is $4,500, representing the receipt of an advance payment on January 1 of three months’ rent from tenants.
e. Depreciation of office equipment is $1,400.
Instructions
1. Journalize the adjusting entries required at January 31, 2012.
2. Briefly explain the difference between adjusting entries and entries that would be
made to correct errors.
Answer:
1. a. Accounts Receivable ................................................ 10,280
Fees Earned.......................................................... 10,280
Accrued fees earned.
b. Supplies Expense...................................................... 4,800
Supplies................................................................ 4,800
Supplies used ($6,100 – $1,300).
c. Wages Expense ......................................................... 3,000
Wages Payable ..................................................... 3,000
Accrued wages.
d. Unearned Rent........................................................... 1,500
Rent Revenue ....................................................... 1,500
Rent earned ($4,500/3).
e. Depreciation Expense............................................... 1,400
Accumulated Depreciation—Equipment............ 1,400
Depreciation expense.
2. Adjusting entries are a planned part of the accounting process to update the
accounts. Correcting entries are not planned but arise only when necessary to
correct errors.
PR 3-1A Adjusting entries
On October 31, 2012, the following data were accumulated to assist the accountant in
preparing the adjusting entries for Dependable Realty:
a. The supplies account balance on October 31 is $3,975. The supplies on hand on October 31 are $1,050.
b. The unearned rent account balance on October 31 is $11,000, representing the receipt of an advance payment on October 1 of four months’ rent from tenants.
c. Wages accrued but not paid at October 31 are $2,500.
d. Fees accrued but unbilled at October 31 are $4,900.
e. Depreciation of office equipment is $1,100.
Instructions
1. Journalize the adjusting entries required at October 31, 2012.
2. Briefly explain the difference between adjusting entries and entries that would be made to correct errors.
Answer:
1. a. Supplies Expense ....................................................... 2,925
Supplies.................................................................. 2,925
Supplies used ($3,975 – $1,050).
b. Unearned Rent............................................................. 2,750
Rent Revenue......................................................... 2,750
Rent earned ($11,000/4).
c. Wages Expense........................................................... 2,500
Wages Payable....................................................... 2,500
Accrued wages.
d. Accounts Receivable .................................................. 4,900
Fees Earned ........................................................... 4,900
Accrued fees earned.
e. Depreciation Expense................................................. 1,100
Accumulated Depreciation—Office Equipment .. 1,100
Depreciation expense.
2. Adjusting entries are a planned part of the accounting process to update the
accounts. Correcting entries are not planned but arise only when necessary
to correct errors.
preparing the adjusting entries for Dependable Realty:
a. The supplies account balance on October 31 is $3,975. The supplies on hand on October 31 are $1,050.
b. The unearned rent account balance on October 31 is $11,000, representing the receipt of an advance payment on October 1 of four months’ rent from tenants.
c. Wages accrued but not paid at October 31 are $2,500.
d. Fees accrued but unbilled at October 31 are $4,900.
e. Depreciation of office equipment is $1,100.
Instructions
1. Journalize the adjusting entries required at October 31, 2012.
2. Briefly explain the difference between adjusting entries and entries that would be made to correct errors.
Answer:
1. a. Supplies Expense ....................................................... 2,925
Supplies.................................................................. 2,925
Supplies used ($3,975 – $1,050).
b. Unearned Rent............................................................. 2,750
Rent Revenue......................................................... 2,750
Rent earned ($11,000/4).
c. Wages Expense........................................................... 2,500
Wages Payable....................................................... 2,500
Accrued wages.
d. Accounts Receivable .................................................. 4,900
Fees Earned ........................................................... 4,900
Accrued fees earned.
e. Depreciation Expense................................................. 1,100
Accumulated Depreciation—Office Equipment .. 1,100
Depreciation expense.
2. Adjusting entries are a planned part of the accounting process to update the
accounts. Correcting entries are not planned but arise only when necessary
to correct errors.
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