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Solutions Manual
Short Exercises
(5-10 min.) S 2-1
1. 2. 3. 4. 5. 6. 7.
b c e g d f a
1. Accounts payable 2. Cash 3. Service revenue 4. Prepaid rent 5. Rent expense 6. Common stock
L A R A E SE
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1. 5. 4. 3. 2.
Transactions occur. Prepare the financial statements Prepare the trial balance. Post the transactions from the journal to the ledger. Record the transactions in the journal.
Example 1. 2. 3. 4. 5. 6. 7.
A, 1 R, 4 SE, 3 A, 1 E, 5 L, 2 SE, 3 E ,5
The basic summary device in accounting is the account. The left side of an account is called the debit side, and the right side is called the credit side. We record transactions first in a journal. Then we post or copy the data to the ledger (or T-accounts). It is helpful to list all the accounts with their balances on a trial balance.
DR CR CR DR CR DR DR
1. 2. 3. 4. 5. 6. 7.
Rent expense Accounts payable Service revenue Office furniture Common stock Land Dividends
600
3/20 3/31
10,000 4,000
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Account Office equipment Dividends Service revenue Accounts payable Rent expense Cash
Type Asset Stockholders Equity Revenue Liability Expense Asset Dr. Dr. Cr. Cr. Dr. Dr. Cr. Cr. Dr. Dr. Cr. Cr.
Stockholders Equity Increase Asset Asset Asset Liability Asset Revenue Liability Asset Expense Asset Increase Decrease Increase Increase Increase Increase Decrease Decrease Increase Decrease
Cash
Asset
Decrease
Cr
4,600 4,600
2,400 2,400
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July
25,000 25,000 2,900 2,900 1,200 1,200 550 550 1,900 1,900 125 125
Accounts receivable Service revenue Performed service on account. Cash Accounts receivable Received cash on account.
16
22
Utilities expense Accounts payable Received utility bill. Salary expense Cash Paid salary expense. Interest expense Cash Paid interest expense.
31
31
Trial Balance December 31, 2010 BALANCE (Millions) ACCOUNT TITLE Cash Prepaid rent Equipment Accounts payable Note payable Common stock Dividends Service revenues Rent expense Utilities expense Total 36,000 24,000 $102,000 $102,000 6,000 79,000 DEBIT $14,000 4,000 18,000 $ 1,000 15,000 7,000 CREDIT
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BS BS BS BS BS BS BS RE IS IS IS IS
Cash Accounts Receivable Supplies Equipment Accounts Payable Notes Payable Common Stock Dividends Service Revenues Wages Expense Rent Expense Utilities Expense Total
$13,900 2,100 400 5,200 $1,900 11,000 8,000 500 3,300 1,300 600 ____200 $24,200 _______ $24,200
Exercises
(10-15 min.) E 2-15A
Transaction Jul 1
Dr. or Cr. Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Stockholders Equity Increase Asset Liability Asset Asset Liability Asset Asset Increase Increase Increase Decrease Decrease Decrease Increase
12
17
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Journal POST. DATE Feb 1 ACCOUNTS Interest expense Cash REF. Dr. 300 300 Cr.
2,200 2,200
1,700 1,700
4,500 4,500
19 Cash Land
85,000 85,000
290,000 290,000
1,500 1,500
POST. DATE Oct. 3 5 6 11 18 24 31 1 ACCOUNTS Cash Common stock Supplies Accounts Payable Building Cash Cash Service revenue Accounts payable Cash Accounts receivable Service revenue Cash Accounts receivable Salary expense Rent expense Cash REF. Dr. 50,000 50,000 300 300 42,000 42,000 1,600 1,600 200 200 2,400 2,400 800 800 500 1,200 1,700 Cr.
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Jan. Bal.
1 6 23
Jan. 4 9 29
Jan.
200 100
Jan. 17 Bal.
1,200
25,000 25,000
Jan. 2 Bal.
Jan. 4 Bal.
Jan. 29 Bal.
Req. 2
Litle Tykes Daycare, Inc. Trial Balance January 31, 2010 BALANCE ACCOUNT TITLE Cash Accounts receivable Supplies Equipment Accounts payable Common stock Service revenue Salary expense Total 700 $29,700 $29,700 DEBIT $21,600 400 200 6,800 $ 100 25,000 4,600 CREDIT
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11 Cash Accounts receivable 15 Cash Common stock 19 Accounts payable Cash 27 Accounts receivable Service revenue 31 Notes payable Cash Req 2 & 3 May 1 May 4 May 11 May 15 Bal. Cash 3,000 1,000 1,200 5,000 6,100 May 2 May 19 May 31 600 500 3,000 May 19
1,200
May 31
10,000 7,000
May 1 Bal.
May 1 Bal.
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Req 4
Baldwin Realty, Inc. Trial Balance May 31, 2010 ACCOUNT TITLE Cash Accounts receivable Supplies Office furniture Building Accounts payable Notes payable Common stock Service revenue Rent expense Total ____1,200 $47,400 DEBIT $ 6,100 2,200 700 1,200 36,000 $ 700 7,000 35,000 4,700 _____ $47,400 CREDIT
Req. 2
(1) Bal.
(6)
800 500
(2) Bal.
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(5)
60,000 55,000
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(4) Bal.
Crazy Curlz, Inc. Trial Balance June 30, 2010 BALANCE ACCOUNT TITLE Cash Supplies Equipment Building Accounts payable Notes payable Common stock Total $71,500 DEBIT $2,700 800 8,000 60,000 $ 500 55,000 16,000 $71,500 CREDIT
Req. 4
Crazy Curlz, Inc. Balance Sheet June 30, 2010 ASSETS Cash Supplies Equipment Building $ 2,700 Accounts payable 800 Notes payable 8,000 60,000 Common stock Total liabilities and Total assets $71,500 stockholders equity $71,500 Total liabilities STOCKHOLDERS EQUITY 16,000 LIABILITIES $ 500
55,000 55,500
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Journal POST. DATE Dec. 2 3 6 8 11 19 20 28 Cash Common stock Rent expense Cash Equipment Cash Furniture Accounts payable Supplies Accounts payable Accounts receivable Service revenue Utility expense Cash Cash Service revenue 800 800 1,600 1,600 2,100 2,100 200 200 900 900 300 300 1,100 1,100 ACCOUNTS REF. Dr. 10,000 10,000 Cr.
Req. 1, and 3
Dec. 2 28 Bal.
10,000 10,000
Dec. 11 Bal.
Service revenue Dec. 19 28 Bal. Rent Expense 800 800 Utility expense 300 300
Dec. 6 Bal.
Dec. 3 Bal.
Dec. 8 Bal.
Dec 20 Bal.
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Req. 4
McDonald Consulting, Inc. Trial Balance December 31, 2010 BALANCE ACCOUNT TITLE Cash Accounts receivable Supplies Equipment Furniture Accounts payable Common stock Service revenue Rent expense Utilities expense Total 800 300 $14,300 $14,300 DEBIT $ 8,400 900 200 1,600 2,100 $ 2,300 10,000 2,000 CREDIT
Req. 5 McDonald Consulting, Inc. Income Statement Month Ended December 31, 2010
Service revenue Expenses: Rent expense Utilities expense Total expenses $800 300
$2,000
1,100
Net Income
$900
McDonald Consulting, Inc. Statement of retained earnings Month Ended December 31, 2010
$0 900 $900
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McDonald Consulting, Inc. Balance Sheet December 31, 2010 ASSETS Cash Accounts receivable Supplies Equipment Furniture $ 8,400 Accounts payable 900 200 STOCKHOLDERS EQUITY 10,000 900 10,900 LIABILITIES $ 2,300
Account(s) Misstated
Accounts receivable $250 too high Accounts Payable $250 too high
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Transaction
Account Affected
Type Stockholders Equity Increase Asset Asset Asset Asset Decrease Increase Decrease Increase
Dr. or Cr. Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Apr. 1 Advertising expense Cash 3 Equipment Cash 5 Cash Common stock 9 Cash Notes payable 12 Utilities expense Cash 17 Supplies Cash
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Journal POST. DATE May 1 5 ACCOUNTS Interest expense Cash Office furniture Accounts payable REF. Dr. 500 500 2,500 2,500 2,700 2,700 4,500 4,500 50,000 50,000 800,000 800,000 700 700 Cr.
10 Accounts receivable Service revenue 12 Cash Notes payable 19 Cash Land 21 Building Notes payable 27 Accounts Payable Cash
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Journal POST. DATE Sep 3 5 6 11 18 24 30 1 ACCOUNTS Cash Common stock Supplies Accounts payable Building Cash Cash Service revenue Accounts payable Cash Accounts receivable Service revenue Cash Accounts receivable Salary expense Rent expense Cash REF. Dr. 40,000 40,000 200 200 32,000 32,000 3,000 3,000 100 100 2,900 2,900 1,500 1,500 650 1,100 1,750 Cr.
68
May Bal.
1 6 23
May. 4 9 29
May
700 500
May 17 Bal.
900
45,000 45,000
May 2 Bal.
May 4 Bal.
May 29 Bal.
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Req. 2
Learning Fun Daycare, Inc. Trial Balance May 31, 2010 BALANCE ACCOUNT TITLE Cash Accounts receivable Supplies Equipment Accounts payable Common stock Service revenue Salary expense Total 1,100 $56,600 $56,600 DEBIT $39,400 2,700 700 12,700 $ 500 45,000 11,100 CREDIT
70
11 Cash Accounts receivable 15 Cash Common stock 19 Accounts payable Cash 27 Accounts receivable Service revenue 30 Notes payable Cash Req 2 & 3
Jun 19
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1,100
Jun 30
10,000 6,500
Jun 1 Bal.
Jun 1 Bal.
72
Req 4
Baltimore Realty, Inc. Trial Balance June 31, 2010 ACCOUNT TITLE Cash Accounts receivable Supplies Office furniture Building Accounts payable Notes payable Common stock Service revenue Rent expense Total ___2,400 $67,100 DEBIT $ 21,600 3,700 1,500 1,900 36,000 $ 2,900 6,500 49,500 8,200 _____ $67,100 CREDIT
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Req. 2
(1) Bal.
(6)
600 450
74
(2) Bal.
(5)
80,000 74,000
(4) Bal.
28,000 28,000
Dancing Antz, Inc. Trial Balance September 30, 2010 BALANCE ACCOUNT TITLE Cash Supplies Equipment Building Accounts payable Notes payable Common stock Total $102,450 DEBIT $19,850 600 2,000 80,000 $ 450 74,000 28,000 $102,450 CREDIT
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Req. 4
Dancing Antz, Inc. Balance Sheet September 30, 2010 ASSETS Cash Supplies Equipment Building $ 19,850 Accounts payable 600 Notes payable 2,000 80,000 Common stock Total liabilities and Total assets $102,450 stockholders equity $102,450 Total liabilities STOCKHOLDERS EQUITY 28,000 LIABILITIES $ 450
74,000 74,450
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Journal POST. DATE Feb 2 3 6 8 11 19 20 28 Cash Common stock Rent expense Cash Equipment Cash Furniture Accounts payable Supplies Accounts payable Accounts receivable Service revenue Utility expense Cash Cash Service revenue Req. 2 800 800 1,900 1,900 2,500 2,500 500 500 2,700 2,700 450 450 2,000 2,000 ACCOUNTS REF. Dr. 65,000 65,000 Cr.
Feb 2 28 Bal.
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Accounts receivable Feb 19 2,700 Bal. Feb 11 Bal. 2,700 Supplies 500 500 Equipment 1,900 1,900 Furniture 2,500 2,500
Common stock Feb 2 Bal. Service revenue Feb 19 28 Bal. Rent Expense 800 800 Utility expense 450 450
65,000 65,000
Feb 6 Bal.
Feb 3 Bal.
Feb 20 Bal.
Meo Consulting, Inc. Trial Balance February 28, 2010 BALANCE ACCOUNT TITLE Cash Accounts receivable Supplies Equipment Furniture Accounts payable Common stock Service revenue Rent expense Utilities expense Total DEBIT $ 63,850 2,700 500 1,900 2,500 $ 800 450 $72,700 3,000 65,000 4,700 $72,700 CREDIT
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Req. 4 Meo Consulting, Inc. Income Statement Month Ended February 28, 2010
Service revenue Expenses: Rent expense Utilities expense Total expenses $800 450
$4,700
1,250
Net Income
$3,450
Meo Consulting, Inc. Statement of Retained Earnings Month Ended February 28, 2010
Retained earnings, February 1, 2010 Add: Net income Retained earnings, February 28, 2010
$0 3,450 $3,450
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Meo Consulting, Inc. Balance Sheet February 28, 2010 ASSETS Cash Accounts receivable Supplies Equipment Furniture $ 63,850 Accounts payable 2,700 500 STOCKHOLDERS EQUITY 65,000 3,450 68,450 LIABILITIES $ 3,000
80
Accounts receivable $600 too high Accounts Payable $600 too high
Problems
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Journal POST. DATE June 1 Cash Common stock 3 8 Supplies Cash Land Cash 12 Office equipment Accounts payable 17 Cash Notes payable 26 Accounts payable Cash 30 Cash Accounts receivable Service revenue 30 Salary expense Rent expense Utilities expense Cash 30 Dividends Cash 2,500 2,500 7,000 9,000 16,000 2,800 3,600 600 7,000 6,000 6,000 3,800 3,800 15,000 15,000 500 500 34,000 34,000 ACCOUNTS REF. Dr. 60,000 60,000 Cr.
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Journal POST. DATE Nov 1 Cash Notes payable 3 Building Cash 6 Accounts receivable Service revenue 9 Supplies Accounts payable Service revenue 15 Dividends Cash 17 Cash Accounts Receivable 18 Property tax expense Cash 22 Salary expense Cash 26 Supplies Cash 30 Accounts payable Cash 1,600 1,600 2,800 2,800 700 700 2,000 2,000 6,000 6,000 6,600 6,600 145,000 145,000 14,700 14,700 1,600 1,6 00 8,100 8,100 ACCOUNTS REF. Dr. 200,000 200,000 Cr.
13 Cash
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16 19
28
84
Req. 1, 3, and 4
Mar 1 5 19 28
Bal.
Cash 40,000 Mar 8 1,700 14 800 16 300 31 31 31 17,700 Accounts Receivable 500 Mar 28 1,300 1,500 Supplies 400 400
Mar 16
Accounts Payable 2,100 Mar 3 Bal Common stock Mar 1 Bal. Dividends 1,800 1,800
2,500 400
40,000 40,000
Mar 11 23 Bal.
300
Mar 31 Bal.
Mar 3 Bal.
Service revenue Mar 5 11 19 23 Bal. Salary Expense 1,100 900 2,000 Rent Expense 1,200 1,200
Mar 3 Bal.
Mar 14 31 Bal.
Mar 8 Bal.
Mar 31 Bal.
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Req. 5
Slater & Associates, Inc. Trial Balance March 31, 2010 BALANCE ACCOUNT TITLE Cash Accounts receivable Supplies Furniture Land Accounts payable Common stock Dividends Service revenue Salary expense Rent expense Total 2,000 1,200 $44,700 $44,700 1,800 4,300 DEBIT $ 17,700 1,500 400 2,100 18,000 $ 400 40,000 CREDIT
86
21
25
27
29
30
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Req. 2
CASH POST. DATE Jul ITEM 15 Bal. 16 21 25 27 29 30 30 J.6 J.6 J.6 J.6 J.6 J.6 J.6 2,900 1,200 2,500 2,500 1,700 1,400 3,200 REF. DEBIT CREDIT
ACCOUNT NO. 110 BALANCE DEBIT 3,500 6,000 7,700 6,300 3,100 6,000 4,800 2,300 CREDIT
ACCOUNTS RECEIVABLE POST. DATE Jul ITEM 15 Bal. 16 18 J.6 J.6 1,900 2,500 REF. DEBIT CREDIT
SUPPLIES
POST. DATE Jul ITEM 15 Bal. 23 J.6 600 REF. DEBIT CREDIT
ACCOUNTS PAYABLE POST. DATE Jul ITEM 15 Bal. 23 27 J.6 J.6 3,200 600 REF. DEBIT CREDIT
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COMMON STOCK POST. DATE Jul ITEM 15 Bal. REF. DEBIT CREDIT
DIVIDENDS POST. DATE Jul ITEM 15 Bal. 25 J.6 1,400 REF. DEBIT CREDIT
SERVICE REVENUE POST. DATE Jul ITEM 15 Bal. 18 21 29 J.6 J.6 J.6 1,900 1,700 2,900 REF. DEBIT CREDIT
ACCOUNT NO. 411 BALANCE DEBIT CREDIT 6,700 8,600 10,300 13,200
90
SALARY EXPENSE POST. DATE Jul ITEM 15 Bal. 30 J.6 2,500 REF. DEBIT CREDIT
RENT EXPENSE POST. DATE Jul ITEM 15 Bal. 30 J.6 1,200 REF. DEBIT CREDIT
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Req. 3
TDR Systems, Inc. Trial Balance July 31, 2010 ACCOUNT Cash Accounts receivable Supplies Equipment Accounts payable Common stock Dividends Service revenue Salary expense Rent expense Total 4,700 2,500 $35,100 $35,100 4,000 13,200 DEBIT $ 2,300 7,100 1,300 13,200 $ 1,900 20,000 CREDIT
92
Req. 2
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Cascade Consulting, Inc. Income Statement Year Ended December 31, 2010
Service revenue Expenses Salary expense Rent expense Utilities expense Supplies expense Insurance expense Total expenses $51,000 12,800 6,400 2,800 1,700
$83,000
74,700
Net Income
$8,300
94
Cascade Consulting , Inc. Statement of Retained Earnings Year Ended December 31, 2010 Retained earnings, Jan. 1, 2010 Add: Net income Subtotal Less: Dividends Retained earnings, Dec. 31, 2010 $9,700 8,300 18,000 13,500 $4,500
Cascade Consulting, Inc. Balance Sheet December 31, 2010 ASSETS Cash Accounts receivable Supplies Land Building $ 8,300 Accounts payable 6,500 Note payable 400 24,000 110,000 Common stock Retained earnings Total stockholders equity Total liabilities and Total assets $149,200 stockholders equity $149,200 Total liabilities STOCKHOLDERS EQUITY 65,000 4,500 69,500 LIABILITIES $ 3,700 76,000 79,700
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Req 3 It was a profitable year for Cascade Consulting, Inc. from the standpoint that the business generated $8,300 of Net income. However, $8,300 was not very much income for a whole year.
b.
Supplies Accounts payable The original entry was recorded backwards so an entry for double the amount needs to be made.
540 540
c.
10,800 10,800
d.
850 850
Req 2
Waybright Kemp Financial Accounting 1e 96
a. Net income is understated because Service revenue was credited (increased) by only $890 instead of the correct amount of $980. b. Net income would be unchanged because the entry did not effect a revenue or an expense. c. Net income would be understated because Rent expense was debited (increased) by $12,000 instead of the correct amount of $1,200. d. Net income would be unchanged because the entry did not effect a revenue or an expense.
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98
Journal POST. DATE Jul 1 Cash Notes payable 3 Building Cash 6 Accounts receivable Service revenue 9 Supplies Accounts payable Service revenue 15 Dividends Cash 17 Cash Accounts Receivable 18 Property tax expense Cash 22 Salary expense Cash 26 Supplies Cash 31 Accounts payable Cash 1,400 1,400 3,150 3,150 500 500 2,200 2,200 3,000 3,000 2,900 2,900 110,000 110,000 18,400 18,400 1,200 1,200 8,500 8,500 ACCOUNTS REF. Dr. 190,000 190,000 Cr.
13 Cash
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16 19
28
100
Req. 1, 3, and 4
May 1 5 19 28
Bal.
Cash 80,000 May 8 2,700 14 700 16 400 31 31 31 55,300 Accounts Receivable 2,500 May 28 1,300 3,400 Supplies 500 500
May 16
Accounts Payable 1,200 May 3 Bal Common stock May 1 Bal. Dividends 1,200 1,200
1,700 500
80,000 80,000
May 11 23 Bal.
400
May 31 Bal.
May 3 Bal.
Service revenue May 5 11 19 23 Bal. Salary Expense 1,200 1,200 2,400 Rent Expense 1,700 1,700
May 3 Bal.
May 14 31 Bal.
May 8 Bal.
May 31 Bal.
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Req. 5
Sargent & Associates, Inc. Trial Balance May 31, 2010 BALANCE ACCOUNT TITLE Cash Accounts receivable Supplies Furniture Land Accounts payable Common stock Dividends Service revenue Salary expense Rent expense Total 2,400 1,700 $87,700 $87,700 1,200 7,200 DEBIT $ 55,300 3,400 500 1,200 22,000 $ 500 80,000 CREDIT
102
21
25
27
29
30
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Req. 2
CASH POST. DATE Mar ITEM 15 Bal. 16 21 25 27 29 30 30 J.6 J.6 J.6 J.6 J.6 J.6 J.6 2,500 1,600 2,600 1,700 1,500 1,300 3,300 REF. DEBIT CREDIT
ACCOUNT NO. 110 BALANCE DEBIT 4,400 6,100 7,600 6,300 3,000 5,500 3,900 1,300 CREDIT
ACCOUNTS RECEIVABLE POST. DATE Mar ITEM 15 Bal. 16 18 J.6 J.6 1,900 1,700 REF. DEBIT CREDIT
SUPPLIES
POST. DATE Mar ITEM 15 Bal. 23 J.6 700 REF. DEBIT CREDIT
ACCOUNTS PAYABLE POST. DATE Mar ITEM 15 Bal. 23 27 J.6 J.6 3,300 700 REF. DEBIT CREDIT
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COMMON STOCK POST. DATE Mar ITEM 15 Bal. REF. DEBIT CREDIT
DIVIDENDS POST. DATE Mar ITEM 15 Bal. 25 J.6 1,300 REF. DEBIT CREDIT
SERVICE REVENUE POST. DATE Mar ITEM 15 Bal. 18 21 29 J.6 J.6 J.6 1,900 1,500 2,500 REF. DEBIT CREDIT
ACCOUNT NO. 411 BALANCE DEBIT CREDIT 7,700 9,600 11,100 13,600
106
SALARY EXPENSE POST. DATE Mar ITEM 15 Bal. 30 J.6 2,600 REF. DEBIT CREDIT
RENT EXPENSE POST. DATE Mar ITEM 15 Bal. 30 J.6 1,600 REF. DEBIT CREDIT
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Req. 3
BFF Systems, Inc. Trial Balance March 31, 2010 ACCOUNT Cash Accounts receivable Supplies Equipment Accounts payable Common stock Dividends Service revenue Salary expense Rent expense Total 4,800 2,900 $39,000 $39,000 4,100 13,600 DEBIT $ 1,300 9,100 800 16,000 $ 1,500 23,900 CREDIT
108
Req. 2
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Highland Consulting, Inc. Income Statement Year Ended August 31, 2010
Service revenue Expenses Salary expense Rent expense Utilities expense Supplies expense Insurance expense Total expenses $56,000 8,700 5,400 3,100 1,300
$86,500
74,500
Net Income
$12,000
110
Highland Consulting , Inc. Statement of Retained Earnings Year Ended August 31, 2010 Retained earnings, September 1, 2009 Add: Net income Subtotal Less: Dividends Retained earnings, August 31, 2010 $13,600 12,000 25,600 10,000 $15,600
Highland Consulting, Inc. Balance Sheet August 31, 2010 ASSETS Cash Accounts receivable Supplies Land Building $ 9,200 Accounts payable 5,500 Note payable 600 89,000 91,000 Common stock Retained earnings Total stockholders equity Total liabilities and Total assets $195,300 stockholders equity $195,300 Total liabilities STOCKHOLDERS EQUITY 107,700 15,600 123,300 LIABILITIES $ 4,000 68,000 72,000
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Req 3 It was a profitable year for Highland Consulting, Inc. from the standpoint that the business generated $12,000 of Net income. However, $12,000 was not very much income for a whole year.
c.
7,200 7,200
d.
815 815
Req 2
Waybright Kemp Financial Accounting 1e 112
a. Net income is understated because Service revenue was credited (increased) by only $1,140 instead of the correct amount of $1,410. b. Net income would be unchanged because the entry did not effect a revenue or an expense. c. Net income would be understated because Rent expense was debited (increased) by $8,000 instead of the correct amount of $800. d. Net income would be unchanged because the entry did not effect a revenue or an expense.
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Continuing Exercise
Req 2 6/1 6/3 6/5 6/6 6/8 6/17 6/30 Cash Common Stock Equipment Accounts payable Fuel expense Cash Accounts receivable Service revenue Lawn supplies Cash Cash Service revenue Cash Accounts receivable 1,000 1,000 1,400 1,400 20 20 200 200 50 50 500 500 50 50
114
Req. 3
Assets = Liabilities + Stockholders equity Common stock 1,00 0 1,00 0 6/1
6/5 6/8
6/8
Lawn supplies 50
50 Bal.
1,400 Bal.
Bal.
1,48 0 Equipment 6/3 Bal. 1,400 1,400 Service revenue 200 500 6/6 6/17 Bal. Retained earnings
Bal.
150
700
6/5
Fuel Expense 20
Bal.
20
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Req 4 Grahams YardCare, Inc. Trial Balance June 30, 2010 ACCOUNT DEBIT Cash $1,480 Accounts receivable 150 Lawn supplies 50 Equipment 1,400 Accounts payable Common stock Service revenue Fuel expense 20 Total $3,100
CREDIT
116
Continuing Problem
Req. 1 Journal POST. DATE Jun 1 Salary expense Cash ACCOUNTS REF. Dr. 675 675 Cr. Page 6
Land Cash
15,000 15,000
1,800 1,800
1,700 1,700
500 500
750 750
11
Accounts receivable
3,800
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Sevrice revenue
3,800
13
10,000 10,000
16
675 675
17
1,350 1,350
18
1,500 1,500
19
325 325
21
1,000 1,000
22
3,300 3,300
24
275 275
118
26
1,100 1,100
28
300 300
30
745 745
30
675 675
30
Dividends Cash
1,800 1,800
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Req. 2
CASH POST. DATE May Jun ITEM 31 Bal. 1 2 3 4 5 13 16 17 18 19 21 24 28 30 30 30 300 745 675 1,800 1,350 1,500 325 1,000 275 1,700 500 10,000 675 675 15,000 1,800 REF. DEBIT CREDIT BALANCE DEBIT 24,475 23,800 8,800 7,000 8,700 9,200 19,200 18,525 19,875 21,375 21,050 20,050 19,775 20,075 19,330 18,655 16,855 CREDIT
ACCOUNTS RECEIVABLE
Waybright Kemp Financial Accounting 1e 120
POST. DATE May Jun ITEM 31 Bal. 5 11 18 26 28 1,100 300 3,800 1,500 500 REF. DEBIT CREDIT
SUPPLIES POST. DATE May Jun ITEM 31 Bal. 8 750 REF. DEBIT CREDIT BALANCE DEBIT 860 1,610 CREDIT
LAND POST. DATE Jun 2 ITEM REF. DEBIT 15,000 CREDIT BALANCE DEBIT 15,000 CREDIT
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DATE Jun 22
ITEM
REF.
DEBIT 3,300
CREDIT
DEBIT 3,300
CREDIT
EQUIPMENT POST. DATE May ITEM 31 Bal. REF. DEBIT CREDIT BALANCE DEBIT 4,700 CREDIT
VEHICLES POST. DATE May ITEM 31 Bal. REF. DEBIT CREDIT BALANCE DEBIT 31,000 CREDIT
ACCOUNTS PAYABLE POST. DATE May Jun ITEM 31 Bal. 8 21 22 1,000 3,300 750 REF. DEBIT CREDIT BALANCE DEBIT CREDIT 840 1,590 590 3,890
122
NOTES PAYABLE POST. DATE May ITEM 31 Bal. REF. DEBIT CREDIT BALANCE DEBIT CREDIT 31,000
COMMON STOCK POST. DATE May Jun ITEM 31 Bal. 13 10,000 REF. DEBIT CREDIT BALANCE DEBIT CREDIT 28,500 38,500
DIVIDENDS POST. DATE May Jun ITEM 31 Bal. 30 1,800 REF. DEBIT CREDIT BALANCE DEBIT 1,000 2,800 CREDIT
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SERVICE REVENUE POST. DATE May Jun ITEM 31 Bal. 4 11 17 26 1,700 3,800 1,350 1,100 REF. DEBIT CREDIT BALANCE DEBIT CREDIT 4,050 5,750 9,550 10,900 12,000
SALARY EXPENSE POST. DATE May Jun ITEM 31 Bal. 1 16 30 675 675 675 REF. DEBIT CREDIT BALANCE DEBIT 675 1,350 2,050 2,700 CREDIT
RENT EXPENSE POST. DATE Jun 3 ITEM REF. DEBIT 1,800 CREDIT BALANCE DEBIT 1,800 CREDIT
124
UTILITIES EXPENSE POST. DATE May Jun ITEM 31 Bal. 30 745 REF. DEBIT CREDIT BALANCE DEBIT 480 1,225 CREDIT
ADVERTISING EXPENSE POST. MISCELLANEOUS EXPENSE DATE JunDATE 19 Jun 24 ITEM ITEM REF. POST. REF. DEBIT 325 DEBIT 275 CREDIT CREDIT BALANCE DEBIT CREDIT BALANCE 325 DEBIT 275 CREDIT
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Req. 3 Aqua Elite, Inc. Trial Balance June 30, 2010 ACCOUNT Cash Accounts receivable Supplies Land Office furniture Equipment Vehicles Accounts payable Notes payable Common stock Dividends Service revenue Salary expense Rent expense Utilities expense Advertising expense Miscellaneous expense Total 2,700 1,800 1,225 325 275 $85,390 $85,390 2,800 12,000 DEBIT $ 16,855 3,800 1,610 15,000 3,300 4,700 31,000 $ 3,890 31,000 38,500 CREDIT
Ethics in Action
Case #1
Waybright Kemp Financial Accounting 1e 126
Jamie should not debit the Dividends account rather than the Legal Expense account. It would be wrong to debit the Dividends account because the transaction was not a dividend but rather the payment of an expense.
It does matter how the $5,000 payment is recorded. By debiting the Dividends account rather than the proper expense account, the net income will be higher on the income statement. While it is true that the trial balance will show that total debits equal total credits either way, it will not reveal inaccurate or improper individual account balances. The purpose of properly recording each business transaction is to provide a set of financial statements that accurately reflect the results of operations and related financial position.
Jamie does have an ethical responsibility to accurately record the transactions as she is providing financial statements to the bank. Since the bank is relying on the accuracy of the financial statements, it assumes that the income statement properly includes all the expenses for the business. By omitting the $5,000 expense, Jamie is giving the bank an inaccurate and misleading income statement.
Case #2 Jims actions were not justified. The journal is where all the business transactions are initially entered into the accounting records. It is important that transactions are correctly entered and posted to ultimately ensure accurate financial statements. Even though the expense total is the same, Wage Expense will not reflect the true amount of wages actually incurred and thus will not be accurate. There are ethical concerns. Jim has a responsibility to ensure that all the business transactions are properly recorded. He cannot misclassify expense transactions to obtain account balances that reflect what he feels they should reflect rather than the reality of what actually happened. This is misleading. Users of financial information depend upon the accountants to properly record and post all transactions in order to provide accurate information; therefore, accountants have an ethical duty to ensure accurate financial reporting.
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As the owner of ProCare Lawnservice you should have a problem with Jims actions. You need to have accurate financial information for decision-making purposes. Accordingly, by Jim reducing the actual amount of Wage Expense, you may not be aware of the actual labor costs and may decide to hire additional employees. You depend upon the accountant to provide accurate financial reports, and thus, Jim has not fulfilled his obligation as an accountant.
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Financial Analysis
Journal DATE Jan 3 ACCOUNTS Equipment Cash Dr. 485,000 485,000 Cr.
Cash Sales
26,360,000 26,360,000
10
32,845,000 32,845,000
15
642,000 642,000
29
16,750,000 16,750,000
2.
No solution.
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Industry Analysis
1. Columbia Sportswear is the larger company in terms of revenue, with approximately $1.3 billion in sales for 2008 as compared to approximately $725 million for Under Armour. This information is on the Consolidated Statement of Operations. 2. Columbia Sportswear is also the larger of the two in terms of total assets with about $1.15 billion at December 31, 2008, compared to about $488 million for Under Armour. This information is on the Consolidated Balance Sheet. 3. Once again, Columbia Sportswear has more debt at the end of 2008 with approximately $204 million. Under Armour only had around $156 million in debt at the end of the year. This information is also located on the Consolidated Balance Sheet. Note that the terms Total Liabilities and total debt mean the same thing. 4. Under Armour wins this one with a gross profit percentage of 48.9% as compared to only 43.1% for Columbia Sportswear. In terms gross profit percentage, the higher the number, the better. This percentage indicates that Under Armour is doing a little better job of making profit from selling their products. 5. Columbia Sportswear paid out more dividends to their stockholders in 2008. They paid $22,098,000 in dividends. This number can be found on one of two financial statements. Its shown on either the Consolidated Statement of Cash Flows or the Consolidated Statements of Shareholders Equity. Again note that the terms Stockholder and Shareholder mean the same thing. What about Under Armour? They did not pay out any dividends in any of the years covered by these financial statements. 6. Students response to this question will obviously vary.
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Date May 5
Post Ref.
Dr. 400
Cr. 400
The next error is that the credit card transaction doesnt have any effect on Cash until the credit card bill is paid. When the original transaction took place, a liability account, such as Credit Card Payable, should have been credited. To correct this, the following entry needs to be made. Date May 5 Accounts Cash Credit Card Payable Correct posting using credit card Post Ref. Dr. 250 250 Cr.
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Written Communication
Although students responses will vary widely, here is a suggested memo to address the two situations. Dear Client: I want to address the two concerns you had in your e-mail to me last week. The first one was about the credit balance in your cash account. Even after I made the corrections to your trial balance, the cash was still showing in the credit column. And yes, you are correct that the normal balance of the cash account should be a debit balance. But it is possible to have your cash balance in the credit column if your checking account is overdrawn. If you have overdrawn your account, you will need to contact the bank to make sure that they did not return any of your checks. Plus, you will have to deposit some funds into your account to bring it to the positive (debit) side. The second situation was concerning the use of debit cards versus credit cards. The terminology does get very confusing. Without going into an accounting lesson on the differences between debits and credits, let me explain what happens when you use the two cards. When you use your debit card, there have to be funds available in whatever account that card is attached to because the use of this card will automatically withdraw that amount of money from the account. The bank debits your account which, in banking terms, means they removed the money from your account. On the other hand, you have to credit cash because you are decreasing your cash account. A credit card transaction, on the other hand, does not automatically remove the cash from your account. It sets up a liability to the credit card company which will have to be paid when you get the credit card statement. So the credit card transaction itself does not affect cash. You are not crediting cash when you use your credit card. You are crediting a liability to the credit card company which means you owe them money.
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