Chapter Three

Challenge Exercise 1 Expands on: E3-3 LO: 2 OBrien Industries collected $200,000 from customers in 201 ! Of t"e amount collected, $ 0,000 #as from re$enue accrued from ser$ices performed in 2013, and $20,000 #as recei$ed in ad$ance for 201% re$enue! In addition, OBrien earned $&0,000 of re$enue in 201 , #"ic" #ill not 'e collected until 201%! OBrien also reco(ni)ed $2%,000 of re$enue in 201 #"ic" "ad 'een collected in 2013! OBrien Industries paid $1 0,000 for expenses in 201 ! Of t"e amount paid, $%0,000 #as for expenses incurred on account in 2013, $22,000 #as paid in ad$ance for 201% expenses! In addition, OBrien incurred $&*,000 of expenses in 201 , #"ic" #ill not 'e paid until 201%! OBrien also incurred $2+,000 of expenses in 201 #"ic" "ad 'een paid in 2013! Instructions : ,a- .ompute 201 cas"-'asis net income! ,'- .ompute 201 accrual-'asis net income!

Challenge Exercise 2 Expands on: E3-%

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LO: %,/ .rai( 0er(uson .ompan1 "as t"e follo#in( 'alances in selected accounts on 2ecem'er 31, selected data! 201 ! 3ccounts 4ecei$a'le 3ccumulated 2epreciation5E6uipment Interest 7a1a'le 8otes 7a1a'le 7repaid Insurance 9alaries and :a(es 7a1a'le 9upplies ;nearned 9er$ice 4e$enue $ -010,000 -020,000 2,&00 -03,%00 %0,000

3ll t"e accounts "a$e normal 'alances! <"e information 'elo# "as 'een (at"ered at 2ecem'er 31, 201 ! 1! .rai( 0er(uson .ompan1 'orro#ed $20,000 '1 si(nin( a 12=, one-1ear note on 3u(ust 1, 201 ! 2! 3 count of supplies on 2ecem'er 31, 201 , indicates t"at supplies of $+00 are on "and! 3! 2epreciation on t"e e6uipment for 201 is $2,000! ! .rai( 0er(uson .ompan1 paid $2,&00 for 12 mont"s of insurance co$era(e on >a1 1, 201 ! %! On 8o$em'er 1, 201 , .rai( 0er(uson collected $%0,000 for consultin( ser$ices to 'e performed from 8o$em'er 1, 201 , t"rou(" >arc" 31, 201%! /! .rai( 0er(uson performed consultin( ser$ices for a client in 2ecem'er 201 ! <"e client #ill 'e 'illed $/,300! &! .rai( 0er(uson .ompan1 pa1s its emplo1ees total salaries of $13,000 e$er1 >onda1 for t"e precedin( %da1 #ee? ,>onda1 t"rou(" 0rida1-! On >onda1, 2ecem'er 2+, emplo1ees #ere paid for t"e #ee? endin( 2ecem'er 2/! 3ll emplo1ees #or?ed t"e last 3 da1s of 201 ! Instructions: 3! 7repare ad@ustin( entries for t"e se$en items descri'ed a'o$e! B! 7repare t"e 201% entr1 for items / and &!

Challenge Exercise 3 Expands on: E3-& LO: %,/

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<"e led(er of Laurie 4ental 3(enc1 on >arc" 31 of t"e current 1ear includes t"e follo#in( selected accounts 'efore ad@ustin( entries "a$e 'een prepared! 2e'it .redit 7repaid Insurance $ %, 00 9upplies ,%00 E6uipment 0,000 3ccumulated 2epreciation5E6uipment $12,/00 8otes 7a1a'le 2%,000 ;nearned 4ent 4e$enue 11,100 4ent 4e$enue +0,000 Interest Expense A0A 9alaries and :a(es Expense 20,000 3n anal1sis of t"e accounts s"o#s t"e follo#in(! 1! <"e e6uipment depreciates $/00 per mont"! 2! <#o-t"irds of t"e unearned rent re$enue #as earned durin( t"e 6uarter! 3! <"e note pa1a'le is dated Banuar1 1 and 'ears 12= interest! ! 9upplies on "and total $*00! %! <"e insurance polic1 is a t#o-1ear polic1 dated Banuar1 1! Instructions : 3! 7repare t"e ad@ustin( entries at >arc" 31, assumin( t"at ad@ustin( entries are made 6uarterl1! 3dditional accounts are: 2epreciation Expense, Insurance Expense, Interest 7a1a'le, and 9upplies Expense! B! .ompute t"e endin( 'alances for 7repaid Insurance, ;nearned 4ent 4e$enue, and 4ent 4e$enue, and indicate in #"ic" financial statement t"ose items #ill 'e reported!

Challenge Exercise 4 Expands on: E3-* LO: %, / .1rene 9exton, 2!2!9!, opened a dental practice on Banuar1 1, 201 ! 2urin( t"e first mont" of operations t"e follo#in( transactions occurred!

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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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1! 7erformed ser$ices for patients #"o "ad dental plan insurance! 3t Banuar1 31, $1,+00 of suc" ser$ices #ere performed 'ut not 1et recorded! 2! ;tilit1 expenses incurred 'ut not paid prior to Banuar1 31 totaled $&/0! 3! 7urc"ased dental e6uipment on Banuar1 1 for $+2,000, pa1in( $20,000 in cas" and si(nin( a $&2,000, 12=, 3-1ear note pa1a'le! <"e e6uipment depreciates $&%0 per mont"! ! 7urc"ased a one-1ear malpractice insurance polic1 on Banuar1 1 for $13,200! %! 7urc"ased $1,+00 of dental supplies! On Banuar1 31, determined t"at $ 00 of supplies #ere on "and! Instructions: 3! 7repare t"e ad@ustin( entries on Banuar1 31! 3ccount titles are: 3ccumulated 2epreciation5E6uipment, 2epreciation Expense, 9er$ice 4e$enue, 3ccounts 4ecei$a'le, Insurance Expense, Interest Expense, Interest 7a1a'le, 7repaid Insurance, 9upplies, 9upplies Expense, ;tilities Expense, and ;tilities 7a1a'le! B! 7repare t"e follo#in( 0e'ruar1 @ournal entries! 1! <"e cas" is recei$ed for t"e ser$ices descried in 3!1! a'o$e! 2! <"e utilit1 'ill from 3!2! is paid! 3! On 0e'ruar1 1, t"e interest accrued in 3!3!, and $2,000 in principal, is paid!

Challenge Exercise 5 Expands on: E3-10 LO: %, / <"e income statement of 3nnette .o! for t"e mont" of Bul1 s"o#s net income of $3,200 'ased on 9er$ice 4e$enue $&,&00, 9alaries and :a(es Expense $2,/00, 9upplies Expense $1, 00, and ;tilities Expense $%00! In re$ie#in( t"e statement, 1ou disco$er t"e follo#in(! 1! Insurance expired durin( Bul1 of $%00 #as omitted!
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2! 9upplies expense includes $300 of supplies t"at are still on "and at Bul1 31! 3! 2epreciation on e6uipment of $2%0 #as omitted! ! 3ccrued 'ut unpaid salaries and #a(es at Bul1 31 of $ 00 #ere not included! %! 9er$ices pro$ided 'ut unrecorded totaled $&00! Instructions: 3! 7repare a correct income statement for Bul1 201 ! B! :"at effect do t"e corrections "a$e on t"e amount reported as total assets on t"e 'alance s"eetC B! :"at effect do t"e corrections "a$e on t"e amount reported as total lia'ilities on t"e 'alance s"eetC

Challenge Exercise 6 Expands on: E3-1& LO: * 41an 9tiles .ompan1 "as t"e follo#in( 'alances in selected accounts on 2ecem'er 31, 201 ! 9er$ice 4e$enue $% ,000 Insurance Expense 3,120 9upplies Expense 3,3%0

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3ll t"e accounts "a$e normal 'alances! 41an 9tiles .ompan1 de'its prepa1ments to expense accounts #"en paid, and credits unearned re$enues to re$enue accounts #"en recei$ed! <"e follo#in( information 'elo# "as 'een (at"ered at 2ecem'er 31, 201 ! 1! 41an 9tiles .ompan1 paid $3,120 for 12 mont"s of insurance co$era(e on 3pril 1, 201 ! 2! On 8o$em'er 1, 201 , 41an 9tiles .ompan1 collected $% ,000 for consultin( ser$ices to 'e performed from 8o$em'er 1, 201 , t"rou(" 3pril 30, 201%! 3! 3 count of supplies on 2ecem'er 31, 201 , indicates t"at supplies of $1,100 are on "and! Instructions: 3! 7repare t"e ad@ustin( entries needed at 2ecem'er 31, 201 ! B! Indicate t"e amounts to 'e reported in t"e 201 income statement and t"e 12D31D1 'alance s"eet for t"e items from t"e ad@ustin( entries in part 1!

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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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