Problem 3-5

CALLAHAY COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2006
Revenues
Fees earned............................................. $420,000
Interest earned........................................ 16,000

Expenses:
Depreciation expense—Automobiles ... $ (18,000)
Depreciation expense—Equipment ...... (10,000)
Salaries expense .................................... (180,000)
Wages expense....................................... (32,000)
Interest expense ..................................... (24,000)
Office supplies expense ........................ (26,000)
Advertising expense .............................. (50,000)
Repairs expense—Automobiles............ (16,800)
Profit for the period................................ $ 79,200

CALLAHAY COMPANY
STATEMENT OF OWNER'S EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2006
J. Callahay, Capital, 31 December 2005 ... $247,800
Profit for the period................................ 79,200
327,000
Withdrawals by owner ........................... (38,000)
J. Callahay, Capital, 31 December 2006 ... $289,000
 COMPANY
BALANCE SHEET
AS AT 31 DECEMBER 2006
ASSETS
Non-current assets
Automobiles................................................................
$160,000
Accumulated depreciation—Automobiles ............... (42,000)
118,000
Equipment………………………………………………. 130,000
Accumulated depreciation—Equipment…………… (10,000)
120,000
Land……………………………………………………… 70,000
Total non-current assets................................................
$308,000
Current assets
Cash............................................................................. $
22,000
Accounts receivable................................................... 44,000
Interest receivable...................................................... 10,000
Notes receivable (due in 90 days) ............................. 160,000
Office supplies…………………………………………. 8,000
Total current assets $244,000
Total assets………………………………………………… $552,000
EQUITY AND LIABILITIES
Equity
J. Callahay, Capital .....................................................
$289,000
Total equity .............................. $289,000
Non-current liabilities
Long-term notes payable…………………….............. $130,000
Total non-current liabilities……………………………… $130,000
Current liabilities
Accounts payable....................................................... $
88,000
Interest payable .......................................................... 12,000
Salaries payable ......................................................... 11,000
Unearned fees............................................................. 22,000
Total current liabilities…………………………………… $133,000
Total liabilities…………………………………………….. . $263,000
Total equity and liabilities……………………………….. $552,000

Problem 3-12
1.
Method that records prepaid expenses and unearned revenues
in balance
sheet accounts:
Apr. 1 Prepaid Consulting Fees ..................................... 3,450
Cash ............................................................... 3,450
Paid for future consulting services.

1/4 Prepaid Insurance ................................................ 2,700

Cash ...............................................................
2,700
Paid insurance for one year.

30/4 Cash.......................................................................
7,500
Unearned Service Fees ................................
7,500
Received fees in advance.

May 1 Prepaid Advertising.............................................. 3,450

Cash ...............................................................
3,450
Paid for future advertising.

23/5 Cash ..................................................................... 9,450

Unearned Service Fees ...............................
9,450
Received fees in advance.

31/5 Consulting Fees Expense.................................... 1,500

Prepaid Consulting Fees..............................
1,500
To adjust prepaid consulting fees.
31/5 Insurance Expense............................................... 450
Prepaid Insurance.........................................
450
To adjust prepaid insurance.
(2700 x 2/12)

31/5 Unearned Service Fees ....................................... 3,900

Service Fees Earned.....................................
3,900
To adjust unearned service fees.
(7500-3600)

31/5 Advertising Expense ............................................ 2,400

Prepaid Advertising ......................................
2,400

(3450 – 1050 =2400)

31/5 Unearned Service Fees........................................ 4,500

Service Fees Earned.....................................
4,500
To adjust unearned service fees.

AP3-1

May 31 Insurance expense 200

Prepaid Insurance 200

May 31 Supplies expense 1,000

Supplies (1900-900) 1,000

May 31 Depreciation expense – lodge 300

Accumulated depreciation 300
(3,600 x 1/12)

May 31 Depreciation expense - furniture 250

Accumulated Depreciation 250
 (3,000 x 1/12)

May 31 Interest expense 350

Interest payable 350
(35,000 x 12% x 1/12)

May 31 Unearned rent 1,500

Rent Revenue 1,500

May 31 Salaries expense 300

Salaries Payable 300

MESRA HOTEL
ADJUSTED TRIAL BALANCE
AS AT 31 MAY 2006
Debit
Credit
Cash $ 2,500
Prepaid insurance 2,200
Supplies 900
Land 15,000
Lodge 70,000
Accumulated depreciation – lodge $
300
Furniture 16,800
Accumulated depreciation – furniture
250
Accounts payable
5,300
Unearned rent revenue
2,100
Salaries payable
300
Interest payable
350
Mortgage payable
35,000
Capital
60,000
Rent revenue
10,700
Salaries expense 3,300
Utilities expense 1,000
Advertising expense 500
Interest expense 350
Insurance expense 200
Supplies expense 1,000
Depreciation expense – lodge 300
Depreciation expense – furniture 250
Total $ 114,300
$ 114,300