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Transcript of Accounting Tools for Business Decision Makers 4e Ch4
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CHAPTER 4
Accrual Accounting Concepts
Study Objectives
1. Explain the revenue recognition principle and the expense recognition principle.
2. Differentiate between the cash basis and the accrual basis of accounting.
3. Explain why adjusting entries are needed, and identify the major types of adjusting entries.
4. Prepare adjusting entries for deferrals.
5. Prepare adjusting entries for accruals.
6. Describe the nature and purpose of the adjusted trial balance.
7. Explain the purpose of closing entries.
8. Describe the required steps in the accounting cycle.
9. Understand the causes of differences between net income and cash provided by
operating activities.
10. Describe the purpose and the basic form of a worksheet.
Summary of Questions by Study Objectives and Blooms Taxonomy
Item SO BT Item SO BT Item SO BT Item SO BT Item SO B
Questions
1. 1 C 9. 4 C 16. 5 K 23. 6 C 30. 7
2. 1 K 10. 4 C 17. 5 AN 24. 2 C 31. 8
3. 1 C 11. 4 K 18. 5 AP 25. 6 C 32. 8
4. 1 AP 12. 4 K 19. 4, 5 K 26. 7 K 33. 8
5. 3 C 13. 1 C 20. 4, 5 K 27. 7 C 34. 8
6. 3 C 14. 1 AN 21. 5 C 28. 7 C 35. 10*7. 3 C 15. 5 C 22. 5 C 29. 7 K 36. 10*
8. 4 K
Brief Exercises
1. 2, 9 C 4. 4 AP 7. 4 AP 10. 6 AP 13. 7
2. 3 C 5. 4 AP 8. 5 AP 11. 6 AP 14. 7
3. 3 AN 6. 4 AP 9. 6 AN 12. 6 K 15. 8
Do It! Review Exercises
1. 4 AP 2. 5 AP 3. 6 C 4. 7 AP
Exercises
1. 1 C 5. 2, 9 AP 9. 4, 5 AP 13. 1, 4, 5, 6 AN 17. 6
2. 1 K 6. 2, 4, 5, 9 AP 10. 4, 5 AP 14. 7 AP 18. 7
3. 1 C 7. 2, 3, 9 C 11. 4, 5 AP 15. 4, 5, 6 AN
4. 2, 4, 5, 9 AP 8. 3, 4, 5 AN 12. 1, 4, 5, 6 AP 16. 4, 5, 6 AP
Copyright 2011 John Wiley & Sons, Inc. Kimmel, Financial Accounting,6/e, Solutions Manual ( For Instructor Use Only)
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Summary of Questions by Study Objectives and Blooms Taxonomy (Continued)
Problems: Set A
1. 2, 4,9 AP 3. 4, 5, 6, 7 AP 5. 4, 5 AP 7. 4, 5, 6 AP 8. 4, 5, 6, 7, 8 AP
2. 4, 5,6 AP 4. 4, 5, 6, 7 AP 6. 4, 5 AN
Problems: Set B
1. 2, 4,9 AP 3. 4, 5, 6, 7 AP 5. 4, 5 AP 7. 4, 5, 6 AP 8. 4, 5, 6, 7, 8 AP
2. 4, 5, 6 AP 4. 4, 5, 6, 7 AP 6. 4, 5 AN
4-2 Copyright 2011 John Wiley & Sons, Inc. Kimmel, Financial Accounting,6/e, Solutions Manual ( For Instructor Use Only)
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ASSIGNMENT CHARACTERISTICS TABLE
ProblemNumber Description
DifficultyLevel
TimeAllotted (min
1A Record transactions on accrual basis; convert revenue tocash receipts.
Simple 2030
2A Prepare adjusting entries, post to ledger accounts, andprepare an adjusted trial balance.
Simple 4050
3A Prepare adjusting entries, adjusted trial balance, andfinancial statements.
Simple 5060
4A Prepare adjusting entries and financial statements; identifyaccounts to be closed.
Moderate 4050
5A Prepare adjusting entries. Moderate 3040
6A Prepare adjusting entries and a corrected incomestatement.
Moderate 3040
7A Journalize transactions and follow through accountingcycle to preparation of financial statements.
Moderate 6070
8A Complete all steps in accounting cycle. Moderate 7080
1B Record transactions on accrual basis; convert revenue tocash receipts.
Simple 2030
2B Prepare adjusting entries, post to ledger accounts, andprepare adjusted trial balance.
Simple 4050
3B Prepare adjusting entries, adjusted trial balance, and
financial statements.
Simple 5060
4B Prepare adjusting entries and financial statements;identify accounts to be closed.
Moderate 4050
5B Prepare adjusting entries. Moderate 3040
6B Prepare adjusting entries and a corrected incomestatement.
Moderate 3040
7B Journalize transactions and follow through accountingcycle to preparation of financial statements.
Moderate 6070
8B Complete all steps in accounting cycle. Moderate 7080
Copyright 2011 John Wiley & Sons, Inc. Kimmel, Financial Accounting,6/e, Solutions Manual ( For Instructor Use Only)
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ANSWERS TO QUESTIONS
1. (a) Under the periodicity assumption, an accountant is required to determine the effect of eachaccounting transaction on a specific accounting period.
(b) An accounting time period that is one year in length is referred to as a fiscal year.
2. The two generally accepted accounting principles that pertain to adjusting the accounts are:The revenue recognition principle, which states that revenue should be recognized in the timeperiod in which it is earned.The expense recognition principle which states that efforts (expenses) be matched with results(revenues) that they helped generate.
3. The law firm should recognize the revenue in April. The revenue recognition principle states thatrevenue should be recognized in the accounting period in which it is earned.
4. Expenses of $4,700 should be deducted from the revenues in April. Under the expenserecognition principle efforts (expenses) should be matched with results (revenues).
5. No, adjusting entries are required by the revenue and expense recognition principles.
6. The financial information in a trial balance may not be up-to-date because:(1) Some events are not journalized daily because it is not useful or efficient to do so.(2) The expiration of some costs occurs with the passage of time rather than as a result of
recurring daily transactions.(3) Some items may be unrecorded because the transaction data are not known.
7. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of revenuescollected and expenses paid before they are earned or incurred. Accruals consist of revenuesearned and expenses incurred prior to collection or payment.
8. In a prepaid expense adjusting entry, expenses are debited and assets are credited.
9. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life.Depreciation results in the presentation of the book value of the asset, not its fair value.
0. Depreciation expense is an expense account whose normal balance is a debit. This accountshows the cost that has expired during the current accounting period. Accumulated depreciationis a contra asset account whose normal balance is a credit. The balance in this account is thedepreciation that has been recognized from the date of acquisition to the balance sheet date.
1. Equipment.................................................................................................. $15,000Less: Accumulated DepreciationEquipment.......................................... 7,000 $8,000
2. In an unearned revenue adjusting entry, liabilities are debited and revenues are credited.
3. The sale of a three-year maintenance contract on December 29, 2011 will have no effect on the2011 income statement but receipt of $100,000 on December 29, 2011, 2012, and 2013 willincrease an asset, Cash, and a liability, Unearned Revenue. As Data Technologies providesservice to its customer during 2012, 2013, and 2014, the liability will decrease and revenue willbe recognized. Accrual accounting rules require that revenue be recognized as it is earned ratherthan when cash is received.
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Questions Chapter 4(Continued)
14. This promotion plan sounds like a bad idea for two reasons.(1) GAAP requires that the sale of a gift card be recorded as Unearned Revenue (a liab
rather than Sales Revenue. Revenue recognition is delayed until the gift card is usedexpires. Chriss plan will not help the company meet its target revenue unless customersthe cards by year-end.
(2) Selling a $50 card for $45 will probably not help the company meet its target net incomAlthough this promotion may result in additional sales revenue as the cards are used, income resulting from the cards will be much less than usual since they eliminate $normal gross profit.
15. An asset is debited and a revenue is credited.
16. An expense is debited and a liability is credited.
17. Net income was understated $270 because prior to adjustment revenues are understated$780 and expenses are understated by $510. The difference in this case is $270 ($780 $51
18. The entry is:
Jan. 9 Salaries and Wages Expense............................................................ 5,100Salaries and Wages Payable............................................................. 1,100Cash.......................................................................................... 6,2
19. (a) Accrued revenues. (d) Accrued expenses or prepaid expenses.(b) Unearned revenues. (e) Prepaid expenses.(c) Accrued expenses. (f) Accrued revenues or unearned revenues.
20. (a) Salaries and Wages Payable. (d) Supplies Expense.(b) Accumulated Depreciation. (e) Service Revenue.(c) Interest Expense. (f) Service Revenue.
21. Disagree. An adjusting entry affects only one balance sheet account and one income statemaccount.
22. Tootsie Roll reports Accounts Receivable. This suggests that it records revenue when it delivered goods, even though it hasnt received payment. If it used a cash basis it wouldnt rerevenue until cash was received, and it would therefore not establish receivables.
23. Financial statements can be prepared from an adjusted trial balance because the balances oaccounts have been adjusted to show the effects of all financial events that have occurred duthe accounting period.
24. (a) Information presented on an accrual basis is useful because it reveals important informaabout the relationship between efforts and results. This information is useful in predic
future results. Trends in revenues and expenses are thus more meaningful.(b) Information presented on a cash basis is useful for predicting the future availability of c
Cash basis financial statements provide useful information about a companys sources uses of cash.
25. The amount shown in the adjusted trial balance column for an account equals the accobalance in the ledger after adjusting entries have been journalized and posted.
Copyright 2011 John Wiley & Sons, Inc. Kimmel, Financial Accounting,6/e, Solutions Manual ( For Instructor Use Only)
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Questions Chapter 4(Continued)
26. (1) (Dr) Individual revenue accounts and (Cr) Income Summary.(2) (Dr) Income Summary and (Cr) Individual expense accounts.(3) (Dr) Income Summary and (Cr) Retained Earnings (for net income).(4) (Dr) Retained Earnings and (Cr) Dividends.
27. Financial information is used by managers to direct and evaluate a companys performance. Thesooner such information is made available; the sooner changes can be made to get a company
back on track. A virtual close speeds up the reporting process and allows managers to reactmuch faster to changing economic conditions.
28. Income Summary is a temporary account that is used in the closing process. The account isdebited for expenses and credited for revenues. The difference, either net income or net loss, isthen closed to Retained Earnings.
29. The post-closing trial balance contains only balance sheet accounts. Its purpose is to prove theequality of the permanent account balances that are carried forward into the next accounting period.
30. The accounts that will not appear in the post-closing trial balance are: Depreciation Expense;Dividends; and Service Revenue.
31. The steps that involve journalizing are (1) journalize the transactions, (2) journalize the adjustingentries, and (3) journalize the closing entries.
32. The three trial balances are the (1) trial balance, (2) adjusted trial balance, and (3) post-closingtrial balance.
33. Earnings management is the planned timing of revenues, expenses, gains, and losses to smooth outbumps in net income. Such action is undertaken to help a company meet target financial numbers.
Quality of earnings indicates the level of full and transparent information that a company provides tousers of financial statements.
34. Examples of ways a company can manage earnings include the following.
Use of one-time items to prop up earnings numbers. A company may decide to sell propertythat has appreciated in value in order to record a gain on the sale. Such a gain will increase thecurrent years net income but future income will probably not include a similar increase.
Inflating revenue in the short-run to the detriment of the long-run. A company may implementchanges in its promotion activities near the end of an accounting period to boost year-endrevenues. Offering a special rebate or a twoforone package is likely to increase sales for thetime the promotion runs but usually results in lower sales in subsequent periods. Savvycustomers may even postpone purchases until special deals are available.
Recording improper adjusting entries. Some adjusting entries require estimates and judgment toproperly recognize revenue and match expenses. By recognizing revenue sooner and delayingthe recognition of expenses, earnings can be overstated in early periods and understated insubsequent periods. This type of management is most prevalent with multi-year contracts andprepaid expenses.
35. The worksheet is a working paper designed to make it easier to prepare adjusting entries andfinancial statements.
36. The columns of the worksheet from left to right are two columns each for the trial balance,adjustments, adjusted trial balance, income statement, and balance sheet.
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SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 4-1
Cash Net Income
(a)(b)(c)(d)(e)(f)
$10000
+8002,500
0
$020+1,300
00
600
BRIEF EXERCISE 4-2
(a) Prepaid Insuranceto recognize insurance expired during the period
(b) Depreciation Expenseto allocate the cost of an asset to expenduring the current period.
(c) Unearned Service Revenueto account for unearned revenue that hbeen earned during the period.
(d) Interest Payableto recognize interest accrued but unpaid on nopayable during the current period.
BRIEF EXERCISE 4-3
Item(1)
Type of Adjustment(2)
Accounts Before Adjustment
(a) Prepaid Expenses Assets OverstatedExpenses Understated
(b) Accrued Revenues Assets Understated
Revenues Understated
(c) Accrued Expenses Expenses UnderstatedLiabilities Understated
(d) Unearned Revenues Liabilities OverstatedRevenues Understated
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BRIEF EXERCISE 4-4
Dec. 31 Supplies Expense.............................................. 7,700Supplies...................................................... 7,700
Supplies Supplies Expense
8,800 12/31 7,700 12/31 7,7002/31 Bal. 1,100
BRIEF EXERCISE 4-5
Dec. 31 Depreciation Expense....................................... 2,750Accumulated Depreciation
Equipment .............................................. 2,750
Depreciation ExpenseAccumulated Depreciation
Equipment2/31 2,750 12/31 2,750
Balance Sheet:Equipment.................................................................... $22,000Less: Accumulated DepreciationEquipment....... 2,750 $19,250
BRIEF EXERCISE 4-6
July 1 Prepaid Insurance............................................. 12,400Cash............................................................ 12,400
Dec. 31 Insurance Expense ($12,400 X 6/24)............... 3,100Prepaid Insurance..................................... 3,100
Prepaid Insurance Insurance Expense
7/1 12,400 12/31 3,100 12/31 3,10012/31 Bal. 9,300
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BRIEF EXERCISE 4-7
July 1 Cash.................................................................... 12,400Unearned Service Revenue...................... 12,40
Dec. 31 Unearned Service Revenue.............................. 3,100Service Revenue ($12,400 X 6/24)............ 3,10
Unearned Service Revenue Service Revenue12/31 3,100 7/1 12,400 12/31 3,10
12/31 Bal. 9,300
BRIEF EXERCISE 4-8
(a) Dec. 31 Interest Expense........................................ 300Interest Payable................................. 30
(b) 31 Accounts Receivable................................ 1,700Service Revenue................................ 1,70
(c) 31 Salaries and Wages Expense................... 780Salaries and Wages Payable............ 78
BRIEF EXERCISE 4-9
Account
(1)
Type of Adjustment
(2)
Related Account
(a) Accounts Receivable Accrued Revenues Service Revenue
(b) Prepaid Insurance Prepaid Expenses Insurance Expense
(c) Equipment Not required
(d) Accum. DepreciationEquipment Prepaid Expenses Depreciation Expen
(e) Notes Payable Not required
(f) Interest Payable Accrued Expenses Interest Expense
(g) Unearned ServiceRevenue Unearned Revenues Service Revenue
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BRIEF EXERCISE 4-10
HANLON CORPORATIONIncome Statement
For the Year Ended December 31, 2012
RevenuesService revenue...................................................... $32,000Expenses
Salaries and wages expense................................. $14,000Rent expense.......................................................... 3,900Insurance expense................................................. 1,800Supplies expense................................................... 1,500Depreciation expense............................................. 1,000
Total expenses................................................ 22,200Net income...................................................................... $ 9,800
BRIEF EXERCISE 4-11
HANLON CORPORATIONRetained Earnings Statement
For the Year Ended December 31, 2012
Retained earnings, January 1........................................................... $17,200Add: Net income.............................................................................. 10,400
27,600Less: Dividends................................................................................ 6,000Retained earnings, December 31..................................................... $21,600
BRIEF EXERCISE 4-12
Account
a)b)c)d)e)f)g)
Accumulated DepreciationDepreciation ExpenseRetained EarningsDividendsService RevenueSuppliesAccounts Payable
Balance SheetIncome StatementRetained Earnings StatementRetained Earnings StatementIncome StatementBalance SheetBalance Sheet
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BRIEF EXERCISE 4-13
The accounts that will appear in the post-closing trial balance are:
Accumulated DepreciationRetained EarningsSupplies
Accounts Payable
BRIEF EXERCISE 4-14
(a) Closing EntriesJuly 31 Service Revenue....................................... 16,000
Income Summary............................... 16,00(To close revenue account)
Income Summary...................................... 11,900Salaries and Wages Expense........... 8,40Maintenance and Repairs
Expense........................................... 2,50Income Tax Expense......................... 1,00
(To close expense accounts)
Income Summary...................................... 4,100Retained Earnings.............................. 4,10
(To close net income toretained earnings)
Retained Earnings..................................... 1,300Dividends............................................ 1,30
(To close dividends to retainedearnings)
(b)Retained Earnings
1,300 7/1 Bal. 20,0004,100
7/31 Bal. 22,800
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BRIEF EXERCISE 4-15
The proper sequencing of the required steps in the accounting cycle is asollows:
1. (c) Analyze business transactions.2. (e) Journalize the transactions.
3. (i) Post to ledger accounts.4. (d) Prepare a trial balance.5. (h) Journalize and post adjusting entries.6. (b) Prepare an adjusted trial balance.7. (g) Prepare financial statements.8. (f) Journalize and post closing entries.9. (a) Prepare a post-closing trial balance.
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SOLUTIONS TO DO IT! REVIEW EXERCISES
DO IT! 4-1
1. Insurance Expense......................................................... 300Prepaid Insurance.................................................... 3
(To record insurance expired)
2. Supplies Expense........................................................... 1,600Supplies..................................................................... 1,6
(To record supplies used)
3. Depreciation Expense..................................................... 200Accumulated DepreciationEquipment............... 2
(To record monthly depreciation)
4. Unearned Service Revenue............................................ 4,000Service Revenue....................................................... 4,0(To record revenue for services provided)
DO IT! 4-2
1. Salaries and Wages Expense........................................ 1,100Salaries and Wages Payable................................... 1,1
(To record accrued salaries)
2. Interest Expense ($20,000 X .09 X 1/12)........................ 150Interest Payable........................................................ 1
(To record accrued interest)
3. Accounts Receivable ..................................................... 1,600Service Revenue....................................................... 1,6
(To record revenue for service provided)
DO IT! 4-3
Income statement: Service Revenue, Utilities Expense
Balance sheet: Accounts Receivable, Accumulated Depreciation, NoPayable, Common Stock.
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DO IT! 4-4
Dec. 31 Income Summary....................................................... 36,000Retained Earnings.............................................. 36,000 (To close net income to retained earnings)
Dec. 31 Retained Earnings..................................................... 22,000
Dividends............................................................. 22,000 (To close dividends to retained earnings)
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SOLUTIONS TO EXERCISES
EXERCISE 4-1
(a) Since the sales effort is not complete until the flight actually occurevenue should not be recognized until December. Southwest Airlin
should recognize the revenue in December when the customer hbeen provided with the flight.
(b) Sales revenue should be recognized at the time of delivery.
(c) Revenue should be recognized on a per game basis over the seasfrom April through October.
(d) Interest revenue should be accrued and recognized by RBC evenly othe term of the loan.
(e) Revenue should be recognized when the sweater is shipped to customer in September.
EXERCISE 4-2
(a) 8. Going concern assumption.(b) 1. Economic entity assumption.(c) 7. Full disclosure principle.(d) 3. Monetary unit assumption.(e) 6. Materiality constraint.(f) 4. Periodicity assumption.(g) 2. Expense recognition principle.(h) 5. Cost principle.
EXERCISE 4-3
(a) Revenue recognition principle.(b) Periodicity assumption.(c) No violation.
(d) Going concern assumption.(e) Cost principle.(f) Economic entity assumption.
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EXERCISE 4-4
$ 33,640 Cash basis earnings.
+ 3,400Accounts receivable arise from sales that have been made,thus revenue must be recognized for balance outstanding atthe end of the current year.
2,800 Accounts receivable collected in current year, for sales madein previous year must be deducted from earnings.
+ 1,300Supplies on hand at year end should be set up as an assetrather than expensed, this increases earnings.
1,460Supplies on hand at the end of the previous year should beexpensed this year, this decreases earnings.
2,000Wages owing at the end of the current year should beaccrued, thus reducing earnings.
+ 2,400Wages owed at the end of the previous year should not bededucted from the current years earnings, thus increasing
earnings.
1,400Other unpaid amounts owed at the end of the current yearshould be accrued, thus reducing earnings.
+ 1,100Other unpaid amounts owed at the end of the previous yearshould not be deducted from the current years earnings, thusincreasing earnings.
$ 34,180 Accrual basis earnings.
EXERCISE 4-5
a) Cash Basis Accrual BasisService Revenue
Operating Expenses Insurance ExpenseNet Income
$22,00012,0002,400
$ 7,600
$28,00015,800
$12,200
b) The accrual basis of accounting provides more useful information fordecision makers because it recognizes revenues when earned andexpenses when incurred.
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EXERCISE 4-6
(a) MT. HOREB COMPANYIncome Statement
For the Six Months Ended April 30, 2012
RevenuesRepair services ($32,150 + $420)..................... $32,57Expenses
Income tax expense........................................... $10,000Salaries and Wages expense ($2,600 + $420). 3,020Rent expense ($1,225 $175)........................... 1,050Utilities expense................................................ 970Depreciation expense [($9,200 4) X 6/12]..... 1,150Advertising expense.......................................... 375
Total expenses............................................ 16,56
Net income................................................................. $16,00
(b) MT. HOREB COMPANYBalance SheetApril 30, 2012
AssetsCurrent Assets
Cash................................................................. $27,780
Accounts receivable....................................... 420Prepaid rent..................................................... 175
Total current assets................................ $28,37Property, plant, and equipment
Equipment........................................................ 9,200Less: Accumulated
depreciationequipment............................ 1,150 8,05Total assets.............................................. $36,42
Liabilities and Stockholders Equity
Current LiabilitiesSalaries and wages payable......................... $ 42Stockholders equity
Common stock............................................... $20,000Retained earnings.......................................... 16,005
Total stockholders equity............... 36,00Total liabilities and stockholders
equity..................................................... $36,42
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EXERCISE 4-7
a) Event Cash Accounting Accrual Accounting180-dayfinancing forlarge customers
Revenue is recordedas cash is received.
Revenue is recorded as itis earned. KidVid recordsrevenue (and a receivable)as soon as goods are
shipped but may wait up to180 days to receive cash.
Payment tosuppliers upondelivery of goods
Cost of goods isrecorded as anexpense as soon asgoods are delivered.
Cost of goods is recordedas an asset until goods areshipped to customers.Cost of goods is recordedas an expense when goodsare shipped to customers.
Prepayment for2 years ofinsurancecoverage
Insurance expense isrecorded as soon aspayment is made.
Prepayment is recorded asan asset and recognizedas an expense as timepasses.
One monthssalaries owed atyear-end
No salary expense isrecorded until salariesare paid.
Salary expense is recordedas employees performwork. Amounts owed atyear-end would be
recorded as a liability.
Proper accrual accounting would require adjusting entries for prepaidinsurance and accrued salaries.
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EXERCISE 4-7 (Continued)
(b) Accrual accounting rules require that revenue be recognized as itearned and expenses be matched with the revenue they help produReceipt or payment of cash does not influence the calculation of nincome.
KidVid has made many sales during the year and thus shipped laramounts of goods with the result being positive net income. SincKidVid allowed its largest customers to take up to 180 days to pay, bwas forced to pay cash for all purchases, it is likely that the compahas very little cash at year-end. New companies frequently experiencash shortages because they extend credit to attract customers but aunable to receive credit from their suppliers. As time passes, the casupply should increase as payments on accounts receivable comeand offset current purchases.
EXERCISE 4-8
Item(1)
Type of Adjustment(2)
Accounts Before Adjustment
(a) Accrued Revenues Assets UnderstatedRevenues Understated
(b) Prepaid Expenses Assets OverstatedExpenses Understated
(c) Accrued Expenses Expenses UnderstatedLiabilities Understated
(d) Unearned Revenues Liabilities OverstatedRevenues Understated
(e) Accrued Expenses Expenses UnderstatedLiabilities Understated
(f) Prepaid Expenses Assets OverstatedExpenses Understated
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EXERCISE 4-9
1. Mar. 31 Depreciation Expense ($280 X 3).................. 840Accumulated Depreciation
Equipment ............................................ 8402. 31 Unearned Rent Revenue................................ 6,200
Rent Revenue ($12,400 X 1/2)................ 6,200
3. 31 Interest Expense............................................. 400Interest Payable...................................... 400
4. 31 Supplies Expense........................................... 2,150Supplies ($3,000 $850)........................ 2,150
5. 31 Insurance Expense ($400 X 3)....................... 1,200
Prepaid Insurance.................................. 1,200
EXERCISE 4-10
1. Jan. 31 Accounts Receivable..................................... 760Service Revenue..................................... 760
2. 31 Utilities Expense............................................. 450Accounts Payable................................... 450
3. 31 Depreciation Expense.................................... 400Accumulated Depreciation
Dental Equipment ............................... 40031 Interest Expense............................................. 500
Interest Payable...................................... 500
4. 31 Insurance Expense ($24,000 12)................ 2,000
Prepaid Insurance.................................. 2,000
5. 31 Supplies Expense ($1,750 $550)................ 1,200Supplies................................................... 1,200
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EXERCISE 4-11
1. Oct. 31 Supplies Expense........................................... 2,000Supplies
($2,500 $500) ..................................... 2,002. 31 Insurance Expense......................................... 100
Prepaid Insurance.................................. 10
3. 31 Depreciation Expense.................................... 75Accumulated Depreciation
Equipment ............................................ 74. 31 Unearned Service Revenue........................... 800
Service Revenue..................................... 80
5. 31 Accounts Receivable..................................... 280Service Revenue..................................... 28
6. 31 Interest Expense............................................. 70Interest Payable...................................... 7
7. 31 Salaries and Wages Expense........................ 1,400Salaries and Wages Payable................. 1,40
EXERCISE 4-12
KALETA CO.Income Statement
For the Month Ended July 31, 2012
RevenuesService revenue ($5,500 + $700)............................... $6,20
Expenses
Salaries and Wages expense ($2,100 + $360)......... $2,460Supplies expense ($900 $200)............................... 700Utilities expense......................................................... 500Insurance expense.................................................... 350Depreciation expense................................................ 150
Total expenses................................................... 4,16Net income......................................................................... $2,04
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EXERCISE 4-13
Answer Computation
a) Supplies balance = $1,350 Supplies expense $ 950)Add: Supplies (1/31) 700)
Less: Supplies purchased (300 )Supplies (1/1) $1,350)
b) Total premium = $6,240 Total premium = Monthly premium X12; $520 X 12 = $6,240
Purchase date = May 1, 2011 Purchase date: On Jan. 31, there are3 months coverage remaining ($520 X 3).Thus, the purchase date was 9 months
earlier on May 1, 2011.
c) Salaries and wagespayable = $1,760 Cash paid $2,500
Salaries and wagespayable (1/31/12) 1,060
3,560Less: Salaries and wages
expense 1,800Salaries and wages
payable (12/31/11) $1,760
d) Unearned servicerevenue = $950 Service revenue $2,000
Unearned revenue (1/31/12) 7502,750
Cash received in Jan. 1,800Unearned revenue (12/31/11) $ 950
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EXERCISE 4-14
Jan. 31 Service Revenue.................................................... 2,000Income Summary........................................... 2,00
31 Income Summary................................................... 3,270Salaries and Wages Expense....................... 1,80Supplies Expense.......................................... 95Insurance Expense........................................ 52
31 Retained Earnings................................................. 1,270Income Summary........................................... 1,27
EXERCISE 4-15
(a) July 10 Supplies........................................................... 200Cash......................................................... 20
14 Cash................................................................. 3,800Service Revenue..................................... 3,80
15 Salaries and Wages Expense........................ 1,000Cash......................................................... 1,00
20 Cash................................................................. 600Unearned Service Revenue................... 60
(b) July 31 Supplies Expense........................................... 750Supplies................................................... 75
31 Accounts Receivable..................................... 500Service Revenue..................................... 50
31 Salaries and Wages Expense........................ 1,000Salaries and Wages Payable................. 1,00
31 Unearned Service Revenue........................... 900Service Revenue..................................... 90
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EXERCISE 4-16
Aug. 31 Accounts Receivable............................................ 600Service Revenue............................................ 600
31 Supplies Expense.................................................. 2,000Supplies.......................................................... 2,000
31 Insurance Expense................................................ 1,500Prepaid Insurance.......................................... 1,500
31 Depreciation Expense........................................... 1,200Accumulated DepreciationEquipment..... 1,200
31 Salaries and Wages Expense............................... 1,100Salaries and Wages Payable........................ 1,100
31 Unearned Rent Revenue....................................... 1,000Rent Revenue................................................. 1,000
EXERCISE 4-17
AMIT COMPANYIncome Statement
For the Year Ended August 31, 2012
RevenuesService revenue...................................................... $34,600Rent revenue........................................................... 13,100
Total revenues................................................. $47,700Expenses
Salaries and wages expense................................. 18,100Rent expense.......................................................... 10,800Supplies expense................................................... 2,000Insurance expense................................................. 1,500Depreciation expense............................................. 1,200
Total expenses................................................ 33,600Net income...................................................................... $14,100
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EXERCISE 4-17 (Continued)
AMIT COMPANYRetained Earnings Statement
For the Year Ended August 31, 2012
Retained earnings, September 1, 2011............................................ $ 5,50Add: Net income.............................................................................. 14,1019,60
Less: Dividends................................................................................ 2,80Retained earnings, August 31, 2012................................................ $16,80
AMIT COMPANYBalance Sheet
August 31, 2012
AssetsCurrent Assets
Cash.......................................................................... $10,900Accounts receivable................................................ 9,400Supplies.................................................................... 500Prepaid insurance.................................................... 2,500
Total current assets......................................... $23,30Equipment................................................................. 16,000
Less: Accum. depreciationequipment................ 4,800 11,20Total assets....................................................... $34,50
Liabilities and Stockholders EquityCurrent Liabilities
Accounts payable.................................................... $ 5,800Salaries and wages payable................................... 1,100Unearned rent revenue............................................ 800
Total current liabilities..................................... $ 7,70
Stockholders equityCommon stock......................................................... 10,000Retained earnings.................................................... 16,800
Total stockholders equity........................... 26,80Total liabilities and stockholders equity...... $34,50
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EXERCISE 4-18
Aug. 31 Service Revenue............................................... 34,600Rent Revenue.................................................... 13,100
Income Summary...................................... 47,700
31 Income Summary.............................................. 33,600
Salaries and Wages Expense.................. 18,100Rent Expense............................................. 10,800Supplies Expense..................................... 2,000Insurance Expense................................... 1,500Depreciation Expense............................... 1,200
31 Income Summary.............................................. 14,100Retained Earnings..................................... 14,100
31 Retained Earnings............................................ 2,800Dividends................................................... 2,800
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SOLUTIONS TO PROBLEMS
PROBLEM 4-1A
(a)
1. Cash........................................................................ 19,000Accounts Receivable...................................... 19,00
2. Unearned Sales Revenue..................................... 23,000Sales Revenue................................................. 23,00
3. Cash....................................................................... 44,000Unearned Sales Revenue............................... 44,00
Unearned Sales Revenue($44,000 $20,000)............................................. 24,000
Sales Revenue................................................. 24,00
4. Accounts Receivable............................................ 151,000Service Revenue............................................. 151,00
5. Cash....................................................................... 136,000Accounts Receivable ($151,000 $15,000). ... 136,00
(b) Cash received with respect to fees and dues
1. Collection of 2011 dues $ 19,0003. Sale of tickets 44,000
5. Collection of 2012 dues 136,000$199,000
Accounts Receivable2011 Bal. 19,0004. 151,000 1. 19,000
5. 136,0002012 Bal. 15,000
Unearned Sales Revenue
2. 23,0003. 24,000
2011 Bal. 23,0003. 44,000
2012 Bal. 20,000
Service Revenue4. 151,02012 Bal.151,0
Sales Revenue2. 23,03. 24,0
2012 Bal. 47,0
Cash1. 19,0003. 44,0005. 136,0002012 Bal. 199,000
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PROBLEM 4-2A
(a)
Date Account Titles Debit Cred
1.2012June 30 Supplies Expense.....................................
Supplies ($2,000 $720)..................
1,280
1,280
2. 30 Utilities Expense.......................................Accounts Payable.............................
180180
3. 30 Insurance Expense...................................Prepaid Insurance
($2,880 12 months) .....................240
240
4. 30 Unearned Service Revenue.....................Service Revenue...............................
4,1004,100
5. 30 Salaries and Wages Expense..................Salaries and Wages Payable...........
1,2501,250
6. 30 Depreciation Expense..............................Accumulated Depreciation
Equipment ......................................250
250
7. 30 Accounts Receivable...............................Service Revenue...............................
3,9003,900
(b)
Cash6/30 Bal. 6,850
Accounts Receivable6/30 Bal. 7,0006/30 3,9006/30 Bal. 10,900
Prepaid Insurance6/30 Bal. 2,880 6/30 240
6/30 Bal. 2,640
Supplies6/30 Bal. 2,000 6/30 1,26/30 Bal. 720
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PROBLEM 4-2A (Continued)
Equipment6/30 Bal. 15,000
Accumulated Depreciation
Equipment6/30 2506/30 Bal. 250
Accounts Payable6/30 Bal. 4,2306/30 1806/30 4,410
Salaries and Wages Payable6/30 1,2506/30 Bal. 1,250
Unearned Service Revenue6/30 4,100 6/30 Bal. 5,200
6/30 Bal. 1,100
Common Stock6/30 Bal. 22,000
Service Revenue6/30 Bal. 8,3006/30 4,1006/30 3,9006/30 Bal. 16,300
Salaries and Wages Expense6/30 Bal. 4,0006/30 1,2506/30 Bal. 5,250
Rent Expense6/30 Bal. 2,000
Depreciation Expense6/30 2506/30 Bal. 250
Insurance Expense6/30 2406/30 Bal. 240
Utilities Expense6/30 1806/30 Bal. 180
Supplies Expense6/30 1,2806/30 Bal. 1,280
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PROBLEM 4-2A (Continued)
c) VOGEL CONSULTINGAdjusted Trial Balance
June 30, 2012
Debit CreditCash.......................................................................Accounts Receivable...........................................Prepaid Insurance................................................Supplies................................................................Equipment.............................................................Accumulated DepreciationEquipment...........Accounts Payable................................................Salaries and Wages Payable...............................Unearned Service Revenue.................................
Common Stock.....................................................Service Revenue..................................................Salaries and Wages Expense.............................Rent Expense.......................................................Depreciation Expense..........................................Insurance Expense..............................................Utilities Expense..................................................Supplies Expense................................................
$ 6,85010,9002,640
72015,000
5,2502,000
250240180
1,280$45,310
$ 2504,4101,2501,100
22,00016,300
$45,310
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PROBLEM 4-3A
(a) 1. May 31 Insurance Expense................................... 450Prepaid Insurance............................. 45
2. 31 Supplies Expense..................................... 1,550Supplies ($2,600 $1,050)............... 1,55
3. 31 Depreciation Expense($3,600 X 1/12) ....................................... 300
Accumulated DepreciationBuilding .......................................... 30
31 Depreciation Expense
($3,000 X 1/12)
....................................... 250Accumulated DepreciationEquipment ...................................... 25
4. 31 Interest Expense....................................... 180Interest Payable
[($36,000 X 6%) X 1/12] ................. 185. 31 Unearned Rent Revenue.......................... 2,500
Rent Revenue.................................... 2,50
6. 31 Salaries and Wages Expense.................. 900Salaries and Wages Payable........... 90
(b)
Cash5/31 Bal. 2,500
Prepaid Insurance5/31 Bal. 1,800 5/31 4505/31 Bal. 1,350
Supplies5/31 Bal. 2,600 5/31 1,55/31 Bal. 1,050
Land5/31 Bal. 15,000
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PROBLEM 4-3A (Continued)
Building5/31 Bal. 70,000
Accumulated Depreciation
Building5/31 3005/31 Bal. 300
Equipment5/31 Bal. 16,800
Accumulated DepreciationEquipment
5/31 2505/31 Bal. 250
Accounts Payable5/31 Bal. 4,700
Unearned Rent Revenue5/31 2,500 5/31 Bal. 3,300
5/31 Bal. 800
Salaries and Wages Payable5/31 9005/31 Bal. 900
Interest Payable5/31 1805/31 Bal. 180
Mortgage Payable5/31 Bal. 36,000
Common Stock5/31 Bal. 60,000
Rent Revenue5/31 Bal. 9,0005/31 2,5005/31 Bal. 11,500
Salaries and Wages Expense5/31 Bal. 3,0005/31 900
5/31 Bal. 3,900
Utilities Expense5/31 Bal. 800
Advertising Expense5/31 Bal. 500
Interest Expense5/31 1805/31 Bal. 180
Insurance Expense5/31 4505/31 Bal. 450
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PROBLEM 4-3A (Continued)
Supplies Expense5/31 1,5505/31 Bal. 1,550
Depreciation Expense5/31 3005/31 2505/31 Bal. 550
c) VANG HOTELAdjusted Trial Balance
May 31, 2012
Debit Credit
Cash...................................................................Prepaid Insurance............................................Supplies.............................................................Land...................................................................Building.............................................................Accumulated DepreciationBuilding............Equipment.........................................................
Accumulated DepreciationEquipment........Accounts Payable.............................................Unearned Rent Revenue..................................Salaries and Wages Payable...........................Interest Payable................................................Mortgage Payable.............................................Common Stock.................................................Rent Revenue....................................................Salaries and Wages Expense..........................Utilities Expense...............................................
Advertising Expense........................................Interest Expense...............................................Insurance Expense...........................................Supplies Expense.............................................Depreciation Expense......................................
$ 2,5001,3501,050
15,00070,00016,800
3,900800500 180450
1,550550
$114,630
$ 300250
4,700
800900180
36,00060,00011,500
$114,630
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PROBLEM 4-3A (Continued)
(d) VANG HOTELIncome Statement
For the Month Ended May 31, 2012
RevenuesRent revenue..................................................... $11,50Expenses
Salaries and wages expense........................... $3,900Supplies expense............................................. 1,550Utilities expense............................................... 800Depreciation expense...................................... 550Advertising expense........................................ 500Insurance expense........................................... 450Interest expense............................................... 180
Total expenses.......................................... 7,93Net income................................................................ $ 3,57
VANG HOTELRetained Earnings Statement
For the Month Ended May 31, 2012
Retained earnings, May 1........................................ $ Add: Net income.................................................... 3,57Retained earnings, May 31...................................... $3,57
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PROBLEM 4-3A (Continued)
VANG HOTELBalance SheetMay 31, 2012
AssetsCurrent Assets
Cash..................................................... $ 2,500Supplies............................................... 1,050Prepaid insurance.............................. 1,350
Total current assets................... $ 4,900Property, plant, and equipment
Land..................................................... 15,000Building............................................... $70,000Less: Accumulated
deprec.Building............................ 300 69,700Equipment........................................... 16,800Less: Accumulated
deprec.equipment........................ 250 16,550 101,250Total assets................................. $106,150
Liabilities and Stockholders EquityCurrent Liabilities
Accounts payable............................................. $ 4,700Salaries and wages payable............................ 900
Unearned rent revenue.................................... 800Interest payable................................................ 180
Total current liabilities............................. $ 6,580Long-term Liabilities
Mortgage payable............................................. 36,000Total liabilities........................................... 42,580
Stockholders equityCommon stock.................................................. 60,000Retained earnings............................................ 3,570
Total stockholders equity................ 63,570Total liabilities and stockholders
equity ...................................................... $106,150e) The following accounts would be closed:
Rent Revenue, Salaries and Wages Expense, Utilities Expense,Advertising Expense, Interest Expense, Insurance Expense, SuppliesExpense, Depreciation Expense.
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PROBLEM 4-4A
(a) Sept. 30 Accounts Receivable..................................... 600Service Revenue..................................... 60
30 Rent Expense.................................................. 900Prepaid Rent............................................ 90
30 Supplies Expense........................................... 1,020Supplies................................................... 1,02
30 Depreciation Expense.................................... 350Accum. DepreciationEquipment....... 35
30 Interest Expense............................................. 50Interest Payable...................................... 5
30 Unearned Rent Revenue................................ 200Rent Revenue.......................................... 20
30 Salaries and Wages Expense........................ 600Salaries and Wages Payable................. 60
(b) ROLLING HILLS GOLF INC.
Income StatementFor the Quarter Ended September 30, 2012
RevenuesService revenue................................................ $14,700Rent revenue..................................................... 900
Total revenues.......................................... $15,60Expenses
Salaries and wages expense........................... 9,400
Rent expense.................................................... 1,800Supplies expense............................................. 1,020Utilities expense............................................... 470Depreciation expense...................................... 350Interest expense............................................... 50
Total expenses.......................................... 13,09Net income................................................................ $ 2,51
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PROBLEM 4-4A (Continued)
(c) The following accounts would be closed: Service Revenue, Rent RevenSalaries and Wages Expense, Rent Expense, Utilities ExpenDepreciation Expense, Supplies Expense, Interest Expense, Dividend
(d) Interest of 12% per year equals a monthly rate of 1%; monthly interis $50 ($5,000 X 1%). Since total interest expense is $50, the note hbeen outstanding one month.
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PROBLEM 4-5A
1. Dec. 31 Insurance Expense......................................... 8,000Prepaid Insurance.................................. 8,000
[($9,600 3) = $3,200
[($7,200 12/18) = 4,800$8,000]
2. Dec. 31 Unearned Sales Revenue.............................. 3,500Sales Revenue........................................ 3,500
[Oct. 250 X $24 X 3/12 = $1,500[Nov. 300 X $24 X 2/12 = 1,200[Dec. 400 X $24 X 1/12 = 800$3,500]
3. Dec. 31 Interest Expense............................................. 700Interest Payable
($40,000 X 7% X 3/12).......................... 700
4. Dec. 31 Salaries Expense............................................ 3,060Salaries Payable..................................... 3,060
[5 X $600 X 3/5 = $1,800[3 X $700 X 3/5 = 1,260 $3,060]
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PROBLEM 4-6A
(a) 1. June 30 Rent Revenue.................................... 57,000Unearned Rent Revenue......... 57,00
2. 30 Supplies Expense.............................. 6,400Supplies ($8,200 $1,800)...... 6,40
3. 30 Insurance Expense($14,400 X 3/12)............................... 3,600
Prepaid Insurance................... 3,60
4. 30 Maintenance andRepairs Expense............................ 4,450
Utilities Expense................................ 215Advertising Expense......................... 110Accounts Payable................... 4,77
5. 30 Salaries and Wages Expense($300 X 4)......................................... 1,200
Salaries and Wages Payable.................................. 1,20
6. 30 Interest Expense($14,000 X 6% X 2/12)..................... 140
Interest Payable ...................... 14
7. 30 Income Tax Expense......................... 13,400Income Tax Payable................ 13,40
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PROBLEM 4-6A (Continued)
b) OPEN ROAD TRAVEL COURTIncome Statement
For the Quarter Ended June 30, 2012
RevenuesRent revenue ($212,000 $57,000)........................ $155,000
ExpensesSalaries and wages expense
($80,500 + $1,200)................................................. $ 81,700Income tax expense................................................ 13,400Maintenance and repairs expense ($4,300 + $4,450)................................................... 8,750Supplies expense.................................................... 6,400Advertising expense ($3,800 + $110)..................... 3,910
Insurance expense.................................................. 3,600Depreciation expense............................................. 2,700Utilities expense ($900 + $215).............................. 1,115Interest expense...................................................... 140Total expenses......................................................... 121,715Net income............................................................... $ 33,285
c) The generally accepted accounting principles pertaining to the incomestatement not recognized by Tiffany were the revenue recognition
principle and the expense recognition principle.
The revenue recognition principle states that revenue is recognizedwhen it is earned. The cash payments of $57,000 for summer rentalshave not been earned and, therefore, should not be reported asincome for the quarter ended June 30.
The expense recognition principle dictates that efforts (expenses) bematched with accomplishments (revenue) whenever it is reasonableand practicable to do so. This means that the expenses should include
amounts incurred in June but not paid until July, and any other costsrelated to the operations of the business during the period AprilJune.
The difference in reported expenses was $29,515 ($121,715 $92,200).The overstatement of revenues ($57,000) plus the understatement ofexpenses ($29,515) equals the difference in reported income of $86,515($119,800 $33,285).
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PROBLEM 4-7A
(a), (c) & (e)
Cash
11/1 Bal. 2,79011/10 1,80011/12 1,70011/29 750
11/8 1,22011/20 2,50011/22 48011/25 1,000
11/30 Bal. 1,840
Accounts Receivable11/1 Bal. 2,910
11/27 90011/10 1,800
11/30 Bal. 2,010
Supplies11/1 Bal. 1,12011/17 1,300
11/30 1,320
11/30 Bal. 1,100
Equipment11/1 Bal. 10,00011/15 3,60011/30 Bal.13,600
Accumulated DepreciationEquipment
11/1 Bal. 500
11/30 25011/30 Bal. 750
Accounts Payable
11/20 2,500 11/1 Bal. 2,311/15 3,611/17 1,311/30 Bal. 4,7
UnearnedService Revenue
11/30 500 11/1 Bal. 411/29 711/30 Bal. 6
Salaries and Wages Payable11/8 620 11/1 Bal. 6
11/30 411/30 Bal. 4
Common Stock11/1 Bal. 10,011/30 Bal.10,0
Retained Earnings11/1 Bal. 3,011/30 Bal. 3,0
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PROBLEM 4-7A (Continued)
Service Revenue11/12 1,70011/27 90011/30 50011/30 Bal. 3,100
Depreciation Expense11/30 25011/30 Bal. 250
Supplies Expense11/30 1,320
11/30 Bal. 1,320
Salaries and Wages Expense11/8 60011/25 1,00011/30 48011/30 Bal. 2,080
Rent Expense11/22 48011/30 Bal. 480
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PROBLEM 4-7A (Continued)
b)General Journal
Date Account Titles Debit CreditNov. 8 Salaries and Wages Payable............................
Salaries and Wages Expense...........................Cash............................................................
620600
1,220
10 Cash....................................................................Accounts Receivable................................
1,8001,800
12 Cash....................................................................Service Revenue........................................
1,7001,700
15 Equipment..........................................................
Accounts Payable......................................
3,600
3,600
17 Supplies.............................................................Accounts Payable......................................
1,3001,300
20 Accounts Payable.............................................Cash............................................................
2,5002,500
22 Rent Expense.....................................................Cash............................................................
480480
25 Salaries and Wages Expense...........................Cash............................................................
1,0001,000
27 Accounts Receivable........................................Service Revenue........................................
900900
29 Cash....................................................................Unearned Service Revenue......................
750750
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PROBLEM 4-7A (Continued)
(d) & (f) TATE EQUIPMENT REPAIRTrial Balances
November 30, 2012
BeforeAdjustment AfterAdjustment
Dr. Cr. Dr. Cr.Cash.............................................Accounts Receivable.................Supplies.......................................Equipment...................................Accumulated Depreciation Equipment
Accounts Payable.......................Unearned Service Revenue.......Salaries and Wages Payable.....Common Stock...........................Retained Earnings......................Service Revenue.........................Salaries and Wages Expense....Rent Expense..............................Supplies Expense.......................Depreciation Expense................
$ 1,8402,0102,420
13,600
1,600480
$21,950
$ 5004,7001,150
10,0003,0002,600
$21,950
$ 1,8402,0101,100
13,600
2,080480
1,320250
$22,680
$ 754,70
6548
10,003,003,10
$22,68
(e) 1.Nov. 30 Supplies Expense............................................ 1,320
Supplies ($2,420 $1,100)...................... 1,32
2.30 Salaries and Wages Expense......................... 480
Salaries and Wages Payable.................. 48
3.30 Depreciation Expense..................................... 250
Accum. Depr.Equipment..................... 25
4.30 Unearned Service Revenue............................ 500
Service Revenue...................................... 50
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PROBLEM 4-7A (Continued)
g) TATE EQUIPMENT REPAIRIncome Statement
For the Month Ended November 30, 2012
RevenuesService revenue................................................ ($3,100)Expenses
Salaries and wages expense........................... $2,080Supplies expense............................................. 1,320Rent expense.................................................... 480Depreciation expense...................................... 250
Total expenses.......................................... 4,130)Net loss...................................................................... ($1,030)
TATE EQUIPMENT REPAIRRetained Earnings Statement
For the Month Ended November 30, 2012
Retained earnings, November 1............................. $3,000Less: Net loss.......................................................... 1,030Retained earnings, November 30........................... $1,970
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PROBLEM 4-7A (Continued)
TATE EQUIPMENT REPAIRBalance Sheet
November 30, 2012
Assets
Current assetsCash...................................................................... $ 1,840Accounts receivable........................................... 2,010Supplies............................................................... 1,100
Total current assets.................................... $ 4,95Property, plant and equipment
Equipment............................................................ 13,600
Less: Accumulated depreciationequipment................................................ 750 12,85Total assets.................................................. $17,80
Liabilities and Stockholders EquityCurrent liabilities
Accounts payable................................................ $ 4,700Unearned service revenue................................. 650Salaries and wages payable............................... 480
Total current liabilities................................ $ 5,83
Stockholders equityCommon stock.................................................... 10,000Retained earnings............................................... 1,970
Total stockholders equity...................... 11,97Total liabilities and stockholders
equity......................................................... $17,80
Copyright 2011 John Wiley & Sons, Inc. Kimmel, Financial Accounting,6/e, Solutions Manual ( For Instructor Use Only)
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PROBLEM 4-8A
a)General Journal
Date Account Titles Debit CreditJuly 1 Cash.....................................................................
Common Stock............................................12,000
12,000
1 Equipment...........................................................Accounts Payable.......................................Cash.............................................................
8,0006,0002,000
3 Supplies...............................................................Accounts Payable.......................................
900900
5 Prepaid Insurance...............................................Cash.............................................................
1,8001,800
12 Accounts Receivable.........................................Service Revenue.........................................
3,7003,700
18 Accounts Payable...............................................Cash.............................................................
1,5001,500
20 Salaries and Wages Expense............................Cash.............................................................
2,0002,000
21 Cash.....................................................................Accounts Receivable..................................
1,6001,600
25 Accounts Receivable.........................................Service Revenue.........................................
2,5002,500
31 Maintenance and Repairs Expense..................Cash.............................................................
290290
31 Dividends.............................................................Cash.............................................................
600600
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PROBLEM 4-8A (Continued)
(b), (e) & (h)
Cash7/1 12,0007/21 1,600
7/1 2,0007/5 1,800
7/18 1,5007/20 2,0007/31 2907/31 600
7/31 Bal. 5,410
Accounts Receivable7/12 3,700
7/25 2,5007/31 1,700
7/21 1,600
7/31 Bal. 6,300
Supplies7/3 900 7/31 5807/31 Bal. 320
Prepaid Insurance7/5 1,800 7/31 1507/31 Bal. 1,650
Equipment7/1 8,0007/31 Bal. 8,000
Accumulated DepreciationEquipment
7/31 1807/31 Bal. 180
Accounts Payable7/18 1,500 7/1 6,0
7/3 9
7/31 Bal. 5,4
Salaries and Wages Payable7/31 47/31 Bal. 4
Common Stock
7/1 12,07/31 Bal. 12,0
Retained Earnings7/31 600 7/31 3,8
7/31 Bal. 3,2
Dividends
7/31 600 7/31 6
Income Summary7/31 3,6007/31 4,300
7/31 7,9
7/31 Bal. Service Revenue
7/31 7,900 7/12 3,77/25 2,57/31 1,77/31 Bal.
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PROBLEM 4-8A (Continued)
Maintenance and RepairsExpense
7/31 290 7/31 2907/31 Bal. 0
Supplies Expense7/31 580 7/31 5807/31 Bal. 0
Depreciation Expense7/31 180 7/31 1807/31 Bal. 0
Insurance Expense7/31 150 7/31 1507/31 Bal. 0
Salaries and Wages Expense7/20 2,0007/31 400
7/31 2,400
7/31 Bal. 0
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PROBLEM 4-8A (Continued)
c) & (f) PRO WINDOW WASHING INC.Trial BalanceJuly 31, 2012
BeforeAdjustment AfterAdjustment
Debit Credit Debit CreditCash.....................................................Accounts Receivable.........................Supplies...............................................Prepaid Insurance..............................Equipment...........................................Accumulated Depreciation
Equipment
.......................................Accounts Payable...............................Salaries and Wages Payable.............Common Stock...................................Dividends............................................Service Revenue.................................Salaries and Wages Expense............Maintenance and Repairs Expense. .Depreciation Expense........................nsurance Expense.............................
Supplies Expense...............................
$ 5,4104,600
9001,8008,000
6002,000
290
$23,600
$ 5,400
12,000
6,200
$23,600
$ 5,4106,300
3201,6508,000
6002,400
290180150580$25,880
$ 1805,400
40012,000
7,900
$25,880
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PROBLEM 4-8A (Continued)
(d)General Journal
Date Account Titles Debit Cred1. July 31 Accounts Receivable.........................................
Service Revenue..........................................1,700
1,70
2. 31 Depreciation Expense.......................................Accumulated DepreciationEquipment....
18018
3. 31 Insurance Expense ($1,800 X 1/12)..................Prepaid Insurance........................................
15015
4. 31 Supplies Expense ($900 $320)......................Supplies........................................................
58058
5. 31 Salaries and Wages Expense...........................Salaries and Wages Payable......................
40040
(g) PRO WINDOW WASHING INC.Income Statement
For the Month Ended July 31, 2012
RevenuesService revenue.................................................. $7,90
ExpensesSalaries and wages expense............................ $2,400Supplies expense............................................... 580Maintenance and repairs expense................... 290Depreciation expense........................................ 180Insurance expense............................................. 150
Total expenses........................................... 3,60
Net income.................................................................. $4,30
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PROBLEM 4-8A (Continued)
g) PRO WINDOW WASHING INC.Retained Earnings Statement
For the Month Ended July 31, 2012
Retained earnings, July 1........................................ $ 0Add: Net income.................................................... 4,300 4,300Less: Dividends...................................................... 600Retained earnings, July 31..................................... $3,700
PRO WINDOW WASHING INC.Balance Sheet
July 31, 2012
AssetsCurrent assets
Cash................................................................... $ 5,410Accounts receivable......................................... 6,300Supplies............................................................. 320Prepaid insurance............................................ 1,650
Total current assets.................................. $13,680Property, plant, and equipment
Equipment......................................................... 8,000Less: Accumulated depreciation................... 180 7,820
Total assets............................................... $21,500
Liabilities and Stockholders EquityCurrent liabilities
Accounts payable............................................. $ 5,400Salaries and wages payable............................ 400
Total current liabilities............................. $ 5,800
Stockholders equityCommon stock.................................................. 12,000Retained earnings............................................ 3,700
Total stockholders equity.................. 15,700Total liabilities and stockholders
equity ...................................................... $21,500
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PROBLEM 4-8A (Continued)
(h)General Journal
Date Account Titles and Explanation Debit CredJuly 31 Service Revenue..............................................
Income Summary.....................................7,900
7,900
31 Income Summary.............................................Salaries and Wages Expense.................Supplies Expense....................................Depreciation Expense.............................Maintenance and Repairs Expense.......Depreciation Expense.............................Insurance Expense..................................
3,6002,400580290180150
31 Income Summary.............................................Retained Earnings................................... 4,300 4,300
31 Retained Earnings...........................................Dividends..................................................
600600
(i) PRO WINDOW WASHING INC.Post-Closing Trial Balance
July 31, 2012
Debit CrediCash.......................................................................Accounts Receivable...........................................Supplies................................................................Prepaid Insurance................................................Equipment.............................................................Accumulated DepreciationEquipment...........
Accounts Payable................................................Salaries and Wages Payable...............................Common Stock.....................................................Retained Earnings................................................
$ 5,4106,300
3201,6508,000
$21,680
$ 185,40
4012,00
3,70$21,68
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PROBLEM 4-1B
a)1. Cash......................................................................... 18,000
Accounts Receivable........................................ 18,000
2. Unearned Service Revenue................................... 11,000Service Revenue............................................... 11,000
3. Cash......................................................................... 40,000Unearned Service Revenue............................. 40,000
Unearned Service Revenue($40,000 $17,000)............................................... 23,000
Service Revenue............................................... 23,000
4. Accounts Receivable............................................. 138,000
Service Revenue($172,000 $11,000 $23,000)..................... 138,000
5. Cash......................................................................... 126,000Accounts Receivable ($138,000 $12,000).... 126,000
b) Cash received with respect to fees:1. Collection of accounts receivable................... $ 18,0003. Gift certificates.................................................. 40,0005. Partial collection of fees receivable................ 126,000
$184,000T-accounts (not required)
Accounts ReceivableBal. 18,0004. 138,0001. 18,000
5. 126,000Bal. 12,000
Service Revenue
2. 11,0003. 23,0004. 138,000Bal. 172,000
Unearned Service Revenue
2. 11,0003. 23,000
Bal. 11,0003. 40,000
Bal. 17,000
Cash
1. 18,0003. 40,0005. 126,000Bal. 184,000
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PROBLEM 4-2B
(a)
Date Account Titles Debit Cred
1.
2012
May 31 Supplies Expense........................................Supplies................................................
750750
2. 31 Utilities Expense..........................................Accounts Payable................................
260260
3. 31 Insurance Expense......................................Prepaid Insurance
($3,600 24 months) .......................150
150
4. 31 Unearned Service Revenue........................Service Revenue ($4,000 $1,500).....
2,5002,500
5. 31 Salaries and Wages Expense.....................Salaries and Wages Payable
[(4/5 X $600) X 2 employees] ...........960
960
6. 31 Depreciation Expense.................................Accumulated Depreciation
Equipment ........................................200
200
7. 31 Accounts Receivable..................................Service Revenue..................................
1,9801,980
(b)
Cash5/31 Bal. 7,500
Accounts Receivable5/31 Bal. 3,0005/31 1,9805/31 Bal. 4,980
Prepaid Insurance5/31 Bal. 3,600 5/31 1
5/31 Bal. 3,450
Supplies5/31 Bal. 2,500 5/31 75/31 Bal. 1,750
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PROBLEM 4-2B (Continued)
Equipment5/31 Bal. 12,000
Accumulated Depreciation
Equipment5/31 2005/31 Bal. 200
Accounts Payable5/31 Bal. 3,5005/31 2605/31 Bal. 3,760
Salaries and Wages Payable5/31 9605/31 Bal. 960
Unearned Service Revenue5/31 2,500 5/31 Bal. 4,000
5/31 Bal. 1,500
Common Stock5/31 Bal. 19,100
Service Revenue5/31 Bal. 7,5005/31 2,5005/31 1,980
5/31 Bal. 11,980
Salaries and Wages Expense5/31 Bal. 4,0005/31 9605/31 Bal. 4,960
Rent Expense5/31 Bal. 1,500
Depreciation Expense5/31 2005/31 Bal. 200
Insurance Expense5/31 1505/31 Bal. 150
Utilities Expense5/31 2605/31 Bal. 260
Supplies Expense5/31 7505/31 Bal. 750
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PROBLEM 4-2B (Continued)
(c) QUINN CONSULTINGAdjusted Trial Balance
May 31, 2012
Debit CrediCash.......................................................................Accounts Receivable...........................................Prepaid Insurance................................................Supplies................................................................Equipment.............................................................Accumulated Depreciation
Equipment .........................................................Accounts Payable................................................
Salaries and Wages Payable...............................Unearned Service Revenue.................................Common Stock.....................................................Service Revenue..................................................Salaries and Wages Expense.............................Rent Expense.......................................................Depreciation Expense..........................................Insurance Expense..............................................Utilities Expense..................................................Supplies Expense................................................
$ 7,5004,9803,4501,750
12,000
4,9601,500
200150260750
$37,500
$ 203,76
961,5019,1011,98
$37,50
Copyright 2009 John Wiley & Sons, Inc. Kimmel, Financial Accounting,5/e, Solutions Manual ( For