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PROBLEM SET B

Problem 3-1B
Part 1
Oct. 31 Office Supplies Expense ........................ .............. 3,450
Office Supplies ............................................ .............. 3,450
To record cost of supplies used
(\$500 + \$3,650 - \$700).

31 Insurance Expense .................................. .............. 2,675
Prepaid Insurance ....................................... .............. 2,675
To record annual insurance coverage expense.
Policy
A
B
C
Total

Cost per Month

\$125 (\$3,000/24 mo.)
100 (\$3,600/36 mo.)
55 ( \$660 / 12 mo.)

Months Active
in 2011
12
9
5

2011
Expense
\$1,500
900
275
\$2,675

31 Salaries Expense ..................................... .............. 800
Salaries Payable .......................................... .............. 800
To record accrued but unpaid wages
(1 day x \$800).

31 Depreciation ExpenseBuilding ........... .............. 5,400
Accumulated DepreciationBuilding ....... .............. 5,400
To record annual depreciation
[(\$155,000-\$20,000) / 25 years = \$5,400].

Problem 3-1B (Concluded)

Oct. 31 Rent Receivable ....................................... .............. 600
Rent Earned ................................................. .............. 600
To record earned but unpaid Oct. rent.

31 Unearned Rent ......................................... .............. 1,050
Rent Earned ................................................. .............. 1,050
To record rent earned for September and
October (2 x \$525).

Part 2
Cash Payment for (c)
Nov. 7Salaries Payable .......................................... .............. 800
Salaries Expense* .................................................. .............. 3,200
Cash ........................................................... .............. 4,000
To record payment of accrued and current
salaries. *(4 days x \$800)

Cash Payment for (e)

15Cash .............................................................. .............. 1,200
Rent Receivable........................................... .............. 600
Rent Earned ................................................. .............. 600
To record past due rent for two months.

Problem 3-2B
1.

5.

9. F

2.

6.

10. I

3.

7.

11. A

4.

8.

12. B

Problem 3-3B
Parts 1 and 2

Cash
50,000

Accounts Payable

Accounts Receivable
0
(f)
5,500
5,500

Salaries Payable

Teaching Supplies
60,000
(b)
2,500
Prepaid Insurance
18,000
(a)
11,600
Prepaid Rent
2,600
(h)
0

12,200

(g)

0
540
540

Unearned Training Fees

57,500

(e)

27,600

18,400

9,200

M. Alcorn, Capital

6,400
M. Alcorn, Withdrawals
20,000

2,600

Professional Library
10,000

Accumulated Depreciation
Professional Library
1,500
(d)
2,000

68,500

3,500

Equipment
30,000

Accumulated Depreciation
Equipment
(c)
4,000
20,000

Problem 3-3B (Continued)

Parts 1 and 2
Tuition Fees Earned

(f)

18,000

105,000
5,500
110,500

62,000
9,200
71,200

Training Fees Earned

(e)

Depreciation Expense
Professional Library
0
(d)
2,000
2,000
Depreciation Expense
Equipment
0
(c)
4,000
4,000
Salaries Expense
43,200
(g)
540
43,740
Insurance Expense
0
(a)
6,400
6,400

(h)

Rent Expense
28,600
2,600
31,200

Teaching Supplies Expense

0
(b)
57,500
57,500

Utilities Expense
12,400

Problem 3-3B (Continued)

Part 2
Dec. 31 Insurance Expense .................................. ............. 6,400
Prepaid Insurance ....................................... ............. 6,400
To record the insurance expired.

31 Teaching Supplies Expense ................... ............. 57,500
Teaching Supplies....................................... ............. 57,500
To record the cost of supplies used
(\$60,000-\$2,500).

31 Depreciation ExpenseEquipment..................... 4,000
Accumulated DepreciationEquipment ... ............. 4,000
To record equipment depreciation.

31Depreciation ExpenseProfessional Library ........ 2,000
Accumulated Depreciation
Professional Library .......................... ............. 2,000
To record professional library depreciation.

31Unearned Training Fees ............................. ............. 9,200
Training Fees Earned .................................. ............. 9,200
To record training fees earned that were

31Accounts Receivable ................................... ............. 5,500
Tuition Fees Earned .................................... ............. 5,500
To record tuition earned (\$2,200 x 2 1/2 mo).

31Salaries Expense .......................................... ............. 540
Salaries Payable .......................................... ............. 540
To accrue salaries expense (3 days x \$180).

31Rent Expense ............................................... ............. 2,600
Prepaid Rent ..................................... ............. 2,600
To record expiration of prepaid rent.

Problem 3-3B (Continued)

Part 3
ALCORN INSTITUTE
December 31, 2011
Debit
Cash ........................................................................................... \$ 50,000
Accounts receivable ...............................................................
5,500
Teaching supplies ...................................................................
2,500
Prepaid insurance ...................................................................
11,600
Prepaid rent ..............................................................................
0
Professional library.................................................................
10,000
Accumulated depreciationProfessional library ............
Equipment ................................................................................
30,000
Accumulated depreciationEquipment ............................
Accounts payable ...................................................................
Salaries payable ......................................................................
Unearned training fees ...........................................................
M. Alcorn, Capital ....................................................................
M. Alcorn, Withdrawals ..........................................................
20,000
Tuition fees earned .................................................................
Training fees earned ...............................................................
Depreciation expenseProfessional library .....................
2,000
Depreciation expenseEquipment ....................................
4,000
Salaries expense .....................................................................
43,740
Insurance expense..................................................................
6,400
Rent expense ...........................................................................
31,200
Teaching supplies expense ..................................................
57,500
18,000
Utilities expense ......................................................................
12,400
Totals ......................................................................................... \$304,840

Credit

\$ 3,500
20,000
12,200
540
18,400
68,500
110,500
71,200

_______
\$304,840

Problem 3-3B (Continued)

Part 4
ALCORN INSTITUTE
Income Statement
For Year Ended December 31, 2011
Revenues
Tuition fees earned ................................................... \$110,500
Training fees earned .................................................
71,200
Total revenues ...........................................................
Expenses
Depreciation expenseProfessional library ..........
2,000
Depreciation expenseEquipment .........................
4,000
Salaries expense .......................................................
43,740
Insurance expense ....................................................
6,400
Rent expense .............................................................
31,200
Teaching supplies expense......................................
57,500
18,000
Utilities expense ........................................................
12,400
Total expenses ..........................................................
Net income ...................................................................

\$181,700

175,240
\$ 6,460

ALCORN INSTITUTE
Statement of Owners Equity
For Year Ended December 31, 2011
M. Alcorn, Capital, December 31, 2010 ..............
Plus: Net income ..................................................
Less: Owner withdrawals ....................................
M. Alcorn, Capital, December 31, 2011 ..............

\$68,500
6,460
74,960
20,000
\$54,960

Problem 3-3B (Concluded)

ALCORN INSTITUTE
Balance Sheet
December 31, 2011
Assets
Cash ..............................................................................
Accounts receivable ...................................................
Teaching supplies .......................................................
Prepaid insurance .......................................................
Professional library ..................................................... \$10,000
Accumulated depreciationProfessional library .......... (3,500)
Equipment .................................................................... 30,000
Accumulated depreciationEquipment ................... (20,000)
Total assets ..................................................................
Liabilities
Accounts payable ........................................................
Salaries payable ..........................................................
Unearned training fees ...............................................
Total liabilities .............................................................
Equity
M. Alcorn, Capital ........................................................
Total liabilities and equity ..........................................

\$50,000
5,500
2,500
11,600
6,500
10,000
\$86,100

\$12,200
540
18,400
31,140
54,960
\$86,100

Trial Balance

Account

Cash ................................................\$ 48,000

Accounts receivable .................. 70,000
Office supplies ............................. 30,000
Prepaid insurance....................... 13,200
Office equipment.........................150,000
Accumulated depreciation
Office equipment.............................

Accounts payable.......................
Interest payable............................
Salaries payable ..........................
Unearned consulting fees........
Long-term notes payable.........
D. Chen, Capital ...........................
D. Chen, Withdrawals ................ 10,000
Consulting fees earned............

(a)

6,660
(b)
(c)

\$ 30,000

(d)

36,000

30,000 (h)
80,000
70,200

23,000
4,600

\$ 48,000
76,660
7,000
8,600
150,000

10,000

\$ 40,000

(e)
(f)
(g)

6,000
1,600
11,200

42,000
1,600
11,200
17,800
80,000
70,200

(a)
(h)

6,660
12,200

12,200

10,000
264,000

Depreciation expense
Office equipment......................
Salaries expense.........................115,600
Interest expense .......................... 6,400
Insurance expense....................
Rent expense ............................... 24,000
Office supplies expense ...........
Totals...............................................
\$510,200 \$510,200

(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)

Trial Balance

282,860

(d)

10,000

10,000

(g)
(f)
(c)

11,200
1,600
4,600

(b)
(e)

23,000
6 ,000
\$75,260

126,800
8,000
4,600
24,000
23,000
______
49,000 _______
\$75,260 \$545,660 \$545,660

Earned but uncollected revenues.
Cost of consumed office supplies.
Cost of expired insurance coverage.
Depreciation expense on office equipment.
Incurred but unpaid interest expense.
Incurred but unpaid salaries expense.

Problem 3-4B
Part 2
DAXU CONSULTING COMPANY
Income Statement
For Year Ended December 31, 2011
Revenues
Consulting fees earned .....................................
Expenses
Depreciation expenseOffice equipment ....... \$ 10,000
Salaries expense ............................................... 126,800
Interest expense ................................................
8,000
Insurance expense ............................................
4,600
Rent expense ..................................................... 24,000
Office supplies expense ................................... 23,000
Total expenses ...................................................
Net income ............................................................

\$282,860

245,400
\$ 37,460

DAXU CONSULTING COMPANY

Statement of Owners Equity
For Year Ended December 31, 2011
D. Chen, Capital, December 31, 2010 .................
Plus: Net income ..................................................
Less: Owner withdrawals ....................................
D. Chen, Capital, December 31, 2011 .................

\$ 70,200
37,460
107,660
10,000
\$ 97,660

Problem 3-4B (Concluded)

Part 2 (concluded)
DAXU CONSULTING COMPANY
Balance Sheet
December 31, 2011
Assets
Cash ................................................................................
\$ 48,000
Accounts receivable .....................................................
76,660
Office supplies ...............................................................
7,000
Prepaid insurance .........................................................
8,600
Office equipment ........................................................... \$150,000
Accumulated depreciationOffice equipment .......... (40,000) 110,000
Total assets ....................................................................
\$250,260
Liabilities
Accounts payable ..........................................................
Interest payable .............................................................
Salaries payable ............................................................
Unearned consulting fees ............................................
Long-term notes payable ..............................................
Total liabilities ...............................................................

\$ 42,000
1,600
11,200
17,800
80,000
152,600

Equity
D. Chen, Capital .............................................................
Total liabilities and equity ............................................

97,660
\$250,260

Problem 3-5B
Part 1
LIGHTNING COURIER
Income Statement
For Year Ended December 31, 2011
Revenues
Delivery fees earned ..................................... \$580,000
Interest earned ............................................... 24,000
Total revenues ...............................................
Expenses
Depreciation expenseTrucks .................... 24,000
Depreciation expenseEquipment ............. 46,000
Salaries expense ........................................... 64,000
Wages expense ............................................. 290,000
Interest expense ............................................ 25,000
Office supplies expense ............................... 33,000
Repairs expenseTrucks ............................ 34,600
Total expenses ..............................................
Net income .......................................................

\$604,000

543,000
\$ 61,000

LIGHTNING COURIER
Statement of Owner's Equity
For Year Ended December 31, 2011
J. Hallam, Capital, December 31, 2010 ..........
Plus : Net income ...........................................
Less: Withdrawals by owner .........................
J. Hallam, Capital, December 31, 2011 ..........

\$115,000
61,000
176,000
40,000
\$136,000

Problem 3-5B (Concluded)

Part 1 (concluded)
LIGHTNING COURIER
Balance Sheet
December 31, 2011
Assets
Cash ......................................................................
\$ 48,000
Accounts receivable ............................................
110,000
Interest receivable................................................
6,000
Notes receivable (due in 90 days).........................
200,000
Office supplies .....................................................
12,000
Trucks ................................................................... \$124,000
Accumulated depreciationTrucks ...................
(48,000)
76,000
Equipment .............................................................
260,000
Accumulated depreciationEquipment ............ (190,000)
70,000
Land .......................................................................
90,000
Total assets ..........................................................
\$612,000
Liabilities
Accounts payable ................................................
Interest payable ....................................................
Salaries payable ...................................................
Unearned delivery fees ........................................
Long-term notes payable ....................................
Total liabilities ......................................................

\$124,000
22,000
30,000
110,000
190,000
476,000

Equity
J. Hallam, Capital .................................................
Total liabilities and equity ...................................

136,000
\$612,000

Part 2
Profit margin = \$61,000 / \$604,000 = 10.1%
Problem 3-6BA
Part 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.

1Prepaid Insurance ....................................... ............2,700

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

30 Cash .......................................................... ............7,500

Unearned Service Fees ............................... ............7,500

Cash ........................................................... ............3,450

23

Cash ........................................................ ............9,450

Unearned Service Fees .............................. ............9,450

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

Prepaid Consulting Fees ............................ ............1,500

31 Insurance Expense .................................. ............450

Prepaid Insurance ....................................... ............ 450

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

Service Fees Earned ................................... ............3,900

4,500

Problem 3-6BA (Continued)

Part 2

Method that records prepaid expenses and unearned revenues in income statement accounts:

Apr. 1Consulting Fees Expense .......................... .......... 3,450

Cash ........................................................... .......... 3,450
Paid for future consulting services.

1Insurance Expense....................................... .......... 2,700

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

30Cash .............................................................. .......... 7,500

Service Fees Earned ................................... .......... 7,500

May 1Advertising Expense .................................... .......... 3,450

Cash ........................................................... .......... 3,450

23Cash .............................................................. .......... 9,450

Service Fees Earned ................................... .......... 9,450

31Prepaid Consulting Fees ............................. .......... 1,950

Consulting Fees Expense .......................... .......... 1,950
To adjust for prepaid consulting fees.

31Prepaid Insurance ....................................... .......... 2,250

Insurance Expense ..................................... .......... 2,250

31Service Fees Earned .................................... .......... 3,600

Unearned Service Fees .............................. .......... 3,600
To adjust for unearned service fees.

31Service Fees Earned ..................................... .......... 4,950

Unearned Service Fees .............................. .......... 4,950
To adjust for unearned service fees.

Problem 3-6BA (Concluded)

Part 3
There are no differences between the two methods in terms of the amounts
that appear on the financial statements. In both cases, the financial
statements reflect the following:
Prepaid consulting fees as of May 31 ................ ............ \$ 1,950
Consulting fees expense for two months ......... ............... 1,500
Insurance expense for two months ................... .................. 450
Prepaid insurance as of May 31 ......................... ............... 2,250
Unearned service fees as of May 31 (\$3,600 + \$4,950) ............. 8,550
Service fees earned for two months (\$3,900 + \$4,500) ............. 8,400
Prepaid advertising as of May 31 ....................... ............... 1,050
Advertising expense for two months................. ............... 2,400
When prepaid expenses and unearned revenues are recorded in balance
sheet accounts, the related adjusting entries are designed to generate the
correct asset, expense, liability, and revenue account balances. When
prepaid expenses and unearned revenues are recorded in income
statement accounts, the related adjusting entries are designed to
accomplish exactly the same result.