Chapter 3 Solutions 2241

Chapter 3
Accrual Accounting and the Financial Statements

Exercises
(5-10 min.) E 3-18
a.
Dish Networks should report revenue of $700 million.

The amount of revenue reported is what Dish Networks earned, regardless of when cash is
collected.
b.
Dish Networks should report total expenses of $540 million.

All expenses incurred to earn revenues in the accounting period should be recorded.
c.
The income statement reports revenues and expenses.

The statement of cash flows reports cash receipts and cash payments.
(15-20 min.) E 3-21
Req. 1
Adjusting Entries
ACCOUNT TITLES
a.
DEBIT
Insurance Expense ($700 + $2,100 $800)

Prepaid Insurance.......................................................................
2,000
b.
Interest Receivable...........................................................................
Interest Revenue.........................................................................
900
c.
Unearned Service Revenue ($800 $300)

Service Revenue.........................................................................
500
d.
Depreciation Expense.......................................................................
Accumulated Depreciation...........................................................
6,200
e.
Salary Expense ($9,000 3/5)..........................................................

Salary Payable............................................................................
5,400
Chapter 3
CREDIT
2,000
900
500

Copyright 2012 Pearson Canada Inc.
6,200
5,400
169
f.
170
Income Tax Expense ($20,000 0.25)..............................................

Income Tax Payable....................................................................
Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

5,000
5,000
(continued) E 3-21
Req. 2
Net income overstated by omission of:
Depreciation expense..................................................................
Salary expense............................................................................
Income tax expense....................................................................
Insurance expense......................................................................
Total overstatement.....................................................................
$ 6,200
5,400
5,000
2,000
Net income understated by omission of:

Interest revenue...........................................................................
Service revenue...........................................................................
Total understatement...................................................................
$ 900
500
$18,600
Overall effect net income overstated by..
1,400
$17,200
(10-15 min.) E 3-22

Missing amounts in italics.
Beginning Supplies
Add: Payments for supplies
during the year
Total amount to account for
Less: Ending Supplies
Supplies Expense
1
$ 500
2
$1,000
3
$ 300
4
$ 900
800
1,300
(400)
$ 900
3,100
4,100
(500)
$3,600
1,100
1,400
(700)
$ 700
1,100
2,000
(600)
$1,400
Journal entries:
Situation 1:
Situation 2:
Supplies
Cash................................................................
800
Supplies Expense.................................................
Supplies...........................................................
3,600
Chapter 3
800

3,600
171
(10-20 min.) E 3-23

Adjusting Entries
DATE
ACCOUNT TITLES
DEBIT
CREDIT
Dec. 31
a.
Interest Expense..............................................................................
Interest Payable........................................................................
9,000
b.
Interest Receivable..........................................................................
Interest Revenue.......................................................................
3,000
c.
Unearned Revenue ($12,000 / 2)

Sales Revenue..........................................................................
6,000
d.
Salary Expense ($1,000 2)...........................................................

Salary Payable..........................................................................
2,000
Supplies Expense............................................................................
Supplies ($3,100 $800)..........................................................
2,300
e.
f.
172
3,000

6,000
2,000
Depreciation Expense ($60,000 / 5)................................................ 12,000

Accumulated Depreciation........................................................
Carrying amount = $48,000 ($60,000 $12,000)
9,000
2,300
12,000
(10 min.) E 3-27

Req. 1
Mountains income statement:
Service revenue ($12,000 9/12)................................................................
$9,000
Mountains balance sheet:

Unearned service revenue ($12,000 3/12)................................................
$3,000
Req. 2
Squamishs income statement:
Consulting expense ($12,000 9/12)...........................................................
$9,000
Squamishs balance sheet:

Prepaid consulting expense ($12,000 3/12)..............................................
$3,000
(10-20 min.) E 3-29

Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Closing Entries
Dec.
31
31
31
(Amounts in thousands)
Revenue
23,600
Other Revenue......................................................................
600
Retained Earnings............................................................
24,200
Retained Earnings.................................................................
Cost of Services Sold...
Selling, General, and
Administrative Expense..............................................
Depreciation Expense......................................................
Income Tax Expense........................................................
Retained Earnings.
Dividends.
Chapter 3
23,000
11,600
6,900
4,100
400
400

400
173
Net income for 2011 was $1,200 thousand ($24,200 $23,000).

Retained Earnings
Clo. Expenses
Clo. Dividends
174
23,000 Dec. 31, 2010

400 Clo. Revenue
Dec. 31, 2011

1,900
24,200
2,700
(240 min.) E 3-33

Reqs. 1, 3, 6, and 8
Cash
Jan. 2
9
21
28
Bal.
5,000
800
900
600
Accounts Receivable
Jan. 2
3
12
26
31
500
3,000
200
900
1,000
Jan. 18
Bal.
Adj.
Bal.
600
1,700
Supplies
Jan. 5
Bal.
1,700 Jan. 28
1,100
1,000
2,100
Equipment
900 Adj.
300
600
Jan. 3
Accumulated Depreciation
Equipment
Adj.
Furniture
100
Jan. 4
Furniture
Adj.
3,000
6,000
Accounts Payable
200
Jan. 26
900 Jan. 4
5
Bal.
Chapter 3

6,000
900
6,000
175
(continued) E 3-33
Reqs. 1, 3, 6, and 8
Salary Payable
Adj.
Unearned Service Revenue

1,000
Adj.
300 Jan. 21
Bal.
Common Shares
Jan. 2
1,000 Clo.
5,000
Clo.
Clo.
1,000 Clo.
500
Jan. 12
200 Clo.
200
Jan. 9
800
18
1,700
Bal.
Adj.
Adj.
2,500
1,000
300
3,800 Bal.
3,800
200 Clo.
200
Depreciation Expense
Equipment
1,000
Adj.
Furniture
Adj.
Bal.
Utilities Expense
Salary Expense
Adj.
3,800
1,000
Rent Expense
500 Clo.
2,600
1,000 Clo.
Service Revenue
Clo.
Jan. 2
600
Retained Earnings
Dividends
Jan. 31
900
100 Clo.
100
Supplies Expense
200
Adj.
600 Clo.
600
Req. 2
January 2 through 18 entries are repeated from Solution to Exercise 2-25.
Journal
DATE
Jan.
176

2 Cash................................................................................

DEBIT
5,000
CREDIT
Common Shares......................................................
5,000
2 Rent Expense..................................................................
Cash.........................................................................
500
3 Equipment.......................................................................
Cash.........................................................................
3,000
4 Furniture..........................................................................
Accounts Payable.....................................................
6,000
5 Supplies...........................................................................
Accounts Payable.....................................................
900
9 Cash................................................................................
Service Revenue......................................................
800
12 Utilities Expense..............................................................
Cash.........................................................................
200
18 Accounts Receivable.......................................................
Service Revenue......................................................
1,700
500
3,000
6,000
900
800
200
1,700
Journal
DATE
Jan.
21

Cash
Unearned Service Revenue......................................
DEBIT
900
900
21
No entry; no transaction yet
26
Accounts Payable...........................................................
Cash.........................................................................
900
28
Cash...............................................................................
Accounts Receivable................................................
600
Dividends........................................................................
Cash.........................................................................
1,000
30
Chapter 3
CREDIT
900
600

1,000
177
Reqs. 4 and 5
Web Marketing Services Inc.

Adjusted Trial Balance
January 31, 2011
TRIAL BALANCE
ADJUSTMENTS
ACCOUNT TITLE
Cash
Accounts receivable
Supplies
Equipment
Accumulated dep'n. equip.
Furniture
Accumulated depn. furn.
Accounts payable
Salary payable
Unearned service revenue
Common shares
Retained earnings
Dividends
Service revenue
Rent expense
Utilities expense
Salary expense
Depreciation expense equip.
Depreciation expense furn.
Supplies expense
DEBIT
CREDIT
1,700
1,100
900
3,000
(a) 1,000
CREDIT
(c) 600
(d1) 100
6,000
(d2) 200
6,000
900
5,000
(e) 1,000
(b) 300
1,000
2,500
(a)1,000
(b) 300
500
200
14,400
Req. 6
DEBIT
ADJUSTED TRIAL
BALANCE
DEBIT
CREDIT
1,700
2,100
300
3,000
100
6,000
200
6,000
1,000
600
5,000
1,000
3,800
(e) 1,000
(d1) 100
(d2) 200
(c) 600
14,400
3,200
3,200
500
200
1,000
100
200
600
16,700
16,700
Journal
DATE
(a) Jan.
31
(b)
31
(c)
178
31

Adjusting Entries
Accounts Receivable...........................................................
Service Revenue...........................................................
DEBIT
1,000
Unearned Service Revenue................................................

Service Revenue...........................................................
300
Supplies Expense ($900 $300)........................................
600
Financial Accounting Third Canadian Edition Instructors Solutions Manual

CREDIT
1,000
300
Supplies........................................................................
600
(d1)
31
Depreciation Expense Equipment

Accumulated Depreciation Equip.
100
(d2)
31
Depreciation Expense Furniture

Accumulated Depreciation Furn.
200
(e)
31
Salary Expense...................................................................
Salary Payable..............................................................
Chapter 3
100
200
1,000

179
1,000
(continued) E 3-33
Req. 7
Income Statement
For the Month Ended January 31, 2011
Revenues:
Service revenue
Expenses:
Salary expense
Supplies expense
Rent expense
Utilities expense
Depreciation expense furniture
Depreciation expense equipment
Total expenses
Net income

Statement of Retained Earnings
For the Month Ended January 31, 2011
Retained earnings, January 1, 2010
Add: Net income
Less: Dividends
Retained earnings, January 31, 2011
180

$3,800
1,000
600
500
200
200
100
2,600
$1,200
$
0
1,200
1,200
(1,000)
$ 200
(continued) E 3-33
Req. 7
Web Marketing Services Ltd.
Balance Sheet
January 31, 2011
ASSETS
Current assets:
Cash
Accounts receivable
Supplies
Total current assets
Capital assets:
Equipment
$3,000
Less accum.
depn.
(100)
Furniture
$6,000
Less accum.
depn.
(200)
Total assets
$ 1,700
2,100
300
4,100
2,900
5,800
$12,800
LIABILITIES
Current liabilities:
Accounts payable
Salary payable
Unearned service
revenue
Total current liabilities
$ 6,000
1,000
600
7,600
SHAREHOLDERS EQUITY
Common shares
5,000
Retained earnings
200
Total shareholders
equity
5,200
Total liabilities and
shareholders' equity
$12,800
(continued) E 3-33
Req. 8
Journal
DATE
Jan.
31
31
DEBIT
Closing Entries
Service Revenue.....................................................................
Retained Earnings.............................................................
3,800
Retained Earnings..................................................................
Rent Expense....................................................................
Utilities Expense................................................................
Salary Expense..................................................................
Depreciation Expense Equipment...................................
Depreciation Expense Furniture......................................
Supplies Expense..............................................................
Chapter 3
CREDIT
3,800
2,600

500
200
1,000
100
200
600
181
31
182
Retained Earnings..................................................................
Dividends...........................................................................

1,000
1,000
Req. 9
Current ratio
Debt ratio

Total liabilities
Total assets
$4,100
$7,600
0.59
$7,600
$12,800
0.54
The current ratio indicates a weak current financial position. The business has $0.54 in current
assets for every $1.00 of current liabilities. It could possibly have trouble paying current liabilities
with current assets. The debt ratio of 0.59 is low enough to suggest that, overall, the business
should be able to pay its debts, as it is not financing its assets with high levels of debt.
Req. 10
Net income as percentage of revenue
Net Income
Service Revenue
1,200
3,800
0.32
This ratio indicates a strong level of profit 32 cents of every revenue $1 is retained in profit.
Chapter 3

183
Problems
Group A
(20-30 min.) P 3-52A
Req. 1
Date
August
Prairies Consultants Inc.

Amount of Revenue (Expense) for August 2011
Cash Basis
1 Expense
$(1,000)
4 Expense
(800) Expense
5 Revenue
900
Revenue
8 Expense
(300) Expense
11
0
Revenue
19
0
Expense
24 Revenue
3,000
26 Expense
(1,600)
29 Expense
(900) Expense
31
0
Expense
31
0
Revenue
*$1,000 5 = 200
Accrual Basis
$
0
(30)
900
(300)
3,000
(30)
0
0
(900)
(200)*
800
Req. 2
Income (loss)
before tax
Income
$(700)
before tax
$3,240
Req. 3
The accrual-basis accounting for net income is preferable because it accounts for revenues and
expenses when they occur (earned or incurred), not when they are received or paid in cash. For
example, on August 11, 2011, the company earned $3,000 of revenue and increased its wealth as
a result. The accrual basis records this revenue, but the cash basis ignores it. On August 24, the
business collected the receivable that was created by the revenue earned on account at August
11. The accrual basis records no revenue on August 24 because the companys increase in
wealth occurred back on August 11. The cash basis waits until cash is received, on August 24, to
184

record the revenue. The example in Req. 2 indicates that income is understated on the cash basis
method.
Chapter 3

185
(10-20 min.) P 3-54A

Journal
DATE
2011
Dec. 31

a.
31
b.
DEBIT
Insurance Expense.................................................
Prepaid Insurance............................................
To record insurance expense.
3,100*
Salary Expense ($6,000 3/5)...............................

Salary Payable.................................................
To accrue salary expense.
3,600
3,100
3,600
31
c.
Interest Receivable.................................................
Interest Revenue..............................................
To accrue interest revenue.
500
31
d.
Supplies Expense..................................................
Supplies...........................................................
To record supplies expense.
6,600***
31
e.
($12,000 1/3) ...........................................
CREDIT
500
6,600
4,000
Service Revenue..............................................
To record unearned service revenue that was
earned during the year.
Cost of asset
available
during the period
*
($400 + $3,600)
$4,000
**
Cost of asset
on hand at the
end of the period
$900**
Cost of asset
used (expense)
during the period
$3,100
$6,600
$3,600 3/12 = $900 asset at December 31, 2009
***
186
4,000
($2,600 + $6,100)
$8,700
$2,100

Journal
DATE
2011
Dec.
31
f.
Depreciation Expense Office

Furniture.........................................................................
Depreciation Expense Equipment................................
Office Furniture......................................................
Equipment.............................................................
To record depreciation expense.
(10-20 min.) P 3-56A

Req. 1
DATE
2011
April
DEBIT
CREDIT
1,000
2,700
1,000
2,700
Journal
DEBIT
30
Accounts Receivable ($6,800 $6,300)...

Rental Revenue....................................................................
To accrue rental revenue.
500
30
Interest Receivable ($300 $0)..................................................

Interest Revenue ($300 $0)...............................................
300
30
Supplies Expense ($700 $0)....................................................

Supplies ($900 $200)........................................................
700
30
Insurance Expense ($1,700 $0)...............................................

Prepaid Insurance ($2,400 $700)......................................
1,700
Depreciation Expense ($2,200 $0)..........................................

($18,200 $16,000).......................................................
2,200
30
Chapter 3
CREDIT
500
300
700
1,700

2,200
187

30
30
Wages Expense ($2,000 $1,600).............................................

Wages Payable ($400 $0).................................................
To accrue wages expense.
Unearned Rental Revenue ($600 $100)
Rental Revenue....................................................................
To record unearned rental revenue that was earned during the
period.
400
400
500
500
(continued) P 3-56A
Req. 2
Total
assets
$68,600 ($8,300 + $6,800 + $300 + $4,100 +

$200 + $700 + $66,400 $18,200)
188
Total
liabilities
$7,400 ($6,900 + $400 + $100)
Total
equity
$61,200 ($18,000 + $42,700 + $4,100* $3,600)
Net
income*
$4,100 ($10,900 + $300 $2,000 $1,700
Assets
$68,600
=
=
$2,200 $300 $700 $200)

Liabilities + Shareholders Equity
$7,400 + $61,200

Closing entries for P3-56A

Journal
DATE
DEBIT
CREDIT
Closing Entries
Apr
30
30
Rental Revenue.....................................................................
Interest Revenue...................................................................
Retained Earnings............................................................
10,900
300
Retained Earnings.................................................................
Wages expense................................................................
Insurance expense..........................................................
Depreciation Expense......................................................
7,100
11,200
2,000
1,700
2,200
Property Tax Expense......................................................

Supplies Expense............................................................
Utilities Expense...............................................................
30
Retained Earnings.
Dividends.
300
700
200
3,600
3,600
Net income for the year* ending April 30, 2011 was $4,100 (11,200-7,100).
Retained Earnings
Clo. Expenses
Clo. Dividends
7,100 April 30, 2010*

3,600 Clo. Revenue
April 30, 2011
42,700
11,200
43,200
(* assuming prepare statements once per year, not given in question)
Chapter 3

189
(20-30 min.)
P 3-57A
Marshall Ltd.
Multiple Step Income Statement
For the Year Ended December 31, 2011
Req. 1
Revenues:
Service revenue
Operating Expenses:
Salary expense
Rent expense
Insurance expense
Supplies expense
Depreciation expense
Operating Income
Other:
Interest expense
Income before tax
Income tax expense
Net income
$107,900
$39,900
10,300
3,800
2,900
1,600
58,500
49,400
3,100
46,300
7,100
$ 39,200
Marshall Ltd.
For the Year Ended December 31, 2011
Retained earnings, December 31, 2010
Add: Net income
Less: Dividends
Retained earnings, December 31, 2011
$ 1,000
39,200
40,200
(24,000)
$16,200
Marshall Ltd.
Classified Balance Sheet
December 31, 2011
Current:
Cash
Accounts receivable
Supplies
Prepaid rent
Non-current
Equipment
Less: Accum.
190
ASSETS
LIABILITIES
$ 1,400
8,900
2,300
1,600
14,200
$37,100
Current:
Accounts payable
Interest payable
Unearned service revenue
Income tax payable
Non-current
Note payable*
Total Liabilities

$ 3,700
800
600
2,100
7,200
18,600
25,800
depn.
(4,300)
Total assets
32,800
SHAREHOLDERS EQUITY
Common shares
Retained earnings
Total shareholders equity
Total liabilities and
$47,000
shareholders equity
5,000
16,200
21,200
$47,000
* assume note is due after Dec 31, 2012
Chapter 3

191
P 3-58A
Req. 1
Journal
DATE
DEBIT
Closing Entries
Service Revenue...........................................................
Retained Earnings....................................................
94,100
CREDIT
2011
March
31
94,100
31
Retained Earnings.........................................................
Salary Expense........................................................
Supplies Expense....................................................
Depreciation Expense..............................................
Advertising Expense................................................
Insurance Expense..................................................
35,800
31
Retained Earnings.........................................................
Dividends.................................................................
31,200
17,800
4,600
1,900
10,900
600
31,200
Req. 2
Retained Earnings
March 31, 2011 Expenses
March 31, 2011 Dividends
35,800 March 31, 2010 Bal.

31,200 March 31, 2011 Revenues
March 31, 2011 Bal.
20,200
94,100
47,300
Net Income = Revenues Expenses

= $94,100 $35,800
= $58,300
Ending Balance of Retained Earnings = $47,300
Req. 3
Retained earnings increased during the year because net income of $58,300 ($94,100 $35,800)
exceeded dividends of $31,200.
192

Chapter 3

193
Group B
(10-20 min.) P 3-64B
Journal
DATE
2011
Dec.
31

a.
DEBIT
Salary Expense ($5,000 2/5).................................

Salary Payable...................................................
2,000
2,000
31
b.
Interest Receivable...................................................
Interest Revenue................................................
1,100
31
c.
Supplies.............................................................
11,400*
31
d.

($20,000 3/4).....................................................
Service Revenue................................................
To record unearned service revenue that was
earned during the period.
_____
*See next page.
CREDIT
1,100
11,400
15,000
15,000
Journal
DATE
Dec.
31
31
194

e.
f.
Computer Equipment...............................................
Depreciation Expense Building...................................
Computer Equipment....................................
Building.........................................................
Insurance Expense........................................................

DEBIT
CREDIT
6,300
3,700
6,300
3,700
2,700**
Prepaid Insurance....................................................
Chapter 3

2,700
195
Cost of asset
available
during the period
*
**
***
196
Cost of asset
on hand at the
end of the period
Cost of asset
used (expense)
during the period
($1,800 + $12,500)
$14,300
$2,900
$11,400
($1,800 + $3,600)
$5,400
$2,700***
$2,700
$3,600 9/12 = $2,700 asset at December 31

Req. 1
(45-60 min.)
P 3-65B
Creative Advertising Ltd.

Adjusted Trial Balance
October 31, 2011
TRIAL BALANCE
ADJUSTMENTS
ACCOUNT TITLE
Cash
Accounts receivable
Prepaid rent
Supplies
Computers
Accumulated
depreciation
Accounts payable
Salary payable
Common shares
Retained earnings
Dividends
Advertising revenue
Salary expense
Rent expense
Utilities expense
Supplies expense
___
*
**
***
DEBIT
16,300
7,000
4,000
600
36,000
CREDIT
c)
d)
e)
CREDIT
(a) 2,900
(b) 1,000*
(c) 200
36,000
3,000
(d) 1,000**
8,800
(e) 1,600***
15,000
21,000
15,000
21,000
4,600
4,600
25,400
4,400
(a) 2,900
(e) 1,600***
(b) 1,000*
28,300
6,000
1,000
300
73,200
73,200
(d) 1,000**
(c) 200
6,700
1,000
_____
6,700
78,700
$4,000 4 = $1,000
$36,000 3 = $12,000 12 = $1,000
$2,000 4/5 = $1,600
Adjusting entries:
a) Accounts receivable
Advertising revenue
b)
DEBIT
ADJUSTED TRIAL
BALANCE
DEBIT
CREDIT
16,300
9,900
3,000
2,900
2,900
Rent expense
Prepaid rent
1,000
Supplies expense
Supplies
200
1,000
200
Accumulated depreciation
1,000
Salary expense
Salaries payable
1,600
1,000
1,600
Chapter 3

197
78,700
(continued)
P 3-65B
Req. 2
Income Statement
For the Month Ended October 31, 2011
Revenues:
Design revenue
Expenses:
Salary expense
Rent expense
Utilities expense
Supplies expense
Total expenses
Net income
$28,300
$6,000
1,000
1,000
300
200
8,500
$ 19,800

For the Month Ended October 31, 2011
Retained earnings, September 30, 2010
Add: Net income
Less: Dividends
Retained earnings, October 31, 2011
$21,000
19,800
40,800
(4,600)
$36,200

Balance Sheet
October 31, 2011
ASSETS
Current assets:
Cash
Accounts receivable
Prepaid rent
Supplies
Computers
$36,000
Less: Accum.
amort. (4,000)
LIABILITIES
$16,300
Accounts payable
9,900
Salary payable
3,000 Total current liabilities
400
29,600
SHAREHOLDERS EQUITY
Common shares
32,000 Retained earnings
Total shareholders equity
$ 8,800
1,600
10,400
15,000
36,200
51,200
Total assets
______ Total liabilities and

$61,600
shareholders equity
______
$61,600
(continued)
P 3-65B
Req. 3
a. Creative Advertisings net income exceeded dividends for the month. Continuation of this trend
will increase both the assets and the shareholders equity (retained earnings) of the business, as
follows:
Assets
=
=
Liabilities
0
+
+
Shareholders Equity
b. This trend will make it easier to borrow because more and more assets will be available for the
business to pay debts as they come due.
c. Current ratio = $29,600 / $10,400 = 2.85

The current ratio is strong. It does not appear that the business will need to borrow. The cash
position of $16,300 will cover all the current liabilities.
(10-20 min.) P 3-66B

Req. 1
Journal
DATE
2011
Dec.
31
DEBIT
Accounts Receivable ($12,400 $11,200)....................................

Commission Revenue..............................................................
To accrue commission revenue.
1,200
Supplies Expense ($300 $0)......................................................

Supplies ($1,000 $700).........................................................
300
Insurance Expense ($1,700 $0).................................................

Prepaid Insurance ($2,600 $900).........................................
1,700
Depreciation Expense ($1,100 $0).............................................

($9,300 $8,200)....................................................................
1,100
31
Salary Expense ($27,500 $26,600)............................................

Salary Payable ($900 $0).....................................................
900
31
Interest Expense ($1,200 $800).................................................

Interest Payable ($400 $0)....................................................
To accrue interest expense.
400
31
Unearned Commission Revenue

($1,500 $1,100)....................................................................
Commission Revenue..............................................................
To record unearned commission revenue
that was earned during the period.
31
31
31
Req. 2
Total assets
$30,400 ($4,100 + $12,400 + $700 +

$900 + $21,600 $9,300)
Total liabilities
$14,700 ($6,300 + $900 + $400 +
CREDIT
1,200
300
1,700
1,100
900
400
400
400
$6,000 + $1,100)
Total equity
$15,700 ($5,000 + $3,500 + $25,500*** $18,300)
***Net income
$25,500 ($74,400 $1,100 $300 $4,900

$27,500 $12,200 $1,200 $1,700)
Assets
$30,400
=
=
Liabilities +
$14,700
+
Shareholders Equity
$15,700
(20 min.) P 3-68B
Req. 1
Journal
DATE
DEBIT
Closing Entries
Service Revenue.............................................................
Retained Earnings....................................................
93,500
Retained Earnings...........................................................
34,600
CREDIT
2011
Dec.
31
31
93,500
Salary Expense........................................................
Advertising Expense................................................
Depreciation Expense..............................................
Interest Expense......................................................
31
Retained Earnings...........................................................
Dividends.................................................................
24,600
5,700
2,200
1,300
800
47,400
47,400
Req. 2
Retained Earnings
Dec. 31, 2011 Expenses
Dec. 31, 2011 Dividends
Net Income
34,600 Dec. 31, 2010 Bal.

47,400 Dec. 31, 2011 Revenues
Dec. 31, 2011 Bal.
5,300
93,500
16,800
Revenues
Expenses
=
$93,500
$34,600
=
$58,900
Ending Balance of Retained Earnings = $16,800
Req. 3
Retained Earnings increased during the year because net income of $58,900 ($93,500 $34,600)
exceeded dividends of $47,400.
(30-40 min.) P 3-69B

Req. 1
For You eTravel Inc.
Balance Sheet
December 31, 2011
ASSETS
Current assets:
Cash
Accounts receivable................................................................................
Supplies..................................................................................................
Total current assets...........................................................................
Capital assets:
Furniture.........................................................................
$41,400
Less accumulated depreciation................................
(11,600)
Other assets..................................................................................................
Total assets...................................................................................................
LIABILITIES
Accounts payable....................................................................................
Salary payable........................................................................................
$ 7,300
6,600
7,700
21,600
29,800
3,600
$55,000
$ 5,100
3,900
Unearned service revenue......................................................................

Total current liabilities........................................................................
Note payable, long-term................................................................................
Total liabilities................................................................................................
SHAREHOLDERS EQUITY
Common shares............................................................................................
Retained earnings.........................................................................................
Total shareholders equity..............................................................................
Total liabilities and shareholders equity........................................................
3,600
12,600
10,600
23,200
15,000
16,800*
31,800
$55,000
(continued) P 3-69B
Req. 1
_____
*Computation: (see P3-68B, Req. 1)
Retained earnings, December 31, 2010................................................
$ 5,300
Add:
Net income ($93,500 $34,600)
58,900
64,200
Less:
Dividends...............................................................................
(47,400)
Retained earnings, December 31, 2011................................................
$16,800

Chapter 3 Solutions 2241

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Chapter 3 Solutions 2241

Încărcat de

Drepturi de autor:

Formate disponibile

Chapter 3

Accrual Accounting and the Financial Statements

Dish Networks should report revenue of $700 million.

Dish Networks should report total expenses of $540 million.

The income statement reports revenues and expenses.

Insurance Expense ($700 + $2,100 $800)

Unearned Service Revenue ($800 $300)

Salary Expense ($9,000 3/5)..........................................................

Accrual Accounting and the Financial Statements

Income Tax Expense ($20,000 0.25)..............................................

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

Net income understated by omission of:

Overall effect net income overstated by..

(10-15 min.) E 3-22

Accrual Accounting and the Financial Statements

(10-20 min.) E 3-23

Unearned Revenue ($12,000 / 2)

Salary Expense ($1,000 2)...........................................................

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

Depreciation Expense ($60,000 / 5)................................................ 12,000

(10 min.) E 3-27

Mountains balance sheet:

Squamishs balance sheet:

(10-20 min.) E 3-29

ACCOUNT TITLES AND EXPLANATION

Accrual Accounting and the Financial Statements

Net income for 2011 was $1,200 thousand ($24,200 $23,000).

23,000 Dec. 31, 2010

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

(240 min.) E 3-33

Accrual Accounting and the Financial Statements

Unearned Service Revenue

ACCOUNT TITLES AND EXPLANATION

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

ACCOUNT TITLES AND EXPLANATION

No entry; no transaction yet

Accrual Accounting and the Financial Statements

Web Marketing Services Inc.

ACCOUNT TITLES AND EXPLANATION

Unearned Service Revenue................................................

Supplies Expense ($900 $300)........................................

Financial Accounting Third Canadian Edition Instructors Solutions Manual

Depreciation Expense Equipment

Depreciation Expense Furniture

Accrual Accounting and the Financial Statements

Web Marketing Services Inc.

Financial Accounting Third Canadian Edition Instructors Solutions Manual

ACCOUNT TITLES AND EXPLANATION

Accrual Accounting and the Financial Statements

Financial Accounting Third Canadian Edition Instructors Solutions Manual

Total current assets

Net income as percentage of revenue

Accrual Accounting and the Financial Statements

Prairies Consultants Inc.

Financial Accounting Third Canadian Edition Instructors Solutions Manual

Accrual Accounting and the Financial Statements

(10-20 min.) P 3-54A

ACCOUNT TITLES AND EXPLANATION

Salary Expense ($6,000 3/5)...............................

Unearned Service Revenue

($12,000 1/3) ...........................................

$3,600 3/12 = $900 asset at December 31, 2009

Financial Accounting Third Canadian Edition Instructors Solutions Manual

ACCOUNT TITLES AND EXPLANATION