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This document provides an assignment classification table and characteristics table for Chapter 3 of an accounting textbook. The tables classify learning objectives, questions, exercises and problems by level of difficulty and time required. They also provide a correlation chart mapping the chapter's learning objectives to levels of Bloom's Taxonomy and specific questions/exercises. The tables are designed to help instructors assign work and assess student comprehension of the chapter, which covers adjusting accounting entries, adjusted trial balances, and financial reporting concepts.

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Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-1 CHAPTER 3 Adjusting the Accounts ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Brief Exercises Do It! Exercises A Problems B Problems *1. Explain the time period assumption. 1 1 1 *2. Explain the accrual basis of accounting. 2, 3, 4, 5 1 2, 3, 10 *3. Explain the reasons for adjusting entries and identify the major types of adjusting entries. 6, 7, 8, 18 1, 2, 8 4, 6, 11 *4. Prepare adjusting entries for deferrals. 8, 9, 10, 11, 12, 13, 18, 19, 20 2, 3, 4, 5, 6,8 2 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 15 1A, 2A, 3A, 4A, 5A, 6A 1B, 2B, 3B, 4B, 5B *5. Prepare adjusting entries for accruals. 8, 14, 15, 16, 17, 18, 19, 20 2, 7, 8 3 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 15 1A, 2A, 3A, 4A, 5A, 6A 1B, 2B, 3B, 4B, 5B *6. Describe the nature and purpose of an adjusted trial balance. 21 9, 10 4 10, 11, 12, 13, 14 1A, 2A, 3A, 5A, 6A 1B, 2B, 3B, 5B *7. Prepare adjusting entries for the alternative treatment of deferrals. 22 11 16, 17 6A *8. Discuss financial reporting concepts. 23, 24, 25 26, 27, 28 12, 13 14, 15 18, 19, 20, 21, 22 *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter.
3-2 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Prepare adjusting entries, post to ledger accounts, and prepare an adjusted trial balance. Simple 40–50 2A Prepare adjusting entries, post, and prepare adjusted trial balance, and financial statements. Simple 50–60 3A Prepare adjusting entries and financial statements. Moderate 40–50 4A Prepare adjusting entries. Moderate 30–40 5A Journalize transactions and follow through accounting cycle to preparation of financial statements. Moderate 60–70 *6A* Prepare adjusting entries, adjusted trial balance, and financial statements using appendix. Moderate 40–50 1B Prepare adjusting entries, post to ledger accounts, and prepare an adjusted trial balance. Simple 40–50 2B Prepare adjusting entries, post, and prepare adjusted trial balance, and financial statements. Simple 50–60 3B Prepare adjusting entries and financial statements. Moderate 40–50 4B Prepare adjusting entries. Moderate 30–40 5B Journalize transactions and follow through accounting cycle to preparation of financial statements. Moderate 60–70
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-3 WEYGANDT ACCOUNTING PRINCIPLES 11E CHAPTER 3 ADJUSTING THE ACCOUNTS Number LO BT Difficulty Time (min.) BE1 3 C Simple 4–6 BE2 3, 4, 5 AN Moderate 6–8 BE3 4 AN Simple 3–5 BE4 4 AN Simple 3–5 BE5 4 AN Simple 2–4 BE6 4 AN Simple 2–4 BE7 5 AN Simple 4–6 BE8 3, 4, 5 AN Simple 5–7 BE9 6 AP Simple 4–6 BE10 6 AP Simple 2–4 BE11* 7 AN Moderate 3–5 BE12* 8 C Simple 3–5 BE13* 8 C Simple 2–4 BE14* 8 C Simple 2–4 BE15* 8 C Simple 1–2 DI1 1, 2 K Simple 2–4 DI2 4 AN Simple 6–8 DI3 5 AN Simple 4–6 DI4 6 AN Moderate 20–30 EX1 1 C Simple 3–5 EX2 2 E Moderate 10–15 EX3 2 AP Simple 6–8 EX4 3, 4, 5 AN Simple 5–6 EX5 4, 5 AN Moderate 10–15 EX6 3–5 AN Moderate 10–12 EX7 4, 5 AN Moderate 8–10 EX8 4, 5 AN Moderate 8–10 EX9 4, 5 AN Simple 8–10 EX10 2, 4–6 AN Moderate 8–10 EX11 3–6 AN Moderate 12–15 EX12 4–6 AN Moderate 8–10 EX13 4–6 AN Simple 8–10 EX14 6 AP Simple 12–15
3-4 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) ADJUSTING THE ACCOUNTS (Continued) Number LO BT Difficulty Time (min.) EX15 4, 5 AN, S Moderate 8–10 EX16* 7 AN Moderate 6–8 EX17* 7 AN Moderate 10–12 EX18* 8 C Simple 3–5 EX19* 8 C Simple 3–5 EX20* 8 C Simple 6–8 EX21* 8 AN Simple 10–20 EX22* 8 AN Simple 10–20 P1A 4–6 AN Simple 40–50 P2A 4–6 AN Simple 50–60 P3A 4–6 AN Moderate 40–50 P4A 4, 5 AN Moderate 30–40 P5A 4–6 AN Moderate 60–70 P6A 4–7 AN Moderate 40–50 P1B 4–6 AN Simple 40–50 P2B 4–6 AN Simple 50–60 P3B 4–6 AN Moderate 40–50 P4B 4, 5 AN Moderate 30–40 P5B 4–6 AN Moderate 60–70 BYP1 4, 5, 6 AN Simple 10–15 BYP2 — AN Simple 10–15 BYP3 — AN Simple 10–15 BYP4 — AN Simple 10–15 BYP5 — AN Moderate 15–20 BYP6 2–6 S Moderate 15–20 BYP7 3–6 C Simple 10–15 BYP8 3–6 E Moderate 10–15 BYP9 — E Moderate 10–15 BYP10 — E Moderate 10–15 BYP11 — K Simple 10–15
BLOOM’S TAXONOMY TABLE Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-5 Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation *1. Explain the time period assumption. DI3-1 Q3-1 E3-1 *2. Explain the accrual basis of accounting. DI3-1 Q3-2 Q3-3 Q3-4 Q3-5 E3-3 E3-10 E3-2 *3. Explain the reasons for adjusting entries and identify the major types of adjusting entries. Q3-6 Q3-7 Q3-8 BE3-1 Q3-18 BE3-2 BE3-8 E3-4 E3-6 E3-11 *4. Prepare adjusting entries for deferrals. Q3-8 Q3-9 Q3-10 Q3-11 Q3-12 Q3-13 Q3-19 Q3-20 Q3-18 BE3-2 BE3-3 BE3-4 BE3-5 BE3-6 BE3-8 DI3-2 E3-5 E3-6 E3-7 E3-8 E3-9 E3-10 E3-11 E3-12 E3-13 E3-15 P3-1A P3-2A P3-3A P3-4A P3-5A P3-6A P3-1B P3-2B P3-3B P3-4B P3-5B E3-15 *5. Prepare adjusting entries for accruals. Q3-8 Q3-14 Q3-15 Q3-19 Q3-20 Q3-17 Q3-16 Q3-18 BE3-2 BE3-7 BE3-8 DI3-3 E3-4 E3-5 E3-6 E3-7 E3-8 E3-9 E3-10 E3-11 E3-12 E3-13 E3-15 P3-1A P3-2A P3-3A P3-4A P3-5A P3-6A P3-1B P3-2B P3-3B P3-4B P3-5B E3-15 *6. Describe the nature and purpose of an adjusted trial balance. Q3-21 BE3-9 BE3-10 E3-14 DI3-4 E3-10 E3-11 E3-12 E3-13 P3-1A P3-2A P3-3A P3-5A P3-6A P3-1B P3-2B P3-3B P3-5B *7. Prepare adjusting entries for the alternative treatment of deferrals. Q3-22 BE3-11 E3-16 E3-17 P3-6A *8. Discuss financial reporting concepts Q3-23 BE3-12 E3-20 BE3-13 Q3-24 BE3-14 Q3-25 BE3-15 Q3-26 E3-18 Q3-27 E3-19 Q3-28 E3-21 E3-22 Broadening Your Perspective FASB Activity Communication Financial Reporting Comparative Analysis Real-World Focus Decision Making Across the Organization All About You Ethics Case Considering P, P & P
3-6 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) ANSWERS TO QUESTIONS 1. (a) Under the time period assumption, an accountant is required to determine the relevance of each business transaction to specific accounting periods. (b) An accounting time period of one year in length is referred to as a fiscal year. A fiscal year that extends from January 1 to December 31 is referred to as a calendar year. Accounting periods of less than one year are called interim periods. 2. The two generally accepted accounting principles that relate to adjusting the accounts are: The revenue recognition principle, which states that revenue should be recognized in the accounting period in which services are performed. The expense recognition principle, which states that efforts (expenses) be matched with accomplishments (revenues). 3. The law firm should recognize the revenue in April. The revenue recognition principle states that revenue should be recognized in the accounting period in which services are performed. 4. Information presented on an accrual basis is more useful than on a cash basis because it reveals relationships that are likely to be important in predicting future results. To illustrate, under accrual accounting, revenues are recognized when the performance obligation is satisfied so they can be related to the economic environment in which they occur. Trends in revenues are thus more meaningful. 5. Expenses of $4,500 should be deducted from the revenues in April. Under the expense recognition principle efforts (expenses) should be matched with accomplishments (revenues). 6. No, adjusting entries are required by the revenue recognition and expense recognition principles. 7. A trial balance may not contain up-to-date information for financial statements because: (1) Some events are not journalized daily because it is not efficient to do so. (2) The expiration of some costs occurs with the passage of time rather than as a result of daily transactions. (3) Some items may be unrecorded because the transaction data are not yet known. 8. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of prepaid expenses and unearned revenues. Accruals consist of accrued revenues and accrued expenses. 9. In the adjusting entry for a prepaid expense, an expense is debited and an asset is credited. 10. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner. Depreciation results in the presentation of the book value of the asset, not its fair value. 11. Depreciation expense is an expense account whose normal balance is a debit. This account shows the cost that has expired during the current accounting period. Accumulated depreciation is a contra asset account whose normal balance is a credit. The balance in this account is the depreciation that has been recognized from the date of acquisition to the balance sheet date. 12. Equipment.................................................................................................. $18,000 Less: Accumulated Depreciation—Equipment.......................................... 6,000 $12,000
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-7 Questions Chapter 3 (Continued) *13. In the adjusting entry for an unearned revenue, a liability is debited and a revenue is credited. *14. Asset and revenue. An asset would be debited and a revenue would be credited. *15. An expense is debited and a liability is credited in the adjusting entry. *16. Net income was understated $200 because prior to adjustment, revenues are understated by $900 and expenses are understated by $700. The difference in this case is $200 ($900 – $700). *17. The entry is: Jan. 9 Salaries and Wages Payable ........................................................ 2,000 Salaries and Wages Expense ....................................................... 3,000 Cash ...................................................................................... 5,000 *18. (a) Accrued revenues. (d) Accrued expenses or prepaid expenses. (b) Unearned revenues. (e) Prepaid expenses. (c) Accrued expenses. (f) Accrued revenues or unearned revenues. *19. (a) Salaries and Wages Payable. (d) Supplies Expense. (b) Accumulated Depreciation. (e) Service Revenue. (c) Interest Expense. (f) Service Revenue. *20. Disagree. An adjusting entry affects only one balance sheet account and one income statement account. *21. Financial statements can be prepared from an adjusted trial balance because the balances of all accounts have been adjusted to show the effects of all financial events that have occurred during the accounting period. *22. For Supplies Expense (prepaid expense): expenses are overstated and assets are understated. The adjusting entry is: Assets (Supplies)....................................................................................... XX Expenses (Supplies Expense)............................................................. XX For Rent Revenue (unearned revenues): revenues are overstated and liabilities are understated. The adjusting entry is: Revenues (Rent Revenue) ........................................................................ XX Liabilities (Unearned Rent Revenue)................................................... XX **23. (a) The primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions about providing capital. (b) The fundamental qualitative characteristics are relevance and faithful representation. The enhancing qualities are comparabiIity, consistency, verifiability, timeliness, and understandability. *24. Gross is correct. Consistency means using the same accounting principles and accounting methods from period to period within a company. Without consistency in the application of accounting principles, it is difficult to determine whether a company is better off, worse off, or the same from period to period.
3-8 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) Questions Chapter 3 (Continued) *25. Comparability results when different companies use the same accounting principles. Consistency means using the same accounting principles and methods from year to year within the same company. *26. The constraint is the cost constraint. The cost constraint allows accounting standard setters to weigh the cost that companies will incur to provide information against the benefit that financial statement users will gain from having the information available. *27. Accounting relies primarily on two measurement principles. Fair value is sometimes used when market price information is readily available. However, in many situations reliable market price information is not available. In these instances, accounting relies on cost as its basis. *28. The economic entity assumption states that every economic entity can be separately identified and accounted for. This assumption requires that the activities of the entity be kept separate and distinct from (1) the activities of its owners (the shareholders) and (2) all other economic entities. A shareholder of a company charging personal living costs as expenses of the company is an example of a violation of the economic entity assumption.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-9 SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 3-1 (a) Prepaid Insurance—to recognize insurance expired during the period. (b) Depreciation Expense—to account for the depreciation that has occurred on the asset during the period. (c) Unearned Service Revenue—to record revenue earned for services performed. (d) Interest Payable—to recognize interest accrued but unpaid on notes payable. BRIEF EXERCISE 3-2 Item (a) Type of Adjustment (b) Account Balances before Adjustment 1. Prepaid Expenses Assets Overstated Expenses Understated 2. Accrued Revenues Assets Understated Revenues Understated 3. Accrued Expenses Expenses Understated Liabilities Understated 4. Unearned Revenues Liabilities Overstated Revenues Understated BRIEF EXERCISE 3-3 Dec. 31 Supplies Expense................................................. 4,200 Supplies ($6,700 – $2,500)............................ 4,200 Supplies Supplies Expense 6,700 12/31 4,200 12/31 4,200 12/31 Bal. 2,500
3-10 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BRIEF EXERCISE 3-4 Dec. 31 Depreciation Expense........................................... 4,000 Accumulated Depreciation— Equipment.................................................. 4,000 Depreciation Expense Accum. Depreciation—Equipment 12/31 4,000 12/31 4,000 Balance Sheet: Equipment............................................................. $30,000 Less: Accumulated Depreciation— Equipment ................................................. 4,000 $26,000 BRIEF EXERCISE 3-5 July 1 Prepaid Insurance ............................................ 14,400 Cash........................................................... 14,400 Dec. 31 Insurance Expense [($14,400 ÷ 3) X 1/2] ........ 2,400 Prepaid Insurance .................................... 2,400 Prepaid Insurance Insurance Expense 7/1 14,400 12/31 2,400 12/31 2,400 12/31 Bal.12,000 BRIEF EXERCISE 3-6 July 1 Cash .................................................................. 14,400 Unearned Service Revenue ..................... 14,400 Dec. 31 Unearned Service Revenue............................. 2,400 Service Revenue....................................... 2,400 Unearned Service Revenue Service Revenue 12/31 2,400 7/1 14,400 12/31 2,400 12/31 Bal.12,000
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-11 BRIEF EXERCISE 3-7 1. Dec. 31 Interest Expense ........................................... 400 Interest Payable..................................... 400 2. 31 Accounts Receivable.................................... 1,900 Service Revenue.................................... 1,900 3. 31 Salaries and Wages Expense....................... 900 Salaries and Wages Payable ................ 900 BRIEF EXERCISE 3-8 Account (a) Type of Adjustment (b) Related Account Accounts Receivable Accrued Revenues Service Revenue Prepaid Insurance Prepaid Expenses Insurance Expense Accum. Depr.—Equipment Prepaid Expenses Depreciation Expense Interest Payable Accrued Expenses Interest Expense Unearned Service Revenue Unearned Revenues Service Revenue BRIEF EXERCISE 3-9 PARSONS COMPANY Income Statement For the Year Ended December 31, 2014 Revenues Service revenue ..................................................... $37,000 Expenses Salaries and wages expense ................................ $16,000 Rent expense ......................................................... 4,000 Insurance expense ................................................ 2,000 Supplies expense .................................................. 1,500 Depreciation expense............................................ 1,300 Total expenses ............................................... 24,800 Net income ..................................................................... $12,200
3-12 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BRIEF EXERCISE 3-10 PARSONS COMPANY Owner’s Equity Statement For the Year Ended December 31, 2014 Owner’s capital, January 1............................................................... $15,600 Add: Net income .............................................................................. 12,200 27,800 Less: Drawings ................................................................................ 7,000 Owner’s capital, December 31......................................................... $20,800 *BRIEF EXERCISE 3-11 (a) Apr. 30 Supplies.......................................................... 700 Supplies Expense .................................. 700 (b) 30 Service Revenue............................................ 3,000 Unearned Service Revenue................... 3,000 BRIEF EXERCISE 3-12 (a) Predictive value. (b) Confirmatory value. (c) Materiality. (d) Complete. (e) Free from error. (f) Comparability. (g) Verifiability. (h) Timeliness. BRIEF EXERCISE 3-13 (a) Relevant. (b) Faithful representation. (c) Consistency.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-13 BRIEF EXERCISE 3-14 (a) 1. Predictive value. (b) 2. Neutral. (c) 3. Verifiable. (d) 4. Timely. BRIEF EXERCISE 3-15 (c)
3-14 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) SOLUTIONS FOR DO IT! REVIEW EXERCISES DO IT! 3-1 1. (d) 2. (e) 3. (h) 4. (c) DO IT! 3-2 1. Insurance Expense....................................................... 300 Prepaid Insurance.................................................. 300 (To record insurance expired) 2. Supplies Expense ($2,500 – $1,100)............................ 1,400 Supplies.................................................................. 1,400 (To record supplies used) 3. Depreciation Expense .................................................. 500 Accumulated Depreciation—Equipment ............. 500 (To record monthly depreciation) 4. Unearned Service Revenue ($9,000 x 2/5).................. 3,600 Service Revenue.................................................... 3,600 (To record revenue for services provided) DO IT! 3-3 1. Salaries and Wages Expense ...................................... 1,300 Salaries and Wages Payable ................................ 1,300 (To record accrued salaries) 2. Interest Expense ($20,000 x .12 x 1/12)....................... 200 Interest Payable ..................................................... 200 (To record accrued interest) 3. Accounts Receivable.................................................... 2,400 Service Revenue.................................................... 2,400 (To record revenue for service provided)
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-15 DO IT! 3-4 (a) The net income is determined by adding revenues and subtracting expenses. The net income is computed as follows: Revenues Service revenue................................................. $11,360 Rent revenue ..................................................... 1,100 Total revenues........................................... $12,460 Expenses Salaries and wages expense............................ 7,400 Rent expense..................................................... 1,200 Depreciation expense....................................... 700 Utilities expense................................................ 410 Supplies expense.............................................. 160 Interest expense................................................ 40 Total expenses .......................................... 9,910 Net income ................................................................ $ 2,550 (b) Total assets and liabilities are computed as follows: Assets Cash ................................................................... $ 5,360 Accounts receivable ......................................... 480 Prepaid rent ....................................................... 720 Supplies ............................................................. 920 Equipment.......................................................... $12,000 Less: Accumulated depreciation— Equipment............................................... 700 11,300 Total assets................................................ $18,780 Liabilities Notes payable.................................................... $ 4,000 Accounts payable ............................................. 790 Unearned rent revenue..................................... 400 Salaries and wages payable............................. 300 Interest payable................................................. 40 Total liabilities ........................................... $ 5,530
3-16 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) (c) Owner’s Capital at June 30, 2014, can be computed in one of two ways. Using the basic accounting equation (Assets = Liabilities + Owner’s Equity), we find that total assets are $18,780 and total liabilities are $5,530; therefore, Owner’s Equity (Owner’s Capital) is $13,250 ($18,780 – $5,530). Another way to compute the Owner’s Capital at June 30, 2012, is as follows: Owner’s capital, April 1............................................ $ –0– Add: Investments ..................................................... $11,200 Net income ...................................................... 2,550 13,750 Less: Drawings......................................................... 500 Owner’s capital, June 30 ......................................... $13,250
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-17 SOLUTIONS TO EXERCISES EXERCISE 3-1 1. True. 2. True. 3. False. Many business transactions affect more than one of these artificial time periods. For example, the purchase of a building affects expenses for many years. 4. True. 5. False. A time period that lasts less than one year, such as monthly or quarterly periods, is called an interim period. 6. False. All calendar years are fiscal years, but not all fiscal years are calendar years. An accounting time period that is one year in length is referred to as a fiscal year. A fiscal year that starts on January 1 and ends on December 31 is a calendar year. EXERCISE 3-2 (a) Accrual-basis accounting records the transactions that change a company’s financial statements in the periods in which the events occur rather than in the periods in which the company receives or pays cash. Information presented on an accrual basis is useful because it reveals relationships that are likely to be important in predicting future results. Conversely, under cash-basis accounting, revenue is recorded only when cash is received, and an expense is recognized only when cash is paid. As a result, the cash basis of accounting often leads to misleading financial statements. (b) Politicians might desire a cash-basis accounting system over an accrual- basis system because if an accrual-accounting system is used, it could mean that billions in government liabilities presently unrecorded would have to be reported in the federal budget immediately. The recognition of these additional liabilities would make the deficit even worse. This is not what politicians would like to see and be held responsible for.
3-18 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-2 (Continued) (c) Dear Senator, It is my understanding, after having taken a beginning course in account- ing principles, that the Federal government uses a cash-basis system rather than an accrual-basis accounting system. I am shocked at such a practice! There must be billions of dollars of liabilities hidden in many contracts that have not been recorded yet for the mere reason that they haven’t been paid yet. I realize that the deficit would dramatically increase if we were to implement an accrual system, but in all fairness, we citizens should be given a more accurate picture of what our government is up to. Sincerely, CONCERNED STUDENT EXERCISE 3-3 (a) Cash received from revenue............................................ $105,000 Cash paid for expenses ................................................... (72,000) Cash-basis net income ........................................... $ 33,000 (b) Revenues [($105,000 – $25,000) + $40,000].................... $120,000 Expenses [($72,000 – $30,000) + $42,000] ...................... (84,000) Accrual-basis net income....................................... $ 36,000 EXERCISE 3-4 1. Unearned revenue. 2. Accrued expense. 3. Accrued expense. 4. Accrued revenue. 5. Prepaid expense. 6. Unearned revenue. 7. Accrued revenue. 8. Prepaid expense. 9. Prepaid expense. 10. Prepaid expense. 11. Accrued expense.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-19 EXERCISE 3-5 1. Interest Expense ..................................................... 400 Interest Payable ($10,000 X 12% X 4/12) ................................. 400 2. Supplies Expense ................................................... 1,550 Supplies ($2,450 – $900).................................. 1,550 3. Depreciation Expense............................................. 1,000 Accumulated Depreciation—Equipment........ 1,000 4. Insurance Expense ................................................. 1,225 Prepaid Insurance ($2,100 X 7/12) ............................................... 1,225 5. Unearned Service Revenue.................................... 7,500 Service Revenue ($30,000 X 1/4) ............................................... 7,500 6. Accounts Receivable .............................................. 4,200 Service Revenue............................................... 4,200 7. Salaries and Wages Expense................................. 5,400 Salaries and Wages Payable ($9,000 X 3/5) ................................................. 5,400
3-20 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-6 Item (a) Type of Adjustment (b) Accounts before Adjustment 1. Accrued Revenues Assets Understated Revenues Understated 2. Prepaid Expenses Assets Overstated Expenses Understated 3. Accrued Expenses Expenses Understated Liabilities Understated 4. Unearned Revenues Liabilities Overstated Revenues Understated 5. Accrued Expenses Expenses Understated Liabilities Understated 6. Prepaid Expenses Assets Overstated Expenses Understated EXERCISE 3-7 1. Mar. 31 Depreciation Expense ($400 X 3).................. 1,200 Accumulated Depreciation— Equipment........................................... 1,200 2. 31 Unearned Rent Revenue ............................... 3,400 Rent Revenue ($10,200 X 1/3) ............... 3,400 3. 31 Interest Expense............................................ 500 Interest Payable...................................... 500 4. 31 Supplies Expense .......................................... 1,900 Supplies ($2,800 – $900)........................ 1,900 5. 31 Insurance Expense ($200 X 3) ...................... 600 Prepaid Insurance.................................. 600
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-21 EXERCISE 3-8 1. Jan. 31 Accounts Receivable .................................... 875 Service Revenue.................................... 875 2. 31 Utilities Expense............................................ 650 Utilities Payable ..................................... 650 3. 31 Depreciation Expense................................... 400 Accumulated Depreciation— Equipment .......................................... 400 31 Interest Expense............................................ 500 Interest Payable ..................................... 500 4. 31 Insurance Expense ($24,000 ÷ 12) ............... 2,000 Prepaid Insurance ................................. 2,000 5. 31 Supplies Expense ($1,600 – $400) ............... 1,200 Supplies.................................................. 1,200 EXERCISE 3-9 1. Oct. 31 Supplies Expense.......................................... 2,000 Supplies ($2,500 – $500) ....................... 2,000 2. 31 Insurance Expense........................................ 100 Prepaid Insurance ................................. 100 3. 31 Depreciation Expense................................... 50 Accumulated Depreciation— Equipment .......................................... 50 4. 31 Unearned Service Revenue.......................... 600 Service Revenue.................................... 600 5. 31 Accounts Receivable .................................... 300 Service Revenue.................................... 300
3-22 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-9 (Continued) 6. Oct. 31 Interest Expense..................................... 95 Interest Payable............................... 95 7. 31 Salaries and Wages Expense ................ 1,625 Salaries and Wages Payable.......... 1,625 EXERCISE 3-10 GOPITKUMAR CO. Income Statement For the Month Ended July 31, 2014 Revenues Service revenue ($5,500 + $650) ............................. $6,150 Expenses Salaries and wages expense ($2,300 + $300) ........ $2,600 Supplies expense ($1,200 – $250)........................... 950 Utilities expense....................................................... 600 Insurance expense................................................... 400 Depreciation expense .............................................. 150 Total expenses.................................................. 4,700 Net income........................................................................ $1,450 EXERCISE 3-11 Answer Computation (a) Supplies balance = $800 Supplies expense $ 950 Add: Supplies (1/31) 850 Less: Supplies purchased (1,000) Supplies (1/1) $ 800 (b) Total premium = $4,800 Total premium = Monthly premium X 12; $400 X 12 = $4,800 Purchase date = Aug. 1, 2013 Purchase date: On Jan. 31, there are 6 months’ coverage remaining ($400 X 6). Thus, the purchase date was 6 months earlier on Aug. 1, 2013.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-23 EXERCISE 3-11 (Continued) (c) Salaries and wages payable = $1,400 Cash paid $3,500 Salaries and wages payable (1/31/14) 800 4,300 Less: Salaries and wages expense 2,900 Salaries and wages payable (12/31/13) $1,400 EXERCISE 3-12 (a) July 10 Supplies ......................................................... 650 Cash........................................................ 650 14 Cash................................................................ 2,000 Service Revenue.................................... 2,000 15 Salaries and Wages Expense....................... 1,200 Cash........................................................ 1,200 20 Cash................................................................ 1,000 Unearned Service Revenue .................. 1,000 (b) July 31 Supplies Expense.......................................... 800 Supplies.................................................. 800 31 Accounts Receivable .................................... 500 Service Revenue.................................... 500 31 Salaries and Wages Expense....................... 1,200 Salaries and Wages Payable ................ 1,200 31 Unearned Service Revenue.......................... 1,150 Service Revenue.................................... 1,150
3-24 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-13 Aug. 31 Accounts Receivable..................................... 2,000 Service Revenue..................................... 2,000 31 Supplies Expense .......................................... 1,400 Supplies .................................................. 1,400 31 Insurance Expense ........................................ 1,500 Prepaid Insurance .................................. 1,500 31 Depreciation Expense ................................... 900 Accumulated Depreciation— Equipment........................................... 900 31 Salaries and Wages Expense ....................... 1,100 Salaries and Wages Payable................. 1,100 31 Unearned Rent Revenue ............................... 900 Rent Revenue ......................................... 900 EXERCISE 3-14 FRINZI COMPANY Income Statement For the Year Ended August 31, 2014 Revenues Service revenue........................................................ $36,000 Rent revenue ............................................................ 11,900 Total revenues .................................................. $47,900 Expenses Salaries and wages expense................................... 18,100 Rent expense............................................................ 15,000 Insurance expense................................................... 1,500 Supplies expense..................................................... 1,400 Depreciation expense .............................................. 900 Total expenses.................................................. 36,900 Net income........................................................................ $11,000
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-25 EXERCISE 3-14 (Continued) FRINZI COMPANY Owner’s Equity Statement For the Year Ended August 31, 2014 Owner’s capital, September 1, 2013 ............................................... $15,600 Add: Net income............................................................................. 11,000 Owner’s capital, August 31, 2014.................................................... $26,600 FRINZI COMPANY Balance Sheet August 31, 2014 Assets Cash................................................................................... $10,400 Accounts receivable......................................................... 10,800 Supplies ............................................................................ 900 Prepaid insurance ............................................................ 2,500 Equipment......................................................................... $14,000 Less: Accum. depreciation—equipment....................... 4,500 9,500 Total assets ....................................................... $34,100 Liabilities and Owner’s Equity Liabilities Accounts payable..................................................................... $ 5,800 Salaries and wages payable .................................................... 1,100 Unearned rent revenue............................................................. 600 Total liabilities ................................................................... 7,500 Owner’s equity Owner’s capital ......................................................................... 26,600 Total liabilities and owner’s equity.................................. $34,100
3-26 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-15 (a) 1. Cash ................................................................... 9,000 Accounts Receivable ................................ 9,000 2. Unearned Service Revenue.............................. 25,000 Service Revenue........................................ 25,000 3. Cash ................................................................... 38,000 Unearned Service Revenue ...................... 38,000 Unearned Service Revenue ($38,000 – $17,000)............................................ 21,000 Service Revenue............................................ 21,000 4. Accounts Receivable ........................................ 115,000 Service Revenue ($161,000 – $25,000 – $21,000) ............. 115,000 5. Cash ................................................................... 101,000 Accounts Receivable ($115,000 – $14,000) .............................. 101,000 (b) Cash received by the club = $9,000 + $101,000 + $38,000 = $148,000 *EXERCISE 3-16 1. Prepaid Insurance ................................................... 1,125 Insurance Expense ($2,700 X 5/12)............................................... 1,125 2. Service Revenue ..................................................... 30,000 Unearned Service Revenue ($40,000 X 3/4)............................................... 30,000 3. Supplies ................................................................... 900 Supplies Expense............................................. 900
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-27 *EXERCISE 3-17 (a) Jan. 2 Insurance Expense....................................... 1,920 Cash....................................................... 1,920 10 Supplies Expense......................................... 1,700 Cash....................................................... 1,700 15 Cash............................................................... 6,100 Service Revenue................................... 6,100 Cash Service Revenue 1/15 6,100 1/2 1,920 1/10 1,700 1/15 6,100 Insurance Expense Supplies Expense 1/2 1,920 1/10 1,700 (b) Jan. 31 Prepaid Insurance ($160 X 11 months) ...... 1,760 Insurance Expense............................... 1,760 31 Supplies ........................................................ 650 Supplies Expense................................. 650 31 Service Revenue........................................... 3,600 Unearned Service Revenue ................. 3,600 Prepaid Insurance Supplies Unearned Service Revenue 1/31 1,760 1/31 650 1/31 3,600 Insurance Expense Supplies Expense Service Revenue 1/2 1,920 1/31 1,760 1/10 1,700 1/31 650 1/31 3,600 1/15 6,100 Bal. 160 Bal. 1,050 Bal. 2,500 (c) Prepaid insurance....................................................................... $1,760 Supplies....................................................................................... 650 Unearned service revenue......................................................... 3,600 Service revenue .......................................................................... 2,500 Insurance expense ..................................................................... 160 Supplies expense ....................................................................... 1,050
3-28 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) *EXERCISE 3-18 (a) 2 Going concern assumption (b) 6 Economic entity assumption (c) 3 Monetary unit assumption (d) 4 Time period assumption (e) 5 Historical cost principle (f) 1 Full disclosure principle *EXERCISE 3-19 (a) This is a violation of the historical cost principle. The inventory was written up to its fair value when it should have remained at cost. (b) This is a violation of the economic entity assumption. The treatment of the transaction treats Jay Rosman and Rosman Co. as one entity when they are two separate entities. Salaries and Wages Expense should have been debited for the purchase of the truck. (c) This is a violation of the time period assumption. This assumption states that the economic life of a business can be divided into artificial time periods (months, quarters, or a year). By adding two more weeks to the year, Rosman Co. would be misleading financial statement readers. In addition, 2014 results would not be comparable to previous years’ results. The company should use a 52 week year. *EXERCISE 3-20 1. Comparability 2. Going concern assumption 3. Materiality 4. Full disclosure principle 5. Time period assumption 6. Relevance 7. Historical cost principle 8. Consistency 9. Economic entity assumption 10. Faithful representation 11. Monetary unit assumption 12. Expense recognition principle
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-29 *EXERCISE 3-21 (a) The primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions about providing capital. Since Net Nanny’s shares appear to be actively traded, investors must be capable of using the information made available by Net Nanny to make decisions about the company. (b) The investors must feel as if the company will show earnings in the future. They must recognize that information relevant to their investment choice is indicated by more than Net Nanny’s net income. (c) The change from Canadian dollars to U.S. dollars for reporting purposes should make Net Nanny more comparable with companies traded on U.S. stock exchanges. *EXERCISE 3-22 (a) Accounting information is the compilation and presentation of financial information for a company. It provides information in the form of financial statements and additional disclosures that is useful for decision making. The accounting rules and practices that have substantial authoritative support and are recognized as a general guide for financial reporting purposes are referred to as international financial reporting standards (IFRS). The biotechnology company that employs Ana will follow IFRS to report its assets, liabilities, equity, revenues, and expenses as it prepares financial statements. (b) Ana is correct in her understanding that the low success rate for new biotech products will be a cause of concern for investors. Her suggestion that detailed scientific findings be reported to prospective investors might offset some of their concerns but it probably won’t conform to the qualitative characteristics of accounting information. These characteristics consist of relevance, faithful representation, comparability, and consistency, verifiability, timeliness, and understandability. They apply to accounting information rather than the scientific findings that Ana wants to include.
3-30 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) SOLUTIONS TO PROBLEMS PROBLEM 3-1A (a) J4 Date Account Titles Ref. Debit Credit 2014 May 31 Supplies Expense................................ Supplies....................................... 631 126 900 900 31 Utilities Expense.................................. Accounts Payable....................... 736 201 250 250 31 Insurance Expense.............................. Prepaid Insurance ($3,600 ÷ 24 months) .............. 722 130 150 150 31 Unearned Service Revenue ................ Service Revenue ($2,000 – $400) ........................ 209 400 1,600 1,600 31 Salaries and Wages Expense ............. Salaries and Wages Payable [(3/5 X $900) X 2 employees]........................... 726 212 1,080 1,080 31 Depreciation Expense ......................... Accumulated Depreciation— Equipment............................... 717 150 190 190 31 Accounts Receivable........................... Service Revenue......................... 112 400 1,700 1,700 (b) Cash No. 101 Date Explanation Ref. Debit Credit Balance 2014 May 31 Balance 4,500
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-31 PROBLEM 3-1A (Continued) Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 1,700 6,000 7,700 Supplies No. 126 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 900 1,900 1,000 Prepaid Insurance No. 130 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 150 3,600 3,450 Equipment No. 149 Date Explanation Ref. Debit Credit Balance 2014 May 31 Balance 11,400 Accumulated Depreciation—Equipment No. 150 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 190 190
3-32 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-1A (Continued) Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 250 4,500 4,750 Unearned Service Revenue No. 209 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 1,600 2,000 400 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 1,080 1,080 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance 2014 May 31 Balance 17,700 Service Revenue No. 400 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 31 Balance Adjusting Adjusting J4 J4 1,600 1,700 7,500 9,100 10,800 Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 900 900
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-33 PROBLEM 3-1A (Continued) Depreciation Expense No. 717 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 190 190 Insurance Expense No. 722 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 150 150 Salaries and Wages Expense 726 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 1,080 3,400 4,480 Rent Expense No. 729 Date Explanation Ref. Debit Credit Balance 2014 May 31 Balance 900 Utilities Expense No. 736 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 250 250
3-34 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-1A (Continued) (c) NARDELLI CONSULTING Adjusted Trial Balance May 31, 2014 Debit Credit Cash ..................................................................... Accounts Receivable.......................................... Supplies............................................................... Prepaid Insurance............................................... Equipment ........................................................... Accumulated Depreciation— Equipment ....................................................... Accounts Payable............................................... Unearned Service Revenue................................ Salaries and Wages Payable.............................. Owner’s Capital................................................... Service Revenue ................................................. Salaries and Wages Expense ............................ Rent Expense ...................................................... Depreciation Expense ........................................ Insurance Expense ............................................. Utilities Expense ................................................. Supplies Expense ............................................... $ 4,500 7,700 1,000 3,450 11,400 4,480 900 190 150 250 900 $34,920 $ 190 4,750 400 1,080 17,700 10,800 $34,920
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-35 PROBLEM 3-2A (a) J1 Date Account Titles Ref. Debit Credit May 31 Insurance Expense .............................. Prepaid Insurance ($2,400 X 1/12) ......................... 722 130 200 200 31 Supplies Expense ................................ Supplies ($2,080 – $750)............. 631 126 1,330 1,330 31 Depreciation Expense ($3,000 X 1/12) + ($1,500 X 1/12)...... Accumulated Depreciation— Buildings.................................. 619 142 375 250 Accumulated Depreciation— Equipment................................ 150 125 31 Interest Expense .................................. Interest Payable [($40,000 X 12%) X 1/12] ........... 718 230 400 400 31 Unearned Rent Revenue...................... Rent Revenue (2/3 X $3,300) .......................... 208 429 2,200 2,200 31 Salaries and Wages Expense.............. Salaries and Wages Payable...... 726 212 750 750 (b) Cash No. 101 Date Explanation Ref. Debit Credit Balance May 31 Balance 3,500
3-36 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2A (Continued) Supplies No. 126 Date Explanation Ref. Debit Credit Balance May 31 31 Balance Adjusting J1 1,330 2,080 750 Prepaid Insurance No. 130 Date Explanation Ref. Debit Credit Balance May 31 31 Balance Adjusting J1 200 2,400 2,200 Land No. 140 Date Explanation Ref. Debit Credit Balance May 31 Balance 12,000 Buildings No. 141 Date Explanation Ref. Debit Credit Balance May 31 Balance 60,000 Accumulated Depreciation—Buildings No. 142 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 250 250 Equipment No. 149 Date Explanation Ref. Debit Credit Balance May 31 Balance 15,000 Accumulated Depreciation—Equipment No. 150 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 125 125
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-37 PROBLEM 3-2A (Continued) Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance May 31 Balance 4,800 Unearned Rent Revenue No. 208 Date Explanation Ref. Debit Credit Balance May 31 31 Balance Adjusting J1 2,200 3,300 1,100 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 750 750 Interest Payable No. 230 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 400 400 Mortgage Payable No. 275 Date Explanation Ref. Debit Credit Balance May 31 Balance 40,000 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance May 31 Balance 41,380 Rent Revenue No. 429 Date Explanation Ref. Debit Credit Balance May 31 31 Balance Adjusting J1 2,200 10,300 12,500
3-38 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2A (Continued) Advertising Expense No. 610 Date Explanation Ref. Debit Credit Balance May 31 Balance 600 Depreciation Expense No. 619 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 375 375 Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 1,330 1,330 Interest Expense No. 718 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 400 400 Insurance Expense No. 722 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 200 200 Salaries and Wages Expense No. 726 Date Explanation Ref. Debit Credit Balance May 31 31 Balance Adjusting J1 750 3,300 4,050 Utilities Expense No. 732 Date Explanation Ref. Debit Credit Balance May 31 Balance 900
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-39 PROBLEM 3-2A (Continued) (c) SKYLINE MOTEL Adjusted Trial Balance May 31, 2014 Debit Credit Cash.................................................................. Supplies ........................................................... Prepaid Insurance ........................................... Land.................................................................. Buildings .......................................................... Accumulated Depreciation—Buildings ......... Equipment........................................................ Accumulated Depreciation—Equipment....... Accounts Payable ........................................... Unearned Rent Revenue................................. Salaries and Wages Payable .......................... Interest Payable............................................... Mortgage Payable............................................ Owner’s Capital ............................................... Rent Revenue .................................................. Advertising Expense....................................... Depreciation Expense..................................... Supplies Expense............................................ Interest Expense.............................................. Insurance Expense.......................................... Salaries and Wages Expense......................... Utilities Expense.............................................. $ 3,500 750 2,200 12,000 60,000 15,000 600 375 1,330 400 200 4,050 900 $101,305 $ 250 125 4,800 1,100 750 400 40,000 41,380 12,500 $101,305
3-40 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2A (Continued) (d) SKYLINE MOTEL Income Statement For the Month Ended May 31, 2014 Revenues Rent revenue.................................................... $12,500 Expenses Salaries and wages expense.......................... $4,050 Supplies expense ............................................ 1,330 Utilities expense .............................................. 900 Advertising expense ....................................... 600 Interest expense .............................................. 400 Depreciation expense ..................................... 375 Insurance expense .......................................... 200 Total expenses......................................... 7,855 Net income............................................................... $ 4,645 SKYLINE MOTEL Owner’s Equity Statement For the Month Ended May 31, 2014 Owner’s capital, May 1.............................................................. $ 0 Investment by owner ................................................................ 41,380 41,380 Add: Net income...................................................................... 4,645 Owner’s capital, May 31............................................................ $46,025
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-41 PROBLEM 3-2A (Continued) SKYLINE MOTEL Balance Sheet May 31, 2014 Assets Cash..................................................................... $ 3,500 Supplies............................................................... 750 Prepaid insurance............................................... 2,200 Land ..................................................................... 12,000 Buildings ............................................................. $60,000 Less: Accumulated depreciation— buildings .................................................. 250 59,750 Equipment ........................................................... 15,000 Less: Accumulated depreciation— equipment................................................. 125 14,875 Total assets.......................................... $93,075 Liabilities and Owner’s Equity Liabilities Accounts payable ....................................... $ 4,800 Unearned rent revenue............................... 1,100 Salaries and wages payable....................... 750 Interest payable........................................... 400 Mortgage payable........................................ 40,000 Total liabilities ..................................... 47,050 Owner’s equity Owner’s capital............................................ 46,025 Total liabilities and owner’s equity....... $93,075
3-42 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-3A (a) Sept. 30 Accounts Receivable ............................... 1,100 Service Revenue................................. 1,100 30 Rent Expense ........................................... 1,000 Prepaid Rent ....................................... 1,000 30 Supplies Expense..................................... 850 Supplies............................................... 850 30 Depreciation Expense.............................. 700 Accum. Depreciation—Equipment...... 700 30 Interest Expense ...................................... 100 Interest Payable .................................. 100 30 Unearned Rent Revenue.......................... 850 Rent Revenue...................................... 850 30 Salaries and Wages Expense.................. 725 Salaries and Wages Payable ............. 725 (b) EVERETT CO. Income Statement For the Quarter Ended September 30, 2014 Revenues Service revenue................................................... $17,100 Rent revenue........................................................ 2,260 Total revenues ............................................. $19,360 Expenses Salaries and wages expense.............................. 8,725 Rent expense ....................................................... 2,900 Utilities expense .................................................. 1,510 Supplies expense ................................................ 850 Depreciation expense ......................................... 700 Interest expense .................................................. 100 Total expenses............................................. 14,785 Net income................................................................... $ 4,575
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-43 PROBLEM 3-3A (Continued) EVERETT CO. Owner’s Equity Statement For the Quarter Ended September 30, 2014 Owner’s capital, July 1, 2014 ................................ $ 0 Investment by owner............................................. $22,000 Add: Net income.................................................. 4,575 26,575 26,575 Less: Drawings ..................................................... 1,600 Owner’s capital, September 30, 2014................... $24,975 EVERETT CO. Balance Sheet September 30, 2014 Assets Cash........................................................................ $ 8,700 Accounts receivable.............................................. 11,500 Supplies.................................................................. 650 Prepaid rent............................................................ 1,200 Equipment .............................................................. $18,000 Less: Accum. depreciation—equipment ............ 700 17,300 Total assets............................................. $39,350 Liabilities and Owner’s Equity Liabilities Notes payable................................................. $10,000 Accounts payable .......................................... 2,500 Salaries and wages payable.......................... 725 Unearned rent revenue.................................. 1,050 Interest payable.............................................. 100 Total liabilities ........................................ 14,375 Owner’s equity Owner’s capital............................................... 24,975 Total liabilities and owner’s equity....... $39,350 (c) Interest of 12% per year equals a monthly rate of 1%; monthly interest is $100 ($10,000 X 1%). Since total interest expense is $100, the note has been outstanding one month.
3-44 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-4A 1. Dec. 31 Insurance Expense ........................................ 4,890 Prepaid Insurance.................................. 4,890 [($7,920 ÷ 3) = $2,640 [($4,500 ÷ 2) = 2,250 $4,890] 2. Dec. 31 Unearned Rent Revenue ............................... 84,000 Rent Revenue ......................................... 84,000 [Nov. 5 X $5,000 X 2 = $50,000 [Dec. 4 X $8,500 X 1 = 34,000 $84,000 3. Dec. 31 Interest Expense............................................ 1,800 Interest Payable ($120,000 X 9% X 2/12)....................... 1,800 4. Dec. 31 Salaries and Wages Expense ....................... 2,000 Salaries and Wages Payable................. 2,000 [5 X $700 X 2/5 = $1,400 [3 X $500 X 2/5 = 600 $2,000]
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-45 PROBLEM 3-5A (a), (c) & (e) Cash No. 101 Date Explanation Ref. Debit Credit Balance Nov. 1 8 10 12 20 22 25 29 Balance J1 J1 J1 J1 J1 J1 J1 3,420 3,100 600 1,700 2,700 400 1,700 2,400 700 4,120 7,220 4,520 4,120 2,420 3,020 Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance Nov. 1 10 27 Balance J1 J1 1,900 3,420 4,250 830 2,730 Supplies No. 126 Date Explanation Ref. Debit Credit Balance Nov. 1 17 30 Balance Adjusting J1 J1 700 1,100 1,800 2,500 1,400 Equipment No. 153 Date Explanation Ref. Debit Credit Balance Nov. 1 15 Balance J1 2,000 12,000 14,000
3-46 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5A (Continued) Accumulated Depreciation—Equipment No. 154 Date Explanation Ref. Debit Credit Balance Nov. 1 30 Balance Adjusting J1 200 2,000 2,200 Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance Nov. 1 15 17 20 Balance J1 J1 J1 2,700 2,000 700 2,600 4,600 5,300 2,600 Unearned Service Revenue No. 209 Date Explanation Ref. Debit Credit Balance Nov. 1 29 30 Balance Adjusting J1 J1 1,250 600 1,200 1,800 550 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance Nov. 1 8 30 Balance Adjusting J1 J1 700 350 700 0 350 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance Nov. 1 Balance 13,950
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-47 PROBLEM 3-5A (Continued) Service Revenue No. 407 Date Explanation Ref. Debit Credit Balance Nov. 12 27 30 Adjusting J1 J1 J1 3,100 1,900 1,250 3,100 5,000 6,250 Depreciation Expense No. 615 Date Explanation Ref. Debit Credit Balance Nov. 30 Adjusting J1 200 200 Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance Nov. 30 Adjusting J1 1,100 1,100 Salaries and Wages Expense No. 726 Date Explanation Ref. Debit Credit Balance Nov. 8 25 30 Adjusting J1 J1 J1 1,000 1,700 350 1,000 2,700 3,050 Rent Expense No. 729 Date Explanation Ref. Debit Credit Balance Nov. 22 J1 400 400
3-48 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5A (Continued) (b) General Journal J1 Date Account Titles and Explanation Ref. Debit Credit Nov. 8 Salaries and Wages Payable.............. Salaries and Wages Expense............. Cash.............................................. 212 726 101 700 1,000 1,700 10 Cash ..................................................... Accounts Receivable.................. 101 112 3,420 3,420 12 Cash ..................................................... Service Revenue ......................... 101 407 3,100 3,100 15 Equipment ........................................... Accounts Payable ....................... 153 201 2,000 2,000 17 Supplies ............................................... Accounts Payable ....................... 126 201 700 700 20 Accounts Payable ............................... Cash ............................................. 201 101 2,700 2,700 22 Rent Expense ...................................... Cash ............................................. 729 101 400 400 25 Salaries and Wages Expense............. Cash ............................................. 726 101 1,700 1,700 27 Accounts Receivable.......................... Service Revenue ......................... 112 407 1,900 1,900 29 Cash ..................................................... Unearned Service Revenue ........ 101 209 600 600
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-49 PROBLEM 3-5A (Continued) (d) & (f) SCHILLING EQUIPMENT REPAIR Trial Balances November 30, 2014 Before Adjustment After Adjustment Dr. Cr. Dr. Cr. Cash............................................ Accounts Receivable ................ Supplies ..................................... Equipment.................................. Accumulated Depreciation— Equipment............................... Accounts Payable ..................... Unearned Service Revenue ...... Salaries and Wages Payable .... Owner’s Capital ......................... Service Revenue........................ Depreciation Expense............... Supplies Expense...................... Salaries and Wages Expense... Rent Expense............................. $ 3,020 2,730 2,500 14,000 2,700 400 $25,350 $ 2,000 2,600 1,800 –0– 13,950 5,000 $25,350 $ 3,020 2,730 1,400 14,000 200 1,100 3,050 400 $25,900 $ 2,200 2,600 550 350 13,950 6,250 $25,900 (e) 1. Nov. 30 Supplies Expense ........................ 631 1,100 Supplies ($2,500 – $1,400) .... 126 1,100 2. 30 Salaries and Wages Expense ..... 726 350 Salaries and Wages Payable ................................ 212 350 3. 30 Depreciation Expense ................. 615 200 Accumulated Depreciation— Equipment .......................... 154 200 4. 30 Unearned Service Revenue......... 209 1,250 Service Revenue.................... 407 1,250
3-50 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5A (Continued) (g) SCHILLING EQUIPMENT REPAIR Income Statement For the Month Ended November 30, 2014 Revenues Service revenue............................................... $6,250 Expenses Salaries and wages expense.......................... $3,050 Supplies expense ............................................ 1,100 Rent expense ................................................... 400 Depreciation expense ..................................... 200 Total expenses......................................... 4,750 Net Income............................................................... $1,500 SCHILLING EQUIPMENT REPAIR Owner’s Equity Statement For the Month Ended November 30, 2014 Owner’s capital, November 1 ................................................... $13,950 Plus: Net income ..................................................................... 1,500 Owner’s capital, November 30 ................................................. $15,450
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-51 PROBLEM 3-5A (Continued) SCHILLING EQUIPMENT REPAIR Balance Sheet November 30, 2014 Assets Cash........................................................................ $ 3,020 Accounts receivable.............................................. 2,730 Supplies.................................................................. 1,400 Equipment .............................................................. $14,000 Less: Accumulated depreciation— equipment ................................................... 2,200 11,800 Total assets .................................................... $18,950 Liabilities and Owner’s Equity Liabilities Accounts payable ............................................................. $ 2,600 Unearned service revenue ............................................... 550 Salaries and wages payable............................................. 350 Total liabilities ........................................................... 3,500 Owner’s equity Owner’s capital.................................................................. 15,450 Total liabilities and owner’s equity.................................. $18,950
3-52 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) *PROBLEM 3-6A (a) 1. June 30 Supplies.................................................. 1,500 Supplies Expense .......................... 1,500 2. 30 Interest Expense ($20,000 X 9% X 5/12) ........................ 750 Interest Payable ............................. 750 3. 30 Prepaid Insurance [($2,700 ÷ 12) X 8] .............................. 1,800 Insurance Expense ........................ 1,800 4. 30 Service Revenue.................................... 1,300 Unearned Service Revenue ............ 1,300 5. 30 Accounts Receivable ............................ 2,000 Service Revenue ............................ 2,000 6. 30 Depreciation Expense ($2,250 ÷ 2) ......................................... 1,125 Accumulated Depreciation— Equipment .................................. 1,125
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-53 *PROBLEM 3-6A (Continued) (b) SOMMER GRAPHICS COMPANY Adjusted Trial Balance June 30, 2014 Debit Credit Cash.................................................................. Accounts Receivable ($14,000 + $2,000)....... Supplies ........................................................... Prepaid Insurance ........................................... Equipment........................................................ Accumulated Depreciation—Equipment....... Notes Payable.................................................. Accounts Payable ........................................... Interest Payable............................................... Unearned Service Revenue ............................ Owner’s Capital ............................................... Sales Revenue ................................................. Service Revenue ($6,000 – $1,300 + $2,000) . Salaries and Wages Expense......................... Supplies Expense ($3,700 – $1,500) .............. Advertising Expense....................................... Rent Expense................................................... Utilities Expense.............................................. Depreciation Expense..................................... Insurance Expense ($2,700 – $1,800) ............ Interest Expense.............................................. $ 8,600 16,000 1,500 1,800 45,000 30,000 2,200 1,900 1,500 1,700 1,125 900 750 $112,975 $ 1,125 20,000 9,000 750 1,300 22,000 52,100 6,700 $112,975
3-54 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) *PROBLEM 3-6A (Continued) (c) SOMMER GRAPHICS COMPANY Income Statement For the Six Months Ended June 30, 2014 Revenues Sales revenue ................................................ $52,100 Service revenue............................................. 6,700 Total revenues ....................................... 58,800 Expenses Salaries and wages expense........................ 30,000 Supplies expense .......................................... 2,200 Advertising expense ..................................... 1,900 Utilities expense ............................................ 1,700 Rent expense ................................................. 1,500 Depreciation expense ................................... 1,125 Insurance expense ........................................ 900 Interest expense ............................................ 750 Total expenses....................................... 40,075 Net income............................................................. $18,725 SOMMER GRAPHICS COMPANY Owner’s Equity Statement For the Six Months Ended June 30, 2014 Owner’s capital, January 1....................................................... $ 0 Investment by owner ................................................................ 22,000 22,000 Add: Net income ...................................................................... 18,725 Owner’s capital, June 30 .......................................................... $40,725
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-55 *PROBLEM 3-6A (Continued) SOMMER GRAPHICS COMPANY Balance Sheet June 30, 2014 Assets Cash........................................................................ $ 8,600 Accounts receivable.............................................. 16,000 Supplies.................................................................. 1,500 Prepaid insurance.................................................. 1,800 Equipment .............................................................. $45,000 Less: Accumulated depreciation— equipment................................................... 1,125 43,875 Total assets............................................. $71,775 Liabilities and Owner’s Equity Liabilities Notes payable................................................. $20,000 Accounts payable .......................................... 9,000 Unearned service revenue ............................ 1,300 Interest payable.............................................. 750 Total liabilities ........................................ 31,050 Owner’s equity Owner’s capital............................................... 40,725 Total liabilities and owner’s equity......... $71,775
3-56 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-1B (a) J3 Date Account Titles and Explanation Ref. Debit Credit 2014 June 30 Supplies Expense ............................ Supplies ($2,000 – $750)..................... 631 126 1,250 1,250 30 Utilities Expense .............................. Accounts Payable................... 732 201 150 150 30 Insurance Expense .......................... Prepaid Insurance ($3,000 ÷ 12 months)........... 722 130 250 250 30 Unearned Service Revenue............. Service Revenue ..................... 209 400 2,800 2,800 30 Salaries and Wages Expense ......... Salaries and Wages Payable ................................. 726 212 1,900 1,900 30 Depreciation Expense ..................... Accumulated Depreciation— Equipment ........................... 711 158 250 250 30 Accounts Receivable....................... Service Revenue ..................... 112 400 1,200 1,200
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-57 PROBLEM 3-1B (Continued) (b) Cash No. 101 Date Explanation Ref. Debit Credit Balance 2014 June 30 Balance 7,150 Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 Balance Adjusting J3 1,200 6,000 7,200 Supplies No. 126 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 Balance Adjusting J3 1,250 2,000 750 Prepaid Insurance No. 130 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 Balance Adjusting J3 250 3,000 2,750 Equipment No. 157 Date Explanation Ref. Debit Credit Balance 2014 June 30 Balance 15,000 Accumulated Depreciation—Equipment No. 158 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 250 250
3-58 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-1B (Continued) Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance 2014 June 30 Balance 4,500 30 Adjusting J3 150 4,650 Unearned Service Revenue No. 209 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 Balance Adjusting J3 2,800 4,000 1,200 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 1,900 1,900 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance 2014 June 30 Balance 21,750 Service Revenue No. 400 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 30 Balance Adjusting Adjusting J3 J3 2,800 1,200 7,900 10,700 11,900
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-59 PROBLEM 3-1B (Continued) Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 1,250 1,250 Depreciation Expense No. 711 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 250 250 Insurance Expense No. 722 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 250 250 Salaries and Wages Expense No. 726 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 Balance Adjusting J3 1,900 4,000 5,900 Rent Expense No. 729 Date Explanation Ref. Debit Credit Balance 2014 June 30 Balance 1,000 Utilities Expense No. 732 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 150 150
3-60 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-1B (Continued) (c) ELSNER COMPANY Adjusted Trial Balance June 30, 2014 Debit Credit Cash ..................................................................... Accounts Receivable.......................................... Supplies............................................................... Prepaid Insurance............................................... Equipment ........................................................... Accumulated Depreciation— Equipment ....................................................... Accounts Payable............................................... Unearned Service Revenue................................ Salaries and Wages Payable.............................. Owner’s Capital................................................... Service Revenue ................................................. Supplies Expense ............................................... Depreciation Expense ........................................ Insurance Expense ............................................. Salaries and Wages Expense ............................ Rent Expense ...................................................... Utilities Expense ................................................. $ 7,150 7,200 750 2,750 15,000 1,250 250 250 5,900 1,000 150 $41,650 $ 250 4,650 1,200 1,900 21,750 11,900 $41,650
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-61 PROBLEM 3-2B (a) J1 Date Account Titles and Explanation Ref. Debit Credit Aug. 31 Insurance Expense ($300 X 3)........... Prepaid Insurance ..................... 722 130 900 900 31 Supplies Expense ($3,300 – $800)....... Supplies ..................................... 631 126 2,500 2,500 31 Depreciation Expense ($6,000 X 1/4) + ($2,400 X 1/4)........ Accumulated Depreciation— Buildings................................ 620 144 2,100 1,500 Accumulated Depreciation— Equipment.............................. 150 600 31 Unearned Rent Revenue.................... Rent Revenue ............................ 208 429 4,800 4,800 31 Salaries and Wages Expense............ Salaries and Wages Payable.... 726 212 400 400 31 Accounts Receivable ......................... Rent Revenue ............................ 112 429 4,000 4,000 31 Interest Expense ................................ Interest Payable [($80,000 X 9%) X 1/12].......... 718 230 600 600 (b) Cash No. 101 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 19,600
3-62 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2B (Continued) Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 4,000 4,000 Supplies No. 126 Date Explanation Ref. Debit Credit Balance Aug. 31 31 Balance Adjusting J1 2,500 3,300 800 Prepaid Insurance No. 130 Date Explanation Ref. Debit Credit Balance Aug. 31 31 Balance Adjusting J1 900 6,000 5,100 Land No. 140 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 25,000 Buildings No. 143 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 125,000 Accumulated Depreciation—Buildings No. 144 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 1,500 1,500 Equipment No. 149 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 26,000
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-63 PROBLEM 3-2B (Continued) Accumulated Depreciation—Equipment No. 150 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 600 600 Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 6,500 Unearned Rent Revenue No. 208 Date Explanation Ref. Debit Credit Balance Aug. 31 31 Balance Adjusting J1 4,800 7,400 2,600 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 400 400 Interest Payable No. 230 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 600 600 Mortgage Payable No. 275 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 80,000 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 100,000
3-64 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2B (Continued) Owner’s Drawings No. 306 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 5,000 Rent Revenue No. 429 Date Explanation Ref. Debit Credit Balance Aug. 31 31 31 Balance Adjusting Adjusting J1 J1 4,800 4,000 80,000 84,800 88,800 Depreciation Expense No. 620 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 2,100 2,100 Maintenance and Repairs Expense No. 622 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 3,600 Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 2,500 2,500 Interest Expense No. 718 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 600 600 Insurance Expense No. 722 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 900 900
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-65 PROBLEM 3-2B (Continued) Salaries and Wages Expense No. 726 Date Explanation Ref. Debit Credit Balance Aug. 31 31 Balance Adjusting J1 400 51,000 51,400 Utilities Expense No. 732 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 9,400 (c) MAQUOKETA RIVER RESORT Adjusted Trial Balance August 31, 2014 Debit Credit Cash...................................................................... Accounts Receivable .......................................... Supplies ............................................................... Prepaid Insurance ............................................... Land...................................................................... Buildings .............................................................. Accumulated Depreciation—Buildings ............. Equipment............................................................ Accumulated Depreciation—Equipment........... Accounts Payable ............................................... Unearned Rent Revenue..................................... Salaries and Wages Payable .............................. Interest Payable................................................... Mortgage Payable................................................ Owner’s Capital ................................................... Owner’s Drawings ............................................... Rent Revenue ...................................................... Depreciation Expense......................................... Maintenance and Repairs Expense ................... Supplies Expense................................................ Interest Expense.................................................. Insurance Expense.............................................. Salaries and Wages Expense............................. Utilities Expense.................................................. $ 19,600 4,000 800 5,100 25,000 125,000 26,000 5,000 2,100 3,600 2,500 600 900 51,400 9,400 $281,000 $ 1,500 600 6,500 2,600 400 600 80,000 100,000 88,800 $281,000
3-66 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2B (Continued) (d) MAQUOKETA RIVER RESORT Income Statement For the Three Months Ended August 31, 2014 Revenues Rent revenue.................................................. $88,800 Expenses Salaries and wages expense........................ $51,400 Utilities expense ............................................ 9,400 Maintenance and repairs expense ............... 3,600 Supplies expense .......................................... 2,500 Depreciation expense ................................... 2,100 Insurance expense ........................................ 900 Interest expense ............................................ 600 Total expenses....................................... 70,500 Net income............................................................. $18,300 MAQUOKETA RIVER RESORT Owner’s Equity Statement For the Three Months Ended August 31, 2014 Owner’s Capital, June 1........................................ $ 0 Investment by owner ............................................ $100,000 Add: Net income................................................... 18,300 118,300 118,300 Less: Drawings..................................................... 5,000 Owner’s Capital, August 31.................................. $113,300
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-67 PROBLEM 3-2B (Continued) MAQUOKETA RIVER RESORT Balance Sheet August 31, 2014 Assets Cash................................................................... $ 19,600 Accounts receivable......................................... 4,000 Supplies............................................................. 800 Prepaid insurance............................................. 5,100 Land ................................................................... 25,000 Buildings ........................................................... $125,000 Less: Accum. depreciation—buildings.......... 1,500 123,500 Equipment ......................................................... 26,000 Less: Accum. depreciation—equipment ....... 600 25,400 Total assets........................................ $203,400 Liabilities and Owner’s Equity Liabilities Accounts payable ..................................... $ 6,500 Mortgage payable...................................... 80,000 Unearned rent revenue............................. 2,600 Interest payable......................................... 600 Salaries and wages payable..................... 400 Total liabilities ................................... 90,100 Owner’s equity Owner’s capital.......................................... 113,300 Total liabilities and owner’s equity.............................................. $203,400
3-68 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-3B (a) Dec. 31 Accounts Receivable ............................. 1,500 Service Revenue ............................. 1,500 31 Unearned Service Revenue ................... 1,300 Service Revenue ............................. 1,300 31 Supplies Expense................................... 3,800 Supplies........................................... 3,800 31 Depreciation Expense............................ 6,000 Accumulated Depreciation— Equipment .................................... 6,000 31 Interest Expense..................................... 150 Interest Payable .............................. 150 31 Insurance Expense................................. 850 Prepaid Insurance........................... 850 31 Salaries and Wages Expense................ 2,100 Salaries and Wages Payable.......... 2,100 (b) DELGADO ADVERTISING AGENCY Income Statement For the Year Ended December 31, 2014 Revenues Service revenue................................................ $61,400 Expenses Salaries and wages expense........................... $12,100 Depreciation expense ...................................... 6,000 Rent expense .................................................... 4,000 Supplies expense ............................................. 3,800 Insurance expense ........................................... 850 Interest expense ............................................... 500 Total expenses.......................................... 27,250 Net income................................................................ $34,150
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-69 PROBLEM 3-3B (Continued) DELGADO ADVERTISING AGENCY Owner’s Equity Statement For the Year Ended December 31, 2014 Owner’s capital, January 1 ...................................................... $25,500 Add: Net income...................................................................... 34,150 59,650 Less: Drawings ........................................................................ 12,000 Owner’s capital, December 31................................................. $47,650 DELGADO ADVERTISING AGENCY Balance Sheet December 31, 2014 Assets Cash........................................................................ $11,000 Accounts receivable.............................................. 21,500 Supplies ................................................................. 4,800 Prepaid insurance.................................................. 2,500 Equipment .............................................................. $60,000 Less: Accumulated depreciation— equipment................................................... 34,000 26,000 Total assets............................................. $65,800 Liabilities and Owner’s Equity Liabilities Notes payable................................................. $ 5,000 Accounts payable .......................................... 5,000 Unearned service revenue ............................ 5,900 Salaries and wages payable.......................... 2,100 Interest payable.............................................. 150 Total liabilities ........................................ 18,150 Owner’s equity Owner’s capital............................................... 47,650 Total liabilities and owner’s equity................................................... $65,800
3-70 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-3B (Continued) (c) (1) I = P X R X T $150 = $5,000 X R X 1/2 $150 = $2,500R R = $150 $2,500 R = 6% (2) Salaries and Wages Expense, $12,100 less Salaries and Wages Payable 12/31/14, $2,100 = $10,000. Total payments, $12,500 – $10,000 = $2,500 Salaries and Wages Payable 12/31/13.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-71 PROBLEM 3-4B 1. Dec. 31 Salaries and Wages Expense.................. 2,640 Salaries and Wages Payable ........... 2,640 [5 X $900 X 2/5 =$1,800 [3 X $700 X 2/5 = 840 $2,640] 2. 31 Unearned Rent Revenue.......................... 84,000 Rent Revenue.................................... 84,000 [5 X $5,000 X 2 = $50,000) (4 X $8,500 X 1 = 34,000) $84,000] 3. 31 Advertising Expense................................ 5,200 Prepaid Advertising.......................... 5,200 [A650 – $500 per month for 8 months = $4,000) (B974 – $400 per month for 3 months = 1,200) $5,200] 4. 31 Interest Expense....................................... 6,300 Interest Payable ($120,000 X 9% X 7/12) ................. 6,300
3-72 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5B (a), (c) & (e) Cash No. 101 Date Explanation Ref. Debit Credit Balance Sept. 1 8 10 12 20 22 25 29 Balance J1 J1 J1 J1 J1 J1 J1 1,200 3,400 650 1,400 4,500 500 1,250 4,880 3,480 4,680 8,080 3,580 3,080 1,830 2,480 Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance Sept. 1 10 27 Balance J1 J1 2,100 1,200 3,520 2,320 4,420 Supplies No. 126 Date Explanation Ref. Debit Credit Balance Sept. 1 17 30 Balance Adjusting J1 J1 1,200 1,900 2,000 3,200 1,300 Equipment No. 153 Date Explanation Ref. Debit Credit Balance Sept. 1 15 Balance J1 3,000 15,000 18,000
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-73 PROBLEM 3-5B (Continued) Accumulated Depreciation—Equipment No. 154 Date Explanation Ref. Debit Credit Balance Sept. 1 30 Balance Adjusting J1 100 1,500 1,600 Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance Sept. 1 15 17 20 Balance J1 J1 J1 4,500 3,000 1,200 3,400 6,400 7,600 3,100 Unearned Service Revenue No. 209 Date Explanation Ref. Debit Credit Balance Sept. 1 29 30 Balance Adjusting J1 J1 1,450 650 1,400 2,050 600 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance Sept. 1 8 30 Balance Adjusting J1 J1 500 300 500 0 300 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance Sept. 1 Balance 18,600
3-74 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5B (Continued) Service Revenue No. 407 Date Explanation Ref. Debit Credit Balance Sept. 12 27 30 Adjusting J1 J1 J1 3,400 2,100 1,450 3,400 5,500 6,950 Depreciation Expense No. 615 Date Explanation Ref. Debit Credit Balance Sept. 30 Adjusting J1 100 100 Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance Sept. 30 Adjusting J1 1,900 1,900 Salaries and Wages Expense No. 726 Date Explanation Ref. Debit Credit Balance Sept. 8 25 30 Adjusting J1 J1 J1 900 1,250 300 900 2,150 2,450 Rent Expense No. 729 Date Explanation Ref. Debit Credit Balance Sept. 22 J1 500 500
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-75 PROBLEM 3-5B (Continued) (b) General Journal J1 Date Account Titles Ref. Debit Credit Sept. 8 Salaries and Wages Payable .............. Salaries and Wages Expense ............. Cash ............................................... 212 726 101 500 900 1,400 10 Cash...................................................... Accounts Receivable.................... 101 112 1,200 1,200 12 Cash...................................................... Service Revenue ........................... 101 407 3,400 3,400 15 Equipment ............................................ Accounts Payable......................... 153 201 3,000 3,000 17 Supplies................................................ Accounts Payable......................... 126 201 1,200 1,200 20 Accounts Payable................................ Cash............................................... 201 101 4,500 4,500 22 Rent Expense....................................... Cash............................................... 729 101 500 500 25 Salaries and Wages Expense ............. Cash............................................... 726 101 1,250 1,250 27 Accounts Receivable .......................... Service Revenue ........................... 112 407 2,100 2,100 29 Cash...................................................... Unearned Service Revenue ........... 101 209 650 650
3-76 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5B (Continued) (d) & (f) PERCY EQUIPMENT REPAIR Trial Balances September 30, 2014 Before Adjustment After Adjustment Dr. Cr. Dr. Cr. Cash ............................................ Accounts Receivable................. Supplies...................................... Equipment .................................. Accumulated Depreciation— Equipment ............................... Accounts Payable...................... Unearned Service Revenue....... Salaries and Wages Payable..... Owner’s Capital.......................... Service Revenue ........................ Depreciation Expense ............... Supplies Expense ...................... Salaries and Wages Expense ... Rent Expense ............................. $ 2,480 4,420 3,200 18,000 2,150 500 $30,750 $ 1,500 3,100 2,050 -0- 18,600 5,500 $30,750 $ 2,480 4,420 1,300 18,000 100 1,900 2,450 500 $31,150 $ 1,600 3,100 600 300 18,600 6,950 $31,150 (e) 1. Sept. 30 Supplies Expense ........................ 631 1,900 Supplies ($3,200 – $1,300)...... 126 1,900 2. 30 Salaries and Wages Expense ..... 726 300 Salaries and Wages Payable ................................ 212 300 3. 30 Depreciation Expense ................. 615 100 Accumulated Depreciation— Equipment .......................... 154 100 4. 30 Unearned Service Revenue......... 209 1,450 Service Revenue.................... 407 1,450
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-77 PROBLEM 3-5B (Continued) (g) PERCY EQUIPMENT REPAIR Income Statement For the Month Ended September 30, 2014 Revenues Service revenue.................................................. $6,950 Expenses Salaries and wages expense............................. $2,450 Supplies expense............................................... 1,900 Rent expense...................................................... 500 Depreciation expense........................................ 100 Total expenses ........................................... 4,950 Net income ................................................................. $2,000 PERCY EQUIPMENT REPAIR Owner’s Equity Statement For the Month Ended September 30, 2014 Owner’s capital, September 1.................................................. $18,600 Add: Net income ..................................................................... 2,000 Owner’s capital, September 30................................................ $20,600
3-78 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5B (Continued) PERCY EQUIPMENT REPAIR Balance Sheet September 30, 2014 Assets Cash ....................................................................... $ 2,480 Accounts receivable ............................................. 4,420 Supplies ................................................................. 1,300 Equipment.............................................................. $18,000 Less: Accumulated depreciation— equipment............................................... 1,600 16,400 Total assets.................................................... $24,600 Liabilities and Owner’s Equity Liabilities Accounts payable.............................................................. $ 3,100 Unearned service revenue................................................ 600 Salaries and wages payable............................................. 300 Total liabilities............................................................ 4,000 Owner’s equity Owner’s capital.................................................................. 20,600 Total liabilities and owner’s equity .......................... $24,600
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-79 CCC3 CONTINUING COOKIE CHRONICLE (a) GENERAL JOURNAL J2 Date Account Titles and Explanation Debit Credit Nov. 30 Supplies Expense............................................. 35 Supplies........................................................ 35 30 Depreciation Expense...................................... 20 Accumulated Depreciation—Equipment [($300 + $900) ÷ 60 months] ................... 20 30 Interest Expense............................................... 5 Interest Payable ($2,000 X .06 X 1/12 X .5) .......................... 5 30 Accounts Receivable ....................................... 300 Service Revenue.......................................... 300 30 Utilities Expense............................................... 45 Accounts Payable........................................ 45
3-80 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) CCC3 (Continued) (a) (Continued) Cash Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 245 Accounts Receivable Date Explanation Ref. Debit Credit Balance Nov. 30 J2 300 300 Supplies Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 125 30 J2 35 90 Prepaid Insurance Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 1,320 Equipment Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 1,200 Accumulated Depreciation—Equipment Date Explanation Ref. Debit Credit Balance Nov. 30 9 20 20
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-81 CCC3 (Continued) (a) (Continued) Accounts Payable Date Explanation Ref. Debit Credit Balance Nov. 30 J2 45 45 Interest Payable Date Explanation Ref. Debit Credit Balance Nov. 30 J2 5 5 Unearned Service Revenue Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 30 Notes Payable Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 2,000 Owner’s Capital Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 800 Service Revenue Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 125 30 J2 300 425
3-82 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) CCC3 (Continued) (a) (Continued) Utilities Expense Date Explanation Ref. Debit Credit Balance Nov. 30 J2 45 45 Advertising Expense Date Explanation Ref. Debit Credit Balance Nov. 30 J2 65 65 Supplies Expense Date Explanation Ref. Debit Credit Balance Nov. 30 J2 35 35 Depreciation Expense Date Explanation Ref. Debit Credit Balance Nov. 30 J2 20 20 Interest Expense Date Explanation Ref. Debit Credit Balance Nov. 30 J2 5 5
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-83 CCC3 (Continued) (b) COOKIE CREATIONS Adjusted Trial Balance November 30, 2013 Account Debit Credit Cash ............................................................................... $ 245 Accounts Receivable .................................................... 300 Supplies ......................................................................... 90 Prepaid Insurance ......................................................... 1,320 Equipment...................................................................... 1,200 Accumulated Depreciation—Equipment..................... $ 20 Accounts Payable ......................................................... 45 Interest Payable............................................................. 5 Unearned Service Revenue.......................................... 30 Notes Payable................................................................ 2,000 Owner’s Capital ............................................................. 800 Service Revenue............................................................ 425 Utilities Expense............................................................ 45 Advertising Expense..................................................... 65 Supplies Expense.......................................................... 35 Depreciation Expense................................................... 20 Interest Expense............................................................ 5 Totals................................................................ $3,325 $3,325
3-84 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) CCC3 (Continued) (c) Revenues Service revenue.............................................................. $425 Expenses Advertising expense...................................................... $65 Utilities expense............................................................. 45 Supplies expense........................................................... 35 Depreciation expense.................................................... 20 Interest expense............................................................. 5 170 Net income............................................................................. $255 Yes, Cookie Creations has been profitable in November. It has a profit of $255 which is more than one half of the revenue earned in November. [Note: Owner’s Equity Statement is not required—shown for information purposes only.] COOKIE CREATIONS Owner’s Equity Statement For the Month Ended November 30, 2013 Owner’s Capital, November 1, 2013 .................................... $ 0 Add: Investment................................................................... 800 Net income................................................................... 255 Owner’s Capital, November 30, 2013 .................................. $1,055
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-85 CCC3 (Continued) (c) (Continued) [Note: Balance Sheet is not required—shown for information purposes only.] COOKIE CREATIONS Balance Sheet November 30, 2013 Assets Cash.................................................................................. $ 245 Accounts receivable........................................................ 300 Supplies ........................................................................... 90 Prepaid insurance ........................................................... 1,320 Equipment........................................................................ $1,200 Less: Accumulated depreciation—equipment ............ 20 1,180 Total assets ................................................................. $3,135 Liabilities and Owner’s Equity Liabilities Notes payable ............................................................. $2,000 Accounts payable ....................................................... 45 Unearned service revenue ......................................... 30 Interest payable .......................................................... 5 Total liabilities ........................................................ 2,080 Owner’s equity Owner’s capital ........................................................... 1,055 Total liabilities and owner’s equity....................... $3,135
3-86 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-1 FINANCIAL REPORTING PROBLEM (a) Items that may result in adjusting entries for prepayments are: 1. Other current assets (per balance sheet). 2. Property, plant and equipment, net (per balance sheet). 3. Acquired intangible assets, net (per balance sheet)—amortization is similar to depreciation (explained later in Chapter 10). (b) Accrual adjusting entries were probably made for accounts payable accrued expenses, and income taxes payable. (c) Apple’s net income increased substantially since 2009. Its net income increased by $5,778 million from 2009 to 2010, and by $11,909 million from 2010 to 2011. Apple’s net income more than tripled from 2009 to 2011.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-87 BYP 3-2 COMPARATIVE ANALYSIS PROBLEM PepsiCo Coca-Cola (a) Net increase (decrease) in property, plant, and equipment (net) from 2010 to 2011. $ 640,000,000 $ 212,000,000 (b) Increase (decrease) in selling, general, and administrative expenses from 2010 to 2011. $ 2,331,000,000 $ 4,282,000,000 (c) Increase (decrease) in long-term debt (obligations) from 2010 to 2011. $ 569,000,000 $ (385,000,000) (d) Increase (decrease) in net income from 2010 to 2011. $ 124,000,000 $(3,225,000,000) (e) Increase (decrease) in cash and cash equivalents from 2010 to 2011. (($(1,876,000,000) $4,286,000,000
3-88 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-3 COMPARATIVE ANALYSIS PROBLEM 1. Amazon Wal-mart (a) Increase (decrease) in interest expense, from 2009 to 2011. $31,000,000 $(19,000,000) (b) Increase (decrease) in net income from 2009 to 2011. $ (271,000,000) $ 1,504,000,000 (c) Increase (decrease) in cash from operations from 2010 to 2011. ($408,000,000 $ 612,000,000 2. Cash flow from operations is the difference between cash receipts from revenues and cash payments for expenses (see chapter 1). Depreciation expense is a major reason why cash flow from operations and net income are different for these two companies. Depreciation expense reduces a company’s net income, but does not affect cash flow from operations since it’s a noncash expense. Other reasons would include changes in accounts receivable, inventory, and accounts payable.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-89 BYP 3-4 REAL–WORLD FOCUS Answers will vary depending on the company and article chosen by the student.
3-90 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-5 REAL-WORLD FOCUS (a) Many large companies, big accounting firms, and accounting standard setters tend to favor a switch to IFRS because they believe that global accounting standards would save companies money by consolidating their bookkeeping. They also believe it would make it easier to raise capital around the world. In addition, investors would have less trouble comparing companies from different countries. They also feel that having international accounting standards would lead to an improvement in the enforcement of securities laws. (b) Many small companies are opposed to switching to IFRS because (1) they say that the switch would be very costly, and (2) because they don't have operations outside of the U.S., so they see any benefit to their company of using international standards. (c) It has been suggested that IFRS lacks standards that are specific to utility companies that U.S. GAAP contains. (d) Condorsement (a word invented by the SEC) represents a combination of convergence and endorsement. Under condorsement, U.S. standard setters would continue to work with international standard setters to try to reduce differences in standards. In addition, as new international standards are issued, U.S. standard setters would review those standards and consider whether to endorse them by absorbing them into U.S. GAAP.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-91 BYP 3-6 DECISION MAKING ACROSS THE ORGANIZATION (a) HAPPY CAMPER PARK Income Statement For the Quarter Ended March 31, 2014 Revenues Rent revenue ($90,000 – $15,000)................. $75,000 Expenses Salaries and wages expense [$29,800 + ($300 X 2)].................................. $30,400 Advertising expense ($5,200 + $110) ........... 5,310 Supplies expense ($6,200 – $1,700) ............. 4,500 Maintenance and repairs expense ($4,000 + $260)............................................. 4,260 Insurance expense ($7,200 X 3/12)............... 1,800 Utilities expense ($900 + $180) ..................... 1,080 Depreciation expense.................................... 800 Interest expense ($12,000 X 10% X 3/12) ........ 300 Total expenses ....................................... 48,450 Net income ............................................................. $26,550 (b) The generally accepted accounting principles pertaining to the income statement that were not recognized by Amaya were the revenue recognition principle and the expense recognition principle. The revenue recognition principle states that revenue is recognized when the performance obligation is satisfied. The $15,000 for summer rentals has not been performed and, therefore, should not be reported in income for the quarter ended March 31. The expense recognition principle dictates that efforts (expenses) be matched with accomplishments (revenues) whenever it is reasonable and practicable to do so. This means that the expenses should include amounts incurred in March but not paid until April. The difference in expenses was $7,750 ($48,450 – $40,700). The overstatement of revenues ($15,000) plus the understatement of expenses ($7,750) equals the difference in reported income of $22,750 ($49,300 – $26,550).
3-92 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-7 COMMUNICATION ACTIVITY Dear Ms. Hall: Upon reviewing the accounts of your company at the end of the year, I discovered that adjusting entries were not made. Adjusting entries are made at the end of the accounting period to ensure that the revenue recognition and expense recognition principles required under generally accepted accounting principles are followed. The use of adjusting entries makes it possible to report on the balance sheet the appropriate assets, liabilities, and owner’s equity at the statement date and to report on the income statement the proper net income (or loss) for the year. Adjusting entries are needed because the trial balance may not contain an up-to-date and complete record of transactions and events for the following reasons: 1. Some events are not journalized daily because it is not efficient to do so. Examples are the use of supplies and the earning of wages by employees. 2. The expiration of some costs is not journalized during the account- ing period because these costs expire with the passage of time rather than as a result of recurring daily transactions. Examples of such costs are building and equipment depreciation, rent, and insurance. 3. Some expenses, such as the cost of utility service and property taxes, may be unrecorded because the bills for the costs have not been received. There are four types of adjusting entries: 1. Prepaid expenses—expenses paid in cash and recorded as assets before they are used or consumed. 2. Unearned revenues—revenues received in cash and recorded as liabilities before they are earned.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-93 BYP 3-7 (Continued) 3. Accrued revenues—revenues earned but not yet received in cash or recorded. 4. Accrued expenses—expenses incurred but not yet paid in cash or recorded. I will be happy to answer any questions you may have on adjusting entries. Signature
3-94 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-8 ETHICS CASE (a) The stakeholders in this situation are: ` Melissa Ray, controller. ` The president of Kellner Company. ` Kellner Company stockholders. (b) 1. It is unethical for the president to place pressure on Melissa to misstate net income by requesting her to prepare incorrect adjusting entries. 2. It is customary for adjusting entries to be dated as of the balance sheet date although the entries are prepared at a later date. Melissa did nothing unethical by dating the adjusting entries December 31. (c) Melissa can accrue revenues and defer expenses through the preparation of adjusting entries and be ethical so long as the entries reflect economic reality. Intentionally misrepresenting the company’s financial condition and its results of operations is unethical (it is also illegal).
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-95 BYP 3-9 ALL ABOUT YOU We address the issue of contingent liabilities in greater detail in Chapter 11. Our primary interest in this exercise is to engage students in a discussion regarding the general nature of the financial statement elements (assets, liabilities, equity, revenues and expenses). (a) By taking out the bank loan your friend has incurred a liability. You do not have a liability unless your friend defaults, or unless it becomes clear that he will default. The loan application may, however, require you to disclose any guarantees that you have signed, since they represent potential liabilities. (b) Accounting standards have specific requirements regarding account- ing for situations where there is uncertainty regarding whether a liability has been incurred. Those standards require an evaluation of the pro- bability of an amount being owed. Without going into detail regarding those standards, the basic idea is that if it is probable that you will owe money, then you should accrue a liability. If it is not probable, but it is possible that you will owe money, then you should disclose facts regarding the situation. The most important point is that this event has the potential to materially impact your finances, and therefore you have a responsibility to disclose it to the bank in some form. (c) Losing your job would not create a financial liability, although it would most certainly reduce your revenues. You are obviously concerned that you might lose your job, but you don’t have specific information that would suggest that it will happen. Therefore, you probably don’t have an obligation to disclose this information to the bank. However, unless you are relatively certain that you would be able to find suitable employment relatively quickly, you might want to wait until your job situation has stabilized before pursuing a loan of this size.
3-96 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-10 CONSIDERING PEOPLE, PLANET, AND PROFIT The balance sheet should provide a fair representation of what a company owns and what it owes. If significant obligations of the company are not reported on the balance sheet, the company’s net worth (its equity) will be overstated. While it is true that it is not possible to estimate the exact amount of future environmental cleanup costs, it is becoming clear that companies will be held accountable. Therefore, it doesn’t seem reasonable to not accrue for environmental costs. Recognition of these liabilities provides a more accurate picture of the company’s financial position. It also has the potential to improve the environment. As companies are forced to report these amounts on their financial statements they will start to look for more effective and efficient means to reduce toxic waste, and therefore reduce their costs.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-97 BYP 3-11 FASB CODIFICATION ACTIVITY (a) Revenue earned by an entity from its direct distribution, exploitation, or licensing of a film, before deduction for any of the entity’s direct costs of distribution. For markets and territories in which an entity’s fully or jointly-owned films are distributed by third parties, revenue is the net amounts payable to the entity by third party distributors. Revenue is reduced by appropriate allowances, estimated returns, price concessions, or similar adjustments, as applicable. (b) Compensation is recripocal transfers of cash or other assets in exchange for services performed.
3-98 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) IFRS CONCEPTS AND APPLICATION IFRS3-1 GAAP and IFRS both require companies to record transactions (and revenues) in the period in which events occur. Both prohibit cash-basis accounting and both apply the time period assumption. GAAP has more than 100 rules dealing with revenue recognition while IFRS uses a single standard. Under IFRS, revenue recognition is based on the probability that the economic benefits associated with the transaction will flow to the company and the revenues and costs must be capable of being measured reliably. GAAP states that revenue is recognized in the accounting period in which the performance obligation is satisfied. IFRS3-2 IFRS uses the term income to encompass both revenues and gains. GAAP defines income as the net difference between revenues and expenses. In addition, GAAP classifies revenues as the economic benefit that arises from an entity’s normal operating activities and gains as the benefits associated with activities outside the normal sales of goods and services. Under IFRS, expenses include both those costs incurred in the normal course of operations and losses that are not part of normal operations. In contrast, GAAP classifies costs associated with activities outside the normal sales of goods and services as losses.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-99 IFRS 3-3 INTERNATIONAL FINANCIAL REPORTING PROBLEM (a) Note 3.7 indicates that revenue is measured as the fair value of consideration received or receivable by the Group for goods supplied net of sales rebates and excluding VAT and trade discounts. (b) Note 3.7 states that revenue from the sale of goods is recognized when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods. (c) Zetar Plc could have adjustments for prepayments such as: Depreciation expense, Amortisation of intangible assets, and Deferred tax assets. (d) Zetar Plc could have adjustments for accruals such as: Finance costs (interest expense), Tax liabilities, and Trade and other payables.
3-100 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only)

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ch03-solutions.pdf

  • 1. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-1 CHAPTER 3 Adjusting the Accounts ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Brief Exercises Do It! Exercises A Problems B Problems *1. Explain the time period assumption. 1 1 1 *2. Explain the accrual basis of accounting. 2, 3, 4, 5 1 2, 3, 10 *3. Explain the reasons for adjusting entries and identify the major types of adjusting entries. 6, 7, 8, 18 1, 2, 8 4, 6, 11 *4. Prepare adjusting entries for deferrals. 8, 9, 10, 11, 12, 13, 18, 19, 20 2, 3, 4, 5, 6,8 2 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 15 1A, 2A, 3A, 4A, 5A, 6A 1B, 2B, 3B, 4B, 5B *5. Prepare adjusting entries for accruals. 8, 14, 15, 16, 17, 18, 19, 20 2, 7, 8 3 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 15 1A, 2A, 3A, 4A, 5A, 6A 1B, 2B, 3B, 4B, 5B *6. Describe the nature and purpose of an adjusted trial balance. 21 9, 10 4 10, 11, 12, 13, 14 1A, 2A, 3A, 5A, 6A 1B, 2B, 3B, 5B *7. Prepare adjusting entries for the alternative treatment of deferrals. 22 11 16, 17 6A *8. Discuss financial reporting concepts. 23, 24, 25 26, 27, 28 12, 13 14, 15 18, 19, 20, 21, 22 *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter.
  • 2. 3-2 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Prepare adjusting entries, post to ledger accounts, and prepare an adjusted trial balance. Simple 40–50 2A Prepare adjusting entries, post, and prepare adjusted trial balance, and financial statements. Simple 50–60 3A Prepare adjusting entries and financial statements. Moderate 40–50 4A Prepare adjusting entries. Moderate 30–40 5A Journalize transactions and follow through accounting cycle to preparation of financial statements. Moderate 60–70 *6A* Prepare adjusting entries, adjusted trial balance, and financial statements using appendix. Moderate 40–50 1B Prepare adjusting entries, post to ledger accounts, and prepare an adjusted trial balance. Simple 40–50 2B Prepare adjusting entries, post, and prepare adjusted trial balance, and financial statements. Simple 50–60 3B Prepare adjusting entries and financial statements. Moderate 40–50 4B Prepare adjusting entries. Moderate 30–40 5B Journalize transactions and follow through accounting cycle to preparation of financial statements. Moderate 60–70
  • 3. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-3 WEYGANDT ACCOUNTING PRINCIPLES 11E CHAPTER 3 ADJUSTING THE ACCOUNTS Number LO BT Difficulty Time (min.) BE1 3 C Simple 4–6 BE2 3, 4, 5 AN Moderate 6–8 BE3 4 AN Simple 3–5 BE4 4 AN Simple 3–5 BE5 4 AN Simple 2–4 BE6 4 AN Simple 2–4 BE7 5 AN Simple 4–6 BE8 3, 4, 5 AN Simple 5–7 BE9 6 AP Simple 4–6 BE10 6 AP Simple 2–4 BE11* 7 AN Moderate 3–5 BE12* 8 C Simple 3–5 BE13* 8 C Simple 2–4 BE14* 8 C Simple 2–4 BE15* 8 C Simple 1–2 DI1 1, 2 K Simple 2–4 DI2 4 AN Simple 6–8 DI3 5 AN Simple 4–6 DI4 6 AN Moderate 20–30 EX1 1 C Simple 3–5 EX2 2 E Moderate 10–15 EX3 2 AP Simple 6–8 EX4 3, 4, 5 AN Simple 5–6 EX5 4, 5 AN Moderate 10–15 EX6 3–5 AN Moderate 10–12 EX7 4, 5 AN Moderate 8–10 EX8 4, 5 AN Moderate 8–10 EX9 4, 5 AN Simple 8–10 EX10 2, 4–6 AN Moderate 8–10 EX11 3–6 AN Moderate 12–15 EX12 4–6 AN Moderate 8–10 EX13 4–6 AN Simple 8–10 EX14 6 AP Simple 12–15
  • 4. 3-4 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) ADJUSTING THE ACCOUNTS (Continued) Number LO BT Difficulty Time (min.) EX15 4, 5 AN, S Moderate 8–10 EX16* 7 AN Moderate 6–8 EX17* 7 AN Moderate 10–12 EX18* 8 C Simple 3–5 EX19* 8 C Simple 3–5 EX20* 8 C Simple 6–8 EX21* 8 AN Simple 10–20 EX22* 8 AN Simple 10–20 P1A 4–6 AN Simple 40–50 P2A 4–6 AN Simple 50–60 P3A 4–6 AN Moderate 40–50 P4A 4, 5 AN Moderate 30–40 P5A 4–6 AN Moderate 60–70 P6A 4–7 AN Moderate 40–50 P1B 4–6 AN Simple 40–50 P2B 4–6 AN Simple 50–60 P3B 4–6 AN Moderate 40–50 P4B 4, 5 AN Moderate 30–40 P5B 4–6 AN Moderate 60–70 BYP1 4, 5, 6 AN Simple 10–15 BYP2 — AN Simple 10–15 BYP3 — AN Simple 10–15 BYP4 — AN Simple 10–15 BYP5 — AN Moderate 15–20 BYP6 2–6 S Moderate 15–20 BYP7 3–6 C Simple 10–15 BYP8 3–6 E Moderate 10–15 BYP9 — E Moderate 10–15 BYP10 — E Moderate 10–15 BYP11 — K Simple 10–15
  • 5. BLOOM’S TAXONOMY TABLE Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-5 Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation *1. Explain the time period assumption. DI3-1 Q3-1 E3-1 *2. Explain the accrual basis of accounting. DI3-1 Q3-2 Q3-3 Q3-4 Q3-5 E3-3 E3-10 E3-2 *3. Explain the reasons for adjusting entries and identify the major types of adjusting entries. Q3-6 Q3-7 Q3-8 BE3-1 Q3-18 BE3-2 BE3-8 E3-4 E3-6 E3-11 *4. Prepare adjusting entries for deferrals. Q3-8 Q3-9 Q3-10 Q3-11 Q3-12 Q3-13 Q3-19 Q3-20 Q3-18 BE3-2 BE3-3 BE3-4 BE3-5 BE3-6 BE3-8 DI3-2 E3-5 E3-6 E3-7 E3-8 E3-9 E3-10 E3-11 E3-12 E3-13 E3-15 P3-1A P3-2A P3-3A P3-4A P3-5A P3-6A P3-1B P3-2B P3-3B P3-4B P3-5B E3-15 *5. Prepare adjusting entries for accruals. Q3-8 Q3-14 Q3-15 Q3-19 Q3-20 Q3-17 Q3-16 Q3-18 BE3-2 BE3-7 BE3-8 DI3-3 E3-4 E3-5 E3-6 E3-7 E3-8 E3-9 E3-10 E3-11 E3-12 E3-13 E3-15 P3-1A P3-2A P3-3A P3-4A P3-5A P3-6A P3-1B P3-2B P3-3B P3-4B P3-5B E3-15 *6. Describe the nature and purpose of an adjusted trial balance. Q3-21 BE3-9 BE3-10 E3-14 DI3-4 E3-10 E3-11 E3-12 E3-13 P3-1A P3-2A P3-3A P3-5A P3-6A P3-1B P3-2B P3-3B P3-5B *7. Prepare adjusting entries for the alternative treatment of deferrals. Q3-22 BE3-11 E3-16 E3-17 P3-6A *8. Discuss financial reporting concepts Q3-23 BE3-12 E3-20 BE3-13 Q3-24 BE3-14 Q3-25 BE3-15 Q3-26 E3-18 Q3-27 E3-19 Q3-28 E3-21 E3-22 Broadening Your Perspective FASB Activity Communication Financial Reporting Comparative Analysis Real-World Focus Decision Making Across the Organization All About You Ethics Case Considering P, P & P
  • 6. 3-6 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) ANSWERS TO QUESTIONS 1. (a) Under the time period assumption, an accountant is required to determine the relevance of each business transaction to specific accounting periods. (b) An accounting time period of one year in length is referred to as a fiscal year. A fiscal year that extends from January 1 to December 31 is referred to as a calendar year. Accounting periods of less than one year are called interim periods. 2. The two generally accepted accounting principles that relate to adjusting the accounts are: The revenue recognition principle, which states that revenue should be recognized in the accounting period in which services are performed. The expense recognition principle, which states that efforts (expenses) be matched with accomplishments (revenues). 3. The law firm should recognize the revenue in April. The revenue recognition principle states that revenue should be recognized in the accounting period in which services are performed. 4. Information presented on an accrual basis is more useful than on a cash basis because it reveals relationships that are likely to be important in predicting future results. To illustrate, under accrual accounting, revenues are recognized when the performance obligation is satisfied so they can be related to the economic environment in which they occur. Trends in revenues are thus more meaningful. 5. Expenses of $4,500 should be deducted from the revenues in April. Under the expense recognition principle efforts (expenses) should be matched with accomplishments (revenues). 6. No, adjusting entries are required by the revenue recognition and expense recognition principles. 7. A trial balance may not contain up-to-date information for financial statements because: (1) Some events are not journalized daily because it is not efficient to do so. (2) The expiration of some costs occurs with the passage of time rather than as a result of daily transactions. (3) Some items may be unrecorded because the transaction data are not yet known. 8. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of prepaid expenses and unearned revenues. Accruals consist of accrued revenues and accrued expenses. 9. In the adjusting entry for a prepaid expense, an expense is debited and an asset is credited. 10. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner. Depreciation results in the presentation of the book value of the asset, not its fair value. 11. Depreciation expense is an expense account whose normal balance is a debit. This account shows the cost that has expired during the current accounting period. Accumulated depreciation is a contra asset account whose normal balance is a credit. The balance in this account is the depreciation that has been recognized from the date of acquisition to the balance sheet date. 12. Equipment.................................................................................................. $18,000 Less: Accumulated Depreciation—Equipment.......................................... 6,000 $12,000
  • 7. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-7 Questions Chapter 3 (Continued) *13. In the adjusting entry for an unearned revenue, a liability is debited and a revenue is credited. *14. Asset and revenue. An asset would be debited and a revenue would be credited. *15. An expense is debited and a liability is credited in the adjusting entry. *16. Net income was understated $200 because prior to adjustment, revenues are understated by $900 and expenses are understated by $700. The difference in this case is $200 ($900 – $700). *17. The entry is: Jan. 9 Salaries and Wages Payable ........................................................ 2,000 Salaries and Wages Expense ....................................................... 3,000 Cash ...................................................................................... 5,000 *18. (a) Accrued revenues. (d) Accrued expenses or prepaid expenses. (b) Unearned revenues. (e) Prepaid expenses. (c) Accrued expenses. (f) Accrued revenues or unearned revenues. *19. (a) Salaries and Wages Payable. (d) Supplies Expense. (b) Accumulated Depreciation. (e) Service Revenue. (c) Interest Expense. (f) Service Revenue. *20. Disagree. An adjusting entry affects only one balance sheet account and one income statement account. *21. Financial statements can be prepared from an adjusted trial balance because the balances of all accounts have been adjusted to show the effects of all financial events that have occurred during the accounting period. *22. For Supplies Expense (prepaid expense): expenses are overstated and assets are understated. The adjusting entry is: Assets (Supplies)....................................................................................... XX Expenses (Supplies Expense)............................................................. XX For Rent Revenue (unearned revenues): revenues are overstated and liabilities are understated. The adjusting entry is: Revenues (Rent Revenue) ........................................................................ XX Liabilities (Unearned Rent Revenue)................................................... XX **23. (a) The primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions about providing capital. (b) The fundamental qualitative characteristics are relevance and faithful representation. The enhancing qualities are comparabiIity, consistency, verifiability, timeliness, and understandability. *24. Gross is correct. Consistency means using the same accounting principles and accounting methods from period to period within a company. Without consistency in the application of accounting principles, it is difficult to determine whether a company is better off, worse off, or the same from period to period.
  • 8. 3-8 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) Questions Chapter 3 (Continued) *25. Comparability results when different companies use the same accounting principles. Consistency means using the same accounting principles and methods from year to year within the same company. *26. The constraint is the cost constraint. The cost constraint allows accounting standard setters to weigh the cost that companies will incur to provide information against the benefit that financial statement users will gain from having the information available. *27. Accounting relies primarily on two measurement principles. Fair value is sometimes used when market price information is readily available. However, in many situations reliable market price information is not available. In these instances, accounting relies on cost as its basis. *28. The economic entity assumption states that every economic entity can be separately identified and accounted for. This assumption requires that the activities of the entity be kept separate and distinct from (1) the activities of its owners (the shareholders) and (2) all other economic entities. A shareholder of a company charging personal living costs as expenses of the company is an example of a violation of the economic entity assumption.
  • 9. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-9 SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 3-1 (a) Prepaid Insurance—to recognize insurance expired during the period. (b) Depreciation Expense—to account for the depreciation that has occurred on the asset during the period. (c) Unearned Service Revenue—to record revenue earned for services performed. (d) Interest Payable—to recognize interest accrued but unpaid on notes payable. BRIEF EXERCISE 3-2 Item (a) Type of Adjustment (b) Account Balances before Adjustment 1. Prepaid Expenses Assets Overstated Expenses Understated 2. Accrued Revenues Assets Understated Revenues Understated 3. Accrued Expenses Expenses Understated Liabilities Understated 4. Unearned Revenues Liabilities Overstated Revenues Understated BRIEF EXERCISE 3-3 Dec. 31 Supplies Expense................................................. 4,200 Supplies ($6,700 – $2,500)............................ 4,200 Supplies Supplies Expense 6,700 12/31 4,200 12/31 4,200 12/31 Bal. 2,500
  • 10. 3-10 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BRIEF EXERCISE 3-4 Dec. 31 Depreciation Expense........................................... 4,000 Accumulated Depreciation— Equipment.................................................. 4,000 Depreciation Expense Accum. Depreciation—Equipment 12/31 4,000 12/31 4,000 Balance Sheet: Equipment............................................................. $30,000 Less: Accumulated Depreciation— Equipment ................................................. 4,000 $26,000 BRIEF EXERCISE 3-5 July 1 Prepaid Insurance ............................................ 14,400 Cash........................................................... 14,400 Dec. 31 Insurance Expense [($14,400 ÷ 3) X 1/2] ........ 2,400 Prepaid Insurance .................................... 2,400 Prepaid Insurance Insurance Expense 7/1 14,400 12/31 2,400 12/31 2,400 12/31 Bal.12,000 BRIEF EXERCISE 3-6 July 1 Cash .................................................................. 14,400 Unearned Service Revenue ..................... 14,400 Dec. 31 Unearned Service Revenue............................. 2,400 Service Revenue....................................... 2,400 Unearned Service Revenue Service Revenue 12/31 2,400 7/1 14,400 12/31 2,400 12/31 Bal.12,000
  • 11. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-11 BRIEF EXERCISE 3-7 1. Dec. 31 Interest Expense ........................................... 400 Interest Payable..................................... 400 2. 31 Accounts Receivable.................................... 1,900 Service Revenue.................................... 1,900 3. 31 Salaries and Wages Expense....................... 900 Salaries and Wages Payable ................ 900 BRIEF EXERCISE 3-8 Account (a) Type of Adjustment (b) Related Account Accounts Receivable Accrued Revenues Service Revenue Prepaid Insurance Prepaid Expenses Insurance Expense Accum. Depr.—Equipment Prepaid Expenses Depreciation Expense Interest Payable Accrued Expenses Interest Expense Unearned Service Revenue Unearned Revenues Service Revenue BRIEF EXERCISE 3-9 PARSONS COMPANY Income Statement For the Year Ended December 31, 2014 Revenues Service revenue ..................................................... $37,000 Expenses Salaries and wages expense ................................ $16,000 Rent expense ......................................................... 4,000 Insurance expense ................................................ 2,000 Supplies expense .................................................. 1,500 Depreciation expense............................................ 1,300 Total expenses ............................................... 24,800 Net income ..................................................................... $12,200
  • 12. 3-12 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BRIEF EXERCISE 3-10 PARSONS COMPANY Owner’s Equity Statement For the Year Ended December 31, 2014 Owner’s capital, January 1............................................................... $15,600 Add: Net income .............................................................................. 12,200 27,800 Less: Drawings ................................................................................ 7,000 Owner’s capital, December 31......................................................... $20,800 *BRIEF EXERCISE 3-11 (a) Apr. 30 Supplies.......................................................... 700 Supplies Expense .................................. 700 (b) 30 Service Revenue............................................ 3,000 Unearned Service Revenue................... 3,000 BRIEF EXERCISE 3-12 (a) Predictive value. (b) Confirmatory value. (c) Materiality. (d) Complete. (e) Free from error. (f) Comparability. (g) Verifiability. (h) Timeliness. BRIEF EXERCISE 3-13 (a) Relevant. (b) Faithful representation. (c) Consistency.
  • 13. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-13 BRIEF EXERCISE 3-14 (a) 1. Predictive value. (b) 2. Neutral. (c) 3. Verifiable. (d) 4. Timely. BRIEF EXERCISE 3-15 (c)
  • 14. 3-14 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) SOLUTIONS FOR DO IT! REVIEW EXERCISES DO IT! 3-1 1. (d) 2. (e) 3. (h) 4. (c) DO IT! 3-2 1. Insurance Expense....................................................... 300 Prepaid Insurance.................................................. 300 (To record insurance expired) 2. Supplies Expense ($2,500 – $1,100)............................ 1,400 Supplies.................................................................. 1,400 (To record supplies used) 3. Depreciation Expense .................................................. 500 Accumulated Depreciation—Equipment ............. 500 (To record monthly depreciation) 4. Unearned Service Revenue ($9,000 x 2/5).................. 3,600 Service Revenue.................................................... 3,600 (To record revenue for services provided) DO IT! 3-3 1. Salaries and Wages Expense ...................................... 1,300 Salaries and Wages Payable ................................ 1,300 (To record accrued salaries) 2. Interest Expense ($20,000 x .12 x 1/12)....................... 200 Interest Payable ..................................................... 200 (To record accrued interest) 3. Accounts Receivable.................................................... 2,400 Service Revenue.................................................... 2,400 (To record revenue for service provided)
  • 15. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-15 DO IT! 3-4 (a) The net income is determined by adding revenues and subtracting expenses. The net income is computed as follows: Revenues Service revenue................................................. $11,360 Rent revenue ..................................................... 1,100 Total revenues........................................... $12,460 Expenses Salaries and wages expense............................ 7,400 Rent expense..................................................... 1,200 Depreciation expense....................................... 700 Utilities expense................................................ 410 Supplies expense.............................................. 160 Interest expense................................................ 40 Total expenses .......................................... 9,910 Net income ................................................................ $ 2,550 (b) Total assets and liabilities are computed as follows: Assets Cash ................................................................... $ 5,360 Accounts receivable ......................................... 480 Prepaid rent ....................................................... 720 Supplies ............................................................. 920 Equipment.......................................................... $12,000 Less: Accumulated depreciation— Equipment............................................... 700 11,300 Total assets................................................ $18,780 Liabilities Notes payable.................................................... $ 4,000 Accounts payable ............................................. 790 Unearned rent revenue..................................... 400 Salaries and wages payable............................. 300 Interest payable................................................. 40 Total liabilities ........................................... $ 5,530
  • 16. 3-16 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) (c) Owner’s Capital at June 30, 2014, can be computed in one of two ways. Using the basic accounting equation (Assets = Liabilities + Owner’s Equity), we find that total assets are $18,780 and total liabilities are $5,530; therefore, Owner’s Equity (Owner’s Capital) is $13,250 ($18,780 – $5,530). Another way to compute the Owner’s Capital at June 30, 2012, is as follows: Owner’s capital, April 1............................................ $ –0– Add: Investments ..................................................... $11,200 Net income ...................................................... 2,550 13,750 Less: Drawings......................................................... 500 Owner’s capital, June 30 ......................................... $13,250
  • 17. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-17 SOLUTIONS TO EXERCISES EXERCISE 3-1 1. True. 2. True. 3. False. Many business transactions affect more than one of these artificial time periods. For example, the purchase of a building affects expenses for many years. 4. True. 5. False. A time period that lasts less than one year, such as monthly or quarterly periods, is called an interim period. 6. False. All calendar years are fiscal years, but not all fiscal years are calendar years. An accounting time period that is one year in length is referred to as a fiscal year. A fiscal year that starts on January 1 and ends on December 31 is a calendar year. EXERCISE 3-2 (a) Accrual-basis accounting records the transactions that change a company’s financial statements in the periods in which the events occur rather than in the periods in which the company receives or pays cash. Information presented on an accrual basis is useful because it reveals relationships that are likely to be important in predicting future results. Conversely, under cash-basis accounting, revenue is recorded only when cash is received, and an expense is recognized only when cash is paid. As a result, the cash basis of accounting often leads to misleading financial statements. (b) Politicians might desire a cash-basis accounting system over an accrual- basis system because if an accrual-accounting system is used, it could mean that billions in government liabilities presently unrecorded would have to be reported in the federal budget immediately. The recognition of these additional liabilities would make the deficit even worse. This is not what politicians would like to see and be held responsible for.
  • 18. 3-18 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-2 (Continued) (c) Dear Senator, It is my understanding, after having taken a beginning course in account- ing principles, that the Federal government uses a cash-basis system rather than an accrual-basis accounting system. I am shocked at such a practice! There must be billions of dollars of liabilities hidden in many contracts that have not been recorded yet for the mere reason that they haven’t been paid yet. I realize that the deficit would dramatically increase if we were to implement an accrual system, but in all fairness, we citizens should be given a more accurate picture of what our government is up to. Sincerely, CONCERNED STUDENT EXERCISE 3-3 (a) Cash received from revenue............................................ $105,000 Cash paid for expenses ................................................... (72,000) Cash-basis net income ........................................... $ 33,000 (b) Revenues [($105,000 – $25,000) + $40,000].................... $120,000 Expenses [($72,000 – $30,000) + $42,000] ...................... (84,000) Accrual-basis net income....................................... $ 36,000 EXERCISE 3-4 1. Unearned revenue. 2. Accrued expense. 3. Accrued expense. 4. Accrued revenue. 5. Prepaid expense. 6. Unearned revenue. 7. Accrued revenue. 8. Prepaid expense. 9. Prepaid expense. 10. Prepaid expense. 11. Accrued expense.
  • 19. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-19 EXERCISE 3-5 1. Interest Expense ..................................................... 400 Interest Payable ($10,000 X 12% X 4/12) ................................. 400 2. Supplies Expense ................................................... 1,550 Supplies ($2,450 – $900).................................. 1,550 3. Depreciation Expense............................................. 1,000 Accumulated Depreciation—Equipment........ 1,000 4. Insurance Expense ................................................. 1,225 Prepaid Insurance ($2,100 X 7/12) ............................................... 1,225 5. Unearned Service Revenue.................................... 7,500 Service Revenue ($30,000 X 1/4) ............................................... 7,500 6. Accounts Receivable .............................................. 4,200 Service Revenue............................................... 4,200 7. Salaries and Wages Expense................................. 5,400 Salaries and Wages Payable ($9,000 X 3/5) ................................................. 5,400
  • 20. 3-20 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-6 Item (a) Type of Adjustment (b) Accounts before Adjustment 1. Accrued Revenues Assets Understated Revenues Understated 2. Prepaid Expenses Assets Overstated Expenses Understated 3. Accrued Expenses Expenses Understated Liabilities Understated 4. Unearned Revenues Liabilities Overstated Revenues Understated 5. Accrued Expenses Expenses Understated Liabilities Understated 6. Prepaid Expenses Assets Overstated Expenses Understated EXERCISE 3-7 1. Mar. 31 Depreciation Expense ($400 X 3).................. 1,200 Accumulated Depreciation— Equipment........................................... 1,200 2. 31 Unearned Rent Revenue ............................... 3,400 Rent Revenue ($10,200 X 1/3) ............... 3,400 3. 31 Interest Expense............................................ 500 Interest Payable...................................... 500 4. 31 Supplies Expense .......................................... 1,900 Supplies ($2,800 – $900)........................ 1,900 5. 31 Insurance Expense ($200 X 3) ...................... 600 Prepaid Insurance.................................. 600
  • 21. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-21 EXERCISE 3-8 1. Jan. 31 Accounts Receivable .................................... 875 Service Revenue.................................... 875 2. 31 Utilities Expense............................................ 650 Utilities Payable ..................................... 650 3. 31 Depreciation Expense................................... 400 Accumulated Depreciation— Equipment .......................................... 400 31 Interest Expense............................................ 500 Interest Payable ..................................... 500 4. 31 Insurance Expense ($24,000 ÷ 12) ............... 2,000 Prepaid Insurance ................................. 2,000 5. 31 Supplies Expense ($1,600 – $400) ............... 1,200 Supplies.................................................. 1,200 EXERCISE 3-9 1. Oct. 31 Supplies Expense.......................................... 2,000 Supplies ($2,500 – $500) ....................... 2,000 2. 31 Insurance Expense........................................ 100 Prepaid Insurance ................................. 100 3. 31 Depreciation Expense................................... 50 Accumulated Depreciation— Equipment .......................................... 50 4. 31 Unearned Service Revenue.......................... 600 Service Revenue.................................... 600 5. 31 Accounts Receivable .................................... 300 Service Revenue.................................... 300
  • 22. 3-22 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-9 (Continued) 6. Oct. 31 Interest Expense..................................... 95 Interest Payable............................... 95 7. 31 Salaries and Wages Expense ................ 1,625 Salaries and Wages Payable.......... 1,625 EXERCISE 3-10 GOPITKUMAR CO. Income Statement For the Month Ended July 31, 2014 Revenues Service revenue ($5,500 + $650) ............................. $6,150 Expenses Salaries and wages expense ($2,300 + $300) ........ $2,600 Supplies expense ($1,200 – $250)........................... 950 Utilities expense....................................................... 600 Insurance expense................................................... 400 Depreciation expense .............................................. 150 Total expenses.................................................. 4,700 Net income........................................................................ $1,450 EXERCISE 3-11 Answer Computation (a) Supplies balance = $800 Supplies expense $ 950 Add: Supplies (1/31) 850 Less: Supplies purchased (1,000) Supplies (1/1) $ 800 (b) Total premium = $4,800 Total premium = Monthly premium X 12; $400 X 12 = $4,800 Purchase date = Aug. 1, 2013 Purchase date: On Jan. 31, there are 6 months’ coverage remaining ($400 X 6). Thus, the purchase date was 6 months earlier on Aug. 1, 2013.
  • 23. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-23 EXERCISE 3-11 (Continued) (c) Salaries and wages payable = $1,400 Cash paid $3,500 Salaries and wages payable (1/31/14) 800 4,300 Less: Salaries and wages expense 2,900 Salaries and wages payable (12/31/13) $1,400 EXERCISE 3-12 (a) July 10 Supplies ......................................................... 650 Cash........................................................ 650 14 Cash................................................................ 2,000 Service Revenue.................................... 2,000 15 Salaries and Wages Expense....................... 1,200 Cash........................................................ 1,200 20 Cash................................................................ 1,000 Unearned Service Revenue .................. 1,000 (b) July 31 Supplies Expense.......................................... 800 Supplies.................................................. 800 31 Accounts Receivable .................................... 500 Service Revenue.................................... 500 31 Salaries and Wages Expense....................... 1,200 Salaries and Wages Payable ................ 1,200 31 Unearned Service Revenue.......................... 1,150 Service Revenue.................................... 1,150
  • 24. 3-24 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-13 Aug. 31 Accounts Receivable..................................... 2,000 Service Revenue..................................... 2,000 31 Supplies Expense .......................................... 1,400 Supplies .................................................. 1,400 31 Insurance Expense ........................................ 1,500 Prepaid Insurance .................................. 1,500 31 Depreciation Expense ................................... 900 Accumulated Depreciation— Equipment........................................... 900 31 Salaries and Wages Expense ....................... 1,100 Salaries and Wages Payable................. 1,100 31 Unearned Rent Revenue ............................... 900 Rent Revenue ......................................... 900 EXERCISE 3-14 FRINZI COMPANY Income Statement For the Year Ended August 31, 2014 Revenues Service revenue........................................................ $36,000 Rent revenue ............................................................ 11,900 Total revenues .................................................. $47,900 Expenses Salaries and wages expense................................... 18,100 Rent expense............................................................ 15,000 Insurance expense................................................... 1,500 Supplies expense..................................................... 1,400 Depreciation expense .............................................. 900 Total expenses.................................................. 36,900 Net income........................................................................ $11,000
  • 25. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-25 EXERCISE 3-14 (Continued) FRINZI COMPANY Owner’s Equity Statement For the Year Ended August 31, 2014 Owner’s capital, September 1, 2013 ............................................... $15,600 Add: Net income............................................................................. 11,000 Owner’s capital, August 31, 2014.................................................... $26,600 FRINZI COMPANY Balance Sheet August 31, 2014 Assets Cash................................................................................... $10,400 Accounts receivable......................................................... 10,800 Supplies ............................................................................ 900 Prepaid insurance ............................................................ 2,500 Equipment......................................................................... $14,000 Less: Accum. depreciation—equipment....................... 4,500 9,500 Total assets ....................................................... $34,100 Liabilities and Owner’s Equity Liabilities Accounts payable..................................................................... $ 5,800 Salaries and wages payable .................................................... 1,100 Unearned rent revenue............................................................. 600 Total liabilities ................................................................... 7,500 Owner’s equity Owner’s capital ......................................................................... 26,600 Total liabilities and owner’s equity.................................. $34,100
  • 26. 3-26 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) EXERCISE 3-15 (a) 1. Cash ................................................................... 9,000 Accounts Receivable ................................ 9,000 2. Unearned Service Revenue.............................. 25,000 Service Revenue........................................ 25,000 3. Cash ................................................................... 38,000 Unearned Service Revenue ...................... 38,000 Unearned Service Revenue ($38,000 – $17,000)............................................ 21,000 Service Revenue............................................ 21,000 4. Accounts Receivable ........................................ 115,000 Service Revenue ($161,000 – $25,000 – $21,000) ............. 115,000 5. Cash ................................................................... 101,000 Accounts Receivable ($115,000 – $14,000) .............................. 101,000 (b) Cash received by the club = $9,000 + $101,000 + $38,000 = $148,000 *EXERCISE 3-16 1. Prepaid Insurance ................................................... 1,125 Insurance Expense ($2,700 X 5/12)............................................... 1,125 2. Service Revenue ..................................................... 30,000 Unearned Service Revenue ($40,000 X 3/4)............................................... 30,000 3. Supplies ................................................................... 900 Supplies Expense............................................. 900
  • 27. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-27 *EXERCISE 3-17 (a) Jan. 2 Insurance Expense....................................... 1,920 Cash....................................................... 1,920 10 Supplies Expense......................................... 1,700 Cash....................................................... 1,700 15 Cash............................................................... 6,100 Service Revenue................................... 6,100 Cash Service Revenue 1/15 6,100 1/2 1,920 1/10 1,700 1/15 6,100 Insurance Expense Supplies Expense 1/2 1,920 1/10 1,700 (b) Jan. 31 Prepaid Insurance ($160 X 11 months) ...... 1,760 Insurance Expense............................... 1,760 31 Supplies ........................................................ 650 Supplies Expense................................. 650 31 Service Revenue........................................... 3,600 Unearned Service Revenue ................. 3,600 Prepaid Insurance Supplies Unearned Service Revenue 1/31 1,760 1/31 650 1/31 3,600 Insurance Expense Supplies Expense Service Revenue 1/2 1,920 1/31 1,760 1/10 1,700 1/31 650 1/31 3,600 1/15 6,100 Bal. 160 Bal. 1,050 Bal. 2,500 (c) Prepaid insurance....................................................................... $1,760 Supplies....................................................................................... 650 Unearned service revenue......................................................... 3,600 Service revenue .......................................................................... 2,500 Insurance expense ..................................................................... 160 Supplies expense ....................................................................... 1,050
  • 28. 3-28 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) *EXERCISE 3-18 (a) 2 Going concern assumption (b) 6 Economic entity assumption (c) 3 Monetary unit assumption (d) 4 Time period assumption (e) 5 Historical cost principle (f) 1 Full disclosure principle *EXERCISE 3-19 (a) This is a violation of the historical cost principle. The inventory was written up to its fair value when it should have remained at cost. (b) This is a violation of the economic entity assumption. The treatment of the transaction treats Jay Rosman and Rosman Co. as one entity when they are two separate entities. Salaries and Wages Expense should have been debited for the purchase of the truck. (c) This is a violation of the time period assumption. This assumption states that the economic life of a business can be divided into artificial time periods (months, quarters, or a year). By adding two more weeks to the year, Rosman Co. would be misleading financial statement readers. In addition, 2014 results would not be comparable to previous years’ results. The company should use a 52 week year. *EXERCISE 3-20 1. Comparability 2. Going concern assumption 3. Materiality 4. Full disclosure principle 5. Time period assumption 6. Relevance 7. Historical cost principle 8. Consistency 9. Economic entity assumption 10. Faithful representation 11. Monetary unit assumption 12. Expense recognition principle
  • 29. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-29 *EXERCISE 3-21 (a) The primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions about providing capital. Since Net Nanny’s shares appear to be actively traded, investors must be capable of using the information made available by Net Nanny to make decisions about the company. (b) The investors must feel as if the company will show earnings in the future. They must recognize that information relevant to their investment choice is indicated by more than Net Nanny’s net income. (c) The change from Canadian dollars to U.S. dollars for reporting purposes should make Net Nanny more comparable with companies traded on U.S. stock exchanges. *EXERCISE 3-22 (a) Accounting information is the compilation and presentation of financial information for a company. It provides information in the form of financial statements and additional disclosures that is useful for decision making. The accounting rules and practices that have substantial authoritative support and are recognized as a general guide for financial reporting purposes are referred to as international financial reporting standards (IFRS). The biotechnology company that employs Ana will follow IFRS to report its assets, liabilities, equity, revenues, and expenses as it prepares financial statements. (b) Ana is correct in her understanding that the low success rate for new biotech products will be a cause of concern for investors. Her suggestion that detailed scientific findings be reported to prospective investors might offset some of their concerns but it probably won’t conform to the qualitative characteristics of accounting information. These characteristics consist of relevance, faithful representation, comparability, and consistency, verifiability, timeliness, and understandability. They apply to accounting information rather than the scientific findings that Ana wants to include.
  • 30. 3-30 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) SOLUTIONS TO PROBLEMS PROBLEM 3-1A (a) J4 Date Account Titles Ref. Debit Credit 2014 May 31 Supplies Expense................................ Supplies....................................... 631 126 900 900 31 Utilities Expense.................................. Accounts Payable....................... 736 201 250 250 31 Insurance Expense.............................. Prepaid Insurance ($3,600 ÷ 24 months) .............. 722 130 150 150 31 Unearned Service Revenue ................ Service Revenue ($2,000 – $400) ........................ 209 400 1,600 1,600 31 Salaries and Wages Expense ............. Salaries and Wages Payable [(3/5 X $900) X 2 employees]........................... 726 212 1,080 1,080 31 Depreciation Expense ......................... Accumulated Depreciation— Equipment............................... 717 150 190 190 31 Accounts Receivable........................... Service Revenue......................... 112 400 1,700 1,700 (b) Cash No. 101 Date Explanation Ref. Debit Credit Balance 2014 May 31 Balance 4,500
  • 31. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-31 PROBLEM 3-1A (Continued) Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 1,700 6,000 7,700 Supplies No. 126 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 900 1,900 1,000 Prepaid Insurance No. 130 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 150 3,600 3,450 Equipment No. 149 Date Explanation Ref. Debit Credit Balance 2014 May 31 Balance 11,400 Accumulated Depreciation—Equipment No. 150 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 190 190
  • 32. 3-32 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-1A (Continued) Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 250 4,500 4,750 Unearned Service Revenue No. 209 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 1,600 2,000 400 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 1,080 1,080 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance 2014 May 31 Balance 17,700 Service Revenue No. 400 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 31 Balance Adjusting Adjusting J4 J4 1,600 1,700 7,500 9,100 10,800 Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 900 900
  • 33. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-33 PROBLEM 3-1A (Continued) Depreciation Expense No. 717 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 190 190 Insurance Expense No. 722 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 150 150 Salaries and Wages Expense 726 Date Explanation Ref. Debit Credit Balance 2014 May 31 31 Balance Adjusting J4 1,080 3,400 4,480 Rent Expense No. 729 Date Explanation Ref. Debit Credit Balance 2014 May 31 Balance 900 Utilities Expense No. 736 Date Explanation Ref. Debit Credit Balance 2014 May 31 Adjusting J4 250 250
  • 34. 3-34 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-1A (Continued) (c) NARDELLI CONSULTING Adjusted Trial Balance May 31, 2014 Debit Credit Cash ..................................................................... Accounts Receivable.......................................... Supplies............................................................... Prepaid Insurance............................................... Equipment ........................................................... Accumulated Depreciation— Equipment ....................................................... Accounts Payable............................................... Unearned Service Revenue................................ Salaries and Wages Payable.............................. Owner’s Capital................................................... Service Revenue ................................................. Salaries and Wages Expense ............................ Rent Expense ...................................................... Depreciation Expense ........................................ Insurance Expense ............................................. Utilities Expense ................................................. Supplies Expense ............................................... $ 4,500 7,700 1,000 3,450 11,400 4,480 900 190 150 250 900 $34,920 $ 190 4,750 400 1,080 17,700 10,800 $34,920
  • 35. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-35 PROBLEM 3-2A (a) J1 Date Account Titles Ref. Debit Credit May 31 Insurance Expense .............................. Prepaid Insurance ($2,400 X 1/12) ......................... 722 130 200 200 31 Supplies Expense ................................ Supplies ($2,080 – $750)............. 631 126 1,330 1,330 31 Depreciation Expense ($3,000 X 1/12) + ($1,500 X 1/12)...... Accumulated Depreciation— Buildings.................................. 619 142 375 250 Accumulated Depreciation— Equipment................................ 150 125 31 Interest Expense .................................. Interest Payable [($40,000 X 12%) X 1/12] ........... 718 230 400 400 31 Unearned Rent Revenue...................... Rent Revenue (2/3 X $3,300) .......................... 208 429 2,200 2,200 31 Salaries and Wages Expense.............. Salaries and Wages Payable...... 726 212 750 750 (b) Cash No. 101 Date Explanation Ref. Debit Credit Balance May 31 Balance 3,500
  • 36. 3-36 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2A (Continued) Supplies No. 126 Date Explanation Ref. Debit Credit Balance May 31 31 Balance Adjusting J1 1,330 2,080 750 Prepaid Insurance No. 130 Date Explanation Ref. Debit Credit Balance May 31 31 Balance Adjusting J1 200 2,400 2,200 Land No. 140 Date Explanation Ref. Debit Credit Balance May 31 Balance 12,000 Buildings No. 141 Date Explanation Ref. Debit Credit Balance May 31 Balance 60,000 Accumulated Depreciation—Buildings No. 142 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 250 250 Equipment No. 149 Date Explanation Ref. Debit Credit Balance May 31 Balance 15,000 Accumulated Depreciation—Equipment No. 150 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 125 125
  • 37. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-37 PROBLEM 3-2A (Continued) Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance May 31 Balance 4,800 Unearned Rent Revenue No. 208 Date Explanation Ref. Debit Credit Balance May 31 31 Balance Adjusting J1 2,200 3,300 1,100 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 750 750 Interest Payable No. 230 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 400 400 Mortgage Payable No. 275 Date Explanation Ref. Debit Credit Balance May 31 Balance 40,000 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance May 31 Balance 41,380 Rent Revenue No. 429 Date Explanation Ref. Debit Credit Balance May 31 31 Balance Adjusting J1 2,200 10,300 12,500
  • 38. 3-38 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2A (Continued) Advertising Expense No. 610 Date Explanation Ref. Debit Credit Balance May 31 Balance 600 Depreciation Expense No. 619 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 375 375 Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 1,330 1,330 Interest Expense No. 718 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 400 400 Insurance Expense No. 722 Date Explanation Ref. Debit Credit Balance May 31 Adjusting J1 200 200 Salaries and Wages Expense No. 726 Date Explanation Ref. Debit Credit Balance May 31 31 Balance Adjusting J1 750 3,300 4,050 Utilities Expense No. 732 Date Explanation Ref. Debit Credit Balance May 31 Balance 900
  • 39. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-39 PROBLEM 3-2A (Continued) (c) SKYLINE MOTEL Adjusted Trial Balance May 31, 2014 Debit Credit Cash.................................................................. Supplies ........................................................... Prepaid Insurance ........................................... Land.................................................................. Buildings .......................................................... Accumulated Depreciation—Buildings ......... Equipment........................................................ Accumulated Depreciation—Equipment....... Accounts Payable ........................................... Unearned Rent Revenue................................. Salaries and Wages Payable .......................... Interest Payable............................................... Mortgage Payable............................................ Owner’s Capital ............................................... Rent Revenue .................................................. Advertising Expense....................................... Depreciation Expense..................................... Supplies Expense............................................ Interest Expense.............................................. Insurance Expense.......................................... Salaries and Wages Expense......................... Utilities Expense.............................................. $ 3,500 750 2,200 12,000 60,000 15,000 600 375 1,330 400 200 4,050 900 $101,305 $ 250 125 4,800 1,100 750 400 40,000 41,380 12,500 $101,305
  • 40. 3-40 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2A (Continued) (d) SKYLINE MOTEL Income Statement For the Month Ended May 31, 2014 Revenues Rent revenue.................................................... $12,500 Expenses Salaries and wages expense.......................... $4,050 Supplies expense ............................................ 1,330 Utilities expense .............................................. 900 Advertising expense ....................................... 600 Interest expense .............................................. 400 Depreciation expense ..................................... 375 Insurance expense .......................................... 200 Total expenses......................................... 7,855 Net income............................................................... $ 4,645 SKYLINE MOTEL Owner’s Equity Statement For the Month Ended May 31, 2014 Owner’s capital, May 1.............................................................. $ 0 Investment by owner ................................................................ 41,380 41,380 Add: Net income...................................................................... 4,645 Owner’s capital, May 31............................................................ $46,025
  • 41. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-41 PROBLEM 3-2A (Continued) SKYLINE MOTEL Balance Sheet May 31, 2014 Assets Cash..................................................................... $ 3,500 Supplies............................................................... 750 Prepaid insurance............................................... 2,200 Land ..................................................................... 12,000 Buildings ............................................................. $60,000 Less: Accumulated depreciation— buildings .................................................. 250 59,750 Equipment ........................................................... 15,000 Less: Accumulated depreciation— equipment................................................. 125 14,875 Total assets.......................................... $93,075 Liabilities and Owner’s Equity Liabilities Accounts payable ....................................... $ 4,800 Unearned rent revenue............................... 1,100 Salaries and wages payable....................... 750 Interest payable........................................... 400 Mortgage payable........................................ 40,000 Total liabilities ..................................... 47,050 Owner’s equity Owner’s capital............................................ 46,025 Total liabilities and owner’s equity....... $93,075
  • 42. 3-42 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-3A (a) Sept. 30 Accounts Receivable ............................... 1,100 Service Revenue................................. 1,100 30 Rent Expense ........................................... 1,000 Prepaid Rent ....................................... 1,000 30 Supplies Expense..................................... 850 Supplies............................................... 850 30 Depreciation Expense.............................. 700 Accum. Depreciation—Equipment...... 700 30 Interest Expense ...................................... 100 Interest Payable .................................. 100 30 Unearned Rent Revenue.......................... 850 Rent Revenue...................................... 850 30 Salaries and Wages Expense.................. 725 Salaries and Wages Payable ............. 725 (b) EVERETT CO. Income Statement For the Quarter Ended September 30, 2014 Revenues Service revenue................................................... $17,100 Rent revenue........................................................ 2,260 Total revenues ............................................. $19,360 Expenses Salaries and wages expense.............................. 8,725 Rent expense ....................................................... 2,900 Utilities expense .................................................. 1,510 Supplies expense ................................................ 850 Depreciation expense ......................................... 700 Interest expense .................................................. 100 Total expenses............................................. 14,785 Net income................................................................... $ 4,575
  • 43. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-43 PROBLEM 3-3A (Continued) EVERETT CO. Owner’s Equity Statement For the Quarter Ended September 30, 2014 Owner’s capital, July 1, 2014 ................................ $ 0 Investment by owner............................................. $22,000 Add: Net income.................................................. 4,575 26,575 26,575 Less: Drawings ..................................................... 1,600 Owner’s capital, September 30, 2014................... $24,975 EVERETT CO. Balance Sheet September 30, 2014 Assets Cash........................................................................ $ 8,700 Accounts receivable.............................................. 11,500 Supplies.................................................................. 650 Prepaid rent............................................................ 1,200 Equipment .............................................................. $18,000 Less: Accum. depreciation—equipment ............ 700 17,300 Total assets............................................. $39,350 Liabilities and Owner’s Equity Liabilities Notes payable................................................. $10,000 Accounts payable .......................................... 2,500 Salaries and wages payable.......................... 725 Unearned rent revenue.................................. 1,050 Interest payable.............................................. 100 Total liabilities ........................................ 14,375 Owner’s equity Owner’s capital............................................... 24,975 Total liabilities and owner’s equity....... $39,350 (c) Interest of 12% per year equals a monthly rate of 1%; monthly interest is $100 ($10,000 X 1%). Since total interest expense is $100, the note has been outstanding one month.
  • 44. 3-44 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-4A 1. Dec. 31 Insurance Expense ........................................ 4,890 Prepaid Insurance.................................. 4,890 [($7,920 ÷ 3) = $2,640 [($4,500 ÷ 2) = 2,250 $4,890] 2. Dec. 31 Unearned Rent Revenue ............................... 84,000 Rent Revenue ......................................... 84,000 [Nov. 5 X $5,000 X 2 = $50,000 [Dec. 4 X $8,500 X 1 = 34,000 $84,000 3. Dec. 31 Interest Expense............................................ 1,800 Interest Payable ($120,000 X 9% X 2/12)....................... 1,800 4. Dec. 31 Salaries and Wages Expense ....................... 2,000 Salaries and Wages Payable................. 2,000 [5 X $700 X 2/5 = $1,400 [3 X $500 X 2/5 = 600 $2,000]
  • 45. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-45 PROBLEM 3-5A (a), (c) & (e) Cash No. 101 Date Explanation Ref. Debit Credit Balance Nov. 1 8 10 12 20 22 25 29 Balance J1 J1 J1 J1 J1 J1 J1 3,420 3,100 600 1,700 2,700 400 1,700 2,400 700 4,120 7,220 4,520 4,120 2,420 3,020 Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance Nov. 1 10 27 Balance J1 J1 1,900 3,420 4,250 830 2,730 Supplies No. 126 Date Explanation Ref. Debit Credit Balance Nov. 1 17 30 Balance Adjusting J1 J1 700 1,100 1,800 2,500 1,400 Equipment No. 153 Date Explanation Ref. Debit Credit Balance Nov. 1 15 Balance J1 2,000 12,000 14,000
  • 46. 3-46 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5A (Continued) Accumulated Depreciation—Equipment No. 154 Date Explanation Ref. Debit Credit Balance Nov. 1 30 Balance Adjusting J1 200 2,000 2,200 Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance Nov. 1 15 17 20 Balance J1 J1 J1 2,700 2,000 700 2,600 4,600 5,300 2,600 Unearned Service Revenue No. 209 Date Explanation Ref. Debit Credit Balance Nov. 1 29 30 Balance Adjusting J1 J1 1,250 600 1,200 1,800 550 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance Nov. 1 8 30 Balance Adjusting J1 J1 700 350 700 0 350 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance Nov. 1 Balance 13,950
  • 47. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-47 PROBLEM 3-5A (Continued) Service Revenue No. 407 Date Explanation Ref. Debit Credit Balance Nov. 12 27 30 Adjusting J1 J1 J1 3,100 1,900 1,250 3,100 5,000 6,250 Depreciation Expense No. 615 Date Explanation Ref. Debit Credit Balance Nov. 30 Adjusting J1 200 200 Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance Nov. 30 Adjusting J1 1,100 1,100 Salaries and Wages Expense No. 726 Date Explanation Ref. Debit Credit Balance Nov. 8 25 30 Adjusting J1 J1 J1 1,000 1,700 350 1,000 2,700 3,050 Rent Expense No. 729 Date Explanation Ref. Debit Credit Balance Nov. 22 J1 400 400
  • 48. 3-48 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5A (Continued) (b) General Journal J1 Date Account Titles and Explanation Ref. Debit Credit Nov. 8 Salaries and Wages Payable.............. Salaries and Wages Expense............. Cash.............................................. 212 726 101 700 1,000 1,700 10 Cash ..................................................... Accounts Receivable.................. 101 112 3,420 3,420 12 Cash ..................................................... Service Revenue ......................... 101 407 3,100 3,100 15 Equipment ........................................... Accounts Payable ....................... 153 201 2,000 2,000 17 Supplies ............................................... Accounts Payable ....................... 126 201 700 700 20 Accounts Payable ............................... Cash ............................................. 201 101 2,700 2,700 22 Rent Expense ...................................... Cash ............................................. 729 101 400 400 25 Salaries and Wages Expense............. Cash ............................................. 726 101 1,700 1,700 27 Accounts Receivable.......................... Service Revenue ......................... 112 407 1,900 1,900 29 Cash ..................................................... Unearned Service Revenue ........ 101 209 600 600
  • 49. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-49 PROBLEM 3-5A (Continued) (d) & (f) SCHILLING EQUIPMENT REPAIR Trial Balances November 30, 2014 Before Adjustment After Adjustment Dr. Cr. Dr. Cr. Cash............................................ Accounts Receivable ................ Supplies ..................................... Equipment.................................. Accumulated Depreciation— Equipment............................... Accounts Payable ..................... Unearned Service Revenue ...... Salaries and Wages Payable .... Owner’s Capital ......................... Service Revenue........................ Depreciation Expense............... Supplies Expense...................... Salaries and Wages Expense... Rent Expense............................. $ 3,020 2,730 2,500 14,000 2,700 400 $25,350 $ 2,000 2,600 1,800 –0– 13,950 5,000 $25,350 $ 3,020 2,730 1,400 14,000 200 1,100 3,050 400 $25,900 $ 2,200 2,600 550 350 13,950 6,250 $25,900 (e) 1. Nov. 30 Supplies Expense ........................ 631 1,100 Supplies ($2,500 – $1,400) .... 126 1,100 2. 30 Salaries and Wages Expense ..... 726 350 Salaries and Wages Payable ................................ 212 350 3. 30 Depreciation Expense ................. 615 200 Accumulated Depreciation— Equipment .......................... 154 200 4. 30 Unearned Service Revenue......... 209 1,250 Service Revenue.................... 407 1,250
  • 50. 3-50 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5A (Continued) (g) SCHILLING EQUIPMENT REPAIR Income Statement For the Month Ended November 30, 2014 Revenues Service revenue............................................... $6,250 Expenses Salaries and wages expense.......................... $3,050 Supplies expense ............................................ 1,100 Rent expense ................................................... 400 Depreciation expense ..................................... 200 Total expenses......................................... 4,750 Net Income............................................................... $1,500 SCHILLING EQUIPMENT REPAIR Owner’s Equity Statement For the Month Ended November 30, 2014 Owner’s capital, November 1 ................................................... $13,950 Plus: Net income ..................................................................... 1,500 Owner’s capital, November 30 ................................................. $15,450
  • 51. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-51 PROBLEM 3-5A (Continued) SCHILLING EQUIPMENT REPAIR Balance Sheet November 30, 2014 Assets Cash........................................................................ $ 3,020 Accounts receivable.............................................. 2,730 Supplies.................................................................. 1,400 Equipment .............................................................. $14,000 Less: Accumulated depreciation— equipment ................................................... 2,200 11,800 Total assets .................................................... $18,950 Liabilities and Owner’s Equity Liabilities Accounts payable ............................................................. $ 2,600 Unearned service revenue ............................................... 550 Salaries and wages payable............................................. 350 Total liabilities ........................................................... 3,500 Owner’s equity Owner’s capital.................................................................. 15,450 Total liabilities and owner’s equity.................................. $18,950
  • 52. 3-52 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) *PROBLEM 3-6A (a) 1. June 30 Supplies.................................................. 1,500 Supplies Expense .......................... 1,500 2. 30 Interest Expense ($20,000 X 9% X 5/12) ........................ 750 Interest Payable ............................. 750 3. 30 Prepaid Insurance [($2,700 ÷ 12) X 8] .............................. 1,800 Insurance Expense ........................ 1,800 4. 30 Service Revenue.................................... 1,300 Unearned Service Revenue ............ 1,300 5. 30 Accounts Receivable ............................ 2,000 Service Revenue ............................ 2,000 6. 30 Depreciation Expense ($2,250 ÷ 2) ......................................... 1,125 Accumulated Depreciation— Equipment .................................. 1,125
  • 53. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-53 *PROBLEM 3-6A (Continued) (b) SOMMER GRAPHICS COMPANY Adjusted Trial Balance June 30, 2014 Debit Credit Cash.................................................................. Accounts Receivable ($14,000 + $2,000)....... Supplies ........................................................... Prepaid Insurance ........................................... Equipment........................................................ Accumulated Depreciation—Equipment....... Notes Payable.................................................. Accounts Payable ........................................... Interest Payable............................................... Unearned Service Revenue ............................ Owner’s Capital ............................................... Sales Revenue ................................................. Service Revenue ($6,000 – $1,300 + $2,000) . Salaries and Wages Expense......................... Supplies Expense ($3,700 – $1,500) .............. Advertising Expense....................................... Rent Expense................................................... Utilities Expense.............................................. Depreciation Expense..................................... Insurance Expense ($2,700 – $1,800) ............ Interest Expense.............................................. $ 8,600 16,000 1,500 1,800 45,000 30,000 2,200 1,900 1,500 1,700 1,125 900 750 $112,975 $ 1,125 20,000 9,000 750 1,300 22,000 52,100 6,700 $112,975
  • 54. 3-54 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) *PROBLEM 3-6A (Continued) (c) SOMMER GRAPHICS COMPANY Income Statement For the Six Months Ended June 30, 2014 Revenues Sales revenue ................................................ $52,100 Service revenue............................................. 6,700 Total revenues ....................................... 58,800 Expenses Salaries and wages expense........................ 30,000 Supplies expense .......................................... 2,200 Advertising expense ..................................... 1,900 Utilities expense ............................................ 1,700 Rent expense ................................................. 1,500 Depreciation expense ................................... 1,125 Insurance expense ........................................ 900 Interest expense ............................................ 750 Total expenses....................................... 40,075 Net income............................................................. $18,725 SOMMER GRAPHICS COMPANY Owner’s Equity Statement For the Six Months Ended June 30, 2014 Owner’s capital, January 1....................................................... $ 0 Investment by owner ................................................................ 22,000 22,000 Add: Net income ...................................................................... 18,725 Owner’s capital, June 30 .......................................................... $40,725
  • 55. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-55 *PROBLEM 3-6A (Continued) SOMMER GRAPHICS COMPANY Balance Sheet June 30, 2014 Assets Cash........................................................................ $ 8,600 Accounts receivable.............................................. 16,000 Supplies.................................................................. 1,500 Prepaid insurance.................................................. 1,800 Equipment .............................................................. $45,000 Less: Accumulated depreciation— equipment................................................... 1,125 43,875 Total assets............................................. $71,775 Liabilities and Owner’s Equity Liabilities Notes payable................................................. $20,000 Accounts payable .......................................... 9,000 Unearned service revenue ............................ 1,300 Interest payable.............................................. 750 Total liabilities ........................................ 31,050 Owner’s equity Owner’s capital............................................... 40,725 Total liabilities and owner’s equity......... $71,775
  • 56. 3-56 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-1B (a) J3 Date Account Titles and Explanation Ref. Debit Credit 2014 June 30 Supplies Expense ............................ Supplies ($2,000 – $750)..................... 631 126 1,250 1,250 30 Utilities Expense .............................. Accounts Payable................... 732 201 150 150 30 Insurance Expense .......................... Prepaid Insurance ($3,000 ÷ 12 months)........... 722 130 250 250 30 Unearned Service Revenue............. Service Revenue ..................... 209 400 2,800 2,800 30 Salaries and Wages Expense ......... Salaries and Wages Payable ................................. 726 212 1,900 1,900 30 Depreciation Expense ..................... Accumulated Depreciation— Equipment ........................... 711 158 250 250 30 Accounts Receivable....................... Service Revenue ..................... 112 400 1,200 1,200
  • 57. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-57 PROBLEM 3-1B (Continued) (b) Cash No. 101 Date Explanation Ref. Debit Credit Balance 2014 June 30 Balance 7,150 Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 Balance Adjusting J3 1,200 6,000 7,200 Supplies No. 126 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 Balance Adjusting J3 1,250 2,000 750 Prepaid Insurance No. 130 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 Balance Adjusting J3 250 3,000 2,750 Equipment No. 157 Date Explanation Ref. Debit Credit Balance 2014 June 30 Balance 15,000 Accumulated Depreciation—Equipment No. 158 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 250 250
  • 58. 3-58 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-1B (Continued) Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance 2014 June 30 Balance 4,500 30 Adjusting J3 150 4,650 Unearned Service Revenue No. 209 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 Balance Adjusting J3 2,800 4,000 1,200 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 1,900 1,900 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance 2014 June 30 Balance 21,750 Service Revenue No. 400 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 30 Balance Adjusting Adjusting J3 J3 2,800 1,200 7,900 10,700 11,900
  • 59. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-59 PROBLEM 3-1B (Continued) Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 1,250 1,250 Depreciation Expense No. 711 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 250 250 Insurance Expense No. 722 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 250 250 Salaries and Wages Expense No. 726 Date Explanation Ref. Debit Credit Balance 2014 June 30 30 Balance Adjusting J3 1,900 4,000 5,900 Rent Expense No. 729 Date Explanation Ref. Debit Credit Balance 2014 June 30 Balance 1,000 Utilities Expense No. 732 Date Explanation Ref. Debit Credit Balance 2014 June 30 Adjusting J3 150 150
  • 60. 3-60 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-1B (Continued) (c) ELSNER COMPANY Adjusted Trial Balance June 30, 2014 Debit Credit Cash ..................................................................... Accounts Receivable.......................................... Supplies............................................................... Prepaid Insurance............................................... Equipment ........................................................... Accumulated Depreciation— Equipment ....................................................... Accounts Payable............................................... Unearned Service Revenue................................ Salaries and Wages Payable.............................. Owner’s Capital................................................... Service Revenue ................................................. Supplies Expense ............................................... Depreciation Expense ........................................ Insurance Expense ............................................. Salaries and Wages Expense ............................ Rent Expense ...................................................... Utilities Expense ................................................. $ 7,150 7,200 750 2,750 15,000 1,250 250 250 5,900 1,000 150 $41,650 $ 250 4,650 1,200 1,900 21,750 11,900 $41,650
  • 61. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-61 PROBLEM 3-2B (a) J1 Date Account Titles and Explanation Ref. Debit Credit Aug. 31 Insurance Expense ($300 X 3)........... Prepaid Insurance ..................... 722 130 900 900 31 Supplies Expense ($3,300 – $800)....... Supplies ..................................... 631 126 2,500 2,500 31 Depreciation Expense ($6,000 X 1/4) + ($2,400 X 1/4)........ Accumulated Depreciation— Buildings................................ 620 144 2,100 1,500 Accumulated Depreciation— Equipment.............................. 150 600 31 Unearned Rent Revenue.................... Rent Revenue ............................ 208 429 4,800 4,800 31 Salaries and Wages Expense............ Salaries and Wages Payable.... 726 212 400 400 31 Accounts Receivable ......................... Rent Revenue ............................ 112 429 4,000 4,000 31 Interest Expense ................................ Interest Payable [($80,000 X 9%) X 1/12].......... 718 230 600 600 (b) Cash No. 101 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 19,600
  • 62. 3-62 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2B (Continued) Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 4,000 4,000 Supplies No. 126 Date Explanation Ref. Debit Credit Balance Aug. 31 31 Balance Adjusting J1 2,500 3,300 800 Prepaid Insurance No. 130 Date Explanation Ref. Debit Credit Balance Aug. 31 31 Balance Adjusting J1 900 6,000 5,100 Land No. 140 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 25,000 Buildings No. 143 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 125,000 Accumulated Depreciation—Buildings No. 144 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 1,500 1,500 Equipment No. 149 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 26,000
  • 63. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-63 PROBLEM 3-2B (Continued) Accumulated Depreciation—Equipment No. 150 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 600 600 Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 6,500 Unearned Rent Revenue No. 208 Date Explanation Ref. Debit Credit Balance Aug. 31 31 Balance Adjusting J1 4,800 7,400 2,600 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 400 400 Interest Payable No. 230 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 600 600 Mortgage Payable No. 275 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 80,000 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 100,000
  • 64. 3-64 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2B (Continued) Owner’s Drawings No. 306 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 5,000 Rent Revenue No. 429 Date Explanation Ref. Debit Credit Balance Aug. 31 31 31 Balance Adjusting Adjusting J1 J1 4,800 4,000 80,000 84,800 88,800 Depreciation Expense No. 620 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 2,100 2,100 Maintenance and Repairs Expense No. 622 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 3,600 Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 2,500 2,500 Interest Expense No. 718 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 600 600 Insurance Expense No. 722 Date Explanation Ref. Debit Credit Balance Aug. 31 Adjusting J1 900 900
  • 65. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-65 PROBLEM 3-2B (Continued) Salaries and Wages Expense No. 726 Date Explanation Ref. Debit Credit Balance Aug. 31 31 Balance Adjusting J1 400 51,000 51,400 Utilities Expense No. 732 Date Explanation Ref. Debit Credit Balance Aug. 31 Balance 9,400 (c) MAQUOKETA RIVER RESORT Adjusted Trial Balance August 31, 2014 Debit Credit Cash...................................................................... Accounts Receivable .......................................... Supplies ............................................................... Prepaid Insurance ............................................... Land...................................................................... Buildings .............................................................. Accumulated Depreciation—Buildings ............. Equipment............................................................ Accumulated Depreciation—Equipment........... Accounts Payable ............................................... Unearned Rent Revenue..................................... Salaries and Wages Payable .............................. Interest Payable................................................... Mortgage Payable................................................ Owner’s Capital ................................................... Owner’s Drawings ............................................... Rent Revenue ...................................................... Depreciation Expense......................................... Maintenance and Repairs Expense ................... Supplies Expense................................................ Interest Expense.................................................. Insurance Expense.............................................. Salaries and Wages Expense............................. Utilities Expense.................................................. $ 19,600 4,000 800 5,100 25,000 125,000 26,000 5,000 2,100 3,600 2,500 600 900 51,400 9,400 $281,000 $ 1,500 600 6,500 2,600 400 600 80,000 100,000 88,800 $281,000
  • 66. 3-66 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-2B (Continued) (d) MAQUOKETA RIVER RESORT Income Statement For the Three Months Ended August 31, 2014 Revenues Rent revenue.................................................. $88,800 Expenses Salaries and wages expense........................ $51,400 Utilities expense ............................................ 9,400 Maintenance and repairs expense ............... 3,600 Supplies expense .......................................... 2,500 Depreciation expense ................................... 2,100 Insurance expense ........................................ 900 Interest expense ............................................ 600 Total expenses....................................... 70,500 Net income............................................................. $18,300 MAQUOKETA RIVER RESORT Owner’s Equity Statement For the Three Months Ended August 31, 2014 Owner’s Capital, June 1........................................ $ 0 Investment by owner ............................................ $100,000 Add: Net income................................................... 18,300 118,300 118,300 Less: Drawings..................................................... 5,000 Owner’s Capital, August 31.................................. $113,300
  • 67. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-67 PROBLEM 3-2B (Continued) MAQUOKETA RIVER RESORT Balance Sheet August 31, 2014 Assets Cash................................................................... $ 19,600 Accounts receivable......................................... 4,000 Supplies............................................................. 800 Prepaid insurance............................................. 5,100 Land ................................................................... 25,000 Buildings ........................................................... $125,000 Less: Accum. depreciation—buildings.......... 1,500 123,500 Equipment ......................................................... 26,000 Less: Accum. depreciation—equipment ....... 600 25,400 Total assets........................................ $203,400 Liabilities and Owner’s Equity Liabilities Accounts payable ..................................... $ 6,500 Mortgage payable...................................... 80,000 Unearned rent revenue............................. 2,600 Interest payable......................................... 600 Salaries and wages payable..................... 400 Total liabilities ................................... 90,100 Owner’s equity Owner’s capital.......................................... 113,300 Total liabilities and owner’s equity.............................................. $203,400
  • 68. 3-68 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-3B (a) Dec. 31 Accounts Receivable ............................. 1,500 Service Revenue ............................. 1,500 31 Unearned Service Revenue ................... 1,300 Service Revenue ............................. 1,300 31 Supplies Expense................................... 3,800 Supplies........................................... 3,800 31 Depreciation Expense............................ 6,000 Accumulated Depreciation— Equipment .................................... 6,000 31 Interest Expense..................................... 150 Interest Payable .............................. 150 31 Insurance Expense................................. 850 Prepaid Insurance........................... 850 31 Salaries and Wages Expense................ 2,100 Salaries and Wages Payable.......... 2,100 (b) DELGADO ADVERTISING AGENCY Income Statement For the Year Ended December 31, 2014 Revenues Service revenue................................................ $61,400 Expenses Salaries and wages expense........................... $12,100 Depreciation expense ...................................... 6,000 Rent expense .................................................... 4,000 Supplies expense ............................................. 3,800 Insurance expense ........................................... 850 Interest expense ............................................... 500 Total expenses.......................................... 27,250 Net income................................................................ $34,150
  • 69. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-69 PROBLEM 3-3B (Continued) DELGADO ADVERTISING AGENCY Owner’s Equity Statement For the Year Ended December 31, 2014 Owner’s capital, January 1 ...................................................... $25,500 Add: Net income...................................................................... 34,150 59,650 Less: Drawings ........................................................................ 12,000 Owner’s capital, December 31................................................. $47,650 DELGADO ADVERTISING AGENCY Balance Sheet December 31, 2014 Assets Cash........................................................................ $11,000 Accounts receivable.............................................. 21,500 Supplies ................................................................. 4,800 Prepaid insurance.................................................. 2,500 Equipment .............................................................. $60,000 Less: Accumulated depreciation— equipment................................................... 34,000 26,000 Total assets............................................. $65,800 Liabilities and Owner’s Equity Liabilities Notes payable................................................. $ 5,000 Accounts payable .......................................... 5,000 Unearned service revenue ............................ 5,900 Salaries and wages payable.......................... 2,100 Interest payable.............................................. 150 Total liabilities ........................................ 18,150 Owner’s equity Owner’s capital............................................... 47,650 Total liabilities and owner’s equity................................................... $65,800
  • 70. 3-70 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-3B (Continued) (c) (1) I = P X R X T $150 = $5,000 X R X 1/2 $150 = $2,500R R = $150 $2,500 R = 6% (2) Salaries and Wages Expense, $12,100 less Salaries and Wages Payable 12/31/14, $2,100 = $10,000. Total payments, $12,500 – $10,000 = $2,500 Salaries and Wages Payable 12/31/13.
  • 71. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-71 PROBLEM 3-4B 1. Dec. 31 Salaries and Wages Expense.................. 2,640 Salaries and Wages Payable ........... 2,640 [5 X $900 X 2/5 =$1,800 [3 X $700 X 2/5 = 840 $2,640] 2. 31 Unearned Rent Revenue.......................... 84,000 Rent Revenue.................................... 84,000 [5 X $5,000 X 2 = $50,000) (4 X $8,500 X 1 = 34,000) $84,000] 3. 31 Advertising Expense................................ 5,200 Prepaid Advertising.......................... 5,200 [A650 – $500 per month for 8 months = $4,000) (B974 – $400 per month for 3 months = 1,200) $5,200] 4. 31 Interest Expense....................................... 6,300 Interest Payable ($120,000 X 9% X 7/12) ................. 6,300
  • 72. 3-72 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5B (a), (c) & (e) Cash No. 101 Date Explanation Ref. Debit Credit Balance Sept. 1 8 10 12 20 22 25 29 Balance J1 J1 J1 J1 J1 J1 J1 1,200 3,400 650 1,400 4,500 500 1,250 4,880 3,480 4,680 8,080 3,580 3,080 1,830 2,480 Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance Sept. 1 10 27 Balance J1 J1 2,100 1,200 3,520 2,320 4,420 Supplies No. 126 Date Explanation Ref. Debit Credit Balance Sept. 1 17 30 Balance Adjusting J1 J1 1,200 1,900 2,000 3,200 1,300 Equipment No. 153 Date Explanation Ref. Debit Credit Balance Sept. 1 15 Balance J1 3,000 15,000 18,000
  • 73. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-73 PROBLEM 3-5B (Continued) Accumulated Depreciation—Equipment No. 154 Date Explanation Ref. Debit Credit Balance Sept. 1 30 Balance Adjusting J1 100 1,500 1,600 Accounts Payable No. 201 Date Explanation Ref. Debit Credit Balance Sept. 1 15 17 20 Balance J1 J1 J1 4,500 3,000 1,200 3,400 6,400 7,600 3,100 Unearned Service Revenue No. 209 Date Explanation Ref. Debit Credit Balance Sept. 1 29 30 Balance Adjusting J1 J1 1,450 650 1,400 2,050 600 Salaries and Wages Payable No. 212 Date Explanation Ref. Debit Credit Balance Sept. 1 8 30 Balance Adjusting J1 J1 500 300 500 0 300 Owner’s Capital No. 301 Date Explanation Ref. Debit Credit Balance Sept. 1 Balance 18,600
  • 74. 3-74 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5B (Continued) Service Revenue No. 407 Date Explanation Ref. Debit Credit Balance Sept. 12 27 30 Adjusting J1 J1 J1 3,400 2,100 1,450 3,400 5,500 6,950 Depreciation Expense No. 615 Date Explanation Ref. Debit Credit Balance Sept. 30 Adjusting J1 100 100 Supplies Expense No. 631 Date Explanation Ref. Debit Credit Balance Sept. 30 Adjusting J1 1,900 1,900 Salaries and Wages Expense No. 726 Date Explanation Ref. Debit Credit Balance Sept. 8 25 30 Adjusting J1 J1 J1 900 1,250 300 900 2,150 2,450 Rent Expense No. 729 Date Explanation Ref. Debit Credit Balance Sept. 22 J1 500 500
  • 75. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-75 PROBLEM 3-5B (Continued) (b) General Journal J1 Date Account Titles Ref. Debit Credit Sept. 8 Salaries and Wages Payable .............. Salaries and Wages Expense ............. Cash ............................................... 212 726 101 500 900 1,400 10 Cash...................................................... Accounts Receivable.................... 101 112 1,200 1,200 12 Cash...................................................... Service Revenue ........................... 101 407 3,400 3,400 15 Equipment ............................................ Accounts Payable......................... 153 201 3,000 3,000 17 Supplies................................................ Accounts Payable......................... 126 201 1,200 1,200 20 Accounts Payable................................ Cash............................................... 201 101 4,500 4,500 22 Rent Expense....................................... Cash............................................... 729 101 500 500 25 Salaries and Wages Expense ............. Cash............................................... 726 101 1,250 1,250 27 Accounts Receivable .......................... Service Revenue ........................... 112 407 2,100 2,100 29 Cash...................................................... Unearned Service Revenue ........... 101 209 650 650
  • 76. 3-76 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5B (Continued) (d) & (f) PERCY EQUIPMENT REPAIR Trial Balances September 30, 2014 Before Adjustment After Adjustment Dr. Cr. Dr. Cr. Cash ............................................ Accounts Receivable................. Supplies...................................... Equipment .................................. Accumulated Depreciation— Equipment ............................... Accounts Payable...................... Unearned Service Revenue....... Salaries and Wages Payable..... Owner’s Capital.......................... Service Revenue ........................ Depreciation Expense ............... Supplies Expense ...................... Salaries and Wages Expense ... Rent Expense ............................. $ 2,480 4,420 3,200 18,000 2,150 500 $30,750 $ 1,500 3,100 2,050 -0- 18,600 5,500 $30,750 $ 2,480 4,420 1,300 18,000 100 1,900 2,450 500 $31,150 $ 1,600 3,100 600 300 18,600 6,950 $31,150 (e) 1. Sept. 30 Supplies Expense ........................ 631 1,900 Supplies ($3,200 – $1,300)...... 126 1,900 2. 30 Salaries and Wages Expense ..... 726 300 Salaries and Wages Payable ................................ 212 300 3. 30 Depreciation Expense ................. 615 100 Accumulated Depreciation— Equipment .......................... 154 100 4. 30 Unearned Service Revenue......... 209 1,450 Service Revenue.................... 407 1,450
  • 77. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-77 PROBLEM 3-5B (Continued) (g) PERCY EQUIPMENT REPAIR Income Statement For the Month Ended September 30, 2014 Revenues Service revenue.................................................. $6,950 Expenses Salaries and wages expense............................. $2,450 Supplies expense............................................... 1,900 Rent expense...................................................... 500 Depreciation expense........................................ 100 Total expenses ........................................... 4,950 Net income ................................................................. $2,000 PERCY EQUIPMENT REPAIR Owner’s Equity Statement For the Month Ended September 30, 2014 Owner’s capital, September 1.................................................. $18,600 Add: Net income ..................................................................... 2,000 Owner’s capital, September 30................................................ $20,600
  • 78. 3-78 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) PROBLEM 3-5B (Continued) PERCY EQUIPMENT REPAIR Balance Sheet September 30, 2014 Assets Cash ....................................................................... $ 2,480 Accounts receivable ............................................. 4,420 Supplies ................................................................. 1,300 Equipment.............................................................. $18,000 Less: Accumulated depreciation— equipment............................................... 1,600 16,400 Total assets.................................................... $24,600 Liabilities and Owner’s Equity Liabilities Accounts payable.............................................................. $ 3,100 Unearned service revenue................................................ 600 Salaries and wages payable............................................. 300 Total liabilities............................................................ 4,000 Owner’s equity Owner’s capital.................................................................. 20,600 Total liabilities and owner’s equity .......................... $24,600
  • 79. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-79 CCC3 CONTINUING COOKIE CHRONICLE (a) GENERAL JOURNAL J2 Date Account Titles and Explanation Debit Credit Nov. 30 Supplies Expense............................................. 35 Supplies........................................................ 35 30 Depreciation Expense...................................... 20 Accumulated Depreciation—Equipment [($300 + $900) ÷ 60 months] ................... 20 30 Interest Expense............................................... 5 Interest Payable ($2,000 X .06 X 1/12 X .5) .......................... 5 30 Accounts Receivable ....................................... 300 Service Revenue.......................................... 300 30 Utilities Expense............................................... 45 Accounts Payable........................................ 45
  • 80. 3-80 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) CCC3 (Continued) (a) (Continued) Cash Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 245 Accounts Receivable Date Explanation Ref. Debit Credit Balance Nov. 30 J2 300 300 Supplies Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 125 30 J2 35 90 Prepaid Insurance Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 1,320 Equipment Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 1,200 Accumulated Depreciation—Equipment Date Explanation Ref. Debit Credit Balance Nov. 30 9 20 20
  • 81. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-81 CCC3 (Continued) (a) (Continued) Accounts Payable Date Explanation Ref. Debit Credit Balance Nov. 30 J2 45 45 Interest Payable Date Explanation Ref. Debit Credit Balance Nov. 30 J2 5 5 Unearned Service Revenue Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 30 Notes Payable Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 2,000 Owner’s Capital Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 800 Service Revenue Date Explanation Ref. Debit Credit Balance Nov. 30 Balance 9 125 30 J2 300 425
  • 82. 3-82 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) CCC3 (Continued) (a) (Continued) Utilities Expense Date Explanation Ref. Debit Credit Balance Nov. 30 J2 45 45 Advertising Expense Date Explanation Ref. Debit Credit Balance Nov. 30 J2 65 65 Supplies Expense Date Explanation Ref. Debit Credit Balance Nov. 30 J2 35 35 Depreciation Expense Date Explanation Ref. Debit Credit Balance Nov. 30 J2 20 20 Interest Expense Date Explanation Ref. Debit Credit Balance Nov. 30 J2 5 5
  • 83. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-83 CCC3 (Continued) (b) COOKIE CREATIONS Adjusted Trial Balance November 30, 2013 Account Debit Credit Cash ............................................................................... $ 245 Accounts Receivable .................................................... 300 Supplies ......................................................................... 90 Prepaid Insurance ......................................................... 1,320 Equipment...................................................................... 1,200 Accumulated Depreciation—Equipment..................... $ 20 Accounts Payable ......................................................... 45 Interest Payable............................................................. 5 Unearned Service Revenue.......................................... 30 Notes Payable................................................................ 2,000 Owner’s Capital ............................................................. 800 Service Revenue............................................................ 425 Utilities Expense............................................................ 45 Advertising Expense..................................................... 65 Supplies Expense.......................................................... 35 Depreciation Expense................................................... 20 Interest Expense............................................................ 5 Totals................................................................ $3,325 $3,325
  • 84. 3-84 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) CCC3 (Continued) (c) Revenues Service revenue.............................................................. $425 Expenses Advertising expense...................................................... $65 Utilities expense............................................................. 45 Supplies expense........................................................... 35 Depreciation expense.................................................... 20 Interest expense............................................................. 5 170 Net income............................................................................. $255 Yes, Cookie Creations has been profitable in November. It has a profit of $255 which is more than one half of the revenue earned in November. [Note: Owner’s Equity Statement is not required—shown for information purposes only.] COOKIE CREATIONS Owner’s Equity Statement For the Month Ended November 30, 2013 Owner’s Capital, November 1, 2013 .................................... $ 0 Add: Investment................................................................... 800 Net income................................................................... 255 Owner’s Capital, November 30, 2013 .................................. $1,055
  • 85. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-85 CCC3 (Continued) (c) (Continued) [Note: Balance Sheet is not required—shown for information purposes only.] COOKIE CREATIONS Balance Sheet November 30, 2013 Assets Cash.................................................................................. $ 245 Accounts receivable........................................................ 300 Supplies ........................................................................... 90 Prepaid insurance ........................................................... 1,320 Equipment........................................................................ $1,200 Less: Accumulated depreciation—equipment ............ 20 1,180 Total assets ................................................................. $3,135 Liabilities and Owner’s Equity Liabilities Notes payable ............................................................. $2,000 Accounts payable ....................................................... 45 Unearned service revenue ......................................... 30 Interest payable .......................................................... 5 Total liabilities ........................................................ 2,080 Owner’s equity Owner’s capital ........................................................... 1,055 Total liabilities and owner’s equity....................... $3,135
  • 86. 3-86 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-1 FINANCIAL REPORTING PROBLEM (a) Items that may result in adjusting entries for prepayments are: 1. Other current assets (per balance sheet). 2. Property, plant and equipment, net (per balance sheet). 3. Acquired intangible assets, net (per balance sheet)—amortization is similar to depreciation (explained later in Chapter 10). (b) Accrual adjusting entries were probably made for accounts payable accrued expenses, and income taxes payable. (c) Apple’s net income increased substantially since 2009. Its net income increased by $5,778 million from 2009 to 2010, and by $11,909 million from 2010 to 2011. Apple’s net income more than tripled from 2009 to 2011.
  • 87. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-87 BYP 3-2 COMPARATIVE ANALYSIS PROBLEM PepsiCo Coca-Cola (a) Net increase (decrease) in property, plant, and equipment (net) from 2010 to 2011. $ 640,000,000 $ 212,000,000 (b) Increase (decrease) in selling, general, and administrative expenses from 2010 to 2011. $ 2,331,000,000 $ 4,282,000,000 (c) Increase (decrease) in long-term debt (obligations) from 2010 to 2011. $ 569,000,000 $ (385,000,000) (d) Increase (decrease) in net income from 2010 to 2011. $ 124,000,000 $(3,225,000,000) (e) Increase (decrease) in cash and cash equivalents from 2010 to 2011. (($(1,876,000,000) $4,286,000,000
  • 88. 3-88 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-3 COMPARATIVE ANALYSIS PROBLEM 1. Amazon Wal-mart (a) Increase (decrease) in interest expense, from 2009 to 2011. $31,000,000 $(19,000,000) (b) Increase (decrease) in net income from 2009 to 2011. $ (271,000,000) $ 1,504,000,000 (c) Increase (decrease) in cash from operations from 2010 to 2011. ($408,000,000 $ 612,000,000 2. Cash flow from operations is the difference between cash receipts from revenues and cash payments for expenses (see chapter 1). Depreciation expense is a major reason why cash flow from operations and net income are different for these two companies. Depreciation expense reduces a company’s net income, but does not affect cash flow from operations since it’s a noncash expense. Other reasons would include changes in accounts receivable, inventory, and accounts payable.
  • 89. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-89 BYP 3-4 REAL–WORLD FOCUS Answers will vary depending on the company and article chosen by the student.
  • 90. 3-90 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-5 REAL-WORLD FOCUS (a) Many large companies, big accounting firms, and accounting standard setters tend to favor a switch to IFRS because they believe that global accounting standards would save companies money by consolidating their bookkeeping. They also believe it would make it easier to raise capital around the world. In addition, investors would have less trouble comparing companies from different countries. They also feel that having international accounting standards would lead to an improvement in the enforcement of securities laws. (b) Many small companies are opposed to switching to IFRS because (1) they say that the switch would be very costly, and (2) because they don't have operations outside of the U.S., so they see any benefit to their company of using international standards. (c) It has been suggested that IFRS lacks standards that are specific to utility companies that U.S. GAAP contains. (d) Condorsement (a word invented by the SEC) represents a combination of convergence and endorsement. Under condorsement, U.S. standard setters would continue to work with international standard setters to try to reduce differences in standards. In addition, as new international standards are issued, U.S. standard setters would review those standards and consider whether to endorse them by absorbing them into U.S. GAAP.
  • 91. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-91 BYP 3-6 DECISION MAKING ACROSS THE ORGANIZATION (a) HAPPY CAMPER PARK Income Statement For the Quarter Ended March 31, 2014 Revenues Rent revenue ($90,000 – $15,000)................. $75,000 Expenses Salaries and wages expense [$29,800 + ($300 X 2)].................................. $30,400 Advertising expense ($5,200 + $110) ........... 5,310 Supplies expense ($6,200 – $1,700) ............. 4,500 Maintenance and repairs expense ($4,000 + $260)............................................. 4,260 Insurance expense ($7,200 X 3/12)............... 1,800 Utilities expense ($900 + $180) ..................... 1,080 Depreciation expense.................................... 800 Interest expense ($12,000 X 10% X 3/12) ........ 300 Total expenses ....................................... 48,450 Net income ............................................................. $26,550 (b) The generally accepted accounting principles pertaining to the income statement that were not recognized by Amaya were the revenue recognition principle and the expense recognition principle. The revenue recognition principle states that revenue is recognized when the performance obligation is satisfied. The $15,000 for summer rentals has not been performed and, therefore, should not be reported in income for the quarter ended March 31. The expense recognition principle dictates that efforts (expenses) be matched with accomplishments (revenues) whenever it is reasonable and practicable to do so. This means that the expenses should include amounts incurred in March but not paid until April. The difference in expenses was $7,750 ($48,450 – $40,700). The overstatement of revenues ($15,000) plus the understatement of expenses ($7,750) equals the difference in reported income of $22,750 ($49,300 – $26,550).
  • 92. 3-92 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-7 COMMUNICATION ACTIVITY Dear Ms. Hall: Upon reviewing the accounts of your company at the end of the year, I discovered that adjusting entries were not made. Adjusting entries are made at the end of the accounting period to ensure that the revenue recognition and expense recognition principles required under generally accepted accounting principles are followed. The use of adjusting entries makes it possible to report on the balance sheet the appropriate assets, liabilities, and owner’s equity at the statement date and to report on the income statement the proper net income (or loss) for the year. Adjusting entries are needed because the trial balance may not contain an up-to-date and complete record of transactions and events for the following reasons: 1. Some events are not journalized daily because it is not efficient to do so. Examples are the use of supplies and the earning of wages by employees. 2. The expiration of some costs is not journalized during the account- ing period because these costs expire with the passage of time rather than as a result of recurring daily transactions. Examples of such costs are building and equipment depreciation, rent, and insurance. 3. Some expenses, such as the cost of utility service and property taxes, may be unrecorded because the bills for the costs have not been received. There are four types of adjusting entries: 1. Prepaid expenses—expenses paid in cash and recorded as assets before they are used or consumed. 2. Unearned revenues—revenues received in cash and recorded as liabilities before they are earned.
  • 93. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-93 BYP 3-7 (Continued) 3. Accrued revenues—revenues earned but not yet received in cash or recorded. 4. Accrued expenses—expenses incurred but not yet paid in cash or recorded. I will be happy to answer any questions you may have on adjusting entries. Signature
  • 94. 3-94 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-8 ETHICS CASE (a) The stakeholders in this situation are: ` Melissa Ray, controller. ` The president of Kellner Company. ` Kellner Company stockholders. (b) 1. It is unethical for the president to place pressure on Melissa to misstate net income by requesting her to prepare incorrect adjusting entries. 2. It is customary for adjusting entries to be dated as of the balance sheet date although the entries are prepared at a later date. Melissa did nothing unethical by dating the adjusting entries December 31. (c) Melissa can accrue revenues and defer expenses through the preparation of adjusting entries and be ethical so long as the entries reflect economic reality. Intentionally misrepresenting the company’s financial condition and its results of operations is unethical (it is also illegal).
  • 95. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-95 BYP 3-9 ALL ABOUT YOU We address the issue of contingent liabilities in greater detail in Chapter 11. Our primary interest in this exercise is to engage students in a discussion regarding the general nature of the financial statement elements (assets, liabilities, equity, revenues and expenses). (a) By taking out the bank loan your friend has incurred a liability. You do not have a liability unless your friend defaults, or unless it becomes clear that he will default. The loan application may, however, require you to disclose any guarantees that you have signed, since they represent potential liabilities. (b) Accounting standards have specific requirements regarding account- ing for situations where there is uncertainty regarding whether a liability has been incurred. Those standards require an evaluation of the pro- bability of an amount being owed. Without going into detail regarding those standards, the basic idea is that if it is probable that you will owe money, then you should accrue a liability. If it is not probable, but it is possible that you will owe money, then you should disclose facts regarding the situation. The most important point is that this event has the potential to materially impact your finances, and therefore you have a responsibility to disclose it to the bank in some form. (c) Losing your job would not create a financial liability, although it would most certainly reduce your revenues. You are obviously concerned that you might lose your job, but you don’t have specific information that would suggest that it will happen. Therefore, you probably don’t have an obligation to disclose this information to the bank. However, unless you are relatively certain that you would be able to find suitable employment relatively quickly, you might want to wait until your job situation has stabilized before pursuing a loan of this size.
  • 96. 3-96 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) BYP 3-10 CONSIDERING PEOPLE, PLANET, AND PROFIT The balance sheet should provide a fair representation of what a company owns and what it owes. If significant obligations of the company are not reported on the balance sheet, the company’s net worth (its equity) will be overstated. While it is true that it is not possible to estimate the exact amount of future environmental cleanup costs, it is becoming clear that companies will be held accountable. Therefore, it doesn’t seem reasonable to not accrue for environmental costs. Recognition of these liabilities provides a more accurate picture of the company’s financial position. It also has the potential to improve the environment. As companies are forced to report these amounts on their financial statements they will start to look for more effective and efficient means to reduce toxic waste, and therefore reduce their costs.
  • 97. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-97 BYP 3-11 FASB CODIFICATION ACTIVITY (a) Revenue earned by an entity from its direct distribution, exploitation, or licensing of a film, before deduction for any of the entity’s direct costs of distribution. For markets and territories in which an entity’s fully or jointly-owned films are distributed by third parties, revenue is the net amounts payable to the entity by third party distributors. Revenue is reduced by appropriate allowances, estimated returns, price concessions, or similar adjustments, as applicable. (b) Compensation is recripocal transfers of cash or other assets in exchange for services performed.
  • 98. 3-98 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) IFRS CONCEPTS AND APPLICATION IFRS3-1 GAAP and IFRS both require companies to record transactions (and revenues) in the period in which events occur. Both prohibit cash-basis accounting and both apply the time period assumption. GAAP has more than 100 rules dealing with revenue recognition while IFRS uses a single standard. Under IFRS, revenue recognition is based on the probability that the economic benefits associated with the transaction will flow to the company and the revenues and costs must be capable of being measured reliably. GAAP states that revenue is recognized in the accounting period in which the performance obligation is satisfied. IFRS3-2 IFRS uses the term income to encompass both revenues and gains. GAAP defines income as the net difference between revenues and expenses. In addition, GAAP classifies revenues as the economic benefit that arises from an entity’s normal operating activities and gains as the benefits associated with activities outside the normal sales of goods and services. Under IFRS, expenses include both those costs incurred in the normal course of operations and losses that are not part of normal operations. In contrast, GAAP classifies costs associated with activities outside the normal sales of goods and services as losses.
  • 99. Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only) 3-99 IFRS 3-3 INTERNATIONAL FINANCIAL REPORTING PROBLEM (a) Note 3.7 indicates that revenue is measured as the fair value of consideration received or receivable by the Group for goods supplied net of sales rebates and excluding VAT and trade discounts. (b) Note 3.7 states that revenue from the sale of goods is recognized when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods. (c) Zetar Plc could have adjustments for prepayments such as: Depreciation expense, Amortisation of intangible assets, and Deferred tax assets. (d) Zetar Plc could have adjustments for accruals such as: Finance costs (interest expense), Tax liabilities, and Trade and other payables.
  • 100. 3-100 Copyright © 2013 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 11/e, Solutions Manual (For Instructor Use Only)