Solutions Manual For College Accounting, Chapters 1-27, 21st Edition. James Heintz Robert Parry by digitaldownload87

College Accounting, Chapters 1-27, 21e James Heintz Robert Parry (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) All Chapters Solutions Manual Supplement files download link at the end of this file. CHAPTER 1 INTRODUCTION TO ACCOUNTING REVIEW QUESTIONS 1. The purpose of accounting is to provide financial information about a business to individuals and organizations. 2. Four user groups normally interested in financial information about a business are owners, managers, creditors, and government agencies. 3. The six major steps of the accounting process are listed below. a. Analyzing is looking at events that have taken place and thinking about how these affect the business. b. Recording is entering financial information into the accounting system. c. Classifying is sorting and grouping like items together. d. Summarizing is the aggregation of many similar events to provide information that is easy to understand. e. Reporting is telling the results. f. Interpreting is deciding the importance of information in the various reports. 4. Generally accepted accounting principles (GAAP) are the rules that businesses must follow when preparing financial statements. 5. FASB takes the following steps to develop an accounting standard: 1. 2. 3. 4. 5.

The issue is placed on the Board’s agenda. After researching the issue, a Preliminary Views document is issued. Public hearings are held. An exposure draft is issued. An Accounting Standards Update is issued which amends the FASB Accounting Standards Codification.

6. The International Accounting Standards Board. 7. The three types of ownership structures are listed below. a. A sole proprietorship is owned by one person. The owner assumes all risks for the business. The advantage is that the owner can make all of the business decisions. b. A partnership is owned by more than one person. Partners assume the risks for the business, and their assets may be taken to pay creditors. An advantage of a partnership is that owners share risks and decision making. A disadvantage is that partners may disagree about the best way to run the business. c. A corporation is owned by stockholders. The owners’ risk is usually limited to their initial investment, but they typically have very little influence on business decisions. 8. Three types of businesses classified by activities are service businesses, merchandising businesses, and manufacturing businesses. 9. An accounting clerk performs accounting tasks such as recording, sorting, and filing accounting information.

CHAPTER 1

10. Four areas of specialization for a public accountant are auditing, taxation, management advisory services, and forensic accounting. Auditing—Auditing involves the application of standard review and testing procedures to be certain that proper accounting policies and practices have been followed. The purpose of the audit is to provide an independent opinion that the financial information about a business is fairly presented. Taxation—The work of tax specialists includes offering advice on tax planning, preparing tax returns, and representing clients before governmental agencies, such as the Internal Revenue Service. Management Advisory Services—Given the financial training and business experience of public accountants, many businesses seek their advice on a wide variety of managerial issues. Forensic Accounting—Forensic accounting is a specialized field that combines fraud detection, fraud prevention, litigation support, expert witnessing, business valuations, and other investigative activities. 11. The Sarbanes-Oxley Act (SOX) was passed by Congress to help improve reporting practices of public companies. One important provision prohibits accounting firms from providing audit and management advisory services to the same company. 12. Six areas of specialization for a managerial accountant are accounting information systems, financial accounting, cost accounting, budgeting, tax accounting, and internal auditing. Accounting Information Systems—Accountants in this area design and implement manual and computerized accounting systems. Financial Accounting—Based on the accounting data prepared by the bookkeepers and accounting clerks, the accountant prepares various reports and financial statements. Cost Accounting—The cost of producing specific products or providing services must be measured. Further analysis is also done to determine whether the products and services are produced in the most cost-effective manner. Budgeting—In the budgeting process, accountants help management develop a financial plan for the future. Tax Accounting—A firm may have its own accountants to focus on tax planning, preparation of tax returns, and dealing with the Internal Revenue Service and other governmental agencies. Internal Auditing—The main functions of an internal auditor are to review the operating and accounting control procedures adopted by management and to see that accurate and timely information is provided.

CHAPTER 1

Exercise 1-1A 1.

Owners

a. Whether the firm can pay its bills on time

Managers

b. Detailed, up-to-date information to measure business performance (and plan for future operations)

Creditors

c. To determine taxes to be paid and whether other regulations are met

Government agencies

d. The firm's current financial condition

Exercise 1-2A Order 2

Accounting Process Recording

Definition entering financial information into the accounting system

Summarizing

aggregating many similar events to provide information that is easy to understand

Reporting

telling the results

Analyzing

looking to see what events have taken place and thinking about how these affect the business

Interpreting

deciding the importance of information on the various reports

Classifying

sorting and grouping like items together

CHAPTER 1

Exercise 1-1B Users

Information

Owners (present and future):

firm's profitability and current financial condition

Managers:

detailed, up-to-date information about the business to measure performance

Creditors (present and future):

firm’s profitability, debt outstanding, and assets that could b be used to secure debt

Government agencies:

firm’s profitability, cash flows, and overall financial condition

Exercise 1-2B Letter

Accounting Process

Definition

Analyzing

a. Telling the results

Recording

Classifying

b. Looking at events that have taken place and thinking about how they affect the business

Summarizing

c. Deciding the importance of the various reports

Reporting

Interpreting

d. Aggregating many similar events to provide information that is easy to understand e. Sorting and grouping like items together f.

Entering financial information into the accounting system

MANAGING YOUR WRITING The purpose of this writing assignment is to give the students an opportunity to dream about the type of business they might enjoy. In the current economy, most opportunities are with smaller, start-up companies. The student should demonstrate an understanding of the different forms of ownership and describe the advantages and disadvantages of each form. Further, they should demonstrate an understanding of the different types of businesses: service, merchandising, and manufacturing.

CHAPTER 2 ANALYZING TRANSACTIONS: THE ACCOUNTING EQUATION REVIEW QUESTIONS 1. It is necessary to distinguish between business assets and liabilities and nonbusiness assets and liabilities of a single proprietor because, according to the business entity concept, nonbusiness assets and liabilities are not included in the business entity’s accounting records. These distinctions allow the owner to make decisions based on the financial condition and results of the business apart from nonbusiness activities. 2. The six major elements of the accounting equation are listed below. a. Assets are items owned by a business that will provide future benefits. b. Liabilities are items owed to another business. c. Owner’s equity is the amount by which the business assets exceed the business liabilities. Other terms used for owner’s equity include net worth and capital. d. Revenues represent the amount a business charges customers for products sold or services performed. e. Expenses represent the decrease in assets (or increase in liabilities) as a result of efforts made to produce revenues. f. Withdrawals, or drawing, reduce owner’s equity as a result of the owner taking cash or other assets out of the business for personal use. 3. The three basic questions that must be answered when analyzing the effects of a business transaction on the accounting equation are as follows: a. What happened? b. Which accounts are affected? c. How is the accounting equation affected? 4. The function of an income statement is to report the profitability of business operations for a specific period of time. 5. The function of a statement of owner’s equity is to report the investments and withdrawals by the owner and the profits and losses generated through operating activities for a specific period of time. 6. The function of a balance sheet is to report the assets, liabilities, and owner’s equity on a specific date. It is called a balance sheet because it confirms that the accounting equation is in balance. 7. The three basic phases of the accounting process are listed below. Input—Business transactions are used as input to the accounting process. Processing—The transactions are processed by recognizing their effects on assets, liabilities, owner’s equity, revenues, and expenses. Output—Output from the accounting process is provided in the form of financial statements.

CHAPTER 2

Exercise 2-1A Item

Account

Classification

Money in bank

Cash

Office supplies

Supplies

Money owed

Accounts Payable

Office chairs

Office Furniture

Net worth of owner

John Smith, Capital

Money withdrawn by owner

John Smith, Drawing

Money owed by customers

Accounts Receivable

Exercise 2-2A Assets

Liabilities

Owner’s Equity

$44,000

$27,000

$17,000

$32,000

$18,000

$14,000

$27,000

$ 7,000

$20,000

Exercise 2-3A Assets

Liabilities

Owner’s Equity

(a)

27,000

Bal.

27,000

(b)

7,500

Bal.

34,500

7,500

27,000

(c)

(1,600)

27,000

1,600 Bal.

34,500

7,500

(d)

(2,300)

Bal.

32,200

5,200

27,000

31,586)

Total Assets

Bal.

(400)

$31,586

5,200

(1,000)

Total Liabilities Capital Drawing Revenues Expenses Total Liabilities and Owner’s Equity

27,000

400)

(k)

$ 5,200 27,000 (1,000) 2,250 (1,864) $31,586

2,250

(1,864)

(1,200)

(j)

750

750)

(i)

(1,000)

(h)

Expenses

(64)

–

(64)

1,500

Revenues

(600)

Drawing

(600)

–

(f)

27,000

Capital

1,500)

(e)

5,200

Liabilities

32,200)

Owner’s Equity

Bal. from E 2-3A (d)

Assets

Exercise 2-4A

Wages expense

Service fees

Telephone exp.

Rent expense

Service fees

Description

CHAPTER 2 7

CHAPTER 2

Exercise 2-5A Account

Classification

Financial Statement

Cash

Rent Expense

Accounts Payable

Service Fees

Supplies

Wages Expense

Ramon Martinez, Drawing

SOE

Ramon Martinez, Capital

SOE, BS

Prepaid Insurance

Accounts Receivable

Exercise 2-6A Betsy Ray’s Accounting Service Statement of Owner’s Equity For Month Ended June 30, 20-Betsy Ray, capital, June 1, 20--

$20,000

Investment during June

20,000

Total investment

$20,000

Net income for June Less withdrawals for June Increase in capital Betsy Ray, capital, June 30, 20--

$10,000 8,000 2,000 $22,000

CHAPTER 2

Exercise 2-7A Betsy Ray’s Accounting Service Statement of Owner’s Equity For Month Ended June 30, 20-Betsy Ray, capital, June 1, 20--

$20,000)

Investment during June

20,000)

Total investment

$20,000)

Less: Net loss for June

$3,000

Withdrawals for June

8,000

Decrease in capital

(11,000)

Betsy Ray, capital, June 30, 20--

$ 9,000)

Problem 2-8A Assets

Liabilities

Owner’s Equity

$26,960

$ 7,550

$19,410

$35,500

$10,910

$24,590

$32,040

$12,910

$19,130

Problem 2-9A: See page 10 Problem 2-10A Jay Pembroke Income Statement For Month Ended April 30, 20-Revenues: Service fees

$3,300

Expenses: Rent expense Net income

750 $2,550

300

18,000

Cash Accounts Receivable Office Supplies Prepaid Insurance Total Assets

$12,950 2,000 4,600 1,200 $20,750

Accounts Payable Jay Pembroke, Capital Jay Pembroke, Drawing Service Fees Rent Expense Total Liabilities and Owner’s Equity

3,300

750

– Expenses

(Earnings) + Revenues

$ 300 18,000 (100) 3,300 (750) $20,750

100

1,200

100 4,600

(2,300)

2,600

18,000

(100)

2,000

1,200

(Owner’s Investment) J. Pembroke, J. Pembroke, + Capital – Drawing

(Amts. Owed) Accounts Payable

Owner’s Equity

Liabilities

12,950

(750)

(f)

Prepaid Insurance

(g)

(2,300)

(e)

2,000

4,600

(Items Owned) Accounts Office + Receivable + Supplies

Assets

Bal.

1,300

(d)

(2,000)

(b)

(1,200)

18,000

(a)

Cash

Problem 2-9A

Rent exp.

Service fees

Description

10 CHAPTER 2

CHAPTER 2

Problem 2-11A Jay Pembroke Statement of Owner’s Equity For Month Ended April 30, 20-Jay Pembroke, capital, April 1, 20--

$20,000

Investment during April

18,000

Total investment

$18,000

Net income for April

$2,550

Less withdrawals for April

100

Increase in capital

2,450

Jay Pembroke, capital, April 30, 20--

$20,450

Problem 2-12A Jay Pembroke Balance Sheet April 30, 20-Assets Cash

Liabilities $12,950

Accounts payable

300

Accounts receivable

2,000

Office supplies

4,600

Owner’s Equity

Prepaid insurance

1,200

Jay Pembroke, capital

20,450

Total liab. & owner’s equity

$20,750

Total assets

$20,750

CHAPTER 2

Exercise 2-1B Account

Classification

Cash

Accounts Payable

Supplies

Bill Jones, Drawing

Prepaid Insurance

Accounts Receivable

Bill Jones, Capital

Exercise 2-2B Assets

Liabilities

Owner’s Equity

$25,000

$20,000

$ 5,000

$30,000

$15,000

$20,000

$10,000

Exercise 2-3B Assets

Liabilities

Owner’s Equity

(a)

30,000

Bal.

30,000

(b)

4,500

Bal.

34,500

4,500

30,000

(c)

1,600

30,000

(1,600) Bal.

34,500

4,500

(d)

(2,000)

Bal.

32,500

2,500

30,000

Total Assets

Bal.

34,032)

$34,032

2,500

800

Total Liabilities Capital Drawing Revenues Expenses Total Liabilities and Owner’s Equity

30,000

500)

(k)

(500)

(j)

$ 2,500 30,000 (800) 3,900 (1,568) $34,032

3,900

1,568

500

900)

(i)

900

(800)

(h)

800

(68)

Expenses

1,000

3,000

Revenues

(1,000)

Owner’s Equity Drawing

(f)

30,000

Capital

3,000)

(e)

2,500

Liabilities

32,500)

Bal. from E 2-3B (d)

Assets

Exercise 2-4B

Wages expense

Service fees

Telephone exp.

Rent expense

Service fees

Description

CHAPTER 2 13

CHAPTER 2

Exercise 2-5B Account

Classification

Financial Statement

Cash

Rent Expense

Accounts Payable

Service Fees

Supplies

Wages Expense

Amanda Wong, Drawing

SOE

Amanda Wong, Capital

SOE, BS

Prepaid Insurance

Accounts Receivable

Exercise 2-6B Lopez Financial Consulting Statement of Owner’s Equity For Month Ended June 30, 20-Efran Lopez, capital, June 1, 20--

$15,000)

Investment during June

15,000)

Total investment

$15,000)

Net income for June

$6,000

Less withdrawals for June

7,000

Decrease in capital Efran Lopez, capital, June 30, 20--

(1,000) $14,000)

CHAPTER 2

Exercise 2-7B Lopez Financial Consulting Statement of Owner’s Equity For Month Ended June 30, 20-Efran Lopez, capital, June 1, 20--

$15,000)

Investment during June

15,000)

Total investment

$15,000)

Less: Net loss for June

$2,000

Withdrawals for June

7,000

Decrease in capital

(9,000)

Efran Lopez, capital, June 30, 20--

$ 6,000)

Problem 2-8B Assets

Liabilities

Owner’s Equity

$22,860

$ 4,605

$18,255

$27,425

$ 8,515

$18,910

$25,235

$10,165

$15,070

Problem 2-9B: See page 16 Problem 2-10B David Segal Income Statement For Month Ended October 31, 20-Revenues: Service fees

$2,700

Expenses: Rent expense Net income

650 $2,050

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Cash Accounts Receivable Office Supplies Prepaid Insurance Total Assets

$11,300 1,000 3,800 1,000 $17,100

Accounts Payable David Segal, Capital David Segal, Drawing Service Fees Rent Expense Total Liabilities and Owner’s Equity

200

15,000

150

1,000

11,300

Bal.

3,800

(150)

(g)

1,000

150

(650)

(f)

(1,800)

(e)

1,000

1,700

(d)

1,000

(1,000)

2,000

15,000

(Owner’s Investment) D. Segal, D. Segal, Capital – Drawing

2,700

650

– Expenses

(Earnings) Revenues

$ 200 15,000 (150) 2,700 (650) $17,100

Owner’s Equity

3,800

(1,800)

Liabilities (Amts. Owed) Accounts Payable

(b)

Prepaid Insurance

15,000

(Items Owned) Accounts Office + Receivable + Supplies

Assets

(a)

Cash

Problem 2-9B

Rent expense

Service fees

Description

16 CHAPTER 2

CHAPTER 2

Problem 2-11B David Segal Statement of Owner’s Equity For Month Ended October 31, 20-David Segal, capital, October 1, 20--

$15,000

Investment during October

15,000

Total investment

$15,000

Net income for October

$2,050

Less withdrawals for October

150

Increase in capital

1,900

David Segal, capital, October 31, 20--

$16,900

Problem 2-12B David Segal Balance Sheet October 31, 20-Assets Cash

Liabilities $11,300

Accounts receivable

1,000

Office supplies

3,800

Prepaid insurance

1,000

Total assets

$17,100

Accounts payable

200

Owner’s Equity David Segal, capital

16,900

Total liab. & owner’s equity

$17,100

CHAPTER 2

MANAGING YOUR WRITING The students should focus on the following differences: 1. An expense is an outflow of assets or increase in liabilities as a result of the efforts made to earn revenues. A withdrawal is an outflow of assets for the owner’s personal use. The withdrawal is not related to the earning process. 2. A withdrawal that increases a liability would be unusual. Expenses often increase liabilities. The student should focus on the following similarity: 1. Expenses and withdrawals reduce owner’s equity.

(150)

(5,000)

(b)

(100)

(75)

(480)

800

(f)

(g)

(h)

(i)

(150)

(200)

600

(100)

(m)

(o)

(p)

Bal.

3,105

200

(l)

(40)

(k)

(j)

(200)

(e)

(d)

8,000

Cash

(a)

500

200

(200)

500

Accts. + Rec.

Mastery Problem

300

480

(Items Owned) SupPrepaid + plies + Ins.

Assets

600

Tools

5,000

Van

500

(200)

100

600

= Liabilities (Amts. Owed) Accts. = Payable +

8,000

100

(Owner’s Investment) L. Vozniak, L. Vozniak, Capital – Drawing +

Owner’s Equity

2,100

800

500

800

Rev.

515

150

100

150

– Exp.

(Earnings)

Cleaning fees

Wages exp.

Telephone exp.

Cleaning fees

Adver. exp.

Wages exp.

Rent exp.

Description

CHAPTER 2 19

CHAPTER 2

Mastery Problem (Continued) 3.

We Do Windows Income Statement For Month Ended July 31, 20-Revenues: Cleaning fees

$2,100

Expenses: Wages expense

$250

Rent expense

150

Advertising expense

Telephone expense

Total expenses

515

Net income

$1,585

We Do Windows Statement of Owner’s Equity For Month Ended July 31, 20-Lisa Vozniak, capital, July 1, 20--

$8,000

Investment in July

8,000

Total investment

$8,000

Net income for July Less withdrawals for July

$1,585 100

Increase in capital

1,485

Lisa Vozniak, capital, July 31, 20--

$9,485

CHAPTER 2

Mastery Problem (Concluded) 5.

We Do Windows Balance Sheet July 31, 20-Assets Cash

Liabilities $3,105

Accounts payable

$ 500

Accounts receivable

500

Supplies

300

Prepaid insurance

480

Tools

600

Van

5,000

Lisa Vozniak, capital

9,485

Total assets

$9,985

Total liab. & owner’s equity

$9,985

Owner’s Equity

CHAPTER 2

Challenge Problem

Cash from customers

$3,700

Cash paid for wages

$450

Cash paid for rent

300

Cash paid for utilities

Cash paid for insurance

600

Cash paid for supplies

100

Cash paid for telephone

Total cash paid for operating items

1,535

Difference between cash received from customers and cash paid for goods and services

$2,165

Yes, there is a difference of $2,000. Net income does a better job of measuring profits because it offers a better matching of revenues and expenses. However, cash flows are important. If you don’t have enough cash to pay your bills, you will go out of business.

CHAPTER 3 THE DOUBLE-ENTRY FRAMEWORK REVIEW QUESTIONS 1. The three major parts of the T account are: a. the title. b. the debit or left side. c. the credit or right side. 2. The left side of the T account is called the debit side. The right side of the T account is called the credit side. 3. The totals on the debit side and the credit side of the T account are called footings. 4. The relationship between revenues and expenses and owner’s equity is: a. revenues increase owner’s equity. Revenues could be recorded directly on the credit side of the owner’s capital account; however, specific revenue accounts are maintained because readers of financial statements want to see the specific types of revenues. b. expenses decrease owner’s equity. Expenses could be recorded directly on the debit side of the owner’s capital account; however, specific expense accounts are maintained because readers of financial statements want to see the specific types of expenses. 5. The function of the trial balance is to list all account titles and balances and show that the debits and credits are equal.

CHAPTER 3

Exercise 3-1A Cash 500 400 600

100 200 300

1,500

Bal.

1,200

Exercise 3-2A a.

The cash account is increased with a ........................................................................

debit

The owner’s capital account is increased with a ........................................................

credit

The delivery equipment account is increased with a ..................................................

debit

The cash account is decreased with a .......................................................................

credit

The liability account Accounts Payable is increased with a ........................................

credit

The revenue account Delivery Fees is increased with a.............................................

credit

The asset account Accounts Receivable is increased with a .....................................

debit

The rent expense account is increased with a ...........................................................

debit

The owner’s drawing account is increased with a ......................................................

debit

Exercise 3-3A 1. and 2.

(a)

Cash 6,500 (b) (c)

Bal.

3,100

(b)

Supplies 700

Richard Gibbs, Capital (a)

700 2,700 3,400

(c)

6,500

Utilities Expense 2,700

CHAPTER 2

Exercise 3-4A Account

Debit or Credit

1. Cash

debit

2. Wages Expense

debit

3. Accounts Payable

credit

4. Owner’s Drawing

debit

5. Supplies

debit

6. Owner’s Capital

credit

7. Equipment

debit

Exercises 3-5A and 3-6A: See page 26.

Assets

700 400 900 2,000

Cr.

Equipment (b) 700 (c) 600 Bal. 1,300

Bal. 3,000

Cash (a) 5,000 (b) (d) (e)

Dr. +

Exercises 3-5A and 3-6A

Accounts Payable (d) 400 (c) 600 Bal. 200

Liabilities Dr. Cr. +

Linda Kipp, Drawing (e) 900

Drawing Dr. Cr. +

Dr.

Expenses Dr. Cr. +

Linda Kipp, Capital (a)

Owner’s Equity Cr. +

Revenues Dr. Cr. +

5,000

26 CHAPTER 3

800 3,000

(h)

(i) (k)

39,000

300

Office Supplies

3,000

(c)

(d)

5,000

Office Furniture

8,000

Computer Equipment

(b)

Bal.

Accounts Receivable 6,000 (g) 9,000 (j)

14,600

1,500

(b) (c) (f)

300 5,000 4,000

Cr.

30,000 3,000 6,000

Cash

Assets

Bal. 24,400

(a) (e) (j)

Dr. +

Exercise 3-7A =

(f)

4,000

(d) 8,000 Bal. 4,000

Accounts Payable

Liabilities Dr. Cr. +

Drawing Cr.

(k) 3,000

C. Chadwick, Drawing

Dr. +

Dr.

(i)

(h)

800

Utilities Expense

1,500

Rent Expense

Expenses Dr. Cr. +

(a)

Charles Chadwick, Capital

Owner’s Equity Cr. +

9,000

(g)

Bal. 12,000

3,000

(e)

Professional Fees

Revenues Dr. Cr. +

30,000

CHAPTER 3 27

CHAPTER 3

Exercise 3-8A Charlie’s Detective Service Trial Balance January 31, 20-ACCOUNT

DEBIT BALANCE

Cash

24 4 0 0 00

Accounts Receivable

3 0 0 0 00

Office Supplies

CREDIT BALANCE

3 0 0 00

Computer Equipment

8 0 0 0 00

Office Furniture

5 0 0 0 00

Accounts Payable

4 0 0 0 00

Charles Chadwick, Capital

30 0 0 0 00

Charles Chadwick, Drawing

3 0 0 0 00

Professional Fees Rent Expense Utilities Expense

12 0 0 0 00 1 5 0 0 00 8 0 0 00 46 0 0 0 00

46 0 0 0 00

CHAPTER 3

Exercise 3-9A Kenny’s Lawn Service Trial Balance September 30, 20-DEBIT BALANCE

ACCOUNT

Cash

10 0 0 0 00

Accounts Receivable

6 0 0 0 00

Supplies

1 6 0 0 00

Prepaid Insurance

1 2 0 0 00

Delivery Equipment

16 0 0 0 00

CREDIT BALANCE

Accounts Payable

4 0 0 0 00

Kenny Young, Capital

20 0 0 0 00

Kenny Young, Drawing

2 0 0 0 00

Delivery Fees

18 8 0 0 00

Wages Expense

4 2 0 0 00

Rent Expense

1 8 0 0 00 42 8 0 0 00

42 8 0 0 00

Exercise 3-10A Juanita’s Delivery Service Income Statement For Month Ended September 30, 20-Revenue: Delivery fees

$9,400

Expenses: Wages expense

$2,100

Rent expense

900

Total expenses Net income

3,000 $6,400

CHAPTER 3

Exercise 3-11A Juanita’s Delivery Service Statement of Owner’s Equity For Month Ended September 30, 20-Juanita Raye, capital, September 1, 20--

$10,000

Net income for September

$6,400

Less withdrawals for September

1,000

Increase in capital

5,400

Juanita Raye, capital, September 30, 20--

$15,400

Exercise 3-12A Juanita’s Delivery Service Balance Sheet September 30, 20-Assets Cash Accounts receivable

Liabilities $15,000

Accounts payable

$12,000

3,000

Supplies

800

Owner’s Equity

Prepaid insurance

600

Juanita Raye, capital

15,400

Delivery equipment

8,000 Total liab. & owner’s equity

$17,400

Total assets

$17,400

1,100

155

1,500 2,900

(k)

(m)

(n) (p)

15,995

4,500 1,600 6,100

3,400

160

Office Supplies

(l)

4,200

(b)

6,000

Van

Bal. 8,200

4,000

(n)

Equipment

1,100

(c)

(k)

Prepaid Insurance

(i)

Bal. 2,700

(h) (o)

Accts. Receivable

Bal. 21,805

160 800

(i) (j)

37,800

230

(g)

1,900

(o)

6,000 2,300 850

Cr.

(b) (e) (f)

Cash

Assets

(a) 25,000 (d) 7,500 (l) 3,400

Dr. +

Problem 3-13A 1. and 2. =

(e)

2,300

4,000 2,700 6,700

Bal. 4,400

Accounts Payable

Liabilities Dr. Cr. +

Drawing Cr.

(p) 2,900

W. Kohl, Drawing

Dr. +

Dr.

800

Wages Expense

850

Rent Expense

230

(m)

155

Gas and Oil Expense

(g)

Telephone Expense

(j)

(f)

Expenses Dr. Cr. +

Wilhelm Kohl, Capital (a)

Owner’s Equity Cr. +

3,500

7,500 4,500

Bal. 15,500

(o)

(d) (h)

Service Fees

Revenues Dr. Cr. +

25,000

CHAPTER 3 31

CHAPTER 3

Problem 3-13A (Concluded) 3.

Kohl’s Home Repair Trial Balance May 31, 20-ACCOUNT

DEBIT BALANCE

Cash

21 8 0 5 00

Accounts Receivable

2 7 0 0 00

Office Supplies

1 6 0 00

Prepaid Insurance

1 1 0 0 00

Equipment

8 2 0 0 00

Van

6 0 0 0 00

CREDIT BALANCE

Accounts Payable

4 4 0 0 00

Wilhelm Kohl, Capital

25 0 0 0 00

Wilhelm Kohl, Drawing

2 9 0 0 00

Service Fees

15 5 0 0 00

Rent Expense

8 5 0 00

Wages Expense

8 0 0 00

Telephone Expense

2 3 0 00

Gas and Oil Expense

1 5 5 00 44 9 0 0 00

44 9 0 0 00

CHAPTER 3

Problem 3-14A 1.

a. Total revenue for the month .............................................................................

$15,500

b. Total expenses for the month ...........................................................................

$ 2,035

c. Net income for the month .................................................................................

$13,465

a. Wilhelm Kohl’s original investment in the business ....

$25,000

+ Net income for the month .......................................

$13,465

Owner’s drawing .....................................................

$ 2,900

Increase in capital ......................................................

$10,565

= Ending owner’s equity.............................................

$35,565

b. End-of-month accounting equation: Assets $39,965

Liabilities

Owner’s Equity

$4,400

$35,565

Problem 3-15A 1.

Kohl’s Home Repair Income Statement For Month Ended May 31, 20-Revenue: Service fees

$15,500

Expenses: Rent expense

$850

Wages expense

800

Telephone expense

230

Gas and oil expense

155

Total expenses Net income

2,035 $13,465

CHAPTER 3

Problem 3-15A (Concluded) 2.

Kohl’s Home Repair Statement of Owner’s Equity For Month Ended May 31, 20-Wilhelm Kohl, capital, May 1, 20--

$25,000

Investments during May

25,000

Total investment

$25,000

Net income for May

$13,465

Less withdrawals for May

2,900

Increase in capital

10,565

Wilhelm Kohl, capital, May 31, 20--

$35,565

Kohl’s Home Repair Balance Sheet May 31, 20-Assets Cash Accounts receivable Office supplies

Liabilities $21,805

Accounts payable

$34,400

2,700 160

Owner’s Equity

Prepaid insurance

1,100

Wilhelm Kohl, capital

35,565

Equipment

8,200

Van

6,000 Total liab. & owner’s equity

$39,965

Total assets

$39,965

CHAPTER 3

Exercise 3-1B Accounts Payable 300 250 550

Bal.

450 350 150 950 400

Exercise 3-2B a.

The asset account Prepaid Insurance is increased with a .................................

debit

The owner’s drawing account is increased with a ..............................................

debit

The asset account Accounts Receivable is decreased with a ............................

credit

The liability account Accounts Payable is decreased with a ...............................

debit

The owner’s capital account is increased with a ................................................

credit

The revenue account Professional Fees is increased with a .............................

credit

The expense account Repair Expense is increased with a ................................

debit

The asset account Cash is decreased with a .....................................................

credit

The asset account Delivery Equipment is decreased with a ..............................

credit

Exercise 3-3B 1. and 2.

(a)

Cash 6,000 (b) (c)

Bal.

3,900

(b)

Supplies 1,200

Roberto Alvarez, Capital (a)

1,200 900 2,100

(c)

6,000

Utilities Expense 900

CHAPTER 3

Exercise 3-4B Account

Debit or Credit

Cash

debit

Rent Expense

debit

Notes Payable

credit

Owner’s Drawing

debit

Accounts Receivable

debit

Owner’s Capital

credit

Tools

debit

Exercises 3-5B and 3-6B: See page 37.

2,800

1,500

(c)

Bal. 2,400

900

(b)

Equipment

Bal. 4,200

800

(d)

(e) 1,100

900

Cash

Cr.

(a) 7,000 (b)

Dr. +

Assets

Exercises 3-5B and 3-6B

(d)

800 Bal. 700

Accounts Payable

Liabilities Dr. Cr. +

(e) 1,100

G. Atlas, Drawing

Drawing Dr. Cr. +

Dr.

Expenses Dr. Cr. +

(a)

George Atlas, Capital

Owner’s Equity Cr. +

Revenues Dr. Cr. +

7,000

CHAPTER 3 37

500

Office Supplies

(j) 3,000

Office Furniture

(d) 5,000

Computer Equip.

(b)

Bal. 4,000

(g) 7,000

Accts. Receivable

Bal. 9,000

16,000

(h) 900 (i) 600 (k) 4,000

25,000

Cr.

(b) 500 (c) 8,000 (f) 2,000

Cash

Assets

(a) 18,000 (e) 4,000 (j 3,000

Dr. +

Exercise 3-7B =

(f) 2,000 Bal. 3,000

(d) 5,000

Accounts Payable

Liabilities Dr. Cr. +

Drawing Cr.

(k) 4,000

N. Lawrence, Drawing

Dr. +

Dr.

(i)

900

600

Utilities Expense

(h)

Rent Expense

Expenses Dr. Cr. +

Nicole Lawrence, Capital (a)

Owner’s Equity

18,000

4,000 7,000 Bal. 11,000

(e) (g)

Professional Fees

Revenues Dr. Cr. +

Cr. +

38 CHAPTER 3

CHAPTER 3

Exercise 3-8B Nickie’s Neat Ideas Trial Balance January 31, 20-ACCOUNT

DEBIT BALANCE

Cash

9 0 0 0 00

Accounts Receivable

4 0 0 0 00

Office Supplies

CREDIT BALANCE

5 0 0 00

Computer Equipment

5 0 0 0 00

Office Furniture

8 0 0 0 00

Accounts Payable

3 0 0 0 00

Nicole Lawrence, Capital

18 0 0 0 00

Nicole Lawrence, Drawing

4 0 0 0 00

Professional Fees

11 0 0 0 00

Rent Expense

9 0 0 00

Utilities Expense

6 0 0 00 32 0 0 0 00

32 0 0 0 00

CHAPTER 3

Exercise 3-9B Betty’s Cleaning Service Trial Balance September 30, 20-DEBIT BALANCE

ACCOUNT

Cash

14 0 0 0 00

Accounts Receivable

8 0 0 0 00

Supplies

1 2 0 0 00

Prepaid Insurance

1 8 0 0 00

Delivery Equipment

18 0 0 0 00

CREDIT BALANCE

Accounts Payable

6 0 0 0 00

Betty Par, Capital

24 0 0 0 00

Betty Par, Drawing

4 0 0 0 00

Delivery Fees

25 0 0 0 00

Wages Expense

6 0 0 0 00

Rent Expense

2 0 0 0 00 55 0 0 0 00

55 0 0 0 00

Exercise 3-10B Bill’s Delivery Service Income Statement For Month Ended September 30, 20-Revenue: Delivery fees

$12,500

Expenses: Wages expense

$3,000

Rent expense

1,000

Total expenses Net income

4,000 $ 8,500

CHAPTER 3

Exercise 3-11B Bill’s Delivery Service Statement of Owner’s Equity For Month Ended September 30, 20-Bill Swift, capital, September 1, 20--

$12,000

Net income for September

$8,500

Less withdrawals for September

2,000

Increase in capital

6,500

Bill Swift, capital, September 30, 20--

$18,500

Exercise 3-12B Bill’s Delivery Service Balance Sheet September 30, 20-Assets Cash Accounts receivable

Liabilities $07,000

$03,000

4,000

Supplies

600

Prepaid insurance

900

Delivery equipment

9,000

Total assets

Accounts payable

$21,500

Owner’s Equity Bill Swift, capital

18,500

Total liab. & owner’s equity

$21,500

800

(k)

16,900

3,000

300

800

(b)

8,000

Van

Plumbing Equip.

(k)

Prepaid Insurance

(i)

(l)

Office Supplies

2,700

5,700

Bal.

4,000 1,700

(h) (o)

Accts. Receivable

Bal. 20,200

300 500

(i) (j)

37,100

(m) 2,000 (n) 500 (p) 3,000

100

(g)

1,100

(o)

8,000 1,000 700

Cr.

(b) (e) (f)

Cash

Assets

(a) 30,000 (d) 3,000 (l) 3,000

Dr. +

1. and 2.

Problem 3-13B =

(e)

1,000 5,500

4,000 1,500

Bal. 4,500

Accounts Payable

Liabilities Dr. Cr. +

Drawing Cr.

(p) 3,000

Sue Jantz, Drawing

Dr. +

Dr.

500

Wages Expense

700

Rent Expense

100

(m) 2,000

Advertising Expense

(g)

Telephone Expense

(j)

(f)

Expenses Dr. Cr. +

Sue Jantz, Capital (a)

Owner’s Equity Cr. +

3,000 4,000 2,800 Bal. 9,800

(d) (h) (o)

Service Fees

Revenues Dr. Cr. +

30,000

42 CHAPTER 3

CHAPTER 3

Problem 3-13B (Concluded) 3.

Jantz Plumbing Service Trial Balance August 31, 20-ACCOUNT

DEBIT BALANCE

Cash

20 2 0 0 00

Accounts Receivable

2 7 0 0 00

Office Supplies

3 0 0 00

Prepaid Insurance

8 0 0 00

Plumbing Equipment

6 0 0 0 00

Van

8 0 0 0 00

CREDIT BALANCE

Accounts Payable

4 5 0 0 00

Sue Jantz, Capital

30 0 0 0 00

Sue Jantz, Drawing

3 0 0 0 00

Service Fees

9 8 0 0 00

Rent Expense

7 0 0 00

Wages Expense

5 0 0 00

Telephone Expense

1 0 0 00

Advertising Expense

2 0 0 0 00 44 3 0 0 00

44 3 0 0 00

CHAPTER 3

Problem 3-14B 1.

a. Total revenue for the month ...........................................................................

$ 9,800

b. Total expenses for the month.........................................................................

$ 3,300

c. Net income for the month...............................................................................

$ 6,500

2. a. Sue Jantz’s original investment in the business ...........

$30,000

+ Net income for the month..........................................

$6,500

Owner’s drawing .......................................................

$3,000

Increase in capital ........................................................

$ 3,500

= Ending owner’s equity ...............................................

$33,500

b. End-of-month accounting equation: Assets

$38,000

Liabilities

$4,500

Owner’s Equity $33,500

Problem 3-15B 1.

Jantz Plumbing Service Income Statement For Month Ended August 31, 20-Revenue: Service fees

$9,800

Expenses: Advertising expense

$2,000

Rent expense

700

Wages expense

500

Telephone expense

100

Total expenses Net income

3,300 $6,500

CHAPTER 3

Problem 3-15B (Concluded) 2.

Jantz Plumbing Service Statement of Owner’s Equity For Month Ended August 31, 20-Sue Jantz, capital, August 1, 20--

$00,000

Investments during August

30,000

Total investment

$30,000

Net income for August

$6,500

Less withdrawals for August

3,000

Increase in capital

3,500

Sue Jantz, capital, August 31, 20--

$33,500

Jantz Plumbing Service Balance Sheet August 31, 20-Assets Cash Accounts receivable

Liabilities $20,200

$04,500

2,700

Office supplies

300

Prepaid insurance

800

Plumbing equipment

6,000

Van

8,000

Total assets

Accounts payable

$38,000

Owner’s Equity Sue Jantz, capital

33,500

Total liab. & owner’s equity

$38,000

CHAPTER 3

MANAGING YOUR WRITING This writing assignment will give students a chance to think about how they might apply the accounting techniques learned in the first three chapters to their personal lives. They will have various types of assets: cash, clothing, automobiles, books, stereos, etc. They may wonder whether cash on hand, in the checking account, and in the savings account should be one account, or three. Some students may have liabilities: car loans, student loans, and amounts owed on credit cards. Wages from part-time or full-time jobs represent revenue. Cash received from family members may be viewed as revenue or a liability, depending on whether the student is expected to repay the family member. Expenses include all types of spending on food, rent, tuition, and entertainment.

2,520

(c)

Wages Expense (i) 350 (m) 700 Bal. 1,050

(n)

480

150

Trans. Expense

Gas & Oil Expense

Lawn Tools

840

(j)

(g)

(e)

(p) 200

(d) 520 (l) 1,320 Bal. 1,840

Lawn Fees

Rent Expense

C. Fisher, Drawing

3,000

Revenuesnnn Dr. Cr. +

Cr. +

Expenses Dr. Cr. +

Craig Fisher, Capital (a)

Owner’s Equity

Drawing Dr. Cr. +

Dr.

Telephone Expense

(f) 500 Bal. 400

1,240

(h) 400

(o) 100

Notes Payable

Accounts Payable (k) 200 (b) 800 Bal. 600

Liabilities Dr. Cr. +

520 720

Mowing Equipment (b) 1,000

Bal.

(d) (l)

Accts. Receivable

Bal. 1,980

(o) 100 (p) 200

(j) 60 (k) 200 (m) 700 (n) 150

Cash (a) 3,000 (b) 200 (f) 500 (c) 50 (h) 400 (e) 30 (l) 600 (g) 480 4,500 (i) 350

Assets Dr. Cr. +

1. and 2.

Mastery Problem

CHAPTER 3 47

CHAPTER 3

Mastery Problem (Continued) 3.

Craig’s Quick Cut Trial Balance June 30, 20-DEBIT BALANCE

ACCOUNT

Cash

CREDIT BALANCE

1 9 8 0 00

Accounts Receivable

8 4 0 00

Mowing Equipment

1 0 0 0 00

Lawn Tools

4 8 0 00

Accounts Payable

6 0 0 00

Notes Payable

4 0 0 00

Craig Fisher, Capital

3 0 0 0 00

Craig Fisher, Drawing

2 0 0 00

Lawn Fees

1 8 4 0 00

Rent Expense

5 0 00

Wages Expense

1 0 5 0 00

Telephone Expense

3 0 00

Gas and Oil Expense

6 0 00

Transportation Expense

1 5 0 00 5 8 4 0 00

5 8 4 0 00

Craig’s Quick Cut Income Statement For Month Ended June 30, 20-Revenue: Lawn fees

$1,840

Expenses: Wages expense

$1,050

Transportation expense

150

Gas and oil expense

Rent expense

Telephone expense

Total expenses Net income

1,340 $0,500

CHAPTER 3

Mastery Problem (Concluded) 5.

Craig’s Quick Cut Statement of Owner’s Equity For Month Ended June 30, 20-Craig Fisher, capital, June 1, 20--

$3,000

Investments during June

3,000

Total investment

$3,000

Net income for June

$500

Less withdrawals for June

200

Increase in capital

300

Craig Fisher, capital, June 30, 20--

$3,300

Craig’s Quick Cut Balance Sheet June 30, 20-Assets Cash

Liabilities $1,980

Accounts payable

$0,600

Accounts receivable

840

Notes payable

400

Mowing equipment

1,000

Total liabilities

$1,000

Lawn tools

480 Owner’s Equity

Total assets

$4,300

Craig Fisher, capital

3,300

Total liab. & owner’s equity

$4,300

CHAPTER 3

Challenge Problem 1. Chris Stevick’s Business Statement of Owner’s Equity For Month Ended August 31, 20-Chris Stevick, capital, August 1, 20--

$400

Net income for August

$300

Less withdrawals for August

100

Increase in capital

200

Chris Stevick, capital, August 31, 20--

$600

2. Improvements that students might suggest for the income statement: 1.

Categorize the types of revenues that Chris generates if she provides more than one type of service.

Categorize the types of expenses that Chris incurred.

CHAPTER 4 JOURNALIZING AND POSTING TRANSACTIONS REVIEW QUESTIONS 1.

The flow of accounting information from source documents to trial balance includes the following steps: a. Analyze what has happened by using the chart of accounts and information from the source documents. b. Enter the business transactions in the general journal. c. Post entries to the accounts in the general ledger. d. Prepare a trial balance.

Examples of source documents are as follows (students are required to list only one): a. Cash payment—check stub or carbon copies of checks. b. Cash receipt—receipt stubs, carbon copies of receipts, cash register tapes, or memos of cash register totals. c. Sale of goods or services—copies of sales tickets or sales invoices issued to customers or clients. d. Purchase of goods or services—purchase invoices received from suppliers.

The purpose of a chart of accounts is to list and classify all the accounts used by a business.

The five types of financial statement items for which it is ordinarily desirable to keep separate accounts are assets, liabilities, owner’s equity, revenues, and expenses.

The first formal accounting record of a business transaction is usually made in the journal, which is called a book of original entry.

The four steps required to journalize a business transaction in a general journal are as follows: Step 1: Enter the date. Step 2: Enter the debit. Step 3: Enter the credit. Step 4: Enter the explanation.

The accounts are placed in the ledger in the same order as in the chart of accounts, in numeric order grouped by classification.

The primary advantage of a general ledger account is that it maintains a running balance.

The five steps required when posting the journal to the ledger are as follows: In the ledger account: Step 1: Enter the date of each transaction in the Date column. Step 2: Enter the amount of each transaction in the Debit or Credit column. Step 3: Enter the new balance in the Balance columns under Debit or Credit. If the balance of the account is zero, draw a line through the Debit and Credit columns. Step 4: Enter the page number of the journal from which each transaction is posted in the Posting Reference column. In the journal: Step 5: Enter the account number in the Posting Reference column of the journal for each transaction that is posted. 51 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 4

10. As an amount is posted to the proper account in the ledger, the appropriate account number is entered in the Posting Reference column of the journal. 11. If a journal entry was debited or credited to the wrong account(s), or if an item was posted to the wrong account, the ledger will still be in balance. 12. A slide occurs when debit or credit amounts “slide” a digit or two to the left or right when entered. An example of a slide is if $250 was entered as $25. 13. A transposition error occurs when two digits are reversed (for example, if $520 was entered as $250). 14. The ruling method of correcting an error is to draw a line through the incorrect account title or amount and write the correct information directly above the line. The correction is then initialed so the source and reason for the correction can be traced. 15. If an incorrect entry has been journalized and posted to the wrong account, a correcting entry must be made. This is called the correcting entry method.

CHAPTER 4

Exercise 4-1A 1.

Check stubs or check register

a. A good or service has been sold.

Purchase invoice from suppliers (vendors)

b. Cash has been received by the business.

Sales tickets or invoices to customers

Receipts or cash register tapes

c. Cash has been paid by the business. d. Goods or services have been purchased by the business.

Exercise 4-2A Transaction

Debit

Credit

1. Invested cash in the business, $5,000.

Cash

Owner’s Capital

2. Paid office rent, $500.

Rent Expense

Cash

3. Purchased office supplies on account, $300.

Office Supplies

Accounts Payable

4. Received cash for services rendered (fees), $400.

Cash

Fees

Accounts Payable

Cash

Accounts Receivable

Fees

Cash

Accounts Receivable

5. Paid cash on account, $50. 6. Rendered services on account, $300. 7. Received cash for an amount owed by a customer, $100.

Exercise 4-3A

1. 4. 7.

Cash 5,000 2. 400 5. 100

500 50

6. Bal.

Accounts Receivable 300 7. 200

100

550

5,500

Bal.

4,950

Office Supplies 300

Accounts Payable 50 3. Bal.

300 250

CHAPTER 4

Exercise 4-3A (Concluded) Owner’s Capital 1.

Total Debits: Cash 4,950 Accts. Rec. 200 Off. Sup. 300 Rent Exp. 500 5,950

Rent Expense 500

Fees 4. 6. Bal.

5,000

400 300 700

Total Credits: Accts. Pay. 250 Owner’s Cap. 5,000 Fees 700 5,950

Exercise 4-4A GENERAL JOURNAL DATE 20-1 2

Jan.

DESCRIPTION

1 Cash Diane Bernick, Capital

PAGE POST. REF.

DEBIT

101

12 0 0 0 00

311

CREDIT 1

12 0 0 0 00

Owner’s original investment

2 Rent Expense

521

Cash

101

7 5 0 00

Paid office rent for January

8 9 10

3 Office Equipment Accounts Payable

181

1 3 0 0 00

202

1 3 0 0 00 10

Purchased office equipment on account

12 13 14 15

5 Cash

101

Consulting Fees

9 5 0 00

401

18 19

Received cash for consulting services

15 16

8 Telephone Expense Cash

525

8 5 00

101

22 23 24

8 5 00 18

Paid telephone bill

20 21

9 5 0 00 14

16 17

10 Miscellaneous Expense Cash Purchased magazine subscription

549 101

2 0 00

2 0 00 22 23 24

CHAPTER 4

Exercise 4-4A (Concluded) GENERAL JOURNAL DATE 20-1 2

Jan. 11

DESCRIPTION

Office Supplies Accounts Payable

PAGE POST. REF.

DEBIT

142

2 5 0 00

202

CREDIT 1

2 5 0 00

Purchased office supplies on account

4 5 6

15 Accounts Payable Cash

202

2 0 0 00

101

2 0 0 00

Made partial payment on office equipment

18 Wages Expense

511

Cash

101

6 0 0 00

6 0 0 00 10

Paid employee

12 13 14 15

21 Cash

101

Consulting Fees

8 0 0 00

401

18 19

Received cash for consulting services

15 16

25 Utilities Expense

533

Cash

101

1 0 5 00

22 23

Paid utilities bill

19 20

27 Diane Bernick, Drawing Cash

312

4 0 0 00

101

4 0 0 00 22

Owner’s withdrawal

29 Wages Expense

511

Cash

101

1 0 5 00 18

20 21

8 0 0 00 14

16 17

Paid employee

6 0 0 00

6 0 0 00 26 27

CHAPTER 4

Exercise 4-5A GENERAL LEDGER Cash

ACCOUNT

ACCOUNT NO. DEBIT

12 0 0 0 00

8 5 00

12 1 1 5 00

2 0 00

12 0 9 5 00

2 0 0 00

11 8 9 5 00

6 0 0 00

11 2 9 5 00

1 0 5 00

11 9 9 0 00

4 0 0 00

11 5 9 0 00

6 0 0 00

10 9 9 0 00

Jan.

ITEM

DATE 20--

ITEM

Jan. 11

DEBIT

7 5 0 00 9 5 0 00

11 2 5 0 00 12 2 0 0 00

8 0 0 00

12 0 9 5 00

ACCOUNT NO. POST. REF.

ITEM

CREDIT

12 0 0 0 00

CREDIT

2 5 0 00

DEBIT

CREDIT

2 5 0 00

ACCOUNT NO. POST. REF.

142

BALANCE DEBIT

Office Equipment

ACCOUNT

DATE 20--

CREDIT

Office Supplies

ACCOUNT

Jan.

BALANCE

POST. REF.

DATE 20--

101

181

BALANCE DEBIT

1 3 0 0 00

CREDIT

DEBIT

CREDIT

1 3 0 0 00

CHAPTER 4

Exercise 4-5A (Continued) Accounts Payable

ACCOUNT

DATE 20--

ITEM

POST. REF.

202

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

1 3 0 0 00

2 5 0 00

1 5 5 0 00

Jan.

2 0 0 00

1 3 5 0 00

Diane Bernick, Capital

ACCOUNT

DATE 20--

Jan.

ITEM

POST. REF.

ACCOUNT NO.

DATE 20--

ITEM

Jan. 27

POST. REF.

CREDIT

DEBIT

DATE 20--

ITEM

CREDIT

12 0 0 0 00

ACCOUNT NO.

CREDIT

4 0 0 00

DEBIT

CREDIT

4 0 0 00

ACCOUNT NO. POST. REF.

312

BALANCE DEBIT

Consulting Fees

ACCOUNT

311

BALANCE DEBIT

Diane Bernick, Drawing

ACCOUNT

Jan.

ACCOUNT NO.

401

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

9 5 0 00

8 0 0 00

1 7 5 0 00

CHAPTER 4

Exercise 4-5A (Continued) Wages Expense

ACCOUNT

DATE 20--

ITEM

POST. REF.

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

Jan. 18

6 0 0 00

1 2 0 0 00

ACCOUNT

DATE 20--

Jan.

ACCOUNT

DATE 20--

Jan.

ACCOUNT

Rent Expense ITEM

POST. REF.

CREDIT

7 5 0 00

DEBIT

BALANCE DEBIT

CREDIT

8 5 00

DEBIT

CREDIT

8 5 00

POST. REF.

533

BALANCE DEBIT

CREDIT

1 0 5 00

DEBIT

CREDIT

1 0 5 00

Miscellaneous Expense

Jan. 10

525

ACCOUNT NO.

ITEM

CREDIT

7 5 0 00

Utilities Expense ITEM

521

BALANCE DEBIT

ACCOUNT NO.

Jan. 25

DATE 20--

POST. REF.

Telephone Expense

DATE 20--

ACCOUNT

ACCOUNT NO.

ITEM

511

ACCOUNT NO.

549

BALANCE DEBIT

2 0 00

CREDIT

DEBIT

CREDIT

2 0 00

CHAPTER 4

Exercise 4-5A (Concluded) Bernick’s Consulting Trial Balance January 31, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

10 9 9 0 00

Office Supplies

142

2 5 0 00

Office Equipment

181

1 3 0 0 00

Accounts Payable

202

1 3 5 0 00

Diane Bernick, Capital

311

12 0 0 0 00

Diane Bernick, Drawing

312

Consulting Fees

401

Wages Expense

511

1 2 0 0 00

Rent Expense

521

7 5 0 00

Telephone Expense

525

8 5 00

Utilities Expense

533

1 0 5 00

Miscellaneous Expense

549

2 0 00

ACCOUNT TITLE

CREDIT BALANCE

4 0 0 00 1 7 5 0 00

15 1 0 0 00

Exercise 4-6A Bernick’s Consulting Income Statement For Month Ended January 31, 20-Revenue: Consulting fees

$1,750)

Expenses: Wages expense

$1,200

Rent expense

750

Telephone expense

Utilities expense

105

Miscellaneous expense

Total expenses Net loss

2,160) $0(410)

CHAPTER 4

Exercise 4-6A (Concluded) Bernick’s Consulting Statement of Owner’s Equity For Month Ended January 31, 20-Diane Bernick, capital, January 1, 20--

$00,000)

Investments during January

12,000)

Total investment

$12,000)

Less: Net loss for January

$410

Withdrawals for January

400

Decrease in capital

(810)

Diane Bernick, capital, January 31, 20--

$11,190)

Bernick’s Consulting Balance Sheet January 31, 20-Assets Cash

Liabilities $10,990

Office supplies

250

Office equipment

1,300

Total assets

$12,540

Accounts payable

$01,350

Owner’s Equity Diane Bernick, capital

11,190

Total liab. & owner’s equity

$12,540

CHAPTER 4

Exercise 4-7A TJ’s Paint Service Income Statement For Month Ended July 31, 20-Revenue: Painting fees

$3,600

Expenses: Wages expense

$900

Rent expense

250

Telephone expense

Transportation expense

Utilities expense

Miscellaneous expense

Total expenses

1,355

Net income

$2,245

TJ’s Paint Service Statement of Owner’s Equity For Month Ended July 31, 20-TJ Ulza, capital, July 1, 20--

$0,000

Investments during July

3,205

Total investment

$3,205

Net income for July Less withdrawals for July

$2,245 500

Increase in capital

1,745

TJ Ulza, capital, July 31, 20--

$4,950

CHAPTER 4

Exercise 4-7A (Concluded) TJ’s Paint Service Balance Sheet July 31, 20-Assets

Liabilities

Cash

$4,300

Accounts receivable

1,100

Supplies

800

Paint equipment

900

Total assets

$7,100

Accounts payable

$2,150

Owner’s Equity TJ Ulza, capital

4,950

Total liab. & owner’s equity

$7,100

Exercise 4-8A GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

Supplies

May 17 Office Equipment

DEBIT

5 0 0 00

24 25

Accounts Payable

5 0 0 00

4 0 0 00 16

Cash Purchased copy paper on account

17 18

23 Cash

101

Service Fees

1 0 0 0 00

401

28 29

1 0 0 0 00 24

Received cash for services previously earned

26 27

4 0 0 00

Student Initials

CREDIT

25 Service Fees Accounts Receivable To correct entry of May 23

1 0 0 0 00

1 0 0 0 00 28 29

CHAPTER 4

Problem 4-9A 2. (For 1. and 3., see page 66.)

GENERAL JOURNAL DATE 20-1 2

Jan.

DESCRIPTION

1 Cash Annette Creighton, Capital

PAGE POST. REF.

DEBIT

101

10 0 0 0 00

311

CREDIT 1

10 0 0 0 00

Original investment in the business

1 Rent Expense

521

Cash

101

5 0 0 00

Paid rent

8 9 10

2 Office Supplies Accounts Payable

142

3 0 0 00

202

3 0 0 00 10

Purchased office supplies

12 13 14

4 Office Equipment Accounts Payable

181

1 5 0 0 00

202

6 Cash

101

Consulting Fees

5 8 0 00

401

7 Telephone Expense Cash

525

4 2 00

101

8 Utilities Expense Cash

533

3 8 00

101

30 31

3 8 00 26

Paid utilities bill

4 2 00 22

Paid telephone bill

5 8 0 00 18

Earned consulting fees

1 5 0 0 00 14

Purchased office equipment

10 Cash

101

Consulting Fees Earned consulting fees

401

3 6 0 00

3 6 0 00 30 31

CHAPTER 4

Problem 4-9A (Continued) GENERAL JOURNAL DATE 20-1 2

Jan. 12

DESCRIPTION

Accounts Payable Cash

PAGE POST. REF.

202

DEBIT

CREDIT

5 0 00

101

5 0 00

Paid cash on account

4 5 6

13 Transportation Expense Cash

526

1 5 0 00

101

1 5 0 00

Paid for car rental

15 Wages Expense

511

Cash

101

3 6 0 00

3 6 0 00 10

Paid employee

12 13 14 15

17 Cash

101

Consulting Fees

4 2 0 00

401

18 19

Earned consulting fees

15 16

18 Annette Creighton, Drawing Cash

312

1 0 0 00

101

22 23

Owner’s withdrawal

19 20

20 Advertising Expense Cash

512

2 6 00

101

26 27

Paid for newspaper ad

23 24

22 Transportation Expense Cash

526

3 5 00

101

30 31

3 5 00 26

Paid cab fare

28 29

2 6 00 22

24 25

1 0 0 00 18

20 21

4 2 0 00 14

16 17

24 Miscellaneous Expense Cash Purchased books

549 101

2 8 00

2 8 00 30 31

CHAPTER 4

Problem 4-9A (Continued) GENERAL JOURNAL DATE 20-1 2

Jan. 25

DESCRIPTION

Cash Consulting Fees

PAGE POST. REF.

DEBIT

101

3 2 0 00

401

CREDIT 1

3 2 0 00

Earned consulting fees

4 5 6

27 Accounts Payable Cash

202

1 5 0 00

101

1 5 0 00

Paid cash on account

29 Wages Expense

511

Cash

101

3 6 0 00

3 6 0 00 10

Paid employee

12 13 14 15

30 Cash

101

Consulting Fees Earned consulting fees

401

1 8 0 00

1 8 0 00 14 15

CHAPTER 4

Problem 4-9A (Continued) 1. and 3.

GENERAL LEDGER ACCOUNT

ACCOUNT NO.

DEBIT

10 0 0 0 00

4 2 00

10 0 3 8 00

3 8 00

10 0 0 0 00

5 0 00

10 3 1 0 00

1 5 0 00

10 1 6 0 00

3 6 0 00

9 8 0 0 00

1 0 0 00

10 1 2 0 00

2 6 00

10 0 9 4 00

3 5 00

10 0 5 9 00

2 8 00

10 0 3 1 00

1 5 0 00

10 2 0 1 00

3 6 0 00

9 8 4 1 00

Jan.

ACCOUNT

DATE 20--

ITEM

CREDIT

DEBIT

CREDIT

10 0 0 0 00 5 0 0 00

5 8 0 00

9 5 0 0 00 10 0 8 0 00

3 6 0 00

10 3 6 0 00

4 2 0 00

10 2 2 0 00

3 2 0 00

10 3 5 1 00

1 8 0 00

10 0 2 1 00

Office Supplies ITEM

ACCOUNT NO. POST. REF.

101

BALANCE

POST. REF.

DATE 20--

Jan.

Cash

142

BALANCE DEBIT

3 0 0 00

CREDIT

DEBIT

CREDIT

3 0 0 00

CHAPTER 4

Problem 4-9A (Continued) ACCOUNT

DATE 20--

Jan.

ACCOUNT

DATE 20--

Office Equipment ITEM

ACCOUNT NO. POST. REF.

BALANCE DEBIT

CREDIT

1 5 0 0 00

DEBIT

CREDIT

1 5 0 0 00

Accounts Payable ITEM

ACCOUNT NO. POST. REF.

181

202

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

3 0 0 00

1 5 0 0 00

1 8 0 0 00

5 0 00

1 7 5 0 00

1 5 0 00

1 6 0 0 00

Jan.

ACCOUNT

DATE 20--

Jan.

ACCOUNT

DATE 20--

Annette Creighton, Capital ITEM

POST. REF.

ACCOUNT NO. BALANCE DEBIT

CREDIT

DEBIT

10 0 0 0 00

Annette Creighton, Drawing

Jan. 18

POST. REF.

CREDIT

10 0 0 0 00

ITEM

311

ACCOUNT NO.

312

BALANCE DEBIT

1 0 0 00

CREDIT

DEBIT

CREDIT

1 0 0 00

CHAPTER 4

Problem 4-9A (Continued) ACCOUNT

DATE 20--

Consulting Fees ITEM

ACCOUNT NO. POST. REF.

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

5 8 0 00

3 6 0 00

9 4 0 00

4 2 0 00

1 3 6 0 00

3 2 0 00

1 6 8 0 00

1 8 0 00

1 8 6 0 00

Jan.

ACCOUNT

Wages Expense

DATE 20--

ITEM

ACCOUNT NO. POST. REF.

CREDIT

DEBIT

CREDIT

3 6 0 00

7 2 0 00

ACCOUNT

Advertising Expense

DATE 20--

ITEM

Jan. 20

ACCOUNT

DATE 20--

ACCOUNT NO.

POST. REF.

CREDIT

2 6 00

DEBIT

CREDIT

2 6 00

ACCOUNT NO. POST. REF.

512

BALANCE DEBIT

Rent Expense ITEM

511

BALANCE DEBIT

Jan. 15

Jan.

401

521

BALANCE DEBIT

5 0 0 00

CREDIT

DEBIT

CREDIT

5 0 0 00

CHAPTER 4

Problem 4-9A (Continued) Telephone Expense

ACCOUNT

DATE 20--

Jan.

ITEM

ACCOUNT NO.

POST. REF.

BALANCE DEBIT

CREDIT

4 2 00

DEBIT

DATE 20--

ITEM

POST. REF.

CREDIT

4 2 00

Transportation Expense

ACCOUNT

ACCOUNT NO

CREDIT

DEBIT

CREDIT

1 5 0 00

3 5 00

1 8 5 00

DATE 20--

Jan.

ACCOUNT

DATE 20--

Utilities Expense ITEM

ACCOUNT NO. POST. REF.

Jan. 24

POST. REF.

533

BALANCE DEBIT

CREDIT

3 8 00

DEBIT

CREDIT

3 8 00

Miscellaneous Expense ITEM

526

BALANCE DEBIT

Jan. 13

ACCOUNT

525

ACCOUNT NO.

549

BALANCE DEBIT

2 8 00

CREDIT

DEBIT

CREDIT

2 8 00

CHAPTER 4

Problem 4-9A (Continued) 4.

Creighton Consulting Trial Balance January 31, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

10 0 2 1 00

Office Supplies

142

3 0 0 00

Office Equipment

181

1 5 0 0 00

Accounts Payable

202

1 6 0 0 00

Annette Creighton, Capital

311

10 0 0 0 00

Annette Creighton, Drawing

312

Consulting Fees

401

Wages Expense

511

7 2 0 00

Advertising Expense

512

2 6 00

Rent Expense

521

5 0 0 00

Telephone Expense

525

4 2 00

Transportation Expense

526

1 8 5 00

Utilities Expense

533

3 8 00

Miscellaneous Expense

549

2 8 00

ACCOUNT TITLE

CREDIT BALANCE

1 0 0 00 1 8 6 0 00

13 4 6 0 00

CHAPTER 4

Problem 4-9A (Continued) 5.

Creighton Consulting Income Statement For Month Ended January 31, 20-Revenue: Consulting fees

$1,860

Expenses: Wages expense

$720

Advertising expense

Rent expense

500

Telephone expense

Transportation expense

185

Utilities expense

Miscellaneous expense

Total expenses Net income

1,539 $0,321

CHAPTER 4

Problem 4-9A (Concluded) Creighton Consulting Statement of Owner’s Equity For Month Ended January 31, 20-Annette Creighton, capital, January 1, 20--

$00,000

Investments during January

10,000

Total investment

$10,000

Net income for January

$321

Less withdrawals for January

100

Increase in capital

221

Annette Creighton, capital, January 31, 20--

$10,221

Creighton Consulting Balance Sheet January 31, 20-Assets Cash

Liabilities $10,021

Office supplies

300

Office equipment

1,500

Total assets

$11,821

Accounts payable

$01,600

Owner’s Equity Annette Creighton, capital

10,221

Total liab. & owner’s equity

$11,821

CHAPTER 4

Problem 4-10A 2. (For 1. and 3., see page 76.)

GENERAL JOURNAL POST. REF.

DEBIT

1 Rent Expense

521

3 0 0 00

Cash

101

DATE 20-1 2

June

PAGE

DESCRIPTION

CREDIT 1

3 0 0 00

Paid rent for June

4 5 6 7

2 Cash

101

1 0 0 00

Accounts Receivable

122

2 0 0 00

Delivery Fees

401

3 0 0 00

Deliveries made for cash and on account

9 10 11

4 Advertising Expense Cash

512

1 5 00

101

1 5 00 11

Paid advertising expense

13 14 15

6 Office Supplies Accounts Payable

142

1 8 0 00

202

19 20

7 Cash

101

Delivery Fees

2 6 0 00

401

23 24

2 6 0 00 19

Received cash for delivery services

21 22

1 8 0 00 15

Purchased office supplies

9 Accounts Payable Cash

202

2 0 0 00

101

2 0 0 00 23

Made partial payment on truck

10 Office Equipment

181

Cash

101

1 0 0 00 27

Accounts Payable

202

6 0 0 00 28

Purchased copier

7 0 0 00

CHAPTER 4

Problem 4-10A (Continued) GENERAL JOURNAL DATE 20-1 2

June 11

DESCRIPTION

Charitable Contributions Expense Cash

PAGE POST. REF.

534

DEBIT

CREDIT

2 0 00

101

2 0 00

Made contribution to Red Cross

4 5 6

12 Cash

101

Delivery Fees

3 8 0 00

401

3 8 0 00

Received cash for delivery services

8 9 10

13 Cash

101

Accounts Receivable

1 0 0 00

122

1 0 0 00 10

Received cash on account

15 Wages Expense

511

Cash

101

2 0 0 00

16 Electricity Expense Cash

533

3 6 00

101

18 Telephone Expense Cash

525

4 6 00

101

26 27

19 Cash

101

Accounts Receivable

1 0 0 00

122

30 31

1 0 0 00 26

Received cash on account

28 29

4 6 00 22

Paid telephone bill

3 6 00 18

Paid electric bill

2 0 0 00 14

Paid employee

20 Jim Andrews, Drawing Cash Owner’s withdrawal

312 101

2 0 0 00

2 0 0 00 30 31

CHAPTER 4

Problem 4-10A (Continued) GENERAL JOURNAL DATE

DESCRIPTION

20--

PAGE POST. REF.

June 21 Gas and Oil Expense

538

Cash

101

DEBIT

CREDIT

3 2 00

Purchased gas and oil

4 5 6

22 Accounts Payable Cash

202

4 0 00

101

4 0 00

Paid cash on account

8 9 10

24 Cash

101

Delivery Fees

3 4 0 00

401

3 4 0 00 10

Received cash for delivery services

12 13 14

26 Miscellaneous Expense Cash

549

1 5 00

101

27 Cash

101

Delivery Fees

1 8 0 00

401

22 23

27 Cash

101

Accounts Receivable

1 0 0 00

122

26 27

Received cash on account

23 24

29 Gas and Oil Expense Cash

538

2 4 00

101

2 4 00 26

Purchased gasoline

30 Wages Expense

511

Cash

101

1 0 0 00 22

24 25

1 8 0 00 18

Received cash for delivery services

1 5 00 14

Paid for magazine subscription

Paid employee

2 0 0 00

2 0 0 00 30 31

CHAPTER 4

Problem 4-10A (Continued) 1. and 3. ACCOUNT

DATE 20--

June

Cash

GENERAL LEDGER ITEM

Balance

POST. REF.

ACCOUNT NO. 101 BALANCE

DEBIT

CREDIT



DEBIT

CREDIT

3 8 2 6 00

3 0 0 00

2 0 0 00

3 6 7 1 00

1 0 0 00

3 5 7 1 00

2 0 00

3 5 5 1 00

3 8 0 00

3 9 3 1 00

1 0 0 00

4 0 3 1 00

2 0 0 00

3 8 3 1 00

3 6 00

3 7 9 5 00

4 6 00

3 7 4 9 00

2 0 0 00

3 6 4 9 00

3 2 00

3 6 1 7 00

4 0 00

3 5 7 7 00

1 8 0 00

4 0 8 2 00

1 0 0 00

4 1 8 2 00

2 4 00

4 1 5 8 00

2 0 0 00

3 9 5 8 00

1 0 0 00

3 5 2 6 00 3 6 2 6 00

1 5 00 2 6 0 00

3 6 1 1 00 3 8 7 1 00

1 0 0 00

3 8 4 9 00

3 4 0 00

3 9 1 7 00 1 5 00

3 9 0 2 00

CHAPTER 4

Problem 4-10A (Continued) ACCOUNT

DATE 20--

June

Accounts Receivable ITEM

Balance

ACCOUNT NO.

POST. REF.

BALANCE DEBIT

CREDIT



DEBIT

1 2 1 2 00

1 0 0 00

1 3 1 2 00

1 0 0 00

1 2 1 2 00

1 0 0 00

1 1 1 2 00

DATE 20--

June

2 0 0 00

1 4 1 2 00

Office Supplies ITEM

Balance

ACCOUNT NO. POST. REF.

CREDIT

 J7

DATE 20--

June

ITEM

Balance

ACCOUNT

DATE 20--

DEBIT

6 4 8 00 1 8 0 00

8 2 8 00

POST. REF.

BALANCE DEBIT

CREDIT



DEBIT

Balance

CREDIT

2 1 0 0 00 7 0 0 00

2 8 0 0 00

Delivery Truck

CREDIT

ACCOUNT NO. 181

ITEM

142

BALANCE DEBIT

ACCOUNT Office Equipment

June

CREDIT

ACCOUNT

122

ACCOUNT NO. 185 POST. REF.



BALANCE DEBIT

CREDIT

DEBIT

CREDIT

8 0 0 0 00

CHAPTER 4

Problem 4-10A (Continued) ACCOUNT

DATE 20--

June

Accounts Payable ITEM

Balance

POST. REF.

DATE 20--

June

ACCOUNT

DATE 20--

June

Balance

DATE 20--

DEBIT

ITEM

Balance

POST. REF.

1 8 0 00

6 1 8 0 00

2 0 0 00

5 9 8 0 00 6 0 0 00

6 5 8 0 00

4 0 00

6 5 4 0 00 ACCOUNT NO.

POST. REF.

CREDIT

DEBIT

ACCOUNT NO.

Balance

312

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

1 8 0 0 00 2 0 0 00

2 0 0 0 00

Delivery Fees

CREDIT

4 4 7 8 00



ACCOUNT NO. POST. REF.

311

BALANCE DEBIT



ITEM

CREDIT

6 0 0 0 00

Jim Andrews, Drawing

ACCOUNT

CREDIT

Jim Andrews, Capital ITEM

202

BALANCE DEBIT



ACCOUNT

June

ACCOUNT NO.

401

BALANCE DEBIT

CREDIT



DEBIT

CREDIT

9 8 8 0 00

3 0 0 00

10 1 8 0 00

2 6 0 00

10 4 4 0 00

3 8 0 00

10 8 2 0 00

3 4 0 00

11 1 6 0 00

1 8 0 00

11 3 4 0 00

CHAPTER 4

Problem 4-10A (Continued) ACCOUNT

DATE 20--

June

Wages Expense ITEM

ACCOUNT NO. POST. REF.

CREDIT

DEBIT

CREDIT

1 2 0 0 00

2 0 0 00

1 4 0 0 00

2 0 0 00

1 6 0 0 00

ACCOUNT

DATE 20--

June

Advertising Expense ITEM

ACCOUNT

DATE 20--

June

DATE 20--

CREDIT

DEBIT

1 5 00

1 0 5 00

ACCOUNT NO. POST. REF.

CREDIT

DEBIT

Balance

CREDIT

9 0 0 00 3 0 0 00

1 2 0 0 00

Telephone Expense

ACCOUNT NO.

POST. REF.

525

BALANCE DEBIT

 J8

521

BALANCE DEBIT



Balance

ITEM

CREDIT

9 0 00

Rent Expense ITEM

512

BALANCE DEBIT



Balance

ACCOUNT

ACCOUNT NO.

POST. REF.

June

BALANCE DEBIT



Balance

511

CREDIT

DEBIT

CREDIT

1 2 6 00 4 6 00

1 7 2 00

CHAPTER 4

Problem 4-10A (Continued) ACCOUNT

DATE 20--

June

Electricity Expense ITEM

Balance

ACCOUNT

DATE 20--

June

DATE 20--

June

CREDIT



DEBIT

Balance

POST. REF.

3 6 00

1 3 4 00

ACCOUNT NO.

CREDIT

DEBIT

Balance

POST. REF.

CREDIT

6 0 00 2 0 00

8 0 00

Gas and Oil Expense ITEM

ACCOUNT NO.

CREDIT



DEBIT

CREDIT

1 8 6 00 3 2 00

2 1 8 00

2 4 00

2 4 2 00

Miscellaneous Expense ITEM

Balance

POST. REF.

ACCOUNT NO.

549

BALANCE DEBIT

 J9

538

BALANCE DEBIT

DATE 20--

534

BALANCE DEBIT

 J8

CREDIT

9 8 00

Charitable Contributions Expense ITEM

533

BALANCE DEBIT

ACCOUNT

June

POST. REF.

ACCOUNT

ACCOUNT NO.

CREDIT

DEBIT

CREDIT

1 1 2 00 1 5 00

1 2 7 00

CHAPTER 4

Problem 4-10A (Concluded) 4.

Jim’s Quick Delivery Trial Balance June 30, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

3 9 5 8 00

Accounts Receivable

122

1 1 1 2 00

Office Supplies

142

8 2 8 00

Office Equipment

181

2 8 0 0 00

Delivery Truck

185

8 0 0 0 00

Accounts Payable

202

6 5 4 0 00

Jim Andrews, Capital

311

4 4 7 8 00

Jim Andrews, Drawing

312

Delivery Fees

401

Wages Expense

511

1 6 0 0 00

Advertising Expense

512

1 0 5 00

Rent Expense

521

1 2 0 0 00

Telephone Expense

525

1 7 2 00

Electricity Expense

533

1 3 4 00

Charitable Contributions Expense

534

8 0 00

Gas and Oil Expense

538

2 4 2 00

Miscellaneous Expense

549

1 2 7 00

ACCOUNT TITLE

CREDIT BALANCE

2 0 0 0 00 11 3 4 0 00

22 3 5 8 00

CHAPTER 4

Problem 4-11A GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

(1) Cash

DEBIT

CREDIT

7 0 0 00

Accounts Payable

7 0 0 00

To correct error in which a purchase of

supplies on account was credited to Cash

(2) Wages Expense

Rent Expense

4 5 0 00

To correct error in which a payment of

wages was debited to Rent Expense

(3) Accounts Payable

3 0 0 00

Supplies

1 0 0 00 12

Cash

2 0 0 00 13

To correct error in which a $300 payment

on account was recorded as a $100 cash

purchase of supplies

Exercise 4-1B 1. Cash register tape

The cash register tape is evidence of cash receipts.

2. Sales ticket (issued to customer)

The sales ticket is evidence of sales of goods or services (for cash or on account).

3. Purchase invoice (received from supplier or vendor) 4. Check stub

The purchase invoice is evidence of purchases (accounts payable) of goods or services. A check stub is evidence of a cash payment.

CHAPTER 4

Exercise 4-2B Transaction

Debit

Credit

1. Invested cash in the business, $1,000.

Cash

Owner’s Capital

2. Performed services on account, $200.

Accounts Receivable

Fees

Office Equipment

Accounts Payable

Cash

Accounts Receivable

Accounts Payable

Cash

3. Purchased office equipment on account, $500. 4. Received cash on account for services previously rendered, $200. 5. Made a payment on account, $100.

Exercise 4-3B

1. 4.

Cash 1,000 5. 200

100

1,200

Bal.

2. Bal.

Accounts Receivable 200 4.

200



1,100

Office Equipment 500

Accounts Payable 100 3. Bal.

Owner’s Capital 1.

1,000

Fees 2.

Total Debits: Cash 1,100 Off. Equip. 500 1,600

500 400

200

Total Credits: Accts. Pay. 400 Owner’s Cap. 1,000 Fees 200 1,600

CHAPTER 4

Exercise 4-4B GENERAL JOURNAL DATE 20-1 2

Oct.

DESCRIPTION

1 Cash Sengel Moon, Capital

PAGE POST. REF.

DEBIT

101

15 0 0 0 00

311

CREDIT 1

15 0 0 0 00

Investment by owner

2 Rent Expense

521

Cash

101

3 0 0 00

Paid rent for October

8 9 10

3 Bicycle Parts Accounts Payable

141

2 0 0 0 00

202

2 0 0 0 00 10

Purchased bicycle parts on account

12 13 14

5 Office Supplies Accounts Payable

142

2 5 0 00

202

8 Telephone Expense Cash

525

3 8 00

101

22 23

9 Cash

101

Repair Fees

1 4 0 00

401

26 27

Received cash for repair services

23 24

11 Miscellaneous Expense Cash

549

1 5 00

101

30 31

1 5 00 26

Paid for magazine subscription

28 29

1 4 0 00 22

24 25

3 8 00 18

Paid telephone bill

2 5 0 00 14

Purchased office supplies on account

12 Accounts Payable Cash Made payment on account

202 101

1 0 0 00

1 0 0 00 30 31

CHAPTER 4

Exercise 4-4B (Concluded) GENERAL JOURNAL DATE 20-1 2

Oct. 14

DESCRIPTION

Wages Expense Cash

PAGE POST. REF.

DEBIT

511

3 0 0 00

101

CREDIT 1

3 0 0 00

Paid employee

4 5 6

15 Cash

101

Repair Fees

3 5 0 00

401

3 5 0 00

Received cash for repair services

8 9 10

16 Utilities Expense

533

Cash

101

4 8 00

4 8 00 10

Paid utilities bill

12 13 14 15

19 Cash

101

Repair Fees

2 5 0 00

401

18 19

Received cash for repair services

15 16

23 Sengel Moon, Drawing Cash

312

5 0 00

101

22 23

Owner’s withdrawal

19 20

25 Accounts Payable Cash

202

5 0 00

101

5 0 00 22

Made payment on account

29 Wages Expense

511

Cash

101

5 0 00 18

20 21

2 5 0 00 14

16 17

Paid employee

3 0 0 00

3 0 0 00 26 27

CHAPTER 4

Exercise 4-5B GENERAL LEDGER Cash

ACCOUNT

POST. REF.

DEBIT

15 0 0 0 00

3 0 0 00

14 7 0 0 00

3 8 00

14 6 6 2 00

1 5 00

14 7 8 7 00

1 0 0 00

14 6 8 7 00

3 0 0 00

14 3 8 7 00

5 0 00

14 8 8 9 00

5 0 00

14 8 3 9 00

3 0 0 00

14 5 3 9 00

DATE 20--

Oct.

ITEM

DATE 20--

Oct.

ITEM

CREDIT

15 0 0 0 00

1 4 0 00

14 8 0 2 00

3 5 0 00

14 7 3 7 00 4 8 00

2 5 0 00

14 6 8 9 00 14 9 3 9 00

CREDIT

2 0 0 0 00

DEBIT

CREDIT

2 0 0 0 00

ACCOUNT NO. POST. REF.

141

BALANCE DEBIT

Office Supplies

ACCOUNT

DATE 20--

DEBIT

ACCOUNT NO. POST. REF.

101

BALANCE CREDIT

Bicycle Parts

ACCOUNT

Oct.

ACCOUNT NO.

142

BALANCE DEBIT

2 5 0 00

CREDIT

DEBIT

CREDIT

2 5 0 00

CHAPTER 4

Exercise 4-5B (Continued) Accounts Payable

ACCOUNT

DATE 20--

ITEM

POST. REF.

202

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

2 0 0 0 00

2 5 0 00

2 2 5 0 00

1 0 0 00

2 1 5 0 00

5 0 00

2 1 0 0 00

Oct.

Sengel Moon, Capital

ACCOUNT

DATE 20--

Oct.

ITEM

POST. REF.

ACCOUNT NO.

DATE 20--

ITEM

Oct. 23

POST. REF.

CREDIT

DEBIT

DATE 20--

ITEM

CREDIT

15 0 0 0 00

ACCOUNT NO.

CREDIT

5 0 00

DEBIT

CREDIT

5 0 00

ACCOUNT NO. POST. REF.

312

BALANCE DEBIT

Repair Fees

ACCOUNT

311

BALANCE DEBIT

Sengel Moon, Drawing

ACCOUNT

Oct.

ACCOUNT NO.

401

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

1 4 0 00

3 5 0 00

4 9 0 00

2 5 0 00

7 4 0 00

CHAPTER 4

Exercise 4-5B (Continued) Wages Expense

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO. POST. REF.

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

Oct. 14

3 0 0 00

6 0 0 00

ACCOUNT

DATE 20--

Oct.

ACCOUNT

DATE 20--

Oct.

ACCOUNT

Rent Expense ITEM

ITEM

CREDIT

3 0 0 00

DEBIT

ITEM

ACCOUNT NO.

POST. REF.

CREDIT

3 8 00

DEBIT

Oct. 11

CREDIT

3 8 00

533

BALANCE DEBIT

CREDIT

4 8 00

DEBIT

CREDIT

4 8 00

Miscellaneous Expense POST. REF.

525

BALANCE DEBIT

ACCOUNT NO.

ITEM

CREDIT

3 0 0 00

Utilities Expense

Oct. 16

DATE 20--

POST. REF.

521

BALANCE DEBIT

Telephone Expense

DATE 20--

ACCOUNT

ACCOUNT NO. POST. REF.

511

ACCOUNT NO.

549

BALANCE DEBIT

1 5 00

CREDIT

DEBIT

CREDIT

1 5 00

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CHAPTER 4

Exercise 4-5B (Concluded) The Bike Doctor Trial Balance October 31, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

14 5 3 9 00

Bicycle Parts

141

2 0 0 0 00

Office Supplies

142

2 5 0 00

Accounts Payable

202

2 1 0 0 00

Sengel Moon, Capital

311

15 0 0 0 00

Sengel Moon, Drawing

312

Repair Fees

401

Wages Expense

511

6 0 0 00

Rent Expense

521

3 0 0 00

Telephone Expense

525

3 8 00

Utilities Expense

533

4 8 00

Miscellaneous Expense

549

1 5 00

ACCOUNT TITLE

CREDIT BALANCE

5 0 00 7 4 0 00

17 8 4 0 00

Exercise 4-6B The Bike Doctor Income Statement For Month Ended October 31, 20-Revenue: Repair fees

$ 740)

Expenses: Wages expense

$600

Rent expense

300

Telephone expense

Utilities expense

Miscellaneous expense

Total expenses Net loss

1,001) $ (261)

CHAPTER 4

Exercise 4-6B (Concluded) The Bike Doctor Statement of Owner’s Equity For Month Ended October 31, 20-Sengel Moon, capital, October 1, 20--

$00,000)

Investments during October

15,000)

Total investment

$15,000)

Less: Net loss for October

$261

Withdrawals for October

Decrease in capital

(311)

Sengel Moon, capital, October 31, 20--

$14,689)

The Bike Doctor Balance Sheet October 31, 20-Assets Cash

Liabilities $14,539

Bicycle parts

2,000

Office supplies

250

Total assets

$16,789

Accounts payable

$02,100

Owner’s Equity Sengel Moon, capital

14,689

Total liab. & owner’s equity

$16,789

CHAPTER 4

Exercise 4-7B AT Speaker’s Bureau Income Statement For Month Ended March 31, 20-Revenue: Speaking fees

$4,800

Expenses: Wages expense

$400

Rent expense

200

Telephone expense

Travel expense

450

Utilities expense

Miscellaneous expense

Total expenses

1,198

Net income

$3,602

AT Speaker’s Bureau Statement of Owner’s Equity For Month Ended March 31, 20-AT Speaker, capital, March 1, 20--

$0,000

Investments during March

6,098

Total investment

$6,098

Net income for March Less withdrawals for March

$3,602 800

Increase in capital

2,802

AT Speaker, capital, March 31, 20--

$8,900

CHAPTER 4

Exercise 4-7B (Concluded) AT Speaker’s Bureau Balance Sheet March 31, 20-Assets

Liabilities

Cash

$06,600

Accounts receivable

2,800

Office supplies

1,000

Office equipment

1,500

Total assets

$11,900

Accounts payable

$03,000

Owner’s Equity AT Speaker, capital

8,900

Total liab. & owner’s equity

$11,900

Exercise 4-8B GENERAL JOURNAL DATE

Apr.

DESCRIPTION

PAGE POST. REF.

Equipment

Office Supplies

DEBIT

CREDIT

3 5 0 00

5 3 0 00

Student Initials

Accounts Payable

3 5 0 00

Cash

5 3 0 00

Purchased office equipment on account

Cash

101

Service Fees

3 0 0 00

401

3 0 0 00 24

Revenue earned from services

previously rendered

27 28 29 30

Accounts Receivable Cash

3 0 0 00

3 0 0 00 29

To correct entry of April 21

CHAPTER 4

Problem 4-9B 2. (For 1. and 3., see page 96.)

GENERAL JOURNAL DATE 20-1

May

DESCRIPTION

1 Cash

PAGE POST. REF.

101

Benito Mendez, Capital

Original investment

DEBIT

CREDIT

5 0 0 0 00

311

5 0 0 0 00

2 3

2 Rent Expense

521

Cash

101

5 0 0 00

Paid rent for May

8 9 10

3 Office Supplies

142

Cash

101

1 0 0 00

1 0 0 00 10

Purchased office supplies

12 13 14

4 Office Equipment Accounts Payable

181

2 0 0 0 00

202

5 Cash

101

Appraisal Fees

2 8 0 00

401

8 Telephone Expense Cash

525

3 8 00

101

9 Electricity Expense Cash

533

4 2 00

101

30 31

4 2 00 26

Paid electric bill

3 8 00 22

Paid telephone bill

2 8 0 00 18

Earned appraisal fees

2 0 0 0 00 14

Purchased office equipment on account

10 Cash

101

Appraisal Fees Earned appraisal fees

401

3 1 0 00

3 1 0 00 30 31

CHAPTER 4

Problem 4-9B (Continued) GENERAL JOURNAL DATE 20-1 2

May 13

DESCRIPTION

Wages Expense Cash

PAGE POST. REF.

DEBIT

511

5 0 0 00

101

CREDIT 1

5 0 0 00

Paid employee

4 5 6

14 Transportation Expense Cash

526

2 0 0 00

101

2 0 0 00

Paid for car rental

8 9 10

15 Advertising Expense Cash

512

3 0 00

101

3 0 00 10

Paid for newspaper ad

12 13 14 15

18 Cash

101

Appraisal Fees

6 2 0 00

401

18 19

Earned appraisal fees

15 16

19 Transportation Expense Cash

526

2 2 00

101

22 23

Paid mileage reimbursement

19 20

21 Benito Mendez, Drawing Cash

312

5 0 00

101

26 27

Owner’s withdrawal

23 24

23 Accounts Payable Cash

202

2 0 0 00

101

30 31

2 0 0 00 26

Paid cash on account

28 29

5 0 00 22

24 25

2 2 00 18

20 21

6 2 0 00 14

16 17

24 Accounts Receivable Appraisal Fees Earned appraisal fees

122 401

5 0 0 00

5 0 0 00 30 31

CHAPTER 4

Problem 4-9B (Continued) GENERAL JOURNAL DATE 20-1 2

May 26

DESCRIPTION

Advertising Expense Cash

PAGE POST. REF.

512

DEBIT

CREDIT

3 0 00

101

3 0 00

Paid for newspaper ad

4 5 6

27 Miscellaneous Expense Cash

549

1 5 00

101

1 5 00

Paid softball team sponsorship

28 Wages Expense

511

Cash

101

5 0 0 00

5 0 0 00 10

Paid employee

12 13 14

29 Cash

101

Accounts Receivable

2 5 0 00

122

18 19

30 Cash

101

Appraisal Fees

2 8 0 00

401

22 23

2 8 0 00 18

Earned appraisal fees

20 21

2 5 0 00 14

Received cash on account

31 Transportation Expense Cash Paid cab fare

526 101

1 3 00

1 3 00 22 23

CHAPTER 4

Problem 4-9B (Continued) 1. and 3.

GENERAL LEDGER ACCOUNT

DATE 20--

Cash

ACCOUNT NO.

ITEM

POST. REF.

BALANCE DEBIT

CREDIT

5 0 0 00

4 5 0 0 00

1 0 0 00

4 4 0 0 00

3 8 00

4 6 4 2 00

4 2 00

4 6 0 0 00

5 0 0 00

4 4 1 0 00

2 0 0 00

4 2 1 0 00

3 0 00

4 1 8 0 00

2 2 00

4 7 7 8 00

5 0 00

4 7 2 8 00

2 0 0 00

4 5 2 8 00

3 0 00

4 4 9 8 00

1 5 00

4 4 8 3 00

5 0 0 00

3 9 8 3 00

2 5 0 00

4 2 3 3 00

2 8 0 00

4 5 1 3 00

ACCOUNT

5 0 0 0 00

DEBIT

May

5 0 0 0 00

2 8 0 00

4 6 8 0 00

3 1 0 00

4 9 1 0 00

6 2 0 00

4 8 0 0 00

1 3 00

4 5 0 0 00

Accounts Receivable

DATE 20--

ITEM

POST. REF.

May 24

101

ACCOUNT NO.

122

BALANCE DEBIT

CREDIT

5 0 0 00

DEBIT

CREDIT

5 0 0 00 2 5 0 00

2 5 0 00

CHAPTER 4

Problem 4-9B (Continued) ACCOUNT

DATE 20--

May

ACCOUNT

DATE 20--

May

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO. POST. REF.

ITEM

POST. REF.

1 0 0 00

POST. REF.

181

BALANCE DEBIT

CREDIT

2 0 0 0 00

DEBIT

CREDIT

2 0 0 0 00

202

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

2 0 0 0 00

2 0 0 00

1 8 0 0 00

Benito Mendez, Capital ITEM

CREDIT

ACCOUNT NO.

DATE 20--

1 0 0 00

DEBIT

Accounts Payable

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

142

BALANCE DEBIT

Office Equipment

May

Office Supplies

ACCOUNT NO.

311

BALANCE DEBIT

CREDIT

5 0 0 0 00

DEBIT

CREDIT

5 0 0 0 00

CHAPTER 4

Problem 4-9B (Continued) ACCOUNT Benito Mendez, Drawing

DATE 20--

ITEM

POST. REF.

May 21

ACCOUNT NO. 312 BALANCE DEBIT

CREDIT

5 0 00

DEBIT

5 0 00

Appraisal Fees

ACCOUNT

DATE 20--

ITEM

CREDIT

ACCOUNT NO. POST. REF.

401

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

2 8 0 00

3 1 0 00

5 9 0 00

6 2 0 00

1 2 1 0 00

5 0 0 00

1 7 1 0 00

2 8 0 00

1 9 9 0 00

May

Wages Expense

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO. POST. REF.

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

May 13

5 0 0 00

1 0 0 0 00

Advertising Expense

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO.

POST. REF.

511

512

BALANCE DEBIT

CREDIT

DEBIT

May 15

3 0 00

6 0 00

CREDIT

CHAPTER 4

Problem 4-9B (Continued) Rent Expense

ACCOUNT

DATE 20--

May

ITEM

ACCOUNT NO. POST. REF.

BALANCE DEBIT

CREDIT

5 0 0 00

DEBIT

DATE 20--

May

ITEM

ACCOUNT NO.

POST. REF.

DATE 20--

ITEM

POST. REF.

CREDIT

3 8 00

DEBIT

CREDIT

3 8 00

ACCOUNT NO

CREDIT

DEBIT

CREDIT

2 0 0 00

2 2 00

2 2 2 00

1 3 00

2 3 5 00

DATE 20--

May

ACCOUNT

DATE 20--

Electricity Expense ITEM

ACCOUNT NO. POST. REF.

May 27

POST. REF.

533

BALANCE DEBIT

CREDIT

4 2 00

DEBIT

CREDIT

4 2 00

Miscellaneous Expense ITEM

526

BALANCE DEBIT

May 14

ACCOUNT

525

BALANCE DEBIT

Transportation Expense

ACCOUNT

CREDIT

5 0 0 00

Telephone Expense

ACCOUNT

521

ACCOUNT NO.

549

BALANCE DEBIT

1 5 00

CREDIT

DEBIT

CREDIT

1 5 00

100

CHAPTER 4

Problem 4-9B (Continued) 4.

Mendez Appraisals Trial Balance May 31, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

4 5 0 0 00

Accounts Receivable

122

2 5 0 00

Office Supplies

142

1 0 0 00

Office Equipment

181

2 0 0 0 00

Accounts Payable

202

1 8 0 0 00

Benito Mendez, Capital

311

5 0 0 0 00

Benito Mendez, Drawing

312

Appraisal Fees

401

Wages Expense

511

1 0 0 0 00

Advertising Expense

512

6 0 00

Rent Expense

521

5 0 0 00

Telephone Expense

525

3 8 00

Transportation Expense

526

2 3 5 00

Electricity Expense

533

4 2 00

Miscellaneous Expense

549

1 5 00

ACCOUNT TITLE

CREDIT BALANCE

5 0 00 1 9 9 0 00

8 7 9 0 00

CHAPTER 4

101

Problem 4-9B (Continued) 5.

Mendez Appraisals Income Statement For Month Ended May 31, 20-Revenue: Appraisal fees

$1,990

Expenses: Wages expense

$1,000

Advertising expense

Rent expense

500

Telephone expense

Transportation expense

235

Electricity expense

Miscellaneous expense

Total expenses

1,890

Net income

$0,100

Mendez Appraisals Statement of Owner’s Equity For Month Ended May 31, 20-Benito Mendez, capital, May 1, 20--

$0,000

Investments during May

5,000

Total investment

$5,000

Net income for May Less withdrawals for May Increase in capital Benito Mendez, capital, May 31, 20--

$100 50 50 $5,050

102

CHAPTER 4

Problem 4-9B (Concluded) Mendez Appraisals Balance Sheet May 31, 20-Assets Cash

Liabilities $4,500

Accounts payable

$1,800

Accounts receivable

250

Office supplies

100

Owner’s Equity

Office equipment

2,000

Benito Mendez, capital

5,050

Total assets

$6,850

Total liab. & owner’s equity

$6,850

CHAPTER 4

103

Problem 4-10B 2. (For 1. and 3., see page 106.)

GENERAL JOURNAL POST. REF.

DEBIT

1 Rent Expense

521

3 0 0 00

Cash

101

DATE 20-1 2

Nov.

PAGE

DESCRIPTION

CREDIT 1

3 0 0 00

Paid rent

4 5 6

2 Tailoring Supplies Accounts Payable

141

1 5 0 00

202

1 5 0 00

Purchased tailoring supplies on account

3 Tailoring Equipment

183

Accounts Payable

202

3 0 0 00

3 0 0 00 10

Purchased machine on account

12 13

5 Cash

101

1 0 0 00

3 0 0 00

Accounts Receivable

122

Tailoring Fees

401

4 0 0 00 15

Earned tailoring fees

17 18 19

8 Advertising Expense Cash

512

1 3 00

101

9 Telephone Expense Cash

525

2 8 00

101

10 Electricity Expense Cash

533

2 1 00

101

31 32

2 1 00 27

Paid electric bill

2 8 00 23

Paid telephone bill

1 3 00 19

Paid for newspaper ad

11 Cash

101

Accounts Receivable Received cash on account

122

2 0 0 00

2 0 0 00 31 32

104

CHAPTER 4

Problem 4-10B (Continued) GENERAL JOURNAL

PAGE

POST. REF.

DEBIT

Cash

101

2 0 0 00

Accounts Receivable

122

2 5 0 00

Tailoring Fees

401

DATE 20-1

Nov. 12

DESCRIPTION

CREDIT

4 5 0 00

Earned tailoring fees

15 Wages Expense

511

Cash

101

4 0 0 00

Paid employee

9 10 11

16 Accounts Payable Cash

202

1 0 0 00

101

1 0 0 00 11

Paid cash on account

13 14 15

17 Miscellaneous Expense Cash

549

1 2 00

101

19 Cash

101

3 0 0 00

1 5 0 00

Accounts Receivable

122

Tailoring Fees

401

4 5 0 00 20

Earned tailoring fees

22 23 24 25

23 Cash

101

Accounts Receivable

3 0 0 00

122

28 29

3 0 0 00 24

Received cash on account

26 27

1 2 00 15

Paid for magazine subscription

24 Advertising Expense Cash Paid for newspaper ad

512 101

1 3 00

1 3 00 28 29

CHAPTER 4

105

Problem 4-10B (Continued) GENERAL JOURNAL DATE 20-1 2

Nov. 26

DESCRIPTION

Miscellaneous Expense Cash

PAGE POST. REF.

549

DEBIT

CREDIT

1 2 00

101

1 2 00

Paid for postage

4 5

27 Cash

101

2 0 0 00

4 0 0 00

Accounts Receivable

122

Tailoring Fees

401

6 0 0 00

Earned tailoring fees

9 10 11 12

30 Cash

101

Accounts Receivable Received cash on account

122

4 0 0 00

4 0 0 00 11 12

106

CHAPTER 4

Problem 4-10B (Continued) 1. and 3. GENERAL LEDGER ACCOUNT

DATE 20--

Nov.

ACCOUNT NO. 101

ITEM

Balance

POST. REF.

BALANCE DEBIT

CREDIT



DEBIT

CREDIT

6 2 1 1 00

1 3 00

5 9 9 8 00

2 8 00

5 9 7 0 00

2 1 00

5 9 4 9 00

2 0 0 00

6 1 4 9 00

2 0 0 00

6 3 4 9 00

4 0 0 00

5 9 4 9 00

1 0 0 00

5 8 4 9 00

1 2 00

5 8 3 7 00

3 0 0 00

6 1 3 7 00

3 0 0 00

6 4 3 7 00

1 3 00

6 4 2 4 00

1 2 00

6 4 1 2 00

2 0 0 00

6 6 1 2 00

4 0 0 00

7 0 1 2 00

ACCOUNT

DATE 20--

Nov.

Cash

3 0 0 00 1 0 0 00

5 9 1 1 00 6 0 1 1 00

Accounts Receivable ITEM

Balance

ACCOUNT NO.

POST. REF.

122

BALANCE DEBIT

CREDIT



DEBIT

CREDIT

4 8 4 00

3 0 0 00

7 8 4 00

2 5 0 00

8 3 4 00

1 5 0 00

9 8 4 00

2 0 0 00

3 0 0 00 4 0 0 00

5 8 4 00

6 8 4 00 1 0 8 4 00

4 0 0 00

6 8 4 00

CHAPTER 4

107

Problem 4-10B (Continued) Tailoring Supplies

ACCOUNT

DATE 20--

Nov.

ITEM

ACCOUNT NO. POST. REF.

CREDIT

DEBIT

DATE 20--

Nov.

ITEM

Balance

1 5 0 00

1 1 5 0 00

ACCOUNT NO. 183

POST. REF.

BALANCE DEBIT

CREDIT

 J7

DEBIT

DATE 20--

Nov.

ITEM

Balance

CREDIT

3 8 0 0 00 3 0 0 00

4 1 0 0 00

Accounts Payable

ACCOUNT

CREDIT

1 0 0 0 00

Tailoring Equipment

ACCOUNT

ACCOUNT NO. 202 POST. REF.

BALANCE DEBIT

CREDIT

DEBIT

CREDIT



4 1 2 5 00

1 5 0 00

4 2 7 5 00

3 0 0 00

4 5 7 5 00

ACCOUNT

DATE 20--

Nov.

BALANCE DEBIT



Balance

141

1 0 0 00

4 4 7 5 00

Ann Taylor, Capital ITEM

Balance

ACCOUNT NO. POST. REF.



311

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

6 1 3 0 00

108

CHAPTER 4

Problem 4-10B (Continued) ACCOUNT

Ann Taylor, Drawing

DATE 20-Nov. 1

ACCOUNT

ITEM

POST. REF.

CREDIT



Balance

ITEM

DEBIT

CREDIT

8 0 0 00

ACCOUNT NO. POST. REF.

401

BALANCE DEBIT

CREDIT

DEBIT

CREDIT



Balance

312

BALANCE DEBIT

Tailoring Fees

DATE 20-Nov. 1

3 6 0 0 00

4 0 0 00

4 0 0 0 00

4 5 0 00

4 4 5 0 00

4 5 0 00

4 9 0 0 00

6 0 0 00

5 5 0 0 00

ACCOUNT

DATE 20--

Nov.

Wages Expense ITEM

ACCOUNT

DATE 20--

ACCOUNT NO. POST. REF.

CREDIT

DEBIT

Balance

CREDIT

8 0 0 00 4 0 0 00

1 2 0 0 00

Advertising Expense ITEM

ACCOUNT NO.

POST. REF.

511

BALANCE DEBIT



Balance

Nov.

ACCOUNT NO.

512

BALANCE DEBIT



CREDIT

DEBIT

CREDIT

3 4 00

1 3 00

4 7 00

1 3 00

6 0 00

CHAPTER 4

109

Problem 4-10B (Continued) ACCOUNT

DATE 20--

Nov.

Rent Expense ITEM

ACCOUNT NO. POST. REF.

ACCOUNT

DATE 20--

Nov.

DATE 20--

Nov.

ITEM

Balance

DATE 20--

Nov.

DEBIT

6 0 0 00 3 0 0 00

9 0 0 00

POST. REF.

CREDIT



DEBIT

Balance

6 0 00 2 8 00

8 8 00

CREDIT

DEBIT

Balance

CREDIT

4 4 00 2 1 00

6 5 00

Miscellaneous Expense POST. REF.

533

BALANCE DEBIT

 J7

ITEM

CREDIT

ACCOUNT NO. POST. REF.

525

BALANCE DEBIT

Electricity Expense ITEM

CREDIT

ACCOUNT NO.

ACCOUNT

CREDIT

Telephone Expense

ACCOUNT

BALANCE DEBIT



Balance

521

ACCOUNT NO.

549

BALANCE DEBIT



CREDIT

DEBIT

CREDIT

2 2 00

1 2 00

3 4 00

1 2 00

4 6 00

110

CHAPTER 4

Problem 4-10B (Concluded) 4.

Taylor Tailoring Trial Balance November 30, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

7 0 1 2 00

Accounts Receivable

122

6 8 4 00

Tailoring Supplies

141

1 1 5 0 00

Tailoring Equipment

183

4 1 0 0 00

Accounts Payable

202

4 4 7 5 00

Ann Taylor, Capital

311

6 1 3 0 00

Ann Taylor, Drawing

312

Tailoring Fees

401

Wages Expense

511

1 2 0 0 00

Advertising Expense

512

6 0 00

Rent Expense

521

9 0 0 00

Telephone Expense

525

8 8 00

Electricity Expense

533

6 5 00

Miscellaneous Expense

549

4 6 00

ACCOUNT TITLE

CREDIT BALANCE

8 0 0 00 5 5 0 0 00

16 1 0 5 00

CHAPTER 4

111

Problem 4-11B GENERAL JOURNAL DATE

DESCRIPTION

(1) Equipment

Supplies

PAGE POST. REF.

DEBIT

CREDIT

4 0 0 00

Correction in which purchase of

equipment was debited to Supplies

5 6 7

Cash

4 0 0 00

Accounts Payable

4 0 0 00

Correction in which purchase on account

was credited to Cash

10 11 12

(2) Advertising Expense

2 0 0 00

Repair Expense

2 0 0 00 12

Correction in which a payment for

advertising was debited to Repair Expense

15 16

(3) Accounts Payable

6 0 0 00

Prepaid Insurance

4 0 0 00 17

Cash

2 0 0 00 18

Correction in which a $600 payment

on account was recorded as a $400

insurance premium payment

112

CHAPTER 4

MANAGING YOUR WRITING The student should make the following points: 1.

The method of entering information into the accounting system is based on a double-entry framework. This means that every transaction will affect at least two accounts. Some accounts will be debited and others will be credited. The sum of the debits must equal the sum of the credits for every transaction. This process will keep the accounting equation in balance. The double-entry framework helps ensure that complete information on each transaction is entered. If only the increase in the asset is recorded, valuable information on why an asset increased is lost. Cash could have increased because the business borrowed the money, sold another asset, earned the money by providing a service, or received an additional investment by the owner. Thus, the debit to Cash must be offset, or explained, by a credit to some other account.

The accounting system is based on a simple accounting equation (Assets = Liabilities + Owner’s Equity) that must remain in balance as each transaction is recorded. This means, for example, that an increase in an asset must be offset by a decrease in another asset, an increase in liabilities, or an increase in owner’s equity.

The trial balance provides a check of whether the sum of the debits equals the sum of the credits. If the columns of the trial balance are not equal, an error has been made. The following errors are possibilities: a. Making a math error in the trial balance, or in the ledger accounts. b. Failing to post all debits and credits to the ledger accounts. c. Failing to enter all debits and credits in the journal. d. Posting a debit as a credit, or a credit as a debit. e. Entering different amounts for the debits and credits. (This list is not intended to be all inclusive. It should be interesting to read about other errors that the students suggest.)

Tips for finding errors are specifically addressed in the text. They include the following: a. Double check your addition. b. Find the difference between the debits and the credits. (1) If the difference is equal to the amount of a specific transaction, perhaps you forgot to post the debit or credit portion of this transaction. (2) Divide the difference by 2. If a debit were posted as a credit, it would mean that one transaction had two credits and no debits. The difference between the total debits and credits would be twice the amount of the debit that was posted as a credit. (3) Divide the difference by 9. If the difference is evenly divisible by 9, you may have committed a slide error or a transposition error.

CHAPTER 4

113

Mastery Problem 1.

GENERAL JOURNAL DATE 20-1 2

June

DESCRIPTION

1 Cash Barry Bird, Capital

PAGE POST. REF.

DEBIT

101

10 0 0 0 00

311

CREDIT 1

10 0 0 0 00

Owner’s original investment

4 5 6

1 Athletic Equipment Cash

183

3 0 0 0 00

101

3 0 0 0 00

Purchased athletic equipment

8 9 10

2 Advertising Expense Cash

512

5 0 0 0 00

101

5 0 0 0 00 10

Paid for advertising

12 13 14 15

2 Cash

101

Registration Fees

15 0 0 0 00

401

Collected registration fees

15 16

2 Basketball Facilities

184

Accounts Payable

202

12 0 0 0 00

12 0 0 0 00 18

Completed construction of basketball court

20 21

15 0 0 0 00 14

5 Office Supplies Accounts Payable

142

3 0 0 00

202

3 0 0 00 22

Purchased office supplies on account

from Gordon Office Supplies

25 26 27

6 Food Expense Accounts Payable

524 202

5 8 0 0 00

5 8 0 0 00 27

Campers’ meals charged at Magic’s

Restaurant

114

CHAPTER 4

Mastery Problem (Continued) GENERAL JOURNAL DATE 20-1 2

June

DESCRIPTION

7 Cash Registration Fees

PAGE POST. REF.

DEBIT

101

16 2 0 0 00

401

CREDIT 1

16 2 0 0 00

Collected registration fees

10 Wages Expense

511

Cash

101

5 0 0 00

Paid wages to camp counselors

8 9 10

14 Cash

101

Registration Fees

13 5 0 0 00

401

13 5 0 0 00 10

Collected registration fees

12 13 14

14 Food Expense Accounts Payable

524

6 2 0 0 00

202

6 2 0 0 00 14

Campers’ meals charged at Magic’s

Restaurant

17 Wages Expense

511

Cash

101

5 0 0 00

5 0 0 00 19

Paid wages to camp counselors

21 22 23

18 Postage Expense

536

Cash

101

8 5 00

27 28

21 Cash

101

Registration Fees

15 2 0 0 00

401

15 2 0 0 00 27

Collected registration fees

29 30

8 5 00 23

Paid postage

22 Food Expense Accounts Payable

524 202

6 5 0 0 00

6 5 0 0 00 31

Campers’ meals charged at Magic’s

Restaurant

CHAPTER 4

115

Mastery Problem (Continued) GENERAL JOURNAL DATE 20-1 2

June 24

DESCRIPTION

Wages Expense Cash

PAGE POST. REF.

DEBIT

511

5 0 0 00

101

CREDIT 1

5 0 0 00

Paid wages to camp counselors

4 5 6 7

28 Cash

101

Registration Fees

14 0 0 0 00

401

14 0 0 0 00

Collected registration fees

8 9 10

30 Food Expense Accounts Payable

524

7 2 0 0 00

202

7 2 0 0 00 10

Campers’ meals charged at Magic’s

Restaurant

30 Wages Expense

511

Cash

101

5 0 0 00

5 0 0 00 15

Paid wages to camp counselors

17 18 19

30 Accounts Payable Cash

202

25 7 0 0 00

101

25 7 0 0 00 19

Made payment on account to Magic’s

Restaurant

22 23 24 25

30 Utilities Expense

533

Cash

101

5 0 0 00

5 0 0 00 24

Paid utility bill

26 27 28 29

30 Telephone Expense Cash

525

1 2 0 00

101

32 33

1 2 0 00 28

Paid phone bill

30 31

30 Barry Bird, Drawing Cash Withdrawal by Bird

312 101

2 0 0 0 00

2 0 0 0 00 32 33

116

CHAPTER 4

Mastery Problem (Continued) 2.

Cash

ACCOUNT

GENERAL LEDGER

ACCOUNT NO. BALANCE

POST. REF.

DEBIT

10 0 0 0 00

3 0 0 0 00

10 0 0 0 00 7 0 0 0 00

5 0 0 0 00

2 0 0 0 00

2 7

J1 J2

5 0 0 00

45 7 0 0 00

8 5 00

45 6 1 5 00

5 0 0 00

73 8 1 5 00

25 7 0 0 00

48 1 1 5 00

5 0 0 00

47 6 1 5 00

1 2 0 00

47 4 9 5 00

2 0 0 0 00

45 4 9 5 00

DATE 20--

June

ITEM

CREDIT

DEBIT

June

ACCOUNT

ITEM

17 0 0 0 00

16 2 0 0 00

33 2 0 0 00 5 0 0 00

13 5 0 0 00

32 7 0 0 00 46 2 0 0 00

15 2 0 0 00

60 8 1 5 00 5 0 0 00

14 0 0 0 00

60 3 1 5 00 74 3 1 5 00

20--

June

ACCOUNT NO. POST. REF.

ITEM

CREDIT

3 0 0 00

DEBIT

CREDIT

3 0 0 00

ACCOUNT NO.

POST. REF.

142

BALANCE DEBIT

Athletic Equipment

DATE

CREDIT

15 0 0 0 00

ACCOUNT Office Supplies

DATE 20--

101

DEBIT

3 0 0 0 00

CREDIT

183

BALANCE DEBIT

CREDIT

3 0 0 0 00

CHAPTER 4

117

Mastery Problem (Continued) Basketball Facilities

ACCOUNT

DATE 20--

ITEM

DEBIT

12 0 0 0 00

CREDIT

DATE 20--

ITEM

CREDIT

12 0 0 0 00

ACCOUNT NO. POST. REF.

BALANCE DEBIT

CREDIT

12 0 0 0 00 12 3 0 0 00

5 8 0 0 00

18 1 0 0 00

6 2 0 0 00

24 3 0 0 00

J2 J2

6 5 0 0 00

30 8 0 0 00

7 2 0 0 00

38 0 0 0 00

ACCOUNT

CREDIT

202

12 0 0 0 00 3 0 0 00

June

2 5

DEBIT

184

BALANCE DEBIT

Accounts Payable

ACCOUNT

20--

June

ACCOUNT

25 7 0 0 00

12 3 0 0 00

Barry Bird, Capital

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

June 30

ITEM

CREDIT

10 0 0 0 00

ACCOUNT NO.

POST. REF.

DEBIT

2 0 0 0 00

CREDIT

311

BALANCE DEBIT

Barry Bird, Drawing

DATE 20--

POST. REF.

June

ACCOUNT NO.

312

BALANCE DEBIT

CREDIT

2 0 0 0 00

118

CHAPTER 4

Mastery Problem (Continued) ACCOUNT NO.

Registration Fees

ACCOUNT

DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

15 0 0 0 00

16 2 0 0 00

31 2 0 0 00

13 5 0 0 00

44 7 0 0 00

15 2 0 0 00

59 9 0 0 00

14 0 0 0 00

73 9 0 0 00

June

ACCOUNT NO.

Wages Expense

ACCOUNT

DATE

ITEM

20--

POST. REF.

DEBIT

CREDIT

5 0 0 00

1 0 0 0 00

5 0 0 00

1 5 0 0 00

5 0 0 00

2 0 0 0 00

ACCOUNT

Advertising Expense

DATE

June

ITEM

POST. REF.

ACCOUNT NO. DEBIT

5 0 0 0 00

CREDIT

511

BALANCE DEBIT

June 10

20--

401

512

BALANCE DEBIT

CREDIT

5 0 0 0 00

CHAPTER 4

119

Mastery Problem (Continued) Food Expense

ACCOUNT

DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

5 8 0 0 00

6 2 0 0 00

12 0 0 0 00

6 5 0 0 00

18 5 0 0 00

7 2 0 0 00

25 7 0 0 00

ACCOUNT

Telephone Expense

DATE

ITEM

20--

June 30

ACCOUNT

ACCOUNT NO. DEBIT

CREDIT

1 2 0 00

ITEM

20--

June 30

1 2 0 00

DEBIT

CREDIT

5 0 0 00

June 18

ITEM

CREDIT

5 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

8 5 00

533

BALANCE DEBIT

Postage Expense

DATE

CREDIT

ACCOUNT NO. POST. REF.

525

BALANCE DEBIT

Utilities Expense

DATE

ACCOUNT

POST. REF.

524

BALANCE DEBIT

June

20--

ACCOUNT NO.

CREDIT

536

BALANCE DEBIT

CREDIT

8 5 00

120

CHAPTER 4

Mastery Problem (Concluded) 3.

Barry Bird Basketball Camp Trial Balance June 30, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

45 4 9 5 00

Office Supplies

142

3 0 0 00

Athletic Equipment

183

3 0 0 0 00

Basketball Facilities

184

12 0 0 0 00

Accounts Payable

202

12 3 0 0 00

Barry Bird, Capital

311

10 0 0 0 00

Barry Bird, Drawing

312

Registration Fees

401

Wages Expense

511

2 0 0 0 00

Advertising Expense

512

5 0 0 0 00

Food Expense

524

25 7 0 0 00

Telephone Expense

525

1 2 0 00

Utilities Expense

533

5 0 0 00

Postage Expense

536

8 5 00

ACCOUNT TITLE

CREDIT BALANCE

2 0 0 0 00 73 9 0 0 00

96 2 0 0 00

CHAPTER 4

121

Challenge Problem 1. and 2. The errors in the trial balance were caused by the following: 1. June 12—The debit to Automobile Expense was made for $50,000 instead of $50. This is called a “slide.” 2. June 14—A credit was made to Cash instead of Accounts Payable. 3. June 21—The debit to Drawing was made for $2,100 instead of $1,200. This is called a transposition error. 4. In the trial balance, Cash was listed as a credit balance instead of a debit balance.

3. Fred Phaler Consulting Trial Balance June 30, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

14 1 5 0 00

Accounts Receivable

122

2 0 0 0 00

Office Supplies

142

2 5 0 00

Accounts Payable

202

1 5 0 00

Fred Phaler, Capital

311

10 0 0 0 00

Fred Phaler, Drawing

312

Professional Fees

401

Wages Expense

511

8 0 0 00

Rent Expense

521

5 0 0 00

Telephone Expense

525

1 0 0 00

Automobile Expense

526

5 0 00

Utilities Expense

533

1 0 0 00

ACCOUNT TITLE

CREDIT BALANCE

1 2 0 0 00 9 0 0 0 00

19 1 5 0 00

CHAPTER 5 ADJUSTING ENTRIES AND THE WORK SHEET REVIEW QUESTIONS 1. The revenue recognition principle states that revenues should be recognized when earned, regardless of when cash is received from the customer. Revenues are considered earned when a service is provided or a product sold. 2. The matching principle requires the matching of revenues earned during an accounting period with the expenses incurred to produce the revenues. 3. Under the historical cost principle, assets are recorded at their actual cost. 4. A plant asset is expected to provide benefits over more than one year. 5. A contra-asset has a credit balance and is deducted from the related asset account on the balance sheet. 6. The useful life of an asset is the period of time that an asset is expected to help produce revenues. 7. The purpose of depreciation is to provide a method of matching the cost of the assets against the revenues the assets will help to produce over their useful lives. 8. An asset’s depreciable cost is the cost of the asset that is subject to depreciation. 9. The book value of an asset is the difference between the asset’s cost and the related accumulated depreciation. 10. The purpose of a work sheet is to help in preparing end-of-period adjustments and financial statements. The work sheet pulls together all of the information needed to enter adjusting entries and prepare the financial statements. 11. The five major column headings on a work sheet are Trial Balance, Adjustments, Adjusted Trial Balance, Income Statement, and Balance Sheet. 12. The five steps when preparing a work sheet are as follows: Step 1: Prepare the trial balance. Step 2: Prepare the adjustments. Step 3: Prepare the adjusted trial balance. Step 4: Extend adjusted balances to the Income Statement and Balance Sheet columns. Step 5: Complete the work sheet by summing the Income Statement and Balance Sheet columns and computing net income or net loss. 13. Four tips for finding errors on the work sheet are as follows: a. Check the addition of all columns. b. Check the addition and subtraction required when extending to the Adjusted Trial Balance columns. c. Make sure the adjusted account balances have been extended to the appropriate columns. d. Make sure that the net income or net loss has been added to the appropriate columns.

124

CHAPTER 5

14. Under the accrual basis of accounting, revenues are recorded when earned. Revenues are considered earned when a service is provided or a product sold, regardless of whether cash has been received. Under the cash and modified cash bases of accounting, revenues are recorded when cash is received. 15. Under the accrual basis of accounting, expenses are recorded when incurred. Expenses are considered incurred when a service is received or an asset consumed, regardless of when cash is paid. Under the cash basis, expenses are recorded when cash is paid. Under the modified cash basis, a firm uses the cash basis for recording most expenses. However, under the modified cash basis when cash is paid for assets with useful lives greater than one accounting period, the cash payment is recorded as an asset and adjustments are made each period as under the accrual basis of accounting.

CHAPTER 5

125

Exercise 5-1A (Balance Sheet) Supplies 320 Adj.

Bal.

230

Adj.

(Income Statement) Supplies Expense 230

GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Adjusting Entries

20-2

PAGE

Dec. 31

Supplies Expense

2 3 0 00

Supplies

2 3 0 00 3

Exercise 5-2A

Bal.

(Balance Sheet) Prepaid Insurance 900 Adj.

150

Adj.

(Income Statement) Insurance Expense 150

750

GENERAL JOURNAL DATE

20-3

POST. REF.

DEBIT

Adjusting Entries

1 2

DESCRIPTION

PAGE

Dec. 31

Insurance Expense Prepaid Insurance

CREDIT 1

1 5 0 00

1 5 0 00 3

126

CHAPTER 5

Exercise 5-3A (Income Statement) Wages Expense 600

TB Adj.

200

Bal.

800

(Balance Sheet) Wages Payable Adj.

GENERAL JOURNAL DATE

DEBIT

CREDIT

Adjusting Entries

20-2

PAGE POST. REF.

DESCRIPTION

200

Dec. 31

Wages Expense

2 0 0 00

Wages Payable

2 0 0 00 3

Exercise 5-4A $7,200 48

$150

(Income Statement) Depr. Expense—Delivery Equipment Adj. 150

(Balance Sheet) Accum. Depr.—Delivery Equipment Adj.

GENERAL JOURNAL DATE

DESCRIPTION

20-2

PAGE POST. REF.

DEBIT

Adjusting Entries

Dec. 31

Depr. Expense—Delivery Equipment Accum. Depr.—Delivery Equipment

150

CREDIT 1

1 5 0 00

1 5 0 00 3 4

Exercise 5-5A Original cost

= $6,840

Less: Accumulated depreciation = Book value, December 31, 20--

665 (6,840/72 × 7 mos.)

= $6,175

CHAPTER 5

127

Exercise 5-6A 1.

TB Bal.

(Balance Sheet) Supplies 580 Adj. 260

(Income Statement) Supplies Expense 320

Adj.

320

TB Bal.

(Balance Sheet) Supplies 435 Adj. 205

(Income Statement) Supplies Expense 230

Adj.

230

Exercise 5-7A 1.

TB Bal.

(Balance Sheet) Prepaid Insurance 1,450 Adj. 480

(Income Statement) Insurance Expense 970

Adj.

970

TB Bal.

(Balance Sheet) Prepaid Insurance 1,350 Adj. 565

(Income Statement) Insurance Expense 785

Adj.

785

128

CHAPTER 5

Exercise 5-8A GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

20-2

PAGE

Dec. 31

Supplies Expense Supplies

523

8 5 00

141

8 5 00

4 5 6

Wages Expense Wages Payable

511 219

2 2 0 00

CHAPTER 5

129

Exercise 5-8A (Concluded) GENERAL LEDGER Supplies

ACCOUNT

DATE

ITEM

20--

Dec.

 J8

31 Adjusting

DEBIT

CREDIT

20--

Dec. 31

ITEM

Adjusting

1 5 0 00 2 0 0 00

5 0 00 8 5 00

1 1 5 00

DEBIT

CREDIT

DATE

ITEM

20--

CREDIT

2 2 0 00

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

 J8

3 0 0 00

9 0 0 00 1 2 0 0 00

31 Adjusting

2 2 0 00

1 4 2 0 00

DATE

Dec. 31

Supplies Expense ITEM

Adjusting

ACCOUNT NO. POST. REF.

DEBIT

8 5 00

CREDIT

511

BALANCE DEBIT

1 Balance 15

ACCOUNT

219

BALANCE DEBIT

Wages Expense

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

141

BALANCE DEBIT

Wages Payable

DATE

20--

POST. REF.

1 Balance 15

ACCOUNT

Dec.

ACCOUNT NO.

523

BALANCE DEBIT

CREDIT

8 5 00

6 5 5 0 00

2 0 0 00

Wages Expense

Advertising Expense

Supplies Expense

Insurance Expense

Depr. Exp.—Delivery Equip.

16 17 18 19 20 21 22 23 24 25

6 5 5 0 00 14

6 0 0 00

6 5 0 00

2 0 0 00

7 0 0 00

1 6 5 0 00

4 0 0 0 00

1 0 0 00

8 0 0 00

1 5 5 0 00

(d) 1 0 0 00

3 6 0 0 00

3 0 0 00

6 2 5 0 00

(b) 6 0 0 00

6 0 0 00

Repair Fees

2 0 0 00

(a) 6 5 0 00

1 6 5 0 00

Jim Jacobs, Capital

(d) 1 0 0 00

4 0 0 0 00

Wages Payable

6 0 0 00

Accum. Depr.—Delivery Equip.

3 6 0 0 00

Delivery Equipment

(b) 6 0 0 00

9 0 0 00

Prepaid Insurance

2 0 0 00

(a) 6 5 0 00

8 5 0 00

Supplies

1 0 0 00

ADJUSTED TRIAL BALANCE DEBIT CREDIT

1 0 0 00

ADJUSTMENTS DEBIT CREDIT

Cash

TRIAL BALANCE DEBIT CREDIT

Jim Jacobs’ Furniture Repair Work Sheet (Partial) For Year Ended December 31, 20--

ACCOUNT TITLE

Exercise 5-9A

130 CHAPTER 5

CHAPTER 5

131

Exercise 5-10A GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

20-2

PAGE

Dec. 31

Supplies Expense

6 5 0 00

Supplies

6 5 0 00

4 5

Insurance Expense

6 0 0 00

Prepaid Insurance

6 0 0 00

7 8

Depreciation Expense—Delivery Equipment

2 0 0 00

Accum. Depreciation—Delivery Equipment

2 0 0 00

10 11 12

8 9 10

Wages Expense Wages Payable

1 0 0 00

1 0 0 00 12

132

CHAPTER 5

Exercise 5-11A Income Statement Debit Credit

Balance Sheet Debit Credit

Cash

Accounts Receivable

Supplies

Prepaid Insurance

Delivery Equipment

Accum. Depr.

Delivery Equip.

Accounts Payable

Wages Payable

Owner, Capital

X X

Owner, Drawing X

Delivery Fees Wages Expense

Rent Expense

Supplies Expense

Insurance Expense

Depr. Exp.

Delivery Equip.

Exercise 5-12A Income Statement Debit Credit Net Income Net Loss

Balance Sheet Debit Credit

X X

CHAPTER 5

133

Exercise 5-13A

Cash Basis

Modified Cash Basis

Accrual Basis

1. Purchase supplies on account.

No entry

Supplies Accts. Payable

2. Make payment on asset previously purchased.

Expense Cash

Accts. Payable Cash

3. Purchase supplies for cash.

Supplies Expense Cash

Supplies Cash

4. Purchase insurance for cash.

Insurance Exp. Cash

Prepaid Insurance Cash

5. Pay cash for wages.

Wages Expense Cash

6. Pay cash for telephone expense.

Telephone Exp. Cash

7. Pay cash for new equipment.

Equipment Exp. Cash

Equipment Cash

8. Wages earned but not paid.

No entry

Wages Expense Wages Payable

9. Prepaid item purchased, partly used.

No entry

Expense Prepaid Asset

10. Depreciation on long-term assets.

No entry

Depr. Exp. Accum. Depr.

134

CHAPTER 5

Problem 5-14A Mason’s Delivery Work For Month Ended ACCOUNT TITLE

BALANCE DEBIT

CREDIT

ADJUSTMENTS DEBIT CREDIT

Cash

Accounts Receivable

9 4 0 00

Supplies

6 3 5 00

(a) 5 4 5 00

Prepaid Insurance

1 2 0 0 00

(b) 6 5 0 00

Delivery Equipment

6 4 0 0 00

Accum. Depr.—Delivery Equip.

Accounts Payable

Wages Payable

Jill Mason, Capital

Jill Mason, Drawing

Delivery Fees

Wages Expense

Advertising Expense

4 6 0 00

Rent Expense

8 0 0 00

Supplies Expense

Telephone Expense

Insurance Expense

Repair Expense

Oil and Gas Expense

Depr. Exp.—Delivery Equip.

(d) 3 5 0 00

(a) 5 4 5 00 1 6 5 00 (b) 6 5 0 00 2 3 0 00 9 0 00 (c) 6 0 0 00 15 4 2 0 00

1 6 0 0 00

15 4 2 0 00

2 1 4 5 00

Net Income

23 24 25 26 27 28 29 30 31 32 33

CHAPTER 5

135

Problem 5-14A (Concluded) Service Sheet September 30, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

1 6 0 0 00

9 4 0 00

9 0 00

5 5 0 00

6 4 0 0 00

6 0 0 00

1 2 2 0 00

3 5 0 00

8 0 0 0 00

1 4 0 0 00

1 4 0 0 00 6 2 0 0 00

6 2 0 0 00

10 11

1 8 5 0 00

4 6 0 00

8 0 0 00

5 4 5 00

1 6 5 00

6 5 0 00

2 3 0 00

9 0 00

6 0 0 00

16 3 7 0 00

5 3 9 0 00

6 2 0 0 00

10 9 8 0 00

8 1 0 00 6 2 0 0 00

10 1 7 0 00 21 8 1 0 00 22

6 2 0 0 00

10 9 8 0 00

10 9 8 0 00 23 24 25 26 27 28 29 30 31 32 33

136

CHAPTER 5

Problem 5-15A Campus Delivery Work For Month Ended ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

Cash

9 8 0 00

Accounts Receivable

5 9 0 00

Supplies

5 7 5 00

(a) 3 9 0 00

Prepaid Insurance

1 3 0 0 00

(b) 5 0 0 00

Van

5 8 0 0 00

Accumulated Depreciation—Van

Accounts Payable

Wages Payable

Jason Armstrong, Capital

Jason Armstrong, Drawing

Delivery Fees

Wages Expense

Advertising Expense

3 8 0 00

Rent Expense

9 0 0 00

Supplies Expense

Telephone Expense

Insurance Expense

Repair Expense

3 1 5 00

Oil and Gas Expense

1 0 0 00

Depreciation Expense—Van

9 6 0 00 (d) 1 9 0 00 10 0 0 0 00 6 0 0 00 2 6 0 0 00 1 8 0 0 00

(d) 1 9 0 00

(a) 3 9 0 00 2 2 0 00 (b) 5 0 0 00

13 5 6 0 00

1 3 8 0 00

Net Loss

23 24 25 26 27 28 29 30 31 32 33

CHAPTER 5

137

Problem 5-15A (Concluded) Service Sheet November 30, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

9 8 0 00

5 9 0 00

1 8 5 00

8 0 0 00

5 8 0 0 00

3 0 0 00

9 6 0 00

1 9 0 00

10 0 0 0 00

6 0 0 00

6 0 0 00 2 6 0 0 00

2 6 0 0 00

10 11

1 9 9 0 00

3 8 0 00

9 0 0 00

3 9 0 00

2 2 0 00

5 0 0 00

3 1 5 00

1 0 0 00

3 0 0 00

14 0 5 0 00

5 0 9 5 00

2 6 0 0 00

8 9 5 5 00

11 4 5 0 00 21

2 4 9 5 00

5 0 9 5 00

11 4 5 0 00

11 4 5 0 00 23 24 25 26 27 28 29 30 31 32 33

138

CHAPTER 5

Problem 5-16A 1.

GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20--

Nov. 30 Supplies Expense

Supplies

523

3 9 0 00

141

3 9 0 00

4 5 6

30 Insurance Expense

535

Prepaid Insurance

145

5 0 0 00

7 8 9

30 Depreciation Expense—Van Accumulated Depreciation—Van

541

3 0 0 00

185.1

3 0 0 00

10 11 12

8 9 10

30 Wages Expense

511

Wages Payable

219

1 9 0 00

1 9 0 00 12

CHAPTER 5

139

Problem 5-16A (Continued) 2.

GENERAL LEDGER

ACCOUNT

DATE

Supplies ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

141

BALANCE DEBIT

CREDIT

20--

Nov. 1 15

J1 J4

30 Adjusting

ACCOUNT

DATE

4 7 5 00 1 0 0 00

4 7 5 00 5 7 5 00 3 9 0 00

1 8 5 00

Prepaid Insurance ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

145

BALANCE DEBIT

CREDIT

20--

Nov. 1 30 Adjusting

ACCOUNT

DATE

J1 J5

Accumulated Depreciation ITEM

POST. REF.

1 3 0 0 00 5 0 0 00

1 3 0 0 00 8 0 0 00

Van DEBIT

ACCOUNT NO.

CREDIT

185.1

BALANCE DEBIT

CREDIT

20--

Nov. 30 Adjusting

ACCOUNT

DATE 20--

3 0 0 00

Wages Payable ITEM

Nov. 30 Adjusting

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

1 9 0 00

219

BALANCE DEBIT

CREDIT

1 9 0 00

140

CHAPTER 5

Problem 5-16A (Concluded) Wages Expense

ACCOUNT

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

511

BALANCE DEBIT

CREDIT

20--

Nov. 15 26 30 Adjusting

ACCOUNT

DATE

J3 J4

9 0 0 00 9 0 0 00

9 0 0 00 1 8 0 0 00

1 9 0 00

1 9 9 0 00

Supplies Expense ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

523

BALANCE DEBIT

CREDIT

20--

Nov. 30 Adjusting

ACCOUNT

DATE

3 9 0 00

Insurance Expense ITEM

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

535

BALANCE DEBIT

CREDIT

20--

Nov. 30 Adjusting

ACCOUNT

DATE

5 0 0 00

Depreciation Expense Van ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

541

BALANCE DEBIT

CREDIT

20--

Nov.

30 Adjusting

3 0 0 00

CHAPTER 5

141

Problem 5-17A: See pages 142 and 143 Exercise 5-1B (Balance Sheet) Supplies 430 Adj.

TB Bal.

310

Adj.

(Income Statement) Supplies Expense 310

120

GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20--

July 31 Supplies Expense 3 Supplies

3 1 0 00

3 1 0 00 3

Exercise 5-2B

TB Bal.

(Balance Sheet) Prepaid Insurance 750 Adj.

125

Adj.

(Income Statement) Insurance Expense 125

625

GENERAL JOURNAL DATE

POST. REF.

DEBIT

Adjusting Entries

1 2

DESCRIPTION

PAGE

20--

July 31 Insurance Expense

Prepaid Insurance

CREDIT

1 2 5 00

1 2 5 00 3

142

CHAPTER 5

Problem 5-17A Joyce Lee’s Work For Month Ended ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

Cash

Accounts Receivable

9 6 0 00

Supplies

5 2 5 00

(a) 3 6 5 00

Prepaid Insurance

9 3 0 00

(b) 4 1 0 00

Office Equipment

5 4 5 0 00

Accum. Depr.—Office Equipment

Accounts Payable

Wages Payable

Joyce Lee, Capital

Joyce Lee, Drawing

Professional Fees

Wages Expense

Advertising Expense

3 5 0 00

Rent Expense

7 0 0 00

Supplies Expense

Telephone Expense

1 3 0 00

Utilities Expense

1 9 0 00

Insurance Expense

(b) 4 1 0 00

Depr. Expense—Office Equipment

Miscellaneous Expense

(d) 1 1 0 00

(a) 3 6 5 00

1 7 5 00 13 6 8 0 00

1 7 2 5 00

13 6 8 0 00

1 1 6 0 00

Net Income

23 24 25 26 27 28 29 30 31

Note: Shaded areas indicate where corrections were made.

CHAPTER 5

143

Problem 5-17A (Concluded) Tax Service Sheet March 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

1 7 2 5 00

9 6 0 00

1 6 0 00

5 2 0 00

5 4 5 0 00

2 7 5 00

4 8 0 00

1 1 0 00

7 5 0 0 00

1 1 2 5 00

1 1 2 5 00 5 7 0 0 00

5 7 0 0 00

10 11

1 5 3 0 00

3 5 0 00

7 0 0 00

3 6 5 00

1 3 0 00

1 9 0 00

4 1 0 00

2 7 5 00

1 7 5 00

14 0 6 5 00

4 1 2 5 00

5 7 0 0 00

9 9 4 0 00

1 5 7 5 00 5 7 0 0 00

8 3 6 5 00 21 1 5 7 5 00 22

5 7 0 0 00

9 9 4 0 00

9 9 4 0 00 23 24 25 26 27 28 29 30 31

144

CHAPTER 5

Exercise 5-3B (Income Statement) Wages Expense 800

TB Adj.

150

Bal.

950

(Balance Sheet) Wages Payable Adj.

GENERAL JOURNAL DATE

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE POST. REF.

DESCRIPTION

150

20--

July 31 Wages Expense 3 Wages Payable

1 5 0 00 1 5 0 00

3 4

Exercise 5-4B $4,320 36

$120

(Income Statement) Depr. Expense Delivery Equipment Adj. 120

(Balance Sheet) Accum. Depr. Delivery Equipment Adj. 120

GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

DESCRIPTION

PAGE

20--

July 31 Depr. Expense—Delivery Equipment 3 Accumulated Depr.—Delivery Equipment 4

1 2

1 2 0 00 1 2 0 00

3 4

Exercise 5-5B Original cost

= $5,760

Less: Accumulated depreciation = Book value, July 1, 20--

720 (5,760/48 × 6 mos.)

= $5,040

CHAPTER 5

145

Exercise 5-6B 1.

TB Bal.

(Balance Sheet) Supplies 540 Adj. 95

(Income Statement) Supplies Expense 445

Adj.

445

TB Bal.

(Balance Sheet) Supplies 330 Adj. 50

(Income Statement) Supplies Expense 280

Adj.

280

Exercise 5-7B 1.

TB Bal.

(Balance Sheet) Prepaid Insurance 960 Adj. 130

(Income Statement) Insurance Expense 830

Adj.

830

TB Bal.

(Balance Sheet) Prepaid Insurance 1,135 Adj. 340

(Income Statement) Insurance Expense 795

Adj.

795

146

CHAPTER 5

Exercise 5-8B GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

July 31 Insurance Expense

535

Prepaid Insurance

145

3 2 0 00

4 5 6

3 4

31 Depreciation Expense—Cleaning Equipment Accumulated Depreciation—Cleaning Equipment

541 183.1

1 4 5 00

CHAPTER 5

147

Exercise 5-8B (Concluded) GENERAL LEDGER ACCOUNT

DATE

Prepaid Insurance ITEM

ACCOUNT NO. POST. REF.

20--

July

1 Balance 15

 J6

31 Adjusting

ACCOUNT

DATE

Accumulated Depreciation ITEM

POST. REF.

20--

July

DATE

CREDIT

BALANCE DEBIT

3 2 0 00

6 4 0 00

Cleaning Equipment DEBIT

CREDIT

ACCOUNT NO.

CREDIT

8 7 0 00 1 0 1 5 00

1 4 5 00

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

183.1

BALANCE DEBIT

Insurance Expense ITEM

CREDIT

3 2 0 00 9 6 0 00

6 4 0 00

 J7

1 Balance 31 Adjusting

ACCOUNT

DEBIT

145

535

BALANCE DEBIT

CREDIT

20--

July 31 Adjusting

ACCOUNT

DATE

3 2 0 00

Depreciation Expense Cleaning Equipment ITEM

POST. REF.

DEBIT

ACCOUNT NO.

CREDIT

541

BALANCE DEBIT

CREDIT

20--

July 31 Adjusting

1 4 5 00

5 2 0 00 7 5 0 00

Supplies

Prepaid Insurance

Cleaning Equipment

Accum. Depr.—Cleaning Equip.

Wages Payable

Insurance Expense

Depr. Exp.—Cleaning Equip.

7 6 7 0 00

(b) 5 5 0 00

Supplies Expense

7 6 7 0 00

(a) 4 3 0 00

1 5 0 00

Advertising Expense

9 5 0 00

1 5 3 0 00

8 2 2 0 00

3 0 0 00

5 5 0 00

4 3 0 00

1 5 0 00

8 2 2 0 00 14

(d) 2 5 0 00

7 0 0 00

Detailing Fees

Wages Expense

2 2 2 0 00

(d) 2 5 0 00 4 6 0 0 00

Jasmine Kah, Capital

1 1 5 0 00

5 4 0 0 00

2 0 0 00

9 0 00

1 5 0 00

ADJUSTED TRIAL BALANCE DEBIT CREDIT

2 5 0 00

8 5 0 00

(b) 5 5 0 00

(a) 4 3 0 00

ADJUSTMENTS DEBIT CREDIT

4 6 0 0 00

5 4 0 0 00

1 5 0 00

Cash

TRIAL BALANCE DEBIT CREDIT

Jasmine Kah’s Auto Detailing Work Sheet (Partial) For Month Ended June 30, 20--

ACCOUNT TITLE

Exercise 5-9B

148 CHAPTER 5

CHAPTER 5

149

Exercise 5-10B GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

June 30 Supplies Expense

4 3 0 00

Supplies

4 3 0 00

4 5 6

30 Insurance Expense

5 5 0 00

Prepaid Insurance

5 5 0 00

7 8 9

30 Depreciation Expense—Cleaning Equipment

3 0 0 00

Accum. Depreciation—Cleaning Equipment

3 0 0 00

10 11 12

8 9 10

30 Wages Expense Wages Payable

2 5 0 00

2 5 0 00 12

150

CHAPTER 5

Exercise 5-11B Income Statement Debit Credit

Balance Sheet Debit Credit

Cash

Accounts Receivable

Supplies

Prepaid Insurance

Automobile

Accum. Depr.

Automobile

Accounts Payable

Wages Payable

Owner, Capital

Owner, Drawing

Service Fees

Wages Expense

Supplies Expense

Utilities Expense

Insurance Expense

Depr. Exp.

Automobile

Exercise 5-12B Income Statement Debit Credit Net Income Net Loss

Balance Sheet Debit Credit

2,500

2,500 1,900

1,900

CHAPTER 5

151

Exercise 5-13B

Cash Basis

Modified Cash Basis

Accrual Basis

1. Office Equipment Cash Purchased equipment for cash

Debit Expense



2. Office Equipment Accounts Payable Purchased equipment on account

No entry



4. Accounts Receivable Revenue Services performed on account

No entry



5. Prepaid Insurance Cash Purchased prepaid asset

Debit Expense



6. Supplies Accounts Payable Purchased prepaid asset

No entry



7. Telephone Expense Cash Paid telephone bill



8. Wages Expense Cash Paid wages for month



9. Accounts Payable Cash Made payment on account

Accounts Payable not used. Debit Expense



10. Supplies Expense Supplies

No entry



3. Cash Revenue Cash receipts for week

152

CHAPTER 5

Exercise 5-13B (Concluded)

Cash Basis

Modified Cash Basis

Accrual Basis

11. Wages Expense Wages Payable

No entry



12. Depreciation Expense Office Equipment Accum. Depr. Office Equipment

No entry



 Indicates accounting method for which the entry would be appropriate.

CHAPTER 5

153

This page intentionally left blank.

154

CHAPTER 5

Problem 5-14B Louie’s Lawn Work For Month Ended ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

Cash

Accounts Receivable

8 8 0 00

Supplies

4 9 0 00

(a) 3 2 5 00

Prepaid Insurance

8 0 0 00

(b) 1 0 0 00

Lawn Equipment

5 7 0 0 00

Accum. Depr.—Lawn Equipment

Accounts Payable

Wages Payable

Louie Long, Capital

Louie Long, Drawing

Lawn Service Fees

Wages Expense

Advertising Expense

5 4 0 00

Rent Expense

7 2 5 00

Supplies Expense

Telephone Expense

Insurance Expense

Repair Expense

Depr. Expense—Lawn Equipment

Miscellaneous Expense

(d) 1 8 0 00

(a) 3 2 5 00 1 6 0 00 (b) 1 0 0 00 2 5 0 00 (c) 2 0 0 00 6 5 00 13 3 8 0 00

1 3 7 5 00

13 3 8 0 00

8 0 5 00

Net Income

23 24 25 26 27 28 29 30 31 32 33

CHAPTER 5

155

Problem 5-14B (Concluded) Service Sheet March 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

1 3 7 5 00

8 8 0 00

1 6 5 00

7 0 0 00

5 7 0 0 00

2 0 0 00

7 8 0 00

1 8 0 00

6 5 0 0 00

1 2 5 0 00

1 2 5 0 00 6 1 0 0 00

6 1 0 0 00

10 11

1 3 2 5 00

5 4 0 00

7 2 5 00

3 2 5 00

1 6 0 00

1 0 0 00

2 5 0 00

2 0 0 00

6 5 00

13 7 6 0 00

3 6 9 0 00

6 1 0 0 00

10 0 7 0 00

2 4 1 0 00 6 1 0 0 00

7 6 6 0 00 21 2 4 1 0 00 22

6 1 0 0 00

10 0 7 0 00

10 0 7 0 00 23 24 25 26 27 28 29 30 31 32 33

156

CHAPTER 5

Problem 5-15B Nolan’s Home Work For Month Ended ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

Cash

8 3 0 00

Accounts Receivable

7 6 0 00

Supplies

6 2 5 00

(a) 4 1 5 00

Prepaid Insurance

9 5 0 00

(b) 1 5 0 00

Automobile

Accum. Depr.—Automobile

Accounts Payable

Wages Payable

Val Nolan, Capital

Val Nolan, Drawing

Appraisal Fees

Wages Expense

Advertising Expense

Rent Expense

Supplies Expense

Telephone Expense

Insurance Expense

Repair Expense

Oil and Gas Expense

Depr. Expense—Automobile

(d) 1 7 5 00

4 2 0 00 1 0 5 0 00 (a) 4 1 5 00 2 5 5 00 (b) 1 5 0 00 2 7 0 00 8 0 00 (c) 2 5 0 00 14 4 0 0 00

6 5 0 0 00

14 4 0 0 00

9 9 0 00

Net Loss

23 24 25 26 27 28 29 30 31 32 33

CHAPTER 5

157

Problem 5-15B (Concluded) Appraisals Sheet October 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

8 3 0 00

7 6 0 00

2 1 0 00

8 0 0 00

6 5 0 0 00

2 5 0 00

1 5 0 0 00

1 7 5 00

9 9 0 0 00

1 1 0 0 00

1 1 0 0 00 3 0 0 0 00

3 0 0 0 00

10 11

1 7 3 5 00

4 2 0 00

1 0 5 0 00

4 1 5 00

2 5 5 00

1 5 0 00

2 7 0 00

8 0 00

2 5 0 00

14 8 2 5 00

4 6 2 5 00

3 0 0 0 00

10 2 0 0 00

11 8 2 5 00 21

1 6 2 5 00

4 6 2 5 00

11 8 2 5 00

11 8 2 5 00 23 24 25 26 27 28 29 30 31 32 33

158

CHAPTER 5

Problem 5-16B 1.

GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Oct.

31 Supplies Expense

523

Supplies

141

4 1 5 00

4 5 6

31 Insurance Expense

535

Prepaid Insurance

145

1 5 0 00

7 8 9

6 7

31 Depreciation Expense—Automobile Accumulated Depreciation—Automobile

541

2 5 0 00

185.1

2 5 0 00

10 11

9 10

31 Wages Expense

511

Wages Payable

219

1 7 5 00

1 7 5 00 12

CHAPTER 5

159

Problem 5-16B (Continued) 2.

GENERAL LEDGER

ACCOUNT

DATE

Supplies ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

141

BALANCE DEBIT

CREDIT

20--

Oct.

2 31 Adjusting

ACCOUNT

DATE

J1 J3

6 2 5 00 4 1 5 00

6 2 5 00 2 1 0 00

Prepaid Insurance ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

145

BALANCE DEBIT

CREDIT

20--

Oct.

3 31 Adjusting

ACCOUNT

DATE

J1 J3

Accumulated Depreciation ITEM

POST. REF.

9 5 0 00 1 5 0 00

9 5 0 00 8 0 0 00

Automobile DEBIT

ACCOUNT NO.

CREDIT

185.1

BALANCE DEBIT

CREDIT

20--

Oct. 31 Adjusting

2 5 0 00

160

CHAPTER 5

Problem 5-16B (Continued) ACCOUNT

DATE

Wages Payable ITEM

20--

Oct. 31 Adjusting

ACCOUNT

DATE

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

1 7 5 00

Wages Expense ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

219

511

BALANCE DEBIT

CREDIT

20--

Oct. 15 26 31 Adjusting

ACCOUNT

DATE 20--

J2 J2

7 0 0 00 8 6 0 00

7 0 0 00 1 5 6 0 00

1 7 5 00

1 7 3 5 00

Supplies Expense ITEM

Oct. 31 Adjusting

ACCOUNT NO. POST. REF.

DEBIT

4 1 5 00

CREDIT

523

BALANCE DEBIT

CREDIT

4 1 5 00

CHAPTER 5

161

Problem 5-16B (Concluded) ACCOUNT

DATE

Insurance Expense ITEM

20--

Oct. 31 Adjusting

ACCOUNT

DATE 20--

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

1 5 0 00

BALANCE DEBIT

Oct. 31 Adjusting

POST. REF.

DEBIT

2 5 0 00

CREDIT

1 5 0 00

Depreciation Expense Automobile ITEM

535

ACCOUNT NO.

CREDIT

541

BALANCE DEBIT

CREDIT

2 5 0 00

162

CHAPTER 5

Problem 5-17B Dick Ady’s Work For Month Ended ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

Cash

Accounts Receivable

8 4 5 00

Supplies

6 2 0 00

(a) 4 9 0 00

Prepaid Insurance

1 1 5 0 00

(b) 7 3 0 00

Office Equipment

6 4 0 0 00

Accum. Depr.—Office Equipment

Accounts Payable

Wages Payable

Dick Ady, Capital

Dick Ady, Drawing

Professional Fees

Wages Expense

Advertising Expense

3 8 0 00

Rent Expense

8 5 0 00

Supplies Expense

Telephone Expense

2 0 5 00

Utilities Expense

2 8 5 00

Insurance Expense

(b) 7 3 0 00

Depr. Expense—Office Equipment

Miscellaneous Expense

9 5 00

7 8 0 0 00 1 2 0 0 00 6 3 5 0 00 1 4 9 5 00

(d)

9 5 00

(a) 4 9 0 00

9 0 00 14 8 8 5 00

1 3 6 5 00

14 8 8 5 00

1 6 4 0 00

Net Income

23 24 25 26 27 28 29 30 31 32

Note: Shaded areas indicate where corrections were made. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 5

163

Problem 5-17B (Concluded) Bookkeeping Service Sheet July 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

1 3 6 5 00

8 4 5 00

1 3 0 00

4 2 0 00

6 4 0 0 00

3 2 5 00

7 3 5 00

9 5 00

7 8 0 0 00

1 2 0 0 00

1 2 0 0 00 6 3 5 0 00

6 3 5 0 00

10 11

1 5 9 0 00

3 8 0 00

8 5 0 00

4 9 0 00

2 0 5 00

2 8 5 00

7 3 0 00

3 2 5 00

9 0 00

15 3 0 5 00

4 9 4 5 00

6 3 5 0 00

10 3 6 0 00

1 4 0 5 00 6 3 5 0 00

8 9 5 5 00 21 1 4 0 5 00 22

6 3 5 0 00

10 3 6 0 00

10 3 6 0 00 23 24 25 26 27 28 29 30 31 32

164

CHAPTER 5

MANAGING YOUR WRITING Adjusting entries are important because the bank will want a proper matching of expenses and revenues for the year and proper measures of assets and liabilities as of December 31, 20--. Failure to make these adjustments not only leads to incorrect financial statements, but also conveys the impression that Ms. Alvarez is not knowledgeable about business matters. Students should request additional information on the following accounts: Supplies: What was the cost of supplies remaining on 12/31? This amount should be reported as an asset. The supplies used during the period should be recognized as an expense. Prepaid Insurance: How much of the amount applies to insurance for next year? That amount should be reported as an asset. The remainder is an expense. Lawn Equipment: How long has the equipment been owned? What is its expected life and salvage value? This information would be used to recognize depreciation expense and to reduce the book value of the asset by establishing a contra-asset account for accumulated depreciation. Rent Expense: Was this amount paid only for 20--? Or, was part of it paid for next year? If so, prepaid rent should be recognized and the expense should be reduced. Wages Expense: Did the employees earn wages in 20-- that were not paid by 12/31/--? If so, additional wages expense and wages payable should be recognized. Gas and Oil Expense: How much gas and oil still remains on 12/31? If it is just the amounts in the tanks and engines of the equipment, an adjustment is not worthwhile. However, if several cases of oil were stored on 12/31, an adjustment should be made to recognize this asset and reduce the expense. Later in the text, we will cover the need to adjust Accounts Receivable for estimated bad debts. Some students may also request this information. Note: The potential adjustments for rent, gas, and oil were not discussed in the text. The assignment provides an excellent opportunity to gauge student understanding of the concept of adjusting entries and their ability to apply this concept to new situations.

CHAPTER 5

165

This page intentionally left blank.

166

CHAPTER 5

Mastery Problem 1.

Kristi Williams Family Work For Year Ended ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

Cash

8 7 3 0 00

Office Supplies

7 0 0 00

(a)

6 0 0 00

Prepaid Insurance

6 0 0 00

(d)

1 0 0 00

Office Equipment

18 0 0 0 00

Accum. Depr.—Office Equip.

Computer Equipment

Accum. Depr.—Computer Equip.

Notes Payable

Accounts Payable

Kristi Williams, Capital

Kristi Williams, Drawing

Client Fees

Wages Expense

9 5 0 0 00

Rent Expense

6 0 0 0 00

Office Supplies Expense

Utilities Expense

(b) 1 8 0 0 00 6 0 0 0 00 (c) 1 0 0 0 00 8 0 0 0 00 5 0 0 00 11 4 0 0 00 3 0 0 0 00 35 8 0 0 00

(a)

6 0 0 00

Insurance Expense

(d)

1 0 0 00

Depr. Expense—Office Equip.

(b) 1 8 0 0 00

Depr. Exp.—Computer Equip.

Miscellaneous Expense

1 0 0 0 00 55 7 0 0 00

2 1 7 0 00

55 7 0 0 00

3 5 0 0 00

Net Income

23 24 25 26 27 28 29 30 31 32

CHAPTER 5

167

Mastery Problem (Continued) Counseling Services Sheet December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

8 7 3 0 00

1 0 0 00

5 0 0 00

18 0 0 0 00

1 8 0 0 00

6 0 0 0 00

1 0 0 0 00

8 0 0 0 00

5 0 0 00

11 4 0 0 00

11 4 0 0 00 10

3 0 0 0 00

3 0 0 0 00 35 8 0 0 00

35 8 0 0 00

11 12

9 5 0 0 00

6 0 0 0 00

6 0 0 00

2 1 7 0 00

1 0 0 00

1 8 0 0 00

1 0 0 0 00

58 5 0 0 00

22 1 7 0 00

35 8 0 0 00

36 3 3 0 00

13 6 3 0 00 35 8 0 0 00

22 7 0 0 00 21 13 6 3 0 00 22

35 8 0 0 00

36 3 3 0 00

36 3 3 0 00 23 24 25 26 27 28 29 30 31 32

168

CHAPTER 5

Mastery Problem (Concluded) 2.

GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31 Office Supplies Expense

6 0 0 00

Office Supplies

6 0 0 00

4 5 6

31 Depreciation Expense—Office Equipment

1 8 0 0 00

Accumulated Depreciation—Office Equipment

1 8 0 0 00

7 8 9

31 Depreciation Expense—Computer Equipment

1 0 0 0 00

Accum. Depreciation—Computer Equipment

1 0 0 0 00

10 11 12

8 9 10

31 Insurance Expense Prepaid Insurance

1 0 0 00

1 0 0 00 12

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CHAPTER 5

169

Challenge Problem See pages 170–171 for work sheet for Challenge Problem.

170

CHAPTER 5

Challenge Problem 1.

Diane Kiefner’s Wilderness Work For Summer ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

Cash

Prepaid Advertising Supplies

Kayak & Paddles

Accum. Depr.—Kayak & Paddles

Diane Kiefner, Capital

15 0 0 0 00

Tour Revenue

10 0 0 0 00

Advertising Supplies Expense

1 0 0 0 00

Food Expense

2 0 0 0 00

Equipment Rental Expense

3 0 0 0 00

Travel Expense

4 0 0 0 00

Kayak Expense

3 5 0 0 00

Depr. Exp.—Kayak & Paddles

11 5 0 0 00 7 5 0 00 3 5 0 0 00 7 0 0 00

7 5 0 00

3 5 0 0 00 7 0 0 00

25 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

25 0 0 0 00

4 9 5 0 00

Net Income

15 16 17 18 19

CHAPTER 5

171

Challenge Problem (Concluded) Kayaking Tours Sheet Ended 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

11 5 0 0 00

7 5 0 00

3 5 0 0 00

7 0 0 00

15 0 0 0 00

10 0 0 0 00

2 5 0 00

2 0 0 0 00

3 0 0 0 00

4 0 0 0 00

10 11

7 0 0 00 25 7 0 0 00

9 9 5 0 00

10 0 0 0 00

15 7 5 0 00

5 0 00 10 0 0 0 00

15 7 0 0 00 13 5 0 00 14

10 0 0 0 00

15 7 5 0 00

15 7 5 0 00 15 16 17 18 19

Diane thought she lost $3,500. She actually made net income of $50. Although she

did not actually lose money this summer, buying her own kayak did significantly reduce her profitability. Note the depreciation expense of $700.

172

CHAPTER 5

APPENDIX: DEPRECIATION METHODS REVIEW QUESTIONS 1. straight-line double-declining-balance sum-of-the-years’-digits 2. Modified Accelerated Cost Recovery System

Exercise 5Apx-1A Straight-Line Depreciation Depreciation Expense

Accumulated Depreciation End of Year

Book Value End of Year

Year

Depreciable Cost

$20,000

25%

$5,000

$ 5,000

$20,000

20,000

25%

5,000

10,000

15,000

20,000

25%

5,000

15,000

10,000

20,000

25%

5,000

20,000

5,000

Rate

Depreciation Expense

Accumulated Depreciation End of Year

Book Value End of Year

Rate

Exercise 5Apx-2A Sum-of-the-Years’-Digits

Year

Depreciable Cost

$20,000

4/10

$8,000

$ 8,000

$17,000

20,000

3/10

6,000

14,000

11,000

20,000

2/10

4,000

18,000

7,000

20,000

1/10

2,000

20,000

5,000

CHAPTER 5

173

Exercise 5Apx-3A Double-Declining-Balance Method

Year

Book Value Beginning of Year

$25,000

50%

$12,500

12,500

50%

6,250

18,750

6,250

1,250

20,000

5,000

20,000

5,000

Depreciation Expense

Accumulated Depreciation End of Year

Book Value End of Year

Rate

Depreciation Expense

Accumulated Depreciation End of Year

Book Value End of Year

Exercise 5Apx-4A Modified Accelerated Cost Recovery System

Year

Cost

Rate

$25,000

20.00%

$5,000

$ 5,000

$20,000

25,000

32.00%

8,000

13,000

12,000

25,000

19.20%

4,800

17,800

7,200

25,000

11.52%

2,880

20,680

4,320

25,000

11.52%

2,880

23,560

1,440

25,000

5.76%

1,440

25,000

Rate

Depreciation Expense

Accumulated Depreciation End of Year

Book Value End of Year

Exercise 5Apx-1B Straight-Line Depreciation

Year

Depreciable Cost

$4,500

20%

$900

$ 900

$4,100

4,500

20%

900

1,800

3,200

4,500

20%

900

2,700

2,300

4,500

20%

900

3,600

1,400

4,500

20%

900

4,500

500

174

CHAPTER 5

Exercise 5Apx-2B Sum-of-the-Years’-Digits Depreciation Expense

Accumulated Depreciation End of Year

Book Value End of Year

Year

Depreciable Cost

$4,500

5/15

$1,500

$3,500

4,500

4/15

1,200

2,700

2,300

4,500

3/15

900

3,600

1,400

4,500

2/15

600

4,200

800

4,500

1/15

300

4,500

500

Rate

Depreciation Expense

Accumulated Depreciation End of Year

Book Value End of Year

Rate

Exercise 5Apx-3B Double-Declining-Balance Method

Year

Book Value Beginning of Year

$5,000

40%

$2,000

$3,000

3,000

40%

1,200

3,200

1,800

40%

720

3,920

1,080

40%

432

4,352

648

148

4,500

500

Depreciation Expense

Accumulated Depreciation End of Year

Book Value End of Year

Exercise 5Apx-4B Modified Accelerated Cost Recovery System

Year

Cost

Rate

$5,000

20.00%

$1,000

$4,000

5,000

32.00%

1,600

2,600

2,400

5,000

19.20%

960

3,560

1,440

5,000

11.52%

576

4,136

864

5,000

11.52%

576

4,712

288

5,000

5.76%

288

5,000

CHAPTER 6 FINANCIAL STATEMENTS AND THE CLOSING PROCESS REVIEW QUESTIONS 1.

The information needed to prepare the income statement is found in the Income Statement columns of the work sheet. Revenue is shown first, followed by an itemized and totaled list of expenses. Net income may be calculated or copied from the Income Statement columns of the work sheet.

Two approaches to listing the expenses in the income statement are: a. the expenses could be listed in the same order that they appear in the chart of accounts. b. the expenses could be listed in descending order, by dollar amount.

The Balance Sheet columns of the work sheet provide most of the information needed to prepare a statement of owner’s equity. The capital account balance and the drawing account balance are in the Balance Sheet columns of the work sheet. The net income for the year can be found either on the work sheet at the bottom of the Balance Sheet columns or on the income statement. Additional investments must be identified in the owner’s capital account.

If additional investments are made during the year, the owner’s capital account in the general ledger must be reviewed. The owner’s capital account in the general ledger contains the beginning balance. The additional investments will also be shown in the owner’s capital account in the general ledger.

The work sheet and the statement of owner’s equity are used to prepare the balance sheet. The asset and liability amounts can be found in the Balance Sheet columns of the work sheet. The ending balance for the owner’s capital has been computed on the statement of owner’s equity. This amount should be copied from the statement of owner’s equity to the balance sheet.

A permanent account is an account in which the balance is brought forward for each new period. Assets, liabilities, and the owner’s capital account accumulate information across accounting periods. Their balances are brought forward for each new period. All accounts reported on the balance sheet are permanent accounts.

Three types of temporary accounts are revenue, expense, and drawing accounts. These accounts accumulate information for a specific accounting period.

The four steps in the closing process are: Step 1: Close revenue accounts to Income Summary. Step 2: Close expense accounts to Income Summary. Step 3: Close Income Summary to the owner’s capital account. Step 4: Close Drawing to the owner’s capital account.

The net effect of the four closing entries on the balance of the owner’s capital account is that the balance from Income Summary is transferred to the owner’s capital account and the drawing account is closed to the owner’s capital account. Upon completion of the four steps, all temporary accounts have zero balances and the earnings and withdrawals for the period have been transferred to the owner’s capital account. This same amount, the increase or decrease in capital, is calculated on the statement of owner’s equity.

176

CHAPTER 6

10. The purpose of the post-closing trial balance is to prove the equality of the debit and credit balances in the general ledger accounts, after posting the closing entries. 11. The 10 steps in the accounting cycle are: During the Accounting Period 1. Analyze source documents. 2. Journalize the transactions. 3. Post to the ledger accounts. End of Accounting Period 4. Prepare a trial balance. 5. Determine and prepare the needed adjustments on the work sheet. 6. Complete an end-of-period work sheet. 7. Journalize and post the adjusting entries. 8. Prepare an income statement, a statement of owner’s equity, and a balance sheet. 9. Journalize and post the closing entries. 10. Prepare a post-closing trial balance.

CHAPTER 6

177

Exercise 6-1A Major Advising Income Statement For Month Ended January 31, 20-Revenue: Advising fees

$4,140

Expenses: Wages expense

$700

Advertising expense

Rent expense

500

Supplies expense

150

Telephone expense

Electricity expense

Insurance expense

Gas and oil expense

Depreciation expense—office equipment

200

Miscellaneous expense

Total expenses

1,920

Net income

$2,220

Exercise 6-2A Major Advising Statement of Owner’s Equity For Month Ended January 31, 20-Ed Major, capital, January 1, 20-Net income for January Less withdrawals for January

$4,100 $2,220 900

Increase in capital

1,320

Ed Major, capital, January 31, 20--

$5,420

178

CHAPTER 6

Exercise 6-3A Major Advising Balance Sheet January 31, 20-Assets Current assets: Cash

$1,339

Accounts receivable

935

Supplies

346

Prepaid insurance

800

Total current assets

$3,420

Property, plant, and equipment: Office equipment

$3,500

Less accumulated depreciation

200

Total assets

3,300 $6,720

Liabilities Current liabilities: Accounts payable

$1,000

Wages payable

300

Total current liabilities

$1,300

Owner’s Equity Ed Major, capital

5,420

Total liabilities and owner’s equity

$6,720

CHAPTER 6

179

Exercise 6-4A GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

DEBIT

CREDIT

Closing Entries

20--

Jan. 31 Advising Fees 3 Income Summary

401

4 1 4 0 00

313

4 1 4 0 00

31 Income Summary

313

1 9 2 0 00

Wages Expense

511

7 0 0 00

Advertising Expense

512

9 0 00

Rent Expense

521

5 0 0 00

Supplies Expense

524

1 5 0 00

Telephone Expense

525

6 7 00 10

Electricity Expense

533

4 8 00 11

Insurance Expense

535

8 9 00 12

Gas and Oil Expense

538

5 3 00 13

Depreciation Expense—Office Equipment

541

2 0 0 00 14

Miscellaneous Expense

549

2 3 00 15

31 Income Summary

313

Ed Major, Capital

2 2 2 0 00

311

2 2 2 0 00 18

31 Ed Major, Capital

311

Ed Major, Drawing

9 0 0 00

312

9 0 0 00 21

Bal.

Cash 1,339

101

Supplies 346

141

Bal.

Office Equipment 3,500

181

Bal.

Accounts Receivable 935

122

Bal.

Prepaid Insurance 800

145

Bal.

Accum. Depr.—Office Equip. Bal.

181.1 200

180

CHAPTER 6

Exercise 6-4A (Concluded)

Closing

Accounts Payable Bal.

202 1,000

Ed Major, Capital 900 Bal. Closing

311 4,100 2,220

Bal.

Wages Payable Bal.

219 300

Ed Major, Drawing 900 Closing —

312 900 —

Advising Fees 4,140 Bal. —

401 4,140 —

6,320

Bal.

Closing Closing

Income Summary 1,920 Closing 2,220

5,420

313 4,140 —

Closing

4,140

—

Bal.

Wages Expense 700 Closing —

511 700 —

Bal.

Advertising Expense 90 Closing —

512 90 —

Bal.

Rent Expense 500 Closing —

521 500 —

Bal.

Supplies Expense 150 Closing —

524 150 —

Bal.

Telephone Expense 67 Closing —

525 67 —

Bal.

Electricity Expense 48 Closing —

533 48 —

Bal.

Insurance Expense 89 Closing —

535 89 —

Bal.

Gas and Oil Expense 53 Closing —

538 53 —

Bal.

Depr. Exp.—Office Equip. 541 200 Closing 200 — —

Bal.

Miscellaneous Expense 23 Closing —

549 23 —

CHAPTER 6

181

Exercise 6-5A GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

DESCRIPTION

PAGE

20—

Apr. 30 Golf Instruction Fees 3 Income Summary

401

4 0 0 0 00

313

4 0 0 0 00

30 Income Summary

313

2 4 8 0 00

Wages Expense

511

8 0 0 00

Advertising Expense

512

2 0 0 00

Travel Expense

515

6 0 0 00

Supplies Expense

524

5 0 0 00

Insurance Expense

535

1 0 0 00 10

Postage Expense

536

5 0 00 11

Gas and Oil Expense

538

1 5 0 00 12

Miscellaneous Expense

549

8 0 00 13

14 15 16

30 Income Summary Chris Williams, Capital

313

1 5 2 0 00

311

1 5 2 0 00 16

17 18

30 Chris Williams, Capital Chris Williams, Drawing

311 312

1 0 0 0 00

1 0 0 0 00 19

182

CHAPTER 6

Exercise 6-5A (Concluded) Bal.

Bal.

Closing

Cash 500

101

Accounts Receivable 1,500

122

Wages Payable Bal.

219 400

Chris Williams, Capital Bal. 1,000 Closing

311 9,000 1,520

Bal.

Advertising Expense 200 Closing —

512 200 —

Bal.

Travel Expense 600 Closing —

515 600 —

Bal.

Supplies Expense 500 Closing —

524 500 —

Bal.

Insurance Expense 100 Closing —

535 100 —

Bal.

Postage Expense 50 Closing —

536 50 —

Bal.

Gas and Oil Expense 150 Closing —

538 150 —

Bal.

Miscellaneous Expense 80 Closing —

549 80 —

10,520

Bal.

Closing Closing

9,520

Chris Williams, Drawing 1,000 Closing —

312 1,000 —

Income Summary 2,480 Closing 1,520

313 4,000

4,000

—

Closing

Bal.

—

Golf Instruction Fees 4,000 Bal. —

401 4,000 —

Wages Expense 800 Closing —

511 800 —

CHAPTER 6

183

Exercise 6-6A GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

1 20--

Jan. 31 Delivery Fees 3 Income Summary 2

401

2 2 0 0 00

313

2 2 0 0 00

31 Income Summary

313

2 8 0 3 00

Wages Expense

511

1 8 0 0 00

Advertising Expense

512

8 0 00

Rent Expense

521

5 0 0 00

Supplies Expense

523

1 2 0 00

Telephone Expense

525

5 8 00 10

Electricity Expense

533

4 4 00 11

Insurance Expense

535

3 0 00 12

Gas and Oil Expense

538

3 8 00 13

Depreciation Expense—Delivery Equipment

541

1 0 0 00 14

Miscellaneous Expense

549

3 3 00 15

16 17 18

31 Saburo Goto, Capital

311

Income Summary

313

6 0 3 00

6 0 3 00 18

19 20

31 Saburo Goto, Capital Saburo Goto, Drawing

311 312

8 0 0 00

8 0 0 00 21

184

CHAPTER 6

Exercise 6-6A (Concluded) Accum. Depr.—Delivery Equip. Bal.

185.1 100

Saburo Goto, Capital 603 Bal. 800

311 4,000

Closing Closing

Wages Payable Bal.

219 200

Saburo Goto, Drawing 800 Closing —

312 800 —

Delivery Fees 2,200 Bal. —

401 2,200 —

Bal.

Advertising Expense 80 Closing —

512 80 —

523 120 —

Bal.

1,403

Bal.

Closing

Income Summary 2,803 Closing Closing

2,597

313 2,200 603

Closing

2,803

—

Bal.

Wages Expense 1,800 Closing —

511 1,800 —

Bal.

Rent Expense 500 Closing —

521 500 —

Bal.

Supplies Expense 120 Closing —

Bal.

Telephone Expense 58 Closing —

525 58 —

Bal.

Electricity Expense 44 Closing —

533 44 —

Bal.

Insurance Expense 30 Closing —

535 30 —

Bal.

Gas and Oil Expense 38 Closing —

538 38 —

Bal.

Depr. Exp.—Delivery Equip. 100 Closing —

541 100 —

Bal.

Miscellaneous Expense 33 Closing —

549 33 —

CHAPTER 6

185

Problem 6-7A 1.

Megaffin’s Repairs Income Statement For Month Ended January 31, 20-Revenue: Repair fees

$4,700

Expenses: Wages expense

$2,150

Advertising expense

200

Rent expense

640

Supplies expense

300

Telephone expense

Insurance expense

230

Gas and oil expense

200

Depreciation expense—delivery equipment

Miscellaneous expense

Total expenses

3,862

Net income

$ 838

Megaffin’s Repairs Statement of Owner’s Equity For Month Ended January 31, 20-Don Megaffin, capital, January 1, 20--

$8,000)

Net income for January

$ 838

Less withdrawals for January

1,100

Decrease in capital Don Megaffin, capital, January 31, 20--

(262) $7,738)

186

CHAPTER 6

Problem 6-7A (Concluded) 3.

Megaffin’s Repairs Balance Sheet January 31, 20-Assets Current assets: Cash

$3,673

Accounts receivable

1,450

Supplies

400

Prepaid insurance

670

Total current assets

$6,193

Property, plant, and equipment: Delivery equipment

$3,200

Less accumulated depreciation

Total assets

3,145 $9,338

Liabilities Current liabilities: Accounts payable

$1,200

Wages payable

400

Total current liabilities

$1,600

Owner’s Equity Don Megaffin, capital

7,738

Total liabilities and owner’s equity

$9,338

CHAPTER 6

187

Problem 6-8A 1.

GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 20--

Jan. 31 Supplies Expense 3 Supplies 2

523

3 0 0 00

141

3 0 0 00

4 5 6

31 Insurance Expense

535

Prepaid Insurance

145

2 3 0 00

7 8 9

31 Wages Expense

511

Wages Payable

219

4 0 0 00 4 0 0 00

10 11 12

8 9 10

31 Depreciation Expense—Delivery Equipment Accumulated Depreciation—Delivery Equip.

541 185.1

5 5 00

5 5 00 12

188

CHAPTER 6

Problem 6-8A (Continued) 2.

GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

DEBIT

CREDIT

Closing Entries

20--

Jan. 31 Repair Fees 3 Income Summary

401

4 7 0 0 00

313

4 7 0 0 00

31 Income Summary

313

3 8 6 2 00

Wages Expense

511

2 1 5 0 00

Advertising Expense

512

2 0 0 00

Rent Expense

521

6 4 0 00

Supplies Expense

523

3 0 0 00

Telephone Expense

525

5 0 00 10

Insurance Expense

535

2 3 0 00 11

Gas and Oil Expense

538

2 0 0 00 12

Depreciation Expense—Delivery Equipment

541

5 5 00 13

Miscellaneous Expense

549

3 7 00 14

31 Income Summary

313

Don Megaffin, Capital

8 3 8 00

311

8 3 8 00 17

31 Don Megaffin, Capital

311

Don Megaffin, Drawing

1 1 0 0 00

312

1 1 0 0 00 20

GENERAL LEDGER 1. and 2. ACCOUNT

DATE

Cash

ACCOUNT NO.

ITEM

20--

Jan. 31 Balance

POST. REF.



DEBIT

CREDIT

101

BALANCE DEBIT

CREDIT

3 6 7 3 00

CHAPTER 6

189

Problem 6-8A (Continued) ACCOUNT

DATE

Accounts Receivable ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

CREDIT

20--



Jan. 31 Balance

ACCOUNT

Supplies

ACCOUNT NO.

ITEM

POST. REF.

Jan. 31 Balance 31 Adjusting

 J10

DATE

1 4 5 0 00

DEBIT

CREDIT

141

BALANCE DEBIT

CREDIT

20--

ACCOUNT

Prepaid Insurance

ACCOUNT NO.

ITEM

POST. REF.

Jan. 31 Balance 31 Adjusting

 J10

DATE

3 0 0 00

7 0 0 00 4 0 0 00

DEBIT

CREDIT

145

BALANCE DEBIT

CREDIT

20--

ACCOUNT

DATE

2 3 0 00

9 0 0 00 6 7 0 00

Delivery Equipment ITEM

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

185

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance

ACCOUNT



Accumulated Depreciation ITEM

POST. REF.

Jan. 31 Adjusting

J10

DATE 20--

3 2 0 0 00

Delivery Equipment DEBIT

ACCOUNT NO.

CREDIT

5 5 00

185.1

BALANCE DEBIT

CREDIT

5 5 00

190

CHAPTER 6

Problem 6-8A (Continued) Accounts Payable

ACCOUNT

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance



1 2 0 0 00

Wages Payable

ACCOUNT

ACCOUNT NO.

ITEM

POST. REF.

Jan. 31 Adjusting

J10

DATE

DEBIT

CREDIT

219

BALANCE DEBIT

CREDIT

20--

4 0 0 00

Don Megaffin, Capital

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

311

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

 J11

31 Closing

J11

8 0 0 0 00 8 8 3 8 00

8 3 8 00 1 1 0 0 00

7 7 3 8 00

Don Megaffin, Drawing

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

312

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

 J11

1 1 0 0 00 1 1 0 0 00

Income Summary

ACCOUNT

DATE

ITEM

20--

ACCOUNT NO. POST. REF.

DEBIT

Jan. 31 Closing 31 Closing

J11 J11

3 8 6 2 00

31 Closing

J11

8 3 8 00

CREDIT

4 7 0 0 00

313

BALANCE DEBIT

CREDIT

4 7 0 0 00 8 3 8 00

CHAPTER 6

191

Problem 6-8A (Continued) ACCOUNT

Repair Fees

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

 J11

4 7 0 0 00 4 7 0 0 00

Wages Expense

ACCOUNT

ACCOUNT NO.

ITEM

POST. REF.

Jan. 31 Balance 31 Adjusting

 J10

DATE

DEBIT

CREDIT

511

BALANCE DEBIT

CREDIT

20--

31 Closing

ACCOUNT DATE

1 7 5 0 00 2 1 5 0 00

4 0 0 00

J11

2 1 5 0 00

Advertising Expense ITEM

POST. REF.

ACCOUNT NO. DEBIT

CREDIT

512

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

ACCOUNT DATE

 J11

2 0 0 00 2 0 0 00

Rent Expense ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

521

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

ACCOUNT

 J11

6 4 0 00

Supplies Expense

ACCOUNT NO.

ITEM

POST. REF.

Jan. 31 Adjusting 31 Closing

J10 J11

DATE

6 4 0 00

DEBIT

CREDIT

523

BALANCE DEBIT

CREDIT

20--

3 0 0 00

3 0 0 00 3 0 0 00

192

CHAPTER 6

Problem 6-8A (Continued) Telephone Expense

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

525

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

 J11

5 0 00 5 0 00

Insurance Expense

ACCOUNT

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

Jan. 31 Adjusting

J10

2 3 0 00

DATE

CREDIT

535

BALANCE DEBIT

CREDIT

20--

31 Closing

J11

2 3 0 00 2 3 0 00

Gas and Oil Expense

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

538

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

 J11

2 0 0 00 2 0 0 00

Depreciation Expense Delivery Equipment

ACCOUNT

DATE

ITEM

POST. REF.

DEBIT

ACCOUNT NO.

CREDIT

541

BALANCE DEBIT

CREDIT

20--

Jan. 31 Adjusting 31 Closing

ACCOUNT

DATE

J10 J11

5 5 00

5 5 00 5 5 00

Miscellaneous Expense ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

549

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

 J11

3 7 00 3 7 00

CHAPTER 6

193

Problem 6-8A (Concluded) 3.

Megaffin’s Repairs Post-Closing Trial Balance January 31, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

3 6 7 3 00

Accounts Receivable

122

1 4 5 0 00

Supplies

141

4 0 0 00

Prepaid Insurance

145

6 7 0 00

Delivery Equipment

185

3 2 0 0 00

Accumulated Depreciation—Delivery Equipment

185.1

5 5 00

Accounts Payable

202

1 2 0 0 00

Wages Payable

219

4 0 0 00

Don Megaffin, Capital

311

7 7 3 8 00

ACCOUNT

9 3 9 3 00

CREDIT BALANCE

9 3 9 3 00

Problem 6-9A Autumn’s Home Designs Statement of Owner’s Equity For Month Ended January 31, 20-Autumn Chou, capital, January 1, 20--

$4,800

Investments during January

1,200

Total investment

$6,000

Net income for January

$1,820

Less withdrawals for January

1,000

Increase in capital Autumn Chou, capital, January 31, 20--

820 $6,820

194

CHAPTER 6

Exercise 6-1B Adams’ Shoe Shine Income Statement For Month Ended June 30, 20-Revenue: Service fees

$4,813

Expenses: Wages expense

$1,080

Advertising expense

Rent expense

900

Supplies expense

322

Telephone expense

133

Utilities expense

102

Insurance expense

120

Gas and oil expense

Depreciation expense—office equipment

110

Miscellaneous expense

Total expenses

2,987

Net income

$1,826

Exercise 6-2B Adams’ Shoe Shine Statement of Owner’s Equity For Month Ended June 30, 20-Mary Adams, capital, June 1, 20--

$6,000)

Net income for June

$1,826

Less withdrawals for June

2,000

Decrease in capital Mary Adams, capital, June 30, 20--

(174) $5,826)

CHAPTER 6

195

Exercise 6-3B Adams’ Shoe Shine Balance Sheet June 30, 20-Assets Current assets: Cash

$3,262

Accounts receivable

1,244

Supplies

800

Prepaid insurance

640

Total current assets

$5,946

Property, plant, and equipment: Office equipment

$2,100

Less accumulated depreciation—office equipment

110

Total assets

1,990 $7,936

Liabilities Current liabilities: Accounts payable

$1,850

Wages payable

260

Total current liabilities

$2,110

Owner’s Equity Mary Adams, capital

5,826

Total liabilities and owner’s equity

$7,936

196

CHAPTER 6

Exercise 6-4B GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

DEBIT

CREDIT

Closing Entries

20--

June 30 Service Fees 3 Income Summary

401

4 8 1 3 00

313

4 8 1 3 00

30 Income Summary

313

2 9 8 7 00

Wages Expense

511

1 0 8 0 00

Advertising Expense

512

3 4 00

Rent Expense

521

9 0 0 00

Supplies Expense

523

3 2 2 00

Telephone Expense

525

1 3 3 00 10

Utilities Expense

533

1 0 2 00 11

Insurance Expense

535

1 2 0 00 12

Gas and Oil Expense

538

8 8 00 13

Depreciation Expense—Office Equipment

542

1 1 0 00 14

Miscellaneous Expense

549

9 8 00 15

30 Income Summary

313

Mary Adams, Capital

1 8 2 6 00

311

1 8 2 6 00 18

30 Mary Adams, Capital

311

Mary Adams, Drawing

312

2 0 0 0 00

2 0 0 0 00 21

Bal.

Cash 3,262

101

Supplies 800

141

Bal.

Office Equipment 2,100

181

Bal.

Accounts Receivable 1,244

122

Bal.

Prepaid Insurance 640

145

Bal.

Accum. Depr.—Office Equip. Bal.

181.1 110

CHAPTER 6

197

Exercise 6-4B (Concluded)

Closing

Accounts Payable Bal.

202 1,850

Mary Adams, Capital 2,000 Bal. Closing

311 6,000 1,826

Bal.

Wages Payable Bal.

219 260

Mary Adams, Drawing 2,000 Closing —

312 2,000 —

Service Fees 4,813 Bal. —

401 4,813 —

7,826

Bal.

Closing Closing

Income Summary 2,987 Closing 1,826

5,826

313 4,813

Closing

4,813

—

Bal.

Wages Expense 1,080 Closing —

511 1,080 —

Bal.

Advertising Expense 34 Closing —

512 34 —

Bal.

Rent Expense 900 Closing —

521 900 —

Bal.

Supplies Expense 322 Closing —

523 322 —

Bal.

Telephone Expense 133 Closing —

525 133 —

Bal.

Utilities Expense 102 Closing —

533 102 —

Bal.

Insurance Expense 120 Closing —

535 120 —

Bal.

Gas and Oil Expense 88 Closing —

538 88 —

Bal.

Depr. Exp.—Office Equip. 110 Closing —

542 110 —

Bal.

Miscellaneous Expense 98 Closing —

549 98 —

198

CHAPTER 6

Exercise 6-5B GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

1 20--

May 31 Lawn Service Fees 3 Income Summary 2

401

5 0 0 0 00

313

5 0 0 0 00

31 Income Summary

313

3 2 4 0 00

Wages Expense

511

4 0 0 00

Advertising Expense

512

6 0 0 00

Travel Expense

515

1 0 0 00

Supplies Expense

524

9 0 0 00

Insurance Expense

535

3 0 0 00 10

Postage Expense

536

4 0 00 11

Gas and Oil Expense

538

7 0 0 00 12

Miscellaneous Expense

549

2 0 0 00 13

14 15 16

31 Income Summary Mark Thrasher, Capital

313

1 7 6 0 00

311

1 7 6 0 00 16

17 18

31 Mark Thrasher, Capital Mark Thrasher, Drawing

311 312

8 0 0 00

8 0 0 00 19

CHAPTER 6

199

Exercise 6-5B (Concluded) Bal.

Bal.

Closing

Cash 600

101

Accounts Receivable 1,800

122

Wages Payable Bal.

219 500

Mark Thrasher, Capital Bal. 800 Closing

311 8,000 1,760

Bal.

Advertising Expense 600 Closing —

512 600 —

Bal.

Travel Expense 100 Closing —

515 100 —

Bal.

Supplies Expense 900 Closing —

524 900 —

Bal.

Insurance Expense 300 Closing —

535 300 —

Bal.

Postage Expense 40 Closing —

536 40 —

Bal.

Gas and Oil Expense 700 Closing —

538 700 —

Bal.

Miscellaneous Expense 200 Closing —

549 200 —

9,760

Bal.

Closing Closing

8,960

Mark Thrasher, Drawing 800 Closing —

312 800 —

Income Summary 3,240 Closing 1,760

313 5,000

5,000

—

Closing

Bal.

—

Lawn Service Fees 5,000 Bal. —

401 5,000 —

Wages Expense 400 Closing —

511 400 —

200

CHAPTER 6

Exercise 6-6B GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

1 20--

June 30 Referral Fees 3 Income Summary 2

401

2 8 1 3 00

313

2 8 1 3 00

30 Income Summary

313

2 9 8 7 00

Wages Expense

511

1 0 8 0 00

Advertising Expense

512

3 4 00

Rent Expense

521

9 0 0 00

Supplies Expense

523

3 2 2 00

Telephone Expense

525

1 3 3 00 10

Utilities Expense

533

1 0 2 00 11

Insurance Expense

535

1 2 0 00 12

Gas and Oil Expense

538

8 8 00 13

Depreciation Expense—Office Equipment

541

1 1 0 00 14

Miscellaneous Expense

549

9 8 00 15

16 17 18

30 Raquel Zapata, Capital Income Summary

311

1 7 4 00

313

1 7 4 00 18

19 20

30 Raquel Zapata, Capital Raquel Zapata, Drawing

311 312

2 0 0 0 00

2 0 0 0 00 21

CHAPTER 6

201

Exercise 6-6B (Concluded)

Closing Closing

Accum. Depr.—Office Equip. Bal.

181.1 110

Raquel Zapata, Capital 174 Bal. 2,000

311 6,000

Wages Payable Bal.

219 260

Raquel Zapata, Drawing 2,000 Closing —

312 2,000 —

Closing

Referral Fees 2,813 Bal. —

401 2,813 —

Bal.

Advertising Expense 34 Closing —

512 34 —

523 322 —

Bal.

2,174

Bal.

Closing

Income Summary 2,987 Closing Closing

3,826

313 2,813 174 2,987

—

Bal.

Wages Expense 1,080 Closing —

511 1,080 —

Bal.

Rent Expense 900 Closing —

521 900 —

Bal.

Supplies Expense 322 Closing —

Bal.

Telephone Expense 133 Closing —

525 133 —

Bal.

Utilities Expense 102 Closing —

533 102 —

Bal.

Insurance Expense 120 Closing —

535 120 —

Bal.

Gas and Oil Expense 88 Closing —

538 88 —

Bal.

Depr. Exp.—Office Equip. 110 Closing —

541 110 —

Bal.

Miscellaneous Expense 98 Closing —

549 98 —

202

CHAPTER 6

Problem 6-7B 1.

Juanita’s Consulting Income Statement For Month Ended June 30, 20-Revenue: Consulting fees

$4,204

Expenses: Wages expense

$1,600

Advertising expense

Rent expense

500

Supplies expense

250

Telephone expense

Electricity expense

Insurance expense

100

Gas and oil expense

Depreciation expense—office equipment

110

Miscellaneous expense

Total expenses

2,754

Net income

$1,450

Juanita’s Consulting Statement of Owner’s Equity For Month Ended June 30, 20-Juanita Alvarez, capital, June 1, 20-Net income for June Less withdrawals for June Increase in capital Juanita Alvarez, capital, June 30, 20--

$7,000 $1,450 800 650 $7,650

CHAPTER 6

203

Problem 6-7B (Concluded) 3.

Juanita’s Consulting Balance Sheet June 30, 20-Assets Current assets: Cash

$5,285

Accounts receivable

1,075

Supplies

500

Prepaid insurance

400

Total current assets

$7,260

Property, plant, and equipment: Office equipment

$2,200

Less accumulated depreciation

110

Total assets

2,090 $9,350

Liabilities Current liabilities: Accounts payable

$1,500

Wages payable

200

Total current liabilities

$1,700

Owner’s Equity Juanita Alvarez, capital

7,650

Total liabilities and owner’s equity

$9,350

204

CHAPTER 6

Problem 6-8B 1.

GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 20--

June 30 Supplies Expense 3 Supplies 2

523

2 5 0 00

141

2 5 0 00

4 5 6

30 Insurance Expense

535

Prepaid Insurance

145

1 0 0 00

7 8 9

30 Wages Expense

511

Wages Payable

219

2 0 0 00 2 0 0 00

10 11 12

8 9 10

30 Depreciation Expense—Office Equipment

541

Accumulated Depreciation—Office Equipment 181.1

1 1 0 00

1 1 0 00 12

CHAPTER 6

205

Problem 6-8B (Continued) 2. GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

DEBIT

CREDIT

Closing Entries

20--

June 30 Consulting Fees 3 Income Summary

401

4 2 0 4 00

313

4 2 0 4 00

30 Income Summary

313

2 7 5 4 00

Wages Expense

511

1 6 0 0 00

Advertising Expense

512

6 0 00

Rent Expense

521

5 0 0 00

Supplies Expense

523

2 5 0 00

Telephone Expense

525

4 6 00 10

Electricity Expense

533

3 9 00 11

Insurance Expense

535

1 0 0 00 12

Gas and Oil Expense

538

2 8 00 13

Depreciation Expense—Office Equipment

541

1 1 0 00 14

Miscellaneous Expense

549

2 1 00 15

30 Income Summary

313

Juanita Alvarez, Capital

1 4 5 0 00

311

1 4 5 0 00 18

30 Juanita Alvarez, Capital

311

Juanita Alvarez, Drawing

8 0 0 00

312

8 0 0 00 21

GENERAL LEDGER 1. and 2. ACCOUNT

DATE

Cash

ACCOUNT NO.

ITEM

20--

June 30 Balance

POST. REF.



DEBIT

CREDIT

101

BALANCE DEBIT

CREDIT

5 2 8 5 00

206

CHAPTER 6

Problem 6-8B (Continued) Accounts Receivable

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

CREDIT

20--

June 30 Balance



1 0 7 5 00

Supplies

ACCOUNT

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

141

BALANCE DEBIT

CREDIT

20--

June 30 Balance 30 Adjusting

 J10

2 5 0 00

7 5 0 00 5 0 0 00

Prepaid Insurance

ACCOUNT

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

145

BALANCE DEBIT

CREDIT

20--

June 30 Balance 30 Adjusting

ACCOUNT

DATE

 J10

1 0 0 00

5 0 0 00 4 0 0 00

Office Equipment ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

181

BALANCE DEBIT

CREDIT

20--

June 30 Balance

ACCOUNT



Accumulated Depreciation ITEM

POST. REF.

June 30 Adjusting

J10

DATE 20--

2 2 0 0 00

Office Equipment DEBIT

ACCOUNT NO.

CREDIT

1 1 0 00

181.1

BALANCE DEBIT

CREDIT

1 1 0 00

CHAPTER 6

207

Problem 6-8B (Continued) Accounts Payable

ACCOUNT

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

20--

June 30 Balance



1 5 0 0 00

Wages Payable

ACCOUNT

ACCOUNT NO.

ITEM

POST. REF.

June 30 Adjusting

J10

DATE 20--

DEBIT

CREDIT

BALANCE DEBIT

DATE

ITEM

POST. REF.

CREDIT

2 0 0 00

Juanita Alvarez, Capital

ACCOUNT

ACCOUNT NO.

DEBIT

CREDIT

219

311

BALANCE DEBIT

CREDIT

20--

30 Closing

 J11

30 Closing

J11

June 30 Balance

7 0 0 0 00 8 4 5 0 00

1 4 5 0 00 8 0 0 00

7 6 5 0 00

Juanita Alvarez, Drawing

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

312

BALANCE DEBIT

CREDIT

20--

June 30 Balance 30 Closing

 J11

8 0 0 00 8 0 0 00

Income Summary

ACCOUNT

DATE

ITEM

20--

ACCOUNT NO. POST. REF.

DEBIT

June 30 Closing 30 Closing

J11 J11

2 7 5 4 00

30 Closing

J11

1 4 5 0 00

CREDIT

4 2 0 4 00

313

BALANCE DEBIT

CREDIT

4 2 0 4 00 1 4 5 0 00

208

CHAPTER 6

Problem 6-8B (Continued) Consulting Fees

ACCOUNT

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

20--

June 30 Balance 30 Closing

 J11

4 2 0 4 00 4 2 0 4 00

Wages Expense

ACCOUNT

ACCOUNT NO.

ITEM

POST. REF.

June 30 Balance 30 Adjusting

 J10

DATE

DEBIT

CREDIT

511

BALANCE DEBIT

CREDIT

20--

30 Closing

1 4 0 0 00 2 0 0 00

J11

1 6 0 0 00 1 6 0 0 00

Advertising Expense

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

512

BALANCE DEBIT

CREDIT

20--

June 30 Balance 30 Closing

 J11

6 0 00 6 0 00

Rent Expense

ACCOUNT

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

521

BALANCE DEBIT

CREDIT

20--

June 30 Balance 30 Closing

ACCOUNT

DATE 20--

 J11

5 0 0 00 5 0 0 00

Supplies Expense ITEM

June 30 Adjusting 30 Closing

ACCOUNT NO. POST. REF.

DEBIT

J10

2 5 0 00

J11

CREDIT

523

BALANCE DEBIT

CREDIT

2 5 0 00 2 5 0 00

CHAPTER 6

209

Problem 6-8B (Continued) Telephone Expense

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

525

BALANCE DEBIT

CREDIT

20--

 J11

June 30 Balance 30 Closing

4 6 00 4 6 00

Electricity Expense

ACCOUNT

DATE

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

533

BALANCE DEBIT

CREDIT

20--

June 30 Balance 30 Closing

 J11

3 9 00 3 9 00

Insurance Expense

ACCOUNT

DATE

ITEM

20--

June 30 Adjusting 30 Closing

ACCOUNT NO.

POST. REF.

DEBIT

J10

1 0 0 00

J11

CREDIT

BALANCE DEBIT

DATE

ITEM

POST. REF.

CREDIT

1 0 0 00 1 0 0 00

Gas and Oil Expense

ACCOUNT

535

ACCOUNT NO.

DEBIT

CREDIT

538

BALANCE DEBIT

CREDIT

20--

June 30 Balance 30 Closing

ACCOUNT

DATE 20--

 J11

2 8 00 2 8 00

Depreciation Expense—Office Equipment ITEM

June 30 Adjusting 30 Closing

POST. REF.

DEBIT

J10

1 1 0 00

J11

ACCOUNT NO.

CREDIT

541

BALANCE DEBIT

CREDIT

1 1 0 00 1 1 0 00

210

CHAPTER 6

Problem 6-8B (Concluded) Miscellaneous Expense

ACCOUNT

DATE

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

549

BALANCE

CREDIT

DEBIT

CREDIT

20--

June 30 Balance 30 Closing

 J11

2 1 00 2 1 00

Juanita’s Consulting Post-Closing Trial Balance June 30, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

5 2 8 5 00

Accounts Receivable

122

1 0 7 5 00

Supplies

141

5 0 0 00

Prepaid Insurance

145

4 0 0 00

Office Equipment

181

2 2 0 0 00

Accumulated Depreciation—Office Equipment

181.1

1 1 0 00

Accounts Payable

202

1 5 0 0 00

Wages Payable

219

2 0 0 00

Juanita Alvarez, Capital

311

7 6 5 0 00

ACCOUNT

9 4 6 0 00

CREDIT BALANCE

9 4 6 0 00

CHAPTER 6

211

Problem 6-9B Minta’s Editorial Services Statement of Owner’s Equity For Month Ended January 31, 20-Minta Berry, capital, January 1, 20--

$3,600

Investments during January

2,900

Total investment

$6,500

Net income for January

$5,175

Less withdrawals for January

1,700

Increase in capital

3,475

Minta Berry, capital, January 31, 20--

$9,975

212

CHAPTER 6

MANAGING YOUR WRITING The purposes of closing entries are listed below. 1. To prepare temporary accounts (revenue, expense, and drawing) for the next accounting period by giving them zero balances. 2. To transfer the balances of revenue and expense accounts to Income Summary, and then to the owner’s capital account. 3. To transfer the balance of the drawing account to the owner’s capital account. Students are often concerned about when closing entries should be made. Some argue that they should be made before preparing the financial statements. Others argue that “closing the books” is the last thing done in the accounting cycle. If the financial statements are prepared from the work sheet, it does not really matter when the closing entries are made. The amounts reported in the Income Statement and Balance Sheet columns are the amounts that should be used when preparing the financial statements, except for the owner’s capital account. The ending balance of the capital account reported on the statement of owner’s equity and balance sheet should reflect the net income and withdrawals for the accounting period. Of course, revenues, expenses, and drawing will not be reflected in the capital account until the closing entries are made. Thus, when using the work sheet, the ending balance of the capital account must be computed on the statement of owner’s equity and transferred to the balance sheet. If accounting software is used, the closing entries should be made in a manner consistent with the design of the software. Generally, closing entries are made following preparation of the financial statements. This implies that accounting software follows the same approach described above. The ending balance of the owner’s capital account must be computed (by the software) on the statement of owner’s equity and transferred to the balance sheet.

CHAPTER 6

213

Mastery Problem GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20--

Dec. 31 Styling Supplies Expense 3 Styling Supplies

1 4 5 0 00 1 4 5 0 00

4 5 6

31 Insurance Expense

6 5 0 00

Prepaid Insurance

6 5 0 00

7 8 9

31 Wages Expense

4 0 00

Wages Payable

4 0 00

10 11 12

8 9 10

31 Depreciation Expense—Salon Equipment

9 0 0 00

Accumulated Depreciation—Salon Equipment

9 0 0 00 12

Closing Entries

15 16 17

31 Styling Fees

32 0 0 0 00

Income Summary

32 0 0 0 00 17

31 Income Summary

18 2 9 0 00

Wages Expense

8 0 4 0 00 20

Rent Expense

6 0 0 0 00 21

Styling Supplies Expense

1 4 5 0 00 22

Telephone Expense

4 5 0 00 23

Utilities Expense

8 0 0 00 24

Insurance Expense

6 5 0 00 25

Depreciation Expense—Salon Equipment

9 0 0 00 26

27 28 29

31 Income Summary

13 7 1 0 00

Elizabeth Soltis, Capital

13 7 1 0 00 29

30 31

31 Elizabeth Soltis, Capital Elizabeth Soltis, Drawing

12 0 0 0 00

12 0 0 0 00 32

214

CHAPTER 6

Mastery Problem (Continued) Aunt Ibby’s Styling Salon Income Statement For Year Ended December 31, 20-Revenue: Styling fees

$32,000

Expenses: Wages expense

$8,040

Rent expense

6,000

Styling supplies expense

1,450

Telephone expense

450

Utilities expense

800

Insurance expense

650

Depreciation expense—salon equipment

900

Total expenses

18,290

Net income

$13,710

Aunt Ibby’s Styling Salon Statement of Owner’s Equity For Year Ended December 31, 20-Elizabeth Soltis, capital, January 1, 20--

$2,765

Net income for 20--

$13,710

Less withdrawals for 20--

12,000

Increase in capital

1,710

Elizabeth Soltis, capital, December 31, 20--

$4,475

CHAPTER 6

215

Mastery Problem (Concluded) Aunt Ibby’s Styling Salon Balance Sheet December 31, 20-Assets Current assets: Cash

$ 940

Styling supplies

Prepaid insurance

150

Total current assets

$1,140

Property, plant, and equipment: Salon equipment

$4,500

Less accumulated depreciation

900

Total assets

3,600 $4,740

Liabilities Current liabilities: Accounts payable

$ 225

Wages payable

Total current liabilities

$ 265

Owner’s Equity Elizabeth Soltis, capital

4,475

Total liabilities and owner’s equity

$4,740

216

CHAPTER 6

Challenge Problem Ardery Advising Income Statement For Month Ended January 31, 20-Revenue: Advising fees

$ 3,802)

Expenses: Wages expense

$1,800

Advertising expense

400

Rent expense

1,500

Supplies expense

120

Telephone expense

300

Electricity expense

Insurance expense

200

Gas and oil expense

Depreciation expense—office equipment Miscellaneous expense

1,000 500

Total expenses

5,902)

Net loss

$(2,100)

Ardery Advising Statement of Owner’s Equity For Month Ended January 31, 20-Sam Ardery, capital, January 1, 20--

$ 1,000)

Investments during January

1,200)

Total investment Net loss for January Plus withdrawals for January

$ 2,200) $2,100 800

Net decrease in capital

(2,900)

Sam Ardery, capital, January 31, 20--

$ (700)

CHAPTER 6

217

Challenge Problem (Concluded) Ardery Advising Balance Sheet January 31, 20-Assets Current assets: Cash

$2,412

Accounts receivable

896

Supplies

482

Prepaid insurance

900

Total current assets

$4,690)

Property, plant, and equipment: Office equipment

$3,000

Less accumulated depreciation

2,000

Total assets

1,000) $5,690)

Liabilities Current liabilities: Accounts payable

$2,190

Wages payable

1,200

Notes payable

3,000

Total current liabilities

$6,390)

Owner’s Equity Sam Ardery, capital Total liabilities and owner’s equity

(700) $5,690)

218

CHAPTER 6

APPENDIX: STATEMENT OF CASH FLOWS REVIEW QUESTIONS 1.

The purpose of the statement of cash flows is to explain what the business did to generate cash and how the cash was used. This is done by categorizing all cash transactions into three types of activities: operating, investing, and financing.

Operating activities are related to the revenues and expenses reported on the income statement. Examples include cash received for services performed and the payment of cash for expenses. Investing activities are those transactions involving the purchase and sale of long-term assets, lending money, and collecting the principal on related loans. Examples include buying trucks and equipment. Financing activities are those transactions dealing with the exchange of cash between the business and its owners and creditors. Examples include cash received from the owner to finance the operations and cash paid to the owner as withdrawals. Financing activities also include the receipt of cash from loans and the repayment of the loans.

CHAPTER 6

219

Exercise 6Apx-1A a.

Financing

Operating

Investing

Operating

Financing

Operating

Financing

Problem 6Apx-2A Dolores Lopez, Consulting Statement of Cash Flows For Month Ended January 31, 20-Cash flows from operating activities: Cash received from clients Cash paid for rent Cash paid for telephone Cash paid for wages Cash paid for electricity

$(1,700) $ (500) (65) (1,000) (85)

Total cash paid for operations

(1,650)

Net cash provided by operating activities

$(0,050)

Cash flows from investing activities: Cash paid for office equipment

$(1,500)

Net cash used for investing activities

(1,500)

Cash flows from financing activities: Cash investment by owner

$10,000)

Cash withdrawal by owner

(100)

Payment made on loan

(500)

Net cash provided by financing activities Net increase in cash

9,400) $(7,950)

220

CHAPTER 6

Exercise 6Apx-1B a.

Financing

Investing

Operating

Financing

Operating

Problem 6Apx-2B Bob Jacobs Advertising Agency Statement of Cash Flows For Month Ended January 31, 20-Cash flows from operating activities: Cash received from clients Cash paid for rent Cash paid for telephone Cash paid for wages Cash paid for electricity

$ 1,300) $ (400) (95) (1,400) (100)

Total cash paid for operations

(1,995)

Net cash used for operating activities

$ (695)

Cash flows from investing activities: Cash paid for office equipment

$(2,500)

Net cash used for investing activities

(2,500)

Cash flows from financing activities: Cash investment by owner

$ 5,000)

Cash withdrawal by owner

(500)

Payment made on loan

(500)

Net cash provided by financing activities Net increase in cash

4,000) $

805)

CHAPTER 7 ACCOUNTING FOR CASH REVIEW QUESTIONS 1. As part of the Customer Identification Program required at every bank, a signature card must be filled out and signed to open a checking account. The bank can use this card to verify the depositor’s signature on banking transactions. 2. With a blank endorsement, the depositor simply signs on the back of the check. This makes the check payable to any bearer. With a restrictive endorsement, the depositor adds words, such as “For deposit,” “Pay to any bank,” or “Pay to Daryl Beck only,” to restrict the payment of the check. 3. The three parties to every check are the drawer, the drawee, and the payee. 4. The three steps to follow in preparing a check are as follows: a. Complete the check stub or register. b. Enter the date, payee name, and amount on the check. c. Sign the check. 5. The most common reasons for differences between the book and bank cash balances are deposits in transit, outstanding checks, service charges, collections, not sufficient funds checks, and errors. 6. The three steps to follow in preparing a bank reconciliation are as follows: a. Identify deposits in transit and any related errors. b. Identify outstanding checks and any related errors. c. Identify additional reconciling items. 7. The two kinds of items on a bank reconciliation that require journal entries are errors in the books and bank additions and deductions that do not already appear in the books. 8. Five common uses of electronic funds transfer are paychecks, transferring funds between accounts, retail purchases, ATM transactions, and credit card account and utility bill payments. 9. The purpose of a petty cash fund is to pay for small items with cash rather than spending the time and cost of writing checks for small items. 10. Every time a petty cash payment is made, a petty cash voucher should be prepared. 11. The petty cash fund should be replenished whenever the fund runs low and at the end of each accounting period so that the accounts are brought up to date. 12. The information for issuing a check to replenish the petty cash fund is obtained from the petty cash payments record. 13. An entry is made affecting the change fund when the fund is established and when the amount of the fund is being changed. 14. A debit balance in the cash short and over account represents a net shortage and is treated as an expense. A credit balance in the account represents a net overage and is treated as revenue.

258

CHAPTER 7

Exercise 7-1A 1.

Exercise 7-2A

Exercise 7-3A

These lines are added to help prevent unauthorized changes to the check.

CHAPTER 7

259

Exercise 7-4A Ending Bank Balance

Ending Checkbook Balance

1. 2.

– –

4. 5.

–

Exercise 7-5A GENERAL JOURNAL DATE

DESCRIPTION

20--

July 31 Cash 2 Accounts Payable 1

PAGE POST. REF.

DEBIT

CREDIT

2 7 60

Error on Check No. 291

4 5 6 7

31 Accounts Receivable

4 6 8 00

Cash

4 6 8 00

NSF check

8 9 10 11

31 Miscellaneous Expense Cash Bank service charge

1 2 00

1 2 00 10 11

260

CHAPTER 7

Exercise 7-6A GENERAL JOURNAL DATE 20-1 2 3

Jan.

DESCRIPTION

1 Petty Cash

PAGE POST. REF.

DEBIT

CREDIT

3 0 0 00

Cash

3 0 0 00

Establish petty cash fund

31 Telephone Expense

2 1 20

Automobile Expense

3 9 60

James Lucas, Drawing

8 5 00

Postage Expense

1 5 30

Charitable Contributions Expense

2 0 00

Miscellaneous Expense

4 7 00

11 12

Cash Replenish petty cash fund

2 2 8 10 11 12

CHAPTER 7

261

Exercise 7-7A GENERAL JOURNAL DATE 20-1 2 3

Apr.

DESCRIPTION

2 Cash Cash Short and Over

PAGE POST. REF.

DEBIT

CREDIT

2 6 6 50

2 00

Service Fees

2 6 8 50

Record service fees and cash shortage

5 6 7 8

9 Cash Cash Short and Over

2 3 3 50

4 25

Service Fees

2 3 7 75

Record service fees and cash shortage

10 11

16 Cash

3 1 1 00

Cash Short and Over

Service Fees

3 0 9 25 13 14

17 18

23 Cash Cash Short and Over

2 2 4 00

2 50

Service Fees

2 2 6 50 18

Record service fees and cash shortage

20 21

30 Cash

3 2 2 00

Cash Short and Over

Service Fees

1 75 12

Record service fees and cash overage

4 00 22 3 1 8 00 23 24

262

CHAPTER 7

Problem 7-8A 1.

Johnson Enterprises Bank Reconciliation October 31, 20-Bank statement balance, October 31

$5 2 1 7 00

Add deposits in transit: October 29

$ 2 1 0 00

October 30

4 0 6 00

6 1 6 00 $5 8 3 3 00

Deduct outstanding checks: No. 1635

5 6 40

No. 1639

1 7 5 00

No. 1641

1 3 5 50

No. 1653

4 4 3 10

8 1 0 00

Adjusted bank balance

$5 0 2 3 00

Book balance, October 31

$5 7 1 8 00

Add error on Check No. 1624

1 8 00 $5 7 3 6 00

Deduct: Unrecorded ATM withdrawal Bank service charge NSF check Adjusted book balance

$ 2 0 0 00 3 7 00 4 7 6 00

7 1 3 00 $5 0 2 3 00

CHAPTER 7

263

Problem 7-8A (Concluded) 2.

GENERAL JOURNAL DATE

DESCRIPTION

20--

Oct. 31 Cash 2 Accounts Payable 1

PAGE POST. REF.

DEBIT

CREDIT

1 8 00

Error on Check No. 1624

4 5 6 7

31 Enoch Johnson, Drawing

2 0 0 00

Cash

2 0 0 00

Unrecorded ATM withdrawal

8 9 10 11

31 Miscellaneous Expense

3 7 00

Cash

3 7 00 10

Bank service charge

12 13 14 15

31 Accounts Receivable Cash NSF check

4 7 6 00

4 7 6 00 14 15

264

CHAPTER 7

Problem 7-9A 1.

Lyle’s Salon Bank Reconciliation November 30, 20-Bank statement balance, November 30

$2 1 2 7 00

Add deposit in transit

1 1 7 7 00 $3 3 0 4 00

Deduct outstanding checks: No. 471 No. 549

1 8 65

No. 561

1 8 5 00 2 1 00

No. 562

9 40

2 3 4 05

Adjusted bank balance

$3 0 6 9 95

Book balance, November 30

$3 2 8 2 95

Add interest earned

1 9 00 $3 3 0 1 95

Deduct: Unrecorded ATM withdrawal

$ 1 5 0 00

NSF check

1 9 50

Bank service charge

1 7 50

Error in recording Check No. 523

4 5 00

Adjusted book balance

2 3 2 00 $3 0 6 9 95

CHAPTER 7

265

Problem 7-9A (Concluded) 2.

GENERAL JOURNAL DATE

DESCRIPTION

20--

Nov. 30 Cash 2 Interest Earned 1

PAGE POST. REF.

DEBIT

CREDIT

1 9 00

Interest earned for November

30 Lyle, Drawing

Cash

1 5 0 00

Unrecorded ATM withdrawal

8 9 10 11

30 Accounts Receivable

1 9 50

Cash

1 9 50 10

NSF check

12 13 14 15

30 Miscellaneous Expense

1 7 50

Cash

18 19

1 7 50 14

Bank service charge

16 17

30 Accounts Payable Cash Error in recording Check No. 523

4 5 00

4 5 00 18 19

266

CHAPTER 7

Problem 7-10A 1. and 3.

GENERAL JOURNAL DATE 20-1 2 3

May

DESCRIPTION

1 Petty Cash

PAGE POST. REF.

DEBIT

CREDIT

1 5 0 00

Cash

1 5 0 00

Establish petty cash fund

4 5

31 Office Supplies

1 1 00

7 00

3 0 00

5 00

Postage Expense

Charitable Contributions Expense

Telephone Expense

Travel and Entertainment Expense

2 8 00

Miscellaneous Expense

4 3 00

J. Adams, Drawing

2 5 00

12 13

Cash Replenish petty cash fund

1 4 9 00 12 13

1.00

7 8 9

22 Postage

26 Telephone call

30 Donation

18 19 20 21 22

25 00 11

43 00

$150.00

30 00

149 00

7 00

20 00 11 00

3 50

10 00

20 00

5 00

3 50

28 00

10 00

25 00

Total

31 Replenished fund

31 Balance

149.00

15 Travel expenses

11 Donation

25 00

J. Adams, Drawing

7 J. Adams, drawing

43 00

5 Auto repair

11 00

3 Supplies

3 50

AMOUNT

1 Postage

ACCOUNT

OFFICE SUPPLIES

PAGE

VOU. TOTAL NO. AMOUNT

20--

1 Received in fund, $150

DESCRIPTION

May

DISTRIBUTION OF PAYMENTS CHARIT. TRAVEL & POSTAGE CONTRIB. TELEPHONE ENTER. MISC. EXPENSE EXPENSE EXPENSE EXPENSE EXPENSE

PETTY CASH PAYMENTS FOR MONTH OF

DAY

2. and 3.

Problem 7-10A (Concluded) CHAPTER 7 267

268

CHAPTER 7

Problem 7-11A 1.

GENERAL JOURNAL DATE 20-1

POST. REF.

DESCRIPTION

2 Cash

July

Cash Short and Over

DEBIT

CREDIT

2 8 7 00

2 50

516

Service Fees

PAGE

2 8 9 50

Record service fees and cash shortage

9 Cash

3 1 1 50

Service Fees

3 1 1 50

Record service fees

16 Cash

3 0 8 50

Cash Short and Over

Service Fees

516

2 50 11 3 0 6 00 12

Record service fees and cash overage

23 Cash

Cash Short and Over

3 1 5 00

2 50

516

Service Fees

3 1 7 50 17

Record service fees and cash shortage

30 Cash

2 9 9 50

Cash Short and Over

Service Fees

516

3 50 21 2 9 6 00 22

Record service fees and cash overage

Cash Short and Over

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

516

BALANCE

CREDIT

DEBIT

CREDIT

20--

July

2 50

2 50 2 50

2 50

2 50 3 50

1 00

3. The balance represents: Revenue

CHAPTER 7

269

Exercise 7-1B 1.

Exercise 7-2B

Exercise 7-3B

These lines are added to help prevent unauthorized changes to the check.

270

CHAPTER 7

Exercise 7-4B Ending Bank Balance

Ending Checkbook Balance –

1. –

2. 3.

–

+ +

–

Exercise 7-5B GENERAL JOURNAL DATE

DESCRIPTION

20--

July 31 Cash 2 Accounts Payable 1

PAGE POST. REF.

DEBIT

CREDIT

1 0 00

Error on Check No. 191

4 5 6 7

31 Cash

2 00

Interest Earned

2 00

Interest earned for July

8 9 10 11

31 Accounts Receivable

6 6 00

Cash

6 6 00 10

NSF check

12 13 14 15

31 Miscellaneous Expense Cash Bank service charge

1 5 00

1 5 00 14 15

CHAPTER 7

271

Exercise 7-6B GENERAL JOURNAL DATE 20-1 2 3

Oct.

DESCRIPTION

1 Petty Cash

PAGE POST. REF.

DEBIT

CREDIT

2 0 0 00

Cash

2 0 0 00

Establish petty cash fund

4 5

31 Postage Expense

1 3 00

Miscellaneous Expense

1 7 00

John Flanagan, Drawing

4 5 00

Telephone Expense

3 6 00

Charitable Contributions Expense

5 0 00

Automobile Expense

2 9 00

11 12

Cash Replenish petty cash fund

1 9 0 00 11 12

272

CHAPTER 7

Exercise 7-7B GENERAL JOURNAL DATE

DESCRIPTION

20--

June 1 Cash 2 Cash Short and Over 1

PAGE POST. REF.

DEBIT

CREDIT

3 3 3 00

Service Fees

3 00

3 3 0 00

Record service fees and cash overage

5 6

8 Cash

3 0 0 00

Cash Short and Over

Service Fees

15 Cash

Cash Short and Over

2 00

Service Fees

2 3 3 00 13

Record service fees and cash shortage

14 15

22 Cash Cash Short and Over

2 9 6 50

5 50

Service Fees

3 0 2 00 18

Record service fees and cash shortage

20 21 22 23 24

2 3 1 00

2 9 7 00

3 00

Record service fees and cash overage

29 Cash Cash Short and Over Service Fees Record service fees and cash shortage

3 1 2 00

4 00

3 1 6 00 23 24

CHAPTER 7

273

Problem 7-8B 1.

Kyri Enterprises Bank Reconciliation November 30, 20-Bank statement balance, November 30

$2 5 2 5 00

Add deposits in transit: November 29

$ 1 2 5 00

November 30

2 0 0 00

3 2 5 00 $2 8 5 0 00

Deduct outstanding checks: No. 322

1 7 00

No. 324

1 0 5 00

No. 327

5 4 00

1 7 6 00

Adjusted bank balance

$2 6 7 4 00

Book balance, November 30

$2 9 6 4 00

Add error on Check No. 321

2 0 00 $2 9 8 4 00

Deduct: Unrecorded ATM withdrawal Bank service charge NSF check Adjusted book balance

$ 1 0 0 00 2 5 00 1 8 5 00

3 1 0 00 $2 6 7 4 00

274

CHAPTER 7

Problem 7-8B (Concluded) 2.

GENERAL JOURNAL DATE

DESCRIPTION

20--

Nov. 30 Susan Kyri, Drawing 2 Cash 1

PAGE POST. REF.

DEBIT

CREDIT

1 0 0 00

Unrecorded ATM withdrawal

4 5 6 7

30 Miscellaneous Expense

2 5 00

Cash

2 5 00

Bank service charge

8 9 10 11

30 Accounts Receivable

1 8 5 00

Cash

1 8 5 00 10

NSF check

12 13 14 15

30 Cash Accounts Payable Error on Check No. 321

2 0 00

2 0 00 14 15

CHAPTER 7

275

Problem 7-9B 1.

Tori’s Health Center Bank Reconciliation April 30, 20-Bank statement balance, April 30

$3 2 7 5 60

Add deposit in transit

1 5 9 2 00 $4 8 6 7 60

Deduct outstanding checks: No. 397

No. 481

3 8 60

No. 493

2 1 5 00 7 1 00

No. 494

2 4 30

3 4 8 90

Adjusted bank balance

$4 5 1 8 70

Book balance, April 30

$4 6 9 0 30

Add: Interest earned Error in recording Check No. 422

2 8 00 5 4 00

8 2 00 $4 7 7 2 30

Deduct: Unrecorded ATM withdrawal

$ 2 0 0 00

NSF check

2 9 10

Bank service charge

2 4 50

Adjusted book balance

2 5 3 60 $4 5 1 8 70

276

CHAPTER 7

Problem 7-9B (Concluded) 2.

GENERAL JOURNAL DATE

DESCRIPTION

20--

Apr. 30 Cash 2 Interest Earned 1

PAGE POST. REF.

DEBIT

CREDIT

2 8 00

Interest earned for April

4 5 6 7

30 Cash

5 4 00

Accounts Payable

5 4 00

Error in recording Check No. 422

30 Tori, Drawing

Cash

2 0 0 00

2 0 0 00 10

Unrecorded ATM withdrawal

12 13 14 15

30 Accounts Receivable

2 9 10

Cash

18 19

2 9 10 14

NSF check

16 17

30 Miscellaneous Expense Cash Bank service charge

2 4 50

2 4 50 18 19

CHAPTER 7

277

Problem 7-10B 1. and 3. GENERAL JOURNAL DATE 20-1 2 3

July

DESCRIPTION

1 Petty Cash

PAGE POST. REF.

DEBIT

CREDIT

1 0 0 00

Cash

1 0 0 00

Establish petty cash fund

4 5

31 Office Supplies

7 00

5 50

1 5 00

5 00

Postage Expense

Charitable Contributions Expense

Telephone Expense

Travel and Entertainment Expense

1 6 00

Miscellaneous Expense

1 8 50

L. Ortiz, Drawing

2 0 00

12 13

Cash Replenish petty cash fund

8 7 00 12 13

$ 13.00

8 9 10

21 Travel expenses

25 Withdrawal

26 Copier repair

17 18 19 20 21 22

20 00 12

20 00 10

L. Ortiz, Drawing

$100.00

18 50

15 00

87 00

5 50

18 50 7 00

3 50

18 50

20 00

11 00

5 00

3 50

Total

31 Replenished fund

31 Balance

87.00

15 Telephone call

11 Postage due

4 00

8 Office supplies

2 00

7 Postage due

5 00

5 Travel expenses

15 00

3 Donation

3 00

AMOUNT

1 Office supplies

ACCOUNT

OFFICE SUPPLIES

PAGE

VOU. TOTAL NO. AMOUNT

20--

1 Received in fund, $100

DESCRIPTION

July

DISTRIBUTION OF PAYMENTS CHARIT. TRAVEL & POSTAGE CONTRIB. TELEPHONE ENTER. MISC. EXPENSE EXPENSE EXPENSE EXPENSE EXPENSE

PETTY CASH PAYMENTS FOR MONTH OF

DAY

2. and 3.

Problem 7-10B (Concluded)

278 CHAPTER 7

CHAPTER 7

279

Problem 7-11B 1.

GENERAL JOURNAL DATE 20-1

POST. REF.

DESCRIPTION

1 Cash

Aug.

PAGE

DEBIT

CREDIT

2 9 5 00

Cash Short and Over

Service Fees

516

2 50

2 9 2 50

Record service fees and cash overage

8 Cash

Cash Short and Over

3 0 1 50

3 50

516

Service Fees

3 0 5 00

Record service fees and cash shortage

15 Cash

2 8 6 00

Service Fees

2 8 6 00 12

Record service fees

22 Cash

3 3 2 75

Cash Short and Over

Service Fees

516

2 50 16 3 3 0 25 17

Record service fees and cash overage

29 Cash

Cash Short and Over

2 9 5 00

4 20

516

Service Fees

2 9 9 20 22

Record service fees and cash shortage

Cash Short and Over

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

516

BALANCE

CREDIT

DEBIT

CREDIT

20--

Aug.

2 50 3 50

2 50 1 00

2 50 4 20

1 50 2 70

3. The balance represents:

280

CHAPTER 7

MANAGING YOUR WRITING This situation presents an ethical dilemma similar to receiving too much change from a store clerk. The only difference is the amount is larger in this case. There would be no legal obligation to notify the bank (or the store clerk). But the ethical obligation is clear. A mistake has been made and the money is not yours. You should make a reasonable effort to notify the bank of the error. A reasonable effort in this case could be simply a phone call or a note to the bank.

ETHICS CASE: SUGGESTED SOLUTIONS 1. Ben did something that was dishonest, and dishonest actions are unethical. The fact that he intended to repay the “loan” is not relevant to the act. It is Naomi’s responsibility to take corrective action in this situation because she is responsible for supervising Ben. She has been entrusted with that responsibility by the bank, her employer. 2. Naomi could ignore Ben’s actions since he repaid the money and keep it a secret from the branch manager. Naomi could report the incident to the branch manager and let him decide what action to take. Naomi could report the incident to the branch manager and the internal auditor. 3. Answers will vary. Students should include an accurate description of the incident and possibly a recommendation of corrective action. 4. Answers will vary. Some possible suggestions are dual control of all cash funds, separation of duties involving reconciliation of cash, minimizing the amount of cash kept on hand, and strict disciplinary action when cash is mismanaged.

3.00 97.00

28 YMCA contribution

20 21 22

30 00

25 00

63 50

$100.00

25 00 26 00

26 00

25 00

12 50

26 00

25 00

97 00

20 00

22 00

Total

31 Replenished fund

31 Balance

63.50

24 Telephone

20 Truck repair

$ 36.50

$100.00

Total

13 Replenished fund

13 Balance

12 Newspaper advertisement

20 00

8 Truck repair

30 00

7 Flowers

25 00

AMOUNT

ACCOUNT

5 Postage

TRUCK EXPENSE

VOU. TOTAL NO. AMOUNT

PAGE

DESCRIPTION

20--

2 Received in fund, $100

DAY

July

DISTRIBUTION OF PAYMENTS CHARIT. POSTAGE CONTRIB. TELEPHONE ADVERT. MISC. EXPENSE EXPENSE EXPENSE EXPENSE. EXPENSE

PETTY CASH PAYMENTS FOR MONTH OF

Mastery Problem CHAPTER 7 281 276

282

CHAPTER 7

Mastery Problem (Continued) 2. and 3. GENERAL JOURNAL DATE 20-1 2 3

July

DESCRIPTION

2 Petty Cash

PAGE POST. REF.

DEBIT

CREDIT

1 0 0 00

Cash

1 0 0 00

Established petty cash fund

5 Rent Expense

Cash

6 5 0 00

Paid office rent

8 9

13 Truck Expense

2 0 00

Postage Expense

2 5 00

Advertising Expense

2 2 00

Miscellaneous Expense

3 0 00

13 14

Cash

9 7 00 13

Replenishment of petty cash fund

15 16 17 18

15 Office Equipment

5 2 5 00

Cash

5 2 5 00 17

Purchased office equipment

19 20 21 22

17 Supplies

1 3 3 00

Cash Purchased supplies

22 23

18 Legal Expense

Cash

1 0 0 0 00

29 30

1 0 0 0 00 25

Paid attorney fees

27 28

1 3 3 00 21

30 Advertising Expense Cash Paid for newspaper ads

2 0 0 20

2 0 0 20 29 30

CHAPTER 7

283

Mastery Problem (Concluded) GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

PAGE

DEBIT

20--

CREDIT

July 31 Truck Expense 2 Charitable Contributions Expense

2 6 00

2 5 00

Telephone Expense

1 2 50

Cash

6 3 50

Replenishment of petty cash fund

6 7

31 Miscellaneous Expense

2 50

Cash

2 50

Bank service charge

31 Rent Expense

Cash

5 00

5 00 12

Error in recording Check No. 302

Turner Excavation Bank Reconciliation July 31, 20-Bank statement balance, July 31

$3 2 3 7 75

Add deposit in transit

2 3 5 0 00 $5 5 8 7 75

Deduct outstanding checks: No. 306

$1 0 0 0 00

No. 307

2 0 0 20

No. 308

6 3 50

1 2 6 3 70

Adjusted bank balance

$4 3 2 4 05

Book balance, July 31

$4 3 3 1 55

Deduct: Bank service charge Error on Check No. 302 Adjusted book balance

2 50 5 00

7 50 $4 3 2 4 05

284

CHAPTER 7

Challenge Problem 1. Panera Bakery GENERAL JOURNAL DATE

DESCRIPTION

20--

June 30 Susan Panera, Drawing 2 Cash 1

PAGE POST. REF.

DEBIT

CREDIT

2 0 0 00

Unrecorded ATM withdrawal

4 5

30 Deposit in transit—no entry required

6 7 8 9

30 Cash

9 0 00

Accounts Payable

9 0 00

9 10

30 Bank error—no entry required

12 13 14 15

30 Accounts Payable Cash Unrecorded EFT payment

16 17

Error in recording check

10 11

2 6 0 00

2 6 0 00 14 15 16

30 Outstanding checks—no entry required

CHAPTER 7

285

Challenge Problem (Concluded) 2. Lawrence Bank GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

20-1

June 30 Depositor error—no entry required

2 3

30 Deposit in transit—no entry required

4 5 6 7

30 Cash

1 9 0 00

Depositor Accounts (or similar liability acct.)

1 9 0 00

Error in recording depositor check

8 9 10 11

30 Depositor Accounts Cash Duplicate recording of ATM deposit

12 13

3 5 0 00 10 11 12

30 Depositor error—no entry required

14 15

3 5 0 00

13 14

30 Outstanding checks—no entry required

286

CHAPTER 7

APPENDIX: Internal Controls REVIEW QUESTIONS 1. Section 404 of the Sarbanes-Oxley Act requires publicly held companies to report annually on the effectiveness of internal control over financial reporting. 2. Internal control is a system developed by a company to provide reasonable assurance of achieving (1) effective and efficient operations, (2) reliable financial reporting, and (3) compliance with laws and regulations. 3. Control environment Risk assessment Control activities Information and communication system Monitoring processes 4. Segregation of duties Authorization procedures and related responsibilities Adequate documents and records Protection of assets and records 5. The main purposes of internal controls over cash receipts are to make sure that (1) all cash received by the business is recorded in the accounts, and (2) the cash is promptly deposited in the business bank account. 6. The main purpose of internal controls over cash payments is to make sure cash is paid only for goods and services received by the business, consistent with its best interests. 7. A voucher system is a control technique that requires every acquisition and subsequent payment to be supported by an approved voucher. 8. Voucher Purchase invoice Receiving report Purchase order Purchase requisition 9. This prevents a voucher from being processed again to create a duplicate payment.

CHAPTER 7

287

Exercise 7Apx-1A 1. The control environment is the policies, procedures, and attitudes of the top management and owners of the business. 2. Risk assessment is management’s process for identifying, analyzing, and responding to its business risks. 3. Control activities are the policies and procedures established to help management meet its control objectives. 4. The information and communication system is the set of procedures, processes, and records established to initiate, process, record, and report the business’s transactions. 5. Monitoring processes are the methods used by management to determine that controls are operating properly, and that the controls are modified in response to changes in assessed risks.

Exercise 7Apx-2A 1. a 2. d 3. e 4. c 5. b

288

CHAPTER 7

Exercise 7Apx-3A

Purchase Requisition

Accounting Department

Enter in Voucher Register

Problem 7Apx-4A 1. Require a voucher and supporting documents (including receiving report) for all payments. 2. Require cancelation of vouchers and supporting documents when payment is made. 3. Require password protection of all computer files and programs. 4. Require the bank reconciliation to be prepared by someone with no other cash handling responsibilities. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 7

289

Exercise 7Apx-1B 1. Segregation of duties means that: a. b.

Different employees should be responsible for different parts of a transaction; and Employees who account for transactions should not also have custody of the assets.

2. Authorization procedures and related responsibilities means that every business activity should be properly authorized. In addition, it should be possible to identify who is responsible for every activity that has occurred. 3. Adequate documents and records means that accounting documents and records should be used so that all business transactions are recorded. 4. Protection of assets and records means that assets and records should be physically and logically protected.

Exercise 7Apx-2B 1. d 2. b 3. c 4. a

290

CHAPTER 7

Exercise 7Apx-3B

Vouchers Payable

Cashier

Voucher (with Supporting Documents)

Problem 7Apx-4B 1. Require a voucher and supporting documents (including purchase order) for all payments. 2. Require a voucher and supporting documents (compare sales invoice with receiving report and purchase order) for all payments. 3. Physically protect valuable inventory by storing it in a secure location. 4. Require prenumbering and accounting for all key documents.

CHAPTER 8 PAYROLL ACCOUNTING: EMPLOYEE EARNINGS AND DEDUCTIONS REVIEW QUESTIONS 1. It is important for payroll accounting purposes to distinguish between an employee and an independent contractor because government laws and regulations regarding payroll are much more complex for employees than for independent contractors. 2. Three major categories of deductions from an employee’s gross pay are federal (and possibly state and city) income tax withholding, employee’s FICA (Social Security and Medicare) tax withholding, and voluntary deductions. 3. The four factors that determine the amount of federal income tax that is withheld from an employee’s pay each pay period are total earnings, marital status, number of withholding allowances claimed, and length of the pay period. 4. In general, each employee is entitled to one personal withholding allowance, one for a spouse who does not also claim an allowance, and one for each dependent. 5. The three payroll records usually needed by an employer are the payroll register, the payroll check (or record of EFT) with earnings statement attached, and the employee earnings record. 6. The payroll register contains detailed information on earnings, taxable earnings, deductions, and net pay for each employee. 7. It is important to total and verify the totals of the payroll register after the data for each employee have been entered because an error in the payroll register could cause the payment of an incorrect amount to an employee. It also could result in sending an incorrect amount to the government or other agencies for whom funds are withheld. 8. The payroll register provides a summary of the earnings of all employees for each pay period. The earnings record provides a summary of the annual earnings of an individual employee. 9. By deducting amounts from an employee’s earnings, the employer is simply serving as an agent for the government and other groups. Amounts that are deducted from an employee’s gross earnings must be paid by the employer to these groups. 10. Payroll processing centers and electronic systems are commonly used in payroll accounting because they make payroll accounting more efficient and accurate.

292

CHAPTER 8

Exercise 8-1A a.

regular hours × $10 per hour

$400.00

overtime hours × $15 per hour

90.00

Total gross wages

$490.00

Federal income tax withholding (from tax tables in Figure 8-4)

5.00

Social Security withholding at 6.2%

30.38

Medicare withholding at 1.45%

7.11

Total withholding

43.49

Net pay

$447.51

Exercise 8-2A Regular hours

40 hours × $15

$600

Time-and-a-half overtime

2 hours × $22.50 =

Double-time overtime

5 hours × $30

150

Gross pay

$795

Exercise 8-3A a.

$2,600 × 12 = $31,200 annual pay $31,200/52 = $600 pay per week $600/40 = $15 regular pay per hour $15 × 1.5 = $22.50 overtime pay per hour

Regular pay

40 hours × $15 = $600.00

Overtime pay

5 hours × $22.50 = 112.50

Gross pay

$712.50

Exercise 8-4A Marital Status

Total Weekly Earnings

Number of Allowances

Amount of Withholding

$347.60

$16

451.50

481.15

490.52

691.89

CHAPTER 8

293

Exercise 8-5A Cumul. Pay Before Current Weekly Payroll

Current Gross Pay

Year-toDate Earnings

Soc. Sec. Maximum

Amount Over Max. Soc. Sec.

Amount Subject to Soc. Sec.

Soc. Sec. Tax Withheld

Medicare Tax Withheld

$ 22,000

$1,700

$ 23,700

$110,100

none

$1,700

$105.40

$24.65

54,000

4,200

58,200

110,100

none

4,200

260.40

60.90

107,500

3,925

111,425

110,100

$1,325

2,600

161.20

56.91

109,500

4,600

114,100

110,100

4,000

600

37.20

66.70

Exercise 8-6A Social Security tax: $8,000 × 0.062 = $496

Medicare tax: $8,700 × 0.0145 = $126.15 GENERAL JOURNAL

DATE

DESCRIPTION

PAGE POST. REF.

20--

Dec. 31 Wages and Salaries Expense 2 Employee Federal Income Tax Payable

DEBIT

CREDIT

8 7 0 0 00

9 2 0 00 2

Social Security Tax Payable

4 9 6 00 3

Medicare Tax Payable

1 2 6 15 4

United Way Contributions Payable

2 0 0 00 5

Cash

6 9 5 7 85 6

Payroll for week ended December 31

Exercise 8-7A GENERAL JOURNAL DATE

DESCRIPTION

20--

Apr. 15 Wages and Salaries Expense 2 Employee Federal Income Tax Payable 1

PAGE POST. REF.

DEBIT

6 5 0 5 00

CREDIT 1

6 2 5 00 2

Social Security Tax Payable

Medicare Tax Payable

9 4 32 4

Pension Plan Payable

8 0 00 5

Health Insurance Premiums Payable

2 7 0 00 6

United Way Contributions Payable

1 0 0 00 7

Cash

Payroll for week ended April 15

4 0 3 31 3

4 9 3 2 37 8 9

294

CHAPTER 8

Problem 8-8A 1.

Regular pay (40 × $8.50)

$340.00

Overtime pay (8 × $12.75)

102.00

Gross pay

$442.00

Deductions: Employee federal income tax

7.00

Social Security tax ($442 × 0.062)

27.40

Medicare tax ($442 × 0.0145)

6.41

Health insurance premium

85.00

Credit union

125.00

United Way contribution

10.00

Total deductions

260.81

Net pay

$181.19

GENERAL JOURNAL DATE

DESCRIPTION

20--

Jan. 31 Wages and Salaries Expense 2 Employee Federal Income Tax Payable 1

Social Security Tax Payable

Medicare Tax Payable

Health Insurance Premiums Payable

Credit Union Payable

United Way Contributions Payable

Cash

PAGE POST. REF.

DEBIT

CREDIT

4 4 2 00

7 00

2 7 40

6 41

8 5 00

1 2 5 00

1 0 00

1 8 1 19

Payroll for week ended January 31

CHAPTER 8

295

Problem 8-9A 1. The Payroll Register can be found on pages 296–297. 2.

GENERAL JOURNAL DATE

DESCRIPTION

20--

Mar. 24 Wages and Salaries Expense 2 Employee Federal Income Tax Payable 1

PAGE POST. REF.

DEBIT

CREDIT

2 3 4 9 00

1 1 7 00

1 4 5 64

Social Security Tax Payable

Medicare Tax Payable

3 4 06

City Tax Payable

2 3 49

Health Insurance Premiums Payable

4 0 00

Credit Union Payable

4 0 00

U.S. Savings Bonds Payable

5 7 50

Cash

1 8 9 1 31

Payroll for week ended March 22

296

CHAPTER 8

Problem 8-9A (Continued) 1. PAYROLL REGISTER EARNINGS

NAME

NO. MARIT. ALLOW. STATUS

REGULAR

OVERTIME

TOTAL

CUMULATIVE TOTAL

UNEMPLOY. COMP.

SOCIAL SECURITY

570 00

6,050 00

570 00

480 00

6,240 00

480 00

483 00

5,443 00

483 00

Bacon, Andrea

480 00

Cole, Andrew

480 00

Hicks, Melvin

420 00

Leung, Cara

396 00

5,521 50

396 00

Melling, Melissa

420 00

5,140 50

420 00

2,349 00 28,395 00

2,349 00

2,196 00

90 00

TAXABLE EARNINGS

63 00

153 00

7 8 9 10 11 12 13 14

CHAPTER 8

297

Problem 8-9A (Concluded)

FOR PERIOD ENDED

March 22

20--

DEDUCTIONS FEDERAL INCOME TAX

SOCIAL SECURITY TAX

MEDICARE TAX

CITY TAX

13 00

35 34

8 27

5 70

15 00

Credit Union

47 00

29 76

6 96

4 80

5 00

11 00

29 95

7 00

4 83

34 00

24 55

5 74

3 96

12 00

26 04

6 09

4 20

117 00

145 64

34 06

23 49

HEALTH INSUR.

TOTAL

NET PAY

20 00

97 31

472 69 423

Bonds

38 75

132 27

347 73 424

5 00

Bonds

18 75

76 53

406 47 425

15 00

Credit Union

20 00

103 25

292 75 426

48 33

371 67 427

40 00

OTHER

97 50

457 69 1,891 31

CK. NO.

7 8 9 10 11 12 13 14

298

CHAPTER 8

Problem 8-10A EMPLOYEE EARNINGS RECORD EARNINGS 20 -PERIOD ENDED

REGULAR

OVERTIME

TAXABLE EARNINGS

TOTAL

CUMULATIVE TOTAL

UNEMPLOY. COMP.

SOCIAL SECURITY

6,240 00

480 00

DEDUCTIONS FEDERAL SOCIAL INCOME SECURITY TAX TAX

3/8 3/15 3/22

480 00

47 00

29 76

3/29

GENDER

DEPARTMENT

OCCUPATION

SOCIAL SECURITY NO.

MARITAL STATUS

ALLOWANCES

Ticket Sales

Manager

544-67-1283

CHAPTER 8

299

Problem 8-10A (Concluded) FOR PERIOD ENDED

20--

March 22 DEDUCTIONS

MEDICARE TAX

CITY TAX

HEALTH INSURANCE

OTHER

5 00 Savings Bond

38 75

TOTAL

CK. NO.

AMOUNT

132 27

424

347

6 96

4 80

PAY RATE

DATE OF BIRTH

DATE HIRED

NAME/ADDRESS

EMP. NO.

$12.00

5/8/86

6/1/--

Andrew Cole

28 Quarry Drive Vernon, CT 06066

300

CHAPTER 8

Exercise 8-1B a.

regular hours × $12 per hour

$480.00

5½

overtime hours × $18 per hour

99.00

Total gross wages

$579.00

Federal income tax withholding (from tax tables in Figure 8-4)

5.00

Social Security withholding at 6.2%

35.90

Medicare withholding at 1.45%

8.40

Total withholding

49.30

Net pay

$529.70

Exercise 8-2B Regular hours

40 hours × $12 = $480

Time-and-a-half overtime

3 hours × $18 =

Double-time overtime

6 hours × $24 = 144

Gross pay

54 $678

Exercise 8-3B a.

$3,250 × 12 = $39,000 annual pay $39,000/52 = $750 pay per week $750/40 = $18.75 regular pay per hour $18.75 × 1.5 = $28.125 overtime pay per hour

Regular pay

40 hours × $18.75 = $750.00

Overtime pay

6 hours × $28.125 = 168.75

Gross pay

$918.75

Exercise 8-4B Marital Status

Total Weekly Earnings

Number of Allowances

Amount of Withholding

$546.00

$10

390.00

461.39

522.88

612.00

CHAPTER 8

301

Exercise 8-5B Cumul. Pay Before Current Weekly Payroll

Current Gross Pay

Year-toDate Earnings

Soc. Sec. Maximum

Amount Over Max. Soc. Sec.

Amount Subject to Soc. Sec.

Soc. Sec. Tax Withheld

Medicare Tax Withheld

$ 31,000

$1,500

$ 32,500

$110,100

none

$1,500

$ 93.00

$21.75

53,000

2,860

55,860

110,100

none

2,860

177.32

41.47

107,200

3,140

110,340

110,100

$ 240

2,900

179.80

45.53

109,500

2,920

112,420

110,100

2,320

600

37.20

42.34

Exercise 8-6B Social Security tax: $9,400 × 0.062 = $582.80

Medicare tax: $9,400 × 0.0145 = $136.30 GENERAL JOURNAL

DATE

DESCRIPTION

20--

Nov. 30 Wages and Salaries Expense 2 Employee Federal Income Tax Payable 1

PAGE POST. REF.

DEBIT

CREDIT

9 4 0 0 00

9 8 5 00

Social Security Tax Payable

5 8 2 80

Medicare Tax Payable

1 3 6 30

United Way Contributions Payable

2 0 0 00

Cash

7 4 9 5 90

Payroll for week ended November 30

302

CHAPTER 8

Exercise 8-7B GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20--

June 12 Wages and Salaries Expense 2 Employee Federal Income Tax Payable

DEBIT

CREDIT

7 4 7 0 00

7 8 2 00

Social Security Tax Payable

4 6 3 14

Medicare Tax Payable

1 0 8 32

Pension Plan Payable

8 0 00

Health Insurance Premiums Payable

1 9 0 00

United Way Contributions Payable

1 5 0 00

Cash

5 6 9 6 54

Payroll for week ended June 12

Problem 8-8B 1.

Regular pay (40 × $9)

$360.00

Overtime pay (6 × $13.50)

81.00

Gross pay

$441.00

Deductions: Employee federal income tax

$ 14.00

Social Security tax ($441 × 0.062)

27.34

Medicare tax ($441 × 0.0145)

6.39

Health insurance premium

92.00

Credit union

110.00

United Way contributions Total deductions Net pay

5.00 254.73 $186.27

CHAPTER 8

303

Problem 8-8B (Concluded) 2.

GENERAL JOURNAL DATE

DESCRIPTION

20--

Jan. 31 Wages and Salaries Expense 2 Employee Federal Income Tax Payable 1

Social Security Tax Payable

Medicare Tax Payable

Health Insurance Premiums Payable

Credit Union Payable

United Way Contributions Payable

Cash

PAGE POST. REF.

DEBIT

CREDIT

4 4 1 00

1 4 00

2 7 34

6 39

9 2 00

1 1 0 00

5 00

1 8 6 27

Payroll for week ended January 31

304

CHAPTER 8

Problem 8-9B 1. PAYROLL REGISTER EARNINGS

NAME

NO. MARIT. ALLOW. STATUS

REGULAR

OVERTIME

TAXABLE EARNINGS

TOTAL

CUMULATIVE TOTAL

UNEMPLOY. COMP.

SOCIAL SECURITY

400 00

2,800 00

400 00

Barone, W.

400 00

Hastings, G.

480 00

90 00

570 00

3,930 00

570 00

Nitobe, I.

350 00

78 75

428 75

3,363 75

428 75

Smith, J.

440 00

33 00

473 00

3,218 00

473 00

Tarshis, D.

409 50

3,060 25

409 50

2,281 25 16,372 00

2,281 25

2,079 50

201 75

7 8 9 10 11 12 13 14

CHAPTER 8

305

Problem 8-9B (Concluded)

FOR PERIOD ENDED

20--

February 15 DEDUCTIONS

FEDERAL INCOME TAX

SOCIAL SECURITY TAX

MEDICARE TAX

CITY TAX

35 00

24 80

5 80

4 00

13 00

35 34

8 27

5 70

35 00

Bonds

5 00

26 58

6 22

4 29

15 00

3 00

29 33

6 86

4 73

35 00

25 39

5 94

91 00

141 44

33 09

HEALTH INSUR.

OTHER

TOTAL

NET PAY

CK. NO.

69 60

330 40 365

18 75

116 06

453 94 366

Credit Union

25 00

82 09

346 66 367

35 00

Bonds

43 75

122 67

350 33 368

4 10

15 00

Credit Union

25 00

110 43

299 07 369

22 82

100 00

112 50

500 85 1,780 40

7 8 9 10 11 12 13 14

GENERAL JOURNAL DATE

DESCRIPTION

20--

Feb. 17 Wages and Salaries Expense 2 Employee Federal Income Tax Payable 1

PAGE POST. REF.

DEBIT

CREDIT

2 2 8 1 25

9 1 00

1 4 1 44

Social Security Tax Payable

Medicare Tax Payable

3 3 09

City Tax Payable

2 2 82

Health Insurance Premiums Payable

1 0 0 00

Credit Union Payable

5 0 00

U.S. Savings Bonds Payable

6 2 50

Cash

1 7 8 0 40

Payroll for week ended February 15

306

CHAPTER 8

Problem 8-10B EMPLOYEE EARNINGS RECORD EARNINGS 20 -PERIOD ENDED

REGULAR

OVERTIME

TAXABLE EARNINGS

TOTAL

CUMULATIVE TOTAL

UNEMPLOY. COMP.

SOCIAL SECURITY

2,800 00

400 00

DEDUCTIONS FEDERAL SOCIAL INCOME SECURITY TAX TAX

2/8 2/15

400 00

35 00

24 80

2/22

GENDER M

DEPARTMENT

OCCUPATION

SOCIAL SECURITY NO.

MARITAL STATUS

ALLOWANCES

Desserts

Baker

342-73-4681

CHAPTER 8

307

Problem 8-10B (Concluded) FOR PERIOD ENDED

20--

February 15 DEDUCTIONS

MEDICARE TAX

CITY TAX

HEALTH INSURANCE

OTHER

TOTAL

69 60

CK. NO.

AMOUNT

365

330

5 80

4 00

PAY RATE

DATE OF BIRTH

DATE HIRED

NAME/ADDRESS

EMP. NO.

$10.00

8/26/79

10/1/--

William Barone

30 Timber Lane Willington, CT 06279

MANAGING YOUR WRITING For: Respect for human dignity demands that the minimum wage be raised. The current minimum wage hardly enables a worker to live above the poverty level. In addition, as the cost of living increases, the minimum wage must be increased just to help workers stay at their current inadequate level. Against: If the minimum wage is increased too much, jobs will be lost because businesses will be able to afford fewer employees, or will move to areas with lower labor costs. The net effect of this will be to help those who still have jobs but worsen the situation for the workers overall. In addition, higher labor costs will cause businesses to increase prices. This will make it more costly to live, so that the net benefit of the increased minimum wage is unclear.

ETHICS CASE: SUGGESTED SOLUTIONS 1. No. Simon agreed to have these amounts withheld from his pay by accepting employment at N & L and completing the payroll paperwork. Also, Simon might be trying to take advantage of a new employee. 2. Current liabilities would be understated. 3. Answers will vary. Students not aware of the employer’s payroll tax, which is introduced in the next chapter, might recognize that cash will be lower than it should be and current liabilities will not reflect proper withholding amounts. 4. Answers will vary. Students should recognize that Simon was wrong to ask Maura not to withhold taxes and Maura would be wrong to honor his request. Also, they might suggest that Maura report the incident to her supervisor for direction.

308

CHAPTER 8

Mastery Problem 1.

PAYROLL REGISTER EARNINGS

NAME

NO. MARIT. ALLOW. STATUS

REGULAR

OVERTIME

TAXABLE EARNINGS

TOTAL

CUMULATIVE TOTAL

UNEMPLOY. COMP.

SOCIAL SECURITY

Berling, J.

480 00

168 00

648 00

25,173 00

648 00

Merz, L.

600 00

45 00

645 00

31,125 00

645 00

Goetz, K.

440 00

21,940 00

440 00

Menick, J.

275 00

627 00

23,252 00

627 00

Morales, E.

494 00

25,224 00

494 00

Heimbrock, J.

1,360 00

1,360 00 110,500 00

960 00

Townsley, S.

252 00

72 00

324 00

21,749 00

Salzman, B.

374 00

176 00

550 00

7,185 00

365 00

550 00

Layton, E.

440 00

6,075 00

440 00

Thompson, D.

440 00

93 50

533 50

22,168 50

533 50

Vadillo, C.

481 00

208 00

689 00

24,804 00

689 00

352 00

5,636 00 1,114 50

324 00

6,750 50 319,195 50

805 00

6,350 50

13 14

EMPLOYEE EARNINGS RECORD EARNINGS

TAXABLE EARNINGS

TOTAL

CUMULATIVE TOTAL

UNEMPLOY. COMP.

SOCIAL SECURITY

FEDERAL INCOME TAX

33 00

363 00

6,145 50

363 00

6 00

440 00

49 50

489 50

6,635 00

489 50

18 00

374 00

176 00

550 00

7,185 00

365 00

550 00

25 00

20 -PERIOD ENDED

REGULAR

OVERTIME

11/4

330 00

11/11 11/18 11/25

GENDER M

DEPARTMENT

OCCUPATION

SOCIAL SECURITY NO.

MARITAL STATUS

Administration

Office Assistant

446-46-6321

CHAPTER 8

309

Mastery Problem (Continued)

FOR PERIOD ENDED

20--

November 18 DEDUCTIONS

FEDERAL INCOME TAX

SOCIAL SECURITY TAX

MEDICARE TAX

STATE INCOME TAX

HEALTH INSURANCE

CREDIT UNION

TOTAL

NET PAY

CK. NO.

27 00

40 18

9 40

5 00

149 60

253 86

394

14 331

20 00

39 99

9 35

5 00

117 00

213 92

431

08 332

14 00

27 28

6 38

5 00

91 30

159 36

280

64 333

57 00

38 87

9 09

5 00

126 50

258 41

368

59 334

12 00

30 63

7 16

5 00

117 05

189 13

304

87 335

110 00

59 52

19 72

5 00

154 25

396 09

963

91 336

2 00

20 09

4 70

5 00

83 05

126 18

197

82 337

25 00

34 10

7 98

5 00

130 00

221 33

328

67 338

7 00

27 28

6 38

5 00

88 00

149 06

290

94 339

1 00

33 08

7 74

5 00

128 90

194 37

339

11 340

66 00

42 72

9 99

5 00

139 11

286 94

402

06 341

341 00

393 74

97 89

236

55 00 1,324 76

2,448 67

4,301

12 13 14

FOR PERIOD ENDED

20-DEDUCTIONS STATE INCOME HEALTH TAX INSURANCE

NET PAY

SOCIAL SECURITY TAX

MEDICARE TAX

22 51

5 26

12 71

30 35

7 10

17 13

34 10

7 98

19 25

ALLOWANCES

PAY RATE

DATE OF BIRTH

DATE HIRED

NAME/ADDRESS

$11.00

4/5/84

7/22/--

Beth F. Salzman

5 00

TOTAL

CK. NO.

72 60

119 08

121

243 92

97 90

170 48

229

319 02

130 00

221 33

338

328 67

CREDIT UNION

AMOUNT

EMP. NO.

12 Windmill Lane Trumbull, CT 06611

310

CHAPTER 8

Mastery Problem (Concluded) 2.

GENERAL JOURNAL DATE

DESCRIPTION

20--

Nov. 21 Wages and Salaries Expense 2 Employee Federal Income Tax Payable 1

PAGE POST. REF.

DEBIT

CREDIT

6 7 5 0 50

3 4 1 00

3 9 3 74

9 7 89

2 3 6 28

5 5 00

Social Security Tax Payable

Medicare Tax Payable

State Income Tax Payable

Health Insurance Premiums Payable

Credit Union Payable

1 3 2 4 76

Cash

4 3 0 1 83

Payroll for week ended November 18

CHAPTER 8

311

Challenge Problem 1. GENERAL JOURNAL DATE 20-2 1

Jan.

PAGE POST. REF.

DESCRIPTION

DEBIT

CREDIT

4 Wages and Salaries Payable

1 7 5 4 00

Wages and Salaries Expense

1 5 9 6 00

Employee Federal Income Tax Payable

3 4 2 00

Social Security Tax Payable

2 0 7 70

Medicare Tax Payable

4 8 58

Health Insurance Premiums Payable

5 0 00

United Way Contributions Payable

8 0 00

Cash

2 6 2 1 72

To record Jan. 4 payroll

2. Wages and Salaries Expense 20-2

Jan. 4

Wages and Salaries Payable 20-2

1,596.00

Jan. 4

1,754.00

Jan. 1 Bal.

1,754.00

CHAPTER 9 PAYROLL ACCOUNTING: EMPLOYER TAXES AND REPORTS REVIEW QUESTIONS 1.

The various employee payroll taxes are levied on the employee, not the employer.

The text assumes the rate is 6.2% on an earnings base of $110,100.

The purpose of the FUTA tax is to raise funds to administer the federal/state unemployment compensation program. The employer must pay this tax.

The purpose of the state unemployment tax is to raise funds to pay unemployment benefits. In most states, the employer must pay this tax.

When employer payroll taxes are properly recorded, the following accounts are affected: Payroll Taxes Expense, Social Security Tax Payable, Medicare Tax Payable, FUTA Tax Payable, and SUTA Tax Payable.

Social Security taxes withheld from employees’ earnings and imposed on the employer are credited to Social Security Tax Payable. The payment of Social Security tax is debited to Social Security Tax Payable. Similarly, Medicare taxes withheld from employees’ earnings and imposed on the employer are credited to Medicare Tax Payable. The payment of Medicare tax is debited to Medicare Tax Payable.

The total cost of an employee to the employer includes Social Security, Medicare, SUTA, and FUTA taxes in addition to the employee’s gross wages.

The purpose of the EFTPS is to provide employers with an electronic funds transfer system to deposit federal income tax withheld and Social Security and Medicare taxes.

Form 941 is a report of employee federal income tax and employee and employer Social Security and Medicare taxes for the quarter.

10.

Employers file an annual report of federal unemployment tax on Form 940.

11.

Form W-2 shows the total amount of wages paid to the employee and the amounts of taxes withheld during the preceding tax year.

12.

The purpose of Form I-9 is to document that each employee is authorized to work in the United States.

13.

Workers’ compensation insurance provides insurance for employees who suffer a job-related illness or injury. The entire cost of workers’ compensation insurance usually is paid by the employer.

314

CHAPTER 9

Exercise 9-1A Social Security tax

= $12,200 × 0.062

= $ 756.40

Medicare tax

= $12,200 × 0.0145

176.90

FUTA tax SUTA tax

= $10,500 × 0.006 = $10,500 × 0.054

= =

63.00 567.00

Total employer payroll taxes

$1,563.30 GENERAL JOURNAL

DATE

PAGE POST. REF.

DESCRIPTION

20--

July 15 Payroll Taxes Expense 2 Social Security Tax Payable

DEBIT

CREDIT

1 5 6 3 30

7 5 6 40 2

Medicare Tax Payable

1 7 6 90 3

FUTA Tax Payable

6 3 00 4

SUTA Tax Payable

5 6 7 00 5

To record employer payroll taxes expense

Exercise 9-2A Total unemployment taxable Total Social Security taxable Total earnings

= $ 710.00 = 4,000.00 = $4,000.00

Social Security tax = $4,000 × 0.062 Medicare tax = $4,000 × 0.0145 FUTA tax = $710 × 0.006 SUTA tax = $710 × 0.054 Total employer payroll taxes

= $248.00 = 58.00 = 4.26 = 38.34 $348.60

GENERAL JOURNAL DATE

DESCRIPTION

20--

Mar. 12 Payroll Taxes Expense 2 Social Security Tax Payable 1

PAGE POST. REF.

DEBIT

3 4 8 60

CREDIT 1

2 4 8 00 2

Medicare Tax Payable

FUTA Tax Payable

4 26 4

SUTA Tax Payable

3 8 34 5

6 7

To record employer payroll taxes expense

5 8 00 3

6 7

CHAPTER 9

315

Exercise 9-3A Taxable Earnings Name

Current Earnings

Unemploy. Comp.

Social Security

Jordahl

$ 1,190

$ 400

$ 1,190

Keesling

1,070

850

1,070

Palmer

2,410

—

2,410

Soltis

2,280

—

2,280

Stout

2,030

—

2,030

Xia

2,850

—

1,870

$11,830

$1,250

$10,850

Total

Social Security tax = $10,850 × 0.062 Medicare tax = $11,830 × 0.0145 FUTA tax = $1,250 × 0.006 SUTA tax = $1,250 × 0.054 Total employer payroll taxes

= $672.70 = 171.54 = 7.50 = 67.50 $919.24

GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

20--

Sept. 14 Payroll Taxes Expense 2 Social Security Tax Payable

DEBIT

9 1 9 24

CREDIT 1

6 7 2 70 2

Medicare Tax Payable

1 7 1 54 3

FUTA Tax Payable

7 50 4

SUTA Tax Payable

6 7 50 5

To record employer payroll taxes expense

6 7

Exercise 9-4A Salary of Johnson Social Security tax ($35,000 × 0.062) Medicare tax ($35,000 × 0.0145) FUTA tax ($7,000 × 0.006) SUTA tax ($7,000 × 0.054) Total cost of employee

$35,000.00 2,170.00 507.50 42.00 378.00 $38,097.50

316

CHAPTER 9

Exercise 9-5A GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20--

Apr. 15 Employee Federal Income Tax Payable 2 Social Security Tax Payable 1

Medicare Tax Payable Cash Deposit of employee federal income tax and Social Security and Medicare taxes

3 4 5 6

30 FUTA Tax Payable Cash

Paid FUTA tax

0 11

30 SUTA Tax Payable Cash

Paid SUTA tax

DEBIT

CREDIT

6 8 2 5 00

11 2 5 0 00

2 6 2 5 00

20 7 0 0 00

4 5 6

6 0 0 00

8 9

4 0 5 0 00

4 0 5 0 00 11 12

Exercise 9-6A 1. Workers’ compensation insurance premium = $450,000 × 0.002 = $900.00 GENERAL JOURNAL DATE 20-1

Jan.

DESCRIPTION

PAGE POST. REF.

2 Workers’ Compensation Insurance Expense

DEBIT

9 0 0 00

Cash

CREDIT 1

9 0 0 00 2

Paid estimated workers’

compensation insurance premium

2. Actual payroll = $456,000 × 0.002 = $912.00 Actual amount owed = $912.00 Less estimated premium paid = 900.00 Additional premium due = $ 12.00 GENERAL JOURNAL DATE

DESCRIPTION

20--

Dec. 31 Workers’ Compensation Insurance Expense 2 Workers’ Compensation Insurance Payable 1

3 4

Adjustment for insurance premium

PAGE POST. REF.

DEBIT

1 2 00

CREDIT 1

1 2 00 2 3 4

CHAPTER 9

317

Problem 9-7A 1. Taxable Earnings Name

Current Earnings

Unemploy. Comp.

Social Security

$ 800

$ 350

$ 800

720

630

720

1,200

—

1,200

Lenihan, Marcus

900

McMahon, Drew

3,440

—

1,350

Newell, Marg

1,110

—

1,110

Stevens, Matt

1,260

—

1,260

$9,430

$1,050

$7,340

Click, Katelyn Coombs, Michelle Fauss, Erin

Total

Social Security tax = $7,340 × 0.062 Medicare tax = $9,430 × 0.0145 FUTA tax = $1,050 × 0.006 SUTA tax = $1,050 × 0.054 Total employer payroll taxes

= $455.08 = 136.74 = 6.30 = 56.70 $654.82

GENERAL JOURNAL DATE 20-1

July

DESCRIPTION

7 Payroll Taxes Expense

PAGE POST. REF.

DEBIT

CREDIT

6 5 4 82

Social Security Tax Payable

4 5 5 08

Medicare Tax Payable

1 3 6 74

FUTA Tax Payable

6 30

SUTA Tax Payable

5 6 70

To record employer’s payroll taxes expense

318

CHAPTER 9

Problem 9-8A 1.

GENERAL JOURNAL DATE 20--

POST. REF.

DEBIT

CREDIT

Employee Federal Income Tax Payable

211

3 5 5 3 00

Social Security Tax Payable

212

5 1 0 3 00

Medicare Tax Payable

213

1 1 9 7 00

June 15

DESCRIPTION

PAGE

Cash

101

9 8 5 3 00

Deposit of employee federal income tax and

Social Security and Medicare taxes

7 8

30 Wages and Salaries Expense

511

42 0 0 0 00

Employee Federal Income Tax Payable

211

3 5 7 0 00

Social Security Tax Payable

212

2 6 0 4 00 10

Medicare Tax Payable

213

6 0 9 00 11

Savings Bond Deductions Payable

218

1 2 2 5 00 12

Cash

101

33 9 9 2 00 13

To record June payroll

15 16

30 Savings Bond Deductions Payable Cash

218

2 4 5 0 00

101

2 4 5 0 00 17

Purchased U.S. savings bonds

for employees

20 21

30 Payroll Taxes Expense

530

3 8 6 4 00

Social Security Tax Payable

212

2 6 0 4 00 22

Medicare Tax Payable

213

6 0 9 00 23

FUTA Tax Payable

221

8 4 00 24

SUTA Tax Payable

222

5 6 7 00 25

To record employer payroll taxes expense

Employee Federal Income Tax Payable

211

3 5 7 0 00

Social Security Tax Payable

212

5 2 0 8 00

Medicare Tax Payable

213

1 2 1 8 00

July 15

Cash

101

9 9 9 6 00 31

Deposit of employee federal income tax and

Social Security and Medicare taxes

CHAPTER 9

319

Problem 9-8A (Continued) GENERAL JOURNAL DATE 20-1 2 3

July 31

DESCRIPTION

SUTA Tax Payable Cash

PAGE POST. REF.

222

DEBIT

CREDIT

3 4 0 2 00

101

3 4 0 2 00

Paid SUTA tax

4 5 6 7

31 FUTA Tax Payable Cash

221 101

6 5 8 00

Paid FUTA tax

320

CHAPTER 9

Problem 9-8A (Concluded) 2.

Bal.

6/15 7/15

Cash 70,200 6/15 6/30 6/30 7/15 7/31 7/31

101 9,853 33,992 2,450 9,996 3,402 658

Employee Federal Income Tax Payable 211 6/15 3,553 Bal. 3,553 7/15 3,570 6/30 3,570

Social Security Tax Payable 5,103 Bal. 5,208 6/30 6/30

212 5,103 2,604 2,604

6/15 7/15

Medicare Tax Payable 1,197 Bal. 1,218 6/30 6/30

213 1,197 609 609

7/31

FUTA Tax Payable 658 Bal. 6/30

221 574 84

Wages and Salaries Expense 42,000

511

Savings Bond Deductions Payable 218 6/30 2,450 Bal. 1,225 6/30 1,225

7/31

6/30

SUTA Tax Payable 3,402 Bal. 6/30

222 2,835 567

Payroll Taxes Expense 3,864

530

6/30

CHAPTER 9

321

Problem 9-9A 1.

$650,000 × 0.003 = $1,950.00

GENERAL JOURNAL DATE 20-1

Jan.

PAGE POST. REF.

DESCRIPTION

2 Workers’ Compensation Insurance Expense

DEBIT

1 9 5 0 00

Cash

CREDIT 1

1 9 5 0 00 2

Paid estimated workers’ compensation

insurance premium

$672,000 × 0.003 Less estimated premium paid Additional premium due

$2,016.00 1,950.00 $ 66.00

GENERAL JOURNAL DATE

DESCRIPTION

20--

Dec. 31 Workers’ Compensation Insurance Expense 2 Workers’ Compensation Insurance Payable 1

Adjustment for insurance premium

PAGE POST. REF.

DEBIT

6 6 00

CREDIT 1

6 6 00 2 3

322

CHAPTER 9

Problem 9-9A (Concluded) 3.

$634,000 × 0.003 Less estimated premium paid Refund due

$1,902.00 1,950.00 $ (48.00)

GENERAL JOURNAL DATE 20-1

Dec. 31

DESCRIPTION

PAGE POST. REF.

Insurance Refund Receivable

DEBIT

4 8 00

Workers’ Compensation Insurance Expense

CREDIT 1

4 8 00 2

Adjustment for insurance premium

Exercise 9-1B Social Security tax = $15,680 × 0.062 = $ 972.16 Medicare tax = $15,680 × 0.0145 = 227.36 FUTA tax = $12,310 × 0.006 = 73.86 SUTA tax = $12,310 × 0.054 = 664.74 Total employer payroll taxes $1,938.12

GENERAL JOURNAL DATE 20-1

June 21

DESCRIPTION

Payroll Taxes Expense

PAGE POST. REF.

DEBIT

1 9 3 8 12

CREDIT 1

Social Security Tax Payable

9 7 2 16 2

Medicare Tax Payable

2 2 7 36 3

FUTA Tax Payable

7 3 86 4

SUTA Tax Payable

6 6 4 74 5

To record employer payroll taxes expense

CHAPTER 9

323

Exercise 9-2B Total unemployment taxable Total Social Security taxable Total earnings

= $1,380.00 = 5,465.00 = $5,465.00

Social Security tax = $5,465 × 0.062 Medicare tax = $5,465 × 0.0145 FUTA tax = $1,380 × 0.006 SUTA tax = $1,380 × 0.054 Total employer payroll taxes

= $338.83 = 79.24 = 8.28 = 74.52 $500.87

GENERAL JOURNAL DATE 20-1

Apr.

PAGE POST. REF.

DESCRIPTION

7 Payroll Taxes Expense

DEBIT

CREDIT

5 0 0 87

Social Security Tax Payable

3 3 8 83 2

Medicare Tax Payable

FUTA Tax Payable

8 28 4

SUTA Tax Payable

7 4 52 5

7 9 24 3

To record employer payroll taxes expense

Exercise 9-3B Taxable Earnings Name

Current Earnings

Unemploy. Comp.

Social Security

Carlson

$ 950

$ 365

$ 950

Delgado

1,215

850

1,215

Lewis

2,415

—

2,415

Nixon

1,750

—

1,750

Shippe

1,450

—

1,450

Watts

2,120

—

1,400

$9,900

$1,215

$9,180

Total

324

CHAPTER 9

Exercise 9-3B (Concluded) Social Security tax = $9,180 × 0.062 Medicare tax = $9,900 × 0.0145 FUTA tax = $1,215 × 0.006 SUTA tax = $1,215 × 0.054 Total employer payroll taxes

= $569.16 = 143.55 = 7.29 = 65.61 $785.61

GENERAL JOURNAL DATE 20-1

DESCRIPTION

PAGE POST. REF.

7 Payroll Taxes Expense

Oct.

DEBIT

CREDIT

7 8 5 61

Social Security Tax Payable

5 6 9 16 2

Medicare Tax Payable

1 4 3 55 3

FUTA Tax Payable

7 29 4

SUTA Tax Payable

6 5 61 5

To record employer payroll taxes expense

Exercise 9-4B: See page 325. Exercise 9-5B GENERAL JOURNAL DATE 20--

POST. REF.

DEBIT

CREDIT

Employee Federal Income Tax Payable

7 2 4 5 00

Social Security Tax Payable

9 5 6 3 00

Medicare Tax Payable

2 2 5 0 00

July 15

DESCRIPTION

PAGE

Cash

19 0 5 8 00

Deposit of employee federal income tax and

Social Security and Medicare taxes

7 8

FUTA Tax Payable

5 0 4 00

Cash Paid FUTA tax

9 10

5 0 4 00

13 14

9 10

11 12

SUTA Tax Payable Cash Paid SUTA tax

3 4 0 2 00

3 4 0 2 00 13 14

CHAPTER 9

325

Exercise 9-4B Salary of Gonzales Social Security tax ($46,000 × 0.062) Medicare tax ($46,000 × 0.0145) FUTA tax ($7,000 × 0.006) SUTA tax ($7,000 × 0.054) Total cost of employee

$46,000 2,852 667 42 378 $49,939

Exercise 9-6B 1.

Workers’ compensation insurance premium = $385,000 × 0.002 = $770.00 GENERAL JOURNAL DATE 20-1

Jan.

DESCRIPTION

PAGE POST. REF.

2 Workers’ Compensation Insurance Expense

DEBIT

7 7 0 00

Cash

CREDIT 1

7 7 0 00 2

Paid estimated workers’

compensation insurance premium

Actual payroll = $396,000 × 0.002 = $792.00 Actual amount owed = $792.00 Less estimated premium paid = 770.00 Additional premium due = $ 22.00

GENERAL JOURNAL DATE 20-1 2 3

Dec. 31

DESCRIPTION

Workers’ Compensation Insurance Expense Workers’ Compensation Insurance Payable Adjustment for insurance premium

PAGE POST. REF.

DEBIT

2 2 00

CREDIT 1

2 2 00 2 3

326

CHAPTER 9

Problem 9-7B 1. Taxable Earnings Name

Current Earnings

Unemploy. Comp.

Social Security

645

$540

$ 645

Conley, Dorothy

1,025

—

1,025

Davis, James

565

150

565

Lawrence, Kevin

2,875

—

2,875

Rawlings, Judy

985

—

985

Tanaka, Sumio

835

—

835

Vadillo, Raynette

3,540

—

1,840

$10,470

$690

$8,770

Ackers, Alice

Total

Social Security tax = $8,770 × 0.062 Medicare tax = $10,470 × 0.0145 FUTA tax = $690 × 0.006 SUTA tax = $690 × 0.054 Total employer payroll taxes

= $543.74 = 151.82 = 4.14 = 37.26 $736.96

GENERAL JOURNAL DATE 20-1

July 14

DESCRIPTION

Payroll Taxes Expense

PAGE POST. REF.

DEBIT

CREDIT

7 3 6 96

Social Security Tax Payable

5 4 3 74

Medicare Tax Payable

1 5 1 82

FUTA Tax Payable

4 14

SUTA Tax Payable

3 7 26

To record employer payroll taxes expense

CHAPTER 9

327

Problem 9-8B 1.

GENERAL JOURNAL DATE 20--

POST. REF.

DEBIT

CREDIT

Employee Federal Income Tax Payable

211

2 0 1 8 00

Social Security Tax Payable

212

2 7 3 5 00

Medicare Tax Payable

213

6 4 1 00

June 15

DESCRIPTION

PAGE

Cash

101

5 3 9 4 00

Deposit of employee federal income tax and

Social Security and Medicare taxes

30 Wages and Salaries Expense

511

22 0 5 0 00

Employee Federal Income Tax Payable

211

1 9 2 0 00

Social Security Tax Payable

212

1 3 6 7 10 10

Medicare Tax Payable

213

3 1 9 73 11

Savings Bond Deductions Payable

218

7 8 7 50 12

Cash

101

17 6 5 5 67 13

To record June payroll

30 Savings Bond Deductions Payable

Cash

218

1 5 7 5 00

101

1 5 7 5 00 17

Purchased U.S. savings bonds

for employees

30 Payroll Taxes Expense

530

2 1 0 5 33

Social Security Tax Payable

212

1 3 6 7 10 22

Medicare Tax Payable

213

3 1 9 73 23

FUTA Tax Payable

221

5 4 00 24

SUTA Tax Payable

222

3 6 4 50 25

To record employer payroll taxes expense

27 28

July

15 Employee Federal Income Tax Payable

211

1 9 2 0 00

Social Security Tax Payable

212

2 7 3 4 20

Medicare Tax Payable

213

6 3 9 46

Cash

101

5 2 9 3 66 31

Deposit of employee federal income tax and

Social Security and Medicare taxes

328

CHAPTER 9

Problem 9-8B (Continued) GENERAL JOURNAL DATE 20-1 2 3

July

DESCRIPTION

31 SUTA Tax Payable Cash

PAGE POST. REF.

222

DEBIT

CREDIT

1 7 4 4 50

101

1 7 4 4 50

Paid SUTA tax

4 5 6 7

31 FUTA Tax Payable Cash

221 101

5 9 4 00

Paid FUTA tax

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CHAPTER 9

329

Problem 9-8B (Concluded) 2.

Bal.

6/15 7/15

Cash 69,500.00 6/15 6/30 6/30 7/15 7/31 7/31

101 5,394.00 17,655.67 1,575.00 5,293.66 1,744.50 594.00

Social Security Tax Payable 212 2,735.00 Bal. 2,735.00 2,734.20 6/30 1,367.10 6/30 1,367.10

Savings Bond Deductions Payable 218 6/30 1,575.00 Bal. 787.50 6/30 787.50

7/31

6/30

SUTA Tax Payable 1,744.50 Bal. 6/30

222 1,380.00 364.50

Payroll Taxes Expense 2,105.33

530

Employee Federal Income Tax Payable 211 6/15 2,018.00 Bal. 2,018.00 7/15 1,920.00 6/30 1,920.00

6/15 7/15

Medicare Tax Payable 641.00 Bal. 639.46 6/30 6/30

213 641.00 319.73 319.73

7/31

FUTA Tax Payable 594.00 Bal. 6/30

221 540.00 54.00

6/30

Wages and Salaries Expense 22,050.00

511

330

CHAPTER 9

Problem 9-9B 1.

$540,000 × 0.002 = $1,080.00

GENERAL JOURNAL DATE 20-1

Jan.

PAGE POST. REF.

DESCRIPTION

2 Workers’ Compensation Insurance Expense

DEBIT

1 0 8 0 00

Cash

CREDIT 1

1 0 8 0 00 2

Paid insurance premium

$562,000 × 0.002 Less estimated premium paid Additional premium due

$1,124.00 1,080.00 $ 44.00

GENERAL JOURNAL DATE 20-1 2 3

Dec. 31

DESCRIPTION

Workers’ Compensation Insurance Expense Workers’ Compensation Insurance Payable Adjustment for insurance premium

PAGE POST. REF.

DEBIT

4 4 00

CREDIT 1

4 4 00 2 3

CHAPTER 9

331

Problem 9-9B (Concluded) 3.

$532,000 × 0.002 Less estimated premium paid Refund due

$1,064.00 1,080.00 $ (16.00)

GENERAL JOURNAL DATE 20-1 2

Dec. 31

DESCRIPTION

Insurance Refund Receivable

PAGE POST. REF.

DEBIT

CREDIT

1 6 00

Workers’ Compensation Insurance Expense

1 6 00

Adjustment for insurance premium

3 4

2 3 4

MANAGING YOUR WRITING Every employer is required to pay a percentage of wages for various government programs for employees. Costs that are part of this element of these fringe benefits are as follows: Social Security Medicare FUTA SUTA Total

6.20% 1.45 0.60 5.40 13.65%

In addition to this approximately 14% required by the government, various other programs could easily make up the rest of the 30% of fringe benefits. Some common examples include the following: Health insurance Retirement program Vacation support program Family leave program

10–15% 5–10% 2–5% 5–10%

All things considered, the art director is probably fortunate to be held responsible for only 30% in fringes.

ETHICS CASE: SUGGESTED SOLUTIONS 1. No. Bob injured his back at home. Workers’ compensation is for injuries and illnesses incurred while on the job. 2. Bob’s claim could potentially increase Cliffrock Company’s premium because premiums are based, in part, on the number of work-related accidents and illnesses that have occurred at the company. 3. Answers will vary. Students should include the purpose of workers’ compensation and the procedures to follow when a workers’ compensation claim is filed. 4. Answers will vary. Possible risks might include repeated stress injuries to wrists; back, neck, and shoulder strains; headaches; and eyestrain. Employers could minimize these risks by encouraging input operators to sit properly and take stretching breaks. Employers could also invest in ergonomic chairs and keyboards as well as high resolution monitors to prevent eyestrain. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

332

CHAPTER 9

Mastery Problem 1., 2., and 3. GENERAL JOURNAL DATE 20-1

Mar. 31

DESCRIPTION

Wages and Salaries Expense

PAGE POST. REF.

DEBIT

CREDIT

5 5 0 0 00

Employee Federal Income Tax Payable

5 0 0 00

Social Security Tax Payable

3 4 1 00

Medicare Tax Payable

7 9 75

Health Insurance Premiums Payable

1 6 5 00

Life Insurance Premiums Payable

2 0 0 00

Cash

4 2 1 4 25

To record Mar. 31 payroll

9 10

31 Payroll Taxes Expense

7 2 0 75

Social Security Tax Payable

Medicare Tax Payable

7 9 75 12

FUTA Tax Payable

3 0 00 13

SUTA Tax Payable

2 7 0 00 14

3 4 1 00 11

To record employer payroll taxes expense

Apr. 15 Employee Federal Income Tax Payable

3 0 0 0 00

Social Security Tax Payable

2 6 9 0 00

Medicare Tax Payable

6 2 9 50

Cash

6 3 1 9 50 20

Deposit of employee federal income tax and

Social Security and Medicare taxes

23 24 25 26

30 FUTA Tax Payable

5 5 0 00

Cash

5 5 0 00 25

Paid FUTA tax

27 28 29 30

30 SUTA Tax Payable Cash Paid SUTA tax

4 7 8 0 00

4 7 8 0 00 29 30

CHAPTER 9

333

Mastery Problem (Concluded) GENERAL JOURNAL DATE 20-1 2 3

Dec. 31

DESCRIPTION

Insurance Refund Receivable Workers’ Compensation Insurance Expense

PAGE POST. REF.

DEBIT

CREDIT

2 0 00

Adjustment for insurance premium

334

CHAPTER 9

Challenge Problem 1.

Social Security tax = $12,500 × 0.062 Medicare tax = $12,500 × 0.0145 FUTA tax = $12,500 × 0.006 SUTA tax = $12,500 × 0.020 Total employer payroll taxes

= $ 775.00 = 181.25 = 75.00 = 50.00 $1,281.25

2. GENERAL JOURNAL DATE 20-1

Jan.

DESCRIPTION

7 Payroll Taxes Expense

PAGE POST. REF.

DEBIT

CREDIT

1 2 8 1 25

Social Security Tax Payable

7 7 5 00

Medicare Tax Payable

1 8 1 25

FUTA Tax Payable

7 5 00

SUTA Tax Payable

2 5 0 00

Employer payroll taxes for week

ended Jan. 7

3. $12,500 × 0.054 $12,500 × 0.020 Savings

= $675.00 = 250.00 $425.00

CHAPTER 10 ACCOUNTING FOR SALES AND CASH RECEIPTS REVIEW QUESTIONS 1.

In retail businesses, a cash register tape summary and a sales ticket are commonly used. In wholesale businesses, a sales invoice is commonly used. When merchandise is returned, a credit memo would be used by both retailers and wholesalers.

A credit memo is issued by the seller for the amount involved when credit is given for merchandise returned or for an allowance.

The sales account is a revenue account used to record sales of merchandise. Sales Tax Payable is a liability account that is credited for the amount of tax imposed on sales. Sales Returns and Allowances is a contra-revenue account to which sales returns and sales allowances are debited. Sales Discounts is a contra-revenue account to which cash discounts allowed are debited.

To post sales from the general journal to the general ledger: In the general ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance columns under Debit or Credit. Step 4: Enter the journal page number from which each transaction is posted in the Posting Reference column. In the journal: Step 5: Enter the ledger account number in the Posting Reference column of the journal for each transaction that is posted.

To post sales from the general journal to the accounts receivable ledger: In the accounts receivable ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance column. Step 4: Enter the journal page number from which each transaction is posted in the Posting Reference column. In the journal: Step 5: Enter a slash (/) followed by a check mark () in the Posting Reference column of the journal for each transaction that is posted.

To post sales returns and allowances from the general journal to the general ledger and accounts receivable ledger: The general ledger is posted using the same five steps as are illustrated for sales transactions in Figure 10-13. The accounts receivable ledger is posted using the following five steps: In the accounts receivable ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance column. Step 4: Enter the journal page number from which each transaction is posted in the Posting Reference column. 335 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

336

CHAPTER 10 In the journal: Step 5: Enter a slash (/) followed by a check mark () in the Posting Reference column of the journal for each transaction that is posted.

To post cash receipts from the general journal to the general ledger: Cash receipts transactions are posted to the general ledger in the same manner as is illustrated for sales transactions in Figure 10-13.

To post cash receipts from the general journal to the accounts receivable ledger: In the accounts receivable ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance column. Step 4: Enter the journal page number from which each transaction is posted in the Posting Reference column. In the journal: Step 5: Enter a slash (/) followed by a check mark () in the Posting Reference column of the journal for each transaction that is posted.

To find the error, use the following steps: Step 1: Verify the total of the schedule. Step 2: Verify the postings to the accounts receivable ledger. Step 3: Verify the postings to Accounts Receivable in the general ledger.

CHAPTER 10

337

Exercise 10-1A 1.

Retail

Wholesale

Wholesale and retail

Wholesale

Exercise 10-2A 1.

(a) (c)

Cash 320.00 385.00

(b)

Sales Tax Payable

Sales Returns and Allowances

Accounts Receivable 385.00 (c)

385.00

Sales (a) (b)

320.00 385.00

Sales Discounts

(a) (c)

Cash 336.00 404.25

Sales Tax Payable (a) (b)

Sales Returns and Allowances

(b)

16.00 19.25

Accounts Receivable 404.25 (c)

404.25

Sales (a) (b)

320.00 385.00

Sales Discounts

338

CHAPTER 10

Exercise 10-2A (Concluded) 3.

(a) (e)

Cash 340.00 (b) 255.00

30.00

(c)

Sales Tax Payable

(b) (d)

Sales Returns and Allowances 30.00 25.00

Accounts Receivable 280.00 (d) (e)

25.00 255.00

Sales (a) (c)

340.00 280.00

Sales Discounts

Cash 357.00 (e) 273.00

(b) (e)

Sales Tax Payable 3.00 (a) 2.00 (d)

(b) (e)

Sales Returns and Allowances 60.00 40.00

42.00

(a)

20.00 13.00

Accounts Receivable 420.00 (b) (c)

63.00 357.00

Sales (a) (d)

400.00 260.00

Sales Discounts

(b) (d)

Cash 441.00 280.00

(a) (c)

Sales Tax Payable

Sales Returns and Allowances (b)

Accounts Receivable 450.00 (b) 280.00 (d)

450.00 280.00

Sales (a) (c)

450.00 280.00

Sales Discounts 9.00

CHAPTER 10

339

Exercise 10-3A Sales Less: Sales returns and allowances

$3,860 $410

Sales discounts

490

Net sales

$3,370

Exercise 10-4A GENERAL JOURNAL DATE 20-1

Aug.

DESCRIPTION

4 Accounts Receivable/S. Miller

Sales

Sales Tax Payable

Made credit sale

PAGE POST. REF.

DEBIT

CREDIT

3 3 2 80

3 2 0 00

1 2 80

3 4

5 6

6 Accounts Receivable/K. Krtek

Sales

Sales Tax Payable

Made credit sale

2 1 8 40

12 13 14

10 Sales Returns and Allowances Sales Tax Payable

8 40

2 0 00

Accounts Receivable/S. Miller

2 0 80 13

Returned merchandise

14 15

13 Cash Sales Discounts

Accounts Receivable/S. Miller

Received cash on account

15 16

2 1 0 00

10 11

3 0 5 76

6 24

3 1 2 00 18 19 20

340

CHAPTER 10

Exercise 10-4A (Concluded) GENERAL JOURNAL DATE 20-21

DESCRIPTION

Aug. 15

PAGE POST. REF.

Sales Returns and Allowances Sales Tax Payable

DEBIT

4 0 00

1 60

Accounts Receivable/K. Krtek

CREDIT

4 1 60 23

Returned merchandise

20 Cash

1 7 6 80

Accounts Receivable/K. Krtek

Received cash on account

1 7 6 80 27 28

Exercise 10-5A GENERAL JOURNAL DATE 20-1

May

DESCRIPTION

1 Accounts Receivable/J. Adams

Sales

Sales Tax Payable

Sale No. 488

PAGE POST. REF.

DEBIT

CREDIT

2 1 2 0 00

2 0 0 0 00

1 2 0 00

3 4

5 6

4 Accounts Receivable/B. Clark

Sales

Sales Tax Payable

Sale No. 489

1 9 0 8 00

1 0 8 00

8 Accounts Receivable/A. Duck

Sales

Sales Tax Payable

Sale No. 490

1 5 9 0 00

1 5 0 0 00 12 9 0 00 13 14

15 16

1 8 0 0 00

10 11

11 Accounts Receivable/E. Hill

Sales

Sales Tax Payable

Sale No. 491

2 0 6 7 00

1 9 5 0 00 17 1 1 7 00 18 19

CHAPTER 10

341

Exercise 10-6A GENERAL JOURNAL DATE 20-1

June

POST. REF.

DESCRIPTION

1 Sales Returns and Allowances

DEBIT

401.1

CREDIT

7 3 00

122/

Accounts Receivable/J. Abramowitz

PAGE

7 3 00

Returned merchandise

6 Sales Returns and Allowances

401.1

122/

Accounts Receivable/M. Perez

4 4 00 4 4 00

Returned merchandise

8 Sales Returns and Allowances

401.1

122/

Accounts Receivable/L. B. Gruder

2 4 00

2 4 00 10

Returned merchandise

GENERAL LEDGER Accounts Receivable

ACCOUNT

DATE 20--

June

ITEM

CREDIT

J60

7 3 00

4 1 2 7 00

J60

4 4 00

4 0 8 3 00

J60

2 4 00

4 0 5 9 00

4 2 0 0 00

Sales Returns and Allowances ITEM

POST. REF.

122

BALANCE DEBIT



DATE

June

DEBIT

1 Balance

ACCOUNT

20--

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

401.1

BALANCE DEBIT

1 6

J60 J60

7 3 00 4 4 00

7 3 00 1 1 7 00

J60

2 4 00

1 4 1 00

CREDIT

342

CHAPTER 10

Exercise 10-6A (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME John B. Abramowitz ADDRESS 3201 West Judkins Road, Seattle, WA 98201-1079 DATE

ITEM

20--

June

POST. REF.

DEBIT

 J60

1 Balance 1

CREDIT

7 3 00

BALANCE

8 5 0 00 7 7 7 00

NAME L. B. Gruder ADDRESS 44 Western Blvd., Spokane, WA 98601-4092 DATE

ITEM

20--

June

POST. REF.

DEBIT

 J60

1 Balance 8

CREDIT

2 4 00

BALANCE

4 2 8 00 4 0 4 00

NAME Marie L. Perez ADDRESS 158 West Adams Point, Bellevue, WA 98401-0663 DATE

ITEM

20--

June

1 Balance 6

POST. REF.

 J60

DEBIT

CREDIT

4 4 00

BALANCE

1 0 1 8 00 9 7 4 00

CHAPTER 10

343

Exercise 10-7A GENERAL JOURNAL DATE 20-1

PAGE POST. REF.

DESCRIPTION

6 Cash

July

DEBIT

CREDIT

6 4 3 00

Accounts Receivable/J. Adler

Received cash on account

6 4 3 00

2 3

4 5

10 Cash

2 3 2 0 00

Sales

2 3 2 0 00

Made cash sales

8 9

14 Cash

4 3 0 00

Accounts Receivable/B. Havel

Received cash on account

4 3 0 00 10 11

12 13

15 Cash

1 1 7 00

Accounts Receivable/J. L. Borg

Received cash on account

1 1 7 00 14 15

16 17

17 Cash

2 2 3 7 00

Sales

2 2 3 7 00 18

Made cash sales

Exercise 10-8A Pheng Co. Schedule of Accounts Receivable August 31, 20-B & G Distributors

$1 2 4 0 00

B. J. Hinschliff & Co.

1 4 9 0 00

Sally M. Pitts

8 3 8 00

Trendsetters, Inc.

1 0 1 8 00

Total

$4 5 8 6 00

344

CHAPTER 10

Problem 10-9A 1.

GENERAL JOURNAL DATE 20-1

Aug.

DESCRIPTION

1 Accounts Receivable/Jung Manufacturing Co.

PAGE POST. REF.

122/

DEBIT

CREDIT

1 2 7 2 00

Sales

401

1 2 0 0 00

Sales Tax Payable

231

7 2 00

Sale No. 213

5 6

3 Accounts Receivable/Hassad Co.

122/

3 8 1 6 00

Sales

401

3 6 0 0 00

Sales Tax Payable

231

2 1 6 00

Sale No. 214

10 11

7 Accounts Receivable/Helsinki, Inc.

122/

1 4 8 4 00

Sales

401

1 4 0 0 00 12

Sales Tax Payable

231

8 4 00 13

Sale No. 215

15 16

11 Accounts Receivable/Ardis Myler

122/

1 3 5 6 80

Sales

401

1 2 8 0 00 17

Sales Tax Payable

231

7 6 80 18

Sale No. 216

20 21

18 Accounts Receivable/Hassad Co.

122/

4 5 8 9 80

Sales

401

4 3 3 0 00 22

Sales Tax Payable

231

2 5 9 80 23

Sale No. 217

25 26

22 Accounts Receivable/Jung Manufacturing Co.

122/

2 1 2 0 00

Sales

401

2 0 0 0 00 27

Sales Tax Payable

231

1 2 0 00 28

Sale No. 218

30 31

30 Accounts Receivable/Ardis Myler

122/

1 7 0 6 60

Sales

401

1 6 1 0 00 32

Sales Tax Payable

231

9 6 60 33

Sale No. 219

CHAPTER 10

345

Problem 10-9A (Continued) 2.

GENERAL LEDGER Accounts Receivable

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

CREDIT

20--

J15

1 2 7 2 00

J15

3 8 1 6 00

5 0 8 8 00

J15

1 4 8 4 00

6 5 7 2 00

J15

1 3 5 6 80

7 9 2 8 80

J15

4 5 8 9 80

12 5 1 8 60

J15

2 1 2 0 00

14 6 3 8 60

J15

1 7 0 6 60

16 3 4 5 20

Aug.

Sales Tax Payable

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

231

BALANCE DEBIT

CREDIT

20--

J15

7 2 00

J15

2 1 6 00

2 8 8 00

J15

8 4 00

3 7 2 00

J15

7 6 80

4 4 8 80

J15

2 5 9 80

7 0 8 60

J15

1 2 0 00

8 2 8 60

J15

9 6 60

9 2 5 20

Aug.

Sales

ACCOUNT

DATE

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

20--

Aug.

J15

1 2 0 0 00

J15

3 6 0 0 00

4 8 0 0 00

J15

1 4 0 0 00

6 2 0 0 00

J15

1 2 8 0 00

7 4 8 0 00

J15

4 3 3 0 00

11 8 1 0 00

J15

2 0 0 0 00

13 8 1 0 00

J15

1 6 1 0 00

15 4 2 0 00

346

CHAPTER 10

Problem 10-9A (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME Hassad Co. ADDRESS 1225 W. Temperance Street, Elletsville, IN 47429-9976 DATE

ITEM

POST. REF.

20--

Aug.

3 18

J15 J15

DEBIT

CREDIT

3 8 1 6 00 4 5 8 9 80

BALANCE

3 8 1 6 00 8 4 0 5 80

NAME Helsinki, Inc. ADDRESS 125 Fishers Drive, Noblesville, IN 47870-8867 DATE

ITEM

POST. REF.

20--

Aug.

J15

DEBIT

CREDIT

1 4 8 4 00

BALANCE

1 4 8 4 00

NAME Jung Manufacturing Co. ADDRESS 8825 Old State Road, Bloomington, IN 47401-8823 DATE

ITEM

POST. REF.

20--

Aug.

1 22

J15 J15

DEBIT

CREDIT

1 2 7 2 00 2 1 2 0 00

BALANCE

1 2 7 2 00 3 3 9 2 00

NAME Ardis Myler ADDRESS 2100 Greer Lane, Bedford, IN 47421-8876 DATE

ITEM

POST. REF.

20--

Aug. 11

J15 J15

DEBIT

1 3 5 6 80 1 7 0 6 60

CREDIT

BALANCE

1 3 5 6 80 3 0 6 3 40

CHAPTER 10

347

Problem 10-10A 1.

GENERAL JOURNAL DATE 20-1 2 3

Dec.

DESCRIPTION

1 Cash Accounts Receivable/M. Anderson

PAGE POST. REF.

101

DEBIT

CREDIT

1 3 6 0 00

122/

1 3 6 0 00

Received cash on account

4 5 6 7

2 Cash Accounts Receivable/Ansel Manufacturing

101

3 8 2 00

122/

3 8 2 00

Received cash on account

8 9

7 Cash

101

3 3 4 9 60

Sales

401

3 1 6 0 00 10

Sales Tax Payable

231

1 8 9 60 11

Made cash sales

13 14 15

7 Cash Bank Credit Card Expense

101

1 0 2 8 20

513

3 1 80

Sales

401

1 0 0 0 00 16

Sales Tax Payable

231

6 0 00 17

Made credit card sales

19 20

8 Cash

Accounts Receivable/J. Gorbea

Received cash on account

101

8 8 0 00

122/

8 8 0 00 21 22

23 24 25 26 27

11 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/M. Anderson

401.1

6 0 00

231

3 60

122/

6 3 60 26

Returned merchandise

28 29

14 Cash

101

2 9 6 8 00

Sales

401

2 8 0 0 00 30

Sales Tax Payable

231

1 6 8 00 31

Made cash sales

348

CHAPTER 10

Problem 10-10A (Continued) GENERAL JOURNAL

1 2

Dec. 14

POST. REF.

DEBIT

Cash

101

8 2 2 56

Bank Credit Card Expense

513

2 5 44

DATE 20--

PAGE

DESCRIPTION

CREDIT

Sales

401

8 0 0 00

Sales Tax Payable

231

4 8 00

Made credit card sales

6 7

20 Cash

Accounts Receivable/T. Wilson

Received cash on account

101

1 1 1 0 00

122/

1 1 1 0 00

12 13 14

21 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/Ansel Manufacturing

401.1

2 2 00

231

1 32

122/

2 3 32 13

Returned merchandise

15 16

8 9

10 11

21 Cash

101

3 3 9 2 00

Sales

401

3 2 0 0 00 17

Sales Tax Payable

231

1 9 2 00 18

Made cash sales

20 21

24 Cash

Accounts Receivable/R. Carson

Received cash on account

101 122/

2 0 0 0 00

2 0 0 0 00 22 23

CHAPTER 10

349

Problem 10-10A (Continued) 2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM

DEBIT

CREDIT

J20

1 3 6 0 00

11 2 2 2 00

J20

3 8 2 00

11 6 0 4 00

J20

3 3 4 9 60

14 9 5 3 60

J20

1 0 2 8 20

15 9 8 1 80

J20

8 8 0 00

16 8 6 1 80

J20

2 9 6 8 00

19 8 2 9 80

J21

8 2 2 56

20 6 5 2 36

J21

1 1 1 0 00

21 7 6 2 36

J21

3 3 9 2 00

25 1 5 4 36

J21

2 0 0 0 00

27 1 5 4 36

9 8 6 2 00

Accounts Receivable

DATE

ITEM

POST. REF.

101

BALANCE DEBIT



ACCOUNT

Dec.

POST. REF.

1 Balance

Dec.

20--

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

1 Balance



J20

1 3 6 0 00

7 9 9 2 00

J20

3 8 2 00

7 6 1 0 00

J20

8 8 0 00

6 7 3 0 00

J20

6 3 60

6 6 6 6 40

J21

1 1 1 0 00

5 5 5 6 40

J21

2 3 32

5 5 3 3 08

J21

2 0 0 0 00

3 5 3 3 08

CREDIT

9 3 5 2 00

350

CHAPTER 10

Problem 10-10A (Continued) Sales Tax Payable

ACCOUNT

DATE 20--

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

231

BALANCE DEBIT

CREDIT

J20

1 8 9 60

J20

6 0 00

2 4 9 60

J20

1 6 8 00

4 1 4 00

J21

4 8 00

4 6 2 00

J21

Dec.

3 60

2 4 6 00

1 32

4 6 0 68 1 9 2 00

6 5 2 68

Sales

ACCOUNT

DATE 20--

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

7 7

J20 J20

3 1 6 0 00 1 0 0 0 00

3 1 6 0 00 4 1 6 0 00

J20

2 8 0 0 00

6 9 6 0 00

J21

8 0 0 00

7 7 6 0 00

J21

3 2 0 0 00

10 9 6 0 00

Dec.

Sales Returns and Allowances

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

401.1

BALANCE DEBIT

CREDIT

20--

Dec. 11

J20 J21

DATE

Dec.

6 0 00 8 2 00

Bank Credit Card Expense

ACCOUNT

20--

6 0 00 2 2 00

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

513

BALANCE DEBIT

J20

3 1 80

J21

2 5 44

5 7 24

CREDIT

CHAPTER 10

351

Problem 10-10A (Continued) ACCOUNTS RECEIVABLE LEDGER NAME Michael Anderson ADDRESS 233 West 11th Avenue, Detroit, MI 59500-1154 DATE

ITEM

20--

POST. REF.

DEBIT

CREDIT

BALANCE

1 Balance 1

 J20

1 3 6 0 00

2 4 8 0 00 1 1 2 0 00

J20

6 3 60

1 0 5 6 40

Dec.

NAME Ansel Manufacturing ADDRESS 284 West 88 Street, Detroit, MI 59522-1168 DATE

ITEM

20--

POST. REF.

DEBIT

CREDIT

BALANCE

1 Balance 2

 J20

3 8 2 00

9 8 2 00 6 0 0 00

J21

2 3 32

5 7 6 68

Dec.

NAME J. Gorbea ADDRESS P.O. Box 864, Detroit, MI 59552-0864 DATE

ITEM

20--

Dec.

1 Balance 8

POST. REF.

 J20

DEBIT

CREDIT

BALANCE

8 8 0 00 8 8 0 00

352

CHAPTER 10

Problem 10-10A (Concluded) NAME Rachel Carson ADDRESS 11312 Fourteenth Avenue South, Detroit, MI 59221-1142 DATE

ITEM

20--

Dec.

POST. REF.

DEBIT

 J21

1 Balance 24

CREDIT

2 0 0 0 00

BALANCE

3 2 0 0 00 1 2 0 0 00

NAME Tom Wilson ADDRESS 100 NW Seward St., Detroit, MI 59210-1337 DATE 20--

Dec.

1 Balance 20

ITEM

POST. REF.

 J21

DEBIT

CREDIT

1 1 1 0 00

BALANCE

1 8 1 0 00 7 0 0 00

CHAPTER 10

353

Problem 10-11A 1.

GENERAL JOURNAL DATE 20-1

Mar.

DESCRIPTION

1 Accounts Receivable/Donachie & Co.

PAGE POST. REF.

122/

DEBIT

CREDIT

1 8 3 6 00

Sales

401

1 7 0 0 00

Sales Tax Payable

231

1 3 6 00

Sale No. 33C

5 6

3 Accounts Receivable/R. J. Kibubu, Inc.

122/

2 3 6 5 20

Sales

401

2 1 9 0 00

Sales Tax Payable

231

1 7 5 20

Sale No. 33D

10 11 12 13 14

5 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/Donachie & Co.

401.1

4 0 00

231

3 20

122/

4 3 20 13

Returned merchandise—Credit Memo #66

15 16

7 Cash

101

3 3 9 1 20

Sales

401

3 1 4 0 00 17

Sales Tax Payable

231

2 5 1 20 18

Made cash sales

20 21 22 23

10 Cash Accounts Receivable/Donachie & Co.

101

1 7 9 2 80

122/

1 7 9 2 80 22

Received cash on account

24 25

11 Accounts Receivable/Eck Bakery

122/

1 3 2 8 40

Sales

401

1 2 3 0 00 26

Sales Tax Payable

231

9 8 40 27

Sale No. 33E

29 30 31 32

13 Cash Accounts Receivable/R. J. Kibubu, Inc. Received cash on account

101 122/

2 3 6 5 20

2 3 6 5 20 31 32

354

CHAPTER 10

Problem 10-11A (Continued) GENERAL JOURNAL DATE 20-1

Mar. 14

DESCRIPTION

Cash

PAGE POST. REF.

101

DEBIT

CREDIT

4 4 2 8 00

Sales

401

4 1 0 0 00

Sales Tax Payable

231

3 2 8 00

Made cash sales

5 6 7 8 9

16 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/Eck Bakery

401.1

3 4 00

231

2 72

122/

3 6 72

Returned merchandise—Credit Memo #67

10 11

18 Accounts Receivable/R. J. Kibubu, Inc.

122/

2 7 8 6 40

Sales

401

2 5 8 0 00 12

Sales Tax Payable

231

2 0 6 40 13

Sale No. 33F

15 16 17 18

20 Cash Accounts Receivable/Eck Bakery

101

1 2 9 1 68

122/

1 2 9 1 68 17

Received cash on account

19 20

21 Cash

101

2 7 1 0 80

Sales

401

2 5 1 0 00 21

Sales Tax Payable

231

2 0 0 80 22

Made cash sales

24 25

25 Accounts Receivable/Eck Bakery

122/

2 1 7 0 80

Sales

401

2 0 1 0 00 26

Sales Tax Payable

231

1 6 0 80 27

Sale No. 33G

29 30

27 Accounts Receivable/Whitaker Group

122/

2 2 3 5 60

Sales

401

2 0 7 0 00 31

Sales Tax Payable

231

1 6 5 60 32

Sale No. 33H

33 34

CHAPTER 10

355

Problem 10-11A (Continued) GENERAL JOURNAL DATE 1

POST. REF.

DESCRIPTION

20--

Mar. 28

PAGE

Cash

101

DEBIT

CREDIT

3 6 9 3 60

Sales

401

3 4 2 0 00

Sales Tax Payable

231

2 7 3 60

Made cash sales

GENERAL LEDGER Cash

ACCOUNT

DATE 20--

Mar.

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

101

BALANCE DEBIT

1 Balance



3 3 9 1 20

12 9 7 7 20

1 7 9 2 80

14 7 7 0 00

2 3 6 5 20

17 1 3 5 20

4 4 2 8 00

21 5 6 3 20

1 2 9 1 68

22 8 5 4 88

2 7 1 0 80

25 5 6 5 68

3 6 9 3 60

29 2 5 9 28

CREDIT

9 5 8 6 00

356

CHAPTER 10

Problem 10-11A (Continued) Accounts Receivable

ACCOUNT

DATE 20--

ITEM

CREDIT

1 8 3 6 00

2 8 5 2 00

2 3 6 5 20

5 2 1 7 20

4 3 20

5 1 7 4 00

1 7 9 2 80

3 3 8 1 20

2 3 6 5 20

2 3 4 4 40

3 6 72

2 3 0 7 68

2 1 7 0 80

5 9 7 3 20

2 2 3 5 60

8 2 0 8 80

1 0 1 6 00

1 3 2 8 40

4 7 0 9 60

2 7 8 6 40

5 0 9 4 08 1 2 9 1 68

3 8 0 2 40

Sales Tax Payable

DATE

ITEM

ACCOUNT NO.

POST. REF.

122

BALANCE DEBIT



ACCOUNT

Mar.

DEBIT

1 Balance

Mar.

20--

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

231

BALANCE DEBIT

CREDIT

1 3 6 00

1 7 5 20

3 1 1 20

2 5 1 20

5 5 9 20

9 8 40

6 5 7 60

3 2 8 00

9 8 5 60

2 0 6 40

1 1 8 9 28

2 0 0 80

1 3 9 0 08

1 6 0 80

1 5 5 0 88

1 6 5 60

1 7 1 6 48

2 7 3 60

1 9 9 0 08

3 20

3 0 8 00

2 72

9 8 2 88

CHAPTER 10

357

Problem 10-11A (Continued) Sales

ACCOUNT

DATE 20--

ITEM

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

J7 J7

1 7 0 0 00 2 1 9 0 00

1 7 0 0 00 3 8 9 0 00

3 1 4 0 00

7 0 3 0 00

1 2 3 0 00

8 2 6 0 00

4 1 0 0 00

12 3 6 0 00

2 5 8 0 00

14 9 4 0 00

2 5 1 0 00

17 4 5 0 00

2 0 1 0 00

19 4 6 0 00

2 0 7 0 00

21 5 3 0 00

3 4 2 0 00

24 9 5 0 00

Sales Returns and Allowances

ACCOUNT

DATE

Mar.

POST. REF.

401

1 3

Mar.

20--

ACCOUNT NO.

ITEM

POST. REF.

5 16

J7 J8

ACCOUNT NO.

DEBIT

CREDIT

401.1

BALANCE DEBIT

4 0 00 3 4 00

CREDIT

4 0 00 7 4 00

ACCOUNTS RECEIVABLE LEDGER NAME Donachie & Co. ADDRESS 1424 Jackson Creek Road, Nashville, IN 47448-2245 DATE

ITEM

POST. REF.

20--

Mar.

1 5

J7 J7

DEBIT

CREDIT

1 8 3 6 00 4 3 20

BALANCE

1 8 3 6 00 1 7 9 2 80

1 7 9 2 80

358

CHAPTER 10

Problem 10-11A (Concluded) NAME Eck Bakery ADDRESS 6422 E. Bender Road, Bloomington, IN 47401-7756 DATE

POST. REF.

ITEM

20--

Mar. 11

J7 J8

DEBIT

CREDIT

1 3 2 8 40 3 6 72

BALANCE

1 3 2 8 40 1 2 9 1 68

1 2 9 1 68 2 1 7 0 80

2 1 7 0 80

NAME R. J. Kibubu, Inc. ADDRESS 3315 Longview Avenue, Bloomington, IN 47401-7223 DATE

ITEM

POST. REF.

20--

Mar.

DEBIT

3 13

J7 J7

2 3 6 5 20

2 7 8 6 40

CREDIT

BALANCE

2 3 6 5 20 2 3 6 5 20 2 7 8 6 40

NAME Whitaker Group ADDRESS 2300 E. National Road, Cumberland, IN 46229-4824 DATE 20--

Mar.

1 Balance 27

ITEM

POST. REF.

 J8

DEBIT

2 2 3 5 60

CREDIT

BALANCE

1 0 1 6 00 3 2 5 1 60

Problem 10-12A Sourk Distributors Schedule of Accounts Receivable March 31, 20-Eck Bakery

$2 1 7 0 80

R. J. Kibubu, Inc.

2 7 8 6 40

Whitaker Group

3 2 5 1 60

Total

$8 2 0 8 80

CHAPTER 10

359

Exercise 10-1B 1.

Retail

Wholesale

Exercise 10-2B 1.

(a) (c)

Cash 250.00 225.00

(b)

Sales Tax Payable

Sales Returns and Allowances

Accounts Receivable 225.00 (c)

225.00

Sales (a) (b)

250.00 225.00

Sales Discounts

(a) (c)

Cash 265.00 238.50

Sales Tax Payable (a) (b)

Sales Returns and Allowances

(b)

15.00 13.50

Accounts Receivable 238.50 (c)

238.50

Sales (a) (b)

250.00 225.00

Sales Discounts

360

CHAPTER 10

Exercise 10-2B (Concluded) 3.

(a) (e)

Cash 481.00 (b) 364.00

18.00

(c)

Sales Tax Payable

(b) (d)

Sales Returns and Allowances 18.00 24.00

Accounts Receivable 388.00 (d) (e)

24.00 364.00

Sales (a) (c)

481.00 388.00

Sales Discounts

Cash 477.00 (e) 318.00

(b) (e)

Sales Tax Payable 1.80 (a) 1.80 (d)

(b) (e)

Sales Returns and Allowances 30.00 30.00

31.80

(a)

28.80 18.00

Accounts Receivable 508.80 (b) (c)

31.80 477.00

Sales (a) (d)

480.00 300.00

Sales Discounts

(b) (d)

Cash 274.40 203.00

(a) (c)

Sales Tax Payable

Sales Returns and Allowances (b)

Accounts Receivable 280.00 (b) 203.00 (d)

280.00 203.00

Sales (a) (c)

280.00 203.00

Sales Discounts 5.60

CHAPTER 10

361

Exercise 10-3B Sales Less: Sales returns and allowances

$2,880 $322

Sales discounts

378

Net sales

$2,502

Exercise 10-4B GENERAL JOURNAL DATE 20-1

Oct.

DESCRIPTION

5 Accounts Receivable/B. Farnsby

Sales

Sales Tax Payable

Made credit sale

PAGE POST. REF.

DEBIT

CREDIT

2 9 1 20

2 8 0 00

1 1 20

3 4

5 6

8 Accounts Receivable/F. Preetee

Sales

Sales Tax Payable

Made credit sale

2 4 9 60

12 13 14

11 Sales Returns and Allowances Sales Tax Payable

9 60

5 0 00

2 00

Accounts Receivable/F. Preetee

5 2 00 13

Returned merchandise

14 15

17 Cash Sales Discounts

Accounts Receivable/F. Preetee

Received cash on account

15 16

2 4 0 00

10 11

1 9 3 80

3 80

1 9 7 60 18 19 20

362

CHAPTER 10

Exercise 10-4B (Concluded) GENERAL JOURNAL DATE 20-21

DESCRIPTION

Oct. 18

PAGE POST. REF.

Sales Returns and Allowances Sales Tax Payable

DEBIT

6 0 00

2 40

Accounts Receivable/B. Farnsby

CREDIT

6 2 40 23

Returned merchandise

20 Cash

2 2 8 80

Accounts Receivable/B. Farnsby

2 2 8 80 27

Received cash on account

Exercise 10-5B GENERAL JOURNAL DATE 20-1

Sept.

DESCRIPTION

1 Accounts Receivable/K. Smith

Sales

Sales Tax Payable

Sale No. 228

PAGE POST. REF.

DEBIT

CREDIT

1 8 9 0 00

1 8 0 0 00

9 0 00

3 4

5 6

3 Accounts Receivable/J. Arnes

Sales

Sales Tax Payable

Sale No. 229

3 2 5 5 00

1 5 5 00

5 Accounts Receivable/M. Denison

Sales

Sales Tax Payable

Sale No. 230

2 9 4 0 00

2 8 0 0 00 12 1 4 0 00 13 14

15 16

3 1 0 0 00

10 11

7 Accounts Receivable/B. Marshall

Sales

Sales Tax Payable

Sale No. 231

1 9 9 5 00

1 9 0 0 00 17 9 5 00 18 19

CHAPTER 10

363

Exercise 10-6B GENERAL JOURNAL DATE 20-1

POST. REF.

DESCRIPTION

1 Sales Returns and Allowances

June

DEBIT

401.1

CREDIT

4 3 00

122/

Accounts Receivable/M. Phillips

PAGE

4 3 00

Returned merchandise

11 Sales Returns and Allowances

401.1

122/

Accounts Receivable/J. Adams

5 9 00 5 9 00

Returned merchandise

15 Sales Returns and Allowances

401.1

122/

Accounts Receivable/L. B. Greene

2 1 00

2 1 00 10

Returned merchandise

GENERAL LEDGER Accounts Receivable

ACCOUNT

DATE 20--

ITEM

CREDIT

J60

4 3 00

3 8 5 7 00

J60

5 9 00

3 7 9 8 00

J60

2 1 00

3 7 7 7 00

3 9 0 0 00

Sales Returns and Allowances

DATE

ITEM

POST. REF.

122

BALANCE DEBIT



ACCOUNT

June

DEBIT

1 Balance

June

20--

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

401.1

BALANCE DEBIT

1 11

J60 J60

4 3 00 5 9 00

4 3 00 1 0 2 00

J60

2 1 00

1 2 3 00

CREDIT

364

CHAPTER 10

Exercise 10-6B (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME John B. Adams ADDRESS 127 Strawberry Lane, Manchester, CT 06040-0865 DATE

ITEM

20--

June

POST. REF.

DEBIT

 J60

1 Balance 11

CREDIT

5 9 00

BALANCE

8 5 0 00 7 9 1 00

NAME L. B. Greene ADDRESS 2254 Blackrock, Bronx, NY 10472-1974 DATE

ITEM

20--

June

POST. REF.

DEBIT

 J60

1 Balance 15

CREDIT

2 1 00

BALANCE

4 2 8 00 4 0 7 00

NAME Marie L. Phillips ADDRESS 334 Fern St., W. Hartford, CT 06119-2314 DATE

ITEM

20--

June

1 Balance 1

POST. REF.

 J60

DEBIT

CREDIT

4 3 00

BALANCE

1 0 1 8 00 9 7 5 00

CHAPTER 10

365

Exercise 10-7B GENERAL JOURNAL DATE 20-1

PAGE POST. REF.

DESCRIPTION

1 Cash

Nov.

DEBIT

CREDIT

7 5 0 00

Accounts Receivable/J. Haghighat

7 5 0 00

Received cash on account

4 5

12 Cash

4 6 4 00

Accounts Receivable/M. Antonoff

4 6 4 00

Received cash on account

8 9

15 Cash

3 7 6 3 00

Sales

3 7 6 3 00 10

Made cash sales

12 13

18 Cash

2 4 1 00

Accounts Receivable/W. Mossein

2 4 1 00 14

Received cash on account

16 17

25 Cash

2 6 4 8 00

Sales

2 6 4 8 00 18

Made cash sales

Exercise 10-8B Gelph Co. Schedule of Accounts Receivable November 30, 20-James L. Adams Co.

$3 2 0 0 00

Trish Berens

1 3 6 0 00

R & J Travis

1 8 4 2 00

Total

$6 4 0 2 00

366

CHAPTER 10

Problem 10-9B 1.

GENERAL JOURNAL DATE 20-1

July

DESCRIPTION

1 Accounts Receivable/Saga, Inc.

PAGE POST. REF.

122/

DEBIT

CREDIT

1 2 6 0 00

Sales

401

1 2 0 0 00

Sales Tax Payable

231

6 0 00

Sale No. 101

5 6

8 Accounts Receivable/V. Ward

122/

2 2 0 5 00

Sales

401

2 1 0 0 00

Sales Tax Payable

231

1 0 5 00

Sale No. 102

10 11

15 Accounts Receivable/Dvorak Manufacturing

122/

4 5 1 5 00

Sales

401

4 3 0 0 00 12

Sales Tax Payable

231

2 1 5 00 13

Sales No. 103

15 16

21 Accounts Receivable/V. Ward

122/

1 8 9 0 00

Sales

401

1 8 0 0 00 17

Sales Tax Payable

231

9 0 00 18

Sale No. 104

20 21

24 Accounts Receivable/Zapata Co.

122/

1 6 8 0 00

Sales

401

1 6 0 0 00 22

Sales Tax Payable

231

8 0 00 23

Sale No. 105

25 26

29 Accounts Receivable/Saga, Inc.

122/

1 5 2 2 50

Sales

401

1 4 5 0 00 27

Sales Tax Payable

231

7 2 50 28

Sale No. 106

CHAPTER 10

367

Problem 10-9B (Continued) 2.

GENERAL LEDGER Accounts Receivable

ACCOUNT

DATE 20--

ITEM

CREDIT

1 2 6 0 00

J15

2 2 0 5 00

3 4 6 5 00

J15

4 5 1 5 00

7 9 8 0 00

J15

1 8 9 0 00

9 8 7 0 00

J15

1 6 8 0 00

11 5 5 0 00

J15

1 5 2 2 50

13 0 7 2 50

Sales Tax Payable

DATE 20--

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

J15

ACCOUNT

231

BALANCE DEBIT

CREDIT

J15

6 0 00

J15

1 0 5 00

1 6 5 00

J15

2 1 5 00

3 8 0 00

J15

9 0 00

4 7 0 00

J15

8 0 00

5 5 0 00

J15

7 2 50

6 2 2 50

July

Sales

ACCOUNT

DATE

July

DEBIT

July

20--

POST. REF.

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

J15

1 2 0 0 00

J15

2 1 0 0 00

3 3 0 0 00

J15

4 3 0 0 00

7 6 0 0 00

J15

1 8 0 0 00

9 4 0 0 00

J15

1 6 0 0 00

11 0 0 0 00

J15

1 4 5 0 00

12 4 5 0 00

368

CHAPTER 10

Problem 10-9B (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME Dvorak Manufacturing ADDRESS 2105 Williams Drive, Muncie, IN 47304-2437 DATE

ITEM

20--

July 15

POST. REF.

J15

DEBIT

CREDIT

4 5 1 5 00

BALANCE

4 5 1 5 00

NAME Saga, Inc. ADDRESS 1453 Parnell Avenue, Indianapolis, IN 46201-6870 DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

J15

1 2 6 0 00

J15

1 5 2 2 50

2 7 8 2 50

July

NAME Vinnie Ward ADDRESS 308 So. Muirhead Drive, Okemos, MI 48864-5356 DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

J15

2 2 0 5 00

J15

1 8 9 0 00

4 0 9 5 00

July

NAME Zapata Co. ADDRESS 789 N. Stafford Dr., Bloomington, IN 47401-6201 DATE 20--

July 24

ITEM

POST. REF.

J15

DEBIT

1 6 8 0 00

CREDIT

BALANCE

1 6 8 0 00

CHAPTER 10

369

Problem 10-10B 1.

GENERAL JOURNAL DATE 20-1

Jan.

DESCRIPTION

1 Cash

Accounts Receivable/R. Boyd

Received cash on account

PAGE POST. REF.

DEBIT

101

8 8 0 00

122/

CREDIT 1

8 8 0 00

2 3

4 5

3 Cash

Accounts Receivable/C. Hassell

Received cash on account

101

2 7 1 00

122/

2 7 1 00

6 7

8 9

5 Cash

101

2 9 4 0 00

Sales

401

2 8 0 0 00 10

Sales Tax Payable

231

1 4 0 00 11

Made cash sales

13 14 15

5 Cash Bank Credit Card Expense

101

1 2 2 2 20

513

3 7 80

Sales

401

1 2 0 0 00 16

Sales Tax Payable

231

6 0 00 17

Made credit card sales

19 20

8 Cash

Accounts Receivable/J. Sowada

Received cash on account

101

9 1 2 00

122/

9 1 2 00 21 22

23 24 25 26 27

11 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/R. Boyd

401.1

4 0 00

231

2 00

122/

4 2 00 26

Returned merchandise

28 29

12 Cash

101

3 2 5 5 00

Sales

401

3 1 0 0 00 30

Sales Tax Payable

231

1 5 5 00 31

Made cash sales

370

CHAPTER 10

Problem 10-10B (Continued) GENERAL JOURNAL DATE 20-1 2

Jan. 12

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Cash

101

1 9 3 5 15

Bank Credit Card Expense

513

5 9 85

Sales

401

1 9 0 0 00

Sales Tax Payable

231

9 5 00

Made credit card sales

6 7

15 Cash

Accounts Receivable/R. Zehnle

Received cash on account

101

1 1 0 0 00

122/

1 1 0 0 00

12 13 14

18 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/R. Zehnle

401.1

3 1 00

231

1 55

122/

3 2 55 13

Returned merchandise

15 16

8 9

10 11

19 Cash

101

2 3 4 1 50

Sales

401

2 2 3 0 00 17

Sales Tax Payable

231

1 1 1 50 18

Made cash sales

20 21 22 23

25 Cash Accounts Receivable/Dazai Manufacturing Received cash on account

101 122/

3 1 8 00

3 1 8 00 22 23

CHAPTER 10

371

Problem 10-10B (Continued) 2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM

DEBIT

CREDIT

J20

8 8 0 00

3 7 7 0 75

J20

2 7 1 00

4 0 4 1 75

J20

2 9 4 0 00

6 9 8 1 75

J20

1 2 2 2 20

8 2 0 3 95

J20

9 1 2 00

9 1 1 5 95

J20

3 2 5 5 00

12 3 7 0 95

J21

1 9 3 5 15

14 3 0 6 10

J21

1 1 0 0 00

15 4 0 6 10

J21

2 3 4 1 50

17 7 4 7 60

J21

3 1 8 00

18 0 6 5 60

2 8 9 0 75

Accounts Receivable

DATE

ITEM

POST. REF.

101

BALANCE DEBIT



ACCOUNT

Jan.

POST. REF.

1 Balance

Jan.

20--

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

1 Balance



J20

8 8 0 00

5 4 2 0 00

J20

2 7 1 00

5 1 4 9 00

J20

9 1 2 00

4 2 3 7 00

J20

4 2 00

4 1 9 5 00

J21

1 1 0 0 00

3 0 9 5 00

J21

3 2 55

3 0 6 2 45

J21

3 1 8 00

2 7 4 4 45

CREDIT

6 3 0 0 00

372

CHAPTER 10

Problem 10-10B (Continued) Sales Tax Payable

ACCOUNT

DATE 20--

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

5 5

J20 J20

J20

1 5 5 00

3 5 3 00

J21

9 5 00

4 4 8 00

J21

Jan.

1 4 0 00 6 0 00

1 4 0 00 2 0 0 00

2 00

1 9 8 00

1 55

4 4 6 45 1 1 1 50

5 5 7 95

Sales

ACCOUNT

DATE 20--

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

J20 J20

2 8 0 0 00 1 2 0 0 00

2 8 0 0 00 4 0 0 0 00

J20

3 1 0 0 00

7 1 0 0 00

J21

1 9 0 0 00

9 0 0 0 00

J21

2 2 3 0 00

11 2 3 0 00

Sales Returns and Allowances

ACCOUNT

DATE

ITEM

20--

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

J20

4 0 00

J21

3 1 00

7 1 00

Bank Credit Card Expense

ACCOUNT

DATE

5 12

ITEM

POST. REF.

J20 J21

ACCOUNT NO.

DEBIT

3 7 80 5 9 85

CREDIT

401.1

BALANCE DEBIT

Jan. 11

Jan.

401

5 5

Jan.

20--

231

513

BALANCE DEBIT

CREDIT

3 7 80 9 7 65

CHAPTER 10

373

Problem 10-10B (Continued) ACCOUNTS RECEIVABLE LEDGER NAME Ray Boyd ADDRESS 229 SE 65th Avenue, Portland, OR 97215-1451 DATE

ITEM

20--

POST. REF.

DEBIT

CREDIT

BALANCE

1 Balance 1

 J20

8 8 0 00

1 4 0 0 00 5 2 0 00

J20

4 2 00

4 7 8 00

Jan.

NAME Dazai Manufacturing ADDRESS 447 6th Avenue, Flagstaff, AZ 86004-6842 DATE

ITEM

20--

Jan.

POST. REF.

DEBIT

 J21

1 Balance 25

CREDIT

BALANCE

3 1 8 00 3 1 8 00

NAME Clint Hassell ADDRESS 1462 N. Steves Blvd., Los Cruces, NM 88012-7791 DATE

ITEM

20--

Jan.

1 Balance 3

POST. REF.

 J20

DEBIT

CREDIT

2 7 1 00

BALANCE

8 1 5 00 5 4 4 00

374

CHAPTER 10

Problem 10-10B (Concluded) NAME Jan Sowada ADDRESS 5997 Blackgold Lane, Grapevine, TX 76051-2366 DATE

ITEM

20--

Jan.

POST. REF.

DEBIT

 J20

1 Balance 8

CREDIT

BALANCE

9 1 2 00

1 4 8 1 00 5 6 9 00

CREDIT

BALANCE

NAME Robert Zehnle ADDRESS 6881 Seneca Drive, San Diego, CA 92127-8671 DATE 20--

Jan.

ITEM

POST. REF.

DEBIT

1 Balance 15

 J21

1 1 0 0 00

2 2 8 6 00 1 1 8 6 00

J21

3 2 55

1 1 5 3 45

CHAPTER 10

375

Problem 10-11B 1.

GENERAL JOURNAL DATE 20-1

Apr.

DESCRIPTION

1 Accounts Receivable/O. L. Meyers

PAGE POST. REF.

122/

DEBIT

CREDIT

2 2 4 7 00

Sales

401

2 1 0 0 00

Sales Tax Payable

231

1 4 7 00

Sale No. 111

5 6

3 Accounts Receivable/A. Plaa

122/

1 0 7 0 00

Sales

401

1 0 0 0 00

Sales Tax Payable

231

7 0 00

Sale No. 112

10 11 12 13 14

6 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/O. L. Meyers

401.1

5 0 00

231

3 50

122/

5 3 50 13

Returned merchandise—Credit Memo #42

15 16

7 Cash

101

3 4 6 6 80

Sales

401

3 2 4 0 00 17

Sales Tax Payable

231

2 2 6 80 18

Made cash sales

20 21 22 23

9 Cash Accounts Receivable/O. L. Meyers

101

2 1 9 3 50

122/

2 1 9 3 50 22

Received cash on account

24 25

12 Accounts Receivable/M. Richfield

122/

1 0 4 8 60

Sales

401

9 8 0 00 26

Sales Tax Payable

231

6 8 60 27

Sale No. 113

29 30

14 Cash

101

2 3 3 2 60

Sales

401

2 1 8 0 00 31

Sales Tax Payable

231

1 5 2 60 32

Made cash sales

33 34

376

CHAPTER 10

Problem 10-11B (Continued) GENERAL JOURNAL DATE 20-1 2 3 4

Apr. 17

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Sales Returns and Allowances

401.1

4 0 00

Sales Tax Payable

231

2 80

Accounts Receivable/M. Richfield

122/

4 2 80

Returned merchandise—Credit Memo #43

5 6

19 Accounts Receivable/K. Munkres

122/

1 0 9 1 40

Sales

401

1 0 2 0 00

Sales Tax Payable

231

7 1 40

Sales No. 114

10 11

21 Cash

101

2 7 8 2 00

Sales

401

2 6 0 0 00 12

Sales Tax Payable

231

1 8 2 00 13

Made cash sales

15 16

24 Accounts Receivable/O. L. Meyers

122/

9 8 4 40

Sales

401

9 2 0 00 17

Sales Tax Payable

231

6 4 40 18

Sale No. 115

20 21

27 Accounts Receivable/A. Plaa

122/

1 4 1 2 40

Sales

401

1 3 2 0 00 22

Sales Tax Payable

231

9 2 40 23

Sale No. 116

25 26

28 Cash

101

2 9 9 6 00

Sales

401

2 8 0 0 00 27

Sales Tax Payable

231

1 9 6 00 28

Made cash sales

30 31 32 33 34

29 Cash Accounts Receivable/M. Richfield Received cash on account

101 122/

2 1 8 6 00

2 1 8 6 00 32 33 34

CHAPTER 10

377

Problem 10-11B (Continued) 2.

GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM

DEBIT

CREDIT

3 4 6 6 80

6 3 3 1 34

2 1 9 3 50

8 5 2 4 84

2 3 3 2 60

10 8 5 7 44

2 7 8 2 00

13 6 3 9 44

2 9 9 6 00

16 6 3 5 44

2 1 8 6 00

18 8 2 1 44

2 8 6 4 54

Accounts Receivable

DATE

ITEM

POST. REF.

101

BALANCE DEBIT



ACCOUNT

Apr.

POST. REF.

1 Balance

Apr.

20--

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

1 Balance



2 2 4 7 00

4 9 7 3 25

1 0 7 0 00

6 0 4 3 25

5 3 50

5 9 8 9 75

2 1 9 3 50

3 7 9 6 25

1 0 9 1 40

5 8 9 3 45

9 8 4 40

6 8 7 7 85

1 4 1 2 40

8 2 9 0 25

CREDIT

2 7 2 6 25

1 0 4 8 60

4 8 4 4 85 4 2 80

2 1 8 6 00

4 8 0 2 05

6 1 0 4 25

378

CHAPTER 10

Problem 10-11B (Continued) Sales Tax Payable

ACCOUNT

DATE 20--

ITEM

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

1 4 7 00

7 0 00

2 1 7 00

2 2 6 80

4 4 0 30

6 8 60

5 0 8 90

1 5 2 60

6 6 1 50

7 1 40

7 3 0 10

1 8 2 00

9 1 2 10

6 4 40

9 7 6 50

9 2 40

1 0 6 8 90

1 9 6 00

1 2 6 4 90

3 50

2 1 3 50

2 80

6 5 8 70

Sales

ACCOUNT

DATE 20--

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

1 3

J7 J7

2 1 0 0 00 1 0 0 0 00

2 1 0 0 00 3 1 0 0 00

3 2 4 0 00

6 3 4 0 00

9 8 0 00

7 3 2 0 00

2 1 8 0 00

9 5 0 0 00

1 0 2 0 00

10 5 2 0 00

2 6 0 0 00

13 1 2 0 00

9 2 0 00

14 0 4 0 00

1 3 2 0 00

15 3 6 0 00

2 8 0 0 00

18 1 6 0 00

Apr.

Sales Returns and Allowances

ACCOUNT

DATE

Apr.

POST. REF.

231

Apr.

20--

ACCOUNT NO.

6 17

ITEM

POST. REF.

J7 J8

ACCOUNT NO.

DEBIT

5 0 00 4 0 00

CREDIT

401.1

BALANCE DEBIT

CREDIT

5 0 00 9 0 00

CHAPTER 10

379

Problem 10-11B (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME O. L. Meyers ADDRESS 119 Hartford Turnpike, Vernon, CT 06066-0113 DATE

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

20--

Apr.

1 6

J7 J7

2 2 4 7 00 5 3 50

2 2 4 7 00 2 1 9 3 50

2 1 9 3 50 9 8 4 40

9 8 4 40

NAME Kelsay Munkres ADDRESS 233 Cambridge Dr., Branford, CT 06405-9276 DATE

ITEM

20--

Apr.

POST. REF.

 J8

1 Balance 19

DEBIT

CREDIT

BALANCE

4 8 2 00 1 5 7 3 40

1 0 9 1 40

NAME Andrew Plaa ADDRESS 51 Bissell Ave., Old Saybrook, CT 06475-0212 DATE

ITEM

POST. REF.

20--

Apr.

3 27

J7 J8

DEBIT

CREDIT

BALANCE

1 0 7 0 00

1 4 1 2 40

2 4 8 2 40

NAME Melissa Richfield ADDRESS 1107 Silver Lane, East Hartford, CT 06108-1907 DATE 20--

Apr.

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

1 Balance 12

 J7

4 2 80

3 2 5 0 05

2 1 8 6 00

1 0 6 4 05

2 2 4 4 25 3 2 9 2 85

1 0 4 8 60

380

CHAPTER 10

Problem 10-12B Paul Jackson Schedule of Accounts Receivable April 30, 20-O. L. Meyers

$ 9 8 4 40

Kelsay Munkres

1 5 7 3 40

Andrew Plaa

2 4 8 2 40

Melissa Richfield

1 0 6 4 05

Total

$6 1 0 4 25

MANAGING YOUR WRITING Last month, I paid my account in full, but you credited the payment to my spouse’s account. Because of this error, you have treated my account as over the credit limit and have charged interest on the unpaid balance. Please credit my account for last month’s payment and remove the interest charge. This error might have occurred because my spouse and I have the same last name and similar first names. To avoid this error in the future, please instruct your accounts receivable department to focus on our account numbers rather than our names.

ETHICS CASE: SUGGESTED SOLUTIONS 1. Yes, Robin violated her company’s policy. 2. Answers will vary. Robin could have called Good Earth Foods and explained the credit policy. If this meant losing the order, she could have gone to the vice president to see if he would like to make an exception to the credit policy. 3. Answers will vary. Students should point out that new businesses do not have established credit histories. 4. Answers will vary. Possibly, the credit manager as well as the sales supervisor must approve shipments to new customers.

CHAPTER 10

381

Mastery Problem 1.

GENERAL JOURNAL DATE 20-1

Sept.

DESCRIPTION

2 Accounts Receivable/K. Shank

PAGE POST. REF.

DEBIT

122/

1 3 2 50

CREDIT 1

Sales

401

1 2 5 00

Sales Tax Payable

231

7 50

Sale No. 101

5 6

3 Accounts Receivable/N. Truelove

122/

7 2 35

Sales

401

6 8 25

Sales Tax Payable

231

4 10

Sale No. 102

10 11

5 Accounts Receivable/J. Warkentin

122/

4 6 59

Sales

401

4 3 95 12

Sales Tax Payable

231

2 64 13

Sale No. 103

15 16

8 Cash

101

2 4 7 2 40

Sales

401

2 3 3 2 45 17

Sales Tax Payable

231

1 3 9 95 18

Made cash sales

20 21

10 Cash

101

6 6 2 50

Boarding and Grooming Revenue

402

6 2 5 00 22

Sales Tax Payable

231

3 7 50 23

Received cash for grooming

25 26 27 28 29

11 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/J. Warkentin

401.1

1 0 00

231

0 60

122/

1 0 60 28

Sales allowance for defect

30 31

12 Accounts Receivable/T. Shaw

122/

1 2 7 2 00

Sales

401

1 2 0 0 00 32

Sales Tax Payable

231

7 2 00 33

Sale No. 104

382

CHAPTER 10

Mastery Problem (Continued) GENERAL JOURNAL DATE 20-1

Sept. 14

DESCRIPTION

Cash

Accounts Receivable/R. Alanso

Received cash on account

PAGE POST. REF.

DEBIT

101

2 5 6 00

122/

CREDIT 1

2 5 6 00

2 3

4 5 6 7 8

15 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/R. Alanso

401.1

8 8 00

231

5 28

122/

9 3 28

Returned merchandise

9 10

15 Cash

101

2 8 1 6 26

Sales

401

2 6 5 6 85 11

Sales Tax Payable

231

1 5 9 41 12

Made cash sales

14 15 16 17

16 Cash Accounts Receivable/N. Truelove

101

5 8 25

122/

5 8 25 16

Received cash on account

18 19

18 Cash

101

5 6 7 10

Boarding and Grooming Revenue

402

5 3 5 00 20

Sales Tax Payable

231

3 2 10 21

Received cash for grooming

23 24 25 26

19 Cash Accounts Receivable/E. Cochran

101

6 3 25

122/

6 3 25 25

Received cash on account

27 28

20 Accounts Receivable/S. Hays

122/

8 8 33

Sales

401

8 3 33 29

Sales Tax Payable

231

5 00 30

Sale No. 105

CHAPTER 10

383

Mastery Problem (Continued) GENERAL JOURNAL DESCRIPTION

POST. REF.

DEBIT

Accounts Receivable/All American Day Camp

122/

3 9 7 50

DATE 20-1

Sept. 21

PAGE

CREDIT 1

Sales

401

3 7 5 00

Sales Tax Payable

231

2 2 50

Sale No. 106

5 6

22 Cash

101

3 3 0 9 80

Sales

401

3 1 2 2 45

Sales Tax Payable

231

1 8 7 35

Made cash sales

10 11

23 Cash

101

5 4 5 90

Boarding and Grooming Revenue

402

5 1 5 00 12

Sales Tax Payable

231

3 0 90 13

Received cash for grooming

15 16

25 Cash

Accounts Receivable/K. Shank

Received cash on account

101

1 3 2 50

122/

1 3 2 50 17 18

19 20 21 22

26 Cash Accounts Receivable/N. Truelove

101

7 2 35

122/

Received cash on account

22 23

27 Cash

Accounts Receivable/J. Gloy

Received cash on account

101

2 7 3 25

122/

29 30

2 7 3 25 25 26

27 28

7 2 35 21

23 24

28 Cash Notes Payable Borrowed cash

101 201

11 0 0 0 00

11 0 0 0 00 29 30

384

CHAPTER 10

Mastery Problem (Continued) GENERAL JOURNAL DATE 1

POST. REF.

DESCRIPTION

20--

Sept. 29

PAGE

Cash

101

DEBIT

CREDIT

3 0 0 5 58

Sales

401

2 8 3 5 45

Sales Tax Payable

231

1 7 0 13

Made cash sales

30 Cash

101

5 1 7 28

Boarding and Grooming Revenue

402

4 8 8 00

Sales Tax Payable

231

2 9 28

Received cash for grooming

2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

Sept.

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

101

BALANCE DEBIT

1 Balance



2 4 7 2 40

25 9 7 2 65

6 6 2 50

26 6 3 5 15

2 5 6 00

26 8 9 1 15

2 8 1 6 26

29 7 0 7 41

5 8 25

29 7 6 5 66

5 6 7 10

30 3 3 2 76

6 3 25

30 3 9 6 01

3 3 0 9 80

33 7 0 5 81

5 4 5 90

34 2 5 1 71

1 3 2 50

34 3 8 4 21

7 2 35

34 4 5 6 56

2 7 3 25

34 7 2 9 81

11 0 0 0 00

45 7 2 9 81

J10

3 0 0 5 58

48 7 3 5 39

J10

5 1 7 28

49 2 5 2 67

CREDIT

23 5 0 0 25

CHAPTER 10

385

Mastery Problem (Continued) Accounts Receivable

ACCOUNT

DATE 20--

DEBIT

CREDIT

1 3 2 50

9 8 3 25

7 2 35

1 0 5 5 60

4 6 59

1 1 0 2 19

2 5 6 00

2 1 0 7 59

9 3 28

2 0 1 4 31

5 8 25

1 9 5 6 06

6 3 25

1 8 9 2 81

8 8 33

1 9 8 1 14

3 9 7 50

2 3 7 8 64

1 3 2 50

2 2 4 6 14

7 2 35

2 1 7 3 79

2 7 3 25

1 9 0 0 54

8 5 0 75

1 0 60 1 2 7 2 00

1 0 9 1 59 2 3 6 3 59

Notes Payable

DATE

ITEM

1 Balance 28

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

 J9

122

BALANCE DEBIT



ACCOUNT

Sept.

POST. REF.

1 Balance

Sept.

20--

ITEM

ACCOUNT NO.

11 0 0 0 00

201

BALANCE DEBIT

CREDIT

2 5 0 0 00 13 5 0 0 00

386

CHAPTER 10

Mastery Problem (Continued) Sales Tax Payable

ACCOUNT

DATE 20--

ITEM

DEBIT

BALANCE

CREDIT

DEBIT

CREDIT



7 50

9 1 7 40

4 10

9 2 1 50

2 64

9 2 4 14

1 3 9 95

1 0 6 4 09

3 7 50

1 1 0 1 59

1 5 9 41

1 3 2 7 12

3 2 10

1 3 5 9 22

5 00

1 3 6 4 22

2 2 50

1 3 8 6 72

1 8 7 35

1 5 7 4 07

3 0 90

1 6 0 4 97

J10

1 7 0 13

1 7 7 5 10

J10

2 9 28

1 8 0 4 38

9 0 9 90

0 60

1 1 0 0 99 7 2 00

1 1 7 2 99

5 28

1 1 6 7 71

Sales

ACCOUNT

DATE

Sept.

POST. REF.

231

1 Balance

Sept.

20—

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

1 Balance



1 2 5 00

13 1 7 5 48

6 8 25

13 2 4 3 73

4 3 95

13 2 8 7 68

2 3 3 2 45

15 6 2 0 13

1 2 0 0 00

16 8 2 0 13

2 6 5 6 85

19 4 7 6 98

8 3 33

19 5 6 0 31

3 7 5 00

19 9 3 5 31

3 1 2 2 45

23 0 5 7 76

J10

2 8 3 5 45

25 8 9 3 21

13 0 5 0 48

CHAPTER 10

387

Mastery Problem (Continued) Sales Returns and Allowances

ACCOUNT

DATE 20--

Sept.

ITEM

CREDIT



CREDIT

1 0 00

8 8 00

1 8 4 00

Boarding and Grooming Revenue ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

401.1

BALANCE DEBIT

8 6 00 9 6 00

DATE

Sept.

DEBIT

1 Balance 11

ACCOUNT

20--

POST. REF.

ACCOUNT NO.

402

BALANCE DEBIT



CREDIT

1 Balance 10

6 2 5 00

2 1 1 5 00 2 7 4 0 00

5 3 5 00

3 2 7 5 00

5 1 5 00

3 7 9 0 00

J10

4 8 8 00

4 2 7 8 00

ACCOUNTS RECEIVABLE LEDGER NAME All American Day Camp ADDRESS 3025 Old Mill Run, Bloomington, IN 47408-1080 DATE

ITEM

POST. REF.

20--

Sept. 21

DEBIT

3 9 7 50

CREDIT

BALANCE

3 9 7 50

388

CHAPTER 10

Mastery Problem (Continued) NAME Rosa Alanso ADDRESS 2541 East 2nd Street, Bloomington, IN 47401-5356 DATE

ITEM

20--

Sept. 1 Balance 14 15

POST. REF.

DEBIT

CREDIT

BALANCE

 J8

2 5 6 00

4 5 6 00 2 0 0 00

9 3 28

1 0 6 72

NAME Ed Cochran ADDRESS 2669 Windcrest Drive, Bloomington, IN 47401-5446 DATE

ITEM

20--

POST. REF.

DEBIT

CREDIT

 J8

Sept. 1 Balance 19

BALANCE

6 3 25 6 3 25

NAME Joe Gloy ADDRESS 1458 Parnell Avenue, Muncie, IN 47304-2682 DATE

ITEM

20--

POST. REF.

DEBIT

CREDIT

 J9

Sept. 1 Balance 27

BALANCE

2 7 3 25 2 7 3 25

NAME Susan Hays ADDRESS 1424 Jackson Creek Road, Nashville, IN 47448-2245 DATE

ITEM

POST. REF.

20--

Sept. 20

DEBIT

8 8 33

CREDIT

BALANCE

8 8 33

CHAPTER 10

389

Mastery Problem (Continued) NAME Ken Shank ADDRESS 6422 E. Bender Road, Bloomington, IN 47401-7756 DATE

ITEM

POST. REF.

20--

Sept.

2 25

J7 J9

DEBIT

CREDIT

1 3 2 50

BALANCE

1 3 2 50 1 3 2 50

NAME Tully Shaw ADDRESS 3315 Longview Avenue, Bloomington, IN 47401-7223 DATE

ITEM

POST. REF.

20--

Sept. 12

DEBIT

CREDIT

1 2 7 2 00

BALANCE

1 2 7 2 00

NAME Nancy Truelove ADDRESS 2300 E. National Road, Cumberland, IN 46229-4824 DATE

ITEM

20--

POST. REF.

 J7

Sept. 1 Balance 3

DEBIT

CREDIT

BALANCE

5 8 25 1 3 0 60

7 2 35

5 8 25

7 2 35

NAME Jean Warkentin ADDRESS 1813 Deep Well Court, Bloomington, IN 47401-5124 DATE

ITEM

POST. REF.

20--

Sept.

5 11

J7 J7

DEBIT

CREDIT

4 6 59 1 0 60

BALANCE

4 6 59 3 5 99

390

CHAPTER 10

Mastery Problem (Concluded) 3.

Wayward Kennel and Pet Supply Schedule of Accounts Receivable September 30, 20-All American Day Camp

$ 3 9 7 50

Rosa Alanso

1 0 6 72

Susan Hays

8 8 33

Tully Shaw

1 2 7 2 00

Jean Warkentin

3 5 99

Total

$1 9 0 0 54

Sales Less: Sales returns and allowances Net sales

$12,842.73 98.00 $12,744.73

CHAPTER 10

391

Challenge Problem GENERAL JOURNAL DATE 20-1

June

DESCRIPTION

4 Accounts Receivable/T. Allen

Sales

Sales Tax Payable

Made credit sale

PAGE POST. REF.

DEBIT

CREDIT

1 5 9 0 00

1 5 0 0 00

9 0 00

3 4

5 6

7 Accounts Receivable/K. Bryant

Sales

Sales Tax Payable

Made credit sale

1 9 0 8 00

12 13 14

11 Sales Returns and Allowances Sales Tax Payable

1 8 00

3 1 8 00 13

Returned merchandise

14 15

14 Cash Sales Discounts Accounts Receivable/T. Allen

Received cash on account

1 2 6 0 00

1 2 00

1 2 7 2 00 18 19

1 0 8 00

3 0 0 00

Accounts Receivable/T. Allen

15 16

1 8 0 0 00

10 11

17 Cash Sales Discounts

Accounts Receivable/K. Bryant

Received cash on account

1 8 9 0 00

1 8 00

1 9 0 8 00 23 24

CHAPTER 11 ACCOUNTING FOR PURCHASES AND CASH PAYMENTS REVIEW QUESTIONS 1.

The major documents commonly used in the purchasing process are the purchase requisition, the purchase order, the receiving report, and the purchase invoice.

A cash discount is available if the bill is paid within the discount period. A trade discount is a reduction from the list or catalog price offered by manufacturers and wholesalers to different classes of customers.

The purchases account is used to record the cost of merchandise purchased. Purchases Returns and Allowances is a contra-purchases account used to record purchases returns and purchases allowances. Purchases Discounts is a contra-purchases account used to record cash discounts allowed on purchases. Freight-In is an adjunct-purchases account used to record transportation charges on merchandise purchases.

The cost of goods sold is the beginning merchandise inventory plus the cost of goods purchased during the period less ending merchandise inventory. The gross profit is the net sales minus the cost of goods sold.

To post purchases from the general journal to the general ledger: In the general ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance columns under Debit or Credit. Step 4: Enter the journal page number from which each transaction is posted in the Posting Reference column. In the journal: Step 5: Enter the ledger account number in the Posting Reference column of the journal for each transaction that is posted.

To post purchases from the general journal to the accounts payable ledger: In the accounts payable ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance column. Step 4: Enter the journal page number from which each transaction is posted in the Posting Reference column. In the journal: Step 5: Enter a slash (/) followed by a check mark () in the Posting Reference column of the journal for each transaction that is posted.

To post purchases returns and allowances from the general journal to the general ledger and accounts payable ledger: The general ledger is posted using the same five steps as for purchases transactions (Figure 11-9). To post the accounts payable ledger: 393 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

394

CHAPTER 11 In the accounts payable ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance column. Step 4: Enter the journal page number from which each transaction is posted in the Posting Reference column. In the journal: Step 5: Enter a slash (/) followed by a check mark () in the Posting Reference column of the journal for each transaction that is posted.

To post cash payments from the general journal to the general ledger, use the same five steps as for posting purchases transactions (Figure 11-9).

To post cash payments from the general journal to the accounts payable ledger: In the accounts payable ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance column. Step 4: Enter the journal page number from which each transaction is posted in the Posting Reference column. In the journal: Step 5: Enter a slash (/) followed by a check mark () in the Posting Reference column of the journal for each transaction that is posted.

10. To find the error, use the following steps: Step 1: Verify the total of the schedule. Step 2: Verify the postings to the accounts payable ledger. Step 3: Verify the postings to Accounts Payable in the general ledger.

CHAPTER 11

395

Exercise 11-1A 1.

Purchase requisition

Purchase order

Receiving report

Purchase invoice

Exercise 11-2A 1.

Gross amount

$2,000

Less 10% trade discount Net amount of purchases

200 $1,800

Net amount Less 2% discount Net amount to be paid

$1,800 36 $1,764

GENERAL JOURNAL DATE

DESCRIPTION

20--

May 17 Purchases 2 Accounts Payable/Jacob’s Distributors 1

PAGE POST. REF.

DEBIT

CREDIT

1 8 0 0 00

Purchased merchandise

4 5

27 Accounts Payable/Jacob’s Distributors

Cash

Purchases Discounts

1 8 0 0 00

1 7 6 4 00

3 6 00

Paid invoice within discount period

396

CHAPTER 11

Exercise 11-3A 1.

Cash (a) (b)

(a) (b)

Accounts Payable 1,500 2,975

Purchases 1,500 2,975

Purchases Returns and Allowances

Purchases Discounts

Freight-In

Cash (c) (d)

Accounts Payable 2,000 (a) 1,200 (b)

(a) (b)

1,960 1,200

Purchases 2,000 1,200

Purchases Discounts (c)

2,000 1,200

Purchases Returns and Allowances

Freight-In 40

CHAPTER 11

397

Exercise 11-3A (Concluded) 3.

Cash (c)

(a)

3,430

(b) (c)

Purchases 4,000

Purchases Discounts (c)

Accounts Payable 500 (a) 3,500

4,000

Purchases Returns and Allowances (b) 500

Freight-In 70

Cash (b)

(a)

2,600

(b)

Purchases 2,500

Accounts Payable 2,600 (a)

2,600

Purchases Returns and Allowances

Purchases Discounts (a)

Freight-In 100

398

CHAPTER 11

Exercise 11-4A

Sales

$120,000

Less: Sales returns and allowances

Sales discounts

900 650

1,550

Net sales

$118,450

Cost of goods sold Merchandise inventory, Jan. 1

$ 35,000

Purchases

$77,600

Less: Purchases returns and allow.

$4,100

Purchases discounts

2,300

6,400

Net purchases

$71,200

Add freight-in

1,250

Cost of goods purchased Goods available for sale Less merchandise inventory, Dec. 31 Cost of goods sold Gross profit

72,450 $107,450 32,000 75,450 $ 43,000

CHAPTER 11

399

Exercise 11-5A GENERAL JOURNAL DATE 20-1 2 3

May

DESCRIPTION

3 Purchases

PAGE POST. REF.

DEBIT

CREDIT

6 1 0 0 00

Accounts Payable/Reed

6 1 0 0 00

Invoice No. 321

4 5 6 7

9 Purchases

2 5 0 0 00

Accounts Payable/Omana

2 5 0 0 00

Invoice No. 614

8 9 10 11

18 Purchases

2 2 0 0 00

Accounts Payable/Yao Distributors

2 2 0 0 00 10

Invoice No. 180

12 13 14 15

23 Purchases Accounts Payable/Brown Invoice No. 913

5 3 0 0 00

5 3 0 0 00 14 15

400

CHAPTER 11

Exercise 11-6A GENERAL JOURNAL POST. REF.

DEBIT

7 Accounts Payable/Starcraft Industries

202/

7 0 0 00

Purchases Returns and Allowances

501.1

DATE 20-1

July

PAGE

DESCRIPTION

CREDIT 1

7 0 0 00

Returned merchandise

202/

15 Accounts Payable/XYZ, Inc.

Purchases Returns and Allowances

4 5 0 00

501.1

4 5 0 00

Returned merchandise

202/

27 Accounts Payable/Datamagic

Purchases Returns and Allowances

9 0 0 00

501.1

9 0 0 00 10

Returned merchandise

GENERAL LEDGER Accounts Payable

ACCOUNT

DATE 20--

ITEM

DEBIT

CREDIT

BALANCE DEBIT



CREDIT

7 0 0 00

10 6 5 0 00 9 9 5 0 00

4 5 0 00

9 5 0 0 00

9 0 0 00

8 6 0 0 00

Purchases Returns and Allowances

ACCOUNT

DATE

July

POST. REF.

202

1 Balance 7

July

20--

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

ACCOUNT NO.

CREDIT

501.1

BALANCE DEBIT

CREDIT

7 0 0 00

4 5 0 00

1 1 5 0 00

9 0 0 00

2 0 5 0 00

CHAPTER 11

401

Exercise 11-6A (Concluded) ACCOUNTS PAYABLE LEDGER NAME Datamagic ADDRESS DATE

ITEM

20--

July

POST. REF.

 J3

1 Balance 27

DEBIT

CREDIT

BALANCE

2 6 0 0 00 9 0 0 00

1 7 0 0 00

NAME Starcraft Industries ADDRESS DATE

ITEM

20--

July

POST. REF.

 J3

1 Balance 7

DEBIT

CREDIT

BALANCE

4 3 0 0 00 7 0 0 00

3 6 0 0 00

NAME XYZ, Inc. ADDRESS DATE 20--

July

1 Balance 15

ITEM

POST. REF.

 J3

DEBIT

4 5 0 00

CREDIT

BALANCE

3 7 5 0 00 3 3 0 0 00

402

CHAPTER 11

Exercise 11-7A GENERAL JOURNAL DATE 20-1

Sept.

DESCRIPTION

PAGE POST. REF.

5 Accounts Payable/Whittle Corp.

Cash

Purchases Discounts

DEBIT

CREDIT

5 0 0 0 00

4 9 0 0 00

1 0 0 00

Check No. 318

5 6

12 Accounts Payable/Martin Company

Cash

Purchases Discounts

8 1 0 0 00

8 0 1 9 00

8 1 00

Check No. 319

10 11 12

19 Accounts Payable/Cloud Systems

6 1 0 0 00

Cash

6 1 0 0 00 12

Check No. 320

14 15

27 Account Payable/Dynamic Data

Cash

Purchases Discounts

7 0 0 0 00

6 8 6 0 00 16 1 4 0 00 17

Check No. 321

Exercise 11-8A Ryan’s Express Schedule of Accounts Payable October 31, 20-Columbia Products

$ 5 3 5 0 00

Favorite Fashions

4 2 8 0 00

Rustic Legends

4 7 4 0 00 $14 3 7 0 00

CHAPTER 11

403

Problem 11-9A 1. GENERAL JOURNAL DATE 20-1 2 3

Sept.

DESCRIPTION

3 Purchases Accounts Payable/Smith Distributors

PAGE POST. REF.

501

DEBIT

CREDIT

2 6 5 0 00

202/

2 6 5 0 00

Invoice No. 415

4 5 6 7

8 Purchases Accounts Payable/Michaels Wholesaler

501

3 8 3 0 00

202/

3 8 3 0 00

Invoice No. 132

8 9 10 11

11 Purchases Accounts Payable/J. B. Sanders & Co.

501

3 1 4 0 00

202/

3 1 4 0 00 10

Invoice No. 614

12 13 14 15

18 Purchases Accounts Payable/Bateman & Jones, Inc.

501

2 2 5 0 00

202/

18 19

Invoice No. 329

15 16

23 Purchases Accounts Payable/Smith Distributors

501

4 1 6 0 00

202/

22 23

Invoice No. 767

19 20

27 Purchases Accounts Payable/Anderson Company

501

1 9 8 0 00

202/

26 27

1 9 8 0 00 22

Invoice No. 744

24 25

4 1 6 0 00 18

20 21

2 2 5 0 00 14

16 17

30 Purchases Accounts Payable/Michaels Wholesaler Invoice No. 652

501 202/

2 7 8 0 00

2 7 8 0 00 26 27

404

CHAPTER 11

Problem 11-9A (Continued) 2. GENERAL LEDGER Accounts Payable

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

3 8

J16 J16

2 6 5 0 00 3 8 3 0 00

2 6 5 0 00 6 4 8 0 00

J16

3 1 4 0 00

9 6 2 0 00

J16

2 2 5 0 00

11 8 7 0 00

J16

4 1 6 0 00

16 0 3 0 00

J16

1 9 8 0 00

18 0 1 0 00

J16

2 7 8 0 00

20 7 9 0 00

Sept.

ACCOUNT

Purchases

DATE

ITEM

20--

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

J16

2 6 5 0 00

J16

3 8 3 0 00

6 4 8 0 00

J16

3 1 4 0 00

9 6 2 0 00

J16

2 2 5 0 00

11 8 7 0 00

J16

4 1 6 0 00

16 0 3 0 00

J16

1 9 8 0 00

18 0 1 0 00

J16

2 7 8 0 00

20 7 9 0 00

Sept.

501

CREDIT

ACCOUNTS PAYABLE LEDGER NAME Anderson Company ADDRESS DATE

ITEM

POST. REF.

20--

Sept. 27

J16

DEBIT

CREDIT

1 9 8 0 00

BALANCE

1 9 8 0 00

CHAPTER 11

405

Problem 11-9A (Concluded) NAME Bateman & Jones, Inc. ADDRESS DATE

ITEM

POST. REF.

DEBIT

20--

Sept. 18

CREDIT

2 2 5 0 00

J16

BALANCE

2 2 5 0 00

NAME Michaels Wholesaler ADDRESS DATE

ITEM

POST. REF.

DEBIT

20--

Sept.

8 30

CREDIT

3 8 3 0 00

J16 J16

2 7 8 0 00

BALANCE

3 8 3 0 00 6 6 1 0 00

NAME J. B. Sanders & Co. ADDRESS DATE

ITEM

POST. REF.

DEBIT

20--

Sept. 11

CREDIT

3 1 4 0 00

J16

BALANCE

3 1 4 0 00

NAME Smith Distributors ADDRESS DATE

ITEM

POST. REF.

20--

Sept.

3 23

J16 J16

DEBIT

CREDIT

2 6 5 0 00 4 1 6 0 00

BALANCE

2 6 5 0 00 6 8 1 0 00

406

CHAPTER 11

Problem 11-10A 1. GENERAL JOURNAL DATE 20-1 2 3

May

DESCRIPTION

PAGE POST. REF.

1 Rent Expense

521

Cash

101

DEBIT

CREDIT

2 4 0 0 00

Check No. 426

4 5

3 Accounts Payable/Mueller’s Distributors

202/

3 6 0 0 00

Cash

101

3 4 9 2 00

Purchases Discounts

501.2

1 0 8 00

Check No. 427

9 10 11 12

7 Accounts Payable/Van Kooning Cash

202/

5 5 0 0 00

101

5 5 0 0 00 11

Check No. 428

13 14

12 Accounts Payable/Fantastic Toys

202/

5 2 0 0 00

Cash

101

5 1 4 8 00 15

Purchases Discounts

501.2

5 2 00 16

Check No. 429

18 19 20 21

15 Utilities Expense Cash

533

1 7 2 0 00

101

1 7 2 0 00 20

Check No. 430

22 23 24 25

18 Purchases Cash

501

4 8 0 0 00

101

4 8 0 0 00 24

Check No. 431

26 27

26 Accounts Payable/Goya Outlet

202/

3 8 0 0 00

Cash

101

3 7 2 4 00 28

Purchases Discounts

501.2

7 6 00 29

Check No. 432

31 32 33 34

30 Freight-In Cash Check No. 433

502 101

1 2 0 0 00

1 2 0 0 00 33 34

CHAPTER 11

407

Problem 11-10A (Continued) GENERAL JOURNAL DATE 20-1

May

POST. REF.

DESCRIPTION

31 Purchases

501

Cash

PAGE

DEBIT

CREDIT

3 0 0 0 00

101

3 0 0 0 00

Check No. 434

2 3

2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM

DEBIT

CREDIT

2 4 0 0 00

37 6 0 0 00

3 4 9 2 00

34 1 0 8 00

5 5 0 0 00

28 6 0 8 00

5 1 4 8 00

23 4 6 0 00

1 7 2 0 00

21 7 4 0 00

4 8 0 0 00

16 9 4 0 00

3 7 2 4 00

13 2 1 6 00

1 2 0 0 00

12 0 1 6 00

J10

3 0 0 0 00

9 0 1 6 00

40 0 0 0 00

Accounts Payable

DATE

ITEM

ACCOUNT NO.

POST. REF.

101

BALANCE DEBIT



ACCOUNT

May

POST. REF.

1 Balance

May

20--

ACCOUNT NO.

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

1 Balance



3 6 0 0 00

16 4 0 0 00

5 5 0 0 00

10 9 0 0 00

5 2 0 0 00

5 7 0 0 00

3 8 0 0 00

1 9 0 0 00

20 0 0 0 00

408

CHAPTER 11

Problem 11-10A (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

May

18 31

DATE

May

J9 J10

ITEM

POST. REF.

CREDIT

4 8 0 0 00 7 8 0 0 00

ACCOUNT NO.

DEBIT

CREDIT

501.2

BALANCE DEBIT

CREDIT

1 0 8 00 1 6 0 00

7 6 00

2 3 6 00

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

1 2 0 0 00

DATE 20--

ITEM

May

1 2 0 0 00

DEBIT

CREDIT

2 4 0 0 00

DATE

ITEM

CREDIT

2 4 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

1 7 2 0 00

521

BALANCE DEBIT

Utilities Expense

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

502

BALANCE DEBIT

Rent Expense

ACCOUNT

May

4 8 0 0 00 3 0 0 0 00

BALANCE DEBIT

1 0 8 00 5 2 00

DATE

20--

CREDIT

J9 J9

Freight-In

May

DEBIT

501

3 12

ACCOUNT

20--

POST. REF.

Purchases Discounts

ACCOUNT

20--

ACCOUNT NO.

CREDIT

533

BALANCE DEBIT

CREDIT

1 7 2 0 00

CHAPTER 11

409

Problem 11-10A (Concluded) ACCOUNTS PAYABLE LEDGER NAME Fantastic Toys ADDRESS DATE

ITEM

20--

May

POST. REF.

 J9

1 Balance 12

DEBIT

CREDIT

BALANCE

5 2 0 0 00 5 2 0 0 00

NAME Goya Outlet ADDRESS DATE

ITEM

20--

May

POST. REF.

 J9

1 Balance 26

DEBIT

CREDIT

BALANCE

3 8 0 0 00 3 8 0 0 00

NAME Mueller’s Distributors ADDRESS DATE

ITEM

20--

May

POST. REF.

 J9

1 Balance 3

DEBIT

CREDIT

BALANCE

3 6 0 0 00 3 6 0 0 00

NAME Van Kooning ADDRESS DATE

ITEM

20--

May

1 Balance 7

POST. REF.

 J9

DEBIT

5 5 0 0 00

CREDIT

BALANCE

7 4 0 0 00 1 9 0 0 00

410

CHAPTER 11

Problem 11-11A 1. GENERAL JOURNAL DATE 20-1 2 3

July

DESCRIPTION

PAGE POST. REF.

1 Rent Expense

521

Cash

101

DEBIT

CREDIT

2 5 0 0 00

Check No. 414

4 5 6 7

1 Purchases Accounts Payable/Tilly’s Toys

501

2 8 0 0 00

202/

2 8 0 0 00

Invoice No. 311

8 9 10 11

3 Purchases Accounts Payable/Scheer & Company

501

3 3 0 0 00

202/

3 3 0 0 00 10

Invoice No. 812

12 13 14 15

5 Accounts Payable/Tilly’s Toys Purchases Returns and Allowances

202/

3 0 0 00

501.1

18 19

Returned merchandise

15 16

8 Purchases Accounts Payable/Donna’s Dolls

501

2 9 0 0 00

202/

2 9 0 0 00 18

Invoice No. 139

20 21

3 0 0 00 14

16 17

11 Accounts Payable/Tilly’s Toys

202/

2 5 0 0 00

Cash

101

2 4 5 0 00 22

Purchases Discounts

501.2

5 0 00 23

Check No. 415

25 26

13 Accounts Payable/Scheer & Company

202/

3 3 0 0 00

Cash

101

3 2 6 7 00 27

Purchases Discounts

501.2

3 3 00 28

Check No. 416

30 31 32 33 34

15 Accounts Payable/Donna’s Dolls Purchases Returns and Allowances Returned merchandise

202/ 501.1

3 5 0 00

3 5 0 00 32 33 34

CHAPTER 11

411

Problem 11-11A (Continued) GENERAL JOURNAL DATE 20-1

July 18

DESCRIPTION

Accounts Payable/Donna’s Dolls

PAGE POST. REF.

202/

DEBIT

CREDIT

2 5 5 0 00

Cash

101

2 4 9 9 00

Purchases Discounts

501.2

5 1 00

Check No. 417

5 6 7 8

25 Purchases Accounts Payable/Applied Business

501

2 6 5 0 00

202/

2 6 5 0 00

Invoice No. 489

9 10 11 12

26 Purchases Accounts Payable/Tilly’s Toys

501

2 1 8 0 00

202/

2 1 8 0 00 11

Invoice No. 375

13 14 15 16

29 Purchases Accounts Payable/Scheer & Company Invoice No. 883

501 202/

3 5 6 0 00

3 5 6 0 00 15 16

412

CHAPTER 11

Problem 11-11A (Continued) 2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

1 Balance



J16

2 5 0 0 00

18 5 0 0 00

J16

2 4 5 0 00

16 0 5 0 00

J16

3 2 6 7 00

12 7 8 3 00

J17

2 4 9 9 00

10 2 8 4 00

July

21 0 0 0 00

Accounts Payable

ACCOUNT

DATE

ITEM

ACCOUNT NO.

POST. REF.

101

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

20--

July

1 3

J16 J16

2 8 0 0 00 3 3 0 0 00

J16

2 5 0 0 00

6 2 0 0 00

J16

3 3 0 0 00

2 9 0 0 00

J16

3 5 0 00

2 5 5 0 00

J17

2 5 5 0 00

J17

2 6 5 0 00

J17

2 1 8 0 00

4 8 3 0 00

J17

3 5 6 0 00

8 3 9 0 00

3 0 0 00

2 8 0 0 00 6 1 0 0 00 5 8 0 0 00

2 9 0 0 00

8 7 0 0 00

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CHAPTER 11

413

Problem 11-11A (Continued) ACCOUNT

Purchases

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

501

BALANCE DEBIT

CREDIT

20--

J16

2 8 0 0 00

J16

3 3 0 0 00

6 1 0 0 00

J16

2 9 0 0 00

9 0 0 0 00

J17

2 6 5 0 00

11 6 5 0 00

J17

2 1 8 0 00

13 8 3 0 00

J17

3 5 6 0 00

17 3 9 0 00

July

Purchases Returns and Allowances

ACCOUNT

DATE

ITEM

POST. REF.

DEBIT

ACCOUNT NO.

CREDIT

501.1

BALANCE DEBIT

CREDIT

20--

July

5 15

J16 J16

3 0 0 00 3 5 0 00

3 0 0 00 6 5 0 00

Purchases Discounts

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

501.2

BALANCE DEBIT

CREDIT

20--

July 11

J16 J16

5 0 00 3 3 00

5 0 00 8 3 00

J17

5 1 00

1 3 4 00

Rent Expense

ACCOUNT

DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

521

BALANCE DEBIT

CREDIT

20--

July

J16

2 5 0 0 00

414

CHAPTER 11

Problem 11-11A (Concluded) ACCOUNTS PAYABLE LEDGER NAME Applied Business ADDRESS DATE

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

20--

July 25

2 6 5 0 00

J17

2 6 5 0 00

NAME Donna’s Dolls ADDRESS DATE

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

20--

2 9 0 0 00

J16

3 5 0 00

J17

2 5 5 0 00

July

2 9 0 0 00 2 5 5 0 00

NAME Scheer & Company ADDRESS DATE

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

20--

July

3 13

J16 J16

J17

3 3 0 0 00

3 5 6 0 00

3 3 0 0 00

NAME Tilly’s Toys ADDRESS DATE

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

20--

July

1 5

J16 J16

3 0 0 00

J16

2 5 0 0 00

J17

2 8 0 0 00

2 8 0 0 00 2 5 0 0 00

2 1 8 0 00

CHAPTER 11

415

Problem 11-12A Frank’s Fantasy Schedule of Accounts Payable July 31, 20-Applied Business

$2 6 5 0 00

Scheer & Company

3 5 6 0 00

Tilly’s Toys

2 1 8 0 00 $8 3 9 0 00 Proof

Balance of Accounts Payable, July 31

$8 3 9 0 00

416

CHAPTER 11

Exercise 11-1B 1.

A form used to request the purchase of merchandise or other property

A written order to buy goods from a vendor

A form indicating what goods have been received

A bill from the vendor for goods shipped

Exercise 11-2B 1.

Gross amount Less 10% trade discount Net amount of purchases

$5,000 500 $4,500

Net amount Less 3% discount Net amount to be paid

$4,500 135 $4,365

GENERAL JOURNAL DATE 20-1 2 3

June 12

DESCRIPTION

Purchases

PAGE POST. REF.

DEBIT

CREDIT

4 5 0 0 00

Accounts Payable/Grant’s Distributors

4 5 0 0 00

Purchased merchandise

4 5

22 Accounts Payable/Grant’s Distributors

Cash

Purchases Discounts

4 5 0 0 00

4 3 6 5 00

1 3 5 00

Paid invoice within discount period

CHAPTER 11

417

Exercise 11-3B 1.

Cash (a) (b)

(a) (b)

Accounts Payable 2,300 3,600

Purchases 2,300 3,600

Purchases Returns and Allowances

Purchases Discounts

Freight-In

Cash (c) (d)

Accounts Payable 4,000 (a) 2,800 (b)

(a) (b)

3,920 2,800

Purchases 4,000 2,800

Purchases Discounts (c)

4,000 2,800

Purchases Returns and Allowances

Freight-In 80

418

CHAPTER 11

Exercise 11-3B (Concluded) 3.

Cash (c)

(a)

4,900

(b) (c)

Purchases 5,600

Accounts Payable 600 (a) 5,000

5,600

Purchases Returns and Allowances (b) 600

Purchases Discounts (c)

100

Freight-In

Cash (b)

4,000

(a)

(b)

Accounts Payable 4,000 (a)

4,000

Purchases 3,800

Purchases Returns and Allowances

Purchases Discounts

Freight-In 200

(a)

CHAPTER 11

419

Exercise 11-4B

Sales

$116,900

Less: Sales returns and allowances

Sales discounts

1,100 400

1,500

Net sales

$115,400

Cost of goods sold Merchandise inventory, Jan. 1

$ 30,000

Purchases

$100,000

Less: Purchases returns and allow.

$2,000

Purchases discounts

2,800

4,800

Net purchases

$ 95,200

Add freight-in

1,500

Cost of goods purchased Goods available for sale Less merchandise inventory, Dec. 31 Cost of goods sold Gross profit

96,700 $126,700 50,000 76,700 $ 38,700

420

CHAPTER 11

Exercise 11-5B GENERAL JOURNAL DATE 20-1 2 3

Jan.

DESCRIPTION

3 Purchases

PAGE POST. REF.

DEBIT

CREDIT

6 0 0 0 00

Accounts Payable/Feng

6 0 0 0 00

Invoice No. 416

4 5 6 7

12 Purchases

9 0 0 0 00

Accounts Payable/Miranda

9 0 0 0 00

Invoice No. 624

8 9 10 11

19 Purchases

6 4 0 0 00

Accounts Payable/J. B. Barba

6 4 0 0 00 10

Invoice No. 190

12 13 14 15

26 Purchases Accounts Payable/Ramirez Invoice No. 923

3 7 0 0 00

3 7 0 0 00 14 15

CHAPTER 11

421

Exercise 11-6B GENERAL JOURNAL DATE 20-1

DESCRIPTION

5 Accounts Payable/Tower Industries

Mar.

Purchases Returns and Allowances

PAGE POST. REF.

DEBIT

202/

5 0 0 00

CREDIT 1

501.1

5 0 0 00

Returned merchandise

202/

11 Accounts Payable/A & D Arms

Purchases Returns and Allowances

6 2 5 00

501.1

6 2 5 00

Returned merchandise

202/

23 Accounts Payable/Mighty Mansion

Purchases Returns and Allowances

2 7 5 00

501.1

2 7 5 00 10

Returned merchandise

GENERAL LEDGER Accounts Payable

ACCOUNT

DATE 20--

ITEM

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

 J3

5 0 0 00

8 3 5 0 00 7 8 5 0 00

6 2 5 00

7 2 2 5 00

2 7 5 00

6 9 5 0 00

Purchases Returns and Allowances

ACCOUNT

DATE

Mar.

POST. REF.

202

1 Balance 5

Mar.

20--

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

ACCOUNT NO.

CREDIT

501.1

BALANCE DEBIT

CREDIT

5 0 0 00

6 2 5 00

1 1 2 5 00

2 7 5 00

1 4 0 0 00

422

CHAPTER 11

Exercise 11-6B (Concluded) ACCOUNTS PAYABLE LEDGER NAME A & D Arms ADDRESS DATE

ITEM

20--

Mar.

POST. REF.

 J3

1 Balance 11

DEBIT

CREDIT

BALANCE

2 3 0 0 00 6 2 5 00

1 6 7 5 00

NAME Mighty Mansion ADDRESS DATE

ITEM

20--

Mar.

POST. REF.

 J3

1 Balance 23

DEBIT

CREDIT

BALANCE

1 4 5 0 00 2 7 5 00

1 1 7 5 00

NAME Tower Industries ADDRESS DATE

ITEM

20--

Mar.

1 Balance 5

POST. REF.

 J3

DEBIT

5 0 0 00

CREDIT

BALANCE

4 6 0 0 00 4 1 0 0 00

CHAPTER 11

423

Exercise 11-7B GENERAL JOURNAL DATE 20-1

Apr.

DESCRIPTION

PAGE POST. REF.

5 Accounts Payable/Standard Industries

Cash

Purchases Discounts

DEBIT

CREDIT

8 0 0 0 00

7 8 4 0 00

1 6 0 00

Check No. 429

5 6

19 Accounts Payable/Finest Company

Cash

Purchases Discounts

5 0 0 0 00

4 9 5 0 00

5 0 00

Check No. 430

10 11 12

21 Accounts Payable/Funny Follies

3 2 5 0 00

Cash

3 2 5 0 00 12

Check No. 431

14 15

29 Accounts Payable/Classic Data

Cash

Purchases Discounts

7 0 0 0 00

6 8 6 0 00 16 1 4 0 00 17

Check No. 432

Exercise 11-8B Crystal’s Candles Schedule of Accounts Payable November 30, 20-Carl’s Candle Wax

$ 3 4 8 0 00

Handy Supplies

2 9 6 0 00

Wishy Wicks

4 1 2 5 00 $10 5 6 5 00

424

CHAPTER 11

Problem 11-9B 1. GENERAL JOURNAL DATE 20-1 2 3

Oct.

DESCRIPTION

2 Purchases Accounts Payable/Boggs Distributors

PAGE POST. REF.

501

DEBIT

CREDIT

1 9 5 0 00

202/

1 9 5 0 00

Invoice No. 321

4 5 6 7

7 Purchases Accounts Payable/Wolfs Wholesaler

501

2 9 1 5 00

202/

2 9 1 5 00

Invoice No. 152

8 9 10 11

10 Purchases Accounts Payable/Komuro & Co.

501

3 5 6 5 00

202/

3 5 6 5 00 10

Invoice No. 634

12 13 14 15

16 Purchases Accounts Payable/Fritz & McCord, Inc.

501

2 8 4 5 00

202/

18 19

Invoice No. 349

15 16

24 Purchases Accounts Payable/Boggs Distributors

501

3 3 7 0 00

202/

22 23

Invoice No. 587

19 20

26 Purchases Accounts Payable/Sanderson Company

501

2 2 4 0 00

202/

26 27

2 2 4 0 00 22

Invoice No. 764

24 25

3 3 7 0 00 18

20 21

2 8 4 5 00 14

16 17

31 Purchases Account Payable/Wolfs Wholesaler Invoice No. 672

501 202/

1 6 3 0 00

1 6 3 0 00 26 27

CHAPTER 11

425

Problem 11-9B (Continued) 2. GENERAL LEDGER Accounts Payable

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

J16

1 9 5 0 00

J16

2 9 1 5 00

4 8 6 5 00

J16

3 5 6 5 00

8 4 3 0 00

J16

2 8 4 5 00

11 2 7 5 00

J16

3 3 7 0 00

14 6 4 5 00

J16

2 2 4 0 00

16 8 8 5 00

J16

1 6 3 0 00

18 5 1 5 00

Oct.

ACCOUNT

Purchases

DATE

ITEM

20--

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

J16

1 9 5 0 00

J16

2 9 1 5 00

4 8 6 5 00

J16

3 5 6 5 00

8 4 3 0 00

J16

2 8 4 5 00

11 2 7 5 00

J16

3 3 7 0 00

14 6 4 5 00

J16

2 2 4 0 00

16 8 8 5 00

J16

1 6 3 0 00

18 5 1 5 00

Oct.

501

CREDIT

ACCOUNTS PAYABLE LEDGER NAME Boggs Distributors ADDRESS DATE 20--

Oct.

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

J16

1 9 5 0 00

J16

3 3 7 0 00

5 3 2 0 00

426

CHAPTER 11

Problem 11-9B (Concluded) NAME Fritz & McCord, Inc. ADDRESS DATE

ITEM

20--

Oct. 16

POST. REF.

DEBIT

J16

CREDIT

2 8 4 5 00

BALANCE

2 8 4 5 00

NAME Komuro & Co. ADDRESS DATE

ITEM

20--

Oct. 10

POST. REF.

DEBIT

J16

CREDIT

3 5 6 5 00

BALANCE

3 5 6 5 00

NAME Sanderson Company ADDRESS DATE

ITEM

20--

Oct. 26

POST. REF.

DEBIT

J16

CREDIT

2 2 4 0 00

BALANCE

2 2 4 0 00

NAME Wolfs Wholesaler ADDRESS DATE 20--

Oct.

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

J16

2 9 1 5 00

J16

1 6 3 0 00

4 5 4 5 00

CHAPTER 11

427

Problem 11-10B 1. GENERAL JOURNAL DATE 20-1 2 3

May

DESCRIPTION

PAGE POST. REF.

1 Rent Expense

521

Cash

101

DEBIT

CREDIT

2 6 0 0 00

Check No. 326

4 5

4 Accounts Payable/Cortez Distributors

202/

4 2 0 0 00

Cash

101

4 0 7 4 00

Purchases Discounts

501.2

1 2 6 00

Check No. 327

9 10 11 12

7 Accounts Payable/Indra & Velga Cash

202/

6 2 0 0 00

101

6 2 0 0 00 11

Check No. 328

13 14

11 Accounts Payable/Toy Corner

202/

4 6 0 0 00

Cash

101

4 5 5 4 00 15

Purchases Discounts

501.2

4 6 00 16

Check No. 329

18 19 20 21

15 Utilities Expense Cash

533

1 5 0 0 00

101

1 5 0 0 00 20

Check No. 330

22 23 24 25

19 Purchases Cash

501

3 5 0 0 00

101

3 5 0 0 00 24

Check No. 331

26 27

25 Accounts Payable/Troutman Outlet

202/

4 4 0 0 00

Cash

101

4 3 1 2 00 28

Purchases Discounts

501.2

8 8 00 29

Check No. 332

31 32 33 34

30 Freight-In Cash Check No. 333

502 101

8 0 0 00

8 0 0 00 33 34

428

CHAPTER 11

Problem 11-10B (Continued) GENERAL JOURNAL DATE 20-1

May

POST. REF.

DESCRIPTION

31 Purchases

501

Cash

PAGE

DEBIT

CREDIT

2 3 5 0 00

101

2 3 5 0 00

Check No. 334

2 3

2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM

DEBIT

CREDIT

2 6 0 0 00

37 4 0 0 00

4 0 7 4 00

33 3 2 6 00

6 2 0 0 00

27 1 2 6 00

4 5 5 4 00

22 5 7 2 00

1 5 0 0 00

21 0 7 2 00

3 5 0 0 00

17 5 7 2 00

4 3 1 2 00

13 2 6 0 00

8 0 0 00

12 4 6 0 00

J10

2 3 5 0 00

10 1 1 0 00

40 0 0 0 00

Accounts Payable

DATE

ITEM

ACCOUNT NO.

POST. REF.

101

BALANCE DEBIT



ACCOUNT

May

POST. REF.

1 Balance

May

20--

ACCOUNT NO.

DEBIT



CREDIT

202

BALANCE DEBIT

CREDIT

1 Balance 4

4 2 0 0 00

20 0 0 0 00 15 8 0 0 00

6 2 0 0 00

9 6 0 0 00

4 6 0 0 00

5 0 0 0 00

4 4 0 0 00

6 0 0 00

CHAPTER 11

429

Problem 11-10B (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

May

J10

2 3 5 0 00

5 8 5 0 00

Purchases Discounts DEBIT

CREDIT

501.2

BALANCE DEBIT

CREDIT

J9 J9

1 2 6 00 4 6 00

1 2 6 00 1 7 2 00

8 8 00

2 6 0 00

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

8 0 0 00

DATE 20--

ITEM

May

8 0 0 00

DEBIT

CREDIT

2 6 0 0 00

DATE

ITEM

CREDIT

2 6 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

1 5 0 0 00

521

BALANCE DEBIT

Utilities Expense

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

502

BALANCE DEBIT

Rent Expense

ACCOUNT

May

POST. REF.

ACCOUNT NO.

4 11

DATE

20--

CREDIT

ITEM

501

BALANCE DEBIT

3 5 0 0 00

Freight-In

May

CREDIT

3 5 0 0 00

ACCOUNT

20--

DEBIT

DATE

May

POST. REF.

ACCOUNT

20--

ACCOUNT NO.

CREDIT

533

BALANCE DEBIT

CREDIT

1 5 0 0 00

430

CHAPTER 11

Problem 11-10B (Concluded) ACCOUNTS PAYABLE LEDGER NAME Cortez Distributors ADDRESS DATE

ITEM

20--

May

POST. REF.

 J9

1 Balance 4

DEBIT

CREDIT

BALANCE

4 2 0 0 00 4 2 0 0 00

NAME Indra & Velga ADDRESS DATE

ITEM

20--

 J9

1 Balance

May

POST. REF.

DEBIT

CREDIT

BALANCE

6 8 0 0 00 6 2 0 0 00

6 0 0 00

NAME Toy Corner ADDRESS DATE

ITEM

20--

May

POST. REF.

 J9

1 Balance 11

DEBIT

CREDIT

BALANCE

4 6 0 0 00 4 6 0 0 00

NAME Troutman Outlet ADDRESS DATE 20--

May

1 Balance 25

ITEM

POST. REF.

 J9

DEBIT

CREDIT

BALANCE

4 4 0 0 00 4 4 0 0 00

CHAPTER 11

431

Problem 11-11B 1. GENERAL JOURNAL DATE 20-1 2 3

July

DESCRIPTION

PAGE POST. REF.

1 Rent Expense

521

Cash

101

DEBIT

CREDIT

1 4 0 0 00

Check No. 314

4 5 6 7

1 Purchases Accounts Payable/Topper’s Toys

501

2 5 0 0 00

202/

2 5 0 0 00

Invoice No. 211

8 9 10 11

3 Purchases Accounts Payable/Jones & Company

501

2 8 0 0 00

202/

2 8 0 0 00 10

Invoice No. 812

12 13 14 15

5 Accounts Payable/Topper’s Toys Purchases Returns and Allowances

202/

4 0 0 00

501.1

18 19

Returned merchandise

15 16

8 Purchases Accounts Payable/Downtown Merchants

501

1 6 0 0 00

202/

1 6 0 0 00 18

Invoice No. 159

20 21

4 0 0 00 14

16 17

11 Accounts Payable/Topper’s Toys

202/

2 1 0 0 00

Cash

101

2 0 5 8 00 22

Purchases Discounts

501.2

4 2 00 23

Check No. 315

25 26

13 Accounts Payable/Jones & Company

202/

2 8 0 0 00

Cash

101

2 7 7 2 00 27

Purchases Discounts

501.2

2 8 00 28

Check No. 316

30 31 32 33 34

15 Accounts Payable/Downtown Merchants Purchases Returns and Allowances Returned merchandise

202/ 501.1

6 0 0 00

6 0 0 00 32 33 34

432

CHAPTER 11

Problem 11-11B (Continued) GENERAL JOURNAL DATE 20-1

July 18

DESCRIPTION

Accounts Payable/Downtown Merchants

PAGE POST. REF.

202/

DEBIT

CREDIT

1 0 0 0 00

Cash

101

9 8 0 00

Purchases Discounts

501.2

2 0 00

Check No. 317

5 6 7 8

25 Purchases Accounts Payable/Columbia Products

501

3 2 0 0 00

202/

3 2 0 0 00

Invoice No. 468

9 10 11 12

26 Purchases Accounts Payable/Topper’s Toys

501

1 4 3 0 00

202/

1 4 3 0 00 11

Invoice No. 395

13 14 15 16

29 Purchases Accounts Payable/Jones & Company Invoice No. 853

501 202/

2 9 7 0 00

2 9 7 0 00 15 16

CHAPTER 11

433

Problem 11-11B (Continued) 2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

1 Balance



J16

1 4 0 0 00

18 6 0 0 00

J16

2 0 5 8 00

16 5 4 2 00

J16

2 7 7 2 00

13 7 7 0 00

J17

9 8 0 00

12 7 9 0 00

July

20 0 0 0 00

Accounts Payable

ACCOUNT

DATE

ITEM

ACCOUNT NO.

POST. REF.

101

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

20--

July

1 3

J16 J16

2 5 0 0 00 2 8 0 0 00

J16

2 1 0 0 00

4 4 0 0 00

J16

2 8 0 0 00

1 6 0 0 00

J16

6 0 0 00

1 0 0 0 00

J17

1 0 0 0 00

J17

3 2 0 0 00

J17

1 4 3 0 00

4 6 3 0 00

J17

2 9 7 0 00

7 6 0 0 00

4 0 0 00

2 5 0 0 00 5 3 0 0 00 4 9 0 0 00

1 6 0 0 00

6 5 0 0 00

434

CHAPTER 11

Problem 11-11B (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

July

CREDIT

J16

1 6 0 0 00

6 9 0 0 00

J17

3 2 0 0 00

10 1 0 0 00

J17

1 4 3 0 00

11 5 3 0 00

J17

2 9 7 0 00

14 5 0 0 00

Purchases Returns and Allowances ITEM

5 15

POST. REF.

DEBIT

J16 J16

ACCOUNT NO.

CREDIT

20--

July 11

POST. REF.

CREDIT

4 0 0 00 6 0 0 00

4 0 0 00 1 0 0 0 00

ACCOUNT NO.

DEBIT

CREDIT

501.1

BALANCE DEBIT

Purchases Discounts ITEM

501

BALANCE DEBIT

2 5 0 0 00 5 3 0 0 00

DATE

501.2

BALANCE DEBIT

CREDIT

J16 J16

4 2 00 2 8 00

4 2 00 7 0 00

J17

2 0 00

9 0 00

Rent Expense

ACCOUNT

DATE

July

CREDIT

2 5 0 0 00 2 8 0 0 00

ACCOUNT

20--

DEBIT

J16 J16

DATE

July

POST. REF.

1 3

ACCOUNT

20--

ACCOUNT NO.

ITEM

ACCOUNT NO. POST. REF.

J16

DEBIT

1 4 0 0 00

CREDIT

521

BALANCE DEBIT

CREDIT

1 4 0 0 00

CHAPTER 11

435

Problem 11-11B (Concluded) ACCOUNTS PAYABLE LEDGER NAME Columbia Products ADDRESS DATE

ITEM

POST. REF.

DEBIT

20--

July 25

CREDIT

3 2 0 0 00

J17

BALANCE

3 2 0 0 00

NAME Downtown Merchants ADDRESS DATE

ITEM

POST. REF.

DEBIT

20--

July

CREDIT

1 6 0 0 00

8 15

J16 J16

6 0 0 00

J17

1 0 0 0 00

BALANCE

1 6 0 0 00 1 0 0 0 00

NAME Jones & Company ADDRESS DATE

ITEM

POST. REF.

DEBIT

20--

July

3 13

J16 J16

J17

CREDIT

BALANCE

2 8 0 0 00

2 9 7 0 00

2 8 0 0 00

NAME Topper’s Toys ADDRESS DATE

ITEM

POST. REF.

DEBIT

20--

July

1 5

J16 J16

4 0 0 00

J16

2 1 0 0 00

J17

CREDIT

BALANCE

2 5 0 0 00

2 5 0 0 00 2 1 0 0 00

1 4 3 0 00

436

CHAPTER 11

Problem 11-12B Debbie’s Doll House Schedule of Accounts Payable July 31, 20-Columbia Products

$3 2 0 0 00

Jones & Company

2 9 7 0 00

Topper’s Toys

1 4 3 0 00 $7 6 0 0 00 Proof

Balance of Accounts Payable, July 31

$7 6 0 0 00

CHAPTER 11

437

MANAGING YOUR WRITING Cash discounts of 1% or 2% seem small, but when converted to an annual rate, the discounts are substantial. For example, a $1,000 purchase with terms of 2/10, n/30, would yield a discount of only $20 if paid within the discount period. But if the invoice is not paid until the 30-day due date, the $20 lost discount is the expense the business incurs for having the use of $980 ($1,000 – $20) for only 20 days. The approximate annual interest rate is 36% (360 days/20 days × 2%). This is an expensive way to finance purchases. The supplier invoices should be filed by due date within the discount period. This will provide a reminder to make payments within the discount period and help the business to plan for its cash needs.

ETHICS CASE: SUGGESTED SOLUTIONS 1. Although it is a good cash management practice to pay invoices on the last day of the discount period, Bob is taking more time than the seller is willing to extend him. Since the seller has contacted him, Bob is behaving in an unethical manner by his attempts to avoid paying within the discount period and still deducting the discount. 2. Answers will vary. Auto Warehouse can add on to the next invoice the discount Bob has taken or send him a separate invoice for the balance owed. Auto Warehouse can change the credit terms to net cash or refuse to extend Bob’s Discount Auto Parts credit. 3. Answers will vary. Students might point out that the purpose of cash discounts is to encourage prompt payment by customers. In this case, the payment must be postmarked within 10 days of the date of the invoice. 4. Answers will vary. Advantages: attracting and retaining customers, shortening your collection of receivables time. Disadvantages: discrepancies involving cash discounts taken.

438

CHAPTER 11

Mastery Problem 1. GENERAL JOURNAL DATE 20-1 2 3

June

DESCRIPTION

1 Purchases

PAGE POST. REF.

501

DEBIT

CREDIT

2 1 0 0 00

Accounts Payable/Irving Publishing Company 202/

2 1 0 0 00

Invoice No. 101

4 5

2 Accounts Payable/Northeastern Publishing Co. 202/

2 0 0 0 00

Cash

101

1 9 6 0 00

Purchases Discounts

501.2

4 0 00

Check No. 300

9 10 11 12

3 Purchases

501

2 3 0 4 00

Accounts Payable/Broadway Publishing, Inc. 202/

2 3 0 4 00 11

Invoice No. 711

13 14 15 16

3 Freight-In

502

Cash

101

2 5 0 00

Check No. 301

16 17

4 Rent Expense

521

Cash

101

6 2 5 00

23 24

Check No. 302

20 21

8 Purchases Accts. Payable/Northeastern Publishing Co.

501

5 8 2 5 00

202/

27 28

Invoice No. 268

24 25

10 Accounts Payable/Irving Publishing Company

202/

Purchases Returns and Allowances

501.1

5 5 0 00

5 5 0 00 27

Returned merchandise

29 30

5 8 2 5 00 23

25 26

6 2 5 00 19

21 22

2 5 0 00 15

13 Accounts Payable/Broadway Publishing, Inc.

202/

2 3 0 4 00

Cash

101

2 2 3 4 88 31

Purchases Discounts

501.2

6 9 12 32

33 34

Check No. 304

33 34

CHAPTER 11

439

Mastery Problem (Continued) GENERAL JOURNAL DATE 20-1 2 3

June 28

DESCRIPTION

Purchases

PAGE POST. REF.

501

DEBIT

CREDIT

2 3 5 0 00

Accounts Payable/Broadway Publishing, Inc. 202/

2 3 5 0 00

Invoice No. 579

4 5 6 7

28 Purchases Accts. Payable/Northeastern Publishing Co.

501

4 2 0 0 00

202/

4 2 0 0 00

Invoice No. 406

8 9 10 11

28 Purchases Accounts Payable/Riley Publishing Co.

501

3 4 5 0 00

202/

3 4 5 0 00 10

Invoice No. 964

12 13 14 15

30 Utilities Expense Cash

533

3 2 5 00

101

18 19

Check No. 305

15 16

30 M. French, Drawing Cash

312

4 5 0 0 00

101

22 23

Check No. 306

19 20

30 Accounts Payable/Irving Publishing Company Cash

202/

1 5 5 0 00

101

1 5 5 0 00 22

Check No. 307

24 25

4 5 0 0 00 18

20 21

3 2 5 00 14

16 17

30 Accounts Payable/Northeastern Publishing Co. 202/

5 8 2 5 00

Cash

101

5 7 0 8 50 26

Purchases Discounts

501.2

1 1 6 50 27

Check No. 308

29 30 31 32

30 Purchases Cash Check No. 309

501 101

1 3 2 8 00

1 3 2 8 00 31 32

440

CHAPTER 11

Mastery Problem (Continued) 2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM

DEBIT

CREDIT

J16

1 9 6 0 00

30 2 4 0 00

J16

2 5 0 00

29 9 9 0 00

J16

6 2 5 00

29 3 6 5 00

J16

2 2 3 4 88

27 1 3 0 12

J17

3 2 5 00

26 8 0 5 12

J17

4 5 0 0 00

22 3 0 5 12

J17

1 5 5 0 00

20 7 5 5 12

J17

5 7 0 8 50

15 0 4 6 62

J17

1 3 2 8 00

13 7 1 8 62

32 2 0 0 00

Accounts Payable

DATE

ITEM

ACCOUNT NO.

POST. REF.

101

BALANCE DEBIT



ACCOUNT

June

POST. REF.

1 Balance

June

20--

ACCOUNT NO.

DEBIT

CREDIT



202

BALANCE DEBIT

CREDIT

1 Balance 1

J16

2 3 0 4 00

4 4 0 4 00

J16

5 8 2 5 00

10 2 2 9 00

J16

5 5 0 00

9 6 7 9 00

J16

2 3 0 4 00

7 3 7 5 00

J17

2 3 5 0 00

9 7 2 5 00

J17

4 2 0 0 00

13 9 2 5 00

J17

3 4 5 0 00

17 3 7 5 00

J17

1 5 5 0 00

15 8 2 5 00

J17

5 8 2 5 00

10 0 0 0 00

2 1 0 0 00 2 0 0 0 00

2 0 0 0 00 4 1 0 0 00 2 1 0 0 00

CHAPTER 11

441

Mastery Problem (Continued) M. French, Drawing

ACCOUNT

DATE 20--

ITEM

1 Balance



J17

June

ACCOUNT

Purchases

DATE

ITEM

20--

18 0 0 0 00 4 5 0 0 00

22 5 0 0 00

DEBIT

CREDIT

2 1 0 0 00

69 1 2 1 66

J16

2 3 0 4 00

71 4 2 5 66

J16

5 8 2 5 00

77 2 5 0 66

J17

2 3 5 0 00

79 6 0 0 66

J17

4 2 0 0 00

83 8 0 0 66

J17

3 4 5 0 00

87 2 5 0 66

J17

1 3 2 8 00

88 5 7 8 66

67 0 2 1 66

Purchases Returns and Allowances ITEM

1 Balance 10

POST. REF.

DEBIT

ACCOUNT NO.

CREDIT

ITEM

CREDIT

 J16

POST. REF.

2 3 1 5 23 2 8 6 5 23

5 5 0 00

ACCOUNT NO. DEBIT

CREDIT



501.1

BALANCE DEBIT

Purchases Discounts

DATE

501

BALANCE DEBIT

J16

ACCOUNT

June

CREDIT

ACCOUNT NO. POST. REF.

312

BALANCE DEBIT

DATE

20--

CREDIT



ACCOUNT

June

DEBIT

1 Balance

June

20--

POST. REF.

ACCOUNT NO.

501.2

BALANCE DEBIT

CREDIT

1 Balance 2

J16

4 0 00

9 0 5 00 9 4 5 00

J16

6 9 12

1 0 1 4 12

J17

1 1 6 50

1 1 3 0 62

442

CHAPTER 11

Mastery Problem (Continued) ACCOUNT

Freight-In

DATE

ITEM

20--

June

ACCOUNT NO. POST. REF.

1 Balance



J16

DEBIT

CREDIT

BALANCE DEBIT

DATE 20--

June

2 5 0 00

7 7 2 60

ACCOUNT NO. POST. REF.

ITEM

1 Balance



J16

DEBIT

CREDIT

DATE 20--

ITEM

1 Balance



J17

June

CREDIT

3 1 2 5 00 6 2 5 00

3 7 5 0 00

ACCOUNT NO. POST. REF.

521

BALANCE DEBIT

Utilities Expense

ACCOUNT

CREDIT

5 2 2 60

Rent Expense

ACCOUNT

502

DEBIT

CREDIT

533

BALANCE DEBIT

CREDIT

1 5 2 2 87 3 2 5 00

1 8 4 7 87

ACCOUNTS PAYABLE LEDGER NAME Broadway Publishing, Inc. ADDRESS 2300 Goodman, Cincinnati, OH 45219-2901 DATE

ITEM

POST. REF.

DEBIT

20--

June

3 13

J16 J16

J17

CREDIT

BALANCE

2 3 0 4 00

2 3 5 0 00

2 3 0 4 00

CHAPTER 11

443

Mastery Problem (Continued) NAME Irving Publishing Company ADDRESS 5200 N. Keystone Ave., Indianapolis, IN 46220-1986 DATE

ITEM

POST. REF.

DEBIT

20--

June

CREDIT

2 1 0 0 00

1 10

J16 J16

5 5 0 00

J17

1 5 5 0 00

BALANCE

2 1 0 0 00 1 5 5 0 00

NAME Northeastern Publishing Co. ADDRESS 874 Crescent Drive, Flint, MI 48503-7564 DATE

ITEM

20--

POST. REF.

DEBIT

CREDIT

BALANCE

1 Balance 2

 J16

J16

5 8 2 5 00

J17

4 2 0 0 00

10 0 2 5 00

J17

June

2 0 0 0 00 2 0 0 0 00

5 8 2 5 00

4 2 0 0 00

NAME Riley Publishing Co. ADDRESS 5675 Pulaski Road, Chicago, IL 60629-6705 DATE

ITEM

POST. REF.

20--

June 28

J17

DEBIT

CREDIT

3 4 5 0 00

BALANCE

3 4 5 0 00

444

CHAPTER 11

Mastery Problem (Concluded) 3. Books and More Schedule of Accounts Payable June 30, 20-Broadway Publishing, Inc.

$ 2 3 5 0 00

Northeastern Publishing Co.

4 2 0 0 00

Riley Publishing Co.

3 4 5 0 00 $10 0 0 0 00

Cost of goods sold Merchandise inventory, January 1

$ 35,523.00

Purchases Less: Purchases returns and allowances Purchases discounts

$88,578.66 $2,865.23 1,130.62

3,995.85

Net purchases

$84,582.81

Add freight-in

772.60

Cost of goods purchased Goods available for sale Less merchandise inventory, June 30 Cost of goods sold

85,355.41 $120,878.41 42,100.00 $ 78,778.41

CHAPTER 11

445

Challenge Problem GENERAL JOURNAL DATE 20-1

May

DESCRIPTION

4 Purchases

PAGE POST. REF.

DEBIT

2 6 1 0 00

Accounts Payable

CREDIT 1

2 6 1 0 00

Made purchases on account

8 Accounts Payable

4 6 8 00

Purchases Returns and Allowances

4 6 8 00

Returned merchandise

14 Accounts Payable

9 10

Cash

Purchases Discounts

9 0 0 00

8 9 1 00 10 9 00 11

Made payment on account

13 14 15 16

June

3 Accounts Payable Cash Made payment on account

1 2 4 2 00

1 2 4 2 00 15 16

446

CHAPTER 11

APPENDIX: THE NET-PRICE METHOD OF RECORDING PURCHASES REVIEW QUESTIONS 1. Under the net-price method, purchases should be recorded at the net amount, after deducting the cash discount. 2. If payment for merchandise is not made within the discount period, debits are made to Accounts Payable and Purchases Discounts Lost. 3. (a) (b)

Purchases Discounts Lost is a temporary owner’s equity account. Purchases Discounts Lost is reported as an expense on the income statement.

CHAPTER 11

447

Exercise 11Apx-1A 1. GENERAL JOURNAL DATE 20-1

Apr.

DESCRIPTION

2 Purchases

PAGE POST. REF.

DEBIT

1 0 0 0 00

Accounts Payable/Alanon Valve

CREDIT 1

1 0 0 0 00

Purchased merchandise

5 Purchases

1 4 0 0 00

Accounts Payable/Leon’s Garage

1 4 0 0 00

Purchased merchandise

11 Accounts Payable/Alanon Valve

9 10

Cash

Purchases Discounts

1 0 0 0 00

9 8 0 00 10 2 0 00 11

Paid invoice within discount period

25 Accounts Payable/Leon’s Garage

1 4 0 0 00

Cash

1 4 0 0 00 15

Paid invoice

2. 20-1 2 3

Apr.

2 Purchases

9 8 0 00

Accounts Payable/Alanon Valve

9 8 0 00

Purchased merchandise

4 5 6 7

5 Purchases

1 3 8 6 00

Accounts Payable/Leon’s Garage

1 3 8 6 00

Purchased merchandise

8 9 10 11

11 Accounts Payable/Alanon Valve

9 8 0 00

Cash

9 8 0 00 10

Paid invoice within discount period

12 13 14 15 16

25 Accounts Payable/Leon’s Garage Purchases Discounts Lost Cash Paid invoice

1 3 8 6 00

1 4 00

1 4 0 0 00 15 16

448

CHAPTER 11

Exercise 11Apx-1B 1. GENERAL JOURNAL DATE 20-1

May

DESCRIPTION

2 Purchases

PAGE POST. REF.

DEBIT

9 0 0 00

Accounts Payable/Delgado’s Supply

CREDIT 1

9 0 0 00

Purchased merchandise

6 Purchases

1 2 0 0 00

Accounts Payable/Goro’s Auto Care

1 2 0 0 00

Purchased merchandise

11 Accounts Payable/Delgado’s Supply

9 10

Cash

Purchases Discounts

9 0 0 00

8 8 2 00 10 1 8 00 11

Paid invoice within discount period

27 Accounts Payable/Goro’s Auto Care

1 2 0 0 00

Cash

1 2 0 0 00 15

Paid invoice

2. 20-1 2 3

May

2 Purchases

8 8 2 00

Accounts Payable/Delgado’s Supply

8 8 2 00

Purchased merchandise

4 5 6 7

6 Purchases

1 1 8 8 00

Accounts Payable/Goro’s Auto Care

1 1 8 8 00

Purchased merchandise

8 9 10 11

11 Accounts Payable/Delgado’s Supply

8 8 2 00

Cash

8 8 2 00 10

Paid invoice within discount period

12 13 14 15 16

27 Accounts Payable/Goro’s Auto Care Purchases Discounts Lost Cash Paid invoice

1 1 8 8 00

1 2 00

1 2 0 0 00 15 16

CHAPTER 12 SPECIAL JOURNALS REVIEW QUESTIONS 1.

The primary purpose of using special journals is to save time journalizing and posting transactions.

The date, sale number, customer, and dollar amounts are entered in the sales journal.

To post from the sales journal to the general ledger, use the following steps: In the sales journal: Step 1: Total the amount columns, verify that the total of the debit column equals the total of the credit columns, and rule the columns. In the general ledger account: Step 2: Enter the date of the transaction in the Date column. Step 3: Enter the amount of the debit or credit in the Debit or Credit column. Step 4: Enter the new balance in the Balance columns under Debit or Credit. Step 5: Enter the initial “S” and the journal page number in the Posting Reference column. In the sales journal: Step 6: Enter the ledger account number immediately below the column totals for each account that is posted.

To post from the sales journal to the accounts receivable ledger, use the following steps: In the accounts receivable ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance column. Step 4: Enter the initial “S” and the journal page number in the Posting Reference column. In the sales journal: Step 5: Enter a check mark () in the Posting Reference column of the journal for each transaction that is posted.

The date, account credited (if applicable), and the dollar amounts are entered in the cash receipts journal.

To post from the cash receipts journal to the general ledger, use the following steps: To post the General Credit column, on a daily basis: In the general ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance columns under Debit or Credit. Step 4: Enter the initials “CR” and the journal page number in the Posting Reference column. In the cash receipts journal: Step 5: Enter the ledger account number in the Posting Reference column for each account that is posted.

450

CHAPTER 12 To post the other amount columns, at the end of the month, use the following steps: In the cash receipts journal: Step 6: Total the amount columns, verify that the total of the debit columns equals the total of the credit columns, and rule the columns. In the general ledger account: Step 7: Enter the date in the Date column. Step 8: Enter the amount of the debit or credit in the Debit or Credit column. Step 9: Enter the new balance in the Balance columns under Debit or Credit. Step 10: Enter the initials “CR” and the journal page number in the Posting Reference column. In the cash receipts journal: Step 11: Enter the ledger account number immediately below the column totals for each account that is posted. Step 12: Enter a check mark () in the Posting Reference column for the cash sales and bank credit card sales, and immediately below the General Credit column.

To post from the cash receipts journal to the accounts receivable ledger, use the following steps: In the accounts receivable ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance column. Step 4: Enter the initials “CR” and the journal page number in the Posting Reference column. In the cash receipts journal: Step 5: Enter a check mark () in the Posting Reference column of the journal for each transaction that is posted.

The date, invoice number, supplier (from whom purchased), and dollar amounts are entered in the purchases journal.

To post from the purchases journal to the general ledger, use the following steps: In the purchases journal: Step 1: Total and rule the amount column. In the general ledger account: Step 2: Enter the date in the Date column. Step 3: Enter the amount of the debit or credit in the Debit or Credit column. Step 4: Enter the new balance in the Balance columns under Debit or Credit. Step 5: Enter the initial “P” and the journal page number in the Posting Reference column. In the purchases journal: Step 6: Enter the Purchases and Accounts Payable account numbers immediately below the column total.

10. To post from the purchases journal to the accounts payable ledger, use the following steps: In the accounts payable ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance column. Step 4: Enter the initial “P” and the journal page number in the Posting Reference column. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 12

451

In the purchases journal: Step 5: Enter a check mark () in the Posting Reference column of the journal for each transaction that is posted. 11. The date, check number, account debited (if applicable), and dollar amounts are entered in the cash payments journal. 12. To post from the cash payments journal to the general ledger: To post the General Debit column, on a daily basis, use the following steps: In the general ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance columns under Debit or Credit. Step 4: Enter the initials “CP” and the journal page number in the Posting Reference column. In the cash payments journal: Step 5: Enter the ledger account number in the Posting Reference column for each account that is posted. To post the other amount columns, at the end of the month, use the following steps: In the cash payments journal: Step 6: Total the amount columns, verify that the total of the debit columns equals the total of the credit columns, and rule the columns. In the general ledger account: Step 7: Enter the date in the Date column. Step 8: Enter the amount of the debit or credit in the Debit or Credit column. Step 9: Enter the new balance in the Balance columns under Debit or Credit. Step 10: Enter the initials “CP” and the journal page number in the Posting Reference column. In the cash payments journal: Step 11: Enter the ledger account number immediately below the column totals for each account that is posted. Step 12: Enter a check mark () in the Posting Reference column for the cash purchases, and immediately below the General Debit column. 13. To post from the cash payments journal to the accounts payable ledger, use the following steps: In the accounts payable ledger account: Step 1: Enter the date of the transaction in the Date column. Step 2: Enter the amount of the debit or credit in the Debit or Credit column. Step 3: Enter the new balance in the Balance column. Step 4: Enter the initials “CP” and the journal page number in the Posting Reference column. In the cash payments journal: Step 5: Enter a check mark () in the Posting Reference column of the journal for each transaction that is posted.

452

CHAPTER 12

Exercise 12-1A Journal a.

Sold merchandise on account.

Sales

Purchased delivery truck on account for use in the business.

General

Received payment from customer on account.

Cash receipts

Purchased merchandise on account.

Purchases

Issued check in payment of electric bill.

Cash payments

Recorded depreciation on factory building.

General

Exercise 12-2A SALES JOURNAL SALE NO.

DATE 20--

TO WHOM SOLD

POST. REF.

PAGE

ACCOUNTS RECEIVABLE DEBIT

SALES CREDIT

SALES TAX PAYABLE CREDIT

488

J. Adams

2 1 2 0 00

2 0 0 0 00

1 2 0 00

489

B. Clark

1 9 0 8 00

1 8 0 0 00

1 0 8 00

490

A. Duck

1 5 9 0 00

1 5 0 0 00

9 0 00

491

E. Hill

2 0 6 7 00

1 9 5 0 00

1 1 7 00

May

Exercise 12-3A CASH RECEIPTS JOURNAL

POST. ACCOUNT CREDITED REF.

DATE 20-1

July

6 D. Chesbrough

GENERAL CREDIT

ACCOUNTS RECEIVABLE CREDIT

PAGE

SALES CREDIT

5 2 7 00 2 4 7 0 00

SALES TAX PAYABLE CREDIT

CASH DEBIT

5 2 7 00

2 4 7 0 00

14 A. Casady

3 9 4 00

15 Y. Zou

2 0 3 00

2 3 6 0 00

CHAPTER 12

453

Exercise 12-4A PURCHASES JOURNAL

INVOICE NO.

DATE 20--

PAGE

POST. REF.

FROM WHOM PURCHASED

PURCHASES DEBIT ACCTS. PAY. CREDIT

321

Climen

7 2 0 0 00

614

Misho

3 1 0 0 00

180

Alelu Distributors

4 7 0 0 00

913

Saltex

5 9 0 0 00

May

Exercise 12-5A CASH PAYMENTS JOURNAL

DATE

CK. POST. NO. ACCOUNT DEBITED REF.

20--

GENERAL DEBIT

ACCOUNTS PAYABLE DEBIT

PURCHASES DEBIT

PAGE PURCHASES DISCOUNTS CREDIT

CASH CREDIT

Sept. 5 318 Clausen Corp.

5 0 0 0 00

1 0 0 00

4 9 0 0 00

12 319 McGonigle Co.

8 0 0 0 00

8 0 00

7 9 2 0 00

19 320 Elite Systems

4 6 0 0 00

27 321 Glenn Falls

7 0 0 0 00

6 8 6 0 00

1 4 0 00

454

CHAPTER 12

Problem 12-6A 1.

SALES JOURNAL SALE NO.

TO WHOM SOLD

213

Jeter Manufacturing Co.

214

Hassan Co.

215

Habrock, Inc.

216

Seth Mowbray

217

Hassan Co.

218

Jeter Manufacturing Co.

219

Seth Mowbray

DATE 20--

Aug.

Debit total:

$16,599.60

Credit total:

POST. REF.

      

PAGE

ACCOUNTS RECEIVABLE DEBIT

SALES CREDIT

SALES TAX PAYABLE CREDIT

1 3 7 8 00

1 3 0 0 00

7 8 00

2 7 5 6 00

2 6 0 0 00

1 5 6 00

1 8 0 2 00

1 7 0 0 00

1 0 2 00

1 4 8 4 00

1 4 0 0 00

8 4 00

4 1 9 7 60

3 9 6 0 00

2 3 7 60

2 9 6 8 00

2 8 0 0 00

1 6 8 00

2 0 1 4 00

1 9 0 0 00

1 1 4 00

16 5 9 9 60

15 6 6 0 00

9 3 9 60

(122)

(401)

(231)

$15,660.00 939.60 $16,599.60

GENERAL LEDGER ACCOUNT

DATE

Accounts Receivable ITEM

20--

Aug. 31

ACCOUNT

DATE 20--

Aug. 31

ACCOUNT NO.

POST. REF.

DEBIT

16 5 9 9 60

CREDIT

BALANCE DEBIT

POST. REF.

CREDIT

16 5 9 9 60

Sales Tax Payable ITEM

ACCOUNT NO.

DEBIT

122

CREDIT

9 3 9 60

231

BALANCE DEBIT

CREDIT

9 3 9 60

CHAPTER 12

455

Problem 12-6A (Concluded) Sales

ACCOUNT

DATE

ACCOUNT NO. POST. REF.

ITEM

20--

Aug. 31

DEBIT

CREDIT

401

BALANCE DEBIT

15 6 6 0 00

CREDIT

15 6 6 0 00

ACCOUNTS RECEIVABLE LEDGER NAME Hassan Co. ADDRESS 1225 W. Temperance Street, Ellettsville, IN 47429-9976 DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

2 7 5 6 00

4 1 9 7 60

6 9 5 3 60

Aug.

NAME Habrock, Inc. ADDRESS 125 Fishers Dr., Noblesville, IN 47870-8867 DATE 20--

ITEM

Aug.

POST. REF.

DEBIT

CREDIT

1 8 0 2 00

BALANCE

1 8 0 2 00

NAME Jeter Manufacturing Co. ADDRESS 8825 Old State Road, Bloomington, IN 47401-8823 DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

1 3 7 8 00

2 9 6 8 00

4 3 4 6 00

Aug.

NAME Seth Mowbray ADDRESS 2100 Greer Lane, Bedford, IN 47421-8876 DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

Aug. 11

1 4 8 4 00

2 0 1 4 00

3 4 9 8 00

456

CHAPTER 12

Problem 12-7A 1.

CASH RECEIPTS JOURNAL

DATE 20-1

Dec.

POST. REF.

ACCOUNT CREDITED

         

1 Michael Anderson

2 Ansel Manufacturing

8 J. Gorbea

20 Tom Wilson

24 Rachel Carson

GENERAL CREDIT

ACCOUNTS RECEIVABLE CREDIT

1 3 6 0 00 3 8 2 00

8 8 0 00

1 1 1 0 00 2 0 0 0 00

5 7 3 2 00

(122)

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Debit total:

57.24

Credit total:

$ 5,732.00

17,292.36

10,960.00

$17,349.60

657.60 $17,349.60

CHAPTER 12

457

Problem 12-7A (Continued) PAGE

SALES CREDIT

SALES TAX PAYABLE CREDIT

3 1 6 0 00

1 8 9 60

1 0 0 0 00

6 0 00

2 8 0 0 00

1 6 8 00

8 0 0 00

4 8 00

3 2 0 0 00

BANK CREDIT CARD EXPENSE DEBIT

3 1 80

2 5 44

1 9 2 00

CASH DEBIT

1 3 6 0 00

3 8 2 00

3 3 4 9 60

1 0 2 8 20

8 8 0 00

2 9 6 8 00

8 2 2 56

1 1 1 0 00

3 3 9 2 00

2 0 0 0 00 10 10 9 6 0 00 (401)

6 5 7 60 (231)

5 7 24 ( 513)

17 2 9 2 36 11 ( 101)

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

458

CHAPTER 12

Problem 12-7A (Continued) GENERAL JOURNAL DATE 20-1 2 3

Dec. 11

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Sales Returns and Allowances

401.1

6 0 00

Sales Tax Payable

231

3 60

Accounts Receivable/M. Anderson

122/

6 3 60

4 5 6 7

21 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/Ansel Manufacturing

401.1

2 2 00

231

1 32

122/

2 3 32

CHAPTER 12

459

Problem 12-7A (Continued) 2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ACCOUNT NO.

ITEM

1 Balance

Dec.

POST. REF.

DEBIT

CREDIT

 CR10

BALANCE DEBIT

DATE 20--

ITEM

POST. REF.

CREDIT

9 8 6 2 00 17 2 9 2 36

27 1 5 4 36

Accounts Receivable

ACCOUNT

ACCOUNT NO.

DEBIT

CREDIT



6 3 60

9 2 8 8 40

2 3 32

9 2 6 5 08

CR10

5 7 3 2 00

3 5 3 3 08

9 3 5 2 00

Sales Tax Payable

ACCOUNT

DATE

ITEM

20--

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

3 60

1 32

4 92

CR10

DATE 20--

Dec. 31

6 5 7 60

6 5 2 68

Sales

ACCOUNT NO.

ITEM

POST. REF.

CR10

DEBIT

CREDIT

10 9 6 0 00

231

BALANCE DEBIT

Dec. 11

ACCOUNT

122

BALANCE DEBIT

1 Balance

Dec.

101

401

BALANCE DEBIT

CREDIT

10 9 6 0 00

460

CHAPTER 12

Problem 12-7A (Continued) Sales Returns and Allowances

ACCOUNT

DATE

ITEM

20--

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

Dec. 11

6 0 00

2 2 00

8 2 00

Bank Credit Card Expense

ACCOUNT

DATE

ITEM

20--

Dec. 31

POST. REF.

ACCOUNT NO.

DEBIT

CR10

CREDIT

5 7 24

401.1

513

BALANCE DEBIT

CREDIT

5 7 24

ACCOUNTS RECEIVABLE LEDGER NAME Michael Anderson ADDRESS 233 West 11th Avenue, Detroit, MI 59500-1154 DATE

ITEM

20--

Dec.

POST. REF.

DEBIT

 CR10

1 Balance 1 11

CREDIT

BALANCE

1 3 6 0 00

2 4 8 0 00 1 1 2 0 00

6 3 60

1 0 5 6 40

NAME Ansel Manufacturing ADDRESS 284 West 88 Street, Detroit, MI 59522-1168 DATE

ITEM

20--

Dec.

1 Balance 2 21

POST. REF.

DEBIT

CREDIT

BALANCE

 CR10

3 8 2 00

9 8 2 00 6 0 0 00

2 3 32

5 7 6 68

CHAPTER 12

461

Problem 12-7A (Concluded) NAME J. Gorbea ADDRESS P.O. Box 864, Detroit, MI 59552-0864 DATE

ITEM

20--

Dec.

POST. REF.

DEBIT

 CR10

1 Balance 8

CREDIT

BALANCE

8 8 0 00 8 8 0 00

NAME Rachel Carson ADDRESS 11312 Fourteenth Avenue South, Detroit, MI 59221-1142 DATE

ITEM

20--

Dec.

POST. REF.

DEBIT

 CR10

1 Balance 24

CREDIT

2 0 0 0 00

BALANCE

3 2 0 0 00 1 2 0 0 00

NAME Tom Wilson ADDRESS 100 NW Seward St., Detroit, MI 59210-1337 DATE 20--

Dec.

1 Balance 20

ITEM

POST. REF.

 CR10

DEBIT

CREDIT

1 1 1 0 00

BALANCE

1 8 1 0 00 7 0 0 00

462

CHAPTER 12

Problem 12-8A 1.

SALES JOURNAL SALE NO.

DATE 20--

TO WHOM SOLD

33C

Able & Co.

33D

R. J. Kalas, Inc.

33E

Blevins Bakery

33F

R. J. Kalas, Inc.

33G

Blevins Bakery

33H

Thompson Group

Mar.

Debit total:

$12,745.08

Credit total:

POST. REF.

ACCOUNTS RECEIVABLE DEBIT

     

PAGE

SALES CREDIT

SALES TAX PAYABLE CREDIT

1 9 4 4 00

1 8 0 0 00

1 4 4 00

2 4 1 9 20

2 2 4 0 00

1 7 9 20

1 3 0 6 80

1 2 1 0 00

9 6 80

2 8 2 9 60

2 6 2 0 00

2 0 9 60

2 0 6 8 20

1 9 1 5 00

1 5 3 20

2 1 7 7 28

2 0 1 6 00

1 6 1 28

12 7 4 5 08

11 8 0 1 00

9 4 4 08

(122)

(401)

(231)

$11,801.00 944.08 $12,745.08

CASH RECEIPTS JOURNAL POST. ACCOUNT CREDITED REF.

DATE 20--

GENERAL CREDIT

ACCOUNTS RECEIVABLE CREDIT

PAGE

SALES CREDIT



10 Able & Co.



13 R. J. Kalas, Inc.



20 Blevins Bakery



2 4 0 0 00



3 5 0 0 00

Mar.

3 1 6 0 00

SALES TAX PAYABLE CREDIT

CASH DEBIT

3 4 1 2 80

1 9 1 1 60

2 4 1 9 20

4 5 3 6 00

1 2 5 9 28

1 9 2 00

2 5 9 2 00

2 8 0 00

3 7 8 0 00

4 2 0 0 00

2 5 2 80

3 3 6 00

1 2 5 9 28

5 5 9 0 08 13 2 6 0 00

1 0 6 0 80 19 9 1 0 88

( 1 2 2)

( 23 1)

Debit total:

$19,910.88

Credit total:

( 4 0 1)

( 1 0 1)

$ 5,590.08 13,260.00 1,060.80 $19,910.88

CHAPTER 12

463

Problem 12-8A (Continued) GENERAL JOURNAL DATE 20-1

POST. REF.

DESCRIPTION

5 Sales Returns and Allowances

Mar.

Sales Tax Payable

DEBIT

CREDIT

401.1

3 0 00

231

2 40

122/

Accounts Receivable/Able & Co.

PAGE

3 2 40

Credit Memo #66

16 Sales Returns and Allowances

Sales Tax Payable

4 4 00

231

3 52

122/

Accounts Receivable/Blevins Bakery

401.1

4 7 52

Credit Memo #67

GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM



CR9

DEBIT

CREDIT

DATE

ITEM

POST. REF.

101

BALANCE DEBIT

CREDIT

9 7 4 1 00 19 9 1 0 88

29 6 5 1 88

Accounts Receivable

ACCOUNT

Mar.

POST. REF.

1 Balance

Mar.

20--

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

1 Balance



3 2 40

1 0 2 5 85

4 7 52

9 7 8 33

CR9

CREDIT

1 0 5 8 25

12 7 4 5 08

13 7 2 3 41 5 5 9 0 08

8 1 3 3 33

464

CHAPTER 12

Problem 12-8A (Continued) Sales Tax Payable

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

231

BALANCE DEBIT

CREDIT

2 40

3 52

5 92

9 4 4 08

9 3 8 16

CR9

1 0 6 0 80

1 9 9 8 96

Mar.

Sales

ACCOUNT

DATE

ACCOUNT NO.

ITEM

20--

POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

Mar. 31

11 8 0 1 00

CR9

13 2 6 0 00

25 0 6 1 00

Sales Returns and Allowances

ACCOUNT

DATE 20--

Mar.

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

401.1

BALANCE DEBIT

3 0 00

4 4 00

7 4 00

CREDIT

CHAPTER 12

465

Problem 12-8A (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME Able & Co. ADDRESS 1424 Jackson Creek Road, Nashville, IN 47448-2245 DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

3 2 40

CR9

1 9 1 1 60

Mar.

1 9 4 4 00

BALANCE

1 9 4 4 00 1 9 1 1 60

NAME Blevins Bakery ADDRESS 6422 E. Bender Road, Bloomington, IN 47401-7756 DATE

ITEM

20--

POST. REF.

DEBIT

CREDIT

Mar. 11

1 3 0 6 80

4 7 52

CR9

1 2 5 9 28

BALANCE

1 3 0 6 80

2 0 6 8 20

1 2 5 9 28 2 0 6 8 20

NAME R. J. Kalas, Inc. ADDRESS 3315 Longview Avenue, Bloomington, IN 47401-7223 DATE 20--

ITEM

POST. REF.

CR9

Mar.

DEBIT

CREDIT

2 4 1 9 20

BALANCE

2 4 1 9 20 2 4 1 9 20

2 8 2 9 60

NAME Thompson Group ADDRESS 2300 E. National Road, Cumberland, IN 46229-4824 DATE 20--

Mar.

1 Balance 27

ITEM

POST. REF.

 S6

DEBIT

2 1 7 7 28

CREDIT

BALANCE

1 0 5 8 25 3 2 3 5 53

466

CHAPTER 12

Problem 12-9A 1. PURCHASES JOURNAL

INVOICE NO.

DATE 20--

415

Smith Distributors

132

Michaels Wholesaler

614

J. B. Sanders & Co.

329

Bateman & Jones, Inc.

867

Smith Distributors

744

Anderson Company

652

Michaels Wholesaler

Sept.

POST. REF.

FROM WHOM PURCHASED

PAGE

PURCHASES DEBIT ACCTS. PAY. CREDIT

      

2 6 5 0 00

3 8 3 0 00

3 1 4 0 00

2 2 5 0 00

4 1 6 0 00

1 9 8 0 00

2 7 8 0 00

20 7 9 0 00

(501)

( 2 02) 9

2. GENERAL LEDGER ACCOUNT

DATE

Accounts Payable ITEM

20--

Sept. 30

Purchases

DATE

ITEM

Sept. 30

POST. REF.

DEBIT

ACCOUNT

20--

ACCOUNT NO.

CREDIT

BALANCE DEBIT

CREDIT

20 7 9 0 00

ACCOUNT NO. POST. REF.

DEBIT

20 7 9 0 00

CREDIT

202

501

BALANCE DEBIT

CREDIT

20 7 9 0 00

CHAPTER 12

467

Problem 12-9A (Concluded)

NAME

ACCOUNTS PAYABLE LEDGER Anderson Company

ADDRESS DATE

ITEM

20--

Sept. 27

NAME

POST. REF.

DEBIT

CREDIT

1 9 8 0 00

BALANCE

1 9 8 0 00

Bateman & Jones, Inc.

ADDRESS DATE

ITEM

20--

Sept. 18

NAME

POST. REF.

DEBIT

CREDIT

2 2 5 0 00

BALANCE

2 2 5 0 00

Michaels Wholesaler

ADDRESS DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

3 8 3 0 00

2 7 8 0 00

6 6 1 0 00

Sept.

NAME

J. B. Sanders & Co.

ADDRESS DATE

ITEM

20--

Sept. 11

NAME

POST. REF.

DEBIT

CREDIT

3 1 4 0 00

BALANCE

3 1 4 0 00

Smith Distributors

ADDRESS DATE 20--

Sept.

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

2 6 5 0 00

4 1 6 0 00

6 8 1 0 00

468

CHAPTER 12

Problem 12-10A 1. GENERAL LEDGER Accounts Payable

ACCOUNT

DATE

ITEM

20--

Jan. 31

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

ACCOUNT

Purchases

DATE

ITEM

20--

Jan. 31

BALANCE DEBIT

CREDIT

18 2 5 0 00

ACCOUNT NO. POST. REF.

DEBIT

18 2 5 0 00

CREDIT

202

501

BALANCE DEBIT

CREDIT

18 2 5 0 00

2. NAME

ACCOUNTS PAYABLE LEDGER Helmut’s Hair Supply

ADDRESS DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

2 4 8 0 00

1 7 6 0 00

4 2 4 0 00

Jan.

NAME

Maria’s Melodies

ADDRESS DATE 20--

Jan. 18

ITEM

POST. REF.

DEBIT

CREDIT

4 7 0 0 00

BALANCE

4 7 0 0 00

CHAPTER 12

469

Problem 12-10A (Concluded) NAME

Royal Flush

ADDRESS DATE

ITEM

20--

Jan. 12

NAME

POST. REF.

DEBIT

CREDIT

1 9 5 0 00

BALANCE

1 9 5 0 00

Ruiz Imports

ADDRESS DATE 20--

Jan.

ITEM

NAME

POST. REF.

DEBIT

CREDIT

3 0 0 0 00

BALANCE

3 0 0 0 00

Viola’s Boutique

ADDRESS DATE 20--

Jan.

ITEM

POST. REF.

DEBIT

CREDIT

4 3 6 0 00

BALANCE

4 3 6 0 00

470

CHAPTER 12

Problem 12-11A 1. CASH PAYMENTS JOURNAL CK. POST. NO. ACCOUNT DEBITED REF.

DATE 20--

GENERAL DEBIT

ACCOUNTS PAYABLE DEBIT

1 426 Rent Expense

521

3 427 Mueller’s Dist.



3 6 0 0 00

7 428 Van Kooning



5 5 0 0 00

12 429 Fantastic Toys



5 2 0 0 00

15 430 Utilities Exp.

533

18 431



26 432 Goya Outlet



30 433 Freight-In

502

31 434



May

PURCHASES DISCOUNTS CREDIT

1 0 8 00 5 2 00

1 7 2 0 00 4 8 0 0 00 3 8 0 0 00

7 6 00

1 2 0 0 00 3 0 0 0 00

( )

PURCHASES DEBIT

2 4 0 0 00

5 3 2 0 00 18 1 0 0 00

PAGE

( 2 0 2)

7 8 0 0 00 ( 5 0 1)

CASH CREDIT

2 4 0 0 00

3 4 9 2 00

5 5 0 0 00

5 1 4 8 00

1 7 2 0 00

4 8 0 0 00

3 7 2 4 00

1 2 0 0 00

3 0 0 0 00

2 3 6 00 30 9 8 4 00 10 ( 5 0 1 .2)

( 1 0 1)

11 12

Debit total:

$ 5,320 18,100 7,800 $31,220

Credit total:

236 30,984 $31,220

2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

POST. REF.



CP6

DEBIT

CREDIT

DATE

ITEM

1 Balance 31

CREDIT

40 0 0 0 00 30 9 8 4 00

9 0 1 6 00

ACCOUNT NO.

POST. REF.

DEBIT

 CP6

101

BALANCE DEBIT

Accounts Payable

ACCOUNT

May

ITEM

1 Balance

May

20--

ACCOUNT NO.

18 1 0 0 00

CREDIT

202

BALANCE DEBIT

CREDIT

20 0 0 0 00 1 9 0 0 00

CHAPTER 12

471

Problem 12-11A (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

May

DATE

May

CP6

ITEM

Freight-In

DATE

ITEM

May

DATE 20--

POST. REF.

7 8 0 0 00

ITEM

7 8 0 0 00

CREDIT

POST. REF.

DATE

2 3 6 00

CREDIT

1 2 0 0 00

POST. REF.

DEBIT

CREDIT

1 2 0 0 00

CREDIT

2 4 0 0 00

CP6

DEBIT

1 7 2 0 00

521

BALANCE DEBIT

CREDIT

2 4 0 0 00

ACCOUNT NO. POST. REF.

502

BALANCE DEBIT

ACCOUNT NO.

CP6

ITEM

CREDIT

2 3 6 00

DEBIT

501.2

BALANCE DEBIT

Utilities Expense

ACCOUNT

CREDIT

ACCOUNT NO.

DEBIT

501

BALANCE DEBIT

ACCOUNT NO.

CP6

May

CREDIT

Rent Expense

ACCOUNT

20--

DEBIT

CP6

ACCOUNT

20--

POST. REF.

Purchases Discounts

ACCOUNT

20--

ACCOUNT NO.

CREDIT

533

BALANCE DEBIT

CREDIT

1 7 2 0 00

472

CHAPTER 12

Problem 12-11A (Concluded) ACCOUNTS PAYABLE LEDGER NAME Fantastic Toys ADDRESS DATE

ITEM

20--

May

POST. REF.

 CP6

1 Balance 12

DEBIT

CREDIT

BALANCE

5 2 0 0 00 5 2 0 0 00

NAME Goya Outlet ADDRESS DATE

ITEM

20--

May

POST. REF.

 CP6

1 Balance 26

DEBIT

CREDIT

BALANCE

3 8 0 0 00 3 8 0 0 00

NAME Mueller’s Distributors ADDRESS DATE

ITEM

20--

May

POST. REF.

 CP6

1 Balance 3

DEBIT

CREDIT

BALANCE

3 6 0 0 00 3 6 0 0 00

NAME Van Kooning ADDRESS DATE

ITEM

20--

May

1 Balance 7

POST. REF.

 CP6

DEBIT

5 5 0 0 00

CREDIT

BALANCE

7 4 0 0 00 1 9 0 0 00

CHAPTER 12

473

Problem 12-12A 1.

PURCHASES JOURNAL

INVOICE NO.

DATE 20--

PAGE

311

Tang’s Toys

812

Sillas & Company

139

Daisy’s Dolls

489

Allied Business

375

Tang’s Toys

883

Sillas & Company

PURCHASES DEBIT ACCTS. PAY. CREDIT

POST. REF.

FROM WHOM PURCHASED

     

2 7 0 0 00

3 1 0 0 00

1 9 0 0 00

2 4 5 0 00

1 9 8 0 00

3 4 6 0 00

15 5 9 0 00

(501 ) ( 2 02)

July

CASH PAYMENTS JOURNAL

DATE 20--

CK. POST. NO. ACCOUNT DEBITED REF.

GENERAL DEBIT

ACCOUNTS PAYABLE DEBIT

1 414 Rent Expense

521

11 415 Tang’s Toys



2 2 0 0 00

13 416 Sillas & Co.



18 417 Daisy’s Dolls



31 418 F. Flint, Drawing 312

31 419

July

PAGE

PURCHASES DEBIT

PURCHASES DISCOUNTS CREDIT

1 5 0 0 00

CASH CREDIT

1 5 0 0 00

4 4 00

2 1 5 6 00

3 1 0 0 00

3 1 00

3 0 6 9 00

1 5 0 0 00

3 0 00

1 4 7 0 00

2 0 0 0 00

9 7 5 00

1 0 5 00 11 1 7 0 00

2 0 0 0 00



3 5 0 0 00

6 8 0 0 00

( )

( 2 0 2)

( 5 0 1)

( 5 0 1 .2)

( 1 0 1)

Debit total:

$ 3,500 6,800 975

Credit total:

105

11,170 $11,275

$11,275

474

CHAPTER 12

Problem 12-12A (Continued) GENERAL JOURNAL DATE 20-1

DESCRIPTION

5 Accounts Payable/Tang’s Toys

July

Purchases Returns and Allowances

PAGE POST. REF.

DEBIT

202/

5 0 0 00

CREDIT 1

501.1

5 0 0 00

Returned merchandise

202/

15 Accounts Payable/Daisy’s Dolls

Purchases Returns and Allowances

4 0 0 00

501.1

4 0 0 00

Returned merchandise

2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM



CP9

DEBIT

CREDIT

DATE

ITEM

CREDIT

20 0 0 0 00 11 1 7 0 00

8 8 3 0 00

ACCOUNT NO.

POST. REF.

101

BALANCE DEBIT

Accounts Payable

ACCOUNT

July

POST. REF.

1 Balance

July

20--

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

5 0 0 00

4 0 0 00

9 0 0 00

CP9

15 5 9 0 00 6 8 0 0 00

202

CREDIT

14 6 9 0 00 7 8 9 0 00

CHAPTER 12

475

Problem 12-12A (Continued) F. Flint, Drawing

ACCOUNT

DATE

ITEM

20--

July 31

ACCOUNT NO. POST. REF.

CP9

ACCOUNT

Purchases

DATE

ITEM

DEBIT

CREDIT

2 0 0 0 00

BALANCE DEBIT

CREDIT

2 0 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

July 31

15 5 9 0 00

CP9

9 7 5 00

16 5 6 5 00

20--

DATE 20--

ITEM

BALANCE DEBIT

DEBIT

CREDIT

ACCOUNT NO.

CREDIT

501.1

BALANCE DEBIT

CREDIT

5 0 0 00

4 0 0 00

9 0 0 00

Purchases Discounts

ACCOUNT

DATE

ITEM

20--

July 31

POST. REF.

ACCOUNT NO.

DEBIT

CP9

CREDIT

DATE

ITEM

CREDIT

1 0 5 00

ACCOUNT NO. POST. REF.

CP9

DEBIT

1 5 0 0 00

CREDIT

501.2

BALANCE DEBIT

Rent Expense

ACCOUNT

July

POST. REF.

501

July

20--

CREDIT

Purchases Returns and Allowances

ACCOUNT

312

521

BALANCE DEBIT

CREDIT

1 5 0 0 00

476

CHAPTER 12

Problem 12-12A (Concluded) ACCOUNTS PAYABLE LEDGER NAME

Allied Business

ADDRESS DATE

ITEM

20--

July 25

NAME

POST. REF.

DEBIT

CREDIT

2 4 5 0 00

BALANCE

2 4 5 0 00

Daisy’s Dolls

ADDRESS DATE 20--

ITEM

POST. REF.

DEBIT

4 0 0 00

CP9

1 5 0 0 00

July

NAME

CREDIT

1 9 0 0 00

BALANCE

1 9 0 0 00 1 5 0 0 00

Sillas & Company

ADDRESS DATE 20--

ITEM

POST. REF.

CP9

July

NAME

DEBIT

CREDIT

BALANCE

3 1 0 0 00

3 4 6 0 00

3 1 0 0 00

Tang’s Toys

ADDRESS DATE 20--

July

ITEM

POST. REF.

DEBIT

5 0 0 00

CP9

2 2 0 0 00

CREDIT

2 7 0 0 00

BALANCE

2 7 0 0 00 2 2 0 0 00

1 9 8 0 00

CHAPTER 12

477

Exercise 12-1B Journal a.

Issued credit memo to customer for merchandise returned.

General

Sold merchandise for cash.

Cash receipts

Purchased merchandise on account.

Purchases

Issued checks to employees in payment of wages.

Cash payments

Purchased factory supplies on account.

General

Sold merchandise on account.

Sales

Exercise 12-2B SALES JOURNAL SALE NO.

DATE 20--

Sept.

TO WHOM SOLD

POST. REF.

PAGE

ACCOUNTS RECEIVABLE DEBIT

SALES CREDIT

SALES TAX PAYABLE CREDIT

228

K. Smith

1 8 9 0 00

1 8 0 0 00

9 0 00

229

J. Arnes

3 2 5 5 00

3 1 0 0 00

1 5 5 00

230

M. Denison

2 9 4 0 00

2 8 0 0 00

1 4 0 00

231

B. Marshall

1 9 9 5 00

1 9 0 0 00

9 5 00

Exercise 12-3B CASH RECEIPTS JOURNAL POST. ACCOUNT CREDITED REF.

DATE 20--

GENERAL CREDIT

ACCOUNTS. RECEIVABLE CREDIT

PAGE

SALES CREDIT

SALES TAX PAYABLE CREDIT

CASH DEBIT

1 J. Haghighat

7 5 0 00

12 M. Antonoff

4 6 4 00

3 7 6 3 00

18 W. Mossein

2 4 1 00

2 6 4 8 00

Nov.

3 7 6 3 00 2 4 1 00 2 6 4 8 00

478

CHAPTER 12

Exercise 12-4B PURCHASES JOURNAL

INVOICE NO.

DATE 20--

PAGE

POST. REF.

FROM WHOM PURCHASED

PURCHASES DEBIT ACCTS. PAY. CREDIT

416

Feng

6 0 0 0 00

624

Miranda

9 0 0 0 00

190

J. B. Barba

6 4 0 0 00

923

Ramirez

3 7 0 0 00

Jan.

Exercise 12-5B CASH PAYMENTS JOURNAL

DATE

CK. POST. NO. ACCOUNT DEBITED REF.

20--

GENERAL DEBIT

ACCOUNTS PAYABLE DEBIT

PURCHASES DEBIT

PAGE PURCHASES DISCOUNTS CREDIT

CASH CREDIT

Apr. 5 429 Standard Ind.

8 0 0 0 00

1 6 0 00

7 8 4 0 00

19 430 Finest Co.

5 0 0 0 00

5 0 00

4 9 5 0 00

21 431 Funny Follies

3 2 5 0 00

29 432 Classic Data

7 0 0 0 00

6 8 6 0 00

1 4 0 00

CHAPTER 12

479

Problem 12-6B 1.

SALES JOURNAL SALE NO.

DATE 20--

TO WHOM SOLD

101

Saga, Inc.

102

Vinnie Ward

103

Dvorak Manufacturing

104

Vinnie Ward

105

Zapata Co.

106

Saga, Inc.

July

Debit total:

$13,072.50

Credit total:

POST. REF.

     

PAGE

ACCOUNTS RECEIVABLE DEBIT

SALES CREDIT

SALES TAX PAYABLE CREDIT

1 2 6 0 00

1 2 0 0 00

6 0 00

2 2 0 5 00

2 1 0 0 00

1 0 5 00

4 5 1 5 00

4 3 0 0 00

2 1 5 00

1 8 9 0 00

1 8 0 0 00

9 0 00

1 6 8 0 00

1 6 0 0 00

8 0 00

1 5 2 2 50

1 4 5 0 00

7 2 50

13 0 7 2 50

12 4 5 0 00

6 2 2 50

(122)

(401)

(231)

$12,450.00 622.50 $13,072.50

GENERAL LEDGER ACCOUNT

DATE

Accounts Receivable ITEM

20--

July 31

ACCOUNT

DATE 20--

July 31

ACCOUNT NO.

POST. REF.

DEBIT

13 0 7 2 50

CREDIT

BALANCE DEBIT

POST. REF.

CREDIT

13 0 7 2 50

Sales Tax Payable ITEM

ACCOUNT NO.

DEBIT

122

CREDIT

6 2 2 50

231

BALANCE DEBIT

CREDIT

6 2 2 50

480

CHAPTER 12

Problem 12-6B (Concluded) Sales

ACCOUNT

DATE

ACCOUNT NO. POST. REF.

ITEM

20--

July 31

DEBIT

CREDIT

401

BALANCE DEBIT

12 4 5 0 00

CREDIT

12 4 5 0 00

ACCOUNTS RECEIVABLE LEDGER NAME Dvorak Manufacturing Co. ADDRESS 2105 Williams Drive, Muncie, IN 47304-2437 DATE

ITEM

20--

July 15

POST. REF.

DEBIT

CREDIT

4 5 1 5 00

BALANCE

4 5 1 5 00

NAME Saga, Inc. ADDRESS 1453 Parnell Avenue, Indianapolis, IN 46201-6870 DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

1 2 6 0 00

1 5 2 2 50

2 7 8 2 50

July

NAME Vinnie Ward ADDRESS 308 So. Muirhead Drive, Okemos, MI 48864-5356 DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

2 2 0 5 00

1 8 9 0 00

4 0 9 5 00

July

NAME Zapata Co. ADDRESS 789 N. Stafford Dr., Bloomington, IN 47401-6201 DATE 20--

July 24

ITEM

POST. REF.

DEBIT

1 6 8 0 00

CREDIT

BALANCE

1 6 8 0 00

CHAPTER 12

481

Problem 12-7B 1.

GENERAL JOURNAL DATE 20-1 2 3

Jan. 11

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Sales Returns and Allowances

401.1

4 0 00

Sales Tax Payable

231

2 00

Accounts Receivable/Ray Boyd

122/

4 2 00

4 5 6 7

18 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/Robert Zehnle

401.1

3 1 00

231

1 55

122/

3 2 55

482

CHAPTER 12

Problem 12-7B (Continued) CASH RECEIPTS JOURNAL

DATE 20-1

Jan.

POST. REF.

ACCOUNT CREDITED

         

1 Ray Boyd

3 Clint Hassell

8 Jan Sowada

15 Robert Zehnle

25 Dazai Manufacturing

GENERAL CREDIT

ACCOUNTS RECEIVABLE CREDIT

8 8 0 00 2 7 1 00

9 1 2 00

1 1 0 0 00 3 1 8 00

3 4 8 1 00

(122)

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Debit total:

$15,174.85

Credit total:

$ 3,481.00

97.65

11,230.00

$15,272.50

561.50 $15,272.50

CHAPTER 12

483

Problem 12-7B (Continued) PAGE

SALES CREDIT

SALES TAX PAYABLE CREDIT

2 8 0 0 00

1 4 0 00

1 2 0 0 00

6 0 00

3 1 0 0 00

1 5 5 00

1 9 0 0 00

9 5 00

2 2 3 0 00

BANK CREDIT CARD EXPENSE DEBIT

3 7 80

5 9 85

1 1 1 50

CASH DEBIT

8 8 0 00

2 7 1 00

2 9 4 0 00

1 2 2 2 20

9 1 2 00

3 2 5 5 00

1 9 3 5 15

1 1 0 0 00

2 3 4 1 50

3 1 8 00 10 11 2 3 0 00 (401)

5 6 1 50 (231)

9 7 65 ( 513)

15 1 7 4 85 11 ( 101)

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

484

CHAPTER 12

Problem 12-7B (Continued) 2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ACCOUNT NO.

ITEM

1 Balance

Jan.

POST. REF.

DEBIT

CREDIT

 CR10

BALANCE DEBIT

DATE 20--

ITEM

POST. REF.

CREDIT

2 8 9 0 75 15 1 7 4 85

18 0 6 5 60

Accounts Receivable

ACCOUNT

ACCOUNT NO.

DEBIT

CREDIT



4 2 00

6 2 5 8 00

3 2 55

6 2 2 5 45

CR10

3 4 8 1 00

2 7 4 4 45

6 3 0 0 00

Sales Tax Payable

ACCOUNT

DATE

ITEM

20--

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

2 00

1 55

3 55

CR10

DATE 20--

Jan. 31

5 6 1 50

5 5 7 95

Sales

ACCOUNT NO.

ITEM

POST. REF.

CR10

DEBIT

CREDIT

11 2 3 0 00

231

BALANCE DEBIT

Jan. 11

ACCOUNT

122

BALANCE DEBIT

1 Balance

Jan.

101

401

BALANCE DEBIT

CREDIT

11 2 3 0 00

CHAPTER 12

485

Problem 12-7B (Continued) Sales Returns and Allowances

ACCOUNT

DATE

POST. REF.

ITEM

20--

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

Jan. 11

4 0 00

3 1 00

7 1 00

Bank Credit Card Expense

ACCOUNT

DATE

POST. REF.

ITEM

20--

Jan. 31

ACCOUNT NO.

DEBIT

CR10

CREDIT

9 7 65

401.1

513

BALANCE DEBIT

CREDIT

9 7 65

ACCOUNTS RECEIVABLE LEDGER NAME Ray Boyd ADDRESS 229 SE 65th Avenue, Portland, OR 97215-1451 DATE

ITEM

20--

Jan.

1 Balance 1 11

POST. REF.

DEBIT

CREDIT

BALANCE

 CR10

8 8 0 00

1 4 0 0 00 5 2 0 00

4 2 00

4 7 8 00

NAME Dazai Manufacturing ADDRESS 447 6th Avenue, Flagstaff, AZ 86004-6842 DATE 20--

Jan.

1 Balance 25

ITEM

POST. REF.

 CR10

DEBIT

CREDIT

BALANCE

3 1 8 00 3 1 8 00

486

CHAPTER 12

Problem 12-7B (Concluded) NAME Clint Hassell ADDRESS 1462 N. Steves Blvd., Los Cruces, NM 88012-7791 DATE

ITEM

20--

Jan.

POST. REF.

DEBIT

 CR10

1 Balance 3

CREDIT

2 7 1 00

BALANCE

8 1 5 00 5 4 4 00

NAME Jan Sowada ADDRESS 5997 Blackgold Lane, Grapevine, TX 76051-2366 DATE

ITEM

20--

Jan.

POST. REF.

DEBIT

 CR10

1 Balance 8

CREDIT

BALANCE

9 1 2 00

1 4 8 1 00 5 6 9 00

CREDIT

BALANCE

NAME Robert Zehnle ADDRESS 6881 Seneca Drive, San Diego, CA 92127-8671 DATE 20--

Jan.

1 Balance 15 18

ITEM

POST. REF.

 CR10 J8

DEBIT

1 1 0 0 00

2 2 8 6 00 1 1 8 6 00

3 2 55

1 1 5 3 45

CHAPTER 12

487

Problem 12-8B 1.

SALES JOURNAL SALE NO.

DATE 20--

TO WHOM SOLD

111

O. L. Meyers

112

Andrew Plaa

113

Melissa Richfield

114

Kelsay Munkres

115

O. L. Meyers

116

Andrew Plaa

Apr.

Debit total:

$7,853.80

Credit total:

POST. REF.

PAGE

ACCOUNTS RECEIVABLE DEBIT

     

SALES CREDIT

SALES TAX PAYABLE CREDIT

2 2 4 7 00

2 1 0 0 00

1 4 7 00

1 0 7 0 00

1 0 0 0 00

7 0 00

1 0 4 8 60

9 8 0 00

6 8 60

1 0 9 1 40

1 0 2 0 00

7 1 40

9 8 4 40

9 2 0 00

6 4 40

1 4 1 2 40

1 3 2 0 00

9 2 40

7 8 5 3 80

7 3 4 0 00

5 1 3 80

(122)

(401)

(231)

$7,340.00 513.80 $7,853.80

CASH RECEIPTS JOURNAL POST. ACCOUNT CREDITED REF.

DATE 20-1 2

Apr.

7 9 O. L. Meyers

GENERAL CREDIT

    

ACCOUNTS. RECEIVABLE CREDIT

PAGE

SALES CREDIT

3 2 4 0 00

SALES TAX PAYABLE CREDIT

2 2 6 80

2 1 9 3 50

CASH DEBIT

3 4 6 6 80

2 1 9 3 50

2 1 8 0 00

1 5 2 60

2 3 3 2 60

2 6 0 0 00

1 8 2 00

2 7 8 2 00

2 8 0 0 00

1 9 6 00

2 9 9 6 00

7 5 7 40 13 7 7 0 90

2 1 9 3 50 10 8 2 0 00

( 1 2 2)

( 4 0 1)

( 23 1)

( 1 0 1)

Debit total:

$13,770.90

Credit total:

$ 2,193.50 10,820.00 757.40 $13,770.90

488

CHAPTER 12

Problem 12-8B (Continued) GENERAL JOURNAL DATE 20-1

POST. REF.

DESCRIPTION

6 Sales Returns and Allowances

Apr.

Sales Tax Payable

DEBIT

CREDIT

401.1

5 0 00

231

3 50

122/

Accounts Receivable/O. L. Meyers

PAGE

5 3 50

17 Sales Returns and Allowances

Sales Tax Payable

4 0 00

231

2 80

122/

Accounts Receivable/M. Richfield

401.1

4 2 80

GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM



CR9

DEBIT

CREDIT

DATE

ITEM

POST. REF.

101

BALANCE DEBIT

CREDIT

2 8 6 4 54 13 7 7 0 90

16 6 3 5 44

Accounts Receivable

ACCOUNT

Apr.

POST. REF.

1 Balance

Apr.

20--

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

1 Balance



5 3 50

2 6 7 2 75

4 2 80

2 6 2 9 95

CR9

CREDIT

2 7 2 6 25

7 8 5 3 80

10 4 8 3 75 2 1 9 3 50

8 2 9 0 25

CHAPTER 12

489

Problem 12-8B (Continued) Sales Tax Payable

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

231

BALANCE DEBIT

CREDIT

3 50

2 80

6 30

5 1 3 80

5 0 7 50

CR9

7 5 7 40

1 2 6 4 90

Apr.

Sales

ACCOUNT

DATE

ACCOUNT NO.

ITEM

20--

POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

Apr. 30

7 3 4 0 00

CR9

10 8 2 0 00

18 1 6 0 00

Sales Returns and Allowances

ACCOUNT

DATE 20--

Apr.

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

401.1

BALANCE DEBIT

5 0 00

4 0 00

9 0 00

CREDIT

490

CHAPTER 12

Problem 12-8B (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME O. L. Meyers ADDRESS 119 Hartford Turnpike, Vernon, CT 06066-0113 DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

1 Balance



5 3 50

4 3 7 9 50

CR9

2 1 9 3 50

2 1 8 6 00

Apr.

2 1 8 6 00 2 2 4 7 00

4 4 3 3 00

9 8 4 40

3 1 7 0 40

NAME Kelsay Munkres ADDRESS 233 Cambridge Dr., Branford, CT 06405-9276 DATE 20--

ITEM

POST. REF.

1 Balance



Apr.

DEBIT

CREDIT

BALANCE

4 8 2 00 1 0 9 1 40

1 5 7 3 40

NAME Andrew Plaa ADDRESS 51 Bissell Ave., Old Saybrook, CT 06475-0212 DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

1 0 7 0 00

1 4 1 2 40

2 4 8 2 40

Apr.

NAME Melissa Richfield ADDRESS 1107 Silver Lane, East Hartford, CT 06108-1907 DATE 20--

Apr.

ITEM

POST. REF.

1 Balance 12

 S6

DEBIT

CREDIT

BALANCE

5 8 25 1 1 0 6 85

1 0 4 8 60 4 2 80

1 0 6 4 05

CHAPTER 12

491

Problem 12-9B 1. PURCHASES JOURNAL

INVOICE NO.

DATE 20--

321

Boggs Distributors

152

Wolfs Wholesaler

634

Komuro & Co.

349

Fritz & McCord, Inc.

587

Boggs Distributors

764

Sanderson Company

672

Wolfs Wholesaler

Oct.

POST. REF.

FROM WHOM PURCHASED

PAGE

PURCHASES DEBIT ACCTS. PAY. CREDIT

      

1 9 5 0 00

2 9 1 5 00

3 5 6 5 00

2 8 4 5 00

3 3 7 0 00

2 2 4 0 00

1 6 3 0 00

18 5 1 5 00

(501)

( 2 02)

2. GENERAL LEDGER ACCOUNT

DATE

Accounts Payable ITEM

20--

Oct. 31

Purchases

DATE

ITEM

Oct. 31

POST. REF.

DEBIT

ACCOUNT

20--

ACCOUNT NO.

CREDIT

BALANCE DEBIT

CREDIT

18 5 1 5 00

ACCOUNT NO. POST. REF.

DEBIT

18 5 1 5 00

CREDIT

202

501

BALANCE DEBIT

CREDIT

18 5 1 5 00

492

CHAPTER 12

Problem 12-9B (Concluded)

NAME

ACCOUNTS PAYABLE LEDGER Boggs Distributors

ADDRESS DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

1 9 5 0 00

3 3 7 0 00

5 3 2 0 00

Oct.

NAME

Fritz & McCord, Inc.

ADDRESS DATE

ITEM

20--

Oct. 16

NAME

POST. REF.

DEBIT

CREDIT

2 8 4 5 00

BALANCE

2 8 4 5 00

Komuro & Co.

ADDRESS DATE

ITEM

20--

Oct. 10

NAME

POST. REF.

DEBIT

CREDIT

3 5 6 5 00

BALANCE

3 5 6 5 00

Sanderson Company

ADDRESS DATE

ITEM

20--

Oct. 26

NAME

POST. REF.

DEBIT

CREDIT

2 2 4 0 00

BALANCE

2 2 4 0 00

Wolfs Wholesaler

ADDRESS DATE 20--

Oct.

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

2 9 1 5 00

1 6 3 0 00

4 5 4 5 00

CHAPTER 12

493

Problem 12-10B 1. GENERAL LEDGER Accounts Payable

ACCOUNT

DATE

ITEM

20--

Jan. 31

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

ACCOUNT

Purchases

DATE

ITEM

20--

Jan. 31

BALANCE DEBIT

CREDIT

22 8 4 0 00

ACCOUNT NO. POST. REF.

DEBIT

22 8 4 0 00

CREDIT

202

501

BALANCE DEBIT

CREDIT

22 8 4 0 00

2. NAME

ACCOUNTS PAYABLE LEDGER Amelia & Vincente

ADDRESS DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

5 9 2 0 00

1 8 9 0 00

7 8 1 0 00

Jan.

NAME

Hidemi, Inc.

ADDRESS DATE 20--

Jan. 21

ITEM

POST. REF.

DEBIT

CREDIT

1 3 0 0 00

BALANCE

1 3 0 0 00

494

CHAPTER 12

Problem 12-10B (Concluded) NAME

Nobuko’s Nature Store

ADDRESS DATE 20--

Jan.

ITEM

NAME

POST. REF.

DEBIT

CREDIT

2 6 8 0 00

BALANCE

2 6 8 0 00

Sandra’s Sweets

ADDRESS DATE 20--

Jan.

ITEM

NAME

POST. REF.

DEBIT

CREDIT

4 4 9 0 00

BALANCE

4 4 9 0 00

Smith and Johnson Company

ADDRESS DATE 20--

Jan. 15

ITEM

POST. REF.

DEBIT

CREDIT

6 5 6 0 00

BALANCE

6 5 6 0 00

CHAPTER 12

495

Problem 12-11B 1. CASH PAYMENTS JOURNAL CK. POST. NO. ACCOUNT DEBITED REF.

DATE 20-1

May 1 326 Rent Expense

521

GENERAL DEBIT

ACCOUNTS PAYABLE DEBIT

4 327 Cortez Dist.



4 2 0 0 00

7 328 Indra & Velga



6 2 0 0 00

11 329 Toy Corner



4 6 0 0 00

15 330 Utilities Exp.

533

19 331



25 332 Troutman Outlet



30 333 Freight-In

502

31 334



PURCHASES DISCOUNTS CREDIT

1 2 6 00 4 6 00

1 5 0 0 00 3 5 0 0 00 4 4 0 0 00

8 8 00 2 3 5 0 00

( )

( 2 0 2)

5 8 5 0 00 ( 5 0 1)

CASH CREDIT

2 6 0 0 00

4 0 7 4 00

6 2 0 0 00

4 5 5 4 00

1 5 0 0 00

3 5 0 0 00

4 3 1 2 00

8 0 0 00

2 3 5 0 00

8 0 0 00

4 9 0 0 00 19 4 0 0 00

PURCHASES DEBIT

2 6 0 0 00

PAGE

2 6 0 00 29 8 9 0 00 10 ( 5 0 1 .2)

( 1 0 1)

11 12

Debit total:

$ 4,900 19,400 5,850 $30,150

Credit total:

260 29,890 $30,150

2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM



CP6

DEBIT

CREDIT

DATE

ITEM

CREDIT

40 0 0 0 00 29 8 9 0 00

10 1 1 0 00

ACCOUNT NO.

POST. REF.

1 Balance



CP6

101

BALANCE DEBIT

Accounts Payable

ACCOUNT

May

POST. REF.

1 Balance

May

20--

ACCOUNT NO.

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

20 0 0 0 00 19 4 0 0 00

6 0 0 00

496

CHAPTER 12

Problem 12-11B (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

May

DATE

May

CP6

ITEM

Freight-In

DATE

ITEM

May

DATE 20--

ITEM

May

5 8 5 0 00

POST. REF.

DATE

5 8 5 0 00

CREDIT

2 6 0 00

POST. REF.

DEBIT

CP6

8 0 0 00

CREDIT

2 6 0 00

DEBIT

CREDIT

8 0 0 00

CREDIT

2 6 0 0 00

CP6

DEBIT

1 5 0 0 00

521

BALANCE DEBIT

CREDIT

2 6 0 0 00

ACCOUNT NO. POST. REF.

502

BALANCE DEBIT

ACCOUNT NO. POST. REF.

501.2

BALANCE DEBIT

ACCOUNT NO.

CP6

ITEM

CREDIT

ACCOUNT NO.

DEBIT

501

BALANCE DEBIT

Utilities Expense

ACCOUNT

May

CREDIT

Rent Expense

ACCOUNT

20--

DEBIT

CP6

ACCOUNT

20--

POST. REF.

Purchases Discounts

ACCOUNT

20--

ACCOUNT NO.

CREDIT

533

BALANCE DEBIT

CREDIT

1 5 0 0 00

CHAPTER 12

497

Problem 12-11B (Concluded) ACCOUNTS PAYABLE LEDGER NAME Cortez Distributors ADDRESS DATE

ITEM

20--

May

POST. REF.

 CP6

1 Balance 4

DEBIT

CREDIT

BALANCE

4 2 0 0 00 4 2 0 0 00

NAME Indra & Velga ADDRESS DATE

ITEM

20--

 CP6

1 Balance 7

May

POST. REF.

DEBIT

CREDIT

BALANCE

6 8 0 0 00 6 2 0 0 00

6 0 0 00

NAME Toy Corner ADDRESS DATE

ITEM

20--

May

POST. REF.

 CP6

1 Balance 11

DEBIT

CREDIT

BALANCE

4 6 0 0 00 4 6 0 0 00

NAME Troutman Outlet ADDRESS DATE 20--

May

1 Balance 25

ITEM

POST. REF.

 CP6

DEBIT

CREDIT

BALANCE

4 4 0 0 00 4 4 0 0 00

498

CHAPTER 12

Problem 12-12B 1. PURCHASES JOURNAL

INVOICE NO.

DATE 20--

211

Topper’s Toys

812

Jones & Company

159

Downtown Merchants

468

Columbia Products

395

Topper’s Toys

853

Jones & Company

July

POST. REF.

FROM WHOM PURCHASED

PAGE

PURCHASES DEBIT ACCTS. PAY. CREDIT

     

2 5 0 0 00

2 8 0 0 00

1 6 0 0 00

3 2 0 0 00

1 4 3 0 00

2 9 7 0 00

14 5 0 0 00

(501)

( 2 02) 8

CASH PAYMENTS JOURNAL

DATE

CK. POST. NO. ACCOUNT DEBITED REF.

20--

GENERAL DEBIT

ACCOUNTS PAYABLE DEBIT

July 1 314 Rent Expense

521

11 315 Topper’s Toys



2 1 0 0 00

13 316 Jones & Co.



18 317 Downtown Mer.



31 318 D. Mueller, Draw. 312

31 319

PURCHASES DEBIT

PAGE PURCHASES DISCOUNTS CREDIT

1 4 0 0 00

CASH CREDIT

1 4 0 0 00

4 2 00

2 0 5 8 00

2 8 0 0 00

2 8 00

2 7 7 2 00

1 0 0 0 00

2 0 00

9 8 0 00

2 5 0 0 00

1 0 5 0 00

9 0 00 10 7 6 0 00

2 5 0 0 00



3 9 0 0 00

5 9 0 0 00

1 0 5 0 00

( )

( 2 0 2)

( 5 01)

( 5 0 1 .2)

( 1 0 1)

Debit total:

$ 3,900 5,900 1,050 $10,850

Credit total

90 10,760

$10,850

CHAPTER 12

499

Problem 12-12B (Continued) GENERAL JOURNAL DATE 20-1

DESCRIPTION

5 Accounts Payable/Topper’s Toys

July

Purchases Returns and Allowances

PAGE POST. REF.

DEBIT

202/

4 0 0 00

CREDIT 1

501.1

4 0 0 00

Returned merchandise

15 Accounts Payable/Downtown Merchants

Purchases Returns and Allowances

202/

6 0 0 00

501.1

6 0 0 00

Returned merchandise

2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM



CP9

DEBIT

CREDIT

DATE

ITEM

CREDIT

20 0 0 0 00 10 7 6 0 00

9 2 4 0 00

ACCOUNT NO.

POST. REF.

101

BALANCE DEBIT

Accounts Payable

ACCOUNT

July

POST. REF.

1 Balance

July

20--

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

4 0 0 00

6 0 0 00

1 0 0 0 00

CP9

14 5 0 0 00 5 9 0 0 00

202

CREDIT

13 5 0 0 00 7 6 0 0 00

500

CHAPTER 12

Problem 12-12B (Continued) D. Mueller, Drawing

ACCOUNT

DATE

ITEM

20--

July 31

POST. REF.

CP9

ACCOUNT

Purchases

DATE

ITEM

ACCOUNT NO.

DEBIT

CREDIT

2 5 0 0 00

BALANCE DEBIT

CREDIT

2 5 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

July 31

14 5 0 0 00

CP9

1 0 5 0 00

15 5 5 0 00

20--

DATE 20--

ITEM

BALANCE DEBIT

DEBIT

CREDIT

ACCOUNT NO.

CREDIT

501.1

BALANCE DEBIT

CREDIT

4 0 0 00

6 0 0 00

1 0 0 0 00

Purchases Discounts

ACCOUNT

DATE

ITEM

20--

July 31

POST. REF.

ACCOUNT NO.

DEBIT

CP9

CREDIT

DATE

ITEM

CREDIT

9 0 00

ACCOUNT NO. POST. REF.

CP9

DEBIT

1 4 0 0 00

CREDIT

501.2

BALANCE DEBIT

Rent Expense

ACCOUNT

July

POST. REF.

501

July

20--

CREDIT

Purchases Returns and Allowances

ACCOUNT

312

521

BALANCE DEBIT

CREDIT

1 4 0 0 00

CHAPTER 12

501

Problem 12-12B (Concluded) NAME

ACCOUNTS PAYABLE LEDGER Columbia Products

ADDRESS DATE

ITEM

20--

July 25

NAME

POST. REF.

DEBIT

CREDIT

3 2 0 0 00

BALANCE

3 2 0 0 00

Downtown Merchants

ADDRESS DATE 20--

ITEM

POST. REF.

DEBIT

6 0 0 00

CP9

1 0 0 0 00

July

NAME

CREDIT

1 6 0 0 00

BALANCE

1 6 0 0 00 1 0 0 0 00

Jones & Company

ADDRESS DATE 20--

ITEM

POST. REF.

CP9

July

NAME

DEBIT

CREDIT

BALANCE

2 8 0 0 00

2 9 7 0 00

2 8 0 0 00

Topper’s Toys

ADDRESS DATE 20--

July

ITEM

POST. REF.

DEBIT

4 0 0 00

CP9

2 1 0 0 00

CREDIT

2 5 0 0 00

BALANCE

2 5 0 0 00 2 1 0 0 00

1 4 3 0 00

502

CHAPTER 12

MANAGING YOUR WRITING Efficiency can be increased by using special journals instead of only a general journal. Accuracy of supplier records can be increased by using an accounts payable ledger in addition to a general ledger. The number and types of special journals to use should be decided based on the types of transactions that occur most frequently. At a minimum, sales and purchases journals should be used for this business. Use of these journals will substantially reduce the time required to enter transactions. In addition, duties can be divided so that a different person makes entries in each journal. The accounts payable ledger would contain a separate account for each supplier. By posting these accounts daily, the amount owed to each supplier could be readily determined at any time.

ETHICS CASE 1.

Yes, Sue’s suggestion is unethical because she is taking credit for work that is not hers and not following her supervisor’s directive to “design” special journals. It would be appropriate to use the special journals from the textbook as a guide to help prepare the ones for the company, as long as Judy was informed of the source. Special journals should be designed to meet the needs of a specific company. Their design will vary depending on the nature of the business and frequency and type of transactions. If Sue and Jon use special journals that have not been customized for their company, they might not be appropriate and, consequently, might not meet their objective of saving time. Answers will vary.

CHAPTER 12

503

Mastery Problem 1. SALES JOURNAL SALE NO.

DATE 20--

TO WHOM SOLD

222

Elizabeth Shoemaker

223

Leigh Summers

224

David’s Decorating

POST. REF.

ACCOUNTS RECEIVABLE DEBIT

  

PAGE

SALES CREDIT

SALES TAX PAYABLE CREDIT

1 0 5 0 00

1 0 0 0 00

5 0 00 1

2 1 0 0 00

2 0 0 0 00

1 0 0 00 2

3 1 5 0 00

3 0 0 0 00

1 5 0 00 3

6 3 0 0 00

6 0 0 0 00

3 0 0 00 4

(122)

(401)

(231)

Oct.

CASH RECEIPTS JOURNAL POST. ACCOUNT CREDITED REF.

DATE 20-1 2

Oct.

7 9 Leigh Summers

12 Meg Johnson

24 David’s Decor.

   

GENERAL CREDIT

ACCOUNTS RECEIVABLE CREDIT

PAGE

SALES CREDIT

3 5 0 0 00

SALES TAX PAYABLE CREDIT

CASH DEBIT

3 6 7 5 00

2 0 0 0 00

3 1 0 0 00

2 1 3 5 00

1 7 5 00 10 9 1 0 00

7 2 3 5 00

3 5 0 0 00

( 1 2 2)

( 4 0 1)

1 7 5 00

( 23 1)

( 1 0 1)

504

CHAPTER 12

Mastery Problem (Continued) PURCHASES JOURNAL

INVOICE NO.

DATE 20--

PAGE

7 0 0 00

4 7 0 0 00

(501 ) ( 2 02)

Oct.

500

Flower Wholesalers

527

Seidl Enterprises

 

4 0 0 0 00

PURCHASES DEBIT ACCTS. PAY. CREDIT

POST. REF.

FROM WHOM PURCHASED

11 10

CASH PAYMENTS JOURNAL

DATE

CK. POST. NO. ACCOUNT DEBITED REF.

20-1 2

Oct. 2 190 Jill Hand

GENERAL DEBIT



5 191 Telephone Exp. 525

ACCOUNTS PAYABLE DEBIT

5 0 0 00

PURCHASES DEBIT

PAGE PURCHASES DISCOUNTS CREDIT

1 0 00

1 5 0 00

11 192 Flower Whole.



1 5 0 0 00

13 193 Seidl Ent.



7 0 0 00

29 194 Wages Exp.

511

1 4 00

9 0 0 00

1 0 5 0 00

2 7 0 0 00

( )

( 2 0 2)

2 4 00 ( 5 0 1 .2)

CASH CREDIT

4 9 0 00

1 5 0 00

1 5 0 0 00

6 8 6 00

9 0 0 00

3 7 2 6 00

( 1 0 1)

CHAPTER 12

505

Mastery Problem (Continued) GENERAL JOURNAL

DEBIT

Sales Returns and Allowances

401.1

3 0 0 00

Sales Tax Payable

231

1 5 00

DESCRIPTION

Oct. 14

POST. REF.

DATE 20--

PAGE

Accounts Receivable/Meg Johnson

Accepted returned merchandise

CREDIT

122/

3 1 5 00

3 4

202/

17 Accounts Payable/Vases Etc.

Purchases Returns and Allowances

9 0 0 00

501.1

9 0 0 00

Returned merchandise

2. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ITEM

1 Balance

Oct.

DEBIT

CREDIT

 CR10

CP11

ITEM

POST. REF.

1 Balance



CR10

101

BALANCE DEBIT

CREDIT

18 2 2 5 00 10 9 1 0 00

29 1 3 5 00 3 7 2 6 00

25 4 0 9 00

Accounts Receivable

DATE

Oct.

POST. REF.

ACCOUNT

20--

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

CREDIT

9 6 1 9 00 3 1 5 00 6 3 0 0 00

9 3 0 4 00 15 6 0 4 00

7 2 3 5 00

8 3 6 9 00

506

CHAPTER 12

Mastery Problem (Continued) Accounts Payable

ACCOUNT

DATE 20--

Oct.

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CP11

5 1 2 0 00 4 2 2 0 00

9 0 0 00 4 7 0 0 00

8 9 2 0 00

2 7 0 0 00

6 2 2 0 00

Sales Tax Payable

ACCOUNT

DATE

ITEM

20--

CREDIT



1 Balance 17

ACCOUNT NO.

POST. REF.

DEBIT

202

CREDIT

BALANCE DEBIT

CREDIT

Oct. 14

3 0 0 00

2 8 5 00

CR10

1 7 5 00

4 6 0 00

1 5 00

Sales

ACCOUNT

DATE

ACCOUNT NO.

ITEM

20--

Oct. 31

ACCOUNT

DATE 20--

1 5 00

231

Oct. 14

POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

6 0 0 0 00

CR10

3 5 0 0 00

9 5 0 0 00

Sales Returns and Allowances ITEM

401

POST. REF.

DEBIT

3 0 0 00

ACCOUNT NO.

CREDIT

401.1

BALANCE DEBIT

CREDIT

3 0 0 00

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CHAPTER 12

507

Mastery Problem (Continued) ACCOUNT

Purchases

DATE

ITEM

ACCOUNT NO. POST. REF.

20--

Oct. 31

DATE

POST. REF.

ITEM

20--

Oct. 17

4 7 0 0 00

BALANCE DEBIT

DEBIT

DATE

POST. REF.

ITEM

20--

Oct. 31

ACCOUNT NO.

CREDIT

DATE

9 0 0 00

ACCOUNT NO.

CP11

ITEM

20--

Oct. 29

CREDIT

DATE

ITEM

CREDIT

2 4 00

ACCOUNT NO. POST. REF.

DEBIT

CP11

9 0 0 00

CREDIT

DEBIT

CP11

1 5 0 00

511

BALANCE DEBIT

CREDIT

9 0 0 00

ACCOUNT NO.

POST. REF.

501.2

BALANCE DEBIT

Telephone Expense

ACCOUNT

CREDIT

9 0 0 00

DEBIT

501.1

BALANCE DEBIT

Wages Expense

ACCOUNT

CREDIT

4 7 0 0 00

Purchases Discounts

ACCOUNT

Oct.

CREDIT

Purchases Returns and Allowances

ACCOUNT

20--

DEBIT

501

CREDIT

525

BALANCE DEBIT

CREDIT

1 5 0 00

508

CHAPTER 12

Mastery Problem (Continued) ACCOUNTS RECEIVABLE LEDGER NAME David’s Decorating ADDRESS 12 Jude Lane, Hartford, CT 06117 DATE 20--

ITEM

Oct.

POST. REF.

DEBIT

CREDIT



Balance

CR10

BALANCE

3 3 4 0 00 2 1 3 5 00 3 1 5 0 00

1 2 0 5 00 4 3 5 5 00

NAME Meg Johnson ADDRESS 700 Hobbes Dr., Avon, CT 06108 DATE 20--

ITEM

DEBIT

CREDIT



1 Balance

Oct.

POST. REF.

BALANCE

4 0 0 0 00

CR10

3 1 0 0 00

9 0 0 00

3 1 5 00

5 8 5 00

NAME Elizabeth Shoemaker ADDRESS 52 Juniper Road, Hartford, CT 06118 DATE 20--

Oct.

ITEM

POST. REF.

1 Balance



DEBIT

CREDIT

BALANCE

2 7 9 00 1 0 5 0 00

1 3 2 9 00

NAME Leigh Summers ADDRESS 5200 Hamilton Ave., Hartford, CT 06111 DATE 20--

Oct.

ITEM

1 Balance

POST. REF.

DEBIT

CREDIT



CR10

BALANCE

2 0 0 0 00 2 0 0 0 00 2 1 0 0 00

2 1 0 0 00

CHAPTER 12

509

Mastery Problem (Concluded) ACCOUNTS PAYABLE LEDGER NAME Flower Wholesalers ADDRESS 43 Lucky Lane, Bristol, CT 06007 DATE 20--

ITEM

POST. REF.

1 Balance



CP11

Oct.

DEBIT

CREDIT

BALANCE

1 5 0 0 00 4 0 0 0 00 1 5 0 0 00

5 5 0 0 00 4 0 0 0 00

NAME Jill Hand ADDRESS 1009 Drake Rd., Farmington, CT 06082 DATE 20--

ITEM

DEBIT

CREDIT



1 Balance

Oct.

POST. REF.

CP11

BALANCE

5 0 0 00 5 0 0 00

NAME Seidl Enterprises ADDRESS 888 Anders Street, Newington, CT 06789 DATE 20--

ITEM

POST. REF.

CP11

Oct.

DEBIT

CREDIT

7 0 0 00

BALANCE

7 0 0 00

NAME Vases Etc. ADDRESS 34 Harry Ave., East Hartford, CT 05234 DATE 20--

Oct.

ITEM

POST. REF.

1 Balance



DEBIT

CREDIT

BALANCE

3 1 2 0 00 9 0 0 00

2 2 2 0 00

510

CHAPTER 12

Challenge Problem 1. GENERAL JOURNAL DATE 20-1 2 3 4

June

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

1 Purchases

2 7 0 0 00

Freight-In

1 6 0 00

Accounts Payable/Acme Supply

2 8 6 0 00

Purchased merchandise on account

5 6

1 Accounts Payable/Denver Wholesalers

Cash

Purchases Discounts

7 2 0 00 7 1 2 80

7 20

Made payment on account

10 11

1 Accounts Receivable/F. Colby

2 6 3 22

Sales

State Sales Tax Payable

1 2 30 13

City Sales Tax Payable

4 92 14

2 4 6 00 12

Made sale on account

16 17

2 Cash

Accounts Receivable/N. Dunlop

Received cash on account

3 1 5 00

3 1 5 00 18 19

20 21

2 Cash

4 4 1 91

Sales

State Sales Tax Payable

2 0 65 23

City Sales Tax Payable

8 26 24

4 1 3 00 22

Made cash sale

26 27 28 29 30

2 Purchases

3 2 0 0 00

Freight-In

1 9 0 00

Accounts Payable/Permon Co. Purchased merchandise on account

3 3 9 0 00 29 30

CHAPTER 12

511

Challenge Problem (Continued) GENERAL JOURNAL DATE 20-1

June

DESCRIPTION

3 Accounts Receivable/F. Ayres

Sales

3 4 5

PAGE POST. REF.

DEBIT

CREDIT

2 2 5 77

2 1 1 00

State Sales Tax Payable

1 0 55

City Sales Tax Payable

4 22

Made sale on account

6 7

3 Accounts Payable/Ellis Co.

Cash

Purchases Discounts

8 4 7 00

Made payment on account 3 Cash Accounts Receivable/F. Graves

Received cash on account

4 6 3 00

14 15

4 Accounts Payable/Penguin Warehouse

Cash

Purchases Discounts

9 5 0 00

9 4 0 50 17 9 50 18

Made payment on account

20 21

8 47

4 6 3 00 13

8 3 8 53

11 12

4 Accounts Receivable/K. Stanga

3 4 0 26

Sales

State Sales Tax Payable

1 5 90 23

City Sales Tax Payable

6 36 24

3 1 8 00 22

Made sale on account

26 27 28 29 30

4 Purchases

1 6 3 0 00

Freight-In

9 0 00

Accounts Payable/Mason Milling Purchased merchandise on account

1 7 2 0 00 29 30

512

CHAPTER 12

Challenge Problem (Continued) GENERAL JOURNAL DATE 20-1

June

DESCRIPTION

4 Cash

Accounts Receivable/O. Alston

Received cash on account

PAGE POST. REF.

DEBIT

CREDIT

3 8 1 00

2 3

4 5

5 Cash

Sales

7 8 9

3 4 1 33 3 1 9 00

State Sales Tax Payable

1 5 95

City Sales Tax Payable

6 38

Made cash sale

10 11

5 Accounts Payable/Acme Supply

Cash

Purchases Discounts

Made payment on account

9 8 0 00

9 7 0 20 12 9 80 13 14

CHAPTER 12

513

Challenge Problem (Concluded) 2. (a) SALES JOURNAL

DATE

SALE NO.

POST. REF.

TO WHOM SOLD

ACCOUNTS RECEIVABLE DEBIT

PAGE

SALES CREDIT

STATE SALES TAX PAYABLE CREDIT

CITY SALES TAX PAYABLE CREDIT

(b) CASH RECEIPTS JOURNAL

DATE

ACCOUNT CREDITED

POST. REF.

GENERAL CR.

ACCOUNTS RECEIVABLE CREDIT

SALES CREDIT

PAGE STATE SALES CITY SALES TAX PAYABLE TAX PAYABLE CREDIT CREDIT

CASH DEBIT

DATE

INVOICE NO.

FROM WHOM PURCHASED

PAGE

POST. PURCHASES REF. DEBIT

FREIGHT-IN DEBIT

ACCOUNTS PAYABLE CREDIT

(d) CASH PAYMENTS JOURNAL

DATE

CK. NO.

ACCOUNT DEBITED

POST. REF.

GENERAL DEBIT

PAGE ACCOUNTS PAYABLE DEBIT

PURCHASES DISCOUNTS CREDIT

CASH CREDIT

CHAPTER 13 ACCOUNTING FOR MERCHANDISE INVENTORY REVIEW QUESTIONS 1.

The financial statements affected by an error in ending inventory are the income statement, statement of owner’s equity, and balance sheet.

The main difference between the periodic system and the perpetual system of accounting for inventory is that in the periodic system the balance in Merchandise Inventory is merely a record of the most recent physical inventory count, whereas in the perpetual system the balance of the inventory account represents the cost of goods on hand at all times.

Yes, a physical inventory is necessary under the periodic system to determine the ending inventory for the calculation of the cost of goods sold.

Yes, a physical inventory is necessary under the perpetual system to determine whether the amount reported in the accounts equals the actual cost of inventory on hand.

Teaching tip: These responses assume no material liquidation of inventory layers. a. LIFO b. FIFO c. FIFO d. LIFO e. FIFO f. LIFO

The two factors taken into account by the weighted-average cost method are the total cost of units available for sale and the number of units available for sale.

The specific identification method follows the actual physical flow of merchandise.

When “lower-of-cost-or-market” is used, “cost” means the dollar amount calculated by one of the four cost assignment methods. “Market” means the cost to replace the item.

Steps in the gross profit method are: 1. Compute the cost of goods available for sale. 2. Estimate cost of goods sold by deducting the normal gross profit from net sales. 3. Estimate the ending inventory by deducting cost of goods sold from the cost of goods available for sale.

10. Steps in the retail inventory method are: 1. Compute the cost of goods available for sale at cost and retail. 2. Compute the ending inventory at retail by subtracting sales at retail from goods available for sale at retail. 3. Compute the cost-to-retail ratio by dividing the cost of goods available for sale by the retail value of the goods available for sale. 4. Estimate the cost of ending inventory by multiplying the ending inventory at retail (step 2) by the cost-to-retail ratio. 5. Estimate cost of goods sold by: a. multiplying sales at retail by the cost-to-retail ratio, or b. subtracting the estimated cost of the ending inventory from the cost of goods available for sale. 515 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

516

CHAPTER 13

Exercise 13-1A Year 1

Year 2

Ending merchandise inventory . . . . . . . . . . . .

overstated

correct

Beginning merchandise inventory . . . . . . . . . .

correct

overstated

Cost of goods sold . . . . . . . . . . . . . . . . . . . . .

understated

overstated

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . .

overstated

understated

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . overstated

understated

Ending owner’s capital . . . . . . . . . . . . . . . . . . .

correct

overstated

Exercise 13-2A GENERAL JOURNAL DATE 20-1 2

Jan.

DESCRIPTION

5 Purchases

PAGE POST. REF.

DEBIT

CREDIT

3 3 0 0 00

Accounts Payable/Prestigious Jewelers

3 3 0 0 00

3 4 5

8 Freight-In

3 0 0 00

Cash

3 0 0 00

6 7 8

12 Accounts Receivable/Diamonds Unlimited

4 5 0 0 00

Sales

4 5 0 0 00

9 10 11

15 Accounts Payable/Prestigious Jewelers

7 0 0 00

Purchases Returns and Allowances

7 0 0 00 11

12 13 14

22 Sales Returns and Allowances Accounts Receivable/Diamonds Unlimited

9 0 0 00

9 0 0 00 14

CHAPTER 13

517

Exercise 13-3A GENERAL JOURNAL DATE 20-1 2

Mar.

DESCRIPTION

PAGE POST. REF.

3 Merchandise Inventory

DEBIT

CREDIT

2 9 0 0 00

Accounts Payable/City Galleria

2 9 0 0 00

3 4 5

7 Merchandise Inventory

2 2 5 00

Cash

2 2 5 00

6 7 8

13 Accounts Receivable/Amber Specialties

3 4 0 0 00

Sales

3 4 0 0 00

9 10 11

13 Cost of Goods Sold

2 2 0 0 00

Merchandise Inventory

2 2 0 0 00 11

18 Accounts Payable/City Galleria

Merchandise Inventory

6 5 0 00

22 Sales Returns and Allowances

6 0 0 00

Accounts Receivable/Amber Specialties

6 0 0 00 17

18 19

6 5 0 00 14

15 16

22 Merchandise Inventory

3 2 0 00

Cost of Goods Sold

3 2 0 00 20

Exercise 13-4A Cost of merchandise on the showroom floor and in the warehouse

$43,600

Goods that Chen’s Chattel, as the consignor, has for sale at the location of the Grand Avenue Vista

4,400

Sales invoices indicate that merchandise was shipped on June 25, terms FOB destination, delivered at buyer’s receiving dock on July 5 Ending inventory

4,000 $52,000

518

CHAPTER 13

Exercise 13-5A 1.

Ending inventory under FIFO 10 units @ $30 = $300

Ending inventory under weighted-average Average cost per unit = $970/40 = $24.25 10 units @ $24.25 = $242.50

FIFO lower-of-cost-or-market FIFO cost

$300

Market (10 @ $26)

260

Choose market

260

Weighted-average lower-of-cost-or-market Weighted-average cost

$242.50

Market (10 @ $26)

260.00

Choose weighted-average cost

242.50

(a) Loss on Write-Down of Inventory Merchandise Inventory

40 40

(b) No entry

CHAPTER 13

519

Problem 13-6A 1. FIFO Inventory Method Date 20-1/ 20-2

Cost of Goods Sold Unit Units Price Total

Cost of Ending Inventory Unit Units Price Total

Oct. 1

Beg. inv.

400

$20.00

$ 8,000

$20.00

Oct. 18

1st purchase

500

20.50

10,250

20.50

Nov. 25

2nd purchase

200

21.50

4,300

21.50

Jan. 12

3rd purchase

300

23.00

6,900

23.00

Mar. 17

4th purchase

900

24.50

22,050

24.50

June 2

5th purchase

400

25.00

10,000

400

25.00

10,000

Aug. 21

6th purchase

26.00

200

26.00

5,200

Sept. 27

7th purchase

27.00

700

27.00

18,900

$61,500

1,300

Total

2,700

Alternative calculation if given

Cost of goods available for sale

goods available for sale and CGS or

Less cost of ending inventory

EI.

Cost of goods sold

$ 95,600

$34,100

Cost of goods available for sale

$ 95,600

(34,100)

Less cost of goods sold

(61,500)

$ 61,500

Cost of ending inventory

$ 34,100

2. LIFO Inventory Method Date 20-1/ 20-2

Cost of Goods Sold Unit Units Price Total

Oct. 1

Beg. inv.

$20.00

Oct. 18

1st purchase

Nov. 25

2nd purchase

Jan. 12

3rd purchase

Mar. 17

400

$20.00

$ 8,000

20.50

500

20.50

10,250

21.50

200

21.50

4,300

100

23.00

2,300

200

23.00

4,600

4th purchase

900

24.50

22,050

24.50

June 2

5th purchase

800

25.00

20,000

25.00

Aug. 21

6th purchase

200

26.00

5,200

26.00

Sept. 27

7th purchase

700

27.00

18,900

27.00

Total

2,700

Cost of Ending Inventory Unit Units Price Total

$68,450

1,300

$27,150

Alternative calculation if given

Cost of goods available for sale

$ 95,600

goods available for sale and CGS or

Less cost of ending inventory

(27,150)

Cost of goods available for sale $ 95,600 Less cost of goods sold

(68,450)

EI.

Cost of goods sold

$ 68,450

Cost of ending inventory

$ 27,150

520

CHAPTER 13

Problem 13-6A (Concluded) 3.

Weighted-average Average cost per unit: $95,600  4,000 units = $23.90 Ending inventory = 1,300 units @ $23.90 = $31,070 Cost of goods sold = 2,700 units @ $23.90 = $64,530

Specific Identification Method

Date 20-1/ 20-2

Cost of Goods Sold Unit Units Price Total

Cost of Ending Inventory Unit Units Price Total

Oct. 1

Beg. inv.

400

$20.00

$ 8,000

Oct. 18

1st purchase

400

20.50

8,200

Nov. 25

2nd purchase

200

21.50

4,300

Jan. 12

3rd purchase

100

23.00

2,300

Mar. 17

4th purchase

800

24.50

June 2

5th purchase

400

Aug. 21

6th purchase

Sept. 27

7th purchase Total

Alternative calculation if given goods available for sale and CGS or EI.

400

0 2,050

21.50

200

23.00

4,600

19,600

100

24.50

2,450

25.00

10,000

400

25.00

10,000

26.00

200

26.00

5,200

27.00

10,800

300

27.00

8,100

$63,200

1,300

Cost of goods available for sale Less cost of ending inventory

$ 95,600

100

20.50

2,700

Cost of goods sold

$20.00

$32,400

Cost of goods available for sale $ 95,600

(32,400)

Less cost of goods sold

(63,200)

$ 63,200

Cost of ending inventory

$ 32,400

CHAPTER 13

521

Problem 13-7A 1. a. FIFO Inventory Method Date

Cost of Goods Sold Unit Units Price Total

20-Jan. 1

Beg. inv.

Mar. 5

Cost of Ending Inventory Unit Units Price Total

1,100

$ 8.00

$ 8,800

$ 8.00

1st purchase

900

9.00

8,100

9.00

Apr. 16

2nd purchase

400

9.50

3,800

9.50

June 3

3rd purchase

700

10.25

7,175

10.25

Aug. 18

4th purchase

600

11.00

6,600

11.00

Sept. 13

5th purchase

700

12.00

8,400

100

12.00

1,200

Nov. 14

6th purchase

14.00

400

14.00

5,600

Dec. 3

7th purchase

14.05

500

14.05

7,025

$42,875

1,000

Total Alternative calculation if given goods available for sale and CGS or

4,400 Cost of goods available for sale Less cost of ending inventory Cost of goods sold

EI.

$ 56,700

$13,825

Cost of goods available for sale

$ 56,700

(13,825)

Less cost of goods sold

(42,875)

$ 42,875

Cost of ending inventory

$ 13,825

b. LIFO Inventory Method Date

Cost of Goods Sold Unit Units Price Total

20-Jan. 1

Beg. inv.

100

$ 8.00

Mar. 5

1st purchase

900

9.00

Apr. 16

2nd purchase

400

June 3

3rd purchase

Aug. 18

$ 8.00

$8,000

8,100

9.00

9.50

3,800

9.50

700

10.25

7,175

10.25

4th purchase

600

11.00

6,600

11.00

Sept. 13

5th purchase

800

12.00

9,600

12.00

Nov. 14

6th purchase

400

14.00

5,600

14.00

Dec. 3

7th purchase

500

14.05

7,025

14.05

Total Alternative calculation if given goods available for sale and CGS or EI.

4,400

800

Cost of Ending Inventory Unit Units Price Total

$48,700

1,000

Cost of goods available for sale

$56,700

Less cost of ending inventory

(8,000)

Less cost of goods sold

$48,700

Cost of ending inventory

Cost of goods sold

Cost of goods available for sale

$8,000 $ 56,700 (48,700) $

8,000

522

CHAPTER 13

Problem 13-7A (Concluded) c.

Weighted-average Average cost per unit: $56,700  5,400 units = $10.50 Ending inventory = 1,000 units @ $10.50 = $10,500 Cost of goods sold = 4,400 units @ $10.50 = $46,200

2. a.

FIFO lower-of-cost-or-market FIFO cost

$13,825

Market (1,000 @ $13)

13,000

Choose market

13,000

Weighted-average lower-of-cost-or-market Weighted-average cost

$10,500

Market (1,000 @ $13)

13,000

Choose weighted-average cost

10,500

Problem 13-8A Cost of goods available for sale: Inventory, January 1, 20--

$100,000

Net purchases, January 1–August 5, 20--

420,000

Cost of goods available for sale

$520,000

Estimated cost of goods sold: Net sales

$732,000

Normal gross profit ($732,000  40%)

292,800

Estimated cost of goods sold

439,200

Estimated inventory at August 5, 20--

$ 80,800

CHAPTER 13

523

Problem 13-9A 1. and 2. Cost

Retail

Inventory, start of period, January 1, 20--

$ 32,000

$ 52,000

Net purchases during period

176,000

268,000

Goods available for sale

$208,000

$320,000

Less net sales for the period

260,000

Inventory, end of period, at retail

$ 60,000

Ratio of cost-to-retail prices of goods available for sale ($208,000  $320,000)

65%

Inventory, end of period, at estimated cost ($60,000  65%) Estimated cost of goods sold ($260,000  65%)

(39,000) $169,000

Exercise 13-1B Year 1

Year 2

Ending merchandise inventory . . . . . . . . . . . .

understated

correct

Beginning merchandise inventory . . . . . . . . . .

correct

understated

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . .

overstated

understated

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . .

understated

overstated

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . understated

overstated

Ending owner’s capital . . . . . . . . . . . . . . . . . . .

understated

correct

524

CHAPTER 13

Exercise 13-2B GENERAL JOURNAL DATE 20-1 2

Jan.

DESCRIPTION

5 Purchases

PAGE POST. REF.

DEBIT

CREDIT

4 1 0 0 00

Accounts Payable/Elite Warehouse

4 1 0 0 00

3 4 5

8 Freight-In

3 0 0 00

Cash

3 0 0 00

6 7 8

12 Accounts Receivable/Memories Unlimited

5 2 0 0 00

Sales

5 2 0 0 00

9 10 11

15 Accounts Payable/Elite Warehouse

7 0 0 00

Purchases Returns and Allowances

7 0 0 00 11

12 13 14

22 Sales Returns and Allowances Accounts Receivable/Memories Unlimited

4 0 0 00

4 0 0 00 14

CHAPTER 13

525

Exercise 13-3B GENERAL JOURNAL DATE 20-1 2

Mar.

DESCRIPTION

PAGE POST. REF.

3 Merchandise Inventory

DEBIT

CREDIT

3 5 0 0 00

Accounts Payable/Corner Galleria

3 5 0 0 00

3 4 5

7 Merchandise Inventory

2 0 0 00

Cash

2 0 0 00

6 7 8

13 Accounts Receivable/Sonya Specialties

4 2 5 0 00

Sales

4 2 5 0 00

9 10 11

13 Cost of Goods Sold

2 5 5 0 00

Merchandise Inventory

2 5 5 0 00 11

12 13 14

18 Accounts Payable/Corner Galleria

9 0 0 00

Merchandise Inventory

22 Sales Returns and Allowances

5 0 0 00

Accounts Receivable/Sonya Specialties

5 0 0 00 17

18 19

9 0 0 00 14

15 16

22 Merchandise Inventory

3 0 0 00

Cost of Goods Sold

3 0 0 00 20

Exercise 13-4B Cost of merchandise on the showroom floor and in the warehouse

$42,600

Goods that Steele’s Storeroom, as the consignor, has for sale at the location of Midtown Galleria

8,300

Sales invoices indicate that merchandise was shipped on June 26, terms FOB destination, delivered at buyer’s receiving dock on July 1 Ending inventory

2,800 $53,700

526

CHAPTER 13

Exercise 13-5B 1.

Ending inventory under FIFO 20 units @ $40 = $800

Ending inventory under weighted-average Average cost per unit = $3,068  88 = $34.86 20 units @ $34.86 = $697.20

FIFO lower-of-cost-or-market FIFO cost

$800

Market (20 @ $39)

780

Choose market

780

Weighted-average lower-of-cost-or-market Weighted-average cost

$697.20

Market (20 @ $39)

780.00

Choose weighted-average cost

697.20

(a) Loss of Write-Down of Inventory Merchandise Inventory

20 20

(b) No entry

CHAPTER 13

527

Problem 13-6B 1. FIFO Inventory Method Date 20-1/ 20-2

Cost of Goods Sold Unit Units Price Total

Cost of Ending Inventory Unit Units Price Total

Oct. 1

Beg. inv.

400

$15.00

$ 6,000

$15.00

Oct. 18

1st purchase

300

16.50

4,950

16.50

Nov. 25

2nd purchase

600

17.00

10,200

17.00

Jan. 12

3rd purchase

700

17.25

12,075

17.25

Mar. 17

4th purchase

800

18.00

14,400

18.00

June 2

5th purchase

300

19.00

5,700

100

19.00

1,900

Aug. 21

6th purchase

21.00

300

21.00

6,300

Sept. 27

7th purchase

21.75

500

21.75

10,875

$53,325

900

Total

3,100

Alternative calculation if given

Cost of goods available for sale

goods available for sale and CGS or

Less cost of ending inventory

EI.

Cost of goods sold

$ 72,400

$19,075

Cost of goods available for sale

$ 72,400

(19,075)

Less cost of goods sold

(53,325)

$ 53,325

Cost of ending inventory

$ 19,075

2. LIFO Inventory Method Date 20-1/ 20-2

Cost of Goods Sold Unit Units Price Total

Oct. 1

Beg. inv.

$15.00

Oct. 18

1st purchase

Nov. 25

2nd purchase

Jan. 12

400

$15.00

$ 6,000

16.50

300

16.50

4,950

400

17.00

6,800

200

17.00

3,400

3rd purchase

700

17.25

12,075

17.25

Mar. 17

4th purchase

800

18.00

14,400

18.00

June 2

5th purchase

400

19.00

7,600

19.00

Aug. 21

6th purchase

300

21.00

6,300

21.00

Sept. 27

7th purchase

500

21.75

10,875

21.75

Total

3,100

Cost of Ending Inventory Unit Units Price Total

$58,050

900 Cost of goods available for sale

$14,350

Alternative calculation if given

Cost of goods available for sale

$ 72,400

goods available for sale and CGS or

Less cost of ending inventory

(14,350)

Less cost of goods sold

$ 72,400 (58,050)

EI.

Cost of goods sold

$ 58,050

Cost of ending inventory

$ 14,350

528

CHAPTER 13

Problem 13-6B (Concluded) 3.

Weighted-average Average cost per unit: $72,400  4,000 units = $18.10 Ending inventory = 900 units @ $18.10 = $16,290 Cost of goods sold = 3,100 units @ $18.10 = $56,110

4. Specific Identification Method Date 20-1/ 20-2

Cost of Goods Sold Unit Units Price Total

Oct. 1

Beg. inv.

400

$15.00

$ 6,000

Oct. 18

1st purchase

250

16.50

4,125

Nov. 25

2nd purchase

600

17.00

10,200

Jan. 12

3rd purchase

400

17.25

6,900

Mar. 17

4th purchase

700

18.00

June 2

5th purchase

200

Aug. 21

6th purchase

Sept. 27

7th purchase Total

Cost of Ending Inventory Unit Units Price Total $15.00

16.50

825

17.00

300

17.25

5,175

12,600

100

18.00

1,800

19.00

3,800

200

19.00

3,800

250

21.00

5,250

21.00

1,050

300

21.75

6,525

200

21.75

4,350

$55,400

900

3,100

Cost of goods available for sale

$17,000

Alternative calculation if given

Cost of goods available for sale

$ 72,400

goods available for sale and CGS or

Less cost of ending inventory

(17,000)

Less cost of goods sold

$ 72,400 (55,400)

EI.

Cost of goods sold

$ 55,400

Cost of ending inventory

$ 17,000

CHAPTER 13

529

Problem 13-7B 1. a. FIFO Inventory Method Date

Cost of Goods Sold Unit Units Price Total

20--

Cost of Ending Inventory Unit Units Price Total

Jan. 1

Beg. inv.

800

$11.00

$ 8,800

$11.00

Mar. 5

1st purchase

600

12.00

7,200

12.00

Apr. 16

2nd purchase

500

12.50

6,250

12.50

June 3

3rd purchase

700

14.00

9,800

14.00

Aug. 18

4th purchase

800

15.00

12,000

15.00

Sept. 13

5th purchase

700

17.00

11,900

200

17.00

3,400

Nov. 14

6th purchase

18.00

400

18.00

7,200

Dec. 3

7th purchase

20.30

500

20.30

10,150

$55,950

1,100

Total

4,100

Alternative calculation if given

Cost of goods available for sale

goods available for sale and CGS or

Less cost of ending inventory

EI.

Cost of goods sold

$ 76,700

$20,750

Cost of goods available for sale

$ 76,700

(20,750)

Less cost of goods sold

(55,950)

$ 55,950

Cost of ending inventory

$ 20,750

b. LIFO Inventory Method Date

Cost of Goods Sold Unit Units Price Total

20-Jan. 1

Beg. inv.

800

$11.00

$ 8,800

Mar. 5

1st purchase

300

12.00

3,600

300

12.00

3,600

Apr. 16

2nd purchase

500

12.50

6,250

12.50

June 3

3rd purchase

700

14.00

9,800

14.00

Aug. 18

4th purchase

800

15.00

12,000

15.00

Sept. 13

5th purchase

900

17.00

15,300

17.00

Nov. 14

6th purchase

400

18.00

7,200

18.00

Dec. 3

7th purchase

500

20.30

10,150

20.30

Total

$11.00

4,100

Cost of Ending Inventory Unit Units Price Total

$64,300

1,100 Cost of goods available for sale

$12,400

Alternative calculation if given

Cost of goods available for sale

$ 76,700

goods available for sale and CGS or

Less cost of ending inventory

(12,400)

Less cost of goods sold

$ 76,700 (64,300)

EI.

Cost of goods sold

$ 64,300

Cost of ending inventory

$ 12,400

530

CHAPTER 13

Problem 13-7B (Concluded) c.

Weighted-average Average cost per unit: $76,700  5,200 units = $14.75 Ending inventory = 1,100 units @ $14.75 = $16,225 Cost of goods sold = 4,100 units @ $14.75 = $60,475

2. a.

FIFO lower-of-cost-or-market FIFO cost

$20,750

Market (1,100 @ $16)

17,600

Choose market

17,600

Weighted-average lower-of-cost-or-market Weighted-average cost

$16,225

Market (1,100 @ $16)

17,600

Choose weighted-average cost

16,225

Problem 13-8B Cost of goods available for sale: Inventory, January 1, 20--

$ 60,000

Net purchases, January 1–July 1, 20--

380,000

Cost of goods available for sale

$440,000

Estimated cost of goods sold: Net sales

$650,000

Normal gross profit ($650,000  45%)

292,500

Estimated cost of goods sold

357,500

Estimated inventory at July 1, 20--

$ 82,500

CHAPTER 13

531

Problem 13-9B 1. and 2. Cost

Retail

Inventory, start of period, January 1, 20--

$ 50,000

$ 80,000

Net purchases during period

220,000

352,000

Goods available for sale

$270,000

$432,000

Less net sales for period

310,000

Inventory, end of period, at retail

$122,000

Ratio of cost-to-retail prices of goods available for sale ($270,000  $432,000) Inventory, end of period, at estimated cost ($122,000  62.5%) Estimated cost of goods sold ($310,000  62.5%)

62.5% (76,250) $193,750

MANAGING YOUR WRITING Answers will vary depending on the store visited and the patience of the manager. Key points that the students should address include: 1. What inventory method is used? (Periodic/Perpetual; FIFO/LIFO) 2. Are the scanning devices connected directly with inventory systems? 3. Are scanners connected directly with corporate headquarters? 4. How do scanning devices affect the process of ordering inventory? What are the advantages of the scanning devices? 1. Speed at the checkout stand. 2. Internal control: a. Scanning device identifies product. Without the scanner, the clerk must register the type of product (meat, produce, grocery) sold. Precision is better because the scanner identifies the specific product and there is a lower probability of error. b. Scanners also reduce the opportunity for theft. With regular cash registers, the clerk can enter a lower amount than marked on the package and give “discounts” to friends. The scanner will automatically enter the correct price.

532

CHAPTER 13

ETHICS CASE: SUGGESTED SOLUTIONS 1. No. The accountant should write down the carrying amount of the computers as soon as she knows they will sell for 60–70% less. 2. Loss on Write-Down of Inventory ................................. 30,000 Merchandise Inventory .................................................................. 30,000 $1,000 × 50 × (100% – 40%) = $30,000 3. Answers will vary. Students should point out that conservatism states that when in doubt, the lower asset value and net income measure should be used. Never anticipate gains, but always anticipate and account for losses. This relates to the lower of cost or market by keeping track of decreases in value of inventory and making the appropriate entry to write the assets down to market, if necessary. 4. Answers will vary. Students might mention obsolescence, decreasing popularity, slow moving items, damage, or theft.

CHAPTER 13

533

Mastery Problem 1. a. FIFO Inventory Method Date

Cost of Goods Sold Unit Units Price Total

20-2 Jan. 1

Beg. inv.

Jan. 12

Cost of Ending Inventory Unit Units Price Total

1,500

$10.00

$15,000

$10.00

1st purchase

500

11.50

5,750

11.50

Feb. 28

2nd purchase

600

14.50

8,700

14.50

June 29

3rd purchase

1,200

15.00

18,000

15.00

Aug. 31

4th purchase

800

16.50

13,200

16.50

Oct. 29

5th purchase

200

18.00

3,600

100

18.00

1,800

Nov. 30

6th purchase

18.50

700

18.50

12,950

Dec. 21

7th purchase

20.00

400

20.00

8,000

Total Alternative calculation if given goods available for sale and CGS or EI.

4,800

$64,250

Cost of goods available for sale Less cost of ending inventory Cost of goods sold

$ 87,000 (22,750) $ 64,250

1,200

$22,750

Cost of goods available for sale Less cost of goods sold Cost of ending inventory

$ 87,000 (64,250) $ 22,750

b. LIFO Inventory Method Date

Cost of Goods Sold Unit Units Price Total

20-2 Jan. 1

Beg. inv.

300

$10.00

$ 3,000

Jan. 12

1st purchase

500

11.50

Feb. 28

2nd purchase

600

June 29

3rd purchase

Aug. 31

Cost of Ending Inventory Unit Units Price Total $10.00

$12,000

5,750

11.50

14.50

8,700

14.50

1,200

15.00

18,000

15.00

4th purchase

800

16.50

13,200

16.50

Oct. 29

5th purchase

300

18.00

5,400

18.00

Nov. 30

6th purchase

700

18.50

12,950

18.50

Dec. 21

7th purchase

400

20.00

8,000

20.00

Total Alternative calculation if given goods available for sale and CGS or EI.

4,800 Cost of goods available for sale Less cost of ending inventory Cost of goods sold

$75,000 $ 87,000 (12,000) $ 75,000

1,200

1,200 Cost of goods available for sale Less cost of goods sold Cost of ending inventory

$12,000 $ 87,000 (75,000) $ 12,000

534

CHAPTER 13

Mastery Problem (Concluded) c.

Weighted-average method Average cost per unit: $87,000  6,000 units = $14.50 Inventory, December 31, 20-2: 1,200 units @ $14.50 = $17,400 Cost of goods sold for 20-2: 4,800 units @ $14.50 = $69,600

2. a.

FIFO lower-of-cost-or-market FIFO cost

$22,750

Market (1,200 @ $18)

21,600

Choose market

21,600

Weighted-average lower-of-cost-or-market Weighted-average cost

$17,400

Market (1,200 @ $18)

21,600

Choose weighted-average cost

17,400

3. Cost of goods available for sale: Inventory, January 1, 20-2 Net purchases, January 1, 20-2–December 31, 20-2

$ 15,000 72,000

Cost of goods available for sale

$87,000

Estimated cost of goods sold: Net sales Normal gross profit ($100,000  35%)

$100,000 35,000

Estimated cost of goods sold

65,000

Estimated inventory at December 31, 20-2

$22,000

CHAPTER 13

535

Challenge Problem

Units

FIFO Cost/Unit

Cost

Purchase 1

100

$1.00

Purchase 2

200

Purchase 3

300

Goods available for sale

600

Ending inventory

(200)

20-1

Units sold/CGS

400

Details of Cost of Goods Sold 20-1

Units

Purchase 1

Units

LIFO Cost/Unit

Cost

$ 100

100

$1.00

$ 100

2.00

400

200

2.00

400

3.00

900

300

3.00

900

$1,400

600

(600)

(100)

1.00

(100)

2.00

(200)

3.00

$1,400

$ 800

400

$1,100

FIFO Cost/Unit

Cost

Units

100

$1.00

$100

Purchase 2

200

2.00

400

100

2.00

$ 200

Purchase 3

100

3.00

300

3.00

900

Total

400

$800

400

LIFO Cost/Unit

Cost

$1.00

$1,100

536

CHAPTER 13

Challenge Problem (Concluded)

20-2

Units

FIFO Cost/Unit

Beginning inventory

200

$3.00

Cost $ 600

Units

LIFO Cost/Unit

Cost

100

$1.00

$ 100

100

2.00

200

Purchase 4

150

4.00

600

150

4.00

600

Purchase 5

250

5.00

1,250

250

5.00

1,250

Purchase 6

350

6.00

2,100

350

6.00

2,100

Goods available for sale

950

$4,550

950

Ending inventory

(50)

(300)

(50)

Units sold/CGS

900

$4,250

900

Details of Cost of Goods Sold 20-2

Units

FIFO Cost/Unit

Cost

Units

LIFO Cost/Unit

Beginning inventory

200

$3.00

$ 600

$1.00

100

2.00

200

6.00

$4,250 1.00

(50) $4,200

Cost $

Purchase 4

150

4.00

600

150

4.00

600

Purchase 5

250

5.00

1,250

250

5.00

1,250

Purchase 6

300

6.00

1,800

350

6.00

2,100

Total

900

$4,250

900

$4,200

Note: During increasing prices, LIFO cost of goods sold is generally higher than FIFO cost of goods sold. This relationship is reversed in 20-2 because the firm “dipped” into its beginning inventory and the LIFO approach reported those lower costs ($1 and $2 units) on the income statement. The least expensive unit sold under FIFO was $3.

CHAPTER 13

537

APPENDIX: PERPETUAL INVENTORY METHOD: LIFO AND MOVING-AVERAGE METHODS Review Question 1. Under the periodic system, calculations are made at the end of the accounting period. Under the perpetual system, calculations are made each time inventory is purchased or sold.

Exercise 13Apx-1A 1. Perpetual LIFO Purchases

Cost of Goods Sold Layer

Units

Cost/ Unit

Layer Cost

4/1

(1)

100

$4.30

$ 430

(BI)

(2)

100

4.50

450

(3)

200

4.60

920

(1)

100

$4.30

$ 430

(2)

100

4.50

450

(3)

200

4.60

920

(4)

400

5.50

2,200

Date

4/20

Units

400

Cost/ Unit

$5.50

Total

Units

Cost/ Unit

Inventory on Hand

CGS

Cum. CGS

$2,200

4/30

400

$5.50 $2,200

(1)

100

$4.30

$ 430

200

4.60

920

(2)

4.50

225

4.50

225

Cost of Goods Sold during April

Total

$1,800

$4,000

$ 655

$3,345

BI: Beginning Inventory

2. Perpetual Moving-Average Purchases

Date

Units

Cost/ Unit

Inventory on Hand and Average Cost per Unit

Cost of Goods Sold

Total

Units

Cost/ Unit

CGS

Cum. CGS

Cost of Purchase or (Sale)

Cost of Inventory on Hand

Units on Hand

Average Cost/ Unit

$1,800

400

$4.50

$ 2,200

4,000

800

5.00

(3,250)

750

150

5.00

4/1 (BI) 4/20

400

$5.50

$2,200

4/30

Cost of Goods Sold during April

650

$5.00 $3,250

$3,250

538

CHAPTER 13

Problem 13Apx-2A 1. Perpetual LIFO Purchases

Cost of Goods Sold

Units

Cost/ Unit

Total

1/1

100

$1.00

1/4

400

$1.10

Date

Layer

Units

Cost/ Unit

Layer Cost

Total

$100

(1)

100

$1.00

$100

$ 100

$440

(1)

100

$1.00

$100

(2)

400

1.10

440

(1)

100

$1.00

$100

(2)

100

1.10

110

(1)

100

$1.00

$100

(2)

100

1.10

110

(3)

300

1.30

390

(1)

100

$1.00

$100

(2)

100

1.10

110

(3)

100

1.30

130

(1)

100

$1.00

$100

(2)

100

1.10

110

(3)

100

1.30

130

(4)

200

1.35

270

(1)

100

$1.00

$100

(2)

100

1.10

110

(3)

100

1.30

130

(4)

200

1.35

270

(5)

500

1.60

800

1/5

1/10

300

$1.30

1/18

200

500

$1.35

$1.60

$1.80

$ 330

$1.30

$260

$ 590

$800

1/27 300

$330

Cum. CGS

$270

1/22

1/31

$1.10

CGS

$390

1/12

1/15

Units

Cost/ Unit

Inventory on Hand

$ 540

$ 210

$ 600

$ 340

$ 610

$1,410

500

$1.60

$800

(1)

100

$1.00

$100

200

1.35

270

(2)

100

1.10

110

$ 210

100

1.30

130

$1,790

100

$1.10

$110

$1,900

(1)

100

$1.00

$100

$ 100

(1)

100

$1.00

$100

(6)

300

1.80

540

$540

Cost of Goods Sold during January

$ 640

$1,900

300

1.80

540

Cost of Goods Sold during January

1/31

100

800

200

300

1/27

1.60

270

390

440

$100

Units

800

500

1/18

1.35

1.30

1.10

$1.00

Total

1/22

200

1/15

1/12

1/10

300

400

1/4

1/5

100

Units

1/1

Date

Cost/ Unit

Purchases

2. Perpetual Moving-Average

Problem 13Apx-2A (Concluded)

1.4336

1.2120

$1.0800

Cost/ Unit

143.36

1,146.88

242.40

$ 324.00

CGS

Cost of Goods Sold

$1,856.64

1,856.64

1,713.28

566.40

$ 324.00

Cum. CGS

540.00

(143.36)

(1,146.88)

800.00

270.00

(242.40)

390.00

(324.00)

440.00

$ 100.00

Cost of Purchase or (Sale)

683.36

143.36

286.72

1,433.60

633.60

363.60

606.00

216.00

540.00

$ 100.00

Cost of Inventory on Hand

400

100

200

1,000

500

300

500

200

500

100

Units on Hand

Inventory on Hand and Average Cost per Unit

1.7084

1.4336

1.2672

1.2120

1.0800

$1.0000

Average Cost/ Unit

CHAPTER 13 539

540

CHAPTER 13

Exercise 13Apx-1B 1. Perpetual LIFO Purchases

Cost of Goods Sold Layer

Units

Cost/ Unit

Layer Cost

8/1

(1)

100

$8.00

$ 800

(BI)

(2)

150

8.10

1,215

(3)

250

8.30

2,075

(1)

100

$8.00

$ 800

(2)

150

8.10

1,215

(3)

250

8.30

2,075

(4)

300

8.50

2,550

Date

8/15

Units

300

Cost/ Unit

$8.50

Total

Units

Cost/ Unit

Inventory on Hand

CGS

Cum. CGS

$2,550

8/31

300

$8.50 $2,550

(1)

100

$8.00

$ 800

250

8.30

2,075

(2)

8.10

405

100

8.10

810

Cost of Goods Sold during August

Total

$4,090

$6,640

$1,205

$5,435

BI: Beginning Inventory

2. Perpetual Moving-Average Purchases

Date

Units

Cost/ Unit

Inventory on Hand and Average Cost per Unit

Cost of Goods Sold

Total

Units

Cost/ Unit

CGS

Cum. CGS

Cost of Purchase or (Sale)

Cost of Inventory on Hand

Units on Hand

Average Cost/ Unit

$4,090

500

$8.18

$ 2,550

6,640

800

8.30

(5,395)

1,245

150

8.30

8/1 (BI) 8/15

300

$8.50

$2,550

8/31

Cost of Goods Sold during August

650

$8.30 $5,395

$5,395

BI: Beginning Inventory

CHAPTER 13

541

Problem 13Apx-2B 1. Perpetual LIFO Purchases

Cost of Goods Sold

Units

Cost/ Unit

Total

1/1

100

$2.00

1/5

500

$2.30

Date

Layer

Units

Cost/ Unit

$ 200

(1)

100

$2.00

$1,150

(1)

100

$2.00

$ 200

(2)

500

2.30

1,150

(1)

100

$2.00

$ 200

(2)

200

2.30

460

(1)

100

$2.00

$ 200

(2)

200

2.30

460

(3)

300

2.40

720

(1)

100

$2.00

$ 200

(2)

200

2.30

460

(1)

100

$2.00

$ 200

(2)

200

2.30

460

(4)

200

2.50

500

(1)

100

$2.00

$ 200

(2)

200

2.30

460

(4)

200

2.50

500

(5)

500

2.70

1,350

1/7

1/12

300

$2.40

1/19

300

200

500

$2.50

$2.70

$2.90

$ 690

$2.40 $ 720

$1,410

$1,350

1/28 200

$2.30 $ 690

Cum. CGS

$ 500

1/24

1/31

CGS

$ 720

1/15

1/17

Units

Cost/ Unit

Inventory on Hand Layer Cost

Total

$ 200

$1,350

$ 660

$1,380

$ 660

$1,160

$2,510

500

$2.70 $1,350

(1)

100

$2.00

$ 200

200

2.50

500

(2)

100

2.30

230

$ 430

100

2.30

230

$3,490

100

$2.30 $ 230

$3,720

(1)

100

$2.00

$ 200

(1)

100

$2.00

$ 200

(6)

200

2.90

580

$ 580

Cost of Goods Sold during January

$ 780

$3,720

200

2.90

580

Cost of Goods Sold during January

1/31

100

1,350

300

1/28

2.70

500

720

1,150

$ 200

Units

800

500

1/19

2.50

2.40

2.30

$2.00

Total

1/24

200

1/17

1/15

1/12

300

500

1/5

1/7

100

Units

1/1

Date

Cost/ Unit

Purchases

2. Perpetual Moving-Average

Problem 13Apx-2B (Concluded)

2.5475

2.3250

$2.2500

Cost/ Unit

254.75

2,038.00

697.50

$ 675.00

CGS

Cost of Goods Sold

$3,665.25

3,665.25

3,410.50

1,372.50

$ 675.00

Cum. CGS

580.00

(254.75)

(2,038.00)

1,350.00

500.00

(697.50)

720.00

(675.00)

1,150.00

$ 200.00

Cost of Purchase or (Sale)

834.75

254.75

509.50

2,547.50

1,197.50

697.50

1,395.00

675.00

1,350.00

$ 200.00

Cost of Inventory on Hand

300

100

200

1,000

500

300

600

300

600

100

Units on Hand

Inventory on Hand and Average Cost per Unit

2.7825

2.5475

2.3950

2.3250

2.2500

$2.0000

Average Cost/ Unit

542 CHAPTER 13

CHAPTER 14 ADJUSTMENTS AND THE WORK SHEET FOR A MERCHANDISING BUSINESS REVIEW QUESTIONS 1.

The balance represents the beginning inventory. This balance must be adjusted using the two-step process to reflect the ending inventory as determined by the physical inventory count.

The following amounts from the work sheet are used to compute cost of goods sold: a. Beginning merchandise inventory b. Purchases c. Purchases returns and allowances d. Purchases discounts e. Freight-in f. Ending merchandise inventory

Both are extended because the individual amounts are needed for calculation of cost of goods sold on the income statement.

An unearned revenue is cash received in advance. It is a liability because the company owes its customers product or service or must refund their money.

Three examples of unearned revenue are Unearned Ticket Revenue, Unearned Subscriptions Revenue, and Unearned Deposit Fees.

The five steps in preparing a work sheet are as follows: Step 1: Prepare the trial balance. Step 2: Prepare the adjustments. Step 3: Prepare the adjusted trial balance. Step 4: Extend the adjusted trial balance amounts to the Income Statement and Balance Sheet columns. Step 5: Total the Income Statement and Balance Sheet columns to compute the net income or net loss.

The difference between debits and credits for each pair of columns represents the net income or net loss.

The balance represents the amount of inventory that should be on hand at the end of the period. This amount may need to be adjusted based on the physical inventory.

544

CHAPTER 14

Exercise 14-1A

(Beg. Inv.)

Merchandise Inventory 45,000 (a)

(b)

Income Summary 45,000

(a) 45,000

(b)

57,000

Exercise 14-2A Cost of goods sold: Merch. inv., beginning

$27,000

Purchases

$78,000

Less: Purch. ret. & allow. Purchases discounts

$3,900 6,000

9,900

Net purchases

$68,100

Add freight-in

350

Cost of goods purchased

68,450

Goods available for sale

$95,450

Less merch. inv., ending

22,000

Cost of goods sold

$73,450

Exercise 14-3A (a)

Cash 480,000

Unearned Ticket Revenue (a) 480,000 (b)

Ticket Revenue (b)

120,000

CHAPTER 14

545

This page intentionally left blank.

546

CHAPTER 14

Exercise 14-4A 1., 2., and 3.

Kevin's Work For Year Ended ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

Merchandise Inventory

40 0 0 0 00

Income Summary

Purchases

Purchases Returns and Allow.

2 0 0 0 00

Purchases Discounts

3 0 0 0 00

Freight-In

ADJUSTMENTS DEBIT CREDIT (b)

50 0 0 0 00

(a)

40 0 0 0 00

(a)

40 0 0 0 00

(b)

50 0 0 0 00

90 0 0 0 00

5 0 0 00

17 18

CHAPTER 14

547

Exercise 14-4A (Concluded) Gift Shop Sheet (Partial) December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

50 0 0 0 00 40 0 0 0 00

50 0 0 0 00 50 0 0 0 00

90 0 0 0 00

40 0 0 0 00

50 0 0 0 00

90 0 0 0 00

2 0 0 0 00

3 0 0 0 00

5 0 0 00

16 17 18

Cost of goods sold: Merch. inv., Jan. 1

$ 40,000

Purchases Less: Purch. ret. & allow. Purchases discounts

$90,000 $2,000 3,000

5,000

Net purchases

$85,000

Add freight-in

500

Cost of goods purchased

85,500

Goods available for sale

$125,500

Less merch. inv., Dec. 31

50,000

Cost of goods sold

$75,500

548

CHAPTER 14

Exercise 14-5A Beginning merchandise inventory

$55,000

Ending merchandise inventory

60,000

Exercise 14-6A GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

45 0 0 0 00

Merchandise Inventory

45 0 0 0 00

4 5 6

31 Merchandise Inventory

50 0 0 0 00

Income Summary

50 0 0 0 00

7 8 9

31 Unearned Grooming Revenue

2 0 0 0 00

Grooming Revenue

2 0 0 0 00

31 Supplies Expense

Supplies

7 0 0 0 00

7 0 0 0 00 12

31 Depreciation Expense—Building

5 0 0 0 00

Accumulated Depreciation—Building

5 0 0 0 00 15

16 17 18

9 10

6 7

31 Wages Expense Wages Payable

1 2 0 0 00

1 2 0 0 00 18

CHAPTER 14

549

Exercise 14-7A GENERAL JOURNAL DATE 20-1

June

DESCRIPTION

PAGE POST. REF.

1 Merchandise Inventory

DEBIT

500 0 0 0 00

Accounts Payable/Brij Builder’s Materials

CREDIT 1

500 0 0 0 00

2 3

3 Merchandise Inventory

400 0 0 0 00

Cash

400 0 0 0 00

5 6

5 Accounts Receivable/Champa Construction

20 0 0 0 00

Sales

20 0 0 0 00

8 9

5 Cost of Goods Sold

15 0 0 0 00

Merchandise Inventory

15 0 0 0 00 11

Exercise 14-8A GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Adjusting Entry 20-1 2

Dec. 31

Inventory Short and Over Merchandise Inventory

25 0 0 0 00

550

CHAPTER 14

Problem 14-9A 1. and 2. Venice Beach Work For Year Ended ACCOUNT TITLE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Cash Accounts Receivable Merchandise Inventory Supplies Prepaid Insurance Land Building Accumulated Depr.—Building Store Equipment Accumulated Depr.—Store Equip. Accounts Payable Wages Payable Sales Tax Payable Unearned Rent Revenue Mortgage Payable M. Young, Capital M. Young, Drawing Income Summary Sales Sales Returns and Allowances Rent Revenue Purchases Purchases Returns and Allow. Purchases Discounts Freight-In Wages Expense Advertising Expense Supplies Expense Telephone Expense Utilities Expense Insurance Expense Depreciation Expense—Building Depreciation Exp.—Store Equip. Miscellaneous Expense

20 0 0 0 00 14 0 0 0 00 25 0 0 0 00 8 0 0 0 00 5 4 0 0 00 30 0 0 0 00 50 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

(b)

35 0 0 0 00

(a)

25 0 0 0 00 4 7 0 0 00 (d) 1 6 0 0 00 (c)

20 0 0 0 00

(e)

2 5 0 0 00

14 0 0 0 00 9 6 0 0 00

(f)

3 5 0 0 00

(h)

8 0 0 00

(b)

35 0 0 0 00

(g)

4 4 0 0 00

35 0 0 0 00

5 9 0 0 00 8 9 0 0 00 (g) 45 0 0 0 00 65 4 1 0 00

4 4 0 0 00

26 0 0 0 00 (a)

25 0 0 0 00

118 0 0 0 00 1 7 0 0 00 27 0 0 0 00 1 4 0 0 00 1 8 0 0 00 2 1 0 0 00 32 0 0 0 00 3 6 0 0 00

(h)

8 0 0 00

(c)

4 7 0 0 00

(d)

1 6 0 0 00 2 5 0 0 00 3 5 0 0 00

1 3 5 0 00 8 0 0 0 00 (e) (f)

8 6 0 00 290 0 1 0 00

35 36

TRIAL BALANCE DEBIT CREDIT

290 0 1 0 00

77 5 0 0 00

Net Income

37 38

CHAPTER 14

551

Problem 14-9A (Continued) Kite Shop Sheet December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

20 0 0 0 00 14 0 0 0 00 35 0 0 0 00 3 3 0 0 00 3 8 0 0 00 30 0 0 0 00 50 0 0 0 00

BALANCE SHEET DEBIT CREDIT

20 0 0 0 00 14 0 0 0 00 35 0 0 0 00 3 3 0 0 00 3 8 0 0 00 30 0 0 0 00 50 0 0 0 00 22 5 0 0 00

3 4 5 6 7

35 0 0 0 00 17 5 0 0 00 9 6 0 0 00 8 0 0 00 5 9 0 0 00 4 5 0 0 00 45 0 0 0 00 65 4 1 0 00 35 0 0 0 00 118 0 0 0 00

17 5 0 0 00 9 6 0 0 00 11 8 0 0 00 12 5 9 0 0 00 13 4 5 0 0 00 14 45 0 0 0 00 15 65 4 1 0 00 16 25 0 0 0 00

35 0 0 0 00 118 0 0 0 00

18 19

1 7 0 0 00 4 4 0 0 00

27 0 0 0 00

4 4 0 0 00

27 0 0 0 00 1 4 0 0 00 1 8 0 0 00

331 8 1 0 00

26 0 0 0 00

1 7 0 0 00

2 1 0 0 00 32 8 0 0 00 3 6 0 0 00 4 7 0 0 00 1 3 5 0 00 8 0 0 0 00 1 6 0 0 00 2 5 0 0 00 3 5 0 0 00 8 6 0 00 331 8 1 0 00

22 5 0 0 00

35 0 0 0 00

26 0 0 0 00 25 0 0 0 00

1 4 0 0 00 1 8 0 0 00 2 1 0 0 00 32 8 0 0 00 3 6 0 0 00 4 7 0 0 00 1 3 5 0 00 8 0 0 0 00 1 6 0 0 00 2 5 0 0 00 3 5 0 0 00 8 6 0 00 114 7 1 0 00 45 8 9 0 00 160 6 0 0 00

23 24 25 26 27 28 29 30 31 32 33 34

160 6 0 0 00 160 6 0 0 00

217 1 0 0 00

171 2 1 0 00 35

217 1 0 0 00

45 8 9 0 00 36 217 1 0 0 00 37 38

552

CHAPTER 14

Problem 14-9A (Concluded) 3. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

25 0 0 0 00

Merchandise Inventory

25 0 0 0 00

4 5 6

31 Merchandise Inventory

35 0 0 0 00

Income Summary

35 0 0 0 00

31 Supplies Expense

Supplies

4 7 0 0 00

31 Insurance Expense

1 6 0 0 00

Prepaid Insurance

1 6 0 0 00 12 13

31 Depreciation Expense—Building

2 5 0 0 00

Accumulated Depreciation—Building

2 5 0 0 00 15

16 17 18

31 Depreciation Expense—Store Equipment

3 5 0 0 00

Accumulated Depreciation—Store Equipment

3 5 0 0 00 18

19 20 21

31 Unearned Rent Revenue

4 4 0 0 00

Rent Revenue

4 4 0 0 00 21

22 23 24

9 10

13 14

6 7

31 Wages Expense Wages Payable

8 0 0 00

8 0 0 00 24

CHAPTER 14

553

Problem 14-10A 1. and 2. (See pages 554 and 555) 3. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

31 0 0 0 00

Merchandise Inventory

31 0 0 0 00

4 5 6

31 Merchandise Inventory

22 0 0 0 00

Income Summary

22 0 0 0 00

31 Supplies Expense

Supplies

4 8 0 0 00

31 Insurance Expense

2 8 5 0 00

Prepaid Insurance

2 8 5 0 00 12 13

31 Depreciation Expense—Building

4 0 0 0 00

Accumulated Depreciation—Building

4 0 0 0 00 15

16 17 18

31 Depreciation Expense—Store Equipment

3 6 0 0 00

Accumulated Depreciation—Store Equipment

3 6 0 0 00 18

19 20 21

31 Unearned Storage Revenue

3 6 5 0 00

Storage Revenue

3 6 5 0 00 21

22 23 24

9 10

13 14

6 7

31 Wages Expense Wages Payable

7 5 0 00

7 5 0 00 24

554

CHAPTER 14

Problem 14-10A (Continued) 1. and 2. Cascade Bicycle Work For Year Ended ACCOUNT TITLE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Cash Accounts Receivable Merchandise Inventory Supplies Prepaid Insurance Land Building Accumulated Depr.—Building Store Equipment Accumulated Depr.—Store Equip. Accounts Payable Wages Payable Sales Tax Payable Unearned Storage Revenue Mortgage Payable D. Lamond, Capital D. Lamond, Drawing Income Summary Sales Sales Returns and Allowances Storage Revenue Purchases Purchases Returns and Allow. Purchases Discounts Freight-In Wages Expense Advertising Expense Supplies Expense Telephone Expense Utilities Expense Insurance Expense Depreciation Expense—Building Depreciation Exp.—Store Equip. Miscellaneous Expense

23 0 0 0 00 15 0 0 0 00 31 0 0 0 00 7 2 0 0 00 4 6 0 0 00 28 0 0 0 00 53 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

(b)

22 0 0 0 00

(a)

31 0 0 0 00 4 8 0 0 00 (d) 2 8 5 0 00 (c)

17 0 0 0 00

(e)

4 0 0 0 00

9 0 0 0 00 3 8 0 0 00

(f)

3 6 0 0 00

(h)

7 5 0 00

(b)

22 0 0 0 00

(g)

3 6 5 0 00

27 0 0 0 00

3 0 5 0 00 5 6 0 0 00 (g) 42 0 0 0 00 165 7 6 0 00

3 6 5 0 00

33 0 0 0 00 (a)

31 0 0 0 00

51 0 0 0 00 2 4 0 0 00 21 0 0 0 00 1 3 0 0 00 1 9 0 0 00 1 8 0 0 00 35 0 0 0 00 5 7 0 0 00

(h)

7 5 0 00

(c)

4 8 0 0 00

(d)

2 8 5 0 00 4 0 0 0 00 3 6 0 0 00

2 2 0 0 00 9 6 0 0 00 (e) (f)

9 1 0 00 300 4 1 0 00

35 36

TRIAL BALANCE DEBIT CREDIT

300 4 1 0 00

72 6 5 0 00

Net Loss

37 38

CHAPTER 14

555

Problem 14-10A (Concluded) Shop Sheet December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

23 0 0 0 00 15 0 0 0 00 22 0 0 0 00 2 4 0 0 00 1 7 5 0 00 28 0 0 0 00 53 0 0 0 00

BALANCE SHEET DEBIT CREDIT

23 0 0 0 00 15 0 0 0 00 22 0 0 0 00 2 4 0 0 00 1 7 5 0 00 28 0 0 0 00 53 0 0 0 00 21 0 0 0 00

3 4 5 6 7

27 0 0 0 00 12 6 0 0 00 3 8 0 0 00 7 5 0 00 3 0 5 0 00 1 9 5 0 00 42 0 0 0 00 165 7 6 0 00 22 0 0 0 00 51 0 0 0 00

12 6 0 0 00 10 3 8 0 0 00 11 7 5 0 00 12 3 0 5 0 00 13 1 9 5 0 00 14 42 0 0 0 00 15 165 7 6 0 00 16 31 0 0 0 00

22 0 0 0 00 51 0 0 0 00

18 19

2 4 0 0 00 3 6 5 0 00

21 0 0 0 00

3 6 5 0 00

21 0 0 0 00 1 3 0 0 00 1 9 0 0 00

330 7 6 0 00

8 9

33 0 0 0 00

2 4 0 0 00

1 8 0 0 00 35 7 5 0 00 5 7 0 0 00 4 8 0 0 00 2 2 0 0 00 9 6 0 0 00 2 8 5 0 00 4 0 0 0 00 3 6 0 0 00 9 1 0 00 330 7 6 0 00

21 0 0 0 00

27 0 0 0 00

33 0 0 0 00 31 0 0 0 00

1 3 0 0 00 1 9 0 0 00

23 24

1 8 0 0 00 35 7 5 0 00 5 7 0 0 00 4 8 0 0 00 2 2 0 0 00 9 6 0 0 00 2 8 5 0 00 4 0 0 0 00 3 6 0 0 00 9 1 0 00 125 6 1 0 00

79 8 5 0 00

205 1 5 0 00

250 9 1 0 00 35

125 6 1 0 00

45 7 6 0 00 125 6 1 0 00

45 7 6 0 00 250 9 1 0 00

250 9 1 0 00 37

25 26 27 28 29 30 31 32 33 34

556

CHAPTER 14

Problem 14-11A 1. Stark Street Computers Work Sheet (Partial) For Year Ended December 31, 20-TRIAL BALANCE ACCOUNT TITLE

DEBIT

ADJUSTMENTS

CREDIT

DEBIT

CREDIT

ADJUSTED TRIAL BALANCE DEBIT

CREDIT

Cash

18 0 0 0 00

Accounts Receivable

11 0 0 0 00

35 0 0 0 00

2 8 2 0 00

1 2 2 5 00

27 0 0 0 00

(b)

Merchandise Inventory

25 0 0 0 00

Supplies

8 0 0 0 00

(c)

5 1 8 0 00

(d)

4 1 7 5 00

Prepaid Insurance

5 4 0 0 00

Land

27 0 0 0 00

Building

48 0 0 0 00

Accum. Depr.—Building

35 0 0 0 00

(a)

25 0 0 0 00

48 0 0 0 00 20 0 0 0 00

(e)

7 0 0 0 00

(f )

4 1 0 0 00

(h)

1 3 0 0 00

33 0 0 0 00

27 0 0 0 00 33 0 0 0 00

Store Equipment

Accum. Depr.—Store Equip.

8 7 0 0 00

Accounts Payable

6 4 0 0 00

Wages Payable

Sales Tax Payable

5 7 0 0 00

Unearned Repair Rev.

8 2 0 0 00

Mortgage Payable

44 0 0 0 00

44 0 0 0 00 15

L. Cowart, Capital

80 0 2 5 00

80 0 2 5 00 16

L. Cowart, Drawing

Income Summary

Sales

Sales Returns and Allow.

12 8 0 0 00 10 6 4 0 0 00 11 1 3 0 0 00 12 5 7 0 0 00 13

(g)

6 4 0 0 00

1 8 0 0 00 14

35 0 0 0 00 (a)

25 0 0 0 00

(b)

35 0 0 0 00

25 0 0 0 00

35 0 0 0 00 18

122 0 0 0 00

122 0 0 0 00 19

2 2 5 0 00

2 2 5 0 00 (g)

Repair Revenue

Purchases

Purchases Ret. and Allow.

1 8 5 0 00

1 8 5 0 00 23

Purchases Discounts

1 4 2 5 00

1 4 2 5 00 24

Freight-In

3 2 0 0 00

Wages Expense

37 0 0 0 00

Advertising Expense

4 1 2 5 00

29 7 5 0 00

6 4 0 0 00

6 4 0 0 00 21 29 7 5 0 00

(h)

1 3 0 0 00

Supplies Expense

(c)

1 8 0 00

Telephone Expense

1 6 5 0 00

Utilities Expense

9 1 5 0 00

3 2 0 0 00

38 3 0 0 00

4 1 2 5 00

5 1 8 0 00

1 6 5 0 00

9 1 5 0 00

Insurance Expense

(d)

4 1 7 5 00

Depr. Exp.—Building

(e)

7 0 0 0 00

Depr. Exp.—Store Equip.

(f)

4 1 0 0 00

Miscellaneous Expense

7 7 5 00

7 7 5 00 298 3 0 0 00 298 3 0 0 00

88 1 5 5 00

88 1 5 5 00 345 7 0 0 00 345 7 0 0 00 35

CHAPTER 14

557

Problem 14-11A (Concluded) 2. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

25 0 0 0 00

Merchandise Inventory

25 0 0 0 00

4 5 6

31 Merchandise Inventory

35 0 0 0 00

Income Summary

35 0 0 0 00

31 Supplies Expense

Supplies

5 1 8 0 00

31 Insurance Expense

4 1 7 5 00

Prepaid Insurance

4 1 7 5 00 12 13

31 Depreciation Expense—Building

7 0 0 0 00

Accumulated Depreciation—Building

7 0 0 0 00 15

16 17 18

31 Depreciation Expense—Store Equipment

4 1 0 0 00

Accumulated Depreciation—Store Equipment

4 1 0 0 00 18

19 20 21

31 Unearned Repair Revenue

6 4 0 0 00

Repair Revenue

6 4 0 0 00 21

22 23 24

9 10

13 14

6 7

31 Wages Expense Wages Payable

1 3 0 0 00

1 3 0 0 00 24

558

CHAPTER 14

Problem 14-12A 1. Lewis Music Work For Year Ended ACCOUNT TITLE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Cash Accounts Receivable Merchandise Inventory Supplies Prepaid Insurance Land Building Accumulated Depr.—Building Store Equipment Accumulated Depr.—Store Equip. Accounts Payable Wages Payable Sales Tax Payable Unearned Rent Revenue Mortgage Payable H. Lewis, Capital H. Lewis, Drawing Income Summary Sales Sales Returns and Allowances Rent Revenue Purchases Purchases Returns and Allow. Purchases Discounts Freight-In Wages Expense Advertising Expense Supplies Expense Telephone Expense Utilities Expense Insurance Expense Depreciation Expense—Building Depreciation Exp.—Store Equip. Miscellaneous Expense

27 0 0 0 00 13 3 0 0 00 34 0 0 0 00 5 3 0 0 00 6 1 0 0 00 31 0 0 0 00 52 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

(b)

38 0 0 0 00

(a)

34 0 0 0 00 3 8 0 0 00 (d) 4 3 1 5 00 (c)

17 0 0 0 00

(e)

4 1 4 5 00

11 9 0 0 00 6 2 5 0 00

(f)

2 9 7 5 00

(h)

8 7 5 00

(b)

38 0 0 0 00

(g)

4 2 2 5 00

39 0 0 0 00

6 2 0 0 00 7 4 0 0 00 (g) 46 0 0 0 00 111 6 2 0 00

4 2 2 5 00

37 0 0 0 00 (a)

34 0 0 0 00

136 0 0 0 00 3 5 0 0 00 39 0 0 0 00 2 5 3 0 00 1 9 7 5 00 2 6 5 0 00 42 0 0 0 00 4 1 7 5 00

(h)

8 7 5 00

(c)

3 8 0 0 00

(d)

4 3 1 5 00 4 1 4 5 00 2 9 7 5 00

1 9 8 0 00 7 9 4 5 00 (e) (f)

9 2 5 00 346 8 7 5 00

35 36

TRIAL BALANCE DEBIT CREDIT

346 8 7 5 00

92 3 3 5 00

Net Income

37 38

CHAPTER 14

559

Problem 14-12A (Continued) Store Sheet December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

27 0 0 0 00 13 3 0 0 00 38 0 0 0 00 1 5 0 0 00 1 7 8 5 00 31 0 0 0 00 52 0 0 0 00

3 4 5 6 7

39 0 0 0 00

37 0 0 0 00 38 0 0 0 00 136 0 0 0 00

34 0 0 0 00

38 0 0 0 00 136 0 0 0 00

18 19

3 5 0 0 00

4 2 2 5 00

39 0 0 0 00

2 5 3 0 00 1 9 7 5 00

23 24

2 6 5 0 00 42 8 7 5 00 4 1 7 5 00 3 8 0 0 00 1 9 8 0 00 7 9 4 5 00 4 3 1 5 00 4 1 4 5 00 2 9 7 5 00 9 2 5 00 392 8 7 0 00

14 8 7 5 00 10 6 2 5 0 00 11 8 7 5 00 12 6 2 0 0 00 13 3 1 7 5 00 14 46 0 0 0 00 15 111 6 2 0 00 16

14 8 7 5 00 6 2 5 0 00 8 7 5 00 6 2 0 0 00 3 1 7 5 00 46 0 0 0 00 111 6 2 0 00

2 6 5 0 00 42 8 7 5 00 4 1 7 5 00 3 8 0 0 00 1 9 8 0 00 7 9 4 5 00 4 3 1 5 00 4 1 4 5 00 2 9 7 5 00 9 2 5 00 392 8 7 0 00

21 1 4 5 00

37 0 0 0 00 34 0 0 0 00

152 2 8 5 00 30 4 4 5 00 182 7 3 0 00

25 26 27 28 29 30 31 32 33 34

182 7 3 0 00

240 5 8 5 00

182 7 3 0 00

240 5 8 5 00

210 1 4 0 00 35 30 4 4 5 00 36 240 5 8 5 00 37 38

560

CHAPTER 14

Problem 14-12A (Continued) 2. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

34 0 0 0 00

Merchandise Inventory

34 0 0 0 00

4 5 6

31 Merchandise Inventory

38 0 0 0 00

Income Summary

38 0 0 0 00

31 Supplies Expense

Supplies

3 8 0 0 00

31 Insurance Expense

4 3 1 5 00

Prepaid Insurance

4 3 1 5 00 12 13

31 Depreciation Expense—Building

4 1 4 5 00

Accumulated Depreciation—Building

4 1 4 5 00 15

16 17 18

31 Depreciation Expense—Store Equipment

2 9 7 5 00

Accumulated Depreciation—Store Equipment

2 9 7 5 00 18

19 20 21

31 Unearned Rent Revenue

4 2 2 5 00

Rent Revenue

4 2 2 5 00 21

22 23 24

9 10

13 14

6 7

31 Wages Expense Wages Payable

8 7 5 00

8 7 5 00 24

CHAPTER 14

561

Problem 14-12A (Concluded) 3. Cost of goods sold: Merch. inv., Jan. 1

$34,000

Purchases Less: Purch. ret. & allow. Purchases discounts

$39,000 $2,530 1,975

4,505

Net purchases

$34,495

Add freight-in

2,650

Cost of goods purchased

37,145

Goods available for sale

$71,145

Less merch. inv., Dec. 31

38,000

Cost of goods sold

$33,145

562

CHAPTER 14

Exercise 14-1B Merchandise Inventory (Beg. Inv.) 33,000 (a) (b)

Income Summary 33,000

(a) 33,000

(b)

36,000

Exercise 14-2B Cost of goods sold: Merch. inv., beginning

$29,000

Purchases

$62,000

Less: Purch. ret. & allow. Purchases discounts

$2,800 3,400

6,200

Net purchases

$55,800

Add freight-in

300

Cost of goods purchased

56,100

Goods available for sale

$85,100

Less merch. inv., ending

27,000

Cost of goods sold

$58,100

Exercise 14-3B

(a)

Cash 24,000

Unearned Ticket Revenue (a) (b)

Ticket Revenue (b)

24,000

19,000

CHAPTER 14

563

This page intentionally left blank.

564

CHAPTER 14

Exercise 14-4B 1., 2., and 3. Nicole's Work For Year Ended ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

Merchandise Inventory

30 0 0 0 00

Income Summary

Purchases

Purchases Returns and Allow.

2 2 0 0 00

Purchases Discounts

2 5 0 0 00

Freight-In

ADJUSTMENTS DEBIT CREDIT (b)

37 0 0 0 00

(a)

30 0 0 0 00

(a)

30 0 0 0 00

(b)

37 0 0 0 00

85 0 0 0 00

1 0 0 00

17 18

CHAPTER 14

565

Exercise 14-4B (Concluded) Gift Shop Sheet (Partial) December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

37 0 0 0 00 30 0 0 0 00

37 0 0 0 00 37 0 0 0 00

85 0 0 0 00

30 0 0 0 00

37 0 0 0 00

85 0 0 0 00

2 2 0 0 00

2 5 0 0 00

1 0 0 00

16 17 18

4. Cost of goods sold: Merch. inv., Jan. 1

$ 30,000

Purchases Less: Purch. ret. & allow. Purchases discounts

$85,000 $2,200 2,500

4,700

Net purchases

$80,300

Add freight-in

100

Cost of goods purchased

80,400

Goods available for sale

$110,400

Less merch. inv., Dec. 31

37,000

Cost of goods sold

$73,400

566

CHAPTER 14

Exercise 14-5B Beginning merchandise inventory

$49,000

Ending merchandise inventory

45,000

Exercise 14-6B GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

35 0 0 0 00

Merchandise Inventory

35 0 0 0 00

4 5 6

31 Merchandise Inventory

30 0 0 0 00

Income Summary

30 0 0 0 00

7 8 9

31 Unearned Grooming Revenue

5 5 0 0 00

Grooming Revenue

5 5 0 0 00

31 Supplies Expense

Supplies

3 1 0 0 00

3 1 0 0 00 12

31 Depreciation Expense—Building

6 0 0 0 00

Accumulated Depreciation—Building

6 0 0 0 00 15

16 17 18

9 10

6 7

31 Wages Expense Wages Payable

1 3 0 0 00

1 3 0 0 00 18

CHAPTER 14

567

Exercise 14-7B GENERAL JOURNAL DATE 20-1

DESCRIPTION

PAGE POST. REF.

1 Merchandise Inventory

May

DEBIT

200 0 0 0 00

Accounts Payable/Anju Enterprises

CREDIT 1

200 0 0 0 00

2 3

8 Merchandise Inventory

100 0 0 0 00

Cash

100 0 0 0 00

5 6

15 Accounts Receivable/Salil’s Pharmacy

8 0 0 0 00

Sales

8 0 0 0 00

8 9

15 Cost of Goods Sold

5 0 0 0 00

Merchandise Inventory

5 0 0 0 00 11

Exercise 14-8B GENERAL JOURNAL DATE

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

Dec. 31

Merchandise Inventory Inventory Short and Over

10 0 0 0 00

568

CHAPTER 14

Problem 14-9B 1. and 2. Basket Work For Year Ended ACCOUNT TITLE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Cash Accounts Receivable Merchandise Inventory Supplies Prepaid Insurance Land Building Accumulated Depr.—Building Store Equipment Accumulated Depr.—Store Equip. Accounts Payable Wages Payable Sales Tax Payable Unearned Decorating Revenue Mortgage Payable L. Palermo, Capital L. Palermo, Drawing Income Summary Sales Sales Returns and Allowances Decorating Revenue Purchases Purchases Returns and Allow. Purchases Discounts Freight-In Wages Expense Advertising Expense Supplies Expense Telephone Expense Utilities Expense Insurance Expense Depreciation Expense—Building Depreciation Exp.—Store Equip. Miscellaneous Expense

25 0 0 0 00 8 1 0 0 00 32 0 0 0 00 7 1 0 0 00 3 6 0 0 00 40 0 0 0 00 45 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

(b)

24 0 0 0 00

(a)

32 0 0 0 00 5 0 0 0 00 (d) 1 0 0 0 00 (c)

16 0 0 0 00

(e)

5 3 0 0 00

5 5 0 0 00 3 6 0 0 00

(f)

3 8 0 0 00

(h)

7 5 0 00

(b)

24 0 0 0 00

(g)

4 6 5 0 00

27 0 0 0 00

6 2 0 0 00 6 3 0 0 00 (g) 36 0 0 0 00 112 0 5 0 00

4 6 5 0 00

31 0 0 0 00 (a)

32 0 0 0 00

125 0 0 0 00 2 6 0 0 00 38 0 0 0 00 2 2 0 0 00 1 7 0 0 00 1 9 0 0 00 38 0 0 0 00 4 2 0 0 00

(h)

7 5 0 00

(c)

5 0 0 0 00

(d)

1 0 0 0 00 5 3 0 0 00 3 8 0 0 00

1 8 7 0 00 8 4 0 0 00 (e) (f)

7 8 0 00 314 5 5 0 00

35 36

TRIAL BALANCE DEBIT CREDIT

314 5 5 0 00

76 5 0 0 00

Net Income

37 38

CHAPTER 14

569

Problem 14-9B (Continued) Corner Sheet December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

25 0 0 0 00 8 1 0 0 00 24 0 0 0 00 2 1 0 0 00 2 6 0 0 00 40 0 0 0 00 45 0 0 0 00

BALANCE SHEET DEBIT CREDIT

25 0 0 0 00 8 1 0 0 00 24 0 0 0 00 2 1 0 0 00 2 6 0 0 00 40 0 0 0 00 45 0 0 0 00 21 3 0 0 00

3 4 5 6 7

27 0 0 0 00 9 3 0 0 00 3 6 0 0 00 7 5 0 00 6 2 0 0 00 1 6 5 0 00 36 0 0 0 00 112 0 5 0 00 24 0 0 0 00 125 0 0 0 00

9 3 0 0 00 10 3 6 0 0 00 11 7 5 0 00 12 6 2 0 0 00 13 1 6 5 0 00 14 36 0 0 0 00 15 112 0 5 0 00 16 32 0 0 0 00

24 0 0 0 00 125 0 0 0 00

18 19

2 6 0 0 00 4 6 5 0 00

38 0 0 0 00

4 6 5 0 00

38 0 0 0 00 2 2 0 0 00 1 7 0 0 00

348 4 0 0 00

8 9

31 0 0 0 00

2 6 0 0 00

1 9 0 0 00 38 7 5 0 00 4 2 0 0 00 5 0 0 0 00 1 8 7 0 00 8 4 0 0 00 1 0 0 0 00 5 3 0 0 00 3 8 0 0 00 7 8 0 00 348 4 0 0 00

21 3 0 0 00

27 0 0 0 00

31 0 0 0 00 32 0 0 0 00

2 2 0 0 00 1 7 0 0 00 1 9 0 0 00 38 7 5 0 00 4 2 0 0 00 5 0 0 0 00 1 8 7 0 00 8 4 0 0 00 1 0 0 0 00 5 3 0 0 00 3 8 0 0 00 7 8 0 00 143 6 0 0 00 13 9 5 0 00 157 5 5 0 00

23 24 25 26 27 28 29 30 31 32 33 34

157 5 5 0 00 157 5 5 0 00

204 8 0 0 00

190 8 5 0 00 35

204 8 0 0 00

13 9 5 0 00 36 204 8 0 0 00 37 38

570

CHAPTER 14

Problem 14-9B (Concluded) 3. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

32 0 0 0 00

Merchandise Inventory

32 0 0 0 00

4 5 6

31 Merchandise Inventory

24 0 0 0 00

Income Summary

24 0 0 0 00

31 Supplies Expense

Supplies

5 0 0 0 00

31 Insurance Expense

1 0 0 0 00

Prepaid Insurance

1 0 0 0 00 12 13

31 Depreciation Expense—Building

5 3 0 0 00

Accumulated Depreciation—Building

5 3 0 0 00 15

16 17 18

31 Depreciation Expense—Store Equipment

3 8 0 0 00

Accumulated Depreciation—Store Equipment

3 8 0 0 00 18

19 20 21

31 Unearned Decorating Revenue

4 6 5 0 00

Decorating Revenue

4 6 5 0 00 21

22 23 24

9 10

13 14

6 7

31 Wages Expense Wages Payable

7 5 0 00

7 5 0 00 24

CHAPTER 14

571

Problem 14-10B 1. and 2. (See pages 572 and 573.) 3. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

39 0 0 0 00

Merchandise Inventory

39 0 0 0 00

4 5 6

31 Merchandise Inventory

26 0 0 0 00

Income Summary

26 0 0 0 00

31 Supplies Expense

Supplies

3 7 0 0 00

31 Insurance Expense

3 9 8 0 00

Prepaid Insurance

3 9 8 0 00 12 13

31 Depreciation Expense—Building

6 4 0 0 00

Accumulated Depreciation—Building

6 4 0 0 00 15

16 17 18

31 Depreciation Expense—Store Equipment

2 8 0 0 00

Accumulated Depreciation—Store Equipment

2 8 0 0 00 18

19 20 21

31 Unearned Rent Revenue

3 7 5 0 00

Rent Revenue

3 7 5 0 00 21

22 23 24

9 10

13 14

6 7

31 Wages Expense Wages Payable

1 1 0 0 00

1 1 0 0 00 24

572

CHAPTER 14

Problem 14-10B (Continued) 1. and 2. Oregon Bike Work For Year Ended ACCOUNT TITLE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Cash Accounts Receivable Merchandise Inventory Supplies Prepaid Insurance Land Building Accumulated Depr.—Building Store Equipment Accumulated Depr.—Store Equip. Accounts Payable Wages Payable Sales Tax Payable Unearned Rent Revenue Mortgage Payable C. Moody, Capital C. Moody, Drawing Income Summary Sales Sales Returns and Allowances Rent Revenue Purchases Purchases Returns and Allow. Purchases Discounts Freight-In Wages Expense Advertising Expense Supplies Expense Telephone Expense Utilities Expense Insurance Expense Depreciation Expense—Building Depreciation Exp.—Store Equip. Miscellaneous Expense

27 0 0 0 00 12 0 0 0 00 39 0 0 0 00 6 2 0 0 00 5 8 0 0 00 32 0 0 0 00 58 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

(b)

26 0 0 0 00

(a)

39 0 0 0 00 3 7 0 0 00 (d) 3 9 8 0 00 (c)

27 0 0 0 00

(e)

6 4 0 0 00

14 0 0 0 00 4 9 0 0 00

(f)

2 8 0 0 00

(h)

1 1 0 0 00

(b)

26 0 0 0 00

(g)

3 7 5 0 00

31 0 0 0 00

2 9 0 0 00 6 1 0 0 00 (g) 49 0 0 0 00 169 5 0 0 00

3 7 5 0 00

36 0 0 0 00 (a)

39 0 0 0 00

58 0 0 0 00 3 3 0 0 00 19 0 0 0 00 9 0 0 00 1 4 5 0 00 8 0 0 00 47 0 0 0 00 6 2 0 0 00

(h)

1 1 0 0 00

(c)

3 7 0 0 00

(d)

3 9 8 0 00 6 4 0 0 00 2 8 0 0 00

1 8 6 0 00 8 1 0 0 00 (e) (f)

4 9 0 00 333 7 5 0 00

35 36

TRIAL BALANCE DEBIT CREDIT

333 7 5 0 00

86 7 3 0 00

Net Loss

37 38

CHAPTER 14

573

Problem 14-10B (Concluded) Company Sheet December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

27 0 0 0 00 12 0 0 0 00 26 0 0 0 00 2 5 0 0 00 1 8 2 0 00 32 0 0 0 00 58 0 0 0 00

BALANCE SHEET DEBIT CREDIT

27 0 0 0 00 12 0 0 0 00 26 0 0 0 00 2 5 0 0 00 1 8 2 0 00 32 0 0 0 00 58 0 0 0 00 33 4 0 0 00

3 4 5 6 7

31 0 0 0 00 16 8 0 0 00 4 9 0 0 00 1 1 0 0 00 2 9 0 0 00 2 3 5 0 00 49 0 0 0 00 169 5 0 0 00

39 0 0 0 00

26 0 0 0 00 58 0 0 0 00

18 19

3 3 0 0 00 3 7 5 0 00

19 0 0 0 00

3 7 5 0 00

19 0 0 0 00 9 0 0 00 1 4 5 0 00

370 0 5 0 00

16 8 0 0 00 10 4 9 0 0 00 11 1 1 0 0 00 12 2 9 0 0 00 13 2 3 5 0 00 14 49 0 0 0 00 15 169 5 0 0 00 16 36 0 0 0 00

26 0 0 0 00 58 0 0 0 00

3 3 0 0 00

8 0 0 00 48 1 0 0 00 6 2 0 0 00 3 7 0 0 00 1 8 6 0 00 8 1 0 0 00 3 9 8 0 00 6 4 0 0 00 2 8 0 0 00 4 9 0 00 370 0 5 0 00

33 4 0 0 00

31 0 0 0 00

36 0 0 0 00 39 0 0 0 00

9 0 0 00 1 4 5 0 00

23 24

8 0 0 00 48 1 0 0 00 6 2 0 0 00 3 7 0 0 00 1 8 6 0 00 8 1 0 0 00 3 9 8 0 00 6 4 0 0 00 2 8 0 0 00 4 9 0 00 143 7 3 0 00

90 1 0 0 00

226 3 2 0 00

279 9 5 0 00 35

143 7 3 0 00

53 6 3 0 00 143 7 3 0 00

53 6 3 0 00 279 9 5 0 00

279 9 5 0 00 37

25 26 27 28 29 30 31 32 33 34

574

CHAPTER 14

Problem 14-11B 1. Burnside Auto Parts Work Sheet (Partial) For Year Ended December 31, 20-TRIAL BALANCE ACCOUNT TITLE

DEBIT

ADJUSTMENTS

CREDIT

DEBIT

CREDIT

ADJUSTED TRIAL BALANCE DEBIT

CREDIT

Cash

21 0 0 0 00

Accounts Receivable

8 3 0 0 00

(b)

Merchandise Inventory

32 0 0 0 00

36 0 0 0 00

Supplies

6 1 5 0 00

(c)

4 2 8 5 00

1 8 6 5 00

(d)

4 0 9 0 00

1 8 3 5 00

41 7 5 0 00

Prepaid Insurance

5 9 2 5 00

Land

41 7 5 0 00

Building

43 0 0 0 00

Accum. Depr.—Building

36 0 0 0 00

(a)

43 0 0 0 00 24 0 0 0 00

(e)

3 5 0 0 00

(f)

2 3 5 0 00

(h)

9 8 0 00

25 4 0 0 00

27 5 0 0 00 25 4 0 0 00

Store Equipment

Accum. Depr.—Store Eq.

12 4 0 0 00

Accounts Payable

8 1 0 0 00

Wages Payable

Sales Tax Payable

5 2 0 0 00

Unearn. Rent-A-Junk Rev.

7 9 5 0 00

Mortgage Payable

26 0 0 0 00

26 0 0 0 00 15

B. Davis, Capital

109 1 3 0 00

109 1 3 0 00 16

B. Davis, Drawing

Income Summary

Sales

Sales Returns and Allow.

14 7 5 0 00 10 8 1 0 0 00 11 9 8 0 00 12 5 2 0 0 00 13

(g)

5 6 0 0 00

2 3 5 0 00 14

40 0 0 0 00 (a)

32 0 0 0 00

(b)

36 0 0 0 00

40 0 0 0 00

32 0 0 0 00

36 0 0 0 00 18

123 5 0 0 00

123 5 0 0 00 19

2 8 6 0 00

2 8 6 0 00 (g)

Rent-A-Junk Revenue

Purchases

Purchases Ret. and Allow.

2 1 5 0 00

2 1 5 0 00 23

Purchases Discounts

2 4 0 0 00

2 4 0 0 00 24

Freight-In

3 1 7 5 00

Wages Expense

44 1 7 5 00

Advertising Expense

3 2 7 5 00

Supplies Expense

Telephone Expense

Utilities Expense

32 5 2 5 00

5 6 0 0 00

5 6 0 0 00 21 32 5 2 5 00

3 1 7 5 00

45 1 5 5 00

3 2 7 5 00

4 2 8 5 00

2 2 0 0 00

8 2 5 0 00

(h)

(c)

9 8 0 00 4 2 8 5 00

Insurance Expense

(d)

4 0 9 0 00

Depr. Exp.—Building

(e)

3 5 0 0 00

Depr. Exp.—Store Equip.

(f)

2 3 5 0 00

Miscellaneous Expense

8 4 5 00

8 4 5 00 320 8 3 0 00 320 8 3 0 00

88 8 0 5 00

88 8 0 5 00 363 6 6 0 00 363 6 6 0 00 35

CHAPTER 14

575

Problem 14-11B (Concluded) 2. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

32 0 0 0 00

Merchandise Inventory

32 0 0 0 00

4 5 6

31 Merchandise Inventory

36 0 0 0 00

Income Summary

36 0 0 0 00

31 Supplies Expense

Supplies

4 2 8 5 00

31 Insurance Expense

4 0 9 0 00

Prepaid Insurance

4 0 9 0 00 12 13

31 Depreciation Expense—Building

3 5 0 0 00

Accumulated Depreciation—Building

3 5 0 0 00 15

16 17 18

31 Depreciation Expense—Store Equipment

2 3 5 0 00

Accumulated Depreciation—Store Equipment

2 3 5 0 00 18

19 20 21

31 Unearned Rent-A-Junk Revenue

5 6 0 0 00

Rent-A-Junk Revenue

5 6 0 0 00 21

22 23 24

9 10

13 14

6 7

31 Wages Expense Wages Payable

9 8 0 00

9 8 0 00 24

576

CHAPTER 14

Problem 14-12B 1. Diamond Music Work For Year Ended ACCOUNT TITLE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Cash Accounts Receivable Merchandise Inventory Supplies Prepaid Insurance Land Building Accumulated Depr.—Building Store Equipment Accumulated Depr.—Store Equip. Accounts Payable Wages Payable Sales Tax Payable Unearned Rent Revenue Mortgage Payable N. Diamond, Capital N. Diamond, Drawing Income Summary Sales Sales Returns and Allowances Rent Revenue Purchases Purchases Returns and Allow. Purchases Discounts Freight-In Wages Expense Advertising Expense Supplies Expense Telephone Expense Utilities Expense Insurance Expense Depreciation Expense—Building Depreciation Exp.—Store Equip. Miscellaneous Expense

31 0 0 0 00 11 9 8 0 00 33 6 0 0 00 7 1 4 0 00 5 9 8 5 00 36 2 0 0 00 51 8 5 0 00

ADJUSTMENTS DEBIT CREDIT

(b)

39 1 0 0 00

(a)

33 6 0 0 00 5 1 7 5 00 (d) 4 7 5 0 00 (c)

13 5 9 0 00

(e)

5 2 8 5 00

10 2 9 0 00 5 8 9 5 00

(f)

4 4 6 5 00

(h)

1 2 5 0 00

(b)

39 1 0 0 00

(g)

5 9 2 0 00

32 6 7 5 00

6 3 7 5 00 8 8 5 0 00 (g) 42 4 0 0 00 116 3 5 0 00

5 9 2 0 00

39 5 0 0 00 (a)

33 6 0 0 00

148 0 0 0 00 2 8 0 0 00 40 7 0 0 00 2 7 7 5 00 2 3 2 5 00 1 8 7 5 00 47 0 0 0 00 4 6 9 5 00

(h)

1 2 5 0 00

(c)

5 1 7 5 00

(d)

4 7 5 0 00 5 2 8 5 00 4 4 6 5 00

2 2 5 0 00 6 8 2 5 00 (e) (f)

7 7 5 00 356 8 5 0 00

35 36

TRIAL BALANCE DEBIT CREDIT

356 8 5 0 00

99 5 4 5 00

Net Income

37 38

CHAPTER 14

577

Problem 14-12B (Continued) Store Sheet December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

31 0 0 0 00 11 9 8 0 00 39 1 0 0 00 1 9 6 5 00 1 2 3 5 00 36 2 0 0 00 51 8 5 0 00

3 4 5 6 7

32 6 7 5 00

39 5 0 0 00 39 1 0 0 00 148 0 0 0 00

33 6 0 0 00

39 1 0 0 00 148 0 0 0 00

18 19

2 8 0 0 00

5 9 2 0 00

40 7 0 0 00

2 7 7 5 00 2 3 2 5 00

23 24

1 8 7 5 00 48 2 5 0 00 4 6 9 5 00 5 1 7 5 00 2 2 5 0 00 6 8 2 5 00 4 7 5 0 00 5 2 8 5 00 4 4 6 5 00 7 7 5 00 406 9 5 0 00

14 7 5 5 00 10 5 8 9 5 00 11 1 2 5 0 00 12 6 3 7 5 00 13 2 9 3 0 00 14 42 4 0 0 00 15 116 3 5 0 00 16

14 7 5 5 00 5 8 9 5 00 1 2 5 0 00 6 3 7 5 00 2 9 3 0 00 42 4 0 0 00 116 3 5 0 00

1 8 7 5 00 48 2 5 0 00 4 6 9 5 00 5 1 7 5 00 2 2 5 0 00 6 8 2 5 00 4 7 5 0 00 5 2 8 5 00 4 4 6 5 00 7 7 5 00 406 9 5 0 00

18 8 7 5 00

18 8 7 5 00 32 6 7 5 00

39 5 0 0 00 33 6 0 0 00

161 4 4 5 00 36 6 7 5 00 198 1 2 0 00

25 26 27 28 29 30 31 32 33 34

198 1 2 0 00

245 5 0 5 00

198 1 2 0 00

245 5 0 5 00

208 8 3 0 00 35 36 6 7 5 00 36 245 5 0 5 00 37 38

578

CHAPTER 14

Problem 14-12B (Continued) 2. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

33 6 0 0 00

Merchandise Inventory

33 6 0 0 00

4 5 6

31 Merchandise Inventory

39 1 0 0 00

Income Summary

39 1 0 0 00

31 Supplies Expense

Supplies

5 1 7 5 00

31 Insurance Expense

4 7 5 0 00

Prepaid Insurance

4 7 5 0 00 12 13

31 Depreciation Expense—Building

5 2 8 5 00

Accumulated Depreciation—Building

5 2 8 5 00 15

16 17 18

31 Depreciation Expense—Store Equipment

4 4 6 5 00

Accumulated Depreciation—Store Equipment

4 4 6 5 00 18

19 20 21

31 Unearned Rent Revenue

5 9 2 0 00

Rent Revenue

5 9 2 0 00 21

22 23 24

9 10

13 14

6 7

31 Wages Expense Wages Payable

1 2 5 0 00

1 2 5 0 00 24

CHAPTER 14

579

Problem 14-12B (Concluded) 3. Cost of goods sold: Merch. inv., Jan. 1

$33,600

Purchases Less: Purch. ret. & allow. Purchases discounts

$40,700 $2,775 2,325

5,100

Net purchases

$35,600

Add freight-in

1,875

Cost of goods purchased

37,475

Goods available for sale

$71,075

Less merch. inv., Dec. 31

39,100

Cost of goods sold

$31,975

580

CHAPTER 14

MANAGING YOUR WRITING Students should make the following points: 1.

It is true that your friend can compute the amount paid for inventory purchased. Now it is important to divide that amount between goods sold and not sold. Taking a physical inventory will determine the amount not sold. We assume that the remainder has been sold.

Under the accrual basis of accounting, expenses are recorded when incurred. Cost of goods sold is an expense. As the title suggests, it represents the cost of merchandise actually sold. The fact that the merchandise may have been paid for is not relevant. If the merchandise is still in the ending inventory, it has not been sold. Thus, the remaining inventory is an asset, not an expense. Failure to take a physical inventory would result in an overstatement of cost of goods sold.

ETHICS CASE 1. Jason should know, from past experience, that taking a physical inventory at the end of the accounting period is necessary to have the correct ending inventory amount in the accounting records. 2. If the ending inventory is understated, net income for the accounting period will be understated because the cost of goods sold will be overstated. 3. Answers will vary. Students should point out that a physical inventory is necessary to make the proper adjusting entry if the periodic inventory system is used. Even if the perpetual inventory system is used, a physical inventory will confirm the cost of ending inventory. Students might also reason that an accurate ending inventory will mean that the next period’s beginning inventory is also correct. 4. Answers will vary. Possible reasons might be theft, prior period ending inventory counted incorrectly, or computer error in recording transactions affecting inventory.

CHAPTER 14

581

This page intentionally left blank.

582

CHAPTER 14

Mastery Problem 1. Waikiki Surf Work For Year Ended ACCOUNT TITLE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Cash Accounts Receivable Merchandise Inventory Supplies Prepaid Insurance Land Building Accumulated Depr.—Building Store Equipment Accumulated Depr.—Store Equip. Notes Payable Accounts Payable Wages Payable Unearned Boat Rental Revenue J. Neff, Capital J. Neff, Drawing Income Summary Sales Sales Returns and Allowances Boat Rental Revenue Purchases Purchases Returns and Allow. Purchases Discounts Freight-In Wages Expense Advertising Expense Supplies Expense Telephone Expense Utilities Expense Insurance Expense Depreciation Expense—Building Depreciation Exp.—Store Equip. Miscellaneous Expense Interest Expense

30 0 0 0 00 22 5 0 0 00 57 0 0 0 00 2 7 0 0 00 3 6 0 0 00 15 0 0 0 00 135 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

(b)

45 0 0 0 00

(a)

57 0 0 0 00 2 1 0 0 00 (d) 2 7 0 0 00 (c)

24 0 0 0 00

(e)

6 0 0 0 00

22 5 0 0 00 7 5 0 0 00 15 0 0 0 00

(f)

4 5 0 0 00

(g)

6 7 5 00

(b)

45 0 0 0 00

(h)

30 0 0 0 00

75 0 0 0 00

33 0 0 0 00 (h) 30 0 0 0 00 233 7 0 0 00 30 0 0 0 00 (a)

57 0 0 0 00

300 7 5 0 00 1 8 0 0 00 157 5 0 0 00 1 2 0 0 00 1 5 0 0 00 4 5 0 00 63 0 0 0 00 11 2 5 0 00

(g)

6 7 5 00

(c)

2 1 0 0 00

(d)

2 7 0 0 00 6 0 0 0 00 4 5 0 0 00

5 2 5 0 00 18 0 0 0 00 (e) (f)

10 8 7 5 00 2 2 5 00 639 1 5 0 00

35 36

TRIAL BALANCE DEBIT CREDIT

639 1 5 0 00

147 9 7 5 00

Net Income

37 38

CHAPTER 14

583

Mastery Problem (Continued) Shop Sheet December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

30 0 0 0 00 22 5 0 0 00 45 0 0 0 00 6 0 0 00 9 0 0 00 15 0 0 0 00 135 0 0 0 00

BALANCE SHEET DEBIT CREDIT

30 0 0 0 00 22 5 0 0 00 45 0 0 0 00 6 0 0 00 9 0 0 00 15 0 0 0 00 135 0 0 0 00 30 0 0 0 00

3 4 5 6 7

75 0 0 0 00 27 0 0 0 00 7 5 0 0 00 15 0 0 0 00 6 7 5 00 3 0 0 0 00 233 7 0 0 00

27 0 0 0 00 10 7 5 0 0 00 11 15 0 0 0 00 12 6 7 5 00 13 3 0 0 0 00 14 233 7 0 0 00 15 57 0 0 0 00

45 0 0 0 00 300 7 5 0 00

17 18

1 8 0 0 00 30 0 0 0 00

157 5 0 0 00

30 0 0 0 00

157 5 0 0 00 1 2 0 0 00 1 5 0 0 00

695 3 2 5 00

8 9

30 0 0 0 00 45 0 0 0 00 300 7 5 0 00

1 8 0 0 00

4 5 0 00 63 6 7 5 00 11 2 5 0 00 2 1 0 0 00 5 2 5 0 00 18 0 0 0 00 2 7 0 0 00 6 0 0 0 00 4 5 0 0 00 10 8 7 5 00 2 2 5 00 695 3 2 5 00

30 0 0 0 00

75 0 0 0 00

30 0 0 0 00 57 0 0 0 00

1 2 0 0 00 1 5 0 0 00 4 5 0 00 63 6 7 5 00 11 2 5 0 00 2 1 0 0 00 5 2 5 0 00 18 0 0 0 00 2 7 0 0 00 6 0 0 0 00 4 5 0 0 00 10 8 7 5 00 2 2 5 00 341 3 2 5 00 37 1 2 5 00 378 4 5 0 00

22 23 24 25 26 27 28 29 30 31 32 33 34

378 4 5 0 00 378 4 5 0 00

354 0 0 0 00

316 8 7 5 00 35

354 0 0 0 00

37 1 2 5 00 36 354 0 0 0 00 37 38

584

CHAPTER 14

Mastery Problem (Concluded) 2. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

57 0 0 0 00

Merchandise Inventory

57 0 0 0 00

4 5 6

31 Merchandise Inventory

45 0 0 0 00

Income Summary

45 0 0 0 00

31 Supplies Expense

Supplies

2 1 0 0 00

31 Insurance Expense

2 7 0 0 00

Prepaid Insurance

2 7 0 0 00 12 13

31 Depreciation Expense—Building

6 0 0 0 00

Accumulated Depreciation—Building

6 0 0 0 00 15

16 17 18

31 Depreciation Expense—Store Equipment

4 5 0 0 00

Accumulated Depreciation—Store Equipment

4 5 0 0 00 18

19 20 21

31 Wages Expense

6 7 5 00

Wages Payable

6 7 5 00 21

22 23 24

9 10

13 14

6 7

31 Unearned Boat Rental Revenue Boat Rental Revenue

30 0 0 0 00

30 0 0 0 00 24

CHAPTER 14

585

Challenge Problem Cost of goods sold Plus increase in inventory Net purchases in 20-1

$400,000 10,000 $410,000

It appears that Block has violated its agreement and has purchased $110,000 in merchandise from other suppliers.

Alternative Solution: Beginning inventory Plus purchases Goods available for sale Less ending inventory Cost of goods sold

(1) (2) (3) (4) (5)

$ 20,000 410,000 $430,000 30,000 $400,000

Given Step 2, (3) – (1) Step 1, (5) + (4) Given Given

The sum of the cost of goods sold and ending inventory equals the goods available for sale. If Block had $430,000 available for sale and started the period with $20,000 in inventory, it must have purchased $410,000.

586

CHAPTER 14

APPENDIX: EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Exercise 14Apx-1A GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

20-2

PAGE

Dec.

31 Prepaid Advertising

4 0 0 00

Advertising Expense

4 0 0 00

Exercise 14Apx-1B GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31

Supplies Supplies Expense

5 0 0 00

CHAPTER 15 FINANCIAL STATEMENTS AND YEAR-END ACCOUNTING FOR A MERCHANDISING BUSINESS REVIEW QUESTIONS 1.

The single-step form of income statement lists all revenue items and their total first, followed by all expense items and their total. The difference, which is either net income or net loss, is then calculated. The multiple-step form of income statement is commonly used for merchandising businesses. The term “multiple-step” is used because the final net income is calculated on a stepby-step basis. Gross sales is shown first, less sales returns and allowances, and sales discounts. This difference is called net sales. Cost of goods sold is next subtracted to arrive at gross profit. Operating expenses are then listed and subtracted from gross profit to compute income from operations. Finally, other revenues are added and other expenses are subtracted to arrive at net income (or net loss).

Two measures of the firm’s ability to pay its current liabilities are the current ratio and quick ratio. The current ratio is the current assets divided by the current liabilities. The quick ratio is the quick assets divided by the current liabilities.

a. b. c.

The work sheet contains the information needed to journalize the closing entries.

(1) All income statement accounts with credit balances are closed to Income Summary. (2) All income statement accounts with debit balances are closed to Income Summary. (3) The balance in Income Summary is transferred to the owner’s capital account. (4) The balance in the owner’s drawing account is transferred to the owner’s capital account.

The purpose of the post-closing trial balance is to prove that the general ledger is in balance at the beginning of a new accounting period before any transactions for the new accounting period are entered.

Reversing entries are made to simplify the recording of transactions in the new accounting period.

Reversing entries are generally made on the first day of a new accounting period.

Except for the first year of operation, reverse all adjusting entries that increase an asset or liability account from a zero balance.

Return on owner’s equity = Net income : Average owner’s equity Accounts receivable turnover = Net credit sales for the period : Average accounts receivable Inventory turnover = Cost of goods sold for the period : Average inventory

588

CHAPTER 15

Exercise 15-1A

Revenue from sales: Sales

$150,000

Less: Sales returns and allowances

$6,000

Sales discounts

3,400

9,400

Net sales

$140,600

Exercise 15-2A

Cost of goods sold: Merch. inv., Jan. 1, 20--

$ 37,000

Purchases Less: Purch. ret. & allow. Purch. discounts

$106,000 $5,800 3,230

9,030

Net purchases

$ 96,970

Add freight-in

700

Cost of goods purchased Goods available for sale Less mer. inv., Dec. 31, 20-Cost of goods sold

97,670 $134,670 31,000 $103,670

CHAPTER 15

589

Exercise 15-3A Sauter Office Supplies Income Statement For Year Ended December 31, 20-Revenue from sales: Sales

$156,300

Less: Sales ret. & allow.

Sales discounts

2,360 4,167

6,527

Net sales

$149,773)

Cost of goods sold: Merch. inv., Jan. 1, 20--

$ 29,600

Purchases Less: Purch. ret. & allow. Purch. discounts

$112,000 $5,640 2,690

8,330

Net purchases

$103,670

Add freight-in

875

Cost of goods purchased

104,545

Goods available for sale

$134,145

Less merch. inv., Dec. 31, 20--

33,000

Cost of goods sold

101,145)

Gross profit

$ 48,628)

Operating expenses: Wages expense

$ 27,600

Supplies expense

700

Telephone expense

900

Utilities expense

8,000

Insurance expense

1,300

Depr. exp.—equipment

3,800

Miscellaneous expense

590

Total operating expenses

42,890)

Income from operations

5,738)

Other revenues: Interest revenue

425

Other expenses: Interest expense Net income

4,700

(4,275) $

1,463)

590

CHAPTER 15

Exercise 15-4A 1.

Working capital: –

Current Assets

$70,100

Current Liabilities

15,100 $55,000

Current ratio: Current Assets

Current Liabilities 3.

4.64 to 1

2.63 to 1

$15,100

Quick ratio: Quick Assets

Current Liabilities 4.

$70,100

$39,700 $15,100

Return on owner’s equity: Net Income

Average Owner’s Equity

$27,800

$88,000 + $104,200

$27,800

28.9%

8.99

3.13

$96,100

Accounts receivable turnover: Net Credit Sales

Average Accounts Receivable

$182,100

$21,600 + $18,900

$182,100 $20,250

2 365 : 8.99 = 40.6 days

Inventory turnover: Cost of Goods Sold

Average Inventory

$93,200 $31,300 + $28,177

$93,200 $29,738.50

2 365 : 3.13 = 116.6 days

CHAPTER 15

591

Exercise 15-5A 1.

GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

20-1

Sales

86 0 0 0 00

Purchases Returns and Allowances

2 8 1 3 00

Purchases Discounts

1 0 8 4 00

Income Summary

Dec. 31

89 8 9 7 00

6 7

31 Income Summary

83 2 2 2 00

Sales Returns and Allowances

1 8 4 0 00

Purchases

54 2 0 0 00

Freight-In

Wages Expense

Advertising Expense

7 8 4 00 12

Supplies Expense

3 8 0 00 13

Telephone Expense

2 1 0 0 00 14

Utilities Expense

1 3 1 0 00 15

Insurance Expense

2 0 0 00 16

Depreciation Expense—Building

Miscellaneous Expense

3 8 6 00 18

Interest Expense

1 4 2 00 19

8 0 0 00 10 17 0 8 0 00 11

4 0 0 0 00 17

20 21 22

31 Income Summary

9 2 6 5 00

J. M. Gimbel, Capital

9 2 6 5 00 22

23 24 25

31 J. M. Gimbel, Capital J. M. Gimbel, Drawing

8 0 0 0 00

8 0 0 0 00 25

592

CHAPTER 15

Exercise 15-5A (Concluded) 2. Gimbel’s Gifts and Gadgets Post-Closing Trial Balance December 31, 20-1 Cash

8 2 1 4 00

Accounts Receivable

6 7 2 0 00

Merchandise Inventory

16 8 0 0 00

Supplies

3 0 0 00

Prepaid Insurance

6 0 0 00

Building

80 0 0 0 00

Accum. Depr.—Building

17 6 0 0 00

Accounts Payable

5 2 8 0 00

Wages Payable

2 8 0 00

Sales Tax Payable

3 2 6 00

J. M. Gimbel, Capital

89 1 4 8 00 112 6 3 4 00 112 6 3 4 00

Don’t forget to update the capital account before preparing the post-closing trial balance.

(Drawing)

J. M. Gimbel, Capital 87,883.00 8,000.00 9,265.00 89,148.00

(Net income)

CHAPTER 15

593

Exercise 15-6A GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Reversing Entry

20-2 2

PAGE

1 Wages Payable

Jan.

2 8 0 00

Wages Expense

2 8 0 00

Exercise 15-7A DATE Adjusting Entry: 12/31/-1 Closing Entry: 12/31/-1 Reversing Entry: 1/1/-2 Payment of Payroll: 1/3/-2

Bal.

WITHOUT REVERSING ENTRY Wages Expense Wages Payable

300 300

Income Summary 21,100 Wages Expense

No entry Wages Expense Wages Payable Cash

500 300 800

Wages Expense 20,800 300 12/31/-1 Clos. 21,100

1/3/-2

500

Wages Payable 12/31/-1 Adj.

300 300

Income Summary 21,100 Wages Expense Wages Payable Wages Expense

300

Wages Expense Cash

800 800

Wages Expense 20,800

12/31/-1 Adj.

300 12/31/-1 Clos. 21,100

1/3/-2

800

Bal.

500 Wages Payable 12/31/-1 Adj.

300

1/1/-2 Rev.

800

21,100

300

1/1/-2 Rev.

300 Cash 1/3/-2 Payroll

Wages Expense Wages Payable

Bal.

12/31/-1 Adj.

1/3/-2

21,100

WITH REVERSING ENTRY

300

300 Cash 1/3/-2 Payroll

800

594

CHAPTER 15

Problem 15-8A 1. Paulson’s Pet Store Income Statement For Year Ended December 31, 20-Revenue from sales: Sales

$71,510

Less sales ret. & allow.

1,340

Net sales

$70,170

Cost of goods sold: Merch. inv., Jan. 1, 20--

$15,000

Purchases Less: Purch. ret. & allow. Purch. discounts

$40,660 $1,020 800

1,820

Net purchases

$38,840

Add freight-in

400

Cost of goods purchased

39,240

Goods available for sale

$54,240

Less merch. inv., Dec. 31, 20--

16,500

Cost of goods sold

37,740

Gross profit

$32,430

Operating expenses: Wages expense

$22,600

Advertising expense

300

Supplies expense

200

Telephone expense

684

Utilities expense

716

Insurance expense

150

Depr. exp.—equipment

450

Miscellaneous expense

150

Total operating expenses Income from operations

25,250 $ 7,180

Other expenses: Interest expense Net income

80 $ 7,100

CHAPTER 15

595

Problem 15-8A (Continued) 2. Paulson’s Pet Store Statement of Owner’s Equity For Year Ended December 31, 20-B. Paulson, capital, January 1, 20--

$21,900

Add additional investment

2,000

Total investment

$23,900

Net income for the year

$7,100

Less withdrawals for the year

1,200

Increase in capital B. Paulson, capital, December 31, 20--

5,900 $29,800

596

CHAPTER 15

Problem 15-8A (Concluded) 3. Paulson’s Pet Store Balance Sheet December 31, 20-Assets Current assets: Cash

$15,860

Accounts receivable

2,340

Merchandise inventory

16,500

Supplies

600

Prepaid insurance

450

Total current assets

$35,750

Property, plant, and equipment: Equipment

$ 5,000

Less accumulated depreciation

900

Total assets

4,100 $39,850

Liabilities Current liabilities: Accounts payable

$4,890

Wages payable

300

Sales tax payable

860

Mortgage payable (current portion)

500

Total current liabilities

$ 6,550

Long-term liabilities: Mortgage payable

$4,000

Less current portion

500

Total liabilities

3,500 $10,050

Owner’s Equity B. Paulson, capital

29,800

Total liabilities and owner’s equity

$39,850

CHAPTER 15

597

Problem 15-9A a.

Working capital: –

Current Assets

$35,750

Current Liabilities

6,550 $29,200

Current ratio: Current Assets

$35,750

Current Liabilities c.

5.46 to 1

2.78 to 1

$6,550

Quick ratio: Quick Assets

$18,200

Current Liabilities d.

$6,550

Return on owner’s equity: Net Income

Average Owner’s Equity

$7,100

$21,900 + $29,800

$7,100

27.5%

22.86

2.40

$25,850

Accounts receivable turnover: Net Credit Sales

Average Accounts Receivable

$70,170

$3,800 + $2,340

$70,170 $3,070

2 365 : 22.86 = 15.97 days

Inventory turnover: Cost of Goods Sold

Average Inventory

$37,740 $15,000 + $16,500

$37,740 $15,750

2 365 : 2.40 = 152.08 days

598

CHAPTER 15

Problem 15-10A 1.

Vicki’s Fabric Work For Year Ended

ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

Cash

28 0 0 0 00

Accounts Receivable

14 2 0 0 00

Merchandise Inventory

33 0 0 0 00

Supplies

ADJUSTMENTS DEBIT CREDIT

(b)

(a)

33 0 0 0 00

1 6 0 0 00

(c)

4 5 0 00

9 0 0 00

(d)

3 5 0 00

(e)

7 0 0 00

(f)

5 2 0 00

(b)

31 6 0 0 00

(g)

3 8 0 0 00

Prepaid Insurance

Equipment

Accumulated Depr.—Equipment

1 0 0 0 00

Accounts Payable

15 6 2 0 00

Wages Payable

Sales Tax Payable

8 5 0 00

Unearned Revenue

5 0 0 0 00

Vicki Roberts, Capital

71 2 0 0 00

Vicki Roberts, Drawing

Income Summary

31 6 0 0 00

6 6 0 0 00

(g)

3 8 0 0 00

(a)

33 0 0 0 00

21 6 1 0 00

Sales

74 5 0 0 00

Sales Returns and Allowances

Interest Revenue

Purchases

Purchases Returns and Allow.

Purchases Discounts

Freight-In

Wages Expense

Advertising Expense

Supplies Expense

Telephone Expense

1 2 1 0 00

Utilities Expense

3 2 4 0 00

1 8 5 0 00 1 2 0 0 00 41 5 0 0 00 1 8 0 0 00 8 3 0 00 6 6 0 00 (f)

5 2 0 00

(c)

4 5 0 00

Insurance Expense

(d)

3 5 0 00

Depreciation Expense—Equip.

(e)

7 0 0 00

Miscellaneous Expense

Interest Expense

8 1 0 00

9 2 0 00 1 0 2 0 00 172 0 0 0 00

31 32

14 8 8 0 00

172 0 0 0 00

70 4 2 0 00

Net Income

CHAPTER 15

599

Problem 15-10A (Continued) Store Sheet December 31, 20-1 ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

28 0 0 0 00

14 2 0 0 00

31 6 0 0 00

1 1 5 0 00

5 5 0 00

6 6 0 0 00

1 7 0 0 00

15 6 2 0 00

5 2 0 00

8 5 0 00

8 5 0 00 10

1 2 0 0 00

1 2 0 0 00 11

71 2 0 0 00

71 2 0 0 00 12

21 6 1 0 00 33 0 0 0 00

21 6 1 0 00 31 6 0 0 00

33 0 0 0 00

78 3 0 0 00 1 8 5 0 00

31 6 0 0 00

78 3 0 0 00

1 8 5 0 00 1 2 0 0 00

41 5 0 0 00

1 2 0 0 00

41 5 0 0 00

1 8 0 0 00

8 3 0 00

6 6 0 00

15 4 0 0 00

8 1 0 00

4 5 0 00

1 2 1 0 00

3 2 4 0 00

3 5 0 00

7 0 0 00

9 2 0 00

1 0 2 0 00

204 8 2 0 00

101 1 1 0 00

113 7 3 0 00

103 7 1 0 00

12 6 2 0 00 113 7 3 0 00

91 0 9 0 00 31 12 6 2 0 00 32

113 7 3 0 00

103 7 1 0 00

103 7 1 0 00 33

600

CHAPTER 15

Problem 15-10A (Continued) 2., 3., and 5. GENERAL JOURNAL DATE

DESCRIPTION

20-1

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

33 0 0 0 00

Merchandise Inventory

33 0 0 0 00

4 5 6

31 Merchandise Inventory

31 6 0 0 00

Income Summary

31 6 0 0 00

31 Supplies Expense

Supplies

4 5 0 00 4 5 0 00

10 11 12

31 Insurance Expense

3 5 0 00

Prepaid Insurance

31 Depreciation Expense—Equipment

7 0 0 00

Accumulated Depreciation—Equipment

31 Wages Expense

5 2 0 00

Wages Payable

5 2 0 00 18 19

31 Unearned Revenue

3 8 0 0 00

Sales

3 8 0 0 00 21

Closing Entries

23 24

7 0 0 00 15

19 20

3 5 0 00 12

16 17

9 10

13 14

31 Sales

78 3 0 0 00

Interest Revenue

1 2 0 0 00

Purchases Returns and Allowances

1 8 0 0 00

Purchases Discounts

8 3 0 00

Income Summary

82 1 3 0 00 28

CHAPTER 15

601

Problem 15-10A (Continued) GENERAL JOURNAL DATE 20-1 1

DESCRIPTION

Dec. 31

Income Summary

PAGE POST. REF.

DEBIT

CREDIT

68 1 1 0 00

Sales Returns and Allowances

1 8 5 0 00

Purchases

41 5 0 0 00

Freight-In

6 6 0 00

Wages Expense

15 4 0 0 00

Advertising Expense

8 1 0 00

Supplies Expense

4 5 0 00

Telephone Expense

1 2 1 0 00

Utilities Expense

3 2 4 0 00

Insurance Expense

3 5 0 00 10

Depreciation Expense—Equipment

7 0 0 00 11

Miscellaneous Expense

9 2 0 00 12

Interest Expense

1 0 2 0 00 13

31 Income Summary

12 6 2 0 00

Vicki Roberts, Capital

12 6 2 0 00 16

31 Vicki Roberts, Capital

21 6 1 0 00

Vicki Roberts, Drawing

Reversing Entries

20-2

21 6 1 0 00 19

Jan.

1 Wages Payable Wages Expense

5 2 0 00

5 2 0 00 23

602

CHAPTER 15

Problem 15-10A (Concluded) 4. Vicki’s Fabric Store Post-Closing Trial Balance December 31, 20-1 ACCOUNT

DEBIT BALANCE

Cash

28 0 0 0 00

Accounts Receivable

14 2 0 0 00

Merchandise Inventory

31 6 0 0 00

Supplies

1 1 5 0 00

Prepaid Insurance Equipment

CREDIT BALANCE

5 5 0 00 6 6 0 0 00

Accumulated Depreciation—Equipment

1 7 0 0 00

Accounts Payable

15 6 2 0 00

Wages Payable

5 2 0 00

Sales Tax Payable

8 5 0 00

Unearned Revenue

1 2 0 0 00

Vicki Roberts, Capital

62 2 1 0 00 82 1 0 0 00

82 1 0 0 00

CHAPTER 15

603

Exercise 15-1B

Revenue from sales: Sales

$86,200

Less: Sales returns and allowances

$2,280

Sales discounts

1,724

4,004

Net sales

$82,196

Exercise 15-2B

Cost of goods sold: Merch. inv., Jan. 1, 20--

$13,800

Purchases Less: Purch. ret. & allow. Purch. discounts

$71,300 $3,188 1,460

4,648

Net purchases

$66,652

Add freight-in

390

Cost of goods purchased

67,042

Goods available for sale

$80,842

Less mer. inv., Dec. 31, 20--

21,400

Cost of goods sold

$59,442

604

CHAPTER 15

Exercise 15-3B Aeito’s Plumbing Supplies Income Statement For Year Ended December 31, 20-Revenue from sales: Sales

$166,000

Less: Sales ret. & allow.

Sales discounts

1,620 3,320

4,940

Net sales

$161,060

Cost of goods sold: Merch. inv., Jan. 1, 20--

$ 33,200

Purchases Less: Purch. ret. & allow. Purch. discounts

$111,300 $3,600 2,226

5,826

Net purchases

$105,474

Add freight-in

640

Cost of goods purchased

106,114

Goods available for sale

$139,314

Less merch. inv., Dec. 31, 20--

29,600

Cost of goods sold

109,714

Gross profit

$ 51,346

Operating expenses: Wages expense

$ 22,000

Supplies expense

650

Telephone expense

1,100

Utilities expense

9,000

Insurance expense

1,000

Depr. exp.—building

4,600

Depr. exp.—equipment

2,800

Miscellaneous expense

214

Total operating expenses

41,364

Income from operations

9,982

Other revenues: Interest revenue

3,184

Other expenses: Interest expense Net income

1,126

2,058 $ 12,040

CHAPTER 15

605

Exercise 15-4B 1.

Working capital: –

Current Assets

$37,900

Current Liabilities

10,300 $27,600

Current ratio: Current Assets

Current Liabilities 3.

3.68 to 1

1.87 to 1

$10,300

Quick ratio: Quick Assets

Current Liabilities 4.

$37,900

$19,300 $10,300

Return on owner’s equity: Net Income

Average Owner’s Equity

$25,300

$52,000 + $66,900

$25,300

42.6%

15.5

3.42

$59,450

Accounts receivable turnover: Net Credit Sales

Average Accounts Receivable

$121,700

$6,800 + $8,900

$121,700 $7,850

2 365 : 15.5 = 23.5 days

Inventory turnover: Cost of Goods Sold

Average Inventory

$61,600 $19,300 + $16,700

$61,600 $18,000

2 365 : 3.42 = 106.7 days

606

CHAPTER 15

Exercise 15-5B 1.

GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

20-1

Sales

31 0 0 0 00

Purchases Returns and Allowances

1 8 0 0 00

Purchases Discounts

4 0 7 00

Income Summary

Dec. 31

33 2 0 7 00

6 7

31 Income Summary

26 7 8 7 00

Sales Returns and Allowances

Purchases

Freight-In

Wages Expense

Advertising Expense

3 0 0 00 12

Supplies Expense

2 8 0 00 13

Telephone Expense

7 0 0 00 14

Utilities Expense

4 8 0 00 15

Insurance Expense

1 2 0 00 16

Depreciation Expense—Equipment

3 0 0 00 17

Miscellaneous Expense

1 1 0 00 18

Interest Expense

22 0 0 0 00

1 4 0 0 00 11

9 7 00 19 20

31 Income Summary

5 3 2 0 00

L. Marlow, Capital

5 3 2 0 00 22

23 24

2 0 0 00 10

20 21

8 0 0 00

31 L. Marlow, Capital L. Marlow, Drawing

2 0 0 0 00

2 0 0 0 00 25

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CHAPTER 15

607

Exercise 15-5B (Concluded) 2. Balloons and Baubbles Post-Closing Trial Balance December 31, 20-1 Cash

2 8 0 0 00

Accounts Receivable

4 2 0 0 00

Merchandise Inventory

7 5 0 0 00

Supplies

5 0 0 00

Prepaid Insurance

5 0 0 00

Equipment

3 0 0 0 00

Accum. Depr.—Equipment

9 0 0 00

Accounts Payable

1 8 0 0 00

Wages Payable

2 0 0 00

Sales Tax Payable

8 0 00

L. Marlow, Capital

15 5 2 0 00 18 5 0 0 00

18 5 0 0 00

Don’t forget to update the capital account before preparing the post-closing trial balance.

(Drawing)

L. Marlow, Capital 12,200.00 2,000.00 5,320.00 15,520.00

(Net income)

608

CHAPTER 15

Exercise 15-6B GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Reversing Entry

20-2 2

PAGE

1 Wages Payable

Jan.

2 0 0 00

Wages Expense

2 0 0 00

Exercise 15-7B DATE Adjusting Entry: 12/31/-1 Closing Entry: 12/31/-1 Reversing Entry: 1/1/-2 Payment of Payroll: 1/3/-2

Bal.

WITHOUT REVERSING ENTRY Wages Expense Wages Payable

280 280

Income Summary 20,360 Wages Expense

No entry Wages Expense Wages Payable Cash

560 280 840

Wages Expense 20,080 280 12/31/-1 Clos. 20,360

1/3/-2

560

Wages Payable 12/31/-1 Adj.

280 280

Income Summary 20,360 Wages Expense Wages Payable Wages Expense

280

Wages Expense Cash

840

12/31/-1 Adj.

840

Wages Expense 20,080 280 12/31/-1 Clos. 20,360

1/3/-2

840

Bal.

560 Wages Payable 12/31/-1 Adj.

280 1/1/-2 Rev.

840

20,360

280

1/1/-2 Rev.

280 Cash 1/3/-2 Payroll

Wages Expense Wages Payable

Bal.

12/31-/1 Adj.

1/3/-2

20,360

WITH REVERSING ENTRY

280

280 Cash 1/3/-2 Payroll

840

CHAPTER 15

609

Problem 15-8B 1. Backlund Farm Supply Income Statement For Year Ended December 31, 20-Revenue from sales: Sales

$141,800

Less sales ret. & allow.

1,310

Net sales

$140,490

Cost of goods sold: Merch. inv., Jan. 1, 20--

$ 42,160

Purchases Less: Purch. ret. & allow. Purch. discounts

$81,300 $2,900 1,510

4,410

Net purchases

$76,890

Add freight-in

600

Cost of goods purchased Goods available for sale Less merch. inv., Dec. 31, 20--

77,490 $119,650 44,300

Cost of goods sold

75,350

Gross profit

$ 65,140

Operating expenses: Wages expense

$ 41,720

Advertising expense

400

Supplies expense

860

Telephone expense

800

Utilities expense

1,300

Insurance expense

750

Depr. exp.—equipment

900

Miscellaneous expense

200

Total operating expenses Income from operations

46,930 $ 18,210

Other expenses: Interest expense Net income

1,080 $ 17,130

610

CHAPTER 15

Problem 15-8B (Continued) 2. Backlund Farm Supply Statement of Owner’s Equity For Year Ended December 31, 20-J. Backlund, capital, January 1, 20--

$50,000

Add additional investment

7,000

Total investment Net income for the year Less withdrawals for the year

$57,000 $17,130 6,800

Increase in capital

10,330

J. Backlund, capital, December 31, 20--

$67,330

CHAPTER 15

611

Problem 15-8B (Concluded) 3. Backlund Farm Supply Balance Sheet December 31, 20-Assets Current assets: Cash

$10,180

Accounts receivable

26,420

Merchandise inventory

44,300

Supplies

3,500

Prepaid insurance

2,250

Total current assets

$ 86,650

Property, plant, and equipment: Equipment

$38,000

Less accumulated depreciation

6,900

Total assets

31,100 $117,750

Liabilities Current liabilities: Accounts payable

$41,200

Wages payable

420

Sales tax payable

800

Mortgage payable (current portion)

1,000

Total current liabilities

$43,420

Long-term liabilities: Mortgage payable

$ 8,000

Less current portion

1,000

Total liabilities

7,000 $ 50,420

Owner’s Equity J. Backlund, capital Total liabilities and owner’s equity

67,330 $117,750

612

CHAPTER 15

Problem 15-9B a.

Working capital: –

Current Assets

$86,650

Current Liabilities

43,420 $43,230

Current ratio: Current Assets

Current Liabilities c.

2.0 to 1

0.84 to 1

$43,420

Quick ratio: Quick Assets

Current Liabilities d.

$86,650

$36,600 $43,420

Return on owner’s equity: Net Income

Average Owner’s Equity

$17,130

$50,000 + $67,330

$17,130

29.2%

4.35

1.74

$58,665

Accounts receivable turnover: Net Credit Sales

Average Accounts Receivable

$140,490

$38,200 + $26,420

$140,490 $32,310

2 365 : 4.35 = 83.91 days

Inventory turnover: Cost of Goods Sold

Average Inventory

$75,350 $42,160 + $44,300

$75,350 $43,230

2 365 : 1.74 = 209.77 days

CHAPTER 15

613

This page intentionally left blank.

614

CHAPTER 15

Problem 15-10B 1. Darby Kite Work For Year Ended ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

Cash

11 7 0 0 00

Accounts Receivable

11 2 0 0 00

Merchandise Inventory

25 0 0 0 00

Supplies

ADJUSTMENTS DEBIT CREDIT

(b)

(a)

25 0 0 0 00

1 2 0 0 00

(c)

1 5 0 00

8 0 0 00

(d)

2 5 0 00

(e)

4 0 0 00

(f)

3 6 0 00

(b)

23 6 0 0 00

(g)

2 5 0 0 00

Prepaid Insurance

Equipment

Accumulated Depr.—Equipment

Accounts Payable

Wages Payable

Sales Tax Payable

2 5 0 00

Unearned Revenue

3 0 0 0 00

M. D. Akins, Capital

50 0 0 0 00

M. D. Akins, Drawing

Income Summary

23 6 0 0 00

5 4 0 0 00 8 0 0 00 7 1 0 0 00

(g)

2 5 0 0 00

(a)

25 0 0 0 00

10 5 0 0 00

Sales

55 4 9 0 00

Sales Returns and Allowances

1 4 5 0 00

Purchases

34 5 0 0 00

Purchases Returns and Allow.

Purchases Discounts

Freight-In

Wages Expense

Advertising Expense

Supplies Expense

Telephone Expense

1 1 0 0 00

Utilities Expense

2 3 0 0 00

1 1 0 0 00 6 3 0 00 3 6 0 00 (f)

3 6 0 00

(c)

1 5 0 00

Insurance Expense

(d)

2 5 0 00

Depreciation Expense—Equip.

(e)

4 0 0 00

Miscellaneous Expense

3 2 0 00

Interest Expense

9 2 0 00

7 4 0 00

118 3 7 0 00

30 31

10 8 8 0 00

118 3 7 0 00

52 2 6 0 00

Net Income

CHAPTER 15

615

Problem 15-10B (Continued) Store Sheet December 31, 20-1 ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

11 7 0 0 00

11 2 0 0 00

23 6 0 0 00

1 0 5 0 00

5 5 0 00

5 4 0 0 00

1 2 0 0 00

7 1 0 0 00

3 6 0 00

2 5 0 00

2 5 0 00 10

5 0 0 00

5 0 0 00 11

50 0 0 0 00

50 0 0 0 00 12

10 5 0 0 00 25 0 0 0 00

10 5 0 0 00 23 6 0 0 00

25 0 0 0 00

57 9 9 0 00

23 6 0 0 00

57 9 9 0 00

1 4 5 0 00

34 5 0 0 00

1 1 0 0 00

6 3 0 00

3 6 0 00

11 2 4 0 00

7 4 0 00

1 5 0 00

1 1 0 0 00

2 3 0 0 00

2 5 0 00

4 0 0 00

3 2 0 00

9 2 0 00

142 7 3 0 00

78 7 3 0 00

83 3 2 0 00

64 0 0 0 00

4 5 9 0 00 83 3 2 0 00

59 4 1 0 00 30 4 5 9 0 00 31

83 3 2 0 00

64 0 0 0 00

64 0 0 0 00 32

616

CHAPTER 15

Problem 15-10B (Continued) 2., 3., and 5. GENERAL JOURNAL DATE

DESCRIPTION

20-1

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31

Income Summary

25 0 0 0 00

Merchandise Inventory

25 0 0 0 00

4 5 6

31 Merchandise Inventory

23 6 0 0 00

Income Summary

23 6 0 0 00

31 Supplies Expense

Supplies

1 5 0 00 1 5 0 00

10 11 12

31 Insurance Expense

2 5 0 00

Prepaid Insurance

31 Depreciation Expense—Equipment

4 0 0 00

Accumulated Depreciation—Equipment

31 Wages Expense

3 6 0 00

Wages Payable

3 6 0 00 18 19

31 Unearned Revenue

2 5 0 0 00

Sales

2 5 0 0 00 21

Closing Entries

23 24

4 0 0 00 15

19 20

2 5 0 00 12

16 17

9 10

13 14

31 Sales

Purchases Returns and Allowances

Purchases Discounts

Income Summary

57 9 9 0 00

1 1 0 0 00

6 3 0 00

59 7 2 0 00 27

CHAPTER 15

617

Problem 15-10B (Continued) GENERAL JOURNAL DATE 20-1 1

DESCRIPTION

Dec. 31

Income Summary

PAGE POST. REF.

DEBIT

CREDIT

53 7 3 0 00

Sales Returns and Allowances

1 4 5 0 00

Purchases

34 5 0 0 00

Freight-In

3 6 0 00

Wages Expense

11 2 4 0 00

Advertising Expense

7 4 0 00

Supplies Expense

1 5 0 00

Telephone Expense

1 1 0 0 00

Utilities Expense

2 3 0 0 00

Insurance Expense

2 5 0 00 10

Depreciation Expense—Equipment

4 0 0 00 11

Miscellaneous Expense

3 2 0 00 12

Interest Expense

9 2 0 00 13

31 Income Summary

4 5 9 0 00

M. D. Akins, Capital

4 5 9 0 00 16

31 M. D. Akins, Capital

10 5 0 0 00

M. D. Akins, Drawing

Reversing Entries

20-2

10 5 0 0 00 19

Jan.

1 Wages Payable Wages Expense

3 6 0 00

3 6 0 00 23

618

CHAPTER 15

Problem 15-10B (Concluded) 4. Darby Kite Store Post-Closing Trial Balance December 31, 20-1 ACCOUNT

DEBIT BALANCE

Cash

11 7 0 0 00

Accounts Receivable

11 2 0 0 00

Merchandise Inventory

23 6 0 0 00

Supplies

1 0 5 0 00

Prepaid Insurance Equipment

CREDIT BALANCE

5 5 0 00 5 4 0 0 00

Accumulated Depreciation—Equipment

1 2 0 0 00

Accounts Payable

7 1 0 0 00

Wages Payable

3 6 0 00

Sales Tax Payable

2 5 0 00

Unearned Revenue

5 0 0 00

M. D. Akins, Capital

44 0 9 0 00 53 5 0 0 00

53 5 0 0 00

CHAPTER 15

619

MANAGING YOUR WRITING The student’s response should include a discussion of the following ratios: a. b. c. d. e. f.

Working capital Current ratio Quick ratio Return on owner’s equity Accounts receivable turnover and average collection period Inventory turnover and average days to sell inventory

ETHICS CASE 1. Brian should inform Louise that he cannot be a part of preparing financial statements he knows to be fraudulent. 2. If Brian approaches Louise with the problem, Louise might blame Martha for telling Brian that personal expenses were charged to the business. Martha knowingly made journal entries she knew would have an impact of misrepresenting Louise Michener Consulting’s books. 3. Answers will vary. Students should emphasize that personal expenses are separate from business transactions. Some students might recognize that tax forms prepared from incorrect financial statements might constitute fraud. 4. Discussions will vary. The teacher can play an active role in this discussion by talking about the wide range of situations where clients unknowingly provide accountants with incorrect or incomplete information and where clients knowingly provide the accountant with incorrect or incomplete information. The conclusion should be that an accountant should not be part of any situation where he or she knows the information on the financial statements is incorrect.

620

CHAPTER 15

Mastery Problem 1. Dominique’s Doll House Income Statement For Year Ended December 31, 20-3 Revenue from sales: Sales

$130,500

Less sales returns and allowances

900

Net sales

$129,600)

Cost of goods sold: Merchandise inventory, Jan. 1, 20-3 Purchases Less purchases discounts

$ 22,300 $72,000 750

Net purchases

$71,250

Add freight-in

1,200

Cost of goods purchased Goods available for sale Less merch. inventory, Dec. 31, 20-3

72,450 $ 94,750 24,600

Cost of goods sold

70,150)

Gross profit

$ 59,450)

Operating expenses: Wages expense Rent expense Office supplies expense

$ 42,200 6,000 600

Telephone expense

1,500

Utilities expense

7,600

Insurance expense

400

Depreciation expense—store equipment

5,000

Total operating expenses

63,300)

Income (loss) from operations

$ (3,850)

Other revenues: Rent revenue

$ 25,700

Other expenses: Interest expense Net income

) 500

25,200) $ 21,350)

CHAPTER 15

621

Mastery Problem (Continued) 2. Dominique’s Doll House Statement of Owner’s Equity For Year Ended December 31, 20-3 Dominique Fouque, capital, January 1, 20-3

$75,800

Net income for the year

$21,350

Less withdrawals for the year

21,000

Increase in capital Dominique Fouque, capital, December 31, 20-3

350 $76,150

622

CHAPTER 15

Mastery Problem (Continued) 3. Dominique’s Doll House Balance Sheet December 31, 20-3 Assets Current assets: Cash

$ 5,200

Accounts receivable

3,200

Merchandise inventory

24,600

Office supplies

200

Prepaid insurance

800

Total current assets

$34,000

Property, plant, and equipment: Store equipment

$85,000

Less accumulated depreciation

20,000

Total assets

65,000 $99,000

Liabilities Current liabilities: Notes payable

$ 6,000

Accounts payable

5,500

Wages payable

200

Sales tax payable

850

Unearned rent revenue

300

Total current liabilities

$12,850

Long-term liabilities: Long-term note payable Total liabilities

10,000 $22,850

Owner’s Equity Dominique Fouque, capital

76,150

Total liabilities and owner’s equity

$99,000

CHAPTER 15

623

Mastery Problem (Continued) 4. a.

Current ratio: Current Assets

$34,000

Current Liabilities b.

2.65 to 1

0.65 to 1

$12,850

Quick ratio: Quick Assets

$8,400

Current Liabilities c.

$12,850

Working capital: –

Current assets

$34,000

Current liabilities

12,850 $21,150

Return on owner’s equity: Net Income

Average Owner’s Equity

$21,350

$75,800 + $76,150

$21,350

28.1%

12.39

2.99

$75,975

Accounts receivable turnover: Net Credit Sales for the Year =

$35,300

Average Accounts Receivable

$2,500 + $3,200

$35,300 $2,850

2 Average number of days to collect an account receivable: 365 : 12.39 = 29.46 days f.

Inventory turnover: Cost of Goods Sold

Average Inventory

$70,150 $22,300 + $24,600

$70,150 $23,450

2 Average number of days to sell inventory: 365 : 2.99 = 122.07 days

624

CHAPTER 15

Mastery Problem (Continued) 5. GENERAL JOURNAL DATE

DESCRIPTION

20-3 1

Dec.

PAGE 3 POST. REF.

DEBIT

Adjusting Entries 31 Income Summary

22 3 0 0 00

Merchandise Inventory

CREDIT

22 3 0 0 00

31 Merchandise Inventory

24 6 0 0 00

Income Summary

24 6 0 0 00

31 Office Supplies Expense

6 0 0 00

Office Supplies

6 0 0 00

9 10

31 Insurance Expense

4 0 0 00

Prepaid Insurance

4 0 0 00 12

31 Depreciation Expense—Store Equipment

5 0 0 0 00

Accumulated Depreciation—Store Equipment

5 0 0 0 00 15

31 Unearned Rent Revenue

7 0 0 00

Rent Revenue

7 0 0 00 18

31 Wages Expense Wages Payable

21 22

2 0 0 00

2 0 0 00 21 22

Should the adjustment be reversed? a.

Never reverse adjustments for merchandise inventory.

No. No asset or liability with a zero balance has been increased.

Never reverse adjustments for depreciation.

No. No asset or liability with a zero balance has been increased.

Yes. A liability with a zero balance has been increased.

CHAPTER 15

625

Mastery Problem (Concluded) 6. and 7. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

20-3

Sales

130 5 0 0 00

Rent Revenue

25 7 0 0 00

Purchases Discounts

7 5 0 00

Income Summary

Dec. 31

156 9 5 0 00

31 Income Summary

7 8

Sales Returns and Allowances

137 9 0 0 00

9 0 0 00

Purchases

72 0 0 0 00

Freight-In

1 2 0 0 00 10

Wages Expense

42 2 0 0 00 11

Rent Expense

6 0 0 0 00 12

Office Supplies Expense

Telephone Expense

1 5 0 0 00 14

Utilities Expense

7 6 0 0 00 15

Insurance Expense

4 0 0 00 16

Depreciation Expense—Store Equipment

Interest Expense

6 0 0 00 13

5 0 0 0 00 17 5 0 0 00 18

31 Income Summary

21 3 5 0 00

Dominique Fouque, Capital

21 3 5 0 00 21

31 Dominique Fouque, Capital

21 0 0 0 00

Dominique Fouque, Drawing

Reversing Entry

20-4

21 0 0 0 00 24

Jan.

1 Wages Payable Wages Expense

2 0 0 00

2 0 0 00 28

626

CHAPTER 15

Challenge Problem To compute the average number of days to convert inventory to cash, the average days to sell inventory and the average collection period for accounts receivable must be computed. Average Inventory

Beginning Inventory + Ending Inventory

2 Inventory Turnover =

$100 + $300 =

$200

Cost of Goods Sold for the Period

Average Inventory

$5,000

$200

Average days to sell inventory = 365 days : 25 = 14.6 days Average Accounts

Beginning Balance + Ending Balance

Receivable

Accounts Receivable=

Net Credit Sales for the Period

Turnover

$500 + $700 =

$600

Average Accounts Receivable

$7,200

$600

Average collection period = 365 days : 12 = 30.4 days

Average days to sell inventory

14.6 days

Average days to collect receivables

30.4 days

Average days to convert inventory to cash

45.0 days

CHAPTER 16 ACCOUNTING FOR ACCOUNTS RECEIVABLE REVIEW QUESTIONS 1.

The allowance method is generally required for financial reporting purposes.

To use the allowance method, three steps are followed: a. At the end of each accounting period, the amount of bad debt expense or uncollectible accounts is estimated. b. An adjusting entry is made to recognize the bad debt expense and reduce reported receivables for the amount of estimated uncollectible accounts. c. In a subsequent period, when a specific account is identified as uncollectible, an entry is made to write off the account and reduce the balance in Allowance for Doubtful Accounts.

Net realizable value is computed by subtracting Allowance for Doubtful Accounts from Accounts Receivable.

The percentage of sales method is based on the relationship between the amount of credit sales and the amount of sales that will be uncollectible. Based on experience, uncollectible accounts as a percentage of sales is determined, and this percentage is used to estimate the bad debt expense.

The percentage of receivables method is based on the relationship between the amount of accounts receivable and the amount of uncollectible accounts. Uncollectible accounts is computed as a percentage of the aged accounts receivable.

Under the percentage of sales method, any balance in the Allowance for Doubtful Accounts prior to adjustment generally is ignored in making the current period adjustment. Under the percentage of receivables method, this balance must be considered in making the current period’s adjusting entry.

Under the allowance method, the write-off of an account as uncollectible does not affect either the income statement or the net assets on the balance sheet.

Two entries are made if an account that was previously written off is subsequently collected: a. The account must be reinstated by a debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts. b. The collection must be entered by a debit to Cash and a credit to Accounts Receivable.

Under the direct write-off method, the bad debt expense is not recognized until it has been determined that an account is uncollectible. Once an account is determined to be uncollectible, Bad Debt Expense is debited and Accounts Receivable is credited.

10.

Three disadvantages of the direct write-off method are: a. Efforts to collect the account often extend over many months resulting in mismatching of revenues and expenses. b. The amount of bad debt expense recognized in a given period can be manipulated by management. This occurs because there is no general rule for deciding when an account becomes uncollectible. c. The amount of accounts receivable reported on the balance sheet does not represent the amount of cash actually expected to be collected.

722

CHAPTER 16

Exercise 16-1A 1. Net realizable value = $47,500 Accounts receivable Less allowance for doubtful accounts Net realizable value

$50,000 2,500 $47,500

2. Net realizable value = $47,500 Accounts receivable Less allowance for doubtful accounts Net realizable value

$49,500 2,000 $47,500

CHAPTER 16

723

Exercise 16-2A 1. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

8 4 0 0 00

Allowance for Doubtful Accounts

8 4 0 0 00

($280,000 × 0.03)

3 4

2. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

8 4 0 0 00

Allowance for Doubtful Accounts

8 4 0 0 00

($280,000 × 0.03)

3 4

Exercise 16-3A 1. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

3 7 9 0 00

Allowance for Doubtful Accounts

3 7 9 0 00

($4,500 – $710)

3 4

2. GENERAL JOURNAL DATE

DESCRIPTION

20--

3 4

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

4 8 0 5 00

($4,500 + $305)

3 4 5

724

CHAPTER 16

Exercise 16-4A GENERAL JOURNAL DATE 20-1

DESCRIPTION

PAGE POST. REF.

7 Allowance for Doubtful Accounts

July

DEBIT

5 3 5 0 00

Accounts Receivable/R. Dalzell

CREDIT 1

5 3 5 0 00

Wrote off uncollectible account

4 5

Aug. 12 Allowance for Doubtful Accounts

2 8 7 0 00

Accounts Receivable/J. Flint

2 8 7 0 00

Wrote off uncollectible account

8 9

Sept. 27 Accounts Receivable/R. Dalzell

5 3 5 0 00

Allowance for Doubtful Accounts

5 3 5 0 00 10

Reinstated account receivable

27 Cash

5 3 5 0 00

Accounts Receivable/R. Dalzell

5 3 5 0 00 14

Collection on account

Exercise 16-5A 1. a. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

28 0 0 0 00

Allowance for Doubtful Accounts

28 0 0 0 00

3 4

b. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

28 5 7 0 00

3 4

CHAPTER 16

725

Exercise 16-5A (Concluded) 2. a. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

21 0 0 0 00

Allowance for Doubtful Accounts

21 0 0 0 00

b. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

31 7 9 0 00

Allowance for Doubtful Accounts

31 7 9 0 00

Exercise 16-6A GENERAL JOURNAL DATE 20-1 2 3

July

DESCRIPTION

20 Bad Debt Expense

PAGE POST. REF.

DEBIT

CREDIT

2 3 2 5 00

Accounts Receivable/J. Balouka

2 3 2 5 00

Wrote off uncollectible account

4 5 6 7

Oct. 15 Bad Debt Expense

Accounts Receivable/A. Rose

1 6 7 5 00

Wrote off uncollectible account

726

CHAPTER 16

Exercise 16-7A GENERAL JOURNAL DATE 20-1 1

May

DESCRIPTION

8 Bad Debt Expense

Accounts Receivable/V. Lawrence

Wrote off uncollectible account

PAGE POST. REF.

DEBIT

CREDIT

1 7 4 5 00

2 3

4 5

July 15 Bad Debt Expense

1 3 0 0 00

Accounts Receivable/D. Utter

1 3 0 0 00

Wrote off uncollectible account

8 9

Sept.

2 Accounts Receivable/V. Lawrence

1 7 4 5 00

Bad Debt Expense

1 7 4 5 00 10

Reinstated account receivable

2 Cash

1 7 4 5 00

Accounts Receivable/V. Lawrence

20-2

May

15 Accounts Receivable/D. Utter

Uncollectible Accounts Recovered

Reinstated account receivable

1 3 0 0 00

22 23

1 3 0 0 00 18 19

20 21

1 7 4 5 00 14

Collection on account

15 Cash Accounts Receivable/D. Utter Collection on account

1 3 0 0 00

1 3 0 0 00 22 23

CHAPTER 16

727

Problem 16-8A 1. and 2.

GENERAL JOURNAL

DATE 20-1

Feb.

DESCRIPTION

PAGE POST. REF.

9 Cash

DEBIT

CREDIT

2 4 0 0 00

Accounts Receivable/Wiley’s Waterworks Collection on account

2 4 0 0 00

2 3

9 Allowance for Doubtful Accounts Accounts Receivable/ Wiley’s Waterworks Wrote off uncollectible account

5 6 7

122.1

1 6 0 0 00

6 7 8

8 9

May

10 11

28 Accounts Receivable/Amanda Akin Allowance for Doubtful Accounts Reinstated account receivable

2 1 0 0 00 122.1

2 1 0 0 00 10 11

28 Cash Accounts Receivable/ Amanda Akin Collection on account

13 14 15

2 1 0 0 00

15 16

Aug. 16 Allowance for Doubtful Accounts

122.1

5 7 0 0 00

Accounts Receivable/JoJo Xu Wrote off uncollectible account

18 19

22 23

19 20

Oct.

5 Accounts Receivable/Tomi Kennedy Allowance for Doubtful Accounts Reinstated account receivable

3 1 0 0 00 122.1

26 27

23 24

5 Cash Accounts Receivable/Tomi Kennedy Collection on account

3 1 0 0 00

30 31 32 33

27 28

Dec. 28 Allowance for Doubtful Accounts

122.1

39 4 3 0 00

Accounts Receivable/Jacobs & Wilson Accounts Receivable/Specialty Landscapes Accounts Receivable/Kiana Hoyer Wrote off uncollectible accounts

36 37 38 39

10 9 0 0 00 30 15 3 6 0 00 31 13 1 7 0 00 32 33

24 35

3 1 0 0 00 26

28 29

3 1 0 0 00 22

24 25

5 7 0 0 00 18

20 21

2 1 0 0 00 14

16 17

Adjusting Entry 31 Bad Debt Expense Allowance for Doubtful Accounts ($50,800 – $1,470)

532 122.1

49 3 3 0 00

49 3 3 0 00 37 38 39

728

CHAPTER 16

Problem 16-8A (Concluded) GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

CREDIT

Closing Entry

20-2

DEBIT

Dec. 31 Income Summary

313

Bad Debt Expense

49 3 3 0 00

532

49 3 3 0 00

3 4

GENERAL LEDGER Allowance for Doubtful Accounts

ACCOUNT

DATE 20--

ITEM

POST. REF.

Feb.

May

Aug. 16

Dec. 28

Oct.

DEBIT

CREDIT

31 Adjusting

43 0 0 0 00 41 4 0 0 00 2 1 0 0 00

43 5 0 0 00

5 7 0 0 00

37 8 0 0 00 3 1 0 0 00

40 9 0 0 00

39 4 3 0 00

1 4 7 0 00 49 3 3 0 00

50 8 0 0 00

Income Summary

ACCOUNT

DATE

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

49 3 3 0 00

20--

Dec. 31 Closing

CREDIT

DATE

ITEM

20--

Dec. 31 Adjusting

31 Closing

CREDIT

49 3 3 0 00

ACCOUNT NO.

POST. REF.

DEBIT

49 3 3 0 00

313

BALANCE DEBIT

Bad Debt Expense

ACCOUNT

CREDIT

1 6 0 0 00

122.1

BALANCE DEBIT



1 Balance 9

Jan.

ACCOUNT NO.

CREDIT

532

BALANCE DEBIT

CREDIT

49 3 3 0 00 49 3 3 0 00

3. Net realizable value: Accounts receivable, December 31, 20-- $965,000 Less allowance for doubtful accounts Net realizable value

50,800 $914,200

CHAPTER 16

729

Problem 16-9A 1. a.

GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

20--

Dec. 31 Bad Debt Expense

7 1 0 4 00

Allowance for Doubtful Accounts

Accounts receivable, December 31, 20--

7 1 0 4 00

Net realizable value

$30,000 7,434 $22,566

GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

Dec. 31 Bad Debt Expense

6 6 2 0 00

Allowance for Doubtful Accounts

6 6 2 0 00

($6,950 – $330 = $6,620)

Accounts receivable, December 31, 20-Net realizable value

$30,000 6,950 $23,050

2. a.

GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Adjusting Entry

20--

Dec. 31 Bad Debt Expense

5 3 2 8 00

Allowance for Doubtful Accounts

5 3 2 8 00

($355,200 × 0.015 = $5,328)

Accounts receivable, December 31, 20-Less allowance for doubtful accounts ($5,328 – $400) Net realizable value

3 4

Less allowance for doubtful accounts ($330 + $6,620)

CREDIT 1

20--

DEBIT

Adjusting Entry

3 4

Less allowance for doubtful accounts ($330 + $7,104)

($355,200 × 0.02 = $7,104)

CREDIT

Adjusting Entry

1 2

DEBIT

3 4

$30,000 4,928 $25,072

730

CHAPTER 16

Problem 16-9A (Concluded) b.

GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

6 0 8 5 00

Allowance for Doubtful Accounts

6 0 8 5 00

($5,685 + $400 = $6,085)

Accounts receivable, December 31, 20--

$30,000

Less allowance for doubtful accounts ($6,085 – $400) Net realizable value

5,685 $24,315

Problem 16-10A 1. A

C Estimated Percent Uncollectible 2%

D Estimated Amount Uncollectible $1,300.00

Age Interval 2 Not yet due 3 1–30 days past due

Balance $65,000 4,500

225.00

4 31–60 days past due

3,550

10%

355.00

5 61–90 days past due

1,650

25%

412.50

6 91–180 days past due

1,200

35%

420.00

7 181–365 days past due

650

55%

357.50

8 Over 365 days past due

400

85%

340.00

9 Total

$76,950

$3,410.00

10 2. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

2 7 9 0 00

3 4

CHAPTER 16

731

Problem 16-11A GENERAL JOURNAL DATE

DESCRIPTION

20-1 1

Feb. 18 Accounts Receivable/Merry Merchants

PAGE POST. REF.

DEBIT

17 5 0 0 00

Sales Sold merchandise on account

CREDIT

17 5 0 0 00

2 3

4 5

Mar. 22 Accounts Receivable/Utter Unicorns

14 3 0 0 00

Sales Sold merchandise on account

6 7

14 3 0 0 00

6 7

8 9

June

10 11

3 Cash Accounts Receivable/Merry Merchants Collection on account

10 0 0 0 00

10 0 0 0 00 10 11

3 Bad Debt Expense Accounts Receivable/Merry Merchants Wrote off uncollectible account

13 14 15

7 5 0 0 00

15 16

Sept.

18 19

9 Cash Accounts Receivable/Utter Unicorns Collection on account

8 0 0 0 00

19 20

9 Bad Debt Expense Accounts Receivable/Utter Unicorns Wrote off uncollectible account

21 22 23

6 3 0 0 00

23 24

Nov. 13 Accounts Receivable/Merry Merchants

7 5 0 0 00

Bad Debt Expense Reinstated account receivable

26 27

27 28

13 Cash Accounts Receivable/Merry Merchants Collection on account

29 30 31

7 5 0 0 00

31 32

20-2

Jan. 17 Accounts Receivable/Utter Unicorns

6 3 0 0 00

Uncollectible Accounts Recovered Reinstated account receivable

38 39

6 3 0 0 00 34 35

36 37

7 5 0 0 00 30

7 5 0 0 00 26

6 3 0 0 00 22

8 0 0 0 00 18

7 5 0 0 00 14

16 17

17 Cash Accounts Receivable/Utter Unicorns Collection on account

6 3 0 0 00

6 3 0 0 00 38 39

732

CHAPTER 16

Exercise 16-1B 1. Net realizable value = $60,025 Accounts receivable Less allowance for doubtful accounts Net realizable value

$65,200 5,175 $60,025

2. Net realizable value = $60,025 Accounts receivable Less allowance for doubtful accounts Net realizable value

$64,300 4,275 $60,025

CHAPTER 16

733

Exercise 16-2B 1. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

7 6 0 0 00

Allowance for Doubtful Accounts

7 6 0 0 00

($380,000 x .02)

3 4

2. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

7 6 0 0 00

Allowance for Doubtful Accounts

7 6 0 0 00

($380,000 x .02)

3 4

Exercise 16-3B 1. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

3 6 9 0 00

Allowance for Doubtful Accounts

3 6 9 0 00

($3,935 – $245)

3 4

2. GENERAL JOURNAL DATE

DESCRIPTION

20--

3 4

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

4 4 9 5 00

($3,935 + $560)

3 4 5

734

CHAPTER 16

Exercise 16-4B GENERAL JOURNAL DATE 20-1

DESCRIPTION

PAGE POST. REF.

9 Allowance for Doubtful Accounts

July

Accounts Receivable/S. Sanchez

Wrote off uncollectible account

DEBIT

CREDIT

6 0 4 0 00

2 3

Aug. 15 Allowance for Doubtful Accounts

Accounts Receivable/L. Jones

4 7 9 0 00

Wrote off uncollectible account

8 9

Sept. 23 Accounts Receivable/S. Sanchez

6 0 4 0 00

Allowance for Doubtful Accounts

6 0 4 0 00 10

Reinstated account receivable

23 Cash

6 0 4 0 00

Accounts Receivable/S. Sanchez

6 0 4 0 00 14

Collection on account

Exercise 16-5B 1. a. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

23 0 0 0 00

Allowance for Doubtful Accounts

23 0 0 0 00

3 4

b. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

22 6 4 0 00

3 4

CHAPTER 16

735

Exercise 16-5B (Concluded) 2. a. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

17 2 5 0 00

Allowance for Doubtful Accounts

17 2 5 0 00

b. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

23 7 2 0 00

Allowance for Doubtful Accounts

23 7 2 0 00

Exercise 16-6B GENERAL JOURNAL DATE

DESCRIPTION

20-1 2 3

July 19 Bad Debt Expense

PAGE POST. REF.

DEBIT

CREDIT

1 9 3 5 00

Accounts Receivable/A. Swartz

1 9 3 5 00

Wrote off uncollectible account

4 5 6 7

Oct. 12 Bad Debt Expense

Accounts Receivable/J. Strong

2 1 2 5 00

Wrote off uncollectible account

736

CHAPTER 16

Exercise 16-7B GENERAL JOURNAL DATE 20-1 1

May

DESCRIPTION

5 Bad Debt Expense

Accounts Receivable/N. Dammond

Wrote off uncollectible account

PAGE POST. REF.

DEBIT

CREDIT

2 3 6 0 00

2 3

4 5

July 18 Bad Debt Expense

1 2 5 5 00

Accounts Receivable/M. Mouse

1 2 5 5 00

Wrote off uncollectible account

8 9

Sept. 20 Accounts Receivable/N. Dammond

2 3 6 0 00

Bad Debt Expense

2 3 6 0 00 10

Reinstated account receivable

20 Cash

2 3 6 0 00

Accounts Receivable/N. Dammond

20-2

May

11 Accounts Receivable/M. Mouse

Uncollectible Accounts Recovered

Reinstated account receivable

1 2 5 5 00

22 23

1 2 5 5 00 18 19

20 21

2 3 6 0 00 14

Collection on account

11 Cash Accounts Receivable/M. Mouse Collection on account

1 2 5 5 00

1 2 5 5 00 22 23

CHAPTER 16

737

Problem 16-8B 1. and 2. GENERAL JOURNAL DATE 20-1

Feb.

DESCRIPTION

PAGE POST. REF.

7 Cash

DEBIT

CREDIT

5 6 0 0 00

Accounts Receivable/Luxury Sofas Collection on account

5 6 0 0 00

2 3

7 Allowance for Doubtful Accounts Accounts Receivable/Luxury Sofas Wrote off uncollectible account

5 6 7

122.1

2 4 0 0 00

6 7

9 May 26 Accounts Receivable/S. Johnson

Allowance for Doubtful Accounts Reinstated account receivable

10 11

3 7 2 5 00 122.1

3 7 2 5 00 10 11

26 Cash Accounts Receivable/S. Johnson Collection on account

13 14 15

3 7 2 5 00

15 16

17 Aug. 15 Allowance for Doubtful Accounts

122.1

9 3 5 0 00

Accounts Receivable/I. Goto Wrote off uncollectible account

18 19

19 20

Oct.

6 Accounts Receivable/D. Woods Allowance for Doubtful Accounts Reinstated account receivable

4 3 2 0 00 122.1

26 27

23 24

6 Cash Accounts Receivable/D. Woods Collection on account

4 3 2 0 00

27 28

Dec. 29 Allowance for Doubtful Accounts 30 Accounts Receivable/Schmidt & Yeager 31 Accounts Receivable/Economy Homes 32 Accounts Receivable/Davis Industries 33 Wrote off uncollectible accounts 29

122.1

41 6 4 0 00

37 38 39

13 9 4 5 00 30 15 8 3 0 00 31 11 8 6 5 00 32 33

4 3 2 0 00 26

4 3 2 0 00 22

24 25

9 3 5 0 00 18

3 7 2 5 00 14

Adjusting Entry 31 Bad Debt Expense Allowance for Doubtful Accounts ($67,150 – $4,505)

532 122.1

62 6 4 5 00

62 6 4 5 00 37 38 39

738

CHAPTER 16

Problem 16-8B (Concluded) GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

CREDIT

Closing Entry

20-2

DEBIT

Dec. 31 Income Summary

313

Bad Debt Expense

62 6 4 5 00

532

62 6 4 5 00

3 4

GENERAL LEDGER Allowance for Doubtful Accounts

ACCOUNT DATE 20--

ITEM

POST. REF.

Feb.

May

Aug. 15

Dec. 29

Oct.

CREDIT

31 Adjusting

49 8 5 0 00 47 4 5 0 00 3 7 2 5 00

51 1 7 5 00

9 3 5 0 00

41 8 2 5 00 4 3 2 0 00

46 1 4 5 00

41 6 4 0 00

4 5 0 5 00 62 6 4 5 00

67 1 5 0 00

Income Summary

ACCOUNT DATE

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

62 6 4 5 00

20--

Dec. 31 Closing

CREDIT

DATE

ITEM

20--

Dec. 31 Adjusting

31 Closing

CREDIT

62 6 4 5 00

ACCOUNT NO.

POST. REF.

DEBIT

62 6 4 5 00

313

BALANCE DEBIT

Bad Debt Expense

ACCOUNT

CREDIT

2 4 0 0 00

122.1

BALANCE DEBIT



1 Balance 7

Jan.

DEBIT

ACCOUNT NO.

CREDIT

532

BALANCE DEBIT

CREDIT

62 6 4 5 00 62 6 4 5 00

3. Net realizable value: Accounts receivable, December 31, 20-Less allowance for doubtful accounts Net realizable value

$1,175,000 67,150 $1,107,850

CHAPTER 16

739

Problem 16-9B 1. a.

GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

20--

Dec. 31 Bad Debt Expense

29 2 5 0 00

Allowance for Doubtful Accounts

($1,950,000 × 0.015 = $29,250)

Accounts receivable, December 31, 20-Net realizable value

$180,000 31,850

GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

DEBIT

CREDIT

Adjusting Entry

20--

Dec. 31 Bad Debt Expense

27 6 5 0 00

Allowance for Doubtful Accounts

($30,250 – $2,600 = $27,650)

Accounts receivable, December 31, 20-Net realizable value

27 6 5 0 00

$180,000 30,250 $149,750

2. a.

GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Adjusting Entry

20--

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

($1,950,000 × 0.01 = $19,500)

Accounts receivable, December 31, 20-Less allowance for doubtful accounts ($19,500 – $1,900) Net realizable value

3 4

Less allowance for doubtful accounts ($2,600 + $27,650)

$148,150

29 2 5 0 00

Less allowance for doubtful accounts ($2,600 + $29,250)

CREDIT

Adjusting Entry

1 2

DEBIT

19 5 0 0 00

3 4

$180,000 17,600 $162,400

740

CHAPTER 16

Problem 16-9B (Concluded) b.

GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Bad Debt Expense

22 4 0 0 00

Allowance for Doubtful Accounts

($20,500 + $1,900 = $22,400)

22 4 0 0 00

3 4

Accounts receivable, December 31, 20--

$180,000

Less allowance for doubtful accounts ($22,400 – $1,900) Net realizable value

20,500 $159,500

Problem 16-10B 1. A

C Estimated Percent Uncollectible 1.5%

D Estimated Amount Uncollectible $ 3,750

Age Interval 2 Not yet due 3 1–30 days past due

Balance $250,000 17,000

680

4 31–60 days past due

12,800

1,152

5 61–90 days past due

8,200

20%

1,640

6 91–180 days past due

4,600

30%

1,380

7 181–365 days past due

4,200

45%

1,890

8 Over 365 days past due

1,400

75%

1,050

9 Total

$298,200

$11,542

10 2. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

9 7 9 2 00

3 4

CHAPTER 16

741

Problem 16-11B GENERAL JOURNAL DATE

DESCRIPTION

20-1 1

Feb. 16 Accounts Receivable/Biggs and Daughters

PAGE POST. REF.

DEBIT

16 0 0 0 00

Sales Sold merchandise on account

2 3

CREDIT 1

16 0 0 0 00

2 3

4 5

Mar. 23 Accounts Receivable/Lloyd Place

12 8 0 0 00

Sales Sold merchandise on account

6 7

12 8 0 0 00

6 7

8 9

June

10 11

8 Cash Accounts Receivable/Biggs and Daughters Collection on account

12 0 0 0 00

12 0 0 0 00 10 11

8 Bad Debt Expense Accounts Receivable/Biggs and Daughters Wrote off uncollectible account

13 14 15

4 0 0 0 00

15 16

Sept. 27 Cash

7 0 0 0 00

Accounts Receivable/Lloyd Place Collection on account

18 19

19 20

27 Bad Debt Expense Accounts Receivable/Lloyd Place Wrote off uncollectible account

21 22 23

5 8 0 0 00

23 24

Nov. 18 Accounts Receivable/Biggs and Daughters

4 0 0 0 00

Bad Debt Expense Reinstated account receivable

26 27

27 28

18 Cash Accounts Receivable/Biggs and Daughters Collection on account

29 30 31

4 0 0 0 00

31 32

20-2

Jan. 11 Accounts Receivable/Lloyd Place

5 8 0 0 00

Uncollectible Accounts Recovered Reinstated account receivable

38 39

5 8 0 0 00 34 35

36 37

4 0 0 0 00 30

4 0 0 0 00 26

5 8 0 0 00 22

7 0 0 0 00 18

4 0 0 0 00 14

16 17

11 Cash Accounts Receivable/Lloyd Place Collection on account

5 8 0 0 00

5 8 0 0 00 38 39

742

CHAPTER 16

MANAGING YOUR WRITING This may be a tough assignment for most of the students. They need to think about the issues rather than just lean on the text. Students should identify many of the following positive and negative aspects of different credit policies. Tight credit: Positive: —Minimize losses from uncollectibles. —Minimize collection costs. Negative: —Can lose sales to competition (including good accounts because of the difficulty of obtaining credit from your business). —Increased cost of performing credit reviews. Easy credit: Positive: —Increased sales because customers will buy more if on credit, and such terms match the competition. Negative —Increased risk of loss from uncollectibles. —Increased cost of running accounts receivable and credit departments.

ETHICS CASE 1. Preston should have instructed the accountant to journalize the entry for the recovery. By not doing this entry, Preston is understating his net income (taxable income) for the current year. 2. Assets and net income will both be understated. 3. October 12: Bad Debt Expense ................................................... 10,000 Accounts Receivable.......................................... 10,000 December 15: Accounts Receivable ............................................... Bad Debt Expense ............................................. Cash ........................................................................ Accounts Receivable..........................................

10,000 10,000 10,000 10,000

4. Answers will vary. Students might discuss the possibility of losing or misappropriating the money, other employees might discover the check, there may not be sufficient funds to cover the check if it is held, and the financial statements will be incorrect for the current year and the following year.

CHAPTER 16

743

Mastery Problem 1., 3., and 4. GENERAL LEDGER—SAM Cash

ACCOUNT

DATE 20--

ACCOUNT NO.

ITEM

1 Balance

Jan.

POST. REF.

DEBIT

CREDIT



BALANCE DEBIT

CREDIT

300 0 0 0 00

Dec. 31

530 0 0 0 00

830 0 0 0 00

5 0 0 00

830 5 0 0 00

Accounts Receivable

ACCOUNT

DATE 20--

ITEM

1 Balance

Jan.

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT



CREDIT

50 0 0 0 00

530 0 0 0 00

70 0 0 0 00

4 5 0 0 00

65 5 0 0 00

550 0 0 0 00

600 0 0 0 00

5 0 0 00

66 0 0 0 00 5 0 0 00

65 5 0 0 00

Allowance for Doubtful Accounts

DATE 20--

ITEM

1 Balance

Jan.

POST. REF.

122

BALANCE DEBIT

Dec. 31

ACCOUNT

101

DEBIT

ACCOUNT NO.

CREDIT

122.1

BALANCE DEBIT

CREDIT



5 0 0 0 00

Dec. 31

5 0 0 00

1 0 0 0 00

31 Adjusting

5 5 0 0 00

6 5 0 0 00

ACCOUNT

DATE 20--

Dec. 31

4 5 0 0 00

5 0 0 00

Sales

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

550 0 0 0 00

401

BALANCE DEBIT

CREDIT

550 0 0 0 00

744

CHAPTER 16

Mastery Problem (Continued) 4. ACCOUNT

DATE

Bad Debt Expense ITEM

20--

Dec. 31 Adjusting

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

5 5 0 0 00

532

BALANCE DEBIT

CREDIT

5 5 0 0 00

Estimated bad debt expense: $550,000 × 0.01 = $5,500

5. Net realizable value: Accounts receivable, December 31, 20--

$65,500

Less allowance for doubtful accounts

6,500

Net realizable value

$59,000

CHAPTER 16

745

Mastery Problem (Continued) 2. and 4. GENERAL JOURNAL DATE

DESCRIPTION

20--

PAGE POST. REF.

DEBIT

550 0 0 0 00

Dec. 31 Accounts Receivable

122

(d)

Sales

401

CREDIT 1

550 0 0 0 00

Sales on account

4 5

(e)

31 Cash

101

Accounts Receivable

530 0 0 0 00

122

530 0 0 0 00

Collections on account

8 9

(f)

31 Allowance for Doubtful Accounts Accounts Receivable

122.1

4 5 0 0 00

122

4 5 0 0 00 10

Wrote off uncollectible accounts

12 13

(g)

31 Accounts Receivable

Allowance for Doubtful Accounts

Reinstated account receivable

122

5 0 0 00

122.1

18 19

15 16

(g)

31 Cash

101

Accounts Receivable

5 0 0 00

122

22 23

5 0 0 00 18

Collections on account

20 21

5 0 0 00 14

16 17

Adjusting Entry 31 Bad Debt Expense Allowance for Doubtful Accounts

532 122.1

5 5 0 0 00

5 5 0 0 00 23

746

CHAPTER 16

Mastery Problem (Continued) 6. and 8. GENERAL JOURNAL DATE

DESCRIPTION

20--

PAGE POST. REF.

DEBIT

550 0 0 0 00

Dec. 31 Accounts Receivable

122

(d)

Sales

401

CREDIT 1

550 0 0 0 00

Sales on account

4 5

(e)

31 Cash

101

Accounts Receivable

530 0 0 0 00

122

530 0 0 0 00

Collections on account

8 9

(f)

31 Allowance for Doubtful Accounts Accounts Receivable

122.1

4 5 0 0 00

122

4 5 0 0 00 10

Wrote off uncollectible accounts

12 13

(g)

31 Accounts Receivable

Allowance for Doubtful Accounts

Reinstated account receivable

122

5 0 0 00

122.1

18 19

15 16

(g)

31 Cash

101

Accounts Receivable

5 0 0 00

122

22 23

5 0 0 00 18

Collections on account

20 21

5 0 0 00 14

16 17

Adjusting Entry 31 Bad Debt Expense Allowance for Doubtful Accounts

532 122.1

4 5 2 5 00

4 5 2 5 00 23

CHAPTER 16

747

Mastery Problem (Continued) 1., 7., and 8. GENERAL LEDGER—ROBERT Cash

ACCOUNT

DATE 20--

ACCOUNT NO.

ITEM

1 Balance

Jan.

POST. REF.

DEBIT

CREDIT



BALANCE DEBIT

CREDIT

300 0 0 0 00

Dec. 31

530 0 0 0 00

830 0 0 0 00

5 0 0 00

830 5 0 0 00

Accounts Receivable

ACCOUNT

DATE 20--

ITEM

1 Balance

Jan.

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT



CREDIT

50 0 0 0 00

530 0 0 0 00

70 0 0 0 00

4 5 0 0 00

65 5 0 0 00

550 0 0 0 00

600 0 0 0 00

5 0 0 00

66 0 0 0 00 5 0 0 00

65 5 0 0 00

Allowance for Doubtful Accounts

DATE 20--

ITEM

1 Balance

Jan.

POST. REF.

122

BALANCE DEBIT

Dec. 31

ACCOUNT

101

DEBIT

ACCOUNT NO.

CREDIT

122.1

BALANCE DEBIT

CREDIT



5 0 0 0 00

Dec. 31

5 0 0 00

1 0 0 0 00

31 Adjusting

4 5 2 5 00

5 5 2 5 00

ACCOUNT

DATE 20--

Dec. 31

4 5 0 0 00

5 0 0 00

Sales

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

550 0 0 0 00

401

BALANCE DEBIT

CREDIT

550 0 0 0 00

748

CHAPTER 16

Mastery Problem (Concluded) 8. Bad Debt Expense

ACCOUNT

DATE

ITEM

20--

Dec. 31 Adjusting

ACCOUNT NO.

POST. REF.

DEBIT

BALANCE

CREDIT

DEBIT

4 5 2 5 00

CREDIT

4 5 2 5 00

AGING SCHEDULE OF ACCOUNTS RECEIVABLE FOR ROBERT B C D E F G Number of Days Past Due Not Yet Customer Total Due 1–30 31–60 61–90 91–120 A

1 2

3 Beets, D.

$12,000

4 Cook, L.

3,700

5 Hylton, D.

9,600

2,800

6 Martin, D.

10,100

1,500

7 Stokes, D.

9,700

9,500

8 Taylor, T.

1,800

1,400

9 Thomas, O.

5,500

10 Tower, R.

2,300

11 Williams, G.

10,800

8,000

2,800

12 Total

$65,500

$39,500

$7,600

$10,200

$790

$380

Estimated percent 13 uncollectible Total est. uncollectible 14 accounts

$ 8,500

$5,525

$1,200

H Over 120

$ 2,300 $2,500

$1,200

$4,500

$2,500

$1,200

10%

25%

50%

80%

$1,020

$1,125

$1,250

$960

2,500 3,200

$4,300

5,400 200

400

9. Accounts receivable, December 31, 20--

$65,500

Less allowance for doubtful accounts

5,525

Net realizable value

532

$59,975

CHAPTER 16

749

Challenge Problem 1. GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 20-1 2

DESCRIPTION

PAGE

Dec.

31 Bad Debt Expense

9 6 0 0 00

Allowance for Doubtful Accounts

9 6 0 0 00

(0.03 × $320,000 = $9,600)

3 4

2. GENERAL JOURNAL DATE

20-2

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

Dec.

31 Bad Debt Expense Allowance for Doubtful Accounts

25 0 0 0 00

(0.05 × $380,000 = $19,000;

$19,000 + $6,000 = $25,000)

750

CHAPTER 16

Challenge Problem (Concluded) 3. a. Average uncollectible accounts Average accounts receivable

($9,600 + $25,000 – $300*)/2 ($320,000 + $380,000)/2

$17,150 $350,000

4.9%

b. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 20-3 2

PAGE

Dec.

31 Bad Debt Expense

19 7 9 0 00

Allowance for Doubtful Accounts

19 7 9 0 00

(0.049 × $410,000 = $20,090;

$20,090 – $300 = $19,790)

*An alternative way of computing the $34,300 of uncollectible accounts during the two years is by examining the Allowance for Doubtful Accounts, as follows:

Write-offs during 20-2 Write-offs during 20-3 Total write-offs

Allowance for Doubtful Accounts 12/31/-1 Adj. 15,600 12/31/-2 Adj. 18,700 34,300 12/31/-3 Bal.

9,600 25,000 300

CHAPTER 17 ACCOUNTING FOR NOTES AND INTEREST REVIEW QUESTIONS 1.

A note receivable is a written promise to pay and usually includes an interest component.

The formula for calculating the interest on notes is: Interest = Principal

The term of the note is used to calculate time, which is the term of the note stated as a fraction of a year. When the term of the note is specified in months, time is calculated on the basis of months. When the term of the note is specified in days or when the due date is specified in a note, time is computed using the exact number of days from the date of the note to the date of its maturity.

Most banks and business firms use 360 days as a year.

Businesses generally encounter the following seven types of transactions involving notes receivable: a. Note received from a customer in exchange for assets sold b. Note received from a customer to extend time for payment of an account c. Note collected at maturity d. Note renewed at maturity e. Note discounted before maturity f. Note dishonored g. Collection of dishonored note

In discounting a note, the bank uses the maturity value of the note to calculate the discount and uses the days in the discount period as the time period.

If the maker of a discounted note does not pay it at maturity, the business that discounted the note must pay the maturity value and any bank fees to the bank.

For notes that are received in one period and due in the following period, accrued interest must be recorded at the end of the period.

Businesses generally encounter the following five types of transactions involving notes payable: a. Note issued to a supplier in exchange for assets purchased b. Note issued to a supplier to extend time for payment of an account c. Note issued as security for cash loan d. Note paid at maturity e. Note renewed at maturity

Rate

Time.

10. Bank discounts are calculated by multiplying the maturity value by the discount rate by the discount period. The proceeds are calculated by subtracting the discount amount from the maturity value. 11. Discount on Notes Payable is a contra-liability account and is reported as a deduction from Notes Payable on the balance sheet. 12. The appropriate entry for an interest-bearing note is to debit Interest Expense and credit Accrued Interest Payable. For a non-interest-bearing note, the proper entry is to debit Interest Expense and credit Discount on Notes Payable. 13. Accrued interest receivable is reported as a current asset, and accrued interest payable is reported as a current liability on the balance sheet. 751 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

752

CHAPTER 17

For ease of presentation, the exercise and problem journal entries do not include explanations. Students should include explanations similar to those illustrated in the chapter.

Exercise 17-1A Date of Note

Due Date

Time in Days

May 4

July 17

August 17

October 1

July 5

September 5

December 11

February 5

March 24

May 16

January 6

March 18

Exercise 17-2A Principal

Rate

Time

Interest

$5,000

6.00%

30 days

$25.00

1,000

7.50

$12.50

4,500

8.00

120

$120.00

950

6.80

$17.05

1,250

7.25

102

$25.68

2,900

7.00

$50.75

Exercise 17-3A Date of Note

Term of Note

Due Date

August 12

90 days

Nov. 10

September 1

Oct. 31

January 3

120

May 3

March 18

June 14

June 11

200

Dec. 28

May 17

June 24

CHAPTER 17

753

Exercise 17-4A GENERAL JOURNAL DATE

DESCRIPTION

20-1

Jan. 16 Notes Receivable

Sales

PAGE POST. REF.

DEBIT

CREDIT

20 0 0 0 00

3 4

Feb. 15 Cash

Notes Receivable (new note)

5 6

Notes Receivable (old note)

Interest Revenue

1 0 0 00

20 0 0 0 00

1 0 0 00

8 9

Mar. 17 Cash

20 1 1 6 67

Notes Receivable

20 0 0 0 00 10

Interest Revenue

1 1 6 67 11

($20,000

0.07

30/360 = $116.67)

19 Notes Receivable

8 0 0 0 00

Accounts Receivable

8 0 0 0 00 15

16 17 18

May

18 Cash Notes Receivable (new note)

Notes Receivable (old note)

Interest Revenue

1 0 8 0 00

7 0 0 0 00

8 0 0 0 00 19 8 0 00 20

21 22

July 17 Cash

7 0 7 0 00

Notes Receivable

7 0 0 0 00 23

Interest Revenue

7 0 00 24

($7,000

0.06

60/360 = $70)

754

CHAPTER 17

Exercise 17-5A GENERAL JOURNAL DATE 20-1

Apr.

DESCRIPTION

6 Notes Receivable

PAGE POST. REF.

DEBIT

3 0 0 0 00

Accounts Receivable

CREDIT 1

3 0 0 0 00

26 Cash

3 0 0 0 50

Notes Receivable

3 0 0 0 00

Interest Revenue

0 50

($3,000

0.06

120/360 = $60 interest)

($3,000 + $60 = $3,060 maturity value)

($3,060

($3,060 – $59.50 = $3,000.50)

0.07

100/360 = $59.50)

11 12

May

3 Notes Receivable

9 0 0 00

Accounts Receivable

9 0 0 00 13

14 15

June

2 Accounts Receivable

9 0 5 25

Notes Receivable

9 0 0 00 16

Interest Revenue

5 25 17

($900

0.07

30/360 = $5.25)

19 20

5 Cash

9 0 5 78

Accounts Receivable

Interest Revenue

($905.25

0.07

9 0 5 25 21 0 53 22

3/360 = $0.53)

CHAPTER 17

755

Exercise 17-6A GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Accrued Interest Receivable

3 2 67

Interest Revenue

3 2 67

Exercise 17-7A GENERAL JOURNAL DATE 20-1

May

DESCRIPTION

1 Equipment

PAGE POST. REF.

DEBIT

5 0 0 0 00

Accounts Payable

CREDIT 1

5 0 0 0 00

3 4

June

1 Accounts Payable

5 0 0 0 00

Notes Payable

5 0 0 0 00

6 7 8

July

1 Notes Payable (old note) Interest Expense

Notes Payable (new note)

Cash

($5,000

5 0 0 0 00

2 5 00

4 5 0 0 00

5 2 5 00 10 0.06

30/360 = $25)

12 13 14 15 16

31 Notes Payable Interest Expense

4 5 0 0 00

2 2 50

Cash ($4,500

4 5 2 2 50 15 0.06

30/360 = $22.50)

17 18 19 20

Aug. 10 Purchases

Notes Payable

3 5 0 0 00

3 5 0 0 00 19 20

756

CHAPTER 17

Exercise 17-8A GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20-1

July 15 Cash

Discount on Notes Payable

DEBIT

4 9 3 3 33

6 6 67

Notes Payable

($5,000

CREDIT

5 0 0 0 00

0.08

60/360 = $66.67)

5 6

Sept. 13 Notes Payable

Interest Expense

7 8

Cash

Discount on Notes Payable

5 0 0 0 00

6 6 67

5 0 0 0 00

6 6 67

Exercise 17-9A GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31 Interest Expense

Accrued Interest Payable

1 6 67

CHAPTER 17

757

Problem 17-10A GENERAL JOURNAL DATE

DESCRIPTION

20-1 1

July 20 Notes Receivable

Sales

PAGE POST. REF.

DEBIT

CREDIT

7 5 0 00

3 4

Aug. 19 Cash

7 5 3 13

Notes Receivable

7 5 0 00

Interest Revenue

3 13

($750

0.05

30/360 = $3.13)

25 Accounts Receivable/L. Beene

1 1 0 0 00

Sales

1 1 0 0 00 10

11 12

Sept.

5 Cash Notes Receivable

1 0 0 00

1 0 0 0 00

Accounts Receivable/L. Beene

1 1 0 0 00 14

15 16

Oct.

5 Cash

1 0 0 5 00

Notes Receivable

1 0 0 0 00 17

Interest Revenue

5 00 18

($1,000

0.06

30/360 = $5)

10 Cash

Notes Receivable

5 0 00

7 0 0 00

Sales

7 5 0 00 23

24 25 26 27 28 29

Nov.

9 Cash Notes Receivable (new note) Notes Receivable (old note) Interest Revenue ($700 0.06 30/360 = $3.50)

2 0 3 50

5 0 0 00

7 0 0 00 27 3 50 28 29

758

CHAPTER 17

Problem 17-10A (Concluded) GENERAL JOURNAL DATE 20-1 1

Dec.

DESCRIPTION

9 Cash

PAGE POST. REF.

DEBIT

CREDIT

5 0 2 50

Notes Receivable

5 0 0 00

Interest Revenue

2 50

($500

0.06

30/360 = $2.50)

10 Accounts Receivable/B. Kraus

1 5 0 0 00

Sales

1 5 0 0 00

15 Cash

Notes Receivable

1 5 0 00

1 3 5 0 00

Accounts Receivable/B. Kraus

1 5 0 0 00 11

20-2 13

Jan. 14 Accounts Receivable/B. Kraus

Notes Receivable

1 3 5 0 00 14

Interest Revenue

7 88 15

($1,350

0.07

1 3 5 7 88

30/360 = $7.88)

17 18

Feb. 13 Cash

1 3 6 5 80

Accounts Receivable/B. Kraus

Interest Revenue

($1,357.88

0.07

1 3 5 7 88 19 7 92 20

30/360 = $7.92)

CHAPTER 17

759

Problem 17-11A GENERAL JOURNAL DATE 20-1

Mar.

DESCRIPTION

1 Accounts Receivable/G. Perez

PAGE POST. REF.

DEBIT

5 0 0 0 00

Sales

CREDIT 1

5 0 0 0 00

20 Notes Receivable

5 0 0 0 00

Accounts Receivable/ G. Perez

5 0 0 0 00

30 Cash

Interest Expense

4 9 8 4 78

1 5 22

Notes Receivable

0.06

5 0 0 0 00

($5,000

90/360 = $75 interest)

($5,000 + $75 = $5,075 maturity value)

($5,075

($5,075 – $90.22 = $4,984.78 proceeds)

0.08

80/360 = $90.22 discount)

Apr. 20 Notes Receivable

Sales

3 0 0 0 00

3 0 0 0 00 16

17 18

May

5 Cash

3 0 0 3 49

Notes Receivable

3 0 0 0 00 19

Interest Revenue

3 49 20

($3,000

0.06

60/360 = $30 interest)

($3,000 + $30 = $3,030 maturity value)

($3,030

($3,030 – $26.51 = $3,003.49 proceeds)

0.07

45/360 = $26.51 discount)

25 26

June 19 Accounts Receivable/D. Larson

3 0 7 0 00

Cash

3 0 7 0 00 27

28 29

July

31 Cash

3 0 9 1 49

Accounts Receivable/ D. Larson

Interest Revenue

($3,070

0.06

3 0 7 0 00 30 2 1 49 31

42/360 = $21.49)

760

CHAPTER 17

Problem 17-11A (Concluded) GENERAL JOURNAL DATE 20-1 2

Aug.

DESCRIPTION

1 Accounts Receivable/A. Bauer

PAGE POST. REF.

DEBIT

CREDIT

5 6 0 0 00

Sales

5 6 0 0 00

3 4 5 6

12 Cash Notes Receivable

4 0 0 00

5 2 0 0 00

Accounts Receivable/ A. Bauer

5 6 0 0 00

7 8 9

Sept. 11 Cash

Notes Receivable (new note)

Notes Receivable (old note)

Interest Revenue

($5,200

0.05

4 2 1 67

4 8 0 0 00

5 2 0 0 00 10 2 1 67 11

30/360 = $21.67)

13 14

26 Cash

4 8 0 2 55

Notes Receivable

4 8 0 0 00 15

Interest Revenue

2 55 16

($4,800

0.06

60/360 = $48 interest)

($4,800 + $48 = $4,848 maturity value)

($4,848

($4,848 – $45.45 = $4,802.55)

0.075

45/360 = $45.45 discount)

21 22 23

Nov. 10 Accounts Receivable/ A. Bauer

4 8 8 8 00

Cash

4 8 8 8 00 23

24 25

Dec. 15 Cash

4 9 1 6 51

Accounts Receivable/ A. Bauer

Interest Revenue

($4,888

0.06

4 8 8 8 00 26 2 8 51 27

35/360 = $28.51 interest)

CHAPTER 17

761

Problem 17-12A 1. K. Savelin

$1,000

0.05

16/360 =

R. Hillier

$5,000

0.06

28/360 =

23.33

B. Miranda

$2,800

0.08

31/360 =

19.29

R. Hansen

$7,500

0.07

43/360 =

62.71

2.22

$107.55 2. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Accrued Interest Receivable

1 0 7 55

Interest Revenue

1 0 7 55

Problem 17-13A GENERAL JOURNAL DATE 20-1

Apr.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

5 0 0 0 00

Notes Payable

CREDIT 1

5 0 0 0 00

5 Purchases

2 0 0 0 00

Notes Payable

2 0 0 0 00

10 Accounts Payable/M. K. Reynolds

7 8

Cash

Notes Payable

2 0 0 0 00

10 11 12

5 0 0 00

1 5 0 0 00

9 10

May

10 Notes Payable (old note) Interest Expense

Cash

Notes Payable (new note)

($1,500

1 5 0 0 00

7 50

5 0 7 50 13 0.06

30/360 = $7.50)

1 0 0 0 00 14 15

762

CHAPTER 17

Problem 17-13A (Concluded) GENERAL JOURNAL DATE 20-1

May

DESCRIPTION

20 Cash Discount on Notes Payable

PAGE POST. REF.

DEBIT

3 4 5 9 17

4 0 83

Notes Payable

0.07

CREDIT

3 5 0 0 00

($3,500

($3,500 – $40.83 = $3,459.17)

60/360 = $40.83)

4 5

6 7

June

4 Notes Payable (old note) Interest Expense

8 9

Cash

Notes Payable (new note) ($2,000

2 0 0 0 00

2 3 33

5 2 3 33 0.07

1 5 0 0 00 10

60/360 = $23.33)

9 Notes Payable

Interest Expense

1 0 0 0 00

5 83

Cash

($1,000

1 0 0 5 83 15 0.07

30/360 = $5.83)

30 Notes Payable

Interest Expense

5 0 0 0 00

1 0 0 00

Cash

($5,000

5 1 0 0 00 20 0.08

90/360 = $100)

22 23 24 25 26

July

4 Notes Payable Interest Expense

1 5 0 0 00

8 75

Cash ($1,500

1 5 0 8 75 25 0.07

30/360 = $8.75)

27 28 29

19 Notes Payable Interest Expense

Discount on Notes Payable

Cash

3 5 0 0 00

4 0 83

4 0 83 30 3 5 0 0 00 31

CHAPTER 17

763

Problem 17-14A 1. B. Jones

$1,000

0.06

30/360 =

$ 5.00

M. Aguilar

$2,500

0.06

36/360 =

15.00

T. Plant

$3,800

0.07

17/360 =

12.56

W. Brand

$1,900

0.08

42/360 =

17.73 $50.29

2. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31 Interest Expense

Accrued Interest Payable

5 0 29

764

CHAPTER 17

For ease of presentation, the exercise and problem journal entries do not include explanations. Students should include explanations similar to those illustrated in the chapter.

Exercise 17-1B Date of Note

Due Date

Time in Days

August 17

October 10

January 12

March 10

July 15

September 13

December 3

February 1

April 11

July 6

October 6

December 18

Exercise 17-2B Principal

Rate

Time

Interest

$4,000

7.00%

60 days

$46.67

3,000

6.50

$16.25

7,500

8.00

150

$250.00

850

7.90

$18.47

2,250

7.55

122

$57.57

1,900

6.80

$29.43

Exercise 17-3B Date of Note

Term of Note

Due Date

July 11

45 days

Aug. 25

December 23

Mar. 23

April 18

120

Aug. 16

October 3

Dec. 19

January 1

180

June 30

August 13

Oct. 17

CHAPTER 17

765

Exercise 17-4B GENERAL JOURNAL DATE 20-1 2

May

DESCRIPTION

22 Notes Receivable

PAGE POST. REF.

DEBIT

CREDIT

22 0 0 0 00

Sales

22 0 0 0 00

3 4 5

June 21 Cash

Notes Receivable (new note)

Notes Receivable (old note)

Interest Revenue

($22,000

0.06

1 1 0 00

22 0 0 0 00

1 1 0 00

30/360 = $110)

9 10

July 21 Cash

22 1 2 8 33

Notes Receivable

22 0 0 0 00 11

Interest Revenue

1 2 8 33 12

($22,000

0.07

30/360 = $128.33)

14 15 16

28 Notes Receivable

11 6 0 0 00

Accounts Receivable

11 6 0 0 00 16

17 18 19

Sept. 11 Cash

Notes Receivable (new note)

Notes Receivable (old note)

Interest Revenue

($11,600

0.07

1 7 0 1 50

10 0 0 0 00

11 6 0 0 00 20 1 0 1 50 21

45/360 = $101.50)

23 24

Nov. 10 Cash

10 1 2 5 00

Notes Receivable

10 0 0 0 00 25

Interest Revenue

1 2 5 00 26

($10,000

0.075

60/360 = $125)

766

CHAPTER 17

Exercise 17-5B GENERAL JOURNAL DATE 20-1

Aug.

DESCRIPTION

4 Notes Receivable

PAGE POST. REF.

DEBIT

4 0 0 0 00

Accounts Receivable

CREDIT 1

4 0 0 0 00

14 Cash

Interest Expense

3 9 9 3 27

6 73

Notes Receivable

0.07

4 0 0 0 00

($4,000

120/360 = $93.33 interest)

($4,000 + $93.33 = $4,093.33 maturity value)

($4,093.33

($4,093.33 – $100.06 = $3,993.27)

0.08

110/360 = $100.06)

11 12

Sept.

5 Notes Receivable

1 2 0 0 00

Accounts Receivable

1 2 0 0 00 13

14 15

Oct.

5 Accounts Receivable

1 2 0 6 00

Notes Receivable

1 2 0 0 00 16

Interest Revenue

6 00 17

($1,200

0.06

30/360 = $6)

19 20

Nov.

4 Cash

1 2 1 2 03

Accounts Receivable

Interest Revenue

($1,206

0.06

1 2 0 6 00 21 6 03 22

30/360 = $6.03)

CHAPTER 17

767

Exercise 17-6B GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Accrued Interest Receivable

4 0 00

Interest Revenue

4 0 00

Exercise 17-7B GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

June 15 Equipment

PAGE POST. REF.

DEBIT

CREDIT

6 0 0 0 00

Accounts Payable

6 0 0 0 00

3 4 5

July 15 Accounts Payable

6 0 0 0 00

Notes Payable

6 0 0 0 00

Aug. 14 Notes Payable (old note)

Interest Expense

Notes Payable (new note)

Cash

($6,000

6 0 0 0 00

3 5 00

5 4 0 0 00

6 3 5 00 10 0.07

30/360 = $35)

12 13 14 15 16

Sept. 13 Notes Payable

Interest Expense

5 4 0 0 00

3 1 50

Cash ($5,400

5 4 3 1 50 15 0.07

30/360 = $31.50)

17 18 19 20

27 Purchases Notes Payable

5 0 0 0 00

5 0 0 0 00 19 20

768

CHAPTER 17

Exercise 17-8B GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20-1

Sept. 15 Cash

Discount on Notes Payable

DEBIT

6 9 0 6 67

9 3 33

Notes Payable

($7,000

CREDIT

7 0 0 0 00

0.08

60/360 = $93.33)

5 6

Nov. 14 Notes Payable

Interest Expense

7 8

Cash

Discount on Notes Payable

7 0 0 0 00

9 3 33

7 0 0 0 00

9 3 33

Exercise 17-9B GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31 Interest Expense

Accrued Interest Payable

3 8 13

CHAPTER 17

769

Problem 17-10B GENERAL JOURNAL DATE

DESCRIPTION

20-3 1

June 20 Notes Receivable

Sales

PAGE POST. REF.

DEBIT

CREDIT

2 4 0 0 00

3 4

July 20 Cash

2 4 1 2 00

Notes Receivable

2 4 0 0 00

Interest Revenue

1 2 00

($2,400

0.06

30/360 = $12)

25 Accounts Receivable/R. Boone

5 6 0 0 00

Sales

5 6 0 0 00 10

11 12

Aug.

4 Cash Notes Receivable

6 0 0 00

5 0 0 0 00

Accounts Receivable/R. Boone

5 6 0 0 00 14

15 16

Sept.

3 Cash

5 0 2 9 17

Notes Receivable

5 0 0 0 00 17

Interest Revenue

2 9 17 18

($5,000

0.07

30/360 = $29.17)

10 Cash

Notes Receivable

4 0 0 00

2 6 0 0 00

Sales

3 0 0 0 00 23

24 25

Oct. 10 Cash

Notes Receivable (new note) Notes Receivable (old note)

26 27

6 1 3 00

2 0 0 0 00

2 6 0 0 00 27

Interest Revenue

($2,600

0.06

1 3 00 28 30/360 = $13)

30 31

Nov.

9 Cash

2 0 1 0 00

Notes Receivable

2 0 0 0 00 32

Interest Revenue

1 0 00 33

($2,000

0.06

30/360 = $10)

770

CHAPTER 17

Problem 17-10B (Concluded) GENERAL JOURNAL DATE

DESCRIPTION

20-3 1

Nov. 10 Accounts Receivable/J. Brown

PAGE POST. REF.

DEBIT

5 0 0 0 00

Sales

CREDIT 1

5 0 0 0 00

25 Cash

Notes Receivable

1 0 0 0 00

4 0 0 0 00

Accounts Receivable/J. Brown

5 0 0 0 00

Dec. 25 Accounts Receivable/J. Brown

Notes Receivable

Interest Revenue ($4,000

0.065

4 0 2 1 67 4 0 0 0 00

30/360 = $21.67)

11 12

20-4

Jan. 13 Cash

4 0 3 5 47

Accounts Receivable/J. Brown

Interest Revenue

2 1 67 10

12 13

($4,021.67

0.065

4 0 2 1 67 14 1 3 80 15

19/360 = $13.80)

CHAPTER 17

771

Problem 17-11B GENERAL JOURNAL DATE 20-1 2

May

DESCRIPTION

1 Accounts Receivable/L. Carney

PAGE POST. REF.

DEBIT

CREDIT

5 6 0 0 00

Sales

5 6 0 0 00

3 4 5

20 Notes Receivable

5 6 0 0 00

Accounts Receivable/L. Carney

5 6 0 0 00

6 7 8 9

30 Cash Interest Expense

5 5 8 9 27

1 0 73

Notes Receivable 0.06

5 6 0 0 00

($5,600

90/360 = $84 interest)

($5,600 + $84 = $5,684 maturity value)

($5,684

($5,684 – $94.73 = $5,589.27 proceeds)

0.075

80/360 = $94.73 discount)

June 20 Notes Receivable

Sales

2 4 0 0 00

2 4 0 0 00 16

17 18

July 25 Cash

2 4 1 1 37

Notes Receivable

2 4 0 0 00 19

Interest Revenue

1 1 37 20

($2,400

0.06

60/360 = $24 interest)

($2,400 + $24 = $2,424 maturity value)

($2,424

($2,424 – $12.63 = $2,411.37 proceeds)

0.075

25/360 = $12.63 discount)

25 26 27

Aug. 19 Accounts Receivable/P. Arnst

2 4 5 4 00

Cash

2 4 5 4 00 27

28 29

31 Cash

2 4 5 8 91

Accounts Receivable/P. Arnst

Interest Revenue

($2,454

0.06

2 4 5 4 00 30 4 91 31

12/360 = $4.91)

772

CHAPTER 17

Problem 17-11B (Concluded) GENERAL JOURNAL DATE 20-1

Sept.

DESCRIPTION

1 Accounts Receivable/B. Faust

PAGE POST. REF.

DEBIT

6 4 0 0 00

Sales

CREDIT 1

6 4 0 0 00

12 Cash

Notes Receivable

4 0 0 00

6 0 0 0 00

Accounts Receivable/B. Faust

6 4 0 0 00

7 8 9

Oct.

12 Cash Notes Receivable (new note)

Notes Receivable (old note)

Interest Revenue

($6,000

4 3 2 50

5 6 0 0 00

6 0 0 0 00 10 3 2 50 11

0.065

30/360 = $32.50)

13 14

26 Cash

5 6 0 7 42

Notes Receivable

5 6 0 0 00 15

Interest Revenue

7 42 16

($5,600

0.07

60/360 = $65.33 interest)

($5,600 + $65.33 = $5,665.33 maturity value)

($5,665.33

($5,665.33 – $57.91 = $5,607.42 proceeds)

0.08

46/360 = $57.91 discount)

21 22 23

Dec. 11 Accounts Receivable/B. Faust

5 6 9 5 33

Cash

5 6 9 5 33 23

24 25

27 Cash

5 7 1 3 05

Accounts Receivable/B. Faust

Interest Revenue

($5,695.33

0.07

5 6 9 5 33 26 1 7 72 27

16/360 = $17.72 interest)

CHAPTER 17

773

Problem 17-12B 1. P. Harrison

$1,200

0.06

14/360 =

$ 2.80

T. Rieber

$4,000

0.07

28/360 =

21.78

K. Burke

$2,200

0.07

30/360 =

12.83

A. Pai

$4,500

0.08

33/360 =

33.00 $70.41

2. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20-2

DEBIT

Dec. 31 Accrued Interest Receivable

7 0 41

Interest Revenue

7 0 41

Problem 17-13B GENERAL JOURNAL DATE 20-1

Apr.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

4 0 0 0 00

Notes Payable

CREDIT 1

4 0 0 0 00

5 Purchases

3 0 0 0 00

Notes Payable

3 0 0 0 00

10 Accounts Payable/A. Adams

7 8

Cash

Notes Payable

2 0 0 0 00

10 11 12

4 0 0 00

1 6 0 0 00

9 10

May

10 Notes Payable (old note) Interest Expense

Cash

Notes Payable (new note)

($1,600

1 6 0 0 00

8 00

4 0 8 00 13 0.06

30/360 = $8)

1 2 0 0 00 14 15

774

CHAPTER 17

Problem 17-13B (Concluded) GENERAL JOURNAL DATE 20-1

May

DESCRIPTION

20 Cash Discount on Notes Payable

PAGE POST. REF.

DEBIT

4 4 4 0 00

6 0 00

Notes Payable

0.08

CREDIT

4 5 0 0 00

($4,500

($4,500 – $60 = $4,440)

60/360 = $60)

4 5

6 7

June

4 Notes Payable (old note) Interest Expense

8 9

Cash

Notes Payable (new note) ($3,000

3 0 0 0 00

3 5 00

5 3 5 00 0.07

2 5 0 0 00 10

60/360 = $35)

9 Notes Payable

Interest Expense

1 2 0 0 00

7 00

Cash

($1,200

1 2 0 7 00 15 0.07

30/360 = $7)

30 Notes Payable

Interest Expense

4 0 0 0 00

8 0 00

Cash

($4,000

4 0 8 0 00 20 0.08

90/360 = $80)

22 23 24 25 26

July

4 Notes Payable Interest Expense

2 5 0 0 00

1 4 58

Cash ($2,500

2 5 1 4 58 25 0.07

30/360 = $14.58)

27 28 29

19 Notes Payable Interest Expense

Discount on Notes Payable

Cash

4 5 0 0 00

6 0 00

6 0 00 30 4 5 0 0 00 31

CHAPTER 17

775

Problem 17-14B 1. X. Rayal

$1,200

0.06

30/360 =

$ 6.00

G. Richards

$2,300

0.08

33/360 =

16.87

A. Gray

$3,400

0.07

15/360 =

9.92

O. Hankins

$2,900

0.065

48/360 =

25.13 $57.92

2. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

Dec. 31 Interest Expense

Accrued Interest Payable

5 7 92

776

CHAPTER 17

MANAGING YOUR WRITING (Students will need to do some independent thinking here, rather than looking to the text for the complete answer.) Possible advantages and disadvantages include the following: Three-year note Advantages: 1. You can lock in the rate for three years. If interest rates increase, you will not be affected. 2. You pay off the note in three years, probably paying less total interest than with option 2. Disadvantages: 1. If interest rates decrease, you cannot benefit. 2. You must pay off the note in three years, which gives you less flexibility than option 2. One-year note Advantages: 1. The initial rate is lower than on the three-year note. 2. You can stretch the payments up to four years. 3. If interest rates decrease, you could get an even lower rate. Disadvantages: 1. The rate on the note could increase if interest rates increase. Further, no interest rate limit is indicated. 2. Total interest payments will be greater than under option 1, if the note is used for four years.

ETHICS CASE 1. The loan officer should have told Rochelle that, all other things being equal, the effective rate of the loan is higher on a discounted note than an interest-bearing note. 2. $60/$2,940 × 360/90 = 8.2% (rounded to the nearest tenth of a percent) 3. In an interest-bearing note, interest is collected at maturity; in a discounted note, interest is collected at the time the loan is made. 4. Answers will vary. Some people don’t understand that interest rates are annual percentages. For example, in Rochelle’s case, the rate of 8% is an annual rate, so the rate for three months is 2% (rounded). Students may mention compounded interest vs. simple interest, and APR or effective interest rates. They also might mention differences in the base (360 vs. 365).

CHAPTER 17

777

Mastery Problem 1. and 2. GENERAL JOURNAL DATE 20-1

Oct.

DESCRIPTION

1 Purchases

PAGE POST. REF.

DEBIT

6 8 0 0 00

Notes Payable

CREDIT 1

6 8 0 0 00

Issued note for inventory purchase

15 Notes Receivable

2 0 0 0 00

Sales

2 0 0 0 00

Received note for merchandise sale

8 9

Nov.

1 Cash

2 0 0 3 11

Notes Receivable

2 0 0 0 00 10

Interest Revenue

3 11 11

Discounted note receivable

[$2,000 + ($2,000

maturity value]

($2,020

43/360 = $16.89 discount)

($2,020 – $16.89 = $2,003.11 net proceeds)

0.07

0.06

60/360) = $2,020

17 18 19 20 21 22 23

1 Cash Discount on Notes Payable

4 9 2 5 00

7 5 00

Notes Payable

5 0 0 0 00 20

Issued note for bank loan

($5,000 0.06 90/360 = $75) ($5,000 – $75 = $4,925)

22 23

24 25 26 27

20 Notes Receivable

4 0 0 0 00

Accounts Receivable/L. Revsine

4 0 0 0 00 26

Received note to settle account

28 29 30 31

30 Notes Payable Interest Expense Cash

6 8 0 0 00

5 6 67

6 8 5 6 67 31

Paid note with interest at maturity

($6,800

0.05

60/360 = $56.67)

778

CHAPTER 17

Mastery Problem (Concluded) GENERAL JOURNAL DATE

DESCRIPTION

20-1 2 3

Dec. 10 Accounts Payable/Remak Tractors

PAGE POST. REF.

DEBIT

CREDIT

3 0 0 0 00

Notes Payable

3 0 0 0 00

Issued note to settle account

4 5 6

16 Accounts Receivable/R. Chambers

2 0 4 0 00

Cash

2 0 4 0 00

Paid bank for dishonored note

($2,000

60/360 = $20)

($2,000 + $20 + $20 = $2,040)

0.06

Adjusting Entries

11 12 13 14

31 Interest Expense

5 0 00

Discount on Notes Payable ($75

5 0 00 13

2/3 = $50)

15 16 17 18

31 Interest Expense

1 0 50

Accrued Interest Payable ($3,000

0.06

21 22

1 0 50 17

21/360 = $10.50)

19 20

31 Accrued Interest Receivable Interest Revenue ($4,000

0.065

2 9 61

2 9 61 21 41/360 = $29.61)

CHAPTER 17

779

Challenge Problem Mirror Co. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Mirror Co.

20-2

PAGE

June

1 Notes Receivable

Accounts Receivable/Rosman Co.

Received note to settle account

3 0 0 0 00

3 4

20 Cash

Discount on Notes Payable

1 9 7 6 67

2 3 33

Notes Payable

2 0 0 0 00

Issued note for bank loan

($2,000 x 0.07 x 60/360 = $23.33 discount)

11 12

July

1 Cash

3 0 0 9 47

Notes Receivable

3 0 0 0 00 13

Interest Revenue

9 47 14

Discounted Rosman Co. note

($3,000 + ($3,000 x .06 x 90/360) = $3,045)

($3,045 x .07 x 60/360 = $35.53 discount)

($3,045 – $35.53 = $3,009.47 net proceeds)

19 20 21

Aug. 19 Notes Payable

Interest Expense

Cash

Discount on Notes Payable

Paid note at maturity

25 26

2 0 0 0 00

2 3 33

2 0 0 0 00 22 2 3 33 23 24 25

30 No entry required

780

CHAPTER 17

Challenge Problem (Concluded) Other Party (Rosman Co., Kaw County Bank, or Lawrence Bank) GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Rosman Co.

20-2

PAGE

June

1 Accounts Payable/Mirror Co.

3 0 0 0 00

Notes Payable

3 0 0 0 00

Issued note to settle account

5 6

Aug. 30 Notes Payable

Interest Expense

3 0 0 0 00

4 5 00

Cash

3 0 4 5 00

Paid note at Lawrence Bank

Kaw County Bank

20-12

June 20 Notes Receivable

Cash

Discount on Notes Receivable

2 0 0 0 00

2 3 33 14 15

Lawrence Bank

20--

July

1 Notes Receivable Interest Receivable

3 0 0 0 00

9 47

Cash

3 0 0 9 47 20

Accepted discounted note

Kaw County Bank

20-24

1 9 7 6 67 13

Received note for loan

Aug. 19 Cash

Discount on Notes Receivable

2 0 0 0 00

2 3 33

Notes Receivable

2 0 0 0 00 26

Interest Revenue

2 3 33 27

Collected Mirror Co. note

Lawrence Bank

20-31

Aug. 30 Cash

3 0 4 5 00

Notes Receivable

Interest Receivable

9 47 33

Interest Revenue

3 5 53 34

Collected Rosman Co. note

3 0 0 0 00 32

CHAPTER 18 ACCOUNTING FOR LONG-TERM ASSETS REVIEW QUESTIONS 1.

The total purchase price, transportation costs, installation costs, and any other costs incurred up to the point of placing the asset in service should be included in the total amount at which long-term assets are entered.

The cost of planting trees and shrubs should be debited to the land improvements account.

The two major types of depreciation are physical depreciation and functional depreciation.

The depreciable cost is the original cost less the salvage value.

The four most common methods of calculating depreciation for financial reporting purposes are the straight-line, declining-balance, sum-of-the-years’-digits, and units-of-production methods. Under the straight-line method, depreciation is allocated equally over the estimated useful life of the asset. Under the declining-balance method, a fixed rate is applied to the book value (undepreciated cost) of the asset each year. Under the sum-of-the-years’-digits method, a steadily decreasing rate is applied to the depreciable cost of the asset each year. Under the units-of-production method, the number of units of output that can be provided by the asset is estimated and depreciation is allocated on the basis of production during the period.

The fastest write-off method is the double-declining-balance method.

The depreciation method affects the balance sheet because the book value (undepreciated cost) of an asset differs depending on the method chosen. The income statement is affected because depreciation expense also differs according to the method chosen.

For assets acquired after 1986, either the straight-line method or Modified Accelerated Cost Recovery System (MACRS) must be used for federal income tax purposes.

Additions or improvements that increase the usefulness of an asset should be debited to the asset account.

10.

A replacement is when a component of a plant asset is replaced with a similar component. The replacement extends the life of the asset, but does not improve its usefulness or efficiency. An example is replacing the engine of a truck with the same model engine.

11.

An asset may be disposed of by discarding or retiring the asset, selling the asset, or exchanging or trading the asset for another asset.

12.

On the date of an asset’s disposal, depreciation expense should be recognized for the time period since the last depreciation adjustment.

13.

To determine the gain or loss, the market value and book value (undepreciated cost) must be known.

14.

The property, plant, and equipment record provides the description, estimated life, date of purchase, cost, estimated salvage value, and depreciation taken for a particular asset.

782

CHAPTER 18

15. The purpose of depletion is to allocate the cost of natural resources to the periods in which they are consumed. 16. The units-of-production method is very similar to the method used to compute depletion expense. 17. The cost of a patent should be amortized over its economic life. 18. The unamortized cost of a copyright is reported on the balance sheet as an intangible asset. 19. Conservatism suggests that any cost incurred in purchasing a trademark should be written off within a few years.

CHAPTER 18

783

Exercise 18-1A Yes

Debit Land? Real estate fees

Cost to remove old buildings

X X

Cost to pave parking areas Tax assessment for streets

Debit Building? Cost of land on which the building is located

Legal fees related to purchase

Taxes related to purchase

Realtor fees

Interest on construction loan while building was under construction

Debit Equipment? Transportation charges

Insurance while in transit

Installation costs

Interest on loan to buy equipment

Exercise 18-2A 1.

Straight-line method: ($35,000 – $5,000)  8 = $3,750 per year Year 1 $3,750 Year 3 $3,750

Double-declining-balance method: 100%  8 = 12.5% per year (straight-line rate) = 2 25% (double-declining-balance rate) Year 1 $35,000  25% = $8,750 Year 3 $19,687.50  25% = $4,921.88

784

CHAPTER 18

Exercise 18-2A (Concluded) 3.

Sum-of-the-years’-digits method: 8  (8+ 1) = 36 (denominator) 2 Year 1 $30,000  8/36 = $6,666.67 Year 3 $30,000  6/36 = $5,000

Exercise 18-3A Units-of-production method: ($35,000 – $5,000)  100,000 miles = $0.30 per mile Year 1

20,000 miles  $0.30 = $6,000

Year 3

24,000 miles  $0.30 = $7,200

Exercise 18-4A GENERAL JOURNAL DATE 1

DESCRIPTION

Accumulated Depreciation—Checkout Stand A

PAGE POST. REF.

DEBIT

3 5 0 0 00

Cash

CREDIT 1

3 5 0 0 00

3 4

Checkout Stand B

1 0 0 0 00

Cash

1 0 0 0 00

6 7 8

Repairs Expense Cash

3 0 00

CHAPTER 18

785

Exercise 18-5A 1. GENERAL JOURNAL DATE 20--

POST. REF.

4 Accumulated Depreciation—Shelves

Jan.

DESCRIPTION

PAGE

Loss on Discarded Shelves

DEBIT

5 9 0 0 00

5 0 0 00

Shelves

CREDIT

6 4 0 0 00

June 15 Cash

Accumulated Depreciation—Hand Cart

1 5 0 00

1 3 5 0 00

Hand Cart

1 5 0 0 00

1 Cash

Oct.

Accumulated Depreciation—Copy Machine

10 11

Copy Machine

Gain on Sale of Copy Machine

4 5 0 00

6 8 0 0 00

7 2 0 0 00 11 5 0 00 12

2. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Dec. 31 Drill Press (new)

PAGE POST. REF.

DEBIT

CREDIT

75 0 0 0 00

Accumulated Depreciation—Drill Press (old)

48 0 0 0 00

Loss on Exchange of Drill Press

2 0 0 0 00

Drill Press (old)

60 0 0 0 00

Cash

65 0 0 0 00

6 7 8

31 Drill Press (new) Accumulated Depreciation—Drill Press (old)

75 0 0 0 00

48 0 0 0 00

Drill Press (old)

60 0 0 0 00

Cash

60 0 0 0 00 10

Gain on Exchange of Drill Press

3 0 0 0 00 11

786

CHAPTER 18

Exercise 18-6A 1. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20--

Dec. 31 Depletion Expense—Coal Mine

DEBIT

25 0 0 0 00

Accumulated Depletion—Coal Mine

CREDIT 1

25 0 0 0 00

Rate: $1,500,000  6,000,000 tons = $0.25/ton

100,000  $0.25 = $25,000

2. GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

Dec. 31 Depletion Expense—Silver Mine

Accumulated Depletion—Silver Mine

PAGE POST. REF.

DEBIT

CREDIT

500 0 0 0 00

Rate: $3,000,000  750,000 tons = $4/ton

125,000  $4 = $500,000

CHAPTER 18

787

Problem 18-7A 1. a. Year

Annual Depreciation

Ending Book Value

$7,000

$52,000

7,000

45,000

7,000

38,000

7,000

31,000

7,000

24,000

7,000

17,000

7,000

10,000

7,000

3,000

Year

Beginning Book Value

Annual Depreciation

Ending Book Value

$59,000.00  0.25

$14,750.00

$44,250.00

44,250.00  0.25

11,062.50

33,187.50

33,187.50  0.25

8,296.88

24,890.62

24,890.62  0.25

6,222.66

18,667.96

18,667.96  0.25

4,666.99

14,000.97

14,000.97  0.25

3,500.24

10,500.73

10,500.73  0.25

2,625.18

7,875.55

7,875.55  0.25

1,968.89

5,906.66

Year

Depreciable Cost

Annual Depreciation

Ending Book Value

$56,000  (8/36)

$12,444.44

$46,555.56

$56,000  (7/36)

10,888.89

35,666.67

$56,000  (6/36)

9,333.33

26,333.34

$56,000  (5/36)

7,777.78

18,555.56

$56,000  (4/36)

6,222.22

12,333.34

$56,000  (3/36)

4,666.67

7,666.67

$56,000  (2/36)

3,111.11

4,555.56

$56,000  (1/36)

1,555.56

3,000.00

1. b.

1. c.

788

CHAPTER 18

Problem 18-7A (Concluded) 2.

Year

Original Cost

MACRS Depreciation Rates 7-Year Class of Property

$59,000

14.29%

$ 8,431.10

$59,000

24.49%

14,449.10

$59,000

17.49%

10,319.10

$59,000

12.49%

7,369.10

$59,000

8.93%

5,268.70

$59,000

8.92%

5,262.80

$59,000

8.93%

5,268.70

$59,000

4.46%

2,631.40

Total

Depreciation Expense

$59,000.00

Problem 18-8A Year

Beginning Book Value

Annual Depreciation

Ending Book Value

$59,000

10,000 units  $0.43* = $4,300

$54,700

54,700

8,000 units  $0.43 = $3,440

51,260

12,000 units  $0.43 = $5,160

46,100

16,000 units  $0.43 = $6,880

39,220

11,000 units  $0.43 = $4,730

34,490

*$56,000/130,000 = $0.43

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CHAPTER 18

789

Problem 18-9A 1. Truck #1

$20,000 – $4,000

$2,000

= $2,500  9/12 =

1,875

= $3,000  8/12 =

2,000

= $2,000  6/12 =

1,000

= $3,600  4/12 =

1,200

8 years Truck #2

$24,000 – $4,000 8 years

Tractor #1

$18,000 – $3,000 5 years

Tractor #2

$14,000 – $2,000 6 years

Forklift

$40,000 – $4,000 10 years

$8,075

2. GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

Dec. 31 Depreciation Expense—Equipment

Accumulated Depreciation—Equipment

PAGE POST. REF.

DEBIT

CREDIT

8 0 7 5 00

790

CHAPTER 18

Problem 18-10A 1. GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

20-1

Dec. 31 Depreciation Expense—Simulator A

DEBIT

9 0 0 0 00

Accumulated Depreciation—Simulator A

CREDIT 1

9 0 0 0 00

($77,000 – $5,000)/8

2 3

31 Depreciation Expense—Simulator B

9 0 0 0 00

Accumulated Depreciation—Simulator B

9 0 0 0 00

($77,000 – $5,000)/8

6 7

2. GENERAL JOURNAL DATE 20-2 1

Jan.

PAGE POST. REF.

DESCRIPTION

1 Accumulated Depreciation—Simulator A

DEBIT

6 0 0 0 00

Cash

CREDIT 1

6 0 0 0 00

2 3

1 Simulator B

Cash

9 0 0 0 00

3. January 1, 20-2, account balances: A

$77,000

$86,000

(3,000)

(9,000)

Book value

$74,000

$77,000

Salvage value

(5,000)

$69,000

$72,000

Simulator Accumulated depreciation

New depreciable base

$69,000  10 years = $6,900 depreciation per year for Simulator A $72,000  7 years = $10,285.71 depreciation per year for Simulator B

CHAPTER 18

791

Problem 18-11A GENERAL JOURNAL DATE 20-1

Jan.

DESCRIPTION

1 Accumulated Depreciation—Motor #12

PAGE POST. REF.

DEBIT

2 8 0 0 00

Motor #12

CREDIT 1

2 8 0 0 00

8 Cash

4 5

Accumulated Depreciation—Motor #8

Loss on Sale of Motor #8

2 0 0 00

4 0 0 0 00

2 0 0 00

Motor #8

4 4 0 0 00

14 Cash

Accumulated Depreciation—Motor #16

10 11

Motor #16

Gain on Sale of Motor #16

4 5 0 00

5 4 0 0 00

5 6 0 0 00 11 2 5 0 00 12

13 14 15

Feb.

1 Motor #22 (new) Accumulated Depreciation—Motor #6

7 0 0 0 00

4 8 0 0 00

Motor #6 (old)

6 0 0 0 00 16

Cash

5 6 0 0 00 17

Gain on Exchange of Motor #6

2 0 0 00 18

19 20

9 Motor #23 (new)

Accumulated Depreciation—Motor #9

Loss on Exchange of Motors

6 5 0 0 00

5 0 0 0 00

2 0 0 00

Motor #9 (old)

5 5 0 0 00 23

Cash

6 2 0 0 00 24

792

CHAPTER 18

Problem 18-12A 1. Depletion rate: $1,700,000  3,400,000 tons = $0.50 per ton Year 1

200,000  $0.50 = $100,000

Year 2

600,000  $0.50 = $300,000

2. GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

1 Depletion Expense—Salt Mine

Year

PAGE

DEBIT

100 0 0 0 00

Accumulated Depletion—Salt Mine

CREDIT 1

100 0 0 0 00

2 3

2 Depletion Expense—Salt Mine

Year

300 0 0 0 00

Accumulated Depletion—Salt Mine

300 0 0 0 00

5 6

Problem 18-13A 1. Patent

$10,000  10 = $1,000 per year =

$1,000

$15,000  5 = $3,000 per year  9/12 =

2,250

Trademark

$50,000  5 = $10,000 per year  6/12 =

5,000 $8,250

2. GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

Dec. 31 Patent Amortization (Expense)

PAGE POST. REF.

DEBIT

CREDIT

1 0 0 0 00

Patents

1 0 0 0 00

3 4 5

31 Copyright Amortization (Expense)

2 2 5 0 00

Copyrights

2 2 5 0 00

6 7 8

5 6

31 Trademark Amortization (Expense) Trademarks

5 0 0 0 00

CHAPTER 18

793

Exercise 18-1B a.

Ten computers: Purchase price

$60,000

Transportation costs

500

Insurance during transportation

100

Installation

800 $61,400

Three acres of land: Purchase price

$30,000

Grading of land in preparation to build

10,000

Tax assessment for sewer

1,000

Legal fees related to purchase

900 $41,900

Five-thousand-square-foot building: Purchase price

$102,000

Real estate fees

5,000

Legal fees related to purchase

600

Taxes related to purchase

800 $108,400

Exercise 18-2B 1.

Straight-line method: ($19,000 – $1,000)  5 = $3,600 per year Year 1 $3,600 Year 3 $3,600

Double-declining-balance method: 100%  5 =

20% per year (Straight-line rate) × 2 40%

Year 1 $19,000  0.4 = $7,600 Year 3 $6,840  0.4 = $2,736

794

CHAPTER 18

Exercise 18-2B (Concluded) 3.

Sum-of-the-years’-digits method: Year 1

$18,000  5/15 = $6,000

Year 3

$18,000  3/15 = $3,600

Denominator: 5(5 + 1) = 15 2

Exercise 18-3B Units-of-production method: ($19,000 – $1,000)  100,000 miles = $0.18 per mile Year 1

18,000 miles  $0.18 = $3,240

Year 3

22,000 miles  $0.18 = $3,960

Exercise 18-4B GENERAL JOURNAL DATE 1

DESCRIPTION

Tractor A

PAGE POST. REF.

DEBIT

5 5 0 00

Cash

CREDIT 1

5 5 0 00

3 4

Accumulated Depreciation—Mower D

2 0 0 00

Cash

2 0 0 00

6 7 8

Repairs Expense Cash

2 5 00

CHAPTER 18

795

Exercise 18-5B 1. GENERAL JOURNAL DATE 20--

POST. REF.

4 Accumulated Depreciation—Shelves

Jan.

DESCRIPTION

PAGE

Loss on Discarded Shelves

DEBIT

6 9 0 0 00

3 0 0 00

Shelves

CREDIT

7 2 0 0 00

June 15 Cash

Accumulated Depreciation—Hand Cart

2 5 0 00

2 2 5 0 00

Hand Cart

2 5 0 0 00

1 Cash

Oct.

Accumulated Depreciation—Copy Machine

10 11

Copy Machine

Gain on Sale of Copy Machine

5 0 0 00

4 8 0 0 00

5 2 0 0 00 11 1 0 0 00 12

2. GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

Dec. 31 Drill Press (new)

Accumulated Depreciation—Drill Press (old)

PAGE POST. REF.

DEBIT

CREDIT

55 0 0 0 00

37 5 0 0 00

Drill Press (old)

50 0 0 0 00

Cash

40 0 0 0 00

Gain on Exchange of Drill Press

2 5 0 0 00

6 7

31 Drill Press (new)

55 0 0 0 00

Accumulated Depreciation—Drill Press (old)

37 5 0 0 00

Loss on Exchange of Drill Press

2 5 0 0 00

Drill Press (old)

50 0 0 0 00 10

Cash

45 0 0 0 00 11

796

CHAPTER 18

Exercise 18-6B 1. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20--

Dec. 31 Depletion Expense—Coal Mine

DEBIT

77 0 0 0 00

Accumulated Depletion—Coal Mine

CREDIT 1

77 0 0 0 00

Rate: $1,750,000  2,500,000 tons = $0.70/ton

110,000  $0.70 = $77,000

2. GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

Dec. 31 Depletion Expense—Silver Mine

Accumulated Depletion—Silver Mine

PAGE POST. REF.

DEBIT

CREDIT

300 0 0 0 00

Rate: $2,000,000  500,000 tons = $4/ton

75,000  $4 = $300,000

CHAPTER 18

797

Problem 18-7B 1. a. Year

Annual Depreciation

Ending Book Value

$9,000

$68,000

9,000

59,000

9,000

50,000

9,000

41,000

9,000

32,000

9,000

23,000

9,000

14,000

9,000

5,000

Year

Beginning Book Value

Annual Depreciation

Ending Book Value

$77,000.00  0.25

$19,250.00

$57,750.00

57,750.00  0.25

14,437.50

43,312.50

43,312.50  0.25

10,828.13

32,484.37

32,484.37  0.25

8,121.09

24,363.28

24,363.28  0.25

6,090.82

18,272.46

18,272.46  0.25

4,568.12

13,704.34

13,704.34  0.25

3,426.09

10,278.25

10,278.25  0.25

2,569.56

7,708.69

Year

Depreciable Cost

Annual Depreciation

Ending Book Value

$72,000  (8/36)

$16,000

$61,000

72,000  (7/36)

14,000

47,000

72,000  (6/36)

12,000

35,000

72,000  (5/36)

10,000

25,000

72,000  (4/36)

8,000

17,000

72,000  (3/36)

6,000

11,000

72,000  (2/36)

4,000

7,000

72,000  (1/36)

2,000

5,000

1. b.

1. c.

798

CHAPTER 18

Problem 18-7B (Concluded) 2.

Year

Original Cost

MACRS Depreciation Rates 7-Year Class of Property

$77,000

14.29%

$11,003.30

$77,000

24.49%

18,857.30

$77,000

17.49%

13,467.30

$77,000

12.49%

9,617.30

$77,000

8.93%

6,876.10

$77,000

8.92%

6,868.40

$77,000

8.93%

6,876.10

$77,000

4.46%

3,434.20

Total

Depreciation Expense

$77,000.00

Problem 18-8B Year

Beginning Book Value

Annual Depreciation

Ending Book Value

$58,000

18,000 units  $0.50* = $ 9,000

$49,000

49,000

16,000 units  $0.50 = $ 8,000

41,000

20,000 units  $0.50 = $10,000

31,000

16,000 units  $0.50 = $ 8,000

23,000

12,000 units  $0.50 = $ 6,000

17,000

*$55,000/110,000 = $0.50

CHAPTER 18

799

Problem 18-9B 1. Truck #1

$22,000 – $1,000

= $3,000  11/12 =

$ 2,750

= $4,000  9/12 =

3,000

= $3,000  8/12 =

2,000

= $3,000  6/12 =

1,500

= $4,000  3/12 =

1,000

7 years Truck #2

$24,000 – $4,000 5 years

Molding #1

$18,000 – $3,000 5 years

Molding #2

$24,000 – $6,000 6 years

Forklift

$35,000 – $3,000 8 years

$10,250

2. GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

Dec. 31 Depreciation Expense—Equipment

Accumulated Depreciation—Equipment

PAGE POST. REF.

DEBIT

CREDIT

10 2 5 0 00

800

CHAPTER 18

Problem 18-10B 1. GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

20-1

Dec. 31 Depreciation Expense—Jackhammer A

DEBIT

6 0 0 00

Accumulated Depreciation—Jackhammer A

CREDIT 1

6 0 0 00

($2,500 – $100)/4

2 3

31 Depreciation Expense—Jackhammer B

6 0 0 00

Accumulated Depreciation—Jackhammer B

6 0 0 00

($2,500 – $100)/4

6 7

2. GENERAL JOURNAL DATE 20-2 1

Jan.

PAGE POST. REF.

DESCRIPTION

1 Jackhammer A

DEBIT

8 0 0 00

Cash

CREDIT 1

8 0 0 00

3 4

2 3

1 Accumulated Depreciation—Jackhammer B

2 0 0 00

Cash

2 0 0 00

3. January 1, 20-2, account balances: A

$3,300

$2,500

(600)

(400)

Book value

$2,700

$2,100

Salvage value

(100)

$2,600

$2,000

Jackhammer Accumulated depreciation

New depreciable base

$2,600  3 years = $866.67 depreciation per year for Jackhammer A $2,000  4 years = $500 depreciation per year for Jackhammer B

CHAPTER 18

801

Problem 18-11B GENERAL JOURNAL DATE 20-1

Jan.

DESCRIPTION

1 Accumulated Depreciation—Van #11

PAGE POST. REF.

DEBIT

8 8 0 0 00

Van #11

CREDIT 1

8 8 0 0 00

8 Cash

4 5

Accumulated Depreciation—Van #7

Loss on Sale of Van #7

2 0 0 00

9 0 0 0 00

2 0 0 00

Van #7

9 4 0 0 00

14 Cash

Accumulated Depreciation—Van #13

10 11

Van #13

Gain on Sale of Van #13

2 5 0 00

7 4 0 0 00

7 6 0 0 00 11 5 0 00 12

13 14 15

Feb.

1 Van #20 (new) Accumulated Depreciation—Van #8

13 0 0 0 00

8 8 0 0 00

Van # 8 (old)

11 0 0 0 00 16

Cash

10 5 0 0 00 17

Gain on Exchange of Van #8

3 0 0 00 18

19 20

9 Van #21 (new)

Accumulated Depreciation—Van #3

Loss on Exchange of Vans

9 5 0 0 00

7 0 0 0 00

2 0 0 00

Van # 3 (old)

7 5 0 0 00 23

Cash

9 2 0 0 00 24

802

CHAPTER 18

Problem 18-12B 1. Depletion rate: $1,200,000  3,000,000 tons = $0.40 per ton Year 1

400,000  $0.40 = $160,000

Year 2

700,000  $0.40 = $280,000

2. GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

1 Depletion Expense—Copper Mine

Year

PAGE

DEBIT

160 0 0 0 00

Accumulated Depletion—Copper Mine

CREDIT 1

160 0 0 0 00

2 Depletion Expense—Copper Mine

Year

280 0 0 0 00

Accumulated Depletion—Copper Mine

280 0 0 0 00

Problem 18-13B 1. Patent

$10,000  10 = $1,000 per year =

$5,000  5 = $1,000 per year  9/12 =

750

Trademark

$40,000  5 = $8,000 per year  6/12 =

4,000

$1,000

$5,750

2. GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

Dec. 31 Patent Amortization (Expense)

PAGE POST. REF.

DEBIT

CREDIT

1 0 0 0 00

Patents

1 0 0 0 00

3 4 5

31 Copyright Amortization (Expense)

7 5 0 00

Copyrights

7 5 0 00

6 7 8

31 Trademark Amortization (Expense) Trademarks

4 0 0 0 00

CHAPTER 18

803

MANAGING YOUR WRITING Some students may write that the straight-line method should be used because it is simple and will not cause any differences between the financial statements and the tax return. Others will argue that MACRS should be used because it allows greater amounts of depreciation expense early in the lives of the assets. This will result in lower taxable income early in the lives of the assets and higher taxable income later in the lives of the assets. Although the total will be the same, a dollar saved in taxes today is worth more than a dollar saved in a few years. The taxes saved today can be invested and earn interest or dividends. It is perfectly acceptable to use one depreciation method for financial reporting and another for tax purposes.

ETHICS CASE 1. Honesty. The management of Creative Solutions is acting on behalf of the stockholders (owners). 2. The costs assigned to a patent should be allocated over no more than the number of years that the patent right will exist. 3. Answers will vary. Both plant assets and intangible assets have a useful life of more than one year. With a few exceptions, the cost associated with these assets is expensed over the life of the asset rather than when the asset is acquired. Plant assets are tangible, whereas, intangible assets have no substance, only value. 4. a. Probably units-of-production using miles as the unit. b. Not depreciated. c. An accelerated method (sum-of-the-years’-digits method or declining-balance method). d. Depletion using the units-of-production method. e. Expensed in the year incurred.

804

CHAPTER 18

Mastery Problem 1. GENERAL JOURNAL DATE

DESCRIPTION

20-3 1

Dec. 31 Depreciation Expense—Copy Machines

PAGE POST. REF.

DEBIT

6 7 5 0 00

Accumulated Depreciation—Copy Machines

CREDIT 1

6 7 5 0 00

($50,000 - $5,000 = $45,000 x 9/60)

20-4 5

Dec. 31 Depreciation Expense—Copy Machines

9 0 0 0 00

Accumulated Depreciation—Copy Machines

9 0 0 0 00

($45,000 x 12/60)

20-5 9

Dec. 31 Depreciation Expense—Copy Machines

9 0 0 0 00

Accumulated Depreciation—Copy Machines

9 0 0 0 00 10

($45,000 x 12/60)

20-6 13

June 30 Depreciation Expense—Copy Machines

4 5 0 0 00

Accumulated Depreciation—Copy Machines

4 5 0 0 00 14

($45,000 x 6/60)

20-6 17

July

1 Copy Machines (new)

38 0 0 0 00

Accumulated Depreciation—Copy Machines

29 2 5 0 00

Loss on Exchange of Copy Machine

4 7 5 0 00

Cash

22 0 0 0 00 20

Copy Machines (old)

50 0 0 0 00 21

CHAPTER 18

805

Mastery Problem (Concluded) 2. GENERAL JOURNAL DATE

DESCRIPTION

20-3 1

Dec. 31 Depreciation Expense—Copy Machines

PAGE POST. REF.

DEBIT

11 2 5 0 00

Accumulated Depreciation—Copy Machines

CREDIT 1

11 2 5 0 00

($50,000 – $5,000 = $45,000)

($45,000  5/15 = $15,000)

($15,000  9/12 = $11,250)

20-4 7

Dec. 31 Depreciation Expense—Copy Machines

12 7 5 0 00

Accumulated Depreciation—Copy Machines

12 7 5 0 00

($45,000  5/15  3/12 = $ 3,750)

($45,000  4/15  9/12 = $ 9,000)

$ 12,750

20-5 13

Dec. 31 Depreciation Expense—Copy Machines

9 7 5 0 00

Accumulated Depreciation—Copy Machines

9 7 5 0 00 14

($45,000  4/15  3/12 = $3,000)

($45,000  3/15  9/12 = $6,750)

$9,750

20-6 19

June 30 Depreciation Expense—Copy Machines

3 7 5 0 00

Accumulated Depreciation—Copy Machines

3 7 5 0 00 20

($45,000  3/15  3/12 = $2,250)

($45,000  2/15  3/12 = $1,500)

$3,750

20-6 25 26

July

1 Copy Machines (new) Accumulated Depreciation—Copy Machines

38 0 0 0 00

37 5 0 0 00

Cash

22 0 0 0 00 27

Copy Machines (old)

50 0 0 0 00 28

Gain on Exchange of Copy Machine

3 5 0 0 00 29

806

CHAPTER 18

Challenge Problem Straight-Line Depreciation Year

1. Computer Equipment

20-1

20-2

20-3

20-4

20-5

20-6

Computer 1

$400

$ 800

$ 400

400

800

$ 400

400

800

$ 400

400

800

400

800

400

800

400

800

Computer 2 Computer 3 Computer 4 Computer 5 Computer 6 Computer 7

20-7

Computer 8

20-8

400 $400

$1,200

$2,000

$2,800

$3,600

$4,000

20-7

20-8

MACRS Depreciation Year

2. Computer Equipment

20-1

20-2

20-3

20-4

20-5

20-6

Computer 1

$800

$1,280

$ 768

$ 460

$ 232

800

1,280

768

460

$ 232

800

1,280

768

460

$ 232

800

1,280

768

460

800

1,280

768

460

800

1,280

768

800

1,280

Computer 2 Computer 3 Computer 4 Computer 5 Computer 6 Computer 7 Computer 8

800 $800

$2,080

$2,848

$3,308

$3,768

$4,000

$400.00

$880.00

$848.00

$508.00

$168.00

30%

Tax Savings

$120.00

$264.00

$254.40

$152.40

$50.40

Cumulative Savings

$120.00

$384.00

$638.40

$790.80

$841.20

3. Difference 4.

Note to Instructors: Don reaches equilibrium in 20-6. At that point, Don is simply replacing assets as they wear out. Note that MACRS depreciation equals straight-line depreciation from 20-6 on, assuming that Don’s business remains in equilibrium. Up to this point, Don has saved $841.20 in taxes that can be invested or used for operations.

5. Don would lose the tax savings if he didn’t continue to replace the computers every five years.

CHAPTER 19 ACCOUNTING FOR PARTNERSHIPS REVIEW QUESTIONS 1.

Essential provisions of a partnership agreement include: a. date of agreement. b. names of the partners. c. kind of business to be conducted. d. length of time the partnership is to run. e. name and location of the business. f. investment of each partner. g. basis on which profits or losses are to be shared by the partners. h. limitation of partners’ rights and activities. i. salary allowances to partners. j. division of assets upon dissolution of the partnership. k. signatures of the partners.

Three advantages of a partnership in comparison with a sole proprietorship are: a. the ability and the experience of the partners are combined in one enterprise. b. more capital can be raised because the resources of the partners are combined. c. credit may be improved because each general partner is personally liable for partnership debts.

Four disadvantages of a partnership form of business organization are: a. unlimited liability—each partner is personally liable for all of the debts of the business to the same extent as if the business were a sole proprietorship. b. mutual agency—the fact that any partner can bind the other partners to a contract can lead to serious problems if all partners do not act responsibly. c. the interest of a partner in the partnership cannot be transferred without the consent of the other partners. d. termination of the partnership agreement, bankruptcy of the firm, death of one of the partners, or any change in partner membership dissolves the partnership.

When two sole proprietors decide to combine their businesses, generally accepted accounting principles usually require that noncash assets (primarily inventories and long-term assets) be taken over at their fair market value as of the date of formation of the partnership.

In the absence of any agreement between the partners, profits and losses must be shared equally regardless of the ratio of the partners’ investments. If the partnership agreement specifies how profits are to be shared, but does not specify how losses are to be shared, the losses must be shared on the same basis as the profits.

Two factors generally considered in determining the allocation of profits and losses are the services rendered by each partner and their respective capital investment.

808

CHAPTER 19

Dissolution of a partnership may be brought about through bankruptcy, the death or withdrawal of one of the partners, or the addition of a new partner.

When a new partner who has been the sole owner of a business is admitted to a partnership by having the partnership take over the old business, the balance sheet of the old business usually serves as the basis for preparing the opening entry.

The four accounting entries for the liquidation of a partnership are: a. sale of assets. Cash is debited for the amount of the sale. Inventory and other asset accounts are credited for their respective account balances. If there is a gain on the sale, Gain on Sale of Assets is credited for that amount. If there is a loss on the sale, Loss on Sale of Assets is debited for that amount. b. allocation of gain or loss. If there is a gain on the sale of assets, Gain on Sale of Assets is debited for the amount of gain and each capital account is credited for the amount of gain allocated to each partner. If there is a loss on the sale of assets, Loss on Sale of Assets is credited for the amount of loss and each capital account is debited for the amount of loss allocated to each partner. c. payment of liabilities. Each liability account is debited for the respective amount paid and Cash is credited for the total amount paid. d. distribution of cash to partners. Whatever cash remains is distributed to the partners according to the balances of their capital accounts by debiting each capital account and crediting the total to Cash.

CHAPTER 19

809

Exercise 19-1A GENERAL JOURNAL DATE 20-1 2 3

Sept.

DESCRIPTION

PAGE POST. REF.

1 Cash

DEBIT

CREDIT

55 0 0 0 00

Patty McShane, Capital

55 0 0 0 00

Investment in partnership

4 5 6 7

1 Cash

80 0 0 0 00

Betty Lou Blixt, Capital

80 0 0 0 00

Investment in partnership

6 7

Exercise 19-2A Income to be allocated

$80 0 0 0 00 Spurlock

Wilson

Total

(1) Divided equally

$40 0 0 0 00 $40 0 0 0 00 $80 0 0 0 00

(2) Interest on original investment (10%)

$10 0 0 0 00 $ 2 5 0 0 00 $12 5 0 0 00

Remainder

33 7 5 0 00

67 5 0 0 00

$43 7 5 0 00 $36 2 5 0 00 $80 0 0 0 00 (3) Salary allowances Remainder

$35 0 0 0 00 $25 0 0 0 00 $60 0 0 0 00 10 0 0 0 00

10 0 0 0 00

20 0 0 0 00

$45 0 0 0 00 $35 0 0 0 00 $80 0 0 0 00 (4) Interest on original investment (10%)

$10 0 0 0 00 $ 2 5 0 0 00 $12 5 0 0 00

Salary allowances

35 0 0 0 00

25 0 0 0 00

60 0 0 0 00

Remainder

5 6 2 5 00

1 8 7 5 00

7 5 0 0 00

$50 6 2 5 00 $29 3 7 5 00 $80 0 0 0 00

810

CHAPTER 19

Exercise 19-3A 1. Kluge and Edwards Income Statement (Partial) For Year Ended April 30, 20-2

Net income

$200,000

Allocation of net income:

R. Kluge

S. Edwards

Total

Salary allowances

$35,000

$ 65,000

$100,000

Remaining income

40,000

60,000

100,000

Allocation of net income

$75,000

$125,000

$200,000

2. Kluge and Edwards Statement of Partners’ Equity For Year Ended April 30, 20-2

Capital, May 1, 20-1 Additional investments during the year Net income for the year Withdrawals Capital, April 30, 20-2

R. Kluge

S. Edwards

$120,000

$ 50,000

30,000

Total $170,000 30,000

$150,000

$ 50,000

$200,000

75,000

125,000

200,000

$225,000

$175,000

$400,000

15,000

20,000

35,000

$210,000

$155,000

$365,000

CHAPTER 19

811

Exercise 19-4A 1. GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

20--

DEBIT

CREDIT

Aug. 18 Jeff Bowman, Capital

20 0 0 0 00

Kristi Emery, Capital

15 0 0 0 00

Dan Bridges, Capital

35 0 0 0 00

Admission of D. Bridges as partner

3 4

18 Cash

50 0 0 0 00

Anna Terrell, Capital

50 0 0 0 00

Admission of A. Terrell as partner

7 8

Ending capital balances as of August 18, 20-J. Bowman

K. Emery

D. Bridges

A. Terrell

$80,000

$45,000

$35,000

$50,000

Exercise 19-5A GENERAL JOURNAL DATE 20-1

Nov.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

230 0 0 0 00

Inventory

180 0 0 0 00

Gain on Sale of Inventory

50 0 0 0 00

Sale of inventory

5 6

1 Gain on Sale of Inventory

50 0 0 0 00

J. Hui, Capital

25 0 0 0 00

K. Cline, Capital

25 0 0 0 00

9 10

Allocation of gain

9 10

812

CHAPTER 19

Problem 19-6A GENERAL JOURNAL DATE 20-1

July

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

7 1 0 0 00

Accounts Receivable

4 5 0 0 00

Merchandise Inventory

21 4 3 0 00

Store Equipment

7 5 0 0 00

Allowance for Bad Debts

6 2 0 00

Notes Payable

2 5 0 0 00

Accounts Payable

8 4 0 0 00

Susan Woodworth, Capital

29 0 1 0 00

Investment of Susan Woodworth

in partnership

11 12

1 Cash

4 5 2 0 00

Accounts Receivable

3 2 7 5 00

Merchandise Inventory

28 1 9 0 00

Supplies

9 6 0 00

Office Equipment

6 1 0 0 00

Store Equipment

6 8 0 0 00

Allowance for Bad Debts

4 7 5 00 18

Notes Payable

8 0 0 0 00 19

Accounts Payable

6 3 0 0 00 20

Barbara Holly, Capital

35 0 7 0 00 21

Investment of Barbara Holly in

partnership

CHAPTER 19

813

Problem 19-7A 1. Robo and Swing, CPAs Income Statement (Partial) For Year Ended December 31, 20--

Net income

$135,000

Allocation of net income:

I. Robo

B. Swing

Total

Salary allowances

$65,000

$35,000

$100,000

Interest allowances

5,500

4,500

10,000

Remaining income

11,250

13,750

25,000

Allocation of net income

$81,750

$53,250

$135,000

2. Robo and Swing, CPAs Statement of Partners’ Equity For Year Ended December 31, 20-I. Robo

B. Swing

Total

Capital, January 1, 20--

$ 55,000

$45,000

$100,000

Net income for the year

81,750

53,250

135,000

$136,750

$98,250

$235,000

70,500

39,500

110,000

$ 66,250

$58,750

$125,000

Withdrawals (salary & interest) Capital, December 31, 20--

Robo and Swing, CPAs Balance Sheet (Partial) December 31, 20-Partners’ Equity I. Robo, Capital

$66,250

B. Swing, Capital

58,750

Total partners’ equity

$125,000

814

CHAPTER 19

Problem 19-7A (Concluded) 3. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Closing Entries

20-2

DEBIT

Dec. 31 Revenues

215 0 0 0 00

Income Summary

215 0 0 0 00

3 4

31 Income Summary

Expenses

80 0 0 0 00

6 7

31 Income Summary

135 0 0 0 00

I. Robo, Capital

81 7 5 0 00

B. Swing, Capital

53 2 5 0 00 10

31 I. Robo, Capital

70 5 0 0 00

I. Robo, Drawing

70 5 0 0 00 13

31 B. Swing, Capital

39 5 0 0 00

B. Swing, Drawing

39 5 0 0 00 16

Problem 19-8A 1. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Sept. 15 Larry Dennis, Capital

PAGE POST. REF.

DEBIT

CREDIT

35 0 0 0 00

Cash

25 0 0 0 00

Mike Kelly, Capital

5 0 0 0 00

Kim Kelly, Capital

2 5 0 0 00

Jim Wheeles, Capital

2 5 0 0 00

Dissolution of partnership,

payment to Mrs. Dennis

CHAPTER 19

815

Problem 19-8A (Concluded) 2. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20-1

Sept. 15 Larry Dennis, Capital

DEBIT

CREDIT

35 0 0 0 00

Mike Kelly, Capital

7 5 0 0 00

Kim Kelly, Capital

3 7 5 0 00

Jim Wheeles, Capital

3 7 5 0 00

Cash

50 0 0 0 00

Dissolution of partnership,

payment to Mrs. Dennis

3. GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

Sept. 15 Larry Dennis, Capital

Jim Wheeles, Capital

PAGE POST. REF.

DEBIT

CREDIT

35 0 0 0 00

Dissolution of partnership, purchase

of Dennis’s interest by Wheeles

Final balance

cash to partners

Distribution of

liabilities

payment of

Balance after

liabilities

Payment of

sale

Balance after

cation of gain

assets and allo-

Sale of noncash

sale of assets

Balance before

Problem 19-9A

250,000

5,000

(215,000)

$ 215,000

(40,000)

$ 255,000

Cash

(55,000)

$ 55,000

Inventory

(180,000)

$ 180,000

Other Assets

(40,000)

$ 40,000

Liabilities

Statement of Partnership Liquidation For Period July 1–20, 20--

Baldwin, Cowan, and Stewart

(55,000)

$ 55,000

5,000

$ 50,000

Baldwin

(95,000)

$ 95,000

5,000

$ 90,000

Cowan

Capital

(65,000)

$ 65,000

5,000

$ 60,000

Stewart

816 CHAPTER 19

CHAPTER 19

817

Problem 19-9A (Concluded) 2. GENERAL JOURNAL DATE 20-1

July

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

250 0 0 0 00

Inventory

55 0 0 0 00

Other Assets

180 0 0 0 00

Gain on Sale of Assets

15 0 0 0 00

Sale of assets

1 Gain on Sale of Assets

15 0 0 0 00

R. J. Baldwin, Capital

5 0 0 0 00

N. R. Cowan, Capital

5 0 0 0 00

K. M. Stewart, Capital

5 0 0 0 00 10

Allocation of gain

12 13 14 15

15 Liabilities

40 0 0 0 00

Cash

40 0 0 0 00 14

Payment of liabilities

20 R. J. Baldwin, Capital

55 0 0 0 00

N. R. Cowan, Capital

95 0 0 0 00

K. M. Stewart, Capital

65 0 0 0 00

20 21

Cash Distribution of cash to partners

215 0 0 0 00 20 21

Final balance

cash to partners

Distribution of

liabilities

payment of

Balance after

liabilities

Payment of

sale

Balance after

cation of loss

assets and allo-

Sale of noncash

sale of assets

Balance before

Problem 19-10A

(170,000)

$ 170,000

(75,000)

$ 245,000

230,000

$ 15,000

Cash

(40,000)

$ 40,000

Inventory

(220,000)

$ 220,000

Other Assets

(75,000)

$ 75,000

Liabilities

Statement of Partnership Liquidation For Period April 1–15, 20--

Nelson, Pope, and Williams

(30,000)

$ 30,000

(10,000)

$ 40,000

Nelson

(50,000)

$ 50,000

(10,000)

$ 60,000

Pope

Capital

(90,000)

$ 90,000

(10,000)

$100,000

Williams

818 CHAPTER 19

CHAPTER 19

819

Problem 19-10A (Concluded) 2. GENERAL JOURNAL DATE 20-1 2

Apr.

DESCRIPTION

1 Cash Loss on Sale of Assets

PAGE POST. REF.

DEBIT

CREDIT

230 0 0 0 00

30 0 0 0 00

Inventory

40 0 0 0 00

Other Assets

220 0 0 0 00

Sale of assets

1 C. W. Nelson, Capital

10 0 0 0 00

J. R. Pope, Capital

10 0 0 0 00

M. L. Williams, Capital

10 0 0 0 00

Loss on Sale of Assets

Allocation of loss

30 0 0 0 00 10 11

12 13 14 15

12 Liabilities

75 0 0 0 00

Cash

75 0 0 0 00 14

Payment of liabilities

15 C. W. Nelson, Capital

30 0 0 0 00

J. R. Pope, Capital

50 0 0 0 00

M. L. Williams, Capital

90 0 0 0 00

20 21

Cash Distribution of cash to partners

170 0 0 0 00 20 21

820

CHAPTER 19

Exercise 19-1B GENERAL JOURNAL DATE 20-1 2 3

Sept.

DESCRIPTION

PAGE POST. REF.

1 Cash

DEBIT

CREDIT

30 0 0 0 00

Sharon Usher, Capital

30 0 0 0 00

Investment in partnership

4 5 6 7

1 Cash

50 0 0 0 00

Leann Gomez, Capital

50 0 0 0 00

Investment in partnership

6 7

Exercise 19-2B Income to be allocated

$80 0 0 0 00 Clark

Haase

Total

(1) Divided equally

$40 0 0 0 00 $40 0 0 0 00 $80 0 0 0 00

(2) Interest on original investment (10%)

$ 6 0 0 0 00 $ 4 0 0 0 00 $10 0 0 0 00

Remainder

35 0 0 0 00

70 0 0 0 00

$41 0 0 0 00 $39 0 0 0 00 $80 0 0 0 00 (3) Salary allowances Remainder

$25 0 0 0 00 $30 0 0 0 00 $55 0 0 0 00 12 5 0 0 00

12 5 0 0 00

25 0 0 0 00

$37 5 0 0 00 $42 5 0 0 00 $80 0 0 0 00 (4) Interest on original investment (10%)

$ 6 0 0 0 00 $ 4 0 0 0 00 $10 0 0 0 00

Salary allowances

25 0 0 0 00

30 0 0 0 00

55 0 0 0 00

Remainder

4 5 0 0 00

10 5 0 0 00

15 0 0 0 00

$35 5 0 0 00 $44 5 0 0 00 $80 0 0 0 00

CHAPTER 19

821

Exercise 19-3B 1. Nolan and Brenton Income Statement (Partial) For Year Ended April 30, 20-2

Net income

$110,000

Allocation of net income:

R. Nolan

J. Brenton

Total

Salary allowances

$15,000

$50,000

$ 65,000

Remaining income

18,000

27,000

45,000

Allocation of net income

$33,000

$77,000

$110,000

2. Nolan and Brenton Statement of Partners’ Equity For Year Ended April 30, 20-2 R. Nolan

J. Brenton

Capital, May 1, 20-1

$50,000

$ 25,000

Additional investments during the year

10,000

Total $ 75,000 10,000

$60,000

$ 25,000

$ 85,000

33,000

77,000

110,000

$93,000

$102,000

$195,000

Withdrawals

15,000

40,000

55,000

Capital, April 30, 20-2

$78,000

$ 62,000

$140,000

Net income for the year

822

CHAPTER 19

Exercise 19-4B 1. GENERAL JOURNAL DATE 20-1

Sept.

PAGE POST. REF.

DESCRIPTION

DEBIT

1 Maria Rhodes, Capital

30 0 0 0 00

Craig Blair, Capital

8 0 0 0 00

Lori Kinder, Capital

CREDIT

38 0 0 0 00

Admission of L. Kinder as partner

3 4

1 Cash

30 0 0 0 00

Todd Gilbert, Capital

30 0 0 0 00

Admission of T. Gilbert as partner

7 8

2. Ending capital balances as of September 1, 20-M. Rhodes

C. Blair

L. Kinder

T. Gilbert

$60,000

$32,000

$38,000

$30,000

Exercise 19-5B GENERAL JOURNAL DATE 20-1 2 3 4

Feb.

DESCRIPTION

9 Cash Loss on Sale of Assets

PAGE POST. REF.

DEBIT

CREDIT

140 0 0 0 00

16 0 0 0 00

Assets

156 0 0 0 00

Sale of assets

5 6 7

9 L. Straw, Capital

9 6 0 0 00

M. Maury, Capital

6 4 0 0 00

Loss on Sale of Assets

Allocation of loss

16 0 0 0 00

8 9 10

CHAPTER 19

823

Problem 19-6B GENERAL JOURNAL DATE 20-1

July

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

4 6 0 0 00

Accounts Receivable

4 2 0 0 00

Merchandise Inventory

28 5 8 0 00

Store Equipment

7 3 5 0 00

Allowance for Bad Debts

4 8 0 00

Notes Payable

3 6 0 0 00

Accounts Payable

7 6 9 0 00

Lisa Bush, Capital

32 9 6 0 00

Investment of L. Bush in partnership

10 11

1 Cash

3 3 5 0 00

Accounts Receivable

4 1 5 0 00

Merchandise Inventory

27 2 4 0 00

Supplies

8 4 5 00

Office Equipment

5 8 7 5 00

Store Equipment

6 1 0 0 00

Allowance for Bad Debts

Notes Payable

6 0 0 0 00 18

Accounts Payable

5 5 0 0 00 19

Wally Dodge, Capital

35 8 1 0 00 20

Investment of W. Dodge in partnership

2 5 0 00 17

824

CHAPTER 19

Problem 19-7B 1. Rummel and Kang, Stonecutters Income Statement (Partial) For Year Ended December 31, 20--

Net income

$92,000

Allocation of net income:

C. Rummel

V. Kang

Total

Salary allowances

$43,000

$34,000

$77,000

Interest allowances

4,100

2,500

6,600

Remaining income

5,040

3,360

8,400

$52,140

$39,860

$92,000

Allocation of net income

2. Rummel and Kang, Stonecutters Statement of Partners’ Equity For Year Ended December 31, 20-C. Rummel

V. Kang

Total

Capital, January 1, 20--

$41,000

$25,000

$ 66,000

Net income for the year

52,140

39,860

92,000

$93,140

$64,860

$158,000

Withdrawals (salary and interest)

47,100

36,500

83,600

Capital, December 31, 20--

$46,040

$28,360

$ 74,400

Rummel and Kang, Stonecutters Balance Sheet (Partial) December 31, 20-Partners’ Equity C. Rummel, Capital

$46,040

V. Kang, Capital

28,360

Total partners’ equity

$74,400

CHAPTER 19

825

Problem 19-7B (Concluded) 3. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

CREDIT

Closing Entries

20-2

DEBIT

Dec. 31 Revenues

133 0 0 0 00

Income Summary

133 0 0 0 00

3 4

31 Income Summary

Expenses

41 0 0 0 00

6 7

31 Income Summary

92 0 0 0 00

C. Rummel, Capital

52 1 4 0 00

V. Kang, Capital

39 8 6 0 00 10

31 C. Rummel, Capital

47 1 0 0 00

C. Rummel, Drawing

47 1 0 0 00 13

31 V. Kang, Capital

36 5 0 0 00

V. Kang, Drawing

36 5 0 0 00 16

Problem 19-8B 1. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Aug. 10 Patricia Weber, Capital

PAGE POST. REF.

DEBIT

CREDIT

40 0 0 0 00

Cash

30 0 0 0 00

Katie Cummings, Capital

4 5 0 0 00

Julie Stickel, Capital

3 0 0 0 00

Roy Hewson, Capital

2 5 0 0 00

Dissolution of partnership,

payment to Mr. Weber

826

CHAPTER 19

Problem 19-8B (Concluded) 2. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20-1

Aug. 10 Patricia Weber, Capital

DEBIT

CREDIT

40 0 0 0 00

Katie Cummings, Capital

9 0 0 0 00

Julie Stickel, Capital

6 0 0 0 00

Roy Hewson, Capital

5 0 0 0 00

Cash

60 0 0 0 00

Dissolution of partnership,

payment to Mr. Weber

3. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Aug. 10 Patricia Weber, Capital

Julie Stickel, Capital

PAGE POST. REF.

DEBIT

CREDIT

40 0 0 0 00

Dissolution of partnership,

purchase of Weber’s interest by Stickel

Final balance

cash to partners

Distribution of

liabilities

payment of

Balance after

liabilities

Payment of

sale

Balance after

cation of gain

assets and allo-

Sale of noncash

sale of assets

Balance before

Problem 19-9B 1.

211,000

4,000

(171,000)

$ 171,000

(44,000)

$ 215,000

Cash

(40,000)

$ 40,000

Inventory

(150,000)

$ 150,000

Other Assets

(44,000)

$ 44,000

Liabilities

Statement of Partnership Liquidation For Period July 1–20, 20--

Leonard, Mitchell, and Swanson

(67,000)

$ 67,000

7,000

$ 60,000

Leonard

(22,000)

$ 22,000

7,000

$ 15,000

Mitchell

Capital

(82,000)

$ 82,000

7,000

$ 75,000

Swanson

CHAPTER 19 827

828

CHAPTER 19

Problem 19-9B (Concluded) 2. GENERAL JOURNAL DATE 20-1

July

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

211 0 0 0 00

Inventory

40 0 0 0 00

Other Assets

150 0 0 0 00

Gain on Sale of Assets

21 0 0 0 00

Sale of assets

1 Gain on Sale of Assets

21 0 0 0 00

B. J. Leonard, Capital

7 0 0 0 00

W. T. Mitchell, Capital

7 0 0 0 00

J. C. Swanson, Capital

7 0 0 0 00 10

Allocation of gain

12 13 14 15

15 Liabilities

44 0 0 0 00

Cash

44 0 0 0 00 14

Payment of liabilities

20 B. J. Leonard, Capital

67 0 0 0 00

W. T. Mitchell, Capital

22 0 0 0 00

J. C. Swanson, Capital

82 0 0 0 00

20 21

Cash Distribution of cash to partners

171 0 0 0 00 20 21

Final balance

cash to partners

Distribution of

liabilities

payment of

Balance after

liabilities

Payment of

sale

Balance after

cation of loss

assets and allo-

Sale of noncash

sale of assets

Balance before

Problem 19-10B 1.

165,000

7,000

(155,000)

$ 155,000

(17,000)

$ 172,000

Cash

(25,000)

$ 25,000

Inventory

(185,000)

$ 185,000

Other Assets

(17,000)

$ 17,000

Liabilities

Statement of Partnership Liquidation For Period April 1–15, 20--

Delco, Smith, and Walker

(15,000)

$ 15,000

(15,000)

$ 30,000

Delco

(75,000)

$ 75,000

(15,000)

$ 90,000

Smith

Capital

(65,000)

$ 65,000

(15,000)

$ 80,000

Walker

CHAPTER 19 829

830

CHAPTER 19

Problem 19-10B (Concluded) 2. GENERAL JOURNAL DATE 20-1 2

Apr.

DESCRIPTION

1 Cash Loss on Sale of Assets

PAGE POST. REF.

DEBIT

CREDIT

165 0 0 0 00

45 0 0 0 00

Inventory

25 0 0 0 00

Other Assets

185 0 0 0 00

Sale of assets

1 D. W. Delco, Capital

15 0 0 0 00

C. S. Smith, Capital

15 0 0 0 00

T. R. Walker, Capital

15 0 0 0 00

Loss on Sale of Assets

Allocation of loss

45 0 0 0 00 10 11

12 13 14 15

12 Liabilities

17 0 0 0 00

Cash

17 0 0 0 00 14

Payment of liabilities

15 D. W. Delco, Capital

15 0 0 0 00

C. S. Smith, Capital

75 0 0 0 00

T. R. Walker, Capital

65 0 0 0 00

20 21

Cash Distribution of cash to partners

155 0 0 0 00 20 21

CHAPTER 19

831

MANAGING YOUR WRITING The students’ memos should address the following advantages and disadvantages: Advantages 1. The ability and the experience of the partners are combined in one enterprise. 2. More capital may be raised because the resources of the partners are combined. 3. Credit may be improved because each general partner is personally liable for partnership debts. Disadvantages 1. Unlimited liability—each general partner is personally liable for all of the debts of the business. 2. Mutual agency—one partner can bind the other partners to a contract. 3. The interest of a partner in the partnership cannot be transferred without the consent of the other partners. 4. Termination of the partnership agreement, bankruptcy of the firm, or death of one of the partners dissolves the partnership. Major provisions of the partnership that must be agreed upon in advance include the following: 1. Kind of business to be conducted 2. Length of time the partnership is to run 3. Name and location of the business 4. Investment of each partner 5. Basis on which profits or losses are to be shared by the partners 6. Limitation of partners’ rights and activities 7. Salary allowances to partners 8. Division of assets upon dissolution of the partnership

ETHICS CASE 1. A partnership agreement might be very specific as to what actions need approval by all partners to protect the rights of all partners and to limit their liability. If something is clearly outlined in the partnership agreement, there should be no deviation from this stipulation. If exceptions are allowed, they should be stated in the partnership agreement. 2. The major disadvantage of a partnership is the unlimited liability of all general partners, including liability brought on by actions of your partners. Another disadvantage is partners might have disagreements over day-to-day operating decisions. A third disadvantage is that the partnership is not a legal entity and if a partner leaves or dies, the partnership must be dissolved. 3. Answers will vary. Students might point out that it was unethical to sign Tom’s name to the voucher. 4. Answers will vary. Tom might want to leave the partnership. If Tom decides not to leave the partnership, he might not trust his partners and the relationship among partners might be strained. If Tom was not unhappy with the decision to buy the computer, the partners might want to amend the partnership agreement to allow any two of the three partners to sign vouchers over $5,000.

832

CHAPTER 19

Mastery Problem 1. GENERAL JOURNAL DATE 20-2 1

Jan.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

13 5 4 4 00

Accounts Receivable

15 2 8 0 00

Merchandise Inventory

89 6 9 2 00

Supplies

1 2 8 6 00

Office Equipment

18 0 0 0 00

Store Equipment

8 0 0 0 00

Allowance for Bad Debts

1 7 2 0 00

Notes Payable

36 0 0 0 00

Accounts Payable

18 0 8 2 00

I. Fleming, Capital

90 0 0 0 00 10

I. Fleming’s investment in partnership

12 13 14 15

1 Cash J. Bond, Capital J. Bond’s investment in partnership

50 0 0 0 00

50 0 0 0 00 14 15

CHAPTER 19

833

Mastery Problem (Continued) 2. Fleming and Bond’s Plumbing Supplies Income Statement (Partial) For Year Ended December 31, 20-2

Net income

$150,000

Allocation of net income:

I. Fleming

J. Bond

Total

Salary allowances

$50,000

$30,000

$ 80,000

Interest allowances

9,000

5,000

14,000

Remaining income

33,600

22,400

56,000

Allocation of net income

$92,600

$57,400

$150,000

3. GENERAL JOURNAL DATE 20-5 1 2 3

Jan.

DESCRIPTION

1 Cash P. Fleming, Capital P. Fleming’s investment in partnership

PAGE POST. REF.

DEBIT

CREDIT

30 0 0 0 00

2 3

834

CHAPTER 19

Mastery Problem (Continued) 4. Fleming and Bond’s Statement of Partner For Period August Cash

Inventory

Office Equipment

Acc. Depr.— Off. Equip.

$ 20,000

$ 150,000

$ 30,000

$ 18,000

allocation of loss

130,000

(150,000)

Balance after sale

$ 150,000

$ 30,000

$ 18,000

(30,000)

(18,000)

Bal. before sale of assets

Sale of inventory and

Sale of office equipment and allocation of loss

Balance after sale

10,000

$ 160,000

Sale of store equipment and allocation of gain

Balance after sale

Payment of liabilities

12,000

$ 172,000

(20,000)

Balance after payment of liabilities

$ 152,000

Distribution of cash to partners

Final balance

(152,000)

CHAPTER 19

835

Mastery Problem (Continued)

Plumbing Supplies ship Liquidation 1–15, 20-9 Capital

Store Equipment

Acc. Depr.— Store Equip.

Notes Payable

I. Fleming

J. Bond

P. Fleming

$ 22,000

$ 15,000

$ 20,000

$ 80,000

$ 50,000

$ 39,000

(10,000)

(6,000)

(4,000)

$ 70,000

$ 44,000

$ 35,000

(1,000)

(600)

(400)

$ 69,000

$ 43,400

$ 34,600

2,500

1,500

1,000

$ 71,500

$ 44,900

$ 35,600

$ 71,500

$ 44,900

$ 35,600

(71,500)

(44,900)

(35,600)

$ 22,000

$ 15,000

$ 22,000

$ 15,000

(22,000)

(15,000)

$ 20,000

(20,000)

836

CHAPTER 19

Mastery Problem (Continued) GENERAL JOURNAL DATE 20-9 1 2 3 4

Aug.

DESCRIPTION

1 Cash Loss on Sale of Inventory

PAGE POST. REF.

DEBIT

CREDIT

130 0 0 0 00

20 0 0 0 00

Inventory

150 0 0 0 00

Sale of inventory

3 4

1 I. Fleming, Capital

10 0 0 0 00

J. Bond, Capital

6 0 0 0 00

P. Fleming, Capital

4 0 0 0 00

9 10

Loss on Sale of Inventory

20 0 0 0 00

Allocation of loss

11 12

3 Cash

10 0 0 0 00

Accumulated Depreciation—Office Equipment

18 0 0 0 00

Loss on Sale of Office Equipment

2 0 0 0 00

15 16

Office Equipment

30 0 0 0 00 15

Sale of office equipment

3 I. Fleming, Capital

1 0 0 0 00

J. Bond, Capital

6 0 0 00

P. Fleming, Capital

4 0 0 00

21 22

Loss on Sale of Office Equipment

2 0 0 0 00 21

Allocation of loss

23 24 25

5 Cash Accumulated Depreciation—Store Equipment

12 0 0 0 00

15 0 0 0 00

Store Equipment

22 0 0 0 00 26

Gain on Sale of Store Equipment

5 0 0 0 00 27

Sale of store equipment

CHAPTER 19

837

Mastery Problem (Concluded) GENERAL JOURNAL DATE 20-9 1

Aug.

PAGE POST. REF.

DESCRIPTION

5 Gain on Sale of Store Equipment

DEBIT

CREDIT

5 0 0 0 00

I. Fleming, Capital

2 5 0 0 00

J. Bond, Capital

1 5 0 0 00

P. Fleming, Capital

1 0 0 0 00

Allocation of gain

10 Notes Payable

Cash

20 0 0 0 00

Payment of notes payable

15 I. Fleming, Capital

71 5 0 0 00

J. Bond, Capital

44 9 0 0 00

P. Fleming, Capital

35 6 0 0 00

Cash

152 0 0 0 00 14

Distribution of cash

Challenge Problem Dewi, Cheetem, and Howe Legal Services Income Statement (Partial) For the Year Ended December 31, 20-1

$240,000)

Net income Allocation of net income: Salary allowances

Dewi

Cheetem

Howe

Total

$ 50,000)

$ 40,000)

$ 20,000)

$110,000)

Bonuses

62,500)

37,500)

25,000)

125,000)

Interest allowances

20,000)

10,000)

5,000)

35,000)

Earnings shortfall

(10,000)

(30,000)

$122,500)

$ 77,500)

$ 40,000)

$240,000)

Allocation of net income

CHAPTER 20 CORPORATIONS: ORGANIZATION AND CAPITAL STOCK REVIEW QUESTIONS 1.

Five advantages to the corporate form of business organization are: a. limited liability of owners. b. transferable ownership units. c. ease of raising capital. d. no mutual agency. e. unlimited life. Two disadvantages are: a. taxation of earnings. b. government regulation.

The charter usually includes: a. name of the corporation. b. location of the principal office. c. purpose of the business. d. description of the capital stock. e. names and addresses of the incorporators.

The permanent board of directors is elected by the stockholders.

Organization costs are recorded as an expense when incurred.

Owners’ equity accounts in a corporation differ from those found in a sole proprietorship or partnership because corporate owners’ equity draws a distinction between paid-in capital and retained earnings.

If only a single class of stock is issued by a corporation, each stockholder has the following four rights: a. To vote at stockholders’ meetings. b. To share in earnings distribution. c. To purchase additional shares in proportion to the owner’s present holding, if more shares are issued by the corporation (preemptive right). d. To share in the assets if the corporation liquidates.

Paid-in capital in excess of par is reported on the balance sheet as an addition to paid-in capital. Discount on capital stock is reported on the balance sheet as a deduction from paid-in capital.

If stock is issued for noncash assets, the assets received are recorded at the fair market value of the assets or of the stock, whichever can be more clearly determined.

Common stock subscriptions receivable is reported as a deduction from the total of paid-in capital and retained earnings on the balance sheet.

10.

Treasury stock is reported as a deduction from the total of paid-in capital and retained earnings on the balance sheet.

11.

Paid-in capital from sale of treasury stock is reported as an addition to paid-in capital on the balance sheet. 851

852

CHAPTER 20

Exercise 20-1A GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

20-1 2

PAGE

Jan. 31 Organization Expenses

DEBIT

CREDIT

10 9 0 0 00

Cash

10 9 0 0 00

Exercise 20-2A Situation 1 Total amount available for dividends

$57,000

Dividends to preferred stock: 5,000 shares  $3 Amount available for common stock

15,000 $42,000

Dividends per share: Preferred stock

$3.00

Common stock ($42,000  60,000 shares)

$0.70

CHAPTER 20

853

Exercise 20-2A (Concluded) Situation 2 Total amount available for dividends

$38,000

Dividends to preferred stock: Cumulative: From prior year 2,000 shares  $2

$4,000

Current year 2,000 shares  $2

4,000

Total cumulative preferred stock dividends

$8,000

Noncumulative: Current year 3,000 shares  $2

6,000

Total preferred stock dividends

14,000

Amount available for common stock

$24,000

Dividends per share: Preferred cumulative: $8,000  2,000

$4.00

Preferred noncumulative: $6,000  3,000

$2.00

Common stock: $24,000  60,000

$0.40

854

CHAPTER 20

Exercise 20-3A GENERAL JOURNAL DATE 20-1 2

Jan.

DESCRIPTION

a. Cash

PAGE POST. REF.

DEBIT

CREDIT

60 0 0 0 00

Common Stock

60 0 0 0 00

3 4

b. Cash

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

52 0 0 0 00

40 0 0 0 00

5 6

12 0 0 0 00

8 9 10 11

c. Cash Discount on Common Stock

39 0 0 0 00

1 0 0 0 00

Common Stock

40 0 0 0 00 11

12 13 14

d. Cash

55 0 0 0 00

Common Stock

55 0 0 0 00 14

15 16 17

e. Cash

42 0 0 0 00

Common Stock

f. Cash

48 0 0 0 00

Common Stock

23 24

g. Cash Discount on Common Stock

22 0 0 0 00

2 0 0 0 00

Common Stock

24 0 0 0 00 24

25 26

48 0 0 0 00 20

21 22

42 0 0 0 00 17

18 19

h. Cash

Common Stock

Paid-In Capital in Excess of Stated

Value—Common Stock

25 0 0 0 00

24 0 0 0 00 27 28

1 0 0 0 00 29

CHAPTER 20

855

Exercise 20-4A GENERAL JOURNAL DATE 1

DESCRIPTION

a. Land

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

PAGE POST. REF.

DEBIT

CREDIT

27 5 0 0 00

25 0 0 0 00

2 3

2 5 0 0 00

5 6

b. Building

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

45 0 0 0 00 37 5 0 0 00 7 5 0 0 00

c. Common Stock Subscriptions Receivable Common Stock Subscribed

Paid-In Capital in Excess of Par—

Common Stock

65 0 0 0 00

5 0 0 0 00 14 15

d. Common Stock Subscriptions Receivable Discount on Common Stock

28 0 0 0 00

2 0 0 0 00

Common Stock Subscribed

30 0 0 0 00 18

19 20 21

e. Cash

30 0 0 0 00

Common Stock Subscriptions Receivable

f. Cash

35 0 0 0 00

Common Stock Subscriptions Receivable

Common Stock Subscribed

60 0 0 0 00

Common Stock

g. Cash

28 0 0 0 00

Common Stock Subscriptions Receivable

28 0 0 0 00 30

31 32

60 0 0 0 00 27

28 29

35 0 0 0 00 24

25 26

30 0 0 0 00 21

22 23

60 0 0 0 00 12

9 10

7 8

10 11

Common Stock Subscribed Common Stock

30 0 0 0 00

30 0 0 0 00 33

856

CHAPTER 20

Exercise 20-4A (Concluded) GENERAL JOURNAL DATE 1 2

DESCRIPTION

h. Common Treasury Stock

PAGE POST. REF.

DEBIT

CREDIT

7 0 0 0 00

Cash

7 0 0 0 00

3 4

i. Cash

3 7 5 0 00

Common Treasury Stock (500  $7)

Paid-In Capital from Sale of Treasury Stock

3 5 0 0 00

2 5 0 00

7 8 9 10

j. Cash Paid-In Capital from Sale of Treasury Stock

3 3 7 5 00

1 2 5 00

Common Treasury Stock (500  $7)

3 5 0 0 00 10

Exercise 20-5A

Stockholders’ Equity Paid-in capital: Preferred stock, $10 par, 4%, 4,000 shares

$ 40,000

Common stock, $5 par, 12,000 shares

$60,000

Common stock subscribed, $5 par, 3,000 shares

15,000

75,000

Additional paid-in capital Paid-in capital in excess of par – common stock Total paid-in capital Retained earnings

4,000 $119,000 35,000 $154,000

Less: Common stock subscriptions receivable Total stockholders’ equity

5,000 $149,000

CHAPTER 20

857

Problem 20-6A GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Cash

PAGE POST. REF.

DEBIT

CREDIT

25 0 0 0 00

Common Stock

25 0 0 0 00

3 4

b. Cash

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

22 0 0 0 00

20 0 0 0 00

5 6

2 0 0 0 00

8 9 10 11

c. Cash Discount on Common Stock

21 0 0 0 00

1 0 0 0 00

Common Stock

22 0 0 0 00 11

12 13 14

d. Cash

100 0 0 0 00

Preferred Stock

100 0 0 0 00 14

15 16 17 18

e. Cash Discount on Preferred Stock

49 0 0 0 00

1 0 0 0 00

Preferred Stock

50 0 0 0 00 18

19 20

f. Cash

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

51 5 0 0 00

1 5 0 0 00 23 24

g. Cash

11 8 7 5 00

Common Stock

11 8 7 5 00 26

27 28

50 0 0 0 00 21

24 25

h. Cash Preferred Stock

72 0 0 0 00

72 0 0 0 00 29

858

CHAPTER 20

Problem 20-7A GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Cash

PAGE POST. REF.

DEBIT

CREDIT

40 0 0 0 00

Common Stock

40 0 0 0 00

3 4

b. Cash

Common Stock

Paid-In Capital in Excess of Stated

Value—Common Stock

50 0 0 0 00

48 0 0 0 00

5 6

2 0 0 0 00

8 9 10

c. Cash

75 0 0 0 00

Preferred Stock

75 0 0 0 00 10

11 12 13 14

d. Cash Discount on Preferred Stock

58 0 0 0 00

2 0 0 0 00

Preferred Stock

60 0 0 0 00 14

15 16 17

e. Land

50 0 0 0 00

Common Stock

f. Building

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

90 0 0 0 00

80 0 0 0 00 20 21

10 0 0 0 00 22

23 24

50 0 0 0 00 17

18 19

g. Land

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

405 0 0 0 00

400 0 0 0 00 25 26

5 0 0 0 00 27

CHAPTER 20

859

Problem 20-8A GENERAL JOURNAL DATE 1

DESCRIPTION

a. Cash

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

PAGE POST. REF.

DEBIT

CREDIT

105 0 0 0 00

100 0 0 0 00

2 3

5 0 0 0 00

5 6

b. Cash

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

128 0 0 0 00 120 0 0 0 00 8 0 0 0 00

c. Common Stock Subscriptions Receivable Common Stock Subscribed

Paid-In Capital in Excess of Par—

Common Stock

105 0 0 0 00

5 0 0 0 00 14 15

d. Preferred Stock Subscriptions Receivable

Preferred Stock Subscribed

Paid-In Capital in Excess of Par—

Preferred Stock

80 0 0 0 00

5 0 0 0 00 19 20

e. Cash

55 0 0 0 00

Common Stock Subscriptions Receivable

f. Cash

40 0 0 0 00

Preferred Stock Subscriptions Receivable

40 0 0 0 00 25

26 27

55 0 0 0 00 22

23 24

75 0 0 0 00 17

100 0 0 0 00 12

9 10

7 8

10 11

g. Truck

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

48 0 0 0 00

40 0 0 0 00 28 29

8 0 0 0 00 30

860

CHAPTER 20

Problem 20-8A (Concluded) GENERAL JOURNAL DATE 1 2

DESCRIPTION

h. Cash

PAGE POST. REF.

DEBIT

CREDIT

50 0 0 0 00

Common Stock Subscriptions Receivable

50 0 0 0 00

3 4 5

Common Stock Subscribed

100 0 0 0 00

Common Stock

100 0 0 0 00

6 7

i. Cash

Common Stock

Paid-In Capital in Excess of Stated

Value—Common Stock

21 5 0 0 00 20 0 0 0 00

1 5 0 0 00 10 11

j. Cash

40 0 0 0 00

Preferred Stock Subscriptions Receivable

40 0 0 0 00 13

14 15

8 9

11 12

Preferred Stock Subscribed Preferred Stock

75 0 0 0 00

75 0 0 0 00 16

CHAPTER 20

861

Problem 20-9A GENERAL JOURNAL DATE

DESCRIPTION

20-1

June 30 Organization Expenses

PAGE POST. REF.

DEBIT

17 8 0 0 00

Cash

CREDIT 1

17 8 0 0 00

3 4

July 15 Cash

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

73 0 0 0 00

70 0 0 0 00

5 6

3 0 0 0 00

21 Cash

Discount on Preferred Stock

148 0 0 0 00

2 0 0 0 00

Preferred Stock

150 0 0 0 00 11

12 13

Aug.

1 Common Stock Subscriptions Receivable

Common Stock Subscribed

Paid-In Capital in Excess of Par—

Common Stock

81 5 0 0 00

80 0 0 0 00 14 15

1 5 0 0 00 16

15 Building

18 19

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

165 0 0 0 00

5 0 0 0 00 21 22

31 Cash

51 5 0 0 00

Common Stock Subscriptions Receivable

Sept.

3 Common Treasury Stock

22 0 0 0 00

Cash

22 0 0 0 00 27

28 29

51 5 0 0 00 24

160 0 0 0 00 19

12 Cash

Common Stock

Paid-In Capital in Excess of Stated

Value—Common Stock

40 0 0 0 00

36 0 0 0 00 30 31

4 0 0 0 00 32

862

CHAPTER 20

Problem 20-9A (Concluded) GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

Sept. 18 Cash

PAGE POST. REF.

DEBIT

CREDIT

30 0 0 0 00

Common Stock Subscriptions Receivable

30 0 0 0 00

3 4 5

18 Common Stock Subscribed

80 0 0 0 00

Common Stock

80 0 0 0 00

6 7

30 Cash

Common Treasury Stock (800  $11)

Paid-In Capital from Sale of Treasury Stock

9 2 0 0 00

10 11

Oct. 15 Land

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

125 0 0 0 00

4 0 0 00

120 0 0 0 00 12 13

5 0 0 0 00 14

8 8 0 0 00

31 Cash Paid-In Capital from Sale of Treasury Stock Common Treasury Stock (400  $11)

4 3 0 0 00

1 0 0 00

4 4 0 0 00 18

CHAPTER 20

863

Problem 20-10A

Stockholders’ Equity Paid-in capital: Preferred stock, $4 dividend, $5 par, 30,000 shares Preferred stock subscribed (10,000 shares)

$150,000 50,000

Common stock, $10 par, 25,000 shares

$250,000

Common stock subscribed (3,000 shares)

30,000

$200,000 280,000

Additional paid-in capital: Paid-in capital in excess of par—preferred stock Paid-in capital from sale of treasury stock

$ 10,000 1,000

Total paid-in capital

11,000 $491,000

Retained earnings

75,000 $566,000

Less: Preferred stock subscriptions receivable

$ 15,000

Common stock subscriptions receivable

10,000

Common treasury stock

10,000

Total stockholders’ equity

35,000 $531,000

864

CHAPTER 20

Exercise 20-1B GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

20-1 2

PAGE

Jan. 20 Organization Expenses

DEBIT

CREDIT

12 0 0 0 00

Cash

12 0 0 0 00

Exercise 20-2B Situation 1 Total amount available for dividends

$50,000

Dividends to preferred stock: 9,000 shares  $2 Amount available for common stock

18,000 $32,000

Dividends per share: Preferred stock

$2.00

Common stock ($32,000  100,000 shares)

$0.32

CHAPTER 20

865

Exercise 20-2B (Concluded) Situation 2 Total amount available for dividends

$56,000

Dividends to preferred stock: Cumulative: From prior year 4,000 shares  $2

$8,000

Current year 4,000 shares  $2

8,000

Total cumulative preferred stock dividends

$16,000

Noncumulative: Current year 5,000 shares  $2

10,000

Total preferred stock dividends

26,000

Amount available for common stock

$30,000

Dividends per share: Preferred cumulative: $16,000  4,000

$4.00

Preferred noncumulative: $10,000  5,000

$2.00

Common stock: $30,000  40,000

$0.75

866

CHAPTER 20

Exercise 20-3B GENERAL JOURNAL DATE 20-1 2

Jan.

DESCRIPTION

a. Cash

PAGE POST. REF.

DEBIT

CREDIT

40 0 0 0 00

Common Stock

40 0 0 0 00

3 4 5 6

b. Cash Discount on Common Stock

45 0 0 0 00

5 0 0 0 00

Common Stock

50 0 0 0 00

7 8

c. Cash

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

53 5 0 0 00 50 0 0 0 00

3 5 0 0 00 11 12

d. Cash

60 0 0 0 00

Common Stock

e. Cash

40 0 0 0 00

Common Stock

f. Cash

48 0 0 0 00

Common Stock

g. Cash

Common Stock

Paid-In Capital in Excess of Stated

Value—Common Stock

25 0 0 0 00

28 29

24 0 0 0 00 23 24

1 0 0 0 00 25

26 27

48 0 0 0 00 20

21 22

40 0 0 0 00 17

18 19

60 0 0 0 00 14

15 16

9 10

12 13

h. Cash Discount on Common Stock Common Stock

30 5 0 0 00

1 5 0 0 00

32 0 0 0 00 29

CHAPTER 20

867

Exercise 20-4B GENERAL JOURNAL DATE 1

DESCRIPTION

a. Land

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

PAGE POST. REF.

DEBIT

CREDIT

33 5 0 0 00

30 0 0 0 00

2 3

3 5 0 0 00

5 6

b. Building

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

38 5 0 0 00 33 0 0 0 00 5 5 0 0 00

c. Common Stock Subscriptions Receivable Common Stock Subscribed

Paid-In Capital in Excess of Par—

Common Stock

58 0 0 0 00

3 0 0 0 00 14 15

d. Common Stock Subscriptions Receivable Discount on Common Stock

38 0 0 0 00

2 0 0 0 00

Common Stock Subscribed

40 0 0 0 00 18

19 20 21

e. Cash

29 0 0 0 00

Common Stock Subscriptions Receivable

f. Cash

29 0 0 0 00

Common Stock Subscriptions Receivable

29 0 0 0 00 24

25 26

29 0 0 0 00 21

22 23

55 0 0 0 00 12

9 10

7 8

10 11

Common Stock Subscribed Common Stock

55 0 0 0 00

55 0 0 0 00 27

868

CHAPTER 20

Exercise 20-4B (Concluded) GENERAL JOURNAL DATE 1 2

DESCRIPTION

g. Cash

PAGE POST. REF.

DEBIT

CREDIT

38 0 0 0 00

Common Stock Subscriptions Receivable

38 0 0 0 00

3 4 5

Common Stock Subscribed

40 0 0 0 00

Common Stock

40 0 0 0 00

6 7 8

h. Common Treasury Stock

12 0 0 0 00

Cash

12 0 0 0 00

9 10

i. Cash

6 5 0 0 00

Common Treasury Stock (1,000  $6)

Paid-In Capital from Sale of Treasury Stock

6 0 0 0 00 11 5 0 0 00 12

13 14 15 16

j. Cash Paid-In Capital from Sale of Treasury Stock

5 7 5 0 00

2 5 0 00

Common Treasury Stock (1,000  $6)

6 0 0 0 00 16

Exercise 20-5B

Stockholders’ Equity Paid-in capital: Preferred stock, $10 par, 8%, 10,000 shares

$100,000

Common stock, $6 par, 15,000 shares

$90,000

Common stock subscribed, $6 par, 5,000 shares

30,000

Total paid-in capital Retained earnings

120,000 $220,000 50,000 $270,000

Less: Common stock subscriptions receivable Total stockholders’ equity

6,000 $264,000

CHAPTER 20

869

Problem 20-6B GENERAL JOURNAL DATE 1

DESCRIPTION

a. Cash

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

PAGE POST. REF.

DEBIT

CREDIT

26 0 0 0 00

24 0 0 0 00

2 3

2 0 0 0 00

5 6 7 8

b. Cash Discount on Common Stock

19 0 0 0 00

1 0 0 0 00

Common Stock

20 0 0 0 00

9 10 11

c. Cash

18 0 0 0 00

Common Stock

18 0 0 0 00 11

12 13 14

d. Cash

30 0 0 0 00

Preferred Stock

17 18

e. Cash Discount on Preferred Stock

57 0 0 0 00

3 0 0 0 00

Preferred Stock

60 0 0 0 00 18

19 20

f. Cash

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

46 5 0 0 00

1 5 0 0 00 23 24

g. Cash

10 4 7 5 00

Common Stock

10 4 7 5 00 26

27 28

45 0 0 0 00 21

24 25

30 0 0 0 00 14

15 16

h. Cash Preferred Stock

32 0 0 0 00

32 0 0 0 00 29

870

CHAPTER 20

Problem 20-7B GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Cash

PAGE POST. REF.

DEBIT

CREDIT

50 0 0 0 00

Common Stock

50 0 0 0 00

3 4

b. Cash

Common Stock

Paid-In Capital in Excess of Stated

Value—Common Stock

43 0 0 0 00

42 0 0 0 00

5 6

1 0 0 0 00

8 9 10 11

c. Cash Discount on Preferred Stock

88 6 0 0 00

1 4 0 0 00

Preferred Stock

90 0 0 0 00 11

12 13 14

d. Cash

77 0 0 0 00

Preferred Stock

77 0 0 0 00 14

15 16 17

e. Land

90 0 0 0 00

Common Stock

f. Building

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

99 0 0 0 00

88 0 0 0 00 20 21

11 0 0 0 00 22

23 24

90 0 0 0 00 17

18 19

g. Land

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

243 0 0 0 00

240 0 0 0 00 25 26

3 0 0 0 00 27

CHAPTER 20

871

Problem 20-8B GENERAL JOURNAL DATE 1

DESCRIPTION

a. Cash

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

PAGE POST. REF.

DEBIT

CREDIT

145 0 0 0 00

140 0 0 0 00

2 3

5 0 0 0 00

5 6

b. Cash

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

162 8 0 0 00 162 0 0 0 00

12 13

8 0 0 00

c. Common Stock Subscriptions Receivable Discount on Common Stock

118 0 0 0 00

2 0 0 0 00

Common Stock Subscribed

120 0 0 0 00 13 14

d. Preferred Stock Subscriptions Receivable

Preferred Stock Subscribed

Paid-In Capital in Excess of Par—

Preferred Stock

92 0 0 0 00

2 0 0 0 00 18 19

e. Cash

59 0 0 0 00

Common Stock Subscriptions Receivable

f. Cash

46 0 0 0 00

Preferred Stock Subscriptions Receivable

46 0 0 0 00 24

25 26

59 0 0 0 00 21

22 23

90 0 0 0 00 16

19 20

9 10

14 15

7 8

10 11

g. Truck

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

66 0 0 0 00

60 0 0 0 00 27 28

6 0 0 0 00 29

872

CHAPTER 20

Problem 20-8B (Concluded) GENERAL JOURNAL DATE 1 2

DESCRIPTION

h. Cash

PAGE POST. REF.

DEBIT

CREDIT

59 0 0 0 00

Common Stock Subscriptions Receivable

59 0 0 0 00

3 4 5

Common Stock Subscribed

120 0 0 0 00

Common Stock

120 0 0 0 00

6 7

i. Cash

Common Stock

Paid-In Capital in Excess of Stated

Value—Common Stock

21 5 0 0 00 21 0 0 0 00

5 0 0 00 10 11

j. Cash

46 0 0 0 00

Preferred Stock Subscriptions Receivable

46 0 0 0 00 13

14 15

8 9

11 12

Preferred Stock Subscribed Preferred Stock

90 0 0 0 00

90 0 0 0 00 16

CHAPTER 20

873

Problem 20-9B GENERAL JOURNAL DATE

DESCRIPTION

20-1

June 30 Organization Expenses

PAGE POST. REF.

DEBIT

14 9 0 0 00

Cash

CREDIT 1

14 9 0 0 00

3 4

July 15 Cash

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

82 0 0 0 00

80 0 0 0 00

5 6

2 0 0 0 00

21 Cash

Discount on Preferred Stock

124 5 0 0 00

5 0 0 00

Preferred Stock

125 0 0 0 00 11

12 13

Aug.

1 Common Stock Subscriptions Receivable

Common Stock Subscribed

Paid-In Capital in Excess of Par—

Common Stock

101 5 0 0 00

100 0 0 0 00 14 15

1 5 0 0 00 16

15 Building

18 19

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

104 8 0 0 00

4 8 0 0 00 21 22

31 Cash

51 5 0 0 00

Common Stock Subscriptions Receivable

51 5 0 0 00 24

100 0 0 0 00 19

Sept.

3 Common Treasury Stock Cash

11 0 0 0 00

11 0 0 0 00 27

874

CHAPTER 20

Problem 20-9B (Concluded) GENERAL JOURNAL DATE

DESCRIPTION

20-1 2 3

Sept. 12 Cash

Discount on Common Stock

PAGE POST. REF.

DEBIT

CREDIT

21 4 0 0 00

1 0 0 0 00

Common Stock

22 4 0 0 00

4 5 6

18 Cash

50 0 0 0 00

Common Stock Subscriptions Receivable

50 0 0 0 00

7 8 9

18 Common Stock Subscribed

100 0 0 0 00

Common Stock

100 0 0 0 00

10 11

30 Cash Common Treasury Stock (500  $11)

Paid-In Capital from Sale of Treasury Stock

5 7 5 0 00

2 5 0 00 13 14

Oct. 15 Land

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

105 0 0 0 00

100 0 0 0 00 16 17

5 0 0 0 00 18

5 5 0 0 00 12

9 10

31 Cash Paid-In Capital from Sale of Treasury Stock Common Treasury Stock (500  $11)

5 3 7 5 00

1 2 5 00

5 5 0 0 00 22

CHAPTER 20

875

Problem 20-10B

Stockholders’ Equity Paid-in capital: Preferred stock, $4 dividend, $5 par, 24,000 shares Preferred stock subscribed (8,000 shares)

$120,000 40,000

Common stock, $10 par, 28,000 shares

$280,000

Common stock subscribed (8,000 shares)

80,000

$160,000 360,000

Additional paid-in capital: Paid-in capital in excess of par—preferred stock Paid-in capital from sale of treasury stock

$ 12,000 1,150

Total paid-in capital

13,150 $533,150

Retained earnings

88,000 $621,150

Less: Preferred stock subscriptions receivable

$ 12,000

Common stock subscriptions receivable

30,000

Common treasury stock

24,000

Total stockholders’ equity

66,000 $555,150

876

CHAPTER 20

MANAGING YOUR WRITING Students probably will rely mostly on the text in completing this assignment. Their report should describe preferred stock as a type of stock that typically has no voting rights. However, holders of preferred stock usually have preferential rights to dividends and asset distribution at liquidation. Students should also describe the cumulative/noncumulative and participating/nonparticipating features of preferred stock.

ETHICS CASE 1. Actually, the accountant has followed proper procedure regarding organizational costs. Assuming an accountant had unknowingly followed improper treatment in accounting for the costs, he probably did not violate ethical principles. 2. These expenditures should be expensed as organizational costs in the year incurred. 3. Answers will vary. It should be clear that costs related to organizing a corporation are expensed when incurred. 4. Answers will vary. There is a very fine line between unethical decisions and careless decisions. Carelessness, in itself, can sometimes be unethical. Students’ answers will be based on their values and understanding of ethical principles.

CHAPTER 20

877

Mastery Problem 1. GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Cash

PAGE POST. REF.

DEBIT

CREDIT

20 0 0 0 00

Preferred Stock Subscriptions Receivable

20 0 0 0 00

3 4 5

Preferred Stock Subscribed

40 0 0 0 00

Preferred Stock

40 0 0 0 00

6 7 8

b. Common Treasury Stock

180 0 0 0 00

Cash

180 0 0 0 00

9 10 11

c. Cash Common Stock Subscriptions Receivable

Common Stock Subscribed

Paid-In Capital in Excess of Par—

Common Stock

45 0 0 0 00

145 0 0 0 00

100 0 0 0 00 12 13

90 0 0 0 00 14

15 16

d. Land

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

290 0 0 0 00

150 0 0 0 00 17 18

140 0 0 0 00 19

20 21

e. Cash

100 0 0 0 00

Common Treasury Stock

90 0 0 0 00 22

Paid-In Capital from Sale of Treasury Stock

10 0 0 0 00 23

24 25

f. Cash

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

115 0 0 0 00

100 0 0 0 00 26 27

15 0 0 0 00 28

29 30 31 32

g. Cash Paid-In Capital from Sale of Treasury Stock Common Treasury Stock

51 0 0 0 00

3 0 0 0 00

54 0 0 0 00 32

878

CHAPTER 20

Mastery Problem (Continued) 2.

Bal. (a) (c) (e) (f) (g)

Cash 300,000 (b) 20,000 45,000 100,000 115,000 51,000

180,000

(d)

Land 290,000

631,000

Bal.

Common Stock Subscriptions Receivable (c) 145,000

451,000

Preferred Stock Subscriptions Receivable Bal. 50,000 (a) 20,000 Bal. 30,000

(a)

Preferred Stock Subscribed 40,000 Bal. 100,000 Bal. 60,000

Preferred Stock Bal. (a) (f) Bal.

Common Treasury Stock 180,000 (e) (g)

Common Stock Bal. (d) Bal.

90,000 54,000

600,000 150,000 750,000

Paid-In Capital in Excess of Par— Common Stock Bal. 250,000 (c) 90,000 (d) 140,000 Bal. 480,000

200,000 40,000 100,000 340,000

Paid-In Capital in Excess of Par— Preferred Stock Bal. 40,000 (f) 15,000 Bal. 55,000

(b)

Common Stock Subscribed (c) 100,000

(g)

Paid-In Capital from Sale of Treasury Stock 3,000 (e) Bal.

10,000 7,000

Retained Earnings Bal.

750,000

144,000

Bal.

36,000

CHAPTER 20

879

Mastery Problem (Concluded) 3.

Stockholders’ Equity Paid-in capital: Preferred stock, 9%, $10 par (200,000 shares authorized; 34,000 shares issued) Preferred stock subscribed (6,000 shares)

$340,000 60,000

$ 400,000

Common stock, $10 par (100,000 shares authorized; 75,000 shares issued) Common stock subscribed (10,000 shares)

$750,000 100,000

850,000

Additional paid-in capital: Paid-in capital in excess of par—preferred stock

$ 55,000

Paid-in capital in excess of par—common stock

480,000

Paid-in capital from sale of treasury stock

7,000

Total paid-in capital

542,000 $1,792,000

Retained earnings

1,175,000 $2,967,000

Less: Preferred stock subscriptions receivable

$ 30,000

Common stock subscriptions receivable

145,000

Common treasury stock (2,000 shares at cost)

36,000

Total stockholders’ equity

211,000 $2,756,000

880

CHAPTER 20

Challenge Problem GENERAL JOURNAL DATE 1

DESCRIPTION

a. Organization Costs

PAGE POST. REF.

DEBIT

CREDIT

55 0 0 0 00

Common Stock

5 0 0 0 00

Paid-In Capital in Excess of Par—

Common Stock

40 0 0 0 00

Cash

10 0 0 0 00

2 3

6 7

b. Land

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

380 0 0 0 00 50 0 0 0 00

330 0 0 0 00 10 11

c. Common Treasury Stock

70 0 0 0 00

Cash

70 0 0 0 00 13

14 15

8 9

11 12

d. Cash

32 0 0 0 00

Common Treasury Stock

28 0 0 0 00 16

Paid-In Capital from Sale of Treasury Stock

4 0 0 0 00 17

18 19

e. Cash

30 0 0 0 00

Paid-In Capital from Sale of Treasury Stock

4 0 0 0 00

Retained Earnings

1 0 0 0 00

Common Treasury Stock

35 0 0 0 00 22

CHAPTER 21 CORPORATIONS: TAXES, EARNINGS, DISTRIBUTIONS, AND THE STATEMENT OF RETAINED EARNINGS REVIEW QUESTIONS 1.

Corporations incur income tax expense, but sole proprietorships and partnerships do not.

The two major sources of capital for every type of business are capital that results from investments by the owners and capital that results from earnings retained in the business.

Earnings are retained in the company to help finance the growth of the business.

The procedures for closing the income summary account for a corporation differ from a sole proprietorship because the balance of the income summary account of a corporation is transferred to the retained earnings account. If there is net income for a period, Income Summary is debited and Retained Earnings is credited. If there is a net loss for the period, the opposite entry is made.

The three dates involved in the declaration and payment of dividends are: a. date of declaration—the date on which the board of directors decides that a dividend is to be paid. b. date of record—the date on which the names of stockholders entitled to receive the dividend are determined. c. date of payment—the date on which the dividend is actually paid by the corporation.

Cash dividends reduce the stockholders’ equity in the corporation—specifically the retained earnings account.

A corporation may distribute a stock dividend for the following reasons: a. The company may be short of cash. b. The company may want to increase the marketability of its shares by lowering the price per share. c. The corporation may want to transfer a portion of retained earnings to a paid-in capital category to indicate that it is unavailable for dividends.

Stock dividends distributable is reported as an addition to common stock in the stockholders’ equity section of the balance sheet. Stock dividends distributable is not a liability since no assets or services are owed.

Stock dividends do not affect assets, liabilities, or total stockholders’ equity of the corporation. Stock dividends merely transfer part of the balance of the retained earnings account to one or more paid-in capital accounts. A stock split has no effect on the accounts of a corporation.

10.

Retained earnings are appropriated by the board of directors to limit the availability of retained earnings for paying dividends.

11.

If there are both appropriated and unappropriated retained earnings, each is shown separately in the statement of retained earnings.

882

CHAPTER 21

Exercise 21-1A 1. and 2. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20-1 1

Apr. 15 Income Tax Expense

DEBIT

20 0 0 0 00

Cash

CREDIT 1

20 0 0 0 00

3 4

Dec. 31 Income Tax Expense

6 0 0 0 00

Income Tax Payable

6 0 0 0 00

Exercise 21-2A 1. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Dec. 31 Income Summary

PAGE POST. REF.

DEBIT

130 0 0 0 00

Retained Earnings

CREDIT 1

130 0 0 0 00

31 Retained Earnings

Cash Dividends

26 0 0 0 00

2. 6

20-7 8

Dec. 31 Retained Earnings

25 0 0 0 00

Income Summary

25 0 0 0 00

31 Retained Earnings

Stock Dividends

15 0 0 0 00

15 0 0 0 00 11 12

CHAPTER 21

883

Exercise 21-3A GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20-1

July 10 Cash Dividends

DEBIT

60 0 0 0 00

Common Dividends Payable

CREDIT 1

60 0 0 0 00

15 Cash Dividends

9 0 0 0 00

Preferred Dividends Payable

9 0 0 0 00

6 7

5 Common Dividends Payable

Aug.

60 0 0 0 00

Cash

60 0 0 0 00

10 Preferred Dividends Payable

9 0 0 0 00

Cash

9 0 0 0 00 11

Exercise 21-4A 1. and 2. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Mar. 15 Stock Dividends

Stock Dividends Distributable

Paid-In Capital in Excess of Par—

Common Stock

PAGE POST. REF.

DEBIT

CREDIT

100 0 0 0 00

20 0 0 0 00

2 3

80 0 0 0 00

Apr. 14 Stock Dividends Distributable

Common Stock

20 0 0 0 00

8 9 10

Mar. 15 Stock Dividends

60 0 0 0 00

Stock Dividends Distributable

60 0 0 0 00 10

Apr. 14 Stock Dividends Distributable

Common Stock

60 0 0 0 00

60 0 0 0 00 13

884

CHAPTER 21

Exercise 21-5A GENERAL JOURNAL DATE 20-1

July

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

1 Memo entry: Declared 2-for-1 stock split.

Issued 200,000 shares of $5 par

common stock in exchange for 100,000

shares of $10 par common stock.

Exercise 21-6A GENERAL JOURNAL DATE 20-1 1

Oct.

DESCRIPTION

PAGE POST. REF.

2 Retained Earnings

DEBIT

CREDIT

80 0 0 0 00

Retained Earnings Appropriated for

Sailboat

1 2

80 0 0 0 00

3 4

20-2 5 6 7

July 15 Retained Earnings Appropriated for

Sailboat

80 0 0 0 00

Retained Earnings

80 0 0 0 00

7 8

Exercise 21-7A McGregor Company Statement of Retained Earnings For Year Ended December 31, 20-Retained earnings, January 1

$60,000

Add net income for the year

20,000 $80,000

Less cash dividends Retained earnings, December 31

5,000 $75,000

CHAPTER 21

885

Problem 21-8A GENERAL JOURNAL DATE

DESCRIPTION

20-2 1

Apr. 15 Income Tax Expense

PAGE POST. REF.

DEBIT

7 5 0 0 00

Cash

CREDIT 1

7 5 0 0 00

25 Cash Dividends

36 0 0 0 00

Common Dividends Payable

36 0 0 0 00

6 7 8

May

20 Common Dividends Payable

36 0 0 0 00

Cash

36 0 0 0 00

9 10 11

June 15 Income Tax Expense

7 5 0 0 00

Cash

7 5 0 0 00 11

12 13 14

Sept. 15 Income Tax Expense

7 5 0 0 00

Cash

Oct. 25 Cash Dividends

36 0 0 0 00

Common Dividends Payable

Nov. 20 Common Dividends Payable

36 0 0 0 00

Cash

Dec. 15 Income Tax Expense

7 5 0 0 00

Cash

31 Income Tax Expense

5 0 0 0 00

Income Tax Payable

5 0 0 0 00 26

27 28

7 5 0 0 00 23

24 25

36 0 0 0 00 20

21 22

36 0 0 0 00 17

18 19

7 5 0 0 00 14

15 16

31 Income Summary

100 0 0 0 00

Retained Earnings

100 0 0 0 00 29

31 Retained Earnings

Cash Dividends

72 0 0 0 00

72 0 0 0 00 32

886

CHAPTER 21

Problem 21-9A GENERAL JOURNAL DATE

DESCRIPTION

20-1

Apr. 15 Cash Dividends

PAGE POST. REF.

DEBIT

CREDIT

41 0 0 0 00

Preferred Dividends Payable

9 0 0 0 00

Common Dividends Payable

32 0 0 0 00

4 5 6 7

May

10 Preferred Dividends Payable

9 0 0 0 00

Common Dividends Payable

32 0 0 0 00

Cash

41 0 0 0 00

8 9

Oct. 15 Cash Dividends

41 0 0 0 00

Preferred Dividends Payable

9 0 0 0 00 10

Common Dividends Payable

32 0 0 0 00 11

Nov. 20 Preferred Dividends Payable

9 0 0 0 00

Common Dividends Payable

32 0 0 0 00

Cash

41 0 0 0 00 15

16 17

22 Stock Dividends

Stock Dividends Distributable

Paid-In Capital in Excess of Par—

Common Stock

56 0 0 0 00

8 0 0 0 00 18 19

48 0 0 0 00 20

Dec. 16 Stock Dividends Distributable

Common Stock

24 25

8 0 0 0 00

8 0 0 0 00 23 24

20 Memo entry: Declared 2-for-1 stock split.

Issued 176,000 shares of $0.50 par

common stock in exchange for 88,000

shares of $1 par common stock.

CHAPTER 21

887

Problem 21-10A GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20-1

Mar. 16 Retained Earnings

DEBIT

CREDIT

25 0 0 0 00

Retained Earnings Appropriated for

Computer

1 2

25 0 0 0 00

4 5

5 Warehouse

Nov.

80 0 0 0 00

Cash

80 0 0 0 00

5 Retained Earnings Appropriated for

Warehouse

80 0 0 0 00

Retained Earnings

80 0 0 0 00 10

12 Cash Dividends

19 5 0 0 00

Common Dividends Payable

19 5 0 0 00 13

14 15

Dec. 19 Common Dividends Payable

19 5 0 0 00

Cash

19 5 0 0 00 16

Problem 21-11A 1. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Mar. 20 Cash Dividends

PAGE POST. REF.

DEBIT

CREDIT

33 0 0 0 00

Preferred Dividends Payable

8 0 0 0 00

Common Dividends Payable

25 0 0 0 00

Apr. 15 Preferred Dividends Payable

8 0 0 0 00

Common Dividends Payable

25 0 0 0 00

Cash

33 0 0 0 00

888

CHAPTER 21

Problem 21-11A (Continued) GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

20-1

PAGE

June 16 Retained Earnings

DEBIT

CREDIT

60 0 0 0 00

Retained Earnings Appropriated for

Land Acquisition

1 2

60 0 0 0 00

4 5

Oct. 10 Cash Dividends

33 0 0 0 00

Preferred Dividends Payable

8 0 0 0 00

Common Dividends Payable

25 0 0 0 00

Nov. 10 Preferred Dividends Payable

8 0 0 0 00

Common Dividends Payable

25 0 0 0 00

Cash

33 0 0 0 00 11

12 13

17 Stock Dividends

90 0 0 0 00

Stock Dividends Distributable

Paid-In Capital in Excess of Par—

Common Stock

25 0 0 0 00 14 15

65 0 0 0 00 16

Dec. 15 Stock Dividends Distributable

Common Stock

25 0 0 0 00

25 0 0 0 00 19

20 21 22

31 Income Summary

290 0 0 0 00

Retained Earnings

290 0 0 0 00 22

31 Retained Earnings

156 0 0 0 00

Cash Dividends

66 0 0 0 00 25

Stock Dividends

90 0 0 0 00 26

2. Retained Earnings—Appropriated for Land Acquisition Bal.

60,000

June 16

60,000

Retained Earnings—Unappropriated Bal. June 16

60,000

Dec. 31

900,000 290,000 1,190,000

Dec. 31

156,000 216,000

Bal.

120,000

Bal.

974,000

CHAPTER 21

889

Problem 21-11A (Concluded) 3. Glover Company Statement of Retained Earnings For Year Ended December 31, 20-Appropriated: Appropriated for land acquisition, January 1

60,000

Current year appropriation (see below)

60,000

Retained earnings appropriated, December 31

$ 120,000

Unappropriated: Balance, January 1

$900,000

Add net income for year

290,000

Less: Cash dividends

$ 66,000

Stock dividends

90,000

$1,190,000

Transfer to appropriated for land acquisition

60,000

216,000

Retained earnings unappropriated, December 31

974,000

Total retained earnings, December 31

$1,094,000

890

CHAPTER 21

Exercise 21-1B 1. and 2. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20-1 1

Apr. 15 Income Tax Expense

DEBIT

25 0 0 0 00

Cash

CREDIT 1

25 0 0 0 00

3 4

Dec. 31 Income Tax Expense

12 0 0 0 00

Income Tax Payable

12 0 0 0 00

Exercise 21-2B 1. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Dec. 31 Income Summary

PAGE POST. REF.

DEBIT

90 0 0 0 00

Retained Earnings

CREDIT 1

90 0 0 0 00

31 Retained Earnings

Cash Dividends

18 0 0 0 00

2. 6

20-7 8

Dec. 31 Retained Earnings

20 0 0 0 00

Income Summary

20 0 0 0 00

31 Retained Earnings

Stock Dividends

15 0 0 0 00

15 0 0 0 00 11 12

CHAPTER 21

891

Exercise 21-3B GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20-1

July 10 Cash Dividends

DEBIT

30 0 0 0 00

Common Dividends Payable

CREDIT 1

30 0 0 0 00

15 Cash Dividends

25 0 0 0 00

Preferred Dividends Payable

25 0 0 0 00

6 7

5 Common Dividends Payable

Aug.

30 0 0 0 00

Cash

30 0 0 0 00

10 Preferred Dividends Payable

25 0 0 0 00

Cash

25 0 0 0 00 11

Exercise 21-4B 1. and 2. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Mar. 15 Stock Dividends

Stock Dividends Distributable

Paid-In Capital in Excess of Par—

Common Stock

PAGE POST. REF.

DEBIT

CREDIT

130 0 0 0 00

10 0 0 0 00

2 3

120 0 0 0 00

Apr. 14 Stock Dividends Distributable

Common Stock

10 0 0 0 00

8 9 10

Mar. 15 Stock Dividends

60 0 0 0 00

Stock Dividends Distributable

60 0 0 0 00 10

Apr. 14 Stock Dividends Distributable

Common Stock

60 0 0 0 00

60 0 0 0 00 13

892

CHAPTER 21

Exercise 21-5B GENERAL JOURNAL DATE 20--

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

1 Memo entry: Declared 2-for-1 stock split.

Issued 80,000 shares of $1.00 par

common stock in exchange for 40,000

shares of $2.00 par common stock.

July

Exercise 21-6B GENERAL JOURNAL DATE 20-1 1

Oct.

DESCRIPTION

PAGE POST. REF.

2 Retained Earnings

DEBIT

CREDIT

400 0 0 0 00

Retained Earnings Appropriated for

Yacht

1 2

400 0 0 0 00

3 4

20-2 5 6 7

July 15 Retained Earnings Appropriated for

Yacht

400 0 0 0 00

Retained Earnings

400 0 0 0 00

7 8

Exercise 21-7B Womack Company Statement of Retained Earnings For Year Ended December 31, 20-Retained earnings, January 1

$ 80,000

Add net income for the year

40,000 $120,000

Less cash dividends Retained earnings, December 31

15,000 $105,000

CHAPTER 21

893

Problem 21-8B GENERAL JOURNAL DATE

DESCRIPTION

20-2 1

Apr. 15 Income Tax Expense

PAGE POST. REF.

DEBIT

40 0 0 0 00

Cash

CREDIT 1

40 0 0 0 00

25 Cash Dividends

45 0 0 0 00

Common Dividends Payable

45 0 0 0 00

6 7 8

May

20 Common Dividends Payable

45 0 0 0 00

Cash

45 0 0 0 00

9 10 11

June 15 Income Tax Expense

40 0 0 0 00

Cash

40 0 0 0 00 11

12 13 14

Sept. 15 Income Tax Expense

40 0 0 0 00

Cash

Oct. 25 Cash Dividends

45 0 0 0 00

Common Dividends Payable

Nov. 20 Common Dividends Payable

45 0 0 0 00

Cash

Dec. 15 Income Tax Expense

40 0 0 0 00

Cash

31 Income Tax Expense

14 0 0 0 00

Income Tax Payable

14 0 0 0 00 26

27 28

40 0 0 0 00 23

24 25

45 0 0 0 00 20

21 22

45 0 0 0 00 17

18 19

40 0 0 0 00 14

15 16

31 Income Summary

196 0 0 0 00

Retained Earnings

196 0 0 0 00 29

31 Retained Earnings

Cash Dividends

90 0 0 0 00

90 0 0 0 00 32

894

CHAPTER 21

Problem 21-9B GENERAL JOURNAL DATE

DESCRIPTION

20-1

Apr. 15 Cash Dividends

PAGE POST. REF.

DEBIT

CREDIT

35 4 0 0 00

Preferred Dividends Payable

3 9 0 0 00

Common Dividends Payable

31 5 0 0 00

4 5 6 7

May

10 Preferred Dividends Payable

3 9 0 0 00

Common Dividends Payable

31 5 0 0 00

Cash

35 4 0 0 00

8 9

Oct. 15 Cash Dividends

35 4 0 0 00

Preferred Dividends Payable

3 9 0 0 00 10

Common Dividends Payable

31 5 0 0 00 11

Nov. 20 Preferred Dividends Payable

3 9 0 0 00

Common Dividends Payable

31 5 0 0 00

Cash

35 4 0 0 00 15

16 17

22 Stock Dividends

Stock Dividends Distributable

Paid-In Capital in Excess of Par—

Common Stock

105 0 0 0 00

7 0 0 0 00 18 19

98 0 0 0 00 20

Dec. 16 Stock Dividends Distributable

Common Stock

24 25

7 0 0 0 00

7 0 0 0 00 23 24

20 Memo entry: Declared 2-for-1 split.

Issued 154,000 shares of $0.50 par

common stock in exchange for 77,000

shares of $1.00 par common stock.

CHAPTER 21

895

Problem 21-10B GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

20-1

Mar. 16 Retained Earnings

DEBIT

CREDIT

50 0 0 0 00

Retained Earnings Appropriated for

Computer

1 2

50 0 0 0 00

4 5

5 Warehouse

Nov.

70 0 0 0 00

Cash

70 0 0 0 00

5 Retained Earnings Appropriated for

Warehouse

70 0 0 0 00

Retained Earnings

70 0 0 0 00 10

12 Cash Dividends

36 0 0 0 00

Common Dividends Payable

36 0 0 0 00 13

14 15

Dec. 19 Common Dividends Payable

36 0 0 0 00

Cash

36 0 0 0 00 16

Problem 21-11B 1. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Mar. 20 Cash Dividends

PAGE POST. REF.

DEBIT

CREDIT

27 0 0 0 00

Preferred Dividends Payable

9 0 0 0 00

Common Dividends Payable

18 0 0 0 00

Apr. 15 Preferred Dividends Payable

9 0 0 0 00

Common Dividends Payable

18 0 0 0 00

Cash

27 0 0 0 00

896

CHAPTER 21

Problem 21-11B (Continued) GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

20-1

PAGE

June 16 Retained Earnings

DEBIT

CREDIT

75 0 0 0 00

Retained Earnings Appropriated for

Land Acquisition

1 2

75 0 0 0 00

4 5

Oct. 10 Cash Dividends

27 0 0 0 00

Preferred Dividends Payable

9 0 0 0 00

Common Dividends Payable

18 0 0 0 00

Nov. 10 Preferred Dividends Payable

9 0 0 0 00

Common Dividends Payable

18 0 0 0 00

Cash

27 0 0 0 00 11

12 13

17 Stock Dividends

117 0 0 0 00

Stock Dividends Distributable

Paid-In Capital in Excess of Par—

Common Stock

18 0 0 0 00 14 15

99 0 0 0 00 16

Dec. 15 Stock Dividends Distributable

Common Stock

18 0 0 0 00

18 0 0 0 00 19

20 21 22

31 Income Summary

260 0 0 0 00

Retained Earnings

260 0 0 0 00 22

31 Retained Earnings

171 0 0 0 00

Cash Dividends

54 0 0 0 00 25

Stock Dividends

117 0 0 0 00 26

2. Retained Earnings—Appropriated for Land Acquisition Bal.

75,000

June 16

75,000

Retained Earnings—Unappropriated Bal. June 16

75,000

Dec. 31

825,000 260,000 1,085,000

Dec. 31

171,000 246,000

Bal.

150,000

Bal.

839,000

CHAPTER 21

897

Problem 21-11B (Concluded) 3. Nguyen Company Statement of Retained Earnings For Year Ended December 31, 20-Appropriated: Appropriated for land acquisition, January 1

75,000

Current year appropriation (see below)

75,000

Retained earnings appropriated, December 31

$150,000

Unappropriated: Balance, January 1

$825,000

Add net income for year

260,000

Less: Cash dividends

$ 54,000

Stock dividends

117,000

$1,085,000

Transfer to appropriated for land acquisition

75,000

246,000

Retained earnings unappropriated, December 31

839,000

Total retained earnings, December 31

$989,000

898

CHAPTER 21

MANAGING YOUR WRITING A cash dividend is a distribution of corporate assets (cash) to the stockholders. The value is obvious in the sense that the cash can be used for whatever purpose is desired. A stock dividend is a distribution of additional shares of the corporation’s stock. All stockholders receive the same proportionate distribution. If you own 1,000 shares of a corporation that has 100,000 shares outstanding, you own 1% (1,000/100,000) of the corporation. If the corporation issues a 10% stock dividend, you will own 1,100 shares of a corporation that has 110,000 shares outstanding. You would still own 1% (1,100/110,000) of the corporation. Thus, you will hold more shares, but the total value of those shares should be about the same. Whether the stock dividend is of value depends on what happens to the market price of the stock. If the market price decreases by the amount of the stock dividend, the stock dividend will have added no value to the church’s investments. If the market price decreases by a lesser amount, the total value of this investment will have increased. While the cash dividend has an obvious value, the value of the stock dividend depends on other factors.

ETHICS CASE 1. Yes. Richard violated the ethical principle of fidelity to the owners of the corporation and the board of directors. The fact that Richard didn’t give any specific information is irrelevant. 2. Answers will vary. Instructors might want to use this opportunity to discuss insider trading being an illegal activity and bring up some “real world” examples. 3. Answers will vary. Basically, cash dividends represent distributions of earnings by a corporation and stock dividends are distributions of shares of a corporation’s own stock to its stockholders. 4. Answers will vary. Reasons for a very low dividend are usually because the corporation does not have a sufficient amount of cash on hand, earnings were low, or the corporation is using its earnings to expand the business. Reasons for very high dividends are to make the corporation’s stock attractive to investors, excess cash on hand, and high earnings.

CHAPTER 21

899

Mastery Problem 1. GENERAL JOURNAL DATE

DESCRIPTION

20-1

Mar. 15 Cash Dividends

PAGE POST. REF.

DEBIT

CREDIT

13 5 0 0 00

Preferred Dividends Payable

1 5 0 0 00

Common Dividends Payable

12 0 0 0 00

Apr. 10 Preferred Dividends Payable

1 5 0 0 00

Common Dividends Payable

12 0 0 0 00

Cash

13 5 0 0 00

8 9 10

July

2 Retained Earnings

50 0 0 0 00

Retained Earnings Appropriated for Press

50 0 0 0 00 10

11 12

Sept. 15 Cash Dividends

13 5 0 0 00

Preferred Dividends Payable

1 5 0 0 00 13

Common Dividends Payable

12 0 0 0 00 14

Oct. 10 Preferred Dividends Payable

1 5 0 0 00

Common Dividends Payable

12 0 0 0 00

Cash

13 5 0 0 00 18

19 20

Nov. 10 Memo entry: Declared 2-for-1 stock split.

Issued 60,000 shares of $1.00 par

common stock in exchange for 30,000

shares of $2.00 par common stock.

24 25 26

Dec. 31 Income Summary

135 0 0 0 00

Retained Earnings

135 0 0 0 00 26

31 Retained Earnings

Cash Dividends

27 0 0 0 00

27 0 0 0 00 29

900

CHAPTER 21

Mastery Problem (Concluded) 2. Retained Earnings—Appropriated Bal. 50,000 July 2

50,000

Retained Earnings—Unappropriated Bal. 800,000 July 2

50,000

Dec. 31

27,000

Dec. 31

135,000 935,000

77,000

Bal.

100,000

Bal.

858,000

3. Dover Company Statement of Retained Earnings For Year Ended December 31, 20-Appropriated: Appropriated for press, January 1

$ 50,000

Current year appropriation (see below)

50,000

Retained earnings appropriated, December 31

$100,000

Unappropriated: Balance, January 1

$800,000

Add net income for year

135,000

Less cash dividends

$ 27,000

Transfer to appropriated for press

50,000

$935,000 77,000

Retained earnings unappropriated, December 31 Total retained earnings, December 31

858,000 $958,000

CHAPTER 21

901

Challenge Problem 1. GENERAL JOURNAL DATE

(a)

DESCRIPTION

Stock Dividends

Stock Dividends Distributable

Paid-In Capital in Excess of Par—

Common Stock

PAGE POST. REF.

DEBIT

CREDIT

160 0 0 0 00

40 0 0 0 00

2 3

120 0 0 0 00

(b)

Cash Dividends

44 0 0 0 00

Common Dividends Payable

44 0 0 0 00

(c)

Stock Dividends

132 0 0 0 00

Stock Dividends Distributable

132 0 0 0 00 10

(d)

Cash Dividends

57 2 0 0 00

Common Dividends Payable

57 2 0 0 00 13

(e)

Memo entry: Declared 2-for-1 stock split.

Issued 572,000 shares of $1 par

common stock in exchange for 286,000

shares of $2 par common stock.

(f)

Cash Dividends Common Dividends Payable

21 22

91 5 2 0 00

91 5 2 0 00 21 22

2. (a)

200,000 +20,000 220,000 +66,000 286,000



572,000 (b)

Par value = $2 per share/2* = $1 per share *2-for-1 stock split

CHAPTER 22 CORPORATIONS: BONDS REVIEW QUESTIONS 1.

Bonds differ from common stock in many ways. Bonds are owned by creditors, are liabilities with limited lives, require interest and principal payments, have deductible interest expenses, and provide a leverage opportunity.

Leverage is using other people’s money to enhance earnings. This can be done by earning a greater rate of return with funds you have borrowed than the rate you paid for those funds. For example, if a corporation can issue bonds at 6% interest and use the funds to earn a rate of return of 15%, that would be leverage.

If the stated rate of the bond is greater than the market rate, the bond will sell at a premium. If the stated rate of the bond is less than the market rate, the bond will sell at a discount.

Bond prices are quoted as a percentage of the face value of the bond issue. A $100,000 bond issue sold at 95 has a market price of $95,000. A $100,000 bond issue sold at 102 has a market price of $102,000.

When bonds are issued at face value, the cash and bonds payable accounts are affected.

Premium on Bonds Payable is an adjunct-liability account. It is added to bonds payable on the corporate balance sheet. Discount on Bonds Payable is a contra-liability account. It is subtracted from bonds payable on the balance sheet.

The amount of bond premium or discount to be amortized in a period using the straight-line method is the total premium or discount divided by the life of the bonds and multiplied by 1/2 (assuming semiannual interest payments).

The bond interest expense account must be adjusted to recognize the effect of the original premium. The premium received when the bonds are issued effectively reduces the cost of borrowing.

The discount given when the bonds are issued effectively increases the cost of borrowing.

10.

The gain or loss on bond redemption is determined by comparing the redemption price (the amount paid to redeem the bonds) with the carrying value of the bonds. The calculation differs for bonds issued at face value, a premium, and a discount because the carrying values differ.

11.

The bond sinking fund is usually administered by a trustee for the bond issue.

12.

Sinking fund earnings are reported as other revenue on the corporation income statement.

13.

The bond sinking fund is reported under Investments on the corporation balance sheet.

904

CHAPTER 22

Exercise 22-1A GENERAL JOURNAL DATE 20-1 1

Apr.

DESCRIPTION

PAGE POST. REF.

1 Cash

DEBIT

400 0 0 0 00

Bonds Payable

CREDIT 1

400 0 0 0 00

3 4

Sept. 30 Bond Interest Expense

14 0 0 0 00

Cash

14 0 0 0 00

Adjusting Entry

7 8

Dec. 31 Bond Interest Expense

7 0 0 0 00

Bond Interest Payable

7 0 0 0 00

Exercise 22-2A GENERAL JOURNAL DATE 20-1 1

Apr.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

624 0 0 0 00

Bonds Payable

600 0 0 0 00

Premium on Bonds Payable

24 0 0 0 00

4 5 6 7

Sept. 30 Bond Interest Expense

Premium on Bonds Payable

26 4 0 0 00

6 0 0 00

Cash

27 0 0 0 00

Premium amortization: $24,000/40

periods = $600 per period

10 11 12

Adjusting Entry Dec. 31 Bond Interest Expense

Premium on Bonds Payable

Bond Interest Payable

13 2 0 0 00

3 0 0 00

13 5 0 0 00 14 15

CHAPTER 22

905

Exercise 22-3A GENERAL JOURNAL DATE 20-1 1

DESCRIPTION

PAGE POST. REF.

1 Cash

Apr.

Discount on Bonds Payable

DEBIT

490 0 0 0 00

10 0 0 0 00

Bonds Payable

CREDIT

500 0 0 0 00

4 5

Sept. 30 Bond Interest Expense

18 0 0 0 00

Discount on Bonds Payable

Cash

5 0 0 00

17 5 0 0 00

Discount amortization: $10,000/20

periods = $500 per period

Adjusting Entry

11 12

Dec. 31 Bond Interest Expense

9 0 0 0 00

Discount on Bonds Payable

Bond Interest Payable

2 5 0 00 13 8 7 5 0 00 14

Exercise 22-4A GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Bonds Payable

PAGE POST. REF.

DEBIT

CREDIT

800 0 0 0 00

Cash

800 0 0 0 00

3 4 5 6

b. Bonds Payable Loss on Bonds Redeemed

80 0 0 0 00

3 2 0 0 00

Cash

83 2 0 0 00

7 8

c. Bonds Payable

80 0 0 0 00

Gain on Bonds Redeemed

3 2 0 0 00

Cash

76 8 0 0 00 10

906

CHAPTER 22

Exercise 22-5A GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

a. Bonds Payable

DEBIT

CREDIT

60 0 0 0 00

6 0 0 00

Premium on Bonds Payable

Gain on Bonds Redeemed

1 8 0 0 00

Cash

58 8 0 0 00

5 6

b. Bonds Payable

90 0 0 0 00

Premium on Bonds Payable

9 0 0 00

Loss on Bonds Redeemed

9 0 0 00

Cash

91 8 0 0 00

Exercise 22-6A GENERAL JOURNAL DATE 1

DESCRIPTION

a. Bonds Payable

PAGE POST. REF.

DEBIT

CREDIT

25 0 0 0 00

Discount on Bonds Payable

3 5 0 00

Gain on Bonds Redeemed

4 0 0 00

Cash

24 2 5 0 00

5 6 7

b. Bonds Payable Loss on Bonds Redeemed

Discount on Bonds Payable

Cash

30 0 0 0 00

1 5 0 00

4 5 0 00

29 7 0 0 00

CHAPTER 22

907

Exercise 22-7A GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Bond Sinking Fund

PAGE POST. REF.

DEBIT

CREDIT

40 0 0 0 00

Cash

40 0 0 0 00

3 4 5

b. Bond Sinking Fund

3 2 0 0 00

Sinking Fund Earnings

3 2 0 0 00

6 7 8

c. Bonds Payable

300 0 0 0 00

Bond Sinking Fund

300 0 0 0 00

9 10 11

d. Cash Bond Sinking Fund

1 8 0 0 00

1 8 0 0 00 11

908

CHAPTER 22

Problem 22-8A GENERAL JOURNAL DATE 20-1 1

Apr.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

300 0 0 0 00

Bonds Payable

CREDIT 1

300 0 0 0 00

3 4

Sept. 30 Bond Interest Expense

9 0 0 0 00

Cash

9 0 0 0 00

Adjusting Entry

7 8

Dec. 31 Bond Interest Expense

4 5 0 0 00

Bond Interest Payable

4 5 0 0 00

Reversing Entry 20-2

Jan.

1 Bond Interest Payable

4 5 0 0 00

Bond Interest Expense

Mar. 31 Bond Interest Expense

9 0 0 0 00

Cash

Sept. 30 Bond Interest Expense

9 0 0 0 00

Cash

20-6

9 0 0 0 00 19

20 21

9 0 0 0 00 16

17 18

4 5 0 0 00 13

14 15

9 10

11 12

Apr.

1 Bonds Payable Cash

300 0 0 0 00

300 0 0 0 00 22

CHAPTER 22

909

Problem 22-9A 1. GENERAL JOURNAL DATE 20-1 1

Mar.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

824 0 0 0 00

Bonds Payable

800 0 0 0 00

Premium on Bonds Payable

24 0 0 0 00

4 5

Aug. 31 Bond Interest Expense

Premium on Bonds Payable

30 8 0 0 00

1 2 0 0 00

Cash

32 0 0 0 00

Premium amortization: $24,000/20

periods = $1,200 per period

Adjusting Entry

11 12

Dec. 31 Bond Interest Expense

Premium on Bonds Payable

Bond Interest Payable

20 5 3 3 33

8 0 0 00

21 3 3 3 33 14

Reversing Entry

20-2 17

Jan.

1 Bond Interest Payable

Bond Interest Expense

Premium on Bonds Payable

21 3 3 3 33

20 5 3 3 33 18 8 0 0 00 19

20 21 22 23

Feb. 28 Bond Interest Expense

Premium on Bonds Payable

30 8 0 0 00

1 2 0 0 00

Cash

32 0 0 0 00 23

24 25 26 27

Aug. 31 Bond Interest Expense

Premium on Bonds Payable Cash

30 8 0 0 00

1 2 0 0 00

32 0 0 0 00 27

910

CHAPTER 22

Problem 22-9A (Concluded) 2. Interest

Premium on

Expense

Bonds Pay.

Dr.

Date

Bonds

Premium on

Carrying

Cash

Payable

Bonds Pay.

Value of

Cr.

Balance

Bonds

800,000

24,000

824,000

3/1/–1 8/31/–1

30,800

1,200

32,000

800,000

22,800

822,800

2/28/–2

30,800

1,200

32,000

800,000

21,600

821,600

8/31/–2

30,800

1,200

32,000

800,000

20,400

820,400

3. Long-term liabilities: Bonds payable

$800,000

Premium on bonds payable

20,400

$820,400

Problem 22-10A 1. GENERAL JOURNAL DATE 20-1 1 2 3

Apr.

DESCRIPTION

1 Cash Discount on Bonds Payable

PAGE POST. REF.

DEBIT

CREDIT

485 0 0 0 00

15 0 0 0 00

Bonds Payable

500 0 0 0 00

4 5

Sept. 30 Bond Interest Expense

Discount on Bonds Payable

Cash

20 3 7 5 00

3 7 5 00

20 0 0 0 00

Discount amortization: $15,000/40

periods = $375 per period

10 11 12

Adjusting Entry Dec. 31 Bond Interest Expense

Discount on Bonds Payable

Bond Interest Payable

10 1 8 7 50

1 8 7 50 13 10 0 0 0 00 14

CHAPTER 22

911

Problem 22-10A (Concluded) GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Reversing Entry

20-2 2

PAGE

1 Bond Interest Payable

Jan.

Discount on Bonds Payable

Bond Interest Expense

10 0 0 0 00

1 8 7 50

10 1 8 7 50

5 6

Mar.

31 Bond Interest Expense

Discount on Bonds Payable

Cash

20 3 7 5 00

3 7 5 00

20 0 0 0 00

9 10

Sept. 30 Bond Interest Expense

Discount on Bonds Payable

Cash

20 3 7 5 00

3 7 5 00 11 20 0 0 0 00 12

Date

Interest

Discount on

Expense

Bonds Pay.

Dr.

Cr.

Bonds

Discount on

Carrying

Cash

Payable

Bonds Pay.

Value of

Cr.

Balance

Bonds

500,000

15,000

485,000

4/1/–1 9/30/–1

20,375

375

20,000

500,000

14,625

485,375

3/31/–2

20,375

375

20,000

500,000

14,250

485,750

9/30/–2

20,375

375

20,000

500,000

13,875

486,125

912

CHAPTER 22

Problem 22-11A GENERAL JOURNAL DATE 20-1 1

Mar.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

721 0 0 0 00

Premium on Bonds Payable

21 0 0 0 00

Bonds Payable

700 0 0 0 00

4 5

Aug. 31 Bond Interest Expense

Premium on Bonds Payable

30 4 5 0 00

1 0 5 0 00

Cash

31 5 0 0 00

Premium amortization: $21,000/20 periods =

$1,050 per period.

Adjusting Entry

11 12

Dec. 31 Bond Interest Expense

Premium on Bonds Payable

Bond Interest Payable

20 3 0 0 00

7 0 0 00

21 0 0 0 00 14

Reversing Entry

20-2 17

Jan.

1 Bond Interest Payable

Bond Interest Expense

Premium on Bonds Payable

21 0 0 0 00

20 3 0 0 00 18 7 0 0 00 19

20-6 21 22 23 24

Mar.

1 Bonds Payable

50 0 0 0 00

Premium on Bonds Payable

7 5 0 00

Loss on Bonds Redeemed Cash

2 2 5 0 00

53 0 0 0 00 24

Unamortized premium: $1,500/10 =

$150 per year. $1,500 – $750 = $750

unamortized.

CHAPTER 22

913

Problem 22-12A GENERAL JOURNAL DATE 20-1 1

Apr.

DESCRIPTION

1 Cash Discount on Bonds Payable

PAGE POST. REF.

DEBIT

490 0 0 0 00

10 0 0 0 00

Bonds Payable

CREDIT

500 0 0 0 00

4 5

Sept. 30 Bond Interest Expense

Discount on Bonds Payable

Cash

17 7 5 0 00

2 5 0 00

17 5 0 0 00

Discount amortization: $10,000/40 periods =

$250 per period.

Adjusting Entry

11 12

Dec. 31 Bond Interest Expense

Discount on Bonds Payable

Bond Interest Payable

8 8 7 5 00

1 2 5 00 13 8 7 5 0 00 14

Reversing Entry

20-2 17

Jan.

1 Bond Interest Payable

Discount on Bonds Payable

Bond Interest Expense

8 7 5 0 00

1 2 5 00

8 8 7 5 00 19

20-4 21 22 23 24

Apr.

1 Bonds Payable

50 0 0 0 00

Gain on Bonds Redeemed

1 1 5 0 00 22

Discount on Bonds Payable Cash

8 5 0 00 23 48 0 0 0 00 24

Unamortized discount: $1,000/20 =

$50 per year. $1,000 – $150 = $850

unamortized.

914

CHAPTER 22

Problem 22-13A GENERAL JOURNAL DATE 20-1 1

Apr.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

500 0 0 0 00

Bonds Payable

CREDIT 1

500 0 0 0 00

3 4

June

1 Bond Sinking Fund

34 0 0 0 00

Cash

34 0 0 0 00

6 7

Sept. 30 Bond Interest Expense

17 5 0 0 00

Cash

17 5 0 0 00

9 10

Dec. 31 Bond Sinking Fund

2 4 0 0 00

Sinking Fund Earnings

2 4 0 0 00 11

Adjusting Entry

31 Bond Interest Expense

8 7 5 0 00

Bond Interest Payable

Reversing Entry

20-2

Jan.

1 Bond Interest Payable

8 7 5 0 00

Bond Interest Expense

Mar. 31 Bond Interest Expense

17 5 0 0 00

Cash

June. 1 Bond Sinking Fund

Cash

34 0 0 0 00

2011

Mar. 31 Bonds Payable

500 0 0 0 00

Bond Sinking Fund

500 0 0 0 00 28

29 30

34 0 0 0 00 25

17 5 0 0 00 22

8 7 5 0 00 19

20 21

8 7 5 0 00 15

31 Cash Bond Sinking Fund

1 0 5 0 00

1 0 5 0 00 31

CHAPTER 22

915

Exercise 22-1B GENERAL JOURNAL DATE 20-1 1

Apr.

DESCRIPTION

PAGE POST. REF.

1 Cash

DEBIT

400 0 0 0 00

Bonds Payable

CREDIT 1

400 0 0 0 00

3 4

Sept. 30 Bond Interest Expense

18 0 0 0 00

Cash

18 0 0 0 00

Adjusting Entry

7 8

Dec. 31 Bond Interest Expense

9 0 0 0 00

Bond Interest Payable

9 0 0 0 00

Exercise 22-2B GENERAL JOURNAL DATE 20-1 1

May

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

515 0 0 0 00

Bonds Payable

500 0 0 0 00

Premium on Bonds Payable

15 0 0 0 00

4 5 6 7

Oct. 31 Bond Interest Expense

Premium on Bonds Payable

19 2 5 0 00

7 5 0 00

Cash

20 0 0 0 00

Premium amortization: $15,000/20

periods = $750 per period

10 11 12

Adjusting Entry Dec. 31 Bond Interest Expense

Premium on Bonds Payable

Bond Interest Payable

6 4 1 6 67

2 5 0 00

6 6 6 6 67 14

916

CHAPTER 22

Exercise 22-3B GENERAL JOURNAL DATE 20-1 1

DESCRIPTION

PAGE POST. REF.

1 Cash

Apr.

Discount on Bonds Payable

DEBIT

388 0 0 0 00

12 0 0 0 00

Bonds Payable

CREDIT

400 0 0 0 00

4 5

Sept. 30 Bond Interest Expense

16 3 0 0 00

Discount on Bonds Payable

Cash

3 0 0 00

16 0 0 0 00

Discount amortization: $12,000/40

periods = $300 per period

Adjusting Entry

11 12

Dec. 31 Bond Interest Expense

8 1 5 0 00

Discount on Bonds Payable

Bond Interest Payable

1 5 0 00 13 8 0 0 0 00 14

Exercise 22-4B GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Bonds Payable

PAGE POST. REF.

DEBIT

CREDIT

300 0 0 0 00

Cash

300 0 0 0 00

3 4 5 6

b. Bonds Payable Loss on Bonds Redeemed

25 0 0 0 00

7 5 0 00

Cash

25 7 5 0 00

7 8

c. Bonds Payable

Gain on Bonds Redeemed

Cash

25 0 0 0 00

7 5 0 00

24 2 5 0 00 10

CHAPTER 22

917

Exercise 22-5B GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

a. Bonds Payable

DEBIT

CREDIT

50 0 0 0 00

5 0 0 00

Premium on Bonds Payable

Gain on Bonds Redeemed

3 0 0 0 00

Cash

47 5 0 0 00

5 6

b. Bonds Payable

75 0 0 0 00

Premium on Bonds Payable

7 5 0 00

Loss on Bonds Redeemed

1 5 0 0 00

Cash

77 2 5 0 00

Exercise 22-6B GENERAL JOURNAL DATE 1

DESCRIPTION

a. Bonds Payable

PAGE POST. REF.

DEBIT

CREDIT

25 0 0 0 00

Discount on Bonds Payable

2 5 0 00

Gain on Bonds Redeemed

1 2 5 0 00

Cash

23 5 0 0 00

5 6 7

b. Bonds Payable Loss on Bonds Redeemed

Discount on Bonds Payable

Cash

30 0 0 0 00

6 0 0 00

3 0 0 00

30 3 0 0 00

918

CHAPTER 22

Exercise 22-7B GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

a. Bond Sinking Fund

DEBIT

50 0 0 0 00

Cash

CREDIT 1

50 0 0 0 00

b. Bond Sinking Fund

4 7 5 0 00

Sinking Fund Earnings

4 7 5 0 00

c. Bonds Payable

500 0 0 0 00

Bond Sinking Fund

500 0 0 0 00

d. Cash Bond Sinking Fund

10 11

2 1 2 5 00

2 1 2 5 00 11

Problem 22-8B GENERAL JOURNAL DATE 20-1 1

Apr.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

250 0 0 0 00

Bonds Payable

CREDIT 1

250 0 0 0 00

3 4

Sept. 30 Bond Interest Expense

11 2 5 0 00

Cash

11 2 5 0 00

Adjusting Entry 8 Dec. 31 Bond Interest Expense 7

5 6 2 5 00

Bond Interest Payable

5 6 2 5 00

Reversing Entry 20-2

Jan.

1 Bond Interest Payable

5 6 2 5 00

Bond Interest Expense

Mar. 31 Bond Interest Expense

11 2 5 0 00

Cash

Sept. 30 Bond Interest Expense

11 2 5 0 00

Cash

2011

11 2 5 0 00 19

20 21

11 2 5 0 00 16

17 18

5 6 2 5 00 13

14 15

9 10

11 12

Apr.

1 Bonds Payable Cash

250 0 0 0 00

250 0 0 0 00 22

CHAPTER 22

919

Problem 22-9B 1. GENERAL JOURNAL DATE 20-1 1

Mar.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

257 5 0 0 00

Bonds Payable

Premium on Bonds Payable

250 0 0 0 00

7 5 0 0 00

4 5

Aug. 31 Bond Interest Expense

Premium on Bonds Payable

9 8 1 2 50

1 8 7 50

Cash

10 0 0 0 00

Premium amortization: $7,500/40

periods = $187.50 per period

Adjusting Entry

11 12

Dec. 31 Bond Interest Expense

Premium on Bonds Payable

Bond Interest Payable

6 5 4 1 67

1 2 5 00

6 6 6 6 67 14

Reversing Entry

20-2 17

Jan.

1 Bond Interest Payable

Bond Interest Expense

Premium on Bonds Payable

6 6 6 6 67

6 5 4 1 67 18 1 2 5 00 19

20 21 22 23

Feb. 28 Bond Interest Expense

Premium on Bonds Payable

9 8 1 2 50

1 8 7 50

Cash

10 0 0 0 00 23

24 25 26 27

Aug. 31 Bond Interest Expense

Premium on Bonds Payable Cash

9 8 1 2 50

1 8 7 50

10 0 0 0 00 27

920

CHAPTER 22

Problem 22-9B (Concluded) 2. Interest

Premium on

Expense

Bonds Pay.

Dr.

Date

Bonds

Premium on

Carrying

Cash

Payable

Bonds Pay.

Value of

Cr.

Balance

Bonds

250,000

7,500.00

257,500.00

3/1/–1 8/31/–1

9,812.50

187.50

10,000

250,000

7,312.50

257,312.50

2/28/–2

9,812.50

187.50

10,000

250,000

7,125.00

257,125.00

8/31/–2

9,812.50

187.50

10,000

250,000

6,937.50

256,937.50

Problem 22-10B 1. GENERAL JOURNAL DATE 20-1 1

Apr.

DESCRIPTION

1 Cash Discount on Bonds Payable

PAGE POST. REF.

DEBIT

576 0 0 0 00

24 0 0 0 00

Bonds Payable

CREDIT

600 0 0 0 00

4 5

Sept. 30 Bond Interest Expense

22 2 0 0 00

Discount on Bonds Payable

1 2 0 0 00

Cash

21 0 0 0 00

Discount amortization: $24,000/20

periods = $1,200 per period

Adjusting Entry

11 12

Dec. 31 Bond Interest Expense

Discount on Bonds Payable

Bond Interest Payable

11 1 0 0 00

6 0 0 00 13 10 5 0 0 00 14

Reversing Entry

20-2 17

Jan.

1 Bond Interest Payable

Discount on Bonds Payable

Bond Interest Expense

10 5 0 0 00

6 0 0 00

11 1 0 0 00 19 20

CHAPTER 22

921

Problem 22-10B (Concluded) GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

20-2 1

Mar. 31 Bond Interest Expense

DEBIT

CREDIT

22 2 0 0 00

Discount on Bonds Payable

1 2 0 0 00

Cash

21 0 0 0 00

4 5

Sept. 30 Bond Interest Expense

22 2 0 0 00

Discount on Bonds Payable

1 2 0 0 00

Cash

21 0 0 0 00

Date

Interest

Discount on

Expense

Bonds Pay.

Dr.

Cr.

Bonds

Discount on

Carrying

Cash

Payable

Bonds Pay.

Value of

Cr.

Balance

Bonds

600,000

24,000

576,000

4/1/–1 9/30/–1

22,200

1,200

21,000

600,000

22,800

577,200

3/31/–2

22,200

1,200

21,000

600,000

21,600

578,400

9/30/–2

22,200

1,200

21,000

600,000

20,400

579,600

3. Long-term liabilities: Bonds payable Discount on bonds payable

$600,000 20,400

$579,600

922

CHAPTER 22

Problem 22-11B GENERAL JOURNAL DATE 20-1 1

Mar.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

515 0 0 0 00

Premium on Bonds Payable

15 0 0 0 00

Bonds Payable

500 0 0 0 00

4 5

Aug. 31 Bond Interest Expense

Premium on Bonds Payable

22 1 2 5 00

3 7 5 00

Cash

22 5 0 0 00

Premium amortization: $15,000/40 periods

= $375 per period.

Adjusting Entry

11 12

Dec. 31 Bond Interest Expense

Premium on Bonds Payable

Bond Interest Payable

14 7 5 0 00

2 5 0 00

15 0 0 0 00 14

Reversing Entry

20-2 17

Jan.

1 Bond Interest Payable

Bond Interest Expense

Premium on Bonds Payable

15 0 0 0 00

14 7 5 0 00 18 2 5 0 00 19

20-6 21 22 23 24

Mar.

1 Bonds Payable

50 0 0 0 00

Premium on Bonds Payable

1 1 2 5 00

Loss on Bonds Redeemed Cash

1 8 7 5 00

53 0 0 0 00 24

Unamortized premium: $1,500/20 =

$75 per year. $1,500 – $375 = $1,125

unamortized.

CHAPTER 22

923

Problem 22-12B GENERAL JOURNAL DATE 20-1 1

Apr.

DESCRIPTION

1 Cash Discount on Bonds Payable

PAGE POST. REF.

DEBIT

388 0 0 0 00

12 0 0 0 00

Bonds Payable

CREDIT

400 0 0 0 00

4 5

Sept. 30 Bond Interest Expense

Discount on Bonds Payable

Cash

16 6 0 0 00

6 0 0 00

16 0 0 0 00

Discount amortization: $12,000/20 periods

= $600 per period.

Adjusting Entry

11 12

Dec. 31 Bond Interest Expense

Discount on Bonds Payable

Bond Interest Payable

8 3 0 0 00

3 0 0 00 13 8 0 0 0 00 14

Reversing Entry

20-2 17

Jan.

1 Bond Interest Payable

Discount on Bonds Payable

Bond Interest Expense

8 0 0 0 00

3 0 0 00

8 3 0 0 00 19

20-4 21 22 23 24

Apr.

1 Bonds Payable

50 0 0 0 00

Gain on Bonds Redeemed

9 5 0 00 22

Discount on Bonds Payable Cash

1 0 5 0 00 23 48 0 0 0 00 24

Unamortized discount: $1,500/10 =

$150 per year. $1,500 – $450 = $1,050

unamortized.

924

CHAPTER 22

Problem 22-13B GENERAL JOURNAL DATE 20-1 1

Apr.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

600 0 0 0 00

Bonds Payable

CREDIT 1

600 0 0 0 00

3 4

June

1 Bond Sinking Fund

40 0 0 0 00

Cash

40 0 0 0 00

6 7

Sept. 30 Bond Interest Expense

24 0 0 0 00

Cash

24 0 0 0 00

9 10

Dec. 31 Bond Sinking Fund

3 0 0 0 00

Sinking Fund Earnings

3 0 0 0 00 11

Adjusting Entry

31 Bond Interest Expense

12 0 0 0 00

Bond Interest Payable

Reversing Entry

20-2

Jan.

1 Bond Interest Payable

12 0 0 0 00

Bond Interest Expense

Mar. 31 Bond Interest Expense

24 0 0 0 00

Cash

June. 1 Bond Sinking Fund

Cash

40 0 0 0 00

2021

Mar. 31 Bonds Payable

600 0 0 0 00

Bond Sinking Fund

600 0 0 0 00 28

29 30

40 0 0 0 00 25

24 0 0 0 00 22

12 0 0 0 00 19

20 21

12 0 0 0 00 15

31 Cash Bond Sinking Fund

1 9 0 0 00

1 9 0 0 00 31

CHAPTER 22

925

MANAGING YOUR WRITING At this level, students should be able to address two issues in their response. (1) The net amount borrowed is affected by the stated interest rate. If the rate is set high, the bonds will sell at a premium, enabling the business to borrow a larger amount. If the rate is set low, the bonds will sell at a discount, and the business might not obtain as much money as it needs. (2) The interest cost (the cost of borrowing) consists of the actual interest payments plus the discount spread over the life of the bonds, or minus the premium spread over the life of the bonds. They might conclude by stating that setting the correct stated interest rate on the bonds is a major decision requiring expert advice.

ETHICS CASE 1. The broker should have explained that callable bonds give the issuing corporation the option of calling the bonds for redemption before the maturity date. He also should have explained the relative risk of the particular bonds he recommended. 2. Answers will vary. There are many different types of bonds and their risk varies from practically riskfree (government bonds) to extremely risky debenture bonds issued by high-risk companies. 3. Answers will vary. The sales price of a particular bond will be determined by the relationship of the coupon rate to the market rate. If the coupon rate is higher than the market rate, the bond will sell at a premium. If the coupon rate is lower than the market rate, the bond will sell at a discount. If the coupon rate is equal to the market rate, the bond will sell for its face value. 4. Answers will vary. Teachers might want to make a class discussion out of this question in order to introduce some additional information concerning investments. Some factors Alva and the investment broker should have considered are Alva’s age, her attitude toward risk, the value and composition of her other assets, pensions, and her expectations toward the return and safety of the $50,000.

926

CHAPTER 22

Mastery Problem 1. GENERAL JOURNAL DATE

DESCRIPTION

20-1 1

Oct. 31 Cash

PAGE POST. REF.

DEBIT

CREDIT

612 0 0 0 00

Premium on Bonds Payable

12 0 0 0 00

Bonds Payable

600 0 0 0 00

Adjusting Entry

5 6

Dec. 31 Bond Interest Expense

Premium on Bonds Payable

Bond Interest Payable

6 8 0 0 00

2 0 0 00

7 0 0 0 00

Reversing Entry

20-2 11

Jan.

2 Bond Interest Payable

Premium on Bonds Payable

Bond Interest Expense

7 0 0 0 00

2 0 0 00 12 6 8 0 0 00 13

14 15

Apr. 30 Bond Interest Expense

Premium on Bonds Payable

20 4 0 0 00

6 0 0 00

Cash

21 0 0 0 00 17

18 19

May

15 Bond Sinking Fund

20 0 0 0 00

Cash

Oct. 31 Bond Interest Expense

Premium on Bonds Payable

20 4 0 0 00

6 0 0 00

Cash

21 0 0 0 00 24

Adjusting Entry

26 27

Dec. 31 Bond Interest Expense

Premium on Bonds Payable

Bond Interest Payable

6 8 0 0 00

2 0 0 00

7 0 0 0 00 29

31 Bond Sinking Fund

9 0 0 00

Sinking Fund Earnings

20-8

35 36

9 0 0 00 32

33 34

20 0 0 0 00 20

21 22

May

15 Bond Sinking Fund Cash

20 0 0 0 00

20 0 0 0 00 35 36

CHAPTER 22

927

Mastery Problem (Concluded) GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

20-8 1 2 3

PAGE

Oct. 31 Bond Interest Expense

Premium on Bonds Payable

DEBIT

CREDIT

20 4 0 0 00

6 0 0 00

Cash

21 0 0 0 00

4 5 6 7

31 Bond Sinking Fund

382 0 0 0 00

Cash

382 0 0 0 00

($600,000  0.97) – $200,000

8 9 10

31 Bonds Payable

600 0 0 0 00

Premium on Bonds Payable

3 6 0 0 00*

9 10

Gain on Bond Redemption

21 6 0 0 00 11

Bond Sinking Fund

582 0 0 0 00 12

*Original premium on bonds payable Amortization for 7 years at $1,200 per year Unamortized premium at October 31, 20-8

2. Initial carrying value of bonds Premium amortized on December 31, 20-1 Premium amortized during 20-2 Carrying value of bonds, December 31, 20-2

$12,000 (8,400) $ 3,600

$612,000 200 1,200 $610,600

928

CHAPTER 22

Challenge Problem 1. Interest on original bonds

$30,000  7 years = $210,000

Interest on new bonds

$24,000  7 years =

Interest savings

168,000 $ 42,000

Call premium on old bonds

15,000

Net savings

$ 27,000

2. GENERAL JOURNAL DATE 20-4 1 2 3

Apr.

DESCRIPTION

1 Bonds Payable Loss on Bond Redemption Cash

PAGE POST. REF.

DEBIT

CREDIT

300 0 0 0 00

15 0 0 0 00

315 0 0 0 00

CHAPTER 22

929

APPENDIX: EFFECTIVE INTEREST METHOD Exercise 22Apx-1A GENERAL JOURNAL DATE 1

Nov.

DESCRIPTION

PAGE POST. REF.

1 Bond Interest Expense Premium on Bonds Payable

DEBIT

8 5 4 4 00

4 5 6 00

Cash

CREDIT

9 0 0 0 00

Problem 22Apx-2A GENERAL JOURNAL DATE 1

Sept.

DESCRIPTION

1 Bond Interest Expense Premium on Bonds Payable

PAGE POST. REF.

DEBIT

38 3 4 1 00

1 6 5 9 00

Cash

CREDIT

40 0 0 0 00

Adjusting Entry

5 6

Dec. 31 Bond Interest Expense

Premium on Bonds Payable

Bond Interest Payable

25 5 1 1 00

1 1 5 6 00

26 6 6 7 00

Reversing Entry

10 11

Jan.

2 Accrued Interest Payable

26 6 6 7 00

Bond Interest Expense

25 5 1 1 00 12

Premium on Bonds Payable

1 1 5 6 00 13

14 15 16 17

Mar.

1 Bond Interest Expense Premium on Bonds Payable Cash

38 2 6 7 00

1 7 3 3 00

40 0 0 0 00 17

930

CHAPTER 22

Exercise 22Apx-1B GENERAL JOURNAL DATE 1

Nov.

DESCRIPTION

PAGE POST. REF.

1 Bond Interest Expense

DEBIT

CREDIT

14 0 6 5 00

Cash

Discount on Bonds Payable

13 5 0 0 00

5 6 5 00

Problem 22Apx-2B GENERAL JOURNAL DATE 1

Oct.

DESCRIPTION

1 Bond Interest Expense

Discount on Bonds Payable

Cash

PAGE POST. REF.

DEBIT

CREDIT

23 4 4 2 00

9 4 2 00

22 5 0 0 00

Adjusting Entry

5 6

Dec. 31 Bond Interest Expense

Discount on Bonds Payable

Bond Interest Payable

11 7 4 5 00

4 9 5 00

11 2 5 0 00

Reversing Entry

10 11

Jan.

2 Accrued Interest Payable

Discount on Bonds Payable

Bond Interest Expense

11 2 5 0 00

4 9 5 00

11 7 4 5 00 13

14 15 16 17

Apr.

1 Bond Interest Expense Discount on Bonds Payable Cash

23 4 8 9 00

9 8 9 00 16 22 5 0 0 00 17

CHAPTER 23 STATEMENT OF CASH FLOWS REVIEW QUESTIONS 1.

The primary purpose of the statement of cash flows is to report how cash was generated and used throughout the accounting period.

The four principal financial statements are: a. income statement. b. statement of retained earnings. c. balance sheet. d. statement of cash flows.

The three categories of cash flows are: a. operating activities. b. investing activities. c. financing activities.

The types of cash flows associated with financing activities are: a. proceeds from additional investments by the owners or the issuance of stock. b. proceeds from borrowing money through the signing of a mortgage, issuing a bond, or other long- or short-term loans. c. payments of dividends to stockholders or withdrawals by the owners. d. payments to purchase treasury stock. e. repayment of the principal on loans.

The types of cash flows associated with investing activities are: a. proceeds from collecting the principal amount of loans made to borrowers. b. proceeds from the sale of productive assets (property, plant, and equipment; intangible assets; etc.). c. proceeds from the sale of investments in debt and equity securities. d. proceeds from discounting notes receivable. e. loans made by the firm to other parties. f. payments to acquire productive assets (such as property, plant, and equipment; intangible assets; etc.). g. payments to acquire investments in debt and equity securities.

The types of cash flows associated with operating activities are: a. cash receipts from the sale of goods or services. b. interest received on loans made to outside entities. c. dividends received on investments made in the stock of other corporations. d. payments for the acquisition of inventory. e. payments to employees and the government. f. payments for interest on loans. g. payments to other suppliers and for other expenses.

The cash paid for dividends must be reported as a cash outflow under financing activities.

The cash received for interest must be reported as a cash inflow from operating activities.

932

CHAPTER 23

9. Balance sheets for the beginning and end of the period, an income statement for the period, and a statement of retained earnings for the period are needed to prepare the statement of cash flows. Also, information on major cash transactions is useful. 10. Under the direct method, revenues and expenses reported on the income statement are adjusted to reflect the amount of cash received or paid for each item. 11. Under the indirect method, net income is adjusted for the following types of transactions: a. Changes in current assets associated with operating activities. b. Changes in current liabilities associated with operating activities. c. Noncash expenses (depreciation and amortization). d. Transactions that impact net income, but are not associated with operating activities (gains and losses on the sale of plant and equipment). 12. The increase in accounts payable is added to net income when computing cash from operating activities. 13. The increase in accounts receivable is subtracted from net income when computing cash from operating activities. 14. (Complete steps to prepare a statement of cash flows. Students will need to include steps listed under Learning Objectives 6 and 7 in the text.) STEP 1 STEP 2 STEP 3

STEP 4 STEP 5 STEP 6

Compute the change in cash and cash equivalents. Set up T accounts with the beginning and ending balances for all noncash (or cash equivalent) balance sheet accounts. Compute cash flows from operating activities by: (a) Reporting net income as the primary source of cash from operating activities. (b) Adjusting net income for changes in current assets and current liabilities related to operating activities. (c) Adjusting net income for noncash expenses. (d) Adjusting net income for gains and losses on transactions not related to operating activities. Identify cash flows from investing activities. Identify cash flows from financing activities. Prepare a statement of cash flows and: (a) Disclose noncash investing and financing activities. (b) Verify the accuracy of the statement. (c) Provide supplemental disclosures of cash flows.

15. To verify the statement of cash flows, sum the cash flows from operating, investing, and financing activities to determine the net increase or decrease in cash. Compare this amount with the change in cash and cash equivalents. They should be equal. 16. Cash equivalents are short-term, highly liquid investments which are readily convertible to a known amount of cash. 17. Under the indirect method of preparing a statement of cash flows, depreciation expense is added to net income when computing cash from operating activities. 18. Under the indirect method of preparing a statement of cash flows, gains and losses on the sale of property, plant, and equipment are subtracted and added (respectively) to net income when computing cash from operating activities. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 23

933

19. Signing a mortgage to acquire a building is an example of a noncash investing and financing activity. 20. The two supplemental disclosures under the indirect method are cash paid for interest and taxes. 21. Cash from operating activities is the most important value reported on the statement of cash flows.

934

CHAPTER 23

Exercise 23-1A a.

+ I

– F

+ O

– O

– F

– I

– F

+ O

+ F

Exercise 23-2A 20-2

20-1

$75,000

$45,000

2,000

6,500

Total cash and cash equivalents

$77,000

$51,500

Increase in cash and cash equivalents

$25,500

Cash Government notes

Exercise 23-3A Cash flows from operating activities: Net income

$30,000)

Adjustments for changes in current assets and current liabilities related to operating activities: Increase in accounts receivable

(3,000)

Decrease in merchandise inventory

4,000)

Decrease in accounts payable

(2,000)

Decrease in wages payable

(5,000)

Net cash provided by operating activities

$24,000)

CHAPTER 23

935

Exercise 23-4A Cash from operating activities after adjusting for changes in current assets and current liabilities:

$45,000

Adjustments for noncash expenses: Depreciation expense

12,500

Net cash provided by operating activities

$57,500

Exercise 23-5A Hubbard’s Professional Edge Tennis Camp Statement of Cash Flows For the Year Ended December 31, 20-2 Cash flows from operating activities: Net income

$ 500)

Less gain on sale of land

(100)

Net cash provided by operating activities

$ 400

Investing activities: Sold land

500

Net increase in cash

$ 900

Cash, January 1, 20-2

100

Cash, December 31, 20-2

$1,000

936

CHAPTER 23

Exercise 23-6A Rogerson Company Statement of Cash Flows (Partial) For the Year Ended December 31, 20-2 Cash flows from investing activities: Purchased building

$(130,000)

Purchased equipment

(90,000)

Total cash used by investing activities

$(220,000)

Cash flows from financing activities: Issued note payable

$ 10,000)

Issued common stock

80,000)

Paid cash dividends

(30,000)

Net cash provided by financing activities

60,000)

Exercise 23-7A This is a noncash investing and financing transaction and is reported as a note to the statement of cash flows as follows: Schedule of Noncash Investing and Financing Activities: Acquired a framing machine by issuing a three-year note payable

$10,000

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CHAPTER 23

937

Exercise 23-8A Interest expense in 20-2

$1,540

Less increase in accrued interest payable

(40)

Amount of cash paid for interest in 20-2 Cash

(3)

$1,500

Accrued Interest Payable 220 BB 1,500*

(2)

260

Interest Expense

(1)

1,540

BB: Beginning Balance EB: Ending Balance *Cash paid for interest in 20-2

Problem 23-9A Zowine Company Statement of Cash Flows (Partial) For Year Ended December 31, 20-2 Cash flows from operating activities: Net income

$120,000)

Adjustments for changes in current assets and liabilities related to operating activities: Decrease in accounts receivable

30,000)

Decrease in merchandise inventory

45,000)

Decrease in accounts payable

(35,000)

Net cash provided by operating activities

$160,000

938

CHAPTER 23

Problem 23-10A Zowine Company Statement of Cash Flows For Year Ended December 31, 20-2 Cash flows from operating activities: Net income

$ 120,000)

Adjustments for changes in current assets and liabilities related to operating activities: Decrease in accounts receivable

30,000)

Decrease in merchandise inventory

45,000)

Decrease in accounts payable

(35,000)

Net cash provided by operating activities

$ 160,000)

Cash flows from investing activities: Purchased warehouse Purchased warehouse equipment

$(120,000) (80,000)

Total cash used by investing activities

(200,000)

Cash flows from financing activities: Issued note payable

$ 40,000)

Issued common stock

70,000)

Paid cash dividends

(30,000)

Net cash provided by financing activities Net increase (decrease) in cash Cash, January 1, 20-2 Cash, December 31, 20-2

80,000) $ 40,000) 20,000) $ 60,000)

CHAPTER 23

939

Problem 23-11A Horn Company Statement of Cash Flows (Partial) For Year Ended December 31, 20-2 Cash flows from operating activities: Net income

$219,220)

Adjustments for changes in current assets and liabilities related to operating activities: Increase in accounts receivable

(12,400)

Decrease in merchandise inventory

13,600)

Decrease in accounts payable

(42,100)

Increase in income tax payable

1,000)

Increase in supplies and prepayments

(4,500)

Decrease in accrued and withheld payroll taxes

(950)

Decrease in accrued interest receivable

120)

Increase in accrued interest payable

80)

Noncash expenses: Depreciation expense Net cash provided by operating activities

32,000) $206,070

940

CHAPTER 23

Problem 23-12A T Accounts for Indirect Method Statement of Cash Flows McDowell Company Accrued Interest Receivable BB 610 (2) 110 EB 720

Notes Payable 102,000 BB 16,000 (17) 118,000 EB

Common Stock 800,000 BB 100,000 (15) 900,000 EB

Accounts Receivable BB 325,800 15,100 (3) EB 310,700

Accounts Payable 195,000 BB 85,000 110,000 EB

Paid-In Capital in Excess of Par—Common Stock 390,000 BB 40,000 (15) 430,000 EB

Income Tax Payable 25,000 BB (7) 5,000 20,000 EB

Retained Earnings 360,000 BB (16) 60,000 232,710 (1) 532,710 EB

Merchandise Inventory BB 540,200 (4) 145,200 EB 685,400

Supplies and Prepayments BB 39,000 12,000 (5) EB 27,000 Store Equipment BB 460,000 (12) 64,000 70,000 (10) (17) 16,000 EB 470,000

(6)

Accrued and Withheld Payroll Taxes 14,900 BB 1,500 (8) 16,400 EB Accrued Interest Payable 1,035 BB (9) 160 875 EB

Accumulated Depreciation— Store Equipment 150,000 BB (10) 30,000 60,000 (11) 180,000 EB

Office Equipment BB 400,000 (14) 30,000 EB 430,000

Delivery Equipment BB 390,000 (13) 140,000 EB 530,000

Accumulated Depreciation— Delivery Equipment 100,000 BB 40,000 (11) 140,000 EB

Accumulated Depreciation— Office Equipment 76,000 BB 12,000 (11) 88,000 EB

BB: Beginning Balance EB: Ending Balance

CHAPTER 23

941

Problem 23-12A (Continued) Major entries of interest: Cash Accum. Depr.—Store Equipment Loss on Sale of Store Equipment Store Equipment

(10) (10) (10) (10)

25,000 30,000 15,000

Depreciation Expense Accum. Depr.—Store Equip. Accum. Depr.—Delivery Equip. Accum. Depr.—Office Equip.

(11) (11) (11) (11)

112,000

Cash and cash equivalents Cash Government notes Cash and cash equivalents Net increase in cash and cash equivalents

70,000

60,000 40,000 12,000 20-2 $75,365 6,800 $82,165 $23,840

20-1 $40,325 18,000 $58,325 (18)

942

CHAPTER 23

Problem 23-12A (Concluded) McDowell Company Statement of Cash Flows For Year Ended December 31, 20-2 Cash flows from operating activities: Net income $ 232,710 Adjustments for changes in current assets and liabilities related to operating activities: Increase in accrued interest receivable (110) Decrease in accounts receivable (net) 15,100 Increase in merchandise inventory (145,200) Decrease in supplies and prepayments 12,000 Decrease in accounts payable (85,000) Decrease in income tax payable (5,000) Increase in accrued and withheld payroll taxes 1,500 Decrease in accrued interest payable (160) Noncash expenses and other adjustments: Loss on sale of store equipment 15,000 Depreciation expense 112,000 Net cash provided by operating activities Cash flows from investing activities: Sold store equipment $ 25,000 Purchased store equipment (64,000) Purchased delivery equipment (140,000) Purchased office equipment (30,000) Net cash used by investing activities Cash flows from financing activities: Issued common stock $ 140,000 Paid cash dividends (60,000) Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, January 1, 20-2 Cash and cash equivalents, December 31, 20-2

(1)

(2) (3) (4) (5) (6) (7) (8) (9) (10) (11) $ 152,840 (10) (12) (13) (14) (209,000) (15) (16) (18)

$ $

80,000 23,840 58,325 82,165

Schedule of Noncash Investing and Financing Activities: Acquired store equipment by issuing a note payable

(17)

$16,000

Supplemental Disclosures of Cash Flow Information: Cash paid for interest Cash paid for income taxes

(19) (19)

$ 1,050 138,000

To compute cash paid for interest and taxes, prepare the following entries: Interest Expense (see income statement) 890 Accrued Interest Payable (decrease in Acc. Int. Pay.) 160 Cash (plug) (19)

1,050

Income Tax Expense (see income statement) Income Tax Payable (decrease in Income Tax Payable) Cash (plug)

133,000 5,000 (19)

138,000

CHAPTER 23

943

Exercise 23-1B a.

– I

– F

+ F

– I

+ O

– O

+ I

+ O

– F

– O

Exercise 23-2B 20-2

20-1

$90,000

$60,000

4,000

8,000

Total cash and cash equivalents

$94,000

$68,000

Increase in cash and cash equivalents

$26,000

Cash Government notes

Exercise 23-3B Cash flows from operating activities: Net income

$ 50,000)

Adjustments for changes in current assets and current liabilities related to operating activities: Decrease in accounts receivable

4,000)

Increase in merchandise inventory

(10,000)

Decrease in accounts payable

(4,000)

Increase in wages payable

8,000)

Net cash provided by operating activities

$48,000

Exercise 23-4B Cash flows from operating activities after adjusting for changes in current assets and current liabilities:

$60,000

Adjustments for noncash expenses: Patent amortization Net cash provided by operating activities

5,000 $65,000

944

CHAPTER 23

Exercise 23-5B Leadbetter’s Golf Camp Statement of Cash Flows For Year Ended December 31, 20-2 Cash flows from operating activities: Net income

$1,800

Plus loss on sale of land

200

Total cash provided by operating activities

$2,000

Investing activities: Sold land

600

Net increase in cash

$2,600

Cash, January 1, 20-2

1,000

Cash, December 31, 20-2

$3,600

Exercise 23-6B Hansen Company Statement of Cash Flows (Partial) For Year Ended December 31, 20-2 Cash flows from investing activities: Purchased building

$(160,000)

Purchased equipment

(70,000)

Total cash used by investing activities

$(230,000)

Cash flows from financing activities: Decrease in note payable

$ (10,000)

Issuance of common stock

80,000)

Paid cash dividends

(20,000)

Net cash provided by financing activities

50,000)

CHAPTER 23

945

Exercise 23-7B This is a noncash investing and financing activity and is reported as a note to the statement of cash flows as follows: Schedule of noncash investing and financing activities: Acquired office furniture by issuing a two-year note payable

$5,000

Exercise 23-8B Interest expense in 20-2

$2,190

Add decrease in accrued interest payable

Amount of cash paid for interest in 20-2 Cash

(3)

$2,260

Accrued Interest Payable 410 BB 2,260*

(2)

Interest Expense

(1) 340

2,190

BB: Beginning Balance EB: Ending Balance *Cash paid for interest in 20-2

Problem 23-9B Kennington Company Statement of Cash Flows (Partial) For Year Ended December 31, 20-2 Cash flows from operating activities: Net income

$115,000)

Adjustments for changes in current assets and liabilities related to operating activities: Decrease in accounts receivable

25,000)

Decrease in merchandise inventory

40,000)

Decrease in accounts payable

(25,000)

Net cash provided by operating activities

$155,000

946

CHAPTER 23

Problem 23-10B Kennington Company Statement of Cash Flows For Year Ended December 31, 20-2 Cash flows from operating activities: Net income

$115,000)

Adjustments for changes in current assets and liabilities related to operating activities: Decrease in accounts receivable

25,000)

Decrease in merchandise inventory

40,000)

Decrease in accounts payable

(25,000)

Net cash provided by operating activities

$ 155,000)

Cash flows from investing activities: Purchased warehouse Purchased warehouse equipment

$ (90,000) (60,000)

Total cash used by investing activities

(150,000)

Cash flows from financing activities: Issued note payable

30,000)

Issued common stock

40,000)

Paid cash dividends

(20,000)

Net cash provided by financing activities Net increase (decrease) in cash Cash, January 1, 20-2 Cash, December 31, 20-2

50,000) $ 55,000) 20,000) $ 75,000)

CHAPTER 23

947

Problem 23-11B Powell Company Statement of Cash Flows (Partial) For Year Ended December 31, 20-2 Cash flows from operating activities: Net income

$159,360)

Adjustments for changes in current assets and liabilities related to operating activities: Increase in accounts receivable

(4,500)

Decrease in merchandise inventory

22,500)

Decrease in accounts payable

(15,900)

Decrease in income tax payable

(5,000)

Increase in supplies and prepayments

(5,700)

Decrease in accrued and withheld payroll taxes

(530)

Decrease in accrued interest receivable

45)

Increase in accrued interest payable

120)

Noncash expenses: Depreciation expense Net cash provided by operating activities

29,000) $179,395

948

CHAPTER 23

Problem 23-12B T Accounts for Indirect Method Statement of Cash Flows McGinnis Company Accrued Interest Receivable BB 580 (2) 250 EB 830

Notes Payable 109,000 BB 8,000 (17) 117,000 EB

Common Stock 700,000 BB 100,000 (15) 800,000 EB

Accounts Receivable BB 309,200 8,600 (3) EB 300,600

Accounts Payable 185,000 BB 50,000 135,000 EB

Paid-In Capital in Excess of Par—Common Stock 380,000 BB 120,000 (15) 500,000 EB

Merchandise Inventory BB 495,800 (4) 84,500 EB 580,300

Income Tax Payable 15,000 BB 10,000 (7) 25,000 EB

Retained Earnings 320,000 BB (16) 40,000 191,350 (1) 471,350 EB

Supplies and Prepayments BB 32,000 (5) 33,000 EB 65,000

Accrued and Withheld Payroll Taxes 13,400 BB 2,400 (8) 15,800 EB

Store Equipment BB 420,000 (12) 140,000 EB 560,000 Accumulated Depreciation— Store Equipment 90,000 BB 30,000 (11) 120,000 EB

Delivery Equipment BB 330,000 (13) 100,000 EB 430,000

(6)

Accrued Interest Payable 1,200 BB (9) 300 900 EB

Office Equipment BB 380,000 (14) 32,000 100,000 (10) (17) 8,000 EB 320,000

Accumulated Depreciation— Office Equipment 100,500 BB (10) 80,000 10,000 (11) 30,500 EB

Accumulated Depreciation— Delivery Equipment 120,000 BB 30,000 (11) 150,000 EB

CHAPTER 23

949

Problem 23-12B (Continued) Major entries of interest: Cash Accum. Depr.—Office Equipment Gain on Sale of Office Equip. Office Equipment

(10) (10) (10) (10)

35,000 80,000

Depreciation Expense Accum. Depr.—Store Equip. Accum. Depr.—Delivery Equip. Accum. Depr.—Office Equip.

(11) (11) (11) (11)

70,000

Cash and cash equivalents Cash Government notes Cash and cash equivalents Net increase in cash and cash equivalents

20-2 $103,420 5,400 $108,820 $ 42,300

15,000 100,000

30,000 30,000 10,000

20-1 $50,520 16,000 $66,520 (18)

950

CHAPTER 23

Problem 23-12B (Concluded) McGinnis Company Statement of Cash Flows For Year Ended December 31, 20-2 Cash flows from operating activities: Net income $ 191,350 Adjustments for changes in current assets and liabilities related to operating activities: Increase in accrued interest receivable (250) Decrease in accounts receivable (net) 8,600 Increase in merchandise inventory (84,500) Increase in supplies and prepayments (33,000) Decrease in accounts payable (50,000) Increase in income tax payable 10,000 Increase in accrued and withheld payroll taxes 2,400 Decrease in accrued interest payable (300) Noncash expenses and other adjustments: Gain on sale of office equipment (15,000) Depreciation expense 70,000 Net cash provided by operating activities Cash flows from investing activities: Sold office equipment $ 35,000 Purchased store equipment (140,000) Purchased delivery equipment (100,000) Purchased office equipment (32,000) Net cash used by investing activities Cash flows from financing activities: Issued common stock $ 220,000 Paid cash dividends (40,000) Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, January 1, 20-2 Cash and cash equivalents, December 31, 20-2

(1)

(2) (3) (4) (5) (6) (7) (8) (9) (10) (11) $ 99,300 (10) (12) (13) (14) (237,000) (15) (16) (18)

180,000 $ 42,300 66,520 $ 108,820

Schedule of Noncash Investing and Financing Activities: Acquired store equipment by issuing a note payable

(17)

$ 8,000

Supplemental Disclosures of Cash Flow Information: Cash paid for interest Cash paid for income taxes

(19) (19)

$ 1,050 85,000

To compute cash paid for interest and taxes, prepare the following entries: Interest Expense 750 Accrued Interest Payable 300 Cash (plug) (19)

1,050

Income Tax Expense Income Tax Payable Cash (plug)

95,000 (19)

10,000 85,000

CHAPTER 23

951

MANAGING YOUR WRITING Direct Method When preparing the schedule for the calculation of cash generated from operating activities, the goal is to deduct the amount of cash paid for operating expenses from the cash received from customers. Since depreciation expense is included in operating expenses, but did not require the use of cash, it is deducted from the operating expenses when computing the total cash paid for operating expenses. Indirect Method The student’s memo should point out the following: 1. The adjusting entry to recognize depreciation is as follows: Depreciation Expense XXX Accumulated Depreciation XXX 2. Depreciation expense requires no outflow of cash (see above entry). 3. Depreciation expense is subtracted on the income statement when computing net income. 4. Therefore, when net income is used as the primary source of cash from operating activities on the statement of cash flows, depreciation expense must be added back.

ETHICS CASE 1. Answers will vary. It is possible. In some companies, especially small ones, accountants aren’t aware of all the generally accepted accounting principles that apply to their business. In other cases, they are aware, and choose to ignore proper accounting procedures. In either case, it should be resolved and corrected. 2. Answers will vary. Students might suggest not doing anything or explaining to Lyle the importance of noncash investing and financing activities. 3. Answers will vary. Students should mention that the purpose of the statement of cash flows is to show management and outside users of the financial statements where cash came from and where it went. The statement of cash flows is divided into three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. The cash flows from operating activities section is prepared using either the direct method or indirect method. Under the direct method, revenues and expenses reported on the income statement are adjusted to reflect the amount of cash received or paid for each item. Under the indirect method, net income is adjusted for transactions impacting net income and/or cash flows from operating activities, but by different amounts. 4. Answers will vary. Typically, the direct method is thought to be easier to understand but more costly to prepare than the indirect method.

952

CHAPTER 23

Mastery Problem T Accounts for Indirect Method Statement of Cash Flows Peachfield Corporation Accrued Interest Receivable BB 250 (2) 70 EB 320

Notes Payable 54,780 10,700 65,480

BB (3) EB

Accounts Receivable 140,905 12,040 152,945

BB (4) EB

Merchandise Inventory 295,400 60,090 355,490

Income Tax Payable 5,000 2,000 7,000

BB (7) EB

Supplies and Prepayments BB 21,500 7,000 (5) EB 14,500

Accrued and Withheld Payroll Taxes 7,644 1,116 8,760

BB (8) EB

BB (12) (18) EB

Store Equipment 232,800 55,200 20,000 308,000

BB (13) EB

Delivery Equipment 192,000 78,000 270,000

(6)

Accounts Payable 125,473 71,973 53,500

Common Stock 388,000 112,000 500,000

BB (17) EB

Paid-In Capital in Excess of Par—Common Stock 234,000 BB 6,000 (16) 240,000 EB

BB EB

(15)

Retained Earnings 141,973 20,000 116,764 238,737

Accrued Interest Payable 525 (9) 75 450

Accumulated Depreciation—Store Equipment 84,000 BB 24,000 108,000

(11) EB

20,000 20,000

(10) (10) (10) (10)

75,000 10,000

Accumulated Depreciation— Delivery Equipment 48,000 BB 27,000 (11) 75,000 EB

Depreciation Expense Accum. Depr.—Store Equip. Accum. Depr.—Delivery Equip. Accum. Depr.—Office Equip.

(11) (11) (11) (11)

62,400

Office Equipment 203,940 24,060 80,000 148,000

Accumulated Depreciation— Office Equipment 36,600 BB (10) 10,000 11,400 (11) 38,000 EB

BB: Beginning Balance EB: Ending Balance

(10)

Cash and cash equivalents Cash Government notes Cash and cash equivalents Net increase in cash and cash equivalents

BB (1) EB

BB EB

Long-Term Notes Payable — BB

Major entries of interest: Cash Accum. Depr.—Office Equipment Gain on Sale of Office Equipment Office Equipment

BB (14) EB

BB (16) EB

(18) EB

5,000 80,000

24,000 27,000 11,400

20-2 $102,072 3,600 $105,672 $ 66,472

20-1 $27,200 12,000 $39,200 (19)

CHAPTER 23

953

Mastery Problem (Concluded) Peachfield Corporation Statement of Cash Flows For Year Ended December 31, 20-2 Cash flows from operating activities: Net income $116,764 Adjustments for changes in current assets and liabilities related to operating activities: Increase in accrued interest receivable (70) Increase in accounts receivable (net) (12,040) Increase in merchandise inventory (60,090) Decrease in supplies and prepayments 7,000 Decrease in accounts payable (71,973) Increase in income tax payable 2,000 Increase in accrued and withheld payroll taxes 1,116 Decrease in accrued interest payable (75) Noncash expenses and other adjustments: Gain on sale of office equipment (5,000) Depreciation expense 62,400 Net cash provided by operating activities Cash flows from investing activities: Sold office equipment $ 75,000 Purchased store equipment (55,200) Purchased delivery equipment (78,000) Purchased office equipment (24,060) Net cash used by investing activities Cash flows from financing activities: Paid cash dividends $ (20,000) Issued common stock 118,000 Issued short-term note payable 10,700 Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, January 1, 20-2 Cash and cash equivalents, December 31, 20-2

(1)

(2) (3) (4) (5) (6) (7) (8) (9) (10) (11) $ 40,032 (10) (12) (13) (14) (82,260) (15) (16) (17) (19)

108,700 $ 66,472 39,200 $105,672

Schedule of Noncash Investing and Financing Activities: Purchased store equipment by issuing long-term note payable

(18)

$20,000

Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest Income taxes

(20) (20)

$ 511 58,500

To compute cash paid for interest and taxes, prepare the following entries: Interest Expense (see income statement) 436 Accrued Interest Payable (decrease in Acc. Int. Pay.) 75 Cash (plug) (20)

511

Income Tax Expense (see income statement) Income Tax Payable (increase in Income Tax Payable) Cash (plug)

60,500 2,000 (20)

58,500

954

CHAPTER 23

Challenge Problem This problem must be solved in three steps. 1. Prepare the entry for interest expense for 20-1. 44,767(a)

Interest Expense Discount on Bonds Payable

4,767(c)

Cash

40,000(b)

(a) Carrying value of bonds on 1/1 times the effective rate. ($895,349  5% = $44,767, or provided in the hint) (b) Cash paid for interest: Face value times the coupon rate. ($1,000,000  4% = $40,000) (c) Difference between interest expense and interest paid. 2. Use the discount on bonds payable account to compute the amount of discount on the bonds issued on December 31, 20-1.

1/1/20-1 Balance Balance after amortization

Discount on Bonds Payable 104,651 4,767 99,884

Plug: Discount on bonds issued on 12/31/20-1 12/31/20-1 Balance

Amortization for 20-1

102,577 202,461

Plug = Discount on $900,000 bond issuance on 12/31/20-1 3. Face value of bonds

$900,000

Less discount

102,577

Cash received from bond issuance

$797,423

CHAPTER 23

955

APPENDIX: STATEMENT OF CASH FLOWS: THE DIRECT METHOD REVIEW QUESTIONS 1.

Under the direct method, revenues and expenses reported on the income statement are adjusted to reflect the amount of cash received or paid for each item.

An increase in accounts receivable reduces the amount of cash collected from customers. Thus, the increase in accounts receivable is subtracted from sales to compute cash collected from customers.

Under the direct method, cost of goods sold must be adjusted to reflect cash paid to suppliers. A decrease in merchandise inventory indicates that the firm sold more inventory than it purchased. Thus, to compute purchases for the year, we deduct the decrease in merchandise inventory from cost of goods sold. An increase in accounts payable indicates that the firm didn’t pay cash for all of the purchases. Thus, the increase is subtracted from the amount purchased to compute cash paid to suppliers of inventory.

Depreciation expense is a noncash expense. If listed separately on the income statement, we simply adjust it to zero when computing cash from operating activities. If depreciation expense is included in operating expenses, it is deducted from operating expenses to compute cash paid for operating expenses.

Gains and losses on the sale of plant and equipment are related to investing, not operating activities. Thus, these gains and losses are excluded when computing cash from operating activities.

Exercise 23Apx-1A Sales

$800,000

Add decrease in accounts receivable

15,000

Cash received from customers in 20-2

$815,000

Cash BB

Accounts Receivable 90,000

(3) 815,000*

15,000 EB

Sales

(2)

800,000

(1)

75,000

BB: Beginning Balance EB: Ending Balance *Cash received from customers in 20-2

956

CHAPTER 23

Exercise 23Apx-2A Cost of goods sold

$400,000

Less decrease in merchandise inventory

(20,000)

Cost of merchandise purchased

$380,000

Add decrease in accounts payable

40,000

Cash paid for merchandise in 20-2

$420,000

Merchandise Inventory

Cash BB 420,000 (3)*

(2)** 380,000 EB

Accounts Payable

80,000

Cost of Goods Sold

70,000 BB 400,000

(1)

(3) 420,000

60,000

380,000

(2)

(1)

400,000

30,000 EB

BB: Beginning Balance EB: Ending Balance

*Cash paid for merchandise in 20-2

**Cost of merchandise purchased

Exercise 23Apx-3A Operating expenses for 20-2

$350,400

Less depreciation expense

(22,000)

Add increase in supplies and prepayments

2,900

Add decrease in accrued and withheld payroll taxes

900

Amount of cash paid for operating expenses in 20-2

$332,200

Or, consider the following entry: Operating Expenses Supplies and Prepayments Accrued and Withheld Payroll Taxes

350,400 2,900 900

Accumulated Depreciation

22,000

Cash

332,200

CHAPTER 23

957

Exercise 23Apx-4A Interest revenue in 20-2

$430

Add decrease in accrued interest receivable

Amount of cash received for interest in 20-2

$470

Or, consider the following entry: Cash

470

Accrued Interest Receivable

Interest Revenue

430

958

CHAPTER 23

Problem 23Apx-5A 1. Zowine Company Schedule for the Calculation of Cash Generated from Operating Activities For Year Ended December 31, 20-2 Income Statement Additions Net sales $765,000 (1) $30,000 Cost of goods sold 550,000 (3) 35,000 Gross profit $215,000 Operating expenses 30,000 Income before taxes $185,000 Income tax expense 65,000 Net income $120,000

Deductions Cash Flows $795,000 Cash received from customers (2) $(45,000) 540,000 Cash paid for merchandise $255,000 30,000 Cash paid for operating expenses $225,000 65,000 Cash paid for income taxes $160,000 Cash generated from operating activities

1. Add the reduction in receivables to sales to compute cash received from customers. 2. The $45,000 reduction in inventory is subtracted from cost of goods sold to compute the cost of merchandise purchased ($550,000 – $45,000 = $505,000). 3. Reducing the amount owed to suppliers (accounts payable) required the expenditure of additional cash. Cash paid for merchandise is determined by adding the reduction in accounts payable to the cost of merchandise purchased ($505,000 + $35,000 = $540,000). 2. Zowine Company Statement of Cash Flows (Partial) For the Year Ended December 31, 20-2 Cash flows from operating activities: Cash received from customers Cash paid for merchandise

$ 795,000) $(540,000)

Cash paid for operating expenses

(30,000)

Cash paid for income taxes

(65,000)

Total cash disbursed for operating activities

(635,000)

Net cash provided by operating activities

$ 160,000)

CHAPTER 23

959

Problem 23Apx-6A 1. Horn Company Schedule for the Calculation of Cash Generated from Operating Activities For Year Ended December 31, 20-2 Income Statement Additions Net sales $1,220,000 Cost of goods sold 740,000 (3) $42,100 Gross profit $ 480,000 Operating expenses 142,000 (4) 4,500 (6) 950 Operating income $ 338,000 Interest revenue 420 (7) 120 Interest expense 1,200 Income tax expense 118,000 Net income $ 219,220

Deductions Cash Flows (1) $(12,400) $1,207,600 Cash received from customers (2) (13,600) 768,500 Cash paid for merchandise $ 439,100 (5) (32,000) 115,450 Cash paid for operating expenses $ 323,650 540 Interest received (8) (80) 1,120 Interest paid (9) (1,000) 117,000 Cash paid for income taxes $ 206,070 Cash generated from operating activities

1. The increase in accounts receivable reduced the amount of cash received from sales. This $12,400 increase is subtracted from sales to compute cash received from customers. 2. The $13,600 decrease in inventory indicates that Horn Company purchased less inventory than it sold. This decrease must be subtracted from cost of goods sold to compute cost of merchandise purchased for the year ($740,000 – $13,600 = $726,400). 3. The $42,100 decrease in accounts payable means that Horn Company paid cash to suppliers in excess of the amount purchased. Add the decrease in the amount owed to suppliers to the cost of merchandise purchased to compute cash paid for merchandise ($726,400 + $42,100 = $768,500). 4. The increase in supplies and prepayments indicates that Horn Company not only replenished these items for the amounts used during the period, but also increased the supplies on hand and prepayments. Thus, the cash paid for these items is greater than the expense recognized for the period. Add the increase of $4,500 to compute cash paid for operating expenses. 5. Depreciation is an operating expense but requires no cash outflow. The $32,000 in depreciation expense is subtracted from operating expenses to compute cash paid for operating expenses. 6. By making payments to the government and reducing accrued and withheld payroll taxes, the amount of cash paid to the government this period was increased. This reduction of $950 is added to operating expenses to compute cash paid for operating expenses. 7. Add the reduction in accrued interest receivable of $120 to interest revenue to compute the amount of interest received. 8. Deduct the increase in accrued interest payable of $80 from interest expense to compute the amount of interest paid. 9. Deduct the increase in income tax payable of $1,000 from income tax expense to compute income taxes paid.

960

CHAPTER 23

Problem 23Apx-6A (Concluded) 2. Horn Company Statement of Cash Flows (Partial) For the Year Ended December 31, 20-2 Cash flows from operating activities: Cash received from customers Interest received

$1,207,600) 540)

Cash provided by operating activities Cash paid for merchandise Cash paid for operating expenses Interest paid Income taxes paid

$ 1,208,140) $ (768,500) (115,450) (1,120) (117,000)

Total cash disbursed for operating activities

(1,002,070)

Net cash provided by operating activities

206,070)

CHAPTER 23

961

Problem 23Apx-7A 1. McDowell Company Schedule for the Calculation of Cash Generated from Operating Activities For Year Ended December 31, 20-2 Income Statement Additions Deductions Cash Flows Net sales $1,890,000 (1)$ 15,100 $1,905,100 Cash received from customers Cost of goods sold 940,000 (2) 145,200 (3) 85,000 1,170,200 Cash paid for merchandise Gross profit $ 950,000 $ 734,900 Operating expenses 572,300 (4) $ (12,000) (5) (112,000) (6) (1,500) 446,800 Cash paid for operating expenses Operating income $ 377,700 $ 288,100 Interest revenue 3,900 (7) (110) 3,790 Interest received Interest expense 890 (8) 160 1,050 Interest paid Loss of sale of Loss is not related to operating store equipment 15,000 (9) (15,000) 0 activities Income tax expense 133,000 (10) 5,000 138,000 Cash paid for income taxes Net income $ 232,710 $ 152,840 Cash generated from operating activities

1. The decrease in accounts receivable increased the amount of cash received from sales. This $15,100 decrease is added to sales to compute cash received from customers. 2. The $145,200 increase in inventory indicates that McDowell Company purchased more inventory than it sold. This increase must be added to cost of goods sold to compute cost of merchandise purchased for the year ($940,000 + $145,200 = $1,085,200). 3. Reducing the amount owed to suppliers (accounts payable) required the expenditure of additional cash. Cash paid for merchandise is determined by adding the reduction in accounts payable to the cost of merchandise purchased ($1,085,200 + $85,000 = $1,170,200). 4. The decrease in supplies and prepayments indicates that McDowell Company did not replenish all of the items for the amounts used during the period. Thus, the cash paid for these items is less than the expense recognized for the period. The decrease of $12,000 must be deducted to compute cash paid for operating expenses. 5. Depreciation is an operating expense but requires no cash outflow. The $112,000 in depreciation expense is subtracted from operating expenses to compute cash paid for operating expenses. 6. By postponing payments to the government and allowing accrued and withheld payroll taxes to increase, the amount of cash paid to the government this period was reduced. This increase of $1,500 is subtracted from operating expenses to compute cash paid for operating expenses. 7. The increase in accrued interest receivable is deducted from interest revenue to compute the amount of interest received. 8. Accrued interest payable was reduced by $160. This means that cash was paid for interest expense incurred this period, plus interest expense incurred in prior period. Thus, $160 must be added to interest expense to compute the amount of interest paid. 9. The loss on the sale of store equipment is not related to operating activities. Reduce to zero for cash flows from operating activities. 10. The reduction in income tax payable is added to income tax expense to compute income taxes paid. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

962

CHAPTER 23

Problem 23Apx-7A (Concluded) 2. McDowell Company Statement of Cash Flows For the Year Ended December 31, 20-2 Cash flows from operating activities: Cash received from customers

$ 1,905,100)

Interest received

3,790)

Cash provided by operating activities Cash paid for merchandise

$ 1,908,890) $(1,170,200)

Cash paid for operating expenses

(446,800)

Interest paid

(1,050)

Income taxes paid

(138,000)

Total cash disbursed for operating activities

(1,756,050)

Net cash provided by operating activities

152,840)

Cash flows from investing activities: Sold store equipment

25,000)

Purchased store equipment

(64,000)

Purchased delivery equipment

(140,000)

Purchased office equipment

(30,000)

Net cash used by investing activities

(209,000)

Cash flows from financing activities: Issued common stock Paid cash dividends

140,000) (60,000)

Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents

80,000) $

Cash and cash equivalents, January 1, 20-2 Cash and cash equivalents, December 31, 20-2

23,840) 58,325)

82,165)

16,000)

Schedule of Noncash Investing and Financing Activities: Acquired store equipment by issuing a note payable

CHAPTER 23

963

Exercise 23Apx-1B Sales

$760,000

Less increase in accounts receivable

25,000

Cash received from customers in 20-2

$735,000

Cash BB (3) 735,000*

Accounts Receivable 60,000

(2)

25,000

85,000

Sales

760,000

(1)

BB: Beginning Balance EB: Ending Balance *Cash received from customers in 20-2

Exercise 23Apx-2B Cost of goods sold

$500,000

Add increase in merchandise inventory

20,000

Cost of merchandise purchased

$520,000

Add decrease in accounts payable

30,000

Cash paid for merchandise in 20-2

$550,000

Merchandise Inventory

Cash BB 550,000 (3)*

(2)** 520,000 EB

Accounts Payable

50,000

70,000

Cost of Goods Sold

90,000 BB 500,000

(1)

(3)

550,000

520,000

(2)

60,000

(1)

500,000

BB: Beginning Balance EB: Ending Balance *Cash paid for merchandise in 20-2

**Cost of merchandise purchased

964

CHAPTER 23

Exercise 23Apx-3B Operating expenses for 20-2

$290,500

Less depreciation expense

(30,000)

Less decrease in supplies and prepayments

(1,200)

Less increase in accrued and withheld payroll taxes

(1,100)

Amount of cash paid for operating expenses in 20-2

$258,200

Or, consider the following entry: Operating Expenses

290,500

Supplies and Prepayments

1,200

Accrued and Withheld Payroll Taxes

1,100

Accumulated Depreciation

30,000

Cash

258,200

Exercise 23Apx-4B Interest revenue in 20-2

$670

Less increase in accrued interest receivable

(80)

Amount of cash received for interest in 20-2

$590

Or, consider the following entry: Cash

590

Accrued Interest Receivable

Interest Revenue

670

CHAPTER 23

965

Problem 23Apx-5B 1. Kennington Company Schedule for the Calculation of Cash Generated from Operating Activities For Year Ended December 31, 20-2 Income Statement Additions Net sales $800,000 (1) $25,000 Cost of goods sold 475,000 (3) 25,000 Gross profit $325,000 Operating expenses 148,000 Income before taxes $177,000 Income tax expense 62,000 Net income $115,000

Deductions Cash Flows $825,000 Cash received from customers (2) $(40,000) 460,000 Cash paid for merchandise $365,000 148,000 Cash paid for operating expenses $217,000 62,000 Cash paid for income taxes $155,000 Cash generated from operating activities

1. Add the reduction in receivables to sales to compute cash received from customers. 2. The $40,000 reduction in inventory is subtracted from cost of goods sold to compute the cost of merchandise purchased ($475,000 – $40,000 = $435,000). 3. Reducing the amount owed to suppliers (accounts payable) required the expenditure of additional cash. Cash paid for merchandise is determined by adding the reduction in accounts payable to the cost of merchandise purchased ($435,000 + $25,000 = $460,000). 2. Kennington Company Statement of Cash Flows (Partial) For the Year Ended December 31, 20-2 Cash flows from operating activities: Cash received from customers

$ 825,000)

Cash paid for merchandise

$(460,000)

Cash paid for operating expenses

(148,000)

Cash paid for income taxes

(62,000)

Total cash disbursed for operating activities

(670,000)

Net cash provided by operating activities

$ 155,000)

966

CHAPTER 23

Problem 23Apx-6B 1. Powell Company Schedule for the Calculation of Cash Generated from Operating Activities For Year Ended December 31, 20-2 Income Statement Additions Net sales $1,160,000 Cost of goods sold 690,000 (3) $15,900 Gross profit $ 470,000 Operating expenses 224,100 (4) 5,700 (6) 530 Operating income $ 245,900 Interest revenue 560 (7) 45 Interest expense 1,100 Income tax expense 86,000 (9) 5,000 Net income $ 159,360

Deductions Cash Flows (1) $ (4,500) $1,155,500 Cash received from customers (2) (22,500) 683,400 Cash paid for merchandise $ 472,100 (5) (29,000) 201,330 Cash paid for operating expenses $ 270,770 605 Interest received (8) (120) 980 Interest paid 91,000 Cash paid for income taxes $ 179,395 Cash generated from operating activities

1. The increase in accounts receivable reduced the amount of cash received from sales. This $4,500 increase is subtracted from sales to compute cash received from customers. 2. The $22,500 decrease in inventory indicates that Powell Company purchased less inventory than it sold. This decrease must be subtracted from cost of goods sold to compute cost of merchandise purchased for the year ($690,000 – $22,500 = $667,500). 3. By accelerating payments to suppliers, the amount of cash paid to suppliers this period exceeded the amount of purchases. The $15,900 decrease in the amount owed to suppliers is added to the cost of merchandise purchased to compute cash paid for merchandise ($667,500 + $15,900 = $683,400). 4. The increase in supplies and prepayments indicates that Powell Company not only replenished these items for the amounts used during the period, but also increased the supplies on hand and prepayments. Thus, cash paid for these items is greater than the expense recognized for the period. The increase of $5,700 must be added to compute cash paid for operating expenses. 5. Depreciation is an operating expense but requires no cash outflow. The $29,000 in depreciation expense is subtracted from operating expenses to compute cash paid for operating expenses. 6. By making payments to the government and reducing accrued and withheld payroll taxes, the amount of cash paid to the government this period was increased. This reduction of $530 is added to operating expenses to compute cash paid for operating expenses. 7. The reduction in accrued interest receivable is added to interest revenue to compute the amount of interest received. 8. The increase in accrued interest payable is deducted from interest expense to compute the amount of interest paid. 9. The reduction in income tax payable is added to income tax expense to compute income taxes paid.

CHAPTER 23

967

Problem 23Apx-6B (Concluded) 2. Powell Company Statement of Cash Flows (Partial) For the Year Ended December 31, 20-2 Cash flows from operating activities: Cash received from customers Interest received

$1,155,500) 605)

Cash provided by operating activities Cash paid for merchandise Cash paid for operating expenses Interest paid Income taxes paid Total cash disbursed for operating activities Net cash provided by operating activities

$1,156,105) $ (683,400) (201,330) (980) (91,000) (976,710) $ 179,395)

968

CHAPTER 23

Problem 23Apx-7B 1. McGinnis Company Schedule for the Calculation of Cash Generated from Operating Activities For Year Ended December 31, 20-2 Income Statement Additions Net sales $1,750,000 (1) $ 8,600 Cost of goods sold 890,000 (2) 84,500 (3) 50,000 Gross profit $ 860,000 Operating expenses 590,600 (4) 33,000 Operating income Interest revenue Interest expense Gain on sale of office equipment Income tax expense Net income

$ 269,400 2,700 750 (8)

Deductions Cash Flows $1,758,600 Cash received from customers 1,024,500 Cash paid for merchandise $ 734,100 (5)$(70,000) (6) (2,400) (7)

300

551,200 Cash paid for operating expenses $ 182,900 (250) 2,450 Interest received 1,050 Interest paid Gain is not related to operating

15,000 95,000 $ 191,350

(9) (15,000) (10) (10,000) $

0 activities 85,000 Cash paid for income taxes 99,300 Cash generated from operating activities

1. The decrease in accounts receivable increased the amount of cash received from sales. This $8,600 decrease is added to sales to compute cash received from customers. 2. The $84,500 increase in inventory indicates that McGinnis Company purchased more inventory than it sold. This increase must be added to cost of goods sold to compute cost of merchandise purchased for the year ($890,000 + $84,500 = $974,500). 3. Reducing the amount owed to suppliers (accounts payable) required the expenditure of additional cash. Cash paid for merchandise is determined by adding the reduction in accounts payable to the cost of merchandise purchased ($974,500 + $50,000 = $1,024,500). 4. The increase in supplies and prepayments indicates that McGinnis Company not only replenished these items for the amounts used during the period, but also increased the supplies on hand and prepayments. Thus, the cash paid for these items is greater than the expense recognized for the period. The increase of $33,000 must be added to compute cash paid for operating expenses. 5. Depreciation is an operating expense but requires no cash outflow. The $70,000 in depreciation expense is subtracted from operating expenses to compute cash paid for operating expenses. 6. By postponing payments to the government and allowing accrued and withheld payroll taxes to increase, the amount of cash paid to the government this period was reduced. This increase of $2,400 is subtracted from operating expenses to compute cash paid for operating expenses. 7. The $250 increase in accrued interest receivable is deducted from interest revenue to compute the amount of interest received. 8. Accrued interest payable was reduced by $300. This means that cash was paid for interest expense incurred this period, plus interest expense incurred in prior period. Thus, $300 must be added to interest expense to compute the amount of interest paid. 9. The gain on the sale of office equipment is not related to operating activities. Reduce to zero for cash flows from operating activities. 10. The $10,000 increase in income tax payable is subtracted from income tax expense to compute income taxes paid.

CHAPTER 23

969

Problem 23Apx-7B (Concluded) 2. McGinnis Company Statement of Cash Flows For the Year Ended December 31, 20-2 Cash flows from operating activities: Cash received from customers

$ 1,758,600)

Interest received

2,450)

Cash provided by operating activities Cash paid for merchandise

$ 1,761,050) $(1,024,500)

Cash paid for operating expenses

(551,200)

Interest paid

(1,050)

Income taxes paid

(85,000)

Total cash disbursed for operating activities

(1,661,750)

Net cash provided by operating activities

99,300)

Cash flows from investing activities: Sold office equipment

35,000)

Purchased store equipment

(140,000)

Purchased delivery equipment

(100,000)

Purchased office equipment

(32,000)

Net cash used by investing activities

(237,000)

Cash flows from financing activities: Issued common stock Paid cash dividends

220,000) (40,000)

Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents

180,000) $

Cash and cash equivalents, January 1, 20-2 Cash and cash equivalents, December 31, 20-2

42,300) 66,520)

108,820)

8,000)

Schedule of Noncash Investing and Financing Activities: Acquired office equipment by issuing a note payable

CHAPTER 24 ANALYSIS OF FINANCIAL STATEMENTS REVIEW QUESTIONS 1.

Interest normally centers on five aspects of the business: a. Its liquidity or solvency (the ability to pay its debts when they come due) b. Its activity measures (the ability to use assets efficiently to generate a profit) c. Its profitability (the ability to earn a satisfactory return on the investment in the business) d. The extent of leverage (the proportion of debt to stockholders’ equity and ability to pay interest) e. The market’s measures (price-to-earnings ratio and how it compares with the book value of common stock)

Four possible types of comparisons that may be made in financial statement analysis are: a. comparisons with one or more previous periods. b. comparisons with data for the industry as a whole. c. comparisons with similar information for other businesses in the industry. d. comparisons with preset plans or goals (normally in the form of budgets).

The percentage increase in operating income was greater than the percentage increase in net sales because cost of goods sold and operating expenses increased by a smaller percentage than net sales.

The decreases in accounts payable and notes payable were the main causes of the decrease in current liabilities.

Five ratios automatically provided by vertical analysis are: a. cost of goods sold ratio. b. gross profit ratio. c. operating expense ratio. d. operating income ratio. e. profit margin ratio.

Three liquidity measures calculated by FCI are: a. working capital. b. current ratio. c. quick or acid-test ratio.

Three activity measures calculated by FCI are: a. accounts receivable turnover. b. merchandise inventory turnover. c. asset turnover.

Four measures of profitability calculated by FCI are: a. profit margin ratio. b. return on assets. c. return on common stockholders’ equity. d. earnings per share of common stock.

972

CHAPTER 24

9. Three measures of the extent of leverage calculated by FCI are: a. debt-to-equity ratio. b. assets-to-equity ratio. c. times interest earned ratio. 10. Two primary components of return on assets include: a. profit margin ratio. b. asset turnover. 11. Three primary components of return on common stockholders’ equity include: a. profit margin ratio. b. asset turnover. c. leverage (assets-to-stockholders’ equity). 12. Two market measures calculated by FCI include: a. price-earnings ratio. b. book value per share of common stock. 13. Limitations of financial statement analysis include: a. many aspects of operating a business are not measured by the accounting system. b. the data reported are sometimes based on estimates. c. statements from many years should be considered before drawing conclusions about long-term trends. d. comparisons with other companies and the industry can be difficult because many different accounting methods are used. e. either the numerator or the denominator can cause a ratio to provide a distorted message.

CHAPTER 24

973

Exercise 24-1A a.

Quick or acid-test ratio: ($255,400 + $250,000 + $903,500)  $703,000 = 2.00 to 1

Current ratio: ($255,400 + $250,000 + $903,500 + $983,600 + $143,200)  $703,000 = 3.61 to 1

Working capital: ($255,400 + $250,000 + $903,500 + $983,600 + $143,200) – $703,000 = $1,832,700

Exercise 24-2A a.

Accounts receivable turnover: ($903,500 + $797,500)  2 = $850,500 $2,584,000  $850,500 = 3.04 or 120.07 days (365 days  3.04)

Merchandise inventory turnover: ($983,600 + $913,600)  2 = $948,600 $1,868,200  $948,600 = 1.97 or 185.28 days (365 days  1.97)

Asset turnover: ($2,991,600 + $2,765,600)  2 = $2,878,600 average assets $2,584,000 Net sales

= 0.90 to 1

$2,878,600 Average assets

974

CHAPTER 24

Exercise 24-3A a.

Profit margin ratio: $199,600  $2,584,000 = 7.72%

Return on assets: $199,600  [($2,991,600 + $2,765,600)  2] = 6.93%

Return on common stockholders’ equity: $199,600  [($2,068,600 + $1,993,600)  2] = 9.83%

Earnings per share of common stock: $199,600  180,000 shares = $1.11

Exercise 24-4A a.

Debt-to-equity ratio: $923,000  $2,068,600 = 0.45 to 1

Times interest earned ratio: ($199,600 + $176,800 + $24,200)  $24,200 = 16.55 times

Assets-to-equity ratio $2,991,600  $2,068,600 = 1.45

CHAPTER 24

975

Exercise 24-5A ROA with two components: Profit margin ratio



Asset turnover

Net income Net sales



Net sales Avg. assets

$199,600 $2,584,000



7.72%



$2,584,000 $2,878,600 ($2,991,600 + $2,765,600)/2 0.90

6.95%

Exercise 24-6A ROE with three components: 

Asset turnover

Net income Net sales

$199,600 $2,584,000

Profit margin ratio



Leverage



Net sales Avg. assets



Avg. assets Avg. common stockholders’ equity



$2,584,000 $2,878,600



$2,878,600 $2,031,100

($2,991,600 + $2,765,600)/2

7.72%



0.90

($2,068,600 + $1,993,600)/2



1.42

9.87%

Exercise 24-7A a.

Price-earnings ratio: $28.00  $1.11 = 25.23

Book value per share of common stock: $2,068,600  180,000 shares = $11.49

976

CHAPTER 24

Problem 24-8A Miller Electronics Corporation Comparative Income Statement For Years Ended December 31, 20-2 and 20-1 20-2

20-1

AMOUNT

Increase (Decrease) AMOUNT

PERCENT

Net sales (all on account)

$650,220

$420,600

$229,620

54.6

Cost of goods sold

395,410

258,668

136,742

52.9

Gross profit

$254,810

$161,932

$ 92,878

57.4

Administrative expenses

$ 63,518

$ 42,288

$ 21,230

50.2

65,992

43,936

22,056

50.2

Total operating expenses

$129,510

$ 86,224

$ 43,286

50.2

Operating income

$125,300

$ 75,708

$ 49,592

65.5

Interest expense

1,282

1,204

6.5

$124,018

$ 74,504

$ 49,514

66.5

31,005

13,630

17,375

127.5

$ 93,013

$ 60,874

$ 32,139

52.8

Selling expenses

Income before income taxes Income tax expense Net income

CHAPTER 24

977

Problem 24-8A (Concluded) Miller Electronics Corporation Comparative Balance Sheet December 31, 20-2 and 20-1 20-2

20-1

AMOUNT

Increase (Decrease) AMOUNT

PERCENT

Assets Current assets: Cash

$ 42,900

$ 22,006

$ 20,894

94.9

Receivables (net)

73,642

47,510

26,132

55.0

Merchandise inventory

92,060

50,396

41,664

82.7

Supplies and prepayments

3,788

1,158

2,630

227.1

$212,390

$121,070

$ 91,320

75.4

Office equipment (net)

$ 12,150

3,660

43.1

Factory equipment (net)

105,360

71,190

34,170

48.0

$117,510

$ 79,680

$ 37,830

47.5

$329,900

$200,750

$129,150

64.3

$ 10,000

4,000

66.7

Total current assets Property, plant, and equipment:

Total prop., plant, and equip. Total assets

8,490

Liabilities Current liabilities: Notes payable

6,000

Accounts payable

43,524

30,242

13,282

43.9

Accrued and withheld pay. taxes

6,250

5,400

850

15.7

$ 59,774

$ 41,642

$ 18,132

43.5

Common stock ($10 par)

$100,000

$ 84,000

$ 16,000

19.0

Retained earnings

170,126

75,108

95,018

126.5

$270,126

$159,108

$111,018

69.8

$329,900

$200,750

$129,150

64.3

Total current liabilities Stockholders’ Equity

Total stockholders’ equity Total liab. and stockholders’ equity

978

CHAPTER 24

Problem 24-9A Miller Electronics Corporation Comparative Income Statement For Years Ended December 31, 20-2 and 20-1 20-2 AMOUNT

20-1 PERCENT

AMOUNT

PERCENT

Net sales (all on account)

$650,220

100.0

$420,600

100.0

Cost of goods sold

395,410

60.8

258,668

61.5

Gross profit

$254,810

39.2

$161,932

38.5

Administrative expenses

$ 63,518

9.8

$ 42,288

10.1

65,992

10.1

43,936

10.4

Total operating expenses

$129,510

19.9

$ 86,224

20.5

Operating income

$125,300

19.3

$ 75,708

18.0

Interest expense

1,282

0.2

1,204

0.3

$124,018

19.1

$ 74,504

17.7

31,005

4.8

13,630

3.2

$ 93,013

14.3

$ 60,874

14.5

Selling expenses

Income before income taxes Income tax expense Net income

CHAPTER 24

979

Problem 24-9A (Concluded) Miller Electronics Corporation Comparative Balance Sheet December 31, 20-2 and 20-1 20-2 AMOUNT

20-1 PERCENT*

AMOUNT

PERCENT*

Assets Current assets: Cash

$ 42,900

13.0

$ 22,006

11.0

Receivables (net)

73,642

22.3

47,510

23.7

Merchandise inventory

92,060

27.9

50,396

25.1

Supplies and prepayments

3,788

1.1

1,158

0.6

$212,390

64.4

$121,070

60.3

Office equipment (net)

$ 12,150

3.7

8,490

4.2

Factory equipment (net)

105,360

31.9

71,190

35.5

$117,510

35.6

$ 79,680

39.7

$329,900

100.0

$200,750

100.0

$ 10,000

3.0

Accounts payable

43,524

Accrued and withheld payroll taxes

Total current assets Property, plant, and equipment:

Total prop., plant, and equip. Total assets Liabilities Current liabilities: Notes payable

6,000

3.0

13.2

30,242

15.1

6,250

1.9

5,400

2.7

$ 59,774

18.1

$ 41,642

20.7

Common stock ($10 par)

$100,000

30.3

$ 84,000

41.8

Retained earnings

170,126

51.6

75,108

37.4

$270,126

81.9

$159,108

79.3

$329,900

100.0

$200,750

100.0

Total current liabilities

Stockholders’ Equity

Total stockholders’ equity Total liab. and stockholders’ equity *Percentage may not add due to rounding.

980

CHAPTER 24

Problem 24-10A a.

Return on assets: 20-2 $93,013  [($200,720 + $329,900)  2] = 35.06% 20-1 $60,874  [($175,750 + $200,750)  2] = 32.34%

Return on common stockholders’ equity: 20-2 $93,013  [($159,108 + $270,126)  2] = 43.34% 20-1 $60,874  [($106,904 + $159,108)  2] = 45.76%

Earnings per share of common stock: 20-2 $93,013  9,200 sh. = $10.11 20-1 $60,874  8,400 sh. = $7.25

Book value per share of common stock: 20-2 $270,126  10,000 sh. = $27.01 20-1 $159,108  8,400 sh. = $18.94

Quick ratio: 20-2 ($42,900 + $73,642)  $59,774 = 1.95 to 1 20-1 ($22,006 + $47,510)  $41,642 = 1.67 to 1

Current ratio: 20-2 $212,390  $59,774 = 3.55 to 1 20-1 $121,070  $41,642 = 2.91 to 1

Working capital: 20-2 $212,390 – $59,774 = $152,616 20-1 $121,070 – $41,642 = $79,428

Receivables turnover: 20-2 $650,220  [($47,510 + $73,642)  2] = 10.73 or 34.02 days 20-1 $420,600  [($39,800 + $47,510)  2] = 9.63 or 37.90 days

CHAPTER 24

981

Problem 24-10A (Concluded) i.

Merchandise inventory turnover: 20-2 $395,410  [($50,396 + $92,060)  2] = 5.55 or 65.77 days 20-1 $258,668  [($48,970 + $50,396)  2] = 5.21 or 70.06 days

Debt-to-equity ratio: 20-2 $59,774  $270,126 = 0.22 to 1 20-1 $41,642  $159,108 = 0.26 to 1

Asset turnover: 20-2 $650,220  [($200,750 + $329,900)  2] = 2.45 to 1 20-1 $420,600  [($175,750 + $200,750)  2] = 2.23 to 1

Times interest earned ratio: 20-2 ($93,013 + $31,005 + $1,282)  $1,282 = 97.74 times 20-1 ($60,874 + $13,630 + $1,204)  $1,204 = 62.88 times

Profit margin ratio: 20-2 $93,013  $650,220 = 14.30% 20-1 $60,874  $420,600 = 14.47%

Assets-to-equity ratio: 20-2 $329,900  $270,126 = 1.22 20-1 $200,750  $159,108 = 1.26

Price-earnings ratio: 20-2 $100.00  $10.11 = 9.89 20-1 $85.00  $7.25 = 11.72

982

CHAPTER 24

Exercise 24-1B a.

Quick or acid-test ratio: ($95,500 + $200,000 + $639,300)  $416,000 = 2.25 to 1

Current ratio: ($95,500 + $200,000 + $639,300 + $634,900 + $39,600)  $416,000 = 3.87 to 1

Working capital: $1,609,300 – $416,000 = $1,193,300

Exercise 24-2B a.

Accounts receivable turnover: ($570,600 + $639,300)  2 = $604,950 $1,850,800  $604,950 = 3.06 or 119.28 days (365 days  3.06)

Merchandise inventory turnover: ($639,500 + $634,900)  2 = $637,200 $1,150,400  $637,200 = 1.81 or 201.66 days (365 days  1.81)

Asset turnover: ($1,898,200 + $1,929,100)  2 = $1,913,650 $1,850,800 Net sales

= 0.97 to 1

$1,913,650 Average assets

CHAPTER 24

983

Exercise 24-3B a.

Profit margin ratio: $341,300  $1,850,800 = 18.44%

Return on assets: $341,300  [($1,898,200 + $1,929,100)  2] = 17.84%

Return on common stockholders’ equity: $341,300  [($1,353,700 + $1,363,100)  2] = 25.13%

Earnings per share of common stock: $341,300  125,000 shares = $2.73

Exercise 24-4B a.

Debt-to-equity ratio: $566,000  $1,363,100 = 0.42 to 1

Times interest earned ratio: ($341,300 + $160,600 + $18,200)  $18,200 = 28.58 times

Assets-to-equity ratio: $1,929,100  $1,363,100 = 1.42

984

CHAPTER 24

Exercise 24-5B ROA with two components: Profit margin ratio



Asset turnover

Net income Net sales



Net sales Avg. total assets

$341,300 $1,850,800



$1,850,800 $1,913,650 ($1,898,200 + $1,929,100)/2



18.44%

0.97

17.89%

Exercise 24-6B ROE with three components: 

Asset turnover

Net income Net sales

$341,300 $1,850,800

Profit margin ratio



Leverage



Net sales Avg. total assets



Avg. total assets Avg. common stockholders’ equity



$1,850,800 $1,913,650



$1,913,650 $1,358,400

($1,898,200 + $1,929,100)/2

18.44%



0.97

($1,353,700 + $1,363,100)/2



1.41

25.22%

Exercise 24-7B a.

Price-earnings ratio: $38.00  $2.73 = 13.92

Book value per share of common stock: $1,363,100  125,000 shares = $10.90

CHAPTER 24

985

Problem 24-8B Johnson Stores, Inc. Comparative Income Statement For Years Ended December 31, 20-2 and 20-1 20-2

20-1

AMOUNT

Increase (Decrease) AMOUNT

PERCENT

Net sales (all on account)

$467,865

$305,145

$162,720

53.3

Cost of goods sold

256,955

149,005

107,950

72.4

Gross profit

$210,910

$156,140

$ 54,770

35.1

Administrative expenses

$ 43,876

$ 30,617

$ 13,259

43.3

44,994

31,293

13,701

43.8

Total operating expenses

$ 88,870

$ 61,910

$ 26,960

43.5

Operating income

$122,040

$ 94,230

$ 27,810

29.5

Interest expense

916

903

1.4

$121,124

$ 93,327

$ 27,797

29.8

30,280

19,980

10,300

51.6

$ 90,844

$ 73,347

$ 17,497

23.9

Selling expenses

Income before income taxes Income tax expense Net income

986

CHAPTER 24

Problem 24-8B (Concluded) Johnson Stores, Inc. Comparative Balance Sheet December 31, 20-2 and 20-1 20-2

20-1

AMOUNT

Increase (Decrease) AMOUNT

PERCENT

Assets Current assets: Cash

$ 30,275

$ 15,604

$14,671)

94.0

Receivables (net)

42,441

33,565

8,876)

26.4

Merchandise inventory

49,460

34,636

14,824)

42.8

Supplies and prepayments

7,119

6,403

716)

11.2

$129,295

$ 90,208

$39,087)

43.3

6,062

$ 2,963)

48.9

72,090

52,930

19,160)

36.2

$ 81,115

$ 58,992

$22,123)

37.5

$210,410

$149,200

$61,210)

41.0

8,000

$ (4,000)

–50.0

Total current assets Property, plant, and equipment: Office equipment (net) Factory equipment (net) Total prop., plant, and equip. Total assets

9,025

Liabilities Current liabilities: Notes payable

4,000

Accounts payable

30,233

14,821

15,412)

104.0

Accrued and withheld pay. taxes

6,250

7,600

(1,350)

–17.8

$ 40,483

$ 30,421

$10,062)

33.1

$ 75,000

$ 63,000

$12,000)

19.0

94,927

55,779

39,148)

70.2

$169,927

$118,779

$51,148)

43.1

$210,410

$149,200

$61,210)

41.0

Total current liabilities Stockholders’ Equity Common stock ($10 par) Retained earnings Total stockholders’ equity Total liab. and stockholders’ equity

CHAPTER 24

987

Problem 24-9B Johnson Stores, Inc. Comparative Income Statement For Years Ended December 31, 20-2 and 20-1 20-2 AMOUNT

20-1 PERCENT*

AMOUNT

PERCENT*

Net sales (all on account)

$467,865

100.0

$305,145

100.0

Cost of goods sold

256,955

54.9

149,005

48.8

Gross profit

$210,910

45.1

$156,140

51.2

Administrative expenses

$ 43,876

9.4

$ 30,617

10.0

44,994

9.6

31,293

10.3

Total operating expenses

$ 88,870

19.0

$ 61,910

20.3

Operating income

$122,040

26.1

$ 94,230

30.9

Interest expense

916

0.2

903

0.3

$121,124

25.9

$ 93,327

30.6

30,280

6.5

19,980

6.5

$ 90,844

19.4

$ 73,347

24.0

Selling expenses

Income before income taxes Income tax expense Net income *Percentage may not add due to rounding.

988

CHAPTER 24

Problem 24-9B (Concluded) Johnson Stores, Inc. Comparative Balance Sheet December 31, 20-2 and 20-1 20-2 AMOUNT

20-1 PERCENT*

AMOUNT

PERCENT*

Assets Current assets: Cash

$ 30,275

14.4

$ 15,604

10.5

Receivables (net)

42,441

20.2

33,565

22.5

Merchandise inventory

49,460

23.5

34,636

23.2

Supplies and prepayments

7,119

3.4

6,403

4.3

$129,295

61.4

$ 90,208

60.5

9,025

4.3

6,062

4.1

72,090

34.3

52,930

35.5

$ 81,115

38.6

$ 58,992

39.5

$210,410

100.0

$149,200

100.0

Total current assets Property, plant, and equipment: Office equipment (net) Factory equipment (net) Total prop., plant, and equip. Total assets Liabilities Current liabilities: Notes payable

4,000

1.9

Accounts payable

30,233

Accrued and withheld pay. taxes Total current liabilities

8,000

5.4

14.4

14,821

9.9

6,250

3.0

7,600

5.1

$ 40,483

19.2

$ 30,421

20.4

$ 75,000

35.6

$ 63,000

42.2

94,927

45.1

55,779

37.4

$169,927

80.8

$118,779

79.6

$210,410

100.0

$149,200

100.0

Stockholders’ Equity Common stock ($10 par) Retained earnings Total stockholders’ equity Total liab. and stockholders’ equity *Percentage may not add due to rounding.

CHAPTER 24

989

Problem 24-10B a.

Return on assets: 20-2 $90,844  [($149,200 + $210,410)  2] = 50.52% 20-1 $73,347  [($111,325 + $149,200)  2] = 56.31%

Return on common stockholders’ equity: 20-2 $90,844  [($118,779 + $169,927)  2] = 62.93% 20-1 $73,347  [($82,008 + $118,779)  2] = 73.06%

Earnings per share of common stock: 20-2 $90,844  6,900 sh. = $13.17 20-1 $73,347  6,300 sh. = $11.64

Book value per share of common stock: 20-2 $169,927  7,500 sh. = $22.66 20-1 $118,779  6,300 sh. = $18.85

Quick ratio: 20-2 ($30,275 + $42,441)  $40,483 = 1.80 to 1 20-1 ($15,604 + $33,565)  $30,421 = 1.62 to 1

Current ratio: 20-2 $129,295  $40,483 = 3.19 to 1 20-1 $90,208  $30,421 = 2.97 to 1

Working capital: 20-2 $129,295 – $40,483 = $88,812 20-1 $90,208 – $30,421 = $59,787

Receivables turnover: 20-2 $467,865  [($33,565 + $42,441)  2] = 12.31 or 29.65 days 20-1 $305,145  [($28,995 + $33,565)  2] = 9.76 or 37.40 days

990

CHAPTER 24

Problem 24-10B (Concluded) i.

Merchandise inventory turnover: 20-2 $256,955  [($34,636 + $49,460)  2] = 6.11 or 59.74 days 20-1 $149,005  [($32,425 + $34,636)  2] = 4.44 or 82.21 days

Debt-to-equity ratio: 20-2 $40,483  $169,927 = 0.24 to 1 20-1 $30,421  $118,779 = 0.26 to 1

Asset turnover: 20-2 $467,865  [($149,200 + $210,410)  2] = 2.60 to 1 20-1 $305,145  [($111,325 + $149,200)  2] = 2.34 to 1

Times interest earned ratio: 20-2 ($90,844 + $30,280 + $916)  $916 = 133.23 times 20-1 ($73,347 + $19,980 + $903)  $903 = 104.35 times

Profit margin ratio: 20-2 $90,844  $467,865 = 19.42% 20-1 $73,347  $305,145 = 24.04%

Assets-to-equity ratio: 20-2 $210,410  $169,927 = 1.24 20-1 $149,200  $118,779 = 1.26

Price-earnings ratio: 20-2 $120.00  $13.17 = 9.11 20-1 $110.00  $11.64 = 9.45

CHAPTER 24

991

MANAGING YOUR WRITING Memos will vary depending on the information available at the student’s library. Sample of resources the student may find: Corporate annual reports (hardcopy or microfiche) 10-K Reports on microfiche Moody’s Manuals Standard & Poor’s Industry Surveys Value Line Investment Survey In addition to the evaluations of financial health provided by various houses, information on industry averages for various ratios is provided. A specific firm can be compared against these averages to gain a perspective on the financial health of that firm.

ETHICS CASE 1. Answers will vary. The ethical principle of fidelity to stockholders has been violated. 2. Liquidity will increase in all measures; debt to equity will also increase. 3. Answers will vary. Students should point out that debt has been reduced and the company has the ability to borrow if it needs emergency funds. 4. Answers will vary. A decrease in working capital can result from more efficiently managing inventory, decreasing the amount of idle cash on hand, as well as borrowing short term. An increase in working capital can result from excess cash on hand, excess inventories, or decreasing short-term liabilities.

992

CHAPTER 24

Mastery Problem 1. Na Pali Coast Company Comparative Income Statement For Years Ended December 31, 20-2 and 20-1 20-2

20-1

AMOUNT

Increase (Decrease) AMOUNT

PERCENT

Net sales

$466,451

$291,613

$174,838

60.0

Cost of goods sold

285,889

188,626

97,263

51.6

Gross profit

$180,562

$102,987

$ 77,575

75.3

Operating expenses

125,650

78,200

47,450

60.7

Operating income

$ 54,912

$ 24,787

$ 30,125

121.5

1,200

500

700

140.0

$ 53,712

$ 24,287

$ 29,425

121.2

18,250

7,285

10,965

150.5

$ 35,462

$ 17,002

$ 18,460

108.6

Other expenses Income before income taxes Income tax expense Net income

CHAPTER 24

993

Mastery Problem (Continued) Na Pali Coast Company Comparative Balance Sheet December 31, 20-2 and 20-1 20-2

20-1

AMOUNT

Increase (Decrease) AMOUNT

PERCENT

Assets Current assets: Cash

8,600

7,500

$ 1,100)

14.7

Government notes

3,000

2,000

1,000)

50.0

Accounts receivable (net)

10,500

8,600

1,900)

22.1

Merchandise inventory

53,600

33,200

20,400)

61.4

Supplies and prepayments

4,500

3,200

1,300)

40.6

$ 80,200

$ 54,500

$25,700)

47.2

Land

$ 40,000

0.0

Building (net)

200,000

150,000

$50,000)

33.3

Delivery equipment (net)

13,000

15,000

(2,000)

–13.3

Office equipment (net)

5,400

6,000

(600)

–10.0

Patents

5,000

6,000

(1,000)

–16.7

$263,400

$217,000

$46,400)

21.4

$343,600

$271,500

$72,100)

26.6

Total current assets Property, plant, and equipment:

Total prop., plant, and equip. Total assets

994

CHAPTER 24

Mastery Problem (Continued) Na Pali Coast Company Comparative Balance Sheet (Concluded) December 31, 20-2 and 20-1 20-2

20-1

AMOUNT

Increase (Decrease) AMOUNT

PERCENT

Liabilities Current liabilities: Notes payable

5,000

3,000

$ 2,000)

66.7

Accounts payable

28,700

22,300

6,400)

28.7

Accrued and withheld pay. taxes

4,200

5,600

(1,400)

–25.0

Accrued interest payable

500

1,700

(1,200)

–70.6

Total current liabilities

$ 38,400

$ 32,600

$ 5,800)

17.8

50,000

20,000

30,000)

150.0

$ 88,400

$ 52,600

$35,800)

68.1

$115,000

$100,000

$15,000)

15.0

Paid-in capital in excess of par

65,000

60,000

5,000)

8.3

Retained earnings

75,200

58,900

16,300)

27.7

$255,200

$218,900

$36,300)

16.6

$343,600

$271,500

$72,100)

26.6

Long-term liabilities: Bonds payable Total liabilities Stockholders’ Equity Common stock ($5 par)

Total stockholders’ equity Total liab. and stockholders’ equity

CHAPTER 24

995

Mastery Problem (Continued) 2. Na Pali Coast Company Comparative Income Statement For Years Ended December 31, 20-2 and 20-1 20-2 AMOUNT

20-1 PERCENT

AMOUNT

PERCENT

Net sales

$466,451

100.0

$291,613

100.0

Cost of goods sold

285,889

61.3

188,626

64.7

Gross profit

$180,562

38.7

$102,987

35.3

Operating expenses

125,650

26.9

78,200

26.8

Operating income

$ 54,912

11.8

$ 24,787

8.5

1,200

0.3

500

0.2

$ 53,712

11.5

$ 24,287

8.3

18,250

3.9

7,285

2.5

$ 35,462

7.6

$ 17,002

5.8

Other expenses Income before income taxes Income tax expense Net income

996

CHAPTER 24

Mastery Problem (Continued) Na Pali Coast Company Comparative Balance Sheet December 31, 20-2 and 20-1 20-2 AMOUNT

20-1 PERCENT*

AMOUNT

PERCENT*

Assets Current assets: Cash

8,600

2.5

7,500

2.8

Government notes

3,000

0.9

2,000

0.7

Accounts receivable (net)

10,500

3.1

8,600

3.2

Merchandise inventory

53,600

15.6

33,200

12.2

Supplies and prepayments

4,500

1.3

3,200

1.2

$ 80,200

23.3

$ 54,500

20.1

Land

$ 40,000

11.6

$ 40,000

14.7

Building (net)

200,000

58.2

150,000

55.2

Delivery equipment (net)

13,000

3.8

15,000

5.5

Office equipment (net)

5,400

1.6

6,000

2.2

Patents

5,000

1.5

6,000

2.2

$263,400

76.7

$217,000

79.9

$343,600

100.0

$271,500

100.0

Total current assets

Property, plant, and equipment:

Total prop., plant, and equip. Total assets

*Percentage may not add due to rounding.

CHAPTER 24

997

Mastery Problem (Continued) Na Pali Coast Company Comparative Balance Sheet (Concluded) December 31, 20-2 and 20-1 20-2 AMOUNT

20-1 PERCENT

AMOUNT

PERCENT

Liabilities Current liabilities: Notes payable

5,000

1.5

Accounts payable

28,700

Accrued and withheld pay. taxes

3,000

1.1

8.4

22,300

8.2

4,200

1.2

5,600

2.1

Accrued interest payable

500

0.1

1,700

0.6

Total current liabilities

$ 38,400

11.2

$ 32,600

12.0

50,000

14.6

20,000

7.4

$ 88,400

25.7

$ 52,600

19.4

$115,000

33.5

$100,000

36.8

Paid-in capital in excess of par

65,000

18.9

60,000

22.1

Retained earnings

75,200

21.9

58,900

21.7

$255,200

74.3

$218,900

80.6

$343,600

100.0

$271,500

100.0

Long-term liabilities: Bonds payable Total liabilities Stockholders’ Equity Common stock ($5 par)

Total stockholders’ equity Total liab. and stockholders’ equity

998

CHAPTER 24

Mastery Problem (Continued) 3. a.

Working capital on December 31, 20-2: Current assets

$ 80,200

Current liabilities

(38,400) $ 41,800

Current ratio on December 31, 20-2: Current assets

$80,200

Current liabilities

$38,400

= 2.09 to 1

Quick or acid-test ratio on December 31, 20-2: Quick assets*

$22,100

Current liabilities

$38,400

= 0.58 to 1

*Quick assets 20-2: Cash

$ 8,600

Government notes

3,000

Accounts receivable (net)

10,500

Total quick assets

$22,100

CHAPTER 24

999

Mastery Problem (Continued) 4. a.

Accounts receivable turnover and average number of days to collect receivables for 20-2: Accounts receivable turnover: Net sales on account

$120,000

Average accounts receivable*

($8,600 + $10,500)/2

= 12.57

*Average accounts receivable = (Accounts receivable, beginning of year + Accounts receivable, end of year)  2 Average collection period: 365  12.57 = 29.04 days

Merchandise inventory turnover and average number of days inventory was held during 20-2: Merchandise inventory turnover: Cost of goods sold

$285,889

Average merchandise inventory*

($33,200 + $53,600)/2

= 6.59

*Average inventory = (Merchandise inventory, beginning of year + Merchandise inventory, end of year)  2 Average number of days to sell inventory: 365  6.59 = 55.39 days

Asset turnover for 20-2: Net sales

$466,451

Average assets

($271,500 + $343,600)/2

= 1.52

1000

CHAPTER 24

Mastery Problem (Continued) 5. a.

Profit margin ratio 20-2: Net income

$35,462

Net sales

$466,451

= 7.60%

Return on assets for 20-2: Net income

$35,462

= 11.53%

Average assets*

($271,500 + $343,600)/2

*Average assets = (Assets, beginning of year + Assets, end of year)  2 c.

Return on common stockholders’ equity for 20-2: Net income available to common stockholders

$35,462

= 14.96%

Average common stockholders’ equity*

($218,900 + $255,200)/2

*Average common stockholders’ equity = (Common stockholders’ equity, beginning of year + Common stockholders’ equity, end of year)  2 d.

Earnings per share of common stock for 20-2: Net income available to common stockholders

$35,462

Average common shares outstanding*

(20,000 + 23,000)/2

= $1.65 per share

*Average common shares outstanding = (Common shares outstanding, beginning of year + Common shares outstanding, end of year)  2 Beginning of year:

$100,000/$5 par value = 20,000 shares

End of year:

$115,000/$5 par value = 23,000 shares

CHAPTER 24

1001

Mastery Problem (Concluded) 6. a.

Debt-to-equity ratio on December 31, 20-2: Total liabilities

$88,400

Total stockholders’ equity

$255,200

= 0.35 to 1

Times interest earned ratio: Income before interest and taxes*

$54,912

Interest expense

$1,200

= 45.76 times

*Income before taxes and interest: Net income

$35,462

Corporate income taxes

18,250

Interest expense

1,200

Income before taxes and interest 7. a.

$54,912

Price-earnings ratio: Market price of common stock

$23.00

Earnings per share of common stock

$1.65

= 13.94

Book value per share of common stock on December 31, 20-2: Common stockholders’ equity, Dec. 31, 20-2

$255,200

No. of common shares outstanding, Dec. 31, 20-2

23,000 shares

= $11.10 per share

1002

CHAPTER 24

Challenge Problem 1.

As shown in the solution to the Mastery Problem [parts 4(a) and 4(b)], the accounts receivable turnover is 12.57 or 29.04 days. The merchandise inventory turnover is 6.59, or 55.39 days. Adding these together provides the total time to sell the inventory and collect cash from customers on account, 84.43 days.

Computing the average payment period (number of days before Na Pali pays its creditors) requires the students to develop a ratio not discussed in the chapter. It is very similar to the accounts receivable turnover, but applied to accounts payable. To calculate the average payment period, the following ratio should be calculated: Purchases Average Accounts Payable Purchases is not provided on the income statement. However, it can be computed based on techniques the students have learned in earlier chapters. They know that cost of goods sold (provided on the income statement) is determined as follows:

Step (1) Beginning inventory

$ 33,200

(Given on balance sheet)

(5) Plus purchases

306,289

(Plug: $339,489 – $33,200)

(4) Goods available for sale

$339,489

(EI + CGS)

(2) Ending inventory

53,600

(3) Cost of goods sold

$285,889

Or using algebra:

(Given on the balance sheet) (Given on the income statement)

BI + Purchases – EI = CGS $33,200 + X – $53,600 = $285,889 X = $285,889 – $33,200 + $53,600 X = $306,289 $306,289

($22,300 + $28,700)/2 $306,289 $25,500

= 12.01

365/12.01 = 30.39 days

Thus, it appears that Na Pali Coast Company generally pays for its merchandise 30 days after it is acquired.

CHAPTER 24

1003

Challenge Problem (Concluded) 3.

Average time to sell inventory

55.39 days

Less average time to pay for merchandise

30.39 days

Days held in inventory after payment

25.00 days

Plus average days to collect receivables

29.04 days

Days cash outstanding for merchandise

54.04 days

(Number of days from the time Na Pali Coast pays for inventory until it receives cash from customers on account.)

CHAPTER 25 DEPARTMENTAL ACCOUNTING REVIEW QUESTIONS 1.

Departmental reports are useful to management for three purposes: a. planning. b. control. c. performance evaluation.

Information necessary to compute departmental gross profit can be accumulated by: a. maintaining separate ledger accounts in each department for each of the elements (accounts) making up gross profit. b. maintaining a single general ledger account for each of the elements (accounts). The total in each account is then assigned to separate departments.

Operating expense information can be accumulated by: a. maintaining separate general ledger departmental operating accounts. b. maintaining a single general ledger account for each operating expense. The total in each account is then assigned or allocated to separate departments.

Direct operating expenses are operating expenses which are incurred for the sole benefit of and are traceable directly to a specific department. Indirect operating expenses are operating expenses which are incurred for the benefit of the business as a whole.

Direct expenses are assigned to departments based on the actual expenses incurred.

Indirect expenses are allocated to departments on some reasonable basis, such as relative sales or cost of goods sold, or the estimated time spent serving a given department.

A departmental operating expense summary shows: a. classification of each operating expense as direct or indirect. b. amount assigned or allocated to each department. c. total operating expenses for each department.

Management must be cautious in interpreting departmental operating income results because this measure includes indirect expenses. These expenses cannot be traced directly to any department. Departments have no control over such expenses. Further, most of these expenses would continue to be incurred even if a department was eliminated.

Departmental gross profit is the difference between a department’s net sales and cost of goods sold. Departmental operating income is the difference between a department’s gross profit and its operating expenses. Departmental direct operating margin is the difference between a department’s gross profit and its direct operating expenses.

10.

An income statement showing departmental direct operating margin can be used: a. to evaluate department performance. b. to determine the contribution a department makes to the overall operating income of the company. c. to decide whether to discontinue a department.

1006

Chapter 25

Exercise 25-1A Walters and Jennings Sportswear Departmental Income Statement (Partial) For Year Ended December 31, 20-Running Shoes Dept.

Walking Shoes Dept.

Specialty Shoes Dept.

Sales

$36,000

$42,000

$12,000

$90,000

Cost of goods sold

23,400

23,520

7,680

54,600

Gross profit

$12,600

$18,480

$ 4,320

$35,400

Total

Exercise 25-2A Dept. A

2,600 sq. ft.

Dept. B

2,400 sq. ft.

Dept. C

1,800 sq. ft.

Dept. D

3,200 sq. ft.

Total

10,000 sq. ft.

Dept. A

2,600  10,000 =

26%

Dept. B

2,400  10,000 =

24%

Dept. C

1,800  10,000 =

18%

Dept. D

3,200  10,000 =

32% 100%

Allocation of annual rent expense: Dept. A

$36,000  0.26 = $ 9,360

Dept. B

$36,000  0.24 =

8,640

Dept. C

$36,000  0.18 =

6,480

Dept. D

$36,000  0.32 =

11,520 $36,000

Chapter 25

1007

Exercise 25-3A Deluxe

$ 33,600

Standard

38,400

Economy

48,000

Total

$120,000

Deluxe

$33,600  $120,000 =

28%

Standard

$38,400  $120,000 =

32%

Economy

$48,000  $120,000 =

40% 100%

Allocation of advertising expense: Deluxe

$20,000  0.28 = $ 5,600

Standard

$20,000  0.32 =

6,400

Economy

$20,000  0.40 =

8,000 $20,000

Exercise 25-4A Dept. 1

36,000 miles

Dept. 2

48,000 miles

Dept. 3

16,000 miles

Total

100,000 miles

Dept. 1

36,000  100,000 =

36%

Dept. 2

48,000  100,000 =

48%

Dept. 3

16,000  100,000 =

16% 100%

Allocation of truck expense: Dept. 1

$16,000  0.36 = $ 5,760

Dept. 2

$16,000  0.48 =

7,680

Dept. 3

$16,000  0.16 =

2,560 $16,000

1008

Chapter 25

Exercise 25-5A West Division

33 purchase orders

East Division

47 purchase orders

Central Division

20 purchase orders

Total

100 purchase orders

West Division

33  100 =

33%

East Division

47  100 =

47%

Central Division

20  100 =

20% 100%

Allocation of purchasing department expense: West Division

$20,000  0.33 = $ 6,600

East Division

$20,000  0.47 =

9,400

Central Division

$20,000  0.20 =

4,000 $20,000

Exercise 25-6A Dept. A

Dept. B

Gross profit

$ 95 0 0 0 00

$180 0 0 0 00

Direct operating expenses

(20 0 0 0 00)

(72 0 0 0 00)

Direct operating margin

$ 75 0 0 0 00

$108 0 0 0 00

Direct operating margin percentage: Dept. A

$75,000/$300,000 = 25%

Dept. B

$108,000/$400,000 = 27%

Chapter 25

1009

Problem 25-7A 1. Thomas and Hill Distributors Income Statement For Year Ended December 31, 20-COMMERCIAL SALES

INDUSTRIAL SALES

TOTAL

Net sales

$630,000

$470,000

$1,100,000

Cost of goods sold

378,000

188,000

566,000

Gross profit

$252,000

$282,000

$ 534,000

Operating expenses: Warehouse wages expense

99,400

Truck drivers’ wages expense

88,200

Advertising expense

66,000

Warehouse lease expense

30,000

Depreciation expense—delivery equipment

11,000

Other operating expenses

115,000

Total operating expenses Operating income

$ 409,600 $ 124,400

2. Departmental gross profit percentages: Commercial sales

= $252,000  $630,000 = 40%

Industrial sales

= $282,000  $470,000 = 60%

1010

Chapter 25

Problem 25-8A 1. Alexa’s Bakery Income Statement For Year Ended June 30, 20-Breads Net sales

Pastries

Total

$172,000

$119,000

$291,000

92,400

60,500

152,900

Cost of goods sold Gross profit

$79,600

$58,500

$138,100

Operating expenses: Wages expense

$ 30,000

$ 20,000

$ 50,000

Advertising expense

11,000

8,000

19,000

Other operating expenses

21,000

14,000

35,000

Total operating expenses Operating income

62,000

42,000

$104,000

$17,600

$16,500

$ 34,100

2. Departmental operating expense percentages: Breads operating expense percentage

$62,000  $172,000 = 36%

Pastries operating expense percentage

$42,000  $119,000 = 35.3%

Operating income percentages: Breads operating income percentage

$17,600  $172,000 = 10.2%

Pastries operating income percentage

$16,500  $119,000 = 13.9%

Chapter 25

1011

Problem 25-9A 1. Thomas Security Income Statement For Year Ended December 31, 20-Commercial Property

Residential Homes

Total

Net sales

$465,000

$135,000

$600,000

Cost of goods sold

279,250

54,000

333,250

Gross profit

$185,750

$ 81,000

$266,750

$ 35,000

$ 20,000

$ 55,000

Store clerks’ wages expense

30,000

18,000

48,000

Truck drivers’ wages expense

15,000

30,000

Bad debt expense

8,000

3,000

11,000

Depreciation expense—delivery equipment

6,000

4,000

10,000

Other operating expenses

20,000

10,000

30,000

Total direct operating expenses

$114,000

$ 70,000

$184,000

Departmental direct operating margin

$ 71,750

$ 11,000

$ 82,750

Direct operating expenses: Advertising expense

Indirect operating expenses: Store clerks’ wages expense

$ 10,000

Advertising expense

15,000

Store rent expense

20,000

Other operating expenses

10,000

Total indirect operating expenses Operating income

$ 55,000 $ 27,750

2. Departmental direct operating margin percentages: Commercial property direct operating margin percentage $71,750  $465,000 = 15.4% Residential homes direct operating margin percentage $11,000  $135,000 = 8.1%

1012

Chapter 25

Problem 25-10A 1. Williams and Lloyd Company

Depts. A & C Only

Dept. A

Dept. B

Dept. C

Total

Net sales

$380,000

$260,000)

$290,000

$930,000

$670,000

Cost of goods sold

210,000

140,000)

160,000

510,000

370,000

Gross profit

$170,000

$120,000)

$130,000

$420,000

$300,000

Direct operating expenses

100,000

90,000)

80,000

270,000

180,000

Departmental direct operating margin

$ 70,000

$ 30,000)

$ 50,000

$150,000

$120,000

40,000

35,000)

40,000

115,000

$ 30,000

$ (5,000)

$ 10,000

$ 35,000

Indirect operating expenses Operating income (loss)

5,000

2. If department B is eliminated, total operating income will be reduced from $35,000 to $5,000. This will result because department B has a $30,000 departmental direct operating margin. If department B is eliminated, this $30,000 margin will be lost. The indirect operating expense of $35,000 allocated to department B will have to be absorbed by the remaining departments. Therefore, department B should not be eliminated.

Chapter 25

1013

Exercise 25-1B L and D Uniforms Departmental Income Statement (Partial) For Year Ended December 31, 20-Letters Department

Sweaters Department

Skirts Department

Total

Sales

$3,000

$12,000

$8,000

$23,000

Cost of goods sold

1,400

5,900

4,750

12,050

Gross profit

$1,600

$ 6,100

$3,250

$10,950

Exercise 25-2B Dept. A

1,200 sq. ft.

Dept. B

1,400 sq. ft.

Dept. C

1,500 sq. ft.

Dept. D

900 sq. ft.

Total

5,000 sq. ft.

Dept. A

1,200  5,000 =

24%

Dept. B

1,400  5,000 =

28%

Dept. C

1,500  5,000 =

30%

Dept. D

900  5,000 =

18% 100%

Allocation of annual rent expense: Dept. A

$40,000  0.24 = $ 9,600

Dept. B

$40,000  0.28 =

11,200

Dept. C

$40,000  0.30 =

12,000

Dept. D

$40,000  0.18 =

7,200 $40,000

1014

Chapter 25

Exercise 25-3B Football

$10,000

Basketball

6,000

Baseball

9,000

Total

$25,000

Football

$10,000  $25,000 =

40%

Basketball

$6,000  $25,000 =

24%

Baseball

$9,000  $25,000 =

36% 100%

Allocation of advertising expense: Football

$5,000  0.40 =

$2,000

Basketball

$5,000  0.24 =

1,200

Baseball

$5,000  0.36 =

1,800 $5,000

Exercise 25-4B Dept. 1

4,000 miles

Dept. 2

13,000 miles

Dept. 3

8,000 miles

Total

25,000 miles

Dept. 1

4,000  25,000 =

16%

Dept. 2

13,000  25,000 =

52%

Dept. 3

8,000  25,000 =

32% 100%

Allocation of truck expense: Dept. 1

$5,000  0.16 =

$ 800

Dept. 2

$5,000  0.52 =

2,600

Dept. 3

$5,000  0.32 =

1,600 $5,000

Chapter 25

1015

Exercise 25-5B West Division

29 purchase orders

East Division

37 purchase orders

Central Division

34 purchase orders

Total

100 purchase orders

West Division

29  100 =

29%

East Division

37  100 =

37%

Central Division

34  100 =

34% 100%

Allocation of purchasing department expense: West Division

$30,000  0.29 = $ 8,700

East Division

$30,000  0.37 =

11,100

Central Division

$30,000  0.34 =

10,200 $30,000

Exercise 25-6B Dept. A Gross profit Direct operating expenses Direct operating margin

Dept. B

$110 0 0 0 00 $180 0 0 0 00 (35 0 0 0 00)

(72 0 0 0 00)

$ 75 0 0 0 00 $108 0 0 0 00

Direct operating margin percentage: Dept. A

$75,000/$300,000 = 25%

Dept. B

$108,000/$400,000 = 27%

1016

Chapter 25

Problem 25-7B 1. Bacon and Hand Distributors Income Statement For Year Ended December 31, 20-RETAIL SALES

WHOLESALE SALES

TOTAL

Net sales

$570,000

$830,000

$1,400,000

Cost of goods sold

319,200

398,400

717,600

Gross profit

$250,800

$431,600

$ 682,400

Operating expenses: Warehouse wages expense

$ 110,000

Truck drivers’ wages expense

90,500

Advertising expense

70,000

Warehouse lease expense

40,000

Depreciation expense—delivery equipment

12,000

Other operating expenses

130,000

Total operating expenses Operating income

$ 452,500 $ 229,900

2. Departmental gross profit percentages: Retail sales

= $250,800  $570,000 = 44%

Wholesale sales

= $431,600  $830,000 = 52%

Chapter 25

1017

Problem 25-8B 1. The Knitting Chamber Income Statement For Year Ended June 30, 20-Domestic Yarn

International Yarn

Total

Net sales

$60,000

$40,000

$100,000

Cost of goods sold

$37,200

28,000

65,200

Gross profit

$22,800

$12,000

$ 34,800

Operating expenses: Wages expense

$10,000

$ 5,000

$ 15,000

Advertising expense

2,500

1,500

4,000

Other operating expenses

4,000

1,000

5,000

Total operating expenses Operating income

16,500

7,500

$ 24,000

$ 6,300

$ 4,500

$ 10,800

2. Departmental operating expense percentages: Domestic yarn operating expense percentage

$16,500  $60,000 = 27.5%

International yarn operating expense percentage

$7,500  $40,000 = 18.8%

Operating income percentages: Domestic yarn operating income percentage

$6,300  $60,000 = 10.5%

International yarn operating income percentage

$4,500  $40,000 = 11.3%

1018

Chapter 25

Problem 25-9B 1. Peterson’s Furniture and Appliances Income Statement For Year Ended December 31, 20-Furniture Department

Appliances Department

Total

Net sales

$390,000

$810,000

$1,200,000

Cost of goods sold

234,000

405,000

639,000

Gross profit

$156,000

$405,000

$ 561,000

$ 30,000

$ 60,000

Store clerks’ wages expense

40,000

90,000

130,000

Truck drivers’ wages expense

35,000

65,000

100,000

Bad debt expense

4,000

9,000

13,000

Depreciation expense—delivery equipment

4,000

8,000

12,000

Other operating expenses

15,000

50,000

65,000

Total direct operating expenses

$128,000

$282,000

$ 410,000

Departmental direct operating margin

$ 28,000

$123,000

$ 151,000

Direct operating expenses: Advertising expense

90,000

Indirect operating expenses: Store clerks’ wages expense

20,000

Advertising expense

15,000

Store rent expense

50,000

Other operating expenses

25,000

Total indirect operating expenses Operating income

$ 110,000 $

41,000

2. Departmental direct operating margin percentages: Furniture department direct operating margin percentage $28,000  $390,000 = 7.2% Appliances department direct operating margin percentage $123,000  $810,000 = 15.2%

Chapter 25

1019

Problem 25-10B 1. Mueller and Kenington Company

Dept. A

Dept. B

Dept. C

Total

Depts. B & C Only

Net sales

$680,000)

$730,000

$690,000

$2,100,000

$1,420,000

Cost of goods sold

400,000)

380,000

360,000

1,140,000

740,000

Gross profit

$280,000)

$350,000

$330,000

$ 960,000

$ 680,000

Direct operating expenses

230,000)

240,000

210,000

680,000

450,000

Departmental direct operating margin

$ 50,000)

$110,000

$120,000

$ 280,000

$ 230,000

70,000)

70,000

210,000

$ (20,000)

$ 40,000

$ 50,000

Indirect operating expenses Operating income (loss)

70,000

20,000

2. If department A is eliminated, total operating income will be reduced from $70,000 to $20,000. This will result because department A has a $50,000 departmental direct operating margin. If department A is eliminated, this $50,000 margin will be lost. The indirect operating expense of $70,000 allocated to department A will have to be absorbed by the remaining departments. Therefore, department A should not be eliminated.

1020

Chapter 25

MANAGING YOUR WRITING Students should raise the following points regarding each issue: 1. To determine which department is making a greater contribution to the profits of the business, the direct operating margin should be used rather than operating income. Direct operating margin considers only those expenses which can be traced directly to a department. This measure provides a clearer picture of the contribution of a department. 2. In deciding whether to discontinue a department, direct operating margin is the proper measure. Operating income includes both direct and indirect expenses, but the only expenses that will be avoided if a department is discontinued are the direct expenses. Thus, direct operating margin, which considers only direct expenses, provides the necessary information to decide whether to discontinue a department.

ETHICS CASE 1. Answers will vary. 2. Operating expenses of the toy department will decrease, while operating expenses of the hobby department will increase. Departmental operating income of the toy department will increase, while departmental operating income of the hobby department will decrease. Net income will not be affected. 3. Answers will vary. Melanie and Joyce might have a strained relationship whether or not they do what Melanie suggested. Mr. Hobgood might discover what they have done and take corrective action including firing one or both employees. Someone analyzing the financial statements might make a wrong assumption based on misleading numbers. 4. Answers will vary. Students might suggest expanding the hobby department, allocating more advertising dollars toward the toy end, or moving locations. There are many possibilities.

Chapter 25

1021

Mastery Problem 1. a. Bob’s Acme Supermarket Income Statement For Year Ended December 31, 20--

Grocery

Meat

Produce

Total

Net sales

$2,104,890

$660,500

$345,800)

$3,111,190

Cost of goods sold

1,683,912

462,350

207,480)

2,353,742

Gross profit

$ 420,978

$198,150

$138,320)

$ 757,448

$ 137,000

$ 63,000

$ 42,500)

$ 242,500

Advertising expense

32,000

40,500

19,400)

91,900

Depr. exp.—store equip.

45,800

25,000

17,000)

87,800

Store rent

60,000

20,000

20,000)

100,000

Other operating expenses

53,700

33,040

54,050)

140,790

$ 328,500

$181,540

$152,950)

$ 662,990

$ 16,610

$ (14,630)

Operating expenses: Store clerks’ wages expense

Total operating expenses Operating income (loss)

92,478

94,458

b. Gross profit percentage: Grocery

$420,978  $2,104,890 = 20%

Meat

$198,150  $660,500 = 30%

Produce

$138,320  $345,800 = 40%

Operating income percentage: Grocery

$92,478  $2,104,890 = 4.4%

Meat

$16,610  $660,500 = 2.5%

Produce

$(14,630)  $345,800 = (4.2%)

1022

Chapter 25

Mastery Problem (Continued) 2. a. Bob’s Acme Supermarket Income Statement For Year Ended December 31, 20--

Grocery

Meat

Produce

Total

Net sales

$2,104,890

$660,500

$345,800

$3,111,190

Cost of goods sold

1,683,912

462,350

207,480

2,353,742

Gross profit

$ 420,978

$198,150

$138,320

$ 757,448

$ 125,000

$ 58,000

$ 38,500

$ 221,500

Advertising expense

25,000

38,500

18,400

81,900

Depr. exp.—store equip.

10,800

15,000

12,000

37,800

Other operating expenses

28,200

28,540

35,600

92,340

$ 189,000

$140,040

$104,500

$ 433,540

$ 231,978

$ 58,110

$ 33,820

$ 323,908

Direct operating expenses: Store clerks’ wages expense

Total direct operating exp. Direct operating margin Indirect operating expenses: Store clerks’ wages expense

21,000

Advertising expense

10,000

Depr. exp.—store equip.

50,000

Store rent

100,000

Other operating expenses

48,450

Total indirect oper. exp.

$ 229,450

Operating income

94,458

b. Departmental direct operating margin percentage: Grocery

$231,978  $2,104,890 = 11.0%

Meat

$58,110  $660,500 = 8.8%

Produce

$33,820  $345,800 = 9.8%

Chapter 25

1023

Mastery Problem (Concluded) 3. The income statement in requirement 1 shows that the produce department had an operating loss of $14,630. This should be of concern to Bob, but he should analyze the income statement in requirement 2 to determine whether there is a serious problem. The income statement in requirement 2 shows that the produce department had a direct operating margin of $33,820. This is the contribution the produce department made toward indirect expenses and total operating income of the business. If the produce department were discontinued, profits would be reduced by $33,820 unless indirect expenses associated with the produce department could be eliminated. Based on analysis of its direct operating margin, the produce department is making a substantial contribution to the profits of the business. It should not be discontinued.

1024

Chapter 25

Challenge Problem Kobe Company

Department A

Department B

Department D

Total

Net sales

$590,000

$735,000

$480,000

$1,805,000

Cost of goods sold

365,000

545,750

270,000

1,180,750

Gross margin

$225,000

$189,250

$210,000

$ 624,250

Direct operating expenses

127,000

97,000

185,000

409,000

Direct operating margin

$ 98,000

$ 92,250

$ 25,000

$ 215,250

Indirect operating expenses

Operating income (loss)

155,000 $

60,250

31,250

29,000

Total operating income from depts. A, B, and C Increase in operating income from discontinuing dept. C and establishing dept. D

*The new allocation of indirect operating expenses is unknown, but the total changes from $133,000 to $155,000 because of the $22,000 increase from establishing department D. Similarly, the individual departmental operating income amounts are unknown. Alternative solution: Change in direct operating margin [$(26,000) – $25,000]

$51,000

Change in indirect operating expenses

22,000

Increase in operating income

$29,000

CHAPTER 26 MANUFACTURING ACCOUNTING: THE JOB ORDER COST SYSTEM REVIEW QUESTIONS 1.

Accounting for a manufacturing business is more complicated than for a merchandising business because the manufacturer makes the items it sells, rather than purchasing them in final form as a merchandise seller.

The three primary elements of manufacturing cost are: a. materials. b. labor. c. factory overhead.

The two major types of materials are direct and indirect. Direct materials enter into and become a major part of the finished product. Indirect materials are used in the manufacturing process but do not become a major part of the finished product.

Direct labor includes the wages of employees who are directly involved in converting materials into finished goods. Indirect labor includes the wages and salaries of employees who devote their time to supervision or to work of a general nature.

Factory overhead includes all manufacturing costs other than direct materials and direct labor. Three examples of factory overhead are: a. depreciation of factory buildings and equipment. b. insurance on factory buildings and equipment. c. heat, light, and power. (Repairs and property taxes would also be correct.)

Three inventories needed in a manufacturing business are Materials Inventory, Work in Process Inventory, and Finished Goods Inventory.

Direct materials and direct labor go directly into Work in Process. Indirect materials and indirect labor go through Factory Overhead into Work in Process.

The differences between the financial statements of a manufacturer and a merchandiser are in the cost of goods sold section of the income statement and the inventories on the balance sheet.

The three reasons for product cost information are: a. to assist in setting selling prices. b. to assist in controlling production costs. c. to assist in determining the net income or loss for the period.

10.

The materials requisition form serves as both an authorization to the storeroom to issue materials and a source document showing the movement of materials.

11.

The daily time sheet indicates the direct and indirect labor hours and costs to be charged to specific jobs and to factory overhead accounts.

12.

To calculate a predetermined overhead rate, estimate the total overhead costs and total production activity for the year. The overhead is then spread among the jobs based on the amount of production activity on each job. 1025

1026

CHAPTER 26

13. Direct materials, direct labor, and factory overhead costs incurred on a specific job are included on a job cost sheet. 14. If the amount of applied overhead is greater than actual overhead cost incurred, the difference is called overapplied overhead. If the amount applied is less than actual overhead cost incurred, the difference is called underapplied overhead. Unless the amount is large, the underapplied or overapplied overhead commonly is transferred to Cost of Goods Sold by an adjusting entry. 15. A job order cost system provides a separate record of the cost of each individual product or group of products that is produced. In a process cost system, costs attach to products and are passed from one process to another.

CHAPTER 26

1027

Exercise 26-1A

R&D Manufacturing Co. Cost of goods sold: Finished goods inventory, January 1, 20--

$57,000

Cost of goods manufactured

36,000

Goods available for sale

$93,000

Finished goods inventory, December 31, 20--

44,000

Cost of goods sold

$49,000

WP West Co. Cost of goods sold: Merchandise inventory, January 1, 20--

$57,000

Purchases

36,000

Merchandise available for sale

$93,000

Merchandise inventory, December 31, 20--

44,000

Cost of goods sold

$49,000

1028

CHAPTER 26

Exercise 26-2A Maupin Manufacturing Company Schedule of Cost of Goods Manufactured For Year Ended December 31, 20-Work in process, January 1, 20--

$ 77,000

Materials inventory, January 1, 20--

$31,000

Materials purchases

35,000

Materials available for use

$66,000

Materials inventory, December 31, 20--

26,000

Cost of materials used

$40,000

Direct labor

48,000

Overhead

20,000

Total manufacturing costs

108,000

Total work in process during the period

$185,000

Work in process, December 31, 20-Cost of goods manufactured

62,000 $123,000

CHAPTER 26

1029

Exercise 26-3A GENERAL JOURNAL DATE 20-1 2

Jan.

DESCRIPTION

1 Materials

PAGE POST. REF.

DEBIT

CREDIT

17 0 0 0 00

Accounts Payable

17 0 0 0 00

3 4 5

15 Work in Process (Job No. 104)

11 0 0 0 00

Materials

11 0 0 0 00

6 7 8

20 Factory Overhead (Indirect Materials)

5 0 0 0 00

Materials

5 0 0 0 00

9 10 11

31 Work in Process (Job No. 104)

9 0 0 0 00

Wages Payable

9 0 0 0 00 11

12 13 14

31 Factory Overhead (Indirect Labor)

2 5 0 0 00

Wages Payable

2 5 0 0 00 14

15 16

31 Factory Overhead (Miscellaneous) Accounts Payable

2 0 0 0 00

2 0 0 0 00 17

1030

CHAPTER 26

Exercise 26-4A GENERAL JOURNAL DATE 20-1 2

Jan.

PAGE POST. REF.

DESCRIPTION

1 Factory Overhead (Rent)

DEBIT

CREDIT

1 0 0 0 00

Cash

1 0 0 0 00

3 4 5

10 Factory Overhead (Electricity)

2 5 0 00

Cash

2 5 0 00

6 7 8

15 Factory Overhead (Repairs)

1 5 0 0 00

Cash

1 5 0 0 00

9 10 11

21 Factory Overhead (Vacation Pay)

5 0 0 00

Wages Payable

5 0 0 00 11

12 13 14

31 Factory Overhead (Depreciation)

4 5 0 00

Accumulated Depreciation

4 5 0 00 14

15 16

31 Work in Process

3 5 0 0 00

Factory Overhead

3 5 0 0 00 17

Actual factory overhead debited

$3,700

Total factory overhead applied

3,500

Factory overhead underapplied

$ 200

31 Cost of Goods Sold

Factory Overhead

2 0 0 00

2 0 0 00 24

CHAPTER 26

1031

Exercise 26-5A Predetermined factory overhead rates: (1) Direct labor hours: $540,000

= $10.80/direct labor hour

50,000 hours (2) Direct labor costs: $540,000

= 60% of direct labor costs

$900,000 (3) Machine hours: $540,000

= $6.75/machine hour

80,000 hours

1032

CHAPTER 26

Exercise 26-6A GENERAL JOURNAL DATE 20-1 2

Apr.

DESCRIPTION

1 Materials

PAGE POST. REF.

DEBIT

CREDIT

35 0 0 0 00

Accounts Payable

35 0 0 0 00

3 4 5

10 Work in Process (Job No. 33)

10 0 0 0 00

Materials

10 0 0 0 00

6 7 8

11 Work in Process (Job No. 34)

8 0 0 0 00

Materials

8 0 0 0 00

9 10 11

12 Work in Process (Job No. 35)

11 0 0 0 00

Materials

11 0 0 0 00 11

25 Work in Process (Job No. 33)

6 0 0 0 00

Work in Process (Job No. 34)

4 0 0 0 00

Work in Process (Job No. 35)

5 0 0 0 00

Wages Payable

15 0 0 0 00 16

25 Work in Process (Job No. 33)

1 5 0 0 00

Work in Process (Job No. 34)

1 2 0 0 00

Work in Process (Job No. 35)

1 6 0 0 00

Factory Overhead (Applied)

4 3 0 0 00 21

22 23 24

30 Finished Goods (Product F)

17 5 0 0 00

Work in Process (Job No. 33)

17 5 0 0 00 24

25 26 27

30 Finished Goods (Product G)

13 2 0 0 00

Work in Process (Job No. 34)

13 2 0 0 00

28 29 30

30 Finished Goods (Product H)

17 6 0 0 00

Work in Process (Job No. 35)

17 6 0 0 00

31 32 33

30 Accounts Receivable

20 0 0 0 00

Sales

20 0 0 0 00

34 35 36

30 Cost of Goods Sold Finished Goods (Product F)

17 5 0 0 00 17 5 0 0 00

CHAPTER 26

1033

Exercise 26-6A (Concluded) GENERAL JOURNAL DATE 20-1 2

Apr.

DESCRIPTION

30 Accounts Receivable

PAGE POST. REF.

DEBIT

CREDIT

16 0 0 0 00

Sales

16 0 0 0 00

3 4 5

30 Cost of Goods Sold

13 2 0 0 00

Finished Goods (Product G)

13 2 0 0 00

6 7 8

30 Accounts Receivable

22 0 0 0 00

Sales

22 0 0 0 00

9 10 11

30 Cost of Goods Sold

17 6 0 0 00

Finished Goods (Product H)

17 6 0 0 00 11

12 13 14

30 Factory Overhead Cost of Goods Sold

8 0 00

8 0 00 14

1034

CHAPTER 26

Problem 26-7A GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Materials

PAGE POST. REF.

DEBIT

CREDIT

70 0 0 0 00

Accounts Payable

70 0 0 0 00

3 4 5

b. Work in Process (Job No. 300)

25 0 0 0 00

Materials

25 0 0 0 00

c. Factory Overhead

Materials

10 0 0 0 00

9 10 11

d. Work in Process (Job No. 300)

8 0 0 0 00

Cash

8 0 0 0 00 11

12 13 14

e. Factory Overhead

3 0 0 0 00

Cash

f. Work in Process (Job No. 301)

20 0 0 0 00

Materials

g. Factory Overhead

Materials

4 0 0 0 00

h. Factory Overhead

6 0 0 0 00

Cash

i. Work in Process (Job No. 301)

10 0 0 0 00

Cash

10 0 0 0 00 26

27 28

6 0 0 0 00 23

24 25

4 0 0 0 00 20

20 0 0 0 00 17

3 0 0 0 00 14

15 16

j. Factory Overhead Cash

2 0 0 0 00

2 0 0 0 00 29

CHAPTER 26

1035

Problem 26-8A 1. GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Materials

PAGE POST. REF.

DEBIT

CREDIT

44 0 0 0 00

Accounts Payable

44 0 0 0 00

b. Work in Process (Job No. 205)

8 5 0 0 00

Work in Process (Job No. 206)

9 6 0 0 00

Work in Process (Job No. 207)

8 0 0 0 00

Work in Process (Job No. 208)

9 0 0 0 00

Materials

35 1 0 0 00

c. Factory Overhead

Materials

5 7 0 0 00

5 7 0 0 00 11

d. Work in Process (Job No. 205)

5 4 0 0 00

Work in Process (Job No. 206)

4 6 0 0 00

Work in Process (Job No. 207)

5 2 0 0 00

Work in Process (Job No. 208)

5 5 0 0 00

Wages Payable

20 7 0 0 00 17

e. Factory Overhead

Wages Payable

3 4 0 0 00

3 4 0 0 00 20

21 22 23

f. Factory Overhead

5 3 0 0 00

Cash

5 3 0 0 00 23

g. Work in Process (Job No. 205)

3 3 0 0 00

Work in Process (Job No. 206)

3 9 0 0 00

Work in Process (Job No. 207)

3 3 0 0 00

Work in Process (Job No. 208)

3 9 0 0 00

Factory Overhead

14 4 0 0 00 29

1036

CHAPTER 26

Problem 26-8A (Continued) GENERAL JOURNAL DATE 1 2

DESCRIPTION

h. Finished Goods (Product L)

PAGE POST. REF.

DEBIT

CREDIT

17 2 0 0 00

Work in Process (Job No. 205)

17 2 0 0 00

3 4 5

Finished Goods (Product M)

18 1 0 0 00

Work in Process (Job No. 206)

18 1 0 0 00

6 7 8

Finished Goods (Product N)

16 5 0 0 00

Work in Process (Job No. 207)

16 5 0 0 00

9 10 11

Finished Goods (Product O)

18 4 0 0 00

Work in Process (Job No. 208)

18 4 0 0 00 11

12 13 14

i. Accounts Receivable

21 0 0 0 00

Sales

Cost of Goods Sold

17 2 0 0 00

Finished Goods (Product L)

Accounts Receivable

20 3 0 0 00

Sales

Cost of Goods Sold

18 1 0 0 00

Finished Goods (Product M)

Accounts Receivable

19 0 0 0 00

Sales

Cost of Goods Sold

16 5 0 0 00

Finished Goods (Product N)

Accounts Receivable

20 5 0 0 00

Sales

35 36

20 5 0 0 00 32

33 34

16 5 0 0 00 29

30 31

19 0 0 0 00 26

27 28

18 1 0 0 00 23

24 25

20 3 0 0 00 20

21 22

17 2 0 0 00 17

18 19

21 0 0 0 00 14

15 16

Cost of Goods Sold Finished Goods (Product O)

18 4 0 0 00

18 4 0 0 00 35 36

CHAPTER 26

1037

Problem 26-8A (Concluded) 2. Work in Process (b)

8,500 9,600 8,000 9,000 5,400 4,600 5,200 5,500 3,300 3,900 3,300 3,900

(d)

(g)

(h) (h) (h) (h)

Finished Goods 17,200 18,100 16,500 18,400

(h) (h) (h) (h)

17,200 18,100 16,500 18,400

(i) (i) (i) (i)

17,200 18,100 16,500 18,400

Problem 26-9A 1.

GENERAL JOURNAL DATE

1 2

DESCRIPTION

a. Materials

PAGE POST. REF.

DEBIT

CREDIT

50 0 0 0 00

Accounts Payable

50 0 0 0 00

b. Work in Process (Job No. 101)

10 0 0 0 00

8 0 0 0 00

Work in Process (Job No. 102) Work in Process (Job No. 103)

9 0 0 0 00

Work in Process (Job No. 104)

15 0 0 0 00

4 5

Materials

42 0 0 0 00

c. Factory Overhead

Materials

8 0 0 0 00

8 0 0 0 00 11

d. Work in Process (Job No. 101)

22 0 0 0 00

19 0 0 0 00

Work in Process (Job No. 102) Work in Process (Job No. 103)

20 5 0 0 00

Work in Process (Job No. 104)

30 0 0 0 00

13 14

Wages Payable

91 5 0 0 00 17

e. Factory Overhead

Wages Payable

15 0 0 0 00

15 0 0 0 00 20

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1038

CHAPTER 26

Problem 26-9A (Continued) GENERAL JOURNAL DATE 1 2

DESCRIPTION

f. Factory Overhead

PAGE POST. REF.

DEBIT

CREDIT

8 0 0 0 00

Cash

8 0 0 0 00

3 4 5

g. Factory Overhead

30 0 0 0 00

Accumulated Depreciation

30 0 0 0 00

h. Work in Process (Job No. 101)

14 4 0 0 00

12 0 0 0 00

Work in Process (Job No. 102) Work in Process (Job No. 103)

13 2 0 0 00

Work in Process (Job No. 104)

21 6 0 0 00

7 8

Factory Overhead

61 2 0 0 00 11

12 13 14

i. Finished Goods (Product N)

46 4 0 0 00

Work in Process (Job No. 101)

46 4 0 0 00 14

15 16 17

Finished Goods (Product O)

39 0 0 0 00

Work in Process (Job No. 102)

Finished Goods (Product P)

42 7 0 0 00

Work in Process (Job No. 103)

j. Accounts Receivable Sales

50 0 0 0 00

Cost of Goods Sold

46 4 0 0 00

Finished Goods (Product N)

Accounts Receivable

45 4 0 0 00

Sales

Cost of Goods Sold

39 0 0 0 00

Finished Goods (Product O)

35 36

39 0 0 0 00 32

33 34

45 4 0 0 00 29

30 31

46 4 0 0 00 26

27 28

50 0 0 0 00 23

24 25

42 7 0 0 00 20

21 22

39 0 0 0 00 17

18 19

k. Factory Overhead Cost of Goods Sold

2 0 0 00

2 0 0 00 35 36

CHAPTER 26

1039

Problem 26-9A (Concluded) 2. Work in Process (b)

(d)

(h)

10,000 8,000 9,000 15,000 22,000 19,000 20,500 30,000 14,400 12,000 13,200 21,600

(i) (i) (i)

Finished Goods 46,400 39,000 42,700

(i) (i) (i)

128,100

46,400 39,000 42,700

(j) (j)

46,400 39,000 85,400

128,100

Bal.

42,700

194,700

Bal.

66,600

3. Balance in job cost ledger (Job No. 104)

$66,600

Balance in work in process control account

$66,600

1040

CHAPTER 26

Exercise 26-1B

A&B Manufacturing Co. Cost of goods sold: Finished goods inventory, January 1, 20--

$15,750

Cost of goods manufactured

11,000

Goods available for sale

$26,750

Finished goods inventory, December 31, 20--

13,000

Cost of goods sold

$13,750

JC Yoshino Co. Cost of goods sold: Merchandise inventory, January 1, 20--

$15,750

Purchases

11,000

Merchandise available for sale

$26,750

Merchandise inventory, December 31, 20--

13,000

Cost of goods sold

$13,750

CHAPTER 26

1041

Exercise 26-2B Sanchez Welding and Manufacturing Company Schedule of Cost of Goods Manufactured For Year Ended December 31, 20-Work in process, January 1, 20--

$20,500

Materials inventory, January 1, 20--

$11,000

Materials purchases

12,000

Materials available for use

$23,000

Materials inventory, December 31, 20--

13,000

Cost of materials used

$10,000

Direct labor

9,500

Overhead

5,500

Total manufacturing costs

25,000

Total work in process during the period

$45,500

Work in process, December 31, 20--

10,500

Cost of goods manufactured

$35,000

1042

CHAPTER 26

Exercise 26-3B GENERAL JOURNAL DATE 20-1 2

Jan.

DESCRIPTION

1 Materials

PAGE POST. REF.

DEBIT

CREDIT

22 0 0 0 00

Accounts Payable

22 0 0 0 00

3 4 5

15 Work in Process (Job No. 1)

18 0 0 0 00

Materials

18 0 0 0 00

6 7 8

20 Factory Overhead (Indirect Materials)

3 0 0 0 00

Materials

3 0 0 0 00

9 10 11

31 Work in Process (Job No. 1)

11 0 0 0 00

Wages Payable

11 0 0 0 00 11

12 13 14

31 Factory Overhead (Indirect Labor)

4 0 0 0 00

Wages Payable

4 0 0 0 00 14

15 16

31 Factory Overhead (Miscellaneous) Accounts Payable

1 5 0 0 00

1 5 0 0 00 17

CHAPTER 26

1043

Exercise 26-4B GENERAL JOURNAL DATE 20-1 2

Jan.

PAGE POST. REF.

DESCRIPTION

1 Factory Overhead (Rent)

DEBIT

CREDIT

2 0 0 0 00

Cash

2 0 0 0 00

3 4 5

10 Factory Overhead (Electricity)

5 0 0 00

Cash

5 0 0 00

6 7 8

15 Factory Overhead (Repairs)

3 0 0 0 00

Cash

3 0 0 0 00

9 10 11

21 Factory Overhead (Vacation Pay)

5 0 0 00

Wages Payable

5 0 0 00 11

12 13 14

31 Factory Overhead (Depreciation)

5 0 0 00

Accumulated Depreciation

5 0 0 00 14

15 16

31 Work in Process

6 0 0 0 00

Factory Overhead

6 0 0 0 00 17

Actual factory overhead debited

$6,500

Total factory overhead applied

6,000

Factory overhead underapplied

$ 500

31 Cost of Goods Sold

Factory Overhead

5 0 0 00

5 0 0 00 24

1044

CHAPTER 26

Exercise 26-5B Predetermined factory overhead rates: (1) Direct labor hours: $600,000

= $20/direct labor hour

30,000 hours (2) Direct labor costs: $600,000

= 50% of direct labor costs

$1,200,000 (3) Machine hours: $600,000

= $3/machine hour

200,000 hours

CHAPTER 26

1045

Exercise 26-6B GENERAL JOURNAL DATE 20-1 2

Apr.

DESCRIPTION

1 Materials

PAGE POST. REF.

DEBIT

CREDIT

28 0 0 0 00

Accounts Payable

28 0 0 0 00

3 4 5

10 Work in Process (Job No. 26)

11 0 0 0 00

Materials

11 0 0 0 00

6 7 8

5 6

11 Work in Process (Job No. 27)

9 0 0 0 00

Materials

9 0 0 0 00

9 10

8 9

12 Work in Process (Job No. 28)

7 0 0 0 00

Materials

7 0 0 0 00 11

25 Work in Process (Job No. 26)

6 0 0 0 00

Work in Process (Job No. 27)

4 0 0 0 00

Work in Process (Job No. 28)

5 0 0 0 00

Wages Payable

15 0 0 0 00 16

25 Work in Process (Job No. 26)

1 8 0 0 00

Work in Process (Job No. 27)

1 5 0 0 00

Work in Process (Job No. 28)

1 4 0 0 00

Factory Overhead (Applied)

4 7 0 0 00 21

22 23 24

30 Finished Goods (Product Q)

18 8 0 0 00

Work in Process (Job No. 26)

18 8 0 0 00 24

25 26 27

30 Finished Goods (Product R)

14 5 0 0 00

Work in Process (Job No. 27)

14 5 0 0 00 27

28 29 30

30 Finished Goods (Product T)

13 4 0 0 00

Work in Process (Job No. 28)

13 4 0 0 00 30

31 32 33

30 Accounts Receivable

20 6 0 0 00

Sales

20 6 0 0 00 33

34 35 36

30 Cost of Goods Sold Finished Goods (Product Q)

18 8 0 0 00

18 8 0 0 00 36

1046

CHAPTER 26

Exercise 26-6B (Concluded) GENERAL JOURNAL DATE

DESCRIPTION

20-1 2

Apr. 30 Accounts Receivable

PAGE POST. REF.

DEBIT

CREDIT

16 0 0 0 00

Sales

16 0 0 0 00

3 4 5

30 Cost of Goods Sold

14 5 0 0 00

Finished Goods (Product R)

14 5 0 0 00

6 7 8

30 Accounts Receivable

14 9 0 0 00

Sales

14 9 0 0 00

8 9

30 Cost of Goods Sold

13 4 0 0 00

Finished Goods (Product T)

13 4 0 0 00 11

12 13

5 6

9 10

30 Factory Overhead Cost of Goods Sold

2 0 0 00

2 0 0 00 14

CHAPTER 26

1047

Problem 26-7B GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Materials

PAGE POST. REF.

DEBIT

CREDIT

22 5 0 0 00

Accounts Payable

22 5 0 0 00

3 4 5

b. Work in Process (Job No. 200)

11 2 5 0 00

Materials

11 2 5 0 00

c. Factory Overhead

Materials

4 0 0 0 00

9 10 11

d. Work in Process (Job No. 200)

4 5 0 0 00

Cash

4 5 0 0 00 11

12 13 14

e. Factory Overhead

1 2 5 0 00

Cash

f. Work in Process (Job No. 201)

10 0 0 0 00

Materials

g. Factory Overhead

Materials

2 5 0 0 00

h. Factory Overhead

4 5 0 0 00

Cash

i. Work in Process (Job No. 201)

4 2 5 0 00

Cash

4 2 5 0 00 26

27 28

4 5 0 0 00 23

24 25

2 5 0 0 00 20

10 0 0 0 00 17

1 2 5 0 00 14

15 16

j. Factory Overhead Cash

9 0 0 00

9 0 0 00 29

1048

CHAPTER 26

Problem 26-8B 1. GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Materials

PAGE POST. REF.

DEBIT

CREDIT

44 0 0 0 00

Accounts Payable

44 0 0 0 00

b. Work in Process (Job No. 501)

8 2 0 0 00

Work in Process (Job No. 502)

9 1 0 0 00

Work in Process (Job No. 503)

7 3 0 0 00

Work in Process (Job No. 504)

8 5 0 0 00

Materials

33 1 0 0 00

c. Factory Overhead

Materials

5 0 0 0 00

5 0 0 0 00 11

d. Work in Process (Job No. 501)

4 8 0 0 00

Work in Process (Job No. 502)

4 1 0 0 00

Work in Process (Job No. 503)

4 8 0 0 00

Work in Process (Job No. 504)

5 0 0 0 00

Wages Payable

18 7 0 0 00 17

e. Factory Overhead

Wages Payable

3 3 0 0 00

3 3 0 0 00 20

21 22 23

f. Factory Overhead

5 2 0 0 00

Cash

5 2 0 0 00 23

g. Work in Process (Job No. 501)

3 1 0 0 00

Work in Process (Job No. 502)

3 3 0 0 00

Work in Process (Job No. 503)

3 3 0 0 00

Work in Process (Job No. 504)

3 8 0 0 00

Factory Overhead

13 5 0 0 00 29

CHAPTER 26

1049

Problem 26-8B (Continued) GENERAL JOURNAL DATE 1 2

DESCRIPTION

h. Finished Goods (Product W)

PAGE POST. REF.

DEBIT

CREDIT

16 1 0 0 00

Work in Process (Job No. 501)

16 1 0 0 00

3 4 5

Finished Goods (Product X)

16 5 0 0 00

Work in Process (Job No. 502)

16 5 0 0 00

6 7 8

Finished Goods (Product Y)

15 4 0 0 00

Work in Process (Job No. 503)

15 4 0 0 00

9 10 11

Finished Goods (Product Z)

17 3 0 0 00

Work in Process (Job No. 504)

17 3 0 0 00 11

12 13 14

i. Accounts Receivable

17 5 0 0 00

Sales

Cost of Goods Sold

16 1 0 0 00

Finished Goods (Product W)

Accounts Receivable

18 0 0 0 00

Sales

Cost of Goods Sold

16 5 0 0 00

Finished Goods (Product X)

Accounts Receivable

16 9 0 0 00

Sales

Cost of Goods Sold

15 4 0 0 00

Finished Goods (Product Y)

Accounts Receivable

19 0 0 0 00

Sales

35 36

19 0 0 0 00 32

33 34

15 4 0 0 00 29

30 31

16 9 0 0 00 26

27 28

16 5 0 0 00 23

24 25

18 0 0 0 00 20

21 22

16 1 0 0 00 17

18 19

17 5 0 0 00 14

15 16

Cost of Goods Sold Finished Goods (Product Z)

17 3 0 0 00

17 3 0 0 00 35 36

1050

CHAPTER 26

Problem 26-8B (Concluded) 2. Work in Process (b)

8,200 9,100 7,300 8,500 4,800 4,100 4,800 5,000 3,100 3,300 3,300 3,800

(d)

(g)

(h) (h) (h) (h)

Finished Goods 16,100 16,500 15,400 17,300

(h) (h) (h) (h)

16,100 16,500 15,400 17,300

(i) (i) (i) (i)

16,100 16,500 15,400 17,300

Problem 26-9B 1.

GENERAL JOURNAL DATE

1 2

DESCRIPTION

a. Materials

PAGE POST. REF.

DEBIT

CREDIT

45 0 0 0 00

Accounts Payable

45 0 0 0 00

b. Work in Process (Job No. 201)

10 0 0 0 00

Work in Process (Job No. 202)

11 0 0 0 00

Work in Process (Job No. 203)

9 5 0 0 00

Work in Process (Job No. 204)

12 2 0 0 00

Materials

42 7 0 0 00

c. Factory Overhead

Materials

7 5 0 0 00

7 5 0 0 00 11

d. Work in Process (Job No. 201)

18 0 0 0 00

Work in Process (Job No. 202)

19 0 0 0 00

Work in Process (Job No. 203)

20 5 0 0 00

Work in Process (Job No. 204)

17 5 0 0 00

Wages Payable

75 0 0 0 00 17

e. Factory Overhead

Wages Payable

11 0 0 0 00

11 0 0 0 00 20 21

CHAPTER 26

1051

Problem 26-9B (Continued) GENERAL JOURNAL DATE 1 2

DESCRIPTION

f. Factory Overhead

PAGE POST. REF.

DEBIT

CREDIT

7 0 0 0 00

Cash

7 0 0 0 00

3 4 5

g. Factory Overhead

40 0 0 0 00

Accumulated Depreciation

40 0 0 0 00

h. Work in Process (Job No. 201)

15 0 0 0 00

Work in Process (Job No. 202)

16 5 0 0 00

Work in Process (Job No. 203)

16 5 0 0 00

Work in Process (Job No. 204)

18 0 0 0 00

Factory Overhead

66 0 0 0 00 11

12 13 14

i. Finished Goods (Product C)

43 0 0 0 00

Work in Process (Job No. 201)

43 0 0 0 00 14

15 16 17

Finished Goods (Product D)

46 5 0 0 00

Work in Process (Job No. 202)

Finished Goods (Product E)

46 5 0 0 00

Work in Process (Job No. 203)

j. Accounts Receivable

47 0 0 0 00

Sales

Cost of Goods Sold

43 0 0 0 00

Finished Goods (Product C)

Accounts Receivable

49 0 0 0 00

Sales

Cost of Goods Sold

46 5 0 0 00

Finished Goods (Product D)

35 36

46 5 0 0 00 32

33 34

49 0 0 0 00 29

30 31

43 0 0 0 00 26

27 28

47 0 0 0 00 23

24 25

46 5 0 0 00 20

21 22

46 5 0 0 00 17

18 19

k. Factory Overhead Cost of Goods Sold

5 0 0 00

5 0 0 00 35 36

1052

CHAPTER 26

Problem 26-9B (Concluded) 2. Work in Process (b)

(d)

(h)

10,000 11,000 9,500 12,200 18,000 19,000 20,500 17,500 15,000 16,500 16,500 18,000

(i) (i) (i)

Finished Goods 43,000 46,500 46,500

(i) (i) (i)

136,000

43,000 46,500 46,500

(j) (j)

43,000 46,500 89,500

136,000

Bal.

46,500

183,700

Bal.

47,700

3. Balance in job cost ledger (Job No. 204)

$47,700

Balance in work in process control account

$47,700

CHAPTER 26

1053

MANAGING YOUR WRITING The key aspect of student responses here is the use of a predetermined overhead application rate. The rate is based on estimates. Adjustments can be made later in the year for differences between the estimates and actual results. Joan should estimate her total overhead costs for the year. Then she should estimate some measure of printing/production activity. There are different possibilities for this measure; labor hours or printing machine hours might be reasonable. She should divide the estimated total overhead costs by estimated total hours to determine the overhead application rate. This rate is used to develop bids on jobs and to apply overhead costs to completed jobs.

ETHICS CASE 1. Answers will vary. This question would present a good opportunity for the instructor to point out that sometimes the most ethical decision might have consequences that are difficult to deal with. 2. Answers will vary. Ralph will probably charge it to indirect labor because it won’t be necessary to assign it to a specific job. 3. Answers will vary. Students should mention that direct labor includes the wages of employees who are directly involved in converting materials into finished goods and indirect labor includes the wages and salaries of employees who perform tasks that are not directly related to the conversion of materials into finished goods. 4. Answers will vary. Students might suggest employees punch a time clock.

1054

CHAPTER 26

Mastery Problem 1. GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Materials

PAGE POST. REF.

DEBIT

CREDIT

158 0 0 0 00

Accounts Payable

158 0 0 0 00

b. Work in Process (Job No. 805)

34 0 0 0 00

Work in Process (Job No. 806)

44 0 0 0 00

Work in Process (Job No. 807)

20 0 0 0 00

Work in Process (Job No. 808)

24 0 0 0 00

Materials

122 0 0 0 00

9 10 11

Factory Overhead

27 0 0 0 00

Materials

27 0 0 0 00 11

c. Work in Process (Job No. 805)

25 5 0 0 00

Work in Process (Job No. 806)

39 8 0 0 00

Work in Process (Job No. 807)

51 4 0 0 00

Work in Process (Job No. 808)

33 3 0 0 00

Wages Payable

150 0 0 0 00 17

Factory Overhead

Wages Payable

61 8 0 0 00

61 8 0 0 00 20

21 22 23

d. Factory Overhead

10 0 0 0 00

Accumulated Depreciation

10 0 0 0 00 23

24 25

Factory Overhead Accounts Payable

75 0 0 0 00

75 0 0 0 00 26

CHAPTER 26

1055

Mastery Problem (Continued) GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

e. Work in Process (Job No. 805)

30 6 0 0 00

Work in Process (Job No. 806)

47 7 6 0 00

Work in Process (Job No. 807)

61 6 8 0 00

Work in Process (Job No. 808)

39 9 6 0 00

Factory Overhead

180 0 0 0 00

6 7 8

f. Finished Goods (Product X)

90 1 0 0 00

Work in Process (Job No. 805)

90 1 0 0 00

9 10 11

Finished Goods (Product Y)

131 5 6 0 00

Work in Process (Job No. 806)

131 5 6 0 00 11

12 13 14

Finished Goods (Product Z)

133 0 8 0 00

Work in Process (Job No. 807)

g. Accounts Receivable

123 0 0 0 00

Sales

Cost of Goods Sold

90 1 0 0 00

Finished Goods (Product X)

Accounts Receivable

150 0 0 0 00

Sales

Cost of Goods Sold

122 0 0 0 00

Finished Goods (Product Y)

Accounts Receivable

168 0 0 0 00

Sales

168 0 0 0 00 29

30 31

122 0 0 0 00 26

27 28

150 0 0 0 00 23

24 25

90 1 0 0 00 20

21 22

123 0 0 0 00 17

18 19

133 0 8 0 00 14

15 16

Cost of Goods Sold Finished Goods (Product Z)

140 0 0 0 00

140 0 0 0 00 32

1056

CHAPTER 26

Mastery Problem (Concluded) 2. Work in Process Bal. (b)

(c)

(e)

0 34,000 44,000 20,000 24,000 25,500 39,800 51,400 33,300 30,600 47,760 61,680 39,960

(f)

Finished Goods 90,100 131,560 133,080

Bal. (f)

354,740

76,000 90,100 131,560 133,080

(g)

90,100 122,000 140,000 352,100

430,740

Bal.

78,640

452,000

Bal.

97,260

3. In job cost ledger: Job No. 808

$24,000 33,300 39,960 $97,260

4. Factory Overhead (b) (c) (d) (d)

27,000 61,800 10,000 75,000

(e)

180,000

Bal.

6,200

173,800

(Overapplied overhead)

CHAPTER 26

1057

Challenge Problem 1.

Sales

$950,000

Cost of goods sold ($680,000 + $5,000)

685,000

Gross profit

$265,000

Operating expenses

190,000

Net income

$ 75,000

Sales

$950,000

Cost of goods sold ($680,000 + $4,250*)

684,250

Gross profit

$265,750

Operating expenses

190,000

Net income

$ 75,750

*$680,000 88,000 32,000 $800,000

$680,000/$800,000 = 85% 0.85  $5,000 = $4,250

3. (a)

Difference = $75,750 – $75,000 = $750

(b)

Transfer the entire amount to Cost of Goods Sold. The net income effect is quite small. It is not worth the trouble of allocating the $5,000 among the accounts.

CHAPTER 27 MANUFACTURING ACCOUNTING: THE WORK SHEET AND FINANCIAL STATEMENTS REVIEW QUESTIONS 1.

The new accounts for the work sheet of ToyJoy Manufacturing Co. are: a. Finished Goods Inventory, Work in Process Inventory, and Materials Inventory. b. Cost of Goods Sold. c. Factory Overhead. d. Income Tax Expense and Income Tax Payable. The new related adjusting entries are: a. adjustment to apply factory overhead to work in process. b. adjustment for additional actual factory overhead. c. adjustment for under- or overapplied overhead. d. adjustment for corporate income taxes.

The use of a perpetual inventory system has two effects: a. The costs of goods sold are accumulated in Cost of Goods Sold as sales occur during the year. b. The inventory accounts reflect ending rather than beginning balances.

The work in process inventory account must be adjusted for factory overhead applied at year-end to correctly state the work in process ending inventory.

Debits to factory overhead represent actual overhead and credits to factory overhead represent applied overhead. If the credits are less than the debits, overhead is said to be underapplied. If the credits are greater than the debits, overhead is said to be overapplied.

The balances in the factory overhead account are not extended to the Income Statement and Balance Sheet columns because the amounts shown have already been transferred to Work in Process, Finished Goods, and Cost of Goods Sold.

The distinctive feature of ToyJoy’s income statement is the cost of goods sold section. The beginning inventory of finished goods was taken from the finished goods account in the general ledger, the cost of goods manufactured was taken from the schedule of costs of goods manufactured, and the ending inventory of finished goods is from the Balance Sheet columns of the work sheet. The distinctive feature of the statement of retained earnings arises from ToyJoy being organized as a corporation. As a corporation, ToyJoy pays dividends. ToyJoy’s balance sheet is distinctive in two ways: first, three inventory accounts are listed; and second, the stockholders’ equity section contains information regarding capital stock, paid-in capital in excess of par, and retained earnings.

No entries are made to the individual jobs in the job cost ledger because only the aggregate work in process needs to be adjusted for financial reporting purposes at year-end.

The total debit amount in the factory overhead account is transferred to Income Summary and the subsidiary ledger factory overhead accounts are closed. The total credit amount in the factory overhead account is transferred to Income Summary.

ToyJoy reversed the adjusting entry for Interest Expense and the adjustment to apply factory overhead to work in process. 1059 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1060

CHAPTER 27

Exercise 27-1A GENERAL JOURNAL DATE 20-1

Dec.

DESCRIPTION

PAGE POST. REF.

DEBIT

Adjusting Entries 31 Work in Process Inventory

4 8 0 0 00

Factory Overhead

CREDIT

4 8 0 0 00

4 5

31 Factory Overhead

5 1 0 0 00

Factory Supplies

5 1 0 0 00

7 8

31 Factory Overhead

6 5 0 0 00

Prepaid Insurance

6 5 0 0 00

10 11

8 9 10

31 Factory Overhead

22 5 0 0 00

Accumulated Depreciation—Factory Building

9 0 0 0 00 12

Accumulated Depreciation—Factory Equipment

13 5 0 0 00 13

14 15 16

31 Factory Overhead Cost of Goods Sold

1 9 0 0 00

1 9 0 0 00 16

Factory overhead was overapplied by $1,900.

CHAPTER 27

1061

Exercise 27-2A Tomas Company Schedule of Cost of Goods Manufactured For Year Ended June 30, 20-2 Work in process, July 1, 20-1

6,400

Direct materials Materials inventory, July 1, 20-1

$ 4,875

Materials purchases

68,950

Materials available for use

$73,825

Materials inventory, June 30, 20-2 Cost of materials used Less indirect materials charged to prod. Cost of direct materials used

6,950 $ 66,875 3,600 $ 63,275

Direct labor

140,300

Factory overhead

85,225

Total manufacturing costs

288,800

Total work in process during the period

$295,200

Work in process, June 30, 20-2 Cost of goods manufactured

7,700 $287,500

1062

CHAPTER 27

Exercise 27-3A GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31 Work in Process Inventory

8 7 0 0 00

Factory Overhead

8 7 0 0 00

31 Interest Receivable

Interest Revenue

7 3 0 00

7 8 9

31 Bad Debt Expense

4 2 0 0 00

Allowance for Doubtful Accounts

4 2 0 0 00

31 Office Supplies Expense

Office Supplies

9 9 0 00

31 Factory Overhead (Factory Supplies Expense)

3 8 0 0 00

Factory Supplies

31 Factory Overhead (Ins. Exp.—Fact. Bldg. & Eq.)

3 1 0 0 00

Prepaid Insurance

31 Factory Overhead (Depr. Exp.—Fact. Bldg.)

8 0 0 0 00

Accumulated Depreciation—Factory Building

8 0 0 0 00 21

22 23

3 1 0 0 00 18

19 20

3 8 0 0 00 15

16 17

9 9 0 00 12

9 10

31 Factory Overhead (Depr. Exp.—Fact. Equip.) Accumulated Depreciation—Factory Equipment

6 3 0 0 00

6 3 0 0 00 24

CHAPTER 27

1063

Exercise 27-4A GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

20-2

PAGE

Dec. 31 Income Summary

Factory Overhead (Subsidiary ledger

accounts)

199 2 0 0 00

2 3

199 2 0 0 00

5 6 7

31 Factory Overhead

199 2 0 0 00

Income Summary

199 2 0 0 00

8 9 10 11

31 Sales Interest Revenue

877 4 0 0 00

8 5 0 00

Income Summary

878 2 5 0 00 11

12 13

31 Income Summary

748 5 8 0 00

Cost of Goods Sold

581 0 0 0 00 14

Salaries Expense

97 3 0 0 00 15

Office Supplies Expense

2 2 6 0 00 16

Depreciation Expense—Office Equipment

6 0 4 0 00 17

Utilities Expense—Office

6 2 6 0 00 18

Bad Debt Expense

2 0 2 0 00 19

Advertising Expense

9 1 0 0 00 20

Interest Expense

9 9 0 0 00 21

Income Tax Expense

34 7 0 0 00 22

23 24 25

31 Income Summary Retained Earnings

129 6 7 0 00

129 6 7 0 00 25

1064

CHAPTER 27

Exercise 27-5A GENERAL JOURNAL DATE

DESCRIPTION

20-2

POST. REF.

DEBIT

CREDIT

Reversing Entries

1 2

PAGE

Jan.

1 Interest Revenue

1 4 0 00

Interest Receivable

1 4 0 00

4 5 6

1 Interest Payable

9 3 0 00

Interest Expense

9 3 0 00

7 8 9

1 Factory Overhead Work in Process Inventory

3 1 8 0 00

CHAPTER 27

1065

This page intentionally left blank.

1066

CHAPTER 27

Problem 27-6A Lundberg Work For Year Ended

TRIAL BALANCE DEBIT CREDIT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Cash Government Notes Interest Receivable Accounts Receivable Allowance for Doubtful Accounts Finished Goods Inventory Work in Process Inventory Materials Inventory Office Supplies Factory Supplies Land Factory Building Accum. Depr.—Factory Building Factory Equipment Accum. Depr.—Factory Equip. Accounts Payable Income Tax Payable Interest Payable Bonds Payable Capital Stock Paid-In Capital in Excess of Par Retained Earnings Cash Dividends Sales Interest Revenue Factory Overhead

30 3 0 0 00 5 0 0 0 00 (b)

5 3 0 00 24 0 0 0 00 9 0 0 0 00 8 5 0 0 00 3 1 0 0 00 3 8 0 0 00 100 0 0 0 00 120 0 0 0 00

(a)

33 34 35 36

2 9 0 0 00 3 3 0 0 00

5 0 0 0 00

5 0 0 0 00 13 8 0 0 00

(h)

4 0 0 0 00

(j)

6 1 0 0 00 6 0 0 00

40 0 0 0 00

(c)

80 0 0 0 00 50 0 0 0 00 30 0 0 0 00 92 4 0 0 00 30 0 0 0 00

78 6 3 0 00

405 1 0 0 00 3 0 0 00 (f) 89 3 0 0 00 (h) (i)

(b)

3 3 0 0 00 5 0 0 0 00 4 0 0 0 00 1 4 7 0 00

(a)

(i)

190 7 0 0 00 70 0 0 0 00 (e) (d)

4 4 0 0 00 7 0 0 0 00 18 0 0 0 00 776 4 3 0 00

(e)

3 1 0 0 00

(g)

2 4 0 0 00

10 0 0 0 00

(d)

(f)

(g)

Cost of Goods Sold Wages Expense Office Supplies Expense Bad Debt Expense Utilities Expense—Office Interest Expense Income Tax Expense

7 5 00

34 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

776 4 3 0 00

7 5 00 3 1 0 0 00

1 4 7 0 00

2 9 0 0 00 2 4 0 0 00 6 0 0 00 6 1 0 0 00 28 9 4 5 00

28 9 4 5 00

Net Income

39 40

CHAPTER 27

1067

Problem 27-6A (Continued) Company Sheet December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

30 3 0 0 00 5 0 0 0 00 7 5 00 34 0 0 0 00

BALANCE SHEET DEBIT CREDIT

30 3 0 0 00 5 0 0 0 00 7 5 00 34 0 0 0 00 2 9 3 0 00

2 3 4

2 9 3 0 00

24 0 0 0 00 12 1 0 0 00 8 5 0 0 00 2 0 0 00 5 0 0 00 100 0 0 0 00 120 0 0 0 00

24 0 0 0 00 12 1 0 0 00 8 5 0 0 00 2 0 0 00 5 0 0 00 100 0 0 0 00 120 0 0 0 00 15 0 0 0 00

5 6 7 8 9 10 11 12

15 0 0 0 00 13

40 0 0 0 00

40 0 0 0 00 9 0 0 0 00 13 8 0 0 00 6 1 0 0 00 6 0 0 00 80 0 0 0 00 50 0 0 0 00 30 0 0 0 00 92 4 0 0 00

9 0 0 0 00 15 13 8 0 0 00 16 6 1 0 0 00 17 6 0 0 00 18 80 0 0 0 00 19 50 0 0 0 00 20 30 0 0 0 00 21 92 4 0 0 00 22

30 0 0 0 00

92 4 0 0 00

30 0 0 0 00 405 1 0 0 00 3 7 5 00 92 4 0 0 00

405 1 0 0 00 3 7 5 00

23 24 25 26 27 28 29

189 2 3 0 00 70 0 0 0 00 2 9 0 0 00 2 4 0 0 00 4 4 0 0 00 7 6 0 0 00 24 1 0 0 00 797 7 0 5 00

30 31 32 33 34 35 36

300 6 3 0 00

405 4 7 5 00

404 6 7 5 00

299 8 3 0 00 37

104 8 4 5 00 405 4 7 5 00

405 4 7 5 00

404 6 7 5 00

104 8 4 5 00 38 404 6 7 5 00 39 40

1068

CHAPTER 27

Problem 27-6A (Continued) 2. a. Lundberg Company Income Statement For Year Ended December 31, 20-Net sales

$405,100

Less cost of goods sold: Finished goods inventory, January 1

$ 18,000

Cost of goods manufactured

195,230

Cost of goods available for sale

$213,230

Finished goods inventory, December 31

24,000

Cost of goods sold

189,230

Gross profit

$215,870

Operating expenses: Wages expense

$ 70,000

Office supplies expense

2,900

Bad debt expense

2,400

Utilities expense—office

4,400

Total operating expenses Operating income

79,700 $136,170

Other revenue: Interest revenue

375 $136,545

Other expense: Interest expense Income before income taxes

7,600 $128,945

Income tax

24,100

Net income

$104,845

CHAPTER 27

1069

Problem 27-6A (Continued) b. Lundberg Company Schedule of Cost of Goods Manufactured For Year Ended December 31, 20-Work in process, January 1

7,300

Direct materials Materials inventory, January 1

$ 9,500

Materials purchases

51,500

Materials available for use

$61,000

Materials inventory, December 31

8,500

Cost of materials used

$52,500

Less indirect materials charged to prod. Cost of direct materials used

3,400 $49,100

Direct labor

60,000

Factory overhead

90,930

Total manufacturing costs

200,030

Total work in process during the period

$207,330

Work in process, December 31

12,100

Cost of goods manufactured

$195,230

c. Lundberg Company Statement of Retained Earnings For Year Ended December 31, 20-Retained earnings, January 1

$ 92,400

Add net income for the year (after provision for income taxes of $24,100)

104,845 $197,245

Less cash dividends Retained earnings, December 31

30,000 $167,245

1070

CHAPTER 27

Problem 27-6A (Continued) d. Lundberg Company Balance Sheet December 31, 20-Assets Current assets: Cash

$ 30,300

Government notes

5,000

Interest receivable

Accounts receivable Less allowance for doubtful accounts

$ 34,000 2,930

31,070

Inventories: Finished goods

$ 24,000

Work in process

12,100

Materials

8,500

44,600

Office supplies

200

Factory supplies

500

Total current assets

$111,745

Property, plant, and equipment: Land Factory building Less accumulated depreciation Factory equipment Less accumulated depreciation Total property, plant, and equipment Total assets

$100,000 $120,000 15,000

105,000

$ 40,000 9,000

31,000 236,000 $347,745

CHAPTER 27

1071

Problem 27-6A (Concluded) Lundberg Company Balance Sheet (Continued) December 31, 20-Liabilities Current liabilities: Accounts payable

$ 13,800

Income tax payable

6,100

Interest payable

600

Total current liabilities

$ 20,500

Long-term liabilities: Bonds payable

80,000

Total liabilities

$100,500

Stockholders’ Equity Capital stock

$ 50,000

Paid-in capital in excess of par

30,000

Retained earnings

167,245

Total stockholders’ equity

247,245

Total liabilities and stockholders’ equity

$347,745

1072

CHAPTER 27

Problem 27-7A 1. Braiden Company Income Statement For Year Ended December 31, 20-Net sales

$401,220

Less cost of goods sold: Finished goods inventory, January 1

$ 16,825

Cost of goods manufactured

297,475

Cost of goods available for sale

$314,300

Finished goods inventory, December 31

19,800

Cost of goods sold

294,500

Gross profit

$106,720

Operating expenses: Wages expense

$ 45,200

Office supplies expense

1,500

Bad debt expense

2,150

Utilities expense—office

1,700

Total operating expenses Operating income

50,550 $ 56,170

Other revenue: Interest revenue

250 $ 56,420

Other expense: Interest expense Income before income taxes

2,850 $ 53,570

Income tax

14,450

Net income

$ 39,120

CHAPTER 27

1073

Problem 27-7A (Continued) Braiden Company Schedule of Cost of Goods Manufactured For Year Ended December 31, 20-Work in process, January 1

5,730

Direct materials Materials inventory, January 1

4,140

Materials purchases

136,665

Materials available for use

$140,805

Materials inventory, December 31

4,650

Cost of materials used

$136,155

Less indirect materials charged to prod. Cost of direct materials used

5,400 $130,755

Direct labor

76,000

Factory overhead

92,500

Total manufacturing costs

299,255

Total work in process during the period

$304,985

Work in process, December 31

7,510

Cost of goods manufactured

$297,475

2. Braiden Company Statement of Retained Earnings For Year Ended December 31, 20-Retained earnings, January 1 Add net income for the year (after provision for income taxes of $14,450)

$ 80,175 39,120 $119,295

Less cash dividends Retained earnings, December 31

20,000 $ 99,295

1074

CHAPTER 27

Problem 27-7A (Continued) 3. Braiden Company Balance Sheet December 31, 20-Assets Current assets: Cash

$14,350

Government notes

3,500

Interest receivable

Accounts receivable Less allowance for doubtful accounts

$ 25,100 1,325

23,775

Inventories: Finished goods

$ 19,800

Work in process

7,510

Materials

4,650

31,960

Office supplies

330

Factory supplies

480

Prepaid insurance

700

Total current assets

$ 75,145

Property, plant, and equipment: Land Factory building Less accumulated depreciation Factory equipment Less accumulated depreciation Total property, plant, and equipment Total assets

$25,000 $ 90,000 20,650

69,350

$100,000 29,000

71,000 165,350 $240,495

CHAPTER 27

1075

Problem 27-7A (Concluded) Braiden Company Balance Sheet (Continued) December 31, 20-Liabilities Current liabilities: Accounts payable

$17,000

Income tax payable

3,550

Interest payable

650

Total current liabilities

$ 21,200

Long-term liabilities: Bonds payable

50,000

Total liabilities

$ 71,200

Stockholders’ Equity Capital stock

$55,000

Paid-in capital in excess of par

15,000

Retained earnings

99,295

Total stockholders’ equity

169,295

Total liabilities and stockholders’ equity

$240,495

1076

CHAPTER 27

Problem 27-8A 1. GENERAL JOURNAL DATE 20-1 1

Dec.

DESCRIPTION

PAGE POST. REF.

DEBIT

Adjusting Entries 31 Work in Process Inventory

3 6 0 0 00

Factory Overhead

CREDIT

3 6 0 0 00

4 5

31 Interest Receivable

1 4 0 00

Interest Revenue

1 4 0 00

7 8

31 Interest Expense

1 2 0 0 00

Interest Payable

1 2 0 0 00

10 11

31 Bad Debt Expense

1 4 5 0 00

Allowance for Doubtful Accounts

31 Office Supplies Expense

3 7 0 0 00

Office Supplies

31 Factory Overhead (Factory Supplies Exp.)

4 2 0 0 00

Factory Supplies

31 Factory Overhead (Factory Bldg. & Eq. Ins. Exp.)

5 1 0 0 00

Prepaid Insurance

31 Factory Overhead (Depr. Exp.—Factory Bldg.)

5 0 0 0 00

Accumulated Depreciation—Factory Building

31 Factory Overhead (Depr. Exp.—Factory Equip.)

4 0 0 0 00

Accumulated Depreciation—Factory Equipment

31 Cost of Goods Sold

1 3 0 0 00

Factory Overhead

1 3 0 0 00 30

4 0 0 0 00 27

5 0 0 0 00 24

5 1 0 0 00 21

4 2 0 0 00 18

3 7 0 0 00 15

1 4 5 0 00 12

9 10

31 Income Tax Expense Income Tax Payable

5 9 0 0 00

5 9 0 0 00 33

CHAPTER 27

1077

Problem 27-8A (Continued) 2. GENERAL JOURNAL DATE

DESCRIPTION

20-1

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

PAGE

Dec. 31 Income Summary

110 1 0 0 00

Factory Overhead (Subsidiary ledger accounts)

110 1 0 0 00

4 5 6

31 Factory Overhead

110 1 0 0 00

Income Summary

110 1 0 0 00

7 8 9 10

31 Sales Interest Revenue

410 2 0 0 00

6 4 0 00

Income Summary

410 8 4 0 00 10

11 12

31 Income Summary

334 7 5 0 00

Cost of Goods Sold

204 8 0 0 00 13

Salaries Expense

80 0 0 0 00 14

Office Supplies Expense

3 7 0 0 00 15

Bad Debt Expense

1 4 5 0 00 16

Utilities Expense—Office

6 7 0 0 00 17

Interest Expense

9 2 0 0 00 18

Income Tax Expense

28 9 0 0 00 19

20 21 22

31 Income Summary Retained Earnings

76 0 9 0 00

76 0 9 0 00 22

1078

CHAPTER 27

Problem 27-8A (Concluded) 3. GENERAL JOURNAL DATE

DESCRIPTION

20-2

POST. REF.

DEBIT

CREDIT

Reversing Entries

1 2

PAGE

Jan.

1 Interest Revenue

1 4 0 00

Interest Receivable

1 4 0 00

4 5 6

1 Interest Payable

1 2 0 0 00

Interest Expense

1 2 0 0 00

7 8 9

1 Factory Overhead Work in Process Inventory

3 6 0 0 00

CHAPTER 27

1079

Exercise 27-1B GENERAL JOURNAL DATE 20-1

Dec.

DESCRIPTION

PAGE POST. REF.

DEBIT

Adjusting Entries 31 Work in Process Inventory

5 6 0 0 00

Factory Overhead

CREDIT

5 6 0 0 00

4 5

31 Factory Overhead

3 7 5 0 00

Factory Supplies

3 7 5 0 00

7 8

31 Factory Overhead

4 3 6 0 00

Prepaid Insurance

4 3 6 0 00

10 11

8 9 10

31 Factory Overhead

21 0 0 0 00

Accumulated Depreciation—Factory Building

9 4 0 0 00 12

Accumulated Depreciation—Factory Equipment

11 6 0 0 00 13

14 15 16

31 Cost of Goods Sold Factory Overhead

3 5 0 0 00

3 5 0 0 00 16

Factory overhead was underapplied by $3,500.

1080

CHAPTER 27

Exercise 27-2B Verdi Company Schedule of Cost of Goods Manufactured For Year Ended June 30, 20-2 Work in process, July 1, 20-1

$ 20,760

Materials inventory, July 1, 20-1

$ 12,348

Materials purchases

154,008

Materials available for use

$166,356

Materials inventory, June 30, 20-2 Cost of materials used

15,180 $151,176

Direct labor

330,576

Factory overhead

201,384

Total manufacturing costs

683,136

Total work in process during the period

$703,896

Work in process, June 30, 20-2

17,940

Cost of goods manufactured

$685,956

CHAPTER 27

1081

Exercise 27-3B GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31 Work in Process Inventory

7 7 8 0 00

Factory Overhead

7 7 8 0 00

31 Interest Receivable

Interest Revenue

4 3 5 00

7 8 9

31 Bad Debt Expense

3 8 7 6 00

Allowance for Doubtful Accounts

3 8 7 6 00

31 Office Supplies Expense

Office Supplies

7 5 0 00

31 Factory Overhead (Factory Supplies Expense)

4 1 6 0 00

Factory Supplies

31 Factory Overhead (Ins. Exp.—Fact. Bldg. & Eq.)

3 2 0 0 00

Prepaid Insurance

31 Factory Overhead (Depr. Exp.—Fact. Bldg.)

6 8 0 0 00

Accumulated Depreciation—Factory Building

6 8 0 0 00 21

22 23

3 2 0 0 00 18

19 20

4 1 6 0 00 15

16 17

7 5 0 00 12

9 10

31 Factory Overhead (Depr. Exp.—Fact. Equip.) Accumulated Depreciation—Factory Equipment

4 2 0 0 00

4 2 0 0 00 24

1082

CHAPTER 27

Exercise 27-4B GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

20-2

PAGE

Dec. 31 Income Summary

Factory Overhead (Subsidiary ledger

accounts)

186 2 5 0 00

2 3

186 2 5 0 00

5 6 7

31 Factory Overhead

186 2 5 0 00

Income Summary

186 2 5 0 00

8 9 10 11

31 Sales Interest Revenue

930 6 0 0 00

9 2 0 00

Income Summary

931 5 2 0 00 11

12 13

31 Income Summary

886 8 6 5 00

Cost of Goods Sold

710 5 0 0 00 14

Salaries Expense

98 1 0 0 00 15

Office Supplies Expense

3 5 0 0 00 16

Depreciation Expense—Office Equipment

6 1 3 0 00 17

Utilities Expense—Office

7 4 6 0 00 18

Bad Debt Expense

2 2 7 5 00 19

Advertising Expense

9 2 5 0 00 20

Interest Expense

8 3 0 0 00 21

Income Tax Expense

41 3 5 0 00 22

23 24 25

31 Income Summary Retained Earnings

44 6 5 5 00

44 6 5 5 00 25

CHAPTER 27

1083

Exercise 27-5B GENERAL JOURNAL DATE

DESCRIPTION

20-2

POST. REF.

DEBIT

CREDIT

Reversing Entries

1 2

PAGE

Jan.

1 Interest Revenue

2 3 0 00

Interest Receivable

2 3 0 00

4 5 6

1 Interest Payable

8 7 5 00

Interest Expense

8 7 5 00

7 8 9

1 Factory Overhead Work in Process Inventory

4 2 5 0 00

1084

CHAPTER 27

Problem 27-6B Woods Work For Year Ended

TRIAL BALANCE DEBIT CREDIT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

28 4 0 0 00 6 0 0 0 00 (b)

6 1 0 00 26 1 0 0 00 10 2 0 0 00 9 3 0 0 00 4 2 0 0 00 8 6 0 0 00 80 0 0 0 00 160 0 0 0 00

(a)

31 32 33 34 35

(e)

3 2 0 0 00 6 7 0 0 00

30 0 0 0 00

(g)

10 0 0 0 00

20 0 0 0 00 16 0 0 0 00

(h)

6 0 0 0 00

(j)

8 1 0 0 00 7 0 0 00

60 0 0 0 00

(c)

100 0 0 0 00 60 0 0 0 00 20 0 0 0 00 111 4 0 0 00 40 0 0 0 00

81 5 9 0 00

410 7 0 0 00 5 0 0 00 (f) 92 3 0 0 00

(b) (a)

6 7 0 0 00 (i) 10 0 0 0 00 (h) 6 0 0 0 00 (i) 7 6 9 0 00

198 3 0 0 00 78 7 0 0 00

(e) (d)

4 9 0 0 00 9 0 0 0 00 23 4 2 0 00 861 5 1 0 00

3 5 0 0 00

4 3 0 0 00

(g)

Cost of Goods Sold Wages Expense Office Supplies Expense Bad Debt Expense Utilities Expense—Office Interest Expense Income Tax Expense

(d)

(f)

1 0 0 00

32 8 0 0 00

ADJUSTMENTS DEBIT CREDIT

861 5 1 0 00

1 0 0 00 4 3 0 0 00 7 6 9 0 00

3 2 0 0 00 3 5 0 0 00 7 0 0 00 8 1 0 0 00 50 2 9 0 00

50 2 9 0 00

Net Income

38 39

CHAPTER 27

1085

Problem 27-6B (Continued) Company Sheet December 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

28 4 0 0 00 6 0 0 0 00 1 0 0 00 32 8 0 0 00

BALANCE SHEET DEBIT CREDIT

28 4 0 0 00 6 0 0 0 00 1 0 0 00 32 8 0 0 00 4 1 1 0 00

2 3 4

4 1 1 0 00

26 1 0 0 00 14 5 0 0 00 9 3 0 0 00 1 0 0 0 00 1 9 0 0 00 80 0 0 0 00 160 0 0 0 00

26 1 0 0 00 14 5 0 0 00 9 3 0 0 00 1 0 0 0 00 1 9 0 0 00 80 0 0 0 00 160 0 0 0 00 40 0 0 0 00

5 6 7 8 9 10 11 12

40 0 0 0 00 13

60 0 0 0 00

60 0 0 0 00 26 0 0 0 00 16 0 0 0 00 8 1 0 0 00 7 0 0 00 100 0 0 0 00 60 0 0 0 00 20 0 0 0 00 111 4 0 0 00

26 0 0 0 00 15 16 0 0 0 00 16 8 1 0 0 00 17 7 0 0 00 18 100 0 0 0 00 19 60 0 0 0 00 20 20 0 0 0 00 21 111 4 0 0 00 22

40 0 0 0 00

104 2 9 0 00

40 0 0 0 00 410 7 0 0 00 6 0 0 00 104 2 9 0 00

410 7 0 0 00 6 0 0 00

23 24 25 26 27 28

205 9 9 0 00 78 7 0 0 00 3 2 0 0 00 3 5 0 0 00 4 9 0 0 00 9 7 0 0 00 31 5 2 0 00 901 9 0 0 00

901 9 0 0 00

205 9 9 0 00 78 7 0 0 00 3 2 0 0 00 3 5 0 0 00 4 9 0 0 00 9 7 0 0 00 31 5 2 0 00 337 5 1 0 00 73 7 9 0 00 411 3 0 0 00

29 30 31 32 33 34 35

411 3 0 0 00 411 3 0 0 00

460 1 0 0 00

386 3 1 0 00 36

460 1 0 0 00

73 7 9 0 00 37 460 1 0 0 00 38 39

1086

CHAPTER 27

Problem 27-6B (Continued) 2. a. Woods Company Income Statement For Year Ended December 31, 20-Net sales

$410,700

Less cost of goods sold: Finished goods inventory, January 1

$ 22,300

Cost of goods manufactured

209,790

Cost of goods available for sale

$232,090

Finished goods inventory, December 31

26,100

Cost of goods sold

205,990

Gross profit

$204,710

Operating expenses: Wages expense

$ 78,700

Office supplies expense

3,200

Bad debt expense

3,500

Utilities expense—office

4,900

Total operating expenses Operating income

90,300 $114,410

Other revenue: Interest revenue

600 $115,010

Other expense: Interest expense Income before income taxes

9,700 $105,310

Income tax

31,520

Net income

$ 73,790

CHAPTER 27

1087

Problem 27-6B (Continued) b. Woods Company Schedule of Cost of Goods Manufactured For Year Ended December 31, 20-Work in process, January 1

$ 12,400

Materials inventory, January 1

$ 7,900

Materials purchases

18,700

Materials available for use

$26,600

Materials inventory, December 31

9,300

Cost of materials used

$ 17,300

Direct labor

90,300

Factory overhead

104,290

Total manufacturing costs

211,890

Total work in process during the period

$224,290

Work in process, December 31

14,500

Cost of goods manufactured

$209,790

c. Woods Company Statement of Retained Earnings For Year Ended December 31, 20-Retained earnings, January 1 Add net income for the year (after provision for income taxes of $31,520)

$111,400 73,790 $185,190

Less cash dividends Retained earnings, December 31

40,000 $145,190

1088

CHAPTER 27

Problem 27-6B (Continued) d. Woods Company Balance Sheet December 31, 20-Assets Current assets: Cash

$ 28,400

Government notes

6,000

Interest receivable

100

Accounts receivable Less allowance for doubtful accounts

$ 32,800 4,110

28,690

Inventories: Finished goods

$ 26,100

Work in process

14,500

Materials

9,300

49,900

Office supplies

1,000

Factory supplies

1,900

Total current assets

$115,990

Property, plant, and equipment: Land Factory building Less accumulated depreciation Factory equipment Less accumulated depreciation Total property, plant, and equipment Total assets

$ 80,000 $160,000 40,000

120,000

$ 60,000 26,000

34,000 234,000 $349,990

CHAPTER 27

1089

Problem 27-6B (Concluded) Woods Company Balance Sheet (Continued) December 31, 20-Liabilities Current liabilities: Accounts payable

$ 16,000

Income tax payable

8,100

Interest payable

700

Total current liabilities

$ 24,800

Long-term liabilities: Bonds payable

100,000

Total liabilities

$124,800

Stockholders’ Equity Capital stock

$ 60,000

Paid-in capital in excess of par

20,000

Retained earnings

145,190

Total stockholders’ equity

225,190

Total liabilities and stockholders’ equity

$349,990

1090

CHAPTER 27

Problem 27-7B 1. Wen Company Income Statement For Year Ended December 31, 20-Net sales

$410,150

Less cost of goods sold: Finished goods inventory, January 1

$ 14,560

Cost of goods manufactured

314,040

Cost of goods available for sale

$328,600

Finished goods inventory, December 31

16,250

Cost of goods sold

312,350

Gross profit

$ 97,800

Operating expenses: Wages expense

$ 43,100

Office supplies expense

2,250

Bad debt expense

1,750

Utilities expense—office

4,000

Total operating expenses Operating income

51,100 $ 46,700

Other revenue: Interest revenue

650 $ 47,350

Other expense: Interest expense Income before income taxes

3,100 $ 44,250

Income tax

15,500

Net income

$ 28,750

CHAPTER 27

1091

Problem 27-7B (Continued) Wen Company Schedule of Cost of Goods Manufactured For Year Ended December 31, 20-Work in process, January 1

3,600

Direct materials Materials inventory, January 1

4,750

Materials purchases

115,090

Materials available for use

$119,840

Materials inventory, December 31

4,550

Cost of materials used

$115,290

Less indirect materials charged to prod.

Cost of direct materials used

4,100 $111,190

Direct labor

110,000

Factory overhead

96,850

Total manufacturing costs

318,040

Total work in process during the period

$321,640

Work in process, December 31

7,600

Cost of goods manufactured

$314,040

2. Wen Company Statement of Retained Earnings For Year Ended December 31, 20-Retained earnings, January 1 Add net income for the year (after provision for income taxes of $15,500)

$ 83,020 28,750 $111,770

Less cash dividends Retained earnings, December 31

12,500 $ 99,270

1092

CHAPTER 27

Problem 27-7B (Continued) 3. Wen Company Balance Sheet December 31, 20-Assets Current assets: Cash

$ 16,450

Government notes

6,000

Interest receivable

210

Accounts receivable Less allowance for doubtful accounts

$ 19,700 1,600

18,100

Inventories: Finished goods

$ 16,250

Work in process

7,600

Materials

4,550

28,400

Office supplies

465

Factory supplies

375

Prepaid insurance

700

Total current assets

$ 70,700

Property, plant, and equipment: Land Factory building Less accumulated depreciation Factory equipment Less accumulated depreciation Total property, plant, and equipment Total assets

$ 30,000 $ 60,000 15,230

44,770

$ 85,000 23,000

62,000 136,770 $207,470

CHAPTER 27

1093

Problem 27-7B (Concluded) Wen Company Balance Sheet (Continued) December 31, 20-Liabilities Current liabilities: Accounts payable

$14,450

Income tax payable

3,150

Interest payable

600

Total current liabilities

$ 18,200

Long-term liabilities: Bonds payable

40,000

Total liabilities

$ 58,200

Stockholders’ Equity Capital stock

$30,000

Paid-in capital in excess of par

20,000

Retained earnings

99,270

Total stockholders’ equity

149,270

Total liabilities and stockholders’ equity

$207,470

1094

CHAPTER 27

Problem 27-8B 1. GENERAL JOURNAL DATE 20-1 1

Dec.

DESCRIPTION

PAGE POST. REF.

DEBIT

Adjusting Entries 31 Work in Process Inventory

4 4 0 0 00

Factory Overhead

CREDIT

4 4 0 0 00

4 5

31 Interest Receivable

1 9 0 00

Interest Revenue

1 9 0 00

7 8

31 Interest Expense

1 4 2 0 00

Interest Payable

1 4 2 0 00

10 11

31 Bad Debt Expense

3 2 0 0 00

Allowance for Doubtful Accounts

31 Office Supplies Expense

4 2 0 0 00

Office Supplies

31 Factory Overhead (Factory Supplies Exp.)

3 8 0 0 00

Factory Supplies

31 Factory Overhead (Factory Bldg. & Eq. Ins. Exp.)

6 8 0 0 00

Prepaid Insurance

31 Factory Overhead (Depr. Exp.—Factory Bldg.)

8 0 0 0 00

Accumulated Depreciation—Factory Building

31 Factory Overhead (Depr. Exp.—Factory Equip.)

5 0 0 0 00

Accumulated Depreciation—Factory Equipment

31 Factory Overhead

4 3 4 0 00

Cost of Goods Sold

4 3 4 0 00 30

5 0 0 0 00 27

8 0 0 0 00 24

6 8 0 0 00 21

3 8 0 0 00 18

4 2 0 0 00 15

3 2 0 0 00 12

9 10

31 Income Tax Expense Income Tax Payable

6 4 0 0 00

6 4 0 0 00 33

CHAPTER 27

1095

Problem 27-8B (Continued) 2. GENERAL JOURNAL DATE

DESCRIPTION

20-1

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

PAGE

Dec. 31 Income Summary

112 5 0 0 00

Factory Overhead (Subsidiary ledger accounts)

112 5 0 0 00

4 5 6

31 Factory Overhead

112 5 0 0 00

Income Summary

112 5 0 0 00

7 8 9 10

31 Sales Interest Revenue

395 2 0 0 00

9 9 0 00

Income Summary

396 1 9 0 00 10

11 12

31 Income Summary

330 6 8 0 00

Cost of Goods Sold

190 2 6 0 00 13

Wages Expense

90 0 0 0 00 14

Office Supplies Expense

4 2 0 0 00 15

Bad Debt Expense

3 2 0 0 00 16

Utilities Expense—Office

7 2 0 0 00 17

Interest Expense

10 4 2 0 00 18

Income Tax Expense

25 4 0 0 00 19

20 21 22

31 Income Summary Retained Earnings

65 5 1 0 00

65 5 1 0 00 22

1096

CHAPTER 27

Problem 27-8B (Concluded) 3. GENERAL JOURNAL DATE

DESCRIPTION

20-2

POST. REF.

DEBIT

CREDIT

Reversing Entries

1 2

PAGE

Jan.

1 Interest Revenue

1 9 0 00

Interest Receivable

1 9 0 00

4 5 6

1 Interest Payable

1 4 2 0 00

Interest Expense

1 4 2 0 00

7 8 9

1 Factory Overhead Work in Process Inventory

4 4 0 0 00

CHAPTER 27

1097

MANAGING YOUR WRITING Students should raise the following points: 1. Regarding the work sheet in Chapter 27: Accounts: Three inventory accounts and cost of goods sold, including a perpetual inventory system, are used. Factory overhead is used for a manufacturer. Income tax expense is used for a corporation. Adjusting journal entries: Application of factory overhead to work in process. Additional factory overhead charges (and subsidiary ledger account use). Under- and overapplied overhead. Income tax expense and income tax payable. 2. Regarding the financial statements in Chapter 27: The cost of goods sold section of the income statement, supporting schedule of cost of goods manufactured, and related sources of data. The statement of retained earnings and related sources of data.

ETHICS CASE 1. Yes. Kevin is Mary’s supervisor and he is leaving the company. Kevin’s boss should be informed so he can take appropriate action, including possibly helping Mary succeed in her job. 2. Mary might be left with no supervision or guidance to correct her poor performance. Kevin will also be doing the company, his boss, and his replacement a disservice. 3. Answers will vary. Students should be specific on the problem and remember to include what was said during the conference. 4. Answers will vary. Kevin could have fired Mary, or suggested that Mary, his boss, and he have a follow-up conference before Kevin leaves the company.

1098

CHAPTER 27

Mastery Problem 1. Reese Manufacturing Company Income Statement For Year Ended December 31, 20-Net sales

$532,027

Less cost of goods sold: Finished goods inventory, January 1

$ 85,454

Cost of goods manufactured

239,269

Cost of goods available for sale

$324,723

Finished goods inventory, December 31

42,675

Cost of goods sold

282,048

Gross profit

$249,979

Operating expenses: Wages expense

$ 58,380

Advertising expense

11,450

Office rent expense

5,443

Office supplies expense

800

Bad debt expense

956

Insurance expense—office equipment

Depreciation expense—office equipment

923

Total operating expenses Operating income

78,050 $171,929

Other expense: Interest expense Income before income taxes

1,421 $170,508

Income tax

45,725

Net income

$124,783

CHAPTER 27

1099

Mastery Problem (Continued) Reese Manufacturing Company Schedule of Cost of Goods Manufactured For Year Ended December 31, 20-Work in process, January 1

$ 22,600

Direct materials Materials inventory, January 1 Materials purchases

$ 11,633 96,437

Materials available for use

$108,070

Materials inventory, December 31

22,353

Cost of materials used

$ 85,717

Less indirect materials charged to prod.

Cost of direct materials used

3,200 $ 82,517

Direct labor

107,740

Factory overhead

67,654

Total manufacturing costs

257,911

Total work in process during the period

$280,511

Work in process, December 31

41,242

Cost of goods manufactured

$239,269

2. Reese Manufacturing Company Statement of Retained Earnings For Year Ended December 31, 20-Retained earnings, January 1

$195,341

Add net income for the year (after provision for income taxes of $45,725)

124,783 $320,124

Less cash dividends Retained earnings, December 31

36,000 $284,124

1100

CHAPTER 27

Mastery Problem (Continued) 3. Reese Manufacturing Company Balance Sheet December 31, 20-Assets Current assets: Cash

$ 49,423

Accounts receivable Less allowance for doubtful accounts

$ 78,096 6,030

72,066

Inventories: Finished goods

$ 42,675

Work in process

41,242

Materials

22,353

106,270

Office supplies

2,746

Factory supplies

489

Prepaid insurance

Total current assets

$231,040

Property, plant, and equipment: Factory equipment Less accum. depr.—factory equip. Office equipment Less accum. depr.—office equip.

$186,674 36,054

$150,620

$ 46,986 3,839

43,147

Total property, plant, and equipment

193,767

Total assets

$424,807 Liabilities

Current liabilities: Notes payable

$ 12,470

Accounts payable

10,356

Income tax payable

45,725

Interest payable

132

Total current liabilities

$ 68,683

Stockholders’ Equity Capital stock

$ 72,000

Retained earnings

284,124

Total stockholders’ equity

356,124

Total liabilities & stockholders’ equity

$424,807

CHAPTER 27

1101

Mastery Problem (Continued) 4. GENERAL JOURNAL DATE 20-1

Dec.

DESCRIPTION

PAGE POST. REF.

DEBIT

Adjusting Entries 31 Interest Expense

1 3 2 00

Interest Payable

CREDIT

1 3 2 00

4 5

31 Office Supplies Expense

8 0 0 00

Office Supplies

8 0 0 00

7 8

31 Factory Overhead

1 3 8 9 00

Factory Supplies

1 3 8 9 00

10 11

31 Depreciation Expense—Office Equipment

9 2 3 00

Accumulated Depreciation—Office Equipment

31 Factory Overhead (Depr. Exp.—Factory Equip.)

12 5 5 3 00

Accumulated Depreciation—Factory Equipment

31 Factory Overhead (Insurance Expense)

1 3 5 6 00

Insurance Expense—Office Equipment

9 8 00

Prepaid Insurance

1 4 5 4 00 19

31 Bad Debt Expense

9 5 6 00

Allowance for Doubtful Accounts

31 Income Tax Expense

45 7 2 5 00

Income Tax Payable

31 Work in Process Inventory

1 5 6 7 00

Factory Overhead

1 5 6 7 00 28

29 30

45 7 2 5 00 25

26 27

9 5 6 00 22

23 24

12 5 5 3 00 15

9 2 3 00 12

9 10

31 Cost of Goods Sold Factory Overhead

6 4 1 00

6 4 1 00 31

1102

CHAPTER 27

Mastery Problem (Concluded) GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

20-2

PAGE

Dec. 31 Income Summary

67 6 5 4 00

Factory Overhead

67 6 5 4 00

31 Factory Overhead

67 6 5 4 00

Income Summary

67 6 5 4 00

31 Sales

532 0 2 7 00

Income Summary

532 0 2 7 00

9 10

31 Income Summary

407 2 4 4 00

Cost of Goods Sold

282 0 4 8 00 12

Wages Expense

58 3 8 0 00 13

Advertising Expense

11 4 5 0 00 14

Office Rent Expense

5 4 4 3 00 15

Office Supplies Expense

8 0 0 00 16

Bad Debt Expense

9 5 6 00 17

Insurance Expense—Office Equipment

9 8 00 18

Depreciation Expense—Office Equipment

9 2 3 00 19

Interest Expense

1 4 2 1 00 20

Income Tax Expense

45 7 2 5 00 21

31 Income Summary

124 7 8 3 00

Retained Earnings

124 7 8 3 00 24

31 Retained Earnings

Cash Dividends

36 0 0 0 00

Reversing Entries

20--

Jan.

1 Interest Payable

1 3 2 00

Interest Expense

34 35

1 3 2 00 31

32 33

36 0 0 0 00 27

1 Factory Overhead Work in Process Inventory

1 5 6 7 00

1 5 6 7 00 34 35

CHAPTER 27

1103

Challenge Problem 1. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

20-2

PAGE

Dec.

a. Work in Process

2 5 0 0 00

Factory Overhead

2 5 0 0 00

4 5

b. Factory Overhead

2 5 0 0 00

Cost of Goods Sold

2 5 0 0 00

Closing Entries

8 9

c. Cost of Goods Sold

Income Summary

2 5 0 0 00

2 5 0 0 00 10

11 12

d. Income Summary

2 5 0 0 00

Retained Earnings

2 5 0 0 00 13

2. Allofe Co. Condensed Income Statement For Year Ended December 31, 20-Net sales

$501,570

Cost of goods sold

357,812

Gross profit

$143,758

Operating expenses Net income

87,088 $ 56,670

COMPREHENSIVE PROBLEM

221

Comprehensive Problem 1: The Accounting Cycle 1. GENERAL JOURNAL DATE 20-1 2

Apr.

DESCRIPTION

1 Cash Bob Night, Capital

PAGE POST. REF.

DEBIT

101

90 0 0 0 00

311

CREDIT 1

90 0 0 0 00

Owner’s original investment

4 5 6

1 Prepaid Insurance Cash

145

9 0 0 0 00

101

9 0 0 0 00

Paid insurance premium for camping

season

2 Rent Expense

521

Cash

101

40 0 0 0 00

40 0 0 0 00 11

Paid rent for April

13 14 15 16

2 Cash

101

Registration Fees

35 0 0 0 00

401

19 20

Collected registration fees

16 17

2 Fishing Boats Accounts Payable

181

60 0 0 0 00

202

60 0 0 0 00 19

Purchased fishing boats on account

21 22

35 0 0 0 00 15

17 18

3 Food Supplies Accounts Payable

144

7 0 0 0 00

202

7 0 0 0 00 23

Purchased food supplies on account

from Acme Super Market

26 27 28

5 Office Supplies Accounts Payable

142 202

5 0 0 00

5 0 0 00 28

Purchased office supplies on account

from Gordon Office Supplies

222

COMPREHENSIVE PROBLEM

Comprehensive Problem 1 (Continued) GENERAL JOURNAL DATE 20-1 2

Apr.

DESCRIPTION

7 Cash Registration Fees

PAGE POST. REF.

DEBIT

101

38 6 0 0 00

401

CREDIT 1

38 6 0 0 00

Collected registration fees

4 5 6

10 Food Supplies Accounts Payable

144

8 2 0 0 00

202

8 2 0 0 00

Purchased food supplies on account

from Acme Super Market

10 Wages Expense

511

Cash

101

10 0 0 0 00

10 0 0 0 00 11

Paid wages to guides

13 14 15 16

14 Cash

101

Registration Fees

30 5 0 0 00

401

30 5 0 0 00 15

Collected registration fees

17 18

16 Food Supplies Accounts Payable

144

9 0 0 0 00

202

9 0 0 0 00 19

Purchased food supplies on account

from Acme Super Market

17 Wages Expense

511

Cash

101

10 0 0 0 00

10 0 0 0 00 24

Paid wages to guides

26 27 28 29

18 Postage Expense

536

Cash

101

Paid postage

1 5 0 00

1 5 0 00 28 29

COMPREHENSIVE PROBLEM

223

Comprehensive Problem 1 (Continued) GENERAL JOURNAL DATE 20-1 2

Apr. 21

DESCRIPTION

Cash Registration Fees

PAGE POST. REF.

DEBIT

101

35 6 0 0 00

401

CREDIT 1

35 6 0 0 00

Collected registration fees

4 5 6

24 Food Supplies Accounts Payable

144

8 5 0 0 00

202

8 5 0 0 00

Purchased food supplies on account

from Acme Super Market

24 Wages Expense

511

Cash

101

10 0 0 0 00

10 0 0 0 00 11

Paid wages to guides

13 14 15 16

28 Cash

101

Registration Fees

32 0 0 0 00

401

Collected registration fees

16 17

29 Wages Expense

511

Cash

101

10 0 0 0 00

10 0 0 0 00 19

Paid wages to guides

21 22

32 0 0 0 00 15

30 Food Supplies Accounts Payable

144

6 0 0 0 00

202

6 0 0 0 00 23

Purchased food supplies on account

from Acme Super Market

26 27 28

30 Accounts Payable Cash

202 101

32 7 0 0 00

32 7 0 0 00 28

Made payment on account to

Acme Super Market

224

COMPREHENSIVE PROBLEM

Comprehensive Problem 1 (Continued) GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

20-1

Apr. 30

Utilities Expense

533

Cash

PAGE

DEBIT

CREDIT

2 0 0 0 00

101

2 0 0 0 00

Paid utility bill

30 Telephone Expense

525

Cash

1 2 0 0 00

101

1 2 0 0 00

Paid phone bill

30 Bob Night, Drawing

312

Cash

6 0 0 0 00

101

6 0 0 0 00 10

Owner’s withdrawal

2., 6., and 11. GENERAL LEDGER Cash

ACCOUNT

DEBIT

90 0 0 0 00

9 0 0 0 00

81 0 0 0 00

40 0 0 0 00

41 0 0 0 00

35 0 0 0 00

76 0 0 0 00

38 6 0 0 00

114 6 0 0 00

10 0 0 0 00 125 1 0 0 00

1 5 0 00 124 9 5 0 00

10 0 0 0 00 172 5 5 0 00

32 7 0 0 00 139 8 5 0 00

2 0 0 0 00 137 8 5 0 00

1 2 0 0 00 136 6 5 0 00

6 0 0 0 00 130 6 5 0 00

ITEM

CREDIT

101

BALANCE

POST. REF.

DATE 20--

Apr.

ACCOUNT NO.

DEBIT

CREDIT

90 0 0 0 00

10 0 0 0 00 104 6 0 0 00 30 5 0 0 00

35 6 0 0 00

135 1 0 0 00

160 5 5 0 00 10 0 0 0 00 150 5 5 0 00

32 0 0 0 00

182 5 5 0 00

COMPREHENSIVE PROBLEM

225

Comprehensive Problem 1 (Continued) Office Supplies

ACCOUNT

DATE 20--

POST. REF.

30 Adjusting

Apr.

BALANCE DEBIT

CREDIT

5 0 0 00

DEBIT

DATE 20--

ITEM

CREDIT

5 0 0 00 4 0 0 00

1 0 0 00

Food Supplies

ACCOUNT

ACCOUNT NO. POST. REF.

CREDIT

DEBIT

CREDIT

7 0 0 0 00

8 2 0 0 00

15 2 0 0 00

9 0 0 0 00

24 2 0 0 00

8 5 0 0 00

32 7 0 0 00

6 0 0 0 00

38 7 0 0 00

30 Adjusting

30 7 0 0 00

8 0 0 0 00

Prepaid Insurance

ACCOUNT

DATE 20--

ITEM

POST. REF.

30 Adjusting

ACCOUNT

DATE 20--

BALANCE DEBIT

CREDIT

9 0 0 0 00

DEBIT

CREDIT

9 0 0 0 00 1 5 0 0 00

7 5 0 0 00

Fishing Boats ITEM

145

ACCOUNT NO.

Apr.

144

BALANCE DEBIT

Apr.

ITEM

142

ACCOUNT NO.

181

BALANCE

POST. REF.

DEBIT

60 0 0 0 00

CREDIT

DEBIT

CREDIT

60 0 0 0 00

226

COMPREHENSIVE PROBLEM

Comprehensive Problem 1 (Continued) Accumulated Depreciation—Fishing Boats

ACCOUNT

DATE 20--

ITEM

Apr. 30 Adjusting

DATE 20--

ITEM

181.1

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

1 0 0 0 00

Accounts Payable

ACCOUNT

ACCOUNT NO. POST. REF.

202

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

60 0 0 0 00

7 0 0 0 00

67 0 0 0 00

5 0 0 00

67 5 0 0 00

8 2 0 0 00

75 7 0 0 00

9 0 0 0 00

84 7 0 0 00

8 5 0 0 00

93 2 0 0 00

6 0 0 0 00

99 2 0 0 00

Apr.

32 7 0 0 00

66 5 0 0 00

Wages Payable

ACCOUNT

DATE 20--

ITEM

Apr. 30 Adjusting

ACCOUNT NO. POST. REF.

DATE 20--

ITEM

CREDIT

DEBIT

CREDIT

5 0 0 00

ACCOUNT NO. POST. REF.

219

BALANCE DEBIT

Bob Night, Capital

ACCOUNT

Apr.

POST. REF.

ACCOUNT NO.

311

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

90 0 0 0 00

30 Closing

54 2 5 0 00

144 2 5 0 00

30 Closing

6 0 0 0 00

138 2 5 0 00

COMPREHENSIVE PROBLEM

227

Comprehensive Problem 1 (Continued) Bob Night, Drawing

ACCOUNT

DATE 20--

ITEM

Apr. 30

ACCOUNT NO.

POST. REF.

30 Closing

BALANCE DEBIT

DATE 20--

6 0 0 0 00

DEBIT

ITEM

6 0 0 0 00

ACCOUNT NO. POST. REF.

30 Closing

117 4 5 0 00

30 Closing

54 2 5 0 00

CREDIT

DEBIT

171 7 0 0 00

ITEM

CREDIT

171 7 0 0 00 54 2 5 0 00

Registration Fees

DATE 20--

ACCOUNT NO. POST. REF.

313

BALANCE DEBIT

ACCOUNT

CREDIT

6 0 0 0 00

Apr. 30 Closing

Apr.

CREDIT

Income Summary

ACCOUNT

312

401

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

35 0 0 0 00

38 6 0 0 00

73 6 0 0 00

30 5 0 0 00

104 1 0 0 00

35 6 0 0 00

139 7 0 0 00

32 0 0 0 00

171 7 0 0 00

30 Closing

171 7 0 0 00

228

COMPREHENSIVE PROBLEM

Comprehensive Problem 1 (Continued) Wages Expense

ACCOUNT

ACCOUNT NO. BALANCE

POST. REF.

DEBIT

Apr. 10

10 0 0 0 00

20 0 0 0 00

10 0 0 0 00

30 0 0 0 00

10 0 0 0 00

40 0 0 0 00

30 Adjusting

5 0 0 00

40 5 0 0 00

30 Closing

DATE 20--

ITEM

CREDIT

DEBIT

ACCOUNT NO.

DEBIT

40 0 0 0 00

30 Closing

Apr.

ITEM

CREDIT

DEBIT

DATE 20--

ITEM

Apr. 30 Adjusting

30 Closing

POST. REF.

40 0 0 0 00

ACCOUNT NO.

DATE 20--

ITEM

Apr. 30 Adjusting

30 Closing

CREDIT

4 0 0 00

DEBIT

CREDIT

4 0 0 00 4 0 0 00

ACCOUNT NO.

524

BALANCE

POST. REF.

DEBIT

30 7 0 0 00

523

BALANCE DEBIT

Food Supplies Expense

ACCOUNT

CREDIT

40 0 0 0 00

Office Supplies Expense

ACCOUNT

521

BALANCE

POST. REF.

DATE 20--

CREDIT

40 5 0 0 00

Rent Expense

ACCOUNT

511

CREDIT

DEBIT

CREDIT

30 7 0 0 00 30 7 0 0 00

COMPREHENSIVE PROBLEM

229

Comprehensive Problem 1 (Continued) Telephone Expense

ACCOUNT

DATE 20--

ITEM

POST. REF.

Apr. 30

30 Closing

ACCOUNT NO. BALANCE DEBIT

CREDIT

1 2 0 0 00

DEBIT

DATE 20--

ITEM

1 2 0 0 00

ACCOUNT NO. POST. REF.

Apr. 30

30 Closing

DATE 20--

ITEM

CREDIT

2 0 0 0 00

DEBIT

Apr. 30 Adjusting

30 Closing

2 0 0 0 00 2 0 0 0 00

DATE 20--

ITEM

CREDIT

1 5 0 0 00

DEBIT

Apr. 18

30 Closing

1 5 0 0 00 1 5 0 0 00

DATE 20--

ITEM

CREDIT

1 5 0 00

Apr. 30 Adjusting

30 Closing

POST. REF.

J5 J5

536

BALANCE DEBIT

DEBIT

CREDIT

1 5 0 00 1 5 0 00

Depreciation Expense—Fishing Boats

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

535

BALANCE DEBIT

Postage Expense

ACCOUNT

CREDIT

ACCOUNT NO.

POST. REF.

533

BALANCE DEBIT

Insurance Expense

ACCOUNT

CREDIT

1 2 0 0 00

Utilities Expense

ACCOUNT

525

ACCOUNT NO.

542

BALANCE DEBIT

CREDIT

1 0 0 0 00

DEBIT

CREDIT

1 0 0 0 00 1 0 0 0 00

230

COMPREHENSIVE PROBLEM

Comprehensive Problem 1 (Continued) 3. and 4. The General’s Favorite Work For the Month Ended ACCOUNT TITLE

ADJUSTMENTS DEBIT CREDIT

TRIAL BALANCE DEBIT CREDIT

Cash

Office Supplies

5 0 0 00

Food Supplies

38 7 0 0 00

(b)30 7 0 0 00

Prepaid Insurance

9 0 0 0 00

Fishing Boats

60 0 0 0 00

Accum. Depr.—Fishing Boats

Accounts Payable

Wages Payable

Bob Night, Capital

Bob Night, Drawing

Registration Fees

Wages Expense

40 0 0 0 00

Rent Expense

40 0 0 0 00

130 6 5 0 00 (a)

(d) 1 0 0 0 00 66 5 0 0 00 (e) 6 0 0 0 00 171 7 0 0 00 5 0 0 00

Office Supplies Expense

(a)

4 0 0 00

Food Supplies Expense

(b)30 7 0 0 00

Telephone Expense

1 2 0 0 00

Utilities Expense

2 0 0 0 00

Insurance Expense

Postage Expense

Depr. Exp.—Fishing Boats

5 0 0 00

90 0 0 0 00

(e)

4 0 0 00

328 2 0 0 00

34 1 0 0 00

Net Income

23 24 25 26 27 28 29 30 31

COMPREHENSIVE PROBLEM

231

Comprehensive Problem 1 (Continued) Fishing Hole Sheet April 30, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT

CREDIT

BALANCE SHEET DEBIT CREDIT

130 6 5 0 00

1 0 0 00

8 0 0 0 00

7 5 0 0 00

60 0 0 0 00

1 0 0 0 00

66 5 0 0 00

5 0 0 00

90 0 0 0 00

6 0 0 0 00

6 0 0 0 00 171 7 0 0 00

171 7 0 0 00

10 11

40 5 0 0 00

40 0 0 0 00

4 0 0 00

30 7 0 0 00

1 2 0 0 00

2 0 0 0 00

1 5 0 0 00

1 5 0 00 1 0 0 0 0 00

1 5 0 00

1 0 0 0 00

329 7 0 0 00

117 4 5 0 00

171 7 0 0 00

212 2 5 0 00

54 2 5 0 00 171 7 0 0 00

158 0 0 0 00 21 54 2 5 0 00 22

171 7 0 0 00

212 2 5 0 00

212 2 5 0 00 23 24 25 26 27 28 29 30 31

232

COMPREHENSIVE PROBLEM

Comprehensive Problem 1 (Continued) 7. The General’s Favorite Fishing Hole Income Statement For Month Ended April 30, 20-Revenues: Registration fees

$171,700

Expenses: Wages expense

$40,500

Rent expense

40,000

Office supplies expense

400

Food supplies expense

30,700

Telephone expense

1,200

Utilities expense

2,000

Insurance expense

1,500

Postage expense

150

Depreciation expense—fishing boats

1,000

Total expenses

117,450

Net income

$ 54,250

8. The General’s Favorite Fishing Hole Statement of Owner’s Equity For Month Ended April 30, 20-Bob Night, capital, April 1, 20--

$138,250

Investments during April

90,000

Total investment Net income for April Less withdrawals for April Increase in capital Bob Night, capital, April 30, 20--

$ 90,000 $54,250 6,000 48,250 $138,250

COMPREHENSIVE PROBLEM

233

Comprehensive Problem 1 (Continued) 9. The General’s Favorite Fishing Hole Balance Sheet April 30, 20-Assets Current assets: Cash

$130,650

Office supplies

100

Food supplies

8,000

Prepaid insurance

7,500

Total current assets

$146,250

Property, plant, and equipment: Fishing boats

$ 60,000

Less accumulated depreciation

1,000

Total assets

59,000 $205,250

Liabilities Current liabilities: Accounts payable

$ 66,500

Wages payable

500

Total current liabilities

$ 67,000

Owner’s Equity Bob Night, capital

138,250

Total liabilities and owner’s equity

$205,250

234

COMPREHENSIVE PROBLEM

Comprehensive Problem 1 (Continued) 5. and 10. GENERAL JOURNAL DATE 20-1

Apr.

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Adjusting Entries

30 Office Supplies Expense

523

Office Supplies

142

4 0 0 00

30 Food Supplies Expense

524

Food Supplies

144

30 7 0 0 00

7 8 9

30 Insurance Expense Prepaid Insurance

535

1 5 0 0 00

145

30 Depreciation Expense—Fishing Boats Accum. Depreciation—Fishing Boats

542

1 0 0 0 00

181.1

1 0 0 0 00 12 13

30 Wages Expense

511

Wages Payable

5 0 0 00

219

5 0 0 00 15 16

Closing Entries

9 10

1 5 0 0 00

13 14

6 7

10 11

30 Registration Fees Income Summary

401

171 7 0 0 00

313

171 7 0 0 00 19

30 Income Summary

313

Wages Expense

511

40 5 0 0 00 22

Rent Expense

521

40 0 0 0 00 23

Office Supplies Expense

523

4 0 0 00 24

Food Supplies Expense

524

30 7 0 0 00 25

Telephone Expense

525

1 2 0 0 00 26

Utilities Expense

533

2 0 0 0 00 27

Insurance Expense

535

1 5 0 0 00 28

Postage Expense

536

1 5 0 00 29

Depreciation Expense—Fishing Boats

542

1 0 0 0 00 30

117 4 5 0 00

COMPREHENSIVE PROBLEM

235

Comprehensive Problem 1 (Concluded) GENERAL JOURNAL DATE 20-1

Apr. 30

PAGE

DESCRIPTION

Income Summary Bob Night, Capital

POST. REF.

DEBIT

313

54 2 5 0 00

311

CREDIT 1

54 2 5 0 00

3 4

2 3

30 Bob Night, Capital

311

Bob Night, Drawing

6 0 0 0 00

312

6 0 0 0 00

12. The General’s Favorite Fishing Hole Post-Closing Trial Balance April 30, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

130 6 5 0 00

Office Supplies

142

1 0 0 00

Food Supplies

144

8 0 0 0 00

Prepaid Insurance

145

7 5 0 0 00

Fishing Boats

181

60 0 0 0 00

Accumulated Depreciation—Fishing Boats

181.1

1 0 0 0 00

Accounts Payable

202

66 5 0 0 00

Wages Payable

219

5 0 0 00

Bob Night, Capital

311

138 2 5 0 00

ACCOUNT

CREDIT BALANCE

206 2 5 0 00 206 2 5 0 00

COMPREHENSIVE PROBLEM

237

Comprehensive Problem 1, Period 2: The Accounting Cycle 1. GENERAL JOURNAL DATE 20-1 2

May

DESCRIPTION

1 Cash Vending Commission Revenue

PAGE POST. REF.

DEBIT

101

2 0 0 00

404

CREDIT 1

2 0 0 00

3 4 5

2 Surround Sound System Cash

182

3 6 0 0 00

101

3 6 0 0 00

2 Big Screen TV

183

Cash

101

8 0 0 0 00

2 Satellite Programming Expense Cash

546

1 2 5 00

101

3 Accounts Payable

202

Office Supplies

142

1 2 5 00 11 1 0 0 00

3 Cash Registration Fees

101

52 7 0 0 00

401

3 Rent Expense

521

Cash

101

40 0 0 0 00

3 Cash Bob Night, Capital

101 600 0 0 0 00 311

4 Accounts Payable Cash

202

4 0 0 00

101

4 0 0 00 26

27 28

600 0 0 0 00 23

40 0 0 0 00 20

52 7 0 0 00 17

1 0 0 00 14

8 9

8 0 0 0 00

5 6

4 Land

161 100 0 0 0 00

Buildings

171 530 0 0 0 00

Fishing Boats

181

Cash

101

9 0 0 0 00

639 0 0 0 00 31

238

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

20-1 2

May

5 Insurance Expense Cash

535 101

1 0 0 0 00

3 4 5

5 Food Supplies Accounts Payable

144 202

22 9 5 0 00

5 Office Supplies Accounts Payable

142 202

1 2 0 0 00

22 9 5 0 00

6 7 8

17 18

7 Prepaid Subscriptions Cash

146 101

1 2 0 00

10 Cash Registration Fees

101 401

62 7 5 0 00

13 Wages Expense Wages Payable Cash

511 219 101

29 5 0 0 00 5 0 0 00

14 Registration Fees Cash

401 101

1 0 0 0 00

17 Cash Registration Fees

101 401

63 0 0 0 00

19 Food Supplies Accounts Payable

144 202

18 4 0 0 00

21 Cash Registration Fees

101 401

63 4 0 0 00

23 Advertising Expense Cash

512 101

2 5 0 0 00

63 4 0 0 00 30 31 32

2 5 0 0 00 33 34

25 Repair Expense Cash

537 101

8 5 0 00

8 5 0 00 36 37

27 Wages Expense Cash

511 101

30 0 0 0 00

30 0 0 0 00 39

40 41

18 4 0 0 00 27

37 38

63 0 0 0 00 24

34 35

1 0 0 0 00 21

31 32

28 29

30 0 0 0 00 18

25 26

62 7 5 0 00 14

22 23

1 2 0 00 11

19 20

8 9

15 16

1 2 0 0 00

12 13

5 6

9 10

28 Advertising Expense Cash

512 101

1 8 0 0 00

1 8 0 0 00 42

COMPREHENSIVE PROBLEM

239

Comprehensive Problem 1, Period 2 (Continued) GENERAL JOURNAL DATE 20-1 2

May 29

DESCRIPTION

Food Supplies Accounts Payable

PAGE POST. REF.

DEBIT

144

14 3 2 5 00

202

CREDIT 1

14 3 2 5 00

3 4 5

30 Utilities Expense

533

Cash

101

3 3 0 0 00

6 7 8

30 Telephone Expense Cash

525

1 8 0 0 00

101

1 8 0 0 00

8 9

30 Accounts Payable Cash

202

47 3 5 0 00

101

47 3 5 0 00 11

12 13

5 6

9 10

31 Bob Night, Drawing Cash

312 101

7 5 0 0 00

7 5 0 0 00 14

240

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) 2., 6., and 11. GENERAL LEDGER Cash

ACCOUNT

DATE 20--

ACCOUNT NO.

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

Apr.

30 Balance



May

3 6 0 0 00 127 2 5 0 00

8 0 0 0 00 119 2 5 0 00

1 2 5 00 119 1 2 5 00

639 0 0 0 00

92 4 2 5 00

1 0 0 0 00

91 4 2 5 00

1 2 0 00

91 3 0 5 00

30 0 0 0 00 124 0 5 5 00

1 0 0 0 00 123 0 5 5 00

63 0 0 0 00

186 0 5 5 00

63 4 0 0 00

249 4 5 5 00

2 5 0 0 00 246 9 5 5 00

8 5 0 00 246 1 0 5 00

30 0 0 0 00 216 1 0 5 00

1 8 0 0 00 214 3 0 5 00

3 3 0 0 00 211 0 0 5 00

1 8 0 0 00 209 2 0 5 00

47 3 5 0 00 161 8 5 5 00

7 5 0 0 00 154 3 5 5 00

DATE 20--

May

130 6 5 0 00 2 0 0 00

130 8 5 0 00

52 7 0 0 00

171 8 2 5 00 40 0 0 0 00 131 8 2 5 00

600 0 0 0 00

731 8 2 5 00 4 0 0 00 731 4 2 5 00

62 7 5 0 00

154 0 5 5 00

Accounts Receivable

ACCOUNT

ITEM

31 Adjusting

POST. REF.

101

ACCOUNT NO.

122

BALANCE DEBIT

3 0 00

CREDIT

DEBIT

CREDIT

3 0 00

COMPREHENSIVE PROBLEM

241

Comprehensive Problem 1, Period 2 (Continued) Office Supplies

ACCOUNT

DATE 20--

ITEM

POST. REF.

Apr.

30 Balance



May

31 Adjusting

BALANCE DEBIT

CREDIT

DEBIT

DATE 20--

ITEM

CREDIT

1 0 0 00 1 0 0 00 1 2 0 0 00

1 2 0 0 00 1 0 5 0 00

1 5 0 00

Food Supplies

ACCOUNT

ACCOUNT NO. POST. REF.

CREDIT

DEBIT

CREDIT

30 Balance



May

22 9 5 0 00

30 9 5 0 00

18 4 0 0 00

49 3 5 0 00

14 3 2 5 00

63 6 7 5 00

31 Adjusting

57 7 5 0 00

5 9 2 5 00

ITEM

ACCOUNT NO. POST. REF.

Apr.

30 Balance



May

31 Adjusting

CREDIT

DEBIT

1 5 0 0 00

6 0 0 0 00

ACCOUNT NO.

146

BALANCE DEBIT

1 2 0 00

31 Adjusting

ITEM

CREDIT

7 5 0 0 00

POST. REF.

DATE 20--

145

BALANCE DEBIT

Prepaid Subscriptions

ACCOUNT

May

8 0 0 0 00

Prepaid Insurance

DATE 20--

144

BALANCE DEBIT

Apr.

ACCOUNT

142

ACCOUNT NO.

CREDIT

DEBIT

CREDIT

1 2 0 00 1 0 00

1 1 0 00

242

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) Land

ACCOUNT

DATE 20--

May

ITEM

BALANCE

POST. REF.

DEBIT

100 0 0 0 00

CREDIT

DEBIT

DATE 20--

May

ITEM

DATE 20--

ITEM

May 31 Adjusting

BALANCE

POST. REF.

DEBIT

530 0 0 0 00

CREDIT

DEBIT

POST. REF.

DATE 20--

ITEM

CREDIT

530 0 0 0 00

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

8 0 0 00

ACCOUNT NO. POST. REF.

Apr.

30 Balance



May

171.1

ACCOUNT NO.

Fishing Boats

ACCOUNT

171

ACCOUNT NO.

Accumulated Depreciation—Buildings

ACCOUNT

CREDIT

100 0 0 0 00

Buildings

ACCOUNT

161

ACCOUNT NO.

181

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

60 0 0 0 00 9 0 0 0 00

69 0 0 0 00

COMPREHENSIVE PROBLEM

243

Comprehensive Problem 1, Period 2 (Continued) Accumulated Depreciation—Fishing Boats

ACCOUNT

DATE 20--

Apr.

ITEM

30 Balance

May 31 Adjusting

ACCOUNT

DATE 20--

May

ACCOUNT

ITEM

May

ACCOUNT

DATE 20--

DEBIT

1 1 5 0 00

2 1 5 0 00

POST. REF.

BALANCE DEBIT

CREDIT

3 6 0 0 00

DEBIT

ACCOUNT NO.

CREDIT

DEBIT

CREDIT

6 0 00

183

ACCOUNT NO. POST. REF.

BALANCE DEBIT

CREDIT

8 0 0 0 00

DEBIT

POST. REF.

CREDIT

8 0 0 0 00

Accumulated Depreciation—Big Screen TV

May 31 Adjusting

182.1

BALANCE DEBIT

ITEM

CREDIT

3 6 0 0 00

Big Screen TV ITEM

182

ACCOUNT NO.

Accumulated Depreciation—Surround Sound System ITEM

CREDIT

1 0 0 0 00

May 31 Adjusting

DATE 20--

CREDIT



POST. REF.

181.1

BALANCE DEBIT

Surround Sound System

DATE 20--

ACCOUNT

POST. REF.

ACCOUNT NO.

183.1

ACCOUNT NO. BALANCE

DEBIT

CREDIT

7 5 00

DEBIT

CREDIT

7 5 00

244

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) Accounts Payable

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO. POST. REF.

202

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

Apr.

30 Balance



May

1 0 0 00

66 4 0 0 00

4 0 0 00

66 0 0 0 00

22 9 5 0 00

88 9 5 0 00

1 2 0 0 00

90 1 5 0 00

18 4 0 0 00

108 5 5 0 00

14 3 2 5 00

122 8 7 5 00

66 5 0 0 00

47 3 5 0 00

75 5 2 5 00

Wages Payable

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO. POST. REF.

Apr.

30 Balance



May

31 Adjusting

BALANCE DEBIT

CREDIT

DEBIT

DATE 20--

ITEM

CREDIT

5 0 0 00 5 0 0 00 6 0 0 0 00

6 0 0 0 00

Bob Night, Capital

ACCOUNT

ACCOUNT NO. POST. REF.

219

311

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

Apr.

30 Balance



May

600 0 0 0 00

738 2 5 0 00

31 Closing

61 8 1 0 00

800 0 6 0 00

31 Closing

138 2 5 0 00

7 5 0 0 00

792 5 6 0 00

Bob Night, Drawing

ACCOUNT

DATE 20--

ITEM

May 31

31 Closing

ACCOUNT NO.

POST. REF.

J7 J9

312

BALANCE DEBIT

CREDIT

7 5 0 0 00

DEBIT

CREDIT

7 5 0 0 00 7 5 0 0 00

COMPREHENSIVE PROBLEM

245

Comprehensive Problem 1, Period 2 (Continued) Income Summary

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO. POST. REF.

BALANCE DEBIT

May 31 Closing

31 Closing

179 2 7 0 00

31 Closing

61 8 1 0 00

CREDIT

DEBIT

DATE 20--

ITEM

CREDIT

241 0 8 0 00

241 0 8 0 00 61 8 1 0 00

Registration Fees

ACCOUNT

ACCOUNT NO. POST. REF.

313

401

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

52 7 0 0 00

62 7 5 0 00

115 4 5 0 00

63 0 0 0 00

177 4 5 0 00

63 4 0 0 00

240 8 5 0 00

31 Closing

May

1 0 0 0 00

114 4 5 0 00

240 8 5 0 00

Vending Commission Revenue

ACCOUNT

DATE 20--

ITEM

POST. REF.

ACCOUNT NO.

404

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

2 0 0 00

31 Adjusting

3 0 00

2 3 0 00

31 Closing

May

2 3 0 00

Wages Expense

ACCOUNT

ACCOUNT NO. BALANCE

POST. REF.

DEBIT

May 13

29 5 0 0 00

30 0 0 0 00

59 5 0 0 00

31 Adjusting

6 0 0 0 00

65 5 0 0 00

31 Closing

DATE 20--

ITEM

511

CREDIT

DEBIT

CREDIT

65 5 0 0 00

246

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) Advertising Expense

ACCOUNT

DATE 20--

ITEM

POST. REF.

ACCOUNT NO. BALANCE DEBIT

CREDIT

DEBIT

CREDIT

May 23

2 5 0 0 00

1 8 0 0 00

4 3 0 0 00

31 Closing

4 3 0 0 00

Rent Expense

ACCOUNT

ACCOUNT NO.

DEBIT

40 0 0 0 00

31 Closing

May

ITEM

CREDIT

DEBIT

DATE 20--

ITEM

May 31 Adjusting

31 Closing

POST. REF.

40 0 0 0 00

ACCOUNT NO.

DATE 20--

ITEM

May 31 Adjusting

31 Closing

CREDIT

1 0 5 0 00

DEBIT

CREDIT

1 0 5 0 00 1 0 5 0 00

ACCOUNT NO.

524

BALANCE

POST. REF.

DEBIT

57 7 5 0 00

523

BALANCE DEBIT

Food Supplies Expense

ACCOUNT

CREDIT

40 0 0 0 00

Office Supplies Expense

ACCOUNT

521

BALANCE

POST. REF.

DATE 20--

512

CREDIT

DEBIT

CREDIT

57 7 5 0 00 57 7 5 0 00

COMPREHENSIVE PROBLEM

247

Comprehensive Problem 1, Period 2 (Continued) Telephone Expense

ACCOUNT

DATE 20--

ITEM

POST. REF.

May 30

31 Closing

ACCOUNT NO. BALANCE DEBIT

CREDIT

1 8 0 0 00

DEBIT

DATE 20--

ITEM

1 8 0 0 00

ACCOUNT NO. POST. REF.

May 30

31 Closing

DATE 20--

ITEM

CREDIT

3 3 0 0 00

DEBIT

CREDIT

3 3 0 0 00 3 3 0 0 00

ACCOUNT NO.

POST. REF.

CREDIT

DEBIT

CREDIT

1 0 0 0 00

31 Adjusting

1 5 0 0 00

2 5 0 0 00

31 Closing

ACCOUNT

DATE

2 5 0 0 00

Postage Expense ITEM

ACCOUNT NO. POST. REF.

535

BALANCE DEBIT

May

533

BALANCE DEBIT

Insurance Expense

ACCOUNT

CREDIT

1 8 0 0 00

Utilities Expense

ACCOUNT

525

536

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

248

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) Repair Expense

ACCOUNT

DATE 20--

ITEM

May 25

ACCOUNT NO. POST. REF.

31 Closing

BALANCE DEBIT

CREDIT

8 5 0 00

DEBIT

DATE 20--

ITEM

May 31 Adjusting

31 Closing

POST. REF.

8 5 0 00

ACCOUNT NO.

DATE 20--

ITEM

CREDIT

8 0 0 00

May 31 Adjusting

31 Closing

POST. REF.

DEBIT

DATE 20--

ITEM

8 0 0 00

ACCOUNT NO.

May 31 Adjusting

31 Closing

J8 J9

541

BALANCE DEBIT

CREDIT

6 0 00

POST. REF.

CREDIT

8 0 0 00

DEBIT

CREDIT

6 0 00 6 0 00

Depreciation Expense—Fishing Boats

ACCOUNT

540

BALANCE DEBIT

Depreciation Expense—Surround Sound System

ACCOUNT

CREDIT

8 5 0 00

Depreciation Expense—Buildings

ACCOUNT

537

ACCOUNT NO.

542

BALANCE DEBIT

CREDIT

1 1 5 0 00

DEBIT

CREDIT

1 1 5 0 00 1 1 5 0 00

COMPREHENSIVE PROBLEM

249

Comprehensive Problem 1, Period 2 (Continued) Depreciation Expense—Big Screen TV

ACCOUNT

DATE 20--

ITEM

May 31 Adjusting

31 Closing

POST. REF.

ACCOUNT NO. BALANCE

DEBIT

CREDIT

7 5 00

DEBIT

DATE 20--

ITEM

POST. REF.

31 Closing

May

7 5 00

ACCOUNT NO.

DATE 20--

ITEM

May 31 Adjusting

31 Closing

POST. REF.

J8 J9

546

BALANCE DEBIT

CREDIT

1 2 5 00

DEBIT

CREDIT

1 2 5 00 1 2 5 00

Subscriptions Expense

ACCOUNT

CREDIT

7 5 00

Satellite Programming Expense

ACCOUNT

543

ACCOUNT NO.

548

BALANCE DEBIT

CREDIT

1 0 00

DEBIT

CREDIT

1 0 00 1 0 00

250

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) 3. and 4. The General’s Favorite Work For Month Ended ACCOUNT TITLE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

Cash Accounts Receivable Office Supplies Food Supplies Prepaid Insurance Prepaid Subscriptions Land Buildings Accum. Depr.—Buildings Fishing Boats Accum. Depr.—Fishing Boats Surround Sound System Accum. Depr.—Surround Sound Sys. Big Screen TV Accum. Depr.—Big Screen TV Accounts Payable Wages Payable Bob Night, Capital Bob Night, Drawing Registration Fees Vending Commission Revenue Wages Expense Advertising Expense Rent Expense Office Supplies Expense Food Supplies Expense Telephone Expense Utilities Expense Insurance Expense Repair Expense Depr. Exp.—Buildings Depr. Exp.—Surround Sound Sys. Depr. Exp.—Fishing Boats Depr. Exp.—Big Screen TV Satellite Programming Expense Subscriptions Expense

154 3 5 5 00 (a)

3 0 00

1 2 0 0 00 63 6 7 5 00 7 5 0 0 00 1 2 0 00 100 0 0 0 00 530 0 0 0 00

(h) 1 0 5 0 00 1 (i) 57 7 5 0 00 57 (f) 1 5 0 0 00 (g) 1 0 00

(e)

8 0 0 00

69 0 0 0 00 1 0 0 0 00

(b) 1 1 5 0 00

3 6 0 0 00 (c)

6 0 00

(d)

7 5 00

8 0 0 0 00 75 5 2 5 00 (j) 6 0 0 0 00 6

738 2 5 0 00 7 5 0 0 00 240 8 5 0 00 2 0 0 00 59 5 0 0 00 4 3 0 0 00 40 0 0 0 00

1 8 0 0 00 3 3 0 0 00 1 0 0 0 00 8 5 0 00

(a)

3 0 00

(j) 6 0 0 0 00

(h) 1 0 5 0 00 1 (i) 57 7 5 0 00 5757 (f) 1 5 0 0 00 111 (e) 8 0 0 00 (c) 6 0 00 (b) 1 1 5 0 00 6 (d) 7 5 00

1 2 5 00 (g) 1,055 8 2 5 00 1,055 8 2 5 00

ADJUSTMENTS DEBIT CREDIT

TRIAL BALANCE DEBIT CREDIT

1 0 00 68 4 2 5 00

68 4 2 5 00

Net Income

39 40

COMPREHENSIVE PROBLEM

251

Comprehensive Problem 1, Period 2 (Continued) Fishing Hole Sheet May 31, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

154 3 5 5 00 3 0 00 1 5 0 00 5 9 2 5 00 6 0 0 0 00 1 1 0 00 100 0 0 0 00 530 0 0 0 00

BALANCE SHEET DEBIT CREDIT

154 3 5 5 00 3 0 00 1 5 0 00 5 9 2 5 00 6 0 0 0 00 1 1 0 00 100 0 0 0 00 530 0 0 0 00 8 0 0 00 69 0 0 0 00 2 1 5 0 00

3 4 5 6 7 8 9 10

2 1 5 0 00 11

3 6 0 0 00

3 6 0 0 00 6 0 00

6 0 00 13

8 0 0 0 00

8 0 0 0 00 7 5 00 75 5 2 5 00 6 0 0 0 00 738 2 5 0 00

7 5 00 15 75 5 2 5 00 16 6 0 0 0 00 17 738 2 5 0 00 18

7 5 0 0 00

7 5 0 0 00 240 8 5 0 00 2 3 0 00

1,063 9 4 0 00 1,063 9 4 0 00

8 0 0 00

69 0 0 0 00

65 5 0 0 00 4 3 0 0 00 40 0 0 0 00 1 0 5 0 00 57 7 5 0 00 1 8 0 0 00 3 3 0 0 00 2 5 0 0 00 8 5 0 00 8 0 0 00 6 0 00 1 1 5 0 00 7 5 00 1 2 5 00 1 0 00

240 8 5 0 00 2 3 0 00

20 21

65 5 0 0 00 4 3 0 0 00 40 0 0 0 00 1 0 5 0 00 57 7 5 0 00 1 8 0 0 00 3 3 0 0 00 2 5 0 0 00 8 5 0 00 8 0 0 00 6 0 00 1 1 5 0 00 7 5 00 1 2 5 00 1 0 00 179 2 7 0 00 61 8 1 0 00 241 0 8 0 00

22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

241 0 8 0 00

884 6 7 0 00

241 0 8 0 00

884 6 7 0 00

822 8 6 0 00 37 61 8 1 0 00 38 884 6 7 0 00 39 40

252

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) 5. GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

May 31

Accounts Receivable Vending Commission Revenue

122

3 0 00

404

3 0 00

4 5 6

31 Depreciation Expense—Fishing Boats Accumulated Depreciation—Fishing Boats

542

1 1 5 0 00

181.1

1 1 5 0 00

31 Depreciation Expense—Surround Sound System

541

Accum. Depr.—Surround Sound System

182.1

6 0 00

31 Depreciation Expense—Big Screen TV Accumulated Depreciation—Big Screen TV

543

7 5 00

183.1

7 5 00 12 13

31 Depreciation Expense—Buildings Accumulated Depreciation—Buildings

540

8 0 0 00

171.1

8 0 0 00 15

16 17 18

31 Insurance Expense Prepaid Insurance

535

1 5 0 0 00

145

1 5 0 0 00 18

19 20 21

31 Subscriptions Expense Prepaid Subscriptions

548

1 0 00

146

1 0 00 21

31 Office Supplies Expense

523

Office Supplies

142

1 0 5 0 00

1 0 5 0 00 24

31 Food Supplies Expense

524

Food Supplies

144

57 7 5 0 00

57 7 5 0 00 27

28 29 30

9 10

13 14

6 7

31 Wages Expense Wages Payable

511 219

6 0 0 0 00

6 0 0 0 00 30

COMPREHENSIVE PROBLEM

253

Comprehensive Problem 1, Period 2 (Continued) 7. The General’s Favorite Fishing Hole Income Statement For Month Ended May 31, 20-Revenues: Registration fees

$240,850

Vending commission revenue

230

Total revenues

$241,080

Expenses: Wages expense

$ 65,500

Advertising expense

4,300

Rent expense

40,000

Office supplies expense

1,050

Food supplies expense

57,750

Telephone expense

1,800

Utilities expense

3,300

Insurance expense

2,500

Repair expense

850

Depreciation expense—buildings

800

Depreciation expense—surround sound system

Depreciation expense—fishing boats

1,150

Depreciation expense—big screen TV

Satellite programming expense

125

Subscriptions expense

Total expenses

179,270

Net income

$ 61,810

8. The General’s Favorite Fishing Hole Statement of Owner’s Equity For Month Ended May 31, 20-Bob Night, capital, May 1, 20--

$138,250

Investments during May

600,000

Total investment

$738,250

Net income for May Less withdrawals for May Increase in capital Bob Night, capital, May 31, 20--

$ 61,810 7,500 54,310 $792,560

254

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) 9. The General’s Favorite Fishing Hole Balance Sheet May 31, 20-Assets Current assets: Cash

$154,355

Accounts receivable

Office supplies

150

Food supplies

5,925

Prepaid insurance

6,000

Prepaid subscriptions

110

Total current assets

$166,570

Property, plant, and equipment: Land

$100,000

Buildings

$530,000

Less accum. depr.—buildings Fishing boats

800

529,200

$ 69,000

Less accum. depr.—fishing boats Surround sound system

2,150 $

Less accum. depr.—surround sound sys. Big screen TV Less accum. depr.—big screen TV

3,600 60

66,850 3,540

8,000 75

7,925

Total property, plant, and equipment

707,515

Total assets

$874,085 Liabilities

Current liabilities: Accounts payable Wages payable Total current liabilities

$ 75,525 6,000 $ 81,525

Owner’s Equity Bob Night, capital

792,560

Total liabilities and owner’s equity

$874,085

COMPREHENSIVE PROBLEM

255

Comprehensive Problem 1, Period 2 (Continued) 10. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

1 20--

Registration Fees

401 240 8 5 0 00

Vending Commission Revenue

404

Income Summary

313

May 31

2 3 0 00 241 0 8 0 00

5 6

4 5

31 Income Summary

313 179 2 7 0 00

Wages Expense

511

65 5 0 0 00

Advertising Expense

512

4 3 0 0 00

Rent Expense

521

40 0 0 0 00

Office Supplies Expense

523

1 0 5 0 00 10

Food Supplies Expense

524

57 7 5 0 00 11

Telephone Expense

525

1 8 0 0 00 12

Utilities Expense

533

3 3 0 0 00 13

Insurance Expense

535

2 5 0 0 00 14

Repair Expense

537

8 5 0 00 15

Depreciation Expense—Buildings

540

8 0 0 00 16

Depreciation Exp.—Surround Sound System

541

6 0 00 17

Depreciation Expense—Fishing Boats

542

1 1 5 0 00 18

Depreciation Expense—Big Screen TV

543

7 5 00 19

Satellite Programming Expense

546

1 2 5 00 20

Subscriptions Expense

548

1 0 00 21

22 23 24

31 Income Summary Bob Night, Capital

313

61 8 1 0 00

311

61 8 1 0 00 24

25 26 27

31 Bob Night, Capital Bob Night, Drawing

311 312

7 5 0 0 00

7 5 0 0 00 27

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256

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Concluded) 12. The General’s Favorite Fishing Hole Post-Closing Trial Balance May 31, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

154 3 5 5 00

Accounts Receivable

122

3 0 00

Office Supplies

142

1 5 0 00

Food Supplies

144

5 9 2 5 00

Prepaid Insurance

145

6 0 0 0 00

Prepaid Subscriptions

146

1 1 0 00

Land

161

100 0 0 0 00

Buildings

171

530 0 0 0 00

Accumulated Depreciation—Buildings

171.1

Fishing Boats

181

Accumulated Depreciation—Fishing Boats

181.1

Surround Sound System

182

Accumulated Depreciation—Surround Sound System

182.1

Big Screen TV

183

Accumulated Depreciation—Big Screen TV

183.1

7 5 00

Accounts Payable

202

75 5 2 5 00

Wages Payable

219

6 0 0 0 00

Bob Night, Capital

311

792 5 6 0 00

ACCOUNT TITLE

CREDIT BALANCE

8 0 0 00 69 0 0 0 00 2 1 5 0 00 3 6 0 0 00 6 0 00 8 0 0 0 00

877 1 7 0 00 877 1 7 0 00

COMPREHENSIVE PROBLEM

627

Comprehensive Problem 2General Journal Based, Part 1 Requirements 2. and 3. GENERAL JOURNAL DATE 1 2 3

20-1

Dec. 16

DESCRIPTION

Cash Accounts Receivable/Lucy Greene Received cash on account

PAGE POST. REF.

101 122

DEBIT

1 9 6 0 00

6 7 8

11 12

16 Accounts Receivable/Kim Fields Sales Sales Tax Payable Sale No. 640

122 401 231

1 6 8 00

15 16

8 9

17 Accounts Payable/Evans Essentials Purchases Returns and Allowances Returned goods purchased

202 501.1

1 5 0 00

19 20 21

12 13

18 Accounts Payable/Evans Essentials Cash Check No. 813

202 101

1 1 0 0 00

24 25

16 17

19 Accounts Receivable/Lucy Greene Sales Sales Tax Payable Sale No. 641

122 401 231

6 5 1 00

28 29

21 22

22 Cash Accounts Receivable/John Dempsey Received cash on account

101 122

1 5 6 0 00

32 33

25 26

23 Supplies Cash Check No. 814

141 101

24 Purchases Accounts Payable/West Wholesalers Invoice No. 465

501 202

1 2 0 00

36 37

29 30

1 2 0 0 00

40 41

1 2 0 0 00 32 33 34

26 Purchases Accounts Payable/Nathen Co. Invoice No. 817

501 202

8 0 0 00

8 0 0 00 36 37

38 39

1 2 0 00 28

34 35

1 5 6 0 00 24

30 31

6 2 0 00 19 3 1 00 20

26 27

1 1 0 0 00 15

22 23

1 5 0 00 11

17 18

1 6 0 00 6 8 00 7

13 14

9 10

CREDIT

1 9 6 0 00 2

4 5

27 Utilities Expense Cash Check No. 815

533 101

6 3 0 00

6 3 0 00 40 41

628

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 2. and 3. Continued) GENERAL JOURNAL DATE 1

20-1

Dec. 27

2 3 4

PAGE POST. REF.

DESCRIPTION

Accounts Receivable/John Dempsey Sales Sales Tax Payable Sale No. 642

122 401 231

DEBIT

CREDIT 1

2 1 2 1 00

2 0 2 0 00 2 1 0 1 00 3 4

5 6

7 8

29 Cash Accounts Receivable/Martha Boyle Received cash on account

101 122

29 Wages Expense * Cash Check No. 816

511 101

30 Purchases Cash Check No. 817

501 101

2 4 7 3 00

2 4 7 3 00 7 8

10 11 12

1 1 0 0 00

1 1 0 0 00 11 12

14 15 16

2 0 0 00

2 0 0 00 15 16

Requirements 1., 2., 3., 6., 7., and 9. GENERAL LEDGER Cash

ACCOUNT DATE 20-1

ACCOUNT NO. ITEM

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT



101

BALANCE DEBIT

CREDIT

9 7 0 5 00

1 9 6 0 00

11 6 6 5 00

1 2 0 00

12 0 0 5 00

6 3 0 00

11 3 7 5 00

1 1 0 0 00

12 7 4 8 00

2 0 0 00

12 5 4 8 00

1 1 0 0 00 1 5 6 0 00

10 5 6 5 00 12 1 2 5 00

2 4 7 3 00

13 8 4 8 00

COMPREHENSIVE PROBLEM

629

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Accounts Receivable

ACCOUNT DATE

ITEM

POST. REF.

20-1

ACCOUNT NO. DEBIT

CREDIT



Dec. 16 Balance

BALANCE DEBIT

CREDIT

10 2 5 6 00

1 6 8 00

8 4 6 4 00

6 5 1 00

9 1 1 5 00

1 9 6 0 00

1 5 6 0 00 2 1 2 1 00

8 2 9 6 00

7 5 5 5 00 9 6 7 6 00

2 4 7 3 00

7 2 0 3 00

Merchandise Inventory

ACCOUNT DATE

ITEM

POST. REF.

20-1

ACCOUNT NO. DEBIT

CREDIT



Dec. 16 Balance

31 Adjusting

DATE

ITEM

19 7 0 0 00



POST. REF.

19 7 0 0 00

DEBIT

CREDIT



Dec. 16 Balance

31 Adjusting

ITEM

20-1

Dec. 16 Balance

31 Adjusting

CREDIT

1 0 3 5 00 1 2 0 00

1 1 5 5 00 6 3 0 00

5 2 5 00

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

 J5

141

BALANCE DEBIT

Prepaid Insurance

DATE



ACCOUNT NO.

20-1

ACCOUNT

CREDIT

21 8 0 0 00 21 8 0 0 00

131

BALANCE DEBIT

Supplies

ACCOUNT

122

145

BALANCE DEBIT

CREDIT

1 3 8 0 00 3 8 0 00

1 0 0 0 00

630

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Land

ACCOUNT

DATE

ACCOUNT NO.

ITEM

20-1

Dec. 16 Balance

DEBIT

CREDIT



BALANCE DEBIT

DATE

ITEM

20-1

Dec. 16 Balance

ACCOUNT NO. POST. REF.

DEBIT

CREDIT



DATE

ITEM

20-1

Dec. 16 Balance

31 Adjusting

ACCOUNT

DATE

POST. REF.

Dec. 16 Balance

CREDIT

52 0 0 0 00

DEBIT

ACCOUNT NO.

CREDIT



9 2 0 0 00

8 0 0 00

10 0 0 0 00

ACCOUNT NO. POST. REF.



171.1

BALANCE DEBIT

Store Equipment ITEM

171

BALANCE DEBIT

Accumulated Depreciation—Building

ACCOUNT

CREDIT

8 7 0 0 00

Building

ACCOUNT

20-1

POST. REF.

161

DEBIT

CREDIT

181

BALANCE DEBIT

CREDIT

28 7 5 0 00

COMPREHENSIVE PROBLEM

631

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Accumulated Depreciation—Store Equipment

ACCOUNT

DATE

ITEM

POST. REF.

20-1

31 Adjusting

DATE

ITEM

20-1

Dec. 16 Balance

CREDIT

9 3 0 0 00 9 7 5 0 00

4 5 0 00

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

181.1

BALANCE DEBIT

Accounts Payable

ACCOUNT

202

BALANCE DEBIT

CREDIT

3 6 0 0 00



1 5 0 00

3 4 5 0 00

1 1 0 0 00

2 3 5 0 00

1 2 0 0 00

3 5 5 0 00

8 0 0 00

4 3 5 0 00

ACCOUNT

DATE

Wages Payable ITEM

20-1

Dec. 31 Adjusting Jan.

CREDIT



Dec. 16 Balance

20-2

DEBIT

ACCOUNT NO.

1 Reversing

ACCOUNT NO. POST. REF.

DEBIT

J5 J6

CREDIT

3 3 0 00 3 3 0 00

219

BALANCE DEBIT



CREDIT

3 3 0 00



632

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Sales Tax Payable

ACCOUNT

DATE

ITEM

ACCOUNT NO.

POST. REF.

20-1

DEBIT

BALANCE

CREDIT

DEBIT

CREDIT

1 3 7 8 00



Dec. 16 Balance

231

8 00

1 3 8 6 00

3 1 00

1 4 1 7 00

1 0 1 00

1 5 1 8 00

Mortgage Payable

ACCOUNT

DATE

ITEM

20-1

Dec. 16 Balance

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

DATE

ITEM

20-1

POST. REF.

Dec. 16 Balance



31 Closing

12 5 2 5 00

ACCOUNT NO.

DEBIT

CREDIT

DATE

ITEM

20-1

Dec. 16 Balance

31 Closing

POST. REF.

 J6

CREDIT

90 0 0 0 00 100 4 5 3 00

10 4 5 3 00 8 5 0 0 00

91 9 5 3 00

ACCOUNT NO.

DEBIT

311

BALANCE DEBIT

Tom Jones, Drawing

ACCOUNT

CREDIT



Tom Jones, Capital

ACCOUNT

251

CREDIT

BALANCE DEBIT

8 5 0 0 00 8 5 0 0 00

312



CREDIT



COMPREHENSIVE PROBLEM

633

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Income Summary

ACCOUNT

ACCOUNT NO.

POST. REF.

DEBIT

Dec. 31 Adjusting

21 8 0 0 00

31 Adjusting

19 7 0 0 00

31 Closing

129 0 0 8 00

31 Closing

116 4 5 5 00

31 Closing

10 4 5 3 00

DATE

ITEM

CREDIT

313

BALANCE DEBIT

CREDIT

20-1

21 8 0 0 00 2 1 0 0 00 126 9 0 8 00



Sales

ACCOUNT

DATE

10 4 5 3 00



ACCOUNT NO.

ITEM

20-1

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

124 9 0 0 00



1 6 0 00

125 0 6 0 00

6 2 0 00

125 6 8 0 00

2 0 2 0 00

127 7 0 0 00

31 Closing

127 7 0 0 00



Sales Returns and Allowances

ACCOUNT

DATE

ITEM

20-1

POST. REF.

Dec. 16 Balance



31 Closing

DEBIT



ACCOUNT NO.

CREDIT

BALANCE DEBIT

1 4 3 0 00 1 4 3 0 00

401.1



CREDIT



634

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) ACCOUNT

Purchases

DATE

ITEM

20-1

Dec. 16 Balance

ACCOUNT NO. POST. REF.

DEBIT

CREDIT



BALANCE DEBIT

CREDIT

64 4 0 0 00

1 2 0 0 00

65 6 0 0 00

8 0 0 00

66 4 0 0 00

2 0 0 00

66 6 0 0 00

31 Closing

66 6 0 0 00



Purchases Returns and Allowances

ACCOUNT

DATE

ITEM

20-1

Dec. 16 Balance

POST. REF.

DEBIT

31 Closing

CREDIT

DATE

ITEM

20-1

POST. REF.

Dec. 16 Balance



31 Closing

ACCOUNT

Freight-In

DATE

ITEM

20-1

CREDIT

4 6 0 00 1 5 0 00 6 1 0 00



6 1 0 00



ACCOUNT NO.

DEBIT

CREDIT

Dec. 16 Balance



31 Closing

501.2

BALANCE DEBIT

CREDIT

6 9 8 00



6 9 8 00



ACCOUNT NO. POST. REF.

501.1

BALANCE DEBIT

Purchases Discounts

ACCOUNT



ACCOUNT NO.



501

DEBIT

CREDIT

BALANCE DEBIT

1 7 5 00

502



CREDIT



COMPREHENSIVE PROBLEM

635

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Wages Expense

ACCOUNT

DATE

ITEM

ACCOUNT NO. POST. REF.

20-1

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

26 1 0 0 00



Dec. 16 Balance

1 1 0 0 00

27 2 0 0 00

31 Adjusting

3 3 0 00

27 5 3 0 00

31 Closing

27 5 3 0 00

1 Reversing

3 3 0 00

20-2

Jan.



DATE

ITEM

POST. REF.

20-1

Dec. 16 Balance



31 Closing

ACCOUNT NO.

DEBIT

CREDIT

DATE

ITEM

20-1

Dec. 31 Adjusting

31 Closing

4 7 0 0 00 4 7 0 0 00



DEBIT

CREDIT

DATE

ITEM

20-1



6 3 0 00

POST. REF.

Dec. 16 Balance



31 Closing

CREDIT

6 3 0 00



ACCOUNT NO.

DEBIT

CREDIT

524

BALANCE DEBIT

Telephone Expense

ACCOUNT

CREDIT

ACCOUNT NO.

POST. REF.

512

BALANCE DEBIT

Supplies Expense

ACCOUNT

 3 3 0 00

Advertising Expense

ACCOUNT

511

525

BALANCE DEBIT

CREDIT

2 1 8 0 00 2 1 8 0 00



636

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Utilities Expense

ACCOUNT

DATE

ITEM

20-1

Dec. 16 Balance

ACCOUNT NO. POST. REF.

DEBIT

CREDIT



31 Closing

BALANCE DEBIT

7 5 3 0 00



Insurance Expense

ACCOUNT

DATE

ITEM

20-1

Dec. 31 Adjusting

31 Closing

POST. REF.

DATE

ITEM

DEBIT

CREDIT

3 8 0 00

20-1

Dec. 31 Adjusting

31 Closing

POST. REF.

DEBIT



DATE

ITEM

20-1

Dec. 31 Adjusting

31 Closing

POST. REF.

CREDIT

J5 J6

CREDIT



ACCOUNT NO.

CREDIT

4 5 0 00

541

BALANCE DEBIT

4 5 0 00

540

BALANCE DEBIT

8 0 0 00

DEBIT



ACCOUNT NO.

8 0 0 00

CREDIT

3 8 0 00

535

BALANCE DEBIT

Depreciation Expense—Store Equipment

ACCOUNT



ACCOUNT NO.

Depreciation Expense—Building

ACCOUNT

CREDIT

6 9 0 0 00 7 5 3 0 00

6 3 0 00

533



CREDIT



COMPREHENSIVE PROBLEM

637

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Miscellaneous Expense

ACCOUNT

DATE

POST. REF.

ITEM

20-1

Dec. 16 Balance



31 Closing

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT



Interest Expense

ACCOUNT

DATE



ACCOUNT NO. POST. REF.

ITEM

CREDIT

2 7 0 0 00 2 7 0 0 00

20-1

Dec. 16 Balance



31 Closing

DEBIT

CREDIT

551

BALANCE DEBIT

1 3 5 0 00 1 3 5 0 00

549



CREDIT



ACCOUNTS RECEIVABLE LEDGER NAME Martha Boyle ADDRESS 12 Jude Lane, Hartford, CT 06117 DATE

ITEM

20-1

POST. REF.

DEBIT

CREDIT



Dec. 16 Balance

BALANCE

3 7 9 6 00

2 4 7 3 00

1 3 2 3 00

NAME Anne Clark ADDRESS 52 Juniper Road, Hartford, CT 06118 DATE 20-1

Dec. 16 Balance

ITEM

POST. REF.



DEBIT

CREDIT

BALANCE

2 1 0 0 00

638

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) NAME John Dempsey ADDRESS 700 Hobbes Dr., Avon, CT 06108 DATE

ITEM

20-1

POST. REF.

DEBIT

CREDIT



Dec. 16 Balance

BALANCE

1 5 6 0 00 1 5 6 0 00 2 1 2 1 00



2 1 2 1 00

NAME Kim Fields ADDRESS 5200 Hamilton Ave., Hartford, CT 06117 DATE

ITEM

20-1

POST. REF.

DEBIT

CREDIT





Dec. 16 Balance

BALANCE

1 6 8 00

NAME Lucy Greene ADDRESS 236 Bally Lane, Simsbury, CT 06123 DATE 20-1

Dec. 16 Balance

ITEM

POST. REF.

DEBIT

CREDIT



BALANCE

2 8 0 0 00 1 9 6 0 00 6 5 1 00

8 4 0 00 1 4 9 1 00

COMPREHENSIVE PROBLEM

639

Comprehensive Problem 2General Journal Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Concluded) ACCOUNTS PAYABLE LEDGER NAME Evans Essentials ADDRESS 34 Harry Ave., East Hartford, CT 05234 DATE

ITEM

20-1

POST. REF.

DEBIT

CREDIT



Dec. 16 Balance

17 18

J3 J3

BALANCE

3 6 0 0 00 1 5 0 00 1 1 0 0 00

3 4 5 0 00 2 3 5 0 00

NAME Nathen Co. ADDRESS 1009 Drake Rd., Farmington, CT 06082 DATE

ITEM

20-1

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT





BALANCE

8 0 0 00

NAME Owen Enterprises ADDRESS 43 Lucky Lane, Bristol, CT 06007 DATE

ITEM

20-1

POST. REF.

DEBIT

CREDIT





Dec. 16 Balance

BALANCE

NAME West Wholesalers ADDRESS 888 Anders Street, Newington, CT 06789 DATE 20-1

Dec. 16 Balance

ITEM

POST. REF.

DEBIT

CREDIT



 J3

BALANCE

1 2 0 0 00

640

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 Requirement 4. TJ’s Specialty Shop Schedule of Accounts Receivable December 31, 20-1 Martha Boyle

$1 3 2 3 00

Anne Clark

2 1 0 0 00

John Dempsey

2 1 2 1 00

Kim Fields

1 6 8 00

Lucy Greene

1 4 9 1 00 $7 2 0 3 00

TJ’s Specialty Shop Schedule of Accounts Payable December 31, 20-1 Evans Essentials Nathen Co. West Wholesalers

$2 3 5 0 00 8 0 0 00 1 2 0 0 00 $4 3 5 0 00

COMPREHENSIVE PROBLEM

641

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642

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 Requirement 5. TJ’s Specialty Work For Year Ended TRIAL BALANCE DEBIT CREDIT

Cash 2 Accounts Receivable 3 Merchandise Inventory 4 Supplies 5 Prepaid Insurance 6 Land 7 Building 8 Accum. Depr.—Building 9 Store Equipment 10 Accum. Depr.—Store Equip. 11 Accounts Payable 12 Wages Payable 13 Sales Tax Payable 14 Mortgage Payable 15 Tom Jones, Capital 16 Tom Jones, Drawing 17 Income Summary 18 Sales 19 Sales Returns & Allowances 20 Purchases 21 Purchases Returns & Allow. 22 Purchases Discounts 23 Freight-In 24 Wages Expense 25 Advertising Expense 26 Supplies Expense 27 Telephone Expense 28 Utilities Expense 29 Insurance Expense 30 Depr. Exp.—Building 31 Depr. Exp.—Store Equip. 32 Miscellaneous Expense 33 Interest Expense 1

(b)

19 7 0 0 00 (a) 21 8 0 0 00 (c) 6 3 0 00 (d) 3 8 0 00

9 2 0 0 00

(e)

8 0 0 00

9 3 0 0 00 4 3 5 0 00

(f)

4 5 0 00

(g)

3 3 0 00

28 7 5 0 00

1 5 1 8 00 12 5 2 5 00 90 0 0 0 00 8 5 0 0 00 (a)

21 8 0 0 00 (b) 19 7 0 0 00

127 7 0 0 00 1 4 3 0 00 66 6 0 0 00 6 1 0 00 6 9 8 00 1 7 5 00 27 2 0 0 00 4 7 0 0 00

(g)

3 3 0 00

(c)

6 3 0 00

(d)

3 8 0 00 8 0 0 00 4 5 0 00

2 1 8 0 00 7 5 3 0 00 (e) (f)

2 7 0 0 00 1 3 5 0 00 255 9 0 1 00 255 9 0 1 00

34 35

12 5 4 8 00 7 2 0 3 00 21 8 0 0 00 1 1 5 5 00 1 3 8 0 00 8 7 0 0 00 52 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

44 0 9 0 00

Net Income

COMPREHENSIVE PROBLEM

643

Comprehensive Problem 2General Journal Based, Part 1 (Requirement 5. Continued) Shop Sheet December 31, 20-1 ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

12 5 4 8 00 7 2 0 3 00 19 7 0 0 00 5 2 5 00 1 0 0 0 00 8 7 0 0 00 52 0 0 0 00

BALANCE SHEET DEBIT CREDIT

12 5 4 8 00 7 2 0 3 00 19 7 0 0 00 5 2 5 00 1 0 0 0 00 8 7 0 0 00 52 0 0 0 00 10 0 0 0 00

3 4 5 6 7 8

28 7 5 0 00 9 7 5 0 00 4 3 5 0 00 3 3 0 00 1 5 1 8 00 12 5 2 5 00 90 0 0 0 00 19 7 0 0 00 127 7 0 0 00

21 8 0 0 00

19 7 0 0 00 127 7 0 0 00

6 1 0 00 6 9 8 00

18 19 20

6 1 0 00 6 9 8 00

21 22

1 7 5 00 27 5 3 0 00 4 7 0 0 00 6 3 0 00 2 1 8 0 00 7 5 3 0 00 3 8 0 00 8 0 0 00 4 5 0 00 2 7 0 0 00 1 3 5 0 00 277 1 8 1 00

138 2 5 5 00

23 24 25 26 27 28 29 30 31 32 33

148 7 0 8 00

138 9 2 6 00

10 4 5 3 00 148 7 0 8 00

16 17

1 4 3 0 00 66 6 0 0 00

1 7 5 00 27 5 3 0 00 4 7 0 0 00 6 3 0 00 2 1 8 0 00 7 5 3 0 00 3 8 0 00 8 0 0 00 4 5 0 00 2 7 0 0 00 1 3 5 0 00

9 7 5 0 00 10 4 3 5 0 00 11 3 3 0 00 12 1 5 1 8 00 13 12 5 2 5 00 14 90 0 0 0 00 15 8 5 0 0 00

1 4 3 0 00 66 6 0 0 00

277 1 8 1 00

10 0 0 0 00

28 7 5 0 00

8 5 0 0 00 21 8 0 0 00

128 4 7 3 00 34 10 4 5 3 00 35

148 7 0 8 00

138 9 2 6 00

138 9 2 6 00 36

644

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 (Requirement 5. Continued) TJ’s Specialty Shop Income Statement For Year Ended December 31, 20-1 Revenue from sales: Sales

$127,700

Less sales ret. & allow.

1,430

Net sales

$126,270

Cost of goods sold: Merch. inv., Jan. 1

$ 21,800

Purchases Less: Purch. ret. & allow. Purch. discounts

$66,600 $610 698

1,308

Net purchases

$65,292

Add freight-in

175

Cost of goods purch. Goods avail. for sale Less merch. inv., Dec. 31

65,467 $ 87,267 19,700

Cost of goods sold

67,567

Gross profit

$ 58,703

Operating expenses: Wages expense

$ 27,530

Advertising expense

4,700

Supplies expense

630

Telephone expense

2,180

Utilities expense

7,530

Insurance expense

380

Depr. exp.—building

800

Depr. exp.—store equip.

450

Miscellaneous expense

2,700

Total operating exp. Income from operations

46,900 $ 11,803

Other expenses: Interest expense Net income

1,350 $ 10,453

COMPREHENSIVE PROBLEM

645

Comprehensive Problem 2General Journal Based, Part 1 (Requirement 5. Continued) TJ’s Specialty Shop Statement of Owner’s Equity For Year Ended December 31, 20-1 Tom Jones, capital, January 1, 20-1 Net income for year Less withdrawals for year Increase in capital Tom Jones, capital, December 31, 20-1

$90,000 $10,453 8,500 1,953 $91,953

646

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 (Requirement 5. Concluded) TJ’s Specialty Shop Balance Sheet December 31, 20-1 Assets Current assets: Cash

$12,548

Accounts receivable

7,203

Merchandise inventory

19,700

Supplies

525

Prepaid insurance

1,000

Total current assets

$ 40,976

Property, plant, and equipment: Land

$ 8,700

Building

$52,000

Less accumulated depreciation

10,000

Store equipment

$28,750

Less accumulated depreciation

9,750

42,000 19,000

Total property, plant, and equipment

69,700

Total assets

$110,676 Liabilities

Current liabilities: Accounts payable

$ 4,350

Wages payable

330

Sales tax payable

1,518

Mortgage payable (current portion)

600

Total current liabilities

$ 6,798

Long-term liabilities: Mortgage payable Less current portion Total liabilities

$12,525 600

11,925 $ 18,723

Owner’s Equity Tom Jones, capital Total liabilities and owner’s equity

91,953 $110,676

COMPREHENSIVE PROBLEM

647

Comprehensive Problem 2General Journal Based, Part 1 Requirement 6. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Adjusting Entries

20-1 2 3

Dec. 31

Income Summary Merchandise Inventory

313

21 8 0 0 00

131

21 8 0 0 00

4 5 6

31 Merchandise Inventory Income Summary

131

19 7 0 0 00

313

19 7 0 0 00

31 Supplies Expense

524

Supplies

141

6 3 0 00

31 Insurance Expense Prepaid Insurance

535

3 8 0 00

145

3 8 0 00 12 13

31 Depreciation Expense—Building Accumulated Depreciation—Building

540

8 0 0 00

171.1

8 0 0 00 15

16 17 18

31 Depreciation Expense—Store Equipment

541

4 5 0 00

Accumulated Depreciation—Store Equipment 181.1

4 5 0 00 18

19 20 21

9 10

13 14

6 7

31 Wages Expense Wages Payable

511 219

3 3 0 00

3 3 0 00 21

648

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 1 Requirements 7. and 9. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

20-1

Sales

401

127 7 0 0 00

Purchases Returns and Allowances

501.1

6 1 0 00

Purchases Discounts

501.2

6 9 8 00

Income Summary

313

Dec. 31

129 0 0 8 00

5 6

31 Income Summary

313

116 4 5 5 00

Sales Returns and Allowances

401.1

1 4 3 0 00

Purchases

501

66 6 0 0 00

Freight-In

502

1 7 5 00 10

Wages Expense

511

27 5 3 0 00 11

Advertising Expense

512

4 7 0 0 00 12

Supplies Expense

524

6 3 0 00 13

Telephone Expense

525

2 1 8 0 00 14

Utilities Expense

533

7 5 3 0 00 15

Insurance Expense

535

3 8 0 00 16

Depreciation Expense—Building

540

8 0 0 00 17

Depreciation Expense—Store Equipment

541

4 5 0 00 18

Miscellaneous Expense

549

2 7 0 0 00 19

Interest Expense

551

1 3 5 0 00 20

31 Income Summary

Tom Jones, Capital

313

10 4 5 3 00

311

10 4 5 3 00 23

31 Tom Jones, Capital

Tom Jones, Drawing

311

8 5 0 0 00

312

8 5 0 0 00 26

Reversing Entries

20-2 29 30

Jan.

1 Wages Payable Wages Expense

219 511

3 3 0 00

3 3 0 00 30

COMPREHENSIVE PROBLEM

649

Comprehensive Problem 2General Journal Based, Part 1 Requirement 8. TJ’s Specialty Shop Post-Closing Trial Balance December 31, 20-1 ACCOUNT

DEBIT BALANCE

Cash

12 5 4 8 00

Accounts Receivable

7 2 0 3 00

Merchandise Inventory

19 7 0 0 00

Supplies

5 2 5 00

Prepaid Insurance

1 0 0 0 00

Land

8 7 0 0 00

Building

52 0 0 0 00

Accumulated Depreciation—Building Store Equipment

CREDIT BALANCE

10 0 0 0 00 28 7 5 0 00

Accumulated Depreciation—Store Equipment

9 7 5 0 00

Accounts Payable

4 3 5 0 00

Wages Payable

3 3 0 00

Sales Tax Payable

1 5 1 8 00

Mortgage Payable

12 5 2 5 00

Tom Jones, Capital

91 9 5 3 00 130 4 2 6 00 130 4 2 6 00

650

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 Requirements 2. and 3. GENERAL JOURNAL DATE 1 2 3 4

20-2

Jan.

DESCRIPTION

1 Accounts Receivable/Anne Clark Sales Sales Tax Payable Sale No. 643

PAGE POST. REF.

122 401 231

DEBIT

CREDIT 1

3 1 5 0 00 3 0 0 0 00 1 5 0 00

7 8 9

2 Accounts Payable/Nathen Co. Cash Purchases Discounts Check No. 818

202 101 501.2

8 0 0 00

12 13

16 17

3 Purchases Accounts Payable/West Wholesalers Invoice No. 678

501 202

1 5 0 0 00 0

20 21

24 25 26

4 Purchases Accounts Payable/Owen Enterprises Invoice No. 767

501 202

2 0 0 0 00

29 30

33 34

37 38 39

4 Telephone Expense Cash Check No. 819

525 101

1 8 0 00

1 8 0 00 20 21 22

8 Cash Sales Sales Tax Payable Made cash sale

101 401 231

3 7 8 0 00

3 6 0 0 00 24 1 8 0 00 25 26 27

9 Cash Accounts Receivable/Lucy Greene Received cash on account

101 122

1 4 9 1 00

1 4 9 1 00 29 30 31

10 Accounts Payable/West Wholesalers Cash Check No. 820

202 101

1 2 0 0 00

1 2 0 0 00 33 34

35 36

1 5 0 0 00 12

31 32

2 0 0 0 00 16

27 28

22 23

18 19

14 15

7 8 4 00 1 6 00 2

10 11

3 4

5 6

12 Accounts Receivable/Martha Boyle Sales Sales Tax Payable Sale No. 644

122 401 231

1 0 5 0 00

1 0 0 0 00 37 5 0 00 38 39

COMPREHENSIVE PROBLEM

651

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 2. and 3. Concluded) GENERAL JOURNAL DATE 1 2 3

20-2

Jan. 12

DESCRIPTION

Cash Accounts Receivable/Anne Clark Received cash on account

PAGE POST. REF.

101 122

DEBIT

CREDIT 1

2 1 0 0 00 2 1 0 0 00

4 5 6 7

12 Wages Expense Cash Check No. 821

511 101

1 1 0 0 00

10 11 12

15 16 17

13 Accounts Payable/Owen Enterprises Cash Purchases Discounts Check No. 822

202 101 501.2

2 0 0 0 00

20 21

12 13

13 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/Martha Boyle Accepted return of goods sold

401.1 231 122

8 0 0 00 4 0 00

24 25

28 29

17 Accounts Payable/Evans Essentials Purchases Returns and Allowances Returned goods purchased

202 501.1

3 0 0 00

32 33

21 22

22 Cash Accounts Receivable/John Dempsey Received cash on account

101 122

2 1 2 1 00

36 37 38 39

2 1 2 1 00 24 25 26

26 Wages Expense Cash Check No. 823

511 101

1 1 0 0 00

1 1 0 0 00 28 29 30

27 Utilities Expense Cash Check No. 824

533 101

6 3 0 00

6 3 0 00 32 33

34 35

3 0 0 00 20

30 31

26 27

8 4 0 00 16

22 23

1 9 6 0 00 10 4 0 00 11

18 19

6 7

13 14

1 1 0 0 00

8 9

27 Accounts Receivable/John Dempsey Sales Sales Tax Payable Sale No. 645

122 401 231

2 1 0 0 00

2 0 0 0 00 36 1 0 0 00 37 38 39

652

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 Requirements 1., 2., 3., 6., and 7. GENERAL LEDGER Cash

ACCOUNT

DATE 20-2

ITEM

DEBIT

CREDIT

7 8 4 00

11 7 6 4 00

1 8 0 00

11 5 8 4 00

3 7 8 0 00

15 3 6 4 00

1 4 9 1 00

16 8 5 5 00

1 1 0 0 00

16 6 5 5 00

1 9 6 0 00

14 6 9 5 00

1 1 0 0 00

15 7 1 6 00

6 3 0 00

15 0 8 6 00

12 5 4 8 00

1 2 0 0 00 2 1 0 0 00

15 6 5 5 00 17 7 5 5 00

2 1 2 1 00

16 8 1 6 00

Accounts Receivable

DATE

ITEM

POST. REF.

101

BALANCE DEBIT



ACCOUNT

Jan.

POST. REF.

1 Balance

Jan.

20-2

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

1 Balance



2 1 0 0 00

7 8 1 2 00

8 4 0 00

6 9 7 2 00

2 1 2 1 00

4 8 5 1 00

CREDIT

7 2 0 3 00 3 1 5 0 00

10 3 5 3 00 1 4 9 1 00

1 0 5 0 00

2 1 0 0 00

8 8 6 2 00 9 9 1 2 00

6 9 5 1 00

COMPREHENSIVE PROBLEM

653

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Merchandise Inventory

ACCOUNT

DATE 20-2

ITEM

1 Balance



31 Adjusting

Jan.

DATE 20-2

CREDIT

ITEM

POST. REF.



31 Adjusting

19 0 0 0 00



DATE 20-2

ITEM

DEBIT

CREDIT

POST. REF.



31 Adjusting

ACCOUNT

DATE

CREDIT

5 2 5 00 4 1 0 00

1 1 5 00

DEBIT

CREDIT

1 0 0 0 00 3 2 00

9 6 8 00

ACCOUNT NO.

1 Balance

POST. REF.



145

BALANCE DEBIT

Land ITEM

141

BALANCE DEBIT

ACCOUNT NO.

1 Balance

Jan.



19 0 0 0 00

Prepaid Insurance

ACCOUNT

CREDIT

19 7 0 0 00 19 7 0 0 00

131

BALANCE DEBIT

ACCOUNT NO.

1 Balance

Jan.

DEBIT

Supplies

ACCOUNT

20-2

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

161

BALANCE DEBIT

CREDIT

8 7 0 0 00

654

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Building

ACCOUNT

DATE 20-2

1 Balance

Jan.

DATE 20-2

DEBIT

CREDIT



ITEM

POST. REF.

1 Balance



31 Adjusting

Jan.

ACCOUNT

DATE

Jan.

POST. REF.

1 Balance

CREDIT

52 0 0 0 00

DEBIT

ACCOUNT NO.

CREDIT

10 0 0 0 00 6 7 00

10 0 6 7 00

ACCOUNT NO. POST. REF.



171.1

BALANCE DEBIT

Store Equipment ITEM

171

BALANCE DEBIT

Accumulated Depreciation—Building

ACCOUNT

20-2

ITEM

ACCOUNT NO.

DEBIT

CREDIT

181

BALANCE DEBIT

CREDIT

28 7 5 0 00

COMPREHENSIVE PROBLEM

655

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Accumulated Depreciation—Store Equipment

ACCOUNT

DATE 20-2

Jan.

ITEM

CREDIT

ITEM

20-2

CREDIT

9 7 5 0 00 9 7 8 8 00

3 8 00

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

181.1

BALANCE DEBIT

Accounts Payable

DATE

202

BALANCE DEBIT

CREDIT

1 Balance



1 5 0 0 00

5 0 5 0 00

2 0 0 0 00

7 0 5 0 00

1 2 0 0 00

5 8 5 0 00

2 0 0 0 00

3 8 5 0 00

3 0 0 00

3 5 5 0 00

Jan.

4 3 5 0 00 8 0 0 00

3 5 5 0 00

Wages Payable

ACCOUNT

DATE

Jan.

DEBIT



1 Balance 31 Adjusting

ACCOUNT

20-2

POST. REF.

ACCOUNT NO.

ITEM

31 Adjusting

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

3 3 0 00

219

BALANCE DEBIT

CREDIT

3 3 0 00

656

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Sales Tax Payable

ACCOUNT DATE 20-2

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

231

BALANCE DEBIT

CREDIT

1 Balance



1 5 0 00

1 6 6 8 00

1 8 0 00

1 8 4 8 00

5 0 00

1 8 9 8 00

Jan.

1 5 1 8 00

4 0 00

1 8 5 8 00 1 0 0 00

1 9 5 8 00

Mortgage Payable

ACCOUNT DATE 20-2

ITEM

1 Balance

Jan.

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

BALANCE DEBIT



DATE 20-2

ITEM

POST. REF.

1 Balance



31 Closing

Jan.

ACCOUNT DATE

ACCOUNT NO. DEBIT

CREDIT

POST. REF.

311

BALANCE DEBIT

CREDIT

91 9 5 3 00 1 3 9 9 00

93 3 5 2 00

Tom Jones, Drawing ITEM

CREDIT

12 5 2 5 00

Tom Jones, Capital

ACCOUNT

251

ACCOUNT NO. DEBIT

CREDIT

312

BALANCE DEBIT

CREDIT

COMPREHENSIVE PROBLEM

657

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Income Summary

ACCOUNT

ACCOUNT NO.

POST. REF.

DEBIT

Jan. 31 Adjusting

19 7 0 0 00

31 Adjusting

19 0 0 0 00

31 Closing

9 9 5 6 00

31 Closing

7 8 5 7 00

31 Closing

1 3 9 9 00

DATE

ITEM

20-2

CREDIT

BALANCE DEBIT

DATE 20-2

CREDIT

19 7 0 0 00 7 0 0 00 9 2 5 6 00



Sales

ACCOUNT

1 3 9 9 00



ACCOUNT NO.

ITEM

POST. REF.

DEBIT

313

CREDIT

401

BALANCE DEBIT

CREDIT

3 0 0 0 00

3 6 0 0 00

6 6 0 0 00

1 0 0 0 00

7 6 0 0 00

2 0 0 0 00

9 6 0 0 00

31 Closing

Jan.

9 6 0 0 00



Sales Returns and Allowances

ACCOUNT

DATE

ITEM

POST. REF.

DEBIT



ACCOUNT NO.

CREDIT

401.1

BALANCE DEBIT

CREDIT

20-2

Jan. 13

31 Closing

ACCOUNT

Purchases

DATE

ITEM

20-2

Jan.

8 0 0 00



ACCOUNT NO. POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

1 5 0 0 00

2 0 0 0 00

3 5 0 0 00

31 Closing

3 5 0 0 00

501



CREDIT



658

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Purchases Returns and Allowances

ACCOUNT

DATE

ITEM

20-2

Jan. 17

POST. REF.

DEBIT

31 Closing

ACCOUNT NO.

CREDIT

3 0 0 00 3 0 0 00

BALANCE DEBIT

DATE 20-2

ITEM

POST. REF.

CREDIT



Purchases Discounts

ACCOUNT

3 0 0 00



ACCOUNT NO.

DEBIT

CREDIT

501.1

501.2

BALANCE DEBIT

CREDIT

1 6 00

4 0 00

5 6 00

31 Closing

Jan.

ACCOUNT

Freight-In

DATE

ITEM

5 6 00



ACCOUNT NO. POST. REF.

DEBIT

CREDIT

502

BALANCE DEBIT

CREDIT

COMPREHENSIVE PROBLEM

659

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Wages Expense

ACCOUNT

DATE 20-2

Jan.

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT



1 Balance 12

1 1 0 0 00

7 7 0 00

1 1 0 0 00

1 8 7 0 00

31 Adjusting

3 3 0 00

2 2 0 0 00

31 Closing

3 3 0 00

2 2 0 0 00



Advertising Expense

ACCOUNT

DATE

ITEM

POST. REF.

DATE

ITEM

20-2

Jan. 31 Adjusting

31 Closing

DEBIT

CREDIT

DATE

ITEM

CREDIT

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

4 1 0 00

POST. REF.

CREDIT



ACCOUNT NO.

DEBIT

CREDIT

524

BALANCE DEBIT

4 1 0 00

512

BALANCE DEBIT

Telephone Expense

ACCOUNT



ACCOUNT NO.

Supplies Expense

ACCOUNT

511

525

BALANCE DEBIT

CREDIT

20-2

Jan.

31 Closing

1 8 0 00



660

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Utilities Expense

ACCOUNT

DATE

ITEM

20-2

Jan. 27

ACCOUNT NO. POST. REF.

31 Closing

DEBIT

CREDIT

6 3 0 00

BALANCE DEBIT



Insurance Expense

ACCOUNT

DATE

ITEM

20-2

Jan. 31 Adjusting

31 Closing

POST. REF.

DATE

ITEM

DEBIT

CREDIT

3 2 00

20-2

Jan. 31 Adjusting

31 Closing

POST. REF.

DEBIT



DATE

ITEM

20-2

Jan. 31 Adjusting

31 Closing

POST. REF.

CREDIT

J3 J4

CREDIT



ACCOUNT NO.

CREDIT

3 8 00

541

BALANCE DEBIT

3 8 00

540

BALANCE DEBIT

6 7 00

DEBIT



ACCOUNT NO.

6 7 00

CREDIT

3 2 00

535

BALANCE DEBIT

Depreciation Expense—Store Equipment

ACCOUNT



ACCOUNT NO.

Depreciation Expense—Building

ACCOUNT

CREDIT

6 3 0 00

533



CREDIT



COMPREHENSIVE PROBLEM

661

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Miscellaneous Expense

ACCOUNT

DATE

POST. REF.

ITEM

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

Interest Expense

ACCOUNT

DATE

CREDIT

ACCOUNT NO. POST. REF.

ITEM

DEBIT

CREDIT

549

551

BALANCE DEBIT

CREDIT

BALANCE

ACCOUNTS RECEIVABLE LEDGER NAME Martha Boyle ADDRESS 12 Jude Lane, Hartford, CT 06117 DATE 20-2

ITEM

POST. REF.

1 Balance



Jan.

DEBIT

1 3 2 3 00 1 0 5 0 00

2 3 7 3 00 8 4 0 00

1 5 3 3 00

CREDIT

BALANCE

NAME Anne Clark ADDRESS 52 Juniper Road, Hartford, CT 06118 DATE 20-2

Jan.

ITEM

POST. REF.

1 Balance



DEBIT

2 1 0 0 00 3 1 5 0 00

5 2 5 0 00 2 1 0 0 00

3 1 5 0 00

662

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) NAME John Dempsey ADDRESS 700 Hobbes Dr., Avon, CT 06108 DATE 20-2

ITEM

POST. REF.

1 Balance



Jan.

DEBIT

CREDIT

BALANCE

2 1 2 1 00 2 1 2 1 00 2 1 0 0 00



2 1 0 0 00

NAME Kim Fields ADDRESS 5200 Hamilton Ave., Hartford, CT 06117 DATE 20-2

Jan.

ITEM

POST. REF.

DEBIT

CREDIT



1 Balance

BALANCE

1 6 8 00

NAME Lucy Greene ADDRESS 236 Bally Lane, Simsbury, CT 06123 DATE 20-2

Jan.

ITEM

POST. REF.

1 Balance



DEBIT

CREDIT

BALANCE

1 4 9 1 00 1 4 9 1 00



COMPREHENSIVE PROBLEM

663

Comprehensive Problem 2General Journal Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Concluded) ACCOUNTS PAYABLE LEDGER NAME Evans Essentials ADDRESS 34 Harry Ave., East Hartford, CT 05234 DATE 20-2

ITEM

POST. REF.

1 Balance



Jan.

DEBIT

CREDIT

BALANCE

2 3 5 0 00 3 0 0 00

2 0 5 0 00

NAME Nathen Co. ADDRESS 1009 Drake Rd., Farmington, CT 06082 DATE 20-2

Jan.

ITEM

POST. REF.

1 Balance



DEBIT

CREDIT

BALANCE

8 0 0 00



8 0 0 00

NAME Owen Enterprises ADDRESS 43 Lucky Lane, Bristol, CT 06007 DATE

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

20-2

Jan.

2 0 0 0 00 2 0 0 0 00

2 0 0 0 00



NAME West Wholesalers ADDRESS 888 Anders Street, Newington, CT 06789 DATE 20-2

Jan.

ITEM

POST. REF.

1 Balance



DEBIT

CREDIT

BALANCE

1 2 0 0 00 1 5 0 0 00 1 2 0 0 00

2 7 0 0 00 1 5 0 0 00

664

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 Requirement 4. TJ’s Specialty Shop Schedule of Accounts Receivable January 31, 20-2 Martha Boyle

$1 5 3 3 00

Anne Clark

3 1 5 0 00

John Dempsey

2 1 0 0 00

Kim Fields

1 6 8 00 $6 9 5 1 00

TJ’s Specialty Shop Schedule of Accounts Payable January 31, 20-2 Evans Essentials

$2 0 5 0 00

West Wholesalers

1 5 0 0 00 $3 5 5 0 00

COMPREHENSIVE PROBLEM

665

This page intentionally left blank.

666

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 Requirement 5. TJ’s Specialty Work For Month Ended TRIAL BALANCE DEBIT CREDIT

(b)

19 0 0 0 00 (a) 19 7 0 0 00 (c) 4 1 0 00 (d) 3 2 00

10 0 0 0 00

(e)

6 7 00

9 7 5 0 00 3 5 5 0 00

(f)

3 8 00

(g)

3 3 0 00

28 7 5 0 00

1 9 5 8 00 12 5 2 5 00 91 9 5 3 00 (a)

19 7 0 0 00 (b) 19 0 0 0 00

9 6 0 0 00 8 0 0 00 3 5 0 0 00 3 0 0 00 5 6 00 1 8 7 0 00

(g)

3 3 0 00

(c)

4 1 0 00

(d)

3 2 00 6 7 00 3 8 00

1 8 0 00 6 3 0 00 (e) (f)

139 6 9 2 00 139 6 9 2 00

34 35

15 0 8 6 00 6 9 5 1 00 19 7 0 0 00 5 2 5 00 1 0 0 0 00 8 7 0 0 00 52 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

39 5 7 7 00

Net Income

COMPREHENSIVE PROBLEM

667

Comprehensive Problem 2General Journal Based, Part 2 (Requirement 5. Continued) Shop Sheet January 31, 20-2 ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

15 0 8 6 00 6 9 5 1 00 19 0 0 0 00 1 1 5 00 9 6 8 00 8 7 0 0 00 52 0 0 0 00

BALANCE SHEET DEBIT CREDIT

15 0 8 6 00 6 9 5 1 00 19 0 0 0 00 1 1 5 00 9 6 8 00 8 7 0 0 00 52 0 0 0 00 10 0 6 7 00

1 2 3 4 5 6 7

10 0 6 7 00

28 7 5 0 00

28 7 5 0 00 9 7 8 8 00 3 5 5 0 00 3 3 0 00 1 9 5 8 00 12 5 2 5 00 91 9 5 3 00

9 7 8 8 00 10 3 5 5 0 00 11 3 3 0 00 12 1 9 5 8 00 13 12 5 2 5 00 14 91 9 5 3 00 15 16

19 7 0 0 00

19 0 0 0 00 9 6 0 0 00

8 0 0 00 3 5 0 0 00

19 7 0 0 00

19 0 0 0 00 9 6 0 0 00

17 18

8 0 0 00 3 5 0 0 00 3 0 0 00 5 6 00

19 20

3 0 0 00 5 6 00

21 22 23

2 2 0 0 00

24 25

4 1 0 00 1 8 0 00 6 3 0 00 3 2 00 6 7 00 3 8 00

26 27 28 29 30 31 32 33

159 1 2 7 00

27 5 5 7 00

28 9 5 6 00

131 5 7 0 00

1 3 9 9 00 28 9 5 6 00

130 1 7 1 00 34 1 3 9 9 00 35

28 9 5 6 00

131 5 7 0 00

131 5 7 0 00 36

668

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 (Requirement 5. Continued) TJ’s Specialty Shop Income Statement For Month Ended January 31, 20-2 Revenue from sales: Sales

$ 9,600

Less sales ret. & allow.

800

Net sales

$8,800

Cost of goods sold: Merch. inv., Jan 1

$19,700

Purchases Less: Purch. ret. & allow. Purch. discounts Cost of goods purch.

$3,500 $300 56

356 3,144

Goods avail. for sale

$22,844

Less merch. inv., Jan. 31

19,000

Cost of goods sold

3,844

Gross profit

$4,956

Operating expenses: Wages expense

$ 2,200

Supplies expense

410

Telephone expense

180

Utilities expense

630

Insurance expense

Depr. exp.—building

Depr. exp.—store equip.

Total operating exp. Net income

3,557 $1,399

COMPREHENSIVE PROBLEM

669

Comprehensive Problem 2General Journal Based, Part 2 (Requirement 5. Continued) TJ’s Specialty Shop Statement of Owner’s Equity For Month Ended January 31, 20-2 Tom Jones, capital, January 1, 20-2 Net income for month Tom Jones, capital, January 31, 20-2

$91,953 1,399 $93,352

670

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 (Requirement 5. Concluded) TJ’s Specialty Shop Balance Sheet January 31, 20-2 Assets Current assets: Cash

$15,086

Accounts receivable

6,951

Merchandise inventory

19,000

Supplies

115

Prepaid insurance

968

Total current assets

$ 42,120

Property, plant, and equipment: Land

$ 8,700

Building

$52,000

Less accumulated depreciation

10,067

Store equipment

$28,750

Less accumulated depreciation

9,788

41,933 18,962

Total property, plant, and equipment

69,595

Total assets

$111,715 Liabilities

Current liabilities: Accounts payable

$ 3,550

Wages payable

330

Sales tax payable

1,958

Mortgage payable (current portion)

600

Total current liabilities

$ 6,438

Long-term liabilities: Mortgage payable Less current portion Total liabilities

$12,525 600

11,925 $ 18,363

Owner’s Equity Tom Jones, capital Total liabilities and owner’s equity

93,352 $111,715

COMPREHENSIVE PROBLEM

671

Comprehensive Problem 2General Journal Based, Part 2 Requirement 6. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20-2

Jan. 31

Income Summary Merchandise Inventory

313

19 7 0 0 00

131

19 7 0 0 00

4 5 6

31 Merchandise Inventory Income Summary

131

19 0 0 0 00

313

19 0 0 0 00

31 Supplies Expense

524

Supplies

141

4 1 0 00

31 Insurance Expense Prepaid Insurance

535

3 2 00

145

3 2 00 12 13

31 Depreciation Expense—Building Accumulated Depreciation—Building

540

6 7 00

171.1

6 7 00 15

16 17 18

31 Depreciation Expense—Store Equipment

541

3 8 00

Accumulated Depreciation—Store Equipment 181.1

3 8 00 18

19 20 21

9 10

13 14

6 7

31 Wages Expense Wages Payable

511 219

3 3 0 00

3 3 0 00 21

672

COMPREHENSIVE PROBLEM

Comprehensive Problem 2General Journal Based, Part 2 Requirement 7. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

PAGE

20-2

Sales

401

9 6 0 0 00

Purchases Returns and Allowances

501.1

3 0 0 00

Purchases Discounts

501.2

5 6 00

Income Summary

313

Jan. 31

9 9 5 6 00

6 7

5 6

31 Income Summary

313

7 8 5 7 00

Sales Returns and Allowances

401.1

8 0 0 00

Purchases

501

3 5 0 0 00

Wages Expense

511

2 2 0 0 00 10

Supplies Expense

524

4 1 0 00 11

Telephone Expense

525

1 8 0 00 12

Utilities Expense

533

6 3 0 00 13

Insurance Expense

535

3 2 00 14

Depreciation Expense—Building

540

6 7 00 15

Depreciation Expense—Store Equipment

541

3 8 00 16 17

17 18 19

31 Income Summary Tom Jones, Capital

313 311

1 3 9 9 00

1 3 9 9 00 19

COMPREHENSIVE PROBLEM

673

Comprehensive Problem 2General Journal Based, Part 2 Requirement 8. TJ’s Specialty Shop Post-Closing Trial Balance January 31, 20-2 ACCOUNT

DEBIT BALANCE

Cash

15 0 8 6 00

Accounts Receivable

6 9 5 1 00

Merchandise Inventory

19 0 0 0 00

Supplies

1 1 5 00

Prepaid Insurance

9 6 8 00

Land

8 7 0 0 00

Building

52 0 0 0 00

Accumulated Depreciation—Building Store Equipment

CREDIT BALANCE

10 0 6 7 00 28 7 5 0 00

Accumulated Depreciation—Store Equipment

9 7 8 8 00

Accounts Payable

3 5 5 0 00

Wages Payable

3 3 0 00

Sales Tax Payable

1 9 5 8 00

Mortgage Payable

12 5 2 5 00

Tom Jones, Capital

93 3 5 2 00 131 5 7 0 00 131 5 7 0 00

COMPREHENSIVE PROBLEM

675

Comprehensive Problem 2Special Journals Based, Part 1 Requirements 2. and 3. SALES JOURNAL SALE NO.

DATE 20-1

TO WHOM SOLD

POST. REF.

PAGE

ACCOUNTS RECEIVABLE DEBIT

SALES CREDIT

SALES TAX PAYABLE CREDIT

Cumulative Amount



4 2 6 3 00

4 0 6 0 00

2 0 3 00

16 640

Kim Fields



1 6 8 00

1 6 0 00

8 00

19 641

Lucy Greene



6 5 1 00

6 2 0 00

3 1 00

27 642

John Dempsey



2 1 2 1 00

2 0 2 0 00

1 0 1 00

7 2 0 3 00

6 8 6 0 00

3 4 3 00

( 122 )

(401 )

Dec. 1-15

Proof: Debit total:

$7,203.00

Credit total:

( 231 )

$6,860.00 343.00 $7,203.00

CASH RECEIPTS JOURNAL

DATE

ACCOUNT CREDITED

20-1

POST. REF.

GENERAL CREDIT

ACCOUNTS RECEIVABLE CREDIT

SALES CREDIT

4 8 4 0 00

Dec 1-15 Cumulative Amount



1 8 3 0 00

16 L. Greene



22 J. Dempsey

29 M. Boyle

PAGE SALES TAX PAYABLE CREDIT

2 4 2 00

CASH DEBIT

6 9 1 2 00

1 9 6 0 00



1 5 6 0 00



2 4 7 3 00

4 5

7 8 2 3 00

4 8 4 0 00

2 4 2 00 12 9 0 5 00

(122 )

(401 )

(231 )

(101 )

6 7

Proof: Debit total:

$12,905.00

Credit total:

$ 7,823.00 4,840.00 242.00 $12,905.00

676

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 2. and 3. Continued) PURCHASES JOURNAL

PAGE

FROM WHOM PURCHASED

PURCHASES DEBIT ACCTS. PAY. CREDIT

INVOICE NO.

DATE 20-1

POST. REF.

Cumulative Amount



3 9 0 0 00

465

West Wholesalers



1 2 0 0 00

817

Nathen Co.



8 0 0 00

5 9 0 0 00

(501 ) ( 2 02)

Dec. 1-15

CASH PAYMENTS JOURNAL

DATE

CK. NO.

20-1 1

Dec. 1-15

GENERAL DEBIT

ACCOUNTS PAYABLE DEBIT

 1 6 8 0 00

7 1 5 0 00 1 1 0 0 00

POST. ACCOUNT DEBITED REF.

Cumulative Amount

PAGE

PURCHASES DEBIT

PURCHASES DISCOUNTS CREDIT

1 2 3 00

CASH CREDIT

8 7 0 7 00

1 1 0 0 00

18 813 Evans Essentials



23 814 Supplies

141

1 2 0 00

27 815 Utilities Exp.

533

6 3 0 00

29 816 Wages Exp.

511 1 1 0 0 00

1 1 0 0 00

30 817



2 0 0 00

1 2 3 00 11 8 5 7 00

3 5 3 0 00 8 2 5 0 00

()

(202 )

( 501 )

( 5 0 1 .2)

(101 )

Proof: Debit total:

$ 3,530.00 8,250.00 200.00 $11,980.00

Credit total:

123.00

11,857.00 $11,980.00

COMPREHENSIVE PROBLEM

677

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 2. and 3. Concluded) GENERAL JOURNAL DATE 20-1 1

Dec. 17

2 3

PAGE POST. REF.

DESCRIPTION

Accounts Payable/Evans Essentials Purchases Returns and Allowances Returned goods purchased

DEBIT

202/ 501.1

CREDIT

1 5 0 00

2 3

Requirements 1., 2., 3., 6., 7., and 9. GENERAL LEDGER Cash

ACCOUNT

DATE

ACCOUNT NO.

ITEM

20-1

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT



CR9

CP10

BALANCE DEBIT

DATE

ITEM

20-1

POST. REF.

 S6

CR9

Dec. 16 Balance

CREDIT

11 5 0 0 00 12 9 0 5 00

24 4 0 5 00 11 8 5 7 00

12 5 4 8 00

Accounts Receivable

ACCOUNT

101

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

CREDIT

7 8 2 3 00 7 2 0 3 00

15 0 2 6 00 7 8 2 3 00

7 2 0 3 00

678

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Merchandise Inventory

ACCOUNT

DATE

ITEM

POST. REF.

20-1

DEBIT

CREDIT



Dec. 16 Balance

31 Adjusting

DATE

ITEM

19 7 0 0 00



POST. REF.

19 7 0 0 00

DEBIT

CREDIT



Dec. 16 Balance

CP10

31 Adjusting

ITEM

20-1

Dec. 16 Balance

31 Adjusting

ACCOUNT

DATE

CREDIT

1 0 3 5 00 1 2 0 00

1 1 5 5 00 6 3 0 00

5 2 5 00

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT



CREDIT

1 3 8 0 00

3 8 0 00

1 0 0 0 00

ACCOUNT NO.

Dec. 16 Balance

POST. REF.



145

BALANCE DEBIT

Land ITEM

141

BALANCE DEBIT

Prepaid Insurance

DATE



ACCOUNT NO.

20-1

ACCOUNT

CREDIT

21 8 0 0 00 21 8 0 0 00

131

BALANCE DEBIT

Supplies

ACCOUNT

20-1

ACCOUNT NO.

DEBIT

CREDIT

161

BALANCE DEBIT

CREDIT

8 7 0 0 00

COMPREHENSIVE PROBLEM

679

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Building

ACCOUNT

DATE

ITEM

20-1

Dec. 16 Balance

ACCOUNT NO. POST. REF.

DEBIT

CREDIT



BALANCE DEBIT

DATE

ITEM

20-1

Dec. 16 Balance

31 Adjusting

POST. REF.

DEBIT

ACCOUNT NO.

CREDIT

DATE

ITEM

20-1

Dec. 16 Balance

9 2 0 0 00

8 0 0 00

10 0 0 0 00

ACCOUNT NO.

DEBIT

CREDIT



DATE

ITEM

20-1

Dec. 16 Balance

31 Adjusting

POST. REF.

CREDIT

28 7 5 0 00

DEBIT

ACCOUNT NO.

CREDIT

 J5

181

BALANCE DEBIT

Accumulated Depreciation—Store Equipment

ACCOUNT

CREDIT



POST. REF.

171.1

BALANCE DEBIT

Store Equipment

ACCOUNT

CREDIT

52 0 0 0 00

Accumulated Depreciation—Building

ACCOUNT

171

181.1

BALANCE DEBIT

CREDIT

9 3 0 0 00 4 5 0 00

9 7 5 0 00

680

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Accounts Payable

ACCOUNT

DATE

ITEM

ACCOUNT NO.

POST. REF.

20-1

CREDIT

BALANCE DEBIT

CP10

6 8 5 0 00 1 5 0 00

6 7 0 0 00 5 9 0 0 00

12 6 0 0 00

8 2 5 0 00

4 3 5 0 00

Wages Payable

ACCOUNT

DATE

ITEM

ACCOUNT NO. POST. REF.

20-1

Dec. 31 Adjusting 20-2

DEBIT

1 Reversing

Jan.

CREDIT

3 3 0 00 3 3 0 00

DATE

ITEM

20-1

CREDIT

3 3 0 00



ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

231

BALANCE DEBIT

CREDIT



Dec. 16 Balance

219

BALANCE DEBIT

Sales Tax Payable

ACCOUNT

CREDIT



Dec. 16 Balance

9 3 3 00

3 4 3 00

1 2 7 6 00

CR9

2 4 2 00

1 5 1 8 00

ACCOUNT

DATE 20-1

DEBIT

202

Mortgage Payable ITEM

Dec. 16 Balance

ACCOUNT NO.

POST. REF.



DEBIT

CREDIT

251

BALANCE DEBIT

CREDIT

12 5 2 5 00

COMPREHENSIVE PROBLEM

681

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Tom Jones, Capital

ACCOUNT

DATE

ITEM

POST. REF.

20-1

Dec. 16 Balance



31 Closing

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

DATE

ITEM

POST. REF.

20-1

10 4 5 3 00

100 4 5 3 00

8 5 0 0 00

91 9 5 3 00

ACCOUNT NO.

DEBIT

 J6

Dec. 16 Balance

31 Closing

CREDIT



DEBIT

Dec. 31 Adjusting

21 8 0 0 00

31 Adjusting

19 7 0 0 00

31 Closing

129 0 0 8 00

31 Closing

116 4 5 5 00

31 Closing

10 4 5 3 00

ITEM

20-1

CREDIT

DATE

CREDIT

21 8 0 0 00 2 1 0 0 00 126 9 0 8 00



10 4 5 3 00



ACCOUNT NO.

ITEM

20-1

Dec. 16 Balance

POST. REF.

DEBIT

313

BALANCE DEBIT

Sales

ACCOUNT



ACCOUNT NO.

POST. REF.

DATE

CREDIT

8 5 0 0 00 8 5 0 0 00

312

BALANCE DEBIT

Income Summary

ACCOUNT

CREDIT

90 0 0 0 00

Tom Jones, Drawing

ACCOUNT

311

CREDIT

401

BALANCE DEBIT



CREDIT

116 0 0 0 00

6 8 6 0 00

122 8 6 0 00

CR9

4 8 4 0 00

127 7 0 0 00

31 Closing

127 7 0 0 00



682

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Sales Returns and Allowances

ACCOUNT

DATE

ITEM

20-1

POST. REF.

Dec. 16 Balance



31 Closing

ACCOUNT

Purchases

DATE

ITEM

20-1

Dec. 16 Balance

DEBIT

ACCOUNT NO.

CREDIT

BALANCE DEBIT

CREDIT

1 4 3 0 00 1 4 3 0 00



DEBIT

CREDIT



CREDIT

60 5 0 0 00

5 9 0 0 00

66 4 0 0 00

CP10

2 0 0 00

66 6 0 0 00

31 Closing

66 6 0 0 00



Purchases Returns and Allowances

DATE

ITEM

20-1

Dec. 16 Balance

POST. REF.

DEBIT

31 Closing

CREDIT

DATE

ITEM

20-1

Dec. 16 Balance

POST. REF.

CREDIT

4 6 0 00 1 5 0 00 6 1 0 00



CP10

31 Closing

6 1 0 00



ACCOUNT NO.

DEBIT

CREDIT

501.2

BALANCE DEBIT



501.1

BALANCE DEBIT

Purchases Discounts

ACCOUNT



ACCOUNT NO.



501

BALANCE DEBIT

ACCOUNT



ACCOUNT NO. POST. REF.

401.1

CREDIT

5 7 5 00 1 2 3 00 6 9 8 00



6 9 8 00



COMPREHENSIVE PROBLEM

683

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) ACCOUNT

Freight-In

DATE

ITEM

ACCOUNT NO. POST. REF.

20-1

Dec. 16 Balance



31 Closing

DATE

BALANCE DEBIT

ITEM

CREDIT

1 7 5 00



POST. REF.

DEBIT

CREDIT



Dec. 16 Balance

CREDIT

26 1 0 0 00

CP10

1 1 0 0 00

27 2 0 0 00

31 Adjusting

3 3 0 00

27 5 3 0 00

31 Closing

27 5 3 0 00

1 Reversing

3 3 0 00

Jan.



DATE

ITEM

POST. REF.

20-1

Dec. 16 Balance



31 Closing

ACCOUNT NO.

DEBIT

CREDIT

DATE

ITEM

CREDIT

4 7 0 0 00 4 7 0 0 00



ACCOUNT NO.

POST. REF.

31 Adjusting

31 Closing

DEBIT

CREDIT

6 3 0 00

524

BALANCE DEBIT

6 3 0 00

512

BALANCE DEBIT

Supplies Expense

ACCOUNT

 3 3 0 00

Advertising Expense

ACCOUNT

511

BALANCE DEBIT

20-2



ACCOUNT NO.

20-1

Dec

CREDIT

Wages Expense

ACCOUNT

20-1

DEBIT

502



CREDIT



684

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1, 2., 3., 6., 7., and 9. Continued) Telephone Expense

ACCOUNT

DATE

ITEM

20-1

POST. REF.

Dec. 16 Balance



31 Closing

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT



Utilities Expense

ACCOUNT

DATE

ITEM

20-1

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT

 CP10

31 Closing

ITEM

20-1

Dec. 31 Adjusting

31 Closing

POST. REF.

7 5 3 0 00



DATE

ITEM

DEBIT

CREDIT

3 8 0 00

20-1

Dec. 31 Adjusting

31 Closing

POST. REF.

J5 J6



ACCOUNT NO.

DEBIT

CREDIT

3 8 0 00



ACCOUNT NO.

CREDIT

8 0 0 00

540

BALANCE DEBIT

8 0 0 00

535

BALANCE DEBIT

Depreciation Expense—Building

ACCOUNT

CREDIT

6 9 0 0 00 7 5 3 0 00

6 3 0 00

533

BALANCE DEBIT

Insurance Expense

DATE



ACCOUNT NO.

ACCOUNT

CREDIT

2 1 8 0 00 2 1 8 0 00

525



CREDIT



COMPREHENSIVE PROBLEM

685

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Depreciation Expense—Store Equipment

ACCOUNT

DATE

POST. REF.

ITEM

20-1

Dec. 31 Adjusting

31 Closing

ACCOUNT NO.

DEBIT

CREDIT

4 5 0 00

BALANCE DEBIT

4 5 0 00



Miscellaneous Expense

ACCOUNT

DATE

POST. REF.

ITEM

20-1

Dec. 16 Balance



31 Closing

DATE

ITEM



ACCOUNT NO.

DEBIT

CREDIT

2 7 0 0 00 2 7 0 0 00



ACCOUNT NO. POST. REF.

20-1

Dec. 16 Balance



31 Closing

DEBIT

CREDIT

551

BALANCE DEBIT

1 3 5 0 00 1 3 5 0 00

549

BALANCE DEBIT

Interest Expense

ACCOUNT

CREDIT

4 5 0 00

541



CREDIT



ACCOUNTS RECEIVABLE LEDGER NAME Martha Boyle ADDRESS 12 Jude Lane, Hartford, CT 06117 DATE 20-1

Dec. 16 Balance

ITEM

POST. REF.

DEBIT

CREDIT

 CR9

BALANCE

3 7 9 6 00 2 4 7 3 00

1 3 2 3 00

686

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) NAME Anne Clark ADDRESS 52 Juniper Road, Hartford, CT 06118 DATE

ITEM

20-1

POST. REF.

DEBIT

CREDIT



Dec. 16 Balance

BALANCE

2 1 0 0 00

NAME John Dempsey ADDRESS 700 Hobbes Dr., Avon, CT 06108 DATE

ITEM

20-1

POST. REF.

DEBIT

CREDIT



Dec. 16 Balance

CR9

BALANCE

1 5 6 0 00 1 5 6 0 00 2 1 2 1 00



2 1 2 1 00

NAME Kim Fields ADDRESS 5200 Hamilton Ave., Hartford, CT 06117 DATE

ITEM

20-1

POST. REF.

DEBIT

CREDIT





Dec. 16 Balance

BALANCE

1 6 8 00

NAME Lucy Greene ADDRESS 236 Bally Lane, Simsbury, CT 06123 DATE 20-1

Dec. 16 Balance

ITEM

POST. REF.

DEBIT

CREDIT



CR9

BALANCE

2 8 0 0 00 1 9 6 0 00 6 5 1 00

8 4 0 00 1 4 9 1 00

COMPREHENSIVE PROBLEM

687

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued)

ACCOUNTS PAYABLE LEDGER NAME Evans Essentials ADDRESS 34 Harry Ave., East Hartford, CT 05234 DATE

ITEM

20-1

POST. REF.

DEBIT

CREDIT



Dec. 16 Balance

BALANCE

3 6 0 0 00

1 5 0 00

3 4 5 0 00

CP10

1 1 0 0 00

2 3 5 0 00

NAME Nathen Co. ADDRESS 1009 Drake Rd., Farmington, CT 06082 DATE 20-1

Dec. 16 Balance

ITEM

POST. REF.

DEBIT

CREDIT



 P5

BALANCE

8 0 0 00

688

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Concluded) NAME Owen Enterprises ADDRESS 43 Lucky Lane, Bristol, CT 06007 DATE

ITEM

20-1

POST. REF.

DEBIT

CREDIT





Dec. 16 Balance

BALANCE

NAME West Wholesalers ADDRESS 888 Anders Street, Newington, CT 06789 DATE 20-1

Dec. 16 Balance

ITEM

POST. REF.

DEBIT

CREDIT



 P5

BALANCE

1 2 0 0 00

COMPREHENSIVE PROBLEM

689

Comprehensive Problem 2Special Journals Based, Part 1 Requirement 4. TJ’s Specialty Shop Schedule of Accounts Receivable December 31, 20-1 Martha Boyle

$1 3 2 3 00

Anne Clark

2 1 0 0 00

John Dempsey

2 1 2 1 00

Kim Fields

1 6 8 00

Lucy Greene

1 4 9 1 00 $7 2 0 3 00

TJ’s Specialty Shop Schedule of Accounts Payable December 31, 20-1 Evans Essentials Nathen Co. West Wholesalers

$2 3 5 0 00 8 0 0 00 1 2 0 0 00 $4 3 5 0 00

690

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 Requirement 5. TJ’s Specialty Work For Year Ended TRIAL BALANCE DEBIT CREDIT

(b)

19 7 0 0 00 (a) 21 8 0 0 00 (c) 6 3 0 00 (d) 3 8 0 00

9 2 0 0 00

(e)

8 0 0 00

9 3 0 0 00 4 3 5 0 00

(f)

4 5 0 00

(g)

3 3 0 00

28 7 5 0 00

1 5 1 8 00 12 5 2 5 00 90 0 0 0 00 8 5 0 0 00 (a)

21 8 0 0 00 (b) 19 7 0 0 00

127 7 0 0 00 1 4 3 0 00 66 6 0 0 00 6 1 0 00 6 9 8 00 1 7 5 00 27 2 0 0 00 4 7 0 0 00

(g)

3 3 0 00

(c)

6 3 0 00

(d)

3 8 0 00 8 0 0 00 4 5 0 00

2 1 8 0 00 7 5 3 0 00 (e) (f)

2 7 0 0 00 1 3 5 0 00 255 9 0 1 00 255 9 0 1 00

34 35

12 5 4 8 00 7 2 0 3 00 21 8 0 0 00 1 1 5 5 00 1 3 8 0 00 8 7 0 0 00 52 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

44 0 9 0 00

Net Income

COMPREHENSIVE PROBLEM

691

Comprehensive Problem 2Special Journals Based, Part 1 (Requirement 5. Continued) Shop Sheet December 31, 20-1 ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

12 5 4 8 00 7 2 0 3 00 19 7 0 0 00 5 2 5 00 1 0 0 0 00 8 7 0 0 00 52 0 0 0 00

BALANCE SHEET DEBIT CREDIT

12 5 4 8 00 7 2 0 3 00 19 7 0 0 00 5 2 5 00 1 0 0 0 00 8 7 0 0 00 52 0 0 0 00 10 0 0 0 00

3 4 5 6 7 8

28 7 5 0 00 9 7 5 0 00 4 3 5 0 00 3 3 0 00 1 5 1 8 00 12 5 2 5 00 90 0 0 0 00 19 7 0 0 00 127 7 0 0 00

21 8 0 0 00

19 7 0 0 00 127 7 0 0 00

6 1 0 00 6 9 8 00

18 19 20

6 1 0 00 6 9 8 00

21 22

1 7 5 00 27 5 3 0 00 4 7 0 0 00 6 3 0 00 2 1 8 0 00 7 5 3 0 00 3 8 0 00 8 0 0 00 4 5 0 00 2 7 0 0 00 1 3 5 0 00 277 1 8 1 00

138 2 5 5 00

23 24 25 26 27 28 29 30 31 32 33

148 7 0 8 00

138 9 2 6 00

10 4 5 3 00 148 7 0 8 00

16 17

1 4 3 0 00 66 6 0 0 00

1 7 5 00 27 5 3 0 00 4 7 0 0 00 6 3 0 00 2 1 8 0 00 7 5 3 0 00 3 8 0 00 8 0 0 00 4 5 0 00 2 7 0 0 00 1 3 5 0 00

9 7 5 0 00 10 4 3 5 0 00 11 3 3 0 00 12 1 5 1 8 00 13 12 5 2 5 00 14 90 0 0 0 00 15 8 5 0 0 00

1 4 3 0 00 66 6 0 0 00

277 1 8 1 00

10 0 0 0 00

28 7 5 0 00

8 5 0 0 00 21 8 0 0 00

128 4 7 3 00 34 10 4 5 3 00 35

148 7 0 8 00

138 9 2 6 00

138 9 2 6 00 36

692

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 (Requirement 5. Continued) TJ’s Specialty Shop Income Statement For Year Ended December 31, 20-1 Revenue from sales: Sales

$127,700

Less sales ret. & allow.

1,430

Net sales

$126,270

Cost of goods sold: Merch. inv., Jan. 1

$ 21,800

Purchases Less: Purch. ret. & allow. Purch. discounts

$66,600 $610 698

1,308

Net purchases

$65,292

Add freight-in

175

Cost of goods purch. Goods avail. for sale Less merch. inv., Dec. 31

65,467 $ 87,267 19,700

Cost of goods sold

67,567

Gross profit

$ 58,703

Operating expenses: Wages expense

$ 27,530

Advertising expense

4,700

Supplies expense

630

Telephone expense

2,180

Utilities expense

7,530

Insurance expense

380

Depr. exp.—building

800

Depr. exp.—store equip.

450

Miscellaneous expense

2,700

Total operating exp. Income from operations

46,900 $ 11,803

Other expenses: Interest expense Net income

1,350 $ 10,453

COMPREHENSIVE PROBLEM

693

Comprehensive Problem 2Special Journals Based, Part 1 (Requirement 5. Continued) TJ’s Specialty Shop Statement of Owner’s Equity For Year Ended December 31, 20-1 Tom Jones, capital, January 1, 20-1 Net income for year Less withdrawals for year Increase in capital Tom Jones, capital, December 31, 20-1

$90,000 $10,453 8,500 1,953 $91,953

694

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 (Requirement 5. Concluded) TJ’s Specialty Shop Balance Sheet December 31, 20-1 Assets Current assets: Cash

$12,548

Accounts receivable

7,203

Merchandise inventory

19,700

Supplies

525

Prepaid insurance

1,000

Total current assets

$ 40,976

Property, plant, and equipment: Land

$ 8,700

Building

$52,000

Less accumulated depreciation

10,000

Store equipment

$28,750

Less accumulated depreciation

9,750

42,000 19,000

Total property, plant, and equipment

69,700

Total assets

$110,676 Liabilities

Current liabilities: Accounts payable

$ 4,350

Wages payable

330

Sales tax payable

1,518

Mortgage payable (current portion)

600

Total current liabilities

$ 6,798

Long-term liabilities: Mortgage payable Less current portion Total liabilities

$12,525 600

11,925 $ 18,723

Owner’s Equity Tom Jones, capital Total liabilities and owner’s equity

91,953 $110,676

COMPREHENSIVE PROBLEM

695

Comprehensive Problem 2Special Journals Based, Part 1 Requirement 6. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Adjusting Entries

20-1 2 3

Dec. 31

Income Summary Merchandise Inventory

313

21 8 0 0 00

131

21 8 0 0 00

4 5 6

31 Merchandise Inventory Income Summary

131

19 7 0 0 00

313

19 7 0 0 00

31 Supplies Expense

524

Supplies

141

6 3 0 00

31 Insurance Expense Prepaid Insurance

535

3 8 0 00

145

3 8 0 00 12 13

31 Depreciation Expense—Building Accumulated Depreciation—Building

540

8 0 0 00

171.1

8 0 0 00 15

16 17 18

31 Depreciation Expense—Store Equipment

541

4 5 0 00

Accumulated Depreciation—Store Equipment 181.1

4 5 0 00 18

19 20 21

9 10

13 14

6 7

31 Wages Expense Wages Payable

511 219

3 3 0 00

3 3 0 00 21

696

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 1 Requirements 7. and 9. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

20-1

Sales

401

127 7 0 0 00

Purchases Returns and Allowances

501.1

6 1 0 00

Purchases Discounts

501.2

6 9 8 00

Income Summary

313

Dec. 31

129 0 0 8 00

5 6

31 Income Summary

313

116 4 5 5 00

Sales Returns and Allowances

401.1

1 4 3 0 00

Purchases

501

66 6 0 0 00

Freight-In

502

1 7 5 00 10

Wages Expense

511

27 5 3 0 00 11

Advertising Expense

512

4 7 0 0 00 12

Supplies Expense

524

6 3 0 00 13

Telephone Expense

525

2 1 8 0 00 14

Utilities Expense

533

7 5 3 0 00 15

Insurance Expense

535

3 8 0 00 16

Depreciation Expense—Building

540

8 0 0 00 17

Depreciation Expense—Store Equipment

541

4 5 0 00 18

Miscellaneous Expense

549

2 7 0 0 00 19

Interest Expense

551

1 3 5 0 00 20

31 Income Summary

Tom Jones, Capital

313

10 4 5 3 00

311

10 4 5 3 00 23

31 Tom Jones, Capital

Tom Jones, Drawing

311

8 5 0 0 00

312

8 5 0 0 00 26

Reversing Entries

20-2 29 30

Jan.

1 Wages Payable Wages Expense

219 511

3 3 0 00

3 3 0 00 30

COMPREHENSIVE PROBLEM

697

Comprehensive Problem 2Special Journals Based, Part 1 Requirement 8. TJ’s Specialty Shop Post-Closing Trial Balance December 31, 20-1 ACCOUNT

DEBIT BALANCE

Cash

12 5 4 8 00

Accounts Receivable

7 2 0 3 00

Merchandise Inventory

19 7 0 0 00

Supplies

5 2 5 00

Prepaid Insurance

1 0 0 0 00

Land

8 7 0 0 00

Building

52 0 0 0 00

Accumulated Depreciation—Building Store Equipment

CREDIT BALANCE

10 0 0 0 00 28 7 5 0 00

Accumulated Depreciation—Store Equipment

9 7 5 0 00

Accounts Payable

4 3 5 0 00

Wages Payable

3 3 0 00

Sales Tax Payable

1 5 1 8 00

Mortgage Payable

12 5 2 5 00

Tom Jones, Capital

91 9 5 3 00 130 4 2 6 00 130 4 2 6 00

698

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 Requirements 2. and 3. SALES JOURNAL SALE NO.

DATE 20-2

TO WHOM SOLD

POST. REF.

ACCOUNTS RECEIVABLE DEBIT

SALES CREDIT

643

Anne Clarke



3 1 5 0 00

3 0 0 0 00

1 5 0 00

644

Martha Boyle



1 0 5 0 00

1 0 0 0 00

5 0 00

645

John Dempsey



2 1 0 0 00

2 0 0 0 00

1 0 0 00

6 3 0 0 00

6 0 0 0 00

3 0 0 00

( 122 )

(401 )

Proof: Debit total:

$6,300.00

Credit total:

POST. ACCOUNT CREDITED REF.

DATE



9 Lucy Greene



12 Anne Clark

22 John Dempsey

Jan.

GENERAL CREDIT

( 231 )

$6,000.00 300.00 $6,300.00

CASH RECEIPTS JOURNAL

20-2

SALES TAX PAYABLE CREDIT

Jan.

PAGE

ACCOUNTS RECEIVABLE CREDIT

PAGE

SALES CREDIT

3 6 0 0 00

SALES TAX PAYABLE CREDIT

1 8 0 00

CASH DEBIT

3 7 8 0 00

1 4 9 1 00



2 1 0 0 00



2 1 2 1 00

5 7 1 2 00

3 6 0 0 00

1 8 0 00

9 4 9 2 00

(122 )

(401 )

(231 )

(101 )

Proof: Debit total:

$9,492.00

Credit total:

$5,712.00 3,600.00 180.00 $9,492.00

COMPREHENSIVE PROBLEM

699

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 2. and 3. Continued) PURCHASES JOURNAL

INVOICE NO.

DATE 20-2

PAGE

PURCHASES DEBIT ACCTS. PAY. CREDIT

POST. REF.

FROM WHOM PURCHASED

678

West Wholesalers



1 5 0 0 00

767

Owen Enterprises



2 0 0 0 00

3 5 0 0 00

(501 ) ( 2 02)

Jan.

CASH PAYMENTS JOURNAL

DATE

CK. POST. NO. ACCOUNT DEBITED REF.

20-2 1 2

Jan. 2 818 Nathen Co. 4 819 Telephone Exp.

GENERAL DEBIT

ACCOUNTS PAYABLE DEBIT

 525

PURCHASES DEBIT

8 0 0 00

PAGE PURCHASES DISCOUNTS CREDIT

1 6 00

1 8 0 00

CASH CREDIT

7 8 4 00

1 8 0 00

1 2 0 0 00

1 1 0 0 00

1 9 6 0 00

10 820 West Wholesalers 

12 821 Wages Expense

13 822 Owen Enterprises 

26 823 Wages Expense

511

1 1 0 0 00

27 824 Utilities Expense

533

6 3 0 00

6 9 5 4 00

(101 )

511

1 2 0 0 00 1 1 0 0 00 2 0 0 0 00

3 0 1 0 00

4 0 0 0 00

( )

(202 )

4 0 00

5 6 00 ( 5 0 1 .2)

Proof: Debit Total:

$3,010.00

Credit Total:

56.00

4,000.00

6,954.00

$7,010.00

700

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 2. and 3. Concluded) GENERAL JOURNAL DATE 1

POST. REF.

DESCRIPTION

20-2

Jan. 13

2 3 4

PAGE

Sales Returns and Allowances Sales Tax Payable Accounts Receivable/Martha Boyle Accepted return of goods sold

DEBIT

401.1 231 122/

CREDIT 1

8 0 0 00 4 0 00

8 4 0 00

3 4

17 Accounts Payable/Evans Essentials Purchases Returns and Allowances Returned goods purchased

6 7 8

202/ 501.1

3 0 0 00

7 8

Requirements 1., 2., 3., 6., and 7. GENERAL LEDGER Cash

ACCOUNT

DATE

ACCOUNT NO.

ITEM

20-2

1 Balance

Jan.

DEBIT

CREDIT



CR10

CP11

BALANCE DEBIT

DATE

ITEM

20-2

POST. REF.

1 Balance



CR10

CREDIT

12 5 4 8 00 9 4 9 2 00

22 0 4 0 00 6 9 5 4 00

15 0 8 6 00

Accounts Receivable

ACCOUNT

Jan.

POST. REF.

101

ACCOUNT NO.

DEBIT

CREDIT

122

BALANCE DEBIT

CREDIT

7 2 0 3 00 8 4 0 00 6 3 0 0 00

6 3 6 3 00 12 6 6 3 00

5 7 1 2 00

6 9 5 1 00

COMPREHENSIVE PROBLEM

701

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Merchandise Inventory

ACCOUNT DATE

ITEM

POST. REF.

20-2

1 Balance



31 Adjusting

Jan.

DATE 20-2

CREDIT

ITEM

POST. REF.



31 Adjusting

19 0 0 0 00



DATE 20-2

ITEM

DEBIT

CREDIT

POST. REF.



31 Adjusting

ACCOUNT DATE

CREDIT

5 2 5 00 4 1 0 00

1 1 5 00

DEBIT

CREDIT

1 0 0 0 00 3 2 00

9 6 8 00

ACCOUNT NO.

1 Balance

POST. REF.



145

BALANCE DEBIT

Land ITEM

141

BALANCE DEBIT

ACCOUNT NO.

1 Balance

Jan.



19 0 0 0 00

Prepaid Insurance

ACCOUNT

CREDIT

19 7 0 0 00 19 7 0 0 00

131

BALANCE DEBIT

ACCOUNT NO.

1 Balance

Jan.

DEBIT

Supplies

ACCOUNT

20-2

ACCOUNT NO.

DEBIT

CREDIT

161

BALANCE DEBIT

CREDIT

8 7 0 0 00

702

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Building

ACCOUNT

DATE 20-2

1 Balance

Jan.

DATE

Jan.

DEBIT

CREDIT



POST. REF.

20-2

ITEM

1 Balance

Jan.

52 0 0 0 00

DEBIT

ACCOUNT NO.

CREDIT

DATE

ITEM

CREDIT

10 0 0 0 00 10 0 6 7 00

6 7 00

ACCOUNT NO.

DEBIT

CREDIT



POST. REF.

1 Balance



31 Adjusting

171.1

BALANCE DEBIT

181

BALANCE DEBIT

CREDIT

28 7 5 0 00

Accumulated Depreciation—Store Equipment

ACCOUNT

CREDIT



POST. REF.

171

BALANCE DEBIT

Store Equipment

DATE

Jan.

ITEM

1 Balance 31 Adjusting

ACCOUNT

20-2

POST. REF.

Accumulated Depreciation—Building

ACCOUNT

20-2

ITEM

ACCOUNT NO.

DEBIT

ACCOUNT NO.

CREDIT

181.1

BALANCE DEBIT

CREDIT

9 7 5 0 00 3 8 00

9 7 8 8 00

COMPREHENSIVE PROBLEM

703

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Accounts Payable

ACCOUNT

DATE

ITEM

ACCOUNT NO.

POST. REF.

20-2

1 Balance



CP11

Jan.

DATE

Jan.

ITEM

4 0 5 0 00 3 5 0 0 00

7 5 5 0 00

4 0 0 0 00

3 5 5 0 00

POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

3 3 0 00

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

219

231

BALANCE DEBIT

CREDIT



1 5 1 8 00

3 0 0 00

1 7 7 8 00

CR10

1 8 0 00

1 9 5 8 00

DATE

Jan.

3 0 0 00

1 Balance 13

ACCOUNT

20-2

ITEM

CREDIT

4 3 5 0 00

Sales Tax Payable

DATE

Jan.

BALANCE DEBIT

ACCOUNT NO.

31 Adjusting

ACCOUNT

20-2

CREDIT

Wages Payable

ACCOUNT

20-2

DEBIT

202

4 0 00

1 4 7 8 00

Mortgage Payable ITEM

1 Balance

ACCOUNT NO.

POST. REF.



DEBIT

CREDIT

251

BALANCE DEBIT

CREDIT

12 5 2 5 00

704

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Tom Jones, Capital

ACCOUNT

DATE 20-2

Jan.

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

91 9 5 3 00 93 3 5 2 00

1 3 9 9 00

Tom Jones, Drawing

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

DEBIT

Jan. 31 Adjusting

19 7 0 0 00

31 Adjusting

19 0 0 0 00

31 Closing

9 9 5 6 00

31 Closing

7 8 5 7 00

31 Closing

1 3 9 9 00

ITEM

20-2

CREDIT

DATE

CREDIT

19 7 0 0 00 7 0 0 00 9 2 5 6 00



1 3 9 9 00



ACCOUNT NO.

ITEM

20-2

POST. REF.

DEBIT

313

BALANCE DEBIT

Sales

ACCOUNT

CREDIT

ACCOUNT NO.

POST. REF.

DATE

312

BALANCE DEBIT

Income Summary

ACCOUNT

CREDIT



1 Balance 31 Closing

311

CREDIT

401

BALANCE DEBIT

CREDIT

Jan. 31

6 0 0 0 00

CR10

3 6 0 0 00

9 6 0 0 00

31 Closing

9 6 0 0 00



COMPREHENSIVE PROBLEM

705

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Sales Returns and Allowances

ACCOUNT

DATE

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

401.1

BALANCE DEBIT

CREDIT

20-2

Jan. 13

31 Closing

ACCOUNT

Purchases

DATE

ITEM

20-2

Jan. 31

8 0 0 00



POST. REF.

DEBIT

CREDIT

3 5 0 0 00

DATE

ITEM

20-2

Jan. 17

POST. REF.

DEBIT

31 Closing



DATE

ITEM

20-2

Jan. 31

31 Closing

POST. REF.

CREDIT

3 0 0 00 3 0 0 00

DEBIT

CREDIT

5 6 00 5 6 00

501.1

BALANCE DEBIT

CREDIT



3 0 0 00



ACCOUNT NO.

CP11



ACCOUNT NO.

Purchases Discounts

ACCOUNT

CREDIT

3 5 0 0 00 3 5 0 0 00

501

BALANCE DEBIT

Purchases Returns and Allowances

ACCOUNT



ACCOUNT NO.

31 Closing

8 0 0 00

501.2

BALANCE DEBIT



CREDIT

5 6 00



706

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) ACCOUNT

Freight-In

DATE

ITEM

DATE

Jan.

POST. REF.

DEBIT

CREDIT

ITEM

CREDIT

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

 CP11

1 1 0 0 00

7 7 0 00

CP11

1 1 0 0 00

1 8 7 0 00

31 Adjusting

3 3 0 00

2 2 0 0 00

31 Closing

3 3 0 00

2 2 0 0 00



Advertising Expense

DATE

ITEM

POST. REF.

DATE

ITEM

20-2

Jan. 31 Adjusting

31 Closing



ACCOUNT NO.

DEBIT

CREDIT

ACCOUNT NO.

POST. REF.

J2 J3

DEBIT

CREDIT

4 1 0 00

524

BALANCE DEBIT

4 1 0 00

512

BALANCE DEBIT

Supplies Expense

ACCOUNT

511

BALANCE DEBIT

1 Balance 12

ACCOUNT

502

BALANCE DEBIT

Wages Expense

ACCOUNT

20-2

ACCOUNT NO.



CREDIT



COMPREHENSIVE PROBLEM

707

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Telephone Expense

ACCOUNT

ACCOUNT NO.

POST. REF.

DEBIT

CP11

1 8 0 00

31 Closing

DATE

ITEM

CREDIT

525

BALANCE DEBIT

CREDIT

20-2

Jan.

1 8 0 00



Utilities Expense

ACCOUNT DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CP11

6 3 0 00

20-2

Jan. 27

31 Closing

CREDIT

DATE

ITEM

20-2

Jan. 31 Adjusting

31 Closing

POST. REF.



DATE

ITEM

DEBIT

CREDIT

3 2 00

20-2

Jan. 31 Adjusting

31 Closing

POST. REF.

DEBIT



DATE

ITEM

20-2

Jan. 31 Adjusting

31 Closing

POST. REF.

CREDIT

J2 J3

CREDIT



ACCOUNT NO. CREDIT

3 8 00

541

BALANCE DEBIT

3 8 00

540

BALANCE DEBIT

6 7 00

DEBIT



ACCOUNT NO.

6 7 00

CREDIT

3 2 00

535

BALANCE DEBIT

Depreciation Expense—Store Equipment

ACCOUNT



ACCOUNT NO.

Depreciation Expense—Building

ACCOUNT

CREDIT

6 3 0 00

533

BALANCE DEBIT

Insurance Expense

ACCOUNT



CREDIT



708

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Miscellaneous Expense

ACCOUNT

DATE

POST. REF.

ITEM

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

Interest Expense

ACCOUNT

DATE

CREDIT

ACCOUNT NO. POST. REF.

ITEM

DEBIT

CREDIT

549

551

BALANCE DEBIT

CREDIT

BALANCE

ACCOUNTS RECEIVABLE LEDGER NAME Martha Boyle ADDRESS 12 Jude Lane, Hartford, CT 06117 DATE 20-2

ITEM

POST. REF.

1 Balance



Jan.

DEBIT

1 3 2 3 00 1 0 5 0 00

2 3 7 3 00 8 4 0 00

1 5 3 3 00

CREDIT

BALANCE

NAME Anne Clark ADDRESS 52 Juniper Road, Hartford, CT 06118 DATE 20-2

Jan.

ITEM

POST. REF.

1 Balance



CR10

DEBIT

2 1 0 0 00 3 1 5 0 00

5 2 5 0 00 2 1 0 0 00

3 1 5 0 00

COMPREHENSIVE PROBLEM

709

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) NAME John Dempsey ADDRESS 700 Hobbes Dr., Avon, CT 06108 DATE 20-2

ITEM

DEBIT

CREDIT



1 Balance

Jan.

POST. REF.

CR10

BALANCE

2 1 2 1 00 2 1 2 1 00 2 1 0 0 00



2 1 0 0 00

NAME Kim Fields ADDRESS 5200 Hamilton Ave., Hartford, CT 06117 DATE 20-2

Jan.

ITEM

POST. REF.

DEBIT

CREDIT



1 Balance

BALANCE

1 6 8 00

NAME Lucy Greene ADDRESS 236 Bally Lane, Simsbury, CT 06123 DATE 20-2

Jan.

ITEM

1 Balance 9

POST. REF.

DEBIT

CREDIT

 CR10

BALANCE

1 4 9 1 00 1 4 9 1 00



710

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 (Requirements 1., 2., 3., 6., and 7. Concluded) ACCOUNTS PAYABLE LEDGER NAME Evans Essentials ADDRESS 34 Harry Ave., East Hartford, CT 05234 DATE 20-2

ITEM

POST. REF.

1 Balance



Jan.

DEBIT

CREDIT

BALANCE

2 3 5 0 00 3 0 0 00

2 0 5 0 00

NAME Nathen Co. ADDRESS 1009 Drake Rd., Farmington, CT 06082 DATE 20-2

ITEM

DEBIT

CREDIT



1 Balance

Jan.

POST. REF.

BALANCE

8 0 0 00



8 0 0 00

CP11

NAME Owen Enterprises ADDRESS 43 Lucky Lane, Bristol, CT 06007 DATE

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

20-2

CP11

Jan.

2 0 0 0 00 2 0 0 0 00

2 0 0 0 00



NAME West Wholesalers ADDRESS 888 Anders Street, Newington, CT 06789 DATE 20-2

Jan.

ITEM

POST. REF.

1 Balance



CP11

DEBIT

CREDIT

BALANCE

1 2 0 0 00 1 5 0 0 00 1 2 0 0 00

2 7 0 0 00 1 5 0 0 00

COMPREHENSIVE PROBLEM

711

Comprehensive Problem 2Special Journals Based, Part 2 Requirement 4. TJ’s Specialty Shop Schedule of Accounts Receivable January 31, 20-2 Martha Boyle

$1 5 3 3 00

Anne Clark

3 1 5 0 00

John Dempsey

2 1 0 0 00

Kim Fields

1 6 8 00 $6 9 5 1 00

TJ’s Specialty Shop Schedule of Accounts Payable January 31, 20-2 Evans Essentials

$2 0 5 0 00

West Wholesalers

1 5 0 0 00 $3 5 5 0 00

712

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 Requirement 5. TJ’s Specialty Work For Month Ended TRIAL BALANCE DEBIT CREDIT

(b)

19 0 0 0 00 (a) 19 7 0 0 00 (c) 4 1 0 00 (d) 3 2 00

10 0 0 0 00

(e)

6 7 00

9 7 5 0 00 3 5 5 0 00

(f)

3 8 00

(g)

3 3 0 00

28 7 5 0 00

1 9 5 8 00 12 5 2 5 00 91 9 5 3 00 (a)

19 7 0 0 00 (b) 19 0 0 0 00

9 6 0 0 00 8 0 0 00 3 5 0 0 00 3 0 0 00 5 6 00 1 8 7 0 00

(g)

3 3 0 00

(c)

4 1 0 00

(d)

3 2 00 6 7 00 3 8 00

1 8 0 00 6 3 0 00 (e) (f)

139 6 9 2 00 139 6 9 2 00

34 35

15 0 8 6 00 6 9 5 1 00 19 7 0 0 00 5 2 5 00 1 0 0 0 00 8 7 0 0 00 52 0 0 0 00

ADJUSTMENTS DEBIT CREDIT

39 5 7 7 00

Net Income

COMPREHENSIVE PROBLEM

713

Comprehensive Problem 2Special Journals Based, Part 2 (Requirement 5. Continued) Shop Sheet January 31, 20-2 ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

15 0 8 6 00 6 9 5 1 00 19 0 0 0 00 1 1 5 00 9 6 8 00 8 7 0 0 00 52 0 0 0 00

BALANCE SHEET DEBIT CREDIT

15 0 8 6 00 6 9 5 1 00 19 0 0 0 00 1 1 5 00 9 6 8 00 8 7 0 0 00 52 0 0 0 00 10 0 6 7 00

1 2 3 4 5 6 7

10 0 6 7 00

28 7 5 0 00

28 7 5 0 00 9 7 8 8 00 3 5 5 0 00 3 3 0 00 1 9 5 8 00 12 5 2 5 00 91 9 5 3 00

9 7 8 8 00 10 3 5 5 0 00 11 3 3 0 00 12 1 9 5 8 00 13 12 5 2 5 00 14 91 9 5 3 00 15 16

19 7 0 0 00

19 0 0 0 00 9 6 0 0 00

8 0 0 00 3 5 0 0 00

19 7 0 0 00

19 0 0 0 00 9 6 0 0 00

17 18

8 0 0 00 3 5 0 0 00 3 0 0 00 5 6 00

19 20

3 0 0 00 5 6 00

21 22 23

2 2 0 0 00

24 25

4 1 0 00 1 8 0 00 6 3 0 00 3 2 00 6 7 00 3 8 00

26 27 28 29 30 31 32 33

159 1 2 7 00

27 5 5 7 00

28 9 5 6 00

131 5 7 0 00

1 3 9 9 00 28 9 5 6 00

130 1 7 1 00 34 1 3 9 9 00 35

28 9 5 6 00

131 5 7 0 00

131 5 7 0 00 36

714

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 (Requirement 5. Continued) TJ’s Specialty Shop Income Statement For Month Ended January 31, 20-2 Revenue from sales: Sales

$ 9,600

Less sales ret. & allow.

800

Net sales

$8,800

Cost of goods sold: Merch. inv., Jan. 1

$19,700

Purchases Less: Purch. ret. & allow. Purch. discounts Cost of goods purchased

$3,500 $300 56

356 3,144

Goods avail. for sale

$22,844

Less merch. inv., Jan. 31

19,000

Cost of goods sold

3,844

Gross profit

$4,956

Operating expenses: Wages expense

$ 2,200

Supplies expense

410

Telephone expense

180

Utilities expense

630

Insurance expense

Depr. exp.—building

Depr. exp.—store equip.

Total operating exp. Net income

3,557 $1,399

COMPREHENSIVE PROBLEM

715

Comprehensive Problem 2Special Journals Based, Part 2 (Requirement 5. Continued) TJ’s Specialty Shop Statement of Owner’s Equity For Month Ended January 31, 20-2 Tom Jones, capital, January 1, 20-2 Net income for month Tom Jones, capital, January 31, 20-2

$91,953 1,399 $93,352

716

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 (Requirement 5. Concluded) TJ’s Specialty Shop Balance Sheet January 31, 20-2 Assets Current assets: Cash

$15,086

Accounts receivable

6,951

Merchandise inventory

19,000

Supplies

115

Prepaid insurance

968

Total current assets

$ 42,120

Property, plant, and equipment: Land

$ 8,700

Building

$52,000

Less accumulated depreciation

10,067

Store equipment

$28,750

Less accumulated depreciation

9,788

41,933 18,962

Total property, plant, and equipment

69,595

Total assets

$111,715 Liabilities

Current liabilities: Accounts payable

$ 3,550

Wages payable

330

Sales tax payable

1,958

Mortgage payable (current portion)

600

Total current liabilities

$ 6,438

Long-term liabilities: Mortgage payable Less current portion Total liabilities

$12,525 600

11,925 $ 18,363

Owner’s Equity Tom Jones, capital Total liabilities and owner’s equity

93,352 $111,715

COMPREHENSIVE PROBLEM

717

Comprehensive Problem 2Special Journals Based, Part 2 Requirement 6. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Adjusting Entries

20-2 2 3

Jan.

31 Income Summary Merchandise Inventory

313

19 7 0 0 00

131

19 7 0 0 00

4 5 6

31 Merchandise Inventory Income Summary

131

19 0 0 0 00

313

19 0 0 0 00

31 Supplies Expense

524

Supplies

141

4 1 0 00

31 Insurance Expense Prepaid Insurance

535

3 2 00

145

3 2 00 12 13

31 Depreciation Expense—Building Accumulated Depreciation—Building

540

6 7 00

171.1

6 7 00 15

16 17 18

31 Depreciation Expense—Store Equipment

541

3 8 00

Accumulated Depreciation—Store Equipment 181.1

3 8 00 18

19 20 21

9 10

13 14

6 7

31 Wages Expense Wages Payable

511 219

3 3 0 00

3 3 0 00 21

718

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Special Journals Based, Part 2 Requirement 7. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

20-2

Sales

401

9 6 0 0 00

Purchases Returns and Allowances

501.1

3 0 0 00

Purchases Discounts

501.2

5 6 00

Income Summary

313

Jan. 31

9 9 5 6 00

6 7

5 6

31 Income Summary

313

7 8 5 7 00

Sales Returns and Allowances

401.1

8 0 0 00

Purchases

501

3 5 0 0 00

Wages Expense

511

2 2 0 0 00 10

Supplies Expense

524

4 1 0 00 11

Telephone Expense

525

1 8 0 00 12

Utilities Expense

533

6 3 0 00 13

Insurance Expense

535

3 2 00 14

Depreciation Expense—Building

540

6 7 00 15

Depreciation Expense—Store Equipment

541

3 8 00 16

17 18 19

31 Income Summary Tom Jones, Capital

313 311

1 3 9 9 00

1 3 9 9 00 19

COMPREHENSIVE PROBLEM

719

Comprehensive Problem 2Special Journals Based, Part 2 Requirement 8. TJ’s Specialty Shop Post-Closing Trial Balance January 31, 20-2 ACCOUNT

DEBIT BALANCE

Cash

15 0 8 6 00

Accounts Receivable

6 9 5 1 00

Merchandise Inventory

19 0 0 0 00

Supplies

1 1 5 00

Prepaid Insurance

9 6 8 00

Land

8 7 0 0 00

Building

52 0 0 0 00

Accumulated Depreciation—Building Store Equipment

CREDIT BALANCE

10 0 6 7 00 28 7 5 0 00

Accumulated Depreciation—Store Equipment

9 7 8 8 00

Accounts Payable

3 5 5 0 00

Wages Payable

3 3 0 00

Sales Tax Payable

1 9 5 8 00

Mortgage Payable

12 5 2 5 00

Tom Jones, Capital

93 3 5 2 00 131 5 7 0 00 131 5 7 0 00

COMPREHENSIVE PROBLEM

839

Comprehensive Problem 3: Specialized Accounting Procedures 1. GENERAL JOURNAL DATE 20-1 1

Jan.

DESCRIPTION

5 Accounts Receivable/Christine Roby

PAGE POST. REF.

DEBIT

5 0 0 00

Allowance for Doubtful Accounts

CREDIT 1

5 0 0 00

Reinstated accounts receivable written

off in the previous period

5 Cash

5 0 0 00

Accounts Receivable/Christine Roby

5 0 0 00

Collection on account

6 7 8

14 Computer System

3 0 0 0 00

Notes Payable

3 0 0 0 00 11

Issued 3-month, 6% note to Zekir Computer

Systems for a new computer system

Feb. 15 Notes Receivable

Sales

2 5 0 0 00

2 5 0 0 00 16

Accepted 6-month, 7% note from Carol

Reynolds for merchandise

19 20

Mar. 11 Cash

5 0 0 0 00

Morgan Hartley, Capital

5 0 0 0 00 21

Owner made additional investment

23 24 25

Apr.

1 Depreciation Expense—Store Equipment

1 5 00

Accumulated Depreciation—Store Equipment

1 5 00 25

Depreciation to date on discarded

cash register

($675 – $75)/10 = $60 per year  ¼ = $15

29 30 31 32 33

1 Accumulated Depreciation—Store Equipment Loss on Discarded Store Equipment Store Equipment Discarded cash register at a $180 loss

4 9 5 00

1 8 0 00

6 7 5 00 32 33

840

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE

DESCRIPTION

20-1 1

Apr. 12 Cash

PAGE POST. REF.

DEBIT

5 0 0 0 00

Notes Payable

CREDIT 1

5 0 0 0 00

Issued note to Dean Bank for a 75-day

loan at 10% interest

14 Interest Expense

Notes Payable (old)

7 8

Notes Payable (new)

Cash

4 5 00

3 0 0 0 00

2 5 0 0 00

5 4 5 00

Paid interest and part of principal on old

note and issued a new note carrying 8%

interest for 30 days

$3,000  6%  3/12

14 15

May

1 Allowance for Doubtful Accounts

1 2 0 0 00

Accounts Receivable/Brenda Husband

1 2 0 0 00 16

Wrote off uncollectible account

14 Interest Expense

Notes Payable

1 6 67

2 5 0 0 00

Cash

2 5 1 6 67 21

Paid note at maturity to Zekir Computer

Systems; $2,500  8%  30/360

25 Repairs Expense

7 5 00

Cash

7 5 00 26

Maintenance on van

28 29 30 31

June

1 Notes Receivable Accounts Receivable/Heidi Kruczkiewicz Received 120-day, 8% note to settle account

1 7 0 0 00

1 7 0 0 00 30 31

COMPREHENSIVE PROBLEM

841

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE

DESCRIPTION

20-1 1

June 20 Accounts Receivable/Brenda Husband

Allowance for Doubtful Accounts

Reinstated account receivable

PAGE POST. REF.

DEBIT

CREDIT

1 2 0 0 00

2 3

20 Cash

1 2 0 0 00

Accounts Receivable/Brenda Husband

1 2 0 0 00

Collection on account

5 6 7

22 Addition

30 0 0 0 00

Cash

30 0 0 0 00 10

Added an addition to the building

26 Notes Payable

Interest Expense

5 0 0 0 00

1 0 4 17

Cash

5 1 0 4 17 15

Paid note to Dean Bank with interest at

maturity; $5,000  10%  75/360

18 19 20 21

July

1 Cash Interest Expense

1 6 9 2 97

7 03

Notes Receivable

1 7 0 0 00 21

Discounted Heidi Kruczkiewicz’s note

receivable at 12% at Marshall Bank

$1,745.33  12%  90/360 = $52.36 discount

$1,745.33 – $52.36 = $1,692.97 cash

26 27 28 29

8 Accounts Receivable/Kim Sackett

4 2 5 0 00

Sales

4 2 5 0 00 28

Sale on account

30 31 32

10 Purchases Accounts Payable/Dionis Distributing

15 0 0 0 00

15 0 0 0 00 32

Purchased merchandise on account,

terms 3/20, n/30

842

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE

DESCRIPTION

20-1 1

July 18 Cash

Sales Discounts

PAGE POST. REF.

DEBIT

4 1 6 5 00

8 5 00

Accounts Receivable/Kim Sackett

CREDIT

4 2 5 0 00

Payment received on account with

2% discount taken

30 Accounts Payable/Dionis Distributing

7 8

Purchases Discounts

Cash

15 0 0 0 00

Paid account payable taking 3% discount

4 5 0 00

14 5 5 0 00

9 10

11 12

Aug.

1 Accumulated Depreciation—Van

5 0 0 00

Cash

5 0 0 00 13

Replaced exhaust system on van

15 Cash

2 5 7 7 50

1 0 00

Collection Expense

Interest Revenue

8 7 50 18

Notes Receivable

2 5 0 0 00 19

Received payment of note with interest

less collection fee

$2,500  7%  6/12 = $87.50 interest

22 Allowance for Doubtful Accounts

24 25

Accounts Receivable/Shelley Kozub

Wrote off uncollectible account

7 5 0 00

7 5 0 00 25 26

27 28 29

Sept.

1 Automobile (new) Accumulated Depreciation—Automobile

18 0 0 0 00

9 0 0 0 00

Automobile (old)

13 0 0 0 00 30

Cash

12 5 0 0 00 31

Gain on Trade-in

1 5 0 0 00 32

Purchased new car worth $18,000 for

$12,500 cash plus old car

COMPREHENSIVE PROBLEM

843

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE 20-1 1

Sept.

DESCRIPTION

9 Notes Receivable

PAGE POST. REF.

DEBIT

CREDIT

2 0 0 0 00

Accounts Receivable/Tammy Jones

2 0 0 0 00

Received 60-day, 7.5% note to

settle account

5 6 7

15 Purchases

3 5 0 0 00

Accounts Payable/Dennis Designs

3 5 0 0 00

Purchased merchandise on account,

terms n/30

10 11 12

29 Accounts Receivable/Heidi Kruczkiewicz

1 7 9 5 33

Cash

1 7 9 5 33 12

Paid Marshall Bank for dishonored note

plus $50 fee

$1,745.33 + $50

16 17 18 19

Oct. 15 Accounts Payable/Dennis Designs

3 5 0 0 00

Notes Payable

3 5 0 0 00 18

Issued 90-day, 8% note to settle account

20 21 22 23

20 Cash Discount on Notes Payable

9 6 2 5 00

3 7 5 00

Notes Payable

10 0 0 0 00 23

Issued 180-day, non-interest-bearing note

to Ohler-Cupplo Savings Association

discounted at 7.5%

$10,000  7.5%  180/360 = $375 discount

28 29 30 31

31 Cash Sales Cash sale

1 2 5 00

1 2 5 00 30 31

844

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE 20-1 1

Nov.

DESCRIPTION

1 Notes Receivable

PAGE POST. REF.

DEBIT

5 0 0 00

Accounts Receivable/Laura Nottingham

CREDIT 1

5 0 0 00

Received 30-day, 5% note to settle account

2 3

8 Accounts Receivable/Tammy Jones

2 0 2 5 00

Interest Revenue

2 5 00

Notes Receivable

2 0 0 0 00

Note receivable dishonored, transferred

to account receivable

30 Cash

11 12

Interest Revenue

Accounts Receivable/Heidi Kruczkiewicz

1 8 2 3 16

2 7 83 12 1 7 9 5 33 13

Collected dishonored note with interest

for 62 days at 9%

$1,795.33  9%  62/360 = $27.83 interest rev.

17 18 19

Dec.

1 Cash Notes Receivable (new note)

Notes Receivable (old note)

Interest Revenue

2 08

5 0 0 00

5 0 0 00 20 2 08 21

Received new 45-day, 8% note plus

interest on original note

$500  5%  30/360

14 Landscaping

Cash

2 0 0 0 00

2 0 0 0 00 27

Landscaped lot

29 30

31 Cash

1 0 0 00

Accumulated Depreciation—Fixtures

3 0 0 00

Loss on Sale of Fixtures

1 0 0 00

33 34 35

Fixtures Sold fixtures at a $100 loss

5 0 0 00 33 34 35

COMPREHENSIVE PROBLEM

845

Comprehensive Problem 3 (Continued) Toy Mania! Estimated Ending Inventory June 30, 20-1

Inventory, start of period Net purchases during period Goods available for sale

Cost

Retail

$ 91 2 5 0 00

$120 0 0 0 00

70 0 0 0 00

95 0 0 0 00

$161 2 5 0 00

$215 0 0 0 00

Less net sales for period

125 0 0 0 00

Inventory, end of period, at retail

$ 90 0 0 0 00

Ratio of cost-to-retail prices of goods available for sale ($161,250/$215,000)

75 %

Inventory, end of period, at estimated cost (75% of $90,000)

$ 67 5 0 0 00

It appears nothing was stolen.

846

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Continued) 2. GENERAL JOURNAL DATE

DESCRIPTION

20-1

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

Dec. 31 Accrued Interest Receivable

3 33

Interest Revenue

3 33

Nottingham note receivable:

$500  8%  30/360, reversible entry

6 7

31 Interest Expense

5 9 89

Accrued Interest Payable

5 9 89

Dennis note payable:

$3,500  8%  77/360, reversible entry

11 12 13

31 Interest Expense

1 5 0 00

Discount on Notes Payable

1 5 0 00 13

Ohler-Cupplo note payable:

$10,000  7.5%  72/360, not reversible

16 17 18

31 Depreciation Expense—Computer System

1 5 0 0 00

Accumulated Depreciation—Computer System

1 5 0 0 00 18

Take full-year depreciation, in service

before 15th. $3,000  50%

21 22 23 24

31 Depreciation Expense—Automobile

2 6 2 5 00

Accumulated Depreciation—Automobile

2 6 2 5 00 23

7,000 miles  $0.375 per mile

25 26 27

31 Depreciation Expense—Addition

7 0 0 00

Accumulated Depreciation—Addition

7 0 0 00 27

Take 6 months depreciation, in service

after 15th. ($30,000 – $2,000)/20  6/12

30 31 32

31 Depreciation Expense—Landscaping Accumulated Depreciation—Landscaping

5 5 56

5 5 56 32

Take 1 month of depreciation

$2,000  5/15  1/12

COMPREHENSIVE PROBLEM

847

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

20-1 2

Dec. 31 Patent Amortization

Patent

PAGE

2 5 0 0 00

$25,000/10 years economic life

5 6 7 8

31 Bad Debt Expense

1 0 9 3 20

Allowance for Doubtful Accounts

$48,940  3% – $375 credit balance

31 Income Summary

91 2 5 0 00

Merchandise Inventory

17 18

91 2 5 0 00 11 12

31 Merchandise Inventory

102 0 0 0 00

Income Summary

102 0 0 0 00 14

15 16

7 8

12 13

1 0 9 3 20

9 10

31 Loss on Write-Down of Inventory Merchandise Inventory Cost $102,000 – $100,500 Market

1 5 0 0 00

1 5 0 0 00 17 18

848

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Continued) 3. Toy Mania! Income Statement (Partial) For Year Ended December 31, 20-1

Net income

$84,000

Allocation of net income:

J. Hartley

M. Hartley

Total

Salary allowances

$20,000

$15,000

$35,000

Interest allowances

6,000

4,000

10,000

Remaining income

23,400

15,600

39,000

Allocation of net income

$49,400

$34,600

$84,000

Toy Mania! Statement of Partners’ Equity For Year Ended December 31, 20-1 J. Hartley Capital, January 1, 20-1

$ 60,000)

Withdrawals (salaries and interest) Capital, December 31, 20-1

Total

$ 40,000)

$100,000)

5,000)

$ 60,000)

$ 45,000)

$105,000)

49,400)

34,600)

84,000)

$109,400)

$ 79,600)

$189,000)

(26,000)

(19,000)

(45,000)

$ 83,400)

$ 60,600)

$144,000)

Additional investments during the year

Net income for the year

M. Hartley

COMPREHENSIVE PROBLEM

849

Comprehensive Problem 3 (Continued) 4. and 5. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

20-1 2

PAGE

Dec. 31 Income Summary

84 0 0 0 00

Jordan Hartley, Capital

49 4 0 0 00

Morgan Hartley, Capital

34 6 0 0 00

31 Jordan Hartley, Capital

26 0 0 0 00

Jordan Hartley, Drawing

26 0 0 0 00

7 8

31 Morgan Hartley, Capital

19 0 0 0 00

Morgan Hartley, Drawing

19 0 0 0 00 10

Reversing Entries

20-2 14 15

Jan.

1 Interest Revenue

3 33

Accrued Interest Receivable

3 33 15

16 17 18

1 Accrued Interest Payable Interest Expense

5 9 89

5 9 89 18

850

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Concluded) 6. GENERAL JOURNAL DATE

DESCRIPTION

20-2 1 2 3

Jan. 13 Interest Expense

Notes Payable

PAGE POST. REF.

DEBIT

CREDIT

7 0 00

3 5 0 0 00

Cash

3 5 7 0 00

Paid note to Dennis Designs at maturity

$3,500  8%  90/360 = $70 interest,

adjustment reversed, no need to split

to accrual account

8 9

15 Cash

5 0 5 00

Interest Revenue

5 00 10

Notes Receivable

5 0 0 00 11

Received payment on note from Laura

Nottingham

$500  8%  45/360 = $5, adjustment

reversed, no need to split to

accrual account

17 18 19

Apr. 18 Notes Payable

Interest Expense

Discount on Notes Payable

Cash

10 0 0 0 00

2 2 5 00

2 2 5 00 20 10 0 0 0 00 21

Paid discounted note at maturity to

Ohler-Cupplo Savings Association

$10,000  7.5%  108/360 this year = $225

discount; prior period discount adjusted

but not reversible so only record

discount for this period

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