SOLUTIONS MANUAL for College Accounting, Chapters 1-27, 23rd Edition. James Heintz, Robert Parry by digitaldownload87

College Accounting, Chapters 1-27, 23e 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. This first step in the accounting process usually occurs when the business receives some type of information, such as a bill, that needs to be properly entered into the business's records. This first step also involves deciding if the piece of information should result in an accounting entry or not. 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. 1 © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 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 students 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

(600)

(64)

(1,000)

750)

(1,200)

400)

(f)

(g)

(h)

(i)

(j)

(k)

31,586)

Total Assets

Bal.

1,500)

(e)

(400)

32,200)

Bal. from E 2-3A (d)

Assets

Exercise 2-4A

$31,586

5,200

Liabilities

27,000

Capital

–

1,000

Drawing

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

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

2,250

750

1,500

Revenues

Owner’s Equity

–

1,864

1,200

600

Expenses

Wages expense

Service fees

Phone expense

Rent expense

Service fees

Description

CHAPTER 2 7

CHAPTER 2

Exercise 2-5A Account

Classification A E L R A E OE OE A A

Cash Rent Expense Accounts Payable Service Fees Supplies Wages Expense Ramon Martinez, Drawing Ramon Martinez, Capital Prepaid Insurance Accounts Receivable

Financial Statement BS IS BS IS BS IS SOE SOE, BS BS BS

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

$10,000 8,000

Increase in capital Betsy Ray, capital, June 30, 20--

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

(f)

Assets

2,000

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

4,600

(Items Owned) Accounts Office + Receivable + Supplies

Cash Accounts Receivable Office Supplies Prepaid Insurance Total Assets

(100)

(750)

(e)

12,950

(2,300)

(d)

(g)

1,300

(c)

Bal.

(2,000)

(1,200)

(b)

18,000

(a)

Cash

Problem 2-9A

300

(2,300)

2,600

18,000

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

100

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

(Amts. Owed) Accounts Payable

3,300

750

– Expenses

(Earnings) Revenues

Owner’s Equity

Liabilities

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

1,200

Prepaid Insurance

Rent expense

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

(1,000)

(68)

(800)

900)

(500)

500)

(f)

(g)

(h)

(i)

(j)

(k)

Total Assets

Bal.

3,000)

(e)

34,032)

(500)

32,500)

Bal. from E 2-3B (d)

Assets

Exercise 2-4B

2,500

Liabilities

$34,032

30,000

Capital

–

−

800

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

3,900

900

3,000

Revenues

Owner’s Equity Drawing

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

–

−

1,568

500

1,000

Expenses

Wages expense

Service fees

Phone expense

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

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

(1,800)

(1,000)

1,700

(1,800)

(650)

(150)

11,300

(b)

(c)

(d)

(e)

(f)

(g)

Bal.

Assets

1,000

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

3,800

(Items Owned) Accounts Office + Receivable + Supplies

Cash Accounts Receivable Office Supplies Prepaid Insurance Total Assets

15,000

(a)

Cash

Problem 2-9B

1,000

Prepaid Insurance =

15,000

150

(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

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

200

(1,800)

2,000

Liabilities (Amts. Owed) Accounts Payable

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)

(c)

(100)

(75)

(480)

800

(f)

(g)

(h)

(i)

(150)

(200)

600

(100)

(m)

(n)

(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.

–

(Earnings)

515

150

100

150

Exp.

Cleaning fees

Wages expense

Phone expense

Cleaning fees

Adver. expense

Wages expense

Rent expense

Description

CHAPTER 2 19

CHAPTER 2

Mastery Problem (Continued) 3.

We Do Windows Income Statement For Month Ended July 31, 20-Revenues: Cleaning fees Expenses: Wages expense Rent expense Advertising expense Phone expense

$2,100 $250 150 75 40

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-Investment in July

$8,000 8,000

Total investment Net income for July Less withdrawals for July

$8,000 $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 phone

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 3

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. +

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

Liabilities Dr. Cr. + −

Exercises 3-5A and 3-6A

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.

(g)

Accounts Receivable 6,000 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

12 0 0 0 00

Rent Expense

1 5 0 0 00

Utilities Expense

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

Mowing 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

Mowing 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

Liabilities $15,000

Accounts receivable

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

155

1,500 2,900

(m)

(n) (p)

15,995

4,500 1,600 6,100

3,400

160

Office Supplies

(l)

4,200

(n)

(b)

6,000

Van

Bal. 8,200

4,000

Equipment

1,100

(c)

(k)

Prepaid Insurance

(i)

Bal. 2,700

(h) (o)

Accts. Receivable

Bal. 21,805

1,100

(k)

230

160 800

(g)

(i) (j)

1,900

37,800

(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. −

230

Phone Expense

800

Wages Expense

850

Rent Expense

(m)

155

Gas and Oil Expense

(g)

(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

Phone 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

2. + 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

Phone 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

Liabilities $21,805

Accounts receivable Office supplies

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

Cr. −

(b)

Cash

(a) 7,000

Dr. +

Assets

(d)

Exercises 3-5B and 3-6B

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

7,000

(c)

(d)

(b)

(j) 3,000

8,000

Office Furniture

5,000

Computer Equip.

500

Office Supplies

Bal. 4,000

(g)

16,000

Accts. Receivable

Bal. 9,000

3,000 25,000

(j)

(f) 2,000 (h) 900 (i) 600 (k) 4,000

4,000

(e)

500

(b)

Cash

Cr. −

(a) 18,000

Dr. +

Assets

Exercise 3-7B

(f) 2,000 Bal. 3,000

(d) 5,000

Accounts Payable

Liabilities Dr. Cr. + −

Cr. −

(k) 4,000

N. Lawrence, Drawing

Dr. +

Drawing

Dr. −

(i)

(h)

600

Utilities Expense

900

Rent Expense

Expenses Dr. Cr. + −

(a)

Nicole Lawrence, Capital

Owner’s Equity

18,000

(e) 4,000 (g) 7,000 Bal. 11,000

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

Cleaning 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

Cleaning 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

Liabilities $07,000

Accounts receivable

$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

(i) (j)

(k)

37,100

16,900

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

100

3,000

300

800

4,000 2,000

(b)

8,000

Van

Bal. 6,000

Plumbing Equip.

(k)

Prepaid Insurance

(i)

2,700

Bal.

(l)

Office Supplies

4,000 1,700

(h) (o)

Accts. Receivable

Bal. 20,200

300 500

(g)

1,100

(o)

700

(f)

3,000

(l)

8,000 1,000

Cr. −

(b) (e)

Cash

Assets

(a) 30,000 (d) 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. −

100

Phone Expense

500

Wages Expense

700

Rent Expense

(m) 2,000

Advertising Expense

(g)

(j)

(f)

Expenses Dr. Cr. + −

Sue Jantz, Capital (a)

Owner’s Equity Cr. +

2,800

3,000 4,000 Bal. 9,800

(o)

(d) (h)

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

Phone 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

Phone 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

Liabilities $20,200

Accounts receivable

$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

(p) 200

(c)

(g)

480

150

Trans. Expense

Gas & Oil Expense

(e)

Phone Expense

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

(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. −

(n)

(f) 500 Bal. 400

Lawn Tools

(o) 100

Notes Payable

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

Liabilities Dr. Cr. + −

(j)

(h) 400

Mowing Equipment (b) 1,000

520 720 1,240 Bal. 840

(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

Phone 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

Phone 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 classifications 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 © 2020 Cengage®. 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. 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

6. Rendered services on account, $300.

Accounts Receivable

Fees

7. Received cash for an amount owed by a customer, $100.

Cash

Accounts Receivable

5. Paid cash on account, $50.

Exercise 4-3A 1. 4. 7.

Cash 5,000 2. 400 5. 100

Bal.

4,950

Office Supplies 300

500 50

6. Bal.

Accounts Receivable 300 7. 200

100

550

5,500

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 and 4-5A (partial) GENERAL JOURNAL DATE 1 2

20--

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

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

9 5 0 00 14

Received cash for consulting services

16 17 18 19

8 Phone Expense

525

Cash

101

8 5 00

22 23

8 5 00 18

Paid phone bill

20 21

6 7

8 9

10 Miscellaneous Expense Cash

549

2 0 00

101

Purchased magazine subscription

2 0 00 22 23 24

CHAPTER 4

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

20--

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

14 15

21 Cash

101

Consulting Fees

8 0 0 00

401

8 0 0 00 14

Received cash for consulting services

16 17 18 19

25 Utilities Expense

533

Cash

101

1 0 5 00

1 0 5 00 18

Paid utilities bill

20 21 22 23

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

6 7

6 0 0 00

6 0 0 00 26

Paid employee

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

BALANCE DEBIT

1 3 0 0 00

CREDIT

DEBIT

CREDIT

1 3 0 0 00

181

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.

Phone Expense

DATE 20--

ACCOUNT

ACCOUNT NO.

ITEM

511

ACCOUNT NO.

ACCOUNT NO. BALANCE DEBIT

2 0 00

CREDIT

DEBIT

CREDIT

2 0 00

549

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

Phone 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

Phone 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

Phone 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

20-15 16 17

May 23

DESCRIPTION

Cash Service Fees

PAGE POST. REF.

101 401

DEBIT

CREDIT

10 0 0 00

10 0 0 00 16

Received cash for services previously earned

23 24 25

25 Service Fees Accounts Receivable

1 0 0 0 00

1 0 0 0 00 24

To correct entry of May 23

CHAPTER 4

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

GENERAL JOURNAL DATE 1 2

20--

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

2 Office Supplies Accounts Payable

142

3 0 0 00

202

3 0 0 00 10

Purchased office supplies on account

12 13 14

4 Office Equipment Accounts Payable

181

1 5 0 0 00

202

1 5 0 0 00 14

Purchased office equipment on account

16 17 18

6 Cash

101

Consulting Fees

5 8 0 00

401

5 8 0 00 18

Earned consulting fees

20 21 22

7 Phone Expense

525

Cash

101

4 2 00

4 2 00 22

Paid phone bill

24 25 26

8 Utilities Expense Cash

533

3 8 00

101

3 8 00 26

Paid utilities bill

28 29 30 31

6 7

8 9

10 Cash

101

Consulting Fees

401

3 6 0 00

3 6 0 00 30

Earned consulting fees

CHAPTER 4

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

20--

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

14 15

17 Cash

101

Consulting Fees

4 2 0 00

401

4 2 0 00 14

Earned consulting fees

16 17 18 19

18 Annette Creighton, Drawing Cash

312

1 0 0 00

101

1 0 0 00 18

Owner’s withdrawal

20 21 22 23

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

6 7

24 Miscellaneous Expense Cash

549

2 8 00

101

Purchased books

2 8 00 30 31

CHAPTER 4

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

20--

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

14 15

6 7

30 Cash

101

Consulting Fees

401

1 8 0 00

1 8 0 00 14

Earned consulting fees

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) Phone 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

Phone 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

Phone 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 1 2

20--

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

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

1 8 0 00 15

Purchased office supplies on account

17 18 19 20

7 Cash

101

Delivery Fees

2 6 0 00

401

2 6 0 00 19

Received cash for delivery services

21 22 23 24

7 8

9 10

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

7 0 0 00

Purchased copier

CHAPTER 4

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

20--

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

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

2 0 0 00 14

Paid employee

16 17 18

16 Electricity Expense Cash

533

3 6 00

101

3 6 00 18

Paid electric bill

18 Phone Expense

525

Cash

101

4 6 00

4 6 00 22

Paid phone bill

24 25 26 27

19 Cash

101

Accounts Receivable

1 0 0 00

122

1 0 0 00 26

Received cash on account

28 29 30 31

6 7

8 9

20 Jim Andrews, Drawing Cash

312 101

2 0 0 00

2 0 0 00 30

Owner’s withdrawal

CHAPTER 4

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

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

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

1 5 00 14

Paid for magazine subscription

16 17 18

27 Cash

101

Delivery Fees

1 8 0 00

401

1 8 0 00 18

Received cash for delivery services

20 21 22 23

27 Cash

101

Accounts Receivable

1 0 0 00

122

1 0 0 00 22

Received cash on account

24 25 26 27

29 Gas and Oil Expense Cash

538

2 4 00

101

2 4 00 26

Purchased gasoline

30 Wages Expense

511

Cash

101

6 7

8 9

2 0 0 00

2 0 0 00 30

Paid employee

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

POST. REF.

CREDIT



Balance

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

DATE 20--

June

Advertising Expense ITEM

Balance

ACCOUNT

DATE 20--

June

DATE 20--

CREDIT

DEBIT

Balance

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

Phone Expense

ACCOUNT NO. POST. REF.

525

BALANCE DEBIT

 J8

521

BALANCE DEBIT

 J7

ITEM

CREDIT

9 0 00

Rent Expense ITEM

512

BALANCE DEBIT

 J7

ACCOUNT

ACCOUNT NO.

POST. REF.

511

BALANCE DEBIT

ACCOUNT

June

ACCOUNT NO.

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

Phone 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

3. Purchased office equipment on account, $500.

Office Equipment

Accounts Payable

4. Received cash on account for services previously rendered, $200.

Cash

Accounts Receivable

Accounts Payable

Cash

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 and 4-5B (partial) GENERAL JOURNAL DATE 1 2

20--

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

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

2 5 0 00 14

Purchased office supplies on account

16 17 18

8 Phone Expense

525

Cash

101

3 8 00

3 8 00 18

Paid phone bill

20 21 22 23

9 Cash

101

Repair Fees

1 4 0 00

401

1 4 0 00 22

Received cash for repair services

24 25 26 27

11 Miscellaneous Expense Cash

549

1 5 00

101

1 5 00 26

Paid for magazine subscription

28 29 30 31

6 7

8 9

12 Accounts Payable Cash

202 101

1 0 0 00

1 0 0 00 30

Made payment on account

CHAPTER 4

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

20--

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

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

2 5 0 00 14

Received cash for repair services

16 17 18 19

23 Sengel Moon, Drawing Cash

312

5 0 00

101

5 0 00 18

Owner’s withdrawal

20 21 22 23

25 Accounts Payable Cash

202

5 0 00

101

5 0 00 22

Made payment on account

29 Wages Expense

511

Cash

101

6 7

8 9

3 0 0 00

3 0 0 00 26

Paid employee

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

Oct.

DEBIT

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

ACCOUNT NO. POST. REF.

ITEM

CREDIT

15 0 0 0 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--

BALANCE CREDIT

Bicycle Parts

ACCOUNT

101

ACCOUNT NO.

BALANCE DEBIT

2 5 0 00

CREDIT

DEBIT

CREDIT

2 5 0 00

142

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

3 0 0 00

DEBIT

ITEM

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--

CREDIT

ACCOUNT NO. POST. REF.

521

BALANCE DEBIT

Phone Expense

DATE 20--

ACCOUNT

ACCOUNT NO. POST. REF.

511

ACCOUNT NO. BALANCE DEBIT

1 5 00

CREDIT

DEBIT

CREDIT

1 5 00

549

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

Phone 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

Phone 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

Phone 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

20-15

Apr.

DESCRIPTION

Cash Service Fees

PAGE POST. REF.

101 401

DEBIT

CREDIT

3 0 0 00

3 0 0 00 16

Revenue earned from services

previously rendered

23 24 25

Accounts Receivable

3 0 0 00

Cash To correct entry of April 21

3 0 0 00 24 25

CHAPTER 4

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

GENERAL JOURNAL DATE 1

20--

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 Rent Expense

521

Cash

101

5 0 0 00

Paid rent for May

3 Office Supplies

142

Cash

101

1 0 0 00

1 0 0 00 10

Purchased office supplies

4 Office Equipment Accounts Payable

181

2 0 0 0 00

202

2 0 0 0 00 14

Purchased office equipment on account

16 17 18

5 Cash

101

Appraisal Fees

2 8 0 00

401

2 8 0 00 18

Earned appraisal fees

20 21 22

8 Phone Expense

525

Cash

101

3 8 00

3 8 00 22

Paid phone bill

24 25 26

9 Electricity Expense Cash

533

4 2 00

101

4 2 00 26

Paid electric bill

28 29 30 31

6 7

10 Cash

101

Appraisal Fees

401

3 1 0 00

3 1 0 00 30

Earned appraisal fees

CHAPTER 4

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

20--

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

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

6 2 0 00 14

Earned appraisal fees

16 17 18 19

19 Transportation Expense Cash

526

2 2 00

101

2 2 00 18

Paid mileage reimbursement

20 21 22 23

21 Benito Mendez, Drawing Cash

312

5 0 00

101

5 0 00 22

Owner’s withdrawal

24 25 26 27

23 Accounts Payable Cash

202

2 0 0 00

101

2 0 0 00 26

Paid cash on account

28 29 30 31

6 7

8 9

24 Accounts Receivable Appraisal Fees

122 401

5 0 0 00

5 0 0 00 30

Earned appraisal fees

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

CHAPTER 4

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

20--

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

29 Cash

101

Accounts Receivable

2 5 0 00

122

2 5 0 00 14

Received cash on account

16 17 18 19

30 Cash

101

Appraisal Fees

2 8 0 00

401

2 8 0 00 18

Earned appraisal fees

20 21 22 23

6 7

31 Transportation Expense Cash

526

1 3 00

101

Paid cab fare

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

Phone 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

Phone 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

Phone 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

$100 50

Increase in capital Benito Mendez, capital, May 31, 20--

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 1 2

20--

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

1 3 00 19

Paid for newspaper ad

21 22 23

9 Phone Expense

525

Cash

101

2 8 00

2 8 00 23

Paid phone bill

25 26 27

10 Electricity Expense Cash

533

2 1 00

101

2 1 00 27

Paid electric bill

29 30 31 32

6 7

11 Cash

101

Accounts Receivable

122

2 0 0 00

2 0 0 00 31

Received cash on account

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 1

20--

Nov. 12

DESCRIPTION

CREDIT

4 5 0 00

Earned tailoring fees

15 Wages Expense

511

Cash

101

4 0 0 00

Paid employee

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

1 2 00 15

Paid for magazine subscription

17 18

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

3 0 0 00 24

Received cash on account

26 27 28 29

7 8

9 10

24 Advertising Expense Cash

512

1 3 00

101

Paid for newspaper ad

1 3 00 28 29

CHAPTER 4

105

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

20--

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

11 12

7 8

9 10

30 Cash

101

Accounts Receivable

122

4 0 0 00

4 0 0 00 11

Received cash on account

106

CHAPTER 4

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

DATE 20--

Nov.

ITEM

Balance

POST. REF.

ACCOUNT NO. 101 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.

GENERAL LEDGER

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

Balance

ACCOUNT

DATE 20--

Nov.

DATE 20--

Nov.

ITEM

DATE 20--

Nov.

CREDIT



DEBIT

Balance

6 0 0 00 3 0 0 00

9 0 0 00

CREDIT

DEBIT

Balance

2 8 00

8 8 00

ACCOUNT NO.

CREDIT

DEBIT

Balance

CREDIT

4 4 00 2 1 00

6 5 00

Miscellaneous Expense POST. REF.

533

BALANCE DEBIT

 J7

ITEM

CREDIT

6 0 00

Electricity Expense POST. REF.

525

BALANCE DEBIT

 J7

ITEM

CREDIT

ACCOUNT NO. POST. REF.

521

BALANCE DEBIT

Phone Expense

ACCOUNT

POST. REF.

ACCOUNT

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

Phone 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 1 2

20--

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

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

15 0 0 0 00 14

Collected registration fees

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 22

6 7

8 9

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 1 2

20--

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

14 Cash

101

Registration Fees

13 5 0 0 00

401

13 5 0 0 00 10

Collected registration fees

12 13 14

6 7

8 9

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

8 5 00 23

Paid postage

25 26 27 28

21 Cash

101

Registration Fees

15 2 0 0 00

401

15 2 0 0 00 27

Collected registration fees

29 30 31

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 1 2

20--

June 24

DESCRIPTION

Wages Expense Cash

PAGE POST. REF.

DEBIT

511

5 0 0 00

CREDIT 1

101

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

6 7

8 9

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

30 Phone Expense

525

Cash

101

1 2 0 00

1 2 0 00 28

Paid phone bill

30 31 32 33

30 Barry Bird, Drawing Cash

312 101

2 0 0 0 00

2 0 0 0 00 32

Withdrawal by Bird

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

Phone Expense

DATE

ITEM

20--

June 30

ACCOUNT

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

ACCOUNT NO. 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

Phone 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.”

June 14—A credit was made to Cash instead of Accounts Payable.

June 21—The debit to Drawing was made for $2,100 instead of $1,200. This is called a transposition error.

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

Phone 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 has been provided or a product has been sold. 2. The expense recognition principle states that expenses should be recognized when incurred, regardless of when cash is paid. Expenses are generally considered incurred when services are received or assets are consumed. 3. The proper matching of revenues earned during an accounting period with the expenses incurred to produce the revenues is often referred to as the matching principle. 4. Under the historical cost principle, many assets are recorded at their actual cost. 5. A plant asset is expected to provide benefits over more than one year. 6. A contra-asset has a credit balance and is deducted from the related asset account on the balance sheet. 7. The useful life of an asset is the period of time that an asset is expected to help produce revenues. 8. 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. 9. An asset’s depreciable cost is the cost of the asset that is subject to depreciation. 10. The book value of an asset is the difference between the asset’s cost and the related accumulated depreciation. 11. 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. 12. The five major column headings on a work sheet are Trial Balance, Adjustments, Adjusted Trial Balance, Income Statement, and Balance Sheet. 13. 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.

124

CHAPTER 5

14. 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. 15. Under the accrual basis of accounting, revenues are recorded when earned. Revenues are considered earned when a service has been provided or a product has been sold, regardless of whether cash has been received. Under the cash and modified cash bases of accounting, revenues are recorded when cash is received. 16. 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.

TB Bal.

Adj.

(Income Statement) Supplies Expense 230

230

GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31

Supplies Expense

2 3 0 00

Supplies

2 3 0 00 3

Exercise 5-2A

TB Bal.

(Balance Sheet) Prepaid Insurance 900 Adj.

Adj.

(Income Statement) Insurance Expense 150

150

750

GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31

Insurance Expense Prepaid Insurance

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 Entry

1 2

PAGE POST. REF.

DESCRIPTION

200

20--

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. 150

GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31

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

1 5 0 00

1 5 0 00 3

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.

(Balance Sheet) Supplies 580 Adj. 260

TB Bal.

Adj.

(Income Statement) Supplies Expense 320

Adj.

(Income Statement) Supplies Expense 230

Adj.

(Income Statement) Insurance Expense 970

Adj.

(Income Statement) Insurance Expense 785

320

(Balance Sheet) Supplies 435 Adj. 205

TB Bal.

230

Exercise 5-7A 1.

TB Bal.

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

970

TB Bal.

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

785

128

CHAPTER 5

Exercise 5-8A GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20--

Dec. 31

Supplies Expense Supplies

523

8 5 00

141

8 5 00

4 5 6

3 4

Wages Expense Wages Payable

511

2 2 0 00

219

2 2 0 00

CHAPTER 5

129

Exercise 5-8A (Concluded) GENERAL LEDGER Supplies

ACCOUNT DATE 20--

Dec.

ITEM

 J8

31 Adjusting

20--

Dec. 31

CREDIT

ITEM

Adjusting

DATE

ITEM

CREDIT

1 5 0 00 2 0 0 00

5 0 00 8 5 00

1 1 5 00

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

2 2 0 00

DEBIT

CREDIT

2 2 0 00

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

ACCOUNT NO. POST. REF.

141

BALANCE DEBIT

Wages Expense

ACCOUNT

20--

DEBIT

Wages Payable

DATE

Dec.

POST. REF.

1 Balance 15

ACCOUNT

20--

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

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

3 0 0 00

2 0 0 00

(a) 6 5 0 00

9 0 0 00

(b) 6 0 0 00

8 5 0 00

Prepaid Insurance

1 0 0 00

ADJUSTED TRIAL BALANCE DEBIT CREDIT

Supplies

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

1 2

PAGE

20--

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

6 7

9 10

Wages Expense

1 0 0 00

Wages Payable

1 0 0 00 12

132

CHAPTER 5

Exercise 5-11A Income Statement Credit Debit

Balance Sheet Debit Credit

Cash

Accounts Receivable

Supplies

Prepaid Insurance

Delivery Equipment

Accum. Depr.⎯Delivery Equip.

Accounts Payable

Wages Payable

Owner, Capital

Owner, Drawing

Delivery Fees

Wages Expense

Rent Expense

Supplies Expense

Insurance Expense

Depr. Exp.⎯Delivery Equip.

Exercise 5-12A Income Statement Credit Debit 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 phone expense.

Phone 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

1 6 0 0 00

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

Phone Expense

Insurance Expense

Repair Expense

Oil and Gas Expense

Depr. Exp.—Delivery Equip.

1 2 2 0 00 (d) 3 5 0 00 8 0 0 0 00 1 4 0 0 00 6 2 0 0 00 1 5 0 0 00

(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

21 22

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

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

Phone 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

21 22

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

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

6 7

30 Depreciation Expense—Van Accumulated Depreciation—Van

541

3 0 0 00

185.1

3 0 0 00

10 11

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

20--

Nov. 1 15

DATE

ITEM

Nov. 1 30 Adjusting

DATE

ITEM

Nov. 30 Adjusting

DATE 20--

CREDIT

4 7 5 00 1 0 0 00

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

1 8 5 00

J1 J5

DEBIT

CREDIT

1 3 0 0 00 5 0 0 00

POST. REF.

DEBIT

Nov. 30 Adjusting

CREDIT

1 3 0 0 00 8 0 0 00

ACCOUNT NO. CREDIT

CREDIT

3 0 0 00

DEBIT

CREDIT

1 9 0 00

185.1

BALANCE DEBIT

3 0 0 00

ACCOUNT NO. POST. REF.

145

BALANCE DEBIT

Wages Payable ITEM

CREDIT

ACCOUNT NO. POST. REF.

141

BALANCE DEBIT

Accumulated Depreciation⎯Van

20--

ACCOUNT

DEBIT

Prepaid Insurance

20--

ACCOUNT

POST. REF.

J1 J4

30 Adjusting

ACCOUNT

ACCOUNT NO.

219

BALANCE DEBIT

CREDIT

1 9 0 00

140

CHAPTER 5

Problem 5-16A (Concluded) Wages Expense

ACCOUNT DATE

ITEM

ACCOUNT NO. POST. REF.

20--

Nov. 15 26 30 Adjusting

ACCOUNT DATE

ITEM

Nov. 30 Adjusting

DATE 20--

Nov.

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

POST. REF.

DEBIT

CREDIT

3 9 0 00

30 Adjusting

CREDIT

3 9 0 00

ACCOUNT NO.

POST. REF.

DEBIT

POST. REF.

CREDIT

5 0 0 00

3 0 0 00

535

BALANCE DEBIT

CREDIT

5 0 0 00

ACCOUNT NO. DEBIT

523

BALANCE DEBIT

Depreciation Expense⎯Van ITEM

CREDIT

J3 J4

Insurance Expense

20--

ACCOUNT

BALANCE DEBIT

ACCOUNT NO.

Nov. 30 Adjusting

DATE

CREDIT

Supplies Expense

20--

ACCOUNT

DEBIT

511

CREDIT

541

BALANCE DEBIT

CREDIT

3 0 0 00

CHAPTER 5

141

Problem 5-17A: See pages 142 and 143 Exercise 5-1B (Balance Sheet) Supplies 430 Adj. 120

TB Bal.

Adj.

(Income Statement) Supplies Expense 310

310

GENERAL JOURNAL DATE

PAGE POST. REF.

DESCRIPTION

CREDIT

Adjusting Entry

20--

July 31 Supplies Expense 3 Supplies 2

DEBIT

3 1 0 00

3 1 0 00 3

Exercise 5-2B

TB Bal.

(Balance Sheet) Prepaid Insurance 750 Adj. 625

Adj.

(Income Statement) Insurance Expense 125

125

GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

July 31 Insurance Expense

Prepaid Insurance

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

1 7 2 5 00

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

Phone Expense

1 3 0 00

Utilities Expense

1 9 0 00

Insurance Expense

(b) 4 1 0 00

Depr. Expense—Office Equipment

Miscellaneous Expense

4 8 0 00 (d) 1 1 0 00 7 5 0 0 00 1 1 2 5 00 5 7 0 0 00 1 4 2 0 00

(d) 1 1 0 00

(a) 3 6 5 00

1 7 5 00 13 6 8 0 00

21 22

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

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

PAGE POST. REF.

DESCRIPTION

DEBIT

CREDIT

Adjusting Entry

20--

July 31 Wages Expense 3 Wages Payable 2

150

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

DESCRIPTION

PAGE POST. REF.

CREDIT

Adjusting Entry

20--

July 31 Depr. Expense—Delivery Equipment 3 Accumulated Depr.—Delivery Equipment 2

DEBIT

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.

(Balance Sheet) Supplies 540 Adj. 95

TB Bal.

Adj.

(Income Statement) Supplies Expense 445

Adj.

(Income Statement) Supplies Expense 280

Adj.

(Income Statement) Insurance Expense 830

Adj.

(Income Statement) Insurance Expense 795

445

(Balance Sheet) Supplies 330 Adj. 50

TB Bal.

280

Exercise 5-7B 1.

TB Bal.

(Balance Sheet) Prepaid Insurance 960 Adj. 130

830

TB Bal.

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

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

1 4 5 00

183.1

1 4 5 00

CHAPTER 5

147

Exercise 5-8B (Concluded) ACCOUNT DATE 20--

July

31 Adjusting

DATE

ITEM

July 31 Adjusting

DATE

CREDIT

POST. REF.

3 2 0 00

 J7

6 4 0 00

CREDIT

ACCOUNT NO.

July 31 Adjusting

CREDIT

8 7 0 00 1 0 1 5 00

1 4 5 00

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

3 2 0 00

POST. REF.

DEBIT

1 4 5 00

183.1

BALANCE DEBIT

535

BALANCE DEBIT

CREDIT

3 2 0 00

Depreciation Expense⎯Cleaning Equipment ITEM

CREDIT

3 2 0 00 9 6 0 00

6 4 0 00

DEBIT

145

BALANCE DEBIT

Insurance Expense

20--

ACCOUNT

DEBIT

Accumulated Depreciation⎯Cleaning Equipment

1 Balance 31 Adjusting

ACCOUNT

20--

POST. REF.

 J6

DATE

July

ITEM

ACCOUNT NO.

1 Balance 15

ACCOUNT

20--

GENERAL LEDGER

Prepaid Insurance

ACCOUNT NO. CREDIT

541

BALANCE DEBIT

CREDIT

1 4 5 00

Wages Payable

Jasmine Kah, Capital

Detailing Fees

Wages Expense

Advertising Expense

Supplies Expense

Insurance Expense

Depr. Exp.—Cleaning Equip.

12 13

5 5 0 00 3 0 0 00

16 17 18 19 20 21 22 23 24 25

8 2 2 0 00 14

8 2 2 0 00

4 3 0 00

1 5 3 0 00

2 2 2 0 00 1 5 0 00

4 6 0 0 00 9 5 0 00

4 5

2 0 0 00 5 4 0 0 00 2 5 0 00

1 1 5 0 00

9 0 00

7 6 7 0 00

(d) 2 5 0 00

(b) 5 5 0 00

(a) 4 3 0 00

1 5 0 00

ADJUSTED TRIAL BALANCE DEBIT CREDIT

(b) 5 5 0 00

1 5 0 00

Accum. Depr.—Cleaning Equip.

7 6 7 0 00

(a) 4 3 0 00

2 2 2 0 00 7 0 0 00

Cleaning Equipment

(d) 2 5 0 00

4 6 0 0 00

7 5 0 00

Prepaid Insurance

8 5 0 00

5 2 0 00

Supplies

5 4 0 0 00

1 5 0 00

ADJUSTMENTS DEBIT CREDIT

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

6 7

30 Depreciation Expense—Cleaning Equipment

3 0 0 00

Accum. Depreciation—Cleaning Equipment

3 0 0 00

10 11

9 10

30 Wages Expense

2 5 0 00

Wages Payable

2 5 0 00 12

150

CHAPTER 5

Exercise 5-11B Income Statement Credit Debit

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 Credit Debit 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. Phone Expense Cash Paid phone 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

1 3 7 5 00

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

Phone Expense

Insurance Expense

Repair Expense

Depr. Expense—Lawn Equipment

Miscellaneous Expense

7 8 0 00 (d) 1 8 0 00 6 5 0 0 00 1 2 5 0 00 6 1 0 0 00 1 1 4 5 00

(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

21 22

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

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

Phone 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

21 22

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

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 Supplies

ACCOUNT DATE 20--

Oct.

31 Adjusting

DATE

Oct.

DATE

DEBIT

CREDIT

6 2 5 00

ITEM

6 2 5 00 4 1 5 00

2 1 0 00

J1 J3

DEBIT

CREDIT

9 5 0 00 1 5 0 00

Oct. 31 Adjusting

POST. REF.

DEBIT

CREDIT

9 5 0 00 8 0 0 00

ACCOUNT NO. CREDIT

2 5 0 00

145

BALANCE DEBIT

Accumulated Depreciation⎯Automobile ITEM

CREDIT

ACCOUNT NO. POST. REF.

141

BALANCE DEBIT

Prepaid Insurance

3 31 Adjusting

ACCOUNT

20--

POST. REF.

ACCOUNT

20--

ITEM

ACCOUNT NO.

185.1

BALANCE DEBIT

CREDIT

2 5 0 00

160

CHAPTER 5

Problem 5-16B (Continued) ACCOUNT DATE

Wages Payable ITEM

20--

Oct. 31 Adjusting

ACCOUNT DATE

ITEM

Oct. 15 26 31 Adjusting

DATE 20--

POST. REF.

DEBIT

CREDIT

1 7 5 00

DEBIT

CREDIT

Oct. 31 Adjusting

CREDIT

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

ACCOUNT NO. POST. REF.

DEBIT

4 1 5 00

CREDIT

511

BALANCE DEBIT

Supplies Expense ITEM

CREDIT

ACCOUNT NO. POST. REF.

219

BALANCE DEBIT

Wages Expense

20--

ACCOUNT

ACCOUNT NO.

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

1 3 6 5 00

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

Phone Expense

2 0 5 00

Utilities Expense

2 8 5 00

Insurance Expense

(b) 7 3 0 00

Depr. Expense—Office Equipment

Miscellaneous Expense

7 3 5 00 (d)

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

21 22

14 8 8 5 00

1 6 4 0 00

Net Income

23 24 25 26 27 28 29 30 31 32

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

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

21 22

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

5 6

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

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

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

DESCRIPTION

PAGE

20--

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

6 7

31 Depreciation Expense—Computer Equipment

1 0 0 0 00

Accum. Depreciation—Computer Equipment

1 0 0 0 00

10 11

9 10

31 Insurance Expense

1 0 0 00

Prepaid Insurance

1 0 0 00 12

CHAPTER 5

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

169

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

13 14

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

15 7 0 0 00 13

5 0 00 10 0 0 0 00

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

$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

Rate

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

$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

Rate

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

Phone 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

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Closing Entries

20--

Jan. 31 Advising Fees 3 Income Summary 2

PAGE

401

4 1 4 0 00

313

4 1 4 0 00

3 4

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

Phone 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

16 17 18

31 Income Summary

313

Ed Major, Capital

2 2 2 0 00

311

2 2 2 0 00 18

19 20 21

31 Ed Major, Capital

311

Ed Major, Drawing

9 0 0 00

312

9 0 0 00 21

Bal.

Cash 1,339

101

141

Bal.

Supplies 346

Office Equipment 3,500

181

Bal.

Accounts Receivable 935

122

Bal.

145

Bal.

Prepaid Insurance 800

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.

Phone 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 —

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

Bal.

Miscellaneous Expense 23 Closing —

549 23 —

CHAPTER 6

181

Exercise 6-5A GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

1 20—

Apr. 30 Golf Instruction Fees 3 Income Summary 2

PAGE

401

4 0 0 0 00

313

4 0 0 0 00

3 4

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 19

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

POST. REF.

DEBIT

CREDIT

Closing Entries

1 20--

Jan. 31 Delivery Fees 3 Income Summary 2

PAGE

401

2 2 0 0 00

313

2 2 0 0 00

3 4

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

Phone 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 21

31 Saburo Goto, Capital Saburo Goto, Drawing

311

8 0 0 00

312

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.

Phone 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

Phone 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

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 20--

Jan. 31 Supplies Expense 3 Supplies 2

PAGE

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

6 7

31 Wages Expense

511

Wages Payable

219

4 0 0 00

10 11

9 10

31 Depreciation Expense—Delivery Equipment

541

5 5 00

Accumulated Depreciation—Delivery Equipment 185.1

5 5 00 12

188

CHAPTER 6

Problem 6-8A (Continued) 2.

GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Closing Entries

20--

Jan. 31 Repair Fees 3 Income Summary 2

PAGE

401

4 7 0 0 00

313

4 7 0 0 00

3 4

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

Phone 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 20--

Cash

ACCOUNT NO. ITEM

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⎯Delivery Equipment ITEM

POST. REF.

Jan. 31 Adjusting

J10

DATE 20--

3 2 0 0 00



DEBIT

ACCOUNT NO.

CREDIT

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

1 1 0 0 00

 J11

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

2 0 0 00

 J11

2 0 0 00

Rent Expense ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

521

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

ACCOUNT DATE

6 4 0 00

 J11

6 4 0 00

Supplies Expense ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

20--

Jan. 31 Adjusting 31 Closing

J10 J11

3 0 0 00

523

3 0 0 00 3 0 0 00

192

CHAPTER 6

Problem 6-8A (Continued) Phone Expense

ACCOUNT DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

525

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

5 0 00

 J11

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

2 0 0 00

 J11

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

BALANCE DEBIT

CREDIT

20--

Jan. 31 Balance 31 Closing

 J11

549

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

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

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

Phone 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

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Closing Entries

20--

June 30 Service Fees 3 Income Summary 2

PAGE

401

4 8 1 3 00

313

4 8 1 3 00

3 4

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

Phone 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

16 17 18

30 Income Summary

313

Mary Adams, Capital

1 8 2 6 00

311

1 8 2 6 00 18

19 20 21

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

141

Bal.

Supplies 800

Office Equipment 2,100

181

Bal.

Accounts Receivable 1,244

122

Bal.

145

Bal.

Prepaid Insurance 640

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.

Phone 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

POST. REF.

DEBIT

CREDIT

Closing Entries

1 20--

May 31 Lawn Service Fees 3 Income Summary 2

PAGE

401

5 0 0 0 00

313

5 0 0 0 00

3 4

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 19

31 Mark Thrasher, Capital Mark Thrasher, Drawing

311

8 0 0 00

312

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

POST. REF.

DEBIT

CREDIT

Closing Entries

1 20--

June 30 Referral Fees 3 Income Summary 2

PAGE

401

2 8 1 3 00

313

2 8 1 3 00

3 4

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

Phone 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 21

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.

Phone 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

Phone 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

$7,000 $1,450 800

Increase in capital Juanita Alvarez, capital, June 30, 20--

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

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 20--

June 30 Supplies Expense 3 Supplies 2

PAGE

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

6 7

30 Wages Expense

511

Wages Payable

219

2 0 0 00

10 11

9 10

30 Depreciation Expense—Office Equipment

541

1 1 0 00

Accumulated Depreciation—Office Equipment 181.1

1 1 0 00 12

CHAPTER 6

205

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

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Closing Entries

20--

June 30 Consulting Fees 3 Income Summary 2

PAGE

401

4 2 0 4 00

313

4 2 0 4 00

3 4

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

Phone 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 20--

Cash

ACCOUNT NO. ITEM

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⎯Office Equipment ITEM

POST. REF.

June 30 Adjusting

J10

DATE 20--

2 2 0 0 00



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--

June 30 Balance 30 Closing

 J11

30 Closing

J11

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

8 0 0 00

 J11

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 DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

20--

June 30 Balance 30 Adjusting

 J10

30 Closing

J11

BALANCE DEBIT

DATE

ITEM

POST. REF.

CREDIT

1 4 0 0 00 2 0 0 00

1 6 0 0 00 1 6 0 0 00

Advertising Expense

ACCOUNT

511

ACCOUNT NO. DEBIT

CREDIT

512

BALANCE DEBIT

CREDIT

20--

June 30 Balance 30 Closing

6 0 00

 J11

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--

5 0 0 00

 J11

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) Phone Expense

ACCOUNT DATE

ITEM

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

525

BALANCE DEBIT

CREDIT

20--

June 30 Balance

4 6 00

 J11

30 Closing

4 6 00

Electricity Expense

ACCOUNT DATE

ITEM

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

533

BALANCE DEBIT

CREDIT

20--

June 30 Balance 30 Closing

3 9 00

 J11

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--

2 8 00

 J11

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

549

ACCOUNT NO.

POST. REF.

DEBIT

BALANCE

CREDIT

DEBIT

CREDIT

20--

June 30 Balance 30 Closing

2 1 00

 J11

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 20--

Dec. 31 Styling Supplies Expense 3 Styling Supplies 2

PAGE

1 4 5 0 00

4 5 6

31 Insurance Expense

6 5 0 00

Prepaid Insurance

6 5 0 00

7 8 9

6 7

31 Wages Expense

4 0 00

Wages Payable

4 0 00

10 11

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

Phone 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 32

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

Phone 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

Phone 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

$(1,700) $ (500)

Cash paid for phone

(65)

Cash paid for wages

(1,000)

Cash paid for electricity

(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

$ 1,300) $ (400)

Cash paid for phone

(95)

Cash paid for wages

(1,400)

Cash paid for electricity

(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 payee simply signs on the back of the check. This makes the check payable to any bearer. With a restrictive endorsement, the payee adds words, such as “Pay to the order of (specific) bank,” “Pay to Daryl Beck,” or “For deposit 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. 257 © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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 Book Balance

1. 2.

– –

4. 5.

–

Exercise 7-5A GENERAL JOURNAL DATE

DESCRIPTION

20-1 2 3

July 31 Cash

PAGE POST. REF.

DEBIT

CREDIT

2 7 60

Accounts Payable

2 7 60

Error on Check No. 291

4 5 6 7

31 Accounts Receivable

4 6 8 00

Cash

10 11

4 6 8 00

NSF check

6 7

8 9

31 Miscellaneous Expense

1 2 00

Cash Bank service charge

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

3 0 0 00

Cash Establish petty cash fund

6 7 8 9 10 11 12

3 0 0 00

2 3

4 5

CREDIT

31 Phone Expense Automobile Expense James Lucas, Drawing Postage Expense Charitable Contributions Expense Miscellaneous Expense Cash Replenish petty cash fund

2 1 20 3 9 60 8 5 00 1 5 30 2 0 00 4 7 00

5 6 7 8 9 10

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

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

8 9

10 11

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 Add deposits in transit: October 29 October 30

$5 2 1 7 00 $ 2 1 0 00 4 0 6 00

6 1 6 00 $5 8 3 3 00

Deduct outstanding checks: No. 1635 No. 1639 No. 1641 No. 1653

5 6 40 1 7 5 00 1 3 5 50 4 4 3 10

8 1 0 00

Adjusted bank balance

$5 0 2 3 00

Book balance, October 31 Add error on Check No. 1624

$5 7 1 8 00 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

20-1 2 3

Oct. 31 Cash

PAGE POST. REF.

DEBIT

CREDIT

1 8 00

Accounts Payable

1 8 00

Error on Check No. 1624

4 5 6 7

31 Enoch Johnson, Drawing

2 0 0 00

Cash

10 11

Unrecorded ATM withdrawal

14 15

6 7 8

31 Miscellaneous Expense

3 7 00

Cash

3 7 00 10

Bank service charge

12 13

2 0 0 00

8 9

31 Accounts Receivable

4 7 6 00

Cash NSF check

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 Revenue 1

PAGE POST. REF.

DEBIT

CREDIT

1 9 00

Interest earned for November

30 Lyle, Drawing

Cash

1 5 0 00

10 11

Unrecorded ATM withdrawal

14 15

30 Accounts Receivable

1 9 50

Cash

18 19

1 9 50 10

NSF check

11 12

30 Miscellaneous Expense

1 7 50

Cash

1 7 50 14

Bank service charge

16 17

6 7

12 13

1 5 0 00

8 9

30 Accounts Payable

4 5 00

Cash Error in recording Check No. 523

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

1 5 0 00

Cash

1 5 0 00

Establish petty cash fund

2 3

4 5

CREDIT

31 Office Supplies

1 1 00

7 00

3 0 00

5 00

Postage Expense

Charitable Contributions Expense

Phone 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 Phone 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

PAGE

OFFICE SUPPLIES

20--

VOU. TOTAL NO. AMOUNT

DISTRIBUTION OF PAYMENTS TRAVEL & MISC. ENTER. PHONE EXPENSE EXPENSE EXPENSE

May

1 Received in fund, $150

DESCRIPTION

CHARIT. POSTAGE CONTRIB. 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

3 4

9 Cash

3 1 1 50

Service Fees

3 1 1 50

Record service fees

7 8

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

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 Book 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 Revenue

10 11

Interest earned for July

14 15

6 7 8

31 Accounts Receivable

6 6 00

Cash

6 6 00 10

NSF check

12 13

2 00

8 9

31 Miscellaneous Expense

1 5 00

Cash Bank service charge

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

2 0 0 00

Cash

2 0 0 00

Establish petty cash fund

2 3

4 5

CREDIT

31 Postage Expense

1 3 00

Miscellaneous Expense

1 7 00

John Flanagan, Drawing

4 5 00

Phone 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 Record service fees and cash overage

12 13

15 Cash

Cash Short and Over

2 00

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

22 23 24

Service Fees

2 9 7 00

2 3 1 00

3 00

10 11

29 Cash Cash Short and Over

3 1 2 00

4 00

Service Fees Record service fees and cash shortage

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

10 11

Bank service charge

14 15

6 7 8

30 Accounts Receivable

1 8 5 00

Cash

1 8 5 00 10

NSF check

12 13

2 5 00

8 9

30 Cash

2 0 00

Accounts Payable Error on Check No. 321

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

20-1 2

Apr. 30 Cash

PAGE POST. REF.

DEBIT

CREDIT

2 8 00

Interest Revenue

2 8 00

Interest earned for April

4 5 6 7

30 Cash

5 4 00

Accounts Payable Error in recording Check No. 422 30 Tori, Drawing

Cash

2 0 0 00

Unrecorded ATM withdrawal

11 12

30 Accounts Receivable

2 9 10

Cash

18 19

2 9 10 14

NSF check

16 17

2 0 0 00 10

5 4 00

30 Miscellaneous Expense

2 4 50

Cash Bank service charge

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

1 0 0 00

Cash

1 0 0 00

Establish petty cash fund

2 3

4 5

CREDIT

31 Office Supplies

7 00

5 50

1 5 00

5 00

Postage Expense

Charitable Contributions Expense

Phone 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 Phone 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

PAGE

OFFICE SUPPLIES

20--

VOU. TOTAL NO. AMOUNT

DISTRIBUTION OF PAYMENTS TRAVEL & MISC. ENTER. PHONE EXPENSE EXPENSE EXPENSE

July

1 Received in fund, $100

DESCRIPTION

CHARIT. POSTAGE CONTRIB. EXPENSE EXPENSE

THE

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

8 9

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 20--

Aug.

ITEM

POST. REF.

ACCOUNT NO. DEBIT

BALANCE

CREDIT

DEBIT

CREDIT

2 50 3 50

2 50 1 00

2 50 4 20

516

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 that 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 Phone call

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

AMOUNT

25 00

ACCOUNT

25 00

MISC. ADVERT. EXPENSE. EXPENSE

PHONE EXPENSE

5 Postage

TRUCK EXPENSE

PAGE

VOU. TOTAL NO. AMOUNT

20--

DESCRIPTION

DISTRIBUTION OF PAYMENTS

July

2 Received in fund, $100

DAY

CHARIT. POSTAGE CONTRIB. 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

6 7

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

2 0 0 20

Cash Paid for newspaper ads

2 0 0 20 29 30

CHAPTER 7

283

Mastery Problem (Concluded) GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

20--

July 31 Truck Expense 2 Charitable Contributions Expense 1

Phone Expense

CREDIT

2 6 00

2 5 00

1 2 50

Cash

PAGE

6 3 50

Replenishment of petty cash fund

6 7

31 Miscellaneous Expense

2 50

Cash

2 50

Bank service charge

8 9

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

20-1 2 3

June 30 Susan Panera, Drawing

PAGE POST. REF.

DEBIT

CREDIT

2 0 0 00

Cash

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 Error in recording check

14 15

30 Bank error—no entry required

11 12

30 Accounts Payable

2 6 0 00

Cash Unrecorded EFT payment

16 17

8 9

12 13

9 0 00

10 11

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

10 11

30 Depositor Accounts

3 5 0 00

Cash Duplicate recording of ATM deposit

12 13

3 5 0 00 10 11 12

30 Depositor error—no entry required

14 15

6 7

8 9

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

CHAPTER 7

Exercise 7Apx-3A

288

CHAPTER 7

289

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.

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 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 8-2A 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 8-3A Marital Status

Total Weekly Earnings

Number of Allowances

Amount of Withholding

$447.60

$22

451.50

481.15

490.52

691.89

Exercise 8-4A 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

$128,400

none

$1,700

$105.40

$24.65

54,000

4,200

58,200

128,400

none

4,200

260.40

60.90

125,800

3,925

129,725

128,400

$1,325

2,600

161.20

56.91

127,800

4,600

132,400

128,400

4,000

600

37.20

66.70

CHAPTER 8

293

Exercise 8-5A a.

regular hours × $14.50 per hour

$580.00

overtime hours × $21.75 per hour

130.50

Total gross wages

$710.50

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

$ 17.00

Social Security withholding at 6.2%

44.05

Medicare withholding at 1.45%

10.30

Total withholding

71.35

Net pay

$639.15

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.

20-1

Dec. 31 Wages and Salaries Expense

DEBIT

CREDIT

8 7 0 0 00

Employee Federal Income Tax Payable

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

20-1

Apr. 15 Wages and Salaries Expense

PAGE POST. REF.

DEBIT

CREDIT

6 5 0 5 00

Employee Federal Income Tax Payable

6 2 5 00 2

Social Security Tax Payable

4 0 3 31 3

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

4 9 3 2 37 8

294

CHAPTER 8

Problem 8-8A 1.

Regular pay (40 × $14.00)

$560.00

Overtime pay (8 × $21.00)

168.00

Gross pay

$728.00

Deductions: Employee federal income tax

$ 27.00

Social Security tax ($728 × 0.062)

45.14

Medicare tax ($728 × 0.0145)

10.56

Health insurance premium

85.00

Credit union

125.00

United Way contribution

10.00

Total deductions

302.70

Net pay

$425.30

GENERAL JOURNAL DATE

DESCRIPTION

20--

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

PAGE POST. REF.

DEBIT

CREDIT

7 2 8 00

2 7 00

Social Security Tax Payable

4 5 14

Medicare Tax Payable

1 0 56

Health Insurance Premiums Payable

8 5 00

Credit Union Payable

1 2 5 00

United Way Contributions Payable

1 0 00

Cash

4 2 5 30

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

20-1

Mar. 24 Wages and Salaries Expense

PAGE POST. REF.

DEBIT

CREDIT

2 9 4 9 00

Employee Federal Income Tax Payable

1 3 6 00

Social Security Tax Payable

1 8 2 84

Medicare Tax Payable

4 2 76

City Tax Payable

2 9 49

Health Insurance Premiums Payable

5 0 00

Credit Union Payable

4 0 00

U.S. Savings Bonds Payable

5 7 50

Cash

2 4 1 0 41

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.

644 00

6,944 00

644 00

600 00

6,750 00

600 00

621 00

6,426 00

621 00

SOCIAL SECURITY

Bacon, Andrea

560 00

Cole, Andrew

600 00

Hicks, Melvin

540 00

Leung, Cara

504 00

6,104 00

504 00

Melling, Melissa

580 00

6,525 00

580 00

2,949 00 32,749 00

2,949 00

2,784 00

84 00

TAXABLE EARNINGS

81 00

165 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

10 00

39 93

9 34

6 44

15 00

Credit Union

51 00

37 20

8 70

6 00

10 00

16 00

38 50

9 00

6 21

39 00

31 25

7 31

5 04

20 00

35 96

8 41

5 80

136 00

182 84

42 76

29 49

HEALTH INSUR.

OTHER

TOTAL

NET PAY

20 00

100 71

543 29 423

Bonds

38 75

151 65

448 35 424

10 00

Bonds

18 75

98 46

522 54 425

15 00

Credit Union

20 00

117 60

386 40 426

70 17

509 83 427

50 00

97 50

538 59 2,410 41

CK. NO.

6 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

6,750 00

600 00

DEDUCTIONS SOCIAL FEDERAL SECURITY INCOME TAX TAX

3/8 3/15 3/22

600 00

51 00

37 20

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

10 00 Savings Bond

38 75

TOTAL

CK. NO.

AMOUNT

151 65

424

448

8 70

6 00

PAY RATE

DATE OF BIRTH

DATE HIRED

NAME/ADDRESS

EMP. NO.

$15.00

5/8/86

6/1/--

Andrew Cole

28 Quarry Drive Vernon, CT 06066

300

CHAPTER 8

Exercise 8-1B 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 8-2B a.

$3,120 × 12 = $37,440 annual pay $37,440/52 = $720 pay per week $720/40 = $18.00 regular pay per hour $18 × 1.5 = $27.00 overtime pay per hour

Regular pay

40 hours × $18.00 = $720.00

Overtime pay

6 hours × $27.00 = 162.00

Gross pay

$882.00

Exercise 8-3B Marital Status

Total Weekly Earnings

Number of Allowances

Amount of Withholding

$546.00

490.00

461.39

522.88

612.00

Exercise 8-4B 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

$128,400

none

$1,500

$ 93.00

$21.75

53,000

2,860

55,860

128,400

none

2,860

177.32

41.47

125,500

3,140

128,640

128,400

$ 240

2,900

179.80

45.53

127,600

2,920

130,520

128,400

2,120

800

49.60

42.34

CHAPTER 8

301

Exercise 8-5B a.

regular hours × $15 per hour

$600.00

5½

overtime hours × $22.50 per hour

123.75

Total gross wages

$723.75

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

$ 10.00

Social Security withholding at 6.2%

44.87

Medicare withholding at 1.45%

10.49

Total withholding

65.36

Net pay

$658.39

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

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

DATE

DESCRIPTION

20-1

Nov. 30 Wages and Salaries Expense

PAGE POST. REF.

DEBIT

CREDIT

9 4 0 0 00

Employee Federal Income Tax Payable

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.

20-1

June 12 Wages and Salaries Expense

DEBIT

CREDIT

7 4 7 0 00

Employee Federal Income Tax Payable

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 × $14.50)

$580.00

Overtime pay (6 × $21.75)

130.50

Gross pay

$710.50

Deductions: Employee federal income tax

$ 33.00

Social Security tax ($710.50 × 0.062)

44.05

Medicare tax ($710.50 × 0.0145)

10.30

Health insurance premium

92.00

Credit union

110.00

United Way contributions Total deductions Net pay

5.00 294.35 $416.15

CHAPTER 8

303

Problem 8-8B (Concluded) 2.

GENERAL JOURNAL DATE

DESCRIPTION

20-1

Jan. 31 Wages and Salaries Expense

PAGE POST. REF.

DEBIT

CREDIT

7 1 0 50

Employee Federal Income Tax Payable

3 3 00

Social Security Tax Payable

4 4 05

Medicare Tax Payable

1 0 30

Health Insurance Premiums Payable

9 2 00

Credit Union Payable

1 1 0 00

United Way Contributions Payable

5 00

Cash

4 1 6 15

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.

560 00

3,920 00

560 00

SOCIAL SECURITY

Barone, W.

560 00

Hastings, G.

600 00

112 50

712 50

4,582 50

712 50

Nitobe, I.

480 00

108 00

588 00

3,756 00

588 00

Smith, J.

520 00

39 00

559 00

3,835 00

559 00

Tarshis, D.

565 50

4,045 50

565 50

2,985 00 20,139 00

2,985 00

2,725 50

259 50

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

46 00

34 72

8 12

5 60

17 00

44 18

10 33

7 13

35 00

Bonds

13 00

36 46

8 53

5 88

15 00

18 00

34 66

8 11

5 59

46 00

35 06

8 20

140 00

185 08

43 29

HEALTH INSUR.

OTHER

TOTAL

NET PAY

94 44

465 56 365

18 75

132 39

580 11 366

Credit Union

25 00

103 87

484 13 367

35 00

Bonds

43 75

145 11

413 89 368

5 66

15 00

Credit Union

25 00

134 92

430 58 369

29 86

100 00

112 50

610 73 2,374 27

CK. NO.

6 7 8 9 10 11 12 13 14

GENERAL JOURNAL DATE

DESCRIPTION

20-1

Feb. 17 Wages and Salaries Expense

PAGE POST. REF.

DEBIT

CREDIT

2 9 8 5 00

Employee Federal Income Tax Payable

1 4 0 00

Social Security Tax Payable

1 8 5 08

Medicare Tax Payable

4 3 29

City Tax Payable

2 9 86

Health Insurance Premiums Payable

1 0 0 00

Credit Union Payable

5 0 00

U.S. Savings Bonds Payable

6 2 50

Cash

2 3 7 4 27

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

3,920 00

560 00

DEDUCTIONS SOCIAL FEDERAL SECURITY INCOME TAX TAX

2/8 2/15

560 00

46 00

34 72

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

February 15

20--

DEDUCTIONS MEDICARE TAX

CITY TAX

HEALTH INSURANCE

OTHER

TOTAL

94 44

CK. NO.

AMOUNT

365

465

8 12

5 60

PAY RATE

DATE OF BIRTH

DATE HIRED

NAME/ADDRESS

EMP. NO.

$14.00

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

0 00

648 00

Merz, L.

600 00

45 00

645 00

31,125 00

0 00

645 00

Goetz, K.

520 00

23,920 00

0 00

520 00

Menick, J.

325 00

741 00

27,066 00

0 00

741 00

Morales, E.

494 00

25,224 00

0 00

494 00

Heimbrock, J.

1,512 00

128,952 00

0 00

960 00

Townsley, S.

336 00

96 00

432 00

21,857 00

0 00

432 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.

560 00

119 00

679 00

26,509 00

0 00

679 00

Vadillo, C.

481 00

208 00

689 00

24,804 00

0 00

689 00

6,122 00 1,228 00

7,350 00

347,890 00

805 00

6,798 00

416 00

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

0 00

440 00

49 50

489 50

6,635 00

489 50

11 00

374 00

176 00

550 00

7,185 00

365 00

550 00

17 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

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

CHAPTER 8

309

Mastery Problem (Continued)

FOR PERIOD ENDED

20--

November 18 DEDUCTIONS

SOCIAL SECURITY TAX

FEDERAL INCOME TAX

MEDICARE TAX

STATE INCOME TAX

HEALTH INSURANCE

CREDIT UNION

TOTAL

NET PAY

CK. NO.

19 00

40 18

9 40

12 00

149 60

252 86

395

14 331

11 00

39 99

9 35

12 00

117 00

211 92

433

08 332

14 00

32 24

7 54

12 00

91 30

175 28

344

72 333

58 00

45 94

10 74

12 00

126 50

279 12

461

88 334

3 00

30 63

7 16

12 00

117 05

187 13

306

87 335

99 00

59 52

21 92

12 00

154 25

399 61

1,112

39 336

5 00

26 78

6 26

12 00

83 05

148 21

283

79 337

17 00

34 10

7 98

12 00

130 00

220 33

329

67 338

0 00

27 28

6 38

12 00

88 00

149 06

290

94 339

6 00

42 10

9 85

12 00

128 90

222 62

456

38 340

51 00

42 72

9 99

12 00

139 11

278 94

410

06 341

283 00

421 48

106 57

257

132 00 1,324 76

2,525 08

4,824

12 13 14

FOR PERIOD ENDED

20-DEDUCTIONS STATE HEALTH INCOME INSURANCE TAX

NET PAY

TOTAL

CK. NO.

72 60

125 08

121

237 92

12 00

97 90

175 48

229

314 02

12 00

130 00

220 33

338

329 67

SOCIAL SECURITY TAX

MEDICARE TAX

22 51

5 26

12 71

12 00

30 35

7 10

17 13

34 10

7 98

19 25

ALLOWANCES

PAY RATE

DATE OF BIRTH

DATE HIRED

$11.00

4/5/84

7/22/--

CREDIT UNION

AMOUNT

NAME/ADDRESS

Beth F. Salzman 12 Windmill Lane Trumbull, CT 06611

EMP. NO.

310

CHAPTER 8

Mastery Problem (Concluded) 2.

GENERAL JOURNAL DATE

DESCRIPTION

20-1

Nov. 21 Wages and Salaries Expense

PAGE POST. REF.

DEBIT

CREDIT

7 3 5 0 00

Employee Federal Income Tax Payable

2 8 3 00

Social Security Tax Payable

4 2 1 48

Medicare Tax Payable

1 0 6 57

State Income Tax Payable

2 5 7 27

Health Insurance Premiums Payable

1 3 2 00

Credit Union Payable

1 3 2 4 76

Cash

4 8 2 4 92

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

2 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 7 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 $128,400.

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

= $10,500 × 0.006

63.00

SUTA tax

= $10,500 × 0.054

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 current 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

CREDIT

3 4 8 60

2 4 8 00 2

Medicare Tax Payable

FUTA Tax Payable

4 26 4

SUTA Tax Payable

3 8 34 5

To record employer payroll taxes expense

5 8 00 3

6 7

CHAPTER 9

315

Exercise 9-3A Taxable Earnings Employee Name

Current Earnings

Unemploy. Comp.

Social Security

Jordahl, Stephanie

$ 1,190

$ 400

$ 1,190

Keesling, Emily

1,070

850

1,070

Palmer, Stefan

2,410

—

2,410

Soltis, Robin

2,280

—

2,280

Stout, Hannah

2,030

—

2,030

Xia, Xu

2,850

—

1,870

Total

$11,830

$1,250

$10,850

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

POST. REF.

DESCRIPTION

20-1

PAGE

Sept. 14 Payroll Taxes Expense

DEBIT

CREDIT

9 1 9 24

Social Security Tax Payable

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

DEBIT

5 8 6 0 00

11 2 5 0 00

2 6 2 5 00

Cash

CREDIT

19 7 3 5 00

Deposit of employee federal income tax and

Social Security and Medicare taxes

30 FUTA Tax Payable Cash

Paid FUTA tax

30 SUTA Tax Payable

6 0 0 00 6 0 0 00 4 0 5 0 00

4 0 5 0 00 11

Paid SUTA tax

8 9

Cash

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

20-1 2 3

Dec. 31 Workers’ Compensation Insurance Expense

PAGE POST. REF.

DEBIT

CREDIT

1 2 00

Workers’ Compensation Insurance Payable Adjustment for insurance premium

1 2 00 2 3 4

CHAPTER 9

317

Problem 9-7A 1. Taxable Earnings Current Weekly Earnings

Unemploy. Comp.

Social Security

800

$ 350

$ 800

720

630

720

1,200

—

1,200

Lenihan, Marcus

900

McMahon, Drew

4,440

—

1,350

Newell, Marg

1,110

—

1,110

Stevens, Matt

1,260

—

1,260

$10,430

$1,050

$7,340

Employee Name Click, Katelyn

Coombs, Michelle Fauss, Erin

Total

Social Security tax = $7,340 × 0.062 Medicare tax = $10,430 × 0.0145 FUTA tax = $1,050 × 0.006 SUTA tax = $1,050 × 0.054 Total employer payroll taxes

= $455.08 = 151.24 = 6.30 = 56.70 $669.32

GENERAL JOURNAL DATE 1

20--

July

DESCRIPTION

7 Payroll Taxes Expense

PAGE POST. REF.

DEBIT

CREDIT 1

6 6 9 32

Social Security Tax Payable

4 5 5 08

Medicare Tax Payable

1 5 1 24

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

6 5 8 00

101

Paid FUTA tax

6 5 8 00

6 7

320

CHAPTER 9

Problem 9-8A (Concluded) 2.

Bal.

6/15 7/15

6/30

7/31

6/30

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

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

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

7/31

FUTA Tax Payable 658 Bal. 6/30

221 574 84

Wages and Salaries Expense 42,000

511

SUTA Tax Payable 3,402 Bal. 6/30

222 2,835 567

Payroll Taxes Expense 3,864

530

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

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

20-1 2 3

Dec. 31 Workers’ Compensation Insurance Expense

PAGE POST. REF.

DEBIT

CREDIT

6 6 00

Workers’ Compensation Insurance Payable Adjustment for insurance premium

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

PAGE POST. REF.

DESCRIPTION

Insurance Refund Receivable

DEBIT

CREDIT

4 8 00

Workers’ Compensation Insurance Expense

4 8 00 2

Adjustment for insurance premium

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

= $ 972.16 = 227.36 = 73.86 = 664.74 $1,938.12

GENERAL JOURNAL DATE 20-1

June 21

DESCRIPTION

Payroll Taxes Expense

PAGE POST. REF.

DEBIT

CREDIT

1 9 3 8 12

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 current 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 Unemploy. Comp.

Social Security

950

$ 365

$ 950

Delgado, Luisa

1,215

850

1,215

Lewis, Arlene S.

2,415

—

2,415

Nixon, Robert R.

1,750

—

1,750

Shippe, Lance W.

1,450

—

1,450

Watts, Brandon Q.

3,120

—

1,400

$10,900

$1,215

$9,180

Employee Name Carlson, David J.

Total

Current Earnings $

324

CHAPTER 9

Exercise 9-3B (Concluded) Social Security tax = $9,180 × 0.062 Medicare tax = $10,900 × 0.0145 FUTA tax = $1,215 × 0.006 SUTA tax = $1,215 × 0.054 Total employer payroll taxes

= $569.16 = 158.05 = 7.29 = 65.61 $800.11

GENERAL JOURNAL DATE 20-1

DESCRIPTION

PAGE POST. REF.

7 Payroll Taxes Expense

Oct.

DEBIT

CREDIT

8 0 0 11

Social Security Tax Payable

5 6 9 16 2

Medicare Tax Payable

1 5 8 05 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

5 2 6 0 00

Social Security Tax Payable

9 5 6 3 00

Medicare Tax Payable

2 2 5 0 00

July 15

DESCRIPTION

PAGE

Cash

17 0 7 3 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

11 12 13 14

SUTA Tax Payable Cash Paid SUTA tax

3 4 0 2 00

3 4 0 2 00 13

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

PAGE POST. REF.

DEBIT

CREDIT

2 2 00

Workers’ Compensation Insurance Payable Adjustment for insurance premium

2 2 00 2 3

326

CHAPTER 9

Problem 9-7B 1. Taxable Earnings Current Weekly 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

Employee Name 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

5 9 4 00

101

Paid FUTA tax

5 9 4 00

6 7

CHAPTER 9

329

Problem 9-8B (Concluded) 2.

Bal.

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

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

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

6/15 7/15

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

213 641.00 319.73 319.73

6/30

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

7/31

FUTA Tax Payable 594.00 Bal. 6/30

221 540.00 54.00

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

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

PAGE POST. REF.

DEBIT

CREDIT

4 4 00

Workers’ Compensation Insurance Payable Adjustment for insurance premium

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. © 2020 Cengage®. 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

4 7 8 0 00

4 7 8 0 00 29

Paid SUTA tax

CHAPTER 9

333

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

Dec. 31

DESCRIPTION

Insurance Refund Receivable

PAGE POST. REF.

DEBIT

CREDIT

2 0 00

Workers’ Compensation Insurance Expense Adjustment for insurance premium

2 0 00

2 3

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 = 250.00 $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. Customer Refunds Payable is a current liability account that is credited for the estimated amount of current year sales that will be refunded in the following year. 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 10-14. 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. 335 © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

336

CHAPTER 10 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. 7.

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 10-14.

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

$3,860

Less: Sales returns and allowances

$410

Sales discounts

490

Net sales

$3,370

Exercise 10-4A GENERAL JOURNAL DATE

DESCRIPTION

Sales Returns and Allowances

Customer Refunds Payable

PAGE POST. REF.

DEBIT

CREDIT

2 0 0 0 00

Estimated returns and allowances

2 3

Exercise 10-5A GENERAL JOURNAL DATE 1

20--

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

2 1 0 00

8 40

8 9

10 11

10 Sales Returns and Allowances Sales Tax Payable

2 0 00

2 0 80 13 14

340

CHAPTER 10

Exercise 10-5A (Concluded) GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

13 Cash

Sales Discounts

17 18

Accounts Receivable/S. Miller

Received cash on account

3 0 6 00

6 00

3 1 2 00 18 19

20 21 22 23 24

20 20--

Aug. 15

Sales Returns and Allowances Sales Tax Payable

4 0 00

1 60

Accounts Receivable/K. Krtek

4 1 60 23

Returned merchandise

25 26

20 Cash

Accounts Receivable/K. Krtek

Received cash on account

1 7 6 80

1 7 6 80 27 28

CHAPTER 10

341

Exercise 10-6A GENERAL JOURNAL DATE 1

20--

May

DESCRIPTION

1 Accounts Receivable/J. Adams

Sales

Sales Tax Payable

PAGE POST. REF.

DEBIT

CREDIT

2 1 2 0 00

2 0 0 0 00

1 2 0 00

Sale No. 488

5 6

4 Accounts Receivable/B. Clark

Sales

Sales Tax Payable

1 9 0 8 00

1 8 0 0 00

1 0 8 00

Sale No. 489

10 11

8 Accounts Receivable/A. Duck

Sales

Sales Tax Payable

1 5 9 0 00

1 5 0 0 00 12 9 0 00 13

Sale No. 490

15 16

11 Accounts Receivable/E. Hill

Sales

Sales Tax Payable

2 0 6 7 00

1 9 5 0 00 17

Sale No. 491

1 1 7 00 18 19

342

CHAPTER 10

Exercise 10-7A GENERAL JOURNAL DATE 1

20--

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

2 3

6 Sales Returns and Allowances

401.1

122/

Accounts Receivable/M. Perez

4 4 00 4 4 00

Returned merchandise

6 7

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

J60

7 3 00

J60

4 4 00

1 1 7 00

J60

2 4 00

1 4 1 00

CREDIT

CHAPTER 10

343

Exercise 10-7A (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME John B. Abramowitz ADDRESS 3201 West Judkins Road, Seattle, WA 98201-1079 DATE 20--

June

ITEM

1 Balance 1

POST. REF.

DEBIT

 J60

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 20--

June

ITEM

1 Balance 8

POST. REF.

DEBIT

 J60

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 20--

June

ITEM

1 Balance 6

POST. REF.

 J60

DEBIT

CREDIT

4 4 00

BALANCE

1 0 1 8 00 9 7 4 00

344

CHAPTER 10

Exercise 10-8A GENERAL JOURNAL DATE 1

20--

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

4 5

10 Cash

2 3 2 0 00

Sales

2 3 2 0 00

Made cash sales

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

6 7

8 9

17 Cash

2 2 3 7 00

Sales

2 2 3 7 00 18

Made cash sales

Exercise 10-9A 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

CHAPTER 10

345

Problem 10-10A 1.

GENERAL JOURNAL DATE 1

20--

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

346

CHAPTER 10

Problem 10-10A (Continued) 2.

GENERAL LEDGER Accounts Receivable

ACCOUNT DATE 20--

ITEM

CREDIT

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

Sales Tax Payable

DATE 20--

ITEM

POST. REF.

ACCOUNT NO. DEBIT

CREDIT

122

BALANCE DEBIT

J15

ACCOUNT

231

BALANCE DEBIT

CREDIT

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

Aug.

DEBIT

Aug.

20--

POST. REF.

ACCOUNT NO.

ACCOUNT NO. ITEM

POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

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

CHAPTER 10

347

Problem 10-10A (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME Hassad Co. ADDRESS 1225 W. Temperance Street, Ellettsville, IN 47429-9976 DATE 20--

Aug.

ITEM

3 18

POST. REF.

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 20--

Aug.

ITEM

POST. REF.

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 20--

Aug.

ITEM

1 22

POST. REF.

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 20--

Aug. 11

ITEM

POST. REF.

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

348

CHAPTER 10

Problem 10-11A 1.

GENERAL JOURNAL DATE 1 2 3

20--

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

6 7

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

CHAPTER 10

349

Problem 10-11A (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

10 11 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

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

350

CHAPTER 10

Problem 10-11A (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.

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

CHAPTER 10

351

Problem 10-11A (Continued) Sales Tax Payable

ACCOUNT DATE 20--

ITEM

POST. REF.

ACCOUNT NO. DEBIT

CREDIT

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

BALANCE DEBIT

CREDIT

J20

3 1 6 0 00

J20

1 0 0 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

Sales Returns and Allowances

ACCOUNT DATE

ITEM

20--

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

J20

6 0 00

J21

2 2 00

8 2 00

Bank Credit Card Expense

ACCOUNT DATE

ITEM

POST. REF.

ACCOUNT NO. DEBIT

CREDIT

401.1

BALANCE DEBIT

Dec. 11

Dec.

401

Dec.

20--

231

513

BALANCE DEBIT

J20

3 1 80

J21

2 5 44

5 7 24

CREDIT

352

CHAPTER 10

Problem 10-11A (Continued) ACCOUNTS RECEIVABLE LEDGER NAME Michael Anderson ADDRESS 233 West 11th Avenue, Detroit, MI 59500-1154 DATE 20--

Dec.

ITEM

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

NAME Ansel Manufacturing ADDRESS 284 West 88 Street, Detroit, MI 59522-1168 DATE 20--

Dec.

ITEM

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

NAME J. Gorbea ADDRESS P.O. Box 864, Detroit, MI 59552-0864 DATE 20--

Dec.

ITEM

1 Balance 8

POST. REF.

 J20

DEBIT

CREDIT

BALANCE

8 8 0 00 8 8 0 00

CHAPTER 10

353

Problem 10-11A (Concluded) NAME Rachel Carson ADDRESS 11312 Fourteenth Avenue South, Detroit, MI 59221-1142 DATE 20--

Dec.

ITEM

1 Balance 24

POST. REF.

DEBIT

 J21

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.

ITEM

1 Balance 20

POST. REF.

 J21

DEBIT

CREDIT

1 1 1 0 00

BALANCE

1 8 1 0 00 7 0 0 00

354

CHAPTER 10

Problem 10-12A 1.

GENERAL JOURNAL DATE 1

20--

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.

101 122/

2 3 6 5 20

2 3 6 5 20 31

Received cash on account

CHAPTER 10

355

Problem 10-12A (Continued) GENERAL JOURNAL DATE 1

20--

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

356

CHAPTER 10

Problem 10-12A (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

CHAPTER 10

357

Problem 10-12A (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

358

CHAPTER 10

Problem 10-12A (Continued) Sales

ACCOUNT DATE 20--

ACCOUNT NO. ITEM

POST. REF.

DEBIT

CREDIT

401

BALANCE DEBIT

CREDIT

1 7 0 0 00

2 1 9 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

Mar.

Sales Returns and Allowances

ACCOUNT DATE 20--

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

4 0 00

3 4 00

7 4 00

Mar.

401.1

CREDIT

ACCOUNTS RECEIVABLE LEDGER NAME Donachie & Co. ADDRESS 1424 Jackson Creek Road, Nashville, IN 47448-2245 DATE 20--

Mar.

ITEM

POST. REF.

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

CHAPTER 10

359

Problem 10-12A (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 20--

Mar.

ITEM

POST. REF.

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.

ITEM

1 Balance 27

POST. REF.

 J8

DEBIT

2 2 3 5 60

CREDIT

BALANCE

1 0 1 6 00 3 2 5 1 60

Problem 10-13A 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

360

CHAPTER 10

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

CHAPTER 10

361

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

362

CHAPTER 10

Exercise 10-3B Sales

$2,880

Less: Sales returns and allowances

$322

Sales discounts

378

Net sales

$2,502

Exercise 10-4B GENERAL JOURNAL DATE

DESCRIPTION

Sales Returns and Allowances

Customer Refunds Payable

PAGE POST. REF.

DEBIT

CREDIT

2 4 0 0 00

Estimated returns and allowances

2 3

Exercise 10-5B GENERAL JOURNAL DATE 1

20--

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

2 4 0 00

9 60

8 9

10 11

11 Sales Returns and Allowances Sales Tax Payable

5 0 00

2 00

5 2 00 13 14

CHAPTER 10

363

Exercise 10-5B (Concluded) GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

17 Cash

Sales Discounts

17 18

Accounts Receivable/F. Preetee

Received cash on account

1 9 3 80

3 80

1 9 7 60 18 19

20 21 22 23 24

20 20--

Oct. 18

Sales Returns and Allowances Sales Tax Payable

6 0 00

2 40

Accounts Receivable/B. Farnsby

6 2 40 23

Returned merchandise

25 26 27 28

20 Cash

2 2 8 80

Accounts Receivable/B. Farnsby Received cash on account

2 2 8 80 27 28

364

CHAPTER 10

Exercise 10-6B GENERAL JOURNAL DATE 1

20--

Sept.

DESCRIPTION

1 Accounts Receivable/K. Smith

Sales

Sales Tax Payable

PAGE POST. REF.

DEBIT

CREDIT

1 8 9 0 00

1 8 0 0 00

9 0 00

Sale No. 228

5 6

3 Accounts Receivable/J. Arnes

Sales

Sales Tax Payable

3 2 5 5 00

3 1 0 0 00

1 5 5 00

Sale No. 229

10 11

5 Accounts Receivable/M. Denison

Sales

Sales Tax Payable

2 9 4 0 00

2 8 0 0 00 12 1 4 0 00 13

Sale No. 230

15 16

7 Accounts Receivable/B. Marshall

Sales

Sales Tax Payable

1 9 9 5 00

1 9 0 0 00 17

Sale No. 231

9 5 00 18 19

CHAPTER 10

365

Exercise 10-7B GENERAL JOURNAL DATE 1

20--

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

2 3

11 Sales Returns and Allowances

401.1

122/

Accounts Receivable/J. Adams

5 9 00 5 9 00

Returned merchandise

6 7

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

J60

4 3 00

J60

5 9 00

1 0 2 00

J60

2 1 00

1 2 3 00

CREDIT

366

CHAPTER 10

Exercise 10-7B (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME John B. Adams ADDRESS 127 Strawberry Lane, Manchester, CT 06040-0865 DATE 20--

June

ITEM

1 Balance 11

POST. REF.

DEBIT

 J60

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 20--

June

ITEM

1 Balance 15

POST. REF.

DEBIT

 J60

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 20--

June

ITEM

1 Balance 1

POST. REF.

 J60

DEBIT

CREDIT

4 3 00

BALANCE

1 0 1 8 00 9 7 5 00

CHAPTER 10

367

Exercise 10-8B GENERAL JOURNAL DATE 1

20--

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

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

6 7

8 9

25 Cash

2 6 4 8 00

Sales

2 6 4 8 00 18

Made cash sales

Exercise 10-9B 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

368

CHAPTER 10

Problem 10-10B 1.

GENERAL JOURNAL DATE 1

20--

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

369

Problem 10-10B (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.

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

370

CHAPTER 10

Problem 10-10B (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

371

Problem 10-11B 1.

GENERAL JOURNAL DATE 1

20--

Jan.

DESCRIPTION

1 Cash

Accounts Receivable/R. Boyd

Received cash on account

PAGE POST. REF.

DEBIT

101

8 8 0 00

CREDIT 1

122/

8 8 0 00

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

372

CHAPTER 10

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

20--

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

10 11 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

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

101

3 1 8 00

122/

Received cash on account

3 1 8 00 22 23

CHAPTER 10

373

Problem 10-11B (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.

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

374

CHAPTER 10

Problem 10-11B (Continued) Sales Tax Payable

ACCOUNT DATE 20--

ITEM

POST. REF.

ACCOUNT NO. DEBIT

CREDIT

BALANCE DEBIT

CREDIT

J20

1 4 0 00

J20

6 0 00

2 0 0 00

J20

1 5 5 00

3 5 3 00

J21

9 5 00

4 4 8 00

J21

Jan.

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

2 8 0 0 00

J20

1 2 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

ITEM

POST. REF.

ACCOUNT NO. DEBIT

CREDIT

401.1

BALANCE DEBIT

Jan. 11

Jan.

401

Jan.

20--

231

513

BALANCE DEBIT

J20

3 7 80

J21

5 9 85

9 7 65

CREDIT

CHAPTER 10

375

Problem 10-11B (Continued) ACCOUNTS RECEIVABLE LEDGER NAME Ray Boyd ADDRESS 229 SE 65th Avenue, Portland, OR 97215-1451 DATE 20--

Jan.

ITEM

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

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

Jan.

ITEM

1 Balance 25

POST. REF.

DEBIT

CREDIT

BALANCE

3 1 8 00

 J21

3 1 8 00

NAME Clint Hassell ADDRESS 1462 N. Steves Blvd., Los Cruces, NM 88012-7791 DATE 20--

Jan.

ITEM

1 Balance 3

POST. REF.

 J20

DEBIT

CREDIT

2 7 1 00

BALANCE

8 1 5 00 5 4 4 00

376

CHAPTER 10

Problem 10-11B (Concluded) NAME Jan Sowada ADDRESS 5997 Blackgold Lane, Grapevine, TX 76051-2366 DATE 20--

Jan.

ITEM

1 Balance 8

POST. REF.

DEBIT

 J20

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

377

Problem 10-12B 1.

GENERAL JOURNAL DATE 1

20--

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

378

CHAPTER 10

Problem 10-12B (Continued) GENERAL JOURNAL DATE 1 2 3 4

20--

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

29 Cash Accounts Receivable/M. Richfield

101 122/

2 1 8 6 00

2 1 8 6 00 32

Received cash on account

33 34

CHAPTER 10

379

Problem 10-12B (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.

ACCOUNT NO. DEBIT

CREDIT

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

122

4 8 0 2 05

6 1 0 4 25

380

CHAPTER 10

Problem 10-12B (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

2 1 0 0 00

1 0 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.

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

401.1

BALANCE DEBIT

5 0 00

4 0 00

9 0 00

CREDIT

CHAPTER 10

381

Problem 10-12B (Concluded) ACCOUNTS RECEIVABLE LEDGER NAME O. L. Meyers ADDRESS 119 Hartford Turnpike, Vernon, CT 06066-0113 DATE 20--

Apr.

ITEM

POST. REF.

1 6

J7 J7

DEBIT

CREDIT

2 2 4 7 00 5 3 50

BALANCE

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 20--

Apr.

ITEM

1 Balance 19

POST. REF.

 J8

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 20--

Apr.

ITEM

3 27

POST. REF.

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

2 2 4 4 25 3 2 9 2 85

4 2 80

3 2 5 0 05

2 1 8 6 00

1 0 6 4 05

1 0 4 8 60

382

CHAPTER 10

Problem 10-13B 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

383

Mastery Problem 1.

GENERAL JOURNAL DATE 1

20--

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

384

CHAPTER 10

Mastery Problem (Continued) GENERAL JOURNAL DATE 1

20--

Sept. 14

DESCRIPTION

Cash

Accounts Receivable/R. Alanso

Received cash on account

PAGE POST. REF.

DEBIT

101

2 5 6 00

CREDIT 1

122/

2 5 6 00

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

7 8

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

385

Mastery Problem (Continued) GENERAL JOURNAL DESCRIPTION

POST. REF.

DEBIT

Accounts Receivable/All American Day Camp

122/

3 9 7 50

DATE 1

20--

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/

7 2 35 21

Received cash on account

23 24

27 Cash

Accounts Receivable/J. Gloy

Received cash on account

101

2 7 3 25

122/

2 7 3 25 25 26

27 28 29 30

28 Cash Notes Payable

101 201

11 0 0 0 00

11 0 0 0 00 29

Borrowed cash

386

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

387

Mastery Problem (Continued) Accounts Receivable

ACCOUNT DATE 20--

ITEM

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

ACCOUNT NO. POST. REF.

1 Balance



122

BALANCE DEBIT



ACCOUNT

Sept.

DEBIT

1 Balance

Sept.

20--

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

201

BALANCE DEBIT

CREDIT

2 5 0 0 00 11 0 0 0 00

13 5 0 0 00

388

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.

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

389

Mastery Problem (Continued) Sales Returns and Allowances

ACCOUNT DATE 20--

ITEM

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

1 Balance



1 0 00

9 6 00

8 8 00

1 8 4 00

Sept.

8 6 00

Boarding and Grooming Revenue

ACCOUNT DATE 20--

ITEM

401.1

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

402

BALANCE DEBIT

CREDIT

1 Balance



6 2 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

Sept.

2 1 1 5 00

ACCOUNTS RECEIVABLE LEDGER NAME All American Day Camp ADDRESS 3025 Old Mill Run, Bloomington, IN 47408-1080 DATE 20--

Sept. 21

ITEM

POST. REF.

DEBIT

3 9 7 50

CREDIT

BALANCE

3 9 7 50

390

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--

Sept. 1 Balance 19

POST. REF.

DEBIT

CREDIT

BALANCE

6 3 25

 J8

6 3 25

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

ITEM

20--

Sept. 1 Balance 27

POST. REF.

DEBIT

CREDIT

BALANCE

2 7 3 25

 J9

2 7 3 25

NAME Susan Hays ADDRESS 1424 Jackson Creek Road, Nashville, IN 47448-2245 DATE 20--

Sept. 20

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

8 8 33

CHAPTER 10

391

Mastery Problem (Continued) NAME Ken Shank ADDRESS 6422 E. Bender Road, Bloomington, IN 47401-7756 DATE 20--

Sept.

ITEM

2 25

POST. REF.

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

20--

Sept. 12

POST. REF.

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--

Sept. 1 Balance 3

POST. REF.

 J7

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 20--

Sept.

5 11

ITEM

POST. REF.

J7 J7

DEBIT

CREDIT

BALANCE

4 6 59 1 0 60

4 6 59 3 5 99

392

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

$12,842.73

Less: Sales returns and allowances Net sales

98.00 $12,744.73

CHAPTER 10

393

Challenge Problem GENERAL JOURNAL DATE 1

20--

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

1 8 0 0 00

1 0 8 00

8 9

10 11 12 13 14

11 Sales Returns and Allowances Sales Tax Payable

3 0 0 00

1 8 00

Accounts Receivable/T. Allen

3 1 8 00 13

Returned merchandise

15 16 17

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

20 21 22

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.

3. A voucher system is a control technique that requires every acquisition and subsequent payment to be supported by an approved voucher. 4. Voucher Purchase invoice Receiving report Purchase order Purchase requisition 5.

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. 395 © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

396

CHAPTER 11 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 11-10). To post 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 post cash payments from the general journal to the general ledger, use the same five steps as for posting purchases transactions (Figure 11-10). 11. 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. 12. 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

397

Exercise 11-1A 1.

Purchase requisition

Purchase order

Receiving report

Purchase invoice

Exercise 11-2A 1.

Gross amount

$2,000

Less 10% trade discount

200

Net amount of purchases

$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

398

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

2,000 1,200

Purchases 2,000 1,200

Purchases Returns and Allowances

Purchases Discounts (c)

Freight-In 40

CHAPTER 11

399

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)

Accounts Payable 2,600 (a)

2,600

Purchases 2,500

Purchases Returns and Allowances

Purchases Discounts

Freight-In 100

(a)

400

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

72,450 $107,450 32,000

Cost of goods sold Gross profit

75,450 $ 43,000

CHAPTER 11

401

Exercise 11-5A GENERAL JOURNAL DATE 1 2 3

20--

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

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

6 7

8 9

23 Purchases Accounts Payable/Brown

5 3 0 0 00

5 3 0 0 00 14

Invoice No. 913

402

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 1

20--

July

PAGE

DESCRIPTION

CREDIT 1

7 0 0 00

Returned merchandise

2 3

202/

15 Accounts Payable/XYZ, Inc.

Purchases Returns and Allowances

4 5 0 00

501.1

4 5 0 00

Returned merchandise

6 7

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

9 9 5 0 00

4 5 0 00

9 5 0 0 00

9 0 0 00

8 6 0 0 00

10 6 5 0 00

Purchases Returns and Allowances

ACCOUNT DATE

July

POST. REF.

202

1 Balance

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

403

Exercise 11-6A (Concluded) ACCOUNTS PAYABLE LEDGER NAME Datamagic ADDRESS DATE 20--

July

ITEM

1 Balance 27

POST. REF.

 J3

DEBIT

CREDIT

BALANCE

2 6 0 0 00 9 0 0 00

1 7 0 0 00

NAME Starcraft Industries ADDRESS DATE 20--

July

ITEM

1 Balance 7

POST. REF.

 J3

DEBIT

CREDIT

BALANCE

4 3 0 0 00 7 0 0 00

3 6 0 0 00

NAME XYZ, Inc. ADDRESS DATE 20--

July

ITEM

1 Balance 15

POST. REF.

 J3

DEBIT

4 5 0 00

CREDIT

BALANCE

3 7 5 0 00 3 3 0 0 00

404

CHAPTER 11

Exercise 11-7A GENERAL JOURNAL DATE 1

20--

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

405

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

20--

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

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/

2 2 5 0 00 14

Invoice No. 329

16 17 18 19

23 Purchases Accounts Payable/Smith Distributors

501

4 1 6 0 00

202/

4 1 6 0 00 18

Invoice No. 767

20 21 22 23

27 Purchases Accounts Payable/Anderson Company

501

1 9 8 0 00

202/

1 9 8 0 00 22

Invoice No. 744

24 25 26 27

6 7

8 9

30 Purchases Accounts Payable/Michaels Wholesaler

501 202/

2 7 8 0 00

2 7 8 0 00 26

Invoice No. 652

406

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

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.

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 20--

Sept. 27

ITEM

POST. REF.

J16

DEBIT

CREDIT

1 9 8 0 00

BALANCE

1 9 8 0 00

CHAPTER 11

407

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

ITEM

20--

Sept. 18

POST. REF.

DEBIT

CREDIT

2 2 5 0 00

J16

BALANCE

2 2 5 0 00

NAME Michaels Wholesaler ADDRESS DATE 20--

Sept.

ITEM

8 30

POST. REF.

DEBIT

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

20--

Sept. 11

POST. REF.

DEBIT

CREDIT

3 1 4 0 00

J16

BALANCE

3 1 4 0 00

NAME Smith Distributors ADDRESS DATE 20--

Sept.

3 23

ITEM

POST. REF.

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

408

CHAPTER 11

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

20--

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

502 101

1 2 0 0 00

1 2 0 0 00 33

CHAPTER 11

409

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

POST. REF.

DESCRIPTION

20--

May 31

PAGE

Purchases

501

Cash

101

DEBIT

CREDIT

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

410

CHAPTER 11

Problem 11-10A (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

May 18

4 8 0 0 00

J10

3 0 0 0 00

7 8 0 0 00

Purchases Discounts

ACCOUNT DATE 20--

ITEM

ACCOUNT NO. DEBIT

CREDIT

501.2

BALANCE DEBIT

CREDIT

1 0 8 00

5 2 00

1 6 0 00

7 6 00

2 3 6 00

May

ACCOUNT

Freight-In

DATE

ITEM

20--

May 30

DATE 20--

May

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

1 2 0 0 00

ITEM

ACCOUNT DATE

May 15

1 2 0 0 00

DEBIT

CREDIT

2 4 0 0 00

CREDIT

2 4 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

1 7 2 0 00

521

BALANCE DEBIT

Utilities Expense ITEM

CREDIT

ACCOUNT NO. POST. REF.

502

BALANCE DEBIT

Rent Expense

ACCOUNT

20--

POST. REF.

501

CREDIT

533

BALANCE DEBIT

CREDIT

1 7 2 0 00

CHAPTER 11

411

Problem 11-10A (Concluded) ACCOUNTS PAYABLE LEDGER NAME Fantastic Toys ADDRESS DATE 20--

May

ITEM

1 Balance 12

POST. REF.

 J9

DEBIT

CREDIT

BALANCE

5 2 0 0 00 5 2 0 0 00

NAME Goya Outlet ADDRESS DATE 20--

ITEM

POST. REF.

1 Balance



May

DEBIT

CREDIT

BALANCE

3 8 0 0 00 3 8 0 0 00

NAME Mueller’s Distributors ADDRESS DATE 20--

May

ITEM

1 Balance 3

POST. REF.

 J9

DEBIT

CREDIT

BALANCE

3 6 0 0 00 3 6 0 0 00

NAME Van Kooning ADDRESS DATE 20--

May

ITEM

1 Balance 7

POST. REF.

 J9

DEBIT

5 5 0 0 00

CREDIT

BALANCE

7 4 0 0 00 1 9 0 0 00

412

CHAPTER 11

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

20--

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

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

3 0 0 00 14

Returned merchandise

16 17 18 19

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

6 7

8 9

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

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

202/

3 5 0 00

501.1

Returned merchandise

3 5 0 00 32 33 34

CHAPTER 11

413

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

20--

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

501 202/

3 5 6 0 00

3 5 6 0 00 15

Invoice No. 883

414

CHAPTER 11

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

ACCOUNT DATE 20--

ITEM

DEBIT

CREDIT

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

21 0 0 0 00

Accounts Payable

DATE

ITEM

ACCOUNT NO.

POST. REF.

101

BALANCE DEBIT



ACCOUNT

July

POST. REF.

1 Balance

July

20--

ACCOUNT NO.

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

J16

2 8 0 0 00

J16

3 3 0 0 00

6 1 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

5 8 0 0 00 2 9 0 0 00

8 7 0 0 00

CHAPTER 11

415

Problem 11-11A (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

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 20--

ITEM

POST. REF.

DEBIT

ACCOUNT NO. CREDIT

501

501.1

BALANCE DEBIT

CREDIT

J16

3 0 0 00

J16

3 5 0 00

6 5 0 00

July

Purchases Discounts

ACCOUNT DATE

ITEM

20--

POST. REF.

ACCOUNT NO. DEBIT

CREDIT

501.2

BALANCE DEBIT

CREDIT

July 11

J16

5 0 00

J16

3 3 00

8 3 00

J17

5 1 00

1 3 4 00

Rent Expense

ACCOUNT DATE 20--

July

ITEM

ACCOUNT NO. POST. REF.

J16

DEBIT

2 5 0 0 00

CREDIT

521

BALANCE DEBIT

CREDIT

2 5 0 0 00

416

CHAPTER 11

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

ITEM

20--

July 25

POST. REF.

DEBIT

CREDIT

2 6 5 0 00

J17

BALANCE

2 6 5 0 00

NAME Donna’s Dolls ADDRESS DATE 20--

ITEM

POST. REF.

DEBIT

2 9 0 0 00

J16

3 5 0 00

J17

2 5 5 0 00

July

CREDIT

BALANCE

2 9 0 0 00 2 5 5 0 00

NAME Scheer & Company ADDRESS DATE 20--

July

ITEM

POST. REF.

3 13

J16 J16

J17

DEBIT

CREDIT

BALANCE

3 3 0 0 00

3 5 6 0 00

3 3 0 0 00

NAME Tilly’s Toys ADDRESS DATE 20--

July

ITEM

POST. REF.

DEBIT

1 5

J16 J16

3 0 0 00

J16

2 5 0 0 00

J17

CREDIT

BALANCE

2 8 0 0 00

2 8 0 0 00 2 5 0 0 00

2 1 8 0 00

CHAPTER 11

417

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

418

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 1 2 3

20--

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

419

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

4,000 2,800

Purchases 4,000 2,800

Purchases Returns and Allowances

Purchases Discounts (c)

Freight-In 80

420

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)

Purchases 3,800

Accounts Payable 4,000 (a)

4,000

Purchases Returns and Allowances

Purchases Discounts (a)

Freight-In 200

CHAPTER 11

421

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

96,700 $126,700 50,000

Cost of goods sold Gross profit

76,700 $ 38,700

422

CHAPTER 11

Exercise 11-5B GENERAL JOURNAL DATE 1 2 3

20--

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

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

6 7

8 9

26 Purchases Accounts Payable/Ramirez

3 7 0 0 00

3 7 0 0 00 14

Invoice No. 923

CHAPTER 11

423

Exercise 11-6B GENERAL JOURNAL DATE 1

20--

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

2 3

202/

11 Accounts Payable/A & D Arms

Purchases Returns and Allowances

6 2 5 00

501.1

6 2 5 00

Returned merchandise

6 7

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



5 0 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

8 3 5 0 00

Purchases Returns and Allowances

ACCOUNT DATE

Mar.

POST. REF.

202

1 Balance

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

424

CHAPTER 11

Exercise 11-6B (Concluded) ACCOUNTS PAYABLE LEDGER NAME A & D Arms ADDRESS DATE 20--

Mar.

ITEM

1 Balance 11

POST. REF.

 J3

DEBIT

CREDIT

BALANCE

2 3 0 0 00 6 2 5 00

1 6 7 5 00

NAME Mighty Mansion ADDRESS DATE 20--

Mar.

ITEM

1 Balance 23

POST. REF.

 J3

DEBIT

CREDIT

BALANCE

1 4 5 0 00 2 7 5 00

1 1 7 5 00

NAME Tower Industries ADDRESS DATE 20--

Mar.

ITEM

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

425

Exercise 11-7B GENERAL JOURNAL DATE 1

20--

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

426

CHAPTER 11

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

20--

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

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/

2 8 4 5 00 14

Invoice No. 349

16 17 18 19

24 Purchases Accounts Payable/Boggs Distributors

501

3 3 7 0 00

202/

3 3 7 0 00 18

Invoice No. 587

20 21 22 23

26 Purchases Accounts Payable/Sanderson Company

501

2 2 4 0 00

202/

2 2 4 0 00 22

Invoice No. 764

24 25 26 27

6 7

8 9

31 Purchases Account Payable/Wolfs Wholesaler

501 202/

1 6 3 0 00

1 6 3 0 00 26

Invoice No. 672

CHAPTER 11

427

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

428

CHAPTER 11

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

ITEM

20--

POST. REF.

DEBIT

J16

Oct. 16

CREDIT

2 8 4 5 00

BALANCE

2 8 4 5 00

NAME Komuro & Co. ADDRESS DATE

ITEM

20--

POST. REF.

DEBIT

J16

Oct. 10

CREDIT

3 5 6 5 00

BALANCE

3 5 6 5 00

NAME Sanderson Company ADDRESS DATE

ITEM

20--

POST. REF.

DEBIT

J16

Oct. 26

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

429

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

20--

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

502

8 0 0 00

101

8 0 0 00 33 34

430

CHAPTER 11

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

POST. REF.

DESCRIPTION

20--

May 31

PAGE

Purchases

501

Cash

101

DEBIT

CREDIT

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 2 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

20 0 0 0 00

CHAPTER 11

431

Problem 11-10B (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

May 19

3 5 0 0 00

J10

2 3 5 0 00

5 8 5 0 00

Purchases Discounts

ACCOUNT DATE 20--

ITEM

ACCOUNT NO. DEBIT

CREDIT

501.2

BALANCE DEBIT

CREDIT

1 2 6 00

4 6 00

1 7 2 00

8 8 00

2 6 0 00

May

ACCOUNT

Freight-In

DATE

ITEM

20--

May 30

DATE 20--

May

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

8 0 0 00

ITEM

ACCOUNT DATE

May 15

8 0 0 00

DEBIT

CREDIT

2 6 0 0 00

CREDIT

2 6 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

1 5 0 0 00

521

BALANCE DEBIT

Utilities Expense ITEM

CREDIT

ACCOUNT NO. POST. REF.

502

BALANCE DEBIT

Rent Expense

ACCOUNT

20--

POST. REF.

501

CREDIT

533

BALANCE DEBIT

CREDIT

1 5 0 0 00

432

CHAPTER 11

Problem 11-10B (Concluded) ACCOUNTS PAYABLE LEDGER NAME Cortez Distributors ADDRESS DATE 20--

May

ITEM

1 Balance 4

POST. REF.

 J9

DEBIT

CREDIT

BALANCE

4 2 0 0 00 4 2 0 0 00

NAME Indra & Velga ADDRESS DATE 20--

May

ITEM

POST. REF.

1 Balance



DEBIT

CREDIT

BALANCE

6 8 0 0 00 6 2 0 0 00

6 0 0 00

NAME Toy Corner ADDRESS DATE 20--

May

ITEM

1 Balance 11

POST. REF.

 J9

DEBIT

CREDIT

BALANCE

4 6 0 0 00 4 6 0 0 00

NAME Troutman Outlet ADDRESS DATE 20--

May

ITEM

1 Balance 25

POST. REF.

 J9

DEBIT

CREDIT

BALANCE

4 4 0 0 00 4 4 0 0 00

CHAPTER 11

433

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

20--

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

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

4 0 0 00 14

Returned merchandise

16 17 18 19

8 Purchases Accounts Payable/Downtown Merchants

501

1 6 0 0 00

202/

1 6 0 0 00 18

Invoice No. 159

20 21

6 7

8 9

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

15 Accounts Payable/Downtown Merchants Purchases Returns and Allowances

202/

6 0 0 00

501.1

Returned merchandise

6 0 0 00 32 33 34

434

CHAPTER 11

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

20--

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

501 202/

2 9 7 0 00

2 9 7 0 00 15

Invoice No. 853

CHAPTER 11

435

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

ACCOUNT DATE 20--

ITEM

DEBIT

CREDIT

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

20 0 0 0 00

Accounts Payable

DATE

ITEM

ACCOUNT NO.

POST. REF.

101

BALANCE DEBIT



ACCOUNT

July

POST. REF.

1 Balance

July

20--

ACCOUNT NO.

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

J16

2 5 0 0 00

J16

2 8 0 0 00

5 3 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

4 9 0 0 00 1 6 0 0 00

6 5 0 0 00

436

CHAPTER 11

Problem 11-11B (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

July

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

J16

2 5 0 0 00

J16

2 8 0 0 00

5 3 0 0 00

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

ACCOUNT DATE 20--

July

ITEM

POST. REF.

DEBIT

ACCOUNT NO. CREDIT

501

501.1

BALANCE DEBIT

CREDIT

J16

4 0 0 00

J16

6 0 0 00

1 0 0 0 00

Purchases Discounts

ACCOUNT DATE

ITEM

20--

POST. REF.

ACCOUNT NO. DEBIT

CREDIT

501.2

BALANCE DEBIT

CREDIT

July 11

J16

4 2 00

J16

2 8 00

7 0 00

J17

2 0 00

9 0 00

Rent Expense

ACCOUNT DATE 20--

July

ITEM

ACCOUNT NO. POST. REF.

J16

DEBIT

1 4 0 0 00

CREDIT

521

BALANCE DEBIT

CREDIT

1 4 0 0 00

CHAPTER 11

437

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

ITEM

20--

July 25

POST. REF.

DEBIT

CREDIT

3 2 0 0 00

J17

BALANCE

3 2 0 0 00

NAME Downtown Merchants ADDRESS DATE 20--

July

ITEM

POST. REF.

DEBIT

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 20--

July

ITEM

POST. REF.

3 13

J16 J16

J17

DEBIT

CREDIT

BALANCE

2 8 0 0 00

2 9 7 0 00

2 8 0 0 00

NAME Topper’s Toys ADDRESS DATE 20--

July

ITEM

POST. REF.

DEBIT

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

438

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

439

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.

440

CHAPTER 11

Mastery Problem 1. GENERAL JOURNAL DATE 1 2 3

20--

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

2 5 0 00 15

Check No. 301

4 Rent Expense

521

Cash

101

6 2 5 00

6 2 5 00 19

Check No. 302

21 22 23 24

8 Purchases Accts. Payable/Northeastern Publishing Co.

501

5 8 2 5 00

202/

5 8 2 5 00 23

Invoice No. 268

25 26 27 28

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

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

Check No. 304

33 34

CHAPTER 11

441

Mastery Problem (Continued) GENERAL JOURNAL DATE 1 2 3

20--

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

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

3 2 5 00 14

Check No. 305

16 17 18 19

30 M. French, Drawing Cash

312

4 5 0 0 00

101

4 5 0 0 00 18

Check No. 306

20 21 22 23

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

6 7

8 9

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

501 101

1 3 2 8 00

1 3 2 8 00 31

Check No. 309

442

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



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

4 1 0 0 00 2 1 0 0 00

CHAPTER 11

443

Mastery Problem (Continued) M. French, Drawing

ACCOUNT DATE 20--

ITEM

1 Balance



J17

June

ACCOUNT

Purchases

DATE

ITEM

20--

CREDIT

18 0 0 0 00 4 5 0 0 00

22 5 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

J16

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

20--

ITEM

POST. REF.

1 Balance



J16

June

DEBIT

ACCOUNT NO. CREDIT

DATE

ITEM

POST. REF.

501.1

BALANCE DEBIT

CREDIT

2 3 1 5 23 5 5 0 00

2 8 6 5 23

Purchases Discounts

ACCOUNT

501

BALANCE DEBIT

DATE

312

BALANCE DEBIT



ACCOUNT

June

DEBIT

1 Balance

June

20--

POST. REF.

ACCOUNT NO.

ACCOUNT NO. DEBIT

CREDIT

501.2

BALANCE DEBIT

CREDIT

1 Balance



J16

4 0 00

9 4 5 00

J16

6 9 12

1 0 1 4 12

J17

1 1 6 50

1 1 3 0 62

9 0 5 00

444

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 20--

June

ITEM

POST. REF.

3 13

J16 J16

J17

DEBIT

CREDIT

BALANCE

2 3 0 4 00

2 3 5 0 00

2 3 0 4 00

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

CHAPTER 11

445

Mastery Problem (Continued) NAME Irving Publishing Company ADDRESS 5200 N. Keystone Ave., Indianapolis, IN 46220-1986 DATE 20--

June

ITEM

POST. REF.

DEBIT

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 20--

June

ITEM

POST. REF.

DEBIT

CREDIT

BALANCE

1 Balance 2

 J16

2 0 0 0 00

J16

5 8 2 5 00

J17

4 2 0 0 00

10 0 2 5 00

J17

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 20--

June 28

ITEM

POST. REF.

J17

DEBIT

CREDIT

3 4 5 0 00

BALANCE

3 4 5 0 00

446

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

447

Challenge Problem GENERAL JOURNAL DATE 1

20--

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

15 16

6 7

June

3 Accounts Payable Cash

1 2 4 2 00

1 2 4 2 00 15

Made payment on account

448

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

449

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

20--

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

2 3

5 Purchases

1 4 0 0 00

Accounts Payable/Leon’s Garage

1 4 0 0 00

Purchased merchandise

6 7

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. 1 2 3

20--

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

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

6 7

8 9

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

1 3 8 6 00

1 4 00

1 4 0 0 00 15

Paid invoice

450

CHAPTER 11

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

20--

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

2 3

6 Purchases

1 2 0 0 00

Accounts Payable/Goro’s Auto Care

1 2 0 0 00

Purchased merchandise

6 7

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. 1 2 3

20--

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

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

6 7

8 9

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

1 1 8 8 00

1 2 00

1 2 0 0 00 15

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.

452

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.

CHAPTER 12

453

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.

454

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

DATE 1

20--

July

ACCOUNT CREDITED

6 D. Chesbrough

POST. REF.

GENERAL CREDIT

ACCOUNTS RECEIVABLE CREDIT

PAGE

SALES CREDIT

SALES TAX PAYABLE CREDIT

CASH DEBIT

5 2 7 00 2 4 7 0 00

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

455

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

456

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

POST. REF.

DEBIT

16 5 9 9 60

20--

Aug. 31

ACCOUNT DATE 20--

Aug. 31

ACCOUNT NO. CREDIT

BALANCE DEBIT

CREDIT

16 5 9 9 60

Sales Tax Payable ITEM

ACCOUNT NO.

POST. REF.

DEBIT

122

CREDIT

9 3 9 60

231

BALANCE DEBIT

CREDIT

9 3 9 60

CHAPTER 12

457

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

458

CHAPTER 12

Problem 12-7A 1.

CASH RECEIPTS JOURNAL

DATE 1

20--

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

459

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

460

CHAPTER 12

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

20--

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

3 4

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

461

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

462

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 20--

Dec.

ITEM

1 Balance 1

POST. REF.

DEBIT

 CR10

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 20--

Dec.

ITEM

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

463

Problem 12-7A (Concluded) NAME J. Gorbea ADDRESS P.O. Box 864, Detroit, MI 59552-0864 DATE 20--

Dec.

ITEM

1 Balance 8

POST. REF.

DEBIT

CREDIT

BALANCE

8 8 0 00

 CR10

8 8 0 00

NAME Rachel Carson ADDRESS 11312 Fourteenth Avenue South, Detroit, MI 59221-1142 DATE 20--

Dec.

ITEM

1 Balance 24

POST. REF.

DEBIT

 CR10

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.

ITEM

1 Balance 20

POST. REF.

 CR10

DEBIT

CREDIT

1 1 1 0 00

BALANCE

1 8 1 0 00 7 0 0 00

464

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

DATE 20--

ACCOUNT CREDITED

POST. REF.

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

(122)

(231)

Debit total:

$19,910.88

Credit total:

(401)

(101)

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

CHAPTER 12

465

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

20--

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

3 4

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

8 9

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.

ACCOUNT NO. DEBIT

CREDIT

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

122

8 1 3 3 33

466

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

467

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.

ITEM

1 Balance 27

POST. REF.

 S6

DEBIT

2 1 7 7 28

CREDIT

BALANCE

1 0 5 8 25 3 2 3 5 53

468

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

469

Problem 12-9A (Concluded) NAME

ACCOUNTS PAYABLE LEDGER Anderson Company

ADDRESS DATE

ITEM

20--

Sept. 27

POST. REF.

DEBIT

NAME

CREDIT

1 9 8 0 00

BALANCE

1 9 8 0 00

Bateman & Jones, Inc.

ADDRESS DATE

ITEM

20--

Sept. 18

POST. REF.

DEBIT

NAME

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

POST. REF.

DEBIT

NAME

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

470

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

471

Problem 12-10A (Concluded) NAME

Royal Flush

ADDRESS DATE

ITEM

20--

Jan. 12

POST. REF.

DEBIT

NAME

CREDIT

1 9 5 0 00

BALANCE

1 9 5 0 00

Ruiz Imports

ADDRESS DATE 20--

Jan.

ITEM

POST. REF.

DEBIT

NAME

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

472

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

(202)

7 8 0 0 00 (501)

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)

(101)

11 12

Debit total:

$ 5,320

Credit total:

236

18,100

30,984

7,800

$31,220

$31,220 2. GENERAL LEDGER Cash

ACCOUNT DATE 20--

ITEM



CP6

DEBIT

CREDIT

DATE

ITEM

CREDIT

40 0 0 0 00 30 9 8 4 00

9 0 1 6 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 18 1 0 0 00

1 9 0 0 00

CHAPTER 12

473

Problem 12-11A (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

May 31

DATE

CP6

ITEM

20--

May 31

Freight-In

DATE

ITEM

20--

May 30

CREDIT

7 8 0 0 00

POST. REF.

DATE

7 8 0 0 00

CREDIT

POST. REF.

ACCOUNT DATE

2 3 6 00

CREDIT

1 2 0 0 00

May 15

POST. REF.

DEBIT

CREDIT

1 2 0 0 00

CREDIT

2 4 0 0 00

CREDIT

2 4 0 0 00

ACCOUNT NO.

CP6

DEBIT

1 7 2 0 00

521

BALANCE DEBIT

Utilities Expense POST. REF.

502

BALANCE DEBIT

ACCOUNT NO.

CP6

ITEM

CREDIT

2 3 6 00

DEBIT

501.2

BALANCE DEBIT

ACCOUNT NO.

CP6

ITEM

CREDIT

ACCOUNT NO. DEBIT

501

BALANCE DEBIT

Rent Expense

ACCOUNT

20--

DEBIT

CP6

ACCOUNT

May

POST. REF.

Purchases Discounts

ACCOUNT

20--

ACCOUNT NO.

CREDIT

533

BALANCE DEBIT

CREDIT

1 7 2 0 00

474

CHAPTER 12

Problem 12-11A (Concluded) ACCOUNTS PAYABLE LEDGER NAME Fantastic Toys ADDRESS DATE 20--

May

ITEM

1 Balance 12

POST. REF.

 CP6

DEBIT

CREDIT

BALANCE

5 2 0 0 00 5 2 0 0 00

NAME Goya Outlet ADDRESS DATE 20--

ITEM

POST. REF.

1 Balance



CP6

May

DEBIT

CREDIT

BALANCE

3 8 0 0 00 3 8 0 0 00

NAME Mueller’s Distributors ADDRESS DATE 20--

May

ITEM

1 Balance 3

POST. REF.

 CP6

DEBIT

CREDIT

BALANCE

3 6 0 0 00 3 6 0 0 00

NAME Van Kooning ADDRESS DATE 20--

May

ITEM

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

475

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

( )

(202)

( 5 0 1)

( 5 0 1 .2)

( 1 0 1)

Debit total:

$ 3,500

Credit total:

105

6,800

11,170

975

$11,275

476

CHAPTER 12

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

20--

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

2 3

202/

15 Accounts Payable/Daisy’s Dolls

Purchases Returns and Allowances

4 0 0 00

501.1

4 0 0 00

Returned merchandise

6 7

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

477

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. DEBIT

July 31

15 5 9 0 00

CP9

9 7 5 00

16 5 6 5 00

DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

ACCOUNT NO. CREDIT

501.1

BALANCE DEBIT

CREDIT

5 0 0 00

4 0 0 00

9 0 0 00

July

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

DEBIT

Purchases Returns and Allowances

ACCOUNT

20--

CREDIT

501

BALANCE

POST. REF.

20--

312

521

BALANCE DEBIT

CREDIT

1 5 0 0 00

478

CHAPTER 12

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

Allied Business

ADDRESS DATE

ITEM

20--

July 25

POST. REF.

DEBIT

NAME

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

479

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

DATE 20--

ACCOUNT CREDITED

POST. REF.

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

480

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

481

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

POST. REF.

DEBIT

13 0 7 2 50

20--

July 31

ACCOUNT DATE 20--

July 31

ACCOUNT NO. CREDIT

BALANCE DEBIT

CREDIT

13 0 7 2 50

Sales Tax Payable ITEM

ACCOUNT NO.

POST. REF.

DEBIT

122

CREDIT

6 2 2 50

231

BALANCE DEBIT

CREDIT

6 2 2 50

482

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

483

Problem 12-7B 1.

GENERAL JOURNAL DATE 1 2 3

20--

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

3 4

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

401.1

3 1 00

231

1 55

122/

3 2 55

484

CHAPTER 12

Problem 12-7B (Continued) CASH RECEIPTS JOURNAL

DATE 1

20--

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

485

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

486

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

487

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 20--

Jan.

ITEM

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.

ITEM

1 Balance 25

POST. REF.

 CR10

DEBIT

CREDIT

BALANCE

3 1 8 00 3 1 8 00

488

CHAPTER 12

Problem 12-7B (Concluded) NAME Clint Hassell ADDRESS 1462 N. Steves Blvd., Los Cruces, NM 88012-7791 DATE 20--

Jan.

ITEM

1 Balance 3

POST. REF.

DEBIT

 CR10

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 20--

Jan.

ITEM

1 Balance 8

POST. REF.

DEBIT

 CR10

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

1 Balance 15 18

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

489

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

DATE 1 2

20--

Apr.

ACCOUNT CREDITED

7 9 O. L. Meyers

POST. REF.

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

(122)

(401)

(231)

(101)

Debit total:

$13,770.90

Credit total:

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

490

CHAPTER 12

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

20--

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

3 4

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.

ACCOUNT NO. DEBIT

CREDIT

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

122

8 2 9 0 25

CHAPTER 12

491

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

492

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

493

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

494

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

POST. REF.

DEBIT

NAME

CREDIT

2 8 4 5 00

BALANCE

2 8 4 5 00

Komuro & Co.

ADDRESS DATE

ITEM

20--

Oct. 10

POST. REF.

DEBIT

NAME

CREDIT

3 5 6 5 00

BALANCE

3 5 6 5 00

Sanderson Company

ADDRESS DATE

ITEM

20--

Oct. 26

POST. REF.

DEBIT

NAME

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

495

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

496

CHAPTER 12

Problem 12-10B (Concluded) NAME

Nobuko’s Nature Store

ADDRESS DATE 20--

Jan.

ITEM

POST. REF.

DEBIT

NAME

CREDIT

2 6 8 0 00

BALANCE

2 6 8 0 00

Sandra’s Sweets

ADDRESS DATE 20--

Jan.

ITEM

POST. REF.

DEBIT

NAME

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

497

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

DATE 1

20--

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

( )

(202)

5 8 5 0 00 (501)

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)

(101)

11 12

Debit total:

$ 4,900

Credit total:

260

19,400

29,890

5,850

$30,150

$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

498

CHAPTER 12

Problem 12-11B (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

May 31

DATE

CP6

ITEM

20--

May 31

Freight-In

DATE

ITEM

20--

May 30

CREDIT

5 8 5 0 00

POST. REF.

DATE

ITEM

ACCOUNT DATE

5 8 5 0 00

CREDIT

May 15

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

CREDIT

2 6 0 0 00

ACCOUNT NO.

CP6

DEBIT

1 5 0 0 00

521

BALANCE DEBIT

Utilities Expense POST. REF.

502

BALANCE DEBIT

ACCOUNT NO. POST. REF.

501.2

BALANCE DEBIT

ACCOUNT NO.

CP6

ITEM

CREDIT

ACCOUNT NO. DEBIT

501

BALANCE DEBIT

Rent Expense

ACCOUNT

20--

DEBIT

CP6

ACCOUNT

May

POST. REF.

Purchases Discounts

ACCOUNT

20--

ACCOUNT NO.

CREDIT

533

BALANCE DEBIT

CREDIT

1 5 0 0 00

CHAPTER 12

499

Problem 12-11B (Concluded) ACCOUNTS PAYABLE LEDGER NAME Cortez Distributors ADDRESS DATE 20--

May

ITEM

1 Balance 4

POST. REF.

 CP6

DEBIT

CREDIT

BALANCE

4 2 0 0 00 4 2 0 0 00

NAME Indra & Velga ADDRESS DATE 20--

May

ITEM

POST. REF.

1 Balance



CP6

DEBIT

CREDIT

BALANCE

6 8 0 0 00 6 2 0 0 00

6 0 0 00

NAME Toy Corner ADDRESS DATE 20--

May

ITEM

1 Balance 11

POST. REF.

 CP6

DEBIT

CREDIT

BALANCE

4 6 0 0 00 4 6 0 0 00

NAME Troutman Outlet ADDRESS DATE 20--

May

ITEM

1 Balance 25

POST. REF.

 CP6

DEBIT

CREDIT

BALANCE

4 4 0 0 00 4 4 0 0 00

500

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

( )

(202)

(501)

( 5 0 1 .2)

(101)

Debit total:

$ 3,900

Credit total:

5,900

10,760

1,050

$10,850

CHAPTER 12

501

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

20--

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

2 3

202/

15 Accounts Payable/Downtown Merchants

Purchases Returns and Allowances

6 0 0 00

501.1

6 0 0 00

Returned merchandise

6 7

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

502

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. DEBIT

July 31

14 5 0 0 00

CP9

1 0 5 0 00

15 5 5 0 00

DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

ACCOUNT NO. CREDIT

501.1

BALANCE DEBIT

CREDIT

4 0 0 00

6 0 0 00

1 0 0 0 00

July

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

DEBIT

Purchases Returns and Allowances

ACCOUNT

20--

CREDIT

501

BALANCE

POST. REF.

20--

312

521

BALANCE DEBIT

CREDIT

1 4 0 0 00

CHAPTER 12

503

Problem 12-12B (Concluded) NAME

ACCOUNTS PAYABLE LEDGER Columbia Products

ADDRESS DATE

ITEM

20--

July 25

POST. REF.

DEBIT

NAME

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

504

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

505

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

DATE 1 2

20--

Oct.

ACCOUNT CREDITED

7 9 Leigh Summers

12 Meg Johnson

24 David’s Decor.

POST. REF.

   

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

(122)

(401)

1 7 5 00

(231)

(101)

506

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 1 2

CK. POST. NO. ACCOUNT DEBITED REF.

20--

Oct. 2 190 Jill Hand

GENERAL DEBIT



5 191 Phone Expense 525

ACCOUNTS PAYABLE DEBIT

5 0 0 00

PURCHASES DEBIT

PAGE PURCHASES DISCOUNTS CREDIT

CASH CREDIT

1 0 00

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

(101)

1 5 0 00

11 192 Flower Whole.



1 5 0 0 00

13 193 Seidl Ent.



7 0 0 00

29 194 Wages Expense 511

1 4 00

9 0 0 00

1 0 5 0 00

2 7 0 0 00

( )

(202)

2 4 00 ( 5 0 1 .2)

CHAPTER 12

507

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

7 8

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.

ACCOUNT NO. DEBIT

CREDIT

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

122

8 3 6 9 00

508

CHAPTER 12

Mastery Problem (Continued) Accounts Payable

ACCOUNT DATE 20--

ITEM

ACCOUNT NO.

POST. REF.

1 Balance



CP11

Oct.

DEBIT

CREDIT

BALANCE DEBIT

DATE

ITEM

20--

CREDIT

5 1 2 0 00 9 0 0 00

4 2 2 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

ACCOUNT NO.

POST. REF.

202

DEBIT

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

CHAPTER 12

509

Mastery Problem (Continued) ACCOUNT

Purchases

DATE

ITEM

20--

Oct. 31

DATE

ITEM

20--

Oct. 17

DEBIT

CREDIT

4 7 0 0 00

POST. REF.

DEBIT

DATE

ITEM

20--

Oct. 31

POST. REF.

4 7 0 0 00

ACCOUNT NO. CREDIT

DATE

CP11

ITEM

20--

Oct. 29

9 0 0 00

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

Phone Expense

ACCOUNT

CREDIT

ACCOUNT NO. CREDIT

501.1

BALANCE DEBIT

Wages Expense

ACCOUNT

CREDIT

9 0 0 00

DEBIT

501

BALANCE DEBIT

Purchases Discounts

ACCOUNT

Oct.

POST. REF.

Purchases Returns and Allowances

ACCOUNT

20--

ACCOUNT NO.

CREDIT

525

BALANCE DEBIT

CREDIT

1 5 0 00

510

CHAPTER 12

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

ITEM

Oct.

Balance

POST. REF.

DEBIT

CREDIT

3 3 4 0 00



CR10

BALANCE

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

1 Balance

Oct.

POST. REF.

DEBIT

CREDIT

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

2 0 0 0 00



CR10

BALANCE

2 0 0 0 00 2 1 0 0 00

2 1 0 0 00

CHAPTER 12

511

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

1 Balance

Oct.

POST. REF.

DEBIT

CREDIT

5 0 0 00



CP11

BALANCE

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

512

CHAPTER 12

Challenge Problem 1. GENERAL JOURNAL DATE 1 2 3 4

20--

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

Made payment on account

7 1 2 80

7 20

8 9

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.

3 3 9 0 00 29

Purchased merchandise on account

CHAPTER 12

513

Challenge Problem (Continued) GENERAL JOURNAL DATE 1

20--

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

4 6 3 00 13 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

11 12

8 3 8 53

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

1 7 2 0 00 29

Purchased merchandise on account

514

CHAPTER 12

Challenge Problem (Continued) GENERAL JOURNAL DATE 1

20--

June

DESCRIPTION

4 Cash

Accounts Receivable/O. Alston

Received cash on account

PAGE POST. REF.

DEBIT

CREDIT

3 8 1 00

4 5

5 Cash

Sales

7 8 9

3 4 1 33

State Sales Tax Payable

1 5 95

City Sales Tax Payable

6 38

Made cash sale

9 10

5 Accounts Payable/Acme Supply

Cash

Purchases Discounts

3 1 9 00

10 11

9 8 0 00

Made payment on account

9 7 0 20 12 9 80 13 14

CHAPTER 12

515

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

POST. REF.

PAGE

PURCHASES DEBIT

ACCOUNTS PAYABLE CREDIT

FREIGHT-IN DEBIT

(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. 517 © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

518

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 . . . . . . . . . . . . . . . . . . .

overstated

correct

Exercise 13-2A GENERAL JOURNAL DATE 1 2

20--

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

8 9

15 Accounts Payable/Prestigious Jewelers

7 0 0 00

Purchases Returns and Allowances

7 0 0 00 11

12 13

5 6

9 10

22 Sales Returns and Allowances Accounts Receivable/Diamonds Unlimited

9 0 0 00

9 0 0 00 14

CHAPTER 13

519

Exercise 13-3A GENERAL JOURNAL DATE 1 2

20--

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

13 Cost of Goods Sold

2 2 0 0 00

Merchandise Inventory

2 2 0 0 00 11 12

18 Accounts Payable/City Galleria

Merchandise Inventory

6 5 0 00

6 5 0 00 14

22 Sales Returns and Allowances

6 0 0 00

Accounts Receivable/Amber Specialties

6 0 0 00 17

18 19 20

8 9

5 6

9 10

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

520

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

521

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 Alternative calculation if given

2,700 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

Cost of goods available for sale $ 95,600

goods available for sale and CGS or

Less cost of ending inventory

(27,150)

Less cost of goods sold

(68,450)

EI.

Cost of goods sold

$ 68,450

Cost of ending inventory

$ 27,150

522

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

$20.00

20.50

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

2,700

100

$32,400

Cost of goods available for sale

$ 95,600

Less cost of ending inventory

(32,400)

Less cost of goods sold

(63,200)

$ 63,200

Cost of ending inventory

$ 32,400

Cost of goods sold

Cost of goods available for sale $ 95,600

CHAPTER 13

523

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 EI.

4,400 Cost of goods available for sale

$ 56,700

Less cost of ending inventory Cost of goods sold

$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

524

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

3. a.

Loss on Write-Down of Inventory Merchandise Inventory

825 825

No entry required

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

525

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

526

CHAPTER 13

Exercise 13-2B GENERAL JOURNAL DATE 1 2

20--

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

8 9

15 Accounts Payable/Elite Warehouse

7 0 0 00

Purchases Returns and Allowances

7 0 0 00 11

12 13

5 6

9 10

22 Sales Returns and Allowances Accounts Receivable/Memories Unlimited

4 0 0 00

4 0 0 00 14

CHAPTER 13

527

Exercise 13-3B GENERAL JOURNAL DATE 1 2

20--

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

9 0 0 00 14

15 16 17

22 Sales Returns and Allowances

5 0 0 00

Accounts Receivable/Sonya Specialties

5 0 0 00 17

18 19 20

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

528

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

529

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 Alternative calculation if given

3,100 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

(58,050)

EI.

Cost of goods sold

$ 58,050

Cost of ending inventory

$ 14,350

$ 72,400

530

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

(55,400)

EI.

Cost of goods sold

$ 55,400

Cost of ending inventory

$ 17,000

$ 72,400

CHAPTER 13

531

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 Alternative calculation if given

4,100 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

(64,300)

EI.

Cost of goods sold

$ 64,300

Cost of ending inventory

$ 12,400

$ 76,700

532

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

Loss on Write-Down of Inventory

3,150

3. a.

Merchandise Inventory b.

3,150

No entry required

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

533

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.

534

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 might mention obsolescence, decreasing popularity, slow moving items, damage, or theft.

CHAPTER 13

535

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

4,800

$64,250

1,200

$22,750

Alternative calculation if given

Cost of goods available for sale

$ 87,000

Cost of goods available for sale

goods available for sale and CGS or

Less cost of ending inventory

(22,750)

Less cost of goods sold

$ 87,000 (64,250)

EI.

Cost of goods sold

$ 64,250

Cost of ending inventory

$ 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

4,800

$75,000

1,200

1,200 Cost of goods available for sale

$12,000

Alternative calculation if given

Cost of goods available for sale

$ 87,000

goods available for sale and CGS or

Less cost of ending inventory

(12,000)

Less cost of goods sold

(75,000)

EI.

Cost of goods sold

$ 75,000

Cost of ending inventory

$ 12,000

$ 87,000

536

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

537

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

538

CHAPTER 13

Challenge Problem (Concluded) 20-2 Beginning inventory

Units

FIFO Cost/Unit

Cost

200

$3.00

$ 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

539

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 Date

Cost/ Unit

CGS

Cum. CGS

Cost/ Unit

Layer Cost

4/1

(1)

100

$4.30 $ 430

(BI)

(2)

100

4.50

450

(3)

200

4.60

920 $1,800

(1)

100

$4.30 $ 430

(2)

100

4.50

450

(3)

200

4.60

920

(4)

400

5.50

$5.50

Units

Cost/ Unit

Units

400

Total

Inventory on Hand Layer

4/20

Units

Cost of Goods Sold

$2,200

4/30

2,200 $4,000

400

$5.50 $2,200

(1)

100

$4.30 $ 430

200

4.60

920

(2)

4.50

225

Cost of Goods Sold during April

Total

225 $ 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

650

Cost of Goods Sold during April

$5.00 $3,250

$3,250

540

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

$100

(1)

100

$1.00

$100 $ 100

$440

(1)

100

$1.00

$100

(2)

400

1.10

440 $ 540

(1)

100

$1.00

$100

(2)

100

1.10

110 $ 210

(1)

100

$1.00

$100

(2)

100

1.10

110

(3)

300

1.30

390 $ 600

(1)

100

$1.00

$100

(2)

100

1.10

110

(3)

100

1.30

130 $ 340

(1)

100

$1.00

$100

(2)

100

1.10

110

(3)

100

1.30

130

(4)

200

1.35

270 $ 610

(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 $1,410

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 Total

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 $ 640

$540

Cost of Goods Sold during January

$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 13 541

542

CHAPTER 13

Exercise 13Apx-1B 1. Perpetual LIFO Purchases Date

Cost/ Unit

CGS

Cum. CGS

Cost/ Unit

Layer Cost

8/1

(1)

100

$8.00 $ 800

(BI)

(2)

150

8.10

1,215

(3)

250

8.30

2,075 $4,090

(1)

100

$8.00 $ 800

(2)

150

8.10

1,215

(3)

250

8.30

2,075

(4)

300

8.50

2,550 $6,640

$8.50

Units

Cost/ Unit

Units

300

Total

Inventory on Hand Layer

8/15

Units

Cost of Goods Sold

$2,550

8/31

300

$8.50 $2,550

(1)

100

$8.00 $ 800

250

8.30

2,075

(2)

8.10

100

8.10

810

Cost of Goods Sold during August

Total

405 $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

650

Cost of Goods Sold during August

$8.30 $5,395

$5,395

BI: Beginning Inventory

CHAPTER 13

543

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)

100

$2.00 $ 200

(2)

200

2.30

(1)

100

$2.00 $ 200

(2)

200

2.30

460

(3)

300

2.40

720 $1,380

(1)

100

$2.00 $ 200

(2)

200

2.30

(1)

100

$2.00 $ 200

(2)

200

2.30

460

(4)

200

2.50

500 $1,160

(1)

100

$2.00 $ 200

(2)

200

2.30

460

(4)

200

2.50

500

(5)

500

2.70

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

1,150 $1,350

460 $ 660

1,350 $2,510

500

$2.70 $1,350

(1)

100

$2.00 $ 200

200

2.50

500

(2)

100

2.30

100

2.30

230

$3,490

100

$2.30 $ 230

$3,720

(1)

100

$2.00 $ 200 $ 200

(1)

100

$2.00 $ 200

(6)

200

2.90

$ 580

Cost of Goods Sold during January

230 $ 430

580 $ 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

544 CHAPTER 13

CHAPTER 14 ADJUSTMENTS 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 spreadsheet are used to compute cost of goods sold: a. Beginning merchandise inventory b. Beginning estimated returns inventory c. Purchases d. Purchases returns and allowances e. Purchases discounts f. Freight-in g. Ending merchandise inventory h. Ending estimated returns 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 four steps in preparing an end-of-period spreadsheet are as follows: Step 1: Prepare the trial balance. Step 2: Prepare the adjustments. Step 3: Prepare the adjusted trial balance. Step 4: Compute net income by using the income statement accounts in the Adjusted Trial Balance columns.

End-of-period adjustments are made for merchandise sold this year, but expected to be returned next year, to compute a better measure of ending inventory and cost of goods sold. Further, revenues are reduced and current liabilities increased to reflect the estimated returns.

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.

546

CHAPTER 14

Exercise 14-1A Merchandise Inventory (Beg. Inv.) 45,000 (a) (b)

Income Summary 45,000

(a) 45,000

(b)

57,000

Exercise 14-2A Assets

Debit Credit + – Merchandise Inventory TB 60,000 60,000 (a) (b) 72,000 ATB 72,000

Liabilities

Owner's Equity

Debit Credit – + Customer Refunds Payable TB 4,000 (c) 1,000 ATB 5,000

Debit – (a) (d)

Drawing Estimated Returns Inventory TB

2,500 2,500

(e) ATB

Credit + Income Summary 60,000 (b) 72,000 2,500 (e) 3,000

Expenses

Revenues

Debit

Credit

Debit

Credit

Debit

Credit

–

– Sales

(d)

3,000 3,000 Sales Returns and Allowances TB 20,000 (c) 1,000 ATB 21,000

Exercise 14-3A Cost of goods sold: Merchandise inventory, January 1 Purchases Less: Purchases returns & allowances Purchases discounts Net purchases Add freight-in

$27,000 $78,000 $3,900 6,000

9,900 $68,100 350

Cost of goods purchased

68,450

Goods available for sale Less merchandise inventory, December 31

$95,450 22,000

Cost of goods sold

$73,450

CHAPTER 14

547

Exercise 14-4A Cost of goods sold: $27,000

Merchandise inventory, January 1

2,000

Estimated returns inventory, January 1

$29,000

$78,000

Purchases $3,900

Less: Purchases returns & allowances

6,000

Purchases discounts

9,900

Net purchases

$68,100

Add freight-in

350 68,450

Cost of goods purchased

$97,450

Goods available for sale $22,000

Less: Merchandise inventory, December 31

1,600

Estimated returns inventory, December 31

23,600 73,850

Cost of goods sold

Exercise 14-5A (a)

Cash 480,000

Unearned Ticket Revenue (a) 480,000 (b)

Ticket Revenue (b)

120,000

548

CHAPTER 14

Exercise 14-6A (1 and 2) A

Karen’s Gift Shop End-of-Period Spreadsheet (Partial) For Year Ended December 31, 20--

1 2 3 4

TRIAL BALANCE

ACCOUNT TITLE

DEBIT

ADJUSTMENTS

CREDIT

ADJUSTED TRIAL BALANCE

DEBIT

CREDIT

DEBIT

CREDIT

6 7 8

Merchandise Inventory

55,000.00

60,000.00

55,000.00

60,000.00

Estimated Returns Inventory

8,000.00

10,000.00

8,000.00

10,000.00

Customer Refunds Payable

Income Summary

55,000.00

60,000.00

55,000.00

60,000.00

8,000.00

10,000.00

8,000.00

10,000.00

12,000.00

280,000.00

Sales

Sales Returns & Allowances

18,000.00

Purchases

200,000.00

Purchases Returns & Allowances

Purchases Discounts Freight-In

15,000.00

3,000.00

280,000.00 21,000.00

3,000.00

200,000.00 3,000.00

3,000.00

2,500.00

1,400.00

(3)

Cost of goods sold: Merchandise inventory, January 1

$55,000

Estimated returns inventory, January 1

8,000

Purchases Less: Purchases returns & allowances

$200,000

$63,000

$3,000

Purchases discounts

2,500

5,500

Net purchases

$194,500

Add freight-in

1,400

Cost of goods purchased

195,900

Goods available for sale

$258,900

Less: Merchandise inventory, December 31

$60,000

Estimated returns inventory, December 31

10,000

70,000 188,900

Cost of goods sold

Exercise 14-7A Beginning merchandise inventory Ending merchandise inventory

$60,500 ($55,000 + $5,500) $66,000 ($60,000 + $6,000)

CHAPTER 14

549

Exercise 14-8A GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20--

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 Membership Fees

2 0 0 0 00

Membership Fees

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

550

CHAPTER 14

Exercise 14-9A GENERAL JOURNAL DATE 1

20--

PAGE POST. REF.

DESCRIPTION

DEBIT

1 Merchandise Inventory

June

CREDIT

500 0 0 0 00

Accounts Payable/Brij Builder’s Materials

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 14-10A Assets

Liabilities

Owner's Equity

Debit

Credit

Debit

Credit

Debit

Credit

–

Merchandise Inventory TB 150,000

Drawing

Estimated Returns Inventory

Customer Refunds Payable

500

(2)

5,400

(1) 7,150

ATB

5,900

ATB 7,800

ATB: Adjusted Trial Balance

650

Expenses

Revenues

Debit

Credit

Debit

Credit

Debit

Credit

–

Cost of Goods Sold TB

TB 425,000 (2)

ATB

Sales

288,000 282,600

5,400 Sales Returns and Allowances TB

18,000

(1)

7,150

ATB

25,150

CHAPTER 14

551

Exercise 14-11A GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Adjusting Entry 1 2

20--

Dec. 31

Inventory Short and Over Merchandise Inventory

25 0 0 0 00

552

CHAPTER 14

Problem 14-12A 1. and 2. A

Venice Beach Kite Shop End-of-Period Spreadsheet For the Year Ended December 31, 20--

1 2 3 4

ACCOUNT TITLE

TRIAL BALANCE DEBIT

ADJUSTMENTS

CREDIT

DEBIT

CREDIT

20,000.00

ADJUSTED TRIAL BALANCE DEBIT

Cash

Accounts Receivable

14,000.00

Merchandise Inventory

75,000.00

(b)

85,000.00 (a)

75,000.00

85,000.00

Estimated Returns Inventory

3,200.00

(e)

4,300.00 (d)

3,200.00

4,300.00

Supplies

8,000.00

(f)

4,700.00

3,300.00

Prepaid Insurance

5,400.00

(g)

1,600.00

3,800.00

Land

130,000.00

Building

250,000.00

Accum. Depr.—Building

Store Equipment

Accum. Depr.—Store Equip.

40,000.00

Accounts Payable

9,600.00

Customer Refunds Payable

3,500.00

Wages Payable

Sales Tax Payable

Unearned Rent Revenue

M. Young, Capital

M. Young, Drawing

Income Summary

14,000.00

100,000.00

(h)

112,500.00

12,500.00

100,000.00

100,000.00 45,000.00

(i)

5,000.00

(c)

2,200.00

5,700.00

(k)

3,500.00

9,600.00

5,900.00

8,900.00 (j)

4,500.00

4,400.00

284,310.00

26,000.00

26,000.00 (a)

75,000.00 (b)

85,000.00

75,000.00

85,000.00

(d)

3,200.00 (e)

4,300.00

3,200.00

4,300.00

(c)

2,200.00

Sales

Sales Returns and Allowances

525,140.00

Rent Revenue

Purchases

Purchases Returns and Allow.

1,400.00

Purchases Discounts

1,800.00

Freight-In

Wages Expense

125,000.00

Advertising Expense

13,000.00

Supplies Expense

Phone Expense

1,350.00

Utilities Expense

8,000.00

Insurance Expense

(g)

1,600.00

Depr. Expense—Building

(h)

12,500.00

Depr. Expense—Store Equip.

(i)

5,000.00

Rent Expense

14,500.00

525,140.00 16,700.00 (j)

4,400.00

125,000.00

125,000.00 1,400.00 1,800.00

2,100.00

2,100.00 (k)

128,500.00

3,500.00

13,000.00 (f)

4,700.00

1,350.00 8,000.00

5,000.00

60,000.00 980,550.00

201,400.00

1,093,050.00 1,093,050.00 456,650.00

Net Income

CREDIT

20,000.00

165,390.00

622,040.00

CHAPTER 14

553

Problem 14-12A (Concluded) 3. DATE

DESCRIPTION

DEBIT

CREDIT

Adjusting Entries

1 2

POST. REF.

20--

Dec. 31

Income Summary

75 0 0 0 00

Merchandise Inventory

75 0 0 0 00

4 5 6

31 Merchandise Inventory

85 0 0 0 00

Income Summary

85 0 0 0 00

7 8 9

31 Sales Returns and Allowances

2 2 0 0 00

Customer Refunds Payable

2 2 0 0 00

31 Income Summary

3 2 0 0 00

Estimated Returns Inventory

3 2 0 0 00 12 13

31 Estimated Returns Inventory

4 3 0 0 00

Income Summary

4 3 0 0 00 15

31 Supplies Expense

Supplies

4 7 0 0 00

4 7 0 0 00 18

19 20 21

31 Insurance Expense

1 6 0 0 00

Prepaid Insurance

1 6 0 0 00 21

22 23 24

31 Depreciation Expense—Building

12 5 0 0 00

Accumulated Depreciation—Building

12 5 0 0 00 24

25 26 27

31 Depreciation Expense—Store Equipment

5 0 0 0 00

Accumulated Depreciation—Store Equipment

5 0 0 0 00 27

28 29 30

31 Unearned Rent Revenue

4 4 0 0 00

Rent Revenue

4 4 0 0 00 30

31 32 33

9 10

13 14

6 7

10 11

31 Wages Expense Wages Payable

3 5 0 0 00

3 5 0 0 00 33

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

554

CHAPTER 14

Problem 14-13A 1. A

Sunstate Computer Supply End-of-Period Spreadsheet For the Year Ended December 31, 20--

1 2 3 4

ACCOUNT TITLE

TRIAL BALANCE DEBIT

ADJUSTMENTS

CREDIT

DEBIT

ADJUSTED TRIAL BALANCE

CREDIT

22,000.00

DEBIT

Cash

Accounts Receivable

15,400.00

Merchandise Inventory

82,500.00

(b)

93,500.00 (a)

Estimated Returns Inventory

3,520.00

(e)

4,730.00 (d)

3,520.00

4,730.00

Supplies

8,800.00

(f)

5,170.00

3,630.00

Prepaid Insurance

5,940.00

(g)

1,760.00

Land

143,000.00

Building

275,000.00

Accum. Depr.—Building

Store Equipment

Accum. Depr.—Store Equip.

44,000.00

Accounts Payable

10,560.00

Customer Refunds Payable

3,850.00

Wages Payable

Sales Tax Payable

Unearned Rent Revenue

M. Thibeault, Capital

M. Thibeault, Drawing

Income Summary

CREDIT

22,000.00 15,400.00

110,000.00

(h)

82,500.00

93,500.00

4,180.00

123,750.00

13,750.00

110,000.00

110,000.00 (i)

49,500.00

5,500.00

10,560.00 (c)

2,420.00

6,270.00

(j)

3,850.00

6,490.00

9,790.00 (k)

4,950.00

4,840.00

312,741.00

28,000.00

28,600.00

(a)

82,500.00 (b)

93,500.00

82,500.00

(d)

3,520.00 (e)

4,730.00

3,520.00

577,654.00

93,500.00 4,730.00

Sales

Sales Returns and Allowances

Rent Revenue

Purchases

Purchases Returns and Allow.

1,540.00

Purchases Discounts

1,980.00

Freight-In

Wages Expense

137,500.00

Advertising Expense

14,300.00

Supplies Expense

Phone Expense

1,485.00

Utilities Expense

8,800.00

Insurance Expense

(g)

1,760.00

Depr. Expense—Building

(h)

13,750.00

Depr. Expense—Store Equip.

(i)

5,500.00

Rent Expense

221,540.00

221,540.00 1,202,355.00 1,202,355.00

(c)

18,370.00

2,420.00 (k)

137,500.00

4,840.00

4,840.00 137,500.00

2,310.00

2,310.00 (j)

3,850.00

(f)

5,170.00

141,350.00 14,300.00 5,170.00 1,485.00 8,800.00

66,000.00 1,078,605.00 1,078,605.00

66,000.00 502,315.00

43 44

15,950.00

577,654.00

Net Income

181,929.00

684,244.00

CHAPTER 14

555

Problem 14-13A (Concluded) 2. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20--

Dec. 31

Income Summary

82 5 0 0 00

Merchandise Inventory

82 5 0 0 00

4 5 6

31 Merchandise Inventory

93 5 0 0 00

Income Summary

93 5 0 0 00

7 8 9

31 Sales Returns and Allowances

2 4 2 0 00

Customer Refunds Payable

2 4 2 0 00

31 Income Summary

3 5 2 0 00

Estimated Returns Inventory

3 5 2 0 00 12 13

31 Estimated Returns Inventory

4 7 3 0 00

Income Summary

4 7 3 0 00 15

31 Supplies Expense

Supplies

5 1 7 0 00

5 1 7 0 00 18

19 20 21

31 Insurance Expense

1 7 6 0 00

Prepaid Insurance

1 7 6 0 00 21

22 23 24

31 Depreciation Expense—Building

13 7 5 0 00

Accumulated Depreciation—Building

13 7 5 0 00 24

25 26 27

31 Depreciation Expense—Store Equipment

5 5 0 0 00

Accumulated Depreciation—Store Equipment

5 5 0 0 00 27

28 29 30

31 Wages Expense

3 8 5 0 00

Wages Payable

3 8 5 0 00 30

31 32 33

9 10

13 14

6 7

10 11

31 Unearned Rent Revenue Rent Revenue

4 8 4 0 00

4 8 4 0 00 33

556

CHAPTER 14

Exercise 14-1B (Beg. Inv.)

Merchandise Inventory 33,000 (a)

(b)

Income Summary 33,000

(a) 33,000

(b)

36,000

Exercise 14-2B Assets Debit Credit + – Merchandise Inventory TB 75,000 75,000 (a) (b) 80,000 ATB 80,000

Liabilities

Owner's Equity

Debit Credit – + Customer Refunds Payable TB 4,500 (c) 1,500 ATB 6,000

Debit – (a) (d)

Drawing Estimated Returns Inventory TB 3,000 3,000 (d) (e) 4,000 ATB 4,000

Debit +

Credit –

Credit + Income Summary 75,000 (b) 80,000 3,000 (e) 4,000

Expenses Debit +

Credit –

Revenues Debit –

Credit + Sales

Sales Returns and Allowances TB 15,000 (c) 1,500 ATB 16,500

Exercise 14-3B Cost of goods sold: Merchandise inventory, January 1 Purchases Less: Purchases returns & allowances Purchases discounts Net purchases Add freight-in

$29,000 $62,000 $2,800 3,400

6,200 $55,800 300

Cost of goods purchased

56,100

Goods available for sale Less merchandise inventory, December 31

$85,100 27,000

Cost of goods sold

58,100

CHAPTER 14

557

Exercise 14-4B Merchandise inventory, January 1

$29,000

Estimated returns inventory, January 1

2,600

Purchases

$31,600

$62,000

Less: Purchases returns & allowances

$2,800

Purchases discounts

3,400

6,200

Net purchases

$55,800

Add freight-in

300

Cost of goods purchased

56,100

Goods available for sale

$87,700

Less: Merchandise inventory, December 31

$27,000

Estimated returns inventory, December 31

3,500

30,500

Cost of goods sold

57,200

Exercise 14-5B (a)

Cash 24,000

Unearned Ticket Revenue (a) (b)

Ticket Revenue (b)

19,000

24,000

558

CHAPTER 14

Exercise 14-6B (1 and 2) A

Nick’s Gift Shop End-of-Period Spreadsheet (Partial) For Year Ended December 31, 20--

1 2 3 4

TRIAL BALANCE

ACCOUNT TITLE

DEBIT

CREDIT

ADJUSTMENTS

ADJUSTED TRIAL BALANCE

DEBIT

CREDIT

DEBIT

45,000.00

40,000.00

45,000.00

3,500.00

2,500.00

3,500.00

CREDIT

6 7 8

Merchandise Inventory

40,000.00 2,500.00

Estimated Returns Inventory

Customer Refunds Payable

Income Summary

5,000.00

500.00

5,500.00

40,000.00

45,000.00

40,000.00

45,000.00

2,500.00

3,500.00

2,500.00

3,500.00

175,000.00

Sales

Sales Returns & Allowances

13,000.00

Purchases

120,000.00

Purchases Returns & Allowances

Purchases Discounts 18 Freight-In

175,000.00 500.00

13,500.00 120,000.00

1,400.00

1,000.00

800.00

(3)

Cost of goods sold: Merchandise inventory, January 1

$40,000

Estimated returns inventory, January 1

2,500

Purchases Less: Purchases returns & allowances

$120,000

Purchases discounts

$42,500

$1,400 1,000

2,400

Net purchases

$117,600

Add freight-in

800

Cost of goods purchased

118,400

Goods available for sale Less: Merchandise inventory, December 31 Estimated returns inventory, December 31

$160,900 $45,000 3,500

48,500 112,400

Cost of goods sold

Exercise 14-7B Beginning merchandise inventory

$49,000 ($45,000 + $4,000)

Ending merchandise inventory

45,000 ($40,000 + $5,000)

CHAPTER 14

559

Exercise 14-8B GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20--

Dec. 31

Income Summary

35 0 0 0 00

Merchandise Inventory

35 0 0 0 00

4 5

31 Merchandise Inventory

30 0 0 0 00

Income Summary

30 0 0 0 00

7 8 9

Unearned Membership Revenue

5 5 0 0 00

Membership 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

560

CHAPTER 14

Exercise 14-9B GENERAL JOURNAL DATE 1

20--

PAGE POST. REF.

DESCRIPTION

DEBIT

1 Merchandise Inventory

May

CREDIT

200 0 0 0 00

Accounts Payable/Anju Enterprises

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 14-10B Assets

Liabilities

Owner's Equity

Debit

Credit

Debit

Credit

Debit

Credit

–

Merchandise Inventory TB 165,000

Drawing

Estimated Returns Inventory

Customer Refunds Payable

600

(2)

5,800

(1) 7,975

ATB

6,400

ATB 8,800

ATB: Adjusted Trial Balance

825

Expenses

Revenues

Debit

Credit

Debit

Credit

Debit

–

Cost of Goods Sold TB

255,000

ATB

249,200

Credit + Sales TB 450,000

(2)

5,800 Sales Returns and Allowances TB

16,000

(1)

7,975

ATB

23,975

CHAPTER 14

561

Exercise 14-11B GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31

Merchandise Inventory Inventory Short and Over

10 0 0 0 00

562

CHAPTER 14

Problem 14-12B 1. and 2. A

Basket Corner End-of-Period Spreadsheet For the Year Ended December 31, 20--

1 2 3 4

ACCOUNT TITLE

TRIAL BALANCE DEBIT

ADJUSTMENTS

CREDIT

DEBIT

CREDIT

24,000.00

ADJUSTED TRIAL BALANCE DEBIT

Cash

Accounts Receivable

16,800.00

Merchandise Inventory

90,000.00

(b) 102,000.00 (a)

Estimated Returns Inventory

3,840.00

(e)

5,160.00 (d)

3,840.00

5,160.00

Supplies

9,600.00

(f)

5,640.00

3,960.00

Prepaid Insurance

6,480.00

(g)

1,920.00

Land

156,000.00

Building

300,000.00

Accum. Depr.—Building

Store Equipment

Accum. Depr.—Store Equip.

48,000.00

Accounts Payable

11,520.00

Customer Refunds Payable

4,200.00

Wages Payable

Sales Tax Payable

Unearned Rent Revenue

10,680.00 (j)

L. Palermo, Capital

341,172.00

L. Palermo, Drawing

Income Summary

CREDIT

24,000.00 16,800.00

120,000.00

(h)

90,000.00

102,000.00

4,560.00

135,000.00

15,000.00

120,000.00

120,000.00 (i)

54,000.00

6,000.00

11,520.00 (c)

2,640.00

6,840.00

(k)

4,200.00

7,080.00

7,080.00 5,400.00

5,280.00

341,172.00

31,200.00

(a)

90,000.00 (b) 102,000.00

90,000.00

(d)

3,840.00 (e)

3,840.00

5,160.00

630,168.00

102,000.00 5,160.00

Sales

Sales Returns and Allowances

Rent Revenue

Purchases

Purchases Returns and Allow.

1,680.00

Purchases Discounts

2,160.00

Freight-In

Wages Expense

150,000.00

Advertising Expense

15,600.00

Supplies Expense

Phone Expense

1,620.00

Utilities Expense

9,600.00

Insurance Expense

(g)

1,920.00

Depr. Expense—Building

(h)

15,000.00

Depr. Expense—Store Equip.

(i)

6,000.00

Rent Expense

241,680.00

241,680.00 1,311,660.00 1,311,660.00

(c)

20,040.00

2,640.00 (j)

150,000.00

5,280.00

5,280.00 150,000.00

2,520.00

2,520.00 (k)

4,200.00

(f)

5,640.00

154,200.00 15,600.00 5,640.00 1,620.00 9,600.00

72,000.00 1,176,660.00 1,176,660.00

72,000.00 547,980.00

43 44

17,400.00

630,168.00

Net Income

198,468.00

746,448.00

CHAPTER 14

563

Problem 14-12B (Concluded) 3. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20--

Dec. 31

Income Summary

90 0 0 0 00

Merchandise Inventory

90 0 0 0 00

4 5 6

31 Merchandise Inventory

102 0 0 0 00

Income Summary

102 0 0 0 00

7 8 9

31 Sales Returns and Allowances

2 6 4 0 00

Customer Refunds Payable

2 6 4 0 00

31 Income Summary

3 8 4 0 00

Estimated Returns Inventory

3 8 4 0 00 12 13

31 Estimated Returns Inventory

5 1 6 0 00

Income Summary

5 1 6 0 00 15

31 Supplies Expense

Supplies

5 6 4 0 00

5 6 4 0 00 18

19 20 21

31 Insurance Expense

1 9 2 0 00

Prepaid Insurance

1 9 2 0 00 21

22 23 24

31 Depreciation Expense—Building

15 0 0 0 00

Accumulated Depreciation—Building

15 0 0 0 00 24

25 26 27

31 Depreciation Expense—Store Equipment

6 0 0 0 00

Accumulated Depreciation—Store Equipment

6 0 0 0 00 27

28 29 30

31 Unearned Rent Revenue

5 2 8 0 00

Rent Revenue

5 2 8 0 00 30

31 32 33

9 10

13 14

6 7

10 11

31 Wages Expense Wages Payable

4 2 0 0 00

4 2 0 0 00 33

564

CHAPTER 14

Problem 14-13B 1. A

Albers Pet Supply End-of-Period Spreadsheet For the Year Ended December 31, 20--

1 2 3 4

ACCOUNT TITLE

TRIAL BALANCE DEBIT

ADJUSTMENTS

CREDIT

DEBIT

ADJUSTED TRIAL BALANCE

CREDIT

Cash

26,000.00

Accounts Receivable

18,200.00

Merchandise Inventory

97,500.00

(b) 110,500.00 (a) (e)

DEBIT

CREDIT

26,000.00 18,200.00 97,500.00

110,500.00

Estimated Returns Inventory

4,160.00

5,590.00 (d)

4,160.00

5,590.00

Supplies

10,400.00

(f)

6,110.00

4,290.00

Prepaid Insurance

7,020.00

(g)

2,080.00

Land

169,000.00

Building

325,000.00

Accum. Depr.—Building

Store Equipment

4,940.00 169,000.00 325,000.00

130,000.00

(h)

16,250.00

Accum. Depr.—Store Equip.

52,000.00

(i)

6,500.00

Accounts Payable

12,480.00

Customer Refunds Payable

4,550.00

Wages Payable

Sales Tax Payable

7,670.00

Unearned Rent Revenue

11,570.00 (k)

C. Albers, Capital

C. Albers, Drawing

Income Summary

130,000.00

146,250.00 130,000.00 58,500.00 12,480.00

(c)

2,860.00

7,410.00

(j)

4,550.00

4,550.00 7,670.00 5,850.00

5,720.00

369,603.00

33,800.00

(a)

97,500.00 (b) 110,500.00

97,500.00

(d)

4,160.00 (e)

4,160.00

5,590.00

682,682.00

110,500.00 5,590.00

Sales

Sales Returns and Allowances

Rent Revenue

Purchases

Purchases Returns and Allow.

1,820.00

Purchases Discounts

2,340.00

Freight-In

Wages Expense

162,500.00

Advertising Expense

16,900.00

Supplies Expense

Phone Expense

1,755.00

Utilities Expense

10,400.00

Insurance Expense

(g)

2,080.00

Depr. Expense—Building

(h)

16,250.00

Depr. Expense—Store Equip.

(i)

6,500.00

Rent Expense

261,820.00

261,820.00 1,420,965.00 1,420,965.00

(c)

21,710.00

2,860.00 (k)

162,500.00

5,720.00

5,720.00 162,500.00

2,730.00

2,730.00 (j)

4,550.00

(f)

6,110.00

167,050.00 16,900.00

78,000.00 1,274,715.00 1,274,715.00

6,110.00

78,000.00 593,645.00

43 44

18,850.00

682,682.00

Net Income

215,007.00

808,652.00

CHAPTER 14

565

Problem 14-13B (Concluded) 2. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20--

Dec. 31

Income Summary

97 5 0 0 00

Merchandise Inventory

97 5 0 0 00

4 5 6

31 Merchandise Inventory

110 5 0 0 00

Income Summary

110 5 0 0 00

7 8 9

31 Sales Returns and Allowances

2 8 6 0 00

Customer Refunds Payable

2 8 6 0 00

31 Income Summary

4 1 6 0 00

Estimated Returns Inventory

4 1 6 0 00 12 13

31 Estimated Returns Inventory

5 5 9 0 00

Income Summary

5 5 9 0 00 15

31 Supplies Expense

Supplies

6 1 1 0 00

6 1 1 0 00 18

19 20 21

31 Insurance Expense

2 0 8 0 00

Prepaid Insurance

2 0 8 0 00 21

22 23 24

31 Depreciation Expense—Building

16 2 5 0 00

Accumulated Depreciation—Building

16 2 5 0 00 24

25 26 27

31 Depreciation Expense—Store Equipment

6 5 0 0 00

Accumulated Depreciation—Store Equipment

6 5 0 0 00 27

28 29 30

31 Wages Expense

4 5 5 0 00

Wages Payable

4 5 5 0 00 30

31 32 33

9 10

13 14

6 7

10 11

31 Unearned Rent Revenue Rent Revenue

5 7 2 0 00

5 7 2 0 00 33

566

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

567

Mastery Problem 1. A

Waikiki Surf Shop End-of-Period Spreadsheet For the Year Ended December 31, 20--

1 2 3 4

ACCOUNT TITLE

TRIAL BALANCE DEBIT

ADJUSTMENTS

CREDIT

DEBIT

ADJUSTED TRIAL BALANCE CREDIT

DEBIT

Cash

30,000.00

Accounts Receivable

22,500.00

Merchandise Inventory

56,200.00

(b)

51,800.00 (a)

56,200.00

51,800.00

Estimated Returns Inventory

800.00

(e)

1,200.00 (d)

800.00

1,200.00

Supplies

2,700.00

(f)

2,100.00

600.00

Prepaid Insurance

3,600.00

(g)

1,000.00

2,600.00

Land

115,000.00

Building

135,000.00

Accum. Depr.—Building

Store Equipment

CREDIT

115,000.00 135,000.00 24,000.00

(h)

5,000.00

Accum. Depr.—Store Equip.

22,500.00

(i)

3,000.00

Accounts Payable

15,000.00

Customer Refunds Payable

1,100.00

(c)

900.00

2,000.00

Wages Payable

(j)

1,800.00

Unearned Rent Revenue

33,000.00 (k)

J. Neff, Capital

240,100.00

J. Neff, Drawing

Income Summary

75,000.00

29,000.00 75,000.00 25,500.00 15,000.00

3,000.00

30,000.00

240,100.00

40,875.00

(a)

56,200.00 (b)

51,800.00

56,200.00

(d)

800.00 (e)

1,200.00

800.00

404,950.00

51,800.00 1,200.00

Sales

Sales Returns and Allowances

Rent Revenue

Purchases

Purchases Returns and Allow.

1,200.00

Purchases Discounts

1,500.00

Freight-In

Wages Expense

63,000.00

Advertising Expense

11,250.00

Supplies Expense

Phone Expense

5,250.00

Utilities Expense

18,000.00

Insurance Expense

(g)

Depr. Expense—Building

Depr. Expense—Store Equip.

(c)

6,900.00

900.00 (k)

30,000.00

157,500.00

675.00

743,350.00

675.00 (j)

1,800.00

(f)

2,100.00

64,800.00 11,250.00

743,350.00

2,100.00

1,000.00

(h)

5,000.00

(i)

3,000.00

153,800.00

807,050.00 807,050.00 373,350.00 490,650.00

41 42

6,000.00

404,950.00

Net Income

117,300.00

568

CHAPTER 14

Mastery Problem 2. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20--

Dec. 31

Income Summary

56 2 0 0 00

Merchandise Inventory

56 2 0 0 00

4 5 6

31 Merchandise Inventory

51 8 0 0 00

Income Summary

51 8 0 0 00

7 8 9

31 Sales Returns and Allowances

9 0 0 00

Customer Refunds Payable

9 0 0 00

31 Income Summary

8 0 0 00

Estimated Returns Inventory

8 0 0 00 12 13

31 Estimated Returns Inventory

1 2 0 0 00

Income Summary

1 2 0 0 00 15

31 Supplies Expense

Supplies

2 1 0 0 00

2 1 0 0 00 18

19 20 21

31 Insurance Expense

1 0 0 0 00

Prepaid Insurance

1 0 0 0 00 21

22 23 24

31 Depreciation Expense—Building

5 0 0 0 00

Accumulated Depreciation—Building

5 0 0 0 00 24

25 26 27

31 Depreciation Expense—Store Equipment

3 0 0 0 00

Accumulated Depreciation—Store Equipment

3 0 0 0 00 27

28 29 30

9 10

13 14

6 7

10 11

31 Wages Expense

1 8 0 0 00

Wages Payable

1 8 0 0 00 30

31 Unearned Boat Rental Revenue

Boat Rental Revenue

30 0 0 0 00

30 0 0 0 00 33

CHAPTER 14

569

Mastery Problem (Concluded) 3. Cost of goods sold: $56,200

Merchandise inventory, January 1

800

Estimated returns inventory, January 1

$157,500

Purchases Less: Purchases returns & allowances Purchases discounts

$1,200 1,500

2,700

Net purchases

$154,800

Add freight-in

675 155,475

Cost of goods purchased

$212,475

Goods available for sale Less: Merchandise inventory, December 31 Estimated returns inventory, December 31

$57,000

$51,800 1,200

53,000

Cost of goods sold

159,475

570

CHAPTER 14

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.

CHAPTER 14

571

APPENDIX: EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Exercise 14Apx-1A GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec.

31 Prepaid Advertising

4 0 0 00

Advertising Expense

4 0 0 00

Exercise 14Apx-1B GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

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 end-of-period spreadsheet 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

574

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--

$ 35,000

Est. returns inv., Jan. 1, 20--

2,000

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

97,670

Goods available for sale Less: Merch. inv., Dec. 31, 20-Est. returns inv. Dec. 31, 20-Cost of goods sold

$ 37,000

$134,670 $ 29,500 1,500

31,000 $103,670

CHAPTER 15

575

Exercise 15-3A Sauter Office Supplies Income Statement For Year Ended December 31, 20-Revenue from sales: Sales Less: Sales ret. & allow. Sales discounts

$156,300 $

Net sales Cost of goods sold: Merch. inv., Jan. 1, 20-Est. returns inv., Jan. 1, 20-Purchases Less: Purch. ret. & allow. Purch. discounts Net purchases Add freight-in Cost of goods purchased Goods available for sale Less: Merch. inv., Dec. 31, 20-Est. returns inv., Dec. 31, 20-Cost of goods sold Gross profit Operating expenses: Wages expense Supplies expense Phone expense Utilities expense Insurance expense Depr. exp.—equipment Miscellaneous expense Total operating expenses Income from operations Other revenues: Interest revenue Other expenses: Interest expense Net income

2,360 4,167

6,527 $149,773)

$ 29,000 600

$ 29,600

$112,000 $5,640 2,690

8,330 $103,670 875 104,545 $134,145 $ 32,000 1,000

33,000 101,145) $ 48,628) $ 27,600 700 900 8,000 1,300 3,800 590 42,890) $ 5,738) $

425 4,700

(4,275) $

1,463)

576

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

577

Exercise 15-5A 1.

GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

PAGE

31 Sales

420 1 1 2 00

Rent Revenue

3 5 2 0 00

Purchases Returns and Allowances

1 1 2 0 00

Purchases Discounts

1 4 4 0 00

Income Summary

426 1 9 2 00

7 8

6 7

31 Income Summary

302 7 6 0 00

Sales Returns and Allowances

13 3 6 0 00

Purchases

100 0 0 0 00 10

Freight-in

1 6 8 0 00 11

Wages Expense

102 8 0 0 00 12

Advertising Expense

10 4 0 0 00 13

Supplies Expense

3 7 6 0 00 14

Phone Expense

1 0 8 0 00 15

Utilities Expense

6 4 0 0 00 16

Insurance Expense

1 2 8 0 00 17

Depr. Expense—Building

10 0 0 0 00 18

Depr. Expense—Store Equipment

4 0 0 0 00 19

Rent Expense

48 0 0 0 00 20

21 22 23

31 Income Summary

132 3 1 2 00

J.M. Gimble, Capital

132 3 1 2 00 23

24 25 26

31 J.M. Gimble, Capital J.M. Gimble, Drawing

20 8 0 0 00

20 8 0 0 00 26

578

CHAPTER 15

Exercise 15-5A (Continued) Account: Income Summary DATE 20-1 Dec.

ITEM

Acct No. 331 POST. REF.

DEBIT

Adjusting

Closing

302 7 6 0 00

Closing

132 3 1 2 00

CREDIT

60 0 0 0 00

BALANCE DEBIT

CREDIT

60 0 0 0 00 68 0 0 0 00

8 0 0 0 00

5 4 4 0 00

3 4 4 0 00

8 8 8 0 00

426 1 9 2 00

435 0 7 2 00

132 3 1 2 00

2 5 6 0 00

CHAPTER 15

579

Exercise 15-5A (Concluded) 2. A

Gimble’s Gifts and Gadgets

Post-Closing Trial Balance

December 31, 20-1

Cash

16,000.00

Accounts Receivable

11,200.00

Merchandise Inventory

68,000.00

Estimated Returns Inventory

3,440.00

Supplies

2,640.00

Prepaid Insurance

3,040.00

Land

104,000.00

Building

200,000.00

Accumulated Depreciation—Building

Store Equipment

Accumulated Depreciation—Store Equipment

36,000.00

Accounts Payable

7,680.00

Customer Refunds Payable

4,560.00

Wages Payable

2,800.00

Sales Tax Payable

4,720.00

Unearned Subscriptions Revenue

3,600.00

J.M. Gimble, Capital

90,000.00 80,000.00

338,960.00 488,320.00

488,320.00

22 23 24 25 26 27 28

Don’t forget to update the capital account before preparing the post-closing trial balance. J.M. Gimble, Capital Drawing

20,800.00

227,448.00 132,312.00 338,960.00

(net income) Bal.

580

CHAPTER 15

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

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

Bal.

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

CHAPTER 15

581

Problem 15-8A 1. Paulson’s Pet Store Income Statement For Year Ended December 31, 20-Revenue from Sales Sales

$326,040

Less: Sales ret. and allow.

5,360

Net sales

$320,680

Cost of goods sold: Merch. inv., Jan. 1, 20--

$ 59,200

Est. returns inv., Jan. 1, 20--

800

Purchases

$ 60,000

$162,640

Less: Purch. ret. and allow.

$4,080

Purchases discounts

3,200

7,280

Net purchases

$155,360

Add freight-in

1,600

Cost of goods purchased

156,960

Goods available for sale

$216,960

Less: Merch. inv. Dec.31, 20--

$ 64,800

Est ret. inv, Jan. 1, 20--

1,200

66,000

Cost of goods sold

150,960

Gross profit

$169,720

Operating expenses: Wages expense

$ 69,400

Advertising expense

1,200

Supplies expense

800

Phone expense

2,736

Utilities expense

2,864

Insurance expense

1,600

Depr. expense—building

10,000

Depr. expense—store equipment

1,800

Miscellaneous expense

600

Total operating expenses Income from operations

91,000 $ 78,720

Other expenses: Interest expense Net income

640 $ 78,080

582

CHAPTER 15

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--

$504,320

Add additional investments

30,000

Total investment Net income for the year Less withdrawals for the year

$534,320 $78,080 4,800

Increase in capital B. Paulson, capital, December 31, 20--

73,280 $607,600

CHAPTER 15

583

Problem 15-8A (Concluded) 3. Paulson’s Pet Store Balance Sheet December 31, 20-Assets

1 2

Current assets:

Cash

$ 23,440

Accounts receivable

9,360

Merchandise inventory

64,800

Estimated returns inventory

1,200

Supplies

2,400

Prepaid insurance

1,800

Total current assets

Property, plant, and equipment:

Land

Building

Less accumulated depreciation

Equipment

Less accumulated depreciation

$103,000

9 10

$ 90,000

$350,000 20,000

330,000

$120,000 3,600

116,400

Total assets

536,400 15 $639,400 16

Liabilities

18 19

Current liabilities:

Note payable

18 19

2,000

Accounts payable

9,560

Customer refunds payable

1,600

Wages payable

1,200

Sales tax payable

3,440

25 26

Total current liabilities

$ 17,800

Long-term liabilities:

Note payable

Less current portion

Total liabilities

$ 16,000 2,000

14,000

$ 31,800 29

30 31

Owner’s Equity

B. Paulson, capital

607,600 32

Total liabilities and owner’s equity

$639,400 33

584

CHAPTER 15

Problem 15-9A a.

Solutions assume no rounding until final answer.

Current Ratio: Current Assets

= $103,000

Current Liabilities

$17,800

5.8 to 1

1.8 to 1

Quick Ratio: Quick Assets

$32,800*

Current Liabilities

$17,800

*Cash

$23,440

Accts. Rec.

9,360 $32,800

Working Capital = Current Assets − Current Liabilities $103,000 − $17,800

$85,200

Return on Owner’s Equity: Net Income

$78,080

Average Owner’s Equity

14.0%

= 32.8

365

$555,960*

*Jan. 1

$504,320

Dec. 31

$607,600

Average

$555,960

Accounts Receivable Turnover: Net Credit Sales for the Period

$320,680

Average Accounts Receivable

$9,780*

*A/R 1-1

$10,200

A/R 12-31

$9,360

Average

$9,780

= 11.1 days to collect

32.8

Inventory Turnover: CGS Average Inventory

$150,960 63,000*

*Inv. 1-1

$60,000

Inv. 12-31

$66,000

Average

$63,000

= 2.4

365

152.1 days to sell

2.4

CHAPTER 15

585

Problem 15-10A 1. A

Vicki’s Fabric Store End-of-Period Spreadsheet For the Year Ended December 31, 20-1

1 2 3 4

ACCOUNT TITLE

TRIAL BALANCE DEBIT

ADJUSTMENTS

CREDIT

DEBIT

ADJUSTED TRIAL BALANCE

CREDIT

DEBIT

Cash

28,000.00

Accounts Receivable

14,200.00

Merchandise Inventory

30,000.00

(b)

31,600.00 (a)

30,000.00

31,600.00

Estimated Returns Inventory

3,000.00

(e)

1,800.00 (d)

3,000.00

1,800.00

Supplies

1,600.00

(f)

1,250.00

350.00

Prepaid Insurance

3,600.00

(g)

2,400.00

1,200.00

Land

120,000.00

Building

400,000.00

Accum. Depr.—Building

Equipment

CREDIT

60,000.00

(h)

20,000.00

Accum. Depr.—Equipment

12,000.00

(i)

4,000.00

Accounts Payable

11,420.00

Customer Refunds Payable

4,200.00 (c)

Wages Payable

Sales Tax Payable

Unearned Customer Des. Rev.

5,000.00 (k)

Note Payable

80,000.00

Vicki Roberts, Capital

387,620.00

Vicki Roberts, Drawing

Income Summary

90,000.00

80,000.00 90,000.00 16,000.00 11,420.00

1,700.00

2,500.00 (j)

520.00

2,000.00

2,000.00 3,800.00

1,200.00

21,610.00

(a)

30,000.00 (b)

31,600.00

30,000.00

(d)

3,000.00 (e)

1,800.00

3,000.00

Sales

374,500.00

Sales Returns and Allowances

Costume Design Revenue

Purchases

Purchases Returns and Allow.

Purchases Discounts

Freight-in

Wages Expense

Advertising Expense

Supplies Expense

Phone Expense

1,210.00

Utilities Expense

3,240.00

Insurance Expense

(g)

2,400.00

Depr. Expense—Building

(h)

20,000.00

Depr. Expense—Equipment

(i)

4,000.00

Interest Expense

44 45

Net Income

1,800.00 374,500.00

12,800.00 1,200.00

(c)

1,700.00

(k)

3,800.00

141,500.00

11,100.00 5,000.00 141,500.00

1,800.00

830.00

800.00

65,000.00

(j)

520.00

65,520.00

(f)

1,250.00

810.00

3,200.00 940,570.00

31,600.00

3,200.00 940,570.00

100,070.00

996,790.00

288,030.00

415,530.00

127,500.00

586

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

30 0 0 0 00

Merchandise Inventory

30 0 0 0 00

4 5 6

31 Merchandise Inventory

31 6 0 0 00

Income Summary

31 6 0 0 00

7 8 9

31 Sales Returns and Allowances

1 7 0 0 00

Customer Refunds Payable

1 7 0 0 00

31 Income Summary

3 0 0 0 00

Estimated Returns Inventory

3 0 0 0 00 12 13

31 Estimated Returns Inventory

Income Summary

1 8 0 0 00

1 8 0 0 00 15

31 Supplies Expense

1 2 5 0 00

Supplies

1 2 5 0 00 18

19 20 21

31 Insurance Expense

2 4 0 0 00

Prepaid Insurance

2 4 0 0 00 21

22 23 24

31 Depreciation Expense—Building

20 0 0 0 00

Accumulated Depreciation—Building

20 0 0 0 00 24

25 26 27

31 Depreciation Expense—Equipment

4 0 0 0 00

Accumulated Depreciation—Equipment

4 0 0 0 00 27

28 29 30

9 10

6 7

10 11

31 Wages Expense

5 2 0 00

Wages Payable

5 2 0 00 30

31 Unearned Costume Design Revenue

Costume Design Revenue

3 8 0 0 00

3 8 0 0 00 33

CHAPTER 15

587

Problem 15-10A (Continued) GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

PAGE

31 Sales

374 5 0 0 00

Costume Design Revenue

5 0 0 0 00

Purchases Returns and Allowances

1 8 0 0 00

Purchases Discounts

8 3 0 00

Income Summary

382 1 3 0 00

588

CHAPTER 15

Problem 15-10A (Continued) GENERAL JOURNAL DATE

DESCRIPTION

31 Income Summary

PAGE POST. REF.

DEBIT

CREDIT

255 0 3 0 00

Sales Returns and Allowances

11 1 0 0 00

Purchases

141 5 0 0 00

Freight-in

8 0 0 00

Wages Expense

65 5 2 0 00

Advertising Expense

8 1 0 00

Supplies Expense

1 2 5 0 00

Phone Expense

1 2 1 0 00

Utilities Expense

3 2 4 0 00

Insurance Expense

2 4 0 0 00 10

Depr. Expense—Building

20 0 0 0 00 11

Depr. Expense—Store Equipment

4 0 0 0 00 12

Interest Expense

3 2 0 0 00 13

31 Income Summary

127 5 0 0 00

Vicki Roberts, Capital

127 5 0 0 00 16

31 Vicki Roberts, Capital

21 6 1 0 00

Vicki Roberts, Drawing

21 6 1 0 00 19

BI B-ERI Exp NI ERI: Estimated Returns Inventory

ATB Net Income Bal.

Reversing Entries

20-2

EI E-ERI Rev.

Vicki Roberts, Capital 387,620.00 21,610.00 127,500.00 493,510.00

Drawing

Income Summary 30,000.00 31,600.00 3,000.00 1,800.00 382,130.00 255,030.00 127,500.00

Jan.

Wages Payable Wages Expense

5 2 0 00

5 2 0 00 23

CHAPTER 15

589

Problem 15-10A (Concluded) 4. A 1

Vicki’s Fabric Store

Post-Closing Trial Balance

December 31, 20-1

ACCOUNT

DEBIT BALANCE

CREDIT BALANCE

Cash

28,000.00

Accounts Receivable

14,200.00

Merchandise Inventory

31,600.00

Estimated Returns Inventory

1,800.00

Supplies

Prepaid Insurance

Land

120,000.00

Building

400,000.00

Accumulated Depreciation—Building

Equipment

Accumulated Depreciation—Equipment

16,000.00

Accounts Payable

11,420.00

Customer Refunds Payable

2,500.00

Wages Payable

520.00

Sales Tax Payable

2,000.00

Unearned Costume Design Revenue

1,200.00

Note Payable

80,000.00

Vicki Roberts, Capital

350.00 1,200.00

80,000.00 90,000.00

493,510.00 687,150.00

687,150.00

25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42

590

CHAPTER 15

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-Est. returns inv., Jan. 1, 20--

$13,000 800

Purchases Less: Purch. ret. & allow. Purch. discounts

$71,300

Net purchases Add freight-in Cost of goods purchased Goods available for sale Less: Merch. inv., Dec. 31, 20-Est. returns inv., Dec. 31, 20--

$3,188 1,460

$13,800

4,648 $66,652 390 67,042 $80,842 $20,000 1,400

21,400

Cost of goods sold

$59,442

CHAPTER 15

591

Exercise 15-3B Aeito’s Plumbing Supplies Income Statement For Year Ended December 31, 20-Revenue from sales: Sales Less: Sales ret. & allow. Sales discounts Net sales Cost of goods sold: Merch. inv., Jan. 1, 20-Est. returns inv., Jan. 1, 20-Purchases Less: Purch. ret. & allow. Purch. discounts Net purchases Add freight-in Cost of goods purchased Goods available for sale Less: Merch. inv., Dec. 31, 20-Est. returns inv., Dec. 31, 20-Cost of goods sold Gross profit Operating expenses: Wages expense Supplies expense Phone expense Utilities expense Insurance expense Depr. exp.—building

$166,000 $

1,620 3,320

4,940 $161,060

$ 32,600 600 $111,300 $3,600 2,226

$ 33,200

5,826 $105,474 640 106,114 $139,314 $ 29,200 400

29,600 109,714 $ 51,346 $ 22,000 650 1,100 9,000 1,000 4,600

Depr. exp.—equipment

2,800

Miscellaneous expense Total operating expenses Income from operations Other revenues: Interest revenue

214 41,364 $ 9,982 $

3,184

Other expenses: Interest expense Net income

1,126

2,058 $ 12,040

592

CHAPTER 15

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

CHAPTER 15

593

Exercise 15-5B 1.

GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

PAGE

31 Sales

472 6 2 6 00

Rent Revenue

3 9 6 0 00

Purchases Returns and Allowances

1 2 6 0 00

Purchases Discounts

1 6 2 0 00

Income Summary

479 4 6 6 00

7 8

6 7

31 Income Summary

340 6 0 5 00

Sales Returns and Allowances

15 0 3 0 00

Purchases

112 5 0 0 00 10

Freight-in

1 8 9 0 00 11

Wages Expense

115 6 5 0 00 12

Advertising Expense

11 7 0 0 00 13

Supplies Expense

4 2 3 0 00 14

Phone Expense

1 2 1 5 00 15

Utilities Expense

7 2 0 0 00 16

Insurance Expense

1 4 4 0 00 17

Depr. Expense—Building

11 2 5 0 00 18

Depr. Expense—Store Equipment

4 5 0 0 00 19

Rent Expense

54 0 0 0 00 20

21 22 23

31 Income Summary

148 8 5 1 00

L. Marlow, Drawing

148 8 5 1 00 23

24 25 26

31 L. Marlow, Drawing L. Marlow, Drawing

23 4 0 0 00

23 4 0 0 00 26

594

CHAPTER 15

Exercise 15-5B (Continued) Account: Income Summary DATE 20-1 Dec.

ITEM

Acct No. 331 POST. REF.

DEBIT

Adjusting

Closing

340 6 0 5 00

Closing

148 8 5 1 00

CREDIT

67 5 0 0 00

BALANCE DEBIT

CREDIT

67 5 0 0 00 76 5 0 0 00

9 0 0 0 00

6 1 2 0 00

3 8 7 0 00

9 9 9 0 00

479 4 6 6 00

489 4 5 6 00

148 8 5 1 00

2 8 8 0 00

CHAPTER 15

595

Exercise 15-5B (Concluded) 2. A

Balloons and Baubbles

Post-Closing Trial Balance

December 31, 20-1

3 4

Cash

18,000.00

Accounts Receivable

12,600.00

Merchandise Inventory

76,500.00

Estimated Returns Inventory

3,870.00

Supplies

2,970.00

Prepaid Insurance

Land

117,000.00

3,420.00

Building

225,000.00

Accumulated Depreciation—Building

Store Equipment

Accumulated Depreciation—Store Equipment

40,500.00

Accounts Payable

8,640.00

Customer Refunds Payable

5,130.00

Wages Payable

3,150.00

Sales Tax Payable

5,310.00

Unearned Repair Revenue

4,050.00

L. Marlow, Capital

101,250.00 90,000.00

381,330.00 549,360.00

549,360.00

22 23 24 25 26 27 28

Don’t forget to update the capital account before preparing the post-closing trial balance.

Drawing

L. Marlow, Capital 255,879.00 23,400.00 148,851.00 381,330.00

(net income) Bal.

596

CHAPTER 15

Exercise 15-6B GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Reversing Entry

20-2 2

PAGE

1 Wages Payable

Jan.

3 1 5 0 00

Wages Expense

3 1 5 0 00 3

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

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

Bal.

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

840 840

Wages Expense 20,080

12/31/-1 Adj.

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

597

Problem 15-8B 1. Backlund Farm Supply Income Statement For Year Ended December 31, 20-Revenue from Sales: Sales

$358,644

Less: Sales Returns & Allowances

5,896

Net sales

$352,748

Cost of goods sold: Merchandise inv., Jan. 1, 20--

$ 65,120

Estimated returns inventory

880

Purchases Less: Purchases ret. & allow. Purchases discounts

$ 66,000

$178,904 $4,488 3,520

8,008

Net purchases

$170,896

Add freight-in

1,760

Cost of goods purchased

172,656

Goods available for sale

$238,656

Less: Merchandise inv., Dec. 31, 20-Estimated returns inv.

$ 71,280 1,320

72,600

Cost of goods sold

166,056

Gross profit

$186,692

Operating expenses: Wages expense

$ 76,340

Advertising expense

1,320

Supplies expense

880

Phone expense

3,010

Utilities expense

3,150

Insurance expense

1,760

Depr. exp.— building

11,000

Depr. exp.— store equipment

1,980

Miscellaneous expense

660

Total operating expenses Income from operations

100,100 $ 86,592

Other expenses: Interest expense Net income

704 $ 85,888

598

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--

$507,752

Add additional investments

80,000

Total investment Net income for the year Less withdrawals for the year

$587,752 $85,888 5,280

Increase in capital J. Backlund, capital, December 31, 20--

80,608 $668,360

CHAPTER 15

599

Problem 15-8B (Concluded) 3. Backlund Farm Supply Balance Sheet December 31, 20-Assets Current assets: Cash

$ 25,784

Accounts receivable

10,296

Merchandise inventory

71,280

Estimated returns inventory

1,320

Supplies

2,640

Prepaid insurance

1,980

Total current assets

$113,300

Property, plant, and equipment: Land

$ 99,000

Building

$385,000

Less accumulated depreciation Store Equipment

22,000

363,000

$132,000

Less accumulated depreciation

3,960

128,040

Total assets

590,040 $703,340

Liabilities Current liabilities: Note payable

3,000

Accounts payable

10,516

Customer refunds payable

1,760

Wages payable

1,320

Sales tax payable

3,784

Total current liabilities

$ 20,380

Long-term liabilities: Note payable Less current portion Total liabilities

$ 17,600 3,000

14,600 $ 34,980

Owner’s Equity J. Backlund, capital

668,360

Total liabilities and owner’s equity

$703,340

600

CHAPTER 15

Problem 15-9B a.

Solutions assume no rounding until final answer.

Current Ratio: Current Assets

= $113,300

Current Liabilities

$20,380

5.6 to 1

1.8 to 1

Quick Ratio: Quick Assets

$36,080

Current Liabilities

$20,380

Cash

$25,784

Accts. Rec.

10,296 $36,080

Working Capital = Current Assets − Current Liabilities $113,300 − $20,380

$92,920

Return on Owner’s Equity: Net Income

$85,888

Average Owner’s Equity

14.6%

$588,056

Jan. 1

$507,752

Dec. 31

$668,360

Average

$588,056

Accounts Receivable Turnover: Net Credit Sales for the Period

$210,000

Average Accounts Receivable

= 20.9

$10,048*

* A/R 1-1

$ 9,800

A/R 12-31

$10,296

Average

$10,048

365

= 17.5 days to collect

20.9

Inventory Turnover: CGS Average Inventory

$166,056 $69,300*

* Inv. 1-1

$66,000

Inv. 12-31

$72,600

Average

$69,300

2.4

365

152.3 days to sell

2.4

CHAPTER 15

601

Problem 15-10B 1. A

Danbury Kite Shop End-of-Period Spreadsheet For the Year Ended December 31, 20-1

1 2 3 4

ACCOUNT TITLE

TRIAL BALANCE DEBIT

ADJUSTMENTS

CREDIT

DEBIT

ADJUSTED TRIAL BALANCE

CREDIT

DEBIT

Cash

33,600.00

Accounts Receivable

17,040.00

Merchandise Inventory

36,000.00

(b)

37,920.00 (a)

36,000.00

37,920.00

Estimated Returns Inventory

3,600.00

(e)

2,160.00 (d)

3,600.00

2,160.00

Supplies

1,920.00

(f)

1,500.00

420.00

Prepaid Insurance

4,320.00

(g)

2,880.00

1,440.00

Land

144,000.00

Building

480,000.00

Accum. Depr.—Building

Equipment

CREDIT

144,000.00 480,000.00 72,000.00

(h)

24,000.00

Accum. Depr.—Equip.

14,400.00

(i)

4,800.00

Accounts Payable

13,744.00

Customer Refunds Payable

5,000.00 (c)

Wages Payable

Sales Tax Payable

2,400.00

Unearned Repair Revenue

6,000.00 (k)

Note Payable

96,000.00

W. Danbury, Capital

465,144.00

W. Danbury, Drawing

Income Summary

108,000.00

96,000.00 108,000.00 19,200.00 13,744.00

2,000.00

3,000.00 (j)

624.00

624.00 2,400.00

4,560.00

1,440.00

25,932.00

(a)

36,000.00 (b)

37,920.00

36,000.00

(d)

3,600.00 (e)

2,160.00

3,600.00

449,400.00

37,920.00 2,160.00

Sales

Sales Returns and Allowances

Repair Revenue

Purchases

Purchases Returns and Allow.

Purchases Discounts

Freight-In

Wages Expense

Advertising Expense

Supplies Expense

Phone Expense

1,452.00

Utilities Expense

3,888.00

Insurance Expense

(g)

2,880.00

Depr. Expense—Building

(h)

24,000.00

Depr. Expense—Equip.

(i)

4,800.00

Interest Expense

120,044.00

120,044.00 1,196,188.00 1,196,188.00

1,440.00 169,800.00

(c)

2,000.00

(k)

4,560.00

13,360.00 6,000.00 169,800.00

2,160.00

996.00

960.00 78,000.00

960.00 (j)

624.00

78,624.00

(f)

1,500.00

972.00

972.00 1,452.00 3,888.00

3,840.00

3,840.00 345,676.00

44 45

15,360.00

1,128,684.00 1,128,684.00

449,400.00

Net Income

152,960.00

498,636.00

602

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

36 0 0 0 00

Merchandise Inventory

36 0 0 0 00

4 5 6

31 Merchandise Inventory

37 9 2 0 00

Income Summary

37 9 2 0 00

31 Sales Returns and Allowances

Customer Refunds Payable

2 0 0 0 00

31 Income Summary

3 6 0 0 00

Estimated Returns Inventory

3 6 0 0 00 12 13

31 Estimated Returns Inventory

Income Summary

2 1 6 0 00

2 1 6 0 00 15

31 Supplies Expense

1 5 0 0 00

Supplies

1 5 0 0 00 18

19 20 21

31 Insurance Expense

2 8 8 0 00

Prepaid Insurance

2 8 8 0 00 21

22 23 24

31 Depreciation Expense—Building

24 0 0 0 00

Accumulated Depreciation—Building

24 0 0 0 00 24

25 26 27

31 Depreciation Expense—Equipment

4 8 0 0 00

Accumulated Depreciation—Equipment

4 8 0 0 00 27

28 29 30

31 Wages Expense

6 2 4 00

Wages Payable

6 2 4 00 30

31 32 33

9 10

6 7

31 Unearned Repair Revenue Repair Revenue

4 5 6 0 00

4 5 6 0 00 33

CHAPTER 15

603

Problem 15-10B (Continued) GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

20-1 2

PAGE

Dec. 31

Sales

449 4 0 0 00

Repair Revenue

6 0 0 0 00

Purchases Returns and Allowances

2 1 6 0 00

Purchases Discounts

9 9 6 00

Income Summary

458 5 5 6 00

604

CHAPTER 15

Problem 15-10B (Continued) GENERAL JOURNAL DATE 20-1 1

DESCRIPTION

Dec. 31

Income Summary

PAGE POST. REF.

DEBIT

CREDIT

306 0 7 6 00

Sales Returns and Allowances

13 3 6 0 00

Purchases

169 8 0 0 00

Freight-in

9 6 0 00

Wages Expense

78 6 2 4 00

Advertising Expense

9 7 2 00

Supplies Expense

1 5 0 0 00

Phone Expense

1 4 5 2 00

Utilities Expense

3 8 8 8 00

Insurance Expense

2 8 8 0 00 10

Depr. Expense—Building

24 0 0 0 00 11

Depr. Expense—Equipment

4 8 0 0 00 12

Interest Expense

3 8 4 0 00 13

Income Summary

152 9 6 0 00

William Danbury, Capital

152 9 6 0 00 16

William Danbury, Capital

25 9 3 2 00

William Danbury, Drawing

25 9 3 2 00 19

BI B-ERI Exp NI ERI: Estimated Returns Inventory

ATB Net Income Bal.

Reversing Entries

20-2

EI E-ERI Rev.

William Danbury, Capital 465,144.00 25,932.00 152,960.00 592,172.00

Drawing

Income Summary 36,000.00 37,920.00 3,600.00 2,160.00 458,556.00 306,076.00 152,960.00

Jan.

1 Wages Payable

6 2 4 00

Wages Expense

6 2 4 00 23

CHAPTER 15

605

Problem 15-10B (Concluded) 4. A 1

Danbury Kite Shop

Post-Closing Trial Balance

December 31, 20-1

ACCOUNT

DEBIT BALANCE

CREDIT BALANCE

Cash

33,600.00

Accounts Receivable

17,040.00

Merchandise Inventory

37,920.00

Estimated Returns Inventory

2,160.00

Supplies

Prepaid Insurance

Land

144,000.00

Building

480,000.00

Accumulated Depreciation—Building

Equipment

Accumulated Depreciation—Equipment

19,200.00

Accounts Payable

13,744.00

Customer Refunds Payable

3,000.00

Wages Payable

624.00

Sales Tax Payable

2,400.00

Unearned Repair Revenue

1,440.00

Note Payable

96,000.00

William Danbury, Capital

420.00 1,440.00

96,000.00 108,000.00

592,172.00 824,580.00

824,580.00

25 26 27 28 29 30

606

CHAPTER 15

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.

CHAPTER 15

607

Mastery Problem 1. Dominique’s Doll House Income Statement For Year Ended December 31, 20-3 Revenue from Sales: Sales

$201,500

Less: Sales returns and allowances

6,100

Net sales

$195,400)

Cost of goods sold: Merchandise inventory, Jan. 1, 20-3 Estimated returns inventory Purchases Less: purchases returns and allowances

$31,300 1,000

$ 32,300

$72,000 750

Net purchases

$71,250

Add freight-in

1,200

Cost of goods purchased

72,450

Goods available for sale

$104,750

Less: Merch. inventory, Dec. 31, 20-3 Estimated returns inventory

$28,000 1,100

29,100

Cost of goods sold

75,650

Gross profit

$119,750

Operating expenses: Wages expense

$ 42,200

Rent expense

42,000

Office supplies expense

600

Phone expense

1,500

Utilities expense

7,600

Insurance expense

400

Depreciation expense—store equipment

5,000

Total operating expenses Income from operations

99,300 $ 20,450

Other revenues: Show Revenue

5,700

Other expenses:

)

Interest expense Net income

500 $ 25,650

608

CHAPTER 15

Mastery Problem (Continued) 2. Dominique’s Doll House Statement of Owner’s Equity For Year Ended December 31, 20-3 1

D. Fouque, capital, January 1, 20-3

$ 95,800

Net income for the year

$25,650

Less withdrawals for the year

21,000

Increase in capital

D. Fouque, capital, December 31, 20-3

4,650

$100,450

CHAPTER 15

609

Mastery Problem (Continued) 3. Dominique’s Doll House Balance Sheet December 31, 20-3 Assets

1 2

Current assets:

Cash

$16,700

Accounts receivable

3,200

Merchandise inventory

28,000

Estimated returns inventory

1,100

Office supplies

200

Prepaid insurance

800

9 10

Total current assets

$ 50,000

Property, plant, and equipment

9 10

Store equipment

$95,000

Less accumulated depreciation

20,000

75,000 12 $125,000 13

Liabilities

Current liabilities:

Notes payable

$6,000

Accounts payable

5,500

Customer refunds payable

1,700

Wages payable

200

Sales tax payable

850

Unearned show revenue

300

22 23 24 25

Total current liabilities

$14,550

Long-term liabilities Long-term note payable Total liabilities

10,000

$ 24,550 25

26 27

Owner’s Equity

D. Fouque, capital

100,450 28

Total liabilities and owner’s equity

$125,000 29

610

CHAPTER 15

Mastery Problem (Continued) 4. a.

Solutions assume no rounding until final answer. Current Ratio: Current Assets

$50,000

Current Liabilities b.

3.4 to 1

1.4 to 1

$14,550

Quick Ratio: Quick Assets

$19,900

Current Liabilities

$14,550

Cash

$16,700

Accts. Rec.

3,200 $19,900

Working Capital = Current Assets − Current Liabilities $50,000 (14,550) $35,450

Return on Owner’s Equity: Net Income

$25,650

Average Owner’s Equity

26.1%

$98,125

Jan. 1

$ 95,800

Dec. 31

$100,450

Average

$ 98,125

Accounts Receivable Turnover: Net Credit Sales for the Period

Average Accounts Receivable

$38,000

= 12.3

$3,100

A/R 1-1

$3,000

A/R 12-31

$3,200

Average

$3,100

365

= 29.7 days to collect

12.3

Inventory Turnover: CGS Average Inventory

$75,650 $30,700

Inv. 1-1

$32,300

Inv. 12-31

$29,100

Average

$30,700

2.46

365

= 148.4 days to sell

2.46

CHAPTER 15

611

Mastery Problem (Continued) 5. GENERAL JOURNAL DATE

DESCRIPTION

20-3 1

Dec.

PAGE 3 POST. REF.

DEBIT

Adjusting Entries 31 Income Summary

31 3 0 0 00

Merchandise Inventory

CREDIT

31 3 0 0 00

4 5

31 Merchandise Inventory

28 0 0 0 00

Income Summary

28 0 0 0 00

7 8

31 Sales Returns and Allowances

2 0 0 00

Customer Refunds Payable

2 0 0 00

31 Income Summary

1 0 0 0 00

Estimated Returns Inventory

1 0 0 0 00 12

31 Estimated Returns Inventory

1 1 0 0 00

Income Summary

1 1 0 0 00 15

16 17

31 Office Supplies Expense

6 0 0 00

Office Supplies

6 0 0 00 18

19 20

31 Insurance Expense

4 0 0 00

Prepaid Insurance

4 0 0 00 21

22 23

31 Depreciation Expense—Store Equipment

5 0 0 0 00

Accumulated Depreciation—Store Equipment

5 0 0 0 00 24

25 26

31 Wages Expense

2 0 0 00

Wages Payable

2 0 0 00 27

28 29 30

9 10

6 7

31 Unearned Show Revenue Show Revenue

7 0 0 00

7 0 0 00 30

612

CHAPTER 15

Mastery Problem (Continued) 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 merchandise inventory.

No. No asset or liability with a zero balance has been increased.

Never reverse adjustments for depreciation.

Yes. A liability with a zero balance has been increased.

No. No asset or liability with a zero balance has been increased.

CHAPTER 15

613

Mastery Problem (Continued) 6. Account: Income Summary

DATE

ITEM

20-1 Dec.

31 Adjusting

POST. REF.

Acct No. 331 DEBIT

CREDIT

31 3 0 0 00

31 Adjusting

28 0 0 0 00

31 Adjusting

1 1 0 0 00

31 Closing

207 9 5 0 00

31 Closing

179 1 0 0 00

31 Closing

25 6 5 0 00

1 0 0 0 00

BALANCE DEBIT CREDIT

31 3 0 0 00

Remove Beg. Inv.

3 3 0 0 00

Enter End. Inv.

4 3 0 0 00

Remove Beg. Est. Ret. Inv

3 2 0 0 00

Enter End. Est. Ret. Inv.

204 7 5 0 00

Closing step 1

25 6 5 0 00

Closing step 2 Closing step 3

614

CHAPTER 15

Mastery Problem (Concluded) 7. and 8. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

20-3 2

PAGE

Dec. 31

Sales

Show Revenue

Purchases Returns and Allowances

201 5 0 0 00

5 7 0 0 00

7 5 0 00

Income Summary

207 9 5 0 00

5 6

31 Income Summary

179 1 0 0 00

Sales Returns and Allowances

6 1 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

4 2 0 0 00 12

Office Supplies Expense

Phone 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

25 6 5 0 00

Dominique Fouque, Capital

25 6 5 0 00 21

31 Dominique Fouque, Capital

21 0 0 0 00

Dominique Fouque, Drawing

21 0 0 0 00 24

Reversing Entry

20-4 27 28

Jan.

1 Wages Payable Wages Expense

2 0 0 00

2 0 0 00 28

CHAPTER 15

615

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= Turnover

$500 + $700 =

$600

Net Credit Sales for the Period 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

COMPREHENSIVE PROBLEM

221

Comprehensive Problem 1: The Accounting Cycle 1. GENERAL JOURNAL DATE 1 2

20--

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

35 0 0 0 00 15

Collected registration fees

17 18 19 20

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 23

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 1 2

20--

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 19

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

1 5 0 00

1 5 0 00 28

Paid postage

COMPREHENSIVE PROBLEM

223

Comprehensive Problem 1 (Continued) GENERAL JOURNAL DATE 1 2

20--

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

32 0 0 0 00 15

Collected registration fees

29 Wages Expense

511

Cash

101

10 0 0 0 00

10 0 0 0 00 19

Paid wages to guides

21 22 23

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 1

POST. REF.

DESCRIPTION

20--

Apr. 30

Utilities Expense

533

Cash

PAGE DEBIT

CREDIT

2 0 0 0 00

101

2 0 0 0 00

Paid utility bill

30 Phone Expense

525

Cash

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

BALANCE

POST. REF.

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

DATE 20--

Apr.

ACCOUNT NO.

ITEM

CREDIT

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

101

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. 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

524

COMPREHENSIVE PROBLEM

229

Comprehensive Problem 1 (Continued) Phone Expense

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO. POST. REF.

Apr. 30

30 Closing

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. BALANCE

DEBIT

CREDIT

1 0 0 0 00

DEBIT

CREDIT

1 0 0 0 00 1 0 0 0 00

542

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

Phone 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

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 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

Phone 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

$ 90,000 $54,250 6,000

Increase in capital Bob Night, capital, April 30, 20--

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 1

20--

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

1 5 0 0 00

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

Closing Entries

17 18 19

9 10

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

Phone 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 1

20--

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 1 2

20--

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

1 2 5 00 11 12

3 Accounts Payable

202

Office Supplies

142

1 0 0 00

1 0 0 00 14

3 Cash Registration Fees

101

52 7 0 0 00

401

52 7 0 0 00 17

3 Rent Expense

521

Cash

101

40 0 0 0 00

40 0 0 0 00 20

21 22 23

3 Cash Bob Night, Capital

101

600 0 0 0 00

311

600 0 0 0 00 23

24 25 26

4 Accounts Payable Cash

202

4 0 0 00

101

4 0 0 00 26

27 28

8 9

5 6

4 Land

161

100 0 0 0 00

Buildings

171

530 0 0 0 00

Fishing Boats

181

9 0 0 0 00

Cash

101

639 0 0 0 00 31

238

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) GENERAL JOURNAL DATE 20-1 2

May

DESCRIPTION

5 Insurance Expense Cash

PAGE POST. REF.

535 101

DEBIT

CREDIT

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

1 2 0 0 00

7 Prepaid Subscriptions Cash

146 101

1 2 0 00

1 2 0 00 11 12

10 Cash Registration Fees

101 401

62 7 5 0 00

62 7 5 0 00 14

15 16 17 18

13 Wages Expense Wages Payable Cash

511 219 101

29 5 0 0 00 5 0 0 00

16 17

30 0 0 0 00 18

19 20 21

14 Registration Fees Cash

401 101

1 0 0 0 00

1 0 0 0 00 21

22 23 24

17 Cash Registration Fees

101 401

63 0 0 0 00

63 0 0 0 00 24

25 26 27

19 Food Supplies Accounts Payable

144 202

18 4 0 0 00

18 4 0 0 00 27

28 29 30

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 33

31 32

2 5 0 0 00 33

34 35 36

25 Repair Expense Cash

537 101

8 5 0 00

8 5 0 00 36

37 38 39

27 Wages Expense Cash

511 101

30 0 0 0 00

30 0 0 0 00 39

40 41 42

8 9

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 1 2

20--

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

30 Phone Expense

525

Cash

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

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

ITEM

POST. REF.

31 Adjusting

J10

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

101

ACCOUNT NO. BALANCE DEBIT

3 0 00

CREDIT

DEBIT

CREDIT

3 0 00

122

COMPREHENSIVE PROBLEM

241

Comprehensive Problem 1, Period 2 (Continued) Office Supplies

ACCOUNT

DATE 20--

ITEM

POST. REF.

Apr.

30 Balance



May

31 Adjusting

J10

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

J10

57 7 5 0 00

5 9 2 5 00

ITEM

ACCOUNT NO. POST. REF.

Apr.

30 Balance



May

31 Adjusting

J10

CREDIT

DEBIT

1 5 0 0 00

6 0 0 0 00

ACCOUNT NO. BALANCE DEBIT

1 2 0 00

31 Adjusting

J10

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

146

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

BALANCE

POST. REF.

DEBIT

530 0 0 0 00

ITEM

POST. REF.

May 31 Adjusting

J10

DATE 20--

CREDIT

DEBIT

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

POST. REF.

ITEM

May 31 Adjusting

J10

ACCOUNT

182

ACCOUNT NO. BALANCE DEBIT

CREDIT

3 6 0 0 00

DEBIT

CREDIT

3 6 0 0 00

ACCOUNT NO.

182.1

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

6 0 00

183

ACCOUNT NO. POST. REF.

BALANCE DEBIT

CREDIT

8 0 0 0 00

DEBIT

POST. REF.

May 31 Adjusting

J10

CREDIT

8 0 0 0 00

Accumulated Depreciation—Big Screen TV ITEM

DATE 20--

2 1 5 0 00

Big Screen TV ITEM

CREDIT

1 1 5 0 00

Accumulated Depreciation—Surround Sound System POST. REF.

May

DEBIT

1 0 0 0 00

J10

ITEM

DATE 20--

CREDIT



POST. REF.

181.1

BALANCE DEBIT

Surround Sound System

DATE 20--

ACCOUNT

ACCOUNT NO.

183.1

ACCOUNT NO. BALANCE

DEBIT

CREDIT

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



66 5 0 0 00

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

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

J10

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



138 2 5 0 00

May

600 0 0 0 00

738 2 5 0 00

31 Closing

J11

61 8 1 0 00

800 0 6 0 00

31 Closing

J11

7 5 0 0 00

792 5 6 0 00

Bob Night, Drawing

ACCOUNT

DATE 20--

ITEM

May 31

ACCOUNT NO.

POST. REF.

31 Closing

J11

BALANCE DEBIT

CREDIT

7 5 0 0 00

DEBIT

CREDIT

7 5 0 0 00 7 5 0 0 00

312

COMPREHENSIVE PROBLEM

245

Comprehensive Problem 1, Period 2 (Continued) Income Summary

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO. POST. REF.

BALANCE DEBIT

May 31 Closing

J11

31 Closing

J11

179 2 7 0 00

31 Closing

J11

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

J11

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

J10

3 0 00

2 3 0 00

31 Closing

J11

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

J10

6 0 0 0 00

65 5 0 0 00

31 Closing

J11

DATE 20--

ITEM

CREDIT

DEBIT

CREDIT

65 5 0 0 00

511

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

J11

4 3 0 0 00

Rent Expense

ACCOUNT

ACCOUNT NO.

DEBIT

40 0 0 0 00

31 Closing

J11

May

ITEM

CREDIT

DEBIT

ITEM

POST. REF.

May 31 Adjusting

J10

DATE 20--

31 Closing

40 0 0 0 00

ACCOUNT NO.

CREDIT

1 0 5 0 00

J11

DEBIT

1 0 5 0 00

ACCOUNT NO. BALANCE

POST. REF.

DEBIT

May 31 Adjusting

J10

57 7 5 0 00

31 Closing

J11

CREDIT

1 0 5 0 00

ITEM

DATE 20--

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

524

COMPREHENSIVE PROBLEM

247

Comprehensive Problem 1, Period 2 (Continued) Phone Expense

ACCOUNT

DATE 20--

ITEM

ACCOUNT NO. POST. REF.

May 30

31 Closing

BALANCE DEBIT

CREDIT

1 8 0 0 00

J11

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

J11

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

J10

1 5 0 0 00

2 5 0 0 00

31 Closing

J11

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

BALANCE DEBIT

CREDIT

DEBIT

CREDIT

536

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

J11

DEBIT

8 5 0 00

POST. REF.

DEBIT

May 31 Adjusting

J10

8 0 0 00

31 Closing

ACCOUNT NO.

J11

CREDIT

DEBIT

ITEM

POST. REF.

May 31 Adjusting

J10

DATE 20--

31 Closing

8 0 0 00

ACCOUNT NO.

CREDIT

6 0 00

J11

ITEM

POST. REF.

May 31 Adjusting

J10

DATE 20--

31 Closing

J11

541

BALANCE DEBIT

DEBIT

CREDIT

6 0 00 6 0 00

Depreciation Expense—Fishing Boats

ACCOUNT

CREDIT

8 0 0 00

Depreciation Expense—Surround Sound System

ACCOUNT

540

BALANCE

ITEM

DATE 20--

CREDIT

8 5 0 00

Depreciation Expense—Buildings

ACCOUNT

537

ACCOUNT NO. BALANCE

DEBIT

CREDIT

1 1 5 0 00

DEBIT

CREDIT

1 1 5 0 00 1 1 5 0 00

542

COMPREHENSIVE PROBLEM

249

Comprehensive Problem 1, Period 2 (Continued) Depreciation Expense—Big Screen TV

ACCOUNT

ITEM

POST. REF.

May 31 Adjusting

J10

DATE 20--

31 Closing

ACCOUNT NO. BALANCE

DEBIT

CREDIT

7 5 00

J11

DEBIT

DATE 20--

ITEM

POST. REF.

31 Closing

J11

May

7 5 00

ACCOUNT NO.

ITEM

POST. REF.

May 31 Adjusting

J10

DATE 20--

31 Closing

J11

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. BALANCE DEBIT

CREDIT

1 0 00

DEBIT

CREDIT

1 0 00 1 0 00

548

250

COMPREHENSIVE PROBLEM

Comprehensive Problem 1, Period 2 (Continued) 3. and 4.

The General’s Favorite Work For Month Ended ACCOUNT TITLE

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

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 Phone Expense Utilities Expense Postage Expense Insurance Expense Repair Expense Depr. Exp.—Buildings Depr. Exp.—Surround Sound Depr. Exp.—Fishing Boats Depr. Exp.—Big Screen TV Satellite Programming Expense Subscriptions Expense

1 2 3 4 5 6 7 8 9 10 11

15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

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 (i) 57 7 5 0 00 (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 00 738 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

(a)

3 0 00

(j) 6 0 0 0 00

(h) 1 0 5 0 00 (i) 57 7 5 0 00 1 8 0 0 00 3 3 0 0 00 1 0 0 0 00 8 5 0 00

(f) 1 5 0 0 00 (e) 8 0 0 00 (c) 6 0 00 (b) 1 1 5 0 00 (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

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

1 2 3 4 5 6 7 8

8 0 0 00

69 0 0 0 00

69 0 0 0 00 2 1 5 0 00

2 1 5 0 00 11

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

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

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

22 23 24 25 26 27 28 29

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 1,063 9 4 0 00 1,063 9 4 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

30 31 32 33 34 35 36 37

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 38 61 8 1 0 00 39 884 6 7 0 00 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

Phone 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

$ 61,810 7,500

Increase in capital Bob Night, capital, May 31, 20--

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

2 3 0 00

Income Summary

313

May 31

241 0 8 0 00

4 5

31 Income Summary

313

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

Phone 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

179 2 7 0 00

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

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

CHAPTER 16 ACCOUNTING FOR ACCOUNTS RECEIVABLE REVIEW QUESTIONS 1. The allowance method is generally required for financial reporting purposes. 2. 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. 3. Net realizable value is computed by subtracting Allowance for Doubtful Accounts from Accounts Receivable. 4. 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. 5. The percentage of receivables method is based on the relationship between the amount of accounts receivable and the amount of uncollectible accounts. Based on experience, uncollectible accounts is computed as a percentage of the aged accounts receivable. 6. 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. 7. 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. 8. 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. 9. 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.

662

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

663

Exercise 16-2A 1. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

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

3 4

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

4 8 0 5 00

($4,500 + $305)

3 4 5

664

CHAPTER 16

Exercise 16-4A GENERAL JOURNAL DATE 1

20--

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

6 7

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

28 5 7 0 00

3 4

CHAPTER 16

665

Exercise 16-5A (Concluded) 2. a. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Bad Debt Expense

21 0 0 0 00

Allowance for Doubtful Accounts

21 0 0 0 00

b. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

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 1 2 3

20--

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

6 7

666

CHAPTER 16

Exercise 16-7A GENERAL JOURNAL DATE 1

20-1

May

DESCRIPTION

8 Bad Debt Expense

Accounts Receivable/V. Lawrence

Wrote off uncollectible account

PAGE POST. REF.

DEBIT

CREDIT

1 7 4 5 00

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

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

1 7 4 5 00 14

Collection on account

16 17

20-2

May

5 Accounts Receivable/D. Utter

Uncollectible Accounts Recovered

Reinstated account receivable

1 3 0 0 00

1 3 0 0 00 18 19

20 21 22 23

6 7

8 9

5 Cash Accounts Receivable/D. Utter

1 3 0 0 00

1 3 0 0 00 22

Collection on account

CHAPTER 16

667

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

9 Allowance for Doubtful Accounts Accounts Receivable/Wiley’s Waterworks Wrote off uncollectible account

5 6 7

122.1

1 6 0 0 00

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

2 1 0 0 00 14 15

Aug. 16 Allowance for Doubtful Accounts

122.1

5 7 0 0 00

Accounts Receivable/JoJo Xu Wrote off uncollectible account

18 19

5 7 0 0 00 18 19

21 Oct. 22 23

5 Accounts Receivable/Tomi Kennedy Allowance for Doubtful Accounts Reinstated account receivable

3 1 0 0 00 122.1

3 1 0 0 00 22 23

24 25 26 27

5 Cash Accounts Receivable/Tomi Kennedy Collection on account

3 1 0 0 00

3 1 0 0 00 26 27

28 29 30 31 32 33

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

10 9 0 0 00 30 15 3 6 0 00 31 13 1 7 0 00 32 33

24 35 36 37 38

6 7

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

668

CHAPTER 16

Problem 16-8A (Concluded) GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Closing Entry

1 2

PAGE

20--

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.

Jan.

1 Balance



Feb.

May 28

Aug. 16

Dec. 28

Oct.

31 Adjusting

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

DATE

ITEM

1 6 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

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

CREDIT

49 3 3 0 00 49 3 3 0 00

Accounts receivable, December 31, 20--

$965,000

Less allowance for doubtful accounts

50,800

532

BALANCE DEBIT

3. Net realizable value:

Net realizable value

313

BALANCE DEBIT

Bad Debt Expense

ACCOUNT

CREDIT

43 0 0 0 00

Income Summary

ACCOUNT

122.1

$914,200

CHAPTER 16

669

Problem 16-9A 1. a.

GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

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

DEBIT

CREDIT

Adjusting Entry

20--

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)

PAGE POST. REF.

DESCRIPTION

3 4

Less allowance for doubtful accounts ($330 + $7,104)

($355,200 × 0.02 = $7,104)

CREDIT 1

20--

DEBIT

Adjusting Entry

1 2

PAGE

3 4

$30,000 4,928 $25,072

670

CHAPTER 16

Problem 16-9A (Concluded) b.

GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Bad Debt Expense

6 0 8 5 00

Allowance for Doubtful Accounts

6 0 8 5 00

($5,685 + $400 = $6,085)

3 4

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

2 7 9 0 00

3 4

CHAPTER 16

671

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

2 3

CREDIT 1

17 5 0 0 00

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

June

10 11

3 Cash Accounts Receivable/Merry Merchants Collection on account

10 0 0 0 00

10 0 0 0 00 10 11

13 14 15

3 Bad Debt Expense Accounts Receivable/Merry Merchants Wrote off uncollectible account

7 5 0 0 00

9 Cash Accounts Receivable/Utter Unicorns Collection on account

8 0 0 0 00

7 5 0 0 00 14 15

16 17

Sept.

18 19

8 0 0 0 00 18 19

9 Bad Debt Expense Accounts Receivable/Utter Unicorns Wrote off uncollectible account

6 3 0 0 00

Nov. 13 Accounts Receivable/Merry Merchants

7 5 0 0 00

21 22 23

6 3 0 0 00 22 23

24 29

Bad Debt Expense Reinstated account receivable

26 27

7 5 0 0 00 26 27

13 Cash Accounts Receivable/Merry Merchants Collection on account

29 30 31

7 5 0 0 00

7 5 0 0 00 30 31 32

32 33 34 35

20-2

Jan. 17 Accounts Receivable/Utter Unicorns

6 3 0 0 00

Uncollectible Accounts Recovered Reinstated account receivable

6 3 0 0 00 34 35

36 37 38 39

6 7

8 9

17 Cash Accounts Receivable/Utter Unicorns Collection on account

6 3 0 0 00

6 3 0 0 00 38

672

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

673

Exercise 16-2B 1. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

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

3 4

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

4 4 9 5 00

($3,935 + $560)

3 4 5

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

674

CHAPTER 16

Exercise 16-4B GENERAL JOURNAL DATE 1

20--

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

Aug. 15 Allowance for Doubtful Accounts

Accounts Receivable/L. Jones

4 7 9 0 00

Wrote off uncollectible account

6 7

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

22 6 4 0 00

3 4

CHAPTER 16

675

Exercise 16-5B (Concluded) 2. a. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Bad Debt Expense

17 2 5 0 00

Allowance for Doubtful Accounts

17 2 5 0 00

b. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

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 1 2 3

DESCRIPTION

20--

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

6 7

676

CHAPTER 16

Exercise 16-7B GENERAL JOURNAL DATE 1

20-1

May

DESCRIPTION

5 Bad Debt Expense

Accounts Receivable/N. Dammond

Wrote off uncollectible account

PAGE POST. REF.

DEBIT

CREDIT

2 3 6 0 00

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

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

2 3 6 0 00 14

Collection on account

16 17

20-2

May 11 Accounts Receivable/M. Mouse

Uncollectible Accounts Recovered

Reinstated account receivable

1 2 5 5 00

1 2 5 5 00 18 19

20 21 22 23

6 7

8 9

11 Cash Accounts Receivable/M. Mouse

1 2 5 5 00

1 2 5 5 00 22

Collection on account

CHAPTER 16

677

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

7 Allowance for Doubtful Accounts Accounts Receivable/Luxury Sofas Wrote off uncollectible account

5 6 7

122.1

2 4 0 0 00

May 26 Accounts Receivable/S. Johnson Allowance for Doubtful Accounts Reinstated account receivable 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

3 7 2 5 00 14 15

Aug. 15 Allowance for Doubtful Accounts Accounts Receivable/I. Goto 18 Wrote off uncollectible account 19 17

122.1

9 3 5 0 00

9 3 5 0 00 18 19

22 23

Oct.

6 Accounts Receivable/D. Woods Allowance for Doubtful Accounts Reinstated account receivable

4 3 2 0 00 122.1

4 3 2 0 00 22 23

24 25 26 27

6 Cash Accounts Receivable/D. Woods Collection on account

4 3 2 0 00

4 3 2 0 00 26 27

Dec. 29 Allowance for Doubtful Accounts Accounts Receivable/Schmidt & Yeager 30 Accounts Receivable/Economy Homes 31 Accounts Receivable/Davis Industries 32 Wrote off uncollectible accounts 33 29

122.1

41 6 4 0 00

13 9 4 5 00 30 15 8 3 0 00 31 11 8 6 5 00 32 33

34 35 36 37 38

6 7

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

678

CHAPTER 16

Problem 16-8B (Concluded) GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Closing Entry

1 2

PAGE

20--

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.

Jan.

1 Balance



Feb.

May 26

Aug. 15

Dec. 29

Oct.

31 Adjusting

DEBIT

ACCOUNT NO. CREDIT

BALANCE DEBIT

DATE

ITEM

2 4 0 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

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

CREDIT

Less allowance for doubtful accounts Net realizable value

532

BALANCE DEBIT

CREDIT

62 6 4 5 00 62 6 4 5 00

3. Net realizable value: Accounts receivable, December 31, 20--

313

BALANCE DEBIT

Bad Debt Expense

ACCOUNT

CREDIT

49 8 5 0 00

Income Summary

ACCOUNT

122.1

$1,175,000 67,150 $1,107,850

CHAPTER 16

679

Problem 16-9B 1. a.

GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

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

29 2 5 0 00

$180,000 31,850 $148,150

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)

3 4

Less allowance for doubtful accounts ($2,600 + $29,250)

CREDIT 1

20--

DEBIT

Adjusting Entry

1 2

PAGE

19 5 0 0 00

3 4

$180,000 17,600 $162,400

680

CHAPTER 16

Problem 16-9B (Concluded) b.

GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Bad Debt Expense

Allowance for Doubtful Accounts

9 7 9 2 00

3 4

CHAPTER 16

681

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

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

June

10 11

8 Cash Accounts Receivable/Biggs and Daughters Collection on account

12 0 0 0 00

8 Bad Debt Expense Accounts Receivable/Biggs and Daughters Wrote off uncollectible account

4 0 0 0 00

12 0 0 0 00 10 11

13 14 15

4 0 0 0 00 14 15

17 Sept. 27 Cash

7 0 0 0 00

Accounts Receivable/Lloyd Place Collection on account

18 19

7 0 0 0 00 18 19

27 Bad Debt Expense Accounts Receivable/Lloyd Place Wrote off uncollectible account

21 22 23

5 8 0 0 00

5 8 0 0 00 22 23

24 25

Nov. 18 Accounts Receivable/Biggs and Daughters

4 0 0 0 00

Bad Debt Expense Reinstated account receivable

26 27

4 0 0 0 00 26 27

18 Cash Accounts Receivable/Biggs and Daughters Collection on account

29 30 31

4 0 0 0 00

4 0 0 0 00 30 31

20-2 33 34 35

Jan. 11 Accounts Receivable/Lloyd Place

5 8 0 0 00

Uncollectible Accounts Recovered Reinstated account receivable

5 8 0 0 00 34 35

36 37 38 39

6 7

8 9

11 Cash Accounts Receivable/Lloyd Place Collection on account

5 8 0 0 00

5 8 0 0 00 38

682

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

683

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

684

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

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

532

$59,000

CHAPTER 16

685

Mastery Problem (Continued) 2. and 4. GENERAL JOURNAL POST. REF.

DEBIT

Dec. 31 Accounts Receivable

122

550 0 0 0 00

Sales

401

DATE 1 2

PAGE

DESCRIPTION

20--

(d)

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

(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

5 0 0 00 14 15

16 17 18 19

(g)

31 Cash

101

Accounts Receivable

5 0 0 00

122

5 0 0 00 18

Collections on account

20 21 22 23

6 7

8 9

Adjusting Entry 31 Bad Debt Expense Allowance for Doubtful Accounts

532 122.1

5 5 0 0 00

5 5 0 0 00 23

686

CHAPTER 16

Mastery Problem (Continued) 6. and 8. GENERAL JOURNAL POST. REF.

DEBIT

Dec. 31 Accounts Receivable

122

550 0 0 0 00

Sales

401

DATE 1 2

PAGE

DESCRIPTION

20--

(d)

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

(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

5 0 0 00 14 15

16 17 18 19

(g)

31 Cash

101

Accounts Receivable

5 0 0 00

122

5 0 0 00 18

Collections on account

20 21 22 23

6 7

8 9

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

687

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

688

CHAPTER 16

Mastery Problem (Concluded) 8. Bad Debt Expense

ACCOUNT DATE

ITEM

20--

Dec. 31 Adjusting

ACCOUNT NO.

POST. REF.

DEBIT

532

BALANCE

CREDIT

DEBIT

4 5 2 5 00

CREDIT

4 5 2 5 00

AGING SCHEDULE OF ACCOUNTS RECEIVABLE FOR ROBERT A

E F G Number of Days Past Due

Total

Not Yet Due

1–30

31–60

3 Beets, D.

$12,000

$ 8,500

$1,200

$ 2,300

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

1 2

Customer

Estimated percent 13 uncollectible Total est. uncollectible 14 accounts

$5,525

91–120

Over 120

$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

61–90

$4,300

5,400 200

400

9. Accounts receivable, December 31, 20--

$65,500

Less allowance for doubtful accounts

5,525

Net realizable value

$59,975

CHAPTER 16

689

Challenge Problem 1. GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20-1

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20-2

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)

690

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 2

PAGE

20-3

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 maker of a note is the person or business agreeing to make the payment on a note.

The payee of a note is the specific person or business to whom a note is payable.

The formula for calculating the interest on notes is: Interest = Principal × Rate × Time.

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 and all federal government agencies use 365 days as the base.

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.

10.

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.

11.

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

12.

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.

13.

Discount on Notes Payable is a contra-liability account and is reported as a deduction from Notes Payable on the balance sheet.

14.

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.

15.

Accrued interest receivable is reported as a current asset, and accrued interest payable is reported as a current liability on the balance sheet. 691 © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

692

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

693

Exercise 17-4A GENERAL JOURNAL DATE 1 2

DESCRIPTION

20--

Jan. 16 Notes Receivable

PAGE POST. REF.

DEBIT

CREDIT

20 0 0 0 00

Sales

20 0 0 0 00

3 4 5

Feb. 15 Cash

Notes Receivable (new note)

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)

13 14 15

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)

694

CHAPTER 17

Exercise 17-5A GENERAL JOURNAL DATE 1

20--

Apr.

DESCRIPTION

6 Notes Receivable

PAGE POST. REF.

DEBIT

3 0 0 0 00

Accounts Receivable

CREDIT 1

3 0 0 0 00

2 3

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 × 0.07 × 100/360 = $59.50)

($3,060 – $59.50 = $3,000.50)

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

Accounts Receivable

Interest Revenue

9 0 5 78

9 0 5 25 21

($905.25 × 0.07 × 3/360 = $0.53)

0 53 22 23

CHAPTER 17

695

Exercise 17-6A GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Accrued Interest Receivable

3 2 67

Interest Revenue

3 2 67

Exercise 17-7A GENERAL JOURNAL DATE 1

20--

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 0 0 0 00

2 5 00

4 5 0 0 00

14 15 16

($5,000 × 0.06 × 30/360 = $25)

11 12

31 Notes Payable Interest Expense

4 5 0 0 00

2 2 50

Cash

4 5 2 2 50 15

($4,500 × 0.06 × 30/360 = $22.50)

17 18 19

5 2 5 00 10

12 13

5 6

Aug. 10 Purchases

Notes Payable

3 5 0 0 00

3 5 0 0 00 19

696

CHAPTER 17

Exercise 17-8A GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

20--

July 15 Cash

Discount on Notes Payable

DEBIT

4 9 3 3 33

6 6 67

Notes Payable

CREDIT

5 0 0 0 00

($5,000 × 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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Interest Expense

1 6 67

Accrued Interest Payable

1 6 67

CHAPTER 17

697

Problem 17-10A GENERAL JOURNAL DATE 1

DESCRIPTION

20-1

July 20 Notes Receivable

PAGE POST. REF.

DEBIT

CREDIT

7 5 0 00

Sales

7 5 0 00

3 4

2 3

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)

2 0 3 50

5 0 0 00

Notes Receivable (old note) Interest Revenue ($700 × 0.06 × 30/360 = $3.50)

7 0 0 00 27 3 50 28 29

698

CHAPTER 17

Problem 17-10A (Concluded) GENERAL JOURNAL DATE 1

20-1

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

12 13

20-2

Jan. 14 Accounts Receivable/B. Kraus

1 3 5 7 88

Notes Receivable

1 3 5 0 00 14

Interest Revenue

7 88 15

($1,350 × 0.07 × 30/360 = $7.88)

17 18

Feb. 13 Cash

Accounts Receivable/B. Kraus

Interest Revenue

1 3 6 5 80

1 3 5 7 88 19

($1,357.88 × 0.07 × 30/360 = $7.92)

7 92 20 21

CHAPTER 17

699

Problem 17-11A GENERAL JOURNAL DATE 1

20--

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 Accounts Receivable/ G. Perez

4 5

5 0 0 0 00

30 Cash Interest Expense Notes Receivable ($5,000 × 0.06 × 90/360 = $75 interest) ($5,000 + $75 = $5,075 maturity value) ($5,075 × 0.08 × 80/360 = $90.22 discount) ($5,075 – $90.22 = $4,984.78 proceeds)

8 9 10 11 12 13

4 9 8 4 78 1 5 22

7 8

5 0 0 0 00

11 12 13 14

Apr. 20 Notes Receivable

Sales

3 0 0 0 00

3 0 0 0 00 16

May

19 20 21 22 23 24

5 Cash Notes Receivable Interest Revenue ($3,000 × 0.06 × 60/360 = $30 interest) ($3,000 + $30 = $3,030 maturity value) ($3,030 × 0.07 × 45/360 = $26.51 discount) ($3,030 – $26.51 = $3,003.49 proceeds)

3 0 0 3 49

3 0 0 0 00 19 3 49 20 21 22 23 24

June 19 Accounts Receivable/D. Larson

3 0 7 0 00

Cash

3 0 7 0 00 27

28 29 30 31 32

9 10

5 6

July

31 Cash Accounts Receivable/ D. Larson Interest Revenue ($3,070 × 0.06 × 42/360 = $21.49)

3 0 9 1 49

3 0 7 0 00 30 2 1 49 31 32

700

CHAPTER 17

Problem 17-11A (Concluded) GENERAL JOURNAL DATE 1 2

20--

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 Accounts Receivable/ A. Bauer

4 0 0 00 5 2 0 0 00

4 5

5 6 0 0 00

7 8 9 10 11 12

15 16 17 18 19 20

Sept. 11 Cash

Notes Receivable (new note) Notes Receivable (old note) Interest Revenue ($5,200 × 0.05 × 30/360 = $21.67)

4 2 1 67 4 8 0 0 00

8 9

5 2 0 0 00 10 2 1 67 11 12 13

26 Cash Notes Receivable Interest Revenue ($4,800 × 0.06 × 60/360 = $48 interest) ($4,800 + $48 = $4,848 maturity value) ($4,848 × 0.075 × 45/360 = $45.45 discount) ($4,848 – $45.45 = $4,802.55)

4 8 0 2 55

4 8 0 0 00 15 2 55 16 17 18 19 20

21 22 23

Nov. 10 Accounts Receivable/ A. Bauer

4 8 8 8 00

Cash

4 8 8 8 00 23

24 25 26 27 28

6 7

13 14

Dec. 15 Cash

Accounts Receivable/ A. Bauer Interest Revenue ($4,888 × 0.06 × 35/360 = $28.51 interest)

4 9 1 6 51

4 8 8 8 00 26 2 8 51 27 28

CHAPTER 17

701

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Accrued Interest Receivable

1 0 7 55

Interest Revenue

1 0 7 55

3 4

Problem 17-13A GENERAL JOURNAL DATE 1 2

20--

Apr.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

5 0 0 0 00

Notes Payable

5 0 0 0 00

3 4 5

5 Purchases

2 0 0 0 00

Notes Payable

2 0 0 0 00

6 7

5 6

10 Accounts Payable/M. K. Reynolds

Cash

Notes Payable

2 0 0 0 00

5 0 0 00

1 5 0 0 00

May 10 Notes Payable (old note)

Interest Expense

Cash

Notes Payable (new note)

1 5 0 0 00

7 50

5 0 7 50 13 1 0 0 0 00 14

($1,500 × 0.06 × 30/360 = $7.50)

702

CHAPTER 17

Problem 17-13A (Concluded) GENERAL JOURNAL DATE 1

DESCRIPTION

20--

May 20 Cash

Discount on Notes Payable Notes Payable ($3,500 × 0.07 × 60/360 = $40.83) ($3,500 – $40.83 = $3,459.17)

2 3 4 5

PAGE POST. REF.

DEBIT

CREDIT

3 4 5 9 17

4 0 83

3 5 0 0 00

4 5

6 7

June

8 9 10 11

4 Notes Payable (old note) Interest Expense Cash Notes Payable (new note) ($2,000 × 0.07 × 60/360 = $23.33)

2 0 0 0 00 2 3 33

7 8

5 2 3 33 9 1 5 0 0 00 10 11

9 Notes Payable Interest Expense Cash ($1,000 × 0.07 × 30/360 = $5.83)

13 14 15 16

1 0 0 0 00 5 83

13 14

1 0 0 5 83 15 16

30 Notes Payable Interest Expense Cash ($5,000 × 0.08 × 90/360 = $100)

18 19 20 21

5 0 0 0 00 1 0 0 00

18 19

5 1 0 0 00 20 21

22 23 24 25 26

July

4 Notes Payable Interest Expense Cash ($1,500 × 0.07 × 30/360 = $8.75)

1 5 0 0 00 8 75

23 24

1 5 0 8 75 25 26

27 28 29 30 31

19 Notes Payable Interest Expense Discount on Notes Payable Cash

3 5 0 0 00 4 0 83

28 29

4 0 83 30 3 5 0 0 00 31

CHAPTER 17

703

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Interest Expense

5 0 29

Accrued Interest Payable

5 0 29

704

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

705

Exercise 17-4B GENERAL JOURNAL DATE 1 2

DESCRIPTION

20--

May 22 Notes Receivable

PAGE POST. REF.

DEBIT

CREDIT

22 0 0 0 00

Sales

22 0 0 0 00

3 4 5 6 7 8

June 21 Cash

Notes Receivable (new note) Notes Receivable (old note) Interest Revenue ($22,000 × 0.06 × 30/360 = $110)

1 1 0 00 22 0 0 0 00

4 5

22 0 0 0 00 1 1 0 00

11 12 13

July 21 Cash

22 1 2 8 33

Notes Receivable Interest Revenue ($22,000 × 0.07 × 30/360 = $128.33)

22 0 0 0 00 11 1 2 8 33 12 13 14

28 Notes Receivable Accounts Receivable

11 6 0 0 00

11 6 0 0 00 16

17 18 19 20 21 22

Sept. 11 Cash

Notes Receivable (new note) Notes Receivable (old note) Interest Revenue ($11,600 × 0.07 × 45/360 = $101.50)

1 7 0 1 50 10 0 0 0 00

18 19

11 6 0 0 00 20 1 0 1 50 21 22

23 24 25 26 27

14 15

9 10

Nov. 10 Cash

Notes Receivable Interest Revenue ($10,000 × 0.075 × 60/360 = $125)

10 1 2 5 00

10 0 0 0 00 25 1 2 5 00 26 27

706

CHAPTER 17

Exercise 17-5B GENERAL JOURNAL DATE 1

20--

Aug.

DESCRIPTION

4 Notes Receivable

PAGE POST. REF.

DEBIT

4 0 0 0 00

Accounts Receivable

CREDIT

4 0 0 0 00

14 Cash Interest Expense Notes Receivable ($4,000 × 0.07 × 120/360 = $93.33 interest) ($4,000 + $93.33 = $4,093.33 maturity value) ($4,093.33 × 0.08 × 110/360 = $100.06) ($4,093.33 – $100.06 = $3,993.27)

4 5 6 7 8 9 10

3 9 9 3 27 6 73

4 5

4 0 0 0 00

8 9 10 11

Sept.

5 Notes Receivable Accounts Receivable

1 2 0 0 00

1 2 0 0 00 13

14 15

Oct.

16 17 18

5 Accounts Receivable Notes Receivable Interest Revenue ($1,200 × 0.06 × 30/360 = $6)

1 2 0 6 00

1 2 0 0 00 16 6 00 17 18

19 20 21 22 23

6 7

11 12

Nov.

4 Cash Accounts Receivable Interest Revenue ($1,206 × 0.06 × 30/360 = $6.03)

1 2 1 2 03

1 2 0 6 00 21 6 03 22 23

CHAPTER 17

707

Exercise 17-6B GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Accrued Interest Receivable

4 0 00

Interest Revenue

4 0 00

Exercise 17-7B GENERAL JOURNAL DATE 1 2

DESCRIPTION

20--

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 0 0 0 00

3 5 00

5 4 0 0 00

14 15 16

($6,000 × 0.07 × 30/360 = $35)

11 12

Sept. 13 Notes Payable

Interest Expense

5 4 0 0 00

3 1 50

Cash

5 4 3 1 50 15

($5,400 × 0.07 × 30/360 = $31.50)

17 18 19

6 3 5 00 10

12 13

5 6

27 Purchases Notes Payable

5 0 0 0 00

5 0 0 0 00 19

708

CHAPTER 17

Exercise 17-8B GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

20--

Sept. 15 Cash

Discount on Notes Payable Notes Payable ($7,000 × 0.08 × 60/360 = $93.33)

2 3 4

DEBIT

CREDIT

6 9 0 6 67

9 3 33

7 0 0 0 00

5 6

Nov. 14 Notes Payable

7 0 0 0 00 9 3 33

Interest Expense Cash Discount on Notes Payable

7 8 9

6 7

7 0 0 0 00 9 3 33

8 9

Exercise 17-9B GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Interest Expense

3 8 13

Accrued Interest Payable

3 8 13

CHAPTER 17

709

Problem 17-10B GENERAL JOURNAL DATE 1

DESCRIPTION

20-3

June 20 Notes Receivable

PAGE POST. REF.

DEBIT

2 4 0 0 00

Sales

CREDIT 1

2 4 0 0 00

3 4

July 20 Cash

2 4 1 2 00

Notes Receivable Interest Revenue ($2,400 × 0.06 × 30/360 = $12)

5 6 7

2 4 0 0 00 1 2 00

25 Accounts Receivable/R. Boone

5 6 0 0 00

Sales

5 6 0 0 00 10

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

1 3 00 28

($2,600 × 0.06 × 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)

710

CHAPTER 17

Problem 17-10B (Concluded) GENERAL JOURNAL DATE 1

DESCRIPTION

20-3

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 0 2 1 67

4 0 0 0 00

2 1 67 10

($4,000 × 0.065 × 30/360 = $21.67)

20-4

Jan. 13 Cash

Accounts Receivable/J. Brown

Interest Revenue

6 7

4 0 3 5 47

4 0 2 1 67 14

($4,021.67 × 0.065 × 19/360 = $13.80)

1 3 80 15 16

CHAPTER 17

711

Problem 17-11B GENERAL JOURNAL DATE 1 2

20--

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 10 11 12 13

5 6

30 Cash Interest Expense Notes Receivable ($5,600 × 0.06 × 90/360 = $84 interest) ($5,600 + $84 = $5,684 maturity value) ($5,684 × 0.075 × 80/360 = $94.73 discount) ($5,684 – $94.73 = $5,589.27 proceeds)

5 5 8 9 27

1 0 73

5 6 0 0 00

9 10 11 12 13

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 × 0.075 × 25/360 = $12.63 discount)

($2,424 – $12.63 = $2,411.37 proceeds)

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

Accounts Receivable/P. Arnst

Interest Revenue

2 4 5 8 91

2 4 5 4 00 30

($2,454 × 0.06 × 12/360 = $4.91)

4 91 31 32

712

CHAPTER 17

Problem 17-11B (Concluded) GENERAL JOURNAL DATE 1

20--

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

4 3 2 50

5 6 0 0 00

6 0 0 0 00 10 3 2 50 11

($6,000 × 0.065 × 30/360 = $32.50)

13 14 15 16 17 18 19 20

26 Cash

5 6 0 7 42

Notes Receivable Interest Revenue ($5,600 × 0.07 × 60/360 = $65.33 interest) ($5,600 + $65.33 = $5,665.33 maturity value) ($5,665.33 × 0.08 × 46/360 = $57.91 discount) ($5,665.33 – $57.91 = $5,607.42 proceeds)

5 6 0 0 00 15 7 42 16 17 18 19 20

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

Accounts Receivable/B. Faust

Interest Revenue

6 7

5 7 1 3 05

5 6 9 5 33 26

($5,695.33 × 0.07 × 16/360 = $17.72 interest)

1 7 72 27 28

CHAPTER 17

713

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Accrued Interest Receivable

7 0 41

Interest Revenue

7 0 41

3 4

Problem 17-13B GENERAL JOURNAL DATE 1 2

20--

Apr.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

4 0 0 0 00

Notes Payable

4 0 0 0 00

3 4 5

5 Purchases

3 0 0 0 00

Notes Payable

3 0 0 0 00

6 7

10 Accounts Payable/A. Adams Cash

Notes Payable

2 0 0 0 00

4 0 0 00

1 6 0 0 00

May 10 Notes Payable (old note)

Interest Expense

14 15

5 6

Cash Notes Payable (new note) ($1,600 × 0.06 × 30/360 = $8)

1 6 0 0 00

8 00

4 0 8 00 13 1 2 0 0 00 14 15

714

CHAPTER 17

Problem 17-13B (Concluded) GENERAL JOURNAL DATE 1

DESCRIPTION

20--

May 20 Cash

Discount on Notes Payable

PAGE POST. REF.

DEBIT

4 4 4 0 00

6 0 00

Notes Payable

CREDIT

4 5 0 0 00

($4,500 × 0.08 × 60/360 = $60)

($4,500 – $60 = $4,440)

6 7

June

4 Notes Payable (old note) Interest Expense

8 9

Cash

Notes Payable (new note)

3 0 0 0 00

3 5 00

5 3 5 00

2 5 0 0 00 10

($3,000 × 0.07 × 60/360 = $35)

9 Notes Payable

Interest Expense

1 2 0 0 00

7 00

Cash

1 2 0 7 00 15

($1,200 × 0.07 × 30/360 = $7)

30 Notes Payable

Interest Expense

4 0 0 0 00

8 0 00

Cash

4 0 8 0 00 20

($4,000 × 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 5 1 4 58 25

($2,500 × 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

715

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Interest Expense

5 7 92

Accrued Interest Payable

5 7 92

716

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

717

Mastery Problem 1. and 2. GENERAL JOURNAL DATE 1

20--

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

6 7

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 × 0.06 × 60/360) = $2,020

maturity value]

($2,020 × 0.07 × 43/360 = $16.89 discount)

($2,020 – $16.89 = $2,003.11 net proceeds)

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)

718

CHAPTER 17

Mastery Problem (Concluded) GENERAL JOURNAL DATE 1 2 3

DESCRIPTION

20--

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 × 0.06 × 60/360 = $20)

($2,000 + $20 + $20 = $2,040)

10 11 12 13 14

Adjusting Entries 31 Interest Expense

5 0 00

Discount on Notes Payable

5 0 00 13

($5,000 × 0.06 × 60/360 = $50)

15 16 17 18

31 Interest Expense

1 0 50

Accrued Interest Payable

21 22

1 0 50 17

($3,000 × 0.06 × 21/360 = $10.50)

19 20

31 Accrued Interest Receivable

2 9 61

Interest Revenue ($4,000 × 0.065 × 41/360 = $29.61)

2 9 61 21 22

CHAPTER 17

719

Challenge Problem Mirror Co. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Mirror Co.

1 2

PAGE

20--

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

2 0 0 0 00

2 3 33

2 0 0 0 00 22

Paid note at maturity

25 26

2 3 33 23 24 25

30 No entry required

720

CHAPTER 17

Challenge Problem (Concluded) Other Party (Rosman Co., Kaw County Bank, or Lawrence Bank) GENERAL JOURNAL DATE

DESCRIPTION

DEBIT

CREDIT

Rosman Co.

1 2

POST. REF.

PAGE

20--

June

1 Accounts Payable/Mirror Co.

3 0 0 0 00

Notes Payable Issued note to settle account

3 4

3 0 0 0 00

5 6

Aug. 30 Notes Payable

Interest Expense Cash Paid note at Lawrence Bank

7 8 9

3 0 0 0 00

4 5 00

3 0 4 5 00

Kaw County Bank

20--

June 20 Notes Receivable

2 0 0 0 00

Cash Discount on Notes Receivable Received note for loan

13 14 15

1 9 7 6 67 13 2 3 33 14 15

Lawrence Bank

17 18

20--

July

1 Notes Receivable Interest Receivable Cash Accepted discounted note

19 20 21

3 0 0 0 00

9 47

3 0 0 9 47 20 21

Kaw County Bank

23 24

8 9

20--

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

30 31

20--

Aug. 30 Cash

3 0 4 5 00

Notes Receivable

Interest Receivable

9 47 33

Interest Revenue

3 5 53 34

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. 2. The cost of planting trees and shrubs should be debited to the land improvements account. 3. The two major types of depreciation are physical depreciation and functional depreciation. 4. The depreciable cost is the original cost less the salvage value. 5. 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. 6. The fastest write-off method is the double-declining-balance method. 7. 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. 8. For assets acquired after 1986, but before September 27, 2017, either the straight-line method or Modified Accelerated Cost Recovery System (MACRS) must be used for federal income tax purposes. 9. For assets acquired after September 27, 2017, either the straight-line method, Modified Accelerated Cost Recovery System (MACRS), or immediate expensing may be used for qualifying assets for federal income tax purposes. 10.

Additions or improvements that increase the usefulness of an asset should be debited to the asset account.

11.

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.

12.

An asset may be disposed of by discarding or retiring the asset, selling the asset, or exchanging or trading the asset for another asset.

13.

On the date of an asset’s disposal, depreciation expense should be recognized for the time period since the last depreciation adjustment.

14.

To determine the gain or loss, the market value and book value (undepreciated cost) must be known. 721 © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

722

CHAPTER 18

15.

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.

16.

The purpose of depletion is to allocate the cost of natural resources to the periods in which they are consumed.

17.

The units-of-production method is very similar to the method used to compute depletion expense.

18.

The cost of a patent should be amortized over its economic life.

19.

The unamortized cost of a copyright is reported on the balance sheet as an intangible asset.

20.

A trademark or trade name is a symbol, word, phrase, or jingle identified with a particular product or company.

21.

A franchise is a contract under which a franchisor grants the franchisee the rights to sell products or services and to use trademarks or trade names under specified conditions. Answers will vary, but might include the following: Dairy Queen, Papa John’s, Steak ’n Shake, Rent-a-Wreck, RE/MAX, Motel 6, most fast food restaurants, etc.

22.

Goodwill is the excess of the market value of the company over the market value of the company’s net assets (assets – liabilities). Goodwill is only recognized when one company buys another.

23.

If the fair market value of any property, plant, equipment, or intangible asset falls below the book value reported on the balance sheet, the asset is considered to be impaired and must be written down and a loss recognized.

CHAPTER 18

723

Exercise 18-1A Yes

Debit Land? Real estate fees

Cost to remove old buildings

Cost to pave parking areas Tax assessment for streets

X X

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

724

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 Cash

PAGE POST. REF.

DEBIT

CREDIT

3 5 0 0 00

3 4

Checkout Stand B Cash

1 0 0 0 00

6 7 8

5 6

Repairs Expense

3 0 00

Cash

3 0 00

CHAPTER 18

725

Exercise 18-5A 1. GENERAL JOURNAL DATE 1

20--

DESCRIPTION

PAGE POST. REF.

4 Accumulated Depreciation—Shelves

Jan.

Loss on Discarded Shelves

DEBIT

5 9 0 0 00

5 0 0 00

Shelves

CREDIT

6 4 0 0 00

4 5

June 15 Cash

Accumulated Depreciation—Hand Cart

1 5 0 00

1 3 5 0 00

Hand Cart

1 5 0 0 00

8 9

7 8

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--

POST. REF.

DEBIT

Accumulated Depreciation—Drill Press (old)

75 0 0 0 00 48 0 0 0 00

Loss on Exchange of Drill Press

2 0 0 0 00

Dec. 31 Drill Press (new)

PAGE

CREDIT 1

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

726

CHAPTER 18

Exercise 18-6A 1. GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Depletion Expense—Coal Mine

25 0 0 0 00

Accumulated Depletion—Coal Mine

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Depletion Expense—Silver Mine

Accumulated Depletion—Silver Mine

500 0 0 0 00

Rate: $3,000,000 ÷ 750,000 tons = $4/ton

125,000 × $4 = $500,000

CHAPTER 18

727

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

1. b. Year

Beginning Book Value

Rate

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

0.25

8,296.88

24,890.62

0.25

6,222.66

18,667.96

0.25

4,666.99

14,000.97

0.25

3,500.24

10,500.73

0.25

2,625.18

7,875.55

0.25

1,968.89

5,906.66

Year

Depreciable Cost

Rate

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. c.

728

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

CHAPTER 18

729

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Depreciation Expense—Equipment

Accumulated Depreciation—Equipment

8 0 7 5 00

730

CHAPTER 18

Problem 18-10A 1. GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20-1

Dec. 31 Depreciation Expense—Simulator A

9 0 0 0 00

Accumulated Depreciation—Simulator A

9 0 0 0 00

($77,000 – $5,000)/8

3 4

31 Depreciation Expense—Simulator B

9 0 0 0 00

Accumulated Depreciation—Simulator B

9 0 0 0 00

($77,000 – $5,000)/8

7 8

2. GENERAL JOURNAL DATE 1

20-2

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

731

Problem 18-11A GENERAL JOURNAL DATE 1

20--

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

7 8

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

732

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

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

1 Depletion Expense—Salt Mine

Year

100 0 0 0 00

Accumulated Depletion—Salt Mine

100 0 0 0 00

4 5

3 4

2 Depletion Expense—Salt Mine Accumulated Depletion—Salt Mine

Year

300 0 0 0 00

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

Franchise

$50,000 ÷ 5 = $10,000 per year × 6/12 =

5,000

2. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Patent Amortization (Expense)

1 0 0 0 00

Patents

1 0 0 0 00

4 5 6

31 Copyright Amortization (Expense)

2 2 5 0 00

Copyrights

2 2 5 0 00

7 8 9

6 7

31 Franchise Amortization (Expense) Franchise

5 0 0 0 00

CHAPTER 18

733

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

734

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

5 6

Repairs Expense

2 5 00

Cash

2 5 00

CHAPTER 18

735

Exercise 18-5B 1. GENERAL JOURNAL DATE 1

20--

DESCRIPTION

PAGE POST. REF.

4 Accumulated Depreciation—Shelves

Jan.

Loss on Discarded Shelves

DEBIT

6 9 0 0 00

3 0 0 00

Shelves

CREDIT

7 2 0 0 00

4 5

June 15 Cash

Accumulated Depreciation—Hand Cart

2 5 0 00

2 2 5 0 00

Hand Cart

2 5 0 0 00

8 9

7 8

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 1 2

DESCRIPTION

20--

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

736

CHAPTER 18

Exercise 18-6B 1. GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Depletion Expense—Coal Mine

77 0 0 0 00

Accumulated Depletion—Coal Mine

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

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Depletion Expense—Silver Mine

Accumulated Depletion—Silver Mine

300 0 0 0 00

Rate: $2,000,000 ÷ 500,000 tons = $4/ton

75,000 × $4 = $300,000

CHAPTER 18

737

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

1. b. Year

Beginning Book Value

Rate

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

0.25

10,828.13

32,484.37

0.25

8,121.09

24,363.28

0.25

6,090.82

18,272.46

0.25

4,568.12

13,704.34

0.25

3,426.09

10,278.25

0.25

2,569.56

7,708.69

Year

Depreciable Cost

Rate

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. c.

738

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

739

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 $10,250

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

2. GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

DESCRIPTION

PAGE

20--

Dec. 31 Depreciation Expense—Equipment

Accumulated Depreciation—Equipment

10 2 5 0 00

740

CHAPTER 18

Problem 18-10B 1. GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20-1

Dec. 31 Depreciation Expense—Jackhammer A

6 0 0 00

Accumulated Depreciation—Jackhammer A

6 0 0 00

($2,500 – $100)/4

3 4

31 Depreciation Expense—Jackhammer B

6 0 0 00

Accumulated Depreciation—Jackhammer B

6 0 0 00

($2,500 – $100)/4

2. GENERAL JOURNAL DATE 1

20-2

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

741

Problem 18-11B GENERAL JOURNAL DATE 1

20--

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

7 8

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 Van #3

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

742

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

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

1 Depletion Expense—Copper Mine

Year

160 0 0 0 00

Accumulated Depletion—Copper Mine

160 0 0 0 00

4 5

3 4

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

Franchise

$40,000 ÷ 5 = $8,000 per year × 6/12 =

4,000

$1,000

$5,750

2. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Adjusting Entry

1 2

PAGE

20--

Dec. 31 Patent Amortization (Expense)

1 0 0 0 00

Patents

1 0 0 0 00

4 5 6

31 Copyright Amortization (Expense)

7 5 0 00

Copyrights

7 5 0 00

7 8 9

6 7

31 Franchise Amortization (Expense) Franchise

4 0 0 0 00

9 10

CHAPTER 18

743

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. If qualifying assets (not buildings) were acquired after September 27, 2017, your student would likely recommend immediate expensing for the reason discussed above. Of course, this might not be true if tax rates increase in future years.

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.

744

CHAPTER 18

Mastery Problem 1. GENERAL JOURNAL DATE 1

DESCRIPTION

20-3

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)

4 5

20-4

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

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)

12 13

20-6

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)

16 17

6 7

8 9

20-6

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

745

Mastery Problem (Concluded) 2. GENERAL JOURNAL DATE 1

DESCRIPTION

20-3

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)

6 7

20-4

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

12 13

20-5

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

18 19

20-6

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

24 25 26

20-6

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

746

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.

747

748

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

749

Exercise 19-1A GENERAL JOURNAL DATE 1 2 3

20--

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

750

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

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

751

Exercise 19-4A 1. GENERAL JOURNAL DATE 1

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 1

20--

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

Allocation of gain

9 10

752

CHAPTER 19

Problem 19-6A GENERAL JOURNAL DATE 1

20--

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

753

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

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

754

CHAPTER 19

Problem 19-7A (Concluded) 3. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

PAGE

20--

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 1

DESCRIPTION

20--

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

755

Problem 19-8A (Concluded) 2. GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

20--

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 1 2

DESCRIPTION

20--

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

756 CHAPTER 19

CHAPTER 19

757

Problem 19-9A (Concluded) 2. GENERAL JOURNAL DATE 1

20--

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

215 0 0 0 00 20

Distribution of cash to partners

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

758 CHAPTER 19

CHAPTER 19

759

Problem 19-10A (Concluded) 2. GENERAL JOURNAL DATE 1 2

20--

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

170 0 0 0 00 20

Distribution of cash to partners

760

CHAPTER 19

Exercise 19-1B GENERAL JOURNAL DATE 1 2 3

20--

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

761

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

762

CHAPTER 19

Exercise 19-4B 1. GENERAL JOURNAL DATE 1

20--

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 1 2 3 4

20--

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

763

Problem 19-6B GENERAL JOURNAL DATE 1

20--

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

2 5 0 00 17

Investment of W. Dodge in partnership

764

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

765

Problem 19-7B (Concluded) 3. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

PAGE

20--

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 1

DESCRIPTION

20--

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

766

CHAPTER 19

Problem 19-8B (Concluded) 2. GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

20--

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 1 2

DESCRIPTION

20--

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 19 767

768

CHAPTER 19

Problem 19-9B (Concluded) 2. GENERAL JOURNAL DATE 1

20--

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

6 7

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

171 0 0 0 00 20

Distribution of cash to partners

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 19 769

770

CHAPTER 19

Problem 19-10B (Concluded) 2. GENERAL JOURNAL DATE 1 2

20--

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

155 0 0 0 00 20

Distribution of cash to partners

CHAPTER 19

771

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.

772

CHAPTER 19

Mastery Problem 1. GENERAL JOURNAL DATE 1

20-2

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

50 0 0 0 00

50 0 0 0 00 14

J. Bond’s investment in partnership

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

CHAPTER 19

773

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 1

20-5

Jan.

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

30 0 0 0 00

I Fleming, Capital

3 6 0 0 00

J. Bond, Capital

2 4 0 0 00

4 5

P. Fleming, Capital

36 0 0 0 00

P. Fleming’s investment in partnership

4 5

774

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

(152,000)

Final balance

CHAPTER 19

775

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 (20,000)

776

CHAPTER 19

Mastery Problem (Continued) GENERAL JOURNAL DATE 1 2 3 4

20-9

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

777

Mastery Problem (Concluded) GENERAL JOURNAL DATE 1

20-9

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. 791 © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

792

CHAPTER 20

Exercise 20-1A GENERAL JOURNAL DATE 1 2

PAGE POST. REF.

DESCRIPTION

20--

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

793

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

794

CHAPTER 20

Exercise 20-3A GENERAL JOURNAL DATE 1 2

20--

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

7 8

c. Cash

55 0 0 0 00

Common Stock

55 0 0 0 00

11 12 13

d. Cash

42 0 0 0 00

Common Stock

42 0 0 0 00 13

14 15 16

e. Cash

48 0 0 0 00

Common Stock

48 0 0 0 00 16

17 18

f. Cash

Common Stock

Paid-In Capital in Excess of Stated

Value—Common Stock

25 0 0 0 00

24 0 0 0 00 19 20

1 0 0 0 00 21

CHAPTER 20

795

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 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

50 0 0 0 00 12 13

15 0 0 0 00 14

d. Cash

30 0 0 0 00

Common Stock Subscriptions Receivable

30 0 0 0 00 17

18 19 20

e. Cash

35 0 0 0 00

Common Stock Subscriptions Receivable

35 0 0 0 00 20

21 22 23

Common Stock Subscribed

50 0 0 0 00

Common Stock

50 0 0 0 00 23

24 25 26

f. Common Treasury Stock

7 0 0 0 00

Cash

7 0 0 0 00 26

27 28

g. Cash

Common Treasury Stock (500 × $7)

Paid-In Capital from Sale of Treasury Stock

3 7 5 0 00

3 5 0 0 00 29 2 5 0 00 30

31 32 33 34

9 10

7 8

4 5

h. Cash Paid-In Capital from Sale of Treasury Stock Common Treasury Stock (500 × $7)

3 3 7 5 00

1 2 5 00

3 5 0 0 00 34

796

CHAPTER 20

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

4,000 $119,000

Retained earnings

35,000 $154,000

Less: Common stock subscriptions receivable Total stockholders’ equity

5,000 $149,000

CHAPTER 20

797

Problem 20-6A 1.

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

2 0 0 0 00

c. Cash

100 0 0 0 00

Preferred Stock

100 0 0 0 00 10 11

d. Cash

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

51 5 0 0 00

50 0 0 0 00 13 14

1 5 0 0 00 15

16 17 18

e. Cash

11 8 7 5 00

Common Stock

11 8 7 5 00 18

19 20 21

7 8

11 12

5 6

8 9

f. Cash Preferred Stock

72 0 0 0 00

72 0 0 0 00 21

798

CHAPTER 20

Problem 20-6A (Concluded) 2. Total amount available for dividends

$26,000

Dividends to preferred stock: 2,000 shares × $4 Amount available for common stock

8,000 $18,000

Dividends per share: Preferred stock

$4.00

Common stock ($18,000 ÷ 45,000 shares)

$0.40

CHAPTER 20

799

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

33 0 0 0 00

30 0 0 0 00

3 0 0 0 00

c. Cash

75 0 0 0 00

Preferred Stock

75 0 0 0 00 10 11

d. Land

50 0 0 0 00

Common Stock

50 0 0 0 00 13

14 15

e. Building

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

140 0 0 0 00

100 0 0 0 00 16 17

40 0 0 0 00 18

19 20

7 8

11 12

5 6

8 9

f. Land

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

405 0 0 0 00

400 0 0 0 00 21 22

5 0 0 0 00 23

800

CHAPTER 20

Problem 20-8A GENERAL JOURNAL DATE 1

DESCRIPTION

a. Common Stock Subscriptions Receivable

Common Stock Subscribed

Paid-In Capital in Excess of Par—

Common Stock

PAGE POST. REF.

DEBIT

CREDIT

105 0 0 0 00 100 0 0 0 00 5 0 0 0 00

5 6

b Preferred Stock Subscriptions Receivable

Preferred Stock Subscribed

Paid-In Capital in Excess of Par—

Preferred Stock

80 0 0 0 00 75 0 0 0 00 5 0 0 0 00

10 11 12

c. Cash

55 0 0 0 00

Common Stock Subscriptions Receivable

55 0 0 0 00 12

13 14 15

d. Cash

40 0 0 0 00

Preferred Stock Subscriptions Receivable

40 0 0 0 00 15

16 17

e. Truck

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

48 0 0 0 00

40 0 0 0 00 18 19

8 0 0 0 00 20

21 22 23

f. Cash

50 0 0 0 00

Common Stock Subscriptions Receivable

50 0 0 0 00 23

24 25 26

Common Stock Subscribed

100 0 0 0 00

Common Stock

100 0 0 0 00 26

27 28 29

g. Cash

40 0 0 0 00

Preferred Stock Subscriptions Receivable

40 0 0 0 00 29

30 31 32

Preferred Stock Subscribed Preferred Stock

75 0 0 0 00

75 0 0 0 00 32

CHAPTER 20

801

Problem 20-9A GENERAL JOURNAL DATE 1

DESCRIPTION

20--

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 3 0 0 0 00

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 10 11

1 5 0 0 00 12

15 Building

14 15

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

165 0 0 0 00

160 0 0 0 00 15 16

5 0 0 0 00 17

31 Cash

51 5 0 0 00

Common Stock Subscriptions Receivable

51 5 0 0 00 20

Sept.

3 Common Treasury Stock

22 0 0 0 00

Cash

22 0 0 0 00 23

24 25 26

Sept. 18 Cash

30 0 0 0 00

Common Stock Subscriptions Receivable

30 0 0 0 00 26

27 28 29

Common Stock Subscribed

80 0 0 0 00

Common Stock

80 0 0 0 00 29

30 31

7 8

5 6

8 9

30 Cash

Common Treasury Stock (800 × $11)

Paid-In Capital from Sale of Treasury Stock

9 2 0 0 00

8 8 0 0 00 32 4 0 0 00 33

802

CHAPTER 20

Problem 20-9A (Concluded) GENERAL JOURNAL DATE 1

DESCRIPTION

20--

Oct. 15 Land

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

PAGE POST. REF.

DEBIT

CREDIT

125 0 0 0 00

120 0 0 0 00

5 0 0 0 00

5 6 7 8

4 5

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

CHAPTER 20

803

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

804

CHAPTER 20

Exercise 20-1B GENERAL JOURNAL DATE 1 2

PAGE POST. REF.

DESCRIPTION

20--

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

805

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

806

CHAPTER 20

Exercise 20-3B GENERAL JOURNAL DATE 1 2

20--

Jan.

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 Par—

Common Stock

53 5 0 0 00

50 0 0 0 00

3 5 0 0 00

c. Cash

60 0 0 0 00

Common Stock

60 0 0 0 00 10 11

d. Cash

40 0 0 0 00

Common Stock

40 0 0 0 00 13

14 15 16

e. Cash

48 0 0 0 00

Common Stock

48 0 0 0 00 16

17 18

7 8

11 12

5 6

8 9

f. Cash

Common Stock

Paid-In Capital in Excess of Stated

Value—Common Stock

25 0 0 0 00

24 0 0 0 00 19 20

1 0 0 0 00 21

CHAPTER 20

807

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

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

27 5 0 0 00 11 0 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

55 0 0 0 00 12 13

3 0 0 0 00 14

d. Cash

29 0 0 0 00

Common Stock Subscriptions Receivable

29 0 0 0 00 17

18 19 20

e. Cash

29 0 0 0 00

Common Stock Subscriptions Receivable

29 0 0 0 00 20

21 22 23

Common Stock Subscribed

55 0 0 0 00

Common Stock

55 0 0 0 00 23

24 25 26

f. Common Treasury Stock

12 0 0 0 00

Cash

12 0 0 0 00 26

27 28

g. Cash

Common Treasury Stock (1,000 × $6)

Paid-In Capital from Sale of Treasury Stock

6 5 0 0 00

6 0 0 0 00 29 5 0 0 00 30

31 32 33 34

9 10

7 8

4 5

h. Cash Paid-In Capital from Sale of Treasury Stock Common Treasury Stock (1,000 × $6)

5 7 5 0 00

2 5 0 00

6 0 0 0 00 34

808

CHAPTER 20

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

120,000 $220,000

Retained earnings

50,000 $270,000

Less: Common stock subscriptions receivable Total stockholders’ equity

6,000 $264,000

CHAPTER 20

809

Problem 20-6B 1.

GENERAL JOURNAL DATE

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 0 0 0 00

5 6 7

b. Cash

18 0 0 0 00

Common Stock

18 0 0 0 00

c. Cash

30 0 0 0 00

Preferred Stock

30 0 0 0 00 10 11

d. Cash

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

46 5 0 0 00

45 0 0 0 00 13 14

1 5 0 0 00 15

16 17 18

e. Cash

10 4 7 5 00

Common Stock

10 4 7 5 00 18

19 20 21

7 8

11 12

4 5

8 9

f. Cash Preferred Stock

32 0 0 0 00

32 0 0 0 00 21

810

CHAPTER 20

Problem 20-6B (Concluded) 2. Total amount available for dividends

$12,600

Dividends to preferred stock: 3,000 shares × $0.70 Amount available for common stock

2,100 $10,500

Dividends per share: Preferred stock

$0.70

Common stock ($10,500 ÷ 42,000 shares)

$0.25

CHAPTER 20

811

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

63 0 0 0 00

60 0 0 0 00

3 0 0 0 00

c. Cash

77 0 0 0 00

Preferred Stock

77 0 0 0 00 10 11

d. Land

100 0 0 0 00

Common Stock

100 0 0 0 00 13

14 15

e. Building

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

121 0 0 0 00

110 0 0 0 00 16 17

11 0 0 0 00 18

19 20

7 8

11 12

5 6

8 9

f. Land

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

243 0 0 0 00

240 0 0 0 00 21 22

3 0 0 0 00 23

812

CHAPTER 20

Problem 20-8B GENERAL JOURNAL DATE 1 2 3 4

DESCRIPTION

a. Common Stock Subscriptions Receivable

PAGE POST. REF.

DEBIT

CREDIT

118 0 0 0 00

Common Stock Subscribed Paid-in Capital in Excess of Par— Common Stock

100 0 0 0 00

18 0 0 0 00

5 6 7 8 9

b. Preferred Stock Subscriptions Receivable Preferred Stock Subscribed Paid-In Capital in Excess of Par— Preferred Stock

92 0 0 0 00

90 0 0 0 00 2 0 0 0 00

17 18 19

c. Cash Common Stock Subscriptions Receivable

59 0 0 0 00

59 0 0 0 00 12 13

d. Cash Preferred Stock Subscriptions Receivable

46 0 0 0 00

46 0 0 0 00 15

e. Truck Common Stock Paid-In Capital in Excess of Par— Common Stock

66 0 0 0 00

60 0 0 0 00 17 18

6 0 0 0 00 19

20 21 22

f. Cash Common Stock Subscriptions Receivable

59 0 0 0 00

59 0 0 0 00 22

23 24 25

Common Stock Subscribed Common Stock

100 0 0 0 00

100 0 0 0 00 25

26 27 28

g. Cash

46 0 0 0 00

Preferred Stock Subscriptions Receivable

46 0 0 0 00 28

29 30 31

9 10

15 16

7 8

13 14

4 5

10 11

Preferred Stock Subscribed Preferred Stock

90 0 0 0 00

90 0 0 0 00 31

CHAPTER 20

813

Problem 20-9B GENERAL JOURNAL DATE 1

DESCRIPTION

20--

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 2 0 0 0 00

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 10 11

1 5 0 0 00 12

15 Building

14 15

Common Stock

Paid-In Capital in Excess of Par—

Common Stock

104 8 0 0 00

100 0 0 0 00 15 16

4 8 0 0 00 17

31 Cash

51 5 0 0 00

Common Stock Subscriptions Receivable

51 5 0 0 00 20

Sept.

3 Common Treasury Stock

11 0 0 0 00

Cash

11 0 0 0 00 23

24 25 26

18 Cash

50 0 0 0 00

Common Stock Subscriptions Receivable

50 0 0 0 00 26

27 28 29

Common Stock Subscribed

100 0 0 0 00

Common Stock

100 0 0 0 00 29

30 31

7 8

5 6

8 9

30 Cash

Common Treasury Stock (500 × $11)

Paid-In Capital from Sale of Treasury Stock

5 8 5 0 00

5 5 0 0 00 32 3 5 0 00 33

814

CHAPTER 20

Problem 20-9B (Concluded) GENERAL JOURNAL DATE 1

DESCRIPTION

20--

Oct. 15 Land

Preferred Stock

Paid-In Capital in Excess of Par—

Preferred Stock

PAGE POST. REF.

DEBIT

CREDIT

105 0 0 0 00

100 0 0 0 00

5 0 0 0 00

5 6 7 8

4 5

31 Cash Paid-In Capital from Sale of Treasury Stock Common Treasury Stock (500 × $11)

5 2 5 0 00

2 5 0 00

5 5 0 0 00

CHAPTER 20

815

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

816

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

817

Mastery Problem 1. GENERAL JOURNAL DATE 1 2

DESCRIPTION

a. Cash Preferred Stock Subscriptions Receivable

PAGE POST. REF.

DEBIT

CREDIT

20 0 0 0 00

3 4 5

Preferred Stock Subscribed Preferred Stock

40 0 0 0 00

6 7 8

11 12 13 14

b. Common Treasury Stock Cash

180 0 0 0 00

17 18 19

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

10 11

100 0 0 0 00 12 13

90 0 0 0 00 14 15

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 22 23

e. Cash Common Treasury Stock Paid-In Capital from Sale of Treasury Stock

100 0 0 0 00

90 0 0 0 00 22 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

8 9

15 16

5 6

9 10

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

818

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.

451,000 (c)

Preferred Stock Subscriptions Receivable Bal. 50,000 (a) 20,000 Bal. 30,000

(a)

Common Treasury Stock 180,000 (e) (g)

Common Stock Bal. (d) Bal.

90,000 54,000

(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.

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

Preferred Stock Subscribed 40,000 Bal. 100,000 Bal. 60,000

Preferred Stock Bal. (a) (f) Bal.

Common Stock Subscriptions Receivable 145,000

36,000

CHAPTER 20

819

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

820

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

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.

822

CHAPTER 21

Exercise 21-1A 1. and 2. GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

20-1

Apr. 15 Income Tax Expense

DEBIT

20 0 0 0 00

Cash

CREDIT 1

20 0 0 0 00

3 4

2 3

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 1

DESCRIPTION

20--

Dec. 31 Income Summary

PAGE POST. REF.

DEBIT

130 0 0 0 00

Retained Earnings

CREDIT 1

130 0 0 0 00

2 3

31 Retained Earnings

Cash Dividends

26 0 0 0 00

2. 6

7 8

20--

Dec. 31 Retained Earnings

25 0 0 0 00

Income Summary

25 0 0 0 00

8 9

31 Retained Earnings

Stock Dividends

15 0 0 0 00

15 0 0 0 00 11

CHAPTER 21

823

Exercise 21-3A GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

20--

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 6

5 Common Dividends Payable

Aug.

60 0 0 0 00

Cash

60 0 0 0 00

8 9

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 1

DESCRIPTION

20--

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

80 0 0 0 00

Apr. 14 Stock Dividends Distributable

Common Stock

20 0 0 0 00

4 5

7 8

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

824

CHAPTER 21

Exercise 21-5A GENERAL JOURNAL DATE 1

20--

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 1

20-1

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

4 5 6 7

3 4

20-2

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

825

Problem 21-8A GENERAL JOURNAL DATE 1 2

DESCRIPTION

20-2

Apr. 15 Income Tax Expense

PAGE POST. REF.

DEBIT

CREDIT

7 5 0 0 00

Cash

7 5 0 0 00

3 4 5

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

June 15 Income Tax Expense

7 5 0 0 00

Cash

7 5 0 0 00 11 12

Sept. 15 Income Tax Expense

7 5 0 0 00

Cash

7 5 0 0 00 14

15 16 17

Oct. 25 Cash Dividends

36 0 0 0 00

Common Dividends Payable

36 0 0 0 00 17

18 19 20

Nov. 20 Common Dividends Payable

36 0 0 0 00

Cash

36 0 0 0 00 20

21 22 23

Dec. 15 Income Tax Expense

7 5 0 0 00

Cash

7 5 0 0 00 23

24 25 26

31 Income Tax Expense

5 0 0 0 00

Income Tax Payable

5 0 0 0 00 26

27 28 29

8 9

12 13

5 6

9 10

31 Income Summary

134 0 0 0 00

Retained Earnings

134 0 0 0 00 29

31 Retained Earnings

Cash Dividends

72 0 0 0 00

72 0 0 0 00 32

826

CHAPTER 21

Problem 21-9A GENERAL JOURNAL DATE 1

DESCRIPTION

20--

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

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

7 8

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

8 0 0 0 00

8 0 0 0 00 23

24 25

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

827

Problem 21-10A GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

20--

Mar. 16 Retained Earnings

DEBIT

CREDIT

75 0 0 0 00

Retained Earnings Appropriated for

Computers

1 2

75 0 0 0 00

4 5

5 Warehouse

Nov.

80 0 0 0 00

Cash

80 0 0 0 00

6 7

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 1

DESCRIPTION

20--

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

828

CHAPTER 21

Problem 21-11A (Continued) GENERAL JOURNAL DATE 1

PAGE POST. REF.

DESCRIPTION

20--

Oct. 10 Cash Dividends

DEBIT

CREDIT

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

8 9

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 10 11

65 0 0 0 00 12

Dec. 15 Stock Dividends Distributable

Common Stock

25 0 0 0 00

25 0 0 0 00 15

16 17 18

31 Income Summary

290 0 0 0 00

Retained Earnings

290 0 0 0 00 18

31 Retained Earnings

156 0 0 0 00

Cash Dividends

66 0 0 0 00 21

Stock Dividends

90 0 0 0 00 22

2. Retained Earnings—Appropriated for Land Acquisition Bal.

Retained Earnings—Unappropriated

60,000

Bal. Dec. 31

156,000

Dec. 31

900,000 290,000 1,190,000

1,034,000

CHAPTER 21

829

Problem 21-11A (Concluded) 3. Glover Company Statement of Retained Earnings For Year Ended December 31, 20-Appropriated: Appropriated for land acquisition

60,000

Unappropriated: Balance, January 1

$900,000

Add net income for year

290,000

Less: Cash dividends

$ 66,000

Stock dividends

90,000

$1,190,000 156,000

Retained earnings unappropriated, December 31

1,034,000

Total retained earnings, December 31

$1,094,000

830

CHAPTER 21

Exercise 21-1B 1. and 2. GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

20-1

Apr. 15 Income Tax Expense

DEBIT

25 0 0 0 00

Cash

CREDIT 1

25 0 0 0 00

3 4

2 3

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 1

DESCRIPTION

20--

Dec. 31 Income Summary

PAGE POST. REF.

DEBIT

90 0 0 0 00

Retained Earnings

CREDIT 1

90 0 0 0 00

2 3

31 Retained Earnings

Cash Dividends

18 0 0 0 00

2. 6 7 8

20--

Dec. 31 Retained Earnings

20 0 0 0 00

Income Summary

20 0 0 0 00

8 9

31 Retained Earnings

Stock Dividends

15 0 0 0 00

15 0 0 0 00 11

CHAPTER 21

831

Exercise 21-3B GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

20--

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 6

5 Common Dividends Payable

Aug.

30 0 0 0 00

Cash

30 0 0 0 00

8 9

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 1

DESCRIPTION

20--

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

120 0 0 0 00

Apr. 14 Stock Dividends Distributable

Common Stock

10 0 0 0 00

4 5

7 8

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

832

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 1

20-1

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

4 5 6 7

3 4

20-2

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

833

Problem 21-8B GENERAL JOURNAL DATE 1 2

DESCRIPTION

20-2

Apr. 15 Income Tax Expense

PAGE POST. REF.

DEBIT

CREDIT

40 0 0 0 00

Cash

40 0 0 0 00

3 4 5

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

June 15 Income Tax Expense

40 0 0 0 00

Cash

40 0 0 0 00 11 12

Sept. 15 Income Tax Expense

40 0 0 0 00

Cash

40 0 0 0 00 14

15 16 17

Oct. 25 Cash Dividends

45 0 0 0 00

Common Dividends Payable

45 0 0 0 00 17

18 19 20

Nov. 20 Common Dividends Payable

45 0 0 0 00

Cash

45 0 0 0 00 20

21 22 23

Dec. 15 Income Tax Expense

40 0 0 0 00

Cash

40 0 0 0 00 23

24 25 26

31 Income Tax Expense

14 0 0 0 00

Income Tax Payable

14 0 0 0 00 26

27 28 29

8 9

12 13

5 6

9 10

31 Income Summary

656 0 0 0 00

Retained Earnings

656 0 0 0 00 29

31 Retained Earnings

Cash Dividends

90 0 0 0 00

90 0 0 0 00 32

834

CHAPTER 21

Problem 21-9B GENERAL JOURNAL DATE 1

DESCRIPTION

20--

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

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

7 8

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

7 0 0 0 00

7 0 0 0 00 23

24 25

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

835

Problem 21-10B GENERAL JOURNAL DATE 1

DESCRIPTION

PAGE POST. REF.

20--

Mar. 16 Retained Earnings

DEBIT

CREDIT

50 0 0 0 00

Retained Earnings Appropriated for

Factory Equipment

1 2

50 0 0 0 00

4 5

5 Warehouse

Nov.

70 0 0 0 00

Cash

70 0 0 0 00

6 7

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 1

DESCRIPTION

20--

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

836

CHAPTER 21

Problem 21-11B (Continued) GENERAL JOURNAL DATE 1

PAGE POST. REF.

DESCRIPTION

20--

Oct. 10 Cash Dividends

DEBIT

CREDIT

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

8 9

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 10 11

99 0 0 0 00 12

Dec. 15 Stock Dividends Distributable

Common Stock

18 0 0 0 00

18 0 0 0 00 15

16 17 18

31 Income Summary

260 0 0 0 00

Retained Earnings

260 0 0 0 00 18

31 Retained Earnings

171 0 0 0 00

Cash Dividends

54 0 0 0 00 21

Stock Dividends

117 0 0 0 00 22

2. Retained Earnings—Appropriated for Land Acquisition Bal.

Retained Earnings—Unappropriated

75,000

Bal. Dec. 31

171,000

Dec. 31

825,000 260,000 1,085,000

914,000

CHAPTER 21

837

Problem 21-11B (Concluded) 3. Nguyen Company Statement of Retained Earnings For Year Ended December 31, 20-Appropriated: Appropriated for land acquisition

$ 75,000

Unappropriated: Balance, January 1

$825,000

Add net income for year

260,000

Less: Cash dividends

$ 54,000

Stock dividends

117,000

$1,085,000 171,000

Retained earnings unappropriated, December 31

914,000

Total retained earnings, December 31

$989,000

838

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

839

Mastery Problem 1. GENERAL JOURNAL DATE 1

DESCRIPTION

20--

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

7 8

Sept. 15 Cash Dividends

13 5 0 0 00

Preferred Dividends Payable

1 5 0 0 00 10

Common Dividends Payable

12 0 0 0 00 11

12 13 14 15

Oct.

10 Preferred Dividends Payable

1 5 0 0 00

Common Dividends Payable

12 0 0 0 00

Cash

13 5 0 0 00 15

16 17

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.

21 22 23

Dec. 31 Income Summary

135 0 0 0 00

Retained Earnings

135 0 0 0 00 23

31 Retained Earnings

Cash Dividends

27 0 0 0 00

27 0 0 0 00 26

840

CHAPTER 21

Mastery Problem (Concluded) 2. Retained Earnings—Appropriated Bal. 50,000

Retained Earnings—Unappropriated Bal. 800,000 Dec. 31

27,000

Dec. 31

135,000 935,000

Bal.

908,000

3. Dover Company Statement of Retained Earnings For Year Ended December 31, 20-Appropriated:

printing

Appropriated for press

$ 50,000

Unappropriated: Balance, January 1

$800,000

Add net income for year

135,000

Less cash dividends

$935,000 27,000

Retained earnings unappropriated, December 31 Total retained earnings, December 31

908,000 $958,000

CHAPTER 21

841

Challenge Problem 1. GENERAL JOURNAL DATE 1

(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

120 0 0 0 00

5 6

(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

14 15

7 8

4 5

(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.

19 20

(f)

Cash Dividends Common Dividends Payable

91 5 2 0 00

91 5 2 0 00 21

2. (a)

200,000 +20,000 220,000 +66,000 286,000 ×

572,000 (b)

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.

844

CHAPTER 22

Exercise 22-1A GENERAL JOURNAL DATE 1

20-1

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

5 6

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 1

20-1

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

CHAPTER 22

845

Exercise 22-3A GENERAL JOURNAL DATE 1

20-1

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

3 4

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

6 7

c. Bonds Payable

80 0 0 0 00

Gain on Bonds Redeemed

3 2 0 0 00

Cash

76 8 0 0 00 10

846

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

847

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

5 6

c. Bonds Payable

300 0 0 0 00

Bond Sinking Fund

300 0 0 0 00

9 10

8 9

d. Cash Bond Sinking Fund

1 8 0 0 00

1 8 0 0 00 11

848

CHAPTER 22

Problem 22-8A GENERAL JOURNAL DATE 1

20-1

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 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

4 5 0 0 00 13

14 15

Mar. 31 Bond Interest Expense

9 0 0 0 00

Cash

9 0 0 0 00 16

17 18

Sept. 30 Bond Interest Expense

9 0 0 0 00

Cash

9 0 0 0 00 19

20 21 22

9 10

11 12

5 6

7 8

20-6

Apr.

1 Bonds Payable Cash

300 0 0 0 00

300 0 0 0 00 22

CHAPTER 22

849

Problem 22-9A 1. GENERAL JOURNAL DATE 1

20-1

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

16 17

20-2

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

850

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 1 2 3

20-1

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

3 4

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

851

Problem 22-10A (Concluded) GENERAL JOURNAL DATE

POST. REF.

DESCRIPTION

DEBIT

CREDIT

Reversing Entry

1 2

PAGE

20-2

Jan.

1 Bond Interest Payable

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

852

CHAPTER 22

Problem 22-11A GENERAL JOURNAL DATE 1

20-1

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

16 17

20-2

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 21

20-6

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

853

Problem 22-12A GENERAL JOURNAL DATE 1

20-1

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

3 4

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

16 17

20-2

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 21

20-4

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.

854

CHAPTER 22

Problem 22-13A GENERAL JOURNAL DATE 1

2001

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

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

8 7 5 0 00 15

Reversing Entry

2002

Jan.

1 Bond Interest Payable

8 7 5 0 00

Bond Interest Expense

8 7 5 0 00 19

20 21

Mar. 31 Bond Interest Expense

17 5 0 0 00

Cash

17 5 0 0 00 22

June. 1 Bond Sinking Fund

Cash

34 0 0 0 00

34 0 0 0 00 25

26 27 28

2011

Mar. 31 Bonds Payable

500 0 0 0 00

Bond Sinking Fund

500 0 0 0 00 28

29 30 31

8 9

5 6

31 Cash Bond Sinking Fund

1 0 5 0 00

1 0 5 0 00 31

CHAPTER 22

855

Exercise 22-1B GENERAL JOURNAL DATE 1

20-1

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

5 6

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 1

20-1

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

856

CHAPTER 22

Exercise 22-3B GENERAL JOURNAL DATE 1

20-1

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

3 4

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

6 7

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

857

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

858

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

2 1 2 5 00

Bond Sinking Fund

Problem 22-8B DATE 2001

Apr.

2 1 2 5 00 11 GENERAL JOURNAL

DESCRIPTION

1 Cash

PAGE POST. REF.

DEBIT

CREDIT

250 0 0 0 00

Bonds Payable

250 0 0 0 00

Sept. 30 Bond Interest Expense

11 2 5 0 00

Cash

11 2 5 0 00

Adjusting Entry Dec. 31 Bond Interest Expense

5 6 2 5 00

Bond Interest Payable

5 6 2 5 00

Reversing Entry 2002

Jan.

1 Bond Interest Payable

5 6 2 5 00

Bond Interest Expense

5 6 2 5 00 13

Mar. 31 Bond Interest Expense

11 2 5 0 00

Cash

11 2 5 0 00 16

17 18

Sept. 30 Bond Interest Expense

11 2 5 0 00

Cash

11 2 5 0 00 19

2011 21 22

9 10

5 6

2 3

8 9

5 6

Apr.

1 Bonds Payable Cash

250 0 0 0 00

250 0 0 0 00 22

CHAPTER 22

859

Problem 22-9B 1.

GENERAL JOURNAL DATE

20-1

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

16 17

20-2

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

860

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 1

20-1

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

3 4

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

16 17

20-2

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

CHAPTER 22

861

Problem 22-10B (Concluded) GENERAL JOURNAL DATE 1

PAGE POST. REF.

DESCRIPTION

20-2

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

862

CHAPTER 22

Problem 22-11B GENERAL JOURNAL DATE 1

20-1

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

16 17

20-2

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 21

20-6

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

863

Problem 22-12B GENERAL JOURNAL DATE 1

20-1

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

3 4

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

16 17

20-2

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 21

20-4

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.

864

CHAPTER 22

Problem 22-13B GENERAL JOURNAL DATE 1

2001

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

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

12 0 0 0 00 15

Reversing Entry

2002

Jan.

1 Bond Interest Payable

12 0 0 0 00

Bond Interest Expense

12 0 0 0 00 19

20 21

Mar. 31 Bond Interest Expense

24 0 0 0 00

Cash

24 0 0 0 00 22

June. 1 Bond Sinking Fund

Cash

40 0 0 0 00

40 0 0 0 00 25

26 27 28

2021

Mar. 31 Bonds Payable

600 0 0 0 00

Bond Sinking Fund

600 0 0 0 00 28

29 30 31

8 9

5 6

31 Cash Bond Sinking Fund

1 9 0 0 00

1 9 0 0 00 31

CHAPTER 22

865

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.

866

CHAPTER 22

Mastery Problem 1.

GENERAL JOURNAL DATE

DESCRIPTION

20-1

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

10 11

20-2

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

May 15 Bond Sinking Fund

Cash

20 0 0 0 00

20 0 0 0 00 20

21 22

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

9 0 0 00 32

33 34 35

20-8

May 15 Bond Sinking Fund

Cash

20 0 0 0 00

20 0 0 0 00 35

CHAPTER 22

867

Mastery Problem (Concluded) GENERAL JOURNAL DATE 1 2 3

PAGE POST. REF.

DESCRIPTION

20-8

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

6 7

8 9

31 Bonds Payable

600 0 0 0 00

Premium on Bonds Payable

3 6 0 0 00*

Gain on Bonds Redeemed

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

868

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 1 2 3

20-4

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

869

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

8 9

Reversing Entry

10 11

Jan.

2 Bond 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

870

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 Bond 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.

872

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.

CHAPTER 23

873

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. 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.

874

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

875

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

Cash flows from investing activities: Sold land

500

Net increase in cash

$ 900

Cash, January 1, 20-2

100

Cash, December 31, 20-2

$1,000

876

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 notes 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

CHAPTER 23

877

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

878

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

80,000) $ 40,000)

Cash, January 1, 20-2 Cash, December 31, 20-2

20,000) $ 60,000)

CHAPTER 23

879

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

880

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

Accounts Receivable BB 325,800 15,100 (3) EB 310,700 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

Notes Payable 102,000 BB 16,000 (17) 118,000 EB

(6)

Accounts Payable 195,000 85,000 110,000

BB EB

Income Tax Payable 25,000 BB (7) 5,000 20,000 EB

Common Stock 800,000 BB 100,000 (15) 900,000 EB Paid-In Capital in Excess of Par—Common Stock 390,000 BB 40,000 (15) 430,000 EB Retained Earnings 360,000 (16) 60,000 232,710 532,710

BB (1) EB

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

CHAPTER 23

881

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)

882

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

883

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

884

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)

Issued common stock

80,000)

Paid cash dividends

(20,000)

Net cash provided by financing activities

50,000)

CHAPTER 23

885

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

886

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

50,000) $ 55,000)

Cash, January 1, 20-2 Cash, December 31, 20-2

20,000) $ 75,000)

CHAPTER 23

887

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

888

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

Accounts Receivable BB 309,200 8,600 (3) EB 300,600

Notes Payable 109,000 BB 8,000 (17) 117,000 EB

(6)

Accounts Payable 185,000 50,000 135,000

BB EB

Merchandise Inventory BB 495,800 (4) 84,500 EB 580,300

Income Tax Payable 15,000 BB 10,000 (7) 25,000 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

Common Stock 700,000 BB 100,000 (15) 800,000 EB Paid-In Capital in Excess of Par—Common Stock 380,000 BB 120,000 (15) 500,000 EB Retained Earnings 320,000 (16) 40,000 191,350 471,350

BB (1) EB

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

889

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

15,000 100,000

30,000 30,000 10,000

20-2 $103,420 5,400 $108,820 $ 42,300

20-1 $50,520 16,000 $66,520 (18)

890

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

891

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.

892

CHAPTER 23

Mastery Problem T Accounts for Indirect Method Statement of Cash Flows Peachfield Corporation BB (2) EB

Accrued Interest Receivable 250 70 320

Notes Payable 54,780 10,700 65,480

BB (3) EB

Accounts Receivable 140,905 12,040 152,945

Accounts Payable 125,473 71,973 53,500

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)

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

893

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

894

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

895

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

75,000

BB: Beginning Balance EB: Ending Balance *Cash received from customers in 20-2

(1)

896

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

897

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

898

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

899

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.

900

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

901

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 the 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. © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

902

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

903

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

904

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

905

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)

906

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

907

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)

908

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 the 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. © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 23

909

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) $

42,300)

Cash and cash equivalents, January 1, 20-2 Cash and cash equivalents, December 31, 20-2

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.

911

912

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

913

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

914

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

915

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: Profit margin ratio Net income Net sales $199,600 $2,584,000

Asset turnover

Net sales Avg. assets $2,584,000 $2,878,600

Leverage

Avg. assets Avg. common stockholders’ equity

$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

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

9.87%

916

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

917

Problem 24-8A (Concluded) Miller Electronics Corporation Comparative Balance Sheet December 31, 20-2 and 20-1 20-2

20-1

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

918

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

919

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.

920

CHAPTER 24

Problem 24-10A a.

Return on assets: 20-2

$93,013 ÷ [($200,750 + $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 ÷ [($106,944 + $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

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

921

922

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

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

923

924

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: Profit margin ratio Net income Net sales $341,300 $1,850,800

Asset turnover

Net sales Avg. total assets $1,850,800 $1,913,650

Leverage

Avg. total assets Avg. common stockholders’ equity

$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

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

25.22%

CHAPTER 24

925

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

926

CHAPTER 24

Problem 24-8B (Concluded) Johnson Stores, Inc. Comparative Balance Sheet December 31, 20-2 and 20-1 20-2

20-1

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

927

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.

928

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

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

929

930

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

931

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.

932

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

933

Mastery Problem (Continued) Na Pali Coast Company Comparative Balance Sheet December 31, 20-2 and 20-1 20-2

20-1

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

934

CHAPTER 24

Mastery Problem (Continued) Na Pali Coast Company Comparative Balance Sheet (Concluded) December 31, 20-2 and 20-1 20-2

20-1

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

935

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

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

936

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

Government notes

3,000

Accounts receivable (net)

7,500

2.8

0.9

2,000

0.7

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

937

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

938

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

939

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

940

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

941

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

942

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. © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 24

943

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.

A cost center incurs costs but does not generate revenue; a profit center incurs costs and generates revenue; and an investment center incurs costs, generates revenue, and determines the assets invested in the center.

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.

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.

946

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

947

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

948

CHAPTER 25

Exercise 25-5A Dept. A

Dept. B

Sales

$200 0 0 0 00

$160 0 0 0 00

Cost of goods sold

(146 0 0 0 00) (115 0 0 0 00)

Gross profit

$ 54 0 0 0 00

$ 45 0 0 0 00

(31 0 0 0 00)

(22 0 0 0 00)

$ 23 0 0 0 00

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

Total operating expenses Operating income

Exercise 25-6A

Direct operating margin percentage: Dept. A

$75,000/$300,000 = 25%

Dept. B

$108,000/$400,000 = 27%

CHAPTER 25

949

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%

950

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%

Departmental 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

951

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

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%

$ 55,000 $ 27,750

952

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

953

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 =

Dept. C

1,500 ÷ 5,000 =

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

954

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

955

Exercise 25-5B Dept. A

Dept. B

Sales

$180 0 0 0 00

$152 0 0 0 00

Cost of goods sold

(138 0 0 0 00) (118 0 0 0 00)

Gross profit

$ 42 0 0 0 00

$ 34 0 0 0 00

(27 0 0 0 00)

(16 0 0 0 00)

$ 15 0 0 0 00

$ 18 0 0 0 00

Dept. A

Dept. B

Total operating expenses Operating income

Exercise 25-6B

Gross profit Direct operating expenses Direct operating margin

$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%

956

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

957

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%

958

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 $

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%

41,000

CHAPTER 25

959

Problem 25-10B 1. Mueller and Kenington Company

Dept. A

Dept. B

Dept. C

Net sales

$680,000)

$730,000

$690,000 $2,100,000

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 $

70,000

Indirect operating expenses Operating income (loss)

Total

Depts. B & C Only $1,420,000

210,000 $

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.

960

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

961

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

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%)

94,458

962

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

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%

94,458

CHAPTER 25

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.

963

964

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

Total operating income from depts. A, B, and C

31,250

Increase in operating income from discontinuing dept. C and establishing dept. D

29,000

*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. 965 © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

966

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

967

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

968

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

969

Exercise 26-3A GENERAL JOURNAL DATE 1 2

20--

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

31 Work in Process (Job No. 104)

9 0 0 0 00

Wages Payable

9 0 0 0 00 11 12

31 Factory Overhead (Indirect Labor)

2 5 0 0 00

Wages Payable

2 5 0 0 00 14

15 16 17

8 9

12 13

5 6

9 10

31 Factory Overhead (Miscellaneous) Accounts Payable

2 0 0 0 00

2 0 0 0 00 17

970

CHAPTER 26

Exercise 26-4A GENERAL JOURNAL DATE 1 2

20--

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

21 Factory Overhead (Vacation Pay)

5 0 0 00

Wages Payable

5 0 0 00 11 12

31 Factory Overhead (Depreciation)

4 5 0 00

Accumulated Depreciation

4 5 0 00 14

15 16 17

8 9

12 13

5 6

9 10

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

971

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

972

CHAPTER 26

Exercise 26-6A GENERAL JOURNAL DATE 1 2

20--

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

5 6

11 Work in Process (Job No. 34)

8 0 0 0 00

Materials

8 0 0 0 00

9 10

8 9

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

973

Exercise 26-6A (Concluded) GENERAL JOURNAL DATE 1 2

20--

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

8 9

30 Cost of Goods Sold

17 6 0 0 00

Finished Goods (Product H)

17 6 0 0 00 11

12 13

5 6

9 10

30 Factory Overhead

8 0 00

Cost of Goods Sold

8 0 00 14

974

CHAPTER 26

Problem 26-7A 1. J. Klein Manufacturing Company Schedule of Cost of Goods Manufactured For Year Ended December 31, 20-Work in process, January 1, 20--

$ 65,000

Materials inventory, January 1, 20--

$26,000

Materials purchases

39,000

Materials available for use

$65,000

Materials inventory, December 31, 20--

28,000

Cost of materials used

$37,000

Direct labor

58,000

Overhead

30,000

Total manufacturing costs

125,000

Total work in process during the period

$190,000

Work in process, December 31, 20-Cost of goods manufactured

73,000 $117,000

2. J. Klein Manufacturing Co. Cost of goods sold: Finished goods inventory, January 1, 20--

$ 47,000

Cost of goods manufactured

117,000

Goods available for sale

$164,000

Finished goods inventory, December 31, 20-Cost of goods sold

42,000 $122,000

CHAPTER 26

975

Problem 26-8A 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

d. Work in Process (Job No. 300)

8 0 0 0 00

Cash

8 0 0 0 00 11 12

e. Factory Overhead

3 0 0 0 00

Cash

3 0 0 0 00 14

15 16 17

f. Work in Process (Job No. 301)

20 0 0 0 00

Materials

20 0 0 0 00 17

g. Factory Overhead

Materials

4 0 0 0 00

4 0 0 0 00 20

21 22 23

h. Factory Overhead

6 0 0 0 00

Cash

6 0 0 0 00 23

24 25 26

i. Work in Process (Job No. 301)

10 0 0 0 00

Cash

10 0 0 0 00 26

27 28 29

8 9

12 13

5 6

j. Factory Overhead Cash

2 0 0 0 00

2 0 0 0 00 29

976

CHAPTER 26

Problem 26-9A 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

2 3

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

8 9

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

CHAPTER 26

977

Problem 26-9A (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

Finished Goods (Product O)

18 4 0 0 00

Work in Process (Job No. 208)

18 4 0 0 00 11 12

i. Accounts Receivable

21 0 0 0 00

Sales

21 0 0 0 00 14

15 16 17

Cost of Goods Sold

17 2 0 0 00

Finished Goods (Product L)

17 2 0 0 00 17

18 19 20

Accounts Receivable

20 3 0 0 00

Sales

20 3 0 0 00 20

21 22 23

Cost of Goods Sold

18 1 0 0 00

Finished Goods (Product M)

18 1 0 0 00 23

24 25 26

Accounts Receivable

19 0 0 0 00

Sales

19 0 0 0 00 26

27 28 29

Cost of Goods Sold

16 5 0 0 00

Finished Goods (Product N)

16 5 0 0 00 29

30 31 32

Accounts Receivable

20 5 0 0 00

Sales

20 5 0 0 00 32

33 34 35

8 9

12 13

5 6

9 10

Cost of Goods Sold Finished Goods (Product O)

18 4 0 0 00

18 4 0 0 00 35

978

CHAPTER 26

Problem 26-9A (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 26-10A 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

2 3

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

8 9

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

CHAPTER 26

979

Problem 26-10A (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

2 3

g. Factory Overhead

30 0 0 0 00

Accumulated Depreciation

30 0 0 0 00

5 6

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)

39 0 0 0 00 17

18 19 20

Finished Goods (Product P)

42 7 0 0 00

Work in Process (Job No. 103)

42 7 0 0 00 20

21 22 23

j. Accounts Receivable Sales

50 0 0 0 00

50 0 0 0 00 23

24 25 26

Cost of Goods Sold

46 4 0 0 00

Finished Goods (Product N)

46 4 0 0 00 26

27 28 29

Accounts Receivable

45 4 0 0 00

Sales

45 4 0 0 00 29

30 31 32

Cost of Goods Sold

39 0 0 0 00

Finished Goods (Product O)

39 0 0 0 00 32

33 34 35

k. Factory Overhead

2 0 0 00

Cost of Goods Sold

2 0 0 00 35 36

980

CHAPTER 26

Problem 26-10A (Concluded) 2. Work in Process (b)

(d)

(h)

Bal.

10,000 8,000 9,000 15,000 22,000 19,000 20,500 30,000 14,400 12,000 13,200 21,600 194,700

(i) (i) (i)

Finished Goods 46,400 39,000 42,700 128,100

(i) (i) (i)

46,400 39,000 42,700 128,100

Bal.

42,700

(j) (j)

66,600

3. Balance in job cost ledger (Job No. 104)

$66,600

Balance in work in process control account

$66,600

46,400 39,000 85,400

CHAPTER 26

981

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

982

CHAPTER 26

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

CHAPTER 26

983

Exercise 26-3B GENERAL JOURNAL DATE 1 2

20--

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

31 Work in Process (Job No. 1)

11 0 0 0 00

Wages Payable

11 0 0 0 00 11 12

31 Factory Overhead (Indirect Labor)

4 0 0 0 00

Wages Payable

4 0 0 0 00 14

15 16 17

8 9

12 13

5 6

9 10

31 Factory Overhead (Miscellaneous) Accounts Payable

1 5 0 0 00

1 5 0 0 00 17

984

CHAPTER 26

Exercise 26-4B GENERAL JOURNAL DATE 1 2

20--

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

21 Factory Overhead (Vacation Pay)

5 0 0 00

Wages Payable

5 0 0 00 11 12

31 Factory Overhead (Depreciation)

5 0 0 00

Accumulated Depreciation

5 0 0 00 14

15 16 17

8 9

12 13

5 6

9 10

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

CHAPTER 26

985

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

986

CHAPTER 26

Exercise 26-6B GENERAL JOURNAL DATE 1 2

20--

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

CHAPTER 26

987

Exercise 26-6B (Concluded) GENERAL JOURNAL DATE 1 2

DESCRIPTION

20--

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

2 0 0 00

Cost of Goods Sold

2 0 0 00 14

988

CHAPTER 26

Problem 26-7B 1. WWE Manufacturing Company Schedule of Cost of Goods Manufactured For Year Ended December 31, 20-Work in process, January 1, 20--

$ 20,000

Materials inventory, January 1, 20--

$14,000

Materials purchases

21,000

Materials available for use

$35,000

Materials inventory, December 31, 20--

13,000

Cost of materials used

$22,000

Direct labor

11,500

Overhead

6,500

Total manufacturing costs

40,000

Total work in process during the period

$60,000

Work in process, December 31, 20--

15,000

Cost of goods manufactured

$45,000

2. WWE Manufacturing Co. Cost of goods sold: Finished goods inventory, January 1, 20--

$32,000

Cost of goods manufactured

45,000

Goods available for sale

$77,000

Finished goods inventory, December 31, 20--

26,000

Cost of goods sold

$51,000

CHAPTER 26

989

Problem 26-8B 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

d. Work in Process (Job No. 200)

4 5 0 0 00

Cash

4 5 0 0 00 11 12

e. Factory Overhead

1 2 5 0 00

Cash

1 2 5 0 00 14

15 16 17

f. Work in Process (Job No. 201)

10 0 0 0 00

Materials

10 0 0 0 00 17

g. Factory Overhead

Materials

2 5 0 0 00

2 5 0 0 00 20

21 22 23

h. Factory Overhead

4 5 0 0 00

Cash

4 5 0 0 00 23

24 25 26

i. Work in Process (Job No. 201)

4 2 5 0 00

Cash

4 2 5 0 00 26

27 28 29

8 9

12 13

5 6

j. Factory Overhead

9 0 0 00

Cash

9 0 0 00 29

990

CHAPTER 26

Problem 26-9B 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

2 3

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

8 9

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

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

CHAPTER 26

991

Problem 26-9B (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

Finished Goods (Product Z)

17 3 0 0 00

Work in Process (Job No. 504)

17 3 0 0 00 11 12

i. Accounts Receivable

17 5 0 0 00

Sales

17 5 0 0 00 14

15 16 17

Cost of Goods Sold

16 1 0 0 00

Finished Goods (Product W)

16 1 0 0 00 17

18 19 20

Accounts Receivable

18 0 0 0 00

Sales

18 0 0 0 00 20

21 22 23

Cost of Goods Sold

16 5 0 0 00

Finished Goods (Product X)

16 5 0 0 00 23

24 25 26

Accounts Receivable

16 9 0 0 00

Sales

16 9 0 0 00 26

27 28 29

Cost of Goods Sold

15 4 0 0 00

Finished Goods (Product Y)

15 4 0 0 00 29

30 31 32

Accounts Receivable

19 0 0 0 00

Sales

19 0 0 0 00 32

33 34 35

8 9

12 13

5 6

9 10

Cost of Goods Sold Finished Goods (Product Z)

17 3 0 0 00

17 3 0 0 00 35

992

CHAPTER 26

Problem 26-9B (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 26-10B 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

2 3

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

8 9

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

CHAPTER 26

993

Problem 26-10B (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

2 3

g. Factory Overhead

40 0 0 0 00

Accumulated Depreciation

40 0 0 0 00

5 6

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)

46 5 0 0 00 17

18 19 20

Finished Goods (Product E)

46 5 0 0 00

Work in Process (Job No. 203)

46 5 0 0 00 20

21 22 23

j. Accounts Receivable

47 0 0 0 00

Sales

47 0 0 0 00 23

24 25 26

Cost of Goods Sold

43 0 0 0 00

Finished Goods (Product C)

43 0 0 0 00 26

27 28 29

Accounts Receivable

49 0 0 0 00

Sales

49 0 0 0 00 29

30 31 32

Cost of Goods Sold

46 5 0 0 00

Finished Goods (Product D)

46 5 0 0 00 32

33 34 35

k. Factory Overhead

5 0 0 00

Cost of Goods Sold

5 0 0 00 35 36

994

CHAPTER 26

Problem 26-10B (Concluded) 2. Work in Process (b)

(d)

(h)

Bal.

10,000 11,000 9,500 12,200 18,000 19,000 20,500 17,500 15,000 16,500 16,500 18,000 183,700

(i) (i) (i)

Finished Goods 43,000 46,500 46,500 136,000

(i) (i) (i)

43,000 46,500 46,500 136,000

Bal.

46,500

(j) (j)

47,700

3. Balance in job cost ledger (Job No. 204)

$47,700

Balance in work in process control account

$47,700

43,000 46,500 89,500

CHAPTER 26

995

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.

996

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

2 3

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

8 9

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 26

Factory Overhead Accounts Payable

75 0 0 0 00

75 0 0 0 00 26

CHAPTER 26

997

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

Finished Goods (Product Z)

133 0 8 0 00

Work in Process (Job No. 807)

133 0 8 0 00 14

15 16 17

g. Accounts Receivable

123 0 0 0 00

Sales

123 0 0 0 00 17

18 19 20

Cost of Goods Sold

90 1 0 0 00

Finished Goods (Product X)

90 1 0 0 00 20

21 22 23

Accounts Receivable

150 0 0 0 00

Sales

150 0 0 0 00 23

24 25 26

Cost of Goods Sold

122 0 0 0 00

Finished Goods (Product Y)

122 0 0 0 00 26

27 28 29

Accounts Receivable

168 0 0 0 00

Sales

168 0 0 0 00 29

30 31 32

8 9

12 13

Cost of Goods Sold Finished Goods (Product Z)

140 0 0 0 00

140 0 0 0 00 32

998

CHAPTER 26

Mastery Problem (Concluded) 2. Work in Process Bal. (b)

(c)

(e)

Bal.

0 34,000 44,000 20,000 24,000 25,500 39,800 51,400 33,300 30,600 47,760 61,680 39,960 452,000

(f)

Finished Goods 90,100 131,560 133,080 354,740

Bal. (f)

76,000 90,100 131,560 133,080 430,740

Bal.

78,640

(g)

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 75,000 173,800

(e)

180,000

Bal.

6,200

(Overapplied overhead)

90,100 122,000 140,000 352,100

CHAPTER 26

999

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 ADJUSTMENTS, FINANCIAL STATEMENTS, AND YEAR-END ACCOUNTING FOR A MANUFACTURING BUSINESS REVIEW QUESTIONS 1.

The new accounts for the spreadsheet 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 adjustments 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 used in preparing the Income Statement and Balance Sheet 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 spreadsheet. 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. 1001 © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1002

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

6 7

31 Factory Overhead

6 5 0 0 00

Prepaid Insurance

6 5 0 0 00

10 11

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

1003

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

1004

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 Sales Returns and Allowances

Customer Refunds Payable

(800−140 = 660)

6 6 0 00

31 Estimated Returns Inventory

Cost of Goods Sold

(530−90 = 440)

4 4 0 00

4 4 0 00 10 11

31 Interest Receivable

Interest Revenue

7 3 0 00

7 3 0 00 14

31 Bad Debt Expense

4 2 0 0 00

Allowance for Doubtful Accounts

4 2 0 0 00 17

31 Office Supplies Expense

Office Supplies

9 9 0 00

9 9 0 00 20

21 22 23

31 Factory Overhead (Factory Supplies Expense)

3 8 0 0 00

Factory Supplies

3 8 0 0 00 23

24 25 26

31 Factory Overhead (Ins. Exp.—Fact. Bldg. & Eq.)

3 1 0 0 00

Prepaid Insurance

3 1 0 0 00 26

27 28 29

31 Factory Overhead (Depr. Exp.—Fact. Bldg.)

8 0 0 0 00

Accumulated Depreciation—Factory Building

8 0 0 0 00 29

30 31 32

6 7

31 Factory Overhead (Depr. Exp.—Fact. Equip.) Accumulated Depreciation—Factory Equipment

6 3 0 0 00

6 3 0 0 00 32

CHAPTER 27

1005

Exercise 27-4A GENERAL JOURNAL DATE

DESCRIPTION

20--

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

PAGE

Dec. 31 Income Summary

199 2 0 0 00

Factory Overhead (Subsidiary ledger accounts)

199 2 0 0 00

4 5 6

31 Factory Overhead

199 2 0 0 00

Income Summary

199 2 0 0 00

7 8 9 10

6 7

31 Sales Interest Revenue

877 4 0 0 00

8 5 0 00

Income Summary

878 2 5 0 00 10

11 12

31 Income Summary

748 5 8 0 00

Cost of Goods Sold

581 0 0 0 00 13

Salaries Expense

97 3 0 0 00 14

Office Supplies Expense

2 2 6 0 00 15

Depreciation Expense—Office Equipment

6 0 4 0 00 16

Utilities Expense—Office

6 2 6 0 00 17

Bad Debt Expense

2 0 2 0 00 18

Advertising Expense

9 1 0 0 00 19

Interest Expense

9 9 0 0 00 20

Income Tax Expense

34 7 0 0 00 21

22 23 24

31 Income Summary Retained Earnings

129 6 7 0 00

129 6 7 0 00 24

1006

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

6 7

1 Factory Overhead Work in Process Inventory

3 1 8 0 00

CHAPTER 27

1007

Problem 27-6A A

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

Lundberg Company End-of-Period Spreadsheet For Year Ended December 31, 20--

ACCOUNT TITLE

Cash Government Notes Interest Receivable Accounts Receivable Allow. for Doubtful Accounts Finished Goods Inventory Work in Process Inventory Materials Inventory Estimated Returns Inventory Office Supplies Factory Supplies Land Factory Building Accum. Depr.—Factory Build. Factory Equipment Accum. Depr.—Factory Equip. Accounts Payable Customer Refunds Payable Income Tax Payable Interest Payable Bonds Payable Capital Stock Paid-In Capital in Excess of Par Retained Earnings Cash Dividends Sales Sales Returns and Allowances Interest Revenue Factory Overhead

TRIAL BALANCE DEBIT

DEBIT

(d)

(f) (a)

3,100.00

(c)

270.00 (g) (h)

2,900.00 3,300.00

10,000.00

(i)

5,000.00

5,000.00 13,800.00 120.00

(j)

4,000.00

(b) (l) (e)

580.00 6,100.00 610.00

30,000.00

47 48 Net Income

9,000.00 13,800.00 700.00 6,100.00 610.00 80,000.00 50,000.00 30,000.00 92,820.00 30,000.00

6,100.00

410,720.00 (b)

300.00 89,300.00 (h) (i) (j) (k)

190,700.00

580.00 (d) 3,300.00 (a) 5,000.00 4,000.00 1,470.00 (c) (k)

6,680.00 75.00 3,100.00

270.00 1,470.00

70,000.00

42 Bad Debt Expense

15,000.00

410,720.00

41 Office Supplies Expense

45 Income Tax Expense

2,930.00 24,000.00 12,100.00 8,500.00 330.00 200.00 500.00 100,000.00 120,000.00

80,000.00 50,000.00 30,000.00 92,820.00

78,630.00

4,400.00 7,000.00 18,000.00 782,590.00

CREDIT

40,000.00

44 Interest Expense

DEBIT

2,400.00

40,000.00

43 Utilities Expense—Office

75.00

530.00 24,000.00 9,000.00 8,500.00 60.00 3,100.00 3,800.00 100,000.00 120,000.00

ADJUSTED TRIAL BALANCE

30,300.00 5,000.00 75.00 34,000.00

34,000.00

40 Wages Expense

CREDIT

30,300.00 5,000.00

38 Cost of Goods Sold

ADJUSTMENTS

CREDIT

782,590.00

(g) (f)

2,900.00 2,400.00

(e) (l)

610.00 6,100.00 29,805.00

29,805.00

92,400.00

375.00 92,400.00

188,960.00 70,000.00 2,900.00 2,400.00 4,400.00 7,610.00 24,100.00 804,455.00 399,450.00 104,045.00

804,455.00 503,495.00

1008

CHAPTER 27

Problem 27-6A (Continued) 2. a. Lundberg Company Income Statement For Year Ended December 31, 20-$410,720

Sales

6,680

Less Sales returns and allowances Net Sales

$404,040

Cost of goods sold: Finished goods inventory, January 1 Estimated returns inventory, January 1

$18,000 60

$ 18,060

Cost of goods manufactured

195,230

Cost of goods available for sale

$213,290

Finished goods inventory, December 31 Estimated returns inventory, December 31

$24,000 330

24,330

Cost of goods sold

188,960

Gross profit

$215,080

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 $135,380

Other revenue: Interest revenue

375 $135,755

Other expense: Interest expense Income before income taxes

7,610 $128,145

Income tax

24,100

Net income

$104,045

CHAPTER 27

1009

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

$ 92,820

Add net income for the year (after provision for income taxes of $24,100)

104,045 $196,865

Less cash dividends Retained earnings, December 31

30,000 $166,865

1010

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

Estimated returns inventory

330

44,930

Office supplies

200

Factory supplies

500

Total current assets

$112,075

Property, plant, and equipment: Land

$100,000

Factory building Less accumulated depreciation Factory equipment Less accumulated depreciation Total property, plant, and equipment Total assets

$120,000 15,000

105,000

$ 40,000 9,000

31,000 236,000 $348,075

CHAPTER 27

1011

Problem 27-6A (Concluded) Lundberg Company Balance Sheet (Continued) December 31, 20-Liabilities Current liabilities: Accounts payable Customer refunds payable Income tax payable Interest payable

$ 13,800 700 6,100 610

Total current liabilities

$ 21,210

Long-term liabilities: Bonds payable

80,000

Total liabilities

$101,210

Stockholders’ Equity Capital stock

$ 50,000

Paid-in capital in excess of par

30,000

Retained earnings

166,865

Total stockholders’ equity

246,865

Total liabilities and stockholders’ equity

$348,075

1012

CHAPTER 27

Problem 27-7A 1. Braiden Company Income Statement For Year Ended December 31, 20-$402,900

Sales

6,270

Less Sales returns and allowances Net Sales

$396,630

Cost of goods sold: Finished goods inventory, January 1 Est. returns inventory, Jan. 1, remaining balance

$16,535 55

$ 16,590

Cost of goods manufactured

297,475

Cost of goods available for sale

$314,065

Finished goods inventory, December 31 Estimated returns inventory, December 31

$18,430 500

18,930

Cost of goods sold

295,135

Gross profit

$101,495

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 $ 50,945

Other revenue: Interest revenue

250 $ 51,195

Other expense: Interest expense Income before income taxes

2,850 $ 48,345

Income tax

9,450

Net income

$ 38,895

CHAPTER 27

1013

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

$80,200

Add net income for the year (after provision for income taxes of $ 9,450)

38,895 $119,095

Less cash dividends

20,000

Retained earnings, December 31

$99,095

1014

CHAPTER 27

Problem 27-7A (Continued) 3. Braiden Company Balance Sheet December 31, 20-Assets Current assets: Cash

$15,720

Government notes

3,500

Interest receivable

Accounts receivable Less allowance for doubtful accounts

$ 25,100 1,325

23,775

Inventories: Finished goods

$18,430

Work in process

7,510

Materials

4,650

Estimated returns inventory

500

31,090

Office supplies

330

Factory supplies

480

Prepaid insurance

700

Total current assets

$75,645

Property, plant, and equipment: Land

$25,000

Factory building Less accumulated depreciation Factory equipment Less accumulated depreciation Total property, plant, and equipment Total assets

$ 90,000 20,650

69,350

$100,000 29,000

71,000 165,350 $240,995

CHAPTER 27

1015

Problem 27-7A (Concluded) Braiden Company Balance Sheet (Continued) December 31, 20-Liabilities Current liabilities: Accounts payable Customer refunds payable Income tax payable Interest payable

$17,000 700 3,550 650

Total current liabilities

$21,900

Long-term liabilities: Bonds payable

50,000

Total liabilities

$71,900

Stockholders’ Equity Capital stock

$55,000

Paid-in capital in excess of par

15,000

Retained earnings

99,095

Total stockholders’ equity

169,095

Total liabilities and stockholders’ equity

$240,995

1016

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 Sales Returns and Allowances

1 1 2 0 00

Customer Refunds Payable

1 1 2 0 00

7 8

31 Estimated Returns Inventory

6 4 5 00

Cost of Goods Sold

6 4 5 00

31 Interest Receivable

1 4 0 00

Interest Revenue

1 4 0 00 12

31 Interest Expense

1 2 0 0 00

Interest Payable

1 2 0 0 00 15

16 17

31 Bad Debt Expense

1 4 5 0 00

Allowance for Doubtful Accounts

1 4 5 0 00 18

19 20

31 Office Supplies Expense

3 7 0 0 00

Office Supplies

3 7 0 0 00 21

22 23

31 Factory Overhead (Factory Supplies Exp.)

4 2 0 0 00

Factory Supplies

4 2 0 0 00 24

25 26

31 Factory Overhead (Factory Bldg. & Eq. Ins. Exp.)

5 1 0 0 00

Prepaid Insurance

5 1 0 0 00 27

28 29

31 Factory Overhead (Depr. Exp.—Factory Bldg.)

5 0 0 0 00

Accumulated Depreciation—Factory Building

5 0 0 0 00 30

31 32 33

9 10

6 7

31 Factory Overhead (Depr. Exp.—Factory Equip.) Accumulated Depreciation—Factory Equipment

4 0 0 0 00

4 0 0 0 00 33

CHAPTER 27

1017

Problem 27-8A (Continued) DATE 35 36

DESCRIPTION

31 Cost of Goods Sold

POST. REF.

DEBIT

CREDIT

1 3 0 0 00

Factory Overhead

1 3 0 0 00 36

37 38 39

m. 31 Income Tax Expense Income Tax Payable

5 9 0 0 00

5 9 0 0 00 39

1018

CHAPTER 27

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

6 7

31 Sales Interest Revenue

406 4 4 5 00

6 4 0 00

Income Summary

407 0 8 5 00 10

11 12

31 Income Summary

331 5 2 5 00

Sales Returns and Allowances

7 4 2 0 00 13

Cost of Goods Sold

204 1 5 5 00 14

Salaries Expense

80 0 0 0 00 15

Office Supplies Expense

3 7 0 0 00 16

Bad Debt Expense

1 4 5 0 00 17

Utilities Expense—Office

6 7 0 0 00 18

Interest Expense

9 2 0 0 00 19

Income Tax Expense

18 9 0 0 00 20

21 22 23

31 Income Summary Retained Earnings

75 5 6 0 00

75 5 6 0 00 23

CHAPTER 27

1019

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

6 7

1 Factory Overhead Work in Process Inventory

3 6 0 0 00

1020

CHAPTER 27

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

6 7

31 Factory Overhead

4 3 6 0 00

Prepaid Insurance

4 3 6 0 00

10 11

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

CHAPTER 27

1021

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

1022

CHAPTER 27

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 Sales Returns and Allowances

Customer Refunds Payable

(770−130 = 640)

6 4 0 00

31 Estimated Returns Inventory

Cost of Goods Sold

(490−85 = 405)

4 0 5 00

4 0 5 00 10 11

31 Interest Receivable

Interest Revenue

4 3 5 00

4 3 5 00 14

31 Bad Debt Expense

3 8 7 6 00

Allowance for Doubtful Accounts

3 8 7 6 00 17

31 Office Supplies Expense

Office Supplies

7 5 0 00

7 5 0 00 20

21 22 23

31 Factory Overhead (Factory Supplies Expense)

4 1 6 0 00

Factory Supplies

4 1 6 0 00 23

24 25 26

31 Factory Overhead (Ins. Exp.—Fact. Bldg. & Eq.)

3 2 0 0 00

Prepaid Insurance

3 2 0 0 00 26

27 28 29

31 Factory Overhead (Depr. Exp.—Fact. Bldg.)

6 8 0 0 00

Accumulated Depreciation—Factory Building

6 8 0 0 00 29

30 31 32

6 7

31 Factory Overhead (Depr. Exp.—Fact. Equip.) Accumulated Depreciation—Factory Equipment

4 2 0 0 00

4 2 0 0 00 32

CHAPTER 27

1023

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

7 8

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

1024

CHAPTER 27

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

6 7

1 Factory Overhead Work in Process Inventory

4 2 5 0 00

CHAPTER 27

1025

Problem 27-6B 1. A

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

Woods Company End-of-Period Spreadsheet For Year Ended December 31, 20--

ACCOUNT TITLE

TRIAL BALANCE DEBIT

(d)

43 Income Tax Expense 44 45 46 Net Income

4,300.00

(c)

425.00

30,000.00

3,500.00

(g) (h)

3,200.00 6,700.00

(i)

10,000.00

60,000.00 20,000.00 16,000.00 125.00

4,110.00 26,100.00 14,500.00 9,300.00 490.00 1000.00 1,900.00 80,000.00 160,000.00 40,000.00

(j)

6,000.00

(b) (m) (e)

885.00 8,100.00 700.00

26,000.00 16,000.00 1,010.00 8,100.00 700.00 100,000.00 60,000.00 20,000.00 111,400.00

100,000.00 60,000.00 20,000.00 111,400.00 40,000.00

40,000.00 404,680.00

5,040.00 81,590.00

198,300.00 78,700.00

4,900.00 9,000.00 12,420.00 855,615.00

CREDIT

60,000.00

404,680.00

(b) 500.00 92,300.00 (h) (i) (j) (k)

40 Bad Debt Expense 42 Interest Expense

(f) (a)

DEBIT

28,400.00 6,000.00 100.00 32,800.00

100.00

610.00 26,100.00 10,200.00 9,300.00 65.00 4,200.00 8,600.00 80,000.00 160,000.00

39 Office Supplies Expense 41 Utilities Expense—Office

ADJUSTED TRIAL BALANCE

CREDIT

32,800.00

36 38 Wages Expense

DEBIT

28,400.00 6,000.00

35 37 Cost of Goods Sold

ADJUSTMENTS

CREDIT

855,615.00

885.00 (d) 6,700.00 (a) 10,000.00 (k) 6,000.00 7,690.00 (c)

(g) (f)

3,200.00 3,500.00

(e) (l)

700.00 8,100.00 51,600.00

5,925.00 100.00 4,300.00 7,690.00 425.00

51,600.00

104,290.00

600.00 104,290.00

205,565.00 78,700.00 3,200.00 3,500.00 4,900.00 9,700.00 20,520.00 896,890.00

896,890.00

436,300.00 73,270.00

509,570.00

1026

CHAPTER 27

Problem 27-6B (Continued) 2. a. Woods Company Income Statement For Year Ended December 31, 20-$404,680

Sales

5,925

Less Sales returns and allowances Net Sales

$398,755

Cost of goods sold: Finished goods inventory, January 1 Estimated returns inventory, January 1, remaining balance

$22,300 65 $ 22,365

Cost of goods manufactured

209,790

Cost of goods available for sale

$232,155

Finished goods inventory, December 31 Estimated returns inventory, December 31

$26,100 490

26,590

Cost of goods sold

205,565

Gross profit

$193,190

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 $102,890

Other revenue: Interest revenue

600 $103,490

Other expense: Interest expense Income before income taxes

9,700 $ 93,790

Income tax

20,520

Net income

$ 73,270

CHAPTER 27

1027

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

$111,400

Add net income for the year (after provision for income taxes of $20,520)

73,270 $184,670

Less cash dividends Retained earnings, December 31

40,000 $144,670

1028

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

Estimated returns inventory

490

50,390

Office supplies

1,000

Factory supplies

1,900

Total current assets

$116,480

Property, plant, and equipment: Land

$ 80,000

Factory building Less accumulated depreciation Factory equipment Less accumulated depreciation Total property, plant, and equipment Total assets

$160,000 40,000

120,000

$ 60,000 26,000

34,000 234,000 $350,480

CHAPTER 27

1029

Problem 27-6B (Concluded) Woods Company Balance Sheet (Continued) December 31, 20-Liabilities Current liabilities: Accounts payable

$ 16,000

Customer refunds payable

1,010

Income tax payable

8,100

Interest payable

700

Total current liabilities

$25,810

Long-term liabilities: Bonds payable

100,000

Total liabilities

$125,810

Stockholders’ Equity Capital stock

$ 60,000

Paid-in capital in excess of par

20,000

Retained earnings

144,670

Total stockholders’ equity

224,670

Total liabilities and stockholders’ equity

$350,480

1030

CHAPTER 27

Problem 27-7B 1. Wen Company Income Statement For Year Ended December 31, 20-$409,860

Sales

5,900

Less Sales returns and allowances Net Sales

$403,960

Cost of goods sold: Finished goods inventory, January 1 Estimated returns inventory, January 1, remaining balance

$14,990 100 $ 15,090

Cost of goods manufactured

314,040

Cost of goods available for sale

$329,130

Finished goods inventory, December 31 Estimated returns inventory, December 31

$16,250 530

16,780

Cost of goods sold

312,350

Gross profit

$ 91,610

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 $ 40,510

Other revenue: Interest revenue

650 $ 41,160

Other expense: Interest expense Income before income taxes

3,100 $ 38,060

Income tax

6,500

Net income

$ 31,560

CHAPTER 27

1031

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

$ 83,020

Add net income for the year (after provision for income taxes of $6,500)

31,560 $114,580

Less cash dividends Retained earnings, December 31

13,500 $101,080

1032

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

Estimated returns inventory

530

28,930

Office supplies

465

Factory supplies

375

Prepaid insurance

700

Total current assets

$71,230

Property, plant, and equipment: Land

$ 30,000

Factory building Less accumulated depreciation Factory equipment Less accumulated depreciation Total property, plant, and equipment Total assets

$ 60,000 15,230

44,770

$87,000 23,000

64,000 138,770 $210,000

CHAPTER 27

1033

Problem 27-7B (Concluded) Wen Company Balance Sheet (Continued) December 31, 20-Liabilities Current liabilities: Accounts payable Customer refunds payable Income tax payable Interest payable

$14,450 720 3,150 600

Total current liabilities

$18,920

Long-term liabilities: Bonds payable

40,000

Total liabilities

$58,920

Stockholders’ Equity Capital stock

$30,000

Paid-in capital in excess of par

20,000

Retained earnings

101,080

Total stockholders’ equity

151,080

Total liabilities and stockholders’ equity

$210,000

1034

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 Sales Returns and Allowances

5 5 0 00

Customer Refunds Payable

5 5 0 00

7 8

31 Estimated Returns Inventory

2 9 0 00

Cost of Goods Sold

2 9 0 00

31 Interest Receivable

1 9 0 00

Interest Revenue

1 9 0 00 12

31 Interest Expense

1 4 2 0 00

Interest Payable

1 4 2 0 00 15

16 17

31 Bad Debt Expense

3 2 0 0 00

Allowance for Doubtful Accounts

3 2 0 0 00 18

19 20

31 Office Supplies Expense

4 2 0 0 00

Office Supplies

4 2 0 0 00 21

22 23

31 Factory Overhead (Factory Supplies Exp.)

3 8 0 0 00

Factory Supplies

3 8 0 0 00 24

25 26

31 Factory Overhead (Factory Bldg. & Eq. Ins. Exp.)

6 8 0 0 00

Prepaid Insurance

6 8 0 0 00 27

28 29

31 Factory Overhead (Depr. Exp.—Factory Bldg.)

8 0 0 0 00

Accumulated Depreciation—Factory Building

8 0 0 0 00 30

31 32 33

9 10

6 7

31 Factory Overhead (Depr. Exp.—Factory Equip.) Accumulated Depreciation—Factory Equipment

5 0 0 0 00

5 0 0 0 00 33

CHAPTER 27

1035

Problem 27-8B (Concluded) DATE 35 36

DESCRIPTION

31 Factory Overhead

POST. REF.

DEBIT

CREDIT

4 3 4 0 00

Cost of Goods Sold

4 3 4 0 00 36

37 38 39

m. 31 Income Tax Expense Income Tax Payable

6 4 0 0 00

6 4 0 0 00 39

1036

CHAPTER 27

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

6 7

31 Sales Interest Revenue

393 8 4 0 00

9 9 0 00

Income Summary

394 8 3 0 00 10

11 12

31 Income Summary

329 6 4 0 00

Sales Returns and Allowances

7 2 5 0 00 13

Cost of Goods Sold

189 9 7 0 00 14

Wages Expense

90 0 0 0 00 15

Office Supplies Expense

4 2 0 0 00 16

Bad Debt Expense

3 2 0 0 00 17

Utilities Expense—Office

7 2 0 0 00 18

Interest Expense

10 4 2 0 00 19

Income Tax Expense

17 4 0 0 00 20

21 22 23

31 Income Summary Retained Earnings

65 1 9 0 00

65 1 9 0 00 23

CHAPTER 27

1037

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

6 7

1 Factory Overhead Work in Process Inventory

4 4 0 0 00

1038

CHAPTER 27

MANAGING YOUR WRITING Students should raise the following points: 1. Regarding the spreadsheet 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.

CHAPTER 27

1039

Mastery Problem 1. Reese Manufacturing Company Income Statement For Year Ended December 31, 20-$537,137

Sales

10,840

Less Sales returns and allowances Net Sales

$526,297

Cost of goods sold: Finished goods inventory, January 1 Estimated returns inventory, January 1, remaining balance

$85,454 70 $ 85,524

Cost of goods manufactured

239,269

Cost of goods available for sale

$324,793

Finished goods inventory, December 31 Estimated returns inventory, December 31

$42,675 640

43,315

Cost of goods sold

281,478

Gross profit

$244,819

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 $166,769

Other expense: Interest expense Income before income taxes

1,421 $165,348

Income tax

30,725

Net income

$134,623

1040

CHAPTER 27

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 $30,725)

134,623 $329,964

Less cash dividends Retained earnings, December 31

36,000 $293,964

CHAPTER 27

1041

Mastery Problem (Continued) 3.

Reese Manufacturing Company Balance Sheet December 31, 20-Assets Current assets: Cash

$ 44,783

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

Estimated returns inventory

640

106,910

Office supplies

2,746

Factory supplies

489

Prepaid insurance

Total current assets

$227,040

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

$420,807

Liabilities Current liabilities: Notes payable

$ 12,470

Accounts payable

10,356

Customer refunds payable

1,160

Income tax payable

14,725

Interest payable

132

Total current liabilities Stockholders’ Equity

$38,843

Capital stock

$88,000

Retained earnings

293,964

Total stockholders’ equity

381,964

Total liabilities & stockholders’ equity

$420,807

1042

CHAPTER 27

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

31 Depreciation Expense—Office Equipment

9 2 3 00

Accumulated Depreciation—Office Equipment

9 2 3 00 12

31 Factory Overhead (Depr. Exp.—Factory Equip.)

12 5 5 3 00

Accumulated Depreciation—Factory Equipment

12 5 5 3 00 15

16 17

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

20 21

31 Bad Debt Expense

9 5 6 00

Allowance for Doubtful Accounts

9 5 6 00 22

23 24

31 Sales Returns and Allowances

1 0 4 0 00

Customer Refunds Payable

1 0 4 0 00 25

26 27

31 Estimated Returns Inventory

5 7 0 00

Cost of Goods Sold

5 7 0 00 28

29 30

31 Income Tax Expense

14 7 2 5 00

Income Tax Payable

14 7 2 5 00 31

32 33 34

9 10

6 7

31 Work in Process Inventory Factory Overhead

1 5 6 7 00

1 5 6 7 00 34

CHAPTER 27

1043

Mastery Problem (Continued) DATE 36 37

DESCRIPTION

31 Cost of Goods Sold Factory Overhead

POST. REF.

DEBIT

CREDIT

6 4 1 00

6 4 1 00 37

1044

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

3 4

31 Factory Overhead

67 6 5 4 00

Income Summary

67 6 5 4 00

6 7

31 Sales

537 1 3 7 00

Income Summary

537 1 3 7 00

9 10

31 Income Summary

402 5 1 4 00

Sales Returns and Allowances

10 8 4 0 00 12

Cost of Goods Sold

281 4 7 8 00 13

Wages Expense

58 3 8 0 00 14

Advertising Expense

11 4 5 0 00 15

Office Rent Expense

5 4 4 3 00 16

Office Supplies Expense

8 0 0 00 17

Bad Debt Expense

9 5 6 00 18

Insurance Expense—Office Equipment

9 8 00 19

Depreciation Expense—Office Equipment

9 2 3 00 20

Interest Expense

1 4 2 1 00 21

Income Tax Expense

30 7 2 5 00 22

31 Income Summary

134 6 2 3 00

Retained Earnings

134 6 2 3 00 25

31 Retained Earnings

Cash Dividends

36 0 0 0 00

36 0 0 0 00 28

Reversing Entries

20-31 32

Jan.

1 Interest Payable

1 3 2 00

Interest Expense

1 3 2 00 32

33 34 35

1 Factory Overhead Work in Process Inventory

1 5 6 7 00

1 5 6 7 00 35

CHAPTER 27

1045

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

6 7

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

617

Comprehensive Problem 2⎯Part 1 Requirements 2. and 3. GENERAL JOURNAL DATE 20-1 1 2 3

Dec. 16

DESCRIPTION

Cash Accounts Receivable/Lucy Greene Received cash on account

PAGE POST. REF.

101 122

DEBIT

CREDIT

1 9 6 0 00

4 5 6 7 8

16 Accounts Receivable/Kim Fields Sales Sales Tax Payable Sale No. 640

122 401 231

17 Accounts Payable/Evans Essentials Purchases Returns and Allowances Returned goods purchased

202 501.1

18 Accounts Payable/Evans Essentials Cash Check No. 813

202 101

19 Accounts Receivable/Lucy Greene Sales Sales Tax Payable Sale No. 641

122 401 231

22 Cash Accounts Receivable/John Dempsey Received cash on account

101 122

23 Supplies Cash Check No. 814

141 101

24 Purchases Accounts Payable/West Wholesalers Invoice No. 465

501 202

1 6 8 00

1 6 0 00 8 00

11 12

15 16

1 5 0 00 11 12 13

1 1 0 0 00

1 1 0 0 00 15 16

17 18 19 20 21

6 5 1 00

6 2 0 00 19 3 1 00 20 21

22 23 24 25

1 5 6 0 00

1 5 6 0 00 24 25

26 27 28 29

1 2 0 00

1 2 0 00 28 29

30 31 32 33

1 2 0 0 00

1 2 0 0 00 32 33

34 35 36 37

26 Purchases Accounts Payable/Nathen Co. Invoice No. 817

501 202

27 Utilities Expense Cash Check No. 815

533 101

8 0 0 00

8 0 0 00 36 37

38 39 40 41

1 5 0 00

13 14

9 10

6 3 0 00

6 3 0 00 40

618

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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 1 0 1 00

3 4

5 6

29 Cash Accounts Receivable/Martha Boyle Received cash on account

7 8

101 122

2 4 7 3 00

7 8

10 11 12

29 Wages Expense Cash Check No. 816

511 101

30 Purchases Cash Check No. 817

501 101

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



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

101

13 8 4 8 00

COMPREHENSIVE PROBLEM

619

Comprehensive Problem 2⎯Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Accounts Receivable

ACCOUNT DATE

ITEM

20-1

Dec. 16 Balance

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT



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

20-1

Dec. 16 Balance

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT



31 Adjusting

DATE

ITEM

20-1

Dec. 16 Balance

POST. REF.

19 7 0 0 00

⎯⎯⎯

31 Adjusting

ACCOUNT NO. DEBIT

CREDIT

DATE

ITEM

20-1

Dec. 16 Balance

CREDIT

2 5 0 00

2 5 0 00 3 0 0 00

⎯⎯⎯

3 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

CREDIT



31 Adjusting

135

BALANCE DEBIT

Supplies

ACCOUNT

⎯⎯⎯

19 7 0 0 00



31 Adjusting

CREDIT

21 8 0 0 00 21 8 0 0 00

131

BALANCE DEBIT

Estimated Returns Inventory

ACCOUNT

122

BALANCE DEBIT

CREDIT

1 0 3 5 00 1 2 0 00

1 1 5 5 00 6 3 0 00

141

5 2 5 00

620

COMPREHENSIVE PROBLEM Prepaid Insurance

ACCOUNT DATE

ITEM

20-1

Dec. 16 Balance

31 Adjusting

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

 J5

BALANCE DEBIT

CREDIT

1 3 8 0 00 3 8 0 00

145

1 0 0 0 00

COMPREHENSIVE PROBLEM

621

Comprehensive Problem 2⎯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

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 5 0 00

Building

ACCOUNT

20-1

POST. REF.

161

DEBIT

CREDIT

181

BALANCE DEBIT

CREDIT

28 7 5 0 00

622

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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

181.1

BALANCE DEBIT

CREDIT

9 3 0 0 00

4 5 0 00

9 7 5 0 00

Accounts Payable

ACCOUNT

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

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

Customer Refunds Payable

ACCOUNT DATE

ITEM

20-1

Dec. 16 Balance

31 Adjusting

ACCOUNT DATE

POST. REF.

ACCOUNT NO. DEBIT

CREDIT

ITEM

Dec. 31 Adjusting

1 Reversing

CREDIT



3 0 0 00

1 0 0 00

4 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

J5 J6

203

BALANCE DEBIT

Wages Payable

20-1

Jan.

CREDIT



Dec. 16 Balance

20-2

DEBIT

ACCOUNT NO.

CREDIT

3 3 0 00 3 3 0 00

219

BALANCE DEBIT

⎯⎯⎯

CREDIT

3 3 0 00

⎯⎯⎯

COMPREHENSIVE PROBLEM

623

Comprehensive Problem 2⎯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

POST. REF.

Dec. 16 Balance



31 Closing

311

BALANCE DEBIT

CREDIT

90 0 0 0 00 10 4 0 3 00

100 4 0 3 00

8 5 0 0 00

91 9 0 3 00

Tom Jones, Drawing

ACCOUNT

CREDIT



Tom Jones, Capital

ACCOUNT

251

ACCOUNT NO. DEBIT

CREDIT

BALANCE DEBIT

8 5 0 0 00 8 5 0 0 00

312

⎯⎯⎯

CREDIT

⎯⎯⎯

624

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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

3 0 0 00

31 Closing

129 0 0 8 00

31 Closing

116 5 5 5 00

31 Closing

10 4 0 3 00

DATE

ITEM

20-1

CREDIT

BALANCE DEBIT

DATE

CREDIT

21 8 0 0 00 19 7 0 0 00

2 5 0 00

2 1 0 0 00 2 3 5 0 00 2 0 5 0 00 126 9 5 8 00

⎯⎯⎯

Sales

ACCOUNT

10 4 0 3 00

⎯⎯⎯

ACCOUNT NO. ITEM

20-1

Dec. 16 Balance

POST. REF.

DEBIT

313

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

Dec. 16 Balance

POST. REF.

DEBIT

ACCOUNT NO. CREDIT

31 Closing

401.1

BALANCE DEBIT

CREDIT

1 4 3 0 00



31 Adjusting

⎯⎯⎯

1 0 0 00

1 5 3 0 00 1 5 3 0 00

⎯⎯⎯

COMPREHENSIVE PROBLEM

625

Comprehensive Problem 2⎯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

⎯⎯⎯

626

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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

CREDIT

6 3 0 00

⎯⎯⎯

ACCOUNT NO. POST. REF.

Dec. 16 Balance



31 Closing

DEBIT

CREDIT

524

BALANCE DEBIT

Phone 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

⎯⎯⎯

COMPREHENSIVE PROBLEM

627

Comprehensive Problem 2⎯Part 1 (Requirements 1., 2., 3., 6., 7., and 9. Continued) Utilities Expense

ACCOUNT DATE

ITEM

ACCOUNT NO. POST. REF.

20-1

DEBIT

CREDIT



Dec. 16 Balance

31 Closing

BALANCE DEBIT

DATE

ITEM

20-1

Dec. 31 Adjusting

31 Closing

POST. REF.

6 3 0 00

7 5 3 0 00 7 5 3 0 00

⎯⎯⎯

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

Insurance Expense

ACCOUNT

533

⎯⎯⎯

CREDIT

⎯⎯⎯

628

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT

3 7 9 6 00



BALANCE

2 4 7 3 00

1 3 2 3 00

NAME Anne Clark ADDRESS 52 Juniper Road, Hartford, CT 06118 DATE 20-1

ITEM

Dec. 16 Balance

POST. REF.



DEBIT

CREDIT

BALANCE

2 1 0 0 00

COMPREHENSIVE PROBLEM

629

Comprehensive Problem 2⎯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

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT

1 5 6 0 00



BALANCE

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

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT

⎯⎯⎯



BALANCE

1 6 8 00

NAME Lucy Greene ADDRESS 236 Bally Lane, Simsbury, CT 06123 DATE 20-1

ITEM

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT

2 8 0 0 00



BALANCE

1 9 6 0 00 6 5 1 00

8 4 0 00 1 4 9 1 00

630

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT

3 6 0 0 00



17 18

J3 J3

BALANCE

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

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT

BALANCE

⎯⎯⎯



NAME West Wholesalers ADDRESS 888 Anders Street, Newington, CT 06789 DATE 20-1

ITEM

Dec. 16 Balance

POST. REF.

DEBIT

CREDIT

⎯⎯⎯

 J3

BALANCE

1 2 0 0 00

COMPREHENSIVE PROBLEM

631

Comprehensive Problem 2⎯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

632

COMPREHENSIVE PROBLEM

Comprehensive Problem 2 Part 1 Requirement 5. A

TJ’s Specialty Shop End-of-Period Spreadsheet For the Year Ended December 31, 20-1

1 2 3 4

ACCOUNT TITLE

TRIAL BALANCE DEBIT

ADJUSTMENTS

CREDIT

DEBIT

ADJUSTED TRIAL BALANCE

CREDIT

DEBIT

Cash

Accounts Receivable

7,203.00

Merchandise Inventory

21,800.00

(b)

19,700.00 (a)

21,800.00

19,700.00

Estimated Returns Inventory

250.00

(e)

300.00 (d)

250.00

300.00

Supplies

1,155.00

(f)

630.00

525.00

Prepaid Insurance

1,380.00

(g)

380.00

1,000.00

Land

8,750.00

Building

52,000.00

Accum. Depr.—Building

12,548.00

CREDIT

12,548.00 7,203.00

9,200.00

(h)

800.00

(i)

450.00

(c)

100.00

(j)

330.00

10,000.00

Store Equipment

Accum. Depr.—Store Equip.

9,300.00

Accounts Payable

4,350.00

Customer Refunds Payable

Wages Payable

Sales Tax Payable

1,518.00

Mortgage Payable

12,525.00

Tom Jones, Capital

Tom Jones, Drawing

Income Summary

28,750.00

28,750.00 9,750.00 4,350.00

300.00

400.00 330.00

90,000.00

8,500.00

(a)

21,800.00 (b)

19,700.00

21,800.00

19,700.00

(d)

250.00 (e)

300.00

250.00

300.00

(c)

100.00

Sales

Sales Returns and Allow.

1,430.00

Purchases

66,600.00

Purchases Returns and Allow.

610.00

Purchases Discounts

698.00

Freight-in

Wages Expense

27,200.00

Advertising Expense

4,700.00

Supplies Expense

Phone Expense

2,180.00

Utilities Expense

7,530.00

Insurance Expense

(g)

380.00

Depr. Expense—Building

(h)

800.00

Depr. Expense—Store Equip.

(i)

450.00

Miscellaneous Expense

Interest Expense

127,700.00

66,600.00

175.00

Net Income

175.00 (j)

330.00

27,530.00 4,700.00

(f)

630.00

630.00 2,180.00 7,530.00

450.00

2,700.00

1,350.00 256,201.00 256,201.00

127,700.00 1,530.00

1,350.00 44,740.00

44,740.00

277,881.00

138,605.00

149,008.00

10,403.00

COMPREHENSIVE PROBLEM

633

Comprehensive Problem 2Part 1 (Requirement 5. Continued) TJ’s Specialty Shop Income Statement For Year Ended December 31, 20-1 Revenue from sales: Sales Less sales ret. & allow. Net sales Cost of goods sold: Merch. inv., Jan. 1 Est. returns inv., Jan. 1 Purchases Less: Purch. ret. & allow. Purch. discounts Net purchases Add freight-in Cost of goods purch. Goods avail. for sale Less merch. inv., Dec. 31 Est. returns inv, Dec. 31 Cost of goods sold Gross profit Operating expenses: Wages expense Advertising expense Supplies expense Phone expense Utilities expense Insurance expense Depr. exp.—building Depr. exp.—store equip. Miscellaneous expense Total operating exp. Income from operations Other expenses: Interest expense Net income

$127,700 1,530 $126,170 $ 21,800 250 $66,600 $610 698

$22,050

1,308 $65,292 175 65,467 $ 87,517 $19,700 300

20,000 67,517 $ 58,653 $ 27,530 4,700 630 2,180 7,530 380 800 450 2,700 46,900 $ 11,753 1,350 $ 10,403

634

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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

$90,000 $10,403 8,500

Increase in capital Tom Jones, capital, December 31, 20-1

1,903 $91,903

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯Part 1 (Requirement 5. Concluded)

635

TJ’s Specialty Shop Balance Sheet December 31, 20-1

Assets Current assets: Cash Accounts receivable Merchandise inventory Estimated returns inventory Supplies Prepaid insurance Total current assets Property, plant, and equipment: Land Building Less accumulated depreciation Store equipment Less accumulated depreciation Total property, plant, and equipment Total assets

$12,548 7,203 19,700 300 525 1,000 $ 41,276 $ 8,750 $52,000 10,000 $28,750 9,750

42,000 19,000 69,750 $111,026

Liabilities Current liabilities: Accounts payable Customer refunds payable Wages payable Sales tax payable Mortgage payable (current portion) Total current liabilities Long-term liabilities: Mortgage payable Less current portion Total liabilities Owner’s Equity Tom Jones, capital Total liabilities and owner’s equity

$ 4,350 400 330 1,518 600 $ 7,198 $12,525 600

11,925 $ 19,123

91,903 $111,026

636

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯Part 1 Requirement 6. GENERAL JOURNAL DATE

DESCRIPTION

20-1

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

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 Sales Returns and Allowances

401.1

Customer Refunds Payable

203

1 0 0 00

31 Income Summary Estimated Returns Inventory

313

2 5 0 00

135

31 Estimated Returns Inventory

Income Summary

2 5 0 00 12

135

3 0 0 00

31 Supplies Expense

524

Supplies

141

6 3 0 00

31 Insurance Expense Prepaid Insurance

535

3 8 0 00

145

31 Depreciation Expense—Building Accumulated Depreciation—Building

540

8 0 0 00

171.1

31 Depreciation Expense—Store Equipment

541

4 5 0 00

Accumulated Depreciation—Store Equipment 181.1

4 5 0 00 27

28 29

8 0 0 00 24

3 8 0 00 21

6 3 0 00 18

3 0 0 00 15

9 10

1 0 0 00

6 7

31 Wages Expense Wages Payable

511

3 3 0 00

219

3 3 0 00 30

COMPREHENSIVE PROBLEM

637

Comprehensive Problem 2⎯Part 1 Requirements 7. and 9. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

Closing Entries

1 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 5 5 5 00

Sales Returns and Allowances

401.1

1 5 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

Phone 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 0 3 00

311

10 4 0 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

28 20-2 29 30

Jan.

1 Wages Payable Wages Expense

219

3 3 0 00

511

3 3 0 00 30

638

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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 Estimated Returns Inventory

19 7 0 0 00 3 0 0 00

Supplies

5 2 5 00

Prepaid Insurance

1 0 0 0 00

Land

8 7 5 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 Customer Refunds Payable

4 3 5 0 00 4 0 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 0 3 00 130 7 7 6 00 130 7 7 6 00

COMPREHENSIVE PROBLEM

639

Comprehensive Problem 2Part 2 Requirements 2. and 3. GENERAL JOURNAL DATE

DESCRIPTION

PAGE POST. REF.

DEBIT

CREDIT

20-2 1 2 3 4

Jan.

1 Accounts Receivable/Anne Clark Sales Sales Tax Payable Sale No. 643

122 401 231

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

7 8 4 00 1 6 00

12 13

16 17

3 Purchases Accounts Payable/West Wholesalers Invoice No. 678

501 202

4 Purchases Accounts Payable/Owen Enterprises Invoice No. 767

501 202

1 5 0 0 00

1 5 0 0 00 12 13 14

2 0 0 0 00

2 0 0 0 00 16 17

18 19 20 21

4 Phone Expense Cash Check No. 819

525 101

8 Cash Sales Sales Tax Payable Made cash sale

101 401 231

1 8 0 00

1 8 0 00 20 21

22 23 24 25 26

3 7 8 0 00

3 6 0 0 00 24 1 8 0 00 25 26

27 28 29 30

9 Cash Accounts Receivable/Lucy Greene Received cash on account

101 122

10 Accounts Payable/West Wholesalers Cash Check No. 820

202 101

1 4 9 1 00

1 4 9 1 00 29 30

31 32 33 34

1 2 0 0 00

1 2 0 0 00 33 34

35 36 37 38 39

14 15

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

640

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯Part 2 (Requirements 2. and 3. Concluded) GENERAL JOURNAL DATE 20-2 1 2 3

Jan. 12

DESCRIPTION

Cash Accounts Receivable/Anne Clark Received cash on account

PAGE POST. REF.

101

DEBIT

CREDIT

2 1 0 0 00

122

2 1 0 0 00

4 5 6 7

12 Wages Expense Cash Check No. 821

511 101

13 Accounts Payable/Owen Enterprises Cash Purchases Discounts Check No. 822

202 101 501.2

13 Sales Returns and Allowances Sales Tax Payable Accounts Receivable/Martha Boyle Accepted return of goods sold

401.1 231 122

1 1 0 0 00

10 11 12

2 0 0 0 00

1 9 6 0 00 10 4 0 00 11 12

13 14 15 16 17

8 0 0 00 4 0 00

14 15

8 4 0 00 16 17

18 19 20 21

17 Accounts Payable/Evans Essentials Purchases Returns and Allowances Returned goods purchased

202 501.1

22 Cash Accounts Receivable/John Dempsey Received cash on account

101 122

3 0 0 00

3 0 0 00 20 21

22 23 24 25

2 1 2 1 00

2 1 2 1 00 24 25

26 27 28 29

26 Wages Expense Cash Check No. 823

511 101

27 Utilities Expense Cash Check No. 824

533 101

27 Accounts Receivable/John Dempsey Sales Sales Tax Payable Sale No. 645

122 401 231

1 1 0 0 00

1 1 0 0 00 28 29

30 31 32 33

6 3 0 00

6 3 0 00 32 33

34 35 36 37 38

6 7

8 9

2 1 0 0 00

2 0 0 0 00 36 1 0 0 00 37

38 39

COMPREHENSIVE PROBLEM

641

Comprehensive Problem 2⎯Part 2 Requirements 1., 2., 3., 6., and 7.

DATE 20-2

ITEM

POST. REF.

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.

ACCOUNT NO.

1 Balance

Jan.

20-2

GENERAL LEDGER

Cash

ACCOUNT

ACCOUNT NO. DEBIT

CREDIT

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

122

8 8 6 2 00 9 9 1 2 00

6 9 5 1 00

642

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Merchandise Inventory

ACCOUNT DATE 20-2



31 Adjusting

DEBIT

CREDIT

DATE 20-2

ITEM

POST. REF.

1 Balance



31 Adjusting

Jan.

19 0 0 0 00

⎯⎯⎯

DATE 20-2

ITEM

ACCOUNT NO. DEBIT

CREDIT

POST. REF.



31 Adjusting

3 6 0 00

⎯⎯⎯

DATE

ITEM

⎯⎯⎯

3 6 0 00

DEBIT

CREDIT

5 2 5 00 4 1 0 00

1 1 5 00

ACCOUNT NO.

POST. REF.

1 Balance



31 Adjusting

141

BALANCE DEBIT

Prepaid Insurance

ACCOUNT

CREDIT

3 0 0 00

135

BALANCE DEBIT

ACCOUNT NO.

1 Balance

Jan.

⎯⎯⎯

19 0 0 0 00

Supplies

ACCOUNT

CREDIT

19 7 0 0 00 19 7 0 0 00

131

BALANCE DEBIT

Estimated Returns Inventory

ACCOUNT

Jan.

POST. REF.

1 Balance

Jan.

20-2

ITEM

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

1 0 0 0 00 3 2 00

145

9 6 8 00

COMPREHENSIVE PROBLEM

643

Land

ACCOUNT DATE 20-2

ACCOUNT NO. ITEM

1 Balance

Jan.

POST. REF.

DEBIT

CREDIT



161

BALANCE DEBIT

CREDIT

8 7 5 0 00

Comprehensive Problem 2⎯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

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

644

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Accumulated Depreciation—Store Equipment

ACCOUNT DATE 20-2

ITEM

1 Balance



31 Adjusting

Jan.

DATE 20-2

CREDIT

ITEM

181.1

BALANCE DEBIT

CREDIT

9 7 5 0 00 3 8 00

9 7 8 8 00

ACCOUNT NO.

POST. REF.

DEBIT

CREDIT

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

Customer Refunds Payable

ACCOUNT DATE 20-2

ITEM

POST. REF.

1 Balance



31 Adjusting

Jan.

ACCOUNT NO. DEBIT

CREDIT

DATE

ITEM

31 Adjusting

CREDIT

4 0 0 00 1 0 0 00

5 0 0 00

ACCOUNT NO. POST. REF.

203

BALANCE DEBIT

Wages Payable

ACCOUNT

Jan.

DEBIT

Accounts Payable

ACCOUNT

20-2

POST. REF.

ACCOUNT NO.

DEBIT

CREDIT

3 3 0 00

219

BALANCE DEBIT

CREDIT

3 3 0 00

COMPREHENSIVE PROBLEM

645

Comprehensive Problem 2⎯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 0 3 00 1 3 5 9 00

93 2 6 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

646

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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

3 6 0 00

31 Closing

9 9 5 6 00

31 Closing

7 9 5 7 00

31 Closing

1 3 5 9 00

DATE

ITEM

20-2

DATE 20-2

CREDIT

19 7 0 0 00 19 0 0 0 00

3 0 0 00

7 0 0 00 1 0 0 0 00 6 4 0 00 9 3 1 6 00

⎯⎯⎯

1 3 5 9 00

⎯⎯⎯

ACCOUNT NO. ITEM

POST. REF.

DEBIT

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

20-2

Jan. 13

POST. REF.

DEBIT

CREDIT

8 0 0 00

31 Adjusting

1 0 0 00

9 0 0 00

31 Closing

DATE

ITEM

9 0 0 00

⎯⎯⎯

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

501

BALANCE DEBIT

1 5 0 0 00

2 0 0 0 00

3 5 0 0 00

31 Closing

3 5 0 0 00

401.1

BALANCE DEBIT

8 0 0 00

Purchases

⎯⎯⎯

ACCOUNT NO.

ACCOUNT

Jan.

BALANCE DEBIT

Sales

ACCOUNT

20-2

CREDIT

313

⎯⎯⎯

CREDIT

⎯⎯⎯

COMPREHENSIVE PROBLEM

647

Comprehensive Problem 2⎯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

648

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯Part 2 (Requirements 1., 2., 3., 6., and 7. Continued) Wages Expense

ACCOUNT DATE 20-2

ITEM

DEBIT

CREDIT

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

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

CREDIT

⎯⎯⎯

ACCOUNT NO. POST. REF.

31 Closing

DEBIT

CREDIT

1 8 0 00

525

BALANCE DEBIT

1 8 0 00

524

BALANCE DEBIT

4 1 0 00

512

BALANCE DEBIT

Phone Expense

ACCOUNT

⎯⎯⎯

ACCOUNT NO.

Supplies Expense

ACCOUNT

511

BALANCE DEBIT



ACCOUNT

Jan.

POST. REF.

1 Balance

Jan.

20-2

ACCOUNT NO.

⎯⎯⎯

CREDIT

⎯⎯⎯

COMPREHENSIVE PROBLEM

649

Comprehensive Problem 2⎯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

⎯⎯⎯

650

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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

COMPREHENSIVE PROBLEM

651

Comprehensive Problem 2⎯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

1 Balance

POST. REF.

DEBIT

CREDIT

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

⎯⎯⎯

652

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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 20-2

ITEM

POST. REF.

Jan.

DEBIT

CREDIT

2 0 0 0 00 2 0 0 0 00

BALANCE

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

COMPREHENSIVE PROBLEM

653

Comprehensive Problem 2⎯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

654

COMPREHENSIVE PROBLEM

Comprehensive Problem 2Part 2 Requirement 5. A

TJ’s Specialty Shop End-of-Period Spreadsheet For the Month Ended January 31, 20-2

1 2 3 4

ACCOUNT TITLE

TRIAL BALANCE DEBIT

ADJUSTMENTS

CREDIT

DEBIT

ADJUSTED TRIAL BALANCE

CREDIT

DEBIT

CREDIT

Cash

Accounts Receivable

6,951.00

Merchandise Inventory

19,700.00

Estimated Returns Inventory

Supplies

Prepaid Insurance

Land

8,750.00

Building

52,000.00

Accum. Depr.—Building

Store Equipment

Accum. Depr.—Store Equip.

9,750.00

Accounts Payable

3,550.00

Customer Refunds Payable

Wages Payable

Sales Tax Payable

1,958.00

Mortgage Payable

12,525.00

Tom Jones, Capital

91,903.00

Tom Jones, Drawing

Income Summary

15,086.00

15,086.00 6,951.00 (b) 19,000.00 (a)

19,700.00

19,000.00

360.00 (d)

300.00

360.00

525.00

(f)

410.00

115.00

1,000.00

(g)

32.00

968.00

300.00

(e)

10,000.00

(h)

67.00

28,750.00

10,067.00 28,750.00

(i)

9,788.00 3,550.00

400.00

(c)

100.00

500.00

(j)

330.00

(a) 19,700.00 (b)

38.00

(d)

300.00 (e)

19,000.00

19,700.00

360.00

300.00

19,000.00 360.00

Sales

Sales Returns and Allow.

Purchases

Purchases Returns and Allow.

300.00

Purchases Discounts

56.00

Freight-in

Wages Expense

Advertising Expense

Supplies Expense

Phone Expense

180.00

Utilities Expense

630.00

Insurance Expense

(g)

32.00

Depr. Expense—Building

(h)

67.00

Depr. Expense—Store Equip.

(i)

38.00

Miscellaneous Expense

Interest Expense

9,600.00

Net Income

(c)

100.00

900.00

3,500.00

1,870.00

140,042.00

43 44

800.00

9,600.00

140,042.00

(j)

330.00

2,200.00

(f)

410.00

40,337.00

159,937.00

27,957.00

29,316.00

1,359.00

COMPREHENSIVE PROBLEM

655

Comprehensive Problem 2⎯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.

900

Net sales

$8,700

Cost of goods sold: Merch. inv., Jan 1

$19,700

Est. returns inv., Jan. 1

300

Purchases Less: Purch. ret. & allow. Purch. discounts

$20,000

$3,500 $300 56

356

Cost of goods purch.

3,144

Goods avail. for sale

$23,144

Less merch. inv., Jan. 31

$19,000

Est. returns inv., Jan. 31

360

19,360

Cost of goods sold

3,784

Gross profit

$4,916

Operating expenses: Wages expense

$ 2,200

Supplies expense

410

Phone expense

180

Utilities expense

630

Insurance expense

Depr. exp.—building

Depr. exp.—store equip.

Total operating exp. Net income

3,557 $1,359

656

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯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

$91,903

Net income for month Tom Jones, capital, January 31, 20-2

1,359 $93,262

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.

COMPREHENSIVE PROBLEM

657

Comprehensive Problem 2⎯Part 2 (Requirement 5. Concluded) TJ’s Specialty Shop Balance Sheet January 31, 20-2 Assets Current assets: Cash Accounts receivable Merchandise inventory Estimated returns inventory Supplies Prepaid insurance Total current assets Property, plant, and equipment: Land Building Less accumulated depreciation Store equipment Less accumulated depreciation Total property, plant, and equipment Total assets

$15,086 6,951 19,000 360 115 968 $ 42,480 $ 8,750 $52,000 10,067 $28,750 9,788

41,933 18,962 69,645 $112,125

$ 3,550 500 330 1,958 600 $ 6,938 $12,525 600

11,925 $ 18,863

93,262 $112,125

658

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯Part 2 Requirement 6. GENERAL JOURNAL DATE

20-2

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

DESCRIPTION

PAGE

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

131 313

19 0 0 0 00

31 Sales Returns and Allowances Customer Returns Payable

401.1 203

1 0 0 00

31 Income Summary Estimated Returns Inventory

313 135

3 0 0 00

31 Estimated Returns Inventory Income Summary

135 313

3 6 0 00

31 Supplies Expense Supplies

524 141

4 1 0 00

31 Insurance Expense Prepaid Insurance

535 145

3 2 00

31 Depreciation Expense—Building Accumulated Depreciation—Building

540 171.1

6 7 00

31 Depreciation Expense—Store Equipment 541 Accumulated Depreciation—Store Equipment 181.1

3 8 00

19 0 0 0 00

7 8 9

3 2 00 21 22 23

6 7 00 24 25 26

3 8 00 27

28 29

4 1 0 00 18

25 26

3 6 0 00 15

22 23

3 0 0 00 12

19 20

9 10

16 17

1 0 0 00

13 14

6 7

10 11

31 Wages Expense Wages Payable

511 219

3 3 0 00

3 3 0 00 30

COMPREHENSIVE PROBLEM

659

Comprehensive Problem 2⎯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 9 5 7 00

Sales Returns and Allowances

401.1

9 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

Phone 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 5 9 00

1 3 5 9 00 19

660

COMPREHENSIVE PROBLEM

Comprehensive Problem 2⎯Part 2 Requirement 8. TJ’s Specialty Shop Post-Closing Trial Balance January 31, 20-2 ACCOUNT

Cash Accounts Receivable Merchandise Inventory Estimated Returns Inventory Supplies Prepaid Insurance Land Building Accumulated Depreciation—Building Store Equipment Accumulated Depreciation—Store Equipment Accounts Payable Customer Returns Payable Wages Payable Sales Tax Payable Mortgage Payable Tom Jones, Capital

DEBIT BALANCE

CREDIT BALANCE

15 0 8 6 00 6 9 5 1 00 19 0 0 0 00 3 6 0 00 1 1 5 00 9 6 8 00 8 7 5 0 00 52 0 0 0 00 10 0 6 7 00 28 7 5 0 00 9 7 8 8 00 3 5 5 0 00 5 0 0 00 3 3 0 00 1 9 5 8 00 12 5 2 5 00 93 2 6 2 00 131 9 8 0 00 131 9 8 0 00

COMPREHENSIVE PROBLEM

779

Comprehensive Problem 3: Specialized Accounting Procedures 1. GENERAL JOURNAL DATE 1

20-1

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

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

4 9 5 00

1 8 0 00

6 7 5 00 32

Discarded cash register at a $180 loss

780

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE 1

DESCRIPTION

20-1

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 = $45

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 = $16.67

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

1 7 0 0 00

1 7 0 0 00 30

Received 120-day, 8% note to settle account

COMPREHENSIVE PROBLEM

781

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE 1

DESCRIPTION

20-1

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

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 = $104.17

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

782

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE 1

DESCRIPTION

20-1

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

4 5 0 00

14 5 5 0 00

Paid account payable taking 3% discount

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

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

40 0 0 0 00

19 0 0 0 00

Automobile (old)

23 0 0 0 00 30

Cash

34 5 0 0 00 31

Gain on Trade-in

1 5 0 0 00 32

Purchased new car worth $40,000 for

$34,500 cash plus old car

COMPREHENSIVE PROBLEM

783

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE 1

20-1

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

28 29 30 31

31 Cash Sales

1 2 5 00

1 2 5 00 30

Cash sale

784

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE 1

20-1

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

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 = $2.08

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

Fixtures

5 0 0 00 33

Sold fixtures at a $100 loss

34 35

COMPREHENSIVE PROBLEM

785

Comprehensive Problem 3 (Continued) ToyMania! 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.

786

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Continued) 2. GENERAL JOURNAL DATE

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

DESCRIPTION

PAGE

20-1

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

5 5 56

Accumulated Depreciation—Landscaping

5 5 56 32

Take 1 month of depreciation

$2,000 × 5/15 × 1/12

COMPREHENSIVE PROBLEM

787

Comprehensive Problem 3 (Continued) GENERAL JOURNAL DATE

DESCRIPTION

3 4

POST. REF.

DEBIT

CREDIT

Adjusting Entries

1 2

PAGE

20-1

Dec. 31 Patent Amortization

2 5 0 0 00

Patent

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

1 0 9 3 20

$48,940 × 3% – $375 credit balance

31 Income Summary

91 2 5 0 00

Merchandise Inventory

91 2 5 0 00 11

12 13 14

31 Merchandise Inventory

102 0 0 0 00

Income Summary

102 0 0 0 00 14

15 16 17

31 Customer Refunds Payable

1 4 0 0 00

Sales Returns and Allowances

1 4 0 0 00 17

18 19 20

31 Income Summary

3 0 0 0 00

Estimated Returns Inventory

3 0 0 0 00 20

21 22 23

31 Estimated Returns Inventory

2 0 0 0 00

Income Summary

2 0 0 0 00 23

24 25 26 27

7 8

9 10

31 Loss on Write-Down of Inventory Merchandise Inventory

1 5 0 0 00

1 5 0 0 00 26

Cost $102,000 – $100,500 Market

788

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Continued) 3. ToyMania! 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

ToyMania! 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

789

Comprehensive Problem 3 (Continued) 4. and 5. GENERAL JOURNAL DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

Closing Entries

1 2

PAGE

20-1

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

13 14 15

20-2

Jan.

1 Interest Revenue

3 33

Accrued Interest Receivable

3 33 15

16 17 18

1 Accrued Interest Payable

5 9 89

Interest Expense

5 9 89 18

790

COMPREHENSIVE PROBLEM

Comprehensive Problem 3 (Concluded) 6.

GENERAL JOURNAL DATE

1 2 3

DESCRIPTION

20-2

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,

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

MODULE ACCOUNTING FOR A PROFESSIONAL SERVICE BUSINESS: THE COMBINATION JOURNAL REVIEW QUESTIONS 1.

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 modified cash basis, revenues are recorded when cash is received.

Under the accrual basis of accounting, wages expense is recorded when incurred. Expenses are considered incurred when a service is received, regardless of when cash is paid. Under the modified cash basis, wages expense is recognized when employees are paid.

The purpose of an appointment record is to schedule appointments and to maintain a record of the services rendered, fees charged, and payments received.

The purpose of the patient ledger account is to show the amount owed by each client or patient for services performed. The information is copied from the appointment record to the patient ledger. A copy of the patient ledger may also be used for billing purposes.

The purpose of a special column in a combination journal is to save time and space in entering and posting transactions to frequently used accounts.

The purpose of the General columns in the combination journal is to record transactions for those accounts that are infrequently used.

The combination journal saves time and space in entering transactions in which the same account is frequently used. For example, if a business has 30 transactions in one month that increase cash and 40 transactions that decrease cash, the cash account title would be entered 70 times in a twocolumn general journal. Using a combination journal, the total of the Cash Debit column is posted as one amount to the debit side of the cash account, and the total of the Cash Credit column is posted as one amount to the credit side of the cash account. Thus, instead of 70 postings, Cash receives only two: one debit and one credit.

The Description column is used for the following: a. To enter the account titles for the General Debit and General Credit columns. b. To identify specific creditors when assets are purchased on account using the modified cash basis. Using the accrual basis, this column would also be used to identify specific customers receiving services on account. c. To identify specific creditors when payments are made on account. d. To identify adjusting and closing entries. e. To identify amounts forwarded.

The purpose of proving the totals in the combination journal is to compare the sum of the Debit columns with the sum of the Credit columns to verify that they are equal to guard against errors.

10. In the combination journal, the account number of the general ledger account to which the amount has been posted is placed in the Posting Reference column. In the general ledger, “CJ” and the page number are entered in each account’s Posting Reference column.

M-2

MODULE

Exercise M-1A COMBINATION JOURNAL CASH DATE 20-1

Jan.

DEBIT

DESCRIPTION

CREDIT

10 0 0 0 00

POST. REF.

Jean Akins, Capital

5 0 0 00 Rent Expense

Office Equipment

Accounts Payable—Business Machines, Inc.

7 5 0 00

—

6 5 00 Phone Expense

1 5 00 Miscellaneous Expense

Office Supplies

Accounts Payable—Leo’s Office Supplies

9 10

1 5 0 00 Prepaid Insurance

5 0 0 00

8 5 00 Utilities Expense

1 0 0 00 Jean Akins, Drawing

5 0 0 00

3 5 0 00

9 10

—

12 13 14

—

MODULE

M-3

Exercise M-1A (Concluded) PAGE GENERAL DEBIT

CREDIT

CONSULTING

WAGES EXPENSE

FEES CREDIT

DEBIT

10 0 0 0 00

5 0 0 00

1 5 0 0 00

7 5 0 00

6 5 00

1 5 00

3 0 0 00

9 10

1 5 0 00

5 0 0 00 11

3 5 0 00

8 5 00

1 0 0 00

5 0 0 00 15

M-4

MODULE

Exercise M-2A COMBINATION JOURNAL CASH DATE 20-1

Oct.

DEBIT

DESCRIPTION

CREDIT

15 0 0 0 00

POST. REF.

Bill Rackes, Capital

3 0 0 00 Rent Expense

Bicycle Parts

Accounts Payable—Tracker’s Bicycle Parts

4 5

Office Supplies

Accounts Payable—Downtown Office Supplies

1 0 0 00 Accounts Payable—Tracker’s Bicycle Parts

3 0 0 00

5 0 00 Bill Rackes, Drawing

5 0 00 Accounts Payable—Downtown Office Supplies

3 8 00 Phone Expense

1 4 0 00

— 1 5 00 Miscellaneous Expense

3 5 0 00

9 10

—

4 8 00 Utilities Expense

2 5 0 00

—

3 0 0 00 15 7 4 0 00

—

1 2 0 1 00

17 18

Proving the Combination Journal: Debit columns:

Credit columns:

Cash

$15,740

Cash

$ 1,201

General

2,851

General

17,250

Wages Expense

600 $19,191 ®

Repair Fees

740 $19,191

MODULE

M-5

Exercise M-2A (Concluded) PAGE GENERAL DEBIT

CREDIT

REPAIR FEES

WAGES EXPENSE

CREDIT

DEBIT

15 0 0 0 00

3 0 0 00

2 0 0 0 00

4 5

2 5 0 00

6 7

3 8 00

1 4 0 00

1 5 00

1 0 0 00

3 0 0 00 11

3 5 0 00

12 13

4 8 00

12 13

2 5 0 00

5 0 00

3 0 0 00 17

17 18

2 8 5 1 00

17 2 5 0 00

7 4 0 00

6 0 0 00 18

M-6

MODULE

Problem M-3A 1. and 4.

COMBINATION JOURNAL CASH DATE 20-1

Jan.

DEBIT

DESCRIPTION

CREDIT

10 0 0 0 00

Angela McWharton, Capital

POST. REF.

311

5 0 0 00 Rent Expense

521

Office Supplies

142

202

181

202

—

Accounts Payable—Crestline Office Supplies

4 5

Office Equipment Accounts Payable—Office Technology, Inc.

6 7

5 8 0 00

4 2 00 Phone Expense

525

3 8 00 Electricity Expense

533

—

5 0 00 Accounts Payable—Crestline Office Supplies

202

1 5 0 00

—

3 6 0 00

—

312

3 6 0 00 10

2 6 00 Advertising Expense

512

3 5 00

—

2 8 00 Miscellaneous Expense

549

—

1 5 0 00 Accounts Payable—Office Technology, Inc.

202

3 6 0 00

—

4 2 0 00 1 0 0 00 Angela McWharton, Drawing

3 2 0 00

1 8 0 00

11 8 6 0 00

1 8 3 9 00

(101)

( 1 0 1)

MODULE

M-7

Problem M-3A (Continued) PAGE GENERAL DEBIT

CREDIT

NURSING CARE

WAGES EXPENSE

TRANS. EXPENSE

FEES CREDIT

DEBIT

10 0 0 0 00

5 0 0 00

3 0 0 00

4 5

1 5 0 0 00

5 8 0 00

4 2 00

3 8 00

3 6 0 00

10 11

5 0 00

1 5 0 00 12

3 6 0 00

4 2 0 00

1 0 0 00

2 6 00

3 5 00 17

17 18

2 8 00

3 2 0 00

19 20

1 5 0 00

3 6 0 00

1 8 0 00

22 23

2 7 3 4 00

11 8 0 0 00

1 8 6 0 00

( )

( 401)

7 2 0 00 ( 5 1 1)

1 8 5 00 23 ( 5 2 6)

M-8

MODULE

Problem M-3A (Continued) 2. Cash balance, January 12:

Beginning balance

Cash debits

10,940

Less: Cash credits

0 630

Balance

$10,310

3. Proving the Combination Journal:

Debit columns:

Credit columns:

Cash

$11,860

Cash

$ 1,839

General

2,734

General

11,800

Nursing Care Fees

1,860

Wages Expense

720

Trans. Expense

185 $15,499

$15,499

Angela McWharton Nursing Services 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

Angela McWharton, Capital

311

10 0 0 0 00

Angela McWharton, Drawing

312

Nursing Care Fees

401

Wages Expense

511

7 2 0 00

Advertising Expense

512

2 6 00

Rent Expense

521

5 0 0 00

Phone Expense

525

4 2 00

Transportation Expense

526

1 8 5 00

Electricity Expense

533

3 8 00

Miscellaneous Expense

549

2 8 00

ACCOUNT

CREDIT BALANCE

1 0 0 00 1 8 6 0 00

13 4 6 0 00

MODULE

M-9

Problem M-3A (Continued) 4.

PARTIAL GENERAL LEDGER Cash

ACCOUNT

ACCOUNT NO. POST. REF.

DEBIT

Jan. 31

CJ1

11 8 6 0 00

CJ1

DATE

ITEM

20--

DATE 20--

ITEM

11 8 6 0 00 1 8 3 9 00

10 0 2 1 00

POST. REF.

DEBIT

CJ1

3 0 0 00

CREDIT

DATE 20--

ITEM

Jan.

3 0 0 00

CJ1

DEBIT

CREDIT

1 5 0 0 00

DATE

ITEM

CREDIT

1 5 0 0 00

ACCOUNT NO.

POST. REF.

DEBIT

181

BALANCE DEBIT

Accounts Payable

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

142

BALANCE DEBIT

Office Equipment

ACCOUNT

CREDIT

ACCOUNT NO.

Jan.

BALANCE DEBIT

Office Supplies

ACCOUNT

20--

CREDIT

101

CREDIT

202

BALANCE DEBIT

CREDIT

CJ1

3 0 0 00

CJ1

1 5 0 0 00

1 8 0 0 00

CJ1

5 0 00

1 7 5 0 00

CJ1

1 5 0 00

1 6 0 0 00

M-10

MODULE

Problem M-3A (Continued) ACCOUNT

Angela McWharton, Capital

DATE 20--

Jan.

ITEM

ACCOUNT DATE

ITEM

Jan. 31

DATE 20--

Jan. 31

10 0 0 0 00

ACCOUNT NO. DEBIT

CJ1

1 0 0 00

CREDIT

DEBIT

1 0 0 00

CREDIT

POST. REF.

DEBIT

CREDIT

1 8 6 0 00

Wages Expense

ACCOUNT NO. DEBIT

CJ1

7 2 0 00

CREDIT

401

BALANCE DEBIT

1 8 6 0 00

POST. REF.

313

BALANCE DEBIT

ACCOUNT NO.

CJ1

ITEM

CREDIT

ACCOUNT NO. POST. REF.

312

BALANCE DEBIT

Nursing Care Fees ITEM

CREDIT

10 0 0 0 00

POST. REF.

311

BALANCE DEBIT

Income Summary

20--

ACCOUNT

CREDIT

Angela McWharton, Drawing

Jan. 18

DATE

DEBIT

CJ1

20--

ACCOUNT

POST. REF.

ACCOUNT NO.

511

BALANCE DEBIT

CREDIT

7 2 0 00

MODULE

M-11

Problem M-3A (Continued) Advertising Expense

ACCOUNT DATE

ITEM

20--

Jan. 20

DATE

Jan.

ITEM

DATE

Jan.

ITEM

DATE

ITEM

Jan. 31

2 6 00

POST. REF.

DEBIT

CJ1

5 0 0 00

CREDIT

DATE

ITEM

CREDIT

5 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

CREDIT

4 2 00

DEBIT

CJ1

1 8 5 00

POST. REF.

CJ1

CREDIT

4 2 00

CREDIT

3 8 00

526

BALANCE DEBIT

CREDIT

1 8 5 00

ACCOUNT NO. DEBIT

525

BALANCE DEBIT

ACCOUNT NO.

POST. REF.

521

BALANCE DEBIT

Electricity Expense

ACCOUNT

CREDIT

ACCOUNT NO.

CJ1

20--

Jan.

2 6 00

512

BALANCE DEBIT

Transportation Expense

ACCOUNT

20--

CREDIT

Phone Expense

ACCOUNT

20--

CJ1

DEBIT

Rent Expense

ACCOUNT

20--

POST. REF.

ACCOUNT NO.

CREDIT

533

BALANCE DEBIT

CREDIT

3 8 00

M-12

MODULE

Problem M-3A (Concluded) ACCOUNT DATE 20--

Jan. 24

Miscellaneous Expense ITEM

POST. REF.

CJ1

ACCOUNT NO. DEBIT

2 8 00

CREDIT

549

BALANCE DEBIT

CREDIT

2 8 00

MODULE

M-13

This page left intentionally blank.

M-14

MODULE

Problem M-4A 1. and 4.

COMBINATION JOURNAL CASH DATE 1 2

20--

Nov.

DEBIT

DESCRIPTION

CREDIT

3 0 0 00 Rent Expense

Tailoring Supplies Accounts Payable—Sew Easy Supplies

3 4

Tailoring Equipment Accounts Payable—Seam’s Sewing Machines

4 0 0 00

POST. REF.

521

141

202

188

202

—

1 3 00

—

2 8 00 Phone Expense

525

2 1 00 Electricity Expense

533

2 0 0 00

—

4 0 0 00

—

1 0 0 00 Accounts Payable—Sew Easy Supplies

202

549

—

145

—

1 3 00

—

1 2 00 Miscellaneous Expense

549

—

1 2 00 Miscellaneous Expense 4 5 0 00 5 0 0 00 Prepaid Insurance 3 0 0 00

6 0 0 00

1 9 5 0 00

1 3 9 9 00

(101)

( 1 0 1)

MODULE

M-15

Problem M-4A (Continued) PAGE GENERAL DEBIT

CREDIT

TAILORING FEES

WAGES EXPENSE

ADVERTISING

CREDIT

DEBIT

EXPENSE DEBIT

3 0 0 00

1 5 0 00

3 4

3 0 0 0 00

4 0 0 00

1 3 00

2 8 00

2 1 00

2 0 0 00

4 0 0 00

1 0 0 00

1 2 00

4 5 0 00

14 15

5 0 0 00

3 0 0 00

1 3 00 17

17 18

1 2 00

6 0 0 00

19 20

4 1 2 3 00

3 1 5 0 00

1 9 5 0 00

( )

( 401)

4 0 0 00 ( 5 1 1)

2 6 00 20 ( 5 1 2)

M-16

MODULE

Problem M-4A (Continued) 2. Cash balance, November 12:

Beginning balance

$5,711

Cash debits

600 $6,311

Less: Cash credits

362

Balance

$5,949

3. Proving the Combination Journal:

Debit columns:

Credit columns:

Cash

$1,950

Cash

$1,399

General

4,123

General

3,150

Tailoring Fees

1,950

Wages Expense

400

Advertising Expense

26 $6,499

$6,499

4., 6., and 8.

GENERAL LEDGER Cash

ACCOUNT DATE 20--

ITEM



CJ5

DEBIT

CREDIT

DATE

ITEM

CREDIT

5 7 1 1 00 1 9 5 0 00

7 6 6 1 00 1 3 9 9 00

6 2 6 2 00

ACCOUNT NO.

POST. REF.

1 Balance



CJ5

30 Adjusting

CJ6

101

BALANCE DEBIT

Tailoring Supplies

ACCOUNT

Nov.

POST. REF.

1 Balance

Nov.

20--

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

1 0 0 0 00 1 5 0 00

1 1 5 0 00 7 0 0 00

141

4 5 0 00

MODULE

M-17

Problem M-4A (Continued) Office Supplies

ACCOUNT DATE 20--

ITEM

POST. REF.

1 Balance



30 Adjusting

CJ6

Nov.

DEBIT

CREDIT

DATE 20--

ITEM

1 Balance



CJ5

30 Adjusting

CJ6

Nov.

4 8 5 00 2 0 0 00

2 8 5 00

DATE 20--

Nov.

DEBIT

CREDIT

ITEM

POST. REF.

1 Balance



CJ5

ACCOUNT DATE

Nov. 30

Adjusting

POST. REF.

CJ6

CREDIT

1 0 0 00 5 0 0 00

6 0 0 00 1 5 0 00

4 5 0 00

ACCOUNT NO. DEBIT

CREDIT

188

BALANCE DEBIT

CREDIT

3 8 0 0 00 3 0 0 0 00

6 8 0 0 00

Accumulated Depreciation—Tailoring Equipment ITEM

145

BALANCE DEBIT

Tailoring Equipment

ACCOUNT

CREDIT

ACCOUNT NO.

POST. REF.

142

BALANCE DEBIT

Prepaid Insurance

ACCOUNT

20--

ACCOUNT NO.

DEBIT

CREDIT

3 0 0 00

ACCOUNT NO.

188.1

BALANCE DEBIT

CREDIT

3 0 0 00

M-18

MODULE

Problem M-4A (Continued) Accounts Payable

ACCOUNT DATE 20--

ITEM

POST. REF.

DEBIT

CREDIT

202

BALANCE DEBIT

CREDIT

1 Balance



CJ5

1 5 0 00

4 2 7 5 00

CJ5

3 0 0 0 00

7 2 7 5 00

CJ5

Nov.

4 1 2 5 00

1 0 0 00

7 1 7 5 00

Sue Reyton, Capital

ACCOUNT DATE 20--

ITEM

POST. REF.

1 Balance



30 Closing

CJ6

30 Closing

CJ6

Nov.

ACCOUNT NO. DEBIT

CREDIT

DATE 20--

ITEM

POST. REF.

1 Balance



30 Closing

CJ6

Nov.

1 8 4 2 00

7 2 7 2 00

5 0 0 00

6 7 7 2 00

ACCOUNT NO. DEBIT

CREDIT

BALANCE DEBIT

CREDIT

5 0 0 00

ACCOUNT NO. POST. REF.

Closing

CJ6

30 Closing

CJ6

3 7 0 8 00

30 Closing

CJ6

1 8 4 2 00

Nov. 30

312

5 0 0 00

ITEM

DATE

CREDIT

5 4 3 0 00

Income Summary

ACCOUNT

311

BALANCE DEBIT

Sue Reyton, Drawing

ACCOUNT

20--

ACCOUNT NO.

DEBIT

CREDIT

5 5 5 0 00

313

BALANCE DEBIT

CREDIT

5 5 5 0 00 1 8 4 2 00

MODULE

M-19

Problem M-4A (Continued) Tailoring Fees

ACCOUNT DATE 20--

ITEM



CJ5

30 Closing

CJ6

DEBIT

CREDIT

DATE 20--

ITEM

1 Balance



CJ5

30 Closing

CJ6

Nov.

3 6 0 0 00 1 9 5 0 00

5 5 5 0 00

DEBIT

CREDIT

DATE 20--

ITEM

POST. REF.

1 Balance



CJ5

30 Closing

CJ6

Nov.

DATE

ITEM

CREDIT

8 0 0 00 4 0 0 00

1 2 0 0 00 1 2 0 0 00

ACCOUNT NO. DEBIT

CREDIT

3 3 00 2 6 00

5 9 00 5 9 00

ACCOUNT NO. POST. REF.

1 Balance



CJ5

30 Closing

CJ6

512

BALANCE DEBIT

Rent Expense

ACCOUNT

511

BALANCE DEBIT

Advertising Expense

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

401

BALANCE DEBIT

Wages Expense

ACCOUNT

Nov.

POST. REF.

1 Balance

Nov.

20--

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

6 0 0 00 3 0 0 00

521

9 0 0 00 9 0 0 00

M-20

MODULE

Problem M-4A (Continued) Office Supplies Expense

ACCOUNT DATE

ITEM

20--

Nov. 30

Adjusting

30 Closing

DATE

ITEM

20--

Nov. 30

Adjusting

30 Closing

DEBIT

CJ6

2 0 0 00

CJ6

CREDIT

DATE 20--

ITEM

2 0 0 00

ACCOUNT NO. DEBIT

CJ6

7 0 0 00

CJ6

CREDIT



CJ5

30 Closing

CJ6

DATE

ITEM

CREDIT

7 0 0 00 7 0 0 00

DEBIT

CREDIT

6 0 00 2 8 00

8 8 00 8 8 00

ACCOUNT NO.

POST. REF.

1 Balance



CJ5

30 Closing

CJ6

525

BALANCE DEBIT

Electricity Expense

ACCOUNT

524

BALANCE DEBIT

ACCOUNT NO.

1 Balance

Nov.

CREDIT

2 0 0 00

POST. REF.

523

BALANCE DEBIT

Phone Expense

ACCOUNT

Nov.

POST. REF.

Tailoring Supplies Expense

ACCOUNT

20--

ACCOUNT NO.

DEBIT

CREDIT

BALANCE DEBIT

CREDIT

4 4 00 2 1 00

533

6 5 00 6 5 00

MODULE

M-21

Problem M-4A (Continued) Insurance Expense

ACCOUNT DATE

ITEM

20--

Nov. 30

Adjusting

30 Closing

DATE

ITEM

20--

Nov. 30

Adjusting

30 Closing

DEBIT

CJ6

1 5 0 00

CJ6

CREDIT

DATE

ITEM

CREDIT

1 5 0 00 1 5 0 00

POST. REF.

DEBIT

CJ6

3 0 0 00

CJ6

POST. REF.

535

BALANCE DEBIT

ACCOUNT NO. CREDIT

542

BALANCE DEBIT

CREDIT

3 0 0 00 3 0 0 00

Miscellaneous Expense

ACCOUNT

Nov.

POST. REF.

Depreciation Expense—Tailoring Equipment

ACCOUNT

20--

ACCOUNT NO.

ACCOUNT NO. DEBIT

CREDIT

549

BALANCE DEBIT

1 Balance



CJ5

1 2 00

3 4 00

CJ5

1 2 00

4 6 00

30 Closing

CJ6

CREDIT

2 2 00

4 6 00

M-22

MODULE

Problem M-4A (Continued) 5.

Sue Reyton Work For Three Months ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

Cash

6 2 6 2 00

Tailoring Supplies

1 1 5 0 00

(a) 7 0 0 00

Office Supplies

4 8 5 00

(b) 2 0 0 00

Prepaid Insurance

6 0 0 00

Tailoring Equipment

6 8 0 0 00

Accum. Depr.—Tailoring Equip.

Accounts Payable

7 1 7 5 00

Sue Reyton, Capital

5 4 3 0 00

Sue Reyton, Drawing

Tailoring Fees

Wages Expense

Advertising Expense

Rent Expense

Office Supplies Expense

(b) 2 0 0 00

Tailoring Supplies Expense

(a) 7 0 0 00

Phone Expense

8 8 00

Electricity Expense

6 5 00

Insurance Expense

Depr. Exp.—Tailoring Equip.

(d) 3 0 0 00

Miscellaneous Expense

5 0 0 00 5 5 5 0 00 1 2 0 0 00 5 9 00 9 0 0 00

4 6 00 18 1 5 5 00

21 22

(d) 3 0 0 00

18 1 5 5 00

1 3 5 0 00

Net Income

23 24 25 26 27 28 29 30 31 32

MODULE

M-23

Problem M-4A (Continued) Tailors Sheet Ended November 30, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

6 2 6 2 00

4 5 0 00

2 8 5 00

4 5 0 00

6 8 0 0 00

3 0 0 00

7 1 7 5 00

5 4 3 0 00

5 0 0 00

5 0 0 00 5 5 5 0 00

5 5 5 0 00

1 2 0 0 00

5 9 00

9 0 0 00

2 0 0 00

7 0 0 00

8 8 00

6 5 00

1 5 0 00

3 0 0 00

4 6 00

18 4 5 5 00

3 7 0 8 00

5 5 5 0 00

14 7 4 7 00

1 8 4 2 00 5 5 5 0 00

12 9 0 5 00 21 1 8 4 2 00 22

5 5 5 0 00

14 7 4 7 00

14 7 4 7 00 23 24 25 26 27 28 29 30 31 32

M-24

MODULE

Problem M-4A (Continued) 7.

Sue Reyton Tailors Income Statement For Three Months Ended November 30, 20-Revenue: Tailoring fees

$5 5 5 0 00

Expenses: Wages expense Advertising expense

$1 2 0 0 00 5 9 00

Rent expense

9 0 0 00

Office supplies expense

2 0 0 00

Tailoring supplies expense

7 0 0 00

Phone expense

8 8 00

Electricity expense

6 5 00

Insurance expense

1 5 0 00

Depreciation expense—tailoring equipment

3 0 0 00

Miscellaneous expense Total expenses Net income

4 6 00 3 7 0 8 00 $1 8 4 2 00

MODULE

M-25

Problem M-4A (Continued) Sue Reyton Tailors Statement of Owner’s Equity For Three Months Ended November 30, 20-Sue Reyton, capital, September 1, 20--

$ ———

Investment from September through November

5 4 3 0 00

Total investment

$5 4 3 0 00

Net income for September through November Less withdrawals for September through November

$1 8 4 2 00 5 0 0 00

Increase in capital

1 3 4 2 00

Sue Reyton, capital, November 30, 20--

$6 7 7 2 00

Sue Reyton Tailors Balance Sheet November 30, 20-Assets Current assets: Cash

$6 2 6 2 00

Tailoring supplies

4 5 0 00

Office supplies

2 8 5 00

Prepaid insurance

4 5 0 00

Total current assets

$ 7 4 4 7 00

Property, plant, and equipment: Tailoring equipment

$6 8 0 0 00

Less accumulated depreciation Total assets

3 0 0 00

6 5 0 0 00 $13 9 4 7 00

Liabilities Current liabilities: Accounts payable

$ 7 1 7 5 00 Owner’s Equity

Sue Reyton, capital Total liabilities and owner’s equity

6 7 7 2 00 $13 9 4 7 00

M-26

MODULE

Problem M-4A (Continued) 6. and 8. COMBINATION JOURNAL CASH DATE

DEBIT

DESCRIPTION

CREDIT

20--

Nov. 30

3 4

5 6

7 8

REF.

Adjusting Entries

1 2

POST.

Tailoring Supplies Expense

524

Tailoring Supplies

141

Office Supplies Expense

523

Office Supplies

142

Insurance Expense

535

Prepaid Insurance

145

542

188.1

Depreciation Expense—Tailoring Equipment Accumulated Depreciation—Tailoring Equipment

Closing Entries

401

313

Income Summary

313

Wages Expense

511

Advertising Expense

512

Rent Expense

521

Office Supplies Expense

523

Tailoring Supplies Expense

524

Phone Expense

525

Electricity Expense

533

Insurance Expense

535

Depreciation Expense—Tailoring Equipment

542

Miscellaneous Expense

549

313

311

312

Income Summary

12 13

Income Summary Sue Reyton, Capital

25 26

Tailoring Fees

Sue Reyton, Capital Sue Reyton, Drawing

MODULE

M-27

Problem M-4A (Concluded) PAGE GENERAL DEBIT

CREDIT

1 2

7 0 0 00 2 0 0 00 1 5 0 00 3 0 0 00

DEBIT

EXPENSE DEBIT

7 8

3 0 0 00

9 10

5 5 5 0 00

12 13

CREDIT

1 5 0 00

ADVERTISING

2 0 0 00

7 8

WAGES EXPENSE

7 0 0 00

5 6

TAILORING FEES

3 4

3 7 0 8 00

12 13

1 2 0 0 00

5 9 00

9 0 0 00

2 0 0 00

7 0 0 00

8 8 00

6 5 00

1 5 0 00

3 0 0 00

4 6 00

1 8 4 2 00 1 8 4 2 00

25 26

5 0 0 00

27 28

12 9 5 0 00

25 26

5 0 0 00

12 9 5 0 00

M-28

MODULE

Exercise M-1B COMBINATION JOURNAL CASH DATE 1

20--

Mar.

DEBIT

DESCRIPTION

CREDIT

7 5 0 0 00

POST. REF.

Bill Miller, Capital

5 0 0 00 Rent Expense

Office Equipment

Accounts Payable—Desk Top Office Equipment

4 0 0 00

—

4 8 00 Phone Expense

2 5 00 Miscellaneous Expense

2 0 0 00 Prepaid Insurance

4 0 0 00

5 6 00 Utilities Expense

2 0 0 00 Bill Miller, Drawing

4 0 0 00

2 0 0 00 Office Supplies 5 2 0 00

—

3 8 0 00

9 10

—

1 0 0 00 Accounts Payable—Desk Top Office Equipment

6 0 0 00

—

MODULE

M-29

Exercise M-1B (Concluded) PAGE GENERAL DEBIT

CREDIT

BOOKKEEPING

WAGES EXPENSE

FEES CREDIT

DEBIT

7 5 0 0 00

5 0 0 00

8 0 0 00

4 0 0 00

4 8 00

2 5 00

2 0 0 00

5 2 0 00

9 10

2 0 0 00

9 10

4 0 0 00 11

3 8 0 00

1 0 0 00

5 6 00

2 0 0 00

4 0 0 00 16

16 17

6 0 0 00

M-30

MODULE

Exercise M-2B COMBINATION JOURNAL CASH DATE 1

20--

Jan.

DEBIT

DESCRIPTION

CREDIT

10 0 0 0 00

POST. REF.

Amy Anjelo, Capital

4 0 0 00 Rent Expense

Delivery Cart

1 2 3

Accounts Payable—Walt’s Wheels

2 5 0 00 Office Supplies

5 1 00 Phone Expense

2 5 0 00 Amy Anjelo, Drawing

1 8 0 00 Prepaid Insurance

4 2 8 00

— 3 7 00 Utilities Expense

4 8 0 00

—

2 9 00 Miscellaneous Expense

9 10

3 8 2 00

— 9 0 00 Accounts Payable—Walt’s Wheels

2 9 2 00 4 8 0 00 11 1 0 2 00

2 2 4 7 00

11 12

—

16 17

Proving the Combination Journal: Debit columns:

Credit columns:

Cash

$11,102

Cash

$ 2,247

General

2,287

General

11,000

Delivery Fees

1,102

Wages Expense

960 $14,349

$14,349

MODULE

M-31

Exercise M-2B (Concluded) PAGE GENERAL DEBIT

CREDIT

DELIVERY FEES

WAGES EXPENSE

CREDIT

DEBIT

10 0 0 0 00

4 0 0 00

1 0 0 0 00

2 5 0 00

5 1 00

4 2 8 00

7 8

3 7 00

4 8 0 00

9 10

2 9 00

9 10

3 8 2 00

9 0 00

2 5 0 00

1 8 0 00

2 9 2 00

4 8 0 00 16

16 17

2 2 8 7 00

11 0 0 0 00

1 1 0 2 00

9 6 0 00 17

M-32

MODULE

Problem M-3B 1. and 4.

COMBINATION JOURNAL CASH DATE 1

20--

July

DEBIT

DESCRIPTION

CREDIT

5 0 0 0 00

J. B. Hoyt, Capital

POST. REF.

311

2 5 0 00 Rent Expense

521

1 5 0 00 Office Supplies

142

183

202

525

—

533

—

526

—

202

—

549

—

Skiing Equipment Accounts Payable—Water Fun, Inc.

5 6

3 6 00 Phone Expense 2 0 0 00 2 8 00 Electricity Expense 2 5 0 00 3 0 0 00 5

6 0 00 Transportation Expense

2 5 0 00 2 0 00 1 0 0 00 Accounts Payable—Water Fun, Inc. 3 1 0 00 1 8 00 Miscellaneous Expense 2 5 0 00 2 3 0 00 2 0 00

6 2 9 0 00

1 1 8 2 00

(101)

( 1 0 1)

MODULE

M-33

Problem M-3B (Continued) PAGE GENERAL DEBIT

CREDIT

TRAINING FEES

WAGES EXPENSE

REPAIR EXPENSE

CREDIT

DEBIT

5 0 0 0 00

2 5 0 00

1 5 0 00

2 0 0 0 00

5 6

3 6 00

2 0 0 00

7 8

2 8 00

2 5 0 00

6 0 00

2 5 0 00

2 0 00 13

13 14

1 0 0 00

3 1 0 00

15 16

3 0 0 00

10 11

1 8 00

2 5 0 00

2 3 0 00

2 0 00 19

19 20

2 6 4 2 00

7 0 0 0 00

1 2 9 0 00

( )

( 401)

5 0 0 00 ( 5 1 1)

4 0 00 20 ( 5 3 7)

M-34

MODULE

Problem M-3B (Continued) 2. Cash balance, July 14:

Beginning balance Cash debits Less: Cash credits Balance

0 5,500 714

$ 4,786

3. Proving the Combination Journal:

Debit columns:

Credit columns:

Cash

$6,290

Cash

$1,182

General

2,642

General

7,000

Training Fees

1,290

Wages Expense

500

Repair Expense

40 $9,472

$9,472

Water Walking by Hoyt Trial Balance July 31, 20-ACCT. NO.

DEBIT BALANCE

Cash

101

5 1 0 8 00

Office Supplies

142

1 5 0 00

Skiing Equipment

183

2 0 0 0 00

Accounts Payable

202

1 9 0 0 00

J. B. Hoyt, Capital

311

5 0 0 0 00

Training Fees

401

1 2 9 0 00

Wages Expense

511

5 0 0 00

Rent Expense

521

2 5 0 00

Phone Expense

525

3 6 00

Transportation Expense

526

6 0 00

Electricity Expense

533

2 8 00

Repair Expense

537

4 0 00

Miscellaneous Expense

549

1 8 00

ACCOUNT

8 1 9 0 00

CREDIT BALANCE

8 1 9 0 00

MODULE

M-35

Problem M-3B (Continued) 4. GENERAL LEDGER Cash

ACCOUNT DATE

ACCOUNT NO. ITEM

POST. REF.

20--

July 31

CJ1

DATE 20--

6 2 9 0 00

BALANCE DEBIT

ITEM

6 2 9 0 00 1 1 8 2 00

5 1 0 8 00

POST. REF.

DEBIT

CJ1

1 5 0 00

CREDIT

DATE 20--

ITEM

July

1 5 0 00

CJ1

DEBIT

CREDIT

2 0 0 0 00

DATE

ITEM

CREDIT

2 0 0 0 00

ACCOUNT NO.

POST. REF.

CJ1

DEBIT

CREDIT

2 0 0 0 00 1 0 0 00

183

BALANCE DEBIT

Accounts Payable

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

142

BALANCE DEBIT

Skiing Equipment

ACCOUNT

CREDIT

ACCOUNT NO.

July

CREDIT

Office Supplies

ACCOUNT

20--

DEBIT

101

202

BALANCE DEBIT

CREDIT

2 0 0 0 00 1 9 0 0 00

M-36

MODULE

Problem M-3B (Continued) ACCOUNT

J. B. Hoyt, Capital

DATE 20--

July

ITEM

ACCOUNT DATE

20--

July 31

DEBIT

CREDIT

ITEM

POST. REF.

5 0 0 0 00

ACCOUNT NO. CREDIT

DEBIT

CREDIT

DEBIT

CJ1

CREDIT

1 2 9 0 00

ACCOUNT NO. POST. REF.

DEBIT

CJ1

5 0 0 00

CREDIT

401

BALANCE DEBIT

Wages Expense ITEM

CREDIT

ACCOUNT NO. POST. REF.

313

BALANCE DEBIT

Training Fees ITEM

CREDIT

ACCOUNT NO. POST. REF.

312

BALANCE DEBIT

Income Summary ITEM

CREDIT

5 0 0 0 00

DEBIT

311

BALANCE DEBIT

J. B. Hoyt, Drawing

July 31

DATE

POST. REF.

CJ1

20--

ACCOUNT

ACCOUNT NO.

511

BALANCE DEBIT

CREDIT

5 0 0 00

MODULE

M-37

Problem M-3B (Continued) Rent Expense

ACCOUNT DATE 20--

July

ITEM

DATE

July

ITEM

ACCOUNT DATE

DEBIT

CJ1

2 5 0 00

CREDIT

ITEM

DATE

July 10

DATE

July 31

DEBIT

CREDIT

3 6 00

POST. REF.

CJ1

3 6 00

CREDIT

6 0 00

CREDIT

6 0 00

ACCOUNT NO. DEBIT

CREDIT

2 8 00

CJ1

DEBIT

4 0 00

533

BALANCE DEBIT

CREDIT

2 8 00

ACCOUNT NO. POST. REF.

526

BALANCE DEBIT

Repair Expense ITEM

CREDIT

ACCOUNT NO. DEBIT

525

BALANCE DEBIT

Electricity Expense

20--

ACCOUNT

POST. REF.

CJ1

ITEM

CREDIT

2 5 0 00

Transportation Expense

July 16

ACCOUNT

POST. REF.

521

BALANCE DEBIT

ACCOUNT NO.

CJ1

20--

POST. REF.

Phone Expense

ACCOUNT

20--

ACCOUNT NO.

CREDIT

537

BALANCE DEBIT

CREDIT

4 0 00

M-38

MODULE

Problem M-3B (Concluded) ACCOUNT DATE 20--

July 26

Miscellaneous Expense ITEM

POST. REF.

CJ1

ACCOUNT NO. DEBIT

1 8 00

CREDIT

549

BALANCE DEBIT

CREDIT

1 8 00

MODULE

M-39

This page left intentionally blank.

M-40

MODULE

Problem M-4B 1. and 4.

COMBINATION JOURNAL CASH DATE 20--

DEBIT

DESCRIPTION

CREDIT

POST. REF.

2 0 0 00 Rent Expense

521

2 3 0 00 Office Supplies

142

189

202

525

—

533

—

2 0 0 00 Prepaid Insurance

145

202

June

Lawn Care Equipment Accounts Payable—Earth Care, Inc.

4 5

3 1 00 Phone Expense 6 4 0 00 3 1 00 Electricity Expense 3 0 0 00 5 8 0 00 1

1 0 0 00 Accounts Payable—Earth Care, Inc.

4 0 00 Gas and Oil Expense

538

2 5 00

—

312

—

3 1 0 00 1 0 0 00 Molly Claussen, Drawing 2 0 00 4 8 0 00 3 0 0 00

2 0 1 0 00

1 5 7 7 00

(101)

( 1 0 1)

MODULE

M-41

Problem M-4B (Continued) PAGE GENERAL DEBIT

CREDIT

LAWN CARE

REPAIR EXPENSE

WAGES EXPENSE

FEES CREDIT

DEBIT

2 0 0 00

2 3 0 00

1 0 0 0 00

4 5

3 1 00

6 4 0 00

6 7

3 1 00

3 0 0 00

5 8 0 00

8 9

2 0 0 00

1 0 0 00

4 0 00

2 5 00

3 1 0 00

14 15

13 14

1 0 0 00

2 0 00

4 8 0 00

3 0 0 00 18

18 19

1 9 3 2 00

1 0 0 0 00

2 0 1 0 00

( )

( 401)

4 5 00 ( 5 3 7)

6 0 0 00 19 ( 5 1 1)

M-42

MODULE

Problem M-4B (Continued) 2. Cash balance, June 12:

Beginning balance

$4,604

Cash debits

1,220 $5,824

Less: Cash credits

992

Balance

$4,832

3. Proving the Combination Journal:

Debit columns:

Credit columns:

Cash

$2,010

Cash

$1,577

General

1,932

General

1,000

Lawn Care Fees

2,010

Repair Expense

Wages Expense

600 $4,587

$4,587

4., 6., and 8.

DATE 20--

ITEM

POST. REF.



CJ5

DEBIT

CREDIT

DATE

ITEM

POST. REF.

1 Balance



30 Adjusting

CJ6

101

BALANCE DEBIT

CREDIT

4 6 0 4 00 2 0 1 0 00

6 6 1 4 00 1 5 7 7 00

5 0 3 7 00

Lawn Care Supplies

ACCOUNT

June

ACCOUNT NO.

1 Balance

June

20--

GENERAL LEDGER

Cash

ACCOUNT

ACCOUNT NO. DEBIT

CREDIT

BALANCE DEBIT

CREDIT

5 8 8 00 2 8 8 00

141

3 0 0 00

MODULE

M-43

Problem M-4B (Continued) Office Supplies

ACCOUNT DATE 20--

ITEM

POST. REF.

1 Balance



CJ5

30 Adjusting

CJ6

June

DEBIT

CREDIT

DATE 20--

ITEM

1 Balance



CJ5

30 Adjusting

CJ6

June

2 4 3 00 2 3 0 00

4 7 3 00 2 0 0 00

2 7 3 00

DATE 20--

June

DEBIT

CREDIT

ITEM

POST. REF.

1 Balance



CJ5

ACCOUNT DATE

June 30

Adjusting

POST. REF.

CJ6

CREDIT

1 5 0 00 2 0 0 00

3 5 0 00 1 0 0 00

2 5 0 00

ACCOUNT NO. DEBIT

CREDIT

189

BALANCE DEBIT

CREDIT

2 4 0 8 00 1 0 0 0 00

3 4 0 8 00

Accumulated Depreciation—Lawn Care Equipment ITEM

145

BALANCE DEBIT

Lawn Care Equipment

ACCOUNT

CREDIT

ACCOUNT NO.

POST. REF.

142

BALANCE DEBIT

Prepaid Insurance

ACCOUNT

20--

ACCOUNT NO.

DEBIT

CREDIT

2 6 0 00

ACCOUNT NO.

189.1

BALANCE DEBIT

CREDIT

2 6 0 00

M-44

MODULE

Problem M-4B (Continued) Accounts Payable

ACCOUNT DATE 20--

ITEM

POST. REF.

1 Balance



CJ5

June

DEBIT

CREDIT

DATE 20--

ITEM

POST. REF.

1 Balance



30 Closing

CJ6

30 Closing

CJ6

June

DATE 20--

ITEM

POST. REF.

1 Balance



CJ5

30 Closing

CJ6

June

1 0 0 0 00

2 0 8 0 00

1 0 0 00

1 9 8 0 00

ACCOUNT NO. DEBIT

CREDIT

2 9 2 8 00

7 9 2 8 00

9 0 0 00

7 0 2 8 00

ACCOUNT NO. DEBIT

CREDIT

312

BALANCE DEBIT

CREDIT

8 0 0 00 1 0 0 00

9 0 0 00 9 0 0 00

ACCOUNT NO. POST. REF.

Closing

CJ6

30 Closing

CJ6

3 1 1 5 00

30 Closing

CJ6

2 9 2 8 00

June 30

CREDIT

5 0 0 0 00

ITEM

DATE

311

BALANCE DEBIT

Income Summary

ACCOUNT

CREDIT

1 0 8 0 00

Molly Claussen, Drawing

ACCOUNT

202

BALANCE DEBIT

Molly Claussen, Capital

ACCOUNT

20--

ACCOUNT NO.

DEBIT

CREDIT

6 0 4 3 00

313

BALANCE DEBIT

CREDIT

6 0 4 3 00 2 9 2 8 00

MODULE

M-45

Problem M-4B (Continued) Lawn Care Fees

ACCOUNT DATE 20--

ITEM

POST. REF.

1 Balance



CJ5

30 Closing

CJ6

June

DEBIT

CREDIT

DATE 20--

ITEM

1 Balance



CJ5

30 Closing

CJ6

June

4 0 3 3 00 2 0 1 0 00

6 0 4 3 00

DEBIT

CREDIT

DATE 20--

ITEM

1 Balance



CJ5

30 Closing

CJ6

June

6 0 0 00 6 0 0 00

1 2 0 0 00 1 2 0 0 00

DEBIT

CREDIT

DATE

June 30

ITEM

Adjusting

30 Closing

CREDIT

4 0 0 00 2 0 0 00

6 0 0 00 6 0 0 00

ACCOUNT NO.

POST. REF.

DEBIT

CJ6

2 0 0 00

CJ6

521

BALANCE DEBIT

Office Supplies Expense

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

511

BALANCE DEBIT

Rent Expense

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

401

BALANCE DEBIT

Wages Expense

ACCOUNT

20--

ACCOUNT NO.

CREDIT

523

BALANCE DEBIT

CREDIT

2 0 0 00 2 0 0 00

M-46

MODULE

Problem M-4B (Continued) Lawn Care Supplies Expense

ACCOUNT DATE

ITEM

20--

June 30

Adjusting

30 Closing

POST. REF.

DEBIT

CJ6

2 8 8 00

CJ6

CREDIT

DATE 20--

ITEM

1 Balance



CJ5

30 Closing

CJ6

June

2 8 8 00 2 8 8 00

DEBIT

CREDIT

DATE 20--

ITEM

1 Balance



CJ5

30 Closing

CJ6

June

8 8 00 3 1 00

1 1 9 00 1 1 9 00

DEBIT

CREDIT

DATE

June 30

ITEM

Adjusting

30 Closing

CREDIT

6 2 00 3 1 00

9 3 00 9 3 00

ACCOUNT NO.

POST. REF.

DEBIT

CJ6

1 0 0 00

CJ6

533

BALANCE DEBIT

Insurance Expense

ACCOUNT

CREDIT

ACCOUNT NO.

POST. REF.

525

BALANCE DEBIT

Electricity Expense

ACCOUNT

CREDIT

ACCOUNT NO. POST. REF.

524

BALANCE DEBIT

Phone Expense

ACCOUNT

20--

ACCOUNT NO.

CREDIT

535

BALANCE DEBIT

CREDIT

1 0 0 00 1 0 0 00

MODULE

M-47

Problem M-4B (Continued) Repair Expense

ACCOUNT DATE 20--

ITEM

POST. REF.

1 Balance



CJ5

30 Closing

CJ6

June

DEBIT

CREDIT

DATE 20--

ITEM

POST. REF.

1 Balance



CJ5

30 Closing

CJ6

June

DATE

June 30

ITEM

Adjusting

30 Closing

4 5 00

9 5 00 9 5 00

ACCOUNT NO. DEBIT

CREDIT

538

BALANCE DEBIT

CREDIT

1 2 0 00 4 0 00

1 6 0 00 1 6 0 00

POST. REF.

DEBIT

CJ6

2 6 0 00

CJ6

CREDIT

5 0 00

Depreciation Expense—Lawn Care Equipment

ACCOUNT

537

BALANCE DEBIT

Gas and Oil Expense

ACCOUNT

20--

ACCOUNT NO.

CREDIT

ACCOUNT NO.

542

BALANCE DEBIT

CREDIT

2 6 0 00 2 6 0 00

M-48

MODULE

Problem M-4B (Continued) 5.

Molly Claussen’s Work For Three Months ACCOUNT TITLE

TRIAL BALANCE DEBIT CREDIT

ADJUSTMENTS DEBIT CREDIT

Cash

5 0 3 7 00

Lawn Care Supplies

5 8 8 00

(b) 2 8 8 00

Office Supplies

4 7 3 00

(a) 2 0 0 00

Prepaid Insurance

3 5 0 00

Lawn Care Equipment

Accum. Depr.—Lawn Care Eq.

Accounts Payable

1 9 8 0 00

Molly Claussen, Capital

5 0 0 0 00

Molly Claussen, Drawing

Lawn Care Fees

Wages Expense

1 2 0 0 00

Rent Expense

6 0 0 00

Office Supplies Expense

(a) 2 0 0 00

Lawn Care Supplies Expense

(b) 2 8 8 00

Phone Expense

Electricity Expense

Insurance Expense

Repair Expense

Gas and Oil Expense

Depr. Exp.—Lawn Care Equip.

(d) 2 6 0 00

9 0 0 00 6 0 4 3 00

1 1 9 00 9 3 00 (c) 1 0 0 00 9 5 00 1 6 0 00 (d) 2 6 0 00 13 0 2 3 00

21 22

3 4 0 8 00

13 0 2 3 00

8 4 8 00

Net Income

23 24 25 26 27 28 29 30 31 32

MODULE

M-49

Problem M-4B (Continued) Green Thumb Sheet Ended June 30, 20-ADJUSTED TRIAL BALANCE DEBIT CREDIT

INCOME STATEMENT DEBIT CREDIT

BALANCE SHEET DEBIT CREDIT

5 0 3 7 00

3 0 0 00

2 7 3 00

2 5 0 00

3 4 0 8 00

2 6 0 00

1 9 8 0 00

5 0 0 0 00

9 0 0 00

9 0 0 00 6 0 4 3 00

6 0 4 3 00

1 2 0 0 00

6 0 0 00

2 0 0 00

2 8 8 00

1 1 9 00

9 3 00

1 0 0 00

9 5 00

1 6 0 00

2 6 0 00

13 2 8 3 00

3 1 1 5 00

6 0 4 3 00

10 1 6 8 00

2 9 2 8 00 6 0 4 3 00

7 2 4 0 00 21 2 9 2 8 00 22

6 0 4 3 00

10 1 6 8 00

10 1 6 8 00 23 24 25 26 27 28 29 30 31 32

M-50

MODULE

Problem M-4B (Continued) 7.

Molly Claussen’s Green Thumb Income Statement For Three Months Ended June 30, 20-Revenue: Lawn care fees

$6 0 4 3 00

Expenses: Wages expense

$1 2 0 0 00

Rent expense

6 0 0 00

Office supplies expense

2 0 0 00

Lawn care supplies expense

2 8 8 00

Phone expense

1 1 9 00

Electricity expense

9 3 00

Insurance expense

1 0 0 00

Repair expense

9 5 00

Gas and oil expense

1 6 0 00

Depreciation expense—lawn care equipment

2 6 0 00

Total expenses Net income

3 1 1 5 00 $2 9 2 8 00

MODULE

M-51

Problem M-4B (Continued) Molly Claussen’s Green Thumb Statement of Owner’s Equity For Three Months Ended June 30, 20-Molly Claussen, capital, April 1, 20--

$ ———

Investment from April through June

5 0 0 0 00

Total investment

$5 0 0 0 00

Net income for April through June

$2 9 2 8 00

Less withdrawals for April through June

9 0 0 00

Increase in capital

2 0 2 8 00

Molly Claussen, capital, June 30, 20--

$7 0 2 8 00

Molly Claussen’s Green Thumb Balance Sheet June 30, 20-Assets Current assets: Cash

$5 0 3 7 00

Lawn care supplies

3 0 0 00

Office supplies

2 7 3 00

Prepaid insurance

2 5 0 00

Total current assets

$5 8 6 0 00

Property, plant, and equipment: Lawn care equipment

$3 4 0 8 00

Less accumulated depreciation Total assets

2 6 0 00

3 1 4 8 00 $9 0 0 8 00

Liabilities Current liabilities: Accounts payable

$1 9 8 0 00 Owner’s Equity

Molly Claussen, capital

7 0 2 8 00

Total liabilities and owner’s equity

$9 0 0 8 00

M-52

MODULE

Problem M-4B (Continued) 6. and 8. COMBINATION JOURNAL CASH DATE

DEBIT

DESCRIPTION

CREDIT

20--

June 30 30 30

7 8

142

524

141

Insurance Expense

535

Prepaid Insurance

145

542

189.1

Lawn Care Supplies Expense

Depreciation Expense—Lawn Care Equipment

Accumulated Depreciation—Lawn Care Equipment

Closing Entries

313

Income Summary

313

Wages Expense

511

Rent Expense

521

Office Supplies Expense

523

Lawn Care Supplies Expense

524

Phone Expense

525

Electricity Expense

533

Insurance Expense

535

Repair Expense

537

Gas and Oil Expense

538

Depreciation Expense—Lawn Care Equipment

542

313

311

312

Income Summary

12 13

Income Summary Molly Claussen, Capital

25 26

Lawn Care Fees

401

523

Lawn Care Supplies

5 6

Office Supplies Expense Office Supplies

3 4

REF.

Adjusting Entries

1 2

POST.

Molly Claussen, Capital Molly Claussen, Drawing

MODULE

M-53

Problem M-4B (Concluded) PAGE GENERAL DEBIT

CREDIT

1 2

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

7 8

2 6 0 00

9 10

6 0 4 3 00

12 13

DEBIT

1 0 0 00

WAGES EXPENSE

DEBIT

2 8 8 00

7 8

REPAIR EXPENSE

2 0 0 00

5 6

LAWN CARE FEES CREDIT

3 4

3 1 1 5 00

12 13

1 2 0 0 00

6 0 0 00

2 0 0 00

2 8 8 00

1 1 9 00

9 3 00

1 0 0 00

9 5 00

1 6 0 00

2 6 0 00

2 9 2 8 00 2 9 2 8 00

25 26

9 0 0 00

25 26

9 0 0 00

13 8 3 4 00

( )

M-54

MODULE

MANAGING YOUR WRITING The memos should define each method and offer advice on the method to use with specific types of businesses. Definitions for each method: 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. The accrual basis also assumes that expenses are recorded when incurred. Expenses are considered incurred when a service is received or an asset consumed, regardless of when cash is paid. The modified cash and accrual bases of accounting are the same except for three types of events. The modified cash basis differs from the accrual basis of accounting in the following ways: 1. Expenses for services received are not recorded until paid. Thus, accounts payable is not used under the modified cash basis for services received. 2. Accrued expenses are not recognized. Examples of accrued expenses include wages that were earned by the employees, but not yet paid, and interest expense that has been incurred, but not yet paid. Thus, no end-of-period adjusting entries are made for these types of events. 3. Revenues from services performed on account are not recorded until cash is received. Thus, no accounts receivable are entered in the accounting system. Most Appropriate Type of Business for Each Method: The accrual basis is the best method of measuring income for the vast majority of businesses. Revenues are recorded when earned. If cash is not received, receivables are established. If expenses are not paid in cash, payables are set up. Finally, assets are recognized and expensed as consumed or as their useful lives expire. This method provides reasonable measures of income, even when the business has long-term assets, receivables, and payables. Many small professional service businesses use the modified cash basis of accounting. A few examples include law, dentistry, medicine, optometry, architecture, engineering, and accounting. Since adjustments are made for long-term assets and prepaid items, some of the accrual basis advantages are retained. However, the modified cash basis does not account for receivables for services rendered, payables for services received, or accrued expenses. Thus, measures of net income may be distorted if the business has large amounts of receivables and payables.

ETHICS CASE 1. 2.

3. 4.

Although Nancy’s explanation makes sense (the transaction will make her financial statements look better), this decision is unethical. She is overstating her cash and revenue. The transaction can be entered in either of the following ways: a. If the $10,000 is a loan from her father, Cash should be debited and Loans Payable should be credited. b. If the $10,000 is a gift from her father that Nancy wants to invest in her company, Cash should be debited and Nancy Bowles, Capital should be credited. In either case, revenue is not affected. Since this is a cash transaction, it doesn’t matter if the modified cash or accrual basis of accounting is used. Answers may vary. Nancy could be denied a loan by the bank based on their discovery of fraudulent financial statements. Sarah might turn her in or quit and find another job. Nancy could get the loan and not be able to pay it back. Answers will vary. © 2020 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

MODULE

M-55

Mastery Problem 1.

The combination journal can be found on pages M-56 and M-57.

Proving the Combination Journal:

Debit columns:

Credit columns:

Cash

$163,900

Cash

$ 44,405

General

112,705

General

187,000

Registration Fees

73,900

Wages Expense

2,000

Food Supplies

26,700 $305,305

$305,305

M-56

MODULE

Mastery Problem (Continued) 1. COMBINATION JOURNAL CASH DATE 1

20--

June

DEBIT

DESCRIPTION

CREDIT

90 0 0 0 00

POST. REF.

John McRoe, Capital

311

9 0 0 0 00 Exercise Equipment

186

—

521

184

202

15 0 0 0 00 2 5 0 0 00 Rent Expense Tennis Facilities Accounts Payable—Rogers Construction

6 7

Accounts Payable—Au Naturel Foods

202

Office Supplies

142

202

—

202

—

202

—

536

—

202

—

202

—

202

Accounts Payable—Gordon Office Supplies

9 10

16 2 0 0 00

5 0 0 00 Utilities Expense

533

1 2 0 00 Phone Expense

525

312

Accounts Payable—Au Naturel Foods 5 0 0 00 13 5 0 0 00 Accounts Payable—Au Naturel Foods 5 0 0 00 8 5 00 Postage Expense 15 2 0 0 00 Accounts Payable—Au Naturel Foods 5 0 0 00 14 0 0 0 00 Accounts Payable—Au Naturel Foods 5 0 0 00 28 7 0 0 00 Accounts Payable—Au Naturel Foods

1 5 0 0 00 John McRoe, Drawing

163 9 0 0 00

44 4 0 5 00

(101)

( 1 0 1)

MODULE

M-57

Mastery Problem (Continued) PAGE GENERAL DEBIT

REGISTRATION

WAGES EXPENSE

FOOD SUPPLIES

FEES CREDIT

DEBIT

90 0 0 0 00

1 2

CREDIT

9 0 0 0 00

15 0 0 0 00

2 5 0 0 00

70 0 0 0 00

5 0 0 0 00

3 0 0 00

16 2 0 0 00

6 2 0 0 00 11 5 0 0 00

13 5 0 0 00

4 0 0 0 00

4 0 0 0 00 14 5 0 0 00

15 16

6 2 0 0 00

8 5 00

15 2 0 0 00

5 5 0 0 00

5 5 0 0 00 18 5 0 0 00

14 0 0 0 00

6 0 0 0 00

6 0 0 0 00 21 5 0 0 00

28 7 0 0 00

5 0 0 00

1 2 0 00

1 5 0 0 00

112 7 0 5 00

187 0 0 0 00

73 9 0 0 00

2 0 0 0 00

26 7 0 0 00 27

( )

( 401)

( 511)

( 1 4 4)

M-58

MODULE

Mastery Problem (Continued) 3. GENERAL LEDGER Cash

ACCOUNT

ACCOUNT NO. POST. REF.

DEBIT

June 30

CJ1

163 9 0 0 00

CJ1

DATE

ITEM

20--

DATE

June

ITEM

DATE

ITEM

20--

June 30

DATE

June

44 4 0 5 00 119 4 9 5 00

ACCOUNT NO. POST. REF.

DEBIT

CJ1

3 0 0 00

CREDIT

ITEM

CREDIT

3 0 0 00

ACCOUNT NO. POST. REF.

DEBIT

CJ1

26 7 0 0 00

CREDIT

DEBIT

CJ1

70 0 0 0 00

144

BALANCE DEBIT

CREDIT

26 7 0 0 00

ACCOUNT NO. POST. REF.

142

BALANCE DEBIT

Tennis Facilities

ACCOUNT

CREDIT

163 9 0 0 00

Food Supplies

ACCOUNT

20--

BALANCE DEBIT

Office Supplies

ACCOUNT

20--

CREDIT

101

CREDIT

184

BALANCE DEBIT

CREDIT

70 0 0 0 00

MODULE

M-59

Mastery Problem (Continued) Accumulated Depreciation—Tennis Facilities

ACCOUNT DATE

ITEM

DATE 20--

ITEM

POST. REF.

June

CREDIT

CJ1

DATE

ITEM

POST. REF.

CREDIT

9 0 0 0 00

DEBIT

DATE

ITEM

CREDIT

9 0 0 0 00

CREDIT

ACCOUNT NO.

DEBIT

CREDIT

186.1

BALANCE DEBIT

CREDIT

ACCOUNT NO.

POST. REF.

186

BALANCE DEBIT

Accounts Payable

ACCOUNT

CREDIT

ACCOUNT NO. DEBIT

184.1

BALANCE DEBIT

Accumulated Depreciation—Exercise Equipment

ACCOUNT

June

DEBIT

Exercise Equipment

ACCOUNT

20--

POST. REF.

ACCOUNT NO.

202

BALANCE DEBIT

CREDIT

CJ1

70 0 0 0 00

CJ1

5 0 0 0 00

75 0 0 0 00

CJ1

3 0 0 00

75 3 0 0 00

CJ1

6 2 0 0 00

81 5 0 0 00

CJ1

4 0 0 0 00

85 5 0 0 00

CJ1

5 5 0 0 00

91 0 0 0 00

CJ1

6 0 0 0 00

97 0 0 0 00

CJ1

28 7 0 0 00

68 3 0 0 00

M-60

MODULE

Mastery Problem (Continued) John McRoe, Capital

ACCOUNT DATE 20--

June

ITEM

ACCOUNT DATE

ITEM

20--

June 30

90 0 0 0 00

ACCOUNT NO. CREDIT

1 5 0 0 00

DEBIT

1 5 0 0 00

CREDIT

POST. REF.

DEBIT

CREDIT

73 9 0 0 00

ACCOUNT NO.

CJ1

DEBIT

2 0 0 0 00

CREDIT

401

BALANCE DEBIT

Wages Expense POST. REF.

313

BALANCE DEBIT

ACCOUNT NO.

CJ1

ITEM

CREDIT

ACCOUNT NO. POST. REF.

312

BALANCE DEBIT

Registration Fees ITEM

CREDIT

90 0 0 0 00

DEBIT

311

BALANCE DEBIT

Income Summary

June 30

DATE

POST. REF.

CJ1

20--

ACCOUNT

CREDIT

John McRoe, Drawing

June 30

DATE

DEBIT

CJ1

20--

ACCOUNT

POST. REF.

ACCOUNT NO.

511

BALANCE DEBIT

CREDIT

2 0 0 0 00

MODULE

M-61

Mastery Problem (Continued) Rent Expense

ACCOUNT DATE 20--

June

ITEM

ACCOUNT DATE

20--

June 30

DEBIT

CREDIT

2 5 0 0 00

ITEM

POST. REF.

2 5 0 0 00

CREDIT

POST. REF.

CREDIT

DEBIT

CJ1

1 2 0 00

CREDIT

1 2 0 00

ACCOUNT NO. POST. REF.

DEBIT

CJ1

5 0 0 00

525

BALANCE DEBIT

Utilities Expense ITEM

CREDIT

ACCOUNT NO. POST. REF.

524

BALANCE DEBIT

Phone Expense ITEM

CREDIT

ACCOUNT NO. DEBIT

523

BALANCE DEBIT

Food Supplies Expense ITEM

CREDIT

ACCOUNT NO. DEBIT

521

BALANCE DEBIT

Office Supplies Expense

June 30

DATE

POST. REF.

CJ1

20--

ACCOUNT

ACCOUNT NO.

CREDIT

533

BALANCE DEBIT

CREDIT

5 0 0 00

M-62

MODULE

Mastery Problem (Continued) ACCOUNT DATE

ACCOUNT DATE

Insurance Expense ITEM

ITEM

June 18

DATE

ACCOUNT DATE

DEBIT

CREDIT

CJ1

DEBIT

CREDIT

8 5 00

POST. REF.

DEBIT

POST. REF.

DEBIT

CREDIT

8 5 00

ACCOUNT NO. CREDIT

CREDIT

ACCOUNT NO. CREDIT

541

BALANCE DEBIT

Depreciation Expense—Exercise Equipment ITEM

536

BALANCE DEBIT

Depreciation Expense—Tennis Facilities ITEM

CREDIT

ACCOUNT NO. POST. REF.

535

BALANCE DEBIT

Postage Expense

20--

ACCOUNT

POST. REF.

ACCOUNT NO.

542

BALANCE DEBIT

CREDIT

MODULE

M-63

Mastery Problem (Concluded) 4. McRoe Tennis Resort Trial Balance June 30, 20-ACCT.

DEBIT

CREDIT

NO.

BALANCE

Cash

101

119 4 9 5 00

Office Supplies

142

3 0 0 00

Food Supplies

144

26 7 0 0 00

Tennis Facilities

184

70 0 0 0 00

Exercise Equipment

186

9 0 0 0 00

Accounts Payable

202

68 3 0 0 00

John McRoe, Capital

311

90 0 0 0 00

John McRoe, Drawing

312

Registration Fees

401

Wages Expense

511

2 0 0 0 00

Rent Expense

521

2 5 0 0 00

Phone Expense

525

1 2 0 00

Utilities Expense

533

5 0 0 00

Postage Expense

536

8 5 00

ACCOUNT

1 5 0 0 00 73 9 0 0 00

232 2 0 0 00 232 2 0 0 00

M-64

MODULE

Challenge Problem Resler Financial Consulting Income Statements For Month Ended June 20-Modified Cash Basis Revenue

Accrual Basis

$10,000

$10,500

Expenses: Supplies expense

$ 900

Wages expense

2,000

2,200

100

Computer expense Depr. exp.—computer Total expenses Net income

3,000

3,200

$ 7,000

$ 7,300

Explanation: Modified Cash Basis Revenues are recorded on a cash basis. No payables are recorded for services received. Therefore, Wages Expense is recorded on the cash basis. Prepaid and long-term assets are recorded. Therefore, Supplies Expense and Depreciation Expense on the computer are recognized on the accrual basis as shown below. Beginning inventory of supplies Plus purchases of supplies Supplies available Ending inventory of supplies Cost of supplies used

$ 500 1,000 $1,500 (600) $ 900

MODULE

M-65

Challenge Problem (Continued) Supplies

Bal.

Purchases (1) 1,000 End. inv. 600

(plug)

Accounts Payable (1)

500 (plug)

1,000

900

Supplies Expense 900

Depreciation:

$2,400/24 months = $100 per month

Accrual Basis All revenues and expenses are recorded on the accrual basis: Revenues: Cash received Less revenues earned in May, but paid in June Plus revenues earned in June to be paid in July Revenue recorded in June

$10,000 (1,500) 2,000 $10,500

Cash

Bal.

Bal. (2) plug End. bal.

Cash rec’d in June (1) 10,000 End. bal. ? Consulting Fees (2)

Accounts Receivable 1,500 (1) 10,500 2,000

10,500

Or, another way of thinking about entries to the T accounts: Cash

Bal. (1) End. bal.

Bal. (2) plug End. bal.

? 10,000 ? Consulting Fees (1) (2) End. bal.

Accounts Receivable 1,500 500 2,000

10,000 500 10,500

Wages expense: Cash paid in June Less wages earned in May, but paid in June Plus wages earned in June, but paid in July

$2,000 (300) 500 $2,200

10,000

M-66

MODULE

Challenge Problem (Concluded) Cash

Bal.

(1) End. bal.

(1) (2) plug End. bal.

Wages Payable

? 2,000

(2) plug End. bal.

300 200 500

Wages Expense 2,000 200 2,200

Or, another way of thinking about entries to the T accounts: Cash

Bal.

? (1)

End. bal.

(1)

Wages Payable

2,000

(1) (plug) End. bal.

Wages Expense 2,200

300 200 500

Get complete Order files download link below htps://www.mediafire.com/file/2motmrst4zu5vfy/SM +College+Accoun�ng,+Chapters+127,+23e+James++Heintz,+Robert+Parry.zip/file

If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/ﬁrefox/google chrome and get all ﬁles download successfully.