7/27/2019 Module 3 EXTRA Solutions
1/17
Cambridge Business Publ ishers, 2008
So lu t io n s Man u al, Mo d u le 3 3 -1
Module 3Constructing Financial Statementsand Analyzing Transactions
QUESTIONS
Q3-1 The fiscal year is the annual accounting period that a firm adopts. A firm that usesDecember 31 year end is on a calendar-year basis. Traditionally, fiscal years that end inJanuary through the end of May, are labelled as the prior calendar year. For example, afiscal year ending January 31, 2008 would be labelled fiscal 2007 because the bulk ofthe operations occurred in calendar 2007 rather than in 2008.
Q3-2 A journal entry records a transaction in a companys general journal. A generaljournal is a book of original entry for the initial recording of any type of transaction oraccrual. It contains space for dates and for accounts to be debited and credited,columns for the amounts of the debits and credits, and a posting reference column fornumbers of the accounts that are posted. Most companies have electronic journals butthe basics are the same.
Q3-3 Posting means including the transaction amount in the affected general ledgeraccounts. This procedure enables company personnel to trace amounts in the ledgerback to the originating journal entry and to determine which entries have been added tothe ledger so that account totals are updated.
Q3-4 1. Prepaid Expenses Allocating assets to expense to reflect expenses incurred duringthe period. Example: Recording supplies used by debiting Supplies Expense andcrediting Supplies or recording depreciation expense and reducing PPE (or increasingaccumulated depreciation).
2. Unearned Revenues Adjusting unearned revenues to reflect revenues earnedduring the period. Example: Recording service fees earned by debiting UnearnedService Fees and crediting Service Fees Earned.
3. Accrued Expenses Accruing expenses to reflect expenses incurred during theperiod that are not yet paid or recorded. Example:Recording unpaid wages by debitingWages Expense and crediting Wages Payable or recording interest owing on loans.
4. Accrued Revenues Accruing revenues to reflect revenues earned during the periodthat are not yet received or invoiced. Example: Recording commissions earned bydebiting Commissions Receivable and crediting Commissions Earned.
7/27/2019 Module 3 EXTRA Solutions
2/17
Cambridge B usiness Publ ishers, 2008
Financial Accounting for MBAs, 3rd Edit ion3-2
Q3-5Jan. 31 Insurance Expense........................................................ 78
Prepaid Insurance .................................................... 78
To recor d insu rance expense f or J anuary ($1,872 / 24 = $78).
Q3-6 (a) Supplies Expense of $455 must be recorded for the period. This will reduce theasset account and increase the expense account by $455. ($825+$260-$630=$455)
(b) If the adjustment is not made, Supplies Expense is understated by $455, Supplies(asset) and Equity are both overstated by $455 on the January 31 balance sheet.
Q3-7
Balance Sheet Income Statement
TransactionCash
Asset+
NoncashAssets
=Liabil-
ities+
Contrib.Capital
+EarnedCapital
Rev-enues
Expen
-ses=
Netncome
Cash 9,720UR 9,720
,720
9,720
Cash
R
Received$9,720 cash inadvance forsubscriptions
+9,720Cash
=9,720
UnearnedRevenue
=
UR 405Sales 405
05
405
R
Sales
Delivered $405of magazines
=-405
UnearnedRevenue
+405RetainedEarnings
+405Sales
= +405
Q3-8 (a) Jan. 1 Cash................................................................................ 9,720Subscriptions Received in Advance ...................... 9,720
To record receipt of two-year subscriptions.
(b) Jan. 31 Subscriptions Received in Advance............................ 405Subscriptions Revenue........................................... 405
To record sub scription r evenue earneddur ing January ($9,720 / 24 = $405).
Q3-9 Jan. 31 Wages Expense ............................................................. 190Wages Payable......................................................... 190
To reco rd u npaid wages fo r Jan. 3031
[($475 / 5) 2 = $190].
7/27/2019 Module 3 EXTRA Solutions
3/17
Cambridge Business Publ ishers, 2008
So lu t io n s Man u al, Mo d u le 3 3 -3
Q3-10 On January 31, the interest receivable account and the interest income account bothshould be increased by $360 to reflect the fact that the company has earned interestbut not yet received it.
The journal entry would be as follows:Jan. 31 Interest Receivable........................................................ 360
Interest Income ........................................................ 360To record interest earned during January.
Q3-11 All temporary accounts are closed at year-end. They consist of the income statementaccounts (expense and revenue accounts) and the dividend account.
Step 1) Close revenue accounts: Debit each revenue account for an amount equal to itsbalance, and credit retained earnings for the total of revenues.
Step 2) Close expense accounts: Credit each expense account for an amount equal to
its balance, and debit retained earnings for the total of expenses.Step 3) Close the dividend account: Credit the dividend account for an amount equal to
its balance, and debit retained earnings.
7/27/2019 Module 3 EXTRA Solutions
4/17
Cambridge B usiness Publ ishers, 2008
Financial Accounting for MBAs, 3rd Edit ion3-12
M3-16 (10 minutes)
a. Balance Sheet Income Statement
Transaction
CashAsset
+oncash
Assets=
Liabil-ities
+ContribCapital
+EarnedCapital
Rev-enues
Expen-
ses=
NetIncome
ash 0,100UR 20,100
20,100
0,100
ash
R
Received$20,100 inadvance forcontractwork
+20,100Cash
=
20,100Unearne
dRevenue
b.Balance Sheet Income Statement
TransactionCashAsset
+oncas
Assets=
Liabil-ities
+ContribCapital
+arneapita
Rev-enues
xpen-ses
=Net
IncomeR 3,350
Rev 3,350
3,350
,350
R
ev
Adjustingentry forworkcompletedby Jan. 31*
=
-3,350Unearne
dRevenue
+3,350Revenue
= +3,350
* $20,100/6 = $3,350
c.Balance Sheet Income Statement
Transaction
CashAsset
+Noncash
Assets=
Liabil-ities
+ContriCapita
+Earned
apitalRev-
enues
Expen-ses
=Net
IncomeR 570
Rev 570
70
70
R
ev
Adjustingentry forfees earned
but notbilled
+570Fees
Receivable
=+570etained
arnings
+570Service
evenue
= +570
7/27/2019 Module 3 EXTRA Solutions
5/17
Cambridge Business Publ ishers, 2008
So lu t io n s Man u al, Mo d u le 3 3-13
M3-17 (10 minutes)
Jan. 1 Cash 20,100Unearned Service Fees 20,100To cash r eceived for service fees.
Jan. 31 Unearned Service Fees 3,350Service Fees Earned 3,350
To reflect January service fees earned on
co nt ract ($20,100/6 = $3,350).
Jan. 31 Fees Receivable 570Service Fees Earned 570
To record unb i l led service fees earnedat January 31.
M3-18 (25 minutes)
a.Balance Sheet Income Statement
Transaction
CashAsset
+Noncash
Assets=
Liabilities
+ContribCapital
+EarnedCapital
Rev-enues
Expen-
ses=
NetIncom
eE 185PPI 185
85
85
IE
PI
Adjustingentry forprepaidinsurance
-185Prepaid
Insurance=
-185etained
Earnings
+185Insurance
Expense= -185
b.Balance Shee Income Statement
TransactionCash
Asset +Noncash
Assets =Liabil-
ities +ContribCapital +
EarnedCapital
Rev-enues
Expen-ses =
NetIncome
UPE 1,080SUP 1,080
,080
,080
SUPE
SUP
Adjustingentry forsuppliesused
-1,080Supplies
=-1,080
etainedEarnings
+1,080Supplies
Expense
=-1,080
7/27/2019 Module 3 EXTRA Solutions
6/17
Cambridge B usiness Publ ishers, 2008
Financial Accounting for MBAs, 3rd Edit ion3-14
M3-18continued
c. Balance Sheet Income Statement
TransactionCash
Asset+
NoncashAssets
=Liabil
ities+
ContribCapital
+EarnedCapital
Rev-enues
xpen-ses
=Net
IncomeE 62
AD 62
62
2
E
D
Adjustingentry fordepreciationof equipment
-62Accum.
Deprecia-tion
=-62
RetainedEarnings
+62Deprecia-
tionExpense
= -62
d.Balance Sheet Income Statement
TransactionCash
Asset+
NoncashAssets
=Liabil-
ities+
ContribCapital
+EarnedCapital
Rev-enues
Expen-
ses=
NetIncom
eR 875
Rev 875
75
75
R
ev
Adjustingntry for rent
revenueearned
=
-875nearned
RentRevenue
+875etained
Earnings
+875Rent
Revenue = +875
e.Balance Sheet Income Statement
TransactionCash
Asset+
NoncashAssets
=Liabil-
ities+
ContribCapital
+EarnedCapital
Rev-enues
Expen-
ses=
NetIncom
eE 490WP 490
90
90
E
P
Adjustingentry for
accruedsalaries
=+490
WagesPayable
-490RetainedEarnings
+490Wages
Expense
= -490
7/27/2019 Module 3 EXTRA Solutions
7/17
Cambridge Business Publ ishers, 2008
So lu t io n s Man u al, Mo d u le 3 3- 1
EXERCISES
E3-26 (30 minutes)
Balance Sheet Income Statement
TransactionCash
Asset+
NoncashAssets
=Liabil-
ities+
ContribCapital
+EarnedCapital
Rev-enues
Expen-
ses=
NetIncom
eE 10
AD 610
610
10
DE
AD
a. Adjustingentry fordepreciation of
equipment
-610Accum.
Deprecia-
tion
=-610etained
Earnings
+610Deprecia-
tion
Expense
= -610
UPE 1,890SUP 1,890
,890
,890
UPE
SUP
b. Adjustingentry forsuppliesexpense
-1,890Supplies
=-1,890etained
Earnings
+1,890
SuppliesExpense
= -1,890
E 390AP 390
390
390
UE
AP
c. Adjustingentry forutilities
expense
=
+390Accounts(Utilities)
Payable
-390etained
Earnings
+390UtilitiesExpense
= -390
NTE 700PPRNT 700
700
00
RNTE
PRNT
d. Adjustingentry for rentexpense
-700Prepaid
Rent
=-700etained
Earnings
+700Rent
Expense
= -700
R 468Rev 468
468
68
UR
Rev
e. Adjustingentry forpremiumrevenues
=
-468Unearnedpremium
revenue
+468etained
Earnings
+468remium
Revenue
= +468
E 965WP 965
965
65
E
P
f. Adjustingentry for wagesexpense
=+965
WagesPayable
-965etained
Earnings
+965Wages
Expense= -965
7/27/2019 Module 3 EXTRA Solutions
8/17
Cambridge B usiness Publ ishers, 2008
Financial Accounting for MBAs, 3rd Edit ion3-22
E3-26continued
R 300
OI 300
00
00
R
I
g. Adjustingentry forinterest earned
+300Interest
receivable
=+300etained
Earnings
+300Interest(Other)Income
= +300
E3-27 (30 minutes)
a. Depreciation ExpenseEquipment ................... 610Accumulated DepreciationEquipment ...... 610To record depreciation for the period.
b. Supplies Expense 1,890Supplies 1,890
To record su ppl ies expense for the period
($2,990 $1,100 = $1,890).
c. Utilities Expense 390Utilities Payable 390
To record accrued uti l i t ies expense
d. Rent Expense 700Prepaid Rent 700
To record rent expense for the month
($2,800 / 4 = $700).
e. Unearned Premium Revenue 468Premium Revenue 468
To record prem ium revenue earned
[($624 / 12) 9 = $468].
f. Wages Expense 965Wages Payable 965
To accrue wages at the end of th e period.
g. Interest Receivable 300Interest Income 300
To accrue interest earned b ut n ot y et received.
7/27/2019 Module 3 EXTRA Solutions
9/17
Cambridge B usiness Publ ishers, 2008
Financial Accounting for MBAs, 3rd Edit ion3-32
PROBLEMS
P3-39 (35 minutes)Balance Sheet Income Statement
TransactionCash
Asset+
NoncashAssets
=Liabil-
ities+
ContribCapital
+EarnedCapital
Rev-enues
Expen-
ses=
NetIncom
E 720WP 720
20
20
E
P
1. Accruesalaryexpense
=+720
WagesPayable
-720RetainedEarnings
+720
WageExpense
= -720
E 200IP 200
00
00
IE
IP
2. AccrueInterestexpense
=+200
InterestPayable
-200RetainedEarnings
+200Interest
Expense
= -200
R 900Rev 900
00
00
R
Rev
3. Accruefeesreceivable
+900Fees
(Accounts)Receivable
=+900
RetainedEarnings
+900Printing
FeesRevenue
= +900
E 400PPD 400
00
00
E
PD
4. Accruemaintenanceexpense
-400Prepaid
Mainten-ance
=-400
RetainedEarnings
+400aintenance
(Operating)Expense
= -400
E 300PPDA 300
00
00
E
PPDA
5. Accrueadvertisingexpense
-300Prepaid
Advertising=
-300RetainedEarnings
+300
dvertistingExpense
= -300
NTE 160
RNTP 160
60
60
RNTE
RNTP
6. Accruerent expense
=+160Rent
Payable
-160RetainedEarnings
+160
RentExpense
= -160
R 38OI 38
8
8
R
I
7. Accrueinterestrevenue
+38Interest
(Accounts)Receivable
=+38
RetainedEarnings
+38Interest(Other)income
= +38
7/27/2019 Module 3 EXTRA Solutions
10/17
Cambridge Business Publ ishers, 2008
So lu t io n s Man u al, Mo d u le 3 3-33
P3-39continued
E 2,175
AD 2,175
2,175
,175
E
D
8. Recorddepreciationexpense
-2,175Accum.
Deprecia-tion
=-2,175
etainedEarnings
+2,175Deprecia-
tionExpense
= -2,175
P3-40 (20 minutes)
Date Description Debit Credit
Dec 31 Salaries Expense 720Salaries Payable 720
To accrue salaries at December 31
($1,800 2/5 = $720).
31 Interest Expense 200Interest Payable 200
To accrue interest expense at December 31.
31 Fees Receivable 900Printing Revenue 900
To record revenue earned but n ot yet bi l led.31 Maintenance Expense 400
Prepaid Maintenance 400To record December m aintenance expense.
31 Advertising Expense 300Prepaid Advertising 300
To record December advert is ing expense
($900 1/3 = $300).
31 Rent Expense 160
Rent Payable 160To accrue one-half mon th's rent expense[(400 $0.80)/2 = $160].
31 Interest Receivable 38Interest Income 38
To accrue interest earned in Decemb er.
31 Depreciation ExpenseEquipment 2,175Accumulated DepreciationEquipment ...... 2,175
To record annual depreciation on equipment.
7/27/2019 Module 3 EXTRA Solutions
11/17
Cambridge Business Publ ishers, 2008
So lu t io n s Man u al, Mo d u le 3 3-41
P3-44 (25 minutes)
a. Balance Sheet Income Statement
Transaction
CashAsset
+oncas
Assets=
Liabilities
+Contrib.Capital
+Earned
apitalRev-
enues
Expen-ses
=Net
Incomeash 11,500
CS 11,500
11,500
1,500
ash
S
Apr. 1.Cashreceived forstock
11,500Cash
=11,500ommonstock
=
PE ,100C ash 6,100
6,100
,100
PE
ash
Apr. 2.
Purchasetruck forcash
-6,100Cash
+ 6,100Truck
= =
PE 100AP 2,100Cash 1,000
3,100
,100
,000
PE
P
ash
Apr. 2.Purchaseequipment
-1,000Cash
+3,100quipment
=+2,100ccounts
Payable=
PI 2,880Cash 2,880
2,880
,880
PI
ash
Apr. 3.Purchaseliabilityinsurance
- ,880Cash
+2,880Prepaid
nsurance
= =
UP 1,200AP 1,200
1,200
,200
UP
P
Apr. 5.Purchasesupplies on
account
+ 1,200Supplies
=+1,200ccounts
Payable=
ash 1,800UR 1,800
1,800
,800
ash
R
pr. 5. Cashin advancefor roofingrepairs
+1,800Cash
=
+1,800nearned
roofingfees
=
7/27/2019 Module 3 EXTRA Solutions
12/17
Cambridge B usiness Publ ishers, 2008
Financial Accounting for MBAs, 3rd Edit ion3-42
P3-44continued
Balance Sheet Income Statement
TransactionCash
Asset+
NoncashAssets
=Liabil
ities+
ContribCapital
+EarnedCapital
Rev-enues
xpenses
=Net
ncomeR 5,500
Rev 5,500
5,500
,500
R
ev
Apr. 12. Billcustomersfor services.
+5,500Accounts
Receivable=
+5,500Reta nedEarnings
+5,500Roofing
FeesRevenue
= +5,500
ash 4,900AR 4,900
4,900
,900
ash
R
Apr. 18.Cash
collected onaccount
4,900
Cash
-4,900Accounts
Receivable
= =
E 675Cash 675
75
75
E
ash
pr. 29. Paidcash for fuel
-675Cash
=-675
RetainedEarnings
+675Fuel
Operating)Expense
= -675
E 100Cash 100
00
00
E
ash
pr. 30. Paid
cash for ads
-100Cash
=-100
Retained
Earnings
+100
dvertising
Expense
= -100
E 2,500Cash 2,500
2,500
,500
E
ash
Apr. 30. paidcash wages
-2,500Cash
=-2,500
RetainedEarnings
+2,500
WagesExpense
= -2,500
R ,0 0Rev 4,000
4,000
,000
R
ev
Apr. 30. Billcustomers
for services
+4,000Accounts
Receivable
=+4,000
Retained
Earnings
+4,000Roofing
Fees
Revenue
= +4,000
7/27/2019 Module 3 EXTRA Solutions
13/17
Cambridge Business Publ ishers, 2008
So lu t io n s Man u al, Mo d u le 3 3-43
P3-44continued
b. Balance Sheet Income Statement
TransactionCash
Asset+
NoncashAssets
=Liabil-
ities+
ContribCapital
+EarnedCapital
Rev-enues
Expen-
ses=
NetIncom
eIE 120
PPI 120
120
120
INSE
PPI
1. Recognizeone month ofinsuranceexpense
-120Prepaid
Insurance
=-120
RetainedEarnings
+120
InsuranceExpense
= -120
SUPE 800SUP 800
00
800
UPE
UP
2. Recognizesuppliesexpense
-800Supplies
=-800
RetainedEarnings
+800
SuppliesExpense
= -800
DE 125AD 125
25
125
DE
AD
3. Recognizedepreciationexpense -Trucks
-125Accum.Deprn
--Trucks*
=-125
RetainedEarnings
+125
epreciationExpense
= -125
DE 35AD 35
5
35
DE
AD
4. Recognizedepreciationexpense -Equipment
-35Accum.Deprn
--Equipment*
=-35
RetainedEarnings
+35
epreciationExpense
= -35
UR 450Rev 450
50
450
R
ev
5. Recognizeroofing feesearned
=
-450UnearnedRoofing
Fees
+450RetainedEarnings
+450Roofing
Feesevenue
= +450
7/27/2019 Module 3 EXTRA Solutions
14/17
Cambridge B usiness Publ ishers, 2008
Financial Accounting for MBAs, 3rd Edit ion3-44
P3-45 (25 minutes)a.
Pownall Photomake CompanyUnadjusted Trial BalanceDecember 31, 2008
Debit Credit
Cash.............................................................. $2,150Accounts Receivable .................................. 3,800Prepaid Rent ................................................ 12,600Prepaid Insurance ....................................... 2,970Supplies........................................................ 4,250Equipment.................................................... 22,800
Accounts Payable ....................................... $1,910Unearned Photography Fees..................... 2,600Common Stock............................................ 24,000Photography Fees Earned.......................... 34,480Wages Expense........................................... 11,000Utilities Expense.......................................... 3,420 ______Totals............................................................ $62,990 $62,990
b.alance Sheet Income Statement
Transaction CashAsset + NoncashAssets = Liabilities + ontribCapital + EarnedCapital Rev-enues Expen-ses = NetIncomeAR 925
Rev 925
25
925
AR
ev
1. Feesearned butnot received
+925Fees
(Accounts)Receivable
=+925etained
Earnings
+925Photo-graphy
FeesEarned
= +925
DE 2,280D 2,280
,280
2,280
DE
AD
2. Recognizedepreciationexpense forone year
-2,280Accum.
DepreciationEquipment
=-2,280etained
Earnings
+2,280
epreciation
expense
= -2,280
OE 400CC 400
00
400
E
CC
3. Recognizeutilitiesexpense
=+400
UtilitiesPayable
-400etained
Earnings
+400
UtilitiesExpense
= - 400
7/27/2019 Module 3 EXTRA Solutions
15/17
Cambridge Business Publ ishers, 2008
So lu t io n s Man u al, Mo d u le 3 3-45
P3-45continued
Balance Sheet Income Statement
TransactionCash
Asset+
NoncashAssets
=Liabil-
ities+
Contrib.Capital
+EarnedCapital
Rev-enues
Expen-
ses=
etIncome
NTE 6,300PPRNT 6,300
6,300
,300
RNTE
PPRNT
. Recognizerent expensefor year
-6,300Prepaid
Rent
=-6,300etained
Earnings
+6,300
RentExpense
= -6,300
R 2,600Rev 2,600
2,600
,600
R
ev
. Recognize
photorevenues
=
-2,600Unearned
photo.fees
+2,600
etainedEarnings
2,600Photo-
graphyFees
Earned
= +2,600
E 990PPI 990
990
990
INSE
PPI
. Recognizeinsuranceexpense
-990Prepaid
insurance=
-990etained
Earnings
+990Insuranceexpense
= - 990
UPE 2,730SUP 2,730
2,730
,730
SUPE
UP
. Recognize
suppliesexpense
-2,730Supplies
= -2,730etainedEarnings
+2,730Suppliesexpense
= -2,730
E 375WP 375
75
75
E
P
. Recognizewagesexpense
=+375Wages
payable
-375etained
Earnings
+375
Wagesexpense
= - 375
7/27/2019 Module 3 EXTRA Solutions
16/17
Cambridge B usiness Publ ishers, 2008
Financial Accounting for MBAs, 3rd Edit ion3-48
P3-47 (40 minutes)a.
BensExUnadjusted Trial BalanceDecember 31, 2008
Debit Credit
Cash $ 2,300Accounts Receivable 5,120Prepaid Advertising 1,680Supplies 6,270Equipment 42,240Notes Payable $ 7,500
Accounts Payable 2,700Common Stock 9,530Mailing Fees Earned 86,000Wages Expense 38,800Rent Expense 6,300Utilities Expense 3,020 ________ Totals $105,730 $105,730
b.
Balance Sheet Income Statement
TransactionCash
Asset+
NoncashAssets
=Liabil-
ities+
ContribCapital
+EarnedCapital
Rev-enues
Expen-
ses=
NetIncom
eE 1,540
PPDA 1,540
1,540
,540
AE
PDA
1. Recognizeadvertisingexpense
-1,540Prepaid
advertising
=-1,540etained
Earnings
+1,540
Advertisingexpense
= -1,540
E 5,280AD 5,280
5,280
,280
E
D
2. Recognizedepreciationexpense
-5,280Accum.
Deprn equipment
=-5,280etained
Earnings
+5,280
Depreciationexpense
= -5,280
E 325AP 325
25
25
E
AP
3. Recognizeutilitiesexpense
=+325
ccountsPayable
-325etained
Earnings
+325Utilities
expense= -325
7/27/2019 Module 3 EXTRA Solutions
17/17
Cambridge Business Publ ishers, 2008
So lu t io n s Man u al, Mo d u le 3 3-49
P3-47continued
Balance Sheet Income Statement
TransactionCash
Asset+
oncasAssets
=Liabil-
ities+
ContribCapital
+EarnedCapital
Rev-enues
xpenses
=Net
IncomeE 1,200WP 1,200
1,200
,200
E
P
4. Accruewagesexpense
=+1,200Wages
payable
-1,200RetainedEarnings
+1,200
Wagesexpense
= -1,200
UPE 4,750SUP 4,750
4,750
,750
SUPE
UP
5. Record
suppliesexpense
-4,750Supplies =
-4,750
RetainedEarnings
+4,750
SuppliesExpense
= -4,750
E 450IP 450
50
50
IE
IP
6. Accrueinterestexpense
=+450
Interestpayable
-450RetainedEarnings
+450Interest
Expense
= -450
NTE 430AP 430
30
30
RNTE
P
. Recognize
rentexpense* =
+430
ccountsPayable
-430
RetainedEarnings
+430
RentExpense = -430
* (1/2% $86,000 = $430). The rent for the year (6,300 = $525 x 12) has already beenrecognized in the accounts. See the beginning balances given in the problemstatement.