CHAPTER 3. BE3-2 Advertising. Dec. 31 Advertising Supplies Expense 7200 Advertising Supplies 7200 to adjust. BE3-3 Bere Co.

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1 CHAPTER 3 BE3-2 Advertising Advertising Supplies Supplies Expense Dec. Advertising Supplies Expense 7200 Advertising Supplies 7200 BE3-3 Bere Co. Prepaid Insurance Insurance Expense July 1 Prepaid Insurance Cash purchased a 2 year insurance policy Dec. Insurance Expense 2500 Prepaid Insurance 2500 Hindi Insurance Co. Unearned Policies Policy Revenue July 1 Cash Unearned Policies to record cash received for future policies Dec. Unearned Policies 2500 Policy Revenue 2500

2 BE Dec. Interest Receivable 300 Interest Earned Dec. Accounts Receivable 1400 Service Revenue Dec. Salaries Expense 900 Salaries Payable 900 BE3-12 Advertising Supplies Expense Advertising Supplies Dec. Advertising Supplies 1500 Advertising Supplies Expense 1500 BE3-13 a) May 1 Cash 600 Unearned Rent 600 received cash for future rent May Unearned Rent 600 Rent Revenue 600 b) May 1 Cash 600 Rent Revenue 600 received cash for future rent May no entry required c) Ending balances are the same under both methods

3 E3-2 a) Cash basis: Revenue Expenses Net Income $ 6000 $22000 was received in cash $13500 was paid in cash $ 2500 paid for prepaid insurance (record as expense when paid) Accrual basis: Revenue $26000 total earned Expenses $15000 total for year (omit prepaid for 2nd year) Net Income $11000 b) Accrual method is most useful; gives "true" measure for a fiscal period E3-3 a) 1. no entry 2. May 1 Prepaid Rent - Security Deposit 5000 Cash 5000 paid for security deposit 3. June 1 Prepaid Rent Cash paid for 6 months rent b) Dec. Rent Expense Prepaid Rent Rent Payable 5000 for rent used and owed c) Expense - $ $ $5000 d) Dec. Balance Sheet: -Prepaid Rent - Security Deposit $5000 (asset) -Rent Payable $5000 (liability)

4 E3-4 a) July 10 Supplies 200 Cash 200 purchased supplies for cash 14 Cash 3000 Service Revenue 3000 performed services for cash 15 Salaries Expense 1200 Cash 1200 paid salaries 20 b) July Cash 700 Unearned Revenue 700 received cash for future services Supplies Expense 500 Supplies 500 Salaries Expense 1200 Salaries Payable 1200 Unearned Revenue 900 Service Revenue 900 Accounts Receivable 500 Service Revenue 500 (text error in AR T-account: date should be 7/, not Bal.) E3-6 Type Status 1. accrued revenue understated revenue, understated asset 2. prepaid expense overstated asset, understated expense 3. accrued expense understated expense, understated liability 4. unearned revenue overstated liability, understated revenue 5. accrued expense understated expense, understated liability 6. prepaid expense overstated asset, understated expense

5 E3-7 Mar. Unearned Rent Revenue 00 Rent Revenue 00 ($9300 x 1/3) Interest Expense 500 Interest Payable 500 Supplies Expense 1950 Supplies 1950 ($2800 balance - $850 left) Insurance Expense 900 Prepaid Insurance 900 ($300 x 3 months in a quarter) E3-13 a) Jan b) Jan. Insurance Expense 2400 Cash 2400 paid for one-year insurance policy Supplies Expense 1700 Cash 1700 purchased supplies Cash 5100 Service Revenue 5100 received cash for future services Prepaid Insurance 2200 Insurance Expense 2200 ($2400 x 11/12) Supplies 800 Supplies Expense 800 Service Revenue 3600 Unearned Service Revenue 3600

6 P3-2A 1. Original: Jan. 1 Adjust: Dec. 2. Original: Sept. 1 Adjust: Dec. 3. Original: Nov. 15 Adjust: Dec. 4. Original: Dec. 15 Adjust: Dec. Office Supplies 4500 Cash 4500 bought supplies for cash Office Supplies Expense 3600 Office Supplies 3600 Prepaid Insurance 3600 Cash 3600 bought 1 year insurance policy Insurance Expense 1200 Prepaid Insurance 1200 ($3600 x 4/12) Cash 1200 Unearned Accounting Fees 1200 received cash for future services Unearned Accounting Fees 1200 Accounting Fees 1200 Cash 460 Unearned Rent 460 received cash for one month's rent Unearned Rent 230 Rent Earned 230 (1/2 month) P3-3A $35,190 Cash-based Net Income: -$2,500 deduct 2002 A/R; this was a sale made in 2002, not 2003 $3,400 add 2003 A/R; this was a true 2003 sale on account -$1,160 deduct 2002 supplies on hand; these were supplies used in 2003 $1,300 add supplies remaining on hand; not an expense yet $2,400 add 2002 wages; these would be a 2002 expense, not $1,200 deduct 2003 wages; these are an expense for 2003 $1,600 add 2002 unpaid amounts; these would be expenses for $1,440 deduct 2003 unpaid amounts; these were incurred in 2003 $37,590 Accrual-based Net Income

7 P3-4A a) Cash 9000 Fees Receivable 9000 collected 2001 fees on account Unearned Fees Revenue Fees Revenue Cash Unearned Fees Revenue received cash for gift certificates Unearned Fees Revenue Fees Revenue Fees Receivable Fees Revenue billed service fees to members ($ ) Cash Fees Receivable collected fees on account ($ ) b) Cash received = $ = $ Fees Receivable Unearned Fees Fees Revenue Cash

8 P3-6A 1. Contract A650 $6000 x 8/12 = $4000 Contract B974 $7200 x 4/24 = 1200 Dec. Advertising Expense 5200 Prepaid Advertising $4000 rent group $ x 2/6 = $40000 $8500 rent group $ x 2/6 = $68000 Dec. Unearned Rent Revenue Rent Revenue $80000 x 8% x 7/12 = $ Dec. Interest Expense Interest Payable $700/week ($700 x 2/5) x 5 workers = $1400 $500/week ($500 x 2/5) x 3 workers = $600 Dec. Salaries Expense 2000 Salaries Payable 2000

9 P3-7A Equipment amortization: $18400/10 years = $1840 Amortization Expense - Equipment $1840 Supplies used: $12200 beginning left = $10400 Supplies Expense $10400 Rent expense: $750/month x 12 months = $9000 Rent Expense $9000 Insurance used: $1800 x 1/2 = $900 Insurance Expense $900 Wages expense: $ owing = $18800 Wages Expense $18800 Design revenue: $61500 received owing = $65300 Revenue $65300 Use of personal car: $0.30 x km - $3600 Travel Expense $3600 Other expenses listed in disbursements section: Advertising Expense $3600 Telephone Expense $980 Exotic Designs Income Statement for the year ended December, 2003 REVENUE Design Revenue $65,300 EXPENSES Advertising Expense $3,600 Amortization Expense - Equipment 1,840 Insurance Expense 900 Rent Expense 9,000 Supplies Expense 10,400 Telephone Expense 980 Travel Expense 3,600 Wages Expense 18,800 Total Expenses 49,120 Net Income $16,180

10 P3-10A a) Aug. Insurance Expense 1350 Prepaid Insurance 1350 ($450 x 3 months) Supplies Expense 2300 Supplies 2300 ($ ) Amortization Expense - Cottages Accumulated Amort. - Cottages ($6250 x 3/12) Amortization Expense - Furniture 1300 Accumulated Amort. - Furniture 1300 ($5200 x 3/12) Unearned Rent Revenue 5000 Rent Revenue 5000 Salaries Expense 400 Salaries Payable 400 Rent Receivable 800 Rent Revenue 800 Interest Expense Interest Payable to adjut ($80000 x 8% x 1/12)

11 Highland Cove Resort Adjusted Trial Balance August, 2003 Cash $ 19, Rent Receivable Prepaid Insurance 4, Supplies 1, Land 25, Cottages 125, Accumulated Amortization - Cottages $ 1, Furniture 26, Accumulated Amortization - Furniture 1, Accounts Payable 6, Unearned Rent Revenue 1, Interest Payable Salaries Payable Mortgage Payable 80, K. Yhap, Capital 100, K. Yhap, Drawings 5, Rent Revenue 85, Amortization Expense - Cottages 1, Amortization Expense - Furniture 1, Insurance Expense 1, Interest Expense Repair Expense 3, Salaries Expense 51, Supplies Expense Utilities Expense 2, , $ 277, $ 277, Highland Cove Resort Income Statement for the 3 months ended August, 2003 REVENUE Rent Revenue $85, EXPENSES Amortization Expense - Cottages $1, Amortization Expense - Furniture Insurance Expense Interest Expense Repair Expense Salaries Expense Supplies Expense Utilities Expense Total Expenses Net Income $14,354.17

12 Highland Cove Resort Statement of Owner's Equity for the 3 months ended August, 2003 K. Yhap, Capital, June 1 $ 100, Add: Net Income 14, , Less: Drawings 5, K. Yhap, Capital, August $ 109, P3-11A a) Dec. A/R 1500 Advertising Revenue 1500 Art Supplies Expense 3400 Art Supplies 3400 Insurance Expense 850 Prepaid Insurance 850 Amortization Expense 7000 Accumulated Amortization 7000 Interest Expense 150 Interest Payable 150 Unearned Advertising Revenue 1400 Advertising Revenue 1400 Salaries Expense 1300 Salaries Payable 1300 c) Interest Expense for 10 months is $500, therefore monthly interest is $50 ($500/10 months) The note is for $5000 and the interest is $50/month. Let x be the interest (decimal) Therefore: $5000x =50 12 months $5000x = 600 x=0.12 Therefore, the interest rate is 12% d) Paid $13500 for salaries: $10000 has been paid for 2002 expense; that leaves $3500 from Salaries Payable related to 2001

13 P3-5B - adjustments only 1. Dec. Office Supplies Expense 1300 Office Supplies 1300 ($ ) 2. Dec. 3. Dec. 4. Dec. 5. Dec. Interest Expense Interest Payable ($4000 x 8% x 7/12) Utilities Expense 1400 A/P 1400 Amortization Expense - Truck Accumulated Amort. - Truck Wages Expense 500 Wages Payable 500 ($3000 x 2/12) P3-8B Balance Sheet Income Statement Adj. Entry A L OE R E Net Inc. 1. In book 2. $1,000 na $1,000 na $1,000 $1,000 over over under over 3. na $750 $750 $750 na $750 over under under under 4. $2,000 na $2,000 $2,000 na $2,000 under under under under 5. na $250 $250 na $250 $250 under over under over 6. $1,000 na $1,000 na $1,000 $1,000 over over under over

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