SOLUTIONS TO BRIEF EXERCISES

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1 SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE Prepare a trial balance on the work sheet 2. Enter adjustment data 3. Enter adjusted balances 4. Enter adjusted balances in appropriate statement columns 5. Total the statement columns, calculate net income (loss), and enter it on the work sheet. Filling in the blanks provided, the correct answers are 5, 2, 1, 3, 4. BRIEF EXERCISE 4-2 Dec. Service Revenue... 50,000 T. Khalifa, Capital... 50,000 T. Khalifa, Capital... 30,000 Salaries Expense... 26,000 Supplies Expense... 4,000 T. Khalifa, Capital... 2,000 T. Khalifa, Drawings... 2,000 Ending capital balance is $30,000 + $50,000 - $30,000 - $2,000 = $48,

2 BRIEF EXERCISE 4-3 T. Khalifa, Capital Dec. T. Khalifa, Drawings 30,000 2,000 50,000 30,000 80,000 50,000 48,000 Dec. 2,000 2,000 Service Revenue Dec. 50,000 50,000 Salaries Expense Dec. 26,000 26,000 Supplies Expense Dec. 4,000 04,

3 BRIEF EXERCISE 4-4 July Green Fees Earned... 26,000 Members, Capital... 26,000 July Members, Capital... 10,700 Salaries Expense... 8,200 Maintenance Expense... 2,500 Members, Capital July 10,700 Green Fees Earned 26,000 50,000 76,000 65,300 July Salaries Expense 26,000 26,000 July 8,200 08,200 Maintenance Expense July 2,500 02,

4 BRIEF EXERCISE 4-5 The accounts that will appear in the post-closing trial balance are: Accounts Payable Accounts Receivable Capital Assets Cash Long-term Debt Prepaid Expenses Note that these are all balance sheet accounts. BRIEF EXERCISE 4-6 The proper sequencing of the required steps in the accounting cycle is as follows: 1. Analyse business transactions. 2. Journalize the transactions. 3. Post to the ledger accounts. 4. Prepare a trial balance. 5. Journalize and post the adjusting entries. 6. Prepare an adjusted trial balance. 7. Prepare the financial statements. 8. Journalize and post the closing entries. 9. Prepare a post-closing trial balance. Filling in the blanks, the answers are 9, 6, 1, 4, 2, 8, 7, 5,

5 BRIEF EXERCISE 4-7 (a) Assets Liabilities Equity Revenue Expense NI 1. O NA O O NA O 2. U U NA NA NA NA (b) 1. Service Revenue Accounts Receivable Store Supplies... 1,730 Equipment... 1,370 Accounts Payable BRIEF EXERCISE 4-8 Reuben Company Sheet (Partial) December, 2002 Current assets Cash... $18,400 Short-term investments... 8,200 Accounts receivable... 12,500 Supplies... 5,200 Prepaid insurance ,600 Total current assets... $47,

6 BRIEF EXERCISE 4-9 (a) Working capital = Current assets - Current liabilities ($1,926,000) = $42,918,000 - $44,844,000 (b) Current ratio: Current assets = $42,918,000 = 0.96:1 Current liabilities $44,844,

7 *BRIEF EXERCISE 4-10 COULOMBE COMPANY Work Sheet Account Titles Trial Adjustments Prepaid Insurance Service Revenue Salaries Expense Accounts Receivable Salaries Payable Insurance Expense Adjusted Trial Income Statement Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. 04,000 25,000 58,000 (3) 800 (2) 900 (1) 1,200 (1) 1,200 (2) 900 (3) 800 2,800 25, ,200 58, ,800 1,200 58,900 2,

8 *BRIEF EXERCISE 4-11 Income Statement Sheet Account Dr. Cr. Dr. Cr. Accounts Payable X Accounts Receivable X Accumulated Amortization X Amortization Expense X H. Khanna, Capital X H. Khanna, Drawings X Service Revenue X *BRIEF EXERCISE 4-12 Nov. 1 Salaries Payable Salaries Expense To reverse Oct. accrual. The balances after posting the reversing entry are a credit of $800 in Salaries Expense and $0 in Salaries Payable. 4-8

9 SOLUTIONS TO EXERCISES EXERCISE 4-1 (a) June 30 Service Revenue... 15,600 B. Eden, Capital... 15, B. Eden, Capital... 12,800 Salaries Expense... 7,800 Supplies Expense... 1,500 Rent Expense... 3, B. Eden, Capital... 2,500 B. Eden, Drawings... 2,500 (b) The ending balance in B. Eden s Capital account should agree with the capital account balance on the Statement of Owner s Equity and the Sheet. 4-9

10 EXERCISE 4-2 (a) GENERAL JOURNAL Date Account Titles and Explanation Ref. Debit Credit J15 July Commission Revenue... Rent Revenue... R. Rafael, Capital ,100 06,500 69,600 R. Rafael, Capital... Amortization Expense... Salaries Expense... Rent Expense ,600 04,000 55,700 14,900 R. Rafael, Capital... R. Rafael, Drawings , ,000 Cash No. 101 July 14,940 Accounts Receivable No. 112 July 8,780 Equipment No. 157 July 15,

11 EXERCISE 4-2 (Continued) (a) (Continued) Accumulated Amortization No. 167 July 5,400 Accounts Payable No. 201 July 6,220 Unearned Rent Revenue No. 208 July 1,800 R. Rafael, Capital No. 301 July J15 J15 J15 74,600 14,000 69,600 45, ,800 40,200 26,200 R. Rafael, Drawings No. 306 July 14,000 14,000 0 Commission Revenue No. 404 July J15 63,100 63,

12 EXERCISE 4-2 (Continued) (a) (Continued) Rent Revenue No. 429 July J15 6,500 6,500 Amortization Expense No. 711 July J15 4,000 4,000 Salaries Expense No. 720 July J15 55,700 55,700 Rent Expense No. 729 July J15 14,900 14,

13 EXERCISE 4-2 (Continued) (b) RAFAEL COMPANY Post-Closing Trial July, 2003 Cash... Accounts Receivable... Equipment... Accumulated Amortization... Accounts Payable... Unearned Rent Revenue... R. Rafael, Capital... Debit $14, , , $39,620 Credit $05, , , ,200 $39,

14 EXERCISE 4-3 (a) Apr. 30 Service Revenue... 12,590 Ho, Capital... 12,590 (b) 30 Ho, Capital... 11,328 Salaries Expense... 9,840 Rent Expense Amortization Expense Interest Expense Ho, Capital... 3,650 Ho, Drawings... 3,650 Cash April 30 15,052 Accounts Receivable April 30 7,840 Prepaid Rent April 30 2,280 Equipment April 30 23,050 Accumulated Amortization April 30 4,

15 EXERCISE 4-3 (Continued) (b) (Continued) Notes Payable April 30 5,700 Accounts Payable April 30 5,972 Interest Payable April Ho, Capital April Ho, Drawings 11,328 3,650 12,590 33,960 46,550 35,222,572 April Service Revenue 3,650 3,650 0 April ,590 12,

16 EXERCISE 4-3 (Continued) (b) (Continued) Salaries Expense April Rent Expense 9,840 9,840 0 April Amortization Expense April Interest Expense April

17 EXERCISE 4-3 (Continued) (c) KWOK YEUN HO COMPANY Post-Closing Trial April 30, 2003 Cash... Accounts Receivable... Prepaid Rent... Equipment... Accumulated Amortization... Notes Payable... Accounts Payable... Interest Payable... Ho, Capital... Debit $15, , , , $48,222 Credit $04, , , ,057 0,572 $48,

18 EXERCISE Accounts Payable ($830 - $380) Cash Supplies Equipment Accounts Payable L. Choi, Drawings Salaries Expense Office Equipment... 1,200 Office Supplies... 1,200 EXERCISE 4-5 (a) RAFAEL COMPANY Income Statement For the Year Ended July, 2003 Revenues Commission revenue... $63,100 Rent revenue ,500 Total revenues... 69,600 Expenses Salaries expense... $55,700 Rent expense... 14,900 Amortization expense ,000 Total expenses ,600 Net loss... $ 5,

19 EXERCISE 4-5 (Continued) (a) (Continued) RAFAEL COMPANY Statement of Owner's Equity For the Year Ended July, 2003 R. Rafael, Capital, August 1, $45,200 Less: Net loss... $05,000 Drawings... 14, ,000 R. Rafael, Capital, July, $26,200 (b) RAFAEL COMPANY Sheet July, 2003 Assets Current assets Cash... $14,940 Accounts receivable ,780 Total current assets... 23,720 Capital assets Equipment... $15,900 Less: Accumulated amortization , ,500 Total assets... $34,220 Liabilities and Owner's Equity Current liabilities Accounts payable... $06,220 Unearned rent revenue ,800 Total current liabilities... 8,020 Owner's equity R. Rafael, Capital ,200 Total liabilities and owner's equity... $34,220 EXERCISE

20 KWOK YUEN HO COMPANY Income Statement For the Month Ended April 30, 2003 Revenues Service revenue... $12,590 Expenses Salaries expense... $9,840 Rent expense Amortization expense Interest expense Total expenses ,328 Net income... $ 1,262 KWOK YUEN HO COMPANY Statement of Owner's Equity For the Month Ended April 30, 2003 Ho, Capital, April 1... $33,960 Add: Net income ,262 35,222 Less: Drawings ,650 Ho, Capital, April $,

21 EXERCISE 4-6 (Continued) KWOK YUEN HO COMPANY Sheet April 30, 2003 Assets Current assets Cash... $15,052 Accounts receivable... 7,840 Prepaid rent ,280 Total current assets... 25,172 Capital assets Equipment... $23,050 Less: Accumulated amortization... 4,921 18,129 Total assets... $43,301 Liabilities and Owner's Equity Current liabilities Notes payable... $ 05,700 Accounts payable... 5,972 Interest payable , 57 Total current liabilities... 11,729 Owner's equity Ho, Capital... 0,572 Total liabilities and owner's equity... $43,

22 EXERCISE 4-7 (a) SUMMIT'S BOWL-A-DROME ALLEY Sheet December, 2002 Assets Current assets Cash... $020,840 Accounts receivable... 14,520 Prepaid insurance ,680 Total current assets... 40,040 Capital assets Land... $ 63,200 Building... $128,800 Less: Accum. amortization... 45,600 83,200 Equipment... $ 62,400 Less: Accum. amortization... 18,720 43, ,080 Total assets... $230,120 Liabilities and Owner's Equity Current liabilities Current portion of mortgage payable... $013,600 Accounts payable... 13,480 Interest payable ,600 Total current liabilities... 29,680 Long-term liabilities Mortgage payable (less current portion) ,000 Total liabilities ,680 Owner's equity T. Bolgos, Capital ,440 Total liabilities and owner's equity... $230,120 Net Income = $14,180 $780 $5,360 $2,600 = $5,440 Ending Capital = $115,000 + $5,440 = $120,

23 EXERCISE 4-7 (Continued) (b) Working capital (current assets less current liabilities) is $10,360 ($40,040 $29,680). The current ratio (current assets divided by current liabilities) is 1.35:1 ($40,040 $29,680). In addition, approximately 50% of current assets are in the form of cash. The company's liquidity appears to be reasonably good. EXERCISE 4-8 (a) Working Capital = Current Assets Current Liabilities 2000: $1,408,529 - $568,035 = $840, : $1,064,667 - $401,111 = $663, : $726,484 - $5,589 = $410,895 Current Ratio = Current Assets Current Liabilities 2000: $1,408,529 = 2.48:1 $568, : $1,064,667 = 2.65:1 $401, : $726,484 = 2.30:1 $5,589 (b) The Carnival s liquidity in 2000 is slightly below that of 1999 and slightly higher than 1998 based on the current ratios. It is still a very positive ratio, however, with sufficient current assets to cover current liabilities. In terms of working capital, the liquidity has increased in 2000, compared to 1999 and

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