SOLUTIONS TO EXERCISES SET B

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1 SOLUTIONS TO EXERCISES SET B EXERCISE 4-1B GREEN COMPANY Worksheet For the Month Ended June 30, 2008 Account Titles Trial Balance Adjustments Adj. Trial Balance Income Statement Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 1,760 1,760 1,760 Accounts Receivable 2,100 2,100 2,100 Supplies 1,320 1, Accounts Payable 1,080 1,080 1,080 Unearned Revenue Common Stock 2,280 2,280 2,280 Service Revenue 2, ,340 2,340 Salaries Expense Miscellaneous Expense Totals 5,820 5,820 Supplies Expense 1,070 1,070 1,070 Salaries Payable Totals 1,560 1,560 6,070 6,070 1,960 2,340 4,110 3,730 Net Income Totals 2,340 2,340 4,110 4, For Instructor Use Only 4-1

2 EXERCISE 4-2B BAD COMPANY (Partial) Worksheet For the Month Ended April 30, 2008 Adjusted Trial Balance Income Statement Balance Sheet Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Cash 11,400 11,400 Accounts Receivable 7,000 7,000 Prepaid Rent 2,000 2,000 Equipment 20,000 20,000 Accum. Depreciation 4,200 4,200 Notes Payable 5,000 5,000 Accounts Payable 4,950 4,950 Common Stock 20,000 20,000 Retained Earnings 5,800 5,800 Dividends 3,500 3,500 Service Revenue 14,500 14,500 Salaries Expense 9,450 9,450 Rent Expense Depreciation Expense Interest Expense Interest Payable Totals 54,500 54,500 10,600 14,500 43,900 40,000 Net Income 3,900 3,900 Totals 14,500 14,500 43,900 43, For Instructor Use Only 4-2

3 EXERCISE 4-3B BAD COMPANY Income Statement For the Month Ended April 30, 2008 Revenues Service revenue... $14,500 Expenses Salaries expense... $9,450 Depreciation expense Rent expense Interest expense Total expenses... 10,600 Net income... $ 3,900 BAD COMPANY Retained Earnings Statement For the Month Ended April 30, 2008 Retained earnings, April 1... $5,800 Add: Net income... 3,900 9,700 Less: Dividends... 3,500 Retained earnings, April $6,200 BAD COMPANY Balance Sheet April 30, 2008 Assets Current assets Cash... $11,400 Accounts receivable... 7,000 Prepaid rent... 2,000 Total current assets... 20,400 Property, plant, and equipment Equipment... $20,000 Less: Accumulated depreciation... 4,200 15,800 Total assets... $36, For Instructor Use Only 4-3

4 EXERCISE 4-3B (Continued) BAD COMPANY Balance Sheet (Continued) April 30, 2008 Liabilities and Stockholders Equity Current liabilities Notes payable... $ 5,000 Accounts payable... 4,950 Interest payable Total current liabilities... 10,000 Stockholders equity Common stock... $20,000 Retained earnings... 6,200 26,200 Total liabilities and stockholders equity... $36,200 EXERCISE 4-4B (a) Apr. 30 Service Revenue... 14,500 Income Summary... 14, Income Summary... 10,600 Salaries Expense... 9,450 Rent Expense Depreciation Expense Interest Expense Income Summary... 3,900 Retained Earnings... 3, Retained Earnings... 3,500 Dividends... 3,500 (b) Income Summary Retained Earnings (2) 10,600 (1) 14,500 (4) 3,500 5,800 (3) 3,900 (3) 3,900 14,500 14,500 Bal. 6, For Instructor Use Only 4-4

5 EXERCISE 4-4B (Continued) (c) BAD COMPANY Post-Closing Trial Balance April 30, 2008 Debit Credit Cash... $11,400 Accounts Receivable... 7,000 Prepaid Rent... 2,000 Equipment... 20,000 Accumulated Depreciation... $ 4,200 Notes Payable... 5,000 Accounts Payable... 4,950 Interest Payable Common Stock... 20,000 Retained Earnings... 6,200 $40,400 $40,400 EXERCISE 4-5B (a) Accounts Receivable... 1,100 Service Revenue... 1,100 Insurance Expense Prepaid Insurance Depreciation Expense... 1,250 Accumulated Depreciation... 1,250 Salaries Expense Salaries Payable For Instructor Use Only 4-5

6 EXERCISE 4-5B (Continued) (b) Income Statement Balance Sheet Dr. Cr. Dr. Cr. Accounts Receivable X Prepaid Insurance X Accum. Depreciation X Salaries Payable X Service Revenue X Salaries Expense X Insurance Expense X Depreciation Expense X EXERCISE 4-6B (a) Accounts Receivable $23,000 ($35,000 $12,000). Supplies $1,500 ($8,000 $6,500). Accumulated Depreciation $36,000 ($24,000 + $12,000). Salaries Payable $0 No liability recorded until adjustments are made. Insurance Expense $4,000 ($28,000 $24,000). Salaries Expense $46,000 ($52,000 $6,000). (b) Accounts Receivable... 12,000 Service Revenue... 12,000 Insurance Expense... 4,000 Prepaid Insurance... 4,000 Supplies Expense... 6,500 Supplies... 6,500 Depreciation Expense... 12,000 Accumulated Depreciation... 12,000 Salaries Expense... 6,000 Salaries Payable... 6, For Instructor Use Only 4-6

7 EXERCISE 4-7B (a) Service Revenue... 5,360 Income Summary... 5,360 Income Summary... 5,050 Salaries Expense... 1,650 Miscellaneous Expense Supplies Expense... 3,050 Income Summary Retained Earnings Retained Earnings Dividends (b) KIMMIE MEISSNER COMPANY Post-Closing Trial Balance For the Month Ended June 30, 2008 Account Titles Debit Credit Cash... $ 4,650 Accounts Receivable... 5,200 Supplies Accounts Payable... $ 2,500 Salaries Payable Unearned Revenue Common Stock... 5,000 Retained Earnings... 2,190 $10,490 $10, For Instructor Use Only 4-7

8 EXERCISE 4-8B (a) General Journal J15 Date Account Titles Ref. Debit Credit July 31 Commission Revenue ,400 Rent Revenue ,100 Income Summary , Income Summary ,900 Salaries Expense ,100 Utilities Expense ,100 Depreciation Expense , Retained Earnings ,400 Income Summary , Retained Earnings ,000 Dividends ,000 (b) Retained Earnings No. 320 July 31 Balance 20, Close net loss J15 2,400 18, Close dividends J15 11,000 7,300 Income Summary No. 350 July 31 Close revenue J15 47,500 47, Close expenses J15 49,900 (2,400) 31 Close net loss J15 2, For Instructor Use Only 4-8

9 EXERCISE 4-8B (Continued) (c) COMMANCHE COMPANY Post-Closing Trial Balance July 31, 2008 Debit Credit Cash... $ 9,900 Accounts Receivable... 6,200 Equipment... 10,600 Accumulated Depreciation... $ 5,400 Accounts Payable... 2,800 Unearned Rent Revenue... 1,200 Common Stock... 10,000 Retained Earnings... 7,300 $26,700 $26,700 EXERCISE 4-9B (a) COMMANCHE COMPANY Income Statement For the Year Ended July 31, 2008 Revenues Commission revenue... $42,400 Rent revenue... 5,100 Total revenues... 47,500 Expenses Salaries expense... $37,100 Utilities expense... 10,100 Depreciation expense... 2,700 Total expenses... 49,900 Net loss... ($ 2,400) COMMANCHE COMPANY Retained Earnings Statement For the Year Ended July 31, 2008 Retained earnings, August 1, $20,700 Less: Net loss... $ 2,400 Dividends... 11,000 13,400 Retained earnings, July 31, $ 7, For Instructor Use Only 4-9

10 EXERCISE 4-9B (Continued) (b) COMMANCHE COMPANY Balance Sheet July 31, 2008 Assets Current assets Cash... $ 9,900 Accounts receivable... 6,200 Total current assets... 16,100 Property, plant, and equipment Equipment... $10,600 Less: Accumulated depreciation... 5,400 5,200 Total assets... $21,300 Liabilities and Stockholders Equity Current liabilities Accounts payable... $ 2,800 Unearned rent revenue... 1,200 Total current liabilities... 4,000 Stockholders equity Common stock... $10,000 Retained earnings... 7,300 17,300 Total liabilities and stockholders equity... $21,300 EXERCISE 4-10B 1. True. 2. True. 3. False. If the accounting records are free of errors, no correcting entries are needed. 4. False. Some of the steps of the accounting cycle are incorporated into the worksheet. 5. True. 6. False. Steps 1 3 may occur daily in the accounting cycle. Steps 4 7 are performed on a periodic basis. Steps 8 and 9 are usually prepared only at the end of a company s annual accounting period. 7. True. 8. False. Closing entries are prepared after financial statements are prepared For Instructor Use Only 4-10

11 EXERCISE 4-11B (a) June 30 Service Revenue... 10,100 Income Summary... 10, Income Summary... 8,750 Salaries Expense... 5,900 Supplies Expense Rent Expense... 2, Income Summary... 1,350 Retained Earnings... 1, Retained Earnings... 1,700 Dividends... 1,700 (b) Income Summary June 30 8,750 June 30 10,100 June 30 1,350 10,100 10,100 EXERCISE 4-12B (a) 1. Cash Supplies Salaries Expense Cash Service Revenue Cash Cash... 2,000 Accounts Receivable... 2, For Instructor Use Only 4-11

12 EXERCISE 4-12B (Continued) 3. Accounts Payable Supplies Supplies Accounts Payable (b) 1. Salaries Expense Supplies Service Revenue Cash... 1,800 Accounts Receivable... 2, Supplies Accounts Payable EXERCISE 4-13B 1. Accounts Payable ($720 $270) Cash Supplies Inventory Cash Dividends Salaries Expense For Instructor Use Only 4-12

13 EXERCISE 4-14B (a) ANTHONY BOWLING ALLEY Balance Sheet December 31, 2008 Assets Current assets Cash... $ 10,840 Accounts receivable... 9,000 Prepaid insurance... 2,700 Total current assets... 22,540 Property, plant, and equipment Land... $38,000 Building... $77,000 Less: Acc. depr. building... 26,000 51,000 Equipment... 37,500 Less: Acc. depr. equipment... 11,000 26, ,500 Total assets... $138, For Instructor Use Only 4-13

14 EXERCISE 4-14B (Continued) ANTHONY BOWLING ALLEY Balance Sheet (Continued) December 31, 2008 Liabilities and Stockholders Equity Current liabilities Current portion of note payable... $ 15,000 Accounts payable... 7,400 Interest payable... 1,600 Total current liabilities... 24,000 Long-term liabilities Note payable... 45,000 Total liabilities... 69,000 Stockholders equity Common stock... $50,000 Retained earnings ($17,000 + $2,040*)... 19,040 69,040 Total liabilities and stockholders equity... $138,040 *Net income = $8,580 $540 $4,400 $1,600 = $2,040 (b) Current assets exceed current liabilities by $1,460 ($24,000 $22,540). However, approximately 50% of current assets are in the form of cash. The company s liquidity appears to be adequate. EXERCISE 4-15B CL Accounts payable LTI Investments CA Accounts receivable CA Inventories PPE Accumulated depreciation PPE Land PPE Buildings LTL Long-term debt CA Cash CA Supplies SE Common stock CA Prepaid insurance CL Utilities payable PPE Equipment IA Trademarks 2008 For Instructor Use Only 4-14

15 EXERCISE 4-16B CAT COMPANY Balance Sheet December 31, 2008 (in thousands) Assets Current assets Cash... $ 1,800 Short-term investments... 2,500 Accounts receivable... 1,100 Inventories Prepaid expenses Total current assets... $ 6,900 Long-term investments Property, plant, and equipment Property, plant, and equipment... 8,100 Less: Accumulated depreciation... (4,000) 4,100 Total assets... $11,185 Liabilities and Stockholders Equity Current liabilities Notes payable in $ 340 Accounts payable... 1,010 Total current liabilities... $ 1,350 Long-term liabilities Long-term debt Notes payable (after 2009) Total long-term liabilities Total liabilities... 2,260 Stockholders equity Common stock... $ 7,000 Retained earnings... 1,925 8,925 Total liabilities and stockholders equity... $11, For Instructor Use Only 4-15

16 EXERCISE 4-17B (a) LUOL DENG COMPANY Income Statement For the Year Ended July 31, 2008 Revenues Commission revenue... $63,000 Rent revenue... 7,600 Total revenues... $ 70,600 Expenses Salaries expense... 39,000 Depreciation expense... 16,200 Utilities expense... 3,600 Total expense... 58,800 Net Income... $ 11,800 LUOL DENG COMPANY Retained Earnings Statement For the Year Ended July 31, 2008 Retained earnings, August 1, $10,000 Plus: Net Income... $11,800 Less: Dividends... (3,600) 8,200 Retained earnings, July 31, $18, For Instructor Use Only 4-16

17 EXERCISE 4-17B (Continued) (b) LUOL DENG COMPANY Balance Sheet July 31, 2008 Assets Current assets Cash... $18,300 Accounts receivable... 21,200 Total current assets... $39,500 Property, plant, and equipment Equipment... 26,500 Less: Accumulated depreciation... 5,400 21,100 Total assets... $60,600 Liabilities and Stockholders Equity Current liabilities Accounts payable... $ 3,600 Salaries payable... 1,800 Total current liabilities... $ 5,400 Long-term liabilities Note payable... 2,000 Total liabilities... 7,400 Stockholders equity Common stock... $35,000 Retained earnings... 18,200 53,200 Total liabilities and stockholders equity... $60, For Instructor Use Only 4-17

18 *EXERCISE 4-18B (a) Dec. 31 Salaries Expense ($20,000 X 3/5)... 12,000 Salaries Payable... 12,000 Jan. 6 Salaries Payable... 12,000 Salaries Expense ($20,000 X 2/5)... 8,000 Cash... 20,000 (b) Dec. 31 Salaries Expense... 12,000 Salaries Payable... 12,000 Jan. 1 Salaries Payable... 12,000 Salaries Expense... 12,000 Jan. 6 Salaries Expense... 20,000 Cash... 20,000 *EXERCISE 4-19B (a) Dec. 31 Commission Revenue ,000 Income Summary , Income Summary... 11,000 Interest Expense... 11,000 (b) Jan. 1 Commission Revenue... 6,000 Accounts Receivable... 6,000 1 Interest Payable... 2,500 Interest Expense... 2, For Instructor Use Only 4-18

19 *EXERCISE 4-19B (Continued) (c) & (e) Accounts Receivable Dec. 31 Balance *29, Adjusting 6,000 35,000 Jan. 1 Reversing 6,000 *($35,000 $6,000) Commission Revenue Dec. 31 Closing 100,000 Dec. 31 Balance 94,000* 31 Adjusting 6, , ,000 Jan. 1 Reversing 6,000 Jan. 10 6,000 *($100,000 $6,000) Interest Payable Dec. 31 Adjusting 2,500 Jan. 1 Reversing 2,500 Interest Expense Dec. 31 Balance *8,500 Dec. 31 Closing 11, Adjusting 2,500 11,000 11,000 Jan. 15 3,000 Jan. 1 Reversing 2,500 *($11,000 $2,500) (d) (1) Jan. 10 Cash... 6,000 Commission Revenue... 6,000 (2) 15 Interest Expense... 3,000 Cash... 3, For Instructor Use Only 4-19

20 (a) SASSE ROOFING Worksheet For the Month Ended March 31, 2008 Account Titles Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts Receivable Roofing Supplies Equipment Accumulated Depreciation Accounts Payable Unearned Revenue Common Stock Dividends Service Revenue Salaries Expense Miscellaneous Expense Totals Supplies Expense Depreciation Expense Salaries Payable Totals Net Income Totals 4,500 3,200 2,000 11,000 1,100 1, ,500 1,250 2, ,900 6,300 23,500 (c) 380 (d) 600 (a) 1,350 (b) 250 2,580 (a) 1,350 (b) 250 (c) 380 (d) 600 2,580 4,500 3, ,000 1,100 1, , ,350 1,500 2, ,900 6, ,350 1, , ,900 2,780 6,680 6,680 6,680 6,680 4,500 3, ,000 1,100 20,450 20,450 1,500 2, , ,670 2,780 20,450 Key: (a) Supplies Used; (b) Depreciation Expensed; (c) Service Revenue Earned; (d) Salaries Accrued. PROBLEM 4-1C 2008 For Instructor Use Only 4-20

21 PROBLEM 4-1C (Continued) (b) SASSE ROOFING Income Statement For the Month Ended March 31, 2008 Revenues Service revenue... $6,680 Expenses Salaries expense... $1,900 Supplies expense... 1,350 Depreciation expense Miscellaneous expense Total expenses... 3,900 Net income... $2,780 SASSE ROOFING Retained Earnings Statement For the Month Ended March 31, 2008 Retained earnings, March 1... $ 0 Add: Net income... 2,780 2,780 Less: Dividends... 1,100 Retained earnings, March $1,680 SASSE ROOFING Balance Sheet March 31, 2008 Assets Current assets Cash... $ 4,500 Accounts receivable... 3,200 Roofing supplies Total current assets... 8,350 Property, plant, and equipment Equipment... $11,000 Less: Accum. depreciation equipment... 1,500 9,500 Total assets... $17, For Instructor Use Only 4-21

22 PROBLEM 4-1C (Continued) SASSE ROOFING Balance Sheet (Continued) March 31, 2008 Liabilities and Stockholders Equity Current liabilities Accounts payable... $ 2,500 Salaries payable Unearned revenue Total current liabilities... 3,270 Stockholders equity Common stock... $12,900 Retained earnings... 1,680 14,580 Total liabilities and stockholders equity... $17,850 (c) Mar. 31 Supplies Expense... 1,350 Roofing Supplies... 1, Depreciation Expense Accumulated Depreciation Unearned Revenue Service Revenue Salaries Expense Salaries Payable (d) Mar. 31 Service Revenue... 6,680 Income Summary... 6, Income Summary... 3,900 Salaries Expense... 1,900 Supplies Expense... 1,350 Depreciation Expense Miscellaneous Expense Income Summary... 2,780 Retained Earnings... 2, Retained Earnings... 1,100 Dividends... 1, For Instructor Use Only 4-22

23 PROBLEM 4-2C (a) RACHEL COMPANY Partial Worksheet For the Year Ended December 31, 2008 Account Adjusted Trial Balance Income Statement Balance Sheet No. Titles Dr. Cr. Dr. Cr. Dr. Cr. 101 Cash 8,100 8, Accounts Receivable 10,800 10, Supplies 1,500 1, Prepaid Insurance 2,000 2, Office Equipment 24,000 24, Acc. Depr. Off. Equip. 5,600 5, Notes Payable 15,000 15, Accounts Payable 6,100 6, Salaries Payable 2,400 2, Interest Payable Common Stock 10,000 10, Retained Earnings 5,800 5, Dividends 7,000 7, Service Revenue 61,000 61, Advertising Expense 8,400 8, Supplies Expense 4,000 4, Depreciation Expense 5,600 5, Insurance Expense 3,500 3, Salaries Expense 31,000 31, Interest Expense Totals 106, ,500 53,100 61,000 53,400 45,500 Net Income 7,900 7,900 Totals 61,000 61,000 53,400 53, For Instructor Use Only 4-23

24 PROBLEM 4-2C (Continued) (b) RACHEL COMPANY Income Statement For the Year Ended December 31, 2008 Revenues Service revenue... $61,000 Expenses Salaries expense... $31,000 Advertising expense... 8,400 Depreciation expense... 5,600 Supplies expense... 4,000 Insurance expense... 3,500 Interest expense Total expenses... 53,100 Net income... $ 7,900 RACHEL COMPANY Retained Earnings Statement For the Year Ended December 31, 2008 Retained Earnings, January 1... $ 5,800 Add: Net income... 7,900 13,700 Less: Dividends... 7,000 Retained earnings, December $ 6, For Instructor Use Only 4-24

25 PROBLEM 4-2C (Continued) RACHEL COMPANY Balance Sheet December 31, 2008 Assets Current assets Cash... $ 8,100 Accounts receivable... 10,800 Supplies... 1,500 Prepaid insurance... 2,000 Total current assets... 22,400 Property, plant, and equipment Office equipment... $24,000 Less: Accumulated depreciation... 5,600 18,400 Total assets... $40,800 Liabilities and Stockholders Equity Current liabilities Notes payable... $ 9,000 Accounts payable... 6,100 Salaries payable... 2,400 Interest payable Total current liabilities... 18,100 Long-term liabilities Notes payable... 6,000 Total liabilities... 24,100 Stockholders equity Common stock... $10,000 Retained earnings... 6,700 16,700 Total liabilities and stockholders equity... $40, For Instructor Use Only 4-25

26 PROBLEM 4-2C (Continued) (c) General Journal J14 Date Account Titles and Explanation Ref. Debit Credit Dec. 31 Service Revenue ,000 Income Summary , Income Summary ,100 Advertising Expense ,400 Supplies Expense ,000 Depreciation Expense ,600 Insurance Expense ,500 Salaries Expense ,000 Interest Expense Income Summary ,900 Retained Earnings , Retained Earnings ,000 Dividends ,000 (d) Retained Earnings No. 320 Jan. 1 Balance 5,800 5,800 Dec. 31 Closing entry J14 7,900 13, Closing entry J14 7,000 6,700 Dividends No. 332 Dec. 31 Balance 7,000 7, Closing entry J14 7, For Instructor Use Only 4-26

27 PROBLEM 4-2C (Continued) Income Summary No. 350 Dec. 31 Closing entry J14 61,000 61, Closing entry J14 53,100 7, Closing entry J14 7,900 0 Service Revenue No. 400 Dec. 31 Balance 61,000 61, Closing entry J14 61,000 0 Advertising Expense No. 610 Dec. 31 Balance 8,400 8, Closing entry J14 8,400 0 Supplies Expense No. 631 Dec. 31 Balance 4,000 4, Closing entry J14 4,000 0 Depreciation Expense No. 711 Dec. 31 Balance 5,600 5, Closing entry J14 5,600 0 Insurance Expense No. 722 Dec. 31 Balance 3,500 3, Closing entry J14 3, For Instructor Use Only 4-27

28 PROBLEM 4-2C (Continued) Salaries Expense No. 726 Dec. 31 Balance 31,000 31, Closing entry J14 31,000 0 Interest Expense No. 905 Dec. 31 Balance Closing entry J (e) RACHEL COMPANY Post-Closing Trial Balance December 31, 2008 Debit Credit Cash... $ 8,100 Accounts Receivable... 10,800 Supplies... 1,500 Prepaid Insurance... 2,000 Office Equipment... 24,000 Accumulated Depreciation Office Equipment... $ 5,600 Notes Payable... 15,000 Accounts Payable... 6,100 Salaries Payable... 2,400 Interest Payable Common Stock... 10,000 Retained Earnings... 6,700 Totals... $46,400 $46, For Instructor Use Only 4-28

29 PROBLEM 4-3C (a) MUDDY COMPANY Income Statement For the Year Ended December 31, 2008 Revenues Service revenue... $56,000 Expenses Salaries expense... $30,000 Depreciation expense... 2,100 Insurance expense... 1,800 Repair expense... 1,600 Utilities expense... 1,400 Total expenses... 36,900 Net income... $19,100 MUDDY COMPANY Retained Earnings Statement For the Year Ended December 31, 2008 Retained earnings, January 1... $ 8,500 Add: Net income... 19,100 27,600 Less: Dividends... 11,000 Retained earnings, December $16,600 MUDDY COMPANY Balance Sheet December 31, 2008 Assets Current assets Cash... $17,900 Accounts receivable... 10,800 Prepaid insurance... 2,800 Total current assets... 31,500 Property, plant, and equipment Equipment... $21,000 Less: Accumulated depreciation... 4,500 16,500 Total assets... $48, For Instructor Use Only 4-29

30 PROBLEM 4-3C (Continued) MUDDY COMPANY Balance Sheet (Continued) December 31, 2008 Liabilities and Stockholders Equity Current liabilities Accounts payable... $ 9,000 Salaries payable... 2,400 Total current liabilities... 11,400 Stockholders equity Common stock... $20,000 Retained earnings... 16,600 36,600 Total liabilities and stockholders equity... $48,000 (b) General Journal Date Account Titles and Explanation Ref. Debit Credit Dec. 31 Service Revenue ,000 Income Summary , Income Summary ,900 Repair Expense ,600 Depreciation Expense ,100 Insurance Expense ,800 Salaries Expense ,000 Utilities Expense , Income Summary ,100 Retained Earnings , Retained Earnings ,000 Dividends , For Instructor Use Only 4-30

31 PROBLEM 4-3C (Continued) (c) Retained Earnings No /31 11,000 1/1 Bal. 8,500 12/31 19,100 12/31 Bal. 16,600 Dividends No /31 Bal. 11,000 12/31 11,000 Income Summary No /31 36,900 12/31 56,000 12/31 19,100 56,000 56,000 Repair Expense No /31 Bal. 1,600 12/31 1,600 Depreciation Expense No /31 Bal. 2,100 12/31 2,100 Insurance Expense No /31 Bal. 1,800 12/31 1,800 Salaries Expense No /31 Bal. 30,000 12/31 30,000 Service Revenue No /31 56,000 12/31 Bal. 56,000 Utilities Expense No /31 Bal. 1,400 12/31 1,400 (d) MUDDY COMPANY Post-Closing Trial Balance December 31, 2008 Debit Credit Cash... $17,900 Accounts Receivable... 10,800 Prepaid Insurance... 2,800 Equipment... 21,000 Accumulated Depreciation... $ 4,500 Accounts Payable... 9,000 Salaries Payable... 2,400 Common Stock... 20,000 Retained Earnings... 16,600 Totals... $52,500 $52, For Instructor Use Only 4-31

32 (a) ROCKFORD MANAGEMENT SERVICES Worksheet For the Year Ended December 31, 2008 Account Titles Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts Receivable Prepaid Insurance Land Building Equipment Accounts Payable Unearned Rent Revenue Mortgage Note Payable Common Stock Retained Earnings Dividends Service Revenue Rent Revenue Salaries Expense Advertising Expense Utilities Expense Totals Insurance Expense Depr. Expense Building Accum. Depr. Building Depr. Expense Equipment Accum. Depr. Equipment Interest Expense Interest Payable Totals Net Income Totals 13,800 28,300 3,600 67, ,000 59,000 22,000 42,000 20,500 19, ,200 12,500 6, , ,000 44,000 90,700 29, ,200 (d) 4,000 (a) 1,200 (b) 3,000 (c) 4,700 (e) 11,000 23,900 (a) 1,200 (d) 4,000 (b) 3,000 (c) 4,700 (e) 11,000 23,900 13,800 28,300 2,400 67, ,000 59,000 22,000 42,000 20,500 19,000 1,200 3,000 4,700 11, ,900 12,500 2, , ,000 44,000 90,700 33,000 3,000 4,700 11, ,900 42,000 20,500 19,000 1,200 3,000 4,700 11, ,400 22, ,700 90,700 33, , ,700 13,800 28,300 2,400 67, ,000 59,000 22, , ,500 12,500 2, , ,000 44,000 3,000 4,700 11, ,200 22, ,500 Key: (a) Expired Insurance; (b) Depreciation Expense Building; (c) Depreciation Expense Equipment; (d) Rent Revenue Earned; (e) Accrued Interest Payable. PROBLEM 4-4C 2008 For Instructor Use Only 4-32

33 PROBLEM 4-4C (Continued) (b) ROCKFORD MANAGEMENT SERVICES Balance Sheet December 31, 2008 Assets Current assets Cash... $ 13,800 Accounts receivable... 28,300 Prepaid insurance... 2,400 Total current assets... 44,500 Property, plant, and equipment Land... $ 67,000 Building... $127,000 Less: Accumulated depreciation building... 3, ,000 Equipment... 59,000 Less: Accumulated depreciation equipment... 4,700 54, ,300 Total assets... $289,800 Liabilities and Stockholders Equity Current liabilities Current maturity of mortgage note payable... $ 20,000 Accounts payable... 12,500 Interest payable... 11,000 Unearned rent revenue... 2,000 Total current liabilities... 45,500 Long-term liabilities Mortgage note payable ,000 Total liabilities ,500 Stockholders equity Common stock... $100,000 Retained earnings ($44,000 $22,000 + $22,300)... 44, ,300 Total liabilities and stockholders equity... $289, For Instructor Use Only 4-33

34 PROBLEM 4-4C (Continued) (c) Dec. 31 Insurance Expense... 1,200 Prepaid Insurance... 1, Depreciation Expense Building... 3,000 Accumulated Depreciation Building... 3, Depreciation Expense Equipment... 4,700 Accumulated Depreciation Equipment... 4, Unearned Rent Revenue... 4,000 Rent Revenue... 4, Interest Expense... 11,000 Interest Payable... 11,000 (d) Dec. 31 Service Revenue... 90,700 Rent Revenue... 33,000 Income Summary , Income Summary ,400 Salaries Expense... 42,000 Advertising Expense... 20,500 Interest Expense... 11,000 Utilities Expense... 19,000 Depreciation Expense Equipment... 4,700 Depreciation Expense Building... 3,000 Insurance Expense... 1, Income Summary... 22,300 Retained Earnings... 22, Retained Earnings... 22,000 Dividends... 22, For Instructor Use Only 4-34

35 PROBLEM 4-4C (Continued) (e) ROCKFORD MANAGEMENT SERVICES Post-Closing Trial Balance December 31, 2008 Debit Credit Cash... $ 13,800 Accounts Receivable... 28,300 Prepaid Insurance... 2,400 Land... 67,000 Building ,000 Accumulated Depreciation Building... $ 3,000 Equipment... 59,000 Accumulated Depreciation Equipment... 4,700 Accounts Payable... 12,500 Interest Payable... 11,000 Unearned Rent Revenue... 2,000 Mortgage Note Payable ,000 Common Stock ,000 Retained Earnings... 44,300 $297,500 $297, For Instructor Use Only 4-35

36 PROBLEM 4-5C (a) General Journal J1 Date Account Titles and Explanation Ref. Debit Credit July 1 Cash ,000 Common Stock ,000 1 Equipment ,000 Cash ,000 Accounts Payable ,000 3 Cleaning Supplies ,100 Accounts Payable ,100 5 Prepaid Insurance ,800 Cash , Accounts Receivable ,500 Service Revenue , Accounts Payable ,900 Cash , Salaries Expense ,000 Cash , Cash ,400 Accounts Receivable , Accounts Receivable ,000 Service Revenue , Gas & Oil Expense Cash Dividends ,600 Cash , For Instructor Use Only 4-36

37 (b) & (c) CHANG S CLEANING SERVICES Worksheet For the Month Ended July 31, 2008 Account Titles Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash Accounts Receivable Cleaning Supplies Prepaid Insurance Equipment Accounts Payable Common Stock Dividends Service Revenue Gas & Oil Expense Salaries Expense Totals Depreciation Expense Accum. Depr. Equipment Insurance Expense Cleaning Supplies Expense Salaries Payable Totals Net Income Totals 10,750 10,100 2,100 1,800 9,000 1, ,000 37,700 4,200 20,000 13,500 37,700 (a) 2,700 (e) 1,000 (b) 500 (c) 150 (d) 1,400 5,750 (d) 1,400 (c) 150 (a) 2,700 (b) 500 (e) 1,000 5,750 10,750 12, ,650 9,000 1, , ,400 41,900 4,200 20,000 16, ,000 41, , ,400 5,400 10,800 16,200 16,200 16,200 16,200 10,750 12, ,650 9,000 1,600 36,500 36,500 4,200 20, ,000 25,700 10,800 36,500 Key: (a) Service Revenue Earned; (b) Depreciation Expense; (c) Insurance Expired; (d) Cleaning Supplies Used; (e) Unpaid Salaries. PROBLEM 4-5C (Continued) 2008 For Instructor Use Only 4-37

38 PROBLEM 4-5C (Continued) (a), (e) & (f) Cash No. 101 July 1 J1 20,000 20,000 1 J1 4,000 16,000 5 J1 1,800 14, J1 2,900 11, J1 2,000 9, J1 3,400 12, J , J1 1,600 10,750 Accounts Receivable No. 112 July 12 J1 4,500 4, J1 3,400 1, J1 9,000 10, Adjusting J2 2,700 12,800 Cleaning Supplies No. 128 July 3 J1 2,100 2, Adjusting J2 1, Prepaid Insurance No. 130 July 5 J1 1,800 1, Adjusting J ,650 Equipment No. 157 July 1 J1 9,000 9, For Instructor Use Only 4-38

39 PROBLEM 4-5C (Continued) Accumulated Depreciation Equipment No. 158 July 31 Adjusting J Accounts Payable No. 201 July 1 J1 5,000 5,000 3 J1 2,100 7, J1 2,900 4,200 Salaries Payable No. 212 July 31 Adjusting J2 1,000 1,000 Common Stock No. 311 July 1 J1 20,000 20,000 Retained Earnings No. 320 July 31 Closing J3 10,800 10, Closing J3 1,600 9,200 Dividends No. 332 July 31 J1 1,600 1, Closing J3 1,600 0 Income Summary No. 350 July 31 Closing J3 16,200 16, Closing J3 5,400 10, Closing J3 10, For Instructor Use Only 4-39

40 PROBLEM 4-5C (Continued) Service Revenue No. 400 July 12 J1 4,500 4, J1 9,000 13, Adjusting J2 2,700 16, Closing J3 16,200 0 Gas & Oil Expense No. 633 July 31 J Closing J Cleaning Supplies Expense No. 634 July 31 Adjusting J2 1,400 1, Closing J3 1,400 0 Depreciation Expense No. 711 July 31 Adjusting J Closing J Insurance Expense No. 722 July 31 Adjusting J Closing J Salaries Expense No. 726 July 20 J1 2,000 2, Adjusting J2 1,000 3, Closing J3 3, For Instructor Use Only 4-40

41 PROBLEM 4-5C (Continued) (d) CHANG S CLEANING SERVICE Income Statement For the Month Ended July 31, 2008 Revenues Service revenue... $16,200 Expenses Salaries expense... $3,000 Cleaning supplies expense... 1,400 Depreciation expense Gas & oil expense Insurance expense Total expenses... 5,400 Net income... $10,800 CHANG S CLEANING SERVICE Retained Earnings Statement For the Month Ended July 31, 2008 Retained earnings, July 1... $ 0 Add: Net income... 10,800 10,800 Less: Dividends... 1,600 Retained earnings, July $ 9,200 CHANG S CLEANING SERVICE Balance Sheet July 31, 2008 Assets Current assets Cash... $10,750 Accounts receivable... 12,800 Cleaning supplies Prepaid insurance... 1,650 Total current assets... 25, For Instructor Use Only 4-41

42 PROBLEM 4-5C (Continued) CHANG S CLEANING SERVICE Balance Sheet (Continued) July 31, 2008 Assets (Continued) Property, plant, and equipment Equipment... $9,000 Less: Accumulated depreciation ,500 Total assets... $34,400 Liabilities and Stockholders Equity Current liabilities Accounts payable... $ 4,200 Salaries payable... 1,000 Total current liabilities... 5,200 Stockholders equity Common stock... $20,000 Retained earnings... 9,200 29,200 Total liabilities and stockholders equity... $34,400 (e) General Journal J2 Date Account Titles and Explanation Ref. Debit Credit July 31 Accounts Receivable ,700 Service Revenue , Depreciation Expense Accumulated Depreciation Equipment Insurance Expense Prepaid Insurance Cleaning Supplies Expense ,400 Cleaning Supplies , Salaries Expense ,000 Salaries Payable , For Instructor Use Only 4-42

43 PROBLEM 4-5C (Continued) (f) General Journal J3 Date Account Titles and Explanation Ref. Debit Credit July 31 Service Revenue ,200 Income Summary , Income Summary ,400 Salaries Expense ,000 Depreciation Expense Insurance Expense Cleaning Supplies Expense ,400 Gas & Oil Expense Income Summary ,800 Retained Earnings , Retained Earnings ,600 Dividends ,600 (g) CHANG S CLEANING SERVICE Post-Closing Trial Balance July 31, 2008 Debit Credit Cash... $10,750 Accounts Receivable... 12,800 Cleaning Supplies Prepaid Insurance... 1,650 Equipment... 9,000 Accumulated Depreciation Equipment... $ 500 Accounts Payable... 4,200 Salaries Payable... 1,000 Common Stock... 20,000 Retained Earnings... 9,200 $34,900 $34, For Instructor Use Only 4-43

44

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