CHAPTER 3: ADJUSTING ACCOUNTS

FOR FINANCIAL STATEMENTS

M3-23.

a.
Balance Sheet Income Statement

Cash Noncash Contrib. Earned Net

Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
1. Received $20,100 in +20,100 +20,100
advance for contract Cash Unearned
work. = Service - =
Fees

Jan. 1 Cash (+A) 20,100

Unearned service fees (+L) 20,100
To record fee received in advance.

b.
Balance Sheet Income Statement
Cash Noncash Contrib. Earned Net
Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
2. Adjusting entry for work -3,350 +3,350 +3,350
completed by Jan. 31. Unearned Retained Service
= Service Earnings Fees - = +3,350
Fees

Jan. 31 Unearned service fees (-L) 3,350

Service fees (+R, +SE) 3,350
To reflect January service fees earned on
contract ($20,100/6 = $3,350).

c.
Balance Sheet Income Statement
Cash Noncash Contrib. Earned Net
Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
3. Adjusting entry for fees +570 +570 +570
earned but not billed. Fees Retained Service
Receivable = Earnings Fees - = +570

Jan. 31 Fees receivable (+A) 570

Service fees (+R, +SE) 570
To record unbilled service fees earned
at January 31.

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M3-24.

1.
Balance Sheet Income Statement

Cash Noncash Contrib. Earned Net

Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
1. Adjusting entry for -185 -185 +185
prepaid insusrance Prepaid Retained Insurance
Insurance = Earnings - Expense = -185

Jan. 31 Insurance expense (+E, -SE) 185

Prepaid insurance (-A) 185
To record January insurance expense
($6,660/36 = $185).

2.
Balance Sheet Income Statement
Cash Noncash Contrib. Earned Net
Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
2. Adjusting entry for -1,080 -1,080 +1,080
supplies used Supplies Retained Supplies
Inventory = Earnings - Expense = -1,080

Jan. 31 Supplies expense (+E, -SE) 1,080

Supplies inventory (-A) 1,080
To record January supplies expense
($1,930  $850 = $1,080).

3.
Balance Sheet Income Statement
Cash Noncash Contra Liabil- Contrib. Earned Net
Transaction + Assets - = + + Revenues - Expenses =
Asset Assets ities Capital Capital Income
3. Adjusting +62 -62 +62
entry for Accumulated Retained Depreciation -62
depreciation - Earnings - Expense =
Depreciation
of equipment.

Jan. 31 Depreciation expense—Equipment (+E, -SE) 62

Accumulated depreciation—Equipment (+XA, -A) 62
To record January depreciation on office equipment ($5,952/96 = $62).

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 CHAPTER 3: ADJUSTING ACCOUNTS
FOR FINANCIAL STATEMENTS
4.
Balance Sheet Income Statement

Cash Noncash Contrib. Earned Net

Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
4. Adjusting entry for rent -875 +875 +875
Unearned Retained Rent
= Rent Earnings Revenue - = +875
Revenue

Jan. 31 Unearned rent revenue (-L) 875

Rent revenue (+R, +SE) 875
To record portion of advance rent earned in January.

5.
Balance Sheet Income Statement
Cash Noncash Contrib. Earned Net
Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
5. Adjusting entry for +490 -490 +490
accrued salaries Salaries Retained Salaries
= Payable Earnings - Expense = -490

Jan. 31 Salaries expense (+E, -SE) 490

Salaries payable (+L) 490
To record accrued salaries at January 31.

M3-25.

(All amounts in thousands of Mexican pesos.)

a.
Balance Sheet Income Statement
Cash Noncash Contrib. Earned Net
Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
Inventory purchases (total) +44,998,092 +44,998,092
Inventory Accounts
= Payable - =

Inventories (+A)……………………………………. 44,998,092

Accounts payable (+L)……………………… 44,998,092
To record total purchases made at various dates.

b. Beginning AP balance + Purchases – Payments = Ending AP balance.

So, 10,288,069 + $44,998,092 - Payments = $11,454,374. Thus, Payments =
$43,831,787

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FOR FINANCIAL STATEMENTS
c.
Balance Sheet Income Statement

Cash Noncash Contrib. Earned Net

Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
Adjusting entry for cost of –44,134,370 –44,134,370 +44,134,370
goods sold for 2013. Inventory = Retained - Cost of = –44,134,370
Earnings Goods Sold

* Beginning Inv balance + Purchases – Cost of goods sold = Ending Inv balance. So, $10,558,247 +
$44,998,092 – COGS = $11,421,969. Thus, COGS = $44,134,370

Cost of goods sold (+E, -SE)…………………................... 44,134,370

Inventories (-A)………………………………… 44,134,370
To record cost of goods sold for the year ended 12/31/2013.

(Note: the COGS figure can be verified from the firm’s financial statements. Purchases cannot be so
determined, but could be established by working backwards. See M3-29.)

M3-26.

ARCHITECT SERVICES COMPANY

Statement of Stockholders’ Equity
For Year Ended December 31, 2015

Common Retained Total

Stock Earnings Stockholders’ Equity
Balance at December 31, 2014 ..............$30,000 $18,000 $48,000
Stock issuance ..................................... 6,000 6,000
Dividends .............................................. (9,700) (9,700)
Net income ........................................... _____ 29,900 29,900
Balance at December 31, 2015 ..............$36,000 $38,200 $74,200

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3-4 Financial Accounting, 5th Edition
 CHAPTER 3: ADJUSTING ACCOUNTS
FOR FINANCIAL STATEMENTS
P 3-43.

a.
Balance Sheet Income Statement
Cash Noncash Contra Contrib. Earned Net
Transaction Asset + Assets - Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
1. Accrue salary - = +720 -720 - +720 = -720
expense. Salaries Retained Salaries
Payable Earnings Expense
2. Accrue - = +200 -200 - +200 = -200
interest Interest Retained Interest
expense. Payable Earnings Expense
3. Accrue fees +900 - = +900 +900 - = +900
receivable. Fees Retained Printing
Receivable Earnings Revenue
4. Accrue -400 - = -400 - +400 = -400
maintenance Prepaid Retained Maint.
expense. Maintenance Earnings Expense
5. Accrue ad. -300 - = -300 - +300 = -300
Expense. Ad.
Prepaid Retained
Expense
Advertising Earnings
6. Accrue rent - = +160 -160 - +160 = -160
expanse. Rent Retained Rent
Payable Earnings Expense
7. Accrue +38 - = +38 +38 - = +38
interest Interest Retained Interest
revenue. Receivable Earnings Revenue
8. Accrued - +2,175 = -2,175 - +2,175 = -2,175
depreciation Accumulated Retained Depreciation
expense. Depreciation Earnings Expense
Totals 0 + +238 - 2,175 = 1,080 + 0 + -3,017 938 - 3,955 = -3,017

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 CHAPTER 3: ADJUSTING ACCOUNTS
FOR FINANCIAL STATEMENTS
b.
Date Description Debit Credit
Dec 31 Salaries expense (+E, -SE) 720
Salaries payable (+L) 720
To accrue salaries at December 31 ($1,800  2/5 = $720).

31 Interest expense (+E, -SE) 200

Interest payable (+L) 200
To accrue interest expense at December 31.

31 Fees receivable (+A) 900

Printing revenue (+R, +SE) 900
To record revenue earned but not yet billed.

31 Maintenance expense (+E ,-SE) 400

Prepaid maintenance (-A) 400
To record December maintenance expense.

31 Advertising expense (+E, -SE) 300

Prepaid advertising (-A) 300
To record December advertising expense
($900  1/3 = $300).

31 Rent expense (+E, -SE) 160

Rent payable (+L) 160
To accrue one-half month's rent expense
[(400  $0.80)/2 = $160].

31 Interest receivable (+A) 38

Interest income (+R, +SE) 38
To accrue interest earned in December.

31 Depreciation expense—Equipment (+E, -SE) 2,175

Accum. depreciation—Equipment (+XA) 2,175
To record annual depreciation on equipment.

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 CHAPTER 3: ADJUSTING ACCOUNTS
FOR FINANCIAL STATEMENTS
P3-44.

a.
TRUEMAN CONSULTING INC.
Income Statement
For the Year Ended December 31, 2015
Revenue
Service fees earned $58,400
Expenses
Rent expense $12,000
Salaries expense 33,400
Supplies expense 4,700
Insurance expense 3,250
Depreciation expense—Equipment 720
Interest expense 630
Total Expenses 54,700
Net Income $ 3,700

TRUEMAN CONSULTING INC.

Statement of Stockholders’ Equity
For the Year Ended December 31, 2015
Common Retained Total Stockholders’
Stock Earnings Equity
Balance at December 31, 2014 .............. $1,000 $3,305 $4,305
Stock issuance .......................................
Dividends ................................................
Net income ............................................. _____ 3,700 3,700
Balance at December 31, 2015 .............. $1,000 $7,005 $8,005

TRUEMAN CONSULTING
Balance Sheet
December 31, 2015

Assets Liabilities
Cash $ 2,700 Accounts payable $ 845
Accounts receivable 3,270 Long-term notes payable 7,000
Supplies 3,060 Total Liabilities 7,845
Prepaid insurance 1,500
Equipment $ 6,400 Owners’ Equity
Less: Accumulated 1,080 5,320 Common stock 1,000
depreciation
Retained earnings 7,005
Total Assets $15,850 Total Liabilities and Owners’ Equity $15,850

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 CHAPTER 3: ADJUSTING ACCOUNTS
FOR FINANCIAL STATEMENTS
b.
Date 2015 Description Debit Credit
Dec. 31 Service fees earned (-R) 58,400
Retained earnings (+SE) 58,400
To close the revenue account.

31 Retained earnings (-SE) 54,700

Rent expense (-E) 12,000
Salaries expense(-E) 33,400
Supplies expense (-E) 4,700
Insurance expense (-E) 3,250
Depreciation expense—Equip (-E) 720
Interest expense (-E) 630
To close the expense accounts.

P3-45.

a.
Date 2015 Description Debit Credit
Dec. 31 Service fees earned (-R) 97,200
Miscellaneous income (-R) 4,200
Retained earnings (+SE) 101,400
To close the revenue accounts.

31 Retained earnings (-SE) 74,800

Salaries expense (-E) 42,800
Rent expense (-E) 13,400
Insurance expense (-E) 1,800
Depreciation expense (-E) 8,000
Income tax expense (-E) 8,800
To close the expense accounts.

b. After the closing entries are posted, Retained Earnings has a $45,700 credit balance
($19,100 + $26,600 net income).

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 CHAPTER 3: ADJUSTING ACCOUNTS
FOR FINANCIAL STATEMENTS
c.
Wilson Company
Post-Closing Trial Balance
December 31, 2015
Debit Credit
Cash $8,500
Accounts Receivable 8,000
Prepaid Insurance 3,600
Equipment 72,000
Accumulated Depreciation $12,000
Accounts Payable 600
Income Tax Payable 8,800
Common Stock 25,000
Retained Earnings ______ 45,700
$92,100 $92,100

P3-46.

a.
Balance Sheet Income Statement
Cash Noncash Contrib. Earned Net
Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
1. Recognize -400 = -400 - +400 = -400
Advertising
Prepaid Retained Advertising
expense.
Advertising Earnings Expense

2. Accrue wage = +1,300 -1,300 - +1,300 = -1,300

expense.
Wages Retained Wages
Payable* Earnings Expense

3. Recognize -1,140 = -1,140 - +1,140 = -1,140

insurance
Prepaid Retained Insurance
expense.
Insurance Earnings Expense

4. Recognize = -2,400 +2,400 +2,400 - = +2,400

service fees
Unearned Retained Service
earned.
Service Fees Earnings Fees
Earned

5. Recognize +1,000 = +1,000 +1,000 - = +1,000

rent revenue.
Rent Retained Rental
Receivable Earnings Income

Totals 0 + -540 = -1,100 + 0 + 560 3,400 - 2,840 = 560

*Assumes wages earned had not been accrued or recognized yet as an expense.

continued next page

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FOR FINANCIAL STATEMENTS

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Solutions Manual, Chapter 3 3-11
 CHAPTER 3: ADJUSTING ACCOUNTS
FOR FINANCIAL STATEMENTS
Date 2015 Description Debit Credit
Dec. 31 Advertising expense (+E, -SE) 400
Prepaid advertising (-A) 400
To record advertising expense ($1,200  $800 = $400).

31 Wages expense (+E, -SE) 1,300

Wages payable (+L) 1,300
To record accrued wages.

31 Insurance expense (+E, -SE) 1,140

Prepaid insurance (-A) 1,140
To record insurance expense ($3,420  $2,280 = $1,140).

31 Unearned service fees (-L) 2,400

Service fees earned (+R, +SE) 2,400
To recognize unearned fees as earned
($5,400  $3,000 = $2,400).

31 Rent receivable (+A) 1,000

Rental income (R, +SE) 1,000
To record rent earned but not yet recorded.

b.
Balance Sheet Income Statement

Cash Noncash Contrib. Earned Net

Transaction Asset + Assets = Liabilities + Capital + Capital Revenues - Expenses = Income
1. Pay wages -2,400 = -1,300 -1,100 - +1,100 = -1,100
of $2,400.
Cash Wages Retained Wages
Payable Earnings Expense

2. Receipt of +1,000 -1,000 = - =

$1,000 rent
Cash Rent
revenue.
Receivable

Date 2016 Description Debit

Credit
Jan. 4 Wages payable (-L) 1,300
Wages expense (+E, -SE) 1,100
Cash (-A) 2,400
To record payment of wages.

4 Cash (+A) 1,000

Rent receivable (-A) 1,000
To record collection of rent.

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