P3 35a accounting answers

E3-19

E3−19

Requirements

1. Show whether each transaction would be handled as a revenue or an expense using both the cash basis and accrual basis accounting systems by completing the following table. (Expenses should be shown in parentheses.) Also, indicate the dollar amount of the revenue or expense. The May 1 transaction has been completed as an example.

Amount of Revenue (Expense) for May

Date Cash Basis Amount of Revenue (Expense) Accrual Basis Amount of Revenue (Expense)

May 1 ($1,800) $ 0

2. After completing the table, calculate the amount of net income or net loss for Fantastic Catering under the accrual basis and cash basis accounting systems for

for May.

3. Considering your results from Requirement 2, which method gives the best picture of the true earnings of Fantastic Catering? Why?

Solution:

Requirement 1

Amount of Revenue (Expense) for May

Date Cash Basis Amount of Revenue (Expense) Accrual Basis Amount of Revenue (Expense)

May 1 $(1,800) $ 0

5

9

14

23

31

31

31

Requirement 2

Requirement 3

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E3-27

E3-27

Indicate if an adjusting entry is needed for each item on October 31 for the month of October. Assuming the adjusting entry is not made, indicate which specific category or categories of accounts on the financial statements are misstated and if they are overstated or understated. Use the following table as a guide. Item (a) is completed as an example:

Specific Category of Accounts on the Balance Sheet Specific Category of Accounts on the Income Statement

Adjusting Entry Needed? Over / Understated Over / Understated

Item

(a) Yes Liability Over Revenue Under

Equity Under

Solution:

Item Adjusting Entry Needed? Specific Category of Accounts on the Balance Sheet Over / Understated Specific Category of Accounts on the Income Statement Over / Understated

(a)

(b)

(c)

(d)

(e)

(f)

(g)

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&L&"Arial,Bold"Chapter 3: The Adjusting Process&R&"Arial,Bold"Page &P of &N

P3-35A

P3-35A

Requirements

1. Journalize the adjusting entries on December 31.

2. Using the unadjusted trial balance, open the T-accounts with the unadjusted balances. Post the adjusting entries to the T-accounts.

3. Prepare the adjusted trial balance.

4. How will Aurora Air Purification System use the adjusted trial balance?

Solution:

Requirement 1

Date Accounts and Explanation Debit Credit

Requirement 2

Cash Accounts Payable

Service Revenue Accounts Receivable

Salaries Payable Salaries Expense

Prepaid Rent Unearned Revenue

Rent Expense Office Supplies

Aurora, Capital Aurora, Withdrawals

Depreciation Expense—Equipment Accumulated Depreciation—Equipment

Equipment Advertising Expense

Supplies Expense

Requirement 3

AURORA AIR PURIFICATION SYSTEM

Adjusted Trial Balance

December 31, 2016

Balance

Account Title Debit Credit

Requirement 4

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P3-37A

P3-37A

Requirements

1. Analyze the worksheet to determine the adjusting entries that account for the differences between the unadjusted trial balance and the adjusted trial balance. Complete the worksheet. Use letters a through e to label the five adjustments.

2. Journalize the adjusting entries.

Solution:

Requirement 1

GANVILLE THEATER PRODUCTION COMPANY

Worksheet

December 31, 2016

Unadjusted Trial Balance Adjustments Adjusted Trial Balance

Account Names Debit Credit Debit Credit Debit Credit

Cash $ 4,000 $ 4,000

Accounts Receivable 6,000 7,000

Of‚fice Supplies 1,300 400

Prepaid Insurance 3,600 3,150

Equipment 28,000 28,000

Accumulated Depreciation—Equipment $ 8,800 $ 12,600

Accounts Payable 5,000 5,000

Salaries Payable 100

Common Stock 13,500 13,500

Dividends 31,000 31,000

Service Revenue 76,000 77,000

Depreciation Expense—Equipment 3,800

Supplies Expense 900

Utilities Expense 5,400 5,400

Salaries Expense 24,000 24,100

Insurance Expense 450

Total $ 103,300 $ 103,300 $ 108,200 $ 108,200

Requirement 2

Date Accounts and Explanation Debit Credit

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&L&"Arial,Bold"Chapter 3: The Adjusting Process&R&"Arial,Bold"Page &P of &N

P3A-38A

P3A-38A

Requirements

1. Journalize the transactions assuming that Night Flyer debits an asset account for prepaid expenses and credits a liability account for unearned revenues.

2. Journalize the related adjusting entries at December 31, 2016.

3. Post the journal and adjusting entries to the T-accounts, and show their balances at December 31, 2016. (Ignore the Cash account.)

4. Repeat Requirements 1–3. This time debit an expense account for prepaid expenses and credit a revenue account for unearned revenues.

5. Compare the account balances in Requirements 3 and 4. They should be equal.

Solution:

Requirement 1

Date Accounts and Explanation Debit Credit

Requirement 2

Date Accounts and Explanation Debit Credit

Requirement 3

Prepaid Rent Rent Expense

Prepaid Insurance Insurance Expense

Unearned Revenue Service Revenue

Requirement 4

Date Accounts and Explanation Debit Credit

Prepaid Rent Rent Expense

Prepaid Insurance Insurance Expense

Unearned Revenue Service Revenue

Requirement 5

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Decision Case 3-1

Decision Case 3-1

Help Swift Classified Ads compute its net income for the year. Advise Stasney whether to continue operating Swift Classified Ads.

Solution:

Swift Classified Ads

Income Statement

Year Ended December 31

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Ethical Issue 3-1

Ethical Issue 3-1

Requirements

1. Compute the overall effects of these transactions on the company’s reported net income for 2016.

2. Why is Steinbach taking this action? Is his action ethical? Give your reason, identifying the parties helped and the parties harmed by Steinbach’s action.

3. As a personal friend, what advice would you give the accountant?

Solution:

Requirement 1

Requirement 2

Requirement 3

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&L&"Arial,Bold"Chapter 3: The Adjusting Process&R&"Arial,Bold"Page &P of &N

E4-17

E4-17

Requirements

1. Prepare the classified balance sheet of Penny O'Hara Dance Studio Company at August 31, 2016. Use the report form. You must compute the ending balance of O'hara, Capital.

2. Compute O’Hara’s current ratio at August 31, 2016. One year ago, the current ratio was 1.57. Indicate whether O’Hara’s ability to pay current debts has improved, deteriorated, or remained the same.

Solution:

Requirement 1

PENNY O'HARA DANCE STUDIO COMPANY

Balance Sheet

August 31, 2016

Assets

Liabilities

Owner's Equity

Requirement 2

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&L&"Arial,Bold"Chapter 4: Completing the Accounting Cycle&R&"Arial,Bold"Page &P of &N

E4-18

E4-18

Requirements

1. Complete Voice Link’s worksheet for the month ended November 30, 2016.

2. How much was net income for November?

Solution:

Requirement 1

VOICE LINK

Worksheet

November 30, 2016

Account Names Unadjusted Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet

Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

Requirement 2

&L&"Arial,Bold"&12HORNGREN'S ACCOUNTING - Eleventh Edition

&L&"Arial,Bold"Chapter 4: Completing the Accounting Cycle&R&"Arial,Bold"Page &P of &N

E4-19

E4-19

Requirements

1. Complete the income statement for the month ended November 30, 2016.

2. Complete the statement of owner's equity for the month ended November 30, 2016. Assume there were no contributions made by the owner during the month.

3. Complete the unclassified balance sheet as of November 30, 2016. Use the account form.

Solution:

Requirement 1

VOICE LINK

Income Statement

Month Ended November 30, 2016

Requirement 2

VOICE LINK

Statement of Owner's Equity

Month Ended November 30, 2016

Requirement 3

VOICE LINK

Balance Sheet

November 30, 2016

Assets Liabilities

Owner's Equity

&L&"Arial,Bold"&12HORNGREN'S ACCOUNTING - Eleventh Edition

&L&"Arial,Bold"Chapter 4: Completing the Accounting Cycle&R&"Arial,Bold"Page &P of &N

P4-32A

P4-32A

Requirements

1. Prepare the journal entries and post to the T-accounts.

2. Prepare an unadjusted trial balance.

3. Complete the worksheet for the month ended December 31, 2016. (optional)

4. Prepare the adjusting entries and post to the T-accounts.

5. Prepare an adjusted trial balance.

6. Prepare the income statement, the statement of owner's equity, and the unclassified balance sheet in account form.

7. Prepare the closing entries and post to the T-accounts.

8. Prepare a post-closing trial balance.

Solution:

Requirement 1

Date Accounts and Explanation Debit Credit

Date Accounts and Explanation Debit Credit

Requirement 1, 4, and 7

Cash Wonder, Withdrawals

Income Summary

Accounts Receivable Service Revenue

Office Supplies Salaries Expense

Prepaid Insurance Rent Expense

Equipment Utilities Expense

Accumulated Depreciation—Equipment Advertising Expense

Land Supplies Expense

Accounts Payable Insurance Expense

Utilities Payable Interest Expense

Interest Payable Depreciation Expense—Equipment

Unearned Revenue Notes Payable

Wonder, Capital

Requirement 2

WONDER’S QUALITY AUTOMOTIVE

Unadjusted Trial Balance

December 31, 2016

Balance

Account Title Debit Credit

Requirement 4

Date Accounts and Explanation Debit Credit

Requirement 5

WONDER’S QUALITY AUTOMOTIVE

Adjusted Trial Balance

December 31, 2016

Balance

Account Title Debit Credit

Requirement 3

WONDER’S QUALITY AUTOMOTIVE

Worksheet

December 31, 2016

Account Names Unadjusted Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet

Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit

Requirement 6

WONDER’S QUALITY AUTOMOTIVE

Income Statement

Month Ended December 31, 2016

WONDER’S QUALITY AUTOMOTIVE

Statement of Owner’s Equity

Month Ended December 31, 2016

WONDER’S QUALITY AUTOMOTIVE

Balance Sheet

December 31, 2016

Assets Liabilities

Owner's Equity

Requirement 7

Date Accounts and Explanation Debit Credit

Requirement 8

WONDER’S QUALITY AUTOMOTIVE

Post-Closing Trial Balance

December 31, 2016

Balance

Account Title Debit Credit

&L&"Arial,Bold"&12HORNGREN'S ACCOUNTING - Eleventh Edition

&L&"Arial,Bold"Chapter 4: Completing the Accounting Cycle&R&"Arial,Bold"Page &P of &N

Fraud Case 4-1

Fraud Case 4-1

Requirements

1. How did the fraudulent accounting just described affect the current ratio?

2. Can you think of any reasons why someone in the company would want to take this kind of action?

Solution:

Requirement 1

Requirement 2

&L&"Arial,Bold"&12HORNGREN'S ACCOUNTING - Eleventh Edition

&L&"Arial,Bold"Chapter 4: Completing the Accounting Cycle&R&"Arial,Bold"Page &P of &N

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