Chap 004

Chapter 4
PROBLEM SET B
Problem 4-1B (15 minutes)
1.
6.
11.
16.
2.
7.
12.
17.
3.
8.
13.
18.
4.
9.
14.
19.
5.
10.
15.
20.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 4

INSTRUCTOR NOTE: Ledger accounts are shown after Part 7 as they would appear after all
entries are posted.
Part 2
Transactions for July
July 1
Cash
30,000
Buildings
150,000
101
173
L. Plume,
Capital
301
180,000
Owner invested in the business.
Rent Expense
2,000
640
Cash
101
2,000
Paid one months rent.
Office Supplies
2,400
124
Cash
101
2,400
Acquired office supplies.
10
Prepaid Insurance
7,200
128
Cash
101
7,200
Paid 12 months premium in advance.
14
Salaries Expense
1,000
622
Cash
101
1,000
Paid two weeks salary.
24
Cash
9,800
101
Storage Fees
Earned
401
Fundamental Accounting Principles, 21st Edition
9,800
Collected fees from customers.
28
Salaries Expense
1,000
622
Cash
101
1,000
Paid two weeks salary.
29
Repairs Expense
950
684
Cash
101
950
Repaired the roof.
30
Telephone Expense
400
688
Cash
101
400
Paid the telephone bill.
31
L. Plume, Withdrawals
2,000
Cash
101
2,000
302
Owner withdrew cash for personal use.
Problem 4-2B (Continued)

Part 3
SAFE STORAGE CO.
Unadjusted Trial Balance
July 31, 2013
No.
Account Title
Debit
Credit
101
Cash..................................................................... $ 22,850
106
Accounts receivable...........................................
124
Office supplies....................................................
2,400
128
Prepaid insurance...............................................
7,200
173
Buildings.............................................................. 150,000
174
Accumulated depreciationBuildings...............
209
Salaries payable..................................................
301
L. Plume, Capital.................................................
180,000
302
L. Plume, Withdrawals........................................
401
Storage fees earned............................................
606
Depreciation expenseBuildings......................
622
Salaries expense.................................................
2,000
637
Insurance expense..............................................
640
Rent expense.......................................................
2,000
650
Office supplies expense.....................................
684
Repairs expense..................................................
950
688
Telephone expense.............................................
400
2,000
9,800
Totals....................................................................$189,800
$189,800

Part 4
Adjusting entries
July 31 Insurance Expense...........................................637
400
..........................................................................................Prepaid Insurance128
..........................................................................................400
To record expired insurance
(2/3 x $7,200/12 per month).
31 Office Supplies Expense..................................650

875
..........................................................................................Office Supplies
..........................................................................................875
124
To record the cost of consumed

supplies ($2,400 - $1,525).
31 Depreciation ExpenseBuildings...................606
1,500
.......................................................................................... Accum. Depreciation
Buildings.........................................................................174
1,500
To record depreciation.
31 Salaries Expense...............................................622
100
..........................................................................................Salaries Payable 209
..........................................................................................100
To record accrued salaries.
31 Accounts Receivable........................................106
1,150
..........................................................................................Storage Fees Earned401
..........................................................................................
1,150
To record accrued storage fees.

Part 4
SAFE STORAGE CO.
Adjusted Trial Balance
July 31, 2013
No.
Account Title
Debit
Credit
101
Cash..................................................................... $ 22,850
106
Accounts receivable...........................................
1,150
124
Office supplies....................................................
1,525
128
Prepaid insurance...............................................
6,800
173
Buildings.............................................................. 150,000
174
Accumulated depreciationBuildings...............
209
Salaries payable..................................................
100
301
L. Plume, Capital.................................................
180,000
302
L. Plume, Withdrawals........................................
401
Storage fees earned............................................
606
Depreciation expenseBuildings......................
1,500
622
Salaries expense.................................................
2,100
637
Insurance expense..............................................
400
640
Rent expense.......................................................
2,000
650
Office supplies expense.....................................
875
684
Repairs expense..................................................
950
688
Telephone expense.............................................
400
1,500
2,000
10,950
Totals....................................................................$192,550
$192,550

Part 5
SAFE STORAGE CO.
Income Statement
For Month Ended July 31, 2013
Storage fees earned
$10,950
Expenses
Depreciation expenseBuildings
$1,500
Salaries expense
2,100
Insurance expense
400
Rent expense
2,000
Office supplies expense
875
Repairs expense
950
Telephone expense
400
Total expenses
8,225
Net income
$ 2,725
SAFE STORAGE CO.

Statement of Owners Equity
For Month Ended July 31, 2013
L. Plume, Capital, July 1, 2013
Add: Owners investment
$180,000
Net income
182,725
Less: Withdrawals
L. Plume, Capital, July 31, 2013
0
2,725
(2,000)
$180,725

Part 5
SAFE STORAGE CO.
Balance Sheet
July 31, 2013
Assets
Cash
$ 22,850
Accounts receivable
1,150
Office supplies
1,525
Prepaid insurance
6,800
Buildings
$150,000
Accumulated depreciation--Buildings
Total assets
$180,825
Salaries payable
(1,500)
148,500
Liabilities
$
100
L. Plume, Capital
Total liabilities and equity
Equity
180,725
$180,825

Part 6
Closing entries
July 31
Storage Fees Earned
Summary
401
10,950
Income
901
10,950
To close the revenue account.
31
Income Summary
ExpBuildings
901
8,225
Depreciation
606
1,500
Salaries
Expense
622
2,100
Insurance
Expense...
637
400
Rent Expense
640
2,000
Office
Supplies Expense
650
875
Repairs
Expense
684
950
Telephone
Expense
688
400
To close the expense accounts.
31
Income Summary
Capital
901
2,725
L. Plume,
301
2,725
To close the Income Summary.
31
L. Plume, Capital
Withdrawals
301
2,000
L. Plume,
302
2,000
To close the withdrawals account.

Part 7
Cash
SAFE STORAGE CO.

Post-Closing Trial Balance
July 31, 2013
Debit
$ 22,850
Accounts receivable
Office supplies
1,150
1,525
Prepaid insurance
Buildings
6,800
150,000
Accumulated depreciationBuildings
Salaries payable
1,500
100
L. Plume, Capital
Totals
Credit
180,725
$182,325
$182,325
10

Ledger as of July 31
Date Explanation
July
PR
Debit Credit
Cash
Acct. No. 101
Balance
1
30,000
30,000
2
2,000
28,000
5
2,400
25,600
10
7,200
18,400
14
1,000
17,400
24
9,800
27,200
28
1,000
26,200
29
950
25,250
30
400
24,850
11
31
2,000
22,850
Date Explanation
PR
Debit Credit
July
Date Explanation
PR
Debit Credit
July
Accounts Receivable
Acct. No. 106
Balance
31
Adjusting
1,150
1,150
Office Supplies
Acct. No. 124
Balance
5
31
2,400
2,400
Adjusting
875
1,525
Date Explanation
PR
Debit Credit
July
Prepaid Insurance
Acct. No. 128
Balance
10
31
7,200
7,200
Adjusting
400
6,800
Date Explanation
July
PR
Debit Credit
Buildings
Acct. No. 173
Balance
1
150,000
150,000
12
Date Explanation
PR
July
Accumulated DepreciationBuildings
Acct. No. 174
Debit Credit
Balance
31
Adjusting
1,500
1,500
Date Explanation
July
PR
Debit Credit
Salaries Payable
Acct. No. 209
Balance
31
Adjusting
100
100
13
Date Explanation
PR
Debit Credit
July
L. Plume, Capital
Acct. No. 301
Balance
1
180,000
180,000
31
Closing
2,725
182,725
31
Closing
2,000
180,725
Date Explanation
PR
Debit Credit
July
L. Plume, Withdrawals
Acct. No. 302
Balance
31
2,000
2,000
31
Closing
2,000
Date Explanation
July
PR
Debit Credit
Storage Fees Earned

Acct.No. 401
Balance
24
31
9,800
9,800
Adjusting
1,150
10,950
31
Closing
10,950
0
14
Date Explanation
PR
July
Depreciation ExpenseBuildings
Acct. No. 606
Debit Credit
Balance
31
Adjusting
1,500
1,500
31
Closing
1,500
Date Explanation
PR
Debit Credit
July
Salaries Expense
Acct. No. 622
Balance
14
1,000
1,000
28
1,000
2,000
31
Adjusting
100
2,100
31
Closing
2,100
Date Explanation
PR
Debit Credit
July
July
PR
Debit Credit
Insurance Expense
Acct. No. 637
Balance
31
Adjusting
400
400
31
Closing
400
Date Explanation
Rent Expense
Acct. No. 640
Balance
2
2,000
2,000
31
Closing
15
2,000
16
Problem 4-2B (Concluded)
Date Explanation
PR
July
Office Supplies Expense

Acct. No. 650
Debit Credit
Balance
31
Adjusting
31
875
875
Closing
875
Date Explanation
PR
Debit Credit
July
Repairs Expense
Acct. No. 684
Balance
29
31
950
950
Closing
950
Date Explanation
PR
July
Date Explanation
July
PR
Debit Credit
30
400
400
31
400
Debit Credit
Telephone Expense
Acct. No. 688
Balance
Closing
0
Income Summary
Acct. No. 901
Balance
31
Closing
10,950
10,950
31
Closing
8,225
2,725
31
Closing
17
2,725
0
18
Problem 4-3B (90 minutes) Part 1

POWER DEMOLITION COMPANY
Work Sheet
For Year Ended April 30, 2013
No.
101
126
128
167
168
201
203
208
210
213
251
301
302
401
612
623
633
637
640
652
683
684
690
Unadjusted
Trial Balance
Account Title
Dr.
Cr.
Cash...........................................
7,000
Supplies.......................................
16,000
Prepaid insurance..........................
12,600
Equipment...................................
200,000
Accumulated depreciation
14,000
Equipment..................................
Accounts payable..........................
Interest payable.............................
Rent payable.................................
Wages payable..............................
Property taxes payable...................
Long-term notes payable................
J. Bonn, Capital.............................
J. Bonn, Withdrawals......................
12,000
Demolition fees earned...................
Depreciation expenseEquip.........
Wages expense.............................
41,400
Interest expense............................
3,300
Insurance expense.........................
Rent expense................................
13,200
Supplies expense..........................
Property taxes expense..................
9,700
Repairs expense............................
4,700
Utilities expense............................
4,800
Totals..........................................
324,700
Net Income...................................
Totals..........................................
Adjusted
Adjustments
Trial Balance
Dr.
Cr.
Dr.
Cr.
7,000
(a) 8,100
7,900
(b) 10,600
2,000
200,000
(c) 7,000
21,000
6,800
(d)
(h)
(f)
(e)
(g)
800
300
3,000
2,000
550
Income
Statement
Dr.
Cr.
7,600
300
3,000
2,000
550
30,000
86,900
30,000
86,900
7,600
300
3,000
2,000
550
30,000
86,900
12,000
187,000
12,000
187,000
(c) 7,000
(e) 2,000
(h)
300
(b) 10,600
(f) 3,000
(a) 8,100
(g)
550
______ (d)
800
324,700
32,350
Balance Sheet
and Statement of
Owners Equity
Dr.
Cr.
7,000
7,900
2,000
200,000
21,000
187,000
7,000
7,000
43,400
43,400
3,600
3,600
10,600
10,600
16,200
16,200
8,100
8,100
10,250
10,250
4,700
4,700
______
5,600 ______
5,600
32,350 338,350 338,350 109,450
77,550
187,000
______
187,000
______
187,000
______ ______
228,900 151,350
______ 77,550
228,900 228,900
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
19

Part 2
Adjusting entries (all on April 30, 2013)
Instructor note: Entries are shown without an account reference column because no posting is required.
(a)......................................................................................Supplies Expense
...........................................................................................
8,100
...........................................................................................
Supplies
...........................................................................................8,100
To record consumption of supplies.
(b)......................................................................................Insurance Expense
...........................................................................................
10,600
...........................................................................................
Prepaid
Insurance..........................................................................
10,600
To record expiration of insurance.
(c)......................................................................................Depreciation Expense
Equipment....................................................................
7,000
...........................................................................................
Accumulated
DepreciationEquipment................................................
7,000
(d)......................................................................................Utilities Expense
...........................................................................................
800
...........................................................................................
Accounts
Payable.............................................................................
800
To record accrued utilities costs.
(e)......................................................................................Wages Expense
...........................................................................................2,000
...........................................................................................
Wages Payable
...........................................................................................
2,000
To record accrued wages.
(f).......................................................................................Rent Expense
...........................................................................................3,000
...........................................................................................
Rent Payable
...........................................................................................
3,000
To record remainder of annual rent.
(g)......................................................................................Property Taxes
Expense............................................................................
550
...........................................................................................
Property Taxes
Payable.............................................................................
550
To record additional property taxes.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
20
(h)......................................................................................Interest Expense
...........................................................................................
300
...........................................................................................
Interest Payable
...........................................................................................
300
To record Aprils interest expense
([12%/12] x $30,000).
21

Closing entries (all on April 30, 2013)
(1)
Demolition Fees Earned

187,000
Income Summary
187,000
(2)
Income Summary
109,450
Depreciation ExpenseEquipment
7,000
Wages Expense
43,400
Interest Expense
3,600
Insurance Expense
10,600
Rent Expense
16,200
Supplies Expense
8,100
Property Taxes Expense
10,250
Repairs Expense
4,700
Utilities Expense
5,600
(3)
Income Summary
77,550
J. Bonn, Capital
77,550
To close the Income Summary account.
(4)
J. Bonn, Capital
12,000
J. Bonn, Withdrawals
12,000
22

Part 3
Income Statement
Demolition fees earned
$187,000
Expenses
Depreciation expenseEquipment
Wages expense
43,400
Interest expense
3,600
Insurance expense
10,600
Rent expense
16,200
Supplies expense
8,100
Property taxes expense
10,250
Repairs expense
4,700
Utilities expense
5,600
Total expenses
109,450
Net income
$ 77,550
$ 7,000

J. Bonn, Capital, April 30, 2012
Add:
$ 46,900
Investments by owner
Net income
117,550
Less: Withdrawals
$40,000
77,550
J. Bonn, Capital, April 30, 2013
(12,000)
$152,450
23

Balance Sheet
April 30, 2013
Assets
Current assets
Cash
$ 7,000
Supplies
7,900
Prepaid insurance
2,000
Total current assets
$ 16,900
Plant assets
Equipment
200,000
Accumulated depreciationEquipment
179,000
Total assets
$195,900
(21,000)
Liabilities
Current liabilities
Accounts payable
$ 7,600
Interest payable
300
Rent payable
3,000
Wages payable
2,000
Property taxes payable
550
Current portion of long-term note payable
Total current liabilities
$ 23,450
Long-term liabilities
Long-term note payable (less current portion)
Total liabilities
43,450
J. Bonn, Capital
10,000
20,000
Equity
152,450
$195,900
24

Part 4
(a) This error enters the wrong amount in the correct accounts. The
ending balance of the Prepaid Insurance account should be $2,000,
but the entry reduces that account by $2,000.
Because its
unadjusted balance was $12,600, the adjusted balance will be
$10,600 ($12,600 - $2,000), which is $8,600 greater than the correct
$2,000 balance. In addition, the Insurance Expense account balance
will be only $2,000 instead of $10,600.
The adjusted trial balance columns in the work sheet will be equal,
but the error will cause the work sheets net income to be overstated
by $8,600 because of the understatement of the expense. In
addition, the balance sheet columns will include the overstated
balance for the Prepaid Insurance account.
This error is not likely to be detected as a result of completing the
work sheet. If it is not, the income statement will overstate net
income by $8,600, and the balance sheet will overstate the cost of
the unexpired insurance and total equity by $8,600.
(b) This error inserts a debit in the balance sheet columns instead of the
income statement columns. In the unlikely event that this error is
not immediately detected, it will cause the work sheet measure of
net income to be overstated because the total debits will incorrectly
omit the $4,700 expense for repairs.
In all likelihood, the error will be discovered in the process of
drafting the balance sheet because the accountant will realize that
repairs expense is not an asset. If it is detected and corrected, the
financial statements will be unaffected. However, if the repairs
expense is erroneously included on the balance sheet, the reported
net income will be overstated by $4,700. On the balance sheet, a
nonexistent asset will be reported for the repairs expense and total
equity will be overstated by $4,700.
25

Part 1
SANTO COMPANY
Income Statement
For Year Ended December 31, 2013
Repair fees earned
$54,700
Expenses
Wages expense
26,400
Insurance expense
600
Rent expense
3,600
Store supplies expense
1,200
Utilities expense
1,960
Total expenses
35,760
Net income
$18,940
$ 2,000
SANTO COMPANY
P. Santo, Capital, December 31, 2012
Add: Net income
$35,650
18,940
54,590
Less: Withdrawals
(15,000)
P. Santo, Capital, December 31, 2013
$39,590
26

SANTO COMPANY
Balance Sheet
December 31, 2013
Assets
Current assets
Cash
$14,450
Store supplies
5,140
Prepaid insurance
1,200
$20,790
Plant assets
Equipment
31,000
23,000
Total assets
$43,790
(8,000)
Liabilities
Current liabilities
Accounts payable
Wages payable
$ 1,500
2,700
4,200
Equity
P. Santo, Capital
39,590
$43,790
27

Parts 2 and 3
No
.
Account Title
SANTO COMPANY
Work Sheet
Adjusted
Trial Balance
Closing Entry Information
Dr.
Cr.
Dr.
Cr.
Post-Closing
Trial Balance
Dr.
Cr.
101
Cash............................... 14,450
14,450
125
Store supplies.................. 5,140
5,140
128
Prepaid insurance............ 1,200
1,200
167
Equipment....................... 31,000
31,000
168
Accumulated depreciationEquipment............
8,000
8,000
201
Accounts payable.............
1,500
1,500
210
Wages payable.................
2,700
2,700
301
P. Santo, Capital................
302
P. Santo, Withdrawals........ 15,000
401
Repair fees earned............
612
35,650 (4)
15,000 (3)
18,940
(4)
15,000
Depreciation expense
2,000
Equipment.....................
(2)
2,000
623
Wages expense................ 26,400
(2)
26,400
637
Insurance expense...........
600
(2)
600
640
Rent expense................... 3,600
(2)
3,600
651
Store supplies expense..... 1,200
(2)
1,200
690
Utilities expense............... 1,960
(2)
1,960
901
Income summary.............
35,760 (1)
18,940
54,700
______
54,700 (1)
______
Totals..............................102,550
(2)
______ (3)
102,550
39,590
54,700
124,400
_____
_____
124,400 51,790
51,790
28

Part 3
Closing entries (all dated December 31, 2013)
(1).....................................................................................Repair Fees Earned

..........................................................................................54,700
..........................................................................................Income Summary
..........................................................................................
54,700
(2).....................................................................................Income Summary
..........................................................................................35,760
..........................................................................................Depreciation Expense,
Equipment.......................................................................
2,000
..........................................................................................Wages Expense
..........................................................................................
26,400
..........................................................................................Insurance Expense
..........................................................................................
600
..........................................................................................Rent Expense
..........................................................................................
3,600
..........................................................................................Store Supplies
Expense...........................................................................
1,200
..........................................................................................Utilities Expense
..........................................................................................
1,960
(3).....................................................................................Income Summary
..........................................................................................18,940
..........................................................................................
P. Santo, Capital
..........................................................................................
18,940
(4).....................................................................................P. Santo, Capital

..........................................................................................15,000
.......................................................................................... P. Santo, Withdrawals
..........................................................................................
15,000
Part 4
(a) If none of the $600 insurance expense had expired, the income
statement would not report any insurance expense and net income
would be increased by $600.
29
(b) If there were no earned and unpaid wages (meaning Wages Payable
equals zero), wages expense would be $2,700 less and, thus, net
income $2,700 higher.
Financial Statement Changes
The income statement would reflect the following:
Net income would be increased by $600 + $2,700 = $3,300. (a) & (b)
The balance sheet would reflect the following:
Prepaid insurance and total assets would be increased by $600. (a)
There would not be any wages payable. (b)
Total liabilities would be decreased by $2,700. (b)
Total equity would be increased by $3,300. (a) & (b)
30

Part 1
ANARA CO.
Income Statement
Revenues
Professional fees earned
$59,600
Rent earned
4,500
Dividends earned
1,000
Interest earned
1,320
Total revenues
$66,420
Expenses
Depreciation expenseBuilding
2,000
1,000
Wages expense
18,500
Interest expense
1,550
Insurance expense
1,525
Rent expense
3,600
Supplies expense
1,000
Postage expense
410
Property taxes expense
4,825
Repairs expense
679
Telephone expense
521
Utilities expense
1,920
Total expenses
37,530
Net income
$28,890
ANARA CO.
Statement of Owner's Equity
P. Anara, Capital, December 31, 2012
$ 52,800
Add: Investments by owner
$40,000
Net income
28,890
68,890
121,690
Less: Withdrawals by owner
(8,000)
P. Anara, Capital, December 31, 2013
$113,690
31

ANARA CO.
Balance Sheet
December 31, 2013
Assets
Current assets
Cash
$ 7,400
Short-term investments
11,200
Supplies
4,600
Prepaid insurance
1,000
$ 24,200
Plant assets
Equipment
$24,000
(4,000)
Building
100,000
Accumulated depreciationBuilding
(10,000)
Land
30,500
Total plant assets
140,500
Total assets
$164,700
Liabilities
Current liabilities
Accounts payable
$ 3,500
Interest payable
1,750
Rent payable
400
Wages payable
1,280
Property taxes payable
3,330
Unearned professional fees
750
Current portion of long-term note payable
$ 19,410
Long-term liabilities
Long-term notes payable ($40,000-$8,400)
Total liabilities
51,010
P. Anara, Capital
20,000
90,000
8,400
31,600
Equity
113,690
$164,700
32

Part 2
Closing entries (all dated December 31, 2013)
(1)
Professional Fees Earned

59,600
Rent Earned
4,500
Dividends Earned
1,000
Interest Earned
1,320
Income Summary
66,420
To close the revenue accounts.
(2)
Income Summary
37,530
Depreciation ExpenseBuilding
2,000
Depreciation ExpenseEquipment
1,000
Wages Expense
18,500
Interest Expense
1,550
Insurance Expense
1,525
Rent Expense
3,600
Supplies Expense
1,000
Postage Expense
410
Property Taxes Expense
4,825
Repairs Expense
679
Telephone Expense
521
Utilities Expense
1,920
(3)
Income Summary
28,890
P. Anara, Capital
28,890
(4)
P. Anara, Capital
8,000
P. Anara, Withdrawals
8,000
Part 3
a.
b.
c.
d.
Return on assets = $28,890/[($160,000 + $164,700)/2] = 17.8% (or 0.178)

Debt ratio = $51,010/$164,700 = 0.31
Profit margin = $28,890/$66,420 = 43.5% (or 0.435)
Current ratio = $24,200/$19,410 = 1.25
33
Problem 4-6BA (40 minutes)

Part 1
SOLUTIONS CO.
Work Sheet
Unadjusted
Trial Balance
Dr.
Adjusted
Trial Balance
Adjustments
Cr.
Dr.
Cr.
Dr.
Cash.......................................10,000
10,000
(e)
Accounts receivable.................
2,450
2,450
(b)
Supplies.................................. 7,600
4,150
Machinery................................50,000
Accumulated depreciation
Machinery..............................
Cr.
3,450
50,000
(f)
3,800
23,800
Interest payable........................
(c)
800
800
Salaries payable.......................
(a)
400
400
Unearned rental fees.................
20,000
7,200 (d)
4,000
3,200
Notes payable..........................
30,000
30,000
G. Clay, Capital.........................
14,200
14,200
G. Clay, Withdrawals................. 9,500

Rental fees earned....................
9,500
(d)
(e)
32,450
4,000
2,450
38,900
Depreciation expense
Machinery..............................
(f)
3,800
3,800
Salaries expense......................24,500
(a)
400
24,900
Interest expense....................... 2,250
(c)
800
3,050
(b)
4,150
_____
15,600
15,600
Supplies expense..................... _____

_
_____
_
Totals......................................
103,850 103,850
4,150
______
111,300 111,300
34
Problem 4-6BA (Continued)

Part 2 (all adjusting entries dated December 31, 2013)
(a)
Salaries Expense
400
Salaries Payable
400
To record accrued wages.
(b)
Supplies Expense
4,150
Supplies
4,150
To record cost of consumed supplies.
(c)
Interest Expense
800
Interest Payable
800
To record accrued interest expense.
(d)
Unearned Rental Fees

Rental Fees Earned
To record earned fees.
4,000
4,000
(e)
Accounts Receivable
2,450
Rental Fees Earned
2,450
To record accrued revenues.
(f)
Depreciation ExpenseMachinery
3,800
Accumulated DepreciationMachinery
3,800
Part 3 (all reversing entries dated January 1, 2014)

(a)
Salaries Payable
400
Salaries Expense
400
To reverse accrued wages.
(c)
Interest Payable
800
Interest Expense
800
To reverse accrued interest expense.
(e)
Rental Fees Earned

2,450
Accounts Receivable
2,450
To reverse accrued revenues.
35
Problem 4-6BA (Concluded)

Part 4
2014
Jan. 4
Salaries Expense
Cash
1,200
To record payroll.
1,200
15
Interest Expense
900
Cash
900
To record interest payment.
31
Cash
7,850
Rental Fees Earned
7,850
To record collection of rental fees
($2,450 + $5,400).
36
SERIAL PROBLEM SP 4
Serial Problem, Success Systems (20 minutes) Part 1
<Note: The general ledger is displayed at the end of Part 2>
Closing entries
2013
Dec. 31..............................................................................Computer Services

Revenue ........................................................................... 403
31,284
...........................................................................................Income Summary 901
...........................................................................................
31,284
31...............................................................................Income Summary 901

...........................................................................................17,036
...........................................................................................Depreciation Exp
Office Equipment............................................................. 612
400
...........................................................................................Depreciation Exp
Computer Equipment......................................................... 613
1,250
...........................................................................................Wages Expense 623
...........................................................................................
3,875
...........................................................................................Insurance Expense
637.....................................................................................
555
...........................................................................................Rent Expense
640
...........................................................................................
2,475
...........................................................................................Computer Supplies
Expense ........................................................................... 652
3,065
...........................................................................................Advertising Expense
655.....................................................................................
2,965
...........................................................................................Mileage Expense 676
...........................................................................................
896
...........................................................................................Miscellaneous
Expenses ......................................................................... 677
250
...........................................................................................Repairs Expense
Computer ......................................................................... 684
1,305
31................................................................................Income Summary 901

...........................................................................................14,248
...........................................................................................
A. Lopez, Capital
301....................................................................................
14,248
31................................................................................A. Lopez, Capital
301
37
...........................................................................................7,100
........................................................................................... A. Lopez, Withdrawals
302....................................................................................
7,100
Note: All accounts with numbers that start with the digits 1 or 2 (the permanent
accounts) are unaffected by the closing process.
38
Serial Problem, SP 4 (Continued)

Part 2
SUCCESS SYSTEMS
Post-Closing Trial Balance
December 31, 2013
Debit
Credit
Cash............................................................................... $ 58,160
Accounts receivable.....................................................
5,668
Computer supplies.......................................................
580
Prepaid insurance.........................................................
1,665
Prepaid rent...................................................................
825
Office equipment...........................................................
8,000
Accumulated depreciationOffice equipment..........

Computer equipment....................................................
400
20,000
Accumulated depreciationComputer equipment...
1,250
Accounts payable.........................................................
1,100
Wages payable..............................................................
500
Unearned computer services revenue........................
1,500
A. Lopez, Capital ($83,000 + $14,248 - $7,100)...................... _______
90,148
Totals.............................................................................. $ 94,898
$ 94,898
39

[Instructor Note: Ledger includes all entries from prior three months. The Working
Papers shorten the solution by showing account balances as of December 31.]
General Ledger
Cash
Date
Oct.
Nov.
Dec.
Explanation
1
2
5
8
15
17
20
22
31
31
1
2
5
18
22
28
30
30
2
3
4
10
14
20
28
29
31
PR
Debit
55,000
4,800
1,400
4,633
2,208
3,950
1,500
5,625
3,000
Acct. No. 101

Credit
Balance
55,000
3,300
51,700
2,220
49,480
1,420
48,060
52,860
805
52,055
1,940
50,115
51,515
875
50,640
3,600
47,040
320
46,720
51,353
1,125
50,228
52,436
250
52,186
384
51,802
1,750
50,052
2,000
48,052
1,025
47,027
500
46,527
50,477
750
49,727
51,227
56,852
59,852
192
59,660
1,500
58,160
40

Date
Oct.
Nov.
Dec.
Date
Oct.
Nov.
Dec.
Date
Oct.
Dec.
Date
Oct.
Dec.
Date
Oct.
Date
Dec.
6
12
15
22
28
8
18
24
4
28
Accounts Receivable
Explanation
PR
Debit
4,800
1,400
5,208
5,668
3,950
Computer Supplies
Explanation
PR
3
5
15
31
Prepaid Insurance
Explanation
PR
5
31
Prepaid Rent
Explanation
PR
2
31
Office Equipment
Explanation
PR
1
Acct. No. 106

Credit
Balance
4,800
6,200
4,800
1,400
1,400
0
5,208
10,876
2,208
8,668
12,618
3,950
8,668
3,000
5,668
Debit
1,420
1,125
1,100
Acct. No. 126

Credit
Balance
1,420
2,545
3,645
3,065
580
Debit
2,220
Acct. No. 128

Credit
Balance
2,220
555
1,665
Debit
3,300
Acct. No. 131

Credit
Balance
3,300
2,475
825
Debit
8,000
Acct. No. 163

Credit
Balance
8,000
Accumulated DepreciationOffice Equipment

Acct. No. 164
Explanation
PR
Debit
Credit
Balance
31
400
400
41

Date
Oct.
Date
Dec.
Date
Oct.
Dec.
Date
Dec.
Date
Dec.
Date
Oct.
Dec.
Date
Oct.
Nov.
Dec.
Computer Equipment
Explanation
PR
Debit
20,000
Acct. No. 167

Credit
Balance
20,000
Accumulated DepreciationComputer Equipment

Acct. No. 168
Explanation
PR
Debit
Credit
Balance
31
1,250
1,250
Accounts Payable
Explanation
PR
Debit
3
8
15
1,420
Explanation
Wages Payable
PR
Debit
31
Acct. No. 201

Credit
Balance
1,420
1,420
0
1,100
1,100
Acct. No. 210
Credit
Balance
500
500
Unearned Computer Services Revenue

Explanation
PR
Debit
Acct. No. 236

Credit
Balance
1,500
1,500
A. Lopez, Capital
Explanation
PR
14
1
31
31
Closing
Closing
7,100
Acct. No. 301

Credit
Balance
83,000
83,000
14,248
97,248
90,148
31
30
31
31
A. Lopez, Withdrawals
Explanation
PR
Debit
3,600
2,000
1,500
Closing
Acct. No. 302

Credit
Balance
3,600
5,600
7,100
7,100
0
Debit
42

Date
Oct.
Nov.
Dec.
Date
Dec.
Date
Dec.
Date
Oct.
Nov.
Dec.
Date
Dec.
Date
Dec.
Computer Services Revenue

Explanation
PR
Debit
Acct. No. 403

Credit
Balance
4,800
4,800
1,400
6,200
5,208
11,408
4,633
16,041
5,668
21,709
3,950
25,659
5,625
31,284
0
6
12
28
2
8
24
20
31
Closing
31
31
Depreciation ExpenseOffice Equipment

Acct. No. 612
Explanation
PR
Debit
Credit
Balance
400
400
Closing
400
0
31,284
Depreciation ExpenseComputer Equipment

Acct. No. 613
Explanation
PR
Debit
Credit
Balance
31
1,250
1,250
31
Closing
1,250
0
Wages Expense
Explanation
PR
31
30
10
31
31
Debit
875
1,750
750
500
Closing
Acct. No. 623

Credit
Balance
875
2,625
3,375
3,875
3,875
0
31
31
Insurance Expense
Explanation
PR
Debit
555
Closing
Acct. No. 637

Credit
Balance
555
555
0
Explanation
31
31
Closing
Rent Expense
PR
Debit
2,475
Acct. No. 640

Credit
Balance
2,475
2,475
0
43
Serial Problem, SP 4 (Concluded)

Date
Dec.
Date
Oct.
Dec.
Date
Nov.
Dec.
Date
Nov.
Dec.
Date
Oct.
Dec.
Date
Dec.
31
31
Computer Supplies Expense

Explanation
PR
Debit
3,065
Closing
Acct. No. 652

Credit
Balance
3,065
3,065
0
20
2
31
Advertising Expense
Explanation
PR
Debit
1,940
1,025
Closing
Acct. No. 655

Credit
Balance
1,940
2,965
2,965
0
Mileage Expense
Explanation
PR
1
28
29
31
Debit
320
384
192
Closing
Acct. No. 676

Credit
Balance
320
704
896
896
0
22
31
Miscellaneous Expense
Explanation
PR
Debit
250
Closing
Acct. No. 677

Credit
Balance
250
250
0
17
3
31
Repairs ExpenseComputer
Explanation
PR
Debit
805
500
Closing
Acct. No. 684

Credit
Balance
805
1,305
1,305
0
31
31
31
Income Summary
Explanation
PR
Debit
Closing
Closing
17,036
Closing
14,248
Acct. No. 901

Credit
Balance
31,284
31,284
14,248
0
44
Reporting in Action
BTN 4-1
1. The revenue items from its income statement must be identified, and
those would be credited to Income Summary as step 1 in the closing
entry process. For Polaris year ended December 31, 2011, its revenue
items consist of ($ thousands): (1) total revenue of $2,656,949, (2)
Income from financial services of $24,092 and (3) Other income of $689.
Thus, its total revenue that is closed to Income Summary is $2,681,730.
(All amounts are in thousands.)
2. The total expenses that would be debited to Income Summary as step 2
in the closing entry process must be computed. Polaris total expenses
for the year ended December 31, 2011, are (in thousands):
Cost of sales................................................................... $ 1,916,366
Selling and marketing....................................................
178,725
Research and development..........................................
105,631
General and administrative...........................................
130,395
Interest expense.............................................................
3,987
Provision for income taxes...........................................
119,051
Total expenses...............................................................
$2,454,155
3. The balance of Income Summary before it is closed as of December 31,
2011, equals the net income for Polaris of $227,575 ($ thousands).
This can also be computed from taking $2,681,730 from part 1 and
subtracting $2,454,155 from part 2.
4. From the cash flow statement, we see that Polaris paid $61,585 ($ in
thousands) in cash dividends.
5. Solution depends on the financial statements accessed.
45
Comparative Analysis
BTN 4-2
1. Polariss current ratios: ($ in thousands)

Current year......... $878,676 / $615,531 = 1.43
Prior year.............. $808,145 / $584,210 = 1.38
Arctic Cats current ratios: ($ in thousands)
Current year......... $232,040/ $87,444 = 2.65
Prior year.............. $201,015 / $75,320 = 2.67
2. In both years, Arctic Cat has the higher current ratio (2.65 vs 1.43 for
the current year; 2.67 vs. 1,38 in the prior year), suggesting a better
ability to pay short-term obligations. Overall, neither company is in
immediate danger of failing to make payment on short-term obligations.
3. Polariss current ratio improved, increasing from 1.38 to 1.43. Arctic
Cats current ratio declined slightly from 2.67 to 2.65.
4. Arctic Cats current ratio is above (better than) the industry average for
both years, and Polariss is below (worse than) the industry average for
both years. However, neither company appears at immediate risk of
failing to pay its current creditors.
46
Ethics Challenge
BTN 4-3
1. There are several courses of action that Tamira could have taken. Two
possibilities follow:
a. She could have consulted with the president and told him that
finalized financial statements would not be ready by the time of the
meeting. She could explain that delay in financial statement
preparation is a normal event given the need to wait for final
information to prepare accurate adjustments. Possibly the meeting
could be rescheduled or Tamira could have asked how the president
preferred her to proceed.
b. The estimation decision was not a bad choice in itself, but she
should have informed the president. Tamira probably should have
used less optimistic estimates instead of recording expenses on the
low side. Users of financial statements normally prefer knowing
worst-case scenarios over best-case outcomes. Use of estimates
gets the financial statements closer to their final form than ignoring
the adjustments completely.
2.
Students may offer one of the above alternatives or another response

they may think of, given the situation. Try to generate a discussion of
ethical concerns and the impact of her decisions on the well-being of
users (such as the bankers and the investors in the banks).
47
Communicating in Practice
TO:
FROM:
DATE:
SUBJECT:
BTN 4-4
_____________________
_____________________
______________________
CLARIFICATIONSOBJECTIVE OF THE CLOSING PROCESS
[Following is a sample of what the memorandums contents might include.]
When we speak of closing the books or the closing process we are not
talking about ending or closing the business nor doing anything that reflects
this thinking in the financial statements. Let me use an analogy to explain the
concept of the closing process and then you will see the distinction more
clearly.
Scoreboards are used to temporarily hold information that will allow us to
determine who won or lost in an athletic game or event. When the athletic
event is over, the result of the game is permanently recorded elsewhere-probably in the teams record book. If the scoreboard was not cleared before
the start of a new game, the scores from the second game would be combined
with scores from the first game. As a result, the scoreboard would reflect data
or scores that were not relevant to either game. You can see that the
scoreboard must be zeroed-out to prepare it for accumulating data to
determine the outcome of the next game.
The revenue and expense accounts temporarily hold the information to
determine if the owner(s) won or lost in the game of business. Each fiscal
period should be viewed as a separate game. After the data in these accounts
has allowed us to determine if the owner(s) won or lost, in other words, the net
income or loss, these accounts must be cleared to accumulate data for the
next game or period. We record the score for the game of business, or the net
income or loss, in the permanent recordbook or the capital account. A win, or
net income, increases capital and a loss, or net loss, decreases capital.
I hope this memo clarifies the objective of the closing process.
[Note: The memorandum need not discuss the income summary account since the assignment
requires explaining the concept, not the procedure.]
48
Taking It to the Net
BTN 4-5
1. The Motley Fool states that a benchmark of 1.5 is generally regarded as

sufficient to meet near-term operating needs.
2. One should always check a companys current ratio (as well as any
other ratio) against its main competitors in a given industry. Industries
have their own norms as far as what values of current ratios make sense
and which do not.
3. A current ratio that is too high can suggest that a company is hoarding
assets instead of using them to effectively grow the businessthis is an
inefficient use of resources that can potentially impair long-term returns.
Teamwork in Action
BTN 4-6
[Note: Each team member will be working on a different component of the solution and will
ultimately combine information and verify the final check figures using the accounting equation.]
1. Accounts and adjusted balances to be extended to Balance Sheet columns

Trial Balance
Adjustments
Balance Sheet
Account Title
Debit
Credit
Debit
Credit
Debit
Credit
Cash...................................$16,000
$16,000
Accounts receivable.........
(d) 800
800
Supplies............................. 12,000
(c) 7,000
5,000
Prepaid insurance............. 3,000
(a) 2,200
800
Equipment......................... 25,000
25,000
Acc. deprecEquip..........
$ 7,000
Accounts payable.............
3,000
3,000
34,000
34,000
D. Noseworthy, Capital.....
D. Noseworthy,
Withdrawals..................... 6,000
(b) 4,000
11,000
6,000
Total Assets = $47,600 - $11,000 = $36,600

(Cash + AR + Supplies + Prepaid Ins. + Equipment - Accum. Depreciation)
Total Liabilities = $3,000 (only accounts payable)
49
Teamwork in Action (Continued)

2. Adjusted revenue account balance
Trial Balance
Debit
Credit
Title
Investigation Fees
Earned.....................................
Income
Statement
Debit
Credit
Adjustments
Debit
Credit
33,000
(d) 800
33,800
Closing entry
Account Titles and Explanation
Debit
Credit
Investigation Fees Earned..................................................... 33,800

Income Summary...................................................
To close revenue accounts to Income Summary.
33,800
3. Adjusted balances of expense accounts

Title
Trial Balance
Debit
Credit
Adjustments
Debit
Credit
Rent Expense.....................15,000
Income
Statement
Debit
Credit
15,000
Insurance Expense............
(a) 2,200
2,200
Depreciation Expense.......
(b) 4,000
4,000
Supplies Expense..............
(c) 7,000
7,000
Closing entry
Debit
Income Summary................................................................... 28,200

Rent Expense.........................................................
Insurance Expense................................................
Depreciation Expense............................................
Supplies Expense..................................................
To close expense accounts to Income Summary.
Credit
15,000
2,200
4,000
7,000
50
Teamwork in Action (Concluded)

4.
(4)
D. Noseworthy, Capital
6,000 34,000
5,600
(3)
33,600 Ending
(2)
(3)
Income Summary
28,200
33,800 (1)
5,600
Third and Fourth closing entries

Debit
Income Summary...................................................................
D. Noseworthy, Capital..........................................
To close Income Summary to Capital.
5,600
D. Noseworthy, Capital..........................................................
D. Noseworthy, Withdrawals.................................
To close Withdrawals to Capital.
6,000
Credit
5,600
6,000
5. Proving the Accounting Equation

ASSETS = LIABILITIES + OWNERS EQUITY
$36,600 =
$3,000
$ 33,600
51
Entrepreneurial Decision
BTN 4-7
1. A classified balance sheet classifies liabilities into current and noncurrent. The current liabilities are those that are due in the short-term,
and must be paid soon. In addition, some assets are also classified as
current. These assets are those that can be used to satisfy the current
liabilities. Arynetta can use this information to calculate her current
ratio. This will give her an idea of how liquid the firm is and how easy it
will be for her to satisfy short-term liabilities.
2. To better understand the companys operations, she must make sure
that all revenues earned in a particular accounting period are included
in that periods income statement. In addition, she must match
expenses to revenues. Without closing entries, revenues and expenses
would continue to accumulate from one period to the next. Closing
entries transfer the balances in the temporary revenues, expenses, and
owners withdrawals to her companys permanent equity account.
These temporary accounts then start each accounting period with a
zero balance. These temporary account balances then reflect only the
current accounting periods activities.
3. Closing procedures will accomplish two objectives for Arynetta. First,
the temporary accounts will be reset to zero and be readied for use in
the next accounting period. Second, the profitability of the period will
be updated to the companys equity account.
Hitting the Road
BTN 4-8
There is no formal solution to this field activity. The instructor may wish to
tally students findings to show results across companies as to use of work
sheets, software preferences, and time it takes to prepare finalized annual
financial statements.
Global Decision
BTN 4-9
1. Current ratio (in thousands Euro)

Current year: 509,708 / 644,277 = 0.79
Prior year:
575,897 / 616,166 = 0.93
2. Analysis: Piaggios current ratio declined (is worse) for the current year.
This puts Piaggio in a worse liquidity position (meaning it is less able to
meet current obligations).
52

Chap 004

Diunggah oleh

Informasi Dokumen

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Chap 004

Diunggah oleh

Hak Cipta:

Format Tersedia

Chapter 4

Solutions Manual, Chapter 4

Problem 4-2B (90 minutes)

Fundamental Accounting Principles, 21st Edition

Owner withdrew cash for personal use.

Solutions Manual, Chapter 4

Problem 4-2B (Continued)

Storage fees earned............................................

Office supplies expense.....................................

Fundamental Accounting Principles, 21st Edition

Problem 4-2B (Continued)

31 Office Supplies Expense..................................650

To record the cost of consumed

Solutions Manual, Chapter 4

Problem 4-2B (Continued)

Storage fees earned............................................

Office supplies expense.....................................

Fundamental Accounting Principles, 21st Edition

Problem 4-2B (Continued)

SAFE STORAGE CO.

Add: Owners investment

Solutions Manual, Chapter 4

Problem 4-2B (Continued)

Fundamental Accounting Principles, 21st Edition

Problem 4-2B (Continued)

Storage Fees Earned

To close the withdrawals account.

Solutions Manual, Chapter 4

SAFE STORAGE CO.

Fundamental Accounting Principles, 21st Edition

Problem 4-2B (Continued)

Solutions Manual, Chapter 4

Fundamental Accounting Principles, 21st Edition

Solutions Manual, Chapter 4

Problem 4-2B (Continued)

Storage Fees Earned

Fundamental Accounting Principles, 21st Edition

Solutions Manual, Chapter 4

Fundamental Accounting Principles, 21st Edition

Problem 4-2B (Concluded)

Office Supplies Expense

Solutions Manual, Chapter 4

Fundamental Accounting Principles, 21st Edition

Problem 4-3B (90 minutes) Part 1

Solutions Manual, Chapter 4

Problem 4-3B (Continued)

Adjusting entries (all on April 30, 2013)

Fundamental Accounting Principles, 21st Edition

Solutions Manual, Chapter 4

Problem 4-3B (Continued)

Demolition Fees Earned

Fundamental Accounting Principles, 21st Edition

Problem 4-3B (Continued)

POWER DEMOLITION COMPANY

J. Bonn, Capital, April 30, 2013

Solutions Manual, Chapter 4

Problem 4-3B (Continued)

Fundamental Accounting Principles, 21st Edition

Problem 4-3B (Concluded)

Solutions Manual, Chapter 4

Problem 4-4B (90 minutes)

P. Santo, Capital, December 31, 2013

Fundamental Accounting Principles, 21st Edition

Problem 4-4B (Continued)