3-20 (5 min.

1. F 3. F 5. T 7. T 9. T 11. T
2. T 4. F 6. F 8. F 10. T 12. F

3-21 (10 min.)

Debit Credit Debit Credit Debit Credit

a. Given f. 7 1 k. 13 5
b. 3 7 g. 6 7 l. 13 1
c. 2, 12 11,3 h. 8 1 m. 13 6
d. 13 1 i. 3 1
e. 1 2 j. 1 9
3-36 (30-45 min.) Answers are in thousands of dollars.

1. a. Inventory 550
Accounts payable 550
Acquisition of inventories

b. Accounts receivable 800

Sales 800
Sales on account

c. Cost of goods sold 440

Inventory 440
Cost of inventory sold

d. Cash 80
Note payable 80
Borrowed from a supplier on
June 1, 20X8. Four-year note,
interest at 15%, and principal
payable at end of four years

e. Prepaid rent 25
Cash 25
Paid rent in advance
f. Wages expense 165
Cash 165
Paid wages
3-36 (continued)

g. Miscellaneous expenses 75
Cash 75
Paid miscellaneous expenses

h. Note receivable 20
Cash 20
Loan to office manager one-year
note, 10 % interest

i. Cash 691
Accounts receivable 691
Collections on accounts

j. Accounts payable 471

Cash 471
Payments on accounts

k. Rent expense 26
Prepaid rent 26
To reduce prepaid rent to $3,000

l. Depreciation expense 6
Accumulated depreciation,
store equipment 6
Depreciation for the year 20X8

m. Wages expense 6
Cash 6
Adjustment for wages
 n. Interest expense 7
Cash 7
Adjustment: .15 x $80,000 x 7/12

o.Cash 1
Interest revenue 1
Adjustment: .10 x $20,000 x 6/12
3-36 (continued)

2.
Cash Accounts Receivable Accounts Payable
* 19 (e) 25 * 40 (i) 691 (j) 471 * 111
(d) 80 (f) 165 (b) 800 (a) 550
(i) 691 (g) 75 ** 149 ** 190
(o) 1 (h) 20
(j) 471 Note Receivable Note Payable
(m) 6 (h) 20 (d) 80
(n) 7
** 22

Inventory Cost of Goods Sold Paid-in Capital

* 131 (c) 440 (c) 440 * 40
(a) 550
** 241

Prepaid Rent Rent Expense Retained Earnings

* 4 (k) 26 (k) 26 * 79
(e) 25
** 3

Store Equipment Depreciation Expense Sales

* 60 (l) 6 (b) 800

Accumulated Depreciation,
 Store Equipment Interest Expense Interest Revenue
* 24 (n) 7 (o) 1
(l) 6
** 30

Wages Expense Miscellaneous Expense

(f) 165 (g) 75
(m) 6
** 171

* Balance 12/31/X7
** Balance 12/31/X8
3. YOSHIDA GARDENS
Trial Balance
December 31, 20X8

Debits Credits
Cash $ 22
Accounts receivable 149
Note receivable 20
Inventory 241
Prepaid rent 3
Store equipment 60
Accumulated depreciation,
store equipment $ 30
Accounts payable 190
Note payable 80
Paid-in capital 40
Retained earnings 79
Sales 800
Interest revenue 1
Cost of goods sold 440
Rent expense 26
Depreciation expense 6
Interest expense 7
Miscellaneous expenses 75
Wages expense 171
Total $1,220 $1,220
4-22 (10-15 min.)

Trucano, Tenant Resing, Landlord

A = L + SE A = L + SE
Unearned
Prepaid Rent Rent Rent
Cash Rent Expense Cash Revenue Revenue
1. - 18,000 + 18,000 = + 18,000 = +18,000
2. - 6,000 = - 6,000 = - 6,000 + 6,000
3. - 6,000 = - 6,000 = - 6,000 + 6,000
4. - 6,000 = - 6,000 = - 6,000 + 6,000

Trucano:
Rent expense 6,000
Prepaid rent 6,000

Resing:
Unearned rent revenue 6,000
Rent revenue 6,000
4-25 (10 min.)

1. Wage expense (or vacation pay expense) 40

Accrued salaries and related benefits 40
To record accrual of vacation pay.

2. Accrued salaries and related benefits 2,000

Cash 2,000
To record payment of vacation pay.
4-31 (40-50 min.)

a) Machinery & equipment 3,000

Accounts payable 3,000

b) Fuel expense 700

Fuel on hand 700

c) Prepaid insurance 1,000

Insurance expense 1,000
($1,600 24) x 15 months remaining =1,000

d) Rent expense 1,200

Prepaid rent 1,200
($6,000 5) = $1,200 Rent for one month

e) Prepaid repairs & maintenance 675

Repairs & maintenance expense 675
($900 12) x 9 months remaining = 675

f) Interest expense 3.75

Accrued interest payable 3.75
($600 x .05 x 1.5/12) = 3.75

g) Unearned subscription revenue 14,000

Subscription revenue 14,000
 ($24,000 12) x 7 months = 14,000

h) Inventory 1,000
Machinery & equipment 1,000

i) Accrued interest receivable 266.67

Interest revenue 266.67
($20,000 x .08 x 2/12) = 266.67
4-35 (15-20 min.)

Recall that increases in expense accounts decrease stockholders'

equity.

(a) Supplies used, $2,000 $900 = $1,100.

A = L + SE
Office Office
Supplies Supplies
Inventory Expense
Supplies used 1,100 = 1,100

Journal entry:
Office supplies expense 1,100
Office supplies inventory 1,100

(b) Four months of services rendered, 4 x $3,000 = $12,000.

A = L + SE
Unearned
Fee Fee
Revenue Revenue
Fees earned = 12,000 +12,000

Journal entry:
Unearned fee revenue 12,000
 Fee revenue 12,000

4-35 (continued)

(c) Interest earned, $8,000 x .12 x 3/12 = $240.

A = L + SE
Accrued
Interest Interest
Receivable Revenue
Interest earned +240 = +240

Journal entry:
Accrued interest receivable 240
Interest revenue 240

(d) A = L + SE
Accrued
Wages Wages
Payable Expense
Wages earned but unpaid = +600 600
Journal entry
Wages expense 600
Accrued wages payable 600
5-40 (5-10 min.)

a. Financing f. Financing
b. Financing g. Operating
c. Operating h. Operating
d. Investing i. Financing
e. Financing

Because net income and depreciation appear in the body of the

statement of cash flows, AT&T must use the indirect method for
reporting cash flows from operating activities.
5-45 (15-20 min.)

POOLS, INC.
Statement of Cash Flows
For the Year Ended December 31, 20X7
(In Thousands)

Cash flows from operating activities:

Cash collections from customers $1,400
Cash payments:
To suppliers $(825)
To employees (200)
For other expenses (100)
For interest ( 11)
For income taxes (35)
Cash disbursed for operating activities (1,171)
Net cash provided by operating activities 229

Cash flows from investing activities:

Purchase of plant and facilities (435)

Cash flows from financing activities:

 Issued long-term debt 110
Paid dividends (41)
Net cash provided by financing activities 69
Net decrease in cash (137)
Cash, December 31, 20X6 176
Cash, December 31, 20X7 $ 39

5-52 (10-15 min.)

POOLS, INC.
Supporting Schedule to Statement of Cash Flows
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
For the Year Ended December 31, 20X7
(In Thousands)

Net income $ 314

Adjustments to reconcile net income to net
cash provided by operating activities:
Add: Depreciation, which was included
in computing net income but does
not affect cash 45
Deduct: Increase in accounts receivable (100) [1,500 1,400]
 Deduct:Increase in
inventory (50)[ 850
800]
Add: Increase in accounts payable 25 [ 850 825]
Deduct: Decrease in salaries
and wages payable (10) [ 200 190]
Add: Increase in income taxes payable 5 [ 40 35]
Net cash provided by operating activities $ 229
5-59 (30-40 min.)

1. ROSENBERG COMPANY
Statement of Cash Flows
For the Year Ended December 31, 20X4
(In Millions)

Cash flows from operating activities:

Cash collections from customers
($275 $14) $261
Cash payments:
To suppliers ($165 + $20 $14) $(171)
For general expenses ($51 + $1) (52)
For taxes ($10 $1) (9)
Cash disbursed for operating activities (232)
Net cash provided by operating activities 29
Cash flows from investing activities:
Acquisition of plant assets $ (98)
Proceeds from sale of plant assets 6
Net cash used for investing activities (92)
Cash flows from financing activities:
Issue long-term debt $ 50
Pay cash dividends (2)
Net cash provided by financing activities 48
Net decrease in cash (15)
Cash balance, December 31, 20X3 20
Cash balance, December 31, 20X4 $ 5
5-59 (continued)

2.
Reconciliation of Net Income to Net Cash
Provided by Operating Activities

Net
income $ 9
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 40
Increase in accounts receivable (14)
Increase in inventory (20)
Increase in prepaid general expenses ( 1)
Increase in accounts payable for merchandise 14
Increase in accrued tax payable 1
Net cash provided by operating activities $ 29

3. Rosenbergs stress may be reduced but not eliminated. The

statement of cash flows has shown why cash has fallen by $15
million. Operating activities provided $29 million, and financing
activities provided an additional $48 million, a total of $77 million.
However, $92 million was needed for the net acquisition of plant
assets.

Severe crunches on cash commonly accompany quick

corporate growth. There may be substantial net income and
working capital provided by operations, but heavy demands for
cash to expand receivables, inventories, and plant assets
diminish the cash on hand despite profitable operations. Hence,
most "growth" companies pay skimpy or no dividends.