Solution Ch04

Chapter 4 Adjusting Accounts for
Financial Statements
Questions
1. Businesses that have major seasonal variations in sales are most likely to select the
natural business year as the fiscal year.
2. The cash basis reports revenues when cash is received while the accrual basis reports
revenues when they are earned. The cash basis reports expenses when cash is paid
while the accrual basis reports expenses when economic benefits are consumed.
3. The accrual basis of accounting generally provides a better indication of enterprise
performance than does the cash basis. Also, accrual accounting increases the
comparability of the financial statements from one period to another.
4. A prepaid expense is reported as an asset on the balance sheet.
5. Capital assets lead to adjustments for amortization.
6. The accumulated amortization contra account is used. It is used to provide statement
users with additional information about the relative age of the assets. Without the
contra account information, the reader would not be able to tell whether the assets are
new or in need of replacement.
7. An unearned revenue is reported as a liability on the balance sheet.
8. An accrued revenue is a revenue that is not recorded until end-of-period adjustments
are made because cash is not received or the customer is not billed prior to the end of
the period. An example is interest income that has been earned but not collected.
9. For Danier Leather, Capital assets require adjustment for amortization. Amortization
expense would be understated on the income statement if Danier fails to adjust this
asset account resulting in net income being overstated.
10. The amortization recorded during the year equals the amortization of $106,624,000
shown on WestJet’s income statement for the year-ended December 31, 2005.
*11. If prepaid expenses are initially recorded with debits to expense accounts, asset
accounts are debited in the adjusting entries.
Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

Solutions Manual for Chapter 4 203
QUICK STUDY
Quick Study 4-1

1. The time period principle has been violated since businesses must report
at regular intervals which is normally in 1 year intervals or less.
2. The matching principle has been violated because the supplies
purchased on September 30 will probably not have been used entirely on
that date. Warren has not accurately matched the expense of using the
supplies to the accounting period in which they were/will be used.
3. Although Mindy has collected the cash it is not a revenue until it has been
earned. The $3,000 will not begin to be earned until June 1 therefore it
should not be recorded as a revenue on May 3.
4. TelsCo has rented the equipment therefore an expense has been incurred
although cash will not be paid until sometime in the future.
Quick Study 4-2

Cash basis:
Revenues (cash receipts).................................................. $33,000
Expenses (cash payments) ($22,500 – $2,250 + $3,750). 24,000
Net income......................................................................... $ 9,000
Accrual basis:
Revenues (earned)............................................................. $39,000
Expenses (incurred).......................................................... 22,500
Net income......................................................................... $16,500

204 Fundamental Accounting Principles, Twelfth Canadian Edition
Quick Study 4-3
2011
a) Apr. 1 Prepaid Insurance........................................................ 7,68
0
Cash....................................................................... 7,68
0
To record purchase of two-year insurance policy.
2011
b) Dec. 31 Insurance Expense....................................................... 2,88
0
Prepaid Insurance................................................ 2,88
0
To record the use of nine months of prepaid
insurance;
7,680/24 = 320/month × 9 months = 2,880.
2012
c) Dec. 31 Insurance Expense..................................................... 3,84
0
Prepaid Insurance.............................................. 3,84
0
To record the use of 12 months of prepaid
insurance;
320/month × 12 months = 3,840.
d) 3 months or (3 × 320 = $960
Quick Study 4-4

2011
Mar. Vehicle................................................................................... 32,00
1 0
Cash................................................................................ 32,00
0
To record purchase of vehicle.
Dec. Amortization Expense, Vehicle........................................... 5,000

31
Accumulated Amortization, Vehicle........................... 5,000
To record 10 months of amortization on the vehicle;
32,000 – 8,000 = 24,000; 24,000/4 yrs = 6,000/yr;
6,000/12 = 500/month; 500/month × 10 months = 5,000.

2012
Dec. Amortization Expense, Vehicle........................................... 6,000
31
Accumulated Amortization, Vehicle........................... 6,000
To record annual amortization on the vehicle;
(32,000 – 8,000)/4 years.

Quick Study 4-5
2011
Nov. 1 Cash....................................................................................... 12,00
0
Unearned Revenue....................................................... 12,00
0
To record cash received for services to be
performed in the future.
Dec. Unearned Revenue............................................................... 9,000

31
Revenue......................................................................... 9,000
To record amount of advance payment earned.
Quick Study 4-6

2011
Dec. 31 Telephone Expense......................................................... 1,840
Accounts Payable or Telephone Payable........... 1,840
To accrue the December telephone bill.
2012
Jan. 14 Accounts Payable or Telephone Payable...................... 1,840
Cash....................................................................... 1,840
To record payment of December 31 accrual.
Quick Study 4-7

2011
Mar. 3 Accounts Receivable......................................................... 17,00
1 0
Revenues.................................................................... 17,00
0
To record accrued revenues.
Apr. 1 Cash................................................................................... 12,00

6 0
Accounts Receivable................................................. 12,00
0
To record collection of receivable.
Quick Study 4-8

Debits Credit
s

a. 4 3
b. 11 10
c. 5 10
d. 7 8
e. 4 2

Quick Study 4-9
a. Debit Amortization Expense Income Statement
Credit Accumulated Amortization Balance Sheet
b. Debit Wages Expense Income Statement

Credit Wages Payable Balance Sheet
c. Debit Unearned Revenue Balance Sheet

Credit Revenue Account Income Statement
d. Debit Insurance Expense Income Statement

Credit Prepaid Insurance Balance Sheet
e. Debit Accounts Receivable Balance Sheet

Credit Revenue Account Income Statement
Quick Study 4-10
If adjustment is not recorded:

Net income will Assets will be Liabilities will be Owner’s Equity will
be overstated, overstated, overstated, be overstated,
understated, or understated, or understated, or understated, or no
Type of no effect no effect no effect effect
Adjustment
a. Prepaid Expenses Overstated Overstated No effect Overstated
b. Amortization Overstated Overstated No effect Overstated
c. Unearned Understated No effect Overstated Understated
Revenues
d. Accrued Expenses Overstated No effect Understated Overstated
e. Accrued Revenues Understated Understated No effect Understated
Quick Study 4-11

2011
Oct. Insurance Expense............................................................... 750
31
Prepaid Insurance....................................................... 750
To record expired prepaid insurance.
31 Interest Expense................................................................... 750

Interest Payable........................................................... 750
To record accrual of interest.

*Quick Study 4-12
Nov. 30 Supplies Expense............................................................ 14,800
Salaries Expense..................................................... 14,800
To correct the incorrect November 14 entry.
OR
30 Cash................................................................................. 14,800
Salaries Expense...................................................... 14,800
To reverse the incorrect November 14 entry.
AND
30 Supplies Expense............................................................. 14,800

Cash........................................................................... 14,800
To record the correct entry for November 14.
*Quick Study 4-13

Jan. 31 .............................................................Accounts Payable 25,000
Office Furniture....................................................... 25,000
To reverse the incorrect January 10 entry.
AND
31 Computer Equipment.................................................... 25,000

Notes Payable........................................................... 25,000
To record the correct entry for January 10.

*Quick Study 4-14
2011
a) Nov. 30 Salaries Expense............................................ 3,000
Salaries Payable..................................... 3,000
To accrue salaries.
b) 30 Office Supplies................................................ 800

Office Supplies Expense........................ 800
To record unused supplies.
c) 30 Accounts Receivable...................................... 2,300

Consulting Fees Earned......................... 2,300
To accrue revenues.
d) 30 Consulting Fees Earned................................ 4,200
Unearned Fees........................................ 4,200
To record unearned fees.
EXERCISES
Exercise 4-1 (10 minutes)
1. a 7. c
2. e 8. f
3. c 9. f
4. b 10. f
5. f 11. d
6. b 12. f

2011
a) Dec. 31 Amortization Expense, Equipment................ 32,000
Accumulated Amortization, Equipment 32,000
...........................................................................
To record amortization expense for the
year.
b) 31 Insurance Expense.......................................... 11,920

Prepaid Insurance................................... 11,920
To record insurance coverage that expired
during the year; $14,000 – $2,080.
c) 31 Office Supplies Expense.................................. 5,252

Office Supplies......................................... 5,252
To record office supplies consumed during
the year; $600 + $5,360 – $708.
d) 31 Unearned Fee Revenue................................... 20,000

Fee Revenue............................................. 20,000
To record earned portion of fee received in
advance; $30,000 × 2/3 = $20,000.
e) 31 Insurance Expense.......................................... 9,200

Prepaid Insurance................................... 9,200
To record insurance coverage that expired
during the year.
f) 31 Wages Expense................................................ 8,000

Wages Payable......................................... 8,000
To record wages accrued but not yet paid.
2012
g) Jan. 6 Wages Payable................................................. 8,000
Wages Expense................................................ 12,000
Cash.......................................................... 20,000
To record the payment of wages.

2011
a) Dec. 31 Unearned Revenue................................................ 16,00
0
Revenue.......................................................... 16,000
To record earned revenue;
$18,500 - $2,500 = $16,000.
b) 31 Amortization Expense, Building.......................... 10,50

0
Accumulated Amortization, Building.......... 10,500
To record amortization expense.
c) 31 Spare Parts Expense............................................. 350

Spare Parts Inventory................................... 350
To record the use of spare parts inventory;
$450 - $100 = $350.
d) 31 Accounts Receivable............................................. 3,550

Revenue.......................................................... 3,550
To record accrued revenue.
e) 31 Utilities Expense.................................................... 1,300

Utilities Payable (or Accounts Payable)...... 1,300
To record accrued utilities.
2012
f) Jan. 4 Cash........................................................................ 3,550
Accounts Receivable..................................... 3,550
To record collection of accrued revenues.
g) 14 Utilities Payable (or Accounts Payable).............. 1,300

Cash............................................................... 1,300
To record payment of accrued utilities.

2011
a) Sept. 30 Unearned Revenue.............................................. 12,00
0
Revenue........................................................ 12,000
To record earned revenue.
b) 30 Amortization Expense, Furniture...................... 150

Accumulated Amortization, Furniture...... 150
To record amortization for one month;
7,200/4 yrs = 1,800/yr; 1,800/12 months =
150/month.
Exercise 4-4 (continued)
c) Sept. 30 Office Supplies Expense.................................... 5,000
Office Supplies........................................... 5,000
To record the use of office supplies.
d) 30 Accounts Receivable.......................................... 28,00

0
Revenue...................................................... 28,000
To record accrued revenue.
e) 30 Rent Expense..................................................... 7,000

Rent Payable (or Accounts Payable)........ 7,000
To record accrued rent.
f) Oct. 3 Cash................................................................. 28,00

0
Accounts Receivable.............................. 28,000
To record collection of accrued revenue.
g) 4 Rent Payable (or Accounts Payable)............ 7,000

Cash........................................................ 7,000
To record payment of accrued rent.

2011
a) Ma 31 Unearned Rent........................................................... 7,500
r.
Rent Earned........................................................ 7,500
Earned five months’ rent previously paid in
advance;
$1,500 x 5 = $7,500.
b) 31 Rent Receivable.......................................................... 2,700

Rent Earned........................................................ 2,700
Earned two months’ rent that has not yet
been collected; $1,350 x 2 = $2,700.
c) Apr 22 Cash............................................................................. 4,050

.
Rent Receivable.................................................. 2,700
Rent Earned........................................................ 1,350
Collected rent for February, March, and
April.
2011
a) Dec. 31 Accounts Receivable............................................... 2,000
Fees Earned (or Revenue).............................. 2,000
To record accrued fees earned.
b) 31 Rent Expense.......................................................... 8,000
Prepaid Rent................................................... 8,000
To record expired rent.
c) 31 Amortization Expense, Machinery....................... 400
Accumulated Amortization, Machinery....... 400
To record amortization expense.
d) 31 Unearned Fees........................................................ 2,800
Fees Earned (or Revenue).............................. 2,800
To record fees earned.
e) 31 Salaries Expense..................................................... 5,000
Salaries Payable.............................................. 5,000
To record accrued salaries.

a. $1,650 (300 + 2,100 – 750 = 1,650)
b. $5,700 (1,600 + 5,400 – 1,300 = 5,700)
c. $10,080 (9,600 + 1,840 – 1,360 = 10,080)
d. $1,375 (6,575 + 800 – 6,000 = 1,375)
Proof:
(a) (b) (c) (d)
Supplies on hand—January 1.................. $ 300 $1,600 $ 1,360 $1,375
Supplies purchased during the year........ 2,100 5,400 10,080 6,000
Total supplies available............................ $2,400 $7,000 $11,440 $7,375
Supplies on hand—December 31............. (750) (5,700) (1,840) (800)
Supplies expense for the year.................. $1,650 $1,300 $ 9,600 $6,575

Adjusting entry:
2012
Dec. 31 Wages Expense........................................................... 1,000
Wages Payable..................................................... 1,000
Adjusting entry to record accrued wages for one
day; 5 × $200.
Payday entry:
2013
Jan. 4 Wages Expense........................................................... 3,000
Wages Payable........................................................... 1,000
Cash...................................................................... 4,000
Paid employees' accrued and current wages;
5 employees x $200/day x 4 days = $4,000.

2011
a) Apr. 30 Interest Expense.................................................. 2,080
Interest Payable........................................... 2,080
To record accrued interest expense;
0.8% × $780,000 × 10/30.
May 20 Interest Payable................................................... 2,080

Interest Expense.................................................. 4,160
Cash.............................................................. 6,240
To record payment of accrued and current
expense; 0.8% × $780,000 × 20/30.
2011
b) Apr. 30 Salaries Expense.................................................. 3,600
Salaries Payable.......................................... 3,600
To record accrued salaries;
$9,000/5 days = $1,800/day;
2 days x $1,800 = $3,600.
May 3 Salaries Payable................................................... 3,600

Salaries Expense.................................................. 5,400
Cash.............................................................. 9,000
To record payment of accrued and current
salaries; 3 days x $1,800 = $5,400.

Exercise 4-9 (concluded)
2011
c) Apr. 30 Legal Fees Expense.............................................. 2,500
Legal Fees Payable...................................... 2,500
To record accrued legal fees.
May 12 Legal Fees Payable.............................................. 2,500
Cash.............................................................. 2,500
To pay accrued legal fees.

2011
Dec. 31 Accounts Receivable.................................................. 3,600
Fees Earned......................................................... 3,600
To record unbilled fees; 30% × $12,000.
31 Unearned Fees............................................................ 8,400
Fees Earned......................................................... 8,400
To record earned fees that had been
collected in advance; 70% × $12,000.
31 Amortization Expense, Computers.......................... 3,000
Accumulated Amortization, Computers........... 3,000
To record amortization on computers.
31 Amortization Expense, Office Furniture................. 3,500
Accumulated Amortization,
Office Furniture............................................... 3,500
To record amortization on office furniture.
31 Salaries Expense........................................................ 4,900
Salaries Payable.................................................. 4,900
31 Insurance Expense..................................................... 2,600
Prepaid Insurance............................................... 2,600
To record expired prepaid insurance.
31 Office Supplies Expense............................................ 960
Office Supplies..................................................... 960
To record use of office supplies.
31 Utilities Expense.......................................................... 140
Utilities Payable.................................................... 140
To record unpaid utility costs.

Analysis component:
The GAAP of matching and revenue recognition requires that adjusting entries be
recorded at the end of each accounting period to ensure revenues and expenses are
allocated to the period in which they were incurred. If the December 31, 2011
adjustments for Javelin Company were not recorded, revenues would be
understated by $12,000; expenses would be understated by $15,100; and net
income would be overstated by the difference of $3,100 ($15,100 - $12,000 =
$3,100).
Ayotte Music
Partial Work Sheet
February 28, 2011
Unadjusted Adjusted Trial
Account Trial Balance Adjustments Balance
Debit Credi Debit Credi Debit Credi
t t t
Cash............................................. 5,000 5,000
Accounts receivable.................... 4,500 c)1,400 5,900
Prepaid insurance....................... 700 b) 250 450
Equipment................................... 12,000 12,000
Accumulated amortization, a)
equipment.................... 6,000 2,400 8,400
Accounts payable........................ 1,200 1,200
Jane Adams, capital................... 9,000 9,000
Jane Adams, withdrawals.......... 3,000 3,000
Revenues...................................... 45,000 c)1,400 46,400
Amortization expense, 0 a) 2,400
equipment 2,400
Salaries expense.......................... 29,000 29,000
Insurance expense...................... 7,000 b) 250 7,250
Totals........................................... 61,200 61,200 4,050 4,050 65,000 65,000

Ayotte Music
Income Statement
For Year Ended February 28, 2011
Revenue................................................................................. $46,400
Operating expenses:
Salaries expense............................................................... $29,000
Insurance expense........................................................... 7,250
Amortization expense, equipment................................. 2,400
Total operating expenses............................................ 38,650
Net income............................................................................ $ 7,750
Ayotte Music
Statement of Owner’s Equity
For Year Ended February 28, 2011
Jane Adams, capital, March 1............................................ $ 9,000

Add: Net income...................................................................
7,750
Total................................................................................. $16,750
Less: Withdrawal by owner............................................... 3,000
Jane Adams, capital, February 28...................................... $13,750
Ayotte Music
Balance Sheet
February 28, 2011
Assets
Cash....................................................................................... $ 5,000
Accounts receivable............................................................. 5,900
Prepaid insurance................................................................ 450
Office equipment......................... $12,000
Less: Accumulated amortization, office equipment.... 8,40 3,600
0
Total assets............................................................................ $14,950
Liabilities
Accounts payable.................................................................. $ 1,200
Owner’s Equity
Jane Adams, capital............................................................. 13,750
Total liabilities and owner’s equity.................................... $14,950

Analysis component:
The GAAP which requires the preparation of financial statements is the time
period principle. The time period principle assumes that an organization’s
activities can be divided into specific time periods. Since information must reach
decision makers frequently and promptly, the accounting system needs to prepare
reports regularly. The standard reporting period is one year although many
companies report quarterly.
*Exercise 4-13
a) Cash...................................................................... 1,800
Accounts Payable........................................ 1,800
To correct the original entry.
OR
Cash 1,800
Office Supplies............................................. 1,800
To reverse the incorrect entry.
Office Supplies..................................................... 1,800

Accounts Payable........................................ 1,800
To journalize the correct entry.
b) Revenue................................................................ 4,500
Accounts Receivable................................... 4,500
OR
Revenue 4,500
Cash.............................................................. 4,500
Cash...................................................................... 4,500
Accounts Receivable................................... 4,500
c) Withdrawals........................................................ 1,500
Salaries Expense.......................................... 1,500
OR
Cash...................................................................... 1,500
Salaries Expense........................................ 1,500
Withdrawals........................................................ 1,500
Cash............................................................. 1,500
*Exercise 4-13 (concluded)
d) Accounts Receivable........................................................... 750
Revenue..................................................................... 750
OR
Accounts Receivable........................................................... 750
Cash........................................................................... 750
Cash..................................................................................... 750
Revenue..................................................................... 750
Analysis component:
If the error in (b) is not corrected, revenue and net income on the income
statement will be overstated each by $4,500. On the balance sheet, assets
(accounts receivable) and equity will be overstated each by $4,500.
*Exercise 4-14 (30 minutes)

2011
a) Dec. 1
Supplies Expense................................................. 6,000
Cash............................................................. 6,000
Purchased supplies.
b) 2 Insurance Expense.............................................. 2,880
Cash............................................................. 2,880
Paid insurance premiums.
c) 15 Cash...................................................................... 24,000
Remodelling Fees Earned.......................... 24,000
Received fees for work to be done.
Adjusting entries:
2011
d) Dec. 31 Supplies................................................................ 3,840
Supplies Expense......................................... 3,840
Adjusted expense for unused supplies on hand.
e) 31 Prepaid Insurance............................................... 2,400
Insurance Expense...................................... 2,400
Adjusted expense for unexpired coverage;
$2,880 – $480.
f) 31 Remodelling Fees Earned................................... 16,800
Unearned Remodelling Fees....................... 16,800
Adjusted revenues for unfinished projects;
$24,000 – $7,200.

*Exercise 4-15 (25 minutes)
a) Initial credit recorded in Unearned Fees account:
July 1 Cash............................................................... 2,000
Unearned Fees....................................... 2,000
6 Cash............................................................... 8,400
Unearned Fees....................................... 8,400
12 Unearned Fees.............................................. 2,000

Fees Earned........................................... 2,000
Completed work for customer.
18 Cash............................................................... 7,500
Unearned Fees....................................... 7,500
27 Unearned Fees.............................................. 8,400

Fees Earned........................................... 8,400
Completed work for customer.
31 No entry.
b) Initial credit recorded in Fees Earned account:

July 1 Cash............................................................... 2,000
Fees Earned........................................... 2,000
6 Cash............................................................... 8,400
Fees Earned........................................... 8,400
12 No entry.
18 Cash............................................................... 7,500
Fees Earned........................................... 7,500
27 No entry.
31 Fees Earned.................................................. 7,500

Unearned Fees....................................... 7,500

Adjusting entry to reflect unearned fees for unfinished job.
*Exercise 4-15 (concluded)
c) Under the first method:

Unearned fees = $2,000 + $8,400 – $2,000 + $7,500 – $8,400 = $7,500
Fees earned = $2,000 + $8,400 = $10,400
Under the second method:

Unearned fees = $7,500
Fees earned = $2,000 + $8,400 + $7,500 – $7,500 = $10,400

PROBLEMS
Problem 4-1A (15 minutes)

a)
2011
(a) Dec. 31 Insurance Expense........................................... 8,000
Prepaid Insurance...................................... 8,000
To record expired insurance;
12,000/6 months = 2,000/month × 4 months.
(b) 31 Office Rent Expense........................................ 66,000

Prepaid Office Rent.................................... 66,000
To record expired rent;
72,000 – 6,000 = 66,000 used.
(c) 31 Subscription Expense...................................... 240

Prepaid Subscriptions................................ 240
Used $240 of prepaid subscriptions.
(d) 31 Equipment Rent Expense................................ 9,000

Prepaid Equipment Rental........................ 9,000
To record amortization;
36,000/3 years = 12,000/year × 9/12 =
9,000.
Analysis component:
If the adjustments in (a) through (d) were not recorded, assets and equity would
be overstated on the balance sheet and on the income statement, expenses would
be understated causing net income to be overstated.

2011
a) Dec. 31 Amortization Expense, Machine A................ 5,600
Accumulated Amortization, Machine A... 5,600
To record amortization on Machine A;
28,000/5 years = 5,600/year.
b) 31 Amortization Expense, Machine B................ 9,000

Accumulated Amortization, Machine B... 9,000
To record amortization on Machine B;
56,000 – 8,000 = 48,000/4 years =
12,000/year;
12,000/year × 9/12 = 9,000.
c) Dec. 31 Amortization Expense, Machine C................ 600

Accumulated Amortization, Machine C... 600
To record amortization on Machine C;
8,400 – 1,200 = 7,200/2 years = 3,600/year;
3,600/year × 2/12 = 600.
Analysis component:
The recording of amortization achieves the GAAP of matching. When an asset
such as a machine is purchased, it will help generate revenues for more than the
current accounting period. Therefore, to properly match the expense of the
machine, we allocate a portion of the total cost to each accounting period in which
revenue will be generated by the machine; this process is called amortization. If
we expensed the total cost of the machine in the period in which it was purchased,
expenses would be overstated in the period the machine was purchased and
understated in future periods in which the machine was used in the operations of
the business.
On the income statement, if amortization is not recorded at all, expenses will be

understated causing net income to be overstated.

2011
a) Nov. 30 Unearned Lawn Services................................ 46,500
Lawn Services Earned............................... 46,500
To record lawn services earned;
112,500 – 66,000 = 46,500 earned.
b) 30 Unearned Garden Services............................. 19,500

Garden Services Earned............................ 19,500
Garden services earned.
c) 30 Unearned Snow Removal Services................. 250

Snow Removal Services Earned................ 250
To record lawn services earned;
9,000 – 8,700 = 250 earned.
d) 30 No entry required on November 30, 2011.
Analysis component:
If the Unearned lawn services of $112,500 had been recorded as a revenue when
received instead of as a liability with no adjustments being recorded at year end,
revenues for the 2011 accounting period would have been overstated by $66,000
(because this amount represents services to be performed during 2012). On the
November 30, 2011 balance sheet, this error would have resulted in liabilities
being understated by $66,000 and equity overstated by $66,000.

Solutions Manual for Chapter 4
Adjusting Entries Subsequent Entries

a. a.
Mar. Interest Expense.......................................................
2,250 Apr. 2 Interest Payable............................... 2,250
31
Interest Payable...................................................
2,250 Cash.......................................... 2,250
To record accrued interest. To record payment of accrued
b. b. interest.
Mar. Salaries Expense.......................................................

19,600 Apr. 3 Salaries Payable............................... 19,600
31
Salaries Payable..................................................
19,600 Salaries Expense.............................. 29,400
To record accrued salaries expense. Cash.......................................... 49,000
To record payment of salaries.
c. c.
Mar. Telephone Expense...........................................................
960 Apr. Accounts Payable............................. 960
31 15
Accounts Payable..................................................... 960 Cash.......................................... 960
To record accrued telephone To record payment of accrual.
expense.
d. d.
Mar. Rent Expense....................................................................
10,000 Apr. Rent Payable.................................... 10,000
31 26
Rent Payable.............................................................
10,000 Rent Expense................................... 5,000
To record accrued rent for Prepaid Rent.................................... 15,000
February Cash.......................................... 30,000
and March. To record payment of rent for 6
e. e. months.
Mar. Commissions Expense......................................................
38,400 Apr. Commissions Payable...................... 38,400
31 15
Commissions Payable..............................................38,400 Cash.......................................... 38,400
To record accrued commissions; To record payment of
960,000 × .04 = 38,400. accrued commissions.
225
226

a. a.
Mar. Rent Receivable.............................. 3,200 Apr. 3 Cash.................................................. 3,200
31
Rent Revenue.......................... 3,200 Rent Receivable....................... 3,200
To record accrued revenue. To record collection of accrued
b. b. revenue.
Mar. Accounts Receivable....................... 10,80 Apr. 7 Cash.................................................. 10,80

31 0 0
Service Revenue...................... 10,80 Accounts Receivable............... 10,80
0 0
revenue.
c. c.
Fundamental Accounting Principles, Twelfth Canadian Edition
Mar .3 Interest Receivable......................... 700 Apr. 1 Cash.................................................. 700

1
Interest Revenue..................... 700 Interest Receivable.................. 700
revenue.
d. d.
Mar. Accounts Receivable....................... 8,000 Apr. 2 Cash.................................................. 8,000
31
Service Revenue...................... 8,000 Accounts Receivable............... 8,000
To record accrued service To record collection of accrued
revenue for February and revenue.
March;
24,000/6 = 4,000 x 2 = 8,000.
Part 1
2011
a) Dec. 3 Insurance Expense....................................... 6,000
1
Prepaid Insurance................................ 6,000
To record the cost of insurance expired
during the year.
b) 3 Teaching Supplies Expense......................... 14,800

1
Teaching Supplies................................. 14,800
To record the cost of supplies used
during
the year; 20,000 –5,200.
c) 3 Amortization Expense, Equipment............. 24,000

1
Accumulated Amortization, 24,000
Equipment.....................................................
To record equipment amortization
expense.
d) 3 Amortization Expense, Prof. Library......... 12,000

1
Professional Library......................... 12,000
To record professional library
amortization
expense.
e) 3 Unearned Extension Fees............................. 8,800

1
Extension Fees Earned......................... 8,800
To record extension fees earned that
were
collected in advance; $4,400 x 2 =
$8,800.
f) 3 Accounts Receivable..................................... 15,000

1
Tuition Fees Earned............................. 15,000
To record the amount of tuition fees
earned; $6,000 x 2.5 = $15,000.
g) 3 Salaries Expense........................................... 800

1
Salaries Payable.................................... 800
To record accrued salaries expense;
2 employees x 2 days x $200/day = $800.
Problem 4-6A (concluded)

h) Dec. 3 Rent Expense................................................ 4,000
1
Prepaid Rent......................................... 4,000
To record the expiration of prepaid rent.
Analysis Component – Part 2

PACRIM CAREERS
Trial Balances
December 31, 2011
Unadjusted Trial Adjusted Trial
Balance Adjustments Balance
Account Debit Credit Debit Credit Debit Credit
Cash................................................................
$ 52,000 $52,000
Accounts receivable....................................... -0- f) $15,000 15,000
Teaching supplies..........................................
20,000 b)$ 14,800 5,200
Prepaid insurance.........................................
30,000 a) 6,000 24,000
Prepaid rent...................................................
4,000 h) 4,000 -0-
Professional library.......................................
60,000 60,000
Accum. amort.,
professional library....................................... $ 18,000 d) 12,000 $30,000
Equipment.....................................................
140,000 140,000
Accum. amort., equipment........................... 32,000 c) 24,000 56,000
Accounts payable........................................... 72,000 72,000
Salaries payable............................................. -0- g) 800 800
Unearned extension fees................................ 22,000 e) 8,800 13,200
Sheila Carr, capital....................................... 127,200 127,200
Sheila Carr, withdrawals..............................
80,000 80,000
Tuition fees earned........................................ 204,000 f) 15,000 219,000
Extension fees earned.................................... 76,000 e) 8,800 84,800
Amort. expense, equipment.......................... -0- c) 24,000 24,000

Amort. expense,
professional library....................................... -0- d) 12,000 12,000
Salaries expense.............................................
96,000 g) 800 96,800
Insurance expense......................................... -0- a) 6,000 6,000
Rent expense..................................................
44,000 h) 4,000 48,000
Teaching supplies expense............................ -0- b) 14,800 14,800
Advertising expense......................................
14,000 14,000
Utilities expense.............................................
11,200 11,200
Totals..............................................................
$551,200 $551,200 $85,400 $85,400 $603,000 $603,000
3. Assuming the adjustments were not recorded, net income would have been overstated by
$37,800 (24,000 + 12,000 + 800 + 6,000 + 4,000 + 14,800 – 15,000 – 8,800).
4. It is unethical to ignore adjusting entries because it misrepresents assets, liabilities, and
equity.

Date Account Debits Credit
s
2011
a) Jan. 31 Amortization Expense, Equipment.................... 3,000
Accumulated Amortization, Equipment. . . 3,000
To record amortization;
36,000/3 yrs = 12,000/yr × 3/12 = 3,000.
b) 31 Unearned Consulting Fees.................................. 3,000
Consulting Fees Earned.............................. 3,000
To record fees earned.
c) 31 Rent Expense....................................................... 15,000
Prepaid Rent................................................ 15,000
To record expired rent; 22,500 × 4/6 =
15,000.
d) 31 Wages Expense.................................................... 9,000
Wages Payable............................................. 9,000
To record accrued wages.
e) 31 Interest Expense.................................................. 735
Interest Payable........................................... 735
To record accrued interest;
42,000 × 7% = 2,940 × 3/12 = 735.
f) 31 Accounts Receivable........................................... 4,750
To record accrued fees.
g) 31 Insurance Expense.............................................. 750

Prepaid Insurance....................................... 750
1,350/18 months = 75/month × 10 months.
h) 31 Amortization Expense, Office Furniture.......... 450
Accumulated Amortization, Office 450
Furniture..............................................................
To record amortization of office furniture.
i) 31 Accounts Receivable............................................ 2,050

Repair Revenues Earned............................ 2,050
To record accrued repair revenues.

j) 31 Store Supplies Expense....................................... 2,150
Store Supplies.............................................. 2,150
To record store supplies used;
800 + 1,500 – 150 = 2,150.
Problem 4-8A (35 minutes) Part 1

2010
a. Dec. 31 Office Supplies Expense............................... 25,520
Office Supplies....................................... 25,520
To record the cost of supplies used during
the year; $6,000 + $24,800 – $5,280.
b. 31 Insurance Expense....................................... 24,624
Prepaid Insurance................................. 24,624
To record the cost of insurance coverage
that expired during the year.
Cost per No. of 2010
Policy Month Months Cost
1 $1,320 12 $ 15,840
2 726 9 6,534
3 450 5 2,250
Total $24,624
c. 31 Salaries Expense........................................... 4,200
Salaries Payable..................................... 4,200
To record accrued but unpaid wages.
d. 31 Amortization Expense, Building................. 22,500
Accumulated Amortization, Building.. 22,500
To record amortization expense. Annual
amortization = ($1,710,000 – $90,000)/30 = $54,000;
amortization for five months = $54,000 × 5/12.
e. 31 Rent Receivable............................................ 4,800
Rent Earned........................................... 4,800
To record earned but unpaid rent.
f. 31 Unearned Rent.............................................. 8,700
Rent Earned........................................... 8,700
To record the amount of rent earned; 2 × $4,350.

Part 2
2011
c. Jan. 7 Salaries Payable................................... 4,200
Salaries Expense.................................. 16,800
Cash............................................... 21,000
To record payment of accrued and current salaries; 4 × $4,200 =
16,800.
d. 15 Cash...................................................... 9,600
Rent Receivable............................. 4,800
Rent Earned.................................. 4,800
To record past due rent for two months.

General Journal Page
G9
Date Account Titles and Explanations PR Debit Credi
t
2011
a) Oct. 3 Unearned Consulting Fees.................................. 1,160
1
To record unearned consulting fees earned;
13,160 – 12,000 = 1,160 earned.
b) 3 Consulting Fees Earned...................................... 6,000

1
Unearned Consulting Fees.......................... 6,000
To record as unearned an amount incorrectly
recorded as earned.
c) 3 Rent Expense....................................................... 14,00

1 0
Prepaid Rent................................................ 14,00
0
To record expired prepaid rent;
21,000/3 = 7,000/month × 2 months = 14,000
used.
d) 3 Wages Expense.................................................... 6,800

1
Wages Payable............................................. 6,800
e) 3 Amortization Expense, Office Furniture.......... 30,72

1 0
Accumulated Amortization, Office 30,72
Furniture.............................................................. 0
To record amortization expense;
61,440/2 years = 30,720/year.
f) 3 Accounts Receivable........................................... 4,200

1
g) 3 Interest Receivable.............................................. 200

1
Interest Revenue.......................................... 200
To record accrued interest revenue.
h) 3 Insurance Expense.............................................. 6,600

1
Prepaid Insurance....................................... 6,600
To record expired prepaid insurance; 9,350 
17
months = 550/month × 12 months = 6,600.
i) 3 Supplies Expense................................................. 3,700

1
Supplies........................................................ 3,700
To record the use of supplies;
4,600 – 900 = 3,700 used.

Parts 1 and 2 (Note: The solution to Parts 1 and 2 is also done using T-accounts and
can be found immediately following the balance column format.)
Cash Account No. 101

Date Explanation PR Debit Credit Balance
2011
3
Oct. 1 Unadjusted balance 28,000
Accounts Receivable Account No. 106

2011
3
3
1 G9 4,200 60,200
Interest Receivable Account No. 109

2011
3
Oct. 1 G9 200 200
Notes Receivable Account No. 111

2011
3
Supplies Account No. 126

2011
3
3
1 G9 3,700 900
Prepaid Insurance Account No. 128

2011
3
3
1 G9 6,600 2,750
Prepaid Rent Account No. 131

2011
3
3
1 G9 14,000 7,000
Problem 4-10A (continued)
Office Furniture Account No. 161
2011
3
Accumulated Amortization, Office Furniture Account No. 162

2011
3
3
1 G9 30,720 51,200
Accounts Payable Account No. 201

2011

3
Wages Payable Account No. 210

2011
3
Oct. 1 G9 6,800 6,800
Unearned Consulting Fees Account No. 233

2011
3
3
1 G9 1,160 12,000
3
1 G9 6,000 18,000
Jeff Moore, Capital Account No. 301

2011
3
Jeff Moore, Withdrawals Account No. 302

2011
3

Consulting Fees Earned Account No. 401
2011
3
3
1 G9 1,160 315,760
3
1 G9 6,000 309,760
3
1 G9 4,200 313,960
Interest Revenue Account No. 409

2011
3
3
1 G9 200 1,600
Amortization Expense, Office Furniture Account No. 601

2011
3
Oct. 1 G9 30,720 30,720
Wages Expense Account No. 622

2011
3
3
1 G9 6,800 153,800
Insurance Expense Account No. 637

2011
3
Oct. 1 G9 6,600 6,600
Rent Expense Account No. 640

2011

1
3
1 G9 14,000 78,000
Supplies Expense Account No. 650

2011
3
3
1 G9 3,700 10,500

Parts 1 and 2 (in T-account format)

NOTE: AJE = Adjusting Journal Entry
Cash 101 Accounts Receivable 106 Interest Receivable 109
Unadj Unadj AJE Oct 200
Bal Oct 28,000 Bal Oct 56,000 31
31 31
AJE Oct 4,200

31
Adj Bal
Oct 31 60,200
Notes Receivable 111 Supplies 126 Prepaid Insurance 128

Unadj Unadj Unadj Bal
Bal Oct 30,000 Bal Oct 4,600 3,700 AJE Oct Oct 31 9,350 6,600 AJE Oct
31 31 31 31
Adj Bal Adj Bal
Oct 31 900 Oct 31 2,750
Prepaid Rent 131 Office Furniture 161 Accum. Amort., Office 162
Furniture
Unadj Unadj Unadj Bal
Bal Oct 21,000 14,000 AJE Oct Bal Oct 61,440 20,480 Oct 31
31 31 31
Adj Bal
Oct 31 7,000 30,720 AJE Oct
31
Adj Bal
51,200 Oct 31
Accounts Payable 201 Wages Payable 210 Unearned Consulting Fees 233
235
Unadj 6,800 AJE Oct Unadj Bal
35,000 Bal Oct 31 AJE Oct 31 1,160 13,160 Oct 31
31
6,000 AJE Oct

31
Adj Bal
18,000 Oct 31
236
Jeff Moore, Capital 301 Jeff Moore, 302 Consulting Fees Earned 401
Withdrawals
Unadj Bal Unadj Unadj Bal
60,00 Oct 31 Bal Oct 16,450 AJE Oct 6,000 314,600 Oct 31
0 31 31
1,160 AJE Oct
31
4,200 AJE Oct
31
Adj Bal
313,960 Oct 31
Interest Revenue 409 Amort. Expense, Office 601 Wages Expense 622
Furniture
Unadj Bal AJE Oct 30,720 Unadj Bal
1,400 Oct 31 31 Oct 31 147,00
Fundamental Accounting Principles, Eleventh Canadian Edition
0
200 AJE Oct 31 AJE Oct 6,800
31
Adj Bal Adj Bal
1,600 Oct 31 Oct 31 153,80
0
Insurance Expense 637 Rent Expense 640 Supplies Expense 650

AJE Oct 6,600 Unadj Unadj Bal
31 Bal Oct 64,000 Oct 31 6,800
31
AJE Oct 14,000 AJE Oct 3,700
31 31
Adj Bal Adj Bal
Oct 31 78,000 Oct 31 10,500
NOTE: After posting the October 31, 2011 adjusting entries, the general journal PR
column would appear as follows to show that the posting has been done.
General Journal Page G9
Date Account Titles and Explanations PR Debit Credi
t
2011 Adjusting Entries:
a) 3 Unearned Consulting Fees..................................... 233 1,160
Oct. 1
Consulting Fees Earned.................................... 401 1,160
To record unearned consulting fees earned;
13,160 – 12,000 = 1,160 earned.
b) 3 Consulting Fees Earned......................................... 401 6,000
1
Unearned Consulting Fees................................ 233 6,000
To record as unearned an amount incorrectly
recorded as earned.
c) 3 Rent Expense........................................................... 640 14,00
1 0
Prepaid Rent...................................................... 131 14,00
0
To record expired prepaid rent;
21,000/3 = 7,000/month × 2 months = 14,000
used.
d) 3 Wages Expense....................................................... 622 6,800
1
Wages Payable................................................... 210 6,800
e) 3 Amortization Expense, Office Furniture.............. 601 30,72
1 0
Accumulated Amortization, Office Furniture 162 30,72
0
To record amortization expense;
61,440/2 years = 30,720/year.
f) 3 Accounts Receivable............................................... 106 4,200
1
Consulting Fees Earned.................................... 401 4,200
g) 3 Interest Receivable................................................. 109 200
1

Interest Revenue................................................ 409 200
h) 3 Insurance Expense.................................................. 637 6,600
1
Prepaid Insurance............................................. 128 6,600
To record expired prepaid insurance; 9,350  17
months = 550/month × 12 months = 6,600.
i) 3 Supplies Expense.................................................... 650 3,700
1
Supplies.............................................................. 126 3,700
To record the use of supplies;
4,600 – 900 = 3,700 used.

Part 3
Rainmaker Environmental Consultants
Adjusted Trial Balance
October 31, 2011
Acct.
No. Account Debit Credit
101 Cash.......................................................................... $
28,000
106 Accounts receivable................................................. 60,200
109 Interest receivable................................................... 200
111 Notes receivable....................................................... 30,000
126 Supplies ................................................................... 900
128 Prepaid insurance.................................................... 2,750
131 Prepaid rent............................................................. 7,000
161 Office furniture........................................................ 61,440
162 Accumulated amortization, office furniture.......... $
51,200
201 Accounts payable..................................................... 35,000
210 Wages payable......................................................... 6,800
233 Unearned consulting fees........................................ 18,000
301 Jeff Moore, capital................................................... 60,000
302 Jeff Moore, withdrawals......................................... 16,450
401 Consulting fees earned............................................ 313,960
409 Interest revenue....................................................... 1,600
601 Amortization expense, office furniture.................. 30,720
622 Wages expense......................................................... 153,800
637 Insurance expense................................................... 6,600
640 Rent expense............................................................ 78,000
650 Supplies expense...................................................... 10,500
Totals........................................................................ $486,560 $486,560

Part 4
Income Statement
For Year Ended October 31, 2011
Revenues:
Consulting fees earned....................................................... $313,960
Interest revenue.................................................................. 1,600
Total revenues.................................................................. $315,560
Operating expenses:
Wages expense.................................................................... $
153,800
Rent expense....................................................................... 78,000
Amortization expense, office furniture............................. 30,720
Supplies expense................................................................. 10,500
Insurance expense.............................................................. 6,600
Total operating expenses............................................... 279,620
Net income................................................................................ $ 35,940

For Year Ended October 31, 2011
Jeff Moore, capital, November 1............................................ $60,000
Add: Investment by owner.................................................... $ 0
Net income...................................................................... 35,940 35,940
Total..................................................................................... $95,940
Less: Withdrawal by owner................................................... 16,450
Jeff Moore, capital, October 31.............................................. $79,490


Balance Sheet
October 31, 2011
Assets
Cash.................................................................................... $28,000
Accounts receivable.......................................................... 60,200
Interest receivable............................................................. 200
Notes receivable................................................................ 30,000
Supplies.............................................................................. 900
Prepaid insurance............................................................. 2,750
Prepaid rent....................................................................... 7,000
Office furniture................................................................. $61,44
0
Less: Accumulated amortization................................. 51,20 10,24
0 0
Total assets........................................................................ $139,29
0
Liabilities
Accounts payable.............................................................. $35,000
Wages payable................................................................... 6,800
Unearned consulting fees.................................................. 18,00
0
Total liabilities............................................................... $59,800
Owner’s Equity
Jeff Moore, capital............................................................ 79,490
Total liabilities and owner’s equity................................. $139,29
0
Analysis component:
The business’s financial performance, or net income, increased from a net income
of $31,400 ($189,000 - $157,600 = $31,400) for the year ended October 31, 2010 to
$17,970 for the year ended October 31, 2010. This is a favourable change.

2011
a) Sept. 3 Interest Expense.................................................. 162
0
Interest Payable.............................................. 162
To record accrued interest.
b) 3 Amortization Expense, Office Furniture.......... 4,000

0
Furniture..............................................................
To record amortization on the office furniture;
26,000 – 2,000 = 24,000/4 yrs = 6,000/yr × 8/12 = 4,000.
c) 3 Repair Supplies Expense.................................... 1,500
0
Repair Supplies.............................................. 1,500
To record repair supplies used;
2,200 – 700 = 1,500 used.
d) 3 Rent Expense....................................................... 10,000

0
Prepaid Rent................................................... 10,000
e) 3 Salaries Expense.................................................. 2,800

0
Salaries Payable............................................. 2,800
f) 3 Internet Expenses................................................ 100

0
Accounts Payable........................................... 100
To record accrued expenses.
g) 3 Accounts Receivable........................................... 6,200

0
Hospitality Revenues..................................... 6,200
To record accrued hospitality revenues.

242
Arrow Hospitality
Trial Balances
September 30, 2011
Unadjusted Trial
Account Balance Adjustments Adjusted Trial Balance
Debit Credit Debit Credit Debit Credit
Cash..................................................................... 6,000 6,000
Accounts receivable............................................ 11,200 g) 6,200 17,400
Repair supplies.................................................... 2,200 c) 1,500 700
Prepaid rent........................................................ 14,000 d) 10,000 4,000
Office furniture................................................... 26,000 26,000
Accounts payable................................................ 8,000 f) 100 8,100
Notes payable...................................................... 21,600 21,600
Al Zink, capital................................................... 67,758 67,758
Al Zink, withdrawals.......................................... 5,000 5,000
Hospitality revenues........................................... 128,000 g) 6,200 134,200
Salaries expense.................................................. 142,200 e) 2,800 145,000
Repair supplies expense..................................... 15,500 c) 1,500 17,000

Interest expense................................................... 1,458 a) 162 1,620
Internet expenses................................................ 1,800 f) 100 1,900
Totals.............................................................. 225,358 225,358
Interest payable.................................................. a) 162 162

Amortization expense, office furniture............. b) 4,000 4,000
Accumulated amortization, office furniture.... b) 4,000 4,000
Rent expense........................................................ d) 10,000
10,000
Salaries payable.................................................. e) 2,800 2,800

Totals.............................................................. 24,762 24,762 238,620 238,620
Part 2
Arrow Hospitality
Income Statement
For Year Ended September 30, 2011
Revenues:
Hospitality revenues.............................................................. $134,20
0
Operating expenses:
Salaries expense..................................................................... $145,00
0
Repair supplies expense........................................................ 17,000
Rent expense........................................................................... 10,000
Amortization expense, office furniture................................ 4,000
Internet expenses................................................................... 1,900
Interest expense...................................................................... 1,62
0
Total operating expenses................................................... 179,52
0
Net loss......................................................................................... $45,320
Arrow Hospitality
For Year Ended September 30, 2011
Al Zink, capital, October 1......................................................... $64,158
*
Add: Investment by owner........................................................ 3,600
Total........................................................................................ $67,758
Less: Withdrawal by owner...................................................... $ 5,000
Net loss.............................................................................. 45,320 50,320
Al Zink, capital, September 30.................................................. $
17,438
*Calculation: The adjusted balance of $67,758 is after the owner invested $3,600
during the year. Therefore, the balance at the beginning of the year was $64,158
($67,758 - $3,600).

Arrow Hospitality
Balance Sheet
September 30, 2011
Assets
Cash.......................................................................................... $ 6,000
Accounts receivable................................................................. 17,400
Prepaid rent............................................................................. 4,000
Repair supplies........................................................................ 700
Office furniture........................................................................ $26,000
Less: accumulated amortization, office furniture................ 4,000 22,000
Total assets............................................................................... $50,100
Liabilities
Accounts payable.................................................................... $ 8,100
Interest payable...................................................................... 162
Salaries payable...................................................................... 2,800
Notes payable.......................................................................... 21,600
Total liabilities................................................................. $32,662
Owner’s Equity
Al Zink, capital........................................................................ 17,43
8
Total liabilities and owner’s equity........................................ $50,100
Analysis component:
If assets were $76,900 at September 30, 2010 and equity was $64,158* on the same
date, liabilities would have been the difference: $12,742. Arrow had a much
stronger balance sheet at September 30, 2010 (the lower the total liabilities as a
percentage of assets, the stronger the balance sheet). Equity decreased
substantially because of the net loss realized during 2011.
*From the statement of owner’s equity prepared for the year ended September 30,
2011.

Part a.
GALAVU ENTERTAINMENT
Income Statement
For Year Ended December 31, 2011
Revenues:
Fees earned......................................................................... $160,000
Interest earned.................................................................... 8,000
Total revenues................................................................. $168,000
Operating Expenses:
Salaries expense.................................................................. $90,000
Advertising expense............................................................ 25,000
Wages expense.................................................................... 16,000
Office supplies expense...................................................... 13,000
Interest expense.................................................................. 12,000
Amortization expense, automobiles.................................. 9,000
Repairs expense, automobiles............................................ 8,400
Amortization expense, equipment..................................... 5,000
Total operating expenses................................................ 178,400
Net loss...................................................................................... $ 10,400
Part b.
John Conroe, capital, January 1............................................ $73,900
Add: Investment by owner........................................................ 50,000
Total........................................................................................ $123,90
0
Less: Withdrawal by owner...................................................... $19,000
Net loss.............................................................................. 10,400 29,400
John Conroe, capital, December 31....................................... $94,500

Part c.
Balance Sheet
December 31, 2011
Assets
Cash.......................................................................................... $ 11,000
Accounts receivable................................................................. 22,000
Interest receivable................................................................... 5,000
Notes receivable (due in 90 days)........................................... 80,000
Office supplies.......................................................................... 4,000
Automobiles.............................................................................. $80,000
Less: Accumulated amortization............................................ 21,000 59,000
Equipment................................................................................ $65,000
Less: Accumulated amortization........................................ 5,000 60,000
Land.......................................................................................... 35,000
Total assets............................................................................... $276,000
Liabilities
Accounts payable..................................................................... $ 44,000
Interest payable....................................................................... 6,000
Salaries payable....................................................................... 5,500
Unearned fees........................................................................... 11,000
Long-term notes payable........................................................ 115,000
Total liabilities..................................................................... $181,500
Owner’s Equity
John Conroe, capital............................................................... 94,500
Analysis component:
The equity did increase from $73,900 to $94,500 during the year ended December
31, 2011. However, the business suffered a loss during the year which decreases
equity. The increase in equity was caused by the owner’s net investment of
$31,000 ($50,000 investment less owner withdrawals of $19,000). An increase in
equity is desirable but, for the long run, it should be driven by net income and not
owner investment.

GENERAL JOURNAL* Page 1
Date Account Titles and Explanations PR Debit Credit
2011
Aug 1 Office Furniture............................ 162 5,200
Accounts Payable.................. 201 5,200
Purchased on account.
1 Cash................................................ 101 7,000
Delanie Tugut, Capital......... 301 7,000
Owner investment.
2 Cash................................................ 101 3,900

Unearned Revenue................ 233 3,900
Collected cash in advance.
3 Prepaid Rent.................................. 131 6,000

Cash........................................ 101 6,000
Paid for 6 months rent.
4 Cash................................................ 101 3,000

Revenue.................................. 401 3,000
Collected cash for work done.
7 Hotel Expenses.............................. 696 1,500

Cash........................................ 101 1,500
Paid for hotel expenses.
1 Delanie Tugut, Withdrawals........ 302 500
5
Cash........................................ 101 500
Owner withdrawals.
2 No entry
2
3 Wages Expense.............................. 623 1,300

1
Cash....................................... 101 1,300
Paid wages.

*Note: The PR column in the General Journal would appear as shown above,
with the PR column completed, after posting the adjusting entries.

248
Problem 4-14A (continued) Part 2 and 3

Accum. Amort., 162
Cash 101 Prepaid Rent 131 Office Furniture 161 Office Furniture
Aug. 1 7,000 6,00 Aug. 3 Aug. 3 6,00 Aug. 1 5,200
2 3,900 0 7 0
4 3,000 1,50 15
0 31
500
1,30
0
Bal. 4,600
Delanie Tugut, Delanie Tugut,

Accounts Payable 201 Unearned Revenue 233 Capital 301 Withdrawals 302
5,20 Aug. 1 3,900 Aug. 2 7,000 Aug. 1 Aug. 15 500

0
Amort. Exp.,
Revenue 401 Office Furniture 602 Wages Expense 623 Rent Expense 640
3,00 Aug. 4 Aug. 31 1,300
0
Hotel Expenses 696

Aug. 7 1,500
Problem 4-14A (continued) Part 4
Tugut Arctic Tours

Unadjusted Trial Balance
August 31, 2011
Acct.
No. Account Title Debit Credit
101 Cash.......................................................... $ 4,600
131 Prepaid rent............................................. 6,000
161 Office furniture........................................ 5,200
201 Accounts payable..................................... 5,200
233 Unearned revenue................................... 3,900
301 Delanie Tugut, capital............................. 7,000
302 Delanie Tugut, withdrawals................... 500
401 Revenue.................................................... 3,000
623 Wages expense......................................... 1,300
696 Hotel expenses......................................... 1,500
Totals........................................................ $19,100 $19,100
Part 5 – Prepare and post adjusting entries.

2011
Aug 3 Amort. Exp., Office Furniture..... 602 104
1
Accum. Amort., Office 162 104
Furniture
(5,200 – 208)/4 = 1,248 × 1/12 =
104.
3 Unearned Revenue........................ 233 2,600

1
Revenue.................................. 401 2,600
3,900 × 2/3 = 2,600.
3 Rent Expense................................. 640 1,000

1
Prepaid Rent.......................... 131 1,000
6,000/6 = 1,000.
3 Telephone Expense....................... 688 320

1

Accounts Payable................... 201 320
Accrued August phone expense.

Problem 4-14A (continued) Part 5*
250
Accum. Amort., 162

Cash 101 Prepaid Rent 131 Office Furniture 161 Office Furniture
Aug. 1 7,000 6,00 Aug. 3 Aug. 3 6,00 1,000 Aug Aug. 1 5,200 104 Aug
2 3,900 0 7 0 31 31
4 3,000 1,50 15
0 31
500
1,30
0
Bal. 4,600 Bal. 5,00
0
Delanie Tugut, Delanie Tugut,

Accounts Payable 201 Unearned Revenue 233 Capital 301 Withdrawals 302
5,20 Aug. 1 Aug 2,60 3,900 Aug. 2 7,000 Aug. 1 Aug. 15 500
0 31 31 0
320
5,52 Bal. 1,300 Bal.
0
Amort. Exp.,
Revenue 401 Office Furniture 602 Wages Expense 623 Rent Expense 640
3,00 Aug. 4 Aug 104 Aug. 31 1,300 Aug 1,00
0 31 31 31 0
2,60
0
5,60 Bal.
0
Telephone 688 Hotel Expenses 696
Expenses
Aug 31 320 Aug. 7 1,50
0
*Note: The T-accounts would appear as shown above after posting the adjusting entries.

Part 6 – Adjusted Trial Balance

Tugut Arctic Tours
August 31, 2011
Acct.
101 Cash.......................................................... $ 4,600
131 Prepaid rent............................................. 5,000
161 Office furniture........................................ 5,200
162 Accum. amort., office furniture............. $ 104
301 Delanie Tugut, capital............................. 7,000
302 Delanie Tugut, withdrawals................... 500
401 Revenue.................................................... 5,600
602 Amort. exp., office furniture.................. 104
623 Wages expense......................................... 1,300
640 Rent expense............................................ 1,000
688 Telephone expense................................... 320
696 Hotel expenses......................................... 1,500
Totals........................................................ $19,524 $19,524
Part 7
Tugut Arctic Tours

Income Statement
For Month Ended August 31, 2011
Revenue...................................................... $5,600
Operating expenses:
Wages expense..................................... $ 1,300
Hotel expenses...................................... 1,500
Rent expense.........................................
1,000
Telephone expense............................... 320
Amortization expense, office furniture 104
Total operating expenses................ 4,224
Net income................................................. $1,376

Tugut Arctic Tours

For Month Ended August 31, 2011
Delanie Tugut, capital, August 1............. $ 0
Add: .....................Investments by owner $7,000
Net income............................................... 1,376 8,376
Total....................................................... $8,376
Less: Withdrawals by owner................... 500
Delanie Tugut, capital, August 31........... $7,876
Tugut Arctic Tours

Balance Sheet
August 31, 2011
Assets
Cash.......................................................................................... $ 4,600
Prepaid rent............................................................................. 5,000
Office furniture........................................................................ $5,200
Less: Accumulated amortization............................................ 104 5,096
Total assets............................................................................... $14,696
Liabilities
Unearned revenue.................................................................... 1,300
Total liabilities..................................................................... $ 6,820
Owner’s Equity
Delanie Tugut, capital............................................................. 7,876
Analysis Component:
When a company shows revenue on its income statement, it does not necessarily
mean that cash equal to revenues was received during the period in which the
revenues were reported. For Tugut Arctic Tours, all of the revenues reported on
the income statement were received in cash. Tugut actually received more cash
from customers than the revenue reported because of cash received in advance
from customers. It is possible that services in the future will be provided on
account so that these revenues, although included as part of net income on the
income statement, may not be collected during the period in which the revenue
was recorded. So, the total revenues earned and reported on an income statement
will not necessarily equal the actual cash collected during the period because of
uncollected receivables and unearned revenues.

*Problem 4-15A (20 minutes)
a. Sept. 30 Accounts Receivable............................ 7,000
Cash............................................... 7,000
To correct an incorrect entry.
OR
30 Counselling Fees Earned..................... 7,000

Cash............................................... 7,000
To reverse incorrect entry.
AND
30 Accounts Receivable............................ 7,000

Counselling Fees Earned.............. 7,000
To record fees performed on account.
b. 30 Telephone Expense.............................. 1,680

Utilities Expense............................ 1,680
c. 30 Office Supplies..................................... 2,800

Cleaning Supplies......................... 2,800
d. 30 Unearned Service Revenue................. 19,600

Accounts Payable.......................... 19,600
To reverse an incorrect entry.
AND
Service Revenue............................ 19,600
To record services performed on account.
e. 30 Accounts Payable................................. 1,200

Office Equipment.......................... 1,200
To reverse an incorrect entry.
AND
Office Supplies.............................. 1,200
To record the sale of office supplies on credit.

*Problem 4-15A (concluded)
Analysis component:
The correcting entry regarding (b) simply transfers the $840 from one expense
account into another so the net effect on the financial statements is nil. However,
it is necessary to prepare a correcting entry despite a nil net effect because
decision making based on account balances could be adversely affected if based on
incorrect information.
*Problem 4-16A (20 minutes)

WILLIS CONSULTING
Trial Balances
March 31, 2011
Account Balance Adjustments Balance
Debit Credit Debit Credit Debit Credit
Cash..........................................
$20,000 $20,000
Accounts receivable................49,700 49,700
Prepaid rent............................. -0- b) 20,000
$20,000
Prepaid insurance................... -0- c) 500
500
Accounts payable.................... $ 2,500 $ 2,500
Unearned -0- a) $5,600 5,600
consulting fees..........................
Bruce Willis, 15,600 15,600
capital.......................................
Consulting fees 82,000 a) 76,400
earned....................................... 5,600
Rent expense............................
28,000 b) 8,000
20,000
Insurance expense................... 2,400 c) 500 1,900
Totals........................................
$100,100 $100,100 $26,100 $26,100 $100,100 $100,100

*Problem 4-17A (40 minutes) Part 1
Entries that initially recognize assets and liabilities:
2011
Nov. 1 Prepaid Advertising................................... 3,000
Cash..................................................... 3,000
Paid for future advertising.
1 Prepaid Insurance..................................... 4,320

Cash..................................................... 4,320
Paid insurance for one year.
30 Cash............................................................ 6,600
Unearned Service Fees...................... 6,600
Received fees in advance.
Dec. 1 Prepaid Consulting Fees........................... 5,400

Cash..................................................... 5,400
Paid for future consulting.
15 Cash............................................................ 15,300
31 Advertising Expense.................................. 1,200

Prepaid Advertising........................... 1,200
3,000 – 1,800 = 1,200.
31 Insurance Expense..................................... 720

Prepaid Insurance.............................. 720
To adjust prepaid insurance;
4,320 x 2/12 = 720 used.
31 Unearned Service Fees.............................. 4,200

Service Fees Earned........................... 4,200
To adjust unearned service fees;
6,600 – 2,400 = 4,200 earned.
31 Consulting Fees Expense........................... 1,800

Prepaid Consulting Fees.................... 1,800
To adjust prepaid consulting fees.

*Problem 4-17A (continued) Part 1
Dec.31 Unearned Service Fees.............................. 6,000

To adjust unearned service fees.
Note: The entries for Part 1 have been posted to T-accounts to help the student see the
effects more clearly. The entries for Part 2 have also been posted to T-accounts in Part
2 of this question to help the student see that the results are the same regardless of
which approach is used.
Prepaid Advertising Prepaid Insurance Prepaid Consulting Fees
Nov. 1 3,000 1,20 Dec. 31 Nov. 1 4,32 720 Dec. 31 Dec. 1 5,400 1,800 Dec.
0 0 31
Bal. 1,800 Bal. 3,60 Bal. 3,600
0
Unearned Service Fees Service Fees Earned Advertising Expense

Dec. 31 4,200 6,600 Nov. 30 4,200 Dec. 31 Dec. 1,200
31
31 6,000 15,300 Dec. 15 6,000 31 Bal. 1,200
11,700 Bal. 10,200 Bal.
Insurance Expense Consulting Fees Expense

Dec. 31 720 Dec. 1,800
31
Bal. 720 Bal. 1,800

*Problem 4-17A (continued) Part 2
Entries that initially recognize expenses and revenues:
2011
Nov. 1 Advertising Expense.................................. 3,000
Cash..................................................... 3,000
1 Insurance Expense..................................... 4,320

Cash..................................................... 4,320
30 Cash............................................................ 6,600
Dec. 1 Consulting Fees Expense........................... 5,400

Cash..................................................... 5,400
Paid for future consulting.
15 Cash............................................................ 15,300
31 Prepaid Advertising................................... 1,800

Advertising Expense.......................... 1,800
To adjust for prepaid advertising.

Insurance Expense............................. 3,600
To adjust for prepaid insurance.

*Problem 4-17A (continued)
Part 2
2011
Dec. 31 Service Fees Earned.................................. 2,400
To adjust for unearned service fees.
31 Prepaid Consulting Fees........................... 3,600

Consulting Fees Expense................... 3,600
To adjust for prepaid consulting fees.
31 Service Fees Earned.................................. 9,300

To adjust for unearned service fees;
15,300 – 6,000 = 9,300 unearned.
Dec. 31 1,80 Dec. 3,600 Dec. 3,600
0 31 31
Bal. 1,80 Bal. 3,600 Bal. 3,600
0

2,400 Dec. Dec. 31 2,400 6,600 Nov. 30 Nov. 1 3,000 1,800 Dec.
31 31
9,300 31 31 9,300 15,300 Dec. Bal. 1,200
15
11,700 Bal. 10,200 Bal.
Insurance Expense Consulting Fees Expense

Nov. 1 4,320 3,600 Dec. Dec. 1 5,400 3,600 Dec.
31 31
Bal. 720 Bal. 1,800

*Problem 4-17A (concluded)
Analysis component:
There are no differences between the two methods in terms of the amounts that
appear on the financial statements. In both cases, the financial statements reflect
the following:
Advertising expense for two months..................... $ 1,200

Prepaid advertising as of December 31................ 1,800
Insurance expense for two months........................ 720
Prepaid insurance as of December 31................... 3,600
Consulting fees expense (1/3 of total paid)........... 1,800
Prepaid consulting fees.......................................... 3,600
Service fees earned for two months ($2,100 + $3,000) 10,200
Unearned service fees
as of December 31 ($1,200 + $4,650)................. 11,700
When prepaid expenses and unearned revenues are recorded in balance sheet
accounts, the related adjusting entries are designed to generate the correct asset,
expense, liability, and revenue account balances. When prepaid expenses and
unearned revenues are recorded in income statement accounts, the related
adjusting entries are designed to accomplish exactly the same result.

ALTERNATE PROBLEMS
Problem 4-1B (15 minutes)
2011
a) Apr. 3 Equipment Rental Expense..................................... 2,500
0
Prepaid Equipment Rental................................. 2,500
To record expired prepaid equipment rental;
9,000/18 months = 500/month × 5 months =
2,500.
b) 3 Warehouse Rental Expense..................................... 3,000
0
Prepaid Warehouse Rental................................. 3,000
c) 3 Insurance Expense................................................... 1,800
0
Prepaid Insurance............................................... 1,800
To record the use of insurance; $3,600 × 3/6.
d) 3 Cleaning Supplies Expense...................................... 1,200
0
Cleaning Supplies................................................ 1,200
To record the use of cleaning supplies.
Analysis component:
The matching and revenue recognition principle requires that adjusting entries be
recorded at the end of each accounting period to allocate revenues and expenses to
the period in which they belong. Revenues should be recorded in the accounting
period they were realized and expenses should be allocated to the period in which
they were used.

2011
a) Nov. 3 Amortization Expense, Furniture........................... 10,200
0
Accumulated Amortization, Furniture.............. 10,200
To record amortization on the furniture;
30,600/3 years = 10,200/year.
b) 3 Amortization Expense, Equipment......................... 14,850
0
Accumulated Amortization, Equipment........... 14,850
To record amortization on the equipment;
210,000 – 12,000 = 198,000/10 years =
19,800/year;
19,800/year × 9/12 = 14,850.
c) 3 Amortization Expense, Building............................. 1,320
0
Accumulated Amortization, Building................ 1,320
To record amortization on the building;
307,600 – 70,000 = 237,600/15 years =
15,840/year;
15,840/year × 1/12 = 1,320.
Analysis component:
The recording of amortization achieves the GAAP of matching. When an asset
such as a machine is purchased, it will help generate revenues for more than the
current accounting period. Therefore, to properly match the expense of the
machine, we allocate a portion of the total cost to each accounting period in which
revenue will be generated by the machine; this process is called amortization. If
we expensed the total cost of the machine in the period in which it was purchased,
expenses would be overstated in the period the machine was purchased and
understated in future periods in which the machine was used in the operations of
the business.
If amortization is not recorded, assets and equity will be overstated.

2011
a) Jan. 31 No entry required on January 31, 2011.
b) 31 Unearned Tour Package Revenue............. 397,000

Tour Package Revenue......................... 397,000
To record tour revenue earned.
c) 31 Unearned Scuba Diving Revenue.............. 97,000

Scuba Diving Revenue........................... 97,000
To record scuba diving revenue;
133,000 – 36,000 = 97,000.
d) 31 Unearned Kayaking Tour Revenue.......... 55,650

Kayaking Tour Revenue....................... 55,650
To record kayaking tour revenue earned;
64,000 – 8,350 = 55,650 earned.
Analysis component:
Unearned revenues is a type of liability account. It is occurs when the business
collects cash from a customer who is paying for a product/service in advance of
receiving the product/service. Because the business now owes the customer a
product/service, it is recorded as a liability in accordance with the revenue
recognition principle. When the product/service has been provided to the
customer, the earned portion of the liability (unearned revenues) is transferred to
a revenue account by recording an adjusting entry. This adjustment is in
accordance with both the revenue recognition and matching principles. The
business wants to allocate, or match, the revenue to the period in which it was
actually earned.


a. a.
Sept 30 Interest Expense..............................................................
3,800 Oct 2 Interest Payable.................................... 3,800
Interest Payable.........................................................
3,800 Cash.............................................. 3,800
To record accrued interest. To record payment of accrued interest.
b. b.
Sept 30 Wages Expense...............................................................
27,000 Oct 4 Wages Payable...................................... 27,000
Wages Payable...........................................................
27,000 Wages Expense..................................... 18,000
To record accrued wages Cash.............................................. 45,000
expense. To record payment of wages.
c. c.
Sept 30 Cell Phone Expense.................................................................
180 Oct 5 Accounts Payable................................. 180
Accounts Payable............................................................
180 Cash.............................................. 180
To record accrued cell phone To record payment of accrual.
expense.
d. d.
Sept 30 Cable Expense.........................................................................
390 Oct 2 Accounts Payable................................. 390
Accounts Payable............................................................
390 Cash.............................................. 390
To record accrued expense. To record payment of accrual.
e. e.
Sept 30 Property Tax Expense.............................................................
1,950 Oct 15 Property Tax Payable.......................... 1,950
Property Tax Payable.....................................................
1,950 Cash.............................................. 1,950
To record accrued expense. To record payment of accrual.
263
264

a. a.
Mar 31 Interest Receivable.............................. 650 Apr 5 Cash...................................................... 780
Interest Revenue......................... 650 Interest Receivable...................... 650
To record accrued interest revenue. Interest Revenue........................ 130
To record collection of interest;
650/25 = 26/day x 5 days = 130.
b. b.
Mar 31 Accounts Receivable........................... 5,400 Apr 6 Cash...................................................... 5,400
Consulting Fees........................... 5,400 Accounts Receivable................... 5,400
revenue.
c. c.
Mar 31 Accounts Receivable........................... 6,800 Apr 13 Cash...................................................... 6,800
Web Design Revenue.................. 6,800 Accounts Receivable................... 6,800

revenue.
d. d.
Mar 31 Rent Receivable................................... 350 Apr 27 Cash...................................................... 700
Rent Revenue.............................. 350 Rent Receivable........................... 350
To record accrued rent for March. Rent Revenue........................... 350
To record collection of March and
April rent.
1.
2011
a) Dec 31 Insurance Expense....................................... 6,400
.
Prepaid Insurance................................ 6,400
To record the cost of insurance expired
during the year.
b) 31 Teaching Supplies Expense......................... 57,500

Teaching Supplies................................. 57,500
To record the cost of supplies used during
the year; $60,000 - $2,500 = $57,500.
c) 31 Amortization Expense, Equipment............. 4,000

Accumulated Amortization, 4,000
Equipment.....................................................
To record equipment amortization
expense.
d) 31 Amortization Expense, Prof. Library......... 2,000

Professional Library............................ 2,000
To record professional library
amortization
expense.
e) 31 Unearned Extension Fees............................ 9,200

Extension Fees Earned......................... 9,200
To record extension fees earned that were
collected in advance; $4,600 x 2 months.
f) 31 Accounts Receivable..................................... 5,500

Tuition Fees Earned............................. 5,500
To record the amount of tuition fees
earned;
$2,200 x 2.5 months.
g) 31 Salaries Expense........................................... 540

Salaries Payable.................................... 540
To accrue salaries expense.
Problem 4-6B (concluded)

h) Dec 31 Rent Expense................................................ 2,600
.
Prepaid Rent......................................... 2,600
To record the expiration of prepaid rent.
2. Analysis Component
DESIGN INSTITUTE
Trial Balances
December 31, 2011
Cash.....................................................
$50,000 $
50,000
Accounts receivable............................
-0- f) $5,500 5,500
Teaching supplies...............................
60,000 b) 2,500
$57,500
Prepaid insurance...............................
18,000 a) 6,400 11,600
Prepaid rent........................................
2,600 h) 2,600 -0-
Professional library............................
10,000 10,000
Accum. amort., $ 1,500 d) 2,000 $ 3,500
professional library............................
Equipment...........................................
30,000 30,000
Accum. amort., equipment................ 16,000 c) 4,000 20,000
Accounts payable................................ 12,200 12,200
Salaries payable.................................. -0- g) 540 540
Unearned extension fees..................... 27,600 e) 9,200 18,400
Jay Stevens, capital............................ 68,500 68,500
Jay Stevens, withdrawals...................20,000 20,000
Tuition fees earned............................. 105,000 f) 5,500 110,500
Extension fees earned......................... 62,000 e) 9,200 71,200
Amort. expense, equipment............... -0- c) 4,000 4,000
Amort. expense, -0- d) 2,000 2,000
professional library............................
Salaries expense..................................
43,200 g) 540 43,740
Insurance expense.............................. -0- a) 6,400 6,400
Rent expense.......................................
28,600 h) 2,600 31,200
Teaching supplies expense................. -0- b)57,500 57,500
Advertising expense............................
18,000 18,000

Utilities expense..................................
12,400 12,400
Totals...................................................
$292,80 $292,80 $87,740 $87,740 $304,84 $304,84
0 0 0 0
3. If the adjusting entries were not recorded, net income would be overstated by $58,340
(4,000 + 2,000 + 540 + 6,400 + 2,600 + 57,500 – 5,500 – 9,200).
4. It is unethical to ignore adjusting entries because it misrepresents assets, liabilities, and
equity.
2011
a) Ma 3 Amortization Expense, Machinery.................. 2,625
y 1
Accumulated Amortization, Machinery..... 2,625
To record amortization on the machinery;
21,000/6 yrs = 3,500/yr × 9/12 = 2,625.
b) 3 Unearned Revenue............................................ 3,000

1
Revenue......................................................... 3,000
To record revenue earned.
c) 3 Insurance Expense............................................. 11,250

1
Prepaid Insurance........................................ 11,250
90,000/2 yrs = 45,000/yr × 3/12 = 11,250 or
90,000 x 3/24 = 11,250.
d) 3 Salaries Expense................................................ 5,000

1
Salaries Payable............................................ 5,000
e) 3 Interest Expense................................................ 2,520

1
Interest Payable............................................ 2,520
f) 3 Accounts Receivable.......................................... 1,700

1
Revenue......................................................... 1,700
To record accrued revenues.
g) 3 Advertising Expense.......................................... 12,000

1

Prepaid Advertising..................................... 12,000
To record the use of prepaid advertising.
h) 3 Amortization Expense, Office Equipment....... 1,800

1
Equipment
To record amortization on the office
equipment.
i) 3 Interest Receivable............................................ 350

1
Interest Revenue........................................... 350
j) 3 Office Supplies Expense.................................... 5,500
1
Office Supplies.............................................. 5,500
To record the use of office supplies.
Problem 4-8B (30 minutes) Part 1

201
2
a) Oct. 31 Office Supplies Expense........................................ 3,450
Office Supplies................................................ 3,450
To record the cost of supplies used during the
year; $500 + $3,650 – $700.
b) 31 Insurance Expense................................................. 2,365

Prepaid Insurance........................................... 2,365
To record the cost of insurance coverage that
expired during the year.
Cost per No. of Current
Policy Month Months Year
1 $125 12 $1,500
2 100 7 700
3 55 3 165
Total $2,365
c) 31 Salaries Expense........................................ 2,400

Salaries Payable................................. 2,400
To record accrued but unpaid wages;
3 days × $800/day.

d) 31 Amortization Expense, Building.............. 1,350
Accumulated Amortization, Building 1,350
To record amortization expense. Annual
amortization = ($155,000 – $20,000)/25 =
$5,400; amortization for three months =
$5,400 × 3/12.
e) 31 Rent Receivable......................................... 600

Rent Earned....................................... 600
To record earned but unpaid rent.

Problem 4-8B (concluded) Part 1
f) Oct. 31 Unearned Rent...................................... 1,050

Rent Earned................................... 1,050
To record the amount of rent earned;
2 × $525.
Part 2
2012
c. Nov 5 Salaries Payable........................................... 2,400
.
Salaries Expense........................................... 1,600
Cash....................................................... 4,000
To record payment of accrued and
current
salaries; 2 × $800 = $1,600.
e. 15 Cash............................................................... 1,200
Rent Receivable.................................... 600
Rent Earned.......................................... 600
To record past due rent for two months.

2011
a) Dec. 31 Amortization Expense, Surveying Equipment....... 167
Accumulated Amortization, Surveying 167
Equipment.................................................................
To record amortization for December.
b) 31 Unearned Surveying Fees........................................ 400

Surveying Fees Earned....................................... 400
To record earned surveying fees;
2,400 – 2,000 = 400 earned.
c) 31 Rent Expense............................................................ 2,250

Prepaid Rent........................................................ 2,250
13,500  6 months = 2,250.
d) 31 Wages Expense......................................................... 5,000

Wages Payable..................................................... 5,000

e) 31 Interest Expense....................................................... 105

Interest Payable................................................... 105
f) 31 Accounts Receivable................................................. 790

Surveying Fees Earned....................................... 790
g) 31 Advertising Expense................................................. 350

Prepaid Advertising............................................ 350
To record used advertising;
2,800  4 months = 700/month  2 = 350 for
half of December.
h) 31 Supplies Expense...................................................... 150

Supplies................................................................ 150
To record supplies used.
i) 31 Utilities Expense....................................................... 540

Accounts Payable................................................ 540
Analysis component:
Accumulated Amortization is a contra asset account and is reported on the balance

sheet. Because Accumulated Amortization is an asset account, its ending balance
for one period becomes the beginning balance for the next accounting period.
Amortization Expense is an expense account and is reported on the income

statement. Because Amortization Expense is an expense account, its ending
balance for one period does not become the beginning balance for the next
accounting period. The balance in Amortization Expense is the amount of
amortization for one accounting period while Accumulated Amortization
represents total amortization recorded to date for a particular capital asset.

Parts 1 and 2
Note: The solution to Parts 1 and 2 is also done using T-accounts and can be found
immediately following the balance column format.
Cash Account No. 101

Debi
Date Explanation PR t Credit Balance
2011
3
Dec. 1 Unadjusted balance 2,800
Accounts Receivable Account No. 106

2011
3
3
1 G7 790 4,745
Supplies Account No. 126

2011
3
Dec. 1 Unadjusted balance 320
3
1 G7 150 170
Prepaid Advertising Account No. 128

2011
3
3
1 G7 350 2,450
Prepaid Rent Account No. 131

2011

3
3
1 G7 2,250 11,250
Surveying Equipment Account No. 167

2011
3
Problem 4-10B (continued)
Accumulated Amortization - Surveying Equipment Account No. 168
2011
3
3
1 G7 167 3,841
Accounts Payable Account No. 201

2011
3
3
1 G7 540 2,440
Interest Payable Account No. 203

2011
3
Dec. 1 G7 105 105
Wages Payable Account No. 210

2011
3
Dec. 1 G7 5,000 5,000
Unearned Surveying Fees Account No. 233

2011
3
3
1 G7 400 2,000
Notes Payable Account No. 251

2011
3
Alissa Kay, Capital Account No. 301

2011
3

Alissa Kay, Withdrawals Account No. 302
2011
3
Surveying Fees Earned Account No. 401

2011
3
3
1 G7 400 67,449
3
1 G7 790 68,239
Amortization Expense, Surveying Equipment Account No. 601

2011
3
3
1 G7 167 2,004
Wages Expense Account No. 622

2011
3
3
1 G7 5,000 24,863
Interest Expense Account No. 633

2011
3
3
1 G7 105 1,050

Rent Expense Account No. 640
2011
3
3
1 G7 2,250 24,250

Supplies Expense Account No. 650
2011
3
3
1 G7 150 1,629
Advertising Expense Account No. 655

2011
3
3
1 G7 350 850
Utilities Expense Account No. 690

2011
3
3
1 G7 540 6,740

Parts 1 and 2 (in T-account format)

NOTE: AJE = Adjusting Journal Entry
Cash 101 Accounts Receivable 106 Supplies 126
Unadj Unadj Unadj
Bal Dec 2,800 Bal Dec 3,955 Bal Dec 320 150 AJE Dec
31 31 31 31
Adj Bal
AJE 790 Dec 31 170
Adj Bal
Dec 31 4,745
Prepaid Advertising 128 Prepaid Rent 131 Surveying Equipment 167

Unadj Unadj Unadj
Bal Dec 2,800 350 AJE Dec Bal Dec 13,500 2,250 AJE Dec Bal Dec 29,000
31 31 31 31 31
Adj Bal Adj Bal
Dec 31 2,450 Dec 31 11,250
Accum. Amort., Surveying

Equipment 168 Accounts Payable 201 Interest Payable 203
Unadj Bal Unadj Bal 105 AJE Dec
3,674 Dec 31 1,900 Dec 31 31
167 AJE Dec 540 AJE Dec
31 31
Adj Bal Adj Bal
3,841 Dec 31 2,440 Dec 31
Wages Payable 210 Unearned Surveying Fees 233 Notes Payable 251
5,00 AJE Dec Unadj Bal Unadj Bal
0 31 AJE Dec 400 2,40 Dec 31 18,00 Dec 31
31 0 0
233
275
Adj Bal
2,00 Dec 31
0
276
Alissa Kay, Capital 301 Alissa Kay, 302 Surveying Fees Earned 401
Withdrawals
Unadj Unadj Bal Unadj Bal
14,32 Bal Dec Dec 31 2,150 67,04 Dec 31
6 31 9
400 AJE Dec
31
790 AJE Dec
31
Adj Bal
68,23 Dec 31
9
Amort. Expense,
Surveying
Equipment 601 Wages Expense 622 Interest Expense 633
Unadj Bal Unadj Bal Unadj Bal
Dec 31 1,837 Dec 31 19,86 Dec 31 945
3
AJE Dec 167 AJE Dec 5,000 AJE Dec 31 105
31 31
Adj Bal Adj Bal Adj Bal
Dec 31 2,004 Dec 31 24,86 Dec 31 1,05
3 0
Rent Expense 640 Supplies Expense 650 Advertising Expense 655

Unadj Bal Unadj Bal Unadj Bal
Dec 31 22,00 Dec 31 1,479 Dec 31 500
0
AJE Dec 2,250 AJE Dec 150 AJE Dec 31 350
31 31
Adj Bal Adj Bal Adj Bal
Dec 31 24,25 Dec 31 1,629 Dec 31 850
0
Utilities Expense 690

Unadj Bal
Dec 31 6,200
AJE Dec 540
31
Adj Bal
Dec 31 6,740
NOTE: After posting the December 31, 2011 adjusting entries, the general journal
PR column would appear as follows to show that the posting has been done.

Date Account Titles and Explanations PR Debi Credi
t t
2011 Adjusting entries:
a) 3 Amortization Expense, Surveying Equipment..... 60 167
Dec. 1 1
Accumulated Amortization, Surveying 16 167
Equipment............................................................... 8
To record amortization for December.
b) 3 Unearned Surveying Fees...................................... 23 400
1 3
Surveying Fees Earned..................................... 40 400
1
To record earned surveying fees;
2,400 – 2,000 = 400 earned.
c) 3 Rent Expense........................................................... 64 2,25
1 0 0
Prepaid Rent...................................................... 13 2,250
1
13,500  6 months = 2,250.
d) 3 Wages Expense....................................................... 62 5,00
1 2 0
Wages Payable................................................... 21 5,000
0
e) 3 Interest Expense..................................................... 63 105
1 3
Interest Payable................................................. 20 105
3
f) 3 Accounts Receivable............................................... 10 790

1 6
Surveying Fees Earned..................................... 40 790
1

g) 3 Advertising Expense............................................... 65 350
1 5
Prepaid Advertising.......................................... 12 350
8
To record used advertising;
2,800  4 months = 700/month  2 = 350 for
half of December.
h) 3 Supplies Expense.................................................... 65 150
1 0
Supplies.............................................................. 12 150
6
To record supplies used.
i) 3 Utilities Expense...................................................... 69 540
1 0
Accounts Payable............................................... 20 540
1

Part 3
Colt Surveying Services

December 31, 2011
Acct.
101 Cash...................................................................... $
2,800
106 Accounts receivable............................................. 4,745
126 Supplies ............................................................... 170
128 Prepaid advertising............................................. 2,450
131 Prepaid rent......................................................... 11,250
167 Surveying equipment.......................................... 29,000
168 Accumulated amortization, surveying $
equipment............................................................. 3,841
201 Accounts payable................................................. 2,440
203 Interest payable................................................... 105
210 Wages payable..................................................... 5,000
233 Unearned surveying fees..................................... 2,000
251 Notes payable....................................................... 18,000
301 Alissa Kay, capital............................................... 14,326
302 Alissa Kay, withdrawals..................................... 2,150
401 Surveying fees earned......................................... 68,239
601 Amortization expense.......................................... 2,004
622 Wages expense..................................................... 24,863
633 Interest expense................................................... 1,050
640 Rent expense........................................................ 24,250
650 Supplies expense.................................................. 1,629
655 Advertising expense............................................ 850
690 Utilities expense................................................... 6,740
Totals.................................................................... $113,951 $113,951

Part 4
Income Statement
For Month Ended December 31, 2011
Revenues:
Service revenue..................................................................... $68,23
9
Operating expenses:
Wages expense...................................................................... $24,863
Rent expense......................................................................... 24,250
Utilities expense.................................................................... 6,740
Amortization expense, surveying equipment..................... 2,004
Supplies expense................................................................... 1,629
Interest expense.................................................................... 1,050
Advertising expense............................................................. 850
Total operating expenses................................................. 61,38
6
Net income.................................................................................. $
6,853

For Month Ended December 31, 2011
Alissa Kay, capital, December 1.............................................. $12,326*
Add: Investment by owner...................................................... $2,000
Net income....................................................................... 6,853 8,853
Total...................................................................................... $21,179
Less: Withdrawal by owner.................................................... 2,150
Alissa Kay, capital, December 31............................................ $19,029
during the month. Therefore, the balance at the beginning of the month was $12,326
($14,326 - $2,000).

Part 4
Balance Sheet
December 31, 2011
Assets
Cash......................................................................................... $ 2,800
Accounts receivable............................................................... 4,745
Supplies................................................................................... 170
Prepaid advertising................................................................ 2,450
Prepaid rent............................................................................ 11,250
Surveying equipment............................................................. $29,000
Less: Accumulated amortization..................................... 3,841 25,159
Total assets............................................................................. $46,574
Liabilities
Accounts payable................................................................... $ 2,440
Wages payable........................................................................ 5,000
Unearned surveying fees....................................................... 2,000
Notes payable......................................................................... 18,000
Total liabilities.................................................................... $27,545
Owner’s Equity
Alissa Kay, capital................................................................. 19,029
Total liabilities and owner’s equity...................................... $46,574
Analysis component:
At December 31, 2011, $19,029 or 41% ($19,029/$46,574 x 100) of the business’s
assets are financed by the owner and $27,547 or 59% ($27,545/$46,574 x 100) are
financed by debt. Assuming total assets at the end of the previous month totalled
$42,100, equity financing increased from 29% ($12,326/$42,100 x 100 = 29%) at
the beginning of the month to 41%. Generally speaking, an increase in equity
financing is a favourable change since there is greater risk with debt financing (the
risk associated with being able to make payments on outstanding loans).

2011
a) June 3 Arena Rental Expense.......................................... 65,000
0
Prepaid Arena Rental...................................... 65,000
To record rent;
91,000/7 months = 13,000/month × 5 months = 65,000.
b) 3 Repair Supplies Expense...................................... 950

0
Repair Supplies................................................ 950
To record the use of repair supplies.
c) 3 Amortization Expense, Hockey Equipment........ 41,000

0
Accumulated Amortization, Hockey 41,000
Equipment.............................................................
To record amortization of hockey equipment.
d) 3 Unearned Ticket Revenue.................................... 3,500

0
Ticket Revenue................................................. 3,500
To record revenues earned;
9,800 – 6,300 = 3,500.
e) 3 Salaries Expense.................................................... 29,000

0
Salaries Payable............................................... 29,000
f) 3 Interest Expense.................................................... 900

0
Interest Payable................................................ 900
g) 3 Ticket Revenue...................................................... 46,000
0
Unearned Ticket Revenue............................... 46,000
To record ticket revenue not yet earned.

282
Orca Bay Hockey Holdings

Trial Balances
June 30, 2011
Unadjusted Trial Adjusted Trial Balance
Account Balance Adjustments
Debi Credit Debit Credit Debit Credit
t
Cash.................................................... 56,000 56,000
Accounts receivable........................... 14,000 14,000
Repair supplies .................................. 1,400 b) 950 450
Prepaid arena rental......................... 91,000 a) 65,000 26,000
Hockey equipment............................. 214,000 214,000
Accumulated amort., hockey equip. 82,000 c) 41,000 123,000
Accounts payable............................... 2,700 2,700
Unearned ticket revenue................... 9,800 d) 3,500 g) 46,000 52,300
Notes payable..................................... 80,000 80,000
Ben Gibson, capital........................... 225,700 225,700
Ben Gibson, withdrawals................... 36,000 36,000

Ticket revenue................................... 275,000 g) 46,000 d) 3,500 232,500
Salaries expense................................. 175,000 e) 29,000 204,000
Arena rental expense........................ 84,000 a) 65,000 149,000
Other expenses.................................. 3,800 3,800
Totals............................................. 675,200 675,200
Repair supplies expense.................... b) 950 950
Amortization expense, hockey c) 41,000 41,000
equip...................................................
Salaries payable................................. e) 29,000 29,000
Interest expense................................. f) 900 900
Interest payable................................. f) 900 900
Totals............................................. 186,350 186,350 746,100 746,100
Part 2

Income Statement
For Year Ended June 30, 2011
Revenues:
Ticket revenue................................................................. $232,500
Operating expenses:
Salaries expense............................................................... $204,000
Arena rental expense...................................................... 149,000
Amortization expense, hockey equipment.................... 41,000
Other expenses................................................................ 3,800
Repair supplies expense.................................................. 950
Interest expense............................................................... 900
Total operating expenses............................................ 399,65
0
Net loss.................................................................................. $167,150

For Year Ended June 30, 2011
Ben Gibson, capital, July 1.................................................. $215,700*

Add: Investment by owner................................................. 10,000
Total................................................................................. $225,700
Less: Withdrawal by owner............................................... $36,000
Net loss....................................................................... 167,150 203,15
0
Ben Gibson, capital, June 30............................................... $ 22,550
($225,700 - $10,000).


Balance Sheet
June 30, 2011
Assets
Cash....................................................................................... $
56,000
Accounts receivable............................................................. 14,000
Prepaid arena rental............................................................ 26,000
Repair supplies..................................................................... 450
Hockey equipment......................... $214,00
0
Less: Accumulated amortization................................... 123,00 91,00
0 0
Total assets............................................................................ $187,45
0
Liabilities
Accounts payable.................................................................. $
2,700
Interest payable.................................................................... 900
Salaries payable.................................................................... 29,000
Unearned ticket revenue...................................................... 52,300
Notes payable........................................................................ 80,00
0
Total liabilities.............................................................. $164,90
0
Owner’s Equity
Ben Gibson, capital.............................................................. 22,55
0
Total liabilities and owner’s equity.................................... $187,45
0
Analysis component:
If liabilities at June 30, 2010 were $45,000 and equity was $215,700* on the same
date, then total assets were $260,700 ($45,000 + $215,700 = $260,700). Orca Bay
Hockey Holdings had a much stronger balance sheet at June 30, 2010 (the lower
the total liabilities as a percentage of total assets, the stronger the balance sheet).
Equity decreased substantially during the year ended June 30, 2011 because of the
$167,150 net loss and, to a lesser degree, the owner withdrawals of $36,000.

*From the statement of owner’s equity prepared for the year ended June 30, 2011.

HORIZON COURIER
Income Statement
Revenues:
Delivery fees earned............................................. $580,000
Interest earned...................................................... 24,000
Total revenues................................................... $604,000
Operating Expenses:
Wages expense...................................................... $290,000
Salaries expense.................................................... 64,000
Amortization expense, equipment....................... 46,000
Repairs expense, trucks........................................ 34,600
Office supplies expense......................................... 33,000
Advertising expense.............................................. 26,400
Interest expense.................................................... 25,000
Amortization expense, trucks.............................. 24,000
Total operating expenses.................................. 543,000
Net income................................................................ $ 61,000
Part 2
HORIZON COURIER
Kim Ainesworth, capital, January 1....................... $ 95,000*
Add: Investment by owner.................................................... $ 20,000
Net income......................................................................
61,000 81,000
Total..................................................................................... $176,000
Less: Withdrawal by owner................................................... 40,000
Kim Ainesworth, capital, December 31................................. $136,000
($115,000 - $20,000).

Problem 4-13B (concluded) Part 3
HORIZON COURIER
Balance Sheet
December 31, 2011
Assets
Cash........................................................................... $ 48,000
Accounts receivable................................................. 110,000
Interest receivable.................................................... 6,000
Notes receivable (due in 90 days)............................ 200,000
Office supplies.......................................................... 12,000
Trucks....................................................................... $124,000
Less: Accumulated amortization........................ 48,000 76,000
Equipment................................................................. $260,000
Land.......................................................................... 90,000
Total assets................................................................ $612,000
Liabilities
Accounts payable...................................................... $124,000
Interest payable........................................................ 22,000
Salaries payable........................................................ 30,000
Unearned delivery fees............................................ 110,000
Long-term notes payable......................................... 190,000
Total liabilities.................................................. $476,000
Owner’s Equity
Kim Ainesworth, capital.......................................... 136,000
Total liabilities and owner's equity......................... $612,000

2011
Jul 1 Cash................................................ 101 1,800
y
Unearned Revenue................. 233 1,800
Collected an advance.
1 Melanie Thornhill, Withdrawals. 302 2,000

Cash........................................ 101 2,000
Owner withdrawal.
2 Accounts Payable.......................... 201 1,100
Cash....................................... 101 1,100
Paid for supplies purchased on
account.
3 Cash................................................ 101 700
Revenue.................................. 401 700
Did work and collected cash.
4 Cash................................................ 101 1,800
Revenue.................................. 401 1,800
Collected cash for work done.
7 No entry
1 Melanie Thornhill, Withdrawals. 302 500

5
Cash........................................ 101 500
Owner withdrawals.
2 Repair Supplies............................. 131 800
2
Cash........................................ 101 800
Purchased supplies.
3 Wages Expense.............................. 623 1,400
1
Cash....................................... 101 1,400

Paid wages.

288
Problem 4-14B (continued) Part 2 and 3

Accum. Amort.,
Cash 101 Repair Supplies 131 Tools 161 Tools 162
Bal. 3,200 2,00 July 1 Bal. 1,50 Bal. 8,400 280 Bal.
July 1 1,800 0 2 July 0
3 700 1,10 15 22 800
4 1,800 0 22
500 31
800
1,40
0
Bal. 1,700 Bal. 2,30
0
Melanie Melanie Thornhill,

Accounts Payable 201 Unearned Revenue 233 Thornhill, Capital 301 Withdrawals 302
1,100 1,60 350 4,580 -0-
July 2 Bal. Bal. Bal. Bal.

0 1,800 July 1
1
July 1 2,00
15 0
500
500 Bal. 2,150 Bal. Bal. 2,50
0
Amort. Expense,
Revenue 401 Tools 602 Wages Expense 623 Rent Expense 640
12,900 Bal. Bal. 280 Bal. 980 Bal. 4,00
700 July 3 July 31 1,400 0
1,800 4
15,400 Bal. Bal. 2,380
696
Repair Sup. Exp.
Bal. 1,350
1. Calculated as: 3,200 + 1,500 + 8,400 – 280 – 1,600 – 350 – x + 0 – 12,900 + 280 + 980 + 4,000 + 1,350; x = 4,580.
Problem 4-14B (continued) Part 4
MT Repairs
Unadjusted Trial Balance
July 31, 2011
Acct.
101 Cash.......................................................... $ 1,700
131 Repair supplies........................................ 2,300
161 Tools......................................................... 8,400
162 Accumulated amortization, tools........... $ 280
201 Accounts payable..................................... 500
301 Melanie Thornhill, capital...................... 4,580
302 Melanie Thornhill, withdrawals............ 2,500
401 Revenue.................................................... 15,400
602 Amortization expense, tools................... 280
623 Wages expense......................................... 2,380
640 Rent expense............................................ 4,000
696 Repair supplies expense.......................... 1,350
Totals........................................................ $22,910 $22,910
Part 5 – Prepare and post adjusting entries.

2011
Jul 3 Amortization expense, tools......... 602 140
y 1
Accumulated amort., tools.... 162 140
8,400/5 = 1,680 × 1/12 = 140.
3 Repair Supplies Expense.............. 696 1,725

1
Repair Supplies...................... 131 1,725
2,300 × 3/4 = 1,725 used.
3 Rent Expense................................. 640 2,000

1
Accounts Payable................... 201 2,000
Accrued July’s rent.
3 Unearned Revenue........................ 233 250

1
Revenue.................................. 401 250
2,150 – 1,900 = 250 earned.
*Note: The PR column in the General Journal would appear as shown above, with
the PR column completed, after posting the adjusting entries.

Problem 4-14B (continued) Part 5*
290
Cash Accum. Amort.,

101 Repair Supplies 131 Tools 161 Tools 162
Bal. 3,200 2,00 July 1 Bal. 1,50 1,725 July Bal. 8,400 280 Bal.
July 1 1,800 0 2 July 0 31 140 July
3 700 1,10 15 22 800 31
4 1,800 0 22
500 31
800
1,40
0
Bal. 1,700 Bal. 575 420 Bal.
Melanie Melanie Thornhill,

Accounts Payable 201 Unearned Revenue 233 Thornhill, Capital 301 Withdrawals 302
July 2 1,100 1,60 Bal. July 250 350 Bal. 4,580 1
Bal. Bal. -0-
0 July 31 1,800 July 1 July 1 2,00
2,00 31 15 0
0 500
2,50 Bal. 1,900 Bal. Bal. 2,50
0 0
Amort. Expense,
Revenue 401 Tools 602 Wages Expense 623 Rent Expense 640
12,900 Bal. Bal. 280 Bal. 980 Bal. 4,00
700 July 3 July 140 July 31 1,400 July 0
1,800 4 31 31 2,00
250 31 0
15,650 Bal. Bal. 420 Bal. 2,380 Bal. 6,00
0
696
Repair Sup. Exp.
Bal. 1,350
July 31 1,725
Bal. 3,075
*Note: The T-accounts would appear as shown above after posting the
adjusting entries.
Part 6 – Adjusted Trial Balance

MT Repairs
July 31, 2011
Acct.
101 Cash.......................................................... $ 1,700
131 Repair supplies........................................ 575
161 Tools......................................................... 8,400
162 Accumulated amortization, tools........... $ 420
301 Melanie Thornhill, capital...................... 4,580
302 Melanie Thornhill, withdrawals............ 2,500
401 Revenue.................................................... 15,650
602 Amortization expense, tools................... 420
623 Wages expense......................................... 2,380
640 Rent expense............................................ 6,000
696 Repair supplies expense.......................... 3,075
Totals........................................................ $25,050 $25,050
Part 7
MT Repairs
Income Statement
For Three Months Ended July 31, 2011
Revenue...................................................... $15,65
0
Operating expenses:
Rent expense......................................... $ 6,000
Repair supplies expense...................... 3,075
Wages expense.....................................
2,380
Amortization expense, tools................ 420
Total operating expenses................ 11,875
Net income................................................. $
3,775

MT Repairs
For Three Months Ended July 31, 2011
Melanie Thornhill, capital, May 1........... $ 0
Add: .....................Investments by owner $4,580
Net income............................................... 3,775 8,355
Total....................................................... $8,355
Less: Withdrawals by owner................... 2,500
Melanie Thornhill, capital, July 31......... $5,855
MT Repairs
Balance Sheet
July 31, 2011
Assets
Cash.......................................................................................... $ 1,700
Repair supplies........................................................................ 575
Tools.......................................................................................... $8,400
Less: Accumulated amortization............................................ 420 7,980
Total assets............................................................................... $10,255
Liabilities
Unearned revenue.................................................................... 1,900
Total liabilities..................................................................... $ 4,400
Owner’s Equity
Melanie Thornhill, capital...................................................... 5,855
Analysis Component:
When a company shows expenses on its income statement, it does not necessarily
mean that cash equal to the expenses was paid during the period in which the
expenses were reported. For example, expenses can be unpaid because they were
incurred on account. In addition, prepaid expenses represent cash that was paid
during the period but likely only partially expensed. Therefore, cash paid can be
greater than or less than the expenses reported on the income statement because
of expenses incurred on account and prepaids.

*Problem 4-15B (25 minutes)
a. May 31 Accounts Receivable....................................12,000
Advertising Expense............................ 12,000
AND
31 Repairs Expense...........................................12,000
Cash...................................................... 12,000
To record repairs paid in cash.
b. 31 Accounts Payable......................................... 8,000

Computer Equipment.......................... 8,000
AND
31 Office Furniture........................................... 8,000
Note Payable......................................... 8,000
To record the purchase of office
furniture by issuing a note payable.
c. 31 Telemarketing Fees Earned........................10,000

Unearned Fees...................................... 10,000
OR
31 Telemarketing Fees Earned........................10,000

Cash...................................................... 10,000
AND
31 Cash...............................................................10,000
Unearned Fees...................................... 10,000
To record cash collected in advance.
d. 31 Delivery Expense.......................................... 1,800

Telephone Expense.............................. 1,800
e. 31 Telemarketing Fees Earned........................ 450

Interest Revenue.................................. 450
294
*Problem 4-15B (concluded)

Analysis component:
The correcting entry regarding (e) simply transfers the $450 from one revenue account into another so the
net effect on the financial statements is nil. However, it is necessary to prepare a correcting entry despite a
nil net effect because decision making based on account balances could be adversely affected if based on
incorrect information.
*Problem 4-16B
MELI JANITORIAL SERVICES
Trial Balances
October 31, 2011
Cash...................................................... $ 29,000 $
29,000
Accounts receivable............................. 18,000 18,000

Prepaid advertising.............................. -0- e) $5,000 5,000
Cleaning supplies................................. -0- a) 3,100 3,100
Equipment............................................ 62,000 62,000
Accumulated amortization, equipment $ 3,000 b) $ 6,000
$3,000
Unearned window washing fees.......... -0- d) 5,000 5,000
Unearned office cleaning fees............. -0- c) 8,500 8,500
Joel Meli, capital.................................. 18,300 18,300
Window washing fees earned.............. 76,000 d) 5,000 71,000
Office cleaning fees earned................. 138,000 c) 8,500 129,500
Advertising expense............................. 7,300 e) 5,000 2,300
Salaries expense................................... 97,000 97,000
Amortization expense, equipment...... -0- b) 3,000 3,000
Cleaning supplies expense................... 22,000 a) 3,100 18,900
Totals.................................................... $235,300 $235,300 $24,600 $24,600 $238,30 $238,300
0
*Problem 4-17B (40 minutes) Part 1
Entries that initially recognize assets and liabilities:
2011
Apr. 1 Prepaid Consulting Fees.............................. 3,450
Cash....................................................... 3,450
Paid for future consulting services.
1 Prepaid Insurance........................................ 2,700

Cash....................................................... 2,700
30 Cash............................................................... 7,500
Unearned Service Fees......................... 7,500
May 1 Prepaid Advertising..................................... 3,450
Cash....................................................... 3,450
23 Cash.............................................................. 9,450
Unearned Service Fees........................ 9,450
Year-end adjusting entries:

2011
May 31 Consulting Services Expense....................... 1,500
Prepaid Consulting Fees...................... 1,500
To adjust prepaid consulting fees.

*Problem 4-17B (continued) Part 1
May 31 Insurance Expense..................................... 450
Prepaid Insurance.............................. 450
2,700 x 2/12 = 450 used.

To adjust unearned service fees;
7,500 – 3,600 = 3,900 earned.
31 Advertising Expense.................................. 2,400

Prepaid Advertising........................... 2,400
To adjust prepaid advertising;
3,450 – 1,050 = 2,400 used.

To adjust unearned service fees.
May 1 3,450 2,400 May Apr. 1 2,700 450 May 31 Apr. 1 3,450 1,500 May
31 31
Bal. 1,050 Bal. 2,250 Bal. 1,950

May 3,900 7,500 Apr. 3,900 May 31 May 2,400
31 30 31
31 4,500 9,450 May 4,500 31 Bal. 2,400
23
8,550 Bal. 8,400 Bal.
Insurance Expense Consulting Services Expense

May 450 May 31 1,500
31
Bal. 450 Bal. 1,500

*Problem 4-17B (continued)
Part 2
Entries that initially recognize expenses and revenues:

2011
Apr. 1 Consulting Services Expense.................... 3,450
Cash..................................................... 3,450
Paid for future consulting services.
1 Insurance Expense..................................... 2,700

Cash..................................................... 2,700
30 Cash............................................................ 7,500
May 1 Advertising Expense.................................. 3,450

Cash..................................................... 3,450
23 Cash............................................................ 9,450

*Problem 4-17B (continued) Part 2
Year-end adjusting entries:
2011
May31 Prepaid Consulting Fees........................... 1,950
Consulting Services Expense............ 1,950
To adjust for prepaid consulting fees;
3,450 – 1,500 = 1,950 prepaid.

Insurance Expense............................. 2,250
To adjust for prepaid insurance;
2,700 – 450 = 2,250 prepaid.
To adjust for unearned service fees.
31 Prepaid Advertising................................... 1,050

Advertising Expense.......................... 1,050
To adjust for prepaid advertising.

To adjust for unearned service fees;
9,450 – 4,500 earned = 4,950 unearned.
Note: The entries for Part 2 have been posted to T-accounts to help the student see
the effects more clearly. The entries for Part 1 have also been posted to T-accounts in
Part 1 of this question to help the student see that the results are the same regardless of
May 31 1,050 May 2,250 May 1,950
31 31
Bal. 1,050 Bal. 2,250 Bal. 1,950

3,600 May 31 May 3,600 7,500 Apr. 30 May 3,450 1,050 May
31 1 31
4,950 31 31 4,950 9,450 May Bal. 2,400
23
8,550 Bal. 8,400 Bal.

*Problem 4-17B (concluded)
Part 2
Insurance Expense Consulting Services Expense

Apr. 1 2,700 2,250 May Apr. 3,450 1,950 May
31 1 31
Bal. 450 Bal. 1,500
Analysis Component
There are no differences between the two methods in terms of the amounts that
appear on the financial statements. In both cases, the financial statements reflect
the following:
Prepaid consulting fees as of May 31...................................... $1,950

Consulting fees expense for two months................................. 1,500
Insurance expense for two months.......................................... 450
Prepaid insurance as of May 31.............................................. 2,250
Unearned service fees as of May 31 ($3,600 + $4,950).......... 8,550
Service fees earned for two months ($3,900 + $4,500).......... 8,400
Prepaid advertising as of May 31............................................ 1,050
Advertising expense for two months....................................... 2,400
When prepaid expenses and unearned revenues are recorded in balance sheet
accounts, the related adjusting entries are designed to generate the correct asset,
expense, liability, and revenue account balances. When prepaid expenses and
unearned revenues are recorded in income statement accounts, the related
adjusting entries are designed to accomplish exactly the same result.

ANALYTICAL AND REVIEW PROBLEMS
A&R Problem 4-1
1. $388,400
2. $22,520
3. $398,120 – $22,520 = $375,600
4. ($388,400 + $22,520) – $398,120 = $12,800
Ethics Challenge
1. GAAP requires that annual amortization accumulate in the contra-asset
account, Accumulated Amortization. While capital assets are often shown at
their net value on the balance sheet (as in WestJet’s and Leon’s balance
sheets in Appendix I) the cost of the equipment along with its related
accumulated amortization can be ascertained from the notes. Jackie is
correct with her journal entry recommendation.
2. One strength of Bob’s method would be the ease of preparing the balance
sheet. The equipment balance in the adjusted trial balance would be directly
transferable to the balance sheet if the preparer desired to show the amount
at net, which it would be. Bob’s approach carries considerable weaknesses
since financial statement users would not be able to ascertain the original
cost of the equipment or be able to know how much of the original cost had
been allocated to date to amortization.
3. While both approaches would lead to the same total for assets on the
balance sheet, GAAP requires Jackie’s approach. As a professional
accountant Jackie is required to uphold the standards of her profession and
thus the decision is an ethical one for her.

FOCUS ON FINANCIAL STATEMENTS
Part 1
RPE CONSULTING
Income Statement
For Year Ended July 31, 2011
Revenues:
Consulting fees earned........................................................... $168,160
Operating expenses:
Salaries expense...................................................................... $77,60
0
Office supplies expense.......................................................... 15,000
Advertising expense............................................................... 14,700
Rent expense........................................................................... 13,200
Amortization expense, office equipment.............................. 6,000
Insurance expense.................................................................. 2,440
Interest expense...................................................................... 2,200
Total operating expenses................................................. 131,140
Net income.................................................................................. $ 37,020
RPE CONSULTING
For Year Ended July 31, 2011
Ray Edds, capital, August 1..................................................... $ 8,420*
Add: Investment by owner...................................................... $20,000
Net income....................................................................... 37,020 57,020
Total...................................................................................... $65,440
Less: Withdrawal by owner.................................................... 10,000
Ray Edds, capital, July 31........................................................ $55,440
($28,420 - $20,000).

FOCUS ON FINANCIAL STATEMENTS
Part 1 (continued)
RPE CONSULTING
Balance Sheet
July 31, 2011
Assets
Cash......................................................................................... $ 27,000
Accounts receivable............................................................... 22,460
Prepaid insurance.................................................................. 4,880
Office supplies........................................................................ 3,000
Office equipment.................................................................... $92,000
Less: Accumulated amortization..................................... 18,000 74,000
Total assets............................................................................. $131,340
Liabilities
Accounts payable................................................................... $ 10,200
Unearned consulting fees....................................................... 14,300
Salaries payable..................................................................... 6,600
Notes payable......................................................................... 44,000
Total liabilities.................................................................... $ 75,900
Owner’s Equity
Ray Edds, capital................................................................... 55,440
Total liabilities and owner’s equity...................................... $131,340

FOCUS ON FINANCIAL STATEMENTS (continued)
Analysis component – Part 2

RPE Consulting
Trial Balances
July 31, 2011
Accounts payable................................ $ 9,300 a) $900 $ 10,200
Accounts receivable............................ $ b) $ 22,460
12,000 $10,460
Accum. amort., office equipment...... 12,000 d) 6,000 18,000
Advertising expense............................ 13,800 a) 900 14,700
Amort. expense, office equipment..... -0- d) 6,000 6,000
Cash..................................................... 27,000 27,000
Consulting fees earned....................... 156,000 b) 168,160
10,460
c) 1,700
Insurance expense.............................. -0- e) 2,440 2,440
Interest expense.................................. 1,400 f) 800 2,200
Interest payable.................................. -0- f) 800 800
Long-term notes payable................... 44,000 44,000
Office equipment................................ 92,000 92,000
Office supplies..................................... 18,000 g) 3,000
15,000
Office supplies expense...................... -0- g) 15,000 15,000
Prepaid insurance............................... 7,320 e) 2,440 4,880
Ray Edds, capital................................ 28,420 28,420
Ray Edds, withdrawals...................... 10,000 10,000
Rent expense....................................... 13,200 13,200
Salaries expense.................................. 71,000 h) 6,600 77,600
303
Salaries payable.................................. -0- h) 6,600 6,600
Unearned consulting fees................... 16,000 c) 1,700 14,300
Totals................................................... $265,72 $265,72 $290,480 $290,480
0 0
FFS 4-1 (concluded)
Analysis component - Part 3
If the adjustments would not have been recorded, assets would have been
overstated by $12,980 (10,460 – 6,000 – 15,000 – 2,440), liabilities would have been
understated by $6,600 (900 + 800 + 6,600 – 1,700), and equity would have been
overstated by $19,580 (10,460 + 1,700 – 900 – 6,000 – 2,440 – 800 – 15,000 – 6,600).
FFS 4-2
a. Accounts Receivable...................................................................................................
XX
Guest Revenues....................................................................................................
XX
To record the accrual of guest revenues.
and
Unearned Guest Revenues (or Advance Ticket Sales)............................................

XX
Guest Revenues....................................................................................................
XX
To record the earning of unearned amounts.
b. Aircraft Leasing Expenses.........................................................................................

XX
Accounts Payable.................................................................................................
XX
To record the accrual of aircraft leasing expenses.
Aircraft Leasing Expenses.........................................................................................

XX
Prepaid Expenses.................................................................................................
XX
To record the expiration (or use) of a prepaid.
c. Expense (any reasonable expense).............................................................................

XX
Prepaid Expenses.................................................................................................
XX
To record the expiration (or use) of a prepaid.
d. Expense (any reasonable expense).............................................................................

XX
Accounts Payable and Accrued Liabilities........................................................
XX
To record the accrual of an expense.

Critical Thinking Question
CT 4-1
Note to instructor: Student responses will vary therefore the answer here is only
suggested and not inclusive of all possibilities; it is presented in point form for
brevity.
Problem(s):
— Adjusting entries are required at Scotia Bank’s October 31, 2011 year end
to comply with the matching principle
Goal(s)*:
— To correctly record adjusting entries based on the information available to
ensure financial statements comply with GAAP (assuming that the
personnel director wants to comply with GAAP)
Assumption(s)/Principle(s):
— that the furniture was recorded as an asset when purchased on March 1,
2009 and that amortization has been recorded correctly to date using the
straight-line method; that the insurance is recorded as a prepaid when
purchased each March 1; that interest on the furniture loan is paid annually
with each $100,000 payment; and that adjustments are recorded at year end
only
— The matching principle requires that expenses be allocated to the
appropriate accounting period; also, the conservatism principle prohibits
the overstatement of income and assets — if adjusting entries are not
recorded, income and assets could be overstated
Facts:
— as presented
Conclusion(s)/Consequence(s):
— as a minimum, the following adjusting entries will have to be recorded based
on the information provided (calculations rounded to the nearest whole
dollar for simplicity):
2011
Oct 31 Insurance Expense..................................... 8,000
Prepaid Insurance.............................. 8,000
1,333 used for first 2 months; 8,000 x 10/12
= 6,667 used for remaining 10 months.

*The goal is highly dependent on “perspective.”

CT 4-1 (concluded)
31 Interest Expense........................................ 6,667

Interest Payable................................. 6,667
To record accrued interest;
(400,000 – 100,000 – 100,000) x 4% x 10/12
= 6,667.
31 Amortization Expense, Furniture............ 136,000

Accumulated Amortization, Furniture
136,000
To record amortization on furniture;
(700,000 – 20,000)/5 = 136,000.

Serial Problem, Echo Systems (120 minutes)
Part 1
Journal entries:
2011
Dec. 3 Advertising Expense..................................... 655 2,100
Cash....................................................... 101 2,100
Paid share of mall advertising costs.
3 Repairs Expense, Computer........................ 684 1,200
Cash....................................................... 101 1,200
Repaired the computer.
4 Cash............................................................... 101 7,500
Accounts Receivable............................. 106 7,500
Collected accounts receivable.
10 Wages Expense............................................. 623 1,200
Cash....................................................... 101 1,200
Paid employee for part-time work.
14 Cash............................................................... 101 3,000
Unearned Computer Services 236 3,000
Revenue........................................................
Received advance on work to be
performed.
17 Computer Supplies....................................... 126 2,310
Accounts Payable.................................. 201 2,310
Purchased supplies on credit.
18 No entry recorded in the journal.
20 Cash............................................................... 101 11,250
Computer Services Revenue................ 403 11,250
Collected cash revenue from customer.
24–28 No entry required.
31 Cash............................................................... 101 5,700
Accounts Receivable............................. 106 5,700
Collected accounts receivable.
31 Mileage Expense........................................... 676 600
Cash....................................................... 101 600
Reimbursed Mary Graham for business usage.
31 Mary Graham, Withdrawals....................... 302 3,600
Cash....................................................... 101 3,600

Owner withdrew cash.
Serial Problem (continued) Part 2
Adjusting entries:
2011
Dec. 31 Computer Supplies Expense........................ 652 5,430
Computer Supplies............................... 126 5,430
Adjustment for supplies used; supplies account
balance less cost of supplies on hand;
6,870 – 1,440 = 5,430.
31 Insurance Expense....................................... 637 1,080
Prepaid Insurance................................ 128 1,080
Adjustment for expired insurance; 1/4 of
original prepaid amount; 4,320 x ¼ =
1,080.
31 Wages Expense............................................. 623 800

Wages Payable...................................... 210 800
Adjustment for accrued wages.
31 Amortization Expense, Computer 613 2,250

Equipment.....................................................
Computer Equipment...................... 168 2,250
Adjustment for amortization expense on
computer equipment.
Cost.................................................... $36,000
Predicted life...................................... 4 years
Annual amortization (cost/life)......... $ 9,000
Expense for three months................. $ 2,250
31 Amortization Expense, Office Equipment. 612 1,500

Office Equipment..................................... 164 1,500
Adjustment for amortization expense on
office equipment.
Cost.................................................... $18,000
Predicted life...................................... 3 years
Annual amortization (cost/life)......... $ 6,000
Expense for three months................. $ 1,500
31 Rent Expense................................................ 640 6,750

Prepaid Rent......................................... 131 6,750
Adjustment for expired rent; 3/4 of
original prepaid amount; 9,000 x ¾ =
6,750.

Serial Problem (continued)
Posting to the accounts:
Cash Acct. No. 101
2011
Oct. 1 G1 90,000 90,000
2 G1 9,000 81,000
5 G1 4,320 76,680
8 G1 2,640 74,040
1 G1 6,600 80,640
5
1 G1 1,410 79,230
7
2 G1 3,720 75,510
0
2 G1 2,400 77,910
2
3 G2 1,400 76,510
1
3 G2 7,200 69,310
1
Nov. 1 G2 1,000 68,310
2 G2 9,300 77,610
5 G2 1,920 75,690
1 G2 3,750 79,440
8
2 G2 1,500 77,940
2
2 G2 1,200 76,740
8
3 G2 2,800 73,940
0
3 G3 3,600 70,340
0
Dec. 3 G4 2,100 68,240
3 G4 1,200 67,040
4 G4 7,500 74,540
1 G4 1,200 73,340
0
1 G4 3,000 76,340
4
2 G4 11,250 87,590
0
3 G4 5,700 93,290
1

3 G4 600 92,690
1
3 G4 3,600 89,090
1

Accounts Receivable Acct. No. 106
2011
Oct. 6 G1 6,600 6,600
1 G1 2,400 9,000
2
1 G1 6,600 2,400
5
2 G1 2,400 0
2
2 G2 6,450 6,450
8
Nov. 8 G2 8,700 15,150
1 G2 3,750 11,400
8
2 G2 7,500 18,900
4
Dec. 4 G4 7,500 11,400
3 G4 5,700 5,700
1
Computer Supplies Acct. No. 126

2011
Oct. 3 G1 2,640 2,640
Nov. 5 G2 1,920 4,560
Dec. 1 G4 2,310 6,870
7
3 G5 5,430 1,440
1
Prepaid Insurance Acct. No. 128

2011
Oct. 5 G1 4,320 4,320
Dec. 3 G5 1,080 3,240
1
Prepaid Rent Acct. No. 131

2011
Oct. 2 G1 9,000 9,000
Dec. 3 G5 6,750 2,250
1

Office Equipment Acct. No. 163
2011
Oct. 1 G1 18,000 18,000
Accumulated Amortization, Office Equipment Acct. No. 164

2011
Dec. 3 G5 1,500 1,500
1

Computer Equipment Acct. No. 167
2011
Oct. 1 G1 36,000 36,000
Accumulated Amortization, Computer Equipment Acct. No. 168

2011
Dec. 3 G5 2,250 2,250
1
Accounts Payable Acct. No. 201

2011
Oct. 3 G1 2,640 2,640
8 G1 2,640 0
Dec. 1 G4 2,310 2,310
7
Wages Payable Acct. No. 210

2011
Dec. 3 G5 800 800
1
Unearned Computer Services Revenue Acct. No. 236

2011
Dec. 1 G4 3,000 3,000
4
Mary Graham, Capital Acct. No. 301

2011
Oct. 1 G1 144,000 144,000
Mary Graham, Withdrawals Acct. No. 302

2011
Oct. 3 G2 7,200 7,200
1
Nov. 3 G3 3,600 10,800
0
Dec. 3 G4 3,600 14,400
1

Computer Services Revenue Acct. No. 403
2011
Oct. 6 G1 6,600 6,600
1 G1 2,400 9,000
2
2 G2 6,450 15,450
8
Nov. 2 G2 9,300 24,750
8 G2 8,700 33,450
2 G2 7,500 40,950
4
Dec. 2 G4 11,250 52,200
0
Amortization Expense, Office Acct. No. 612

Equipment
2011
Dec. 3 G5 1,500 1,500
1
Amortization Expense, Computer Equipment Acct. No. 613

2011
Dec. 3 G5 2,250 2,250
1
Wages Expense Acct. No. 623

2011
Oct. 3 G2 1,400 1,400
1
Nov. 3 G2 2,800 4,200
0
Dec. 1 G4 1,200 5,400
0
3 G5 800 6,200
1
Insurance Expense Acct. No. 637

2011
Dec. 3 G5 1080 1,080

1
Rent Expense Acct. No. 640

2011
Dec. 3 G5 6,750 6,750
1
Computer Supplies Expense Acct. No. 652

2011
Dec. 3 G5 5,430 5,430
1
Advertising Expense Acct. No. 655
2011
Oct. 2 G1 3,720 3,720
0
Dec. 3 G4 2,100 5,820
Mileage Expense Acct. No. 676

2011
Nov. 1 G2 1,000 1,000
2 G2 1,200 2,200
8
Dec. 3 G4 600 2,800
1
Repairs Expense, Computer Acct. No. 684

2011
Oct. 1 G1 1,410 1,410
7
Dec. 3 G4 1,200 2,610
Charitable Donations Expense Acct. No. 699

2011
Nov. 2 G2 1,500 1,500
2

Part 3
ECHO SYSTEMS
December 31, 2011
Acct.
101 Cash.............................................................................. $ 89,090
106 Accounts receivable..................................................... 5,700
126 Computer supplies....................................................... 1,440
128 Prepaid insurance........................................................ 3,240
131 Prepaid rent................................................................. 2,250
163 Office equipment.......................................................... 18,000
164 Accumulated amortization, office equipment........... $ 1,500
167 Computer equipment.................................................. 36,000
168 Accumulated amortization, computer equipment.... 2,250
201 Accounts payable......................................................... 2,310
210 Wages payable............................................................. 800
236 Unearned computer services revenue........................ 3,000
301 Mary Graham, capital................................................. 144,000
302 Mary Graham, withdrawals....................................... 14,400
403 Computer services revenue......................................... 52,200
612 Amortization expense, office equipment.................... 1,500
613 Amortization expense, computer equipment............ 2,250
623 Wages expense............................................................. 6,200
637 Insurance expense........................................................ 1,080
640 Rent expense................................................................ 6,750
652 Computer supplies expense........................................ 5,430
655 Advertising expense..................................................... 5,820
676 Mileage expense........................................................... 2,800
684 Repairs expense, computer......................................... 2,610
699 Charitable donations expense..................................... 1,500 ________
Totals............................................................................ $206,060 $206,060

Part 4
ECHO SYSTEMS
Income Statement
For Three Months Ended December 31, 2011
Revenue:
Computer services revenue.................................. $52,200
Operating Expenses:
Rent expense.......................................................... $6,750
Wages expense...................................................... 6,200
Advertising expense.............................................. 5,820
Computer supplies expense.................................. 5,430
Mileage expense.................................................... 2,800
Repairs expense, computer.................................. 2,610
Amortization expense, computer equipment...... 2,250
Amortization expense, office equipment............. 1,500
Insurance expense................................................. 1,080
Charitable donations expense.............................. 1,500
Total operating expenses.................................. 35,940
Net income................................................................ $ 16,260
Part 5
ECHO SYSTEMS
For Three Months Ended December 31, 2011
Mary Graham, capital, October 1.......................... $ 0
Add: Investments by owner.................................... $144,000
Net income........................................................ 16,260 160,260
Total................................................................... $160,260
Less: Withdrawals by owner................................... 14,400
Mary Graham, capital, December 31..................... $145,860

Serial Problem (concluded)
Part 6
ECHO SYSTEMS
Balance Sheet
December 31, 2011
Assets
Cash........................................................................... $ 89,090
Accounts receivable................................................. 5,700
Computer supplies................................................... 1,440
Prepaid insurance.................................................... 3,240
Prepaid rent.............................................................. 2,250
Office equipment...................................................... $18,000
Computer equipment............................................... $36,000
Total assets................................................................ $151,970
Liabilities
Accounts payable...................................................... $ 2,310
Wages payable.......................................................... 800
Unearned computer services revenue.................... 3,000
Total liabilities.................................................. $ 6,110
Owner’s Equity
Mary Graham, capital............................................. 145,860
Total liabilities and owner’s equity........................ $151,970


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Chapter 4 Adjusting Accounts for

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

Quick Study 4-1

Quick Study 4-2

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

d) 3 months or (3 × 320 = $960

Quick Study 4-4

Dec. Amortization Expense, Vehicle........................................... 5,000

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

Dec. Unearned Revenue............................................................... 9,000

Quick Study 4-6

Quick Study 4-7

Apr. 1 Cash................................................................................... 12,00

Quick Study 4-8

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

b. Debit Wages Expense Income Statement

c. Debit Unearned Revenue Balance Sheet

d. Debit Insurance Expense Income Statement

e. Debit Accounts Receivable Balance Sheet

Quick Study 4-10

If adjustment is not recorded:

Quick Study 4-11

31 Interest Expense................................................................... 750

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

30 Supplies Expense............................................................. 14,800

*Quick Study 4-13

31 Computer Equipment.................................................... 25,000

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

b) 30 Office Supplies................................................ 800

c) 30 Accounts Receivable...................................... 2,300

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

b) 31 Insurance Expense.......................................... 11,920

c) 31 Office Supplies Expense.................................. 5,252

d) 31 Unearned Fee Revenue................................... 20,000

advance; $30,000 × 2/3 = $20,000.

e) 31 Insurance Expense.......................................... 9,200

f) 31 Wages Expense................................................ 8,000

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

b) 31 Amortization Expense, Building.......................... 10,50

c) 31 Spare Parts Expense............................................. 350

d) 31 Accounts Receivable............................................. 3,550

e) 31 Utilities Expense.................................................... 1,300

g) 14 Utilities Payable (or Accounts Payable).............. 1,300

Exercise 4-4 (20 minutes)

b) 30 Amortization Expense, Furniture...................... 150

d) 30 Accounts Receivable.......................................... 28,00

e) 30 Rent Expense..................................................... 7,000

f) Oct. 3 Cash................................................................. 28,00

g) 4 Rent Payable (or Accounts Payable)............ 7,000

Exercise 4-5 (25 minutes)

b) 31 Rent Receivable.......................................................... 2,700

c) Apr 22 Cash............................................................................. 4,050

Exercise 4-7 (15 minutes)

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.

Exercise 4-9 (25 minutes)

May 20 Interest Payable................................................... 2,080

May 3 Salaries Payable................................................... 3,600

Copyright © 2007 by McGraw-Hill Ryerson Limited. All rights reserved.