CH 3 Sol A

Chapter 03 - Solutions to Exercises - Series A
SOLUTIONS TO EXERCISES - SERIES A - CHAPTER 3

EXERCISE 3-1A
Account
Category
Accounts Receivable
Accounts Payable
Common Stock
Land
Unearned Revenue
Service Revenue
Retained Earnings
Insurance Expense
Rent Expense
Prepaid Rent
Interest Revenue
Used to
Increase This
Account
Debit
Credit
Credit
Debit
Credit
Credit
Credit
Debit
Debit
Debit
Credit
3-1
Used to
Decrease This
Account
Credit
Debit
Debit
Credit
Debit
Debit
Debit
Credit
Credit
Credit
Debit
EXERCISE 3-2A
Devon was right when he said both students were correct.
Chris was correct that debits increase account balances
and credits decrease account balances, if he is referring to
assets, expenses, or dividends. However, Patty is correct
that credits increase account balances and debits decrease
account balances if she is referring to liability, common
stock or retained earnings accounts.
Examples of transactions:
1. Debits increase account balances:
Performed services for cash. Cash is debited and
this increases the asset account Cash.
2.
Credits decrease account balances:

Paid cash for operating expenses. Cash is
credited and this decreases the asset account
Cash.
3.
Credits increase account balances:

Performed services for cash. Service revenue is
credited and this increases the revenue account
Service Revenue.
4.
Debits decrease account balances:

Paid accounts payable. Accounts payable is
debited and this decreases the liability account
Accounts Payable.
3-2
EXERCISE 3-3A
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
Account
Common Stock
Prepaid Rent
Supplies
Accounts Payable
Interest Revenue
Rent Expense
Unearned Revenue
Service Revenue
Dividends
Land
Accounts Receivable
Cash
Normal Balance
Credit
Debit
Debit
Credit
Credit
Debit
Credit
Credit
Debit
Debit
Debit
Debit
3-3
EXERCISE 3-4A
a.
Event
1. Purchased land for
cash.
2. Paid a cash
dividend to the
stockholders.
3. Provided services
for cash.
4. Recognized
accrued salaries at
the end of the
period.
5. Recognized
accrued interest
revenue
6. Provided services
on account
7. Paid cash for
operating
expenses.
8. Acquired cash from
the issue of
common stock.
9. Purchased supplies
on account.
Account Debited
Land
Account Credited
Cash
Dividends
Cash
Cash
Service Revenue
Salaries Expense
Salaries Payable
Interest
Receivable
Interest Revenue
Accounts
Receivable
Operating
Expense
Service Revenue
Cash
Common Stock
Supplies
Accounts Payable
Cash
b.
No
.
1.
2.
3.
4.
5.
Asset = Liab. + Equit

s
y
NA
NA
+/
NA
+
NA
+
NA
+
+
NA
+
Rev. Exp. =
NA
NA
+
NA
+
3-4
NA
NA
NA
+
NA
Net
Inc.
NA
NA
+
Cash
Flow
IA
FA
+ OA
NA
NA
6.
7.
8.
9.
+
+
NA
NA
NA
+
+
NA
+
NA
NA
NA
3-5
NA
+
NA
NA
NA
NA
NA
OA
FA
NA
EXERCISE 3-5A
Event Number
a.
b.
Account Debited
Cash
Accounts
Account Credited
Common Stock
Service Revenue
c.
d.
e.
f.
g.
h.
Receivable
Accounts Payable
Cash
Supplies
Prepaid Rent
Unearned Revenue
Operating
Cash
Unearned Revenue
Accounts Payable
Cash
Service Revenue
Cash
i.
j.
k.
Expenses
Salaries Payable
Dividends
Interest
Cash
Cash
Interest Revenue
l.
m.
n.
Receivable
Rent Expense
Salaries Expense
Cash
3-6
Prepaid Rent
Cash
Accounts Receivable
EXERCISE 3-6A
Event
No.
a.
Type
of
Event
AS
Assets
+
Stockholders Equity
Common
Retained
= Liabilitie +
Stock
+ Earnings
s
+ Credit
NA
NA
AU
Debit
NA
NA
AE
Credit
+
NA
NA
AS
Credit
+
NA
NA
Credit
e.
AS
Debit
+
NA
NA
Credit
f.
AE
Debit
+
NA
NA
Debit
NA
NA
NA
NA
+ Credit
NA
NA
b.
c.
Debit
NA
Debit
d.
NA
Debit
g.
h.
CE
AE
Credit
NA
+
Credit
NA
Debit
i.
j.
AS
AS
Credit
+ Debit
+
3-7
Credit
NA
k.
l.
m.
n.
AU
Debit
Debit
NA
AU
Credit
NA
NA
Debit
CE
AU
Credit
NA
+ Credit
NA
NA
NA
Debit
Debit
Credit
3-8
NA
EXERCISE 3-7A
Assets
Debit
Increas
e
Credit
Decreas
e
Liabilities
Debit
Credit
Decreas Increas
e
e
Stockholders
Equity
Debit
Credit
Decreas Increase
e
Revenue
Debit
Credit
Decreas Increase
e
Expense
Debit
Credit
Increas Decreas
e
e
3-9
EXERCISE 3-8A
a.
Cash
Debit
Credit
$40,000
Common Stock
Debit
Credit
$40,000
This is an asset source transaction. Assets are

increased; stockholders equity is increased.
b.
Supplies
Debit
Credit
$1,800
Cash
Debit
Credit
$1,800
This is an asset exchange transaction. The asset

supplies is increased and the asset cash is decreased.
c.
Accounts Receivable
Debit
Credit
$14,000
Service Revenue
Debit
Credit
$14,000
This is an asset source transaction. Assets are

increased by $14,000 and revenue increases
stockholders equity by $14,000.
d.
Cash
Debit
Salaries Expense
Debit
Credit
$8,000
Credit
$8,000
This is an asset use transaction. The asset cash is

decreased and the expense account salaries expense is
3-10
increased. This has the effect of decreasing

stockholders equity.
3-11
EXERCISE 3-9A
a. e. & f.
Assets
Cash
= Stockholders Equity
Retained Earnings
Accounts Rec.
2013
2013
2.
24,000
Bal. 24,000
1. 30,000 2.
Bal. 6,000
2014
2014
6,000
Bal. 30,000
2013
3.
3.
24,000
cl 30,000
Bal. 30,000
6,000
Service Revenue
-0-
Bal.
2013
cl 30,000
1. 30,000
Bal.
-02014
-0-
b. & g. NC = Net Change in Cash
Rice Company
Effect of Transactions on the Financial Statements for 2013 and 2014
Assets
No.
Cash
Acct.
Rec.
Liab.
Stockholders
Equity
Com.
Ret.
Stock + Earn.
Rev.
Exp.
= Net Inc.
Cash Flows
2013
1.
2.
NA
30,000
24,00
(24,000
0
)
24,00 +
6,000 =
0
NA
NA
3.
6,000
NA
Bal.
30,00 +
0
Bal.
-0- +
NA
NA
-0- +
30,000
NA
30,000
NA
30,000
30,000
NA
NA
30,000
NA
NA
24,000 OA
-0- = 30,000
24,000 NC
2014
(6,000)
-0- =
-0- +
NA
-0- +
NA
30,000
3-12
NA
-0-
NA
-0- =
NA
-0-
6,000 OA
6,000 NC
EXERCISE 3-9A (cont.)

c.
2013 Revenue = $30,000
d.
2013 Cash Flows From Operating Activities = $24,000
e.
See T-accounts above.
f.
See T-accounts above.
g.
See the Statements Model above.
h.
2014 Net Income = $-02014 Cash Flows From Operating Activities = $6,000
3-13
EXERCISE 3-10A
a. b. & e.
Assets
Accounts Rec.
Debit
a1 36,000
Credit
Bal.
36,000
Liabilities
Accounts Pay.
Debit
Credit
a2 10,000
Stockholders
Equity
Retained Earnings
Debit
Credit
cl 8,200 cl 36,000
Bal.
Bal.
10,000
Supplies
Debit
Credit
a2 10,000 b. 8,200
27,800
Service Revenue
Debit
Credit
a1
36,000
Bal.
Bal. 1,800
36,000
cl 36,000
Bal.
-0-
Supplies Expense
Debit
Credit
b. 8,200
Bal.
8,200
cl 8,200
Bal.
3-14
-0-

c.
Hern Consulting Services
Effect of Transactions on the Financial Statements for 2013
Assets
No.
a1.
a2.
b.
Bal.
d.
Liab.
Accts.
Accts.
Rec. + Suppli = Pay.
es
36,000
NA
NA
NA
10,000
10,000
NA
(8,200
NA
)
36,000 + 1,800 = 10,000
Stockholders
Equity
Commo
Ret.
+ n Stock + Earn.
NA
NA
NA
+
36,000
NA
(8,200)
-0- + 27,800
Revenu
e
Exp.
36,000
NA
NA
NA
NA
8,200
Net
Inc.
36,000
NA
(8,200)
36,000 8,200 = 27,800
Cash
Flows
NA
NA
NA
NC
Net income is $27,800; Net Cash Flow from Operating Activities is $-0-. $36,000
of revenue earned was on account, but none was collected; $8,200 of supplies
were used, but none were paid for.
3-15

e.
General Journal
Date
Account Titles
Debit
Credit
Closing Entries
Dec. 31
Dec. 31
Service Revenue
Retained Earnings
36,000
36,000
Retained Earnings
Supplies Expense
8,200
8,200
Closing entries are posted to the T-accounts in part a.

Hern Counsulting Services
Post-Closing Trial Balance
December 31, 2013
Account Titles
Debit
Accounts Receivable
Supplies
Accounts Payable
Retained Earnings
$36,000
1,800
Totals
$37,800
Credit
$10,000
27,800
3-16
$37,800
EXERCISE 3-11A
a. & b.
Assets
Liabilities
Cash
a.
Unearned
Revenue
90,000
Stockholders
Equity
Service Revenue
75,000 a. 90,000
b.
b.
75,000*
Bal.
15,000
*$90,000 x 10/12 = $75,000

c. NC = Net Change in Cash
Effect of Transactions on Financial Statements
Balance Sheet
Date
Asset =
s
3/1
Liab.
90,000
12/3
1
90,00
0
NA
S.
Equity
NA
Rev.
NA
75,000
75,00
0
(75,00
0)
= 15,000 + 75,000
Bal.
90,00
0
Income Statement
Exp.
Statement
of
Cash Flows
NA
Net
Inc.
NA
90,000 OA
NA
75,000
NA
NA = 75,000
90,000 NC
75,00
0
d. Revenue
Expenses
Net Income
$75,000
-0$75,000
Cash Flows From Operating Activities:

Cash Received from Clients
$90,000
Net Cash Flow from Operating Activities$90,000
e. Unearned Revenue = $15,000 (See T-accounts above.)
3-17
EXERCISE 3-12A
Accounts Receivable
Debit
Credit
Beg. Bal.105,000 Coll. 467,000
Rev.
448,000
End. Bal. 86,000
$467,000 of cash was collected [($105,000 + $448,000)
$86,000].
Cash inflow from operating activities = $467,000
EXERCISE 3-13A
Accounts Payable
Debit
Credit
Beg. Bal. 36,000
Paid
96,000
Exp.
108,000
End Bal. 48,000
$96,000 of cash was paid for expenses [($36,000 + $108,000)
$48,000].
3-18
EXERCISE 3-14A
a.
Account Title
Debit
4,000
Cash
Unearned Revenue
Assets = Liab.
4,000
+ Equit
y
4,000
NA
Credit
4,000
Re Exp.
v.
N
NA
A
Net
Inc.
NA
Cash
Flow
4,000
OA
b.
Account Title
Debit
2,400
Supplies
Cash
Assets = Liab. + Equit
y
2,400
NA
NA
Credit
2,400
Re Exp. =
v.
N
NA
A
Net
Inc.
NA
Cash
Flow
(2,400)
OA
(2,400)
c.
Account Title
Accounts Receivable
Service Revenue
Assets = Liab + Equity
.
50,000
NA
50,00
0
Debit
50,000
Credit
50,000
Rev. Exp = Net

.
Inc.
50,0
NA
50,00
00
0
Cash Flow
NA
d.
Account Title
Operating Expenses
Accounts Payable
Debit
2,000
Credit
2,000
3-19
Assets = Liab. + Equity

NA
2,000
(2,000
)
Re Exp. = Net Inc.

v.
NA
2,00
(2,000)
0
3-20
Cash
Flow
NA

e.
Account Title
Debit
27,000
Cash
Accounts Receivable
Assets = Lia + Equit
b.
y
27,000
NA
NA
Credit
27,000
Re Exp. =
v.
NA
NA
Net
Inc.
NA
Cash Flow
27,000
OA
(27,000
)
f.
Account Title
Accounts Payable
Cash
y
(700)
(700)
NA
Debit
700
Credit
700
Re Exp. =
v.
NA
NA
Net
Inc.
NA
Cash
Flow
(700)
OA
g.
Account Title
Prepaid Insurance
Cash
y
6,800
NA
NA
Debit
6,800
Credit
6,800
Re Exp. =
v.
NA
NA
Net
Inc.
NA
Cash Flow
(6,800)
OA
(6,800)
h.
Account Title
Insurance Expense
Prepaid Insurance
Debit
4,500
Credit
4,500
3-21

.
(4,500)
NA
(4,500
)
Re Exp. = Net
v.
Inc.
NA
4,50
(4,500)
0
3-22
Cash
Flow
NA

i.
Account Title
Interest Receivable
Interest Revenue
.
800
NA
800
Debit
800
Credit
800
Re Exp. =
v.
80
NA
0
3-23
Net
Inc.
800
Cash
Flow
NA
EXERCISE 3-15A
a.
Debit
12,000
Salaries Expense
Salaries Payable
b.
Asset =
s
NA
c.
Liab.
Sal.
Pay.
12,000
12,000
Equity
Re Exp. =
v.
Ret.
Earn.
(12,000)
Revenue
Salaries Expense
Net Income
Credit
NA
12,0
00
Net
Inc.
Cash
Flow
(12,00
0)
NA
$29,000
(12,000)
$17,000

Cash Received from Revenue
$29,000
Cash Payment for Expense
-0Net Cash Flow from Operating Activities$29,000
d.
Salaries Payable = $12,000
EXERCISE 3-16A
a. & b.
Washington Mining
Journal Entries for 2013
Date
a. 3/1
b.
12/31
Account Titles
Debit
Prepaid Rent (Lease)

Cash
135,000
Rent Expense
112,500
Credit
135,000
Prepaid Rent
112,500
3-24
*$135,000 12 = $11,250 per month; $11,250 x 10 mo. =

$112,500
3-25

Washington Mining
Horizontal Statements Model for 2013
Assets
Even
t
1.
2.
3.
Cash
+
150,000
(135,00
0)
172,500
= Lia +
b.
Stk. Equity
Prepaid
Comm.
Ret. Earn
Rent
=
+ Stock +
NA
NA
150,00
NA
0
135,000
NA
NA
NA
NA
172,500
(112,50
NA
NA
0)
Bal. 187,500 + 22,500 = NA + 150,00
0
(112,50
0)
+ 60,000
Adj.
d.
NA
NA
NA
Revenue
Expense
Net Income
Income Statement
Revenue Expense =
NA
NA
of
Cash Flows
150,000 FA
NA
NA
(135,000) OA
172,50
0
NA
NA
172,500
172,500 OA
(112,50
0)
172,50 112,500 = 60,000
0
$172,500
(112,500)
$ 60,000
Prepaid Rent: $22,500 ($135,000 $112,500)

3-26
Net Inc.
NA
NA

Cash Received from Revenue
$172,500
Cash Payment for Expense
(135,000)
Net Cash Flow from Operating Activities$ 37,500
e.
Statement
112,500
NA
187,500 NC
EXERCISE 3-17A
a.
1.
2.
3.
Closing Entries
Service Revenue
Retained Earnings
Debit
153,000
153,000
Retained Earnings
Advertising Expense
Rent Expense
Salaries Expense
Supplies Expense
91,600
Retained Earnings
Dividends
10,000
7,000
15,600
64,000
5,000
10,000
b.
Retained Earnings, 2013
Beginning Retained Earnings
Add: Revenue
Less: Expenses
Less: Dividends
Ending Retained Earnings
Credit
$38,800
153,000
(91,600)
(10,000)
$90,200
3-27
EXERCISE 3-18A
a.
Sanford Service Co.
General Journal, 2013
Even
Account Titles
t
1.
Cash
Common Stock
2.
3.
4.
5.
6.
7.
8.
Debit
Credit
60,000
60,000
Accounts Receivable
Service Revenue
100,000
100,000
Salaries Expense
Cash
74,000
Supplies
Accounts Payable
13,000
Cash
Accounts Receivable
79,000
74,000
13,000
79,000
Accounts Payable
Cash
9,500
Dividends
Cash
6,000
9,500
6,000
Supplies Expense*
Supplies
10,500
10,500
*$13,000 $2,500 = $10,500
3-28

b.
ASSETS
Cash
1. 60,000 3. 74,000
5. 79,000 6. 9,500
7.
LIABILITIES
STOCKHOLDERS
EQUITY
Accounts Payable
6. 9,500 4. 13,000
Bal. 3,500
Common Stock
1. 60,000
Bal.
60,000
6,000
Bal.49,500
7.
Bal.
Accounts
Receivable
2.100,000 5. 79,000
Bal.21,000
Dividends
6,000
6,000
Service Revenue
2.
100,000
Bal.
100,000
Supplies
4. 13,000 8. 10,500
Bal. 2,500
Salaries Expense
3. 74,000
Bal.
74,000
Supplies Expense
8. 10,500
Bal.
10,500
c.
Total Assets = $73,000 ($49,500 + $21,000 + $2,500)
3-29
d.
Net Income = $15,500 ($100,000 $74,000 $10,500)
3-30
EXERCISE 3-19A
Magee Company
Trial Balance
December 31, 2013
Account Titles
Debit
Cash
Accounts Receivable
Office Supplies
Prepaid Insurance
Land
Accounts Payable
Unearned Revenue
Common Stock
Retained Earnings
Dividends
Service Revenue
Advertising Expense
Rent Expense
Salaries Expense
$ 120,000
13,000
3,600
12,800
44,000
Totals
$270,400
Credit
$ 4,000
36,000
50,000
28,400
10,000
152,000
5,000
30,000
32,000
3-31
$270,400
EXERCISE 3-20A
a.
Not out of balance because a credit was posted and

debits equaled credits, even though the credit is posted
to the wrong account; the liability account, Accounts
Payable, will be understated by $2,500 and the asset
account, Cash, will be understated by $2,500.
b.
Out of balance; credits are overstated by $400; Accounts

Receivable is understated by $400. The credit side of the
trial balance will be higher.
c.
Out of balance; credits are understated by $2,000;

Salaries Payable is understated by $2,000. The debit side
of the trial balance will be higher.
d.
Out of balance; debits are understated, the asset

account, Cash, is understated by $900. The debit side of
the trial balance will be lower.
e.
Not out of balance because a debit was posted and debits

equaled credits, even though the debit is posted to the
wrong account; the asset account, Prepaid Rent, is
understated by $3,000, and expense account, Rent
Expense, is overstated by $3,000.
3-32
EXERCISE 3-21A a.
Davis Dry Cleaners
Event
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Account Titles
Cash
Common Stock
Debit
45,000
Credit
45,000
Accounts Receivable
Service Revenue
37,500
Operating Expenses
Accounts Payable
15,000
Cash
Service Revenue
30,000
Land
Cash
12,000
Cash
Accounts Receivable
33,000
37,500
15,000
30,000
12,000
33,000
Cash
Unearned Revenue
9,000
Supplies
Accounts Payable
1,350
9,000
1,350
Accounts Payable
Cash
11,250
11,250
Dividends
Cash
7,500
7,500
Supplies Expense
Supplies
750
750
Unearned Revenue
Service Revenue
7,500
Interest Receivable
Interest Revenue
1,350
7,500
1,350
3-33
EXERCISE 3-21A
b.
Davis Dry Cleaners
T-Accounts, 2013
ASSETS
=
LIABILITIES
+
STOCKHOLDERS EQUITY
Cash
Accounts Payable
Common Stock
Retained Earnings
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
5.
12,000
1. 45,000
9.11,250 3. 15,000
1. 45,000
-0Bal.
4. 30,000 9.
8. 1,350
45,000
11,250
6. 33,000 10.
Bal. 5,100
7,500
00000
7. 9,000
Bal.
Unearned
Dividends
86,250
Revenue
Debit
Credit
Debit
Credit
12.
7. 9,000
10. 7,500
7,500
Bal. 1,500
Bal. 7,500
Service Revenue
Debit
Credit
2. 37,500
4. 30,000
Accounts Rec.
Debit
Credit
2. 37,500 6.
33,000
Bal. 4,500
12. 7,500
Bal.
75,000
Interest Rec.
Operating
Expense
Debit
Credit
3. 15,000
13. 1,350
Bal.1,350
Bal.
15,000
Supplies
Debit
Credit
8. 1,350 11. 750
Bal.
600
Supplies Expenses
Debit
Credit
11. 750
Bal. 750
Land
Debit
Credit
5. 12,000
Interest Revenue
Credit
Debit
13. 1,350
3-34
Bal.1,350
Bal.
12,000
3-35

c.
Davis Dry Cleaners
Trial Balance
As of December 31, 2013
Account Titles
Debit
Cash
Accounts Receivable
Interest Receivable
Supplies
Land
Accounts Payable
Unearned Revenue
Common Stock
Dividends
Service Revenue
Interest Revenue
Operating Expenses
Supplies Expense
$ 86,250
4,500
1,350
600
12,000
Totals
$127,950
Credit
5,100
1,500
45,000
7,500
75,000
1,350
15,000
750
3-36
$127,950
EXERCISE 3-22A
a.
Eva Event Services
Date
1.
2.
3.
4.
5.
6.
Account Titles
Debit
Accounts Receivable
Service Revenue
130,000
Operating Expenses
Accounts Payable
6,200
Credit
130,000
6,200
Cash
Accounts Receivable
112,000
112,000
Salaries Expense
Cash
72,000
Accounts Payable
Cash
30,000
Dividends
Cash
16,000
72,000
30,000
16,000
3-37

b. and d.
Eva Event Services
T-Accounts, 2013
Assets
Cash
Debit
Credit
Bal. 60,000
3. 112,000 4.
5.
6.
Bal. 54,000
72,000
30,000
16,000
Liabilities
+
Accounts Payable
Debit
Credit
Bal.
24,800
5. 30,000 2.
6,200
Bal. 1,000
Stockholders Equity
Common Stock
Debit
Credit
Bal. 48,000
cl
cl
Accounts Receivable
Debit
Credit
Bal. 38,000
1. 130,000 3. 112,000
Bal. 56,000
Retained Earnings
Debit
Credit
Bal. 25,200
78,200 cl 130,000
16,000
Bal. 61,000
Dividends
Debit
Credit
6.
16,000
Bal. 16,000
cl 16,000
Bal.
-0Service Revenue
Debit
Credit
1. 130,000
Bal.
130,000
cl 130,000
Bal.
-0Operating Expenses
Debit
Credit
2.
6,200
Bal. 6,200
cl
6,200
Bal.
-0Salaries Expense
Debit
Credit
4.
72,000
Bal. 72,000
cl 72,000
Bal.
-0-
3-38

Eva Event Services
Effect of Transactions on the Financial Statements for 2013
No.
Bal.
1.
2.
3.
4.
5.
6.
Bal.
Balance Sheet
= Liab. +
Assets
Stockholders
Equity
Accts.
Acc.
Comm
Ret.
=
+
+
Cash +
Rec.
Pay.
.
Earn.
Stock
60,000
38,000
24,800 48,00
25,200
0
NA
130,000
NA
NA
130,000
NA
NA
6,200
NA
(6,200)
112,00
(112,000
NA
NA
NA
0
)
(72,000
NA
NA
NA
(72,000)
)
(30,000
NA
(30,000
NA
NA
)
)
(16,000
NA
NA
NA
(16,000)
)
54,000 + 56,000 = 1,000 + 48,00 + 61,000
0
3-39
Income Statement
Rev. Exp. = Net Inc.
NA
NA
NA
Statement of
Cash Flows
NA
130,00
0
NA
NA
NA
130,000
NA
6,200
NA
(6,200)
NA
NA
72,000
NA
NA
NA
(30,000) OA
NA
NA
NA
(16,000) FA
130,00 78,200 = 51,800

0
(6,000) NC
NA
112,000 OA
(72,000) (72,000) OA
Chapter 03 - Solutions - Series A

d.
Event
Account Titles
Debit
Credit
Closing Entries
7.
Service Revenue
Retained Earnings
8.
9.
130,000
130,000
Retained Earnings
Operating Expenses
Salaries Expense
78,200
Retained Earnings
Dividends
16,000
6,200
72,000
16,000
Net Income = $51,800

e.
Change in retained earnings = $35,800 (NI $51,800 Div.

$16,000)
The change in retained earnings is different from the
amount of net income by $16,000 because retained
earnings is also affected by dividends to the
shareholders. The distribution reduces retained earnings
but does not decrease net income.
f.
Eva Event Services
Account Titles
Debit
Cash
Accounts Receivable
Accounts Payable
Common Stock
Retained Earnings
$ 54,000
56,000
Totals
$110,000
Credit
3-40
1,000
48,000
61,000
$110,000
EXERCISE 3-23A
a.
Company
b.
Total
Debt
Total
Assets
Common Unit
= of Measure %
North
$178,500
$416,000 =
42.9%
South
$57,500
$164,000 =
35.1%
Based only on the debt to assets ratio, North Company has more
financial risk than South Company because it is financing more of its
assets with borrowed money.
EXERCISE 3-24A
The IASB is the International Accounting Standards Board. It
is an independent standard-setting board, appointed and
overseen by a geographically and professionally diverse group
of Trustees who are accountable to the public interest. The
IASB cooperates with national standard-setters around the
world to achieve convergence in accounting standards.
3-41
SOLUTIONS TO PROBLEMS - SERIES A - CHAPTER 3

PROBLEM 3-25A
No
.
a.
Account
Balanc
e
No
.
Account
Balanc
e
Credit
Debit
k.
b.
Interest
Receivable
Interest Revenue
Credit
l.
c.
Dividends
Debit
m.
d.
Debit
n.
Credit
o.
f.
Operating
Expense
Unearned
Revenue
Accounts Payable
Retained
Earnings
Prepaid
Insurance
Insurance
Expense
Accounts
Receivable
Salaries Payable
Credit
p.
Cash
Debit
g.
Supplies
Debit
q.
Common Stock
Credit
h.
Service Revenue
Credit
r.
Rent Expense
Debit
i.
Prepaid Rent
Debit
s.
Salaries Expense
Debit
j.
Supplies Expense
Debit
t.
Land
Debit
e.
3-42
Debit
Debit
Debit
Credit
PROBLEM 3-26A
Event
Type of Event
Account Debited
Account Credited
1.
AS
Cash
Common Stock
2.
AS
Accounts Receivable
Service Revenue
3.
AE
Prepaid Rent
Cash
4.
AU
Operating Expenses
Cash
5.
AS
Cash
Unearned Revenue
6.
AU
Salaries Expense
Cash
7.
AU
Utilities Expense
Cash
8.
AU
Accounts Payable
Cash
9.
AU
Dividends
Cash
10.
AS
Supplies
Accounts Payable
11.
AS
Cash
Service Revenue
12.
AS
Interest Receivable
Interest Revenue
13.
AU
Rent Expense
Prepaid Rent
14.
CE
Unearned Revenue
Service Revenue
15.
CE
Salaries Expense
Salaries Payable
3-43
PROBLEM 3-27A
a.
Cash
1. 40,000 6.
2. 2,000 8.
8,000
1,000
3. 9,000 9. 7,200
7. 17,000 10. 6,000
11. 4,000
12.
840
Bal.
40,960
Barnes-Accounts, 2013
Accounts Payable
12.
840 5.
840
13.
300
14.
Bal.
250
550
Bal.
40,000
Dividends
11. 4,000
Bal. 4,000
Unearned Revenue
15. 6,000 3.
Accounts Receivable
4. 24,000 7. 17,000
Bal. 7,000
Common Stock
1. 40,000
9,000
Bal. 3,000
Salaries Payable
16. 1,800
Bal. 1,800
Interest Receivable
19.
900
Bal. 900
Service Revenue
2. 2,000
4. 24,000
15. 6,000
Bal.
32,000
Salaries Expense
10. 6,000
16. 1,800
Bal. 7,800
Advertising Expense
13.
300
Bal.
300
Supplies
5.
840 17. 1,600
8. 1,000
Bal.
240
Utilities Expense
14.
250
Bal.
250
Prepaid Rent
9. 7,200 18. 1,800
Bal. 5,400
Supplies Expense
17. 1,600
Bal. 1,600
Land
6. 8,000
Bal. 8,000
Rent Expense
18. 1,800
Bal. 1,800
Interest Revenue
19.
900
Bal. 900
3-44
3-45
PROBLEM 3-27A (cont.)

b.
Barnes Company
Before-Closing Trial Balance for 2013
Account Titles
Debit
Cash
Accounts Receivable
Interest Receivable
Supplies
Prepaid Rent
Land
Accounts Payable
Unearned Revenue
Salaries Payable
Common Stock
Dividends
Service Revenue
Salaries Expense
Advertising Expense
Utilities Expense
Supplies Expense
Rent Expense
Interest Revenue
$40,960
7,000
900
240
5,400
8,000
Totals
$78,250
Credit
550
3,000
1,800
40,000
4,000
32,000
7,800
300
250
1,600
1,800
900
3-46
$78,250

c.
Barnes Co.
Effect of Transactions on Financial Statements for 2013
Even
t
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Balance Sheet
Asset = Liab. + S.
s
Equity
+
NA
+
+
NA
+
+
+
NA
+
NA
+
+
+
NA
NA
NA
+
NA
NA
+
NA
NA
+
NA
NA
+
NA
NA
NA
NA
+
NA
+
NA
+
NA
+
NA
NA
+
NA
+
Income Statement
Rev Exp = Net
.
.
Inc.
NA
NA
NA
+
NA
+
NA
NA
NA
+
NA
+
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
+
NA
NA
NA
NA
NA
NA
NA
+
NA
+
+
NA
+
NA
+
NA
+
NA
+
+
NA
+
3-47
Stmt. of
Cash
Flows
+ FA
+ OA
+ OA
NA
NA
IA
+ OA
OA
OA
OA
FA
OA
NA
NA
NA
NA
NA
NA
NA
PROBLEM 3-28A
Effect of Transactions on Financial Statements
Even
t
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Balance Sheet
Asset = Liab + S.
s
.
Equity
+
NA
+
+
NA
+
+/
NA
NA
+
+
NA
+
+
NA
+
NA
+
NA
NA
NA
+/
NA
NA
+
NA
NA
NA
Income Statement
Rev Exp =Net
.
.
Inc.
NA
NA
NA
+
NA
+
NA
NA
NA
NA
NA
NA
NA
NA
NA
+
NA
+
NA
+
NA
NA
NA
NA
+
+
NA
+
NA
+
NA
+
NA
NA
NA
3-48
Stmt. of
Cash
Flows
+ FA
NA
+ OA
NA
+ OA
+ OA
OA
OA
OA
NA
NA
NA
FA
PROBLEM 3-29A
Entry Date
January 1
Description of Transaction
February 1
Acquired cash from the issuance of common

stock.
Paid cash in advance to rent space.
March 1
Purchased supplies on account.
April 1
May 20
Collected cash for services to be performed in

the future.
Performed services on account.
June 30
Paid cash for salaries.
June 30
Paid cash for property taxes.
August 1
Performed services for cash.
October 2
Received cash from customers on account.
December 1
Paid a cash dividend to stockholders.
December 31
Recognized expense for supplies that had

been used during the period.
December 31
Recognized rent expense. Cash had been paid

in a prior transaction.
December 31
Recognized revenue that had been earned

during the period. Cash had been received in
a prior transaction.
3-49
PROBLEM 3-30A
General Journal
No.
a.
Date
Oct. 1
Dec. 31
b.
June 15
Dec. 31
c.
Sept. 1
Dec. 31
d.
May 1
Dec. 31
Account Titles
Debit
Prepaid Rent
Cash
Rent Expense ($8,400 x 3/12)
Prepaid Rent
8,400
Supplies
Accounts Payable
Supplies Expense ($1,600
$200)
Supplies
1,600
Cash
Unearned Revenue
Unearned Revenue ($4,800 x
4/12)
Service Revenue
4,800
Prepaid Insurance
Cash
Insurance Expense ($4,800 x
4,800
8/12)
Prepaid Insurance
3-50
Credit
8,400
2,100
2,100
1,600
1,400
1,400
4,800
1,600
1,600
4,800
3,200
3,200
PROBLEM 3-31A
a.
1.
Debits would be greater by $2,000. Assets are overstated
by $2,000.
2.
Debits and credits would be equal, but assets are
understated and liabilities are understated.
3.
Debits and credits would be equal; both assets and equity
(revenue) would be understated by $900.
4.
Debits and credits would be equal; total debits and total
credits would also be correct but cash would be understated
and accounts receivable would be overstated.
5.
Debits and credits would be equal; assets and liabilities
would both be overstated.
6.
Debits and credits would be equal; liabilities would be
understated, equity would be overstated, expense would be
understated.
b.
Event
No.
1.
2.
3.
4.
5.
6.
Assets
Overstate
Understat
e
Understat
e
No Effect
Overstate
No Effect
Liabilities
No Effect
Understat
e
No Effect
No Effect
Overstate
Understat
e
3-51
Stk.
Equity
No Effect
No Effect
Understat
e
No Effect
No Effect
Overstate

c.
Smith Inc.
Trial Balance
As of May 31, 2013
Account Titles
Debit
Cash ($7,200 + $1,600 + $1,200 $800)

Accounts Receivable ($1,770 +$900
$1,200)
Supplies
Prepaid Insurance
Land ($5,000 $2,000)
Accounts Payable ($1,500 + $1,600
$800 + $1,050)
Common Stock
Retained Earnings
Dividends
Service Revenue ($19,600 + $900)
Rent Expense
Salaries Expense
Operating Expenses
Utilities Expense ($-0- + $1,050)
$ 9,200
1,470
Totals
$33,040
3-52
Credit
420
2,400
3,000
$ 3,350
1,800
7,390
400
20,500
3,600
9,000
2,500
1,050
$33,040
PROBLEM 3-32A
Boykin Corporation
Date
Jan. 1
Mar. 1
Apr. 14
June 30
July 5
Aug. 1
Aug. 8
Sept. 1
Sept. 9
Oct. 5
Nov. 2
Account Titles
Cash
Common Stock
Debit
Credit
25,000
25,000
Prepaid Rent
Cash
8,400
8,400
Supplies
Accounts Payable
400
400
Cash
Unearned Revenue
12,000
12,000
Accounts Payable
Cash
300
300
Accounts Receivable
Service Revenue
4,800
Cash
Service Revenue
1,600
4,800
1,600
Salaries Expense
Cash
18,000
18,000
Cash
Accounts Receivable
Accounts Receivable
Service Revenue
4,250
4,250
17,000
17,000
Dividends
Cash
500
500
3-53
PROBLEM 3-32A a. (cont.)

Boykin Corporation
General Journal (cont)
Date
Account Titles
Debit
Credit
Adjusting Entries
Dec. 31
Dec. 31
Dec. 31
Dec. 31

6/12)
Service Revenue
6,000
Salaries Expense
Salaries Payable
1,100
Rent Expense ($8,400 x 10/24)

Prepaid Rent
3,500
Supplies Expense ($400 $50)

Supplies
350
6,000
1,100
3-54
3,500
350
PROBLEM 3-32A (cont.) b.

Boykin Corporation T-Accounts
Assets
Cash
1/1 25,000 3/1
6/30
7/5
=
8,400
300
12,000
8/8 1,600 9/1 18,000
9/9 4,250 11/2
500
Bal. 15,650
Accounts Receivable
8/1 4,800 9/9 4,250
Liabilities
+ Stockholders Equity
Accounts Payable
Common Stock
7/5
300 4/14
400
1/1 25,000
Bal.
100
Bal. 25,000
Unearned Revenue
12/31 6,000 6/30 12,000
Bal. 6,000
Bal.
17,000
Salaries Payable
Bal.
17,550
1,100
Bal. 1,100
12/31
Bal.
Dividends
500
500
11/2
10/5
4/14
Retained Earnings
Bal.
-0-
Supplies
400 12/31
50
350
Service Revenue
8/1
4,800
8/8 1,600
10/5
17,000
12/31
6,000
Prepaid Rent
3/1
8,400
Bal.
29,400
12/31
3,500
Bal. 4,900
Rent Expense
12/31
3,500
Bal. 3,500
Salaries Expense
9/1 18,000
12/311,100
Bal.
19,100
Supplies Expense
12/31 350
Bal.
350
3-55

c.
Boykin Corporation
Trial Balance
December 31, 2013
Account Titles
Debit
Cash
Accounts Receivable
Supplies
Prepaid Rent
Accounts Payable
Unearned Revenue
Salaries Payable
Common Stock
Credit
$15,650
17,550
50
4,900
$
100
6,000
1,100
25,000
Dividends
Service Revenue
Rent Expense
Salaries Expense
Supplies Expense
500
29,400
3,500
19,100
350
Totals
$61,600
3-56
$61,600

d.
Boykin Corporation
Financial Statements
For the Year Ended December 31, 2013
Income Statement
Service Revenue
$29,400
Expenses
Salaries Expense
Rent Expense
Supplies Expense
Total Expenses
$19,100
3,500
350
(22,950)
Net Income
$ 6,450
Statement of Changes in Stockholders Equity

Beginning Common Stock
Plus: Stock Issued
Ending Common Stock
$
-025,000
Beginning
Retained
Earnings
Plus: Net Income
Less: Dividends
$25,000
Total Stockholders Equity
-06,450
(500)
5,950
$30,950
3-57
PROBLEM 3-32A d. (cont.)

Boykin Corporation
Balance Sheet
Assets
Cash
$15,65
0
17,550
50
4,900
Accounts Receivable
Supplies
Prepaid Rent
Total Assets
$38,150
Liabilities
Accounts Payable
$
100
6,000
1,100
Unearned Revenue
Salaries Payable
Total Liabilities
$ 7,200
Stockholders Equity
Common Stock
Retained Earnings
Total Liabilities and Stockholders
Equity
3-58
$25,00
0
5,950
30,950
$38,150

Boykin Corporation
Statement of Cash Flows
Cash
Flows
From
Operating
Activities:
Inflow from Customers*
$17,850
Outflow for Expenses**
(26,700)
Net Cash Flow from Operating
$
Activities
( 8,850)
Cash Flows From Investing Activities
Cash
Flows
From
Activities:
Inflow from Stock Issue
Outflow for Dividends
Net Cash Flow from
Activities
-0-
Financing
$25,000
(500)
Financing
Net Change in Cash

Plus: Beginning Cash Balance
Ending Cash Balance
*(6/30) $12,000 + (8/8) $1,600 + (9/9) $4,250 = $17,850
**(3/1) $8,400 + (7/5) $300 + (9/1) $18,000 = $26,700
3-59
24,500
15,650
-0$15,650

e.
Date
Account Titles
Debit
Credit
Closing Entries
Dec.
31
Service Revenue
29,400
Retained Earnings
Dec.
31
29,400
Retained Earnings
22,950
Salaries Expense
Rent Expense
Supplies Expense
Dec.
31
19,100
3,500
350
Retained Earnings
500
Dividends
500
3-60
PROBLEM 3-32A e. (cont.)

Boykin Corporation
T-Accounts for Closing Entries, 2013
Assets
Cash
Bal.
15,650
Accounts Receivable
Liabilities
Accounts Payable
Bal.
100
Common Stock
Unearned Revenue
Bal. 6,000
Retained Earnings
cl 22,950 cl 29,400
cl
500
Bal.
17,550
Bal.
Supplies
50
Bal.
25,000
Salaries Payable
Bal. 1,100
Bal.
Bal.
Bal.
Prepaid Rent
Bal. 4,900
Dividends
500 cl
-0-
5,950
500
Service Revenue
cl 29,400 Bal. 29,400
Bal.
-0Rent Expense
Bal. 3,500 cl
3,500
Bal.
-0Salaries Expense
Bal.
cl 19,100
19,100
Bal.
-0Supplies Expense
Bal.
350 cl
350
Bal.
-0-
3-61

f.
Boykin Corporation
December 31, 2013
Account Titles
Debit
Cash
Accounts Receivable
Supplies
Prepaid Rent
Accounts Payable
Unearned Revenue
Salaries Payable
Common Stock
Retained Earnings
Credit
$ 15,650
17,550
50
4,900
$
100
6,000
1,100
25,000
5,950
Totals
$38,150
3-62
$38,150
PROBLEM 3-33A
a.
Atlanis Machining
Event
1.
2.
3.
4.
5.
6.
7.
8.
Account Titles
Cash
Common Stock
Debit
Credit
100,000
100,000
Prepaid Rent
Cash
12,000
12,000
Cash
Unearned Revenue
Accounts Receivable
Service Revenue
9,600
9,600
130,400
130,400
Operating Expenses
Accounts Payable
Cash
Accounts Receivable
63,000
63,000
113,800
113,800
Salaries Expense
Cash
44,000
Accounts Payable
Cash
56,000
44,000
56,000
Adjusting Entries
9.
10.
11.
Rent Expense ($12,000 x

11/12)
Prepaid Rent
11,000
11,000

4/12)
Service Revenue
3,200
Salaries Expense
Salaries Payable
4,200
3,200
4,200
3-63

b.
Atlantis Machining
T-Accounts, 2013
Assets
Cash
1.
2. 12,000
100,000
3. 9,600 7. 44,000
6.
113,800
Bal.
111,400
8. 56,000
Accounts
Receivable
4.
6.
130,400 113,800
Bal.
16,600
Prepaid Rent
Liabilities
Accounts Payable
Stockholders
Equity
Common Stock
8. 56,000 5.
63,000
Bal.
7,000
1. 100,000
Bal.
100,000
Service Revenue
Salaries Payable
11. 4,200
Bal.
4,200
4. 130,400
10. 3,200
Bal.
133,600
Unearned Revenue
Operating Expenses
10. 3,200 3. 9,600

Bal.
6,400
5. 63,000
Bal.
63,000
2. 12,000 9. 11,000
Bal.
1,000
Rent Expense
9. 11,000
Bal.
11,000
Salaries Expense
7. 44,000
11. 4,200
Bal.
48,200
3-64

c.
Atlantis Machining
Trial Balance
December 31, 2013
Account Titles
Debit
Cash
Accounts Receivable
Prepaid Rent
Accounts Payable
Salaries Payable
Unearned Revenue
Common Stock
Service Revenue
Operating Expenses
Salaries Expense
Rent Expense
$111,400
16,600
1,000
Totals
$251,200
Credit
7,000
4,200
6,400
100,000
133,600
63,000
48,200
11,000
3-65
$251,200

d.
Atlantis Machining
Income Statement
Service Revenue
$133,600
Expenses
Operating Expenses
Salaries Expense
Rent Expense
Total Expenses
$63,000
48,200
11,000
(122,200)
Net Income
$ 11,400

Plus: Stock Issued
Ending Common Stock
$
-0100,000
Beginning
Retained
Earnings
Plus: Net Income
Total
Equity
$100,000
Stockholders
3-66
-0-
11,400
11,400
$111,400

Atlantis Machining
Balance Sheet
Assets
Cash
Accounts Receivable
Prepaid Rent
Total Assets
$111,400
16,600
1,000
$129,000
Liabilities
Accounts Payable
Salaries Payable
Unearned Revenue
Total Liabilities
$ 7,000
4,200
6,400
$ 17,600
Stockholders Equity
Common Stock
Retained Earnings
Total Liabilities
Equity
and
$100,000
11,400
111,400
Stockholders
$129,000

Inflow from Customers
$123,400
Outflow for Expenses
(112,000)
Net
Cash
Flow
from
Operating
$ 11,400
Activities
Cash Flows From Financing Activities:
Inflow from Stock Issue
$100,000
Net
Cash
Flow
from
Financing
Activities
Net Change in Cash
Ending Cash Balance
3-67
-0-
100,000
111,400
-0$111,400
3-68

e.
Date
Account Titles
Debit
Credit
Closing Entries
Dec.
31
Service Revenue
133,600
Retained Earnings
Dec.
31
133,600
Retained Earnings
122,200
Operating Expenses
Salaries Expense
Rent Expense
63,000
48,200
11,000
Atlantis Machining
Assets
Cash
Bal.
111,400
Accounts Rec.
Liabilities
Prepaid Rent
Stockholders
Equity
Accounts Payable
Bal.
7,000
Common Stock
Bal.
100,000
Salaries Payable
Bal.
4,200
Retained Earnings
cl
cl 133,600
122,200
Bal.11,400
Bal.
16,600
Unearned Revenue
Bal.
6,400
Bal.1,000
Service Revenue
Bal.
133,600 133,600
Bal.
-0-
cl
Operating Expenses
Bal.
cl 63,000
63,000
Bal.
-0Salaries Expense
3-69
Bal.
48,200
Bal.
-0-
cl
48,200
Rent Expense
Bal.
cl 11,000
11,000
Bal.
-0-
3-70

f.
Atlantis Machining
December 31, 2013
Account Titles
Debit
Cash
Accounts Receivable
Prepaid Rent
Accounts Payable
Salaries Payable
Unearned Revenue
Common Stock
Retained Earnings
$111,400
16,600
1,000
Totals
$129,000
Credit
$ 7,000
4,200
6,400
100,000
11,400
3-71
$129,000
PROBLEM 3-33A (cont.) g.

Atlantis Machining
Event
1.
2.
Account Titles
Debit
Salaries Payable
Cash
4,200
4,200
Cash
81,000
Service Revenue
3.
81,000
Land
50,000
Cash
4.
5.
6.
7.
50,000
Prepaid Rent
Cash
10,800
10,800
Accounts Receivable
Service Revenue
164,000
164,000
Operating Expenses
Accounts Payable
98,200
98,200
Cash
152,600
Accounts Receivable
8.
9.
10.
11.
12.
13.
1
2
Credit
152,600
Accounts Payable
Cash
96,000
Salaries Expense
Cash
82,000
Dividends
Cash
10,000
96,000
82,000
10,000
Unearned Revenue
Service Revenue1
6,400
6,400
Rent Expense2
Prepaid Rent
10,900
10,900
Salaries Expense
Salaries Payable
7,000
7,000
$9,600 x 8/12 = $6,400

($12,000 x 1/12) + ($10,800 x 11/12) = $10,900
3-72
PROBLEM 3-33A g. (cont.)

Atlantis Machining
T-Accounts, 2014
Assets
Cash
Bal.
111,400
2. 81,000 1. 4,200
7.
3. 50,000
152,600
4. 10,800
8. 96,000
9. 82,000
10.
10,000
Liabilities
Accounts Payable
Bal.
7,000
8. 96,000 6. 98,200
Salaries Payable
Bal.
4,200
1. 4,200 13. 7,000
Bal.
Bal.
28,000
Retained Earnings
Bal.
11,400
Dividends
7,000
Unearned Revenue
10.
10,000
Bal.
10,000
Bal. 6,400
Bal.
5.
7.
164,000 152,600
Common Stock
Bal.
100,000
9,200
92,000
16,600
Stockholders
Equity
Bal.
Bal.
Accounts Rec.
11.6,400
Service Revenue
Bal.
-0-
2. 81,000
5.
164,000
11. 6,400
Bal.
251,400
Prepaid Rent
Bal. 1,000
4. 10,800 12.
10,900
Bal. 900
Operating Expenses
6. 98,200
Bal.
98,200
Land
3. 50,000
3-73
Bal.
Rent Expense
50,000
12.
10,900
Bal.
10,900
Salaries Expense
9. 82,000
13. 7,000
Bal.
89,000
3-74

Atlantis Machining
Trial Balance
December 31, 2014
Account Titles
Debit
Cash
Accounts Receivable
Prepaid Rent
Land
Accounts Payable
Salaries Payable
Common Stock
Retained Earnings
Dividends
Service Revenue
Operating Expenses
Salaries Expense
Rent Expense
$ 92,000
28,000
900
50,000
Totals
$379,000
Credit
9,200
7,000
100,000
11,400
10,000
251,400
98,200
89,000
10,900
3-75
$379,000

Atlantis Machining
Income Statement
Service Revenue
$251,400
Expenses
Operating Expenses
Rent Expense
Salaries Expense
Total Expenses
$98,200
10,900
89,000
(198,100)
Net Income
$ 53,300

$100,000
-0-
Plus: Stock Issued

Ending Common Stock
$100,000
Beginning
Retained
Earnings
Plus: Net Income
Less: Dividends
Total
Equity
Stockholders
3-76
$11,400
53,300
(10,000)
54,700
$154,700

Atlantis Machining
Balance Sheet
Assets
Cash
Accounts Receivable
Prepaid Rent
Land
Total Assets
$92,000
28,000
900
50,000
Liabilities
Accounts Payable
Salaries Payable
Total Liabilities
$ 9,200
7,000
$170,90
0
$
16,200
Stockholders Equity
Common Stock
Retained Earnings
Equity
3-77
$100,00
0
54,700
154,700
$170,90
0

Atlantis Machining
Cash
Flows
From
Operating
Activities:
Inflow from Customers*
$233,600
Outflow for Expenses**
(193,000
)
$ 40,600
Activities
Cash
Flows
From
Investing
Activities:
Outflow to Purchase Land
$(50,000
)
Net Cash Flow from Investing
(50,000)
Activities
Cash
Flows
From
Activities:
Outflow for Dividends
Financing
Net Cash
Activities
Financing
Flow
from
$(10,000
)
Net Change in Cash

Ending Cash Balance
*(2) $81,000 + (7) $152,600 = $233,600
(10,000)
(19,400)
111,400
$
92,000
**(1) $4,200 + (4) $10,800 + (8) $96,000 + (9) $82,000 = $193,000
3-78

Date
Account Titles
Debit
Credit
Closing Entries
Dec.
31
Service Revenue
251,400
Retained Earnings
Dec.
31
251,400
Retained Earnings
198,100
Operating Expenses
Salaries Expense
Rent Expense
Dec.
31
98,200
89,000
10,900
Retained Earnings
10,000
Dividends
10,000
3-79

Atlantis Machining
Assets
Cash
Bal.
92,000
Accounts Rec.
Liabilities
Accounts Payable
Bal.
9,200
Common Stock
Bal.
100,000
Salaries Payable
Bal.
7,000
Retained Earnings
cl
Bal.11,400
198,100
cl 10,000 cl 251,400
Bal.
28,000
Bal.54,700
Prepaid Rent
Bal. 900
Dividends
Bal.
cl 10,000
10,000
Bal. -0-
Land
Service Revenue
cl
Bal.
251,400 251,400
Bal.
-0-
Bal.
50,000
Operating Expenses
Bal.
cl 98,200
98,200
Bal. -0Salaries Expense
Bal.
cl 89,000
89,000
Bal. -0Rent Expense
Bal.
cl 10,900
10,900
Bal. -03-80
3-81

Atlantis Machining
December 31, 2014
Account Titles
Debit
Cash
Accounts Receivable
Prepaid Rent
Land
Accounts Payable
Salaries Payable
Common Stock
Retained Earnings
$ 92,000
28,000
900
50,000
Totals
$170,900
Credit
9,200
7,000
100,000
54,700
3-82
$170,900
PROBLEM 3-34A
a.
Debt-to-Assets Ratio: Total debt Total assets
Boise
Tuscon
$ 93,000 $127,000 = 73.2%

$452,000 $753,000 = 60.0%
Return-on-Equity Ratio:
b.
Net income Equity
Boise
Tuscon
$ 8,000
$45,000
$ 34,000 = 23.5%
$301,000 = 15.0%
Boise
Tuscon
100% 73.2% = 26.8%

100% 60.0% = 40.0%
c.
Based only on the information available, Boise appears to have the
greatest financial risk.
d.
Boise has the highest profitability.
e.
Yes, companies with higher percentages of assets financed by debt
have lower percentages of assets financed by owners. If a company can
achieve about the same level of earnings with less investment by the owners,
the ROE ratio will be higher.
3-83
PROBLEM 3-35A
Bombay, Inc.
General Journal
Event
2013
a. 11/1
b.
12/31
Account Titles
Cash
Notes Payable
Debit
10,000
10,000
Interest Expense ($10,000 x 9% x

2/12)
150
Interest Payable
150
2014
c. 10/31 Interest Expense ($10,000 x 9% x
10/12)
750
Interest Payable
d.
10/31
750
Interest Payable
900
Cash
e.
10/31
Credit
900
Notes Payable
10,000
Cash
10,000
3-84
PROBLEM 3-36A
Lee Company
Event
1.
2. 2/1
3.
4.
5.
6. 5/1
7.
8.
Account Titles
Debit
Computer
Cash
7,500
Prepaid Rent
Cash
6,600
Supplies
Cash
1,100
7,500
6,600
1,100
Cash
Service Revenue
56,000
Salaries Expense
Cash
18,000
56,000
18,000
Cash
Unearned Revenue
9,000
Depreciation Expense*
Accumulated
Depreciation
1,700
Rent Expense ($6,600 x
6,050
11/12)
9,000
1,700
Prepaid Rent
9.
10.
Credit
6,050
Supplies Expense
Supplies ($1,100 - $120)
8/12)
Service Revenue
980
980
6,000
6,000
*($7,500 - $2,400) 3 = $1,700
3-85
PROBLEM 3-36A a. (cont.)

Lee Company
T-Accounts 2013
Assets
Cash
Bal.
22,000
4. 56,000 1. 7,500
6. 9,000 2. 6,600
3. 1,100
5. 18,000
Liabilities
Unearned
Revenue
6. 9,000
Stockholders
Equity
Common Stock
Bal.
12,000
10. 6,000
Bal. 3,000
Retained Earnings
Bal.
Bal.
53,800
10,000
Service Revenue
4. 56,000
10. 6,000
Prepaid Insurance
2. 6,600 8. 6,050
Bal. 550
Bal.
62,000
Salaries Expense
5.18,000
Supplies
1,100 9. 980
3.
Bal.
Bal.
18,000
120
Depreciation
Expense
7. 1,700
Bal. 1,700
Computer
1. 7,500
Bal.7,500
Rent Expense
81. 6,050
Bal. 6,050
Accumulated
Depr.
7. 1,700
Bal.
Supplies Expense
3-86
1,700
9.
Bal.
3-87
980
980
PROBLEM 3-36A b. (cont.)

Lee Company
Income Statement
Service Revenue
Expenses
Salaries Expense
Depreciation Expense
Rent Expense
Supplies Expense
Total Expenses
$62,000
$18,000
1,700
6,050
980
(26,730)
Net Income
$35,270
3-88

Lee Company
Balance Sheet
Assets
Cash
Prepaid Insurance
Supplies
Office Equipment
Accumulated Depreciation
Total Assets
Liabilities
Unearned Revenue
$53,80
0
550
120
7,500
(1,700)
$60,27
0
$
3,000
Total Liabilities
$
3,000
Stockholders Equity
Common Stock
Retained Earnings
Equity
3-89
$12,00
0
45,270
57,270
$60,27
0

Lee Company
Cash
Flows
From
Operating
Activities:
Inflow from Customers1
$65,000
2
Outflow for Expenses
(25,700)
$39,300
Activities
Purchased Computer
Net Cash Flow from Financing
Activities
Cash
Flows
Activities:
From
Financing
Net Change in Cash

Ending Cash Balance
1
2
(4) $56,000 + (6) $9,000 = $65,000

(2) $6,600 + (3) $1,100 + (5) $18,000 = $25,700
3-90
(7,500)
(7,500)
-031,800
22,000
$53,80
0

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Chapter 03 - Solutions to Exercises - Series A

SOLUTIONS TO EXERCISES - SERIES A - CHAPTER 3

Chapter 03 - Solutions to Exercises - Series A

Credits decrease account balances:

Credits increase account balances:

Debits decrease account balances:

Chapter 03 - Solutions to Exercises - Series A

Chapter 03 - Solutions to Exercises - Series A

Asset = Liab. + Equit

Chapter 03 - Solutions to Exercises - Series A

Chapter 03 - Solutions to Exercises - Series A

Chapter 03 - Solutions to Exercises - Series A

Chapter 03 - Solutions to Exercises - Series A

Chapter 03 - Solutions to Exercises - Series A

Chapter 03 - Solutions to Exercises - Series A

This is an asset source transaction. Assets are

This is an asset exchange transaction. The asset

This is an asset source transaction. Assets are

This is an asset use transaction. The asset cash is

Chapter 03 - Solutions to Exercises - Series A

increased. This has the effect of decreasing

Chapter 03 - Solutions to Exercises - Series A

b. & g. NC = Net Change in Cash

Chapter 03 - Solutions to Exercises - Series A

EXERCISE 3-9A (cont.)

2013 Revenue = $30,000

2013 Cash Flows From Operating Activities = $24,000

See T-accounts above.

See T-accounts above.

See the Statements Model above.

Chapter 03 - Solutions to Exercises - Series A

Chapter 03 - Solutions to Exercises - Series A

EXERCISE 3-10A (cont.)

36,000 8,200 = 27,800

Chapter 03 - Solutions to Exercises - Series A

EXERCISE 3-10A (cont.)

Closing entries are posted to the T-accounts in part a.

Chapter 03 - Solutions to Exercises - Series A

*$90,000 x 10/12 = $75,000

Cash Flows From Operating Activities:

Chapter 03 - Solutions to Exercises - Series A

Chapter 03 - Solutions to Exercises - Series A

Rev. Exp = Net

Chapter 03 - Solutions to Exercises - Series A

Assets = Liab. + Equity

Re Exp. = Net Inc.

Chapter 03 - Solutions to Exercises - Series A

EXERCISE 3-14A (cont.)

Chapter 03 - Solutions to Exercises - Series A

Assets = Liab + Equity

Chapter 03 - Solutions to Exercises - Series A

EXERCISE 3-14A (cont.)

Chapter 03 - Solutions to Exercises - Series A

Cash Flows From Operating Activities:

Salaries Payable = $12,000

Prepaid Rent (Lease)

Chapter 03 - Solutions to Exercises - Series A

*$135,000 12 = $11,250 per month; $11,250 x 10 mo. =

Chapter 03 - Solutions to Exercises - Series A

EXERCISE 3-16A (cont.)

Prepaid Rent: $22,500 ($135,000 $112,500)

Cash Flows From Operating Activities: