MIM

Financial Accounting Precourse

Answers to Problems (Session 3a)

Problem 4
Dear Clay,
This trial balance lists the accounts of Mach-1, Inc. along with its balances at December 31,
20X6. The trial balance is an internal document used by accountants. It is not the same as
a balance sheet and an income statement. The balance sheet and the income statement
are financial statements used by managers, creditors, and investors for decision making.
The fact that the trial balance is in balance does not mean that Mach-1 is a sound
company. It merely means that total debits equal total credits in the company ledger. This
says nothing about the soundness of the business. To compute Mach-1s net income or net
loss for the current period, subtract total expenses from total revenue. During the current
period, Mach-1 earned a net income of $29,000 [service revenue of $86,000 minus total
expenses of $57,000($14,000 + $3,000 + $33,000 + $7,000)].

Note: Student responses may vary

.

Problem 5
Req. 1

Haas Interiors, Inc.

Analysis of Transactions
ASSETS
Cash

Bal.
a)
b)
c)
d)
e)
f)
g)
h)
i)
Bal.

Accounts
+ Receivable + Supplies +

1,250
9,000
6,700
(5,000)

1,500

500
1,000

(500)

(900)
(300)
(1,800)
10,450

Land

12,000

LIABILITIES

Accounts
= Payable +

8,000

Common
Stock +

Retained
Earnings

4,000
9,000

2,750
6,700

(5,000)
1,000

1,000

1,000

2,400

____
3,400

STOCKHOLDERS EQUITY

____
1,000

12,000

4,000

14,000

2,400
(900)
(300)
(1,800)
8,850

Type of Stockholders
Equity Transaction

Issued stock
Service revenue

Issued stock
Service revenue
Rent expense
Advertising expense
Dividends

$26,850

$26,850

Req. 2
Haas Interiors, Inc.
Income Statement
Month Ended September 30, 20X8
Revenues:
Service revenue ($6,700 + $2,400)...
Expenses:
Rent expense
Advertising expense...
Total expenses.
Net income.

$9,100
$900
300
1,200
$7,900

Req. 3
Haas Interiors, Inc.
Statement of Retained Earnings
Month Ended September 30, 20X8
Retained earnings, August 31, 20X8...
Add: Net income for the month.
Less: Dividends..
Retained earnings, September 30, 20X8

$2,750
7,900
10,650
(1,800)
$8,850

Req. 4

ASSETS
Cash.
Accounts receivable
Supplies..
Land.

Haas Interiors, Inc.

Balance Sheet
September 30, 20X8
LIABILITIES
$10,450 Accounts payable
3,400
STOCKHOLDERS
1,000
EQUITY
12,000 Common stock.
Retained earnings

$ 4,000

14,000
8,850
1

Total assets

Total stockholders equity.

Total liabilities and
$26,850
stockholders' equity..

22,850
$26,850

Problem 6
Reqs. 1 and 2
Journal:
Account Title

Debit

Credit

(a)

Cash
Building

10.000
50.000
Common Stock

60.000
(b)

Cash

20.000
Note Payable

20.000

Transmitting Equipment
Cash

22.000
22.000
(d)

Office Supplies
Accounts payable

400
400
(e)

Salary Expense
Cash

1.300
1.300
(f)

Cash

500
Service Revenue

500
(g)

Account Receivables
Service Revenue

1.800
1.800
(h)

Account payable
Cash

100
100
(i)

Utility Expense
Account payable

600
600
(j)

Cash

1.100
Account Receivable

1.100

(k)

Rent Expense
Advertising Expense
Cash

1.000
800
1.800
(l)

Dividends

2.600
Cash

2.600

T-accounts:
Cash
(a)
(b)
(f)
(j)

10,000
20,000
500
1,100

Bal.

3,800

(c)
(e)
(h)
(k)
(l)

Accounts Receivable
22,000
1,300
100
1,800
2,600

(g)
Bal.

Office Supplies
(d)
Bal.

400
400

(c)
Bal.

(h)

Note Payable
20,000
20,000

(a)
Bal.

2,600
2,600

1,300
1,300

(f)
(g)
Bal.
Rent Expense
(k)
Bal.

Advertising Expense
(k)
4

800

400
600
900

60,000
60,000

Service Revenue

Salary Expense
(e)
Bal.

100 (d)
(i)
Bal.

Common Stock

Dividends
(l)
Bal.

22,000
22,000

Accounts Payable

50,000
50,000

(b)
Bal.

1,100

Transmitting Equipment

Building
(a)
Bal.

1,800 (j)
700

1,000
1,000

Utilities Expense
(i)

600

500
1,800
2,300

Bal.

800

Bal.

600

Req. 3
CableVision, Inc.
Trial Balance
January 31, 20X7
ACCOUNT
Cash...
Accounts receivable..
Office supplies
Transmitting equipment...
Building.
Accounts payable..
Note payable
Common stock
Dividends..
Service revenue..
Salary expense
Rent expense...
Advertising expense..
Utilities expense.
Total...

DEBIT
$ 3,800
700
400
22,000
50,000

CREDIT

$ 900
20,000
60,000
2,600
2,300
1,300
1,000
800
600
$83,200

$83,200

Req. 4
Total assets

= $76,900 ($3,800 + $700 + $400 + $22,000 + $50,000)

Total liabilities

= $20,900 ($900 + $20,000)

Net loss

= $1,400 ($2,300 - $1,300 - $1,000 - $800 - $600)

Problem 7
Req. 1 (journal entries; explanations not required)
Journal
DATE
Jan.

Jan.

ACCOUNT TITLES
2

Cash
Common Stock

DEBIT
33,000

33,000

3 Supplies.
Furniture
Accounts Payable..

500
2,600

4 Cash
Service Revenue.

1,500

3,100

1,500

7 Land
Cash...

22,000

11 Accounts Receivable..
Service Revenue.

800

16 Accounts Payable
Cash

2,600

17 Utilities Expense..
Cash

110

18 Cash
Accounts Receivable.

400

22

29

31

Utilities Expense
Cash..

CREDIT

22,000

800

2,600

110

400
130
130

Cash..
Service Revenue

1,800

Salary Expense..

1,300

1,800

Cash..
31

Dividends.
Cash..

1,300
2,200
2,200

Req. 2 (ledger accounts)

Cash
Jan. 2
4
18
29

Bal.

33,000
1,500
400
1,800

Accounts Receivable
Jan. 7
16
17
22
31

22,000
2,600
110
130
1,300

Jan. 11
Bal.

31

2,200

Jan. 3
Bal.

8,360

2,600
2,600

2,600

Jan. 7
Bal.

Jan. 3
Bal.

400

500
500
Land

Accounts Payable
Jan. 16

Jan. 18

Supplies

Furniture
Jan. 3
Bal.

800
400

22,000
22,000
Common Stock

3,100
500

Jan. 2
Bal.

33,000
33,000

Dividends
Jan. 31
Bal.
Service Revenue
Jan. 4
11
29
Bal.

2,200
2,200
Salary Expense

1,500
800
1,800
4,100

Jan. 31
Bal.

1,300
1,300

Utilities Expense
Jan. 17
22

110
130

Bal.

240

Req. 3
Pat ODell, Attorney, P.C.
Trial Balance
January 31, 20XX
ACCOUNT
Cash...
Accounts receivable..
Supplies
Furniture...
Land...
Accounts payable..
Common stock
Dividends..
Service revenue..
Salary expense
Utilities expense.
Total...

DEBIT
$ 8,360
400
500
2,600
22,000

CREDIT

$ 500
33,000
2,200
4,100
1,300
240
$37,600

$37,600

Req.4
Pat ODell
Income Statement
Month Ended January 31 st, current year
Revenues:
Service revenue ...
Expenses:
Salary expense
Utilities expense...
Total expenses.
Net income.

$4,100
$1.300
240

Pat ODell
Statement of Retained Earnings
Month Ended January 31 st current year
Retained earnings, 1 st January ...
10

1,540
$2,560

$0

Add: Net income for the month.

Less: Dividends..
Retained earnings, 31 st January

2,560
2,560
(2,200)
$360

Req 5

ASSETS
Cash.
Accounts receivable
Supplies..
Land.
Furniture..

Total assets

Pat ODell
Balance Sheet
January 31st current year
LIABILITIES
$8,360 Accounts payable
400
STOCKHOLDERS
500
EQUITY
22,000 Common stock.
2,600 Retained earnings
Total stockholders equity.
Total liabilities and
$33,860
stockholders' equity..

$ 500

33,000
360
33,360
$33,860

Pat ODell Attorney PC

Statement of Cash Flows
Period Ended January 31, current year
Cash flows from operating activities:
Collections from customers.
$ 3,700
Payments to utilities suppliers .
(240)
Payments to employees..
(1.300)
Net cash used for operating activities..
Cash flows from investing activities:
Purchase of land/furniture..
Net cash used for investing activities

2,160

(24,600)
(24,600)

Cash flows from financing activities:

11

Issuance of common stock

Payment of dividend
Net cash provided by financing activities
Increase in cash.
Cash balance, January 1, .
Cash balance, January 31, ...

33,000
(2,200)
30,800
________
$ 8,360
0
$ 8,360

Req. 6
Total resources (assets) = $33,860 ($8,360 + $400 + $500 + $2,600 + $22,000)
Amount owed (total liabilities) = $500
Profit (net income)

12

= $2,560 ($4,100 - $1,300 - $240)

Problem 8
Req. 1

Lane Designers, Inc.

Analysis of Transactions
ASSETS
Cash

Bal.
a)
b)
c)
d)
e)
f)
g)
h)
i)
Bal.

1,720
42,000
(1,400)
4,100
750

Accounts
+ Receivable + Supplies +

2,240

Land

24,100

LIABILITIES

Accounts
= Payable +

5,400
(1,400)

Retained
Earnings

10,000
42,000

12,660

720

720

___
720

24,100

4,720

Type of Stockholders
Equity Transaction

Issued stock
4,100

Service revenue

5,000

1,700

6,490

STOCKHOLDERS EQUITY

Common
Stock +

(750)
5,000

1,700
(1,200)
(660)
(2,400)
44,610

53,700

Service revenue
Issued stock
(1,200) Rent expense
(660) Advertising expense
(2,400) Dividends
17,500

13

$75,920

14

$75,920

Req. 2
Lane Designers, Inc.
Income Statement
Month Ended May 31, 20X5
Revenues:
Service revenue ($4,100 + $5,000)..
Expenses:
Rent expense...
Advertising expense..
Total expenses
Net income

$9,100
$1,200
660
1,860
$7,240

Req. 3
Lane Designers, Inc.
Statement of Retained Earnings
Month Ended May 31, 20X5
Retained earnings, April 30, 20X5
Add: Net income for the month.
Less: Dividends..
Retained earnings, May 31, 20X5.

$12,660
7,240
19,900
(2,400)
$17,500

Req. 4
Lane Designers, Inc.
Balance Sheet
May 31, 20X5
ASSETS
Cash.
Accounts receivable
Supplies..
Land.

LIABILITIES
$44,610 Accounts payable.
6,490
STOCKHOLDERS
720
EQUITY
24,100 Common stock..

$ 4,720

53,700
15

Total assets...

16

Retained earnings....
Total stockholders equity.
Total liabilities and
$75,920
stockholders' equity...

17,500
71,200
$75,920

Problem 9
Req. 1 (journal entries; explanations not required)
Journal
DATE

ACCOUNT TITLES

Sept.

Sept.

Cash.
Common Stock.

DEBIT
25,000

25,000

4 Supplies..
Furniture.
Accounts Payable

200
1,800

6 Cash.
Service Revenue..

1,000

2,000

1,000

7 Land.
Cash

15,000

10 Accounts Receivable..
Service Revenue..

600

14 Accounts Payable
Cash

1,800

16 Utilities Expense..
Cash

120

17 Cash.
Accounts Receivable..

500

24

28

Utilities Expense.
Cash..
Cash
Service Revenue.

CREDIT

15,000

600

1,800

120

500
110
110
1,500
1,500
17

30

30

18

Salary Expense
Cash...

1,200

Dividends..
Cash...

2,400

1,200

2,400

Req. 2 (ledger accounts)

Cash
Sept. 3 25,000
6
1,000
17
500
28
1,500

Bal.

Accounts Receivable
Sept. 7
14
16
24
30

15,000
1,800
120
110
1,200

Sept. 10
Bal.

30

2,400

Sept. 4
Bal.

7,370

1,800
1,800

1,800

Sept. 7
Bal.

Sept. 4
Bal.

Dividends
Sept. 30
Bal.

2,400
2,400

500

200
200

Land

Accounts Payable
Sept. 14

Sept. 17

Supplies

Furniture
Sept. 4
Bal.

600
100

15,000
15,000

Common Stock
2,000
200

Sept. 3
Bal.

25,000
25,000

Service Revenue
Sept. 6
10
28
Bal.

1,000
600
1,500
3,100

Salary Expense
Sept. 30
Bal.

1,200
1,200

Utilities Expense

Sept. 16
24
Bal.

120
110
230

Req. 3
Toms Lopez, Attorney, P.C.
Trial Balance
September 30, 20XX
ACCOUNT
Cash...
Accounts receivable..
Supplies
Furniture...
Land...
Accounts payable..
Common stock
Dividends..
Service revenue..
Salary expense
Utilities expense.
Total...

DEBIT
$ 7,370
100
200
1,800
15,000

CREDIT

200
25,000

2,400
3,100
1,200
230
$28,300

$28,300

Rev. 4
Total resources (assets)

= $24,470 ($7,370 + $100 + $200 + $1,800 + $15,000)

Amount owed (total liabilities) = $200

Profit (net income)

= $1,670 ($3,100 - $1,200 - $230)

Toms Lpez
Income Statement
Month Ended September 30 , current year

Revenues:
Service revenue ...
Expenses:
Salary expense
Utilities expense...

$3,100
$1.200
230
3

Total expenses.
Net income.

1,430
$1,670

Toms Lpez
Statement of Retained Earnings
Month Ended sept. 30 current year
Retained earnings, 1 st september ...
Add: Net income for the month.

$0
1.670
1.670

Less: Dividends..
(2.400)
$(730)

Retained earnings, 30 sept.

ASSETS
Cash
Accounts receivable

Toms Lpez
Balance Sheet
Sept. 30 current year
LIABILITIES
$7.370 Accounts payable
100
STOCKHOLDERS

Supplies
Land
Furniture

200
15,000
1,800

Req. 5

Total assets

$ 200

EQUITY
Common stock
Retained earnings
Total stockholders equity.

Total liabilities and

$24,470 Stockholders' equity.

25.000
(730)
24.270

$24,470

Toms Lpez
Statement of Cash Flows
Period Ended September 30, current year
Cash flows from operating activities:
Collections from customers.
$ 3,000
Payments to utilities suppliers .
(230)
Payments to employees..
(1.200)
Net cash used for operating activities..

1,570

Cash flows from investing activities:

Purchase of land/furniture..
Net cash used for investing activities

(16,800)
(16,800)
5

Cash flows from financing activities:

Issuance of common stock
Payment of dividend
Net cash provided by financing activities
Increase in cash.
Cash balance, January 1, .
Cash balance, January 31, ...

25,000
(2,400)
22,600
________
$ 7,370
0
$ 7,370

Problem 10
Reqs. 1 and 2
Cash
(a)
(b)
(i)
(j)

11,000
90,000
1,100
1,200

Bal.

10,700

(d)
(e)
(g)
(k)
(l)

Accounts Receivable
88,000
2,200
800
1,100
500

(f)
Bal.

Office Supplies
(c)
Bal.

1,300
1,300

(d)
Bal.

(g)

Note Payable
90,000
90,000

(a)
Bal.

500
500

2,200

1,300
600
1,100

71,000
71,000

Service Revenue
(f)
(i)
Bal.

Salary Expense
(e)

800 (c)
(h)
Bal.

Common Stock

Dividends
(l)
Bal.

88,000
88,000

Accounts Payable

60,000
60,000

(b)
Bal.

1,200

Computer Equipment

Building
(a)
Bal.

2,100 (j)
900

2,100
1,100
3,200

Advertising Expense
(h)

600
7

Bal.

2,200

Bal.

Rent Expense
(k)
Bal.

700
700

600

Utilities Expense
(k)
Bal.

400
400

Req. 3
Hendrix Computer Graphics Service, Inc.
Trial Balance
June 30, 20X3
ACCOUNT
Cash
Accounts receivable...
Office supplies.
Computer equipment..
Building..
Accounts payable
Note payable.
Common stock.
Dividends...
Service revenue
Salary expense.
Advertising expense...
Rent expense
Utilities expense..
Total.

DEBIT
$ 10,700
900
1,300
88,000
60,000

CREDIT

1,100
90,000
71,000

500
3,200
2,200
600
700
400
$165,300

_______
$165,300

Req. 6
Total assets

= $160,900 ($10,700 + $900 + $1,300 + $88,000 + $60,000)

Total liabilities

= $91,100 ($1,100 + $90,000)

Net loss

= $700 ($3,200 - $2,200 - $600 - $700 -$400)

Req. 4

Hendrix Computer Graphics Service, Inc.

Income Statement ($)
Month ended June 30, 20X3
Revenue
Service Revenue ..............
Expenses
Salary Expense .................
Rent Expense .................
Advertising Expense .............
Utilities Expense .................
Total Expenses ..............
Net Income
..................

10

3.200
2.200
700
600
400
3.900
(700)

Hendrix Computer Graphics Service, Inc.

Statement of Retained Earnings ($)
Month ended June 30, 20X3
Retained earnings, May 31, 20X3
Add: Net income for the month ..............

0
(700)
(700)
(500)
(1.200)

Less: Dividends .............................

Retained earnings, end of year ...............
Req.5

Hendrix Computer Graphics Service, Inc.

Balance Sheet ($)
June 30, 20X3
ASSETS
Cash
Accounts receivable
Office Supplies
Computer Equipment
Building

LIABILITIES
10.700
900
1.300
88.000
60.000

Accounts payable
Note payable

1.100
90.000

Total liabilities

91.100

STOCKHOLDERS' EQUITY
Common Stock
Retained earnings
Total SHE
Total Assets

160.900

Total Liabilities and SHE

71.000
(1.200)
69.800
160.900

11

12

Problem 11
Req. 1
20X5
20X4
(Thousands)
STATEMENT OF OPERATIONS
Revenues
Cost of goods sold
Other expenses
Earnings before income taxes
Income taxes (35% in 20X5)
Net earnings
STATEMENT OF RETAINED EARNINGS
Beginning balance
Net earnings
Dividends
Ending balance
BALANCE SHEET
Assets:
Cash
Property, plant and equipment
Other assets
Total assets
Liabilities:
Current liabilities
Notes payable and long-term debt
Other liabilities
Total liabilities
Shareholders Equity:
Common stock
Retained earnings
Other shareholders equity
Total shareholders equity

13,176 = $
k
11,026
1,230
920
322 =
l
598 = $
m

4,043 = $
598 =
4,576 = $

n
o
(65)
p

1,421 = $

q
1,597
10,198 =
r
13,216 = $
s

5,706 = $

$
4,576 =
4,872 =

t
2,569
69
8,344

117
u
179
v

$15,487
a
1,169
1,496
100
$
b

12,822

1,396

$ 2,702
c =
(55)
$
d =

e
1,750
10,190
$13,026

1,396
4,043

1,086

$ 5,403
3,138
72
f

8,613

4,043

118
g
252
4,413

13

Total liabilities and shareholders equity

STATEMENT OF CASH FLOWS
Net cash provided by operating activities
Net cash provided by investing activities
Net cash used for financing activities
Increase (decrease) in cash
Cash at beginning of year
Cash at end of year

14

13,216 = $

986 = $

1,086 =
1,421 = $

x $ 475
58
574
(709)
(1,045)
335
i =
y
1,082
z
$
j
=

13,026

4
1,086

Req. 2
a. Operations deteriorated during 20X5. Revenues decreased, and net earnings fell
from $1,396 thousand to $598 thousand.
b. The company retained most of its net earnings for use in the business. Dividends
were only $55 thousand in 20X4 and $65 thousand in 20X5, which are much less
than net earnings.
c. Total assets at the end of 20X5 were $13,216 thousand. This is the amount of total
resources that the company has to work with as it moves into the year 20X6.
d. At the end of 20X4 the company owed total liabilities of $8,613 thousand. At the
end of 20X5 the company owed $8,344 thousand. A decrease in total liabilities is a
good trend in relation to an increase in total assets because this means that total
stockholders equity is increasing.
e. The companys major source of cash is operating activities, and cash is
increasing. Based on these two facts, it appears that the companys ability to
generate cash is strong despite the drop in 20X5 net earnings.

15