Solution manual accounting 21e by warreni ch 04

CHAPTER 4
COMPLETING THE ACCOUNTING CYCLE
CLASS DISCUSSION QUESTIONS
1. a. The financial statements are the most
important output of the accounting
cycle.
b. Yes, all companies have an accounting
cycle that begins with analyzing and
journalizing transactions and ends with
a post-closing trial balance. However,
companies may differ in how they
implement the steps in the accounting
cycle. For example, while most
companies
use
computerized
accounting systems, some companies
may use manual systems.
2. No. The work sheet is a device used by the
accountant to facilitate the preparation of
statements and the recording of adjusting
and closing entries.
3. Net loss. The expenses exceed the
revenues.
4. Net income. The revenues exceed the
expenses by $68,500.
5. a. Current assets are composed of cash
and other assets that may reasonably
be expected to be realized in cash or
sold or consumed in the near future
through the normal operations of the

business.
b. Property, plant, and equipment is
composed of assets used in the
business that are of a permanent or
relatively fixed nature.
6. Current liabilities are liabilities that will be
due within a short time (usually one year or
less) and that are to be paid out of current
assets. Liabilities that will not be due for a
comparatively long time (usually more than
one year) are called long-term liabilities.
7. Revenue, expense, and drawing accounts
are generally referred to as temporary
accounts.
8. Closing entries are necessary at the end of
an accounting period (1) to transfer the
balances in temporary accounts to
permanent accounts and (2) to prepare the
temporary
accounts
for
use
in
accumulating data for the following
accounting period.
9. Adjusting entries bring the accounts up to
date, while closing entries reduce the

10.

11.
12.

13.

14.

15.

133

revenue, expense, and drawing accounts to
zero balances for use in accumulating data
for the following accounting period.
(1) The first entry closes all income
statement
accounts
with
credit
balances by transferring the total to the
credit side of Income Summary.
(2) The second entry closes all income
statement accounts with debit balances
by transferring the total to the debit
side of Income Summary.
(3) The third entry closes Income
Summary by transferring its balance,
the net income or net loss for the year,
to the owner’s capital account.
(4) The fourth entry closes the drawing

account by transferring its balance to
the owner’s capital account.
The purpose of the post-closing trial
balance is to make sure that the ledger is in
balance at the beginning of the next period.
The natural business year is the fiscal year
that ends when business activities have
reached the lowest point in the annual
operating cycle.
January is more likely to have a lower level
of business activity than is December for a
department store. Therefore, the additional
work to adjust and close the accounts and
prepare the financial statements can more
easily be performed at the end of January
than at the end of December.
All the companies listed are general
merchandisers whose busiest time of the
year is during the holiday season, which
extends through most of December.
Traditionally, the lowest point of business
activity for general merchandisers will be
near the end of January and the beginning
of February. Thus, these companies have
chosen their natural business year for their
fiscal years.
Yes. If a company has positive working
capital, then its current assets must exceed
its current liabilities. Thus, the current ratio
will always be greater than one.

134


EXERCISES
Ex. 4–1
e, c, g, b, f, a, d

Ex. 4–2
a. Income statement: 3, 8, 9
b. Balance sheet: 1, 2, 4, 5, 6, 7, 10

Ex. 4–3
a.
b.
c.
d.

Asset: 1, 4, 5, 6, 10
Liability: 9, 12
Revenue: 2, 7
Expense: 3, 8, 11

Ex. 4–4
1.
2.
3.
4.
5.

6.
7.
8.
9.
10.

f
c
b
h
g
j
a
i
d
e

135


Ex. 4–5
ITHACA SERVICES CO.
Work Sheet
For the Year Ended January 31, 2006
Trial Balance
Account Title
1
2
3
4

5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Dr.

Cash
8
Accounts Receivable
50
Supplies
8
Prepaid Insurance
12
Land
50
Equipment

32
Accum. Depr.—Equip.
Accounts Payable
Wages Payable
Terry Dagley, Capital
Terry Dagley, Drawing
8
Fees Earned
Wages Expense
16
Rent Expense
8
Insurance Expense
0
Utilities Expense
6
Depreciation Expense
0
Supplies Expense
0
Miscellaneous Expense
2
Totals
200

Cr.

(a)

Adjustments

Adjusted
Trial Balance

Dr.

Cr.

Dr.

5
6

8
57
3
6
50
32

7
(b)
(c)

2
26
0
112

(d)

60

(a)

(e)

5
1

Cr.
1
2
3
4
5
6

7
26
1
112

10

67

12

8

(e)
(c)
(d)
(b)
200

136

7

1
6
5
5
24

24

17
8
6
6
5
5
2
213

7
8
9

11
13
14
15
16
17
18
19

213

20


Ex. 4–6
ITHACA SERVICES CO.
Work Sheet
For the Year Ended January 31, 2006
Adjusted
Trial Balance
Account Title
1
2
3
4
5
6
7
8
9

10
11
12
13
14
15
16
17
18
19
20
21

Dr.

Cash
8
Accounts Receivable
57
Supplies
3
Prepaid Insurance
6
Land
50
Equipment
32
Accum. Depr.—Equip.
Accounts Payable
Wages Payable

Terry Dagley, Capital
Terry Dagley, Drawing
8
Fees Earned
Wages Expense
17
Rent Expense
8
Insurance Expense
6
Utilities Expense
6
Depreciation Expense
5
Supplies Expense
5
Miscellaneous Expense
2
Totals
213
Net income (loss)

Cr.

Income
Statement
Dr.

Cr.

Balance
Sheet
Dr.

Cr.

8
57
3
6
50
32
7
26
1
112

1
2
3
4
5
6

7
26
1
112
8

67

213

22

137

9
10
11

67
17
8
6
6
5
5
2
49
18
67

7
8

12
13
14

15
16
17
18
19

67

164

67

164

146
1821
164

20
22


Ex. 4–7
ITHACA SERVICES CO.
Income Statement
For the Year Ended January 31, 2006
Fees earned........................................................................
Expenses:
Wages expense...........................................................
Rent expense..............................................................

Insurance expense.....................................................
Utilities expense.........................................................
Depreciation expense.................................................
Supplies expense.......................................................
Miscellaneous expense..............................................
Total expenses........................................................
Net income.........................................................................

$67
$17
8
6
6
5
5
2
49
$18

ITHACA SERVICES CO.
Statement of Owner’s Equity
For the Year Ended January 31, 2006
Terry Dagley, capital, February 1, 2005.............................
Net income for the year.....................................................
Less withdrawals...............................................................
Increase in owner’s equity................................................
Terry Dagley, capital, January 31, 2006............................

$112
$18

8
10
$122

ITHACA SERVICES CO.
Balance Sheet
January 31, 2006
Assets

Current assets:
Cash.............................
Accounts receivable....
Supplies.......................
Prepaid insurance.......
Total current assets. .
Property, plant, and
equipment:
Land..............................
Equipment.................... $32
Less accum. depr........
7
Total property, plant,
and equipment
Total assets......................

Liabilities

Current liabilities:
Accounts payable........ $26
Wages payable.............

1
Total liabilities..........
$ 27

$ 8
57
3
6
$ 74

Owner’s Equity

Terry Dagley, capital........

122

$50
25
75
$149

138

Total liabilities and
owner’s equity...........

$149


Ex. 4–8

2006
Jan. 31
31
31
31
31

Accounts Receivable..........................................
Fees Earned...................................................

7

Supplies Expense...............................................
Supplies..........................................................

5

Insurance Expense..............................................
Prepaid Insurance..........................................

6

Depreciation Expense.........................................
Accumulated Depreciation—Equipment......

5

Wages Expense...................................................
Wages Payable...............................................

1

7
5
6
5
1

Ex. 4–9
2006
Jan. 31
31

31
31

Fees Earned.........................................................
Income Summary...........................................

67

Income Summary................................................
Wages Expense..............................................
Rent Expense.................................................
Insurance Expense........................................
Utilities Expense............................................
Depreciation Expense....................................
Supplies Expense..........................................
Miscellaneous Expense.................................

49

Income Summary................................................
Terry Dagley, Capital......................................

18

Terry Dagley, Capital...........................................
Terry Dagley, Drawing....................................

8

139

67
17
8
6
6
5
5
2
18
8


Ex. 4–10
LARYNX MESSENGER SERVICE
Income Statement
For the Year Ended June 30, 2006

Fees earned........................................................................
Operating expenses:
Salaries expense.........................................................
Rent expense..............................................................
Utilities expense.........................................................
Depreciation expense.................................................
Supplies expense.......................................................
Insurance expense.....................................................
Miscellaneous expense..............................................
Total operating expenses.......................................
Net income.........................................................................

$273,700
$77,100
22,500
6,500
5,200
2,750
1,500
1,350
116,900
$156,800

Ex. 4–11
SIROCCO SERVICES CO.
Income Statement
For the Year Ended March 31, 2006
Service revenue.................................................................
Operating expenses:
Wages expense...........................................................

Rent expense..............................................................
Utilities expense.........................................................
Depreciation expense.................................................
Insurance expense.....................................................
Supplies expense.......................................................
Miscellaneous expense..............................................
Total operating expenses.......................................
Net loss..............................................................................

140

$103,850
$56,800
21,270
11,500
8,000
4,100
3,100
2,250
107,020
$ (3,170)


Ex. 4–12
a.
FEDEX CORPORATION
Income Statement
For the Year Ended May 31, 2002
(in millions)
Revenues...........................................................................

Operating expenses:
Salaries and employee benefits.................................
Rentals and landing fees............................................
Fuel..............................................................................
Maintenance and repairs............................................
Depreciation and amortization...................................
Purchased transportation..........................................
Other operating expenses..........................................
Total operating expenses.......................................
Income from operations....................................................
Interest expense................................................................
Other expenses..................................................................
Net income before income tax..........................................
Less provision for income taxes......................................
Net income.........................................................................

$ 15,327
$6,467
1,524
1,009
980
806
562
3,168
14,516
$
811
$

56

52
$
$

108
703
260
443

b. The income statements are very similar. The actual statement includes some
additional information (i.e., earnings per share).

Ex. 4–13
SYNTHESIS SYSTEMS CO.
Statement of Owner’s Equity
For the Year Ended October 31, 2006
Suzanne Jacob, capital, November 1, 2005......................
Net income for year...........................................................
Less withdrawals...............................................................
Increase in owner’s equity................................................
Suzanne Jacob, capital, October 31, 2006.......................

141

$173,750
$44,250
12,000
32,250
$206,000

Ex. 4–14
BOBCAT SPORTS
Statement of Owner’s Equity
For the Year Ended August 31, 2006
John Kramer, capital, September 1, 2005.........................
Net loss for year................................................................
Plus withdrawals................................................................
Decrease in owner’s equity...............................................
John Kramer, capital, August 31, 2006.............................

$210,300
$49,650
16,000
65,650
$144,650

Ex. 4–15
a. Current asset: 1, 3, 5, 6
b. Property, plant, and equipment: 2, 4

Ex. 4–16
Since current liabilities are usually due within one year, $165,000 ($13,750 × 12
months) would be reported as a current liability on the balance sheet. The
remainder of $335,000 ($500,000 – $165,000) would be reported as a long-term
liability on the balance sheet.

142

Ex. 4–17
TUDOR CO.
Balance Sheet
April 30, 2006
Assets

Liabilities

Current assets:
Current liabilities:
Cash.............................................
$ 31,500
Accounts payable.............
Accounts receivable...................
21,850
Salaries payable................
Supplies.......................................
1,800
Unearned fees...................
Prepaid insurance.......................
7,200
Total liabilities................
Prepaid rent.................................
4,800
Total current assets..................
$ 67,150
Owner’s Equity
Property, plant, and equipment:
Vernon Posey, capital..........
Equipment.................................... $80,600

Less accumulated depreciation
21,100
59,500 Total liabilities and
Total assets......................................
$126,650
owner’s equity..................

$9,500
1,750
1,200
$ 12,450
114,200
$126,650


Ex. 4–18
1. The date of the statement should be "May 31, 2006" and not "For the Year
Ended May 31, 2006."
2. Accounts payable should be a current liability.
3. Land should be classified as property, plant, and equipment.
4. "Accumulated depreciation" should be deducted from the related fixed asset.
5. An adding error was made in determining the amount of the total property,
plant, and equipment.
6. Accounts receivable should be a current asset.
7. Net loss should be reported on the income statement.
8. Wages payable should be a current liability.
A corrected balance sheet would be as follows:


Ex. 4–18

Concluded
WARBURG SERVICES CO.
Balance Sheet
May 31, 2006
Assets

Current assets:
Cash.............................................
Accounts receivable...................
Supplies.......................................
Prepaid insurance.......................
Total current assets..................
Property, plant, and equipment:
Land.............................................
Building........................................
Less accum. depreciation........
Equipment....................................
Less accum. depreciation........
Total property, plant, and
equipment.............................
Total assets......................................

Liabilities

Current liabilities:
Accounts payable..............
Wages payable...................
Total liabilities..................

$ 4,170
12,500
1,650
2,400

$7,250
1,500
$

8,750

$ 20,720
$75,000
$55,500
23,000

32,500

$28,280
16,000

12,280

Owner’s Equity

Erin Gentry, capital...............

119,780
$140,500

Total liabilities and
owner’s equity..................

131,750

$140,500


Ex. 4–19
Accounts Receivable...............................................
Fees Earned.........................................................

4,100

Supplies Expense.....................................................
Supplies...............................................................

1,300

Insurance Expense...................................................
Prepaid Insurance...............................................

2,000

Depreciation Expense..............................................
Accumulated Depreciation—Equipment...........

2,800

Wages Expense........................................................

Wages Payable....................................................

1,000

Unearned Rent..........................................................
Rent Revenue......................................................

2,500

4,100
1,300
2,000
2,800
1,000
2,500

Ex. 4–20
c.
g.
i.
l.

Depreciation Expense—Equipment
Fees Earned
Salaries Expense
Supplies Expense

Ex. 4–21
The income summary account is used to close the revenue and expense
accounts, and it aids in detecting and correcting errors. The $450,750 represents

expense account balances, and the $712,500 represents revenue account
balances that have been closed.

Ex. 4–22
a.

Income Summary...........................................................
Sue Alewine, Capital.................................................

167,550

Sue Alewine, Capital......................................................
Sue Alewine, Drawing..............................................

25,000

b. $284,900 ($142,350 + $167,550 – $25,000)

167,550
25,000


Ex. 4–23
Mar. 31
31

31
31

Fees Earned.........................................................

Income Summary...........................................

180,700

Income Summary................................................
Wages Expense..............................................
Rent Expense.................................................
Supplies Expense..........................................
Miscellaneous Expense.................................

285,200

Emil Carr, Capital.................................................
Income Summary...........................................

104,500

Emil Carr, Capital.................................................
Emil Carr, Drawing.........................................

50,000

180,700
180,000
75,000
24,000
6,200
104,500
50,000

Ex. 4–24
a.
b.
c.
e.
f.
i.
k.

Accounts Receivable
Accumulated Depreciation
Cash
Equipment
Estella Hall, Capital
Supplies
Wages Payable

Ex. 4–25
RHOMBIC REPAIRS CO.
Post-Closing Trial Balance
March 31, 2006
Cash....................................................................................
Accounts Receivable.........................................................
Supplies.............................................................................
Equipment..........................................................................
Accumulated Depreciation—Equipment..........................
Accounts Payable..............................................................
Salaries Payable.................................................................
Unearned Rent...................................................................
Angie Hammill, Capital......................................................

9,225
33,300
1,980
63,000

107,505

19,980
11,250
2,700
5,400
68,175
107,505


Ex. 4–26
a. 2003 working capital: $3,882 ($11,917 – $8,035)
2002 working capital: $3,860 ($10,361 – $6,501)
2003 current ratio: 1.48 ($11,917 ÷ $8,035)
2002 current ratio: 1.59 ($10,361 ÷ $6,501)
b. The working capital increased slightly during 2003, a favorable trend. The
current ratio decreased slightly during 2003, an unfavorable trend. Before
reaching a more definitive conclusion concerning Home Depot’s ability to
meet its current obligations, the working capital and current ratio should be
compared with past years, industry averages, and similar firms in the industry.
It appears, however, that Home Depot’s 2003 working capital and current ratio
are adequate.

Ex. 4–27

a.
Working capital
Current ratio

2002
($143,034)
0.81

2001
($159,453)
0.80

b. 7 Eleven has negative working capital as of December 31, 2002 and 2001. In
addition, the current ratio is below one at the end of both years. While the
working capital and current ratios have improved from 2001 to 2002, creditors
would likely be concerned about the ability of 7 Eleven to meet its short-term
credit obligations. This concern would warrant further investigation to
determine whether this is a temporary issue (for example, an end-of-the-period
phenomenon) and the company’s plans to address its working capital
shortcomings.


Appendix Ex. 4–28
a. (1) Sales Salaries Expense.............................................
Salaries Payable...................................................

6,480

(2) Accounts Receivable.................................................
Fees Earned..........................................................

10,250

b. (1) Salaries Payable.........................................................
Sales Salaries Expense........................................

6,480

(2) Fees Earned...............................................................
Accounts Receivable...........................................

10,250

6,480
10,250
6,480
10,250

Appendix Ex. 4–29
a. (1) Payment (last payday in year)
(2) Adjusting (accrual of wages at end of year)
(3) Closing
(4) Reversing
(5) Payment (first payday in following year)
b. (1) Wages Expense..........................................................
Cash......................................................................

45,000

(2) Wages Expense..........................................................

Wages Payable......................................................

18,000

(3) Income Summary.......................................................
Wages Expense....................................................

1,120,800

(4) Wages Payable...........................................................
Wages Expense....................................................

18,000

(5) Wages Expense..........................................................
Cash......................................................................

43,000

45,000
18,000
1,120,800
18,000
43,000


PROBLEMS
Prob. 4–1A
1.

DYNAMITE LAUNDRY
Work Sheet
For the Year Ended July 31, 2006

Account Title
1
2
3
4
5
6
7
8
9
10
11
12
13

Cash.................................
Laundry Supplies...........
Prepaid Insurance..........
Laundry Equipment.......
Accum. Depreciation.....
Accounts Payable..........
David Duffy, Capital.......
David Duffy, Drawing.....
Laundry Revenue...........
Wages Expense..............
Rent Expense.................

Utilities Expense............
Misc. Expense................

14
15
16
17
18

Wages Payable...............
Depreciation Expense. . .
Laundry Supp. Expense.
Insurance Expense........

19
20
21

Net income......................

Trial Balance
Dr.
Cr.
2,900
7,500
4,800
109,050
...............
...............
...............

2,000
...............
71,400
36,000
13,650
2,700
250,000
...............
...............
...............
...............

...............
...............
...............
...............
41,100
6,100
37,800
...............
165,000
...............
...............
...............
...............
250,000
...............
...............
...............
...............

Adjustments
Dr.
Cr.
...............
...............
...............
...............
...............
...............
...............
...............
...............
(a) 1,200
...............
...............
...............

(c) 5,750
(d) 2,400
...............
(b) 6,800
...............
...............
...............
...............
...............
...............
...............
...............

Adjusted
Trial Balance
Dr.
Cr.
2,900
1,750
2,400
109,050
...............
...............
...............
2,000
...............
72,600
36,000
13,650
2,700

...............
...............
...............
...............
47,900
6,100
37,800
...............
165,000
...............
...............

...............
...............

Income
Statement
Dr.
Cr.
...............
...............
...............
...............
...............
...............
...............
...............
...............
72,600
36,000
13,650
2,700

...............
...............
...............
...............
...............
...............
...............
...............
165,000

...............
...............
...............
...............

Balance
Sheet
Dr.
Cr.
2,900
1,750
2,400
109,050
...............
...............
...............
2,000
...............
...............
...............
...............
...............

.............
.............
.............
.............
47,900
6,100
37,800

.............
.............
.............
.............
.............
.............

1
2
3
4
5
6
7
8
9
10
11
12
13
14

...............
(b) 6,800
(c) 5,750
(d) 2,400
16,150

(a) 1,200 ...............
1,200 ............... ............... ...............

1,200
...............
6,800 ...............
6,800 ............... ............... .............
...............
5,750 ...............
5,750 ............... ............... .............
...............
2,400 ...............
2,400 ............... ............... .............
16,150 258,000 258,000 139,900 165,000 118,100 93,000
25,100 ............... ............... 25,100
165,000 165,000 118,100 118,100

15
16
17
18
19
20
21


Prob. 4–1A Continued
2.

DYNAMITE LAUNDRY
Income Statement
For the Year Ended July 31, 2006

Laundry revenue................................................................
Operating expenses:
Wages expense...........................................................
Rent expense..............................................................
Utilities expense.........................................................
Depreciation expense.................................................
Laundry supplies expense.........................................
Insurance expense.....................................................
Miscellaneous expense..............................................
Total operating expenses.......................................
Net income.........................................................................

$165,000
$72,600
36,000
13,650
6,800
5,750
2,400
2,700
139,900
$ 25,100

DYNAMITE LAUNDRY
Statement of Owner’s Equity
For the Year Ended July 31, 2006
David Duffy, capital, August 1, 2005.................................
Net income for the year.....................................................
Less withdrawals...............................................................
Increase in owner’s equity................................................

David Duffy, capital, July 31, 2006....................................

$37,800
$25,100
2,000
23,100
$ 60,900

DYNAMITE LAUNDRY
Balance Sheet
July 31, 2006
Assets

Current assets:
Cash......................... $ 2,900
Laundry supplies.....
1,750
Prepaid insurance. . .
2,400
Total current assets
$ 7,050
Property, plant, and
equipment:
Laundry equipment. $109,050
Less accum. depr..
47,900 61,150
Total assets................
$ 68,200

Liabilities

Current liabilities:
Accounts payable.... $6,100
Wages payable......... 1,200
Total liabilities.......
$ 7,300
Owner’s Equity

David Duffy, capital....
Total liabilities and
owner’s equity.........

60,900
$ 68,200


Prob. 4–1A Concluded
3.
Adjusting Entries
2006
July 31
31
31
31

Wages Expense...................................................
Wages Payable...............................................

1,200

Depreciation Expense.........................................
Accumulated Depreciation............................

6,800

Laundry Supplies Expense.................................
Laundry Supplies...........................................

5,750

Insurance Expense..............................................
Prepaid Insurance..........................................

2,400

1,200
6,800
5,750
2,400

4.
Closing Entries
2006
July 31
31

31
31

Laundry Revenue................................................

Income Summary...........................................

165,000

Income Summary................................................
Wages Expense..............................................
Rent Expense.................................................
Utilities Expense............................................
Miscellaneous Expense.................................
Depreciation Expense....................................
Laundry Supplies Expense...........................
Insurance Expense........................................

139,900

Income Summary................................................
David Duffy, Capital.......................................

25,100

David Duffy, Capital.............................................
David Duffy, Drawing.....................................

2,000

165,000
72,600
36,000
13,650
2,700

6,800
5,750
2,400
25,100
2,000


Prob. 4–2A
1.

Closing Entries

2006
Aug. 31

31

31
31

Service Fees Earned...........................................
Rent Revenue......................................................
Income Summary...........................................

175,000
1,500

Income Summary................................................
Salary Expense..............................................
Depreciation Expense—Equipment..............

Rent Expense.................................................
Supplies Expense..........................................
Utilities Expense............................................
Depreciation Expense—Buildings................
Taxes Expense...............................................
Insurance Expense........................................
Miscellaneous Expense.................................

116,000

Income Summary................................................
Kim Bosworth, Capital...................................

60,500

Kim Bosworth, Capital........................................
Kim Bosworth, Drawing.................................

10,000

176,500
73,000
9,500
8,500
7,650
5,300
5,200
4,150
1,000
1,700

60,500
10,000

2.
THE XAVIER COMPANY
Statement of Owner’s Equity
For the Year Ended August 31, 2006
Kim Bosworth, capital, September 1, 2005.......................
Net income for the year.....................................................
Less withdrawals...............................................................
Increase in owner’s equity................................................
Kim Bosworth, capital, August 31, 2006...........................

$113,500
$60,500
10,000
50,500
$164,000

3. $5,000 net loss. The $15,000 decrease is caused by the $10,000 withdrawals
and a $5,000 net loss.


Prob. 4–3A
1.

Account Title
1
2
3

4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Cash.................................
Accounts Receivable.....
Supplies..........................
Prepaid Insurance..........

Land.................................
Building...........................
Acc. Depr.—Building.....
Equipment.......................
Acc. Depr.—Equipment.
Accounts Payable..........
Unearned Rent...............
N. Morrow, Capital..........
N. Morrow, Drawing.......
Service Revenue............
Wages Expense..............
Rent Expense.................
Utilities Expense............
Misc. Expense................
Supplies Expense..........
Insurance Expense........
Depr. Exp.—Building.....
Depr. Exp.—Equipment.
Rent Revenue.................
Wages Payable...............
Net income......................

LITHIUM SERVICES CO.
Work Sheet
For the Month Ended March 31, 2006
Trial Balance
Dr.
Cr.
4,509
2,550

1,647
1,800
20,000
55,500
...............
30,000
...............
...............
...............
...............
2,000
...............
14,799
3,910
1,728
2,307
140,750
...............
...............
...............
...............
...............
...............

...............
...............
...............
...............
...............
...............

23,400
...............
10,200
5,141
2,200
57,825
...............
41,984
...............
...............
...............
...............
140,750
...............
...............
...............
...............
...............
...............

Adjustments
Dr.
Cr.

Adjusted
Trial Balance
Dr.
Cr.

...............

(a) 1,500
...............
...............
...............
...............
...............
...............
...............
...............
(f)
100
...............
...............
...............
(g) 501
...............
...............
...............

...............
...............
(b) 1,347
(c) 150
...............
...............
(d) 625
...............
(e) 200
...............
...............

...............
...............
(a) 1,500
...............
...............
...............
...............

4,509
4,050
300
1,650
20,000
55,500
...............
30,000
...............
...............
...............
...............
2,000
...............
15,300
3,910
1,728
2,307

(b) 1,347
(c) 150
(d) 625

(e) 200
...............
...............
4,423

...............
1,347
...............
150
...............
625
...............
200
(f)
100 ...............
(g) 501 ...............
4,423 143,576

...............
...............
...............
...............
...............
...............
24,025
...............
10,400
5,141
2,100
57,825

...............
43,484
...............
...............
...............
...............

Income
Statement
Dr.
Cr.
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
15,300
3,910
1,728
2,307

Balance
Sheet
Dr.
Cr.

...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
43,484
...............
...............
...............
...............

4,509
4,050
300
1,650
20,000
55,500

...............
30,000
...............
...............
...............
...............
2,000
...............
...............
...............
...............
...............

.............
.............
.............
.............
.............
.............
24,025
.............
10,400
5,141
2,100
57,825
.............
.............
.............
.............
.............

.............

...............
1,347 ...............
...............
150 ...............
...............
625 ...............
...............
200 ...............
100 ...............
100
501 ............... ...............
143,576
25,567
43,584
18,017 ...............
43,584
43,584

...............
...............
...............
...............
...............
...............
118,009
...............
118,009

.............
.............
.............
.............
.............
501
99,992
18,017
118,009

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

21
22
23
24
25
26
27
28


Prob. 4–3A Continued
2.
LITHIUM SERVICES CO.
Income Statement
For the Month Ended March 31, 2006
Revenues:
Service revenue..........................................................
Rent revenue...............................................................
Total revenues.........................................................
Operating expenses:
Wages expense...........................................................
Rent expense..............................................................
Utilities expense.........................................................
Supplies expense.......................................................
Depreciation expense—building...............................
Depreciation expense—equipment...........................
Insurance expense.....................................................
Miscellaneous expense..............................................
Total operating expenses.......................................
Net income.........................................................................

$43,484
100
$43,584
$15,300
3,910
1,728
1,347
625
200
150
2,307
25,567
$ 18,017

LITHIUM SERVICES CO.
Statement of Owner’s Equity
For the Month Ended March 31, 2006
Natasha Morrow, capital, March 1, 2006...........................
Additional investment during the month.........................
Total....................................................................................
Net income for the month.................................................
Less withdrawals...............................................................
Increase in owner’s equity................................................
Natasha Morrow, capital, March 31, 2006.........................

$52,825
5,000
$57,825
$18,017

2,000
16,017
$ 73,842


Prob. 4–3A Continued
LITHIUM SERVICES CO.
Balance Sheet
March 31, 2006
Assets

Liabilities

Current assets:
Cash.............................................
$ 4,509
Accounts receivable...................
4,050
Supplies.......................................
300
Prepaid insurance.......................
1,650
Total current assets..................
Property, plant, and equipment:
Land.............................................
$20,000
Building........................................ $55,500
Less accumulated depreciation. 24,025 31,475
Equipment....................................
Less accumulated depreciation

Total property, plant, and
equipment............................
Total assets......................................

$30,000
10,400

Current liabilities:
Accounts payable.............
Wages payable..................
Unearned rent...................
Total liabilities................

$5,141
501
2,100
$ 7,742

$ 10,509
Owner’s Equity

Natasha Morrow, capital......

73,842

71,075 Total liabilities and
$ 81,584
owner’s equity..................

$81,584

19,600


Prob. 4–3A Continued
3.

JOURNAL
Date

2006
Mar. 31
31
31
31
31
31
31
4.

Page 26
Post.
Ref.

Debit

Adjusting Entries
Accounts Receivable..................................
Service Revenue....................................

12
41

1,500

Supplies Expense........................................
Supplies..................................................

52
13

1,347

Insurance Expense......................................
Prepaid Insurance..................................

57
14

150

Depreciation Expense—Building...............
Accumulated Depr.—Building...............

54
17

625

Depreciation Expense—Equipment...........

Accumulated Depr.—Equipment...........

56
19

200

Unearned Rent.............................................
Rent Revenue.........................................

23
42

100

Wages Expense...........................................
Wages Payable.......................................

51
22

501

1,500
1,347
150
625
200
100
501

JOURNAL

2006
Mar. 31

31

31
31

Page 27
Post.
Ref.

Date

Credit

Debit

Closing Entries
Service Revenue..........................................
Rent Revenue..............................................
Income Summary...................................

41
42
33

43,484
100

Income Summary.........................................
Wages Expense......................................
Rent Expense.........................................
Utilities Expense....................................
Miscellaneous Expense.........................
Supplies Expense..................................
Insurance Expense................................
Depreciation Expense—Building..........
Depreciation Expense—Equipment......

33
51
53
55
59
52
57
54
56

25,567

Income Summary.........................................
Natasha Morrow, Capital........................

33
31

18,017

Natasha Marrow, Capital..............................
Natasha Morrow, Drawing......................

31
32

2,000

Credit

43,584
15,300
3,910
1,728
2,307
1,347
150
625
200
18,017
2,000