Solution manual accounting principles 8e by kieso ch04

CHAPTER 4
Completing the Accounting Cycle
ASSIGNMENT CLASSIFICATION TABLE
Exercises

A
Problems

B
Problems

1, 2, 3

1, 2, 3,
5, 6, 17

1A, 2A, 3A,
4A, 5A

1B, 2B, 3B,
4B, 5B

6, 7,
11, 12

4, 5, 6

4, 7, 8,
11, 19

1A, 2A, 3A,

4A, 5A

1B, 2B, 3B,
4B, 5B

*3. Describe the content and
purpose of a post-closing
trial balance.

8, 9

7

4, 7, 8

1A, 2A, 3A,
4A, 5A

1B, 2B, 3B,
4B, 5B

*4. State the required steps
in the accounting cycle.

10, 11, 12

8

10, 19

5A

5B

*5. Explain the approaches
to preparing correcting
entries.

13

9

12, 13

6A

*6. Identify the sections of a
classified balance sheet.

14, 15, 16,
17, 18

10, 11

3, 9, 14
15, 16, 17

1A, 2A, 3A,
4A, 5A

*7. Prepare reversing entries.

10, 19, 20

12

18, 19

Study Objectives

Questions

*1. Prepare a worksheet.

1, 2, 3,
4, 5

*2. Explain the process
of closing the books.

Brief
Exercises

1B, 2B, 3B,
4B, 5B

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix
*to the chapter.

4-1

ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number

Description

Difficulty
Level

Time Allotted
(min.)

Simple

40–50

1A

Prepare worksheet, financial statements, and adjusting
and closing entries.

2A

Complete worksheet; prepare financial statements,
closing entries, and post-closing trial balance.

Moderate

50–60

3A

Prepare financial statements, closing entries, and postclosing trial balance.

Moderate

40–50

4A

Complete worksheet; prepare classified balance sheet,
entries, and post-closing trial balance.

Moderate

50–60

5A

Complete all steps in accounting cycle.

Complex

70–90

6A

Analyze errors and prepare correcting entries and trial

balance.

Moderate

40–50

1B

Prepare worksheet, financial statements, and adjusting
and closing entries.

Simple

40–50

2B

Complete worksheet; prepare financial statements,
closing entries, and post-closing trial balance.

Moderate

50–60

3B

Prepare financial statements, closing entries, and postclosing trial balance.

Moderate

40–50

4B

Complete worksheet; prepare classified balance sheet,
entries, and post-closing trial balance.

Moderate

50–60

5B

Complete all steps in accounting cycle.

Complex

70–90

Comprehensive Problem: Chapters 2 to 4

4-2


4-3

Identify the sections of
a classified balance sheet.

Prepare reversing entries.

*6.

*7.

Broadening Your Perspective

Explain the approaches to
preparing correcting entries.

*5.

Describe the content and
purpose of a post-closing trial
balance.

*3.

State the required steps in
the accounting cycle.

Explain the process of closing
the books.

*2.

*4.

Prepare a worksheet.

*1.

Study Objective

Q4-14
Q4-15
Q4-16

Q4-11
Q4-12
BE4-8

Q4-6
Q4-11
Q4-12

BE4-1

Knowledge

Communication
Exploring the Web

Q4-10
Q4-19

E4-18
E4-19
Financial Reporting
Decision Making

Across the
Organization
Comparative Analysis

Q4-20
BE4-12

E4-17 P4-1A
P4-2A P4-4A
P4-3A P4-5A
P4-2B P4-1B
P4-3B

BE4-9
E4-12
E4-13
P4-6A

Q4-13

Q4-17
Q4-18
BE4-11
E4-15

E4-19
P4-5A
P4-5B

Q4-10

E4-10

P4-4B
P4-5B

P4-1B
P4-4B
P4-5B

P4-3A P4-1A
P4-2B P4-4A
P4-3B P4-5A

E4-4
E4-7
E4-8
P4-2A

Q4-8
Q4-9
BE4-7

BE4-10
E4-3
E4-9
E4-14
E4-16

P4-4B
P4-5B

E4-19
P4-1A
P4-4A
P4-5A
P4-1B

E4-11
P4-2A
P4-3A
P4-2B
P4-3B

BE4-4
BE4-5
BE4-6
E4-4
E4-7
E4-8

Q4-7

P4-1B
P4-4B
P4-5B

Analysis

E4-1
E4-2

E4-3
E4-17
P4-2A
P4-3A

P4-2B BE4-2
P4-3B E4-5
E4-6
P4-1A
P4-4A
P4-5A

Application

Q4-1
Q4-2
Q4-3
Q4-4
Q4-5
BE4-3

Comprehension

Synthesis

All About You
Ethics Case
Exploring the
Web

Evaluation

Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems

BLOOM’S TAXONOMY TABLE


ANSWERS TO QUESTIONS
1.

No. A worksheet is not a permanent accounting record. The use of a worksheet is an optional
step in the accounting cycle.

2.

The worksheet is merely a device used to make it easier to prepare adjusting entries and the
financial statements.

3.

The amount shown in the adjusted trial balance column for an account equals the account
balance in the ledger after adjusting entries have been journalized and posted.

4.

The net income of $12,000 will appear in the income statement debit column and the balance
sheet credit column. A net loss will appear in the income statement credit column and the
balance sheet debit column.

5.

Formal financial statements are needed because the columnar data are not properly arranged
and classified for statement purposes. For example, a drawing account is listed with assets.

6.

(1)
(2)
(3)
(4)

7.

Income Summary is a temporary account that is used in the closing process. The account is
debited for expenses and credited for revenues. The difference, either net income or loss, is then
closed to the owner’s capital account.

8.

The post-closing trial balance contains only balance sheet accounts. Its purpose is to prove the
equality of the permanent account balances that are carried forward into the next accounting
period.

9.

The accounts that will not appear in the post-closing trial balance are Depreciation Expense;
Jennifer Shaeffer, Drawing; and Service Revenue.

10.

A reversing entry is the exact opposite, both in amount and in account titles, of an adjusting entry
and is made at the beginning of the new accounting period. Reversing entries are an optional
step in the accounting cycle.

11.

The steps that involve journalizing are: (1) journalize the transactions, (2) journalize the adjusting
entries, and (3) journalize the closing entries.

12.

The three trial balances are the: (1) trial balance, (2) adjusted trial balance, and (3) post-closing
trial balance.

13.

Correcting entries differ from adjusting entries because they: (1) are not a required part of the
accounting cycle, (2) may be made at any time, and (3) may affect any combination of accounts.

(Dr) Individual revenue accounts and (Cr) Income Summary.
(Dr) Income Summary and (Cr) Individual expense accounts.
(Dr) Income Summary and (Cr) Owner’s Capital (for net income).
(Dr) Owner’s Capital and (Cr) Owner’s Drawing.

4-4


Questions Chapter 4 (Continued)

*14. The standard classifications in a balance sheet are:

Assets
Current Assets
Long-term Investments
Property, Plant, and Equipment
Intangible Assets

Liabilities and Owner’s Equity
Current Liabilities
Long-term Liabilities
Owner’s Equity

*15. A company’s operating cycle is the average time required to go from cash to cash in producing
revenues. The operating cycle of a company is the average time that it takes to purchase
inventory, sell it on account, and then collect cash from customers.
*16. Current assets are assets that a company expects to convert to cash or use up in one year. Some
companies use a period longer than one year to classify assets and liabilities as current because they
have an operating cycle longer than one year. Companies usually list current assets in the order
in which they expect to convert them into cash.
*17. Long-term investments are generally investments in stocks and bonds of other companies that
are normally held for many years. Property, plant, and equipment are assets with relatively long
useful lives that a company is currently using in operating the business.
*18. (a)
(b)

The owner’s equity section for a corporation is called stockholders’ equity.
The two accounts and the purpose of each are: (1) Capital stock is used to record investments of assets in the business by the owners (stockholders). (2) Retained earnings is used
to record net income retained in the business.

*
*19. After reversing entries have been made, the balances will be Interest Payable, zero balance;

Interest Expense, a credit balance.
*20. (a) Jan. 10

Salaries Expense ....................................................................................
Cash................................................................................................

8,000
8,000

Because of the January 1 reversing entry that credited Salaries Expense for $3,500, Salaries
Expense will have a debit balance of $4,500 which equals the expense for the current period.
(b)

Jan. 10

Salaries Payable .....................................................................................
Salaries Expense ....................................................................................
Cash................................................................................................

Note that Salaries Expense will again have a debit balance of $4,500.

4-5

3,500
4,500
8,000


SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 4-1

The steps in using a worksheet are performed in the following sequence:
(1) prepare a trial balance on the worksheet, (2) enter adjustment data,
(3) enter adjusted balances, (4) extend adjusted balances to appropriate
statement columns and (5) total the statement columns, compute net
income (loss), and complete the worksheet. Filling in the blanks, the
answers are 1, 3, 4, 5, 2.
The solution to BRIEF EXERCISE 4-2 is on page 4-7.
BRIEF EXERCISE 4-3

Account
Accumulated Depreciation
Depreciation Expense
N. Batan, Capital
N. Batan, Drawing
Service Revenue
Supplies
Accounts Payable

Income Statement
Dr.
Cr.

Balance Sheet
Dr.
Cr.
X

X
X
X

X
X
X

BRIEF EXERCISE 4-4
Dec. 31

31

31

31

Service Revenue ......................................................
Income Summary............................................

50,000

Income Summary.....................................................
Salaries Expense ............................................
Supplies Expense...........................................

31,000

Income Summary.....................................................
D. Swann, Capital............................................

19,000

D. Swann, Capital ....................................................

D. Swann, Drawing .........................................

2,000

4-6

50,000

27,000
4,000

19,000

2,000


Prepaid Insurance
Service Revenue
Salaries Expense
Accounts Receivable
Salaries Payable
Insurance Expense

Account Titles

4-7

25,000

3,000

Dr.
58,000

Cr.

Trial Balance

(a) 1,200

(c)
800
(b) 1,100

Dr.

(c)

800

(a) 1,200
(b) 1,100

Cr.

Adjustments

LEY COMPANY
Worksheet

1,200

25,800
1,100

1,800

Dr.

800

59,100

Cr.

Adjusted
Trial Balance

1,200

25,800

Dr.

59,100

Cr.

Income
Statement

1,100

1,800

Dr.

800

Cr.

Balance
Sheet

BRIEF EXERCISE 4-2


BRIEF EXERCISE 4-5
Salaries Expense
27,000 (2) 27,000

Income Summary
(2) 31,000 (1) 50,000
(3) 19,000
50,000
50,000

Service Revenue
(1) 50,000
50,000

Supplies Expense
4,000 (2) 4,000

D. Swann, Capital
(4)
2,000
30,000
(3) 19,000
Bal. 47,000

D. Swann, Drawing
2,000 (4) 2,000

BRIEF EXERCISE 4-6
July 31

31

Date
7/31
7/31

Date
7/31
7/31

Green Fee Revenue .................................................
Income Summary.............................................

13,600

Income Summary .....................................................
Salaries Expense .............................................
Maintenance Expense....................................

10,700

Explanation
Balance
Closing entry

Explanation

Green Fee Revenue
Ref.
Debit

13,600

8,200
2,500

Credit
13,600

Balance
13,600
0

Credit

Balance

8,200

8,200
0

13,600

Salaries Expense
Ref.
Debit

Balance
Closing entry

8,200

4-8


BRIEF EXERCISE 4-6 (Continued)

Date
7/31
7/31

Explanation

Maintenance Expense
Ref.
Debit

Balance
Closing entry

Credit

Balance

2,500

2,500
0

2,500

BRIEF EXERCISE 4-7
The accounts that will appear in the post-closing trial balance are:
Accumulated Depreciation
N. Batan, Capital
Supplies
Accounts Payable

BRIEF EXERCISE 4-8
The proper sequencing of the required steps in the accounting cycle is as
follows:
1.

2.
3.
4.
5.
6.
7.
8.
9.

Analyze business transactions.
Journalize the transactions.
Post to ledger accounts.
Prepare a trial balance.
Journalize and post adjusting entries.
Prepare an adjusted trial balance.
Prepare financial statements.
Journalize and post closing entries.
Prepare a post-closing trial balance.

Filling in the blanks, the answers are 4, 2, 8, 7, 5, 3, 9, 6, 1.

4-9


BRIEF EXERCISE 4-9
1.

2.

Service Revenue.............................................................................

Accounts Receivable ...........................................................

780

Accounts Payable ($1,750 – $1,570) ........................................
Store Supplies........................................................................

180

780

180

BRIEF EXERCISE 4-10
DIAZ COMPANY
Partial Balance Sheet
Current assets
Cash.........................................................................................................
Short-term investments ....................................................................
Accounts receivable...........................................................................
Supplies..................................................................................................
Prepaid insurance...............................................................................
Total current assets...................................................................

$15,400
6,700
12,500
5,200
3,600
$43,400

BRIEF EXERCISE 4-11
CL
CA
PPE
PPE
CA
IA

Accounts payable
Accounts receivable
Accumulated depreciation
Building
Cash
Copyrights

CL
LTI
PPE
CA
IA
CA

Income tax payable
Investment in long-term bonds
Land
Merchandise inventory
Patent
Supplies

*BRIEF EXERCISE 4-12
Nov. 1

Salaries Payable ...................................................................
Salaries Expense .........................................................

1,400
1,400

The balances after posting the reversing entry are Salaries Expense (Cr.)
$1,400 and Salaries Payable $0.
4-10


SOLUTIONS TO EXERCISES
EXERCISE 4-1
BRISCOE COMPANY
Worksheet
For the Month Ended June 30, 2008
Account Titles

Trial Balance
Dr.

Cash

Cr.

Adjustments
Dr.

Adj. Trial Balance

Cr.

Dr.

Cr.

Income Statement
Dr.

Cr.

Balance Sheet
Dr.

2,320

2,320

2,320

2,440

2,440

2,440

Cr.

Accounts
Receivable
Supplies

1,880

Accounts Payable

1,580

300

1,120

300
1,120

1,120

100

100

3,600

3,600

Unearned
240

Revenue

140

Lenny Briscoe,
Capital

3,600

Service Revenue
Salaries Expense

2,400
560

140

2,540

280

2,540

840

840

160

160

1,580

1,580

Miscellaneous
Expense
Totals
Supplies Expense

160
7,360

7,360
1,580

Salaries Payable
Totals

280
2,000

2,000

280
7,640

7,640

280
2,580

2,540
40

40

2,580

2,580

5,100

Net Loss
Totals

4-11

5,060

5,100
5,100


EXERCISE 4-2
GOODE COMPANY
(Partial) Worksheet
For the Month Ended April 30, 2008
Adjusted

Trial Balance
Account Titles
Cash
Accounts Receivable
Prepaid Rent
Equipment
Accum. Depreciation
Notes Payable
Accounts Payable
T. Goode, Capital
T. Goode, Drawing
Service Revenue
Salaries Expense
Rent Expense
Depreciation Expense
Interest Expense
Interest Payable
Totals
Net Income
Totals

Dr.
13,752
7,840
2,280
23,050

Cr.

Income

Statement
Dr.

Cr.

Balance Sheet
Dr.
13,752
7,840
2,280
23,050

4,921
5,700
5,672
30,960

4,921
5,700
5,672
30,960

3,650

3,650
15,590

10,840
760
671

57
62,900

Cr.

15,590
10,840
760
671
57

57
62,900

4-12

12,328
3,262
15,590

15,590

50,572

15,590

50,572

57
47,310

3,262
50,572


EXERCISE 4-3
GOODE COMPANY
Income Statement
For the Month Ended April 30, 2008
Revenues
Service revenue..................................................................
Expenses
Salaries expense................................................................
Rent expense ......................................................................
Depreciation expense.......................................................
Interest expense.................................................................
Total expenses...........................................................
Net income ....................................................................................

$15,590
$10,840
760
671
57
12,328
$ 3,262

GOODE COMPANY
Owner’s Equity Statement
For the Month Ended April 30, 2008
T. Goode, Capital, April 1 ....................................................................

Add: Net income ..................................................................................
Less: Drawings......................................................................................
T. Goode, Capital, April 30..................................................................

$30,960
3,262
34,222
3,650
$30,572

GOODE COMPANY
Balance Sheet
April 30, 2008
Assets
Current assets
Cash .......................................................................................
Accounts receivable .........................................................
Prepaid rent .........................................................................
Total current assets .................................................
Property, plant, and equipment
Equipment ............................................................................
Less: Accumulated depreciation.................................
Total assets.................................................................
4-13

$13,752
7,840
2,280
23,872
$23,050

4,921

18,129
$42,001


EXERCISE 4-3 (Continued)
GOODE COMPANY
Balance Sheet (Continued)
April 30, 2008
Liabilities and Owner’s Equity
Current liabilities
Notes payable.......................................................................................
Accounts payable ...............................................................................
Interest payable ...................................................................................
Total current liabilities..............................................................
Owner’s equity
T. Goode, Capital.................................................................................
Total liabilities and owner’s equity ......................................

$ 5,700
5,672
57
11,429
30,572
$42,001

EXERCISE 4-4
(a) Apr. 30

30

30

30

Service Revenue .............................................
Income Summary ...................................

15,590

Income Summary ............................................
Salaries Expense....................................
Rent Expense ..........................................
Depreciation Expense ..........................
Interest Expense.....................................

12,328

Income Summary ............................................
T. Goode, Capital....................................

3,262

T. Goode, Capital.............................................
T. Goode, Drawing .................................

3,650

15,590

10,840
760
671
57

3,262

3,650

(b)
(2)
(3)

Income Summary
12,328 (1)
15,590
3,262
15,590
15,590

4-14

(4)

T. Goode, Capital
3,650
30,960
(3)
3,262

Bal.
30,572


EXERCISE 4-4 (Continued)
(c)

GOODE COMPANY
Post-Closing Trial Balance
April 30, 2008
Cash ................................................................................
Accounts Receivable.................................................
Prepaid Rent.................................................................
Equipment .....................................................................
Accumulated Depreciation ......................................
Notes Payable ..............................................................
Accounts Payable.......................................................
Interest Payable...........................................................
T. Goode, Capital ........................................................

Debit
$13,752
7,840
2,280
23,050

$46,922

Credit

$ 4,921
5,700
5,672
57
30,572
$46,922

EXERCISE 4-5
(a) Accounts Receivable.................................................
Service Revenue .................................................

600

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

400

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

900

Salaries Expense .........................................................
Salaries Payable..................................................

500

4-15

600

400

900

500


EXERCISE 4-5 (Continued)
(b)

Income Statement
Dr.
Accounts Receivable
Prepaid Insurance
Accum. Depreciation
Salaries Payable
Service Revenue
Salaries Expense
Insurance Expense
Depreciation Expense

Cr.

Balance Sheet
Dr.
X
X

Cr.

X
X
X
X
X
X

EXERCISE 4-6
(a) Accounts Receivable—$25,000 ($34,000 – $9,000).
Supplies—$2,000 ($7,000 – $5,000).
Accumulated Depreciation—$22,000 ($12,000 + $10,000).
Salaries Payable—$0 No liability recorded until adjustments are made.
Insurance Expense—$6,000 ($26,000 – $20,000).
Salaries Expense—$44,000 ($49,000 – $5,000).
(b) Accounts Receivable .........................................................
Service Revenue.........................................................

9,000

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

6,000

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

5,000

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

10,000

Salaries Expense.................................................................
Salaries Payable .........................................................

5,000

4-16

9,000

6,000

5,000

10,000

5,000


EXERCISE 4-7
(a) Service Revenue .............................................................
Income Summary.....................................................

4,064

Income Summary............................................................
Salaries Expense .....................................................
Miscellaneous Expense.........................................
Supplies Expense....................................................

3,828

Income Summary............................................................
Emil Skoda, Capital.................................................

236

Emil Skoda, Capital........................................................
Emil Skoda, Drawing ..............................................

300

(b)

4,064

1,344
256
2,228

236

300

EMIL SKODA COMPANY

Post-Closing Trial Balance
For the Month Ended June 30, 2008
Account Titles
Cash ....................................................................................
Accounts Receivable.....................................................
Supplies .............................................................................
Accounts Payable...........................................................
Salaries Payable..............................................................
Unearned Revenue.........................................................
Emil Skoda, Capital........................................................

Debit
$3,712
3,904
480

$8,096

4-17

Credit

$1,792
448
160
5,696
$8,096


EXERCISE 4-8

(a)

General Journal

Date
Account Titles
Ref.
July 31 Commission Revenue .............................. 404
Rent Revenue .............................................. 429
Income Summary ............................ 350

Debit
65,000
6,500

31 Income Summary .......................................
Salaries Expense.............................
Utilities Expense..............................
Depreciation Expense....................

350
720
732
711

74,600

31 B. J. Apachi, Capital..................................
Income Summary ............................

301
350

3,100

31 B. J. Apachi, Capital..................................
B. J. Apachi, Drawing.....................

301
306

16,000

J15
Credit

71,500

55,700
14,900
4,000

3,100

16,000

(b)
B. J. Apachi, Capital
Date
Explanation

Ref.
Debit
July 31 Balance
31 Close net loss
J15
3,100
31 Close drawing
J15
16,000

Income Summary
Date
Explanation
Ref.
Debit
July 31 Close revenue
J15
31 Close expenses
J15
74,600
31 Close net loss
J15

4-18

Credit

Credit
71,500
3,100

No. 301
Balance
45,200
42,100
26,100

No. 350
Balance
71,500
(3,100)
0


EXERCISE 4-8 (Continued)
(c)

APACHI COMPANY
Post-Closing Trial Balance
July 31, 2008
Cash ................................................................................
Accounts Receivable.................................................
Equipment .....................................................................
Accumulated Depreciation ......................................
Accounts Payable.......................................................
Unearned Rent Revenue...........................................
B. J. Apachi, Capital...................................................

Debit
$14,840

8,780
15,900

$39,520

Credit

$ 7,400
4,220
1,800
26,100
$39,520

EXERCISE 4-9
(a)

APACHI COMPANY
Income Statement
For the Year Ended July 31, 2008
Revenues
Commission revenue........................................
Rent revenue .......................................................
Total revenues ...........................................
Expenses
Salaries expense................................................
Utilities expense.................................................
Depreciation expense.......................................
Total expenses...........................................
Net loss ..........................................................................

$65,000
6,500
71,500
$55,700
14,900
4,000
74,600
($ 3,100)

APACHI COMPANY
Owner’s Equity Statement
For the Year Ended July 31, 2008
B. J. Apachi, Capital, August 1, 2007 ...................
Less: Net loss .............................................................
Drawings...........................................................
B. J. Apachi, Capital, July 31, 2008.......................

4-19

$45,200
$ 3,100
16,000

19,100
$26,100


EXERCISE 4-9 (Continued)
(b)

APACHI COMPANY
Balance Sheet
July 31, 2008
Assets
Current assets
Cash...........................................................................
Accounts receivable.............................................
Total current assets.....................................
Property, plant, and equipment
Equipment ...............................................................
Less: Accumulated depreciation ....................
Total assets ....................................................

$14,840
8,780
23,620
$15,900
7,400

8,500
$32,120

Liabilities and Owner’s Equity
Current liabilities
Accounts payable .................................................
Unearned rent revenue........................................
Total current liabilities................................
Owner’s equity
B. J. Apachi, Capital .............................................
Total liabilities and owner’s equity.........

$ 4,220
1,800
6,020
26,100
$32,120

EXERCISE 4-10
1.

False “Analyze business transactions” is the first step in the accounting
cycle.

2.

False. Reversing entries are an optional step in the accounting cycle.

3.

True.

4.

True.

5.

True.

6.

False. Steps 1–3 may occur daily in the accounting cycle. Steps 4–7 are
performed on a periodic basis. Steps 8 and 9 are usually prepared only
at the end of a company’s annual accounting period.

7.

False. The step of “journalize the transactions” occurs before the step
of “post to the ledger accounts.”

8.

False. Closing entries are prepared after financial statements are prepared.
4-20


EXERCISE 4-11
(a) June 30

30

30

30

Service Revenue...........................................
Income Summary ................................

15,100

Income Summary .........................................
Salaries Expense.................................
Supplies Expense ...............................
Rent Expense .......................................

13,100

Income Summary .........................................
Nina Cole, Capital................................

2,000

Nina Cole, Capital ........................................
Nina Cole, Drawing .............................

2,500

15,100

8,800
1,300
3,000

2,000

2,500

(b)
Income Summary
June 30 13,100 June 30

June 30
2,000
15,100

15,100
15,100

EXERCISE 4-12
(a) 1.

2.

Cash .............................................................................
Equipment ........................................................

600

Salaries Expense .....................................................
Cash ...................................................................

600

Service Revenue ......................................................
Cash ...................................................................

100

Cash .............................................................................
Accounts Receivable....................................

1,000

4-21

600

600

100

1,000


EXERCISE 4-12 (Continued)
3.

(b) 1.

2.

3.

Accounts Payable....................................................
Equipment ........................................................
Equipment ..................................................................
Accounts Payable ..........................................

890

Salaries Expense......................................................

Equipment ........................................................

600

Service Revenue ......................................................
Cash .............................................................................
Accounts Receivable ....................................

100
900

Equipment ..................................................................
Accounts Payable ..........................................

90

890
980
980

600

1,000

90

EXERCISE 4-13
1.

2.

3.

Accounts Payable ($630 – $360) ..................................
Cash..............................................................................

270

Supplies................................................................................
Equipment ..................................................................
Accounts Payable ....................................................

560

M. Mason, Drawing ...........................................................
Salaries Expense......................................................

400

4-22

270

56
504

400


EXERCISE 4-14

(a)

KARR BOWLING ALLEY
Balance Sheet
December 31, 2008
Assets
Current assets
Cash .....................................................
Accounts receivable .......................
Prepaid insurance............................
Total current assets ...............
Property, plant, and equipment
Land......................................................
Building...............................................
Less: Acc. depr.—building ..........
Equipment ..........................................
Less: Acc. depr.—equipment .....
Total assets...............................

4-23

$ 18,040
14,520
4,680
37,240
$64,000
$128,800
42,600
62,400
18,720

86,200
43,680

193,880
$231,120


EXERCISE 4-14 (Continued)
KARR BOWLING ALLEY
Balance Sheet (Continued)
December 31, 2008
Liabilities and Owner’s Equity
Current liabilities
Current portion of note payable ...........................................
Accounts payable .....................................................................
Interest payable .........................................................................
Total current liabilities....................................................
Long-term liabilities
Note payable ...............................................................................
Total liabilities ...................................................................
Owner’s equity
S. Karr, Capital ($115,000 + $3,440*) ...................................
Total liabilities and owner’s equity.............................

$ 13,900
12,300
2,600
28,800
83,880

112,680
118,440
$231,120

*Net income = $14,180 – $780 – $7,360 – $2,600 = $3,440
(b) Current assets exceed current liabilities by $8,440 ($37,240 – $28,800).
In addition, approximately 50% of current assets are in the form of cash.
In sum, the company’s liquidity appears to be reasonably good.

EXERCISE 4-15
CL
CA
PPE
PPE
CA
OE
IA
CL

Accounts payable
Accounts receivable
Accumulated depreciation
Buildings
Cash
Roberts, Capital
Patents
Salaries payable

CA Inventories
LTI Investments

PPE Land
LTL Long-term dept
CA Supplies
PPE Office equipment
CA Prepaid expenses

4-24


EXERCISE 4-16
R. STEVENS COMPANY
Balance Sheet
December 31, 2008
(in thousands)
Assets
Current assets
Cash ...................................................................
Short-term investments ...............................
Accounts receivable .....................................
Inventories .......................................................
Prepaid expenses ..........................................
Total current assets .............................
Long-term investments.........................................
Property, plant, and equipment
Property, plant, and equipment ................
Less: Accumulated depreciation..............
Total assets ..............................................................

$ 2,668
3,690

1,696
1,256
880
$10,190
264
11,500
(5,655)

5,845
$16,299

Liabilities and Owner’s Equity
Current liabilities
Notes payable in 2009 ..................................
Accounts payable ..........................................
Total current liabilities ........................
Long-term liabilities
Long-term debt ...............................................
Notes payable (after 2009) ..........................
Total long-term liabilities .....................
Total liabilities..........................................................
Owner’s equity
R. Stevens, Capital ........................................
Total owner’s equity.............................
Total liabilities and owner’s equity...................

4-25

$

481
1,444
$ 1,925
943
368
1,311
3,236

13,063
13,063
$16,299