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									Homework Solutions Chapter 3

E3–1: TERM
F E G I D C M K J L (1) Expenses (2) Gains (3) Revenue principle (4) Cash basis accounting (5) Unearned revenue (6) Operating cycle (7) Accrual basis accounting (8) Prepaid expenses (9) Revenues  Expenses = Net Income (10) Ending Retained Earnings = Beginning Retained Earnings + Net Income  Dividends declared

E3–5: Balance Sheet Income Statement Stockholders’ Net Liabilities Equity Revenues Expenses Income NE + + NE + NE – NE NE NE NE NE + NE + NE NE + – + NE – + – NE – – – NE NE NE + NE + NE NE + NE NE NE NE NE NE NE NE NE + NE NE + NE NE NE +* + + NE NE NE + – + NE – + NE NE – – –

Assets a. b. c. d. e. f. g. h. i. j. k. l. m. n. + + + + NE + – – + – +/– – – –

Transaction (k) results in an increase in an asset (cash) and a decrease in an asset (accounts receivable). Therefore, there is no net effect on assets. * A loss affects net income negatively, as do expenses.

E3–7:
a. Cash (+A) ............................................................................................... Short-term notes payable (+L) ........................................................... 185,000 185,000

Debits equal credits. Assets and liabilities increase by the same amount.
b. Cash (+A) ............................................................................................... Accounts receivable (+A) ....................................................................... Service revenue (+R, +SE) ................................................................. 8,035 21,300 29,335

Debits equal credits. Revenue increases retained earnings (part of stockholders' equity). Stockholders' equity and assets increase by the same amount.
c. Plant and equipment (+A) ....................................................................... Cash (A) ............................................................................................ 530,000 530,000

Debits equal credits. Assets increase and decrease by the same amount.
d. Inventory (+A) ......................................................................................... Accounts payable (+L) ........................................................................ 23,836 23,836

Debits equal credits. Assets and liabilities increase by the same amount.
e. Payroll expense (+E, SE) ..................................................................... Cash (A) ............................................................................................ 3,102 3,102

Debits equal credits. Expenses decrease retained earnings (part of stockholders' equity). Stockholders' equity and assets decrease by the same amount.
f. Cash (+A) ............................................................................................... Accounts receivable (A) ................................................................... 21,120 21,120

Debits equal credits. Assets increase and decrease by the same amount.
g. Fuel expense (+E, SE) ......................................................................... Cash (A) ............................................................................................ 730,000 730,000

Debits equal credits. Expenses decrease retained earnings (part of stockholders' equity). Stockholders' equity and assets decrease by the same amount.
h. Retained earnings (SE) ........................................................................ Cash (A) ............................................................................................ 310,000 310,000

Debits equal credits. Assets and shareholders’ equity decrease by the same amount.
i. Accounts payable (L) ............................................................................ Cash (A) ............................................................................................ 4,035 4,035

Debits equal credits. Assets and liabilities decrease by the same amount.
j. Utilities expense (+E, SE) ..................................................................... Cash (A) ............................................................................................ Accounts payable (+L) ........................................................................ 61,000 53,000 8,000

Debits equal credits. Expenses decrease retained earnings (part of stockholders' equity). Together, stockholders' equity and liabilities decrease by the same amount as assets.

E3–8:
a. Cash (+A) ..................................................................................... 2,500,000 Short-term note payable (+L) .......................................... Debits equal credits. Assets and liabilities increase by the same amount. Equipment (+A) ............................................................................. 90,000 Cash (A)......................................................................... Debits equal credits. Assets increase and decrease by the same amount. Merchandise inventory (+A) ......................................................... 40,000 Accounts payable (+L) ..................................................... Debits equal credits. Assets and liabilities increase by the same amount. 2,500,000

b.

90,000

c.

40,000

d.

Repair and maintenance expense (+E, SE) ............................... 62,000 Cash (A)......................................................................... 62,000 Debits equal credits. Expenses decrease retained earnings (part of stockholders' equity). Stockholders' equity and assets decrease by the same amount. Cash (+A) ..................................................................................... 372,000 Unearned pass revenue (+L) ........................................... 372,000 Debits equal credits. Since the season passes are sold before Vail Resorts provides service, revenue is deferred until it is earned. Assets and liabilities increase by the same amount. Cash (+A) ..................................................................................... 270,000 Lift revenue (+R, +SE) ..................................................... 270,000 Debits equal credits. Revenue increases retained earnings (a part of stockholders' equity). Stockholders' equity and assets increase by the same amount. Two transactions occur: (1) Accounts receivable (+A) ........................................................ 750 Ski shop sales revenue (+R, +SE) .................................. Debits equal credits. Revenue increases retained earnings (a part of stockholders' equity). Stockholders' equity and assets increase by the same amount. (2) Cost of goods sold (+E, SE) .................................................. 450 Merchandise inventory (A)............................................. Debits equal credits. Expenses decrease retained earnings (a part of stockholders' equity). Stockholders' equity and assets decrease by the same amount.

e.

f.

g.

750

450

h.

Cash (+A) ..................................................................................... 3,200 Unearned rent revenue (+L) ............................................ 3,200 Debits equal credits. Since the rent is received before the townhouse is used, revenue is deferred until it is earned. Assets and liabilities increase by the same amount.

i.

Accounts payable (L) .................................................................. 20,000 Cash (A)......................................................................... Debits equal credits. Assets and liabilities decrease by the same amount. Cash (+A) ..................................................................................... 200 Accounts receivable (A)................................................. Debits equal credits. Assets increase and decrease by the same amount.

20,000

j.

200

k.

Wages expense (+E, SE) ........................................................... 258,000 Cash (A)......................................................................... 258,000 Debits equal credits. Expenses decrease retained earnings (a part of stockholders' equity). Stockholders' equity and assets decrease by the same amount.

Req. 2 Accounts Receivable (j) Beg. bal. 1,200 (g) 750 End. bal. 1,750 200

E3–13:
Req. 1 and 2 Cash Beg. 0 20,000 (b) (a) 40,000 8,830 (d) (c) 75,000 63 (h) (e) 10,900 5,080 (i) (f) 1,700 600 (j) 55,000 (k) 38,027 Equipment Beg. 0 (a) 18,300 (k) 35,000 53,300 Note Payable 0 Beg. 75,000 (c) 75,000 Retained Earnings 0 600 600 Accounts Receivable Beg. 0 (a) 2,000 (f) 1,500 Supplies Beg. 0 (a) 1,200

3,500 Building Beg. 0 (b)160,000 (k) 20,000 180,000 Mortgage Payable 0 Beg. 140,000(b) 140,000

1,200 Accounts Payable 0 Beg. 320 (g) 320 Contributed Capital 0 Beg. 61,500 (a) 61,500 Catering Sales Revenue

Beg.

(j)

Food Sales Revenue 0 Beg. 10,900 (e) 10,900

0 Beg. 3,200 (f) 3,200

Cost of Food and Paper Products Beg. 0 (d) 8,830 8,830 Fuel Expense 0 63 63

Utilities Expense Beg. 0 (g) 320 320

Wages Expense Beg. 0 (i) 5,080 5,080

Beg. (h)


								
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