Adjusting the Accounts Part III

SOLUTIONS TO PROBLEMS PROBLEM 3.1 (a) Date 2020 May 31 Account Titles Ref. Debit Supplies Expense................................ Supplies ...................................... 631 126 900 31 Utilities Expense.................................. Accounts Payable ...................... 732 201 250 31 Insurance Expense.............................. Prepaid Insurance ..................... (€3,600 ÷ 24 months) 722 130 150 31 Unearned Service Revenue ................ Service Revenue ....................... (€2,000 – €400) 209 400 1,600 Salaries and Wages Expense ............. Salaries and Wages Payable .... [(3/5 X €920) X 2 employees] 726 212 1,104 Depreciation Expense ......................... Accumulated Depreciation— Equipment............................... 717 190 Accounts Receivable .......................... Service Revenue ........................ 112 400 31 31 31 J4 Credit 900 250 150 1,600 1,104 150 190 1,700 1,700 (b) Cash Date 2020 May 31 No. 101 Explanation Balance Ref.  Debit Credit Balance 4,500 PROBLEM 3.1 (Continued) Accounts Receivable Date Explanation 2020 May 31 Balance 31 Adjusting Supplies Date 2020 May 31 31 Explanation Balance Adjusting Ref. Debit  J4 1,700 Ref. Debit  J4 Credit 6,000 7,700 Credit 900 Prepaid Insurance Date 2020 May 31 31 Explanation Balance Adjusting No. 126 Balance 1,900 1,000 No. 130 Ref. Debit  J4 Credit 150 Equipment Date 2020 May 31 No. 112 Balance Balance 3,600 3,450 No. 149 Explanation Balance Accumulated Depreciation—Equipment Date Explanation 2020 May 31 Adjusting Ref. Debit Credit  Ref. J4 Balance 11,400 Debit Credit No. 150 Balance 190 190 PROBLEM 3.1 (Continued) Accounts Payable Date Explanation 2020 Balance May 31 31 Adjusting Unearned Service Revenue Date Explanation 2020 May 31 Balance 31 Adjusting Ref. Debit  J4 Credit Explanation Adjusting Share Capital—Ordinary Date Explanation 2020 May 31 Balance Service Revenue Date Explanation 2020 May 31 Balance 31 Adjusting 31 Adjusting Supplies Expense Date Explanation 2020 May 31 Adjusting 4,500 4,750 250 Ref. Debit  J4 1,600 Ref. Debit Credit No. 209 Balance 2,000 400 Salaries and Wages Payable Date 2020 May 31 No. 201 Balance No. 212 J4 Ref. Credit 1,104 Debit Credit  Ref. J4 1,104 No. 301 Balance 18,700 Debit  J4 J4 Ref. Balance Debit 900 Credit No. 400 Balance 1,600 1,700 9,500 11,100 12,800 Credit No. 631 Balance 900 PROBLEM 3.1 (Continued) Depreciation Expense Date 2020 May 31 Explanation Adjusting Insurance Expense Date Explanation 2020 May 31 Adjusting Salaries and Wages Expense Date Explanation 2020 May 31 Balance 31 Adjusting No. 717 Ref. J4 Ref. J4 Ref.  J4 Rent Expense Date Explanation 2020 May 31 Balance Ref. Utilities Expense Date Explanation 2020 May 31 Adjusting Ref. Debit Credit 190 Debit 190 Credit 150 Debit Credit 726 Balance 6,400 7,504 Credit  J4 No. 722 Balance 150 1,104 Debit Balance No. 729 Balance 900 Debit 250 Credit No. 732 Balance 250 PROBLEM 3.1 (Continued) (c) CUONO CONSULTING Adjusted Trial Balance May 31, 2020 Cash .................................................................... Accounts Receivable ......................................... Supplies .............................................................. Prepaid Insurance .............................................. Equipment........................................................... Accumulated Depreciation— Equipment....................................................... Accounts Payable .............................................. Unearned Service Revenue ............................... Salaries and Wages Payable ............................. Share Capital ...................................................... Service Revenue................................................. Salaries and Wages Expense ............................ Rent Expense ..................................................... Depreciation Expense ........................................ Insurance Expense............................................. Utilities Expense................................................. Supplies Expense............................................... Debit € 4,500 7,700 1,000 3,450 11,400 Credit € 7,504 900 190 150 250 900 €37,944 190 4,750 400 1,104 18,700 12,800 €37,944 PROBLEM 3.2 (a) Date May 31 31 31 31 31 31 Account Titles Insurance Expense.............................. Prepaid Insurance (€2,400 X 1/12)......................... Ref. 722 Debit 200 Supplies Expense................................ Supplies (€2,080 – €750) ............ 631 126 1,330 619 425 130 Depreciation Expense (€3,600 X 1/12) + ( €1,500 X 1/12) ..... Accumulated Depreciation— Buildings ................................. Accumulated Depreciation— Equipment ............................... J1 Credit 200 1,330 142 300 150 125 Interest Expense.................................. Interest Payable [(€40,000 X 6%) X 1/12] ............. 718 Unearned Rent Revenue ..................... Rent Revenue (2/3 X €3,300).......................... 208 Salaries and Wages Expense ............. Salaries and Wages Payable ..... 726 212 200 230 200 2,200 429 2,200 750 750 (b) Cash Date May 31 Explanation Balance Ref.  Debit Credit No. 101 Balance 3,400 PROBLEM 3.2 (Continued) Supplies Date May 31 31 Explanation Balance Adjusting Ref.  J1 Debit Credit Prepaid Insurance Date Explanation May 31 Balance 31 Adjusting Ref.  J1 Debit Explanation Balance Ref.  Debit Credit Buildings Date Explanation May 31 Balance Ref.  Debit Credit Accumulated Depreciation—Buildings Date Explanation May 31 Adjusting Ref. J1 Debit Credit 300 Ref.  Debit Credit Ref. J1 Debit Credit 125 1,330 Credit 200 Land Date May 31 No. 130 Balance 2,400 2,200 No. 140 Equipment Date May 31 No. 126 Balance 2,080 750 Balance 12,000 No. 141 Balance 60,000 No. 142 Balance 300 No. 149 Explanation Balance Accumulated Depreciation—Equipment Date Explanation May 31 Adjusting Balance 14,000 No. 150 Balance 125 PROBLEM 3.2 (Continued) Accounts Payable Date Explanation May 31 Balance Ref.  Debit Credit Unearned Rent Revenue Date Explanation May 31 Balance 31 Adjusting Ref.  J1 Debit Credit Salaries and Wages Payable Date Explanation May 31 Adjusting Ref. J1 Debit Credit 750 No. 212 Balance 750 Interest Payable Date Explanation May 31 Adjusting Ref. J1 Debit Credit 200 No. 230 Balance 200 Explanation Balance Ref.  Debit Credit Share Capital Date Explanation May 31 Balance Ref.  Debit Credit No. 311 Balance 41,380 Dividends Date Explanation May 31 Balance Ref.  Debit Credit No. 332 Balance 1,000 2,200 Mortgage Payable Date May 31 No. 201 Balance 4,700 No. 208 Balance 3,300 1,100 No. 275 Balance 40,000 PROBLEM 3.2 (Continued) Rent Revenue Date Explanation May 31 Balance 31 Adjusting Ref.  J1 Debit Credit 2,200 No. 429 Balance 10,300 12,500 Advertising Expense Date Explanation May 31 Balance Ref.  Debit Credit No. 610 Balance 600 Depreciation Expense Date Explanation May 31 Adjusting Ref. J1 Debit 425 Credit No. 619 Balance 425 Ref. J1 Debit 1,330 Credit Interest Expense Date Explanation May 31 Adjusting Ref. J1 Debit 200 Credit No. 718 Balance 200 Insurance Expense Date Explanation May 31 Adjusting Ref. J1 Debit 200 Credit No. 722 Balance 200 Ref.  J1 Debit Credit Supplies Expense Date May 31 Explanation Adjusting No. 631 Salaries and Wages Expense Date May 31 31 Explanation Balance Adjusting Balance 1,330 No. 726 750 Balance 3,300 4,050 PROBLEM 3.2 (Continued) Utilities Expense Date Explanation May 31 Balance (c) Ref.  Debit Credit No. 732 Balance 900 LAZY RIVER RESORT Adjusted Trial Balance May 31, 2020 Cash ................................................................. Supplies ........................................................... Prepaid Insurance ........................................... Land.................................................................. Buildings .......................................................... Accumulated Depreciation—Buildings .......... Equipment ........................................................ Accumulated Depreciation—Equipment........ Accounts Payable............................................ Unearned Rent Revenue ................................. Salaries and Wages Payable........................... Interest Payable ............................................... Mortgage Payable ............................................ Share Capital—Ordinary ................................. Dividends ......................................................... Rent Revenue .................................................. Advertising Expense ....................................... Depreciation Expense ..................................... Supplies Expense ............................................ Interest Expense .............................................. Insurance Expense .......................................... Salaries and Wages Expense ......................... Utilities Expense .............................................. € Debit 3,400 750 2,200 12,000 60,000 14,000 Credit € 300 125 4,700 1,100 750 200 40,000 41,380 1,000 600 425 1,330 200 200 4,050 900 €101,055 12,500 €101,055 PROBLEM 3.2 (Continued) (d) LAZY RIVER RESORT Income Statement For the Month Ended May 31, 2020 Revenues Rent revenue ................................................... Expenses Salaries and wages expense .......................... Supplies expense ............................................ Utilities expense .............................................. Advertising expense ....................................... Interest expense .............................................. Depreciation expense ..................................... Insurance expense .......................................... Total expenses......................................... Net income .............................................................. €12,500 €4,050 1,330 900 600 200 425 200 7,705 € 4,795 LAZY RIVER RESORT Retained Earnings Statement For the Month Ended May 31, 2020 Retained earnings, May 1 ........................................................ Add: Net income .................................................................... Dividends ................................................................................. Retained earnings, May 31 ...................................................... € 0 4,795 1,000 €3,795 4,795 PROBLEM 3.2 (Continued) LAZY RIVER RESORT Statement of Financial Position May 31, 2020 Assets Land .................................................................... Buildings ............................................................ Less: Accumulated depreciation— buildings ................................................. Equipment .......................................................... Less: Accumulated depreciation— equipment ................................................ Prepaid insurance .............................................. Supplies.............................................................. Cash .................................................................... Total assets ......................................... €12,000 €60,000 300 14,000 59,700 125 13,875 2,200 750 3,400 €91,925 Equity and Liabilities Equity Share capital ............................................... €41,380 Retained earnings ...................................... 3,795 Liabilities Accounts payable....................................... 4,700 Unearned rent revenue .............................. 1,100 Salaries and wages payable ...................... 750 Interest payable .......................................... 200 Mortgage payable....................................... 40,000 Total liabilities..................................... Total equity and liabilities .................... €45,175 46,750 €91,925 PROBLEM 3.3 (a) Sept. 30 30 1,100 1,100 Rent Expense .......................................... Prepaid Rent ...................................... 1,700 Supplies Expense ................................... Supplies ............................................. 850 Depreciation Expense............................. Accum. Depreciation—Equipment ..... 700 30 Interest Expense ..................................... Interest Payable ................................. 100 30 Unearned Rent Revenue......................... Rent Revenue .................................... 1,450 30 30 30 (b) Accounts Receivable .............................. Service Revenue................................ 1,700 850 700 Salaries and Wages Expense ................. Salaries and Wages Payable ............ 100 1,450 725 725 ALENA CO. Income Statement For the Quarter Ended September 30, 2020 Revenues Service revenue.................................................. $17,100 Rent revenue ...................................................... 2,860 Total revenues ............................................ Expenses Salaries and wages expense ............................. 8,725 Rent expense...................................................... 3,600 Utilities expense ................................................. 1,510 Supplies expense ............................................... 850 Depreciation expense ........................................ 700 Interest expense ................................................. 100 Total expenses............................................ Net income ................................................................. $19,960 15,485 $ 4,475 PROBLEM 3.3 (Continued) ALENA CO. Retained Earnings Statement For the Quarter Ended September 30, 2020 Retained earnings, July 1, 2020 ........................... Add: Net income ................................................. $ 0 4,475 Less: Dividends ................................................... Retained earnings, September 30, 2020.............. 1,600 $2,875 4,475 ALENA CO. Statement of Financial Position September 30, 2020 Assets Equipment ............................................................. Less: Accum. depreciation—equipment ............ Prepaid rent........................................................... Supplies................................................................. Accounts receivable ............................................. Cash ....................................................................... Total assets ................................................... Equity and Liabilities Equity Share capital—ordinary ................................ Retained earnings ......................................... Liabilities Notes payable ................................................ Accounts payable.......................................... Salaries and wages payable ......................... Unearned rent revenue ................................. Interest payable ............................................. Total liabilities........................................ Total equity and liabilities ..................... $18,000 700 $17,300 500 650 11,500 8,700 $38,650 $22,000 2,875 $24,875 $10,000 2,500 725 450 100 13,775 $38,650 (c) Interest of 12% per year equals a monthly rate of 1%; monthly interest is $100 ($10,000 X 1%). Since total interest expense is $100, the note has been outstanding one month. PROBLEM 3.4 1. 2. 3. 4. Dec. 31 Dec. 31 Dec. 31 Dec. 31 Insurance Expense ....................................... Prepaid Insurance ................................. (€7,920 ÷ 3) = €2,640 [(€4,400 ÷ 2) = 2,200 €4,840 4,840 4,840 Unearned Rent Revenue .............................. 75,500 Rent Revenue ........................................ [Nov. 5 X €5,000 X 2 = €50,000 [Dec. 3 X €8,500 X 1 = 25,500 €75,500 Interest Expense........................................... 1,200 Interest Payable (€120,000 X 6% X 2/12) ...................... Salaries and Wages Expense ...................... Salaries and Wages Payable ................ 5 X €700 X 2/5 = €1,400 [3 X €500 X 2/5 = 600 €2,000 2,000 75,500 1,200 2,000 PROBLEM 3.5 (a), (c) & (e) Cash Date Nov. 1 8 10 12 20 22 25 29 Explanation Balance Ref.  J1 J1 J1 J1 J1 J1 J1 Debit Accounts Receivable Date Explanation Nov. 1 Balance 10 27 Ref.  J1 J1 Debit Supplies Date Nov. 1 17 30 Ref.  J1 J1 Debit Ref.  J1 Debit Explanation Balance Adjusting Equipment Date Explanation Nov. 1 Balance 15 3,620 3,100 Credit 1,700 2,700 400 1,700 600 Credit 3,620 2,200 Credit 700 1,100 2,000 Credit No. 101 Balance 2,400 700 4,320 7,420 4,720 4,320 2,620 3,220 No. 112 Balance 4,250 630 2,830 No. 126 Balance 1,800 2,500 1,400 No. 153 Balance 12,000 14,000 PROBLEM 3.5 (Continued) Accumulated Depreciation—Equipment Date Explanation Ref. Nov. 1 Balance  30 Adjusting J1 No. 154 Balance 2,000 200 2,200 Debit Credit Credit Accounts Payable Date Explanation Nov. 1 Balance 15 17 20 Ref.  J1 J1 J1 Debit Unearned Service Revenue Date Explanation Nov. 1 Balance 29 30 Adjusting Ref.  J1 J1 Debit Salaries and Wages Payable Date Explanation Nov. 1 Balance 8 30 Adjusting Ref.  J1 J1 Debit Share Capital—Ordinary Date Explanation Nov. 1 Balance Ref.  Debit 2,700 1,220 2,000 700 Credit 600 Credit 700 350 Credit No. 201 Balance 2,600 4,600 5,300 2,600 No. 209 Balance 1,200 1,800 580 No. 212 Balance 700 0 350 No. 311 Balance 11,000