CH 3 Some Solutions

CHAPTER 3
Adjusting Accounts for

Financial Statements
MINI EXERCISES
M3-21. (45 mintes)
a.
Transaction
June 1. Invested $12,000
cash.
June 2. Paid $950 cash for
June rent.
June 3. Purchased $6,400
of office equipment on
account.
June 6. Purchased $3,800
of supplies; $1,800
cash, $2,000 on
account.
Cash
Asset
Noncash
Assets
Balance Sheet
Liabil=
+
ities
+12,000
Cash
-950
Cash
-1,800
Cash
June 11. $4,700 billed for

services.
Revenues -
Expenses
-950
Retained
Earnings
+950
Rent
Expense
+3,800
Supplies
+2,000
= Accounts
Payable
+4,700
Service
Fees
Earned
+4,700
Accounts
Receivable
-3,250
Accounts
Receivable
June 19. Paid $3,000 on

office equipment
account.
-3,000
Cash
-3,000
= Accounts
Payable
June 25. Paid cash

dividend of $900.
-900
Cash
June 30. Paid $350 utilities.
-350
Cash
-2,500
+4,700
Retained
Earnings
-900
Retained
Earnings
-350
Retained
Earnings
-2,500
Net
Income
+6,400
= Accounts
Payable
+3,250
Cash
Solutions Manual, Chapter 3
Earned
Capital
+6,400
Office
Equipment
June 17. Collected $3,250

on accounts.
June 30. Paid $2,500

salaries.
Income Statement
Contrib. +
Capital
+12,000
Common
Stock
+350
Utilities
Expense
+2,500
-950
+4,700
-350
-2,500
Cambridge Business Publishers, 2015

3-1
Cash
TOTALS
5,750
11,650
5,400
12,000
Retained
Earnings
0
4,700
Salaries
Expense
3,800
continued next page

3-3
900
M3-21. continued
b. June 1
Cash (+A)
Common stock (+SE)
Owner invested cash for stock.
Rent expense (+E, -SE)
Cash (-A)
Paid June rent.
12,000
12,000
950
950
Office equipment (+A)

Accounts payable (+L)
Purchased office equipment on account.
6,400
Supplies (+A)
Cash (-A)
Purchased $3,800 of supplies; paid $1,800 down
with balance due in 30 days.
3,800
6,400
1,800
2,000
11 Accounts receivable (+A)

Service fees earned (+R,+SE)
Billed clients for services.
4,700
17 Cash (+A)
Accounts receivable (-A)
Collections from clients on account.
3,250
19 Accounts payable (-L)

Cash (-A)
Payment on account.
3,000
4,700
3,250
3,000
25 Retained earnings (-SE)

Cash (-A)
Issued dividends.
900
30 Utilities expense (+E, -SE)

Cash (-A)
Paid utilities bill for June.
350
30 Salaries expense (+E, -SE)

Cash (-A)
Paid salaries for June.
900
350
2,500
2,500
continued next page

3-5
M3-21. concluded
c.
+
June 1
17
+
June 11
+
June 2
6
19
25
30
30
Accounts Receivable (A) 4,700 3,250

June 17
Cash (A)
12,000
950
3,250
1,800
3,000
900
350
2,500
Common Stock (SE)

12,000
Service Fees Earned (R)

4,700
+
June 1
+
June 11
June 6
Office Equipment (A)

6,400
June 19
Accounts Payable (L)

3,000 6,400
2,000
June 3
June 3
June 6
June 25
Retained Earnings (SE)

900
+
June 2
Rent Expense (E)

950
+
June 30
Utilities Expense (E)

350
+
June 30
Supplies (A)
3,800
Salaries Expense (E)

2,500

3-7
M3-22. (45 minutes)

a.
Transaction
Cash
Asset
April 1. Invested $9,000 in

cash.
+9,000
Cash
April 2. Paid $2,850 cash

for lease.
-2,850
Cash
Noncash
Assets
Balance Sheet
Liabil=
+
ities
=
+2,850
Prepaid
Van Lease
April 3. Borrowed $10,000.
+10,000
Cash
April 3. Purchased $5,500

equipment for $2,500
cash with rest on
account.
-2,500
Cash
+5,500
Equipment

for supplies.
-4,300
Cash
+4,300
Supplies
April 7. Paid $350 cash for

ad.
-350
Cash
+3,500
Accounts
Receivable
+10,000
Note
Payable
+3,000
= Accounts
Payable
-350
Retained
Earnings
+3,500
Retained
Earnings
+3,500
Cleaning
Fees
Earned
+350
Ad.
Expense
-3,000
= Accounts
Payable
April 28. Collected $2,300

on account.
+2,300
Cash

dividend.
-1,000
Cash

for wages.
-1,750
Cash
April 30. Paid $995 cash for

gas.
-995
Cash
TOTALS
4,555
13,850
Expenses
-3,000
Cash
Revenues -

on account.
-2,300
Accounts
Receivable
Earned
Capital
April 21. Billed $3,500 for

services
Income Statement
Contrib. +
Capital
+9,000
Common
Stock
10,000
9,000
-1,000
Retained
Earnings
-1,750
Retained
Earnings
-995
Retained
Earnings
-595
3,500
+1,750
Wages
Expense
+995
Van Fuel
Expense
3,095
=
=
continued next page

3-9
Net
Income
-350
+3,500
-1,750
-995
405
M3-22. continued
b. April
Cash (+A)
Common stock (+SE)
Owner invested cash for stock.
9,000
Prepaid van lease (+A)

Cash (-A)
Paid six months' lease on van.
2,850
9,000
2,850
Cash (+A)
Notes payable (+L)
Borrowed money from bank for one year at
10% interest.
10,000
10,000
Equipment (+A)
Cash (-A)
Purchased $5,500 of equipment; paid $2,500 down
with balance due in 30 days.
5,500
Supplies (+A)
Cash (-A)
Purchased supplies for cash.
4,300
Advertising expense (+E, -SE)

Cash (-A)
Paid for April advertising.
2,500
3,000
4,300
350
350
21 Accounts receivable (+A)

Cleaning fees earned (+R, +SE)
Billed customers for services.
3,500
23 Accounts payable (-L)

Cash (-A)
Payment on account.
3,000
28 Cash (+A)
Accounts receivable (-A)
Collections from customers on account.
2,300

Cash (-A)
Issued cash dividends.
1,000
30 Wages expense (+E, -SE)

Cash (-A)
Paid wages for April.
1,750
30 Van fuel expense (+E, -SE)

Cash (-A)
Paid for gasoline used in April.
3,500
3,000
2,300
1,000
1,750
995
995
continued next page

3-11
M3-22 concluded
c.
+
April 1
3
28
+
April 4
Cash (A)
9,000
2,850
10,000
2,500
2,300
4,300
350
3,000
1,000
1,750
995
Supplies(A)
4,300
Common Stock (SE)

9,000
+
April 3
+
April 1
Van Fuel Expense (E)

995
Prepaid Van Lease (A)

2,850
April 2
+
April 3
-
+
Advertising Expense (E)
April 7
350
+
April 30
Accounts Receivable (A) 3,500

2,300 April 28
Accounts Payable (L)

April 23
3,000
3,000
-
April 2
3
4
7
23
29
30
30
+
April 21
+
April 3

1,000
Cleaning Fees Earned (R) +

3,500 April 21
+
April 30
Notes Payable (L)

10,000
April 29
Equipment (A)
5,500
Wages Expense (E)

1,750

3-13
M3-23. (20 minutes)

a.
Cash
Asset
Transaction
1. Received $20,100 in
advance for contract
work.
+ Noncash
Assets
+20,100
Cash
Jan.
Balance Sheet
Liabil=
+ Contrib.
Capital +
ities
+20,100
Unearned
=
Service
Fees
Income Statement
Earned
Capital
Revenues -
Expenses
Cash (+A)
Unearned service fees (+L)
To record fee received in advance.
Net
= Income
=
20,100
20,100
b.
Cash
Asset
Transaction
+ Noncash
Assets
2. Adjusting entry for

work completed by
Jan. 31.
Jan.
Balance Sheet
Liabil=
+ Contrib.
Capital +
ities
-3,350
Unearned
=
Service
Fees
Income Statement
Earned
Capital
Revenues
+3,350
Retained
Earnings
+3,350
Service
Fees
31 Unearned service fees (-L)

Service fees (+R, +SE)
To reflect January service fees earned on
contract ($20,100/6 = $3,350).
Net
= Income
Expenses
+3,350
3,350
3,350
c.
Cash
Asset
Transaction
3. Adjusting entry for fees
earned but not billed.
Jan. 31
Balance Sheet
Liabil- + Contrib. +
+ Noncash
Assets = ities
Capital
+570
Fees
=
Receivable
Fees receivable (+A)

Service fees (+R, +SE)
To record unbilled service fees earned
at January 31.
Income Statement
Earned
Capital
+570
Retained
Earnings
Revenues +570
Service
Fees
Expenses
Net
= Income
=
+570
570
570

3-15
M3-24. (15 minutes)

1.
Cash
Asset
Transaction
prepaid insurance.
Jan.
31
Balance Sheet
Noncash
+ Assets = Liabil+ Contrib.
ities
Capital +
-185
Prepaid =
Insurance
Income Statement
Earned
Capital
-185
Retained
Earnings
Revenues -
Expenses
+185
Insurance
Expense
Insurance expense (+E, -SE)

Prepaid insurance (-A)
To record January insurance expense
($6,660/36 = $185).
Net
= Income
=
-185
185
185
2.
Cash
Asset
Transaction
+ Noncash
Assets

supplies used.
Jan.
-1,080
Supplies
31
Balance Sheet
= Liabil+ Contrib.
ities
Capital +
=
Income Statement
Earned
Capital
-1,080
Retained
Earnings
Revenues -
Supplies expense (+E, -SE)

Supplies (-A)
To record January supplies expense
($1,930 $850 = $1,080).
Expenses
+1,080
Supplies
Expense
Net
= Income
-1,080
1,080
1,080
3.
Cash
Asset
Transaction
3. Adjusting
entry for
depreciation
of
equipment.
Jan.
Noncash
+ Assets
-
31
Balance Sheet
Contra
Contrib.
= Liabilities + Capital +
Assets
+62
Accumulated
Depreciation
Income Statement
Earned
Capital
-62
Retained
Earnings
Depreciation expenseEquipment (+E, -SE)

62
Accumulated depreciationEquipment (+XA, -A)
To record January depreciation on office
equipment ($5,952/96 = $62).
Revenues -
Expenses
+62
- Depreciatio
n Expense
62
continued next page

3-17
Net
= Income
-62
M3-24. concluded
4.
Cash
Asset
Transaction
rent.
Jan.
Balance Sheet
Liabil+ Noncash
+ Contrib.
Assets =
Capital +
ities
-875
Unearned
=
Rent
Revenue
Income Statement
Earned
Capital
Revenues -
+875
Retained
Earnings
+875
Rent
Revenue
Expenses
31 Unearned rent revenue (-L)

Rent revenue (+R, +SE)
To record portion of advance rent earned
in January.
Net
= Income
=
+875
875
875
5.
Cash
Asset
Transaction
accrued salaries.
Jan.
Balance Sheet
Liabil- + Contrib. +
+ Noncash
Assets = ities
Capital
+490
= Salaries
Payable
31 Salaries expense (+E, -SE)

Salaries payable (+L)
To record accrued salaries at January 31.
Income Statement
Earned
Capital
-490
Retained
Earnings
Revenues -
Expenses
+490
Salaries
Expense
Net
= Income
=
-490
490
490

3-19
M3-25. (15 minutes)

(All amounts in $ millions.)
a.
Balance Sheet
Transaction
Cash
Asset
+ Noncash
Assets
= Liabilities
+3,734
Inventory
+3,734
= Accounts
Payable
Inventory purchases
(total).
Income Statement
Contrib. +
Capital
Earned
Capital
Revenues -
Expenses
Net
Income
Inventories (+A).. 3,734

Accounts payable (+L)..
3,734
To record total purchases made at various dates.
b. Beginning AP balance + Purchases Payments = Ending AP balance.
So $447 + $3,734 - Payments = $510. Thus Payments = $3,671
c.
Balance Sheet
Noncash
Assets
Earned
Revenues - Expenses =
Capital
Adjusting entry for
-3,617
+3,617
-3,617
cost of goods sold
=
Retained
Cost of
=
Inventory
for 2011.
Earnings
Goods Sold
* Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance. So $897 + $3,734 COGS =
$1.014. Thus COGS = $3,617
Transaction
Cash
Asset
Income Statement
= Liabilities + Contrib.
Capital +
Cost of goods sold (+E, -SE)...

3,617
Inventories (-A)
3,617
To record cost of goods sold for the year ended 1/31/2012.
(Note: the COGS figure can be verified from the firms financial statements.
Purchases can not be so determined, but could be established by working backwards. See
M3-29.)

3-21
Net
Income
-3,17
M3-26. (15 minutes)

ARCHITECT SERVICES COMPANY
Statement of Stockholders Equity
For Year Ended December 31, 2014
Common
Retained
Stock
Earnings
Balance at December 31, 2013....................$30,000 $18,000
Stock issuance........................................... 6,000
Dividends...................................................
(9,700)
Net income................................................. _____ 29,900
Balance at December 31, 2014....................$36,000 $38,200
Total
Stockholders
Equity
$48,000
6,000
(9,700)
29,900
$74,200
M3-27. (5 minutes)
Ending balance = Beginning balance + Credit from closing revenue Debit from closing expenses:
$137,600 = $99,000 + $347,400 - $308,800
M3-28. (15 minutes)

a.
DATE 2013 DESCRIPTION
CREDIT
Dec. 31 Commissions revenue (-R)
Retained earnings (+SE)
To close the revenue account.
Wages expense (-E)
Insurance expense (-E)
Utilities expense (-E)
Depreciation expense (-E)
To close the expense accounts.
DEBIT
84,900
84,900
55,900
36,000
1,900
8,200
9,800
Closing the revenue and expense accounts into retained earnings has the effect of increasing
the retained earnings balance by an amount equal to net income (revenue minus expenses).
The balance of Smiths Retained Earnings after closing entries are posted is:
$101,100 credit ($72,100 + $84,900 - $55,900).
continued next page

3-23
M3-28 concluded
b.
+
Wages Expense (E) 36,000 36,000 (2)Dec. 31

0
Bal.
Bal.
+
Bal.
Bal.
+
Bal.
Bal.
Insurance Expense (E) 1,900

1,900 (2)Dec. 31
0
Depreciation Expense (E) 9,800
9,800 (2)Dec. 31
0
+
Bal.
Bal.
Utilities Expense (E)

8,200
8,200
0
(2) Dec. 31
- Commissions Revenue (R) +

(1)Dec. 31
84,900
84,900
Bal.
0
Bal.
- Retained Earnings (SE) +
(2)Dec. 31
55,900
72,100 Bal.
84,900 (1)Dec.31
101,100 Bal. Dec.31
M3-29. (30 minutes)

(All amounts in $ millions.)
a.
Balance Sheet
Transaction
Cash
Asset
Noncash
Assets
= Liabilities + Contrib.
Capital +
-5,206
Merchandise
Inventory
Recognize cost of
goods sold
Income Statement
Earned
Capital
-5,206
Retained
Earnings
Revenues -
Expenses
Net
Income
+5,206
Cost of
goods sold
-5,206
Cost of goods sold (+E,-SE).............................................................
5,206
Merchandise Inventory(-A)...........................................................
5206
To recognize the cost of goods sold.
b. Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance. So $1,370 +
Purchases - $5,206 = $1,375. Thus purchases = $5,211
Balance Sheet
Transaction
Recognize cost of
goods sold.
Cash
Asset
Liabil
Noncash
=
Assets
-ities
+5,211
+5,211
Merchandise = Account
inventory
Payable
+ Contrib.
Capital +
Income Statement
Earned
Capital
Revenues -
Expenses
Net
Income
continued next page

3-25
M3-29. concluded
b.
continued
Merchandise Inventory(+A).............................................................. 5,211
Accounts Payable (+L).................................................................
5,211
To recognize the purchases on account.

c. Beginning AP balance + Purchases Payments = Ending AP balance.
So $869 + $5,211 - Payments = $949. Thus Payments = $5,131
M3-30 (10 minutes)

a.
Balance Sheet
Cash
Asset
Transaction
a. Dec. 31 Interest
earned.
Liabil=
ities
+ Noncash
Assets
+600
Interest =
Receivable
+ Contrib.
Capital +
Income Statement
Earned
Capital
+600
Retained
Earnings
Revenues +600
Interest
Income
Dec. 31 Interest receivable (+A)

Interest income (+R, +SE)
To record accrued interest income.
b. Dec. 31
Expenses
Net
Income
+600
600
600
Interest income (-R)

To close the Interest Income account.
2,400
2,400
c.
Transaction
Cash
Asset
c. 1/31 Receipt of
$900 interest.
+900
Cash
Balance Sheet
LiabilNoncash
+ Assets =
+ Contrib.
Capital +
ities
-600
Interest =
Receivable
2014
Jan.
31 Cash (+A)
Interest income (+R, +SE)
Interest receivable (-A)
600
To record cash receipt of interest.
Income Statement
Earned
Capital
+ 300
Retained
Earnings
Revenues +300
Interest
Income
Expenses
=
=
Net
Income
+300
900
300

3-27
EXERCISES
E3-31. (30 minutes)
a.
Dec. 31
31
Service fees earned (-R,-SE)

To close the revenue account.
80,300
Retained earnings (-SE)

Rent expense (-E)
Salaries expense (-E)
Supplies expense (-E)
82,300
80,300
20,800
45,700
5,600
10,200
b.
+
Bal.
Bal.
+
Bal.
Bal.
(2)
Rent Expense (E)

20,800
20,800
0
Salaries Expense (E)

45,700
45,700
0
82,300
(2)
(2)
+
Bal.
Bal.
+
Bal.
Bal.
(1)
Supplies Expense (E)

5,600
5,600
0
Depreciation Expense (E)
10,200
10,200
0
Service Fees Earned (R)
80,300
80,300
0

67,000
80,300
65,000
(2)
(2)
+
Bal.
Bal.
+
Bal.
(1)
Bal.
Brooks Consulting earned a loss during the period (expenses exceeded revenues by $2,000),
so the ending retained earnings is lower than the beginning retained earnings (even though no
dividends were paid).

3-29
E3-33. (15 minutes)

a.
Cash
Asset
Transaction
+ Noncash
Assets
a. Adjusting entry for

salaries expense.
2013
Dec.
b.
Balance Sheet
= Liabi+ Contrib.
lities
Capital +
+4,700
= Salaries
Payable
Income Statement
Earned
Capital
-4,700
Retained
Earnings
31 Salaries expense (+E,-SE)

Salaries payable (+L)
To record accrued salaries payable.
Revenues -
Expenses
+4,700
Salaries
Expense
Net
Income
-4,700
4,700
4,700
31 Retained earnings (-RE)

To close the Salaries Expense account.
250,000
250,000
c.
Transaction
Cash
Asset
c. Paid salaries.
-12,000
Cash
2014
Jan.
+ Noncash
Assets
Balance Sheet
= Liabi+ Contrib.
lities
Capital +
-4,700
= Salaries
Payable
7 Salaries payable (-L)

Salaries expense (+E,-SE)
Cash (-A)
Income Statement
Earned
Capital
-7,300
Retained
Earnings
Revenues -
Expenses
+7,300
Salary
Expense
Net
Income
-7,300
4,700
7,300
12,000
To record payment of salaries.

3-31
E3-34. (20 minutes)

a.
Balance, January 1 = $960 + $800 $620 = $1,140.
b.
Amount of premium = $82 12 = $984.

Therefore, five months' premium ($984 $574 = $410) has expired by January 31. The policy
term began on and has been in effect since September 1, 2013.
c.
Wages paid in January = $3,200 $500 = $2,700.
d.
Monthly depreciation expense = $8,700/60 months = $145.

Fields has owned the truck for 18 months ($2,610/$145 = 18).
E3-35. (30 minutes)

a.
Balance Sheet
Cash
Asset
Transaction
1. 7/31 Adjusting entry for

rent expense.
ad. expense.
supplies expense.
fees revenue.
Noncash
Assets
-475
Prepaid
Rent
-210
Prepaid
Advertising
-1,900
Supplies
b. July
Income Statement
+ Contrib.
Capital +
=
=
+800
Fees
Receivable

fees revenue.
TOTALS
Liabilities
-1,785
-300
Unearned
Refinish.
Fees
=
-300
Earned
Capital
-475
Retained
Earnings
- 210
Retained
Earnings
-1,900
Retained
Earnings
+800
Retained
Earnings
+300
Retained
Earnings
+800
Refinish.
Revenue
+300
Refinish.
Revenue
-1,485
1,100
31 Rent expense (+E,-SE)

Prepaid rent (-A)
To record July rent expense ($5,700/12 = $475).
Revenues -
Expenses
+475
Rent
Expense
+210
Advertising
Expense
+1,900
Supplies
Expense
=
=
-210
=
-1,900
=
+800
+300
2,585
475
475
31 Advertising expense (+E,-SE)

Prepaid advertising (-A)
To record July advertising expense ($630/3 = $210).
210
210
continued next page
Net
Income
-475

3-33
-1,485
E3-35. concluded
b. continued
July 31 Supplies expense (+E,-SE)
Supplies (-A)
To record supplies expense for July
($3,000 $1,100 = $1,900).
1,900
1,900
31 Fees receivable (+A)

Refinishing fees revenue (+R,+SE)
To record unbilled revenue earned during July.
800
800
31 Unearned refinishing fees (-L)

300
Refinishing fees revenue (+R,+SE)
To record portion of advance fees earned in July ($600/2 = $300).
300
c.
Bal.
Bal.
+ Prepaid Rent (A) 5,700

475
5,225
(1)
Bal.
Bal.
Bal.
Bal.
+ Prepaid Advertising (A) 630

210
420
(2)
(5)
(4)
+ Fees Receivable (A) 800
+ Supplies (A) 3,000

1,900
1,100
- Unearned Finishing Fees (L) +

300
600
Bal.
300
Bal.
- Refinishing Fees Revenue (R) +
2,500 Bal.
800 (4)
300 (5)
3,600
Bal.
+
Supplies Expense (E)

1,900
(3)
+
(2)
(1)
Advertising Expense(E) 210
(3)
Rent Expense (E)

475

3-35
E3-36. (30 minutes)

(All amounts in $ thousands.)
a.
Balance Sheet
Cash
Asset
Transaction
Recognize
inventory
purchases.
Noncash
Assets
+482,303
Inventory
Liabilities
Income Statement
Contrib. +
Capital
Earned
Capital
Revenues -
+482,303
Account
Payable
Expenses
Net
Income
Inventory (+A)..................................................................................
482,303*
Accounts payable (+L).................................................................
482,303
To recognize inventory purchases.

*Beginning Inv balance + Purchases Cost of goods sold = Ending Inv. So $43,526 + Purchases - $456,664=
$69,165. Thus purchases = $482,303
b. Beginning compensation payable + Compensation expense Compensation paid = Ending

compensation payable, so
$10,529 + $40,000 Payments = $10,841
Payments = $39,688
c.
Accrued compensation is reported as a current liability.
E3-37. (30 minutes)

a. Dec.
31
31
Service fees earned (-R)

Interest income (-R)
To close the revenue accounts.
92,500
2,200
Retained earnings (-SE)

Advertising expense (-E)
Income tax expense (-E)
64,700
94,700
41,800
4,300
8,700
9,900
continued next page

3-37
E3-37. concluded
b.
64,700 42,700
Bal.
94,700
(1)
72,700
Bal.
(2)
(1)
(1)
Bal.
Bal.
Bal.
Bal.
+ Salaries Expense (E) 41,800 41,800

0
+ Depreciation Expense (E) 8,700
8,700
0
(2)
Bal.
Bal.
(2)
Bal.
Bal.
- Service Fees Earned (R) +

92,500
92,500
0
- Interest Income (R) +
2,200
2,200
0
Bal.
Bal.
Bal.
Bal.
+ Advertising Expense (E) 4,300

4,300
0
+ Income Tax Expense(E) 9,900
9,900
0
(2)
(2)
E3-38. (15 minutes)

a.
Balance Sheet
Transaction
Cash
Asset
(1) Collect
deposits from
customers.
+200,000
(2) Recognize
income on
completed
customer orders.
(1)
+ Noncash
Assets
Cash
+489,004
Cash
Liabilities
Income Statement
+
Contrib. +
Capital
Earned
Capital
Revenues -
+200,000
Customer
Deposits
-189,956
Customer
Deposits
+678,960 +678,960
Retained
Earnings
Cash (+A)
Sales
Revenue
Expenses
Net
Income
= +678,960
200,000
Customer deposits* (+L)
200,000
To record unearned customer deposits.

(2)
Customer deposits* (-L)....................................................................

189,956 **
Cash (+A)
489,004
Sales revenue (+R, +SE).............................................................
678,960
To record sales revenue and recognized deposits earned.

* Also sometimes called Unearned Customer Deposits
** $52,605 + $200,000 Deposits earned = $62,649; Deposits earned = $189,956.
continued next page

3-39
E3-38. concluded
b.
Income Statement
Balance Sheet
Cash
Asset
Transaction
Record inventory
purchases.
Noncash
Assets
-337,152
Inventory
Liabil
-ities
+337,152
=
Acc.
Payable
=
+ Contrib.
Capital +
Earned
Capital
Revenues -
Expenses
Inventory (+A).................................................................................
Net
Income
=
=
337,152
Accounts Payable (+L)..............................................................
337,152
To recognize inventory purchases. BI +Purchases EI = COGS.

So $134,040 + Purchases - $329 500 = $141,692.
Thus: Purchases =$337,152
c. Customer Deposits are reported as a current liability.
E3-39. (40 minutes)

a.
SOLOMON CORPORATION
Income Statement
Service fees earned.......................................................................................... $71,000
Rent expense................................................................................................... (18,000)
Salaries expense.............................................................................................. (37,100)
Depreciation expense...
(7,000)
Net income....................................................................................................... $8,900
SOLOMON CORPORATION
Statement of Stockholders Equity
Common
Retained
Stock
Earnings
Balance at December 31, 2012.....................
$43,000 $20,600*
Stock issuance..............................................
Dividends......................................................
(8,000)
Net income.................................................... _______ 8,900
Balance at December 31, 2013.....................
$43,000 $21,500
Total
Stockholders
Equity
$63,600
(8,000)
8,900
$64,500
*12,600 + 8,000 The dividend was paid and debited to retained earnings prior to the end of the period.
continued next page

3-41
E3-39. continued
SOLOMON CORPORATION
Balance Sheet
December 31, 2013
Assets
Cash
$ 4,000
Accounts receivable
Equipment
Less:Accumulated depreciation
6,500
$78,000
14,000
Total Assets
64,000
$74,500
Liabilities
Notes payable
$ 10,000
Total Liabilities
10,000
Owners Equity
Common stock
Retained earnings
43,000
21,500
Total Liabilities and Owners Equity
$74,500
b.
1.
2.
3.
4.
Service fees earned (-R).................................................................

71,000
Retained earnings (+SE)............................................................
71,000
Retained earnings (-SE)..................................................................

18,000
Rent expense (-E).......................................................................
18,000

37,100
Salaries expense (-E).................................................................
37,100

7,000
Depreciation expense (-E) .........................................................
7,000
The cash dividend has already been paid and is already reflected in the adjusted trial
balance.
c. Only the T-accounts affected by closing process are shown here.
+ Depreciation Expense (E) - Service Fees Earned (R) +
Bal.
7,000
7,000
(4)
(1)
71,000
71,000
Bal
0
0
Bal.
Bal.
+ Salaries Expense (E) 37,100 37,100

0
+
(3)
Bal.
Bal
(2-4)
Rent Expense (E) 18,000

18,000
0
Bal.
Bal.
(2)

62,100
12,600 Bal. (1)
71,000
21,500
Bal.

3-43

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CHAPTER 3

Adjusting Accounts for

June 11. $4,700 billed for

June 19. Paid $3,000 on

June 25. Paid cash

June 30. Paid $350 utilities.

Solutions Manual, Chapter 3

June 17. Collected $3,250

June 30. Paid $2,500

Cambridge Business Publishers, 2015

continued next page

Solutions Manual, Chapter 3

Cambridge Business Publishers, 2015

Office equipment (+A)

11 Accounts receivable (+A)

19 Accounts payable (-L)

25 Retained earnings (-SE)

30 Utilities expense (+E, -SE)

30 Salaries expense (+E, -SE)

continued next page

Solutions Manual, Chapter 3

Cambridge Business Publishers, 2015

Accounts Receivable (A) 4,700 3,250

Common Stock (SE)

Service Fees Earned (R)

Office Equipment (A)

Accounts Payable (L)

Retained Earnings (SE)

Rent Expense (E)

Utilities Expense (E)

Solutions Manual, Chapter 3

Salaries Expense (E)

Cambridge Business Publishers, 2015

M3-22. (45 minutes)

April 1. Invested $9,000 in

April 2. Paid $2,850 cash

April 3. Borrowed $10,000.

April 3. Purchased $5,500

April 4. Paid $4,300 cash

April 7. Paid $350 cash for

April 28. Collected $2,300

April 29. Paid $1,000 cash

April 30. Paid $1,750 cash

April 30. Paid $995 cash for

April 23. Paid $3,000 cash

April 21. Billed $3,500 for

continued next page

Solutions Manual, Chapter 3

Cambridge Business Publishers, 2015

Prepaid van lease (+A)

Advertising expense (+E, -SE)

21 Accounts receivable (+A)

23 Accounts payable (-L)

29 Retained earnings (-SE)

30 Wages expense (+E, -SE)

30 Van fuel expense (+E, -SE)

Solutions Manual, Chapter 3

Cambridge Business Publishers, 2015

Common Stock (SE)

Van Fuel Expense (E)

Solutions Manual, Chapter 3

Prepaid Van Lease (A)

Accounts Receivable (A) 3,500

Accounts Payable (L)