BE4-1

Transactions that affect earnings do not necessarily affect cash. Hint: Identify impact of transactions on cash and net income. (SO 2, 9)

Instructions Identify the effect, if any, that each of the following transactions would have upon cash and net income. The first transaction has been completed as an example.

Cash (a) (b) (c) Purchased $100 of supplies for cash. Recorded an adjusting entry to record use of $30 of the above supplies. Made sales of $1,300, all on account. ($100) Cash $0 Cash $0 (d) Received $800 from customers in payment of their accounts. Cash $800 (e) Purchased equipment for cash, $2,500. Cash ($2,500) (f) Recorded depreciation of building for period used, $600. Cash 0

Net Income $0 Net Income ($30) Net Income $0 Net Income $800 Net Income $0 Net Income ($600)

P4-2A Nick Waege started his own consulting firm, Waegelein Consulting, on June 1, 2010. The trial balance at June 30 is as follows.

(a.)
WAEGELEIN CONSULTING Trial Balance 30-Jun-10 Debit Cash $ 6,850 Accounts Receivable 7,000 Prepaid Insurance Supplies Office Equipment Accounts Payable Unearned Service Revenue Common Stock Service Revenue Salaries Expense Rent Expense 2,640 2,000 15,000 $ 4,540 5,200 21,750 8,000 4,000 2,000 $39,490 3 WAEGELEIN CONSULTING Adjusted Trial Journal Credit 1 Supply Expense Supplies (supplies used in June) Utility Expense Utility Payable (utilities used, paid next month) Insurance Expense Prepaid Insurance Insurance used for June) Unearned Service Revenue Service Revenue (revenue earned in June) Salaries Expense Salaries Payable (salaries accrued at June 30) Depreciation Expense Accrued Serv Revenue depreciated office equip/June) Accrued Revenue Service Revenue (unrecorded invoices in June) Debit 1020 Credit 1020 180 180 220 220 3900 3900 1250 1250 250 250 3500 3500

4 $39,490 5

In addition to those accounts listed on the trial balance, the chart of accounts for Waegelein also contains the following accounts: Accumulated DepreciationOffice Equipment, Utilities Payable, Salaries Payable, Depreciation Expense, Insurance Expense, Utilities Expense, and Supplies Expense. Other data: 1. 2. 3. 4. 5. 6. 7. Supplies on hand at June 30 total $980. A utility bill for $180 has not been recorded and will not be paid until next month. The insurance policy is for a year. $3,900 of unearned service revenue has been earned at the end of the month. Salaries of $1,250 are accrued at June 30. The office equipment has a 5-year life with no salvage value and is being depreciated at $250 per month for 60 Invoices representing $3,500 of services performed during the month have not been recorded as of June 30.

Hint: Prepare adjusting entries, post to ledger accounts, and prepare adjusted trial balance.

Instructions (a) (b) Prepare the adjusting entries for the month of June. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account Service rev. $15,400 Prepare an adjusted trial balance at June 30, 2010. Tot. trial balance $44,670

(c)

(b.)
WAEGELEIN CONSULTING Adjusted General Ledger Accounts Receivable Office Equipment 7,000 15000 $7,000 Insurance Expense 220 $220 Supplies Expense 1,020 $1,020 $15,000 Utility Expense 180 $180 Unearned Serv Revenue 3900 5,200 $1,300 Common Stock 21,750 $21,750 Salaries Payable 1250 $1,250 Rent Expense 2000 $2,000 Accrued Revenue 3500 $3,500 Accrued Serv Revenue Service Revenue

May. 31

Cash $6,850 $6,850 Prepaid Insurance 2640 220 $2,420 Supplies 2,000 1,020 980

Depreciation Expense 250 250 Utility Payable

Accounts Payable 4,540 $4,540 Salaries Expense 4000 1250 $5,250

(c.)
WAEGELEIN CONSULTING Adjusted Trial Balance 30-Jun-10 Debit $ 6,850 Cash Accounts Receivable 7,000 Prepaid Insurance 2,420 180 $180 Service Revenue Supplies Office Equipment Accounts Payable Unearned Service Revenue Common Stock Service Revenue Salaries Expense Rent Expense Accrued Revenue Depreciation Expense Insurance Expense Utility Expense Supplies Expense Utility Payable Salaries Payable Accrued Serv Revenue $ $250 980 15,000 $ 4,540 1,300 21,750 15,400 5,250 2,000 3,500 250 220 180 1,020 180 1,250 250 44,670 $ 44,670

epreciation Expense

Credit

Utility Payable

8000 3900 3500 $15,400 Accrued Revenue

ed Serv Revenue 250

P4-3A The Olathe Hotel opened for business on May 1, 2010. Here is its trial balance before adjustment on May 31. OLATHE HOTEL GENERAL JOURNAL OLATHE HOTEL Date Account Titles and Explanation Debit 2010 Trial Balance 31-May-10 1 Insurance Expense 300 Prepaid Insurance Debit Credit Cash $ 2,500 (Insurance used for 1 month) Prepaid Insurance 1,800 2 Supplies Expense 1,550 Supplies 2,600 Supplies Land 15,000 Lodge 70,000 3a Depreciation Expense--Lodge 300 Furniture 16,800 Lodge--(Accumulated Depreciation) Accounts Payable $ 4,700 (Annual depreciation on lodge) Unearned Rent Revenue 3,300 3b Depreciation Expense--Furniture 250 Mortgage Payable 36,000 Furniture--(Accumulated Depreciation) Common Stock 60,000 (Annual depreciation on furniture) Rent Revenue 9,000 4 Interest Expense 210 Salaries Expense 3,000 Interest Payable Utilities Expense 800 mortgage interest @ 7% Advertising Expense 5 Unearned rent 2,500 500 113000 113000 6 Rent Revenue Salaries Expense Salaries Payable Salaries accrued and unpaid 750

Credit

300

1,550

300

250

210

2,500

750

$5,860

$5,860

Other data:

1. 2. 3. 4. 5. 6.

Insurance expires at the rate of $300 per month. A count of supplies shows $1,050 of unused supplies on May 31. Annual depreciation is $3,600 on the lodge and $3,000 on furniture. The mortgage interest rate is 7%. (The mortgage was taken out on May 1.) Unearned rent of $2,500 has been earned. Salaries of $750 are accrued and unpaid at May 31.

Hint: Prepare adjusting entries, adjusted trial balance, and financial statements. (SO 4, 5, 6, 7)

Instructions (a) Journalize the adjusting entries on May 31. Prepare a ledger using T accounts. Enter the trial balance amounts and post the adjusting entries. Prepare an adjusted trial balance on May 31. Rent revenue $ 11,500 Tot. adj. trial balance $114,510 Prepare an income statement and a retained earnings statement for the Net income $ 3,840 Identify which accounts should be closed on May 31. Answer All Revenue and Expense accounts should be closed

(b)

(c)

(d)

(e)

May. 31

Cash $2,500 $2,500 Prepaid Insurance 1,800 300 1,500 Supplies 2600 1,550 1,050

OLATHE HOTEL General Ledger Land 15,000 15,000 Insurance Expense 300 300 Supplies Expense 1,550 1,550 Unearned Rent Revenue 4,700 4,700 5 2500 3,300 800 Salaries Expense 9000 2500 11500 6 3000 750 3750

Lodge 70000 69700 Furniture 16,800 16,550 Mortgage Payable

Common Stock 300

250

Interest Payable

36,000 36,000 Interest Expense 4 210 210 Utilities Expense 800 800 Depreciation Expense--Furniture 3b 250 250 Salaries Payable

Accounts Payable

Rent Revenue

Advertising Expense 500 500

Depreciation Expense--Lodge 3a 300 300

Common Stock 60,000 60,000

nterest Payable 210 210

Cash Prepaid Insurance Supplies Land Lodge Furniture Accounts Payable Unearned Rent Revenue Mortgage Payable Common Stock Rent Revenue Salaries Expense Utilities Expense Advertising Expense Supplies Expense Interest Payable

OLATHE HOTEL Adjusted Trial Balance 31-May-10 Debit $2,500 1,500 1,050 15,000 69,700 16,550

Credit

4,700 800 36,000 60,000 11,500 3,750 800 500 1,550 210 300 250 750 $300 $210 111,250

2 3a 3B 1 4 113960

Payable 750 750

Depreciation Expense--Lodge Depreciation Expense--Furniture Salaries Payable Insurance Expense Interest Expense

2,610

$3,250

$114,510 3,260 $550

Income Statement Rent Revenue Expenses: Salaries Expense Utilities Expense Advertising Expense Insurance Expense Supplies Expense Depreciation Expense, Lodge Depreciation Expense, Furniture Interest Expense Total Expenses Net Income $11,500 $3,750 800 500 300 1,550 300 250 210 $7,660 $3,840

Balance Sheet Current Assets Cash Prepaid Insurance Supplies Total Current Assets Property, Plant, and Equipment Land Lodge Less: Accumulated Depreciation Furniture Less: Accumulated Depreciation Total Assets Liabilities: Accounts Payable Interest Payable Salaries Payable Unearned Rent Revenue Mortgage Payable Total Liabilities Stockholders' Equity: Common Stock Retained Earnings Total Liabilities and Stockholders' Equity

2500 1500 1050

70000 300 16800 250

4700 210 750 800 36000

60000 3840

5050 15000 69700 16550 106300

42460

63840 106300