CHAPTER 3

THE ACCOUNTING CYCLE:

CAPTURING ECONOMIC EVENTS
OVERVIEW OF EXERCISES, PROBLEMS, CASES,
AND INTERNET ASSIGNMENT
Exercie T!"ic
Le#r$i$%
O&'ec(i)e C*#r#c(eri(ic
31 Accounting terminology 1 10 Conceptual
32 The accounting cycle 1, 2, 5, 9, 10 Conceptual
33 The matching principle 6, 7 Personal, conceptual
3 !ecor"ing transactions 3, , 5 #echanical
35 $ournal an" le"ger relationships 2, 3, , 5 #echanical, conceptual
36 Preparing a trial %alance 9 #echanical
37 &et income an" o'ners( e)uity 6, * Analytical, mechanical
3* Accounting e)uation
relationships
2, 3, , 5, 6 Conceptual, analytical
39 Accounting e)uation
relationships
2, 3, , 5, 6 Conceptual, analytical
310 !e+enue reali,ation 6, 7 #echanical, conceptual
311 !ecogni,ing e-penses 6, 7 #echanical, conceptual
312 Analy,ing an" recor"ing
transactions
, 6, 7, * #echanical, conceptual
313 .hort comprehensi+e e-ercise 3, , 5 #echanical, conceptual
3/1 .hort comprehensi+e e-ercise 3, , 5 #echanical, conceptual
3/15 0sing an annual report 1, 2, 3, 7, 10 #echanical, conceptual, real1
Tootsie Roll
Pr!&+e,
31 !ecor"ing 2ournal entries an"
i"enti3ying their e33ects on the
accounting e)uation
3, , 5 Conceptual, mechanical
32 !ecor"ing 2ournal entries an"
i"enti3ying their e33ects on the
accounting e)uation
3, , 5, 6, 7,
*
Conceptual, mechanical
33 !ecor"ing 2ournal entries an"
i"enti3ying their e33ects on the
accounting e)uation
3, , 5, 6, 7,
*
Conceptual, mechanical
3 The accounting cycle 1 10 Conceptual, mechanical
35 The accounting cycle 1 10 Conceptual, mechanical
C#e
31 !e+enue recognition 7, 10 4roup assignment, conceptual,
communication
32 5ncome measurement 6, 7, 10 6thics, group assignment,
communication, conceptual
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al --
Business Week
Ai%$,e$( T!"ic
Le#r$i$%
O&'ec(i)e C*#r#c(eri(ic
33 Business Week assignment 10 Conceptual, group, real1PepsiCo,
Inc.
I$(er$e(
Ai%$,e$(
31 .ource o3 re+enue 6 5nternet, communication
DESCRIPTIONS OF PROBLEMS, CASES,
AND THE INTERNET ASSIGNMENT
;elo' are %rie3 "escriptions o3 each pro%lem, case, an" 5nternet assignment8 These "escriptions are
accompanie" %y the estimate" time <in minutes= re)uire" 3or completion an" %y a "i33iculty rating8 The time
estimates assume use o3 the partially 3ille"/in 'or>ing papers8
Pr!&+e,
31 Heartland Construction
A company engages in numerous transactions "uring its 3irst month o3
operations8 .tu"ents are re)uire" to 2ournali,e each transaction an" analy,e
the e33ect o3 each transaction on the accounting e)uation8
30 Medium
32 Environmental Services, Inc.
Calls 3or a "etaile" analysis o3 numerous transactions, 2ournali,ing, an" the
application o3 the reali,ation an" matching principles8
30 Medium
33 Weida Surveying, Inc.
!e)uires stu"ents to 2ournali,e transactions an" to un"erstan" the relationship
%et'een the income statement an" the %alance sheet8
3 Medium
3! "erial #ie$s
!e)uires stu"ents to 2ournali,e an" post transactions, prepare a trial %alance,
an" un"erstan" the relationships %et'een the income statement an" %alance
sheet8
0 Strong
3 %r. Sc&e'ter, %#M
!e)uires stu"ents to 2ournali,e an" post transactions, prepare a trial %alance,
an" un"erstan" the relationships %et'een the income statement an" %alance
sheet8
(0 Strong
-. ? The #c4ra'/@ill Companies, 5nc8, 2005
C#e
31 )evenue )ecognition
!e)uires stu"ents to "ra' conclusions concerning the point at 'hich +arious
companies shoul" recogni,e re+enue8
1 Medium
32 Measuring Income
.tu"ents are to "etermine 'hether a company(s metho"s o3 measuring income
are 3air an" reasona%le8 Also re)uires stu"ents to "istinguish %et'een net
income an" cash 3lo'8
30 Strong
Business Week Ai%$,e$(
33 Business Week "ssignment
.tu"ents are as>e" to consi"er types o3 in3ormation PepsiCo 'oul" trac> 3or
its so3t "rin> operations8
1 Easy
I$(er$e( Ai%$,e$(
31 *C Connection
0sing the company(s 10/A report, stu"ents are as>e" to i"enti3y re+enue 3rom
+arious sources8
10 Easy
SUGGESTED ANSWERS TO DISCUSSION /UESTIONS
18 Although it has no o%ligation to issue 3inancial statements to cre"itors or in+estors, ;a>er
Construction still shoul" maintain an accounting system8 Bor a start, the company pro%a%ly has
numerous reporting o%ligations other than 3inancial statements8 These inclu"e income ta- returns,
payroll ta- returns, <inclu"ing 'or>ers( compensation insurance= an" payroll "ata, 'hich must %e
reporte" to in"i+i"ual employees8
6+en though the company is not re)uire" %y la' to issue 3inancial statements, Tom ;a>er shoul" 3in"
such statements use3ul in managing the %usiness an" also in arranging 3inancing shoul" the %usiness
e+er nee" a""itional capital8
5n a""ition, an accounting system pro+i"es managers an" employees 'ith a 'ealth o3 in3ormation +ital
to "aily %usiness operations8 Bor e-ample, the system >eeps trac> o3 the amounts "ue 3rom customers
an" amounts paya%le to employees, ta- authorities, an" suppliers8 5t also pro+i"es in3ormation a%out
the company(s cash position an" the per3ormance o3 "i33erent "epartments 'ithin the organi,ation8
Another important use o3 an accounting system is esta%lishing the accounta%ility o3 speci3ic employees
3or the assets an" operations un"er their "irect control8
28 The three %asic parts o3 an account are <1= its title, <2= a le3t si"e calle" the debit si"e, an" <3= a right
si"e calle" the credit si"e8
38 There 'as a C112,100 "e%it %alance <C126,900 %eginning "e%it %alance, plus C23,00 in "e%it entries,
minus C3*,200 in cre"it entries=8
8 Assets are locate" on the left si"e o3 the %alance sheetD an increase in an asset account is recor"e" %y
an entry on the left <or "e%it= si"e o3 the account8 Eia%ilities an" o'ners( e)uity are locate" on the
right si"e o3 the %alance sheetD an increase in a lia%ility account or an o'ners( e)uity account is
recor"e" %y an entry on the right <or cre"it= si"e o3 the account8
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al -0
58 Asset accountsF
a8 5ncreases are recor"e" %y "e%its8
%8 Gecreases are recor"e" %y cre"its8
Eia%ility an" o'ners( e)uity accountsF
a8 5ncreases are recor"e" %y cre"its8
%8 Gecreases are recor"e" %y "e%its8
68 &o, the term debit means an entry on the le3t/han" si"e o3 an accountD the term credit simply means an
entry on the right/han" si"e o3 an account8 Conse)uently, the term debit means increase 'hen applie"
to an asset account, %ut it signi3ies a "ecrease 'hen applie" to a lia%ility or o'ners( e)uity account8
The term credit means "ecrease 'hen applie" to an asset account, %ut it signi3ies an increase 'hen
applie" to a lia%ility or o'ners( e)uity account8
78 The "ou%le/entry system re)uires that e)ual "ollar amounts o3 "e%it an" cre"it entries %e ma"e 3or
e+ery %usiness transaction recor"e"8
*8 a8 A debit of !"## to the Cash account$ means that the amount o3 C200 'as entere" on the le3t si"e
o3 the Cash account, in"icating a C200 increase in the asset Cash8
%8 A debit of !%## to Accounts Pa&able$ means an entry o3 C600 on the le3t si"e o3 the le"ger
account 3or Accounts Paya%le an" in"icates a "ecrease o3 C600 in this lia%ility8
c8 A credit of !'# to Accounts Recei(able$ means an entry on the right si"e o3 the Accounts
!ecei+a%le account an" in"icates a re"uction o3 C50 in this asset8
"8 A debit to the )and account$ means that an entry 'as ma"e on the le3t si"e o3 the le"ger account
3or Ean" an" in"icates an increase in this asset account8
e8 Credit balance$ means that the total amount o3 the cre"its in a gi+en le"ger account e-cee"s the
total amount o3 the "e%its in that account8
38 Credit side of an account$ means the right/han" si"e8
98 a8 Cre"it Cash8 Cash is an asset account an" 'as "ecrease" %y this transaction8 Gecreases in assets
are recor"e" %y cre"its8
%8 Cre"it H33ice 6)uipment8 H33ice 6)uipment is an asset account an" 'as "ecrease" %y this
transaction8 Gecreases in assets are recor"e" %y cre"its8
c8 Ge%it Cash8 Cash is an asset account an" 'as increase" %y this transaction8 5ncreases in assets are
recor"e" %y "e%its8
"8 Cre"it Accounts Paya%le8 Accounts Paya%le is a lia%ility account an" 'as increase" %y this
transaction8 5ncreases in lia%ilities are recor"e" %y cre"its8
e8 Cre"it Capital .toc>8 Capital .toc> is an o'ners( e)uity account an" 'as increase" %y this
transaction8 5ncreases in o'ners( e)uity are recor"e" %y cre"its8
108 Hperating pro3ita%ly causes an increase in o'ners( e)uity8 0sually, this increase in e)uity is
accompanie" %y an increase in total assets8 @o'e+er, the increase in e)uity might %e o33set in part or
in 'hole %y a "ecrease in total lia%ilities8
118 &o, net income "oes not represent an amount o3 cash8 The entire amount o3 cash o'ne" %y a %usiness
appears on the asset si"e o3 the %alance sheet an" is entitle" Cash8 &et income is an increase in
o'ners( e)uity an" implies nothing a%out the for* in 'hich the company(s assets are hel"8
-1 ? The #c4ra'/@ill Companies, 5nc8, 2005
128 Re(enue represents the price o3 goo"s sol" an" o3 ser+ices ren"ere" to customers "uring the perio"8 5t
is an increase in o'ners( e)uity accompanie" either %y an increase in assets or a re"uction in
lia%ilities8
&ot e+ery receipt o3 cash represents the earning o3 re+enue8 The %orro'ing o3 money 3rom a %an>
causes cash to %e recei+e" %ut "oes not increase the o'ners( e)uity an" "oes not represent re+enue8
Collection o3 an account recei+a%le is merely the e-change o3 one asset <the recei+a%le= 3or another
asset <cash= an" "oes not constitute re+enue8
138 The term e+penses means the cost o3 the goo"s an" ser+ices use" up or consume" in the process o3
o%taining re+enue8 6-penses cause a "ecrease in o'ners( e)uity8 To "etermine the net income 3or a
gi+en accounting perio", it is necessary that all e-penses o3 that perio" %e "e"ucte" 3rom the re+enue
earne" in that perio"8 5n "eci"ing 'hether a gi+en transaction represents an e-pense o3 the current
perio", t'o )uestions are pertinentF <1= :as the allege" e-pense incurre" primarily to generate re+enue
"uring the current perio"I <2= Goes the item in )uestion re"uce the o'ners( e)uityI
&ot all cash payments represent e-pense8 6-amples o3 cash payments that are not e-penses inclu"e
purchase o3 an asset such as a %uil"ing or supplies, payment o3 an e-isting lia%ility, an" "i+i"en"s8
18 The re+enue is recogni,e" in #ay8 The 2ournal entry in #ay consists o3 a C500 "e%it to Accounts
!ecei+a%le an" a C500 cre"it to a re+enue account such as Commissions 6arne" or Bees 6arne"8 The
entry in $une consists o3 a C500 "e%it to Cash an" a C500 cre"it to Accounts !ecei+a%le8
158 !e+enue is consi"ere" reali,e" at the time that ser+ices are ren"ere" to customers or goo"s sol" are
"eli+ere" to customers8 The reali,ation principle ans'ers the )uestion o3 ,hen re+enue shoul" %e
recogni,e" in accounting recor"s8
168 Classic Auto Painters shoul" recogni,e the paint as e-pense in the month o3 April1the month in
'hich the paint 'as used in the e33ort to generate re+enue8 This ans'er "emonstrates the *atching
principle1the i"ea that re+enue shoul" %e o33set %y all the e-penses incurre" in the e33ort o3
pro"ucing that re+enue8
178 The *atching principle in"icates that e-penses shoul" %e recogni,e" in the perio" <or perio"s= that the
e-pen"iture helps to pro"uce re+enue8
1*8 !e+enue increases o'ners( e)uityD there3ore re+enue is recor"e" %y a credit. 6-penses "ecrease
o'ners( e)uityD there3ore e-penses are recor"e" %y debits8
198 The trial %alance pro+i"es proo3 that the le"ger is in %alance8 A trial %alance "oes not, ho'e+er, pro+e
that transactions ha+e %een analy,e" an" recor"e" in the proper accounts an"9or 3or the proper
amounts8 Burthermore, i3 a transaction 'ere completely omitte" 3rom the le"ger, the error 'oul" not
%e "isclose" %y the trial %alance8
208 A "i+i"en" is a "istri%ution o3 assets <usually cash= %y a corporation to its stoc>hol"ers8 Gi+i"en"s
re"uce %oth assets an" o'ners( e)uity <speci3ically, the !etaine" 6arnings account=8 Gi+i"en"s are not
an e-pense "e"ucte" 3rom re+enue in the computation o3 net income8 !ather than %eing reporte" in the
income statement as a component o3 net income, "i+i"en"s are reporte" in the statement o3 retaine"
earnings as a component o3 the !etaine" 6arnings %alance reporte" in the %alance sheet8
218 The accrual %asis o3 accounting calls 3or recor"ing re+enue in the perio" in 'hich it is earne" an"
recor"ing e-penses in the perio" in 'hich they are incurre"8 The cash %asis o3 accounting calls 3or
recor"ing re+enue 'hen it is recei+e" in cash an" 3or recor"ing e-penses 'hen they are pai"8 The
accrual %asis o3 accounting gi+es a more accurate picture o3 the pro3ita%ility o3 a %usiness %ecause it
matches re+enue 'ith the relate" e-penses incurre" in pro"ucing that re+enue8 &et income can %e
"etermine" accurately only i3 'e recogni,e all the re+enue earne" an" all the relate" e-penses incurre"
in a gi+en time perio"8
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al -2
SOLUTIONS TO EXERCISES
E+. 31 a. Accounting perio"
,. Accounting cycle
c. &one <This statement "escri%es the accounting con+ention o3 conser+atism8=
d. &et income
e. !eali,ation principle
-. Cre"it
g. #atching principle
&. 6-penses
E+. 32 a. 18 $ournali,e transactions8
28 Post transaction "ata to the le"ger8
38 Prepare a trial %alance8
8 #a>e en"/o3/perio" a"2ustments8
58 Prepare an a"2uste" trial %alance8
68 Prepare 3inancial statements8
78 $ournali,e an" post closing entries8
*8 Prepare an a3ter/closing trial %alance8
,. 18 6+aluate the e33iciency o3 operations8
28 6sta%lish accounta%ility 3or assets an" transactions8
38 #aintain a "ocumentary recor" o3 %usiness acti+ities8
8 @elp ma>e %usiness "ecisions8
.3 ? The #c4ra'/@ill Companies, 5nc8, 2005
E+. 33 a. Costs o3 o'ning an" operating an automo%ile <estimates 'ill +aryD the 3ollo'ing list is only
an e-ample=F
5nsurance88888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 C1,000
4asoline <15,000 miles at 30 mpg8 C18*09gal8=888888888888888888888888888888888888888888888888888 900
!egistration an" license888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 100
!epairs an" maintenance88888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 200
Gepreciation888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 1,200
5nterest on car loanJ888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 500
Annual total888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 C 3,900
A+erage cost per mile <C3,900 15,000 miles=88888888888888888888888888888888888888888888888888888 C 0826
J-ote to instructor. 5t is 'orth noting that inclu"ing %oth "epreciation an" the KprincipalL portion o3 the car
loan 'oul" %e K"ou%le/countingL the purchase price o3 the car8 Gepreciation issues are intro"uce" in
Chapter 8
,. Although you spent no money during this trip, you incurre" signi3icant costs8 Bor e-ample,
you ha+e use" much o3 the gasoline in your tan>8 Also, the more miles you "ri+e, the higher
your repair an" maintenance costs, "epreciation, an" insurance8 Assuming that it cost you
a%out 26 cents per mile to o'n an" operate your +ehicle, a%out C26 'oul" %e a reasona%le
estimate o3 your K"ri+ing e-penses8L
-ote to instructor. #ost employers "o %ase their reim%ursement o3 "ri+ing e-penses on an a+erage cost per
mile8 5n a sophisticate" class, you may 'ant to point out that the incre*ental costs o3 this trip are much less
than the a+erage cost8 Thus, employees usually %ene3it some'hat in the short/term 'hen they are
reim%urse" 3or using their o'n cars8
E+. 3! .ct. 1 Cash888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 200,000
Capital .toc>88888888888888888888888888888888888888888888888888888888888888888 200,000
5ssue" capital stoc> at C50 per share8
! Giagnostic 6)uipment888888888888888888888888888888888888888888888888888888888888888 75,000
Cash888888888888888888888888888888888888888888888888888888888888888888888888888888 25,000
&otes Paya%le8888888888888888888888888888888888888888888888888888888888888888 50,000
Purchase" e)uipment, paying part in cash an" signing a note
paya%le 3or the %alance8
12 Accounts Paya%le8888888888888888888888888888888888888888888888888888888888888888888888 9,000
Cash888888888888888888888888888888888888888888888888888888888888888888888888888888 9,000
Pai" account paya%le to Meller Ea%oratories
1/ .urgical .upplies8888888888888888888888888888888888888888888888888888888888888888888888 2,600
Accounts Paya%le8888888888888888888888888888888888888888888888888888888888 2,600
Purchase" surgical supplies on account8
2 Cash888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 2,000
Accounts !ecei+a%le88888888888888888888888888888888888888888888888888888 2,000
Collecte" amount o'e" 3rom @ealth Hne 5nsurance8
30 Gi+i"en"s8888888888888888888888888888888888888888888888888888888888888888888888888888888888 300,000
Cash888888888888888888888888888888888888888888888888888888888888888888888888888888 300,000
Pai" cash "i+i"en"8
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al .4
E+. 3 0ov. 1 Cash888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 120,000
Capital .toc>88888888888888888888888888888888888888888888888888888888888888888 120,000
5ssue" stoc> in e-change 3or cash8
1 Ean"888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 70,000
;uil"ing888888888888888888888888888888888888888888888888888888888888888888888888888888888888 5*,600
Cash888888888888888888888888888888888888888888888888888888888888888888888888888888 33,600
&otes Paya%le8888888888888888888888888888888888888888888888888888888888888888 95,000
Purchase" lan" an" %uil"ing, %y paying C33,600 cash an"
issuing a note paya%le 3or the remaining %alance8
1 H33ice 6)uipment8888888888888888888888888888888888888888888888888888888888888888888888 3,200
Accounts Paya%le8888888888888888888888888888888888888888888888888888888888 3,200
Purchase" o33ice e)uipment on account8
21 Accounts Paya%le8888888888888888888888888888888888888888888888888888888888888888888888 *0
H33ice 6)uipment8888888888888888888888888888888888888888888888888888888888 *0
!eturne" some o3 the o33ice e)uipment purchase" on
&o+em%er 158
2 &otes Paya%le888888888888888888888888888888888888888888888888888888888888888888888888888 12,000
Cash888888888888888888888888888888888888888888888888888888888888888888888888888888 12,000
Pai" note paya%le8
30 7ehicles888888888888888888888888888888888888888888888888888888888888888888888888888888888888 9,00
Cash888888888888888888888888888888888888888888888888888888888888888888888888888888 1,00
&otes Paya%le8888888888888888888888888888888888888888888888888888888888888888 *,000
Purchase" +ehicles %y paying C1,00 cash an" issuing a note
paya%le 3or the remaining %alance8
E+. 3( AVENSON INSURANCE COMPANY
Tri#+ B#+#$ce
N!)e,&er 33, 5366
Cash88888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 C 73,000
Ean"88888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 70,000
;uil"ing88888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 5*,600
H33ice e)uipment8888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 2,720
7ehicles888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 9,00
&otes paya%le888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 C 91,000
Accounts paya%le888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 2,720
Capital stoc>8888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 120,000
C 213,720 C 213,720
.5 ? The #c4ra'/@ill Companies, 5nc8, 2005
E+. 32 a. Eia%ilities at the %eginning o3 the yearF C680 %illion C389 %illion N C281 %illion
,. H'ners( e)uity at the en" o3 the yearF C683 %illion C282 %illion N C81 %illion
c. 6n"ing o'ners( e)uity <3rom part ,=8888888888888888 C,100,000,000
EessF ;eginning o'ners( e)uity88888888888888888888888 <3,900,000,000=
5ncrease in o'ners( e)uity88888888888888888888888888888888 C 200,000,000
EessF 5ncrease in capital stoc>88888888888888888888888888 <135,000,000=
&et income8888888888888888888888888888888888888888888888888888888 C 65,000,000
E+. 31
I$c!,e S(#(e,e$( B#+#$ce S*ee(
Tr#$7
#c(i!$ Re)e$8e

Ex"e$e 9
Ne(
I$c!,e Ae( 9 Li#&i+i(ie :
O;$er<
E=8i(>
1. 5 &6 5 5 &6 5
2. &6 &6 &6 G G &6
3. &6 &6 &6 &6 &6 &6
!. &6 5 G &6 5 G
. &6 &6 &6 5 5 &6
(. &6 &6 &6 G &6 G
E+. 3/
a.
I$c!,e S(#(e,e$( B#+#$ce S*ee(
Tr#$7
#c(i!$ Re)e$8e

Ex"e$e 9
Ne(
I$c!,e Ae( 9 Li#&i+i(ie :
O;$er<
E=8i(>
1. &6 5 G &6 5 G
2. 5 &6 5 5 &6 5
3. &6 &6 &6 G &6 G
!. &6 &6 &6 5 5 &6
. &6 5 G G &6 G
(. &6 &6 &6 &6 &6 &6
2. &6 &6 &6 5 5 &6
1. &6 &6 &6 G G &6
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al .3
,. 1. 5ncurre" 'ages e-pense to %e pai" at a later "ate8
2. 6arne" re+enue to %e collecte" at a later "ate8
3. Geclare" an" pai" a cash "i+i"en"8
!. Purchase" o33ice supplies on account8
. 5ncurre" an" pai" repairs e-pense8
(. Collecte" cash 3rom a customer 3or re+enue earne" pre+iously on account8
2. Purchase" tools an" e)uipment %y paying part in cash an" issuing a note paya%le 3or the
remaining %alance8
1. Pai" an outstan"ing account paya%le8
E+. 310 a. An in+estment %y stoc>hol"ers "oes not constitute re+enue8 Although this in+estment causes
an increase in o'ners( e)uity, this increase 'as not earne"8 5t "i" not result 3rom the
ren"ering o3 ser+ices or sale o3 merchan"ise to outsi"ers8
,. The collection o3 an account recei+a%le "oes not increase o'ners( e)uity an" "oes not
represent re+enue8
c. The %orro'ing o3 money 3rom a %an> creates a lia%ilityD it "oes not increase the o'ners(
e)uity an" "oes not represent re+enue8
d. The interest 'as earne" in #ay an" represents re+enue o3 that month, "espite the 3act that no
'ith"ra'als 'ere ma"e 3rom the %an>8
e. This 3ee 'as earne" in #ay an" represents re+enue o3 that month, "espite the 3act that
collection 'ill not %e ma"e until $une8
E+. 311 a. Purchase o3 a copying machine "oes not represent e-pense8 The asset Cash is e-change" 3or
the asset H33ice 6)uipment, 'ithout any change in o'ners( e)uity8 The purpose o3 the
transaction 'as to o%tain the use o3 the copier o+er a num%er o3 years, rather than to generate
re+enue only "uring the current perio"8 <6+ergreen 'ill recogni,e "epreciation e-pense on
this asset throughout its use3ul li3e, %ut the purchase "oes not represent an e-pense in #arch8
Gepreciation issues are intro"uce" in Chapter 8=
,. 4asoline purchase" is an e-pense %ecause it is or"inarily use" up in the current perio"8 These
purchases "ecrease the o'ners( e)uity an" are 3or the purpose o3 generating re+enue8
c. Payment to an employee 3or ser+ices ren"ere" in #arch is a #arch e-pense8 .uch a payment
is ma"e to generate re+enue an" "ecreases o'ners( e)uity8
d. The payment to the attorney 3or ser+ices ren"ere" in a prior perio" re"uce" an e-isting
lia%ility %ut "i" not a33ect the o'ners( e)uity8 The payment 'as not an e-pense8
e. The "i+i"en" "oes not constitute an e-pense8 0nli>e payments 3or a"+ertising, rent, an"
supplies, "i+i"en"s "o not generate re+enue8 Gi+i"en"s constitute a return to stoc>hol"ers o3
a portion o3 their e)uity in the %usiness8
.? ? The #c4ra'/@ill Companies, 5nc8, 2005
E+. 312 a. "3r. Accounts !ecei+a%le8888888888888888888888888888888888888888888888888888888888 900
Gra3ting Bees 6arne"8888888888888888888888888888888888888888888888 900
Prepare" plans 3or .pangler ConstructionD payment "ue in
30 "ays8
May 12 Gi+i"en"s888888888888888888888888888888888888888888888888888888888888888888888888888 5,000
Gi+i"en"s Paya%le88888888888888888888888888888888888888888888888888 5,000
Geclare" cash "i+i"en"D payment "ue $une 258
May 2/ Pro3essional 6-penses88888888888888888888888888888888888888888888888888888888 2,000
Accounts Paya%le8888888888888888888888888888888888888888888888888888 2,000
!ecei+e" accounting %ill 3rom ;o% &ee"ham "ue on $une
108
4une ! Cash888888888888888888888888888888888888888888888888888888888888888888888888888888888888 900
Accounts !ecei+a%le88888888888888888888888888888888888888888888888 900
!ecei+e" 3ull payment 3rom .pangler Construction 3or
%ill sent April 58
4une 10 Accounts Paya%le888888888888888888888888888888888888888888888888888888888888888 2,000
Cash888888888888888888888888888888888888888888888888888888888888888888888888 2,000
Pai" amount o'e" to ;o% &ee"ham, CPA8
4une 2 Gi+i"en"s Paya%le88888888888888888888888888888888888888888888888888888888888888 5,000
Cash888888888888888888888888888888888888888888888888888888888888888888888888 5,000
Pai" cash "i+i"en" "eclare" #ay 178
,. The 3ollo'ing transactions 'ill not cause a change in net income8
#ay 17F Geclaration o3 a cash "i+i"en"8
$une F Collection o3 an account recei+a%le8
$une 10F Payment o3 an account paya%le8
$une 25F Payment o3 a "i+i"en" paya%le8
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al .-
E+. 313 a. 4uly 11 Cash888888888888888888888888888888888888888888888888888888888888888888888888888888888888 1,500
Capital .toc>8888888888888888888888888888888888888888888888888888888888 1,500
5ssue" 500 shares o3 capital stoc> to Patric> Gonegan at
C3 per share8
4uly 22 H33ice .upplies
88888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888
888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888
100
Accounts Paya%le8888888888888888888888888888888888888888888888888888 100
Purchase" o33ice supplies on account8
4uly 23 #o'ing 6)uipment
88888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888
888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888
2,000
Cash888888888888888888888888888888888888888888888888888888888888888888888888 00
&otes Paya%le888888888888888888888888888888888888888888888888888888888 1,600
Purchase" mo'ing e)uipment paying C00 cash an"
issuing a C1,600 note paya%le 3or the %alance8
4uly 2! Buel 6-pense888888888888888888888888888888888888888888888888888888888888888888888888888888888 25
Cash888888888888888888888888888888888888888888888888888888888888888888888888 25
Pai" 3or gasoline to %e use" in $uly8
4uly 2 Accounts !ecei+a%le888888888888888888888888888888888888888888888888888888888888888888888 150
Cash888888888888888888888888888888888888888888888888888888888888888888888888 150
;ille" Eost Cree> Cemetery 3or mo'ing ser+ices8
Payment is "ue $uly 308
4uly 2( Accounts !ecei+a%le888888888888888888888888888888888888888888888888888888888888888888888 200
#o'ing !e+enue8888888888888888888888888888888888888888888888888888 200
;ille" 4ol3 7ie' Con"ominiums 3or mo'ing ser+ices8
Payment is "ue August 18
4uly 30 Cash8888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 150
Accounts !ecei+a%le88888888888888888888888888888888888888888888888 150
Collecte" amount "ue 3rom Eost Cree> Cemetery 3or
mo'ing ser+ices pro+i"e" $uly 258
4uly 31 .alaries 6-pense8888888888888888888888888888888888888888888888888888888888888888888888888888 *0
Cash888888888888888888888888888888888888888888888888888888888888888888888888 *0
Pai" salary to Te""y 4rimm 3or 'or> per3orme" in $uly8
.. ? The #c4ra'/@ill Companies, 5nc8, 2005
,.
Cash Accounts !ecei+a%le
$uly 1* 1,500 $uly 23 00 $uly 25 150 $uly 30 150
$uly 30 150 $uly 2 25 $uly 26 200
$uly 31 *0
$uly 31 ;al8 1,15 $uly 31 ;al8 200
H33ice .upplies #o'ing 6)uipment
$uly 22 100 $uly 23 2,000
$uly 31 ;al8 100 $uly 31
;al8
2,000
Accounts Paya%le &otes Paya%le
$uly 22 100 $uly 23 1,600
$uly 31 ;al8 100 $uly 31 ;al8 1,600
Capital .toc> !etaine" 6arnings
$uly 1* 1,500
$uly 31 ;al8 1,500 $uly 31 ;al8 0
#o'ing !e+enue .alaries 6-pense
$uly 25 150 $uly 31 *0
$uly 26 200
$uly 31 ;al8 350 $uly 31 ;al8 *0
Buel 6-pense
$uly 2 25
$uly 31 ;al8 25
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al .0
c. DONEGAN@S LAWN CARE SERVICE
Tri#+ B#+#$ce
A8+> 34, 533-
Cash C 1,15
Accounts recei+a%le 200
H33ice supplies 100
#o'ing e)uipment 2,000
Accounts paya%le C 100
&otes paya%le 1,600
Capital stoc> 1,500
!etaine" earnings /
#o'ing re+enue 350
.alaries e-pense *0
Buel e-pense 25
C 3,550 C 3,550
d. Gonegan(s !etaine" 6arnings %alance is ,ero %ecause the company has %een in %usiness 3or only t'o
'ee>s an" has not yet up"ate" the !etaine" 6arnings account 3or any re+enue or e-pense acti+ities8
The proce"ure to up"ate the !etaine" 6arnings account is "iscusse" in Chapter 58
.1 ? The #c4ra'/@ill Companies, 5nc8, 2005
E+. 31! a. 5e,. 2 Accounts Paya%le888888888888888888888888888888888888888888888888888888888888888 750
Cash888888888888888888888888888888888888888888888888888888888888888888888888 750
Pai" C750 in partial settlement o3 outstan"ing accounts
paya%le8
5e,. ( Cash
88888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888
888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888
900
Accounts !ecei+a%le88888888888888888888888888888888888888888888888 900
Collecte" C900 in 3ull settlement o3 outstan"ing accounts
recei+a%le8
5e,. 11 Accounts !ecei+a%le
88888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888
888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888
175
Party !e+enue888888888888888888888888888888888888888888888888888888888 175
;ille" .un3lo'er Chil" Care 3or clo'n ser+ices8
The entire amount is "ue #arch 158
5e,. 2( Cash8888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888 *0
Party !e+enue888888888888888888888888888888888888888888888888888888888 *0
;ille" an" collecte" cash 3or per3orming at se+eral
%irth"ay parties8
5e,. 21 .alaries 6-pense8888888888888888888888888888888888888888888888888888888888888888888888888888 260
Cash888888888888888888888888888888888888888888888888888888888888888888888888 260
Pai" clo'n salaries 3or 'or> per3orme" in Be%ruary8
5e,. 21 Tra+el 6-pense888888888888888888888888888888888888888888888888888888888888888888888888888888 0
Cash888888888888888888888888888888888888888888888888888888888888888888888888 0
Pai" tra+el e-penses incurre" in Be%ruary8
5e,. 21 Gi+i"en"s88888888888888888888888888888888888888888888888888888888888888888888888888888888888888 100
Cash888888888888888888888888888888888888888888888888888888888888888888888888 100
Geclare" an" "istri%ute" "i+i"en" to !alph $ascho%8
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al .2
Cash Accounts !ecei+a%le
Be%8 1 ;al8 2,*50 Be%8 2 750 Be%8 1 ;al8 900 Be%8 6 900
Be%8 6 900 Be%8 2* 260 Be%8 1* 175
Be%8 26 *0 Be%8 2* 0
Be%8 2* 100
Be%8 2* ;al8 3,0*0 Be%8 2* ;al8 175
Accounts Paya%le Capital .toc>
Be%8 2 750 Be%8 1 ;al8 *00 Be%8 1 ;al8 2,000
Be%8 2* ;al8 50 Be%8 2* ;al8 2,000
!etaine" 6arnings Gi+i"en"s
Be%8 1 ;al8 750 Be%8 1 ;al8 0
Be%8 2* 100
Be%8 2* ;al8 750 Be%8 2* 100
Party !e+enue .alaries 6-pense
Be%8 1 ;al8 1,350 Be%8 1 ;al8 *30
Be%8 1* 175 Be%8 2* 260
Be%8 26 *0
Be%8 2*
;al8
2,005 Be%8 2*
;al8
1,090
Party Boo" 6-pense Tra+el 6-pense
Be%8 1 ;al8 20 Be% 1 ;al8 *0
Be%8 2* 0
Be%8 2* ;al8 20 Be%8 2*
;al8
120
03 ? The #c4ra'/@ill Companies, 5nc8, 2005
c. CLOWN AROUND, INCB
Tri#+ B#+#$ce
Fe&r8#r> 51, 533-
Cash C 3,0*0
Accounts recei+a%le 175
Accounts paya%le C 50
Capital stoc> 2,000
!etaine" earnings 750
Gi+i"en"s 100
Party re+enue 2,005
.alaries e-pense 1,090
Party 3oo" e-pense 20
Tra+el e-pense 120
C ,*05 C ,*05
d. Gi+i"en"s are not an e-pense8 Thus, they are not "e"ucte" 3rom re+enue in the income statement8 The
reason "i+i"en"s are not +ie'e" as e-penses is that these payments "o not ser+e to generate re+enue8
!ather, they are a "istri%ution o3 pro3its to the o'ners o3 the %usiness8
E+. 31 a. The company(s %alance sheet is "ate" Gecem%er 318 Thus, it is apparent that its 3inancial
year coinci"es 'ith the calen"ar year8
,. 20016 C61*,676 N C110,215 O C50*,61
20026 C66,0*0 N C119,30 O C526,70
c. The company(s cash <an" cash e)ui+alents= "ecrease" 3rom C106,532 at the %eginning o3 the
year, to C105,507 at the en" o3 the year8 Thus, it ha" to ha+e poste" more cre"its than "e%its
to cash <an" cash e)ui+alents=8 &ote that these 3igures are state" in thousan"s o3 "ollars8
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 04
SOLUTIONS TO PROBLEMS
30 Minutes, Medium
PROBLEM 3C4
HEARTLAND CONSTRUCTION
a.
General Journal

20__
Feb. 1 Cash 5 0 0 0 0 0
Capital Stock 5 0 0 0 0 0
Issued 25,000 shares of Capital Stock.
10 Land 1 0 0 0 0 0
Office Building 2 0 0 0 0 0
Cash 6 0 0 0 0
Notes Payable 2 4 0 0 0 0
Purchased land and office building.
16 Computer Systems 1 2 0 0 0
Cash 1 2 0 0 0
Purchased computer system.
18 Office Furnishings 9 0 0 0
Cash 1 0 0 0
Accounts Payable 8 0 0 0
Purchased office furnishings.
22 Office Supplies 3 0 0
Cash 3 0 0
Purchased office supplies.
23 Accounts Receivable 3 6
Computer Systems 3 6
Purchased computer system.
27 Accounts Payable 4 0 0 0
Cash 4 0 0 0
Made payment on an account payable.

28 Cash 3 6
Accounts Receivable 3 6
Collected cash refunded by PC World.
05 ? The #c4ra'/@ill Companies, 5nc8, 2005
PROBLEM 3C4
HEARTLAND CONSTRUCTION Dc!$c+8EeEF
b.
7ransaction "ssets 8 9ia,ilities : .$ners; E<uity
Be%8 1 O C500,000 <Cash= C0 O C500,000 <Capital
.toc>=
Be%8 10 O C100,000 <Ean"= O C20,000 <&otes Paya%le= C0
O C200,000 <H33ice ;uil"ing=
C60,000 <Cash=
Be%8 16 O C12,000 <Computer .ystems= C0 C0
C12,000 <Cash=
Be%8 1* O C9,000 <H33ice Burnishings= O C*,000 <Accounts Paya%le= C0
C1,000 <Cash=
Be%8 22 O C300 <H33ice .upplies= C0 C0
C300 <Cash=
Be%8 23 O C36 <Accounts !ecei+a%le= C0 C0
C36 <Computer .ystems=
Be%8 27 C,000 <Cash= / C,000 <Accounts Paya%le= C0
Be%8 2* O C36 <Cash= C0 C0
C36 <Accounts !ecei+a%le=
30 Minutes, Medium
PROBLEM 3C5
ENVIRONMENTAL SERVICES, INCB
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 03
a. =1> =a> The asset Accounts !ecei+a%le 'as increase"8 5ncreases in assets are recor"e" %y "e%its8 Ge%it
Accounts !ecei+a%le, C2,5008
=,> !e+enue has %een earne"8 !e+enue increases o'ners( e)uity8 5ncreases in o'ners( e)uity are
recor"e" %y cre"its8 Cre"it Testing .er+ice !e+enue, C2,5008
=2> =a> The asset Testing .upplies 'as increase"8 5ncreases in assets are recor"e" %y "e%its8 Ge%it
Testing .upplies, C3,*008
=,> The asset Cash 'as "ecrease"8 Gecreases in assets are recor"e" %y cre"its8 Cre"it Cash, C*008
=c> The lia%ility Accounts Paya%le 'as increase"8 5ncreases in lia%ilities are recor"e" %y cre"its8
Cre"it Accounts Paya%le, C3,0008
=3> =a> The lia%ility Accounts Paya%le 'as "ecrease"8 Gecreases in lia%ilities are recor"e" %y "e%its8
Ge%it Accounts Paya%le, C1008
=,> The asset Testing .upplies 'as "ecrease"8 Gecreases in assets are recor"e" %y cre"its8 Cre"it
Testing .upplies, C1008
=!> =a> The asset Cash 'as increase"8 5ncreases in assets are recor"e" %y "e%its8 Ge%it Cash, C20,0008
=,> The o'ners( e)uity account Capital .toc> 'as increase"8 5ncreases in o'ners( e)uity are
recor"e" %y cre"its8 Cre"it Capital .toc>, C20,0008
=> =a> The asset Cash 'as increase"8 5ncreases in assets are recor"e" %y "e%its8 Ge%it Cash, C6008
=,> The asset Accounts !ecei+a%le 'as "ecrease"8 Gecreases in assets are recor"e" %y cre"its8
Cre"it Accounts !ecei+a%le, C6008
=(> =a> The lia%ility Accounts Paya%le 'as "ecrease"8 Gecreases in lia%ilities are recor"e" %y "e%its8
Ge%it Accounts Paya%le, C2,900 <C3,*00 / C*00 / C100=8
=,> The asset Cash 'as "ecrease"8 Gecreases in assets are recor"e" %y cre"its8 Cre"it Cash, C2,9008
=2> =a> The Gi+i"en"s account 'as increase"8 Gi+i"en"s "ecrease the o'ners( e)uity account !etaine"
6arnings8 Gecreases in o'ners( e)uity are recor"e" %y "e%its8 Ge%it Gi+i"en"s, C6,*008
=,> The asset Cash 'as "ecrease"8 Gecreases in assets are recor"e" %y cre"its8 Cre"it Cash, C6,*008
PROBLEM 3C5
ENVIRONMENTAL SERVICES, INCB Dc!$(i$8eEF
0? ? The #c4ra'/@ill Companies, 5nc8, 2005
b.
General Journal

20__ (1)
Aug. 1 Accounts Receivable 2 5 0 0
Testing Service Revenue 2 5 0 0
Billed customers for services rendered.
(2)
3 Testing Supplies 3 8 0 0
Cash 8 0 0
Accounts Payable 3 0 0 0
Purchased testing supplies.
(3)
5 Accounts Payable 1 0 0
Testing Supplies 1 0 0
Returned portion of testing supplies puchased on Aug. 3.
(4)
17 Cash 2 0 0 0 0
Capital Stock 2 0 0 0 0
Issued 2,500 shares of capital stock at $8 per share.
(5)
22 Cash 6 0 0
Accounts Receivable 6 0 0
Received partial payment for services billed on Aug. 1.
(6)
29 Accounts Payable 2 9 0 0
Cash 2 9 0 0
Paid outstanding balance owed for testing supplies
purchased on Aug. 3.
(7)
30 Dividends 6 8 0 0
Cash 6 8 0 0
Declared and paid a cash dividend.
PROBLEM 3C5
ENVIRONMENTAL SERVICES, INCB Dc!$c+8EeEF
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 0-
c. The reali,ation principle re)uires that re+enue %e recor"e" 'hen it is earned, e+en i3 cash 3or the goo"s
or ser+ices pro+i"e" has not %een recei+e"8
d. The matching principle re)uires that re+enue earne" "uring an accounting perio" %e matche" <o33set=
'ith e-penses incurre" in generating this re+enue8 Testing supplies are recor"e" as an asset 'hen they
are 3irst purchase"8 As these supplies are use" in a particular accounting perio", their cost 'ill %e
matche" against the re+enue earne" in that perio"8
3 Minutes, Medium
PROBLEM 3C3
WEIDA SURVEYING, INCB
a.
I$c!,e S(#(e,e$( B#+#$ce S*ee(
Tr#$#c(i!$ Re)e$8e

Ex"e$e 9
Ne(
I$c!,e Ae( 9 Li#&i+i(ie :
O;$er<
E=8i(>
Se3t. 1 0E I % % 0E %
Se3t. 3 I 0E I I 0E I
Se3t. / I 0E I I 0E I
Se3t. 1! 0E I % 0E I %
Se3t. 2 0E 0E 0E 0E 0E 0E
Se3t. 2( I 0E I I 0E I
Se3t. 2/ 0E 0E 0E % % 0E
Se3t. 30 0E 0E 0E % 0E %
PROBLEM 3C3
WEIDA SURVEYING, INCB Dc!$c+8EeEF
0. ? The #c4ra'/@ill Companies, 5nc8, 2005
b.
General Journal

Sept. 1 Rent Expense 4 4 0 0
Cash 4 4 0 0
Paid September rent.
3 Accounts Receivable 5 6 2 0
Surveying Revenue 5 6 2 0
Billed Fine Line Homes for surveying services.
9 Cash 2 8 3 0
Surveying Revenue 2 8 3 0
Collected cash from Sunset Ridge Development for
services provided.
14 Advertising Expense 1 6 5
Accounts Payable 1 6 5
Placed ad in the newspaper to be published on Sept. 20.
Total amount due in 30 days.
25 Cash 5 6 2 0
Accounts Receivable 5 6 2 0
Received payment from Fine Line Homes for services
billed on Sept. 3.
26 Cash 4 0 0
Accounts Receivable 1 4 9 0
Surveying Revenue 1 8 9 0
Collected partial payment from Thompson and billed
remainder.
29 Accounts Payable 1 6 5
Cash 1 6 5
Paid newspaper for advertisement published on Sept. 20.
30 Dividends 7 6 0 0
Cash 7 6 0 0
Declared and paid a cash dividend.
c8 Three situations in 'hich a cash payment "oes not in+ol+e an e-pense inclu"eF <1= the payment o3 a
cash "i+i"en", <2= the payment o3 a lia%ility 3or a pre+iously recor"e" e-pense, an" <3= the purchase o3
an asset, inclu"ing e-penses pai" in a"+ance such as insurance, rent, an" a"+ertising8
0 Minutes, Strong
PROBLEM 3C?
AERIAL VIEWS
a.
I$c!,e S(#(e,e$( B#+#$ce S*ee(
Tr#$#c(i!$ Re)e$8e

Ex"e$e 9
Ne(
I$c!,e Ae( 9 Li#&i+i(ie :
O;$er<
E=8i(>
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 00
4une 1 0E 0E 0E I 0E I
4une 2 0E 0E 0E I I 0E
4une ! 0E I % % 0E %
4une 1 I 0E I I 0E I
4une 1 0E I % % 0E %
4une 11 0E I % % 0E %
4une 2 0E 0E 0E 0E 0E 0E
4une 30 I 0E I I 0E I
4une 30 0E I % % 0E %
4une 30 0E I % 0E I %
4une 30 0E 0E 0E 0E I %
PROBLEM 3C?
AERIAL VIEWS Dc!$(i$8eEF
01 ? The #c4ra'/@ill Companies, 5nc8, 2005
b.
General Journal

2005
June 1 Cash 6 0 0 0 0
Capital Stock 6 0 0 0 0
Issued stock to Wendy Winger.
2 Aircraft 2 2 0 0 0 0
Cash 4 0 0 0 0
Notes Payable 1 8 0 0 0 0
Purchased plane from Utility Aircraft.
4 Rent Expense 2 5 0 0
Cash 2 5 0 0
Paid office and hangar rent for June.
15 Accounts Receivable 8 3 2 0
Aerial Photography Revenue 8 3 2 0
Billed customers for first half of June.
15 Salaries Expense 5 8 8 0
Cash 5 8 8 0
Paid salaries for first half of June.
18 Maintenance Expense 1 8 9 0
Cash 1 8 9 0
Paid Hannigan's Hangar for repair services.
25 Cash 4 9 1 0
Accounts Receivable 4 9 1 0
Collected portion of amount billed to customers.
30 Accounts Receivable 1 6 4 5 0
Aerial Photography Revenue 1 6 4 5 0
Billed customers for services rendered through month-end.
30 Salaries Expense 6 0 0 0
Cash 6 0 0 0
Paid salaries through month-end.
30 Fuel Expense 2 5 1 0
Accounts Payable 2 5 1 0
Received bill for fuel used during June.
30 Dividends 2 0 0 0
Dividends Payable 2 0 0 0
Declared dividend payable July 15.
PROBLEM 3C?
AERIAL VIEWS Dc!$(i$8eEF
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 02
c. Cash
Date Explanation Debit Credit Balance
2005
June 1 6 0 0 0 0 6 0 0 0 0
2 4 0 0 0 0 2 0 0 0 0
4 2 5 0 0 1 7 5 0 0
15 5 8 8 0 1 1 6 2 0
18 1 8 9 0 9 7 3 0
25 4 9 1 0 1 4 6 4 0
30 6 0 0 0 8 6 4 0

Accounts Receivable
Date Explanation Debit Credit Balance
2005
June 15 8 3 2 0 8 3 2 0
25 4 9 1 0 3 4 1 0
30 1 6 4 5 0 1 9 8 6 0
Aircraft
Date Explanation Debit Credit Balance
2005
June 2 2 2 0 0 0 0 2 2 0 0 0 0
Notes Payable
Date Explanation Debit Credit Balance
2005
June 2 1 8 0 0 0 0 1 8 0 0 0 0
Accounts Payable
Date Explanation Debit Credit Balance
2005
June 30 2 5 1 0 2 5 1 0
PROBLEM 3C?
AERIAL VIEWS Dc!$(i$8eEF
13 ? The #c4ra'/@ill Companies, 5nc8, 2005
Dividends Payable
Date Explanation Debit Credit Balance
2005
June 30 2 0 0 0 2 0 0 0
Capital Stock
Date Explanation Debit Credit Balance
2005
June 1 6 0 0 0 0 6 0 0 0 0
Dividends
Date Explanation Debit Credit Balance
2005
June 30 2 0 0 0 2 0 0 0

Aerial Photography Revenue
Date Explanation Debit Credit Balance
2005
June 15 8 3 2 0 8 3 2 0
30 1 6 4 5 0 2 4 7 7 0
Maintenance Expense
Date Explanation Debit Credit Balance
2005
June 18 1 8 9 0 1 8 9 0
PROBLEM 3C?
AERIAL VIEWS Dc!$(i$8eEF
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 14
Fuel Expense
Date Explanation Debit Credit Balance
2005
June 30 2 5 1 0 2 5 1 0

Salaries Expense
Date Explanation Debit Credit Balance
2005
June 15 5 8 8 0 5 8 8 0
30 6 0 0 0 1 1 8 8 0
Rent Expense
Date Explanation Debit Credit Balance
2005
June 4 2 5 0 0 2 5 0 0

PROBLEM 3C?
AERIAL VIEWS Dc!$(i$8eEF
d. AERIAL VIEWS
Trial Balance
June 30, 2005
Cash $ 8 6 4 0
Accounts receivable 1 9 8 6 0
Aircraft 2 2 0 0 0 0
Notes payable $ 1 8 0 0 0 0
Accounts payable 2 5 1 0
Dividends payable 2 0 0 0
Capital stock 6 0 0 0 0
Retained earnings 0
Dividends 2 0 0 0
Aerial photography revenue 2 4 7 7 0
Maintenance expense 1 8 9 0
Fuel expense 2 5 1 0
Salaries expense 1 1 8 8 0
Rent expense 2 5 0 0
$ 2 6 9 2 8 0 $ 2 6 9 2 8 0
15 ? The #c4ra'/@ill Companies, 5nc8, 2005
PROBLEM 3C?
AERIAL VIEWS Dc!$c+8EeEF
e.
Total assets:
Cash $ 8 6 4 0
Accounts receivable 1 9 8 6 0
Aircraft 2 2 0 0 0 0
Total assets $ 2 4 8 5 0 0
Total liabilities:
Notes payable $ 1 8 0 0 0 0
Accounts payable 2 5 1 0
Dividends payable 2 0 0 0
Total liabilities $ 1 8 4 5 1 0
Total stockholders equity:
Total assets - total liabilities ($248,500 - $184,510) $ 6 3 9 9 0
(Alternate computationnet all owners equity accounts, permanent
and temporary:
$60,000

$2,000
+
$24,770

$1,890

$2,510

$11,880

$2,500)
The above figures are most likely not the amounts to be reported
in the balance sheet dated June 30. The accounting cycle includes
adjustments that must be made to the trial balance figures before
financial statements are prepared. The adjusting process is
covered in Chapter 4.





(0 Minutes, Strong
PROBLEM 3C-
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 13
DRB SCHEGTER, DVM
a.
I$c!,e S(#(e,e$( B#+#$ce S*ee(
Tr#$#c(i!$ Re)e$8e

Ex"e$e 9
Ne(
I$c!,e Ae( 9 Li#&i+i(ie :
O;$er<
E=8i(>
May 1 0E 0E 0E I 0E I
May ! 0E 0E 0E I I 0E
May / 0E 0E 0E 0E 0E 0E
May 1( 0E 0E 0E I I 0E
May 21 0E 0E 0E 0E 0E 0E
May 2! I 0E I I 0E I
May 22 0E I % 0E I %
May 21 0E 0E 0E 0E 0E 0E
May 31 0E I % % 0E %
PROBLEM 3C-
DRB SCHEGTER, DVM Dc!$(i$8eEF
1? ? The #c4ra'/@ill Companies, 5nc8, 2005
b.
General Journal

2005
May 1 Cash 4 0 0 0 0 0
Capital Stock 4 0 0 0 0 0
Issued 5,000 shares of capital stock.
4 Land 7 0 0 0 0
Building 1 8 0 0 0 0
Cash 1 0 0 0 0 0
Notes Payable 1 5 0 0 0 0
Purchased land and building.
9 Medical Instruments 1 3 0 0 0 0
Cash 1 3 0 0 0 0
Purchased medical instruments.
16 Office Fixtures & Equipment 5 0 0 0 0
Cash 2 0 0 0 0
Accounts Payable 3 0 0 0 0
Purchased fixtures and equipment.
21 Office Supplies 5 0 0 0
Cash 5 0 0 0
Purchased office supplies.
24 Cash 1 9 0 0
Accounts Receivable 3 0 0
Veterinary Service Revenue 2 2 0 0
Recorded veterinary service revenue earned.
27 Advertising Expense 4 0 0
Accounts Payable 4 0 0
Recorded advertising expense incurred in May.
28 Cash 1 0 0
Accounts Receivable 1 0 0
Collected cash for May 24 services.
31 Salary Expense 2 8 0 0
Cash 2 8 0 0
Paid May salary expense.
PROBLEM 3C-
DRB SCHEGTER, DVM Dc!$(i$8eEF
c.
Cas& 0otes *aya,le
May 1 !00,000 May ! 100,000 May ! 10,000
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 1-
May 2! 1,/00 May / 130,000
May 21 100 May 1( 20,000 May 31 ?al. 10,000
May 21 ,000
May 31 2,100
May31 ?al. 1!!,200
"ccounts )eceiva,le "ccounts *aya,le
May 2! 300 May 21 100 May 1( 30,000
May 22 !00
May 31 ?al. 200 May 31 ?al. 30,!00
.--ice Su33lies Ca3ital Stoc'
May 21 ,000 May 1 !00,000
May 31 ?al. ,000 May 31 ?al. !00,000
Medical Instruments #eterinary Service )evenue
May / 130,000 May 2! 2,200
May 31 ?al. 130,000 May 31 ?al. 2,200
.--ice 5i+tures @ E<ui3ment "dvertising E+3ense
May 1( 0,000 May 22 !00
May 31 ?al. 0,000 May 31 ?al. !00
9and Salary E+3ense
May ! 20,000 May 31 2,100
May 31 ?al. 20,000 May 31 ?al. 2,100
?uilding
May ! 110,000
May 31 ?al. 110,000
PROBLEM 3C-
DRB SCHEGTER, DVM Dc!$(i$8eEF
1. ? The #c4ra'/@ill Companies, 5nc8, 2005
d. DR. SCHEKTER, DVM
Trial Balance
May 31, 2005
Cash $ 1 4 4 2 0 0
Accounts receivable 2 00 0
Office supplies 5 0 0 0
Medical instruments 1 3 0 0 0 0
Office fixtures & equipment 5 0 0 0 0
Land 7 0 0 0 0
Building 1 8 0 0 0 0
Notes payable $ 1 5 0 0 0 0
Accounts payable 3 0 4 0 0
Capital stock 4 0 0 0 0 0
Retained earnings 0
Veterinary service revenue 2 2 0 0
Advertising expense 4 0 0
Salary expense 2 8 0 0
$ 5 8 2 6 0 0 $ 5 8 2 6 0 0
PROBLEM 3C-
DRB SCHEGTER, DMV Dc!$c+8EeEF
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 10
e.
Total assets:
Cash $ 1 4 4 2 0 0
Accountsreceivable 2 0 0
Officesupplies 5 0 0 0
Medical instruments 1 3 0 0 0 0
Officefixtures&equipment 5 0 0 0 0
Land 7 0 0 0 0
Building 1 8 0 0 0 0
Total assets $ 5 7 9 4 0 0
Total liabilities:
Notespayable $ 1 5 0 0 0 0
Accountspayable 3 0 4 0 0
Total liabilities $ 1 8 0 4 0 0
Total owners' (stockholders) equity:
Total assets

total liabilities($579,400

$180,400) $ 3 9 9 0 0 0
Asshownbelow, thebusinesswasnot profitableinitsfirst month
of operations:

Veterinaryservicerevenue $ 2 2 0 0

Less: Advertisingexpense $ 4 0 0
Salaryexpense 2 8 0 0 3 2 0 0
Net loss $ ( 1 0 0 0 )


NotetoInstructor: It isnot uncommonfor newsmall businesses
toinitiallyreport anet lossfromoperations. Inthisparticular
situation, thereweresofewrevenueandexpensetransactionsin
Maythat it isdifficult, if not impossible, todrawanyconclusions
about theexpectedperformanceof theveterinaryclinicinthefuture.

11 ? The #c4ra'/@ill Companies, 5nc8, 2005
SOLUTIONS TO CASES
1 Minutes, Medium
CASE 3C4
REVENUE RECOGNITION
!e+enue is reali,e" in the perio" that ser+ices are ren"ere" to customers or goo"s are "eli+ere" to
customers8 0sing this principle as a gui"e, the three in"epen"ent situations are analy,e" %elo'F
a8 Period of flight. Airlines earn re+enue %y ren"ering a ser+ice1transportation1to their customers8
There3ore, re+enue shoul" %e recogni,e" in the accounting perio" in 'hich this ser+ice is ren"ere"8
<.elling a tic>et "oes not )uali3y as K"eli+ering goo"sL to the customer8 The tic>et is not a Kpro"uctL1
it is merely a receipt sho'ing that the customer has alrea"y ma"e payment 3or ser+ices to %e ren"ere" in
the 3uture8=
%8 Period furniture sold. 5n this case the 3urniture store "eli+ers goo"s to its customers an" ac)uires an
account recei+a%le at the "ate o3 sale8 This is the perio" in 'hich re+enue shoul" %e recogni,e", e+en
though the account recei+a%le may not %e collecte" 3or many months8 Collection o3 an account
recei+a%le "oes not pro"uce re+enueD this action merely con+erts one asset <recei+a%le= into another
<cash=8
c8 Periods that *aga/ines are *ailed to custo*ers. The Kgoo"sL that a maga,ine pu%lisher "eli+ers to its
customers are maga,ines8 Thus, the pu%lisher "oes not earn its re+enue until the maga,ines are
"eli+ere" to the customers8 <Bor practical purposes, the act o3 mailing the maga,ine may %e +ie'e" as
K"eli+ery8L=
30 Minutes, Strong
CASE 3C5
?3H OF THIS, NOT THATI
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 12
a8 Giscussion o3 K3airness an" reasona%lenessL o3 income measurement policiesF
<1= 4i+en that most re+enue is recei+e" in cash an" that cre"it terms are constant, recogni,ing re+enue
on a cash %asis 'ill cause little "istortion in annual results8 Thus, it appears K3air an" reasona%leL1
at least 3or the 3irst t'o years8 ;ut 'e shoul" consi"er that in the last <thir"= year o3 the agreement,
this policy 'ill e-clu"e 3rom net income cre"it sales in Gecem%er8 .tanley may e-pect some
a"2ustment 3or this8
<2= Charging 'ee>ly e-pen"itures 3or %usiness supplies "irectly to e-pense is reasona%le, %ut
consi"ering the #orris 3amily(s grocery an" "ry cleaning %ills as e-penses o3 the %usiness is neither
3air nor reasona%le <nor legal=8
<3= #orris(s salary o3 C60,000 is K3air an" reasona%leL %ecause it has %een agree" upon %y %oth parties8
;ut to ma>e a""itional salary payments o3 C90,000 per year to #orris 3amily mem%ers 'ho 'or>e"
only on a part/time %asis "oes not seem to meet the K3air an" reasona%leL criteria8
<= 5ncome ta-es on the #orris 3amily(s salaries are personal e-penses, not e-penses o3 the %usiness8 5t
is neither 3air nor reasona%le to "e"uct these ta-es in computing the income o3 the corporation8
<5= 5t is not reasona%le to report the entire C150,000 +alue o3 the e)uipment as an e-pense in the 3irst/
year income statement8 This e)uipment 'ill %e use" %y the company 3or many years to generate
re+enue8 ;y assigning the entire cost o3 the e)uipment to the 3irst year o3 operations, #orris has
+iolate" the matching principle8 5n Chapter , 'e 'ill see ho' the process o3 "epreciation shoul" %e
use" to sprea" the cost o3 the printing e)uipment o+er its estimate" use3ul li3e8
%8 The state/o3/the/art printing e)uipment +alue" at C150,000 is an asset, not an e-pense8 ;y reporting the
e)uipment(s entire C150,000 +alue as an e-pense in the company(s 3irst/year income statement, the net
income compute" %y #orris 'as pro%a%ly signi3icantly lo'er than the net cash 3lo' generate" %y the
%usiness8
23 ? The #c4ra'/@ill Companies, 5nc8, 2005
1 Minutes, Easy
CASE 3C3
BUSINESS WEEK ASSIGNMENT
5n a""ition to trac>ing re+enue "ata 3or each o3 its so3t "rin> %ran"s, the company also trac>s "ata relate" toF
.ales per3ormance %y geographic area <%oth nationally an" internationally=8
#ar>et share in3ormation8
Gemographic "ata <e8g8, in3ormation a%out so3t "rin> consumption tren"s %y +arious age groups=8
5n3ormation a%out pro"uct canni%ali,ation <'hen one o3 the company(s pro"ucts ta>es mar>et share
a'ay 3rom another one o3 its pro"ucts=8
Gistri%utor in3ormation8
;ran" mar>eting costs <e8g8, a"+ertising an" other promotional acti+ities=8
5ngre"ient costs an" contracts 'ith the suppliers o3 ingre"ients8
Getaile" in3ormation a%out accounts paya%le to speci3ic suppliers8
Ea%or an" o+erhea" cost in3ormation8
5n+entory locations an" the amount o3 pro"uct at each location8
.hipping an" logistics "ata8
Customer lists an" "etaile" in3ormation a%out customer accounts recei+a%le8
#a2or institutional customers8
6n"orsement contracts <'hen the company pays a 3amous 3igure to promote its pro"ucts=8
Actual sales per3ormance relati+e to each %ran"(s %u"gete" target per3ormance8
Puality assurance in3ormation8
Customer 3ee"%ac> an" sur+ey in3ormation8
!esearch an" "e+elopment in3ormation8
.olutions #anual 7ol8 5, Financial and Managerial Accounting 139e, :illiams et al 24
SOLUTION TO INTERNET ASSIGNMENT
10 Minutes, Easy
INTERNET 3C4
REVENUE FROM VARIOUS SOURCES
A recent 10/A report re+eals that sales o3 #acintosh computers represente" only 10Q o3 the company(s
total sales, "o'n 3rom nearly 15Q 2ust t'o years prior8 The company "istri%utes appro-imately 2 million
catalogs to potential customers each year8
25 ? The #c4ra'/@ill Companies, 5nc8, 2005