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CHAPTER 3

The Accounting Information System


Study Objectives
1.
2.
3.
4.
5.
6.
7.
8.
9.

Analyze the effect of business transactions on the basic accounting equation.


Explain what an account is and how it helps in the recording process.
Define debits and credits and explain how they are used to record business transactions.
Identify the basic steps in the recording process.
Explain what a journal is and how it helps in the recording process.
Explain what a ledger is and how it helps in the recording process.
Explain what posting is and how it helps in the recording process.
Explain the purposes of a trial balance.
Classify cash activities as operating, investing, or financing.

Summary of Questions by Study Objectives and Blooms Taxonomy


Item

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Item

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2.
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2, 3

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5.

5.

3, 5,
6, 7,
8

3, 5,
6, 7,
8

Copyright 2011 John Wiley & Sons, Inc.

BT

Item

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16.
17.
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8

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9.
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10.
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Do It! Review Exercises
C
3.
4, 5
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4.
Exercises
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8.
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9. 3, 4,
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Questions
11.
3
K
12.
3
K
13.
3
K
14.
3
K
15.
4
K
Brief Exercises
7.
4
C
8.
4
C

Problems: Set A
6. 3, 5,
6, 7,
8
AP
Problems: Set B
6. 3, 5,
6, 7,
8
AP

Kimmel Accounting, 4/e Solutions Manual

7.
8.

7.
8.

8
3, 5,
6, 7,
8

AN

8
3, 5,
6, 7,
8

AN

AP

AP

(For Instructor Use Only)

3-1

ASSIGNMENT CHARACTERISTICS TABLE


Problem
Number

3-2

Description

Difficulty
Level

Time
Allotted (min.)

1A

Analyze transactions and compute net income.

Moderate

4050

2A

Analyze transactions and prepare financial statements.

Moderate

4050

3A

Analyze transactions and prepare an income statement,


retained earnings statement, and balance sheet.

Moderate

5060

4A

Journalize a series of transactions.

Simple

2030

5A

Journalize transactions, post, and prepare a trial balance.

Simple

3040

6A

Journalize transactions, post, and prepare a trial balance.

Moderate

4050

7A

Prepare a correct trial balance.

Moderate

3040

8A

Journalize transactions, post, and prepare a trial balance.

Moderate

4050

9A

Analyze errors and their effects on the trial balance.

Moderate

3040

1B

Analyze transactions and compute net income.

Moderate

4050

2B

Analyze transactions and prepare financial statements.

Moderate

4050

3B

Analyze transactions and prepare an income statement,


retained earnings statement, and balance sheet.

Moderate

5060

4B

Journalize a series of transactions.

Simple

2030

5B

Journalize transactions, post, and prepare a trial balance.

Simple

3040

6B

Journalize transactions, post, and prepare a trial balance.

Moderate

4050

7B

Prepare a correct trial balance.

Moderate

3040

8B

Journalize transactions, post, and prepare a trial balance.

Moderate

4050

9B

Analyze errors and their effects on the trial balance

Moderate

3040

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

ANSWERS TO QUESTIONS
1.

The system of collecting and processing transaction data and communicating financial information to decision makers is known as the accounting information system.

2.

Yes, a business can enter into a transaction in which only the left side of the accounting equation
is affected. An example would be a transaction where an increase in one asset is offset by a
decrease in another asset. An increase in the equipment account which is offset by a decrease in
the cash account is a specific example.

3.

Accounting transactions are the economic events of the company recorded by accountants because
they affect the basic accounting equation.
(a)
(b)
(c)
(d)

The death of a major stockholder of the company is not an accounting transaction as it does not
affect the basic accounting equation.
Supplies purchased on account is an accounting transaction because it affects the basic
accounting equation.
An employee being fired is not an accounting transaction as it does not affect the basic
accounting equation.
Paying a cash dividend to stockholders is an accounting transaction as it does affect the
basic accounting equation.

4.

(a) Decrease assets and decrease stockholders equity.


(b) Increase assets and decrease assets.
(c) Increase assets and increase stockholders equity.
(d) Decrease assets and decrease liabilities.

5.

An account consists of three parts: (a) the title, (b) the left or debit side, and (c) the right or credit
side. Because the alignment of these parts resembles the letter T, it is referred to as a T account.

6.

Disagree. The terms debit and credit are synonymous with left and right, respectively.

7.

James is incorrect. The double-entry system merely records the dual (two-sided) effect of a transaction on the accounting equation. A transaction is not recorded twice; it is recorded once, and must
affect two or more accounts to keep the basic accounting equation in balance. In other words, for
each transaction, debits must equal credits.

8.

Gayle is incorrect. A debit balance only means that debit amounts exceed credit amounts in an
account. Conversely, a credit balance only means that credit amounts are greater than debit amounts
in an account. Thus, a debit or credit balance is neither favorable or unfavorable.

9.

(a) Asset accounts are increased by debits and decreased by credits.


(b) Liability accounts are decreased by debits and increased by credits.
(c) The common stock account is decreased by debits and increased by credits.

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-3

Questions Chapter 3 (Continued)


10.

(a) Accounts Receivabledebit balance.


(b) Cashdebit balance.
(c) Dividendsdebit balance.
(d) Accounts Payablecredit balance.
(e) Service Revenuecredit balance.
(f) Salaries and Wages Expensedebit balance.
(g) Common Stockcredit balance.

11.

(a) Accounts Receivableassetdebit balance.


(b) Accounts Payableliabilitycredit balance.
(c) Equipmentassetdebit balance.
(d) Dividendsstockholders equitydebit balance.
(e) Suppliesassetdebit balance.

12.

(a) Debit Supplies and credit Accounts Payable.


(b) Debit Cash and credit Notes Payable.
(c) Debit Salaries and Wages Expense and credit Cash.

13.

(a) Cashboth debit and credit entries.


(b) Accounts Receivableboth debit and credit entries.
(c) Dividendsdebit entries only.
(d) Accounts Payableboth debit and credit entries.
(e) Salaries and Wages Expensedebit entries only.
(f) Service Revenuecredit entries only.

14.

Normal balances for accounts in Tootsie Rolls financial statements: Accounts Receivabledebit;
Income Taxes Payablecredit; Salescredit; Selling, Marketing, and Administrative Expenses
debit.

15.

The basic steps in the recording process are:


(1) Analyze each transaction in terms of its effect on the accounts.
(2) Enter the transaction information in a journal.
(3) Transfer the journal information to the appropriate accounts in the ledger.

16.

(a) The debit should be entered first.


(b) The credit should be indented.

17.

(a) No, debits and credits should not be recorded directly in the ledger.
(b) The advantages of using the journal are:
(1) It discloses in one place the complete effect of a transaction.
(2) It provides a chronological record of all transactions.
(3) It helps to prevent or locate errors because the debit and credit amounts for each entry
can be readily compared.

18.

(a) Cash............................................................................................................................ 12,000


Common Stock ................................................................................................
(Issued stock for cash)
(b)

3-4

Prepaid Insurance ....................................................................................................


Cash...................................................................................................................
(Paid one-year insurance policy)

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

12,000

800
800

(For Instructor Use Only)

Questions Chapter 3 (Continued)


(c)

(d)

Supplies .....................................................................................................................
Accounts Payable ...........................................................................................
(Purchased supplies on account)

1,800

Cash ...........................................................................................................................
Service Revenue.............................................................................................
(Received cash for services rendered)

7,500

1,800

7,500

19.

(a) The entire group of accounts maintained by a company, including all the asset, liability, and
stockholders equity accounts, is referred to collectively as the ledger.
(b) The chart of accounts is important, particularly for a company that has a large number of
accounts, because it helps organize the accounts and identify their location in the ledger.

20.

A trial balance is a list of accounts and their balances at a given time. The primary purpose of a
trial balance is to prove the mathematical equality of debits and credits after all journalized transactions have been posted. A trial balance also facilitates the discovery of errors in journalizing
and posting. In addition, it is useful in preparing financial statements.

21.

The proper sequence is as follows:


(b) Accounting transaction occurs.
(c) Information is entered in the journal.
(a) Debits and credits are posted to the ledger.
(e) Trial balance is prepared.
(d) Financial statements are prepared.

22.

(a) The trial balance would balance.


(b) The trial balance would not balance since the debits would be $720 higher than the credits.

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-5

SOLUTIONS TO BRIEF EXERCISES


BRIEF EXERCISE 3-1

(a)
(b)
(c)

Assets
+
+

Liabilities
+
NE
NE

Stockholders Equity
NE
+

BRIEF EXERCISE 3-2

Cash
(1)

+$60,000

(2)

9,000

(3)

+13,000

Assets
=
Liabilities
+ Stockholders Equity
Accounts
Accounts
Bonds
Common
Retained
+ Receivable + Supplies = Payable + Payable + Stock + Earnings
+$60,000
$9,000

Paid div.

$13,000

(4)

+$3,100

+$3,100

BRIEF EXERCISE 3-3


Assets
Cash
(1)

$286,176

(2)

+137,590

(3)

+ Inventory +

Equipment

Liabilities

Accounts
Payable

+
+

Stockholders Equity
Common
Stock

Retained
Earnings

+$286,176
+$137,590
+$68,480

Issued stock

+$68,480

BRIEF EXERCISE 3-4

(a)
(b)
(c)
(d)
(e)
(f)

3-6

Accounts Payable
Advertising Expense
Service Revenue
Accounts Receivable
Retained Earnings
Dividends

Debit
Effect
Decrease
Increase
Decrease
Increase
Decrease
Increase

Copyright 2011 John Wiley & Sons, Inc.

Credit
Effect
Increase
Decrease
Increase
Decrease
Increase
Decrease

Kimmel Accounting, 4/e Solutions Manual

Normal
Balance
Credit
Debit
Credit
Debit
Credit
Debit

(For Instructor Use Only)

BRIEF EXERCISE 3-5

June 1
2
3
12

Account Debited
Cash
Equipment
Rent Expense
Accounts Receivable

Account Credited
Common Stock
Accounts Payable
Cash
Service Revenue

BRIEF EXERCISE 3-6


June 1
2
3
12

Cash ..................................................................................
Common Stock .....................................................

5,000

Equipment.......................................................................
Accounts Payable................................................

1,100

Rent Expense.................................................................
Cash .........................................................................

740

Accounts Receivable...................................................
Service Revenue ..................................................

700

5,000
1,100
740
700

BRIEF EXERCISE 3-7


The basic steps in the recording process are:
1.

Analyze each transaction. In this step, source documents are examined to determine the effects of the transaction on the accounts.

2.

Enter each transaction in a journal. This step is called journalizing and


it results in making a chronological record of the transactions.

3.

Transfer journal information to ledger accounts. This step is called


posting. Posting makes it possible to accumulate the effects of journalized transactions on individual accounts.

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-7

BRIEF EXERCISE 3-8


(a) Basic Analysis

(b)

Aug. 1

The asset Cash is increased;


the stockholders equity
account Common Stock is
increased.

Debits increase assets:


debit Cash $10,000. Credits
increase stockholders equity:
credit Common Stock $10,000.

The asset Prepaid Insurance


is increased; the asset Cash
is decreased.

Debits increase assets:


debit Prepaid Insurance $1,500.
Credits decrease assets:
credit Cash $1,500.

16

The asset Cash is increased;


the revenue Service
Revenue is increased.

Debits increase assets:


debit Cash $900.
Credits increase revenues:
credit Service Revenue $900.

27

The expense Salaries and


Wages Expense is increased;
the asset Cash is decreased.

Debits increase expenses:


debit Salaries and Wages
Expense $620.
Credits decrease assets:
credit Cash $620.

Debit-Credit Analysis

BRIEF EXERCISE 3-9


Aug. 1
4
16
27

3-8

Cash ..................................................................................
Common Stock .....................................................

10,000

Prepaid Insurance.........................................................
Cash .........................................................................

1,500

Cash ..................................................................................
Service Revenue ..................................................

900

Salaries and Wages Expense ...................................


Cash .........................................................................

620

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

10,000
1,500
900
620

(For Instructor Use Only)

BRIEF EXERCISE 3-10

5/12
5/15

5/5

Cash
1,600
2,000

Service Revenue
5/5
5/15

3,800
2,000

Accounts Receivable
3,800 5/12
1,600

BRIEF EXERCISE 3-11


LYNDON COMPANY
Trial Balance
June 30, 2012
Cash ..........................................................................................
Accounts Receivable...........................................................
Equipment ...............................................................................
Accounts Payable.................................................................
Common Stock ......................................................................
Dividends.................................................................................
Service Revenue ...................................................................
Salaries and Wages Expense ...........................................
Rent Expense .........................................................................

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Debit
$ 5,400
3,000
13,000

Credit

$ 1,000
18,000
1,200
8,600
4,000
1,000
$27,600

(For Instructor Use Only)

$27,600

3-9

BRIEF EXERCISE 3-12


PELICAN COMPANY
Trial Balance
December 31, 2012
Cash..........................................................................................
Prepaid Insurance ................................................................
Accounts Payable ................................................................
Unearned Service Revenue...............................................
Common Stock......................................................................
Retained Earnings................................................................
Dividends ................................................................................
Service Revenue...................................................................
Salaries and Wages Expense...........................................
Rent Expense.........................................................................

3-10

Copyright 2011 John Wiley & Sons, Inc.

Debit
$20,800
3,500

Credit

$ 2,500
1,800
10,000
6,600
5,000
25,600
14,600
2,600
$46,500

Kimmel Accounting, 4/e Solutions Manual

$46,500

(For Instructor Use Only)

SOLUTIONS TO DO IT! REVIEW EXERCISES


DO IT! 3-1
Assets
Cash
(1)
(2)

Liabilities

Accounts
+ Receivable =

Accounts
Payable

Common
Stock

Retained Earnings
+ Revenues Expenses Dividends

+$20,000
+$20,000

+$20,000

20,000

(3)
(4)

Stockholders Equity

+$1,800

$1,800

3,000

$3,000

DO IT! 3-2
Phil would likely need the following accounts in which to record the transactions necessary to ready his photography studio for opening day:
Cash (debit balance)
Supplies (debit balance)
Notes Payable (credit balance)

Equipment (debit balance)


Accounts Payable (credit balance)
Common Stock (credit balance)

DO IT! 3-3
Each transaction that is recorded is entered in the general journal. The
three activities would be recorded as follows:
1.
2.
3.

Cash.......................................................................................
Common Stock..........................................................
Supplies ...............................................................................
Accounts Payable ....................................................
Cash..............................................................................
No entry because no transaction has occurred.

8,000
8,000
950
550
400

DO IT! 3-4

4/1
4/3
4/30

Copyright 2011 John Wiley & Sons, Inc.

Cash
1,900 4/16
3,400 4/20
4,500

Kimmel Accounting, 4/e Solutions Manual

500
300

(For Instructor Use Only)

3-11

SOLUTIONS TO EXERCISES
EXERCISE 3-1
1.
2.
3.
4.
5.
6.
7.
8.
9.

Increase in assets and increase in stockholders equity.


Decrease in assets and decrease in stockholders equity.
Increase in assets and increase in stockholders equity.
Increase in assets and increase in stockholders equity.
Decrease in assets and decrease in stockholders equity.
Increase in liabilities and decrease in stockholders equity.
Increase in assets and decrease in assets.
Increase in assets and decrease in assets.
Increase in assets and increase in liabilities.

EXERCISE 3-2
Assets

Accounts
Cash

Receivable + Equipment =
+$30,000

$ 4,000

(3)

+12,000

(4)

+5,000

(5)

8,000

(6)

+40,000

(7)

30,000

Payable

Stockholders Equity
Common

Stock

Retained Earnings
+ Revenues

$4,000

Rent Expense

$12,000
+$5,000

Service Revenue
8,000

+$40,000

Utilities Expense
Issued Stock

30,000
+1,300

$15,000 +

Expenses

+$30,000

(8)
$12,000

$30,000

$ 1,300

$33,000

3-12

Accounts

(1)
(2)

Liabilities

Copyright 2011 John Wiley & Sons, Inc.

1,300
+

$40,000 +

$5,000

Advertising Expense

$13,300

$33,000

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

Copyright 2011 John Wiley & Sons, Inc.

+16,000

(4)

$60,000

$4,700

$45,000 +

$100,000 +

Kimmel Accounting, 4/e Solutions Manual


$131,500

$131,500

+$26,000

$33,200

$11,000

$4,700

$11,000
+

11,000

28,000

$5,200

$ 56,800 +

+10,000

+$16,000

Stockholders Equity
Retained Earnings
+ Revenues Expenses Dividends

(9)

$10,000

+$4,700

+$45,000

+$100,000

Common
+
Stock

28,000

+$10,000

+$4,700

+$60,000

Equipment

Liabilities
Accounts
Bonds
= Payable + Payable

(8)

(7)

(6)

5,200

60,000

(3)

(5)

+45,000

(2)

(1) +$100,000

Cash

Assets
Accounts
+ Receivable + Supplies +

Dividends

Salaries and
Wages Expense

Service Revenue

Rent Expense

Service Revenue

Issued Stock

EXERCISE 3-3

(For Instructor Use Only)

3-13

EXERCISE 3-4
(a)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Stockholders invested $20,000 cash in the business.


Purchased equipment for $5,000, paying $1,000 in cash and the
balance of $4,000 on account.
Paid $750 cash for supplies.
Earned $9,500 in revenue, receiving $4,100 cash and $5,400 on
account.
Paid $1,500 cash on accounts payable.
Paid $2,000 cash dividends to stockholders.
Paid $800 cash for rent.
Collected $450 cash from customers on account.
Paid salaries of $3,000.
Incurred $300 of utilities expense on account.

(b) Issued common stock........................................................................


Service revenue ...................................................................................
Dividends ...............................................................................................
Rent expense ........................................................................................
Salaries and wages expense ...........................................................
Utilities expense...................................................................................
Increase in stockholders equity ....................................................

$20,000
9,500
(2,000)
(800)
(3,000)
(300)
$23,400

(c) Service revenue ...................................................................................


Rent expense ........................................................................................
Salaries and wages expense ...........................................................
Utilities expense...................................................................................
Net income.............................................................................................

$ 9,500
(800)
(3,000)
(300)
$ 5,400

3-14

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

EXERCISE 3-5
NIGEL COMPANY
Income Statement
For the Month Ended August 31, 2012
Revenues
Service revenue .................................................................
Expenses
Salaries and wages expense.........................................
Rent expense......................................................................
Utilities expense ................................................................
Total expenses ..........................................................
Net income ...................................................................................

$9,500
$3,000
800
300
4,100
$5,400

NIGEL COMPANY
Retained Earnings Statement
For the Month Ended August 31, 2012
Retained earnings, August 1........................................................................
Add: Net income ............................................................................................
Less: Dividends...............................................................................................
Retained earnings, August 31......................................................................

$
0
5,400
5,400
2,000
$3,400

NIGEL COMPANY
Balance Sheet
August 31, 2012
Assets
Current Assets:
Cash.............................................................................................
Accounts receivable ..............................................................
Supplies .....................................................................................
Total current assets ......................................................
Equipment .................................................................................
Total assets......................................................................

$15,500
4,950
750

Liabilities and Stockholders Equity


Current liabilities
Accounts payable ..........................................................
Stockholders equity
Common stock................................................................
$20,000
Retained earnings..........................................................
3,400
Total liabilities and stockholders equity ......

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

21,200
5,000
$26,200

$ 2,800
23,400
$26,200
3-15

3-16

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Stockholders
Equity

Liability

7.

8.

Asset

6.

3.

Stockholders
Equity

Asset

2.

5.

Asset

1.

Asset

Asset

Transaction

4.

(a)
Basic
Type

(a)

Dividends

Accounts
Payable

Cash

Advertising
Expense

Accounts
Receivable

Supplies

Equipment

Cash

Increase

Decrease

Increase

Increase

Increase

Increase

Increase

Increase

Account Debited
(b)
(c)
Specific
Account
Effect

Debit

Credit

Debit

Debit

Debit

Debit

Debit

Debit

(d)
Normal
Balance

Asset

Asset

Asset

Asset

Stockholders
Equity

Liability

Asset

Stockholders
Equity

(a)
Basic
Type

Cash

Cash

Accounts
Receivable

Cash

Service
Revenue

Accounts
Payable

Cash

Common
Stock

Decrease

Decrease

Decrease

Decrease

Debit

Debit

Debit

Debit

Credit

Credit

Increase

Increase

Debit

Credit

(d)
Normal
Balance

Decrease

Increase

Account Credited
(b)
(c)
Specific
Account
Effect

EXERCISE 3-6

(For Instructor Use Only)

EXERCISE 3-6 (Continued)


(b)
General Journal
Trans.
1.
2.
3.
4.
5.
6.
7.
8.

Account Titles
Cash ..............................................................................
Common Stock.................................................

Debit
15,000

Equipment...................................................................
Cash .....................................................................

10,000

Supplies .......................................................................
Accounts Payable............................................

300

Accounts Receivable...............................................
Service Revenue ..............................................

3,700

Advertising Expense ...............................................


Cash .....................................................................

200

Cash ..............................................................................
Accounts Receivable......................................

1,100

Accounts Payable.....................................................
Cash .....................................................................

300

Dividends ....................................................................
Cash .....................................................................

400

Credit
15,000
10,000
300
3,700
200
1,100
300
400

EXERCISE 3-7
Oct. 1

Debits increase assets: debit Cash $30,000.


Credits increase stockholders equity: credit Common Stock
$30,000.

No accounting transaction.

Debits increase assets: debit Equipment $3,800.


Credits increase liabilities: credit Accounts Payable $3,800.

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-17

EXERCISE 3-7 (Continued)


Oct. 6

Debits increase assets: debit Accounts Receivable $10,800.


Credits increase revenues: credit Service Revenue $10,800.

10

Debits increase assets: debit Cash $140.


Credits increase revenues: credit Service Revenue $140.

27

Debits decrease liabilities: debit Accounts Payable $700.


Credits decrease assets: credit Cash $700.

30

Debits increase expenses: debit Salaries and Wages


Expense $3,000.
Credits decrease assets: credit Cash $3,000.

EXERCISE 3-8
General Journal
Date
Oct. 1

Debit
30,000

No entry.

Equipment.................................................................
Accounts Payable..........................................

3,800

Accounts Receivable.............................................
Service Revenue ............................................

10,800

Cash ............................................................................
Service Revenue ............................................

140

Accounts Payable...................................................
Cash ...................................................................

700

Salaries and Wages Expense .............................


Cash ...................................................................

3,000

10
27
30

Copyright 2011 John Wiley & Sons, Inc.

Credit
30,000

3-18

Account Titles
Cash ............................................................................
Common Stock...............................................

3,800
10,800
140
700

Kimmel Accounting, 4/e Solutions Manual

3,000

(For Instructor Use Only)

EXERCISE 3-9
General Journal
Date
May 4
7
8
9
17
22
29

Account Titles
Accounts Payable ...................................................
Cash....................................................................

Debit
700

Accounts Receivable .............................................


Service Revenue.............................................

6,800

Supplies .....................................................................
Accounts Payable ..........................................

850

Equipment .................................................................
Cash....................................................................

1,000

Salaries and Wages Expense..............................


Cash....................................................................

530

Maintenance and Repair Expense.....................


Accounts Payable ..........................................

900

Prepaid Insurance...................................................
Cash....................................................................

1,200

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Credit
700
6,800
850
1,000
530
900

(For Instructor Use Only)

1,200

3-19

EXERCISE 3-10
(a)
Oct. 1
10
Bal.

Cash
30,000 Oct. 27
140
30
26,440

700
3,000

Accounts Payable
Oct. 27
700 Oct. 3
Bal.
Common Stock
Oct. 1
Bal.

Accounts Receivable
Oct. 6
10,800
Bal.
10,800

Oct. 3
Bal.

Equipment
3,800
3,800

3,800
3,100

30,000
30,000

Service Revenue
Oct. 6 10,800
10
140
Bal.
10,940
Salaries and Wages Expense
Oct. 30
3,000
Bal.
3,000

(b)

PLUNKETT REAL ESTATE AGENCY


Trial Balance
October 31, 2012
Cash ................................................................................
Accounts Receivable.................................................
Equipment .....................................................................
Accounts Payable.......................................................
Common Stock ............................................................
Service Revenue .........................................................
Salaries and Wages Expense .................................

3-20

Copyright 2011 John Wiley & Sons, Inc.

Debit
$26,440
10,800
3,800

Credit

$ 3,100
30,000
10,940
3,000
$44,040

Kimmel Accounting, 4/e Solutions Manual

$44,040

(For Instructor Use Only)

EXERCISE 3-11
(a)

Assets

= Liabilities +
Accounts

Cash

+ Equipment =

Sept. 1

+$20,000

3,000

25

4,000

30

500
$ 12,500 +

Payable

Stockholders Equity
Common

Stock

Dividends

+$20,000
+$9,000

Issued stock

+$ 6,000
4,000
$500

$9,000

$21,500..

$ 2,000

+$20,000

Dividends

$500

$21,500

(b)
General Journal
Date
Sept. 1
5

25
30

Account Titles
Cash ...........................................................................
Common Stock..............................................

Debit
20,000

Equipment................................................................
Accounts Payable.........................................
Cash ..................................................................

9,000

Accounts Payable..................................................
Cash ..................................................................

4,000

Dividends .................................................................
Cash ..................................................................

500

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

J1
Credit
20,000
6,000
3,000
4,000

(For Instructor Use Only)

500

3-21

EXERCISE 3-11 (Continued)


(c)
9/1

Bal.

9/5
Bal.

9/25

3-22

Cash
20,000 9/5
9/25
9/30
12,500

3,000
4,000
500

9/30
Bal.

Equipment
9,000
9,000
Accounts Payable
4,000 9/5
Bal.

Common Stock
9/1
Bal.

20,000
20,000

Dividends
500
500

6,000
2,000

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

EXERCISE 3-12
(a)
Date
Apr. 1

12

15

25

29

30

General Journal
Account Titles and Explanation
Cash.............................................................................
Common Stock ...............................................
(Issued stock for cash)

Debit
15,000

15,000

Supplies .....................................................................
Accounts Payable ..........................................
(Purchased supplies on account)

5,200

Accounts Receivable .............................................


Service Revenue.............................................
(Billed clients for services
rendered)

3,400

Cash.............................................................................
Service Revenue.............................................
(Received cash for revenue
earned)

700

Salaries and Wages Expense..............................


Cash....................................................................
(Paid salaries)

800

Accounts Payable ...................................................


Cash....................................................................
(Paid creditors on account)

3,500

Cash.............................................................................
Accounts Receivable ....................................
(Received cash in payment of
account)

800

Cash.............................................................................
Unearned Service Revenue ........................
(Received cash for future
services)

900

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Credit

5,200

3,400

700

800

3,500

800

(For Instructor Use Only)

900

3-23

EXERCISE 3-12 (Continued)


(b)

McGREGOR GARDENING COMPANY, INC.


Trial Balance
April 30, 2012
Cash ................................................................................
Accounts Receivable.................................................
Supplies .........................................................................
Accounts Payable.......................................................
Unearned Service Revenue .....................................
Common Stock ............................................................
Service Revenue .........................................................
Salaries and Wages Expense .................................

3-24

Copyright 2011 John Wiley & Sons, Inc.

Debit
$13,100
2,600
5,200

Credit

$ 1,700
900
15,000
4,100
800
$21,700

Kimmel Accounting, 4/e Solutions Manual

$21,700

(For Instructor Use Only)

EXERCISE 3-13
(a)
Aug. 1
10
31
Bal.

Cash
8,000 Aug. 12
1,700
600
9,100

Accounts Receivable
Aug. 25
3,400 Aug. 31
Bal.
2,800

Aug. 12
Bal.

5,000
5,000

Common Stock
Aug. 1
Bal.

8,000
8,000

Service Revenue
Aug. 10
25
Bal.

1,700
3,400
5,100

1,200

600

Equipment
6,200
6,200

(b)

Notes Payable
Aug. 12
Bal.

GALAXY INC.
Trial Balance
August 31, 2012
Cash.................................................................................
Accounts Receivable .................................................
Equipment......................................................................
Notes Payable...............................................................
Common Stock.............................................................
Service Revenue..........................................................

Debit
$ 9,100
2,800
6,200

$18,100

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

Credit

$ 5,000
8,000
5,100
$18,100

3-25

EXERCISE 3-14
(a) Oct. 1

10

10

20

20

3-26

Cash...........................................................................
Common Stock .............................................
(Issued stock for cash)

7,000

Cash...........................................................................
Service Revenue...........................................
(Received cash for services
provided)

980

Cash...........................................................................
Notes Payable ...............................................
(Obtained loan from bank)

8,000

Cash...........................................................................
Accounts Receivable ..................................
(Received cash in payment of
account)

700

Accounts Receivable ...........................................


Service Revenue...........................................
(Billed clients for services
provided)

920

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

7,000

980

8,000

700

920

(For Instructor Use Only)

EXERCISE 3-14 (Continued)


(b)

STAMPFER CO.
Trial Balance
October 31, 2012
Cash.................................................................................
Accounts Receivable .................................................
Supplies..........................................................................
Equipment......................................................................
Notes Payable...............................................................
Accounts Payable .......................................................
Common Stock.............................................................
Dividends .......................................................................
Service Revenue..........................................................
Salaries and Wages Expense..................................
Supplies Expense........................................................
Rent Expense................................................................

Debit
$15,730
1,020
220
3,000

Credit

$ 8,000
1,500
9,000
300
2,700
500
180
250
$21,200

$21,200

EXERCISE 3-15
Error
1.
2.
3.
4.
5.
6.

(a)
In Balance
No
Yes
Yes
No
Yes
No

Copyright 2011 John Wiley & Sons, Inc.

(b)
Difference
$400

300

36

(c)
Larger Column
Debit

Credit

Credit

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-27

EXERCISE 3-16
(a)

ROSHEK DELIVERY SERVICE


Trial Balance
July 31, 2012
Debit
Cash ($98,370 Debit total without Cash
$85,946) ......................................................................
Accounts Receivable .................................................
Prepaid Insurance .......................................................
Equipment......................................................................
Accounts Payable .......................................................
Salaries and Wages Payable ...................................
Notes Payable (due 2015) .........................................
Common Stock.............................................................
Retained Earnings.......................................................
Dividends .......................................................................
Service Revenue ..........................................................
Salaries and Wages Expense ..................................
Maintenance and Repairs Expense .......................
Insurance Expense .....................................................

3-28

Copyright 2011 John Wiley & Sons, Inc.

Credit

$12,424
13,400
2,200
59,360
$ 8,400
820
28,450
40,000
5,200
700
15,500
7,428
1,958
900
$98,370

Kimmel Accounting, 4/e Solutions Manual

$98,370

(For Instructor Use Only)

EXERCISE 3-16 (Continued)


(b)

ROSHEK DELIVERY SERVICE


Income Statement
For the Month Ended July 31, 2012
Revenues
Service revenue ..........................................................
Expenses
Salaries and wages expense ..................................
Maintenance and repairs expense........................
Insurance expense.....................................................
Total expenses ........................................................
Net income........................................................................

$15,500
$7,428
1,958
900
10,286
$ 5,214

ROSHEK DELIVERY SERVICE


Retained Earnings Statement
For the Month Ended July 31, 2012
Retained earnings, July 1 ............................................
Add: Net income ..........................................................
Less: Dividends .............................................................
Retained earnings, July 31..........................................

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

$ 5,200
5,214
10,414
700
$ 9,714

3-29

EXERCISE 3-16 (Continued)


ROSHEK DELIVERY SERVICE
Balance Sheet
July 31, 2012
Assets
Current Assets
Cash ...............................................................................
Accounts receivable .................................................
Prepaid insurance......................................................
Total current assets ..............................................
Equipment ........................................................................
Total assets..............................................................

$12,424
13,400
2,200
$28,024
59,360
$87,384

Liabilities and Stockholders Equity


Current Liabilities
Accounts payable ......................................................
Salaries and wages payable...................................
Total current liabilities .........................................
Notes payable .................................................................
Total liabilities.........................................................
Stockholders Equity
Common stock................................................................
Retained earnings..........................................................
Total stockholders equity ..................................
Total liabilities and stockholders equity.......

3-30

Copyright 2011 John Wiley & Sons, Inc.

$ 8,400
820
$ 9,220
28,450
37,670
40,000
9,714

Kimmel Accounting, 4/e Solutions Manual

49,714
$87,384

(For Instructor Use Only)

EXERCISE 3-17

Account
Accounts payable
Accounts receivable
Common stock
Depreciation expense
Interest expense
Interest income
Inventories
Prepaid expenses
Property and Equipment
Revenues

(a)
Normal Balance
Debit or Credit
Credit
Debit
Credit
Debit
Debit
Credit
Debit
Debit
Debit
Credit

(b)
Balance Sheet or
Income Statement
Balance sheet
Balance sheet
Balance sheet
Income statement
Income statement
Income statement
Balance sheet
Balance sheet
Balance sheet
Income statement

EXERCISE 3-18
1.
2.
3.
4.
5.
6.
7.
8.
9.

Financing activity
Operating activity
Operating activity
Non-cash event
Financing activity
Non-cash event
Operating activity
Investing activity
Non-cash event

EXERCISE 3-19
1.
2.
3.
4.
5.
6.
7.
8.
9.

Financing activity
Financing activity
Investing activity
Operating activity
Non-cash event
Operating activity
Non-cash event
Operating activity
Financing activity

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-31

3-32

900

3,400

2.

3.

Copyright 2011 John Wiley & Sons, Inc.

+3,000

400

200

1,800

+9,000

6.

7.

8.

9.

10.

Assets

= Liabilities +

9,000

+$9,000

Kimmel Accounting, 4/e Solutions Manual


$38,700

$500

+$500

$3,400

+$3,400

200

+$200

Stockholders Equity

$30,000 +

+$30,000

$38,700

$12,000

+$12,000

$2,900

1,800

200

$900

$400

$400

Retained Earnings
Common
Stock
+ Revenues Expenses Dividends

VAGABOND TRAVEL AGENCY INC.

Accounts
Accounts
+ Receivable + Supplies + Equipment = Payable +

$34,800 +

500

5.

4.

+$30,000

Cash

1.

(a)

Expense

Salaries and Wages

Dividends

Service Revenue

Advertising Expense

Rent Expense

SOLUTIONS TO PROBLEM
PROBLEM 3-1A

(For Instructor Use Only)

PROBLEM 3-1A (Continued)


(b) Service Revenue................................................................
Expenses
Salaries and Wages Expense...............................
Rent Expense.............................................................
Advertising Expense...............................................
Net Income.........................................................

$12,000
$1,800
900
200

2,900
$ 9,100

OR
Revenues .............................................................................
Less: Expenses ................................................................
Net Income...........................................................................

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

$12,000
2,900
$ 9,100

3-33

3-34

Cash

+1,400

200

12

Copyright 2011 John Wiley & Sons, Inc.

Liabilities

Stockholders Equity

Kimmel Accounting, 4/e Solutions Manual


$23,770

$2,000

$5,000

$15,000 +

$5,600

$1,800

$23,770

$3,430

$500

$18,270 +

180

30

$3,000

180

200

29

+1,800

+5,000

26
+$2,000

+1,200

23

2,500

500

+$5,000

+4,200

+$1,400

150

20

500

+$500

$600

2,500

1,200

+4,200

+$500

+$15,000

$200

$200

Retained Earnings
Accounts
Notes
Accounts
Common
+ Receivable + Supplies + Equipment = Payable + Payable + Stock
+ Revenues Expenses Dividends

Assets

TAYLOR MADE CONSULTING INC.

17

15

150

600

May 1 +$15,000

Date

(a)

Utilities Expense

Expense

Salaries and Wages

Service Revenue

Dividends

Service Revenue

Advertising Expense

Rent Expense

PROBLEM 3-2A

(For Instructor Use Only)

PROBLEM 3-2A (Continued)


(b)

TAYLOR MADE CONSULTING INC.


Income Statement
For the Month Ended May 31, 2012
Revenues
Service revenue ($1,400 + $4,200) ...................
Expenses
Salaries and wages expense .............................
Rent expense ..........................................................
Utilities expense ....................................................
Advertising expense ............................................
Total expenses ..............................................
Net income........................................................................

(c)

$5,600
$2,500
600
180
150
3,430
$2,170

TAYLOR MADE CONSULTING INC.


Balance Sheet
May 31, 2012
Assets
Current assets
Cash ..........................................................................
Accounts receivable ............................................
Supplies ...................................................................
Total current assets ....................................
Equipment ...............................................................
Total assets....................................................

$18,270
3,000
500
$21,770
2,000
$23,770

Liabilities and Stockholders Equity


Current liabilities
Notes payable ........................................................
Accounts payable .................................................
Total current liabilities................................
Stockholders Equity
Common stock.......................................................
Retained earnings ($0 + $2,170 $200).........
Total liabilities and stockholders
equity ...........................................................

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

$ 5,000
1,800
$ 6,800
15,000
1,970

(For Instructor Use Only)

16,970
$23,770

3-35

3-36

Copyright 2011 John Wiley & Sons, Inc.

+3,600

700

2,450

700

+5,000

15

19

23

26

$7,150 +

2,700

$4,000 +

+1,100

31

Assets

Liabilities

DICK REBER INC.


Stockholders Equity

Kimmel Accounting, 4/e Solutions Manual


+

$500

$500

$19,850

$3,200

+1,800

1,100

$2,500

$9,000

+4,000

$5,000

+380
$5,000 + $5,180

+$5,000

+3,300

2,700

$4,200

$6,200

$6,200

$19,850

$1,600

$1,600

$5,400

+$5,400

380
$2,830

$700

Utilities Expense

Dividends

Advertising Expense

350
$700

Rent Expense

Expense

Salaries and Wages

Service Revenue

700

$1,400

Notes
Accounts Common
Accounts
Retained
Cash + Receivable + Supplies + Equipment = payable + Payable + Stock + Earnings + Revenues Expenses Dividends

Aug. 1

Bal.

July 31

(a)

PROBLEM 3-3A

(For Instructor Use Only)

PROBLEM 3-3A (Continued)


(b)

ROBIN KLANN INC.


Income Statement
For the Month Ended August 31, 2012
Revenues
Service revenue ........................................................
Expenses
Salaries and wages expense ................................
Rent expense .............................................................
Utilities expense .......................................................
Advertising expense ...............................................
Total expenses .................................................
Net income...........................................................................

$5,400
$1,400
700
380
350
2,830
$2,570

ROBIN KLANN INC.


Retained Earnings Statement
For the Month Ended August 31, 2012
Retained earnings, August 1...............................................................
Add: Net income...................................................................................
Less: Dividends......................................................................................
Retained earnings, August 31.............................................................

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

$1,600
2,570
4,170
700
$3,470

3-37

PROBLEM 3-3A (Continued)


ROBIN KLANN INC.
Balance Sheet
August 31, 2012
Assets
Current assets
Cash ............................................................................
Accounts receivable ..............................................
Supplies .....................................................................
Total current assets ......................................
Office equipment.....................................................
Total assets .....................................................

$7,150
3,200
500
$10,850
9,000
$19,850

Liabilities and Stockholders Equity


Current liabilities
Notes payable ..........................................................
Accounts payable...................................................
Total current liabilities .................................
Stockholders equity
Common stock ........................................................
Retained earnings ..................................................
Total liabilities and stockholders
equity.............................................................

3-38

Copyright 2011 John Wiley & Sons, Inc.

$5,000
5,180
$10,180
6,200
3,470

Kimmel Accounting, 4/e Solutions Manual

9,670
$19,850

(For Instructor Use Only)

PROBLEM 3-4A

Date
Mar. 1

10

18

19

25

Account Titles and Explanation


Cash.............................................................................
Common Stock ...............................................
(Issued stock for cash)

Debit
50,000

Land.............................................................................
Buildings....................................................................
Equipment .................................................................
Cash....................................................................
(Purchased Arnies Golf Land)

23,000
9,000
6,000

Advertising Expense..............................................
Cash....................................................................
(Paid for advertising)

1,200

Prepaid Insurance...................................................
Cash....................................................................
(Paid for one-year insurance policy)

2,400

Equipment .................................................................
Accounts Payable ..........................................
(Purchased equipment on account)

5,500

Cash.............................................................................
Service Revenue.............................................
(Received cash for revenue earned)

1,600

Cash (100 X $25)......................................................


Unearned Service Revenue ........................
(Received cash for coupon books
sold)

2,500

Dividends ...................................................................
Cash....................................................................
(Payment of cash dividend)

500

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Credit
50,000

38,000

1,200

2,400

5,500

1,600

2,500

(For Instructor Use Only)

500

3-39

PROBLEM 3-4A (Continued)


Date
Mar. 30

30

31

3-40

Account Titles and Explanation


Salaries and Wages Expense .............................
Cash ...................................................................
(Paid salaries expense)

Debit
800

Accounts Payable...................................................
Cash ...................................................................
(Paid creditor on account)

5,500

Cash ............................................................................
Service Revenue ............................................
(Received cash for revenue earned)

900

Copyright 2011 John Wiley & Sons, Inc.

Credit
800

5,500

Kimmel Accounting, 4/e Solutions Manual

900

(For Instructor Use Only)

PROBLEM 3-5A
(a)
Date
Apr. 1

Account Titles and Explanation


Cash.............................................................................
Common Stock ...............................................
(Issued shares of stock for cash)

Debit
18,000

18,000

No entrynot a transaction.

Rent Expense ...........................................................


Cash....................................................................
(Paid monthly office rent)

900

Supplies .....................................................................
Accounts Payable ..........................................
(Purchased supplies on account
from Spring Green Company)

1,300

Accounts Receivable .............................................


Service Revenue.............................................
(Billed clients for services rendered)

1,900

Cash.............................................................................
Unearned Service Revenue ........................
(Received cash advance for future
service)

700

Cash.............................................................................
Service Revenue.............................................
(Received cash for revenue earned)

2,800

Salaries and Wages Expense..............................


Cash....................................................................
(Paid monthly salary)

1,500

Accounts Payable ...................................................


Cash....................................................................
(Paid Spring Green Company
on account)

300

10

11

20

30

30

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Credit

900

1,300

1,900

700

2,800

1,500

(For Instructor Use Only)

300

3-41

PROBLEM 3-5A (Continued)


(b)
4/1
4/11
4/20
Bal.

4/10
Bal.

4/3
Bal.

4/30

Cash
18,000 4/2
700 4/30
2,800 4/30
18,800

900
1,500
300

Salaries and Wages Expense


4/30
1,500
Bal.
1,500

4/2
Bal.

Accounts Receivable
1,900
1,900

Rent Expense
900
900

Supplies
1,300
1,300
Accounts Payable
300 4/3
Bal.

1,300
1,000

Unearned Service Revenue


4/11
700
Bal.
700

3-42

Common Stock
4/1
Bal.

18,000
18,000

Service Revenue
4/10
4/20
Bal.

1,900
2,800
4,700

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

PROBLEM 3-5A (Continued)


(c)

TOWNE ARCHITECTS INC.


Trial Balance
April 30, 2012
Cash.................................................................................
Accounts Receivable .................................................
Supplies..........................................................................
Accounts Payable .......................................................
Unearned Service Revenue......................................
Common Stock.............................................................
Service Revenue..........................................................
Salaries and Wages Expense..................................
Rent Expense................................................................

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Debit
$18,800
1,900
1,300

Credit

$ 1,000
700
18,000
4,700
1,500
900
$24,400

(For Instructor Use Only)

$24,400

3-43

PROBLEM 3-6A

(a) & (c)


10/1 Bal.
10/5

Bal.

Cash
8,200 10/15
1,300 10/20
10/29
10/31
5,700

Common Stock
10/1 Bal. 15,000
Bal.
15,000

1,200
1,900
300
400
10/29
Bal.

Accounts Receivable
10/1 Bal. 2,600 10/5
1,300
10/10
5,100
Bal.
6,400

10/1 Bal.
Bal.

Supplies
2,100
2,100

10/1 Bal.
Bal.

Equipment
8,000
8,000

10/20

Accounts Payable
1,900 10/1 Bal.
Bal.

Dividends
300
300
Service Revenue
10/10
10/17
Bal.

5,100
600
5,700

Salaries and Wages Expense


10/15
1,200
Bal.
1,200

10/31
Bal.

Utilities Expense
400
400

4,800
2,900

Unearned Service Revenue


10/17
600 10/1 Bal. 1,000
Bal.
500

3-44

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

PROBLEM 3-6A (Continued)


(b)
Date
Oct. 5

10

15

17

20

29

31

Account Titles and Explanation


Cash.............................................................................
Accounts Receivable ....................................
(Received collections from
customers on account)

Debit
1,300

Accounts Receivable .............................................


Service Revenue.............................................
(Billed customers for services
performed)

5,100

Salaries and Wages Expense..............................


Cash....................................................................
(Paid employee salaries)

1,200

Unearned Service Revenue .................................


Service Revenue.............................................
(Performed services for customers
who paid in advance)

600

Accounts Payable ...................................................


Cash....................................................................
(Paid creditors on account)

1,900

Dividends ...................................................................
Cash....................................................................
(Payment of cash dividend)

300

Utilities Expense......................................................
Cash....................................................................
(Paid utilities)

400

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Credit
1,300

5,100

1,200

600

1,900

300

(For Instructor Use Only)

400

3-45

PROBLEM 3-6A (Continued)


(d)

MIMOSA COMPANY
Trial Balance
October 31, 2012
Cash ................................................................................
Accounts Receivable.................................................
Supplies .........................................................................
Equipment .....................................................................
Accounts Payable.......................................................
Unearned Service Revenue .....................................
Common Stock ............................................................
Dividends.......................................................................
Service Revenue .........................................................
Salaries and Wages Expense .................................
Utilities Expense .........................................................

3-46

Copyright 2011 John Wiley & Sons, Inc.

Debit
$ 5,700
6,400
2,100
8,000

Credit

$ 2,900
500
15,000
300
5,700
1,200
400
$24,100

Kimmel Accounting, 4/e Solutions Manual

$24,100

(For Instructor Use Only)

PROBLEM 3-7A

MICHELS CO.
Trial Balance
June 30, 2012
Cash ($3,090 $780 + $870).....................................
Accounts Receivable*................................................
Supplies ($800 $340)...............................................
Equipment ($3,000 + $340) .......................................
Accounts Payable ($3,686 $206 $260) ...........
Unearned Service Revenue......................................
Common Stock.............................................................
Dividends ($800 + $600) ............................................
Service Revenue..........................................................
Salaries and Wages Expense
($3,600 + $700 $600) ............................................
Utilities Expense..........................................................

Debit
$ 3,180
3,910
460
3,340

Credit

$ 3,220
1,200
9,000
1,400
3,480
3,700
910
$16,900

$16,900

*$3,190 + $780 $870 $90 + $900

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-47

PROBLEM 3-8A

(a) & (c)


3/1 Bal.
3/9
3/20
3/31
3/31
Bal.

3/31
Bal.

3/1 Bal.
Bal.

3/1 Bal.
Bal.

3-48

2,000
10,900
500
5,000
3,800

Accounts Receivable
750
750

3/1 Bal.
Bal.

3/10

Cash
16,000 3/2
9,900 3/10
8,300 3/12
750 3/20
20,000 3/31
32,750

Land
38,000
38,000
Buildings
22,000
22,000
Equipment
16,000
16,000
Accounts Payable
10,900 3/1 Bal. 12,000
3/2
8,000
Bal.
9,100

Copyright 2011 John Wiley & Sons, Inc.

Common Stock
3/1 Bal.
Bal.

80,000
80,000

Service Revenue
3/9
3/20
3/31
Bal.

9,900
8,300
20,000
38,200

Sales Revenue
3/31
Bal.

1,500
1,500

3/12
Bal.

Advertising Expense
500
500

3/2
3/20
Bal.

Rent Expense
10,000
5,000
15,000

Salaries and Wages Expense


3/31
3,800
Bal.
3,800

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

PROBLEM 3-8A (Continued)


(b)
Date
Mar. 2

Account Titles and Explanation


Rent Expense...........................................................
Accounts Payable..........................................
Cash ...................................................................
(Rented films for cash and on
account)

Debit
10,000

8,000
2,000

No entrynot a transaction.

Cash ............................................................................
Service Revenue ............................................
(Received cash for admissions)

9,900

Accounts Payable ($8,000 + $2,900).................


Cash ...................................................................
(Paid creditors on account)

10,900

10

9,900

10,900

11

No entrynot a transaction.

12

Advertising Expense .............................................


Cash ...................................................................
(Paid advertising expenses)

500

Cash ............................................................................
Service Revenue ............................................
(Received cash for admissions)

8,300

Rent Expense...........................................................
Cash ...................................................................
(Paid film rental)

5,000

Salaries and Wages Expense .............................


Cash ...................................................................
(Paid salaries expense)

3,800

20

20

31

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Credit

500

8,300

5,000

(For Instructor Use Only)

3,800

3-49

PROBLEM 3-8A (Continued)


Date
Mar. 31

31

(d)

Account Titles and Explanation


Cash............................................................................
Accounts Receivable ............................................
Sales Revenue (15% X $10,000)...................
(Received cash and balance on
account for concession revenue)

Debit
750
750

Cash............................................................................
Service Revenue............................................
(Received cash for admissions)

20,000

1,500

20,000

SCIFI THEATER INC.


Trial Balance
March 31, 2012
Cash .............................................................................
Accounts Receivable..............................................
Land..............................................................................
Buildings.....................................................................
Equipment ..................................................................
Accounts Payable....................................................
Common Stock .........................................................
Service Revenue ......................................................
Sales Revenue ..........................................................
Advertising Expense ..............................................
Rent Expense ............................................................
Salaries and Wages Expense ..............................

3-50

Credit

Copyright 2011 John Wiley & Sons, Inc.

Debit
$ 32,750
750
38,000
22,000
16,000

Credit

500
15,000
3,800
$128,800

Kimmel Accounting, 4/e Solutions Manual

9,100
80,000
38,200
1,500

$128,800

(For Instructor Use Only)

PROBLEM 3-9A

Error
1.

(a) In Balance
No

(b) Difference
$600

(c) Larger Column


Debit

2.

Yes

None

N/A

3.

Yes

None

N/A

4.

No

$680

Credit

5.

Yes

None

N/A

6.

Yes

None

N/A

7.

No

$900

Debit

8.

Yes

None

N/A

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-51

3-52

Cash

300

4.

Copyright 2011 John Wiley & Sons, Inc.


650
$ 350

+650

$15,510 +

11.

140

9.

+$1,000

1,700

8.

NEW DAWN WINDOW WASHING INC.

Kimmel Accounting, 4/e Solutions Manual


$25,160

$300

+$300

$9,000

+$9,000

$750

+$750

$20,000 +

+$20,000

$25,160

$8,200

+1,000

+$7,200

$3,290

140

1,700

750

$700

$500

$500

Assets
= Liabilities +
Stockholders Equity
Accounts
Accounts
Common
Retained Earnings
+ Receivable + Supplies + Equipment = Payable +
Stock + Revenues Expenses Dividends

10.

500

7.

6.

+7,200

700

3.

5.

9,000

+$20,000

2.

1.

(a)

Service Revenue

Utilities Expense

Expense

Salaries and Wages

Dividends

Service Revenue

Advertising Expense

Rent Expense

PROBLEM 3-1B

(For Instructor Use Only)

PROBLEM 3-1B (Continued)


(b) Service Revenue ($7,200 + $1,000)..............................
Expenses
Salaries and Wages Expense...............................
Advertising Expense...............................................
Rent Expense.............................................................
Utilities Expense.......................................................
Net Income.........................................................

$8,200
$1,700
750
700
140

3,290
$4,910

OR
Revenues .............................................................................
Less: Expenses ................................................................
Net Income...........................................................................

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

$8,200
3,290
$4,910

3-53

3-54

600

Copyright 2011 John Wiley & Sons, Inc.

500

180

240

750

23

26

29

30

Assets

Liabilities

ALDRICH SERVICE INC.


Stockholders Equity

$1,650

750

+$2,400

Kimmel Accounting, 4/e Solutions Manual


$29,570

$240 +

+$240

$15,000 =

+$15,000

$12,500 +

500

+$13,000

$200

240

+200

+$240

750

180

200

$600

$3,900 $1,730

+1,500

+$2,400

$29,570

+ $15,000 +

$15,000

$300

$300

Retained Earnings
Accounts
Notes
Accounts
Common
+ Receivable + Supplies + Equipment = Payable + Payable + Stock + Revenues Expenses Dividends

$12,680 +

+1,500

+750

20

17

15

12

300

2,000

Cash

$15,000

Date

June 1

(a)

Salaries and
Wages Expense

Utilities Expense

Service Revenue

Advertising
Expense

Dividends

Service Revenue

Rent Expense

PROBLEM 3-2B

(For Instructor Use Only)

PROBLEM 3-2B (Continued)


(b)

ALDRICH SERVICE INC.


Income Statement
For the Month Ended June 30, 2012
Revenues
Service revenue ($2,400 + $1,500) ...................
Expenses
Salaries and wages expense .............................
Rent expense ..........................................................
Advertising expense ............................................
Utilities expense ....................................................
Total expenses ..............................................
Net income........................................................................

(c)

$3,900
$750
600
200
180
1,730
$2,170

ALDRICH SERVICE INC.


Balance Sheet
June 30, 2012
Assets
Current Assets
Cash...........................................................................
Accounts receivable.............................................
Supplies....................................................................
Total current assets.....................................
Equipment ........................................................................
Total assets .............................................................

$12,680
1,650
240

Liabilities and Stockholders Equity


Current Liabilities
Notes payable.........................................................
$12,500
Accounts payable .................................................
200
Total liabilities ...............................................
Stockholders equity
Common stock .......................................................
15,000
Retained earnings* ...............................................
1,870
Total liabilities and stockholders
equity ...........................................................

$14,570
15,000
$29,570

$12,700
16,870
$29,570

*($0 + $2,170 $300)


Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-55

3-56

Copyright 2011 John Wiley & Sons, Inc.

1,000

+2,300

600

2,250

8.

13.

17.

22.

30.

$10,250 +

+5,000

+1,200

5.

$9,000 +

3,400

26.

Assets

Liabilities

TIEDE COMPANY
Stockholders Equity

$29,750

$8,800

+8,300

1,200

$1,700

$600

$600

$10,100 =

+5,100

$5,000

$5,000 + $4,520

+$5,000

+220

+4,100

3,400

$3,600

+ $12,000 +

+ $12,000 +

+$10,600

+ $10,600

$29,750

$700

$700

$2,470

220

$600

Utilities Expense

Advertising Expense

Rent Expense

1,100
250

Salaries and Wages


Expense

Dividends

Service Revenue

$900

$600

Accounts
Notes
Accounts Common
Retained
Cash + Receivable + Supplies + Equipment = Payable + Payable + Stock + Earnings + Revenues Expenses Dividends

Sept. 2.

Bal.

(a)

PROBLEM 3-3B

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

PROBLEM 3-3B (Continued)


(b)

TIEDE COMPANY
Income Statement
For the Month Ended September 30, 2012
Revenues
Service revenue ............................................................
Expenses
Rent expense .................................................................
Salaries and wages expense ....................................
Advertising expense ...................................................
Utilities expense ...........................................................
Total expenses .....................................................
Net income...............................................................................

$10,600
$1,100
900
250
220
2,470
$8,130

TIEDE COMPANY
Retained Earnings Statement
For the Month Ended September 30, 2012
Retained earnings, September 1........................................................
Add: Net income ...................................................................................
Less: Dividends......................................................................................
Retained earnings, September 30 .....................................................

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

$ 700
8,130
8,830
600
$8,230

3-57

PROBLEM 3-3B (Continued)


TIEDE COMPANY
Balance Sheet
September 30, 2012
Assets
Current assets
Cash ..........................................................................
Accounts receivable ............................................
Supplies ...................................................................
Total current assets ....................................
Equipment...............................................................
Total assets ...................................................

$10,250
8,800
600
$19,650
10,100
$29,750

Liabilities and Stockholders Equity


Current liabilities
Notes payable ........................................................
Accounts payable.................................................
Total current liabilities ...............................
Stockholders equity
Common stock ......................................................
Retained earnings ................................................
Total liabilities and stockholders
equity...........................................................

3-58

Copyright 2011 John Wiley & Sons, Inc.

$ 5,000
4,520
$ 9,520
12,000
8,230

Kimmel Accounting, 4/e Solutions Manual

20,230
$29,750

(For Instructor Use Only)

PROBLEM 3-4B

Date
Apr. 1

11

Account Titles and Explanation


Cash ............................................................................
Common Stock ...............................................
(Issued stock for cash)

Debit
70,000

Land.............................................................................
Cash ...................................................................
(Purchased land for cash)

50,000

Advertising Expense..............................................
Accounts Payable..........................................
(Incurred advertising expense on
account)

1,200

Salaries and Wages Expense .............................


Cash ...................................................................
(Paid salaries)

2,700

70,000

50,000

1,200

2,700

12

No entrynot a transaction.

13

Prepaid Insurance...................................................
Cash ...................................................................
(Paid for one-year insurance policy)

7,200

Dividends...................................................................
Cash ...................................................................
(Payment of cash dividend)

600

Cash ............................................................................
Service Revenue ............................................
(Received cash for services
provided)

6,000

Cash (100 X $90)......................................................


Unearned Service Revenue ........................
(Received advance for future
services)

9,000

17

20

25

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Credit

7,200

600

6,000

(For Instructor Use Only)

9,000

3-59

PROBLEM 3-4B (Continued)


Date
Apr. 30

30

3-60

Account Titles and Explanation


Cash............................................................................
Service Revenue............................................
(Received cash for services
provided)

Debit
7,900

Accounts Payable ..................................................


Cash...................................................................
(Paid creditor on account)

400

Copyright 2011 John Wiley & Sons, Inc.

Credit
7,900

Kimmel Accounting, 4/e Solutions Manual

400

(For Instructor Use Only)

PROBLEM 3-5B
(a)
Date
May 1

Account Titles and Explanation


Cash.............................................................................
Common Stock ...............................................
(Issued stock for cash)

Debit
40,000

40,000

No entrynot a transaction.

Supplies .....................................................................
Accounts Payable ..........................................
(Purchased supplies on account)

800

Rent Expense ...........................................................


Cash....................................................................
(Paid office rent)

1,400

Accounts Receivable .............................................


Service Revenue.............................................
(Billed client for services provided)

1,500

Cash.............................................................................
Unearned Service Revenue ........................
(Received an advance for future
services)

4,200

Cash.............................................................................
Service Revenue.............................................
(Received cash for revenue earned)

3,300

Salaries and Wages Expense..............................


Cash....................................................................
(Paid salaries)

2,000

Accounts Payable ($800 X 50%).........................


Cash....................................................................
(Paid creditor on account)

400

11

12

17

31

31

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Credit

800

1,400

1,500

4,200

3,300

2,000

(For Instructor Use Only)

400

3-61

PROBLEM 3-5B (Continued)


(b)
5/1
5/12
5/17
Bal.

Cash
40,000 5/7
4,200 5/31
3,300 5/31
43,700

5/11
Bal.

Accounts Receivable
1,500
1,500

5/3
Bal.

Supplies
800
800

5/31

Accounts Payable
400 5/3
Bal.

1,400
2,000
400

Salaries and Wages Expense


5/31
2,000
Bal.
2,000

5/7
Bal.

Rent Expense
1,400
1,400

800
400

Unearned Service Revenue


5/12
4,200
Bal.
4,200

3-62

Common Stock
5/1
Bal.

40,000
40,000

Service Revenue
5/11
5/17
Bal.

1,500
3,300
4,800

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

PROBLEM 3-5B (Continued)


(c)

RIDGELL CONSULTING
Trial Balance
May 31, 2012
Cash.................................................................................
Accounts Receivable .................................................
Supplies..........................................................................
Accounts Payable .......................................................
Unearned Service Revenue......................................
Common Stock.............................................................
Service Revenue..........................................................
Salaries and Wages Expense..................................
Rent Expense................................................................

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Debit
$43,700
1,500
800

Credit

400
4,200
40,000
4,800

2,000
1,400
$49,400

(For Instructor Use Only)

$49,400

3-63

PROBLEM 3-6B

(a) & (c)


7/1 Bal.
7/8
7/11
Bal.

Cash
12,532 7/9
5,189 7/14
7,320 7/30
7/31
7,464

Common Stock
7/1 Bal.
Bal.

2,100
9,810
5,267
400
7/31
Bal.

Accounts Receivable
7/1 Bal. 10,536 7/8
5,189
7/22
4,700
Bal.
10,047

7/1 Bal.
7/17
Bal.

Supplies
3,592
720
4,312

7/1 Bal.
Bal.

Equipment
25,950
25,950

7/14

Accounts Payable
9,810 7/1 Bal. 15,800
7/17
720
Bal.
6,710

35,000
35,000

Dividends
400
400
Service Revenue
7/11
7/22
Bal.

7,320
4,700
12,020

Maintenance and Repairs


Expense
7/30
386
Bal.
386
Salaries and Wages Expense
7/9
2,100
7/30
3,114
Bal.
5,214

7/30
Bal.

Utilities Expense
1,767
1,767

Unearned Service Revenue


7/1 Bal.
1,810
Bal.
1,810

3-64

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

PROBLEM 3-6B (Continued)


(b)
Date
July 8

11

14

17

22

30

31

Account Titles and Explanation


Cash ............................................................................
Accounts Receivable....................................
(Received cash on account)

Debit
5,189

Salaries and Wages Expense .............................


Cash ...................................................................
(Paid salaries)

2,100

Cash ............................................................................
Service Revenue ............................................
(Received cash for services
provided)

7,320

Accounts Payable...................................................
Cash ...................................................................
(Paid creditors)

9,810

Supplies .....................................................................
Accounts Payable..........................................
(Purchased supplies on account)

720

Accounts Receivable.............................................
Service Revenue ............................................
(Billed for services provided)

4,700

Salaries and Wages Expense .............................


Utilities Expense .....................................................
Maintenance and Repairs Expense ..................
Cash ...................................................................
(Paid for various expenses)

3,114
1,767
386

Dividends...................................................................
Cash ...................................................................
(Payment of cash dividend)

400

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Credit
5,189

2,100

7,320

9,810

720

4,700

5,267

(For Instructor Use Only)

400

3-65

PROBLEM 3-6B (Continued)


(d)

KINNEAR DRY CLEANERS


Trial Balance
July 31, 2012
Cash ................................................................................
Accounts Receivable.................................................
Supplies .........................................................................
Equipment .....................................................................
Accounts Payable.......................................................
Unearned Service Revenue .....................................
Common Stock ............................................................
Dividends.......................................................................
Service Revenue .........................................................
Maintenance and Repairs Expense ......................
Salaries and Wages Expense .................................
Utilities Expense .........................................................

3-66

Copyright 2011 John Wiley & Sons, Inc.

Debit
$ 7,464
10,047
4,312
25,950

Credit

$ 6,710
1,810
35,000
400
12,020
386
5,214
1,767
$55,540

Kimmel Accounting, 4/e Solutions Manual

$55,540

(For Instructor Use Only)

PROBLEM 3-7B

LAGERSTROM COMPANY
Trial Balance
May 31, 2012
Cash ($6,340 + $350 $441) .............................................
Accounts Receivable ($2,750 $180 $240)..............
Prepaid Insurance ($700 + $100).....................................
Supplies ($0 + $350)............................................................
Equipment ($8,000 $350)................................................
Accounts Payable ($4,100 $100 + $350 $240)......
Income Taxes Payable .......................................................
Common Stock ($5,700 + $600).......................................
Retained Earnings ...............................................................
Dividends ($0 + $600) .........................................................
Service Revenue ($7,690 + $270)....................................
Salaries and Wages Expense ($4,200 + $500)............
Advertising Expense ($1,100 + $441) ............................
Income Tax Expense ($900 + $100)................................

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

Debit
$ 6,249
2,330
800
350
7,650

Credit

$ 4,110
750
6,300
6,000
600
7,960
4,700
1,541
1,000
$25,220

(For Instructor Use Only)

$25,220

3-67

PROBLEM 3-8B

(a) & (c)


4/1 Bal.
4/9
4/25
4/30
Bal.

Cash
6,300 4/2
4,700 4/10
3,000 4/12
170 4/29
4/30
6,660

800
3,200
410
1,900
1,200

4/10

4/10
4/30
Bal.

Accounts Receivable
170
170

4/30
Bal.

4/1 Bal.
Bal.

4/1 Bal.
Bal.

4/1 Bal.
Bal.

3-68

Prepaid Rent
1,200
1,200
Land
10,000
10,000

Copyright 2011 John Wiley & Sons, Inc.

2,300
750
1,850

Mortgage Payable
2,000 4/1 Bal.
Bal.

8,000
6,000

Common Stock
4/1 Bal.
Bal.

20,000
20,000

Service Revenue
4/9
4/25
Bal.

4,700
3,000
7,700

Sales Revenue
4/30
Bal.

Buildings
8,000
8,000
Equipment
6,000
6,000

Accounts Payable
1,200 4/1 Bal.
4/20
Bal.

4/12
Bal.

340
340

Advertising Expense
410
410

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

PROBLEM 3-8B (Continued)


Rent Expense
800
750
1,550

4/2
4/20
Bal.

Salaries and Wages Expense


4/29
1,900
Bal.
1,900

(b)
Date
Apr. 2

Account Titles and Explanation


Rent Expense...........................................................
Cash ...................................................................
(Paid film rental)

Debit
800

800

No entrynot a transaction.

Cash ............................................................................
Service Revenue ............................................
(Received cash for admissions)

4,700

Mortgage Payable...................................................
Accounts Payable...................................................
Cash ...................................................................
(Made payments on mortgage
and accounts payable)

2,000
1,200

10

4,700

3,200

11

No entrynot a transaction.

12

Advertising Expense .............................................


Cash ...................................................................
(Paid advertising expenses)

410

Rent Expense...........................................................
Accounts Payable..........................................
(Rented film on account)

750

Cash ............................................................................
Service Revenue ............................................
(Received cash for admissions)

3,000

20

25

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Kimmel Accounting, 4/e Solutions Manual

Credit

410

750

(For Instructor Use Only)

3,000

3-69

PROBLEM 3-8B (Continued)


Date
Apr. 29

30

30

(d)

Account Titles and Explanation


Salaries and Wages Expense.............................
Cash...................................................................
(Paid salaries expense)

Debit
1,900

Cash............................................................................
Accounts Receivable ............................................
Sales Revenue (17% X $2,000) .....................
(Received cash and balance on
account for concession revenue)

170
170

Prepaid Rent ............................................................


Cash...................................................................
(Paid cash for future film rental)

1,200

1,900

340

1,200

RIVIERA THEATER INC.


Trial Balance
April 30, 2012
Cash .............................................................................
Accounts Receivable..............................................
Prepaid Rent..............................................................
Land..............................................................................
Buildings.....................................................................
Equipment ..................................................................
Accounts Payable....................................................
Mortgage Payable ....................................................
Common Stock .........................................................
Service Revenue ......................................................
Sales Revenue ..........................................................
Advertising Expense ..............................................
Rent Expense ............................................................
Salaries and Wages Expense ..............................

3-70

Credit

Copyright 2011 John Wiley & Sons, Inc.

Debit
$ 6,660
170
1,200
10,000
8,000
6,000

Credit

$ 1,850
6,000
20,000
7,700
340
410
1,550
1,900
$35,890

Kimmel Accounting, 4/e Solutions Manual

$35,890

(For Instructor Use Only)

PROBLEM 3-9B
(a) Correct: 2, 7
Incorrect: 1, 3, 4, 5, 6, 8
(b)

Error

(1) In Balance

(2) Difference

(3) Larger Column

1.

No

$270

Credit

3.

No

$880

Credit

4.

Yes

None

N/A

5.

Yes

None

N/A

6.

Yes

None

N/A

8.

No

$5,000

Credit

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-71

CCC3

CONTINUING COOKIE CHRONICLE

(a)
General Journal
Date
Nov.

Account Titles
No journal entry required.

No journal entry required.

Cash ........................................................................
Common Stock............................................

500

Supplies.................................................................
Cash................................................................

95

Supplies.................................................................
Cash................................................................

125

Equipment.............................................................
Common Stock............................................

300

Cash ........................................................................
Notes Payable..............................................

2,000

Equipment.............................................................
Cash................................................................

900

11
14
15
16
17

95
125
300
2,000
900

No journal entry required.

25

Cash ........................................................................
Unearned Service Revenue.....................

60

Cash ........................................................................
Service Revenue.........................................

100

Copyright 2011 John Wiley & Sons, Inc.

Credit

500

18

29

3-72

Debit

60

Kimmel Accounting, 4/e Solutions Manual

100

(For Instructor Use Only)

CONTINUING COOKIE CHRONICLE (Continued)


Date
Nov. 30
30
30
30

Account Titles
Website..................................................................
Accounts Payable......................................

Debit
600

Credit
600

Prepaid Insurance..............................................
Cash ...............................................................

1,200

Accounts Receivable ........................................


Service Revenue ........................................

300

Utilities Expense.................................................
Accounts Payable......................................

50

1,200
300
50

(b)
Cash
Nov. 8
500 Nov.
Nov. 16
2,000 Nov.
Nov. 25
60 Nov.
Nov. 29
100 Nov.
Nov.30 Bal. 340

11
14
17
30

95
125
900
1,200

Equipment
Nov. 15
300
Nov. 17
900
Nov. 30 Bal. 1,200
Website
Nov. 30
600
Nov. 30 Bal. 600

Accounts Receivable
Nov. 30
300
Nov. 30 Bal. 300
Supplies
Nov. 11
95
Nov. 11
125
Nov. 30 Bal. 220

Accounts Payable
Nov. 30
Nov. 30
Nov. 30 Bal.

Unearned Service Revenue


Nov. 25
60
Nov. 30 Bal.
60

Prepaid Insurance
Nov. 30
1,200
Nov. 30 Bal. 1,200

Copyright 2011 John Wiley & Sons, Inc.

600
50
650

Kimmel Accounting, 4/e Solutions Manual

Notes Payable
Nov. 16
2,000
Nov. 30 Bal. 2,000

(For Instructor Use Only)

3-73

CONTINUING COOKIE CHRONICLE (Continued)

(c)

Common Stock
Nov. 8
Nov. 15
Nov. 30 Bal.

500
300
800

Service Revenue
Nov. 29
Nov. 30
Nov. 30 Bal.

100
300
400

Utilities Expense
Nov. 30
50
Nov. 30 Bal. 50

COOKIE CREATIONS INC.


Trial Balance
November 30, 2012
Cash .....................................................................................
Accounts Receivable......................................................
Supplies ..............................................................................
Prepaid Insurance............................................................
Equipment ..........................................................................
Website................................................................................
Accounts Payable............................................................
Unearned Service Revenue ..........................................
Notes Payable ...................................................................
Common Stock .................................................................
Service Revenue ..............................................................
Utilities Expense ..............................................................

3-74

Copyright 2011 John Wiley & Sons, Inc.

Debit
$ 340
300
220
1,200
1,200
600

Credit

$ 650
60
2,000
800
400
50
$3,910

Kimmel Accounting, 4/e Solutions Manual

$3,910

(For Instructor Use Only)

BYP 3-1

FINANCIAL REPORTING PROBLEM

(a)
Account
Common Stock
Accounts Payable
Accounts Receivable
Selling, Marketing, and
Administrative Expenses
Prepaid Expenses
Net Property, Plant, and
Equipment
Net Product Sales

1. Increase
2. Decrease
3. Normal
Side
Side
Balance
Right/Credit Left/Debit
Credit
Right/Credit Left/Debit
Credit
Left/Debit
Right/Credit
Debit
Left/Debit
Left/Debit

Right/Credit
Right/Credit

Debit
Debit

Left/Debit
Right/Credit

Right/Credit
Left/Debit

Debit
Credit

(b) 1.
2.
3.

Cash is increased.
Cash is decreased.
Cash is decreased.

(c) 1.
2.

Cash is decreased or Interest Payable is increased.


Cash is decreased or Notes (or Mortgage) Payable is increased.

Copyright 2011 John Wiley & Sons, Inc.

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3-75

BYP 3-2

(a)
1.
2.
3.
4.
5.

COMPARATIVE ANALYSIS PROBLEM

Tootsie Roll
Accounts Receivable:
Net Property, Plant, and
Equipment:
Accounts Payable:
Retained Earnings:
Net Product Sales:

debit
debit
credit
credit
credit

1.
2.
3.
4.
5.

Hershey Foods
Inventories:
Provision for Income
Taxes:
Accrued Liabilities:
Common Stock:
Interest Expense:

debit
debit
credit
credit
debit

(b) The following other accounts are ordinarily involved:

3-76

1.

Increase in Accounts Receivable: Service Revenue or Sales Revenue is increased (credited).

2.

Decrease in Notes Payable: Cash is decreased (credited).

3.

Increase in Machinery: Notes Payable is increased (credited) or Cash


is decreased (credited).

4.

Increase in Interest Revenue: Cash or Interest Receivable is increased (debited).

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

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BYP 3-3

RESEARCH CASE

(a) There are 15 items listed in this section. Students ranking of the top
three will vary. Their explanations for giving particular items high rankings should provide a basis for good classroom discussion. An additional activity would be to apply these criteria to an actual annual report.
(b) The answers to this question will vary depending on the year. In 2006
the companies with the highest ranked annual reports were: Tellabs,
Inc., Manitowoc Co., Inc., Tyson Foods, TD Bank Financial Group, MDU
Resources, Scotiabank, F. Hoffmann-La Roche.
(c) The annual report is the primary mechanism for a company to communicate its operating results and financial position to outsiders. If
outsiders think that the company has made its best effort to communicate this information effectively they may have more confidence in the
results, and may feel more comfortable relying on it to make decisions.
On the other hand, if outsiders feel that the company did not do its
best to communicate its results in an understandable fashion, or even
tried to conceal things, then they will be reluctant to rely on the annual
report as an information source.

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-77

BYP 3-4

INTERPRETING FINANCIAL STATEMENTS

CHIEFTAIN INTERNATIONAL, INC.


(a) One of the primary advantages to Chieftain of having no long-term debt
is that there is room for growth through the use of debt and the
companys financial risk is greatly reduced. Another advantage is that
profitability is enhanced when there is no interest expense. A possible
disadvantage is that the company could expand more and earn a
greater return if the growth had been financed with long-term debt.
(b) An advantage to Chieftain from having a large cash balance is that
cash is available to finance such things as the drilling of new wells and
the investment in new technology. New opportunities may be seized
and expansions may be undertaken at the time most advantageous for
the business. A disadvantage is that cash earns little or no interest. A
higher rate of return might be generated on excess cash by some other
type of investment.
(c) Accounts payable, as purchases on credit, represent interest-free loans.
Business enterprises dont pay cash unless the supplier requires
immediate payment. Nearly all exchange transactions are conducted
on 30-day or more credit.

3-78

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Kimmel Accounting, 4/e Solutions Manual

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BYP 3-5

FINANCIAL ANALYSIS ON THE WEB

(a) CPA stands for Certified Public Accountant. CPAs work in public
accounting, business and industry, government, and education.
(b) Public accounting is a term that describes accountants who provide
audit services. Auditors review company financial records for accuracy
and accountability.
Public accountants also provide advice to clients regarding taxation
laws, computer technology, and management operations.
(c) A CPA needs:
strong communication and leadership skills,
critical thinking and big-picture perspectives,
strong analytical and computer skills,
well-rounded academic background that combines liberal arts & science
courses with accounting and business classes,
strong sense of ethics and integrity,
a professional manner to interact well with a variety of people.
(d) Salary ranges are: $52,000 $62,250 during the first three years for a CPA
at a large firm;
$252,500 $358,750 for Chief Financial Officer (CFO) & Treasurer at a
large corporation.

Copyright 2011 John Wiley & Sons, Inc.

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3-79

BYP 3-6

DECISION MAKING ACROSS THE ORGANIZATION

(a) May 1

Cash ..........................................................................
Common Stock .............................................

15,000
15,000

Correct.

Cash ..........................................................................
Unearned Revenue ......................................

500

Hay and Feed Supplies .......................................


Accounts Payable........................................

1,500

Office Equipment ..................................................


Cash .................................................................

800

Dividends.................................................................
Cash .................................................................

400

Cash ..........................................................................
Riding Revenue ............................................

154

Veterinary Expense ..............................................


Accounts Payable........................................

75

9
14
15
20
31

500
1,500
800
400
154
75

(b) The error in the entries of May 14 and May 20 would prevent the trial
balance from balancing.
(c) Net income as reported .................................................
Add: 5/9, Hay and feed expense...............................
5/15, Salaries expense (dividends
paid)....................................................................

$ 4,500
$1,500
400

Less: 5/7, Unearned boarding revenue ...................


Correct net income..........................................................
(d) Cash as reported .............................................................
Add: 5/9, Purchase on account ................................
5/20, Transposition error..................................

3-80

Copyright 2011 John Wiley & Sons, Inc.

1,900
6,400
500
$ 5,900
$12,475

$1,500
9

Kimmel Accounting, 4/e Solutions Manual

1,509
$13,984

(For Instructor Use Only)

BYP 3-7

COMMUNICATION ACTIVITY

To:

Accounting Instructor

From:

Accounting Student

Re:

Steps in Recording Process

In the first transaction, bills totaling $6,000 were sent to customers for
services provided. Therefore, the asset Accounts Receivable is increased
$6,000 and the revenue Service Revenue is increased $6,000. Debits increase
assets and credits increase revenues, so the journal entry is:
Accounts Receivable ........................................................................
Service Revenue........................................................................
(Billed customers for services provided)

6,000
6,000

The $6,000 amount is then posted to the debit side of the general ledger
account Accounts Receivable and to the credit side of the general ledger
account Service Revenue.
In the second transaction, $2,000 was paid in salaries to employees. Therefore,
the expense Salaries and Wages Expense is increased $2,000 and the asset
Cash is decreased $2,000. Debits increase expenses and credits decrease
assets, so the journal entry is:
Salaries and Wages Expense.........................................................
Cash...............................................................................................
(Salaries paid)

2,000
2,000

The $2,000 amount is then posted to the debit side of the general ledger
account Salaries and Wages Expense and to the credit side of the general
ledger account Cash.

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-81

BYP 3-8

ETHICS CASE

(a) The stakeholders in this situation are:

Courtney Delacey, assistant chief accountant.


Users of the companys financial statements.
BIT Company.

(b) By adding $1,000 to the Equipment account, that account total is intentionally misstated. By not locating the error causing the imbalance,
some other account may also be misstated by $1,000. If the amount of
$1,000 is determined to be immaterial, and the intent is not to commit
fraud (cover up an embezzlement or other misappropriation of assets),
Courtneys action might not be considered unethical in the preparation
of interim financial statements. However, if Courtney is violating a
company accounting policy by her action, then she is acting unethically.
(c) Courtneys alternatives are:

3-82

1.

Miss the deadline but find the error causing the imbalance.

2.

Tell her supervisor of the imbalance and suffer the consequences.

3.

Do as she did and locate the error later, making the adjustment in
the next quarter.

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

BYP 3-9

ETHICS CASE

(a) Employees in the rail unit accelerated revenue in each of the fourth
quarters from 2000 to 2003. That is, revenue that should have been
reported in the first quarter of a year was instead reported in the fourth
quarter of the previous year.
(b) One possible motivation for engaging in this activity is that bonuses
are frequently based on annual results. If it appeared that the rail unit
was not going to meet the performance level required for bonuses, the
employees may have shifted the revenue recognition forward on these
sales in order to boost annual results to meet performance targets.
(c) The employees were fired. In addition, the matter was being investigated
by the Securities and Exchange Commission (SEC).
(d) To restate financial statements means to actually issue new financial
statements to replace those that were previously issued. We are told
that, for example, 2002 revenue was overstated by $158 million, and
net income was overstated by $22 million. While these numbers seem
large, to GE they are immaterial. $22 million was less than 0.2% of the
companys net income. As a percentage of GEs total results the errors
are not large enough to change investors evaluation of the company.

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-83

BYP 3-10

ALL ABOUT YOU ACTIVITY

We address the issue of contingent liabilities in greater detail in Chapter


10. Our primary interest in this exercise is to engage students in a
discussion regarding the general nature of the financial statement elements
(assets, liabilities, equity, revenues and expenses).
(a)

By taking out the bank loan your friend has incurred a liability. You do
not have a liability unless your friend defaults, or unless it becomes
clear that he will default. The loan application may, however, require you
to disclose any guarantees that you have signed, since they represent
potential liabilities.

(b) Accounting standards have specific requirements regarding accounting for situations where there is uncertainty regarding whether a liability
has been incurred. Those standards require an evaluation of the probability of an amount being owed. Without going into detail regarding
those standards, the basic idea is that if it is probable that you will
owe money, then you should accrue a liability. If it is not probable, but
it is possible that you will owe money, then you should disclose facts
regarding the situation. The most important point is that this event has
the potential to materially impact your finances, and therefore you have
a responsibility to disclose it to the bank in some form.
(c)

3-84

Losing your job would not create a financial liability, although it would
most certainly reduce your revenues. You are obviously concerned that
you might lose your job, but you dont have specific information that
would suggest that it will happen. Therefore, you probably dont have
an obligation to disclose this information to the bank. However, unless
you are relatively certain that you would be able to find suitable employment relatively quickly, you might want to wait until your job situation
has stabilized before pursuing a loan of this size.

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

IFRS 3-1

CONCEPTS AND APPLICATION

In deciding whether the U.S. should adopt IFRS, the SEC should consider
the following.
Whether IFRS is sufficiently developed and consistent in application
Whether the IASB is sufficiently independent
Whether IFRS is established for the benefit to investors
The issues involved in educating investors about IFRS
The impact of a switch to IFRS on U.S. laws and regulations
The impact on companies including changes to their accounting
systems, contractual arrangements, corporate governance, and
litigation
The issues involved in educating accountants, so they can prepare
statements under IFRS

Copyright 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

3-85

IFRS 3-2

INTERNATIONAL FINANCIAL REPORTING PROBLEM

Account
Share capital

Financial Statement
Consolidated
Balance Sheet
Goodwill
Consolidated
Balance Sheet
Borrowings and Consolidated
overdrafts
Balance Sheet
Amortisation of Consolidated
intangible
Income Statement
assets
Derivative
Consolidated
financial asset
Balance Sheet

3-86

Copyright 2011 John Wiley & Sons, Inc.

Position in Financial Statement


Equity
Non-current assets
Current and Non-current liabilities
After Gross profit and before Operating profit
Current assets

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