EXERCISES
E3-1 (L02) (Transaction Analysis—Service Company) Beverly Crusher is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the following events and transactions occurred.
April 2 Invested $32,000 cash and equipment valued at $14,000 in the business.
2 Hired an administrative assistant at a salary of $290 per week payable monthly.
3 Purchased supplies on account $700. (Debit an asset account.)
7 Paid office rent of $600 for the month.
11 Completed a tax assignment and billed client $1,100 for services rendered. (Use Service Revenue account.)
12 Received $3,200 advance on a management consulting engagement.
17 Received cash of $2,300 for services completed for Ferengi Co.
21 Paid insurance expense $110.
30 Paid administrative assistant $1,160 for the month.
30 A count of supplies indicated that $120 of supplies had been used.
30 Purchased a new computer for $6,100 with personal funds. (The computer will be used exclusively for business purposes.)
Instructions
Journalize the transactions in the general journal. (Omit explanations.)
E3-2 (L02) (Corrected Trial Balance) The following trial balance of Wanda Landowska Company does not balance. Your review of the ledger reveals the following. (a) Each account had a normal balance. (b) The debit footings in Prepaid Insurance,
Accounts Payable, and Property Tax Expense were each understated $100. (c) A transposition error was made in Accounts
Receivable and Service Revenue; the correct balances for Accounts Receivable and Service Revenue are $2,750 and $6,690, respectively. (d) A debit posting to Advertising Expense of $300 was omitted. (e) A $1,500 cash drawing by the owner was debited to Owner’s Capital and credited to Cash. * *
Instructions
Prepare a correct trial balance.
E3-3 (L02) (Corrected Trial Balance) The following trial balance of Blues Traveler Corporation does not balance.
An examination of the ledger shows these errors.
1. Cash received from a customer on account was recorded (both debit and credit) as $1,380 instead of $1,830.
2. The purchase on account of a computer costing $3,200 was recorded as a debit to Office Expense and a credit to Accounts
Payable.
3. Services were performed on account for a client, $2,250, for which Accounts Receivable was debited $2,250 and Service
Revenue was credited $225.
4. A payment of $95 for telephone charges was entered as a debit to Office Expense and a debit to Cash.
5. The Service Revenue account was totaled at $5,200 instead of $5,280.
Instructions
From this information prepare a corrected trial balance.
E3-4 (L02) (Corrected Trial Balance) The following trial balance of Watteau Co. does not balance.
Each of the listed accounts should have a normal balance per the general ledger. An examination of the ledger and journal reveals the following errors.
1. Cash received from a customer on account was debited for $570, and Accounts Receivable was credited for the same amount. The actual collection was for $750.
2. The purchase of a computer printer on account for $500 was recorded as a debit to Supplies for $500 and a credit to Accounts Payable for $500.
3. Services were performed on account for a client for $890. Accounts Receivable was debited for $890 and Service Revenue was credited for $89.
4. A payment of $65 for telephone charges was recorded as a debit to Office Expense for $65 and a debit to Cash for $65.
5. When the Unearned Service Revenue account was reviewed, it was found that service revenue amounting to $325 was performed prior to June 30 (related to Unearned Service Revenue).
6. A debit posting to Salaries and Wages Expense of $670 was omitted.
7. A payment on account for $206 was credited to Cash for $206 and credited to Accounts Payable for $260.
8. A dividend of $575 was debited to Salaries and Wages Expense for $575 and credited to Cash for $575.
Instruction
Prepare a correct trial balance. (Note: It may be necessary to add one or more accounts to the trial balance.)
E3-5 (L03) EXCEL (Adjusting Entries) The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.
An analysis of the accounts shows the following.
1. The equipment depreciates $250 per month.
2. One-third of the unearned rent was recognized as revenue during the quarter.
3. Interest of $500 is accrued on the notes payable.
4. Supplies on hand total $850.
5. Insurance expires at the rate of $300 per month.
Instructions
Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense. (Omit explanations.)
E3-6 (L03) (Adjusting Entries) Karen Weller, D.D.S., opened a dental practice on January 1, 2017. During the first month of operations, the following transactions occurred.
1. Performed services for patients who had dental plan insurance. At January 31, $750 of such services was performed but not yet billed to the insurance companies.
2. Utility expenses incurred but not paid prior to January 31 totaled $520.
3. Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000, 3-year note payable.
The equipment depreciates $400 per month. Interest is $500 per month.
4. Purchased a one-year malpractice insurance policy on January 1 for $12,000.
5. Purchased $1,600 of dental supplies. On January 31, determined that $500 of supplies were on hand.
Instructions
Prepare the adjusting entries on January 31. (Omit explanations.) Account titles are Accumulated Depreciation—Equipment,
Depreciation Expense, Service Revenue, Accounts Receivable, Insurance Expense, Interest Expense, Interest Payable, Prepaid
Insurance, Supplies, Supplies Expense, Utilities Expenses, and Accounts Payable.
E3-7 (L03) (Analyze Adjusted Data) A partial adjusted trial balance of Piper Company at January 31, 2017, shows the following.
Instructions
Answer the following questions, assuming the year begins January 1.
(a) If the amount in Supplies Expense is the January 31 adjusting entry, and $850 of supplies was purchased in January, what was the balance in Supplies on January 1?
(b) If the amount in Insurance Expense is the January 31 adjusting entry, and the original insurance premium was for one year, what was the total premium and when was the policy purchased?
(c) If $2,500 of salaries was paid in January, what was the balance in Salaries and Wages Payable at December 31, 2016?
(d) If $1,600 was received in January for services performed in January, what was the balance in Unearned Service Revenue at December 31, 2016?
E3-8 (L03) EXCEL (Adjusting Entries) Andy Roddick is the new owner of Ace Computer Services. At the end of August 2017, his first month of ownership, Roddick is trying to prepare monthly financial statements. Below is some information related to unrecorded expenses that the business incurred during August.
1. At August 31, Roddick owed his employees $1,900 in wages that will be paid on September 1.
2. At the end of the month, he had not yet received the month’s utility bill. Based on past experience, he estimated the bill would be approximately $600.
3. On August 1, Roddick borrowed $30,000 from a local bank on a 15-year mortgage. The annual interest rate is 8%.
4. A telephone bill in the amount of $117 covering August charges is unpaid at August 31.
Instructions
Prepare the adjusting journal entries as of August 31, 2017, suggested by the information above.
E3-9 (L02,3) (Adjusting Entries) Selected accounts of Urdu Company are shown below.
Instructions
From an analysis of the T-accounts, reconstruct (a) the October transaction entries, and (b) the adjusting journal entries that were made on October 31, 2017. Prepare explanations for each journal entry.
E3-10 (L03) (Adjusting Entries) Greco Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows.
Instructions
(a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Omit explanations.)
(b) Prepare an adjusted trial balance on August 31.
E3-11 (L04) (Prepare Financial Statements) The adjusted trial balance of Anderson Cooper Co. as of December 31, 2017, contains the following.
Instructions
(a) Prepare an income statement.
(b) Prepare a statement of retained earnings.
(c) Prepare a classified balance sheet.
E3-12 (L03,4) (Prepare Financial Statements) Santo Design was founded by Thomas Grant in January 2011. Presented below is the adjusted trial balance as of December 31, 2017.
Instructions
(a) Prepare an income statement and a statement of retained earnings for the year ending December 31, 2017, and an unclassified balance sheet at December 31.
(b) Answer the following questions.
(1) If the note has been outstanding 6 months, what is the annual interest rate on that note?
(2) If the company paid $17,500 in salaries in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?
E3-13 (L05,6) (Closing Entries) The adjusted trial balance of Lopez Company shows the following data pertaining to sales at the end of its fiscal year, October 31, 2017: Sales Revenue $800,000, Delivery Expense $12,000, Sales Returns and Allowances $24,000, and Sales Discounts $15,000.
Instructions
(a) Prepare the revenues section of the income statement.
(b) Prepare separate closing entries for (1) sales and (2) the contra accounts to sales.
E3-14 (L05) (Closing Entries) Presented below is information related to Gonzales Corporation for the month of January 2017.
Instructions
Prepare the necessary closing entries.
E3-15 (L06) (Missing Amounts) Presented below is financial information for two different companies.
Alatorre Company Eduardo Company
Instructions
Compute the missing amounts.
E3-16 (L05) (Closing Entries for a Corporation) Presented below are selected account balances for Homer Winslow Co. as of
December 31, 2017.
Instructions
Prepare closing entries for Homer Winslow Co. on December 31, 2017. (Omit explanations.)
E3-17 (L02) (Transactions of a Corporation, Including Investment and Dividend) Scratch Miniature Golf and Driving
Range Inc. was opened on March 1 by Scott Verplank. The following selected events and transactions occurred during March.
Mar. 1 Invested $50,000 cash in the business in exchange for common stock.
3 Purchased Michelle Wie’s Golf Land for $38,000 cash. The price consists of land $10,000, building $22,000, and equipment $6,000. (Make one compound entry.)
5 Advertised the opening of the driving range and miniature golf course, paying advertising expenses of $1,600.
6 Paid cash $1,480 for a one-year insurance policy.
…
Instructions
Journalize the March transactions. (Provide explanations for the journal entries.)
*E3-18 (L07) (Cash to Accrual Basis) Jill Accardo, M.D., maintains the accounting records of Accardo Clinic on a cash basis.
During 2017, Dr. Accardo collected $142,600 from her patients and paid $55,470 in expenses. At January 1, 2017, and December
31, 2017, she had accounts receivable, unearned service revenue, accrued expenses, and prepaid expenses as follows. (All longlived assets are rented.)
…
Instructions
Prepare a schedule that converts Dr. Accardo’s “excess of cash collected over cash disbursed” for the year 2017 to net income on an accrual basis for the year 2017.
*E3-19 (L07) (Cash and Accrual Basis) Wayne Rogers Corp. maintains its financial records on the cash basis of accounting.
Interested in securing a long-term loan from its regular bank, Wayne Rogers Corp. requests you as its independent CPA to 2016, 2017, and 2018.
Instructions
(a) Using the data above, prepare abbreviated income statements for the years 2016 and 2017 on the cash basis.
(b) Using the data above, prepare abbreviated income statements for the years 2016 and 2017 on the accrual basis.
*E3-20 (L03,8) (Adjusting and Reversing Entries) When the accounts of Daniel Barenboim Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of an annual fiscal period.
1. The prepaid insurance account shows a debit of $5,280, representing the cost of a 2-year fire insurance policy dated August 1 of the current year.
Instructions
Prepare the following in general journal form.
(a) The adjusting entry for each item.
(b) The reversing entry for each item where appropriate.
*E3-21 (L09) (Worksheet) Presented below are selected accounts for Alvarez Company as reported in the worksheet at the end of May 2017.
Instructions
Complete the worksheet by extending amounts reported in the adjusted trial balance to the appropriate columns in the worksheet.
*E3-22 (L09) (Worksheet and Balance Sheet Presentation) The adjusted trial balance for Ed Bradley Co. is presented in the following worksheet for the month ended April 30, 2017.
Instructions
Complete the worksheet and prepare a classified balance sheet.
*E3-23 (L09) (Partial Worksheet Preparation) Jurassic Park Co. prepares monthly financial statements from a worksheet.
Selected portions of the January worksheet showed the following data.
Instructions
Reproduce the data that would appear in the February worksheet, and indicate the amounts that would be shown in the February income statement.
