PROBLEMS
P3-1 (L02,4,5) (Transactions, Financial Statements—Service Company) Listed below are the transactions of Yasunari Kawabata, D.D.S., for the month of September.
Sept. 1 Kawabata begins practice as a dentist and invests $20,000 cash.
Instructions
(a) Enter the transactions shown above in appropriate general ledger accounts (use T-accounts). Use the following ledger accounts: Cash, Accounts Receivable, Supplies, Equipment, Accumulated Depreciation—Equipment, Accounts Payable,
Owner’s Capital, Service Revenue, Rent Expense, Office Expense, Salaries and Wages Expense, Supplies Expense,
Depreciation Expense, and Income Summary. Allow 10 lines for the Cash and Income Summary accounts, and 5 lines for each of the other accounts needed. Record depreciation using a 5-year life on the equipment, the straight-line method, and no salvage value. Do not use a drawing account.
(b) Prepare a trial balance.
(c) Prepare an income statement, a statement of owner’s equity, and an unclassified balance sheet.
(d) Close the ledger.
(e) Prepare a post-closing trial balance.
P3-2 (L03,4) EXCEL (Adjusting Entries and Financial Statements) Mason Advertising was founded in January 2013.
Presented below are adjusted and unadjusted trial balances as of December 31, 2017.
Instructions
(a) Journalize the annual adjusting entries that were made. (Omit explanations.)
(b) 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.
(c) Answer the following questions.
(1) If the note has been outstanding 3 months, what is the annual interest rate on that note?
(2) If the company paid $12,500 in salaries and wages in 2017, what was the balance in Salaries and Wages Payable on
December 31, 2016?
P3-3 (L03) (Adjusting Entries) A review of the ledger of Baylor Company at December 31, 2017, produces the following data pertaining to the preparation of annual adjusting entries.
1. Salaries and Wages Payable $0. There are eight employees. Salaries and wages are paid every Friday for the current week.
Instructions
Prepare the adjusting entries at December 31, 2017. (Show all computations).
P3-4 (L03,4,5,6) (Financial Statements, Adjusting and Closing Entries) The trial balance of Bellemy Fashion Center contained the following accounts at November 30, the end of the company’s fiscal year.
Instructions
(a) Journalize the adjusting entries.
(b) Prepare an adjusted trial balance.
(c) Prepare a multiple-step income statement and retained earnings statement for the year and a classified balance sheet as of November 30, 2017.
(d) Journalize the closing entries.
(e) Prepare a post-closing trial balance.
P3-5 (L03) (Adjusting Entries) The accounts listed below appeared in the December 31 trial balance of the Savard Theater.
Instructions
(a) From the account balances listed above and the information given below, prepare the annual adjusting entries necessary on December 31. (Omit explanations.)
(1) The equipment has an estimated life of 16 years and a salvage value of $24,000 at the end of that time. (Use straightline method.)
(2) The note payable is a 90-day note given to the bank October 20 and bearing interest at 8%. (Use 360 days for denominator.)
(3) In December, 2,000 coupon admission books were sold at $30 each and recorded as Admissions Revenue. They could be used for admission any time after January 1.
(4) Advertising expense paid in advance and included in Advertising Expense $1,100.
(5) Salaries and wages accrued but unpaid $4,700.
(b) What amounts should be shown for each of the following on the income statement for the year?
(1) Interest expense. (3) Advertising expense.
(2) Admissions revenue. (4) Salaries and wages expense.
P3-6 (L03,4) (Adjusting Entries and Financial Statements) The following are the trial balance and the other information related to Yorkis Perez, a consulting engineer.
Instructions
(a) From the trial balance and other information given, prepare annual adjusting entries as of December 31, 2017. (Omit explanations.)
(b) Prepare an income statement for 2017, a statement of owner’s equity, and a classified balance sheet. Yorkis Perez withdrew $17,000 cash for personal use during the year.
P3-7 (L03,4,5) (Adjusting Entries and Financial Statements) Rolling Hills Golf Inc. was organized on July 1, 2017. Quarterly financial statements are prepared. The unadjusted trial balance and adjusted trial balance on September 30 are shown below.
Instructions
(a) Journalize the adjusting entries that were made.
(b) Prepare an income statement and a retained earnings statement for the 3 months ending September 30 and a classified balance sheet at September 30.
(c) Identify which accounts should be closed on September 30.
(d) If the note bears interest at 12%, how many months has it been outstanding?
P3-8 (L03,4,5) (Adjusting Entries and Financial Statements) Vedula Advertising was founded by Murali Vedula in January
2015. On the next page are both the adjusted and unadjusted trial balances as of December 31, 2017.
Instructions
(a) Journalize the annual adjusting entries that were made.
(b) Prepare an income statement and a retained earnings statement for the year ended December 31, and a classified balance sheet at December 31.
(c) Identify which accounts should be closed on December 31.
(d) If the note has been outstanding 10 months, what is the annual interest rate on that note?
(e) If the company paid $10,500 in salaries and wages in 2017, what was the balance in Salaries and Wages Payable on
December 31, 2016?
P3-9 (L02,3,4,5) (Adjusting and Closing) Presented below is the trial balance of the Crestwood Golf Club, Inc. as of December
Instructions
(a) Enter the balances in ledger accounts. Allow five lines for each account.
(b) From the trial balance and the information given below, prepare annual adjusting entries and post to the ledger accounts.
(Omit explanations.)
(1) The buildings have an estimated life of 30 years with no salvage value (straight-line method).
(2) The equipment is depreciated at 10% per year.
(3) Insurance expired during the year $3,500.
(4) The rent revenue represents the amount received for 11 months for dining facilities. The December rent has not yet been received.
(5) It is estimated that 12% of the accounts receivable will be uncollectible.
(6) Salaries and wages earned but not paid by December 31, $3,600.
(7) Dues received in advance from members $8,900 were recorded as Dues Revenue.
(c) Prepare an adjusted trial balance.
(d) Prepare closing entries and post.
P3-10 (L02,3,5,6) (Adjusting and Closing) Presented below is the December 31 trial balance of New York Boutique.
Instructions
(a) Construct T-accounts and enter the balances shown.
(b) Prepare adjusting journal entries for the following and post to the T-accounts. (Omit explanations.) Open additional
T-accounts as necessary. (The books are closed yearly on December 31.)
(1) Bad debt expense is estimated to be $1,400.
(2) Equipment is depreciated based on a 7-year life (no salvage value).
(3) Insurance expired during the year $2,550.
(4) Interest accrued on notes payable $3,360.
(5) Sales salaries and wages earned but not paid $2,400.
(6) Advertising paid in advance $700.
(7) Office supplies on hand $1,500, charged to Supplies Expense when purchased.
(c) Prepare closing entries and post to the accounts.
*P3-11 (L07) (Cash and Accrual Basis) On January 1, 2017, Norma Smith and Grant Wood formed a computer sales and service company in Soapsville, Arkansas, by investing $90,000 cash. The new company, Arkansas Sales and Service, has the following transactions during January.
Instructions
(a) Using the transaction data above, prepare (1) a cash-basis income statement and (2) an accrual-basis income statement for the month of January.
(b) Using the transaction data above, prepare (1) a cash-basis balance sheet and (2) an accrual-basis balance sheet as of
January 31, 2017.
(c) Identify the items in the cash-basis financial statements that make cash-basis accounting inconsistent with the theory underlying the elements of financial statements.
*P3-12 (L03,4,5,9) (Worksheet, Balance Sheet, Adjusting and Closing Entries) Cooke Company has a fiscal year ending on September 30. Selected data from the September 30 worksheet are presented below.
Instructions
(a) Prepare a complete worksheet.
(b) Prepare a classified balance sheet. (Note: $10,000 of the mortgage payable is due for payment in the next fiscal year.)
(c) Journalize the adjusting entries using the worksheet as a basis.
Using Your Judgment 145
(d) Journalize the closing entries using the worksheet as a basis.
(e) Prepare a post-closing trial balance.
