Chapter 4

CHAPTER 4
COMPLETING THE ACCOUNTING CYCLE

CLASS DISCUSSION QUESTIONS
1. a. The financial statements are the most zero balances for use in accumulating data
important output of the accounting cycle. for the following accounting period.
b. Yes, all companies have an accounting 10. (1) The first entry closes all income
cycle that begins with analyzing and statement accounts with credit balances
journalizing transactions and ends with a by transferring the total to the credit side
post-closing trial balance. However, of Income Summary.
companies may differ in how they (2) The second entry closes all income
implement the steps in the accounting statement accounts with debit balances
cycle. For example, while most by transferring the total to the debit side
companies use computerized of Income Summary.
accounting systems, some companies (3) The third entry closes Income Summary
may use manual systems. by transferring its balance, the net
2. No. The work sheet is a device used by the income or net loss for the year, to the
accountant to facilitate the preparation of owner’s capital account.
statements and the recording of adjusting (4) The fourth entry closes the drawing
and closing entries. account by transferring its balance to
3. Net loss. The expenses exceed the the owner’s capital account.
revenues. 11. The purpose of the post-closing trial balance
4. Net income. The revenues exceed the is to make sure that the ledger is in balance
expenses by $68,500. at the beginning of the next period.
5. a. Current assets are composed of cash
12. The natural business year is the fiscal year
and other assets that may reasonably
that ends when business activities have
be expected to be realized in cash or
sold or consumed in the near future reached the lowest point in the annual
through the normal operations of the operating cycle.
business. 13. January is more likely to have a lower level
b. Property, plant, and equipment is of business activity than is December for a
composed of assets used in the department store. Therefore, the additional
business that are of a permanent or work to adjust and close the accounts and
relatively fixed nature. prepare the financial statements can more
6. Current liabilities are liabilities that will be easily be performed at the end of January
due within a short time (usually one year or than at the end of December.
less) and that are to be paid out of current 14. All the companies listed are general
assets. Liabilities that will not be due for a merchandisers whose busiest time of the
comparatively long time (usually more than year is during the holiday season, which
one year) are called long-term liabilities. extends through most of December.
7. Revenue, expense, and drawing accounts Traditionally, the lowest point of business
are generally referred to as temporary activity for general merchandisers will be
accounts. near the end of January and the beginning
8. Closing entries are necessary at the end of of February. Thus, these companies have
an accounting period (1) to transfer the chosen their natural business year for their
balances in temporary accounts to fiscal years.
permanent accounts and (2) to prepare the 15. Yes. If a company has positive working
temporary accounts for use in accumulating
capital, then its current assets must exceed
data for the following accounting period.
its current liabilities. Thus, the current ratio
9. Adjusting entries bring the accounts up to
will always be greater than one.
date, while closing entries reduce the
revenue, expense, and drawing accounts to
133
EXERCISES
Ex. 4–1
e, c, g, b, f, a, d
Ex. 4–2
a. Income statement: 3, 8, 9
b. Balance sheet: 1, 2, 4, 5, 6, 7, 10
Ex. 4–3
a. Asset: 1, 4, 5, 6, 10
b. Liability: 9, 12
c. Revenue: 2, 7
d. Expense: 3, 8, 11
Ex. 4–4
1. f
2. c
3. b
4. h
5. g
6. j
7. a
8. i
9. d
10. e
134
Ex. 4–5
ITHACA SERVICES CO.

Work Sheet
For the Year Ended January 31, 2006
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Dr. Cr. Dr. Cr. Dr. Cr.
1 Cash 8 8 1
2 Accounts Receivable 50 (a) 7 57 2
3 Supplies 8 (b) 5 3 3
4 Prepaid Insurance 12 (c) 6 6 4
5 Land 50 50 5
6 Equipment 32 32 6
7 Accum. Depr.—Equip. 2 (d) 5 7 7
8 Accounts Payable 26 26 8
9 Wages Payable 0 (e) 1 1 9
10 Terry Dagley, Capital 112 112 10
11 Terry Dagley, Drawing 8 8 11
12 Fees Earned 60 (a) 7 67 12
13 Wages Expense 16 (e) 1 17 13
14 Rent Expense 8 8 14
15 Insurance Expense 0 (c) 6 6 15
16 Utilities Expense 6 6 16
17 Depreciation Expense 0 (d) 5 5 17
18 Supplies Expense 0 (b) 5 5 18
19 Miscellaneous Expense 2 2 19
20 Totals 200 200 24 24 213 213 20
135
Ex. 4–6
ITHACA SERVICES CO.

Work Sheet
Adjusted Income Balance
Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr.
1 Cash 8 8 1
2 Accounts Receivable 57 57 2
3 Supplies 3 3 3
4 Prepaid Insurance 6 6 4
5 Land 50 50 5
6 Equipment 32 32 6
7 Accum. Depr.—Equip. 7 7 7
8 Accounts Payable 26 26 8
9 Wages Payable 1 1 9
10 Terry Dagley, Capital 112 112 10
11 Terry Dagley, Drawing 8 8 11
12 Fees Earned 67 67 12
13 Wages Expense 17 17 13
14 Rent Expense 8 8 14
15 Insurance Expense 6 6 15
16 Utilities Expense 6 6 16
17 Depreciation Expense 5 5 17
18 Supplies Expense 5 5 18
19 Miscellaneous Expense 2 2 19
20 Totals 213 213 49 67 164 146 20
21 Net income (loss) 18 1821
22 67 67 164 164 22
136
Ex. 4–7
ITHACA SERVICES CO.
Income Statement
Fees earned.......................................................................... $67
Expenses:
Wages expense............................................................ $17
Rent expense................................................................ 8
Insurance expense....................................................... 6
Utilities expense........................................................... 6
Depreciation expense.................................................. 5
Supplies expense......................................................... 5
Miscellaneous expense............................................... 2
Total expenses.......................................................... 49
Net income........................................................................... $18
ITHACA SERVICES CO.

Statement of Owner’s Equity
Terry Dagley, capital, February 1, 2005............................ $112
Net income for the year...................................................... $18
Less withdrawals................................................................. 8
Increase in owner’s equity................................................. 10
Terry Dagley, capital, January 31, 2006............................ $122
ITHACA SERVICES CO.

Balance Sheet
January 31, 2006
Assets Liabilities
Current assets: Current liabilities:
Cash.............................. $ 8 Accounts payable........ $26
Accounts receivable. . . 57 Wages payable............. 1
Supplies........................ 3 Total liabilities......... $ 27
Prepaid insurance....... 6
Total current assets. $ 74
Property, plant, and Owner’s Equity
equipment: Terry Dagley, capital....... 122
Land.............................. $50
Equipment.................... $32
Less accum. depr........ 7 25
Total property, plant,
and equipment 75 Total liabilities and
Total assets...................... $149 owner’s equity........... $149
137
Ex. 4–8
2006
Jan. 31 Accounts Receivable........................................... 7
Fees Earned..................................................... 7
31 Supplies Expense................................................. 5
Supplies........................................................... 5
31 Insurance Expense............................................... 6
Prepaid Insurance........................................... 6
31 Depreciation Expense.......................................... 5
Accumulated Depreciation—Equipment...... 5
31 Wages Expense.................................................... 1
Wages Payable................................................ 1
Ex. 4–9
2006
Jan. 31 Fees Earned.......................................................... 67
Income Summary............................................ 67
31 Income Summary.................................................. 49
Wages Expense............................................... 17
Rent Expense.................................................. 8
Insurance Expense......................................... 6
Utilities Expense............................................. 6
Depreciation Expense.................................... 5
Supplies Expense........................................... 5
Miscellaneous Expense................................. 2
31 Income Summary.................................................. 18
Terry Dagley, Capital...................................... 18
31 Terry Dagley, Capital............................................ 8
Terry Dagley, Drawing.................................... 8
138
Ex. 4–10
LARYNX MESSENGER SERVICE

Income Statement
For the Year Ended June 30, 2006
Fees earned.......................................................................... $273,700
Operating expenses:
Salaries expense.......................................................... $77,100
Rent expense................................................................ 22,500
Utilities expense........................................................... 6,500
Depreciation expense.................................................. 5,200
Supplies expense......................................................... 2,750
Insurance expense....................................................... 1,500
Miscellaneous expense............................................... 1,350
Total operating expenses........................................ 116,900
Net income........................................................................... $156,800
Ex. 4–11
SIROCCO SERVICES CO.

Income Statement
For the Year Ended March 31, 2006
Service revenue................................................................... $103,850
Operating expenses:
Wages expense............................................................ $56,800
Rent expense................................................................ 21,270
Net loss................................................................................. $ (3,170)
139
Ex. 4–12
a.
FEDEX CORPORATION
Income Statement
For the Year Ended May 31, 2002
(in millions)
Revenues.............................................................................. $ 15,327
Operating expenses:
Salaries and employee benefits................................. $6,467
Rentals and landing fees............................................ 1,524
Fuel................................................................................ 1,009
Maintenance and repairs............................................. 980
Depreciation and amortization................................... 806
Purchased transportation........................................... 562
Other operating expenses........................................... 3,168
Income from operations..................................................... $ 811
Interest expense.................................................................. $ 56
Other expenses................................................................... 52 108
Net income before income tax........................................... $ 703
Less provision for income taxes....................................... 260
Net income........................................................................... $ 443
b. The income statements are very similar. The actual statement includes some
additional information (i.e., earnings per share).
Ex. 4–13
SYNTHESIS SYSTEMS CO.

For the Year Ended October 31, 2006
Suzanne Jacob, capital, November 1, 2005...................... $173,750
Net income for year............................................................. $44,250
Less withdrawals................................................................. 12,000
Increase in owner’s equity................................................. 32,250
Suzanne Jacob, capital, October 31, 2006....................... $206,000
140
Ex. 4–14
BOBCAT SPORTS
For the Year Ended August 31, 2006
John Kramer, capital, September 1, 2005......................... $210,300
Net loss for year.................................................................. $49,650
Plus withdrawals................................................................. 16,000
Decrease in owner’s equity................................................ 65,650
John Kramer, capital, August 31, 2006............................. $144,650
Ex. 4–15
a. Current asset: 1, 3, 5, 6
b. Property, plant, and equipment: 2, 4
Ex. 4–16
Since current liabilities are usually due within one year, $165,000 ($13,750 × 12
months) would be reported as a current liability on the balance sheet. The
remainder of $335,000 ($500,000 – $165,000) would be reported as a long-term
liability on the balance sheet.
141
Ex. 4–17
TUDOR CO.
Balance Sheet
April 30, 2006
Assets Liabilities
Cash.............................................. $ 31,500 Accounts payable............. $9,500
Accounts receivable.................... 21,850 Salaries payable................ 1,750
Supplies........................................ 1,800 Unearned fees................... 1,200
Prepaid insurance........................ 7,200 Total liabilities................ $ 12,450
Prepaid rent.................................. 4,800
Total current assets.................. $ 67,150 Owner’s Equity
Property, plant, and equipment: Vernon Posey, capital......... 114,200
Equipment..................................... $80,600
Less accumulated depreciation 21,100 59,500 Total liabilities and
Total assets...................................... $126,650 owner’s equity................... $126,650
Ex. 4–18
1. The date of the statement should be "May 31, 2006" and not "For the Year
Ended May 31, 2006."
2. Accounts payable should be a current liability.
3. Land should be classified as property, plant, and equipment.
4. "Accumulated depreciation" should be deducted from the related fixed asset.
5. An adding error was made in determining the amount of the total property,
plant, and equipment.
6. Accounts receivable should be a current asset.
7. Net loss should be reported on the income statement.
8. Wages payable should be a current liability.
A corrected balance sheet would be as follows:

Ex. 4–18 Concluded
WARBURG SERVICES CO.

Balance Sheet
May 31, 2006
Assets Liabilities
Cash.............................................. $ 4,170 Accounts payable.............. $7,250
Accounts receivable.................... 12,500 Wages payable................... 1,500
Supplies........................................ 1,650 Total liabilities.................. $ 8,750
Prepaid insurance........................ 2,400
Total current assets.................. $ 20,720
Property, plant, and equipment:
Land............................................... $75,000 Owner’s Equity
Building......................................... $55,500 Erin Gentry, capital............... 131,750
Less accum. depreciation........ 23,000 32,500
Equipment..................................... $28,280
Total property, plant, and
equipment.............................. 119,780 Total liabilities and
Ex. 4–19
Accounts Receivable................................................. 4,100

Fees Earned.......................................................... 4,100
Supplies Expense...................................................... 1,300
Supplies................................................................. 1,300
Insurance Expense.................................................... 2,000
Prepaid Insurance................................................ 2,000
Depreciation Expense............................................... 2,800
Accumulated Depreciation—Equipment........... 2,800
Wages Expense.......................................................... 1,000
Wages Payable..................................................... 1,000
Unearned Rent........................................................... 2,500
Rent Revenue........................................................ 2,500
Ex. 4–20
c. Depreciation Expense—Equipment
g. Fees Earned
i. Salaries Expense
l. Supplies Expense
Ex. 4–21
The income summary account is used to close the revenue and expense
accounts, and it aids in detecting and correcting errors. The $450,750 represents
expense account balances, and the $712,500 represents revenue account
balances that have been closed.
Ex. 4–22
a. Income Summary............................................................. 167,550

Sue Alewine, Capital.................................................. 167,550
Sue Alewine, Capital....................................................... 25,000
Sue Alewine, Drawing............................................... 25,000
b. $284,900 ($142,350 + $167,550 – $25,000)

Ex. 4–23
Mar. 31 Fees Earned.......................................................... 180,700

Income Summary............................................ 180,700
31 Income Summary.................................................. 285,200
Wages Expense............................................... 180,000
Rent Expense.................................................. 75,000
Supplies Expense........................................... 24,000
Miscellaneous Expense................................. 6,200
31 Emil Carr, Capital.................................................. 104,500
Income Summary............................................ 104,500
31 Emil Carr, Capital.................................................. 50,000
Emil Carr, Drawing.......................................... 50,000
Ex. 4–24
a. Accounts Receivable
b. Accumulated Depreciation
c. Cash
e. Equipment
f. Estella Hall, Capital
i. Supplies
k. Wages Payable
Ex. 4–25
RHOMBIC REPAIRS CO.

Post-Closing Trial Balance
March 31, 2006
Cash...................................................................................... 9,225
Accounts Receivable.......................................................... 33,300
Supplies................................................................................ 1,980
Equipment............................................................................ 63,000
Accumulated Depreciation—Equipment.......................... 19,980
Accounts Payable............................................................... 11,250
Salaries Payable.................................................................. 2,700
Unearned Rent..................................................................... 5,400
Angie Hammill, Capital....................................................... 68,175
107,505 107,505
Ex. 4–26
a. 2003 working capital: $3,882 ($11,917 – $8,035)

2002 working capital: $3,860 ($10,361 – $6,501)
2003 current ratio: 1.48 ($11,917 ÷ $8,035)
2002 current ratio: 1.59 ($10,361 ÷ $6,501)
b. The working capital increased slightly during 2003, a favorable trend. The
current ratio decreased slightly during 2003, an unfavorable trend. Before
reaching a more definitive conclusion concerning Home Depot’s ability to
meet its current obligations, the working capital and current ratio should be
compared with past years, industry averages, and similar firms in the
industry. It appears, however, that Home Depot’s 2003 working capital and
current ratio are adequate.
Ex. 4–27
a. 2002 2001
Working capital ($143,034) ($159,453)
Current ratio 0.81 0.80
b. 7 Eleven has negative working capital as of December 31, 2002 and 2001. In
addition, the current ratio is below one at the end of both years. While the
working capital and current ratios have improved from 2001 to 2002, creditors
would likely be concerned about the ability of 7 Eleven to meet its short-term
credit obligations. This concern would warrant further investigation to
determine whether this is a temporary issue (for example, an end-of-the-
period phenomenon) and the company’s plans to address its working capital
shortcomings.
Appendix Ex. 4–28
a. (1) Sales Salaries Expense.............................................. 6,480

Salaries Payable..................................................... 6,480
(2) Accounts Receivable.................................................. 10,250
Fees Earned............................................................ 10,250
b. (1) Salaries Payable.......................................................... 6,480

Sales Salaries Expense......................................... 6,480
(2) Fees Earned................................................................. 10,250
Accounts Receivable............................................ 10,250
Appendix Ex. 4–29
a. (1) Payment (last payday in year)
(2) Adjusting (accrual of wages at end of year)
(3) Closing
(4) Reversing
(5) Payment (first payday in following year)
b. (1) Wages Expense........................................................... 45,000

Cash........................................................................ 45,000
(2) Wages Expense........................................................... 18,000
Wages Payable....................................................... 18,000
(3) Income Summary........................................................ 1,120,800
Wages Expense..................................................... 1,120,800
(4) Wages Payable............................................................ 18,000
Wages Expense..................................................... 18,000
(5) Wages Expense........................................................... 43,000
Cash........................................................................ 43,000
PROBLEMS
Prob. 4–1A
1. DYNAMITE LAUNDRY
Work Sheet
For the Year Ended July 31, 2006
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
1 Cash................................. 2,900 ............... ............... 2,900 ............... ............... ............... 2,900 ............. 1
2 Laundry Supplies........... 7,500 ............... ............... (c) 5,750 1,750 ............... ............... ............... 1,750 ............. 2
3 Prepaid Insurance.......... 4,800 ............... ............... (d) 2,400 2,400 ............... ............... ............... 2,400 ............. 3
4 Laundry Equipment....... 109,050 ............... ............... ............... 109,050 ............... ............... ............... 109,050 ............. 4
5 Accum. Depreciation..... ............... 41,100 ............... (b) 6,800 ............... 47,900 ............... ............... ............... 47,900 5
6 Accounts Payable.......... ............... 6,100 ............... ............... ............... 6,100 ............... ............... ............... 6,100 6
7 David Duffy, Capital....... ............... 37,800 ............... ............... ............... 37,800 ............... ............... ............... 37,800 7
8 David Duffy, Drawing..... 2,000 ............... ............... ............... 2,000 ............... ............... ............... 2,000 ............. 8
9 Laundry Revenue........... ............... 165,000 ............... ............... ............... 165,000 ............... 165,000 ............... ............. 9
10 Wages Expense.............. 71,400 ............... (a) 1,200 ............... 72,600 ............... 72,600 ............... ............... ............. 10
11 Rent Expense................. 36,000 ............... ............... ............... 36,000 ............... 36,000 ............... ............... ............. 11
12 Utilities Expense............. 13,650 ............... ............... ............... 13,650 ............... 13,650 ............... ............... ............. 12
13 Misc. Expense................. 2,700 ............... ............... ............... 2,700 ............... 2,700 ............... ............... ............. 13
14 250,000 250,000 14
15 Wages Payable............... ............... ............... ............... (a) 1,200 ............... 1,200 ............... ............... ............... 1,200 15
16 Depreciation Expense.... ............... ............... (b) 6,800 ............... 6,800 ............... 6,800 ............... ............... ............. 16
17 Laundry Supp. Expense. ............... ............... (c) 5,750 ............... 5,750 ............... 5,750 ............... ............... ............. 17
18 Insurance Expense......... ............... ............... (d) 2,400 ............... 2,400 ............... 2,400 ............... ............... ............. 18
19 16,150 16,150 258,000 258,000 139,900 165,000 118,100 93,000 19
20 Net income...................... 25,100 ............... ............... 25,100 20
21 165,000 165,000 118,100 118,100 21
Prob. 4–1A Continued
2. DYNAMITE LAUNDRY
Income Statement
Laundry revenue................................................................. $165,000
Operating expenses:
Wages expense............................................................ $72,600
Rent expense................................................................ 36,000
Laundry supplies expense.......................................... 5,750
Net income........................................................................... $ 25,100
DYNAMITE LAUNDRY
David Duffy, capital, August 1, 2005................................. $37,800
Net income for the year...................................................... $25,100
David Duffy, capital, July 31, 2006.................................... $ 60,900
DYNAMITE LAUNDRY
Balance Sheet
July 31, 2006
Assets Liabilities
Cash.......................... $ 2,900 Accounts payable.... $6,100
Laundry supplies..... 1,750 Wages payable........ 1,200
Prepaid insurance.. . 2,400 Total liabilities....... $ 7,300
Total current assets $ 7,050
Property, plant, and
equipment: Owner’s Equity
Laundry equipment. $109,050 David Duffy, capital.... 60,900
Less accum. depr. 47,900 61,150 Total liabilities and
Total assets................ $ 68,200 owner’s equity......... $ 68,200
Prob. 4–1A Concluded
3.
Adjusting Entries
2006
July 31 Wages Expense.................................................... 1,200
Wages Payable................................................ 1,200
31 Depreciation Expense.......................................... 6,800
Accumulated Depreciation............................ 6,800
31 Laundry Supplies Expense................................. 5,750
Laundry Supplies............................................ 5,750
31 Insurance Expense............................................... 2,400
Prepaid Insurance........................................... 2,400
4.
Closing Entries
2006
July 31 Laundry Revenue................................................. 165,000
Income Summary............................................ 165,000
31 Income Summary.................................................. 139,900
Wages Expense............................................... 72,600
Rent Expense.................................................. 36,000
Utilities Expense............................................. 13,650
Depreciation Expense.................................... 6,800
Laundry Supplies Expense............................ 5,750
Insurance Expense......................................... 2,400
31 Income Summary.................................................. 25,100
David Duffy, Capital........................................ 25,100
31 David Duffy, Capital............................................. 2,000
David Duffy, Drawing...................................... 2,000
Prob. 4–2A
1. Closing Entries
2006
Aug. 31 Service Fees Earned............................................ 175,000
Rent Revenue........................................................ 1,500
Income Summary............................................ 176,500
31 Income Summary.................................................. 116,000
Salary Expense................................................ 73,000
Depreciation Expense—Equipment.............. 9,500
Rent Expense.................................................. 8,500
Depreciation Expense—Buildings................ 5,200
Taxes Expense................................................ 4,150
31 Income Summary.................................................. 60,500
Kim Bosworth, Capital.................................... 60,500
31 Kim Bosworth, Capital......................................... 10,000
Kim Bosworth, Drawing................................. 10,000
2.
THE XAVIER COMPANY
For the Year Ended August 31, 2006
Kim Bosworth, capital, September 1, 2005...................... $113,500
Kim Bosworth, capital, August 31, 2006........................... $164,000
3. $5,000 net loss. The $15,000 decrease is caused by the $10,000 withdrawals
and a $5,000 net loss.
Prob. 4–3A
1. LITHIUM SERVICES CO.
Work Sheet
For the Month Ended March 31, 2006
1 Cash................................. 4,509 ............... ............... ............... 4,509 ............... ............... ............... 4,509 ............. 1
2 Accounts Receivable..... 2,550 ............... (a) 1,500 ............... 4,050 ............... ............... ............... 4,050 ............. 2
3 Supplies.......................... 1,647 ............... ............... (b) 1,347 300 ............... ............... ............... 300 ............. 3
4 Prepaid Insurance.......... 1,800 ............... ............... (c) 150 1,650 ............... ............... ............... 1,650 ............. 4
5 Land................................. 20,000 ............... ............... ............... 20,000 ............... ............... ............... 20,000 ............. 5
6 Building........................... 55,500 ............... ............... ............... 55,500 ............... ............... ............... 55,500 ............. 6
7 Acc. Depr.—Building..... ............... 23,400 ............... (d) 625 ............... 24,025 ............... ............... ............... 24,025 7
8 Equipment....................... 30,000 ............... ............... ............... 30,000 ............... ............... ............... 30,000 ............. 8
9 Acc. Depr.—Equipment. ............... 10,200 ............... (e) 200 ............... 10,400 ............... ............... ............... 10,400 9
11 Unearned Rent................ ............... 2,200 (f) 100 ............... ............... 2,100 ............... ............... ............... 2,100 11
12 N. Morrow, Capital.......... ............... 57,825 ............... ............... ............... 57,825 ............... ............... ............... 57,825 12
13 N. Morrow, Drawing....... 2,000 ............... ............... ............... 2,000 ............... ............... ............... 2,000 ............. 13
14 Service Revenue............. ............... 41,984 ............... (a) 1,500 ............... 43,484 ............... 43,484 ............... ............. 14
15 Wages Expense.............. 14,799 ............... (g) 501 ............... 15,300 ............... 15,300 ............... ............... ............. 15
16 Rent Expense................. 3,910 ............... ............... ............... 3,910 ............... 3,910 ............... ............... ............. 16
18 Misc. Expense................. 2,307 ............... ............... ............... 2,307 ............... 2,307 ............... ............... ............. 18
19 140,750 140,750 19
20 Supplies Expense........... ............... ............... (b) 1,347 ............... 1,347 ............... 1,347 ............... ............... ............. 20
21 Insurance Expense......... ............... ............... (c) 150 ............... 150 ............... 150 ............... ............... ............. 21
22 Depr. Exp.—Building..... ............... ............... (d) 625 ............... 625 ............... 625 ............... ............... ............. 22
23 Depr. Exp.—Equipment. ............... ............... (e) 200 ............... 200 ............... 200 ............... ............... ............. 23
24 Rent Revenue................. ............... ............... ............... (f) 100 ............... 100 ............... 100 ............... ............. 24
25 Wages Payable............... ............... ............... ............... (g) 501 ............... 501 ............... ............... ............... 501 25
26 4,423 4,423 143,576 143,576 25,567 43,584 118,009 99,992 26
27 Net income...................... 18,017 ............... ............... 18,017 27
28 43,584 43,584 118,009 118,009 28
2.
LITHIUM SERVICES CO.
Income Statement
Revenues:
Service revenue............................................................ $43,484
Rent revenue................................................................. 100
Total revenues.......................................................... $43,584
Operating expenses:
Wages expense............................................................ $15,300
Rent expense................................................................ 3,910
Depreciation expense—building................................ 625
Depreciation expense—equipment............................ 200
Net income........................................................................... $ 18,017

Natasha Morrow, capital, March 1, 2006........................... $52,825
Additional investment during the month......................... 5,000
Total...................................................................................... $57,825
Net income for the month................................................... $18,017
Natasha Morrow, capital, March 31, 2006......................... $ 73,842

Balance Sheet
March 31, 2006
Assets Liabilities
Accounts receivable.................... 4,050 Wages payable.................. 501
Supplies........................................ 300 Unearned rent.................... 2,100
Prepaid insurance........................ 1,650 Total liabilities................ $ 7,742
Building......................................... $55,500 Natasha Morrow, capital..... 73,842
Less accumulated depreciation. 24,025 31,475
Equipment..................................... $30,000
Less accumulated depreciation 10,400 19,600
equipment............................. 71,075 Total liabilities and
Total assets...................................... $ 81,584 owner’s equity................... $81,584
3. JOURNAL Page 26
Post.
Date Ref. Debit Credit
2006 Adjusting Entries
Mar. 31 Accounts Receivable................................... 12 1,500
Service Revenue..................................... 41 1,500
31 Supplies Expense......................................... 52 1,347
Supplies................................................... 13 1,347
31 Insurance Expense....................................... 57 150
Prepaid Insurance................................... 14 150
31 Depreciation Expense—Building............... 54 625
Accumulated Depr.—Building............... 17 625
31 Depreciation Expense—Equipment........... 56 200
Accumulated Depr.—Equipment.......... 19 200
31 Unearned Rent.............................................. 23 100
Rent Revenue.......................................... 42 100
31 Wages Expense............................................ 51 501
Wages Payable........................................ 22 501
4. JOURNAL Page 27
Post.
2006 Closing Entries
Mar. 31 Service Revenue........................................... 41 43,484
Rent Revenue................................................ 42 100
Income Summary.................................... 33 43,584
31 Income Summary.......................................... 33 25,567
Wages Expense...................................... 51 15,300
Rent Expense.......................................... 53 3,910
Utilities Expense..................................... 55 1,728
Miscellaneous Expense......................... 59 2,307
Supplies Expense................................... 52 1,347
Insurance Expense................................. 57 150
Depreciation Expense—Building.......... 54 625
Depreciation Expense—Equipment...... 56 200
31 Income Summary.......................................... 33 18,017
Natasha Morrow, Capital........................ 31 18,017
31 Natasha Marrow, Capital.............................. 31 2,000
Natasha Morrow, Drawing..................... 32 2,000
3. and 4.
Cash 11
Post. Balance
Date Item Ref. Dr. Cr. Dr. Cr.
2006
Mar. 1 Balance....................  ............. ............. 2,259 .............
3 .................................. 23 ............. 910 1,349 .............
4 .................................. 23 5,000 ............. 6,349 .............
5 .................................. 23 ............. 86 6,263 .............
7 .................................. 23 800 ............. 7,063 .............
8 .................................. 23 400 ............. 7,463 .............
8 .................................. 23 ............. 2,584 4,879 .............
8 .................................. 23 1,695 ............. 6,574 .............
10 .................................. 24 ............. 510 6,064 .............
12 .................................. 24 ............. 2,319 3,745 .............
15 .................................. 24 2,718 ............. 6,463 .............
16 .................................. 24 ............. 1,000 5,463 .............
19 .................................. 24 ............. 2,135 3,328 .............
22 .................................. 24 ............. 370 2,958 .............
22 .................................. 24 3,992 ............. 6,950 .............
24 .................................. 25 ............. 527 6,423 .............
26 .................................. 25 ............. 2,480 3,943 .............
30 .................................. 25 ............. 156 3,787 .............
30 .................................. 25 ............. 26 3,761 .............
31 .................................. 25 ............. 1,000 2,761 .............
31 .................................. 25 2,029 ............. 4,790 .............
31 .................................. 25 ............. 281 4,509 .............
Accounts Receivable 12
2006
Mar. 1 Balance....................  ............. ............. 2,200 .............
7 .................................. 23 ............. 800 1,400 .............
8 .................................. 23 ............. 400 1,000 .............
22 .................................. 24 1,550 ............. 2,550 .............
31 Adjusting................. 26 1,500 ............. 4,050 .............
Supplies 13
Post. Balance
2006
Mar. 1 Balance....................  ............. ............. 610 .............
10 .................................. 24 510 ............. 1,120 .............
27 .................................. 25 527 ............. 1,647 .............
31 Adjusting................. 26 ............. 1,347 300 .............
Prepaid Insurance 14
2006
Mar. 1 Balance....................  ............. ............. 420 .............
22 .................................. 24 1,380 ............. 1,800 .............
31 Adjusting................. 26 ............. 150 1,650 .............
Land 15
2006
Mar. 1 Balance....................  ............. ............. 20,000 .............
Building 16
2006
Mar. 1 Balance....................  ............. ............. 55,500 .............
Accumulated Depreciation—Building 17
2006
Mar. 1 Balance....................  ............. ............. ............. 23,400
31 Adjusting................. 26 ............. 625 ............. 24,025
Equipment 18
2006
Mar. 1 Balance....................  ............. ............. 29,250 .............
3 .................................. 23 750 ............. 30,000 .............
Accumulated Depreciation—Equipment 19
2006
Mar. 1 Balance....................  ............. ............. ............. 10,200
31 Adjusting................. 26 ............. 200 ............. 10,400
Accounts Payable 21
Post. Balance
2006
Mar. 1 Balance....................  ............. ............. ............. 8,625
3 .................................. 23 ............. 750 ............. 9,375
8 .................................. 23 2,584 ............. ............. 6,791
19 .................................. 24 2,135 ............. ............. 4,656
31 .................................. 25 ............. 485 ............. 5,141
Wages Payable 22
2006
Mar. 31 Adjusting................. 26 ............. 501 ............. 501
Unearned Rent 23
2006
Mar. 1 Balance....................  ............. ............. ............. 2,200
31 Adjusting................. 26 100 ............. ............. 2,100
Natasha Morrow, Capital 31

2006
Mar. 1 Balance....................  ............. ............. ............. 52,825
4 .................................. 23 ............. 5,000 ............. 57,825
31 Closing.................... 27 ............. 18,017 ............. 75,842
31 Closing.................... 27 2,000 ............. ............. 73,842
Natasha Morrow, Drawing 32

2006
Mar. 16 .................................. 24 1,000 ............. 1,000 .............
31 .................................. 25 1,000 ............. 2,000 .............
31 Closing.................... 27 ............. 2,000 — —
Income Summary 33
2006
Mar. 31 Closing.................... 27 ............. 43,584 ............. 43,584
31 Closing.................... 27 25,567 ............. ............. 18,017
31 Closing.................... 27 18,017 ............. — —
Service Revenue 41
Post. Balance
2006
Mar. 8 .................................. 23 ............. 9,695 ............. 9,695
15 .................................. 24 ............. 7,718 ............. 17,413
22 .................................. 24 ............. 8,992 ............. 26,405
22 .................................. 24 ............. 7,550 ............. 33,955
31 .................................. 25 ............. 8,029 ............. 41,984
31 Adjusting................. 26 ............. 1,500 ............. 43,484
31 Closing.................... 27 43,484 ............. — —
Rent Revenue 42
2006
Mar. 31 Adjusting................. 26 ............. 100 ............. 100
31 Closing.................... 27 100 ............. — —
Wages Expense 51
2006
Mar. 12 .................................. 24 7,319 ............. 7,319 .............
26 .................................. 25 7,480 ............. 14,799 .............
31 Adjusting................. 26 501 ............. 15,300 .............
31 Closing.................... 27 ............. 15,300 — —
Supplies Expense 52
2006
Mar. 31 Adjusting................. 26 1,347 ............. 1,347 .............
31 Closing.................... 27 ............. 1,347 — —
Rent Expense 53
2006
Mar. 3 .................................. 23 3,910 ............. 3,910 .............
31 Closing.................... 27 ............. 3,910 — —
Depreciation Expense—Building 54
2006
Mar. 31 Adjusting................. 26 625 ............. 625 .............
31 Closing.................... 27 ............. 625 — —
Utilities Expense 55
Post. Balance
2006
Mar. 5 .................................. 24 586 ............. 586 .............
30 .................................. 25 456 ............. 1,042 .............
31 .................................. 25 686 ............. 1,728 .............
31 Closing.................... 27 ............. 1,728 — —
Depreciation Expense—Equipment 56
2006
Mar. 31 Adjusting................. 26 200 ............. 200 .............
31 Closing.................... 27 ............. 200 — —
Insurance Expense 57
2006
Mar. 31 Adjusting................. 26 150 ............. 150 .............
31 Closing.................... 27 ............. 150 — —
Miscellaneous Expense 59
2006
Mar. 30 .................................. 25 1,026 ............. 1,026 .............
31 .................................. 25 1,281 ............. 2,307 .............
31 Closing.................... 27 ............. 2,307 — —
5.
March 31, 2006
Cash...................................................................................... 4,509
Supplies................................................................................ 300
Prepaid Insurance............................................................... 1,650
Land...................................................................................... 20,000
Building ................................................................................ 55,500
Accumulated Depreciation—Building.............................. 24,025
Equipment............................................................................ 30,000
Wages Payable.................................................................... 501
Unearned Rent..................................................................... 2,100
Natasha Morrow, Capital.................................................... 73,842
116,009 116,009
Prob. 4–4A
1. HERITAGE COMPANY
Work Sheet
For the Year Ended April 30, 2006
1 Cash................................. 3,200 ............... ............... ................ 3,200 ............... ............... ............... 3,200 ............. 1
2 Accounts Receivable..... 10,500 ............... (a) 2,800 ................ 13,300 ............... ............... ............... 13,300 ............. 2
3 Prepaid Insurance.......... 1,800 ............... ............... (b) 450 1,350 ............... ............... ............... 1,350 ............. 3
4 Supplies.......................... 1,350 ............... ............... (c) 700 650 ............... ............... ............... 650 ............. 4
5 Land................................. 50,000 ............... ............... ............... 50,000 ............... ............... ............... 50,000 ............. 5
6 Building........................... 136,500 ............... ............... ............... 136,500 ............... ............... ............... 136,500 ............. 6
7 Acc. Depr.—Building..... ............... 50,700 ............... (d) 1,620 ............... 52,320 ............... ............... ............... 52,320 7
8 Equipment....................... 92,700 ............... ............... ............... 92,700 ............... ............... ............... 92,700 ............. 8
9 Acc. Depr.—Equipment. ............... 36,300 ............... (e) 3,500 ............... 39,800 ............... ............... ............... 39,800 9
11 Unearned Rent................ ............... 3,000 (g) 1,500 ............... ............... 1,500 ............... ............... ............... 1,500 11
12 Shelby Powers, Capital.. ............... 212,500 ............... ............... ............... 212,500 ............... ............... ............... 212,500 12
13 Shelby Powers, Drawing 10,000 ............... ............... ............... 10,000 ............... ............... ............... 10,000 ............. 13
14 Fees Revenue................. ............... 191,000 ............... (a) 2,800 ............... 193,800 ............... 193,800 ............... ............. 14
15 Salaries & Wages Exp.... 96,200 ............... (f) 1,800 ............... 98,000 ............... 98,000 ............... ............... ............. 15
16 Advertising Expense...... 63,200 ............... ............... ............... 63,200 ............... 63,200 ............... ............... ............. 16
18 Repairs Expense............ 12,500 ............... ............... ............... 12,500 ............... 12,500 ............... ............... ............. 18
19 Misc. Expense................. 4,050 ............... ............... ............... 4,050 ............... 4,050 ............... ............... ............. 19
20 500,000 500,000 20
21 Insurance Expense......... ............... ............... (b) 450 ............... 450 ............... 450 ............... ............... ............. 21
22 Supplies Expense........... ............... ............... (c) 700 ............... 700 ............... 700 ............... ............... ............. 22
23 Depr. Exp.—Building..... ............... ............... (d) 1,620 ............... 1,620 ............... 1,620 ............... ............... ............. 23
24 Depr. Exp.—Equip.......... ............... ............... (e) 3,500 ............... 3,500 ............... 3,500 ............... ............... ............. 24
25 Sal. & Wages Payable.... ............... ............... ............... (f) 1,800 ............... 1,800 ............... ............... ............... 1,800 25
26 Rent Revenue................. ............... ............... ............... (g) 1,500 ............... 1,500 ............... 1,500 ............... ............. 26
27 12,370 12,370 509,720 509,720 202,020 195,300 307,700 .314,420 27
28 Net loss........................... ............... 6,720 6,720 ............. 28
29 202,020 202,020 314,420 314,420 29
2.
Accounts Receivable...................................................... 2,800

Fees Revenue............................................................. 2,800
Insurance Expense......................................................... 450
Prepaid Insurance...................................................... 450
Supplies Expense............................................................ 700
Supplies...................................................................... 700
Depreciation Expense—Building.................................. 1,620
Accumulated Depreciation—Building..................... 1,620
Depreciation Expense—Equipment.............................. 3,500
Accumulated Depreciation—Equipment................. 3,500
Salaries and Wages Expense........................................ 1,800
Salaries and Wages Payable.................................... 1,800
Unearned Rent................................................................. 1,500
Rent Revenue............................................................. 1,500
3.
HERITAGE COMPANY
Adjusted Trial Balance
April 30, 2006
Cash...................................................................................... 3,200 .............
Accounts Receivable.......................................................... 13,300 .............
Prepaid Insurance............................................................... 1,350 .............
Supplies................................................................................ 650 .............
Land...................................................................................... 50,000 .............
Building................................................................................ 136,500 .............
Accumulated Depreciation—Building.............................. ............. 52,320
Equipment............................................................................ 92,700 .............
Accumulated Depreciation—Equipment.......................... ............. 39,800
Accounts Payable............................................................... ............. 6,500
Unearned Rent..................................................................... ............. 1,500
Salaries and Wages Payable.............................................. ............. 1,800
Shelby Powers, Capital....................................................... ............. 212,500
Shelby Powers, Drawing..................................................... 10,000 .............
Fees Revenue...................................................................... ............. 193,800
Rent Revenue....................................................................... ............. 1,500
Salaries and Wages Expense............................................. 98,000 .............
Advertising Expense........................................................... 63,200 .............
Utilities Expense.................................................................. 18,000 .............
Repairs Expense.................................................................. 12,500 .............
Depreciation Expense—Equipment.................................. 3,500 .............
Insurance Expense.............................................................. 450 .............
Supplies Expense................................................................ 700 .............
Depreciation Expense—Building...................................... 1,620 .............
Miscellaneous Expense...................................................... 4,050 .............
509,720 509,720
4.
HERITAGE COMPANY
Income Statement
Revenues:
Fees revenue................................................................ $193,800
Rent revenue................................................................. 1,500
Total revenues.......................................................... $195,300
Operating expenses:
Salaries and wages expense...................................... $ 98,000
Advertising expense.................................................... 63,200
Repairs expense........................................................... 12,500
Depreciation expense—equipment............................ 3,500
Depreciation expense—building................................ 1,620
Net loss................................................................................. $ 6,720
5.
HERITAGE COMPANY
Shelby Powers, capital, May 1, 2005................................. $212,500
Net loss for the year............................................................ $ 6,720
Add withdrawals.................................................................. 10,000
Decrease in owner’s equity................................................ 16,720
Shelby Powers, capital, April 30, 2006.............................. $195,780
6.
HERITAGE COMPANY
Balance Sheet
April 30, 2006
Assets Liabilities
Current assets:................................. Current liabilities:
Accounts receivable.................... 13,300 Salaries and wages
Prepaid insurance........................ 1,350 payable............................ 1,800
Supplies........................................ 650 Unearned rent.................... 1,500
Total current assets.................. $ 18,500 Total liabilities................ $ 9,800
Building......................................... $136,500 Shelby Powers, capital........ 195,780
Equipment..................................... $ 92,700
7. $195,300 ÷ $205,580 = 95%

Prob. 4–5A
1., 3., and 6.
Cash 11
Post. Balance
2006
Dec. 31 Balance....................  ............. ............. 2,825 .............
Supplies 13
2006
Dec. 31 Balance....................  ............. ............. 5,820 .............
31 Adjusting................. 26 ............. 4,570 1,250 .............
2006
Dec. 31 Balance....................  ............. ............. 2,500 .............
31 Adjusting................. 26 ............. 1,000 1,500 .............
Equipment 16
2006
Dec. 31 Balance....................  ............. ............. 44,200 .............
2006
Dec. 31 Balance....................  ............. ............. ............. 12,050
31 Adjusting................. 26 ............. 5,080 ............. 17,130
Trucks 18
2006
Dec. 31 Balance....................  ............. ............. 45,000 .............
Accumulated Depreciation—Trucks 19
2006
Dec. 31 Balance....................  ............. ............. ............. 27,100
31 Adjusting................. 26 ............. 3,500 ............. 30,600
Accounts Payable 21
Post. Balance
2006
Dec. 31 Balance....................  ............. ............. ............. 2,015
Wages Payable 22
2006
Dec. 31 Adjusting................. 26 ............. 900 ............. 900
Jason Hoyt, Capital 31

2006
Dec. 31 Balance....................  ............. ............. ............. 32,885
31 Closing.................... 27 ............. 16,245 ............. 49,130
31 Closing.................... 27 5,000 ............. ............. 44,130
Jason Hoyt, Drawing 32

2006
Dec. 31 Balance....................  ............. ............. 5,000 .............
31 Closing.................... 27 ............. 5,000 — —
Income Summary 33
2006
Dec. 31 Closing.................... 27 ............. 75,950 ............. 75,950
31 Closing.................... 27 59,705 ............. ............. 16,245
31 Closing.................... 27 16,245 ............. — —
Service Revenue 41
2006
Dec. 31 Balance....................  ............. ............. ............. 75,950
31 Closing.................... 27 75,950 ............. — —
Wages Expense 51
2006
Dec. 31 Balance....................  ............. ............. 28,010 .............
31 Adjusting................. 26 900 ............. 28,910 .............
31 Closing.................... 27 ............. 28,910 — —
Supplies Expense 52
Post. Balance
2006
Dec. 31 Adjusting................. 26 4,570 ............. 4,570 .............
31 Closing.................... 27 ............. 4,570 — —
Rent Expense 53
2006
Dec. 31 Balance....................  ............. ............. 8,100 .............
31 Closing.................... 27 ............. 8,100 — —
2006
Dec. 31 Adjusting................. 26 5,080 ............. 5,080 .............
31 Closing.................... 27 ............. 5,080 — —
Truck Expense 55
2006
Dec. 31 Balance....................  ............. ............. 6,350 .............
31 Closing.................... 27 ............. 6,350 — —
Depreciation Expense—Trucks 56
2006
Dec. 31 Adjusting................. 26 3,500 ............. 3,500 .............
31 Closing.................... 27 ............. 3,500 — —
2006
Dec. 31 Adjusting................. 26 1,000 ............. 1,000 .............
31 Closing.................... 27 ............. 1,000 — —
2006
Dec. 31 Balance....................  ............. ............. 2,195 .............
31 Closing.................... 27 ............. 2,195 — —
2. PABLO REPAIRS
Work Sheet
For the Year Ended December 31, 2006
1 Cash................................. 2,825 ............... ............... ............... 2,825 ............... ............... ............... 2,825 ............. 1
2 Supplies.......................... 5,820 ............... ............... (a) 4,570 1,250 ............... ............... ............... 1,250 ............. 2
3 Prepaid Insurance.......... 2,500 ............... ............... (b) 1,000 1,500 ............... ............... ............... 1,500 ............. 3
4 Equipment....................... 44,200 ............... ............... ............... 44,200 ............... ............... ............... 44,200 ............. 4
5 Acc. Depr.—Equipment. ............... 12,050 ............... (c) 5,080 ............... 17,130 ............... ............... ............... 17,130 5
6 Trucks.............................. 45,000 ............... ............... ............... 45,000 ............... ............... ............... 45,000 ............. 6
7 Acc. Depr.—Trucks........ ............... 27,100 ............... (d) 3,500 ............... 30,600 ............... ............... ............... 30,600 7
9 Jason Hoyt, Capital........ ............... 32,885 ............... ............... ............... 32,885 ............... ............... ............... 32,885 9
10 Jason Hoyt, Drawing...... 5,000 ............... ............... ............... 5,000 ............... ............... ............... 5,000 ............. 10
11 Service Revenue............. ............... 75,950 ............... ............... ............... 75,950 ............... 75,950 ............... ............. 11
12 Wages Expense.............. 28,010 ............... (e) 900 ............... 28,910 ............... 28,910 ............... ............... ............. 12
13 Rent Expense................. 8,100 ............... ............... ............... 8,100 ............... 8,100 ............... ............... ............. 13
14 Truck Expense................ 6,350 ............... ............... ............... 6,350 ............... 6,350 ............... ............... ............. 14
15 Misc. Expense................. 2,195 ............... ............... ............... 2,195 ............... 2,195 ............... ............... ............. 15
16 150,000 150,000 16
17 Supplies Expense........... ............... ............... (a) 4,570 ............... 4,570 ............... 4,570 ............... ............... ............. 17
18 Insurance Expense......... ............... ............... (b) 1,000 ............... 1,000 ............... 1,000 ............... ............... ............. 18
19 Depr. Exp.—Equip.......... ............... ............... (c) 5,080 ............... 5,080 ............... 5,080 ............... ............... ............. 19
20 Depr. Exp.—Trucks........ ............... ............... (d) 3,500 ............... 3,500 ............... 3,500 ............... ............... ............. 20
21 Wages Payable............... ............... ............... ............... (e) 900 ............... 900 ............... ............... ............... 900 21
22 15,050 15,050 159,480 159,480 59,705 75,950 99,775 83,530 22
23 Net income...................... 16,245 ............... ............... 16,245 23
24 75,950 75,950 99,775 99,775 24
3. JOURNAL Page 26
Post.
Adjusting Entries
2006
Dec. 31 Supplies Expense......................................... 52 4,570
Supplies................................................... 13 4,570
31 Insurance Expense....................................... 57 1,000
Prepaid Insurance................................... 14 1,000
31 Depreciation Expense—Equipment........... 54 5,080
Accumulated Depreciation—Equip...... 17 5,080
31 Depreciation Expense—Trucks.................. 56 3,500
Accumulated Depreciation—Trucks..... 19 3,500
31 Wages Expense............................................ 51 900
Wages Payable........................................ 22 900
4.
PABLO REPAIRS
December 31, 2006
Cash...................................................................................... 2,825 .............
Supplies................................................................................ 1,250 .............
Equipment............................................................................ 44,200 .............
Trucks................................................................................... 45,000 .............
Accumulated Depreciation—Trucks................................. ............. 30,600
Wages Payable.................................................................... ............. 900
Jason Hoyt, Capital............................................................. ............. 32,885
Jason Hoyt, Drawing........................................................... 5,000 .............
Service Revenue.................................................................. ............. 75,950
Wages Expense................................................................... 28,910 .............
Supplies Expense................................................................ 4,570 .............
Rent Expense....................................................................... 8,100 .............
Truck Expense..................................................................... 6,350 .............
Depreciation Expense—Trucks......................................... 3,500 .............
Insurance Expense.............................................................. 1,000 .............
Miscellaneous Expense...................................................... 2,195 .............
159,480 159,480
5.
PABLO REPAIRS
Income Statement
Service revenue................................................................... $ 75,950
Operating expenses:
Wages expense............................................................ $ 28,910
Rent expense................................................................ 8,100
Truck expense.............................................................. 6,350
Depreciation expense—trucks................................... 3,500
Net income........................................................................... $ 16,245
PABLO REPAIRS
Jason Hoyt, capital, January 1, 2006................................... $ 32,885
Net income for the year......................................................... $16,245
Less withdrawals................................................................... 5,000
Increase in owner’s equity.................................................... 11,245
Jason Hoyt, capital, December 31, 2006............................. $ 44,130
PABLO REPAIRS
Balance Sheet
December 31, 2006
Assets Liabilities
Cash.............................................. $ 2,825 Accounts payable................ $2,015
Supplies........................................ 1,250 Wages payable..................... 900
Prepaid insurance........................ 1,500 Total liabilities................... $ 2,915
Equipment..................................... $44,200 Owner’s Equity
Less accumulated depr............ 17,130 $27,070 Jason Hoyt, capital................. 44,130
Trucks........................................... $45,000
Less accumulated depr............ 30,600 14,400
Total assets...................................... $47,045 owner’s equity...................... $47,045
6. JOURNAL Page 27
Post.
Closing Entries
2006
Dec. 31 Service Revenue........................................... 41 75,950
Income Summary.................................... 33 75,950
31 Income Summary.......................................... 33 59,705
Wages Expense...................................... 51 28,910
Rent Expense.......................................... 53 8,100
Depreciation Expense—Equipment...... 54 5,080
Truck Expense........................................ 55 6,350
Depreciation Expense—Trucks............ 56 3,500
Insurance Expense................................. 57 1,000
31 Income Summary.......................................... 33 16,245
Jason Hoyt, Capital................................ 31 16,245
31 Jason Hoyt, Capital...................................... 31 5,000
Jason Hoyt, Drawing.............................. 32 5,000
7.
PABLO REPAIRS
December 31, 2006
Cash...................................................................................... 2,825
Supplies................................................................................ 1,250
Equipment............................................................................ 44,200
Trucks................................................................................... 45,000
Accumulated Depreciation—Trucks................................. 30,600
Wages Payable.................................................................... 900
Jason Hoyt, Capital............................................................. 44,130
94,775 94,775
Prob. 4–1B
1. THE UTOPIA LAUNDROMAT

Work Sheet
1 Cash................................. 4,600 ............... ............... ............... 4,600 ............... ............... ............... 4,600 ............. 1
2 Laundry Supplies........... 7,850 ............... ............... (a) 6,600 1,250 ............... ............... ............... 1,250 ............. 2
4 Laundry Equipment....... 120,000 ............... ............... ............... 120,000 ............... ............... ............... 120,000 ............. 4
5 Accumulated Depr......... ............... 62,700 ............... (c) 5,500 ............... 68,200 ............... ............... ............... 68,200 5
7 Cecily Farner, Capital.... ............... 46,450 ............... ............... ............... 46,450 ............... ............... ............... 46,450 7
8 Cecily Farner, Drawing. . 3,500 ............... ............... ............... 3,500 ............... ............... ............... 3,500 ............. 8
9 Laundry Revenue........... ............... 96,750 ............... ............... ............... 96,750 ............... 96,750 ............... ............. 9
10 Wages Expense.............. 43,400 ............... (d) 2,160 ............... 45,560 ............... 45,560 ............... ............... ............. 10
11 Rent Expense................. 16,400 ............... ............... ............... 16,400 ............... 16,400 ............... ............... ............. 11
13 Miscellaneous Exp......... 2,150 ............... ............... ............... 2,150 ............... 2,150 ............... ............... ............. 13
14 210,000 210,000 14
15 Laundry Supplies Exp.. . ............... ............... (a) 6,600 ............... 6,600 ............... 6,600 ............... ............... ............. 15
17 Depreciation Expense.... ............... ............... (c) 5,500 ............... 5,500 ............... 5,500 ............... ............... ............. 17
18 Wages Payable............... ............... ............... ............... (d) 2,160 ............... 2,160 ............... ............... ............... 2,160 18
19 16,060 16,060 217,660 217,660 86,510 96,750 131,150 120,910 19
20 Net income...................... 10,240 ............... ............... 10,240 20
21 96,750 96,750 131,150 .131,150 21
Prob. 4–1B Continued
2.
THE UTOPIA LAUNDROMAT
Income Statement
Laundry revenue................................................................. $ 96,750
Operating expenses:
Wages expense............................................................ $45,560
Rent expense................................................................ 16,400
Laundry supplies expense.......................................... 6,600
Net income........................................................................... $ 10,240

Cecily Farner, capital, November 1, 2005......................... $ 46,450
Cecily Farner, capital, October 31, 2006........................... $ 53,190

Balance Sheet
October 31, 2006
Assets Liabilities
Cash........................... $ 4,600 Accounts payable.... $4,100
Laundry supplies...... 1,250 Wages payable........ 2,160
Prepaid insurance..... 1,800 Total liabilities....... $ 6,260
Total current assets $ 7,650
Laundry equipment. . $120,000 Cecily Farner, capital. 53,190
Less accum. depr... 68,200 51,800 Total liabilities and
Total assets.................. $ 59,450 owner’s equity......... $59,450
Prob. 4–1B Concluded
3.
Adjusting Entries
2006
Oct. 31 Laundry Supplies Expense................................. 6,600
Laundry Supplies............................................ 6,600
31 Insurance Expense............................................... 1,800
Prepaid Insurance........................................... 1,800
31 Depreciation Expense.......................................... 5,500
Accumulated Depreciation............................ 5,500
31 Wages Expense.................................................... 2,160
Wages Payable................................................ 2,160
4.
Closing Entries
2006
Oct. 31 Laundry Revenue................................................. 96,750
Income Summary............................................ 96,750
31 Income Summary.................................................. 86,510
Wages Expense............................................... 45,560
Rent Expense.................................................. 16,400
Laundry Supplies Expense............................ 6,600
Depreciation Expense.................................... 5,500
31 Income Summary.................................................. 10,240
Cecily Farner, Capital..................................... 10,240
31 Cecily Farner, Capital........................................... 3,500
Cecily Farner, Drawing................................... 3,500
Prob. 4–2B
1.
Closing Entries
2006
June 30 Service Fees Earned............................................ 180,000
Rent Revenue........................................................ 3,000
Income Summary............................................ 183,000
30 Income Summary.................................................. 169,500
Salary Expense................................................ 133,500
Rent Expense.................................................. 18,000
Depreciation Expense—Equipment.............. 3,500
Taxes Expense................................................ 3,100
30 Income Summary.................................................. 13,500
Bruce Driskell, Capital.................................... 13,500
30 Bruce Driskell, Capital......................................... 8,000
Bruce Driskell, Drawing.................................. 8,000
2.
THE ALLIGATOR COMPANY
For the Year Ended June 30, 2006
Bruce Driskell, capital, July 1, 2005.................................. $ 71,410
Bruce Driskell, capital, June 30, 2006............................... $ 76,910
3. $22,000 net loss. The $30,000 decrease is caused by the $8,000 withdrawals
and a $22,000 net loss.
Prob. 4–3B
1. LITHIUM SERVICES CO.
Work Sheet
1 Cash................................. 4,509 ............... ............... ............... 4,509 ............... ............... ............... 4,509 ............. 1
3 Supplies.......................... 1,647 ............... ............... (b) 1,247 400 ............... ............... ............... 400 ............. 3
5 Land................................. 20,000 ............... ............... ............... 20,000 ............... ............... ............... 20,000 ............. 5
6 Building........................... 55,500 ............... ............... ............... 55,500 ............... ............... ............... 55,500 ............. 6
7 Acc. Depr.—Building..... ............... 23,400 ............... (d) 500 ............... 23,900 ............... ............... ............... 23,900 7
8 Equipment....................... 30,000 ............... ............... ............... 30,000 ............... ............... ............... 30,000 ............. 8
9 Acc. Depr.—Equipment. ............... 10,200 ............... (e) 150 ............... 10,350 ............... ............... ............... 10,350 9
11 Unearned Rent................ ............... 2,200 (f) 200 ............... ............... 2,000 ............... ............... ............... 2,000 11
12 N. Morrow, Capital.......... ............... 57,825 ............... ............... ............... 57,825 ............... ............... ............... 57,825 12
13 N. Morrow, Drawing....... 2,000 ............... ............... ............... 2,000 ............... ............... ............... 2,000 ............. 13
14 Service Revenue............. ............... 41,984 ............... (a) 1,250 ............... 43,234 ............... 43,234 ............... ............. 14
15 Wages Expense.............. 14,799 ............... (g) 601 ............... 15,400 ............... 15,400 ............... ............... ............. 15
16 Rent Expense................. 3,910 ............... ............... ............... 3,910 ............... 3,910 ............... ............... ............. 16
18 Misc. Expense................. 2,307 ............... ............... ............... 2,307 ............... 2,307 ............... ............... ............. 18
19 140,750 140,750 19
20 Supplies Expense........... ............... (b) 1,247 ............... 1,247 ............... 1,247 ............... ............... ............. 20
21 Insurance Expense......... ............... (c) 150 ............... 150 ............... 150 ............... ............... ............. 21
22 Depr. Exp.—Building..... ............... (d) 500 ............... 500 ............... 500 ............... ............... ............. 22
23 Depr. Exp.—Equipment. ............... (e) 150 ............... 150 ............... 150 ............... ............... ............. 23
24 Rent Revenue................. ............... ............... (f) 200 ............... 200 ............... 200 ............... ............. 24
25 Wages Payable............... ............... ............... (g) 601 ............... 601 ............... ............... ............... 601 25
26 4,098 4,098 143,251 143,251 25,392 43,434 117,859 99,817 26
27 Net income...................... 18,042 ............... ............... 18,042 27
28 43,434 43,434 117,859 117,859 28
2.
Income Statement
Revenues:
Service revenue............................................................ $43,234
Rent revenue................................................................. 200
Total revenues.......................................................... $ 43,434
Operating expenses:
Wages expense............................................................ $15,400
Rent expense................................................................ 3,910
Depreciation expense—building................................ 500
Depreciation expense—equipment............................ 150
Net income........................................................................... $ 18,042

Natasha Morrow, capital, March 1, 2006........................... $ 52,825
Additional investment during the month......................... 5,000
Total...................................................................................... $ 57,825
Natasha Morrow, capital, March 31, 2006......................... $ 73,867

Balance Sheet
March 31, 2006
Assets Liabilities
Cash.............................................. $ 4,509 Accounts payable................. $5,141
Accounts receivable.................... 3,800 Wages payable...................... 601
Supplies........................................ 400 Unearned rent........................ 2,000
Prepaid insurance........................ 1,650 Total current
Total current assets.................. $ 10,359 liabilities......................... $ 7,742
Building......................................... $55,500 Natasha Morrow, capital......... 73,867
Equipment..................................... $30,000
Total assets...................................... $ 81,609 owner’s equity....................... $81,609
3. JOURNAL Page 26
Post.
2006 Adjusting Entries
Mar. 31 Accounts Receivable................................... 12 1,250
Service Revenue..................................... 41 1,250
31 Supplies Expense......................................... 52 1,247
Supplies................................................... 13 1,247
31 Insurance Expense....................................... 57 150
31 Depreciation Expense—Building............... 54 500
Accum. Depreciation—Building............ 17 500
31 Depreciation Expense—Equipment........... 56 150
Accum. Depreciation—Equipment....... 19 150
31 Unearned Rent.............................................. 23 200
Rent Revenue.......................................... 42 200
31 Wages Expense............................................ 51 601
Wages Payable........................................ 22 601
4. JOURNAL Page 27
Post.
2006 Closing Entries
Mar. 31 Service Revenue........................................... 41 43,234
Rent Revenue................................................ 42 200
Income Summary.................................... 33 43,434
31 Income Summary.......................................... 33 25,392
Wages Expense...................................... 51 15,400
Rent Expense.......................................... 53 3,910
Utilities Expense..................................... 55 1,728
Depreciation Expense—Building.......... 54 500
Depreciation Expense—Equip.............. 56 150
31 Income Summary.......................................... 33 18,042
Natasha Morrow, Capital........................ 31 18,042
31 Natasha Morrow, Capital............................. 31 2,000
Natasha Morrow, Drawing..................... 32 2,000
3. and 4.
Cash 11
Post. Balance
2006
Mar. 1 Balance....................  ............. ............. 2,259 .............
3 .................................. 23 ............. 910 1,349 .............
4 .................................. 23 5,000 ............. 6,349 .............
5 .................................. 23 ............. 86 6,263 .............
7 .................................. 23 800 ............. 7,063 .............
8 .................................. 23 400 ............. 7,463 .............
8 .................................. 23 ............. 2,584 4,879 .............
8 .................................. 23 1,695 ............. 6,574 .............
10 .................................. 24 ............. 510 6,064 .............
12 .................................. 24 ............. 2,319 3,745 .............
15 .................................. 24 2,718 ............. 6,463 .............
16 .................................. 24 ............. 1,000 5,463 .............
19 .................................. 24 ............. 2,135 3,328 .............
22 .................................. 24 ............. 370 2,958 .............
22 .................................. 24 3,992 ............. 6,950 .............
24 .................................. 25 ............. 527 6,423 .............
26 .................................. 25 ............. 2,480 3,943 .............
30 .................................. 25 ............. 156 3,787 .............
30 .................................. 25 ............. 26 3,761 .............
31 .................................. 25 ............. 1,000 2,761 .............
31 .................................. 25 2,029 ............. 4,790 .............
31 .................................. 25 ............. 281 4,509 .............
2006
Mar. 1 Balance....................  ............. ............. 2,200 .............
7 .................................. 23 ............. 800 1,400 .............
8 .................................. 23 ............. 400 1,000 .............
22 .................................. 24 1,550 ............. 2,550 .............
31 Adjusting................. 26 1,250 ............. 3,800 .............
Supplies 13
Post. Balance
2006
Mar. 1 Balance....................  ............. ............. 610 .............
10 .................................. 24 510 ............. 1,120 .............
27 .................................. 25 527 ............. 1,647 .............
31 Adjusting................. 26 ............. 1,247 400 .............
2006
Mar. 1 Balance....................  ............. ............. 420 .............
22 .................................. 24 1,380 ............. 1,800 .............
31 Adjusting................. 26 ............. 150 1,650 .............
Land 15
2006
Mar. 1 Balance....................  ............. ............. 20,000 .............
Building 16
2006
Mar. 1 Balance....................  ............. ............. 55,500 .............
Accumulated Depreciation—Building 17
2006
Mar. 1 Balance....................  ............. ............. ............. 23,400
31 Adjusting................. 26 ............. 500 ............. 23,900
Equipment 18
2006
Mar. 1 Balance....................  ............. ............. 29,250 .............
3 .................................. 23 750 ............. 30,000 .............
Post. Balance
2006
Mar. 1 Balance....................  ............. ............. ............. 10,200
31 Adjusting................. 26 ............. 150 ............. 10,350
Accounts Payable 21
2006
Mar. 1 Balance....................  ............. ............. ............. 8,625
3 .................................. 23 ............. 750 ............. 9,375
8 .................................. 23 2,584 ............. ............. 6,791
19 .................................. 24 2,135 ............. ............. 4,656
31 .................................. 25 ............. 485 ............. 5,141
Wages Payable 22
2006
Mar. 31 Adjusting................. 26 ............. 601 ............. 601
Unearned Rent 23
2006
Mar. 1 Balance....................  ............. ............. ............. 2,200
31 Adjusting................. 26 200 ............. ............. 2,000
Natasha Morrow, Capital 31

2006
Mar. 1 Balance....................  ............. ............. ............. 52,825
4 .................................. 23 ............. 5,000 ............. 57,825
31 Closing.................... 27 ............. 18,042 ............. 75,867
31 Closing.................... 27 2,000 ............. ............. 73,867
Natasha Morrow, Drawing 32

2006
Mar. 16 .................................. 24 1,000 ............. 1,000 .............
31 .................................. 25 1,000 ............. 2,000 .............
31 Closing.................... 27 ............. 2,000 — —
Income Summary 33
Post. Balance
2006
Mar. 31 Closing.................... 27 ............. 43,434 ............. 43,434
31 Closing.................... 27 25,392 ............. ............. 18,042
31 Closing.................... 27 18,042 ............. — —
Service Revenue 41
2006
Mar. 8 .................................. 23 ............. 9,695 ............. 9,695
15 .................................. 24 ............. 7,718 ............. 17,413
22 .................................. 24 ............. 8,992 ............. 26,405
22 .................................. 24 ............. 7,550 ............. 33,955
31 .................................. 25 ............. 8,029 ............. 41,984
31 Adjusting................. 26 ............. 1,250 ............. 43,234
31 Closing.................... 27 43,234 ............. — —
Rent Revenue 42
2006
Mar. 1 Adjusting................. 26 ............. 200 ............. 200
31 Closing.................... 27 200 ............. — —
Wages Expense 51
2006
Mar. 12 .................................. 24 7,319 ............. 7,319 .............
26 .................................. 25 7,480 ............. 14,799 .............
31 Adjusting................. 26 601 ............. 15,400 .............
31 Closing.................... 27 ............. 15,400 — —
Supplies Expense 52
2006
Mar. 31 Adjusting................. 26 1,247 ............. 1,247 .............
31 Closing.................... 27 ............. 1,247 — —
Rent Expense 53
Post. Balance
2006
Mar. 3 .................................. 23 3,910 ............. 3,910 .............
31 Closing.................... 27 ............. 3,910 — —
Depreciation Expense—Building 54
2006
Mar. 31 Adjusting................. 26 500 ............. 500 .............
31 Closing.................... 27 ............. 500 — —
2006
Mar. 5 .................................. 24 586 ............. 586 .............
30 .................................. 25 456 ............. 1,042 .............
31 .................................. 25 686 ............. 1,728 .............
31 Closing.................... 27 ............. 1,728 — —
2006
Mar. 31 Adjusting................. 26 150 ............. 150 .............
31 Closing.................... 27 ............. 150 — —
2006
Mar. 31 Adjusting................. 26 150 ............. 150 .............
31 Closing.................... 27 ............. 150 — —
2006
Mar. 30 .................................. 25 1,026 ............. 1,026 .............
31 .................................. 25 1,281 ............. 2,307 .............
31 Closing.................... 27 ............. 2,307 — —
5.
March 31, 2006
Cash...................................................................................... 4,509
Supplies................................................................................ 400
Land...................................................................................... 20,000
Building................................................................................ 55,500
Accumulated Depreciation—Building.............................. 23,900
Equipment............................................................................ 30,000
Wages Payable.................................................................... 601
Unearned Rent..................................................................... 2,000
Natasha Morrow, Capital.................................................... 73,867
115,859 115,859
Prob. 4–4B
1. FLAMINGO COMPANY
Work Sheet
1 Cash................................. 4,500 ............... ............... ............... 4,500 ............... ............... ............... 4,500 ............. 1
4 Supplies.......................... 1,950 ............... ............... (c) 1,600 350 ............... ............... ............... 350 ............. 4
5 Land................................. 70,000 ............... ............... ............... 70,000 ............... ............... ............... 70,000 ............. 5
6 Building........................... 100,500 ............... ............... ............... 100,500 ............... ............... ............... 100,500 ............. 6
7 Accum. Depr.—Bldg...... ............... 71,700 ............... (d) 1,520 ............... 73,220 ............... ............... ............... 73,220 7
8 Equipment....................... 71,400 ............... ............... ............... 71,400 ............... ............... ............... 71,400 ............. 8
9 Accum. Depr.—Equip.. . . ............... 60,800 ............... (e) 2,160 ............... 62,960 ............... ............... ............... 62,960 9
11 Unearned Rent................ ............... 1,500 (g) 1,000 ............... ............... 500 ............... ............... ............... 500 11
12 Mac Copas, Capital........ ............... 55,700 ............... ............... ............... 55,700 ............... ............... ............... 55,700 12
13 Mac Copas, Drawing...... 4,000 ............... ............... ............... 4,000 ............... ............... ............... 4,000 ............. 13
14 Fees Revenue................. ............... 181,200 ............... (a) 3,500 ............... 184,700 ............... 184,700 ............... ............. 14
15 Sal. & Wages Expense... 73,200 ............... (f) 2,800 ............... 76,000 ............... 76,000 ............... ............... ............. 15
18 Repairs Expense............ 6,300 ............... ............... ............... 6,300 ............... 6,300 ............... ............... ............. 18
19 Misc. Expense................. 3,050 ............... ............... ............... 3,050 ............... 3,050 ............... ............... ............. 19
20 375,000 375,000 20
22 Supplies Expense........... ............... ............... (c) 1,600 ............... 1,600 ............... 1,600 ............... ............... ............. 22
23 Depr. Exp.—Building..... ............... ............... (d) 1,520 ............... 1,520 ............... 1,520 ............... ............... ............. 23
24 Depr. Exp.—Equip.......... ............... ............... (e) 2,160 ............... 2,160 ............... 2,160 ............... ............... ............. 24
25 Sal. & Wages Payable.... ............... ............... ............... (f) 2,800 ............... 2,800 ............... ............... ............... 2,800 25
26 Rent Revenue................. ............... ............... ............... (g) 1,000 ............... 1,000 ............... 1,000 ............... ............. 26
27 14,580 14,580 384,980 384,980 116,230 185,700 268,750 199,280 27
28 Net income...................... 69,470 ............... ............... 69,470 28
29 185,700 185,700 268,750 268,750 29
2.
Accounts Receivable...................................................... 3,500
Fees Revenue............................................................. 3,500
Insurance Expense......................................................... 2,000
Prepaid Insurance...................................................... 2,000
Supplies Expense............................................................ 1,600
Supplies...................................................................... 1,600
Depreciation Expense..................................................... 1,520
Building....................................................................... 1,520
Depreciation Expense..................................................... 2,160
Equipment................................................................... 2,160
Salaries and Wages Expense........................................ 2,800
Salaries and Wages Payable.................................... 2,800
Unearned Rent................................................................. 1,000
Rent Revenue............................................................. 1,000
3.
FLAMINGO COMPANY
July 31, 2006
Cash...................................................................................... 4,500 .............
Accounts Receivable.......................................................... 17,000 .............
Supplies................................................................................ 350 .............
Land...................................................................................... 70,000 .............
Building................................................................................ 100,500 .............
Accumulated Depreciation—Building.............................. ............. 73,220
Equipment............................................................................ 71,400 .............
Unearned Rent..................................................................... ............. 500
Salaries and Wages Payable.............................................. ............. 2,800
Mac Copas, Capital............................................................. ............. 55,700
Mac Copas, Drawing........................................................... 4,000 .............
Fees Revenue...................................................................... ............. 184,700
Rent Revenue....................................................................... ............. 1,000
Salaries and Wages Expense............................................. 76,000 .............
Advertising Expense........................................................... 15,500 .............
Utilities Expense.................................................................. 8,100 .............
Repairs Expense.................................................................. 6,300 .............
Depreciation Expense—Building...................................... 1,520 .............
Miscellaneous Expense...................................................... 3,050
384,980 384,980
4.
FLAMINGO COMPANY
Income Statement
Revenues:
Fees revenue................................................................ $184,700
Rent revenue................................................................. 1,000
Total revenues.......................................................... $185,700
Operating expenses:
Salaries and wages expense...................................... $ 76,000
Repairs expense........................................................... 6,300
Depreciation expense—building................................ 1,520
Net income........................................................................... $ 69,470
5.
FLAMINGO COMPANY
Mac Copas, capital, August 1, 2005.................................. $ 55,700
Increase in owner’s capital................................................ 65,470
Mac Copas, capital, July 31, 2006..................................... $121,170
6.
FLAMINGO COMPANY
Balance Sheet
July 31, 2006
Assets Liabilities
Cash.............................................. $ 4,500 Accounts payable................. $4,100
Accounts receivable.................... 17,000 Salaries and wages
Prepaid insurance........................ 1,000 payable................................ 2,800
Supplies........................................ 350 Unearned rent........................ 500
Total current assets.................. $ 22,850 Total liabilities.................... $ 7,400
Land............................................... $70,000
Building......................................... $100,500 Owner’s Equity
Less accum. depreciation........ 73,220 27,280 Mac Copas, capital.................. 121,170
Equipment..................................... $ 71,400
Total assets...................................... $128,570 owner’s equity....................... $128,570
7. $69,470 ÷ $185,700 = 37.4%

Prob. 4–5B
1., 3., and 6.
Cash 11
Post. Balance
2006
Oct. 31 Balance....................  ............. ............. 3,950 .............
Supplies 13
2006
Oct. 31 Balance....................  ............. ............. 6,295 .............
31 Adjusting................. 26 ............. 5,145 1,150 .............
2006
Oct. 31 Balance....................  ............. ............. 2,735 .............
31 Adjusting................. 26 ............. 1,800 935 .............
Equipment 16
2006
Oct. 31 Balance....................  ............. ............. 50,650 .............
2006
Oct. 31 Balance....................  ............. ............. ............. 11,209
31 Adjusting................. 26 ............. 3,380 ............. 14,589
Trucks 18
2006
Oct. 31 Balance....................  ............. ............. 36,300 .............
Accumulated Depreciation—Trucks 19
2006
Oct. 31 Balance....................  ............. ............. ............. 7,400
31 Adjusting................. 26 ............. 4,400 ............. 11,800
Accounts Payable 21
Post. Balance
2006
Oct. 31 Balance....................  ............. ............. ............. 4,015
Wages Payable 22
2006
Oct. 31 Adjusting................. 26 ............. 1,075 ............. 1,075
Ernie Richt, Capital 31

2006
Oct. 31 Balance....................  ............. ............. ............. 37,426
31 Closing.................... 27 ............. 30,080 ............. 67,506
31 Closing.................... 27 6,000 ............. ............. 61,506
Ernie Richt, Drawing 32

2006
Oct. 31 Balance....................  ............. ............. 6,000 .............
31 Closing.................... 27 ............. 6,000 — —
Income Summary 33
2006
Oct. 31 Closing.................... 27 ............. 89,950 ............. 89,950
31 Closing.................... 27 59,870 ............. ............. 30,080
31 Closing.................... 27 30,080 ............. — —
Service Revenue 41
2006
Oct. 31 Balance....................  ............. ............. ............. 89,950
Closing.................... 27 89,950 ............. — —
Wages Expense 51
2006
Oct. 31 Balance....................  ............. ............. 26,925 .............
31 Adjusting................. 26 1,075 ............. 28,000 .............
31 Closing.................... 27 ............. 28,000 — —
Supplies Expense 52
Post. Balance
2006
Oct. 31 Adjusting................. 26 5,145 ............. 5,145 .............
31 Closing.................... 27 ............. 5,145 — —
Rent Expense 53
2006
Oct. 31 Balance....................  ............. ............. 9,600 .............
31 Closing.................... 27 ............. 9,600 — —
2006
Oct. 31 Adjusting................. 26 3,380 ............. 3,380 .............
31 Closing.................... 27 ............. 3,380 — —
Truck Expense 55
2006
Oct. 31 Balance....................  ............. ............. 5,350 .............
31 Closing.................... 27 ............. 5,350 — —
Depreciation Expense—Trucks 56
2006
Oct. 31 Adjusting................. 26 4,400 ............. 4,400 .............
31 Closing.................... 27 ............. 4,400 — —
2006
Oct. 31 Adjusting................. 26 1,800 ............. 1,800 .............
31 Closing.................... 27 ............. 1,800 — —
2006
Oct. 31 Balance....................  ............. ............. 2,195 .............
31 Closing.................... 27 ............. 2,195 — —
2. GESUNDHEIT REPAIRS
Work Sheet
1 Cash................................. 3,950 ............... ............... ............... 3,950 ............... ............... ............... 3,950 ............. 1
2 Supplies.......................... 6,295 ............... ............... (a) 5,145 1,150 ............... ............... ............... 1,150 ............. 2
3 Prepaid Insurance.......... 2,735 ............... ............... (b) 1,800 935 ............... ............... ............... 935 ............. 3
4 Equipment....................... 50,650 ............... ............... ............... 50,650 ............... ............... ............... 50,650 ............. 4
5 Accum. Depr.—Equip.. . . ............... 11,209 ............... (c) 3,380 ............... 14,589 ............... ............... ............... 14,589 5
6 Trucks.............................. 36,300 ............... ............... ............... 36,300 ............... ............... ............... 36,300 ............. 6
7 Accum. Depr.—Trucks... ............... 7,400 ............... (d) 4,400 ............... 11,800 ............... ............... ............... 11,800 7
9 Ernie Richt, Capital........ ............... 37,426 ............... ............... ............... 37,426 ............... ............... ............... 37,426 9
10 Ernie Richt, Drawing...... 6,000 ............... ............... ............... 6,000 ............... ............... ............... 6,000 ............. 10
11 Service Revenue............. ............... 89,950 ............... ............... ............... 89,950 ............... 89,950 ............... ............. 11
12 Wages Expense.............. 26,925 ............... (e) 1,075 ............... 28,000 ............... 28,000 ............... ............... ............. 12
13 Rent Expense................. 9,600 ............... ............... ............... 9,600 ............... 9,600 ............... ............... ............. 13
14 Truck Expense................ 5,350 ............... ............... ............... 5,350 ............... 5,350 ............... ............... ............. 14
15 Misc. Expense................. 2,195 ............... ............... ............... 2,195 ............... 2,195 ............... ............... ............. 15
16 150,000 150,000 16
17 Supplies Expense........... ............... ............... (a) 5,145 ............... 5,145 ............... 5,145 ............... ............... ............. 17
19 Depr. Exp.—Equip.......... ............... ............... (c) 3,380 ............... 3,380 ............... 3,380 ............... ............... ............. 19
20 Depr. Exp.—Trucks........ ............... ............... (d) 4,400 ............... 4,400 ............... 4,400 ............... ............... ............. 20
21 Wages Payable............... ............... ............... ............... (e) 1,075 ............... 1,075 ............... ............... ............... 1,075 21
22 15,800 15,800 158,855 158,855 59,870 89,950 98,985 68,905 22
23 Net income...................... 30,080 ............... ............... 30,080 23
24 89,950 89,950 98,985 98,985 24
3. JOURNAL Page 26
Post.
Adjusting Entries
2006
Oct. 31 Supplies Expense......................................... 52 5,145
Supplies................................................... 13 5,145
31 Insurance Expense....................................... 57 1,800
Prepaid Insurance................................... 14 1,800
31 Depreciation Expense—Equipment........... 54 3,380
Accumulated Depr.—Equipment.......... 17 3,380
31 Depreciation Expense—Trucks.................. 56 4,400
Accumulated Depr.—Trucks................. 19 4,400
31 Wages Expense............................................ 51 1,075
Wages Payable........................................ 22 1,075
4.
GESUNDHEIT REPAIRS
October 31, 2006
Cash...................................................................................... 3,950 .............
Supplies................................................................................ 1,150 .............
Prepaid Insurance............................................................... 935 .............
Equipment............................................................................ 50,650 .............
Trucks................................................................................... 36,300 .............
Accumulated Depreciation—Trucks................................. ............. 11,800
Wages Payable.................................................................... ............. 1,075
Ernie Richt, Capital............................................................. ............. 37,426
Ernie Richt, Drawing........................................................... 6,000 .............
Service Revenue.................................................................. ............. 89,950
Wages Expense................................................................... 28,000 .............
Rent Expense....................................................................... 9,600 .............
Truck Expense..................................................................... 5,350 .............
Depreciation Expense—Trucks......................................... 4,400 .............
Miscellaneous Expense...................................................... 2,195
158,855 158,855
5.
GESUNDHEIT REPAIRS
Income Statement
Service revenue................................................................... $89,950
Operating expenses:
Wages expense............................................................ $28,000
Rent expense................................................................ 9,600
Truck expense.............................................................. 5,350
Depreciation expense—trucks................................... 4,400
Net income........................................................................... $ 30,080
GESUNDHEIT REPAIRS
Ernie Richt, capital, November 1, 2005............................. $37,426
Increase in owner’s capital................................................ 24,080
Ernie Richt, capital, October 31, 2006............................... $61,506
GESUNDHEIT REPAIRS
Balance Sheet
October 31, 2006
Assets Liabilities
Cash.............................................. $ 3,950 Accounts payable................ $4,015
Supplies........................................ 1,150 Wages payable..................... 1,075
Prepaid insurance........................ 935 Total liabilities................... $ 5,090
Equipment..................................... $50,650 Owner’s Equity
Less accum. depreciation........ 14,589 $36,061 Ernie Richt, capital................. 61,506
Trucks........................................... $36,300
Total assets...................................... $ 66,596 owner’s equity...................... $66,596
6. JOURNAL Page 27
Post.
Closing Entries
2006
Oct. 31 Service Revenue........................................... 41 89,950
Income Summary.................................... 33 89,950
31 Income Summary.......................................... 33 59,870
Wages Expense...................................... 51 28,000
Rent Expense.......................................... 53 9,600
Depreciation Expense—Equipment...... 54 3,380
Truck Expense........................................ 55 5,350
Depreciation Expense—Trucks............ 56 4,400
Insurance Expense................................. 57 1,800
31 Income Summary.......................................... 33 30,080
Ernie Richt, Capital................................. 31 30,080
31 Ernie Richt, Capital....................................... 31 6,000
Ernie Richt, Drawing............................... 32 6,000
7.
GESUNDHEIT REPAIRS
October 31, 2006
Cash...................................................................................... 3,950
Supplies................................................................................ 1,150
Prepaid Insurance............................................................... 935
Equipment............................................................................ 50,650
Trucks................................................................................... 36,300
Accumulated Depreciation—Trucks................................. 11,800
Wages Payable.................................................................... 1,075
Ernie Richt, Capital............................................................. 61,506
92,985 92,985
CONTINUING PROBLEM
1. DANCIN MUSIC
Work Sheet
For the Two Months Ended May 31, 2006
1 Cash................................. 7,330 ............... ............... ............... 7,330 ............... ............... ............... 7,330 ............. 1
3 Supplies.......................... 920 ............... ............... (b) 750 170 ............... ............... ............... 170 ............. 3
5 Office Equipment........... 5,000 ............... ............... ............... 5,000 ............... ............... ............... 5,000 ............. 5
6 Acc. Depr.—Office
Equipment................ ............... ............... ............... (d) 100 ............... 100 ............... ............... ............... 100 6
8 Wages Payable............... ............... ............... ............... (f) 130 ............... 130 ............... ............... ............... 130 8
9 Unearned Revenue......... ............... 4,800 (e) 2,400 ............... ............... 2,400 ............... ............... ............... 2,400 9
10 S. Burns, Capital............ ............... 10,000 ............... ............... ............... 10,000 ............... ............... ............... 10,000 10
11 S. Burns, Drawing.......... 2,250 ............... ............... ............... 2,250 ............... ............... ............... 2,250 ............. 11
12 Fees Earned.................... ............... 11,210 ............... (a) 1,200 ............... 14,810 ............... 14,810 ............... ............. 12
13 ............... ............... ............... (e) 2,400 ............... ............... ............... ............... ............... ............. 13
14 Wages Expense.............. 2,800 ............... (f) 130 ............... 2,930 ............... 2,930 ............... ............... ............. 14
15 Office Rent Expense...... 2,600 ............... ............... ............... 2,600 ............... 2,600 ............... ............... ............. 15
16 Equip. Rent Expense..... 1,150 ............... ............... ............... 1,150 ............... 1,150 ............... ............... ............. 16
17 Utilities Expense............. 860 ............... ............... ............... 860 ............... 860 ............... ............... ............. 17
18 Music Expense............... 1,780 ............... ............... ............... 1,780 ............... 1,780 ............... ............... ............. 18
20 Supplies Expense........... 180 ............... (b) 750 ............... 930 ............... 930 ............... ............... ............. 20
21 Insurance Expense......... ............... ............... (c) 140 ............... 140 ............... 140 ............... ............... ............. 21
22 Depr. Expense................ ............... ............... (d) 100 ............... 100 ............... 100 ............... ............... ............. 22
23 Misc. Expense................. 470 ............... ............... ............... 470 ............... 470 ............... ............... ............. 23
24 31,760 31,760 4,720 4,720 33,190 33,190 12,260 14,810 20,930 18,380 24
25 Net income...................... 2,550 ............... ............... 2,550 25
26 14,810 14,810 20,930 20,930 26
Continuing Problem Continued
2.
DANCIN MUSIC
Income Statement
Fees earned.......................................................................... $14,810
Operating expenses:
Wages expense............................................................ $2,930
Office rent expense...................................................... 2,600
Music expense.............................................................. 1,780
Equipment rent expense............................................. 1,150
Utilities expense........................................................... 860
Net income........................................................................... $ 2,550
DANCIN MUSIC
Shannon Burns, capital, April 1, 2006.............................. $ 0
Additional investments during the period....................... 10,000
Total...................................................................................... $10,000
Net income for the period................................................... $2,550
Increase in owner’s equity................................................. 300
Shannon Burns, capital, May 31, 2006.............................. $10,300
DANCIN MUSIC
Balance Sheet
May 31, 2006
Assets Liabilities
Cash............................... $7,330 Accounts payable.... $5,750
Accounts receivable..... 2,960 Wages payable........ 130
Supplies......................... 170 Unearned revenue... 2,400
Prepaid insurance......... 3,220 Total liabilities....... $ 8,280
Total current assets... $13,680
Office equipment.......... $5,000 Shannon Burns,
Less accum. depr....... 100 capital....................... 10,300
Total property, plant,
and equipment...... 4,900 Total liabilities and
Total assets...................... $18,580 owner’s equity......... $18,580
3. JOURNAL Page 4
Post.
Closing Entries
2006
May 31 Fees Earned.................................................. 41 14,810
Income Summary.................................... 33 14,810
31 Income Summary.......................................... 33 12,260
Wages Expense...................................... 50 2,930
Office Rent Expense............................... 51 2,600
Equipment Rent Expense...................... 52 1,150
Utilities Expense..................................... 53 860
Music Expense........................................ 54 1,780
Advertising Expense.............................. 55 1,300
Supplies Expense................................... 56 930
Depreciation Expense............................ 58 100
Miscellaneous Expense......................... 59 470
31 Income Summary.......................................... 33 2,550
Shannon Burns, Capital......................... 31 2,550
31 Shannon Burns, Capital............................... 31 2,250
Shannon Burns, Drawing....................... 32 2,250
3.
Cash 11
Post. Balance
2006
May 1 Balance....................  ............. ............. 6,160 .............
1 .................................. 1 3,000 ............. 9,160 .............
1 .................................. 1 ............. 1,600 7,560 .............
1 .................................. 1 ............. 3,360 4,200 .............
2 .................................. 1 1,200 ............. 5,400 .............
3 .................................. 1 4,800 ............. 10,200 .............
3 .................................. 1 ............. 250 9,950 .............
4 .................................. 1 ............. 150 9,800 .............
8 .................................. 1 ............. 200 9,600 .............
11 .................................. 1 600 ............. 10,200 .............
13 .................................. 1 ............. 500 9,700 .............
14 .................................. 1 ............. 1,200 8,500 .............
16 .................................. 2 1,100 ............. 9,600 .............
21 .................................. 2 ............. 240 9,360 .............
22 .................................. 2 ............. 500 8,860 .............
23 .................................. 2 400 ............. 9,260 .............
27 .................................. 2 ............. 560 8,700 .............
28 .................................. 2 ............. 1,200 7,500 .............
29 .................................. 2 ............. 170 7,330 .............
30 .................................. 2 600 ............. 7,930 .............
31 .................................. 2 2,000 ............. 9,930 .............
31 .................................. 2 ............. 600 9,330 .............
31 .................................. 2 ............. 2,000 7,330 .............
2006
May 1 Balance....................  ............. ............. 1,200 .............
2 .................................. 1 ............. 1,200 — —
23 .................................. 2 1,160 ............. 1,160 .............
30 .................................. 2 600 ............. 1,760 .............
31 Adjusting................. 3 1,200 ............. 2,960 .............
Supplies 14
Post. Balance
2006
May 1 Balance....................  ............. ............. 170 .............
18 .................................. 2 750 ............. 920 .............
31 Adjusting................. 3 ............. 750 170 .............
2006
May 1 .................................. 1 3,360 ............. 3,360 .............
31 Adjusting................. 3 ............. 140 3,220 .............
Office Equipment 17
2006
May 5 .................................. 1 5,000 ............. 5,000 .............
Accumulated Depreciation—Office Equipment 18

2006
May 31 Adjusting................. 3 ............. 100 ............. 100
Accounts Payable 21
2006
May 1 Balance....................  ............. ............. ............. 250
3 .................................. 1 250 ............. — —
5 .................................. 1 ............. 5,000 ............. 5,000
18 .................................. 2 ............. 750 ............. 5,750
Wages Payable 22
2006
May 31 Adjusting................. 3 ............. 130 ............. 130
Unearned Revenue 23
2006
May 3 .................................. 1 ............. 4,800 ............. 4,800
31 Adjusting................. 3 2,400 ............. ............. 2,400
Shannon Burns, Capital 31
Post. Balance
2006
May 1 Balance....................  ............. ............. ............. 7,000
1 .................................. 1 ............. 3,000 ............. 10,000
31 Closing.................... 4 ............. 2,550 ............. 12,550
Closing.................... 4 2,250 ............. ............. 10,300
Shannon Burns, Drawing 32

2006
May 1 Balance....................  ............. ............. 250 .............
31 .................................. 2 2,000 ............. 2,250 .............
31 Closing.................... 4 ............. 2,250 — —
Income Summary 33
2006
May 31 Closing.................... 4 ............. 14,810 ............. 14,810
31 Closing.................... 4 12,260 ............. ............. 2,550
31 Closing.................... 4 2,550 ............. — —
Fees Earned 41
2006
May 1 Balance....................  ............. ............. ............. 4,750
11 .................................. 1 ............. 600 ............. 5,350
16 .................................. 2 ............. 1,100 ............. 6,450
23 .................................. 2 ............. 1,560 ............. 8,010
30 .................................. 2 ............. 1,200 ............. 9,210
31 .................................. 2 ............. 2,000 ............. 11,210
31 Adjusting................. 3 ............. 1,200 ............. 12,410
31 Adjusting................. 3 ............. 2,400 ............. 14,810
31 Closing.................... 4 14,810 ............. — —
Wages Expense 50
2006
May 1 Balance....................  ............. ............. 400 .............
14 .................................. 1 1,200 ............. 1,600 .............
28 .................................. 2 1,200 ............. 2,800 .............
31 Adjusting................. 3 130 ............. 2,930 .............
31 Closing.................... 4 ............. 2,930 — —
Office Rent Expense 51
Post. Balance
2006
May 1 Balance....................  ............. ............. 1,000 .............
1 .................................. 1 1,600 ............. 2,600 .............
31 Closing.................... 4 ............. 2,600 — —
Equipment Rent Expense 52

2006
May 1 Balance....................  ............. ............. 650 .............
13 .................................. 1 500 ............. 1,150 .............
31 Closing.................... 4 ............. 1,150 — —
2006
May 1 Balance....................  ............. ............. 300 .............
27 .................................. 2 560 ............. 860 .............
31 Closing.................... 4 ............. 860 — —
Music Expense 54
2006
May 1 Balance....................  ............. ............. 940 .............
21 .................................. 2 240 ............. 1,180 .............
31 .................................. 2 600 ............. 1,780 .............
31 Closing.................... 4 ............. 1,780 — —
Advertising Expense 55
2006
May 1 Balance....................  ............. ............. 600 .............
8 .................................. 1 200 ............. 800 .............
22 .................................. 2 500 ............. 1,300 .............
31 Closing.................... 4 ............. 1,300 — —
Supplies Expense 56
2006
May 1 Balance....................  ............. ............. 180 .............
31 Adjusting................. 3 750 ............. 930 .............
31 Closing.................... 4 ............. 930 — —
Continuing Problem Concluded
Post. Balance
2006
May 31 Adjusting................. 3 140 ............. 140 .............
31 Closing.................... 4 ............. 140 — —
Depreciation Expense 58
2006
May 31 Adjusting................. 3 100 ............. 100 .............
31 Closing.................... 4 ............. 100 — —
2006
May 1 Balance....................  ............. ............. 150 .............
4 .................................. 1 150 ............. 300 .............
29 .................................. 2 170 ............. 470 .............
31 Closing.................... 4 ............. 470 — —
4.
DANCIN MUSIC
May 31, 2006
Cash...................................................................................... 7,330
Supplies................................................................................ 170
Office Equipment................................................................. 5,000
Accumulated Depreciation—Office Equipment............... 100
Wages Payable.................................................................... 130
Unearned Revenue.............................................................. 2,400
Shannon Burns, Capital..................................................... 10,300
18,680 18,680
COMPREHENSIVE PROBLEM 1
1. and 2. JOURNAL Pages 1 and 2

Post.
Date Description Ref. Debit Credit
2006
April 1 Cash............................................................... 11 13,100
Accounts Receivable................................... 12 3,000
Supplies......................................................... 14 1,400
Office Equipment.......................................... 18 12,500
Kelly Pitney, Capital............................... 31 30,000
1 Prepaid Rent.................................................. 15 4,800
Cash......................................................... 11 4,800
2 Prepaid Insurance........................................ 16 1,800
Cash......................................................... 11 1,800
4 Cash............................................................... 11 5,000
Unearned Fees........................................ 23 5,000
5 Office Equipment.......................................... 18 2,000
Accounts Payable................................... 21 2,000
6 Cash............................................................... 11 1,800
Accounts Receivable............................. 12 1,800
10 Miscellaneous Expense............................... 59 120
Cash......................................................... 11 120
12 Accounts Payable........................................ 21 1,200
Cash......................................................... 11 1,200
12 Accounts Receivable................................... 12 4,200
Fees Earned............................................. 41 4,200
14 Salary Expense............................................. 51 750
Cash......................................................... 11 750
17 Cash............................................................... 11 6,250
Fees Earned............................................. 41 6,250
18 Supplies......................................................... 14 800
Cash......................................................... 11 800
Fees Earned............................................. 41 2,100
24 Cash............................................................... 11 3,850
Fees Earned............................................. 41 3,850
Comp. Prob. 1 Continued
1. and 2. JOURNAL Pages 1 and 2

Post.
Date Description Ref. Debit Credit
2006
April 26 Cash............................................................... 11 5,600
Accounts Receivable............................. 12 5,600
27 Salary Expense............................................. 51 750
Cash......................................................... 11 750
Cash......................................................... 11 130
Cash......................................................... 11 200
30 Cash............................................................... 11 3,050
Fees Earned............................................. 41 3,050
Fees Earned............................................. 41 1,500
30 Kelly Pitney, Drawing................................... 32 6,000
Cash......................................................... 11 6,000
2., 5., and 6.

Cash 11
Post. Balance
2006
April 1 .................................. 1 13,100 ............. 13,100 .............
1 .................................. 1 ............. 4,800 8,300 .............
2 .................................. 1 ............. 1,800 6,500 .............
4 .................................. 1 5,000 ............. 11,500 .............
6 .................................. 1 1,800 ............. 13,300 .............
10 .................................. 1 ............. 120 13,180 .............
12 .................................. 1 ............. 1,200 11,980 .............
14 .................................. 1 ............. 750 11,230 .............
17 .................................. 2 6,250 ............. 17,480 .............
18 .................................. 2 ............. 800 16,680 .............
24 .................................. 2 3,850 ............. 20,530 .............
26 .................................. 2 5,600 ............. 26,130 .............
27 .................................. 2 ............. 750 25,380 .............
29 .................................. 2 ............. 130 25,250 .............
30 .................................. 2 ............. 200 25,050 .............
30 .................................. 2 3,050 ............. 28,100 .............
30 .................................. 2 ............. 6,000 22,100 .............
2006
April 1 .................................. 1 3,000 ............. 3,000 .............
6 .................................. 1 ............. 1,800 1,200 .............
12 .................................. 1 4,200 ............. 5,400 .............
20 .................................. 2 2,100 ............. 7,500 .............
26 .................................. 2 ............. 5,600 1,900 .............
30 .................................. 2 1,500 ............. 3,400 .............
Supplies 14
2006
April 1 .................................. 1 1,400 ............. 1,400 .............
18 .................................. 2 800 ............. 2,200 .............
30 Adjusting................. 3 ............. 850 1,350 .............
Prepaid Rent 15
Post. Balance
2006
April 1 .................................. 1 4,800 ............. 4,800 .............
30 Adjusting................. 3 ............. 1,600 3,200 .............
2006
April 2 .................................. 1 1,800 ............. 1,800 .............
30 Adjusting................. 3 ............. 300 1,500 .............
Office Equipment 18
2006
April 1 .................................. 1 12,500 ............. 12,500 .............
5 .................................. 1 2,000 ............. 14,500 .............
Accumulated Depreciation 19
2006
April 30 Adjusting................. 3 ............. 700 ............. 700
Accounts Payable 21
2006
April 5 .................................. 1 ............. 2,000 ............. 2,000
12 .................................. 1 1,200 ............. ............. 800
Salaries Payable 22
2006
April 30 Adjusting................. 3 ............. 120 ............. 120
Unearned Fees 23
2006
April 4 .................................. 1 ............. 5,000 ............. 5,000
30 Adjusting................. 3 2,500 ............. ............. 2,500
Kelly Pitney, Capital 31

Post. Balance
2006
April 1 .................................. 1 ............. 30,000 ............. 30,000
30 Closing.................... 4 ............. 17,930 ............. 47,930
30 Closing.................... 4 6,000 ............. ............. 41,930
Kelly Pitney, Drawing 32

2006
April 30 .................................. 2 6,000 ............. 6,000 .............
30 Closing.................... 4 ............. 6,000 — —
Income Summary 33
2006
April 30 Closing.................... 4 ............. 23,450 ............. 23,450
30 Closing.................... 4 5,520 ............. ............. 17,930
30 Closing.................... 4 17,930 ............. — —
Fees Earned 41
2006
April 12 .................................. 1 ............. 4,200 ............. 4,200
17 .................................. 2 ............. 6,250 ............. 10,450
20 .................................. 2 ............. 2,100 ............. 12,550
24 .................................. 2 ............. 3,850 ............. 16,400
30 .................................. 2 ............. 3,050 ............. 19,450
30 .................................. 2 ............. 1,500 ............. 20,950
30 Adjusting................. 3 ............. 2,500 ............. 23,450
30 Closing.................... 4 23,450 ............. — —
Salary Expense 51
2006
April 14 .................................. 1 750 ............. 750 .............
27 .................................. 2 750 ............. 1,500 .............
30 Adjusting................. 3 120 ............. 1,620 .............
30 Closing.................... 4 ............. 1,620 — —
Rent Expense 52
Post. Balance
2006
April 30 Adjusting................. 3 1,600 ............. 1,600 .............
30 Closing.................... 4 ............. 1,600 — —
Supplies Expense 53
2006
April 30 Adjusting................. 3 850 ............. 850 .............
30 Closing.................... 4 ............. 850 — —
Depreciation Expense 54
2006
April 30 Adjusting................. 3 700 ............. 700 .............
30 Closing.................... 4 ............. 700 — —
2006
April 30 Adjusting................. 3 300 ............. 300 .............
30 Closing.................... 4 ............. 300 — —
2006
April 10 .................................. 1 120 ............. 120 .............
29 .................................. 2 130 ............. 250 .............
30 .................................. 2 200 ............. 450 .............
30 Closing.................... 4 ............. 450 — —
3.
HIPPOCRATES CONSULTING
Work Sheet
For the Month Ended April 30, 2006
1 Cash................................. 22,100 ............... ............... ............... 22,100 ............... ............... ............... 22,100 ............. 1
2 Accounts Receivable..... 3,400 ............... ............... ............... 3,400 ............... ............... ............... 3,400 ............. 2
3 Supplies.......................... 2,200 ............... ............... (b) 850 1,350 ............... ............... ............... 1,350 ............. 3
4 Prepaid Rent................... 4,800 ............... ............... (e) 1,600 3,200 ............... ............... ............... 3,200 ............. 4
5 Prepaid Insurance.......... 1,800 ............... ............... (a) 300 1,500 ............... ............... ............... 1,500 ............. 5
6 Office Equipment........... 14,500 ............... ............... ............... 14,500 ............... ............... ............... 14,500 ............. 6
7 Accum. Depreciation..... ............... ............... ............... (c) 700 ............... 700 ............... ............... ............... 700 7
8 Accounts Payable.......... ............... 800 ............... ............... ............... 800 ............... ............... ............... 800 8
9 Salaries Payable............. ............... ............... ............... (d) 120 ............... 120 ............... ............... ............... 120 9
10 Unearned Fees................ ............... 5,000 (f) 2,500 ............... ............... 2,500 ............... ............... ............... 2,500 10
11 Kelly Pitney, Capital....... ............... 30,000 ............... ............... ............... 30,000 ............... ............... ............... 30,000 11
12 Kelly Pitney, Drawing..... 6,000 ............... ............... ............... 6,000 ............... ............... ............... 6,000 ............. 12
13 Fees Earned.................... ............... 20,950 ............... (f) 2,500 ............... 23,450 ............... 23,450 ............... ............. 13
14 Salary Expense............... 1,500 ............... (d) 120 ............... 1,620 ............... 1,620 ............... ............... ............. 14
15 Rent Expense................. ............... ............... (e) 1,600 ............... 1,600 ............... 1,600 ............... ............... ............. 15
16 Supplies Expense........... ............... ............... (b) 850 ............... 850 ............... 850 ............... ............... ............. 16
17 Depreciation Expense.... ............... ............... (c) 700 ............... 700 ............... 700 ............... ............... ............. 17
18 Insurance Expense......... ............... ............... (a) 300 ............... 300 ............... 300 ............... ............... ............. 18
19 Miscellaneous Expense. 450 ............... ............... ............... 450 ............... 450 ............... ............... ............. 19
20 56,750 56,750 6,070 6,070 57,570 57,570 5,520 23,450 52,050 34,120 20
21 Net income...................... 17,930 ............... ............... 17,930 21
22 23,450 23,450 52,050 52,050 22
4.
Income Statement
Fees earned.......................................................................... $ 23,450
Operating expenses:
Salary expense............................................................. $1,620
Rent expense................................................................ 1,600
Net income........................................................................... $ 17,930
Kelly Pitney, capital, April 1, 2006..................................... $ 0
Additional investments during the month....................... 30,000
Total...................................................................................... $30,000
Kelly Pitney, capital, April 30, 2006................................... $ 41,930
Balance Sheet
April 30, 2006
Assets Liabilities
Cash............................. $22,100 Accounts payable.... $ 800
Accounts receivable. . 3,400 Salaries payable...... 120
Supplies...................... 1,350 Unearned fees.......... 2,500
Prepaid rent................ 3,200 Total liabilities....... $ 3,420
Prepaid insurance...... 1,500
Total current assets $31,550
Property, plant, and Owner’s Equity
equipment:.................. Kelly Pitney,
Office equipment........ $14,500 capital....................... 41,930
Less accum. depr.... 700 13,800 Total liabilities and
Total assets................... $ 45,350 owner’s equity......... $ 45,350
5. JOURNAL Page 3
Post.
Adjusting Entries
2006
April 30 Insurance Expense....................................... 55 300
30 Supplies Expense......................................... 53 850
Supplies................................................... 14 850
30 Depreciation Expense.................................. 54 700
Accumulated Depreciation.................... 19 700
30 Salary Expense............................................. 51 120
Salaries Payable...................................... 22 120
30 Rent Expense................................................ 52 1,600
Prepaid Rent............................................ 15 1,600
30 Unearned Fees.............................................. 23 2,500
Fees Earned............................................. 41 2,500
Comp. Prob. 1 Concluded
6. JOURNAL Page 4
Post.
Closing Entries
2006
April 30 Fees Earned.................................................. 41 23,450
Income Summary.................................... 33 23,450
30 Income Summary.......................................... 33 5,520
Salary Expense....................................... 51 1,620
Rent Expense.......................................... 52 1,600
Supplies Expense................................... 53 850
Depreciation Expense............................ 54 700
Miscellaneous Expense......................... 59 450
30 Income Summary.......................................... 33 17,930
Kelly Pitney, Capital............................... 31 17,930
30 Kelly Pitney, Capital..................................... 31 6,000
Kelly Pitney, Drawing............................. 32 6,000
7.
April 30, 2006
Cash...................................................................................... 22,100
Supplies................................................................................ 1,350
Prepaid Rent........................................................................ 3,200
Office Equipment................................................................. 14,500
Accumulated Depreciation................................................. 700
Accounts Payable............................................................... 800
Salaries Payable.................................................................. 120
Unearned Fees..................................................................... 2,500
Kelly Pitney, Capital............................................................ 41,930
Totals............................................................................. 46,050 46,050
SPECIAL ACTIVITIES
Activity 4–1
It is unacceptable to prepare financial statements in such a way that users of the

statements would be misled. The July 31, 2006 balance sheet of Lighthouse Co.
could be misleading in two ways. First, the account receivable from Ron should
be segregated and reported separately from trade (customer) receivables. Such
receivables are normally reported as “officer receivables” or “other receivables”
and accompanied by a footnote disclosing the nature of the receivable. Such
disclosure is required for what are termed “related-party transactions.” Second,
given that the receivable has been outstanding since February 2005, it is
questionable whether the receivable from Ron should be classified as a current
asset. Robin could justify the classification as “current” if Ron has agreed to a
written schedule for repaying within the next year. Alternatively, the receivable
could be classified as current if it has been converted to a note receivable with a
specific due date within the next year.
In summary, because of the preceding issues, it appears that Robin is not

behaving in a professional manner. Note: It is a criminal offense to submit false
or misleading documents to a bank in applying for a loan.
Activity 4–2
1. (a) With the decreasing cost of computers and related software, Goliath
Supplies Co. may find it desirable to computerize its financial reporting
system. In many cases, the computerization of a manual accounting
system reduces the overall cost of the accounting function.
(b) A computerized accounting system would allow for eliminating the work
sheet, and thus, financial statements could be prepared with “a push of a
button.” However, adjustment data would still need to be recorded at the
end of the accounting period before the financial statements could be
prepared.
(c) In designing a computerized financial reporting (accounting) system, it is
essential that proper accounting principles, concepts, and procedures be
followed. At a minimum, basic controls such as the use of the double-
entry accounting system should be included. For example, debits must
equal credits for all transactions, and assets must equal liabilities plus
owner’s equity. In addition, the system should be designed to detect
obvious errors, such as a credit (minus) balance for supplies or prepaid
insurance. In other words, to design an adequate financial reporting
system, a computer programmer must have a thorough understanding of
accounting and the accounting cycle.
Note: Numerous accounting software packages, similar to the Power
Accounting System Software (P.A.S.S.) package accompanying this text,
are available. Therefore, it would probably be better for Goliath Supplies
Co. to purchase an existing accounting software package rather than
trying to design its own.
2. Supplies cannot have a credit balance, since the supplies account is an asset
account. A business cannot have a “negative” asset. Thus, the only way that
a credit balance could have occurred in supplies is the result of an error in
recording one or more transactions.
Activity 4–3
1. A set of financial statements provides useful information concerning the

economic condition of a company. For example, the balance sheet describes
the financial condition of the company as of a given date and is useful in
assessing the company’s financial soundness and liquidity. The income
statement describes the results of operations for a period and indicates the
profitability of the company. The statement of owner’s equity describes the
changes in the owner’s interest in the company for a period. Each of these
statements is useful in evaluating whether to extend credit to the company.
2. The following adjustments might be necessary before an accurate set of

financial statements could be prepared:
 No supplies expense is shown. The supplies account should be adjusted
for the supplies used during the year.
 No depreciation expense is shown for the trucks or equipment accounts.
An adjusting entry should be prepared for depreciation expense on each
of these assets.
 An inquiry should be made as to whether any accrued expenses, such as
wages or utilities, exist at the end of the year.
 An inquiry should be made as to whether any prepaid expenses, such as
rent or insurance, exist at the end of the year.
 An inquiry should be made as to whether the owner withdrew any funds
from the company during the year. No drawing account is shown in the
"Statement of Accounts."
 The following items should be relabeled for greater clarity:
Billings Due from Others—Accounts Receivable
Amounts Owed to Others—Accounts Payable
Investment in Business—Samantha Joyner, Capital
Other Expenses—Miscellaneous Expense
Note to Instructors: The preceding items are not intended to include all
adjustments that might exist in the Statement of Accounts. The possible
adjustments listed include only items that have been covered in Chapters 1–4.
For example, uncollectible accounts expense (discussed in a later chapter) is
not mentioned.
Activity 4–3 Concluded
3. In general, the decision to extend a loan is based upon an assessment of the

profitability and riskiness of the loan. Although the financial statements
provide useful data for this purpose, other factors such as the following
might also be significant:
 The due date and payment terms of the loan.
 Security for the loan. For example, whether Samantha Joyner is willing to
pledge personal assets in support of the loan will affect the riskiness of
the loan.
 The intended use of the loan. For example, if the loan is to purchase real
estate (possibly for a future building site), the real estate could be used as
security for the loan.
 The projected profitability of the company.
Activity 4–4
Note to Instructors: The purpose of this activity is to familiarize students with the
information that a balance sheet provides about a company.
Activity 4–5
1. The primary factor that affects the demand for carpet is the demand for
housing. Some of the factors affecting the demand for housing, and thus
carpet, include the following:
a. Periods of economic growth tend to increase the demand for housing
and, thus, carpet.
b. A growing population tends to increase the demand for housing and,
thus, carpet.
c. Increasing house sizes increases the demand for carpet.
d. Increasing demand for vacation and second homes increases the demand
for carpet.
2. The objective of this question is to make the students think strategically.

The primary advantage for Mohawk of viewing itself as a floorcovering
manufacturer is that the company will become more flexible and forward in its
strategic and operational thinking. This may allow the company to more easily
take advantage of floorcovering opportunities beyond carpets. For example,
the current trend among consumers is to shift away from carpets to hardwood
flooring, ceramic tile, vinyl, rubber, and laminated products. Without an ability
or willingness to shift to other types of floorcovering, Mohawk may lose
market share and profitability.
The primary disadvantage for Mohawk of viewing itself as a floorcovering
manufacturer is that the company may not have the core competencies to
manufacture other types of floorcoverings. That is, Mohawk may not be able
to manufacture other types of floorcoverings at competitive prices.
3. Mohawk views itself as “a leading producer of floorcovering products for

residential and commercial applications.” Thus, Mohawk views itself as a
floorcovering manufacturer. In 2002, Mohawk acquired Dal-Tile International,
a leading manufacturer and retailer of ceramic tile and natural stone flooring.
In addition, Mohawk is rumored to be searching to buy manufacturers of
hardwood and laminated wood flooring. Thus, Mohawk is strategically
expanding its product line beyond carpets into other types of floorcoverings.

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CHAPTER 4

COMPLETING THE ACCOUNTING CYCLE

ITHACA SERVICES CO.

ITHACA SERVICES CO.

ITHACA SERVICES CO.

ITHACA SERVICES CO.

LARYNX MESSENGER SERVICE

SIROCCO SERVICES CO.

SYNTHESIS SYSTEMS CO.

2. Accounts payable should be a current liability.

3. Land should be classified as property, plant, and equipment.

4. "Accumulated depreciation" should be deducted from the related fixed asset.

6. Accounts receivable should be a current asset.

7. Net loss should be reported on the income statement.

8. Wages payable should be a current liability.

A corrected balance sheet would be as follows:

WARBURG SERVICES CO.

Accounts Receivable................................................. 4,100

a. Income Summary............................................................. 167,550

b. $284,900 ($142,350 + $167,550 – $25,000)

Mar. 31 Fees Earned.......................................................... 180,700

RHOMBIC REPAIRS CO.

a. 2003 working capital: $3,882 ($11,917 – $8,035)

a. (1) Sales Salaries Expense.............................................. 6,480

b. (1) Salaries Payable.......................................................... 6,480

Appendix Ex. 4–29

a. (1) Payment (last payday in year)

(2) Adjusting (accrual of wages at end of year)

(5) Payment (first payday in following year)

b. (1) Wages Expense........................................................... 45,000

LITHIUM SERVICES CO.

LITHIUM SERVICES CO.

Natasha Morrow, Capital 31

Natasha Morrow, Drawing 32

Accounts Receivable...................................................... 2,800

7. $195,300 ÷ $205,580 = 95%

1., 3., and 6.

Jason Hoyt, Capital 31

Jason Hoyt, Drawing 32

1. THE UTOPIA LAUNDROMAT

THE UTOPIA LAUNDROMAT

THE UTOPIA LAUNDROMAT

LITHIUM SERVICES CO.

LITHIUM SERVICES CO.

Natasha Morrow, Capital 31

Natasha Morrow, Drawing 32

7. $69,470 ÷ $185,700 = 37.4%

1., 3., and 6.

Ernie Richt, Capital 31

Ernie Richt, Drawing 32

Accumulated Depreciation—Office Equipment 18

Shannon Burns, Drawing 32

Equipment Rent Expense 52

1. and 2. JOURNAL Pages 1 and 2

1. and 2. JOURNAL Pages 1 and 2

2., 5., and 6.

Kelly Pitney, Capital 31

Kelly Pitney, Drawing 32

It is unacceptable to prepare financial statements in such a way that users of the

In summary, because of the preceding issues, it appears that Robin is not