Solution manual accounting principles 9e by kieso kimmel chapter 04

2A Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance.. 3A Prepare financial statements, closing entries, and post-closing trial balance..

Completing the Accounting CycleASSIGNMENT CLASSIFICATION TABLE

Brief

A Problems

B Problems

* 2 Explain the process

of closing the books.

6, 7, 11, 12

* 3 Describe the content and

* 4 State the required steps

in the accounting cycle.

* 6 Identify the sections of a

classified balance sheet.

*7 Prepare reversing entries 10, 20, 21 12 18, 19

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix * to the chapter.

ASSIGNMENT CHARACTERISTICS TABLE

Problem

Difficulty Level

Time Allotted (min.)

1A Prepare worksheet, financial statements, and adjusting

and closing entries.

2A Complete worksheet; prepare financial statements,

closing entries, and post-closing trial balance.

3A Prepare financial statements, closing entries, and

post-closing trial balance.

4A Complete worksheet; prepare classified balance sheet,

entries, and post-closing trial balance.

6A Analyze errors and prepare correcting entries and trial

balance.

1B Prepare worksheet, financial statements, and adjusting

and closing entries.

2B Complete worksheet; prepare financial statements,

closing entries, and post-closing trial balance.

3B Prepare financial statements, closing entries, and

post-closing trial balance.

4B Complete worksheet; prepare classified balance sheet,

entries, and post-closing trial balance.

Comprehensive Problem: Chapters 2 to 4

COMPLETING THE ACCOUNTING CYCLE

COMPLETING THE ACCOUNTING CYCLE (Continued)

Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems Study Objective

Describe the content and pu

State the required steps in the accounting cycle.

Q4-11 Q4-12 BE4-8 Q4-10 E4-10 E4-19 P4-5A P4-5B

Explain the approaches to pre

Q4-19 BE4-10 DI4-3 E4-3 E4-9 E4-14

E4-16 E4-17 P4-2A P4-3A P4-2B P4-3B P4-1A P4-4A P4-5A P4-1B P4-4B P4-5B

Q4-10 Q4-20

Q4-21 BE4-12 E4-18 E4-19

5. Formal financial statements are needed because the columnar data are not properly arranged and classified for statement purposes For example, a drawing account is listed with assets.

6. (1) (Dr) Individual revenue accounts and (Cr) Income Summary.

(2) (Dr) Income Summary and (Cr) Individual expense accounts.

(3) (Dr) Income Summary and (Cr) Owner’s Capital (for net income).

(4) (Dr) Owner’s Capital and (Cr) Owner’s Drawing.

7. Income Summary is a temporary account that is used in the closing process The account is debited for expenses and credited for revenues The difference, either net income or loss, is then closed to the owner’s capital account.

8. The post-closing trial balance contains only balance sheet accounts Its purpose is to prove the equality of the permanent account balances that are carried forward into the next accounting period.

9. The accounts that will not appear in the post-closing trial balance are Depreciation Expense; Jennifer Shaeffer, Drawing; and Service Revenue.

10. A reversing entry is the exact opposite, both in amount and in account titles, of an adjusting entry and is made at the beginning of the new accounting period Reversing entries are an optional step in the accounting cycle.

11. The steps that involve journalizing are: (1) journalize the transactions, (2) journalize the adjusting entries, and (3) journalize the closing entries.

12. The three trial balances are the: (1) trial balance, (2) adjusted trial balance, and (3) post-closing trial balance.

13. Correcting entries differ from adjusting entries because they: (1) are not a required part of the accounting cycle, (2) may be made at any time, and (3) may affect any combination of accounts.

* 14 The standard classifications in a balance sheet are:

Intangible Assets

* 15 A company’s operating cycle is the average time required to go from cash to cash in producing

revenues The operating cycle of a company is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.

* 16 Current assets are assets that a company expects to convert to cash or use up in one year Some

companies use a period longer than one year to classify assets and liabilities as current because they have an operating cycle longer than one year Companies usually list current assets in the order

in which they expect to convert them into cash.

* 17 Long-term investments are generally investments in stocks and bonds of other companies that

are normally held for many years Property, plant, and equipment are assets with relatively long useful lives that a company is currently using in operating the business.

* 18 (a) The owner’s equity section for a corporation is called stockholders’ equity.

(b) The two accounts and the purpose of each are: (1) Capital stock is used to record ments of assets in the business by the owners (stockholders) (2) Retained earnings is used

invest-to record net income retained in the business.

* 19 . PepsiCo’s current liabilities at December 29, 2007 and December 30, 2006 were $7,753 million and $6,860 million respectively PepsiCo’s current liabilities were significantly lower than its current assets in both years.

*20 After reversing entries have been made, the balances will be Interest Payable, zero balance;

Interest Expense, a credit balance.

*21 (a) Jan 10 Salaries Expense 8,000

Cash 8,000 Because of the January 1 reversing entry that credited Salaries Expense for $3,500, Salaries Expense will have a debit balance of $4,500 which equals the expense for the current period (b) Jan 10 Salaries Payable 3,500

Salaries Expense 4,500 Cash 8,000 Note that Salaries Expense will again have a debit balance of $4,500.

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1

The steps in using a worksheet are performed in the following sequence: (1) prepare a trial balance on the worksheet, (2) enter adjustment data, (3) enter adjusted balances, (4) extend adjusted balances to appropriate statement columns and (5) total the statement columns, compute net income (loss), and complete the worksheet Filling in the blanks, the answers are 1, 3, 4, 5, 2.

The solution to BRIEF EXERCISE 4-2 is on page 4-9.

31 Income Summary 19,000

D Swann, Capital 19,000

BRIEF EXERCISE 4-5

Bal 27,000 (2) 27,000 (2) 31,000 (1) 50,000 (1) 50,000 Bal 50,000

(3) 19,000 50,000 50,000

Bal 4,000 (2) 4,000 (4) 2,000 Bal 30,000 Bal 2,000 (4) 2,000

(3) 19,000 Bal 47,000

Green Fee Revenue

1 Analyze business transactions.

2 Journalize the transactions.

3 Post to ledger accounts.

4 Prepare a trial balance.

5 Journalize and post adjusting entries.

6 Prepare an adjusted trial balance.

7 Prepare financial statements.

8 Journalize and post closing entries.

9 Prepare a post-closing trial balance.

Filling in the blanks, the answers are 4, 2, 8, 7, 5, 3, 9, 6, 1.

BRIEF EXERCISE 4-9

1 Service Revenue 780

Accounts Receivable 780

2 Accounts Payable ($1,750 – $1,570) 180

Store Supplies 180

BRIEF EXERCISE 4-10 DIAZ COMPANY Partial Balance Sheet Current assets

Cash $15,400 Short-term investments 6,700 Accounts receivable 12,500 Supplies 5,200 Prepaid insurance 3,600 Total current assets $43,400

BRIEF EXERCISE 4-11

CA Accounts receivable LTI Investment in long-term bonds

*BRIEF EXERCISE 4-12

Nov 1 Salaries Payable 1,400

Salaries Expense 1,400

The balances after posting the reversing entry are Salaries Expense (Cr.)

DO IT! 4-1

Income statement debit column—Utilities Expense

Income statement credit column—Service Revenue

Balance sheet debit column—Accounts Receivable

Balance sheet credit column—Notes Payable; Accumulated Depreciation;

Equipment 21,700

Less: Accumulated depreciation 5,700 16,000 Total assets $43,220

DO IT! 4-4

EXERCISE 4-1

BRISCOE COMPANY

Worksheet For the Month Ended June 30, 2010

EXERCISE 4-2

GOODE COMPANY (Partial) Worksheet For the Month Ended April 30, 2010

Adjusted Trial Balance

Income Statement Balance Sheet Account Titles Dr Cr Dr Cr Dr Cr.

GOODE COMPANY Income Statement For the Month Ended April 30, 2010 Revenues

Service revenue $15,590 Expenses

GOODE COMPANY Owner’s Equity Statement For the Month Ended April 30, 2010

T Goode, Capital, April 1 $30,960 Add: Net income 3,262

34,222 Less: Drawings 3,650

T Goode, Capital, April 30 $30,572

GOODE COMPANY Balance Sheet April 30, 2010

Assets Current assets

EXERCISE 4-3 (Continued)

GOODE COMPANY Balance Sheet (Continued)

April 30, 2010

Liabilities and Owner’s Equity Current liabilities

(c) GOODE COMPANY

Post-Closing Trial Balance

April 30, 2010

Debit Credit Cash $13,752 Accounts Receivable 7,840 Prepaid Rent 2,280 Equipment 23,050 Accumulated Depreciation $ 4,921 Notes Payable 5,700 Accounts Payable 5,672 Interest Payable 57

T Goode, Capital 30,572 $46,922 $46,922 EXERCISE 4-5 (a) Accounts Receivable 600

Service Revenue 600

Insurance Expense 400

Prepaid Insurance 400

Depreciation Expense 900

Accumulated Depreciation 900

Salaries Expense 500

Salaries Payable 500

(a) Service Revenue 4,064

Income Summary 4,064

Income Summary 3,828

Salaries Expense 1,344

Miscellaneous Expense 256

Supplies Expense 2,228 Income Summary 236

Emil Skoda, Capital 236

Emil Skoda, Capital 300

Emil Skoda, Drawing 300

(b) EMIL SKODA COMPANY Post-Closing Trial Balance For the Month Ended June 30, 2010 Account Titles Debit Credit Cash $3,712 Accounts Receivable 3,904 Supplies 480

Accounts Payable $1,792 Salaries Payable 448

Unearned Revenue 160 Emil Skoda, Capital 5,696

EXERCISE 4-8

(a)

July 31 Commission Revenue 404 65,000

(c) APACHI COMPANY

Post-Closing Trial Balance

July 31, 2010

Commission revenue $65,000

Rent revenue 6,500

Total revenues $71,500 Expenses

Salaries expense 55,700

Utilities expense 14,900

Depreciation expense 4,000

Total expenses 74,600 Net loss ($ 3,100)

EXERCISE 4-9 (Continued)

APACHI COMPANY Owner’s Equity Statement For the Year Ended July 31, 2010

B J Apachi, Capital, August 1, 2009 $45,200 Less: Net loss $ 3,100

Drawings 16,000 19,100

B J Apachi, Capital, July 31, 2010 $26,100

Balance Sheet July 31, 2010

Assets Current assets

Unearned rent revenue 1,800

Total current liabilities $ 6,020 Owner’s equity

B J Apachi, Capital 26,100

1. False “Analyze business transactions” is the first step in the accounting

at the end of a company’s annual accounting period.

7. False The step of “journalize the transactions” occurs before the step

of “post to the ledger accounts.”

8. False Closing entries are prepared after financial statements are prepared.

30 Income Summary 2,000

Nina Cole, Capital 2,000

30 Nina Cole, Capital 2,500

Nina Cole, Drawing 2,500

(b)

Income Summary June 30 13,100 June 30 15,100

June 30 2,000

15,100 15,100

1 Accounts Payable ($630 – $360) 270

Cash 270

2 Supplies 560

Equipment 56 Accounts Payable 504

Assets Current assets

Cash $18,040

Accounts receivable 14,520

Prepaid insurance 4,680

Property, plant, and equipment

EXERCISE 4-14 (Continued)

KARR BOWLING ALLEY Balance Sheet (Continued) December 31, 2010

Liabilities and Owner’s Equity Current liabilities

Current portion of note payable $13,900

S Karr, Capital ($115,000 + $3,440*) 118,440 Total liabilities and owner’s equity $231,120

*Net income = $14,180 – $780 – $7,360 – $2,600 = $3,440

(b) Current assets exceed current liabilities by $8,440 ($37,240 – $28,800).

In addition, approximately 50% of current assets are in the form of cash.

In sum, the company’s liquidity appears to be reasonably good.

EXERCISE 4-15

PPE Accumulated depreciation PPE Land

CL Salaries payable

R STEVENS COMPANY Balance Sheet December 31, 2010 (in thousands) Assets Current assets

Property, plant, and equipment 11,500

Less: Accumulated depreciation (5,655) 5,845 Total assets $16,299

Liabilities and Owner’s Equity Current liabilities

Notes payable (after 2011) 368

Total long-term liabilities 1,311 Total liabilities 3,236 Owner’s equity

R Stevens, Capital 13,063

EXERCISE 4-17

(a)

B SNYDER COMPANY Income Statement For the Year Ended July 31, 2010 Revenues

Commission revenue $61,100

Rent revenue 8,500

Total revenues $69,600 Expenses

Salaries expense 51,700

Utilities expense 22,600

Depreciation expense 4,000

Total expense 78,300 Net loss $ (8,700)

B SNYDER COMPANY Owner’s Equity Statement For the Year Ended July 31, 2010 Owner’s equity, August 1, 2009 $51,200 Less: Net loss $8,700

Drawings 4,000 12,700 Owner’s equity, July 31, 2010 $38,500

B SNYDER COMPANY Balance Sheet July 31, 2010

Assets Current assets

B Snyder, Capital 38,500 Total liabilities and owner’s equity $46,480

(b) Dec 31 Salaries Expense 4,000

THOMAS MAGNUM, P.I.

(b) THOMAS MAGNUM, P.I.

Income Statement For the Quarter Ended March 31, 2010 Revenues

Service revenue $14,150 Expenses

THOMAS MAGNUM, P.I.

Owner’s Equity Statement For the Quarter Ended March 31, 2010

T Magnum, Capital, January 1 $ 0 Add: Investment by owner $20,000

Net income 6,680 26,680 Less: Drawings 600

T Magnum, Capital, March 31 $26,080

PROBLEM 4-1A (Continued)

THOMAS MAGNUM, P.I.

Balance Sheet March 31, 2010

Assets Current assets

Mar 31 Accounts Receivable 530

31 Income Summary 6,680

T Magnum, Capital 6,680

31 T Magnum, Capital 600

T Magnum, Drawing 600

PROBLEM 4-2A

Partial Worksheet For the Year Ended December 31, 2010

Account

Adjusted Trial Balance

Income Statement

Balance Sheet

(b) PORTER COMPANY

Income Statement For the Year Ended December 31, 2010 Revenues

Service revenue $77,800 Expenses

PORTER COMPANY Owner’s Equity Statement For the Year Ended December 31, 2010

B Porter, Capital, January 1 $36,000 Add: Net income 10,100

46,100 Less: Drawings 12,000

B Porter, Capital, December 31 $34,100

PROBLEM 4-2A (Continued)

PORTER COMPANY Balance Sheet December 31, 2010

Assets Current assets

B Porter, Capital 34,100 Total liabilities and owner’s

equity $65,700

Dec 31 Service Revenue 400 77,800

Income Summary 350 77,800

31 Income Summary 350 67,700

Advertising Expense 610 12,000 Supplies Expense 631 3,700 Depreciation Expense 711 8,000 Insurance Expense 722 4,000 Salaries Expense 726 39,000 Interest Expense 905 1,000

PROBLEM 4-2A (Continued)

Salaries Expense No 726

Post-Closing Trial Balance December 31, 2010

B Porter, Capital 34,100

PROBLEM 4-3A

Income Statement For the Year Ended December 31, 2010 Revenues

Service revenue $44,000 Expenses

WOODS COMPANY Owner’s Equity Statement For the Year Ended December 31, 2010

S Woods, Capital, January 1 $30,000 Add: Additional investment by owner 4,000

34,000 Less: Net loss $4,600

Drawings 7,200 11,800

S Woods, Capital, December 31 $22,200

WOODS COMPANY Balance Sheet December 31, 2010

Assets Current assets