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B EXERCISES

4 E3-1B (Transaction Analysis—Service Company) Brown is a licensed CPA. During the first month of
operations of her business (a sole proprietorship), the following events and transactions occurred.
April 2 Invested $73,600 cash and equipment valued at $32,200 in the business.
2 Hired a secretary-receptionist at a salary of $667 per week, payable monthly.
3 Purchased supplies on account $1,610. (Debit an asset account.)
7 Paid office rent of $1,380 for the month.
11 Completed a tax assignment and billed client $2,530 for services rendered. (Use Service Revenue
account.)
12 Received $7,360 advance on a management consulting engagement.
17 Received cash of $5,290 for services completed for Calunga Co.
21 Paid insurance expense $253.
30 Paid secretary-receptionist $2,668 for the month.
30 A count of supplies indicated that $276 of supplies had been used.
30 Purchased a new computer for $14,030 with personal funds. (The computer will be used
exclusively for business purposes.)
Instructions
Journalize the transactions in the general journal. (Omit explanations.)
4 E3-2B (Corrected Trial Balance) The trial balance of Vista Company does not balance. Your review of the
ledger reveals the following: (a) Each account had a normal balance. (b) The credit footings in Prepaid In-
surance, Accounts Payable, and Advertising Expense were each understated $500. (c) A transposition error
was made in Accounts Receivable and Service Revenue; the correct balances for Accounts Receivable and
Service Revenue are $1,840 and $12,060, respectively. (d) A credit posting to Property Tax Expense of $380
was omitted. (e) A $2,000 cash drawing by the owner was debited to Vista, Capital, and credited to Cash.

VISTA COMPANY
TRIAL BALANCE
APRIL 30, 2014
Debit Credit
Cash $ 5,600
Accounts Receivable 2,380
Prepaid Insurance 900
Equipment $ 9,600
Accounts Payable 6,000
Property Tax Payable 1,200
Owner’s Capital 4,900
Service Revenue 12,600
Salaries and Wages Expense 6,150
Advertising Expense 600
Property Tax Expense 1,350
$16,830 $34,450

Instructions
Prepare a correct trial balance.
4 E3-3B (Corrected Trial Balance) The trial balance of Cervantes Corporation, below, does not balance.

CERVANTES CORPORATION
TRIAL BALANCE
APRIL 30, 2014
Debit Credit
Cash $11,824
Accounts Receivable 10,480
Supplies 5,934
Equipment 12,200
Accounts Payable $14,088
Common Stock 16,000
Retained Earnings 4,000
Service Revenue 10,400
Office Expense 8,640
$49,078 $44,488

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2 • Chapter 3 The Accounting Information System

An examination of the ledger shows these errors.

1. Cash received from a customer on account was recorded (both debit and credit) as $2,760 instead
of $3,660.
2. The purchase on account of a computer costing $6,400 was recorded as a debit to Office Expense
and a credit to Accounts Payable.
3. Services were performed on account for a client, $4,500, for which Accounts Receivable was deb-
ited $4,500 and Service Revenue was credited $450.
4. A payment of $190 for telephone charges was entered as a debit to Office Expenses and a debit to Cash.
5. The Service Revenue account was totaled at $10,400 instead of $10,560.
Instructions
From this information prepare a corrected trial balance.
4 E3-4B (Corrected Trial Balance) The trial balance of Vail Co. does not balance.

VAIL CO.
TRIAL BALANCE
JUNE 30, 2014
Debit Credit
Cash $ 1,650
Accounts Receivable $ 8,618
Supplies 1,200
Equipment 7,800
Accounts Payable 5,600
Unearned Service Revenue 600
Common Stock 10,000
Retained Earnings 2,038
Service Revenue 7,950
Salaries and Wages Expense 2,100
Office Expense 1,380
$21,698 $27,238

Each of the listed accounts should have a normal balance per the general ledger. An examination of the
ledger and journal reveals the following errors.
1. Cash received from a customer on account was debited for $160, and Accounts Receivable was
credited for the same amount. The actual collection was for $610.
2. The purchase of a computer printer on account for $850 was recorded as a debit to Supplies for
$850 and a credit to Accounts Payable for $850.
3. Services were performed on account for a client for $460. Accounts Receivable was debited for $60
and Service Revenue was credited for $460.
4. A payment of $150 for internet charges was recorded as a credit to Office Expense for $150 and a
credit to Cash for $150.
5. When the Unearned Service Revenue account was reviewed, it was found that service revenue
amounting to $200 was performed prior to June 30.
6. A debit posting to Salaries and Wages Expense of $1,200 was omitted.
7. A payment on account for $350 was credited to Cash for $350 and credited to Accounts Payable
for $350.
8. A dividend of $600 was debited to Salaries and Wages Expense for $600 and credited to Cash for $60.
Instructions
Prepare a correct trial balance. (Note: It may be necessary to add one or more accounts to the trial balance.)
5 E3-5B (Adjusting Entries) The ledger of Chan Rental Agency on March 31 of the current year includes
the following selected accounts before adjusting entries have been prepared.
Debit Credit
Prepaid Insurance $ 2,700
Supplies 2,100
Equipment 18,750
Accumulated Depreciation—Equipment $ 6,300
Notes Payable 15,000
Unearned Rent Revenue 6,975
Rent Revenue 45,000
Interest Expense –0–
Salaries and Wage Expense 10,500
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B Exercises • 3

An analysis of the accounts shows the following.

1. The equipment depreciates $188 per month.
2. One-third of the unearned rent was recognised as revenue during the quarter.
3. Interest of $375 is accrued on the notes payable.
4. Supplies on hand total $637.
5. Insurance expires at the rate of $225 per month.
Instructions
Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional
accounts are: Depreciation Expense; Insurance Expense; Interest Payable; and Supplies Expense.
5 E3-6B (Adjusting Entries) Cheng, D.D.S., opened a dental practice on January 1, 2014. During the first
month of operations the following transactions occurred.
1. Performed services for patients who had dental plan insurance. At January 31, $375 of such ser-
vices was performed but not yet billed to the insurance companies.
2. Utility expenses incurred but not paid prior to January 31 totaled $260.
3. Purchased dental equipment on January 1 for $40,000, paying $10,000 in cash and signing a
$30,000, 3-year note payable. The equipment depreciates $200 per month. Interest is $250 per
month.
4. Purchased a one-year malpractice insurance policy on January 1 for $6,000.
5. Purchased $800 of dental supplies. On January 31, determined that $250 of supplies were on hand.

Instructions
Prepare the adjusting entries on January 31. Account titles are:

Accumulated Depreciation—Equipment Interest Payable

Depreciation Expense Prepaid Insurance
Service Revenue Supplies
Accounts Receivable Supplies Expense
Insurance Expense Utilities Expense
Interest Expense Utilities Payable

5 E3-7B (Analyze Adjusted Data) A partial adjusted trial balance of Coy Company at January 31, 2014,
shows the following.

COY COMPANY
ADJUSTED TRIAL BALANCE
JANUARY 31, 2014
Debit Credit
Supplies $1,120
Prepaid Insurance 3,840
Salaries and Wages Payable $1,280
Unearned Revenue 1,200
Supplies Expense 1,520
Insurance Expense 640
Salaries and Wages Expense 2,880
Service Revenue 3,200

Instructions
Answer the following questions, assuming the year begins January 1.
(a) If the amount in Supplies Expense is the January 31 adjusting entry, and $1,360 of supplies was
purchased in January, what was the balance in Supplies on January 1?
(b) If the amount in Insurance Expense is the January 31 adjusting entry, and the original insur-
ance premium was for one year, what was the total premium and when was the policy
purchased?
(c) If $4,000 of salaries was paid in January, what was the balance in Salaries Payable at December 31,
2013?
(d) If $2,560 was received in January for services performed in January, what was the balance in Un-
earned Revenue at December 31, 2013?
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4 • Chapter 3 The Accounting Information System

5 E3-8B (Adjusting Entries) Dement is the new owner of Fung Computer Services. At the end of August
2014, his first month of ownership, Dement is trying to prepare monthly financial statements. Below is
some information related to unrecorded expenses that the business incurred during August.
1. At August 31, Dement owed his employees $2,280 in wages that will be paid on September 1.
2. At the end of the month he had not yet received the month’s utility bill. Based on past experience,
he estimated the bill would be approximately $720.
3. On August 1, Dement borrowed $36,000 from a local bank on a 15-year mortgage. The annual in-
terest rate is 6%.
4. A telephone bill in the amount of $140 covering August charges is unpaid at August 31.
Instructions
Prepare the adjusting journal entries as of August 31, 2014, suggested by the information above.
5 E3-9B (Adjusting Entries) Selected accounts of Conan Company are shown below.
Supplies Accounts Receivable

Beg. Bal. 1,200 8 ⁄ 31 712 8 ⁄ 17 12,100

8 ⁄ 31 3,600

Salaries and Wages Expense Salaries and Wages Payable

8 ⁄ 15 2,600 8 ⁄ 31 2,100
8 ⁄ 31 2,100

Unearned Service Revenue Supplies Expense

8 ⁄ 31 2,000 8 ⁄ 20 3,200 8 ⁄ 31 712

Service Revenue

8 ⁄ 17 12,100
8 ⁄ 31 3,600
8 ⁄ 31 2,000
Instructions
From an analysis of the T-accounts, reconstruct (a) the August transaction entries, and (b) the adjusting
journal entries that were made on August 31, 2014. Prepare explanations for each journal entry.
5 E3-10B (Adjusting Entries) Gonzalez Resort opened for business on June 1 with eight air-conditioned
units. Its trial balance on August 31 is as follows.
GONZALEZ RESORT
TRIAL BALANCE
AUGUST 31, 2014
Debit Credit
Cash $ 1,960
Prepaid Insurance 440
Supplies 260
Land 2,000
Buildings 12,000
Equipment 1,600
Accounts Payable $ 450
Unearned Rent Revenue 460
Mortgage Payable 6,000
Common Stock 9,100
Retained Earnings 890
Dividends 500
Rent Revenue 7,620
Salaries and Wages Expense 4,480
Utilities Expense 920
Maintenance and Repairs Expense 360
$24,520 $24,520

Other data:
1. The balance in prepaid insurance is a one-year premium paid on June 1, 2014.
2. An inventory count on August 31 shows $45 of supplies on hand.
3. Annual depreciation rates are cottages (10%) and furniture (15%). Salvage value is estimated to be
10% of cost.
4. Unearned Rent Revenue of $380 was earned prior to August 31.
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B Exercises • 5

5. Salaries of $38 were unpaid at August 31.

6. Rentals of $80 were due from tenants at August 31.
7. The mortgage interest rate is 6% per year.
Instructions
(a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31.
(b) Prepare an adjusted trial balance on August 31.
6 E3-11B (Prepare Financial Statements) The adjusted trial balance of Decimal Co. as of December 31,
2014, contains the following.

DECIMAL CO.
ADJUSTED TRIAL BALANCE
DECEMBER 31, 2014
Account Titles Dr. Cr.
Cash $ 6,590
Accounts Receivable 15,618
Prepaid Rent 1,200
Equipment 31,800
Accumulated Depreciation—Equipment $ 9,680
Notes Payable 12,500
Accounts Payable 11,601
Common Stock 20,000
Retained Earnings 3,619
Dividends 6,000
Service Revenue 27,600
Salaries and Wages Expense 15,600
Rent Expense 7,800
Depreciation Expense 392
Interest Expense 211
Interest Payable 211
$85,211 $85,211

Instructions
(a) Prepare an income statement.
(b) Prepare a statement of retained earnings.
(c) Prepare a classified balance sheet.
6 E3-12B (Prepare Financial Statements) Comp Corp. was founded by Kevin Flynn in January 2008. Pre-
sented below is the adjusted trial balance as of December 31, 2014.

COMP CORP.
ADJUSTED TRIAL BALANCE
DECEMBER 31, 2014
Dr. Cr.
Cash $ 2,500
Accounts Receivable 35,600
Supplies 7,100
Prepaid Insurance 3,000
Equipment 30,000
Accumulated Depreciation—Equipment $ 12,000
Accounts Payable 17,600
Interest Payable 200
Notes Payable 10,000
Unearned Service Revenue 2,100
Salaries and Wages Payable 400
Common Stock 20,000
Retained Earnings 7,060
Service Revenue 53,600
Salaries and Wages Expense 25,600
Insurance Expense 600
Interest Expense 960
Depreciation Expense 2,500
Supplies Expense 7,100
Rent Expense 8,000
$122,960 $122,960
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6 • Chapter 3 The Accounting Information System

Instructions
(a) Prepare an income statement and a statement of retained earnings for the year ending December
31, 2014, and an unclassified balance sheet at December 31.
(b) Answer the following questions.
(1) If the note has been outstanding 2 months, what is the annual interest rate on that note?
(2) If the company paid $26,400 in salaries in 2014, what was the balance in Salaries and Wages
Payable on December 31, 2013?
7 E3-13B (Closing Entries) The adjusted trial balance of Guevara Company shows the following data per-
taining to sales at the end of its fiscal year, October 31, 2014:
Sales $320,000 Sales Returns and Allowances $9,600
Freight-out $4,800 Sales Discounts $6,000

Instructions
(a) Prepare the sales revenues section of the income statement.
(b) Prepare separate closing entries for (1) sales, and (2) the contra accounts to sales.
7 E3-14B (Closing Entries) Presented below is information related to Crowe Corporation for the month of
January 2014.
Cost of goods sold $361,000 Salaries and Wages expense $201,000
Freight-out 22,500 Sales discounts 31,000
Insurance expense 12,000 Sales returns and allowances 21,500
Rent expense 32,000 Sales 812,000

Instructions
Prepare the necessary closing entries.
6 E3-15B (Missing Amounts) Presented below is financial information for two different companies.
Hirsch Company Ho Company
Sales $30,000 (d)
Sales returns (a) $ 1,600
Net sales 27,000 31,600
Cost of goods sold 18,600 (e)
Gross profit (b) 12,600
Operating expenses 5,000 7,600
Net income (c) 5,000

Instructions
Compute the missing amounts.
7 E3-16B (Closing Entries for a Corporation) Presented below are selected account balances for Kirby Co.
as of December 31, 2014.
Merchandise Inventory 12 ⁄ 31 ⁄ 14 $24,000 Sales $164,000
Common Stock 30,000 Cost of Goods Sold 90,280
Retained Earnings 18,000 Selling Expenses 6,400
Dividends 7,200 Administrative Expenses 15,200
Sales Returns and Allowances 4,800 Income Tax Expense 12,000
Sales Discounts 6,000

Instructions
Prepare closing entries for Kirby Co. on December 31, 2014.
4 E3-17B (Transactions of a Corporation, Including Investment and Dividend) Scott Loder opened Led-
ford Miniature Golf and Driving Range Inc. on March 1. The following selected events and transactions
occurred during March.
Mar. 1 Invested $62,500 cash in the business in exchange for common stock.
3 Purchased Moises Moreno’s Golf Land for $47,500 cash. The price consists of land
$12,500; building $27,500; and equipment $7,500. (Make one compound entry.)
5 Advertised the opening of the driving range and miniature golf course, paying
advertising expenses of $2,000.
6 Paid cash $1,850 for a one-year insurance policy.
10 Purchased golf equipment for $3,125 from Moore Company, payable in 30 days.
18 Received golf fees of $1,500 in cash.
25 Declared and paid a $625 cash dividend.
30 Paid wages of $1,125.
30 Paid Moore Company in full.
31 Received $950 of fees in cash.
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B Exercises • 7

Ledford uses the following accounts:

Cash Equipment Service Revenue
Prepaid Insurance Accounts Payable Advertising Expense
Land Common Stock Salaries and Wages Expense
Buildings Dividends

Instructions
Journalize the March transactions.

8 *E3-18B (Cash to Accrual Basis) June Murray, M.D., maintains the accounting records of Murray Clinic
on a cash basis. During 2014, Dr. Murray collected $285,200 from her patients and paid $110,940 in ex-
penses. At January 1, 2014, and December 31, 2014, she had accounts receivable, unearned service rev-
enue, accrued expenses, and prepaid expenses as follows. All long-lived assets are rented.

January 1, 2014 December 31, 2014

Accounts receivable $18,500 $31,854
Unearned service revenue 5,680 8,222
Accrued expenses 6,870 4,216
Prepaid expenses 3,834 6,464

Instructions
Prepare a schedule that converts Dr. Murray‘s “excess of cash collected over cash disbursed” for the year
2014 to net income on an accrual basis for the year 2014.

4 8 *E3-19B (Cash and Accrual Basis) Letterman Corp. maintains its financial records on the cash basis of ac-
counting. Interested in securing a long-term loan from its regular bank, Letterman Corp. requests you as
its independent CPA to convert its cash-basis income statement data to the accrual basis. You are pro-
vided with the following summarized data covering 2013, 2014, and 2015.

2013 2014 2015

Cash receipts from sales:
On 2013 sales $600,000 $201,000 $75,000
On 2014 sales –0– 701,000 161,000
On 2015 sales 602,000
Cash payments for expenses:
On 2013 expenses 360,000 42,000 25,000
On 2014 expenses 10,000a 406,000 71,000
On 2015 expenses 21,000b 451,000
a
Prepayments of 2014 expenses.
b
Prepayments of 2015 expenses.

Instructions
(a) Using the data above, prepare abbreviated income statements for the years 2013 and 2014 on the
cash basis.
(b) Using the data above, prepare abbreviated income statements for the years 2013 and 2014 on the
accrual basis.

5 9 *E3-20B (Adjusting and Reversing Entries) When the accounts of David Nguyen Inc. are examined, the
adjusting data listed below are uncovered on December 31, the end of an annual fiscal period.
1. The prepaid insurance account shows a debit of $7,200, representing the cost of a 2-year fire in-
surance policy dated August 1 of the current year.
2. On November 1, Rent Revenue was credited for $1,500, representing revenue from a subrental for
a 3-month period beginning on that date.
3. Purchase of advertising materials for $1,000 during the year was recorded in the Advertising Ex-
pense account. On December 31, advertising materials of $300 are on hand.
4. Interest of $850 has accrued on notes payable.

Instructions
Prepare the following in general journal form.
(a) The adjusting entry for each item.
(b) The reversing entry for each item where appropriate.

10 *E3-21B (Worksheet) Presented below are selected accounts for Avacado Company as reported in the
worksheet at the end of April 2014.
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8 • Chapter 3 The Accounting Information System

Adjusted Trial Balance Income Statement Balance Sheet

Accounts Debit Credit Debit Credit Debit Credit
Cash 26,000
Inventory 112,000
Sales 801,000
Sales Returns and Allowances 8,000
Sales Discounts 21,000
Cost of Goods Sold 468,500

Instructions
Complete the worksheet by extending amounts reported in the adjusted trial balance to the appropriate
columns in the worksheet. Do not total individual columns.
10 *E3-22B (Worksheet and Balance Sheet Presentation) The adjusted trial balance for Berkeley Co. is pre-
sented in the following worksheet for the month ended April 30, 2014.

BERKELEY CO.
Worksheet (PARTIAL)
For The Month Ended April 30, 2014

Adjusted Trial Balance Income Statement Balance Sheet

Account Titles Debit Credit Debit Credit Debit Credit
Cash $12,180
Accounts Receivable 21,316
Prepaid Rent 3,560
Equipment 36,510
Accumulated Depreciation—
Equipment $ 12,611
Notes Payable 21,000
Accounts Payable 9,654
Common Stock 26,610
Retaind Earnings, April 1, 2014 2,000
Dividends 12,000
Service Revenue 37,591
Salaries and Wages Expense 15,600
Rent Expense 7,100
Depreciation Expense 1,200
Interest Expense 1,050
Interest Payable 1,050

Instructions
Complete the worksheet and prepare a classified balance sheet.
10 *E3-23B (Partial Worksheet Preparation) Leno Co. prepares monthly financial statements from a work-
sheet. Selected portions of the January worksheet showed the following data.

LENO CO.
Worksheet (PARTIAL)
For The Month Ended January 31, 2014

Trial Balance Adjustments Adjusted Trial Balance

Account Title Debit Credit Debit Credit Debit Credit
Supplies 5,200 (a) 1,500 3,700
Accumulated Depreciation—
Equipment 12,610 (b) 2,100 14,710
Interest Payable 600 (c) 100 700
Supplies Expense (a) 1,500 1,500
Depreciation Expense (b) 2,100 2,100
Interest Expense (c) 100 100

During February no events occurred that affected these accounts, but at the end of February the follow-
ing information was available.
(a) Supplies on hand $2,150
(b) Monthly depreciation $2,100
(c) Accrued interest $ 100

Instructions
Reproduce the data that would appear in the February worksheet, and indicate the amounts that would
be shown in the February income statement.