EXERCISE 4

Liabilities

Notes Payable

EXERCISE 4-6

Cash		Notes Payable
Debit	Credit	Debit	Credit
$10,000			$10,000

This is an asset source transaction. Assets are increased; liabilities are increased.

Cash		Supplies
Debit	Credit	Debit	Credit
	$500	$500

This is an asset exchange transaction. The asset supplies is increased and the asset cash is decreased.

Cash		Land		Notes Payable
Debit	Credit	Debit	Credit	Debit	Credit
	$5,000	$20,000			$15,000

This transaction is part an asset source and part an asset exchange. Assets are increased by a net amount of $15,000 (Land is increased by $20,000, but cash is decreased by $5,000). Liabilities are increased by $15,000, the amount of the note.

Accounts Receivable		Revenue
Debit	Credit	Debit	Credit
$1,000			$1,000

This is an asset source transaction. Assets are increased by $1,000 and equity is increased by $1,000.

EXERCISE 4-7

Event Number	Account Debited	Account Credited
a.	Cash	Notes Payable
b.	Cash	Unearned Revenue
c.	Depreciation Expense	Accumulated Depreciation
d.	Salaries Payable	Cash
e.	Accounts Receivable	Service Revenue
f.	Notes Payable	Cash
g.	Operating Expense	Cash
h.	Supplies	Accounts Payable
i.	Interest Expense	Interest Payable
j.	Unearned Revenue	Revenue
k.	Accounts Payable	Cash
l.	Office Equipment	Cash
m.	Cash	Accounts Receivable
n.	Interest Receivable	Interest Revenue
o.	Distributions	Cash

EXERCISE 4-9

General Journal

Date	Account Titles	Debit	Credit

a.	Accounts Receivable	26,000
	Service Revenue		26,000

b.	Equipment	48,000
	Cash		8,000
	Notes Payable		40,000

c.	Supplies	1,060
	Cash		1,060

d.	Cash	6,000
	Unearned Revenue		6,000

e.	Cash	16,800
	Accounts Receivable		16,800

f.	Repairs Expense	3,400
	Accounts Payable		3,400

g.	Cash	26,800
	Land		20,000
	Gain on Sale of Land		6,800

h.	Prepaid Insurance	4,600
	Cash		4,600

i.	Accounts Payable	2,400
	Cash		2,400

j.	Insurance Expense	1,600
	Prepaid Insurance		1,600

k.	Depreciation Expense	12,400
	Accumulated Depreciation		12,400

l.	Interest Expense	1,600
	Interest Payable		1,600

EXERCISE 4-12

Telephone Accessories, Inc. T-Accounts

Cash		Accounts Payable		Cont. Cap.		Retained Earnings
Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
1. 40,000		6. 13,600	4. 15,200		1. 40,000		-0-
2. 32,000			10. 1,600		Bal. 40,000
5. 26,400			Bal. 3,200			Revenue
	6. 13,600					Debit	Credit
	7. 2,000						3. 28,000
	8. 8,000	Notes Payable					13. 2,400
9. 9,600		Debit	Credit				Bal. 30,400
Bal. 84,400			2. 32,000
			Bal. 32,000			Interest Expense
						Debit	Credit
Accounts Rec.		Unearned Revenue				11. 2,080
Debit	Credit	Debit	Credit			Bal. 2,080
3. 28,000	5. 26,400	13. 2,400	9. 9,600
Bal. 1,600			Bal. 7,200			Operating Expense
						Debit	Credit
						4. 15,200
Supplies		Interest Payable				Bal. 15,200
Debit	Credit	Debit	Credit
10. 1,600	14. 1,200		11. 2,080			Depr. Expense
Bal. 400			Bal. 2,080			Debit	Credit
						12. 1,600
						Bal. 1,600
Equipment
Debit	Credit					Supplies Expense
8. 8,000						Debit	Credit
Bal. 8,000						14. 1,200
						Bal. 1,200
Acc. Depr.
Debit	Credit					Distributions
	12. 1,600					Debit	Credit
	Bal. 1,600					7. 2,000
						Bal. 2,000

EXERCISE 4-12 (cont.)

Telephone Accessories, Inc. Trial Balance

Account Titles	Debit	Credit

Cash	$ 84,400
Accounts Receivable	1,600
Supplies	400
Office Equipment	8,000
Accumulated Depreciation		$ 1,600
Accounts Payable		3,200
Notes Payable		32,000
Interest Payable		2,080
Unearned Revenue		7,200
Contributed Capital		40,000
Distributions	2,000
Revenue		30,400
Operating Expenses	15,200
Interest Expense	2,080
Depreciation Expense	1,600
Supplies Expense	1,200

Totals	$116,480	$116,480

EXERCISE 4-14



Date	Account Titles	Debit	Credit

1.	Accounts Receivable	124,000
	Service Revenue		124,000

2.	Operating Expenses	10,250
	Accounts Payable		10,250

3.	Cash	130,400
	Accounts Receivable		130,400

4.	Salaries Expense	61,000
	Cash		61,000

5.	Accounts Payable	11,600
	Cash		11,600

6.	Distributions	10,000
	Cash		10,000

d.	Closing Entries

7.	Revenue	124,000
	Retained Earnings		124,000

8.	Retained Earnings	71,250
	Operating Expenses		10,250
	Salaries Expense		61,000

9.	Retained Earnings	10,000
	Distributions		10,000

EXERCISE 4-14 (cont.)

b. and d.

Speedies Tacos T-Accounts, 20X6

Cash		Accounts Payable		Cont. Capital
Debit	Credit	Debit	Credit	Debit	Credit
Bal. 12,500			Bal. 2,400		Bal. 10,000
3. 130,400	4. 61,000	5. 11,600	2. 10,250
	5. 11,600		Bal. 1,050	Retained Earnings
	6. 10,000			Debit	Credit
Bal. 60,300					Bal. 8,300
				cl 71,250	cl 124,000
Accounts Receivable				cl 10,000
Debit	Credit				Bal. 51,050
Bal. 8,200
1. 124,000	3. 130,400			Service Revenue
Bal. 1,800				Debit	Credit
				cl 124,000	1. 124,000
					Bal. -0-

				Operating Expense
				Debit	Credit
				2. 10,250	cl 10,250
				Bal. -0-

				Salaries Expense
				Debit	Credit
				4. 61,000	cl 61,000
				Bal. -0-

				Distributions
				Debit	Credit
				6. 10,000	cl 10,000
				Bal. -0-

EXERCISE 4-16

a. & b.

Assets		=	Liabilities		+	Equity
Accounts Rec.			Accounts Pay.			Retained Earnings
Debit	Credit		Debit	Credit		Debit	Credit
a1 10,000				a2 1,400		cl 1,100	cl 10,000
Bal. 10,000				Bal. 1,400			Bal. 8,900

Supplies						Revenue
Debit	Credit					Debit	Credit
a2 1,400	b. 1,100					cl 10,000	a1 10,000
Bal. 300							Bal. -0-

						Supplies Expense
						Debit	Credit
						b. 1,100	cl 1,100
						Bal. -0-

EXERCISE 4-16 (cont.)

Anderson Consulting Services Income Statement For the Period Ended December 31, 20X7

	Revenue
	Service Revenue	$10,000

	Expenses
	Supplies Expense	(1,100)

	Net Income	$ 8,900

Anderson Consulting Services Statement of Changes in Equity For the Period Ended December 31, 20X7

	Beginning Contributed Capital	$ -0-
	Plus: Capital Acquisitions	-0-
	Ending Contributed Capital		$ -0-

	Beginning Retained Earnings	-0-
	Plus: Net Income	8,900
	Less: Distributions	-0-
	Ending Retained Earnings		8,900

	Total Equity		$8,900

EXERCISE 4-16 c. (cont.)

Anderson Consulting Services Balance Sheet As of December 31, 20X7

	Assets
	Accounts Receivable	$10,000
	Supplies	300
	Total Assets		$10,300

	Liabilities
	Accounts Payable	$ 1,400
	Total Liabilities		$ 1,400

	Equity
	Contributed Capital	-0-
	Retained Earnings	8,900
	Total Equity		8,900

	Total Liabilities and Equity		$10,300

Anderson Consulting Services Statement of Cash Flows For the Period Ended December 31, 20X7

	Cash Flows From Operating Activities	$ -0-

	Cash Flows From Investing Activities	-0-

	Cash Flows From Financing Activities	-0-

	Net Change in Cash	-0-
	Plus: Beginning Cash Balance	-0-
	Ending Cash Balance	$ -0-

d. $10,000 of revenue was earned and $1,100 of expense was incurred, but no cash was paid or received.

EXERCISE 4-16 (cont.)

General Journal

Date	Account Titles	Debit	Credit

	Closing Entries

Dec. 31	Revenue	10,000
	Retained Earnings		10,000

	Retained Earnings	1,100
	Supplies Expense		1,100

Closing entries are posted to the T-accounts in part a.

Anderson Counsulting Services After-Closing Trial Balance December 31, 20X7

Account Titles	Debit	Credit

Accounts Receivable	$10,000
Supplies	300
Accounts Payable		$ 1,400
Retained Earnings		8,900

Totals	$10,300	$10,300

EXERCISE 4-18

	Debit	Credit
Salaries Expense	7,200
Salaries Payable		7,200

b. Revenue $9,000

Salaries Expense (7,200)

Net Income $1,800

Cash Flows From Operating Activities:

Cash Received from Revenue $9,000

Cash Payment for Expense -0-

Net Cash Flow from Operating Activities $9,000

c. Liability = $7,200

EXERCISE 4-19

a. & b.

Assets				=	Equity

Cash		Computer			Depreciation Expense
	a. 30,000	a. 30,000			b. 8,000*


		Accumulated Depr.
			b. 8,000

*($30,000 - $6,000) ¸ 3 = $8,000 depreciation per year

c. Historical Cost $30,000

Less: Accumulated Depreciation (8,000)

Book Value $22,000

d. Revenue $12,000

Depreciation Expense (8,000)

Net Income $ 4,000

e. Cash Flows From Operating Activities:

Cash Received from Revenue $12,000

Net Cash Flow from Operating Activities $12,000

f. 20X8 Depreciation Expense = $8,000 (the same as for 20X7)

g. Historical Cost $30,000

Less: Accumulated Depreciation (16,000)**

Book Value, 12/31/X8 $14,000

**(20X7 $8,000 + 20X8 $8,000)

EXERCISE 4-20

a. Asset Source Transaction

b. Claims Exchange Transaction

Assets	=	Liabilities		+	Equity

		Interest Payable			Interest Expense
			3,375		3,375*

*$50,000 x .09 x 9/12 = $3,375

c. Revenue $ 8,000

Interest Expense (3,375)

Net Income $ 4,625

d. Cash Flows From Operating Activities:

Cash Received from Revenue $8,000

Net Cash Flow from Operating Activities $8,000

e. Liabilities:

Notes Payable $50,000

Interest Payable 3,375

Total Liabilities $53,375

EXERCISE 4-20 (cont.)

f. Two transactions occur in the repayment of the note: (1) the accrual of the remaining interest and (2) the payment of the principal and interest.

Assets		=	Liabilities			+	Equity

Cash			Notes Payable				Interest Expense
	2. 54,500			2. 50,000			1. 1,125*


				Interest Payable
					Bal. 3,375
				2. 4,500	1. 1,125

*$50,000 x .09 x 3/12 = $1,125

g. Transaction 1 is a claims exchange transaction; transaction 2 is an asset use transaction.

SOLUTIONS TO PROBLEMS - CHAPTER 4

PROBLEM 4-1A

No.	Account	Balance	No.	Account	Balance

a.	Contributed Capital	Credit	p.	Depreciation Expense	Debit
b.	Retained Earnings	Credit	q.	Service Revenue	Credit
c.	Certificate of Deposit	Debit	r.	Notes Payable	Credit
d.	Interest Expense	Debit	s.	Notes Receivable	Debit
e.	Accounts Receivable	Debit	t.	Supplies	Debit
f.	Interest Revenue	Credit	u.	Utilities Payable	Credit
g.	Insurance Expense	Debit	v.	Consulting Revenue	Credit
h.	Interest Payable	Credit	w.	Interest Receivable	Debit
i.	Cash	Debit	x.	Supplies Expense	Debit
j.	Distributions	Debit	y.	Salaries Expense	Debit
k.	Unearned Revenue	Credit	z.	Equipment	Debit
l.	Operating Expense	Debit	aa.	Salaries Payable	Credit
m.	Accumulated Depr.	Credit	bb.	Land	Debit
n.	Accounts Payable	Credit	cc.	Prepaid Insurance	Debit
o.	Office Equipment	Debit

PROBLEM 4-2A

Event

Type of Event

Account Debited

Account Credited

Cash

Contributed Capital

Salaries Expense

Cash

Unearned Revenue

Utilities Expense

Cash

Accounts Receivable

Service Revenue

AS & AE

Equipment

Cash &

Notes Payable

Distributions

Cash

Supplies

Accounts Payable

Cash

Service Revenue

10.

Prepaid Rent

Cash

11.

Note Payable

Cash

12.

Operating Expense

Cash

13.

Accounts Payable

Cash

14.

Office Furniture

Cash

15.

Depreciation Expense

Accumulated Depr.

16.

Rent Expense

Prepaid Rent

17.

Unearned Revenue

Service Revenue

18.

Interest Expense

Interest Payable

PROBLEM 4-3A

General Journal

No.	Date	Account Titles	Debit	Credit

a.	Sept. 1	Prepaid Rent	13,950
		Cash		13,950
	Dec. 31	Rent Expense	4,650
		Prepaid Rent		4,650

b.	Oct. 1	Cash	45,000
		Notes Payable		45,000
	Dec. 31	Interest Expense¹	675
		Interest Payable		675

c.	Sept. 1	Equipment	19,400
		Cash		19,400
	Dec. 31	Depreciation Expense²	960
		Accumulated Depreciation		960

d.	June 1	Certificate of Deposit	22,000
		Cash		22,000
	Dec. 31	Interest Receivable³	770
		Interest Revenue		770

e.	April 15	Supplies	1,725
		Accounts Payable		1,725
	Dec. 31	Supplies Expense⁴	1,475
		Supplies		1,475

f.	July 1	Cash	7,200
		Unearned Revenue		7,200
	Dec. 31	Unearned Revenue⁵	3,600
		Revenue		3,600

g.	Feb. 1	Prepaid Insurance	10,200
		Cash		10,200
	Dec. 31	Insurance Expense⁶	9,350
		Prepaid Insurance		9,350

¹($45,000 x 6%) x 3/12 = $675

²($19,400 - $5,000) ¸ 5 = $2,880; $2,880 x 4/12 = $960

³($22,000 x 6%) x 7/12 = $770

⁴$1,725 - $250 = $1,475

⁵$7,200 x 6/12 = $3,600

⁶ $10,200 x 11/12 = $9,350

PROBLEM 4-4A

Merlin Company General Journal, 20X6

Event	Account Title	Debit	Credit

1.	Cash	15,000
	Contributed Capital		15,000

2.	Supplies	450
	Accounts Payable		450

3.	Prepaid Rent	9,000
	Cash		9,000

4.	Accounts Receivable	10,500
	Revenue		10,500

5.	Operating Expense	6,750
	Accounts Payable		6,750

6.	Cash	5,400
	Accounts Receivable		5,400

7.	Accounts Payable	6,000
	Cash		6,000

8.	Distributions	500
	Cash		500

	Adjusting Entries

9.	Supplies Expense ($450 - $75)	375
	Supplies		375

10.	Rent Expense ($9,000 x 4/12)	3,000
	Prepaid Rent		3,000

11.	Salaries Expense	1,800
	Salaries Payable		1,800

PROBLEM 4-4A (cont.)

Merlin Company T-Accounts, 20X6

Assets		=	Liabilities		+	Equity

Cash			Accounts Pay.			Cont. Capital
1. 15,000	3. 9,000		7. 6,000	2. 450			1. 15,000
6. 5,400	7. 6,000			5. 6,750			Bal. 15,000
	8. 500			Bal. 1,200
Bal. 4,900						Revenue
			Salaries Payable				4. 10,500
Supplies				11. 1,800			Bal. 10,500
2. 450	9. 375			Bal. 1,800
Bal. 75						Operating Expense
						5. 6,750
Prepaid Rent						Bal. 6,750
3. 9,000	10. 3,000
Bal. 6,000						Salaries Expense
						11. 1,800
Accounts Rec.						Bal. 1,800
4. 10,500	6. 5,400
Bal. 5,100						Supplies Expense
						9. 375
						Bal. 375

						Rent Expense
						10. 3,000
						Bal. 3,000

						Distributions
						8. 500
						Bal. 500

PROBLEM 4-4A (cont.)

Merlin Company Trial Balance December 31, 20X6

Account Titles	Debit	Credit

Cash	$ 4,900
Accounts Receivable	5,100
Supplies	75
Prepaid Rent	6,000
Accounts Payable		$ 1,200
Salaries Payable		1,800
Contributed Capital		15,000
Distributions	500
Revenue		10,500
Operating Expense	6,750
Supplies Expense	375
Rent Expense	3,000
Salaries Expense	1,800

Totals	$28,500	$28,500

PROBLEM 4-4A (cont.)

Merlin Company Financial Statements For the Period Ended December 31, 20X6

Income Statement

	Revenue		$10,500

	Expenses
	Operating Expense	$6,750
	Salaries Expense	1,800
	Supplies Expense	375
	Rent Expense	3,000
	Total Expenses		(11,925)

	Net Income (Loss)		$ (1,425)

Statement of Changes in Equity

	Beginning Contributed Capital	$ -0-
	Plus: Capital Acquisitions	15,000
	Ending Contributed Capital		$15,000

	Beginning Retained Earnings	-0-
	Less: Net Loss	(1,425)
	Less: Distributions	(500)
	Ending Retained Earnings		(1,925)

	Total Equity		$13,075

PROBLEM 4-4A d. (cont.)

	Merlin Company Balance Sheet As of December 31 20X6

			Assets
			Cash	$ 4,900
			Accounts Receivable	5,100
			Supplies	75
			Prepaid Rent	6,000
			Total Assets			$16,075

			Liabilities
			Accounts Payable	$ 1,200
			Salaries Payable	1,800
			Total Liabilities			$ 3,000

			Equity
			Contributed Capital	15,000
			Retained Earnings	(1,925)
			Total Equity			13,075

			Total Liabilities and Equity			$16,075

Statement of Cash Flows For the Period Ended December 31, 20X6

		Cash Flows From Operating Activities:
		Inflow from Customers		$ 5,400
		Outflow for Expenses		(15,000)
		Net Cash Flow from Operating Activities			$(9,600)

		Cash Flows From Investing Activities			-0-

		Cash Flows From Financing Activities:
		Inflow from Capital Acquisition		15,000
		Outflow for Distributions		(500)
		Net Cash Flow from Financing Activities			14,500

		Net Change in Cash			4,900
		Plus: Beginning Cash Balance			-0-
		Ending Cash Balance			$ 4,900

PROBLEM 4-4A (cont.)

Date	Account Titles	Debit	Credit

	Closing Entries

Dec. 31	Revenue	10,500
	Retained Earnings		10,500

Dec. 31	Retained Earnings	11,925
	Operating Expense		6,750
	Salaries Expense		1,800
	Supplies Expense		375
	Rent Expense		3,000

Dec. 31	Retained Earnings	500
	Distributions		500

PROBLEM 4-4A (cont.)

Merlin Company T-Accounts, 20X6 (Closing Entries)

Assets	=	Liabilities		+	Equity

Cash		Accounts Payable			Cont. Capital
Bal. 4,900			Bal. 1,200			Bal. 15,000

		Salaries Payable			Retained Earnings
Supplies			Bal. 1,800		cl 11,925	cl 10,500
Bal. 75					cl 500
					Bal. 1,925

Prepaid Rent					Revenue
Bal. 6,000					cl 10,500	Bal. 10,500
						Bal. -0-

Accounts Rec.					Operating Expense
Bal. 5,100					Bal. 6,750	cl 6,750
					Bal. -0-

					Salaries Expense
					Bal. 1,800	cl 1,800
					Bal. -0-

					Supplies Expense
					Bal. 375	cl 375
					Bal. -0-

					Rent Expense
					Bal. 3,000	cl 3,000
					Bal. -0-

					Distributions
					Bal. 500	cl 500
					Bal. -0-

PROBLEM 4-4A f. (cont.)

Merlin Company After Closing Trial Balance December 31, 20X6

Account Titles	Debit	Credit

Cash	$ 4,900
Accounts Receivable	5,100
Supplies	75
Prepaid Rent	6,000
Accounts Payable		$ 1,200
Salaries Payable		1,800
Contributed Capital		15,000
Retained Earnings	1,925

Totals	$18,000	$18,000

PROBLEM 4-5A

Chow Enterprises General Journal, 20X6

Event	Account Titles	Debit	Credit

1.	Cash	10,000
	Contributed Capital		10,000

2.	Prepaid Rent	2,000
	Cash		2,000

3.	Accounts Receivable	23,000
	Revenue		23,000

4.	Operating Expense	10,500
	Accounts Payable		10,500

5.	Cash	21,250
	Accounts Receivable		21,250

6.	Salaries Expense	7,500
	Cash		7,500

7.	Accounts Payable	8,000
	Cash		8,000

	Adjusting Entries

8.	Rent Expense ($2,000 x 9/12)	1,500
	Prepaid Rent		1,500

9.	Salaries Expense	800
	Salaries Payable		800

PROBLEM 4-5A (cont.)

Chow Enterprises T-Accounts - 20X6

Assets		Liabilities		Equity

Cash		Accounts Pay.		Cont. Capital
1. 10,000	2. 2,000	7. 8,000	4. 10,500		1. 10,000
5. 21,250	6. 7,500		Bal. 2,500		Bal. 10,000
	7. 8,000
Bal. 13,750				Revenue
		Salaries Payable			3. 23,000
			9. 800		Bal. 23,000
Prepaid Rent			Bal. 800
2. 2,000	8. 1,500
Bal. 500				Salaries Expense
				6. 7,500
Accounts Rec.				9. 800
3. 23,000	5. 21,250			Bal. 8,300
Bal. 1,750
				Operating Expense
				4. 10,500
				Bal. 10,500

				Rent Expense
				8. 1,500
				Bal. 1,500

PROBLEM 4-5A (cont.)

Chow Enterprises Trial Balance December 31, 20X6

Account Titles	Debit	Credit

Cash	$13,750
Accounts Receivable	1,750
Prepaid Rent	500
Accounts Payable		$ 2,500
Salaries Payable		800
Contributed Capital		10,000
Revenue		23,000
Salaries Expense	8,300
Operating Expense	10,500
Rent Expense	1,500

Totals	$36,300	$36,300

PROBLEM 4-5A (cont.)

Chow Enterprises Financial Statements For the Period Ended December 31, 20X6

Income Statement

	Revenue		$23,000

	Expenses
	Operating Expense	$10,500
	Salaries Expense	8,300
	Rent Expense	1,500
	Total Expenses		(20,300)

	Net Income		$ 2,700

Statement of Changes in Equity

	Beginning Contributed Capital	$ -0-
	Plus: Capital Acquisitions	10,000
	Ending Contributed Capital		$10,000

	Beginning Retained Earnings	-0-
	Plus: Net Income	2,700
	Ending Retained Earnings		2,700

	Total Equity		$12,700

PROBLEM 4-5A d. (cont.)

	Chow Enterprises Balance Sheet As of December 31, 20X6

			Assets
			Cash	$13,750
			Accounts Receivable	1,750
			Prepaid Rent	500
			Total Assets		$16,000

			Liabilities
			Accounts Payable	$ 2,500
			Salaries Payable	800
			Total Liabilities		$ 3,300

			Equity
			Contributed Capital	10,000
			Retained Earnings	2,700
			Total Equity		12,700

			Total Liabilities and Equity		$16,000

Statement of Cash Flows For the Period Ended December 31, 20X6

		Cash Flows From Operating Activities:
		Inflow from Customers		$21,250
		Outflow for Expenses		(17,500)
		Net Cash Flow from Operating Activities			$ 3,750

		Cash Flows From Investing Activities:			-0-

		Cash Flows From Financing Activities:
		Inflow from Capital Acquisition		10,000
		Net Cash Flow from Financing Activities			10,000

		Net Change in Cash			13,750
		Plus: Beginning Cash Balance			-0-
		Ending Cash Balance			$13,750

PROBLEM 4-5A (cont.)

Date	Account Titles	Debit	Credit

	Closing Entries

Dec. 31	Revenue	23,000
	Retained Earnings		23,000

Dec. 31	Retained Earnings	20,300
	Operating Expense		10,500
	Salaries Expense		8,300
	Rent Expense		1,500

Chow Enterprises T-Accounts for Closing Entries, 20X6

Assets	=	Liabilities		+	Equity

Cash		Accounts Payable			Cont. Capital
Bal. 13,750			Bal. 2,500			Bal. 10,000

		Salaries Payable			Retained Earnings
Prepaid Rent			Bal. 800		cl 20,300	cl 23,000
Bal. 500						Bal. 2,700

Accounts Rec.					Revenue
Bal. 1,750					cl 23,000	Bal. 23,000
						Bal. -0-

					Operating Expense
					Bal. 10,500	cl 10,500
					Bal. -0-

					Salaries Expense
					Bal. 8,300	cl 8,300
					Bal. -0-

					Rent Expense
					Bal. 1,500	cl 1,500
					Bal. -0-

PROBLEM 4-5A (cont.)

Chow Enterprises After Closing Trial Balance December 31, 20X6

Account Titles	Debit	Credit

Cash	$13,750
Accounts Receivable	1,750
Prepaid Rent	500
Accounts Payable		$ 2,500
Salaries Payable		800
Contributed Capital		10,000
Retained Earnings		2,700

Totals	$16,000	$16,000

PROBLEM 4-5A (cont.)

Chow Enterprises General Journal, 20X7

Event	Account Titles	Debit	Credit

1.	Salaries Payable	800
	Cash		800

2.	Cash	6,700
	Revenue		6,700

3.	Cash	3,000
	Notes Payable		3,000

4.	Prepaid Rent	2,500
	Cash		2,500

5.	Accounts Receivable	34,000
	Revenue		34,000

6.	Operating Expense	18,500
	Accounts Payable		18,500

7.	Cash	33,500
	Accounts Receivable		33,500

8.	Accounts Payable	19,250
	Cash		19,250

9.	Salaries Expense	12,500
	Cash		12,500

10.	Distributions	5,000
	Cash		5,000

PROBLEM 4-5A g. (cont.)

Chow Enterprises General Journal, 20X7

Event	Account Titles	Debit	Credit

	Adjusting Entries

11.	Rent Expense¹	2,375
	Prepaid Rent		2,375

12.	Interest Expense²	90
	Interest Payable		90

¹($2,000 x 3/12) +($2,500 x 9/12) = $2,375

²$3,000 x .09 x 4/12 = $90

PROBLEM 4-5A g. (cont.)

Chow Enterprises T-Accounts - 20X7

Assets		=	Liabilities		+	Equity

Cash			Accounts Payable			Cont. Capital
Bal. 13,750				Bal. 2,500			Bal. 10,000
2. 6,700	1. 800		8. 19,250	6. 18,500
3. 3,000	4. 2,500			Bal. 1,750
7. 33,500	8. 19,250
	9. 12,500		Salaries Payable			Retained Earnings
	10. 5,000			Bal. 800			Bal. 2,700
Bal. 16,900			1. 800
				Bal. -0-		Revenue
							2. 6,700
Prepaid Rent			Notes Payable				5. 34,000
Bal. 500				3. 3,000			Bal. 40,700
4. 2,500	11. 2,375			Bal. 3,000
Bal. 625
						Salaries Expense
Accounts Rec.			Interest Payable			9. 12,500
Bal. 1,750				12. 90		Bal. 12,500
5. 34,000	7. 33,500			Bal. 90
Bal. 2,250						Operating Expense
						6. 18,500
						Bal. 18,500

						Rent Expense
						11. 2,375
						Bal. 2,375

						Interest Expense
						12. 90
						Bal. 90

						Distributions
						10. 5,000
						Bal. 5,000

PROBLEM 4-5A g. (cont.)

Chow Enterprises Trial Balance December 31, 20X7

Account Titles	Debit	Credit

Cash	$16,900
Accounts Receivable	2,250
Prepaid Rent	625
Accounts Payable		$ 1,750
Interest Payable		90
Notes Payable		3,000
Contributed Capital		10,000
Retained Earnings		2,700
Revenue		40,700
Salaries Expense	12,500
Operating Expense	18,500
Rent Expense	2,375
Interest Expense	90
Distributions	5,000

Totals	$58,240	$58,240

PROBLEM 4-5A g. (cont.)

Chow Enterprises Financial Statements For the Period Ended December 31, 20X7

Income Statement

	Service Revenue		$40,700

	Expenses
	Operating Expense	$18,500
	Salaries Expense	12,500
	Rent Expense	2,375
	Interest Expense	90
	Total Expenses		(33,465)

	Net Income		$ 7,235

Statement of Changes in Equity

	Beginning Contributed Capital	$ 10,000
	Plus Capital Acquisitions	-0-
	Ending Contributed Capital		$10,000

	Beginning Retained Earnings	2,700
	Plus Net Income	7,235
	Less Distributions	(5,000)
	Ending Retained Earnings		4,935

	Total Equity		$14,935

PROBLEM 4-5A g. (cont.)

Chow Enterprises Balance Sheet As of December 31, 20X7

	Assets
	Cash	$16,900
	Accounts Receivable	2,250
	Prepaid Rent	625
	Total Assets		$19,775

	Liabilities
	Accounts Payable	$ 1,750
	Interest Payable	90
	Notes Payable	3,000
	Total Liabilities		$ 4,840

	Equity
	Contributed Capital	10,000
	Retained Earnings	4,935
	Total Equity		14,935

	Total Liabilities and Equity		$19,775

PROBLEM 4-5A g. (cont.)

Chow Enterprises Statement of Cash Flows For the Period Ended December 31, 20X7

	Cash Flows From Operating Activities:
	Inflow from Customers	$40,200
	Outflow for Expenses	(35,050)
	Net Cash Flow from Operating Activities		$ 5,150

	Cash Flows From Investing Activities		-0-

	Cash Flows From Financing Activities:
	Inflow from Borrowed Funds	3,000
	Outflow for Distributions	(5,000)
	Net Cash Flow from Financing Activities		(2,000)

	Net Change in Cash		3,150
	Plus: Beginning Cash Balance		13,750
	Ending Cash Balance		$16,900

PROBLEM 4-5A g. (cont.)

Date	Account Titles	Debit	Credit

	Closing Entries

Dec. 31	Revenue	40,700
	Retained Earnings		40,700

Dec. 31	Retained Earnings	33,465
	Operating Expense		18,500
	Salaries Expense		12,500
	Rent Expense		2,375
	Interest Expense		90

Dec. 31	Retained Earnings	5,000
	Distributions		5,000

PROBLEM 4-5A g. (cont.)

Chow Enterprises T-Accounts for Closing Entries, 20X7

Assets	=	Liabilities		+	Equity

Cash		Accounts Payable			Cont. Capital
Bal. 16,900			Bal. 1,750			Bal. 10,000

		Interest Payable			Retained Earnings
Prepaid Rent			Bal. 90		cl 33,465	Bal. 2,700
Bal. 625					cl 5,000	cl 40,700
						Bal. 4,935
		Notes Payable
Accounts Rec.			Bal. 3,000		Revenue
Bal. 2,250					cl 40,700	Bal. 40,700
						Bal. -0-

					Operating Expense
					Bal. 18,500	cl 18,500
					Bal. -0-

					Salaries Expense
					Bal. 12,500	cl 12,500
					Bal. -0-

					Rent Expense
					Bal. 2,375	cl 2,375
					Bal. -0-

					Interest Expense
					Bal. 90	cl 90
					Bal. -0-

					Distributions
					Bal. 5,000	cl 5,000
					Bal. -0-

PROBLEM 4-5A g. (cont.)

Chow Enterprises After Closing Trial Balance December 31, 20X7

Account Titles	Debit	Credit

Cash	$16,900
Accounts Receivable	2,250
Prepaid Rent	625
Accounts Payable		$ 1,750
Interest Payable		90
Notes Payable		3,000
Contributed Capital		10,000
Retained Earnings		4,935

Totals	$19,775	$19,775

PROBLEM 4-6A

Entry Date	Description of Transaction

January 1	Acquired $10,000 cash from the owners.
February 10	Collected $2,000 cash for services to be performed in the future.
March 5	Paid cash for supplies.
April 10	Purchased office supplies by paying cash and issuing a note for the balance.
April 30	Paid cash to rent space for the future.
May 1	Performed services on account.
June 1	Paid cash for salaries.
August 5	Performed services on account.
August 10	Made a cash distribution to owners.
September 10	Received cash from customers on account.
October 1	Paid cash for property taxes.
December 31	Recognized $500 of depreciation expense.
December 31	Recognized $400 of expense for supplies that had been used during the period.
December 31	Recognized $2,200 of rent expense. Cash had been paid in a prior transaction.
December 31	Recognized revenue that had been earned during the period. Cash had been received in prior transactions.

PROBLEM 4-11A

Sun Dance Company General Journal, 20X8

Date	Account Titles	Debit	Credit

Jan. 30	Cash	60,000
	Contributed Capital		60,000

Feb 1	Prepaid Rent	14,400
	Cash		14,400

Mar. 1	Cash	40,000
	Notes Payable		40,000

Apr. 10	Supplies	2,400
	Accounts Payable		2,400

June 1	Computer	36,000
	Cash		36,000

July 1	Cash	40,000
	Unearned Revenue		40,000

July 20	Accounts Payable	1,600
	Cash		1,600

Aug. 15	Accounts Receivable	28,000
	Revenue		28,000

Sept. 15	Cash	16,000
	Revenue		16,000

Oct.1	Salaries Expense	18,000
	Cash		18,000

Oct. 15	Cash	20,000
	Accounts Receivable		20,000

Nov. 16	Accounts Receivable	34,000
	Revenue		34,000

Dec. 1	Distributions	4,000
	Cash		4,000

PROBLEM 4-11A a. (cont.)

General Journal (continued)

Date	Account Titles	Debit	Credit

Dec. 31	Unearned Revenue¹	20,000
	Revenue		20,000

Dec. 31	Interest Expense²	3,000
	Interest Payable		3,000

Dec. 31	Depreciation Expense³	7,000
	Accumulated Depreciation		7,000

Dec. 31	Salaries Expense	3,600
	Salaries Payable		3,600

Dec. 31	Rent Expense⁴	6,600
	Prepaid Rent		6,600

Dec. 31	Supplies Expense⁵	2,080
	Supplies		2,080

¹$40,000 x 6/12 = $20,000

²($40,000 x 9%) x 10/12 = $3,000

³($36,000 ¸ 3) x 7/12 = $7,000

⁴($14,400 ¸ 24) x 11 = $6,600

⁵($2,400 - $320) = $2,080

PROBLEM 4-11A (cont.)

Sun Dance Company T-Accounts

Cash		Accounts Payable		Cont. Capital
1/30 60,000	2/1 14,400	7/20 1,600	4/10 2,400		1/30 60,000
3/1 40,000	6/1 36,000		Bal. 800		Bal. 60,000
7/1 40,000	7/20 1,600
9/15 16,000	10/1 18,000			Retained Earnings
10/15 20,000	12/1 4,000	Notes Payable			Bal. -0-
Bal. 102,000			3/1 40,000
			Bal. 40,000	Revenue
					8/15 28,000
Accounts Receivable					9/15 16,000
8/15 28,000	10/15 20,000	Interest Payable			11/16 34,000
11/16 34,000			12/31 3,000		12/31 20,000
Bal. 42,000			Bal. 3,000		Bal. 98,000

				Salaries Expense
Prepaid Rent		Salaries Payable		10/1 18,000
2/1 14,400	12/31 6,600		12/31 3,600	12/31 3,600
Bal. 7,800			Bal. 3,600	Bal. 21,600

				Interest Expense
Supplies		Unearned Revenue		12/31 3,000
4/10 2,400	12/31 2,080	12/31 20,000	7/1 40,000	Bal. 3,000
Bal. 320			Bal. 20,000
				Rent Expense
				12/31 6,600
Computer				Bal. 6,600
6/1 36,000
Bal. 36,000				Depreciation Expense
				12/31 7,000
				Bal. 7,000
Accumulated Depr.
	12/31 7,000			Supplies Expense
	Bal. 7,000			12/31 2,080
				Bal. 2,080

				Distributions
				12/1 4,000
				Bal. 4,000

PROBLEM 4-11A (cont.)

Sun Dance Company Trial Balance December 31, 20X8

Account Titles	Debit	Credit

Cash	$102,000
Accounts Receivable	42,000
Prepaid Rent	7,800
Supplies	320
Office Equipment	36,000
Accumulated Depreciation		$ 7,000
Accounts Payable		800
Notes Payable		40,000
Interest Payable		3,000
Unearned Revenue		20,000
Salaries Payable		3,600
Contributed Capital		60,000
Distributions	4,000
Revenue		98,000
Interest Expense	3,000
Salaries Expense	21,600
Depreciation Expense	7,000
Rent Expense	6,600
Supplies Expense	2,080

Totals	$232,400	$232,400

PROBLEM 4-11A (cont.)

Sun Dance Company Financial Statements For the Period Ended December 31, 20X8

Income Statement

	Service Revenue		$98,000

	Expenses
	Salaries Expense	$21,600
	Interest Expense	3,000
	Rent Expense	6,600
	Depreciation Expense	7,000
	Supplies Expense	2,080
	Total Expenses		(40,280)

	Net Income		$57,720

Statement of Changes in Equity

	Beginning Contributed Capital	$ -0-
	Plus Capital Acquisitions	60,000
	Ending Contributed Capital		$ 60,000

	Beginning Retained Earnings	-0-
	Plus Net Income	57,720
	Less Distributions	(4,000)
	Ending Retained Earnings		53,720

	Total Equity		$113,720

PROBLEM 4-11A d. (cont.)

Sun Dance Company Balance Sheet As of December 31, 20X8

	Assets
	Cash	$102,000
	Accounts Receivable	42,000
	Supplies	320
	Prepaid Rent	7,800
	Computer	36,000
	Less: Accumulated Depreciation	(7,000)
	Total Assets		$181,120

	Liabilities
	Accounts Payable	$ 800
	Salaries Payable	3,600
	Interest Payable	3,000
	Notes Payable	40,000
	Unearned Revenue	20,000
	Total Liabilities		$ 67,400

	Equity
	Contributed Capital	60,000
	Retained Earnings	53,720
	Total Equity		113,720

	Total Liabilities and Equity		$181,120

PROBLEM 4-11A d. (cont.)

Sun Dance Company Statement of Cash Flows For the Period Ended December 31, 20X8

	Cash Flows From Operating Activities:
	Inflow from Customers	$76,000
	Outflow for Expenses	(34,000)
	Net Cash Flow from Operating Activities		$ 42,000

	Cash Flows From Investing Activities:
	Outflow to Purchase Computer	(36,000)
	Net Cash Flow from Investing Activities		(36,000)

	Cash Flows From Financing Activities:
	Inflow from Capital Acquisition	60,000
	Inflow from Borrowed Funds	40,000
	Outflow for Distributions	(4,000)
	Net Cash Flow from Financing Activities		96,000

	Net Change in Cash		102,000
	Plus: Beginning Cash Balance		-0-
	Ending Cash Balance		$102,000

PROBLEM 4-11A (cont.)

Date	Account Titles	Debit	Credit

	Closing Entries

Dec. 31	Revenue	98,000
	Retained Earnings		98,000

Dec. 31	Retained Earnings	40,280
	Salaries Expense		21,600
	Interest Expense		3,000
	Depreciation Expense		7,000
	Rent Expense		6,600
	Supplies Expense		2,080

Dec. 31	Retained Earnings	4,000
	Distributions		4,000

PROBLEM 4-11A e. (cont.)

Sun Dance Company T-Accounts for Closing Entries, 20X8

Assets		=	Liabilities		+	Equity

Cash			Accounts Payable			Cont. Capital
Bal. 102,000				Bal. 800			Bal. 60,000

			Interest Payable			Retained Earnings
Accounts Receivable				Bal. 3,000		cl 40,280	cl 98,000
Bal. 42,000						cl 4,000
							Bal. 53,720
			Notes Payable
Prepaid Rent				Bal. 40,000		Revenue
Bal. 7,800						cl 98,000	Bal. 98,000
							Bal. -0-
			Salaries Payable
Supplies				Bal. 3,600		Salaries Expense
Bal. 320						Bal. 21,600	cl 21,600
						Bal. -0-
			Unearned Revenue
Computer				Bal. 20,000		Interest Expense
Bal. 36,000						Bal. 3,000	cl 3,000
						Bal. -0-

Accumulated Depr.						Depreciation Expense
	Bal. 7,000					Bal. 7,000	cl 7,000
						Bal. -0-

						Rent Expense
						Bal. 6,600	cl 6,600
						Bal. -0-

						Supplies Expense
						Bal. 2,080	cl 2,080
						Bal. -0-

						Distributions
						Bal. 4,000	cl 4,000
						Bal. -0-

PROBLEM 4-11A (cont.)

Sun Dance Company After Closing Trial Balance December 31, 20X8

Account Titles	Debit	Credit

Cash	$102,000
Accounts Receivable	42,000
Prepaid Rent	7,800
Supplies	320
Computer	36,000
Accumulated Depreciation		$ 7,000
Accounts Payable		800
Interest Payable		3,000
Salaries Payable		3,600
Unearned Revenue		20,000
Notes Payable		40,000
Contributed Capital		60,000
Retained Earnings		53,720

Totals	$188,120	$188,120