Exercise 3-6

(a) (b)
Item Type of Adjustment Accounts before Adjustment

1. Accrued Revenues Assets Understated

Revenues Understated

2. Prepaid Expenses Assets Overstated

Expenses Understated

3. Accrued Expenses Expenses Understated

Liabilities Understated

4. Unearned Revenues Liabilities Overstated

Revenues Understated

5. Accrued Expenses Expenses Understated

Liabilities Understated

6. Prepaid Expenses Assets Overstated

Expenses Understated

Exercise 3-7
Mar. 31 Depreciation Expense ($300 X 3) 900

Accumulated Depreciation
Equipment ............................................................... 900

31 Unearned Rent Revenue .............................................. 3,300

Rent Revenue ($9,900 X 1/3) ...................................... 3,300

31 Interest Expense .................................................................... 500

Interest Payable ........................................................... 500

31 Supplies Expense................................................................... 2,150

Supplies ($2,800 – $650) ............................................ 2,150
 31 Insurance Expense ($200 X 3) .............................................. 600
Prepaid Insurance ........................................................ 600

Exercise 3-11

(a) Supplies expense $ 950

Add: Supplies (1/31) 850
Less: Supplies purchase (670)
Supplies (1/1) $ 1,130
Therefore supplies balance = $1,130

b.
Total premium = Monthly premium X 12
$400 X 12 = $4,800

Purchase date is: On Jan. 31, from Aug. 1, 2013 there are 6 months’ coverage remaining
($400 X 6). Thus, the purchase date was 6 months earlier on Aug. 1, 2013

c.

Cash paid $3,300

Salaries and wages payable (1/31/14) 800
4,100
Less: Salaries and wages expense 2,500
Salaries and wages
payable (12/31/13) $1,600

Problem 3-2A

(a)

Date Debit Credit

Aug. 31 Insurance Expense ($400 X 3)............................... 1,200
Prepaid Insurance ........................................ 1,200

31 Supplies Expense ($3,300 – $900)................................ 2,400

Supplies ....................................................... 2,400
 31 Depreciation Expense
($4,500 X 1/4) + ($2,400 X 1/4) ........................ 1,725
Accumulated Depreciation—
Buildings .................................................. 1,125
Accumulated Depreciation—
Equipment ................................................ 600

31 Unearned Rent Revenue ........................................ 4,100

Rent Revenue ............................................... 4,100

31 Salaries and Wages Expense ................................. 400

Salaries and Wages Payable ........................ 400

31 Accounts Receivable ............................................. 3,700

Rent Revenue ............................................... 3,700

31 Interest Expense ..................................................... 600

Interest Payable
[($80,000 X 9%) X 1/12] ......................... 600

(b)
Cash
Date Debit Credit Balance
Aug. 31 Balance 19,600

Accounts Receivable
Date Debit Credit Balance
Aug. 31 Adjusting 3,700 3,700

Supplies
Date Debit Credit Balance
Aug. 31 Balance 3,300
31 Adjusting 2,400 900

Prepaid Insurance
 Date Debit Credit Balance
Aug. 31 Balance 6,000
31 Adjusting 1,200 4,800

Land
Date Debit Credit Balance
Aug. 31 Balance 25,000

Buildings
Date Debit Credit Balance
Aug. 31 Balance 125,000

Accumulated Depreciation—Buildings
Date Debit Credit Balance
Aug. 31 Adjusting 1,125 1,125

Equipment
Date Debit Credit Balance
Aug. 31 Balance 26,000

Accumulated Depreciation—Equipment
Date Debit Credit Balance
Aug. 31 Adjusting 600 600

Accounts Payable
Date Debit Credit Balance
Aug. 31 Balance 6,500
Unearned Rent Revenue
Date Debit Credit Balance
Aug. 31 Balance 7,400
31 Adjusting 4,100 3,300

Salaries and Wages Payable

Date Debit Credit Balance
Aug. 31 Adjusting 400 400

Interest Payable
Date Debit Credit Balance
Aug. 31 Adjusting 600 600

Mortgage Payable
Date Debit Credit Balance
Aug. 31 Balance 80,000

Common Stock
Date Debit Credit Balance
Aug. 31 Balance 100,000

Dividends
Date Debit Credit Balance
Aug. 31 Balance 5,000

Rent Revenue
Date Debit Credit Balance
Aug. 31 Balance 80,000
31 Adjusting 4,100 84,100
 31 Adjusting 3,700 87,800

Maintenance and Repairs Expense

Date Debit Credit Balance
Aug. 31 Balance 3,600

Supplies Expense
Date Debit Credit Balance
Aug. 31 Adjusting 2,400 2,400

Depreciation Expense
Date Debit Credit Balance
Aug. 31 Adjusting 1,725 1,725

Interest Expense
Date Debit Credit Balance
Aug. 31 Adjusting 600 600

Insurance Expense
Date Debit Credit Balance
Aug. 31 Adjusting 1,200 1,200

Salaries and Wages Expense

Date Debit Credit Balance
Aug. 31 Balance 51,000
31 Adjusting 400 51,400

Utilities Expense
Date Explanation Debit Credit Balance
Aug. 31 Balance 9,400
(c)
Lazy River Resort, Inc.
Adjusted Trial Balance
August 31, 2014

Debit Credit
Cash .............................................................................................. $ 19,600
Accounts Receivable .................................................................... 3,700
Supplies ........................................................................................ 900
Prepaid Insurance ......................................................................... 4,800
Land .............................................................................................. 25,000
Buildings....................................................................................... 125,000
Accumulated Depreciation—Buildings........................................ $ 1,125
Equipment..................................................................................... 26,000
Accumulated Depreciation—Equipment...................................... 600
Accounts Payable ......................................................................... 6,500
Unearned Rent Revenue ............................................................... 3,300
Salaries and Wages Payable ......................................................... 400
Interest Payable ............................................................................ 600
Mortgage Payable ......................................................................... 80,000
Common Stock ............................................................................. 100,000
Dividends...................................................................................... 5,000
Rent Revenue................................................................................ 87,800
Maintenance and Repairs Expense ............................................... 3,600
Supplies Expense .......................................................................... 2,400
Depreciation Expense ................................................................... 1,725
Interest Expense............................................................................ 600
Insurance Expense ........................................................................ 1,200
Salaries and Wages Expense ........................................................ 51,400
Utilities Expense........................................................................... 9,400
$280,325 $280,325
d.
Lazy River Resort, Inc.
Income Statement
For the Three Months Ended August 31, 2014

Revenues
Rent revenue .......................................................................... $87,800
Expenses
Salaries and wages expense ................................................... $51,400
Utilities expense ..................................................................... 9,400
Maintenance and repairs expense .......................................... 3,600
Supplies expense .................................................................... 2,400
Depreciation expense ............................................................. 1,725
Insurance expense .................................................................. 1,200
Interest expense ...................................................................... 600
Total expenses .............................................................. 70,325
Net income ...................................................................................... $17,475

Lazy River Resort, Inc.

Retained Earnings Statement
For the Three Months Ended August 31, 2014

Retained Earnings, June 1 ...................................................................................... $ 0

Add: Net income .................................................................................................. 17,475
17,475
Less: Dividends ..................................................................................................... 5,000
Retained Earnings, August 31................................................................................ $ 12,475

Lazy River Resort, Inc.

Balance Sheet
August 31, 2014

Assets
Cash .......................................................................................... $ 19,600
Accounts receivable ................................................................... 3,700
Supplies ...................................................................................... 900
Prepaid insurance ....................................................................... 4,800
Land .......................................................................................... 25,000
Buildings .................................................................................... $125,000
 Less: Accum. Depreciation buildings ....................................... 1,125 123,875
Equipment .................................................................................. 26,000
Less: Accum. Depreciation equipment ..................................... 600 25,400
Total assets ............................................................. $203,275

Liabilities and Stockholders' Equity

Liabilities
Accounts payable ............................................................. $ 6,500
Mortgage payable............................................................. 80,000
Unearned rent revenue ..................................................... 3,300
Interest payable ................................................................ 600
Salaries and wages payable .............................................. 400
Total liabilities ....................................................... 90,800
Stockholders’ equity
Common stock ................................................................. $100,000
Retained earnings ............................................................. 12,475
Total stockholders’ equity...................................... 112,475
Total liabilities and stockholders’
equity.................................................................. $203,275

CHAPTER 3 HW SCREENSHOT

Exercise 3-6

Your answer is correct.

Orwell Company accumulates the following adjustment data at December 31.

1. Services provided but not recorded total $1,420.

2. Supplies of $300 have been used.
3. Utility expenses of $225 are unpaid.
4. Unearned service revenue of $260 is recognized for services performed.
5. Salaries of $800 are unpaid.
6. Prepaid insurance totaling $380 has expired.

For each of the above items indicate the following. (Answer for account balances before
adjustment should be entered in alphabetical order.)

The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued
(a)
expense).
(b) The status of accounts before adjustment (overstatement or understatement).

Item Type of Adjustment Accounts before Adjustment

Accrued Revenues Assets Understated
1.
res_EAT_131943 res_EAT_131943

Revenues Understated

res_EAT_131943

Prepaid Expenses Assets Overstated

2.
res_EAT_131943 res_EAT_131943

Expenses Understated

res_EAT_131943

Accrued Expenses Expenses Understated

3.
res_EAT_131943 res_EAT_131943

Liabilities Understated

res_EAT_131943

Unearned Revenues Liabilities Overstated

4.
res_EAT_131943 res_EAT_131943

Revenues Understated

res_EAT_131943

Accrued Expenses Expenses Understated

5.
res_EAT_131943 res_EAT_131943

Liabilities Understated

res_EAT_131943

Prepaid Expenses Assets Overstated

6.
res_EAT_131943 res_EAT_131943

Expenses Understated

res_EAT_131943

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Exercise 3-7

Your answer is correct.

The ledger of Villa Rental Agency on March 31 of the current year includes the selected accounts,
shown below, before adjusting entries have been prepared.

Debit Credit

Prepaid Insurance $ 3,600

Supplies 2,800

Equipment 25,000

Accumulated Depreciation—Equipment $ 8,400

Notes Payable 20,000

Unearned Rent Revenue 9,900

Rent Revenue 60,000

Interest Expense 0

Salaries and Wages Expense 14,000

An analysis of the accounts shows the following

1. The equipment depreciates $300 per month.

2. One-third of the unearned rent revenue was recognized during the quarter.

3. Interest of $500 is accrued on the notes payable.

4. Supplies on hand total $650.

5. Insurance expires at the rate of $200 per month.

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. (Credit account titles are automatically indented when the amount is entered. Do
not indent manually.)

No. Date Account Titles and Explanation Debit Credit

1. Mar. 31 Depreciation E 900

Accumulated D 900

2. Mar. 31 Unearned Ren 3300

Rent Revenue 3300

3. Mar. 31 Interest Expen 500

Interest Payab 500

4. Mar. 31 Supplies Expe 2150

Supplies 2150

5. Mar. 31 Insurance Exp 600

Prepaid Insura 600

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Exercise 3-11

Your answer is correct.

A partial adjusted trial balance of Ruiz Company at January 31, 2014, shows the following.

Ruiz Company
Adjusted Trial Balance
January 31, 2014
Debit Credit

Supplies $ 850

Prepaid Insurance 2,400

Salaries and Wages Payable $ 800

Unearned Service Revenue 750

Supplies Expense 950

Insurance Expense 400

Salaries and Wages Expense 2,500

Service Revenue 2,000

Answer the following questions, assuming the year begins January 1.

(a) If the amount in Supplies Expense is the January 31 adjusting entry, and $670 of supplies was
purchased in January, what was the balance in Supplies on January 1?

The balance in Supplies on January 1 1130

$

(b) If the amount in Insurance Expense is the January 31 adjusting entry, and the original insurance
premium was for one year, what was the total premium and when was the policy purchased?

The total premium 4800

$

The policy purchased Aug. 1, 2013 res_EAT_131943

 (c) If $3,300 of salaries was paid in January, what was the balance in Salaries and Wages Payable at
December 31, 2013?

The balance in Salaries and Wages Payable at December 31, 2013 1600
$

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Problem 3-2A

Lazy River Resort opened for business on June 1 with eight air-conditioned units. Its trial balance
before adjustment on August 31 is as follows.

Lazy River Resort, Inc.

Trial Balance
August 31, 2014
Account Number Debit Credit

101 Cash $ 19,600

126 Supplies 3,300

130 Prepaid Insurance 6,000

 140 Land 25,000

143 Buildings 125,000

157 Equipment 26,000

201 Accounts Payable $ 6,500

208 Unearned Rent Revenue 7,400

275 Mortgage Payable 80,000

311 Common Stock 100,000

332 Dividends 5,000

429 Rent Revenue 80,000

622 Maintenance and Repairs Expense 3,600

726 Salaries and Wages Expense 51,000

732 Utilities Expense 9,400

$273,900 $273,900

In addition to those accounts listed on the trial balance, the chart of accounts for Lazy River Resort
also contains the following accounts and account numbers: No. 112 Accounts Receivable, No. 144
Accumulated Depreciation—Buildings, No. 158 Accumulated Depreciation—Equipment, No. 212
Salaries and Wages Payable, No. 230 Interest Payable, No. 631 Supplies Expense, No. 711
Depreciation Expense, No. 718 Interest Expense, and No. 722 Insurance Expense.

Other data:

1. Insurance expires at the rate of $400 per month.

2. A count on August 31 shows $900 of supplies on hand.
3. Annual depreciation is $4,500 on buildings and $2,400 on equipment.
4. Unearned rent revenue of $4,100 was recognized for services performed prior to August 31.
5. Salaries of $400 were unpaid at August 31.
6. Rentals of $3,700 were due from tenants at August 31. (Use Accounts Receivable.)
7. The mortgage interest rate is 9% per year. (The mortgage was taken out on August 1.)

(a)

Your answer is correct.

Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Credit
account titles are automatically indented when the amount is entered. Do not indent
manually.)

No. Date Account Titles and Explanation Debit Credit

1. Aug. 31 Insurance Exp 1200

Prepaid Insura 1200

2. Aug. 31 Supplies Expe 2400

Supplies 2400

3. Aug. 31 Depreciation E 1725

Accumulated D 1125

Accumulated D 600

4. Aug. 31 Unearned Ren 4100

Rent Revenue 4100

5. Aug. 31 Salaries and W 400

Salaries and W 400

6. Aug. 31 Accounts Rec 3700

Rent Revenue 3700

7. Aug. 31 Interest Expen 600

Interest Payab 600

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(b)
 Your answer is correct.

Prepare a ledger using the three-column form of account. Enter the trial balance amounts and post
the adjusting entries. (Post entries in the order of journal entries posted in the previous part
of the question.)

Cash No. 101

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 19600

Accounts Receivable No. 112

Date Explanation Ref Debit Credit Balance

Aug. 31 Adjusting J1 3700 3700

Supplies No. 126

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 3300

Aug. 31 Adjusting J1 2400 900

Prepaid Insurance No. 130

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 6000

Aug. 31 Adjusting J1 1200 4800

Land No. 140

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 25000

Buildings No. 143

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 125000

Accumulated Depreciation—Buildings No. 144

Date Explanation Ref Debit Credit Balance

Aug. 31 Adjusting J1 1125 1125

Equipment No. 157

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 26000

Accumulated Depreciation—Equipment No. 158

Date Explanation Ref Debit Credit Balance

Aug. 31 Adjusting J1 600 600

Accounts Payable No. 201

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 6500

Unearned Rent Revenue No. 208

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 7400

Aug. 31 Adjusting J1 4100 3300

Salaries and Wages Payable No. 212

Date Explanation Ref Debit Credit Balance

Aug. 31 Adjusting J1 400 400

Interest Payable No. 230

Date Explanation Ref Debit Credit Balance

Aug. 31 Adjusting J1 600 600

Mortgage Payable No. 275

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 80000

Common Stock No. 311

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 100000

Dividends No. 332

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 5000

Rent Revenue No. 429

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 80000

Aug. 31 Adjusting J1 4100 84100

Aug. 31 Adjusting J1 3700 87800

Depreciation Expense No. 711

Date Explanation Ref Debit Credit Balance

Aug. 31 Adjusting J1 1725 1725

Maintenance and Repairs Expense No. 622

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 3600

Supplies Expense No. 631

Date Explanation Ref Debit Credit Balance

Aug. 31 Adjusting J1 2400 2400

Interest Expense No. 718

Date Explanation Ref Debit Credit Balance

Aug. 31 Adjusting J1 600 600

Insurance Expense No. 722

Date Explanation Ref Debit Credit Balance

Aug. 31 Adjusting J1 1200 1200

Salaries and Wages Expense No. 726

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 51000

Aug. 31 Adjusting J1 400 51400

Utilities Expense No. 732

Date Explanation Ref Debit Credit Balance

Aug. 31 Balance √ 9400

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(c)
 Your answer is correct.

Prepare an adjusted trial balance on August 31.

LAZY RIVER RESORT, INC.

Adjusted Trial Balance
August 31, 2014

Debit Credit

Cash 19600
$ $

Accounts Rec 3700

Supplies 900

Prepaid Insura 4800

Land 25000

Buildings 125000

Accumulated D 1125

Equipment 26000

Accumulated D 600

Accounts Pay 6500

Unearned Ren 3300

Salaries and W 400

Interest Payab 600

Mortgage Paya 80000

Common Stock 100000

Dividends 5000

Rent Revenue 87800

Maintenance a 3600

Supplies Expe 2400

Depreciation E 1725

Interest Expen 600

Insurance Exp 1200

 Salaries and W 51400

Utilities Expens 9400

280325 280325
$ $

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(d)

Your answer is correct.

Prepare an income statement for the 3 months ending August 31.

LAZY RIVER RESORT, INC.

Income Statement
For the Three Months Ended August 31, 2014

Revenues res_EAT_131943

Rent Revenue 87800

$

Expenses res_EAT_131943

Salaries and W 51400

$

Utilities Expens 9400

Maintenance a 3600

Supplies Expe 2400

Depreciation E 1725

Insurance Exp 1200

 Interest Expen 600

Total Expenses res_EAT_131943 70325

Net Income / (Loss) res_EAT_131943 17475

$

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(e)

Your answer is correct.

Prepare a retained earnings statement for the 3 months ending August 31. (List items that
increase retained earnings first.)

LAZY RIVER RESORT, INC.

Retained Earnings Statement
For the Three Months Ended August 31, 2014
$
Retained Earnings, June 1 res_EAT_131943
0

Add res_EAT_131943 Net Income / (Loss)

: 17475
res_EAT_131943

17475

Less res_EAT_131943 Dividends

: 5000
res_EAT_131943

$
Retained Earnings, August 31 res_EAT_131943
12475
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(f)

Your answer is correct.

Prepare a balance sheet as of August 31. (List assets in order of liquidity. List Property, plant
and equipment in order of land, buildings and equipment.)

LAZY RIVER RESORT, INC.

Balance Sheet
August 31, 2014
Assets
$
Cash
19600

Accounts Rec 3700

Supplies 900

Prepaid Insura 4800

Land 25000

$
Buildings
125000

Less res_EAT_131943 Accumulated D 1125 123875

:

Equipment 26000

Less res_EAT_131943 Accumulated D 600 25400

:
$
Total Assets
203275
 res_EAT_131943

Liabilities and Stockholders’ Equity

Liabilities

res_EAT_131943

$
Accounts Pay
6500

Mortgage Paya 80000

Unearned Ren 3300

Interest Payab 600

Salaries and W 400

Total Liabilities
90800
res_EAT_131943

Stockholders' Equity

res_EAT_131943

Common Stock 100000

Retained Earn 12475

Total Stockholders' Equity

112475
res_EAT_131943

Total Liabilities and Stockholders' Equity $

203275
res_EAT_131943

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